Real Estate Investing: Understanding Market Trends with James Lipton – Real Estate Real Fast EP18

Summary

In this episode of Real Estate Real Fast, James Lipton from Entera talks about scaling in real estate, working with investors, understanding market trends, and negotiating rentals. He emphasizes the importance of focusing on tenant needs first when buying rental properties, using internal rate of return to evaluate investments, building rapport with listing agents, and having multiple targets when investing. Aaron, the host, also interviews James about Entera’s use of AI and machine learning to analyze data and provide insights into markets.

About James Lipton

James Lipton is the Head of Negotiations at Entera, a PropTech company specializing in multi-family investments. With over 10 years of experience in the proptech space, James began his career at Qualia helping to build out the industry-leading title and escrow software. ListingSpark’s brokerage arm – SparkTitle – uses Qualia as their Title and Escrow Arm. 

James is passionate about helping smaller investors operate at scale and believes that the traditional methods of assessing a rental property investment such as cap rate can be improved. He also advises buyers to focus on finding the right customer for the property rather than finding a property and hoping customers come along.

Highlights

1. Scaling in single family renting investments
2. Understanding market trends to be more successful in investing
3. Focusing on tenants rather than buying properties just to buy
4. Calculating cap rates
5. Using internal rate of return (IRR)
6. Negotiating strategies
7. How to making competitive offers
8. Partnering with Realtors to find success
9. Analyzing real estate data using AI and machine learning
10. How to set realistic expectations
11. How to developing a plan before investing

Takeaways

[00:01:37] James Lipton’s background and experience with Entera

James Lipton has been in the prop tech space for 10 years and is currently Head of Negotiations at Entera, a company that provides technology to assist large scale and mid-scale investors for purchasing single family rentals.

[00:06:00] Why you need to know your target customer before buying

James talks about the importance of understanding who you want to rent to rather than what property to buy.

[00:06:09]-[00:06:25]

“Money comes from the people that are renting the property, so this seems obvious, but it’s a really common mistake as you look at you look and say, well, jeez, what do you want to buy?”

[00:13:14] Tips for rental property investors

James suggests looking at the type of tenant first, then working back on property to buy from there. One good property option for investors are any government subsidized houses. They  can be low maintenance and surprisingly stable since tenants are likely to stay for a while.

[00:14:03]-[00:15:05]

“If you’re a single family rental investor, the home that you have purchased is your product and the renter is your customer. Find the right product for your customer.”

[00:17:41] What is a cap rate and should you be using it for investment decisions?

Cap rate is a percentage that is used to measure the return on investment for rental properties. It is calculated by taking the net return on investment divided by the estimated market value of the property. In a volatile, unpredictable market, cap rate becomes less useful and investors should consider using internal rate of return instead.

[00:19:21]-[00:19:50]

“Cap rate is great in a market that is predictable and it’s a really good shorthand to compare. Unlike properties together, it’s a good shorthand to compare a property in Memphis with one in El Paso in a predictable market.

So if you are not a national investor in a predictable market, which, newsflash, nobody is, even if you are a national investor, we’re not in a predictable market right now—this fails.

It also starts to fall apart a little bit and become unnecessary if you are a regional or local investor.”

[00:21:33] Using internal rate of return to evaluate real estate investments

James explains the benefits of using internal rate of return (IRR) to evaluate real estate investments. He argues that IRR is a more realistic way to look at where things are going in a volatile market and if you are able to accurately project occupancy over a 5, 7, or 10 year period, then you can be more flexible with how much you spend on acquisitions. He emphasizes that it’s important to focus on who your customers are and find the product for them, rather than the other way around.

[00:22:09]-[00:22:21]

“If you’re looking at a 5, 7, or 10 year hold period, there’s no reason to worry about the price of real estate because it’s going to appreciate over a five to ten year period.”

[00:27:30] Negotiation tactics for real estate deals

Aaron and James talk about some of the tactics used to acquire properties. Tactics include moving away from an adversarial mindset into a partner mindset and understanding that both parties have different jobs but win the same way. Additionally, it is important to present offers in the best possible light and with professionalism.

[00:28:11]-[00:28:59]

“My job is to represent my buyer and to take the offer that we put together and represent it in the best possible light. My partner’s job on the other end of the negotiation, the listing agent, their job is to represent their seller and to take the offer that I present to them, present that to their seller and find what’s most fair for their seller.”

[00:30:24] How to be a better negotiator for real estate deals

James shares his advice on how to be a good negotiator: ask direct but professional questions, focus on understanding the seller’s goals and objectives, and don’t get caught up in trying to squeeze out every dollar.

[00:30:42]-[00:30:54]

“My best negotiators ask the direct but professional type of questions that help to move the process forward.”

[00:32:01] Tips for building rapport with listing agents

James and Aaron have a conversation about negotiating real estate transactions. They discuss the importance of building rapport with the listing agent, asking questions to discover the seller’s needs, and recognizing that everyone in the deal has to win for it to succeed.

[00:32:19]-[00:33:20]

“Being able to build rapport with them and kind of turning them into your teammate, one, I think you’ll find that they’ll start opening up and sharing information with you that they otherwise wouldn’t if you have a very tenuous or stressful negotiation.”

[00:36:28] Why emotional investment in a deal can be bad

James talks about the importance of having multiple targets when investing in real estate, not becoming emotionally attached to a property, and how large scale investors operate differently than smaller scale investors.

[00:36:37]-[00:37:11]

“You just can’t. There cannot be emotion to it. So that’s a lot easier to do if you’re like an Entera client and you’re trying to buy dozens of homes and you have an intermediary like Entera for you and you’re mostly seeing the results.”

[00:38:15] Why you should be careful about making a lowball offer 

Aaron and James discuss how investors can make competitive offers in a shifting market, the importance of partnering with realtors, and the reputational damage that can come from lowball offers.

[00:38:15]-[00:39:25]

“You make an offer and maybe that seller hasn’t come to that realization that the market has shifted or is shifting underneath their feet as we speak. When you first get it, maybe they’re a little bit insulted. If you had a very good interaction with the listing agent, and then that really solid interaction with the listing agent is going to transfer over to the seller.”

[00:41:55] Finding predictable rental markets

Aaron and James talk about strategies for investing in rental properties. The conversation covers topics such as market shifts, rentable areas, and predictability.

[00:45:56]-[00:46:41]

“Predictability in real estate is a very good thing. Boring is better when you’re kind of building your portfolio.”