All Forum Posts by: Elijah Brown

Five years ago, my girlfriend and I began planning our dream to leave Los Angeles and travel throughout North America in a self-converted van. In September of 2020, we finally pulled the trigger on #vanlife and purchased an empty Mercedes-Benz Sprinter cargo van that we found on Facebook Marketplace.

Over the next two years, and with zero construction experience, we spent every available weekend turning the van from an empty shell to a fully-functional, custom-built home on wheels. It went from this:

to this:

then to this:

and FINALLY...

Building this van was by far my most challenging life experience, and I’ve been through military training! The learning curve on custom construction was steep, and there weren’t always “how-to” tutorial videos. Each piece of aluminum and wood had to be custom shaped and assembled to achieve utility and aesthetic, and I had to become a plumber and electrician for the first time as well!

Needless to say, I am extremely proud of what my girlfriend and I accomplished, regardless of how incredible the final product turned out. We climbed mountains to build this van, and I’d love to share with you some of the lessons I learned that I believe have translated over to my professional career:

Don’t Buy Cheap Tools

Seriously….don’t do it! We started the project with $500 worth of low end tools from Lowes, and ended up buying or borrowing much better ones. Using cheap tools likely set us back a few months and certainly made the construction process more painful than it needed to be…. how hard can it be to just cut a straight line? It’s actually very difficult.

In business, or life, it’s the same thing: don’t take shortcuts if saving the money comes at the expense of growth. It is almost always worth it to pay extra for the high-quality equipment and services because you can rely on it to get the job done well.

Not All Improvements Add Value

I really wish that $750 custom aluminum floor frame we built meant anything to the next buyer of the van….but it won’t. I could’ve used wood for $100 and no one would’ve noticed. The same goes for the expensive, organic, foofoo wool we shoved in the wall as insulation instead of the cheap stuff from Home Depot. Do I regret these decisions? Somewhat. Will they help us sell the van later at a higher price? Not at all!

In #realestateinvesting, I see so many newer investors and homeowners make this mistake: they spend lots of money on items that will not increase the value of their property or protect it from a decrease in value. Common examples of this include solar panels, new windows, swimming pools, garage conversions, wine cellars, etc. If your goal is to spend the least amount of money necessary to increase the value the most, figure out which renovations will give you the best bang for your buck.

The Journey is More Fulfilling Than the Destination

We spent years building out this van, and each week we’d say “jeez, can’t wait for this stupid van to be done!” …..and then it was done! Looking back on the experience, the process of encountering new obstacles, researching solutions, and then implementing them was actually an incredibly satisfying experience. We constantly learned new skills and got to enjoy small wins on a regular basis. Now that the van is complete and we live in it full-time, the excitement is not the same. We love our van and are so proud of what we’ve built, but nothing can match the excitement of regular struggle, learning, adaptation, and accomplishment.

I feel the same way about my #multifamilyinvestments business. The process of assembling apartment deals and interacting with my investors is the best part. Signing closing documents and receiving checks at the end don’t always provide the same excitement for me as negotiating a contract or pitching opportunities.

Modern society has encouraged us to idolize success and fortune, and I agree it is important to have vision and motivation to reach your goals; however, it is also important to appreciate the journey and all the lessons it teaches.

Find a Great Partner

I’m very lucky that my girlfriend shared the van vision with me and played an equally active role in making it a reality. She was actually better with the power tools than I was!

We were not sure how a project of this size would impact our relationship, and we felt it would be "the ultimate test”. Naturally, we had disagreements, and it was not always easy….but we found a rhythm and saw it through to the other side without too many scars. We proved to ourselves that we could work together as a partnership to accomplish any goal. I don’t think the van would have gotten done, and certainly not to its current standard, without her involvement.

In business, it is so important to surround yourself with the right human capital. A strong partner can be the difference between success and failure, and more importantly, has a monumental impact on your mental health. I’ve worked with many partners in real estate, and there will be many more. Good partners are not easy to find, but will multiply your progress.

All You Need is a Roof

#apartmentinvesting made me a lot of money and helped me to realize what the truly important things are in life. A flashy car, jewelry, and a beach mansion are great things that most of us want, but they can’t give us long-term joy. Moving from a comfortable luxury apartment into a vehicle and selling almost all my possessions has helped me realize there is a diminishing marginal utility. After we have achieved shelter, food, and basic companionship, the rest isn’t as impactful. The excess s*** in our lives can provide more comfort, but often clouds our mental state and introduces so many unnecessary issues.

In the van, we have a bed, kitchenette, shower, workspace, and the great outdoors. We’ve got all we need to survive somewhat comfortably and we certainly don’t care about what our neighbor is driving or the nice landscaping in front of their house. Those things don’t matter to us. What matters are the experiences that will bring us personal fulfillment and expand our relationship.

Final Thoughts

This van became much more than just a van....and I think that's true of all major life experiences. My real estate business has become much more than just real estate, and my relationships have become much more than just transactions.

The meaning in our lives is found in the thick of it, when we are faced with challenges and are forced to ask "why continue" and then "how can I".

Every day, we choose this life knowing it's a constant struggle. Whether we realize it or not, it's actually this struggle that provides meaning and context.

So.... next time you take on a crazy project like building a van or starting a business, embrace the challenge and identify the deeper meaning behind it.

About The Writer

Elijah Brown is a real estate investor, entrepreneur, Army officer, and writer. While working as an investment analyst for Bank of America, and later as an associate and manager for Healthpeak Properties (S&P500 REIT), Elijah developed a love for real estate and began raising private capital to acquire over $100 million of apartment units across the United States. Elijah is the co-founder and managing partner of GoldHawk Capital, a real estate investment firm that raises capital from private investors to acquire multifamily buildings in Arizona.

If you have any questions, please leave them in the comments section.

@Albert Hasson It depends on how much you put down and the rate you get...and if it's interest only or not. It definitely doesn't cash flow with an 90% bridge loan at 8%!

Thanks @Erik D.! We did not hire a designer. We do the same exact aesthetic on all of our renovations so there are specific materials and color choices we do every time. At this point we just trust our contractors to do the work without our input.

I'm extremely proud to present this case study of a 6-plex I recently renovated in Scottsdale, AZ. It is rare that renovations go smoothly and turn out better than imagined, but we emerged with a big win. This project was completed two months ahead of schedule and looks incredible!

The Acquisition

We acquired this property in June 2022 (along with a duplex next door) for our GoldHawk Renovation Fund III, a 17-unit portfolio. We sourced the property off-market from a distressed seller by utilizing our established broker relationships in Phoenix, AZ. This was one of the worst properties in a Class "A" location.

Purchase Price: $1.75M ($292k/door)

Unit Mix: (4) two bedrooms; (2) one bedrooms

Average Rent: $550/month | all tenants on month-to-month

Before Photos:

The Renovation

Our general contractor provided us with a detailed scope of work before we purchased the property. They were able to begin demolition immediately after the close of escrow and removal of the month-to-month tenants.

Renovation Budget: $385k ($64k/door)

Progress Photos:

Our target completion date was January 2023, but our contractors surprised us with an early finish in November 2022!

Final Product

Target Rents: $1,650/month (200% increase or 3x the previous rent)

Property Value: $2.4M (37% increase)

I want to thank our investors, lender, contractor, broker, and everyone else who made this project possible. We're good at sourcing and executing deals, but it truly takes a team effort to fully capitalize on opportunities like this.

I built a financial model to determine how much cash a limited partner in a multifamily syndication deal would actually need to invest over five years to generate enough passive income to support a basic lifestyle.

Assumptions

Rate of Return: 2.0x over five years (doubling of investment)

Average Annual Cash on Cash Return: 6% ($6,000 for each $100,000 invested)

No reinvestment of annual cash flow ....because you'll probably spend it!

Minimum annual investment: $50,000

Annual cost of a basic lifestyle: $50,000

Only one round of reinvestment

Stage 1 - The Initial Investment

As you can see, the $50,000 minimum was invested five times over five years for a total of $250,000 invested. In year five, the first investment sold, returning a cumulative 2.0x multiple. Cash flow increased from $3,000 in the first year to $15,000 in year five.

Stage 2 - Reinvestment of Sales Proceeds

In this second phase, you can see the sales proceeds from the initial investments being reinvested into new deals in years 5 - 9. The annual cash flow from the reinvested proceeds is $5,280 in year five.

Stage 3 - Combination

In the final stage, we combine annual year five cash flows of $15,000 from the original investments and $5,280 from the first reinvestment to arrive at $20,280.

Based on the general cost of goods, $20,280 is likely not enough for a basic lifestyle and will not allow you to leave a W2 job.

So how much would you need to actually invest to reach a basic lifestyle assuming $50,000 per year in living expenses by year five?

Easy....by using the "goal seek" function in Microsoft Excel, we can set our year 5 cash flow to $50,000 and ask the model to calculate how much needs to be invested each year to reach that target.

The answer we arrive at is $123,274. This is the amount you will need to invest in multifamily syndication deals each year for five years to be able to leave your W2 job based on the assumptions made in this analysis.

...and this makes sense. You will have invested ~$616,000 over the five years and also have sales proceeds of ~$217,000 from the first deal going full-cycle. Combined, that is $833,000, which should translate to ~$50,000 of annual passive income at a 6% cash on cash return rate.

Of course, it is entirely possible that you can reach this goal with a much lower amount of cash and time if your return rate is higher or the deal goes full-cycle quicker. In fact, most of the multifamily syndication deals I've seen have provided investors an exit with return rates that doubled or tripled the projections.

Or, it could take you longer to reach the goal if your return rate is lower or the deal takes longer to go full-cycle. Either way, investing the most you possibly can will ensure you reach the goal in the quickest amount of time.

Final Thoughts

It is entirely possible to generate enough passive income to leave a W2 job within 5 years through investment in multifamily syndication deals. Furthermore, based on the assumptions made in this article, it will take an investment of ~$123,000 per year to accomplish this goal.

Thanks @Cole Maurer. Not interested in the SFH portfolio, but thank you for the offer! We're focused on multifamily buildings right now and will be more active on acquisitions in the second half of the year. For now, we are arranging a few fund-of-funds and Co-GP opportunities.

@Edgar Rodriguez While there is a lot of construction, most agree that it's not enough to satisfy the current demand.

Agree on Class A.... if rents drop or occupancy falls, operators will have issues making mortgage payments. During recessions, a lot of class A renters move to class B to save money.

Current Economic Landscape

The general economic sentiment is bearish. Record high inflation drove the Federal Reserve to significantly raise interest rates, making the relative purchasing power of the average American lower. The war in Ukraine, supply ripples from the COVID Pandemic, and years of quantitative easing sent materials, labor, and just about everything else into volatile upward price swings. The stock market, which holds much of the nation’s collective retirement and investment savings is down. People across America fear recession and financial ruin, with memories of hardship from the 2008 Financial Crisis.

Unfortunately, I can’t reject these fears. They are valid. Trillions of dollars in cash and credit may disappear over the coming quarters and investors may lose life savings. It is a possibility.

We can’t know for sure what will happen to the stock market or property values in the coming months. What we do know for sure is that the basic human need for shelter will not go away.

Housing Shortage

In the most simple of words, people need housing and there are not enough homes. According to the National Association of Realtors, the United States is short 5.5 million homes and builders are only delivering 1.5 million housing units per year. If population and construction speed were held constant, this would be a 4 year problem. However, with the U.S. population expected to grow 23 million by 2030 per the U.S. Census Bureau, and with the cost of construction growing exponentially, we are really looking at a 5-10 year supply shortage.

Rent Growth

In addition to a supply-demand imbalance causing upward pressures in the housing market, the demand for hard assets with a built-in inflation hedge is growing. Private investors and institutions alike are sitting atop massive capital gains from over a decade of economic growth, and 40-year record high inflation is eroding this purchasing power. Investors are desperate to buy assets that will keep up with inflation, and multifamily real estate offers that due to the effects of rent growth.

Apartment investors are very good at closing supply-demand gaps by adjusting rental rates to create equilibrium. If the demand for housing units is high relative to the supply, landlords will increase rents. Given the housing shortage, rents are increasing at a rate higher than inflation (Zillow Housing Data). Some markets, such as New York, Tampa, Miami, Phoenix, and Tucson have experienced rent growth up to four times the rate of inflation.

When rents increase, so do property values. Multifamily property values are determined by Net Operating Income (NOI), which gets divided by a market and asset-specific capitalization rate (cap rate) to derive value:

Property Value (PV) = Net Operating Income (NOI) / Capitalization Rate (Cap Rate)

If both revenues and expenses are increasing at the same rate, which is unlikely because rents generally outpace inflation, NOI will increase because operating expenses for apartment buildings are typically 50%+ lower than revenues. A 5% growth on $1 million of rent is a $50k change. A 5% growth on $500k of expenses is only a $25k change. Thus, NOI increases and therefore value increases. The below table summarizes this point:

Most likely, rents will increase at a higher rate than expenses, resulting in property values growing at a higher rate than rent growth:

Cap Rate Compression

When there is high competition for multifamily properties, prices increase, which compresses capitalization rates, resulting in property values that grow at significantly higher rates than inflation:

This last scenario is optimistic, but possible given the opportunity cost. Investors have a choice:

1. Invest in equities, which are subject to high volatility and unlimited downside

2. Invest in fixed-income assets, which are currently returning negative real rates when adjusted for inflation

3. Hold cash, which devalues at a high rate

4. Buy real estate, which may experience near-term volatility, but has historically outperformed equities on a risk-adjusted basis, has a built-in inflation hedge via rent increases, allows the use of leverage, and provides an unparalleled tax shield.

Final Thoughts

The Fed is going to continue raising rates. However, this is a response to out of control inflation. While inflation is high, property values are likely to continue increasing. Combined with a massive shortage of housing, the search for yield, and a volatile stock market, multifamily real estate is very attractive and may weather a recessionary period the best.

It’s 3:30AM. Coalition forces are penetrating through enemy defensive lines to secure and liberate a fictional city. Displaced civilians are migrating on foot. They are malnourished, many are wounded, and some are carrying an unidentified virus. The main routes of travel are also littered with explosive mines.

How will enemy entities impact population control, governance, and critical infrastructure? What can a group of weekend soldiers do to support a large-scale combat operation, ensure a quick transition of power back to the legitimate government, and minimize collateral damage to the civilian populace?

For two weeks, I sit in this tent and answer these questions.

Luckily, our training staff has called it quits for the night……. I now have a few hours to focus on a different mission:

FINDING SOME DEALS, BABY!

I carry my civilian laptop with me everywhere so I can exploit the few free hours in my day while at annual Army Reserve training. On my left screen is the underwriting model that I built to analyze multifamily deals. I’m notionally deployed to Eurasia, but at this moment I’m in Denver, Colorado to evaluate an absolute MONSTER.

This 138 unit apartment complex could return significant value for investors via light renovation and professional property management. 

Too bad I can’t build an excel model to calculate the enemy's next move!

@Craig Fitzpatrick II

Find someone who qualifies to co-sign your mortgage. Let them in on the deal.