Successful 2020? 10 things You Must Give Up!

It’s the time of year where we take time to reflect on the year that has passed and to plan for how to make the year ahead our best yet. Reflection, incorporating lessons learned and setting a plan for the year ahead are all great steps towards helping us to realize our best selves, however they are not enough. what we also must do is to be conscious of what we must also give up in order to succeed.

Here are 10 things that you must prepare to give up if you want to make 2020 your best year 

Comfort – nothing interesting will happen when you operate in your comfort zone. It is only by stepping outside of your comfort zone that you will experience real growth. It can seem daunting at the beginning, but doing something scary is where real fun and satisfaction lie

Excuses – If we decide to not blame anything on anyone else it can give us a chance to reframe each negative experience into a learning experience and by doing so, dramatically increase our learning potential

Security – when we step outside of our comfort zone and decide to give up a blame mindset we are also giving up things that have provided you with a sense of security in the past. If we want to realize the best version of ourselves we will have to give up some level of security in order to do so

Limiting Beliefs – Henry Ford once said “Whether you think you can, or think you can’t, you’re right”. If you want to succeed you have to believe, at your core, that you can achieve your goals. This is the very foundation of any success story.

Procrastination – it is easy to find valid reasons, on a daily basis, why we can’t take the actions that we need to in order to achieve our goals. Commit to specific actions on a daily basis!

Perfection – there is a common expression that “There are no pictures on a scorecard” which refers to the fact that the ultimate objective is to get the ball in the hole and it is only the result that matters, not the means. Keep this in mind when you are defiantly pursuing your goals, it’s all about incremental progress

Multi-tasking – with all of the distractions available to us today it is possible to be very busy multi-tasking without really achieving anything. be relentless about focusing only on the actions that bring us towards our goals, everything else is a distraction

The Nice-to-have’s – if you reflect on some of the happiest moments in your life I bet you that they involve other people more than possessions. 

Instant Gratification – when we see successful people it’s easy to think that they were born that way, that their path was predetermined. In Geoff Colvin’s “Talent is Overrated” he does a great job of explaining that high achievers are forged out of hours spent on deliberate practice. Get ready for a lot of hard work as you work towards your breakthrough.

Bad Health – we all act in ways that are detrimental to our overall mental, physical and spiritual health and by doing so prevent ourselves from realizing our true potential. You will need a plan to be in the best shape of your life in order to achieve your goals. Working out, gratitude practice and mediation are some examples so pick what works best for you.

Be relentless about eliminating the 10 items above from your life and make 2020 your best year ever.

Syndication, Is It Right For You?

You want to invest in real estate but you lack the time, experience or skills to do it on your own – is that you? Investing via a syndicate can solve all of these problems by giving you access experienced team members and deals, allowing you to invest in a way that maximizes your returns whilst reducing your risk.

Let’s start by defining what a syndication is

Put simply, a syndicate is a group of individuals who agree to pool their skills and capital to enable them to purchase real estate that they could not afford on their own. The main players in a syndicate are the General Partners or Sponsors who typically provide the deal and the Limited Partners who typically provide the capital. The General Partner will find the asset, get it under contract, define and execute a business plan and manage the property manager, all in return for a fee and a split of any profit above a certain hurdle. The Limited Partners provide the capital required to fund the equity portion of the deal and are entirely passive. Limited Partners typically receive a preferred return and the majority of any equity upside.

A syndication can be a good fit for you if…

  • You want to earn passive income – investing as a Limited Partner allows you to generate entirely passive income
  • You want to invest in real estate but you lack some combination of time or skill – real estate is a good investment on a standalone basis but when you add in the tax breaks it becomes a great investment. You don’t have to miss out just because you aren’t a real estate expert or because you have a full time job that you wish to keep
  • You believe in leveraging the relative strengths of a group of people to achieve more than any individual could on their own – by investing via a syndicate you can invest alongside experienced professionals, whose interests are aligned with yours. Your profit and safety are a sponsors incentive because they earn the bulk of their money only after investors have been paid 
  • You wish to diversify across asset classes and geographies – There are a number of excellent sponsors available across geographies and asset classes. Partnering with someone who can help provide due diligence on markets, sponsors and specific deals enables you to diversify and reduce your risk
  • You wish to get access to better terms than you could as an individual – with a syndicate you can get access to off-market deals and economies of scale that you could not easily access on your own

Here are some of the reasons why a syndicate may not be a fit for you

  • You are looking for an active role – investing in a syndicate as a Limited Partner is a passive investment. You provide capital upfront and receive regular checks and your money back at the end of the deal, along with a share in any appreciation (the equity)
  • You are not an accredited investor – you need to have an income greater than $200,000 if you are single, $300,000 if married or a net worth excluding the value of your primary residence greater than $1,000,000
  • You are only interested in short-term investments – syndication business plans typically run from 3-7 years, so you must be willing to have your funds tied up for that period of time. This is the amount of time typically required to renovate the units and improve the asset which will enable the syndicate to sell at a profit
  • You want 100% control – one of the benefits of syndication is that it allows you to invest with an experienced team. If you would prefer to have 100% control yourself, then syndications likely aren’t a fit for you
  • You want all of the returns – if you want to keep 100% of the returns, and do all of the work yourself then a syndication likely isn’t a fit. Syndications work by enabling an exchange of skills and labor in return for capital. The compensation structure (promote) establishes the relative value of each contribution by allowing the GP’s to charge the LP’s fees and a split of the profits above a certain level

In 2014 I concluded that I could not scale my portfolio of single family homes without making it a full time job. Investing in syndicates has enabled me to scale dramatically, with significantly less work and risk and as a result I have now partnered to invest in over $200m of real estate and 1,900 units

If you want to get the superior returns available from real estate investing whilst reducing your risk and freeing up a lot of your time, you can, by unleashing the power of syndication.

How to Select the Best Market to Invest In

Everyone, who has ever had the slightest interest in real estate, will have head of the saying, “Location, location, location”. Location is such an important factor when it comes to real estate investing, especially because it is one of the few things that you can’t easily change. The importance of location applies to multifamily real estate investing as much as it does to buying your own single family home. 

Since we typically don’t live in the apartment communities that we purchase, we have got the luxury of selecting the best locations in the US within which to invest. There are a number of factors that we look for in a target market which ultimately support the rental rates that we can charge, as well as the vacancy levels that we can expect. We will explore our selection criteria for submarkets within an MSA in a later article. so for now so let’s dive in and take a look at some of the key factors that we look for at the MSA level.  

Population Growth 

We need people to live in our apartments so we look for a large and growing population. Some of the factors below will give insight into why the population would be growing. We also dive a little deeper into the population data to look for above average instances of single people, below 35 or people over the age of 65 since these groups have higher percentages of renters. 

Employment Growth 

High unemployment / declining unemployment will result in more people moving to an area to look for jobs and it will also mean that people who rent will have the means by which to pay their rent – a key element in a successful multifamily business model! 

Wage Growth 

Growing wages will allow renters to pay more, put simply increasing wages results in inflation and therefore higher rental rates. Higher average wages that come from higher paying jobs coming into an area, rather than just wage inflation from the existing jobs will also have a positive knock on effect. For example when Amazon decide on their location for HQ2, with thousands of highly paid software engineers we can expect to see significant job creation and wage increases in the industries that will serve that demographic. 

Industry Diversity 

Whilst all industries are cyclical, they are rarely all at the same stage in the cycle at the same time. By selecting areas that have employment diversity across multiple different companies and multiple different industries, we can ensure that there will always be adequate jobs for our renters. Understanding the industry breakdown of the jobs growth in an area can help investors better understand whether the the type of people that will rent their apartment s are coming  

Supply/Demand 

Basic economic theory informs us that when demand is greater than supply, prices will rise (and vacancies will decline). Specifically for multifamily investing we want to monitor how many apartment units are available in a certain area and how many permits have been filed to build new supply 

Affordability 

Understanding rent as a % of household income, the cost of renting versus owning and also the rate of increase in median home prices can be key factors in understanding how many renters there will be. If house prices are high and increasing then more people will be likely to rent which is a positive demand factor for multifamily investors. 

Business Costs 

It is no accident that some of the most business friendly states in the US have some of the most desirable cities for real estate investing. Texas, Florida and North Carolina are all business friendly states and as a result have been able to attract more jobs and inhabitants than less business friendly states 

Many of the criteria above are interlinked so it is important to explore all of them to understand the key drivers that impact the whole picture. Picking an MSA that scores well in all of the areas above won’t guarantee success but it will set you up for success. For more insights into successful multifamily investing subscribe to our monthly newsletter here

Time, Our Most Precious Resource

Whether we realize it or not, our outcomes in life are determined by how much we are willing to challenge our limiting beliefs. Whilst challenging ourselves, or opening ourselves up to be challenged by others, may feel very uncomfortable it is only by doing so that we can reach our full potential. 

My favorite things in life don’t cost any money. It’s really clear that the most precious resource we all have is time. – Steve Jobs 

I am here to challenge one of the most common limiting beliefs that people have: “I don’t have enough time” Everybody in this world has hopes and ambitions, and one of the most common reasons why people don’t realize these goals, is because they don’t take enough deliberate action due to “lack of time” By reading this article you will understand just how much free time you actually have and how to take a different approach to ensure that you use that time effectively towards realizing your goals. 

I am a father of two children under the age of three, my wife has a demanding professional career and in addition to Phoenix Equity Group I have a full time career in FinTech. Phoenix Equity Group, along with partners has invested in over 800 units valued at over $78,000,000 and I have only been able to achieve this by employing the techniques below to make the most effective use of my most limited resource, time. 

How much time do I have? 

I’m a numbers guy so let’s breakdown just how much time we actually have in any given week. 7 days and 24 hours a day gives us a total of 168 hours. Of that 168 we all need to sleep so let’s give ourselves 8 hours of sleep per day for a total of 56 hours which leaves us with 112 hours. Well, we also need to work so let’s give ourselves 9 hours per day of work for a total of 45 hours which leaves us with 67 hours to spare. Most of us commute to work so let’s budget a 1 hour commute each way, 5 days a week for a total of 10 hours spent commuting leaving us with 57 hours to spare. We need to get ready in the morning so let’s subtract 1 hour for breakfast and getting ready every day of the week for a total of 7 hours leaving us with 50 hours to spare. It can’t all be about work so let’s take 1hour to eat an evening meal and 1 hour to relax each day which adds up to 14 hours, leaving us with a total of 36 hours of time to use as we please, that’s almost a full work week! Think about how much we can achieve if we can start to use that time more purposefully towards our goals. 

How can I make the most use of my time? 

Here are a number of techniques that have enabled me to make progress towards my goals every single week of the year. 

  1. Plan – Keep a master list of tasks that you need to do, writing these tasks down is a prerequisite for the following steps 
  2. Prioritize – Set time aside to prioritize what tasks you should work on. In the past I have made suboptimal progress towards my goals by focusing on urgent or small unimportant tasks at the expense of more important or bigger tasks. Today I use the Eisenhower Method developed by President Dwight D. Eisenhower to categorize my tasks so that I ensure more focus on longer term strategic goals 
  3. Protect your Time – Now that you have prioritized your tasks you will need to plan some time to work on them. This is the most critical step in my opinion since without deliberately blocking off and protecting your time distractions will end up consuming it. I would suggest blocking off significant chunks of time to work on specific items 
  4. Eliminate Distractions – Modern life is full of distractions from texts, IM’s, phone calls, emails, alerts, etc. While each of these distractions seem small they can actually have a major impact in your ability to work of tasks that require concentration I.e. the kind of tasks that really make a difference to your outcomes. Find a distraction free environment to work in and simply put the rest of your life on hold until you have completed the important task you had allocated that time for 
  5. Say No – What you ultimately achieve can be as much about what you do as it is about what you don’t do. It is critical to learn to say no to time consuming commitments that are not in line with your goals. Many of us are subject to “Shiny Object Syndrome” which can cause us to lose focus on completing the task at hand. We must get very good about saying no to things that take away from our precious pool of time 
  6. Leverage – We can leverage our time further to try to achieve multiple goals at the same time. One example of this would be to consume educational material while commuting. If you drive and can’t read a book then try audible books or podcasts 

Practicing the steps above will help you to find the time that you need to realize your dreams, I have practiced each of these steps to help me to realize my dreams. If you would like more insights you can subscribe to our newsletter here 

The (Data) Science Of The Deal: How AI Will Transform Commercial Real Estate

Here is a well balanced article from Forbes on how AI can help inform better investment decisions in the Commercial Real Estate industry. AI won’t replace humans but it will help inform better decision making and it will identify correlations that humans may have overlooked.

https://www.forbes.com/sites/forbesrealestatecouncil/2019/01/23/the-data-science-of-the-deal-how-ai-will-transform-commercial-real-estate/amp/

The team at Phoenix Equity Group have been busy analyzing some of the companies that already offer access to this functionality, part of our drive to use cutting edge technology to inform better investment decision making and to improve operational efficiency

World’s best asset class, do you have enough in your portfolio?

Traditional investment advice is to hold a portfolio of liquid stocks and bonds. If you contribute to this portfolio regularly, re-invest dividends and hold for the long term you will likely be better off than if you just held cash but there are better assets to allocate your hard earned capital to. Including higher yielding, ‘alternative’ asset classes will make a significant difference to your net worth over time. 

If you don’t have investment real estate as part of your overall portfolio it is likely because it wasn’t as easy to acquire real estate exposure as it was to acquire more stock, there were high barriers to entry and it was viewed as illiquid. With stocks forecast to yield 4% a year for the next decade according to John C Bogle, founder of Vanguard group you need to find ways to make your money work harder for you to avoid having to spend your retirement continuing to work hard for your money. 

Real estate is, in my opinion, the most advantaged asset class on earth for the reasons below and you can now more readily access this asset class, passively via real estate syndication. But don’t take my word for it, the Yale University endowment has become the standard for a high performing endowment by allocating a significant proportion of its portfolio to alternative assets, including real estate which allowed it to earn a 12.3% return in 2018. 

Here is why real estate is such a great investment 

  • Tax Advantages – the biggest advantage to investing in real estate in the US are the significant tax advantages. You can indefinitely defer paying tax on any realized gains by doing a 1031 exchange, you can withdraw cash tax free by refinancing, you can depreciate the value of the property over time to offset any tax on income generated and if you do sell you can take advantage of long-term capital gains rates. 
  • Leverage – leverage is readily accessible with real estate since it is a tangible, insurable and cash flowing asset. By using leverage responsibly, we can dramatically increase our cash on cash returns. 
  • Cash flow – real estate has utility in that it provides shelter and this is something that people are willing to pay for. With investment real estate we only buy deals where the tenants payments cover our financing costs, our principle payments and excess cashflow each month. 
  • Appreciation – over time the price of real estate increases, broadly in line with inflation which means that even if we do nothing the value of our asset will increase over time. With multifamily apartments we can force this equity appreciation by reducing costs, increasing income and getting a higher valuation based on the increased Net Operating Income (NOI) 
  • Principle Pay down – Since we typically leverage real estate purchases we must pay that debt back each month. This continuous pay down can result in significant equity buildup over time 
  • Liquidity Options – you don’t need to sell your real estate in order to realize cash gains, you could do a cash out refinance or you could withdraw cash via a home equity line of credit. The biggest advantage here is that the cash that you withdraw is tax free. 
  • Competitive Risk Adjusted Returns – according to Investopedia, commercial real estate has outperformed the S&P, delivering a 9.5% return over the last 20 years. 
  • Inflation Hedge – historically the value of real estate has risen in line with inflation which makes it a great inflation hedge. This benefit can be compounded if you secure long term, fixed rate financing which depreciates in value as inflation rises 
  • Control – unlike a stock we can have direct control of our real estate asset. We can invest in it to command better rents, get better at selecting tenants, live in it ourselves which means that we get to make more of the decisions which impact our overall return 
  • Tangible, Insurable Value – Real estate is a physical thing that we can see and touch, it has intrinsic value. As a result it is insurable which means that you never need to be concerned about the value of your asset going to zero. This is not the case with stocks, just look at what happened to Lehman Brothers. 
  • Diversification – real estate is uncorrelated to stocks and bonds which means that it won’t necessarily go down in value when stocks do. Diversification is a key component of a balanced portfolio in order to reduce risk 

If you are an accredited investor and you want to take advantage of the many advantages of real estate you can register for our future deals here 

The Robots Are Coming

Two Oxford economists published a paper in 2013 where they estimated that 47% of American jobs are at a ‘high risk’ of being automated within the next 20 years. If you think that this will only impact blue collar industries then you should check out how a team of 600 highly educated Sales Traders at Goldman Sachs who earned an average of $500,000 per year were whittled down to a team of just 2 people by the application of digitization, automation, artificial Intelligence and machine learning.

What are these technologies anyway? Let’s take a look at what these technologies are, how they can be applied to real estate and what the benefit to real estate investors will be.

  • Digitization: This is the storage of data in a digital form and is a baseline requirement for all of the technologies that follow. One example would be moving your contacts into a Customer relationship Management (CRM) tool.
  • Automation: Sometimes called Robotic Process Automation, this is the automation of repetitive and predictable tasks. An example of Automation would be automating the workflow of receiving an email from a potential investor, logging their contact details into a CRM and instructing a automated marketing platform to send them content.
  • Artificial Intelligence: Where Automation technology allows us to automate predictable tasks e.g. if X, then Y, AI introduces the concept of human like thinking. AI looks for patterns and selects the most appropriate response. Using AI we could decide which content is best to send to the investor based on some of their attributes e.g. age, gender, area of interest. The CEO of Google, Sundar Pichai, recently stated that AI is “one of the most important things that humanity is working on”
  • Machine Learning: Here we introduce a feedback loop into the AI technology so that the AI receives feedback on the response it provides and incorporates that into future selections. It’s like a human making better decisions as a result of being more experienced. Machine learning could, for example track, the number of opens on the content sent in the example above and potentially send different content next time to get better results.

OK, so it is interesting to learn a little about the technologies that will shape our future but so what? Well, I am all about what outcomes technology can deliver for my business so let’s take a look at how I am looking for better outcomes by leveraging some of these technologies.

I launched Phoenix Equity Group in 2018 to focus on syndicating multifamily apartment buildings in markets that are best positioned for sustained growth based on economic factors. It is very important to me that my business is data driven, leverages advanced analytics and is as operationally efficient as possible. Ultimately, I see delivering the best risk adjusted returns for investors as the best way to grow my business and I think I can best achieve this by leveraging digitization, automation, AI and Machine Learning. Here’s how we will leverage these technologies

Investor Engagement and Capital Raising

Syndicating multifamily real estate means raising capital from accredited, private investors to fund the equity portion of a deal. The equity portion is required to cover the 25% that the bank typically won’t finance, the cost of planned improvements that will increase the value of the property and also the upfront cash required to assemble and close the deal. This is typically in the range of 30%-35% of the total value of the deal. By leveraging a CRM we can ensure that potential investors data is digitized and by using automation we can ensure that potential investors are engaged on a regular basis and that the lifecycle of getting committed capital is as automated as possible

Market Selection

Market selection is a data and analytics intensive task but luckily many of the data attributes which impact the potential of a market are programmatically available. One example of this is US Census bureau on economic indicators like population and jobs growth. By examining this economic data over time, we can leverage AI and Machine Learning to identify which specific indicators most impact rental rates and vacancy and by how much. By understanding this we will be better positioned to very quickly identify markets positioned for future growth. Market selection does not guarantee success but it is a strong foundation. We believe that people who have now selected strong underlying markets will be in trouble when the market cycle turns

Sourcing Deals

At Phoenix Equity Group we are focused on identifying target deals whether or not they are listed for sale. We have leveraged automation software to build a database of properties in our target markets and we focus specifically on the data that identifies the property as having value add potential. This makes us more efficient since we don’t need to wait for properties to be listed by brokers and we can very quickly filter out properties that don’t meet our criteria. This reduces the number of deals that we ultimately underwrite.

Underwriting

Underwriting is the process of gathering the data necessary to come up with an objective valuation range for a property. Two key inputs into this process are the financial statements and the rent roll which at this case are more like a best-case scenario but we will get to the actual data in the due diligence phase. The challenge here is that this data is delivered in whatever format the seller has it in. It could be PDF’s, excel sheets or word documents. To do our analysis we need to get this data into the format required by our financial models. We use elements of automation, AI and ML to automate this process. We can add further value by starting to identify which elements of the property will most enable us to add value.

Due Diligence

Due diligence is a quantitative and qualitative review of the tangible and intangible aspects of a property. Like underwriting, we need to gather multiple pieces of data which may be in a variety of formats. We need to transform that data into our formats in order to build our own valuation models. We also run through a repeatable checklist of steps which lends itself to some degree of automation. The human element provides a tremendous amount of value at this point due to the qualitative nature of due diligence but technology can bring efficiency and consistency.

Asset Management

We buy assets that are underperforming relative to the market, put simply, they have lower occupancy and lower rents than comparable properties nearby. We create equity by increasing occupancy and increasing rents. In order to improve occupancy and increase rents we need to provide additional value to prospective tenants. There are many ways to provide this value with one example being renovating and updating the unit. Using data and analytics (AI) can allow us to make better decisions as to where to spend out improvement $ in order to get the best return for any given market. With enough data built up over a history of projects we will be better positioned to automate some of the decisions as to what our value-add business plan should include.

As you can see, emerging technologies will provide us with significant opportunities to run more efficient businesses, achieve scale more quickly and to develop a more consistent methodology for making decisions. Technology will never replace the human element but it will free us up to focus more on where we add the most value and if used correctly to run more profitable, predictable businesses. Have no fear, the robots are coming to help!

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