In this video, we’ll be discussing the essential factors you need to consider before making a significant investment in real estate multifamily operators.
Whether you’re a seasoned investor or just starting out, understanding the key aspects that can make or break your investment is crucial.
We’ll delve into topics such as market research, operator reputation, property location, financial analysis, and much more.
By the end of this video, you’ll be better equipped to make informed decisions and maximize your potential returns in the multifamily real estate market.
Don’t miss out on this valuable insight – watch now and ensure your next investment is a successful one!
Transcript:
Chris Bounds 00:00
What are the top things that you look for in operators before investing with them? Yeah, you know, and
Randy Langenderfer 00:05
I had this conversation with an investor I was talking to yesterday, he was just getting started. And he asked me, you know, what’s the first thing you should be looking for? And you and I know that, you know, it’s the horse in the jockey illustration. And in a horse race, which is more important, the horse of the jockey and multifamily, it’s who’s more important the, the operator or the or the asset, the market in which you’re in and, and the asset? And the answer is always the same. It’s the operator, or the general partners, who are they? Who are they? And the know, like and trust them? What’s their success record or track record?
You know, I know very few people that don’t have a blemish someplace along the way or a war story to tell. I know very few that come out with it right away and tell investors some of that history. So the first thing for me is the is the general partnership group, where how do I know them? You know, where are they trained at? Are they come to they come from lifestyles are Jake and Gino or mark Kenny or read some rock into the big groups? That’s not bad. But I personally want to see that they have some multifamily training.
And each of those groups has a different plus and minus. So it’s the group to where they came from. Because that tells you that someone went out their underwriting style and the templates they use. And so I’ve had the advantage of seeing many of those different templates and how they work. So I have familiarity with them comfort with them. And then then I started digging, digging into the underwriting assumptions.
So what’s the what’s the reversion cap rate, what’s the growth income except income growth, income and expense assumptions for growth? reversion cap rate, I said, I think one of the most often overlooked ones is understand the relationship between the general partner and the on site property management company. Have they worked together before? Is this the first time they’re in this market? Does the property management company have experience in the asset type you’re looking for? I mean, perhaps, perhaps they have a class, a focus, and you’re looking at a Class C property.
And again, you need to understand the relationship between the general partners in this particular property management company, because they’re the ones that are on site day to day, and they’re the ones that are going to make this make this an average investment or a great investment.
Chris Bounds 02:33
100%. Yeah, they’re, they’re the boots on the ground. And that’s a really good observation to do you have, what are the pros and cons, when you see that it’s a vertically integrated property management, meaning the operator, it’s their company, versus using third party,
Randy Langenderfer 02:53
the operator in that vertical integration, right? You know, they have, they have their own property management company, they have their own construction companies that are making huge returns and renovations. I really think that is a strategic advantage this day and age, in the last couple of years, as the markets become tighter, I think those companies that are vertically integrated have an advantage, because they can control their costs. There’s a disadvantage, though, that they’re making money on multiple pieces of the business on the asset, I mean, on the property management side, and the construction side, etc, etc. And they are transparent. If
Chris Bounds 03:32
you ever have concern about
Randy Langenderfer 03:37
transparency risk. The ones I know of and have invested in I’m not because
Randy Langenderfer 03:47
because they have disclosed it, and they’ve talked about it’s in a very transparent manner. And I think you just have to ask the question, if you’re an investor, how are you being compensated, Mr. And partner, John Warner
Chris Bounds 03:59
way, which if they’re doing a syndication or fun that may disclose that anyway.
Randy Langenderfer 04:06
But that doesn’t mean that
Chris Bounds 04:08
they that they will, or that it’s gonna be that clear.
Randy Langenderfer 04:11
It may be buried right on page 55 and font two, and that should be a red flag to a potential investor. But I think I really, at least, and I don’t think I don’t think that vertically integration works until you get around the 1000 doors in a specific region. So other ones as you see people trying to vertically integrate in there in three different states and different sub
Chris Bounds 04:32
markets. But that one is served as an operational
Randy Langenderfer 04:38
anchor. Yeah, because they got overhead they gotta cover Yeah. And they’re sending people from Texas to Louisiana or Ohio or wherever
Chris Bounds 04:47
time I mean, really, because all property management it’s it’s a complicated business anyway, but it is a business and a new business, a baby business. Yeah, new business is like an infant. It requires a lot of attention. And, or like in like an infant, you know, its health really deteriorates if you don’t take good care of it.
Randy Langenderfer 05:07
That’s a good illustration.
Chris Bounds 05:09
So yeah, that’s a good observation on the property management and that relation to the GP, because you’re right, if they do have concentration of units in a in a market, then it absolutely makes sense. They have to vertically integrate other otherwise they started losing efficiency. But I really liked
Randy Langenderfer 05:29
the I liked the third party stuff, maybe it’s because I haven’t gotten that 1000 doors in this specific sub market yet. But I think there’s strong advantages to third party property management, one of the guys I invest with most, has about $10,000. And he does nothing but third party property management. And you know, the argument there is, is you can leverage them to do things that operationally you don’t have to do or want to do, and ply pressure to them to make changes quickly. And they become so dependent upon you anyhow, because in that situation, they’re huge.
We bought, you know, for instance, we bought last year, a 60 unit brand class a building here in Houston. And not many people want to manage the sixth unit, but we got fileted with a large property management company. And in that case, it’s been wonderful because, and that’s so when we have in this market right now.
And in that example, it’s been wonderful because they bring the leverage, and they bring the economies of scale that I could never have as a sole operator of a property management firm in the Houston market. They have every contact imaginable from, you know, tax consultants to Window repairs and everything in between. And so there’s a real advantage there.