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Wednesday, February 13, 2013

Multifamily Investing

1:45 PM
Next up as a speaker on the National REIA cruise was multifamily investor Anthony Chara.Anthony Chara has been investing since 2000 as a successful apartment investor with 1300+ units; He found a mentor in metro Denver who owned 450 units; he receives $140K/mo passive income; and teaches students long-term strategies. Average appreciation on his properties equals 5% per year through forced appreciation. His definition of cap rate = what property pays you if you buy all cash; aim for 8% or more, at least 2 points higher than the cost at which you can borrow money. 70% of commercial loans are upside down in the US. These cannot be refinanced; $1.3 trillion of commercial loans. Chara and a student set up a $5M fund to take advantage of underwater commercial loans. Most lenders require a capital reserve account upfront at closing; either an escrow capital reserve account where the lender will pay capital expenses or you will be reimbursed once per quarter. Chara listed the best ways to find properties as follows: Buy the first one in a particular market (you will be solicited to buy more) Buy from another investor seller with multiple properties Loopnet, to find brokers Create a personal relationship with commercial brokers Chara focuses on very stable markets in the midwest and sunbelt. Management of properties, finding a competent property manager, is critical. He recommends contacting irem.org or ccim.com and look for a cpm (certified property manager). Typically, 15-50% is required for an apartment down payment. Chara sees maximum cash flow from midwest to southeast, and focuses on areas that Chara wants to travel; Florida, Nevada, Arizona, where he is buying B and C properties. I asked about volatility of cap rates in some markets, which sparked quite a discussion. In my next blog post, I will provide a better explanation of what cap rates are, how they are determined, and how they are used to determine value for income properties like apartments.

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