Where Would You Invest One Million Plus in A+/A Class Properties

28 Replies

6 cap in multi these days I think puts you in B class.. I think A class in multi is more like 3 to 4  maybe 5.

but there are some really great syndicators out there these days that have some nice product that will produce a 8% cash on cash and upside..  I have looked at two that I was considering just this month.

Portland were I live will get you that 5 to 6 in A to B for sure..

In Northern CA urban it will barely get you a small home in C neighborhood. 2% cap no mortgage.

Rural, Central Valley possibly B- neighborhood 4-5% cap with 100% cash down.

Of course there are always places where there are no appreciation to speak off..... North East, Mid-West

Afraid 7 figures is not worth much anymore.

you can find those in Fresno with a little hustle. there is less available currently since most investors aren't selling due to high cash flow, so like i said if someone with 1m to put down is willing to hustle a bit and knock on the doors of the owners, they would do pretty well. 

You might be able to find something in the Inland Empire or in the San Bernardino mountains.  It will probably take forced appreciation through rehab, cost reductions through submetering, rent increases, and a little bit of searching to find 6% cap, but it can probably be done.

Plenty of places to park cash to get a 6% return. Personally owning real estate would not be my first, or even my tenth, choice. Try REIT, mutual funds, income funds, Blue chip stocks etc. etc. etc.

Maybe consider hard money lender.

Originally posted by @Jay Hinrichs :

6 cap in multi these days I think puts you in B class.. I think A class in multi is more like 3 to 4  maybe 5.

but there are some really great syndicators out there these days that have some nice product that will produce a 8% cash on cash and upside..  I have looked at two that I was considering just this month.

Portland were I live will get you that 5 to 6 in A to B for sure.

@Jay Hinrichs

Which syndicators would you recommend and do you know if they are structured to allow a 1031 exchange?

@Kevin Yi , The specific syndication docs and structure determine the 1031 eligibility. Your legal team and QI provide the call. Given that you are looking to complete a 1031 any LLP/LLC syndication will generally be out of the picture. You'll be looking at DSTs which will press you hard to get to 6 but are out there, or TICs which you'll want to vet tenant quality thoroughly or a ST NNN which will end up being a tweener B product usually given the relative size of purchase. One key is the amount of debt if any you'll be replacing.

For what you're looking for it's not out of the picture.  But I'd spend as much time looking at the underlying leases and terms as anything.  Higher returns are generally the first sacrifice to a deficient lease.

Originally posted by @Sam Shueh :

In Northern CA urban it will barely get you a small home in C neighborhood. 2% cap no mortgage.

Rural, Central Valley possibly B- neighborhood 4-5% cap with 100% cash down.

Of course there are always places where there are no appreciation to speak off..... North East, Mid-West

Afraid 7 figures is not worth much anymore.

 No appreciation in the entire midwest.....lol

Many investors invest in technology stocks getting 12-13% return this year. This is ira Roth. Real estate is not liquid.  But some re is a good diversification. 

@Kevin Yi What is your investment goal, cash-flow, appreciation, or maybe both? My opinion is that your best bet would be a primary US market such as:

  • Atlanta
  • Denver
  • Raleigh
  • Charlotte
  • Austin

I choose these markets because they have strong population, job, and wage growth. From a macro-perspective, they would be relatively more sheltered from downward market movements than smaller secondary or tertiary markets. They would be relatively more sheltered due to lower chances of the jobs and population leaving the market if a downturn occurred. If everyone stayed, real estate demand would stay strong. They are also best suited to keep taking advantage of the strong market and economy that we are currently experiencing. 

However, a 6% return (like mentioned above) does not represent the highest return that can be achieved with a passive, low risk real estate investment. My company has returned annual net returns in excess of 20% for our passive investors over the last 6 years by investing in the markets I mentioned above, taking a boots to the ground approach, and utilizing a team that has billions of $ in real estate transnational experience. 

My advice would also be to pick a primary market and go with a syndicator that you can trust and that has significant experience/expertise. 

-Vince

A class with 6% may be found in Cleveland, Memphis, Buffalo, Rochester, NY, Mobile, Birmingham. Basically you would want to start looking for markets with high crime and population decline. With that said, you may be better served finding a market that has growth potential and investing in B class properties or A class areas with a value add property to help get you 6%

Originally posted by @Vince DeCrow :

@Kevin Yi What is your investment goal, cash-flow, appreciation, or maybe both? My opinion is that your best bet would be a primary US market such as:

  • Atlanta
  • Denver
  • Raleigh
  • Charlotte
  • Austin

I choose these markets because they have strong population, job, and wage growth. From a macro-perspective, they would be relatively more sheltered from downward market movements than smaller secondary or tertiary markets. They would be relatively more sheltered due to lower chances of the jobs and population leaving the market if a downturn occurred. If everyone stayed, real estate demand would stay strong. They are also best suited to keep taking advantage of the strong market and economy that we are currently experiencing. 

However, a 6% return (like mentioned above) does not represent the highest return that can be achieved with a passive, low risk real estate investment. My company has returned annual net returns in excess of 20% for our passive investors over the last 6 years by investing in the markets I mentioned above, taking a boots to the ground approach, and utilizing a team that has billions of $ in real estate transnational experience. 

My advice would also be to pick a primary market and go with a syndicator that you can trust and that has significant experience/expertise. 

-Vince

@Vince DeCrow Are you a syndicator or work for a syndicator? I'm looking to do a 1031 exchange and considering going with a syndicator. Have you been involved with those? Can you provide real examples of those annual net 20%+ returns?

No where! I have a huge dislike for A class properties. You might as well let your money sit in the bank in my opinion. It’s not worth the risk with such low returns. Again, just my personal opinion. I love b/c class properties; better bang for your buck!

@Kevin Yi Yes, however like Dave F. mentioned above, a 1031 is not possible with my company because our investments are structured through an LLC. Selling a property and buying an interest in a real estate fund LLC (or syndication) would not be possible because you are technically buying interest in a company - not a property of "like kind" to the one you previously owned. I don't know if all syndications have this legal structure, but all real estate investment funds would.

I have been involved, a few examples below. These properties can be googled, I can provide further details, and all information is available on our website. The people that posted before me about 6% returns are quoting returns based solely on a cap rate calculations and assuming a property is purchased with 100% equity, which is not the ideal way to invest in real estate.

@Kevin Yi as others have stated most syndicators are doing PPM LLC style investments that preclude 1031 funds... you need to find a tic and there were many tics a few years back.. not sure they are a thing in todays investing climate.

for outside the box and totally passive and would allow a 1031 you could buy a really cool mid age tree farm in the Pacific northwest.

you would want one from Eugene to Tacoma in the coastal range.. this is premium growing ground and you want it stocked with 30 to 40 year old doug fir and maybe some cedar in the riparian areas.

As an example I bought a 700 acre tree farm in Williamina for 1.8  in 2000.. we paid cash.. I then sold off over time 200 acres of it for 1.6  .. we then held it 15 years and sold to a big Lumber MILL as the timber was now 55 years old and coming into production we got 2.7 mil cash for it..

tax's are ridiculous in Oregon on timber ground less than 2500 a year.. and totally 100% passive.. of course we rode our quads on it and hunted on it.. and just roamed around.. not to mention cut our Christmas tree's each year..

For all those late 20 to 30 year olds out there that made big bucks in tech or whatever I really think a well position tree farm is a nice addition to one's portfolio.

Tree's in this area WITHOUT log prices increasing will give you a 12 to 14% return COC based simply on Growth rates.. IE every year you have more !!!

so there you go... no tenants no toilets no risk of market melt down.. pay cash do your 1031 and in 15 to 20 years make a boat load of money like we did.

Originally posted by @Jay Hinrichs :

@Kevin Yi as others have stated most syndicators are doing PPM LLC style investments that preclude 1031 funds... you need to find a tic and there were many tics a few years back.. not sure they are a thing in todays investing climate.

for outside the box and totally passive and would allow a 1031 you could buy a really cool mid age tree farm in the Pacific northwest.

you would want one from Eugene to Tacoma in the coastal range.. this is premium growing ground and you want it stocked with 30 to 40 year old doug fir and maybe some cedar in the riparian areas.

As an example I bought a 700 acre tree farm in Williamina for 1.8  in 2000.. we paid cash.. I then sold off over time 200 acres of it for 1.6  .. we then held it 15 years and sold to a big Lumber MILL as the timber was now 55 years old and coming into production we got 2.7 mil cash for it..

tax's are ridiculous in Oregon on timber ground less than 2500 a year.. and totally 100% passive.. of course we rode our quads on it and hunted on it.. and just roamed around.. not to mention cut our Christmas tree's each year..

For all those late 20 to 30 year olds out there that made big bucks in tech or whatever I really think a well position tree farm is a nice addition to one's portfolio.

Tree's in this area WITHOUT log prices increasing will give you a 12 to 14% return COC based simply on Growth rates.. IE every year you have more !!!

so there you go... no tenants no toilets no risk of market melt down.. pay cash do your 1031 and in 15 to 20 years make a boat load of money like we did.

@Jay Hinrichs not sure I want to be a "tree hugger", haha. Sound like it could be a cool investment for the right person, but don't think it's my "cup of tea". 

@Kevin Yi   I know its a shot in the dark but of all the things real estate related I have done TIMBER hands down has been my favorite..   and wood is coming back.. as steel is not renewable. and folks are finally figuring out commercial timber ground can be good for EVER basically .. taken in cutting rotations .. handed down to family ..

However I understand.. what you don't know seems scary... but I would much rather go out and HUG my tree's then fight with my PM  LOL.. plus when I want to I can go shoot my guns and let my dogs run.

Originally posted by @Jay Hinrichs :

@Kevin Yi   I know its a shot in the dark but of all the things real estate related I have done TIMBER hands down has been my favorite..   and wood is coming back.. as steel is not renewable. and folks are finally figuring out commercial timber ground can be good for EVER basically .. taken in cutting rotations .. handed down to family ..

However I understand.. what you don't know seems scary... but I would much rather go out and HUG my tree's then fight with my PM  LOL.. plus when I want to I can go shoot my guns and let my dogs run.

Jay, I'm coming out to visit, shoot guns, hunt and ride some quads! Sounds fun. I may have to buy some woods out there

@Kevin Yi I have been thinking of selling a few rentals of mine and 1031 exchanging it into a syndication of mine, but the same issue arises. We have talked about doing a TIC, but the issue is, will my investors want to invest in a TIC? I haven't decided exactly what to do, but that is a big challenge with the 1031

Kevin,

You are probably looking at low 5 caps in DFW where we are focused on value add properties in the A- arena. There are some solid plays in the strongest submarkets w/an exit in the high 5s in 2-3 yrs. I don't see anything short term that derails opportunities in these markets. With conservative underwriting we are still seeing upside in the 8-9 % CoC and 18% IRRs with opportunities for supporting higher returns w/supplemental loans end of yr 2 upon successful re-positions. Don't shop specifically by cap rate. Look for strong, experienced players that can add value in coveted submarkets w/n the strongest overall markets and can ride out downturns when they arise.

@Kevin Yi , according to the CBRE cap rate study for the first half of 2017, the only markets with a market cap over 6% in the class A multifamily space are Cleveland (6.25%), suburban Columbus (6.25%), Detroit (7.5%), Memphis (6%), Oklahoma City (6.25%), Pittsburg (6.5%), Richmond VA (6.25%), and Stamford NY (6.25%). The cap rates in the study always range, and the swing is 0.5% to 1% and the rates in parenthesis are the top side of the range, so many class A properties will be trading under the rates you see here. The study only reports infill and suburban Tier I, II and III cities. Secondary and tertiary markets are not reported so I'd guess there are plenty of those markets where 6 caps could be found in class A.

There have been a number of responses in this thread that incorrectly reference a 6% return.  These responses are confusing the question in the OP, which was asking about markets where a 6%+ cap rate could be found.  A 6% cap rate does not mean a 6% return (no, even if you are paying cash, it still doesn't--but that's a whole separate post).

So the question is why do you care about the cap rate?  Seems to me that what matters most is return...investing is a venture intended to place dollars with the expectation of getting more dollars back later, with the winner being the investment that gives you the most dollars back considering the amount of risk you have to take for it all to happen.  Cap rate is nothing more than a yardstick designed to measure the prices folks are willing to pay in a given market for the purpose of comparing one property to another.  That's all it's good for.