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Why Single-Family Markets Matter to Multifamily

Why Single-Family Markets Matter to Multifamily
The multifamily and single-family rental industries have their share of differences, from disparity in scale to NOI growth and market presence. But some considerable overlap exists between the two asset classes in terms of investment opportunities.  An increasing number of multifamily owners and operators are looking to expand in build-to-rent single-family housing because the single-family asset class is on track to outperform other real estate sectors over the next decade. Suburban Sun Belt markets, specifically, present the most overlap -- and competition -- between multifamily and single family. While operations and expenses vary between the two asset classes, drivers of demand and rent growth are very similar:  Similar rent growth driversData from Markerr found the key rent growth indicators for both asset classes are job, income and population growth. Considering multifamily and single family share the same rent drivers and demand indicators, leveraging alternative, granular data with real-time updates is immensely valuable to both asset classes as the investment space gets more competitive. Looking at unique, granular data can identify attractive opportunities at the market and submarket levels that may not be apparent to investors, owners and operators relying on traditional data.  Overlap in resident profiles Suburban Sun Belt markets have been outperforming all other markets in terms of revenue growth, and single-family rentals in these markets pose the biggest competition to multifamily communities, according to a single-family investment report from Markerr. A recent report on single-family markets note that exurban and suburban areas have massively outperformed all other geographic densities since......
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A 'Humans + Machines' Virtuous Cycle in Multifamily

Introduction Automation is a term that has been thrown around a lot lately in multifamily (a lot of times by yours truly: See exhibit A).  Furthermore, I have pushed the idea of a 'Humans + Machines' workforce where humans and machines work together to create new workflows, but that is just the beginning. Adding a digital workforce to work alongside your team is the basis for a virtuous cycle of success. From increased NOI to attracting more owners to managing more properties, the digital workforce can change multifamily's economics.     What is a Virtuous Cycle? A ‘Virtuous Cycle’ is when one success leads to another, and then another, in a repeating loop. Before we jump into the Multifamily Virtuous Cycle, let’s take a look at Netflix’s Virtuous Cycle.     Netflix Virtuous Cycle Here is the Netflix Virtuous Cycle as explained by Netflix CFO David Wells:     Let’s break it down. Netflix invests in producing more shows. With more shows there is more variety, which means there are more watchers. More watchers means more talkers. This leads to more subscribers. More subscribers generate more revenue. With more revenue, Netflix can invest in more shows. And the cycle continues. As you can see, the cycle fuels itself for future success. By creating more shows, Netflix will set off a chain of events leading to more revenue. As long as Netflix keeps investing in new shows, the cycle will continue. So now that you have seen a Virtuous Cycle, let’s explore how a digital wor......
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7 Ways Property Managers Increase Income Property Profitability

7 Ways Property Managers Increase Income Property Profitability
Paying a property management company might seem like a needless extra expense at first blush. But, before you dive into managing your own investment properties, consider a few ways property managers can use their resources and experience to actually boost your profits. Save time, save money. Some tenants are easy-going and can handle minor property maintenance and small repairs. Others are more high-maintenance. Spend time working or with family rather than hanging light bulbs, greasing squeaky hinges, and trimming bushes at the rental property. Save on maintenance and repair costs. Property managers regularly employ bonded and insured contractors and maintenance staff. The volume of maintenance and repair work that property managers handle means they pay less, understand the work, and can supervise effectively. Collect rent without a runaround. Property managers handle all collections and any legal issues that arise from nonpayment, including eviction. Keep properties rented. Management companies vet tenants to find the best ones, keep tenants longer than owner-managers do, and keep vacancies to a minimum. Managers set a fair rent for your property and market it effectively to attract the best tenants. Maximize property values. Management companies know all about the best improvements you can make for your money to improve its actual market value. They'll share that knowledge with clearly written, easy to understand proposals that are tailor-made to increase your profit margin. Simplify income taxes. Property management contract payments are actually tax-deductible expenses. A good property manager also keeps all your paperwork and receipts in one place,......
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A 5-Year Property Improvement Plan for Smart Investors

A 5-Year Property Improvement Plan for Smart Investors
Just because rents are up is no reason to become complacent with your property investment. If you’ve chosen to hold onto your assets, now is the perfect time to get ahead of the inevitable tapering off of rent growth by instituting a five-year property improvement timeline. It’s easy enough to start with smaller changes that add a high-end feel at a lower price point, and then go for bigger upgrades as you reinvest naturally rising rent surpluses back into your property. Year One: Add More Units Depending on your location and the market forecast for your area, now’s the perfect time to add more units to your multifamily property. Take advantage of a booming market to invest in generating more income in the future. Year Two: Surface Upgrades Regular move-out maintenance is a great time to give your property a facelift with durable and attractive upgrades to countertops and floors. Vinyl, wood-look flooring and man-made countertops that add the look of granite without the cost are your best bet for the highest ROI. Opt for surfaces with proven applications in multifamily—time-tested durability and ease of cleaning are a must. Year Three: Big-Ticket Investments This is the year when you’ll need to think long-term. Those new countertops won’t do much for outdated cabinetry. Simply re-facing existing cabinets with a sturdy skeleton is one way property owners can save money while adding a “wow” factor to kitchens and baths. Replace roofing with durable and attractive materials that will see your property through the next downturn. ......
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Before You Start Investing In Multifamily Properties


If you are a new investor looking to invest in multifamily, you have some hurdles beyond simply getting the capital.  Jonathan Twombly shared on a recently Bigger Pockets podcast that even if you have the money ready to invest, brokers don't want to waste their time on an inexperienced buyer who does not know how to close the deal.  Not only is that wasted time on their part, but it also tarnishes their image to the seller if a deal with an inexperienced investor doesn't end up going through.  So Jonathan recommended that you prepare by essentially looking the part, going into the meeting as a professional operating entity rather than some random person with money.  Some things to have ready:

  • Company established
  • Business card, email address, and website all created.  Note:  Email address should be a professional email, not Gmail.
  • Ask sheet, where you define what type of property you are looking for.
  • List of due diligence items you require, such as 2-3 years of financials, rent roll, etc.

These items showcase your readiness to seriously invest.  Also, he suggests finding a broker through a friend or contact rather than going in cold, as that will help the broker to take you seriously.

The entire session was great and I highly recommend taking a listen: 

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Turnkey Property Investments: The Ins and Outs

Turnkey Property Investments: The Ins and Outs
If you’ve ever performed a Google keyword search for ‘property management,’ there’s a great likelihood you’ve seen turnkey property management options appear in the results. And, if you’ve read even a little bit of the descriptions or clicked through to one of these websites, there’s also a good likelihood the offering sounds a bit tempting. So, let us take a moment to address the topic and provide a little bit of insight and context for turnkey multifamily property investing. What is it? A turnkey real estate investor is a professional who specializes in a particular market. They know the area well and have purchased up several or many properties in that area. Having such an arsenal allows them options for individual investors to choose from, based on their own unique requirements or parameters. What is often most appealing, is that the majority of turnkey providers already have renters in place and paying rent, and they provide a guarantee that those tenants will stay in place, generating revenue, for a given period of time. Some of these companies serve as the property management provider onsite as well, but many outsource the responsibility to third-party providers. Benefits of Choosing this Path Of those considering turnkey investments, there are two benefits most often noted by multifamily property investors: It’s a very hands-off approach to investing. While hiring a property management company in any capacity can provide the benefit of less-work and day-to-day responsibility, turnkey takes this a step further by making the entire investing process less wo......
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Single Versus Multi-Family Investments

Single Versus Multi-Family Investments
When it comes to investing in rental properties, the common question is: “Which is better, multifamily or single?” Now, first and foremost, you must have the funds to acquire a multifamily property, which can run into the ballpark of hundreds of thousands to millions of dollars. But, this aside, we’re going to assume that if you’re reading this, you’re considering a purchase of either a multifamily property or several single family homes. In this case, we’re going to provide a breakdown of the benefits of ownership of each option. We only present the benefits because you can assume the benefits of one do not exist in the other; hence, the comparison. Single Family Rentals The positives of owning single family homes are many. They are smaller properties, with less work and maintenance. Because of this, they do not require on-property management, which can instead be handled by an off-property management company or personally by the owner. Single family home owners benefit from lower taxes when compared with those imposed on multifamily properties. There is also a higher appreciation typically associated with single family homes. While multifamily properties can turn a significant profit over time, the flipping game is something to be reserved for single family homes. Probably the biggest selling point of buying a single family home is its selling point. Multifamily properties are large, more expensive, and reserved for investors. So, there isn’t going to be as large of a market as for single family properties, meaning a faster liquidation optio......
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3 Predictions Based On REIT Market Gains

3 Predictions Based On REIT Market Gains
Many indicators in the U.S. still point toward achingly slow economic recovery in the coming months and years. A recent study cites a significant one-month Real Estate Investment Trust (REIT) gain as a sign that investors are starting to believe the economy will continue to improve. According to NAREIT's Brad Case, a 3.4 percent increase in August 2014 REIT returns means three things: Economic recovery will continue, albeit slowly, for the foreseeable future Demand for commercial real estate will increase, indicating business sector and job growth Rents and occupancy rates will increase as lagging construction fails to meet increased demand While this is a rather simplistic set of deductions from the FTSE NAREIT All REITs Index report, history shows that a bull market such as this one has become generally has a run of about 15 years. An S&P bull market, on the other hand, usually only lasts four. That means that REITs are a better indicator of long-term financial health and stability than the stock market. So, where is the smart investor looking for steady increases in returns and overall market stability? REITs. And, they're diversifying their holdings. The best performers in the market were those in infrastructure, health care, and timber. That represents a significant change over recent years, indicating that REIT investors, according to Case, are becoming more comfortable diversifying their portfolios and expanding their horizons. The result, he said, will be that investors enjoy less portfolio volatility moving into a long-awaited investors' market. The broader picture rev......
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Are Local Banks Cutting into Fannie Mae’s Multifamily Loan Business?

Are Local Banks Cutting into Fannie Mae’s Multifamily Loan Business?
While both Fannie Mae and Freddie Mac are still the big dogs in multifamily lending, their biggest competitors have begun doing what they must to win over new market share–and with everyone from the House of Representatives to the President of the United States looking to phase out Fannie and Freddie all together, it looks like the competition is heating up as the local banks have begun chomping at old Fannie and Freddie’s heels.  After the market crashed, accessing capital via traditional lenders and banks was nearly impossible and Fannie Mae and Freddie Mac were there to lend for multifamily. Unfortunately, in recent years, the amount of multifamily financing available has been stretched thin because of the increase in competition. How is the impact is being felt? In 2014, Fannie Mae’s overall multifamily lending business has totaled a mere $6 billion or less than half the $13.6 billion in multifamily loans they did during this same time last year. Aside from lowering interest rates, this drop-off in volume has had a surprising side effect in that there are fewer loans to turn into bonds. Which translates into potential bond investors being forced to compete for a limited supply of bonds, paying more, and reducing their overall yields by more than 20 basis points just in the last eight months. Is phasing out Fannie and Freddie the solution? As a result of the collapse of the mortgage market, many feel that replacing Fannie Mae and Freddie Mac is a necessity, but, according to an article recen......
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Multifamily Dubbed “The Most Interesting Investment Market in the World”

Multifamily Dubbed “The Most Interesting Investment Market in the World”
Powerhouse multifamily investors from across the globe took part in Avanath Capital CEO Daryl Carter’s “View from Investors” panel. For foreign investors seeing the European markets opening up to the migration of millennials and baby boomers and giving the U.S. Markets even more stability, investing in multifamily is at the top of their investment list. Even with over 300,000 units under construction this year, investors aren’t showing too much concern around overbuilding. Instead, today’s savvy investors are focused on making smarter purchases in markets that have room for rental increases based on either an area seeing substantial job growth or finding property that has been under-managed. According to a poll conducted by Morgan Stanley, the majority of U.S. Millionaires see real estate as the top alternative asset to own in 2014. As a matter of fact, 77% of investors with a million dollars or more in assets own real estate. A third of those investors polled say that they plan to purchase additional commercial and residential this year, and 23% of these millionaire investors are planning to invest in real estate investment trusts (REIT) this year. So, what are the factors that go into making real estate the most interesting investment market in the world? After being named “Trendsetters of the Year” at the 17th annual Washington, D.C. TrendLines event, Transwestern and their affiliate Delta Associates released a list of the top commercial real estate trends they’ve identified for the current and future state of the industry. Delta identifies the fact that while we had some national uncert......
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