Five Markets for Buy and Hold

Transcription

1 Five Markets for Buy and Hold Multifamily Investors Thomas Winfield July. 23, 2016 Prediction is very difficult, especially if it's about the future.---niels Bohr

2 This is not a solicitation or offer Nothing in this presentation is meant to be Legal, Tax or Financial advice Consult your Lawyer for legal advice Consult your Tax Advisor for Tax advice Consult your Financial Advisor for Financial advice

3 Rationale and Selection Criteria Selected Markets Outline My Assumptions: Buy and Hold (3+ Years) Multifamily Property View of Market (MSA) rather than submarket or property

4 Criteria for Selecting a Market Population Growth Primarily from Net Migration States With Large and Growing Populations Workforce Income Growth Educated Workforce GDP/GSP Diversified Economic Base Good Debt Rating RE Cycle Phase Real Estate Prices Not Volatile

5 Virtuous Circle for Economic Growth Population Growth Income Growth Increase in Job Openings Talented Workforce A Growing Population and Talented Workforce Creates a Demand for Real Estate

6 The Population of the South and West is Increasing Faster Than the Northeast and Midwest Howdy Y all

7 Follow the People States with higher net migration are best for real estate investors

8 South and Western States With Population Growth South Florida Georgia North Carolina South Carolina Texas Western Colorado Utah California Nevada Washington Oregon

9 Follow the Money: Growth in State s Gross Domestic Product (GDP)

10 South and Western States With GDP Growth States With Large Percentage Increase in GDP Will See Greater Increase in Population

11 Median Household Income

12 Personal Income Growth is a Measure of Economic Growth

13 Educational Attainment-College Graduates Educated people are less likely to be unemployed and more likely to earn more money.

14 State Business Climate As Measured by CNBC CNBC Ranking State Best Ranking Worst Ranking 1 Utah Economy Access to Capital 2 Texas Economy Education 3 Colorado Workforce Cost of Doing Business 5 North Carolina Access to Capital Quality of Life 6 Washington Tech & Inovation Infrastructure 8 Georgia Infrastructure Quality of Life 10 Florida Economy Cost of Doing Business 17 Oregon Economy Business Friendliness 27 South Carolina Cost of Doing Business Education 32 California Tech & Inovation Cost of Doing Business 40 Nevada Infrastructure Education CNBC Ranking Categories: Workforce Cost of Doing Business Infra-structure Economy Quality of Life Technology and Innovation Education Business Friendliness Cost of Living Access to Capital

15 Five Selected Markets State Market Rationale Georgia Atlanta Metro Good for Business; Gateway to South; Reasonable Prices; Growing GDP; Personal Income Growth Colorado Denver Stable Economy; Educated Workforce Utah Salt Lake City Stable Economy; Educated Workforce; Personal Income Growth California Inland Empire Large and growing GDP; Innovators, Large Diverse Population, Educated Workforce Washington Seattle Educated Workforce; Technology, Growing Personal Income Hey! What about Texas and Florida

16 Atlanta Metro Home to 5.7 million people in The region s population is projected to increase to 6.4 million residents by 2020 Median household incomes $56,000 Median Home Price: $254,200 Unemployment: 4.6% College Attainment: 33% Net Migration Averaging 25,000 Annually Rent Growth : 6%

17 Atlanta has Diverse Employer Base Employer Delta Air Lines Emory University / Emory Healthcare Wal-Mart Stores, Inc. The Home Depot AT&T The Kroger Co. Wellstar Health Systems Publix Super Markets, Inc. USPS - Atlanta District Northside Hospital Coca-Cola United Parcel Service Piedmont Healthcare Centers for Disease Control and Prevention Children's Healthcare of Atlanta Atlanta is the world headquarters of Coca-Cola, Home Depot, UPS, Delta Air Lines and Turner Broadcasting.

18 Atlanta Employment Growth Atlanta s employment growth outpaces that of the US Current Unemployment Rate is 4.6% vs. 4.9% for US

19 Atlanta Economy- Income Source Moody s Economy.com. US 2015 Median Household income is $54,000

20 Atlanta Multifamily Indicators Cap Rate 6.6% Vacancy Rate 4.6% Price Per Unit $78,000

21 Atlanta Pro and Con Pros Significant Population Growth Due to Net Migration Educated Population Diverse Employer Base Income Growth Leading to Rent Increases One of World s Busiest Airports Within 2 hours Flight Time of 80% of US Population Cons Late in the RE Cycle Experienced Rapid Growth Lately Cheap Land Influx of Out of State and Foreign Buyers

22 Denver Metro Home to 3 million people in The region s population is projected to increase to 3.3 million residents by 2020 Median household incomes $69,000 Median Home Price: $335,400 Unemployment: 3.3% College Attainment: 42% Net Migration 31,000 in 2015 Rent Growth : 5.6%

23 Denver Employer Base 1. U.S. Government 2. State of Colorado 3. University of Colorado Systems 4. Denver Public Schools (DPS) 5. City and County of Denver 6. HealthONE Corporation 7. SCL Health System 8. Centura Health 9. Lockheed Martin Corporation 10. CenturyLink 11. Kaiser Permanente 12. Denver Health Denver has a large number of Government employees from Federal, State, County and City agencies. There are also a large number of healthcare workers

24 Denver Employment Growth Denver s Jobs Performance Has Performed Better Than the US

25 Denver Economy- Income Denver s Per Capita Income has grown, at the same time as the population has grown

26 Denver-Multifamily Indicators Cap Rate 5.5% Vacancy Rate 5% Price Per Unit $150,000

27 Denver Pro and Con Pros Highly Educated Workforce Recession proof Employer Military Bases Transit point for Goods moving between Midwest and West Cons May be Later in the RE Cycle Need Better Employer Diversification Oil Component is volatile Government workers

28 Salt Lake City Home to 1.3 million people in The region s population is growing at 1.05%, the 5 th fasting growing metro. Median household incomes: $72,000 Median Home Price: $247,000 Unemployment: 3.6% College Attainment: 32% Rent Growth : 5.8%

29 Salt Lake City Employer Base Largest employers State of Utah Intermountain Health Care University of Utah Salt Lake County Smith's Food & Drug Centers U.S. Postal Service Delta Air Lines Novus Credit Services Salt Lake City School District Cordant Technologies Qwest Communications Zions First International Bank Salt Lake City Corporation PacifiCorp Wells Fargo Sears Roebuck and Company Fred Meyer Stores Salt Lake City has a similar employer base as Denver

30 Salt Lake City Employment Growth

31 Salt Lake City Income

32 Salt Lake City-Multifamily Indicators Cap Rate 5.5% Vacancy Rate 4% Price Per Unit $110,000

33 Salt Lake City Pro and Con Pro Very Stable Economy Performs Better Than US Good mix of organic as well as net migration population Growth Growing Technology Sector Still in Expansion Phase of RE Cycle Con Weather

34 Inland Empire Home to 4.4 million people, by 2020 the region s population is projected to increase to 5.2 million residents Median household incomes $55,000 Median Home Price: $254,200 Unemployment: 5.3% College Attainment: 20.1% Net Migration (2014): 5,120 Rent Growth : 5.9%

35 Inland Empire Employer Base Name of Employers County of Riverside, Riverside Stater Bros. Markets, San Bernardino Arrowhead Regional Medical Center, Colton County of San Bernardino, San Bernardino National Training Center, Fort Irwin U.S. Marine Corps Air, Twentynine Palms Abbott Vascular, Temecula March Air Reserve Base, Moreno Valley San Bernardino City Unified School District, San Bernardino Ontario International Airport, Ontario University of California, Riverside Claremont Colleges, Claremont University of California, Riverside Kaiser Permanente, Fontana Riverside Unified School District, Riverside In addition to local employment, a large number of people in the Inland Empire commute to work in Orange and LA County

36 Inland Empire Employment Growth

37 Household Income Distribution of Household Income 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% Less than $10,000 $10,000 to $14,999 $15,000 to $24,999 $25,000 to $34,999 $35,000 to $49,999 $50,000 to $74,999 $75,000 to $99,999 $100,000 to$150,000 to $149,999 $199,999 $200,000 or more Ont Rvsd SB Cal

38 Inland Empire-Multifamily Indicators Cap Rate 5.5% Vacancy Rate 4% Price Per Unit $100,000

39 Pros and Cons of Inland Empire Pros Most land owned by State or Federal Government. This constrains building. Decreasing Gas prices will make it more affordable for commuters Ontario Airport ownership returned to the City of Ontario Cons Land is cheap(er) so building will increase. A decrease in imports through the LA and Long Beach ports will have a negative impact on growth San Bernardino s Poverty Rate.

40 Seattle Home to $3.6 million people, growing at a 2.4% rate. Fastest growing area in the Northwest Median household incomes $71,000 Median Home Price: $580,000 Unemployment: 4.8% College Attainment: 25% Rent Growth : 6.5%

41 Largest employers Boeing Joint Base Lewis-McChord Microsoft University of Washington Amazon Providence Health & Services Walmart Weyerhaueser Fred Meyer King County Government Seattle Employer Base

42 Seattle Employment Growth

43 Seattle Economy- Income

44 Seattle Multifamily Indicators Cap Rate 4.5% Vacancy Rate 4.0 % Price Per Unit $184,000

45 Seattle Pro and Con Pro Transit Point to Canada and Far East High Tech Companies such as Microsoft and Amazon Still in the Expansion Phase of the RE Cycle Con Boeing has a large impact on the economy

46 References Bureau of Labor Statistic (bls.gov) Forbes Magazine US Census Bureau Integra Realty Resources US Bureau of Economic Analysis

47 House Hacking for Multifamily Investors For information purpose only. Not meant as a solicitation or offer. Thomas Winfield July. 23, 2016

48 Discussion Points Benefits Scenarios Pros and Cons

49 What is House Hacking A person purchases (or takes control of) a single family home or multifamily property; lives in it; and rents out the other bedrooms or units.

50 Benefits Reduce or Eliminate Housing/Rental Expenses Reduce Amount Needed to Acquire Property Method for Acquiring First Multifamily Property Lower Cost of Entry Tax Benefits Better Class of Tenants Easier (and less costly) to Manage and Maintain House Hacking can be the first rung on your ladder to success.

51 Issues Terms of the Loan/Financing How is Rental Income Determined/Counted How long do you have to live in the property What are the terms of use Number of Occupants Long Term vs. Short Term Rental Qualifying for Loan How is the Property Income Treated How much Reserve is needed

52 Hacking Without Owning

53 Hacking Without Owning - Currently Renting an Apartment or House Acquire Roommate(s) in your current Rental (House or Apartment) Assume Landlord Allows Sublet part of property Joint Renters

54 Hacking Without Owning Master Lease Master Leasing Lease entire property from owner Move into a part of the property Take responsibility for Tenants Take responsibility for Expenses Excess Cash Flow belongs to you as income

55 Hacking While Owning or Controlling

56 Currently Own a Condo or House Rent out one or more bedroom Air BnB Move into an apartment and Rent out entire property

57 Multifamily Living Purchase 2-4 Units Live in one Unit Rent Remaining Units Accumulate Cash Sell/Rent Property Repeat Process Pro Financing Similar to SFR Spread cost over more units More Favorable Tax Treatment Con You re a Landlord

58 Purchase Owner Occupied Multifamily Property-Trade Rent for Ownership My Current Rent $1500/Mo ($18,000/Yr) Goal: Purchase 3 Units, Live in 1 Rent out 2 Purchase Price: $625,000 10% Down, FHA Loan Current NOI = $22,903 Debt Service = $36,235 Cash Flow = -$13,333 Owner Unit = $10,800 Effective Cash Flow = - $24,133 Add in Prior Rent = $18,000 Total Out of Pocket = $6,133 Most Out of Pocket will be Recaptured through Tax Benefits Five Year Cash Flow Projection Year 1 Year 2 Year 3 Year 4 Year 5 Cash Flow ($24,133) ($15,913) ($14,980) ($14,018) ($13,028) Add In Prior Rent $18,000 $18,000 $18,000 $18,000 $18,000 Total Out of Pocket ($6,133) $2,087 $3,020 $3,982 $4,972

59 Live in House Flipping Buy Single Family or Multifamily Property Live in Property While Fixing it Up Sell (or Rent) Property After Repairs are Made Repeat Process Pro Replaces Rent with Mortgage Reduces Time Pressure on Flips Favorable Financing Con Transaction Cost Minimal Tax Benefits

60 Lease Option-Control Property Until Purchase Comparable property worth $775,000 This Property is underperforming Vacancy Rate Is 15% Expenses are 45% Gross Scheduled Income = $74,700 NOI is $34,922 Debt Service is $32,451 Offer Lease for NOI of $40,000 Option for $5,000 Purchase Price $700,000 Allocate $50,00 for Repositioning Make Repairs and Upgrades Get Vacancy Rate to 5% Get Expenses to 35% After repositioned value $1,084,960 NOI of $54,248 Cap Rate of 5% Property now Properly Managed Vacancy Rate Is 5% Expenses are 35% Gross Scheduled Income = $81,576 Action Exercise option for $700,000 Obtain Loan for $705,000 Cash Flow of $21,000

61 Summary Pro Good Approach for Entry Level Investor Learn Management and Maintenance Reduces Housing Cost Tax Benefits Con Living with Tenants Moving Every Year You Need to Develop Basic Handyman Skills