Questions to embark into multifamily investing

[Eric Wong]

I currently own six single family homes, and I am ready to take the dive into multifamily syndication now. I am currently researching emerging markets to focus on (as per David Lindahl's advice), and will begin reaching out to brokers to start analyzing deals soon. Before I do though, I have some questions that I could really use some advice on!

1. Should I reach out to brokers now before I have zeroed into which market I want to target? Or should I wait until I have narrowed down my tarket market?

2. Should I start reaching out to investors now, or wait until I'm closer to finding a prospect?

3. David Lindahl mentions in "Emerging Real Estate Markets" that he watches the number of issued permits to determine if a market is going to be overbuilt soon. How can you tell from those numbers if it will be overbuilt soon? Is there a certain ratio to look for?

4. I am creating an investment brochure to pitch to potential investors. Should I include a bio on myself, even though I have never done a multi-family deal before?

5. As I reach out to brokers, what questions should I expect from them that I might have to answer on the spot? What do I want to be prepared with so I don't look like a complete novice that they don't want to do business with?

6. Does anyone know of any good multi-family brokers in Ohio, South Carolina, Florida or Texas?

7. What are other emerging markets that other investors recommend?

Any insights would be greatly appreciated!

Eric

[Brian Burke]

@Eric Wong congrats on your success in the SFR space. Making the move to multifamily syndication is a logical path of growth, and if you approach it right it could become a great business for you, as it has for me. But it will be far more challenging than you think and certainly more difficult than any guru (even Dave, who is one of the few gurus whose courses I've attended) will lead you to believe. I say that not to discourage you, but to give you something to reflect on when you get discouraged when things don't easily fall into place. Set your expectations properly from the outset and you'll be better prepared.

1.  Narrow your focus before you start to talk to brokers. Their time is valuable and if you want to be taken seriously (which is important) you want to sound prepared and focused when you make that first call.  I’m not saying you shouldn’t call brokers in markets that you are thinking about but aren’t completely sold on, these folks can be a wealth of information, but do have some idea that you want to be in that market first.

2.  Reach out to investors yesterday. Seriously, this should be the very first thing you do.  You wouldn’t go to the grocery store without your wallet, so shopping for property without the financial strength soft-circled wouldn’t make any sense at all.  Don’t believe those who tell you “find the deal and the money will follow”. It won’t.

3.  You are looking for the construction/absorption ratio.  This is the ratio between units constructed and units absorbed. When the ratio is showing more units constructed than absorbed you know vacancy will soon increase and vice-versa. 

4.  You must include a bio.  Investors are investing in your ability to produce a favorable outcome, not in a real estate deal.  Most new multifamily investors can’t prove this ability, which is why your early investors are most likely to come from your inner circle—people who are already inclined to believe in you.  You’ll grow to people outside of your circle once you prove yourself and can include a well-documented track record along with your bio.

5.  They’ll want to know where your equity is coming from and who is doing your debt.  They’ll also want to know what you’ve done on the past and how many multifamily units you own, and how many you own in that market. The equity and debt are a must. If you can’t tell them that you have investor lined up already and are talking with a lender they won’t want to waste time with you. 

6. You aren’t looking for a “good multifamily broker”. You are looking for “all multifamily brokers” in the area where you are focused on.  There are typically only a handful, and you need to talk to all of them so they all send you their listings.

7. There are plenty of great markets. Do your own research because you’ll need to explain to your investors why you are looking in a particular market and why they should back that effort with their hard-earned dollars.  You can’t answer their question with “some guy on BP said it’s a good market”.  You want to know the thesis inside and out.  That said, check out the Milken Institute’s Best Performing Cities Index.  It’s free and a great place to start.

Hope that helps!

[Eric Wong]

@Brian Burke, Thank you for your advice! It was very insightful and helpful--spot on exactly what I was looking for. I hope someday I can be where you are in your real estate journey, so I can come back and add value to the community as you do. As other questions come up in my multifamily quest, would you mind if I send more your way?

[Brian Burke]

Sure, @Eric Wong, post your questions here on the forums and if I’m available to respond, I will.  Plus you’ll get the perspective of many other knowledge BPers, and other aspiring investors who have the same question will benefit from the answers.  It’s what makes this site so great!

[Ola Dantis]

@Eric Wong I wanted to add a few things to Brian's fantastic comments:

1. Equity | Getting verbal commitments from investors not only gives you the confidence when you start approaching Brokers and property management companies but also serves as a strong foundation in which you can build a good reputation on in your market. So, when the ideal building comes to your desk you can close quickly. 

2. SEC requirements | Make sure that you are building a team to help you with PPM and Subscription Agreements as you get closer to taking a deal down. 

3. Visit Markets | If you are going to be securing assets in a particular market, try to visit the city to make sure that you have taken a qualitative look at the city to back up the quantitative data you've researched online. 

Hope this helps. Good luck. Thanks! - Ola 

[Eric Wong]

@Ola Dantis, thank you! Good pointers!