As in business, many sports, and life in general, effective and efficient teamwork is often a vital aspect leading to success. It is also true with investing in multifamily properties. Those active investors who successfully pursue, acquire, manage, and exit multifamily properties must build strong teams with expertise that span many different specialties. SOME (not all) of the key players that active investors and General Partners (GPs) in a syndication must build and lead are the following:
- Property Manager (Management Company): While self-managing the multifamily properties once they are acquired is an option, many active real estate investors choose to outsource the hard but necessary work of finding new tenants, responding to tenant complaints, fixing toilets, and other routine operations. By outsourcing the daily ops to a PM, the active investors free up time to acquire more properties and to "manage the property managers." It is important to a find reputable company with a track record of success in managing the type/class of property acquired, and one which understands the local market, market rents, etc…The PM is a key team member, and investors can even use their expertise prior to acquiring properties in many ways! For example, investors can use the PM’s experience when securing financing, working with brokers, or researching submarkets and average rent prices.
- Brokers: Real estate brokers play an important role of finding deals and presenting them to investors. Investors should work to build strong relationships with many brokers in the markets, to increase deal flow. In fact, by establishing trust, credibility, and likability with brokers, investors can get “pocket listings” of brokers – that is, brokers may present deals first to their select few investors they know can close, before publicizing the deals to everyone, or “on-market.”
- Lawyers: Those experienced with real estate may be key to staying out of hot water, especially for more complex transactions or syndications. Having a real-estate seasoned lawyer to draft and review paperwork may save headaches down the road. They can also be key in setting up the business structures however the property is acquired.
- Lender(s): Unless buying outright with cash or seeking more creative ways (e.g. seller financing), having a vetted commercial lender can open up doors to acquiring multifamily properties. Building a relationship with a local community bank experienced in lending for multifamily properties can offer financing options, especially when conforming loans to Freddie Mac/Fannie Mae standards are not available. A mortgage broker may also be helpful in finding the right match for terms/financing.
- Contractors/Property Inspectors: General contractors, maintenance personnel of various specialties, and inspectors can greatly assist with assessing potential acquisitions in the pre-offer and due diligence periods. These experts also play a role during rehabs/renovations, and normal operations after acquisition. Insurance Company: Again, another critical team member. Active investors need to shop around for rates and coverages, especially when challenges in locations and hazards arise with certain properties. (For example, in my chosen markets in Central Florida, flood zones are all around and hurricanes present a potential challenge for about half of each year).
- Accountant: a seasoned CPA is a key team member to keep records and finances in order. Additionally, a CPA experienced in multifamily properties can find tax savings where others may not and allow investors to reap the maximum benefits from this great class of investment. Additionally, a cost segregation expert could save even more in tax savings.
- Other GPs: In a joint venture (JV), General Partners must also build a strong team with other GPs. Ideally, the GPs would each fill a role that works in their individual strengths, while ensuring the other GPs fill in the areas of weaknesses. Roles may include "boots-on-the-ground" work in the market (touring properties, building relationships, finding off-market deals, intel on the market, etc), raising capital, finding deals, investor relationships, underwriting deals, etc. In any case, Limited Partners (LPs) – or passive investors in syndicated deals – should vet the GPs…That is, have they built a solid team? Do they have experience and a track record of integrity and success? LPs should not just pick the highest return they see advertised on the web or elsewhere – LPs should ensure the team is qualified in acquiring and managing the deal at hand, and delivering on projections. Most important - make sure your partners share your goals and ethics!
Again, this list is not complete, and there are many other team members at various stages of the process. But, these are some of the key ones active investors should ensure are part of the team.For my multifamily property investing colleagues, who else do you think is a key team member not listed? Any comments on any that I list here?
