I have always been fascinated with real estate.
I started in 2000 investing in a couple rental houses.
My "AHA" moment came in 2008 to move away from the single rentals and graduate up to large apartment complexes.
My background is a CPA with real estate taxation and forensic accounting experience. I got to see wealth creation happen with real estate as I would advise my wealthy tax clients on various tax strategies to save them money for their own real estate businesses.
One late night when I was working at the office, I was reviewing a client tax file and they were making a boatload of money and building their wealth with apartment buildings.
Have you ever had that feeling like…"if this person can do something I know I can?"
Sometimes this feeling comes from a position of feeling pain. As a CPA and working crazy hours especially during tax season, I was barely home to see my wife and two girls. I was missing the “magic moments”. I knew I had to make a change.
I took to the internet learning about apartment buildings.
I read books.
Any chance I had I was educating myself, listening to trainings in the car, etc. It was a priority to figure out the education side so I knew the nuts and bolts of buying apartment buildings.
Once I felt comfortable, I went out and bought a duplex. Based on the numbers the property was already cash flowing, but one of the units was vacant. I filled that vacancy and the additional rent went directly into my pocket.
It was definitely a cool feeling.
Now granted this was a small property, but working with my tax clients who were making money with large apartment deals, I knew the model worked and it was scalable.
Although I was still working full-time as a CPA, I went from buying the duplex in 2008 to trying to acquire a 130+ unit deal in 2009. The deal at the end of the day didn’t work out. Using my CPA background, apartments are all based on the numbers. The deal just wasn’t good enough for my investors.
In 2010 my partners and I bought a 270+ deal. The deal was bought for $4.5 million and it appraised for $12 million.
In 2011, I decided to quit my CPA job at a top 100 law firm in the world to pursue my real estate business.
Was I scared – you betcha.
Did I have fear – yep.
Did people think I was nuts and crazy – Oh yes.
Getting a real estate business started is tough. But with determination, passion, commitment, desire, focus, I know what my end result would be.
In 2013 I bought a 140+ unit deal for $10.3 million.
In 2014 I bought a 200+ unit deal for $6 million that appraised for $7.4 million at purchase.
In 2015, I will be closing on a 100 to 400 unit deal.
So if you ever want to “graduate” up to buying large apartments, my friends, it can be done.
Just know going in that the road and pathway has challenge. There is no easy button.
I believe that with a clear understanding on your “WHY”, anything can be accomplished.
Great read! Thanks for sharing. I to plan to move to large multifamily properties and will be going full time as a real estate entrepreneur in May! Your story is very motivating!
Thanks Ryan and I appreciate you responding and good luck with your switch.
As a quick tip - get your plan put together, like what types of deals do you want to buy - A properties to C properties, how many units, what is the purchase price, how much capital do you have access too, if none - starting developing private money connections, network, determine location of the properties, get a team in place: brokers, management company, mortgage lenders, private money, real estate attorney.
Good work. Where does the downpayment come from on a multi-million dollar commercial deal? Also, are these out of state?
Thanks for the great advice. We are still in the learning phases with multifamily properties. We have been focusing for the past eight months on single family properties with good success.
Dooreuhn, thanks man. The down payment can come from your own pocket or from your investors. I raise $$ from investors so that is where my down payment comes from.
I live in Pennsylvania and buy assets in Texas, South Carolina and North Carolina. One of my key metrics that I follow is job and economic growth in a particular state.
This is a simplistic view and there are other things to consider, but if someone has a job they can pay your rent. I target markets where there are significant jobs being created.
Did you know? And what I thought is also Stunning, is that 1/3 of new jobs in the U.S. have been created in Texas since recession. http://www.aei.org/publication/822253/
@Brian Adams I am working toward the same goal as you. Can you recommend which book to read 1st? I have 2 rental properties now, and will close on my 3rd next week. All are SFR. I have more capital and want to more toward larger properties.
Great read and very motivating!
Ryan, I flip 1 to 2 houses a month and I use this platform to bring private investors in for multifamily deals.
Why?? because it establishes a track record with the investor. I can do a flip and have the investor money back in 6 to 8 months. It creates a level of trust, they get more comfortable with doing deals with you.
When you are raising money for large apartment deals, you are not asking someone for $20 bucks - but asking them to invest a significant amount of money like $50k, 100k, a million.
It is awesome that you are having success with singles. Another suggestion is create an executive summary of your deals. Your before and after pics. Depending on how you financed the SFH's, get investor testimonials, get referrals.
This will help you build up your pool of potential investors to do large apartment deals.
@Terry Alexander , there are many resources available. There is a guy named Dave Lindahl who has written some books on this topic. I will look in my reading library and if I come up with any other suggestions I will let you know.
Brian, great tip on using Flips as a "taste test" for investors prior to seeking their LP investor status on MF. I really like that.
Well done on taking initiative and control in moving from "why are these guys so much money" (as the Agent in CPA role) to becoming the Principal with your RE work. Inspiring.
You can refinance a hard money loan with a portfolio lenders which can be found at small local banks, credit unions ect.
The metrics these portfolio lenders will be looking for are that the property is between 65 and 70 percent LTV and the DCR, which is the debt coverage ratio, is 1. 20 or greater.
You could also try to refinance with a conventional lender or find private $ or even take on a partner to rid yourself of the lofty rates and fees typically found with hard money lenders.
Finally, if you do decide to use hard money you should definitely have one or two exit strategies in place prior to your hard money agreement.
Thanks for sharing your experience with the community. Very inspiring. Do you have any tips on how to best document the a deal for investors and lenders? In other words, are there any standard formats for this that could be used as a starting point?
@Mike Hartzog what I do is put together an executive summary of the deal. It lays out the opportunity, where it is located, why it is the best opportunity for the investor right now, discussing the market, sharing the risks and challenges of the deal, identifying the exit strategy so the investor knows when and how they will get paid back, sales comps, rent comps, financial analysis, projected returns and other info.
Yes I would familiarize myself with the free calculator here on BP to show investors or lenders.
I personally use a different format and would be happy to share that with you if you want to message me.
Thanks for posting your story. I enjoyed reading it.
Sorry, I responded to wrong thread.
@Brian Adams , Thanks for your courageous post.
I have always wondered how much I would be enlightened on wealth creation if I could review other people's tax returns. I have rented out two of my previously lived homes and am able to fund more property purchases - however, I am not sure if it will be SFR or multi-units. I'd like to see a case study on say, 500K invested in 2 SFRs vs being used for 25% down on a 2M multi-family.
Seems like SFRs are plenty to come by, but multi's are picked up by larger investors. Is more money made through the better purchase-price deal on a multi-unit, vs on many SFRs? Am I making sense?
Jai, regarding the case study, may I request some additional info from you?
In the area where you are looking to invest, what is each SFR renting for?
What is the purchase price of the houses or are you a 100% cash buyer at $250k each?
For a $2 million acquisition price for a multi, how many units does that get you in your area?
My guess would be multi's would be the better choice, but let's see if we can prove out the concept for you.
See when you rent out SFH's, you usually can only charge rent.
But for multi's, you can create additional income streams, like adding a laundry room, charging for covered parking, installing vending machines, storage, etc.
You might know this, but the value of a multi is determined by the NOI (net operating income). So the more income you can push to NOI the higher the valuation of the multi will be. The other factor is the market cap rate. A Cap rate, in a simplistic view, is what other properties are selling at based on factors like age, location, condition, etc.
Example, let's assume the NOI for your multi is $200k and the market cap rate is 10. (Cap rates are expressed as a percentage - so it would be .1 or 10%).
So your valuation is $2 million (200k/.1)
Let's say you can add other income like $10,000 a year for laundry income.
$10k doesn't sound like much, right??? but you have just added $100,000 of value to your property.
10k/.1 = $100,000
I hope I didn't lose you in the math, but I am not aware with SFH's where you can create or what I do is force the value like what you can do with multi's.
Thanks for the info procuring larger apartment complexes.
How much harder is it to build a new complex in a market where the demand for apartments is very high and the rents keep going up very fast.
In my suburb, there are three 100+ unit complexes being built, that I know of. 2 of the complexes were recently approved due to the vacant property not being developed for a while and the land being rezoned to comply.
Rents in my area just broke the $1,000 mark for a 1 bedroom unit in a larger complex with some amenities.
Do you have your own property management companies in each state that you hold investments in?
My father always bought 14-16 unit buildings. He liked them since they did not require an onsite management office and he could do most of the repairs and painting himself. Tempted to go that route to get started, but the larger complex investing intrigues me.
@Robert Blanchard , I haven't ever built a property out of the ground so I am afraid I don't have an answer for you.
Re:management companies, I currently use third party management companies. As my portfolio grows in a particular location I will consider forming my own PM company.
Congrats to your father!! I have self-managed properties before and tried to run the whole show to save $$$. I am a CPA and I am frugal. But over time I found trying to do everything myself was not the best solution. Even for small product we bid out repairs and painting to get the best pricing and leverage others people skill sets.
Also I am not very handy so my time is better spent looking for deals for my investors.
Wow. From a duplex in 2008 to 270 units in 2010! Amazing. You're where I want to be in 10 years, man. I'm currently a CPA/tax manager providing consulting and compliance services to national and local real estate companies investing primarily in large multifamily. I also do many of the principals' 1040s. Man do I want to make what they make! Thanks for giving me hope. :)
Is it possible for me to "skip" the whole SFR/2-4 unit phase and get directly into large multifamily properties? Or should I spend some time getting my feet wet with smaller properties? I can't imagine I could get money from investors with my absolute lack of experience. I like your point about flipping houses to establish a track record and rapport with investors.
Your father bought himself a job, not an investment. The 14-16 unit buildings are full of tenants who will call the owner with every little problem. It is easier to train an on-site manager to handle 95% of the issues that come up, then call you only with the remaining 5%. Thus, I believe you will find investing to be easier with a larger property. Just make sure that the property is large enough to justify the full time manager.
@Logan Allec , when I was at Arthur Andersen and some other firms, some of my clients were crushing it with large apartments. I know the 15th is rapidly approaching, who knows, you might have your "Aha Moment" late at the office one night over the weekend. :)
Can you get into large apartments by skipping SFH's and 2-4 unit deals - Yes you can.
The disclaimer though is you will most likely need to partner with someone who has a track record on getting these types of deals across the finish line.
You may want to participate in a deal where you have someone else run the show. Example is maybe you have connections to find deals or have access to some capital or able to provide other services.
JV's happen all the time so you never know.
Great post man! Question..I am also located in PA and I was wondering what your take is on acquiring deals in our market? I am personally located in the northern suburbs about 35 mins outside Philadelphia. You mentioned Texas and other States but do you think there are Multi deals to be had here??