All Forum Posts by: Arn Cenedella

@Wesley Bryant

I’ll be a contrarian here…

Based on 46 years in the industry…

Any proforma or projection of returns are by definition based on a whole slew of assumptions the investor has little or no control over. Minor tweaks to the assumptions can cause wild variations in the calculated returns.

The proforma is NOT God.

If one steps backs and considers the notion any of us have a solid accurate idea what the world national local economy or interest rates or the real estate market in general will be like in 5 to 10 to 15 years are a heck of a lot smarter than I. 

Here is how I’ve invested successfully for decades:

1. Does the property make sense to buy today? - ie can one structure the acquisition with fixed rate debt where the property will be “self-supporting” - produce enough income to pay all operating amd debts expenses with a little left over as cash flow - as a protective layer for the inevitable downtown.

2. Does one have logical rational reasons to be optimistic about the future of the property and location? - is there some quality to both the property and location? Is it in a growth market for the foreseeable future?

3. Does one have the operational skill to efficiently and professionally operate the property?

If the answer to all three is Yes, I buy.

And let life unfold.

I have NO IDEA what the ultimate return will be….NONE….

And neither does any other investor if they are honest…..most crystal balls I find are broken.

But if one acquires the property is a solid long term manner based on fundamental investing principles and is never forced to sell…

History indicates the long term trajectory of price and rents are up.

In my experience, real estate follows cycles……. 6 or 7 years of a bull market, 1 or 2 years down (though the up is always larger than the down), 1 or 2 years of flat which then sets the floor for the next run up.

@Ashley Wilson

Good points. 

Many investors seem to believe there is only one “right” way to invest but we both agree “one size does not fit all”.

Life stage plays a big role in determining the proper investment strategy for each one of us. 

Someone who is 25 and single just starting their work career is in a much different place than a 45 year old adult with a family and entering peak earning years - so too someone at the end of their work career with kids launched and on their own   

And then there is the opportunity cost to any investment decision. If you buy something today, will something even better come on the market next month? No one knows. 🤷

If you turn down an offer, will a better offer come along or was that first offer the best offer? No one knows. 🤷

@Ashley Wilson

Excellent discussion of the market cycles.

Investors generally fall into those who believe timing the market is critical to success.
There are others who believe time in the market is critical.

I’ve only been at the real estate game for 46 years 😀 and so have been thru numerous market cycles.

I’m a time in the market investor.

Buy quality properties in quality locations.
Structure the acquisition properly, proper leverage on fixed rate debt, ample cash reserves, and run the asset professionally. Make sure property is “self supporting” meaning sufficient income to produce some cash flow after operating expenses and debt is paid.

If one does that, they are set up for a profitable long term hold.

If one invests in a prudent manner and is never in a position where they have to sell, they ultimately win.

The top or bottom of a market is never known until 6 to 12 months after the fact.

I’m a long term investor - my capital is patient.

Here’s a question to ponder:

If you could buy a property today for $1M, knowing it’s value would drop to $950,000 over the next year but would be worth $1.5M in 5 years, would you buy it today or hope to perfectly time the market and get at $950,000?

I’d buy it today because for me the finish line isn’t a year from now, the finish line is 7 years from now, 10 years from now.

And once the market heats up, buyers come out of the woodwork and you might miss that good property is hopes of being the one to snag it at a perfectly timed market bottom.

Just my approach…..

My two cents - not happening.

@Britney Ross

I’ve been in the RE business for over four decades now.

Most of that time spent in the single family brokerage and investing world.

Several years ago, I made the decision to transition from SFR to multifamily.

Despite decades in the industry I felt the need to educate myself about MF.

I paid for an intense 2 week education program and then a 3 month mentorship.

Trust me, it was worth it.

During the mentorship, I acquired a 43 unit property with the help of my mentor.

Fast forward 4 years later, I am in a General Partner in 1000 units worth $130M.

So for me, it was money well spent.

You didn’t mention where type of investing you wanted to do.

If it’s MF, you are going to need partners and help. The best way to get that thru coaching, mentoring, and education.

Of course, one will get out of these programs what they put in.

@Justin Thind

Always take what you see on BP with a grain of salt and verify independently. There’s a lot of misinformation out there that is presented as knowledge.

One can do a reverse exchange where one buys the new property first and then sells the original property after - all via a 1031 process. 

https://www.investopedia.com/terms/r/reverse-exchange.asp

Reverse exchanges do exist and they are “legal”. 

That being said, they are extremely costly and expensive and generally do not make sense for smaller transactions. 

Contact any 1031 intermediary and get the 411 - trust me it’s more accurate than much of what one sees on BP. 😀

I use First American Exchange - reach out to them and they will set you straight on how it all works. 

Plenty of other good 1031 companies out there too. 

@Alex U.

W2 and REP status is almost impossible to achieve. The numbers of hours worked etc just don’t compute with a W2. 

Focus on creating profitable deals. 

We pay taxes on every dollar we make. RE is about the most tax advantaged investment class there is. 

Make good investments, create profits, pay some (minimal) taxes on the profits and move on. 

@Mike Auerbach

Yes sir!

Good advice. 

Investment criteria not tax considerations should in my opinion always be the primary factor in making investment decisions. 

I see some investors really get themselves in a jam or bad place when they only focus on tax issues. 

We pay taxes on every dollar we ever make. So if you pay taxes you are making money and that’s a good thing. 

Yes do what you can to minimize taxes but that’s not the primary driver. Buying good investments is. 

I’ve done dozens of 1031 exchanges over my 46 year career in the RE industry - both for myself and for my investor clients.

The main advise I would give is as follows:

Be realistic about your buy options and the market value of these options. To the degree, one is realistic, the probability of finding a replacement property increase.

Say you want to sell a fourplex to trade into and buy via 1031 a 20 unit apartment building.

And the market cap rate is 6% but you want to buy something that offers a 6.5% cap rate, you probably won’t be able to find it.

@Mike Auerbach  suggests a reverse exchange and while possible in theory, its practical application is more limited. There are a few reasons for this: 1) They are costly and the Exchange intermediary may require a whole host of inspections including environmental reports etc and 2) One has to come up with the cash to buy the new property without getting the equity out of the first property - not everyone can do that - add in having to get a loan while still being obligated to the loan on the “sale” property. I don’t believe a reverse exchange is a viable option for many investors. Reverse exchanges may be possible for experienced well capitalized investors but for most, I would say it’s not really a practical option.

Mike’s suggestions of being prepared and proactive is a good one.

I encourage 1031 investors to start looking ASAP - get to know the market - identify potential buys - and start making offers - before one has sold their existing property.

The issue becomes will a seller especially in a strong market accept your offer “contingent upon the sale of your property”? I would day often NO.

So it’s a tricky process - trying to thread the needle.

Best advice is to work with a broker who has been there and done that and can guide you thru the process. 1031s are not rocket science but there is a skill and knowledge component to successfully get one done.

Also pick an Exchange intermediary and trust their advice and counsel. They will help guide you thru.

@Spencer Cuello

Spark Investment Group generally does 506b deals open to sophisticated and accredited investors. 506b rules require syndication sponsors have a relationship with the investors prior to entering into any investments. The intent is the sponsor needs to know enough about investor to feel comfortable the investor has the financial knowledge and acumen to properly evaluate the potential risks and benefits of any investment and the financial stability to invest capital for a 5 to 7 year period.

Topics of discussion with sponsor would be:

Income, credit, job stability, prior investment experience either with real estate or other asset types, education level, occupation and profession, amount of savings or funds in retirement accounts.

Hope this helps. Good luck, Arn