We spoke with SF Real Estate Advisors’ Brad McCance about his investment philosophy, history, and record of success.
Talk about your investment background, and tell us about your general investment philosophy.
I grew up in a real estate investment focused family. I started assisting in the business at 16 years old and bought my first multifamily complex at 22.
There are various factors to account for when evaluating a real estate deal. In my experience, a majority of your ROI is earned on the acquisition of the property. The rest is a careful balance of cash-on-cash return, and assuring that you have a realistic budget and then sticking to that budget.
I look at hundreds of real estate deals on a weekly basis, and only about 10% make it to the discussion stage, where we dive into the ins and outs of a property, determine whether there is equity in acquisition and if the value to be added is achievable in that market, and if we can effectively execute the business plan. I’ve had my greatest successes when I bought while everyone else was either selling or crying about how the sky was falling. Nathan Rothschild said it best when he said, “The best time to buy is when blood is in the streets.”
When developing and re-developing multifamily and single family properties, how do you mitigate risk for your clients?
I run risk assessments on every project I do. Most people will go back 3-5 years on a “project and evaluate the market. While that is advantageous, most market cycles last longer than 3-5 years, and that creates a more narrow-minded approach. I evaluate cap rates over 25-30 years in that particular asset class/market to determine any unforeseen risk.
How do you add value for your clients on the property management side?
Some of the first rental property I purchased was before the 2008 crash, when if you had a decent credit score and a pulse, the bank would give you a home loan. It was during this time that I learned how to mitigate the risk of delinquencies, bad debt, and turnover. This helped me develop the best underwriting guidelines for qualifying potential tenants and minimizing those three factors. Thanks to this, my management company now evicts less than 1% of the tenants we place annually.
Tell us about an exciting project you’re working on today.
One of the most promising deals I’m evaluating now is in Athens, GA. This asset is located in a Class A area, and is an older-built asset with TONS of upside. The finish level is not up to market, nor are the rents, but there is other untapped potential in under-utilized assets which would create additional revenue. This deal looks very lucrative. If everything comes to fruition during underwriting, we are looking at giving investors an IRR north of 40%!