J Scott sorts through the economic muck.

Hey, Best Ever Community!

In today’s newsletter, J Scott sorts through the economic muck, John Casmon explores the art of persuasion, and we break down a $30 million value-add plan with a target $72 million exit.

Plus, if you haven’t already, make sure to sign up for the Best Ever Book Club. November’s book is Stillness Is the Key by Ryan Holiday.

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Read on!

_{🗞 NO-FLUFF NEWS}
TOP 5 HEADLINES

CRE Deals Set for 5% Dip in ’24: CBRE has adjusted its 2024 growth forecast for commercial real estate investment volumes, turning a once-anticipated 15% growth into a forecasted 5% decline. CRE Daily explains.

WeWork Goes Bankrupt: WeWork has finally filed for bankruptcy, marking one of the largest evaporations of real estate value ever seen. The question is, what happens next?

Falling Tides: Soon after workouts, servicers have flagged another $150 million in Tides Equities debt, citing late payments by the troubled multifamily syndicator.

Apartment Owners ‘Demonized’: The White House and federal agencies have made it a priority to protect consumers, including renters, from excessive hidden fees charged by apartment operators, leading to new legislation targeting these fees. Operators are firing back.

Nashville On Top: Nashville has been ranked as the most appealing city in the U.S. for real estate investors, beating out Phoenix and DFW. Tampa/St.Petersburg, Orlando, and Las Vegas round out the top 20.

_{🎙 THE BEST EVER SHOW}
PIVOTING IN A COMPLICATED ECONOMY

 🧭 In a world where economic signals can be somewhat mixed, it's becoming more important than ever to grasp the full scope of the challenges investors are currently facing. On the surface, we’re currently seeing positive indicators like GDP growth, impressive job figures, and a thriving stock market, which might suggest economic prosperity. However, the big picture is much more nuanced. 

J Scott recently discussed the evolving economic landscape with us, identifying potential challenges on the horizon and offering insights on how to remain cautious while making decisions amid financial uncertainty. 

🏦 Economic Overview: The current economic outlook shows strong data, with GDP, job numbers, and the stock market performing well. However, the economic experience varies greatly depending on one's financial situation and socioeconomic class. The top 5%–10% of individuals who have invested wisely perceive the economy as strong, while the majority, especially those with lower incomes, may feel like they are in a recession due to stagnant wages, inflation, and other challenges.

🛒 Looking to Businesses: “The leading indicator for the economy tends to be businesses — what businesses are feeling and what businesses are doing,” J says. “And if you look at that right now, it's actually pretty scary.” Many businesses that rely on short-term debt are on the verge of running out of money, leading to potential bankruptcies and job losses. These economic challenges could emerge in the first half of 2024, although the timing remains uncertain. The severity of the situation will depend on how the Federal Reserve responds.

🏠 A Shift in Priorities: Real estate investors are moving away from value-add strategies and heavy renovations, and instead focusing on optimizing operations to maintain property value. The industry is transitioning from a phase of growth to one of preservation. “We’re thinking about how we can ensure that this property is positioned to weather any storm that comes along in the next year or two,” J says, “so that we can get over the hump of what we're dealing with economically, get into the next phase of the economic cycle, and then take advantage of values going up down the road.”

📈 Temporary Setbacks: In the Houston market, J has been dealing with three challenges over the past 18 months — an eviction backlog, property turn costs, and rising insurance rates. However, he views these issues as temporary. By keeping them in mind during the underwriting process and maintaining a conservative outlook, a decent deal today could become an incredibly lucrative one two or three years down the road. 

🤔 What It All Means: J’s team has slowed down distributions to investors, increased reserves, reduced expenses, and focused on maximizing other income sources. They are also prioritizing retaining existing tenants to minimize turnover costs. In the current financial landscape, adaptability and foresight appear to be the keys to success.

“The message we intend to send is we are going to be proactive,” J says. “We're going to be conservative. Even if it means taking a little bit of money out of your distributions today, the goal is that we can weather any storm so that we can still … exceed all our projections down the road.”

👉 Discover more by listening to the full episode. 

_{💻 RENTEC DIRECT}
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_{✍️ BEST EVER BLOG}
FROM JOHN CASMON

🤝 Negotiating real estate is a skill that can make or break deals. The best investors can not only find good properties but acquire them with favorable terms that reduce risks and increase profits. You may not enjoy haggling, but every investor needs to have solid negotiating skills if they want to buy more properties, especially when inventory is low. 

Tom Zeeb has been wholesaling real estate for 20 years. After trying his hand at being a landlord and flipper, he realized he excels at marketing for real estate and negotiating deals. He also realized that many investors have a misperception about negotiating.

“We’re not making a Godfather offer,” said Zeeb. “I want to get to the lowest price the seller is willing to go, and I do that by helping them solve their biggest problem.”

Zeeb follows a “3 P” process to win real estate negotiations and drive profits.

🔍 Identify the Problem: These negotiation tips are less effective if there isn’t a real problem to address. The problem could be a maturing loan or a large repair that is needed. It may have nothing to do with the real estate itself. Maybe the owners inherited the property and don’t want to manage it, or maybe they’re going through a divorce and need to sell the asset.

📦 Package Up a Solution: Once you know the problem, you can package up a solution. This is where creative terms come into play. According to Zeeb, “If we’re both focused mainly on price, there will be a winner and a loser.” Instead, he likes to create win-win arrangements where his win is the price, and the seller gets their problem resolved. 

🏆 Persuade the Seller: You may have the perfect solution, but things can fall apart if the owner believes they can get more money or has other doubts about your offer. The ability to help owners see that your package is ideal and a win for them requires practice and thoughtfulness.  

💬 “Be specific with your offer. Instead of offering $100,000, use a number like $103,292. A specific number indicates that there is some data or research that supports this figure and may make the seller more likely to believe you have the market knowledge and solution for their situation.” —John Casmon

👉 Read the full article for more negotiation tips. 

_{🏠 DEAL BREAKDOWN}
A $30M VALUE-ADD PLAN

Jorge Abreu just acquired this 278-unit property with plans to increase its value by nearly $30 million in the next five to seven years. Here's how he's going to do it. 👇

🏢 Property Details: 278 units in Rapid City, SD, purchased in September of 2023. Class A, 2008 build.

💸 Finances: Purchase price was $46,704,000 with $9.5 million of preferred equity at 15% total pay with no participation in upside or bonus depreciation. Just over $11 million was raised in common equity. Seven-year fixed Freddie Mac loan at 5.85% interest, 65% LTV.

💼 Business Plan: $1 million CapEx budget to do light upgrades to a few units, improve curb appeal, add income items such as high-speed internet and carports, and renovate amenities and the leasing office. While under contract, Jorge's team increased rents on over 130 units by more than $170 and hit their year-one proforma before they even closed on the deal.

🍾 Results: Projected returns to LPs include a 6%–8% COC, 15%–18% IRR, 2.72x–2.81x equity multiple, and 25%–26% ARR. They expect to exit at $72,428,121 in the next five to seven years.

If you have a deal you'd like us to feature, share it with us!

_{🎓 EXPERT RESOURCES}
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—Joe Fairless