All Forum Posts by: Arn Cenedella

@Galen Miller

Three words - be careful here.

The big issue is liability here.

You have no idea what is going on with the seller LLC.

Does the LLC have (unsecured) debts against it? Title insurance ensures real property title not title to LLC. Are there ongoing claims against the seller LLC? A tenant trip and fall case prior to close? Unpaid vendor liens?

And an immediate transfer into a new LLC may not protect you since you still will own the seller LLC.

I know investors do this kind of thing to save on property taxes. But if the county re-assesses every 3 or 4 years, you will pay market prop taxes soon enough.

I’ve been an investor for 46 years and this is NOT something I would do.

Over this time, I have seen investors get themselves in trouble by being “too smart by half” often with creative tax structures that end up causing trouble but this is a another danger zone in my mind.

I’d think long and hard before embarking on what you propose.

If the acquisition doesn’t stand in its own merits and one needs to resort to chicanery to make it work maybe it’s not a deal.

just my two cents.

good luck,

Arn

@Vanessa Switzler

I live and only invest in Greenville SC.

It’s a great place to live and a great place to invest.

It appears we have similar approaches doing JV and smaller syndications though we did do a deal with 281 units, too.

My only caveat would be that I don’t consider Greenville to be a cash flow market - the growth is too strong and the demand too high. We have solid cash flow on our assets after about two years of ownership but it will take time to get that rolling.

If you come for a visit, ping me and I’ll be happy to meet with you and show you around.

Stay downtown zip code 29601 to get the full “Greenville” experience.

Be ready for a great foodie scene and lots of outdoor activities.

Here is the transcript for a short video I will release next week on market selection. 

Market Selection for Real Estate Investors.mp4

Hi, this is Arn Cenedella, Spark Multifamily Investment Group out of Greenville, South Carolina. And today I'm going to give a short presentation on Market Selection. It’s a topic real estate investors love to talk about. What's the best market to invest in? How do you determine what the good markets to invest in are? , so I'll go through some thoughts and ideas about how one how an investor goes about selecting a market. And first, I would say you don't want to try to learn. 10 or 15 different markets, I submit. Spreading yourself too thin, you just won't get anywhere. So my suggestion would be perhaps identify two no more than three markets for further evaluation. , because in order to be successful in a market, you need to know it. You need to know the players in the market, the brokers, the property managers, the contractors, and so on and so forth. So if you're trying to learn ten, 15 markets, you're never going to reach critical mass in a market where you can actually start winning deals, knowing the market and so on and so forth. So I would say pick no more than 2 or 3 markets maximum and really drill deep into those markets, really get to know them.

And then I'd say ultimately pick one market and really concentrate your activities in that one market. So what are some of the criteria that people look at? , it's fairly well known. Population growth and job growth are key factors. I'd say they're probably number one. Number two, where population is growing. Real estate's in demand. People go where the jobs are, where jobs are growing, people are going to move to. So the top two criteria would be population growth and job growth. , and then I'd say in terms of employment, you want a diverse economy. So for example, here in Greenville, South Carolina, we have major auto manufacturers, BMW, Michelin and a whole host of smaller companies that manufacture parts for these larger facilities at BMW and Michelin. In addition, we're on I-85 corridor, so there's a lot of logistics, transportation, warehousing and so forth. We have strong medical providers here, two major hospital chains, Clemson University and and Furman University or nearby. , and then it's also kind of a. Hospitality leisure thing. Downtown Greenville is, quite an active place. Performing arts center, excellent foodie scene, minor league baseball, minor league hockey. There's great hiking, walking, biking on the Swamp Rabbit Trail up into the foothills of the Blue Ridge Mountains.

So not to go on about Greenville, but I think you get the idea. The best areas to invest, in my opinion, are areas that have 3 or 4 major sectors that employ people. Because with the diversified economy, if business slows say automotive, , there's still plenty of economic activity going on in Greenville. And so it's going to continue to prosper. If you're in a town where there's only one major industry and that industry goes on hard times , your investment is going to be hurt. So look for diversified economies. And then, of course, I think you generally want to invest in states that are fairly landlord friendly. That doesn't mean they're opposed to tenants, but it means landlords are treated fairly, in dealing with the tenants and so forth. I spent most of my life in San Francisco Bay area and, , managed a lot of property there. And I can tell you, I told my property owners, when you go to court, basically figure the landlord is guilty until proven innocent. Now, that may be a little bit of hyperbole, but I think you get the point. So I think you want to invest in states that are fairly landlord friendly. The other thing I would say is.

The Issues between tenants and landlords typically are handled at the county court level. So it's maybe not even so much a state being landlord friendly, but more what's the aspect of the county and kind of what's their take on landlord tenant, , interactions, legal proceedings and so on and so forth. So it's not only the state that matters. The county in some way is actually more important. , other factors to consider would be are there major universities nearby? Employers want educated workforce. So generally in an area where there are major universities, probably a pretty good place to invest. You got a young, educated workforce coming out, which of course are probably your ideal multifamily apartment tenants. So look for major universities, cities, , highly educated population, I think would be another place. Another thing I would look at, , good medical facilities would be another one. And then, , with the trend back towards insourcing, meaning manufacture of goods in the United States based on what happened with the supply chain and China, , investing in areas along major interstates is probably a good idea to the transportation and logistics is going to be very, , very strong there. And, , those are some factors job growth, population growth, job diversity, educated population, landlord friendly, landlord friendly areas and, , good logistical assets access generally along , major interstate free ways. , the other thing, what I'd say is when people when I talk to investors, I always encourage them to really define what they're looking for.

There's an old expression that kind of says, if you don't know what you're aiming for, you're going to hit it 100% of the time. So what I mean by that is. What? What kind of property are you looking to buy? Or are you going after 40 unit mom and pop buildings? Or are you going after 250 unit luxury downtown apartments? , what is your buy box? What type of property are you looking to buy? Kind of. Maybe location? Are you looking urban? Suburban age? Are you looking for value add 70 deals, or are you looking for brand new construction downtown? So to the degree you can narrow down your buy criteria, the better off you're going to be. And that then brings me to, another point about how do you actually go into a market and start learning the market, start discovering opportunities, finding properties and so on and so forth. And it all starts with the brokers. So in the markets that you've selected, spend significant time outreaching to brokers who again. Handle and sell the type properties you do. , Marcus and Millichap, for example, probably isn't going to be selling a $50 million apartment building. Cbre is probably not handling a $5 million apartment building. So brokers have specialties, and you need to find the brokers in the markets you like that handle the property type that you're looking for.

And for out of state investors. , you have to understand, in these strong Sunbelt markets, often, the brokers are always getting calls from people in California and New York. And the truth is, the brokers aren't probably going to give you the time of day until you take the time to come into the market. Take your time, spend the money, invest your time and energy into actually coming to the market, sitting down with these brokers, property managers, other investors, go to networking meets, get in the market, get face to face, belly to belly with the brokers. , trust me, if you fly the way all the way from California to Raleigh, North Carolina, , the broker in Raleigh is probably going to consider you a serious buyer since you just spent, you know, a couple thousand bucks and, you know, three, four days to get there. So I encourage you to get into the market. , and the other thing is, when you're in these markets. Talk to the people in the hotel. Talk to people you, you, you, you see out on the street. , at the restaurants. , they're not trying to sell you anything. So when you ask, hey, what's going on here? What do you like? What's good? What are the some of the problems? You're going to get an honest response from these people because they have nothing to sell.

They're not in the property business. They're just going to give you their honest assessment of the community. , the other thing I often do when I'm starting to evaluate a new market, I subscribe to the local newspaper or the local business journal and doesn't cost that much, usually $5 to $10 a month. And if you're serious about looking in a market, get the newspaper every day. And it's not that you have to read it cover to cover, but you'll get a sense of Lockheed Martin is opening a facility here, or Volvo is opening a new plant here. And so you'll get a sense of the growth of the community, what businesses are coming in, what's kind of happening. So talk to the locals. Get out. With your eyes and ears open, get a sense for the market and and so forth. So you really again I'll come back to you got to kind of dig deep and you're going to have to keep getting in front of these brokers, , before they start taking you serious. So drill down. Don't spread too thin. , when you're in these markets, drive some of the potential neighborhoods. , , hopefully you've selected 3 or 4 properties maybe to evaluate. Not that you're so much going to buy them right now, but, , it'll give you an idea.

Get on site, see if you can get in a unit, act like you're a prospective tenant, get on site. Get a feel for what these properties are worth. Talk to the on site leasing people. Get their sense of what's going on. A lot of times they'll talk and give you great information. You just kind of have to just kind of have to ask the questions. , a lot of people like to look at data, and certainly that's worthwhile. , I tend to more go on my visceral experience by being in the market and seeing for myself. But there are great data sources, co-star, city data, census data. It's all relatively available, readily available on the web. , so if you like digging down into that data, start with city data and census data and you'll get some good data, to evaluate those markets. , so what's what's the conclusion, , is there a best market to invest in? , I would submit, no, because I would submit each investor is different and they have different goals from their investing. So one market might be a great cash flow market. And if you're really looking to maybe build long term wealth and a legacy and you're looking 20 years out, maybe immediate cash flow is not your most critical factor.

Kind of maybe more long term growth equity potential is is is more important. , the other thing I would submit is as you consider markets that are out of your area, think about. The logistics of getting there on a regular basis. And and by that I mean, . If the market you think you want to start investing in requires 2 or 3 fights and takes you all day to get to, you might not find the time or have the energy to get in that market often enough to really get to learn it. Get to build the trust of the brokers in the market to understand you're the real deal. , so when you're selecting a market, think about the logistic factors of getting there, being able to take a direct non-stop flight two hours from your home to get to a market is a lot easier than having to take three flights that take nine hours to get to. So think about markets that are actually logistically accessible to you, , because you need to get in these markets enough to really learn them and establish credibility, , with the brokers. , I'm trying to think what else? . I think that's about it for now. So hopefully this has been helpful. , drill down, pick 2 or 3 markets, then focus on one, and then really concentrate your activity in those markets.

Be clear about your buying criteria. What type property are you going to? You're trying to buy? , what size? What kind of price range? Because the to the degree you can drill down on what you're specifically looking for. , you're going to be more successful. And of course, when you're visiting these markets, you're also going to be interviewing property managers. And you also should probably be talking to local lenders, typically going to be local small mid-sized banks and or credit unions. So while you're visiting these markets, not only the brokers start establishing connections with property management companies and also lenders, because when you buy that first asset in this new market, you need to have your team in place. Before you buy that first property. And the other thing the local team can help. Educate you on the market. And so they're going to be a great resource for you. So my final my final thought today is what's the best market to invest in. . I'd submit. The best market to invest in is the market you know best. So one can make good investments in any market. One can find good investments in New York and Chicago, just as well as Dallas, Texas or Charlotte, North Carolina. There are good investments to be found everywhere, and I'd submit at the end of the day, it's your local knowledge or let's not say local….

It's your market knowledge of a specific market that's going to be your competitive advantage to the degree you understand your market. Whatever market that is, to the degree you understand your market better than your competition, you're going to win. So for example, I could spark investment group. , my primary partner, Brian Walsh, and I both live in Greenville County, Greenville, South Carolina, and. We pretty much only do. Joint venture and syndication deals in Greenville, South Carolina. It's a market we know well. We know the rents, we know the buildings. We know the neighborhoods. We have established, , connections with local brokers. Property managers, though we don't. We're basically vertically integrated construction vendors. So, , we only invest in the market we know best, which happens to be the market we live in. , but if you invest out of area, you're still going to want to have that kind of intimate knowledge of the market, which means you need to spend some time there. So, I'd submit the best market to invest in is the market, you know, best. So hopefully that's helpful. , enjoy the, the presentation. Happy to discuss further. Just reach out anytime. Facebook, LinkedIn. Happy to have a discussion. And again, hopefully this has been of some help in talking about helping you think about market selection. Thanks so much. Have a good one.

Arn

@Alan Asriants

💯 good stuff. 

I am a multifamily syndicator and having the right partners is crucial to the success of the deal and having fun while doing it. 

For those who are interested I’ve put together a couple short videos on this topic. Message me with your email and I’ll send them over. 

@Charles Perkins

I am a fan of the slow and steady systematic step by step path to investing success.

Many of the gurus say Go Big or Go Home.

I say if you are a beginner skier - do you go to the top of the mountain and jump off a cliff going down a black double diamond slope? I don’t think that course of action is prudent.

@Stuart Udis

Interesting post and question.

I believe the question can be summarized as follows:

1. In most multiple offer situations, the highest bidder wins.

(As you note, this is not always true - but like you I believe it is true more often than not.)

2. The high bidder by definition may be overpaying for the property.

(The high bidder UW must have used in some part more favorable UW assumptions - either higher rental income or lower expenses.)

3. Given this, why invest in said deals?

Your post points at is the benefit of getting deals off market. Some syndicators and investors often get first look at deals from brokers and sellers who value surety of close more than price. In my primary market of Greenville, S.C.; the local broker community knows the type assets we buy and therefore often I get first look and my investors benefit.

And to go full circle and present an alternative viewpoint. We have all seen times when the SFR market in high demand major metro areas like say SF and Silicon Valley where multiple offers are generally the rule not the exception. I'd submit for consideration- buyers who won those bids in 2017 2018 2019 and very happy they did and the prices have continued to go up.

@Ashley Wilson

Systems and structures have value and can be excellent. 

Over 46 years in the industry, it’s the people that count the most. Their ability, character, and work ethic matter most. 

The answer between 3rd party PM and VI comes down to in part to:

Who is actually filling those roles whether 3rd party or VI?

We do sub 100 MF syndications and we are vertically integrated and WE LOVE IT. 

But that’s because my partner who acts as PM is fabulous at what he does.  If he sucked our VI would suck. 

Who is the human in the command and control seat?

That will make or break an operation.  

People matter. 

@Kenneth Germann

There is an element of trust in getting business done. 

1. If someone does you dirty, just don’t do business with them again and don’t hesitate to let our folks in your local investing community know that X can’t be trusted. While X may score on one deal by going around you, ultimately his or her business will suffer. 

2. Your buyers are NOT Snow White in this case either. They willingly participated in cutting you out. See 1 above. Don’t work with people who don’t value you. 

People going to do what they are going to do. 

Find A level clients and work with them. Let the C and D clients go, they are not worth the time and effort. 

Fool me once shame on you, fool Me twice shame on me. 

@Jonathan Anderson

OK I may be rolling in direct from Furman Golf but would like to you face to Face too. Love meeting with local investors. Greenville is such a good market. Not inexpensive but worth it. 

@Ryan Daulton

Abilene is probably not the most dynamic market you could find. 😀

That being said let me make a contrarian statement:

The best market to invest in is the one YOU know BEST. Good investments can be made in any market provided one has excellent local market knowledge. 

So if you are talking about buying a 6 to 20 unit building I would stick to Abilene. Dive deep in that market, go see every MF for sale In that market, go visit act as a tenant all the buildings in your market. Talk to brokers local investors and property managers. Become a private investigator in your market. Thats how you learn it and get the questions you have answered. its pounding the pavement talking to people being out in the market. 

If you pick a martlet a three hour plane ride away it will be hard for you to learn that market well enough to make a decision. 

Hope this helps. 

Arn