House Hacking a 100 Unit Multifamily Deal at 23 Years Old

Hello All,

I regrettably have not posted or been on Bigger Pockets in well over a year. I started with absolutely NOTHING in 2016 when I began listening to Bigger Pockets, except for a dream of financial freedom. I am coming back to post now in order to share some of my experience since I began investing in real estate in college in 2016 and have been fortunate enough to acquire a portfolio of multifamily real estate worth nearly $40M in the past 3 years by the age of 23. I like to share this in hopes that it will inspire and help other young or aspiring investors to think BIG, don't be afraid to take calculated risks, and achieve your dreams in real estate!

Bigger Pockets was one of the original avenues for me learning about real estate, and truthfully was the biggest factor in my original interest in real estate. Long story short, in 2016 I had a friend suggested I check out the apple podcast app. Instead of following the trend of most of my friends listening to podcasts in the entertainment category I went straight to the business section, and found BP. I binge watched over 100 episodes, read Rich Dad Poor Dad, and was hooked.

As much as I wanted to go big right off the bat, I found a local mentor in my area and began wholesaling single family properties. In the first 6 months I did around 10 deals, nothing crazy, but allowed me to pay my bills while still attending school full time. I had saved up about $10k and followed my gut telling me that going big was the only way to go (with a little bit of motivation from reading the 10X rule by Grant Cardone) - at this time I believe I was 21 and just about to start my final year of college.

With no knowledge on the topic, no college degree yet, and basically no money I decided I was going to focus 100% of my efforts on multifamily real estate. I was going to do this through a process called syndication. Essentially I raise money from investors for the capital needed to buy a large property and get some up front acquisition fees and a piece of sweat equity for doing so. I split the cash flow and profits at the sale with the passive investors and provide them a return on their capital.

I created a simple spreadsheet allowing me to run numbers and view cash flows for properties. Once I did this, I started reaching out to brokers, sending mailers to owners, and began running numbers and analyzing every deal I could get my hands on. I was not very good at this at first, but I understood that multifamily is no different than single family when you break it down. You have income generated from rental charges, other income from late fees/pet rent/etc, and you subtract out your expenses such as taxes, insurance, repairs, payroll, etc. This gives you a value called Net Operating Income. This allows you to calculate the value of commercial and multifamily property by dividing by a percentage called a cap rate (which you can find by asking local brokers or from market studies). From there, I can estimate what I can get my income and expenses to, and determine what value I might be able to bring the property to. On top of that, you play around with the purchase price and loan details, which then gives you mortgage payments. Subtract your mortgage payments from your NOI and you get your Cash flow. Look at your down payment + closing costs + rehab costs and you'll be able to then calculate your ROI based on capital needed and the cash flows.

I broke down all of this info, and created a great spreadsheet that allowed me to efficiently analyze multifamily deals. This did two things. By diving in head first into this process I learned a ton about multifamily financials and operations which gave me a substantial amount of knowledge and confidence when making offers. Also, it created a system for me to quickly analyze deals and make offers.

My first deal I ever went under contract on was a 40 unit. A failure and a success, this deal ended up falling out of contract due to a significant amount more deferred maintenance being found during our due diligence period. It was very discouraging, however I wasn't going to let that slow me down.

I ended up going under contract on two 12-unit properties shortly after. With no money to buy them and no experience getting loans I was certainly in over my head. I tackled these projects one problem at a time, and was able to scrape together about $180k for each property from investors to close on them and self manage.

After realizing that syndicating small properties such as a 12 unit does not bring home enough cash flow for me as the sponsor/manager, I knew I needed to go bigger. I started targeting properties in the 80-150 unit range. I was fortunate enough to send a mailer to an owner of a 96 unit property and receive a call back. He called and liked that I was young and ambitious, and although I told him I'd never bought anything that big, we negotiated a price and he gave me a chance to buy the property, which I would still consider as my toughest feat to date.

Myself and my partner on the deal had no experience in buying properties this size, and had to raise $1.7M from investors, find a sponsor for the loan, and do all of this with no money down... Tall order, but nothing is impossible if you put on your problem solving hat. We ended up struggling with the capital raise and had to request 2 extensions from the seller, which in my opinion he only allowed because I kept in such close communication with him. I would update him weekly or more often on our status, and it gave us a very open and honest environment to share problems that arose and hurdles we were hitting. He was very generous in giving us more time, and allowed us to scrape together the money needed for the syndication. We earned a nice acquisition fee when we closed on the deal, and had an ongoing asset management fee and property management fee. We purchased this deal for $4,200,000 and had all in cost of $5M. I convinced the lender to let us self manage the deal, something that I had virtually no experience doing besides the 24 units that I syndicated and self managed.

After we closed on the property, I decided that the only way for me to learn how to properly manage large multifamily properties was for me to live on site and manage it. There was a beat up 2 bedroom apartment that I tricked out with about $10k in renovations, and took the rent from $850/mo to $1200/mo. I brought in a roommate paying $650/mo leaving $550 for me, and my ~$1,500 in management fees each month plus my portion of the cash flow more than covered all of my living expenses. I had a full time on site manager/leasing agent, and a full time maintenance tech on site at the property. My job was to oversee them, the back end accounting and reporting, and ensure the renovations were getting done and we were on track to achieve our projected returns. I oversaw the property, along with the $500,000 in renovations that we completed. Before this I had not done more than a $20k renovation on a house, so this was an enormous task for me. I stayed very organized, created systems, bid out the projects, and ensured we came in on budget with quality work. I was successful in this, although it took a few months longer than expected.

House hacking was something I had always wanted to do in order to be hands on with a property, and have my living expenses covered. Little did I know that when I started I'd be house hacking a 100 unit community... Fast forward 18 months later we sold this property for $6,700,000, a $1.7m profit. We planned originally on selling in 5 years, however we hit our sale number so fast which allowed investors to receive a strong financial return on their investment, and was able to give me my first big check as a real estate investor. From start to finish on this deal, I earned approximately $300,000 in a 1.5 year period. $48k up front from my half of the acquisition fee, $25k in management fees along the way, and about $225k in my share of the profits when we sold.

I have since acquired another 400 apartment units across 3 separate communities, and I'm currently structuring about $15M in new development deals just outside of Austin, TX where I now live. As a 23 year old investor now, this is not something I ever could have planned or expected to have happen when I started investing in real estate at 19. None of this would be remotely possible without doing the following 3 things, and I wanted to share those with you in hopes that you will live by these and use them to grow personally and in your businesses.

1. FOCUS

Focus is always my #1 go to advice for people starting off in this business. You get what you focus on. Entrepreneurs have a strong tendency to have shiny penny syndrome, as we chase "opportunity" after "opportunity", until we realize we're actually making no progress. This is solved by focusing on ONE thing, getting really good at it, and being persistent until an opportunity arises. Trust me... If you are persistent enough, educate yourself about a topic, and take action consistently over time you will be successful in it. Get good at saying no to things that do not directly contribute to achieving your goals, including friends, family, deals that aren't your focus, etc. If you want to buy apartments, stop looking at single family homes. If you want to buy commercial retail deals, stop looking at apartments. FOCUS.

2. Eliminate Fear

Fear is the #1 reason that most people do not accomplish their goals. They're actually comfortable in a state of motionless and non-growth. It is fear of failure that keeps them there. There is nothing to fear about failing. Failure is simply a step along the path to progress, and without failure you would never learn to walk, drive, swim, etc. Why should business be any different. Make the unknown known, tackle your fears head on, and use your failures along the way to improve yourself. In reality, you should be much more afraid of regret, which will occur if you do not take a chance and lead towards your dreams and ambitions.

3. Change Your Circle

We've all heard the expression "You are the average of the 5 people you spend the most time with". Then why do we maintain average friends with average goals and keep ourselves in an average position. The best (and probably one of the hardest) decisions I ever made was changing my circle of friends. As much as I loved them, I wasn't going to be successful by partying in college and spending my weekends at bars. I completely changed my circle of friends to be people much more successful than me, and over time it brought me up to their level. If you really want to be successful this is a difficult step you may have to take.

Thanks for anyone that read this long post. I want to help anyone out that wants to get started in this business by first realizing that anyone can do this if I was able to. I was a C student that worked really hard and made the right friends and was able to create success at a young age. I'm only getting started! Follow those above steps and I hope each and every one of you can do it too!

And thanks again to Bigger Pockets for providing this awesome platform and inspiring me in the beginning to find my passion of real estate.

Sincerely,

David Toupin