I recently recorded a podcast with Ryan Nunes, ex wallstreet commodities trader turned multifamily investor. We talked several times about being selective.
Be Selective
So many choices! Which one do you choose?
What do we mean when we talk about being selective. In today’s investing market, there is a great deal of money chasing similar assets. Multifamily and industrial real estate assets have been very hot assets in today’s market. There are a lot of buyers bidding on these assets and there is a lot of investor money chasing these deals. During our discussion we discussed being careful and selective in choosing our investments. Selective with the markets we invest in, the syndicators putting the deals together and the deals themselves.
As for markets, in my opinion, you want to focus on growing markets. Markets that are seeing population growth, household formation growth, job growth, income growth. In today’s market, I would say TX, AZ, FL, TN, the Carolinas, GA would all be considered growth markets. People are moving from other states such as NY, CA, IL to these growth markets. With more people, there is more competition for houses, apartments, jobs, etc.
Once you select the market, start building relationships with syndicators that do business in those markets. You want to do business with people that have a track record. With people that you can build the “know, like and trust” factor with.
The multifamily market may keep running in valuation but it also may hit a wall a some point. When it does, you want to be invested with people that know how to manage these properties.
Why do I share this story with you?
I’ve seen a lot deals come into my email box. To date most deals have performed exceptionally well because rents have continued to go up and cap rates have continued to compress. Inflation may help this trend continue. During inflation, incomes typically go up and therefore workers have more money and can afford to pay higher rents. Property owners that lock in low interest rates can fix their debt service, watch rental income rise and net operating income expand. Now if this does not happen, there may come a point when renters hit a ceiling and can’t afford to pay more. If and when this happens, you want to be invested with syndicators or operators that know what they are doing in terms of managing these properties. I’ve spoken with many syndicators that say the next 5-10 years will be years dominated by great operators. Almost every deal I see come into my email box has similar projections. The question will be who will be able to continue producing these results even when the market is not as friendly as it has been.
None of us has a crystal ball. Are we going to see inflation, deflation or a goldilocks economy. Who knows? When challenging times do come, I want to be invested with people I know, like and trust and have the experience that I believe will help us get through the challenging times.
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