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SHOW NOTES FOR EPISODE 249: MULTIFAMILY ACQUISITION STRATEGIES FOR TODAY’S ECONOMY
It’s not a matter of if, but when, a U.S. recession will hit. As a real estate investor, are you prepared? If you are buying properties, what must you know to make the right buying decisions for both the best short and long term results? In today’s podcast, real estate broker, investor, syndicator and radio host Nizan Mosery, who currently holds over $120 million in real estate assets nationally and internationally, shares insider information on how to strategically invest in today’s economy for maximum return.
What You’ll Learn
- The two strategies you can employ to improve your chances of acquiring great multifamily properties in a seller’s market
- Some of the best little know emerging markets in the U.S.
- Who are the best seller prospects in secondary and tertiary markets?
- Where can you find the best off-market properties in today’s economy?
- What properties are not on the radar of institutional and international multifamily buyers?
- The value of becoming a market expert
- Secrets on how to dig deeper to find the best emerging markets in the country
About Our Guest
Nizan Mosery
Nizan Mosery has been involved in real estate for the past 20 years plus and currently owns over $120 million in properties nationally and internationally. While living in New York, he owned a construction company and worked on numerous single family homes, multi-family and commercial projects of up to 300 units. In 2009, he relocated to Florida and became a licensed real estate professional, serving the South Florida market. He owns K.E.A.N. Realty Solutions a Florida-based real estate brokerage firm and one of the first Commercial Realty Partners – The Commercial Advantage franchises in South Florida. Nizan and his team head up the multi-family division. He is the also owner and C.E.O. of K.E.A.N. Management Solutions, a hands-on boutique professional management company and Cornerstone Investment Partners a commercial acquisitions and syndication company. His expertise includes managing commercial assets, recognizing emerging markets, property management, syndication, mentoring and advanced creative financing solutions. Nizan also hosts The Traveling Investor Radio Show, a weekly radio program on W4CY.com.
Previous Old Dawg podcasts featuring Nizan Mosery:
More About Nizan
- Since the recession, Nizan has been investing mainly in major primary markets
- Dallas/Ft. Worth
- South Florida
- These are places where he was able to find the best deals
- Over time, it was getting harder to win the good contracts from the sellers
- Began to feel like he was “always the bridesmaid” – overshadowed by the big institutional players, who could throw down $100-500,000 in non-refundable deposit dollars at the get-go on any deal
Moving to Secondary & Tertiary Markets
- Nizan never felt comfortable putting his investors money at risk – didn’t have the $10-50 million in cash that the institution guys had standing behind them
- He started moving into secondary and tertiary markets of the primary markets he was already looking at
- He found out he could get better deals
- Sellers in these markets:
- Bought real estate properties like it was Coca Cola stock and would leave it there to cash flow for as long as they owned it
- Not concerned about raising rents
- Owned it for 10-20 years
- Good mortgage payment
- Mortgage gets paid off
- Now they own a valuable asset free and clear
- There’s usually some great vale-add opportunities
- Nizan started buying 100-250 unit apartment buildings in these markets
- The big players – the funds, REITs, Family Offices, institutional, foreign – have big teams that are always investigating markets. Asking questions like:
- Where is the new trend happening?
- Where is the best bang for your buck?
- Then, the big players started going into the secondary and tertiary markets as well and Nizan was again competing with them again
Re-shifting Investment Strategies
- It forced Nizan to re-shift his thinking and started he asking questions like:
- Where is the next niche?
- Where should we look?
Thinking Small
- He soon realized that by seeking out properties with less units (40-96 – under 100), he would be “under the radar” of the institutional players who are looking at 100-300 unit minimums
- In the past, Nizan would always emphasize the “go big fast” philosophy but that has changed for now
- Since the beginning of 2018, he said “let’s go smaller”
- So far, in 2018, he has acquired
- 44 unit apartment
- 50 unit apartment
- 76 unit apartment
- Under contract currently for a 96-unit
- He has found that there are few investors looking at these properties. And the ones who are looking at these properties do not have near the experience or track record of Nizan and his team. Now he looks like the “institutional player” in comparison to his competition
- He showed the brokers, on these properties (under 100 units), that they can close quickly and move forward and the broker keeps bringing more deals to the table
- Some of the deals are owned by investors who have “out-grown” the smaller properties and now want to get into 100 plus unit deals
- He’s found a great niche in these strong value-add deals in emerging marketplaces
- To give an idea of how strong these markets are, property managers are already raising rents on these properties while the properties are under contract to Nizan. The rents are bring raised to Nizan’s “pro-forma” rent target amounts pre-renovations! In other words, the markets are so strong, they are able to get the higher rents without having to do any property improvements and the value of the property increases as well
- This also means that, with an increase in rents (post-renovation), there will also be another increase in property value
Becoming a Market Expert
- You have to really know what is happening in the market you are in
- You have to become the expert
- You need to be able to these questions:
- Why are people migrating to this area?
- Where are they migrating from?
- What types of jobs are people getting? Temporary? Permanent?
- You need to understand the other markets around
- What are they offering?
- Their rents?
- Know what you need to offer to maximize your rents
Examples of Secondary & Tertiary Markets
- Georgia
- Atlanta – Very strong primary market. Many people moving there
- People were paying $800 for a 2-bedroom apartment are now paying over $1,000
- Other nearby markets offer people willing to commute more affordable housing options and a better quality of like. For example”
- Stone Mountain – About one hour from Atlanta
- East of Atlanta
- 10-15 years ago, was a very desirable area
- Started to drop down as people left the area
- But now, as housing costs explode and the quality of life is decreasing in Atlanta, people are leaving Atlanta
- Now, there is a lot of “commuter migration” to Stone Mountain from people who work in Atlanta but want a better quality of life
- Other great secondary and tertiary market cities located in Northeast Atlanta, about one hour away from Atlanta
- Commerce
- Lilburn (in Quinnett County – one of the fastest growing counties in Georgia – expected to outpace the growth in Atlanta by 2020 or 2030)
- Athens (near the University of Georgia)
- Look for the “path of progress”
- If you can find a nearby area where you can provide commuters a nice place to live, lower rents, trees and good amenities, you will have high occupancy and have room to grow
- Many of these commuter cities even have their own local job growth as well
- In Athens, for example, the University of Georgia alone pumps billions of dollars into the local economy on an annual basis. Over 36,000 students and over 10,000 employees as well. And they’re growing.
- Stone Mountain – About one hour from Atlanta
- As you look at properties in the secondary and tertiary markets, you’ll want to see where there are
- Starbucks (people need to be able to spend $4 for a cup of coffee)
- Walmart
- Home Depot
- Whole Foods
- Panera Bread
- Good commuter markets
- Are people willing to drive there – no more than an hour away
Digging Deeper
- You need to do your own market research
- Read news articles
- For example: Nizan was reading articles about the “yield cycle” (he recommends people to research and Google “yield cycle”)
- The Feds have raised interest rates and they are looking at raising it again
- The “yield curve” refers to short term yield vs. longer term yield
- When the gap is at its narrowest point, it tends to invert
- The yield curve is inverting now
- Historically, when it inverts, you can expect to see a recession within 18-24 months
- What does this mean for today’s real estate investors?
- You want to buy with a longer term strategy in mind
- No longer look at 3-5 year holds
- If your debt/mortgage is at a 5-7 year term, you may end up in a difficult spot if we are in a recession
- Keep in mind, however, that every market is different.
- Atlanta, for example, is a booming market
- Other markets make start the recession at a different time
- Be careful and do your homework
- Nizan checks things like migration
- Where are people moving?
- Why are they moving there?
- How many families are moving into an area?
- Job growth
- How many jobs are being created?
- Where are he jobs?
- In today’s booming US economy, with tax cuts and increased wages, what are people doing with their money?
- Are they saving?
- No. People are spending more because they are making more but they are not saving
- Are they saving?
- Nizan checks things like migration
- You’ll want to be more conservative in your underwriting
- Right now he’s buying at a 5-year hold
- For example, now he may buy at a 6 Cap Rate because it’s a true value play. The income is low
- In year five, their exit strategy is to sell at 8.5 to 9 Cap Rate
- So, imagine you are on a downturn:
- Recession hits in 18-24 months (1 1/2 to 2 year time frame)
- Will you still be able to sell in 5-7 years at an 8-10 Cap Rate and still get the make money for your investors?
- If the answer is yes, then you will be OK (not great) but. at least, you will be minimizing the risk for your investors when you get into a recession
- For example: Nizan was reading articles about the “yield cycle” (he recommends people to research and Google “yield cycle”)
Funding Strategies During a Recession
- They will be lots of Private Money
- More of “bridge financing” type loans
- Higher interest rates
- Higher yields
- It will be more difficult to get Fannie Mae and Freddie Mac loans
- Go longer term – You don’t want to get caught with a loan coming due during the recession
Current Buying Criteria
- Still focused on value-plays
- Not necessarily buying under value
- They want to buy with good financing so the property cash flows
- They are buying, though, where the rents are below market with the goal to boost rents
- If there is a recession and rents have to go down, they want to know, though, that they will still be able to cash flow
- They have a “stress test” they do in their underwriting
- What is the maximum vacancy they need to still break even?
- Can the property today, at the rents we’re getting today (if the rents are below market), maintain the debt service payments?
- Can we sell it in year 5, 6 or 7 at an 8.5 or 9 cap and still make money for your investors?
Today’s Market
- There is a lot of money available for investment
- Now is the time to go 30,000 feet up and really look at what is going on in the market
- He was speaking to a broker he knows that says he has a group of investors looking to buy 200 plus units at a 5.5 cap rate
- He said to the broker, “Looking at the inverted yield curve and a possible recession in 18-24 months, what are these investors thinking?”
- The broker said the group is only looking to buy for the long term – 20 years or longer. They’re not worried about selling the property in the short term. They can ride through 1, 2 or more market cycles and be concerned about losing money
- If you’re buying for the long term, you don’t have to be concerned
- If you’re buying for investors who are expecting a 3, 5, or 7 year exit strategy, you need to really look deep at factors like the Federal Reserve Bank, etc. Talk to experienced commercial brokers who are out in the field, in the market everyday who understand what is happening
Best Asset Classes to Invest in Today
- Multifamily remains the best real estate asset class to invest in as we approach a market downturn and/or recession. Everyone always needs a place to live
- Other commercial asset classes like hotels, marinas, and self-storage are not necessities and may be the first to cut out
- During a recession, cash is king
Current Promising Markets
- Southeast Quadrant of the US
- Central to northern Florida, all the way up to the Carolinas, encompassing Alabama and eastern Tennessee
- Mobile, AL
- Boeing factory
- Airlines are expanding
- Boeing factory
- HOT TIP! Pensacola, FL
- The Navy is moving a major base from Virginia to Pensacola
- Bringing in over 4,000 jobs
- Have already absorbed over 2,000 jobs
- Buy right!
- Nizan is open to sponsoring the right deals and help with the financing
- How to find hot new markets
- Look at the hottest residential housing markets in the country
- Where are house prices going up?
- Are more people buying more houses in a market?
- What level of homes are being purchased (between $200,000-350,000 price ranges)?
- Two articles on the hottest US residential markets in 2018:
- USA Today – Top 10 Hottest US Housing Markets
- Forbes – Hottest Housing Markets by Realtor.com
- Try to understand why people are moving into these markets
- Call brokers
- Call the Chamber of Commerce
- Ask, “What is the local government doing to attract people there?”
- Is there job growth?
- Major companies moving in?
- Look at the hottest residential housing markets in the country
Final Comments
- Purchase carefully
- Do not be aggressive in your numbers
- Always error on the conservative
- Don’t let the brokers push you into something
- Do your homework
- Visit the asset
- Walk through the neighborhoods
- Walk through other apartments in the neighborhood and find out what occupancies and vacancies they have
- Definitely read about the “yield cycle” becoming inverted. This will help you understand where we are and where we’re going
- He is continuing to buy smaller apartments and gaining significant market knowledge of those areas. By positioning themselves as experts in those areas they are poised to acquire larger properties in those markets as well
- Find and go to emerging markets. Learn a few markets well and grow in those markets
- Dig deep into those markets
- Get a foothold in those markets
- Don’t go shotgun around the US in many markets!
- Be an expert in a few and flourish there
- The bigger players will be more likely to invest in you if they see you have expertise in a key market
How to Reach Nizan
- Email: nizan@investwithcip.com
- Website: investwithcip.com
- Phone: 561-212-7247
- Facebook: The Traveling Investor
This Episode Brought to You by Stessa
This episode of the “Old Dawg’s REI Podcast” is sponsored by Stessa, a modern software to track, manage, and communicate the performance of your residential real estate assets. Stessa lets real estate investors automate the busy work so you can focus more on the things you love — like growing your portfolios and spending more time with your family! To learn more and to get started with a free account, go to https://www.stessa.com/dawg
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2 comments. Leave new
Another great episode. I’m pleased to have found your website and this podcast.
Scott, Thanks! We’re glad you found us!