All Forum Posts by: Jordan Burnett

I would also add that adding a Class A share with limited exposure to upside but a preferential place in the capital stack is very attractive for your retired/soon to be retired folks who no longer see fixed income/bonds as an option in this interest rate environment. Given, it is equity and not debt--but there are so few options today.  

With basically zero yield on bonds, there are many investors out there who would invest with even lower (5-6% pref) with no upside. Trust me, I talk to them frequently...

7% Economic Vacancy? or 7% physical vacancy? 

7% Economic Vacancy might be a bit aggressive depending upon the market you're investing in and what the supply looks like. In many markets, Class A properties are currently making concessions to get leases which may cut into your B+ occupancy.  

Yes, Amazon lockers are frequent additions to multifamily properties nowadays especially given that more people are shopping online. 

I sat on the sidelines in SFH for years. I always wanted to get started in SFH but could never shake the feeling that I was just purchasing myself another job and another person who would be calling me some time of day to get something fixed. Even with a property manager on a SFH, you still get calls from the property manager or contractors when something comes up.

Apartment investing/syndication investing in general definitely has more overhead and fees than SFH investing. However, in my mind, the fees are absolutely worth it. They're not like fees of a financial advisor where they're taking 1-2% off the top and will have little to no impact on your market returns. They're fees to "handle the calls" and deal with insurance, property management, legal claims, etc. Apartments are set up like a traditional business, because they are traditional businesses.

It's also much easier to scale your investing by simply networking and vetting with a few sponsors that you like. A few sponsors will give you access to dozens of deals that are likely in dozens of geographies. With 4-6 relationships you can have a portfolio of investments throughout the U.S. and have partial ownership in hundreds or thousands of units where those sponsors are experts in the local market. When I tried to do the same in SFH rentals I found myself overwhelmed by thinking I had to drive to that area, look around, know the particular street/neighborhood/flood plains/etc.

James, I think you overestimate how an average American handles their finances.

People don't know what they don't know. There are tenants who think that they couldn't have cancelled their vacation to Mexico because it was already planned and therefore they couldn't make rent.  

Most people don't even have a monthly budget. Many people live with unpaid student loans, credit card debt, and/or a car payment. 

Their definition of "doing everything possible" can be very different from a financially savvy individual. 

Ask some of the larger apartment/multifamily investors how many big screen TV boxes were in the dumpsters the weeks after the $1200 stimulus went out.  

See these stats (from 2019 pre-COVID, mind you): 

Source: https://www.acorns.com/money-basics/saving-and-budgeting/budget-meaning/#:~:text=While%20many%20factors%20likely%20contribute,budget%2C%20according%20to%20U.S.%20Bank

Hey Matthew! I'm curious why you think mentorship is the next step to help you build confidence and connect with like-minded individuals? 

What specifically do you feel like you're lacking to make you feel confident to move forward? Lacking information? 

Connecting with like-minded individuals is obviously a bit difficult during COVID, but you can definitely attend webinars or free Q&A sessions with some of the best in the business. 

I took the self-education route, so I'm just curious what you feel like you need to gain the confidence to move forward. 

 Thanks, Brian! How often should a sponsor be providing this, and how often does it make sense for a passive to review this? 

Obviously, there's some knowledge required to even make sense of the balance sheet and what is 'normal'--I'm just curious what you advise. 

 Thanks Brian, and others! Is this data (cash on hand) something you would expect to be provided to a passive? I am assuming that is not typical. 

I generally review the financials quarterly/yearly but what I usually see provided is the Rent Roll and Income Statement. 

Pardon my ignorance, but in reviewing some income statements for investments I'm trying to make sense of some napkin math concerning Net Income and Distributions. 

For distributions to occur for a multifamily property, do those distributions have to come out of Net Income after mortgage/debt expense? I assume this has to be true, but wanted to verify whether or not this thought process makes sense when reviewing an Income Statement or if it's more complicated due to behind the scenes stuff or accrual accounting vs cash accounting. 

When an operator is looking at whether or not to make distributions, wouldn't the Monthly Net Income have to be equal to ([Investor Equity x Distribution Percentage] / 12) ? 

I.e. if Investor Equity = $1,000,000.00 and the preferred return or cash on cash distribution is equal to 7%, wouldn't the property's net income need to be equal to $5833.33/month to justify a distribution? 

Thanks in advance! 

Yes and no. Multifamily has held up very well in this environment which means prices have increased as cap rates have compressed. Now could be a good time to invest, but you're also paying a premium for most properties because the market is pricing them properly based on their performance through COVID. 

The indicators that a lot of the smart money is waiting for is market rent discovery, market vacancy discovery, market collections, and market pricing discovery (rents, vacancy, collections, and CAP rates). 

You're seeing this play out before your eyes. Vacancies have gone up slightly, in some markets vacancy has increased significantly. Collections are slightly down but still performing very well according to the NMHC. CAP rates appear to be holding steady or even compressing slightly as interest rates are continuing to decline.

However, the market has undoubtedly been propped up by stimulus and companies have been holding off on permanently laying off employees. In the next few months you'll see which "furloughs" turn into actual layoffs, and the likely stalemate from a stimulus standpoint will affect vacancies and collections. 

TL;DR--the market risk hasn't really been priced into multifamily yet. If you're new it's probably prudent to wait for the above indicators to settle in before investing. You can always be reviewing offerings, though.