Hundreds of House Flips to the Business of Multifamily w/J Scott
Watch on YouTube!
Or listen wherever you podcast!
Episode Description
Welcome to the Freedom Point Real Estate podcast! Jeremy Dyer welcomes J Scott to today's episode where they cover flipping houses, investing in multifamily, evaluating market trends and sponsors, and so much more.
J Scott is an entrepreneur, investor, advisor, author, and partner at Bar Down Investments, focused on buying and repositioning large multifamily properties. In the past fifteen years, J has bought, built, rehabbed, sold, lent-on and held over $160M in property around the country. J holds strategic advisor roles in several companies and is the author of five BiggerPockets books on real estate investing.
CONNECT WITH J SCOTT!
Website: https://linktr.ee/jscottinvestor
LinkedIn: https://www.linkedin.com/in/jscottinvestor/
Facebook: https://www.facebook.com/jscottinvestor/
Instagram: https://www.instagram.com/jscottinvestor/?hl=en
CONNECT WITH JEREMY DYER!
Website: https://startingpointcapital.com/
Instagram: https://www.instagram.com/startingpointcapital/
LinkedIn: https://www.linkedin.com/in/jeremydyer
Facebook: https://www.facebook.com/startingpointcapital
Book a Call! https://calendly.com/startingpointcapital/discuss-investing-with-jeremy-dyer?month=2023-12
Summary
Tip #1: Understanding Market Dynamics
J points out the challenges of new construction projects due to elevated labor and material costs caused by inflation. He emphasizes the importance of understanding current market dynamics to assess the feasibility of such ventures.
"Because of inflation, labor material prices are still elevated... it's still relatively difficult to build a new construction house in much of the country."
Tip #2: Risks in Build-to-Rent Space
In the conversation, J discusses the difficulties in the build-to-rent space, citing inflated labor and material costs as significant challenges. He underscores the importance of carefully evaluating these risks before embarking on such projects.
"Build-to-rent is tough these days... it can be difficult to get the financial engineering to work for a new construction."
Tip #3: Consider Absorption Rates
During the discussion, J highlights the importance of considering absorption rates, noting that different unit types may experience varying demand levels. He suggests diversifying unit types within a development to mitigate the risk of overbuilding.
"I might have a more difficult time leasing those up than if I build... because I have some diversity in my floor plan."
Tip #4: Challenges of Unit Diversity
J mentions the challenges associated with unit diversity, particularly in overbuilt areas where certain unit types may struggle to attract tenants. He advises investors to diversify unit types to appeal to a broader range of tenants and reduce vacancy risks.
"What we see is that we're overbuilt in certain types of units... moving forward, we're likely to see one or two percent rental gains."
Tip #5: Uncertainties in Development
The conversation touches on the uncertainties in real estate development, with J noting that twice as many builders start projects than finish on time. He advises investors to factor in potential delays and assess market supply dynamics when making investment decisions.
"What we see in the building space is that basically about twice as many builders will start their development then actually finish their development at any given time."
Tip #6: The Importance of Operator Evaluation
J emphasizes the critical role of operators in real estate investments, highlighting factors such as redundancy, experience, full-time commitment, and personal investment. He suggests that investors conduct thorough due diligence to select operators with the necessary qualifications and track record.
"I want to see redundancy or a succession plan... I want to see operators that have seen challenges and have overcome those challenges."
Tip #7: Red Flags in Operator Assessment
During the discussion, J warns investors to be wary of red flags when assessing operators, such as a lack of redundancy, experience, or personal investment. He advises investors to address these red flags early on to avoid potential risks to their investments.
"I want to see operators that are investing their own money in the deal... at very least reinvesting that acquisition fee back in the deal."
Tip #8: Vertical Integration Considerations
J discusses the advantages of vertically integrated operations but cautions that each aspect must be managed effectively to maximize returns and mitigate risks. He suggests that investors carefully evaluate the capabilities and track record of vertically integrated operators before making investment decisions.
"It doesn't matter to me as long as I can do due diligence... and be comfortable that it's being managed well."
Tip #9: Key Factors in Sponsor Selection
In the conversation, J emphasizes the importance of assessing sponsors based on factors such as redundancy, experience, commitment, and personal investment. He advises investors to vet sponsors thoroughly to ensure alignment with their investment goals and risk tolerance.
"A good operator is going to do the right due diligence to make sure that all the other things you might be looking at are covered... you shouldn't have to do it to the same extent if you're doing a really good job of picking the right operators."
Tip #10: Long-Term Investment Strategy
J advocates for a long-term investment strategy focused on continual improvement and adaptation to navigate market challenges successfully. He encourages investors to maintain a patient and disciplined approach to capitalize on opportunities for sustainable growth and wealth accumulation.
"So it's funny normally people start the new year saying they have new goals... for us, it's really we're just continuing to do everything we've been doing and hopefully everything will continue to go well."
