Dallas Multifamily Investing: How David Lilley Scales Apartment Deals With Vertical Integration

David Lilley (00:01)
know, do all the little things right. They matter and add up to big results. So that’s that’s always what I’ve tried to do. You know, think long term. A lot of people for whatever reason, just have a very short term mindset. They’re they’re willing to kind of sacrifice the long term for a quick win or whatever it is in the short term. But.

think that’s the wrong approach. Have the long game in mind. Do all the right things. It’s usually pretty clear what’s right and what’s wrong. So you’ve got to do right by your investors, your tenants, your employees. Do the right thing, no matter how small.

Michelle Kesil (02:17)
Hey everybody, welcome to the Real Estate Pros podcast. I’m your host, Michelle Kesil, and today I’m joined by someone I’m looking forward to chatting with, David Lilley, who is a multifamily investor, owning and operating in the Dallas area. So excited to have you here today, David.

David Lilley (02:39)
Thanks for having me on Michelle.

Michelle Kesil (02:41)
Yeah, absolutely. So those not familiar with your work yet, can you share what you’re focusing on these days?

David Lilley (02:48)
Yeah, yeah, of course. So we, we own and operate large apartment buildings at this point. You know, our typical transaction size is around 30 million and that’s usually 200 to 300 units in an area like Dallas. So we started buying, you know, sixties, seventies built properties that needed a lot of, a lot of love, a lot of improvement. And now most of our properties are eighties vintage.

And we also own a 95 deal and we’re closing on a 2017 vintage today. So we’re really, we’re opportunistic. Um, and we’ll, we’ll play in kind of any of those areas. When, when things are more normal of a market, it’s tougher to be competitive with the, you know, the newer 2010 or earlier properties, you know, that’s all what’s where the institutional money goes. And they, know, they’re okay with a lot lower returns.

Then we are so you know we’ve we’ve capitalized on some of those opportunities we were able to make work here recently, but you know, I think. Predominantly will be in the 80s vintage to early 2000s, most likely in the next couple of years.

Michelle Kesil (04:03)
Awesome. And I know you mentioned your business is vertically integrated. Can you share what that structure looks like?

David Lilley (04:13)
Yeah. Yeah. So back in 2021, so I founded the firm in 2017, uh, the investment arm, REAP Capital. In 2021, we, we formed a property management company to manage all the day-to-day operations at each property. And then in 2023, we founded our construction arm, REAP Construction. So basically every, all the major processes that we do throughout an investment cycle, now we do it internally. So everyone all.

co-located in our Dallas office, all on the same team, despite being under different company names, but even accounting, marketing, everything we do in-house, I like to have ultimate transparency and control of really everything.

Michelle Kesil (05:50)
Yeah, yeah, and what have been some of the main keys that have allowed your business to be able to grow and run successfully?

David Lilley (05:59)
⁓ the vertical integration has been one of them, you know, capturing those different streams of income and keeping them, you know, under the same roof, ⁓ has enabled us to grow, especially during like a slow market of the past couple of years. Last year, for instance, you know, we, closed one deal in December. So the entire year, you know, we looked at over 300 deals, nothing was worth jumping on and we didn’t have to because, ⁓

you know, we’re self-sufficient. But, you know, other people that are just, you know, making money on the acquisition or the disposition, you know, they’ve got to do deals to survive, which, you know, we don’t want to be in that position. So the vertical integration was key. And also ⁓ what helped us build in the beginning was a lot of ⁓ quick exits. You know, we made a ton of money in the first couple of years.

Up through 2023, our average hold period was two years. So we had, you know, our first six deals we sold up through 2023 and, know, killer returns, you know, 30, 40, 60 IRR deals, you know, three X and two year deals. So we just redeployed that money, rolled it right back in and kept growing. So that helped a lot. And I reinvested a lot in the business and bringing on quality staff and

Yeah, just growing the team.

Michelle Kesil (07:27)
Yeah, amazing. And so what does your team structure look like?

David Lilley (07:31)
team. it’s me, ⁓ the CEO, I’ve got a CFO who handles a lot of kind of all the accounting arm, plus everything else across the other two companies. and then I’ve got ⁓ VP of accounting, and then I’ve got ⁓ asset management, investor relations, acquisitions, departments with directors above them. ⁓

SVP of property management basically runs the day to day ⁓ for the property management team and a regional director under him and ⁓ a couple other folks kind of spread across the companies that assist with operations and that sort of thing.

Michelle Kesil (08:19)
Awesome. And so what are you most focused on solving or scaling to next?

David Lilley (08:28)
Hmm. Uh, I mean, we’re definitely focused on growth, but also, I mean, probably more so right now it’s just ensuring that the portfolio now is running as best, you know, the best it can and positioning for exits. You know, we, it hasn’t been a good time to sell or, or even refinance in the past couple of years. So we’ve been focused really on operations and running the property.

as efficient as possible and getting ourselves in position for either a refinance to bring down our interest expense or an exit. So that’s probably been.

you know, the really the area we’ve been focused most, growth a close second.

Michelle Kesil (09:14)
Yeah, absolutely. And what have been some of the obstacles or hurdles you’ve overcome in this career?

David Lilley (09:24)
I mean, just operating multifamily buildings for the past couple of years has been extremely challenging and cash intensive. It was really challenging to grow a team in the early days, especially when there was just a couple of us on staff. It’s just hard to attract the ideal person that you would want. You kind of got to, ⁓

higher just good enough and then you kind of just jump up you know in quality as you grow at least that’s that’s how it’s felt for me so that’s been it’s been a bit challenging.

Michelle Kesil (10:37)
Yeah, definitely. Is there anything you’re looking forward to or any exciting opportunities that you have on the horizon?

David Lilley (10:44)
Yeah, I’m looking forward to things really getting back to normal ⁓ and getting to a market that’s more of a seller’s market. I’m excited to have some exits again. That’s when our job really gets fun, when everyone starts making a bunch of money and we’re able to make our investors a bunch of money. That’s ⁓ pretty rewarding and exciting. the supply wave is

Almost behind us. Well, you think we’ll have a clear view by the end of this year what that looks like, but it’s most. mean, the consensus is kind of latter half of this year. Twenty seven, twenty eight should be really great years for multifamily, at least in Texas. But most of those high supply Sunbelt states will be in the same boat. So that’s that’s pretty exciting. Also, we’ve we’ve got a closing today that 2017 deal I mentioned.

That’ll close officially today, so that’s exciting. It’ll be the biggest transaction we’ve done by dollar amount. Not biggest property, but most expensive and newest. So that’ll kind of be our flagship property at this point.

Michelle Kesil (11:59)
Awesome. And how do you find the right properties and leads?

David Lilley (12:05)
We’ve got a pretty extensive broker network. ⁓ Those guys are very good at what they do. They have whole teams dedicated just calling owners, hundreds of owners a week to find out who’s got a maturity coming up, who’s thinking about selling, not thinking about selling, et cetera. So we keep a close relationship with a handful of those guys in each market that we look to purchase in and let them

source good deals, but we’ve also got a network of owners that we know leads come through directly that way. We picked up three deals that were foreclosed on in 2024, and that was a lender relationship. They contacted us directly when they had decided to pursue the foreclosure route. And we ended up entering into a joint venture with them, bought the properties out of foreclosure, and have since turned them around.

took them from mid 60s, 70 % occupancy to 90 plus today. So that was about an 18 month turnaround, but we’ve been pretty happy with the result there.

Michelle Kesil (13:17)
Yeah. Amazing. And so as an investor, what educational tools or methods got you here? Did you do any like courses or worse things more like trial and error?

David Lilley (13:29)
really it was just learned, learned by doing mostly. I spent the first year, year and a half reading everything that I could get my hands on. ⁓ ton of books and then just underwriting deal after deal under wrote a ton of deals. Thought I had a pretty decent understanding. And I mean, I screwed, still screwed up a bunch of stuff up in the beginning, but, ⁓ a mentor, you know, is one thing that I often site would

would be great for people just starting out, know, have someone that’s got, you know, the level of experience that I have now to, you know, bounce ideas off of, or just get advice from that’s super valuable and not something I had starting out. So, you know, and others, ⁓ there’s mastermind groups that you can join. And I think that’s super beneficial for some people. If you’re not, you know, you kind of got to be

critical and realistic of who you are. If you’re not that just self-starter, go-getter mentality, and you needed a little bit of a push, then some kind of mastermind group would probably be a great thing to do. And you can meet potential partners there ⁓ or whatever and share the load. I’ve never had a true partner in my business.

They say you go, you know, you can go farther together, which, you who knows kind of what, what our results would have had wound up being. But I think that’s, ⁓ you know, have finding a group of people that have complimentary skill sets is a great idea too.

Michelle Kesil (15:07)
Yeah, definitely. And what advice would you give to someone that is just getting started or early in their career?

David Lilley (15:57)
know, do all the little things right. They matter and add up to big results. So that’s that’s always what I’ve tried to do. You know, think long term. A lot of people for whatever reason, just have a very short term mindset. They’re they’re willing to kind of sacrifice the long term for a quick win or whatever it is in the short term. But.

think that’s the wrong approach. Have the long game in mind. Do all the right things. It’s usually pretty clear what’s right and what’s wrong. So you’ve got to do right by your investors, your tenants, your employees. Do the right thing, no matter how small.

Michelle Kesil (16:33)
have been some of the biggest growth points during your multifamily and investing journey?

David Lilley (16:40)
probably those three foreclosures that we bought, got, we got pretty lucky with those, you know, they fit incredibly well with the portfolio. The numbers made sense. ⁓ it was exactly the type of deal that we set out in 2024 to find and buy. And it just, you know, came to us. So without, without those three, mean, 2024 would have been another year. Like last year, we would have finished the year buying a deal and that would have been it.

So instead we bought ⁓ a thousand doors that year, which was huge. We doubled the portfolio, which was awesome. Great for the management company. So that was a pivotal year for sure.

Michelle Kesil (17:24)
Yeah. And is networking a part of your business and has it made a big difference for you?

David Lilley (17:31)
huge part. Yeah, I wouldn’t be here without a lot of the people I met in the early days. ⁓ I think a Will Givens is probably he was with CBRE at the time, a debt broker, and he was, I think, the first guy I met in commercial real estate through bigger pockets. I think we connected through that forum and went and had coffee. And I mean, he introduced me to a ton of people who I still know today and

You know, still see will all the time. But I mean, networking is critical in this business, especially for someone like me. You know, I came from grew up in Richardson, Berkner High School, whereas, you know, a lot of a lot of my peers, competitors, other founders grew up in Highland Park or some are just as prestigious. And, you know, they can call 20 people for a million dollars. You know, I didn’t have that background. So, you know, I just had to build it all.

from scratch, which takes some time, but the networking is critical.

Michelle Kesil (18:35)
Yeah, absolutely.

And so are there any exciting goals that you have for the rest of the year?

David Lilley (18:42)
We are looking to acquire at least one deal a quarter. So just wrapped up the first one of Q1 on track so far, which is great. We’ve got a trading LOIs on another one. So hopefully we’ll roll right into the next deal, which will be our Q2 deal. And maybe we can throw an additional one in there in Q2. So yeah, we’re seeing some really good opportunities and hopefully this will be our best year yet.

Michelle Kesil (19:11)
Yeah, absolutely. That’s exciting.

Well, before we begin to wrap up here, if someone wants to reach out, connect and learn more about what you’re up to, where can people find you and connect with you?

David Lilley (19:23)
Yeah, go to our website, Reapcapital.com, R-E-A-P, capital.com. there’s contact form on there. Just put your information in there and it’ll get to me. If you’re a prospective investor or someone like that, there’s a calendar on there that you can schedule a call directly with me or my director of investor relations, Preston Meyer. So feel free to reach out. You can also find me on LinkedIn.

DB Lilley. So always, always willing to talk shop or, or help out in any way I can.

Michelle Kesil (19:53)
Perfect. Well, appreciate your time and your story. Thank you for being here.

David Lilley (19:57)
Thanks for having me on, Michelle.

Michelle Kesil (19:59)
And for those tuning into the show, if you got value, make sure you have subscribed. We’ve got more conversations with operators like David who are building real businesses and we will see you all on our next episode.