Peter Harris Multifamily Apartments

11 Replies

I'm at North Seattle Community College all day for a Peter Harris, Commercial Property Advisors, boot camp.  

I have been a student of Dave LIndahl (best $1,000 I ever spent) and was at REAPS listening to Anthony Chara (good multifamily guy) on Thursday.  On my commute yesterday I listened to a You Tube video by Mr. Harris; later that day I told my wife listen to this guy I really like his strategy and approach.  

Last night I get an email that Mr. Harris is here in Seattle.  Call it destiny, I'm not sure but I am here.

So what did you think of the seminar?

It was great.  He focused on wholesaling apartments.  Exactly what I am interested in doing. 

I'm going to do my good act for the day with this post:

Firstly, you should know that I am familiar with the instructor and have heard is pitch and ideas. Let me save you time, money and energy by saying that the vast majority of what he preaches cannot be done in Seattle or anywhere in King County for that matter.

For starters, the instructor is totally unfamiliar with the going capitalization rates of King County. In his example at the presentation I attended, he was throwing around capitalization rates north of 7%. It will be extremely rare in Seattle to find an apartment building producing more than 5%. And if it does produce more than 5% you have to do some serious homework to make sure someone is not lying to you, because they most likely are. 

As well, his marketing strategy is nothing short of obvious, mundane and completely ordinary. He sends letters to people who own apartments but live out of state. That's his big secret... And he gets his lists from Listsource, which is a total sham only newbies use. Someone with an inside track on wholesaling apartment buildings would be well above and beyond these basic and obvious marketing tactics.

I wonder if the primary source of revenue for this individual, as well as others, isn't in real property, but rather in marketing and educating to those looking at buying and selling real property.

And now for my favorite part that is gonna make all wholesalers out there angry, but is the cold hard truth. Wholesaling in a seller's market is incredibly difficult, if not flat out impossible. Inventory in Seattle is less than 1.5 months... That's the strongest seller's market in about a decade.  Right now, it is the seller who is in control and can dictate prices. No matter how desperate or motivated the seller is, he or she can find nearly any listing agent and get their property sold in a few days for top dollar.  I see this every single day folks.  

Do you think that you, as a wholesaler who can "close quickly" and "pay cash" but need a 15 day inspection contingency can compete with guys who actually have money and can actually close quickly and who only need a day or two for inspection? No chance.  

But then there's the argument that going the wholesaling route avoids real estate commissions. People who make this claim are allergic to math.  Sure, that's a possibly 5% or 6% (everything is negotiable) but what is the wholesaler trying to get? He wants a 20% to 30% discount to value. So geniuses, if you are a seller whom would you go with? Somebody will take 5% or 6% or somebody who will take 25% of your money.

In short, this instructor doesn't know the market, doesn't know the conditions and makes the entire process sound a thousand times easier than it actually is.  Sure, it is "simple," but it is not easy.

On the other hand, when you are in a buyer's market such as Reno, areas of Texas, areas of Florida, certain parts of Phoenix, and most of the Midwest then the wholesaling has its merits. In a buyer's market, there are more sellers than buyers and therefore it is the buyer who can dictate prices. This is how a wholesaler can add value.

I am stunned at how a real estate guru from Florida, for instance, can waltz into a room here in Seattle and think that whatever worked in Florida can work here. That's either just plain ignorance, denial or flat-out stupidity.  

Please believe me when I say that trying to wholesale apartment buildings in King County will waste your time and cost you money. Sure, there are some people who have wholesaled apartments in this area, but there also some people out who have walked on the moon. Just like the lottery, you're always going to hear about the winners but rarely will you hear about the millions of losers.

There, this is my one a selfless act for the day.

[email protected] | 360‑927‑0959 | http://www.patbritton.com | WA Agent # 120557

I looked into Lindahl and Harris, and a couple of other "gurus" before I even heard of BP.  They each apparently are co writers of a RE book with Trump.  I contacted both camps and they wanted quite a bit of money to "coach" me.  I researched them on google and got directed to Ripoff Report.  There is some info there.  I don't doubt that they have made money in RE, but now they seem to be more of a lecturing company and take a percentage of the deals that they teach you how to do for a fee.  I don't mind reasonable fees to learn, but if I recall, they were up there.

That's when I decided to look elsewhere and found BP!

Good morning @Patrick Britton

You make some interesting points.  I have to agree wholesaling in our market is not easy.  However, I have to think there are people buying and there are people selling so the possibility still exists (no matter how difficult).  

What I heard yesterday was a man from San Francisco that never claimed to  have any knowledge of our market.  To my knowledge San Francisco is also a sellers market and many believe our market is much like theirs but a few cycles behind; in other words what ours may evolve into over the next couple cycles.  So my thought was he may not be knowledgeable of our market but is familiar with seller markets and similar conditions.

In the class yesterday he used an example with an 8 plex in downtown Everett.  He used Walkscore, RentOMeter and other on line sources to learn more about the local area.  For his calculations he used a 6% Cap rate, which to my knowledge is the going cap rate for small and medium apartments in Everett. 

I liked Mr. Harris' presentation because it is very logical and well organized.  We have to keep in mind in presentations like this there are a lot of people that have little understanding of the subject matter.  His approach may be simple (I prefer to call in practical) and I think for the level of the class that was appropriate.  There were lots of basic questions that really dug into some areas but that seemed to force a rapid coverage of other areas.  If he had done this on one of his videos he could have covered it in 30 minutes to an hour.   

Whenever I listen to these gurus I always think you have to take them for what they are - salesmen selling their product or system. Peter Harris' system is reasonably priced for what he offers. As I stated above I bought Dave Lindahl's system and it was the best money ever spent from a ROI perspective (418% in 4 months). Mr. Lindahl has similar marketing approaches - they work. It is not easy but with some hard work, belief in yourself, some faith and perseverance they do pay off.

The cost of the all day class was only $79. I learned a couple points and have some actions items to work on. I think it was money and time well spent. Thank you REIA of WA for putting on the class. Thank you Shirley Henderson for notifying me about the class.

I wonder if anyone else has thoughts to offer on this?

Good morning @Carlos Enriquez

I agree the coaching and mentoring is expensive.  I have never bought into it but do find the reasonable priced material well worth it, see my post above.

Have a great day today,

Richard

Yes, I agree that Mr. Harris explains things very logically and I was able to understand the concepts easily, and I liked that.

Like you, I didn't buy into the coaching aspect.  But that's where it stopped for me, because I can get just so much from videos and books.

My coaching will be self coaching and experience for now, and eventually some few pearls at seminars like this.

The Rich Dad Poor Dad seminars do the same thing.  They entice with some good info, then if you want to learn more, you have to go to their workshops.  Nonetheless, some of these events are worth it.

@Richard Rinehart well i'm glad you got some value out of it.  and yes, $80 for a full day's worth is very, very good.

I am a little biased against Peter thanks to numerous incorrect remarks he made about listing agents though. And when he said that sellers are better off dealing with wholesalers than with listing agents I had enormous difficulty keeping my mouth shut and remaining polite. But we are all out our opinions, no matter what laws of nature or mathematics they violate :-)

It sounds like you can distance yourself from the sales and mentoring aspect of the presentation, and that is very good. Too often, I've seen decent people get sucked in and spend thousands of dollars flushed down the toilet.

Do whatever you think works, but just know that there are a lot of us, myself included who did what Peter is preaching. I don't know of a single person who has wholesaled a multifamily in this area. The multifamily property that I wholesaled was in Michigan.

Maybe the following will put it in perspective better: for about four months earlier this year I spent a decent amount of time and money marketing to owners of multifamily properties. My intent was to wholesale these properties. I had an exceedingly good response rate and found numerous motivated sellers. However, none of these sellers were even remotely interested in providing a 5% discount, let alone 20% or 25%. It was after a dozen or so instances that I realized my time would be better spent listing these properties as a real estate broker.

Once I became licensed, I went back to these folks to see if they would like to list with me. Suffice it to say that I missed out on about $50,000 worth of commission (net), since nearly each one of these people had already sold.  

[email protected] | 360‑927‑0959 | http://www.patbritton.com | WA Agent # 120557

HI @Richard Rinehart

Thanks for posting your experiences. I'd say that you certainly got your $79 worth from Harris' presentation, even if it wasn't quite the panacea that was promised. 

The points that @Patrick Britton made about Seattle, or any sellers market, being tough to work wholesale are certainly valid. Seattle is indeed on the same track as San Francisco, but a couple cycles back. With all the continuing tech jobs growth, I don't see a Seattle downturn for at least years. Even Seattle Bubble doesn't see a bubble, yet.

I was born in Seattle in 1949 and have been watching the market evolve for a long time. It seems like just yesterday when I paid $12,500 for my first fix-and-flip of a 2/1 with an unfinished daylight basement in north Seattle. It sold in less than 24 hours without an agent and I made good money, too. But, that was 1978. Oy! :-)

Certainly, whenever there's buying and selling going on in any niche, there will be more or less opportunities for a nimble middle-person. But, at some point, it becomes more work than it's worth. And, especially if you factor in all the missed opportunities that could have been picked up by doing something a little different. Only you can decide where that point lies. 

But, the way I look at it, the money is all the same color of green. So, if there are better options to a particularly-favored investment strategy that is currently challenging, why work any harder than you have to? Life is short and to everything there is a season. So, why not cooperate with the inevitable? You'll at least end up with fewer lumps on your head from trying to butt down the brick wall.

The key to long term entrepreneurial success is a diversity of skills and the ability to quickly adapt to whatever the current opportunities happen to be. As our Seattle ancestors learned a century ago (and Mark Twain observed), during a gold rush is a great time to be in the pick and shovel business. The old Seattle merchants made a lot more money off the optimists who were on their way to Alaska than was ever brought back as gold. That sounds like Harris et al, so this capitalizing on the dreams of others is a timeless lesson.

I found it particularly noteworthy that the example in Harris' presentation was for an 8-plex that wasn't even in Seattle. It was 30 minutes north of Seattle/Bellevue in Snohomish county, my stomping grounds now, and this is a very different market. Long depressed and far from gentrified, this is where the priced-out Seattle tenants are going for cheaper rents. Price-wise, SnoCo is a couple of cycles behind Seattle, but it's sure catching up fast. 

The SnoCo market is smoking hot, too, with median home values (currently $385k) rising nearly 12% in the past year, on par with the price growth of Seattle. (By contrast, the overflow areas south of Seattle only went up about 4%.) But, since this big rise has been a sudden thing, the long-time owners haven't always kept up with value changes and the "inefficiencies of the market" are a little stronger here. 

And there's a ton of smaller multifamily units here in all qualities and conditions, especially on the West side from Lynnwood north. If you want ripe low-hanging fruit of many kinds, at least in relation to Seattle, this is where you'll find it. If I was doing multifamily, I would be particularly fishing for long-time multifamily owners, or their hungry heirs. I would also be looking for multifamily and/or commercial zoned teardowns with acreage in certain areas that can be redeveloped at 58 units/acre. 

That said, I'm not doing any of the usual BP investment strategies: Too much hard work, too much competition and too-thin profit margins for my taste. I won't answer the phone for 20%.

My niche is the new Snohomish county Transferable Development Rights program. I call this a "clip-and-flip," where i acquire rural county "Sending" properties , clip off their TDR credits and then flip the post-TDR residual land, often for about what I paid for it. I still have a hard time wrapping my head around the profit margins that I see coming, but that's what the conservative numbers clearly say.

In a nutshell, the SnoCo TDR program enables the unbundling of unused residential development rights from the rural county lands that contain them and then transferring them into the urban growth areas of the western county, where land values are a lot higher. This new ability to unbundle has created a great deal of added-value, that most sellers have no clue about. So, much stronger market inefficiency here. This only works within Snohomish county, however.

For just a small percentage of source lands, if you know what to look for, the value of the package of land and now-portable development credits just became a lot higher than the listed asking price. So, knowing the exact higher value going in, it's an arbitrage play that can be penciled out on a cocktail napkin.

Here's a short analysis that I recently did for a live 7 acre 419 unit site at 128th and Hwy 99, just south of the Everett city limits:  https://www.biggerpockets.com/files/user/ChrisNewm... But, the math works for any size commercial or multifamily site in this zone. You'll also find in this document a link to the TDR program rules and a map of the new high-density TDR receiving area.

Basically, the use of these TDR credits is mandated to boost multifamily and mixed-use development densities along Highway 99 between Everett and Lynnwood from 22 units per acre to 58, with businesses on the ground floor of all. This is sort of like buying your way into Heaven, with the 160% upzone being both immediate and guaranteed. In the process, depending on the source land, one Sending credit turns into either 4 or 8 urban Receiving credits, so that adds even more automatic value to reap. 

This is going to be a lot simpler, a lot easier and a LOT more profitable than any of the normal BP stuff. It's essentially all just paperwork-shuffling, and not much of that, with no repairs etc. I currently have 304 receiving credits on owned land, plus another 32 from a 40 acre parcel north of Arlington in the pipeline, that I think are worth at least $22k each to the end user.

And, I'm drowning in deals that I've bookmarked off the MLS. I generally don't bother to bookmark anything that isn't going to quickly return at least a 400% ROI and at least $400,000 back. ($100k invested returns $400k back, plus the value of the residual land). Even with this high cutoff, I currently have about a dozen deals bookmarked and I'm not trying all that hard: I do my deal searching at home, one Sunday morning per month, on Redfin.

I'm looking for A. Multifamily developers who need TDR credits, B. Sales reps for credits (I pay 10% to whoever can put together a deal - the total agent sales commission on the above 419 units will be nearly $900,000) and C. JV partners, short or long term, to harvest the best TDR source super-deals while they last and share in the profits. Please PM me for more info.