My Realty Gains
Arn Cenedella is a real estate broker and investor with over 44 years experience in the real estate industry. Arn Cenedella started as a residential broker in 1978 and built a thriving Silicon Valley residential brokerage business while accumulating a sizable portfolio of single-family rental homes, both in the SF Bay Area and across the US. Arn founded Spark Investment Group in 2020 as he transitioned his single-family rental portfolio into multifamily properties. Arn currently has a multifamily portfolio of over 1300 units as a limited partner and 497 units as a general partner.
What You’re Going to Learn:
How to invest safely and securely in Real Estate?
Prashant Kumar, CCIM – What’s the message that you want to give to listeners who are working but don’t have the stamina left, they don’t have the financial acumen about how to grow their money. I would like to have your experience and your knowledge for my listeners.
Arn Cenedella – Thank you, it’s a great question.
Yes, I spent most of my life in Silicon Valley, and as Prashant mentioned my wife worked for Intel in Intuit, in Visa. So I can personally testify, to how tired she was when she came home after a hard day working. I understand the demands on the time of tech professionals, whether it is in Silicon Valley, India, or China. It’s a strenuous job, well-compensated but yes, you have family, friends, community, and church in addition to work.
You only have so much bandwidth, you only have so much energy to give and so how do you invest? How do you invest safely and securely? And from my experience in Silicon Valley, almost every tech worker I know is heavily invested in the stock market. One of the benefits, I think, is diversification. Take a certain percentage of your nest egg and invest it in hard tangible assets that create cash flow and some tax benefits. So I think passive investing in multifamily properties is a great way for tech professionals to diversify their portfolio, and create some tax benefits, but more importantly, allow real estate professional property operators and managers to run these businesses, and they’re multi million-dollar businesses. Let them run these properties to their peak efficiency to provide you the highest returns with still a fair degree of security. And as we’ve seen recently, the stock market can be a little volatile. I think some real estate investment should be a part of everyone’s portfolio.
How to buy Real Estate?
Prashant Kumar, CCIM – When you see Real Estate Investments as part of somebody’s portfolio and I like diversification, I just want to reassure, does it mean that you are suggesting our listeners go buy real estate themselves and manage it themselves? Is that what you are suggesting?
Arn Cenedella – Yes. Real Estate, like any other profession, takes knowledge, skill, experience, and expertise and so many people have that expertise but if you have not invested in real estate and developed that experience and expertise, in my mind, it’s better to let Real Estate Professionals manage the properties and your money.
For example, I would say about half of my net worth is in the stock market and the other half is in real estate and that’s a decent diversification for me.
I have a financial planner that handles the stock portfolio because I don’t know anything about stocks. I trust him implicitly. So I let him handle that side of my portfolio because that’s what he’s an expert in, I’m a Real Estate expert, and so I see great value in working with experts in a variety of areas to best manage your money.
Prashant Kumar, CCIM – You are saying that folks like us I mean. We should start trusting those people who do Real Estate business and sort of invest with them and let them do the job correctly because they know what they are doing. Whatever they are doing, your Investment is secured by Real Estate and you are getting returns and a considerable part of the returns. Yes, those professionals do make some money out of it, but the returns that you are getting and the time freedom that you would get are way more worth, more than potentially you doing it by yourself and potentially making mistakes also.
Arn Cenedella – Yes, I could go to Google, I could go to YouTube and try to learn something about medicine. But that’s why I have a general practitioner, that’s why I have medical specialists and so I trust them to make recommendations to me for my medical and health care. Real estate is no different.
Yes, I agree and I think you hit on an appropriate point. The important point is there has to be an element of trust. You need to develop a relationship with people in the Real Estate industry and make some kind of assessment about their ability and knowledge, but also their character and integrity. I’d say the personal connection is very important. The other point would be yes, as general partners, as syndicators, we are compensated for our efforts but if you look at how and when the general partners are compensated, you will see most of their compensation comes at the back of the deal. Only if they perform you your projected returns, then yes, they get some compensation. If they do not perform, that adversely impacts their compensation where your returns are taken care of first. It’s fair compensation and it’s only paid if we earn it by doing a good deal and providing good returns to our investors.
Prashant Kumar, CCIM – You hit a very good point for the listeners, for the folks who are listening their returns are paid out fast before the sponsor gets paid. The sponsor’s returns depend on how the property is performing. In a normal scenario, investors’ returns will get paid. Unless this guy is falling apart, anything could happen in the world. But in a normal scenario, investors’ returns do get paid irrespective of whether the sponsor gets paid or not. So that kind of gives a mental satisfaction that from my money Somebody else is not making money, I am making money first then somebody else may make money if they do a better job.
What is your best experience in Multifamily Investing?
Prashant Kumar, CCIM – What are your best experiences in multifamily investing, please share with the listeners?
Arn Cenedella – Yes, so we’ve had quite a bit of success with our multifamily investing, and some of it is due to our action, some of it’s due to the fact it’s been a great market for multifamily and rents have been increasing dramatically in this country in many markets. We acquired an asset last year. The average rent in the building was $585 a year later, and our average rent is now up to $750 and our last rented unit is $885. So we’ve gone from $585 to $885. We are basically at about our third or fourth-year rent projections. We’re knocking it out of the park and I think the other thing is I take great pleasure in tenants. We love to fix properties up, upgrade the units and provide safe, comfortable, attractive housing, while at the same time providing good returns to our investors. Our crews will be out at the property and the tenants will come up and they’ll go, “thank you so much for doing this.” This will improve the landscaping, planning of the exterior, and painting of the exterior. We like to get that positive feedback and of course, tenants don’t mind paying an increased rent if they feel they are getting something for their dollar. It creates a good vibe and if it’s a great place to live, tenants will stay as you know, turnover is one of the biggest costs for multi-family owners. So if you can reduce turnover and you still increase rents, it’s kind of a win-win.
Prashant Kumar, CCIM – Awesome, very good to know your background, and the knowledge that you are sharing with us.
What is your worst experience?
Prashant Kumar, CCIM – Tell me anything about the worst experience you have had, we know good things are always there bad sometimes but could happen.
Arn Cenedella – Yeah, well, sure. We should all be old enough to understand sometimes in life stuff happens, right? And if you buy ten different stocks, if eight of them do well, that’s great, right? That’s a pretty good batting average.
I was part of a deal in Georgia where it was quite a heavy value add lift. We purchased it during COVID, and frankly, we got a little slow out of the gate in terms of being able to eliminate the non-paying tenants and getting the building renovated and up to snuff and may be about a year behind schedule on that but at the end of the day, we bought those units at a price point where the investors are still going to make a very nice return. It’s just year one or two. The cash flow hasn’t quite been what we want, but overall, it’s a great deal. We bought the units at 42K a door, and as you know, can you find anything at 100K a door, in America anymore? It is pretty damn hard. It’s all going to work out but we’ve had a few stumbles and we acknowledge it, we just try to keep moving and we’re confident it’s all going to go well.
Prashant Kumar, CCIM – What you are trying to say is these things could happen. The sky may fall apart, and things may seem to be falling apart at some point, but as long as we are working with a strong sponsor, the guy who knows what they are doing. Yes, we may not get some cash flow during the year, but that doesn’t matter. At the end of the day, how much you have made on average, right? I mean, for one or two years, maybe investors didn’t get paid, but that could happen anywhere. If you’re in a stock market, the stock may not move upwards for two years.
Arn Cenedella – What I would say is if you take a long term perspective with Real Estate and you go into a deal with proper Leverage. Don’t over-leverage! And if you have ample cash reserve, and if you have ample cash reserve you can ride out any storm and typically I’ve seen over my career with real estate is you’ll have five or six boom years, then you might hit a little turbulence and you might have one or two kinds of mediocre to slide down years. And then you might have another year where things are flat and it’s all the flat is doing is setting the floor for the next jump. So like five, six years up, one or two years that are a little problematic, and then another boom. And so as long as you have capital and you’re not over-leveraged, you simply ride out those times. The only way people ever get hurt with real estate investing is if they get over-leveraged and don’t have ample cash reserves because they then could find themselves in a situation where they need to sell in a down market. If you have cash reserves, you just ride it out. So I would say that’s a big lesson.
Prashant Kumar, CCIM – Well, these are Golden Nuggets, even for the single-family investors.
In today’s Podcast, Mr. Prashant Kumar CCIM, on behalf of My Realty Gains, invites Arn Cenedella to guide us through- “Work-Life Balance through Passive Real estate Investing”
Arn Cenedella is a real estate broker and investor with over 44 years experience in the real estate industry. Arn Cenedella started as a residential broker in 1978 and built a thriving Silicon Valley residential brokerage business while accumulating a sizable portfolio of single-family rental homes, both in the SF Bay Area and across the US.
Arn founded Spark Investment Group in 2020 as he transitioned his single-family rental portfolio into multifamily properties. Arn currently has a multifamily portfolio of over 1300 units as a limited partner and 497 units as a general partner.
(00:56 – 02:38) Opening Segment- Introduction
(03:51 – 05:06) How to invest safely and securely and the benefits of Real Estate Investment?
(14:01 – 15:13) How to help investors who are just starting?
(15:14 – 17:47) What are Arn’s best experiences in multifamily investment?
(17:58 – 19:39) What are Arn’s worst experiences?
(27:57 – 31:20) Ending and Vote of thanks.
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