All Forum Posts by: Omar Khan

What is the best way (websites, comps, calling other complexes in the area) to see if an area is a good area to invest in when looking at a small multi-family apartment complex, with a lower end cap rate, out of state?

I have been calling other complexes (as mentioned above) and simply asking them what their rent is as well as looking at "apartments for rent" on Google but if anyone knows of a platform that expedites this process, that would be very helpful!

Thank you in advance.

Everyone likes to think they are Nostradamus.  Guess what, not a single one of us here are. 

-Peter Lynch

Great point, Yonah. I suppose if I did I could probably make a killing. Trouble is, I've spent 30 years building a reputation and there's too much risk in it for me. The market is uncertain, and some sponsors that don't have the strength to be their own KP/loan guarantor might be at a greater risk for their deal imploding when the weather gets stormy. That leaves me to patch it up, take over, contribute money, or any number of other unfavorable things. I could profit, sure, but from where I sit my downside is greater than my upside.  I make my money doing real estate investments, and if someone else's deal jeopardized my ability to finance my own deals, I threw my whole career away just to make a few dollars.  I'll pass!

1. From a tax perspective, is it more beneficial for LP's to pay them more often so that they can invest the received profits into other investments? What is a good frequency to pay your LP's?

2. What type of tax deductions can the LP’s take on their return on investment?

3. What type of tax deduction can a GP take on their income?

@Omar Khan hey! I am seeing as high as 8% positive cashflow after all expenses including financing.

Hey @Stephen!

I would recommend checking out "How to manage residential property for maximum cashflow and resale value" by John T. Reed. Although I have not read this book in particular, I have read several of John's books and they're absolutely phenomenal. He's extremely granular in his analysis and leaves no stone unturned. I've provided a link to the book below:

https://johntreed.com/collections/real-estate-investment/products/how-to-manage-residential-property-for-maximum-cash-flow-and-resale-value-7th-edition

Also, if you get a chance, I would recommend reading his book "Aggressive Tax Avoidance for Real Estate Investors". It's probably his most well known work and it's the best book I've read on real estate taxes. Hope this helps.

All the best,

@Craig McLaughlin hey Craig thx for your reply.  Just wanted to show you a calculator that actually calculates returns as defined by average Joes.  In other words, how much money have I made or lost.  

You can find it at moneychimp.com, (I'm in no way affiliated) I included the websites description because I think it does a better job than I did of explaining the average return fallacy.  Hope that helps.  

@Mike Dymski Hey Mike, yes looks like the returns as defined by normal people are around 7% 1923-2016.  I agree with you mostly, but I just can't recommend index funds.  P/E ratios are extremely high (see chart) 

Interest rates have been in a 40 year bear market, which is highly cyclical.  How do index funds perform if we go back to 18% rates in the next 40 years?  And let's not forget the yield curve is inverted.  My advice is to buy things when they're cheap and sell them when they're expensive.  Nothing about any asset in the US is cheap except 30 year fixed rate debt (which I consider an asset)

As long as people understand the risk, but IMO they don't because they're sold index funds as low risk. The set it and forget it index fund has only worked because of a 40 year interest rate bull market and other market influences that most likely won't be there for the next 40 years.  Look at the S&P returns 1923 - 1980 adjusted for inflation less dividends.  Basically flat.  

Hi there! I am looking at a 10 unit multifamily condo type complex. It's in a B class area. I am wondering what sort of CAP rates members are seeing for similar types of properties. I know this is very general information but just sort of wanting to see what other markets are averaging for this sort of property.

Thanks!

Thanks @Greg Dickerson. Here's a follow up for you. When I underwrite it based on the T-12 and those rents are higher than most of the comparable rents, then the true market value from the appraiser will be lower. For example, if the NOI in a 7 cap area is 200,000 its value that I derive from my underwriting would be 2.86 mil but compared to a 7 cap area where the appraiser drops the rents and now the NOI is around 175,000 then the value would be 2.5 mil. Where would you start the conversation with that broker.. the 2.86 or 2.5? My concern is that I don't want to overpay unless I have to be competitive of course.