Experienced multifamily investor Vinney Chopra shares his opinion on where the market is going, he stresses how you have to carefully look at where you’re investing and keep an eye on the market. Many are always bracing themselves for a repeat of the economic downturn of 2008. With this, Vinney offers owners, syndicators, operators, and even passive investors some selling and buying strategies they can then use as well as some tips on how to prepare for any uncertainty or survive an economic downturn in the real estate market.
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Investment Strategies To Survive An Economic Downturn with Vinney Chopra
Our guest is Vinney Chopra. Thanks for being here again, Vinney.
Thank you, Whitney. It’s such a pleasure to be with you always.
Vinney has been a guest numerous times. If you have not heard of him, I will encourage you to go and look him up. Even the very first one that we did was with Vinney. We’ve done numerous ones with him covering different acquisitions of property. He had just closed over a $50 million deal. He went into details about that property and just his success of 27 syndications. It was $300 million of assets under management. He is an amazing syndicator, amazing, generous guy. He came to the US with $7 in his pocket and look at him now. Thank you again, Vinney, for being here and sharing with the audience. I wanted to get your opinion about the market, your opinion about what you feel is coming or isn’t coming. Maybe how we can be prepared as the owner, the syndicator side, operator side, even as a passive investor. Maybe some things we should be thinking about with “the marketing” like everybody says. Thanks again, Vinney.
Thank you, Whitney. It was the biggest bull in 2008 and it’s 2019. It’s years of bull in the stock market and otherwise. The economy’s growing and all that. The downturn that came in 2007 and 2008, it had a lot of different factors. I want our readers to keep and Google what were the economic factors that had a downturn in the economy. People were getting paid to buy properties. Not only were they investing down payments, but they were also getting paid and so forth. The economies are different. I read a lot and I listen a lot, I think a correction is coming, they say in the middle of 2020.
Secondly, I would like to say that the interest rates are so low right now and treasury even went down even further. The thing is you’ve got to stay in the market. I believe in that because those people who stay in the market of the ones who can know when the downturn or the upturn is coming. If you’re just watching it, you won’t be able to get those great deals that might come through. Let me say also, what does the economy downturn mean? The economic downturn is when people are losing jobs. Maybe some of the companies their sales we go down and then also shrinking of the economy and all that. That’s going to affect my engineering mind thinking. What’s true in 2007 and 2008 was the office shrinking happened when people cannot pay their monthly rents and things like that.
They were downsizing. The companies were spending less money on hospitality, in hotels and travel. That was the other factor. When people have little less buying power, they also shrink. They don’t go to retail stores and so forth. The retail centers were also getting hurt back then in 2007 and 2008. That will probably happen. The biggest thing I want your audience to know is that as the shrinking economy or people lose homes, they need a shelter over their head. They will be moving from a single-family home to B class neighborhoods, apartments or C class upon their affordability. As in the apartment might go to B, and B might go to C and C might go to C minus.
[bctt tweet=”An economic downturn is when people are losing jobs.” via=”no”]
Essentially, the apartment is such an investment that it doesn’t get that much effected, by the way, depending on if you bought at the right locations. That’s the word I teach a lot in my academy is the location. Everybody’s heard about it, but you’ve got to buy at the right price. In 2018, I didn’t buy anything. I underwrote so many properties but people were overbidding. They were hand over fist. Some people a paid lot of money because of the shrinking of cash on cash, they had to give 95% to the investors, class A members of the PPM. It’s 95% so what can you do with 5%? Being a syndicator, I hate that.
Some of the people did that and they gave 90% or 85%. Just for 15% of the whole thing, you’re putting your life on the loan, guaranteeing the loan and managing the assets for five years. It doesn’t make sense in my books at least. That’s why I’m saying with the changing of economy, we are doing 70/30 now. In the heyday, I used to do 60/40 but those days are gone. Vinney is changing, which we should. My investors don’t mind because they’ve gotten great returns from 18% to 26% average. We have done over 40% also in some deals and so on. I hope it answered your question because it was a long answer.
You’ve got to stay in the market to know what’s happening. I know you didn’t buy anything for a year, but you’re still active in the market. What are some other ways? You’re active, so you know what’s happening. You mentioned you’re reading and listening to a lot. What are some of those resources that we could also read or listen to?
The big thing is the economic report. If you are going to a certain area, that’s what I find my students also, they decide. They’re living in Boston, New York or all over the USA. They have a soft spot. They know some people in certain areas, in certain cities. I teach my students to go ahead and Google. Google is the best friend. Google search, say the name of the city and then space, economic news 2019 or 2020. It’s amazing because Google is going to crawl through space and find you all these articles and I love that. The other trick I like to do is the name of the city, economic report and local economic job growth report. Those key words we give you Forbes articles, Fortune articles, local government and some PowerPoint. I even say space PPT.
In other words, Google is going to look for some PowerPoint presentations from the local leaders for that city. It gives me so much information on my fingertips. I put it in Evernote. I use Evernote. I link it up there and when I have more time, I go through those reports. I also put in something very special. My students get that. We have 26 markets that we are watching very closely, so they are able to put in the Dropbox any new information that comes in. Everybody benefits with that one. We have this Dropbox by cities, emerging markets where we keep our dropping the positive news and all the great articles and everything. All my students get to reach that. It syncs with their laptop. It’s a very nice way to do it.
I can see to where it’s like communicating with investors, even on current deals, there’s good information that you can provide to them as well.
The reason I have grown from zero investors to 136 now, maybe 142 is I think they’re increasing every day. The big thing is you’re right, you’ve got to share with them where you are going to be purchasing. They’re not going to make that decision overnight. You cannot say, “I got a deal. Would you invest in Jacksonville, Florida?” You’ve got to tell your investors and send them digital newsletters. One page with links of some great economic news so that they can get it from you every three weeks, every four weeks. That way, slowly they are making a decision. That’s the big thing that yes, I feel comfortable to invest in Jacksonville, Florida because Vinney sent me this. They won’t have time. The passive investors should look up to your syndicators I would say or sponsors for some great information.
With the market, as everybody says, you’re expecting some downturn. As an operator, as somebody that’s buying large deals, how are you prepared for this market correction?
It’s like the one we bought, that $52 million we just bought. Because we already had gone through the financials and then we knew we are buying at a 6.10% cap, the area called for 5.75% cap by the way. There is a big equity gain right there when we bought it. The big thing also is then the business plan. We knew that when the loss of lease, what the residents are paying at the current time and what’s the market or the rent for similar products and everything, amenities and all. Ours had even more amenities than the other people. We have $100 in the classic units, almost $200 raised that we’ll do as the leases expire. That is the big $6 million to $7 million increase in the value of the property in the next one year.
That’s a given because that is the loss of lease for the people’s affordability, which they’ll be able to still stay at the community and pay higher rents. You’ve got to mitigate your risks. I call it mitigation. With the downturn coming and again, it’s not going to be that huge. When people think about downturn, they think everything is going to fall apart all over the USA. That’s not true. It’s in pockets that’s going to hurt and so forth like that. You’ve got to look at where you’re investing and keep an eye on that market. You should not be consumed by all the negative things that are happening overall.
It won’t be every market all at once.
For example, Jacksonville, Orlando, billions of dollars have been spent. Why? More jobs are already coming to the Orlando area. I’m giving up my secrets but that’s okay. I want everybody to be successful. That’s the name of the game. We are in a bigger market, a pretty big market now, 300 to 400 units. My students are in the 15, 20, 30, 100 to 150 units. It’s a big pie for everybody. The thing is when I went there, there are cranes all over. That’s like a dream for them. It’s like Frisco. I went there to Frisco with my attorney, Milton Colegrove. Many years back, look at what has happened north of Dallas. That was like candy to me. Hotels are starting, the restaurants opening every week, the Starbucks are opening and the big box offices are coming and all that. You know something is up to their sleeve over there.
[bctt tweet=”You’ve got to be cognizant of what’s happening and look at reality.” via=”no”]
From being in this business and going through a cycle already, what will you do differently? What are you preparing differently now compared to maybe what you did through the last cycle or downturn?
By the way, we bought properties. We started our business in the market crash of 2007. A few of our properties went down and now they’ve come back up and we’re selling them. I’ve seen the whole cycle of seven years it took us to go to from 98% occupancy to 62% occupancy where we couldn’t give. We refinanced the loans on those two properties and then we paid back our investors. They were okay with that, but we didn’t give them cashflow in the downturn, Whitney, but now we sold them at the high. One Cornerstone village, we did the numbers. 40% IRR for six years. That was in the downturn, by the way. It went down with the oil price going down in Midland. That said, if anybody wants to check me out, that’s Cornerstone, 120 units. We were giving $45,000 per month net. We were raising a 31% expense ratio we were running it. It usually will be counted 50%, but that property was amazing. The good part was with a downturn, we never paid any money at all. We couldn’t. We could not pay that. Investors we’re happy because we had nothing in that thing. We give them back so much money. For $100,000, we gave $240,000 back. They got their $100,000 back plus $240,000. They love us.
That was even through the downturn?
Yes, through the downturn. That’s six and a half years old.
What’s different now going forward? How are you preparing differently?
I would say that we are buying definitely. We are doing a pressure test, as we call it. We have done the pressure tests of a high cap rate, first of all. With the Bentley deal that we closed, that is going to be at a higher cap rate. We are already saying not lower. Some people like to lower the cap rate to make their equity gain larger so that they can average it out for the investors. Ours is the reverse case because we knew that it’s going to be coming. We are actually putting a higher number for the cap rate so that the appreciation is not as much. Of course, in five years for Bentley or four years, the market would rebound. It goes down and then it starts going back up. We don’t see that happening in the Orlando market, but if it does, we’ll still be okay.
Any reserves that we’re going to have this reserve bucket just in case it’s worse than they expect?
Definitely. We raised almost $1.2 million. We were thinking about $850,000 but we had so many people wanting to go into it. We put in our PPM $20 million raised. We only needed $16 million and so we were able to raise more than what we needed.
Any other ways that we can see the market changing ahead of time, Vinney? Maybe some key indicators that you watch for? I know you talked about interest rates. Anything else?
I would say the stock market is a good indicator because the stock market is always six months in advance. If you think what is happening now, it’s the market movers, as we call it. We are very small people. We invest here and there. We already have heard the news, but the market movers are the ones who plan ahead. That’s where we need to be thinking about keeping an eye and also the economic report of the area. The Chamber of Commerce, the local government and the jobs you’ve got to keep an eye. That’s a very good point what you just asked me. This is amazing because in Texas, we see in certain cities less traffic. When there is less traffic coming to the property, when you’re having some difficulty in asking the people to decide on it and when you are thinking, “I have to give some concessions or some specials,” that is the time you’ve got to rethink and look at it. What’s happening to the approximate in the vicinity of your community? What are the other people facing too? You’ve got to catch that a little bit quicker. If that is happening, you should start digging into more reports.
Do you secret shop other operator’s properties at all to figure out what they’re renting for or vacancies and things?
Totally, every month. It’s called market-rent study. Our community manager is supposed to do it and it’s all documented. We keep that, archive those every month on the month. We like to make sure there’s a lot of great other ones. We have real page reports. We have a CoStar reports. They also do quite a good job of giving us all these great market comparison reports. That’s important. We do a secret shop. We love our community managers, the people. Many times when you’re there, you already know the other managers too. They call us, our property manager. Most of the people, I think they fudge it. They didn’t want to look that bad. I’ve seen that happen. I think it’s good to know what the competition is doing. That makes a big difference in our advertising. Apartments.com is an amazing source. I think I’ve told 87% of the people, when they’re looking for an apartment, when they Google it, Apartments.com comes first. That’s a great way to do it. Craigslist and other places, as your readers probably know.
[bctt tweet=”When the economy shrinks and the valuation goes down, some sellers will be able to sell their property at a cheaper rate.” via=”no”]
As far as the market outlook specifically, anything else you’d like to share with the audience?
You’ve got to be cognizant of what’s happening. You can’t close your eyes and say, “I’m going to open my eye,” and now it’s two years later and you were expecting some big downturn and it didn’t happen. I’ve been a very optimistic person by nature. The thing is you’ve got to look at reality also. I’ve seen the downturns and other things, but you don’t want to throw the baby with the bathwater either. I have that thinking in my mind too. The biggest thing I could suggest to the investors is to remember, when the economy shrinks, if the valuation goes down, there will be some sellers who will be able to sell the property at a cheaper rate. Please look at the other side of the coin. Invest and get your investors ready, get your money ready. My $50 million fund, I’m still holding that through where people can invest in.
When the downturn comes, I’ll have money available to buy something else. Please look at it that way too. Keep on getting your money locked in. The biggest trouble I find is that people are doing LOIs, this and that and all that. They don’t have a loan sponsor. They have not figured out who are the investors who are going to come to the finishing table. They spend all this money in due diligence and everything, application fee and phase one and all, but then they cannot close because one, two or three big investors fell out. I’ve seen those horror stories some of my students have shared with me.
I know you’ve had a few big things launched that I’d love for you to share with the audience.
I’m excited about my two podcasts shows. I hope you like them, subscribing to them and giving comments and that’s Mr. Vinney’s Motivation Talk Show. As you know, I’ve been a motivational speaker, fundraiser all my life. I just have certain ways I look at things and I’m able to bring those nuggets every week. Please do subscribe and like that. The other show, Apartment Syndication Made Easy. My book also, I hope you have read that in Kindle edition and the audio version is coming. Also the paperback and the hard back. That’s my journey from $7 to over $250 million. That is a very simple way to understand syndication. Please reach me at the VinneyChopra.com. I’m there, my business advisors, my team, and my mastermind coaching. I’m loving it. I’m going to keep on doing it. That’s on the Wednesdays that I do for my Elite Group Mastermind group every week. My Facebook Live show, which is at 10:00 AM. Please join me there, Motivation and Syndication by Vinney Chopra. It’s 10:00 AM Pacific Time. I live near San Francisco, so I do it from there.
They can text, Learn or Syndication to 474747.
You could text the word, Syndication. If you want to partner with me, invest with me, please text the word, Syndication, to 474747. If you want to learn and apply for mentorship in my academy, you have to apply. We have so many students, but I don’t want to take your money, even a penny because if you’re not committed to crushing it, then that’s how I am. Please apply for mentorship and that is text the word, Learn, to 474747. Reach my business adviser, Jon@VinneyChopra.com. He’s come full-time with me. Thank you.
Vinney, thank you so much again for your time. As somebody that’s been through a cycle and had many properties done, 27 syndications, I appreciate you being here. I appreciate the audience. Go to Life Bridge Capital and connect with me. I’m happy to get on a call with you as well.
I want to congratulate you, Whitney. This is great. Kudos to you. I’ve known you for years and what a great content you’re bringing in. God bless you, the kind of person you are. Part of the profits goes to your organization, which you and your wife are so passionate about. God bless you and the whole family.
Thank you very much, Vinney. I appreciate that. Thank you very much. To the audience, I hope you’ll go to the Facebook group, The Real Estate Syndication Show. Also, jump on Vinney’s podcast and learn as much as you can there as well.
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About Vinney Chopra
Vinney (Smile) Chopra, a founder and Chief Executive Officer of 3 companies and President of 2, came to USA with $7 in his pockets. He has over 35+ years of Real Estate experience and 15+ years of Multifamily Syndication Investing & Managing experience including overseeing management of $220 Million in real estate assets. MONEIL PREMIER COMMUNITIES are all Self-MANAGED by Vinney’s well trained 67 full-time professionals along with thousands of contractors and vendors!
His expertise includes picking right markets, underwriting well, raising $5 million to $8 million in couple of days, negotiations for Win/Win/Win, driving corporate growth strategy, investor relations and asset management, and business & culture development.
Vinney is passionate to coach and mentor and teach his skills to other investors so that they don’t make the mistakes he made. Vinney has an undergraduate degree in Mechanical Engineering and a Master of Business administration degree from The George Washington University. He lives near San Francisco, married 39 happy years to Kanchan and have two great grown-up children.
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