xhv8mzw7ge79waga35o97s2wbzpfr6 How to Analyze a Market in 60 mins and Know More than a "Local Expert"
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Neal Bawa

– Grocapitus, MultifamilyU –

For more information contact:

grocapitus.com or neal@grocapitus.com

  Video Length: 45 min

How to Analyze a Market in 60 Minutes and Know More than a "Local Expert"

- Neal Bawa, Founder & CEO, Grocapitus & MultifamilyU

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Background:

Neal Bawa is CEO / Founder at Grocapitus, a commercial real estate investment company. Neal sources, negotiates and acquires Commercial properties across the U.S., for 200+ investors. Current portfolio over 1000 units, projected to be at 2000 in 12 months.

Neal also serves as CEO at MultifamilyU, an apartment investing education company. He speaks at events & meetups across the country. Nearly 2,000 students attend his multifamily seminar series each year and hundreds attend his Magic of Multifamily boot camps. Neal is the co-founder of the largest Multifamily Investing Meetup network in the U.S. (BAMF), a group of investors that has over 3000 members.

Neal is an accomplished single family and multifamily investor. Currently owns single families, duplexes, tri-plexes and quad-plexes in CA and IL. Active and passive investor in multifamily and commercial syndications in TX, NC, KS, OH, NV, UT, FL and IL. Taught Fundamentals of Multifamily investing, Real Estate trends and deal analysis to 1000+ students, including investors from three different IRA companies. Raised tens of millions of dollars to buy 200+ unit students housing and multifamily projects.

Text:

Speaker 1: (00:00)
Mike check you guys. Can you hear me fine? Awesome. I, uh, I'm from the San Francisco Bay area and I'm just thrilled to be here. And before I started, I want to say something that you know, that may not be obvious to everyone, especially the people that live here. So how many of you are from Utah? Awesome. I spend thousands of hours, hundreds of them each year crunching numbers, and I have to tell you something about your state. I come here as often as I can, every possible excuse. I've broken every rule that I have to come here and do things here because this is an incredible opportunity. Your state for a number of reasons is in just the right place at the right time. I encourage you to forget about some of the challenging times that your state has had in the past because your next 10 or 15 years are going to be absolutely spectacular.

Speaker 1: (01:06)
So I had that message for you. Um, and you're going to see a little bit of that in today's presentation. But today's presentation is not about that. Let me start off by introducing myself. Unlike a whole bunch of the presenters here. I am not real estate royalty. I haven't flipped a thousand homes. I haven't done a hundred loans. I'm a technologist. I had a regular tech job or regular tech exit and I happened to accidentally fall in love with real estate. It happened through my regular job and then after a while I fell head over heels in love with apartment or multifamily real estate. What's Nice though is today I'm not going to talk about multifamily at all. They stuck the, the word multifamily in front of my presentation. I didn't do that. They did. The good news is everything that I'm going to talk about today first applies to single family and then it also applies to multifamily, but it's actually designed for single family. So even if you have a single unit, a single rental, everything I'm going to mention today works real estate. It's been really, really good to me. But it wasn't always like that. Real estate is a very challenging place. It is the pinnacle of exaggeration. It is the home of false promises. It is the Mecca of bullshit.

Speaker 1: (02:35)
And, uh, I come from a background of data science of engineering where everything that we do, the foundation of that is data and analytics. So I was shell shocked when I got into real estate because I found that many times data was not the foundation of anything here, right? They were using it to gloss over low returns to exaggerate. They were using it just to muddy the waters. And what I'm really sad about, and this is not a happy story, at least not at the beginning, was I got into the same trap. I exaggerated, I told people tall stories, I shoveled bullshit. And my first set of investors suffered and I suffered more than any of them I couldn't sleep for for about a year. I had not a single night of peaceful sleep. And I came to my epiphany, which was that the right path was the path that I already had received thousands of hours of structured education on.

Speaker 1: (03:44)
And it was the, the hard and uncompromising path of data driven analytics driven investing. And I made the decision to make a u turn and it costs me a great deal of money and a huge number of opportunities that I could've made a terrific amount of money to go after that were not good for my investors and it took a while to get over that shock and I'm very, very glad I did that because my life changed. After that, I became a national speaker. I have 1800 apartment units. The portfolio's $150 million. I'm going to be adding $100 million this year. I have 300 investors investing with me. About 30 of them get added every month to my network and none of that matters as much as the next statistic. Over 5,000 people around the u s use the research and data that I put together so that I can keep them away from the mistakes that I've made.

Speaker 1: (04:43)
Everything I'm going to show you today is based out of the horrible mistakes that I've made in my first project. My father used to say something that stuck with me. He said, if there is a god, he must be in the numbers. God must be a mathematician and I believe that data can be used to improve everything in real estate. There's no aspect of real estate that you cannot improve with analytics in my bootcamp by teach about 30 different data driven strategies that can be used to increase profit and make you sleep well at night knowing that your property is in good hands and doing the right things. Today I'm going to take one of those strategies. It's one of the most powerful and I'm going to teach it to you over the next 40 minutes. The strategy is how to pick the best cities and the best neighborhoods in America.

Speaker 1: (05:41)
Even when you know nothing about that city at all, you'll become an expert at the end of this process. You will be able to tell more about that city or neighborhood. Then a broker that has worked there for 30 years, you'll be able to say those things. You'll be able to write them down. You'll be able to package them for your investors over the next 45 minutes. I will not be using any paid tools. Every tool I use is free and available for everyone and when I'm done, I'm going to send you a file that contains all 10 rules that I'm going to give you. I'm going to give you five rules of cities, I call him real focuses and I'm going to give you five rules of neighborhoods and all of those I'm going to send to you in a word file and also in an excel tracker that you can use.

Speaker 1: (06:27)
I've already built a tracker. Simply follow the processes and plugging the numbers. Green, orange, red. It tells you what you need to know. Makes Sense. So are you ready for your journey to plan a data? All right, let's get started. Hello. There's 10 real focuses. The first real focus is population growth. I'm going to read this off and then I'm going to demo it for you. Let me make this a little bit bigger just so that it's easier for you guys to see. Real focus. One is population growth. If a city is between a quarter million and 1 million in population, you want a 20% growth in population between the year 2000 and the year 2017 now you might say, well, we're in 2019 well, I want you to use that data because it's going to be easier for you to use 2017 when you're searching on Google.

Speaker 1: (07:28)
So in a, in a moment you'll see why and I've given you lit below that I've given you how to change this rule as each year passes because I expect that you'll be using these rules next year and the year after that and the year after that. So I've given you those options. But for the moment, just focus on this fact. Between the year 2000 and 2017 any city that you want to invest in should have 20% population growth as long as it's a mid sized city, not metro city, the actual city itself. So New York is both a city and also an MSA. These rules are for New York, the city, Not New York, the MSC. Does that make sense? Not the metro. So you're looking for that 20% growth. Now that the city gets larger, if it's over a million and there's plenty of those cities. Los Angeles is a great example.

Speaker 1: (08:16)
Now you are, that growth slows down because the bigger city, it's harder to grow, so it's 15% over those 17 years. If the city has over 2 million people, then 10% growth is acceptable. Obviously you're not going to get deals as good cause larger cities, lower cap rates, right? So that's your first rule and how do you figure out this rule will rule one is actually the simplest of all. You just simply type into Google the words, I'm going to make this bigger again. Let's go plus plus plus plus. Oops. Too big about that. You type in population space. The name of the city comma, the name of the state. In this case, I'm pointing out a city that many of you, how many of you in the room have heard that Detroit is possibly turning around? Detroit is turning around. Okay. For any of you that believe that, could you show me any point on this line where Detroit has stopped losing population any point?

Speaker 1: (09:21)
No point. So not only is this a city that has lost the greatest amount of population in the history of this country, they were the largest city in America in 1959 right? 1.7 million people. And right now there are some ridiculous number. It's not a million. I got to move this cursor over here. Six, 673,000 people. Imagine what happens to a city that has enough homes for 1,000,007 and now that seems city has 673,000 people and each year it continues to lose population. It's a little bit slower than before, but it's losing population, right? Why would you ever want to invest in a Sunni that loses population consistently, right? Everyone that is telling you that Detroit is turning around is trying to sell you something in Detroit or they're trying to get out of Detroit and get you in there, right? So the last thing that you want to do is invest in a city that is continuously losing population. Very simple, straightforward rule. And a lot of people know that rule, but the key is you don't want to invest in a city simply because it's gaining a little bit of population, 20% over 17 years. Provo, Utah is a great city to invest in going by this particular rule right here. Whoops, I actually don't have that. Let me go back to Google.

Speaker 1: (10:52)
It actually won't have time to do that. I want to make sure that I finish. But if you check out Provo, you titled do just fine by rule number one. Remember there's 10 different rules to go through here. Here's the city that I'm going to use for my example. I like using this city. That's because a vast majority of my city rules this particular city is just on the edge, right? So it's right there for all of the rules. So it's very representative. So if you take a look at Columbus today, 879 people, Columbus, Ohio. And if you go back to the year 2007 14 the difference between the two numbers, 21% so Columbus meets that rule. Most of the Midwest does not. The vast majority of the Midwest is either declining population or very tiny increases in population. Now, does this mean that home prices never go up there?

Speaker 1: (11:43)
No. There's this thing called inflation. Ever heard of inflation? Yes. Inflation should take up prices, two and a half percent a year. So over 17 years, any city should get about two or three. Well, 20 30% increases in prices. Those are not increases. Inflation is reducing the value of your dollar. So even if over 17 years, the home prices in that market go up, let's say 30% the home prices are actually declining. They're going down. When you calculate the fact that your dollar now is worth less. So everybody that's investing in Detroit is excited by the fact that they can make 12 or 13 or even 15% cash. But here's the one question that you need to ask yourself. If it's a city that in 1959 was a five cap city and now as a 12 cap city, which means that everything is a lot cheaper, what will the cap rate be when you exit? Wouldn't you lose every single dollar that you're making now on exit? That means that you are forever trapped in a city that is losing population. Real focus. Number one, don't invest in cities. That loose population.

Speaker 1: (12:58)
We'll focus to, and by the way, you're welcome to write these down, but I'm going to give them to you in this word document. You'll get this doc. Real focus to is median household income in the same city that has a 20% population growth. You're going to notice that that city has at least 30% median household income growth. Now these, notice that numbers are slightly different. It's not 2000 and 2017 is 2000 2016 why? Because we're going to use a website called city data and right now it's going to give you 2016 data. Next year is going to give you a 2017 so you weren't 30% growth and we're going to go to city data. I already have this open city dash data is a very interesting website and it gives you data for every city in the u s and this data can create so much money, so much profit.

Speaker 1: (13:49)
Columbus, Ohio, scroll down and right here you're going to notice the estimated median income in 2016 we're gonna make this a little bit bigger. There you go. How's that estimated median income in 2016 was 49 and change it was 37 and change in the year 2000 the difference would be in those two numbers, roughly 30% so Columbus gained 21% in population, which led then to it gaining 31% in income because that gained in population created jobs and that jobs means means that employers have to pay more and you always have to pay just a little bit more than the population growth. So 20% leads to 30% which then leads to real focus number three, which is 40%

Speaker 2: (14:40)
okay,

Speaker 1: (14:41)
real focus. Three says, median household or condo value. Look for a 40% growth in median household or condo value between the year 2000 and the year 2016 so the 20 leads to the 30 which leads to the 40 let's look at what happened in Columbus, and you're, I'm sure you're going to try your own cities on this. Let's look at Columbus right below the median household income. You see the median house or condo value right there, right? I'm gonna move this just a little bit so you can see what it was. The year 2090 $9,000 where is it today? Or I should say in 2016 140,000 what's the difference? 41% this is why Columbus is an excellent example because it is a Midwest city. This is the part of the u s that is losing population, but there's, it's a gym in the middle of a whole bunch of cities that are not so awesome.

Speaker 1: (15:41)
Cincinnati has lost 50,000 people to Columbus. Cleveland has lost 70,000 Dayton, Ohio has lost 100,000 people to Columbus. So what happens in the u s is some cities, steel population from other cities and those cities. You'll notice that when they start seeing the population, their crime levels go up, down. The education level goes up. This is consistent. Orlando is stealing population from everything around it. Even though the rest of Florida cities are growing because Florida has the largest inward migration of any state in the union. So there are people moving all the time there, but there are people moving from other cities in Florida to Orlando. The biggest reason simply being a category five hurricane becomes a category three hurricane by the time it hits Orlando. Hey, important reason, right?

Speaker 1: (16:38)
We'll focus for is about crime. Real focus for states that on the CT data website, you want to make sure that the city that you're investing in the crime number, and I'm going to show it to you in just a second, is lower than 500 lower than 500 and this applies for cities of all sizes, so it doesn't really matter. Matter if it's Los Angeles or Oakland or Provo, Utah, you want crime numbers to be under 500 there's a, there's a a tip here that I'm going to give you when I actually show you how this works. So remember that city data page. We're going to scroll down a little bit and we're going to keep going until we see a blue colored table. Oh, come on.

Speaker 1: (17:20)
There we go. Keep going. Keep going. Keep going. Blue table coming up right about. Hang on. Not the fastest Internet guys. So I gotta wait for the page to catch up. Come on. Oh, there it goes. Blue Table. Now I wanted you to look at this big table and I want you to ignore all of it. I just want you to look at the last row, the last row, the one in blue, right? Here's the number that we want to look for. I actually don't just want to look for a number under 500 I want to see a number that's declining from left to right. What does that mean? The CD is the crime levels are dropping, so on the left it didn't make it. Columbus, Ohio 15 years ago was a crime ridden city, but because it's education level to being dry, the have been going up. Crime levels have been dropping.

Speaker 1: (18:22)
So this is a perfect example and you know what I really like about Columbus is how smooth this drop is. Take a look, 50 (771) 770-1680 six continuously, whatever the heck this city's government is doing, it is all working. It is all working to boost the city. Now, this is the only city in the Midwest with a ranking of about 400 everything else is high crime. Here's an example. Memphis 900 St Louis, 850 Detroit, 850 massively high crime levels. Why does that matter for you? Crime levels are tied to delinquency. When you are a landlord, the biggest thing that destroys your profits is delinquency, eviction costs, and then the rehab that comes before you can put in a tenant that can completely destroy any and all dollars you make. That's why so many of these destroyed Detroit properties don't pencil out the wrench or there they're real, but every seven months they stopped paying and then you've got first delinquency, then you've got eviction costs.

Speaker 1: (19:35)
Then you've got two or three months where they're staying for free or sometimes more and then after that you spend $1,500 to rehab the damn property just to get it ready for the next one and all of that money that you made is lost and delinquency is very highly tied to crime very highly. There are cities in the US that are on my top 10 list. I have, obviously this allows you to do this for any city in the u s but people ask Neil, have you already put pick cities? And the answer is yes. I'm going to give those to you as well. There are cities that are over 500 in that list. The most popular example, a city that I've talked about for years is Orlando. The reason I make an exception for Orlando is it has a very large decline in crime.

Speaker 1: (20:22)
So it was over 800 on the left and it's now five 50 on the right. So to me, what is important is not just the amount of crime, but the rate of decline. If it's a very rapid rate and the city is not quite at five 50 years, you should still look at it, right? So there's a few other Midwest cities that are like that. Grand rapids, Michigan is an excellent city to look at and shows up in my top 10 list. Very often because of a decline in crime are very high, spectacular decline, decline, it's crime. So that's real focus. Number four, change in crime levels. Real focus. Five in my mind is the most important and it is job growth and job growth is all about what happened today. You do not give a damn about job growth over a three or five year or 10 year timeframe.

Speaker 1: (21:16)
Job growth is spot. So you want to look at the last 12 months of job growth in that particular metro. This is not a link from city data. Don't, don't worry. You're going to get the link. It is from the department of numbers. It's not a cool website. Department of numbers.com and even though our government takes many, many years to do things, apparently we're not going to get our IRS returns for years just because the government shut down for 30 days. But the one thing our government knows how to do well is calculator, job growth numbers cause they have to pay out social security. So guess what? These numbers are very current. So I'm going to click on this last row. I'm going to sort by this row and then I'm going to make it bigger so you can see what the worst city in America to invest in is.

Speaker 1: (22:04)
It's not Cleveland, Ohio, it is Cleveland, Tennessee. Now I'm going to click the other way to see what are some of the best cities in America to invest in from a job growth perspective, that one of the top definitely is not the best anyone can guess why. Midland, Odessa and uh, it's twin or actually Midland, Texas in Odessa, Texas are not good cities to invest in oil. That's right. These two cities are consistently either at the top of this list or the very bottom of this list and that the end to go back and forth. Right. Why? Because when the price of oil hits 70 or 75 made land, Odessa fill up with a whole bunch of miners. If the price of oil drops below 60, maybe 55, then the cities empty out. So those are the most dangerous cities in this list that you should never, absolutely never invest in.

Speaker 1: (23:02)
The rest of those cities really makes sense. Reno, Nevada, an incredible city to invest in. Colorado Springs is part of my twin cities trend. I talk about cities that benefit from a larger city. Colorado springs benefits from Denver. That's right. Sacramento benefits from the San Francisco Bay area. Tacoma benefits from Seattle. That's right. Those cities have longterm benefits because their cap rates are so much higher than that. The main city that over time, billions or tens of billions of dollars will flow to them. Um, the most powerful one of these sets is actually not a set of two. It's a set of three. Orlando and Tampa are the most powerful cities in Florida at this point of time. And right in between the two cities is an unknown city called Lakeland, Florida, which@thispointisrealtor.com number one city in America to invest in. Why? Because it's equally distant and you can live in Lakeland and go to work either in Tampa or in Orlando.

Speaker 1: (24:07)
Those are extremely powerful places to invest in. So as you go down the list, you will see Saint George. I have tried and failed many times to buy and St George. It's an incredible area. Orlando, no doubt about that. Gainesville, a lot of powerful cities are going to be in this list. I've just lost a bid. Actually. We turned that bit down. We didn't lose the eighth in Athens beard. It just didn't work for us. But that's an incredible city to invest in. And guess what? Here it is. Provo, Utah, one of the most powerful economies in the u s in its size class is Provo. Utah. If I go down a little bit lower, you're going to see salt lake, you're going to see Ogden, you've already seen St George at the top of this list. Utah has incredible potential. You should be investing in your own state.

Speaker 1: (24:58)
So short answer is this list is very long. It actually goes to fairly small cities. I do want to bring up a caution related to what you mentioned when it's a very small city, you've got to look at the numbers for a bit longer because sometimes it's single employer boost them to the top and then they go back down later. So the cities that have consistently been in the law at the top of the list, and this list changes every month, so right, so you get, you do get to see that progression. If you following it for three or four months, you want to see if the city actually stays on top. If it's a single employer, it'll drop off very rapidly after a couple of months. So I see Provo there all the time. Las Vegas has been up there for about four years. A Phoenix is very much at the top of the list.

Speaker 1: (25:39)
We're investing in all of these cities by the way. Houston goes up and down. So it really depends on the price of oil and what's happening there. Uh, Houston has been boosted by the hurricane because a massive amount of insurance money came in. A lot of new units have been built. Someone asked me, someone in this room did they ask me about Huntsville, Alabama? Yeah, there you go. That is a good market. That's because it's gaining a lot of jobs. It's got other problems. Lakeland, Florida is in that list halfway between Orlando and Tampa. Seattle's always in the list because it has a lot of jobs, but it's not going to do so well on some of the other criteria. And it's also a very low cap market. So some of these obviously may not be so expensive that you may not be able to invest in them. So those are your five city real focuses. Do you have a countdown time? Do it Steve, do I know how many minutes I have left?

Speaker 3: (26:38)
Okay, you

Speaker 2: (26:44)
got it.

Speaker 1: (26:45)
Perfect. Thank you. I'm going to switch to neighborhoods. All great cities have really awful neighborhoods. Phoenix is a perfect example, has some absolutely terrible neighborhoods and I were recently recently accidentally exposed to one that was not a fun experience. And so it's not just important to pick the right cities. If you want to really ride the wave, you've got to get the best neighborhood. And I'm not saying the best neighborhood, but it's gotta be a decent neighborhood. What you don't want to end up in is a d neighborhood in an ACD because it's still not going to work for you. So let's talk about real focuses. The first we'll focus for neighborhoods is median household income. But before I tell you about this real focus, I want to tell you how you figure these out, doctor city data.

Speaker 1: (27:36)
So we're going to go back and take a look at Columbus and we're going to scroll up. This time we passed a map, a very interesting map. You guys see this map. This is an incredible map. It has amazing information. Most people just look at it and they just move on. But the map is absolutely stunning. When it actually finishes loading. It's incredible because what it's doing is this map is showing you and at the very top left you can see the words median household income. What it's allowing you to do is to look at any city in the u s or any neighborhood in the u s and basically look at it as a gradation of color. Dark means higher income. You'd light means lower income, and what it does is it takes the city and breaks it up into little parcels. And how does it define the parcel? Well, everything about parceled resembled everything else around it, but then all of a sudden half a mile things are very different, right? Maybe more expensive or less expensive. It makes it a different parcel, so it breaks the city up into chunks. Not done yet. Okay, well we're going to refresh

Speaker 1: (28:45)
loading data.

Speaker 2: (28:47)
Okay.

Speaker 1: (28:48)
I find that if I do this to my computer actually works better there. I'm proving theories as I go. This is impressive. All right, so that red line is the city lights limit line. And what I'm about to show you actually doesn't work well in most cities outside city limits. So these rules of thumb are really designed inside the city limits where there's lots and lots of little neighborhoods, right? So you see lots of little tiles. It works, it doesn't work outside to the left. Do you notice these huge, gigantic areas? Well, one rich farmer could mess up all of the numbers there, right? One guy that's $100 million farmer is going to mess up all the numbers. So follow the rules inside. The red line's not outside, and even inside the red lines. If it's a big block, you may not work, but the massive majority of time where you're going to be looking buy is going to be in those small blocks because they have a much larger population.

Speaker 1: (29:45)
Makes Sense. Now, the first thing that I usually do is I go, whoops, this is not there we go like this. Look at this options box. I'm going to click on it and I'm going to drag it all the way just to make it easier to seek. Now when I'm done, I want you to remember the same options box. You're going to come and drag it the other way because you want to see the names of the neighborhoods after you selected them, and those neighborhoods are only visible when you drag the slider the other way, and now you can see the names of every street, the name of every freeway and the names of the actual neighborhoods. So take a look. It's easy to figure out what's the richest part of Columbus, right? It's that part that's darkest. Is that where you're going to invest in Columbus? No, because that's the lowest cap rate in Columbus. It's going to look like it's going to look similar to what the San Francisco Bay area looks like, which is insane. Just for the record, I think that most real estate investors in the San Francisco Bay area teeter on the edge of insanity would there to cap rates.

Speaker 1: (30:56)
All right, let's go back. I'm going to go zoom this in a little bit and I'm going to click on that area. Well, lots of challenges with trying to get this just the right size. Let's see if I click on this. Where does it go? No, I still need to zoom back down. Okay, so I'm going to zoom down and I might have to read some of these numbers back to you. We'll do the squint test. All right, so I clicked on that super rich area part of Columbus. You can see how rich it is and you may not be able to see this. I'm going to read it off to you. This box is showing you incredibly useful stuff. All of the five neighborhood real focuses are inside this box. At the very top it's going to show you the zip code, which is super important because that's what you're going to use there.

Speaker 1: (31:45)
Um, and then it shows you the income level for the people that live there. So the median household income for this part of Columbus is a staggering 230,000. The median home is $600,000. There is no way that you can get anything that cashflows here. If you're purely in appreciation person, you still wouldn't like this cause it's already appreciated a great deal. So this is not a great market to invest in. What's a great market to invest in the markets around it? So you're looking for markets around it and you're looking for some specific numbers and that's what the real focus is. Our real focus one for neighborhood says that you're looking at a neighborhood where the household income number is between 40,000 and seventy thousand forty thousand on the lower side, 70,000 on the higher side. Anybody, guests, why you don't want it to be higher than 70 a lot less renters.

Speaker 1: (32:40)
They turned into single family and then very low cap rates, right? You're welcome to do it. You're just not going to get much cashflow, right? So if you're a purely an appreciation investor, I would say go from 70,000 to 90,000 those are great appreciation, no cashflow markets, but the vast majority of you are looking for cashflow, right? When you're looking for cashflow, 40 to 70 is your sweet spot. Now, how did I figure out that $40,000 while my back testing indicates that the moment you drop below $40,000 in income, you delinquency spikes, it spikes once at around $40,000 and then it goes completely insane at 30 when you're investing in a neighborhood that is under $30,000 you will never make any money at all because your delinquency will destroy all of your, all of your rent dollars. It's, it's, I, I, I believe I can even do a challenge to see if anyone actually makes money under 30,000 what's sad is that a significant part of all turnkey products are in those market.

Speaker 1: (33:52)
So you seeing all these turnkey products. Now I have to say one of the reasons I'm a big fan is these guys, they do their research. One of the top markets in the country that I had identified then I tried to build in was Meridian in Idaho. They already knew about it six months before I did. Their markets in Houston are excellent. Obviously they knew about Provo cause they got started here. Those were amazing markets. So a lot of, there are good people in real estate that are doing this research, but a lot of the turnkey providers, when they're peddling you stuff in Memphis, it's in a 900 crime area. So be aware of what's being offered on the Internet because people are not doing this research and now you have the ability within five or 10 minutes to actually be able to tell whether these are in good places or not.

Speaker 1: (34:39)
So keep your median household income between 40 and $70,000. That's real focus one, whoops, go down. Real focus to in the same box is the median contract rent and you weren't the median contract rent to be between 700 and a thousand dollars same problem. You go over a thousand you're going to have cashflow issues because you it. Those homes are really expensive. You can go to 1,050 in certain markets on the lower side. Never ever go below six 50 you will not get 12 months of rent. So you know there, there's trackers that I'm building where I'm adjusting different levels. What I'm finding though that other than the Midwest where you can go down 50 bucks, no matter what the cost of living is. I do see a very tight band between 700 and a thousand with the exception of really expensive areas like New York, Seattle, Los Angeles, those kinds of areas are, you know, obviously the band is different, but the significant portion of the u s 90 95% of the u s is in a very tight 700 to a thousand men.

Speaker 1: (35:49)
That's where most of the money will be made for most of the rentals that it's true of Utah as well. Real focus. Three in the same box is unemployment rate. Now, this one's a little bit tricky because it's not a number that's in the box, right? It's not an actual number in the box. There is a number there, but you can't use it. You have to know one other number, so what you have to do is you have to go to Google and whatever city you're looking at, let's say Columbus, Ohio, you're going to type in the words Columbus, Ohio unemployment rate right now. Let's take a look at what Columbus Ohio's unemployment rate is.

Speaker 2: (36:23)
Okay?

Speaker 1: (36:24)
And here we go. Columbus, Ohio, unemployment rate. I'm going to tell you it's going to be very low there. I worked again. All right, so 3.5% at this point,

Speaker 1: (36:41)
what I want you to do is do not invest in areas that are more than 2% higher than the city's unemployment rate. So in this case, what's your cutoff limit? Five and a half. It's okay to go up 2% you might say, why should I go up to a percent? I want to go down from the city's limit. No, you don't. Because the the class areas are going to be 2% right? You're still looking at Class C. Now if you're looking at class B, just stay with the cities level. So in this case, you would want 3.5% if you want a class B property, if you want a class C, which tends to cashflow better, look at five and a half percent. Now in the middle of a recession, you can expand that to 3%. But at this point, with a robust economy, you do not want to be higher than five and a half.

Speaker 1: (37:29)
Why? Because when the recession hits, if you're a 10% today, you're going to go 20 or 25% when a recession hits. And at that point you'll be upside down and unable to pay your mortgage. So stay at that 2% level, you'll be fine. You remember, our goal is not to basically get rid of every neighborhood in the U s we want to invest. And when you're investing, you are taking some risk. There are lots of great classy neighborhoods in America. The method, the point is to find them, not to eliminate them. So you can only invest in class B because what good would that do us? There's not much cashflow here, but I have found thousands of neighborhoods around the u s that match these numbers. Uh, the next real focus. So before I give you the last two real focuses, I want to make sure I don't run out of time.

Speaker 1: (38:22)
So I'm going to tell you now how to get access to this data. This spreadsheet, you like the colors? Yeah, you can see the real focuses there and on the left you can see a bunch of cities that you can play with. So I've given you a lot of cities. There we go. Columbus, Ohio is at the top. Phoenix, San Antonio. It's a lot of interesting cities here. I've also put in some clunkers so you can see the difference. St Louis happens to be in there. That's a clunker. Uh, Memphis in some ways is a clunker. It's got some opportunity there, but the goal is for you to basically look at these cities, the ones that you like and then simply follow the steps that I've just used and plug in the numbers and it's going to give you a color and tell you where you stand.

Speaker 1: (39:10)
So you get this excel spreadsheet, you'll get this word doc, the one that mentions the rules and also gives you the exceptions, large cities, all of that stuff. And something else that I think is very valuable for everyone each year. At the beginning of the year, I locked myself away and spend about 500 hours doing research. It's a great time because a lot of companies come out with their reports that tell you exactly what's happening in the marketplace. They're single family reports and multifamily reports. After I'm done, I take that research, I first built it into a trends presentation. You're not watching a trends presentation, you're watching a workshop, but what if you want it to know what were the 10 cities for 2019 I've got a list. What about the multifamily cities to invest in for 2019 I've got a top 10 list. What about the cities to build in for 2019 I've got a list. That trends presentation also basically points out the biggest trends of the year. It's already recorded. It's already sitting here, and for those of you that are too lazy to wash the presentation, the PowerPoint deck is on the right, so you can just do it over five minutes. I've never been guilty of doing that ever.

Speaker 1: (40:28)
Below that are the videos that I want you to watch because I want you to know and some of these are multifamilies, some of these are single family and there's key items and each week I add a video here. So every week I look at videos on the Internet and I find one that is interesting. I'm looking for something about affordability. Affordability is a big dragon that can end our party. And so I'm looking for one in 2019. I had some really good ones, but you should see one, uh, one or two there. These articles are very powerful. The impact of tax reform is hitting blue states incredibly hard. Yes, five minutes, five minutes is good. The affordability crisis that is affecting the United States, you will learn amazing things. The most impressive article though is this one, future homeownership Myers and leak. This is a very credible group of people from the University of California that are pointing out that there are no known scenarios in the u s for the homeownership.

Speaker 1: (41:26)
Great, not to decline. They have three scenarios that bad, the worst and the catastrophic. There are no evening out scenarios. The homeownership rate has dropped for 13 successive years and though it's taking a little bit of a breather because the millennials are peaking this year, it will now drop four 31 successive years. During that time, 8 million new renter households will be needed that we just don't know how to build. This is why the story of renting is incredibly powerful and it's not going to be the end of the world in 2015 our homeownership rate, we'll match Europe's, it is not going to be the end of the world, but it is going to be the greatest opportunity for those of you that can buy apartments from fake or from my company, it's going to be the greatest opportunity. This report can be read in about 30 minutes and it will change your mindset around what's going to happen to America in the next 30 years.

Speaker 1: (42:34)
There's lots of real estate ranking reports all updated for 2019. These are all trends, everything from forecasts to what's happening, uh, maps, stock market crashes, outlooks, and then there's a dozen events by a bunch of very powerful speakers on different aspects of single family and multifamily. We are a new one every week. And then all of the resources that I've used for this particular presentation are in there. The comparison worksheet and the real focus, uh, focuses for cities and neighborhoods. So you just click on him and feel free to use them. And then for those of you that love multifamily, my favorite section of the bottom is for people that are interested in either small or large multifamily. Now keep in mind the quadplexes that fig cells are not in that range because my world starts at five units. So these resources are for five units or greater.

Speaker 1: (43:34)
Does that mean we don't have resources for fake? No, it's big applies for single family. So all of the things that I've just mentioned to you, work for figs quadplexes just fine. In fact, the stuff that I gave you today actually works better for single family than it does for multifamily. The only benefit of you haven't multifamily is we have this amazing 18 months of future warning when his city spikes in rents or when a city spikes in prices 18 months later, the rents will spike. So I actually, if I follow a single family trends, I know the future and this works 100% of the time, that's because that city becomes so expensive that there's a whole bunch of people that simply cannot buy there anymore. And it takes 18 months for the ranch to start spiking. So we have 18 months of warning Builtin, follow the single family market and go into the ones that have the highest appreciation and you're a lock down the line for high rents.

Speaker 1: (44:33)
So all of this is available to you. It's, it's free and always will be free. You pick out your smartphones, oh, let me skip past this. Here it is. So text the word, our e Toolkit, the word r e toolkit to that, to the number four, four two, two, two. So when you're, when you're going into the texting, you're typing in the number four, four, two, two, two. That's the actual phone number and then in the message, the message that you're sending is Ari toolkit one word, no space a minute. If you do it correctly, you're going to see a prompt. When you see that, you'll get access to the trends toolkit. Please remember I updated every single week before I finished with the last two.

Speaker 1: (45:29)
What I'm doing is following these trends using multifamily, I have this incredible 18 month early warning system that I'm using and I'm going into the best markets. You just saw them. I have a property in Vegas. I'm going to sell for $4 million more than I projected to. My investors have 300 plus investors were buying properties in Atlanta, which shows up at the top of this list. I've got a property three miles away in pro void with that I bought three years ago because I knew this would happen in Provo and that building stays rock solid at a hundred percent occupancy all the time. Even though I'm constantly raising rents, this system makes an incredible amount of money. For those of you that are interested in passive investment, please do come up to me and talk with me. For those of you that are interested in learning about 20 times more than I've showed you, go to this website.

Speaker 1: (46:22)
It's multifamily u.com. Write that down, multifamily u.com and click on the bootcamp. It's only for people that want to be active because it's a lot of work to do this, but we want to be active. Click on multifamily u.com and click on the bootcamp. Now let's finish off with the last two focuses for neighborhood and real focus for says you do not want the poverty level of the neighborhood you're clicking on to be anywhere near 20% above 20% the same delinquency dragon is going to swallow you alive. Just so you know, I don't usually do anything above 15 obviously, I'm a fiduciary of my investments, my investors' money, so I have to be a little bit more careful. Personally, I I'm willing to do 20% some of the areas in Ogden, Utah that I've looked at to buy my own properties are at 20% but there's so many great things happening in Ogden right now that I'm willing to do that.

Speaker 1: (47:29)
But with my, you know, investors properties, I prefer that the poverty late rate be below 15% and most of you, if you're a conservatively conservative, you want to pick below 15% so you don't see an insane amount of delinquency. All of this stuff that I showed you is in that black box that comes up as you click around the city in Columbus, the highest was 230,000. Do you know what the lowest is? The, the, uh, the income levels, $6,000 $6,000 in Columbus, as you can see, is a great city to invest in. So knowing this stuff is so important. $6,000 is it condemned area? No one ever pays rent there. All the buildings are empty. What is most amazing, and I'll leave it to you to click around Columbus. I'm sure you guys will be doing some playing around. I. I challenge you to find that area.

Speaker 1: (48:21)
The biggest thing that you'll notice is 750 yards away from that area is an area with incomes over $150,000 real estate isn't local. Real estate is hyper local. It is hyper local. 750,000 yards from a condemned area is an area with $150,000 in income. That is why this stuff is so incredibly important to learn and it only took 40 minutes. That's look at the very last one. Unlike all of the others. This one is subjective. All of the others I gave you the numbers for this one is subjective. In the same black box is a pie graph. That pie graph shows you the ethnicity mix in that neighborhood. It's not a good thing for that tie to only have a single slice. You weren't there to be a fairly large second slice. It doesn't really matter what ethnicity that slice is, but you weren't two slices because you do not want to only be pitching to whites.

Speaker 1: (49:22)
You do not only want to be pitching to blacks, you do not only want to be pitching to to to Mexicans, you want to have a mix because that greatly improves your ability to get your units rented. So here's a bad one, big circle filled with one color and two very tiny slices. Here's a good one, big circle, right? 75% of that is one ethnicity and then 24% of that are really nice. Quarter slice is another necessity and maybe there's a third one even they're the best kind, which is hard to find is one that really has three big slices because units there are incredibly easy to rent because you're, you're going out to three completely different audiences, so look for that and you'll have no problems at all renting your properties. Those are all of your real focuses at this point. What you've learned puts you in the elite class of investing.

Speaker 1: (50:19)
I haven't found a broker yet in all the years that I've been working on that actually knew even half of these rules. At this point, you don't need to say, okay, I need to learn more. What you've learned here. If I had learned, I mean, things would be different for me now and in the end I think that I benefited from this and I hope you do too, but what you've learned here is more than enough to put you instantly into the top 1% of all of the investors in this country. And I'll take your questions now.

Speaker 3: (50:51)
It seems like universities have a lot of vibrancy around. Yes. Have you ever considered that in here?

Speaker 1: (50:57)
I have, and I find that there's almost always a correlation between the income levels. In a university. There's only one problem, um, because there are very poor students living there. Sometimes when I'm clicking on the neighborhoods around, they have very low scores and so they're misleading because their students, their income levels might be five or six. They're not even really filing returns. So what I'm finding is that immediately around the university, my neighborhood rules don't work well. Right. Once you move a mile away from the university, everything starts working again. More questions. Yes.

Speaker 3: (51:34)
Underwriting tools for neighborhoods, city and central. I do have just some rules of thumb or tools that you look to for underwriting and individual deal?

Speaker 1: (51:44)
Yes. Uh, certainly not something I can teach in 40 minutes, so I teach that in my bootcamp. Actually. I no longer teach it. Yay. Uh, Anna Myers standing back there, teaches underwriting. She's a wonderful underwriter. I have to say. Definitely will take more than 60 minutes to do that. Um, if you're doing a single family deal, I think that there are a lot of great tools out there, but the moment, even if you're underwriting a fig apartment complex, if you're doing it right, it's going to take you more than 60 minutes to do that one. So what's nice is each month Anna underwrites a multifamily property, a new one, and then goes through all of the terms and the underwriter of that property on multifamily U. Dot Com. Hundreds of people are tend to each month and learn how to underwrite these properties from her. Check it out.

Speaker 3: (52:32)
We'll wait to see your recommended minimum sizes would be for looking at a market, let's say a CD that's farther away from a metro area. What would you say that,

Speaker 1: (52:45)
so actually I've, I have a good rule for that, but for once that rule is not a city rule. You don't look at city sites sizes. You look at the MSA, the metro, so 250,000 people in a metro is a minimum that you should look for. Even though the individual city like Saint George wouldn't qualify for 250,000 as a city but qualifies for 250,000 as a metro south quarter million people.

Speaker 2: (53:09)
Yup. Job Are you're doing.

Speaker 1: (53:24)
I absolutely am. It's automatically factored

Speaker 3: (53:26)
in because real focus by for cities is jobs. As long as you're following the jobs today, there's no evidence that the jobs of today are going to be different in different cities from the jobs of tomorrow. The cities that are currently gaining jobs are not tier one metros. The cities that are going to do really well in that list, we're not the San Francisco Bay area, they weren't the Seattles, the the cities that are actually doing well, our tier two metros and those cities actually worked really well for rentals. So it's, it's the Phoenix is the Orlando is the Boise, Idaho is. These are the cities that are doing fantastically well and that's because a lot of technology jobs are blowing there. Well those are the same jobs that are going to grow over the next 15 years. Use real focus. Five you will be, you'll be safe. Are you adding opportunity zones to your model?

Speaker 1: (54:15)
We've tried and the short answer is Oziz are so ridiculously different from each other. That makes no sense. Some states like yours, Utah did a really great job. None of the opportunity zones in Utah is a d market, but some of the states like Michigan put d markets in Detroit. There is no way in hell that any investor with half a brain is going to invest in those markets. So when we create those rules of thumbs, we have to be very subjective in terms of how smart, where the governors of these states. So if you want to look at Oziz, you should look at Arizona. Utah, California did a good job actually in picking said, and it's really easy for ocs to map out in California with million dollar homes all around the Aussie. So obviously California has a big advantage there, but a lot of cities did not do well. There are, there are lists on the Internet of the 9% of opportunities zones that will do well. Find those lists, apply the same rules, you'll do fine.

Speaker 3: (55:16)
Count the different landlord laws in different states. For example, California has laws and may favorite tenants more than Utah.

Speaker 1: (55:26)
Yes. Ken can't cover that in a, in a 45 minute presentation. But when you come to the boot camp, we give you lists of, of states and uh, um, yeah, California does not do well at all.

Speaker 3: (55:40)
Not even close. No actual current assessments can be entered into getting out in certain areas. How are those basic rules translate it into, okay, we're seeing trends here. Where are the trends you should be looking at if somebody does happen two years ago now that was a change.

Speaker 1: (56:03)
Well, I'll give you a lazy answer to that. Each year. I picked the cities where the trends are the strongest. That's the presentation that's on that page that I showed you. This isn't a trends presentation. This is a snapshot presentation. How is this sooty doing now? How's this neighborhood doing now? But the trends, presentation covers future trends, but Orlando for example, is a about, I talk about that has everything to do with climate change. Logistics companies are moving their locations from all along the corridor except for Jacksonville, which is a city that's protected from hurricanes. You've got all these cities along the, both the eastern and the western, you know the c line where logistics companies are moving inward because they're, they're, they're afraid of hurricanes. Those are trends and trends can't be covered in this kind of a presentation. You could have a city with a horrible trend that would look really good here because that trend is future looking. So the short answer is a separate presentation that really looks at the trends in the U S and how they're affecting everything. The San Francisco Bay area has a horrible trend called affordability crisis, which will prevent their rents and their prices from inquiry for increasing for decades. Final question. Last question.

Speaker 2: (57:11)
Okay.

Speaker 1: (57:11)
Um, I think Miami has many challenges, but also has very severe shortage of, uh, construction. So it shows up in the middle of our lists. It's neither good nor bad if you live there or have contacts there. I think it's a good place to invest in. Just be aware that from what I'm seeing, the water's going to come in much sooner than the predictions. So if you have a 10 year plan, at the end of the 10 years, your cap rate might be much higher if you're very close to the shoreline. Okay. I'll take that as the last question. Hopefully you enjoyed this. Thank you.

– Fourplex Investment Group –

IREI SUMMIT 2019