Multifamily Investment Outlook For 2018 And Beyond

by Neal Bawa | Michael Blank: The Apartment Building Investment Podcast

Neal Bawa’s multifamily meetup is one of the largest in the US.

Would you believe that when he started the group, Neal had zero multifamily experience?

Neal’s background is in technology education. He spent 15 years running a traditional company—and paying massive taxes—when his boss turned him on to the tax benefits of multifamily. Neal invested in a handful of single family homes, triplexes and fourplexes to learn the game, and he was ready to take the next step when he learned about a 12-plex deal that he couldn’t afford on his own.

By then, Neal had established his multifamily meetup, where he was candid about the fact that he didn’t have experience. Rather, he shared what he DID know—his research and knowledge of the numbers. And on the night that Neal shared the story of the 12-plex deal, he discovered that he had a knack for raising money as well.

Today, Neal and his partner have 1,000 units, with plans to hit 1,700 by the end of the year. Neal joins me to discuss how he was able to position himself as a leader despite a lack of track record and why his ability to tell the story of a project led to success with raising money. He talks numbers, sharing the importance of understanding the economics of an area before you invest and his take on the top two markets for 2018. Listen in for Neal’s insight around stock market corrections, partnering with experts and diversifying your real estate portfolio.

KEY TAKEAWAYS

Neal’s transition from single- to multifamily

Multifamily scales much better, always the goal
Bought single family, tri-/quadplexes to learn
Found 12-plex deal, told story in meetup
Discovered knack for raising money
Why Neal established a multifamily meetup without a track record

Desire to share knowledge, network
Honesty re: lack of experience resonated
How Neal’s meetup group supported his growth

Encouraged meetup members to form groups (e.g.: underwriting)
Learned from each other through open share
Experienced future partner joined group
Neal’s advice around avoiding the mistakes he made early on

Don’t assume taxes will stay the same
Gain understanding of tenant quality
How demographics can impact returns

Delinquency levels of African American tenants
Marginal difference on western seaboard
Three to four times higher in Midwest
Vegas as transitional area, high turnover
Work numbers into underwriting
Neal’s top market picks with growth and value potential

Sacramento
Orlando
Why multifamily investors should adjust their expectations

23% cash-on-cash returns no longer realistic
Interest rates increasing, cap rates decreasing
Rent growth slowing down (still above trend)
Red flag if syndicator promising same returns
Neal’s take on whether it’s a good time to get into multifamily

Anticipate massive housing shortage
Gap in supply/demand in Class B, C
Once in a lifetime opportunity
Neal’s insight on market corrections

Assume will happen, plan for it
Returns will drop, but good properties will survive
How multifamily performed in the last recession

Better than most asset classes
Still had cashflow (down to 4%)
Deep crash = opportunity
4% default rate
What’s next for Neal

Expand network and diversify
Acquire student, senior housing
Partner with expert in industrial

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