An essential part of being a real estate investor is finding the perfect combination of market and product type. But markets, product types, and even financing are CONSTANTLY shifting.
How can you read the tea leaves and see what’s in store?
Today, we offer some help in the form of Brad Sumrok. Brad has been investing for 16 years. These days, he also spends a significant amount of time teaching investors how to get into the multi-family space.
In this episode, we discuss choice gems from Brad’s annual Apartment Market Forecast. We’ll also look at what makes a good market and how YOU can get started … or move upwards … in multi-family investing.
In this episode of The Real Estate Guys™ show you’ll hear from:
- Your princely host, Robert Helms
- His jester of a co-host, Russell Gray
- The apartment king, Brad Sumrok
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Three factors of the perfect market
Let’s begin with some background.
Sixteen years ago, Brad made his first real estate investment. He didn’t start out with single-family homes … No, Brad’s first investment was a 32-unit apartment building.
Today, Brad teaches beginning and potential investors how they too can make a mark in the multi-family space with his popular Rat Race 2 Retirement courses.
Last year, his students purchased 37 apartment buildings in 14 different markets!
Along with his results-producing educational program, Brad produces a yearly Apartment Market Forecast … a data-driven report that looks at which markets in the U.S. are hot for apartment investors … and which are not.
The forecast can be divided into two main parts … old markets that still hold water, and new markets that hold opportunity for multi-family investors.
Brad gave us the run-down of his most important factors for investors.
“When I look at investing, I look at three things,” he says. “The deal, the market, and the management team.”
We asked him to dive into what makes a good market … and why.
Brad said he does tend to like big primary markets in general because of their diverse economies. But he avoids some large markets like Los Angeles, San Francisco, Seattle, and Boston because of laws that are unfavorable to landlords.
For Brad, landlord-friendly laws and strong economies are two major keys to an ideal market.
Brad says investors can find good deals in the suburbs within an hour of many major markets. While city centers may be too hot right now, surrounding areas have a bit less competition.
Besides landlord-friendly laws, Brad says there are two other major factors investors need to consider … asset appreciation and rent growth.
Together, these factors can help investors choose the perfect market.
Some markets, like Cleveland, Kansas City, and Detroit, have higher than average cap rates but negative population and job growth.
Investors want to look for a market that boasts positive scores in all three areas. Some of Brad’s top picks for asset appreciation, rent growth, and landlord friendliness are Dallas, Tampa, Jacksonville, Orlando, and Phoenix.
Many investors worry that even in excellent markets, competition has heated up too much and they’ve missed the party.
To that, Brad says, “If you invest in your education and surround yourself with a good team, the odds are in your favor to make profitable investments.”
Investors need to understand that all ships rise … and sink … with the tide.
In good times, rents and occupancy will be high. And in bad times, apartments are a safe haven because there is always a need for housing.
Choosing and financing properties
What kind of properties does Brad advise his students to invest in?
The answer is simple … B- and C-class assets.
The reason? In central urban cores, there is too much supply and not enough demand, resulting in high vacancies and low yields.
Outside the city core, investors can still buy for less than they can build. And if you choose your market smartly, job and population growth will guarantee a demand for affordable housing.
Brad says he generally advises investors to plan to hold on to a property for at least five years.
And in terms of loans, he notes it’s essential to have predictability in financing. He works with students to help them obtain 10-12 year fixed-rate loans with an 80 percent loan to value.
It can be hard to find that type of financing in smaller markets and for smaller properties.
But it gets easier, says Brad, when investors realize they don’t need to fork up all the money by themselves.
That’s where syndication comes in.
To earn more and work less, turn to syndication
Without syndication, many investors run out of money.
Syndication not only allows investors to do bigger deals … it also offers economies of scale.
Larger properties with at least 60 units allow investors to hire a management company with the right level of cost to benefit.
At that size, management costs usually end up at about 5 percent of income, and possibly less if you have more units.
Plus, you get more data, more support, and more resources … for a smaller percentage of your revenue.
It’s part of what Brad calls “the magic of apartments.” Management costs for single-family homes, by comparison, usually run about 8-10 percent of your gross income.
Why not a 40-unit apartment? Forty units is enough to pay for a full-time person … without fully utilizing their time or efforts. But 60 is just about perfect.
Another benefit of buying big is that you DON’T have to do everything yourself. When you do a syndicated deal with other investors, your main responsibilities shift from the nitty-gritty details to regular communication with your management company about big-picture trends and issues.
The premise of multi-family investing is really the same as single-family … but financing, managing, tenant-landlord laws, inspections, and other factors are a bit different.
All that is learnable, however. To get educated, start by checking out Brad’s webinar. He’ll discuss why apartment investing is great for building passive streams of income, how YOU can get started, and what his top market picks are for 2018.
Investors evolve with education
In Brad’s own words, “Anyone can do it.” He told us there will always be competition, but even in today’s economy, there are still so many markets that make sense.
“Investors just have to step up to the plate and take a swing,” Brad says.
Just as you evolve as an investor, so do markets evolve … slowly, over time. Sometimes the shift happens so slowly … or so suddenly … that investors don’t see it coming.
That’s why folks like Brad are so important. He knows the apartment market space incredibly well, stays up to date … and is always willing to share his knowledge with other investors.
And although not every investor takes the same path to wealth that Brad did, there’s something EVERY investor can learn from Brad’s recommendations and suggestions for what makes a good market and a high-return investment.
As real estate investors, we have to take educating ourselves seriously. Whether that starts with a podcast, article, webinar, in-person event, or a training seminar like Brad’s, education is the one thing that can help YOU become an effective, efficient investor.
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