Street Smart Success

If you want to invest in Real Estate but don’t want to be a hands-on operator, a great way to participate is through hard money lending. When you invest with the right company, it’s a conservative investment that provides high yield, consistent passive income with better liquidity than hard assets. Brock VandenBerg, President of Talimar Financial, started out lending his own money to house flippers before raising money from other investors. He now has a fund that lends mostly on single family homes in the San Diego market. 

40% of floating rate Multifamily projects acquired over the past few years will not be able to get refinanced. This will cause distress for operators and opportunities for acquirers. Additionally, increased insurance costs, especially for older properties, and increased property taxes are further burdening properties’ net operating incomes. As a result of these challenges, experience and the ability to flawlessly execute on business plans has become of paramount importance over the last year as the market has changed. Brennen Degner, Managing Partner of DB Capital management, specializes in Multifamily in suburban submarkets of major metros with high paying technology jobs. DB Capital owns 3000 apartments in the Mountain West and Texas. 

As the cost of capital has increased dramatically, and generating yield has gotten more challenging, institutional investors are increasingly looking for specialized niches within sectors to invest in. Outside Storage, Cold Storage, Senior Living, and Affordable Housing are just a few examples of burgeoning niches. Institutions also prefer vertical integration and invest heavily in underwriting the managers of assets to reduce risk. Deborah Smith, Co-Founder and CEO of The CenterCap Group, provides strategic advisory, capital-raising and consulting related services to private and public sector companies and fund managers across the real estate industry.

When it comes to investing, there are always risks. Despite countless resources on how to vet operators and deals, the most important decision you’ll make is who you invest with. Proformas and projections are at best, educated guesses, and things rarely go according to plan, so the differentiator is the operator. The best operators have moral fiber, and as important,  successful track records, competence,  and an ability to adapt to changing circumstances on the ground. Litan Yahav, an experienced passive investor, invests with either people he knows personally, or is referred by someone he knows personally. Litan believes the operator is more important than the asset class or specific deal. 

Increasingly, Real Estate investors on the coasts are deploying money into the Midwest. Not only are these markets less expensive, but many of them are thriving like never before, and are less volatile. Markets like Columbus, Indianapolis, Kansas City and several others are seeing massive job and population growth. People are leaving the coasts and moving to these markets for a higher quality of life. Lee Ripma, a multifamily broker and investor, started investing in Kansas City and moved during covid from L.A. to make KC her primary market for both living and investing. Lee chose Kansas City based on a Google search for the nation’s top 10 most affordable markets and never turned back. 

Nothing has caused more heartache and stress in Real Estate than too much debt. Leverage can work great in upmarkets, but it can cut the other way in a downturn.  Joel Friedland, Principal of BRIT properties, has been buying infill industrial properties with all cash since learning the hard way during the 2008-09 financial crises. Joel and his investors are seeking very conservative investments with the number one goal of capital preservation. He buys highly sought-after properties that result in average sixteen-year duration tenancies. Joel specializes in industrial properties in Chicago that deliver 8% unleveraged returns.

Nothing ensures success more than focusing on what you love and what you’re truly good at. Real Estate is a multi-trillion-dollar industry with many avenues to pursue, but you’ll thrive the most by identifying your strengths, and as important, your weaknesses. Logan Freeman, Co-founder of FTW Investments, made some costly mistakes early on, but now specializes in select asset classes and markets in the Midwest within driving distance of Kansas City. Logan is now sticking with what he understands and emphasizing his areas of expertise. 

Over the past several years, most operators in Real Estate did incredibly well, often regardless of experience. The rising tide lifted all boats. Today, more experience and skill will be required to acquire properties at the right price and operate them successfully. Having an established network of local brokers, local lending sources, and vendor contacts are becoming more critical in a market with far less margin for error. Specific asset class and market focus will also be paramount. Josh Ferrari, founder of Ferrari Capital, specializes in value-add multifamily in Alabama and Southern Mississippi, where he has vertically integrated systems and less competition. 

In commercial Real Estate, most asset classes are already saturated with competition. It’s difficult to identify opportunities that are still relatively undiscovered and provide great cash flow at the same time. An exception to this is RV Parks. Over 10,000,000 families in the U.S. own RVs and they’re hitting the road in greater numbers than ever before. As a result, many RV parks are operating at full capacity and raising their Average Daily Rates. There are over ten thousand RV parks in the country, and many are owned by ma and pa operators who’ve not maximized their potential. Dylan Marma, Founder & CEO of The Requity Group, owns several successful parks in the Southeast and is acquiring more as he continues to generate great returns for investors.

One asset class that performs well in any economy is self-storage. When people are downsizing, they need self-storage. When they’re moving, changing relationship status, or running out of space for any reason, they need self-storage. Self-Storage is also great because rents are typically month-to-month, so you can raise rents with relative ease and not a lot of resistance from tenants. Charles Kao is an expert in self-storage development and operations who consults with investors all over the country on project feasibility, design, and technology to achieve the highest levels of profitability. Most importantly, Charles helps clients determine whether a new facility will generate high enough rents to make money.