SHOULD YOU OWN APARTMENTS? The PROs and Cons so you can decide

Topics for presentation Who is this guy? (My Story) WHY I started The obstacles I faced Apartments vs. SFRs Most common Fears, Objections, Challenges How to determine a “good” investment with true upside How do I evaluate? How do you find these opportunities? Overview of Sacramento Apartment market

Who is this guy? Bay Area Native Son of Mexican immigrants Family owned Roofing Company for over 30 years Parents purchased distressed SFRs, Apartments, Industrial I grew up collecting Rent, cleaning out units, doing rehabs Played Soccer at UCD Acquisitions for Developer institutional apartments, retail, and industrial PCG started during the Great Recession 2015 Acquired 1st Investment property

WHY I started? The Stress of earning a living (chasing) Tired of being at the mercy of clients I desired Cash-Flow Wealthy make the majority of their income on Cash-Flow not Earned I’ve witnessed really dumb people become wealthy in real estate Condemned 26 units Bank-Owned

BEFORE…

Almost Done…

What obstacles did I overcome? Condemned Out of State Financing - 8 Banks “No” Overbids by contractors The unknown items i.e. plumbing & electrical Getting Back on Budget Property Management

Apartments vs. SFRs Your Choice at end of day Too many chasing SFRs minimizing the profits SFRs rarely Net Income The “unknown” keeps investors away Long-Term Cash-Flow Upside in rent increases Economies of Scale One location Higher Value-Add margins Multiple Exit Strategies

BUT……..Common Fears or Objections “I Don’t have the Money” Too many units in one location The costs of improvements are high There’s so many expenses What if I have vacancy and can’t fill? How will I manage this many units? I have to pay for a property manager! One bad tenant can ruin my property Financing is hard to obtain The banks just take your property whenever they want

Is this a “Good” Investment? What’s your criteria? What is the rental upside? Rent Survey How will you increase rent? How much deferred if any? How’s the location + market? What are the actual operating expenses? What can you do to reduce expenses? Is it being properly managed? Can you get all of your money out of it?

How do I calculate value? Determine what is the Actual Rent Collected Subtract from all operating expenses (Remember New Property Tax Basis and Your Insurance Cost) Rent minus Operating Expenses = Net Operating Income Determine Cap Rate or Return (Market or Your Criteria) Divide the NOI by the Cap Rate = Value *Then subtract out any Deferred or Improvements to obtain “As Is” Value

Example Annual Rent Collected = $100,000 Operating Expenses = ($45,000) NOI => ($100,000 - $45,000) = $55,000 Market Cap Rate +/- 6% Divide $55,000 by 6% = $916,667 Let’s say $50K in Deferred $916,667 - $50,000 “As Is” Value = +/- $866,667

Where are the Opportunities? Owner’s that are “asleep at the wheel” Absentee owners Retirement and getting tired of changing toilets Kids inherit property and can’t agree Properties with deferred maintenance / code violations High owner expenses Poorly managed properties Ask yourself “How can I add value” *Seller Carry Financing to avoid Capital Gains

The Sacramento Apartment Market