When starting out in multi-family investing you lack experience and if you are wise you will try to learn from the experience of other seasoned investors.
The following article contains 10 great lessons learned by seasoned investor Henry Lai.
Henry Lai is the president of TNE Capital Group. He started as a house hacker and is now a general partner in 1,749 multifamily units in Texas and Florida
These are his top 10 things he wishes he knew when he started in multifamily investing shared at the 2019 multifamily investor nation summit.
1. Multi-family Is an Uneven Playing Field
The feeling that I had when I started was, that so many people have the money, connections, relationships and track record in multifamily what could I possibly offer?
The reality is that it is really hard so you have to find the partners with the money or the track record or both.
Lenders want to see at least someone on your team that has done a similar kind of deal successfully before. Joining a multifamily group can help you to level up the playing field.
2. Multifamily Is Not Very Prominent on Bigger Pockets Or Many Real Estate Meet-Ups
He feels he wasted a lot of time networking with people who are interested in real estate but they are not really at the stage where they are ready to invest in multifamily.
He acknowledges that on Bigger Pockets the multifamily side of things has been growing for some time now.
Go to actual multifamily conferences and meet-ups and if there aren’t any locally then why not start your own? He suggests.
3. You Can Really Learn a Lot From Passive Investing
As a passive investor you can ask a lot of questions of the sponsor: the market research, the underwriting, the appraisals, inspections, property financials etc.
You can ask for one on one education, explain that you really want to understand how the deal works and they will spend time with you and explain.
You also learn how you should communicate with an investor in the future when it is your deal.
There will be things you like and things you don’t like. You can learn from that.
Get to know a lot of sponsors through conferences etc.
Ask sponsors about a deal that you are considering, obviously not one of their own deals.
Ask them what the strengths and weaknesses of the deal are.
Get an FAQ list and ask the sponsors of a deal you are thinking of being a passive investor in, ask all the questions until you feel comfortable.
4. You Really, Really Need Great Partners to be Very Successful in Multifamily Investing.
You have to understand that multi family is a lot of work; it’s not realistic to expect to get rich very fast and spend the rest of your days relaxing on the beach.
There are so many elements involved in any deal, you cannot do it all nor would you want to. It’s not the best and most profitable use of your time.
So you really need to work with good partners.
The caution is that it’s very difficult to find good partners. That’s why it is very important to start early and determine who you want to get ‘married to’ so to speak.
The length of any given deal could be as long as 5-7 years until you exit so make sure you want to be working with those people.
Understand clearly different components of the deal, from the relationships with brokers and sellers to actually analyzing the deal and probably a third major component is putting your team together and managing them.
Every aspect of the task can be divided into multiple tasks.
Know which aspects you can handle well. Ask others what your strengths are.
I sent out an email to my entire network asking, “What I do better than others.”
“What are some things that I could do that you feel its better that I don’t do?”
I effectively did a self-assessment.
It also served as a great networking opportunity and I got in touch with 100 plus people that I’d lost touch with over the years.
Also you should attend as many multifamily events as possible.
Join a group, feel the camaraderie and meet as many people as possible so that you can meet your great future partners.
Take a lot of time to get to know the group that you’re working with. Ask, what if my values don’t align with the lead sponsor.
Go to an event and see who you click with.
Have your elevator pitch ready for what you can bring as a team member, “here’s what I’m good at, what are you good at?” Start to build the team. Effectively you are vetting your team from the beginning.
Conduct background checks on the general partners that you work with, the problem is that when you are new and you are not bringing too much to the table you can’t make too many demands.
5. Joining a Multifamily Group Will Give You a Major Advantage
It will make it easier for you to find partners if you join a group. People need to have a chance to get to know you.
If you decide to sign up to something hosted by a guru the best thing you will get out of it is the group, the network the other people who become part of that group.
Whether or not joining a group is for you the important thing is to find a way to network.
It is a way to gain trust with your potential team members.
To have that team member with 10 years of experience that you can ask any questions to is invaluable.
6. How Critical It is To Understand The Underwriting
When you join other sponsors in your little niche role you must really understand the deal.
You have to know that the deal is a good one.
You have to get yourself to a point where you understand the key drivers to a good deal.
You will have to answer those questions to your investors anyway.
You have to know how to read the spreadsheet.
In the current market you have to know how to creatively make an average deal into a good one.
You cannot do that unless you understand the nuances.
So you can sign up for some great workshops and courses or seminars on underwriting.
Study Deal analysis.
Get used to analyzing them, with each deal look for 5 things that make a specific deal really good and 1-3 things that could be improved.
This will also help you when selling the deal to investors. They want to know how this deal is better than others.
7. Having Access to Money Really Helps you Succeed MUCH More Quickly In This Space
You need money to spend on your education to educate yourself more efficiently.
You need money to invest in a property.
You may need extra money in case a deal goes south.
So you have to find the partners that either have the money or have to access the money.
You have to bring something to the table in order to interest these people. Some area of expertise.
8. Developing a Strong Investor Network Takes a Lot of Time and Energy and Automation.
Use a CRM tool and hire virtual assistants to help you automate menial tasks.
This allows you to keep track of where your investors are in the investment funnel.
Hire people on Upwork to help you develop your PowerPoint presentations for investors etc.
9. Capital Raising is NOT a Role to Be Taken Lightly
A great deal goes into investor relations before, during and after the deal.
Some really underestimate this aspect of the deal.
Regular updates and communication and acting in behalf of your investors is vital. Capital raisers need to work in behalf of their investors and make sure their interests are protected.
This will build trust and ensure they work with you again.
10. How Critical It Is to Understand The Legal Documents
You can take educational courses by licensed attorneys to help you understand how to read a legal document.
Make sure you get legal documents with ample time for review.
You need to understand key terms such as preferred returns and priority of payouts, voting rights, allocation of equity and depreciation, any types of fees.