Street Smart Success

Finding strong cash flowing properties has become increasingly difficult over the past several years as the amount of money chasing Real Estate has risen dramatically. Most properties typically require a value-add business plan which can take months, if not years, to complete before generating cashflow. In-place cash flow, however, is a rarity. One exception is government-sponsored Section 8 homes, or smaller, 1–4-unit apartments. These properties cash flow right out of the gate. Mat Simmons, Managing Partner and Founder of Simmons & co, is on his way to building a portfolio of 1000 Section 8 properties he can eventually sell to a larger institutional investor. Investors in Mat’s fund are enjoying risk-adjusted, high-teens annual returns that are paid monthly.

The market for multifamily right now is seeing severe headwinds. Escalating insurance costs, rising property taxes, and rising interest rates are just a few. As such, sponsors need to deploy special deftness and adaptability to survive over the next couple years. On the transaction side, sales volume has fallen 70% from last year as the buyer-seller bid/ask delta still remains high. Even though there are danger signs, distress has not yet been ubiquitous and sellers and buyers still have a wide gap in their pricing expectations. Cody Laughlin, co-founder of Blue Oak Investments, has partnered on several multifamily deals with other General Partners and also runs his own deals in Central Texas. 

Investing in older, infill markets that are poised for repositioning and growth can be a recipe for huge appreciation. Over the past decade, several cities in Northern New Jersey with easy access to transportation have seen explosive growth in values. Gentrification has led to changes that have made these areas desirable to live in for upscale demographics. Aaron Fragnito, Co-founder of People’s Capital Group, is an apartment syndicator who invests in smaller apartment buildings in Northern New Jersey and rehabs them to optimize their full potential. Aaron is a buy and hold operator who achieves return-of-capital via refinances.

One of the oldest, tried-and-true ways to make money in Real Estate is to flip houses. Although not easy, it can be started with almost no money, just a lot of effort. Most people fail at it, but some do well, a select few make millions. If you don’t have capital, there are hard money lending companies and private individuals who will lend you all the money you need to buy and rehab a house. When it comes to finding the right house to buy, you can buy from a wholesaler who buys the home directly from an owner. In this scenario, you don’t have to hunt the deals down, a lot of the initial work has already been done for you. Sam Primm, co-founder of Faster Freedom, flips hundreds of houses per year and is currently teaching 1100 students to do the same.

When you operate in the market where you live, it reduces a tremendous amount of risk. It takes years to develop relationships and the historical perspective to have a block-by-block familiarity that stacks the deck in your favor. This intimate knowledge enables you to more easily find deals across asset types and identify great local partners to ensure success. Tyler Cauble, Founder of the Cauble Group, a boutique commercial brokerage firm in Nashville, has also done various development projects including value-add C Class suburban office, ground up townhomes, and more recently, large scale multi-use projects.

There tends to be a prevailing focus on markets with growing population and job growth as the places to invest. While this makes obvious sense, these markets are much harder to identify discounted opportunities and often promise lower returns. That’s why smaller, older markets with less competition sometimes offer better returns, especially when you have an operator that specializes in the market.  Axel Ragnarsson, Founder of Aligned Real Estate Partners, owns 200 units in Southern New Hampshire with complete vertically integrated property management that translates into lucrative returns. Axel is also specializing in Central Florida between Tampa and Orlando with similar success.

Warren Buffet and Charlie Munger invest on the basis of value, not the economy. Good investing, versus speculating, should be boring, like watching paint dry. You want to protect your capital and get appreciation as a bonus. Chasing unrealistically high returns can cost a lot of money and create a lot of pain. Paul Moore, Managing Partner of Wellings Capital, has an impressive track record in investing in conservative asset classes and assets that are resilient, recession resistant, and stand the test of time. Paul’s latest focus Is on RV Parks. Five times as many people own RV’s today compared to just three years ago.

In the past several years, it got increasingly difficult to find the right deals in Real Estate, especially Multifamily. People were just paying too much across the board. In the past several months, however, the market has turned significantly with far less competition and many more distressed sellers, especially with C class properties. Amy Rubenstein, CEO of Clear Investment Group, has an incredible track record acquiring distressed C class properties 300+ units in secondary and tertiary markets and turning them around with consistent double digit and even triple digit returns for investors.

As an entrepreneur, it often takes a lot of attempts at different things before you find your niche and path to riches. Some key characteristics of many entrepreneurs are the ability to learn from mistakes and the fortitude to bounce back from failures that sometimes cost a lot of money. Peter Vekselman, Real Estate investor and Coach, has done several different things including being a top Amway performer in his early years before getting into Real Estate. Peter shares his story including his current success flipping thousands of single-family homes and coaching others to learn to do the same.

Even though you can buy and operate properties on your own, it can be time consuming and a hassle. Partnering with syndicators in larger deals, however, can generate better returns without the headaches and stresses of managing property. There are quality syndicators that have years of experience in specialized asset classes and markets, and a track record of generating consistently high investor returns. Joe Giuliacci, a Passive Entrepreneurial Investor, has invested in 35 passive deals over the past four years and shares his experience of generating passive income plus capital appreciation on deals that have gone full cycle.