Ten lessons from my FIRST multifamily deal

A year ago, I had no idea what multifamily real estate or a syndication was (literally…I had to Google the terms). But a conversation with a friend let me to read a book over Thanksgiving and I quickly fell in love with the asset class. Around six months later I had a letter of intent (LOI) accepted on a 138-unit property in arguably today’s hottest real estate market, Austin Texas. After closing this month, I felt it might be useful to share the lessons I learned during my first deal. I hope this is of value to others.

1. Finding a deal is a numbers game. You may have heard that you must look at 100 deals to get 1. Sure enough, around the time I surpassed deal #100 on the deal board, we had a LOI accepted. You must enjoy the process and grind as much as you enjoy the outcome. Do not get discouraged, continue to plug away, and have conviction that one will eventually hit.

2. Stay in close contact with brokers and communicate frequently during the underwriting process. We are very clear on the type of value-add assets in Texas that we are interested in evaluating for acquisition. In addition, during the evaluation we update the broker on our progress and even let them poke holes in our underwriting. This deal actually came back around a few months after we initially underwrote the property and after we toured a similar deal listed by the same broker.

3. Try to stand out during the LOI and best and final (B&F) process. Use a professional template for your LOI, understand what competitive offer terms look like in your market (through your broker), and include team bios. During the B&F put your best foot forward and be over-prepared for any seller interview.

4. Treat the seller with the utmost respect, courtesy, and professionalism. Many deals will hit a few bumps in the road and this one was no different. Looking back if I could do one thing differently from day one, I would have tried to establish a closer relationship with the seller and jumped on the phone more often rather than email. Negotiations are complex and a phone call between incentivized parties will likely yield faster results than a long email chain.

5. Align yourself with an experienced, all-star team. I am not a believer that you must join some large, expensive program to find success in this industry. But you do have to build out a team around you and provide value to others. The other lead sponsors on the deal had significant experience in Texas value-adds, our PM is headquartered in Austin and understands the market, our legal counsel is one of the best known in the space, and our mortgage broker was able to secure strong bridge terms. Have enough subject matter knowledge about all aspects of the deal, but lean on others with different skill sets and backgrounds to get the deal across the finish line.

6. Expect the unexpected, aka the sleepless night(s). During your first deal something will happen that you could not have predicted. Perhaps interest rates run up during negotiations, a negative event occurs at the property, or your team struggles on the raise. For us, there was a miscommunication on an extension notice which caused me a long weekend of little sleep. We were able to work with both parties, legal counsel, and the broker to come up with a fast compromise that following Monday. Take a breath when faced with a challenge, brainstorm solutions with your partners, and work on a mutually beneficial solution to any issue.

7. It is better to overestimate capital improvements than aggressively underwrite minimal deferred maintenance. We are planning to spend over $3 million on the property we are buying, which was built in the 1970s. Luckily, we were prepared for this amount after touring the property and working closely with the property management team who had familiarity with the asset. Even then, a few items popped up during due diligence which we had to account for, so always be conservative and then fine-tune your budget before closing.

8. Do not be afraid to negotiate, it never hurts to ask. A property manager may submit a first pass budget and if this differs from your underwriting push them on the major variations. Do not accept the first debt term sheet put in front of you. Instead, work with your mortgage broker to determine where you can gain some upside. During the PSA process realize you will have to give on many terms, but also stand your ground on your “non-negotiables”. Read a book like the Art of Negotiation by Michael Wheeler or Harvard’s Emotion and Art of Negotiation to improve your skillset.

9. Spend money or time creating the best investor pitch deck possible. Most individuals that have reached accredited investor status have realized success in the business world and are used to seeing professional and high-quality presentations. My partners and I decided to hire a virtual assistant (VA) to build out our presentation. We gained access to an entire team who spend over 50 hours working on graphics, color schemes, and flow for our slide deck. The final product was impressive, and we received multiple complements on the presentation. This is one area to not ignore as you are trying to raise millions from investors.

10. Set up systems to streamline collaboration amongst your team. Email attachments, texts, or one-off links are a messy way to communicate and work on a team project. We used AirTable to track investments, ToDoIst for project management, and Microsoft TEAMS for a cloud file server and group chat. In fact, our PM is now even utilizing TEAMS to upload our weekly reports and financials!

After securing your first deal celebrate the win with a nice bottle of wine or champagne. But remember, this is just day one. We have put the ball in play, but now we have to run the bases and score. Wishing you the best success.