Street Smart Success

Most new businesses fail within their first five years. That’s why, if you’re considering going into business, investing in a franchise can be the best way to go. Investing in a successful franchise mitigates a lot of risk by aligning yourself with a proven concept and a leadership team that teaches you the operational components of the business and how to become successful. Kim Daly, a franchise consultant with Franchoice, is one of America’s top franchise consultants. Kim matches people with vetted franchises that fit their strengths, experience, and personalities.

Although most asset classes in Real Estate have become saturated, smaller industrial is still wide open with market inefficiencies and fewer investors pursuing it. There are great deals on properties priced under $20,000,000 with credit tenants, in supply constrained markets, and under the radar of larger institutions. Lance Pederson and his partners at Resonance Capital are acquiring solid B class properties in six states across the industrial heartland. They’re implementing simple value-add strategies, mostly around leasing, that are creating huge increases in asset values in a relatively quick period of time.

When it comes to making money, flexibility is a key ingredient because things are always changing and fluid. Right now, despite signs of huge distress, rising interest rates, and economic volatility, prices for most Real Estate assets are still priced too high for experienced, disciplined investors to pay. As a result, there’s a lot of dry powder in the market, especially with smart intuitions and Private Equity. Many are pivoting from acquisitions to ground up development. Omar Kahn, Managing Partner of Boardwalk Wealth, has diversified from multifamily acquisitions to doing a 1200 unit ground up development is Sioux City, South Dakota. He also opened three franchised healthy food restaurants in Central Florida.

Many Real Estate investors who start out in residential properties gravitate to commercial asset classes like office, industrial or self-storage. With these asset classes, you have fewer interactions with tenants because they don’t live in the properties with all the drama that this can entail. Jonathan Hayek, founder of Endurance Properties in Cheyenne, Wyoming, started with single family houses and small multifamily properties before acquiring a vacant small office building which he works in and filled with local tenants. Jonathan is now looking to expand beyond Cheyenne into other commercial assets including warehouses. He’s searching in markets with over 100,000 population.

In order to generate great returns in a saturated market, identifying an asset class with a high barrier to entry can be necessary. Affordable Housing, in particular, can be a challenge because of steep municipal regulatory hurdles and compliance issues that make acquisitions and operations complex and difficult. As a result, few investors have the bandwidth that it takes to operate these properties. Denis Shapiro, Managing Partner of SIH Capital group, is launching his second alternative investment fund which will be comprised largely of Affordable Housing complexes plus debt investments that will generate upwards of 10% cash flow to investors. 

In an environment where it’s difficult to achieve significant cash flow with direct equity investments in Real Estate, investing in the debt can be an attractive option.  Investing in debt usually has less risk and can generate yields as high as 9%-11%, and sometimes even higher, with the assets as collateral. Carrie Cook, President of Ignite Funding, makes investing in Real Estate available to people who always wanted to invest but didn’t think they could afford it. Through Ignite Funding, individuals can invest in loans against specific pieces of Real Estate in different asset classes for as little as $10,000.

In any business, economies of scale result in more efficiency and profitability. Multifamily investing is no different. Instead of operating in multiple markets and managing several different management companies, you can streamline your efforts while reducing risk and generating better returns by focusing just one of a select few markets. Having a presence in fewer markets can also make acquisitions easier as you establish a stronger presence in the local broker community and gain access to more off-market deals. Mike Roeder, Co-founder of Granite Towers Equity Group, has 2500 units mostly in Dallas Ft Worth and more recently Nashville. Mike’s plans for the next couple years are to double down in these growing markets.

There are many ways to invest in Real Estate successfully, but one often overlooked vehicle is publicly traded REITs. Publicly traded REITs are funds comprised of public Real Estate companies, many focused on one asset class. Whether it’s a Multifamily fund, Cell Towers, Cannabis, Mobile Home Parks, Self-Storage or others, the world of REITs has grown dramatically over the past several years. By investing in these funds, you get access to some of the best Real Estate portfolios in the country with great diversification across asset classes and geographic markets. David Auerbach, Managing Director of Armada ETF Advisors, helps clients invest in publicly-traded Real Estate that provides consistent dividends, appreciation, and the liquidity you get when you invest in public companies. 

Getting a high yield on cash flowing residential property has gotten harder, even in secondary and tertiary markets. Even with interest rates climbing over the past year, which makes properties hard to cash flow, sellers have not lowered expectations for what they think their properties are worth. As a result of this and a tighter lending environment, sales volume of commercial properties has contracted 70% in recent months. Mark Updegraff, CEO of Raze Capital, acquires, manages, and develops commercial properties in Rochester, New York where prices are still prohibitive. In order to expand, Mark is starting to raise capital for other asset classes in other markets with co-General Partners.

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