Real Estate Intelligent Interview Series: Multifamily Investor

HOW DID YOU GET STARTED IN REAL ESTATE INVESTMENT?

My father owned several multifamily complexes in the Los Angeles area. I started helping him manage his properties when he became ill seven years ago. From the ground up, I swept floors, took out trash, performed repairs, and showed apartments. In that time, I read everything I could get my hands on regarding multifamily properties including taking management courses, legal courses, and talked with many people in the industry. This progressed into our first 1031 exchange in Maricopa County, and we have grown exponentially.

WHAT ASSET TYPE ARE YOU MOST INVESTED IN AND HOW DO YOU SEE THIS AS AN ADVANTAGE?

We invest in multifamily properties and peripherally offices. Multifamily properties are excellent for several reasons. Multifamily properties make money through rental income, appreciation, and profits generated by business activities that depend on the property. These benefits also include passive income, stable cash flow, tax advantages, diversification, and the ability to leverage. I’ve also been looking at the returns of niche, specialty properties like warehousing for medical marijuana, aviation hangers and storage facilities. 

WHAT WOULD BE YOUR ADVICE TO PEOPLE WHO WANT TO START INVESTING IN REAL ESTATE?

For multifamily properties, start slow and buy a duplex, triplex, or fourplex, all of which offer great cash on cash returns. If you don’t have significant amounts of renovation or work to do, those are the way to go because you have minimal expenses. Real estate investing is a business, and like every other business it requires purposeful planning, execution, and management. Be well informed on the current trends, including any decreases or increases in the average rent, income, and interest rates. Investing in emerging neighborhoods offer growth potential and tax incentives for buyers. Buyers that purchase properties in emerging neighborhoods maximize profits and ensure that their income covers their costs. Another key strategy is eliminating leverage. Leverage may get you more units, but you must balance that. I have a conservative portfolio with leverage maximized at 15%.

The most important strategy currently is inflation hedging.  This capability of multifamily properties stems from the positive relationship between GDP growth and the demand for real estate. As economies expand, the demand for real estate drives rents higher. This, in turn, translates into higher capital values. Therefore, real estate tends to maintain the buying power of capital by passing some of the inflationary pressure on to tenants and by incorporating some of the inflationary pressure in the form of capital appreciation.

WHAT DO YOU WISH YOU’D KNOWN AT THE BEGINNING OF YOUR REAL ESTATE INVESTMENT CAREER THAT YOU KNOW NOW?  

It’s perfectly fine to begin investing in smaller, low-end properties, but that’s not how you build an empire. Those are training properties. As soon as you have the hang of investing, become more aggressive when it comes to acquiring larger properties. Larger assets tend to appreciate faster and can be more beneficial to your portfolio as opposed to smaller, cheaper properties. When we’re new, we tend to be quick to sell in hopes of making a return. This is the worst thing you can do in densely populated areas or up-and-coming cities. In these hot markets, the longer you wait to sell, the better. Across the country, in places like Phoenix and Houston, many properties have doubled in value over the past three years.

PHOENIX IS CONSIDERED THE 3^RD BEST CITY IN THE US TO INVEST IN – WHAT DO YOU SEE AS SOME OF THE BIGGEST OPPORTUNITIES FOR LOCAL INVESTORS IN PHOENIX OVER THE NEXT FEW YEARS?

There is huge opportunity to invest in new multifamily developments throughout Tempe, Scottsdale, and Phoenix. There will be more office and retail conversions to other forms of real estate like hotels, lofts, and single-family communities which will provide more inventory to purchase or invest in. There’s also opportunity in demolition, renovation, or rehabilitation of existing old properties throughout the valley. The hottest areas in Phoenix are the Arcadias, Tempe and Scottsdale. The property values have accelerated so profoundly. There’s still a deficit of housing in all the cities. That’s why you also see huge growth in outlier cities like Ahwatukee and Surprise. Twenty years ago, the joke was “Surprise!” you’re in the middle of the nowhere. But Surprise isn’t the middle of nowhere anymore.