All Forum Posts by: David Thompson
David Thompson has started 7 posts and replied 875 times.
Post: Debating whether to buy multifamily or stick with single family
- Investor
- Austin, TX
- Posts 933
- Votes 1,127
I think going big in MF is where you really start seeing the difference (professional mgt, scale, forced appreciation, accelerated depreciation). Must go value add and when you fix it up, there are plenty of buyers (REITs, family offices, overseas wealthy buyers that want nothing to do w/fixing up property but everything to do with a property that is stabilized, free of worry and cash flows at a nice yield). In the last downturn, MF delinquency on mortgages was 1% and SF properties was 4-5% nationwide. They have better staying power in downturns.
Post: Minimizing risk during an economic downturn.
- Investor
- Austin, TX
- Posts 933
- Votes 1,127
Ben,
Good question. You certainly want to start w/the market / submarket and be in the strongest ones that history proves falls the least and recovers the fastest. Additionally, value add opportunities where even after renovations you are still under market compared to new construction in the area will insulate you further as new construction typically gets hit the hardest (most expensive). Folks have to live somewhere concept and if your rents are competitive it's too painful and costly for folks to move out of established areas for marginal savings. You want to be conservative with your numbers, adequate reserves to weather downturns. Non tangibles like improving tenant retention / morale through hosting resident gatherings and keeping the property looking sharp go a long way as turnover is costly.
Dallas is a great example, weathered the downturn very well in 2008/2009. It would be worthwhile if you are in syndications to ask for the sensitivity analysis to see how the property holds up against changes to rent and occupancy. We had just acquired a property in one submarket there where we have 3rd party data from REIS showing avg occupancy at its worst was 85% in 2009 . Our analysis shows that we B/E break even at 75% and making 6% at 85%. It's nice to know w/data how you can do during economic shocks.
Post: Tax implications of investing in a syndicated deal
- Investor
- Austin, TX
- Posts 933
- Votes 1,127
Rachel,
Here's the followup article that I think will provide more insight. The partners I work with have had successful syndication deals where they 1031 from one property to the next. Where we have restrictions is taking in 1031 money from investors or enabling investors in our LPs to 1031 to their own investments. TICs and DSTs can handle the latter but at a high cost and complexity that may not be attractive but does offer something to consider.
Post: Hit Another Home Run: In 18 Months Created $4 Million of Value
- Investor
- Austin, TX
- Posts 933
- Votes 1,127
Well done Brian,
Nice to see solid examples of what syndication can do. Leverage, value add, conservative underwriting / assumptions and the commercial valuation model itself can make small changes into significant returns in a short time. Thanks for being a great example to others on what syndication in MF can do and that investors can essentially ride along without having to do anything...truly the benefits of being passive.
Post: What happens to cap rates as interest rates rise?
- Investor
- Austin, TX
- Posts 933
- Votes 1,127
Hi Will,
Yes, about 7 factors influence cap rates and two are the ones you hear most about and that is interest rates and supply / demand for the asset. They don't move in lock step. For instance we've seen several interest rate hikes since the Trump administration came in and cap rates in Dallas have not moved up since the strong demand for these assets are proving a stronger counterbalance for now. The chart below of Dallas cap rates since 2005 (provided by REIS). Note that cap rates in 2011 were 5.5% in Dallas for MF apts not far off from where they stand today.
Post: 7 Years to Retirement, what would you do?
- Investor
- Austin, TX
- Posts 933
- Votes 1,127
Hi Lenore,
It really depends on whether you want to be active or passive investor and answering questions around time, resources, interest level, control, etc are influencing factors and what level of risk / returns you are seeking. I know when I was younger I wanted to do everything myself but once I had family and now as I get more mature (ha) and think about my time and valuing that even more. I talk to a lot of investors and few want to be more active as they near retirement and gradually increase their passive investments. Passive investing is sure hard to beat if you hook up with experienced operators who stick w/their knitting and are conservative in their modeling and expectations.
Looking for a combination of cash flow and appreciation (value add investing) may be an avenue for some of your money. There are many niche areas but I favor MF apartments as a core REI syndication holding as well as diversification into self storage and mobile home parks as well may be an option. I also like diversifying geographically. Here's some educational blogs to start your research.
https://www.biggerpockets.com/blogs/9145/59865-div...
https://www.biggerpockets.com/blogs/9145/53820-why...
Post: Thoughts on mini storage investment?
- Investor
- Austin, TX
- Posts 933
- Votes 1,127
Hi Lukas,
Here's a blog that may help gain more insights on the self storage industry and why it's attractive. Agree with @Terry Campbell that it has a lot of pluses going for it. You can go DIY but also note that syndication and participating as a passive investor in self storage deals may also be an avenue for investors especially if you want to diversify out of state or in different geographies and may not have the time, money or expertise to devote to it.
Post: Fastest and safest way to grow from 10 Units to 100 Units?
- Investor
- Austin, TX
- Posts 933
- Votes 1,127
Hi Rob,
I think the fastest way would be to join a syndication and support them in some capacity or find some partners where you can focus on adding value in the MF syndication space. You can then be part of the GP side of the deal and work your way into more equity through your own efforts plus you'll also want to add your own capital to align w/investors.
Post: How to vet syndicators
- Investor
- Austin, TX
- Posts 933
- Votes 1,127
Thanks @Percy N.
Hi Rachel...here's a blog on vetting a sponsor you may find helpful and 25 FAQs on syndication.
Post: How to calculate NEW/Future value of apartment building?
- Investor
- Austin, TX
- Posts 933
- Votes 1,127
I see experienced syndicates use sensitivity analysis to project exit values in 5 years as an example. Min 50 basis points higher at exit is what I see a lot. Buy at a 5.5 cap, exit at a 6 cap. Project out conservative assumptions in the model more to market norms and come up w/your NOI in year 5 / divide by the exit cap should be a good starting point. Now, the sensitivity analysis should show the exit value along this spectrum from a 5 cap to say a 7 cap and see what that does to your IRR and can you live w/that. Keep in mind you don't have to sell at a defined point (say 5 years). You should have more control over when to exit to get the best price at sale.