I want to discuss with you my investing strategies, my philosophy, and how I got started in Real Estate.
When I started out investing in Real Estate, I used to believe in single-family homes. I started buying them about 30 years ago. I also bought a Multifamily home back then.
As I became more exposed to the knowledge and the specific benefits of Commercial Real Estate, I became more interested in the field. Especially when I got to know more about Multifamily or what you may call Apartment investing- that it really started to make sense to me. I was able to form my philosophy from there.
We are still in the trails of the recession. However, the sector that really got some good numbers and where lenders were giving money out and financing after the crash of 2008-09 was the Multifamily sector.
That one sector came out quickly from the recession compared to the hotels, offices and so forth. The financing compared to other sectors was much better for Multifamily.
A good start
Over 13 years ago my wife said, “You are into real estate investing, motivational speaking and other things, why don’t you get a California real estate broker’s license?”
I am not a real estate agent or anything. My wife had a license and worked for a nice company. I took the broker’s exam, I passed it on the first try, and that was very exciting to me. This experience allowed me to nurture my philosophy further and learn a lot of great techniques, ideas, and experiences that you can apply right away.
I prefer Multifamily to many sectors for many reasons. One of the biggest reasons is there is less risk in Multifamily Apartment buildings. For example, if you own a home and a tenant leaves, you have 100 percent vacancy. If you own five homes and two tenants leave, that is a 40 percent vacancy.
However, that does not happen in a Multifamily apartment building. In a 50-unit building, if two tenants leave and 48 other tenants are left behind, that is an occupancy rate of 96 percent. The other tenants are able to pay for all the expenses, the mortgage, the insurance and all other things. The vacancy has much less effective with the Multifamily.
Opportunities abound in multifamily
The economics of scale are great. For example, in maintenance, if you must replace the roof on 50 single-family homes across town and in different cities that is a chore. Compare that to changing the roof of 50 apartments, which may be six or eight buildings, that is six or eight roofs. It can be changed at one location.
In addition, the maintenance team does not have to run around to the different single-family homes scattered around town. They can all be taken care of in a local area.
For property management, in Multifamily apartments, the managers can take care of so many different families at one time. The Maintenance Person can also fix things without traveling all over town.
The third reason I also really like about Multifamily is the pooling of money together. This is the syndication part of it in which I apply my philosophy. By pooling money together, you can buy bigger assets, bigger apartments and get more of them. That is where the syndication part of it comes in. Also, the depreciation of the complex along with the leverage of loan makes it a very sound investment.
Searching for emerging markets
What kinds of markets do I really consider a great market?
I find emerging markets are the best to follow.
If you follow the market where there is an increase in jobs and the demand for jobs, you will not go wrong. Watch to see if the employers or the big box chains are moving into that part of town or that city.
The market is in the path of progress where more businesses are moving in that direction – north, south, east or west. Local agencies are showing up. There is exciting growth in these statistics. That is the place to go. We moved one market that has served us really well in my company. We have seen some assets gaining 60 to 100 percent in value in 18 to 36 months. This is because my philosophy worked effectively.
That is quite remarkable. We are very happy with these results.
What are the guidelines we look for emerging markets?
Here is what we look for:
- Stable industries
- Large businesses
- Presence of service industries
- New jobs
- Appealing lifestyle
- The high potential of renters vs. homeowners
- Stable capital
- Universities in the market
- Big box retail shopping hubs and health clubs
Most of these big box retail and shopping hubs do a lot of research before they come to town. They are investing large sums of money into that part of the city or town. If that is happening we know that things are going to move in the right direction. They are waiting for many people to come to that area to buy their goods. That is a great indicator for emerging market.
Of course, the airports, infrastructure, roads, transportation, and utilities all need to be there.
So, what else do I really consider when we do successful execution of syndication and buying of assets and so forth?
Securing a great deal
My philosophy is to talk to the seller’s broker always!
For commercial real estate, do not involve the buyer’s broker at all. It just complicates things. You do not get the real answers and we cannot really bind with the seller.
Make sure there is a story behind the asset
The key thing is that you should make sure that there is a story behind the asset.
- Why is the owner selling the asset?
- What is the timeline?
- How soon do they want to sell it and so on?
- What kind of renovations has been done in the last three years?
- How much money was spent?
- What was done with that money?
- What interior or exterior of multifamily or commercial real estate did they really improve on?
- How old are the appliances, the roofs, and the boilers?
In addition, when was the last insurance claim that was done on the property? My philosophy involves asking the broker for market comparisons on the rent. Because we want to make that we get into those assets. Where are we going to take the assets in the next three to seven years? What is the exit strategy? You always want to buy with the exit strategy already formed.
Great teams drive success
The most realistic answer comes straight from the horse’s mouth. I do believe in having a real estate attorney. Maybe a friend or a confidant that is a team member. Someone who could really look through all the contracts and guide you along.
These negotiations are more straightforward if you are dealing with a selling broker. They like us too because they are getting commissions from both sides. I also like to ask what might be the minimum that the seller might expect. Also, what is the timeline? For example, if there is a deadline I like to know that so negotiations can begin correct timely manner.
We also want to make the job easy for the brokers, lenders, inspectors, and investors.
That helps us build great relationships and a great reputation. If a good reputation precedes you, you will be able to get more people investing in your deals.
Remember the good people like brokers, attorneys, managers, banks, lenders, and investors are the team members who really make our business. We want to make sure that they see us as easy people to work with.
We have talked about how to build a great team. If you do a business and it is easy, straightforward and with integrity, then investors will like to work with you.
You want to make them work with your easy for them, maintaining good relationships in Multifamily Syndication is a big key to success.