We scour the business news and demographic reports for up-and-coming primary, secondary, and tertiary markets—places where people are moving, jobs are moving, and property is poised to take off. Once we identify a top market, we look at the “Class A” and “Class B” locations, places where people want to live, work, and shop.
One of the easiest ways to reduce risk in real estate investment is to buy at bargain prices. We look for “distressed” property owners that need to sell quickly, with no time or money to upgrade the property and command top dollar. We negotiate aggressively for the best prices and the most favorable terms, reserving the right to walk away until we carve out a “win-win.”
We don’t buy, hold, and pray for appreciation. We force appreciation by targeted “value-added” improvements that tangibly increase the property’s net operating income, either by reducing expenses, increasing income, or both. In doing so, we increase the value of the property. Our anticipation of value-added improvements helps us identify the after-repair value (ARV), which we use to pinpoint a maximum purchase price.
We never sacrifice cash flow to bet on appreciation. Experience tells us that appreciation and cash flow actually walk hand-in-hand. Expecting appreciation in lieu of positive cash flow is a fallacy—one doesn’t come without the other. Focusing on investments that generate positive cash flow is one of the best tools in our toolbelt to reduce risk and tilt the scales in our favor.
Once we identify a deal, we do our level best to kill it. This is what we mean by “brutal underwriting.” Whatever most experts think the potential income could be, we only use numbers proven in the real world. Whatever experts expect expenses to be, we assume there will be more. Whatever the rehab estimate, we expect overages. We do our level best to knock the deal down in the underwriting process. We only buy if it gets back up every time.
LRC Commercial targets deals that qualify for the most favorable agency loans on the market. These loans have the advantage of favorable recourse terms, industry-best interest rates, long amortization periods, and interest-only provisions—in other words, everything you need to preserve cash flow from a value-added real estate play. Our impeccable repayment record makes qualifying for these loans a breeze, an advantage smaller firms can’t offer.
We enter new markets with an acquisition of 70 apartment units, minimum. This allows us to build savings into our plan right off the bat due to favorable economies of scale. Once we have entered a market, we build our position by acquisitions of 40 units or more, leveraging our experience from the first acquisition to scale aggressively into a dominant position.
We begin with the end in mind, building multiple exit strategies into each deal to round out a dynamic investing strategy, able to respond dynamically to evolving market positions. The most common exit strategy is to buy at 65% of the after-repaired value (ARV) and refinance at 75% of the ARV, getting investors their cash back quickly while retaining their equity position.
Chad has been involved in the real estate space for the last 15 years both as an investor and on the financing end. Creating and managing acquisition and rehab teams has been the foundation of building his businesses in the Detroit Michigan area. The efforts of he and his team have found and funded north of 350 million dollars of real estate across the county. In 2018 Chad shifted his teams focus into the acquisition and management of commercial real estate, specifically multifamily assets. Their success has been predicated on being very specific with their buying criteria along with adhering to a strict standard regarding the rehabilitation and stabilization of each asset.