All Forum Posts by: David Thompson

Hi Mike,

I have a lot of investors from the bay area specifically, CA and west coast in general that are looking for more of a total return play meaning cash flow and opportunities for appreciation.  Playing the appreciation only angle is more risky not to say it can't play out over the long haul but in dips it may be harder to keep those properties if you can't pay the mortgage or when renter's have the upper hand and want concessions.

Texas gets a lot of that money for a variety of reasons as the cost of living is lower obviously, a pro business environment, center of the country for logistics hubs (like around Dallas area) hence, companies are moving HQs here or have very significant regional operations that are expanding.  I was in Dallas yesterday as we recently acquired a 300+ unit in the area.  The growth never seizes to amaze me.  It's a company / job migration play that has been going on for some time and seems to have solid legs.  I tell investors, if you look at the data and understand that these company announcements are 2-3 year plans before all the folks are in place that even if it slows down a bit it won't be a light switch.  

How to play it?  You can do it yourself through developing a team (more control but more time intensive); you can seek out good turnkey providers (less control but less time intensive); or work w/experts as a passive investor through syndication (little to no control and least time intensive).

@Drew Shirley...good point Drew, even better, most syndicates target a 8% preferred return and accelerated depreciation.

Hi Jack,

Qualifying for a loan w/o a W2 does make it more challenging. Couple thoughts. I would be looking for other areas of the country that might be better for cash flow since that is your main objective. I've am both an active and passive player in REI to satisfy both spectrums for myself so you may want to look at a two pronged strategy and not put all your eggs into one basket, especially if you are a newbie to owning apartments. You could continue to research good markets that cash flow, start connecting through BP w/local players that are doing what you want to do, travel to the area and really get to know it more, make connections w/brokers, property managers, attend any local BP or MF meetups you find out about. Perhaps find a partner that is on the ground and other 3rd party partners that are experts in what you are doing (value add apt investing) and get going.

Alternatively, or in parallel, you can take some of your cash and invest w/experienced syndicators who do this all day long.  Here, you are a passive investor (limited partner) and have limited risk, while the general partner does all the work. Value add syndicators have a leg up right now on inexperienced operators coming into the market at this time in the cycle.  Several separators besides experience is connections and relationship w/brokers to get better deals,  financial might to get larger deals and scale their operations, clustering strategies to further reduce risks and costs, etc.  

Here's a few articles to think about. I really like syndication for geographic and niche diversification if you also like to venture into other areas besides MF apts, but maybe self storage and mobile home parks that have good demographic and supply/demand trends playing into their favor and throw off a lot of cash. Typical syndication returns can be 8% preferred returns (favor LP - you get paid first up to this amount) and cash on cash returns of 8-10%/yr and IRR of 18-20% over 5 yr typical hold. Bottomline, you can get solid returns w/experts, diversify better, while still not having to give up your desire to be a bit more active. I call this the hybrid approach. Later, as most folks realize, their portfolio will shift to more passive positions once they see the many advantages including solid results w/little effort on their part.

https://www.biggerpockets.com/blogs/9145/53820-why...

https://www.biggerpockets.com/blogs/9145/53959-vet...

Armando,

I would take a hard look at syndication to start out considering where you are in your career.  I can share some ideas w/you but start w/a little education below.  DFW is a great place for investing but technically, you can be anywhere investing in syndication because its ideal for folks w/high incomes or net worth, busy lifestyles that appreciate what real estate can do but don't have the time, knowledge or interest to actively manage it.  Additionally, syndications w/experts have an advantage in the current market climate IMO due to scale, access to deals, relationships and capital.  With intention, you can learn and start earning right away instead of risking a lot of money w/little experience.  I hate to say it but this is a much tougher environment now than in 2012 for newbies.  If you are young, so be it, lose money, dust off, at 50, can lose money but harder to make up w/time.

Later, as you learn thru reading, attending local meetup groups, learning from BP forums, etc you may want to do some active REI if that is your passion. I'm just thinking where you are now and wanting to have your money start working for you creating passive income, working w/experts is a great way to start.

https://www.biggerpockets.com/blogs/9145/53820-why...

https://www.biggerpockets.com/blogs/9145/53959-vet...

Agree w/@Kraig Kujawa, I think local high tech talent will be a high priority in a reasonable cost city.  Univ of Texas Austin is top 5 school  in Computer Science currently (daughter goes their so I keep up on this, ha) and is one of the largest univ in the country w/over 50K students.  Austin is a tech hub, liberal w/this backdrop, culturally more aligned w/Amazon than one would think about TX in general (they don't say keep Austin weird for nothing) and yes, Whole Foods their big acquisition is HQd here.  They have a strong presence already in the Domain area and near tech row.  The Texas Enterprise fund is sizeable and able to bring big companies to TX.  Drawbacks might be airport (not as intl as DFW/ATL w/ fewer direct flights) and size of infrastructure needed to support but if there criteria is just 1M folks then that might not be as much of an issue. Here's the take from the Austin Business Journal.

https://www.bizjournals.com/austin/news/2017/09/07...

I like @David Song observation.  Not a market now where rising tide lifts all boats like when buying in 2012 and you could make some mistakes while still winning big.  Maybe more than ever listen, learn and if you are an accredited investor, look into value add syndication deals with experts who have been through various cycles.  You will see they are investing in the strongest markets, have great broker networks / access to deals which is critical in a highly competitive market, can raise significant capital to take advantage of scale, more disciplined / conservative underwriting models, have simple well thought out business plans to increase the properties value, using fixed rate 10yr loans to take advantage of still incredibly low rates historically speaking and use more sophisticated tool sets to help understand how fluctuations in occupancy, rents, etc may impact their models.  You can earn and learn w/intention in more passive method while you look for more reasonable opportunities or entry points for your active capital.

John,

What are you wanting to invest in out of state?  There's turnkey options, there's syndications where you have a less involvement but work w/experts who know the market.  Dallas and Atlanta still seem to be the place to be for jobs and population growth.  We like large value add plays in these markets and very active in the DFW area.

Hi Vincent,

Yes, you have it right direction if Class C in B area.  Re: incomes, yes, that is an important date point to know but keep in mind if you have strong job/pop growth into an area you should be fine w/Class C demographics able to afford it.  Like @Paul B. suggests, if you are looking at like class A, then that would be very important.  Class C holds up very well in downturns because service jobs are not as impacted as higher end jobs.  We saw this in Houston when oil went from $100/b to $50/b.  $100K oil jobs went searching for new industries, vacancies in Class A got hit hard, class B/C held steady. 

Vincent,

The key is jobs and pop growth, what's going to drive the market for rent growth? occupancy levels?   You are correct in the trends that are driving more renters (flexibility, downsizing, etc) in various demographic groups, including immigration is still a big driver in renter demand as immigrants typically rent initially.  In searching for properties, a good rule of thumb is buying property you can add value to (renovation, improve prop mgt) and buying B/C value add apts in A/B areas respectively.  Always take a lower grade apartment in a good or improving area (gentrification).  

We like properties in MSA >  $250K pop and local economies that have diverse industries.  Focus on a market you like, study it, check out the Chamber of Commerce site, get familiar w/what parts of the city is growing and what areas might be catalysts for growth (new employer moving regional HQs in, etc).  We do a lot of buying in DFW area for instance, there are 28 submarkets in Dallas, we focus on the top 5 (looking at rent growth, pop, job trends) as an example of how RE is local and knowing what is happening w/n the city is important.

Hi Westly,

Multi family investing in apartments can be an attractive area.  Depending on size, it may take considerable sums to build or buy an existing apartment.  In some areas of the country new apartments (called class A) may be getting over supplied and expensive to build. Buying into an existing apartment, especially one you can improve through renovations and improving operational efficiency may be a better bet.  This is called value add investing.  These older apartments built let's say anywhere between 1980s thru early 2000 can be ripe for modernizing the interior units, landscape, paint, signage, etc. 

Additionally, you get into a concept of 5 units or more and you are now into commercial real estate w/its own valuation model based on income generation versus residential which is based on comparison of similar properties that sold.  You have more control to add value based on your own creative ingenuity IMO with value add commercial property and can force appreciation better due to this valuation approach and the concept of scale (more units should theoretically lower your cost per unit of overhead if managed correctly).

I would start reading up on multifamily and learning the language and advantages / considerations. Attend local MF meetup groups if they exist in your area to meet local players, potential mentors and partners that know your area well. Here's a couple blogs on why I like apartments and 28 ideas to add revenue and decrease expenses to improve the NOI of an apartment. You can buy small ones yourself, find partners for maybe a bit larger size, syndicate larger deals where you go find investors and pool their money to buy something bigger (understand the SEC rules and get an attorney involved at ground zero) or play as a limited partner in a larger apartment syndication where you are more passive, putting up a smaller amount but allowing the general partner to do all the work of finding, managing and creating returns for you (the investors) while you do what you do best. You can also learn a ton this way too.

As far as returns, I can speak from the syndication side and that it's attainable for a limited partner to achieve 8-10% CoC returns and 18-20% IRR over say a 5 year hold in a growth market, with a conservatively underwritten deal managed by an experienced team.

https://www.biggerpockets.com/blogs/9145/53820-why...

https://www.biggerpockets.com/blogs/9145/54408-28-...

https://www.biggerpockets.com/blogs/9145/54632-28-...