Big Multifamily Mistakes New Investors Make

David Hamer (00:00)
I think a big aspect in real estate investing is the promise of cashflow and mailbox money. And cashflow is great and I love it, but it’s really not how you build extreme wealth in real estate. It’s really through the equity appreciation in a property and paying down debt over time. And then the extreme tax benefits that you get by investing in real estate.

Cody Crabb (01:53)
Welcome back to the real estate pros podcast. I’m Cody Crabb with investor fuel. And today I’m joined by David Hamer, who is the owner and operator of Expedition Capital. David focuses on value add multifamily investments across multiple markets. But what’s interesting about David is he didn’t jump in early. He spent years around real estate.

before he actually pulled the trigger. And now he’s actively building, he’s raising capital. This is gonna be a great episode. We’re gonna talk about how he evaluates deals, what he’s seeing on his side in the market, and where operators are getting themselves into trouble. So David, thank you so much for coming on the podcast today. It’s a pleasure.

David Hamer (02:28)
My pleasure. Thanks so much for having me today.

Cody Crabb (02:31)
Of so I want to start here. Now that you’re actively in the game, when you look at deals today, what actually makes something worth pursuing for you?

David Hamer (02:39)
Yeah, it’s a great question and it’s really important to have your underwriting criteria nailed down. For me, market is really kind of the most important factor. And so what I look for is markets that are growing in population, in job growth, have good demographics. And I also look for landlord friendly states where you’re not going to be punished by being a landlord and trying to rent out space to tenants.

So those are really the key factors that I look for kind of on a macro basis. On a more individual basis, I really like value add deals. So looking for a property that needs some tender loving care that has been a little bit neglected by the existing owner. Maybe they’ve owned it for a long time and are comfortable with the property and making good profits off of it, but haven’t.

invested a lot of money into it over time and have maintained below market rents because of that. So you can come into the property, buy it at a decent price that will still provide a nice profit to the seller and put some money into improving the individual units, improving the exterior and lift the rents up to market rate and make a nice profit by doing that. So on a more individual property basis, that’s really what I’m looking for is a value add potential in a multifamily property.

Cody Crabb (03:58)
Interesting. So in that case, what would you say? What would you say no to like that’s that that’s a that’s a question that comes to mind

David Hamer (04:05)
Yeah, more of a stabilized property that’s probably class A and the rents are already at market rate and

definitely in a geographic area that I’m not interested in. that I can pass on pretty easily. But as for an individual property, any multifamily deal where the rents are pretty much stabilized at market rents and if you come in and buy it, yeah, you get a decent return, but there’s not tons of upside and not the potential to improve the property and increase rents substantially, thereby increasing the overall value of the property. So that’s something that I pretty much pass on at this point. I really want to see that value add

potential in the deal. There’s lots of different ways to do that. mean, it could just be being run poorly and the occupancy is down because of that, or the current management is not, you know, increasing to market rents, even though the building itself is in good shape. But for the most part, it’s typically you need to do some type of improvements to the property, whether it’s the interior units, the exterior or a combination of both adding some amenities or whatever it is to increase the value and increase the rents on the property to increase

value.

Cody Crabb (05:14)
Okay, so when you on the deal side ⁓ Are you seeing like enough opportunities on your end or is it you know? What’s the typical deal that you’re seeing right now that? That is like in the market because it’s I’m interested in knowing like are you seeing what you want to see or are you still? Are you having a hard time finding him?

David Hamer (06:22)
Yeah, it’s been a tough market as most people know, especially in multifamily over the past couple years. And I feel like it’s just starting to open up a little bit now and some more deals are coming on the market that are of interest to me, although there’s probably still a difference between what the seller wants for it and what it’s probably actually worth and what I want to pay for it. So I have not been aggressive over the past 12 to 24 months in looking for deals and purchasing anything.

But I do feel like that the market is opening up and buyers and sellers are getting closer and I think there is going to be a lot of opportunity over the next 24 to 36 months. But no, it has been a tough market to find existing properties, to find new acquisitions.

And just a whole lot of aspects of multifamily investing have gone against investors, not just interest rates. So that’s been a big part of it, but insurance costs and overbuilding in some areas and all that have impacted the opportunity to find good investments. So again, I haven’t been aggressive in finding anything recently, but I do think opportunities are coming here pretty soon.

Cody Crabb (07:33)
Okay, so let’s kind of do a little bit of a rewind. I would love to hear about kind of how you, your intro into this world, what made this, you mentioned to me in the pre-podcast chat that you had hung back a long time on the edges of real estate. You kind of thought it was a good idea, you wanted to kind of get into it, but you never did. So I’d love to know why that is, and maybe give us a little of your story as well.

David Hamer (08:01)
Yeah, absolutely. I think it’s a very interesting and provide some good lessons about real estate investing as well. I’ve been involved in the real estate industry for almost my entire working career. I worked as an accountant for a few years, but specialized in real estate before going to work for a commercial management, a commercial real estate company. And while there, I read the book, Rich Dad Poor Dad, like so many real estate investors have over the years. And this was just a few years after it came out. And I said to myself,

that’s what I want to do. I want to build wealth through real estate. I want to invest in real estate. I’m going to do it. And I was all gung-ho about it and ready to go out there and buy everything in sight. And then it kind of got smacked by real world reality about that. So I live in the Southern California area in the Los Angeles market. I started looking for, and this is 25 years ago, started looking for properties, small multifamily properties in this area. And even back then.

couldn’t find anything that could cash flow. Everything was so expensive. Was wondering how am I even gonna save up enough for a down payment on some of these properties? And started to get a little bit discouraged. And kept looking for a few years and just couldn’t find anything that made sense.

And then the global financial crisis hit and real estate took a dive and that discouraged me even more. So I didn’t do anything with respect to real estate investing, even though I was working for a real estate company for 15 years. 15 years I waited. And then finally at that point in time, I was listening to some real estate podcasts and they just, one of the hosts said, you just got to go out and do it. You just have to go out.

and take the plunge and buy your first investment property and maybe it will work out great and maybe it won’t, but at least you’ll learn, you’ll get a lot of experience and most likely you’ll continue moving forward from that point if you just finally take the dive and do it. And so I made a commitment to myself. I said, I’m going to, in the next 12 months, I’m going to purchase an investment property.

And that’s what I ended up doing. So again, I was looking in the Los Angeles area, couldn’t find anything. So ended up having to look outside of California to find my first investment property. And I did. And fortunately for me, it worked out great. And since then I’ve been able to build up a nice multifamily portfolio. ⁓ Even though it took me 15 years to invest in my first property over the last nine years, I’ve been able to purchase several more and build up a nice portfolio.

Cody Crabb (11:09)
See, that’s interesting, because I think a lot of people get stuck there at the hesitation part. And sometimes all they need is just this little tiny, you can do it, and then if it hits you the right time, that’s all he needs. So now that you’re actually on the other side of that, I’m curious, what do you think people are still getting wrong today when they finally do start investing?

David Hamer (11:29)
Yeah, a couple of different things. I first, think a lot of people think I don’t have enough money to invest in real estate and you really don’t need that much. know, if you’re going to go out and try to buy a, you know, hundred million dollar property all on your own, then yeah, most people probably aren’t going to have enough. But you can start small and you can get into properties with not a lot of money. And there’s partnerships.

and there’s syndication deals where you can invest without a lot of money, but really it can be a joint sport, a joint investing process to allow you to get in without having to have tons of money. And then I think a lot of people don’t realize the access to money that they have, whether it’s through retirement plans or whatnot, being able to invest through retirement plans.

which is certainly allowed. So lack of money is one. I think a lack of knowledge is another. A lot of people think, I just don’t know enough about it. I don’t know how to do this. And again, that’s where you can certainly educate yourself and learn about real estate investing. And the best way to learn about it is to actually do it. And again, you can start small and learn about it, but you can also partner with people and partner with someone like me who has the knowledge and is willing to share it.

and that then can shepherd those novice investors along who are interested in real estate investing because they’ve heard about all the benefits of it, but don’t have the confidence themselves to do it on their own. So the money and the knowledge are the two things that I feel hold people back the most. And then a third is I don’t have enough time to do this because everyone hears real estate investing is passive income and it’s really not.

passive income, you do have to put some time and effort into it. ⁓ Even if you’re just investing in someone else’s deal, you still have to learn about it and do your own due diligence. But time is another factor. again, partnering with other people who do this on a regular basis and can spend most of the time involved in investing in a deal can solve that problem as well.

Cody Crabb (13:36)
So just out of curiosity, our audience is mostly new real estate investors. So where do you think people are too optimistic? Because you said a lot of people are too negative, like, oh, they feel like they don’t have enough money or something. But where are people way too optimistic? Like, oh, yeah, this is going to be fine, and they’re not expecting to get blindsided by something.

David Hamer (13:56)
I think a big aspect in real estate investing is the promise of cashflow and mailbox money. And cashflow is great and I love it, but it’s really not how you build extreme wealth in real estate. It’s really through the equity appreciation in a property and paying down debt over time. And then the extreme tax benefits that you get by investing in real estate.

So I think a lot of people think, I’m going to invest in a single family home.

and it’s gonna produce tons of cash flow and then I’m gonna be able to, every year I can do one of those and in five years I can leave my job. And they just don’t produce enough cash flow like that to do that. It may look good on paper, but then you have a hot water heater break or you need to put on a new roof and it eats up like a one or two years of cash flow. But really, if you look back over time after holding that property for 10 years,

you’ve built, it’s gone up in value and you’ve paid down the mortgage and you have a lot of equity in that property that has increased your wealth tremendously. So I think a lot of people get fooled with cashflow and are overly optimistic on that. It’s not to say that real estate doesn’t produce nice cashflow and that there are tax benefits that protect that cashflow from having to pay taxes on it.

And that does exist, but I think some people are overly optimistic about how much cash flow they’re actually going to make and don’t realize what’s the other benefits that are even bigger are in real estate investing.

Cody Crabb (16:07)
Yeah, and so, can you think of a deal that maybe you’ve done, I like getting on boots on the ground, real stories and stuff too. Can you think of a deal that you’ve done where expectation didn’t really match reality? Like it was maybe not exactly what you expected it to be?

David Hamer (16:23)
Yeah, I mean, it always happens in real estate. If you do enough deals, some are always not going to be as good as the others and some are gonna be kind of disappointing. unfortunately, a multifamily deal that I did three years ago is still a work in progress at this point in time and not kind of hitting the…

pro forma estimates that we have projected. And there’s a variety of reasons for that. Some of it is market conditions and there was overbuilding in this geographic area, which has impacted rents at all level and occupancy levels as well. And some of it has been on the management side, which is also an very underrated aspect of real estate investing is ⁓ if you’re not gonna self manage the property yourself, and if you are, that’s a lot of work and takes a lot of time and effort.

⁓ But if you’re not, you need to select a good property manager for your properties. And all my properties are managed by third parties, not by me personally, even though I oversee them. ⁓ But selecting the right manager is a key aspect, especially when you’re talking about a multifamily property that has multiple tenants and multiple sinks and toilets that can break and multiple pieces of equipment.

that can break as well and constant turnover with respect to tenants depending on the size of the building. So you really need a good management company in place to be able to deal with those woes. quite frankly, I probably haven’t chosen the best managers. Some of it was out of my control, the issues that arose after they were hired and others just not picking the… So I have gone through a few different management companies.

on that property in order to find the right one. But fortunately now, I think I do have the right property manager in there and we’re making progress on getting that property up to the level that we hoped it would be and expected it to be. But it’s just taken a lot longer than originally anticipated. And of course that impacts your overall returns on the investment.

Cody Crabb (18:23)
Yeah, yeah. so just for anyone listening, mean, what the the property management sounds like a really good idea on paper and especially like maybe you’re not local or something. You have no choice to accept you have to do that. I would be curious to know what what qualities do you do you look for now now that you’ve had a bad version of this? What what qualities do you look for now in property managers?

David Hamer (18:48)
Yeah, mean, choosing the correct property manager is probably, you know, the most, one of the most essential, if not the most essential functions in real estate investing here, if you’re not going to manage yourself and especially if you’re doing it remotely. And so what I look for, I mean, first I asked the brokers that I work with and know in the area who the best property management companies are. And then, then what I look for is ones that have managed similar buildings to the one that I’m buying.

or the one that I own and in the same general geographic area dealing with the same type of tenants that are in the building that I’m going to purchase. And then I also like to see understand, you know, what their reporting is, how often they report, what the communication is, how often they’re at the property, visiting the property, or if it’s big enough, what the on-site management looks like. But really I tell my property managers that the two most important things to me are

to keep the property filled, to keep vacancies to a minimum, and to make sure the rent is collected on time. Now, yes, of course I want them to respond to problems at the building with tenants or if there’s leaks or whatever as quickly as possible and to maintain the interiors and exterior of the building as nicely as possible. But I say if the building’s full occupancy and rents are being collected on time, you’re probably never gonna hear from me.

If those two things aren’t happening, then we’re gonna be talking a lot more often. But you do have to stay on top of, even if the building is 100 % full and every tenant is paying their rent on the first of the month, you need to review the reports. You need to make sure that the cash that’s coming into the owner’s bank account matches up with what’s being reported. And then I truly believe you do need to visit the properties at least once a year, even if you’re not.

even if you’re a remote investor, because that’s very important just to make sure that the building’s being well maintained and to let the property manager know that you’re on top of things, you’re overseeing it. So you do have to continue to provide oversight over the property manager.

Cody Crabb (20:59)
Yeah, yeah, for sure. Those are some really good tips. I hear a lot of people say like buying out of state where it’s cheaper or something and then they just, they don’t act like they’re ever gonna go there in person and I’m like, that’s maybe not a good idea. Yeah, and like you said, you can get so much more information just physically being there and so I think that’s a great tip, making sure you visit at least once a year. So looking ahead over like the next one, two years, one or two years.

What do you see yourself doing? Are you planning on getting more aggressive? Are you still staying pretty selective?

David Hamer (21:27)
Yeah, I’ll probably stay pretty selective. It’s not in my nature to want to be too busy and to grow too fast. So while I love real estate investing and I love working on deals, I also value the freedom that real estate investing gives me to be able to spend time with the family and do other personal things. I tell everyone if I can do one or two deals a year, buy one or two new properties every year,

I’m pretty happy with that. That occupies enough of my time, keeps me busy, kind of satisfies that investor bug in me without occupying too much time and gives me enough time to provide asset management and oversee the rest of my properties as well. So even if it was a very hot market and there’s tons of great deals out there, I’m still gonna be selective looking for the best deal.

and probably only do one or two deals a year and offer that as an investment opportunity to my potential investors. ⁓ But yeah, I’ll be selective no matter what. And this is certainly the market to be selective, but I think, as I mentioned earlier, that there are gonna be more opportunities here coming up pretty soon.

Cody Crabb (22:37)
Yeah, totally. because our audience is mainly real estate investors that are kind of early in the journey, for someone that wants to get into multifamily but they want to do it the right way, I’d love to hear what you advice you would give them to focus on first.

David Hamer (22:50)
Thank

Yeah, I mean, I think the best way to get involved in multifamily, especially if you’re a newer investor to real estate, is to find someone who’s been doing this for quite some time, has a track record, has the experience, and then leverage that knowledge, that experience, and their investor base as well. And you can potentially invest with them, or you can partner with them.

or just seek out knowledge from them and determine which route you wanna go in terms of investing in multifamily. And multifamily can be just buying a duplex or a four unit apartment building. And that’s something that you probably can do on your own, but again, if you don’t have the confidence, partner with someone, invest with someone else, or at least try to leverage the experience and expertise of someone who’s done this for quite some time.

Cody Crabb (23:46)
Yeah, that mentor mentee or just kind of partnering with someone that knows what really knows what they’re doing. You’re letting their experience, you’re letting their experience go through to you. You don’t have to make the same mistakes they did is what I was trying to say. This has been really great. Thank you so much for joining us here. So ⁓ if people want to connect with you, who would you like to connect with you and where can they find you on?

David Hamer (24:02)
For

Sure, I’m happy to talk to anyone who’s interested in multifamily investing. I love talking about real estate as you can tell. So if you just want to, you know, again, leverage my expertise, absolutely. But if you are interested in investing in multifamily properties as well, happy to have a discussion to see if we’re the right fit for you. You can find me on LinkedIn or go to my website. It’s at www.expcapitalllc.com.

And I also have some free educational resources on there. You can take a look at the properties that I own and happy to schedule a call with you as well for anyone who’s interested in learning more about multifamily investing or in potentially investing in one of the opportunities that I find.

Cody Crabb (24:45)
nice.

Yeah, well thanks again so much for coming on and being real about how this actually works, especially the parts that are not like the ones that go perfectly, because it’s great to share those things, but also we need to hear the mistakes, we need to hear stuff like that, because that’s what prevents us from doing stuff in the future. So thanks so much for sharing that, being open with that. And so for everyone listening, if you got some value out of this, which I know you did, please make sure you’re subscribed to the Real Estate Pros YouTube channel.

to catch future episodes and more conversations like this. So once again, David, thanks so much for being here and we’ll see you another time.

David Hamer (25:30)
My pleasure, Cody. Thank you so much.

Cody Crabb (25:32)
Thanks.