Austin:
Welcome to On the Market. I’m Your stand-in host Austin Wolff, which real estate asset class is better to be buying at this point in the market cycle, single family rentals or multifamily apartments. And what strategies are the pros using to determine the best markets to invest in this current market cycle here today? To break it all down and discuss the best new investment opportunities is expert real estate investor, Neil Bawa. Let’s get into it. How are you, Neil?
Neal:
Fantastic. Good to be back.
Austin:
Awesome, awesome. Neil, just if listeners haven’t heard your story before, can you just briefly walk us through your origin story, your background, and how you got here?
Neal:
Sure. I’m a data scientist, computer science degree. Data science is sort of my major technologist. Live in Silicon Valley. Ran a tech company for about 15 years, built it up from 10 to 400 employees, sold it to a big private equity firm in Chicago. While I was doing that, I was living in tax, California earning the big fat tax salary, and so I was paying about 50% of my taxes to the man. So invested in real estate for about 10 years, along with family and friends, no investors or anything like that. Had great success with that. And in 2009, got interested in the data science of real estate because I couldn’t find any data scientists in real estate. I saw people using data, but that’s not the same thing as data science. And so I got interested in ranking cities for real estate investments. I realized there were no good cities and no bad ones.
It was just timing. So Austin for example, six years ago was probably the best city in America to invest in today. Actually, I could find many people who would say it is the worst. It has greater rent loss than any other major city in the United States around 22% since 2022. So that sort of is a great example of understanding market cycles and how cities went through market cycles. So I wouldn’t say I’m a market cycle expert, that’s not what I do, but I’m an expert in matching market cycles with cities. That’s what we are known for. About 20,000 people a year. Use our data, including yourself, Austin. And each January we publish the data we consider ourselves to be the Wikipedia of real estate data science for cities, not real estate data science in general, but just for cities so that people can figure out what are good cities to invest in.
They can also figure out what really is the basis on which you should be investing in cities or not investing in cities, how to compare them to each other. So that’s what we are known for. Have a lot of geeky, nerdy investors that sort of like what we do currently have about 1200 active investors. We’ve invested about $300 million of their money into projects. We are moving away from having retail investors. So almost all of our future growth is either large family offices or groups from Dubai or Abu Dhabi that are investing larger checks. But for the moment, we still take money from retail investors.
Austin:
You analyze all these cities, find out the best places to invest, but can you just explain why not just invest in your own backyard?
Neal:
So you could, and many people do that and many people make money, but sometimes you look at what the s and p 500 has done in the last 10 years, and so there’s numbers for that. And then there’s numbers for something known as nre, and you’re like, what the heck is this is just a way of measuring how well real estate has done in the last 10 years compared to SP 500. So it’s just a benchmark, right? You notice nre, it’s not particularly good over the last 20 or 30 years, nres beaten SP 500 over the last 10 years, the SP 500 actually beat increase. And you’re like, wow. But in real estate, people should be able to make more money than 9% a year. That’s because tons and tons and tons of people lose money in real estate or they make very little. Anytime you make less than two and a half percent a year, you are losing money because two and a half percent is inflation.
So average inflation is two and a half percent. Actually in the last 10 years, it’s closer to 3%. So if you are making less than 3% a year, you’re losing money. So 3% is 0%. That’s the way to invest. Most investors don’t understand that. They don’t understand that you have to beat inflation to actually make money. And so a lot of people that don’t understand these concepts invest in their backyard and maybe they’re making 5% a year, maybe they’re making six. Like I live in Silicon Valley, San Francisco Bay Area, most expensive market in the us, and people often tell me, I’m making 5% and I’m happy. My first question to them is, do you realize you’re only making 2%? No, I’m making five. Well, that’s because inflation takes away three, so you’re only making two. What you really need to target is to make 10% after inflation, which means that you want to target a 13% return.
And what I find is almost anyone investing in their backyard doesn’t do that consistently. So people have a very high memory or recall for things that went well and a very poor recall for things that went poorly. For example, if they lost money in a project, they simply write it off and never think about it again. But the way to actually calculate returns is to include both the good projects and the bad projects, and also to calculate it from time value of money, not just, okay, I made 10% a year, but it’s like if you made 10%, it took you five years to get to cashflow. That’s a lower time of value than if you made 10% every single year along the way. I’m not criticizing people, clearly real estate makes money for people, keep doing what you’re doing. But I think that the data scientist approach is the one that results in the maximum value, and that is I really need to look at how much more am I making compared to the stock market, compared to money markets, compared to 10 year treasury bonds, which are supposed to be riskless, right?
Money markets and 10 year treasury bonds are almost no risk. At least that’s the way people define it. And then you’ve got the stock market itself, which is risky, and then you’ve got real estate, which is risky. So is there enough of a risk premium? And if there’s not enough of a risk premium, why do you consider yourself to be a real estate investor? You could very easily put that money into Vanguard, which is probably in between 10 year treasuries and stock investing, and you do pretty well. I mean, my wife’s 4 0 1 Ks in Vanguard and she makes about 6% a year, and she doesn’t do any work for it. So when people say, I make 6% in real estate, that’s like you saying, I could actually do this without raising a finger, but I prefer to torture myself year over year. So I can do the same thing that Vanguard can do. And if people are happy with that, that’s fine, but it’s not a logical argument.
Austin:
That makes sense. And when you’re looking at different cities to determine which markets might give you a better return, what sort of metrics are you looking at?
Neal:
So the five main metrics that we started with, and now a six to one has become very important. So I’ll talk a lot about the six to one. So relevant today is job growth, home price, growth, population growth, income growth and crime reduction. Now you might say, well, these seem common sense and a lot of these cities have these. Here’s the problem when comparing things, it’s not okay to say X has this and Y has this. For example, a city with a population growth of 1.5% is not at all comparable to a city with a population growth of half percent when it comes to real estate profits. They’re both growing. But there is an enormous difference in rent growth between a city that grows at one point a half percent a year and one that grows at half percent. The same thing applies for job growth.
The same thing applies for job quality growth. So a job at Google, so I live in the San Francisco area, the average salary at Google is around $227,000. A job at Google is actually equivalent to seven Walmart jobs. And when you look at their ability to buy things, right, discretionary income, a single job at Google in the Bay Area is equivalent to 33 Walmart jobs because the people that are working at Walmart have almost no discretionary income. So they basically just pay for basics, whereas the people at Google obviously can go on vacations and spend money, and all of that leads to growth of the local economy. Growth of that local economy needs to higher real estate prices, which leads to higher real estate grants, which leads to higher real estate profits. So markets that have a lot of Googles are going to see extraordinary growth in grants and profits, where markets that have a lot of Walmart employees, sorry to bash Walmart, I’m just using it as an example, are unlikely to have the kind of discretionary income needed to spike rents.
So it’s very important to understand that one job is not equivalent to one job. The quality of a job matters as much as the quantity of jobs. Crime reduction is interesting because it sort of is an interesting bucket. It’s an umbrella term that also takes in things like school quality. So what we find crime is inversely proportional to education. As education levels go up, crime goes down. So if you can find crime data, which is easy to find, you basically found school data in a weird sort of way. It doesn’t work a hundred percent of the time, but generally works. So those five things are the basis that we started to use to build our models. In 2009, the first time we built the model, the sixth element, I resisted it for years because my fundamental belief was that I should only be giving models to people that they can get the data for free, not pay for it.
The sixth element is impossible to get for free until I found a way to do it, which hopefully doesn’t get me in trouble with the data source in the future. So I’ll just give you the information and hope for the best. The sixth element is supply. And what’s interesting is supply in a market, even if you get multifamily supply, you can predict single family rents. Because if you think about it, a market is class C apartments, class B apartments, class A apartments, and then above them is single family. So single family, sometimes the rents are lower than class A apartments because you can have a very fancy class a apartment, but overall single family is slightly above class A apartments. So there’s actually four different kinds of apartments and single family rentals are an apartment. It’s just an apartment complex with one apartment, right? So all of these compete with each other.
Single families usually compete with class A and sometimes with class B, they don’t compete with class A at all, right? But they’re all together. And when incoming supply comes in, rents for single family will also drop if there’s too much supply. So what we’ve found is that if you don’t include the sixth element, you can now go into markets that are extraordinary from all other perspectives, but you’re still going to see negative prices and negative growth for multifamily. Usually. Interestingly enough, negative rent growth does not tank single family prices because single family has two different ways of valuing it. One is landlords and the other one is buyers that are buying a single family to live in. Interestingly enough, negative rent growth does not affect single family home prices, but it definitely tanks multifamily prices because multifamily prices are entirely based on rents and expense ratios.
So supply is that key sixth element. And I can tell you that the way to find the supply in any market is let’s say you are buying a single family home and you’re using it for rental. You’re not a multifamily guy. So you go find the home, you note down the address, then you go to Google and you find the nearest 150 unit apartment complex to this property. So it doesn’t matter if it’s class A, it doesn’t matter if it’s B, it doesn’t matter if it’s C, it doesn’t matter at all, right? So you just go find one that’s within a hundred yards of your property. Now that you’ve found it, you need to establish a relationship with a broker from one of the top firms, Marcus and Millichap, Arcadia, CBRE, all of the Newmark and AI established a relationship with them and tell ’em that you are interested in buying multifamily.
It’s a lie, sorry. And you’re going to basically tell them the name of this property and say, could you do me a favor and send me a co-star report on this particular property? And they will send you a CoStar report if they like you, because it only takes them a minute to do that. They’re just trying to be nice to a potential client. Inside of that CoStar report, there are four or five critical pages. One page has a bunch of bars, and you’re looking for the orange bars and the blue bars. There’s a vertical dotted line in the middle of the page, a vertical dotted line. The vertical dotted line represents the present. Anything on the left side of it is the past. Anything on the right side of it is the future. When deciding whether to buy a single family rental or a multifamily rental for that matter in a market, you have to make sure that the right side, the future does not have a lot of tall blue bars because if it does, those tall blue bars represents brand new properties that are going to be coming into the market in the next 12 to 18 months, and all of them will have multiple months of concessions.
A class A property with two months of concession is actually slum work cheaper than a class B property. So it drives down the prices of the B property, which drives down the prices of the C property. And since the single families are above the a’s, the a’s are now cheaper, so they’re competing with single families. So it drives down the rents of single families. Remember, it doesn’t drive down the value of single families because people can just buy the single family, but it definitely, as an investor, drives down your profit. By doing this, you can learn over time, understand markets. So perfect example is Austin. Austin is from the perspective of those five numbers that I gave you, the best market in the United States, it has extraordinary growth prospects. Not only does it have jobs, it has high quality jobs, Google jobs and Oracle jobs and Tesla jobs and all these kinds of jobs.
But am I investing in this market? Heck no, right? Why? Because on that particular page that I told you about, there are a lot of thin blue bars to the right of the dotted line. There are so many in fact that I can’t think of any other market in the United States that’s that bad. And not only are there lots of blue bars to the right of the dotted line, there’s also a ton of them to the left of the dotted line. And as a result, Austin rents have dropped by 22% in the last two years, more than any other market in the United States. So now you have this weird dichotomy of the best market in the United States being the worst market in the United States supply.
Austin:
Okay, we have to take a short break, but stick with us for more with Neil Bawa. We’ll be right back. Welcome back to On The Market. I’m Austin Wolff with special guest Neil Bawa. Let’s jump back in. Do you also factor in property taxes and insurance into your market selection process?
Neal:
So what I find is that in general, the supply piece is going to help with the property taxes and insurance. But many years ago, I realized that by buying apartment complexes and improving them, I wasn’t actually meeting my mission. I’m an Indian. I came to the US as an immigrant. I’m very deeply grateful to my country. I’m one of those immigrants that in my mind, I love this country more than my own, which is India, because I think it is a truly astonishing company, and you shouldn’t be listening to all those idiots out on social media. There are no other places in the world like the United States, and this is why everyone is dying to get here despite all of our political dysfunction. Bottom line is that I wanted to actually make a difference in this country, and I thought that once I was done with my tech career, I would make a difference by buying old properties and improving them.
And my thought process was when I improve them, I take a property that could turn into a ghetto, into a property that’s a lot better, and that’s true. But here’s what I found. Eventually after 2013, after the Jobs Act was passed, 10,000 syndication shops opened up. I was one of them. And basically we went out and bought so many properties and drove up the prices of so many properties that those Class B and C properties became unaffordable for the Class B and class C people. They were supposed to be for them, and they can’t afford them. And so we ended up driving up rents in the United States by a crazy number, including 15% in a single year, 2021. So usually rents should go up matching inflation. And if you go back and look at a hundred year chart, you’ll notice that they do. But you’ll notice that starting 2003, the relationship between annual rent growth and annual inflation started to break.
And in 2020 it completely shattered because in 2021, inflation was 2%. In 2021, rent growth was 15. So it completely shattered, completely got destroyed after that. And so bottom line is that I realized that I actually wasn’t doing as much good as I thought. So then in 2016, and I realized this before covid, though, I’ve really doubled down on it after Covid, but in 2016, I was like, I should add more stock to the country. That’s the way to basically reduce cost, is to just add more stock. So I’m going to build apartments. So in 2016, I built Art city center in Utah, my first apartment complex, 103 units, and then I built a lot more of them, and then I realized I was wrong again, because what was happening is every apartment complex that I was building by definition, was a Class A. And so the people that were living there were actually not people that needed to live in apartments.
They were people who wanted to live in apartments. So young yuppie folks, maybe they came to Provo, Utah for a two year job, didn’t want to go through buying a home. So they’re basically living these class. I’m like, how the heck is this helping the United States? It’s not really helping. Not bad people obviously have these nice apartments to live in. This isn’t what I set out to do again. So by 2018, I was pretty much in a state of confusion as to whether I’m achieving any kind of goals. Eventually, I decided the best way to do it is to basically start talking to my tenants. So we started running polls. I had a secret question hidden inside the polls. The polls had a bunch of questions that were not really relevant, but were there, and we were giving people $25 gift cards to answer them.
There was a secret question in there. That question was, is this your home? Is this your home? Four words, right? And so we would go around asking people that question for class A properties, class B properties, class C properties, and town homes. Interestingly enough, no matter whether it was class c, b or a, most people said no in an apartment. And regardless of whether it was a lower end town home or mid-market town or a high, high-end town home, most people said yes in a town home. So this was the biggest mindset change in my entire life because what I realized is people living in apartments don’t consider it a destination as far as they’re concerned. They’re on a journey and their job is to get away from the apartment, even class A apartments with fancy pools and fancy rooftop decks. Same result. It’s not their home.
But when people live in a town home, if they know that they don’t have the income to buy a single family, which most of them don’t, they start accepting it as their home. Maybe they’ve got a one car garage instead of two. Maybe they’ve got an eight foot backyard instead of 50 feet, but they can have pets. They can have kids running around. So what I found was there is an extraordinary difference in basic happiness between people living in rental town homes and people living in apartments. So I decided that should be my life mission because now I’ve found a way to make people happy and add to stock. So I created a company called Mission 10 K. Before I did that, I spent millions of my own money building a pilot community, built that through covid, launched it, very successful, very profitable, and very happy tenants.
If you go to the mission 10 k.com website, all of the tenants that are being interviewed that tell you why town homes are different from apartments, they’re all from that pilot property. And I think if you watch five minutes of interviews, it’ll blow your mind as to how different their mindset is. They were all coming from apartments. So I’m not bashing apartments, I’m still building apartments. I think we need more apartments in this country, but I don’t think it’s as big of a solution as town homes. So the Mission 10 K enterprise, we’re building 10,000 town homes this year. We’re building 568. Next year we’re building 1100. So we have this year’s pipeline and next year’s pipeline all done. And so I went to my investors and I said, I need money, but not for a project. Normally, Austin goes out to his investors and gets money for them to build a project.
I said, I want to build a company. Can you invest in my company like you buy Apple stock and Google stock? Can you buy stock in my company? I said, yes. So we gathered a lot of money to a company called Mission 10 K, and that company is now going out and building these town homes. We tried expensive town homes in Texas and fell flat on our face, by the way, I should say that. But now we only build mid-market town homes and where do we build them, right? This is a very, very long answer to your question. I’m now coming to the answer. We only build them in markets with very low property taxes, very low insurance, very low land cost, very low construction cost, and then all of the other six metrics,
Austin:
I’m sure that limits the amount of markets.
Neal:
I can’t build in taxes. Property taxes are too high and insurance is too high. I can’t build in Florida because insurance is too high, hurricanes. And so I became obsessed with the idea of where can I find the markets that have all of those six things, right, that I just mentioned before, including supply, but they have low property tax, low insurance costs, low land costs, and low construction costs. And I found that out of 323 markets in the United States, there’s only 14 that qualify. And so all of our construction of townhomes is in those markets. It’s just basic math, right? So today, if I am building something in Texas, right, 2.5, 2.6%, property taxes is what I’m going to see, that there’s places in the United States with high rent growth that are at 0.5% in property taxes. So what you’re doing is you’re basically making it so much easier to hit net operating numbers because you’re not paying that much in property taxes.
Same thing for insurance. There’s markets in the us, especially in Florida, where you’re paying two to $3,000 a unit per year just in insurance, but there’s other markets where that number is eight 50. So what we did was we gamed the system, we gamed the system to our favor. We said, let’s just figure out everything that prevents us from making profit and figure out which markets in the US are most likely to make us that profit, and then look at job growth and income growth on top of it. So the best markets in the United States today this will change are Reno, Nevada. Reno has extremely low property taxes and insurance, very high growth because Reno is the cheapest Californian city in Nevada. Lemme repeat it, is the cheapest Californian city in Nevada because there’s all these people that want to get rid of California taxes, myself included, and basically go out and establish a base over there and start doing a lot of their accounting from Reno, and they’re still 20 minutes from the Californian border, fifth largest market in the world.
So they can serve this market without dealing with its stupid property. Well, all kinds of taxes. That’s an example of why Reno is unique. It has low cap rates. So Western cap rates influenced by California. So when I exit, I get low cap rates, which is high prices. My construction costs are really low, property taxes is really low insurance, really low. Now, you take that example and apply it across the board in the United States, and you come up with other markets, northwest Arkansas, some parts of Kansas City only some parts, some parts of Indianapolis because property taxes are by county. So sometimes within the same metro you’ll find a really bad county and a really good county, right? So Indianapolis, it’s only a part of Indianapolis, Kansas City. It’s only a part northwest Arkansas. Phenomenal market, absolutely incredible market. Raleigh, North Carolina, once again, some parts of Raleigh, North Carolina work.
Some parts of Orlando work though we haven’t built anything there because we’re afraid of the hurricanes, but definitely some of the numbers work for Orlando as well. They don’t work for Miami, they don’t work for Tampa, they don’t work for Jacksonville, but they work for Orlando for one weird reason, a category five hurricane when it hits a city that is on the shore will create insane destruction, but by the time it gets a hundred miles inland, it turns into a category three. So Orlando has never been flooded, whereas Tampa has been flooded, so has Sarasota, so has Jacksonville, so has Miami. So basically the fact that Orlando is a hundred mile inland protects it from the most fierce hurricanes. And so overall its numbers are better.
Austin:
Alright, time for one last break, but stick with us. We’ll be right back. Welcome back to on the market. Let’s pick up where we left off. Now, let’s say an investor’s getting started, their backyard is too expensive, and so they’re looking out of state, would you recommend in 2025 or this current market cycle that they look at single family or should they just stick to multifamily?
Neal:
There’s no logical reason to stick to single family other than if it helps you get started. So what I would say is when you’re doing your first investment, do whatever helps you get started? Get over the mental barriers of investing. If you’re going to go out of market, you’re already doing something that’s a barrier. A lot of people are uncomfortable doing that. So maybe you jump over that barrier first and go for single family, whatever you need to do to do your first one. But once you’re a landlord, you’ve already implemented it. You should do those things that scale better, which is multifamily. So I often tell people, it really doesn’t matter what you start with, it’s the second unit, the third unit that you have to really ask yourself the hard question of why am I doing something?
Austin:
And right now, is your team still buying and developing or are you pencils down? What are you seeing in this current market cycle? Does it scare you? Does it excite you? What are your thoughts?
Neal:
It scares the heck out of me and also excites me. So in my mind, even though the prices of multifamily are remarkably better than they were two and a half years ago, they’re down about 21% as a nation. They’re individual markets that are down 25 or even 28%. They’re a lot better, no doubt. But here’s the problem, expectations of cap rates have changed. Expectations of interest rates have changed. So I have now lost 50 plus offers that I’ve made on value add multifamily properties, usually around 200 units. And so I’m no longer making them because my chances of winning are zero because I’m not willing to create profit in Excel if you understand what that means, right? So feel that the gap between buyers and sellers is still remarkably high, and maybe it’ll come down if there’s more distress. In the multifamily market, there doesn’t appear to be any evidence of distress.
I can’t find any. Yes, there are properties that are distressed because there’re going back to the bank, but that has nothing to do with market distress. That property, as soon as it goes back to the bank, when the bank puts it on sale, there’s 30 offers, right? That’s not distress. That just means that the people who were in that property, well, their distressed, sorry for their loss, but that has nothing to do with market distress. There’s no market distress that I can find anywhere in any market in the United States, like pick a market, any market, no matter how much they overbuilt, there’s no distress that I can find. There’s always 10 or 15 offers, and there’s always people paying overvalue. So I’m completely, I have banned my team from making any value add offers. We are not allowed to underwrite any value add properties. So what are we doing?
We have all these employees. They have to do something. So the first thing that we are doing is we have two completely different businesses, right? They don’t share employees. The first business is in the business of taking raw land and converting it into entitled land, right? Entitled, zoned permitted, all of those kinds of things. This takes about 12 to 18 months. Typically, that group is extraordinarily greedy. Right now, I’m not in greed mode. I’m in, oh my God, let me just find everything that I can. Now, this doesn’t mean that I changed my discipline. I never allow a broker to be involved. We look at 7,000 parcels of land. We make over a hundred offers a year. 100 of them are directly to the homeowner or to the landowner. The landowners have actually no clue what their land is worth, and maybe they’re right. They do know what their land is worth, but the broker always thinks it’s worth three times as much.
So there’s a property in northwest Arkansas, beautiful property bounded by trees, owned by a 67-year-old lady lives there, her husband’s died, and two years ago she hired a broker. His name’s Mike. And Mike basically offered the property to us for 2 million and then eventually hiked the price to 3 million. We didn’t agree. Our contract with Mike was for six months. It expired. Eventually we went and offered the lady $800,000. She accepted, and ironically enough, Mike still got paid, but only at the $800,000 level because she didn’t want to cut him out. So we didn’t end up paying the commission, but instead of $3 million, we paid $800,000. The property called Liberty Bill is 10 and a half acres in northwest Arkansas. So bottom line is we found that we actually could not run our business if we involved brokers. So we took the hard path, which is about 10 x more work for our side.
We have a team of the Filipinos to get that done, but we only make offers on off market pieces of land and on off market pieces of land. The prices today are sick. So what we do is we basically put 10 properties in contract a year. We build four, we flip four and two, we take losses and walk away from. So four of them, we take 14, 15, 16 months, and then we are ready and we build them using institutional equity. Today, we are only doing fund equity. We’re not raising money. If you’ve gone to our website, you haven’t seen anybody kind of send you an email saying, Hey, invest in this project. That’s been a long time. So it’s institutional and fund equity that understands what we are doing. So we’ll build four, and then we’ll flip four. So typically we’ll buy a property for 2 million, and then we’ll sell it six to 12 months later for four or 5 million because not everyone’s as patient as us, and not everyone has in-house zoning and permitting and entitlement.
So they would’ve probably paid a lot more because if you hire third party zoning entitlement and civil construction services, you are paying a ton of money for all these services. I’m not. I have an on-staff architect. So instead of paying $250 an hour for architects, I’m paying $65 now. And the other thing is I’m no longer in the business of design. We have a certain number of apartment buildings that we’ve designed, and we have 23 different townhome buildings that we’ve designed. Some with smaller town homes, some with bigger, some with end cap, some with two car garages, some with one car garages, some with large closets, some with bigger windows. We’re done with our design phase. Now our only job is we take a piece of land and try to see if we can fit the widgets properly, just Lego style. By doing this, my architectural costs are down 95%, right? Whether I’m building apartments or townhomes, really doesn’t matter. It’s all prebuilt buildings. So we don’t do any design work. In other words, we are the least creative people that you will ever find.
So we spent our creativity in the initial design work, and now it’s widgets. We basically say we want to be the Tesla of mid-market construction, except we never want to build a cyber truck or a model S or a model X. We want to build a lot of model threes and a lot of model Ys, and that’s it. We are a factory with two models, a town hall model and an apartment model. That’s what we’re going to give to the world. We are not going to be creative, and we are never going to win any design awards. That’s our business, and it works beautifully. So we built four, we flipped four, yes, we lose money on two because there was something in the land. Maybe there was a rock under the surface, which was expensive. Maybe the slope was too much. Maybe the city didn’t like our vision after.
Usually the city initially will give us an indication. Sometimes they change their mind later. So we lose about $200,000 on two parcels of land, and that’s what we’re doing at this current time. Then we have a second division, and that second division only does one thing. It reaches out to every lender in every broker in America asking if there’s a property that is in construction that’s maybe two thirds complete, or maybe it’s all the way complete, but has nobody living in it, or maybe it’s just started lease up, and we try to buy those properties because the true value add today in America is not a multifamily class. C value add properties, those things have no value. All the value add numbers that I’ve seen, I haven’t yet found one that excites me. But you know what’s happening today? There’s several thousand developers that built buildings starting in 2022.
Back then, interest rates were very low, and you could get up to a 90% leverage loan, so you only had to put 10% down. Now, all of those buildings are actually worth 20% less than the loan amount, 20% less. So all the equity gone, but it’s actually 20% under the loan amount. Can you imagine how terrified the banks are with all of these properties? Because they know that the loan amount is 20% more than the value of the property. They need solutions. We provide them. We buy directly from banks. I’m currently negotiating a property in Lakeland, Florida. 160 units only has four tenants, but I know what its rents are. So I’m going to buy the property in cash from the bank. I’m not going to put debt on it for six months, but during those six months, I will be going through furious lease up, and then I’ll put a bridge loan on it. That’s equivalent to the amount I paid the other bank. So now I’m in for $0, and then I will keep the property for 10 years. The moment I can get to $0 in. I don’t have a business plan with that property. The business plan is let’s keep it for as long as we live because there’s no basis. It’s infinite returns. I have not been able to do infinite returns since 20 15, 20 14. Infinite returns are back because new construction properties have high cap rates.
Austin:
That’s very exciting. That’s awesome. Unfortunately, we are closing out of time. Is there any place where people can learn more about you, Neil?
Neal:
Sure. Multifamily University. So either type the two words, multifamily university, go to multifamily U. We post 10 of our webinars there. They’re all data driven. Our next webinar is a two-parter about the impact of artificial intelligence on real estate and data centers. We will be launching two funds, one to build data centers or actually invest in land for data centers. I don’t want to build any. And then the second one is going to be a geothermal fund because the US is going to run out of energy extraordinarily fast, and geothermal is the solution to that and the timing for Geothermals, right? So we’re going to launch a fund there. So that’s an example, but there’s Airbnb webinars there. There’s single family, there’s multifamily, there’s self storage, there’s industrial. These are all free. We have no subscriptions. We have no intention of ever selling you a class. Just take it, use it. Enjoy.
Austin:
No, this was awesome. This was so informative, and if you’re listening, I hope that you took away some good nuggets too. Thank you, Neil. This was awesome.
Neal:
Thanks so much. Bye-bye.
Austin:
That’s it for today’s episode of On The Market. If you found this information helpful, leave a comment down below and make sure to subscribe, leave a review and share it with fellow investors. Thanks for listening, and we’ll see you next time.
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