299: Multifamily Data Science and Optimization

SHOW NOTES FOR EPISODE 299: MULTIFAMILY DATA SCIENCE AND OPTIMIZATION

From single mom to technology expert to professional photographer to multifamily syndicator,  Anna Myers, VP at Grocapitus Investments, has overcome the odds by mastering the art of multifamily investing for financial independence and life on her own terms.  In today’s podcast, Anna shares some of her personal strategies and insider tips for successful multifamily investing for anyone.

What You Will Learn

• Using real estate investing to reduce the tax burden on your high salary
• Why multifamily real estate investing is one of the best ways to attain wealth fast
• How  to apply data science to become successful at real estate investing
• What to look for to find the best investment markets
• Why “Asset Optimization” is critical to real estate investing success
• How to find and effectively manage property management firms for maximum success
• Effectively leveraging your personal property for the best tax advantages and to grow your real estate portfolio
• How to determine if passive or active real estate investing is for you
• What are “Opportunity Zones” and how you can take advantage of these great tax savings opportunities

About Our Guest

Anna Meyers

Anna Myers serves as Vice President at Grocapitus, a commercial real estate investment company in the San Francisco Bay Area founded by Neal Bawa, a previous guest on the Old Dawg’s REI Network Podcast (episode #211).  She applies her 20+ years of experience in technology and business to locating, analyzing and acquiring commercial properties in key markets across the U.S.  As the lead underwriter for the company, Anna also teaches deal analysis for MultifamilyU (an apartment investing education company), both via monthly webinars, as well as at quarterly MultifamilyU Boot Camps.  Anna Myers also co-hosts two Real Estate Investor Meetups in the Bay Area with over 800 members.   She has participated in Equity Raises with her company of 8.5 Million dollars for Multifamily Acquisitions in 2018, resulting in over 500+ units purchased. In addition, she is an AirBnB Superhost in two markets in the US.

More About Anna

• Born and raised in Southern California (Currently lives in San Francisco)
• Father was an architect
• Uncles were also in real estate
• The granddaughter of a “commercial real estate maverick.”
  • Started with no money
  • Started flipping houses in the 1940s and 1950s
  • Generated enough wealth to become a self-made millionaire
  • Created a commercial real estate office
  • Buying and building commercial properties – bought walnut groves in the San Fernando Valley and built shopping malls on them
• It helped her to have confidence in real estate
• Became a teenage single mom who had no support from the father
• She put herself through college with the goal to learn something that could make her the highest hourly wage as possible and be flexible enough so she could be there for her daughter
• Moved to the San Francisco Bay area
• Took software programming classes
• Learned how to be a computer programmer at $45 per hour to help put her through college
• Went to UC Berkeley undergrad and later on to graduate school
• Promoted from programmer to system architect
• Worked in large corporations and led big teams of programmers and designers
• Because she has a strong visual eye, she is good in both science and art
• Became UI architect for large portals at Sci Base and People Soft

IT Crashed and Photography Cashed!

• In 2000, tech bubble in IT crashed
• She was married to a IT guy so their family was hit hard
• She was offered a salary at one-third what she had earned
• She decided to leave tech and start a photography business in SF Bay area
• Always loved photography
• Digital photography was just starting to blossom
• Thought her tech background could give her an advantage
• Ran her photography studio in the Bay Area for 18 years
• Although she was successful, she saw the photography business as a very poor model because it doesn’t scale
• Retirement scenario did not look good
• Government took all her taxes

Enter Real Estate

• She saw real estate as a great way to deal with her tax burden
• Started investing in single family homes, land, etc.
• Solved tax dilemma but realized real estate offered more
• Loved photography but decided to pursue real estate full time
• Real estate was scalable and was going to give her the opportunity for the life and retirement she wanted
• She could still do photography but more on her own terms

Leveraging Into Real Estate Investing Full Time

• Anna set a 5-year plan to educate herself on real estate investing
• She used her tech background to leverage into real estate
• Anna and her husband had a small real estate portfolio and they were actively engaged growing it
• She wanted to get into real estate investing but only if she could do it in the most efficient and best manner
• She realized the best way to do that is to scale big by going into multifamily
• Using her tech skills, she approached Neal Bawa (she was in one of his boot camp students at the time)
• He needed an underwriter, so she volunteered to help him with a tech project he had
• She volunteered to write a deal analyzer for him in exchange for his mentoring
• Neal made her the team lead for a volunteer team he had already assembled to create a deal analyzer
• She applied her tech skills with her business acumen to oversee the project

Getting Hired

• Neal was impressed with the way she worked, thought and solved problems
• Neal offered her a job as an acquisition specialist
• She quit her photography business to work full-time in real estate
• The analyzer got completed, is being used by Neal’s boot camp students and is already in a version 2
• Her entrepreneurial background, coupled with her technical, underwriting, and creative talents proved invaluable for Neal’s company
• In a matter of months, she was promoted to the Director of Acquisitions
• Today she is a Vice President with Grocapitus (11 months later)

Becoming a Data Scientist and Finding Good Investment Markets

• Neal looks at his real estate investing very scientifically
• Their company is located in the San Francisco Bay area but they don’t invest in that area
• They only invest in areas that make sense according to the data
• They review their markets every quarter
• They “mashed up” data from various sources (paid and free) that provided information on jobs, population, employment, median household income creating various city metrics
• They put all the markets into a spreadsheet to decide which markets to focus on for their investing efforts
• They also look at cap rates and the value of local real estate
  • They don’t invest in areas where the cap rate’s are too low because they don’t generate enough cash flow
  • They don’t invest in areas where the prices of homes are too high above the economic engine that is supporting that metro area
    • For example, they avoid “bubble cities” like Denver and Tampa that are overvalued right now in terms of real estate
• Using these various methods they define areas where they can get the best returns for their investors

Syndicator of Syndicators

• Because they are technologists and they bring a lot to the game in terms of analyzing markets, as well as how they operate and manage their assets, they attract other investors who want to partner with them.
• They like working with other investors because of the efficiencies they bring to the business
• By working with other investors, they do not have to find as many deals – other investors and syndicators are bringing the good deals to them
• Anna sees about 3-7 deals a week from other investors/syndicators that have just gone under contract
• When someone brings them a deal, they very carefully scrutinize each market before getting involved
• Even if it’s in a good metro, it could be in a bad neighborhood, so they also take the time to study the actual neighborhood
• As a result, they can cherry pick the very best deals
• People really respect their brand and their discipline of data science

Asset Optimization

• They set up systems and processes to optimize their properties
• Part of they goal, besides the efficiencies, is to be able to effectively operate the asset virtually
• Effective asset optimization requires that you facilitate team communication – they use technology to help them with communication.  Some tools they use are:
  • Slack – Group texting on steroids – easily searchable group texts.  Entire history of a project, over months or years, is searchable as an archive and secure
  • Asana Project Management Software – Key part of their system.  In virtual meetings, you can plug in action items and assign those items to people or yourself right there, during the meeting.  They audit the system regularly to make sure tasks aren’t falling through the cracks
  • Dropbox – to share files

Finding Great Properties

• Systems and processes are very disciplined in finding properties
• Very high standards for the metros
• You must set higher levels of due diligence
• Better markets (that have good market fundamentals) will deliver the best results
• As the economy changes, the markets that have jobs, increasing population, etc. will better weather the economic storms
• They don’t just look for cash flow
• Data science is very important for their potential property research

Selecting the Best Property Management

• Must have a rigorous set of questions
• They have set up a set of questions that occur during a 90-minute interview
• They show you how to narrow down to the 4 best property management firms in your city by using loopnet.com, apartments.com, craigslist, etc. and they run them each through the exact same interview
• It’s all on a spreadsheet, with each person having a column
• They also record the interview
• If they don’t work out, you can always go back and review their answers and listen to the recording

Property Management Optimization, Tracking and Reporting

• Once good property management is in place, set up solid reporting to insure they do their job to maximum efficiency:
  • MMR (Monday Morning Reports)
  • Weekly Deliverables (every one or 2 weeks, depending on how many units) – (Excel tracker spreadsheet) Shows the following data:
    • Occupancies
    • Move-ins
    • Move-outs
    • Lease renewals
    • Leases not renewing
    • Status of units being turned
    • Prospective tenant leads coming in and how many become tenants
      • What advertisements are currently in place (apartments.com, craigslist, Zillow, etc.)
      • Track the results from the ads:
        • How many leads are coming in?
        • From the leads, many appointments are being booked?
        • From the appointments being booked, how many people actually show up to look at the property?
        • From the showings, how many applications are being placed
        • Of the applications, how many leases are being signed
        • LASAL (leads to appointments to shows to applications to leases)
          • Then they look at the ratios between each:
            • for example: if you have 50 leads that lead to 5 appointments that lead to 4 shows to 2 applications that lead to n0 leases signed, then there’s a problem going on
            • then they look at where the breakdown is occurring in the system and why
            • Then they can analyze and determine where the breakdown is:
              • Are not enough leads being generated?
              • Are their people not calling leads back fast enough?
          • On a smaller apartment building, you can determine where your property manager
            • You can determine what are the most important things your property manager needs to convey to you
              • How fast are they turning the unit?
              • What leases are coming up?
            • Assign tasks to your property manager to stay on top of all that needs to be done
      • It’s important that, for any size property, that:
        • Your property management system integrates all aspects of property optimization:
          • You are setting goals for yourself
          • You are setting tasks and getting things done

 Biggest Mistakes

• Trying to slam technology in too early with a your property management system before it’s ready
  • It may take several months to adapt to this type of system, instead of forcing this into your existing system
  • You have to work together as a team and understand that sometimes things will take a little longer to adapt
  • You can achieve your goals better by understanding the proper amount of timing of how to implement the change
• Another mistake is not partnering with other people early on
  • You can scale faster
  • Can buy larger properties

Biggest Success

• Anna and her husband wanted to leave wherever they wanted and not necessarily be limited to the same place as their work
• Their house was very large and all their children had grown up and moved out
• They moved out of their primary house
• Downsized to a small rental in the city where their jobs were located
• They rented out their primary house for 2 years (netted $600 a month in cash flow)
• The IRS recognized the house still as their primary resident and a rental and thus they could sell it, take the $500K in equity without having to pay capital gains.
• They were able to take the amount above that, and with a 1031 exchange, acquire a duplex in Charleston, SC that they converted into an AirBNB
• They specifically found a property that was zoned for short-term rentals, they got licensed, and pay taxes as a short-term, rental
• Recently, the city cracked down on other “illegal” short-term rentals and now, because they did everything legally, they have benefited from the increase in new business
• Anna manages the duplex remotely as an AirBNB and makes $6,000 a month
• Since the property is also in a college town, if the AirBNB regs changed and they had to stop, they could convert the duplex to a student rental to replace the income and still profit nicely

Gifts That Have Help Her Succeed

• Problem solver – She loves to solve problems
• Tenacity – Doesn’t give up easily
• Grace – Never forgets the “human element” to all she does

Advice for Old Dawgs Interested in Real Estate Investing

• Two paths: Passive Investing and Active Investing
  • Passive Investing
    • If you don’t have the time and/or are not passionate about real estate but what the advantages of real estate and depreciation
    • You can still get the advantages by putting your money into syndications or lending individually
    • Can get 10% cash-on-cash returns, 20% average annualized returns and more
    • Carefully vet the group you are investing in
  • Active Investing
    • Acquire your own properties
    • Or work with teams to acquire properties
• Educate yourself first
• Get involved with local REIA (Real Estate Investor Association)
  • Great place to find partners, get educated, find mentors
• Join online masterminds
• To facilitate change, sometimes you must force yourself to get out there to make things happen

Her Company

• In the last six months, they’ve closed 750 units across 5 apartment buildings
• She’s very excited about their investments in “Opportunity Zones”
  • Opportunity Zones defined:
    • When the recent Tax Reform Bill came about, part of the bill addresses “Opportunity Zones”
    • Opportunity Zones are areas in the U.S. that are supposed be considered “blighted”
    • If you invest in these areas (8,700 zones currently defined), according to the defined guidelines, you will get major tax benefits
    • If you bring money in, you will get a 15% discount on capital gains and they are deferred to 2027
    • You must hold asset you purchase for 10 years and the gain you get on that asset is completely tax free FOREVER
  • They are very focused on taking advantage of the great tax breaks you can get in opportunity zones occurring between December 2019 to December 2020
  • If you sell art, stocks, property and other assets you have and invest in opportunity zones, there will be no capital gains on your current asset
  • Take advantage of the “step-down” tax basis – 85% vs. 100%
  • There are a lot of rules to qualify
    • You must have purchased the property AFTER the zone was identified
    • Must buy the property within an “opportunity zone fund”
    • You must bring in enough additional “value-add” cap-X money to qualify – you must bring in an amount equal to or greater than the assessed value of the building.  You may perhaps have to have a ground-up development or you must add additional units, etc. to reach the investment amount required
  • If you want to take advantage:
    • Educate yourself first
    • Align yourself with people who are already doing it right
  • Her company is partnering with developers

Rap it Up

• Favorite real estate book: Best Ever Apartment Syndication Book by Joe Fairless and Theo Hicks
• Favorite business book: Barking up the Wrong Tree by Eric Barker
• Favorite website for success: BiggerPockets.com
• Favorite app: AirBNB
• Favorite quote: “It’s not what you make, it’s what you keep.”
• 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? If she has a computer with an Internet connection, she is going to figure out her best market to invest in, find partners in that market and spend the $1,000 on marketing and schmoozing brokers and partners.

How to Reach Anna

• Website: Grocapitus.com
• Email: anna@grocapitus.com
• Teaches webinars on: MultifamilyU.com

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