When Knowing Too Much Makes you a Bad Investor
Over the past 10 years, we’ve executed nearly $75M worth of renovation work across 20+ value-add multifamily projects. Over that period, we’ve experienced many of the unexpected things that can go wrong when executing these deals; hidden physical issues, larger than expected tax reassessments, tenant lawsuits, crime, resident delinquency issues, and submarket challenges like unanticipated new supply or poor policy decisions, to name a few. It’s like Farmers Insurance, “we know a thing or two because we’ve seen a thing or two”. While being educated on all the potential risks of a deal...
Routine Replacement Expenses: “Multifamily’ s Dirty Little Secret”
I was talking with a multifamily fund operator who’s been in the business for 30+ years. His firm started out buying class C multi deals and scaled up over time to raise a fund with institutional capital to acquire higher-quality, light value-add multifamily assets. The primary driver of the movement upstream was the capital-intensive nature of older vintage apartment properties. The ongoing capital needs make it difficult to hold these assets long-term and require holding significant reserves. In real estate, ‘cap rate’ is used as a crude metric for valuation and is simply a measure of...
The Challenge of Holding Multifamily Assets Long-Term
In my previous post, I talked about the value of compounding which results over holding multifamily real estate assets long-term. While that’s great in theory, it’s difficult to hold older vintage multifamily assets long-term (longer than 10 years). At Atlas, our business plan typically entails renovating and repositioning assets to bring them in line with other recently upgraded communities in the area. We rebrand the property, correct operational deficiencies, clean up deferred maintenance, improve curb appeal, and upgrade amenities and unit interiors; all of which typically result in...
Hold Real Estate Forever, Reinvest, Compound, Don’t Pay Taxes, And Get Rich Slow
Real estate is a long-term, get rich slow business. That’s something you hear a lot, but the math and reasoning behind it is rarely illustrated. At Atlas REP, our investment strategy centers around buying cash-flowing value-added multifamily properties and holding long-term (10+ years). I believe multifamily real estate investing is most attractive over a long time horizon given the strong and consistent cash flow combined with significant tax benefits. To illustrate these benefits, I wanted to show the equity growth and cash flow of a $100k real estate investment over 30 years. This was...
The Bearish Case for Multifamily
Multifamily has been the darling of the recovery and remains one of the most sought-after asset classes. And why wouldn’t it be? We’re constantly bombarded with the case for multifamily; there’s a secular shift toward renting, millennials are getting married and having kids later, baby boomers are downsizing and seeking an urban lifestyle, multifamily construction was well below historic norms coming out of the recession, many 18-34-year-old’s live at home and will eventually enter the renter pool etc. etc. It’s a compelling case. Some of these are real, while others are overblown. In...
The Only Information Needed to Make Multifamily Investment Decisions
The real estate community has become obsessed with data. In the multifamily space alone, there are countless sources for all sorts of ‘relevant’ data; Costar, Axiometrics, REIS, Reonomy, RCA, MPF Research, Yardi Matrix, etc. The access to data has brought transparency to the space, but has led to better decision-making or just more noise? There’s been several studies which have concluded that more information doesn’t necessarily lead to better investment decisions and oftentimes, having more information can be harmful because it leads to over-confidence and fuels confirmation bias....
New ASotREG eBook – 19 Real Estate Investors Share their Top Passive Real Estate Investing Tips
Cash-flowing private real estate deals can make great investments. However, with the space being highly unregulated and access to deals/sponsors fragmented, there’s a belief that investors must be real estate experts to make educated investment decisions. I think those expectations are crazy and the narrative prevents many individuals from investing in private real estate deals. Instead of expecting investors to be real estate experts, I believe investors should know just enough about real estate to ask the right questions, assess a Sponsor, and make informed investment decisions. Of...
Value-Add Multifamily Deal Screening Checklist for Passive Real Estate Investors
Passive investing in private real estate deals remains one of the best investment opportunities for long-term focused investors. Until recently, these deals were accessed through closed networks and executed entirely on a trust basis. As these deals have become more accessible, operators are forced to become more transparent and investors must learn to scrutinize sponsors, deal structure, and the opportunities themselves. While one approach to selecting deals is to simply pick the best sponsor, I think it’s extremely important for investors to know enough to ask the right questions to...
The Challenge (and Benefit) of Quarterly Reporting in Real Estate
In the wake of new regulation and rise of real estate crowdfunding platforms, there’s been significant growth in private real estate syndications where operators pool capital from a group of high-net-worth investors to acquire a property and execute a specific investment strategy. In the past, real estate syndications were done on a trust-basis; operators would go out to a handful of their buddies to raise the capital. Under this structure, reporting was less important. If things didn’t go as planned, operators had to deal with their uncle, best friend, and golf buddies. That, in and of...
Why we Prefer Value-Add Deals and Long-Term Holds
Real estate firms and investors each form their own investment strategy based on their risk-tolerance, desired hold period, expertise, and target returns. Some prefer core or core-plus investments which are typically high-quality assets in primary markets with little unrealized upside, while others prefer opportunistic investments such as ground-up development. Here at Atlas, we target primarily value-add transactions where we can execute a specific strategy with the aim of refinancing upon stabilization and holding long-term. Value-add transactions possess upside through a variety of...
How Origin Investments Raised $10 Million of Equity in 1 Week: Part 2
In September, Ben Harris, head of investor relations for Origin Investments, shared the approach that enabled Origin to raise over $4M of capital online in a single week. Ben walked through the keys to building trust with investor’s online and aligning interest with investment partners. However, what resonated with me most, was Origin's focus on the ‘long game’. When investing in private real estate deals, investors are often making a 10-year commitment, and sometimes longer. With that time-horizon in mind, the integrity of the people you’re investing with far outweighs the fundamentals...
Attention Real Estate Investors: It’s Important to Build Relationships with Operators
At Atlas, we have over 400 HNW individuals who’ve invested in our deals. Today, following several successful exits, the strong performance of current deals, and attractiveness of cash-flowing real estate, we have more demand from investors than we do quality opportunities. While we do our best to run a fair process, the reality is that not all investors will get the opportunity to invest in each deal. When raising capital for a new deal, we first go out to our VIP investors who’ve been with us from the beginning. Through that network of ~30 investors, we typically fill ~75% of the...
Evaluating Investment Performance – A Look at the Past and Going Forward
Anyone who bought commercial real estate over the past 7 years enjoyed the benefits of cap rate compression. Many investments, despite being mismanaged or poorly operated, provided extraordinary returns for investors. When looking at operators track records, how does one discern whether returns were driven by value-creation or simply good market timing? In this post, Matt Lasky, Managing Partner at Equity Velocity Funds shares how investors can evaluate past performance and 5 takeaways for investing in today’s market. -- The commercial real estate industry has experienced a period of...
When Investing in Real Estate Invest with the Best Sponsor and Ignore Everything Else
I spend a lot of time on this blog analyzing deal structures, return metrics, risk-adjusted returns, and the impact of fees. While all that stuff is meaningful, it shouldn’t be the main driver of your investment decisions. Instead, focus your efforts first on finding a top quality sponsor. If there’s anything I learned about value-add real estate investing over the past 6 years, it’s that the success or failure of a deal is driven almost entirely by the quality of the sponsor. Here are 20 reasons to ignore all the noise and invest with a great sponsor. Great sponsors understand their...
How Origin Investments Raised $4 Million in Equity in 1 Week: Part 1
With the passing of the JOBs Act in 2013, private real estate investing has become much more accessible to accredited investors. This has led to the emergence of crowdfunding marketplaces and the ability for companies to generally solicit, enabling investors to connect directly with sponsors all over the country looking to raise money from retail investors. The new transparency in the private real estate syndication space, a business that was previously 100% relationship-based, has led to increased competition. Syndicators are now competing directly with each other for investment capital....
Note to Real Estate Crowdfunding Investors: The Impact of Fees & Structure on Investor Returns
The biggest determinants of success in a real estate deal is the quality of the operator and market timing. The quality of the operator dictates deal-sourcing and structuring ability (relationships), analysis (experience and market knowledge), and execution (more experience) whereas market timing is predicated largely on luck. Investor’s, especially those with no real estate expertise, should pick opportunities based on the quality of the sponsor, taking into account track record, financial strength, performance across cycles, and expertise within a specific submarket and asset class....
Want to Invest in Real Estate? Don’t Buy a Property, Invest Passively
I was talking with a potential investor from the Bay Area the other day. He has $1M to invest and is looking to create a tax-efficient diversified passive-income portfolio. He’s deciding between investing with experienced operators as an LP and purchasing a small multifamily asset in San Francisco that he would own and manage directly. In my opinion, the best approach to owning investment real estate is simple; invest capital across a diversified set of cash-flowing deals (or funds) with best-in-class operators, collecting checks each quarter, while seasoned professionals oversee the...
Note to Real Estate Crowdfunding Investors: The Importance of Risk-Adjusted Returns
I was chatting with a friend of mine the other day who owns/operates retail assets in secondary markets on the west coast. He was telling me about the mis-pricing he’s seeing in core-plus real estate deals in secondary markets driven by the lack of capital targeting the space. While there are a few core-plus funds out there, they’re typically operated by institutional players who focus on primary markets, aim to write large equity checks, and have a low cost of capital. There are very few firms who can write $5M-$10M equity checks for core-plus deals in secondary markets. The challenge is...
How Fairway America is Disrupting the Small Balance Real Estate Space
The most profound change to real estate over the past several decades is the institutionalization of the business, especially as it relates to finance. Real estate has become a Wall Street business. However, the sub-institutional space (sub-$10mm deals generally speaking) remains largely a localized business driven by personal relationships. This fragmented market provides outsized opportunities for operators who have an advantage in information/analysis and investors who have access to these direct investments through personal relationships. Real estate crowdfunding has opened up a few...
Real Estate Crowdfunding Opportunities for Investors Explained
Real estate crowdfunding provides investors with access to private real estate deals previously only available through personal relationships. This is game-changing for investors. However, it remains challenging for investors to understand which platforms and deals are the right fit for them based on their investment objectives. We’ve seen continued evolution with platforms like PeerStreet offering auto-investing and Acquire Real Estate taking a strict focus on institutional-quality deals and investing alongside the crowd. These platforms simplify the investing...
PeerStreet – Wealthfront meets E*Trade for Real Estate Investing
While real estate crowdfunding is still in its infancy, we're beginning to see new entrants introducing innovative models to the space. The biggest challenge early on has been the fact that investors typically don't have the expertise to analyze deals and assess risk, while understanding the legal and tax implications of direct equity real estate investment. Many platforms have shifted to investing in debt, which provides a higher level of safety, fixed return, and scalability. One of the platforms I'm most excited about is PeerStreet, best described as Wealthfront meets E*Trade for real...
Wall Street Lawyer Turned Real Estate Investor Finds Success in Multifamily Investing
I first met Jonathan Twombly at the Harvard Club in Midtown NYC. Over lunch Jonathan shared his career story, describing how he transitioned from Wall Street attorney to real estate entrepreneur. With no traditional real estate training, Jonathan has been able to acquire his first few deals and build a nice platform in just a few years. As a full-time real estate professional, I have an appreciation for how complex real estate can be and how challenging it is to do your first deal. I was inspired by his story and invited Jonathan to share it with you first-hand. Enter Jonathan: Who is...
10 Tax Questions For Real Estate Crowdfunding Investors
Over the past few months, I've been spending a lot of time helping investors navigate the world of passive real estate investing. While it's critically important to avoid bad deals, understand the return metrics, and identify great opportunities, there are other implications such as 'Taxes' which investors must be aware of and can have a great impact on an investment. In this post, Paul Sundin, a tax strategist who works with clients all over the world on real estate, syndication, and crowdfunding, answers 10 tax questions for real estate crowdfunding investors. The tax implications of...
Returns Metrics that Matter When Underwriting a Potential Real Estate Investment
Over the past few months I’ve shared various checklists to help you avoid bad deals and sift out the quality deals and quality operators. One of the critical aspects to evaluating a deal is understanding what the investment return metrics mean for your investment, running return sensitivities, and assessing if the return is commensurate with the level of risk you’re comfortable taking on. There are a few key metrics which investors should be familiar with including cap rates, cash-on-cash return, equity multiple, and the internal rate of return. For the sake of this post, let’s assume...
10 Telltale Signs You Should Avoid a Deal
The other day I was talking to a seasoned investor who’s actively reviewing deals on the various crowdfunding platforms. He was digging into a single-family fix & flip investment on one of the well-known platforms and wanted to learn more about the operator. A simple Google search revealed that the operator was recently indicted for visa fraud and money laundering. He reached out to the platform and the deal was quickly removed. This a group that was approved by the platform which presumably had done their diligence on the deal and operator. This is really scary and one of my major...
Top 10 Steps When Reviewing A Passive Real Estate Investment Opportunity
Prior to the JOBS Act, accredited investors had to have personal relationships with real estate operators in order to access direct real estate investments. Now, through real estate crowdfunding portals, anyone can invest passively into institutional quality real estate deals. While the access to deals is great, I’m concerned many platforms are doing a poor job of screening deals/operators. It’s up to investors to do their own diligence prior to investing into a syndication. Real estate investors need to be aware of the risks of investing in private real estate deals. I’ve create a real...
10 Questions Crowdfunding Investors Should Ask Before Investing
Real estate crowdfunding regulation has brought the world of private real estate online and opened it up to everyone. While this fragmented investment space is slowly becoming more transparent, it’s still challenging for non-real estate professionals to make informed investment decisions. In an earlier post I shared my real estate crowdfunding investor checklist, highlighting the important aspects of a deal investors should be aware of such as return sensitivities, terms of deal, economic structure, tax implications etc. While the intricacies, structure, and term of the investment are...
9 Ways Real Estate Sponsors Can Build Trust with Investors
The emergence of real estate crowdfunding (online syndication as I like to call it) has completely altered the way real estate sponsors need to conduct business. No longer is capital raised from a closed group of friends & family investors, private real estate deals are now open to all accredited investors and soon anyone with an internet connection. This Titanic shift creates a massive opportunity for best-in-class real estate sponsors with strong track records, access to quality deals, and a history of execution, to scale their investor base through crowdfunding. However, success in...
Real Estate is an Emotional Investment
For the retail investor, private real estate is an emotional investment. Individuals like owning a piece of a physical asset because it’s tangible and easy to understand. They tell their friends about the investment, drive by the building, and engage directly with the operator. Much like a young person owning Apple stock because it’s cool and they love the products, owning real estate says something about the person; they have exclusive access to deals through a close personal relationship, have cash to invest, and they’re savvy investors. For a real estate firm to build trust and turn...
The Real Estate Crowdfunding Investor Checklist
Real estate crowdfunding provides high-net-worth investors with access to institutional-quality private real estate on a deal-by-deal basis that previously was only available through direct personal relationships. This is game-changing! However, how can non-real estate professionals make educated investment decisions in such an opaque and fragmented space? Yeah, real estate crowdfunding platforms are doing some diligence on the deal and sponsor, but their revenue models are predicated on scale, so for them to survive they need to start doing more deals which means loosening their...
CrowdStreet – Investing in Real Estate Simply
The real estate community can't seem to get enough of real estate crowdfunding; endless media coverage, conferences, and general chatter professionals. It's all for good reason, crowdfunding is going to disrupt both the equity and debt sides of the business. I caught up with Darren Powderly, founder of CrowdStreet, a leading real estate equity crowdfunding platform. Darren is in the trenches everyday which makes him the perfect person to provide a simple overview of real estate crowdfunding today, and discuss the challenges, opportunities, and where it's going in the future. Take it away...
Efficiently Raising Capital for Private Real Estate Deals
I was at a breakfast round-table discussion with a bunch of bigwig private equity fund managers and the conversation centered largely on the challenges of raising capital. While I don’t know much about the institutional fundraising process, I’m intimately familiar with syndicating real estate deals to a group of HNW investors. It’s an extremely cumbersome and inefficient process that includes countless emails, phone calls, meetings, and administrative tasks eating up time that should be spent focusing on due diligence and cultivating a business plan. Having deep-pocketed investors who...
How Real Estate Firms Can Organically Attract Potential Investors
As a real estate investment firm, the ability to scale and grow your business comes down to a few things; access to good deals, efficiently managing the investor origination and reporting process, and the ability to broaden your investor base. The investor management process can be solved by technology, deal flow is driven by on-the-ground partners, so the real challenge is expanding your investor base. The reality is that people want to invest in people they like and trust and it takes a lot of time and effort to build meaningful relationships with every potential investor. At Atlas,...
Content Discovery: Value Hound – A Community of Real Estate Value Investors
I’m back from my two week European vacation and I have lots of great content lined up for the next few months. I’ve found that it’s extremely important for me to shut down the engines every once in a while, as challenging as that may be. I always return full of inspiration and enthusiasm. I like to think that I’m pretty in-tuned to the various sources of real estate news/information that’s available online, however once in a while I discover a source that I didn’t know existed. A well-respected colleague of mine recently introduced me to ValueHound, a site dedicated exclusively to...