From Duplexes to Large Multi Family

[Zachary Feldman]

Hi Fellow BP'ers,

Was hoping to get some advice on how people have had success in making the jump from owning 2,3,and 4 family properties to the 6-50 unit multi family buildings. It seems as though most people (me included) have found success buying the smaller unit type properties but have trouble getting to the big show. How do you go about sourcing these larger deals? How does your underwriting assumptions progress? How do your management and software systems need to scale? A lot of the great advice and conversation on the forums seems to be focused around the first deal or multiple deals but still in the smaller unit count, would love to learn and hear more about how people have had success scaling up to larger properties. 

Any and all feedback would be appreciated.

Cheers,

ZF

[Jonathan Twombly]

@Zachary Feldman

People ask me this question all the time, and there are two things you can do.  (1) Cultivate broker relationships or (2) cultivate owner relationships.  The latter is more hit or miss, and requires direct mail or other methods, with a low success rate, so it is all about numbers.  

As for brokers, here are the basic steps.  It's all about overcoming the New Investor Catch-22, which is that you can't get your first MFRE deal because brokers won't work with someone who has not closed an MFRE deal before.

1.  Learn the language of multifamily so you sound like a pro.  (Seems you already have this one covered.)

2.  Assemble your team of professionals, including commercial real estate lawyer, commercial real estate accountant, commercial real estate mortgage broker, local property management company, and local engineer/contractor.

3.  Put together a credibility package.  This includes, in this order:  (1) bios, pics and contact information for you (and your partners if you have any); (2) list of your professional team members; (3) detailed description of the kind of property you are looking for, including location, price range, unit%, cap rate, and any other details relevant to your investment thesis, such as good school districts, transport hubs, etc.; and (4) the preliminary due diligence materials you require to underwrite the deal.   

(1) here tells the broker who you are; (2) shows that you have a team in place and that you are ready to move on anything ASAP, and it also gives you the social proof and credibility from your team; (3) makes the broker's job easier by limiting what they need to show you; and (4) shows you're a pro, because newbies not only don't know what they need to underwrite, they also don't know to ask brokers for it.

4.  Get your online presence together.  That means LinkedIn profile that identifies you as an investor, perhaps with your ask in 3(3) above as the description; a custom email address (custom email addresses only cost a few bucks); and, if you are very serious, a simple landing page for your investment business, with your contact information and the kind of property you are looking for.  This way, when you reach out to a broker and they google you - which they will - you will come across as being in the business.

5.  Only now do you start talking to brokers.  But don't just call them up.  Use your network to get warm introductions.  It's amazing how much better you will be treated when you go in warm.  Ask your professional team first for their best broker introductions.  But also use Google to identify the brokers in your market and then use LinkedIn to determine if anyone can introduce you.  If you have no common contact, then send the broker an invitation.  If your LinkedIn profile is set up properly, they will assume you are a potential client who is real, and they will accept.  Then you can start a relationship and later arrange a meeting.

6.  Once you have a meeting set, then send them your broker credibility package so that they can read it before the meeting.  That way, when you get the meeting, you won't be establishing your credibility.  You will be talking about the kinds of deals you want to do and the types of due diligence materials you require.

If you go through this process, you will find the brokers take you far more seriously and will show you good deals far faster than if you just go in cold as an unknown person and try to get them to show you deals.  Residential brokers talk to almost everyone, but commercial brokers are much more selective.  So you need to use this in your favor.