Investing in real estate through syndications can provide high returns for accredited investors, especially when experienced operators have found an ideal niche. On the latest episode of Passive Investing from Left Field, Ron Lockhart shares his approach to affordable and workforce housing projects in east coast cities like Baltimore and Philadelphia.
As co-founder of GSP REI, Ron brings over 20 years of real estate investing experience. He provides invaluable insights into their impressive performance, property management strategies, and competitive advantages in markets often overlooked by larger investors.
Finding Value in Overlooked Markets
Passive real estate investors typically target properties in high-growth southern states like Texas and Florida. Major coastal cities like New York and Philadelphia are often viewed skeptically. But Ron explains how Baltimore and other East Coast markets present unique opportunities.
While these cities haven’t seen the same explosive growth as booming southern metros, Ron says they feature “consistent growth” without drastic fluctuations. Strong rental demand amidst low supply makes these markets ideal for GSP REI’s business model.
Large institutional investors are focused on volume and massive capital expenditures. They tend to avoid smaller, value-add deals in perceived “secondary” markets. This gives Ron’s company a competitive edge.
By having in-house construction and property management teams, GSP REI can execute projects that those big investors can’t. With the right renovations, they create affordable rentals and substantial value.
Thorough Property Renovations
When investing in affordable single-family rentals, rehabbing properties thoroughly is critical.
Ron aims to return rowhomes in Baltimore to a near new construction state. GSP REI typically acquires properties for $10,000 to $220,000. They invest another $90,000 to $110,000 in renovations. This includes taking the home down to its brick walls, re-framing, re-wiring, new plumbing, etc.
While not glamorous, this extensive rehabilitation enables them to achieve rents averaging $1,450 to $1,650 per month. Appreciation is conservatively estimated at 2% annually. But the substantial equity created through property improvements generates strong returns.
With brand new systems and finishes, Ron explains tenants tend to take better care of the home. Ongoing maintenance costs are lower. By creating an asset both landlord and tenant can be proud of, it’s a win-win situation.
Making Section 8 Work
Much of the affordable housing GSP REI provides caters to Section 8 voucher recipients. Ron adamantly dismisses negative assumptions about Section 8 tenants.
With strong applicant screening and quality home renovations, he believes Section 8 tenants are no more problematic than market-rate renters. In fact, voucher recipients have a strong incentive to take excellent care of the property. They don’t want to lose their coveted housing assistance.
Ron also notes Section 8 has been well-funded by the federal government for decades. While subsidies could hypothetically be cut someday, he views this as very unlikely. The critical shortage of affordable housing continues to worsen. So programs like Section 8 will remain integral solutions.
Property Management at Scale
Some real estate investors are wary of the extra property management hassles involved with scattered-site, single-family rentals. But Ron explains how their vertically integrated structure allows effective oversight.
Each market has a head property manager overseeing a team of leasing agents and maintenance crews. With staff doing regular drive-bys and being on-call for service requests, GSP REI avoids major issues.
The cookie cutter rehabs also simplify maintenance. Contractors learn one standard spec for repairs and replacements. Newer systems mean fewer headaches down the road. So while single-family rentals come with added responsibilities compared to apartments, Ron’s operation is fully equipped to take it on.
Solid Annual Returns
What really matters to investors is bottom line returns. For accredited investors participating in GSP REI’s funds, the projections are impressive. Check out this podcast episode for more insight into returns.
By leveraging debt strategically, thoughtfully assessing markets, and executing renovations in-house, GSP REI delivers high returns from affordable single-family rentals. Tried and true value-add strategies pay off, especially when applied innovatively.
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This article is for educational purposes only and is not to be relied upon as the basis for entering into any transaction or advisory relationship or making any investment decision. All investments involve the risk of loss, including the loss of principal. Past performance, and any performance results reflected in this article, is not an indication of future results.