Deep Value Investing in LA Real Estate, Moses Kagan of AdaptiveRealty.com (Episode 13)

Episode Summary

Executive Summary: Moses Kagan explains how Adaptive Realty buys beat-up multifamily buildings in Los Angeles, renovates them, then refinances to return most or all capital while holding assets long term. He traces his path from corporate-law ambitions and M&A banking into real estate, emphasizing hustle, relationships, and treating capital as scarce and precious. The discussion focuses on deal sourcing, valuation, long-term compounding, and why permanent-hold investing can outperform quick flips.

Main Topics: From Banking to Real Estate Entrepreneurship (Priority: 5/5): Kagan recounts his path from Princeton/LSE into M&A banking, where on-the-job learning and exposure to internet companies pushed him toward entrepreneurship and eventually real estate. Adaptive Realty’s Permanent-Hold Multifamily Strategy (Priority: 5/5): The firm buys small, distressed Los Angeles apartment buildings, renovates them, re-tenants them, refinances based on higher stabilized income, and returns capital to investors while retaining ownership. Capital Raising, Trust, and Relationship Games (Priority: 5/5): Kagan argues that real estate is fundamentally about earning trust, preserving capital, and playing repeated games with investors rather than one-off transactions. Valuation Discipline and Yield Focus (Priority: 4/5): He explains how he values deals using annual rent multiples and unlevered yield, preferring cash-flowing assets with room to improve rather than paying high prices for static income. Using Content and Blogging to Generate Leads (Priority: 4/5): Instead of cold-calling, Kagan built a blog and mailing list using market data and SEO to attract investors, clients, and brokerage business. Early Deal-Making Lessons and Mistakes (Priority: 4/5): He shares several early stories of poor tenant selection, undercapitalization, and learning by doing, while noting that family and friends supplied crucial seed capital. Why Long-Term Compounding Beats IRR Chasing (Priority: 5/5): Kagan contrasts his approach with typical private equity real estate models that optimize IRR through quick sales, arguing that holding high-quality assets creates better long-term economics.

Key Arguments: Being thrown into the deep end can be an advantage because it forces hustling, judgment, and real-world learning faster than a polished credential path. In any asset-management business, your compensation should ultimately reflect the value you create; entrepreneurship removes the psychological distortion of feeling underpaid or overpaid as an employee. Capital is precious because it is heavily taxed and difficult to accumulate, so managers must protect it and earn the right to use it repeatedly. Real estate is a repeated game: if you mistreat investors, you burn your future funding sources and eventually your business. A permanent-hold strategy is superior when you can buy and renovate assets so well that refinancing returns most of the original equity. The key underwriting question is not IRR maximization but whether the unlevered yield exceeds borrowing costs by a meaningful spread. Blogging and content marketing can replace cold outreach by creating inbound demand, credibility, and lead flow. Market timing matters: the goal is to stay disciplined enough at peaks that you still have investor trust when downturns create the best buying opportunities.

Data Points: Adaptive Realty focus: Sub-institutional scale value-add multifamily investing in Los Angeles - Kagan’s description of the firm’s core business model Neighborhood concentration: 5-6 neighborhoods - He says the firm focuses on only a few Los Angeles neighborhoods Capital returned after refinance: 80%-100% - Typical share of capital pulled out after stabilization and refinancing London deal background: 2005-2007 - Period when Kagan was in London and working in M&A Initial fund raised: $1.8 million - First fundraising effort for Adaptive Realty, including $500K from a friend Initial fund size: $3.6 million - Mentioned as the size of Fund One during the early fee-heavy phase Early fund performance: 26% IRR - Net return on four deals sold in the first fund over a couple of years Family office participation: Matched what others raised - A wealthy family office said it would match the capital Kagan raised from everyone else Deal example purchase price: $500,000 to $450,000 - Echo Park fourplex deal where inspection led to a $50K price reduction Deal sale price: $1.5 million - Estimated eventual sale price of the Echo Park building Deal return: Better than 50% net ROI - Kagan’s estimate of the Echo Park deal’s outcome over about 18 months Hold period: 18 months - Approximate time frame for one of the early highly successful deals Price-to-rent multiple: 10x-12x annual rent - What was reasonable in Los Angeles at the time he was buying Current price-to-rent multiple: 15x-20x annual rent - What he says many LA deals now trade at, depending on neighborhood Levered threshold: 250 bps spread - He prefers unlevered yield to exceed borrowing cost by at least 250 basis points Financing case: 110% of capital employed - One exceptionally good deal generated enough value for the bank to lend more than total capital invested Blog SEO tactic: Craigslist rent scraping and link exchanges - He manually collected rent data to publish market reports and earn backlinks

Pivotal Quotes: "Being an employee was awful for my mental health." — Moses Kagan: Explaining why entrepreneurship felt liberating compared with salaried work "You are worth to the dollar what you are getting paid." — Moses Kagan: His explanation of why self-employment clarifies the relationship between value created and compensation "We're playing a multi-iteration game." — Moses Kagan: His argument that real estate investing depends on long-term trust with investors and partners

Implications: The episode frames real estate as a compounding, relationship-driven capital allocation business, not a quick-flip trade. For listeners, it highlights the edge from patient underwriting, trust, and durable cash-flow design over IRR-chasing and transactional thinking.