497: Bigger Deals, Better Profits: 10 Steps to Your First Large Multifamily w/ Brian Murray and Brandon Turner

This is the BiggerPockets podcast show 497.

Go through all this, take this risk, go through all this effort and look at, look at the small amount of money that it's going to generate for me every month. And that was a little bit discouraging. And then I noticed that, hey, when, you know, instead of looking at duplex, if I look at a, you know, a three unit or six unit, look how much better that looks. Like I'm going to go through the same process. But wow, now it's actually something that could, could make a difference for me.

You're listening to Bigger Pockets Radio, simplifying real estate for investors large and small. If you're here looking to learn about real estate investing without all the hype, you're in the right place. Stay tuned and be sure to join the millions of others who have benefited from biggerpockets.com your home for real estate investing online. What's going on, everyone? It's Brandon Turner, host of the Bigger Pockets podcast, here with my co host, Mr. Metafor. A multifamily, David Green. What's up, man? How you doing?

Nice alliteration. I'm doing really good, actually. Things are going pretty well.

Brian Murray, you're here as well right now. We got you for part two today. What's up, man?

Hey, how you guys doing? Really excited to dig back in here.

Well, for those who don't know, if you didn't listen to the last episode, the last episode of this podcast, which was episode 4 96, we spent like over an hour just going through small multifamily properties, kind of a step by step guide to buying small multifamily. And we talked about what the difference between small and large is. It's not unit number and a whole lot more. We really, we really dove deep into that and then we ended that with me reading chapter one of the new multifamily millionaire book. So today we're talking about large multifamily and that could be a five unit. Technically, it's the way you approach it. As we talked about in the last episode, it could be a 20 unit, could be a 50 unit. But the idea of how do you scale into like a team based approach to big deals that can really create some generational wealth. So that's what today's episode is all about. And Brian, you're going to be leading the charge on this because you led the charge on writing volume two. I kind of led more of the writing in volume one. You led more of the writing in Volume two, but we kind of did it together tag teamed it which is fun. So I'm excited about this. Should be a good time. Before we get to that though, we got to hit today's Quick Tip. Today's Quick Tip is the exact same Quick Tip as I gave on the other show. Pick up a copy of volume one and volume two of the multifamily millionaire when you get it at biggerpockets.com multifamily book M U L T I Family Book and when you buy them together you get like 10% off and you get a bunch of cool bonuses like which are worth more than just the cost of the book. And if you buy it before the end of August, before the end of August 2021. We're also tossing in the four week masterclass that I hosted on Multifamily where I spent almost seven hours going through the book in detail, a bunch of the chapters and really like it was like me, a whiteboard, a slide deck and I just dove into it. So all that and more if you buy it before the end of August again, BiggerPockets.com multifamily book some real estate.

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All right, now it's time to get into the weeds of large multifamily. Brian Murray. What's up, man? Welcome back and thanks for joining us.

Absolutely excited to be here again.

I know you are right. Anytime you hang out, we're excited, right?

That's right. Especially when we're talking about multifamily.

We're kind of like multifamily nerds, aren't we? It's a good thing to nerd out about. Somebody once said, by the way, I can't.

It was.

Warren Buffett once said, I could have been really. It was. I'm going to butcher the quote, but he basically said I could have been really excited and interested in like janitorial work. I just happened to be really interested in something that makes a lot of money. And I found that such a profound statement. Again, I know I butchered it, but the idea being like, I could have been really good at like underwater basket weaving and interested in it. I'm just so glad I got interested in multifamily that my fire is in multifamily. And I know, Brian, you probably feel the same way.

Yeah, yeah. It gets me charged up.

Yeah. Well, let's, let's, let's do this thing. David, any, any thoughts from you before we jump into the step by step of large deals?

Well, the first thing I want to ask Brian here is why should I be interested? What is the appeal of multifamily investing?

Wow. So there's a lot of reasons why I get so excited about multifamily. And you know, in the last episode, I made a reference to the fact that it's forgiving. And so I want to touch on that again because I didn't really expand on that. And you know, please. I think there's a lot of reasons it's forgiving. But. But one of one is that with large multifamily, your income is spread across so many different tenants. Right. So if you, if you make a mistake with a tenant with a single unit, if you've got 100 units, you're talking about a 1% drop in your income, right? If you, even if you mess up with three tenants, okay, but with, with the other asset classes, say commercial or retail, oftentimes if you mess up with a tenant, you might be cash flow negative and really dig yourself a hole. So the consequences of that mistake are magnified for other asset classes. Multifamily. I also love the people, right? I just, I love that aspect of it. A lot of people think it's easier to work with commercial tenants, retail tenants. You know, I, I've, I've, I've met awesome people who are retail and commercial tenants. But, you know, I've met some of the most difficult tenants I've ever dealt with are, you know, professionals who maybe frankly sometimes come across as super arrogant and demanding. And, but with, with multifamily, we get so many down to earth good people. And I know, I personally feel really good about providing, you know, good quality housing for them. I mean, we, you know, oftentimes in my company will refer to them and Brandon at Open Door Capital, it's, it's like we call them homes, you know, that's what they are, they're people's homes. And, and the larger you get, you got to have that motivation and that inspiration and providing great homes for people can, you know, something you could really feel good about.

Hey, Brian, I have a question for you. Why did you not start with the smaller deals like I did? You know, I started with the small, like a lot of duplexes and triplexes and like that small world, you kind of jumped right into the bigger stuff. Why is that?

It really had to do with, you know, I was doing the financial analysis and I was learning how to underwrite at the time. And you know, I was, I was underwriting all these smaller properties and looking at the numbers, I was like, wow, you know, I have to, I have to go through all this, take this risk, go through all this effort and look at, look at the small amount of money that's going to generate for me every month. And that was a little bit discouraging. And then I noticed that, hey, when, you know, if, instead of looking at duplex, if I look at a, at a, you know, a three unit or six unit, look how much better that looks, like I'm going to go through the same process. But wow, now it's actually something that could, could make a difference for me. And then as I got even Bigger. I remember I came across one property that a broker came back to me and was, and was explaining to me, hey, there's an opportunity. You could potentially get into this larger property because the seller is, you know, owns this outright, is willing to do owner financing. And I was like, what are you talking about? Like, I kind of figured that out and I realized that the bigger, bigger you go with the properties, the more common it is to have creative financing opportunities. And that got me really juiced up because then I realized that, hey, I thought that the savings that I had wouldn't go very far like that I couldn't be looking at big properties. And what I realized is it was in many ways just the opposite, because the bigger you get, there's all these, like, you know, what seemed to me at the time to be these crazy ways to finance it and structure it so you could get into them with less money. And then it's still looking at that underwriting. And I get to that bottom line and I'm getting really excited because I say, hey, these big properties could, like, throw off a lot of cash and really make a difference in my life.

So, yeah, that's kind of the process I went through even before I bought that first property. They kind of evolved as I analyzed more and more deals. And it just so happened that one of those larger deals landed and it helped me kind of reframe what I thought I could do. And I know.

I think it's in the very first chapter in volume two. You know, we'll talk maybe later about the myths, but, you know, there, there are a lot of. A lot of myths that people have and, and don't need to go into those right now. But, you know, I think. I think the bottom line is, like, I'm really passionate about explaining to people why they don't, you know, all those reasons they think they can't get into multifamily. You really can. There's. There's so many ways to go about it. And, and I love that.

Let's say that I'm sold on that and I want to start in multifamily. What skill sets do I need to know I'm ready to start at that asset class.

So I definitely don't think anybody should just dive right in without doing any homework or like, laying some groundwork. I mean, if you're already investing in small multifamily, you know, I think you're more prepared than you think you are. You know, What. What is 100 unit apartment complex? It's the same as you know, if, if you have owned a single condo, you know, how, how, you know, how challenging was that for you to manage? And most people could wrap their heads around that. If you can wrap your heads around your head around how to manage a single unit, why couldn't you manage 100? Right? It's just volume. It's not, it's not a different process necessarily. It's just, Just volume. Yeah. So, so yeah, I think, you know, that I want people to know that it is an option. You know, it's real, you can do it. And you know, that's, that's what the Multifamily Millionaire Volume 2 is all about. It's, it's not saying that large multifamily is for everyone. It's saying that it's an option and it's making sure that you understand that it's an option you can choose if it's right to you because there, there is a way to do it. And most of those reasons why you think you can't are there's actually ways around them.

That's cool, man. Well, one of the things I love about the larger multifamily, I just want to throw this in as well. There's a lot of things I love, but I love the fact that it is a business and it feels more like a business. I mean, it's, it's the same game we talked about the last episode. It's the same game as small multi. Like you're still dealing with tenants. Like you said, one unit versus 100. It's not much different. But the approach to large multifamily is so much more similar approach to, like if you own a chiropractor business or you own a McDonald's or you own a Starbucks, like it's, it's a business. You have goals, you have people, it's got personnel, you've got personalities in there. But it's this like the same business principles as almost any business apply to the larger multifamily. And the reason I like that is because it's designed to be a business that you don't have to be 100% a part of every single piece. In fact, I would say it's easier to own and manage a hundred unit property than it is a duplex. That sounds crazy. But if you invest, if you build the right systems, which is all what Volume two is all about is how to do that, it is less work to, to manage and to own and to buy 100 unit than it is a duplex, maybe not to Buy, I mean, buying a duplex can be pretty easy, but everything else.

Absolutely.

It's kind of crazy.

Absolutely. And you know, while, while I encourage everyone and I'm, I'm saying, hey, you can do it, that doesn't mean you do it alone. Right. So then I think you're alluding to that too. And I think an important characteristic for someone who's even thinking about jumping right into large multifamily is you have to have some humility. You can't, you can't be unrealistic. At the same time, I don't want people to be afraid of it. But at the same time, if you walk in, you know, like thinking you've got a cape on and wearing your underwear on the outside of your pants, like you're gonna, you're gonna.

Which I do.

You're gonna fail. Right. So having some humility and saying, hey, here's where my skill sets are, here's where my knowledge set is. What do I need to surround myself with to do this? You know, that that's the right way to go about it. So those people who have jumped in and they're jumping right into large multifamily, they're usually very self aware, they're humble, they say, hey, I want to do this. I know I can bring some value to the table, but I've got to partner with somebody who has maybe done this before or they've got something I don't have. And I think that's part of why, Brandon, you and I gravitated to each other to start Open Door Capital. We both brought different things to the table and would we. Whereas these books formed on the side of a volcano, you know, Open Door Capital started, You know, I think the first time we agreed to partner, we were sitting on surfboards and we were both planning to go into large multifamily at the same time separately. And we then, we recognize that, hey, if we, if we do this together, we could go so much further together than either one of us could on our own. And, and you know, I think there's a lot for people to learn from that.

Do you remember? I remember one of the very first conversations we ever had about multi, but possibly working together and again brings back the idea of the team based approach. Multifamily is very team based approach when you get to this larger level. But it was in the back. You were in the, I think it was, you were in the back of Ryan's van, which has like no seats or seatbelts, and we were driving around Maui. Do you remember that? It was at the Maui Mastermind. And it was either you or me were in the back of Ryan's van as we're like driving around doing something and we didn't have enough seats. Remember that?

Yeah, yeah, absolutely.

So our, our. We're gonna say that our multifamily partnership started in Ryan's crappy white van. That's great.

All right. Good stuff.

So good stuff. And yeah, so let's dive into that. I wanted to go really step by step today. You know, David, you and I talked about this earlier, but we want this episode to be a step by step. If you want to get into the larger multifamily, this is what you got to do. We did it last episode on the small multifamily side. So this one, we want to go the large. So unless David, you have any objection, why don't we just get into number one? Is that cool with you guys?

No, I think we should dive into this. What is the first step that people need to understand when it comes to buying large multifamily property?

Brian, what'd you got?

Yeah, so no accident that it's, you know, it's the same first step that we talked about in Volume one, Right. So if anything, you know, at an even higher level, and that's commitment. So, you know, if you just making the decision to, you know, casually, oh, yeah, I want to do. To want to do multifamily, just. That's not enough. Right. You've got to have a level of commitment. So while the income down the road, if you do this right, should be mostly passive, that doesn't mean there's not a lot of hard work involved. There absolutely is, especially on the front end. So again, you have to make that commitment. You have to want it. You have to be ready to put the time in. You have to surround yourself with the right people. And that requires commitment, requires hard work, requires sacrifice. It's not going to fall out of the sky, land in your lap. You're not going to just the next day wake up and have a 200 unit apartment complex. It is, you know, there is more to it. I'm not saying you can't do it, but just like in Volume one, just like if you're buying a duplex, you're going to buy 200 units. You got to make up your mind and commit to it.

You know, if I could, if I could add a piece here. You talk about this in the preface of the book. You mentioned this kind of story of how you gathered with, at this, like mastermind with a bunch of other real estate investors. I think even more than small multi, if you want to get in a large multi. I don't think that's even optional. I mean, I'm not, I don't know of any large multifamily syndicator or investor who doesn't and didn't regularly surround themselves with others that are also doing the multifamily thing. I don't know why that is. I'm sure there are the rare case out there, the Lone Ranger who's by himself doing this thing. But for me, for you and for most people, they somehow got into a group of people who were doing that, whether they paid for part of that group, whether they went to a mastermind, whether they just had friends in the area that they got together and talked. But have you found the same thing to be true?

Absolutely. And you, you share a great story in Volume One that's very similar. I think you were attending a conference when it happened to you. And for me, you know, I had a, my very first multifamily mastermind just being surrounded at that time with about 30 other very large multifamily investors. Those moments can be some of the most pivotal you could possibly have. So whether it's a mastermind or even starting at a local meetup or interacting with people on bigger pockets, you know, and, and I actually think even social media can, can be beneficial. You know, what you want to do is just, just kind of get that stream of information and, and surrounding yourself, even if it's virtually with people who are doing exactly what you want to do. It makes it seem more real. It gets you fired up. It helps with your mindset, and I think it helps with commitment.

I like that advice because when it comes to where do I start with committing, it might just be as simple as commit to getting yourself around other people that are doing this and see what organically sort of comes out of that.

Put yourself in those situations and good things happen.

It's way too early to talk much about it, but something we're hoping to do here in 2022 at BiggerPockets is we're going to find some more intentional ways at BP to get the larger, like the multifamily guys or the people doing dozens of flips every year, like, basically like the, I don't, I say, I hate saying a, like higher level. But like the investors that are like the professionals, we're going to try to find some more frameworks and groups to get those people Together more often within the bigger pockets community. So just, I'm just teasing that right now that something may be coming in the next year that's kind of cool about that that I'm really looking forward to because there's just such value in getting around people who are just doing big things. And yeah, I'm excited about that. I mean that's why I started doing the Maui masterclass thing out here in Maui. Right. So I could get around Brian. Like, I don't know if people knew that like Brian and I met because he came to my like mastermind, like out.

Out here in Maui and we got talking, we got hanging out and I got to see who he was. I'm like, man, this guy's killing it. Or I should say he's crushing it in commercial and apartments. It's great. So commitment huge and getting around people is a great way to get committed. So number two, what else do you have for, for step number two and getting into the large multifamily.

Yeah. So in volume one we talked about your three C's crystal clear criteria. And if anything it's even more important when we get to, to large multi family. So the, the depth of the criteria, some of the upfront research might be a little more involved. But you know, we're, we're starting with location and you know, everybody looks for different things but there's, there's certain things that you want to jump, jump out and consider. And probably the first is to look for, you know, consider what, consider local markets first. Right. So I think, I think that you can look nationwide and we do with open door capital and I do. But certainly all things given, you know, all things equal, proximity does have its advantages. And that has a lot to do with familiarity with the market, the specific neighborhoods where things are trending. So I always encourage people to start with that and if, if it's not a fit for you or it's, you know, maybe, maybe the trends aren't looking very good in terms of population, job growth. You know, those are some of the things that we look at very carefully. Then you can look, you can look further afield. Right? Because when you're doing a large multifamily, you're not, you're not going to be out there, you know, painting the sides of the, the buildings yourself. Right. This is, this is, you're, you're in the big leagues now. You're going to have a third party management company and those, there's quality management companies that exist for large multifamily in Most metropolitan areas across the country. So before you determine that market, I do think you look at things like I already mentioned population growth, job growth. You could look at other demographics, the housing market, you know, what's the average house selling for? We look at, you know, we always look at open door capital. We're looking at crime, right. We don't, we don't want to buy in a, in a sketchy neighborhood or you know, we know that there's going to be costs associated with that. It's going to be more challenging to rent. So you want to think about, you want to think about your location, you want to take a really hard look at the property, know what you want. The other thing, before I move on from location, like one thing we look, we've been looking at more and more lately is landlord tenant laws. Like there's some, there's some really alarming trends out there right now that are affecting large multifamily owners. Affects the small ones too. But when you're starting out and you're trying to address the location, I think it's a factor you need to weigh. Doesn't mean you can't be super successful in a market with difficult landlord tenant laws, but certainly will make your life a lot easier if you, if you end up in a, in a state with more favorable laws.

From, from that standpoint, things like population trends, they matter. And, and all the demographic, all that stuff matters with small, but not as much. Like I don't care. I mean honestly, this might sound even sacrilegious, but if I, I don't really care about buying in like, if I, I would buy a duplex in like an area that has a declining population, I'm not worried about it. If, as long as it's not like, you know, people are fleeing it by like the millions, but like an area that's declining population, it hasn't been growing very much. As long as the numbers make sense on a duplex, triplex, fourplex, I'm not real worried because I know that I like, I'm a very like one deal out of thousands or millions of properties in the area. It's just, I'm not horribly concerned about those big macroeconomic things. But if you're buying 100 unit or a 200 unit apartment complex and you're raising money and you're like, those things become really important like, because you're dependent upon like invest like your investors. Money's at play here. And if ma, if the demographics of an area, if rent drops by a hundred dollars a month and you have 200 units in an apartment complex. That's a lot of money you're losing every single month there because you didn't pay attention to the trends. And that's one of the things I liked about volume two a lot, Brian, is how much time you spend going into all of these things and why they matter. And I'll make one more point. A lot of people will ask the question, well, what's the best real estate market to invest in? And that's a hard question because everything you just named here, Brian, right? Things like population and trends and employment based crime, demographics, housing market supply, landlord tenant laws, valuation levels, proximity to retailers and all of that. And then knowing the fact that every area has, has sub markets that are better or worse than other areas. And so you can't just say this is the best market, it's got to be, what's the best market for your criteria? Right, it's, it's what do you want?

Absolutely.

And now you can go and do some research.

Yeah, absolutely. And you know, the other, the other thing that factor to consider is if you look at what the very best market are in the country, what are you going to find? Those are also the most expensive markets, right? Yeah. So the ones that come out on top, unless you factor in valuation and you say, hey, yeah, you know, everybody would love to have, you know, apartment complexes in the hottest markets in the country, but your returns might be really low and the competition might price you out and you might not be able to generate the kind of returns that you want. So you have to weigh all those things. And yeah, in volume two we go through that in quite a bit of detail. And then I guess the last thing to mention is just there's all these micro considerations. And I referenced neighborhood earlier. Every city, and most of the listeners already know this, but every city has a good area and a bad area and is trending in different ways. So you're going to do that macro look, but then you also have to look at micro, like you actually want to walk the neighborhood. You actually want to, you know, know what it's like at night, not just in the daytime. And see, oh look, it's, it's near a Starbucks or it's near, you know, it's, it's near another higher end retail place. And then you know that, hey, those companies with all these highly paid, really smart site selectors analyze that and they did some really hard work to figure out that's a really good location with a lot of promise and you're kind of validating your choice. So lots of things to think about, lots of detail in the book to help you with that further. And then you want to look at the property, right? So you got to think about what type. And.

Real quickly I'll just kind of share the list of the different property types. In large multifamily we have high rise, got mid rise, garden style, walk up apartments, manufactured housing which is mobile home parks, which Brandon and I are invested in a lot of mobile home parks. And then you've got all types of like special purpose housing that might be out there. Student housing, senior housing, subsidized housing is a whole nother area where you're, you know, might, might be HUD housing or other, other types of housing that you're getting that's affordable, that's getting some type of government assistance for your tenants that introduces a whole nother level of complexity into it. You want to think about what class of property you know, and, and so there's a whole classification system out there that's used which is A class, B class, C class, D class. And you know that that indicates different, different types of things about a property. And actually you know there's similar considerations with the small multifamily. I don't know Brandon, if you want to comment on the class types just.

Just that like there are different class types obviously. And so being paying attention to them, knowing what you're getting into and then knowing that like here's, here's what I would say about I guess property, there's area class types, property class types and tenant class types. And so the, the logic I usually make is the tenant you attract is going to be the average of the class of property and the class of like neighborhood. So if you're in an A class area, we have a D class property, you're going to get like a B minus tenant. But if you have a, you know, a B class property in an A class area you're going to get a B plus or A minus tenant. So just something to be aware of as you're getting into this is that like there are classes of people, classes of properties and classes of whatever. I didn't say you get the idea. Moving on, moving on.

So the way that I like to look at at multifamily versus single family, a quick way to understand it. Multifamily is more powerful, you will make more money over the long term. It's like a battleship, it could just plow through things but it also is much harder to change course with A battleship than multifamily, small multifamily, which is like a jet ski, you go the wrong way, you can shoot off to the side, it's not a big deal. That's why there's so much analysis involved in multifamily and why a book like this is so important. Because if you buy in a bad area, you've bought yourself a significant challenge for a long time that you can't do a whole lot to improve. And it's very difficult to get out of it. Just like a battleship, if it's going the wrong way, it takes a long time to sort of change course. So that's why it is so important that you understand what you're getting into. When you go after an asset class like this versus, you know, some of the single family houses that I buy, especially if I'm just going to rehab it, if I don't like what I ended up with, I'm like, well, I fixed it up, I made it worth more, I'll sell it to somebody else. And it's, it's kind of, you know, no skin off my nose or however that said. So this is a very important book.

Yeah, yeah, I love that analogy, David. And you know, I always think of it as swimming upstream too. It's like you're trying to make a difference with the property. You're trying to improve it, raise the rents. But if the, if the neighborhood around it is trending down and you're trying to trend your property up, it's, you know, you're swimming into that current. So, you know, I think of it in a very similar way.

It's a great point. It's a lot like being the one person in your circle of friends that's trying to improve your situation while everybody around you is trying to suck you back down to status quo. I really like that.

Yeah, absolutely.

Okay, next step is going to be structuring. So properties like this are obviously more complex. There's more pieces involved, which is good. That's why it's less work, because you have more people that delegate that work to. But that means structure now becomes important. Can you talk a little bit about what you've learned about the right way to structure these deals or how to do it?

Yeah. So, you know, like, one of the things we talk about in the book is something called a capital stack. And, you know, it's. Capital stack is one of those fancy terms that, that people high up in the, in the large multifamily field use, but it's really not that Complicated.

You know what it reminds me of, side note is when people say agency debt.

Yeah.

Or retrade, retrace another one. That sounds so much more cool than like when a single family person just tries to negotiate a better price based off the inspection report. Right, That's. Yes, there's a lot of that in multi family.

Yeah. Yeah. And yeah, I love that you, that you kind of, you know, added on to that because I'll say right now, if any of you guys who are going to get out into the large multifamily space don't get deterred by the jargon, you know.

Yes.

There's too many people out there who throw that stuff around. They use it to kind of try to intimidate or make themselves sound smarter. They are not any smarter than you. Right. They just, they, they love to throw those, those words around. And you know, fortunately we're, we're going to, we're going to teach everybody about what, what all that jargon means. And you know, you can throw it right back at them if you want to.

I love that.

So, yeah, capital stack, it's basically the combination of equity and debt that you're going to use to buy the property. Where, basically where's the money coming from? Right. So there's, there's a lot of different ways, but in a high level it's some combination of debt and equity, which is the cash that goes into it. And things can get, sometimes as you get bigger and bigger, there's, there's mult. There could be multiple sources of debt. There could be multiple places that you get that cash from. And if you, if you kind of layer them all up, you say that's, that's the capital stack. And the capital stack is usually ordered by the people who are kind of the safest and get their money first if something goes wrong. So on the bottom of the capital stack is usually that bank debt. And they've got the first rights and then they have the least amount of risk because if something happens to that property, they're going to be the ones that get paid off first. If they're made whole, there may be a second source of debt and they're going to be made whole next. And then you've got someone who put in some cash and then you might have someone else who put in cash under different terms. And so as you learn more about large multifamily, one of the things you'll be thinking about is how am I going to pay for this and what's that going to look like? How much of it's going to be paid through debt? How much of it's going to be paid with cash or equity?

Can you briefly describe the difference between debt and equity there?

Yeah. So debt, any source of capital that you're going to have to pay back. Right. So obviously the most common one would be a bank loan. But any, anytime you're going to use money to pay for your large multifamily, that you're going to have to pay back at some point. That's, that's debt. Equity is usually associated with some sort of ownership rights in the property or the rights to the profits that are generated from that property. So the equity is, it doesn't need to be paid back usually. And that basically entitles whoever's putting that money in to some type of either ownership stake in the company or rights to the profits that it's generating. So that's your equity versus your debt.

Can you give an example of, let's say there's a $3 million apartment complex. What would be an example of a capital stack? Just for people who are still maybe struggling to put together the jargon into.

Real world, I'll use a real life example. There's a property that Brandon and I are working on right now, apartment complex in Colorado. And the capital stack has basically three sources. The first is bank debt. And so we're borrowing money to purchase this. I don't remember the exact percentage right now that we're going to use, but it's a loan from the bank. It's going to cover somewhere in the neighborhood of 75% of the purchase price. And on the capital stack, that would be on the bottom. Because if anything were to ever happen and we had to liquidate the property because it went into distress or something like that, that bank is going to get their money back first. Right. And then above the bank on the capital stack is the equity sources. And in this case there's two levels, two different types of return structures. So that other 25% that has to be in cash, we're going to, we're going to raise from investors. Some of the investors are going to get preferred equity, and the terms for them is they're going to get a 10% return on their money every year and all the way up until we pay them back the money that they put in. So that's like a preferred type of equity. So that's next above the debt, and then you have your common equity above that. Those people are going to get every year they're going to get a 7 or 8% return on their money and they, they can participate in the upside like because they're, they're owners and they could go actually if, if the property goes two to three times up in value while we hold the property, they could make two to three times their money on it. So they're going to get that, that lower return but they get to upside. But the reason it's ordered that way in the capital stack is the preferred equity is, is taken care of first and they're going to get their money back first. It's a 10% return which sounds great but they're not going to participate in the upside. So it might sound a little complicated. It's really not once you kind of like get comfortable with it and gets a little bit of experience with it. But that's a fairly straightforward. There's three levels in that stack and you've got the debt, you've got the equity. Two types of equity all kind of layered in the order of who's taken care of first if things go south.

And here's where this gets, I'll add one more point the next level up I guess I don't know if you call this in the capital stack, but technically. So the, the bank gets paid back first there, let's say that 75% right. They get their loan back or paid back at the end of the deal. Then the, like you said that that first level of the, what'd you call it, the, the 10% people.

Yep.

Preferred equity. So they get their 10 make sure that those people get paid their 10% then the next people get paid are the people who got their 7% plus they get a, let's just call it 70% of future. And that can change and there's some complicated stuff we won't go into but. And then after all of that, after they get, there's a split the GP which would be, you know Brian, you and I and plus all of our partners that are in this deal get paid after all of that. And so what's people might thinking? Well this is really complicated. Is this all worth it? Yes. Because we're buying a 30 some million dollar property that we're going to turn much more valuable over time. It's going to go up in value a lot we're projecting. And so everyone gets paid out their money and if everything works the way we think it, we're going to walk with potentially millions of dollars at the end of the day. Like and I'm not saying like, like wow, look at how Great. We are. But I'm just saying like this, how great multifamily is, right? This is why we love large multifamily is because we put all these pieces in order and now everybody wins. The tenants get a better property to live in and we get managed really, really well. It's kind of mismanaged right now. So they get a better property managed better. The investors on the, they get the people who are more conservative, they get their 10%. The next layer gets a little bit lower, but they have more potential for hire. And then the GP is going to make a bunch of money and it's like a win, win, win, win, win across the board. Everybody wins. And this is why I love Mult. And you know what? For all of that, Brian, you and I have to work very, I mean overall open door capital takes a lot of effort as a big company, but on that individual deal, it's very little work. In fact, I would say it's more work for me to buy that duplex than it would be to buy this 30 some million dollar apartment. Which is why we love the large multifamily. I agree with all that. Does that make all sense?

Yeah. And you know, there's, it could be very rewarding to, you know, a lot of people have that fear of approaching people and raising capital. But what I found is it adds this whole other layer of like self fulfillment to know that we're going to make, you know, we're putting ourselves in this position to make this opportunity to build wealth for so many people. And you know, it's one thing when you're doing it just for yourself, but when you can turn around and make a whole group of other people wealthy and make a difference in their lives, you know, that's, that's really rewarding. So it's, it's not just about us. Right? So it's, it's, it's exciting to think about everybody else who entrusts their money and puts in the returns. They're going to get the potential upside, the potential to make a real difference.

Yeah, that's cool, man. I mean, just, just put in perspective one more thing, then we'll move on to the next, next tip here is. Yeah, think about this way. If over the next five or ten years you're listening to this right now and you go buy $100 million of real estate, you buy $100 million of real estate and you over, over the, the next few years, you turn that into, let's call it $150 million of real estate because you've added value, the rents have gone up, you know, whatever. You just made 50 million. And that's not an absurd proposition. Like, that's actually a very, like, normal thing. Okay, fine, maybe you only made $40 million. Now again, you're going to split that with your investors. Your, like, your investors, which we'll talk about here in a second. The people who gave you the money for that are going to get a sizable chunk of that majority of that money. But you might still walk with 5, 10, $15 million at the end of that decade. I mean, show me another business where that's. That, that, that's likely to happen. I mean, yeah, you might build some, you know, the next Starbucks, but that's so much less assured than multifamily real estate and large multifamily. And so many people do multifamily. And there's so much content out there. And step by step instruction, like the multifamily millionaire book. It's like, why is everyone in the world not doing this? I don't know, but it's pretty exciting stuff. Like there's so much to be made by helping everybody win. All right, moving on. So that was number three, I think was structuring, but it kind of played with number four. I know, Brian, right?

So my understanding, Brian, of what you said is you've got debt and equity, right? As the person who owns the asset, let's say that's Brian here, he's the general partner. You would prefer to give away debt versus equity. You'd rather pay an interest rate to the person lending you the money than you would give away equity in the property. So the majority of the financing for the property, say the 80% from the bank is done with debt. Cause that's better for you. Now you got to make up to 20% of the down payment. You could use your money or you could borrow it from other people. If you're borrowing it from other people, you're normally giving away equity. Is that a rough summary of what you're describing there?

Yeah, it absolutely is.

I wanted to clarify, that's what we're talking about. Now step four has to do with the way that you actually create the organization to support that model. Is that, am I understanding correctly, how you guys are doing it?

That's, that's right.

Okay, so let's hear what do you do when you're gonna create this syndication so that you're borrowing some money from the bank for debt, some money from investors for equity? And how do you determine who Plays what role?

So, and this is, this is part of the magic, right? This is one of those, this is one of those things that, you know, we talk about syndication. Basically. Syndication is, is a way of raising money from investors to pay for your deal. And, you know, I, I think that when Brandon and I both heard about syndication and we, we were on different paths, heard about it at the same time. But, you know, we've talked about this and I think both of us, and I, I definitely could speak for myself when I first heard about syndication. It seemed so complicated, you know, it. I. Yeah, I know. And you talk about jargon. You know, when people talk about different types of syndication, they're actually citing specific laws and regulations and they're throwing numbers around. 506B. 506C. And you're like, what are you talking about? 506B? What is that, like an apartment number? Or, you know, but it's, that's a specific law. And, you know, I, I still recall going to a mastermind. And I actually, I referenced in the book, and Brandon referenced it earlier, where I was with 30 other multifamily investors. And at that time, I was literally the only one in the room that wasn't doing syndications. And I was like, you know, people ask me, why, like, why aren't you doing it? And I came up with all kinds of excuses. I'm like, ah, I don't know, like. But the truth was I just, I was intimidated by it. I didn't understand it. It seemed complicated. It sounded really complicated when people talked about it. And since then, I've learned that it's really not. So there's, there's people, again, it's one of those things. You don't need to do it on your own. There's attorneys that can help you out, there's people that specialize in this. But basically what you're doing is you're forming a general partnership, and it's, it could be one person, it could be multiple people who are raising the capital. They're considered the general partners. And you're going out and you're offering equity or participation in the deal to our ownership to, to, to the people who are putting cash in to help you do the deal. And so that, that allows you, as a syndicator, to potentially buy a large multifamily property without putting any of your own cash in to buy it. So if you want to talk about, you know, is it, is it possible to buy a 100 unit, a 200 unit, a 300 unit apartment complex with property, no money. It is actually possible. And syndication is how you do that. So high level as the syndicator, you're the general partner. You have the, you have the liability. You're the one who's signing on the debt for the bank. But the cash is actually coming from other people who you're, you're involving in the deal. They put the cash in and they get a certain percent ownership and certain rights to the profits from the deal. And it could be structured in a lot of different ways. And there are securities laws around it that you need to get a basic familiarity with. I won't go into depth on that because it's, it's, it's all in the book.

It's in the book.

It's. But it's something you need to educate yourself on. The two, the two most common, they call them, I just referenced them, but you call, they're. They're a 506B and a 506C. 506B is basically. Well, I think probably the 506B. The most notable thing about it is you can't advertise it. It has to be with people you already have an existing relationship with. And so there's some limitations in terms of, you know, one thing to think about that you would say, well, why are, why are all these rules and regulations in place? And basically when you raise money from investors, it's almost like a stock offering. Like you're going out there and saying, I have an investment opportunity for you. And so that's why the SEC gets involved. Like they, they have certain rules, they don't. They want to make sure that people are not taken advantage of and that they're knowledgeable and that they can afford to make these investments. And so they have different guidelines that you need to follow. So if you're going to go out and publicly broadcast and try to raise money, then you actually follow a different set of rules. Rules. And you're going to follow what's called a 506C and you're going to make sure that you're responsible about who you're borrowing money or who you're accepting money from. And you have to have what they call accredited investors. And a third party comes in and verifies that they have the income and they have the net worth that makes them qualified to invest in your deal. The 506B, you have to have that relationship. But you can also, you, you can also accept money from non accredited investors. It's like family or friends that maybe don't have that high net worth or high income, but you have to have a preexisting relationship with them. So it's really not that complicated, but there is a lot involved. You have to figure this out or read the book and you can get all the information that you need. But that's the beauty of it, right? So who would ever thought you could buy some, some large apartment complex without putting any of your own capital in? But it's, it really is possible to do.

Yeah. If I can sum up just with an example, let's say there's a million dollar property. The bank says, okay, fine, you can buy this million dollar property, but you're gonna need $300,000 down. Okay, fine, you go get the $300,000 from some partners. They're the limited partners, they bring the $300,000 down and they bring the money needed to fix it up. If it needs money to fix it up. So you're doing this basically with no money. And I mean, we put money in all of our deals, Brian, you and I do, because we, we want to show our investors that we're committed, but there are syndicators who don't. And that's fine. But so basically a million dollar property, your investors bring 300 grand of that money and now the investors get a, a large chunk of it. Now they don't have rights to like tell you what color to paint the building. They don't tell you all that stuff. But they bring the money needed, you manage the deal and you just split profits. However you define it, that's how I look at a syndication.

Right.

Is that a good summary of like, why authentication? So awesome.

Yeah, absolutely.

And by the way, this same concept, just everyone's aware again, I've said this in the last episode and this one, the game is the same. Duplex, triplex, fourplex, 200, 300, 400 unit property. You can do the same strategy. In fact, one of my very first properties was a triplex. I didn't have the money for it. The property was $50,000. We needed $10,000 down, we needed $20,000 for rehab costs. I needed 30 grand. So I raised that from a partner. They brought all the money, we split the profits later on. Now we did 50, 50 later on. Now most indications are usually more like 70, 30, but regardless, it's the same game. So anyway, syndication is awesome. And a large piece of the Multifamily Millionaire Volume 2 is about how to understand syndication. So we don't need to probably belabor the point here, but the Point is, it's awesome. You guys will love it.

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So maybe we move on to number five. What do you got for number five? Tip or step here?

Number five is multifamily debt. And there's, like we referenced in the last episode, that there's some significant differences between small multifamily and large multifamily. But you can get some great debt terms for large multifamily. And that's another reason why I love multifamily is lenders love multifamily because lenders see that, hey, that's a stable investment and I'm not at, at high risk of losing what I lend. And so you can get some amazing terms from lenders on multifamily, but it's a different approach. And so what a lot of people do with the large multifamily is they engage the services of a mortgage broker. And so there's tons of mortgage brokers out there. And what they do is these are people who are very familiar with all the different sources of money that you could borrow. And they know that, hey, they can look at, they can look at the property that you're planning to buy and help you identify who the best people are out there to borrow it from, like which banks, which lenders are appropriate for it. And they know the whole lending process, so they can tell you what information they need. They put together a packet, and as you get more familiar with the process, you could assemble that in advance and take it to your mortgage broker and they're going to put it in a form that the banks like to see. They know exactly how it's going to be viewed and they can guide you through that. And in exchange, they take a fee when you close. So while there's several chapters that in detail outline the lending process, I think the most important thing to know is it's not something you need to navigate on your own. So it's not something you really need to be intimidated by because there's an entire industry out there of people who are just waiting for that opportunity to go out and help you figure out how to place that debt so that they can get their fees.

Yeah, that makes a lot of sense. And I know we could spend, you know, forever talking about debt, but I love that point you made there. There are people that do that.

So.

Right. Bring them on your team. Like, understand the basic principles, read the chapters in the book, do the research. If you have further questions, you know, Google it. But, like, there are people who do this, but a mortgage broker should be Somebody that's on your team. And speaking of team, I know that's number. What number six are we on right now?

Yeah.

Are you good to move to number six or anything else you want to say on the debt side?

Yeah, no, just, just that, you know, there's there, there are multiple sources, pros and cons to all of them. And you know, like you said, you've got, you've got that person to help you figure it out, so. Yeah, yeah, absolutely.

I really like how simplified you made that. Brian. The mortgage broker covers maybe 80% of the deal, and then you got to figure out how you're going to cover the other 20%. And that's where these syndication principles and stuff comes into play. It's really not as complicated as it sounds when we get into the intricate details.

Yeah, it's, it's not, you know, it's so great when you're, maybe you might not even know how much debt you can get, but a mortgage broker can tell you. They can look at the deal and they can say, no, this deal, you know, maybe you can only borrow 60%. And then you bring them another deal and they'll be like, I, I, I think I can get you 80%. You don't have to figure that out on your own.

So that's a great point. I really like that. And, and I think that's just something I want everyone to, whether they're single family, multifamily, small multifamily, big multifamily. There's so much of. I gotta know all the answers before. Like my chiropractor example thought he needed 20% down to buy a house in the Bay Area, which meant he would have needed around181,000, which takes a while to save when you've got educational bills that are coming due. Like, there's people like me that exist that have mortgage companies. So people will go to us and say, what do I do? And we say, well, we'll give you this much, you got to come up with the rest. Here's an episode with Brandon and Brian talking about how you can go cover it. It's that taking that first step, it is not nearly as scary as what people think. Once you get the experts which make up your team members, right, there's so, so many people are thinking they got to learn everything about real estate and they don't. You guys are a great example at Open, you don't do everything. You have a whole team of people that specialize in the things that are there. So let's, let's maybe talk about that. How do you build a team? What do you look for in a team? What is okay to expect somebody else to do versus what do you need to make sure you're doing to protect your investment?

Yeah, the first thing that I recommend is like, do it. Do a really good self assessment. Like, try, try to get honest with yourself. Where are my strengths? Where do I derive joy? You know, even if I'm good at something, if I'm going to be miserable doing it, it's not necessarily what my role should be. And then I think from there, you recognize, hey, I've got some gaps to fill. And, you know, Brandon, I think, you know, you talk to this often. I'd love to get your take on partnerships.

Yeah, you know, I, I am a huge fan of partnering. I mean, I have been since day one. I mean, my very first few properties, maybe like the first two, I didn't use partners, but almost everything else since then has been partnerships just because I, I know I lack in a lot of areas. I know there's things I don't do well, but there are things that I do do well. In fact, one of the reasons Brian, like, you and I started talking is because there's things that I like. I've got the social media presence right now and the ability to raise, you know, whatever. We raised $75 million in the past year and a half. Like, I can drive a lot of that, but what I'm not good at is being able to talk to a mortgage broker about mezzanine debt. Like, well, I don't know.

I don't.

Like, I'm not that guy that. But you can have that look. You look super smart. I walk in and they're like, hey, man, the shelter's down the street.

Right?

Like, there's two different skill sets that I have there. And so by partner together, we bring the strength of both of us into one thing. And that's why, like, for example, the deal we mentioned earlier in Colorado that we're buying, even in that one, we're not the only, like, we're actually bringing two different general partners partnerships together. Like two different, completely different companies. On that one, particularly, it's Whitney Sewell, who is another fellow podcaster, and us are doing a deal together because they have things that they're really good at, and we have things that we're really good at. So I just, I love partnerships. It's just, it's like, yeah, you may have to give away half your deal or 2/3 of your deal or 90 of your deal. But can you do 10 times more by giving away 90? Yeah, for most people. Or twice as much by giving away 50% for most people? The answer is always yes with the right person, absolutely.

And how great is it that you could actually take your biggest weakness or something that you absolutely don't want to do, and turn it into a strength? Like, and that's what partnerships will do. And I'll add one, one other thing here before we move on to the next step. But, you know, I started off, for the longest time, I didn't do any partnerships. You know, I think for the first 11, 12 years in real estate investing, I didn't have any partners. And to be completely, you know, transparent on that, I, I was lonely. Like, I, I, it's, it's a lonely road, like, and when you've got partners, it adds a whole nother dimension that you, you have a shared experience. And I love the camaraderie. You know, I love the partners I've gotten to work with and the relationships I've built. And there's something fun about playing a sport on a team, right? Keeps you accountable, keeps you motivated, and you can celebrate your wins together. And, and when things aren't going well, you can lift each other up. And so partnerships can be, you know, that's, that's the way to go. The bigger the deal, the more work and the more complicated it is, the more moving parts. And if you could tackle that as a team, it's very, it's so much more manageable. And frankly, if you get the right partners, it's so much more fun.

It is. I can. A hundred percent. I don't think this is talked about enough. We could do a whole episode just on this concept of, like, it's so much more fun and profitable. I mean, like, think about this way, you know, Mike Williams, who's one of our members on our team, and actually, when you buy the multifamily millionaire, the two books, you get a bonus content with an interview with Mike and Micah, another guy on our team. But let's just use Mike for an example here. So Mike is the friendliest guy you've ever met in your entire life for everybody. Listen, if you know Mike Williams, you're like, yeah, that's like the nicest guy, the best guy I've ever known. Everybody loves Mike. And, you know, Mike loves to do talk with people on the phone and talk about how awesome real estate is and talk about how awesome our company is and how good our fund is he just thrives on that energy. You know, my least favorite thing in the entire world is to do is talking on the phone with people. I hate it. Mike loves it. And so what's great is, like, now we bring Mike in. Mike gets to do that role that he is the best person on planet earth to do. And then we bring in Micah. He's the best person for that job. We bring in Walker, who's the best guy for that, and Jay and Tristan. And I'm leaving out half the people on our team. But everybody is so good at what they do that they're excited, they're having a good time. We do trips together. We. We chat, we get on the phone call. And everybody's an expert at their domain. And because of that, I don't have to do much like the stuff I don't like to do. And I'm having fun. And we're buying 10 times more deals than I could have ever bought on my own. Probably 100 times more. So anyway, I don't know. I'm just. I'm driving that point forward, but absolutely, it's. It's fun.

Here's what I would say to add some context. I hear a lot of people say I'm working my job and I don't want to get into investing because I don't want to have to be a part of a team. I don't want to give up a portion of what I made because I keep all my money right now. And what they don't realize is they are already part of a team by nature of having a job. You are working on someone else's team. You're playing a role in that business. You are not playing all the roles. What's your job? I'm an accountant. That's a tiny piece of that whole company that you are providing. You're on a team. So what you're saying is, I don't. I'll play on someone else's team, but I don't want to start my own team and be a captain on that team and own that team. And that's what's so ridiculous about that. Fear based. I don't want to share it. It's the sad thing is you're already on a team. You just don't own any of it.

If I could throw in one more piece and we can probably move on.

But when I'm thinking team.

And again, we go into each of these points in the book. But think about it this way, like in a typical multifamily deal, Somebody. And this doesn't have to be separate people. One person could do all these. Somebody could have two of these roles. Think of as like a role or a hat you wear. So there's acquisition, somebody charged acquisitions. They got to find properties. There's investor relations. If you're going to be syndicating, they're dealing with the money from investors. You got a financial person who's dealing with the banks and the numbers and all that. You've got what's called a kp, or key principle. That's somebody who has a. Who's rich, basically. It's like a rich.

They're basically backing the plays that are being made financial.

Yeah. If you go. If you go to a bank, you want to borrow $10 million and you're broke, the bank's gonna say no. If you go to the bank and you got somebody on your team who's got a million dollars sitting in the bank right now, just sitting there, they're gonna be much more friendly. So they're called the kp. You have an asset manager who's gonna manage the property manager later on. And then you have somebody I like to just call captain, like, who oversees the whole thing. Who's the captain, the coo, the president, the CEO. And again, one person could do multiple roles. But when you start thinking, and I'm probably missing roles in there too, I'm sure you could probably add more like legal and accounting and other things. But if you think about multifamily, large, multifamily in team, these are roles on the team. These are your quarterback and your. Your tight end and your wide receiver. It's like, oh, well, if we had a really a player at each of those positions, like, we could dominate the league and win the Super Bowl. Right. Anything you want to add on that, Brian, before we move on?

I think the only other thing is what you'll. When you. When you read the book, you'll see there's all different ways to have that, to assemble that team, to find that team. And some of them can be contracted out. You know, your team really might include your accountant, an attorney, a mortgage broker, etc. Etc. So you don't have to necessarily have, you know, eight people in your partnership. It might be two, it might be three. And you can have different types of arrangements. Whether, you know, in some cases it might be an employee or a general partner, or it could be a contractor. So the whole point is you're stronger leveraging other people's strengths than doing it on your own.

You know, The Avengers started off with just a handful of superheroes. They added to them as they grew. That's a great point. Yeah, that's great. That's what I. I'm over here trying to build the Avengers, right. I'm trying to build out my teams because that's the only way you can ever accomplish anything big. So thank you. That's a great point. All right, next step, finding deals. That sounds pretty important. Once if you have all these pieces in place but you have no deal to actually exercise them on, that won't help you. So what are the ways that you recommend people go about finding deals?

So things are a little bit different in the large multifamily world, but it really depends on the size of the property. So when we talk about large multifamily, like we talked about in the last episode, you know, we might be talking about 50 units, we might be talking about 500. And so just like with small multifamily, you have off market deals and you have on market deals. When you could find an off market deal for a large multifamily, you have this potential to get just an amazing opportunity. But the way it tends to work is the bigger the property, the harder it is to find that off market deal. Why is that? That's because there's so much at stake in that sale that you've got just brokers all across the country working their butts off, trying to get listings, building relationships with the owners of the large multifamily so that whenever they think about selling, they think about that person who's been calling them every month for the last five years and they're in. So it's much more challenging to find the off market deals. When we're talking about a 300, 400, 500 unit apartment complex, we're talking about a 50 unit, a 70 unit, a 90 unit, and even some of the little bit larger, you have a much more realistic chance of finding one that's off market, building that relationship. And in the book, we talk about some of the strategies that you go about doing that so you could find that off market deal.

It's great.

But I would say that overall, brokers tend to be a market much large, play a much larger role in the large multifamily. So one of the strategies is to really build those relationships.

Yeah, that's awesome. That's my experience that I found is it's easier to find an off market deal with smaller deals because there's less meat on the bone and so there's less people Chasing after that meat. There's not as many wholesalers out there trying to get that single family deal before you do as there are brokers who know if I can land that a big apartment complex, I'm getting a huge chunk of money. So there's teams assembled for that goal. How do I have a relationship with those people? And I've seen many people make the mistake of saying, I'm just going to go around the brokers, I'm just going to email that person directly. Those owners of 500 unit apartment complex are getting lambasted with people that are sending them letters saying, I would love to buy your property, I'd love to represent you. So because that's the case, the gateway often becomes that broker and it's that much more important to have a relationship with them.

If I could throw in one, one, one difference. Also a lot of times between the large multifamily and the small is that the bigger deals, like the bigger properties, I should say they aren't necessarily selling them because they're distressed. Remember in the first episode we did or the last episode we just did about small multi, I said that so many landlords are terrible and they're mismanage in their properties and blah, blah, blah. When the large multi space sometimes like the property has been performing great and they haven't been mismanaged, they're just at the end of their cycle or their mortgage, their loans coming up or their.

Syndication was created to be done in five years and so there's an unnatural event that they have to sell.

Yeah, correct. So sometimes it's not like there's distress here, it's sometimes just like, well yeah, it's just the right time for them to sell. They've maximized their return. They, they don't. They want to put their money somewhere else. And so, you know, I was just going to add that sometimes then relationships, if you're building relationships with brokers but also build relationship with other multifamily owners. In fact, I think one of the mobile home parks we're buying right now is because somebody knew that I buy mobile home parks and randomly found my phone number and called me, which always freaks me out a little bit when that happens. But they found my phone number online. Now I'm gonna get like a ton of them. And they're like, hey, I got this mobile home park, do you want it? And I'm like, hey, let's talk to my team. And I think that's actually one that we're buying is because it was Just like they knew what we were buying, it wasn't distressed. They're not, you know, mom and pop. They're another company who's just like, yeah, we're at this phase, we're ending, so let's save ourselves some broker fees and just sell it right to Brandon directly. And so the more you can network with other multifamily owners, also you can sometimes get, get properties that way. That just makes sense.

So, and you also have, I mean, on top of the brokers, you've got wholesalers out there. And it's same, same theory applies, like they're going to make a bigger payday if they land a bigger property. So like David said, I mean, right on the money, like these people are getting hit up. You know, if you, if you own a big multifamily, you're, you're getting hit up regularly from a lot of different directions. So that said, if you can manage to land an off market large multifamily, there's poss. And I actually shared a story in the book, and that's probably one of the best ways to break into large multifamily is you find that great deal. There'll be a lot of people that want to start working with you or place money if you have that great deal because they're so hard to find.

Okay. After finding deals, we're obviously at the step where we're going to have to figure out what do I want to offer on it, do I want to offer on it, and how should I make that offer? So what advice do you have for people that are at that stage where they are ready to write the offer?

So, yeah, underwriting for a large multifamily, you know, unfortunately, there's no way around the fact that, hey, this is, this is a little bit more complex than the small multi family, but it's doable. And the other thing is there's some great tools out there that'll help you do that. So you don't have to be a math whiz, you don't have to be a professor to underwrite a large multifamily. But you may want to invest in some of the software that's out there and readily available. None of it's really that expensive. So it's worthwhile investment. If you're more mathematically inclined and you want to try to build a model yourself, you can do that. But what you have to do is very carefully look at the, you want to look at the rent roll for the property to see how much the tenants are paying. And then you want to compare that to what are other tenants paying in the same market and figure out, hey, is there room for me to increase that rent or not? You want to look at the expenses and figure out, hey, you know, and we have guidelines in the book, the typical ranges for different type of expenses and figure out, hey, is there, is there opportunities here? Are the expenses unusually high? Can I cut them and create more value? Does it look like they're leaving common expenses out? So you can look in the book and say, hey, here's all the expenses that should be listed on the expenses, and if there's something missing, you have to add it back in. And then you're going to figure out what's my net operating income, which is the income minus the expenses, and that's what the value of the property is based off of. But what you're doing is you're looking at what's there now. You're looking at what the historical, historically it was so you can see how it's trending. You're applying some judgment about whether you have room to maneuver with your income or expenses. And then you're projecting, hey, what would my first year of ownership look like? What would my second year? And you bring that out into the future and figure out that from that, that's how you see what the increase potentially in that net operating income is and how much money you can make. And so what you end up doing that, that Chris, will go back to that crystal clear criteria that we talked about earlier. One of those is what kind of return do I need to get? And so if you know, hey, for example, I need to get a 15% return in order for my investors to put money in. Once you model out how much your income, how much your expenses and your net operating and how that's going to change year over year, you can then calculate what would that return be for everybody involved in the deal. Software can make that super easy, but that's what's going to drive your offer price, right? So you're going to say, hey, in order for this to achieve a 15% return, this is what I'm able to offer, right? So that's a little bit different approach than you take typically with a smaller multifamily, where you're saying, oh, this is the noi now let's, let's go ahead and calculate the value versus what they're asking. But you actually do it in return.

With a smaller one. I guess I should say you're looking at your purchase price and you're looking at what's going to result and then you kind of figure out what's my return going to be with larger multifamily. It's just a subtle difference. But you say this is my return, this is what my offer price needs to be.

It kind of goes. Well, as I say, it kind of goes what we talked about in the last episode about small deals and it applies for single family self storage. Doesn't matter. It's a real estate. Every property has a number that makes sense. Right? So the way that this might sound too overly simplistic, but it really is kind of the simple is we say what kind of return do we want our investors to have? Like how much money do you want? Do we want our partners, our limited partners to have? Okay, that's the number we want to achieve. Great work backwards. Boom, boom, boom, boom, boom. There's a purchase price and like that's, that's it. And like we go after it and we get 1 out of 10 roughly of our offers accepted. And so we just make 75 offers a quarter. And it tends to work out like.

It'S just another thing that people might be surprised who don't have experience with large multifamily. But most of the properties that come to market, they have no purchase price, they have no asking price. You know, they say they price, they say whatever the market will offer, that's the purchase price. So you actually, you know, sometimes if you talk to, if you have a relationship with a broker, a lot of times they'll say, oh, they call it like a whisper price. Or they'll, you'll say, you can ask the listing broker is there pricing guidance and they might give you a range of what they anticipate it's going to sell for. But a lot of people find that a little unnerving. You know what is very, very common with large multifamily, that yeah, this is for sale. But you know, you tell me what it's worth, I'll go ahead and offer some. Go ahead and offer. And you, you know, it puts the burden back on you to determine, you know, how much, how much is it really worth to me. So a little bit different. But yeah, actually that, that underwriting step is something that can take a long time when you first get started to, to build that out. But the more you do it, it gets better, simpler, you get more efficient. I mean we've got an open door capital. You know, we have our under. The person doing our underwriting right now is Jay. His name's Jay and he's, he's fantastic at it. And he's, he's gotten to the point that, you know, within a couple hours he could, he could tell you pretty accurately what a property is worth. If you're out there doing it for the first time, it might take you a few days of work to go through and, and really build out that, you know, and figure, figure out what you can pay or if you're doing.

A mobile home park and the owner doesn't even know how many units he has or what rents are like. Yeah, so, so here's the thing about, here's the thing about underwriting that is again very different than what I think people think. I think people think of underwriting as plugging numbers into a spreadsheet that is maybe 2% of what underwriting is because the difficulty is finding the numbers. Like, I mean you can put numbers in a spreadsheet any, anybody can do that, right? You could have a five year old kid saying put this number into spot C7. But it's, it's the deeper question of like, what are rents actually at right now? What could they be? Or what do we think the future is going to hold for this property? Or what could the water bill be like next year in the year after? So it's making those. And it's a lot of assumptions, right? We're making a lot of assumptions when we underwrite, but that's the best you can do. You, you do your best and this is why it is so important to understand your crystal clear criteria to have your, like your niche. This is what you do. Because the bet, the more deep you go, you go the mile deep on a certain niche or a certain type of real estate or multifamily in a certain area. And you can now make those assumptions a lot better versus if you're just looking everywhere all the time. You don't care what you buy. You'll buy any kind of real estate deal. How do you know what assumptions to make? But once you've analyzed a hundred of the same apartments in the same area, you're going to be way better at that. So again, start with your criteria.

And you need to, you need to tour the property, right? So a lot of your numbers are going to come from what you see while you're there, right? So if you're going to say, hey, is there room to make improvements in this property? And what would you have to figure out what that would cost? You have to figure out what you could charge if you fixed it up and one tip that I would offer is that having that third party management property involved during underwriting, that's, that's just priceless. Right? That can take a lot of work off your plate if you build a relationship with a, with a property manager who already knows the market, is probably managing competitive properties there and knows what the market will command. For one bedrooms, two bedrooms, three bedrooms in that part of town for, you know, different levels of finishes and things like that a good property management company will take, will help you immensely with your underwriting and they'll even look at your numbers and give you feedback on whether they think it's realistic. Property management companies, they're also the ones that know, hey, what, what is labor cost, how much, how much should your maintenance be in that market? You know, for a typical, say C class 30 year old property, what's reasonable for your repair and maintenance number? So that's just a, that's just, I think a really useful tip if you could, you know, we talk about building partners that are third parties. Property management company, if you find a good one, is priceless.

I love it, man, I love it. All right, well, we gotta get outta here in just a short bit. So let's move on to the last two tips quickly and just hit em. We don't have to spend a ton of time. We got due diligence and asset management. You wanna talk about those briefly?

Yeah, sure. So you go ahead and you get that offer in and if it gets accepted, you have a certain amount of time to do due diligence. And this is basically where you say, hey, I want to make sure that this car that I'm going to buy is actually everything I think it is. You get to look under the hood and maybe, you know, have, have the mechanic come in and check it out. You know, again, you could have that property management company come in, walk the property, dig it. You know, actually walk every single unit and really dig in. Maybe audit some of the, some of the financial information they gave you. There's third parties that can help you do that. Some of this stuff might sound real complicated, but if you, if you're noticing a theme throughout this podcast, it's that, hey, you don't have to do it alone. There's people who are experts in practically anything that sounds overwhelming. So yeah, due diligence, you want to be thorough. You want to, you know, this is where you really dot your eyes and cross your T's and say, hey, before I actually close on this property, you know, I want to make, make sure Everything's in order. And then asset management comes after the closing, right? So you go through your due diligence and then you have your closing and now it's time to run that property. So there's a lot of aspects to that. You know you're going to rely heavily again on a third party management company. And this is where you start to execute and look for ways to drive up that revenue, manage expenses. You hopefully will have identified some of that ahead of time, but you still need to execute on it. I think personally, one of the, one of the parts of volume two that I'm most excited about is the value add parts. So there's an entire chapter on different strategies to add value and we talk about repositioning the property. But then in addition, there's actually three fairly detailed long supplements about all types of tips and tricks to how to drive up revenue, how to add ancillary revenue like laundry, and different types of sources besides just rent. And there's an entire, entire supplement on how to cut your expenses on a property. And this is something that, when, when large multifamily investors get together, they always, they love to hear all those tricks of the trade. You know, how do you, how do you drive up that noi, which is what you know, that's how you improve the value of the property and get your return. There are well over 100 tips and tricks in those supplements to hit that NOI. So I'm super excited for the readers to be able to get in there and use some of those tips to make themselves a lot of money.

I noticed everybody wants to lose weight or gain muscle. Nobody wants to maintain the weight they've lost or they want to, but it's very difficult. We don't put effort into understanding that hitting that goal is not the end. It actually is the beginning. And I feel like asset management is the maintenance of the goal you set. You wanted this property, you wanted it to provide money, you wanted financial freedom, you wanted whatever. You've got it. If you don't manage it right, it's like hitting your weight loss goal and then going right back into being overweight or gaining muscle and then it atrophies. So many people ignore this component as if once you get to step nine, you're done. But this might be the most important component of all because you put a lot of money and a lot of time, a lot of effort, a lot of everything into this thing and if it's not managed well, you lost it all. So that chapter has got to be wildly Valuable. When it comes to people that have said, hey, I did it. You're like, great. Now the journey starts. This is how you maintain it. Because just like everything else, if you take care of real estate, real estate will take care of you. But if you don't, it's not a magic pill that it actually becomes a problem.

Problem.

Yeah, I. I couldn't agree more, David. You know, you're absolutely right. So many people, they leave that closing table and they feel like they crossed the finish line. And what you really did is you. You crossed the starting line. You know, it's the outcome of that property and whether you're gonna make money and be successful. That's day one is closing, so. And that's not to say everything leading up to it isn't important. Important. Of course it is. But, you know, now you're in for the long haul. This is. This is where, you know, the. Where you can really play out and make a difference. You know, are you going to generate fantastic returns, make a lot of money, make all this worthwhile, build generational wealth for yourself and your family? Like, this is where the rubber meets the road. So very well said.

Yeah, this has been. This has been phenomenal episode. I know we got really deep into the large multifamily. If you're still listening to this thing, that means you are a rock star. And I can't wait to see what y' all do with your large multifamily. Now, we're not quite ready to get here. I wanna. I wanna ask the one more question of you, Brian, and then move on to the famous four. But the last question I got for you is if you could really narrow it down. Just one piece of advice for people who are right now. They. They've been in small multifamily for a long time. They've been, you know, got some single families, maybe they've done some flipping, whatever, and they're thinking, you know what? I wanna do what Brian did, I wanna do what Brandon did. I wanna. I wanna buy a. I wanna do some syndication or some big deal. What's the one tip you can leave them with?

I think, you know, and I guess. I guess this would be, you know, probably one of your. One of your final four. But I just can't overstate the importance of the right mindset going into this. And you could point to a lot of different attributes that you need to demonstrate to be successful. But, you know, I would say the longer I've done this, the more I've realized that having you having that mindset of, you know, really believing in yourself, level of determination and grit to get it done. Like it's all, it's all about your mindset. And so, you know, I would say focus on that. And we already talked about ways to achieve that. Surround yourself with other people that are doing what you do and think about your purpose. You gotta want it.

I love it, man. Well, thank you. And with that said, let's head over to the last segment of the show. It's time for our Famous Four. All right, the Famous Four. The same four questions we ask every guest every week. And before I ask the four questions to you, Brian, or we ask them to you, I do want to say real quickly the, I've mentioned earlier, but I'll say it again now, the Multi Family Millionaire Volumes 1 and 2 are available now for ordering and for buying and we're going to ship them to your house. It's also available. We have the audio version on Bigger Pockets. You have the physical, you've got the digital, you got all that stuff and you can buy them on BiggerPockets. It's not that expensive. Like, honestly, for the amount of information you get, Here is over 700 pages of total content between the two books, plus hours and hours of bonus content, white papers, the mindset thing, plus the four week masterclass that I recorded back in July, we recorded four. I recorded a four week class on multifamily real estate estate and people absolutely loved it. You get that as well if you order before the end of August. So all that you can get@biggerpockets.com multifamily book again, biggerpockets.com multifamily book. Get that and more. And then take a picture of your book when you get in the mail, put it on Instagram. Tag us. I'm Beardy Brandon. Brian, what's your, what's your Instagram handle?

Crushing it, Brian.

Crushing it, Brian. And of course you can take David Green just for the heck of it at David Green 24.

Just for the heck of it.

Just the heck of it. Because we all love David. Question number one of the Famous Four. Other than your own, what's your favorite real estate related book?

So I don't really have a specific real estate book that I end up going back to, but you know, I always like to give a shout out to Steve Burgess apartment investing book because back when I first got started, I found that to be the most helpful for myself. I mean, it's been out for a really long time. But if I was to point to one that kind of really got me going and multifamily, like, you know, that's, that's one of my favorites.

When we wrote this, I think we even said that we're like, like our goal is to write a better book than that one and a few others that are really popular. Anyway, I hope we did because, yeah, there's some good ones out there, but hopefully we. We're going to be added to that list.

We'll see.

Next question. What is your favorite business book?

I. I read a ton of business books. You know, my, my favorite business book tends to be the one I, I read the most recent same. But you know, there was one I, I read last year that most people haven't read that I, I really enjoyed. But I'm a big fan of Charlie Munger. You know, he's born Buffett's partner and he wrote a book called Poor Charlie's Almanac. And it's, it's just loaded with, you know, I'm, I'm really always been a fan of value add. And Charlie Munger is really into value add investing. And even though we're talking about stocks versus real estate, like, I just found the stories in there really compelling and that I could really relate to it. And there's. He's just one of the most wise people that, you know, I've ever come across. So give a shout out to Poor Charlie Zelmanc.

Next question. What are some of your hobbies?

Well, my, my. My biggest, more recent hobby is I. I started trail running last year and.

I'm living in the Atlanta area now. And that's relatively recent for me. And I found that I really love to get up in the mountains and start running on trails. And that just grew. And I spent more and more time doing that and sort of culminated a couple months back when I did my first ultra marathon out in Oregon at a place called Smith Rock. So really enjoy getting out into nature, getting, you know, putting the electronics aside and tuning out for a bit and getting out there and hitting the trails.

If anyone has not done trail running, I can't hype it enough. I never thought I'd be into it. I mean, I run cause I have to. But I never liked running. I like trail running. It is fun.

Yeah.

I don't know how to describe why it's so fun. It might be a combination of having to look at the ground so you're not focused on how tired you are. You're looking at the terrain and looking out for rocks.

I think that's a lot of it. Because when you, when, you know, if you don't focus on where you're stepping, you're going to, you're going to take a dive. You know, you're going to take a spill. And to me, it helps you clear, clear your mind because it forces you to, like, all the other distractions go away. And plus, you're out. You're out in nature, and that feels good.

So. So thanks for sharing that. Brandon, you're up.

Last question. What do you think separates successful multifamily real estate investors from those who give up, fail, or never get started?

Yeah, so I'm going to go back, you know, not, not to, like, raise it too many times, but I really feel that mindset, a focus on mindset and making sure you're, you're constantly in alignment with where you want to go in life and believing in yourself and doing that. And so certainly if you, if you purchase the multifamily millionaire from bigger pockets and you get those bonus materials, absolutely worth the time to listen to that discussion about mindset with Jason Dries and, you know, Brandon, maybe you could maybe, you know, add to that.

No, I mean, I, I just think that mindset is the number one most important driver of almost any success in anything. I'll. I'll give an example. We interviewed a guy in the podcast a long time ago who flipped 100 houses his first year. And when asked how he did that very first year of investing, he said, I didn't know that's not the way you're supposed to do it. And it was such a telling story because, like, it just shows that, like, he didn't realize you're supposed to do like, one house at a time. And you're supposed to start small. I mean, supposed to. I'm putting in quotations here. Right. And so he just started bigger. And so, like, it's. The mindset you start at is, will determine the level at which you play at. And if you start at a higher level and you work on your mindset, improve your mindset, the results that you get because your actions change and everything changes. So your mindset changes your actions. Your actions changes your results. So take time to work on your mindset. It's, it's vital. It's the, it's so important. So, yeah, and I love that, Brian, you and I are on the same page on that, and I think that's why we make good partners.

Last question of the day, Brian. Where can people find out more about you?

Yeah. So feel free to reach out on social media. You can find me, you know, at Instagram, @CrushingItBrian. You can find me on LinkedIn, Facebook. So yeah, I'd love to hear from people. Awesome.

And of course, get the book@biggerpockets.com multifamilybook. Learn more about it there. We've got lots of good testimonials and stuff that have come in, so I think people like it and I think you will as well. So thank you everyone for listening to the show. Brian, thank you for being an amazing partner and an amazing human being. You're the best.

Thanks man. I appreciate you.

This was a crazy good podcast. We could sell this as a course if we wanted. That's how much information you guys gave about all things multifamily. If the book is 10% as good as this podcast, it's going to be a bestseller. So great job guys. You blew me away. Let's get out of here. This is David Green for Branded, the multifamily billionaire turner signing off.

Introduction if people aren't calling you crazy, you aren't thinking big enough. Richard Branson I just don't want to see you ruin your life, the broker said in a patronizing tone that made me want to reach across the table and strangle him. You seem like a nice guy, he continued, but it's pretty obvious you haven't done this before. Some very experienced investors have looked at this property and passed on it. You just don't know what you're getting yourself into. Maybe he had a point. After all, he was the big shop broker from out of town in a fancy suit who had been doing this for decades. And he was right. I didn't have a lot of experience and the property I had under contract was in distress. I certainly didn't fit the profile of a typical buyer. In fact, a small investor acquiring a property of this size was far enough outside the norm that some people might consider it reckless and inappropriate. Still, the way he said it really irked me, and that infuriating smile of his, I decided, was just a little too big. He may have been well intentioned, but he struck me as a bit too smug and condescending. I imagined if he had a puppy at home, he'd speak to it in the same way he was speaking to me. In fact, I half expected him to reach over and pat me on the head, maybe offer me a treat. As if on cue, his voice interrupted my thoughts. Would you like another donut? He asked, still beaming. In hindsight, I realized my negative reaction probably had less to do with his demeanor and more to do with my own insecurities and the hard truth of his words. Despite any displays of outward calm, under the surface, I was waging an internal war, fighting to suppress a cacophony of doubts and fears. I was trying to buy my largest property to date, and a lot of naysayers were making me second guess myself. Fortunately, while the broker's words played on my anxieties, they didn't deter me. I moved forward with the deal and eventually managed to turn that property around, creating massive value as occupancy improved, income climbed, and expenses came down. Even so, the broker was at least partially right, because when you take on a challenging project, it's never really as easy as just turning the property around, which almost makes it sound like flipping a switch. Although most aspects of multifamily investing aren't complex, it takes a lot of work and can be a bumpy road, to say the least. You can expect lots of trial and error and plenty of setbacks along the way. I did make a lot of mistakes, just as people thought I would, not only on my first multifamily, but on all the others that followed. Some mistakes were small, some were big, and while some may have been unavoidable, others were downright embarrassing. All in all, I've gotten a real education. The lessons I learned as I grew my portfolio would prove valuable over the long run, but they didn't pay the bills. Still, if I messed up so many times, how did I manage to pull it off? How did I avoid bankruptcy and not ruin my life as some people had predicted? While many factors contributed to my positive outcome, the most important is multifamily investments are forgiving by their very nature and offer a number of benefits that are unique within the investment world. The Benefits of Large Multifamily Large multifamily investments share the same advantages as most rental real estate, including wealth creation through cash flow appreciation, forced and passive tax savings, and amortization, which results in the accumulation of equity as you pay down your debt. Brandon calls these the four wealth generators of real estate, and for good reason. Given enough time, these four glorious generators can be further magnified through leverage and compounding to create abundant wealth. In addition, multifamily assets can serve as an effective hedge against inflation, provide diversification to your investment portfolio, and offer a degree of recession resistance not found in other asset classes, which we will explore in more depth in a later chapter. These are all advantages, but let's not overlook the obvious. The benefits you can realize by owning investment real estate are directly proportional to the size of your holdings. All things being equal, owning a multi family Property that is 10 times as large will generate 10 times the cash flow, 10 times the tax benefits, and so on. What won't increase by a factor of 10 the work that goes into it. That's not to say that investing in large multi family properties isn't a lot of work, but efficiencies of scale do come into play. For example, the work that goes into the underwriting, due diligence and closing of a 150 unit apartment complex is not 10 times as much as for a 15 unit complex. It might be closer to 50% more work if that. Other benefits of investing in larger multifamily properties include better lending terms than you could get for smaller multifamily properties. Diversification of income across more tenants, efficiencies of scale and operations, more opportunity to force appreciation through value, add more leverage in negotiating power with vendors, more well qualified buyers when it's time to sell, and greater interest from people who would like to invest in your projects. The income diversification aspect of large multi family properties is particularly important. Let's say you own a 100 unit apartment building and you make a mistake that causes you to lose a tenant or three. Most likely, the resulting 1 to 3% drop in income is something you can learn from without missing a beat. Most new property owners have at least a 25% cushion built into their cash flow, which if necessary can help them muddle through some pretty big gaffes, surprises or dismal circumstances. On top of that, if you have an amortizing mortgage, you're paying down your debt every month, which is building equity, in effect creating a reserve that could be cashed in someday in a time of need. Finally, large multifamily properties offer the advantage of allowing owners to force appreciation on an even larger scale by taking steps to boost income or reduce expenses. A change that might yield modest results in a smaller property, such as the installation of low flow plumbing fixtures or a modest increase in rents, can create surprising amounts of equity in a large multifamily. As already stated, multifamily properties tend to be forgiving by nature. They operate with momentum, and once they're headed in the right direction, they can power through most setbacks without significant consequences. If you make as many mistakes as I have, it's reassuring to know that it's going to take a lot to derail the train. Even though we took somewhat different paths, Brandon and I shared a penchant for finding ways to make improvements that paid some pretty big dividends. Right from the start, we both overcompensated for our blunders by constantly identifying problems and coming up with solutions. Unlocking value by fixing things, improving things, making them more efficient. It might be something as simple as installing higher efficiency light bulbs, or it might involve mustering up the fortitude to deal with unsavory situations. We have both tackled problems that would make most people's skin crawl all along, showing lots of love and attentiveness. Where before there was neglect, this value add approach turned out to be one of the keys to surviving and then thriving for both of us, especially early in our investing careers. By incessantly seeking out and implementing strategies to boost income and cut expenses, we were able to generate the cash flow we needed not only to overcome our mistakes and setbacks, but also to purchase additional properties and grow our portfolios. After we added enough value to a property, we would refinance it, pull out the cash to do more deals, which in turn continued to fuel our growth. That said, while focusing on value add, real estate investments can be lucrative and allow you to grow without raising outside capital. It isn't easy, and it's not for everyone. Over the years, as Brandon and I have grown our respective portfolios and expanded geographically, we both learned how to invest more passively by relying on the knowledge and experience of partners and third party associates to get things done.

Our earlier hands on experience has proven invaluable as we underwrite deals and oversee property managers. We've also realized the benefits of raising capital to fund our acquisitions, which has accelerated our ability to buy large multifamily properties while providing the satisfaction of creating wealth for others who invest in our deals.

The Downsides of Large Multifamily after hearing all the benefits of investing in large multifamily real estate, perhaps you're motivated to dive in. If so, we wouldn't blame you. It's a decision we've both made. But if large multifamily properties are so wonderful, why doesn't everybody invest in them? There are many reasons, but let's review the most common and legitimate ones. First and foremost, while investing in large multifamily properties can be lucrative, it's no walk in the park. This type of investing requires a lot of hard work and sacrifice. We've had the pleasure of meeting dozens of investors who have grown portfolios of 1000 units plus the one thing they all have in common, a strong work ethic. This should not be surprising as Hard work is a powerful force that can lead to positive results in any field of endeavor. In an interview with 60 Minutes, the actor Will Smith said, I've never really viewed myself as particularly talented. I viewed myself as slightly above average in talent. Where I excel is ridiculous, sickening work ethic among the highest achievers in real estate, you'll often find the same level of determination, sometimes bordering on obsession.

Even when the work is divided among a team of partners, there's always more to be done. That said, you have a choice about how far and how fast you grow a business. You don't need to have 500 units in the first year or 2,000 in the second, and you certainly wouldn't be expected to do everything yourself. Nor should you. There are plenty of excellent property management firms and other vendors out there who can make your life easier. Investors who are in it for the long haul need to have balance in their lives. Just know going in that if you want to excel in the multi family world, you can't offload everything. That may be disheartening for people who are under the illusion that real estate investing is an entirely passive activity. However, real estate is a business like any other and it doesn't magically run itself, especially in growth mode. Are there passive paths to wealth and multifamily investing? Absolutely. If you want to invest in a large scale but don't want to put in the work, you can invest in other people's deals. There are lots of syndicators out there looking for limited partners who are willing to invest in their multifamily projects. These investments come with no responsibilities or authority you just have to write a check. The downside of this passive approach is you won't have any control over the outcome, and there's generally less upside. That said, these limitations can be a fair trade off for people whose commitments or priorities won't allow for active involvement. The Myths of Large Multifamily in an ideal world, decisions regarding whether to invest in multifamily would be driven by an objective evaluation of the pros and cons in conjunction with one's own personal goals and circumstances. Unfortunately, decisions about large properties are often made for the wrong reasons. There are many convincing myths out there. Let's take a look at four of the most pervasive.

Large multifamily is too complex. While there are more moving parts to large properties and analyzing them is more involved, in most cases, they really aren't that much more complex than small ones. Most aspiring investors have heard this at one point or another, but Few actually believe it. When a new investor first enters a large apartment complex with an eye toward owning and operating it, they are likely to feel overwhelmed. The sheer vastness of the asset and fear of the unknown create anxiety which can drive people to discard the idea. When that same investor considers a single family home, a condo or a duplex, they probably feel a greater sense of familiarity and comfort. They have probably lived in a similar property and it seems more manageable. Most new investors feel they can handle a small condo. How complicated could it be? What is a 150 unit apartment complex? It's 150 single apartments. It's 75 duplexes or 50 triplexes. At a high level, the issues you deal with are the same. If you can manage a single condo unit, you can manage a large apartment complex. Especially since you're most likely going to have a third party management company to handle day to day operations. You can hire people to help with anything else you don't have the time for, you don't have the knowledge or skills for, or just don't want to do yourself. You can also partner. When you invest in a large multifamily deal, there's a lot more potential profit to split with other people.

Myth 2 Most investors can't afford to buy a large property this is a particularly powerful and prevalent myth, primarily because it's rooted in a grain of truth. Most people don't have enough money to buy a large apartment building. In fact, even investors who've already accumulated a respectable portfolio of smaller multifamily assets assets may not be able to make the leap on their own. But here is the real truth. The vast majority of people buying these large assets are not using their own money. They raise money from others and keep some of the equity for their trouble. In fact, in the world of large multifamily, the rarity is the investor who has enough cash to not need other people's money. There are many ways to structure the acquisition of large assets, and we'll review those in more detail later. Just know that cash is not a prerequisite for making a large multifamily acquisition.

Myth number three There are no good deals. The market moves in cycles, and valuations can be high or low relative to other periods in time. However, at every stage of the cycle, there's a seemingly incessant chorus of people predicting a pending decline or climbing, complaining that things are overpriced. The truth is that there are always good deals, regardless of where we may be in the market cycle. Of course, we should clarify what a good deal actually is. Since that can be clearly subjective, we would define a good deal as one that cash flows at a high enough level to generate returns satisfactory to the investor, with enough of a cushion built in to weather any storms you're likely to encounter along the way.

If you have a long term horizon and can lock in debt at an interest rate that will achieve these results, your downside is limited. A good deal should also have a potential upside that will allow you to force appreciation and increase the value of your investment.

Are there deals out there that can achieve these kinds of returns? While it can seem impossible at times, the answer to this question is always yes. The question is, how difficult are they to find? And how hard are you willing to search to find them? If you're relying entirely on public sources like the Internet and broker listings, finding strong deals can be challenging and you're likely to get discouraged. But there are many other ways to find deals, which we'll delve into later on Myth 4 you need a Ton of Experience this myth is also rooted in a grain of truth. Real estate investment experience is undoubtedly a valuable asset for diving into the world of large multifamily, but lack of it is not a deal breaker. We've observed that prominent investors can travel a wide array of paths to achieve their goals. Some start with smaller properties and work their way up using the stack method, which we outlined in Volume one. These investors begin with a small property and exponentially grow their portfolio by making increasingly larger acquisitions, gaining knowledge, experience, and capital along the way. Other investors team up with partners who have the experience they lack. Still others leverage valuable skills they acquired through an education or career that, on the surface, may seem entirely unrelated to real estate. Is experience valuable? Undoubtedly. Does a lack of experience preclude you from buying a large multifamily property? Absolutely not.

Large multifamily is within your reach. One of the greatest takeaways from all my experience with larger multifamily properties is a conviction that investing in large multifamily deals is within the reach of most real estate investors. There are ways to overcome any limitations you may face, as well as the mistakes you'll undoubtedly make. If you currently own rental real estate or have owned rentals in the past, you're almost certainly laid a solid foundation for moving up to larger multi family properties. Everything you've learned and experienced will improve your chances of success.

What if you haven't owned rental real estate and are just getting started? You'll need to dig in and really educate yourself, a process that by the way, you should never stop if you haven't already done so, read volume one of the Multifamily Millionaire, then read this book. Then go back and read them both again. You'll also need to network and build relationships because going it alone as a newbie is a recipe for disaster. You'll need to do a ton of work and take on the things that others aren't willing to. However, if you are determined enough, patient enough, and prepared to do whatever work is necessary, becoming a large multifamily investor and creating generational wealth is almost certainly within your reach. In the first volume of the Multifamily Millionaire, we discussed a common problem. Many real estate investors stay within their comfort zone for far too long. They get comfortable with their small portfolio or with no portfolio, and although their heart and soul yearn for growth and expansion, they stay small because their fear speaks louder than their ambition. This book is designed to be an antidote to fear. We want to arm you with the detailed, tried, tested and true knowledge you need to rise to your full potential. A decade ago, I didn't listen to Mr. Condescending Smile. Instead, I stepped away from my comfort zone and discovered an incredible life on the other side. May this book be your guide as you take your business to the next level toward becoming a multi family millionaire and creating generational wealth. Key Takeaways before deciding to invest in large multifamily properties, you'll need to weigh a number of advantages and disadvantages.

Common myths about large multifamily real estate are that it's too complicated, the properties are not affordable, there's no good deals, and you need a lot of experience. All of these may have a grain of truth, but are simply challenges that can be overcome.

Despite what many people say or believe, investing in large multifamily deals is within the reach of most small real estate investors.

River Apartments Part 1.

I still remember the phone call. The CEO of a real estate investment firm was going to be in town soon and wanted to meet me. His company owned river Apartments, a 115 unit multifamily project in the area, and they decided it was time to sell. Hopefully to me, the call was not entirely unexpected. The multi family property in question had caught my attention several years earlier, so I had reached out to see if they might be willing to sell. When they said no, I continued to reach out every six months or so. The message was the same every time I checked in no. And if we change our mind, we'll let you know. Well, true to his word, the CEO was now letting me know it can be difficult to find good multifamily deals, so I make it a point to plant seeds like this all the time. When the owner of a property I'm interested in eventually decides to sell, I'll be the first one they call and I can reap what I sowed. It's worked for me before and it worked again this time. During my meeting with the CEO, I discovered that the property was an affordable housing project that was currently operating under a contract with the U.S. department of Housing and Urban Development. This meant that the government was subsidizing the rent to help the residents afford their housing in exchange for the property owner was subject to a wide range of operating restrictions, inspections and reporting requirements. However, the CEO explained that the contract was about to expire. Knowing the local rental market, I thought that converting departments from HUD to market rate housing could be a great opportunity to unlock some value. Soon after our meeting, I entered into negotiations and started doing some preliminary underwriting. What I found wasn't pretty on the surface. Staffing was literally double what it should have been for a project this size, and maintenance costs were exorbitant beyond reason. The CEO acknowledged that there was plenty of opportunities to cut cost and used this angle to try to persuade me that there was upside potential, something that I was already sold on. He explained that his company was ready to pull up stakes in the area and wanted to make a deal soon so they could redeploy the proceeds to another project that they had lined up up. He encouraged me to look beyond the numbers, which were ugly. As it turned out, the seller didn't know the half of it. Things were worse than either of us could have imagined. Since the property was local, I asked around. Eventually I tracked down some of the contractors who were routinely doing work there, one of which I had an excellent relationship with. It was a painting contractor who gave me the first clue as to what was really going on at River Apartments, and it was shocking. What a mess this project was. Why did I like this property again? It was about to become a lot harder to remember. To be continued.

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