All Forum Posts by: Ben Leybovich

So, I guess I'd like to know what you guys are doing now? I know you were waiting before because the market was too high. Are you basically still waiting?

I know I am not the smartest tack in the box, so I guess no one should be surprised at my inability to time the market. But that's exactly it - I have no idea how to time the market. I am eagerly watching you guys and hoping to learn.

In the meantime, if the deal is good enough, it's good enough. And if the one tomorrow is even better then I'll buy that one too. 

 Chris, cutting expenses is a myth by and large. I know it's sexy to talk about on BP, but it rarely is possible. Furthermore, it doesn't do much. Let me give you an example.

HMS is 117 units and runs about $470,000 OpEx on T-12, so basically $39,000 per month. If I were to find a way to lower costs by 10%, which would be extraordinarily hard to do without cannibalizing some part of operations that would negatively impact performance, I'd save about $4,000 per month.

This is savings of $48,000 per year that would flow to the NOI. Capitalized at 5% cap this would create about $1M of additional value, which sounds great. The problem is that I'd have to hire a cheaper manager, cheaper maintenance, cut marketing, do less remodeling, etc. I'd have to find these savings somewhere, right?

On the other hand, a better fixed up unit, that is maintained by a better maintenance tech and represented by a better leasing agent with more marketing budget allows me to lift rents by $350. For a 117-unit property, this represents $40,000 of additional monthly income, or almost $500,000 per year. Capitalized at the same 5% cap this additional income represents $10M of value. I could not do this with less budget.

So, the real question is: Do I want to race to the bottom, cut corners, and hopefully pick up $1M, or do I want to run the property as it should be run, make it the best asset in a 3-mile radius, and potentially pick up $10M of value.

Does this make sense?

We install new cabinets, granite, stainless appliances. Build offices. Build gyms. Etc. We are vertically integrated and do interior construction completely in-house.

About 6 weeks ago it was a 50/50 split among our investor base. I am feeling it climb up now. I am not sure how indicative this is of anything based on the fact that we only buy in Phoenix, so the question is not - do you want to deploy in a recession, but - do you want to deploy in a recession in Phoenix...

But, there you have it.

Thank you, Tina! There's an old adage iron butterfly. This implies a steady hand but a gentle one. I love vernacular like this because it reminds me of a certain ever-present duality in all things. 

Investing is no different. I feel that to be successful you have to be aggressive while being conservative and prudent all at once. The trick is to know when and how to be aggressive and how to be conservative. Not many things are what they seem...

Thanks so much!

@Sam Grooms and I syndicate apartments in Phoenix. IN that I am sure you are hearing lots of different things from lots of different people, which can confuse and paralyze the mind, I thought a bit of concrete good news might be welcome.

I am sure at some point I'll write something for the blog, but below are some numbers you might find interesting, reassuring, or entertaining.

VALUE ADD CASE STUDY #1 - Canyon 35 Apartments

Purchased 20 months ago

- 98 Units in Phoenix.

- Purchase Price $8.15M

- Renovation Budget $1.5M.

- In-place Income $60,000/mo.

Current Status

- Revenue $86,000

- T-12 OpEx $430,000 ($36,000/month)

- Community Reno complete

- 49 Interiors Complete.

- 1 interior in process (pre-leased)

- Remaining LTL $14,000

Upon Completion

- Projected Income $100,000

- T-12 OpEx $36,000

- Projected NOI $64,000Annual ($765,000 annually)

Valuation 

- At 5 cap: $15.3M

- At 5.5 cap: $13.9M

- At 6 cap: $12.75M

By the time we've recovered the remaining units (12 months or less) and materialized the $14,000 of LTL, we will have increased the NOI from $25,460 at acquisition to over $60,000. This will be finished in under 3 years, unless we sell the asset before as a proven value add. April revenue was 105% of March.

VALUE ADD CAS STUDY #2 - Haven at South Mountain Apartments

Purchased 11 months ago

- 117 Units in Phoenix

- Purchase Price $10.75M

- Renovation Budget $1.5M

- In-place Income $90,000/mo.

Current Status

- Revenue $107,000T

- 12 OpEx $470,000 ($40,000/month)

- Community Reno complete

- 61 Interiors Complete

- 6 interiors in process (pre-leased)

- Remaining LTL $19,000Forced 

- Vacancy $4,500 (due to Reno)

Upon Completion 

- Projected Income $135,000

- OpEx $40,000

- NOI $95,000 (Annual NOI $1.14M)

Valuation 

- At 5 cap: $22.5M

- At 5.5 cap $20.5M

- At 6 cap $19M

CONCLUSION

Guys, both of these are obviously proven value adds. We are at this moment, in April of 2020 in the middle of the COVID-19 pandemic leasing these units and getting these rents. Furthermore, none of these numbers include any future rent growth, which we will have.

A good deal is a good deal. A good strategy is a good strategy. In any environment. 

Good luck to all of you, and please take the news with a grain of salt. At any time someone is making money. Why not you...?!

 Mike, There is nothing to compare. I also don't buy in Ohio or anywhere in th Mid West anymore.

Generally speaking, the way this works is you tell us about yourself and what you have and we decide whether it's worth our time to involve ourselves in a discussion. Tell us how long you've been in real estate, what you have done, what type of assets you are targeting, and what your business plan is.  

Thank you! 

I like this post, and I don't like many posts. I appreciate you cutting to the chase. I will do in kind.

The short answer is - someone else's money.

The real answer, though, is that in order to attract said money to do these deals you have to have an uncommon amount of knowledge, and this takes time.

There's just no way around it. Good luck!

The reason the current manager is not doing a good job is that it's rather impossible to do a good job. Proper management infrastructure includes payroll personnel on-site, and you need at least 2, one manager and one maintenance. If you add the dollars up, this is about $120,000 anywhere in the country.

A 32-unit simply doesn't generate the collections necessary to absorb payroll. An institutional manager knows this, which is why they stick with 100+ units, and it's why they won't take this job. Hence, you are having trouble sourcing a manager.

What's left is mom and pop managers, and you are not likely going to enjoy either the process or the outcomes. 

32 units is intended for owner-operators. It's difficult to outsource management with good results. 

The most dangerous space in RE is 24-90 units. It's the no-mans-land whereby you need help but it's damn near impossible to find help, and you have to stay involved with tenant management.

Start thinking strategically and understand that you will have to stay very involved.