EE Podcast Ep. 16: Live Where You Love Invest Where it Makes Since!
Edified Equity Podcast
Episode 16: Live Where You Love Invest Where it Makes Sense
Welcome to the Edified Equity Podcast!
My Name’s Dino and Here we will focus on all of the unique Benefits associated with being a Passive Equity Investor in an Apartment Syndication.
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Where oh where to invest?
A major challenge investors have is deciding on the location. I mean who hasn’t heard someone say “Location, Location, Location” when discussing real estate? It’s true, location is a crucial component of the overall investment because oftentimes it drives the returns.
While buying in your backyard may seem, and be, convenient it’s definitely not always the best of ideas. I’m not saying you can’t buy in your back yard but when you live in a market that’s not in the right cycle, yield is low, economy isn’t diverse, and cap rates are compressed it’s super difficult to find a real deal.
Keep in mind, we underwrite very conservatively – like worst-case scenario – to be safe. Again, it’s NOT impossible to buy a stone’s throw away BUT if the conditions aren’t right it’s very difficult given our conservative underwriting process. Further, I’m/we’re not willing to overpay and put our team of Operators and our Passive Co-Owner Partners at risk. We don’t gamble and do a deal just to do a deal. No, No, NO - We are Investors and we Invest! We carry a fiduciary responsibility as stewards of our partners’ equity and we take that very seriously.
Personally, I too fell into the trap of trying to buy in my backyard. I have no regrets as the experience wasn’t “all for nothing”… I learned a ton and developed quality relationships. Being in the RED HOT market that Denver is, I decided to do what most other successful syndicators were doing and living where I love while investing where it made sense. Nowadays many investors are looking for deals outside their backyard and, if you have an experienced team at the helm, there’s absolutely no reason to be geographically constrained.
So, literally, the multimillion dollar question is - where DOES it make sense?
Not that this is an all-inclusive method; BUT, a really good start would be to rate markets based on 3 criteria.
Criteria # 1: “High-Yield”
Typically you are looking for secondary markets that offer higher yields.
“High-Yield” properties have higher cash on cash returns and higher cap rates.
Criteria # 2: “Market Cycle”
If we look at the market cycle as being broken up in to 4 cycles… You want areas that are in recovery and expansion. Try to avoid hypersupply and recession (unless it’s on the tail end and on the cusps of recovery).
Criteria # 3: “Path of Progress”
You want markets that have increasing population and diverse employment opportunities aka the “Path of Progress”.
There are detailed reports that will help you find target markets, among others, we have used Marcus and Millichap’s National Apartment Report, Milken’s Best Performing Cities, and The IRR Viewpoint Report. Further, Reis, CoStar, and Yardi Matrix provide topnotch, comprehensive, commercial real estate data/intelligence that’s extremely useful for analyzing target and potential markets at a micro and macro level.
Live Where You Love Invest Where it Makes Sense!
I hope you found this information helpful. Whether you are here for the education, entertainment, or If you, or someone you know, has a problem finding the right place to invest their money - please help them by sharing this info.
I don’t have anything to sell BUT I AM on a mission and I will be delivering quality consultative content on a routine basis!
Thanks for Tuning in-
Make it a great day - you certainly deserve it!
To Your Wealth,
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