Multifamily Business Plan

[Ian Ray]

This is my Multifamily investing business plan, based on the Outline given by the wonderful Ryan Moeller.   I would love feedback from all of you awesome BPrs, Good, Bad, and Ugly.  I am jumping into this new industry and would love to get off on the right foot. 

1. Mission Statement – To use the vehicle of investing in multifamily properties of various sizes (minimum of 10 units) to generate wealth for myself and my investors in a stable fashion. I plan to acquire ownership or control of 7,000 units within the next 7 years through a combination of syndication, joint ventures, and personal acquisitions.
2. Strategy – My strategy it to acquire moderately sized (50 to 150 unit) properties in emerging markets that are currently at a C+ to B- grade, as well as acquire large multifamily (160 to 350 unit) properties in stable areas around major industry and academic institutions that are B- to A- grade. The moderate sized properties will be managed by either an in house property management group that is a General Partner, or an outside property management company contracted for service on the specific property.
3. Market – Target markets will include Charlotte, NC, Raleigh-Durham, DFW, Knoxville, Nashville, and Johnson City TN, specifically around public education institutions that have pent up demand for viable student housing.
4. Criteria – I will select properties that can be acquired with a 65% LTV with a cap rate of 5.6 to 10% (based on size of acquisition and financing in place) cash flow sufficient to generate a minimum cash on cash return of 11%. The max purchase amount will be contingent upon the specifics of the deal and the position of the market at time of evaluation. With that being said, I will aim to purchase properties at least 15% below appraisal value. I will seek to hold these properties as long as the value of the investment and the yearly cap rate stays within our models.
5. How to find deals Marketing plan – I plan to network with brokers that specialize in the inventory I seek. I also intend to dialogue with other investors in the space who may be seeing deals that I am unaware of that fit my criteria, but not theirs. I will develop relationships with commercial lenders, and private money sources that invest in my target markets to create an ecosystem for information flow.
6. Finance – Deals will be financed on a case by case basis using a blend of private capital as well as JV and equity partners to raise capital for the down payment on the property. I will seek to use either conventional financing or seller financing where it makes sense to fund the rest of the acquisition of our target properties.
7. How to do deals – How are you going to turn a purchase of a property into profit? Clearly define the steps. Repairs, rent, management, implementation of exit strategies, etc.
8. Exit strategies, Backup Plans – I plan to maintain control of all properties acquired until the opportunity to sell becomes a better proposition than holding long term. I plan to return the bulk of investor principal via cash out refinance after a 3 year period, paid out in order of agreement based upon the specific deal structure. For student housing, I plan to execute a master lease with option to purchase in order to remove investor capital but maintain control of the property. I will also evaluate seller financing options as applicable.
9. Team & Systems – I will structure my team per acquisition. Team roles will include on-site property management and maintenance from a General Partner property management firm, or a contracted firm, as well as in house CPA, Lawyer, and asset manager.

[Brian Burke]

Ian, the good news is that you have a well-thought out plan and you have hit most of the important friction points and given thought to the important benchmarks. You're already miles ahead of many investors that trudge along without a plan.

The bad news is that if you stick to this plan you are likely to suffer from a lot of frustration and slim profits.

The frustration will originate on the acquisitions front.  Seeking an 11% cash-on-cash on C+/B- product in the markets you listed with only 65% leverage is like trying to find Big Foot.  Everybody says its there but no one has proof, just fuzzy photos.  Likewise with finding mid-size properties at a 15% discount to appraised value--not impossible but about as rare as finding a $100 bill on a busy sidewalk.

After working this plan for a while without results you'll notice that you'll start underwriting to higher LTVs to use leverage to increase returns, which is fine, or you'll start looking at C- or D properties because they can more often pencil to your benchmarks (but, unfortunately, rarely actually perform as planned).  

The good news is that it is possible to achieve 11% COC by year 3 or 4 in some cases, and the right value-add deal can oftentimes support a cash out refinance by year 3 to return cash, which facilitates the higher COC.

As to my comment about profitability, this stems from your plan to have an in-house CPA and general counsel...once you have several thousand units that might work, but if you do this too soon you'll spend everything you earn on staff.  Better to outsource those functions until your consultant fees exceed the cost of salaries for equally qualified employees (a pretty high bar).

You have a great roadmap, just be open to tweaking it as you learn what works and what doesn't.  Once you get into the groove it can be very rewarding.