Peter Whang is an investment consultant at Haylen Group with over 18 years of industry experience covering a broad spectrum in both residential and commercial real estate. Learn more about Peter’s experience in the Real Estate industry through this short video!
Peter specializes in assisting and representing investors that are targeting multifamily properties and income properties. In this interview, Peter shares his insights on real estate investments and his tips on doing due diligence for multifamily properties. You can also watch the video version here.
Helen: Welcome everybody, today I’m very excited to introduce you to another one of our Haylen’s agents. As a matter of fact, he’s also my brother-in-law, but he has tremendous experience in the real estate industry. Well, maybe I should let him talk more about his experience.
So how do you do due diligence for investors? Especially a lot of our investors are from out of state, or out of town. What is your process like to do due diligence for investors?
Peter: Well, the first thing is kind of similar to any type of real estate investment. You’re going to have to understand the investors, financials, their purchasing power, and then have the dialogue to know what they’re looking for. You know, just to say that I want a rental property it’s very broad, so you’re going to drill down into specifics, and then once the baseline financials are understood, you go into what classes you want to target. Some investors like to do a lot of their own work, and so they might be okay with properties that will need some hands-on maintenance, fixing up units, just the day-to-day stuff that they’re okay managing. Others want to be more backseat, they want something they’re willing to sacrifice, you know, the cap rates or returns on the front end, but they just want to trust it into the hands of good property managers, and just kind of let it run on its own. So really, everything’s unique, and then you determine the next steps after you conclude like what direction you want to go.
Helen: Let’s say if they found a property that they really like, and apartment buildings with, you know, we’ve done 20, 25, or more units, then now you have to go in there to visit. Do you actually help the clients to arrange so that they can see every single unit? Because there are some agents that we’ve talked to, the listing agents especially, probably saying like – you’re serious? You’re going to see every single unit? I can only show you a few units. So how do you navigate that when the listing agent is not allowing you to look at every single unit?
Peter: So first off, I mean, other than unforeseen circumstances, say the tenant is sick or whatever, if it’s a special unique case, then we’ll probably work around it. But by law, with proper notice, the agent and/or the property manager can access the unit, so that’s a given. So if that’s being used as a reason for not getting in, that side is not doing the proper work, because legally an owner or the representative has a right to inspect the unit, so that’ll resolve that.
For us, when we’re helping investors buy, it’s an absolute must that we’re basically going to examine every inch of the property that we have access to, so that means every single unit.
Helen: Exactly, that’s why it’s so important that investors need to know that they have the right to actually look at every single unit, don’t let other parties tell you – no, nobody looks at every single unit, which I have heard that from the other side of the agents before. That’s not true. You do have the right to look at it.
Awesome, and then what are the things that you would do when you get to go into the units to do the inspections, what kind of things that you would do besides waiting for the inspector to finish doing their inspections?
Peter: Well, so once an offer is accepted, and we have the access all scheduled. I mean, first off, you’ll get all the necessary inspectors normally for any type of building. It’s similar to a single-family, you’ll do the general home inspection, termite, but for apartment buildings, or even duplexes, you want to probably get the additional roof inspections, sewer line inspections, and a lot of that also is dictated by the age of the building. Most importantly, it’s we always recommend that the client is there for at least one of the inspections, which normally is with the when we hire the inspectors, and we’ll walk through as many as they can, but when I go with them to the inspections I’m there pretty much from the beginning to the end, going through every unit, just looking at what the inspector’s looking, asking the questions, and getting the direct feedback, which also helps when I do the summary after it’s all completed.
Helen: Yeah, and sometimes you might see the tenants in the units, too.
Peter: Right. Yeah, and that’s happened quite a bit, and you actually get some good info, so some shocking info, but I think the most important thing is to understand how that property has been managed, or how the communication’s been, and just overall get kind of the direct feedback from the tenants about the owner or the property manager, and that is very important. And they’re quite comfortable in opening up, too. You know, not all tenants complain, but a lot do obviously, but it’s a matter of just understanding, and then communicating that back to the owner.
Helen: Yeah, that’s why it’s so important for us to be there at the inspection, because that’s the time you get to talk to the tenants, and tenants see somebody there to do inspections, they’re like – okay, this is a time when I have to voice my concern or whatever, and then that’s when you hear that – okay, maybe the previous seller hasn’t been doing these things, or they might say no, everything is great, and you know – okay, this seller has been taking care of the property, which is a good sign.
Peter: Yeah, and to add to that, I think it’s very important, this happened on more than one occasion. The unit looks fine, but when talking to the tenant, they’ll tell a little back story – there was a pretty significant leak, and why that occurred, and what happened, and how long it took for them to remedy it, and so yeah, definitely there’s not going to be better feedback than getting it from the tenant that lives inside a unit.
Helen: Totally, which actually happened to us before, because sellers never really, I don’t want to say never, but they will kind of make the situation sound less severe, right? And then the tenants will tell you actually what happened, and then you can really share that information with a client.
So now, I want to ask you now at the time of this recording, we are kind of still in this coronavirus pandemic, and do you want to talk a little bit about what you are observing in the market of the multi-family space?
Peter: Yeah, I mean, I think in general, obviously this industry took a pretty significant pause, but even with that, activity was still pretty consistent, you know, it’s real estate. We had to prop up real estate to the best of its ability because we went through a pretty significant recession 10 years ago that was directly caused by this industry, and the recovery and ramifications coming from that took extremely long, and it just decimated so many households. This was a shock to everybody, but the industry still maintained, and specifically and obviously just on a side note, you know, the retail commercial side is pretty heavily affected right now, but for our discussion, residential, especially the multi-units, it’s been strong. I mean, I can’t even just say it’s stable, across the state of California, and even many other states, it’s stayed very strong with minimal delinquencies. You know, people want housing, they need housing, they understand the importance of housing, and regardless they might have to sacrifice some other expenses, but it appears that rents and mortgages are getting paid, which goes to the point of how good of an investment real estate is and can be.
Helen: When you say it’s very strong, you’re talking about the payment of the rent to the landlord, unlike what the news has been saying – there’s going to be 30% delinquency in terms of rent payments. We both talked to a lot of landlords, a lot of property managers, and investors. We haven’t had one told us that – yeah we have a 30% delinquency right now.
Peter: No, I mean it really, and this is just us on a personal level. Yes, we’re getting the direct feedback and I don’t recall anybody that had more than a 10% delinquency. Everybody’s running 90% plus on payment. Even more so, even the bigger players in our industry, every report that I’ve read or webinar I’ve sat in, it’s consistent across the board. Landlords, the ones that did take the initiative got creative, you know, made the necessary contact when this happened to make sure the communication was right, and there were some modifications on lease terms might have existed, but as far as, you know, flat out not paying rent, we’re just not seeing it.
Helen: Yeah. You know, we both have some clients that are in the Bay Area, the metro area, but then we also have some clients that invest in like the Stockton area. So a lot of times we’re worried about especially Class C areas that tenants will not be paying. And what we have noticed is that nowadays seems like more and more people are doing section 8, or they have section 8 tenants. Do you see that trend as well?
Peter: Well, in light of the current pandemic, the subsidized housing like section 8 came to the forefront, because obviously a certain portion is covered by a government program, and that’s, for lack of a better word, guaranteed rent that they’re going to be able to pay. So yes, definitely seen that across the board, and I think before there were certain stigmas around it, but at the end of the day you want to get rent paid, and there’s no better guarantee than a government.
Helen: Yeah. Now, what if they are first-time investors? Actually, we have a lot of clients who went from buying their first home, and then they said – okay, now we own our first home, we want to start buying investment properties. What would you recommend to first-time investors who want to buy an apartment building?
Peter: So this goes back to the earlier conversation. We would evaluate and discuss what they’re looking for, you know, there’re many different kinds of factors involved with income property. The most important thing being that you don’t want to lose money, and so it becomes do you want to be a passive owner or an active owner, and what are you looking to do. Do you want to, you know, just stay within safe good neighborhoods, and maybe get a two to four unit building? Or do you want to go to the five-plus units and go into the true multi-family space? So it’s unique and individual to each person, but at the end of the day, it’s it once you own a home and then you want to expand your portfolio, there’s really no better avenue than to get more units.
Helen: Yeah, and what would you say are some of the common mistakes that investors make, especially if they are first-time investors in the apartment side, or in the income property side?
Peter: Well, one of the most important things is to have a solid team, and I mean, obviously the agents that you have that represent you need to be established and understand it well, but it’s really a lack of knowledge, A lot of times there’s astute ones that will do their own research and get into it, but you can only read so much. You need direct feedback from professionals that have been in the space and understand it. So consistently I’m gonna say it’s a lack of knowledge, that’s the major hurdle that you have to overcome.
Helen: Yeah and I think also sometimes I get nervous when investors say like – oh I’m gonna buy this property, and it’s okay if we negative for a little bit, but I’m buying for the equity anyways. For us both, but we talk about this all the time, it’s like – gosh we just don’t want to see, even though we know there’s gonna be increasing equity, we just don’t feel comfortable when our clients are going in with the negative cash flow right off the bat.
Peter: Yeah, of course. I mean, this goes back to position, you know, if the investor is well-capitalized, and they can take on that kind of investment. But for the most part, especially for first-time investors, you don’t want to enter that point where you’re starting in the negative. Another thing that’s consistent in investment property is that you’re going to have a lot of unexpected events that occur. The best way to assure that it stays stable is to get on the front and do enough of the analysis to assure that, you know, you don’t want to go into something negative, and hope for the best.
Helen: Yeah, absolutely. Lastly, here’s another question. I know you’re not a CCIM yet, but then we have been using the CCIM 10 years analysis model. I’ve been teaching workshops teaching people how to use CCIM analysis, and I also have been saying that, I’m quoting Bruce Lee, he does not fear people who do 10,000 kicks once, but he fears those people who do that one kick 10,000 times. And then every single analysis we do for our clients, no matter if they’re making an offer or not, we always use that CCIM analysis. How do you think that CCIM 10-year analysis has been helping us when we go over the numbers with our clients?
Peter: Yeah, so I’m gonna preface this by, first off, the CCIM designation that I’ve seen is probably one of the best in the industry, without question, just because of the qualifications needed. So going back to our first conversation of my reluctancy to join, and when I found out you became involved with this and became a member, and saw the ins and outs of that group, that to me is a true professional. They’re specific to the commercial space, but regardless, you know, commercial real estate is a big economic indicator and they do a great job. Now, the question of the 10-year analysis, it’s easily the most comprehensive tool or template that I’ve seen. There’s a lot of things available out there, but this takes into consideration basically every single factor that needs to be reviewed and analyzed before making a final decision, and it’s probably the easily the best tool that I’ve seen.
Helen: Yeah, I love it. I think that’s one analysis we are able to explain everything to our clients and that every time it’s making it really clear for our clients to say yes or no to an investment. Well, thank you so much, Peter, I think we went over the time, but at the same time this is like a lot of information that you’re sharing, so really looking forward to helping even more clients in the future.
We hope Peter’s advice on multifamily due diligence and real estate investment, in general, has been useful to you! If you have any further questions, feel free to reach out to Peter Whang at [email protected].