RG 063 – How to find cash flowing deals in your local market with Anthony Walker
- Anthony is a managing broker at Buckingham investments
- Anthony is also an educational speaker
- Anthony got his MBA while also working full time in corporate insurance.
Nuts and Bolts
Anthony spent 10 years working in corporate insurance slowly working his way up the ladder and getting promoted. After 10 years he realized that all this hard work only got him another small part of the pie and he knew that he wanted more. So he worked for an MBA at night school while keeping his insurance day job and thought about what style of business he wanted to start up. While he took a real estate investment class it struck him that he didn’t need to create a new business model and he could instead work in the ready-made real estate area. First Anthony went into brokerage to get exposed to the local market and to help build a portfolio. Now Anthony works for Buckingham Investments and oversees the Torrance office helping people with their retirement and financial investments in multifamily real estate.
Finding deals in LA
Anthony does most of his deals in-state and in the LA where he lives. The key to finding deals in a tier 1 market like LA is relationships and you need to know lots of people to find multiple opportunities. Anthony recommends investing in transition areas which are in the path of gentrification and to find these you need local knowledge and strong data. Anthony and his team spend a long time collecting quarterly data on the local market by walking down each block and noting any changes. These are details that you can’t find on websites because sometimes prices will differ by one street and you need to be in the market to experience it. Anthony tends to only invest in multifamily commercial which is 5 units and above because it can be easier to get funding for this, however he sticks to the smaller side of this market at 6-15 units.
What to look for in a deal
When looking for the right deal Anthony takes price point and area into account. For example the long beach market has a varied number of CAP rates from 2.5-6 which makes the area interesting and flexible. He looks for a building that can be repositioned for a new tenant base and therefore he can increase the rent. Most of these buildings need a significant investment but he can get at least a 20% upside in rent minimum. When renovating a property Anthony will aim for the more deluxe end of the market for example laminate floors, new cabinets, granite countertops and re-tiled bathrooms. This can end up being an $8-10,000 spend for a 2 bed property. However with this investment it means that Anthony can increase rent, for example a studio apartment could go from $800 per month to $1100 after the work.
Change in value
In a tier 1 market for every dollar that is raised in rent you raise the value of the property more than you would in other markets. For example for a 1 bed unit a $300 raise in rent follows a $10,000 spend in renovation, so it would take a very long time to recoup the renovation spend with that extra rent money. However the building is now worth 15 times more on the gross market. This means that value is calculated by multiplying the extra rent by 12 for a per annum value of $3600 and then multiplied by 15 for the extra gross market value. Anthony looks at getting twice the value back to make it a good deal. In this example for a tier 1 market every dollar spend makes $15 in value. The bank will value a property based on income they will generate, not the door price which means that they will value a duplex lower than a 10 unit property.
Anthony has recently completely on a 10 unit property in an area that is soon to be repositioned. The cash on cash return under normal financing would be very low and barely break even however Anthony will be able to raise rents by 40%. He bought the property for $1.4million and in a year it will hopefully be work $2million after a spend of $150,000 on renovation. Even after raising rents and recapping the finance out into permanent financing Anthony is still looking at an 8% cash-on-cash return. Anthony used to invest in C class areas but he now focuses on B+ neighborhoods where it’s possible to find old buildings looking for gentrification that are suitable for young professionals who don’t need a huge amount of space.
Top 5 investing tips
Most important habit – Looking at the data everyday.
Most influential person – The friend from business school who invited him into the market and taught him the basics.
Most important tool – Data and primary research.
Most important mistake – An early deal; a duplex with a bootleg unit where the city found out and forced him to convert it back to a single family property and then the tenant sued for damages.
Contact – firstname.lastname@example.org