I've Bought 7,000 Apartments: Here's EXACTLY How I Find Deals in This Market

Doing this for about 20 years. Since then, we've acquired over 7,000 units. We've roughly got about $670 million right now in assets under management. And then last year, we closed one deal. Yep, one deal. Not for lack of trying. Doing this for about 20 years. Started in the single-family space, did pretty much anything and everything under the sun when it came to single-family, from wholesaling, fix and flips, seller finance, You name it. And about 8 years ago is when I completely transitioned all my focus over to multifamily. Since then, we've acquired over 7,000 units. We've roughly got about $670 million right now in assets under management. Of those 7,000, we've exited about 2,000 of them. We're in 7 different states. And that's my why right there is my family. Everything I do, Is to give them pretty much a better life and generational wealth. Okay, so kind of the market we're in, right? A lot of things being pulled, and here are some of the reasons why it's been so difficult to buy deals in the past, say, 2 years. Your margins have been pretty compressed. Your costs have risen like crazy as far as your cost basis on deals. So that's made it really tight with the numbers. The rising debt has played a very crucial part to it with the interest rates rising the way they did. A lot of the lenders not wanting to lend to certain assets, raising their or lowering their leverage has really made it difficult to make deals pencil. Seller expectations. So sellers were, I think the expectations are coming down a little bit, but for a while there, they were expecting these 2021, 2022 numbers. But not realizing that things had changed and there was no way they were going to get that same pricing. You weren't going to get peak market pricing with everything that had happened. So as of late, I think I've seen some of it myself where the expectations have lowered. Unfortunately, a lot of these, I guess if you want to call them sellers, can't lower the price because they're overleveraged and they have no equity in it. So that just makes it a whole other— Then one of the last things here is the lack of rent growth. So going back to, let's say, 2016 when the market was hot and every year thereafter, it was a lot about selling the rent growth and value add. You can raise the rents, catch it up to market, whether it's $100 to $400 per door that you're going to raise. And then you're also going to have 3% rent growth every year. That's pretty much been eliminated. In a lot of markets, you're actually seeing negative rent growth. And some of the reason is because we've had record high deliverables of units. So when the market got hot, all the developers started building units like crazy. And with all that coming online, you know, that's simple supply and demand. We've got a lot of units, your pricing's going to come down. So rent growth has had to come down, or rents have had to come down for units to stay occupied. So that all of that put together is kind of where we're at now and why it's been tough to find deals that pencil and made sense. With all that negative things I just said, I do think it's a great time to buy. I really do. You know, you do, you just gotta know how to find the right deals and that's kind of what I'm gonna go into now. You gotta be really cautious on your assumptions and whatnot. But as far as deal sourcing, I still think brokers are probably your number one in multifamily. They're the ones that are usually talking to these sellers on a constant basis. So you definitely want to build relationships with the brokers. I'll give you some more information on the next slide there, but pretty much you want to pinpoint the markets you want to be in, right? I think that's number one. You got to decide where you want to buy your properties. And then you got to go and look for the most active listing broker. So not just any broker, ideally you're going straight to a broker that's talking to the seller and listing that deal. And then stay, build a relationship with them. Go take them out for coffee, dinner, whatever it takes. I say that's number one. Number 2, you can do direct outreach. We've We've purchased several properties going straight to sellers. A lot of different ways to do that. I'll also go through that on the next slide. And then there's definitely some data you can use online. ColdStar, LoopNet. Yes, kind of LoopNet sucks, but there are some things you can do with LoopNet that could possibly help you find a deal. And there's a couple other ones. Okay, so here, I'm not going to go through all this, but there are some of the major brokers. So I'll say build relationships with the brokers. Those are some of the major firms. You can look and see if they're in that certain market that you want to buy and then reach out to them. You can try connecting with them on LinkedIn, sending them messages there. I mentioned LoopNet. So on LoopNet, you're going to find, sometimes you're going to find the smaller brokers, which I love smaller brokers, meaning maybe not one of these major ones, because if they do actually get a listing, usually they don't know how to price it and they don't have the outreach like one of these other firms do. So you have less competition on those deals. So we've done really well with those. Direct, like I mentioned, you can find the data for who owns what properties in what area, your search criteria. If you want so many units, plug that all into a CoStar or a Reonomy and it's going to spit out and tell you who owns it. It's not going to give you their email, unfortunately. It's going to give you some type of phone number, Doesn't always work, but you can then take that data, scrub it, and you can use other softwares that maybe help you find their email and then reach out to them. You know, you can. I've done mailers, mailers not so successful. More success just calling them and talking to them and seeing if they're interested in selling their deals. You can also do this with larger firms and developers. You know, they got to sell their deals at some point too, and maybe you can get to it before. They list it with the broker. And once again, less competition, that's where you want to be. The less competition, the better price you can get.

Okay.

So as far as key factors when you're looking at these deals, so if you do everything I just said on that slide before, you should have a plethora of deals coming in. And then how do you deal with that? So you've got to get really good at analyzing things fast, kind of like we were doing earlier. I'll show you, I don't know if it's in the next slide. I think it's the next one. You really want to have a, I call it a quick and dirty where you can just look at it within seconds and know if it maybe makes sense, right? And if it doesn't, move on. So that way you can go through these deals and you don't end up skipping over something that could have been a deal because you can't do this quickly. Value add, obviously that's what we're all trying to do here is buy these apartments, add value somehow. That's how we make investors returns and whatnot. So you gotta get really good at pinpointing that value add. It's not always just raising the rents in a market like this. I really think operational value add is very important. I think a lot of these properties are being ran poorly, and if you know how to run your operations, you've got a good management team behind you, you can add value just in lowering those expenses. Not necessarily having to raise the rents as much, and then make sure when you're doing these that that you're running several different stress tests. You know, ideally, your deal's cash flowing day one. That's really when you're able to lower your risk the most. When your deal day one is actually cash flowing, not even I'm not even talking about eight percent cash flow. I'm just talking about net cash, like giving you something. Where you start running into issues is when you're you're trying to add all this value and you're It's not going to cash flow day one. There could be a lot of money made in those type of deals, but you just got to be able to run the stress test and know how much risk you're running when you do those. And there's all types of your exit caps. You can run different exit caps, see what it looks like. You can see what your breakeven occupancy is. And I haven't gone through your guys' model, so I don't know what kind of stress test you have in there. But okay, so this is kind of Just a simple spreadsheet that we input our deals into as they come in. And then I've got this column here is my quick and dirty. That is as simple as just taking the rent. So I think I've got an example here. Yeah. So a deal, looking at a deal for, they want $100K per unit, and then the average rent is $1,300 per unit. Just simple math. That's going to give you 1.3%, right? I'm sure you've heard the 1% rule.

Yeah.

So it works. Look, I've tried this on, I've gone back and looked at all the deals that we've purchased historically and ran this test on it, and it all seems to work. If you're not hitting 1% when you do that, I wouldn't go any deeper unless there's a major value-added component to it. Because this is looking at day one, essentially. And then I've got another one that's a little deeper, which is the stabilized cap where you take the NOI and then your purchase, your all-in cost, and see where that lands, which I believe you guys were doing something similar over there. So I'm doing this before I ever pull out my underwriting model, right? And this is how I quickly go through a deal. If it looks good, then we go Go on to the next step. As you can see that top one, that's a deal that we currently have under contract. So some creative ways to structure deals, I think in a market like this is when you really get creative. When the market was hot, that was one thing that I hated about, and I've always, I've gone through 2 real estate cycles and just when the market's so hot, it's hard to really negotiate and get good deals. And it's kind of, you're competing with everybody else, but everybody's into the Everybody's buying. But now in this market, you're able to negotiate more and be able to strike some really good deals. And I think seller financing is a great way to make a deal make sense. We've done this on several deals where we're able to have the seller put in a good amount of money at a really low cost. So I'm talking about 4% on average is what we give our sellers. Joint ventures, that's a way to, If you could do some JVs, get somebody to maybe bring in all the capital and you find a deal, operate it, that's always a good way to do things. And then partnerships and co-GPs. I would say a good portion of the deals we've done have been with partnerships and co-GPs. And I think everybody in this room, you can kind of just structure that where maybe somebody's really good at finding deals and underwriting, and you bring somebody else that's Good at raising equity, or maybe a couple people that are good at raising equity, and then you've got somebody that's really good at operating it. Put it all together, that creates your partnership. A little bit more on partnerships. So just, you know, when you're putting these partnerships together, just make sure that— I think naturally we want to partner with somebody that we like and we get along with, and definitely do that. Don't get me wrong, but try to find somebody that complements what you're good at. You're going to be attracted probably at first to somebody that maybe is good at the same thing you are, but that doesn't make an ideal partnership because you don't complement each other. Be transparent when you're going through these partnerships. Make sure upfront everybody knows what they're responsible for. Everybody knows how they're getting paid, what fees they're getting paid on, what fees maybe they're not getting paid on. Put it all out there upfront. That makes the partnership a lot easier. I will say, treat it as a marriage. Once you guys partner on a deal, you're partners in that deal till the life of that deal. So you want to make sure that you can work through the hard times and the good times. Yeah. And then clarity, same thing I just mentioned. Okay. Some negotiation strategies when you're dealing with the broker or the seller, I think a lot of times the more you show them, so I know when we submit an offer to a broker or a seller, we give 'em our pro forma and we show 'em what we're thinking CapEx-wise, how we came up with our rents, and we go through it with 'em and let them know, hey, look, this is what we see. This is really what we think the price should be at, and here's why. Not necessarily just throwing them a price. And I've learned that they appreciate that and sometimes they'll Fight for us, right? With that seller and be like, "Hey, look, I know you wanted ten million, but it's really not. You're not going to get that. But these guys are ready to offer you eight million, and it makes sense." Be flexible on some things. So don't don't expect to to get everything on the negotiation. You know, really focus more on the on your main parts and be ready to give some flexibility in there. And what do I mean by that? You know, maybe. Due diligence, right? Let's say you want 30 days for due diligence, but you're trying to pay $1 million less. Okay, they'll take the $1 million less, but they want you to do your due diligence in 15 days. Maybe that's something you can be flexible on. Deal by deal, but just to give you an example. And then make sure you build credibility. I know for a lot of you, these might be your first deals that you're doing so that That might be a little tougher, but go back to the partnerships. Maybe you partner with somebody that's got experience and you can leverage them to create credibility for you. You know, you can also use your backgrounds or anything you have to really build that credibility. And that just goes a long way with the sellers. And sometimes it's not always about price, right? Sometimes the seller wants to surety of close. And the more credibility you can build, the better that'll be. Streamlining the execution. So my presentation tomorrow for you guys is going to be really stressed on this, so I'm not going to spend too much time here. But just once you have something under contract, you want to be able to move through it quickly. You can only do that by having all your ducks in a row and pre-planning some of these things. So I'm not going to steal my own thunder and I'll just skip to that one. So this is more of just being aligned with your team too. This will also help you move quicker through the deal. And just to give you an idea, every single Monday our team meets, all hands-on meeting. We get together, we go through everything. When we have an acquisition on board, these meetings are very crucial. So everybody's on the same page. We use software to keep everybody accountable for what they gotta be doing. Better lenders. Yeah, this steals some of my thunder for tomorrow, so I'll skip to that. Capital readiness. So having your capital ready is important too, right? I know a lot of times we'll focus on the acquisition and we're just thinking, well, if we find a good deal, the equity will come. I'm here to tell you that's bullshit. Sorry, but it is not true. Now you could be planting seeds and Then you could be getting the equity ready. And then when you find a good deal, yes, the equity should come. But if you're not doing those, that first part, they're not just going to show up. So make sure whether it's tapping into a network, building a network, that you're doing that, or you're finding a partner that's going to help you do that, whatever it is, just don't forget about that when you're focusing on the acquisition. Last thing you want to do, which I've seen a lot of, is do all this work, get a deal under contract, and then can't raise capital. That is the number one reason why a deal doesn't make it through acquisition, through the closing. I see it time and time again where the capital can't be raised. So yeah, just wanted to stress that. All right. Just to give you guys a little example here on an acquisition. So this is a Like I said, live deal. We put it back under contract this week. We had it under contract, I think it was late September. We went through due diligence. We found some things that were questionable. We wanted more information from the seller. They weren't giving it to us, so our deposit was refundable. So we decided to drop it. Seller decided to give us what we wanted once we dropped it. So long story short, now it's back under contract. It's 67 units. So it's a little smaller than, you know, for the past several years we've been doing more on the 200 to 300 unit range. But as this market kind of turned, I decided to start looking at some of these smaller stuff because I feel like there's less competition. in some of these. Not that I won't look at the 200, 300-unit ones, but I just kind of opened it back up to these smaller units. So we found this great deal. It's right by downtown Dallas coming in at 8.5 cap, which is kind of unheard of for Dallas, especially in this area.

Yes.

So story there, it came from a broker that we built a really good relationship with them. We Have not closed a deal with them, but we've— they've spoken at events of ours. We've spoken at events of theirs. We're constantly in communication with them. We've looked at several deals, submitted offers on several of their deals. They brought us this one. They knew we were looking for smaller units, and right away they brought this to us. We toured it, put it under contract. Average in-place rent is $1,600. I think market is around $1,750, and that's being conservative. We could probably easily get up to $1,800. It's 98% occupied. So I mean, this is going to be cash flowing day one. We're going to raise those rents slowly. So out of those 67, 19 of them aren't renovated. The other ones are renovated and getting the higher rents. So we'll, as those 19 units become vacant, we'll renovate those as well. And then a little bit of deferred maintenance and stuff, but overall it's in pretty good condition. And then this is just kind of DFW. This is one of our top markets. The reason we like it, the population growth, and you can see some of the nationally, what is this rent growth? I think that's DFW Metroplex is actually at a -0.8%, but this specific location, it's more at like a 2%, I want to say. And then yeah, just DFW, the job growth and the migration is like no other city I've really seen right now. We feel pretty strong on this one. 1.2% rent growth.

Okay.

So last thing on this one, just to summarize the deal, why we thought this one was a good deal. So you got the under-market rents, like I mentioned, right? They're getting $1,600. We know we can easily get $1,750 to $1,800 in rents. We've got the renovation upside on top of that where we can come in and renovate those 19 units. There's also, they're using a unit as a leasing office, which we've ran into that a lot and There's a maintenance shop that we're going to take that and create the leasing office there, sort of open up that unit. There's some other income things and operational things that I was talking about that we know we can come in here and operate it better, save some on the expenses, share some payroll with some of our other properties in the same area. And then operationally, we're going to bring in our in-house management and The construction company's going to come in, get the work done. We know it's going to get done for a good price, quality work. I think that sums it up. Give us some idea of how busy you've been, say, since COVID until now, and how you've seen the market growing or shrinking. Oh man, since COVID till now, I don't remember anything. I've not heard some deals. Yeah, yeah. No, we've Gosh. Okay. So heading into what the interest rates start spiking up at 2022, right? So from 2019, 2019 I think was our year we bought the most units. I wanna say it was maybe like over 2,000 units or so. And then 2020 was a little weird with COVID Then towards the end, we actually sold some properties and we didn't buy much. I think we ended up buying 1 or 2 properties that year. 2021 was another crazy year, getting close to what we had in 2019. 2022, I want to say we started the year off with several acquisitions and then it started getting a little bumpy with the interest rates. 2023, 2023, we closed 3 deals, I want to say, that year, which was really, really slow compared to the previous years. And then last year we closed 1 deal.

Yep.

1 deal.

Not for lack of trying. We were underwriting deals like crazy, submitting offers like crazy. It just, nothing was lining up. Like I mentioned there, the sellers were expecting prices that just weren't going to happen. And then this year we've been once again at it like crazy. And this is the first deal we have under contract. Anybody having any issues Trying to find deals.

Think about what's your bottlenecks, guys. This guy's blown past it probably overnight. Anybody else?

Let me rephrase that. What's the major issue running through when trying to find deals? You're actually on something because it's not—

you can, when you're on the phone with somebody, 25 years of sales, and they can hear your voice fluctuation. And when you're talking to somebody over the phone, you can tell if they're smiling or not. So if you make it more energized and like you're smiling on the phone while you're talking, I'm telling you, I broke down my biggest customers in my life, threw me out of their office many times. And it was the voice fluctuation over the phone where they're like, yeah, we're going to give you a shot. And I think it'll, it's got to work in real estate too. Be for people. I mean, When, when he was talking, you could tell he was smiling just by his tone. Um, when he was responding to you, he could, you could just sense it. So I would just say, you know, try to get a, a, a happier kind of smiley voice and, and even throw in jokes, you know, about, you know.

Ask Slayer for jokes. He's got 'em.

I was gonna take a stab at it for you and see, uh, I jumped in on the roleplay.

Okay.

Um, even though there's a lot of pressure, I feel as of late, I've been at the back of my head.

Oh, good, good, good, good.

All right.

See, it's with me all the time.

So now I'm gonna be president.

It should be easy for you, Dad. You're just talking.

All right.

Uh, ring, ring. Um, hey, is this George? Yes, it is. Is it Jorge? Is it George?

George.

George. All right. Hey George, how's it going?

I'm a—

won't take a lot of your time. I'm an investor in the area. Came across your property at 123 Main Street. Looks like you've owned that for a while. Congratulations on being a pretty good operator from what I've seen in the area.

Thanks, man.

Thanks.

I actually hate that property.

Yeah, they all give us headaches sometimes, don't they? So I don't want to take too much of your time. I'm actually looking to invest in the area. So if you hate it, are you open to receiving an offer? Is now a good time in the business plan where you might be looking to exit?

Sure.

I mean, it depends on the offer. What you offered.

Yeah, I could throw you out a number right now, but it'll be pretty low if I didn't at least get some more details on the property. Can I ask a couple questions about the property so I can give you my best offer?

Sure.

Okay. What's, what's your occupancy like, or what would you want me to know about it?

You know, I hate it 'cause it just performs so well. It's 100% occupied. You know, I, I don't have those numbers in front of me, but you want to send me an email, maybe I can send you over the rent roll.

Yeah, I, I looked up some stuff, you know, just online and what you're renting it out for. I could see it was built in 1960, so I can make some assumptions. But yeah, I'll send you an email just based off some assumptions.

All right.

Just know my offer's going to be kind of low, not having all the information right now, but the more information I get, the higher I could potentially go with my offer. So I'll send you out a number to get started and we'll go from there.

Sounds good.

All right. Really good job. I think if you would've said that it's 100% occupied and cash flowing, I would've asked you if you wanted to sell it. And then if you said no, I would've said, well, what's your plan in the next 5 to 10 years with the property? Because when you're following up with these sellers, a lot of the time they don't want to sell right now, but if you continue to follow up with them over time, then they might sell to you eventually. So that might be someone you want to build a relationship with and then just follow up with them maybe once a year. Like, hey, I talked to you about a year ago. You said you didn't want to sell your property. It was cash flowing. Is it still doing the same thing right now? Are you interested in selling it now? Because seller relationships are such a long game and if you do a really great job of maintaining your pipeline over time, those people are going to want to sell to you because you've built a relationship with them. So that's the main priority.

That's a great point. I didn't bring that up there, but a lot of the deals that we end up acquiring, it's constant follow-up deals that maybe even went under contract with somebody else and then That didn't close and we just were always following up to see where that, if that deal ended up closing, essentially. Eric, you had something?

Yeah. So usually most people are pretty, if it's any question you have and you're inquiring on property, whether it's a broker or seller, in my experience, but the most difficult one that I've come across is when they try to qualify you immediately before they send any information. So, you know, in a—

What do you do?

Basically, what's your experience? How much property you have in the area? Why are you investing in the area? A lot of times they'll ask you for like a schedule or, you know, a list of assets or whatever the case is to kind of before leaving with it, you know, to send you anything like— so in an event like that, that's probably where I've had to come feeling more creative. But here's the thing I try to do is try to cram as possible and I don't like to miss a lead either, right? So Or most of us that are new, how do you think we should tackle that situation?

That's where I mentioned building the credibility, right? I'm not sure what Jonathan, but I would tell you to maybe partner with somebody that has a little bit of experience, at least on your first deal, so that you can leverage Their experience. And you're not misleading. I mean, they're your partner, right? And just really leverage that because it is going to be a little tough if you come to me. It depends who you're talking to, right? Maybe a seller won't even care. Like, you can be straight with the seller, but a broker's probably going to try to qualify you on that end. And if you tell them, well, I don't own anything. But yeah, you got to convince them you're serious and legitimate. So I mean, what, or do you have any suggestions what that might be? I mean, if I call, I'm going to say, look, I know you probably get a ton of calls all in multifamily. I get a lot of calls too, and I really want to buy one here. Would you consider something like that just to give real quick credibility? Yeah, I would say maybe if you have maybe an idea of what the property, if you would mention something about the equity, like they look, We got equity lined up for our next deal and we really got to put it to use. It's burning a hole in my pocket right now or my investors' pockets, and we think this might be a good deal. That way they at least know you have the equity behind, or at least you're saying you have the equity behind it. Maybe that'll get my attention. I'm not sure. Yeah, that was a great one.

Yeah, because I think You're going to need a partner, right? If you're taking on a property, even if you have 100 units right now, if you're going to take on a 200-unit, right, you probably even need a partner, right? Whatever level you're at, if you're looking to scale to the next level. So saying the statement of, yeah, my partners and I are looking seriously at this deal or something like that. I've got partners that can be pretty aggressive with anything between $2 and $10 million as far as their capital. Deployment, you know, I love what he said. I mean, that's just saying, hey, I'm serious, right? And at the end of the day, that's all they really care about. So them asking you for your bank statement or whatever, that's just them saying, I don't trust this guy. You know, I don't know if they can actually do it. So it's really about the confidence and you telling them exactly what George just said.

Somebody asked me for proof of funds. I don't know if you guys run into that, but they're probably a wholesaler and they have no idea what they're doing. Like, that's just, people that are in multifamily know that you're not buying my $10 million property with $10 million in your bank account. Like, that's just stupid. So for them to ask for proof of funds. Yeah. Something like that.

For $10 million, I'd rather be on the phone with you than with Rick. One more question.

If you're starting over today, like you were just getting into this business, what is the one piece of advice you would give to people who are starting right now?

That is a good one.

Okay.

If we're sticking with acquisition, maybe like know exactly what type of property you want, what area you want to be in, and just get really laser-focused. And then that should help you find something and kind of stick to that. It's easy to get kind of, you know, squirrel, kind of just look everywhere. So yeah, just kind of get focused and know what you want.