BiggerPockets Real Estate Podcast - 532: Is 2022 the “Perfect Storm” For Multifamily Investing? | J Scott Takeover

Episode Date: November 16, 2021

If you own a single-family rental or a portfolio of single-family rentals, the world of large multifamily may seem scary to you. There are so many more tenants and units, there’s a different financing structure, and what about finding the deals? At some point, many investors make the jump into the world of multifamily, and they rarely look back. One of our own, J Scott, did the same when he offered a year's worth of work for free in order to learn the multifamily game. Joining him today are multifamily syndicators and thought leaders Ashley Wilson, Brian Burke, and Joe Fairless. Together these four investors manage over two billion dollars worth of multifamily real estate. And just like many listeners, they at one point started at zero. J uses this episode as a multifamily roundtable, asking each of these veteran investors about the state of the housing market, where to invest, how to plan an exit, which strategies they use when investing, and how rookie investors can get started. Regardless of your unit count, experience, or real estate skills, all these investors believe that with some hard, creative work, you too can succeed in multifamily! In This Episode We Cover: Why 2021 was the “perfect storm” for multifamily (and whether or not it will continue) Cap rate and why it isn’t as great of a metric as most investors think it is Creating an entrance and exit plan for a large multifamily deal Finding the “value-add” that will make you and your investors more money How to analyze a multifamily market using a number of demographic metrics Transitioning from single-family investing to multifamily success Growing relationships with owners, brokers, and multifamily vendors And So Much More! Links from the Show BiggerPockets Forums BiggerPockets Youtube Channel UHaul Joe Fairless's Podcast Matthew McConaughey University of Houston Speech Check the full show notes here: https://biggerpockets.com/show532 Learn more about your ad choices. Visit megaphone.fm/adchoices

This is the Bigger Pockets podcast show number 532, where we explore how you can cash in on the future of multifamily investing. But what I typically find is that the most experienced and the most consistently successful multifamily investors are those who started out small. They started out flipping houses or they started out with rentals or they started out in some asset class that was more traditional before they got into buying $1.5 billion as Joe's bought or 3,000 units as Brian has bought or 1,000 units as Ashley and I have bought. Is up everybody? I am Jay Scott and this is the podcast where we teach you how to reach financial freedom

through real estate investing. So if you've just read Rich Dad, Poor Dad, you're fired up about building your dream life but you're not exactly sure what to do next. Well, you've come to the right place. Now, as you may have noticed, there is no branded and no day that. here today. Brandon's been taking some breaks here and there and David just refuses to work with anyone who has more hair than he does. No, I'm just kidding. David just agreed to turn the show over to me today so I could bring in a few other guests and we could talk about multi-family investing.

So I put together a panel and with me today are Ashley Wilson from Bardown Investing, Brian Burke from Praxas Capital and Joe Fairless from Ashcroft Capital. And between the three of them, they've purchased over $2 billion in multifamily real estate, encompassing over 10,000 units. They are here with me today to talk all about the state of the multifamily market, why we should be considering jumping into multifamily investing, and most importantly, what you can and should be doing today to get started. Most investors spend more time chasing deals than reviewing their insurance.

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Excellent. Yeah. Good. Great. Thanks for having us. Awesome. So I could introduce each of you. I handpicked each of you to be here with me today because you guys are some of my favorite people to talk to and some of the smartest people I know in real estate and especially in multifamily investing. But I won't do it justice trying to introduce you myself. So I'm going to give each of you an opportunity to just to just. kind of introduce yourselves, your company, and what you've done in the space. So let's start with you, Brian. Yeah, thanks, Jay, for having me here. I started investing in real estate 32 years ago in single family. And like most people that got into this business, I started really small with a really inexpensive house. And I did, oh, about, you know, 600 house flips and about 130 or 140 single family buy and holds, but ultimately I knew that my business was really going to be in the multifamily

space. It took me a heck of a long time to get here. I spent about 15 years screwing around before I really figured out how to do this business. And about 20 years ago, I got started on the multifamily side. And since getting started on this side of the business, I've bought over 3,000 units all across the country. And then most recently wrote a book for Bigger Pockets, the Hands Off Investor. But it's been a a really great career so far. Still got another 30 or 40 years to go, though. Awesome. Joe, how about you?

Well, again, thanks. Grateful to be on this panel with everyone here and appreciate it. I've been on Bigger Pockets for a long time, and I even got the Adict Award about three, four years ago, which means I posted once a day for, I want to say, maybe 10 times a day for 30 days straight or something like that. It's a award that not a lot of, of psychos like me have received. So I'm all about the BP community and I've gotten a lot of value

from it. A little bit about me from Texas originally, moved to New York, out of college, and started buying single family homes while working in New York City. But buying homes in Texas, realized that that wasn't providing the cash flow that I wanted because would show I was making $250 a month. But then when someone would move out, I'd pay about $5,000 to get it moving ready. And so in the spreadsheet, it looked good. But in reality, I wasn't making significant or really any cash flow. So then I decided to scale to multifamily. Didn't have the capital to do that.

So I brought in investors. And now I co-founded a company called Ashcroft Capital with my business partner, Frank. We have over $1.5 billion worth of apartment communities, and we buy in Tampa, Orlando, Jacksonville, Dallas, Fort Worth, and we are continuing to focus on the value-ed business plan. Very nice. Ashley Wilson, tell us a little bit about you. Yes, so thanks again for having me on, Jay. I, like Joe, a very active member in the Bigger Pockets community, and Bigger Pockets was ultimately the resource. that got me invested and interested in real estate. So I started off by house hacking, which quickly turned into a few short-term rentals, long-term rentals, flipped some homes, and then eventually landed in multifamily. I think the eye-opening experience for me that pushed me over the edge

and pushed me towards multifamily is one year when my husband and I were doing well with our W-2s and I was making six figures in my job and realized that our taxes we had to pay for that year was approximately the same amount that I had made that year working. I realized that I had just worked an entire year for free and I was beyond frustrated. So we looked for some tax advantage investment asset classes that would not allow us to do that again because that was a huge huge learning experience, I should say. So we started bar down investments and I'm happy to have you, Jay, as my partner with bar down investments. And we have gone off on our own over the past year. Prior to that, Bar Down was partnering with other ownership groups. But in the past year,

we are now nearing to almost 100 million assets under management as well as approaching a thousand units. So we are very excited about that. Awesome. And yeah, so I guess I should probably talk a little bit about myself just to round things out. So I'm the newbie in this group. And so I reached out to Ashley a few years ago, about three years ago, and asked her to mentor me. And now we're partners. And I have a feeling that we'll have an opportunity to talk about mentorship and partnership in the multifamily space. And I'm happy to talk a little bit about how I got started and how Ashley and I work together. But I think I'm still probably the newbie or definitely the newbie in this group. But one of the common denominator, so I started, I flipped about 400, 450 houses.

It sounds like Brian's flipped 600 houses. Joe started in single family. I know Ashley, you flipped some super high-end like seven-figure houses and that's what you did before you got into multifamily. We all started, it sounds like, in single family and we transitioned into multifamily. I think there's a good lesson there for everybody that's tuned in and listening. I think a lot of people think that multifamily is kind of a very special type of investing and you have to have a lot of resources that normal people don't have and you have to have a lot of skills that normal people don't have and that you have to have a network and access to things that other investors don't have. But what I typically find is that the most experienced and the most

consistently successful multifamily investors are those who started out small. They started out flipping houses or they started out with rentals or they started out in some asset class that was more traditional before they got into buying $1.5 billion as Joe's bought her. 3,000 units as Brian has bought or 1,000 units as Ashley and I have bought, they start out with more, let's call them humble beginnings. So I think a lot of this episode, I'd love to talk about for those single family investors or those new investors out there that are looking to get started in multifamily, how they can do that. And when I talk about multifamily, that could be a duplex. That could be a 10 unit or a 50 unit or it could be a 2 or 300 or 500 units. It really spans the

gamut. But before we start jumping into how to get started, I'd love to talk a little. bit about the state of the market, where things are today, maybe why people should even be considering multifamily as an asset class is now a good time, and if so, why? Joe, do you want to kind of kick off a discussion of what you're seeing as the state of the market these days, any trends that you're seeing? And if so, why should we be thinking about multifamily as an asset class moving forward? Well, so the short answer to your questions, the multifamily market is hot right now. is incredibly challenging to find the deal that pencils. It is also a market that we keep waiting for the music to stop,

where cap rates will stop compressing and the exits won't be as favorable. Therefore, I'm sure everyone on this panel and a lot of listeners are underwriting conservatively for cap rates to increase in the future. But the reality is right now in the last three, four, five, six years, cap rates have been compressing. And it's now a good time to get in the multifamily. Any time's a good time to get in the multifamily. It's about underwriting the right way. And it's about implementing the right business plan. The challenge with fixing and flipping, let's say a single family house, which I have never done. One of my homes that I bought, I hired a team to

renovate. And I know people on this panel, Brian and Jay, you have really good experience with fixing and flipping, clearly, from what you said. But the problem with that is when you fix and flip a single family house, you have a business plan where you're keeping your fingers crossed that during the time in which you renovate the house, the market will be the same or better because you are not cash flowing during the whole period because you're doing the renovations. And if you, you are in multifamily and you are buying stabilized cash flowing properties, then you can continue to cash flow, assuming that you bought it the right way, regardless of the economy. Now, you might be hurting on rents where you might have to give concessions, but if you bought it the right way

with the right reserves, then it's a solid investment regardless of the economic cycle, in my opinion. Yeah, I love that. And what's interesting, and I want to get to Brian in a second. I know Joe, I presume at least that you're buying a whole lot. So I'm, for disclosure, I'm invested in one of Joe's funds. And I've seen a whole lot of deals that have come across recently that you've been buying. So you're clearly a net buyer. Brian, I know we talked a couple months ago and maybe things have changed, but I know over the last year or so, I think you've been a net seller, meaning you've sold more properties than you've bought. What are you thinking in terms of the near-term future for multi-family. Are you going to be buying more in the near future? A lot more. Are you going to

continue selling? What are your thoughts? Well, we're certainly trying. Being a net seller wasn't for lack of effort on the acquisition side. It's just as Joe alluded to earlier, it's a very challenging market on the acquisition side. And it's challenging for a good reason. The reason that multifamily is a quote-unquote hot market is because the fundamentals supporting the asset class are very solid. Having said that, I always believe that you just can't go broke making money, and there are times when you want to take chips off the table and lock in some gains that can't be taken away from you. So we've found some very opportunistic opportunities to sell and harvest some incredible gains, and we seized that moment. And it's not for a lack of belief in the market.

I think the market is solid and it still has room to go. And that's why we're still actively buying. But there's just times to get out. Maybe this comes from my flipping background. I mean, you always want to get in, make a profit and get out. I also believe a lot in maximizing your performance to the extent that you can. And one thing about multifamily and value add, and I know all you guys will agree to me, I'm preaching with the choir, that in the early stage of these investments, when you're making physical

improvements and management improvements to the real estate, you're increasing the value at a greater rate than you're likely to get from the market itself after you've done your efforts. And so, you know, one thing that we've done is, you know, we bump the value, we harvest it, and then we do it again, and then we do it again. And that's part of the thesis behind those sales. Yeah, that's really good. Ashley, can you talk a little bit? I know you and I, as partners have talked a lot about whether we should be in buy mode or heavy buy mode. And I know we both really like the market and we like the trends that we're saying. Can you talk a little bit about what you like and why you think now is a good time to be buying multifamily if you can find good deals? Yeah, I mean, personally,

I am seeing almost like a perfect storm that's occurring right now in the market. So in terms of what we're seeing with inflation, I think we can all agree here that inflation is here to stay. and we've all factored that in in our underwriting. And also, that's probably why it ultimately attracted us to multifamily in the first place. If you look historically at rental trends, rents tend to trend with inflation, which makes it a good hedge against inflation in terms of the investing asset class. So when you're looking at purchasing, I think it still boils down to buying right. It always boils down to Joe's point.

It's always a good time to get into multifamily. but what I'm seeing right now is I'm seeing a lot of deals trade off market more than ever before. And I think that speaks to two points. I think it speaks to the demand and the brokers not even being able to put together a package quickly and sellers wanting to sell before there is maybe a cooling off period with interest rates and then coupled with the cap rates. You know, it depends on what economists you're listening to, but a lot of economists are forecasting that the cap rates are going to stay pretty stable

for the next few quarters. I mean, I don't think any of us have a crystal ball. I don't know what's on the horizon, but it definitely lends itself for that. And then if we look at just, you know, going back to your original question on state of the market, I think when we look at the state of the market and we look at the U.S. economy, I'm fortunate enough to have a glimpse into another economy, and that's the Canadian economy. as my husband's Canadian. And one thing that is vastly different between the Canadian investing markets and the U.S. markets is there is a tax on foreign investors coming in with their capital

to invest. Historically, the U.S. has always attracted a lot of foreign investors to real estate, but more so now than ever. And I think that is having an impact on sale price, compression of cap rates, and then further inflation. So I think we're seeing that and we'll continue. to see that. But ultimately, if you can find a good deal that pencils, I always think it's a good time to buy. And I think that you have to move quickly. In fact, you know, the deal we have under contract right now was the deal that we move faster, you know, we were under contract three days after we received it. So knowing your market that well to be able to do that type of analysis, but also to acting quickly because the deals are moving very fast right now. Yeah. Brian, I want to

ask you, and I think all three of you use the term cap rate at some point. And I know a lot of our listeners probably know what cap rate means. But for those that don't, Brian, I'm sure, I know you talked about this in your book. What is cap rate and how does that impact us as investors, whether it's multifamily or other asset classes, commercial asset classes? Well, we could have a whole mini series on this one, Jay. I mean, cap rate is probably one of the most controversial topics in commercial real estate. And there's a lot of thoughts. about cap rate and what it is. And from a basic mathematical perspective, cap rate is simply just an exercise of taking the income and dividing it by the price. And that gives you this numerical

value. People place a lot of weight to this numerical value saying that it drives their investment decisions. So I think what's more important than what cap rate is is what cap rate is not. Cap rate is not a measurement of investment performance. And this is a mistake that a lot of people make when they're trying to get into multifamily is they say, I want to buy at a 10% cap rate because I want to get a 10% cash on cash return or however they're putting together cap rate with investment performance. The two are completely unrelated. What cap rate is, and it's nothing more than this, so don't give it so much weight. What cap rate is, it's a thermometer to the market. It is basically just a measurement telling you the heat index of this particular

sector of the real estate market. And a low cap rate means that the market is very hot. And that might mean that real estate is desirable or whatever you want to call it. A higher cap rate means that the market is not hot. So if you want to buy in a four cap market, it's very competitive. And that's why it's a four cap market. A 10 cap rate market is one where maybe people don't really want to be buying there. And maybe there's a really good reason they don't want to be buying there. So just keep in mind that cap rate is nothing more than an indicator as to what the investor sentiment is in that market for that product type at that location. Yeah, that's very well said. I like to think of cap rate as it's a multiplier. In any given market, there's some multiplier that, assuming the market is

relatively efficient, meaning there are plenty of buyers, there are plenty of sellers, there's plenty of inventory, the market is going to define that multiplier. And what is it multiplying? It's multiplying the amount of income the asset is generating. So in a lot of our markets, the multiplier these days is about 25 times. That's a 4% cap rate. A 4% cap rate is about the 25 times multiplier, or maybe a 20% multiplier for 5% cap rates. So somewhere in there, what that means is if you have a property that's generating about, let's say, throughout a random number, a million dollars in net income, the value of that property is that 20 or 25 times multiple. So in a market where the cap rates 5%, 20 times multiple, if a property is generating a million dollars in income, it should

transact for about $20 million. And so when we talk about cap rates going up, what that means is the multiplier is going down. So values in a particular market go down when cap rates go up. And conversely, when cap rates go down, we typically see values go up because the multiplier increases. Lower cap rate is a higher multiplier. And so I know, Joe, you were talking about whether cap rates are likely to go up or down. If we believe cap rates will go up, and a lot of times cap rates are tied to interest rates. When interest rates go up, cap rates, this is a little bit controversial, but a lot of times we believe cap rates will go up when interest rates go up, not necessarily linearly. And so if we think interest rates are likely to go up over the next couple of years, well, that could mean that cap rates will go up, multiplier will go down, and values will drop.

So I guess that leads me to my next question. I'll start with Joe. Are you at all concerned about cap rates increasing if interest rates increase in that dropping the value of multifamily and basically putting multifamily investors in a band spot? Well, I want to just add a couple things to the cap rate conversation. and then I'll answer that question if that's all right. From a cap rate, I love the description that Brian gave that it's a thermometer because it makes me think of an actual thermometer and then there are different ways that you can build a thermometer or create a thermometer.

And it's important that when looking at cap rates, you know what numbers they're using in those cap rates because they might be using trailing three income and their operational expenses there, meaning the acquisition group, operational expense. And when we say trailing three, what exactly does that? The last three months worth of income. Okay. So taking the last three months of income is the trailing three. Last 12 months would be trailing 12. Just clarify that for our listeners. And they might be looking at where they anticipate taxes and insurance to be once they take over. Or if they aren't anticipating that, then they're going to need to take that into account. So there's a lot of different ways to calculate.

Well, high level, there's one way to calculate a cap rate, like Brian said. But then there's nuances to cap rates that one person might be saying the cap rate is X, and the other person about the same property might say, no, no, no, no, the cap rates Y. And then when those two individuals start talking, oh, I factored in this into the cap rate. Oh, I factored this on the cap rate. And the other thing I'll mention is even if a cap rate is in New York City, I don't know, I don't buy in New York City. But let's say the cap rates a two for a certain property. And in Flint, Michigan, the cap rate is a 12.

Well, which one is going to spit off more income? Well, I would say it depends. And it depends on the business plan. Because in New York City, maybe the apartment community is rent-stabilized. But the operator, through ethical and legal ways, finds a way to make it not rent-stabilized. and rents go from $300 to $3,000. I'm not saying people should do it. I'm just saying in this example, here's what can happen.

Well, now you bought the property at a two cap, but this individual purchasing the property had a business plan that got rents from 300, 200, whatever, to 3,000. And that's going to cash full much more than a property at a 10 cap in Flint, Michigan. So there's a lot of nuances to like Brian was talking about it. I just wanted to mention it. that. I think that's really important. Ashley, I know we have a lot of listeners here who are probably looking at us and saying, okay, I'm hearing these terms like value ad. I'm hearing terms like cap rate.

At the end of the day, there's a lot of different ways to be investing in any asset class, but also multifamily. And so can you talk a little bit about the different ways that you see investors coming into multifamily, different exit strategies, I guess you could say? And also maybe the different ways that they finance these deals, whether it's their own cash or borrowed cash or other people's cash. What are some of the strategies around multifamily that our listeners should be thinking about if they're planning to jump in? It ultimately comes down to the size of the investment. So if you are going after smaller multifamily properties, you have a lot of different options

at your fingertips. So, for example, you can have a seller carryback option, which is basically you can get into a deal with no money down and you can have the seller finance the deal, the seller access the bank. This works best in a scenario when the seller owns the property free and clear. However, it doesn't necessarily have to be that way. It could be a hybrid model. There are other ways it depends on the size of the deal. So four units are under, qualify under residential loans, when five units are greater qualify under commercial loans. So they have different criteria that needs to be met based on the guarantor's net worth and liquidity and experience. Those three factors

are taken into consideration definitely on the larger type multifamily deals. So you can come in to multifamily yourself. You can come in with partners and you can do it in ways in which you can JV on deals with that's normally a smaller set of partners or you can go as far as doing the other which is more the syndication route, and that's leveraging people who want to get into multifamily investing by passively investing, and you have two different groups. So you have what's called the limited partners, and then you have the general partners. The general partners are the people who are actively managing the asset for the investors, and then the limited partners are basically making a financial investment, and then passively investing.

by not participating in any of the work that is required to either keep the property cash flowing or repositioning the property and creating stabilization. So there's a lot of different opportunities for people to get in to multifamily. I'm not sure if that was where you were going with that question. It was kind of a couple of different points, but hopefully I've answered most of it. Yeah, I think the one piece that I'd love to touch on a little bit more is exit strategy. So we hear terms like cash flow versus value ad and maybe other. What are some of the, when we think about getting into multifamily,

a lot of times as multifamily investors, we can't just think about the getting in. We have to think about getting out. And so what are some of the common exit strategies that we see in multifamily that our listeners should be thinking about if they're going to jump in what they may want to consider the different strategies within this asset class? Ironically, I think this actually kind of ties back into the whole cap rate discussion because ultimately when you are buying a property and you understand the whole concept of cap rate,

just like Joe, I love the way that Brian just spoke about cap rate in terms of a thermometer. And I also visually thought of a thermometer when you said that. But I also think that when people purchase any type of asset, the best way to purchase it is based off of your own perceived value, not what the masses perceive the value to be. And if you take that kind of concept and you maximize the value, value on that particular parcel within that asset class, you can find different exit strategies that maybe other people aren't thinking about. That factors into a hold time. So if you are someone who likes the fluidity of capital and you invest because you like the whole concept of reinvesting

very quickly, maybe your hold time shorter so you can see the value of that property in a greater way than maybe others do. But you can refinance the property once you repositioned. So going back to the term of value add, that is taking a property that's underperforming. It might be distressed in terms of physical distress or operational distress. And you get the property reperforming. And then that strategy typically involves a refinance. So during the refinance period, you can pull out the equity that was created during that value ad strategy, and you can either pay back the investors. If you're the only investor, you can use that money to reinvest in another asset, or you can choose to exit right now because of how hot the market is. Maybe you're choosing to exit. You can also look for

ways in which you can maybe become the seller or maybe become the bank and you become able to hold back the equity that's in the property for another person to purchase and then you're making money on the property by being the bank in that scenario. But in terms of how to exit, obviously, if you're looking for the greatest return on your money with time interval in consideration, it's the quicker the reposition. But if you're looking for mailbox money, as we call it, and you like receiving those monthly checks, maybe you want to hold on to it, especially if it's cash flowing strongly. Yeah, I think that's really well said. And I think it goes back to at the end of the day, all the strategies we see in single family or any other asset class apply to multifamily. In single

family, we talk about this idea of flipping. Well, flipping is essentially in multifamily. It's this thing we call value add. I mean, we've all used that term here in the last few minutes. And so if you want to get in and out of properties quickly, reposition them, add value quickly and sell for a pot of cash, a profit, you do this thing called value add. And likewise, plenty of people get into multifamily as just a source of cash flow. And it's very similar to just buying a rental and holding it for five or 10 or 30 years. You mentioned this idea of refinancing. And we talk in the single family space. Brandon often talks about the idea of a burr. And David talks about burr properties where we refinance, we pull out our cash. And that allows us to basically continue to cash flow without

having much or any of our own cash in the deal. And so we can do the same thing in multifamily. On a large scale, we can refinance the property and either get our cash out or get our investors cash out. And then obviously there's all the other things like seller financing and development from the ground up. So I like to tell people when they talk about multifamily, a lot of times we use the term multifamily in a very homogenous sense. We think of it as one thing. But at the end of the day, there are so many different niches within multifamily that essentially correspond to the niches that we have in single family and every other asset class that we're all kind of, we can be all be a multifamily, but all doing very different things with very different strategies.

That said, I think we all have similar strategies, but I'd love to touch on what each of our strategies is in multifamily, either now or in the past or in the future, just to give our listeners an idea of different things that we've done. Brian, I know you do value add in the multifamily space, but have you ever done anything other than value ad? I have. Everything is really a value ad. I mean, even when you're buying a stabilized property, your goal is to add value by increasing the revenue in some respect.

And so I think almost any strategy can have some sort of value add component, but we've also done condo conversion and we've also held stabilized assets. So I want to tie back to a couple of exit strategy things. So I think this is all related. You know, what our acquisition strategy and our hold strategy is is really all related to the exit strategy because when you get into any deal, the first thing you want to know about is how am I going to get out? I mean, that's always my first question. And I think that comes back from my flipping background is that, you know, when you're flipping a house, the first thing you want

to know when you're flipping a house is what's its resale value. And so when you're doing multifamily, you're really doing the same thing. You're determining what's my resale value when I go to exit this asset and how can I maximize that exit value? Because when you ask about exit strategy, there's only one exit strategy. And that is, get out of it for more than you got into it for, because really, we're all in here to make money, and that's why we're doing this. And so that even ties back to your previous question about inflating cap rates, eroding exit valuation. And I want to just comment on that just a little bit more, because Joe brought up a great point. He mentioned things about cap rate and nuances. I came up with 36 different ways to calculate cap rate on the same piece of real estate.

So don't focus on it. But Jay, you had a really elegant way. of explaining cap rate as being somewhat of a multiple on income. And so what happens if cap rates go up, meaning that erode the ultimate value of the real estate? What people tend to forget about is that there's another factor at play, because that multiple is a multiple on the income. So if the multiple is less, meaning you've eroded the value, that may be one thing, but what about if the income is more? And so I think anyone's hold strategy or anybody's strategy in multifamily needs to be to increase the revenue stream, because increasing the revenue stream increases the property's value, even if the multiple on that revenue is declining. Now, where you come into a situation where you can't sell for what you're into it for, that happens when the erosion of value is at a greater pace than you can increase the income. But generally speaking, like you look at today's market, for example, rent growth is through the roof.

So that means that income streams are growing pretty rapidly. So even if cap rates erode to some extent, you can still sell for more than you bought it for. And I think that's the whole thesis under multifamily. It's what drives our strategy. But I think that also to some extent answers the question that a lot of investors have of, am I buying at the top of the market right now? If I buy something now, do I get caught with my pants down five years from now? of this erosion of value from inflating cap rate. And the reason why I think that answer is not

the case is because incomes are increasing. And our strategy is to acquire real estate, increase the income, thereby increasing its value, and then ultimately sell it. Yeah, that's a great point. Yeah, actually. Yeah, I just want to add one other complexity to what Brian's saying and something we focus on. And that's the whole concept of creation of equity. So I talk about this a lot and say that a lot of people just focus on the increase of the valuation. But I also think the main important factor of what you're doing is you're ultimately increasing equity. So if you focus on the fact that to complete a project, you can either plug a million in to try to yield five, or you can try to figure out a way to plug 500,000 to yield 5 million, you're creating more equity

in that second scenario. So this whole concept that he's talking about of having the cap rate, erode on your valuation, you can also just safeguard it a bit if you focus on the capital infusion you're putting into the property as well. Yeah, I think that's both really well said. And yeah, we all have to remember. And to Brian's point, the valuation equation for commercial real estate is not just cap rate. It's cap rate and income and the interplay of the two. And so we can control one. We can't control the other. So certainly we care about cap rates, but they're not within our control, what is within our control is the income. And at the end of the day, there are two things that contribute to our income or our net income. And that's the amount of money we're making and the

amount of money we're spending. So as good commercial real estate investors, our goal should always be to do two things. Raise the amount of money we're generating and lower the amount of money we're spending to generate that income. I would agree with that except for one point. Yeah. Jay, is that we don't always control the income. And so this is why it's really smart to invest in markets where you have a tailwind because you can control the income to an extent, but the market forces can also overpower your efforts. So it's really important to choose your markets wisely, do your research, understand what's going on in markets, because that can help you or it can hurt you because it can overpower you. And that was a great segue into the question I was just about to ask. So I think a lot of

our listeners are probably ready to get into the discussion of if they want to get started in multifamily investing, let's help them instead of just talking about all this theory stuff. Let's talk about what we can be doing today to actually be jumpstarting our multifamily investing careers. Again, whether we're looking to do duplexes or 10 plexes or 50 or 500 units, whatever it is. And I think a great place to start is markets. And how do we evaluate markets and what should we be looking for in markets? And I don't know if we actually have to discuss what markets we like and don't like, because, I mean, that could change by a time this is released in a couple weeks.

But if you want to talk about markets you like and don't like, we can talk about that as well. So, Brian, you kind of already kicked off the discussion. Would you like to jump into that market piece for us? Well, I can simplify the market decision pretty easily. And the way I always put it is, we invest in markets where people are moving to and we avoid markets where people are moving from. because really what's driving commercial real estate is income and what drives income are what I call the big three. And the big three is job growth, income growth, and population growth. If you have those three things, that's going to ultimately lead to rent growth. And rent growth ultimately leads to

increased operating income from the real estate, which ultimately leads to increased real estate value. Conversely, markets where people are leaving tend to have a headwind to rent growth, which means that those income streams do not grow, which means that you are eroding valuation of the real estate. So in the most simplest terms, that's the best way I can put it. Right now, it's almost hard to go wrong in a lot of markets. I mean, you can look at the demographic shifts that are occurring across the country and easily see where people are going. look at U-Haul rentals and see that, you know, they'll almost pay you to take a U-Haul from Austin, Texas to Los Angeles. But if you're going to go the other direction, you're going to pay through the nose for that truck. And there's a reason for that, and that's because people are moving to those locations.

And I've got about 60 or 70 markets on our study list right now that had over 10% rent growth in 2021. And there's a large number of those markets that have even seen over 20% rent growth in 2021. And those are the places that we want to invest in. I love that where people are moving. And I'm going to address this next question to Joe, because it's kind of a loaded question. I know the answer. But I live in Florida now. And my wife pointed out a statistic to me the other day that something like 21 or 26 percent,

some ridiculous percentage of people in the last year who have moved from one state to another have moved to Florida. And so I think for a lot of us, or I shouldn't say for a lot of us, based on what you just said, Brian, maybe Florida is a good place to invest. Joe, where are you investing these days? We're investing in Georgia, we're investing in Florida, and we're investing in Texas. I gave you a big softball. All you had to do is safe. All you had to do is safely. I'm just kidding. Primarily Florida. No, yeah, those three states. But one thing I want to mention is I agree. I mean, it's pretty simple. It's a supply and demand dynamic. I mean, you have to have people

who are living in your market to be able to afford rent, and you have to have the jobs to support that rent, and, oh, by the way, you want more people to come to the market to help with that dynamic. But a couple nuances I just want to mention. One is for any operator, and then two is for the people just getting started. So the first nuance for any operator when looking at a market would be diversification of employment bases. I was born in Flint, Michigan. My family moved from Flint, Michigan when I was three years old to Houston, Texas. The reason why we moved from Flint, Michigan to Houston is because the automotive industry went bonkers in a bad way. And that whole industry was driving Flint, Michigan.

There used to be, I think, you have to fact check this because my dad told me this. There used to be the highest concentration of millionaires in Flint, Michigan in the 80s. Again, fact check that. But you get the idea. And now not so much. And so what market could be like that now? Well, you know, maybe Midland Odessa, you know, boom and bust oil industry is there. So you'll just want to keep that in mind from a diversification of employment basis when picking a market. Because you could have a bunch of people going to a market, but then one industry goes down, then you're in trouble. And so that's for anyone. But for people starting out, what I would say is everything that Brian talked about, and I just mentioned, you know, just a lot. little add-on to that. But then also try your backyard to begin with if you're just starting out. Because ultimately, that will give you the best competitive advantage if you are able to meet with brokers, meet with owners, drive for dollars, and network with your local community commercial real estate people. It's going to be more challenging if you're outside of market. So first,

qualify or rather try to disqualify your market. If it doesn't get to. disqualified, then I would start where you currently live because that's where it is most likely that you're going to find a deal based on the competitive advantage of simply being there. Yeah, I love that. And I think too many people ignore the fact that proximity provides a ton of advantages that are more important than other little things. I'm not saying that all the other stuff we mentioned here was little. All of it is tremendously important. But all other things being equal, proximity is often a benefit that can outweigh all the other little things. Ashley, I know at Bardown, we take market analysis pretty seriously. Can you talk a little bit

about some of the things that you and the company look for in markets and some of the data points that you look at before investing in a new market? So we look at all the things that Brian and Joe just mentioned and then two other components. So further extrapolating off of the economic diversity. We have our own internal barometer on recession resistance. So we look at not only the economic diversity, but we also look at historic trends on recessions. We look at industries that have entered and exited that market post the historic recessions. We look at pre-unemployment rates, unemployment rate at the height. So at the apex of the recession. And then we look at post-recession. And then we also look at timelines that it takes to go back to pre-unemployment rates after a recession.

Those metrics tell us the strength of the market as well because that speaks to the resilience within that market and the ability to rebound as recessions are inevitable in every single market. And then the second major factor we look at is exposure to natural disasters. and that is both from a appetite, you know, whether or not we want to go into that market. I would say, wait a minute. Aren't you in Houston? We are in Houston, but if you look, we only invest in a certain quadrant of the Houston market, and we don't typically look in the areas that were hit by Harvey and other hurricanes, but we also, to build that into our model. So to that point, we have a property in Houston, not in a flood zone, has never flooded during Harvey or any other storm, but we opted to add flood insurance onto the property as an extra safeguard onto the property.

That just speaks to, you know, protecting the asset, but also protecting the investors. Yeah, and I think there are certain types of natural disasters that you have good historical precedents, for lack of a better term, I know just to address Joe's point in Houston, And there have been enough hurricanes that you can look and see historically, have these properties been hit? And has there been water infiltration into the structures or not, which is a little different than more catastrophic like buying cliffside in California where there, yeah, there hasn't been any major earthquakes in the past maybe 30 years, but it's only a matter of time. So, yeah, I like both the recession resistance. and obviously we talked about this before and the catastrophic risk from natural disasters. Let's talk.

The only thing I'd say to that is, and by the way, we don't have properties currently in Houston, but we do have properties in Orlando and Tampa and Jacksonville. So I'm saying this not only about your Houston properties, but also about our properties. One thing I learned on our second deal with my company is that, it was in Houston. It did not get hit by a hurricane directly, but the cost of labor significantly increased after the hurricane came through because everyone else got hit. And so our expenses did go up as a result of that, even though we weren't even hit. So there are some ripple effects, even if you have that insurance, even if you haven't been hit by a hurricane and you're not in the

flood zone just simply from an expense standpoint. And again, that's a risk that we bear also as a company. So I'm not just calling you all out. It's just a reality of a situation. No, it's okay, Joe. You can we're all in this together, but I think it's an excellent point. And I also think it's an excellent point when you're looking at markets in general to actually know where the source of materials is coming from and also, too, to understand how construction is priced. So, ultimately it comes down to two factors, your labor supply and your material supply. And when you have a natural disaster impact an area, it hits both of those, as we're seeing right now, even with COVID and chain supply issues, and then labor shortages. But when you're looking at different markets,

when you look at where source and materials are coming from, I speak to this in terms of, for example, wood is typically source, actually, you know, created in the north and has to then come down into the majority of the supply is in the north. So in terms of if you look at pricing, pricing is typically more expensive in the south than it is in the north just because of the overhead of the freight charge and then the labor to get it down there. So when you're looking outside your markets, take that into consideration as well as labor, what, you know, the current supply is and what the current demand is, and for demand, you can pull permit requests from the local municipalities to see what is coming on in the horizon to kind of get a gauge on that as well.

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That's Dominion Financial. Check them out at biggerpockets.com slash dominion. Again, that's biggerpockets.com slash dominion. Okay. A lot of our listeners, I imagine, are in the single-family space right now. So I want to talk a little bit, and especially since several of us

came from the single-family space, The overlapping skill sets, the experience that we can take from single family to apply to multifamily, I know there are a lot of people who think that, yeah, if you've done single family, you can do multifamily, it's an easy transition. There are other people who think the two beasts are so completely different that just because you've done single family doesn't mean you'll ever be good at multifamily. I sort of fall somewhere in the middle. But I'm curious, especially Brian and Ashley, since I know both of you have come from the

the flipping world and the single family world originally. How do you see the overlap between single family and multifamily skill sets? Ash, I'm going to start with you this time. There is a tremendous amount of overlap, and I don't know if I'm just saying that because I'm more focused on the asset and construction management piece of our business. But there is a lot of overlap when you think about just the renovation and the management. I know specifically called out flipping, but I also did share. short-term rentals and long-term rentals as well. And I did it on a smaller scale,

but there are a lot of different operational and management oversight that's very similar on a single or duplex triplex quad that is also applicable on a hundred unit property. So having kind of the wherewithal on the day-to-day operations has really proven to be massively beneficial when making that leap into larger multifamily. Yeah, I'll add on to that to say that at the lead end of the show, Jay, you mentioned that people think that to get into multifamily, you have to have special skills, special networks, and things that other ordinary investors don't have. And all of that is absolutely true. However, that doesn't mean that you can't attain all of that knowledge and all of those relationships

and all of that skill. And single-family experience does give you a lead-in to learning a lot about how that stuff works. I think the single-family space is very focused on renovation and exit value and that kind of stuff, especially if you're in the flipping side, whereas multifamily is a little bit more mathematics and modeling and economic indicators.

However, one thing stays the same. And this is an important thing to think about. The first thing you want to know when you're going to buy a single family house to flip, and I mentioned this earlier, is what is that house going to be worth when I'm done doing what I'm going to do to it? Well, the same thing has to be said in multifamily. And I don't care if you're buying a duplex, a fourplex, or a thousand unit property. The concept is exactly the same, but you have to think about it differently. Now what you're looking at, you're looking at comps, just like you do on your single family side,

you're looking at comps. What are other properties selling for? On the multifamily side, you're looking at comps, but they're not sale comps, they're rent comps. What are other properties renting for? If I fix these units up or I add this amenity or put in a gym or a dog park and this and that and the other thing, what are properties that have already done that renting for and how does that compare to the rent that this property is achieving in its current state? And if I can take this property from where it is today and make it like those other comparables, I can get rents like those other comparables and that will increase your income. So that skill of valuing single family translates directly to valuing multifamily,

just use rent comps instead of sale comps. Otherwise, the concept is the same. Yeah, I love that. And it's funny. Now that I've been in multifamily for a couple years, what I would say is that literally the most important skill for underwriting any multifamily deal is determining pro forma rents. And what I mean by that is determining what a property will rent for once you've done your renovations and your management efficiencies and your improvements. Because at the end of the day, the greatest bump in income and

ultimately at the end of the day, the greatest bump in value is going to be coming from your increase in rents. And the better you are at figuring out what the units in a property will rent for after renovation, the more successful you will be in this business. And literally, if there's any one piece of the puzzle prior to purchasing the property, just doing the analysis piece that will contribute to your success or failure in this business, it is literally, in my opinion, the ability to determine what those future rents are going to be. And I don't know if anybody disagrees with that. I just wanted to add one thing to that, just because I've looked at a lot of deals to help other ownership groups and operators and consulted on a lot of rent performers.

And I think the biggest mistake in analyzing performer rents is people don't consider absorption. So what they're looking at is they'll look at, let's say, for example, it's one bedroom, one bath, and it's 800 square feet. And the neighboring property is getting, let's say, $1,000 and it's renovated. and they think if I renovate my unit comparable specs, one bedroom, one bath, same square footage, that I'll be able to also get $1,000 when you don't consider this whole idea of absorption. And at the end of the day, there are only a certain amount of tenants within any given market that are looking for that particular unit. So if you have 60 of them and your comp property only has four, they're going to be,

able to push their rents up more because they don't have as many to offer. And they might have maybe more two bedrooms. And you have less two bedrooms. So maybe your two bedrooms, you can push up more than their other two bedrooms. But I can tell you that is the number one error that I see people making in rent comp analysis is they do not consider the supply on a comparable property versus their subject property. Yeah. And I know a lot of people are thinking, they hear the term absorption and they're thinking, okay, yeah, one bedroom versus two bedroom. And they're thinking that makes a huge difference in if you have a 500 unit or a thousand unit property. But is that going to make a big difference if I have a duplex or a fourplex or a 10plex? Just a quick story, personal story. I live in

Sarasota, Florida, which up until about a year and a half ago, I would have described as I'm the youngest person in this city. I mean, very old, older people in Sarasota, just to put it nicely. And so most of the houses in Sarasota, Florida are single family houses. Very small percentages are two-story houses. And the reason for that is because when you sell a house, there's a much higher percentage that you're going to sell a house to an older person or an older couple, and they're not going to want steps because they're getting older and they're just going to want everything on a single floor. And so it was very easy to buy two-story houses in Sarasota up until about a year and a half ago. About a year ago, my wife, my wife,

wife and I decide we needed more space and we bought a two-story house. And it's the same thing. Actually, you were talking about with absorption. We knew that it would be more difficult to sell this house because they're not very desirable. But we determined that there were a lot of people starting to move to Florida. A lot of families were starting to move to Florida, including Sarasota. And we hypothesized that over the next year or two, we would start to see a rise in values for these two-story houses. We bought one of the few two-story houses in our area about a a year ago. And over the last year, we've seen prices go up literally, nearly a million dollars per unit because of the absorption change in the market. And so, yeah, when we talk about absorption,

oftentimes we're thinking in terms of very large properties that have dozens or hundreds of units, but even on a small scale, absorption is important. And what we're finding is we own a bunch of single-family rentals down here. Our two-story rentals are now, we're seeing rent increases much higher than we're seeing in our single-story rentals down here for that same reason. So, yeah, that absorption is important, even when you have a smaller number of units, maybe even down to the single-family size. Let's talk a little bit about finding deals, because in this market, whether you're in single-family, multifamily, self-storage, mobile home parks, notes, whatever you're doing, finding deals is the challenge that we're facing.

And so I know we're all doing kind of big deals, but let's kind of put ourselves in the shoes of investors who would like to start with, let's say, a five-unit deal or a 10-unit deal or a 15-unit deal. Joe, what would you be recommending to those investors today to really start trying to find deals that are out there? I recommend three things. And before I recommend the three things, this assumes that the investor who we're speaking about is educated, has the right team in place. to execute on the business plan, knows the market really well, so when he or she is presented an opportunity, they act on it, has a CRM system in place so that they're doing follow-ups regularly, and I'll get into that a little bit in a moment. So that assumes all these things. So three ideas for someone looking to find deals. And this is any size. So one is having a property

management partnership or a joint venture with another syndication group. I can tell you firsthand, our four or five deals, we partnered with a property management company because my business partner and I, we did not have the net worth, liquidity, and experience to get a loan and to mitigate the risk that we needed to mitigate for those initial deals. So we partnered up with a property management company, and they brought those things that we were lacking, and they did a joint venture with us. So that's one thing. So look for property management partnerships. The second thing is, and this is a mistake I've seen made multiple times where you are looking for deals, and you don't have the connections yet, so you seek out someone who has those connections,

like finding a director of acquisitions. Well, when you, look for a director of acquisitions, what you want to make sure that that person has, and this might seem obvious to some people, but again, I've seen the mistake happen over and over again, is that director of acquisitions needs to bring preexisting relationships to the table, and they need to have done what you're looking to hire them to do. I've seen people hire director of acquisitions who maybe have been on the lending side and know the underwriting through and through, but don't have those relationships that they're bringing to the table. So, bring on a qualified director of acquisitions,

give them ownership in the first handful of deals, if that's what it takes, whatever you need to do. But having relationships with sellers, members of sellers companies, brokers, that's what's going to set you apart with finding deals right now. And the third thing I'll mention is you've got to be committed to finding deals, not just interested.

And what I found is that people who say, there's just no deals out there at all. I haven't, you know, I cannot find anything. Well, that's because you're not committed to finding deals. You're probably looking for a shortcut instead of executing the right strategy. And I'll give you some specific examples for how you can be committed to finding deals. One, well, first off, you've got three audiences, right? You've got owners, you've got brokers, and you've got vendors. Those are the three audiences that are going to help you find deals. So owners, you can do direct mail to those owners. You could get their contact information through skip tracing and text message or call them.

But what do you say when you call them when you text message them? Well, you want to add value to their life. So one way you could add value to their life is if you have an in-person meetup. And you could say, hey, owner, this could be a direct mail piece. Hey, owner, do you want to learn how to increase NOI in XYZ market because others have done the same strategy, attend my meetup on XYZ date. And you can start attracting owners to your in-person meetup, or maybe it's a virtual meetup. Doesn't really matter, but start attracting owners and building a database that way. Or if you want to hyper-target a certain owner, you could ask them

to speak at your meetup and then build the relationship that way. People who have podcasts certainly know that when you ask someone to be on your podcast, there's a value exchange there. And you're giving them something of value. So you want to give people something of value before you ask, hey, I'd also like to look into buying your property. Second thing, so owners, that's one. Brokers, you've got to have a 10-step follow-up process with brokers. So many people follow-up with a broker, and then I asked them, hey, when did you call them as a follow-up? Oh, I usually call them every one to two to three weeks, but they don't have a system in place. That's why I said you've got to have a CRM. And some ideas for follow-up instead of, hey, just checking in, still looking for a deal, you've got to add value.

And I've got five ways to add value one. You can be a power connector. Judy Robinette wrote a book called How to Be a Power Connector. It's a really good book. And basically, it's introducing brokers to people who they want to be introduced to. So it doesn't cost you any money. You just got to know a little bit about what the broker is looking for. If the broker has kids and the kids are about to go to college, then maybe you help them with some sort of internship or, you know, who knows, get creative.

So you could do that. You could follow them on social media and see what they're interested in talking about. You could send them alcohol. One person who I know sent a broker or something. some wine because the broker was really into wine and he got a deal. You could pay them as a consultant to give you advice on a certain market. You could talk to about how you have money burning a hole in your pocket. There's all sorts of things. And the last thing I'll say, and I posted this on Facebook right before we jumped on the call, hey, who's done a deal recently and

how did you find it? And one person, Slocum, Reed, said, it was networking with property managers to get a hold of opportunities before the owner officially sells, got my offer accepted in the week before it hit the market, the 26-unit building in Cincinnati. So speak to different vendors of owners and network with them, and that's another really good way. Love that every single word. Brian, anything to add there? Another than I was taking notes, no, I mean, that really was a great synopsis. I mean, I think, you know, as an individual investor that's just breaching from, say, single family into small multifamily, the tactics and strategies might be. be different than those who are, you know, seeking to get into the 100 unit and up type space.

And so for the smaller investor, you know, you got to be looking at MLS. You got to know who the brokers are. I mean, the brokers are the gatekeepers. And, you know, one of the ways that we've actually probably gotten more deals than anything is we make an offer on something that the broker has listed. We don't get it. And then the broker calls it afterwards, hey, I'm sorry that one didn't work out for you. I've got this other guy that's going to sell something similar to this, not too far away. Why don't you just take a run at this off market? And so, you know, I think being out there and making offers and having everybody knowing what you're doing is really how you get most of your deals. Yeah, I learned that lesson on our last deal and actually runs our acquisitions team.

And I never would have expected that these days you could get a deal without competition, but literally our last deal. A $40 million deal came to us through a broker that we had a relationship with who said make an offer and literally we negotiated an offer without any competition whatsoever. And something I wouldn't have imagined in any market, let alone a market like this one, but it just goes to the point of how valuable these relationships can be and how hard we should be working at building these relationships because at the end of the day, those relationships can make or break the business. Ashley, anything you'd like to add?

No, I thought all of these suggestions were amazing. And I think when you look at single family, there's a lot of things that carry over in terms of like the tactical aspect of it. But to Joe's point, it's really just follow up and having very, you know, set follow up on when you're following up. And that's fantastic. Everything Joe just said was unreal. Yeah. I'm going to add one thing because this is just a lesson learning again. I'm the new kid on the block in large multifamily, but I've been doing midsize multifamily. family for many years. And so what I found is that this kind of traverses all levels of multifamily, not so much in the single family space, but once you start getting into the eight and the 10 and 12

units and up is, again, those relationships with brokers. And what I found is that as you get into larger deals, what brokers care about changes. When you're doing smaller deals, it's typically price, price, price, brokers representing the seller and they're just looking for price. As you get into larger deals and larger deals, it's going to be different and different. market. Maybe it's a 30 unit. Maybe it's a 50 unit. Maybe it's a 200 unit. But as you get into larger deals, brokers start to care a lot more about your ability to perform as opposed to just the price. And the reason for that is in the single family space and the duplex space, if I get a property under contract as a buyer, I'm going to do some inspections and I'll do my quote-unquote

due diligence, which I might look at taxes and insurance and my physical inspections. If for some reason that deal doesn't go through, well, three days later, when my due diligence period expires, they'll bring in another buyer. If that one doesn't go through, they'll bring in another buyer. And while the seller might not be happy about it, it's not going to change the seller's life. If one of us buys a 200-unit apartment complex, for example, it's a lot different from the seller's perspective. If we buy a 200-unit apartment complex, the first thing we're going to do is we're going to probably have a 60-day close, maybe a 90-day close. And during that time, we're going to get our property management company or somebody else in our team in there to be doing what's called

a forensic audit of the leases where literally we're going to send people into the management office and they are going to look through every lease for every unit in that property. And that's going to take away time from the property management team. That's going to require a lot of coordination from the seller. It's going to require a whole lot of work. At the same time, we're sending in people doing due diligence. And due diligence on a 200 unit property involves walking 200 units, which means 200 tenants are being displaced, which means 200 tenants now know that that property is being sold, and that

might impact the seller's ability to renew leases. It also means you're going to have to get contractors on multiple roofs if there are multiple buildings and looking at 100 H-Fact or 200 H-FAC systems. And all of this is a very time-consuming and elaborate process, and it puts the seller out in terms of their time and their effort and maybe even a little bit of money. And so if they have to go and get this deal under contract again, if you were to back out, that is an enormous amount of stress and time and lost energy on the seller's part to make that happen. So when you're getting into these larger units, literally the most important thing to the broker is going to be your ability to close the deal. And we've had many deals where Ashley and I'll compete against people like probably Brian and Joe,

who, yeah, we might have a thousand units, but that's not the same as. is having 5,000 units or 10,000 units. And somebody that comes in with 10,000 units, again, somebody that comes in with 1,000 units, yeah, they might take a million or two or $3 million lower offer from that larger operator because they're more confident that operator is going to close the deal, and they're not going to have to relist the property

and go through that due diligence period again. And so what I've learned in this business is that literally the most important thing is being able to convince the broker and or the seller that you're serious and that you can actually close the deal. Now, how do you do that? That becomes a big problem, especially if you haven't done any deals before. So a couple ways. Number one is relationships and partnerships. So if you're getting into a larger multifamily class than you've been in before, let's say you've done the four unit and now you want to get into the 16 unit, where you've done the 20 unit, you want to get into the 50 unit, find somebody else that's doing

that and partner with them on the first or second or third deal. Basically go in and basically combine your resumes, be able to leverage their resume, and in return, provide them equity, provide them something else of value. That's number one. Number two is just showing up every day. I mean, there's a saying that showing up is 90%. What I found is if I contact a big broker and I say, I'm looking for 150 unit plus complexes, that broker is going to be like, okay, great, I've talked to 30 people today that are looking for that. And so how do I convince him that I'm any better than the others. Well, the way I convinced them is I say, give me a shot, send me a deal. Send me a bad deal. I don't care. I will prove that I will take the time to underwrite that deal. I'll give you feedback on the

deal. I'll make an offer on that deal, even if it's not a competitive offer compared to if it's not a good deal. And then send me a little bit better deal. And I'll do the same thing on that one. Then send me a little bit better deal. And I'll go through this with a broker for six months. Eventually, that broker is going to realize you're not like the 99% of other investors who are just kind of kicking tires and they're not really going to underwrite the deals and they're eventually going to walk away. They realize, okay, this guy has spent dozens of hours underwriting deals that I've sent him over the last few months. He's bought maybe another property in a different market or with a different broker. They see that I'm serious and eventually they're going to start sending me a little

bit better deal and a little bit better deal and a little bit better deal. And the longer you stick around, the more serious you're going to become to that broker and the more likely they are to start sending you the good deals. And so in my experience, the two best ways to get deals is one, partner with somebody that has more experience and can provide that credibility for you. And two, don't go away. Just show up day after day. Follow up with those brokers. Joe, you talked about following up 10 times. Follow up 10 times a month and do it for six or 12 months straight. And eventually you're going to start getting good deal flow. Yeah, but you got to follow up in a way that adds value to their life. Otherwise, you're a little

pest. Yeah, that's a great point. I mean, one of the the things that we'll do is a lot of times brokers, when they go to put a deal off on the market, they need to figure out what the right price for the property is. And a lot of times they will take that property. They might underwrite it themselves. They might hire a consultant to underwrite that property. But a lot of times what they'll do is they'll send it to one of their investors who they think, may not be the investor that's going to end up buying it, but that knows what they're doing, and say, hey, how much would you offer on this deal? And then kind of trick the investor into underwriting the deal for them, come up with a price, send them an offer, and now the broker knows about what

that property is worth. And now they know where they can list it and start getting other investors to compete. We'll go to those brokers and say, hey, I know you're going to use me to try and figure out the right offer for this property. Let's not hide it. I'll do that for you. Send me the property. I'll underwrite it. I'll send you my underwriting. I can help you figure out what a good list price for the property is. I'll do that for two or three times. All I ask in return is after I do that, you start taking me more seriously and you start sending me the better deals. And so, yeah, there are lots of things you can do to add value to that broker's life. But again, showing up day after day is really going to prove your consistency and the fact that you're serious.

One last thing I'll say about that is a tip for finding an all-star acquisitions person is by simply asking the brokers you're speaking to, hey, I'm hiring a director of acquisitions. Who would you recommend. And boom, you hire that person, and now you're in with that broker at least, and probably other brokers. And this works primarily for people who have a couple deals under their belt so that you can afford some sort of salary. Either way, you'll likely be giving some general partnership interest as part of the role. But if you're just starting out and you don't have a salary to offer, it's very minimal, then still put a job posting up and then, you know, compensation negotiable and then bring them in as partners because you never know what people's

situation is they might have been making 300,000 dollars, $200,000, $500,000 and they're set, but there's no opportunity in their current company to get equity ownership in deals and now they've got all these contacts and now they need someone to help them with other pieces of puzzle that you can bring and so you might be reaching out to them at the perfect time and boom now you've got all these built-in connections with your new partner. There's an organic growth component, too. I mean, you know, yes, you can hire people and you can partner with people and you can do all of those things. I didn't do any of those. I grew organically. And so when you're growing organically, the way you do this is you go buy a house in the market where you want to buy an apartment

complex. And then you leverage the fact that you own a house there to buy a duplex there. And then you tell the, yeah, I already own property there. Now I have a duplex and a house. then you can go buy a fourplex. You can say, oh, I own a duplex in a house. I'm going to buy this fourplex. They'll take you seriously. You know, now you own like five units in that market. So you go to a 20 unit broker and you're like, hey, I already own five properties here.

I want to get this 20 unit. You buy the 20 unit. Now you go to the broker that's selling a 75 unit. Yeah, I own a 20 unit, a duplex, a, you know, a house. And you can leverage that past experience to have them take you more seriously. So if you can't afford to hire someone or you don't want to hire someone or you don't want to partner with someone. You can grow organically in a market. And just having a presence will give you credibility. Even sometimes if it's not in that market sometimes, it's like,

but you've got to have something. And the best way to get a deal is to have a deal. And, you know, it's that classic chicken and the egg thing. But the more you do, the more credibility you have, and the more you can buy and the more you can leverage what you've done to do what you want to do. If I can just add two points. One is just make sure to come up with some way to differentiate yourself from the masses. And what I mean by that is Jay gave the example earlier about a situation we were in where we went all the way through best and final. There were over 30 offers in a deal and it just came down to us and another buyer.

And that buyer was of the caliber of Brian and you, Joe. and I'm not sure maybe one of you actually has this property under contract right now. But in terms of our offer, we found out that our offer was stronger. Our terms were better. But ultimately, it came down to our resume. And you can take that situation and you can say yourself, oh, you know, better luck next time. I'll just keep trudging away. Or you can take that as an opportunity to say, hey, I'm going to further my relationship with this brokerage.

So what we did is we sent them a whole gift basket after we lost the deal. I mean, how many people are sending out gift baskets to a brokerage when they lose a deal? And it was just to kind of thank them for the opportunity. And after they received that, we got sent a slew of off-market deals that we, you know, we had a good rapport with this brokerage. I actually wouldn't have thought anything. I didn't think anything was going to happen. and they had sent us off market deals before,

but then all of a sudden, we just moved up further in terms of the relationship. So I want to say that. And then I also want to say, we track every deal that we look at, we offer on wherever it dies in the process. And one of the benefits of tracking your pipeline is to also be able to follow up on deals that you lose out on.

To Jay's point, it is a long process compared to single family from under contract to close. close, and approximately 30% of the deals that we look at come back on market. So they fall out of contracts for whatever reason, but they come back on market. So if you were constantly following up, especially on a deal that you have interest on, you might be able to pick one up just because it fell out of market and you were so quick because the seller might just be so fed up with the entire process that even if you were

significantly lower, even if you weren't second in line because you were so prompt on your follow-up, you might be able to swoop in and get that deal. Yeah, we're in the midst of negotiating one now where we made an offer two weeks ago, I think it was, and didn't hear anything back. And actually, you called the broker to follow up a couple days ago. And they said, oh, yeah, that deal fell through. Oh, that's right. You guys made an offer. Let me take a look at that. And now we're negotiating that deal. And so that kind of follow-up, whether it's a gift basket or a phone call, that kind of follow-up can work wonders. It's amazing that even a single phone call just to remind the brokers that, hey, I'm still here, what happened with that deal can make the difference. Okay.

We are getting into the hour and 20-minute mark of this show. So I'd like to end with just some best advice that the three of you might have for any investors out there that are looking to get started or looking to move up to the next level. level of property, whether it's on the acquisition side or the management side or anything. Brian, best piece of advice, I think, is that, you know, there's a lot of different ways to get into this business and there's a lot of different ways to be in this business. And what you want to do is find the way that fits you best. If you want to invest in multifamily, but you don't want to chase real estate, you can invest passively as an investor in a real estate syndication. If you want to be an active investor, but you've never invested in anything, get your foot in the door in real estate and buy something, whether it's a house or a duplex or whatever it might be that you can get into, do something and put one foot in front of the other to start making your way into that business. And if you already are in real estate and you want to expand your business into multifamily, just know that it's a natural growth progression. All you have to do is just follow the steps that we talked about today. And you'll be up here,

with more units than Joe and I combined one day. Love it. Love it. Joe. We live in an instant gratification society. If we approach business that way, we will fail because we'll get frustrated because we're not seeing the results. I started with a daily podcast. It's the world's longest running daily real estate podcast. And no one was listening for a very long time, but I still did it. And I knew the value was in the relationships from the people.

who I was speaking to and interviewing. And so I was playing the long game. We've got to play the long game, put the instant gratification society thing aside, and find the right strategies and execute on them and optimize. Don't look for shortcuts because they're just going to fizzle out. We've got to play thinking long game, not only with what we execute on,

but also in relationships. Matthew McConaughey's commencement address, He mentions something, which is great, listens to that on YouTube. He mentioned something, don't leave crumbs. And, you know, what he means by that is when we're speaking to people, the way we conduct ourselves, we want to conduct ourselves as though they're going to be in our lives forever so that we're not looking over our shoulders. Oh, are they going to come back and talk to everyone about what I did in a certain scenario,

you know, play the long game in both the execution of business and also with relationships. Absolutely. amazing advice in all aspects of our lives, not just real estate. I love that. Ashley, best space through advice. So the thing I like about multifamily is I don't think of it as investing in real estate. I think of it as investing in a business and it has the added benefit that it has real estate attached to it. So what I mean by that is that what you're doing is you're buying a business and you're figuring out a way to make that business operate more optimally. And to that effect, if you think about it like that, everyone has value then to add by coming into that business.

And I think too often I get approached and asked, I don't have X, Y, and Z. How do I get into multifamily? I don't have this. I don't have that. And it's leading with deficit instead of leading with value. I think if you lead with value, it's easy to get into the business. It's easy to show someone else that you can help their business get to the next level. And the great thing about multifamily is it's so multifaceted. You can be great at marketing. You could be a lawyer, an accountant, a project manager, construction manager. You can be all these different components. And if you led with that, I think you'll find that it's easier to get your foot in the door. Wow. Well, I don't know if you intended to set me up for that. But if I'm going to give my

best piece of advice, I think that was the perfect setup. So again, I'll say I'm the newbie here. I've been only doing this for about three years, but I learned a valuable lesson or I incorporated a valuable lesson into my getting into multifamily a few years ago. Three years ago, when I decided that I wanted to do multifamily for various reasons that I've talked about elsewhere, and I didn't know quite how to break into it because I wasn't comfortable doing it myself. I reached out to Ashley, who I had known for a few years, and I basically said, I would love to volunteer my time to you and your team for a year in return for mentorship. And I'll do anything you need me to do. I'll sweep the floors. I'll help bring investors.

I'll, yeah, I think it was those two things. I think that it was pretty much all I can do. But no, I said, you've got my time for a year. Do with me what you will. In return, will you, will you teach me the business? And she said yes. And here we are three years later. And we're now partnered in bar down investments. And so there's nobody out there that can't do something similar. I mean, a lot of us will pay tens or hundreds of thousand dollars for college. We'll spend thousands of hours in classes, whether it be a college or trade school or whatever. Don't think that learning a business like multifamily isn't the same. You don't necessarily have to spend tens or hundreds of thousands of dollars, but you at least have to be able to put in, be willing to put in

the time and the effort. And so go find somebody that's doing what you want to do and offer your time and offer benefit, offer value. It's a great way to get started. Yeah, just my experience, I think, is the best piece of advice I have. Awesome. Okay. I want to finish this up with how our listeners can get in touch with you. Each of us invests in multifamily, both actively, but we also work with investors.

So don't hesitate to mention where those who might want to get into multifamily on the passive side can reach out to you and find out about your passive offerings as well. Let's start with you, Mr. Brian Burr. Yeah, well, for investors, the best place to find me is through our company website. It's Praxis Capital, and the website is PraxCAP.com. It's P-R-A-X-C-A-P-com. You can also follow me on Instagram at Investor Brian Burke. If you want to know everything I know, just simply pick up my book at biggerpockets.com forward slash syndication book because I spent a year of my life dumping my brain into 350 pages.

then you'll be fully caught up. Joe. You can go to Ashcroft Capital.com, and that is the company, Ashcroft Capital. I wrote a book on apartment syndication. If you're interested on the active side to learn about that, then you can go to, well, Amazon and put in apartment syndication. Joe Fairless, I'm sure we'll show up.

Awesome. Ashley Wilson. You can check out our company at bardowneinvestments.com. You can follow me on Instagram at Bad investor. I do have a book. It is not multifamily specific. So I think this is a subtle hint that I should be writing one from Joe and Brian intro. But if you want to check out a very good book on real estate investing in general, check out the only woman in the room, knowledge and inspiration from 20 women real estate investors. Love it. And if anybody wants to get in touch with me, I am also with

bar down investments. You can connect with me at connect with jscott.com. That'll link you out to all of my links. Gentlemen and lady, thank you so much for being here. This was tremendous. And I mean, the amount of knowledge and success and inspiration on this call was absolutely amazing. And I hope our listeners get as much value out of it as I got myself. So thank you, everybody. Thank you, everyone. And thanks for listening. Thank you, everyone. Thanks, Jay. Thanks, Ashley. Thank you all for listening to the Bigger Pockets Real Estate podcast. Make sure you get all our new episodes by subscribing on YouTube, Apple, Spotify, or any other podcast platform.

Our new episodes come out Monday, Wednesday, and Friday. I'm the host and executive producer of the show, Dave Meyer. The show is produced by Ian K, copywriting is by Calicoke content, and editing is by Exodus Media. If you'd like to learn more about real estate investing or to sign up for our free newsletter, please visit www.com. The content of this podcast is for informational purposes only. All host and participant opinions are their own. Investment in any asset, real estate included, involves risk. So use your best judgment and consult with qualified advisors before investing.

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