Top real estate agent Aaron Kirman is a buy-and-hold investor. While you may have seen him on CNBC's new television show Listing Impossible, dealing with high-profile clients selling estates at the top of the market in Southern California, what you might not know is that he's also an investor and advises his clients on real estate investments.
We sat down with Aaron to learn a little more about how he invests and what he tells clients. Below are some of Aaron's top tips.
Buy what you know and hold on
While Kirman could invest in any type of real estate, he sticks with residential real estate in his home market of Los Angeles: "My brain has always worked in the residential sphere, and I'm a big fan of residential real estate. So I've invested in that myself. I tend to invest in what I know and what I understand. And, you know, residential is my game."
When it comes to real estate he has done it all, but Kirman says his new formula is long-term holds: "I think the best way to be able to retire comfortably is to own real estate and be able to rent it out. And so I used to buy them and sell them and buy and sell them. But now my formula is actually to buy and hold and acquire as much as we possibly can."
Kirman's strategy is to work with partners and rent out single-family homes that are long-term rentals and don't need a lot of maintenance. He's considering multifamily but hasn't ventured into that market yet.
And while he may sell the ultra-high-end properties, his threshold for properties he buys is far lower. He buys properties between $1 million and $3 million. On this approach, he says, "I sell the uber-luxury. But for rentals and property ownership, I try to be conservative with my approach and it has worked pretty well for me."
Help people find their own comfort zone
When Kirman advises clients, he is open to their decisions. Everybody has different tastes in life. Some people love to build luxury properties that they can sell quickly while others are looking for long-term strategic holds. Kirman finds that because of recent tax changes, a lot of people are building and holding.
"Rents are at all-time high right now, and there's not a whole lot of inventory," he explains. "A lot of my clients actually are building multi-unit properties and just holding them and not selling them the way they used to do in the past. What I'm really seeing now is because zoning in certain areas has changed, developers are able to put in more homes, and especially in Los Angeles, multifamily is huge right now. When you're doing uber-luxury, you can make a lot of money on rentals, but it also can be challenging because one or two months of not getting that big payment could really hurt people. Everyone has a different appetite for investment and risk."
One thing that developers in Los Angeles and other areas are keenly aware of is that they are trying to predict the future. Kirman notes that one thing that has shifted is that more people in Southern California are trying to sell land with plans rather than build a spec house and sell that. Part of the reason for that is nervousness in the market. However, Kirman says that so far 2020 feels quite solid and people are feeling much more comfortable than they did last year.
Get your agent in from the start
One thing Kirman suggested is that if you have an agent you trust, you should bring them in from the start.
"It starts with dirt," adds Kirman. "If somebody buys dirt, that's where they're going to make their money. A lot of people overpay for dirt. My theory is that if you're not three years ahead of the curve, you're three years behind the curve because by the time something gets built it takes two to three years."
Kirman gives the example of the Bird Streets in West Hollywood. This small neighborhood where streets are named after birds has been one of the hot development spots in recent years.
"Everyone jumped on the Bird Streets," says Kirman. "Two and a half years ago, I was telling my clients not to buy in the Bird Streets; it's too much development. There's not enough demand, and you're going to be in trouble. Sure enough, now we see all these houses that aren't selling. We want to study the curve, we want to study the prices. We want to make sure that people are buying the dirt correctly. Every little detail, especially in the high end, needs to be curated from design and architecture, and if anything is wrong, that can cost hundreds of thousands of dollars."
The bigger the price, the bigger the risk. This is one of the reasons that a trusted team is so important. Kirman notes that you need to study the market from a 360-degree view and figure out where there's too much supply that is overpowering demand.
Kirman is, like many of us, a permit-obsessive.
"I always tell people to watch how many permits are being pulled," he says. "Watch how many properties are being sold. Watch how much it's going up because what comes up comes down. Balance all of those things and make sure your timing is right, because in real estate, it's all about timing."
Build your brilliant team
Even the biggest real estate agents in the country have the same issues we all have, including finding a good contractor.
"It's hard to get a good contractor," says Kirman. "If you look at our markets, the prices are not increasing the way construction costs are increasing. Building a house is very expensive."
He recounted that he was remodeling a house himself and went $800,000 over budget.
"If it can happen to me, it can happen to anyone," he says. "If I went to sell that house, I wouldn't make money on it. And it just goes to show you that our markets are a little complicated and upside down, which means developers, owners, and anybody in the middle needs to be really cautious with their purchase and know not only that they're buying the dirt or the product right but really analyze costs and constructions because that can be the difference between winning and losing."
Tastes are always changing
In the last several years, open space has been a priority. That is changing somewhat.
"I think people like open space, but they like curated space," says Kirman. "And what that means is they don't want just a big, open space. They want an open space that's defined. What I'm seeing is people really want individuality and they want uniqueness. The biggest and the best developers are really creating big open space that feels intimate and special, defined."
This represents a shift in the style of spec development in Los Angeles. What once sold were large glass homes. Now, people want a warm experience.
Kirman notes, "I've noticed that sometimes multimillionaires are the most down-to-earth people. A lot of my clients don't feel the need to show off. They may be buying expensive homes, but they want to feel that they're in a space that's warm, comfortable, and earthy. Earth tones are really important right now."
One last tip: Keep it simple
Kirman has some advice for first-time investors: "Simplicity is really good for first-time investors; it starts with understanding that real estate has become very individual. It's become city by city state by state, county by county, house by house. And so, first-time investors really need to understand the marketplace."
Kirman recounts that even people who run Fortune 500 companies and billionaires can make mistakes when designing a home or choosing a property. A house that has a 20% discount because you're on a busy street will cost you 20% over and over again. Neighborhood fundamentals are still important, and location is still paramount.