Is Multi-Family Investing For You? Best Ever Advice You Need To Know

Hey, it's Mark Polska, the land geek with your favorite niche real estate website, www.thelandgeek.com. and today's guest has been on the best passive income auto podcast. But before we introduce him, I would be remiss I didn't properly introduce my co host, Scott Todd from Scott todd.net landmodo.com and most importantly, if you're not automating your craigslist postings, posting domination.com lanky Scott. How are you, Mark?

I'm great. How are you?

I'm ready to learn and learn and learn from the best ever.

He is the best ever, isn't he?

He is the best ever on lots of different levels. So I'm sure all the listeners know him because he has the best podcast too, because it's the best real estate advice ever. Joe Fairless, how are you?

Hey, I'm ready to learn from the best ever too. Who are we talking about?

All right, Joe, I'm excited.

I'm gonna bust out my notepad, I'm gonna take some notes now. Let's. Who are we talking to? I'd love to learn from them.

So, Joe, what have you been up to, man? I mean, you've got a lot going on. You got the best real estate investing advice ever book, which is amazing. You're teaching people a lot about commercial real estate. You're doing deals. So, you know, what are you doing right now? Like what, what's your focus?

My focus is finding the next acquisition for our, our business. And so I, how I make the majority of my money is I buy apartment communities and I syndicate those deals. So I partner with high net worth individuals, also known as accredited investors, and we buy them together. We are going to close on two apartment communities by the end of this month, early first week of next month. And that's going to be over 530 units.

How many units do you currently have?

Over 1400. So this will be about, this will put us at about 2,000 units when we close.

Why apartments? Why not, you know, a commercial real estate building? Why not single family homes? Why not land? Land? Yeah. Really, really simple.

Yeah.

Why go through the brain damage?

Yeah, well, I mean, we, you can make money in any type of real estate investing. It's true, because I've interviewed experts like you, my podcast, who do something completely different from me in terms of the type of investing. But there are certain fundamentals that are similar across all types of investing. From commercial properties, single family homes, I mean, we can make millions and millions of dollars in anything but ultimately it's what we first, I guess how we got into it. And I was doing single family homes. I saw that I was making 250 bucks a month on those homes and then I would have a tenant move out and it would cost me $5,000, which just happened this past summer. And that would wipe out all of my profits for a couple years. And so I really wasn't making 250 bucks a month. I was making that until someone moved out. And then, then I'm restarting again. I realized that while I had my full time job, so I wanted to go larger and scale larger. And that's the natural evolution for me was apartments. Probably because I lived in apartments whenever I was growing up for a little bit and then I was living in an apartment at the time. So it just was. Made sense. It wasn't as new to me as say raw land or fixing and flipping doesn't make sense for me because that's just not my skill set. And commercial properties that seem like a larger learning curve. So really it was path of least resistance. And then once I got into it, I enjoy it and it makes sense from a fundamental standpoint. Therefore I kept doing it and have scaled accordingly.

Scott, you ever get the, the itch, you look at one of these big apartment complexes, be like, you know what? I just listen to the best ever, you know, podcast. Joe's doing it, why can't I do it? Let's make an offer.

You know, I, there's an apartment building, I don't know why, but every time I pass, it's on, on the way to my house. You know, I pass it all the time. I always look over this thing and I like dream it's like 360 units. It's, it's a class A, right? Like the cap rate on that things probably like a 6 or 7, maybe a 6% or something. And you look at that, you're like, man, just I talked to somebody that worked there and they said that on an annual basis they raised the rent 50 to $60 a month. You know, just that move alone just increases the value of that apartment, you know, $300,000. And you just think like, man, if I just raise the rent 50 bucks a door in a year and it can make that much value, why am I not doing that?

Why aren't we doing it?

So what's your answer when you have that self talk?

You know, I like lands, but doesn't mean that, doesn't mean that I'll always stay with land, right? Like, you know, lands a good piece. But I think that there's other asset classes that, that you can, you can go do as well and, you know, do. Well, I think, like what you said, like every, you can make money in every asset class in real estate because people do it. You know, I think some asset classes are riskier than others. And I think multifamily is a good avenue because, you know, like you said, you know, one person moves out, it's not the end of the line. Your occupancy doesn't drop to zero.

And you know, just to use your example that you just mentioned, if they are raising rents, $50 a unit, and there are 300 units, well, then that's a cash flow increase of $180,000. 300 units times $50 times 12 months, that's 180,000. Divide that by, say, a 6 cap, and that's actually increased valuation of 3 million, not 300,000.

Yeah, you're right. You're right.

Yeah. So, and I don't, I don't say that to correct you because I know you're just, you're using math in your head and I sometimes say some crazy things even more so. But I just want to mention that that's the type of valuation that we're talking about when we do some value add deals in multifamily.

So, Joe, why doesn't everybody do multifamily? People ask me all the time, like, well, Mark, if land is so great, why isn't everybody doing it? Or is everybody doing it right? And then is the market ever saturated now in our, you know, our niche is so small in the sense that no one does land like you go to a RIA meeting. Yeah, there's 100 people, 99 or more are fix and flip. I'd imagine it'd be the same thing with multifamily. Just the sense that nobody thinks that big. Like, I don't look at a $10 million apartment complex in my, in Scottsdale, that's class A, think, oh, I could buy that as 6 cap, right? Raise the rents and increase my enterprise value by 3 million just in one year.

I don't know. I don't know why more people don't do it or, you know, what their reasons are. I think that's a little bit too broad for me to answer because it depends on everyone's unique circumstance. And I'd say naturally or intuitively, apartment investing will generate more interest than, say, raw land, because it's just talked about more frequently. That's really It. And for better or worse, right? It's great to be a contrarian investor as well. And there are ways you can be a contrarian investor and still do something that a lot of people are doing, like multifamily investing. And I again, I don't know if a lot of people are doing it or not a lot of people. It depends on what type of population you're looking at, if you're looking at investors or non investors or commercial people, whatever. But I think this brings up an interesting point to you can be a contrarian investor and still invest in an asset class that makes sense. And I'll give you some specific examples. One is we bought in Houston, Texas in August of 2015. We bought a 250 unit apartment building. And if anyone remembers what was happening In August of 2015, it was oil. And it wasn't good stuff about oil. Everyone was knocking oil and they thought the sky was falling with oil prices. Therefore, we were in a tough situation because we were under contract earnest money hard on a 250 unit. But yet every single news publication was talking about how Houston in particular was going down because of the oil crisis. And we ended up closing, but not before we had to switch lenders because our lender backed out at the last minute. And we had to find a new lender and get that situated while having our earnest money hard. Fortunately and surprisingly, we didn't have any investors say, ah, you know what, this oil news is just too prevalent. We're going to back out. I didn't have one investor do that. We ended up closing on the deal in the middle of the oil crisis and now we have the benefit of looking back 17 months or so. And we bought it for $14.1 million in August of 2015, and today it is worth over $21 million and it appraised for over $21 million. And we only put 2 million or so in it. So we're all in at 16 million.

And.

And it appraised for $21 million, actually 21.6 million. So we have a significant amount of equity in this deal 17 months later. And it's because we bought near. Well, we bought during a time when a bunch of people on the news who don't know a freaking thing about investing, we're talking about how oil prices are going down, Houston's going down, and they were talking unnecessarily about some stuff. And it fortunately worked out for us in the long run because we were able to return over 40% of investor equity after 17 months.

That's insane.

Yeah. You can look for opportunities, and I'm not saying find what the press is talking about, then go invest in that area. Because sometimes they might be right, but most of the time they don't know what they're talking about. They just, they're not real estate investors. They're simply copying what other people are saying and it's a game of telephone by the time it gets to them. And there's another example where when we invest in a hot market, like Dallas Fort Worth is a hot market, I think it's fair to say that you wait, we have to create opportunities. And I'll give you a specific example, another one I mentioned that I'm closing on over 500 apartments by the end of this month, early next month. We actually found that deal because we created that deal.

How did you create it?

One apartment community, over 300 units was on the market. So everyone, everyone saw that this apartment was for sale. Over 300 units. 90% of them were one bedrooms. Well, the prices for that was getting higher and higher. And we were like, I don't think it makes as much sense, but we visited the property and we looked across the street and across the street there's a downTrodden apartment community, 250 or so units, and it's primarily two and three bedrooms. So we ended up getting that off market, 250 unit deal tied up. And because we're able to do that, we could pay a little bit of a Premium for the 300 unit and combine the two over 500 units and play off of each other from a marketing standpoint and economies of scale with the operations.

Genius. That is some best ever real estate dealings for sure. So, Scott, what are your thoughts?

Well, I think I'm still thinking, like, why do people not do this, right? Like, why do people not go out and do it? And I think that one of the things is people don't really understand the process. You know, like they might be able to come up with the money or they might be able to find people that can invest with them. So, like Joe, you raised $2 million for the, for the one in Houston. Then what? I mean, I'm just going to walk into a bank and say, I need another $12 million, you know, loan. Is the bank gonna just give me the loan? I think that's where a lot of people struggle too, is, you know, the most expensive asset that most people ever bought is their house. And here I'm gonna walk in and ask for over a million dollar loan at A bank, you know, is how.

Do you do that?

Yeah. And just a point of clarification for the one in Houston, we put in capital improvements worth about $2 million in that property. We actually brought to the table more than $2 million to close on the deal. But then we invested 2 million to renovate the units, to paint the exterior, etc. But as far as you know, how you do it, it's. It really depends on who we're talking to. If we're talking to someone who is introducing themselves to multifamily investing, then it's a different conversation. I can give high level for both that person as well as, I mean if someone, if it's someone who has done some multifamily deals already, then it needs to be more granular conversation and we'd have to get lot more specifics from a high level. The mistake, I'll tell you a mistake most people make is they look for the property before they have the financing lined up. That's a mistake that is incredibly common and you'll see it on forums where people say, I'll just go find the deal and the money will follow. Well, that might make sense for single families, but I don't recommend it for multifamily and here's why. It's a larger amount of money and if you don't have the money, then you're going to go through what I call a character building experience. And I know that because I did the same thing on my first deal. I didn't have the money, but I found the deal and it was incredibly challenging and very, it was a character building experience. So what I recommend doing instead is getting the money lined up first. And here's the high level process. Because you asked about the process, here's the process. First you've got to know how to run the numbers and you've got to know what your goal is. So why are you, why are you in doing this in the first place? Once you know what your goal is and how to run the numbers, then you pick a market and you pick a market based on predetermined criteria. I recommend doing it based on jobs, job diversity, population and any natural resources like a port, like Jacksonville has a port or anything like that that will be present regardless of the economy. So you look at, you look at the cities and you find a market and then you get really good and knowledgeable about that market. So you know what the sub markets, what sub markets in that market are growing. You know what the rents for one, two and Three bedroom are. You know what type of upgrades are being done to command what type of premiums. You know all the different nuances of that market. And you do that by running the numbers on at least 100 properties in that market. And at that point you have established that you know what you're talking about, you know how to run the numbers and you know what makes sense for your particular market. Once you do that, then you start building your brand. And most and 99% of multifamily syndicators don't do this. But it's a mistake. We've got to consciously and methodically build our brand. And all that means is we have a website and we have a thought leadership platform. And that's the key. We've got to have a podcast like you guys have or I have, or a in person meetup at the lowest level, just an in person meetup where you bring in people to speak to your group, a YouTube channel or maybe even an email newsletter. That would be a very easy thing to do. But we've got to be positioned as a thought leader within our sphere of influence. And that certainly initially will not bring you any people outside of your close circle of friends and influence. However, what it will do immediately is position you as a person who knows what you're talking about to the people you already know. And then people you already know will come out of the woodwork and say, you know what? I've been interested in real estate investing. I'd like to talk to you a little bit about that video or about my situation. And that's going to help you command investor dollars. If you are looking to raise money. And I have a spreadsheet I'd be happy to give to your listeners. You can email infoferless.com and it is the exact investor spreadsheet that I use to keep track of my investors and the different columns and everything else. So just email infojoeferless.com and I'll get you that spreadsheet. Once you have the investor conversations, then you can look for deals. And one thing that a lot of people don't tell you is that you have to have liquidity and net worth in order to get approved for a loan. A lot of people might say, oh yeah, find some investors and then get the money raised and then you'll close. Not true. You actually have to have the liquidity and that liquidity and net worth to get the loan and what that requires. And this is in the spreadsheet, by the way. What that requires is for you to have either that a qualification or bring in someone to sign on the loan with you. And you have to compensate them for that. And there's different ways to compensate them for that. So at that point, we've got the loan lined up, the financing lined up, and then you got to do due diligence, which is a whole nother conversation. But do the proper due diligence. Know the difference between economic and physical occupancy. Physicals, people living there, economic people who are paying to live there. Huge difference. I've learned that the hard way on my first deal. And then you close on the deal and you rinse and repeat.

It's so, like, just awesome because the numbers can be so staggering in multifamily. Because, like what we talked about in the beginning, you just raised those rents 50 bucks. Right now you've got 3 million of enterprise value increased just in one year. And so, Joe, the question I would, I mean, it's getting a little granular, is if you're raising the money first, does that look like a blind fund? Right.

Yeah, yeah. You don't, you don't, you don't, you don't. Great question. Thank you for asking that. You do not have any money transfer to you. But when I say raising money, and thank you for clarifying this point, because I did not, but I should have. When I say raising money before you have the deal, all I mean is you get verbal interest. Yeah. I think what you're doing is interesting and it aligns with my goals and how you approach that investor conversation, which is obviously a long conversation than what I'm about to say. But I'll give you a highlight. At the beginning of the investor conversation, you always ask, what are your goals? What do you look for in investment? And at the end of your investor conversation, you say, if I find something that meets your goal of xyz, would you like me to share it with you? What do you think? They always say, of course. Of course. Yeah, of course. Yeah, sure. If you find something that meets the goals I just shared with you. Yeah, I'd love for you to share it with me. And then in this spreadsheet, you'll want to have 30% more of investor dollars committed or of interest than what you actually need to close on the deal. Because people, even though they verbally say, yes, I'm interested, they're going to go away and other people are going to come out of the woodwork and want to invest who you know and have a relationship with, but ultimately you're going to need to have a little bit more of verbal interest than what you think you need. And you are not exchanging wire transfers or anything of that nature before you have a deal unless you do a blind pull, which is a separate thing, different legal entity, different approach, but for a single purpose LLC that you will likely do. That's the approach that you'll take.

I love it.

I love it.

Well, Joe, we're at that point now, the podcast where we're going to put you on the spot.

Sweet.

And ask you for your tip of the week. A website, a resource, a book, something actionable where the art of passive income listeners can go right now. Improve their businesses, improve their lives. The advice you've given, I hate to say it because it's such a cliche, is probably the best real estate advice ever, but I'm going to ask you for one more tip.

I would say that the tip would be if you are focused on apartment investing, then there's resources available that are free, that you can get access to. And I'd be happy to. I have a resources guide that I keep up to date continually and it's podcasts, websites. I'm not just gonna give one resource, I'm gonna give you the whole freaking guide. Podcasts, websites, books, different blogs that I recommend. Some contrarian investing type of blogs that some of my largest investors who have, have invested over $14 million of their family and their money and my deals, they, they go to and they read this, this apartment resources guide. Email infojoepherless.com and I'll get you that guideline and that will be the tip times 50. Because there are about 50 different resources on there.

Scott, I would say that's the best tip ever.

I think so. It's gonna dwarf mine. Can we just skip mine?

No, no, we gotta put you on the spot too.

All right, Mark, check out this website. Calligrapher. Alright, Check this out with an R.

How do you know how to spell calligrapher? Is that two Ls?

C-A L L I G R-A P H R.com calligrapher.com.

Wait. C A L L I G R G R A P H R dot com. All right, I'm there. Fill out the template. Enjoy. Your handwriting is a real font and be great. Wow, cool.

Yeah, look at that.

Well, yeah, but my handwriting is horrible. Well, they'll help you.

I don't know what to tell you about that. Get your wife to do it.

Joe. Fearless. What do you think of Calligrapher?

I don't know. I like calligraphy, so I'll check it out.

All right. You know what? Not a bad tip. You know, it's funny because we were just talking about glue gifs, and if you send people handwritten notes, it really goes a long way.

Yeah.

So my tip of the week, I think, is going to be the best tip of the week, even though Joe's is, like, on steroids. Because it's more joe. It's joeferless.com and if you go to the website of joefairless.com and I have a link to it, you've got the best ever show. He's got a mobile app. If you really want to get deep into multifamily investing, you can work with him. He's got his blog, he's got, you know, the books Volume one and Volume Two, and it is the best real estate investing advice ever. And, you know what's even the best thing about his podcast is he's had an amazing guest on there called the Land Geek.

I knew that's where you're going.

Listen to that.

I really did. I thoroughly enjoyed interviewing you the multiple times I've done it. And we'll do. We'll keep doing it because you teach me something new every time about an area of investing that I'm not that familiar with. So I love learning from you. Yeah.

And vice versa.

Because.

Scott and I are very interested in multifamily. And I think, Scott, you might disagree. I think land is a great gateway drug into going into bigger things, into real estate, because the advantage that multifamily has over raw land, maybe we can flip and make a million dollars, but we can't raise a rent and over five years, create enterprise value of 10, $15 million, pay off our investors 40% or whatever it is, they love us forever kind of thing, and then keep doing that. What do you think?

I agree. I think that there's other things that multifamily has that land doesn't. Depreciation is one of them. It's something that, you know, Joe didn't talk about, but depreciation is huge. You know, the. The fact that you can raise rents and get the, you know, get the. The appreciation value up, and then the fact that the tenants are paying down the mortgage. All the. While, you're making money. You're getting money from all four quadrants, cash flow quadrants.

Right, right. Yeah, absolutely. And there's a book I have on my. My table called Principles of Real Estate Syndication. And great book, too, if you want to Learn more about syndicating deals. So, Joe, are we good?

We're good, my friend. And as far as the syndication stuff goes, multifamily syndication dot com. I've got a page with, like, 40 YouTube videos all on multifamily syndication, as well as probably, like, 40 articles for people who are wanting to learn how to raise money and buy apartments with investors.

Oh, fantastic. Because I have to tell you, that book, Principles of Syndication is, like, so dry.

Is that genes? Yeah, yeah, that's. It's. It's. I love. I love the dude. It's. It's just a little tough.

It's a tough read for sure. All right, well, I want to thank all the listeners. Look, just quick reminder, the only way we're gonna get Joe Fearless back on the podcast is if you do us three little favors. You gotta subscribe, you gotta rate, and gotta review the podcast. Send us a screenshot of the review to supportlandgeek.com we're going to send you free the $97 passive income launch kit. I remind everybody, today's podcast is Sponsored by posting domination.com TheLandgeek Automate your Craigslist postings today. Scott, you ready?

Let's go, Mark.

One, two, three. Let's freedom ring. Oh, Joe's like, really?

I thought I was about to get jumped. Electro virtually. I was starting to get my fists up.

Right, right. You know, Joe lived in New York. He's jumping. He's like, wait 10 years of New.

York City and one year of Brooklyn. We'll do that to you.

Yeah. If we could figure out how to get someone to jump out from Joe's door right when we did that.

Oh, no kidding. All right, Right, Exactly. I didn't know Joe knew Jiu jitsu. Like, I got kind of scared there at the end. All right, so. All right, well, thank everybody. And Joe, again, thanks so much. Really appreciate it. We'd love to have you back. This is such a deep topic, and it's just fantastic. So thanks again.

Really enjoyed it. Talk to you too soon.

All right, thanks, guys.