Finding High Yields in a Hot Market


Everyone loves a hot market! But hot markets have their disadvantages. 

When markets heat up … prices go up … and yields go down. 

But that doesn’t mean investors are stuck. 

There are things you can do to adapt and keep cash flow up … without having to change markets. 

We sat down to chat with our good friend John Larson to find out how he has made the most of one of the hottest markets in the last ten years. 

In this episode of The Real Estate Guys™ show, hear from:

  • Your heating up host, Robert Helms
  • His hot-head co-host, Russell Gray 
  • Managing Partner of American Real Estate Investments, John Larson

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Adapting in a hot market

Dallas, Texas, has been a hot spot for real estate investors for the last decade. But .. like any market … the tide is starting to turn. 

After 2008, the rules of the market changed. 

Dallas stood out because it had not one … not two … but multiple drivers. 

It had population. It had education. It had transportation. It had a business-friendly environment, low income tax, medical finance, tech distribution … it was the whole package. 

It ended up being the best real estate market of the past ten years … and it’s not over yet … but yields have changed a lot. 

So, what’s an investor to do?

As Managing Partner of American Real Estate Investments, John Larson has had to adapt to the changing Dallas market. 

Many people knew John and his team as the Turnkey Single Family people in Dallas … but his company has had to change what they do while maintaining the big picture of WHY they did it. 

Debt syndication and using your retirement to make money now

John says that the Dallas market is hotter than ever … but in 2017, the cap rates on the single family homes started to get compressed. 

“You can only push rents up so far,” John says. “The values of homes kept going up because of the demand, so property went up as well.”

John says his investors came to him primarily for cash flow. They were looking for passive income. 

So, John needed to find some new ways to provide that cash flow that investors came for in the first place. 

The first project they took on was debt syndication … partnering with a developer and syndicating funds on the debt side. 

“We came in as lenders to buy the lot and get the construction completed and get those units leased as office space,” John says. 

A debt investor is someone that wants to have predictable income flow again, and it’s not as risky as other ventures … with the opportunity for BIG returns. 

At some point, you have to graduate from single family houses and move to the next level, like multifamily or office space. 

John says there are great deals to be found … but you have to do a little nosing around. 

And you can’t beat the opportunity for passive investing. 

With debt syndication, investors can be very hands-off and get as high a return as possible

Especially for the investor who is looking to lend money from their IRA or 401k, debt syndication is a great passive experience for them and a great way to maximize their retirement accounts. 

Many people don’t understand that they can put their retirement dollars to work … but as soon as you can self direct your retirement funds … you’ve opened up a whole world of alternative investments. 

Because of the nature of a retirement account, you can’t have a current benefit. It is really for tomorrow, not for today … so passive investments just make sense. 

These are solid deals in solid marketplaces … but people have a hard time getting their minds around why someone would want to use debt. 

In good deals, the asset pays back so quickly that there’s not a lot of risk on either side. 

It really just depends on how your personal investment philosophy fits in. 

Keep your money working 

If someone is looking to put their money to work in a debt syndication type of deal, the big question is … how long is this deal going to take?

John says that the longest term he has done so far was with a new construction project … that was 18 months. 

The average term for a deal is usually about one year. 

“We want to get you money back within a year and have another deal lined up for you so you can keep your money working,” John says. 

Keeping your money working … that’s the key to finding high yields in a hot market. 

Learn more about the Dallas market and how John and his team are finding new ways to create cash flow without changing markets by listening in to the full episode. 


More From The Real Estate Guys™…

The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training, and resources to help real estate investors succeed.


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Market analysis for dummies …

Buying an income producing property is an investment in the underlying economy.

That’s REALLY where the income originates. That’s why we put so much emphasis on market analysis.

Investors who focus exclusively on deal analysis (crunching the numbers on the property) but fail to underwrite the market sometimes end up in a mess.

The context of a deal is the macro-environment … things like interest rates, taxes, energy costs … that affect everyone everywhere.

But there’s also regional factors … local taxes, landlord law, supply and demand, and jobs.

Once all those things check out, you (probably through your boots-on-the ground team) go to the street level and start looking for a deal that makes sense by the numbers.

That’s because a strong market will lift a marginal deal, while a weak market can suck the life out of even a “good” deal.

Market selection matters.

Of course, that’s easy to say. But figuring markets out can be a bit of a challenge.

So we cheat.

While in school it’s frowned upon to sneak a peak at the smart kid’s homework … in the real world of real estate investing it’s actually a preferred practice.

In this case, the very smart folks at Cushman Wakefield recently released a report they call Spotlight on U.S. Employment – A Tale of 35 MSAs.

As you’ll see, it’s about office space. But even if you’re not an office investor, the report is helpful for understanding where jobs are being created … and why.

Remember, market analysis is about economic activity. And even if you’re exclusively an affordable housing investor and your target tenant doesn’t work in an office … remember, high-paying jobs create a ripple effect.

That’s because a six-figure office worker spends a chunk of their income at local businesses … restaurants, healthcare, auto needs, entertainment, etc.

In fact, as Amazon claimed during the highly publicized hunt for their HQ2, each high-paying job creates an additional 4-5 jobs in the local market.

Our point is that tracking the office market can be a good gauge of local economic vibrancy, no matter what type of real estate you’re investing in.

So let’s dig into the report and see which markets look promising …

“While the U.S. economy has added jobs at a steady pace … the growth in employment has not been evenly distributed.”

“ … hotspots … have outperformed the national average … based on local market factors.”

Isn’t that that way it always goes? The world’s not fair … and that’s GREAT …

… because it means well-informed strategic real estate investors can dramatically improve their odds of success simply by being attentive to market selection.

The CW report looks at 35 markets over 9 years and divides them into categories … All-Stars,Over-AchieversMiddle-of-the-Road, and Late-Bloomers (like us!).

The first three are probably self-explanatory. Late-Bloomers are markets whose growth the last four years is substantially higher than the first five years.

We think there might be some real opportunity in Late-Bloomer markets because they’re less likely to attract attention (and competition) from less studious investors.

It’s kind of like a team with a few early season losses that gets hot at the end of the season, sneaks into the playoffs ranked low, and then shocks everyone.

We’re not saying momentum is all that matters, but it happens for a reason … so it’s probably worth a deeper dive.

But let’s start with the five All-Stars …

  1. Dallas
  2. New York City
  3. San Francisco
  4. Riverside / San Bernadino
  5. Austin
  6. Orlando

Dallas is no surprise to us. We’ve been attracted to Dallas since the Great Recession.

At least in the beginning, and even to this day, DFW has it all … business friendly, low-tax, great infrastructure, geographically linked economic drivers (energy and distribution). It’s awesome.

But NYC and SF? High-tax, uber-regulated, very unaffordable. What gives?

We’re guessing it probably has to do with lots of the Fed’s easy money flooding into the financial and tech sectors.

Of course, from an income property investing perspective, neither NYC or SF makes much sense by the numbers or the business climate.

And if someone trips over the cord at the Fed and the printing press stops, it might suck the equity out of those markets. We saw a little of that happen as rates rose and the Fed tightened.

And add to that the recent tax code pouring some SALT on the wound, wealthy folks are leaving … and in many cases, taking their businesses and spending with them.

The point is that just because a market is on the All-Star list for job creation and office space absorption doesn’t make it a n0-brainer market for residential income property investing.

You still need to use your brain.

Meanwhile, we’re guessing the San Bernardino / Riverside market growth is probably distribution related. There’s a zillion people in Southern California … and if you want to ship stuff to them fast, you need nearby distribution.

The Inland Empire is among the most affordable and open areas in California to build these big centers. It’s also not too far from the ports bringing containers of merchandise for domestic distribution.

So ff we HAD to invest in California again, the Inland Empire would probably be on the short list.

But the bigger lesson here is to pay attention to the role of distribution in driving a market’s job growth. It’s one of the shining stars of commercial property investing.

And when you dig deeper, you’ll see distribution is something several top markets have in common … and those jobs aren’t getting offshored … though they could be robotized.

Of course, technology doesn’t necessarily kill jobs … but it can move them. After all, robots need to be built, installed, programmed, updated, repaired.

So that’s just one more trend for a savvy investor to watch carefully.

Among the Late-Bloomers are markets we know and like are Jacksonville and Memphis. Landlord friendly, good numbers, and apparently some good local economics.

What’s educational and fun (at least for real estate junkies) is to look at these “hot lists” and then analyze the markets for similarities and themes.

You’ll often find clues about what makes a market attractive to employers and resilient for investors. Then you’ll recognize these factors sooner in lesser known markets and able to make your move ahead of the crowd.

Just remember … while sneaking a peak at the smart kid’s homework can shorten your learning curve, it’s not a substitute for doing your own homework.

Until next time … good investing!


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Profitable Niches – Agricultural Investing

Throughout our Profitable Niches series, the message has been clear … there’s more than one way to invest in real estate. It’s so much more than single-family homes and apartment buildings. And, in today’s market, when some of the more traditional investments are stretched, it’s a good idea to think about something new and fresh.

Agricultural investing may not have been on your radar, but that’s about to change! And no, you don’t have to have a green thumb to participate. We’re talking with an expert guest who has blazed a trail into a market that’s energizing AND tasty.

As a sweet bonus, you can support a socially sustainable program as well. Check it out!

In this episode of The Real Estate Guys™ show you’ll hear from:

  • Your cultivating host, Robert Helms
  • His growing co-host, Russell Gray
  • Friend and farmer, David Sewell, Founder of International Coffee Farms

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From beans to mug or bar … picking a crop

Just like everyone needs a roof over their head, everyone has to eat. That means there’s a demand for agricultural products and an opportunity for investors to do well in agriculture.

All it takes is a little education on the language of agricultural investing. In housing, it’s all about markets and demands. Agriculture has the same learning curve. Once you understand the geography, the demand for products, and a little of the science behind growing, you’re on your way to getting a foothold in agriculture.

But, agriculture is a wide world, so we’ll narrow our focus.

Our guest, David Sewell, started in agricultural investing with one product: coffee. It has a long shelf life, doesn’t perish quickly, and there’s enormous demand for specialty coffee with limited supply.

Specialty, socially sustainable coffee has been David’s niche since 2014. He purchases farms that are managed poorly, spends time working on the soil, understanding the climate, planting trees, and building a system that delivers product at a great return.

“Specialty coffee is a unique product that’s managed by the tree,” David says. “Specialty coffee is hand-picked, one cherry at a time.”

One of the best things about specialty coffee is that the limited growing geography drives up demand. But it takes some time to get a farm turned around to producing. Just like any gardening project, it takes patience and skill.

Since David started his business in 2014, he has worked through plenty of challenges and developed an amazing model that is blazing a trail in agricultural investing.

And now, he’s moved into a second crop.

“A good way to start the day is with a good cup of coffee and, in the evening, end it with a couple pieces of chocolate,” David says.

The demand for specialty, fine-flavored cacao is rising, and the supply is even MORE limited than specialty coffee. David’s cacao choice is particularly a specialty in Belize.

David took what he learned from coffee in Panama and rehabbed a few farms in Belize with the same, successful model.

With a little science, ingenuity, and care, David has capitalized on the demand for specialty products. He has 154 farmers who sell their crop exclusively to him, in his centralized processing facility.

“It’s what they needed,” David says. “So, we can control the cacao.”

David has three farms as well as a trading company that buys and sells literal tons of beans every weekend.

They’ve all been trained on organic processes, and together, they use the centralized processing systems he has built to make an efficient product that is ready for market.

Socially Sustainable Investing

Conditions on a coffee farm aren’t known for being great. That is different on David’s farms. He takes care of his 35 farm hands, and it has paid off.

“We’re proud to say that with the compensation program we’re able to provide and with the love and attention we’ve paid them, we haven’t had one turnover in 3 years,” David says. “We take care of the people.”

David’s farms change the way workers live. They receive good rain gear, so they aren’t picking cherries or tending to trees in the rain wearing a trash bag. Kids aren’t allowed on the farm … they attend school.

Families live in provided housing with electricity, flushing toilets, and other amenities that we often take for granted.

And, while these benefits for employees are key to David’s business, it’s not all altruistic. Labor turnover is expensive, and taking care of workers keeps them from leaving.

Beyond just the living conditions, workers are sent to seminars and congresses to build up their skills so they become even more educated and grow with the company.

This dedication to his workers shows by the passion and dedication they bring to the field and to the job every day. His workforce is expert in cacao and coffee, and that drives the superior flavor … and price.

That makes investing in opportunities like David’s even more exciting and sweeter for investors. Not only can you make money, but you can also make a difference.

Small-scale agricultural investing

One of the drawbacks to agricultural investing is understanding the science and process to growing, processing, and distributing a product. It takes time and experience to know a good opportunity and to succeed.

For instance, David learned early on that the biggest hurdle was the deeding process for international property. He warns that it is difficult to do on an individual basis.

But, David has found an interesting way to let people play with agricultural investing.

“We’ve focused on the delivery part of the investment vehicle,” David says. “That’s the hard part and where failure happens in many cases.”

With David’s business, he wanted to use his knowledge of syndication to make agricultural investing more accessible for people, regardless of their knowledge level and even for those who couldn’t buy an entire farm.

David’s farms are broken out into ½ acre parcels that can be bought individually or in groups. The parcel is deeded an individual investor or entity’s name, and it’s essentially a turnkey investment. It’s managed and operated by David’s team and investors not only get the returns, but also the knowledge that they’re participating in a socially sustainable program.

For investors looking for a legacy investment to pass on to their kids, or to invest in a program that’s socially sustainable, this is worth a serious look.

To learn more about David’s coffee and cacao operation and how you can get involved, send an email to beans [at] realestateguysradio [dot] com, and we’ll get you his special report on both opportunities!

And, we’d love to see you in September with David at our Secrets of Successful Syndication seminar. Here’s where to sign up!


More From The Real Estate Guys™…

The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training and resources to help real estate investors succeed.

Profitable Niches – Real Estate Development

In this episode of our Profitable Niches series, we’re starting from the ground up. Inventory of homes is tight in many US markets, and returns are diminishing. Enter real estate development.

Our guest, Jay Hartley, saw an exciting opportunity to expand his business into the real estate development space, and he’s got a wealth of knowledge to share.

In this episode of The Real Estate Guys™ show you’ll hear from:

  • Your stately host, Robert Helms
  • His developing co-host, Russell Gray
  • Returning guest, Jay Hartley, real estate developer and property manager in Dallas-Fort Worth

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Beginning with the basics

One of the questions we ask in our seminars is which is more risky: buying an existing building and renovating or building from the ground up? The truth is, there isn’t a right answer to that question.

From inheriting problems in an existing property to building too much or building something the market doesn’t want, there’s a lot to consider when deciding whether to build or buy. The key is knowing the market, the demand, and the supply.

One of the most exciting things about real estate development is the number of entry points. Throughout the lifecycle of a property, there is value being added. Taking raw land from a zoned area to a lot with utilities and a finished building are all steps in the process.

For those who find themselves in a market with a lot of demand but a squeeze on supply, real estate development can be a FANTASTIC way to add more houses into the market, whether or not you hold on to that inventory long term.

Shifting your investment mindset

Jay Hartley is known as one of the best property managers in the Dallas-Fort Worth real estate market. He began like many investors with buying and renting fixer uppers.

Eventually, inventory started getting tight, prices escalated, and returns diminished. That’s when Jay took his first steps into development.

“We had to look at the marketplace and see where the opportunity would be to add inventory,” Jay says. “We started looking at acquiring vacant lots that were already in subdivisions and doing what they call infill.”

Infill meant building one or two homes on lots in subdivisions and then either renting or selling those homes to investors as turnkey properties.

It wasn’t long before Jay’s successful turnkey model got plenty of competitors and Jay took it to the next level. He utilized the economies of scale by getting into bigger developments and subdividing tracts of land. That’s also when he started building his network and expanding his education.

“I had some clients in the building business,” Jay says. “I took them to lunch and started picking their brains.”

Jay soon learned it was a smart idea to partner with a few builders early on. But then the key to sustaining his business was to keep his contractors busy with his projects so he didn’t lose them to other projects.

Real estate development doesn’t necessarily mean you’re the one swinging the hammer. In many ways, it’s orchestrating OTHER contractors and moving parts to complete a job. That also means managing labor.

“One of the biggest issues we’re dealing with right now is having labor ready and available,” Jay says. “If we don’t keep them busy, we lose that framer, we lose that concrete guy, we lose that roofer. We try to set them up to go to one job site to the next to keep them busy and on my job.”

As the deals got larger, Jay had to deal with the growth spurt in his business. He was always known as the property management guy, but had to shift his mindset as he shifted into real estate development. One of those moves was toward selling properties rather than buying and holding.

“I’m not afraid to sell them anymore,” Jay says. “I was a collector before, and it was tough for me to wrap my head around selling them.”

But, with some help and guidance, he was able to work through those mental roadblocks and scale up his business!

Get rich in a niche with a network

Rolling with changing markets is what makes an investor successful long term. Even though Jay was doing really well in property management, he saw a need for more inventory in the market. So, he became one of the people to create it! That has also set him up to know about lots of different types of real estate, and it’s another tool in his toolkit.

“It’s not about what I’ve done. It’s about who I’ve met,” Jay says.

Building a network of people with all kinds of unique backgrounds is a way to tap into their experience. Jay says you can take classes and watch videos, but watching flipper shows on television doesn’t mean you know how to flip a house. Partnering with people on a build job, however, is worth its weight in gold.

And that’s the essence of most development. It’s done through syndication and joint ventures. You can partner up with people who have the land, capital, or expertise you need, and you can put together a great deal.

Jay started out financing his own projects, but it wasn’t until he started tapping into syndication that his business really took off. He attended a few of our programs on syndication and sales, and they catapulted him into success.

“I’ve been in real estate all my life,” Jay says. “The training there, I didn’t think I really needed it. It was enlightening … it gave me the tools and the ability and the confidence to talk to clients and investors and pitch!”

Jay’s journey has been propelled by his ability to be ambitious and coachable. The ability to shift and adapt to new markets is how he keeps his skills sharp and his business growing.

If you’d like to learn more about real estate development and property management in the Dallas-Fort Worth market, get on the inside track with Jay. Send an email to dallasdeals (at) realestateguysradio (dot) com, and we’ll connect you with Jay and his expertise!

And, we hope to see you at some upcoming events. Secrets of Successful Syndication and How to Win Funds and Influence People are packed full of information that you won’t want to miss. Register now!


More From The Real Estate Guys™…

The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training and resources to help real estate investors succeed.

Apartment Market Forecast 2018

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

Listen



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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.


More From The Real Estate Guys™…

The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training and resources to help real estate investors succeed.

It’s fun to LOVE the right real estate …

For Valentine’s Day we thought we’d muse on why the right real estate is easy to love.

Of course, the operative word is “right” … as in Mr. or Miss “Right” …

… because anyone who’s been in a bad relationship knows it’s hard to have the right relationship with the wrong person.

And the same is true with real estate.

Right now, stock investors are realizing their investment vehicle of choice is a little bi-polar.  When it’s good, it’s great.  But when it’s not … watch out below!

As we’ve already noted, we view the volatile stock market as a wonderful gift.

And while we don’t want to judge anyone else’s relationship … for us, it refreshes our love affair with the right real estate.

So let’s take a look at some clues in the news about where we might find the right real estate.

Retail vs Industrial vs Multi-Family

As is often the case, the flip-side of a problem is an opportunity.  In the case of the allegedly Amazon fueled retail apocalypse, the flip-side winner is industrial.

In fact, this NREI Online article reports on their survey of commercial real estate investors … and some interesting points are raised …

“ … the industrial sector is giving multi-family a run for its money.”

“ … whether it comes to occupancy rates, rents or even cap rates, sentiment has improved …”

“A majority [of respondents] think [the expansion cycle] will last more than a year …”

Now if you’re not a commercial property investor (yet) … there’s still useful insights here for you too.

For residential real estate investors … both single- and multi-family … it’s smart to pay attention to the flow of industrial and office investment.

After all, your residential tenants need places to work.

So when you see capital flowing into industrial and office properties, it can be a good sign for local area employment.

The survey also found …

“… a majority of respondents (64 percent) said warehouse / distribution facilities in traditional locations would be most in demand going forward.”

And quoting one of the respondents …

“E-commerce has resulted in changes to product shipment from distribution centers, as opposed to from retailers.”

These surveys are interesting because they represent fairly current viewpoints of marketplace actors.  These aren’t economists, researchers, or academics.

The respondents are the people with the checkbooks … who are deciding whether and where they’ll invest … or not.

So it’s one thing to listen to experts speculate on what decision-makers will do … and another to hear directly from market participants.

It’s just another of the MANY reasons why we attend live conferences where we can have “man in the market” conversations …

… often with people who have no marketing agenda … and are willing talk candidly about what they’re doing and why.  Those conversations are gold.

While far from scientific, it’s a great way to get a sense of a market, sector, or demographic … and affirm whether or not some pundit’s prediction has any real-world validity. 

Shift Happens

As e-commerce changes how retail businesses operate, their landlords feel the pain too.

But as the retail business shifts from walk-in to delivery service … while challenging for mall operators,  it means a big boom for distribution …

.. .and the markets, properties, and jobs that make distribution happen.

We’ve been longtime fans of distribution towns like Memphis and Dallas for this reason.

Other great things about distribution include the creation of working class jobs (great for tenants),  in relatively affordable areas (better ROI on properties).

And those jobs are impossible to offshore because the work needs to be done near the consumers.

Of course, we hope President Trump’s pledge to bring manufacturing back to the United States works out “bigly”.

So we’re watching for the revival of rust-belt markets.  If we see commercial money move in, then residential is probably not too far behind.

But until manufacturing brings the front-end jobs back to the U.S., distribution is the other end of the supply chain.

After all, when all the stuff made in China and Mexico arrives in the United States, it needs to be distributed to the local consumers.

Commercial Investing … Not Just for the Rich

If you’ve ever gone shopping for a warehouse, big apartment complex, or mobile home park, you probably noticed they’re a little pricey.

But you don’t need to feel left out.

The secret to going bigger is syndication.  It’s a way to take your real estate investing hobby and turn it into a full-time enterprise … with a lot of upside.

It’s not as complicated as it seems because you can even hire the experts and mentors you need in whatever niche you choose.

We’ve seen many mom-and-pop investors build big multi-million-dollar portfolios simply by sharing their deals with private investors.

Of course, the other side of the opportunity is to be one of those “silent partners” in a syndicated deal.

So we created the Investor Registry to help private investors find the kind of opportunities they’re interested in.

Looking for Mr. (or Miss) Good Deal

Only the older folks will have any idea what that means … but everyone who’s ever date to find a good match knows it can be a minefield.

And yet, almost everyone does it anyway.

We realize the urge to invest isn’t as compelling as … well, you know …

But the point is there’s some work to do to find the investment markets, sectors, and opportunities best for you.  No one can do it for you … and it won’t happen by itself.

But like true love … when you find it, it’s awesome and totally worth the effort.

Until next time … good investing!


More From The Real Estate Guys™…

The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training, and resources to help real estate investors succeed.

Peace of Mind Investing

Some think of real estate as a long game … and it is. But does that mean you should devote your energy to a tricky investment for years?

It can be a smart choice to pick investments that will give you the life you want WHILE you’re managing your investment … not just after the fact.

There’s a cost for any investment … the cost of learning how to manage your investment. The question is whether you want your learning curve to be steep or gently sloping.

In this episode of The Real Estate Guys™ show, we chat with return guest John Larson about what criteria investors should look at to reduce trouble and toil. We’ll also chat about Dallas … why it’s a great market for peace of mind investments, and whether it’s too late to buy there.

Listen in! You’ll hear from:

  • Your dazzled-by-Dallas host, Robert Helms
  • His dallying co-host, Russell Gray
  • Eight-decade investor Bob Helms
  • Turnkey real estate provider John Larson

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Is it too late to invest in Dallas?

Dallas is a shining star. Job markets have demonstrated incredible growth. Expense ratios are down because of rising rents, and the potential for appreciation is going up.

The city is also attractive to both international and local investors. When people who actually live in a market want to work with investors, you know it’s a hot market.

Dallas has been on our shortlist of great investments for a while, but with its recent growth, some investors are asking themselves whether it’s too late to invest in the city.

John Larson is a managing partner at American Real Estate Investments (AREI). These days he spends a lot of time in Dallas, one of AREI’s top markets.

We asked him whether it was too late for investors to get in on this Texas hot spot.

John told us, “The window is closing, but there’s still opportunity.” John thinks Dallas is still an affordable market … for now.

What happens if investors don’t get in now? It really might be too late, John says. It’s not that depreciation will continue, but that the rent numbers won’t work because of the discrepancy between the cost and the rate.

The A-class strategy

In John’s view, buyers should prioritize good neighborhoods, solid properties, and responsible demographics. The challenge with dying markets is that there are many additional expenses and responsibilities … filling frequent vacancies, doing frequent upkeep, and evicting tenants and finding new ones.

In the same vein, rental properties simply won’t perform if there isn’t anyone to move in. Although properties in better neighborhoods may cost more, vacancies will be far lower. And in general, Dallas is far and away less expensive than most other major U.S. cities.

Your goal shouldn’t be to invest the absolute least amount of dollars possible, but to get the best return. John’s trick for finding worthwhile properties is to look for an after-repair value of $300,000 or more.

Investors benefit from higher rents for higher value properties because they will not only get positive cash flow, but they won’t be likely to get tenants who will have to be evicted or who run out without paying rent.

Because of economy of scale and efficiency, businesses like AREI can provide deals that would be hard to find elsewhere in a popular market … off-market deals that can be offered at reasonable prices.

We asked John what an ideal investment looks like. John specializes in single-family rentals and sees a lot of potential with these properties. He told us he’d zoom in on three things:

  1. Start with the market. John wants to see a growing, diverse economy that doesn’t rely on one industry for jobs.
  2. Look at the median home price. The national median home price is about $250,000. The ideal market should have home prices in line or below the national average … otherwise, investors won’t find affordable properties.
  3. Look at rental rates. Investors should look for strong rental prices and high demand. Tenants paying the median rent should be solidly middle class.

Investments that fit these criteria are low-risk because they provide a good cost-to-return ratio and offer stable, predictable returns. Go lower, and you’ll never get a passive investment because there is too much upkeep and unpredictability.

Investors from high-cost markets like California looking for a place to park their money are flocking to Dallas because it offers both good cash flow and the potential for continued appreciation.

Designing your personal investment philosophy

As the Real Estate Guys™, our investment philosophy has changed a lot over the years. In the beginning, we were drawn toward fantastically priced properties in lower class neighborhoods.

We had to get our heads around the fact that crap happens in poor properties in bad neighborhoods … even with overwhelmingly fabulous managers.

On paper, great properties in nice neighborhoods don’t sizzle as much in terms of returns, but they make life much more enjoyable and perform more consistently.

Want a relaxing retirement? Don’t get headache properties. We’ve learned it really is true that you get what you pay for.

The properties you invest in should be properties you’re comfortable holding forever … properties you’d be comfortable having your children manage.

Many new investors start out looking at lower-priced, lower-class properties, and then move to the A- and B-class properties like we did.

We think perhaps investors should turn that paradigm around and start with the low-hassle, low-risk properties, then work their way to the harder-to-manage lots.

Choosing a successful market

John strategically picked the Dallas market to invest in. So, we asked him what other markets he’s doing business in, and why.

John started out in Kansas City and St. Louis with AREI, and he says that area is a solid place to make an investment, especially in B-class properties. Because property taxes are lower, investors may see a higher rate of return as well … although the area is not experiencing the same exponential growth as Dallas.

John’s goal is to stay out of C-class properties, although investors who already have a few properties in their portfolio may want to consider investing in different types of properties to get nice blended returns.

Dallas will eventually top out and get too expensive. John thinks when that happens, investors will see secondary markets start to explode … which is why he is always on the lookout for the next best place to invest.

Get educated

We loved having John on the show because Dallas is absolutely on our short list of great places to park your money.  

With solid A- and B-class neighborhoods, high-caliber tenants, increasing demand, and a diverse job market, we’re not the only ones interested in Dallas. Now is the time to get in, while you can.

But investors new to Dallas need more than a good property … they need boots on the ground. A solid market plus a solid team is a killer combination.

Interested in seeing how John and his team acquire and rehab properties? Check out AREI 101, an education series by AREI chock-full of helpful information. And listen in to the show to get access to a special report John’s compiled just for our listeners.

Whether Dallas is the market for you or not, we hope we got you thinking about the difference between a property with the best possible cash flow on paper, and a property with more modest returns and significantly less headache.

Want to see Dallas for yourself? Get on the advance notice list for our Dallas field trips here so you can be the first to know about upcoming trips with The Real Estate Guys™.

Like we always say, effective action requires education.


More From The Real Estate Guys™…

The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training and resources to help real estate investors succeed.

11/30/14: Deep in the Heart of Texas – The Real Estate Landscape in Dallas

The Dallas real estate market, just like the Dallas TV series and the Dallas Cowboys, just won’t go away.  It’s one of the most resilient, tenacious, dependable real estate markets in the world.Dallas has proven to be one of the best real estate markets to invest in

To find out what’s doing in Dallas, we pay a visit to two of our boots on the ground team.

  • Hosting the hot talk, Robert Helms
  • His tenacious temporary co-host, Russell Gray
  • Returning contributor, Jay Hartley
  • Special guest, Pam Blanco

Our expert guests for this episode are both active Dallas Metroplex real estate professionals with a long history of residential brokerage and property management.  They were there before Dallas caught the world’s attention…and they’re there now.

And because they both deal with investors from all over the world as well as tenants right there in town, they have a perspective that just can’t be found simply reading headlines, charts and graphs.

Most investors buy local and don’t see the big picture.  That’s a great way to get blindsided by things like bond market collapses.

Some investors are big picture only.  They study a market from afar, decide it’s the one for them, and then throw a dart at a map and buy whatever it hits.

That’s a great way to become the proud owner of a huge problem on a bad street.

We think you need to have both a big picture perspective AND a strong local market team who can help you find the right neighborhoods, properties and tenants.

Pre-recession, Dallas was a pretty ho-hum appreciation market.

While markets like Las Vegas, Phoenix, Florida and California were shooting to the moon…Dallas plodded along with a great economy, solid employment, good cash flows…. and boring stability.

Then, when the sub-prime bomb detonated and all those high-flying appreciation markets imploded….

Dallas just sat there.

Sure, there was an increase in foreclosures, a decrease in values and a decline in job growth.  But compared to the rest of the country’s pneumonia, Dallas only caught a cold.  And it quickly recovered.

Long time listeners know that this is when Dallas caught our attention.

Just like in human relationships, your relationships with markets will be tested.  And when the chips are down, you find out fast who your friends REALLY are.

In the Great Recession, Dallas demonstrated its dependability.  Suddenly, boring was beautiful.

Over the last five years, we’ve discovered a whole new sexy side to Dallas.  It’s been one of the leading appreciation markets coming out of the Great Recession.

It turns out that we weren’t the only ones who suddenly got interested in Dallas.  Wall Street hedge funds got heavily involved.  So did Mom and Pop real estate investors from all over the world.

The lesson is that solid fundamentals will almost always leads to a solid trend.

The bigger lesson is that if you focus on fundamentals…the inner beauty of a market…and not just the glamorous make-up of a hot trend…you can catch a rising star.

Today, Dallas is hardly a secret.  Investors worldwide know Dallas real estate is a great place to store and build wealth.  So it’s no surprise that 11% of the home sales are to foreigners…or that hedge funds have bought up thousands of properties.

Does that mean that the deals in Dallas are done?

Not necessarily.  But they’re harder to find.

So getting into the deal flow in ANY market is essential…and even more so in a high demand market like Dallas.

The key to getting into the deal flow is having great relationships with well-connected people in the local market.  The closer to the street they are, the more likely they are to find the opportunities others overlook.

So listen in to this episode to hear from two real life pros who live in the trenches in the Dallas Metro…and if you decide Dallas is a market you’d like to explore, make plans to join us for a fun-filled field trip!

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The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training and resources that help real estate investors succeed.

4/8/12: Choosing the Right Market – An Engineer’s Perspective

Is there a scientific way to approach market selection?  Something the average real estate investor can do – or at least understand?

To find out we went deep into the heart of Silicon Valley where we rustled up a left-brained engineer turned real estate investor.

In the laboratory for this electric episode  of The Real Estate Guys™ radio show:

  • Your right-brained host, Robert Helms
  • Your hair-brained co-host, Russell Gray
  • Special guest, our mad scientist of market methodology, Tom Wilson

What you do when you’re an “A” student with a 30 year career as an engineer and corporate manager, and you take a critical look at your financial future and see a nuclear meltdown?

For Tom Wilson, he called upon his engineering background and managerial experience to design a better outcome.

Now we talk a lot about how a market “feels”, and going with your gut, and using the Force to guide you in your investing.  But guys like Tom just sit there with their arms crossed over their lab coat and slide-rule waiting for the formula.  In Tom’s case, he actually did a thorough analysis and designed a formula to real estate fortune.

But did it work?

Well, Tom’s no Donald Trump or even a Ken McElroy, but in the 10 years since he walked away from the corporate life of Silicon Valley, Tom’s done multi-millions of dollars in deals and has managed to accumulate 230 rental units.  Not too shabby for a propeller head.

So we sit Tom down and interrogate, er…interview him.  How did he do it?  What did he learn along the way?  Will he loan us some money?

Tom introduces us to the concept of a “sensitivity analysis” (and you thought engineers were all cold, clinical and calculating).  So we reach for our Kleenex and are all set to get in touch with our inner investor. Then Tom explains what a “sensitivity analysis” is and it isn’t what we think.

We find out that there are a number of factors (“variables”) which all affect outcomes in any experiment. In this case, we’re talking the financial performance and risk of real estate investing.

Now some of those factors are more important than others.   Some are WAY more important.  And wouldn’t you just like to know exactly what those super important factors are?  Of course you would.  But you’ll have to listen to Tom, because we wouldn’t do the topic justice – and goodness knows, you deserve justice.

But enough about Tom’s engineering background.  You’ll learn all about that when you listen to the episode.  And when you order his free report (details at the end of the episode), which is replete with charts and graphs, you’ll really get into the deepest recesses of his analytical mind.  Ooh Ahh.

For now, let’s talk about Tom’s managerial experience.  After all, to build a portfolio this big, you need to have a team.   This is where Tom’s success as a high tech manager kicks in.

He tells us about the character qualities he values most in himself and what he looks for in others.  He says he makes it a point to surround himself with people smarter than himself.  So both of those people work with him now. 😉  He shares some valuable tidbits of managerial wisdom and a dose of real world reality.  Let’s face it.  If people are involved, there’s going to be some brain damage.

Tom says he believes having patience and tenacity are essential to success.  It reminds us of a concept from Midas Touch by Robert Kiyosaki and Donald Trump: FOCUS – Follow One Course Until Successful.  We agree.  For guys like Tom, he’s smart enough to plan his work and work his plan.  Other guys (like us) are just too dumb to quit.

One thing’s for sure:  it’s very cool being radio talk show hosts because we get to hang out with lots of people smarter than us…like Tom Wilson.  And it’s our privilege to go find these big brains and bring the interviews back to you.  You’ll enjoy this one!

LISTEN:

The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training and resources that help real estate investors succeed.

 

 

12/18/11: Regional Roundup – Taking The Pulse of the U.S. Real Estate Market

So many markets, so little time!

Let’s face it.  When you get the hots for real estate investing, there are lots of tempting opportunities out there!

But before you go out on a market field trip date or get hot and heavy with just one market, why not get a quick sampling of what’s out there?  And as great as the internet is, sometimes you just need the warmth of a real human voice.

So we decided to round up 8 different real estate practitioners from 8 different U.S. real estate markets for The Real Estate Guys™ version of market speed dating!

In the studio and calling in from around the country:

  • Your ever debonair host of the show, Robert Helms
  • The ever air- headed co-host, Russell Gray
  • Our marvelous man in Memphis, Terry Kerr
  • Our Miami market maven, Deborah Boza-Valledor
  • Our amazing Atlanta affiliate, Bruce Carlisle
  • A guy who really knows the way to San Jose, Jurgen Weller
  • Our deal-making dude from Dallas, Jay Hartley
  • Our money man from Minneapolis, Rob “Boom Boom” Bonahoom
  • Our phabulous phriend in Phoenix, Timothy Theiss
  • The Washington DC Wonder Woman, Beth “Bubbles” Clifford

Wow!  What a line up! Like Santa in his sled, we decided to cover a lot of ground in a short period of time.  So we hitched up our eight market reindeer and headed into the foggy air of market prognostication.

We ask each call in contributor to give us a quick update on their market from their unique perspective – and what does 2012 look like?

We quickly find out that each market is different.  And each person’s perspective is different too!  That’s the beautiful thing about real estate.  There’s a LOT of variety!

We have a lender, a couple of turnkey property providers, an executive from the largest local Realtor® association in the USA, the manager of a large residential brokerage in a very pricy area, a property manager, an investment property broker and a real estate developer.  Different people, property types and price points, market personalities and perspectives.  Fun!

Some of these markets were killed in the Great Recession.  Others barely felt it.  Some are SUPER expensive, but people are still paying CASH.  And one has lots of foreign buys stepping in and snapping up bargains.

Want to know which is which?  Well, you’ll just have to listen in!  But have a cup of coffee, because this is a fast paced show.  Enjoy!

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The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training and resources to help real estate investors succeed.

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