Search

Having trouble finding investments in New Jersey?

Updated: Jul 4, 2020


We have a new investment opportunity here at Peoples Capitol Group. Find out why we chose to acquire these properties and how PCG is working with passive investors to build their wealth through NJ apartment buildings! The Passive Cash Flow Podcast is for beginner or experienced investors. Learn how you can diversify out of the stock market, own a part of an apartment building & start earning Passive Cash Flow! Peoples Capital Group has been helping passive investors build wealth in NJ real estate for 10 years. Visit www.PeoplesCapitalGroup.com to find out if you qualify to start earning passive income and pay less taxes via investing in real estate. IRA's and 401K's are accepted. -- https://www.facebook.com/peoplescapitalgroupnj/

https://twitter.com/PCGrealestate

https://www.linkedin.com/in/seth-martinez-29729a21/

https://www.linkedin.com/in/aaron-fragnito-620b93173/

https://www.youtube.com/results?search_query=peoples+capital+group #NJRealEstateInvesting #AaronFragnito #PassiveCashFlow #PCG

--

Aaron Fragnito: All right, ladies and gentlemen. Welcome back to the Passive Cash Flow Podcast. I'm your host, Aaron Fragnito with Peoples Capital Group. Today, we're going to talk about a 25-unit building we're buying. We're going to talk about why we're buying it, how we're buying it, and how we're structuring with investors, what the reposition strategy is, and why we think it's a good deal and why we're executing on it right now. We're going to break into today. Guys, if you want to learn more about how you can get qualified for one of our upcoming passive investment opportunities, this building included, go to peoplescapitalgroup.com. Put in your information. See if you qualify for one of our upcoming investment opportunities. Better yet, come to one of our investor luncheons or join one of our webinars or come to one of our events here at the office. We do them every single week. We try to make them available at good times for investors to come and learn more about our upcoming investment opportunities. Let's get into it here. Let's talk about this 25-unit property. Why are we buying it? What's the value of it? We look for apartment buildings that have value-add. Value-add means maybe the rents are below market value. Maybe there's other forms of income on the property that the landlord could be making, but they're not taking advantage of. Maybe their brother's on payroll making $50,000 a year and as some deadbeat who doesn't even help out of the property. You'd be amazed how often we find that. There's tons of ways that you can get your expenses down on properties. A lot of times, landlords are paying too much for things or they just have the wrong services or people they're working with. Again, they're missing out on opportunities to make more income on the property through maybe storage or laundry or parking and solar panels. There's tons of different ways to make more income on real estate. We look for value-add opportunity. Of course, the most common form of value-add is rents below market value. That's a pretty natural value-add to look for and find. A lot of tenants don't bother raising the rents because it's an awkward conversation to have with your tenants. It's a difficult conversation. Tenants do move out sometimes if you're raising rents 5% a year. By the way, 5% is known as a nuisance raise here in the real estate world because it's not enough to have you move out. As a tenant, it costs more to move out generally than the 5% increase on your rent, but it is enough to make a difference across the board for the landlord. It can be the difference between you building your wealth in an exponential rate or not. The first value-add we found in this 25-unit property was that the rents are about 10% below market value. Now, that might sound like not a whole lot. When you're talking about 25-units, 25 customers, you can think of them that way, paying you money and you're a company. If you realize, "Wait a minute. Everyone's paying 10% below what they could and would be willing to pay," then that's a pretty big difference. A lot of times with these properties, the profit margin is maybe 10 to 20% of the gross revenue at the end of the day after your debt service and all your expenses. Increasing the gross revenue on the property by 10% is a huge factor. Even if we just do it by 5%, that's still a good amount because that's straight to the bottom line because all of our other costs are already covered with all the income on the property. If we get our income up by 5%, that's 5% right to our net profit because all of our other costs are covered. When you can increase the rent by 5 to 10% on this particular building, rents are below market value by about 9.1%. You got to know your numbers. You got to know your numbers in this business. The rents are below by 9.1%. Because of that, we see value-add opportunity in the building. The rents, even if we increase the 9.1%, it still wouldn't be up to where the medium rent is in that area. Therefore, they have more room to grow, we feel. By the way, if it takes us two years to move the rent up to that amount due to rent control and other factors, then basically, by that time, rent is projected to be much higher then. Rent is actually growing at about 4 to 5% here in North Jersey. We know that part, you're not going to last forever. It has been growing that rate for about 10 years now. Even if that slows down, it's not the end of the world because there's room to grow on these rents moving them up to 9, 10% more of the next two years. At that point, the rent will be even higher. Ideally, 8 to 10% more at that point, so we'll still be catching up with rent as we go along through the years. The best value-add strategy is finding some play in the rent. Again, a nuisance raise is generally an easier raise. A 5% raise, that's what we're doing on this building. 5% a year, year-over-year. That is enough to really grow your wealth over time. Not anger your tenants too much, not have a high amount of turnover, and make sure that you're hitting that mark every year on the rent growth. Now, as you collect more rent, not only is it net profit right to your bottom line, but it exponentially increases the value of a building. A lot of people have questions about this. How are these apartment buildings valued? Why does a 5% increase in rent not only increase my building by 5% in value, it actually increases it more? The reason is because properties, commercial real estate is valued at a calculation of your cap rate divided by your net operating income. Actually, your net operating income divided into your cap rate gives you your property value. If you have a 6% cap rate and you make another $10,000 in net profit, that increases the value of real estate by $600,000. It's crazy. If you're able to make more capital on the bottom line, it's crazy how much you can increase the value. I