The 3 Types Of Multi-Family Buyers: Idiots, Jerks and Me…

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First – I owe you an apology.

I was forced to skip last week on the blog, and one of you guys called me out on it.  So, I am sorry for missing and I am ecstatic that someone would actually miss me on here! Specifically because when I called Brandon on Monday to tell him that I got nothing for him, he said – ‘no one cares…’

Josh probably told him to say that; you think?

And yet the story of why I didn’t publish last week is quite amusing. You see, I generally keep my working copies of everything I write on a jump drive; this way I can simply pop it into any computer at any location and continue working.  Well – I took my family to my parent’s home for the weekend, and while there I accidentally sat on my jump drive…yep – I sat on it and cracked it.  I lost all of the contents on that drive, including the article I was working on for BiggerPockets!

You know – six months ago this would not have resulted in my absence from the blog; it’s not too hard to re-write an article after all. But, it seems that more and more I’m spending my time on the road looking at deals to syndicate.

And indeed, on Monday of last week, I took a trip about 150 miles around the corner and down the street to walk a 180-unit.  Actually, this was my second trip down there in as many weeks – it’s looking very promising; much more so than anything else I’ve seen in the past 4 months. We are a few hundred thousand apart from putting this thing together!

Now is not the time for the juicy stuff, but if you would like to know more, leave a comment below and I may just spill those beans… Suffice it to say that I had a very reasonable excuse for not being able to post last week.

Now – having met and spoken to a lot of brokers in the past 4 months, and having seen the good, the bad, and the ugly…sorry, I take that back – I haven’t seen the good up until this 180-unit; only the bad and the ugly.  But having seen all that, I can now clearly define who the buyers are in the multi-family syndication space.

Related: Purchasing Bank-Owned Properties – The Good, the Bad, and the Ugly

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The 3 Categories of Multi-Family Buyers

There are three categories of buyers in the marketplace today:

  1. Category 1: Ignoramuses
  2. Category 2: Jerks
  3. Category 3: The Real Deal

Category 1: Ignoramuses

I’ve got a simple question for you, and it goes like this:

Question: Why do foreclosures exist in the multi-family space?

Answer: Because most buyers are idiots!

Related: Humans Are Idiots And What We Can Do About It

Sorry for being blunt, but this is the truth.  Most people are buying the kind of stuff that I would not touch with a six-foot pole, and they are structuring it in a way that is certain to cause disaster over time.

What I see a lot, even here on BP, is that most people want to think of and analyze syndicated apartments the same way as any other long-term hold – syndication is not a long-term hold guys!  These two models are as different as could be.

Think about it:

What is the first thing capital partners in a syndicate typically want to know, aside of course for how much money we’ll make them?  It is – when will I have my money back?

Well, if getting the money back is one of the most consequential elements of the transaction, than what does Cash Flow have to do with the price of borsht…?  Cash Flow will never recover capital expeditiously enough to satisfy most investors in the marketplace…see what I mean?

And also, I don’t know about you, but most sophisticated investors that I talk to, accredited or not, evaluate return on equity in terms of IRR.  Sure – they do look at CCR (Cash on Cash), but the definitive metric to most of the people I work with is indeed the IRR (Internal Rate of Return).

Guess what, cash flow is not the main driver of IRR – get it?  And by the way, if folks you are taking money from only know Cash on Cash and perhaps CAP Rates, then I have this suggestion for you – take it or leave it, but here it is:

Quit taking money from unsophisticated grandmothers, unless you want the SEC to nail your tailbone…


Category 2: Jerks

I spoke to a Marcus & Millichap broker in Columbus Ohio last week, and he told me that there are people coming in from out of town and paying 4.5 CAPs for A-Class product…

Now – there are many potential implications to this, but the most obvious one is this – we are in freaking Ohio – Nowhere, USA!

Sure, it is one of two best markets in this part of the country, but it’s a secondary market we are talking about.  Who the hell pays 4.5 CAP for anything in Columbus…?!!

Never mind who; I know who, but that’s beside the point.  The real question is WHY?

And the answer is that they are going to bleed the property and then give it back to the bank!  They know it.  The banks know it.  And everyone knows that when this stuff hits the fan the taxpayers will be arm-twisted into…well, you know how this story goes!

This should shed some light on why it is so difficult to syndicate a deal that makes a damn bit of sense…it’s because of these:


Category 3: The Real Deal

There are very few people residing in the neighborhood where I live.

I want to improve property, not bleed it.  I really and truly look for deals that will make money for my investors and for me – the honest way.

But, because of the idiots in the first category who’ll pay ridiculously too much since they are too stupid to know better, and the jerks in the second category who’ll pay too much cause it doesn’t matter to them in the long run, I am forced to look for a needle in a haystack!

I got no love for idiots and jerks!

You either loved or hated this one, but either way you know where I stand.  Would you agree with my assessment of the marketplace?

Be sure to leave your comments below!

About Author

Ben Leybovich

Ben has been investing in multifamily residential real estate for over a decade. An expert in creative financing, he has been a guest on numerous real estate-related podcasts, including the BiggerPockets Podcast. He was also featured on the cover of REI Wealth Monthly and is a public speaker at events across the country. Most recently, he invested $20 million along with a partner into 215 units spread over two apartment communities in Phoenix. Ben is the creator of Cash Flow Freedom University and the author of House Hacking. Learn more about him at


  1. Roberto Reyna on

    Ben,I am still laughing at the way this subject is presented to us all. All kidding aside, this is exactly the information I am starving to learn. Yes, please keep posting more information on BP and more videos on YouTube. Thank you for your generosity in sharing this wealth of information with us.
    Robert Reyna from Houston, Texas

  2. Sharon Tzib on

    Yay, you’re back! I had withdrawals last week lol! So first of all, yes, I wanna hear more details on the 180 unit whenever you’re ready (of course, I mean, was that a rhetorical question you were asking?).

    Great article tho. That’s kind of mind boggling that people are paying a 4.5 cap in Ohio! Why do you say the banks know the buyers are going to default and are allowing it? All I see on the forums are people complaining about how hard it is to get approved still.

    Someone wrote a blog here the other day saying that IRR isn’t the end all be all metric for assessing MF. I think his point was there are other metrics one should consider as well, but it sounds like your investors don’t feel that way. Thanks, Ben and welcome back 🙂

    • Haha – withdrawals. That’s funny Sharon.

      The “end all be all” nature of the IRR metric is directly proportional to the sophistication level of the investor and the project. There are indeed other metrics, but they all fall short in one area or the other on most syndication-level opportunities.

      There is a lot of money out there to be borrowed, but not for small-scale assets in marginal areas and inexperienced players – I’ll just stop there 🙂

      Stay in touch Sharon!

  3. Very nicely put – the only one’s who would argue or take offense fall into one of the first two categories.

    Unsolicited advice for next time – transfer your jump drive to something cloud based like Google Drive. No more take it along to work on, just log in from where ever you are – through your computer or even the phone app – and it’s there for you to edit, proof, publish. Whatever you need to do with it.

    • Hey Scott – nice advice!

      Truth be known, I hate computers cause even though they look friendly like a TV, they really are not 🙂 Cloud-based stuff is about a mile over my head – I’m just a dumb landlord…

      But I’ll look into it – thank you indeed!

  4. Isn’t that the same dynamic in every market? RE, stock, bond, and ebay for that matter? There is always someone who will pay too much for some reason which makes little or no sense to me. And there is always someone who has an ‘angle’ or a ‘system’ intending to ‘beat the house’. Just as there is always (the rare? ) someone who patiently ignores their antics and quietly goes about making a profit. In fact, all things considered; rather than lamenting them – we should all be applauding and encouraging the type one and two groups for the opportunities they provide. I can say tell you that it would annoy me to madness to have to compete with myself every time.

  5. Welcome back, Ben. Without labeling you, I should point out that the unfortunate reality in purchasing real estate on the open market is that you are only as good as your worst competitor. 🙂

    Of course not all of the 4.5 cap buyers are idiots or jerks that will give the property back to the bank. Some of them are so flush with cash that they are chasing yield amongst even lower-yielding options. That of course makes it tough on us syndicators because our investors don’t want to invest with us for low returns, they are as you say seeking an aggressive IRR.

    Our recipe for delivering that IRR is to outmaneuver and outsmart the idiots and jerks when we buy, and seek them out when we sell. I say this in jest, but is there an element of truth to that?

    Good luck!

    • Well Brian – it’s a good thing then that I don’t have to compete with you, isn’t it? It’s also a good thing that I don’t have to sell to me – that would be a awkward and rather pointless seeing as I’m neither an idiot nor a jerk lol

      Thank you for commenting 🙂

  6. Sara Cunningham on

    Yes Ben I’m with Sharon I did miss your input last week. Needless to say I love to read your opinions and I do so because right now I feel that I might be one of those investors that falls into the idiot category as far as MFRs go. I’ll keep on reading and maybe I’ll move up a notch or two if I study really hard. Lol

    • Sara – thank you!

      This game is so multi-dimensional. As I am now transitioning into syndication, a whole new world is opening up; sides of the business that I did not see before. I feel the same as you, and I am calling and emailing people every single day looking for answers…

      Tis the season…

  7. Mitch Dowler on

    Ben I’ve gotten to a point where I’m really happy with my buy and hold duplex and single family investments I have. They provide a great return and I am moving toward my goal of sufficient real estate income for my retirement. I just feel like I am creeping toward that goal too slowly. I save cash plus every penny of cash flow from real estate goes right back into the next deal. I just can’t seem to get there fast enough. I would like to venture into commercial multifamily syndication. How much cash would be expected of me to join one and come along for the ride so that I can get some syndication experience under my belt by watching and listening? I can come up with 10-20k but it is tough to wait it out for more.

    • Mitch – I know exactly what you are saying!

      As to the amount, the SEC stipulates that Private Placements are allowable only to Accredited Investors and a few Sophisticated Investors as (google their definitions or go to my site).

      What these definitions really mean to establish is the investor’s capacity to take a loss. In other words, are you prepared to loose $20,000 – it could happen you know.

      With this in mind, for my own purposes I’ve set the minimum buy-in at $50,000 – I need to be dealing only with seriously high net worth/earners. I don’t think that even the highest potential return is appropriate for someone who would feel serious financial pain over a loss of 50k.

      I know that a lot of syndicators allow for lesser buy-ins. This is a personal call on what we think is right. I take my fiduciary responsibilities very seriously, but things can and do go wrong – if someone tells you otherwise, RUN!

      So – I am at $50,000. Furthermore, if your Net Worth is $100,000 I am not letting you in. Even if you think it’s a good idea, I just don’t feel that it’s prudent for me to essentially control 50% of your Net Worth. It’s too much risk for you!

      Does this make sense Mitch?

  8. Mitch Dowler on

    I am familiar with accredited investor status but I was asking more about opportunities to enter at a smaller amount to gain experience. I am a member of Realty Mogul but those investments do not provide syndication experience even though they do require one to be an accredited investor. One good thing is they do allow investment chunks of only $10k. For example I started a small business investment company owned by my SDIRA that meets the SEC accredited investor criteria and used it to fund small real estate construction projects. The small business investment company has more capital and investor super powers than I do as an individual but I still like to test the waters first before jumping in with $50k.

    • Mitch,

      I think you are right to “test the waters”, and I think that many syndicators likely have lower buy-ins than mine. I may change my approach to this in the future, but for now alas…

      Sorry I can’t be of more help to you at this time Mitch. Feel free to reach out and I’ll be happy to chat on the phone 🙂


  9. Hi Ben,

    Would you please elaborate on exactly how you “bleed” a 4.5 CAP property and hand it back to the banks? Wouldn’t this be a one-time deal and then a 7 year delay for bankruptcy? I take it this isn’t a long term strategy, but how would someone with real money think this is a good approach? Does the “bleed” part of the deal make up for losing the down payment to foreclosure? I just can’t see this being more profitable than buying a decent CAP rate and holding it for a few years. Even deferring all maintenance, you can’t make a 4.5 CAP into a 9 CAP property and you can buy that 9% in Columbus can’t you?

    Someone else on here mentioned people from rich areas chasing yield. I work with plenty of high income types (300k + / year) and they’re surprisingly not any better investors than anyone else in my experience. I think there’s a lot of California money flowing into the rust belt markets myself.



    • I don’t see that there is anything Else fueling the various escalating markets – other than serious money, well; All money really, Chasing Yield. For people who missed the 1970’s and then missed 1987, 2007/8 was a terrifying horror in both RE and the stock market. Millions of people who both were watching their IRA balances (mysteriously to them) increase steadily month after month and year, and Also smugly counting on eventually selling their house at the top of a 60+ year bull market in RE to help fund their retirement, were first paralyzed in horror, and then ran for the exits – but only after they were 40-50-60% (or more) down.

      And who then sat out the last five years safely getting 1% on their remaining cash. The NYSE is looking pretty tippy: the new highs list is Thin and puny, PE’s and PEG’s have edged up and up. Nonetheless; between all the “better get in before we can’t afford to!” people, and all the “jeeze how am I going to ever retire on $500K?” people – The Market continues to climb.

      Why? The irrational search for yield. Hell; just look at what is doing the best: traditional blue chips. Defensive stocks. Energy, Food, and big dividend payers. There are Railroads with a P/E of 20!! Johnson & Johnson was dead-money for how many years? Now look at it. And look how twitchy the Market. A solid company misses earnings by a penny and the share price takes a 6% hit. Come on now – that’s not the track of well seasoned investors – it’s nervous, on the edge of their seats, yield seekers.

    • Chris –

      When you are in a country where the currency is crashing an ROI is negative due to crazy inflation, 4.5% CAP is reasonable and my even be worth certain loss of down-payment. Furthermore, just like before people think that property will go up forever and thus 25% today will result in a 10% loss. When you are facing total annihilation in some foreign country, this seems like a pretty good bet!

      Not to mention, down-payments can be financed…

      • Hi Ben,

        Now, I’m really confused. Which country with a crashing currency are we talking about here? I don’t get the impression that the American masses are buying Columbus, Ohio real estate due to some currency crisis. I’ve read about certain CA markets having over half of sales involving foreigners (supposedly mainly China). Is this what you mean here? Why would they go from a top tier market like San Fran to the rust belt and skip the sunbelt cities?

        I think it’s much more likely that rich fools in expensive cities believe Columbus is a good deal since they can’t get 3% where they are. That, and the fact that most folks base a cap rate on maybe 15% expenses and free management. Plenty of people think what you’re calling 4.5% is really 8%. This seems the simplest explanation to me.

        Inflation is nil in the USA if we ignore all the things I actually want to buy (RE and stocks). All the things I want to buy are suffering inflation like crazy, but most everyone seems to think this is a good thing!



        • Ben Leybovich

          Haha Inflation is nil if you ignore stocks, RE, metals, milk, bread, cheese, etc. It’s coming big time. The only reason FED hasn’t raised the rates is because the economy is shit and can’t survive it.

          Wealth is at the top, and those fools ant more. They are chasing yield and 4.5% in Columbus OH.

          But, as bad as things are in the US, things are much worse elsewhere…they are all coming here.

  10. Roberto Reyna on

    Ben ,I have looked at the video as well the 2 hour podcast, can you please explain the cap rate formula and the IRR formula.
    Robert Reyna from Houston, Texas

  11. If it makes you feel any better you got all the same actors in the single family space as well. Be it rentals or rehabs.
    Don’t come across as many jerks but the idiots flow like water…
    Seriously I have to assume these people put postits all around their house reminding them to breath…

  12. Mohammad Asaduddin(Asad) on

    Hello Ben, I am the one who did not miss you at all!! This is because I am new at BP. But sure enough I am going to miss you in future if you do it again. I am trying to expand into commercial from residential. Do you think I can find the needle in the haystack in Houston and vicinity? Would it be a good idea to go after retail and office in addition to multifamily? Looking forward to hearing from you.

    • Ben Leybovich

      Mohammad – to answer your question, I prefer multi-family because I like to be dealing in an item of necessity as opposed to desire, which small-time commercial is. As to Houston, everybody and their mother, father and brother-in-law is in Texas now. 99% of people pay what I consider inflated prices. A few pros, some of whom I happen to know well, get all of the first looks at any real opportunity. Texas is a very tough market now – how well are you connected?

  13. Inflation? We don’t have that. Not officially anyway. Sure everything costs more – no question about it. But we solved that problem by not counting the things that most people spend most of the money on: Food and Energy. And we also exclude a few other things with their pesky rising prices. But it’s all good, eh? At least this way we don’t have any Inflation!

    The Fed can’t raise the rate or the interest on the us debt would awkwardly increase – reducing the funds available for buying votes – and Lord knows we can’t have any of That nonsense going on. Their antics do make one wonder just what the unemployment rate would be if all the deployed soldiers were back in the US, doesn’t it?


    Ben Leybovich wrote:
    Haha Inflation is nil if you ignore stocks, RE, metals, milk, bread, cheese, etc. It’s coming big time. The only reason FED hasn’t raised the rates is because the economy is shit and can’t survive it.

    Wealth is at the top, and those fools ant more. They are chasing yield and 4.5% in Columbus OH.

    But, as bad as things are in the US, things are much worse elsewhere…they are all coming here.

  14. Roberto Reyna on

    Hi Ben, I don’t understand how the veterans coming home from overseas will affect inflation? Most veterans like myself have earned the gratitude from the America public for a self less sacrifice we have provided to the rest in this great wonderful country of ours that we love with or without inflation.

    • I think you are talking about Stephen’s comment.
      While mostly about inflation the remark about returning veteren’s was in regards to unemployment.
      Makes intuitive sense that when all of them come home and aren’t on active duty they will bring a lot more people into the job market and no reason to think a comperable number of jobs will be created to compensate.

  15. It’s interesting to see how people come to different conclusions, based on different perspectives. I detect a bit of “doomer” / “prepper” mentality here. It makes sense that a website with ties to financial independence would have a healthy does of this mentality. I’m an engineer in the energy industry and very aware of some of the long term trends (peaking fossil fuels, overpopulation, financial debts, etc.) and yet I’m optimistic about the future. I don’t believe I’m a fool on the matter, but won’t try to convince anyone that thinks we’re screwed. I’ve been hearing about how we’re screwed “very soon” for decades. I’m more worried about some freak virus evolving in a hog pen than I am about hyper-inflation in the USA.

    I think the optimist / pessimist balance helps keep things in check, just like the left / right balance. Everything goes to hell when there’s only one mentality in societies.

    Good luck to everyone here in your future.



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