The Lefebvre Team

Experts in Multifamily & Commercial Real Estate

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Blog :: 06-2020

#InvestingTipTuesday: When Should I Buy?

Hello everyone!

We're back with an all new #InvestingTipTuesday here on the blog. Today, I want to talk about the conversation that many realtors have probably had, whether it comes up in casual conversations or at social gatherings and parties, and that conversation is: "How's the market doing?"

The answer to that question is often: "It depends." It depends on if you're buying or if you're selling, it depends on where you're at, and what you're looking to do. Often times when I get asked this question, it gets followed up with: "Is it a good time to buy an investment property?"

Once again, the answer is: "That depends," which makes it much more complicated to have a casual conversation about the real estate market, but let me explain why.

The reason why I got into real estate was because I wanted to work with real estate investors. I wanted to work with people who want to make money through the means of real estate ownership, build wealth, build a retirement portfolio, get passive income, get college tuition for their children--whatever the reason might be. That's what gets me out of bed in the morning and that's what I enjoy doing the most. To answer the question, "is it a good time to buy an investment property?", particularly for those who I'm having a conversation with who are just getting started in real estate investing, can be very complicated because it depends, and it depends largely on what those goals are for your real estate investing and your portfolio. 

For example, if you take a snapshot in the real estate market (we're gonna say in New Hampshire, which is where I'm located), and say we're looking at multifamily properties under $1M... the amount of inventory available is very, very low, and properties that are going up for sale are typically trading with multiple offers and selling in a very quick fashion. Those that aren't are typically overpriced, and that has been leading it to be more of a seller's market. Now, does it make sense to buy in a seller's market? Yes, absolutely it can make sense to buy in a seller's market, but it's all about being smart, and making sure that when you're underwriting these deals, that you really go through and dig into the financials behind it and figure out what your long-term plan is. 

Some folks that I work with want cash flow on day 1, and they want consistent cash flow throughout their property ownership. If they're planning on hanging onto the property for 15-20 years, their goals are going to be a whole lot different than somebody who is okay not making a whole lot up front, but plans on improving the property, and increasing their profitability within 6-12 months with the intent of maybe selling it in a couple of years. Those two scenarios are completely different, but if you're purchasing in the same market, then the answer to if you should buy, depends on which one of those scenarios you're doing and what properties are available. 

These questions are not easy to answer, and unfortunately, I can't really share the answer concisely (as you can see), right here in this post. I'll say yes, you should. Is right now the time? Maybe, it depends on what you're looking to do, it depends on how much money you have, and it depends on where that money is currently sitting (whether it's in a bank account somewhere, in an IRA, etc.).

There are a lot of different considerations that really go into whether or not real estate investing makes sense right now. Step #1 should be setting the goals that you want to do and what you want to gain out of investing in real estate. Once you have identified those goals, that's when you can start answering the question, "does it make sense to start buying investment properties right now?"

And, as always, if you ever want to ask that question of me, be prepared for a whole lot more follow-up questions.

Best,

Matt Lefebvre

#InvestingTipTuesday: Exit Strategies

Hello everyone, welcome to this week's #InvestingTipTuesday!

A couple months back, I gave a virtual presentation to the New Hampshire Real Estate Investors Association about my first real estate deal--not the first deal that I brokered, but the first properties that I bought. I ended up buying a duplex and a 4-unit in Concord, NH, and I spent about an hour on camera detailing the process that I went through. 

In short, it got me thinking about the exit strategy. The way that I bought those properties, I had a plan in place, with a budget in place, and I had a lot of good contacts for it. But because of circumstances beyond my control, and just my inexperience, the project ended up taking longer than I expected, costing more than I expected, and at the end of the day, my exit strategy was different than what I had planned on in the beginning.

When you're investing in real estate, it's important to begin with the end in mind, no matter the property you're buying. If you're buying a property, it's important to know the financial position you're going to be in, how long you're going to be in that financial position, what your plan is to get out of that property at some point down the road, and also what your back-up plan is, because sometimes things go wrong and you need a plan B.

Looking at it when you're starting an investment, it's important to understand what your investment horizon is. For example, if you're planning on buying a house that you want to turn around and re-sell, then your horizon for having this property is extremely short, and the quicker that you can sell it, the better. You might have a 3-6 month turnaround time, being realistic of course about how long you're going to hold onto that property, because every single day up until the day that it sells, you're losing money. You have nothing supporting that. Then, you make a big, lump-sum profit at the end and recoup all of that money. 

Talking about longer-term properties, some investors will purchase a property with the intent to hang onto it for 3-5 years after it's been renovated, after some of the rents have gone up, it's stabilized, and they can exit it for a profit. It's important to understand what your plan is at that point in time. Maybe the exit strategy is to refinance it and hang onto it for the longer term at an increased value. You're able to pull out a little bit of cash, recover some of the money that you spent on renovations, and then you can fund the purchase of another property from there. Or, perhaps at that point in time, your exit strategy is to sell the property and using a 1031 exchange, purchase a larger property with the gain that you've made. 

There are also some people whose exit strategy is death. They'll wait until the day that they die and pass on that property and those assets to their children. It's important to understand that too, and to know what that plan is so that going in, you know how to better analyze a deal to see if it makes financial sense. 

Now like I mentioned before, you also need to have a back-up plan. In my first deals, I made some changes to my exit strategy on the fly, and as such, that's something you should be aware of as well. What is the back-up plan? Is plan A to sell the property? Well, maybe plan B should be to look at refinancing options. My goal was to keep the properties for the long-term, refinance them, and pull out the equity, but ultimately, I ended up selling one of my properties.

Thinking about what your back-up plans are, what your contingency plans are, if you'd be okay with breaking even, if you'd be okay with a certain profit, if the market turns down, if an unexpected crisis comes up like what we've been dealing with regarding COVID-19--these are all different points to consider when purchasing a property.

As always, if you have any questions or comments, we'd love to hear them!

Best,

Matt Lefebvre

#InvestingTipTuesday: Investing In Other Classes of Real Estate

Hello everyone!

Today I want to talk about investing in different types of asset classes. A lot of what we've talked about in our #InvestingTipTuesday series both on social media, and here on the blog, has been relating to multifamily investment, but I wanted to bring up the different types of investments you can get into, because multifamily is not the only asset class you can invest in.

Multifamily is a very easy thing to get into because typically, you can start with a very, very small building such as a duplex which has a much lower barrier to entry than a retail strip mall or something like that, but there are different options out there. You can have retail investments, you can have mixed-use properties, or you can have office buildings and industrial properties. There are a lot of different types of investments, and as such, you should look at the pros and cons of each of them. 

When it comes to investing in multifamily, they can be a lot more to manage and it's typically a little more resource intensive. You have shorter term leases because tenants will sign for no more than 12 months, and you do tend to have more turnover in that type of business. However, on the plus side, you can have a much quicker-filled vacant unit, because everybody needs a place to live, and particularly in the northeast, vacancy rates are very, very low. 

On the flip side, you can look at something like retail. With retail types of investments, you can have tenants that will sign long-term leases such as three, five, or ten year leases, and depending on the type of tenant that you rent to, you could have a very, very low risk. For example, if you rent to a Starbucks, you're probably not going to be able to charge them as much in rent, but you can be sure that they're going to be paying back their lease unless their entire company goes bankrupt, which is very, very unlikely. However, if you're renting to a mom-and-pop local tenant (for this example, we'll call it ABC Coffee Company), that's going to be a little bit riskier, so there might be a higher rent associated with that. 

There's a lot of different pros and cons to each type of real estate investing, and all that should be taken into consideration. At the time of writing this, one of our retail units has been vacant for a few months, but extended vacancies are common in the retail world. Think about that when you're looking into investing in different asset classes. Understand the pros and cons of each, and understand that each different type of property has a whole lot of different ways that you need to manage it and how you invest in it. 

Best,

Matt Lefebvre

What Are Your Goals?

Hey all,

Today, I want to take a break from tips and talk about goals, and what the purpose of investing in real estate is.

Everybody has their own reason for why they're investing in real estate, so that purpose is different for different people.

Some people do it to subsidize their living costs, by purchasing that first duplex where they live in one unit and rent out the other. It helps people get off the ground and make some financially smart decisions towards the beginning of their adult lives.

Other people are doing it for the purpose of building a retirement portfolio. Some people want to be able to retire in their 50s or 60s with just real estate that they own as their sole income. They don't want to worry about the price of a stock, and they want to have some consistent cash flow from the rental properties that they have.

Some people do it because they want to be come wealthy through the means of real estate. Some people don't build a portfolio just to retire with a comfortable lifestyle, but continue building a portfolio in order to grow their net worth--rolling property after property into larger property after larger property, and doing bigger deals to continue that path onwards and upwards.

And some other people just do it for fun. Some people really enjoy the process of investing in real estate, or managing properties, or working on projects. They do this because it's their passion rather than as just a means of building wealth.

When you're looking at an investment property, and you're thinking about, "what is it that I'm going to do next?", think about why you're doing it in the first place. Is it just to get a little bit extra in terms of income so that you're able to better afford some of your monthly expenses? Is it to grow your portfolio for your eventual retirement? Is it something you want to pass on to your kids? Do you love doing it? Is it something you're truly passionate about and want to grow every single day? Or is it because you're looking to find a means of growing wealth through the medium of real estate?

Think about that whenever you're looking at whatever your next property is, and keep that big goal in line with all the little purchases you might be making. If you have any real estate goals that you'd like to accomplish in the next 5 years, I'd love to hear about them--feel free to drop a comment, or simply reach out to me. 

Best,

Matt Lefebvre

 

 

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