All Forum Posts by: David Thompson

I don't think tons of apartments coming on line (class A) will impact even renovated B class.  The price disparity in rents is $300 - $500. They are not making more B and some of that get converted to condos.  We don't buy class A here on BP.

Chris,

REITS buy what we have once we are done doing value add.  So, yes, REITs will move along at a lower yield and return profile typically than what a value add syndication can achieve.  Think of flipping a house but doing this w/200 - 300 unit apartments.  You have families living there right.  If you are 95% occupied on a 200 unit apartment, you have 10 units down to renovate when you purchase, that's all you can do until the next month when 8-10 more leases come do, then you move those folks into the just renovated units, and renovate their old unit for the next lease expiration resident. 

Value add syndication profile returns for experienced operators would be in the 8-10% CoC range and 18-20% IRR on a 3-5 year hold. It often gets better than that because at the pace above, it takes about 2 years to renovate the apartment. At the end of that period, you've created a much higher NOI w/increasing rents and you do a refinance pulling more equity out for your investors so we often see another 5% on top of these returns in solid markets. We may hold a bit longer but if the market is healthy we may look to exit and go find another property that needs updating. I'm not sure your returns would approach this unless you are turning these properties like this. Buy in hold won't achieve these returns. REITs are conservative by nature and will buy a pool of these stabilized and fully renovated properties for yield. They are not in the game of renovating and turning properties around in general, hence, the return profile should be lower and is.

Hi Kamran,

I would choose Texas because the job and population growth will continue to out perform the rest of the U.S.  Texas and technology are booming together here.  I like the lifestyle of Austin but agree would look to SA and Dallas as preferred markets right now.  Austin is very rich IMO but SA and Dallas have the diversity and still have a bit better entry points.  You certainly can live close to your investments but if I was you I'd live in Austin and shop / own in SA since its only a 75 - 90min drive depending.  Better yet, live wherever you want and invest passively in large value add MF as a syndicate limited partner.  After experiencing both, owning SFRs, small MF and large value add apts, I don't really know why anyone would want to be directly involved w/all the hassles of ownership when better returns can be had in a passive position.  It does not mean you can't learn and understand how this all works to be a better informed investor but once you see the light, few go back to direct ownership.

Hi Chris,

I think you are thinking the right thoughts. Do you want to be active or passive? You can also be a hybrid. Own some direct investments when your lifestyle, time, education and passion align. Till then, I think syndicators can outperform most folks starting out in just about any niche that they are focused in. The advantage is several including relationships, scale and forced appreciation which are concepts that can add value and separate syndicators from those investing in SFR or small MF.

For a lot of syndicators, you need to be accredited investor to qualify but not all deals of course. Also, w/a minimum of $25K, that might exclude you from some deals as well as $50K is what I see most often. I did an article on 10 tips for vetting deal sponsors you may find of interest and an article on diversification w/alternative REI classes you may find helpful (see below). Wish you the best.

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

https://www.biggerpockets.com/blogs/9145/59865-div...

Chris,

Laudable goal 40 houses by 40. Alternative strategy, most savvy investors get to about 5-10 SFRs and realize its difficult to scale w/properties all over the country. The paperwork and administration gets to be heavy. I did this. Had 6 SFRs, then small MF and although I was only in to large MSA relatively w/n a two hour driving distance, I quickly learned two things besides the increased burden that was not obtainable w/this strategy. That is, large value add apartments (same concept, folks have to live somewhere) can scale and provide one huge separating concept and that is forced appreciation (unlike SFRs). Forced appreciation simply means that commercial real estate valuation model is quite different from SFRs. If markets slow down, your SFR is going to be worth what a comparable property sold for across the street. With apartments, its based on income. I have much more control to drive value in a more variety of markets. Savvy investors move to commercial and to me the sooner an investor understands that concept the better for them.

I encourage everyone to start where you can, buy a few homes, experience that, but my bet is most will see a better way quickly.  Read below and see a different angle on this.  You can start passively investing if you are accredited and also pursue a hybrid strategy, some active SFRs and some MF passive investments and then let's chat in about 3-5 years and let's see how things are going.

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

Hi Jonathan,

Looking at MF is a good thing as you can start thinking about scaling a business. If your primary goal is cash flow, there are a few ways to go about it. First, I would ask do you have the time, interest to devote to this asset class. If you do, start reading a ton (BP, books, etc) and see if there are local MF meetup group(s) in your area you can network w/folks doing what you'd like to do. Look for mentors or potential partners that you can learn from. Alternatively, many folks appreciate what real estate can do but still want to be more focused on your job to create the savings to allow you to invest in passive investments. They want to be educated but not looking to create a job out of managing more REI assets, if you qualify as an accredited investor you can look to participate as a limited partner in large value add apartment deals. Larger has the potential to be better (think scale and forced appreciation which are concepts not available to the small MF investor). Couple articles to get you thinking.

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

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

Hi Lori,

I was just in Denver this past week looking at some interesting opportunities there.  The place is exploding like Austin, crazy.  @Andrew has given you some good ideas.  I don't know how active you want to be.  That is always the first question.  You've had a few properties, you know what that is like, but to do large MF its very difficult to break into as an active investor initially.  I would encourage you to find local MF meetup groups or create your own and start networking and understanding your own area and opportunities if you want an active role.  I think finding a mentor or coach is an attractive approach as well once you know what you want to do.  

However, you should be aware that through your education process you may be qualified as an accredited investor and can get into large MF deals now.  Learn and earn.  That is a way and can be a catalyst for you to decide at some point if you want to be more active or simply enjoy being an important partner in a limited more passive role, investing w/experts via syndications.  Couple articles to get you thinking.

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

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

Hi Rung,

Turnkey is one approach.  I think you will find that there are other approaches if you qualify to create buy n hold positions in a variety of asset classes, spreading yourself into different niches, geographies, hence reducing your risk while positioning yourself with the best operators, markets and niches for solid upsides.  This can be done through partnering with other experts where you are the limited partner bringing capital to the deal.  You can learn and earn but not have the hassle of trying to manage your portfolio.  

Here's some ideas you may want to review to see if this is something that might work to replace your W2. Most of the deals I review in the syndication world in the areas that are most attractive right now if you qualify as an accredited investor offer 8-10% cash on cash (preferred returns) and healthy all in IRR of 18-20% over five year hold periods. Often times you can parlay these investments (1031) into other deals at time of disposition turning it into a great long term hold play. Areas we like currently are large value add apartments, self storage and mobile home parks. Read the blog below. You will see some unique opportunities you may never have thought of that turnkey really can't provide you such as scale and forced appreciation w/commercial real estate.

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

https://www.biggerpockets.com/blogs/9145/54155-sel...

https://www.biggerpockets.com/blogs/9145/59865-div...

Hi Jason,

Welcome to BP.  To accelerate your learning, I would also seek out local MF clubs in your area, find some mentors and maybe some partners to synergize your learning; and read up on folks doing what you want to do.  You might also want to consider passive approaches to learn or a combination (hybrid investing - some active locally, some passive outside of your geographic reach for diversification).  We have a lot of investors from west coast that have attractive incomes qualifying them as accredited, have busy careers, have an interest in real estate and can earn and learn w/experts thru getting started as a passive investor in real estate.  Multifamily, self storage and mobile home parks are some of the more interesting you might want to explore while you sort through your strategy.  DIY investing is great but is not the only way and I think a lot of new folks if they qualify can benefit from diversification w/experts, learn while pursuing a hybrid strategy of investing locally to satisfy their active side.  

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

https://www.biggerpockets.com/blogs/9145/54155-sel...

https://www.biggerpockets.com/forums/432/topics/30...

@Brian Adams

Thanks Brian, I have written a piece on this exact approach.  You can learn a lot from syndicates and how they operate by passively investing in their deals to start.  I call this the earn and learn approach.

https://www.biggerpockets.com/forums/432/topics/30...

Although I have no knock against clubs, when this topic comes up it seems only folks talk about clubs but there are alternative avenues to getting good solid coaching that I think have some advantages over clubs.  One thing you don't learn and is a skill you should learn is raising capital.  Clubs don't teach that.  Once the guru stamps it as a good deal, club members (hundreds, thousands) come to you once you post the deal.  That does not happen in the real world outside of clubs. Many good syndicators will leave these clubs over time due to imposed restrictions on deal structuring and then they enter another world unbeknownst to them that can be challenging because the network was derived from club members and they are no longer with the club.

@Cody L

As Cody suggests, make sure whoever is mentoring or coaching you is doing a lot of deals personally.  You may be able to help them out in some capacity.  In a club not sure how much that would happen but there are coaches out there truly doing 1x1 teaching and that is how I was able to get involved in a bigger way fast.