4 Lessons from Billion Dollar Apartment Operation

My buddy Rob was a pretty unassuming guy in college.  He lived on my wing, and we hung out a few times.  Right out of college I remember he got a job as a public school science teacher.  About 2 years ago we reconnected at a reunion.  I thought what I had done in real estate was pretty impressive, creating enough passive income to quit my job and pursue my dreams. He and his brother, however, had grown an apartment investing company to over a billion (with a B) in assets, 7th ranked on Forbes as best place to work, and over 400 stellar employees, graduates from Harvard, George Town, Chapel Hill, etc.  And they did all of this in about 10 years.

Last week, I flew down to Tampa Bay to learn from them how they were able to create such an amazing real estate investing force.  Here's what I learned:

1) They FIRST created a CULTURE and had  a MISSION DRIVEN PURPOSE BEFORE they tried to make money- Why do you want to invest in real estate?  Where most people say, "to make money", they say, "to create value".  Where most people say, "to generate passive income", they say "to generate improved communities that people are proud to live in".  This is their number one secret.  In a world where millennial are the toughest to hire and maintain and motivate, they had incredible success by giving them purpose beyond the numbers.  Where rental tenants are hard to collect from and tenant damage is a huge liability, they are able to treat people with dignity and respect and cultivate a culture where renters act like landlords and care for their property.  So first and foremost, they focused on the mission and the culture. And that drove all of their other decisions.

2) They found the sweet spot- Based on their mission to improve communities, they found their sweet spot with Class C apartments.  They started in New York in ghetto areas, and then decided to expand to Tampa Bay, Dallas, and Houston.  When commercial brokers started showing them properties, they would show them all the nice Class A Apartments.  But you can't "create value" there.  The secret is to go into an area where you can improve the assets, improve the communities, and raise rents.  Class C Apartments give you the best opportunity to create value and that was the model they focused on.

3) Money is made when you buy- They have a very strong underwriting operation.  If you're unfamiliar with the term, underwriting is basically your deal analysis.  They were very patient for the right deals to come along.  They extensively analyzed each deal so that they KNEW they were going to make money on it, even in the worst case scenario.  Because the best way to make sure you make money in real estate, is to buy right.

4) Go big or go home- The amount of work that goes into buying a $340,000 4 plex is pretty close to the same amount of work that it takes to buy a $34 million dollar apartment community.  The only difference (other than bigger construction projects and a day longer inspections) were the capital they needed to raise for it.  But the returns are the difference between growing a small residential real estate portfolio to a million in 30 years, or growing to over a million in equity in year one.

It was definitely a higher level mindset, with perceived "risks" that most people are uncomfortable with.  But I'd like to conclude with this:  That there is no reason, other than our own limiting beliefs about ourselves and what we can accomplish, that we can't do BIG things in real estate with a higher level purpose to start.