BiggerPockets Real Estate Podcast

BiggerPockets Podcast 131: Investing in Multifamily Properties in a HOT Real Estate Market with Serge Shukhat

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Everyone wants to invest in multifamily properties. (Well, almost everyone.) But with the market heating up around the country, great deals are becoming incredibly difficult to find. That's why we had to bring back one of our most popular guests on the BiggerPockets Podcast, Serge Shukhat.

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The last time we talked with Serge back in episode 60, Serge told us how he built up a massive portfolio in just a few years. But if you were impressed then, this show is going to blow you away. Filled with TONS of actionable tips, stories and warnings, this is one episode you are going to want (and need) to listen to over and over again.

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In This Episode We Cover:

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  • How Serge got started in real estate
  • What he’s been up to since his last episode
  • What value add and value add investors are
  • What you need to know about commercial lending
  • How he used seller financing for his 32 units
  • The 3 components of successfully purchasing multifamily properties
  • The ins and outs of cap rate and exit cap rate
  • Why Serge does his own property management
  • Things to avoid when value add investing
  • What exactly submetering is
  • Instances when overlooking things may cause problems later on
  • Thoughts on using multi-units as vacation rentals
  • How to train resident managers and tenants
  • The importance of changing your strategy depending on the market
  • What you should know about long term 30-year fixed financing
  • What secondary markets are — and why Serge likes them
  • How to connect with owners and resident managers
  • How to keep a competitive advantage
  • And SO much more!

Links from the Show

Books Mentioned in this Show

Tweetable Topics:

  • “If you want to do a syndication, make sure you find a syndicator that is experienced. It’s all about the sponsor.” (Tweet This!)
  • “Time is not your enemy in real estate, time is your friend.” (Tweet This!)
  • “Be on a location where people want to be.” (Tweet This!)
  • “No matter how successful you are, you got to keep moving forward.” (Tweet This!)

Connect with Serge

Real strategies that work for real people seeking to build wealth through real estate investments. Co-hosted by Brandon Turner and David Greene, this podcast provides actionable advice from investo...
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    Kevin M
    Replied about 5 years ago
    Serge – this is actually my first post in response to the podcast, and I have been listening for years. I thought your comments about what to buy (and by extension what not to buy) hit the mark. I own 19 properties, mostly SFRs and 3 duplexes. One thing I learned, and wish I had learned it sooner, was the power in buying the “right” properties. My portfolio return would be incredible were it not for 3 or so “low priced” properties that penciled great but have become huge money pits. You don’t realize until you own those low priced properties the problems in collecting rents and how a make ready of a few grand can kill your cash flow for a year or more when your “paper” profit was supposed to be 200/month. Hopefully your podcast will keep others from making the same mistakes that most of us make when we get started in investing in real estate. Best, Kevin
    Anthony Gayden Rental Property Investor from Omaha, NE
    Replied about 5 years ago
    I enjoyed this podcast a great deal but have a question for anyone who is willing to answer. When dealing with commercial multi-family and things such as forced appreciation by raising income and lowering expenses, does it matter whether the property is a A, B, or C class? I believe that the 32 unit that Serge discussed in his first podcast was C class if I am not mistaken, however he was still able to increase the value of the property. A C class may have far fewer barriers to entry for the beginning investor without as much capital, yet that person could still see the benefits of forced appreciation. I admit that yes you may have higher capex and vacancy loss on the C class properties, but it could be a very small difference with good management. Also I hate to discount the benefits of cash flow. Yes like they said in the podcast, things will wear down and break, but that will happen regardless of if the property is A, B, or C class, and it will be that much harder to pay for repairs for the roof with much less cash flow.
    Serge S. Rental Property Investor from Fountain Hills, AZ
    Replied about 5 years ago
    Thanks for listening Anthony. Yes my 32 unit was C class and yes the principles are no different no matter the class of property. I would say that turning around a lower class of property is just harder to do. That being said, not all C class properties are the same and not all markets are the same so there is no right answer. It all depends on the demographics of that market. Can the tenants afford increases in rent or submettering of water. Will they destroy units upon turnover? All important questions you need to ask yourself.
    Anthony Gayden Rental Property Investor from Omaha, NE
    Replied about 5 years ago
    Thanks for replying Serge. Obviously being new to real estate investing I have much less capital to invest and have focused on C class properties. Another quick question if you or anyone else has time. We know that forced appreciation doesn’t come into play for residential real estate, and if I remember correctly your 32 unit was actually 8- 4 plexes. Does that sort of multifamily qualify as commercial or residential? The reason I ask is because I am in the process of purchasing a 4 plex property that is right next to a 4 Plex I already own. The two properties share parking and I would really like to use the benefits of forced appreciation.
    Nate T. Investor from Tempe, Arizona
    Replied about 5 years ago
    4-plexes are arbitrarily designated as “residential”, versus a 5-plex that is designated as “commercial”, just because you can get a residential Fannie/Freddie loan on up to 4 unit properties (or even FHA if owner occupied). But for considering whether you can force appreciation, that differentiation of commercial versus residential doesn’t really matter, you can certainly force appreciation for a 4-plex or even a duplex.
    Joseph M. Flipper/Rehabber from Los Angeles, CA
    Replied about 5 years ago
    Hi Serge, Great postcast! I thought that you gave a lot of good advice , and lot’s of different concepts were covered such as reducing expenses, importance of really knowing the market ,selling via owner financing and creating notes, etc. When you do owner financing , what percent down payment do you take on a property? Also it sounded like you keep the notes because you mentioned that don’t mind taking the properties back because you know the property and you know the buyer too. But, do you ever sell the note though to cash out? I also like the idea of focusing on larger projects versus many smaller projects. It sounds like this allows you to gain more freedom over your time and you are not always out running around dealing with cheaper properties. Also I think the secondary market thing makes a lot of sense too – People hear about an area to invest in and they’ll want to fly into the main airport and see the properties that are “in the city”. Investing in an area that isn’t on those “Top Places to Invest” articles can be an advantage since all real estate is local. One question I had is that you mentioned that getting a commercial loan was almost laughably easy today and that your lender on a recent loan didn’t require too much documentation. If someone has a downpayment for a commercial loan and the deal makes sense do you think it would be relatively easy to get a loan , or do you think lenders would want you to have previous experience with commercial property? What kind of downpayment and terms are you seeing on commercial funding today? Best Regards, Joseph
    Yasmine Bisumber Realtor/Investor from Miramar, FL
    Replied about 5 years ago
    One of the best I have heard so far, I need to back and listen to the first podcast you did and put it all together. Thanks so much for sharing, so many things I hadn’t thought about as far as value adding until you mentioned them.
    Aleksandar P. Investor from Chicago, Illinois
    Replied about 5 years ago
    Definitely one of the best podcasts so far. I really like the concepts that Serge laid out here, particularly what it takes to be successful RE investor in this market. No fluff, just actionable advises. Thank you for sharing your wisdom and knowledge Serge.
    Charline R. Investor from London, Ontario
    Replied about 5 years ago
    Great Podcast! Thanks!
    Thomas Morris Investor from Bowling Green, Kentucky
    Replied about 5 years ago
    In my municipality, they have transient taxes on short term rentals, and the ordinance basically states that if you have one short term rental (under 30 days) in a property, then everything in the unit is subject to the tax. This makes mixing short term and long term rent difficult.
    Scott Mc.
    Replied about 5 years ago
    Serge, You mentioned that HUD has estimates for hold-backs for repairs, etc. by market. Do you have a link to where that information is published? As a newbie, that seems like it would be an incredible resource to use in my projections before I have empirical numbers of my own, but I’m having a tough time finding them on the HUD website. Thanks! -Scott
    William Newman Real Estate Broker from Milwaukee, WI
    Replied about 5 years ago
    Serge, I was about half-way through the podcast and I couldn’t help but to express how informative and enlightening your podcast is. Having that competitive advantage is priceless as well as the need to not diversify in markets that you have no knowledge of. As I got further along in the podcast you dropped more gems on the BP nation. And you know what, THE TRUTH HURTS!!! I was laying there in bed with my C and D class properties, but this is a wake up call. I will be in contact soon! Thank you! P.S. I am SO going to get my Speedminton set!
    Jeanine P. Investor from Sacramento, California
    Replied about 5 years ago
    Great podcast. Informative info for a lifetime.
    Account Closed Entrepreneur from Woodbridge, Virginia
    Replied about 5 years ago
    I’m going to have to go back through this with a notepad – just as you said. Great Podcast.
    Brandon W. from Llanybydder, Wales
    Replied about 5 years ago
    Serge, I really enjoyed the podcast. Lots of information and a new way for me to look at the phoenix market. I thought cash flow was important but now maybe equity is more important than cash flow. Love the idea about being in the secondary market instead of downtown competing with people who don’t even live in the state. I live in Phoenix AZ if your interested and have the time I would like to buy you lunch and talk about Real Estate. Let me know if your interested.
    Michael Moeller Investor from Salinas Ca
    Replied about 5 years ago
    WOW! finally I found something that seems to provide real, no BS info and wisdom. Thank you BP and Thank you Serg for the great podcast.
    Tory Ellis from Brooklyn, New York
    Replied about 5 years ago
    BOOM!!!!! My Brain just exploded!.. So much valuable information at one time I know that I will have this on replay for a few days just so I can absorb what was taught… Great Job and thanks for sharing your wisdom Serge!.
    Bob Gardner Investor from Osseo, Minnesota
    Replied about 5 years ago
    Hi Serge, What systems do you use to manage your properties. I recently went from 27 to 46 units ( 23 unit MF, 17 unit MF and 3 duplexes). Currently all repair requests go to my or my wife’s cell phone – email or text. I’m looking to set up a layer between us. Perhaps the tenant contacts the onsite manager who schedules the handyman directly who calls in plumber … as needed? I want to stay informed regarding what is being worked on, but I want system to work while I’m on vacation. Any software or process you like? Oh and Awesome podcast. You have really thought this through.
    Matthew Brill from Oklahoma City, OK
    Replied about 5 years ago
    As a newbie in real estate investments, I want to get in based on long term wealth. I have a job that I don’t want to quit yet I like the potential of real estate over/to go along with retirement accounts and the stock market. Would it be your, or anyone else’s, take that someone like me forgoe purchasing properties for cash flow and instead invest in notes and the such?
    Mark Forest Real Estate Investor from Fenton, Michigan
    Replied about 5 years ago
    Hello Serge. Are you saying that one cannot make money on cashflow by renting properties? If so is it possible to quit your job and make a living by being a landlord?
    Aleksandar P. Investor from Chicago, Illinois
    Replied about 5 years ago
    That’s pretty much what Serge said and he is on point. Therefore, answer to your second question is NO.
    James Danchus from Saint Peters, Missouri
    Replied over 4 years ago
    Is he saying that as a someone who is investing in a red hot market where prices are high or is he saying that is universal? That’s a pretty huge statement considering he talked about his collaborations with Ben L and, based on what I can remember, buy and hold is his primary strategy.
    Nathan Rice Rental Property Investor from Austin, TX
    Replied about 5 years ago
    Great Podcast. I thought I heard Branden say he’d like a blog about capex. Does anyone have a link to that?
    Tyler Sherman Chemical Process Engineer from Chandler, Arizona
    Replied almost 5 years ago
    Fantastic show Josh, Brandon, and of course, Serge! I’m beginning to find myself listen to this podcast over and over to make sure I have retained every bit of knowledge that Serge’s experience offered this episode. It really gives me the confidence to use my knowledge , being born and raised in the same area as Serge, to be successful in a market like Phoenix! In fact, I plan on using the suggestion from this podcast to invite Serge to lunch! (and many other investors in my area). Thank you all again for such an awesome show, keep up the podcasts, webinars, and all other content BP!
    Justin Louie from San Mateo, California
    Replied over 4 years ago
    Hi Serge, I just wanted to say thank you for the very informative podcasts that you’ve appeared in, and of course, thanks to BP for producing amazing content. I just finished listening to this show and I am extremely grateful for the dense information that all of you provided. I know it’s been a while since this show and that I would hardly call myself an “investor”, YET! but I was hoping that someone could clarify the explanation about the purchase cap rates and the exit cap rates. It may be a very stupid question, and if it is, I apologize in advance. I understand that the local market will dictate the cap rate, however, in the podcast you talk about how at the end of the day, the purchase cap rate doesn’t matter because the exit cap rate matters more. Are you assuming that the cap rate would change based on the market conditions (ie. how long you hold the asset for, market fluctuations, job growth, etc) between purchase and selling? What if you were planning to “flip” a small multifamily, lets say a 5 unit complex? Would you find a change in cap rate, between purchase and exit, to be very different? Or is it the fact that because you know your market in and out, you can more accurately predict what the exit cap rate would be for a property?