Tracking trends and making smart moves …

The winds of change are swirling like a tornado … even if they’re outside your personal horizon at the moment.

That’s why we stay up on the lookout perch … watching for clues in the news and shouting out what we see … so you have time to make smart moves.

A couple of things popped up that we think are noteworthy for real estate investors …

Private Equity is Moving in on Single-Family Rentals – NREI Online 2/4/19

“In the past, individual investors owned more than 80 percent of single-family rentals. Since then, the number has fallen significantly.”

“…individual landlords have been increasingly marginalized by big institutional investors.”

“When banks started to foreclose on mortgages, institutional investors swooped in, leaving individual landlords with new, outsized competition.

If you’re an active Main Street individual investor, you know inventory is hard to find in major markets … and it’s even harder to make the numbers work.

Of course, the article’s author runs a crowdfunding platform, so his implied solution is to join the crowd and invest in a bigger deal.

While we agree with the premise of going bigger, crowdfunding is only a solution for small-time passive investors because of government imposed limits.

So if you’re passive and want to go bigger, you need a better answer.  More on that in a moment.

But if you’re an active investor, then what?

Starting your own crowdfunding platform is a heavy lift.  You need tech, special licensing, and a crowd.  None are cheap or easy.

So how can an active Main Street investor compete, when the big boys are marginalizing the little guy?

You’ll need to find a way to go big and invest outside the box.

For us, that comes in two forms …

First, perhaps the best way for an active Main Street real estate investor to go big is to syndicate private capital.

It’s like crowdfunding … without the crowd or tech.  It’s still work, but doable for a Main Street individual.  In fact, we know MANY are doing it.

And for passive investors who need in on bigger deals without arbitrary limits, and want to be more than just a face in a crowd or number on a spreadsheet …

…. investing in syndicated private placements opens a world of opportunity.

So the synergy between active and passive Main Street investors should be obvious.  That’s why it works.

When it comes to investing outside the box …

… it’s REALLY important to pay attention to developing trends … and then paddle quickly and get in position to catch a wave.

For example, there’s a huge demographic wave known as the baby boomers.

You’ve probably heard of it. 😉

Boomers are getting old.  So real estate niches that cater to seniors is a hot sector … in both residential and commercial.

If you’re a passive investor, you can invest in a senior housing REIT, a crowdfunded big box project, or a privately syndicated residential facility.

They each have pros and cons.

But right now, margins on residential facilities are pretty fat.  That’s because the big boys are playing at the big box level … for now.

When we speak at Gene Guarino’s Residential Assisted Living Academy training, we point out … big money won’t ignore fat profits forever.

Big money’s already moving aggressively into single-family homes … bidding prices up and squeezing out late-to-the party individual investors.

Those who saw the big boys coming and paddled into place early are riding a nice equity wave.

This could easily happen with residential assisted living.  So it’s a bit of a land grab right now.  The good news is there’s .

That’s just one way to invest outside the box.

Another is to pay attention to economic trends and migration patterns.

Think about it …

As big players gobble up inventory in major markets, smaller investors … and eventually big money … will migrate outside the box into secondary markets.

For example, though Dallas is still a solid single-family market … deals are few and far between.

It wasn’t always that way.  When we started going to Dallas 10 years ago, it was the front end of a real estate boom that’s been GREAT for early adopters.

Today, markets like Kansas CitySalt Lake City and Cleveland are on our radar … each for a different reason, but they’re variations on a theme.

These markets have affordable price points with strong cash flows for investors.

They’re also attractive to Millennials (another important demographic to watch) who’ve been priced out of primary markets.

But it’s not just the young and cash-strapped who move for financial reasons.

There’s another important economic trend we’re watching closely, and it’s alluded to in this Washington Examiner article …

Cuomo’s woe: More taxation means more out-migration

Caution:  This is an opinion piece and you may not agree.

But the point is high-earners are leaving New York to escape high taxes they can no longer deduct from their federal tax bill.

This Bloomberg article elaborates …

Cuomo Blames Trump Tax Plan for Reduced New York Tax Collections

“Governor says wealthy New Yorkers are giving up residences …”

“…leaving for second homes in Florida and other states …” 

Once again, these trends are easy to see coming, watch develop, and then act on … BEFORE they pick up a lot of steam.

We’ve been excited about Florida for some time … and this whole tax thing just makes it better … especially for nicer properties.

So here’s the point …

We got a HUGE wake-up call in 2008 … and it wasn’t any fun.  But those lessons help us see trends and opportunities early instead of late.

The key is to pay close attention to clues in the news …

 … then get around REALLY smart people who can help you understand what you’re seeing … so you can act decisively.

Because if all you are is aware, but you don’t act … you might as well watch game shows.

But when you see a trend and have the right relationships, you can identity opportunities and take effective action quickly.

Everyone’s smart in hindsight.  But can you see the future?

Until next time … good investing!


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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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Going from Single to Multi-Family Investing

If the first property you bought as a real estate investor was a single-family home, you’re not alone.

This property type is a popular first choice for many … maybe even most … real estate investors.

But eventually, you’ll want to take your investing to the next level. If you’re at that point, this episode of The Real Estate Guys™ show is for you!

We’ll be chatting with our special guest about how investors can get started with multi-family properties … from duplexes to fourplexes.

Listen in! You’ll hear from:

  • Your next-level host, Robert Helms
  • His level-one co-host, Russell Gray
  • Consultant at Fourplex Investment Group, Steve Olson

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From house-flipper to investor

A bit about our guest … Steve Olson got his start in real estate at the tail end of his college career, when he flipped his first house.

He’s now an experienced investor who works to help other investors add value to multifamily investments.

We asked him for his thoughts on flipping now that he’s moved on.

“It’s not a bad thing to do,” he says, although he acknowledges flipping is not really real estate investing because you have to trade time for dollars.

“You have to know what you’re getting into,” he says. For many investors, flipping can be a great way to generate capital, but it’s not always sustainable.

Steve would recommend that new investors talk to someone who’s flipped houses before they consider that option seriously.

Taking the leap to multi-family properties

If you’ve started out in single-family housing … or even if you haven’t … multi-family properties are an excellent next step.

Steve specifically recommends two-, three-, and four-family apartments.

Why stop at fourplexes? For a good reason … Fannie Mae has loan options for investors that stop at four-family apartments.

These slightly bigger investments are the perfect next step up. And they allow you to fully maximize a Fannie Mae mortgage.

They also provide a more sustainable income source. Think about it … single-family properties are either 100 percent occupied or completely vacant.

But with a fourplex, even if you have one vacancy, you have a 75 percent occupancy rate.

There’s one problem with multi-family properties, though … and that’s demand. Because demand in the housing market is high right now, even for properties bought primarily by investors, cap rates are being pushed up.

Some investors resort to buying properties in bottom-of-the-barrel neighborhoods … but that’s a risky bet.

A return for a low-priced property might look great on paper, but a low return that actually happens is far better than a high return on paper that never happens.

Tenant quality is worth it for the peace of mind.

So how do investors find great properties … that aren’t in C-class neighborhoods? Steve has two options for investors.

Find lower cap rates with a value add

Cap-rate compression is driving prices up … but rents aren’t rising. Steve recommends that investors navigate today’s market by finding value-add opportunities.

Finding a respectable cap rate takes some maneuvering, he says.

He names two options:

  1. Buy a run-down apartment for a low price and add value after purchase.
  2. Buy land pre-construction and then add value by building new apartments.

With the Fourplex Investment Group (FIG), Steve helps investors navigate the second option.

He recruits investors before properties are even built—a win for investors, who can get a better cap rate, and for developers, who get risk removed from their plate.

So how do investments with FIG work?

  • FIG operates in four markets: Salt Lake City, Houston, Boise, and Phoenix. They are cautiously investigating new markets as well.
  • New projects start with a tract of land and a developer. Then FIG puts together a pro forma and releases the new project to investors four to six months before the build date.
  • Investors put down a deposit to reserve their spot, and FIG sets them up with construction financing.
  • Fourplexes (as well as some three-plexes and duplexes) are built in groups. Construction usually takes about 12 months. Investors get two to four brand-new townhomes … and one tax ID.
  • The average fourplex runs from 650k to 800k, depending on the market. Investors put 25 percent down and refinance when construction is complete.
  • FIG requires investors to use an in-house property manager, at least for the first two years of their investment. This provides stability and maintains the integrity of rents.
  • FIG sets up an HOA to preserve the appearance … and value … of the townhouse-style properties. Exterior maintenance of the properties is included.

“The fourplex model does well when the market isn’t doing well,” says Steve … and that’s the ultimate measure of whether your investment is a good choice.

Steve shared lots of details about how investors can get started in multi-family properties with FIG … but if you’re interested in more information about how YOU can make the jump to multi-family properties, please click here to request a report he compiled especially for listeners of The Real Estate Guys™ show.

Words of wisdom

We asked Steve what he wished new investors knew going in to a multi-family deal. He gave us a few words of wisdom:

  • “The pro forma is only as good as the neighborhood.”
  • “You’re not buying treasury bonds.” Steve says nothing … including a return … is guaranteed.
  • “When something goes wrong, that IS normal.” Investors have to accept there will be bumps in the road and …
  • View real estate investments through a long lens. A few months are not indicative of a long-term trend. Investors should be patient, Steve says.

We hope you gleaned some new perspectives from our conversation with Steve. We certainly did!

We believe in education for effective action … which is why we encourage you to seek out many different perspectives and relate them back to your personal investment philosophy.

The more ideas and perspectives you’re surrounded by, the more likely it is you’ll hit on something that perfectly aligns with your own goals as an investor.

So keep on listening!


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.

This market metric may matter most …

“Live where you want to live, 
but invest where the numbers make sense.”

– Robert Helms

Nice quote.  But it assumes you know what numbers to look at … and whether or not they make sense.

Many times, investors focus primarily on numbers related to the PROPERTY …

… things like rent ratio, gross-rent multiplier, cap rate … and of course cash flow after debt service.

Those are all SUPER important … and you should pay attention to those.

BUT (you knew it was coming) …

Individual properties exist in local markets, which are affected by both macro and regional factors.

Macro factors are things like interest rates, tax rates, and how other markets compare to yours.  Sometimes people move to find greener pastures.

Regional factors include local taxes, landlord laws, economic drivers, supply and demand fundamentals, net migration trends, etc.

So it could be a mistake to focus solely on the property’s numbers.  The market’s numbers matter too.

If your prospective property is in an area with downward trending regional factors, you might end up … as stock traders say … catching a falling knife.

Think Detroit many years ago …

Once the RICHEST city on the planet, Detroit boasted a population of about two million people.  Strong incomes, lots of prosperity, a robust real estate market.

Slowly … for many reasons we won’t delve into now … Detroit’s regional drivers began to weaken.

So even though the numbers on a property in Detroit back then might have looked good at some point during the decline …

… the regional market trend was working against you over the long term.

And just as a rising tide lifts all boats, a receding tide lowers them.

So we think it makes a lot more sense to pick your market BEFORE you pick your property.

Our approach is to pick a market first, then build a local team, and then let the local team help find the right properties.

This way, when you’re running numbers on a specific property, it’s in the context of a market you think has a stable or rising tide.

One market metric we suspect will become increasingly important going forward is rental affordability.

That’s because the long-term trend of net “real” prosperity for working class people has been down … and that’s probably not changing any time soon.

Of course, even if we’re wrong … and we’d love to be … being in affordable markets isn’t a liability.  Again, a rising tide lifts all boats.

But if an area is NOT affordable, you may not have a healthy supply of tenants able to pay your rent …

… and you risk being on the wrong end of a price war to maintain occupancy.

Of course, determining a market’s rental “affordability” is a tad more complicated than just running a pro forma P&L on a specific property.

For example, if rents are low, is the area automatically “affordable”?  Or if rents are rising, is the area becoming less affordable?

Not necessarily.

Affordability is about the ratio between wages and incomes, how many people in an area can afford the area’s rent, and comparing one market to another.

Maybe in an area where rents are rising, wages are going up even faster.  More people start moving in to earn those higher wages, which increases the number of people who can afford the rent.

So rents could be rising, yet the area is becoming more affordable.

Like we said … it’s a little complicated.

Fortunately, there are smart people who study these things and produce fancy reports we can peruse for clues … about markets, trends, and where opportunities are.

New York University’s (NYU) Furman Center cranks out all kinds of research related to housing … including their recently released 2017 National Rental Housing Landscape report.

Page 10 of this report caught our eye because it charts 53 big city areas (“metros”) and compares “share of renter households that were rent burdened” in 2015 versus 2012.

They define “rent burdened” as those tenants paying 30% or more of their income on rent.

Obviously, when a smaller percentage of people in a region are rent burdened, it means a greater percentage can afford to pay whatever the going rent is … and absorb increases in rent or other living expenses.

This puts a little recession insulation in your income property portfolio.

So a number that “makes sense” for a market could be a low percentage of renters who are rent burdened.

Of course, it’s also wise to understand why rents are low relative to incomes.

It could be driven by falling rents (bad), rising wages (good), increases in rental stock (maybe bad), net in-migration (good), or any combination of those and other factors.

So we’re not here to suggest simply because an area is becoming more affordable, it’s automatically a great market to invest in.

But it’s a clue … and worthy of further investigation.

What’s nice about the NYU Furman report is it compares 2012 to 2015 … so you can see whether a metro is trending better or worse for this particular metric.

If a market is more affordable in 2015 than it was in 2012, it’s positive in terms of the number of people who can afford to pay the going rent.  More qualified prospective tenants is a good thing.

Of course, if affordability is driven by primarily by falling rents and rising vacancies, it’s a red flag.

But markets with increasing affordability, and stable rents and occupancies, should probably end up on a short list of markets to pay a visit to.

We’d probably further narrow the list to cities where median rents are in the middle to lower price range compared to other markets …

… because if there’s macro-pressure on renters … say rising expenses in food, energy, healthcare, taxes, or interest … they may move to more affordable areas to find some budget relief.

In tough times, people don’t typically move to more expensive areas. They look for places that are more affordable compared to where they are.

Again, it’s EASY to invest in a rising tide.  But it’s always smart to be ready for if (when) the tide goes out.

All things being equal, a market with rents to the mid-to-low range on a national scale is probably safer when sailing into uncertain economic seas.

So have some fun in the report … toggling between page 6 (median rent by metro) and page 10 (share of rent burdened households).

Look for metros which are affordable locally based on a low percentage of rent burdened population, with increasing affordability from 2012 to 2015 …

… and also affordable nationally when compared to the average rents of other metros.

Kansas City is best for lowest population of rent burdened, with a solid improvement from 2012 to 2015 … and it’s more affordable nationally than two-thirds of the list.

Oklahoma City, Cincinnati, Louisville, and Salt Lake City all also look pretty strong based on these metrics.

Again, this isn’t a final conclusion about great housing markets.  But it’s one set of numbers to consider when looking for markets to investigate.

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.