📱 Renters using TikTok to defraud landlords

Happy holidays, Best Ever Community! May your last few days of 2023 be filled with laughter, good company, and all the festive feels. 🌟

In today’s newsletter, TikTok fuels renter fraud, syndicators embrace exponential evolution, and a CPA takes on a 65-unit, 12-building portfolio.

Plus, if you haven’t already, make sure to sign up for the Best Ever Book Club led by Joe Fairless. December’s book is Living With No Excuses by Noah Galloway. 

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TOP HEADLINES

🎁 Apartments Top Consumer Wish Lists: With the economy improving, consumer sentiment has recently increased, boosting apartment demand. CRE Daily explains.

💸 $4.5B Portfolio for Sale: Lennar has put a massive 11,000-unit multifamily portfolio up for sale. The portfolio is spread across 38 properties in 15 states and is valued at a staggering $4.5 billion.

📉 Bye Bye, Boom: Warehouse construction starts have plunged 48%, the steepest drop since 2009, prompting the Wall Street Journal to declare that the Great American Warehouse Building Boom is over.

🔥 Retail Heating Up?: Retail posted a fourth straight month of pricing gains in November and an average occupancy rate of nearly 86%, its highest since October 2022, according to Crexi data.

👀 Most Attractive Markets: New York’s apartment pipeline is one of the fullest in the nation with nearly 50,000 units under construction in Brooklyn and Queens combined. The two boroughs lead the list of U.S. neighborhoods building the most apartments.

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HOW RENTERS USE TIKTOK TO DEFRAUD LANDLORDS

Renters are using TikTok to defraud landlords on a massive scale. Key factors fueling this trend include the increasing ease with which renters can forge documents and law enforcement’s inability (and unwillingness) to do anything about it. Veteran commercial real estate journalist Jarred Schenke recently explored this alarming new trend in an article for Bisnow.com, and he joined the Best Ever Show this week to explain what’s really happening.

📱 ‘TikTok Made Me Do It’: Technology has made it easier than ever for anyone to convincingly edit documents like pay stubs, work verification letters, bank statements, and credit information. YouTube, TikTok, and Reddit users haven’t been shy about sharing tips, how-tos, and in some cases, offering full packages of forged documents for purchase. “The information is out there,” Schenke says. “It’s not hard to find.”

👤 Anonymous Applicants: Apartment providers’ increasing migration to online leasing platforms is a key enabling factor. In 2022, 23% of renters took zero in-person tours before signing a lease, 69% submitted their applications online, and 36% signed their leases electronically. Renters rarely come face-to-face with an operator or property manager in these scenarios, making it much easier for them to pass off fake documents — or in some cases, fake or stolen identities — to get approved to lease an apartment.

💎 Keeping Up With the Joneses: While some renters are likely using these strategies to obtain affordable housing, many culprits are using them to rent Class-A luxury apartments so they can portray a certain lifestyle on social media, then skipping out on rent. “Once they get [the apartment], they may never pay,” Schenke explains. “They’ll just stay there, banking on an eviction system that’s clogged and slow anyway, and stay in these apartments rent-free until the last minute. Then they often just disappear and do it again.”

So, how can landlords fight back? 

✅ Conduct an Audit: Conduct an internal audit of your tenant screening processes and re-evaluate your tenant screening software, if you’re using any.

✅ Train Your Staff: Educate your staff on how to be vigilant in vetting prospective renters. This could mean having leasing agents take extra steps beyond receiving standard documentation.

✅ Identify the Source: If you’re able to proactively identify fraudulent applications or renters, don’t just throw them out and move on to the next applicant. Try to identify what marketing channels they’re coming from, look for trends, and adjust your strategy accordingly. 

 💬 “The creativity of the people who offer these products and services — the way they can phrase and word their videos in ways that I think skirts the line of flat-out saying, ‘We're going to help you do something illegal,’ but it basically implies, ‘This is how we're going to help you get an apartment’ — it's a real gray area in terms of free speech, and it struck me.” —Jarred Schenke

👉 Listen to the full episode here.

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FROM SYNDICATIONATTORNEYS.COM

As a real estate securities attorney, Kim Lisa Taylor of SyndicationAttorneys.com has talked to thousands of people who were new to real estate syndication. Many of them have gone on to become seasoned syndicators. Some can now raise more than $10 million in a week. So, how does such drastic growth take place? The evolutionary process she’s observed usually occurs in a series of “realizations,” followed by taking the appropriate actions.

💡 Realization #1: You’re not going to achieve your future financial goals in your current job. Investing in real estate could augment or replace your current income. Single-family investors quickly figure out that fixing and flipping houses and being a solo landlord is really hard work. Most figure out after a few years that there must be a better way to scale.

💡 Realization #2: You need to scale. This is when real estate investors start looking at buying commercial real estate so they can hire professional property managers to run the day-to-day operations.

💡 Realization #3: You need money to do bigger deals, so you decide to do joint ventures (JVs). By this time, new investors have run out of their own money, or can’t find hard money or private lenders willing to fund the type of deals they want to do, so they look for JV partners.

💡 Realization #4: You need to get some training and learn to syndicate. It’s a tried-and-true method of organizing large groups of passive investors headed by a management team of two to five people to buy a previously identified property.

👉 Read the full article for more realizations that fuel investor evolution. 

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15%+ IRR, 1.9x EQUITY MULTIPLE ON 65 UNITS

Ryan R. Emrich, CPA and Blue Canyon Equity Partners closed on their first syndication in July and are planning to deliver 15%+ IRR and 1.9x+ equity multiple to investors. Here's how they're going to do it. 👇

🏢 Property Details: 65-unit, scattered-site portfolio spread across 12 buildings purchased in July 2023 in Massachusetts. Class C units in neighborhoods that are becoming C+ to B. 

💸 Finances: Purchase price was $5,670,000, including a $250,000 seller credit (net $5,420,000), with $1.8 million in capital raised. The debt structure is 75% of the purchase price from a regional lender; 5.65% rate, two years interest-only; 10-year term, five-year fixed.

💼 Business Plan: Increase rents toward market rent within the first six months. Make cosmetic updates in units that turn. Sell off smaller buildings that will garner a higher price per unit on the market. Keep larger buildings with more units. Return capital to investors from the early sales of smaller buildings and maximize cash flow/returns for the remaining hold duration.

🍾 Results: Conservative estimated returns for LPs include 7% preferred returns, 7%+ average CoC, 15%+ IRR, and 1.9x+ equity multiple. Appraisal from bank post-stabilization (one to two years from purchase) is estimated at $7.4 million. 

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

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🪜 Three Levels of Analysis

Embarking on your next property analysis? Joe Fairless has broken down the process into three crucial levels. From a high-level view to diving into the details, these steps will guide you through your next analysis with ease. 

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—Joe Fairless