All Forum Posts by: Jake Kucheck

Good problem to have!  Have you identified any replacement properties?  Where are you in your window for doing so?  $1M can be 1 property or it can be like 30 properties, depends on what you're set up to manage.  Is there a geographic restriction or preference?  Your question requires more questions to be answered before the original question can be answered.  If you want my answer as to a particular market for SFRs vs Multi-Family, those answers themselves are very different.  

Update: The Hitlon Suites is a little off the beaten path. Unlucky.

Anyone else making it out to this? Conference starts this AM.

@Jon Holdman I can only speculate as to why they operate that way, but my guess is that it has a lot to do with public perception. When you have gobs of operating capital and a responsibility to your shareholders, you want to be viewed as doing things efficiently. When the Public REITs first entered the marketplace, the aura that surrounded their holdings was that it was a bunch of off-market deals being consummated in a smoke-filled room for pennies on the dollar.

That simply wasn't the case. They bought houses all kinds of ways, but with a few notable exceptions, they did not "steal" them from government entities at John Beck "Free and Clear" prices. They also didn't have a lot of expertise in operations. That led to high vacancy numbers and high expense ratios (we're talking over 100% expense ratios... blowing the 50% rule out of the water, and this is in year 1!). In turn, analysts started asking questions about the viability of the business model, and operations shifted to outsourcing management and buying more properties with tenants in place (even if paying a premium was necessary). In certain cases, it also led to changing the definition of what caused a house to be considered stabilized. In the case of a particular firm, Silver Bay (SBY), they changed the definition of a property being stabilized from having a tenant in it paying rent after rehab had been done (a valid definition) to a property they had owned for 6 months or longer, regardless of property condition or occupancy status.

If you're willing to juke the stats by materially changing definitions to fool the analysts (ok, maybe not the analysts, but certainly the public), wouldn't you also be willing to pay a premium for properties that legitimately improve your vacancy numbers? Of course you would. Especially when your blended cost of capital is in the 2-3% range. If I have product at a 12-cap, and approach a company currently buying at a 5-cap but not hitting their numbers due to vacancy, you don't think they would jump at the chance to buy a bunch of stuff at an 8-cap? It's still a win-win, unless you're a retail investor in that company, but if you're dumb enough to invest in an SFR REIT that operates this way I'm just happy you're not out buying lottery tickets or high stakes roulette.

We can argue until we're blue in the face about the proper way to evaluate a portfolio of SFRs, but at the end of the day, I'm going to sell to the publicly traded company with the most cash, the highest vacancy, and the least regard for market value, because they'll pay me the most.

I'll throw my hat in the ring.

It really depends on whom you are selling to. In the absence of lots of inventory available on the MLS with tenants in place, private equity and to a greater degree publicly traded REITs will routinely pay a price based on the cap rate of a portfolio of rentals (including SFR and duplexes), and this is precisely how these properties are valued. It is more important to allocate capital quickly at entry points that support yield demands than to optimize each individual property. If you want to call this dumb, then be my guest, but it is precisely how these companies operate. Ultimately, without knowing their cost of capital and fee structures with their capital sources, it's pretty tough to have an opinion one way or another on the intelligence or competency of the company.

Now, if you are selling to an individual investor, they will likely have very different goals, and you may very well have to sell based on comps instead of cap rate. But why sell to an individual when there are plenty of private and public companies willing to buy the product, especially in a major metro area like Nashville?

As a point of reference, we'd pay about $350-375K for the package if we bought in Nashville and a lot of my assumptions about the inventory itself are within a certain degree of correct.

First off... sweet Drake/Lil' Wayne reference.

The thing about multi-unit (if you're living in one of the units) is that it tricks you into thinking your personal resident is an asset. It is not, it is a liability. It may increase or decline in value, but that is a paper gain that is not realized until you either sell the asset or further encumber it (if you've gained the equity to do so), meaning it will be a liability or an increased liability, but never an asset.

I do have one property in CA, because I was 22 and silly and wanted a mortgage deduction more than I wanted the asset to make sense. It's been nice come tax season, but that's the only time. I'll be selling it in the next couple months because it is starting to make less of a difference and it has miraculously appreciated above its 2008 (when I bought it) price. There is really nothing wrong with renting if it allows you to put away money that will go towards investments that will generate a positive return (and eventually afford a primary residence you do like).

I have a few more than one properties outside of CA, because, well, the capital is used more efficiently and I have a lower risk floor. That's an entirely different conversation, and one that has been discussed ad nauseam on BP, but for my own individual set of circumstances, out of state rentals made more sense than in state ones.

Everyone who matters, and plenty of people who don't, already go to either Shawn's clubs (the last Wed and Fri of the month in Anaheim and Tustin respectively) and/or Kaaren's club (I've been to that one once and I think it's on Thu night's and I know it is in Costa Mesa).

Shawn's format is cool because he interviews the speaker and you get some interactivity with the Q&A. He's also got pull with the Bruce's and Sean's of the world, so you actually get to hear some useful info while there. There's a lot of newbies, but I don't blame Shawn for providing a quality product and attracting a large demographic.

Kaaren's club was awesome the one time I went, mainly because there were two securities attorneys doing a mini-panel on the distinctions between all of the different Reg D options and whether that was appropriate versus a Reg A. Not something the newbies would care about or be able to execute, but very useful stuff for a guy like me who had just completed a Reg D and will be doing another offering soon.

As always, the real networking happens after the meeting at the bar.

My vote would be, as it always is, to add on to one of these meetings instead of trying to reinvent the wheel.

There's a women that works the local REI clubs that brands herself as only renting to felons. It's a niche, and she gets rewarded for taking that risk with tenants who pay higher rent (since demand for felons is presumably low amongst landlords).

Not saying you should adopt the same methodology, but there probably is no additional incurred liability simply because they were once convicted of a crime. Now if they are caught DEALING drugs, or there is property damage because one of their customers had a bad experience or whatever, you might have a heck of a time dealing with the insurance company. But that's a risk/reward decision, not a legal one.

I don't think it is illegal to collect that much rent in advance, but it may be a bad idea for the reason that @Wade Sikkink pointed out. I've had clients do this before, but only because they were leasing below market, had lots of applicants, and the applicants wanted to stand out.

That said, I've done 3 leases in the last 5 years, so I'm hardly an expert on the topic.

Since it appears you're a lot more local than I am... any recs on where to stay in Boca?

Is anyone else going to this?

If so, would be cool to coordinate travel, accommodations, etc.