All Forum Posts by: Sameer A.

@Ryan Stumbo I focus on a wide strip from the Encanto area east to Camelback East Village and down south to the 10/202.  These areas are a little more reasonably priced than Arcadia.  I am not an expert on the area, but my realtor and property manager provide a lot of guidance when looking at a specific property.

With regard to underwriting, I noticed that I was sometimes being too conservative. I think it's healthy to be conservative and stress-test the numbers, but I was originally modeling for 7% COC in a good area and on a property that was in good shape. That just wasn't going to happen in Phoenix, so I had to settle on modeling for 3-4% COC with conservative numbers. Then I started to notice that 1 or 2 deals out of every 20 or 30 started to make the cut and were worthy of further research.

I think you can get 7% or more COC if you buy a fixer-upper and renovate, but I feel like a lot of the prime areas of Phoenix have been picked over. Turning a house into a duplex, or adding/renovating an ADU, these kinds of things will generate a lot of value for you if you have the time. I'd like to do a deal with some value-add and renovation at some point, but I haven't found the right property as yet.

Hi Victoria,

I was going to suggest my property manager @Dick Rosen, but I see that he beat me to it!  I have been working with Dick for almost a year and he is great!  He goes above and beyond to make sure that each tenant is happy and that each unit is well-maintained.  I would highly recommend him.

-Sameer

@Ryan Stumbo I am new to RE investing and I bought my first 4-plex in Phoenix in December 2020. I put 25% down and borrowed the rest at a sub-3% interest rate. That property is now generating COC of about 5%, but it took a few months to stabilize and get to that point. Aside from that 5% COC return, I am getting a similar 5% return in Year 1 as I pay down my principal and build more equity. Finally, as cap rates have compressed, the property has appreciated about 9% (or about 36% on my invested capital). I have been under contract on 2-3 more deals since then that fell through, but I am still looking aggressively.

Given the competitiveness and high price point of the California markets near me, I knew I wanted to invest elsewhere to cut my teeth and likely earn a better return. When I started looking at deals in late 2019, I determined that Phoenix offered some cash flow and the chance for substantial appreciation. While cap rates have compressed, these deals still exist, even on the MLS.

With TSMC building its plant (2000 jobs in the next 4 years) and Intel expanding its plant (3000 new jobs over the life of the project), there are going to be 10-20,000 or more jobs created in the Phoenix area overall, including companies and services that will follow to serve these companies and their employees.  This does not include the many "temporary" construction jobs that will be created while these massive facilities are being built.  Many of these jobs are highly technical and will pay more than the median.  Populations and incomes are rising in the Phoenix area and this is a trend that doesn't appear to be slowing down any time soon.

I don't invest in Arcadia, but there is a reason prices there have been bid up so much.  That said, I don't invest in the more beaten-up areas of Phoenix either, where more cash flow can be had.  There are large areas where it's not unreasonable to assume that rents will grow 3-5% annually for several years.  And remember that when rent goes up by $50 on one of your units, that's $600 more of cash flow per year, which should add $12K to your property value at a 5% cap rate.

All of this is to say I am happy with minor (and growing) cash flow in Phoenix to start because I believe that cash flow has considerable growth potential over time.  Meanwhile, larger returns will be made in the appreciation of the property.

@John Fortes I don't have the time now to do a fix and flip, but I am looking into buy-and-hold and syndications.  Thank you for the overview of the pros and cons.

@Bob Floss II Thank you.  What is a good resource for looking up foreclosures and auctions in a specific area?

@Account Closed I am looking to get my feet wet and start learning the game. I'd like to start small and 10 years from now have acquired a significant portfolio that may include MFR, syndication investments, and perhaps some commercial/industrial. I wouldn't rule out turning it into a career in the long term, or a significant part-time pursuit. Thank you for your thoughtful response.

@Derrick StClair I am looking to get my feet wet and start learning the game.  Long-term, I would like to build some serious wealth, and I look at the first deal or two as a way to start developing the skills to do so.  While I do give most of my time to running a business, I still have 5-10 hours per week or more to dedicate to real estate.  Total return is most important to me, but it is not important to me whether those returns are cash flow or appreciation.  I had not considered syndicates seriously until reading everyone's responses, so I will certainly be digging more into those.  Thank you for your advice and questions.

I see you are based in LA.  Do you invest only locally or out-of-state as well?

@J. Arevalo Yes that is what I am finding.  My money goes a lot further out-of-state, but it does seem like LA/Orange County/etc are fairly low volatility markets compared to many others.  I don't understand your question clearly.  So far, I have modeled the numbers of lots of deals, but I don't have any practical examples outside of the books I've read.  Thank you for your response.

@Twana Rasoul The return profile comparison to stocks is an interesting way to look at it.  Which form of returns, cash flow or appreciation, is more tax-efficient?

@Steve Vaughan Thank you for the advice.  Looking at some industrial deals out-of-state, as most industrial in my area is out of my price range (and doesn't offer very appealing returns).

@Daniel McNulty The syndicate structure and value proposition is something I am reading up on now.  I had not considered them seriously before, I appreciate the tip.

@Steve S. Thank you for sharing these articles.  There are a lot of risks out there now and I am trying to keep some pretty conservative assumptions in my numerical models (which are based on case studies from Brandon Turner's book).  Where are you seeing opportunities these days?  Or are you keeping your powder dry for the time being?

@Ryan Peep Thank you for the advice. I am leaning toward doing my first deal here locally, but I am still keeping my eyes open in Phoenix and other areas in case I can find a deal good enough to go long distance. I am looking into other lenders as well, mainly because with a 75% or 80% LTV my money will go much further.

@Matthew Terry My criteria are based on modestly achieving a better long-term return than stocks and perhaps with less volatility.  It is not important to me whether those returns appear as cash flow or as appreciation.  I did, however, use fairly conservative total return targets.  I would like to get to know this asset class for diversification and perhaps outsized returns.

@Bill F. Yes you are right!  I tried to make an edit, but it looks like it didn't go through for some reason.  I am looking into the commercial/industrial space as well.  Thank you for the tip.

Wow, this community truly is incredible!  I am grateful for so many different responses and perspectives.

@Kody Thompson I hadn't thought about storage units at all.  I will look into that type of asset.

@Roni E. Thank you for the advice.  I started using Crexi and it is great!  I like it better than Zillow/Redfin.  The quick access to key data and OM's is very convenient.

@Jaysen Medhurst Here in So Cal, my cash doesn't get too many units in the more stable markets! I am scouring surrounding areas, however, where I can go bigger for a similar amount of capital. Aside from MFR, I am looking into the NNN distribution center category. Thank you for the advice re: Phoenix and lenders. I have made a few offers in Phoenix, all 15-20% below list, but I have rarely gotten any counters at all. I definitely won't stretch to get a deal done. I am also researching other lenders to work with.

@Andrew Hogan I have not looked seriously at syndications to this point, but I recently picked up a couple of books on the subject.  Might be wise to diversify by buying a property and also put some percentage into syndication deals.  Thank you for the tip.

Hello all,

I am new to the real estate investing world, but I have already benefited greatly from the Bigger Pockets community.  I just started looking for deals 6 months ago, but Brandon Turner's The Book helped me immensely in establishing a framework through which to evaluate deals.  I am currently reading David Greene's book Long Distance Real Estate Investing as well.  Aside from that, I learn something every time I browse the forums here.  I am very grateful for this incredible resource!

A little background about me: I operate a business in the steel manufacturing industry and I am an avid investor in stocks.  Over the last decade or so, I have learned a fair amount about various industries and businesses, but I don't have much experience in real estate.  I am fortunate that the business is doing well and so I have a source of capital to deploy into real estate.

Between the books and resources I mentioned above and conversations with agents in a few different areas, I developed enough confidence to start making offers a couple of months ago. Since I am running a business full-time, I decided to look for newer properties that would not require too much of my time. As a Southern California resident, my local market rarely offers cap rates over 5% for high-quality properties, so after doing some quick research online about burgeoning markets, I chose to look at deals in the Phoenix and Dallas areas. To get started, I set some ambitious targets of the returns I want to achieve (6-7% cash on cash return with 20-25% down, estimated appreciation of 2-3% per year). With the loan paydown, this results in an overall ROI in the teens. With that framework in place, I've looked at probably 50-100 deals over the last couple of months and made offers on a few in Phoenix. In order to meet my return targets with high-quality properties, my offers were generally 10-20% below list price. None of them panned out, but I did get a taste of the process, counters, etc.

As things stand today, I have about $500K that I would like to deploy into real estate investments in 2020, if I can find the right deals.  But I have so many questions!

1. I look at my first deal as a way to get my feet wet, learn the ropes, and start creating a foundation from which to build a portfolio.  Is it better to seek that first deal here in the Southern California vicinity, where cap rates are very low, but markets are perhaps less risky or is it prudent to go out-of-state if I can find the return characteristics I want?  Are there some specific markets I should look into?  One agent told me to look for properties with good return characteristics in cities that I would want to spend time in.  Any thoughts on that line of thinking?  Any reason to prioritize nearby states vs. those further away?

Here is what I have seen so far: In Phoenix, I can probably get a deal done on a renovated duplex or fourplex at a 6-7 cap, which would yield a cash-on-cash return of 3-5% depending on the financing details.  Lower than my targets, but if it's secure, still a solid overall return with the loan paydown, etc.  In the Southern California markets, the better deals I am seeing are 4-5 caps on older properties in established neighborhoods that might eke out a cash-on-cash return of 1-2% to start, with the potential to get that up to 3-4% in a couple of years by investing in some modest upgrades and bringing rents closer to market.

2. I have a very good relationship with a large national bank, however, it is one of the more conservative mortgage lenders and only offers up to 60% LTV with a rate today that would be in the mid to high 3% range. That said, given my relationship with the bank, it would be relatively painless to arrange the loan. Is it worth starting a relationship with another lender with more favorable terms now, or should I cut my teeth with the financing that I have?

3. With this amount of capital, does it make sense to look into industrial real estate as well?  I have some experience there through the business and it seems like cap rates tend to be higher in warehouses, manufacturing, etc.

-Sameer