Navigating Multifamily Investing: 5 Key Strategies for Investors

Mike Hambright (00:05.218)
Hey guys, welcome back to the show. Today I’m here with my buddy, Jorge Abreu, here in the Dallas market. Actually, we’re partners. We’re business partners, right? Yes, we are. It’s official. It’s been official for a while. Anyway.

I guess I got a lot of partners ultimately. But a good friend, great guy, multifamily investor. Actually, we used to be competitors in single family, too. So we were competitors, and now we’re partners. It’s a long time ago. We kind of came up at the same time. But he is an amazing multifamily operator. We’re going to be talking about multifamily investing, large apartment syndications today. Kind of a state of the union. Like, what’s going on? Where have we been? Where are we going? And what is this business model? What does that asset class look like from kind of here on out? So Jorge, welcome to the show.

Thanks Mike. I’m excited to be here. Yeah, good to see you always good to you know one of the reasons I do the podcast is because like you and I are friends I would consider us, you know good friends I could call you anytime when we could probably jump on the phone real fast But months go by and you never talk and it’s like well This is a way for me to kind of lure people in I brushed your ego a little bit to kind of be on a podcast and hey you are it works I’m here. I’m glad you are so yeah, so let’s let’s I wanted to usually ask people to kind of go back and tell us kind of how you got started But this is an interesting one. I didn’t think about

Until I was doing the intro, but we both were kind of coming up as wholesalers and stuff. When did you start? started in eight. When did you start? I started in? Ronald six okay in Miami so before I even move to Dallas okay, we did quite a bit of Wholesaling and then we started getting into the fix and flips. Yeah, and then 2008 happened right in the market crashed Miami you couldn’t really touch it prices Yeah prices were just plummeting. Yeah, and then we had an investment

that had moved here to Dallas, came and checked out what he was doing. And we’re blown away. We’re like, wow, you can still do deals here in Dallas. So that was a wait. OK. Yeah, so about the same time. So tell us a little bit more about your background. you guys, because you made a transition at some point to do. Absolutely. You basically did. You don’t want to steal your thunder. But obviously, you’ve changed. You’ve pivoted a little bit here and there. We all do as entrepreneurs.

Mike Hambright (02:14.54)
So you started investing in Dallas in 08. And then take us from there. Yeah, I mean, there’s been a ton of pivots, like you said, Started in wholesaling, single family, like I mentioned, in Miami. In 08, when we came to Dallas, the

fix and flip part was not quite there. So then we started building a rental portfolio. We bought a couple fourplexes, several single family homes, and I didn’t enjoy the management of it. It was not enough units to really…

higher third party management. mean, there’s some out there, sure, but with the fees, it doesn’t really make a whole lot of sense. But you had the cashflow bug, I guess, at that point even. Right, right. then, so after a few years, once the market started heating back up, we went back to fix and flips and sold the rental portfolio we had at that point. Really started leaning into the fix and flips.

But I ran into kind like a brick wall, trying to scale that. I know you’ve been there. And we were doing, mean, at one point, we were wholesaling maybe 50 homes and then fixing flips 30 plus. I mean, it was a lot going on. We did, what else did we do there? We did seller financing deals. We did all types of deals, right?

Until finally about eight years ago, I got introduced to multifamily syndications. Before that, I thought anybody buying a 100 unit apartment was putting millions of their own money into the deal. I was like, there’s no way I can do that yet, right? But once I got introduced to syndication, I’m like, OK, so I can.

Mike Hambright (04:05.71)
pull this money together from investors, have them come and be partners with me, and then take these down, and one deal, I’ve got that skill that I’ve been wanting to do, or get to. So, kind of blew my mind. I spent probably six months to a year just really getting educated on the underwriting and just anything and everything to do with multifamily syndications.

sold whatever single family I had left and went all in. Yeah, that’s awesome. Now, before that, though, you also started a construction company, which you still have. So was that a byproduct of your fix and flip business? You’re like, hey, just. Yeah, the driver was the real estate and the goal was to scale. One of the issues we ran into early on was finding good contractors. Yeah. So that’s when we brought it in-house. I solved that problem. We were able to pump out these fix and flips. And even we got to the point where we

doing ground up and all kinds of stuff. Yeah, because I remember you were doing a bunch of like I rehabbed a lot of houses but I never I didn’t really change the structures much and you guys were like popping the tops off of houses. We were. Big big add-ons down in in you know the M streets and some other areas too right? Yeah remember you had one close to on the M I had one on Richard which is not uh anyway and then I remember driving past one of yours with a sign in the yard I think I called you I was like what are you guys doing over

or something like that. Yeah, I think we met up actually at your property. OK, yeah. Yeah, you know what’s funny is nobody cares about this, but my sister and brother-in-law live on that street now where we had our house at, like five or six houses down. It was kind of weird when they, I guess when you flipped a lot of houses, like, and you drive through neighborhoods, you’re like, I flipped that one and that one. And so it’s always, I don’t know, a little weird.

But yeah, that’s cool. So then your construction company has evolved now to where you basically use it more for the multifamily side. Correct. Same thing. We did the focus over to multifamily. We had actually started transitioning even before that. While we still doing the single family, I started taking on more commercial clients on the construction side. And actually, that’s how I got introduced to multifamily syndications, was we had taken on a multifamily renovation. And then speaking to that client, he was a syndicator. And he started explaining it to me. And I was like, wait, what?

Mike Hambright (06:22.416)
And yeah. Yeah. That’s interesting. So let’s talk about just really kind of high level, the pains that you’ve been through over the past few years, or that multifamily investors have been through over the past couple of years. mean, it’s been a rough road. Yeah, it’s been a roller coaster. Look, mean, the market was on fire, right? Everybody looked like a great multifamily operator for years. You could.

sell anything and get top dollar for it. And then things slowed down, right? Interest rates started going up. Property taxes started going through the roof since the values had gone up so much. And that changed everything. it’s really the past couple of years have been separating those good operators from the ones that were not so good. And we’re kind of just faking it, right? And it’s been rough. We’ve had to get

You know, we always thought operations was our strength with the construction company and and just all the years of like I mentioned the rental portfolio and everything But we didn’t have in-house management so about Over two years ago now we we we brought in management in-house right before things started getting real dicey in the market We kind of felt it was coming. So we knew we had to get really strong with the operations and that’s helped a ton. I mean we’ve

We’re really able to operate these properties at a maximum optimization as far as expenses, other income. We’re able to really produce income where other operators may not even think about implementing some of the things we do. So it’s not been easy, but we have been able to position.

portfolio in a good place and kind of ride out this market. Yeah. And so what are some of the issues that have kind of happened over the past couple years? I’m in a bunch of syndications with somebody else. I’m one with you and probably will do more in the future is my hope. So don’t hold me to that. I’m holding you. I am looking for, know, I let, I mean, I’ve transitioned into multifamily as well because I, you know, I have a rental portfolio here, a single family rental portfolio.

Mike Hambright (08:35.158)
I want to, you know, it’s hard to 10x that. So multi-family is way easier. But one of the main issues that’s been happening, I think, is the financing, right? So what’s pretty common is you buy a property.

your full intention is to refinance it in two or three years with a bridge loan. You have a bridge loan that’s going to allow you to go fix the operations, improve the property, get the rents up and refinance. And that, like the bridge loans were a couple of years ago, were at decent rates, but coming out on the other side, not only do the lenders maybe want more skin in the game or they’re trying to pull their risk levers, but interest rates were just way higher and nobody ever penciled out like what if rates are at eight or nine?

Yeah, it’s kind of like when you’re in a hot real estate market and you’re in that part of the cycle, everybody forgets that it’s a cycle. Everybody forgets that there’s that downturn at some point. the lenders became more lenient and they were leveraging up on the deals. And really, the bridge loan, a bridge loan

the point of it should be something that’s not, that you’re not able to go and get a good, decent permanent loan on and has a very large value add component to it. But it got to the point where the bridge loans rates were lower than your agency rates and it got more attractive. So you had operators, syndicators using bridge loans when on deals that maybe they shouldn’t be, right? Just to get more leverage. And that, those are the deals that

have really gotten hurt in the past couple years because now they were underwritten on artificially low rates. High leverage. Yeah. know, crazy assumptions when it comes to the rent growth and the cap rates. And so now when those bridge loans are due, the idea was that that operator was going to either sell it or they were going to refinance it into agency. But now that doesn’t size up because now the lenders have all pulled back.

Mike Hambright (10:41.676)
So yeah, that’s what’s created a lot of situations. You’ve got foreclosures and all that kind of stuff happening. Yeah. And what’s happening with occupancy overall? Do you know industry-wide? Because it feels like occupancy rates for apartments is down. Is that possible? It is. mean, it all goes back to supply and demand, right? And you’ve got, as the market heated up,

All the builders got in and they started developing multifamily. So the last two years, you’ve had record high deliverables on these multifamily units. Obviously, the more units you’ve got in the market, the lower the rent’s going to get because you’ve got to fill all those. In certain markets, it’s been better than others. I mean, there’s certain markets that we really like, like the one you’re in in South Dakota, Northwest Arkansas. Dallas is a great market, too.

Dallas has seen some softening, but the population growth and the job growth is so good that it’s popping back up already. So I those, I believe, is somewhat temporary, because now you’re going to have record lows on deliverables on units for the next few years. And while that’s happening, if you’re in a market that has high population growth, job growth, you’re going to see the runs go back up. Yeah. So what do you think is going to happen here in terms of?

Shakeout like there hasn’t been a lot of good deal

There have been a lot of good opportunities, really. some people are, there’s obviously people that have lost their deals already, and lenders are taking them back, foreclosures, things like that. Some of them are just going to sell because they just want to get out. And maybe they’ll lose money, and maybe they won’t. But what do you see? I feel like it is a cycle. So there will be a good time to buy again. And I don’t know how far off that is. But when is a realistically decent time when we’ll start seeing more decent deals?

Mike Hambright (12:33.604)
in.

I think it’s a good time right now. But I hear you. The deal flow is a little harder to find, for sure. I mean, we’re at the point where something’s listed, like an exclusive listing. We’re pretty much ignoring it, just because we know the pricing is probably not going to work. But going off market and finding these sellers that have those situations that you’re talking about, there is still some good opportunity there. And the trick is finding somebody that actually has the equity and did

leverage up and can take that loss essentially. So it doesn’t have to go back to the lender because then that’s a whole process. The lender takes it back in the foreclosure. Usually they’re going to try to get it done behind doors. It’s not like single family where there was a ton of deals listed that were in foreclosure back in 2009, 2010 and all that. So it’s kind of a different beast, I think.

If you ask me, I think it’s gonna last maybe till about the end of this year when the economy hopefully starts looking stronger, and you’re gonna have those issues that I mentioned with the supply and demand, it’s gonna heat back up. Before anybody knows it, that opportunity’s gonna be gone.

And you’ve had to get creative a little bit too, right? I think, not to get too specific, but think the deal that I’m in on with you guys, like the seller maybe did a carry back. Wasn’t there something? mean, there’s a little more creative financing or creative ways We’ve a lot of seller finance. The deal we just closed late last year, maybe that’s the one you’re thinking of, had a nice 3 and 1 million of seller financing. Yeah, I mean, I think in times like this, you’ve got to get creative. And that’s how you make deals work. Yeah. Not everybody.

Mike Hambright (14:18.54)
can kind of think outside the box. So you had to, though, right? Yeah. I mean, if you want to keep doing deals and you want to make sense of them, we also don’t want to do deals just to do deals. We see that, too. And just like in the single family space, I still think that your money, for the most part, is made on the buy. So we don’t want to overpay for something or pay a very low cap rate, essentially a property that’s not performing, just to do a deal. Right.

Yeah, and there’s a lot of, I mean, I think one of the problems is a lot of, in the years past, there were a lot of folks that were, it was just easier to raise money, but they weren’t necessarily like great operators, right? Yeah. And so, so they would academically make some assumptions. You everybody has a model, they put in a model, they make some assumptions, but the assumption was,

They just weren’t accurate. mean, they were maybe accurate for the way it had been, but not for where they went over the last couple of years, right? Yeah. And I mean, I say this all the time. You can almost make any deal look good on paper, right, with your assumptions and what you’re projecting. You change your exit cap rate a little bit, and it looks like a great deal. But is that achievable? Maybe you raise the equity upfront.

But then what are you going to actually return to your investors? And it’s going to catch up to you eventually if that’s what you’re doing. And I think investors are becoming a little more savvy now, like you’re saying. It was easier to raise equity back then. They weren’t questioning things. I think now it’s a different. So for folks that want to put money into deals that are considered an LP typically,

How do they vet? Because I think what was really happening is they weren’t vetting out the operator. They were just looking at the deal as if that was a list of facts, but it was assumptions. That’s a good point. Yeah. So now you have to really should. They should have been all along, but looking at the operator to see, well, how many deals have you exited? How many doors do you manage? What role do you play in that? What are some of the things that they should be looking at? Yeah, some of the things that I suggest is, like you mentioned, an actual track record of deals that they’ve gone full cycle on, that they’ve

Mike Hambright (16:29.91)
sold.

I would ask a lot of questions about the team. Like, who’s managing the day to day? And what I’m trying to see there is, is there a company or a team behind that individual, or is it just an individual that’s gonna be hiring third party for everything and kind of counting on the management company essentially to execute the business plan versus somebody that’s got a full team. They’ve got an analyst, they’ve got an asset manager, they’ve got this, that.

And basically, track record, good team, and I would say good morals. I know that’s kind of hard to judge sometimes, but really try to get to know the syndicator if you can. If you can meet them in person, great. I think that’s always a game changer when you get to meet somebody in person.

And then as far as the deal goes, so I think just doing a little bit more vetting of the deal as well. You mentioned it’s not, if you’ve got two deals in front of you, don’t just look at the returns and compare those two and just go with the highest return. That’s what a lot of investors were doing. And like you said, it’s not set in stone. Those are all projections. That is not guaranteed money. Every number on there has an asterisk next to it. Yes, yes. None of it’s guaranteed.

how are they getting to that? What are they projecting? What what rent growth yearly are they projecting? Did they really calculate the taxes? they insurance wise are they taking into account that insurance continues to rise and we continue to have all these natural disasters? yeah. Yeah. So

Mike Hambright (18:19.086)
What do you think is in store for, like as deals, we’re talking about how people should be a little more particular when analyzing deals, but what do you think is in store for the next couple years in terms of opportunities that are coming out? Like there’s been some bad operators that are probably out of the game or knocked out of the game or should be out of the game, you know? But what do you feel like is gonna happen over the next couple years here? I think you’re gonna, I think it starts with the location. if.

You want to pick a strong location that’s got, like I mentioned already, the job growth, the population growth, the diverse economy. It’s not just relying on one source. So if you’ve got that, and then if you look at the units being delivered, if your population growth is outweighing how many units you’re going to have, that’s a good sign. You want to see that for the next couple of years.

And then asset, so asset class is something that we’ve changed over the years too. You we started in.

Really, the uglier the better. Yeah, you were high value add. And now it’s stuff that’s already even A-class properties, right? Absolutely. Absolutely. And I think the perception of A-class for a while there was that you’re to get really low returns if you go into an A-class. And that is true in some. And it’s usually the ones that are core plus type assets, your A-plus assets.

we’re just looking for newer builds. Something that’s not going to have all the plumbing and electrical issues and all these other things that I don’t have to worry about that. And I can just do a really good job at managing it and easier to project what my repairs and renovations are going to be. Yeah, because nobody ever, I mean.

Mike Hambright (20:10.794)
Even on the single family side, most people underestimate the repair costs of something, just because they subconsciously want the deal to work. Yeah, yeah, that’s true. You of fall in love with the deal or fall in love with, need a deal. And then you start to just overlook stuff. I they overlook. hindsight, you’ll look back and be like, man, why did I do that? they overlook the effort, I think, too, and the risk involved in it. Because it’s like, yeah, the numbers look great. The yields look great. But.

How much time, resources, and effort is it going to take you to execute that? And if something does go wrong, it’s going to be harder to rectify that. Yeah. What would you say for those geographically? Of all the deals that I own or that I’m partnering, none are actually in Texas. I know you’ve got some deals here. in Dallas, it was really hard. You had to bank on.

at the I’m very conservative so it was like an uncomfortable level of appreciation that I just even though that had happened after several years like at some point this is gonna stop right but some people were right and some were wrong but I know like the deal that I’m in with you it’s a good deal it’s in South Dakota like

I don’t know anybody else that has a deal in South Dakota, but it’s a strong market, I love the markets that there’s not a lot of attention, right? Not a lot of buyers, not a lot of, but the data’s there. And they’re still there. Those markets are there. They’re not super sexy looking when you look at everything that’s happening, but.

The job growth is there, the population growth is there, the lack of supplies there. It all makes sense. Business-friendly. Yeah, we’re 99 % occupied at that property rate. Landlord-friendly, correct. So as much as I do love everything that’s happening in DFW, like you’re saying, there’s a lot of eyes on it. There’s a lot of buyers, which then causes

Mike Hambright (22:09.912)
What I want to say is overpaying for some of these properties. Whether it’s considered overpaying or not, if everybody’s overpaying. But I’m with you, man. like to force the appreciation. I like to come in and add value versus banking on the appreciation, which in markets like that, California, that’s a market that you’ve got to bank on appreciation because you’re paying so much. Phoenix, right? Phoenix was a hot market for a while.

I was tempted to go in there, but every time I looked at the price, I was just like, how does this make any sense? And yeah, mean, some operators went in there and made some good money. But there’s a lot of people holding some properties right now that they paid a whole lot for. So what do you think makes a good deal? What makes a good deal? That’s a good question. I think it starts with

If we put the market aside, I mean that’s number one for me. If it’s not a good location, I’m not even paying any attention to it. don’t care what the deal is. Then I look at the cost basis. What am I paying for it? What’s the replacement cost? If it’s under replacement cost, then I’m interested. I want to know more. And then what is the value at it? Is there a decent?

value add component that I can come in and raise the rents 150. I can come in and lower the insurance because now we’ve got an insurance company and we know we can get that less. I can come in with my management company and I know I can lower the expense by this much. So with those, am I buying it at a good price? Do I know I can come in and add that value? Yeah.

And then that’s what makes a good deal of me. So how important is it to kind of vertically integrate? You’ve got a construction company. You’ve got a management company. You’ve got an insurance company now. It’s kind of evolution, right, is to say, well, we’re paying somebody for this. Why don’t we do this ourselves or find another way?

Mike Hambright (24:07.512)
How important are those things? It makes good business sense, but how important are those things to be able to make a deal work even? If people are looking at syndicators, is it like, they’re safer because they’ve got vertically integrated? Or how do you look at that? I think in a market like this, where you’ve got to be able to operate.

really tight with your expenses. I think it’s a must to be a good operator. You get more control over those things. You have more control of it. You’ve got your cost savings from it. Going back to cost basis, your overall cost basis on the deal is going to be lower because you’ve got that integration. Is it for everybody?

No, I mean, you’ve got to be able to manage several companies, because it is in itself they are their own companies. Whether you take third party business or not, it’s its own entity and business. Yeah, yeah. So talk about this. One of the things that I know about you, because I know some of your team, you’ve got a really excellent team from my perspective, from what I’ve seen. Thank you. Sometimes there’s people that are out there that

are really a solopreneur. I mean, they might have a team behind them, but they’re clearly the one person that you’re betting on instead of a team effort. And I think there’s probably things that you would say that you’re not good at, and you brought in somebody to help with that. So just talk about the importance of the executive team to operate at your level. Yeah, mean, look, I think I was that solopreneur.

even if I had my partner, right, Eric? But we didn’t have a massive team when we were doing the single family. A lot of it went through us. And I think you only have so much bandwidth. So my goal here is to

Mike Hambright (26:02.038)
Create a massive portfolio, have this vertical integration. There’s no way that everything’s going to have, can run through me. It’s impossible. So when I started doing this, right off the bat, I told myself, OK, I’m going to build this as a true company. It’s not only going to count on me. If I’m going to go and take two weeks off, I can take those two weeks off and know that the company is going to still run.

So I mean, it wasn’t easy, right? wasn’t right off the bat. You can’t go and hire all these people. I mean, I guess you could, but obviously you’re to be floating some of that cost. we’ve been real selective with who we bring on and just finding somebody that meshes good with the team and somebody that sees the vision. And we haven’t made all the right moves, but we’re quick to adjust when we need to. Yeah. Yeah.

Why do you think this is a good time? I know you said that you think that now is a good time. Why is now? A lot of people are, I think there’s people that are eager for deal flow to start happening again. Maybe too eager. There’s some people that are gonna be put off for a while and they’re gonna miss an opportunity to come in on the early stages. But why do you think this is a good time? Just from experience. Whenever there’s something that everybody’s kinda.

on the sidelines or scared of or it’s harder to make things happen, right? We’ve talked about getting creative and the lenders aren’t lending that much money and when it’s harder to get something done and less people are doing it, to me that’s an opportunity. you know, as it gets easier.

that opportunity has passed you is what I’ve noticed throughout the years. Yeah. There’s a lot of people that wait for it to be perfect. At that point, you missed out on Everybody starts jumping in at that point, and then there goes your opportunity. That’s right. Yeah. Yeah. Awesome. Well, Jorge, if folks want to learn more about you and your team and what you’ve got going on,

Mike Hambright (28:04.802)
maybe ways to work with you or just anything else. Where should they go? Yeah. We’ve got a lot of information on our website. So Elevate CIG stands for Commercial Investment Group. ElevateCIG.com. You’ll see the deal offerings we’ve got right now. We’ve got a bunch of free content on there, educational stuff. So check it out. Awesome. Well, thanks for joining us. All Thank you. Yeah. Everybody.

There’s still a lot of wealth to be built in real estate. It’s not going anywhere. It’s really just a matter of where we are in the market cycle. So Jorge is a great guy. everybody should do their own homework. But he’s definitely somebody that I trust in this space. So you should go learn more about him if you’d like. So appreciate you guys a bunch. We’ll see you on the next show. Cool, man.