All Forum Posts by: Tyler Kastelberg

@Jacob R. Crosby

You can go risk free on 30 year treasury bonds. 30 year treasuries have a high "duration," meaning their price fluctuates more with a move in interest rates. In the case that interest rates quickly drop, the value of your treasury bonds will dramatically increase while real estate valuations hypothetically stay flat. This would leave you with more money to invest in a real estate asset that has a better valuation.

On the flip side, if rates continue to rise, you'll lose money. 

In a prior life I worked for a bond fund -- great experience for real estate professionals who want to better understand market dynamics.

Welcome to the world of bond math :)

@Dom Chit

Dom: Sounds like a fun project. 

Depending on your area, you can at times see a large increase in rent revenue by leasing units to voucher (section 8) tenants. I've known some investors to create immense value doing this. Otherwise, I think you're wise to measure the return on investment associated with renovating your units.

@Jacob R. Crosby

Jacob: A common and possibly incorrect assumption is that multifamily prices will fall. Throughout the financial crisis, the default rate on multifamily properties was less than 1%. There weren't many folks who had were forced to sell, and prices didn't globally fall. 

Valuations on multifamily property (aka the spread between cap rates and borrowing rates) is currently at record lows. If you want to wait to invest in real estate until valuations are better, consider investing in debt, as it will increase in value as borrowing rates drop (giving you more money to invest into real estate when valuations are better). 

@Chai Jonn

RE: Analyzing a deal

There are a number of gurus online who claim they can teach you to analyze a multifamily deal. Your best bet is to start underwriting deals and walking properties on your free time. Find mentors and partners who can help on your first deals. You'll find lots of folks will be happy to speak with you about the business, especially if you can bring them value (deals or equity).

@Omar Khan and @Brian Burke are two great sponsors with extensive experience who have been kind enough to take my calls in the past!

@Sanjoy V.

A deal that produces healthy returns with long term debt in this market shouldn't give you valuation trouble in the future. Stay conservative with your underwriting and act when it makes sense. Inflation will play in your favor over the long run. 

The most simple proxy for profitability in the real estate market is the spread between valuations (cap rates) and borrowing rates. The current spread is at all time lows, so finding deals is very tough.

If you find a deal, hedge your long-term risk by keeping your loan to purchase low and using long term (10+ year) debt.

@Chris Grenzig

In addition to vinyl plank mentioned in the posts above, I have clients who will finish (polish) a concrete slab and use it as interior flooring. It's ultra durable, wears well, easy to clean, and relatively cheap to install.

Best of luck!

@John Acklen

I second @Brian Burke with one addition.

Do not rely on the broker's comps to underwrite the deal. They like to get creative with their comparable properties. 

@Michael Trueba

Michael: Your best bet would be to call a couple property management firms who have expertise in the asset size that you're pursuing and ask them what they're seeing across their portfolios. Alternatively, you could use the IREM report or check Costar. Local management companies will probably be your most accurate and cheapest resource.

@Audre Lopez King

Co-working is a great business model that is still in the process of solidifying. My biggest concern would be the credit quality of the master tenant (Regis or WeWork). My understanding is that both tenants have strong balance sheets (WeWork has cleaned up its financials over the past few years). 

Pros:

Great business model - hopefully here to stay

Cons:

Business model hasn't been tested in a recessionary environment. 

@Patrick Philip

Patrick: Commercial value is unlocked through leasing. This is similar to multifamily but more important to note as leases can span many years. Like multifamily, you can find commercial properties with under market rents and opportunity to make value-add improvements (improvements that will appeal to tenants). The science to commercial value add is leasing to higher quality tenants at higher rent rates. The art is how you go about doing it.