What are the Major Investing Pillars in US Real Estate Investment? – Mark Ho from RealVantage
In episode #10 of Coconut Avenue, we are joined by Mark, the Managing Director of RealVantage, a property investment fund that invests in properties in the UK, USA, Australia and most recently, Singapore. With 18 years of experience in the real estate industry, he’s here to share with you in depth about the USA property markets.
Tune in as we discuss with Mark on property investment in USA. What are some key reasons why he like the US property market? How to determine if a property is worth buying in US? How do they increase the yield for a different classes of property? How attractive is Singapore property market compared to the properties Australia and US? How are property taxation and transaction cost in US like? What are some pitfalls Singaporean commonly faced when investing in US property market?
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Troy: Every friend who invests in the stock market invests in the US stock market. But it’s so rare to hear Singaporean investing in the American real estate market. But have you wondered why is that so? If the actual returns for retail property investors in Singapore are so low, why don’t more Singaporeans just invest in the US property markets, which have higher yields?
If you have ever thought of investing in the US real estate market, but don’t know where to start, this episode is a great place to kick off your understanding of the US real estate market.
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Expand Full Transcript
Troy: Welcome back to another day on the Coconut Avenue. Join us as we explore various property insights, investment strategies, and challenging property myths out there today. We’ll be bringing on investors and experts in the game to share with us their insights and stories to better prepare us for our journey. Whether you’re looking at your first property or building a bucket of gold through properties, there’s something for you here. Ultimately it’s about helping you find your unique game plan.
Today, we are joined by an experienced investor with more than 20 years in the real estate industry. The accumulated real estate investing experience of his team is way beyond 100 years. Having experience in the Australia, UK, US and Singapore real estate market, he’s here to share with us more in depth about the US real estate market. He’s none other than the co-founder of RealVantage, Mark Ho.
This episode will give you more insights about the US real estate market. Are you ready? Let’s go!
What was the first property in US?
Mark: We went to a multi-family asset. So I think even this term, a lot of people here may not be as familiar. I think conceptually it’s simply called a condo for rent, right? So the whole condo is a, it’s not a strata title and then you sell it multiple owners. That’s not it. You can see it like a commercial investment. Basically it’s one building and it’s rented out, but instead to companies, it’s rented to residential purposes.
Troy: So there’s only one landlord, not multiple landlords.
Mark: Correct. So this kind of things is a bit different from Singapore. Like for example, we buy apartments, right, and we have to play mini landlords. Now you need to take care what happens inside your unit and everything, right. But once you have a whole complex, that is you know, targeted at renters, it allows that whoever the operator is, if they are professional enough and everything, they can manage your expenses and everything. So that rent is only a.. It’s an important component of your returns, but at the end of the day, the important thing is your net operating income. That means, It’s not the only element, right? You have your expenses. So with properly, proper management, economies of scale, whatever, you can actually move the needle, right, for your NOI, without your rentals even changing at all. Yeah.
Troy: So it’s something like CapitaLand building their own condo and then they rent out to people.
Mark: Correct, correct.
Reggie: So what are some strategies to reduce your expenses?
Mark: For example, you can… No, once you have scale right, let’s say now you are one apartment owner. You go and ask a property manager. He’s going to charge you a certain fee. When I tell you, eh, you do this all right, but you have 225 units to manage at one point in time. So instead of say, you charge me like 0.5%, 0.75% a year, I say 0.2% and take it or leave it. You’re not interested, I’m going to find someone else. So all these are the things, once you have scale, a lot of things can be done lah, right?
For example, I’m procuring, like, for example, a dishwasher. I mean, US people like to use, and it’s something that the tenants from surveys, is important to them. Not buying one, I’m going to somewhere I’m going to buy… All these are cost saving and here and there, you know, it adds up.
Troy: So right now, are there only multi-family properties that you all are looking at or there are other forms of property investment… US?
Mark: Yeah, so I think our selling point is we are fairly sector-agnostic. We, and I mean, it also draws on previous experience that we were not like just pigeon-holed into one particular sector. But having said that, the only thing that threads across all the deals we look at is, on a risk-adjusted returns basis, it has to be attractive enough, right. Currently we like multifamily right. Office, we are a bit iffy, there are quite a lot of changes afoot. Multifamily is one of the more stable and resilient ones lah. Like even looking at data through the last one year or so.
Reggie: When people say like risk-adjusted, right, fundamentally, you know, we got to talk about the risk factors, right? So what do you, what are the risk factors in this space?
Mark: In the multi-family space?
Mark: Okay. So I think it’s a very good question. I mean eventually, whatever deal you go into, you have to be very clear before you go in. It’s like…
Reggie: Yeah, you gotta know what you’re doing, right. [laughs]
Mark: What’s going to drive your returns, right. And then whether your those returns drivers or your assumptions are clear or not, the flip side of it is it’s a risk, lah, right. So for multifamily, we don’t like to be heroes going to areas where infrastructure is , you know, being developed. In three years’ time you’ll will be this, but today is not that. We tend not to favor… You’re banking a lot on some things happening lah, right. We go there, I mean, the main reason why people invest in multifamilies is because it’s resilient, it’s, the yield is already there.
Reggie: So you’re saying like matured estates?
Mark: Matured, right.
Reggie: So then there’s no big, giant developments around…
Reggie: …that kinda…
Mark: even if there is, we’re not banking on them to drive the returns per se. If it comes, you know, that’s a bonus. Yeah. That’s what I’m saying. So other risk will be like say, the risk of the operator not doing a good job, right. I can’t stress enough the importance of having the right operator, because at the end of the day, you are so many miles away and there’s time zone difference, everything, you know. If something comes up, you can’t be like, I can’t give you a decision with a one or two day, you know, residents… that’s not the kind of things that keep residents loyal or…
So… Catchment, as well. For multifamily you want to know who exactly your profile is. Once you do that, like, for example, you’re going for the young professionals, you know what your rental levels are. Not everyone can afford that kind of level. So once you have pegged it to that segment, then you have to see, you know, are there enough centers of employment around, right? Are companies moving in or out of the area? Right. You know, people will follow their jobs and stuff like that. So all these are like the fundamentals, the risk factors you have to be careful about.
Reggie: Okay. That’s cool. So then which areas are you, are you most confident of then? Like, because in Singapore is, you know, I think most of our audience are Singaporeans, right. And when Singaporeans look at property, they don’t really look at these kinds of demographic changes or like different states, different job profiles.
Mark: Correct, because it’s a different country.
Reggie: Everybody, everybody can get can come to City Hall and Raffles Place and work. So it does not really matter as much, you know. But when we are looking in the US, different states, different cities, different kind of job profile, different places. So give us some ideas, give us some textures as to, you know, where you’re looking at, you know, what is the color here?
Mark: Yeah. So I think you’re absolutely right. I think people here might have been conditioned that to look at a country as just one place, which is, which could be very fatal going to the US. And I also add that running up to the COVID situation, for quite a while now, there have been… the push factors for certain locations have been building, right. The cost of living, the cost of doing businesses and stuff like that. And I’m not sure if I should say, unfortunately, these are places where Singaporeans are more familiar with. Your New York, your California, your Bay Area. And even before COVID, like I said it’s not unusual to see like a young professional having to live very far away from work or crammed into a certain apartment, and actually he’s making a pretty decent pay, and the reason is only because cost of living has skyrocketed, right?
So at some point in time, you’ve got to see like, no something has to give. But well, COVID coming has sort of accelerated this and I don’t want to say… okay, maybe “Exodus” is not a right word, but certainly it has accelerated people moving out of these areas. Businesses as well, right. To lower costs to more competitive locations that offer value. It’s not about… Yeah, we talk about value, like for example, Texas and Florida.
Reggie: Yeah. That was what I was going for. Like, am I sensing Houston here? [laughs]
Mark: Yeah. So Houston, you know, part of Texas. These places, why? Because Texas tax-wise right, yeah, taxes in Texas, very competitive. Big companies are really moving there. And once they do that, obviously then people move along and smaller companies move along with them.
Troy: Tesla just moved there also, right.
Mark: Correct. A lot of people have, right. A lot of people have moved into Dallas Fort Worth even before that as well. Yeah. So I think when it comes to investing in multifamily, you just have to follow the jobs. Right. And this trend, it’s probably ongoing for like a year, year plus. I don’t see it stopping anytime soon, even if COVID would to go away, you know, the momentum has started and companies have already put down roots and signed a fairly long leases lah, in some of these new places.
Troy: Yeah. And people are okay to work remote also. So that further reinforces this trend.
Mark: Correct. Right. So there’s no compelling reason to say pay [unclear] for high costs, whether it’s to do business or to stay somewhere. Now you have more choices and… so we have to be cognizant of all these dynamics that’s going on and that’s how we select places that we like to hunt for projects lah, yeah.
Reggie: I think you’ve rightfully pointed out that Texas has more competitive taxes [laughs], right? So more competitive taxation, more big companies will shift there, more jobs over there. Compelling jobs, compelling young people to go there. And then, you know, your property prices, the residential property prices will reflect. Right. Other than Texas, you know, are we seeing other spaces that are trying to compete?
Mark: Oh, yeah, so many, I mean, with the traditional hotspots now already like kind of losing their luster of competitiveness, you can be sure that a lot of other cities, you know, with their own mayors and everything. I mean, they will be trying to like gun to be the next, you know, to capitalize lah, on this. So for us besides Florida, Texas, there are other things like, we call them Sunbelt cities. They’ll be a bit more Midwestern. In fact, one of the, our first US project in Atlanta, that we will classify as one of the Sunbelt cities, right.
Again, lower cost of living, but they’re not giving up much on their infrastructure. They are still very well-developed very well, you know, supported by all these kind of stuff. And then there are all sorts of terminologies being thrown around, like, 18-hour cities, you know. What that means is certain cities last time when they were like less developed or less people staying there, it could be like, your Perth lah, you know, after a certain time everybody goes to sleep and businesses close, right. But obviously some of them are becoming more vibrant.
Reggie: [laughs] Very sian, ah, very sian. Just saying. [laughs]
Mark: Correct. So there are like, emergence of all these smaller cities vying for that. And some of these cities, I would say, maybe Singaporeans or Singapore-based investors may be less… familiar with. St. Louis, you know, or even Kansas, these kind of pl[aces], people may have certain preconceptions that these are very backwards places, which is, I think is wrong lah, yeah.
Reggie: What about cities that were once huge, you know, places like Detroit, you know, Chicago area, you know, those, they used to be huge manufacturing hubs. So they have very, very well-developed, you know city center and infrastructures, right. It’s just that after the exodus of manufacturing, people shifted elsewhere, and job profile changed. Alright. So then are we seeing numbers coming back into these cities, you know, and capitalizing on the already-developed infrastructure.
Mark: Yeah. So it’s not so much just the infrastructure. It’s like, economics is quite a complex topic. Like…
Reggie: That’s why we have you mah… to share with us… [laughs]
Mark: [laughs] No no, just sharing views, right. I mean there’s no right or wrong.
Reggie: Yes, yes.
Mark: One thing that is different, especially for, let’s say, we compare US investing to Singapore, is some of the companies there actually, I mean, they, their decisions do shift the needle quite a lot, right. We’re talking about MNCs. Their headquarters being in a certain city and then moving away, it, the city does feel it, alright. For places like Detroit all these, they have been losing their competitiveness on, let’s say, car manufacturing. This has been a long time coming, right. It’s not just a US competition it’s from many other countries, right. Exerting that kind of pressure. So right now I don’t really see that city as a form of replacement. They are losing to like, they’re not carving themselves out to be a tech hub or anything that kind of… which is the area to be lah, so these are areas where we might be a little more careful about. Yeah.
Reggie: So “area-to-be”. That’s what I’m hearing for, you know, tech hubs. So is that where, where you’re doubling down on?
Mark: Absolutely. All right. Either tech hubs or even say, financial center. I mean, obviously the first thing that comes to mind is New York City, but increasingly you will find that some of them are slowly moving even down to Florida already. Right. So these are the kinds of things that we have to be cognizant about, lah.
Reggie: Okay. Okay. And give me a little bit of color of like, who are you trying to woo in terms of your tenants, right? Because from what you said, like tech hub, you know, jobs, all that. So I’m trying to just get a, you know, give us all a clearer picture of like what’s a tenant that you’re trying to go for . Yeah.
Mark: There’s no one broad brush. It really depends on the location and what the micro-location is about. So for example, I mean, if you’re looking at area where there’s a, you know, there’s anchored… The biggest employer there is, say, the hospital and the school nearby, and they are the biggest employer. Then if I’m looking at a, a project nearby. Like, say, within a vicinity of five miles. Then I have to be sure, like you know, this, this is not an area where I expect you know, employment to go down anytime soon, or there’s a risk of these guys are moving. So yeah, it really depends. I’m not like obsessed with like, just going out to tech per se, but it’s just one of the more sexy places to look at lah, these days.
Troy: What are the risks, let’s say you, you invest in that multifamily for that hospital or for that tech, how do you take into account that risk?
Mark: Yeah, so typically just for, I mean, I will use the latter one as example, right? There is risk when you bank too hard on one particular segment. I mean, that’s why Atlanta, we loved it because the makeup of the economy is pretty diverse, right? Coke is there, UPS is there, you know, all these Fortune 500 MNCs, right?
Reggie: Stacy Abraham, is there, just saying. [laughs] Yeah, politicians, politicians yeah yeah, [unclear]…
Mark: Delta, is there, okay, so obviously we know that Delta is, given the current situation, they could be struggling. Right. But then again, when you go to a more diversified place right, you will know that, oh then UPS as logistics might be making up for the shortfall there that kind of thing.
So if we ever do look at an opportunity where really it’s just banking very hard on a single propeller plane, right, then we have to be extremely sure. I’m not saying that we will never do that, but as and by and large, I think it’s better to hatch with a more diversified economy. Yeah.
Reggie: Nice. I think that, I like the thought of like, recognizing that the state needs to have the resilience and diversity , you know, so then you’re not banging on that one factory shifting out, you know. [laughs] Yeah.
Mark: Or someone moving in, yeah, that one, yeah.
Troy: But let’s say, let’s say you have maybe 6 or 10 industries. Your diversification depends on that. Are there any systemic risks in investing in US for a Singaporean investor that is regardless of your industry?
Mark: Yeah, there will be lah, I mean, there’ll… Even investing within Singapore, I mean, there would always be a systemic risk. The question is yeah, you have to assess how high it is. But I mean, for a country or market as large as the US, for systemic risk to come, I think, we have like maybe more than a hundred years of experience looking at the current market really, right, that I don’t really foresee, you know, such a, even for, you know, something as extreme as the GFC. Or recently COVID, you know, yes…
Reggie: GFC is great financial crisis, huh?
Reggie: Okay, okay.
Mark: The Global Financial Crisis…
Reggie: A lot of acronyms throwing around. I just want to clarify. Yes. Yes. It’s okay. You know, you’re profesh(sic) [professional], most of people like that one. Yes, I get it. I get it.
Mark: So those were pretty extreme situations already lah, and you know, obviously you will dislocate the market in the near term, but within a matter of one or two years, you can see that the trends come back in and everything. But yeah, you’re right, there will be systemic risk. Things like interest rate movements all these. Big adverse movements you can treat it as a systemic risk as well. Right?
Troy: Currency fluctuations also.
Mark: Correct. But I mean, that’s why we watch a lot of things very carefully. Like what the Fed is telegraphing, right. In fact, the Fed’s job is to… the federal reserve, right, that controls the interest rate, their job is not to like surprise the market. I mean, if they do surprise the market, I tell you, they’re probably doing a really bad job, right. So they always try to like telegraph ahead and guide the market towards where they want to land, in a very controlled manner, right. Yeah.
Reggie: So then when we talk about like, other than the macro ideas, right. If we want to raise the yields of the particular class of property that you’re doing. Right. So, okay. Just to, I think, clean up a little bit of idea, multifamily spaces – essentially just like a very small condo, a very small apartment…
Mark: It can be very small, up to even thousand over, it can be very large.
Reggie: Okay. Okay. So, so just to give people some sort of idea, you know, because, you know, over here, we don’t call these kinds of places multifamily, right, just like something like an apartment building. Okay. So, you know, how do I engineer more yield then, in this space?
Mark: Yeah, this is a very good question. So it relates back to earlier on what I said. Whenever you go into something, you need to be clear, what’s going to be driving your returns.
Mark: For example, if you’re already investing into a new build. One it’s very shiny, everything works, you know. Then at that point in time, I will be seeing, thinking like, you know, there’s really nothing much, there’s quite limited… there’s relatively more limited stuff that you can do to, to jack up the yields, right.
That’s why, I mean, like again for the Atlanta one, why, why is it attractive because, it’s not super old, like 1970, completion in 1980. Actually. there are a lot of such things in the US, right. Relatively new in the 2000, late… almost… it was completed 2008, if I remember correctly. But so some wear and tear, coming 12 years in, right.
And then you have to, we go, we do as detailed as a room-by-room kind of inspection. And then we will identify what are the areas that this… where you need to touch up, alright. So you need to like identify, down to the details, like what it is that you need to do to the apartment to make it look more rentable, to, or more palatable to a potential tenant viewing it.
Right. So you do go down to the kind of details. Other things to say jack up the yield would be as simple as, you know, now more and more e-commerce deliveries are, you know, just setting up lockers, retrievable, secured lockers under a video, with a video cam in that kind of environment. That kind of things also helps to… It doesn’t move the needle per se, but it does increase your other income, receivable income, right?
So you just have to be a bit more creative, you know, put yourself in the shoes of the tenant, what you need, alright. And whether the landlord can monetize one way or another from that. And it’s a win-win, when you provide a service to a guy who’s paying, meets his requirements, or like yeah, these kind of things.
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So I get the idea, right. You’re trying to like make the place very nice, very tenable. And then like, you know, if it’s between 1,005 next door of something, that’s not so sweet, compared to 1,008 of something that, oh, a little bit more swee, this place nicer. Most people would rent it. I mean, I’m, as a consumer, that’s my experience, right. I will do it, you know, but if we’re talking about like strategically engineering yields, like cutting up spaces or, you know, like additional services and all those kind of thing is that as easy to be done in the US? Because compared to here it’s not easy, right? Chopping up spaces and everything, very mah-hwan (troublesome), right. So I want to, you know, I have friends that are doing that in the US, where they cut up spaces. Like they get one bungalow they cut into half, they reapply and then they sell out, you know? So they make that very big marginal difference. Alright. So is that a common practice in the US? I just want to get your thought on that…
Mark: Yeah, so I mean, parts of US, yes, right. I mean, that’s why the research is so important. Like, for example, you’re talking about, say, coming back to the Bay Area again, right. That kind of a, you know, carving out to a smaller space and renting out for higher yield, combine yield that’s a very viable play, right. But where you’re going to a, say, lower cost of city, then you must find enough data points to support that there is a demand out there for that kind of things, right? I’ll give you an example. There’s another project that we looked at. In the whole area there that submarket, you realize that the rents are interestingly higher for larger units. Even on a per square foot basis.
Reggie: PSF. Oh, okay.
Mark: And typically we don’t really, it’s quite an unusual situation and when you look at enough data points, eh, how come this project? And then down the road three projects and stuff like that. You kind of like come to the, you know, the thinking that perhaps the… the area is under supplied in large units, right. Then, then we have to be careful like coming, like executing the kind of strategy. I mentioned earlier that maybe might backfire. Yeah.
Reggie: Fair. Okay. That’s some clarity. That’s cool.
Mark: Yeah. So it’s all micro-market research as well.
Reggie: Very specific to the space and compare the market.
Mark: Correct. And a very good reason about why we like the US is, it’s very easy to get the information. It’s very transparent. You know, US, UK and Australia are the top three most transparent markets in the world. If you spend the effort and time, you should be able to get sufficient data for you to evaluate. And…
Troy: You mean as a single investor, without some expert helping them, is that what you mean?
Mark: Yeah. I mean, you can do it, assuming the person knows what to look out for. He can, he can, he or she can do it.
Reggie: So what are some things to look out for then?
Mark: You have to be more specific than… [laughs]
Reggie: [laughs] ‘Cause you’re saying, like, you know, if they know what to look out for, right. So how do I determine that this is a property that is buyable? Like, what is your matrix for deciding that, okay, I will buy this at this price.
Mark: Yep. So, I mean we’ve already talked about say, being sure, like where, who your tenant target is…
Reggie: Who is our tenant target, what is the demand, you know, the physical reality of the space, we talked about all that. So, what is the price and the magical numbers, that we’re talking?
Mark: Yeah, so the magical numbers is you must look at all the comparables, right? Whether it’s rental comps, what people are paying to rent something similar, and what people are paying to buy something similar, right. Transaction comps, alright. Again, for most of the cities that we operate in, the are easily available. Sometimes of course you have to pay. So far a single person, unless you’re, you know, looking at a big ticket investment, paying for that service may or may not make sense to you. You don’t have economies, right? For us, it’s different because a lot of our investors come together. And although each of them may not be putting out a crazy amount, it’s a flexible quantum amount that they are comfortable with. But when we come together, we have that kind of economy to say, make sure that our research is well backed-up and we can, you know, when we share the cost amongst all investors, it makes sense.
And then the trick of, in real estate, is always, no two projects are always alike, right. So you look at the comps, it’s just numbers, looking at it miles away, right. You need to have like enough information to say, are we comparing apples to orange? Which we can still imagine what the difference might be, or apples to durians, wow, there’s like, you know… yeah. So you have to have people on the ground to, to go and inspect and people who know what to look out for lah, basically. Yeah.
Reggie: But comparables are essentially just, if you bought something in a million, I want to buy the similar thing at a million. I don’t want to be buying more, right. But it does not translate to like, what is the underlying value of this property?
Mark: If enough people, I mean, if there’s enough transactions going on, everything. What the value of the property is what the market would tell you what people are paying for, at the end of it.
Reggie: So that is the property market, correct? There is no like, way to calculate an intrinsic value?
Mark: No, it’s not, it’s not exactly a science, right? So even if a market, a lot of people pay for this, right. Sometimes for us, yeah, you still have to make a view. You’re making an investment. You still have to take a view. Do I agree that these guys are misguided or for whatever reasons? So these people are all owner occupiers coming by in the area, the owner occupiers are the ones who are driving the, you know, the capital values.
Mark: But the thing is, if I’m going to a multifamily I’m looking to rent, right. Then I think you have to make, you have to triangulate towards what makes sense. Right? Yeah. Don’t… You have to understand the context of, why people are paying certain prices. Let’s not talk about multifamily. Even for commercial, right, if I’m, if I’m looking at a comparable where someone bought at a pretty high price, and I, and I, I wonder why is he paying such a high price?
It could be like inside the lease agreement, there could be some kind of lease-back at a pretty high rental rate as well, right? The guy wants to free up his working capital. He wants to sell you at a high price, but he leases back at a high rent, but he manages his capital. Now, these kind of things you have to know so that, you know, you can adjust from all these comparables to what you think makes sense for you. So it’s a lot of work.
Mark: Getting the, getting the data is one thing, making sense of it in the right way is another thing. And having that… all the time and effort is, is another thing altogether.
Troy: Yeah. Because if you just take all the transactions at face value, then some of the prices might be inflated also.
Mark: Correct. But if you, again, if you have a lot of data points in one area, if it’s a well-leaked, very highly liquid market, then there’s less of a risk that you are probably like you know, too off the mark, lah.
Reggie: Then if the market becomes so efficient, right, with so much data out there, how do you, like, how do you know that you are getting a good deal? At best you’re getting a fair deal, right? You know what I’m saying? Highly efficient markets…
Mark: No, generally, generally that’s correct, right. I mean the more transparent, the more liquid the market is, the harder it is to, like, outperform by a mile…
Reggie: Like kio-to-bao (find a piece of treasure), very hard to… [laughs]
Mark: Correct, but at the end of the day, but the other way to look at it is from a risk perspective, right? For example, I can go into, let’s say a market like Cambodia and because of certain special things that I have, like a certain relationship, I can get some things done that others cannot, or I have certain information way advance of others. But then again, you know, the risk that comes along with operating that kind of places is on a different order of magnitude, right. So at the end of the day, I mean, I, I’m not sure that what, Financial Coconut, might advocate, we’re not like going in to say, oh, we want to make outsized returns all the time, right? It’s a very diversified, a very stable kind of investment approach that we advocate, lah. So that, you know, you’re planning for retirement, you know? We’re not banking on like, Oh, I’m going to double my, my wealth in three years, yeah…
Reggie: Fair, fair, I get that. That’s cool. That’s cool. Is there like a investment-hold period that you usually like to before you recycle your capital, sell the property?
Mark: Yeah, it’s a good question. So for example, I know my strategy to drive a returns it’s a refurb A-and-A kind of exercise and I know I’m…
Reggie: What’s “A-and-A”?
Mark: Sorry. Alterations and additions. Okay lah, you can call it refurb lah, refurbishments.
Reggie: Okay, so that means I buy this thing, not so sweet then I clean it lah and make it… I beautify it and do all the stuff.
Mark: Correct. I might have to put a little bit more CapEx or what you call like capital expenditure, right?
Reggie: Okay. Buy new sofa, paint the wall, partition, those kind of things.
Mark: Correct. So whichever you have identified the problems to be lah, right? So… where was I… So we do like that kind of refurb play and… usually they don’t go longer than two years lah, right. So if everything goes like our base assumptions, then my exit would be, you know, I can visualize my exit in about three years? So once you execute two years, you get your tenants to either renew at higher rents or you get new tenants who appreciate what has been done and pay the correspondingly higher rents. And once your NOI is up to the level that you have reached, you know, you can look to capitalize and sell, but then you have to give yourself, maybe say, six months to run a optimized divestment campaign, right. So all about, for that kind of strategy, three years.
If you’re buying into something that is a, you know, say a Walmart, I mean, this is not multi-families, it’s commercial, there’s nothing much to do to it. It could be triple net lease. And what that means is you know, the tenant in this case, Walmart, they pay for everything like from building maintenance, repairs to taxes. So that then the is very easy for the landlord in a sense right. Now, this kind, you might have to hold on for longer lah, maybe some up to four or five years for your investment to make sense. Because otherwise without the value added component, right, your transaction costs, if you go in and out too fast, then it’s not worth the effort and time.
Reggie: Mm Hmm. What is the transaction cost? How does it look like in the US?
Mark: The transaction costs, because it’s such a liquid market and everything, I wouldn’t say it’s prohibitively high compared to say Vietnam or that kind of market. The only thing you have to be careful of is not to apply the same transaction cost to the whole US because every state even down to the counties have different taxes, right?
And all these there are at least 3 layers of tax that you know, investors have to… At the federal level, then at the state level and even down to the district or county level sometimes. So, hard to answer your question. I would say the round trip, kind of investment cost for transaction for places like Florida or Texas would be a lot lower than say, if you go to New York where it’s like 8% already at state level. At Florida and Texas, they don’t have state tax.
Troy: So it’s like 0 compared to 8%?
Mark: Yes, but I mean… You could say that, but you have to factor in all the three layers of taxes and there are many ways you can mitigate that. So actually at the end of the day, the difference may not be as large, but it’s still very significant. I would say that, yeah.
Reggie: No, like but taxation, you know, it’s, I just want to get a clearer idea of like, what kind of tax, how do they tax, are they taxing transaction, they taxing net value of the property because it has changed hands? Is it like a wealth tax? You know, like how is, how is the taxing like? Because over here, you literally just, you know, pay the stamp duties and you, you, you pay your agents and things.
Mark: This is a huge, this is a huge topic.
Reggie: Give us a little bit of juice.
Mark: Yeah. So I think on a conceptual level it’s… There are many similarities to Singapore. For example, first and foremost all the tax related to the transaction, right? So you have a stamp duty, you have capital gains tax and that kind of stuff. And as I mentioned earlier, there are three layers of tax, right? You pay the county level first, then you pay your state level, then finally you pay your federal level. Okay. Now while you are like operating the, or owning the asset, there is ongoing taxes on your rental income. Mainly your income lah, right. Whatever income is coming in. Of course then you use your normal kind of measures, like for example, your, your debt servicing leverage to sort of like reduce your taxable income, and then your depreciation.
So you also have to be very clear in that area that, the location they’re operating in. How should depreciate, how is depreciation allowed to occur? Is it a straight line? You buy the building, is it just on the land or the building? In the US, it’s just a building, right? You don’t need depreciate land and all the stuff that goes inside your building. A lot of things can be depreciated as well. So you need to get a professional to do a cost segregation study. And then once you have all those numbers, right, from a professional, then you can engage the authorities to say, these things, I’m not going to be paying taxes for, because it is depreciating, right? Yeah.
Reggie: Okay. So you said you can claim that your depreciation, in that sense.
Mark: Correct, but you have a strong basis for it. So that’s why it’s not like us going to, we have to engage the right people to do this.
Mark: So as a single, smallish investor to try and even access the benefits of doing all this is… The economy is not there. Whether you might go through it but by the end of the day, whether it makes sense to them at that level, question mark, alright. That’s why RealVantage the way we do it, we are trying to like, extend the benefit to everybody else. And then together, at least, we can enjoy these kind of benefits. Yeah.
Reggie: Cool. Thanks.
Troy: We talk a lot about comparing between states, let’s say that Texas and everything. But let’s say if a Singapore investor wants to compare between Singapore properties, Australian and US properties, how does the attractiveness of US play between these three countries?
Mark: First and foremost, I know, I’m Singaporean and, and I, I have nothing against investing in Singapore properties, but like it or not, it is a very small market. And let’s just… it’s very hard to… let’s, let’s just take residential property, for example. The policy makers here have already made it clear, right? That they’re not really ready to tolerate aggressive capital movements, value movements, right. Prices, lah, that means. So the way we underwrite and we assume you don’t want to go against the policy. They can always like, react. Let’s say the market rise up first, they can always tighten some screws or loosen some screws, right. So we have to take their guidance from that. In terms of yield, I think there’s sufficient empirical data to say that that’s not going to be driving your returns by… it doesn’t shift the needle by much. If you can even cover, get into positive territory. That’s okay. That’s not too bad. And I don’t think that’s attractive to me, at this point in time, that I’m seeing. It could change down the road. So what’s attractive about see Australia and US now is that the yields are still very meaningful, right? You can still, like, after leverage get up to about 8, 9% yield. It’s very possible.
Troy: We are comparing just residential to residential, correct? Yep.
Mark: Correct. So like the multifamily we went into, like 225 units, is already spinning out a yield of about, say, 7-ish, you know, that kind of things. It’s a very nice…
Troy: It’s deducted the taxes, or…
Mark: Correct. Net take home yield. So I’ve already like taken out all fees, I’ve really taken out all taxes. So this is a take home, can spend kind of yield, right. So, I mean, from that basis, I would say is a lot more attractive. So until one day when I feel that, oh maybe the capital value appreciation here in Singapore is about to… the situation is about to change, I think that can compensate me for the low yield, otherwise I, I find the US more attractive. Yeah.
Reggie: I think even our local REITs are buying a lot of foreign properties, so, yay! [laughs]
Mark: Correct. So the REITs, you see, I mean, Singapore, it’s the same thing. The Singapore is too small for them.
Reggie: I mean it’s a capital vehicle, right?
Mark: Correct. Singapore is too small a market for these REITs. And if they’re just banking or just being a Singapore play, I don’t think the investors after a while will take too well. You have to be able to see growth in other markets. So yeah, that’s happening here, right?
Troy: So what’s the biggest mindset pitfall that you have seen recently that a Singaporean investor brings to US, and then he suffers because of this mindset pitfall?
Mark: Yep. So one example could be like you would think… Singaporeans are quite… Singapore-based investors are quite by the book, I’d say in general, right. And you would think that because the tenancy agreement captures certain things adequately, it’s spelled black and white, then it’s all good. But there are a lot of other things, like, for example, if your multi-family asset services a lower income profile, for example. And a COVID situation hits and you know, suddenly you have a lot of errant tenants to, to, to deal with. Whether you can just go in there and rectify and get them out of it is not as simple as it is, right. Other things that we have to be careful of is, for example, in Singapore, I think we are spoiled by how well the government runs the planning. The URA has done an absolutely fabulous job, right. But over there, in some of the cities, things, things are a bit more fluid, right. A piece of land is the re, you, you can, you can go to the government and say, I would like to propose this kind of project, whatever it is.
But then again, the people around the area have a very big voice, right? The planning risk is not as, it could be higher than in Singapore, right. In certain places. You have to take care of the, the, the people around you lah, right. So that’s why, I mean, this term “NIMBYism” is a real thing there. It stands… It’s spelled N I M B Y, “not in my own backyard”, right. It’s an acronym.
It’s not quite a thing here because, I mean, we do have a little bit of that but it’s not quite a thing here as compared to the US. Because like if you want to build something and the residents do not welcome it, you’re going to have a big fight, right. And the local planning councils and stuff like that, sometimes that’s who they get their votes from, right. So they can’t also… they have to balance lah, what a neighborhood needs and what the residents are happy and not happy about, right? So these are the things that perhaps from a Singapore investor’s perspective, it could be somewhat new and to get a grip on the whole handle is you know, it takes a little bit of time.
Reggie: What about the cultural nuances of, you know, the rentees there. And the renters there?
Mark: So that itself is really a cultural thing. This NIMBYism thing is already a cultural thing, right. They feel that they’re entitled to their status quo and no don’t come and disturb me, that kind of things. Yar, the renters-wise, if you are a multi-family asset, you’re also… I wouldn’t call it a culture thing lah, okay. Make sure you know who your profile is. If you are going after the younger ones or singles, and you know that your units are smaller ones, this is different from trying to have a family kind of location where you are renting a small families or three bedroom kind of stuff, right. Your wear and tear all these, it translates into real numbers, right? Whether the people there take care of your, your tenants, your unit, or they’re just there and do whatever they want, rip it apart. And by… And you’re sitting here thousands of miles away, these are the provisions that you have to be careful of. So I’m getting into really detailed stuff already, alright. And of course, some of these is true experience.
Reggie: Cool. Anything else you want to add?
Mark: So, when we end out I just want to say one thing. It’s not easy for somebody who doesn’t, who hasn’t spent enough time in, over the, you know, it’s years of learning to just go to the US and say, I want that. I want to get exposure here, I go and invest.
Reggie: Can plane there and just buy, you know. [laughs]
Mark: Correct. I think it’s just too many pitfalls that, you know, as a new guy, you probably would have to end up paying a little bit of school fees here and there. There’s no shortcut or substitution for building up the knowledge, but that takes time. Right. So one way to help short-circuit debt is, for example, to go in with somebody else who’s already more experienced, right. And at the same time, don’t go and bet the house on it. Obviously like, you know, someone who is able to accommodate your more flexible quantum, then that’s fine, go in small. And when you go through the whole journey, take it as a case study, right? Like the way RealVantage is operated is we’re quite transparent in showing what’s going to drive our rental. Why is it, why is our view, you know, like that and what is it based off, alright. It’s all transparent. And even the assumptions that we make, alright. So take a more, you know, like analytical mind to it. You may or may not agree. That’s fine, but at least, you know, our selling point, you can then adjust accordingly.
Like if I’m saying I expect 3% or 4% annual rental growth and you don’t agree me for whatever reason, that’s fine, but at least, you know where we are and how the numbers we arrive at, right. So I think going through this kind of experience helps a newer, relatively new investor to learn faster. Yeah. That’s what I think.
Troy: Hey, thanks for taking time to tune in. I hope you’ve learned a little bit more about property investing today. If you feel that you have benefited from this podcast, do share this with your loved ones and also do follow us on all our socials and join our community telegram group. Tell us, what you are interested to know about next. Everything is in the description, below. Have a great day ahead, guys, and always remember, when we are better prepared, the next opportunity is just around the corner. See you next week.
For someone who hasn’t invested in the US real estate market before, it’s just not possible to know how cultural differences can affect investing. I can only imagine how careful you need to be with your real estate investment in US with all the different rights they have and on the widespread use of litigation.
I don’t know why, but I just have a feeling there are more types of property investments and more metrics to look out for in a US real estate market than a combined from UK and Australia. Because first of all, there are different levels of taxes to consider between states. And then in each big city, you have to look at how much the economy is dependent on a particular workforce because the overall economy landscape in the next five years and the target audience, demographics, will affect the type of property you want to invest in today.
So after interviewing Mark, I had two questions for myself and also for you. The first one is, can you invest in a US real estate market on your own? And the second is, should you do it on your own? The answer for the first is of course, yes, you can. All the data and research are online. If you have time and dedication, and you’re a meticulous person, why not?
But even if you can do it on your own, does that mean you should do it on your own? Because the thing to understand in real estate investing is not as, straightforward as stock investing. You can invest on your own for stock. With that said, I’m not saying that investing in stocks is easy. It’s just that the process is more straightforward.
You can just buy and sell on the app in the comfort of your home. For real estate investing, you still need to do a lot of learning, a lot of research, a lot of contextualized information is in a market that you can’t find on an app. And we have to understand that whichever field we go into, there’s a learning curve for sure.
And there’s a price to pay when we make mistakes and learn. The fact is that we’ll never be as experienced as the people who are on the ground daily. And they’re doing this as a career and have been there for so many years. If we can put it simply, these people have already paid the learning fees. The real estate industry is changing and more real estate investment funds are coming onto the market, providing thorough research to investors. Gone are the days when you need to invest 500K into a property overseas and own it fully. Some funds allow you to invest as little as $50,000. And that’s one of the advantages of economies of scale. Times are changing and with information being easily assessable, risk being better predicted and yields more accurately forecasted, I believe more and more Singaporeans will look at real estate investing outside of Singapore for their portfolio diversification.
So yeah, these are some of my thoughts. I hope they give you some food for thought as well. Let us know when you think about this episode in our telegram community group. See you next week.
Ep 13: 3 Questions Everyone Should Answer Before Deciding What Property They Want – David Baey from Mortgage Master
In episode #13 of Coconut Avenue, we are joined by David Baey, the Co-founder of Mortgage Master. David has been a driving force in the mortgage industry for almost 10 years. He started out at DBS, specializing in mortgages and rose to become Branch Business Senior Relationship manager. He then led the Mortgage department at MoneySmart before co-founding Mortgage Master in 2019. And today, he will talk about something so important, but almost always neglected in a property purchase journey until the last stage – mortgage loan. Tune in as we discuss with David about mortgage loans. How is the credit score in Singapore calculated? Is your mortgage loan so important that it can make or break your property purchase be it for your own stay or investment? With that said, how can you then prevent yourself from purchasing the wrong property due to insufficient knowledge about mortgages? What’s the difference between like effective interest rates and flat interest rates? What are the 3 questions everyone should answer before deciding what property they want? Tune in to find out!
Ep 12: Commercial Strate Properties & the Important Matrixes Behind them – Jacqueline Wang from JMD
In episode #12 of Coconut Avenue, we are joined by Jacqueline, the Co-founder of JMD. JMD has built outstanding investment properties in Malaysia, Hong Kong, and Singapore. They’re headquartered in Singapore and their expertise focuses on major commercial properties with strong experience in the shophouse sector. Tune in as we discuss with Jacqueline about strata commercial properties. What are some qualities to look at for commercial strata properties? How does fragmented owners and location affect the demand of your commercial strata properties? How do you reverse engineer to estimate the demand of your commercial strata properties and better predict the rent structure? How is remote working affecting the demand of commercial strata offices and what direction is it heading? What are some advice she has for first time property buyers who are interested in investing in commercial strata spaces?
Ep 11: What Are Some Important Matrixes & Thought Processes Behind Shophouse Investing? – Jacqueline Wang from JMD
In episode #11 of Coconut Avenue, we are joined by Jacqueline, the Co-founder of JMD. JMD has built outstanding investment properties in Malaysia, Hong Kong, and Singapore. They’re headquartered in Singapore and their expertise focuses on major commercial properties with strong experience in the shophouse sector. Tune in as we discuss with Jacqueline about commercial properties and shophouses. What are some matrixes and thought processes behind valuing and investing commercial assets or shophouses? Can these processes be applied for residential investing? How does the condition, fundamental land value, neighbouring land value and assets all affect the valuation process? What are some important questions to ask before investing in commercial or shophouse properties?
Ep 9: What are some Important Factors to consider in a Foreign Property Investment? – Keith Ong from RealVantage
In episode #9 of Coconut Avenue, we are joined by Keith, the co-founder of RealVantage, a property investment fund that invests in properties in the UK, USA, Australia and most recently, Singapore. Tune in as we discuss with Keith on property investment in Australia. What are some key reasons why he like the Australian property market? How will the tension between China and Australia affect the property market of Australia? What are some major metrics to look at when investing in Australian property markets? How to increase your property yield? How should investors manage currency risks when investing in overseas property? What are some risks of investing in Australian property markets for retail investors? What are the key factors that drive real estate prices What to look out for when investing with property investment funds? Tune in to find out!
Ep 8: What are some Strategies for Foreign Properties Investments? – Robert the Property Investor
In episode #8 of Coconut Avenue, we bring on a foreign property investor, Robert. At a young age of 25, he bought his first semi-detached property in UK. He then went on to buy another two properties in the prime areas in UK. Tune in as we discuss with Robert about his property journey in UK. What is his strategy when buying and renting properties? What are some saving strategies he used to save towards his property purchase? How did he cope with his rental during the pandemic? What is rental arbitrage and how can it be used? What are the risks and how can you cover it? Robert is also the founder of Boxaroo, a corporate merchandise company.