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Investing Strategies, Rental Markets

Why We Love Forced Appreciation

One of the biggest reasons we absolutely love Multifamily Real Estate is because we can Force Appreciation. Don’t get me wrong – I love Natural Appreciation too. I don’t discriminate. Either appreciation is a beautiful thing, but being able to foresee and control an outcome is an amazing benefit of apartment investing.

So, what is appreciation? Appreciation is the increase in value of an asset over time. It can happen naturally or it can be forced. Natural appreciation, or market appreciation, happens the market is trending upward – in a seller’s market where demand outpaces supply, and there is little change in inflation and interest rates.

Think about our local market in the Dallas-Fort Worth metroplex. Both rental and property values have skyrocketed in the last 5 years. There is good reason for this – the DFW market has amazing job growth, population growth, education and workforce, diversity, infrastructure, friendly business climate – all on top of being a great place to live. It’s no wonder DFW has experienced the growth it has. That is natural appreciation. If you purchased real estate here in the last 5 years, you look like a very smart person right now.

Well, what if that Natural Appreciation slows down? Or what if you own real estate in a secondary or tertiary market? We buy real estate in emerging markets too, not as sexy as Dallas. The beautiful part of owning rental property is the fact that you can control the properties’ success through methods such as forced appreciation. 

The value of an investment property is based on the income that property is producing. In a nutshell, if you can increase the income the property is producing, you can increase its value. This is where forced appreciation comes into play. You can force appreciation in many ways, the most common being increasing rents and decreasing expenses – both will increase the property’s net operation income (NOI). Every $1 increase to the NOI can add roughly $8-$10 to your property’s value. These little increases add up pretty quickly! 

We know that through prudent underwriting, market knowledge and experience, and improved management, we can identify the most attractive and secure investments available today.

Happy Investing,

Sean C. Na

Investing Strategies, Personal Development

A Powerful Lesson from the Avengers Infinity War Movie

Talk about amazing results.

Since it’s release 11-days ago the new Avengers Infinity War movie sold about $1.16 billion at the box office.

That’s without China – the 2nd largest movie market – as it releases there on May 11.

And it’s on track to break $2 billion..

It already set a new world record it’s first weekend.  It could end up being Disney’s biggest movie yet – even bigger than Star Wars..

I’ve been so busy that I haven’t been able to watch the movie yet, but have you seen the trailer?

It’s pretty awesome and I can’t wait to see it.

It’s a story that was 10 years in the making and it’s epic.

Now, here’s where I started to see a connection with our business and I want to share it with you..

I’m sure you’ve heard this before.. If you want to go fast go alone.  If you want to go far, go together.. right?

If you want to achieve great results in life or business, you have to have an amazing team around you.

As good as Captain America is..

As good as Ironman is..

As good as Spiderman is..

As good as Thor, Black Panther, Spider-man, Black Widow are..

Because they wanted to help more people and had bigger challenges to overcome, they had to come together as a team.

See, this is the lesson of the story..

And if you think about it, this is so true in our lives and businesses too.

As multifamily operators, we do the heavy lifting of finding and assembling an amazing team to achieve amazing results.  By doing so, we can offer our investors the best opportunities in the market while taking a passive role, receive cash flow, tax benefits, and participate in profit.

For starters, here are the key members of the team we will assemble:

Brokers: the Multifamily space is definitely about relationships.  By networking and consistently analyzing deals (often times hundreds before we find the right one), we’re able to see the best opportunities available.

Property Manager: I can’t stress the importance of this role – a property manager can literally make or break a deal.  There are hundreds of companies to choose from – so how do we know who to hire?  We always start with referrals, then interview 2-3 of the best, and ask questions to make sure their proforma numbers and execution plan are realistic.

Lenders: As we analyze hundreds of deals, the financing can differ per property, asset class, market, etc.  And as interest rates and lending guidelines are always changing, we need have a good pulse on the lending market is crucial to our ability to pursue great investment opportunities.  This ensures a smooth closing, and the most competitive rates/terms.  This is why we’ve built relationships with the best lenders in the industry.

Real Estate Attorney: It’s important to have an attorney who knows real estate contracts and syndication to review contracts and handle the closing.  We have key relationships with the best in the business.

SEC Attorney:  The SEC has strict guidelines and they should not be taking lightly. A subscription agreement, operating agreement, and a Private Placement Memorandum (PPM) should be provided when making an offering available to Limited Partners (Passive Investors). The SEC attorney should have a strong track record working with syndicated multifamily deals. An SEC attorney can draft and file all necessary legal documents. By filing the PPM, everyone can rest assured that this deal has met securities laws when syndicating.

Due Diligence Team: Once a property is under contract, the right due diligence needs to be performed.  Between physically inspecting the property and auditing lease agreements and books, one of the members of the operating team can do this.  BUT, I would not recommend it.  We hire professional inspectors and auditors to be sure we do not miss a thing.

Insurance Agent: Being property insured is obviously important.  We’ve built relationships with insurance agents that know multifamily very well and in each market we invest in.

Happy Investing,

Sean C. Na

Financing, Investing Strategies, Personal Development, Property Management, Rental Markets

4 Main Benefits of Investing in Apartments (Multifamily)

Real estate is, without a doubt, a great way to grow your wealth.  You can do that through smaller 1-4 unit properties, or go big and buy bigger apartments.  Some say going big is the better way to go.. The question is, is it the right strategy for you?

  1. Economies of Scale in Acquisition and Operation

It is rather obvious that it will take less money and time to acquire one 200-unit complex as compared to 200 single family properties.  In multifamily investing, you will only have to visit, inspect, obtain financing, and close on a single property.  As you can imagine, you will save a lot of effort and time.

Multifamily properties help you to realize economies of scale. Many properties under a single roof are easier to manage compared to single family houses spread out in different areas.  For the individual homes spread out in different places, you will require multiple property managers, whereas with a single building you will only need one property manager.

  1. Forced Appreciation

The value of an investment property is based on the income that property is producing. In a nutshell, if you can increase the income the property is producing, you can increase its value. This is where forced appreciation comes into play. You can force appreciation in many ways, the most common being increasing rents and decreasing expenses – both will increase the property’s net operation income (NOI). Every $1 increase to the NOI can add roughly $8-$10 to your property’s value. These little increases add up pretty quickly!

  1. Risk is spread over multiple units

When you have a single family home and it is vacant for some months, you are left with a 100% vacancy for those months – leaving you to cover principal, interest, taxes, insurance, and any other holdings costs. On the other hand, if you have a 200-unit complex and 10 tenants vacate, you’re only at a 5% vacancy with 190 tenants continuing to pay the expenses.

  1. Leverage

I’m not talking about debt leverage – although there is very good financing for multifamily. When I say leverage, I’m talking about leveraging your network.

Let’s say we measure the results of 5 investors over a 3 year period.  They might be able to purchase 150-200 combined SFRs working independently.  With large Multifamily, the same 5 investors, working together, should be able to acquire 3,000-5,000 units in the same time frame.

The reason this is, Multifamily is a team sport.  And a successful team is made up of:

  • Other People’s Knowledge/Experience – Someone with Knowledge or Experience
    • If you want to qualify for a loan on your first apartment purchase, you’ll need someone with experience to sign on the loan with you.. otherwise, the bank will not fund the loan.  It’s usually not that difficult to find someone willing to do this if you have a good opportunity, because it’s a great way for someone with a large portfolio to acquire more doors with less effort.
  • Other People’s Time – Identifying the right opportunity, securing the contract, getting through due diligence, then operating it takes a lot of time and effort. If you don’t have the time but might have the experience or capital, this is a great way to participate in an apartment deal.
  • Other People’s Money – If you don’t currently have liquidity or cash, but have time and experience, this is a great way to participate.  You will first need to find a good deal, have a solid team in place with a track record of success.
  • Other People’s Networth – If you don’t have any of the above, but have high liquidity, you can help the team qualify for the loan by showing your liquidity.  Often times, you don’t even have to use those funds – just show the proof you have it.

If you’re interested in learning more about investing in apartments, we would love to connect with you!   You can always reach us at 972-696-9782 or sean@brandmark.com..