The next post in our Guest Blog series is provided by Pat Poling, Principal of Mara Poling, and provides an overview of his thoughts on multifamily investment strategies and its benefits to investors. You can view their latest offering by clicking here.
The following are solely the opinions of Pat Poling and do not constitute financial advice or counsel from RealCrowd. RealCrowd is not an investment advisor, attorney, tax consultant or endorsing the following comments. As always, please consult your investment advisor prior to making any investment decisions.
“I need better returns!” cried every investor I’ve ever met. When queried as to what better returns means the responses are many. I need more stability. I want less risk. I want higher returns. I want it all. Ah, Optimized Returns, the holy grail of the investing world. Well, here are 4 easy steps you can take today in your quest for Optimized Returns.
Revise your asset allocation
Equities? Check. Bonds? Check. Fixed Income? Check. Cash? Check. Real Estate? … Did you know that 40% of investment portfolios do not contain any commercial real estate, and those that do are underweighted (according to Goldman Sachs).
- Commercial Real Estate in general, and Multi Family Real Estate in particular, deserves a place in your portfolio. A 2013 study by Thomson Reuters Datastream tells the whole story.
- Commercial real estate generates total returns exceeding small cap and large cap stocks; with stability on par with corporate and government bonds – all with tax advantages neither can offer (depreciation, 1031 exchange, pass through tax treatment/K-1).
- And remember, returns in the Multi Family segment of Commercial are driven by a supply/demand imbalance that will continue for years to come (more on that another time). How much Commercial Multi Family is up to you. Don’t miss out on a key component of an optimized return – add some Commercial Multi Family to your portfolio.
Invest in a Fund
- Funds provide diversity, tax efficiency, actual real estate ownership (not a stock), and the ability to add to your position.
- A fund has the ability to provide greater tax efficiency than an investment in a single property. Laddering asset acquisitions can result in net losses at the fund level even after some assets begin to generate positive income. Timing 1031 exchanges to minimize tax exposure can defer gains while providing fresh assets to depreciate.
- A Fund is not a publicly traded REIT – a publicly traded REIT is a stock in a company that owns real estate, subject to the whims of the stock market. You want a Fund not a REIT.
- An extra benefit of some funds is the ability to add to your position over time, enabling you to grow your position while maintaining your diversity (an investment in a single asset is a one time transaction).
Re-Invest your cash distributions
- Compounding is one of the most powerful forces in investing.
- Cash yield is a valuable component of the total return associated with Commercial Multi Family real estate. Re-Investing some or all of your cash distributions can be a powerful force to grow your returns.
- Ask your sponsor to reinvest your quarterly distribution checks back into your capital account. Note – not all investment sponsors offer a reinvestment option.
- The compounded growth from reinvestment will boost your return substantially. Selecting the reinvestment option, in our experience, can increase your total return by 250 to 300 basis points or more.
Use your IRA
- A small fraction of the more than $6 Trillion in IRA accounts is invested in real estate. Put your retirement fund dollars to work doing more than investing in index funds or whatever else your current IRA provider offers.
- Take control and invest in what you want to invest in – Commercial Multi Family real estate.
- The average return on investment for IRA funds in the US is less than 10%, significantly lower than your potential return from a Commercial Multi Family investment.
- Select your Commercial Multi Family investment carefully as not every sponsor can or will accept IRA investments.
So there you have it. A simple four-step plan to optimize your returns. 1. Add some CMF to your portfolio, 2. Through a well managed Fund, 3. One that provides a reinvestment option, and 4. Accepts investments from IRA accounts.
Pat Poling is the Founder and CEO of Mara Poling, a Total Return real estate investment firm dedicated to enabling their clients to Build Lasting Wealth. Check out the Mara Poling Total Return Fund now available on RealCrowd.
This week we sat down with Managing Principal of Avistone, Rich Kent, to find out why Industrial assets are the focus of their investment strategy. Check out their latest Acquisitions in the Avistone Industrial Property Fund here.
The following are solely the opinions of Mr. Kent and do not constitute financial advice or counsel from RealCrowd. As always, please consult your investment advisor prior to making any investment decisions.
Avistone focuses exclusively on the Multi-tenant Industrial Real Estate sector. Compared to other
types of real estate – or even to other types of equity investments – we believe Industrial RE
offers investors numerous competitive advantages.
- Attractive Risk/Return: We will be the first to admit: industrial real estate is not the sexiest
type of investment you can have – no soaring glass towers, jazzy store fronts, hip mixed-use or
classy apartments. Yet that is exactly the point: Industrial RE seldom has the wild swings in market
value and therefore rarely has the downside risk inherent in other property types during times
of economic weakness. Realizing 8%+ cash-on-cash returns and 14% to 22% IRRs (total returns),
with less volatility, translates to an attractive trade-off of risk and return, and better sleep at
- Ease of Management: Industrial RE is primarily leased on a triple net basis where the tenant
pays its share of the property operating expenses and most of its interior maintenance costs.
Additionally, industrial tenants do not require interior janitorial service and industrial properties
rarely include interior common areas that need to be maintained by the landlord.
- Lower Cost of Ownership: Re-tenanting costs for Industrial RE tend to be lower than other
commercial property types. For instance, the cost of tenant improvements for a new office
tenant may range from $15 to $25 per square foot, while tenant improvements to Industrial RE
space typically range from $1.50 to $5.00 per square foot.
- Industrial RE Is Flexible: Industrial properties come in a variety of shapes and sizes: there
can be warehouse with little office, or space that’s heavy on office with some warehouse for
distribution, warehouse area can be converted into biotech space or a baking facility… and so on.
Given proper zoning, industrial real estate allows for far greater flexibility in accommodating
tenants’ needs than other commercial property types.
- Industrial RE Supply Is Shrinking: Across the country, we are seeing an urbanization
renaissance. Dilapidated industrial buildings are being turned into hip night clubs, chic lofts,
apartments and “collaborative space” offices. At the same time, very little new industrial
construction is occurring in the urban and suburban areas. As former industrial areas are being
rezoned, there is less room for suppliers and distributors to access and store their inventories.
From an investor’s supply/demand perspective, this means that industrial should only become
more valuable in these areas as businesses long to be closer to the cities they supply.
- High Replacement Cost / Barriers-To-Entry: Which brings us to the primary expense driver
of new industrial projects: the high cost of acquiring and entitling land. While industrial
properties are typically single-story and not necessarily expensive to build, they do require far
larger sites of land as opposed to vertical projects such as office, multifamily and hospitality. And
frankly, developing new industrial sites do not offer municipalities the same tax revenue
opportunities as retail, hospitality, housing or high-rise office. Thus, increasing demand for
industrial space and the high cost of building new projects drive rent increases for existing
projects, which creates opportunity for upside in existing properties today, especially those
acquired below replacement cost.
- Changing Nature of US Employment Market: Today, 40% to 50% of all job growth in the
country is driven by businesses with fewer than 50 employees, and this trend is expected to
increase over the foreseeable future. These businesses primarily occupy multi-tenant industrial
projects and business parks.
- Growth of Internet Retail: E-commerce (product warehousing) now drives 30% to 40% of
the industrial real estate business. As one of the fastest growing segments of the economy, ecommerce
is expected to account for one-third of all retail sales in just 15 years; and shift more
and more space from expensive brick and mortar retail stores to Industrial RE – primarily
warehouses and e-commerce fulfillment centers.
- The Coming Revolution in 3D Printing: Forbes Magazine, The Economist and other leading
business publications are calling 3D Printing “The Next Industrial Revolution.” Because most
practical applications will extend beyond “home-use,” the explosive growth in this industry over
the next 10-years will house itself primarily in Industrial RE.
- Home Building; Expansion of Oil & Gas; Infrastructure Construction: Industrial space is
the primary beneficiary of expanded activities in new residential/commercial construction, the
oil and gas industry, and renovation of the nation’s aging infrastructure of roads, bridges and
utilities as firms engaged in the building trades gear-up for new projects. Specifically, we target
Industrial RE projects in regional markets exhibiting these strong economic drivers.
Avistone, LLC, is a real estate investment firm specializing in the purchase of multi-tenant
industrial / business park properties and creating alternative investments for individual investors
seeking high current yield, strong returns and the optimization of risk. We target individual
properties that have the potential of providing our clients with 8.0%+ cash-on-cash yields, 14%
to 22% annualized returns (IRRs) over 5-year holding periods, and can be purchased at a
substantial discount to replacement cost.
We are pleased to feature some commentary from Rosey Miller, CEO of Regional Investments & Management, on the growing Central Texas housing markets as it relates to commercial real estate investing. Learn why San Antonio and Austin have been the focus of RIM’s investment strategy. You can view RIM’s latest investment opportunity in San Antonio here.
The following are solely the opinions of Mr. Miller and do not constitute financial advice or counsel from RealCrowd. As always, please consult your investment advisor prior to making any investment decisions.
As home pricing gradually ascends, new construction lags and lenders continue to abide by stringent underwriting criteria, US home ownership has declined to 63.7%. Data shows that the millennial and generation x segments bide their time preferring the flexibility, amenities and social aspects of multifamily housing. This structural demographic shift of rent-versus-own supports continued investment opportunity in the multifamily sector.
Direct Real Estate Investments Expected to Outperform Public Real Estate Market
Private, direct U.S. real estate investments are expected to outperform publicly listed real estate companies, including real estate investment trusts (REITs); homebuilders; publicly listed non-real-estate securities; commercial mortgage-backed securities (CMBS); and investment-grade corporate bonds in 2015, according to real estate market experts surveyed by the Urban Land Institute and PwC, the accounting and consulting firm.
With the U.S. homeownership rate declining to a 19-year low in 2014, the multi-family rental property market continued to outperform inflation, says Marcus & Millichap, the real estate investment brokerage firm that specializes in apartment property sales.