3 Common Mistakes in Real Estate Investing, and How to Avoid Them

A good private real estate manager should be performing the proper due diligence to protect and grow your investment. Read BENA Capital's quick tips below on how to avoid falling victim to 3 common mistakes in real estate investing.

1. Substituting Technology for Niche Market Knowledge

We have all heard this age old adage when it comes to real estate: “Location, location, location.” In an era where technology rules the world – where you can virtually stroll through the neighborhood using Google street view and where Yelp provides additional transparency on proximity to local amenities – it can be tempting to make real estate decisions based solely on the information available on the internet. But while technology is a useful tool for a preliminary assessment, it is no match for niche market knowledge from those who live and breathe the local real estate market every single day.

That's why it's important to have strong relationships with:

• Brokers – the best brokers will send you hot listings with your criteria in mind prior to them hitting the market. They will know up and coming areas in major transition where you can capitalize on the growth and capture the appreciation.

• Property managers – dependable property managers will understand your tenant base, won't need hand holding, and can come up with innovative solutions that align with your investment strategy, save you money, while keeping tenants happy.

• Contractors – most people forget that good contractors are worth their weight in gold. Bad contractors make false promises and cause you delays (which can waste valuable time and cost you thousands of dollars in lost rental income).

2. Trusting Numbers as Advertised Without Doing the Math

Whether you are trying to figure out the best financing strategy for you, property valuation, or the asset's return on investment (ROI), you should always run the numbers independently of what has been advertised. With listings touting high rental incomes, cap rates, and cash on cash returns, some make the mistake of taking those numbers at face value without understanding the assumptions behind them. For example, does that 11% cap rate include pro forma rental income numbers much higher than what's achievable in the local market? How long will your rental have to sit vacant for to get to the rental income advertised? What routine expenses and maintenance are being included or omitted? When do the current leases end, or are tenants renting month to month? Are the comps provided in the same vicinity of the subject property, or are they too far away to be relevant? While most brokers will not blatantly lie when asked those questions, they will rarely offer such information voluntarily.

3. Letting Emotions Drive Decisions

Investments are like businesses and should be treated as such. You need to determine the short term and long term goals that work for you, your investment criteria, your exit strategy, and the level of risk you are willing to accept. Without this solid foundation, your resolve can waiver during the course of a stressful real estate transaction, and your decisions could come back to haunt you. When you’ve invested time and effort to close a deal, it can be tempting to move forward even in the face of red flags – whether that be in the form of a bad inspection report or not being able to find a trustworthy property manager – knowing your risk threshold and when the pass on a transaction is important. On the other hand, many of the best investments are not turnkey. Knowing how to evaluate cost vs. benefit, risk vs. reward, is crucial. In each case, keep your original set of criteria and goals in mind instead of letting emotions cloud your judgement.

We all have that one friend who boasts about their real estate success in XYZ city every chance they get, or the one that laments buying property in the same XYZ city when everyone else did. Don't jump into investing in real estate without understanding the level of commitment needed to make your investments successful, and don't make hasty decisions based on one case study. One single point of data does not make a trend line. It's not easy, but with the right planning, mindset, and focus, real estate can be a strong component of an investment portfolio.

 

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 a simple way to invest, reliable quarterly cash flow, and portfolio diversification. The firm's proven strategies emphasize sound investing in carefully researched, quality properties that have steady, long-term capital appreciation potential.

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2Q 2021 Residential Real Estate Trends - Where are People Moving?

Nationwide, U.S. home prices have risen double-digits over the past year. As residential real estate prices have hit records highs, buyers and renters alike are looking for the best bang for their buck. The pandemic has changed how and where many people work. With “work from home” a new reality for many, people are now prioritizing quality of life and affordability when it comes to relocating.

Real estate demand is rising in cities where people can still find good deals – in mid-sized cities that are affordable, yet in close proximity to bigger urban areas with strong economies and job growth.

During the worst of the COVID-19 pandemic, there was a large exodus of people from large, denser-populated cities into more rural areas, but this is becoming a national trend. People are trading Boston for Manchester and Concord, NH – both about a hour’s commute away - for example. San Francisco came in 5th as top metro area for net outbound moves, but nearby counties of Alameda, Contra Costa, Sacramento, and Solano saw influx of new renters and homeowners as people moved in search of more space.

BENA Capital’s focus on Tier II and Tier III markets with strong economies present opportunities for cash flow and continued price appreciation, now more than ever.  Finding niche cities that offer the best live-work balance, focusing on these areas of growth with strong renter populations, provide our investors with the right balance between stable cash flow and appreciation potential. That has always been our approach, and it remains the cornerstone of our residential real estate acquisition strategy. 

Net Leases & Proper Due Diligence

BENA Capital announced its first single tenant retail site acquisition last month and branched out from residential multifamily investments into net lease properties. The term “net lease” is defined as a contractual agreement where a lessee pays a portion or all of the property taxes, insurance, and maintenance costs, in addition to rent. As real estate markets and trends evolve and cycles become apparent, BENA Capital continually monitors key indicators in target markets across the US to identify opportunities for investment. While there are some notable differences between multifamily rentals and net lease investments, what does not change is the rigor behind the due diligence we perform prior to an acquisition. Here are just a few of the things we look for —

Tenant Quality - The quality of the tenant is extremely important. We look at business performance, balance sheet, and liquidity - not just at the local level, but how the parent company is doing. Another example of a key indicator is the credit rating of the business, which is a quantified assessment of the creditworthiness of the tenant with respect to financial obligations. Although even the most profitable company is not a guarantee for future success, the credit rating can be a reliable way to gauge the company’s health and is one of many criteria we take under consideration.

Solid Unit Level Economics - Understanding the unit level economics can be a good predictor of how likely the tenant will renew their lease when their term is up. We look at historic revenue, profits, payment history, strength of local demographics, projected supply/demand, and compare performance to other competitors in the neighboring vicinity.

Favorable Lease Terms - Lease terms for net leases are typically 5-30 years. And longer isn’t necessarily better. A 5 year lease with a company that has good unit level economics can be more desirable than one with a longer lease. Take, for example, a 20 year lease tenant with built-in rent increases of 1% annually - while the investor is protected in slow growth or declining markets, if the market’s rent growth is higher than what has been contracted to in the lease terms, you are losing out on that growth. Other terms we review in detail in concert with lease term include the types and frequency of rent increases, property improvements, and the overall condition of the property.

Corporate Backing - Where regional franchises are part of a larger national network, we look for leases where the national parent corporation backs the rent payments on the local lease. Since asset value is directly tied to the income that is produced by the tenant, a rent payment guarantee from a national corporation offers more stability and predictability that rent is paid on time and obligations will be met.

When executed well, with a defined strategy in place, net leases can produce a steady stream of income for investors.

BENA Capital Announces Single Tenant Retail Acquisition in New York

BENA Capital is pleased to announce the Premier Fund’s first acquisition of a 9,014 sq ft stand-alone single tenant retail site tenanted with Dollar General located in Hornell, NY. The property was built in 2005 specifically for Dollar General, which has been a tenant continuously since construction. Dollar General renewed their lease for an additional 5-year term expiring June 2025, with three subsequent 5-year options, showing a strong commitment to the site.

Since Dollar General is an essential business, it has done well during the COVID-19 pandemic and continues to be one of the few retailers to remain open for people to buy groceries and daily supplies during these trying times. Dollar General Corp has announced that they will pay front-line employees to get the COVID-19 vaccine, making it one of the first U.S. companies to incentivize its workers to get immunized.

Dollar General is one of the most sought after tenants for retail sites such as this. It is publicly traded (NYSE: DG), is a growing business, and provides a corporate guarantee to its lease. It just crossed 17,000 stores in operation in November 2020,and in 2019, DG opened 975 new stores, remodeled 1,024 stores and relocated 100 stores. Its business is also strong with same store sales increasing 3.9% and net sales increasing 8.3% to $27.8 billion. Operating profit increased 8.8% to $2.3 billion, net income grew to $1.7 billion, and diluted earnings per share increased 11.2% to $6.64. Cash flows from operations were $2.2 billion, and DG returned $1.5 billion to shareholders through share repurchases and dividends.

Three-quarters of U.S. residents now live within five miles of a Dollar General store. DG also shows strength in weak economic environments, providing downside risk protection during recessions. As such, BENA Capital is excited for this first acquisition for the fund in providing reliable cash flows and long-term price appreciation.

Contact Us now to be placed on the waiting list and to receive BENA Capital Insights.

BENA Capital Premier Fund - Fully Funded with Waitlist

BENA Capital is pleased to announce that the Premier Fund is now fully funded until the next capital call. The waitlist is currently open - please visit The Premier Fund page to learn more about our offering.

The Premier Fund has been formed for the purpose of investing in core-plus and value‐added commercial real estate properties, located throughout the United States. The Fund targets investment in assets that generate cash flows, where value-add opportunities play a role, and where the Fund’s ability to underwrite opportunities and close swiftly will produce pricing advantages. The Fund intends to focus on commercial investments, including compelling opportunities in additional real estate spaces such as Office, Retail, Industrial, Student Housing, Multifamily, Storage, Senior Living, etc.

Contact Us now to be placed on the waiting list and to receive BENA Capital Insights.

BENA Capital Launches Premier Fund with Commercial Asset Focus

We are pleased to announce the launch of the BENA Capital Premier Fund - a debt-free fund, targeting stable commercial real estate investments that provide consistent cash flow and capital preservation. 

Premier Fund Highlights:

· Access to Large Commercial Assets

· Stable, Reliable Dividends

· Open-End Fund

· Minimum Investment: $100,000

· Debt Free

The Fund has been formed for the purpose of investing in core-plus and value‐added real estate properties, located throughout the United States. The Fund expects to invest in assets that generate cash flows, where value-add opportunities play a role, and where the Fund’s ability to underwrite opportunities and close swiftly will produce pricing advantages. Although the Fund intends to focus on commercial investments, it may come across compelling opportunities in additional real estate spaces such as Office, Retail, Industrial, Student Housing, Multifamily, Storage, Senior Living, etc.

Learn more and invest in the Premier Fund Offering

National Debt, Politics, and Real Estate Impacts

The US national debt has ballooned nearly 200% since 2008, currently standing at $27 trillion. In April of this year, with the full weight of the pandemic, it reached a record 122% of GDP. Raising taxes and cutting spending are the two most popular solutions for reducing debt, and with Election Day just around the corner, it invites the question of what policies we’ll see put in place over the next four years.

Here are just a few items on our “watch list” that could impact the real estate industry:

1)      Stepped-up Basis – this is the tax provision allowing beneficiaries of property to minimize capital gains taxes. The IRS basically resets the market value of these assets to their value on the date of the original owner's death. There has been a lot of talk about how eliminating step-up in basis would boost tax revenues but increase the burden for top-bracket income earners. So far, the administrative and logistical nightmare that the IRS would have to juggle in terms of auditing, record-keeping, and tracking estate assets has been a deterrent to its reversal.

2)      Long-Term Capital Gains – in the instance of a Democratic win, we’ll likely see an increase in long-term capital gains taxes for those earning more than $1MM/year. Today, sales profits from assets owned for more than a year are taxed at either 15% or 20%, depending on your annual income. Biden has proposed raising the tax to 39.6% for the highest earners.

3)      First-time Home Buyer Credit & Affordable Housing Development – Biden has proposed a $15,000 tax credit for first-time home buyers as well as a $100 billion "Affordable Housing Fund" to expand low-income housing.

Whatever the outcome of the Presidential election, the party controlling Senate will also greatly influence future policy and impact short-term growth forecasts. Overall, markets seem to view “split government” - with one party checking the other - favorably.

BENA Capital Announces Multifamily Acquisition in Dallas-Fort Worth

BENA Capital is pleased to announce its latest acquisition of a multi-family apartment asset in Fort Worth, Texas — in a suburb just outside of the Dallas-Fort Worth (DFW) metroplex.

In the current pandemic environment, the DFW area has outperformed all other Texas Metros, with an average occupancy of 91.2% in July 2020. Overall in DFW, rent collections have remained stable and rent growth is expected to stay positive through the duration of 2020, especially in the case of suburban workforce housing. To date, we have not seen discounted market pricing in Fort Worth. Inventory levels continue to trend downward while demand remains strong. However, with our strong broker network and all-cash position, BENA Capital was able to procure a below-market purchase price and favorable deal terms on a turn-key whisper listing.

Cities like Fort Worth, with its robust growth, are well-positioned to weather economic slumps. We acquired this property fully occupied. Due to its location and stable rental income stream, it has less portfolio risk and the opportunity to benefit from greater price appreciation post-pandemic. It is a strong fit for the BENA Capital Mosaic Fund (Stable Income Fund). We are excited about the prospects of this property and expect the asset to be a healthy contributor to the fund.

The Resiliency of Multifamily Real Estate

Since the start of COVID-19, we have been tracking the resiliency of multifamily real estate. Current housing supply is still low, and paired with a sharp increase in moves to lower-density areas and low-interest rates, investors have continued to invest in multifamily homes.

While real estate demand in cities like New York and San Francisco have seen declines in both the number of transactions and in rental rates, CREXi reports that markets where the population is under 2MM people are growing by 4%+ due to low supply, high demand. We continue to see low vacancy rates for top suburban markets in Texas, for example.

High unemployment across the US and the uncertainty of around COVID infection rates through fall/winter 2020 hold a certain element of risk, but that doesn’t mean there are no opportunities. While performing due diligence on rents, occupancy indicators, and on-time payments during COVID, smart investors are taking notice of markets that are still outperforming national averages. Choosing a property in a well-positioned market with a diverse economy, working with seasoned property managers, and keeping well-informed of government assistance packages, will continue to be the key to maintaining the success of multifamily portfolios during this pandemic.

Multifamilies - New Q2 Trend Report

Downtown Lexington, KY

A new report from Moody’s Analytics REIS ranks the top 5 and bottom 5 markets for multifamily investment. According to the report, national rents fell an average of .4% in Q2 2020. In cities like San Francisco and New York, rents declined more significantly, and vacancies rose as people working remotely moved to the suburbs, seeking more space and lower rents.

#1 on the top 5 multi-family markets list is Lexington, KY. Lexington continues to see rent growth through the pandemic, with 6% rent growth in the last year.

#1 on the bottom 5 multi-family markets list is San Francisco, CA. Multifamily rents fell 3.3% in Q2, the largest quarter over quarter decline since 2001. The city is also at the top of the list for the worst performing rental markets in the country, with an overall rent decline of 2.7%.