I quit my CPA Job to buy Large Apartment Buildings

368 Replies

Originally posted by @Brian Adams :

@Thorney Gibson, each deal is different based on the overall exit strategy of the deal. My minimum take of any deal is 25% where I share in cash flow, allocated tax benefits, and back end profit. 

Earning zero income doesn't make much sense as it is a lot of work putting these large deals together.

Investors usually receive cash flow payments on a quarterly basis.

 Gotcha thanks. It was just recently I ran into a client that does this. "Morgan properties". They are now the biggest commerical real estate company in maryland I believe. They never sell properties and cash out Parnters. Seemed like a very uncommon way to operate however, they seem to live by it.

It's GO time, my 200+ unit deal is 100% occupied, and ready to buy a 100 to 400 unit deal in the next 90 days. Targeting properties in Dallas, SC and NC up to $15 million purchase. PM me if you know of any deals I can buy.

@Brian Adams

Amazing story! I would love to get into multi-unit investing. I'm still trying to figure it all out and build my network to do so. There's so much competition and job growth in my area. I'm not much of a numbers person and with you having a CPA background I'm sure that helped tremendously. Great read. Topics like this are so motivating. Congrats again!

@Frantzces Lys , thank you so much for your kind words. 

My background as a CPA has served me well, but you don't need to be a number cruncher to buy large apartments. I know the clients I was advising back in 2008 were not CPA's and they had 1000s of units.

If numbers aren't your thing, no problem, partner with someone who likes that side of the business. Maybe you are good at locating deals or raising private money or another skill, often people who I coach get so concerned about feeling they need to know everything. 

And honestly I was the same way. 

I finally learned that real estate including large apartments is all about two things, locating really good Deals and the ability to close the Deal with having access to capital - the Dollars.

That was a great story...informative and inspiring. I will be doing the very same thing as you. Your testimony just confirms that I'm on the right path!
Originally posted by @Brian Adams :

@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.

Dave Lindahl from South of Boston. Going to start in a small apartment buildings I think three Plexes to hundreds of units

@Anthony Chara has an inexpensive course online, I can't think of the URL at the moment,  

but I've seen him in person he's a very good teacher, teaching the math of apartment building investing

@Fred Conway , awhile back you asked about me doing a podcast. I have reached out to BP and am looking at doing a podcast in August 2015. More details will be shared.

Brian,

Great posts and thanks.  Are you concerned about where we are in the cycle, reflected by near record-low cap rates in many markets?  Equity Residential, who is the largest apartment landlord in the U.S. for example, bought no additional properties in the first quarter.  In the Boston area we are seeing a marked shift in the marginal small apartment building buyer to first-timers and owner-occupants away from seasoned investors.  This combined with rates starting to move up has many of us concerned.  Thanks for your thoughts.

@Ross Williams , thank you for your insightful post as well.

No doubt multi-family has risk just like any other investment and cap rates are compressing. You probably know this, but when cap rates compress, values sky rocket since the value of a multi is determined by its net operating income (NOI) - its an inverse relationship, the lower the cap rate the higher the value.

I must admit I am not familiar with the Boston market, but am targeting markets where there is strong job and economic growth. Also, the millennials (the baby of the baby boomers) are still driving demand in the multi family space so I still feel there is significant growth opportunity available in the right market.

At the end of the day, and in my opinion, buying multi's is all about the numbers, and there are still good opportunities to be acquired based on sound buying fundamentals.

Brian,

You make great points as usual.  I currently have ~40 units in the Boston area and thankfully the market has been strong.  The reason I have not moved to so-called emerging markets as you mention is I don't feel comfortable with how the properties would be managed without my being there for oversight.  I had severe problems over-charging problems with my previous property manager here which has perhaps exacerbated my concern.  How did you get comfortable with finding trustworthy managers in your markets?   How often do you visit your properties?  Also, what cap rate and cash-on-cash returns do you target?  Thanks again.  You are a great and generous resource for BP which is what this site is all about IMO.  Ross Williams.

@Brian Adams - This is an excellent eye opener about multifamily acquisitions that debunks a lot of theories about wealth creation.

The detailed illustration definitely strengthens our resolve to be successful. As you said if they can do it you can and likewise, if you can do it....we can!

I thoroughly enjoyed reading your posts and the responses it generated, while simultaneously capturing a lot of details to increase my knowledge and understanding.

Your injection of mathematical calculations added credibility and proven facts to the line of reasoning.

This is a great story to tell and you have succeeded in doing so.

I look forward to listening to the podcast!

@Brian Adams could you speak to what keeps you doing this day after day?  This is a lot of work.  I understand it must be exciting, but also very very busy for you, juggling properties, leads, money folks, whoa!  When one could easily 'retire' and sip frosty's on a beach somewhere, what keeps them at the office?  Passion and mission?  Thanks in advance for your response!

@Ross Williams , I am glad I can be helpful to you and others on BP.

I have had a similar experience with over charges and it was uncovered by having controls in place and doing checks and balances. 

Managing the management company can be whole new thread. :)) 

I break-up my due diligence process into several categories - physical, financial, market, legal and 3rd party management company. To get comfortable, we interview PM's, check references, ask other professionals in the area for recommendations like attorneys, brokers, go on IREM.org to name a few.

It's all part of the process.

I travel to see my Dallas deal every month right now as I am spending $750,000 on the rehab, my SC project I will be seeing next quarter.

I am looking for value add deals with an 8 cap or better and my investors get excited with a 7-8% preferred return and an IRR in the high teens to low 20's.

@Steve Vaughan , you bring up a really good point. To be successful in any business, real estate included, it is a lot of work. It took me a long time to figure it out, but I got very clear on my WHY.

When I was working at the law firm and all those crazy hours during tax season, I wasn't happy. 

Not to toot my own horn, I have been doing CPA work almost 20 years and am pretty good at it. But those long hours away from my wife and two girls got me thinking that I was missing out. I felt like I was missing out on the magic moments like kids school activities and just being a dad and husband to my loved ones.

So my WHY or JUICE to make a massive change like this boils down to that I was in a place of Pain. I was making good money but the passion for the line of work I was in as a CPA did not match the desired outcome that I needed in my life.

I have a specific outcome I want to accomplish with my real estate business. In the next 10 years I will strategically grow my real business to control over $250 million and earn $100,000 a month in passive income. To some these goals might seem a bit lofty, but I have been fortunate to work with tax clients who accomplished this level of success.

I realize the road ahead has many more bumps, turns, struggles, but with Passion, a crystal clear Mission/Vision, anything can be accomplished.

Steve, thanks so much for asking this question as I really believe it is important to know the "WHY" as the WHY will drive someone to take action.

Thank your for your attentive, informative response @Brian Adams !  Sorry to bother the busy guy with philosophy!  I'm searching for more of a why is the reason for my question. I have grown 'content' and it's a little scary. 

Asking the why question of the successful already is a great way for the rest of us to learn and I very much appreciate it!  There are a lot of 'Why do you do real estate?' forums.  Why continue to do syndicate/ acquire/ grow when you no longer have to?  I guess for me it's because more people need clean affordable housing from an owner that cares.  Thanks for your insight and well done!  Your transition took guts and I applaud you!

This topic was brought up in another forum post and I feel it is relevant here with buying large apartments - the importance of building strong relationships with your network like attorney's, real estate brokers, management company, appraiser, title company and those folks who are in the "business".

I am actively pursing buying another 100 to 400 unit deal in the next 90 days and my management company and broker have presented me with 2 different off market deals. Off market deals by definition don't mean they are great deals and that is why we underwrite to make sure the numbers jive, but I have made a lot of money with buying off market deals where know one else knows a property is for sale.

Moral of the story if your goal is to buy a large multi - consistently develop and maintain relationships with those who can accelerate your real business.

Hey @Brian Adams I've been reading through your posts, and really appreciate you taking your time to explain and provide us all with this info.

One question I do have:

For someone like myself with minimal experience & capital, but a relative abundance of free time due to the nature of my work schedule, what would be the best way to leverage my time, in order to add value into someone else's deal, and become a potential future partner/mentee?  

@Alexander Bigwood , thanks for the message and sorry to give you a brain dump below, but your question about the starting point is very good.

If you have an abundance of time than your focus needs to be simply on two things - Deals and Dollars.

As you probably realize there are a lot of moving parts to acquiring a large multifamily deal. When I first started I was very overwhelmed. My analytical CPA mind works in steps, sequences, checklists or patterns. For me I needed to understand the whole process so I mapped out the process and placed the steps into various buckets. The buckets or what I call my 4D approach to apartment investing is the Deals, Dollars, Direct (managing the deal after closing), Done (the payday). 

The Direct and Done are important, but you can't get to these steps until you have the right Deals coming in AND you have the Dollars (private money) to actually close the Deal.

So...and sorry to get off track, but to leverage your time and to get you into a deal or become a future partner, you need to be actively searching out Deals/opportunities. The search can be online, or making calls to brokers, other investors, etc. 

What types of deals are you searching for??? My opinion and suggestion would be to focus on value add deals. Deals where you can force the value by doing something like rehab, better management, increasing rents, decreasing expenses. There is a lot of competition for these deals so if you find the right value add deal there will be many operators who will want these good deals. As part of the Deal process you will need to learn what makes a Deal the right deal and this is based on the market conditions, economic, job growth, rent increase, absorption, and other things to consider.

If you can't locate a Deal, work the Dollars angle - bring private capital to someone's deal. For Dollars you will need to network to locate and secure private money for the Deal. Alexander, trust me private money is everywhere. REIA's are a good place to meet people, but my perspective is to go to places where other real estate investors are not at.

I run my students through this exercise and it is called the Investor Avatar or said another way, what does your Ideal investor look like? We go through questions like, how old are they, are they married, college educated, kids, what type of car do they drive, are they charitable, do they have a hobby like golf, etc. These answers give you a clear picture of what the investor looks like. You now have a clear target.

What this also does is to help identify where your Ideal investor hangs out. If the Ideal investor is a frequent visitor of wine and cheese events, than you are also a frequent visitor of wine and cheese events. Most real estate investors don't do this exercise - so what happens is you are the only real estate expert in a room filled with your Ideal investors and people will flock to you to learn more about your exciting opportunities. 

I better stop as I can keep going and don't want to lose you on a simple request for guidance.

Hope the above is helpful to you...

Hello! We are invested in the SFR market, but interested in expanding to the MF market. I have a deal in Dallas that I'm interested in but unsure if it's actually a good deal. Can you help point me to w reliable metric? Thank you!

I am doing a Podcast with Bigger Pockets on Friday, 7/17/15 - so I hope you will tune in.

By the way if there is one thing that is stopping you from moving forward with large multi family deals, please share with me so I can answer on the podcast.

Originally posted by @Brian Adams :

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.

Brian,

Love to hear stories of people believing in themselves to take action and then taking measured risks to move up the food chain.

I would enjoy hearing a bit more about how you're structuring your capital raises? Are you using Reg D's (what type), JV's, did you create a fund? Equally important, how are you structuring your splits with your investors?

I'll assume your acting as the General partner if a LP, or the managing member if an LLC. I'd also assume as such you're the one securing the debt.

I'm working on formatting a Reg D 506, actually working on the document now, but have not formalized its creation and registered it in my state because the split issue is something I'm concerned about when approaching potential investors in my network. Would rather go to potential investors with a solid investment opportunity on par with generally accepted capital raise exit/cash flow splits.

I've read everything from 10% splits with waterfalls from very large institutional type fund raisers to 50/50 pari passu splits from localized individual investors. Obviously, everything is a process of negotiation, but my network is important to me. Your feedback on this issue would be insightful.

@Christopher Telles , I currently structure my deals under a 506(b) offering. As you probably know you can offer your deals under this Rule to those investors whereby you have created a preexisting relationship. You can take on an unlimited number of accredited investors and with this type of offering you are limited to 35 non-accredited investors. 

Personally I have not yet marketed my deals under 506(c) where you can advertise and solicit broadly using platforms like social media, tv, radio, etc. 

There are unique rules to raising money under these different provisions so make sure you know the nuts and bolts.

Just to give you my opinion and I am glad you formatting your investor document, but unless you are a practicing securities attorney, make sure before anything is given to an investor or filed with your state you seek legal council to ensure your documents have all the I's dotted and T's crossed.

There is a lot of money at risk here my friend and you don't want to shortcut preparing your own documents to save a couple dollars only to get in trouble down the road by the SEC.

Regarding splits - each deal will vary as each deal has its own unique exit strategy, returns, hold period, etc. If you haven't done a deal yet there is a high probability you will need to give more of your deal away to get started to establish your track record. Having a small piece of a deal is better than not having any piece at all -would you agree?

So if you have plans to grow your business with large multi's and you haven't done a deal yet, use your first deal where you will need to partner with someone as the springboard to bigger things.

Originally posted by @Brian Adams :

@Christopher Telles, I currently structure my deals under a 506(b) offering. As you probably know you can offer your deals under this Rule to those investors whereby you have created a preexisting relationship. You can take on an unlimited number of accredited investors and with this type of offering you are limited to 35 non-accredited investors. 

Personally I have not yet marketed my deals under 506(c) where you can advertise and solicit broadly using platforms like social media, tv, radio, etc. 

There are unique rules to raising money under these different provisions so make sure you know the nuts and bolts.

Just to give you my opinion and I am glad you formatting your investor document, but unless you are a practicing securities attorney, make sure before anything is given to an investor or filed with your state you seek legal council to ensure your documents have all the I's dotted and T's crossed.

There is a lot of money at risk here my friend and you don't want to shortcut preparing your own documents to save a couple dollars only to get in trouble down the road by the SEC.

Regarding splits - each deal will vary as each deal has its own unique exit strategy, returns, hold period, etc. If you haven't done a deal yet there is a high probability you will need to give more of your deal away to get started to establish your track record. Having a small piece of a deal is better than not having any piece at all -would you agree?

So if you have plans to grow your business with large multi's and you haven't done a deal yet, use your first deal where you will need to partner with someone as the springboard to bigger things.

I appreciate the response. Although I am formatting the document it is a document I had created several years ago for a similar purpose but did not proceed. It will get proper legal vetting. 

I'm an experienced value add investor in commercial real estate primarily industrial, but also including office and retail. Deals we've completed have been acquired using my own capital (we being my wife and I).

In addition, as a CRE entrepreneur and professional I've owned and operated four large/small brokerages, and a development company. 10MM+ sq ft of transactional experience.

Now the impetus for looking at raising capital is mainly due to the chainsaw accident (the not to Great Recession)  which severed a very important part of this real  estate investor e.g. Capital.

I've been thinking about beginning with a Simplified JV and offering a 7.5% preferred return and a 25/75 split on deals I'm sourcing and turning around by fixing whatever issues prompted the value add component through completion and exit, but where I also have no skin in the game. This is for relatively quick turns of a duration say 6-12 months. Not necessarily fix N flip like SFRs but in some respects similar. Smaller capital intensive deals that have been leased under market or have been mismanaged, have physical issues, etc.

When my capital is in play too my thoughts are to take a promote of 30% and whatever my share of the capital contribution is at the time. This would be for longer term holds of 5-10 years. Again, offering a 7.5% preferred return and transactions that target low 20% IRRs.

In the two scenarios above my concern is that I might be biting off a lot of work for to little compensation. 

My calculated cummulative historical IRR on investments has averaged 34.4% IRRs.

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