Exploring Untapped Opportunities in Texas's Multifamily Sector

Hello everyone, welcome to today's webinar. Very excited to have everyone on joining us. I'm just waiting for our amazing speaker Arlene. I'm going to have her join me on this side of, of the webinar in terms of presenting. But welcome, my name is Liz. You are in the right place for our InvestHer free events we do every month and excited to have you all on today. As you're joining us, I would love to encourage you in the chat box to share where you're calling in from or you're Zooming in from, if you will, and what you're excited about learning today. I always like that as a context so you can feel connected to all of us and what we're doing here together. So yeah, share, share your name, where you're you're kind of zooming in from and what you're excited about learning today. It's really important when you go into a webinar that you go in with an intention and with clarity of what you wanna get out of it. So I'll, I'll, I'll say that and then I'm just gonna keep an eye on my, my speaker here. I think this might be, see here, just gimme a second here. But yeah, please share in the chat box where you're calling in from and what you're looking forward to learning. Hey, hey, Vanessa, I promoted you to, to panelist here. I wasn't sure if you, if you're with Arlene or not. Are you, are you there, Vanessa?

Hi, Liz. It's Arlene.

Oh, you are there. Okay. I wasn't sure who you were under. So I figured that. Let me, let me promote you to, to give me a second, everybody. If you're, if you're joining us, please in the chat box, share with us all who you are and where you're Zooming in from and what you're, what you wanna learn today on today's webinar. But let me, let me promote you to, maybe I could promote you to, because you can't share your screen, correct?

No.

Okay. I figured much, because that's an issue that happens. So let me make you co-host. You should, you should be able to right now.

Okay.

Oh, awesome. All right. Awesome. There you are. How are you?

I'm great.

How are you? Great to see you.

Good to see you. It's been a while.

I know it's been a while. You look great. Thank you.

As do you.

Oh, you know, I have my, you know, my glow in the back. It helps glow on my face, right?

All the tricks and tips, right, we can give to folks.

I will take all of them, you know? But it's great to see you. Great to see you. So before we jump in here, I'm so excited to have Arlene here with all of you. She's such a phenomenal woman in our space of not just investing, but building an absolute empire of multifamily. And she's so giving and gracious and so knowledgeable. So, I can't speak highly enough about Arlene. But before we get to Arlene here, actually, can I just share my screen? Let me do this. I'm sorry, Arlene. I'm making mass confusion here. But I wanna welcome everyone here again as, as folks are joining us. A lot of people register. Please know you're in the right place. I'm gonna introduce Arlene here in a moment and, and the topic of today, which I'm really excited about. But I wanted just to share with you, for those who are not familiar with who we are, if you're new to our community, if you're new to our InvestHer community, I'd love for you to put new in the chat box. One thing we like to do in our community is, uh, engage. So we're gonna, I'm gonna ask you questions. I wanna make sure you're here, you're listening, you put this lovely device away and that you're really present. 'Cause you know, we, we're robbed of, of what's in front of us when we're not present. So especially us women. So, uh, there's only one new person. Okay. I got a couple. All right. Awesome. Okay. Awesome. Well, welcome, welcome, uh, to you, Vanessa. Welcome to you, uh, Celine. So thank you for being here. I'm gonna share a little bit about our community and then I'm gonna give the floor to Arlene. So, uh, and just by way of introduction, I am the co-founder of InvestHer and, uh, super, super passionate about what we do and we believe it is a woman's birthright to become financially free. So everything we do is stemmed off of that belief and that's what we stand for. So a little bit about us and what we have going on here. We have a Facebook community that you're always welcome to join. It's a free, Facebook community. It's really that safe space for women to ask questions, to give support, et cetera. We do have meetups, investor meetups everywhere in the country. We're looking to grow that footprint quite a bit. So if there's not a meetup in your area, we'd love to hear from you. And we have a few in Canada as well. So those are really local communities, local circles of women coming together. We also have our eXp team, we call it our investor org, and this is for realtors. Agents, if you will, that are also looking to grow their investments. So these are women agents, women real estate agents, and we have a group that's really focused as well, giving them the support they need on the investing side. As you know, we have free webinars happening all the time. We bring in amazing, amazing resources and experts in the, in the industry and thought leaders like Arlene, where they can share what's coming up for them, what's happening, and give you some valuable insight. And I will ask you at the end, what did you learn? What's one thing you learned and what's one takeaway? Because this is also about putting ideas into action. The last thing that Arlene and I wanna do, it's, we all have a lot going on. The last thing we wanna do is spend an hour with you and then for, for no one to do anything. That would be a waste of her time. It would be a waste of our time and resources. So we stand for you to take action, and I will ask you that at the end. So be thinking about what's your one action that you're gonna take. I just wanna mention as well, we're gonna be at, we have InvestorCon coming up in, I cannot believe, 6, about 6 weeks right now. Really pumped about it. Arlene will be there and, and, and her team, and they're a proud sponsor of ours. And this is, this is like no other. It's gonna be a transformational 3 days, 3 days, 30 speakers. We have 38 companies coming to, to offer resources. It's just gonna be like no other. It's gonna be a very transformational event. So if you're not coming, you need to be there. Clear your calendar, get the support that you need. Tell the family, I'm out going to Austin to a beautiful Omni resort, and I'll see you, I'll see you later. You know, I'll see you on the 5th. So please come out and be with us. We are really, we're in the, we're in the stretch now. So get your ticket if you haven't. And then we also have our Strive Mentorship Program for those who, who do qualify for this. This is our program that's at least 5 deals, you've done at least 5 deals or more. It is an application process. And if it is something that where you're really looking never to be alone, have a, like an advisory group around you, high-level women playing at the same level. That's what our Strive Mentorship Program is all about. So you can check it out by clicking on this QR code and you'll get a free ticket to InvestorCon if you do actually end up, you know, coming in and being a mentee. All right. Without further ado, excited to have you, Arlene, here. And I love this topic. You know, we're obviously— our InvestorCon is in Austin and it got us thinking, and we know how many women are investing or looking to invest in Texas, you know, not just Austin, but in Texas in general. And so we thought it'd be a really cool topic. And we thought of you immediately because of who you are and all the amazing knowledge that you have. And the business and like I said, the empire that you've built. And so why not talk about what's happening and where there's actually, actually untapped markets. So without further ado, I'm gonna stop talking and sharing my screen and give you the floor.

Well, Liz, it's so awesome to be here. You know, I'm thinking back to when we first met and I did a podcast with you and Andresa. Yeah, and it was one of the first ones I did. And now I look back and I think, wow, you guys have grown, you ladies have grown the InvestHer community in such a big way. And I'm a big proponent, I agree with you that empowering women to gain that financial freedom, to have control of their financial life is so critical to, um, what I think all of our missions are as women is to help each other grow. So thank you for having me today. I am so excited to be here and I'm especially excited to be a part of InvestHerCon. I will second what you just said. This will be my first one, but after I saw all the pictures and all the excitement from last year's, I thought we have to be there. So I'm excited for that.

Awesome.

And as you said, you know, Texas is a big, big state and there are lots of opportunities. And so So I wanted to, you know, share with you, you know, I'm going to look a little bit at the global level because it impacts Texas, and then we'll look at the local level, which is really what you need to be looking because real estate is local. So with that, I'll start with, you know, the stuff that the legal group wants us to share, and that is disclosures, basically saying this is data we've gathered from multiple sources that we believe is credible, but please do your own research and your own homework before you decide to take any particular step. Who am I? I want to share a little bit about that. Liz was so nice to speak such kind words about me, but want to share that, you know, my husband and I started this business in 2012. I'll explain to you why we did this and why multifamily is what we chose, but Before I started in multifamily, I had a background in the banking industry. So I have a degree in finance, which just means that I like numbers. That was a big part of it. Started out as accounting and realized I really want to do finance because that opens up other doors that I wanted. And so my last company was Bank of America. So I had a W-2 job for over 20 years and managed banking centers. I was a lender. I ran marketing and HR teams nationwide. And all of that, as we all find, all your experiences kind of come back to you in different areas. And this has allowed me to bring all of that to our business. I am certified through the National Apartment Association. It was part of our educational process even before we bought our first property. So I'm a certified apartment manager and certified apartment portfolio supervisor through the National Apartment Association. And I currently sit on the board of directors of the San Antonio Apartment Association and wanted to really share that one of the greatest honors recently was being named Independent Rental Owner of the Year. Many times we are, you know, looking at these big conglomerate companies and I just say, doesn't matter where you start, grow your business and gather resources like InvestHer to, to learn more about how to become a successful business owner. So I want to really answer the question that I'm often asked, and that is, you know, how did I get started in multifamily? Well, here's our story. In 2007, my husband Jacob had a property management software company that he started at the age of 26. So together we worked on this. I provided advice, counsel, you name it, along the way. And then in 2007, he had an incredible offer to sell it. Now look at that timing, 2007, right before the 2008 financial crisis. So worked out well. And what we found is that we had some money to invest. And I had been raised, I say raised in that conservative banking industry. So a lot of what I had dabbled in was stocks and bonds, and but more of the really safe things like bonds and CDs and those sorts of things. And so as we looked at what do we want to do with our money, we decided we wanted to be in control of our future, as many of you also want, and we wanted to be in control of what we did with our money. And just as today, the stock market was very volatile, so we said, well, what can we find? What kind of investment can we find that would grow without more taxes? We'd been hit with quite a bit of taxes with the sale of the company, and so we didn't want any more of that. So We wanted something that would not impact us from a tax standpoint, but actually help us, which multifamily investing does. And we wanted something that wasn't as volatile. Being a numbers person, I really looked at, well, you know, how do we avoid volatility? How does multifamily— how is it evaluated? How is it valued? And what I found was that it's valued strictly on the income it generates. And to me, that was easy. It wasn't based on the property next door. It wasn't based on what somebody in New York could value it at. It was that particular property based on that particular property's performance. And I thought, I can get that. I, I, that makes a lot of sense to me. So that started us with our first acquisition of 24 units. And you may say, well, why don't you buy bigger? Well, For us, it was important to learn how everything worked. I wanted to— we wanted to do it all. We wanted to learn it all. So I did the leasing and I did the accounting. We also managed— my husband did the renovations and the maintenance side of things. And what that did was it taught us a lot about what it takes to make a property successful. So fast forward to, you know, today, we've purchased 32 assets. And, you know, along the way, after we hit about 500 units, we said, you know what, we're going to try third-party management because we were advised by a mentor to work more on the business instead of in the business. And so We brought everything back in-house after that third-party management stint. We were about 1,000 units, which is what they say you should have when you have in-house management. So we brought it in-house and invested in people. And so this is our team today. So we went from 2 people, my husband and I, to now a team of 175 people. Which we like. It is a labor of love, but we find that it allows us to control the process from the acquisition side of it, which is what the REAP Equity piece of our business does, to REAP Residential, which is our management company. So once we acquire the property, we turn it over to our REAP Residential teammates and they manage the property day in and day out. And we make sure we share our vision. What is it that we want to see happen? And at the top of that mission and value statement is taking care of our residents. They're the ones that put money in everybody's pocket, and in return, our commitment is that we will provide them a good place to live, which is what we focus on. So our current portfolio is now 4,400 units. We sold some along the way. We're in San Antonio, Austin, and Houston, which The Texas Triangle technically extends up to Dallas, down to Houston, over to San Antonio, with Austin in between. We haven't purchased in Dallas-Fort Worth yet. However, we are looking at this time at that market. But now it's, you know, you may ask, well, why, why this Texas Triangle? Why Texas? Well, it holds a whopping 68% of the state's 30.3 million residents. And we've seen a population growth of 4% from 2020 to 2023. So, uh, growth has continued in the Texas market, and we've picked, um, 3 of the markets where we currently have assets. San Antonio, for example, is number 3 fastest growing city in America. That's important because as new units are built, it's important that you have new people coming into the market. San Antonio, over 51% of the households rent, and that was information we learned early on. Austin, for the 12th consecutive year, everybody's heard about Austin, InvestHerCon will be in Austin, but it is the fastest growing region in the country. So lots of growth to date and lots of growth projected into the future. And then Houston, it's the 4th largest city in in the United States, and only New York has more Fortune 500 headquarters than Houston.

Hey, Arlene, something went a little low when you— when just right when you started talking about Houston. Okay. And you were great volume-wise.

And then my microphone just fell.

Oh, there you go.

Thank you for that.

No problem. We've got a lot of good nuggets you're giving here. Okay.

Is that better?

That's great.

Okay, awesome. Thank you for, for letting me know. Um, we, we all get excited about our presentations and don't pay attention to those little details. So anyway, so that is what we know about the Texas market. And again, for us, it's been important to be, uh, local experts in these markets, and it's helped us because we're able to gain efficiencies of scale just from working with vendors and hiring people and market data. All of that has allowed us to be successful in these markets and build scale there. So how do you make and save money in multifamily? I think that's also a question we always get, and it's pretty basic, but it's really pretty simple. You buy the right properties, you have fees and amenities that you also you know, you provide amenities, you're able to, you know, charge fees for access to those amenities like package lockers. After the pandemic, it was important for most folks to make sure their packages got to their door. And so installing package lockers at every one of our properties allows us to charge a locker fee, which, you know, our residents gladly pay because they are ensured that they will receive their package. For us, our management company being in control of the assets every day is key. And time. Executing a business plan and coming up with a business plan on how you are going to add value to that property is key.

You there with us still, Arlene? I think it got a little— can everyone still hear me? Give me a thumbs up if you can still hear me talking. I think Arlene is frozen here. Okay, great. Thank you, everybody. Yeah, she got a little frozen here. So wonder how I can tell her that she got frozen. All right, give me a second, guys.

All right.

Um, yeah, she totally got frozen and she doesn't know. Oh, she jumped off. I'm sure she'll be back on, everybody. So share one thing you are learning so far. This is a little bit of a, a moment. We could take a break, but what are you learning so far? What has been one takeaway so far from this presentation? Work with Harlene and reap. That's a good one. That's a good one, Melissa. And that is always the question is, what is something that I could apply to my business, my investing business right now? She knows, she knows her market like the palm of her hand. Very impressive. Do you know the palm of your market like the palm, like the back of your hand? You know, Melissa, you learned that you're right on the right path. Cool. Barbara, why Texas is the place to invest with growth. Kelly, I'm investing in San Antonio already, so it's smart to keep doing that. Very cool. And I wanna see for everybody, there's gonna be so many women at our InvestHerCon that are investing or are looking to invest in, in, in Texas in particular and in Austin. We have 4 meetups, Austin, Houston, Austin, Houston, San Antonio. San Antonio and Dallas-Fort Worth. Oh, there you are. You're back. Okay.

I'm back.

So I'm sorry.

I'm sorry. I don't know what happened.

I was doing just a little bit of— let me give you back the floor here.

Okay.

I was just keeping time. Folks have been sharing what they've been learning so far. What I was saying, though, is that it's really important to surround yourself with people that are actually investing and looking to invest in the area that you're focused on. So I know that we're just going to have a very big conglomerate at InvestHerCon this year because quite honestly, that's where partnerships can happen. That's where resources like Arlene, she's gonna be there, right? So many amazing, amazing people like Arlene are gonna be there. So just a quick plug, but people are learning a lot. They're learning they're on the, the right path, Arlene, to, to some Texas investing. And I also said how laser-focused you are and how well you know your market like the palm of your hand. I'll ask women all the time, hey, tell me a little bit about Atlanta or tell me a little bit about XYZ. They can't tell me 3 things. So I just love how much you know about your market. Everyone should have that kind of clarity for the markets they're investing in. So that's my 2 cents for the moment. You gave me back the floor, so I had to say something.

No, I appreciate it, Liz. And you're right. My apologies for the technical glitch there, but you're exactly right. Real estate is local. I repeat that over and over. And if you know the market that you're investing in, you will be you know, way ahead of any of your competitors. So that is super important. I'll just repeat this because I'm not sure where it came out. It cut off, but buying the right properties is important and being knowledgeable of the market is how you buy the right properties. Fees and amenities. As I mentioned, we like to provide amenities to our residents even if they don't exist because it allows us— we buy primarily Class B, to, to really reach closer to those Class A properties in the market by providing similar amenities. And we're able to charge fees and earn fees from not only things like package lockers, but also other fees that we're able to charge. We bill back for rent and I'm not— rent for utilities, and we do that in-house. So it allows us to really capture a big income source there. Management company, whether it's ours or yours or a third party, understand what they're good at. Understand if they are experts in that market. How many properties are they managing? And what kind of data can they share with you? Even in your due diligence process of buying a property, there's a lot of market data that should be available to them if they are very proactive in their market. Time. Time is of the essence when you buy a property because you want to get in there, determine the business plan, and execute the business plan as fast as you can so you can increase the value of that property as quickly as possible. For us, we have a capital projects manager that makes sure that all of our renovations are done very, very quickly. And then getting paid twice. Cash flow, passive income is a big thing to us and a lot of our investors. And then if you do your job right, you'll increase the property value and there will be appreciation that you can benefit from at a refinance or you when you sell that property to get that second payment to you and your investors. So here's an example of a property that exactly we've done that with. Waterford Park is in the San Antonio market. It is an A-, which means it was built in the early 2000s. So it's not a luxury Class A that was recently built, but for us it still had meat on the bone. And so for this property, as an example, we initially pro forma or budgeted $150 rent premiums for the units we were going to And the last 3 months, we were able to—

this issue.

Yeah, sorry.

Went down a little bit again.

I mean, lots— there we go. And in the last, we were able to also see an average increase in the rents of $225. So that's a 23% increase. We were conservative in saying we're gonna get 150, and we were able to get 225. $225,000. So that was a win for us. And our renewals have also averaged over 8%, and that's just people that decide to stay with you because they see the great new amenities or the way the property looks. All of these pictures are, uh, of the property. Fitness centers are important. Swimming pools are important in Texas. And so having these items, and then you see that leasing center at the top, It was very Texas country. Not that there's anything wrong with that, but for us it was important to renovate and create a better leasing environment. So we went into the units, we added granite. For us, we were able to negotiate great pricing on our products because we do so much business in San Antonio and we extended the granite into bathrooms. Sometimes You'll see granite in kitchens but not in bathrooms. So before and afters are key because residents will pay you for that more modern looking property, that more modern unit. So that's important as you're building your business plan. So all in all, we've gone full cycle. That means you bought, managed, and sold 10 properties and an average of 2.13x. That's important to your investors to know your track record. And a 24% average IRR. So know your numbers. That's key. So why multifamily? A lot of you guys have probably seen lots of data and lots of good information. This is one if you want to copy, copy away, because I do think this is something as you're talking to investors, they want to understand if they're new to multifamily, why should I invest in multifamily versus staying in the stock market? Well, one of the big ones, it's a tangible, real asset that people can invest in without having to be a landlord. So that's a big one. For me, it was big. It was a piece of land with buildings. Nothing's going to happen to that property. All you can do is add value to it. So I love that passive income, as I mentioned before, is big scalability and diversification. You can buy in different markets like we have. To diversify. Steadily increasing demand. We've all seen the headlines about the, all the new supply hitting the market. Well, even with that, we're 4 million units undersupplied across the country and we're just continuing to grow. So demand is a big piece to multifamily and we will see continued demand in our markets. Increasing the investment value. You can invest through IRAs. A lot of people don't know that. Capital preservation is a big one. We all work hard for our money, so the last thing we want is to lose any of it. So it's been a big one for a lot of our investors to be able to preserve their capital. Tax benefits, um, as I mentioned early on, we were looking for an investment we weren't paying more taxes, we're paying less. And so depreciation expense, being able to allocate that and share it with investors is a big thing to reduce their potential tax bill. So that's a big one. Stable and resilient, open to both accredited and sophisticated. And that's big. Some investments are only accredited and some are open to both. So that's a good question you may want to ask if you're investing. It's been a good hedge against inflation through the pandemic. We saw that. We saw an increase in our income and our occupancy. As our leases are short-term, so every 6 to 12 months a lease is renewing, every day a lease is renewing, and you can stay up with the market every day versus a commercial lease where they're 5 or 10-year leases, can't change the rents every day, every time they renew, except for every 5 to 10 years. And you can leverage it with using lending dollars. So Fannie Mae, Freddie Mac, banks will all lend. Why multi versus single? For us, you know, with single family, you're relying on one renter to determine the value of that home, to pay the rent, to pay the bills. With multifamily, we like that you have 150, 200, 300 renters. So if one moves out, you still have the ability to continue to pay the taxes and the insurance because you're not just relying on one renter. You're relying on multiple renters. And what we found, as I said, during the pandemic, is that when an economy gets tight and we're all hearing about, you know, a tight economy right now and money gets short, people cut back on lots of things, except that we found they prioritized food and housing for them and their families. So as I said, our income grew by 10%, our occupancy grew by 10%. During the pandemic, and that was because people placed a priority on housing. So here's a, here's a question. Why is this a great time to invest in multifamily? This is just across-the-board data. Well, rates, interest rates have impacted multifamily probably the most of anything. That is what has impacted the decline in the volume of transactions that we've seen. It's one of the lowest in history. And that's because rates are a big impact on the loan that you get. And the loan will represent anywhere from 55 to call it 70% of the money you need to buy a property. So, but rates are expected to fall. We'll go over that in a little bit. And why are properties highly discounted right now? Well, because there's not a lot of transactions and because what the seller wants versus what the buyer's willing to pay, there's a gap right now. But there's a discount because some owners have to sell. They have a loan that's maturing, they have to sell, and they have— maybe they're seeing distress from the fact that their expenses are very, very high. And so all their cash flow is going towards expenses. The last 7 properties we bought were between 20% and 25% discounts from previous pricing. So people— I heard somebody say, well, if you bought in '21 when prices were the highest, why wouldn't you be looking now when prices are the lowest? So I would say that it's a great time. What we've also seen is we're— call it '21, 2021 or beginning of '22, we might have been competing with 30 other buyers for a property. Last year that went down to 3 to 5. So your ability to compete to win these properties because the institutional buyers were on the sidelines has been good. Now we're seeing a little bit of shift of that right now. Uh, one property we're looking at today, um, had, uh, 18 offers. Whereas before that might have been 3 to 5. So the, the market is changing because everybody's feeling like, are prices the lowest today? Hard to say. You know, um, it's strong US economy. So despite this, the economy is pretty strong. The Fed's decision on cutting rates will be a factor. Uh, we'll have some bumpiness this year. Everyone's projecting that, but it looks like we've avoided a recession and we'll have a soft landing. Still to be, still to be known for sure. But, um, that is what the experts are saying. Rent versus buy, uh, single-family market, um, prices are high. If you're in that area, you know that prices have not come down. Um, there's a rent versus buy gap that's only widening. So if you plan to buy, um, that has become an even harder thing to do because of rising interest rates, and the median average home sales price grew over 38%. So if you were wanting to buy and prices are high and interest rates are high, it's harder and harder to buy a home. So more people will stay in the market as renters. Favorable loans. There are still fixed interest rates available in the market. We'll, we'll go over who is lending today. that's important. So, um, knowing who to borrow from, what rates you can get is important. And I say shop around, but it's important that you have a relationship with a lender. Stay true to a lender or 2 or 3 because they're the ones that are coming to the table today for us. Uh, single, single-family is overvalued, as I talked about. Um, so all of this is leading to multifamily being a great place to invest your dollars. So what's happening with rates? I talked about rates will fall. These are some of the projections from some of the, the players in the market, the banks, um, for example. I think the prevailing thought now is that we all thought we might have a rate cut in June, and now they're saying July. Now there's other talks of what will rates do, but the prevailing thought here is anywhere from 200 basis points to 50 to 75. I think we're probably closer to that 50 to 75 now this year based on the Fed kind of stalling their talks about cutting rates as soon as we initially thought. The other reason why multifamily is some of the prices you're seeing in terms of lower prices is there's a lot of multifamily debt that's going to mature. Now, everybody was talking about, oh, it's going to be 2024, 2025. Well, as you can see, that extends up through 2028 in terms of maturities that are coming. Now, when a seller decides to act is going to be the key here, but there will be opportunities as this debt matures this year, next year, on through 2028. So, you know, the prevailing thought was, you know, survive till 2025 for some of these folks that are in situations where they've got multifamily debt maturing. But It looks like that is extending into 2028 in terms of these larger maturing debt amounts that will lead to transactions. Distress. That's the other word that we've all heard. And I think, you know, when you look at this chart, it's important that you take into perspective the total multifamily market. The total multifamily market is $4 trillion. So when you see here that we drop down onto the left of the chart and you see that there's $8.4 billion currently said to be in distress. That represents 0.2% of the entire multifamily market. So, you know, $8.4 billion is a lot, but it's still a small percentage of the overall multifamily market. And then $67.1 billion is the number that's potentially troubled right now. And why is it troubled? Borrowers are struggling to refinance. I think that's the big one that we've seen. And you've got, you know, other groups that are inexperienced sponsors or borrowers where they failed to execute the business plan. The dollars went to paying their bills instead of renovating units. And so that's impacted the sponsor's ability to have enough cash reserves to cover the downside risk or escalating expenses, which include taxes and insurance. If you're looking at a property to buy, look at their taxes and look at their insurance spend and try to determine through experts what is that projected to be and build that into your pro forma budget. But you know, what the Fed does about cutting interest rates will affect these numbers. These are projections. But how much will actually be sold as distressed assets? Well, so far we're not seeing as many as they anticipated, but part of it is because there's still equity and capital available. So institutions, the big, big players represent about $260 billion of capital that's available. Roughly $100 billion of that is allocated to institutional housing, multi-housing. So what's happened? These guys were— guys and gals were all on the sidelines, these big companies, waiting for the market to turn. And we just saw Blackstone purchase a large REIT, which signaled to many that they felt like that group thought prices were near the bottom. Soon to be known, but I think we'll see more and more people jump into the market. From the institutional end of it. Credit strategy from some of these big capital sources, they shifted from credit to equity. What does that mean? A lot of them providing distress fund to borrower or to owners, preferred equity, all of that became a more advantageous spin than providing the loan side of it. So that's important. Money center banks are subdued. That's the, the big Wall Street banks are more subdued. Regional banks also were similar, but they continued to be active in closing multi-housing transactions. Life insurance companies, you know, when I first started in this business, I didn't realize that they also provide loans, but they do. And right now they have similar allocations for 2024 that they had in '23. Fannie and Freddie, the activity is strong. It was particularly strong in the first quarter of 2024. And debt funds remain liquid, and that those are a lot of the sources for bridge debt, as a lot of times you may hear. And then SAB and CMBS are reemerging as spreads are tightening. So all of this to say there is capital, there is lending for multifamily. So don't let that keep you away from offering on opportunities. And CoStar thinks rents might go up in the second half of 2024. We've all heard the, the story about rents. And so they're predicting slower rent growth in Q1 and Q2 of this year. And a lot of that is driven by the new supply that's hit a lot of markets. But they predict this acceleration Q3 and Q4 of 2024. This is important as you're underwriting, as you are looking at buying properties and what rent growth you are going to assume will occur. So it's good to see that the projections are higher. I'll share with you what we're seeing on our particular properties, but the fact that CoStar, which is a big data gathering arm in our industry is projecting these rents is a positive thing for us. So what are the experts saying? I mean, they're all talking about this soft landing. It changes every time we have a new report hit, whether it's, you know, the Consumer Price Index or wage reports. But they are saying it'll be bumpy through this year and or next year, possibly the beginning of it. But we'll see. We're seeing strains from new supply. And what does that mean? Well, back in '21 and '22, when folks were seeing we were undersupplied, these developers said, let's put out new supply. And it's heading in high levels right now. But continued high interest rates are good because that means that— or not good for developers, but good to tamper or not create more big supply in the market. Here's a guy who believes that we won't see distress all at once, which would create a lot of fear, but there will be a window where some incredible assets can be acquired at a significant discount. We talked about that. Um, this gentleman believes that distress will be short-lived with interest rates gradually lowering, and the base case for multi- family being stronger than ever. So that's nationally. What about Texas? Let's look at some of the numbers there. Is it a good time to invest in Texas? Of course, for us, the answer is yes. We've continued to buy. Last year we bought 4 properties, um, in Texas, um, Houston and San Antonio and Austin. And nationally, the news isn't the same as Texas, as we talked about. You just saw all the national data. But just like the weather in, you know, where you are, Liz, are you in the Carolinas today? It's different. No, it's different than where we are in Texas.

And so Pennsylvania, it's getting warmer here. Yeah.

Okay, good. Well, just like your temperature is different than my temperature here, as we talked about, real estate is local. So understand your local data. And here's an example. So, oops, rent grew nationally. The projection was 3%. At REAP, we're still seeing 8% rent growth on average, and this is across the entire portfolio. So that is because Texas has continued to remain strong markets. Now, not every single one of them, but we're all still seeing growth, rent growth on new renovations when we renovate a unit. And on renewals. So national trends can be different than Texas trends, but it's also important to pay attention to population growth and that absorption of all those units. So we obtained these maps, not this particular map, but there are other maps available that show you where these new properties are being built. So when we're looking to buy a property, we will take a look at that map and say, how close is it to all the new assets being delivered? Because that's going to have an effect of dropping rents potentially and increasing what concessions are. So concessions means that an owner says, in order to keep my occupancy high, I'm going to offer deals. So I might give half a month's rent free. I might give a full month's rent free to get people to my property versus some of the other properties. So here you can see where Austin, San Antonio, Dallas-Fort Worth, and Houston, the big markets, in that Texas Triangle where they are looking. So Austin, the story with Austin is lots of new supply and the absorption that people renting all of those new units has not been as great as in Houston, for example. Houston, the absorption rate has been much better. So if you look here and you're looking at other markets, take a look at data like this to see what's happening in those markets. Is there a lot of new supply? Is it being absorbed versus what is the population growth expected to be that's going to absorb, absorb these new units? So critical data like this is important. I mean, think nationally there are 500,000 units completed in 2023. 736 units— 36,000 units are slated for completion in 2024. Now, it's unlikely they'll all deliver this year because 80%, 84% of those developers saying they're seeing delays in construction. So some of these may not hit in '24, but they're going to hit in '25. So knowing quarter to quarter what's happening with new construction, new deliveries, and permits for other construction in the future is important. So looking at the markets where we operate, this is data we gather on a quarterly basis. What's happening with occupancy? What's happening with rent trends? Where's the effective rent? Because we use all of this in our underwriting. What's happening with cap rates? So you can see that cap rates in Houston are higher than Austin and San Antonio. Cap rates are key to your underwriting. What's happening with deliveries, net absorption, unemployment? That's important. Investment volume. How many properties sold? Do you have the data on those? And what's the average sales price per unit? You can see Houston, it's $116,000, but Austin was much higher at $224,000. But even buying B-class assets in Austin, you're going to pay a higher price per unit just because It is Austin, and again, it's the fastest growing region in the country. So that's why people are building in that area. So paying attention to this data is important. Gather it. We have a, a team of analysts that does it, but if you don't have a team of analysts that's gathering it, get on the list of all the brokerage houses. For Acadia, CBRE are two big ones that produce this data that you can use to make sure you are buying and underwriting correctly. And here's some more about what are buyers doing in terms of underwriting assumptions. That's important. Now, this, I will say, is for the highest quality assets in the best location. So if you're buying a B or a C-class asset, this data may not be as relevant, but it gives you an indication of where things are moving in terms of cap rates, And, you know, what we're seeing here now, San Antonio wasn't published by CBRE in this study, but it's sitting around 5.25 to 6 on cap rates based on what we see on the properties that come to market. So it's important to know where these numbers are so that if you are underwriting and you're seeing a property that you're buying and the cap rate for an asset is a 4, and it may be lower than anything else in that market. So you may be asking yourself, am I overpaying for this asset? So IRR targets are important going in, cap rates, exit cap rates, which just mean what are you projecting when you exit the cap rate will be hard to project 5 years in the future, but we underwrite for a 5-year hold. So some of this data we're extrapolating based on that. But these— this is the information you should want to take a look at for the particular markets that you are looking to buy in. Looking at, you know, again, where are opportunities? We're also looking at where are the loan maturities by market. You can see here where, which markets represent the most. The most exposed markets are New York, Dallas, Atlanta, Los Angeles, and Austin. So that means there might be some great opportunities here. There's going to be opportunities most likely in every market. But if you are a Dallas fan or an Austin fan, you may say, oh wow, there's exposure with loan maturities. Let me start contacting brokers to see what is available and what I can get some great deals on. And looking at Texas and the markets that are growing, it's important to gather this data. This is U-Haul's data This is based on people that rent a U-Haul and their destination where they're going to move. And so Texas has continued to remain at the top of this list. Florida has also continued to remain at the top of this list. You can see the other markets: North Carolina, South Carolina, Tennessee, Idaho, Washington, Arizona, and Colorado. So important to know where the growth is coming in. So wrapping up, for us, multifamily has been the best way to grow our investments for our retirement, to pay less in taxes, and to improve communities. That's the feel-good thing that I know as a woman I love, because we can make the communities we buy and invest in much better than we found them. And so that is super important. And just remember that you're not always just investing in properties. For us, We're investing in relationships with our limited partners, with our brokers, with our lenders, with everybody involved in the entire process. Relationships is going to be key to, to us. It has been key for our success, and I think will continue to be into the future. That's what I have, Liz. I know you wanted to do some Q&A, so—

Yeah, absolutely. And if you want to post in there, Arlene, where they can learn more about you and REAP, Okay. That would be great too.

Okay.

Um, but yeah, we got a couple Q&As here and then we'll, uh, this has been great. I, I wanna do this too. Um, why is this not working? Okay. Um, as we're going here, please think about one thing you learned and one, what is your greatest takeaway? Got my wheels turning. Um, Arlene. So Melissa, you're asking about, and please everyone, um, it's, it's, it's not every day you get such a phenomenal resource like Arlene here to ask, ask a question. So I, I really encourage you to ask. There's no stupid question. That's why we created this space. Okay, Melissa, you're asking, thank you for this great presentation, Arlene. Amazing stuff. Having the experience you have in multifamily world, what would be a few recommendations you have for an individual starting out wanting to get into multifamily? It's a good question.

Yeah, it's a very good question. I would say education. I think that has been a key for us. There is so much available through groups like InvestHer and create and become part, or not create, but become part of a network that's already involved in real estate investing. There's access to resources, access to contacts, access to investors. I think that is what has been a key for us is being part of different real estate groups. Because you leverage each other. You don't have to learn it all. You just have to be around people who know other things that you may not know at the time. So find groups like InvestHer to be part of, but be active and be intentional in terms of what it is you— who you want to meet and what it is you want to learn.

That's the key, right? Intentionality. It is. Melissa, your follow-up is based on the population growth and net absorptions, is there a market that REAP intends to shift its focus to?

We are looking at Dallas-Fort Worth for many reasons. One is because pricing is lower today than we've ever seen it. I think we can get into that market at better pricing, but yet Dallas-Fort Worth is on the uptick. Population growth is big, its job growth is big. Every time you turn around, there's another corporation moving into that market. And so the metrics, the fundamentals for multifamily are there and there's a lot of transactions. So again, we saw in that chart there's a lot of maturities in Dallas-Fort Worth. So if somebody has to sell, then it's a good time. You want to buy now, you want to be fair, right? You don't want to go in and be ridiculous in your offering, but you do want to do your homework and know What are the cap rates that are being— are available in that market? What is the pricing? And get to know the brokers. We've started that process at NMHC. Our team met with National Multi-Housing Conference, met with the Dallas brokers intentional again to make sure they knew we are interested in buying in Dallas-Fort Worth.

Yeah, that's great. Great advice. The— what are your average returns for investors wanting to invest with REAP today?

So today, you know, when we started, it was 14 to 18%. You may remember that was from back in the day. In today's market, if you can get anywhere from 5 to 7% cash on cash, that's great. We are still seeing a 1.8x to a 2x multiple. That means your total return, including your cash along the way and what you anticipate getting when you sell it. So those have continued to be for us metrics we are still finding in the market, you know, and it's been important for us to underwrite conservatively. And I cannot stress that enough. You guys saw the rent growth data that's available and it's available by submarket. Like if you say I want to buy in a particular part of, you know, Charlotte or Atlanta or Houston, find that data on what's happening with rent growth. And I will say the other thing we are doing right now is if there's a property we are interested in, we will look at the last 10 leases, the last 30 leases, because that tells you what is happening with rents. Is it gone negative? Is it still positive? Because that gives you an idea of what to put into your underwriting to your pro forma budget. So get to know the markets. I think that's super, super important.

Yeah, that's really, really important. If you're going to become obsessed with something, always go market over property, you know? And people often do the opposite, and that's never a good thing because then you get inundated with the property and you know nothing about what's going on.

I agree. I've had some analysts say, oh, I love this property. Look at the pictures. Look at this and look at that. And I always say, Show me the numbers. Yeah, I'm not even going to look at the pictures until you show me the numbers and the crime report. How did it show up? So I love that. So right. Yeah.

Jasmine, you're asking— this is a really good question and I can probably answer it too. And what door number did you start bringing in outside investors? It's a really, really good question.

So our first two properties, we had a 24-unit and a 28-unit, and then we bought an 88-unit. So when we had over 100 units is when we brought in investors. Now, that was a different time. Syndication or group purchasing was not as big as it is today. So I will say, I don't think you have to wait until you get to 100 units. If you have the network and you have the ability, I would bring in investors on a 10-unit or a 20-unit, but just make sure there is enough dollar-wise return to them. The return is key. Calculate that return and make sure that it's something you can deliver, because if you deliver it, you'll get a multitude of those investors referring you their friends and family. So it starts with your ability to perform and build your track record. So that's what I would say.

Yeah, I totally agree. We were at about 40 doors-ish when we brought in. And when I say outside investors, it was like non-family, you know, non-parents. And I will say this though, before we syndicated, before we, our first syndication was 14 doors. Before we did that though, we worked with private lenders. So that's, you know, again, outside money, but it's not a partnership, it's a private lender. And there's that opportunity. and you can also work actively, work and buy a property and be active investors. It's very, very important in our world of passive and active. So our first kind of outside investor was, you know, there's 2 single-family homes in our, in Trenton, New Jersey, a different time, but we bought them at $50,000 cash. Pi is about the same. You could buy it now in Trenton, New Jersey. But we bought that and he was active and we were active. He didn't just put the money in. He had other roles. So again, there's a lot of ways to structure partnerships. You got to be really careful where people aren't just putting money in because that's technically— you're technically— it's a syndication, right? So I'm not an attorney, but I know enough about the process of being, being clear on what's it like. How can we get into this project? Right, Arlene? Like, how do we make this happen in a way that fulfills any sort of structure questions and is a way for everyone to get the returns they're looking for? Those are really all important.

And yeah, yeah, I mean, I agree completely. Our, you know, we had a friend that joined us on our first one. He wasn't technically, it wasn't a syndication, but we needed somebody that could pass the lender test. We were business people. My husband had owned a business. He sold a business, but we didn't have multifamily experience. He did. So build that team, build those partnerships, but ask all the questions. Is this someone that brings something you don't already have? Correct. You want complementary or opposite skills to be brought into your team. But I, I agree, Liz, in today's world, you don't have to wait to hit a certain number. You just have to make sure you have all the pieces pulled together so that you are credible when you approach people to invest with you.

Totally. And there's so many great questions. I'll be really mindful of time. One thing you learn and one takeaway. And then with regards to REAP, Jasmine's also then asking, did you, did you say 8 to 10% for the returns for REAP? She was just—

Today it's 5 to 7 for the new properties. That's what we are projecting. Our properties that we've owned longer, you know, those returns are a little higher. But in today's world, given the cost of your borrowing piece of it, it's important that you again look at that conservatively. And that's because we're not underwriting big rent growth on new acquisitions. We're underwriting what we know that market has delivered. And so we're comfortable with that. So that's the other piece. Don't think, oh my gosh, I'm going to underwrite, you know, 10% rent growth when the market is telling you it's 3 to 4. Yeah, you'll, you'll never hit your numbers. So make sure you are conservative in that. But it's 5 to 7 today.

Yeah, love that. And you're going to get a chance to connect further with Arlene. One of the things we have planned for, for InvestorCon really quickly, I'm not going to say too much, but we're not just going to be talking about or giving the strategies. We're going to be doing a ton of different exercises, one where you'll actually be analyzing deals as a group, which is really cool, creative financing. And then there's going to be another, another exercise just coming top of mind. Where you'll be actually looking for people in the room. Well, what's your strength? What is someone else's strength? Beyond all the great content, education is all about finding that next partner, finding that next networking contact that you can grow together. So we take that really seriously. It's gonna be a lot of what we do at InvestorCon. It won't just be people talking to you. You'll be engaged. We do a lot of workshop-ish type of things, and women and phenomenal women in our industry like Arlene are gonna be there. I'm so excited. Appreciate the support. And yeah, come play with us and, and check out all the great things that Reap's doing, Arlene's doing. Yeah, just, I always learn something from you, Arlene. So I didn't see where the learnings are. I need to see some, one takeaway, one action step you're gonna take. So, so it pumps up Arlene and I. We know that this did not go on deaf ears. You're gonna do something with what you learned. Even just one action step, one small step, would be great. And, I want to see that in the chat before I'm— I'm not leaving until I see it. I'll definitely visit her in Austin. You better, Belinda.

That's a good step, Belinda. I'm going to look for you.

She's great. She's one of our Strive members. She's a— she's a go-getter. And I also will say that you want to talk to people investing in the local market. Don't just go for hearsay. I would never ask— don't ask me about investing in Dallas. I don't invest in Dallas. I don't know what I'd even tell you. I talked to Arlene, but talking about North Carolina, okay? Because we invest there, okay? All right, cool. I'd like to invest with REAP. Awesome, Sonia, check her out. Contract Arcadia and okay, for market data, great.

So that's Vercadia. I'll put it in the chat. Yeah, because they have a lot of good data. A lot of the big brokerage shops do, but these are two that I found. If you get on their email list and it's very easy, go to the website and sign up, they will send you all of that information. So yeah.

Awesome. Very cool. So good to see you, Arlene. Thank you so much for sharing your knowledge, sharing your time with us. We don't take that lightly, and I can't wait to see you in June.

I'm excited. InvestHerCon is going to be fantastic, and I look forward to meeting a lot of you that are on the call here.

Yes.

In Austin.

Yes, and we're gonna have a workshop. Matt is leading our workshop on multifamily, and I know he's got a lot of market data assessment tools, and it's gonna be a really cool workshop, 3 hours I think on that Sunday. So yeah, very, very cool. But thank you everyone for being on. Do something with what you learned. This recording will be on our blog page, therealestateinvesther.com/blog. So you'll have this as an evergreen, and thank you so much for being on today. Thanks again, Arlene.

Thank you.

All right, everybody. Take care.