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Joe Fairless
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Closed on 250 apartments in Houston, Texas yesterday! 2 Lessons Learned...

Joe Fairless
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Posted Aug 6 2015, 07:46

I'm proud to say that my group closed on a 250 unit yesterday. It's the second deal I've syndicated and both of them have been over 150 units (first one was 168). 

A couple syndication and multifamily lessons I've learned so far from these deals:  

1. If you are not doing the property mgmt yourself, then have your local mgmt partner put their own money in the deal. This creates much more accountability and aligns the interests. I didn't do this on my first deal (mistake) but did it on this deal in Houston. 

Bonus pts: if the local partner also brings in investors. That adds another layer of accountability and alignment of interests. 

2. Yes, money will find good deals but you shouldn't wait for the deal to get the money. On my first deal I raised over $1M and had to do it after finding the deal. It was a...character-building experience :) I don't recommend that same experience to others. On my second deal I had already prepped most of my investors so it was much smoother. I still brought in new investors but the overall process is much better when you prep investors before you have a deal. Note: I don't actually receive money before I have a deal. I only speak to investors about a hypothetical deal (or past deals) and gauge their interest level in investing. 

Bonus pts: How do you prep investors before you have a deal? Easy. Schedule a meeting with them and learn their financial goals and how they evaluate success with their investments. Then, talk to them a little bit about what you're doing. At the end of the conversation ask them "If I find something that meets your financial goals would you like me to share it with you?" I've never had anyone say no. Then, keep them updated as you look at properties and, when you have one, they are well aware of everything and more inclined to invest. 

Bonus bonus pts: another way to do this is to create a fund where you actually do raise and have money wired before your deal. I haven't done this before but it's a natural evolution from raising money on a deal-by-deal basis. 

For anyone who wants to raise money and do syndicated deals, I'm confident these two lessons I've learned will help you be successful. 

Joe 

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George P.
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George P.
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Replied Aug 6 2015, 07:56

my issue is dinging the deals. it's impossible to find anything listed in the multi area of investing that would make any money.

any suggestions?

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Mark Murphy
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Mark Murphy
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Replied Aug 6 2015, 08:11

I agree - how did you find this deal ?

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Nick B.
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Nick B.
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Replied Aug 6 2015, 08:24

@Joe Fairless,

Congratulations on your deal!

Could you please share some stats: purchase price, rehab budget, actual rents & expenses, projected rents & expenses, etc.?

Thank you
Nick

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Joe Fairless
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Joe Fairless
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Replied Aug 6 2015, 08:33

@george 

@George P.I have two suggestions (in order of importance). 

First, I'd use different language to describe your search because if you say it is impossible then you will take action to reinforce your belief which will lead to fewer results. 

Second, and tactically speaking, I would drive for dollars in your local and surrounding area and call on multifamily properties that look neglected. I just interviewed @Juan Maldonado on my podcast (it airs this Saturday, August 8th) and he has gotten 8 out of the last 10 multifamily deals from cold calling owners whose properties he drove by and saw neglect. The largest one he did was 148 units so it works for the large ones too. 

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Douglas Dowell
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Douglas Dowell
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Replied Aug 6 2015, 08:38

Congrats on the new deal Joe! 

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Joe Fairless
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Joe Fairless
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Replied Aug 6 2015, 08:38

@Mark Murphywe found this deal through a broker relationship 

@nick 

@Nick B.sure, happy to. First some context. The current owner upgraded 30 out of the 250 units and then stopped because it wan't in their biz plan to complete the renovations therefore we are picking up where they left off. Here's our projected Year 1 #s: 

Effective Gross Income: 2.45M

Operating expenses: 1.34M 

NOI: 1.10M

Debt service (bridge lone while we do renovations): 645k 

Net Operating Cash Flow: 386k 

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Joe Fairless
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Joe Fairless
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Replied Aug 6 2015, 08:39

@Douglas Dowellthx a lot my friend!

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Nick B.
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Nick B.
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Replied Aug 6 2015, 08:51

@Joe Fairless,

Thank you for the stats. What was your "all-in" purchase price? (NOI without purchase price is meaningless :-) ) Also, what is your immediate and projected stabilized economic vacancy?

Thanks
Nick

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Joe Fairless
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Joe Fairless
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Replied Aug 6 2015, 08:55

@Nick B.we bought for 14.1M and are putting in about 2M in renovations. The current vacancy is 4% and projected for the first couple years during renovations is 7%. 

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Ann Howell
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Ann Howell
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Replied Aug 6 2015, 10:38

Congrats!  It seemed like a great opportunity.

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Joe Fairless
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Joe Fairless
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Replied Aug 7 2015, 05:09

@ann 

@Ann Howell thanks a lot!

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Yonah Sturmwind
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Yonah Sturmwind
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Replied Aug 7 2015, 09:33

Congratulations! 

How much are you spending per unit on renovations? How much do you expect to be able to increase rents by? 

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Joe Fairless
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Joe Fairless
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Replied Aug 8 2015, 18:10

@Yonah Sturmwindthanks a lot!

We're spending about $5,800 per unit and increasing rents about $100. 

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Juan Maldonado
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Juan Maldonado
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Replied Aug 10 2015, 14:53

@George P., As Joe mentioned becoming an expert in your particular area and knowing what to look for is an excellent way to find a deal. The reality is that properties that look like they are struggling, typically have an owner that: A). Is in a difficult financial situation and therefore may be willing to sell or B). is an owner that doesn't care about his property and if the right offer came long would consider selling it. In either case these are opportunities.

One reason why you may not be finding great listed deals, is that the market is incredibly hot right now, the other and more likely is that the agents/brokers have buyers ready to buy and therefore don't even need to list the properties on the open market. Remember that agents/brokers only get paid when there is a transaction so if they don't have to list the property and sell it quicker better for them and their client. Also for a group like ours that is new to the market, it is pretty risky for a broker to give us first crack at a deal, when for example one of our close colleagues has closed around 250 Million in the last two years. Again if your paycheck depending on a property closing you would also go with the 250 million track record.

If you want to find deal get ahead of them, brokers have more established relationships in many cases and obviously great reputations and backing of big companies, but deals are all about timing. Try to contact the property owner directly, be persistence and you will be rewarded. It isn't easy, but it does work.

 Also establishing relationship with brokers, letting them know what your looking for and just staying on their radar is great. On Joes Podcast Episode 290 Sean - gives a great example how they were able to show a broker that they were serious buyers and interested without buying a property in that market.  

Feel free to reach out at any time.

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John Cohen
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John Cohen
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Replied Aug 10 2015, 15:08

@Joe Fairless Congrats!! I'm looking to close on 15-20 Million this year.

@Juan Maldonado I agree 100%. I worked for Marcus & Millichap before leaving to focus on my company. Driving for dollars, cold calling, and direct mail are 3 great tools investors can use to lock down good deals.

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Joe Fairless
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Joe Fairless
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Replied Aug 11 2015, 03:42

@juan 

@Juan Maldonadothat is pure gold. And adding the tag for @Account Closedin your post 

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Account Closed
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Replied Aug 11 2015, 07:30

@Joe Fairless

 @Juan Maldonado

thanks for the mention.

all multifamily investors should pay attention to the lessons Joe and Juan have mentioned. these guys know how to find deals!  as you progress in your multifamily career, you'll see that's the hardest part of the equation.  best way to add value is to be able to find deals.

good luck!

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Adrian Stamer
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Replied Aug 11 2015, 07:46
Originally posted by @Joe Fairless:

@Nick B.we bought for 14.1M and are putting in about 2M in renovations. The current vacancy is 4% and projected for the first couple years during renovations is 7%. 

 The updated sig was a decent clue on the purchase price but looks like you were helpful enough actually sharing it. Thanks for the info and congrats on closing the deal

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Joe Fairless
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Joe Fairless
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Replied Aug 11 2015, 08:41

@Adrian Stamermy pleasure and thx so much for the congrats. It was a two year process to find the right apartment community to buy and this just made a whole lot of sense. 

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Jonathan Twombly
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Jonathan Twombly
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Replied Aug 11 2015, 09:04
Originally posted by @Joe Fairless:

I'm proud to say that my group closed on a 250 unit yesterday. It's the second deal I've syndicated and both of them have been over 150 units (first one was 168). 

A couple syndication and multifamily lessons I've learned so far from these deals:  

1. If you are not doing the property mgmt yourself, then have your local mgmt partner put their own money in the deal. This creates much more accountability and aligns the interests. I didn't do this on my first deal (mistake) but did it on this deal in Houston. 

Bonus pts: if the local partner also brings in investors. That adds another layer of accountability and alignment of interests. 

2. Yes, money will find good deals but you shouldn't wait for the deal to get the money. On my first deal I raised over $1M and had to do it after finding the deal. It was a...character-building experience :) I don't recommend that same experience to others. On my second deal I had already prepped most of my investors so it was much smoother. I still brought in new investors but the overall process is much better when you prep investors before you have a deal. Note: I don't actually receive money before I have a deal. I only speak to investors about a hypothetical deal (or past deals) and gauge their interest level in investing. 

Bonus pts: How do you prep investors before you have a deal? Easy. Schedule a meeting with them and learn their financial goals and how they evaluate success with their investments. Then, talk to them a little bit about what you're doing. At the end of the conversation ask them "If I find something that meets your financial goals would you like me to share it with you?" I've never had anyone say no. Then, keep them updated as you look at properties and, when you have one, they are well aware of everything and more inclined to invest. 

Bonus bonus pts: another way to do this is to create a fund where you actually do raise and have money wired before your deal. I haven't done this before but it's a natural evolution from raising money on a deal-by-deal basis. 

For anyone who wants to raise money and do syndicated deals, I'm confident these two lessons I've learned will help you be successful. 

Joe 

 Excited for you, my friend.  Great deal!

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Ben Andrews
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Ben Andrews
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Replied Aug 11 2015, 09:34
Originally posted by @Joe Fairless:

@George P.I have two suggestions (in order of importance). 

First, I'd use different language to describe your search because if you say it is impossible then you will take action to reinforce your belief which will lead to fewer results. 

Second, and tactically speaking, I would drive for dollars in your local and surrounding area and call on multifamily properties that look neglected. I just interviewed @Juan Maldonado on my podcast (it airs this Saturday, August 8th) and he has gotten 8 out of the last 10 multifamily deals from cold calling owners whose properties he drove by and saw neglect. The largest one he did was 148 units so it works for the large ones too. 

 Joe, great advice, I appreciate all the tips you've given out in this thread!

Best of luck in your future investments.

-Ben

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Keith Schuster
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Keith Schuster
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Replied Aug 11 2015, 09:50

Sounds awesome!  I'm curious how you are making your money in this type of deal?  Also, are you putting money in the deal?

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Joe Fairless
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Joe Fairless
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Replied Aug 11 2015, 12:26

@Jonathan Twombly - thanks a lot. It's hard work trying to keep pace with you! 

@ben 

@Ben Andrewsmy pleasure and thanks for the kind words. 

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Joe Fairless
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Joe Fairless
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Replied Aug 11 2015, 12:47

@Keith Schusterin this type of deal you can make money in any # of ways with the following being the most common: 

acquisition fee (usually 1 - 3% of purchase price): reimbursement for time put into deal to get it to closing table. This is paid at closing. 

asset mgmt fee: fees to oversee the biz plan and property mgmt company - can be around 2% - 3% of revenue 

cash flow above performance hurdles: money you make after investors make their targeted amount  

disposition fee: money paid to you for getting property ready to be sold and coordinating efforts (i.e. lender, appraisal, paperwork, etc.) - usually around 1% of sales price 

construction mgmt fee: can be up to 10% of costs if you oversee major unit upgrades/construction on property 

property mgmt: if you have a property mgmt company then you can build this in too - usually around 4% of collected income (rents + other income) 

In this deal in particular, I'm making money on the acquisition fee (one-time fee at closing), asset management (monthly over course of the hold period) and sales proceeds after reaching certain performance hurdles for investors. 

And, yes, my company put money in the deal. 

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Keith Schuster
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Keith Schuster
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Replied Aug 11 2015, 14:10

Thats a fantastic answer!  Thanks.