All Forum Posts by: Ben Leybovich
Ben Leybovich has started 96 posts and replied 4169 times.
Post: 164-Unit Closed in Phoenix, AZ!
- Rental Property Investor
- Phoenix/Lima, Arizona/OH
- Posts 4,456
- Votes 4,295
Originally posted by @Matt Ward:
Originally posted by @Ben Leybovich:
Originally posted by @Matt Ward:
Originally posted by @Ben Leybovich:
Originally posted by @Michael Ealy:
Originally posted by @Sam Grooms:
we just got the reporting for December. Income is up $15K over November. November was up $15K over October.
As for the renovation, we added a new ramada/bbq area, added a dogpark, the playground is going in now, they just finished painting the property last week, and plans for the new office/gym have been submitted to the city and we expect to start that project the first week of March.
About two months ago, we took over the interior renovations from a third-party and hired our own crew. Our renovations are averaging 30 days, while the third-party was double that, with some units getting up to 90 days. Cutting down on that vacancy is a big reason for the increases in November and December.
We also cleaned house when we took over and evicted quite a few people. Sure it hurts for a month or two when you see income going down, but you have to believe in the plan and process. Having better tenants in there has also contributed to the increases in November and December.
We haven't even sent this to our partners/investors yet, but here's a graph of the income since we took over.
This is awesome Sam and Ben and congrats!
Some people here on BP might say "That's too good to be true" but I can see why your numbers have increased like that.
Vertical integration works. It's only through vertical integration that we are able to have renovation costs 50% (or more) cheaper than our competition and yes, we get it done faster as well.
Michael, it's not even the upfront cost so much. It's the economic loss that we used to have that we don't have any more.
Third party would take 60 days if not more to renovate each unit. At $1,000 of rent, that is a lot of economic vacancy.
If we push it, if absolutely necessary we're able to turn a complete unit renovation over to the manager in 3 weeks. Typically we do one month turn around.
It is a lot easier to stack GSI when we're able to have this good efficiency!
I suppose that is a factor of how bad your original third party was to begin with. I have vendors that turn 800sft unit in 10-14 days - full scope. I agree, though, vertical integration is the way to go if you have the scale. Nice work.
WOW! That's impressive. Maybe I can get to know your vendors!
What's your average cost on an 800 sq.ft. unit? We gut and then install new cabinets, granite, etc. They must be able to do 30-40 per month.
What cost do you typically see, Matt?
Thanks, ya we've been lucky. Definitely needed to weed out some "sub-par" contractors before we established good processes, but now it seems to be a pretty well oiled setup. We are roughly in $10k-$15k per unit. We almost always do a top to bottom, so the range is a result of a few things: keeping cabinets or getting new ones, new or old appliances, refinish or new counters, 1 or 2 bedroom. The gut, clean, paint, and new floors (click in) are all pretty much the same. We do approach 21 days if we aren't able to time the cabinet and counter guys accordingly, but we've got a proactive PM who generally has a good pulse on upcoming vacancy. The palet stays the same and we rarely ever do anything structural.
Congrats on your successes so far, will enjoy following your progress.
Yeah, that's about right. Our range is a little lower as a function of vertical integration and perhaps volume, but the timing is about right. We run $9,000 - $12,000, but we install cabinets, do the demo, and the trim kits in-house. This is where we probably shave $2,000 - $3,000 on your pricing.
Good luck!
Post: 164-Unit Closed in Phoenix, AZ!
- Rental Property Investor
- Phoenix/Lima, Arizona/OH
- Posts 4,456
- Votes 4,295
Originally posted by @Matt Ward:
Originally posted by @Ben Leybovich:
Originally posted by @Michael Ealy:
Originally posted by @Sam Grooms:
we just got the reporting for December. Income is up $15K over November. November was up $15K over October.
As for the renovation, we added a new ramada/bbq area, added a dogpark, the playground is going in now, they just finished painting the property last week, and plans for the new office/gym have been submitted to the city and we expect to start that project the first week of March.
About two months ago, we took over the interior renovations from a third-party and hired our own crew. Our renovations are averaging 30 days, while the third-party was double that, with some units getting up to 90 days. Cutting down on that vacancy is a big reason for the increases in November and December.
We also cleaned house when we took over and evicted quite a few people. Sure it hurts for a month or two when you see income going down, but you have to believe in the plan and process. Having better tenants in there has also contributed to the increases in November and December.
We haven't even sent this to our partners/investors yet, but here's a graph of the income since we took over.
This is awesome Sam and Ben and congrats!
Some people here on BP might say "That's too good to be true" but I can see why your numbers have increased like that.
Vertical integration works. It's only through vertical integration that we are able to have renovation costs 50% (or more) cheaper than our competition and yes, we get it done faster as well.
Michael, it's not even the upfront cost so much. It's the economic loss that we used to have that we don't have any more.
Third party would take 60 days if not more to renovate each unit. At $1,000 of rent, that is a lot of economic vacancy.
If we push it, if absolutely necessary we're able to turn a complete unit renovation over to the manager in 3 weeks. Typically we do one month turn around.
It is a lot easier to stack GSI when we're able to have this good efficiency!
I suppose that is a factor of how bad your original third party was to begin with. I have vendors that turn 800sft unit in 10-14 days - full scope. I agree, though, vertical integration is the way to go if you have the scale. Nice work.
WOW! That's impressive. Maybe I can get to know your vendors!
What's your average cost on an 800 sq.ft. unit? We gut and then install new cabinets, granite, etc. They must be able to do 30-40 per month.
What cost do you typically see, Matt?
Post: Why do most syndications sell instead of long term hold?
- Rental Property Investor
- Phoenix/Lima, Arizona/OH
- Posts 4,456
- Votes 4,295
Originally posted by @Matthew Hunt:
So, if you invested $50k into a value-add deal, and it's now worth $100k, you have to look at your cash-on-cash return. Let's say it's at 10% after the value add ($5k per year). Sounds like a nice return, BUT, you actually have $100k in equity at this point, so you're actually only making 5% on your money. If you can cash out and invest it into another deal with 10% cash-on-cash, now you're making $10k per year, and getting a true 10% return on your money.
That's just another way of looking at, what others have said, is "maximizing your ROI." Of course not all deals are created equal, so you have to look at them individually, and also consider what alternatives may be available in the market at the time.
Yes, the deal sponsor makes a significant amount on the sale, but it's often the best scenario for passive investors as well.
Agreed, and this is return on equity.
Add to this a discount on the cash flows due to a risk profile, and that cash flow may not look nearly as attractive...
Post: 164-Unit Closed in Phoenix, AZ!
- Rental Property Investor
- Phoenix/Lima, Arizona/OH
- Posts 4,456
- Votes 4,295
Originally posted by @Michael Ealy:
Originally posted by @Sam Grooms:
we just got the reporting for December. Income is up $15K over November. November was up $15K over October.
As for the renovation, we added a new ramada/bbq area, added a dogpark, the playground is going in now, they just finished painting the property last week, and plans for the new office/gym have been submitted to the city and we expect to start that project the first week of March.
About two months ago, we took over the interior renovations from a third-party and hired our own crew. Our renovations are averaging 30 days, while the third-party was double that, with some units getting up to 90 days. Cutting down on that vacancy is a big reason for the increases in November and December.
We also cleaned house when we took over and evicted quite a few people. Sure it hurts for a month or two when you see income going down, but you have to believe in the plan and process. Having better tenants in there has also contributed to the increases in November and December.
We haven't even sent this to our partners/investors yet, but here's a graph of the income since we took over.
This is awesome Sam and Ben and congrats!
Some people here on BP might say "That's too good to be true" but I can see why your numbers have increased like that.
Vertical integration works. It's only through vertical integration that we are able to have renovation costs 50% (or more) cheaper than our competition and yes, we get it done faster as well.
Michael, it's not even the upfront cost so much. It's the economic loss that we used to have that we don't have any more.
Third party would take 60 days if not more to renovate each unit. At $1,000 of rent, that is a lot of economic vacancy.
If we push it, if absolutely necessary we're able to turn a complete unit renovation over to the manager in 3 weeks. Typically we do one month turn around.
It is a lot easier to stack GSI when we're able to have this good efficiency!
Post: 164-Unit Closed in Phoenix, AZ!
- Rental Property Investor
- Phoenix/Lima, Arizona/OH
- Posts 4,456
- Votes 4,295
Originally posted by @Sam Grooms:
Originally posted by @Ben Leybovich:
Originally posted by @Sam Grooms:
Originally posted by @Ben Leybovich:
Originally posted by @Shiyan Cao:
Originally posted by @Sam Grooms:
Originally posted by @Ben Leybovich:
Originally posted by @Shiyan Cao:
@Ben Leybovich
Congratulation on closing the deal! can you share the top 3 reasons why you choose Phoenix AZ over other popular places (TX, GA, etc)?
Population Growth
Job Growth
Timing in the RE Cycle
Shiyan, to elaborate on Ben's message, Phoenix is in the top 3 in rent growth, population growth, and job growth. No market can compete on those fundamentals. It's also a lot easier to underwrite operating expenses in Phoenix. A big variable is usually property taxes. However, we have a law here that limits your tax increase per year to 5% (there are some other items that can trigger an exception, but they're easy to avoid). So we just underwrite a 5% increase every year and call it a day. Lastly, proximity. Ben and I both live in Phoenix MSA. I can get to any of our properties in 25 minutes. We know the submarkets well and can fine tune our underwriting moreso than someone across the country.
To summarize:
1. Phoenix is #1 in multifamily fundamentals
2. Limitation on property tax increases
3. Proximity for us
Thanks for sharing, Sam. Proximity to hot market is a big advantage IMO. Just curious what would you do if you live in a pricy and not so well market. Would you choose long distance?
You couldn't get me to buy in CA if you put a gun to my head...
Now, Benjamin. I'm sure you'd choose to live in that scenario.
Samuel, this is why we don't place
investor capital in CA.
Correct. But gun to your head, you're buying real estate in CA.
Fine, but if I have to buy in California I'm going to El Centro!
Post: Why do most syndications sell instead of long term hold?
- Rental Property Investor
- Phoenix/Lima, Arizona/OH
- Posts 4,456
- Votes 4,295
Originally posted by @Tony Kim:
Originally posted by @Ben Leybovich:
Originally posted by @Alina Trigub:
Ben,
Bobby pretty much explained what I meant. If one eats into every word, then you can turn black into white and white into purple.
Yes, I could have been a bit clearer in what I meant but most people don't major in philosophy and concentrate on the main points.
In summary, while there some some markets that I like, I will not go into every single market during the uncertain times. If I can find an asset that is undervalued and buy/re-position it with the plan to hold on for a while in a place that is indicative of continued strong economy I will.
Originally posted by @Ben Leybovich:
Originally posted by @Account Closed:
@Ben Leybovich
Generalizing here to possibly explain Alina’s point but true for the most part, If you invested in a property in 2008 on a 2-5 year strategy your return was probably in the -100% to 5% annual realm. If it was a 10 year strategy, it was probably in the 0-10% annual realm.
If someone is uncertain in the market, a longer term hold mitigates some of that risk. Actually, part of the beauty in a long term strategy (10+ years) is that you can factor that there will be a recession at some point in your hold and therefore reduce the need to time the market. It also allows you to always be a market buyer whereas if you’re trying to time the market, there should be periods of time that you’re not buying.
Not quite. The "ability to hold" if necessary is what minimizes the risk, not holding itself.
Why would you hold into uncertainty? Most MSA's may not quite be in hyper supply but are getting there. Not all, but most. This is likely what Alina is referring to as uncertainty. And if this is the case - take profits and de-risk.
In other words, if her major premise is - I am not sure about tomorrow, then why would she want to stick around to find out? Makes no logical sense. Take the money and run.
And, of course, if she is willing to stay in, this is indicative of a bullish attitude toward the future, and all this talk about the economy is just lip service.
I'm just trying to figure out exactly what Alina's perspective is here.
Bobby didn't explain anything in any way that makes much sense to me. Now, we all know that I am not the sharpest tack in the box, but I would like to better understand.
Think of it this way, Alina.
You are driving on the freeway at 70-miles per hour. You become aware of some trouble in the next lane over on the right - what looks like a drunk driver drifting and swerving all over the place. You have a choice to make at this moment - stay in the lane as you are, or take evasive action. You obviously cannot control the driver next to you, so those 2 are your only choices. What do you do - stay as you are in the same lane at the same speed and hope for the best, or take evasive action?
Let's translate this into RE.
You are putting people's money into deals. You are the fiduciary. You are the driver. You are admittedly concerned about the state of the economy, as per your prior comment(s). You are the driver - what do you do? Stay in the same lane, be concerned but do nothing and hope for the best, or take evasive action?
I would think that if you are really and truly concerned, you will take evasive action. Sell now and take profits. On the other hand, if you are not selling, this tells us that you are not really concerned.
It's really just a very basic syllogism -major premise, minor premise, logos kind of thing.
I am still at a loss to understand what your position really is, Alina. Want to give it another shot?
I'm not Alina and I don't want to speak for her, but one potential angle that one can take is that a 7 to 10 year holding period might be relatively safer than a 3 year holding period at this moment in time because a good syndicator will secure a 13 year term loan at a nice low rate and will be able to ride out the next down cycle. On the other hand, a 3 year investment with a 5 year term might be in trouble because the dip could very occur at right around that time.
I specifically used a 13 year term loan because a syndicator that I really like has secured a loan for precisely that period.....13 year term loan at 3.87% for its upcoming QOZ fund. I would think that a 13 year term loan, as long as the LTV is reasonable, would provide some security against any potential upcoming downcycle in the RE markets.
But aside from the anticipated length of the deal, the far more critical factors are to evaluate each deal with cautious skepticism and also closely evaluate each sponsor's track record and especially how they performed during the last real estate cycle (sorry, but that eliminates 99% of syndicators here on BP, despite there being some very talented ones here).
I am really having trouble understanding the confusion here. Let me break this down one more time:
1. I always underwrite a 10-year hold. This is not because I intend to necessarily to stay in the deal for that long. But it's because I want to know that if all hell breaks loose, I can.
2. What we underwrite is separate from what we execute. We are there to maximize risk-adjusted returns, and doing so requires responding to market conditions. This is not a static thing. Thus, if the market tells us to stay - we stay. If it tells us to sell in 1 year as a proven value-add - we sell. If it tells us to finish re-positioning and sell TK - we do that. We do whatever we believe has the highest chance of maximizing risk-adjusted returns.
Thus:
Going into a deal without having underwritten an ability to stay in for the long haul is stupid. We may need to stay and there has to be a way to do it. However, staying in the face of what we believe is escalating risk is equally stupid.
We are in a great environment to sell in 2020. If you think the times will get worse, then why wouldn't you sell and de-risk? Maximize profits and move onto a deal with more meat on the bone and lower risk profile. And if you think the good times will go on, and you can further optimize returns, then stay.
Does this help?
Post: 164-Unit Closed in Phoenix, AZ!
- Rental Property Investor
- Phoenix/Lima, Arizona/OH
- Posts 4,456
- Votes 4,295
Originally posted by @Sam Grooms:
Originally posted by @Ben Leybovich:
Originally posted by @Shiyan Cao:
Originally posted by @Sam Grooms:
Originally posted by @Ben Leybovich:
Originally posted by @Shiyan Cao:
@Ben Leybovich
Congratulation on closing the deal! can you share the top 3 reasons why you choose Phoenix AZ over other popular places (TX, GA, etc)?
Population Growth
Job Growth
Timing in the RE Cycle
Shiyan, to elaborate on Ben's message, Phoenix is in the top 3 in rent growth, population growth, and job growth. No market can compete on those fundamentals. It's also a lot easier to underwrite operating expenses in Phoenix. A big variable is usually property taxes. However, we have a law here that limits your tax increase per year to 5% (there are some other items that can trigger an exception, but they're easy to avoid). So we just underwrite a 5% increase every year and call it a day. Lastly, proximity. Ben and I both live in Phoenix MSA. I can get to any of our properties in 25 minutes. We know the submarkets well and can fine tune our underwriting moreso than someone across the country.
To summarize:
1. Phoenix is #1 in multifamily fundamentals
2. Limitation on property tax increases
3. Proximity for us
Thanks for sharing, Sam. Proximity to hot market is a big advantage IMO. Just curious what would you do if you live in a pricy and not so well market. Would you choose long distance?
You couldn't get me to buy in CA if you put a gun to my head...
Now, Benjamin. I'm sure you'd choose to live in that scenario.
Samuel, this is why we don't place
investor capital in CA.
Post: Why do most syndications sell instead of long term hold?
- Rental Property Investor
- Phoenix/Lima, Arizona/OH
- Posts 4,456
- Votes 4,295
Originally posted by @Kalen Jordan:
So far my takeaway is that there is not much consensus on this question 🤣😭
Haha
Kalen, this is where we enter the danger zone on BP. This is a big site and there is a lot of "advice and opinions" here. Opinions, as they say, are like ******** - everyone's got one :)
That said, it seems to me that there is a consensus. I doubt there is any daylight between Todd, MIchael, and myself. We are sponsors and operators, and we seem to agree on things.
Others disagree with us. You have to decide who you will listen to...
Post: 164-Unit Closed in Phoenix, AZ!
- Rental Property Investor
- Phoenix/Lima, Arizona/OH
- Posts 4,456
- Votes 4,295
Originally posted by @Bill Zahller:
Congratulations @Ben Leybovich It sounds like a good project.
It's going well so far, Bill. We've had it for 6 months. The seller's T12 prior to sale had GI of $132,000. We never saw that nor expected to see that. Starting at $120,000 we dipped to $114,000 by month 3 before reversing.
The cleaning of this house was as fierce as any I've done. By the 3rd month, we gad close to 40 vacant units in a 164-unit community, and work orders North of 100, so the R&M and Labor was through the roof.
We got through the glut and the income started to climb - $135,000 and now in month 6 $150,000. Got control of OpEx, and in fact even though we spiked in the first 3 months, over the 6 months annualized we are running about $100 per door under the underwriting.
We've got no vacancy at this point. 18 units have been renovated and 17 of them are rented at the renovated market which is about $300 higher than in-place.
Post: 164-Unit Closed in Phoenix, AZ!
- Rental Property Investor
- Phoenix/Lima, Arizona/OH
- Posts 4,456
- Votes 4,295
Originally posted by @Shiyan Cao:
Originally posted by @Sam Grooms:
Originally posted by @Ben Leybovich:
Originally posted by @Shiyan Cao:
@Ben Leybovich
Congratulation on closing the deal! can you share the top 3 reasons why you choose Phoenix AZ over other popular places (TX, GA, etc)?
Population Growth
Job Growth
Timing in the RE Cycle
Shiyan, to elaborate on Ben's message, Phoenix is in the top 3 in rent growth, population growth, and job growth. No market can compete on those fundamentals. It's also a lot easier to underwrite operating expenses in Phoenix. A big variable is usually property taxes. However, we have a law here that limits your tax increase per year to 5% (there are some other items that can trigger an exception, but they're easy to avoid). So we just underwrite a 5% increase every year and call it a day. Lastly, proximity. Ben and I both live in Phoenix MSA. I can get to any of our properties in 25 minutes. We know the submarkets well and can fine tune our underwriting moreso than someone across the country.
To summarize:
1. Phoenix is #1 in multifamily fundamentals
2. Limitation on property tax increases
3. Proximity for us
Thanks for sharing, Sam. Proximity to hot market is a big advantage IMO. Just curious what would you do if you live in a pricy and not so well market. Would you choose long distance?
You couldn't get me to buy in CA if you put a gun to my head...