Street Smart Success

Hyper-focus is a key to success in business. In Real Estate, having a tight geographic and operational focus pays high dividends, especially in the Multifamily sector. There’s no substitute for living in the market you’re operating in, where you have intimate knowledge of the neighborhoods, blocks, and even the streets. On top of this geographic specialization, if you’re truly vertically integrated, the odds are highly stacked in favor of your success. Jered Sturm, Principal and CEO of SNS Capital Group, has had amazing success improving the performance of C and C+ properties in Cincinnati, Ohio where he’s lived his whole life. 

One of the critical components in Real Estate acquisitions is the lending piece. The wrong loan can end up dooming a project in the long term. Getting the right loan product with all the right terms and conditions for your investment can make or break the deal when unforeseen circumstances occur. Malcom Turner, President & CEO of Castle Commercial Capital in Detroit, helps commercial borrowers navigate the complex landscape of commercial lending so they can close on the right deal and avoid common pitfalls down the road. Malcolm is also the author of “Financing the Unbankable Deal: How to buy commercial Real Estate with the Bridge Loan Investor Success Strategy”. 

Most real estate classes require a lot of hands-on daily management that makes or breaks the success of the investment. Nowhere is this more the case than multifamily apartment communities. When you’re dealing with tenants 24/7, there’s things that need prompt attention at times.  Ryan Weiss, Principal Broker and Managing Partner at Blue Door Living, has gone from managing 40 units to over 400 units in just three years and has gotten all his clients by word-of-mouth. Ryan is based in Manchester, New Hampshire, a chronically under-supplied market just an hour north of Boston. 

After many years of escalating prices, it’s now a buyer’s market for institutional, quality multi-family assets. Institutions are on the sidelines as they rebalance investment portfolios, and it’s become much harder for newer operators to raise money. As a result, the buyer pool has shrunken, and prices have decreased. Class A, new vintage properties are selling for 10% off their peak in growing secondary markets in the Midwest. Ivan Barratt, Founder of the BAM companies, a fully vertically integrated Private Equity multifamily Real Estate firm, has close to 1 Billion in assets under management and has generated greater than a 35% IRR to investors with an average of a 3.5 year hold time. 

Unlike most Real Estate asset classes, the Mobile Home Park industry will not see high levels of distress caused by aggressive, short-term floating rate debt. Lenders of Mobile Home Parks are typically more conservative, and operators are not facing the same level of occupancy and expense challenges of other asset classes. Mobile Home Parks aren’t pretty, but they still consistently cash flow better than many other assets that are traditionally more sought after. Mario Datillo, CEO of Celebrate Communities, is buying Mobile Home Park communities in Florida, where he resides, plus Atlanta, Dallas, Minneapolis and Pittsburgh. Mario also publishes a lot of educational content for new Mobile Home Park investors.  Mario targets a 10% cap rate upon stabilization by year two and IRRs in the high teens.

Although the market for Multifamily still remains one of the most competitive asset classes, it still represents one of the best opportunities to add significant, predictable value in a relatively short period of time. Zach Winner, Founding Partner of Prosperity CRE, has had recent success in Kansas City where he 1031 exchanged out of an 80-unit apartment building into a 180 unit building and is brining units up to market rents. Zach is an opportunistic investor who is also undertaking a hotel-to-apartment conversion near Tacoma, Washington.

Many operators over the last couple years paid exorbitant prices for assets and have been unable to increase income as planned. Expenses have also increased significantly more than anticipated. These factors, combined with escalating borrowing costs, will make it very difficult for operators to hold onto certain properties.  As rates readjust upwards, there will be distress and opportunities for acquirers. Brian Estes, President of the Estes Group in Jackson Mississippi, has a background in repositioning distressed properties in the Gulf South states and looks forward to capitalizing on interesting opportunities on the horizon, especially Multifamily properties with 20-60 units. 

In major markets across the U.S., residential rents have shotten up dramatically over the past 10 years. As a result, many renters have moved further out from urban cores. For operators of apartment complexes, investing in markets outside of the urban cores has made sense because these markets have also seen rental rate increases, but the prices are less, especially for buildings with fewer than 100 units. Mike DesRosiers, CEO at Growth Capital Group, has acquired over 1000 units, mostly in secondary and tertiary markets in Texas. Mike started mostly in single family properties in the Bay Area prior to investing in these great cash-flowing markets.

When it comes to investing, nothing pays off more than patience and discipline. As sellers insist on prices that no longer make sense in this current interest rate environment, it’s gotten increasingly difficult to find deals that pencil out. Even before the interest rate surge, prices were at unprecedented levels because of the incredible amount of competition that were chasing deals. Andrew Cushman, Founder and Principal of Vantage Point Acquisitions, operators of multifamily assets in the Southeast, has adhered to strict acquisition guidelines and therefore has continued to prosper with his portfolio when many others are struggling.

When you invest your hard-earned money, it can make sense to have someone else vet opportunities for you to ensure success and reduce risk. When it comes to investing passively in Real Estate, there’s a lot to know, and there are countless opportunities to invest in. Many of these opportunities are valid, many aren’t. John Rubino, COO, Founder and Partner of JID Investments, helps investors avoid the pitfalls by steering them into well-vetted, trusted operators with strong track records and high ethical standards when it comes to how they handle investor’s money.

Short-Term-Rentals have exploded over the past several years and investors have prospered. Recently, however, several markets have gotten over-saturated, and vacancies have climbed. Appreciation in home values has also made these properties more difficult to cash flow. Kirby Atwell, CEO of Living off Rentals and podcast host of Living off Rentals podcast, has a different strategy for success. Kirby acquires properties in smaller markets. These are smaller, destination markets with far lower home prices, but nightly rates that are almost the same as major markets. Kirby has achieved financial independence for himself and is coaching others to do the same. 

Great locations save the day when broader markets go south. High density, infill markets with lots of employers and desirable amenities insulate properties from severe downturns which inevitably occur. Mark Hentemann, Founder of Quantum Capital, started out building a portfolio of 20–30-unit Multifamily buildings in Hollywood, CA and nearby L.A. neighborhoods. These properties appreciated considerably as he was able to bring rent-controlled, below market rents up to market. Mark has subsequently expanded to Austin and Denver with 20–40-unit buildings where he doesn’t compete with institutional investors.

Flipping houses can be a great way to make money, but only a handful of people are truly successful at it. There’s a lot you need to know and there are many ways to make costly mistakes. Roger Blankenship, Founder of FlippingAmerica.net, has successfully flipped over 1500 homes, but lost it all back in 2014 by expanding too fast, overextending himself, and having the wrong employees. Roger’s goal is to prevent others from making some of the same mistakes he made and to provide extremely valuable education on house flipping at an extremely reasonable price for new people getting into the business.

Even though the U.S. economy is in a state of flux and there are other domestic and global uncertainties, trends continue to be in favor of growth in the South and Southeast in terms of population job growth and migration. The rate at which this is occurring is unparalleled and opportunities for solid investments in multifamily real estate will continue to present themselves. Charlie Young, Partner at Madera Residential, has been in the business for over three decades and has over 12,000 units in his portfolio. Charlie believes we’ll be in a recession by the end of the year, but that will present great buying opportunities in 2023 and 2024. There’s 5 trillion dollars in Private Equity in this country waiting to be deployed and digital Real Estate planforms like Crowd Street is bringing new investors to the table that will continue to put upward pressure on prices in the years to come.

You hear a lot about value add Real Estate in terms of creating value in acquisitions these days, especially as prices have skyrocketed over the past few years. Although there’s great gains to be made with the right value add improvements to a property, the most expedient value add is buying the property for significantly less than it’s worth. Ben Kogut, partner at HJH Investments, has been having great success buying office buildings, shopping centers, and single tenant retail properties from motivated sellers at prices below considerable below market. These properties do not have big improvement needs to achieve stabilization and therefore are generating impressive cash flow at the onset of the investments so investors start getting their distributions right away.

With loan terms maturating and escalating borrowing costs, many Real Estate properties are going to be in trouble. With these escalating costs combined with higher operating expenses and contracting rents, many properties will be sold at deep discounts in the next 6-12 months. This will present great buying opportunities for acquirers. Cameron Pimm, Co-Founder & Principal of Urban Landings, has been investing in multifamily properties in Atlanta, Charleston and Las. Vegas and generating internal rates of return of 23% and equity multiples of 1.9 times for investors in just under three years. Cameron looks forward to the upcoming buying opportunities to enhance his already stellar record of performance. 

This country is facing a housing affordability crisis with few foreseeable solutions. Shortage of supply, increased construction costs, and the costs to operate have escalated. If the cost of construction could be reduced, however, it would be the first step to solving the affordable housing conundrum. Mike Kaeding. CEO of Norhart, is innovating the way apartment buildings are being built with more cost efficiency and is incorporating advanced technologies into the day-to-day operations. This innovation is resulting in best-of-class experience for residents and creating a new status quo in the apartment industry that will ultimately result in cost savings for renters.

1.5 trillion dollars in Real Estate debt is coming due by 2025. This Is starting to cause major distress across asset classes, markets, and sponsors. On top of increased borrowing costs, expenses such as insurance, taxes, and labor have increased faster than rents and delinquencies are becoming more common. On the other side of the equation, great deals for investors are on the horizon to acquire distressed assets. Patrick Grimes, Founder of Invest on Main Street.com, is taking advantage of this great situation and is offering attractive opportunities for investors to participate in this opportunistic marketplace. Patrick has a recession-resistant Real Estate fund plus funds in other lucrative asset classes that are uncorrelated to the broader market. 

Single family homes are the most conservative asset class to both operate and lend against. Right now, inventory levels are the lowest they’ve ever been, so prices have maintained despite dramatic interest rate increases. Matt Owens, CEO and Owner of OCG properties, has bought, renovated, sold or held over 1000 single family properties in the last 15+ years. Matt currently has a debt fund where he lends against single family homes in the Midwest that generates a consistent above market return for his investors. Matt is also starting a fund that provides fractional ownership of a portfolio of 25 homes he has acquired for himself over the past few years.

Although there are multifamily properties of all sizes that are not managed well, smaller buildings without on-site staff and ma and pa owners tend to be more likely to be run unprofessionally. These properties pose opportunity for new buyers with more professional management infrastructure and processes. Will Matheson, Co-founder with his twin brother of Matheson Capital, has had incredible success adding value to smaller properties and generating consistently large returns. In one Class A property in Boone, North Carolina, they’ve increased rents 60% in the last year.

One asset class for passive investors that often gets overlooked is Short-Term Rentals. Like in other asset classes, there are companies that will manage the whole process starting with identifying the properties and managing them from start to scratch. You can get monthly cash flow with properties in great vacation destination markets with a lot of appreciation.  Leslie Anne Morris, The Cabin Lady, is the owner of Josh’s Cabins, a company that finds properties for out-of-state investors, and handles all the accommodations so all you have to do is enjoy the passive income. 

By controlling all the construction and property management processes, you can successfully operate Multifamily properties, as long as you don’t overpay for the properties and you know how to manage expenses. Matthew Shields, Founder and CEO of Significan, has been buying and operating Multifamily properties mostly in Northeast Ohio and Atlanta since 2017, and generating excellent returns. Matt is a serial entrepreneur who also owns other companies including Virtus Ventures, a software company that creates software solutions for companies with $50-$150 million in revenue.

Passive investing can generate cash flow, appreciation, and tax benefits through depreciation. By investing with others, you don’t have to spend time managing properties which may not even cash flow. They key is finding operators with the right experience and skills to make sure your investment is secure. Whitney Elkins Huttten, Director of Investor Education at Passiveinvesting.com, is a partner in $700M+ of real estate including over 5000+ residential units (Multifamily, Mobile Home Parks, Single Families, and Assisted Living) and more than 1400+ self-storage units.

If you want to invest in Real Estate but don’t want to be a hands-on operator, a great way to participate is through hard money lending. When you invest with the right company, it’s a conservative investment that provides high yield, consistent passive income with better liquidity than hard assets. Brock VandenBerg, President of Talimar Financial, started out lending his own money to house flippers before raising money from other investors. He now has a fund that lends mostly on single family homes in the San Diego market. 

40% of floating rate Multifamily projects acquired over the past few years will not be able to get refinanced. This will cause distress for operators and opportunities for acquirers. Additionally, increased insurance costs, especially for older properties, and increased property taxes are further burdening properties’ net operating incomes. As a result of these challenges, experience and the ability to flawlessly execute on business plans has become of paramount importance over the last year as the market has changed. Brennen Degner, Managing Partner of DB Capital management, specializes in Multifamily in suburban submarkets of major metros with high paying technology jobs. DB Capital owns 3000 apartments in the Mountain West and Texas. 

As the cost of capital has increased dramatically, and generating yield has gotten more challenging, institutional investors are increasingly looking for specialized niches within sectors to invest in. Outside Storage, Cold Storage, Senior Living, and Affordable Housing are just a few examples of burgeoning niches. Institutions also prefer vertical integration and invest heavily in underwriting the managers of assets to reduce risk. Deborah Smith, Co-Founder and CEO of The CenterCap Group, provides strategic advisory, capital-raising and consulting related services to private and public sector companies and fund managers across the real estate industry.

When it comes to investing, there are always risks. Despite countless resources on how to vet operators and deals, the most important decision you’ll make is who you invest with. Proformas and projections are at best, educated guesses, and things rarely go according to plan, so the differentiator is the operator. The best operators have moral fiber, and as important,  successful track records, competence,  and an ability to adapt to changing circumstances on the ground. Litan Yahav, an experienced passive investor, invests with either people he knows personally, or is referred by someone he knows personally. Litan believes the operator is more important than the asset class or specific deal. 

Increasingly, Real Estate investors on the coasts are deploying money into the Midwest. Not only are these markets less expensive, but many of them are thriving like never before, and are less volatile. Markets like Columbus, Indianapolis, Kansas City and several others are seeing massive job and population growth. People are leaving the coasts and moving to these markets for a higher quality of life. Lee Ripma, a multifamily broker and investor, started investing in Kansas City and moved during covid from L.A. to make KC her primary market for both living and investing. Lee chose Kansas City based on a Google search for the nation’s top 10 most affordable markets and never turned back. 

Nothing has caused more heartache and stress in Real Estate than too much debt. Leverage can work great in upmarkets, but it can cut the other way in a downturn.  Joel Friedland, Principal of BRIT properties, has been buying infill industrial properties with all cash since learning the hard way during the 2008-09 financial crises. Joel and his investors are seeking very conservative investments with the number one goal of capital preservation. He buys highly sought-after properties that result in average sixteen-year duration tenancies. Joel specializes in industrial properties in Chicago that deliver 8% unleveraged returns.