In this video, we delve into the realm of multifamily real estate, exploring the keys to achieving success in this dynamic industry.
Join us as we discuss the intricate art of navigating partnerships, shedding light on strategies to foster collaboration and growth.
We also delve into the critical topic of affordable housing, examining ways to provide valuable living spaces while ensuring financial viability.
Furthermore, we analyze the essential aspect of risk mitigation, uncovering methods to safeguard investments and navigate challenges effectively.
Whether you’re an experienced investor or just beginning to explore the world of real estate, our insights will equip you with valuable knowledge to thrive in multifamily real estate.
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Transcript:
Chris Bounds 00:00
If you could give a syndicator right now or aspiring multifamily investor looking to get in? How would you suggest they approach that first deal?
Rob Beardsley 00:08
Yeah, there’s so much advice that I would love to give. And so based on my experience, what I would advise is to put in as much lay as much groundwork as you can before you’re actually under contract and staring down that first deal. Because there’s no reason why you can’t line up your loan guarantor, before you’ve identified an opportunity. Alright, by the time you’ve identified a deal, it’s too late to find a loan guarantor, it takes time to build relationships and build trust. And that is really, really valuable, because that will allow you to focus on other things, primarily raising equity while you’re under contract, rather than scrambling for a loan, guarantor. So that’s one of the things I’d have lined up and make sure to have your earnest money lined up your loan, guarantor lined up, your property management team lined up, whether you’re going to use a third party or partner with a co sponsor, or something like that, you really want to have everything lined up to minimize the amount of variables when once under contract.
Chris Bounds 01:14
So um, right now, what what asset class and strategy are, you’re primarily using in multifamily.
Rob Beardsley 01:22
So today, our company is exclusively focused on Dallas and Houston, workforce housing, which we define as deals built in kind of the 80s to the 2000s. And are in need of some sort of value add, whether it be improved management, renovations to the interiors to raise rents, and cleaning up deferred maintenance. So that’s our, that’s our bread and butter deal. Whether it be like I said in Dallas, or Houston, and then more recently, we’ve been also focusing on an affordable housing strategy, which is very unique and interesting that I like a lot given the current uncertain market conditions, where it may not make sense economically, or risk wise to be buying assets and trying to push rents even further. Because, you know, affordability is tight. And if we do go into a recession, it’s going to just be even harder for residents be able to afford rental premiums. So I do feel like a defensive strategy where the focus is on preserving affordability, rather than pushing rents is really a good fit in today’s environment.
Chris Bounds 02:29
Yeah. And I think that that has a small component to the current, like the package deal you’re working on right now. Because it’s in a program to where there’s tax deferred, or its tax exempt for having affordable housing units are part of the community. Right?
Rob Beardsley 02:50
That’s right. Yeah. And the affordable world is so interesting. And I think we’re going to go even further into it as we build our experience. And I think our team is really well suited for the affordable housing world because it is more complicated. It’s more nuanced, there’s, but it takes time to build relationships. But once you kind of get into the affordable housing space, you see people, once they get in, they never leave. And they, they make a lot of money. It’s a very lucrative space. So we want to only grow our experience. So there’s so many different programs to be familiar with. And it’s different in every market. So it’s a fascinating space. And like I said, I think our team is well suited, just given our expertise. My business partner is a tax attorney. We’re quite sophisticated. So I think we are well suited for
Chris Bounds 03:40
it. Okay. And is that the primary way you’re looking to mitigate risk going forward? Or is there some other other things you’re looking looking to do?
Rob Beardsley 03:49
Well, generally speaking, we are focused, at least for now exclusively on long term fixed rate debt, which is really, in my opinion, the best way to mitigate risk. There, there is some controversy surrounding that strategy, because a lot of people are calling for using floating rate debt today to hopefully, hopefully benefit from rates drifting lower in the future, which I don’t disagree that that’s definitely a viable strategy. But the certainty of your cash flow is just worth so much. Even if in the end, you end up paying a little more interest for that certainty because of the timing with which you lock in your interest rate, right? It’s, you’re gonna over the cycle, you might have a fixed interest rate at a higher rate and then other deals at a lower rate. It’ll all work out over time if you’re just consistently investing for the long term.
Chris Bounds 04:42
And is that fixed over a five or 10 year period are you fixing for for longer because there’s like for those that don’t know, in single family, fixed rate, you sell I mean, 30 year fixed and you sell in five years, no big deal. You get a payoff quote. Typically, unless it’s a commercial, you know, like a non QM type of loan, if it’s if it’s conventional, there’s there’s really no fees to that, typically. But commercial different ballgame. Like you said, you want a 30 year fixed, they’re gonna hold you to that. And there’s gonna be a lot of penalties and defeasance. And, and one, so how are you baking that in the pie? And yeah, kind of kind of want to walk me through that.
Rob Beardsley 05:29
Yeah, so right now, the strategy is to do seven year loans with a five year yield maintenance period. And that gives us in our opinion, the optimal long term conservative loan, coupled with flexibility.
Chris Bounds 05:47
So if you have to sell if an opportunity to sell sooner works out, it’s not that big of a hit. But if you need a hold on, you’ve got the surety of what your debt cost is.
Rob Beardsley 06:02
Right? And the full seven years is quite a long time to ride out a potential downturn or something like that. And then, you know, given the five year yield maintenance, if we sell in five years, which is our typical pro forma, we would pay no penalty to exit which is really nice.