Many people jump into real estate investments without doing enough due diligence, weighing the risk versus the reward, don’t have the long-term view and are just hoping to make easy money. All of the abovementioned habits and mindset are potentially dangerous. One thing that aspiring Limited Partners should do first is to educate themselves more about the world of real estate before risking their hard-earned money.
In today's podcast episode, we interview our guest Mark Kenney, CPA and Co-Founder of Think Multifamily. Today’s topic is focused on Mark’s useful tips for aspiring Limited Partners, the importance of due diligence before jumping into a real estate investment, and the significance of knowing capitalization (cap) rates.
How Mark First Started in the Real Estate Business
Mark and his identical twin brother started in the real estate business when they were 22 years old apart, while simultaneously running his IT business. And the reason why Mark gravitated to the real estate business is because everyone needs a place to live, and you can see it, you can feel it, and you can touch it. and unlike stocks in which in all respects are intangible.
Mark's Tips for Aspiring Limited Partners
With Mark’s experience in the real estate business, here shared some of his actionable and useful tips for aspiring Limited Partners:
- Know the basics - Many people simply jump into investing as a Limited Partner without the basic knowledge of the jargon, the risk versus reward of an investment, how to spot good deals, and how to spot red flags in deals. With that being said, an aspiring Limited Partner should first invest in his or her education first before putting their hard-earned money on the line.
- Listen to your gut - Building the right intuition is vital in your success as an aspiring Limited Partner. Being able to sense red flags a mile away would save you a ton of time, effort, and money.
- Doing due diligence - It is a very highly competitive world out there. Some people are out just to get your money. The risk of getting a bad deal would be more probable if an aspiring Limited Partner is not doing their share of due diligence. Some of the questions that needed to be answered are the following: Have they had any issues managing the property? Have you done a background check on the people you are dealing with?
The Significance in Knowing Cap Rates for Aspiring Limited Partners
Capitalization rates, or cap rates in short, the rate of return is based on the income that the property is expected to generate. Also referred to as cap rate. The cap rate is calculated by dividing the net operating income by the current market value of the property. Notably, the Cap rate is generally known quantity as it is derived from the sales of similar assets in the market. This is how you can quickly derive the expected market value of a property in a particular market, knowing just the NOI.
As Jake and Mark discussed in the podcast episode, real estate market cap rates are volatile meaning that they can either move up or down anytime. This boils down to the point that as real estate is an illiquid asset, it actually takes time to get a return of investment.
However, Mark also discussed and emphasized that you have to be flexible and willing to sell some real estate assets when they have already reached the 5-to-6 year projections in a matter of 12-24 months. Jake also shared that while low cap rates can seem scary because of the higher purchase price, the benefit is that very small improvements in revenues or reductions in costs can have a significant impact on the value of the property.
What Excites Mark About Multifamily and Being a Limited Partner
Aside from having more time to spend with his family and doing the things that he loves, Mark shared that managing Think Multifamily and being a Limited Partner gave him the financial freedom to help other people. Mark and his wife were able to see some people in their group to be able to quit their multiple jobs in a relatively short period of time. As an additional bonus, Mark also highlighted that real estate is somewhat resistant to inflation.
Who is Mark Kenney?
Mark is Co-Founder of Think Multifamily and has invested in 1,300 units. He has a top-notch reputation among the multifamily investment community for providing exceptional value to investors and the community while being easy to work with.
- LinkedIn— https://www.linkedin.com/in/mark-kenney-a86858124/
- Website —https://thinkmultifamily.com/
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