21 George Newsletter May 2022

“If you aren’t willing to own an investment for 10 years, don’t even think about owning it for 10 minutes”

        With rising interest rates, THE QUESTION is being asked again; “is now a good time to invest in real estate?”. This is a question people spend far too much time trying to answer usually resulting in missed opportunity.  Market cycles exist; that is a fact.  At some points in the cycle there is more opportunity than others.  But it is never a bad time to invest in the RIGHT deal.

Rising interest rates is certainly something that needs to be addressed and accounted for when analyzing a new opportunity.  Increased interest rates will increase your annual interest expense and decrease your cash flow.  Account for the higher interest rate when analyzing a deal and see if you can still hit your target returns.  It is a simple math problem.  Talk to lenders, mortgage brokers, and other real estate professionals in your network.  What will your acquisition financing look like?  If you plan on refinancing, what will interest rates look like in 2 to 3 years? How will rising interest rates affect your exit Cap Rate in 5 – 7 years?  No one has a crystal ball so these questions are tough to answer, but they are specific questions that can be discussed to form educated underwriting assumptions to mitigate downside and protect the value-add upside.  Investigate and educate yourself on these types of questions rather than asking, “is now a good time to invest in real estate?”.

Although it gets a lot of attention, interest rates are just one small piece of the equation.  The ability to lock in long-term low-interest debt definitely helps enhance returns, but it is not WHY we invest in multifamily real estate.  Among other reasons, a main reason we invest in multifamily real estate is the ability to add value directly to a physical asset and effectively management it over an indefinite period of time to generate cash flow and long term capital appreciation.  This concept holds true at any point in the market cycle.  Fluctuating interest rates may (or may not) have short term effects on the economy, but developing strong management teams and systems mitigates a majority of the down-cycle risk and create enormous long-term value.

We continue to focus on identifying and acquiring undervalued multifamily properties that we can effectively manage for an indefinite amount of time.

Acquisitions

        We started the new year by acquiring a vacant residential building in a Class-A location in Baltimore, MD that we will convert to a 15-unit apartment complex.  We were able to acquire this property 9.5% under the ‘as is’ appraised value and under 50% of the ‘as stabilized’ appraised value!  This is our first deal in this market but we are excited about the market fundamentals, and more importantly, our partnership in the area!  Here is our LinkedIn Post about this acquisition. 

We are excited to provide our investors strong passive income while improving the property and providing our tenants clean, safe, enjoyable housing!

We are currently actively seeking new opportunities in New Hampshire, Baltimore, and certain southeast and midwest markets. If you have any interest in learning more about these opportunities, please consider logging into our portal or schedule a call with me. The Portal will give you a first look at future opportunities as well.

Asset Management

        I recently presented about asset managing a multifamily property to the Multifamily Geeks “Geek Group” hosted by Max Rock. It was a pleasure presenting to a great group of multifamily investors who share similar goals and values. Check out the presentation here.

Speaking of asset management, we have been making significant progress implementing our asset plans on our two most recent acquisitions (December 2021 and January 2022).  Acquiring a new property is always exciting, but it is even more exciting when you successfully implement the asset plan and are able to start giving cash flow distributions to investors.  We were able to start giving distributions on our December 2021 acquisition after Q1 2022, while the property we acquired in January 2022 is a heavy lift so we do not anticipate distributions for the foreseeable future but we are making significant renovation progress.

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