See below notes from the show with Joe LaFleur
One of the biggest advantages of multifamily is the government wants to add affordable housing to the population. Through Fannie Mae and Freddie Mac the government subsidizes investors.
Joe saw the great recession as a broker and the best performing asset based on his experience was multifamily. This is due to the fact of everyone needing a place to live.
Who is ideal buyer for multifamily?
Depends. Sellers ideal buyer depends on the seller. Seller has own motivation and goals. Brokers job is to be a matchmaker to find the best buyer and seller together.
What is a buyer need to do when buying a multifamily or commercial property to show they are serious?
Talk to lenders and get prequalified. Have the liquidity requirements confirmed. Get educated ahead of time. Talk to other owners and read about the process. Know what you are buying and how to execute once you are under contract.
Real estate is a living breathing entity. Not a stock or bond. How you operate it, when you sell it and how you buy will dictate the success of your investment.
What are some of the top mistakes buyers make when buying multifamily properties?
Wasting time. Investors will spend many hours working on things that will not have any impact on their success. Some investors 4-5 years still don’t own anything. Only submitted one offer within 1 year. They Over educate themselves. One of the most important things is making offers on properties.
Joe also sees people doing things out of their area of expertise. Jumping into something alone or no information. They should be getting enough education, but not too much.
Brokers most precious resource is time. Some buyers call and ask lots of questions but never submit offer. If offer is not submitted by buyer, they lose credibility with broker. If you spend time analyzing a deal unless there is a big problem you should be submitting an offer on it. Write up the offer where you are comfortable, but get it submitted.
Where are the opportunities right now based on being at the top of the market cycle?
Joe likes multifamily. Lower income spectrum of apartments tremendous growth and demand but very little supply. A lot of gains are going to come from here. Most assets being built in central Florida are class A. This means they are the top of the rental range. Most growth is at opposite of that. Where rents are currently under $1000 per month. Due to construction costs people can’t build units with rents around $1000 for a 2 bedroom.
Joe feels strongly in 5-10 years there will be a push for a higher minimum wage, wage growth and job growth will drive the affordable housing sector. Lower income tenants will be able to afford a better apartment.
Is there a difference in buying affordable housing vs class B
It depends on property and the locations. Some people are more comfortable with the higher class properties. Lower returns but downside risk is lower. Easier to operate. Workforce or housing which is at the lower end regarding prices may be more management intensive. Returns will be higher, but with that there will be higher risks.
Some buyers are looking for no money down or zero percent interest deals, is this commonplace?
Joe has not been involved in any. May have seen deals done with master leases. Where an investor takes control of the property without technically owning it. This is a rare occurrence in the marketplace where an owner needs to sell a property using this strategy. There is a lottery winner every single week, however, the odds are very low that you are going to be the winner. Other types of no money down deals may be structured using investor capital where you as the sponsor do not put money of your own in the deal, however, most investors want you to have skin in the game.
What does your crystal ball say about the market for the next 3-5 years?
Joe does not forecast as most of the time he is wrong. What he currently sees happening is fed tightening on interest rates. A lot of push on wage growth which may push inflation. This will benefit multifamily especially on the lower end of the market. Short term leases in apartments allow you to increase rents fairly quickly as inflation hits. Locking in loan rates for 10-12 years and if inflation hits you will be able to pay down debt with inflation adjusted dollars which will be higher than they are now.
If you are someone looking to sell, what questions should sellers ask commercial brokers prior to giving them a listing?
What is your track record? How did they execute on past transactions? How did they handle difficult situations when they came up to get transactions to the goal line? What have you sold in my area and in my asset class? The broker should know what buyers are active in that market. Careful with the we or our firm answers. You are hiring an individual not the firm. Make sure the broker you are hiring is the one doing the work not handing off your property to a junior agent doing the walk through and talking to buyers. Ask them how they came up with the proposed price? Ask them to explain the methodology so it can be defended in the marketplace and reasonable for a buyer to pay that number.
How would seller know if brokers numbers are way off?
The comparable shared with seller should make sense. Have a previous lender take a look at the debt coverage ratio as this will limit the buyers purchase price. Learn what constraints are in the market place. Loan to value is not the main constraint it is debt coverage ratio. Listen to the podcast for a great story of a buyer that ran a problem with this.
Thoughts on owners selling on Ten X or Listing themselves
Depends on goals. If it is a fire sale needing to close in 25 days then this is a great place to sell. Joe warns owners against putting property out there on Loopnet or TenX without conducting proper research. It makes it hard to sell two years later as information stays on those sites forever. A buyer will tell the property has been on the market for a long time.
When is a good time to sell? Why sell?
Subjective. Investors have a life cycle for their assets. Buy for whatever reason and sell for whatever reason. If you are close to that now, then you are better off selling now as market is good now. Two years later the market may still be good, but you never know. When to sell comes down to the owners objective in the end.
We are considering selling or refinancing and keeping asset? Concern is finding a new asset in this competitive environment.
Legitimate concern. Options are:
1. Pay taxes today. Good time as we have just had tax cut
2. Like kind property exchange
3. Exchange into tenants in common arrangement on triple net leases. Surprisingly liquid. Wait a couple years or until you find a new property. There are multiple types. Can exchange into them and out of them. Take percent ownership of a pool of properties.
Business book or real estate book recommendations
1. Timing the real estate market by craig hall
2. The real estate game by William Poorvu, Jeffrey Cruikshank
3. Everything real estate investors need to know about cash flow Frank Gallinelli
4. Thinking and bets by Annie Duke
5. Factfulness by Hans Rosling
Habits of successful investors
They are focused on what they are doing. They know what they want to achieve and what it is going to take to get there. Taking daily action steps to get there. Long term approach. They treat people with decency, respect and professionalism.
How to get in touch?
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Written by Denny & Dessiree Troncoso
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