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Editor’s Note: Dennis Fassett is a former corporate finance executive turned real estate investing “Cash Flow Mercenary.” Dennis specializes in single-family and multi-family cash flow properties and thoroughly enjoys assisting his fellow investors with their own strategies, including how to buy your first apartment building.
As an ongoing contributor to Mogul’s “Market News Updates,” Mr. Fassett provides us with his own unique, lively, and thought-provoking commentary on the timely industry news and events of today that are impacting our industry. And be sure to check out his other super-helpful Market News Updates. For now, enjoy...
From Dennis Fassett, Cash Flow Mercenary...
Do you ever read an article on real estate investing and go – huh? I saw one like this recently.
The article I read was titled "Urban Real Estate Investing is Back with a New Name, Look."
I chuckled a bit when I read that because it sounded like the author thought they were delivering some sort of breaking news flash.
As I have discussed before, I grew up in and invest in the Detroit area. And from where I sit "urban real estate investing" has been around for decades. In fact I know no fewer than eight investors who focus ONLY on City of Detroit properties.
So in reality, urban real estate investing has been around since urban areas have been around.
It’s all Cyclical
But as we all know, the real estate market is cyclical. So investing in urban areas comes in and out of vogue as the market cycle moves through its phases.
So while in the author’s mind this was probably a news flash, if you’ve been investing for any length of time, you know that it’s just the norm.
But – I’ll admit, the article does raise a good point, which is that investing in urban areas IS possible.
The article explained that:
"While many of the urban strategies of the past concentrated on apartments — specifically low- to middle-income housing — the latest version involves downtown properties near public transportation, as well as health clinics, senior housing and schools in underserved communities.”
And she’s right – those areas ARE booming.
Why? The market of course.
As prices rise and the overall market improves, investors look for higher ROIs. And that leads them to the last place left - urban areas.
Navigation Tools Needed, Cowboy
So learning how to navigate the shark-infested waters of urban REI can be a tool to add to your tool box.
But beware.
It’s not for the faint of heart - or the light of wallet.
I did a podcast interview recently with a guy I have known for years who focuses exclusively on Detroit properties. And he did a great job going into the different aspects of dipping your toes in this market.
#1 – His first recommendation was that you need to be there, boots on the ground, if you’re going to make a go of it. He said that while it’s not the Wild Wild West, it’s pretty close to it. And that a lot of people that you’ll deal with will simply be out to take your money. So being there, in person, helps somewhat mitigate that risk.
#2 – His second recommendation is that you need to understand that urban real estate markets are medium to high risk at best. And that means that you should be prepared to lose MORE than your investment on deals.
I thought that was crazy when he said it - lose MORE than your investment? But he went on to tell me that there were several deals that went so bad for him in the beginning that after he lost his investment he had to pay someone to take the properties off his hands.
#3 – And his third recommendation was that you need to put in the time, learn, and get proficient. And be laser-focused on what you’re doing.
And if you do all of that, then you might get to the point where you can reap the substantial profits that are available in urban areas.
Break it Down
So yes - in a manner of speaking, urban real estate investing is back. But it has the same look and the same name that it always had.
Stay frosty with this stuff my friends. It ain’t for everyone.
Holla at us
Do you have an urban REI experience you can share with us? We’d love to hear about it in the comments section below.
Dennis Fassett
earned a BS in Economics and followed that up with an MBA in finance. After working and corporate finance and banking for several years, he started buying single family houses, and quickly built a very nice portfolio of cash flowing rentals. When the credit markets started to dry up and he couldn’t get any additional single family mortgages he shifted his focus to apartment buildings. He now has over $3 million in rental real estate. He manages most of it his self and still has a day job. Dennis has even created his own Private Equity fund to buy apartment buildings.