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FAQs

Frequently Asked Questions

When do I start receiving money back on my investment?
Does Westland invest in every deal?
How is the apartment market different from the housing market?
What is the minimum investment?
How are these partnerships structured?
Why do the investments last 7-10 years?
Can I use my own accountant and lawyer to review the deals?
What is the benefit of using Canyon Property Management to handle the management of my building?

When do I start receiving money back on my investment?
There are four engines that drive investment real estate returns. Collected rent remaining after paying monthly bills (cash flow) is one of those four engines and accounts for approximately 20% of the total return earned. Cash flow varies from one apartment investment project to another based on whether the opportunity is to rehabilitate a neglected building or reposition a miss-managed complex. Sometimes it’s as simple as buying a healthy, stable project at a great price. What is important is to invest in a project that dovetails well with your personal financial goals. Generally most Westland investment projects begin with a number of basic upgrades that allow us to reposition the project to attract a better community of renters. This process is usually completed within 18 months. Beginning cash flow on a stabilized project usually begins around 4% and increases over the life of the investment.

Does Westland invest in every deal?
No. The principals of Westland do invest in most deals and when invited we’ll always eat our own cooking. We only promote opportunities we truly believe in and projects we’d be sad to miss out on. That said, over the years many of our clients have grown their initial investments to a size large enough that they can now afford to purchase entire projects themselves. Some of our partners have long-term strategies that call for consolidating their equities into fewer projects to simplify the passing of their wealth to their heirs. We encourage and accommodate these strategies and help these investors find and manage opportunities with the same focus we’d apply to our own investments. In fact, we often don’t know until the last minute whether there will be room for us in a deal and so we have to proceed through the process assuming we are the buyers.

How is the apartment market different from the housing market?
After food, shelter is our most basic need and while apartments and for sale houses both satisfy this need, they are different markets with very different dynamics. For example, during the housing mania each 1% increase in the rate of home ownership in Portland resulted in a 3-4% increase in apartment vacancy. Loose lending, exotic loan products and the lure of quick profits fueled an increase in our rate of home ownership as well as a run up in home values. The US Census Bureau recently reported that around 65% of Portland households are homeowners, which is a decline from the all-time peak of 69% in 2004.

Approximately 2.16 million people live in the Portland metro area. About 35% are renters. That’s 756,000 people competing for 225,000 rental units or 3.4 renters for each unit. Portland’s high quality of life continues to attract nearly 2,200 new people to Portland every month. As a community we permit construction of around 187 units each month. If on average we house 3.4 people per apartment, then those 187 new units will accommodate fewer than 650 people. You might ask what the remaining 1,550 people are supposed to do. Compete for a scarce commodity!

Bidding wars, once waged by prospective home buyers in a red-hot housing market, may be moving to a new front: rental apartments. As home values decline and mortgage requirements tighten, renters are beginning to resort to the same one-upmanship tactics to secure a choice apartment. This dynamic will drive up rents until rents are high enough that developers can make a profit building new apartments. We estimate that rents must increase more than 30% before new projects will make economic sense. Even then limited developable land, increasing construction costs and difficulty securing construction financing all bode well for investors looking at the Portland apartment market.

Another point is the value of a home is based on what people are willing to pay for similar homes. Apartment values are predicated on how much money the building produces.

What is the minimum investment?
As the number of units in an apartment project increases, you realize an increasing economy of scale. These efficiencies begin to support professional on-site and off-site management services at about 30 units and continue up to approximately 100 units. That means you can buy a 50-unit apartment complex, hire pros to do everything and still earn a higher rate of return than if you self-managed (i.e. mow, paint, clean, rent) a 4-plex. There are two significant barriers that reduce the number of people that can investment in larger apartment projects. First, it takes at least a $1,000,000 complex to hit the sweet spot. Second, few people have the experience to take over a 50-unit project. Thus, our minimum investment is really a function of how many partners you want. We’ve found that fewer than ten is best and hence our minimum investment is usually $100,000. This is not a hard rule by any means and there are plenty of exceptions.

How are these partnerships structured?
Simply. If you bring 10% of the down payment then you’ll own 10% of the project. We hold the title as a single entity LLC to limit our partner’s liability and guard against frivolous litigation. You are not buying a share of Westland. You are buying an undividable interest in the real estate, in the same way a married couple owns a home together. Each member of the LLC has voting rights in proportion to their percentage ownership. One member is designated the managing member and is authorized to make day-to-day decisions. Members can vote to affect change. A Westland principal is usually a small minority partner but is designated as the managing member and charged with overseeing the venture and reporting back regularly to the partners.

Why do the investments last 7-10 years?
There are four engines that drive investment real estate returns; Cash flow, appreciation, mortgage pay down and tax benefits. The rate of return of all these combined is often called the Internal Rate of Return or IRR. Over time the tenants pay off your loan, rents go up and your building becomes worth more. Much of your new wealth however is in the building and can only be accessed by selling or refinancing. The rate of return on all your equity, your IRR, actually peaks somewhere around 5-7 years into an investment. Over time you build up what is often called dead equity or money that’s not working for you. To produce the highest returns while assuming the least risk, you have to turn over projects at least every ten years.

Can I use my own accountant and lawyer to review the deals?
Yes. In fact we encourage you to and actually prefer that you involve your advisors early on in the process. We attempt to be 100% transparent in every last thing we do, and the more you and your advisors know the better.

What is the benefit of using Canyon Property Management to handle the management of my building?
Control and experience. Canyon’s principals are successful apartment investors and see the world from our investor partner’s perspective. Westland works hand and hand with Canyon to insure day-to-day decisions made for an apartment complex are aligned with the goals of the investment group.