Investor · Lexington, SC · Member since 2018 · 779 posts · 501 votes
💡 Question: What do you think is the most important factor in a successful passive apartment investment?
I am personally invested in 18 different passive apartment syndications.
My opinion is that projections and investor offering memorandums don't always tell the truth when it comes to an investment.
I believe the number one factor that will cause a deal to perform well is the operator behind the investment.
You could have great return projections but if the operator takes their eye off the ball then it could go south rather quickly.
On the other hand, a solid operator can cause an investment to well outperform projections.
I personally look for operators that have some form of success in business in their background.
Why?
Because you must know how to successfully run a business when you are dealing with apartment syndication.
You must know how to manage people...
You must know how to implement systems, procedures, and processes...
AND you must know how to set certain KPIs (key performance indicators) on your assets to make sure it's performing properly and know when to make pivots when things start to go a different direction.
Bottom-line: Choose your apartment syndication operator wisely!
Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes
6y
This is such an intellectually dishonest argument structure. It's like saying that because I am a good operator, I can walk into any under-performing asset, sprinkle my magic dust, and make it operate - this is, of course, a lie.
Additionally, this argument presumes that just because some operators saw success with exits on assets that were purchased in 2011, this somehow means that they are genius operators. Obviously, this is not honest either.
I can sit here and crush the argument that success is solely a function of the operator all day long. There needs to be a good property, in a growth market, with a strong business plan managed by a good operator. You need all of the above!
Rental Property Investor · Washington, DC · Member since 2015 · 429 posts · 393 votes
6y
@Dan Handford
Agreed.
Great operators are transparent with their investors. Great operators require great property managers and hold them accountable. And great operators care about the overall growth in value of the apartment community for everyone involved, including the investors, property managers, and residents.
Rental Property Investor · Cranford, NJ · Member since 2019 · 245 posts · 148 votes
6y
I think the property manager is the key. They are in a position to stop a minor loss from becoming a major disaster. Pass on a tenant that would be a major PiTA. Find workers that can get in there quickly to fix, rehab and get the part end ready for renting. Know when to raise rents to optimize profit AND not raise rents to keep apartments unrented unnecessarily. Just my 2 cents.
I think the property manager is the key. They are in a position to stop a minor loss from becoming a major disaster. Pass on a tenant that would be a major PiTA. Find workers that can get in there quickly to fix, rehab and get the part end ready for renting. Know when to raise rents to optimize profit AND not raise rents to keep apartments unrented unnecessarily. Just my 2 cents.
The PM is ONE of the keys but you still have to have a competent operator to know when the PM is not performing. This all goes into knowing when to pivot before things go south. I've seen to many newbie operators just try the old "set it and forget it" approach to using a PM. The PM ends up doing a poor job and the operator should have seen it coming a long time ago if they were paying attention.
I believe a PM can be more of a crutch to the operator than a key.
You still have to know how to asset manage when doing these apartment syndication deals.
United States · Member since 2015 · 401 posts · 394 votes
6y
I agree with the Operator and the PM, but I think a better answer is the TEAM. Operator (most important), PM, construction manager, legal team, etc. all play a massive role in a deals success.
To go a little further with the question posed, I would say the main factors for success are the team, the market and the deal. In that order.
Rental Property Investor · Cranford, NJ · Member since 2019 · 245 posts · 148 votes
6y
I agree with you @Dan Handford it’s is only one part and without a competent Operator the ship will sink. I just guess I look at it as I know what I bring to the table. And if I’m looking at it as a remote owner I really need an A+ player to be my “boots on the ground”.
Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes
6y
The numbers tell the story. A good operator will have good numbers that actually make sense, are conservative and well thought out. A bad operator will have good looking numbers, but when you pull back the curtain, you will see the hidden problems.
Cincinnati, OH · Member since 2013 · 1k+ posts · 1k+ votes
6y
Main factor is the team. There are great operators in bad markets and bad operators in great markets. You want to mitigate risks as much as possible so finding a competent team (not just operator, but PM, contractor, etc) is key.
Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes
6y
This is such an intellectually dishonest argument structure. It's like saying that because I am a good operator, I can walk into any under-performing asset, sprinkle my magic dust, and make it operate - this is, of course, a lie.
Additionally, this argument presumes that just because some operators saw success with exits on assets that were purchased in 2011, this somehow means that they are genius operators. Obviously, this is not honest either.
I can sit here and crush the argument that success is solely a function of the operator all day long. There needs to be a good property, in a growth market, with a strong business plan managed by a good operator. You need all of the above!
This is such an intellectually dishonest argument structure. It's like saying that because I am a good operator, I can walk into any under-performing asset, sprinkle my magic dust, and make it operate - this is, of course, a lie.
Additionally, this argument presumes that just because some operators saw success with exits on assets that were purchased in 2011, this somehow means that they are genius operators. Obviously, this is not honest either.
I can sit here and crush the argument that success is solely a function of the operator all day long. There needs to be a good property, in a growth market, with a strong business plan managed by a good operator. You need all of the above!
Thank you for sharing your honest take on this. I think you're buying in PHX right now, correct? What would you say sets that market apart from the others?
This is such an intellectually dishonest argument structure. It's like saying that because I am a good operator, I can walk into any under-performing asset, sprinkle my magic dust, and make it operate - this is, of course, a lie.
Additionally, this argument presumes that just because some operators saw success with exits on assets that were purchased in 2011, this somehow means that they are genius operators. Obviously, this is not honest either.
I can sit here and crush the argument that success is solely a function of the operator all day long. There needs to be a good property, in a growth market, with a strong business plan managed by a good operator. You need all of the above!
Thank you for sharing your honest take on this. I think you're buying in PHX right now, correct? What would you say sets that market apart from the others?
I like Phoenix. But, I also like some other growth markets. But, I am in Phoenix, so I don't see a reason to go anywhere else.
What sets it apart? Phoenix is in an earlier cycle. It's the fastest-growing city according the census. Mariacopa County has been the fastest-growing County for 4 years now. The GDP is very diversified, which I like. MSA population of 5M.
I like Phoenix for many other reasons, but this is the macro.
Investor · Indianapolis, IN · Member since 2015 · 764 posts · 953 votes
6y
I see your point @Ben Leybovich however I think out of all 4 points (solid market, solid asset, solid plan, solid operator); removing the operator would add the most risk/cause the most damage. That being said I do agree it's paramount to lock in all 4 variables. :)
I see your point @Ben Leybovich however I think out of all 4 points (solid market, solid asset, solid plan, solid operator); removing the operator would add the most risk/cause the most damage. That being said I do agree it's paramount to lock in all 4 variables. :)
Ivan, I understand. But, would you humor a bit of an exercise? Let's just keep it simple, like the Greeks:
Major Premise: Some people lost money in the Great Recession
Minor Premise: Some of those people were very smart and experienced
Logos: Even being smart and experienced did not stop people from loosing.
Thus, there were factors more important than the quality of the sponsor.
This works in reverse as well:
Major Premise: Lot's of people have made money since 2011
Minor Premise: Some of them were brand new
Logos: Success was mostly driven by factors other than the sponsor's experience or knowledge.
Having said this, I simply cannot designate experience as "the most important". Does it help? Yes. Should it be there? Yes. Will it help? Absolutely! But, is it the most important or the most powerful driover? Maybe or maybe not...that's what makes real estate an inefficient market :)
Investor · Indianapolis, IN · Member since 2015 · 764 posts · 953 votes
6y
@Ben Leybovich well thought out counter points! I look forward to continuing this debate one day over a nice scotch or high end tequila.
I'll leave you with only my experience having a front row seat to the GFC as a young developer who THOUGHT he was hot Sh$t! The smart and experienced firms who expanded and even thrived in the great recession were multifamily owner/manager firms with mostly/exclusively HUD and Agency backed debt.
@Ben Leybovich well thought out counter points! I look forward to continuing this debate one day over a nice scotch or high end tequila.
I'll leave you with only my experience having a front row seat to the GFC as a young developer who THOUGHT he was hot Sh$t! The smart and experienced firms who expanded and even thrived in the great recession were multifamily owner/manager firms with mostly/exclusively HUD and Agency backed debt.
Brian Burke doesn't drink, but we have at least a meal or two every year. It would be an absolute pleasure to share a scotch with you, Ivan. Surprisingly we've not met yet, and I'd love to. The first time I heard your name, it was from Duke Hardy, who is now retired. That was about 3 years ago. I've been paying attention since then :)