Smarter Investing For Today's 'Risk-Averse, On-Demand' Generation

At a leadership conference last year, I heard the term “on-demand generation” used to describe American consumers today. Regardless of whether they are a boomer, Gen Xer or millennial, members of this “generation” are not bound by birth dates, but by the way people today consume products and services. We are a generation powered by on-demand media like Netflix, on-demand food delivery like DoorDash and on-demand transportation like Lyft. As a consumer, you can now marathon-watch entire seasons of your favorite TV show, order dinner without leaving the couch and then track where your food is — as it’s being made and picked up and then street by street as it’s getting to your front door. You can request a ride home with a click of a button and know that the driver is two minutes out so you don’t have to step outside in the cold until the car turns the corner.

This on-demand generation also happens to be extremely risk-averse. At our fingertips, millions of firsthand testimonials exist on Yelp, TripAdvisor and Amazon to take the risk out of our purchasing decisions. Before we even set foot in a restaurant or hotel, we know what’s on the menu and which rooms have the best view. There are even free browser extensions you can now install on Google Chrome and Firefox to compare Amazon products. Specs and ratings are listed side by side, including a YouTube video review and the same item’s price on eBay.

Over the past decade or so, this way of living has become so deep-seated in our everyday lives that it’s impacting not only how we consume products and services but also how we approach investing our money. Today’s “risk-averse, on-demand” generation of investors wants control, convenience and capital preservation.

Up-Down, Up-Down

Stock market investors have been on a roller coaster ride. After seeing substantial gains in 2017, the FTSE All-World index, which tracks more than 3,000 stocks in 49 countries across different market sectors, plunged 12% in 2018. At home in the United States, this stock market volatility manifested as a $3.73 trillion tumble in household net-worth in Q4 2018, giving investors PTSD flashbacks of the 2008 global financial crisis. While markets seem to have rallied in 2019, many are left speculating when the ax will drop next, especially as tariff threats hover over recent U.S.-China trade negotiations. This “up-down, up-down” instability has Americans, on average, holding 58% of their assets in cash. But there is a solution for investors seeking more stable investment opportunities and more control: real estate.

Controlling Risk With Real Estate

Companies can go bankrupt and stocks can fall to zero, but there will always be inherent value in land and in tangible assets. Real estate is uncorrelated to stocks and bonds, providing opportunity to invest large sums in a very short period of time without singularly moving the market and raising prices. Strategic diversification protects your capital investment, and if you’re able to correctly identify the phase each market is currently in, good investments can be found, whether the market is in a recession or expansion period, by adapting your investment criteria and exit strategy. You can effectively control risk by doing homework on the local real estate market dynamics and assessing economic trends, future developments and demand generators.

Increasingly popular among the on-demand generation is the income enhancement strategy. This strategy is useful to investors seeking stable, long-term cash flows and high risk-adjusted returns in a real estate portfolio. By selecting leasing and property management talent or retaining a private real estate investment firm with a superior talent network and history of exceptional tenant relations, investors reap the rewards that accompany an optimized asset management strategy without the headaches of having to manage the properties themselves. Typically, an experienced real estate investment firm implementing this strategy will utilize a rolling approach to stabilize cash flows and minimize business cycle risks. Aging properties are slowly refreshed with new ones — capital improvements are made, vacancies are reduced, rents are raised while being cognizant of managing tenant turnover and economies of scale are achieved — yielding stable annual returns.

There is no such thing as a 100% guarantee when it comes to investments, but there is a next best thing — options like real estate — where there’s intrinsic value in the assets. This allows investors to minimize risk by being extremely selective and adapting their strategy to market demands and economic trends, and there’s the ability to exercise control over how assets are managed. Whether you are chasing dividend yield, looking for low-volatility growth or seeking safe haven from market fluctuations, allocating a slice of your investment portfolio to well-managed, quality real estate is a powerful tool for investors to build wealth, generate consistent cash flow and hedge against inflation and vulnerability in the stock market.

Seven Tips To Remember When Establishing Real Estate Goals

Real estate can be a tricky industry. Success as an investor, developer, or broker requires one to pay close attention to cyclical market trends, both on the local and global level. At the same time, you must also consider bigger industry changes that stem from evolving technologies and consumer expectations.

BENA Capital’s Kimberly Yeh, Managing Director of Acquisitions, was featured in a Forbes Expert Panel discussion highlighting what to keep in mind when planning your real estate goals.

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About BENA Capital

BENA Capital manages real estate investment funds, with a central focus on the acquisition and management of residential multifamily assets in growing markets. BENA Capital's funds provide investors with ease of entry, reliable quarterly cash flow, and portfolio diversification. Our proven strategies emphasize sound investing in carefully researched, quality properties that have steady, long-term capital appreciation potential.

Click for Mosaic Fund Overview PDF: Mosaic Fund Overview

Click for Investor Overview PDF: BENA Capital Overview

BENA Capital Announces Multifamily Acquisition in Rio Rancho, NM

The BENA Capital Mosaic Fund is pleased to announce the acquisition of a multi-family apartment asset in Rio Rancho, NM.

Only 20 minutes north of Albuquerque, Rio Rancho is the largest city in Sandoval County. It was named the “Best Place to Live in New Mexico” by MONEY’s Best Places to Live in Every State. One of the fastest expanding cities in New Mexico, it has grown over 15% since 2010. That growth is expected to continue steadily over the next two decades.

Rio Rancho is a thriving economic hub, and the area is supported by a diverse mix of industries, including tech & software, healthcare, education, manufacturing, customer service centers, retail and tourism. Among the high-profile employers are Intel, US Cotton, HP, PCM and Lectrosonics.

In recent news, Intel announced it will move technology development for its 3D XPoint memory technology to its facility in Rio Rancho. The move includes the addition of over a hundred jobs at Intel’s Rio Rancho site. Perhaps the most notable of newcomers to the area is Netflix, who inked a billion dollar deal to open a U.S. production hub in Albuquerque late last year. The deal is expected to bring an additional 1,000 jobs per year to the state.

The property is centrally located, less than 15 minutes away from some the city’s largest employers — the Intel and HP campuses, and the award-winning UNM Sandoval Regional Medical Center. It is currently 100% occupied. Over the next quarter, BENA Capital will work with local property management to make strategic capital investments to improve the property and enhance operating income. We are excited about the prospects of this property due to its desirable proximity to demand generators, strong cash-flowing history, and continued investment in the immediate vicinity.

The acquisition is the second of BENA Capital’s Mosaic Fund - a Stable Income Fund focused on generating strong rental income streams from core-plus and value-add assets in growing markets throughout the United States.

The Mosaic Fund is currently open to new investors. If you are interested in earning stable quarterly dividends, feel free to reach out directly via email or call us at 408-421-8608.

Warm Regards,

Kimberly Yeh
Managing Director - Real Estate Acquisitions

About BENA Capital

BENA Capital manages real estate investment funds, with a central focus on the acquisition and management of residential multifamily assets in growing markets. BENA Capital's funds provide investors with ease of entry, reliable quarterly cash flow, and portfolio diversification. Our proven strategies emphasize sound investing in carefully researched, quality properties that have steady, long-term capital appreciation potential.

Click for Mosaic Fund Overview PDF: Mosaic Fund Overview

Click for Investor Overview PDF: BENA Capital Overview

The Top Three Metrics Every Real Estate Investor Should Know

This article was also published on Forbes.com by Managing Director Kimberly Yeh: Top Three Metrics

I am often asked what my real estate acquisition team looks for when we obtain investment properties for our funds. It’s a complicated formula that takes into account a dizzying number of variables, including alignment of the specific fund’s strategy and objectives, the real estate cycle and the realities of current market demands. But the common thread that binds all our acquisitions is what I like to call the “Big Three.” These three location metrics inform every single acquisition I make, and are in my view the foundation of a successful real estate investment. So what are they, and why do they matter?

1. Demand Generators

Demand generators are factors that determine the local need for your investment property. It is essentially the presence of businesses, employers, transit, schools and attractions in the area that generate the consumers your property is intended to serve. Identifying demand generators is important — the absence of a thriving commercial center, for example, could indicate job scarcity. Without employment, there’s little to support the local economy. And if the local economy is weak, the population relocates in search of opportunity, and the demand for local real estate falls. Therefore, understanding access and proximity to your demand generators is vital to choosing a location for a successful real estate investment.

To peel back the onion even more, as with any product, it’s critical know your customers. Being familiar with local demand generators can be useful in pinpointing factors that influence prospective tenants and future buyers. Smart investors should not only consider current demand generators in assessing cash flow potential but also what that pool looks like years down the road to estimate appreciation at resale. This data then informs decisions on whether to purchase properties in a specific location and at what price point, as well as how much capital to put into renovations and when those improvements are made.

2. Supply Indicators

As part of every due diligence effort on new markets, identify the direct competition based on the three Ps: price, product and proximity. When considering a specific property type for investment, gauge the existing demand for that property type and then take into account future developments that could over-saturate supply. These attributes impact a market’s current and future vacancy rates, which are key components in forecasting investment performance. For commercial real estate investments, I consider healthy vacancy rates typically less than 5% for multifamily, 8-12% for office and 5-10% for retail. When evaluating a specific location for investment opportunities, make benchmarking comparisons for a specific property type, but look at all three commercial metrics as indicators of a local real estate market’s overall economic health.

Most cities or chambers of commerce will publish useful data points, and various real estate databases will have transaction details that will inform supply and demand metrics. Keep an eye out for articles from local news outlets highlighting economic trends and future developments. Don’t overlook these resources when performing a market study — they are invaluable in analyzing financial feasibility for an investment and can be instrumental in determining whether to pursue the acquisition.

3. Market Comparables

The final metric that makes up the “Big Three” is comps, or the comparable lease rates and sales prices from the past three to six months. Comps are important because they indicate how much revenue you will be able to generate from the investment and whether a certain location is crowded with too much supply. When evaluating real estate comps, it’s essential to recognize that different regions, even sections of a city on a street-by-street level, can have very different lease rates and sales prices. These metrics should be carefully researched to filter for property type and to benchmark the specific location.

While comparing price per square feet can be helpful, the best comparisons for benchmarking and determining investment revenue will also take into account the age of the property, the use and unit mix, and structural and cosmetic upgrades.

The “Big Three” should be a critical part of the initial evaluation in determining where you make your real estate investments. Always make sure that the results are appropriate for your individual investment goals. It is crucial to establish a solid framework to organize what otherwise could be a chaotic, overwhelming process.

About BENA Capital:

BENA Capital manages real estate investment funds, with a central focus on the acquisition and management of residential multifamily assets in growing markets.  BENA Capital's funds provide investors with ease of entry, reliable quarterly cash flow, and portfolio diversification.  Our proven strategies emphasize sound investing in carefully researched, quality properties that have steady, long-term capital appreciation potential.

Click for Investor Overview PDF: BENA Capital Overview

To learn more about BENA Capital, visit: http://www.bena-capital.com/

BENA Capital Announces Multifamily Acquisition in Granbury, TX

BENA Capital is pleased to announce its latest acquisition of a multi-family apartment asset in Granbury, Texas.

The property is located in a growing suburb of Fort Worth, 5 minutes to the downtown town square, across the street from the Lake Granbury Medical Center, and 45 minutes from Fort Worth. We identified Granbury as a prime target for the fund because the city has been growing at roughly 40% per decade, and the population is expected to grow by another 50% over the next 20 years. Both the unemployment rate and the poverty rate are below the national averages.

Given its proximity to Fort Worth, many families choose to live in Granbury for its safe, small-town feel while working in Fort Worth, which is the fastest growing metropolitan area in the country, adding over 146,000 residents in 2017. Fort Worth is the 15th largest city in the United States and continues to grow substantially, both in numbers of residents and jobs. Over the past 12 months it has added jobs at twice the rate of the national average. Cities with this type of robust growth are rare, and an effective strategy to capitalize on this growth is to acquire solid properties in areas just on the fringe of this rapid growth. These types of properties tend to benefit from price appreciation as the population searches for additional housing units.

As a result, we are excited about the prospects of this property for the BENA Capital Mosaic Fund, focused on generating stable rental income streams for investors. We acquired the property with one unit vacant and had a contractor in the unit ready to perform make-ready work the day of closing. The vacant unit was leased in 4 days at an above-market rate and we are having rent increase discussions with the current tenants. Our goal is to maximize cash flow while also moving up rents over the next 6-12 months.

The Fund’s all-cash offer, paired with niche market knowledge and strategic partnerships that enabled a quick close, beat out 6 other bids. These attractive terms allowed us to acquire the asset at a competitive price.

We plan to implement a phased strategy to improve the property during Q1-Q2 2019. Initially, we will target value-add projects and repairs to improve the appeal of the property. In parallel, the hands-on property management team we have hired is familiar with the local market, and will increase current rents to further enhance cash flow.

To learn about our investor benefits and how you can invest in the Mosaic Fund, request information below or feel free to reach out directly to us at 408-421-8608.

Warm Regards,

Kimberly Yeh
Managing Director - Real Estate Acquisitions

About BENA Capital

BENA Capital manages real estate investment funds, with a central focus on the acquisition and management of residential multifamily assets in growing markets. BENA Capital's funds provide investors with ease of entry, reliable quarterly cash flow, and portfolio diversification. Our proven strategies emphasize sound investing in carefully researched, quality properties that have steady, long-term capital appreciation potential.

Click for Mosaic Fund Overview PDF: Mosaic Fund Overview

Click for Investor Overview PDF: BENA Capital Overview

14 Ways The Real Estate Business Is Going To Change This Year, According To Experts

This article, featuring BENA Capital’s Yousif Abudra, was originally published via Forbes.

Yousif Abudra talks about the power of networking on this month’s Forbes Real Estate Expert Panel post:

The best opportunities will go to investors with the best networks. Competition for the assets has increased, so new investors absolutely need to have a robust, experienced team in place to help them identify, close and execute each deal. We are strengthening our broker, property management and contractor networks in all markets we invest in to prepare for a more competitive market environment. - Yousif Abudra, BENA Capital, LLC

Executive Roundtable: BENA Capital

Kimberly Yeh, Managing Director - Acquisitions

BENA Capital was recently invited to a closed-door Executive Roundtable in San Francisco, California. We were asked to share our industry insights and participate in a hosted Q&A session. We have permission to publish an abridged transcript of that conversation - here's an exclusive insider look at the interview with Kimberly Yeh, Managing Director of Acquisitions.

Host: BENA Capital has become one of the leaders in the private equity real estate space to champion debt-free investing. We have Kimberly Yeh, Managing Director of Acquisitions joining us today. Welcome.

Yeh: Thank you; good morning.

Host: To start us off, tell us - Why the "no debt" motto? Why is it important to you and how does it benefit investors?

Yeh: Good question. In the late 2000s, we saw the effects of debt obligation in the "Great Recession," spurred by the housing crisis. Everyday you would read about how the collapse of the housing market lead to millions of hard-working people losing their homes, how it wiped out trillions in household wealth. We wanted to change the landscape. To help people take back control so that this couldn't happen to them.

Host: And that's how the idea for BENA Capital was born.

Yeh: Yes; we built a vehicle for people to invest without the worry that another financial crisis would put them at risk of going under because of debt default. And as an added bonus, risk is inherently lower because there are no debt payments hindering cash flow and zero interest rate sensitivity.

Host: What else makes BENA Capital unique? How do you differentiate yourself from competitors?

Yeh: Aside from being debt-free, our company has a few core tenets we live by. At the very top of that list is that our investors come first. Every decision we make hinges on whether that decision will protect our investors’ best interests. Whether it will protect and grow our investors' capital. Whether we're making it as easy as possible for our investors to invest. Investors are our number one priority - we have an extremely experienced, extremely agile team. We listen to our investors' feedback and we adapt to their needs.

And you asked what differentiates us. In addition to being debt-free and putting investors first, our funds have no hidden fees. The returns we are targeting are 100% transparent. You will see other funds advertise high returns but those don't take into account all the miscellaneous transaction-based fees hidden in the offering material fine print, for acquisitions or committed capital for example. We don't have any of that. It's important to us that we align our interests with our investors' interests.

Host: BENA's new fund is launching in October. What should we know about it?

Yeh: Yes, the Mosaic Fund. On the heels of our successful value-add offering earlier this year, investors asked for a stable income fund - they wanted passive, consistently cash flowing opportunities and portfolio diversification across geographies and markets. The Mosaic Fund gives them all of that.

And investors get paid first. The cash flow you see projected with the Mosaic Fund is what you should expect every quarter when you get your dividend checks in the mail.

Host: That's a really interesting point --about lining up target returns apples-to-apples. Something we don't often think about, but should. So, for those of us interested in investing, what are our next steps?

Yeh: We're very accessible. You can email, call us, or drop us a quick note on our website - www.bena-capital.com. Pre-registration for the Mosaic Fund is available through 9/30 and the fund officially launches 10/1. Reach out to us; we'd love to hear from you and to discuss your investment goals.

Host: As a female executive in an often male-dominated field, what advice would you give to the next generation of female leaders?

Yeh: Don't underestimate what you can do when you put your mind and heart into something. Be confident enough to share what you know with others and humble enough to ask questions when you don't know the answers. You don't become a leader and innovator in your field of expertise by standing on the sidelines. Dive in -- never stop learning; knowledge is power that no one can take away.

Host: That's great advice. Thank you for your time and for joining us today.

Yeh: My pleasure.

About BENA Capital

BENA Capital manages real estate investment funds, with a central focus on the acquisition and management of residential multifamily assets in growing markets. BENA Capital's funds provide investors with ease of entry, reliable quarterly cash flow, and portfolio diversification. Our proven strategies emphasize sound investing in carefully researched, quality properties that have steady, long-term capital appreciation potential.

BENA Capital Mosaic Fund: Mosaic Fund

BENA Capital Investor Overview PDF: BENA Capital Overview

Five Reasons Why Your Real Estate Investments Aren't Earning You Money

This article was also published on Forbes.com: Five Reasons

I recently spoke with an investor who told me that he has $500,000 in cash and is looking for the right investment property to acquire. As usual, I asked my standard set of questions: What are your goals, time horizon, risk tolerance and experience level? His responses were stable cash flow with some potential for appreciation, long-term time horizon of 5 to 10 years, not tolerant of high-risk investments and his real estate experience was limited to the purchase of his single-family residence. These are fairly common answers for new investors who are looking to steadily grow their wealth. So far, so good.

Then, I asked how long he had been looking for a property. What he said next shocked me: five years. This investor had been searching for the “right” property to deploy his money for five years. This means that he lost out on the last five years of cash flow and appreciation, and his money suffered from five years of creeping inflation — a poor outcome.

Although shocking, this type of story is not uncommon. In fact, I hear it frequently. Plenty of people desire to be in real estate, but consistently fail to invest successfully. Here are the typical reasons why:

1. No Clear Objectives

The primary reason investors I meet do not make any money in real estate is because they have not taken the time to establish specific, clear objectives. Most investors have answers for the questions I asked our representative investor above and believe that is sufficient for moving forward. But the objectives need to be "SMART":

Specific: What type of property? Which neighborhood?  What price range? What condition?

Measurable: What annual percent cash flow is your threshold? What percent appreciation do you expect to see in five years?

Actionable: What specific steps are required to get to a successful outcome? What are you doing this week to progress?

Relevant: Why are you doing this — to retire, pay for your child’s college education, replace your current income? What will get you out of bed to make this investment successful?

Time-bound: What is the date you plan to have acquired the property?

Without taking time to establish these, like many things in life, failing to plan is planning to fail. No investment is made, or worse, the wrong investments are made and for the wrong reasons.

2. Lack Of Time

A real estate investment must be viewed as a business. As with any business you have clients (tenants), vendors (property managers, contractors, utility providers) and possibly employees. You have cash flow, accounting and capital allocation decisions to make. You must have a marketing and sales strategy in place. And you must be able to generate a return on investment.

All of this can take a significant amount of time to learn and master. There are hundreds of professional investors who do this full-time and are competing with you for the same properties, vendors and financing. It takes real commitment to do properly. You are buying a house — will you dedicate the time and nurturing it requires to thrive, or will you neglect it and drive it into the ground?

3. Poor Management Skills

Whether you self-manage your property (and I highly recommend that you don't) or utilize the services of a professional property manager, you will need to have effective management skills. Interacting with tenants is part art and science as it involves the attraction and retention of quality tenants, balanced by the legal requirements involved with being a landlord. Managing the property manager is a different skill set altogether, as you need to be able to establish an alignment of interests, motivate the property manager to perform and then monitor that performance against expectations.

We constantly acquire properties for our investment funds, and a key gating factor when deciding whether to pursue a property is if we have a quality property management firm in place to run it. We have, on multiple occasions, walked away from deals that were otherwise great investments because we could not find a reputable, aligned property management firm to work with. This is critical: Buying the property is getting to the starting line, not the finish. Once acquired, the real work begins in making improvements and bringing the property into a stable run-state.

4. Inability To See The Big Picture

When buying properties across the U.S. and in many different markets, there are two critical factors we look for before considering an investment: net population increase and diverse economic base. Whether through a high birth rate, people moving into the area or both, the population should see an uptrend. This does not require breakneck population growth, but the population needs to be increasing, which serves as a tailwind to demand.

Secondly, jobs support buyers and renters, which is critical for all real estate asset classes, especially multifamily. Metro areas with two or more major (and growing) industries are ideal. The big picture matters and must be closely aligned with your SMART objectives.

5. Buying The Wrong Property

Even if you've done all of the above, you can still go wrong if you buy the wrong property for your given strategy. Want high cash flow in a tier-one coastal city? Good luck. Are you buying a high-vacancy value-add property 1,000 miles away with no team on the ground? The cards are already stacked against you.

How can you tell if you are buying the right property? Again, it comes down to knowing your overall strategy, talking to experts and local investors and being honest with yourself about your strengths and weaknesses. Finally, if you are new to investing, start smaller and give yourself a decent cash cushion. Repairs will come up, you will experience vacancies and there will be surprises.

Real estate can be a fantastic investment, or it can be the exact opposite. It all depends on how seriously you approach the business aspects of it.

About BENA Capital:

BENA Capital manages real estate investment funds, with a central focus on the acquisition and management of residential multifamily assets in growing markets.  BENA Capital's funds provide investors with ease of entry, reliable quarterly cash flow, and portfolio diversification.  Our proven strategies emphasize sound investing in carefully researched, quality properties that have steady, long-term capital appreciation potential.

Click for Investor Overview PDF: BENA Capital Overview

To learn more about BENA Capital, visit: http://www.bena-capital.com/

Who Wants To Be A Millionaire?

Real estate, especially when diversified in a balanced fund, is a powerful tool for investors to build wealth, generate consistent income, and hedge against vulnerability in the stock market. It continues to be a portfolio staple of high net-worth and institutional investors.

Well-managed, quality real estate, offers investors a wide range of benefits, including:

• A stable, diversified portfolio

• Reliable quarterly dividends

• Long-term appreciation potential

• Shorter-term forced appreciation through value-add activities

• Hedging against inflation & stock market swings

• Tax advantages

In the arena of alternative asset classes, real estate knows no rival. Morgan Stanley’s Millionaire Investor Survey reported that U.S. millionaires view real estate as the #1 alternative-asset class to own. Especially as stocks are now showing volatility, owning real estate is attractive because of the appreciation potential of property value and reliable stream of rental income.

At BENA Capital, our newly launched Mosaic Fund adds an extra layer of risk protection by being debt-free. That means zero risk of default. Furthermore, investors pay no fees. Our goal is to help you invest in real estate and provide you the upside of investing without the time commitment or complexity of ownership.

If you are not already investing, we can help you get started.

About BENA Capital

BENA Capital manages real estate investment funds, with a central focus on the acquisition and management of residential multifamily assets in growing markets. BENA Capital's funds provide investors with ease of entry, reliable quarterly cash flow, and portfolio diversification. Our proven strategies emphasize sound investing in carefully researched, quality properties that have steady, long-term capital appreciation potential.

BENA Capital Mosaic Fund: Mosaic Fund

BENA Capital Investor Overview PDF: BENA Capital Overview

How to Score a Real Estate Deal in Any Market

*Our article has also been published at Forbes.com: Link

With most things in life, the best advice someone can give is to take a step back and look at the bigger picture. But when you’re evaluating real estate markets for investment, I’ve found that you have to get into the nitty gritty details.

By extrapolating assumptions from your local market to another, for example, you’re at risk of oversimplifying the playing field and overlooking potential deals that can either generate substantial cash flow or long-term appreciation. Think about it like the weather. Just because it’s a balmy day in Los Angeles doesn’t mean that there can’t be snow in New York at the same time. And even more granularly, there are submarkets within markets -- just like how - in California - it can be 100 degrees in Concord when only 25 miles away, it’s 54 degrees in San Francisco.

Knowing real estate markets intimately and being able to correctly identify the phase each market is currently in, is the key to recognizing what is a good investment vs. what to pass on.

The Basics

There are 4 phases in the cycle of real estate, and they look like this:

Phase I: Recovery

Recovery is typically the most difficult phase to identify – when a real estate market is recovering from a recession, demand can still be slow. Rental growth can seem flat and new builds are few and far between, so a lot of the time, the market can still look like it is in a slump. However, to those closely monitoring the data, upward trends in property viewings, the reduced pace of previous decline, or a break in the downward trend, are all signs that the market is coming out of the downturn.

During recovery, value-add properties with some need for renovation require careful evaluation but can present an opportunity to acquire, improve, and then resell the asset for strong returns during the upcoming expansion phase. This would also be the time to snap up core assets in a prime location and then ride the market up to expansion.

Phase II: Expansion

Markets in expansion are transitioning up and are faced with growing demand. The economy and job growth in these markets will look strong; rents are on the rise and vacancy is low. New construction jobs are plentiful, and at the height of this phase, supply and demand reach equilibrium. During this phase, developers can capitalize on higher demand and investors not keen on shouldering too much risk can pursue core plus strategies knowing that turnover is likely to be lower and rents are rising.

This is also a prime time to deploy value-add tactics. Investors and funds who know what they are looking for can secure neglected properties that require TLC or are mismanaged, at a discounted price, then bring these assets into full productivity before reselling for considerable profit.

Phase III: Hypersupply

Hypersupply occurs when an economy shifts into decline or new developments continue in parallel with falling demand. Both cause occupancy rates to fall and rental growth to slow. During this phase, savvy investors look for solid assets with stable tenants and long-term leases already in place. Even though no one can predict when the next expansion phase will come about, these fixed-term assets ensure a level of high performance until the next lease roll, providing stability when recession hits. Similarly, investors who can keep an even keel can take advantage of prime real estate divestitures from panicking sellers.

Phase IV: Recession

When the players in a market either don’t recognize the downturn, or choose to disregard the warning signs of waning demand, the hypersupply phase falls into the recession phase. Recession is distinguishable by its heavy supply, high vacancy rates, and reductions in rent. In this highly saturated market, investors willing to take on higher risk can acquire distressed bank-owned properties, vacant land developments, tear-downs, and construction projects at bargain prices compared to replacement cost. This is a long-term play for the patient investor willing to work to stabilize the asset and hold until the cycle moves back through the recovery phase.  Investors must be very choosy, or risk getting cut as they catch a falling knife.

Final Takeaway

What’s important to remember is that different markets can be in different phases simultaneously.  So a strategy that works in the Hypersupply phase in San Francisco will be less effective in an Expansion phase in Dallas. 

Additionally, no one can predict how long each phase will last. Even if we take into account historical data, we can’t count on the same highs and the same lows, because the economy and is an ever-evolving playing field. Furthermore, since cycles can vary depending on geography and property type, the key is to be vigilant and to understand the nuances of each market and the best strategy to implement in each given situation. In doing so, you can build a diversified real estate investment portfolio robust enough to weather any storm.

Warm Regards,

Kimberly Yeh
Managing Director - Real Estate Acquisitions

About BENA Capital

BENA Capital manages real estate investment funds, with a central focus on the acquisition and management of residential multifamily assets in growing markets. BENA Capital's funds provide investors with ease of entry, reliable quarterly cash flow, and portfolio diversification. Our proven strategies emphasize sound investing in carefully researched, quality properties that have steady, long-term capital appreciation potential.

Click for Investor Overview PDF: BENA Capital Overview