\n<\/p>\n
The multifamily real estate market <\/strong>seemed almost impenetrable over the past two years. Unless you had millions in dry powder, ready to overpay for a huge apartment complex, there was a low chance you\u2019d be making any money in the multifamily industry. This gave the big buyers an unfair advantage, while smaller investors struggled<\/strong> to put almost anything under contract. The tables have started to turn<\/strong> as interest rates rise, repricing becomes the norm, and multifamily buyers start fleeing the closing table.<\/p>\n It\u2019s now your time to shine, small-scale investors<\/strong>. As large buyers begin to fear a housing market crash<\/strong><\/a>, you can swoop up the spoils that could benefit you for years to come. But, before you do so, you\u2019ll need to understand how <\/strong>exactly multifamily investing<\/strong><\/a> works<\/strong>. Back again on the show are Andrew Cushman<\/strong> and Matt Faircloth<\/strong>, two multifamily masters in their own rights.<\/p>\n They\u2019ve become real estate veterans after over a decade worth of investing experience<\/strong>. Now, they\u2019re here to share some beginner steps<\/strong> and tips on how you can get into the world of multifamily real estate<\/strong>, regardless of your experience, knowledge, or bank account size. These steps are simplistic at a high level, but doing them correctly could help you beat out the competition for years to come. The only question is, are you ready to start?<\/p>\n David: Matt: David: Matt: Andrew: David: Matt: David: Andrew: Matt: David: Andrew: Matt: Andrew: Matt: David: Andrew: Matt: David: Matt: Andrew: Matt: David: Matt: David: Matt: David: Matt: Andrew: David: Andrew: Matt: Andrew: Matt: David: Matt: David: Matt: Andrew: David: Matt: Andrew: Matt: David: Andrew: David: Andrew: Matt: David: Matt: Andrew: David: Andrew: Matt: Andrew: Matt: Andrew: Matt: David: Matt: David: Matt: Andrew: David: \u00a0<\/p>\n<\/div>\n Help us reach new listeners on iTunes by leaving us a rating and review! It takes just 30 seconds and instructions can be found here<\/a>. Thanks! We really appreciate it!<\/p>\n Interested in learning more about today\u2019s sponsors or becoming a BiggerPockets partner yourself? Check out our\u00a0<\/em>sponsor page<\/em><\/a>!<\/em><\/p>\n Note By BiggerPockets:<\/b> These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.<\/p>\n
This is the BiggerPockets Podcast show 661.<\/p>\n
Also, finally understand that fear is going to be a real factor for no matter what in the market is. There\u2019s never going to be this no problem market, that there\u2019s nothing in your way and it\u2019s completely clear, and there\u2019s no competition, and the deals are cheap, and the money\u2019s free, and whatnot. That\u2019s utopia real estate. Not going to happen. Don\u2019t wait for utopia real estate to happen. Just find a way to make deals work today and be conservative enough that the deals will work out. If you hold long enough and you do the correct business plan, as Andrew said, it will eventually profit if you hold for the long term.<\/p>\n
What\u2019s going on, everyone? This is David Greene, your host of the BiggerPockets Real Estate Podcast, coming to you live from Scottsdale, Arizona, where I am checking out investment property and hanging with a couple of my buddies, having a little getaway for the David Greene team and the One Brokerage leadership, and we have an amazing episode for you today. I\u2019ve brought back my good friends, Andrew Cushman and Matt Faircloth, to talk some more multifamily masterclass, wonderfulness and they did not disappoint. This is an episode you will listen to more than once because it is so freaking good.
Basically, we had them on a previous show, and it went so well that everyone said, \u201cHey, if I want to get started in this right now, what do I need to know?\u201d So we brought back Andrew and Matt to say if you were starting right now from zero, from scratch, with no experience but knowing what you know now, what would you do? They did not disappoint. This is a fantastic episode, where we cover everything from where to find deals, how to underwrite deals, how to choose your market, how to operate the property, how to build a brand, how to communicate with brokers, how to collect acquisition fees, when not to collect them. Everything that you could possibly need to know to get started we cover in today\u2019s episode. You\u2019re going to love this.
Before we bring in Andrew and Matt, a quick word from BiggerPockets for today\u2019s quick tip. Go back and listen to episode 571. This is when I had these two on last, and they gave such a good performance that we brought them back for a followup. So when you get done listening to this, go back and listen to episode 571.
Furthermore, if you\u2019ve got questions that you would like to ask, come to BiggerPockets Conference in October. It\u2019s going to be in San Diego. You should bring all the questions that you can possibly think of and hit us with them. We should be on stage or you could have opportunity to talk to me and the other BiggerPockets personalities. It\u2019s going to be a blast. Make sure you get your tickets and I will see you there. All right. Onto today\u2019s interview.
Andrew, Matt, welcome back to the BiggerPockets Podcast. It\u2019s nice to see you two again, and we have a fun episode planned for the day. How are you, each of you doing?<\/p>\n
Fantastic, David. Thanks for having us again.<\/p>\n
Yeah, I\u2019m excellent. Family\u2019s good. Business is good. Got my espresso, and there\u2019s a swell on the way.<\/p>\n
All right. So in today\u2019s show, we are going to be talking about, \u201cIf I had to start from zero, if I was just getting started in multifamily today, what would I do?\u201d which is really cool because we\u2019re hitting the point of how would you get started, but it\u2019s coming from the perspective of very experienced investors with a whole bunch of knowledge in their brain. It\u2019s like that idea where people say, \u201cWould you rather know what you know now or have to go back to where you were in high school?\u201d and you\u2019re like, \u201cI want to know what I know now when I was in high school,\u201d but that\u2019s not ever the option. You can\u2019t do both, but in today\u2019s episode, it\u2019s like you can.
So this is going to be being in high school and having a future person show up at your high school, step out of their spaceship and say, \u201cHere\u2019s everything that you should do to become rich and multifamily.\u201d So let\u2019s start with you, Matt. Step one, what\u2019s the first thing that you would do if you were starting from zero?<\/p>\n
I\u2019m sorry. I\u2019m still fantasizing on talking to my younger self in high school, David, but yeah, but getting beyond that, what I would start with is I think too many people start with doing a deal. I think those that are just getting started with multifamily or real estate investing in general, they\u2019re out there just trying to find a deal, \u201cOkay. I just want to get going. Let me go and evaluate a duplex.\u201d To be honest, the Matt that started investing in real estate 17 years ago did that. I looked at a land deal, that I looked at a single family home, that I looked at whatever come across my plate. I think that what I would do if Matt were to start again today would be to evaluate my goals, my skills, what do I bring to the table, what am I great at and how can I manifest those greatnesses through real estate, what unfair advantages do I have over the other person that\u2019s starting as well in this business.
So I would take personal inventory and also take a realistic goal set. I mean, listen, I get it. We all want to make a billion dollars next week. I got it, but set realistic, achievable goals for what you can really tackle and maybe a deal is a good goal for the first year, a deal, maybe two, but set those goals and take personal inventory. That\u2019s what I recommend and that\u2019s what I would do if I were starting again.<\/p>\n
I love that. That\u2019s something I\u2019ve noticed just this pattern in real estate investing in general, that whenever I have something of value today, a lot of equity in a property, really good cash flow in a property, options to do a cash out refinance or something, it\u2019s almost always from a decision I made somewhere between three to five years ago. That\u2019s just the way it works. What everything I\u2019m buying right now will benefit future David in five years tremendously. It\u2019s like every time I buy a house I\u2019m just loving future me. It\u2019s not going to do a ton for me right off the bat, but it will later.
I think that\u2019s a tough thing to swallow because who wants to work off of a five-year timeframe when you\u2019re being told, \u201cGet into real estate investing. It\u2019s going to change your life,\u201d and you\u2019re like, \u201cOh, I want to lose weight right now,\u201d type of thing, but that\u2019s not really how the asset class is designed. What about you, Andrew? Do you agree with that point, and then is that the same thing that you would do if you were starting off?<\/p>\n
Yeah, I do, and actually, I got a couple things to add to that. So David, what you were saying, I call that current self and future self, right? If I\u2019ve got something amazing from Cheesecake Factory and I\u2019m like, \u201cHey, I could save half of this for tomorrow,\u201d I\u2019m like, \u201cyou know what? Future self is going to be really happy with me if I do that for a number of reasons.\u201d So I actually frame a lot of things exactly how you just said, current self and future self. Many times, it might not feel great for current self, but future self is going to look back and thank you, right?
So I do frame things a lot in that way, and then I also would step back and say, \u201cOkay. If I were starting today, there\u2019s a piece of advice out there that probably 99.873% of BiggerPockets pockets listeners and can recite, and that\u2019s Warren Buffet says, \u201cBuy when everybody else is fearful and sell when everybody else is greedy,\u201d right?
So guess what? Right now, people are getting really fearful, but the problem with that advice is everybody can recite it but very few people can actually do it because what we do is we confuse fear with reasons, \u201cOh, well interest rates might be doing this and I don\u2019t know what prices are going to do,\u201d blah, blah, blah, blah, blah, and those are rational justifications and those are true things, but that\u2019s also what makes it so that no one can actually put that advice into work.
So what you have to do, if I was starting today and it is a much more scary environment than if I was starting five years ago, there\u2019s no denying that or much more uncertain, I should say, is not say, \u201cWell, I\u2019m just going to wait a couple years and see how it shakes out,\u201d because then you\u2019re going to miss everything, but to buy when other people are fearful, you just have to adapt the strategy to the market and pick the right strategies and look towards, \u201cAll right. Are prices going to be down 10% a year from now?\u201d Maybe.
None of us really knows, but if I\u2019m looking at future self, my future benefits looking five, seven, 10 years down the road, if I pick the right asset in the right market, I\u2019m going to benefit when I get there, and probably even in the interim. Therefore, if I focus on that and learn to focus on that with that mindset, then that gives you the ability to buy when others are fearful.
I think that\u2019s the first step right now with the current is to tune out the market and the noise, address the fact that, yes, there are some real uncertainties, but factor those things in and move forward. So that\u2019s the first thing I would do in terms of mindset.
Then Matt mentioned goals and deciding who you\u2019re going to be. I would decide, \u201cOkay. Am I going to build the stack method and am I going to go for a fourplex and then go to a 10 and then go to a 20 and do this with just my own money and build a portfolio that I can manage and live off of or am I going to try to build a business? Am I going to try to get to 2,000 units? Am I going to try to hire people? Am I going to syndicate?\u201d Figure out what the end goal is there and then start working backwards.<\/p>\n
Just to add onto that, and I think that we could expand on that further, but that, though, you and I took two different paths, Andrew. We\u2019ve gotten to know each other fairly well. I was that guy buying a single family home, duplex, whatever, and scaled up through the space, which is certainly one way to get started because some would say a four-family, a five-family, a 10-family, whatever, that\u2019s still multifamily. It doesn\u2019t have to be 100 units to be multifamily. You can scale that way or as you said, you can go and swing for the fences and maybe join somebody else\u2019s team or become a part of a larger conglomerate that\u2019s taking down bigger deals, but there\u2019s no right answer. They\u2019re both ways to get in and ways to get going.
Start small. People that are starting small I just tell them, \u201cListen, a good goal is to double your portfolio every time you do a deal. Just double up, double up, double up, double up, and you\u2019ll grow real fast that way or go and take down bigger deals and maybe don\u2019t get the lion\u2019s share in the beginning, but you\u2019ll get at least a foot in and you can say you were part of a transaction that took down 100 unit, 200 unit multifamily, and slowly scale and build your own team with the lessons you learned there.\u201d<\/p>\n
Couple things that came to mind when you were talking there, Andrew, is the first is the Batman\u2019s story, oddly enough. So if you read the comic books of Batman, they\u2019re a little different than the movies, but Batman\u2019s motivation was he was very afraid when he was young and bats were his phobia. He got afraid of them. So rather than letting that fear control him, he said, \u201cI want to harness this and make my enemies as afraid of me as I was of bats,\u201d and that\u2019s why he took on this identity of Batman. In the comic books, he was much more known for using terror tactics. They weren\u2019t just he fights better and he has cool gadgets. He would hit you in the darkness. He would make noises that would make you afraid. He wanted the criminals to be afraid. That speaks to the power of harnessing fear.
As you were talking I thought, \u201cWe always ask people what sets apart the successful investors from those that give up, fail or never get started.\u201d I think what no one said but is really good is your ability to harness fear because opportunities only come when everyone else is scared, at least the best opportunities come in that point, right? If you can\u2019t learn to operate in fear, you\u2019re probably never going to make a lot of traction.
The best deals I\u2019ve ever bought were when I first got started, 2009, \u201910, \u201911. Hindsight, everybody says, \u201cI wish I could go back to that point.\u201d No, you don\u2019t, man. Nobody was buying houses at that point. Everyone was calling me a fool. I think the other time is right now. I\u2019ve ramped up and I bought a lot and I\u2019m getting a lot of backlash, \u201cYou\u2019re buying too early, you needed to wait. We have a huge recession coming. You shouldn\u2019t be buying.\u201d Who knows? They may be right, but very well also maybe that because I bought now, the market\u2019s going to run up when interest rates come back down, and the economy starts to do better, and you look really good, but either way, you got to be able to operate in that spirit of uncertainty because if you think about when everything is best, when the deal is the most ideal, if everybody in the market felt good, it would be like Black Friday.
That\u2019s when the TV or the PlayStation or whatever is at the very best price it\u2019s ever going to be, but how many people actually get that amazing big screen TV or that PlayStation when they\u2019re lined up with every other psycho on Black Friday? Right? Your odds of landing it are so small when you\u2019re in the big pool of people that are rushing in. So I think that\u2019s such good advice for someone who\u2019s getting started is understand you\u2019re going to be afraid. It\u2019s normal to be afraid, and you\u2019ve got to harness that fear rather than wait for it to be gone because if you wait, you\u2019re going to find yourself lined up on Black Friday with a huge mob of people around you and probably getting stepped on.<\/p>\n
So the second point is once I\u2019ve got my mindset figured out, and once I\u2019ve decided what my end goal is, \u201cAm I buying small properties? Am I buying big properties? Is it a business? Is it my own portfolio?\u201d is picking a market. So the first thing I would do, and I\u2019ve read this, is go read your book, Long Distance Real Estate Investing. It is geared towards single family, but the same principles apply to multifamily. So I\u2019d read that book and be like, \u201cOkay. Cool. I can invest anywhere long distance. Let\u2019s pick a state. Oh, crap, there\u2019s 50 of them. Now what?\u201d There\u2019s a lot to choose from.\u201d
So what I would do is I would go to the Harvard Joint Center for Housing Studies website, and there is a beautiful map on there that shows migration trends by county across the entire United States, both net and then inbound. It color codes it, and you can see all of the counties in the US that have the strongest population growth. They\u2019re the darkest blue. I would go select markets that are in that dark blue color because the number one positive fundamental for multifamily, the strongest tailwind, which, David, as you\u2019ve recently clarified, the tailwind is the one that pushes you forward and helps you out, right? The strongest tailwind is population growth, people moving to an area. That ensures your multifamily success almost more than anything else.
So I would go to that website and pick markets that are blue and start there and then narrow down and say, \u201cWell, okay. Hey, the Florida Panhandle is dark blue. I like visiting the beaches there. All right. Well, let\u2019s check that out,\u201d right? Florida, as everyone knows, no income tax, very business-friendly. So you start narrowing it down from there.
I joked about visiting the beaches, but again, what are your goals? How easy is it to get there? So people ask me all the time, \u201cAndrew, how do you invest in the southeast and live in California?\u201d There are five direct flights a day to Atlanta from Southern California. It\u2019s a four and a half hour nonstop flight. If something pops up urgent, I can literally be there the next day, no problem, even though it\u2019s a couple thousand miles away.
So that\u2019s the next thing I would do is pick that market or multiple markets because you want to get it down to a short list that you\u2019re probably going to eliminate a few from, and then start asking those questions. Is it easy to get to? Is one of those markets a market that you already know really well? So for example, maybe you used to live in Dallas and now you live in Washington State, and Dallas shows up as one of those high potential markets when you look at that map. Well, that\u2019s another positive factor for maybe why you should pick Dallas. You already know the market or maybe you\u2019ve got an aunt or a cousin or family members that still live there and they can be your initial work-for-free boots on the ground.
So those are the things that I would do to pick a market. Again, that dovetails with what my goals are. If I\u2019m just trying to build up 20 units and I can drive to them once a week and check on them, then I\u2019m probably going to be in my own backyard, but if I\u2019m looking to build a larger portfolio and just really go where the returns are, those are the first few things that I would do. Then once I\u2019ve narrowed that down to maybe a short list of three or four larger metros, I\u2019d really start diving into what are the economic drivers. Are they things that are favored going forward or things that might be on the decline going forward?
Also, I would be looking for economic diversity. A very, one newbie trap to watch out for is you\u2019ll see towns that have great economic numbers, but then you find out it\u2019s because one plant got built there three years ago and it doubled the population and doubled the workforce, but guess what? If that plant shuts down or scales back down, then all of a sudden you\u2019re going in the other direction. So you want to have a diverse workforce.
I would look for counties and cities that have high education, medical facilities, transportation, logistics, tech. All of those things that are growing are favored by the current political environment like anything green energy. We just got a whole another slew of tax benefits for that kind of stuff. Pick markets that check all those boxes and then move on to the next steps. Matt, I know you probably have a few other things to add to that, so I\u2019ll pause and hand off to you.<\/p>\n
You said all the good things already, Andrew.<\/p>\n
Oh, I did. Well, there you go.<\/p>\n
No, no, no. Everything Andrew said, amazing. Underscore a few things that he said that I want to just highlight for our standards when we look at markets. Yes, population, but as Andrew also said, population, that\u2019s a good leading indicator, but go to why. People move to markets. Used to be just for jobs, right? Now, some people can work remote. A lot of blue collar middle income folks can\u2019t work remote, but there\u2019s some folks that can. So lifestyle becomes a factor, right?
So let\u2019s say, for example, I\u2019ll pick market. Asheville, North Carolina is a fun place to live. There is hiking. There\u2019s all kinds of beer breweries, and all kinds of fun. Now, maybe prior, you moved to Asheville because there was a job there, but now, \u201cWell, I can work 50% remote so I\u2019m going to go and pick a job that allows me to work from home so I can enjoy the lifestyle that a certain city like Asheville,\u201d or pick any number of cities that have a good lifestyle benefit and also a growing economy may have as well. So that becomes a factor too.
For us, job diversity, as you said, certainly not one plant, but we also look at the industries that are driving a city. So if there is a city that you like, but it\u2019s driven by 50% the oil and gas industry or driven by 50% auto, well, let\u2019s look what happened to Detroit that was driven a ton by the automotive industry. Once that industry dries up or starts to move or relocate to other places, that really affects that town. So for my company, for the DeRosa Group, we won\u2019t invest in a city if there is more than 20% of that economy driven by a certain industry because if a recession hits, it\u2019s not going to hit everything across the board. It\u2019s going to hit certain industries more than others.
I don\u2019t have a crystal ball, so I can\u2019t predict what any recession would look like. I can take a guess, but if I invest in a city that is economically diverse, the recession\u2019s certainly not going to affect that. Every industry, the same. Might affect some more than others, and even hit that city a little bit more than others, but there\u2019s other industries that won\u2019t be hit as hard, and if that market\u2019s diverse, then it\u2019s certainly going to get blended out a little bit better.<\/p>\n
All right. Andrew, to follow up to what Matt just said, what is the biggest mistake people should look out for when they\u2019re choosing their market?<\/p>\n
The biggest mistake to watch out for, and it\u2019s really, really common, and candidly, I made this myself when I started out, so everybody listening, please don\u2019t make the same mistake I made. Do not pick a market because it\u2019s cheap. It is often very cheap for a very good reason. Again, I\u2019ve said this before, I\u2019d probably get a T-shirt now, but the grass is greenest over the septic tank. When I look back over the decade plus of doing this, the best returns and with the least amount of headache were in the mid price range, the C plus to A minus, not the stuff where, \u201cWell, I can buy this 1975 property in Podunk, Iowa for 30,000 a door. Why would I go pay 130 a door outside of Atlanta for the property in the same age?\u201d Well, because in Atlanta, you\u2019ve got a huge diverse job market. You\u2019ve got population growth. You\u2019ve got much higher rent. There\u2019s all kinds of reasons. So don\u2019t be seduced by the siren call of cheap markets.<\/p>\n
Just to back you up there, Andrew. It\u2019s so well-said because you got to realize, unless you really are the only buyer for a market, if you whisper to a seller\u2019s ear, \u201cHey, I want to buy your property.\u201d \u201cOkay. Great. Let\u2019s work it out,\u201d and there\u2019s no other competition, then yeah, you set your price, but if there are multiple buyers for any property or if it\u2019s a property on a free market, the market\u2019s going to determine the price. If a property is only selling for 30K a door, that means that is the absolute most that that seller could get for that property. Some people view it as an opportunity, and unless you have insider information like the winds of change are coming through that market and that property\u2019s going to be the next Hoboken, New Jersey or the next Savannah, Georgia or the next something amazing or the next Austin, Texas, then you\u2019re really gambling probably with other people\u2019s money, and that\u2019s not a good thing to do.
So I agree with you that there is a reason why cheap properties are cheap. You can\u2019t be enamored by, \u201cOh, the price is low.\u201d Well, likely, the rents are going to be low. The economy\u2019s going to be weak. Make the list of the reasons why that property is low priced.
I will just agree with you, and also, I\u2019ll add one more factor on the biggest mistake people make on properties, and that is they go and start making offers too soon without building their backstory of why the market\u2019s amazing because if you\u2019ve never heard of never been to, not sure too much about Albuquerque, New Mexico, but you start bidding on properties there and you get so cursed to land a deal, then you got to go tell your investors why Albuquerque, New Mexico is amazing. If you don\u2019t have that data and you don\u2019t have a property manager lined up, and you don\u2019t have who your closing attorney\u2019s going to be, and have the data in place on how you\u2019re going to build a business plan around a deal, going in early and making offers before you\u2019ve really established your presence and build your foundation is I think yet another, and it\u2019s up there with buying properties because they\u2019re cheap, that\u2019s yet another mistake, David.<\/p>\n
All right. Moving on. Let\u2019s say that someone is ready to start looking at properties, and thank you, Matt, for mentioning there that writing offers too early is a pretty big mistake. I would agree with that. Usually, when you first get into a market or at least when I do, the first several buyers are usually not great. Usually with hindsight, they end up being just an average. It wasn\u2019t usually terrible, but even doing my best, I end up with a mediocre deal, but then after you learn the market a little bit, that\u2019s when the good deals start to come.
So I would say go in light. For the first one that you\u2019re going to do, you don\u2019t want to spend all your money. You don\u2019t want to go in super huge. You don\u2019t want to have this huge big vision. The first deal, just go in knowing, \u201cI\u2019m putting the boat in the water and I\u2019m waiting to see where the leaks come, but they\u2019re going to be somewhere so I\u2019m not going to start with a battleship.\u201d
What would you say? Andrew, you started last time, so Matt, we\u2019ll start with you first on this one. When you\u2019re ready to start looking at properties, what would you be doing if you\u2019re starting today from zero?<\/p>\n
I would go and buy myself an airplane ticket and go to that market and actually physically go look at the market. I cannot tell you, David, how many people I\u2019ve met that are like, \u201cI can\u2019t seem to get a deal and here\u2019s the market that I picked. I\u2019m looking at all these opportunities and nothing just seems to add up.\u201d
I said, \u201cWell, how many times you\u2019ve physically been to the market?\u201d
\u201cOh, I\u2019ve never been there.\u201d
I mean, get it. It\u2019s like, \u201cWell, how do you know what the good neighborhood\u2019s bad where you could get duped by everybody? You don\u2019t even know what the real opportunities are, where the construction\u2019s happening, where development\u2019s happening.\u201d
So go to the market. Brokers are going to take you way more seriously if you look them dead in the eye and buy them a cup of coffee or whatever and talk about what your goals are, talk about what your plans are, what your resources are, what you can bring. They\u2019re going to remember you as opposed to just somebody that sent them an email saying, \u201cHey, send me deals.\u201d
So I would physically go to the market as my first move. Once I feel like I\u2019m qualified to start making offers and I\u2019ve picked the market and I\u2019ve done my research and built my backstory, then I would go to the market and do tons of homework, lots of window shopping, and maybe tour some apartment buildings. Do what they call a secret shop, where you just go and show up and maybe pretend like you want to move there like, \u201cI\u2019d love to look at a two-bedroom apartment for me and my wife,\u201d or whatever or maybe don\u2019t. Maybe just tell them that you\u2019re interested in investing there and they\u2019ll probably show you around anyway. So do everything you can to get to know that market like the back of your hand.<\/p>\n
Yeah. I 100% agree with that. There\u2019s so many good reasons to do that. Then I would also add in that you hear people, \u201cOh, how\u2019s it going?\u201d
\u201cOh, I can\u2019t find a deal.\u201d
\u201cWell, how many have you looked at?\u201d
\u201cThree.\u201d
\u201cOkay.\u201d
So go into it with the mindset of looking at deals as like dating. You\u2019re going to have lots and lots and lots that don\u2019t work out, but those ones that don\u2019t work out help you better realize and appreciate the one that really does, right? All the dating apps came out after I got married, so I can\u2019t keep straight. If you swipe left or right is good. I think swiping left is bad, but you\u2019re going to want to swipe left on probably a thousand deals before you swipe right on one because the majority of them aren\u2019t going to work, but the more you look at that don\u2019t work, the better you\u2019re going to spot the one that does.
So go into it with the mindset of, \u201cI am analyzing this deal to educate myself on the market, to educate myself on the state of operations, to give myself material to have better conversations with brokers, and if I get lucky, I might get a deal out of this.\u201d That\u2019s the approach to have is you\u2019re looking at deals with those other things as your main goals because, really, you can\u2019t directly control whether or not you\u2019re going to win a deal, but you can control your approach to it and how many that you look at. Eventually, you will get the one that works.
So how would I actually go out and find those deals? I would go look at the MLS for my chosen market. I would go to a website called Crexi, C-R-E-X-I. Everyone\u2019s heard of LoopNet. Go there. Really, you\u2019re not looking for hot deals on those places. You\u2019re looking for listings so you can start figure out who to call to start relationships. Then also, go to the big broker websites and sign up for their email blast for those markets, right? Berkadia, Cushman & Wakefield, CBRE, Marcus & Millichap, Colliers. Go join their mailing list so that you get everything that they process in that market. Again, it\u2019s going to be the listed stuff, but you\u2019re doing that to learn the market and figure out who to start relationships with.
Another thing I would do is those big brokerage houses I just mentioned are awesome, but in my experience, many of our best deals come from the smaller, local, and regional brokers, the ones who only cover one market. Those guys might not have the volume of a Cushman & Wakefield or Marcus & Millichap, but they do tend to dig up really good deals, and on the flip side, they may not have the volume, but they\u2019re probably also not sending that deal to a mailing list of 50,000 investors.
So you build a relationship and track record with a local or regional broker. That can have a lot of benefits. So I highly recommend figuring out who they are, and you\u2019re going to do that just by keeping \u2026 Matt, you said go to the market, right? That\u2019s how you find out who those people are. You\u2019re not going to see them on headlines on Biz Now or the Atlanta Chronicle or whatever. You\u2019re going to have to talk to people and mingle, and that\u2019s how you find those out, and those are some of the most valuable sources.
Then like I mentioned, call and talk to those brokers. When you\u2019re looking at those thousand bad deals, don\u2019t say, \u201cOh, this doesn\u2019t work, left. Oh, this doesn\u2019t work, left.\u201d No. Call the broker and say, \u201cHey, thanks for sending this to me. I took a look at it. It looks like a great asset and a great market, but unfortunately, it doesn\u2019t work for me because it\u2019s in a flood zone,\u201d or \u201cThe crime rate was too high,\u201d or whatever that reason is that shows that you\u2019re a legitimate buyer who took the time to look at it and give them feedback.
The number one way to annoy brokers is to just not respond and not call them back. Call them and tell them no. They appreciate that because now they know they don\u2019t have to follow up with you. So if I was starting off today, I would make a very strong point to always, especially with the little things, if I say I\u2019m going to do something, do it. If I say, \u201cHey, thanks for sending this deal. I\u2019ll get back to you in two days,\u201d I\u2019ll get back to them in two days.
So in regards of screening those properties like, \u201cOkay. Andrew, great. I look at these thousand deals. What do I do?\u201d We cover that in super detail on I think it was episode 279, where we went through that whole screening process. So I\u2019d go re-listen to that, but you\u2019re going to check for parameters like the population growth and crime and flood zones and all of those kind of things, but that\u2019s what I would do in terms of looking at properties and finding deals.<\/p>\n
David, just to underscore something Andrew said, somebody taught me a mantra a while ago that if you take a broker seriously, they will return the favor. Yeah. Although their deal may be double the price on what you can pay for it, although it\u2019s in the worst part of town with lots of crime and it\u2019s 10 feet under the flood plain level and everything like that, take it seriously. Give them feedback. Don\u2019t throw rocks at it, \u201cOh, it\u2019s overpriced. Send me an off-the-market deal.\u201d No, because it\u2019s their livelihood. I think that people forget that that this broker is feeding their family on that deal and they hope that somebody will buy it, and they\u2019re not trying to just slip somebody a bad deal. They\u2019re trying to market a deal that\u2019s on their plate that they\u2019re trying to push. It is what it is. It\u2019s their livelihood too. If you show them respect, they\u2019ll do the same.<\/p>\n
Well, the brokers in multifamily are usually representing the sellers. It\u2019s not like residential where you have your own agent who represents your interest and the seller has their own. So you have to realize they\u2019re being paid from proceeds that come from the seller. They have a relationship with the seller first. It\u2019s not necessarily a situation where they\u2019re supposed to be advocating for you. Just if they\u2019re mismarketing a property, we would call it mismarketing from the buyer side, but from a seller side is they would say that they are cleverly marketing a property, right? They\u2019re trying to get as much money as they can and actually get it sold.
So that\u2019s why we tell people you\u2019ve got to understand due diligence, especially if you\u2019re moving into the multifamily space because you don\u2019t have that hand holder. You don\u2019t have that agent that theoretically is going to be looking out for you nearly as much. They\u2019re expecting you to know what you\u2019re doing and to be doing your own due diligence. It\u2019s a different way of doing real estate. So it\u2019s a waste of time to get angry and say, \u201cOh, this trailing 12, it\u2019s crap,\u201d or \u201cOh, this proforma is garbage.\u201d Just expect it\u2019s going to be garbage because the seller is the one paying them, not you. The seller doesn\u2019t think it\u2019s garbage. The seller thinks it\u2019s amazing. They\u2019re like, \u201cWow. This is clever accounting. This is why I want you to be selling my house,\u201d right? To a buyer, we think it\u2019s unethical.<\/p>\n
Put everything below the line.<\/p>\n
That\u2019s exactly right.<\/p>\n
Just rent real estate taxes. Those are all of my income and expenses. That\u2019s it. Now, I don\u2019t expect much from brokers aside from, but I still treat them with respect, but you still got to run your own numbers and do your own analysis and do your own due diligence, and a lot of brokers can be very kind.<\/p>\n
They\u2019re the gatekeeper. You got to treat them with respect.<\/p>\n
Yeah, but a lot of brokers can be kind to you and you can end up getting duped and think that they represent you because they act like they do, but they actually don\u2019t. Don\u2019t forget. They actually represent, really, they represent the deal. They want the deal to close. Their primary objective is to get the deal to closing above all else.<\/p>\n
It\u2019s also a bit of garbage in, garbage out, right? A lot of times the brokers can\u2019t get a straight story from the owner or the seller, and they\u2019re doing everything they can to just get an honest listing, and not all sellers are forthright even with their own brokers.<\/p>\n
Okay. Moving on. When it comes to building your team, Andrew, we\u2019ll start here with you, what is something that you would be doing right now starting at year zero?<\/p>\n
So what I would be doing right now is the exact same thing I did 10 or 12 years ago is I went through the process that we just described. I picked Atlanta, and I would still pick Atlanta today, by the way. It\u2019s just everything is even more true now than it was back then. So all right, I\u2019ve picked Atlanta. I\u2019m looking at deals. Well, how am I going to manage these things? How am I going to get loans on them? So those are the next two pieces of the team that I\u2019d be working on or the two pieces of the business that I\u2019ll be working on simultaneously with looking deals. If you do it right, it\u2019s very synergistic.
So every time I\u2019m looking at a deal, let\u2019s say I just picked Atlanta and I\u2019m going all those websites, I\u2019m starting to call brokers, but in the context here is I\u2019m going to use third-party management, right? So Matt, if you want to talk more about self-managing, please jump in. That\u2019s just a business choice. Again, it goes back to what your goals are. For me, it\u2019s third-party management.
So I\u2019ve picked Atlanta, and now I\u2019m like, \u201cOkay. I got to figure out who\u2019s going to manage these things.\u201d When you\u2019re calling the brokers and you\u2019re giving them feedback on the deals that you\u2019re looking at, if it\u2019s a deal where there\u2019s at least some potential, and you\u2019re ending the conversation with, \u201cAll right. Let me go back and do some more underwriting. I\u2019ll come back to you,\u201d or maybe you\u2019re getting to the point finally, \u201cHey, I\u2019m going to put in an LOI.\u201d The question that you want to ask is if you were broker, if you were going to buy this yourself, who are the top two or three people you would hire to manage it for you? You write those companies in those names down.
Then at the same time you say, \u201cHey, Mr. Broker, who is your favorite loan officer or lender to work with in this space?\u201d Add those people to your list. Over a pretty short period of time, you built a substantive list of recommendations and referrals for management and lenders. Those are going to be your two key because the money is made in operations, right? So your manager is an absolute key player in the success of your business, and if you don\u2019t have a lender that you can rely on to close, you\u2019re never going to get in the business. So those are, to me, the two most important pieces of the team and you build that from referrals.
So what I did, and again, what exactly what I would do again today, I would build that list and then I would take that list, I would go research on the internet, what is the reputation of these property managers and these lenders? Are there stories of the lender backing out the last minute? Do all the properties managed by this property management company have zero star reviews? All those kind of things. Narrow it down, then do phone interviews with them, and then getting back to, Matt, what you started with, when I narrowed that list down to two or three, I go to the market and have lunch or dinner with these people and do an extended casual interview and then I pick one.
That process is what has led for us, we found all of our lenders that way, referrals and narrowing it down, and then the property management company that today manages our entire portfolio is the first one we ever picked, and they\u2019ve worked out phenomenally well because we took the time to go through that rather lengthy process to build the list, narrow it down, in-person interviews, and they\u2019ve been an amazing partner. So that is exactly what I would do today to figure out who\u2019s going to manage for me and who\u2019s going to lend for me. I would do a similar process, maybe not quite as thorough, but a similar process for your insurance broker, contractor attorneys, contractors, all those kind of things, and all those people.<\/p>\n
Yeah. I think property managers are the key to any real estate asset. Property manager can make a mediocre deal really good by running it super efficiently and they can also make a really good deal mediocre worse by taking your business plan and disregarding it and wrapping it around a tree and completely screwing everything up. I\u2019ve seen both, right? So I completely agree with you there.
A few notes on self-management, right? Anybody listening to this that has a goal set for going out and buying anything north of say 30 units should not consider self-managing. If you\u2019re going to start really small, like I said before, double up every time you do a deal. Well, you could start that equation at four units and maybe that\u2019s a house stack that you live in, and then you do four, then you do eight, then you do 16, then you scale your team as you grow into larger assets.
At DeRosa Group, we got up to about 115 units managing ourselves, and then we get out of that. We get out of self-managing because we saw where we were growing as a company. We\u2019re growing into larger and larger assets. I knew that self-management was not something that was going to be able to keep up with the growth of our acquisitions. So we let it go.
That said, self-managing taught me so much as a landlord, as a property owner, right? So I learned just the human side of the business. I learned interacting with people, strategies for collecting rent, leasing strategies, management strategies, how to handle maintenance, and how to handle preventative maintenance, not just wait for the tenant to call and say, \u201cHey, there\u2019s a bunch of water coming from the ceiling in my kitchen,\u201d how to set those preventative maintenance things up. I still use those lessons in the larger multifamily world that we\u2019re in now.
So if there is a plan in the listener\u2019s goals to start small, I highly recommend self-managing in the beginning so you can learn some of the ropes as you scale up, but plan to hand those reigns over to somebody else eventually, but there\u2019s no better classroom than self-management in the beginning on small stuff.<\/p>\n
Well said, sir. It\u2019s almost like you\u2019ve done this before.<\/p>\n
I know. It\u2019s almost like I\u2019ve got the battle scars to show you and all the lessons I could teach you, not you, but just that I\u2019ve learned that this business has taught me really in self-management.<\/p>\n
That\u2019s why we have you two here to talk about what people need to know if they\u2019re starting from zero. I didn\u2019t ask you guys this earlier, but I wanted to circle back to it briefly before we move on if you could give me an answer. When it comes to looking for deals, how much time would you put into every individual deal that crosses your plate with analyzing it if you were starting with the knowledge you have now at zero?<\/p>\n
17 hours. No, just kidding. So 17 hours per deal and no less.<\/p>\n
I noticed that new investors-<\/p>\n
No, no, no, no, no. I don\u2019t need it. It was an opportunity for a cheesy joke and I walked through it. So what we do is we do a phase one and phase two analysis. So you got to determine some go\/no go points for a deal. Obviously, if it\u2019s in the market that I want to be in, if it\u2019s in the neighborhood of the city that I want to be in, if it checks all the location boxes and checks the deal size boxes, then we do a phase one analysis that has to do with crime stats, that has to do with comparison of the rents collected on site currently versus what we believe or know the market to be.
We do a Google Street view drive-by just to make sure that there\u2019s not a methadone clinic right across the street. We do just things \u2026 You know what it is? Andrew, I\u2019m sure you\u2019ll agree with me on this one. I look for something that can be an absolute no automatically. I know flood zone is a no for you, right, Andrew? So the flood search would be one of Andrew\u2019s phase ones and that. So you want to poke a hole in the deal. I want to get the deal to a no, and if I can\u2019t get it to a no through any of those things, then it goes to phase two, which we spent a lot more time on it, but that phase one analysis can take anywhere between 30 minutes to an hour at the most.<\/p>\n
Yep. We\u2019re not too different. So that screening process that we talked about previously, that\u2019s a 15-minute deal. That\u2019s checking your parameters, boom, boom, boom, boom, boom, and just like Matt said, we\u2019re looking for the reason, a hard reason to say no. If it passes screening and it goes to that phase one quick and dirty underwriting, that was episode 571, I think, we went through that in real detail, that\u2019s about 45 minutes. Then of course, if it passes that, now you\u2019re going to dive in deep. If it doesn\u2019t pass that, you\u2019re done with it.
The one caveat I would say is if you have the luxury of more time and your true goal is just to really learn the market, then you might want to spend more time diving in deeper just for that purpose, but if you\u2019re trying to swipe left on that first thousand deals, 15 minutes to screen it, 45 to do a quick underwriting.<\/p>\n
I love your point with that.<\/p>\n
Well, let me proof in the pudding. Andrew, how many deals does your company underwrite last year in 2021, off the cuff?<\/p>\n
Oh, five or six hundred, I think.<\/p>\n
Yeah. It\u2019s around the same with us, right? So if I were to spend really 17 hours on 500, I\u2019d still be underwriting 2021 deals right now, right? So there needs to be a method to get a lot of these deals to nos because not every deal is going to work in that. So the two-tiered approach I think is necessary because there\u2019s just certain criteria you have that are just not going to get met. So it\u2019s an easy way to disqualify it.<\/p>\n
I love the point that the value in doing it when you\u2019re new is you\u2019re learning from doing it, but you hit a point where you are no longer learning by just doing whatever activity it is in your business. If you\u2019re a real estate agent, sometimes going on a listing employment with a not very motivated seller is good because you get practice giving your listing presentation and you get feedback from someone and you learn to read people, but once you\u2019ve got that, stop going on appointments when the person\u2019s not motivated. You\u2019re looking for motivation. So that\u2019s a very good point. If you were starting from scratch, analyzing a deal can have some value for you because stuff pops up you might not have learned or you get better at it.
Everything in life is a skill. The more deals you analyze, the better you become at analyzing and the faster you can do it, but once you\u2019ve got that skill down, find nos. That was also a great point that you made, Matt. You\u2019re looking for a no. That\u2019s a hard no, and that\u2019s where you start, \u201cLet\u2019s get rid of all of that. \u201cI couldn\u2019t find anything wrong with it. Okay. I guess I got to dive a little deeper. Let\u2019s go into a little more granular detail. Shoot. I still couldn\u2019t find anything wrong with it. Now I got to start to get excited about this.
Let\u2019s go into the third step. So Andrew, do you remember what episode we did where we actually walked people through the process that we have when we\u2019re evaluating multifamily property, the three-step or-<\/p>\n
Yeah. It was I said the quick analysis, the 15-minute analysis, that was I think 279, and then the quick and dirty 45-minute underwriting was 571. Then I don\u2019t recall what the episode was where we went deeper into it.<\/p>\n
So check out those if you want to see exactly. You start with what we call the big rocks and then you scale down. When you get to the sand, if you still can\u2019t find anything wrong with that deal, that\u2019s where it\u2019s time to start moving forward. Okay. Another part of running a successful business is building your brand. So I think, Andrew, you\u2019re up first on this one. What are some things that you would keep in mind if you were starting over with building your brand?<\/p>\n
So I\u2019m ancient. I started this before all the social media stuff, and Matt is more of the expert on that and literally wrote the book on raising money, but for building a brand, I would say the key things, one of the most important things that a lot of people don\u2019t consider when they think about building a brand, a lot of people think brand is, \u201cOkay. What\u2019s my logo going to be? My colors got to match, I got to wear the same shirt on every podcast,\u201d all that kind of stuff, right? No. Part of your brand is how you communicate and being consistent with that.
If you\u2019re going to have investors, are you going to give them monthly reports, quarterly reports? What kind of data are you going to give them? How are you going to do that? Part of your brand is, are you aggressive? Are you conservative? How reliable are you in those little things? Brand is not just Instagram and Facebook. Brand is your reputation in the market with the brokers, your reputation in the market with the lenders.
So if I was starting off and I\u2019m like, \u201cOkay. I\u2019m going to build my brand,\u201d I want part of my brand to be when people think, \u201cOkay. Hey, that Andrew guy, he\u2019s new, but, man, you know what? Every time he says he is going to call me, he does, and he gives me great feedback, and he just seems like a reliable guy. I\u2019m going to show him this deal.\u201d So I think of brand in terms of those things. That\u2019s the base. Then Matt, you\u2019re the expert on how to actually get that out there to the public.<\/p>\n
Yeah. Oh, thank you. Again, whether you\u2019re going to use social media or any of those kinds of ways, you can\u2019t say, \u201cOh, I\u2019m not going to use social media. I\u2019ve already got all my investors lined up so I don\u2019t need social media.\u201d That doesn\u2019t mean you don\u2019t need a brand because as Andrew said, a brand is really how the market views you, and it\u2019s the things the market can expect from you, and that market also means those that you do business with. So it\u2019s important to sit down and think about, \u201cWell, what do I want the market to rely on me for? What are the things that we stand for as a company?\u201d If you choose to use social media, you don\u2019t have to say, \u201cHey, my brand means this, and the things I stand for are these things.\u201d Just tell them without telling them. Tell them as a part of your story, continue to talk.
One of the things that the DeRosa Group stands for is transparency. So we put that out regularly in our YouTube. I\u2019ll tell any investor directly what\u2019s going on. We put the cameras on inside of apartments that have been completely destroyed by tenants and stuff like that. So we talk about the good, the bad, and the ugly of this business and that\u2019s transparency. So that is something that you have to define on what it is you want to stand for in building your brand.
Then you got to stay consistent. So if you decide, \u201cI\u2019m going to put this out on Twitter or put Instagram posts out to build my brand or to build the eyeballs that are watching for me,\u201d decide what you want to commit to on posts on social or articles you\u2019re going to write for third-party sites or posts you\u2019re going to do on BiggerPockets, whatever it is, and then stick to it.
So pick your message that you\u2019re going to stick to your brand and then make a commitment on the regular times you\u2019re going to release those to whatever mediums that there are, and do it over and over and over and over and over and over and over again. I committed to myself years ago that I would do two YouTube videos a week, and I haven\u2019t stopped doing that for nine years since we started our YouTube channel. It\u2019s just religion. We just do it two times a week all the time. You can add other social media feeds onto that. So that\u2019s how you build a brand.
Whether you have a deal, and by the way, and the last thing, don\u2019t wait to post on social about what you\u2019re doing until you have a deal. That\u2019s the biggest mistake I see. You see people post a deal and it\u2019s like, \u201cMan, I haven\u2019t heard from you in four months. Now all of a sudden you\u2019re posting all over social media now that you have a deal.\u201d I think that people see through that. I think that if you\u2019re constantly wanting to be seen in your market as the one that knows a lot about real estate investing, then you should be posting whether you have a deal or not, writing articles, putting out concepts. Don\u2019t just wait till you have an opportunity to put it out because people are going to see that. They\u2019re going to see that that\u2019s really just trying to sell and are all sizzle no steak.<\/p>\n
Matt, when it comes to OPM, what\u2019s something that you would definitely keep in mind starting from zero?<\/p>\n
Finding the OPM before you got the deal, right? Yet again, David, the biggest mistake that people make, and that\u2019s social media post, but also emailing and making phone calls to prospective equity that may want to passively invest in your deal. The mistake they make is putting that deal out there to their base once they\u2019ve got a deal instead engaging their base well ahead of the time that they have the deal and say, \u201cHey, let\u2019s talk about real estate investing. Let\u2019s talk about what capacity you may have,\u201d and really formulating what equity capacity their database of potential investors may have before they go look at the opportunity. So many people I see wait till the deal comes in, then they start soliciting equity. So the biggest tip for OPM is have those conversations. As soon as you pick a market, you should be talking to equity on top of that.<\/p>\n
Yeah. Matt\u2019s right. I mean, the minute you decide you\u2019re going to go into this business, start telling people about it and start finding out who might be interested in your next deal. Also, try to raise money from pessimists because they don\u2019t expect it back. That\u2019s definitely helped. No. The reality, I just, but the truth of it is underpromise and overdeliver. You may not get a few people who invest in your deal if you say, \u201cHey, mine\u2019s a 14% return,\u201d and they\u2019re like, \u201cWell, all these other emails I got say 20% return.\u201d If you think it\u2019s going to be 16%, give yourself a high probability of exceeding expectations and say, \u201cYou know what? We think this is a super solid 14,\u201d and know that you got an 80% chance of beating that. So underpromise, overdeliver.
Matt, you touched on this earlier. No matter what, be transparent. If a deal\u2019s going bad, tell your investors about what\u2019s going bad and what your plan is to address it and how it might affect them. Do not hide anything. Be fully transparent.
Then the third thing is whatever you do, never go silent. If you go silent, everybody will assume, often correctly, that there\u2019s not a good reason for that. So even if it\u2019s, \u201cMan, I\u2019m just so busy. I got all these great deals. They\u2019re all crushing it. All my investors are making way more than we told them. I\u2019m just too busy to write the report this quarter.\u201d Absolutely not. Never ever miss your communication. Matt, you said you\u2019ve done your YouTube twice a week for nine years straight. That\u2019s how if I was getting started I would approach my investor communications.
You want your investors to be like, \u201cOh, it\u2019s the 26th of the month. I\u2019ll be getting my updates today because I have for the last seven years straight.\u201d So those are the things I would do. I would make sure that I underpromise so that I have a high probability of overdelivering, and I would be absolutely transparent, and then be consistent and reliable and never ever, ever go dark or go quiet.<\/p>\n
Awesome. Okay. What about long term planning? If you guys were starting over from scratch, what would you keep in mind? Andrew, we\u2019ll start with you on this one.<\/p>\n
Matt touched on it earlier, and that\u2019s look beyond the first deal. You\u2019re not looking to get rich or retire on one deal. Your first deal is the start of the business. Even if you\u2019re just looking to, hey, do a few deals on your own, build your own portfolio, one deal is not going to be it. That first deal is just the start. So begin with that end in mind and look at the first deal and the second deal and the third deal as stepping stones or even building blocks in doing that.
Then we don\u2019t have a lot of time to get into this, but if I was starting out net right now, a key thing is I would go educate myself big time on the debt markets, how they function. Commercial debt is very different than residential debt. I would go out and educate myself on how that works, what kind of loan options are available for the types of properties I\u2019m looking at. How do you educate yourself? Podcasts, books, but talk to lenders, say, \u201cHey, I\u2019m looking at this deal. Here\u2019s my business plan for what debt options are there.\u201d They will educate you. So I would do that and make sure that the debt that I choose fits my business plan for that property.<\/p>\n
Yeah. Just to go further on, and by the way, there\u2019s newsletters you can subscribe to. You don\u2019t have to become as smart as Andrew is. No. It\u2019s not possible with regards to finance and debt and everything like that. There are newsletters you can read. So for neophytes like myself, I read newsletters so I can use words as smart as Andrew does that he knows automatically about these things. All joking aside, Andrew and I probably read a lot of the same publications on these things in that. So you don\u2019t have to become an expert on it, you just have to be plugged into the streams of data that are out there on finance.
Ask any mortgage broker if they can give you access to some of the newsletters and the reports that they get because a lot of times they\u2019re public and ask them. A good mortgage broker will spend some time educating you on how debt for multifamily works because it\u2019s very different than debt for single family or small multi. Debt for multi gets a lot more complex and it\u2019s worth taking the time to get educated on.
Next, the money in multifamily, yeah, you get a reasonable acquisition fee, and then I think that may be why some people are enamored with multifamily because if you design the deal properly, you get a little shot in the arm when you close, but let\u2019s be clear. We\u2019re not doing the deal for the acquisition fee. We\u2019re doing the deal to create long-term wealth for our investors and for ourselves by joining them in the long game of this multifamily project, which is manifested through asset management, which is bringing about the business plan that you\u2019ve designed when you bought the property.
Multifamily is not about the acquisition. It\u2019s not. It is about the long road. If you play the multifamily game right, the check you\u2019ll get when the property sells or when you do a disposition years down the road will be multiples larger for you. If you do right by your investors, that check will be multiples larger than any acquisition fee you could ever take in buying a deal.
So do the deal for the back end and for doing right by your investors and sticking your dismount, nailing that business plan exactly, which is achieved through the part of multifamily ownership nobody wants to talk about it. Everybody else talk about finding deals and funding deals, but really, the money is in asset management.<\/p>\n
Yeah. Well said. Then that\u2019s another big difference from single family is in multifamily, the money is absolutely in asset management. Going back to, Matt, what you said about the long term. I don\u2019t know if you remember, but you and I, about five or six years ago, maybe even longer, we were sitting in the hallway at a GoBundance event in some mountain town in January. There were some challenging acquisitions and part of the conversation was like, \u201cMan, when does this really pay off because this is a lot of hard work.\u201d Where we land is, well, it really pays off five to seven years down the road when all the acquisition and the asset management pays off. So again, have that mindset going into it is-<\/p>\n
You were right about that deal. You were right. I remember I was like, \u201cYou know what Andrew said that it\u2019ll pay off eventually with you rent buyer investors and do asset management properly and run a good business plan and it\u2019ll pay off in the long run.\u201d I had faith that you were right about that and you were. You do right by deals and run a good management strategy and it\u2019s going to hit.<\/p>\n
Right. So the acquisition fees and the management fees, you\u2019re not going to get wealthy off of that. That pays your bills until you\u2019ve built a successful personal portfolio or a successful multifamily business. Then five plus years down the road, that\u2019s when it starts to really, really pay off.
Another thing I would say is, and I\u2019ve fallen prey to this probably maybe, I don\u2019t know, maybe, Matt, you have or not, but don\u2019t compare yourselves to others, right? I mean, I have a perfect example. I have a friend in Texas who I had just bought a deal and he was in the loan business and he sat down and was like, \u201cHey, how are you doing this?\u201d I explained the whole syndication process and all of that, right?
Then the next thing I know, he quits, and as of today, I think he\u2019s literally done six times as many units as I have. It\u2019s hard for me to not be like, \u201cMan, why haven\u2019t I done what he did? What the heck?\u201d Don\u2019t get me wrong. He\u2019s a brilliant guy. I mean, that\u2019s part of it. I mean, the guy, he just knew. He just needed a little nudge and, bam, he put the pieces together and knocked out of the water.
So it\u2019s good to look at people like that who are ahead of you as inspiration and say, \u201cOkay. Maybe I want to get there,\u201d but whatever you do, don\u2019t compare and say, \u201cOh, why can\u2019t I do that?\u201d because there\u2019s always someone who\u2019s bigger, better, smarter, faster, prettier, handsome, well, especially handsome if we\u2019re talking about me, but to compare yourself and feel bad about, but rather, look and say, \u201cOkay. I want to be there and I\u2019ll get there someday as long as I stick with it.\u201d Then of course, always listen to BiggerPockets, and don\u2019t make snow angels in dog parks.<\/p>\n
I don\u2019t know whose metaphors I love more, Davids or Andrews, honestly. I mean, maybe I can put it to a vote, but both your metaphors actually are cracking me up.<\/p>\n
Andrew\u2019s got a book of jokes that I think that he reads before he comes on these podcasts because they\u2019re always just one liner dad joke that just hits and he never uses the same one twice. It\u2019s like 500 dad jokes for life or something, and before Andrew goes on any podcast or he goes on, he arms himself with five good ones. That\u2019s how I feel like it works. My analogies are always-<\/p>\n
Yeah. I\u2019ve heard a few of them before. I\u2019ve heard the grass is greener over the septic tank before. So Andrew does recycle. He does recycle. So going back to comparing yourself to others, man, somebody gave me a good piece of wisdom, which is comparison is the thief of all joy, and it\u2019s also the thief of a lot of education because if you look at that person that you were talking about, the mortgage broker that\u2019s now done 8x more deals or whatever, maybe it\u2019s brought the phone call.
Instead of throwing shade at him and being like, \u201cMan, how\u2019d you do that? They must be doing something wrong or whatever,\u201d call him up, \u201cHey, tell me. Let\u2019s collaborate,\u201d or whatever, and I\u2019m sure you did that because I know that\u2019s something, that you would call them up and ask the question, but to the listener, if you see somebody growing like crazy that you know personally and throwing lots of stuff on Facebook or whatever about how all these acquisitions they\u2019re doing, have the courage to give them a call and say, \u201cHey, help me\/ show me how you\u2019re doing that,\u201d and most generous people in the world and most successful people are extremely generous are going to give you at least a couple of tips, and take those and glean them and then go and pass them. Go do more deals than they\u2019re doing. All joking aside, just go and walk your own journey and don\u2019t worry about what the guy next to you or gal next to you is walking.<\/p>\n
All right. Let\u2019s sum up what you guys would be, keeping in mind if you were getting started over right now. Number one, begin with the end in mind, both with your business as a whole and on each deal. Number two, understand debt and how big of an impact it has on your success or failure. Like Andrew mentioned, remember that commercial debt and residential debt are not the same. Underpromise and overdeliver, always a good key to live life by. In multifamily especially, the money is truly made in operations, so don\u2019t just focus on acquisitions at the expense of operational excellence.
The real payoff is five to 10 years down the road, so delay gratification. Don\u2019t compare yourself with others, especially on social media. Like Matt said, comparison is the thief of joy. I will add on that. It can also be the source of joy if you are comparing yourself to people who are not doing as good as you to feel good about yourself. That is just as bad because if you start to depend on, \u201cOh, I\u2019m doing better than that person,\u201d then you\u2019re going to feel like crap when someone comes along who\u2019s doing better than you. So leave both of them alone and just stay in your lane.
Never do a deal just to get the acquisition fee. Do great deals and the fees and profits will follow. I will follow up with that and say be careful of who you\u2019re doing your syndication with because there are other people out there that make their living off those acquisition fees and can be very tempted to stretch that deal past where the buttons on the pants are actually comfortable holding to get that money, especially if they\u2019re on tight times.
Then finally, stay tuned to BiggerPockets, where we teach you all this stuff for freaking free. Can\u2019t be any better. Guys, this has been an awesome interview. I\u2019ll give each of you a chance to get a last comment in before I let you go. Matt, let\u2019s start with you.<\/p>\n
So David, everything you just said, amazing. One thing that I wanted to get out there earlier that I didn\u2019t get a chance to say is that people that are listening, maybe listening to this saying, \u201cWell, right now\u2019s not the right time and I\u2019m going to wait for the right time to invest in real estate,\u201d here\u2019s the deal. I shot a video on my YouTube channel in 2016 about the potential multifamily real estate crash. We are always trying to predict a future in the world, but guess what? Everybody\u2019s crystal ball is broken. Nobody knows what the future\u2019s going to hold. Nobody knows there\u2019s going to be a recession, if there\u2019s going to be this, there\u2019s going to be that. There\u2019s always the right time. Find the right deal and find something that works in today\u2019s economy and give yourself a little bit of conservatism and a couple of outs and understand that there\u2019s going to be a way for you to make it work in today\u2019s market.
Also, finally, understand that fear is going to be a real factor for no matter what in the market is. There\u2019s never going to be this no problem market, that there\u2019s nothing in your way, and it\u2019s completely clear, and there\u2019s no competition, and the deals are cheap, and the money\u2019s free, and whatnot. That\u2019s utopia real estate. Not going to happen. Don\u2019t wait for utopia real estate to happen. Just find a way to make deals work today and be conservative enough that the deals will work out. If you hold long enough and you do the correct business plan, as Andrew said, it will eventually profit if you hold for the long term.<\/p>\n
Well said. Yeah. What I would add to that is, and we talked about this, of taking the fear and turning it to your advantage, and then also, it will and should never completely go away. You never want to get to the point where you\u2019re just like, \u201cOh, I\u2019m going to buy these deals,\u201d and you don\u2019t give it any second thought, right? It\u2019s good to once in a while second guess yourself and wake up at 3:00 in the morning and go, \u201cI\u2019m going to check those rent comps one more time,\u201d because especially if you\u2019re using other people\u2019s money, and again, that fear doesn\u2019t drive you, you\u2019re using it to make yourself a better business person.
Then also, keep in mind, more so in my experience than any other type of real estate, getting started in multifamily is the hardest part. It gets easier the more you do it and the bigger you get, but the toughest part is the part that we just talked about, finding your market, getting over that fear, getting to know the market, making those phone calls, \u201cWhat kind of property am I going to look at? How do I analyze them?\u201d Actually, just doing all of that unknown stuff that once you get the first deal and then the second and then the third, you have those relationships, you have those skills, you have that team, you have the funds, it gets easier and easier and easier.
So if I was starting today, I would just approach it with the mindset of knowing, \u201cOkay. This first part is just going to be grueling, but after that, it\u2019s going to get easier and easier.\u201d<\/p>\n
All right. Andrew, Matt, I really appreciate it. This was a fantastic show just like every single time that we guys have you on. It is a literal master class in multifamily investing. So thank you very much for sharing your knowledge. I also want to say, I would say my opinion multifamily investing probably is at the flavor of the month right now. I think short-term rentals are dominating in that space, but real estate is cyclical. It will have its day. Now is the time to be learning stuff. Arm yourself with knowledge because you\u2019re going to be seeing, especially in my opinion in the next three to four years, I think a lot more opportunity in multifamily than what we\u2019ve had in the last maybe 10 or so.
So bookmark this episode. Listen to it. Arm yourself with the information and be ready because opportunities will come. Thank you guys very much. This is David Greene for Matt \u201cCaptain America\u201d Faircloth and Andrew \u201cHawkeye\u201d Cushman signing off.<\/p>\n