I am happy to announce that I recently closed on a 52 unit multifamily syndication in Fayetteville NC and like I always do with my deals I’m sharing as much information as I possibly can about how I completed the deal and with as much transparency as I can (while respecting the privacy of my partners).
First, thank you
First and most importantly I must give credit to those who deserve it most. Not only did I not do this deal alone I’m not even the most valuable person on the team. My partner Vijay works quietly behind the scenes as a powerhouse of organization and process efficiency and he carried me through this deal just like he carried me through our last multifamily deal. His commitment to the deal process is what gets us to the finish line and his calm nature is what lets me keep my sanity. My ability to succeed without him is probably near zero but in return I suspect he could easily replace me and do just fine, for this reason I work very diligently to earn my keep and I want to make clear my utmost gratitude.
My second partners on this deal were Jeremy and Robert from Climb Capital who helped me quarterback the closing. They brought a ton of knowledge and experience to get through the acquisition, they taught us how to streamline the purchase process for our future deals, they gave us the confidence to grow our business bigger going forward, and they brought tangible benefits to our deal as well (like a big balance sheet!).
Next, I’m grateful to the ~30 equity partners who believed in this team and this deal. Unlike my single family deals where I get excited to make money for myself, with multifamily I get excited to make other people money which is a much bigger ego boost for me. I look forward to the opportunity to send them checks, show them that I was a good investment, and create lifelong partnerships.
Maybe none of this may seem important related to how to buy real estate, but I assure you it’s actually the most important part. These big deals are a team sport and it’s unlikely you can do it alone, I certainly can’t, so I’ve found that investing in people is the most important part of the transaction.
Now let’s talk about what you really for, to hear about ME:
Trust me when I tell you that even if you're brand new to real estate, you can grow into this type of transaction just like I have. 10 years ago I was a broke idiot with no plan for life and a pretty bad attitude problem. It’s hard to believe I am now buying multi-million dollar apartment buildings and doing so with the trust from friends and family to be a good steward to manage their hard earned money. This took a lot of education, sacrifice, and a strong track record of success before I was able to confidently pursue these types of assets and to ask people for their money to do it with. When I started in real estate I would have never thought this type of thing could be possible for me, but then the 24 unit deal went well and this deal is even better so I’m now beginning to think lots of things are possible. For those who want to emulate what I’ve done here I assure you it’s possible for anyone.
Finding the deal
After I closed on the 24 unit in 2019 I knew I wanted to buy another apartment building but I was ok to go slow. I took my time so I could learn how to properly stabilize that first property and get comfortable with ownership. I didn’t want to rush anything as these deals are a lot of responsibility (the asset itself and other people’s money, both things I take extremely seriously) additionally, I’m a risk averse long-game investor. Once I felt mostly confident that I could do a larger deal, I started talking about it to everyone I knew. That’s how I make everything in life happen: I speak out loud what I want to happen and then it’s willed into existence.
Early in 2020 I was in Winston Salem NC with my friend Matt Faircloth who was buying a 336 unit complex and I agreed to do some video marketing for him. I wanted to practice doing this type of thing, and I knew if I could just be around Matt and his deals then I would learn a ton. Not only did I learn a lot he had a broker friend there who told me about an off-market deal in Fayetteville that perfectly matched my desired criteria, it seemed like the universe was working in my favor! (Having specific buying criteria in advanced was a critical part of this, more on that below).https://youtu.be/z-IhXIVvzdM
I started talking to the broker about the deal, I went to the asset to get a quick look, and started getting financials from the seller. We quickly realized they were over paying for property management compared to what I could get it done for because one of my long term boots-on-the-ground partners here in Fayetteville is a property manager, I also recognized that their units were pretty significantly below market values. It seems the seller didn’t really know or care about these inefficiencies because they were out of state and from what I understand about their portfolio it was a fairly small deal for them, but to me, I saw this as an opportunity to jump on.
Once we decided there was a deal we liked we stuck with it like glue. There were many times that we wanted to bail on the deal, or felt we couldn’t take it down which I think is very normal on this type of transaction. These transactions are big and complicated, there is a lot on the line, and we are still fairly new at it. Overall we stayed committed to the underwriting process, working with the selling broker, and ensuring to him that we could close and that stickiness is a big part of what got us to the closing table. From the time I found this property to the time I went under contract was about 5 months, and it took another almost 3 months to close. So for those that want to buy multifamily I recommend you learn how to get committed.
Things I did right
Had precise buying criteria
If you don’t know exactly what you’re looking for and why, then you’re essentially winging it. If you’re winging your deal then it makes it harder to stick to when the transaction becomes difficult and it makes it harder to get people to buy into your deal because you don’t really know why this deal was the right one. My buying criteria from the start was:
40-50 unit complex
6-7% cap rate
3-4MM purchase price
slightly below average market rents
Located in southeastern NC.
This deal fit exactly what I was looking for and I picked those criteria carefully because it would match well with my specific resources and talents. 50 units at a 6% was going to put me at ~3.5MM and I was confident I could raise 25% of that, so that's what I went after and that's exactly what we ended up buying.
Tagged in Jeremy
Tagging in Climb Capital was maybe the smartest thing I did to get this deal done. Lots of people in this business are egomaniacs, and while obviously I’m not one of them, asking for help is hard because we all want to do it ourselves. Despite my fond affection for narcissistic theater I promise that deep down inside I don’t give a single fuck about claiming a win for myself, all I care about was getting to the finish line so I could pay my investors a profit and Jeremy gave me a ton of confidence and resources to do that. Climb capital relieved a lot of the work burden, they brought money to the table, and it allowed us to get better loan terms which made our returns better. It cost me a portion of my interest in the deal to bring them on, but I don’t care about the short term money much either so for me it was a no brainer.
I believed in this deal from the start
I had lots of difficulties in completing this deal (which I will cover next) but one of the things that I did right was have a deal I believed in. I knew the market and local area very well, I knew the management team could execute our plan, and I knew it was a good fit for our goals. This is what prevented me from bailing when things got tough. If you try to close a deal that you aren’t mentally bought into then it’s going to be really hard to get to closing when things get tough because you’re going to doubt yourself and the deal. I loved this deal from the start and my conviction is what kept me focused on fixing any problems rather than thinking it wasn't the right deal and just going to find something easier, I always knew it was the right deal.
Things I did wrong
Struggled with the capital raise the entire time
I wrote out a ton of mistakes I made in my first deal (undercapitalization, deal was too small, incorrectly projected expenses, and shouldn’t have bought one bedroom units) and I’m happy to report I didn’t make most of those again! However like any transaction you make new mistakes, in this deal the capital raise was the hardest part for me. We did end up getting enough money to close the deal but it was close...really close...way to close for comfort.
For the 24 unit deal I raised ~$280,000 and it was quite difficult for me, but on this deal we raised $1,400,000 and in some ways it was actually a bit easier. Some of that is because I have a track record now, some of it is because the deal itself is better, and some of it is because I asked potential investors earlier and more often. What I found actually was that many people I asked too late and would have invested if they had a longer timeline, in the future, I’m going to be raising money throughout the whole year instead of last minute.
Depending on your situation you may have a harder or easier time raising money than I did, in some ways I’m happy this was the hardest part because it’s something I can fix. The deal itself was good, our investors liked it, and the bank loved the deal, the problem was just my process and now I just have to focus on improving.
Things I’ll do different next time
In the future, once the deal is under contract I’m going to start the syndication legal process immediately and then get the bank accounts in place so I can start accepting money immediately. A mistake I made on this deal was asking people to give me their capital, but then I telling them to wait because the account weren't ready. This is bad expectation management and it made my window for getting cash too short. I need to streamline the momentum for investors and widen my window for accepting capital.
Money raisers will tell you to raise more than you need because some people will bail out. I knew this to be true in my head but it still caught me off guard. I had enough money pledged by reliable people to confidently close this deal which is why I moved forward in the first place, but when the time came for them to write checks, many didn’t. This is normal, life happens, it happened on the last deal as well, but in the future I’m committing to raising at least 2x what I think I need in soft commitments before I move forward on a deal.
There were way too many people who are close in my social circle that I didn’t talk to about this deal because I assumed they wouldn't be interested and then ended up reaching out to them late in the process and had them tell me they would have loved to buy in if the timing was better. This makes me feel pitiful to be honest, so many of my problems were just bad process errors but on the bright side at least these are errors I can fix. Going forward I’ll be working more diligently to raise money through the entire year and staying close in contact with every single warm body that I know about the potential deals I’m working on. Whether it’s updates on current deals, education for future deals, or analysis for potential deals. I’m investing in the mental real estate of people’s brains going forward, I will not let this mistake stress me out again.
Build a better CRM
Aligning with my goal to raise money better, I’m going to invest in a client relationship management platform. This will allow me to more effectively communicate with current and potential investors. Organization is not my strong suit and while I generally don’t let messages get missed I know that as I grow this will become more difficult. Getting ahead of this obstacle is important and I’m going to fix it in 2021 for sure.
Create education for syndicators and investors
Two notable things happened to me during this process, first, I had other investors reach out to me who wanted to be part of the deal but they didn’t want to be limited (passive) partners, they wanted to be general partners. The problem is a general partner means they are taking on a job and putting in labor for the deal, most of these people didn’t have the experience or the resources to actually take on work we needed help with. In fact many of them just wanted the ego satisfaction of saying they were a GP but didn’t want to put in the time or take on the responsibility, but that’s a whole other discussion. The second notable thing that happened was many of the passive investors wanted to be part of what I was doing but they were still fairly new to multifamily syndications and they wanted to better understand the process. In 2021 I'm going to create education for the syndicator side and the passive investor side to satisfy both of these needs.
Education for the active investor helps create long term relationships because there are many situations where two active investors will team up to do a deal together, just like I tagged in Climb Capital on this deal because they had more experience. I plan to do more education to help fellow investors because if I add enough value and get someone started in the process they might tag me in one day to help them close. This is how partnerships are built, by serving first.
For the passive investor: I want my partners to feel confident about investing with me and part of that that means helping them understand the process and how I look at deals for value. If a person understands why I like a deal and they understand how the process works they are more likely to move forward quickly when they come across an opportunity. Also, people are giving me their hard earned money and they expect a return for it. What if I can provide people with education in addition to the capital returns and bump up the overall value returned for their investment. This makes them more likely to invest with me again going forward.
Things that made me grow internally
I really learned how to rely on partners
Single family investing is a bit of a team sport, but the wins and the work mostly rise and fall on the individual. This deal was much different as there is no way I could bear the workload by myself, it's flat out simply not possible, so I had to share the work and that means trusting people to carry their weight which is not something that comes naturally to me. Maybe I'm unique in this situation but I think it's probably quite common (which is why I am writing about it). You might think you have great partners but you won't find out until you're really relying on them to get things done, and on this deal I'm lucky and grateful that when I needed to rely on my team they came through with spectacular success.
This isn't just a brag about having good people, this is an important change in how I move towards my next deal. I can look towards bigger challenges and more complicated projects because I don't have to worry about bearing these entire burdens by myself, having the confidence that I can rely on my partners fully means I can move towards my next projects with much more confidence and that is a remarkable difference in approach.
I exercised my will to power
It wasn’t until I was really hungry, and not in an ambitious way but in a desperate way, that I began to hunt. Halfway through the raise it looked like I was really going to fail (which would have cost me the vast majority of my capital in hard costs) and at the time my peer group just kept saying “Don’t worry Alex I’m sure you’ll figure it out” which infuriated me to say the least. I know they meant well but it was just a lousy way to help. Things don’t just work out in life because you’re a good person or you gave it a good effort, life is hard and ruthlessly unfair and I find no comfort in comfortable platitudes. In fact this sort of fueled my anger and desperation because I was listening to my social circle say “you got this” which sort of made me realize no one was going to help me except me. Once I put this responsibility on my shoulders alone, I stopped hoping things would work out and started forcing my will upon the universe, only then was I able to succeed. Ironically, my friends are gloating as they think this is proof they were right all along but in fact, they are idiots.
("Will to power" is a philosophy by Neitszche and being obsessed with him for the last few years is part of the reason I was able to accomplish this. More people should read him instead of new age self help)
I realized the value of the skill itself rather than the unit count
One thing about multifamily investing culture I want to address is the popular dick measuring contest about how many units under management a person has. Many of my peers are in this business for little more reason than to brag about how many units they have and I find this to be a mistake regardless if you're an LP or a GP (passive partner or deal sponsor).
Here is the truth as I see it: the world doesn't care how many units have under management, the world cares whether or not you can lead and close a deal.
If you're a GP who's only part of the deal to raise money, you're only as good as the sponsor you attach yourself to and you're limited by the deals that someone else can find. For my friends who want to get in this business I highly recommend you learn how to underwrite your own deals, how manage the asset, how to read and write financials, how to find the deals themselves, and how to lead a team. Raising money is important too, but those who are just taking a check for brokering a capital raise are limiting themselves by not actually accumulating the talents to close deals.
Only the superficial and the short sighted care about counting units, the correct approach is to invest in your talents because your skills can scale infinitely.
I hope this helps
I don't know what you may expect from a deal review blog like this. I think sometimes people just want to see the numbers of the deal, because investor culture commonly resorts to what I call "return on investment porn", but seeing what we paid and made on this deal doesn't help teach anyone how to get their deal and it doesn't really have any bearing on how the deal itself gets put together. I wanted to provide a realistic story about what I did write and wrong and mindset changes you'll likely need to replicate my success here. So I hope I've accomplished that and if there is any content you wish I would make to help you, please reach out and tell me because it's actually much easier for me to make content that I know is in demand.
Thanks for reading, let me know if I can help you or you want to participate in future deals with me.