#254: Sourcing Off-Market Deals, Advantages of In-House PM, Syndicating vs. Not, and Diving Into The Current State Of The Market on TDR Call
Sep 10, 2024
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Gabe Bowling, founder of a high-ticket mastermind for multifamily investors, shares his journey from a few units to over 500. He discusses the advantages of sourcing off-market deals and the significance of building relationships. The conversation dives into why bringing property management in-house can enhance returns and operational efficiency. Gabe argues that starting with smaller deals may yield better outcomes than syndicating large ones, supported by real-world examples and insights from community Q&A.
Direct-to-seller marketing fosters better acquisition prices and terms for multifamily investors by building rapport with property owners directly.
Bringing property management in-house enhances operational efficiency and investor returns by allowing for greater control over vacancy and income management.
Investing in smaller deals provides new investors a more profitable path, as it simplifies the process and allows for direct control of capital.
Deep dives
Direct-to-Seller Marketing Advantages
Direct-to-seller marketing is emphasized as a key strategy for multifamily investors seeking profitable deals. This approach involves directly reaching out to property owners rather than relying on brokers, leading to better acquisition prices and terms. For example, using targeted direct mail campaigns and personalized outreach via calls or texts can help in sourcing off-market deals. This method not only builds rapport with sellers but also enhances the investor's ability to negotiate favorable agreements, resulting in potentially higher returns.
The Benefits of In-House Property Management
Bringing property management in-house can significantly improve operational efficiency and investor returns. By managing properties directly, investors can minimize vacancy rates and maximize rental income, which are critical factors in successful multifamily operations. The speaker notes that early on, third-party management was ineffective, prompting the transition to in-house management with the scale to support it. This change not only streamlined operations but also made it easier to raise capital because potential investors prefer operators with direct control over management.
Importance of Deal Size and Structure
Investing in smaller deals is presented as a more viable and profitable pathway for new investors compared to syndicating larger multifamily properties. The speaker illustrates that the complexities and time commitments involved in syndications often outweigh the potential benefits, particularly for those without extensive experience. For example, a direct ownership of a five-unit building can yield better financial outcomes and quicker paths to equity growth than navigating the challenges of a 50-unit syndication. Smaller deals allow investors to control their money and build a track record, making it easier to transition to larger investments over time.
Raising Capital in Today's Market
Raising capital has become increasingly challenging due to market fluctuations and economic uncertainty. Investors are advised to be prepared for stricter lending standards and a cautious approach from larger equity sources. The narrative emphasizes building strong relationships with local banks and maintaining clear communication with potential investors, which is vital during times of uncertainty. Understanding market dynamics and operational fundamentals is crucial, as maintaining a solid occupancy rate and managing revenue becomes essential for landlords facing rising delinquencies.
Evaluating When to Exit a Property
Deciding when to sell a property requires evaluating the return on equity and comparing it to potential returns from new investments. The speaker emphasizes calculating the current value of a property against its mortgage balance, assessing if the existing cash flow can be better allocated elsewhere. A practical example involves selling a high-performing yet low cash flow property to free up substantial equity for reinvestment opportunities. This strategic focus on liquidity and value creation underscores the importance of flexibility in operations to respond to changing market conditions.
In this episode, I'm actually reposting a call that I did in the Deal Room community, which is run by Gabe Bowling. It's a high-ticket mastermind group focused on helping multifamily investors, multifamily entrepreneurs. I appreciate Gabe's invitation to head in there and share my story and talk a little bit about direct-to-seller marketing, how we brought property management in-house and the benefits of doing so.
I spent a lot of time talking about why most investors shouldn't be syndicating deals. I actually start sharing some economical examples of the money that you can make in a deal where you are not raising capital versus where you are. Specifically, I share how just doing a five-unit deal with your own money is actually much easier and similarly as profitable as doing a 50-unit deal where you're syndicating equity and raising capital. We get into some Q&A at the end of the call as well with some of the group attendees, which I think a lot of the folks listening are going to find valuable as well.
Here are some of the key topics we cover:
- How I got started in real estate and grew my portfolio from just a few units to over 500 - The importance of focusing on off-market deals and building relationships to source great opportunities - Why bringing property management in-house was a game-changer - My take on why most investors shouldn't start out by syndicating large deals - A real-world example comparing the economics of doing a small deal yourself vs. syndicating a larger one
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