10 Steps, Tricks and Lessons Learned Closing on 192 units
Yesterday my partner and I closed on another large multifamily asset located in San Antonio, TX. I have blogged on before about the lessons learned from every deal I have closed. I am very excited to add another deal to the portfolio. Every deal has its own unique challenges and I want to share with you the exact 10 steps, tricks, and lessons learned closing on a large multifamily deal. Soup to nuts! Enjoy!
Step 1: Step up your underwriting systems
Half way through 2016 I made a conscious decision to stop being the bottle neck in my syndication business and employ two part-time analysts to analyze deals as they came across my desk. I had reached a point in my investing career where deals were slipping through the cracks; I just wasn’t able to underwrite effectively and efficiently underwriting deals in a timely manner, as I was too busy building out my business, and my thought leadership platform, hence I was missing out on potential opportunities.
Using upwork.com I found two analysts who could work part time, and remotely, to aid me with underwriting more deals. More Deals Analyzed = More Deals Closed!
In my search for ideal candidates, I only interviewed and ultimately employed people who have prior knowledge and experience with real estate. I spent a few weeks onboarding my two new employees to make sure they were up to speed on how I expected deals to be analyzed, and what levers to pull to remain conservative but also be competitive in today’s market.
By removing myself as the bottle neck my analysts were able to underwrite 10x more deals in any given week, in less time, and it free my time up to work on feeding the pipeline with deals and finding more equity partners. Don’t be afraid to spending $15-20/hr on an analyst, it is money well spent!
Step 2: Make sure you are seeing the RIGHT deals
Now that my time was freed up I was able to be hyper focused on broker relationships to ensure that I was seeing as many deals as possible within my market; preferably prior to hitting the market.
In the past 9 months, my team and I have underwritten over 70 deals in our chosen market. Of these 70 deals, we passed on +/-50 of them as they didn’t meet our criteria, we walked 10 deals, and submitted offers on 5-7 deals. This is a reflection on the sheer volume of deal flow in the current cycle, but it is also a reflection on just how many deals you need to underwrite in order to find a CRACKIN deal. If we didn’t have my systems set in place, in conjunction with solid broker relationships, we wouldn’t be able to weed through the noise and hone in on a CRACKIN deals.
Throughout those 9-10 months, whilst my team was busy underwriting deals, my business partner and I 10X’d our approach when it came to being in the forefront of brokers minds when they had a new deal. We did whatever it took to get lunch meetings, go out for drinks, and even set up a few rounds of gold (full disclosure: I am a complete hack, but luckily my business partner was a golfing GUN). We were willing to go that extra mile and do whatever it took to get noticed in our chosen market, and the hard work paid off. We spent a lot of energy building quality relationships with brokers—always making sure we acted professionally, but always remaining transparent in our conversations about looking to add value to them.
Step 3: Broker Relationships are Key to winning deals in this competitive environment.
We originally submitted an LOI on this deal back in July. The deal was marketed deal; however, we were not initially awarded the property. We presented a strong offer with aggressive terms but we came up just short and were disheartened to hear the asset was awarded to another group. Three weeks later, we got a call that the other’s groups 1031 Equity buyer had evaporated, and they did not sign the PSA.
In talking with the broker, the reason they came back to us was due to the hard work spent in the prior 9-10 months (refer to step 2) to make sure we were in the forefront of their minds when the deal fell through. The broker didn’t take the deal back out to other groups due to our relationship with them. It was an easy decision for them to come back to us, as they knew we would act quickly and would close the deal. Without that relationship in place we would have re-entered a competitive situation with other buyers, and could have lost the deal a second time.
Step 4: Be on top of your GAME throughout the process!
Throughout the due diligence and closing process we were on top of our GAME!
We prided ourselves on:
– being extremely professional;
– make sure we were tremendously responsive to investors, brokers, legal teams and the seller;
– we made sure all our ducks were in a row. We made sure all the “t’s” were crossed and the “i’s” were dotted (never underestimate anything);
Our mission was to make the entire process was as smooth as possible for everyone involved so people would love working with us, and would want to do business with us again in the future. Everyone has learned that we are extremely hard workers, and we will go that extra mile to get things done. This philosophy, in the way we approach doing business, means that people will know next time around how easy, efficient and professional we are to work with. Don’t under estimate this step in the process. Be on TOP OF YOUR GAME!
Step 5: Building a PLATFORM of Influence!
This step really belongs at the beginning but the flow of the story means I have placed it here. The first step to be successful in this business is establishing a solid platform in which you can build a rock-solid investor database so you can be confident you can raise the money required and get the deal closed.
There are always the questions; should I find the money? or should I find the deal first? And the answer is definitely find the money first! The way in which you do that is by building out your platform, your BRAND and your PITCH so you can be a key person of influence in your sphere when it comes to real estate investing.
A platform can come in many forms:
– a blog
– a newsletter
– a podcast
– video series
– written articles or books….
All of these are forms of a platform. The question you need to ask yourself is what platform suits your needs to aid in educating those around you about the benefits of investing in real estate, and position yourself as a thought leader.
Two years ago, I focused on developing my thought leadership platform for my niche. I focused on building that platform out first which helped me grow my investor database, and my influence, which enabled me to be confident in my abilities to raise the money for this latest deal.
I will always be working on my platform and you should as well! You don’t have to be the next Tony Robbins, or Grant Cardone, but you can be an influence amongst your friends, family and colleagues.
Remember there will come a time when you will need to get off the fence and give it a go. In the world of syndication you need to be confident that you can raise the money. Build your platform first.
Step 6: Your Best Chance to Grow your Business is When you Have a Live Deal.
Following on from step 5 there is no better way to test your investor database then with a real deal! We developed a successful platform over the past two years which has facilitated talks with lots of people looking to break into the business that want to start syndicating deals and raising money from investors. We have spent a lot of time sitting down and speaking in hypotheticals and projections—whether that is with brokers, or investors, or anyone associated with the business. This deal again proved there is no better way to build your business than when you have a live deal to market and discuss.
We are never so busy as when we are trying to complete the equity raise and go through our Due Diligence period on a project. We’re writing the business plan, verifying assumptions, putting together the legal structures, negotiating contracts, etc. But during this busy period is the absolute best time to put the hammer down and use your active deal to propel your next deal, and your overall business, forward.
On the equity side, we once again saw our network expand. One investor introduced us to his friend; another to his brother. A colleague wanted us to talk with a Family Office he knows. We met multiple future investors that were excited about this opportunity and our business—all because we had a live deal to present to them that is representative of what we do.
On the operations side, we saw our network expand as well. In looking for the best prices on materials and services, we were able to talk specifics related to this property in this market. We found a new appliance vendor that is saving us $300/unit on our appliance package. We got a great contact to construct covered parking spaces for us. We’re building out a list of contractors and suppliers for the market. The list goes on.
None of that happens without having a property under contract, and having actual numbers and specifics to talk with people about. It’s critical to find the time to grow your business when you are busy working on closing the deal.
Step 7 ALWAYS BE RAISING CAPITAL!
Are you noticing a theme here? As I stated earlier have the money raised, then find the deal. We have a cardinal rule that we don’t pursue a deal unless we are 100% confident we can close—our reputation is too important (see Point #1 above). But we don’t have the equity sitting in an account waiting to be spent, either.
For this deal, we had two different equity partners that signed up with us—and neither one performed. The first group committed to funding $4mm (60+%) of the equity, and ended up not bringing a dollar. We also experimented with a Crowd Funding platform who promised us they would bring $1.5mm of equity. Again, we didn’t see a dollar. Even though both groups failed to perform, we got the money raised and closed the deal on time. How?
Equity talks and BS walks!
We never stopped looking for investors and marketing our deal. If we had stopped working and taken it for granted that either of these groups would perform, our equity raise would have been simple. Turns out that wasn’t the case, and since we were working on growing our business (see #3 above), we were having active conversations with investors every day. We tell all our investors that our deals are “first come first served” and mentally we were racing against these other groups to get the money in our account. When each group called us to say they had not performed on the deal we were frustrated, but luckily we were not up a creek.
We aren’t likely to use these two groups in the future, but we’ll continue to experiment and partner with different equity groups and crowd funding platforms as viable paths to fund our deals.
The key lesson for us: Never stop raising equity until the account is fully funded, and if you are hustling to grow your business—and you have a good, marketable deal—you will get the funds you need.
Step 8: Partner with people who complement your skills
I have spoken about this in other blog posts but I will say it again as I think it is hugely critical to your success as a syndicator and business owner: Partner with people who complement your skills.
The business of syndication requires a TEAM effort. If you think that you can do it all on your own, you are horribly mistaken. My business partner and I complement each other in many ways that have allowed us to successfully close on another large multifamily project to add to our portfolio.
My experience stems from engineering and construction management, whereas my partner has a branding and marketing background. I am a numbers and details guy, so I am very good at analysis, underwriting, project management, reviewing legal documentation, and making sure I am driving vendors and property management team towards a successful take over. What I am not so good at is marketing & rebranding, and that is why my partner complements me in every way. Plus, he is local to the market where we are investing, the “boots on the ground” dealing with touring new deals, broker relationship’s, and looking for new potential equity partners and JV’s. He can focus on these important aspects of the business whereas I can focus on the back end of the business, analyzing and asset management.
Also, as I am based in LA and my partner is in TX, given the geographically distance I can just look purely focus on the numbers when we analyze news deals and that is important when making the right investing decisions.
Takeaway: Identify what your strengths, know what you need help with, then go out and find a partner who will complement your skills.
Step 9: Be prepared for the unknown
There are always unknowns when it comes to closing on deals; typically, the larger the deal the more complicated it can be. However, you ALWAYS need to be prepared for an unknown popping up last minute.
On this particular deal we had an issue raised by one of the attorney’s representing the lender. For whatever reason the issue should have been identified weeks in advanced as part of their extensive review at the onset of due diligence, and not at the 11th hour before closing. I have experienced similar issues on other jobs in the past but never this late in the closing process (3 days before closing)!!! Essentially, the lenders attorney had dropped the ball and we (as the buyers) were left holding the bag with no-recourse whatsoever. In the end, through a lot of back and forth, the attorney realized they should have flagged it early on and backed-off slightly. The outcome still resulted in a lot of running around, and coordinating with local municipalities in order to get the deal over the line and not delay closing.
Everyone involved in this deal, from the broker, to the title company, helped us overcome this last-minute issue, and they all hustled to make sure it got done. It is a positive reflection on the excellent team we have in place, but it also highlighted the need to always be prepared for the unknown. This issue was outside of our control, and as disappointed as we were about lending attorney’s dropping the ball, we all had to roll up the sleeves to get it done in time.
Takeaway: Any time there is an easement on the property make sure all attorneys, including the lender’s attorney, are aware of it.
Step 10: Be Bold, Be Brave, and Go make a dent in the universe!
A quote pulled from Steve Jobs but a statement that resonates with me so much! We all start out on a journey towards success; educating ourselves about the in’s and out’s of real estate investing, networking, building your team, building your systems…However, there comes a point on the path that we need to be bold, we need to be brave, we need to back our decisions and give it a CRACK! I spent years educating myself about the benefits of investing in real estate, how to mitigate my risk, how to minimize the downside, but there came a point where I needed to take what I was learning and put it into action! Where I am now in my investing career took many years to get to this point, and I still have a lot to learn and achieve, but I wouldn’t have gotten here without taking some sort of action! Even the smallest action will put you on a path towards success.
Takeaway: I encourage everyone reading this post to continually invest in their education, first and foremost, definitely surround yourself with great mentors and peers, but also remember you will have to get off the fence some day and go take action and make a dent in the universe!