405: Conservative Investment Strategies for Today’s Multifamily Marketplace

April 13, 2020bmanasseroUncategorizedNo comments

SHOW NOTES FOR EPISODE 405: CONSERVATIVE INVESTMENT STRATEGIES FOR TODAY’S MULTIFAMILY MARKETPLACE

Whether in weak, strong or uncertain economies, real estate remains an investment that can weather any storm. In today’s podcast, multifamily real estate investor and CEO of Blue Lake Capital, shares her story starting with humble beginnings in Israel cleaning synagogues at age 9 to becoming a real estate lawyer, M.I.T. MBA, Forbes author, podcast host, to overseeing a portfolio of multifamily properties across the U.S.

What You Will Learn

How conservative investment strategies can “hedge your bet” in any economy
The value of a good education
How a good coach or mentor can speed up the education process and help prevent investment mistakes
Why it’s not true that real estate investors have to start with single family homes
To become a successful syndicator you need to go where successful syndicators go
Why buying multifamily properties is the fastest way to scale as a real estate investor
How to partner when you don’t have the experience or the money to begin on your own
Tips for finding investors before you have a deal

About Our Guest

Ellie Perlman

Ellie Perlman is a real estate investor who owns multifamily properties across the U.S. Ellie is the Founder and CEO of Blue Lake Capital, a real estate investing firm specializing in multifamily acquisition and management. At Blue Lake Capital, Ellie helps investors grow their wealth by investing alongside her in large multifamily deals. Ellie leads a mentoring program, REady2Scale, where she coaches people to become multifamily syndicators by building and scaling a syndication business. She started her career as a commercial real estate lawyer, leading real estate transactions for Israel’s largest real estate company. Later, she transitioned to a property manager role and oversaw properties worth over $100MM. Ellie holds a Masters in Law and an MBA from MIT Sloan School of Management. She is a Forbes author and a real estate investing podcast host. In her spare time, Ellie enjoys working out, driving sports cars, skiing black diamonds, and investing in startups.

More About Ellie

Grew up poor in Israel
Had to take care of her siblings because her mother was sick
At age 9, she had to clean up synagogues to earn money for the family
The way other kids treated her because she was poor motivated her to do something more financially
She saw education as the key
She wanted to become a lawyer to secure a strong financial future
She also real loved the idea of doing something in real estate
She knew that the richest people in the world held real estate
Mysterious disease that almost left her blind, then the turning point -deciding to move up in life.
She obtained a Real Estate Law degree
Got hired by largest developer in Israel
Although she was a lawyer, she didn’t have enough money to invest in real estate
She eventually wanted to start her own law firm
In 2007, things changed and the recession hit and changed everything
She saw what over-leveraging and being over confident can do to you
She became very conservative later on in her finances and investing because of that
Having served as a real estate attorney for a number of years, she realized she was on the wrong side
She saw how her clients were becoming wealthy in real estate and she wanted to do the same
She also wanted to learn more about the business side of real estate
Quit the law firm
Worked for property management firm for 4 years to learn how properties were managed
She now knew the management and operations side but she wanted to know how to start her own business

Moving to the U.S.

Got accepted to M.I.T. business school and got an MBA
She has three degrees
Hired a mentor/coach
- She saw it as part of her education
- Saved her a lot of time in the start-up process
- Helped to avoid mistakes
- She paid for her university degrees, why not a mentor
- Connected her with investors, lenders, etc.
- Coaches often share with their students their contacts
Started investing

First Purchase

She was looking for properties from day one
She focused on the capital raise but was also focused on the the acquisition side
She quickly realized that, in order to scale up quickly, she needed to start buying multifamily properties
She looked at where she wanted to be in 20-30 years, and worked he way back to see what it would take to get there
She skipped single family homes because it was too much work to buy one home at a time
Networked and attended large syndication conferences – Denver, New York, Dallas
She went to where the big investors/syndicators were
Within a year, her contacts were syndicators and investors
Networked on BiggerPockets
Starting meeting investors before she had a deal (6-8 months before)
- People need time to understand who you are and what you’re doing
- Educate potential investors on what syndication is
- Do investors like the deal itself
  - Do I like the deal?
  - Does it make sense to me?
- She was, in essence, already raising money before she had a deal
In 2018, she purchased a 2001 400-unit multifamily property in Fort Worth
Team effort
Partnered with other syndicators
- Identify others’ pain points and come in to offer help in an area they may be weak
- One may find deals, one can raise money, one can handle operations
Buying 12-20 units by herself was more scary than buying 400 – would have been more work than syndication
Because she had been meeting with investors for years before she had a deal, she had value to add to potential partners

Partnering With Others

If you want to buy larger apartments but don’t have the money or experience, you can still partner with others
When your just starting out, there are many ways to partner with others
Look for how you can “add value” to someone else’s operation
That’s what she did for her first deal
It doesn’t matter how sophisticated or experienced they are or how big their company is, there is always some “pain point” you can tap into
- Underwriting – Maybe you are strong in this area (maybe worked with Marcus & Milichap as an underwriter for 3 years)
- Capital Raise – If you know other people with capital to invest
Identify what you are good at (your key strengths) and find others who may lack those skills
Offer your skills to fill-out that partnership

Raising Money

There’s a lot you need to do before you even have a deal
You need to find and build your investor pool
You need to prepare your investors
- Three Factors in Every Raise – Things you need to do before the raise
  - People who know need to understand that raising money for syndication is what you now do – people need time to process that change, if they knew you as doing something different before
  - Education – you’ll need to educate people on what syndication is and how they can make money.
  - Find out what your investors want – Do they like the deal in the first place – Does it make sense to them? Find out the types of deals your investors like and only approach them with those types of deals – don’t waste their time!

Her Team

Her staff is relatively small
Staff is the highest expense in most companies so they try to keep it down
Trying to keep expenses to a minimum
Hire outside PM
Marketing, Investor Relations and Acquisitions/Asset Management teams
In Texas, Florida & Georgia
- Atlanta
- DFW
- Jacksonville
- Orlando
- Tampa
Focuses on MSAs with strong population growth
Focused primarily on multifamily because they know it best – their “bread and butter”
- Recession proof
- B and C Class properties
- Class A are not really recession proof
- Light to moderate value-add
  - Increase rents $100-200 per unit

Your Biggest Mistake(s)

She has two mistakes she’d like to share
- From Syndicators Point-of-View:
  - Calculating the exact amount of equity she has to raise and sticking to it
    - Investors will commit to invest and then drop out at the last minute
    - Then, you’re left short $50-100,00 right before closing
    - She now raises 15-20% more than she thinks she needs
    - And since it is always “first-come first-serve,” you can secure your place, even though you may have to not include some interested investors
- From Passive Investors Point-of-View:
  - She invests in her own deals and other syndicators’ deals
  - She sometimes focuses too much on the cash flow aspect and not on the strength and reputation of the sponsor
  - Sometimes it’s better to get 6-7% cash-on-cash with a company with a good reputation than a 9-10% cash-on-cash from someone who is less experienced
  - Sometimes you miss the steady lower reasonable cashflow with a lower percentage than no or little cash flow with higher projected deals from less experienced operators

Conservative Strategies

Keeping staff costs lean
Buy only C and B properties
Buy only in high growth population growth centers
Even though they still try to achieve a 3 to 5 year hold, they get good solid 7-10 year loans, 3-5 year IO, just in case they have to hold on to the property longer than projected

Your Biggest Success

On one deal, they negotiated with a seller who had a property with a 95-97% occupancy rate
Took 2-3 months to close
Less than a week from closing, when they asked to see the operating financials, they noticed occupancy dropped to 82%
They were going to agency debt, which requires that a property is “stabilized” with a minimum of 90% occupancy for at least 90 days
They no longer qualified
They negotiated credit from the seller due to the revenue loss
They stayed in the deal for two reasons:
- They thought the deal was very solid
- They were working with a very experienced property management company
They presented the challenge to their investors and none wanted to bail
They were able to convince the lender to keep the agency loan
In less than 2 months, they were able to bring occupancy back up to 90% and higher
They started cleaning property right away and renovating units
When tenants saw the good things happening, they wanted to stay
They have been out performing even up to today!
What she learned: It’s best to take your emotions out of the equation and focus on the facts, tools you have and the right solutions

Advice for Old Dawgs Looking at Real Estate Investing to Help in Their Retirement Years

Starting out in your 50s and 60s is not that different than those starting in their 30s and 40s
The advantage for older investors is that they usually have more resources to invest and are better positioned to attract other well-off investors
It’s possible to be very success but investors must realize it’s not always easy
Do you want to start a business and be under pressure all the time?
Or do you start off hiring others to manage it for you so you can still create the legacy but have less of the headaches?

Current Business

She wants to grow the Blue Lake Capital to become a billion dollar company in the next 13-14 years
What excites her is buying the properties and seeing how the operations improve and how the NOI increases
When she sees a 5-10% increase month-over-month, that is a thrill
She sees how her plan impacts a property – it can’t be more tangible than that!

Rap-It-Up

Favorite real estate book: The ABCs of Real Estate Investing by Ken McElroy
Favorite business book: The One Thing by Gary Keller
Most valuable web site for success (other than your own): Yardi Matrix
Favorite app: Zillow
Favorite quote: “Be fearful when others are greedy and be greedy when others are fearful.” – Warren Buffett
If you had to start all over, knowing what you know, and you only had $1,000, what would you do to launch your real estate investing business? Pay salaries (hourly or with commissions) to employees who could help her find the next deal.

How to Reach Ellie

ElliePerlman.com – can download free documents and info on her mentoring program

DISCLAIMER: Many of the above strategies take knowledge and have a higher degree of risk. You need to do your research and/or work with someone who is experienced to reduce your risk.

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bmanassero

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