All Forum Posts by: Michael Ealy

 I don't know why a syndicator will risk his/her investors' money by getting a 5-yr term.

Even though I do value-add and I like to exit in 3-5 years, I get the longest term possible (10 years or even longer). I plan for the worst - which is - what if I am forced to hold longer than 3-5 years? If the only way I can make money is to hold it short term or hold it long term (meaning, I have no flexibility either way), then the deal is not worth the risk and I move on.

I guess I am part of that 1% you mentioned then since I've been investing since 1999 and actually made money during the 2008-2009 Great Recession. 

 I like Propertyware

My tenants can even pay online through the Propertyware portal

I agree completely with Todd.

Let me give you an example Kalen - from one of my deals. 96-unit apartment complex. Once we stabilized it (after a 2 yr hold), the cashflow we receive is about $12,000 a month or $108,000/yr. Our investors' money in the deal was $1.2 Million or a project CoC of 9% (and since it was a 50-50 split with 6% pref, they get 7.5% yield).

Six months later, we got a great offer/ we sold it and we netted $1.5 MILLION profit. My investors were happier to sell because they got their money back and they got 50% of that net profit - which is $750K giving them a 66% ROI just from the sale.

So the choices were: 

A) continue getting 7.5% yield and maybe get an even higher payoff in the future or
B) get 66% ROI after 2.5 years + all my investment back (with the possibility of growing that money even more)

If you were one of my investors and you know that we can line up another good deal like that, doesn't it make sense to choose B) rather than A)?

 Hi Surya,

Too bad you missed the webinar we did on it a few months back but we're doing it again.

To be honest, there are not many books on hotel investing. Maybe I should write one ;)

But to answer your questions, hotels are also evaluated based on cap rate.

NOI/cap rate = value

But how you get to the NOI is a little bit different than with apartments. There are terms that are different with hotels vs. apartments like:

RevPAR

ADR

MPI

From an investors' perspective, like apartments, there are three numbers:

Cash on cash return

IRR (project and investor)

and

Equity Multiple

Hotels - I like 100 keys (that's what they call rooms or units - "keys") or more. Smaller than that and there's not much scale. 

I can tell you what I buy. I buy hotels in the $5M to $15M range.

A good deal for me (not necessarily good for everyone) is at least a 30% project IRR but that's my target for apartments as well. I do value-add and that's how I get such great returns for me and my investors.

 You can also automate the process which becomes more relevant as you get more properties. I have 1,000 apartment units and 45 houses - so can you imagine sending text messages to all my tenants? You can use a property management app to send an email or text message to tenants to remind them of the rent and it will automatically send notices to tenants who are late on their rent. It will automatically put the income received in a spreadsheet for you too.

 I agree with you Jay.

The effort/time involvement if I plot it vs. property type/location will look something like this:

 That's true Ronan. I am both an active and passive investor myself.

I am an active apartment and hotel syndicator. I have about 1,000 apartment units, 2 hotel projects (and about to close on my 3rd), 45 houses and few parcels of land.

I am a passive investor in a syndicated medical building and I am also a private lender to a few real estate investors I know personally. SO I agree completely that being a passive investor allows you to leverage on OPE (other people's efforts) while they leverage on your OPM (other people's money).

 Yes - Greg. I am a private lender to other real estate investors as well as an active apartment and hotel investor. I am also a passive investor in a syndicated medical building.

So I know the level of time committment involved with being an active real estate investor and I can compare that vs. being a lender or being a passive investor in a syndicated deal.

Yes - being a lender is more passive. It takes time to vet the right borrower and to do your due diligence on the property. But after that, you sit back and collect your interest payments. That's true passive income right there.

One thing you lose though is CONTROL but the more control you want, the less passive the investment becomes.

Kalen,

Budgeting for capex becomes harder over time or as the building becomes older. After we renovate the building, we have more control on the repairs & maintenance and we have minimal capex in the first few years of holding it (since we renovate our properties the right way).

Yes you do get a "pop" on the CoC when the property becomes free and clear but your ROE (return on equity) drops significantly. That's basically "dead money" sitting in the property that could be put to better use - say through refinancing and then investing into another project - which will result in higher return for you and your investors.

Having said that - I also own houses (I have 45 of them) and I prefer them to be free and clear. Why? Because their vacancy risk is costlier than apartments. You get 1 vacant house for 2 months (with a mortgage) and your entire year's cashflow is gone. That's not the case with apartments. You get 1 vacant out of 20 units and you're still fine even if you have a 75% Loan to Value mortgage.

Landlords, BIG and small...

Here's a question for you.

How many minutes/hours do you spend every month on average doing all of the following: (per property)

1. Calling your Operating team - Property Manager, leasing agent, eviction attorney, contractor, maintenance guy, etc

2. Tracking the income and expenses of your rental, monitoring your bank account(s)

3. Calling your Support team - your accountant, bookkeeper, Virtual assistant or secretary

4. Doing the work yourself on your rental

5. Going to Home Depot or Lowes or hardware store to buy materials for your rental

6. Answering the phone from tenants, tenant-prospects, etc

7. Any other activity I did not mention above as long as it's related to owning and operating your rental property

You don't have to give a detailed breakdown.

You can just have a total for all the above - say "I spend on average about 1 hour/month per property"

I like to know the answer the question: is owning & operating a single family home as a rental a truly passive investment?

Some say owning a single family home rental is NOT truly passive. What's your definition of a passive investment anyway?

Instead of debating the answer, let's get the numbers.