Large Complexes
It was said that most large complexes are owned by investor groups and REITS. The same goes for larger apartment buildings.
I am intrested rentals but two things are causing me to hesitate; 1) The landlord horror stories 2) I move locations often because of my spouse's employer.
This is why ,I think ,if I could invest with an investment group these would not be issues.... I think.
How does one get involved in an investment group and am I correct in my above assumption?
(Also, what is REITS)
Thanks!
I believe it would be important to determine what your objective is. There are groups that buy for cash flow, short, medium and long term wealth creation strategies. Some investors buy raw land for future development or to sell to developers.
Dependent on where your target market is, some apartment complexes and large apartment buildings can be purchased by individuals with moderate incomes. In my market Chicago, a 10-unit building can go from $300,000 with alot of work needed in a less than desirable area to $2,500,000 in Lincoln Park (a very desirable area). An investor group can go in both areas.
Regarding landlord horror stories, you will hear them from every market and every niche. Landlords who have good tenants and few issues are not out there preaching to the world about their great tenants. If anything, they will say “things are good, nothing spectacular going on”. Being a landlord is a responsibility a person / group has to take very seriously. Some people acquire property for the investment benefits and pay no regard to maintaining their “investment”. Real estate ownership can be the greatest blessing to you if you manage your blessing and not let it manage you. I have managed a multitude of units and never once thought it was something for everyone. Tenants call you when you don’t want to be called, you have to be there at times when you genuinely do not want to be anywhere but home. There are times when I would rather be working than dealing with property management issues. There are times when you might not have too much to do around the properties, but there are other times, where your time is completely absorbed by the properties. Ups and downs.
If you know that you will not be available to oversee the properties, make sure you hire a good management company / individual. A good company is worth their cost. A cheap company is exactly what you get. Most cheap firms are the firms that cut costs and corners. The problem is they generally hire cheap labor who are probably not “trained” properly and “learned on the side job”. So there you have a jack-of-all-trades who is marginal at best and who is their “solve all” guy using his experience of inexperience to “learn on the job” once again, of course at your expense. If you want to acquire properties that do not require any real tenant hand holding that would be fine. These properties NNN – triple net based – commercial properties are where the tenants take care of all issues with the properties. You can literally throw garbage on the ground and they have to pick it up! Generally look for “A Credit Tenants” with long-term leases like 10 years as compared to 5 years.
REITS: Real Estate Investment Trusts
These are basically corporations that purchase specific types of properties given their objectives. There are commercial, multifamily, industrial, raw land, hard money, etc, REITS. Everyone is different. Basically you buy stock in the REIT and they do all the investing and managing and send you money – a dividend – if there is a profit. You have to be careful with REIT’s because some REITS are not publicly traded making the resale market illiquid making it difficult to sell your shares in a reasonable time period or price. The danger here is that if you want to sell “X” amount of your shares and a seller before you sold a large block of shares, they very probably depressed the value of shares causing the price to go down. Despite that fact that there may be good value to the REIT, the swing in the market can hurt you overall sales price. Some REIT’s only allow you to sell the shares back to them and the REIT’s only allocate so much funds or buy “X” shares back within a certain period of time. If you miss the offering, then you might have to sit ion your investment until they open up their fund to buy back funds. Plus it is common to have them charge “you” for them to buy back their stock, thus again affecting your overall return on investment. REIT’s are more complicated than buying stock and can be as tricky as buying a mutual fund.
I hope this helped to some regard. I can go further in detail upon request. If you or anyone else has any additional questions, please feel free to contact me.
Phil
[ Edited by Pherrejon on Date 10/30/2003 ]
Thanks Phil- I'm wondering about those investment groups... Am I correct in my understanding that they are not "open" for anyone to join...they are a company. Is my only option to find a partner or two to organize my own 'investment group'?
I would really like to hire a good Mgt. company invest in a larger apartment complex (50 units or more) for a long term cash flow and build my equity.
I've been reading investiment books and they suggest to start with single home properties and build my equity up one property at a time... but my spouse's job causes us to move often.
What are your thoughts?
The apartment i live in was just built in January and each building was owned by a different person. My building is currently being sold for 295000 and is the best part of town and has 4 units to each building. I know alot of the investors end up living in one of the units becuase the management company does all of the maintenance ect...including leasing out the units.
It's not rocket science, but you can get burned fast and burned hard. Do VERY thorough research when choosing a property management company. Talk to owners of the complex. Talk to tenants. ACT like a tenant and give them a call.
Look for one that takes a percentage of the NOI rather than the GSI. Remember, this is a customer service business. Your property won't generate income without tenants.