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Why I Don’t Love Real Estate—But Just Acquired $20MM of Property in 6 Months

Ben Leybovich
6 min read
Why I Don’t Love Real Estate—But Just Acquired $20MM of Property in 6 Months

This is the story of how and why I acquired $20 million of property in half a year. 

Well, that’s not exactly the whole truth. My partner and I paid about $20MM; the repositioned stabilized valuation ended up being $30 million-plus.

Why I Invest in Real Estate

I started like many of you—with a diagnosis of Multiple Sclerosis.

No, not you? Hopefully not.

Most people look to real estate because they don’t want to work for “the man.” My good friend Brandon Turner (you know, the dude on the podcasts and webinars with an out-of-control beard who’s wearing a checkered shirt) tells the story of how he went from a bank teller, to house hacker, to landlord, to mogul.

Why did he do this? Because he didn’t want to work for “the man.”

My partner Sam Grooms went from a U.S. Securities and Exchange Commission-reporting CPA, to house hacker, to flipper, to passive investor, to syndicator.

Brandon and Sam weren’t working for the same “man.” Sam’s paid a whole lot more than Brandon’s, but in the end, that wasn’t enough. Neither of them liked to be paid (read: owned) by their respective men, and so both of them looked to real estate for a way out.

In my case, though, doctors told me that whether I like it or not, in a matter of time, I wouldn’t be able to work due to my diagnosis. So, for me, it was less about not wanting to work for “the man” and more about being unable. That necessity, more so than any desire, pushed me toward real estate.

Fortunately, I got good at real estate. And today, you would think that I love it.

But, dear friends, I have just one positive thing to say about real estate: it works!

That’s it. I’m hard-pressed to think of anything else positive about it.

It’s a stressful business. It’s at times a nasty business. Many of the situations and people you come across in real estate are not ones you’d choose.

When I first started, an experienced landlord told me, “If you stay in the game long enough, you will lose all hope for humanity.”

You know what, he was freakin’ right!

But, though I don’t exactly like it, I sincerely respect the power of real estate. It is simply not possible to ignore how effectively it can solve some of life’s problems (provided you know what you’re doing).  

So, here I am. I’ve acquired $20MM worth of real estate in six months, and that number is likely to at least double in the next 12.

Why I Chose Real Estate Syndication

There are many reasons I choose to syndicate apartments. Aside from the fact that it’s simply the best use of my professional skills, I discovered that single family is much more trouble than it’s worth. In most cases, for me, the numbers just don’t make it worth it.

Then, I moved on to small multifamily. I discovered that, while a bit better than single family in most cases, the numbers indicated these properties still can’t absorb professional management. I concluded I was essentially buying a job.

So, as you would expect, I began studying mid-size assets, thinking that the numbers would work better. I studied up.

Here’s the thing. Twenty-four to 60 units, which sort of defines mid-size, is likely the worst space to be in, in my opinion. In order to work as it should, this size requires more or less a professional—I would even say institutional—approach as it relates to management, maintenance, and financing.

And although that’s what it requires, you usually can’t absorb any of it into the operating expense because the size doesn’t produce enough income. As such, these “assets” oftentimes end up being a job that takes over your life.

In the end, there were a lot of structural components that forced me into larger properties. But an important, though perhaps a bit liberal-artsy distinction, is the caliber of people you get to be around at the institutional level.

I have worked very hard to gain an ability to live on my own terms, to not do things I don’t want to, to not share space with people I don’t enjoy, and to never be anywhere I am not wanted and appreciated. Well, in real estate, to attract high-caliber people, you’ve got to play at an institutional level.

This may sound a bit lofty, but I don’t live my life for real estate. I live my life for finer things than that. I live my life for the people in it. I live my life to make some sort of a difference.

Real estate is a multifaceted tool, and you get to chose how to use it. Use it the wrong way, your life turns to crap. Use it the right way, your heart sings. You pick!

The type of people I interact with at the institutional level make my life better—both more fun and easier. That’s what I want, and that’s why I syndicate.

vivid red and yellow apartment building with palm tree-lined property against blue sky background

Related: How to Buy a Small Multifamily Property: A Step by Step Case Study

What Does $20MM of Real Estate Look Like?

In this instance, $20 million looks like 215 units spread over two apartment communities in Phoenix.

My partner Sam and I closed on the first complex in August 2018. It’s a 98-unit value-add for which we paid $8.15 million, with a renovation budget of $1.4 million. We raised about $3.5MM of equity for that deal.

We closed on the second more recently. This one is a 117-unit value-add. We paid $10.75 million for this one, with a renovation budget of about $1.5 million. We raised $4.5MM this time.

The acquisitions are very similar in a lot of ways. Both are mid-80s construction. Both are located in what we call “the path of progress.” Both represent very significant repositioning opportunities, where we were able to underwrite $300 per door income bumps, of which about $175 is a recapture of the loss to lease and the rest is a renovation bump.

In both cases, we were able to underwrite, practically doubling the net operating income (NOI) in three years. Let me say that again: doubling the NOI in three years.

Finding Deals and Identifying Hot Markets

There are many voices out there yelling that the market is too hot and that you should wait to take action until another recession occurs. I disagree on many levels.

First of all, if any of you harbor the notion that the next downturn will in any way resemble 2008, you can stop with that nonsense. What we saw in the Great Recession was a once-in-a-generation event; we will never see anything like that again in our lifetimes.

The next downturn will be more cyclical in nature and constitute a flattening, not a cratering like we saw during the Great Recession. This means, if you can’t find any deals now, you likely won’t find them in the next correction either.

Secondly, you need to understand that a “deal” is defined by the delta to the market. In other words, whatever the market is, a deal is:

Market – Discount Margin = Deal

Because of this, it doesn’t really matter what the market is doing. A deal is that needle in a haystack. While it is incredibly difficult to find, it is not contingent on the market, rather it exists in every market.

Phoenix, Arizona, USA downtown cityscape at dusk.

Related: Want to Find and Close More Deals? Get Better Data!

Real Estate Deals in Phoenix

Phoenix is different from other places. In most cities, you can find a mismanaged apartment building, where the rents are $50 or so too low, but there are a bunch of vacant units. In these situations, the bulk of the value-add is to simply manage the building up to stabilized physical vacancy, and then put some lipstick on it and bump rents $50.

Phoenix is different in that, for the most part, there is no physical vacancy. The population growth is so strong that even the most poorly managed buildings are operating at full occupancy.

Well, I can’t reasonably underwrite full occupancy, so I actually have to assume I’ll manage the asset worse. This is why the only way to add value in Phoenix is to increase rents by about $300.

For starters, I need to offset those higher economic losses in my underwriting against the current market. And then, I actually need the value-add to create returns for myself and my investors.  

Believe me when I tell you that finding an asset that allows for this is truly challenging. Add in the other hurdles listed below, and you begin to understand why Sam and I only hope for a few deals per year.

Here’s a list of obstacles we’ve identified:

  • $300 per door of value-add
  • Practically doubling the NOI in three years
  • 14% internal rate of return on a 10-year model (more on five- and three-year)
  • 1980s construction
  • Specific community footprint
  • Specific mechanical setup
  • Original interiors


Each one of the items in the list above begs for a post of its own. For now, I want to leave you with the following thoughts.

Real estate is not sexy. Real estate requires extreme levels of fluency. But real estate can certainly make you rich!

Deals are out there in any market. The money is in the delta. You just have to know how to identify it.

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Are you waiting on the next recession? Or are you going after deals now? Do you prefer single or multifamily, and why?

Let’s talk more in the comments below. 

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.