My Realty Gains
I want to impart all the knowledge that I have about risk mitigation in commercial Real Estate Investing. I want to give a background.
Even if one guy leaves out of 100 units, it’s not going to affect the cash flow anyway too much because you have already underwritten that vacancy, 10% vacancy in your underwriting, right? So that risk is mitigated. Yes, your money is locked for a long time in the deal, but it is cash flowing from day one. We buy an apartment complex which is cash flow from day one so that you give returns to investors. Somebody buying the property themselves and managing it. Meaning that it is dependent on their skills and contacts in the market. But somebody investing with a sponsor who is professional and has far larger outreach in terms of context, in terms of trying to maintain the property, we as investors end up making more. If we invest with a seasoned operator, I’m 100% sure that we manage the asset ourselves.
In addition to that, as I mentioned earlier, complicated lease process. If you are in retail, the lease process is very complicated but in multifamily or storage, the lease process is pretty simple. It’s just renting an apartment upfront. Capital is high but it comes from a lot of investors. Investors own a part of the property and they get part of the rent. Investors own part of the property and they get part of the rent. Tenants are not giving them the rent directly but investors are getting it anyway. The tenant risk is minimal. If you have 100 people, one or two tenants are bad, which is okay then we can evict them that’s our job. The seasoned operator doesn’t get worried about those things. These things are management. So that real property managers take care of those big assets. It’s not being handled by mom and pop folks, it is handled by Real Professional folks.
There are advantages of Investing in multi-tenant-based assets which are sort of recession-proof in a way. The biggest challenge that people have been thinking about is the recession is coming, what to do? If you think about it, the session will come, what will happen? Maybe some offices will get closed, maybe some people will lose jobs. If that happens, what will happen? People will downgrade their houses, they will sell their houses, they’ll move to apartments, they’ll move their stuff to storage. These are multi-tenant. Are people going to leave their apartments and go somewhere else? I don’t think so. Folks need a place to live. Your occupancy intercession goes high on some of these multi-tenant assets like multifamily storage or mobile home parks and even assisted living.
Occupancy in my mind goes high because for obvious reasons.
10,000 baby boomers are aging, coming to the retirement age every day. These are some of the asset classes which are not affected by the session. The session is coming? Yes. You may not be able to exit a property. There may not be buyers in the market for those assets but you will be able to get the cash flow out of it. I want to emphasize it you will be able to get the regular cash flow out of your deal regularly even during the session because I have not seen in an emerging market, I have not seen rents going down even during recessions. If you find a place in the middle of nowhere their potential rents may go down, but not in an emerging market. There is population growth in a market, rents can never go down.
© 2022 My Realty Gains. Created by Fooracles. All rights reserved