Subscribe via:
Show Summary
In this episode, Dylan Silver welcomes Brad Sumrok, a seasoned multifamily real estate investor with over 23 years of experience and $1.2 billion in assets under management. They discuss the transition from single-family to multifamily investing, emphasizing the benefits of scaling up to larger assets. Brad shares insights on the importance of mindset and belief in achieving success in multifamily investments, suggesting that aspiring investors should consider starting with larger properties to benefit from professional management and cash flow. He also highlights the significance of syndication in acquiring larger deals, allowing investors to pool resources and access bigger opportunities.
Resources and Links from this show:
-
Listen to the Audio Version of this Episode
Investor Fuel Show Transcript:
Brad Sumrok (00:00)
Yeah, so look, and it comes down to, you know, your belief in your mindset. Like, you know, there’s books like Think and Grow Rich, you know, what your mind can conceive, you can achieve. So a lot of people have a belief, Dylan, that they need to start small or a house hack or do two units, four units, six units and work your way up. ⁓ And that is one way to start. The challenge is it’s just slower and painful. ⁓ My first investment property ever,was not a single family home or a duplex or a fourplex. It was a 32 unit building.
Dylan Silver (02:06)
Hey folks, welcome back to the show. Today’s guest, Brad Sumrok, is the founder of Sumrok Multifamily and has over 23 years of experience investing and over 1.2 billion in assets under management. He also helps others build wealth through real estate and he’s been featured several times on Good Morning Texas. You can find him across social media, including his Instagram, at bradsumrok or on his website bradsumrok.com. Brad, thanks for taking the time today.Brad Sumrok (02:17)
See youThanks. ⁓
Hey, I’m glad to be here, Dylan. Thanks for having me.
Dylan Silver (02:39)
Now, when we talk about multifamily investing, I know this personally, there’s a lot of investors specifically from the single family space that in Texas in particular, right, where you’re based out of and where I’m licensed, it’s harder and harder to fix and flip homes. And I know that that may be coming back, but over the last couple of years, I’ve seen many people pivot into new areas. I’ve seen new construction, I’ve seen RV parks, I’ve seen mobile homes, I’ve also seen a lot of people getinto the multifamily space. I want to ask you really at the top of the show, for folks who are looking to get started in multifamily, what would be your feedback for those folks coming from other asset classes or this may be their first investment?
Brad Sumrok (03:25)
Look, if you’re already investing in real estate, any type of real estate, and you understand the benefits of things like cash flow, appreciation, especially value add appreciation, tax savings, depreciation, the logical next step for you if you want to scale is to move into bigger assets. And that’s one of the things I love about multifamily. I would say,At least half of my most successful clients, the people that I coach and mentor were previously doing like single family rentals or flipping. And then they saw that logical next step to scale into multifamily and be like a true business owner, like buying a building in a syndication that’s professionally managed where you’re not having to collect rents or do all the work yourself.
You know, Robert Kiyosaki talks about the cashflow quadrant with ESBI, employee, self-employed business owner, investor. So for people that want to transition from self-employed to being a true business owner and investor, multifamily is perfect.
Dylan Silver (04:39)
Now, when we talk about getting into this space, a lot of people will talk about house hacking, you know, and getting, you know, a small multifamily, you know, duplex, triplex, quadplex. But then on the flip side, you people saying, you know, you might as well, if you’re going to do two or three, get, get 50, you know, and you have some people saying even, even larger than that. Is there a specific, specific number of doors that, that you would tell folks who are looking at multifamily to get started with?Brad Sumrok (05:52)
Yeah, so look, and it comes down to, you know, your belief in your mindset. Like, you know, there’s books like Think and Grow Rich, you know, what your mind can conceive, you can achieve. So a lot of people have a belief, Dylan, that they need to start small or a house hack or do two units, four units, six units and work your way up. ⁓ And that is one way to start. The challenge is it’s just slower and painful. ⁓ My first investment property ever,was not a single family home or a duplex or a fourplex. It was a 32 unit building.
And when I started, I started the way that I now help other people with where I went to a two day weekend seminar and I bought the mentoring program. And that was back in 2001. And by 2002, I had 32 unit apartment building and my mentor at that time said, Brad, buy as many doors as you can under one roof. And for me, it was 32 units, you know,
And so I put the 20 % down. I saved my money for 14 years when I was in corporate America. So I had the ability to come up with a down payment and I bought those those units. ⁓ The problem was after that I ran out of money. And so the next deal was a syndication where I found the great deal, but I didn’t have the money myself. But because I was out there going to networking events and telling my story and getting to meet people, I had a line of people that
would say things like, if you find a deal, I’ll invest with you. So, you know, to me, if you want to ⁓ do your own deal with your own money, I would give them the same advice, Dylan, get as by as many doors as you can with your own money on one lot, you know, so whether that’s 10, 20, 30 units, eight units. However, if you can get 50 units or more, now you’re buying into the realm of
professional management. So that’s sort of my cutoff is 50 units and more. And you’d say, well, Brad, I don’t have the money to buy 50 units. Let’s just take a nice, safe, clean, stabilized C class property in Dallas for 100,000 a unit or even 80,000 a unit times 50 units. That’s $4 million. And then you need
know, 30 % down in today’s market. So that’s $1.2 million. Well, there’s not a lot of people that have that. So then they say, Hey, Brad, that’s great. But how am I going to do 50 units? And that’s where syndication comes in. So imagine you have 25 or 50 grand to put into a deal. But now if you have a clear vision, and you can communicate that vision, and you could go to enough networking events and build up an investor database, you could raise the money.
and get into a bigger deal and have professional management. So hopefully that answered your question. 50 units or more could get you into the professional management game. My first 32 units I had to self-manage. I have a student right now that wants to buy 8 to 12 units and I told him and he knows like he’s gonna he’s gonna need to do a lot of it himself. know, the 12 units doesn’t have enough cash flow to pay for a professional maintenance person, a professional property manager.
professional bookkeeper, a professional leasing agent, like you don’t have that.
Dylan Silver (09:22)
When we talk about 50 units and up, right? And then you’re able to have more assistance, right? Because there’s more cashflow there. Are most folks who are looking at deals that size, are they syndicators or are they coming from a realm of where, we’ve kind of scaled up and now we have, you know, maybe a couple of partners and we’re buying deals.that are let’s say 50 units. What’s the makeup of someone who buys let’s say a 50 unit apartment complex?
Brad Sumrok (09:53)
Well,I don’t know the exact makeup, but I would say more than 50 % are syndicators.
You know, and one of the reasons is, you know, so like I’ve been doing seminars and mentoring for 16 years and investing for 24 years now. You know, one of the reasons is when people learn, let’s say like a guy like me starts out and he or she has a job and make an 80, 100, 150 a year and they may have 100, 200,000 to invest. Well, with let’s just say 100,000.
With 100,000, you could buy a fourplex. And now you just bought yourself a job, you know, or with 100,000, you could buy a 50 6080 100 unit deal. If you have an investor database. And you could take and you could take 20 % of the deal like because, you know, the the general partner or the lead syndicator, they’re going to find a deal analyze the deal put the team together if you oversee the deal oversee the rehab.
Dylan Silver (11:05)
Bye.Now
Brad Sumrok (11:30)
Because you’re doing all the work, you’re the active investor and the other investors are passive investors, you can negotiate whatever the market will bear. what most people are doing out there is the syndicator or the GP team, they’re taking 15, 20, 25 % of the deal.Dylan Silver (11:51)
When I want to pivot a bit here, Brad, when we talk about what good looks like as far as Texas multifamily and we were talking a little bit before hopping on the podcast here, you really had all these black swan events happen, you know, raising rates so many times over the last five years and then all this multifamily being built and then, you know, costs going up and rents somewhat stabilizing even in major metros like Austin, Texas. ButBut that aside, here on out, when you’re looking at value add multifamily, what does good look like? What types of deals are you looking at to acquire?
Brad Sumrok (12:27)
Yeah, so when we look at projected returns and this is a whole other conversation for maybe another show, right, because everybody’s got conservative underwriting, right, that it’s not really conservative. But if you just look at a underwriting model that’s built on sound assumptions, you know, so what does a good deal look like is well, and I’m talking about returns at the deal level, not at the, you know, like the GP level or taking splits orfees into account. But a deal should double investors money in five years, four to five years. If somebody would invest 100,000, they should have 200. You know, if you buy a $4 million deal and put a million down, you should have 2 million in equity in five years. So I look at that, right through a value add model. And part of that return is going to be cash flow. And so there should be cash flow now.
you know, based on today’s market, what I’m seeing in terms of cash on cash returns with good deals is, is like mid single digits, you know, our mid to high single digits. So six to 8 % cash flow with an appreciation component and a depreciation component. And you may have heard of the big beautiful bill that brought back 100 % bonus depreciation. So I look for all three, I look for is there cash flow?
What is the projected value after I buy the deal and implement my value add business model? And of course you gotta put in like, you know, things like rent growth and reversion cap rate. And these numbers need to be like super conservative. Like don’t go too aggressive on those things. But if the deal cash flows and has a value creation component and a tax savings component, that’s a good deal for me. Now,
Typically, I’m finding those deals right now in like the older properties, know, the 1970s, 1980s properties. I’m not seeing those types of returns in the newer deals.
Dylan Silver (14:30)
Yeah.I wanna ask you specifically about new multifamily. I’ve heard this from a number of syndicators who’ve told me that ⁓ building new multifamily isn’t underwriting. I don’t particularly understand why that would be because I think about Texas, I feel like I’m seeing new multifamilies developments everywhere. So I’m thinking, well, if it’s not penciling, what’s up with all the new multifamily?
Brad Sumrok (15:39)
Well, that’s the problem. Why it’s not underwriting is that ⁓ when there’s more supply than demand, like in certain markets, like in Dallas and in Austin and in Houston, and it’s not across the board. Like if you go to these workforce housing neighborhoods like Garland or Irving,You know, you’re not seeing a lot of new supply. And that’s why I like to buy in these areas. You know, I buy buildings in these working to middle class demographic neighborhoods ⁓ because there’s nothing being built there and nothing scheduled to be built there. And so where is the working class family going to live? Right. But when you go to uptown, for example, or downtown or over, you know, over by the Ritz Carlton Hotel or, you know, Knox Henderson.
There’s an overwhelming number of new units coming online. And when they come online, they have to lease them up. And when they lease them up, they’re going to offer move-in specials, know, ⁓ six weeks of free rent on a 12-month lease. And so imagine I have a 2018 built property next to a new property coming online where they’re trying to lease it up and they got newer units, newer gym, newer swimming pool.
sauna, Jacuzzi, and my property that was built eight years ago doesn’t have those things. And our rents are almost the same. So where are they going to get their tenants? They’re going to get them from my building. Now I got to offer lower rents, concessions just to renew my leases, or they’re going to move across the street where the new property is opened up. And you could buy right now for less than you could build.
Dylan Silver (17:13)
Ugh, yeah.Brad Sumrok (17:33)
So you may have heard people talking about, my acquisition basis is good. So why would I, you know, back in 2020, when multifamily pricing was at the peak, developers had a good argument. They were like, hey, I could build this class A property more than, for less than people were paying for an existing property.Dylan Silver (17:55)
Yeah.Brad Sumrok (17:57)
And so people were doing that. They were getting into development. But the problem with development, Dylan, is it takes two to three years for something to come online. So you have a set of data in front of you that you’re evaluating. And how do you know what the market is going to be like in three years from now? Where is inflation? Who’s going to be the president? What policies is going to be there? Who’s going to control the House and the Senate? You know, are we going to be bombing Iran?Dylan Silver (18:13)
You have no idea.Brad Sumrok (18:26)
is what’s happening? Are we gonna get back into the climate accord? Or are we gonna stay withdrawn from it? You can’t predict and model these things.Dylan Silver (18:30)
Yeah.there’s a there’s that huge element of risk there, which is the time it takes to get the deal online could be entirely different, right. And I think when when people think about especially acquisition, especially folks who are coming from the single family space, that that type of delay seems foreign because you go in that’s just a brand new concept, this idea of, know, I’m underwriting this right now, but this could mean next to nothing when this deal finally does. ⁓
Brad Sumrok (18:41)
Good.Dylan Silver (19:09)
get live. We actually are.Brad Sumrok (19:11)
Yeah, I was gonna saythis is why development is far more risky than buying an existing apartment building. Like I’ve never developed anything and I buy existing buildings for 24 years now.
Dylan Silver (19:23)
Yeah, I think that’s certainly the sentiment that I’ve heard from lots of people in this space. I’ve heard, you know, not doing a lot of or any, you know, new construction. And then also I’ve heard a lot of people talking about being on the sidelines, really just waiting to see where the dust settles with everything. And I think things are coming back to some semblance of normalcy. But we will certainly certainly see here in the coming months. We are we are coming up on time here, though, Brad.any new projects that you’re working on and then also what’s the best way for our audience to reach out to your team.
Brad Sumrok (19:56)
Yeah, so I mean, look, I’m working on two deals right now in Dallas. They’re both built in the six ones built in the 60s, ones built in the 70s, and they fit that profile of a good deal, double investors money and have high single digit cash flow. So these deals should close in the first quarter of 2026.I’m also doing an apartment investor event, which you know that I do these and I’m going to do these every quarter in Dallas and my next one is March 28th and 29th. And how people reach me. Well, I think you said that in the beginning, ⁓ Instagram, LinkedIn, Facebook, ⁓ and I read and I do my own social. So just DM me at Brad Sumrok, S-U-M-R-O-K, no C in my last name.
Dylan Silver (20:46)
Brad, thank you so much for coming on the show. Thanks for taking the time today.
