LOL…stay with me on this one….
I recently had a conversation with a gentleman excited to share his perspective on “the future of the real estate industry.” Wow!! That’s a big subject. It soon became clear that his message was not about the future, it was trying to define the “now.” Neither did it encompass the “industry.” It was a perspective drawn from an amalgamation of journalists’ opinions using the vernacular of Income Property, but in the context of Single-Family Homes. Commercial Income Property and Single-Family Residences (SFR’s) are two commonly blended, yet very different products in the same asset class of real estate. They each have different buyers and sellers, cost metrics, and value propositions, yet there is some commonality to the investments that is useful to know.
So, I listened, and decided that our Investors may have some of the same questions. Then, just a few days later, I was directed to an article that spoke of the economic connection between SFR and Multifamily investing. “Wow” again! At that point, I began to see this gentleman’s commentary as a gift.
The attached article does a good job of comparing and contrasting the current SFR market with today’s multifamily opportunity.
The gentleman began his narrative with a comment about the effect of rents being more difficult to collect due to the way California’s statewide rent control legislation has affected rent collection, and how the eviction moratoriums, coupled with the cost of materials going up dramatically has affected the cost of lumber, evidencing inflation (i.e., lumber has been scarcer, and the effect on price has been an increase in cost). His commentary seemed to be pointed at the effect inflation will have on VisionWise Capital’s ability to purchase properties at reasonable prices.
My first response was to say that VisionWise Capital has been “affected” but not “effected” by the inflation discussions that attract investor concerns. For instance, there is no doubt that some commodities have increased substantially in price.
Lumber is a great example, with a sheet of plywood increasing by as much as four times the cost in the last 18 months. This has also affected our cabinet prices. But the increased cost of lumber has not affected our decision to affect the replacement of old cabinets in an apartment building. The increase in cabinet costs accounts for just 8% of our overall renovation costs. Knowing this effect from the beginning allows us to simply include that added cost in our underwriting.
We have, however, been affected by a delay in deliveries. But it has caused little effect on our turnaround times. We effectively affect over 47 contractors who are all managed by our in-house general contractor. As a result, our crews have not missed a deadline or a completion date for any of our affected renovations. Not only do our contractors show up on time, but they also give VWC priority because of the volume of work that we provide them, coupled with paying them on time and treating them and their work schedules with respect and professional affection.
Covid-19 and the ensuing pandemic has affected us, without question. But the affect we are having on our residents has remained effective. With the role of “landlord” being as important today as ever before, I concluded my reply sharing that the ethos of VWC is that “We work hard to find the easy deals.” In other words, we effectuate the most effective strategy within each economic cycle and then work hard to be the most profitable Operator. That is why today, we are a net Seller of properties.
And since inflation also affects rental rates, we are able to buy apartment properties owned by an owner who has enjoyed the property’s cash flow but has under-managed the income and put the property in need of our renovation touch to justify raising the rents to the level of the surrounding market.
We continue to be Sellers of a Buyer’s solution, and Buyers of a Seller’s problem. With what we do, we both affect the community, and have a positive effect on the communities we serve, the value of which effectively accrues to our investors.