Multifamily Syndication in Phoenix is Ben Leybovich’s focus.
A classically trained musician, Ben was encouraged to seek an alternative means for generating income after he was diagnosed with MS. In his search for an alternative to his planned career as a musician, he found real estate.
Since he was located in, Cincinnati, OH, he started investing locally in single family & smaller multiple units. For ten years, he built a real estate portfolio in Ohio, then he moved his family to Arizona for the health benefits. This is when he began his educational journey into multifamily investing.
His original real estate investment mentor encouraged Ben to continuously grow. Once you master single family, get a duplex. After the duplex, get a 4 plex, etc.
He realized managing properties was not his interest. However, his experience with his smaller properties, gave him valuable hands on experience that provides Ben with a unique perspective on the market, he would not otherwise have.
The dictionary definition of to syndicate is “to pool together”.
Together, investors can do more than they can on their own. For multifamily investing, it means pooling investor funds for the purpose of buying a single property.
As such, Ben and his partner Sam Grooms focus on finding multifamily value add opportunities in Phoenix, AZ where they pull together investors to invest in a large multifamily properties.
Syndication is essentially a partnership, pulled together investors. But it is not a democracy. The partners do not have equal say in the decisions. Instead, there is a division amongst the partners; Limited Partners and General Partners.
The Limited Partners are able to invest with an expectation of return on their investment, but have no say in how the investment is managed.
The decision makers are referred to as the General Partners. All the management and operation decisions for the property is their responsibility of the General Partners. It is their job to find the property and present it to potential investors following all of the SEC guidelines regarding securities.
This “pooling together” of Limited Partners with the General Partners forms the Syndication.
Why did Ben get into Multifamily?
The answer is multi faceted. When Ben asked his real estate mentor, “How do I know if I am moving in the right direction?” The mentor answered, “Make sure each step is slightly bigger than your last. Doing this, will assure that your continued growth.” So the natural progression is towards multiple units.
The experience of building his portfolio gave Ben an education on how people, markets and assets behave as the market goes through its cycle. As he moved through the cycle, he was able to ask questions, “why did this happen?” His answers were available from the rearview mirror perspective. Ben attributes eighty percent of his real estate investing education from this rearview perspective, being invested in the market. The balance he learned from reading books.
The experience gained from over 10 years as an investor gives his syndication business a real sense of what is likely to happen as opposed to a theoretical view from just reading.
Plus, from a mathematical perspective, larger multifamily properties just make more sense especially when comparing the expenses of operating smaller properties.
Ben & Sam are very methodical about their underwriting. Given the market cycles, they always underwrite for a 10 year hold. This is not because they want to hold for 10 years, but because this length of time, allows them to safely ride out any down turn in the market. At this point in the market, if they did not do this, they could get stuck with the need to sell or refinance when the market is not favorable to do so.
Today’s cash flow is tomorrow’s “Cap X”, capital expense. Every investor looks for cashflow. But if you have not owned a building for four or eight years, you have not experienced a Capital Expense Cycle. The Capital Expense Cycle is a function of building mechanicals as they get used up and need to be replaced. The replacement of these systems are capital expense.
The cost of replacement is significant, and is why the IRS provides for depreciation and cost segregation studies to help investors plan and prepare for these events. Ideally, your positive cash flow is put into reserve so that you have funds for these events.
With this in mind, Ben underwrites for a minimal amount of cash flow starting in Q4. As the value add improvements get implemented, the cash flow will continue to increase.
The true measure of profits in real estate is defined by appreciation, regardless if you are buying and selling single family or multifamily.
In single family properties, homes sell based on what the neighbors homes are selling for. This market gives the investor no opportunity to push the value.
In multifamily, the market value is established by market cap rates and the property net operating income. Multifamily investors have some control over income and expenses which gives them control over the net operating income. When you increase the NOI, you increase the value. Your ability to increase NOI is the appeal to multifamily investors.
The Multifamily Market Outlook is favorable based on multiple data points. The Federal Reserve’s set goal is to keep inflation at 2%. This is manageable and will naturally push the cost of rent up.
Add to this the growing demand for rental housing due to population growth, formation of families and the growing segment that does not want to own a property.
The cost of new construction is prohibitive when compared to cost to rent for a potential buyer making the median income. This will keep the amount of multifamily supply from growing out of control and the demand high.
How do I exit this syndication? This is a reasonable question from someone who has pooled their money with others. Ben is very conservative, and underwrites to a 14% internal rate of return for 10 years. He does not want to be in for 10 years, but does not promise any returns to his investors until the ultimate sale.
Only after the value add plan has been substantially implemented, does Ben begin to project cash flow, usually by Q4. His experience has taught him that cash flow needs to be accumulated for future capital expenses. By keeping the property well maintained, he can drive future sale value.
Each week I ask my guest what is the Biggest Risk they see that real estate investors face.
BIGGEST RISK: The BIGGEST RISK is always, you don’t know what it is. Strictly buying for cash flow without an idea for how you are going to get out.
How to manage the risk: Underwrite each deal for a 10 year hold. Not because I want to hold it for 10 years, but for safety if we need to.
For more goto:
Podcast: Multifamily Syndication Unscripted
Q: That I'm curious in your your business if you could identify what your BIGGEST RISK is and if you could then share with this how you go about managing that?
A: I think most people assume that the market, the economy is the BIGGEST RISK with in real estate. Historically, it’s true, interest rates have a huge component to that in terms of the pressure that puts on it.
Obviously we saw that with the big crash. We saw how the markets reacted in the fall of the real estate market based upon the banking industry. That is a component of what we have to deal with.
The way in which we mitigate the risk for that is we make sure that we don't over leverage what we’re doing. We always want to maintain, you know, 65 - 70 percent equity to depth ratio.
Prior to that, we were doing stackhouse's that were ninety percent debt. We were getting huge returns off it, but it was Insanity in terms of what they were allowing us to do, and there's huge risk in that.
Fortunately. I felt that the market was going to crash. When I saw, doctors and investors coming in and being developers. Or the guy that I hired as a carpenter in our first job, who was literally off the boat from Poland and couldn't speak English, was now my competitor. And now he’s doing homes much larger, all of a sudden. How did this guy, in a short amount of time become such a great expert that he could get these huge loans?
It was the American dream. It was fantastic, right? But when I saw all those people flooding the market, who did not have a background nor expertise, that's when I began pulling back.
That's how I mitigate risk. I watch with the market is doing. That's how we got into self storage. because that I've seen an inefficiency within the marketplace and recognized how to take advantage of that inefficiency.
The fact is that the self storage companies, the REITS, stopped developing because they couldn't have that overhead. They couldn't have a non-performing asset on their books for three years while they were waiting for it to become a performing asset. It would pull down on the valuation of their stock.
And so that's where we come in and we build that into our modeling. That is the first way in which we mitigated risk is to avoid over leveraging.
The second way is we really study the market saturation. Recessions are my biggest fear. Our biggest risk is there's too many other facilities within 3 miles. So a lot of that risk is offset by the fact that zoning will prohibit people from being able to accomplish what they what they want to do in terms of our product.
If they can't get the zoning, then they can build. For instance are one in Milwaukee,Milwaukee put a moratorium on any new self storage facility. So in essence it's going to be very hard for anybody to come in and be competitors to us, based on the fact that we already have the zoning. That's the competitive advantage that we have in that Marketplace.
The same in Toledo. They d-zone the entire downtown area to make it mixed use. Our building that we bought was already zoned it and so all we have to do is you know maintain the existing zoning and we have it. But literally across the street, you can not do that because the zoning would not allow.
Those are the type of areas that we look for and we make sure that our competitors don't have the ability to reduce our share of the marketplace.
Q: I'm asking all of my my guest if they could identify the biggest risk that they face. This could apply to this topic, or as you as an investor or even you as a lender. If you could identify a BIGGEST RISK and then if there is a strategy that you recognize to minimize or manage that.
A: I'm going to probably give you a different type of answer. I think DarrIn, the greatest risk is the risk of not doing anything. I look back on my life and it's when I take the risk to do things that are outside of my comfort zone.
Sometimes it works and sometimes it doesn't. But I'm trying. And, I look at it, like I said before earlier in this podcast, that I have friends that I know that are so fearful of taking risks that they won't do it. Even though, they might be miserable in what their particular situation is at that moment. But to to risk failure is is worse than staying in the status quo. So my personal opinion about risk is is to go forward and and try things even if you feel uncomfortable doing them.
Q: What do you see is your biggest risk that you face?
A: I think the biggest risk I face is kind of ties into what I was saying earlier is that I think the biggest risk is thinking or pretending that you have a crystal ball and knowing or thinking that the market has topped out and then letting that turn into fear of buying anymore, or continuing to grow your business model. Which, for us is acquiring property and growing the portfolio.
I get asked almost weekly now, “Well, don't you think the markets too hot and where the ceiling?” I'm like we could be but you know people were saying that three years ago and here we are and we're higher than we were then.
You can always play that game where well. “You know, things seem too hot. I'm just going to go and wait it out”. Well, you could be waiting it out for the next 10 years. So the question is do you want to wait it out and let 10 years pass you by or do you want to take a calculated risk now?
As long as a deal makes sense and the numbers make sense and you can you can run it like a need to, then everything is fine.
So I think the BIGGEST RISK actually is letting that fear overrun you, or thinking that you know better than the market. Nobody knows where the markets going right nobody knows but I think letting that turns to your and then turning to in action. I think it's the BIGGEST RISK, at least for me.
From an investor and rehab standpoint the two big issues that people get hung up on are under estimating the rehab cost and under estimating the time to complete the project. You'll find that if you go forward that type of lending, they're always going to ask, “What’s your exit strategy? What's your backup exit strategy? What’s your third exit strategy? That's what I try to find. If I can't refinance out, can I quick sale? Can I fire sale it? Can I do some type of creative strategy? What does it look like on a commercial note? What does it look like on a fixed 30-year, you know Fannie and Freddie note? I try to play out that worst case scenario, “can I weather that storm?” Then I back into the deal.
Headaches faced by Centimillionaires, really? If you had $100,000,000 would you really have headaches?
Richard Wilson is the authority on wealth challenges faced by the ultra wealthy. He is the founder of he The Family Office Club, and author of the best seller, The Single Family Office where he helps Family Offices deal with the challenges of preserving and transferring the family wealth to the next generational.
By design, centimillionaires, families with net worth in excess of $100,000,000, keep a low profile. They don’t do interviews, nor share publicly about the the challenges of managing and maintaining their wealth.
Prior to starting The Family Office Club, Richard worked in risk consulting for publicly traded companies and then as a placement agent working with hedge funds calling on investment managers. During his investment placement work, he realized that the investment managers were not a good fit for his opportunity. He also learned about Family Offices.
Family Offices were the qualified prospect that had the ability to invest in his opportunities. He searched for information about Family Offices, but found very little. There were no white papers, no network, nothing.
To satisfy his own curiosity, he followed Gary Vaynerchuk’s advice and documented his journey. He started reading, meeting with family offices, and sharing his findings online. Shortly after starting and documenting his journey, he received invitations to speak at family office events. Suddenly, he had the attention of the audience he sought, family offices.
Looking for expand his reach, he purchased Family Offices.com and focused all his efforts on meeting with family offices to learn more. Since 2007, he has done over 115 events, written a dozen books, posted 1800 videos, all of this on family offices.
His progression from finding a need for information, gathering the information, and sharing the information is a textbook example of how to develop and be recognized as an expert in your field.
Inefficiencies in the Family Office industry are and forever will be. Which provides the opportunity for Richard or anyone seeking a chance to develop a niche in a market space.
While he developed a ton of digital information, it was not until he was invited to speak at events that his family office consulting business took off.
Richard truly started from scratch. As he researched and shared what he learned, the volume of digital content grew. Once he had the digital content, he got the opportunity to speak at events, which put him in front of his ideal client. Being in front of his ideal client gave him access and deal flow with his ideal client, which provided him additional, quality content. This cycle continued to where he it fed itself.
Additionally, he has found that the best way to attract investors is to take the long view and provide the most value. When you you believe in the niche, and want to be involved in 20 years, it shows.
Family offices have specific needs. For those, Richard and Family Offices provide consulting help to get set up, and connecting them with providers to meet their needs.
On the other side of the fence are the service providers and Investors looking to provide services or raise capital from Family Offices. For these, Richard shares what information that helps these business tailor their offer so to better appeal and attract the attention and business of family offices. Richard has also authored the number one book, Capital Raising which teaches investors how to raise capital.
Knowing both sides of the market allows Richard ot better serve these individual markets, and be the connector between the two.
The centimillionaire is one that has $100,000,000 net worth. There are 16 times more centimillionaires than billionaires. Every billionaire was first a centimillionaire. The centimillionaire has just as many headaches as a billionaire, less identifiable and typically more accessible.
In Richards book, Centimillionaire MIgraines, he found six unique pain points. Here he shares a few. To learn more about each pain point and get a free copy of the book, go to and complete the webform at https://centimillionaires.com/book/.
Most Centimillionaires achieved their wealth through the sale of their business for which they had a single focus for as many as 20 or 50 years. Now they have hundreds of millions of dollars and could literally do anything they want. They have request to participate in multiple investments, and joint ventures. What they need is clarity specific to what they want. Without it, they will be instructed by others on what to do.
In order to gain clarity, they need to make decisions, on what they want regarding income, investment returns, transparency, where do they want to live, where they what their kids to go to school, etc.
Mismanaged expectations and communications are a recipe for disaster. A lot of families stop talking when money is involved. Without mutual understanding of what is happening things can go awry. Why is the brother, who has an interest in and operates the family business, using the company jet? If the brother happens to lose the sisters money in the business, what happens?
Centimillionaires may not even know they have a deal flow problem. If they are only seeing three deals a quarter, how would they know this a problem if they are not talking with a similar family office to compare notes?
These ultra wealthy acquired their wealth due to their ability to control their outcome. Now they have a less control, and they don’t know what to do.
To learn more go to https://centimillionaires.com/.
Too many times service providers think they can charge more because you are wealthy. For most wealthy people, part of the reason for their success is due to not over paying for things. While the ultra wealthy can afford to pay more, they are not interested in paying a luxury price for budget level service. They are willing to pay a high price for a high level of service.
They need people who they can trust and who are in it for the long run. Not someone who is short sided. They need ethical people capable of providing valuable service.
Each week I ask my guest what is the Biggest Risk they see that real estate investors face.
BIGGEST RISK: The BIGGEST RISK is Key Man Risk. Most ultra wealthy individuals have developed the specific skill set and knowledge over time. If they drop out of the picture, how long can the business sustain itself?
How to manage the risk: As much as possible, systemize, push the task down to support staff. Realize that the results may be less, but still effective.
For more goto:
What is the BIGGEST Risk Real Estate Investors face?
Merriam Webster defines risk this way:
possibility of loss or injury
In Real Estate, Risk is everywhere. It’s what you don’t know can hurt you.
That can be a problem when you are talking about millions of dollars.
This is why so many wise, experienced investors place a premium on knowledge and so much effort is spent in due diligence.
Most investors agree that you can never know everything, but you can dig in and ask questions and get answers that make sense for you to go forward.
By day, I am an insurance broker. My focus is working with Real Estate investors to assess their exposure to loss and help them manage the risk.
Risk Management is a continuous process. There are four basic steps to risk management:
In insurance, we utilize three specific Risk Management strategies:
Where is the risk in real estate? This is the question you have to look for when you buy a property. It’s your job to find where the risk is hidden, because the seller will not tell you. The due diligence period is your opportunity to go through the property from top to bottom looking for the hidden risk. You also need to comb through the numbers to find out what is missing, and where you can make things better.
Depending on what unexpected information you find during due diligence, the purchase process provides you an opportunity to present your findings to the seller. The seller can offer to correct the problem, or provide you a discount on the price. If you fail to find these hidden issues, and address with the seller, they are yours. Once you close, the property and the problems you did not find are yours.
What do you know about the Metropolitan Statistical Area you are investing in?
Beyond, the MSA, you want to understand the neighborhood you are investing in. In many markets, a mile can make a big difference. These are all numbers you want to know and understand to see if they will be able to support your investment model.
The physical condition is where you look for deferred maintenance and assess the major building systems, Roof, Electrical, Plumbing and Heating & Cooling. How much life is left in each? What is the cost to replace? These questions need to be answered so you can properly budget for replacement. If you fail to budget for these, the unexpected cost will negatively affect your cash flow and make for some potentially difficult conversations with your investors.
What is the Financials condition, what do the books look like? Are the Seller’s records in order? What is missing? What is out of the ordinary? This is where you dive deep into looking for things that are missing and or out of the norm.
A high water bill is a tip off for leaks, and something you can fix and reduce your cost. How do the rents compare to the market rents? Is there room to increase rents? Is there any record of laundry income? Some small property owners put the cash in their pocket without recording. This can be a hidden source of value not expressed on the sellers financials.
Regardless of what you find from the seller, you must contact each service provider and find out what your actual cost will be. If the seller has owned the property for a long time, or owns multiple properties, their cost will be less than yours. Anything you can do to improve the net operating income should be part of your value add strategy.
Management is one of the greatest ways to lose money in real estate. Is management pushing rents? Are they marketing the property to attract quality tenants and turn vacancies quickly? This is an easy area to improve upon, especially if the property has not been professionally managed.
If you are investing with others, what is the experience of your partners or deal sponsor. Are they experienced in this asset class of real estate investing? What makes you certain you will be able to achieve the returns you are projecting?
Your purchase price needs to accurately reflect the value for the property as is. An experienced investor will not pay more than what the property supports. The seller and the seller’s broker job is to get as much as possible. Your job as a buyer is to stay disciplined and not over pay. You cannot get in a bidding war driven by your emotions.
Too often, sellers agree to a sale price with a higher offer only to learn that the buyer cannot perform. If the seller really wants to sell, and no offers meet their ask, they will be forced to deal with the reality of the market.
Due to the significant price of large commercial real estate deals financing is required unless you have an endless supply of money. Fortunately, commercial real estate financing looks at the performance of the property. The bank will not lend more than the property can support.
The bank will require at least 125% debt cover ratio. If you don’t understand this before you make your offer, you may lose earnest money or the deal. Neither is a good option. If either happens, you will not be recognized as a performer amongst the local commercial real estate professionals.
Insurance is easy for new buildings with desirable tenants. There is an unlimited supply of insurance companies ready to provide coverage for this type of risk. As your building gets older and has more deferred maintenance, you will have challenges finding insurance.
To avoid any problems with insurance, pay attention to the age and type of building system in place for: roof, electrical, plumbing and HVAC. Most insurance companies require updates if these are older than 30 years. During your due diligence, ask and find out age and type of building system in place.
Where are we in the market cycle? Are there reasons to be concerned, or is there momentum and demand for you to take advantage of. Do not assume that the most recent past will continue. Markets ebb and flow, and for every top, there is a bottom. If you are buying at the top and selling at the bottom, you are doing it wrong.
What is your exit strategy? Every property will eventually sell, so what is your exit strategy? Your strategy will be very different if you have partners compared to if you are investing solo. How quickly can you return capital to your investors? What rate of return are you projecting? What happens when you get there and the market does not support selling?
Any experienced investor knows there are additional lessons, the unknown, waiting for you. To prepare for these, you have to do your homework up front and make certain our capital reserves are sufficient to take care of these when they happen.
As an investor, you have to understand these lines, and create your own lines you will not cross. In an effort to learn more about investors, their risk models and the lines they will not cross, I began asking the guest on my weekly podcast CREPN Radio the question,
What is the BIGGEST RISK?
To my delight, the guest have shared what concerns them and what they do to manage their risk. Theri answers have covered the spectrum of real estate investing.
Following is an example of the answers guest on CREPN Radio have provided.
For more go to:
A digital marketing growth strategy is needed for any real estate professional looking for more clients and sales. If you have no web presence, you are invisible to your prospective clients looking for you.
Prior to the internet, Sales and Marketing were lumped into one sentence. In many companies, they were the same department. The internet provided separation. Now your marketing efforts can be tracked and measured while you attract and nurture prospective clients. Sales is measured by sales presentations and closings.
Lael Sturm founded LPSS Digital Marketing to deliver effective growth strategies and tactics to real estate professionals and other profitable businesses. Below he shares some strategies & tactics that you can implement in your business to attract new clients.
Digital Marketing channels are invaluable for Real Estate professionals who market to individuals. Whether you sell single family homes, commercial buildings or you seek investors to participate in your syndication, it makes no difference, you need a digital marketing strategy. You are no longer limited by the words on a written page. Today, the investors expects more.
The great news is that you no longer need a huge budget to get found. The internet has given the same tools to the entrepreneur as the fortune 100 company. Each have the opportunity to demonstrate their worth and let the consumer decide which option they want to satisfy their need.
Your prospects will look for you online before or after a meeting to determine your qualifications and ability to meet their needs. To demonstrate your expertise, you can use all forms of media; written words, photos and video.
Your ability provide instant pictures and videos to a potential buyer, located anywhere in the world is normal. Theses same potential buyers expect to be able to google you and learn about you without having to call you. If you do not have the information they are seeking, they will find your competitor who does.
This level of marketing used to be the exception. However, in 2019, this is the expected. This is the time for developing digital marketing growth strategies to propel your business forward.
The social media options available are numerous In order to be effective, you first have to develop a strategy. This is achieved by first knowing what you are trying to do. Are you trying to be informative, capture leads, or make sales.
Where do you need to be? Website, social media, or email newsletter? Lael says the answer is, “yes”. You may want to buy ads on Facebook or Google. To determine where and how to deploy your marketing dollars, it is important to determine first set some goals so you have measurable goals.
Who is your target audience?
Where are they online, and how can you best reach them?
Set up a step process, where you can build out your presence and add to it as you go.
Having an effective website is critical to being found in the digital age. On your website, you need to have content that speaks to the key search words people are looking for. To refine your website’s effectiveness, there are website tools available to measure how you rank for your key search words. To improve your ranking, you can employ search engine optimization, “SEO” strategies to fine tune your content and raise your online rank.
For businesses, LinkedIn is the preferred platform. You should have both an individual page and separate page for your business that describes your business and how long you have been in business. That said, don’t forget Facebook. These are the two most used platforms for business.
The setup is easy to do, but you need to be thoughtful. Look at what your competition is doing for some ideas.
While Linkedin and Facebook are the standards, there are always new platforms.
The current most influential platform is Instagram. For a real estate professional, with great pictures of the property you are selling or leasing, this is a great place to show off. Posting regularly online is necessary to stay top of mind. For Instagram, posting 4 - 7 times per week is a great goal.
In the past, people would purchase and develop specific websites for a specific property. This is involved and expensive. Facebook allows you to post to your Facebook page each new listing, which eliminates the requirement of building new sites for each property. By utilizing Facebook, you have access to all of Facebook’s features to drive qualified prospects to your site.
Fresh and new content is key when trying to rank in the Google algorithm. For a site that has not had a new post in 5 years, Google will not look upon your site favorably. Your website needs to be current. You can add new posts as little as monthly.
For maximum effectiveness on social media, it is best to try and post every week day. For the most effective use of your content, it is advisable that you tailor the same content to the platform rather than wholesale post the same to each platform.
Email Newsletter should be sent at a minimum of once per month. Newsletters need to provide value, and cannot just be a sales letter. What can you share with your community that will be informative and inspirational that keeps you top of mind and makes them reach out to you when they are in need of your services?
In order to measure your results, you first need to know what your goals are. Are you looking for likes and follows? Or are you looking for new emails and sales? Each platform will have different results. It takes time, but if done properly, you will be able to grow your following and determine your effectiveness based on your connections with people who want to do business with you.
For immediate results, ads are a great way to create instant results. A properly done ad campaign will present your offer to your ideal prospects numerous times. Normally, it takes 5 - 7 impressions, or “touches”, before the prospect identifies your solution as a remedy to their problem. In as little as 4 - 6 weeks you should have real data to determine how the ad is performing.
Doing it yourself is not hard. The hard part is doing it well. Many have tried, only to create a mess, and then hire the services of a firm like LPSS Digital Marketing to sift through and make things work.
Rule number one, Don’t buy followers - lack of engagement is punitive. If you have done this, it will take time to undo the mess. To be effective, you do not want quantity, you want quality. The most followers are not your goal. You want followers who are inclined to do business with you.
To differentiate yourself, be authentic. Forget pictures in front of a private jet. People with problems are looking for genuine experts who can solve their problem. Demonstrate your expertise and value. What you do may not seem unique or sexy, your perspective is. Share your perspective about what you have learned and you will find people who are looking for someone like you.
Each week I ask my guest what is the Biggest Risk they see that real estate investors face.
BIGGEST RISK: The BIGGEST RISK is a fear to take action. The biggest risk is not using the tools because you fear you may break the rules and get into trouble.
How to manage the risk: Lael and LPSS recommend that clients educate themselves on 1) the rules of engagement for their industry so they do not break the rules. 2) Learn the tools that are available to help you get the word out to your effective audience. 3) Start small. The internet is not going away. You need to participate and share your perspective.
For more go to:
FREE Social Media Services Guide: https://www.lpss.co/CREPN
The Challenges with scaling in Multifamily faced by investors trying to grow are avoidable, if you are willing to learn from others.
Krista Testani quit her law practice cold turkey for real estate. Together with her firefighter husband, they started flipping single family homes on Long Island, NY, in 2007. Initially the margins were healthy, and the number of opportunities were unlimited.
By 2011, competitors were everywhere. The profit margins were shrinking and the supply of available properties started to dry up. It was at this point that Krista recognized, in order to scale her real estate investment business, she needed to get into larger properties.
Flipping single family homes does not naturally lead to multifamily. While both flipping and multifamily are real estate, they are dramatically different. Flipping homes is buying, fixing and selling, quickly for a profit. Multifamily is a business with ongoing operations. It requires you to dive deep into due diligence to find the operational or physical changes you can change to improve the value over the next couple of years.
To learn the ins and outs of multifamily, Krista worked with a mentor who showed her the possibilities in multifamily to scale her real estate business. While she understood how multifamily worked, it was the action steps, the doing, that kept her from instant success.
Fortunately for you, she shares the lessons she learned below. These are the specific steps that will help you propel your multifamily business and achieve the success you desire.
The challenges with scaling in multifamily are many. You can either go it alone and grind your way, or you can learn from others who have gone before you. The following are lessons recognized by Krista that she recommends doing to accelerate your growth.
Krista recognizes two levels of marketing in multifamily syndication; micro and macro. Micro is the technical learning. Getting to know the brokers and developing your systems so you can analyze a property quickly to determine if a property is an opportunity. To accelerate your growth curve in the micro, consider working with a mentor with success in multifamily. Then look and analyze a lot of deals.
Macro is marketing. Marketing to potential investors. Sharing what you are learning with others. This is absolutely necessary when raising capital. Too often new investors believe they can only do after they master the micro. However, as Krista witnessed, other new investors, who started at the same time as she did, jumped into the macro. While she waited to talk with potential investors until she mastered the micro, her peers talked and talked.
They talked with others and shared what they were learning. The more they learned, the more they shared. This naturally created interest with potential investors, and stoked their interest. These potential investors were investing their time, and became passengers, along for the ride.
Because they had traveled the same leaning journey, raising money was easy. When Krista’s peers had a deal under contract, they were able to easily get financial commitments from the passengers they had been nurturing.
If you fail to nurture you potential investors, raising capital will be near impossible.
Marketing yourself is absolutely necessary to grow and overcome the challenges with scaling your multifamily business. It can be a struggle if you make it difficult. However, if you are committed to grow in Multifamily, there are some easy ways to accomplish this. Remember, multifamily investing is a team sport. In order to close on larger properties, you need a team and willing investors.
Growing your investor list is much like gardening. In order to grow a successful garden you must plant some seeds. To make the seeds grow, you have to water, and make sure the seeds get sunlight. Not all seeds take root.
For multifamily investors, the seeds are conversations. A gardner has to scatter a lot of seeds to have a large crop. An investor has to have a lot of conversations.
The gardener gets to harvest their crop. For you the investor, the payoff comes when others know and trust that you know what you are doing. Not every seed will bear fruit, but if you talk to enough people, and generate enough interested, able investors, you will have no problem getting commitments when it is time to pull the trigger and close the deal.
Do you market yourself? You have to put yourself out there and let other know what you are doing, but how? The easiest way is to share what you are learning as you go with people you know. This allows you to have natural conversations with people who are interested in you and what you are doing. These conversations help you build your reputation and credibility as someone in multifamily real estate.
The more you share with others, the more comfortable you will become. Your conversations will lead to questions that require you to find the answers. Questions are natural for anyone who is interested in learning more. When you find the answer, you have another reason to follow up with the person so you can share the answer to their question. All of these conversations are necessary to help you overcome the challenges with scaling in multifamily.
In a short amount of time, you will be recognized as someone who knows what they are doing. Why? Because you had the courage to have the conversations and you took the time to find the answers. All the while you built up your confidence and your reputation.
Now that you know what you are talking about, you can easily start talking with people you know less. Ask them what they do. When they ask you what you do, let them know that you are a multifamily investor.
Remember this, if you don’t tell others what you do, who will. If people do not know what you do, how will they make the decision to invest with you?
Networking is one of the best ways to get to know others. You cannot do this sitting by yourself behind your computer. While you can do some initial networking over social media, eventually you have to meet face to face with others.
You can join a local real estate investment association REIA, Facebook or a MeetUp Group. If there are none in our area, start one. Again, you don’t have to be the expert. What you have to do is invest in your micro learning, and share this information with others.
The more organic, authentic relations you can develop, the more success you will have. Have conversations, be authentic and share the information you are learning with others.
Systems are key to developing your relationship database and overcoming the investor challenges with scaling in multifamily. Keep it simple to begin with. Consider using Google Docs. Ultimately, you are doing all of this to develop some relationships with investors who are willing to invest with you. To make certain they progress to the point of commitment, you need to track your conversations with them.
When you first meet them, make some notes. Are they experienced real estate investors? What are they currently investing in? Do they have some parameters that need to be met for them to invest? Do they have questions that you can research and get back to them with the answer? The answers to these will be important when you are trying to take a deal down.
As you make notes, you will find some common points of interest that will help you gauge the progress of interest. The quicker you set up a system, the faster you be able to recognize which prospects are able to commit and disqualify those who are not.
Keep in mind, just because one is not able to commit today, does not mean they will be unable to commit to your next deal. Follow up is key, so stay in touch.
Never judge people. You never know who may be interested in your opportunity. If you chose to not share your information, you may eliminate someone who is able to invest in your deal. You never know who knows who, and may be looking for the deal you have.
Krista thought her Facebook friends would be the last to be interested in investing with her in real estate. To her surprise, some of them had been interested in real estate, but did not know how to get into multifamily. Her post about multifamily provided a friend they could contact to learn more from .
We all have so many opportunities to network and can feel overwhelmed. If you are truly looking for some new investors, you have to be willing to share, and be willing to accept calls from strangers. Yeah, a lot of these will not develop into anything, but you never know who they know.
For the dedicated, willing investor, sharing yourself is key to overcoming the challenges with scaling in multifamily.
Each week I ask my guest what is the Biggest Risk they see that real estate investors face.
BIGGEST RISK: The BIGGEST RISK Micro - Crime and the cost increase in your insurance if there is a significant crime rate in the neighborhood where your property is located.
The BIGGEST RISK Macro: The next recession.
How to manage the risk:
Micro: Be aware of the crime statistics in the neighborhood and surrounding properties. Are they better or worse than your property? These will affect your insurance rates. It is difficult to lower a crime rate in a neighborhood all by yourself.
Macro: In order to be prepared for the next market correction, stress test your numbers. Know where the rents were during the last correction. Do your numbers still work if you have to lower your rents? Also, lock into long term interest rates. If the market changes, will you be able to continue to make your loan payments and ride out the correction? Stay out of tertiary markets. Stay in primary markets where there will be demand for housing. If using a bridge loan, get the ability to exercise an extension so that you can complete your value add and get through the correction.
For more go to
Meetup: Multifamily Investing Unveiled
Asset Management versus Property Management, what is the difference?
John Wilhoit is an experienced real estate investor, multifamily asset manager, author and returning guest to CREPN Radio. His true expertise is Multifamily Asset Management. In this interview John makes the distinction between Asset Management and Property Management.
In every real estate deal, there are three components. The property, people and paper. Knowing and understanding each are key to the successful operation of any property. Following is a description of each and their relation to the deal.
Every property has a specific street address. In addition it is a part of the ecosystem for that neighborhood, market, city, and submarket. Additionally, it has a relation with area comparative assets and competitive assets.
The people are most important part. People include Asset Management, Property Management and Ownership which make up the investor people. Additionally, there are the Residents who live at the property.
The Paper that wraps around the property includes Mortgages, Leases, and Insurance Policies which are required to make the property run.
Asset Management vs Property Management, what is the relationship between them?
Asset Management acts a controlling feature for these three aspects; property, people and paper. By controlling these three aspects they make certain the property runs smoothly.
As the owner representative, Asset management has a role in selecting the Property Management and to assure that Property Management is doing their job properly. Asset Management will plan for, manage and monitor all properties in the owners portfolio.
Property Management is charged with carrying out the plan set by Ownership & Asset Management. Their focus is for a specific property.
Property Management engages with the operation of the property on a day to day basis. They are there to operate the business of the multifamily asset. Responsibilities include daily maintenance, leasing, and renewals. All the things that have to occur for the property to operate optimally on a day to day basis fall under the responsibility of Property Management.
For assets under $3M, the owner may be tempted to wear all three hats, Owner, Asset Manager & Property Manager. Unfortunately, for the inexperienced owner who is acting as all three roles, there is going to be trouble. As the portfolio grows so do roles become more defined.
For a property to operate at its optimal level, it is so important for the roles to be filled by professionals that know what they are doing. Multifamily is a 24 hour, 7 days a week business. It doesn’t close for holidays or weekends. It is always in operation.
If you are attempting to do this as a side gig, consider hiring a professional Property Manager. This alone will allow you to act more as an Asset Manager, where you can focus on long term business planning, capital expenditure planning, and the eventual exit from your asset.
The need for a professional Asset Manager becomes necessary as the portfolio grows. Their value shows up when dealing with insurance coverage, accounting, financing, capital expenditure planning and assuring the appropriate property management is on site.
If property management is not performing, it is up to the asset manager to help bring them up to speed. Too often, owners think to fire property management. If an asset manager recognizes what is missing, they can likely help get the property manager correct so that they execute ownerships plan. This is usually more efficient and less disruptive to a property as opposed to firing and starting with a new manager.
For larger value add or long term construction projects, an Asset Manager is invaluable. These projects go above and beyond the normal day to day operation of what should be handled by a property manager. If the Property Manager is assigned to manage these task, their focus on the day to day operation is compromised and can create operational problems, like delayed maintenance, turning of units, and extended vacancies.
Asset management communicates with Property management as often as needed, typically no less than weekly under normal circumstances. For capital projects the two managers will be in more frequent communication. This is necessary to plan and make certain the project is completed on time with few as possible interruptions to daily operation.
The Asset Manager will also communicate with ownership through monthly or quarterly reports. These will report on the budgets to plan, rents on competitive properties, financial condition, receivables., bad debt, vacancy, turn overs, capital budgeting, progress on any capital improvement projects, as well as exceptions. Exceptions can include reports of property damage, injuries that occur at the property and insurance claims.
Asset Manager compensation can be structured in many different ways. A stable asset compensation package will likely be a percentage of revenue. While a value add property with significant construction budget and timeline may offer a percentage of equity due upon sale of the asset.
Property management is typically compensated as a percentage of collected rent. This varies depending on the size of the property where smaller properties will demand a higher percentage and larger properties a smaller percentage.
Each week I ask my guest what is the Biggest Risk they see that real estate investors face.
BIGGEST RISK: The BIGGEST RISK to any asset is complacency. Complacency is implemented by ownership when they are not engaged. Complacency from the ownership trickles down through property management, and accumulates in a poorly performing property.
How to manage the risk: Asset Management’s job is to rock the boat. Their job is to make certain the property is operating at its optimal level. They must identify and communicate with the ownership on how to better operate the property. This includes any needed capital projects and how they can improve the property’s performance.
For more go to
Website & Podcast: http://johnwilhoit.com/
Prior CREPN Episodes with John Wilhoit