Allyson, the Beginner who bought a $5 Million 66-Unit Apartment Deal is BACK, this time sharing the details of her newest acquisition, an $18 million apartment complex. Find out how she has gone from 0 to 314 units in just one year!
Allyson's Syndication Strategy for Commercial Investing
It took Allyson six months to find her first deal, which was a seven unit. Four months after closing that deal, she found a 66-unit complex for $5 million. Then a couple months later she closed on a third deal, an apartment complex with 241 units. Here's what she had to say about the strategies she used to go from 0 to 314 units in one year!
1. How did you find your deals?
Allyson: I found all three deals off market through the proprietary methods taught in the Commercial Property Advisors Protege Program. What that means is that there wasn't a broker involved, instead I communicated directly with the seller. We went through the contracts together and then went into contract, due diligence and escrow from there. I think one of the big benefits of communicating directly with the seller is it enables you to understand their motivations better. Then you can structure the deal in a way that engages with them based on those motivations. You can build your relationship with them over time, and then if there are some unexpected complications in the process of closing, you can have those conversations in a more effective way.
The 66-unit $5 million deal and the 241-unit $18 million deal were from the same seller. He's more of a flipper. He buys properties, fixes them up, leases out a lot of the units and then before they're fully stabilized, he sells them. He had recently bought several new properties and needed to sell some of his portfolio so he could do a 1031 Exchange. So, he had a bit of a ticking time bomb and that played in our favor because we were able to purchase the properties within the timeline he needed.
2. For your $5 million deal you raised $2.2 million. This is an $18 million deal, how did you raise the $4.2 million down payment?
Allyson: I think most commercial real estate investors are looking for the one or two investors that can write a big check and raise all the money on day one. Unfortunately, I didn't have that investor. Myself and my partners, we talked to several hedge funds, private capital funds and family offices, but the reality when you're a beginner is that you don't have a track record. So, for both the $2.2 million raise, and the $4.2 million raise, we ended up going to friends and family, and friends of friends and family and so on.
We shared the deal with investment clubs, with some smaller capital shops, and then just let people know what we were trying to do and why we believed in the deal. These deals were bought well below market because of the direct relationship we had with the seller and the lack of brokers fees. It had a great price and great returns, so we just had to tell our story and share it with a lot of people. With the 66-unit deal, after 300 or 400 phone calls and outreaches, I had 120 investors. For the larger deal, we made 800 to 900 calls and ended up with over 200 investors. So just a lot of sweat equity. We had a lot of conversations helping people to understand what we were doing, which ultimately turned us into better investors.
3. What made your deal so attractive to investors ?
Allyson: I would say a big part of investor confidence is the team. Our investors know that our team is experienced and committed to the success of these deals. They know that their money is going to people who will stay up late into the night, work weekends and do whatever is needed to ensure that their investment is secure and performing well.
Then beyond that, it was the deal itself:
- We bought below market, so the price was strong.
- Favorable lending terms: We secured a loan at a high loan to value, meaning that the equity people were putting in was much more valuable, providing strong returns.
- Strong Market Dynamics: the apartment complex is in a great location. The market is growing economically, even with everything happening with COVID. People are moving into this area to get more space and jobs.
- Value-add Deals: the rents were below market. Both deals are places where we can pull a number of levers in order to generate more income, as well as allocating back utilities to reduce our expenses. They have a lot of different ways in which we can expand our net operating income and make the properties more valuable and force the appreciation over time.
4. Going from 0 to 314 units in one year is a lot, how do you manage the properties?
Allyson: I have third-party property managers for all of the properties, which I would highly recommend. You’re not going to have the time to acquire deals and build your portfolio and manage the properties. My properties are a bit geographically spread out from each other so I have a local property manager for the first deal that I did. Then I have a property management firm that is managing the two larger properties. That firm has a regional vice president that oversees strategy and we have a property manager that's on the ground and leasing agents with maintenance staff.
So, we have a full team that's helping to make these properties not only perform well and get the returns from collections and from leasing, but that also help us do capital improvement projects. As we have contractors on the ground, renovating units and resurfacing roofs, having that team is really helpful.
Myself and one of my partners deal with the asset management. We meet with the property managers once a week and are heavy handed in terms of the direction we want the property to run and making changes as we see fit. A big piece of what I do day-to-day is just making sure the properties are running well. And then the other big piece of what I do is looking at other deals. Turning the acquisition engine back on, underwriting deals, talking with brokers and sellers and continuing to build the portfolio. There's no typical day in the life of a real estate investor.
Giving Back to the Community
It's very busy, but it's also one of the most rewarding jobs you can have. A couple weeks ago we had a ribbon cutting at Gulfwind, the 66 unit, where the chief of commerce came out and did the ribbon cutting. We decided to combine that event with a resident appreciation night. We have a pool there and we had snacks, drinks and a slushy machine. The children and parents and older people came out we played resident bingo. It’s such an amazing feeling to know that, as an owner, you're responsible for the homes of 314 families. And you can make those homes better which is a big part of my personal motivation; being able to provide great homes for people, particularly in workforce housing where the tenant base is the working class.
5. As a beginner, going from 0 to 314 units in one year, did you bite off more than you can chew?
Allyson: No, I don't think so at all. When you scale the business like this, the tools and the resources you need are there for you. I'm not doing it alone in many ways. I think if I was doing it alone, that would absolutely be more than I can chew. But I think part of scaling up is recognizing what your time is best spent doing. Then recognize when you need to get talented people on the team to help you make it a success. I think that's a big part of continuing to scale up.
The target for this year is to get to 1,000 units. To accomplish this I must have structures that ensure our current properties are performing well. That will leave me time to raise capital, continue investing and do due diligence on other deals. Having a team, and then continuing to build that team out is what allows you to be able to scale up. Also, without mentorship in the Protégé Program, I could not have gone from 0 to 314 units in a year. I think Peter’s guidance and counsel every step of the way has been extremely helpful.
How to Strategically Structure Your Deal Through Syndication
Without finding a good deal, you have nothing. Here are the 3 pillars of a good deal:
- The property is priced below market.
- You need to be able to raise the rents so that you can raise the NOI and force the appreciation.
- It's in a good location. No one will invest in your deal if it’s in a bad location.
A financial model is a spreadsheet that shows you how to calculate the deal's ROI, the investor ROI, and your ROI. It's a complicated spreadsheet that we supply to the students investors in our Protege Program.
What are you going to pay your investors when they put money into your deal? These aren’t Allyson’s exact numbers but here is her structure:
- She's going to pay them an 8% preferred return, which means they get paid first before any other partners.
- There is a 75/25 split of the cashflow and the sale of the property in five years. 75% will go to the investors and 25% to Allyson and her team.
None of this works if you don't do a good job of due diligence on the property, the finances, and the legalities.
Allyson isn’t doing this by herself. There are two components she needs to execute these deals. First she needs a property manager who is experienced in operating properties of this size. One of the great things about our Protégé Program at Commercial Property Advisors is we not only help students purchase their commercial property, but we also teach them the 4 pillars of management:
- How to manage the manager
- How to manage their money
- How to manage the marketing
- How to manage the maintenance
She also needs an experienced team. We're part of her team, but she also has other people on her team that have multifamily experience.
One of the least talked about aspects in this business is an exit strategy. However, it is a critical component in any deal. It's important because it’s the way you're going to get your money out to the investors and to yourself. We help our students develop a clear, concise, and conservative plan on how to execute this whole strategy from conception to exiting the deal.
Real Estate Syndication, or raising capital from individual investors, is a legal process. To learn more about this process, watch my video called The Basics of Real Estate Syndication where I outline the basic legal requirements.
Allyson raised over $4 million for this deal. Now some of you said that she has a rich relative as one of her investors. But let me ask you this, if you have a rich relative, why are they rich? They are rich because they make great business decisions. So, Allyson had to make sure she had a strong, structured deal to convince this rich relative to invest with her.
Close the Deal:
If you watch Allyson's first video entitled Beginner Buys $5 Million 66-Unit Apartment Deal, you can see the process she went through to close this deal.