Subscribe via:
Show Summary
In this conversation, Shawn Griffith, a multifamily investor with Craft Capital Investments, shares insights on investing in larger multifamily deals in the DFW area. He emphasizes the importance of understanding local market dynamics, identifying different types of property distress, and effectively managing multifamily assets. Shawn also discusses the value of local knowledge when investing out of state and provides an overview of his current projects and outlook on the DFW multifamily market.
Resources and Links from this show:
-
Listen to the Audio Version of this Episode
Investor Fuel Show Transcript:
Shawn (00:00)
Well, and you hit it right on the head, Dylan, that you’ve got to have somebody on the ground. I was invested in a deal as a limited partner on a property out in Tyler, and it’s a great team, you know, well-known ⁓ people that they didn’t have anybody on their team that was local.They didn’t know and understand that market like they thought they did. We ended up losing 91 % of our capital on that deal.
Dylan Silver (02:04)
Hey folks, welcome back to the show. Today’s guest, returning guest, Shawn Griffith is a multifamily investor in DFW with Craft Capital Investments. Shawn, thank you for taking the time today.Shawn (02:17)
Hey Dylan, thanks for having me back on the show. Really appreciate it.Dylan Silver (02:21)
I like if we can today to really get into the weeds here about investing in multifamily deals, larger multifamily deals and DFW specifically. And we were talking before the show about really the scope of Craft Capital in DFW. And because you’re active out there, I think a lot of folks would really like to know based on your experience, what good looks like. This hasn’t been the easiest.five or six years to be an investor really anywhere. But if I can say this, markets like DFW, which are more speculative markets, you tend to see the highs, you also see some of the lows. For folks who may be looking at getting into larger deals, especially right now, things are changing, what would be some of the foundational feedback that you would have investing in DFW?
Shawn (03:19)
Yeah, no, that’s a great question. there’s about 40 questions wrapped up in all of that. First, I would say that I would not consider DFW a speculative market. ⁓ I would say any market you’re in that you don’t know well is speculative. So part of investing in any…Me personally, I would never invest in California, but I have friends that do, they live there, they know the market, you know they live and breathe it every day. So they know how to reduce the risk as much as they can in a market. that’s, to me, investing is learning about the risk and knowing what your personal tolerance for the risk is. So I say all of that to kind of lead into, you gotta know your market.
And that’s why we at Craft right now stick with DFW. It’s our market, we know the market. We have great broker relationships here. We have great relationships with our lenders that we use. They know where we’re focused. They know what our deals are. ⁓ At some point, maybe next year, I don’t know, depends on how this year goes. If this year picks up and we pick up three, maybe four deals this year, we might branch out into a second.
location. But part of why we’re successful here is our team is here, we’re on the ground here, we can walk up and see the units. What I would say to somebody new that’s getting started, ⁓ while you don’t have to invest where you are,
you should at least be familiar with the market where you are to look at the opportunities to understand, know, go put your hands on the properties, go tour some units, go, you know, meet some brokers. Now, if you’re new, don’t expect the brokers to give you the time of day and, you know, sit down with you over coffee. Be honest with them, tell them you’re new, you know, tell them, hey, look, I’m getting started.
You know and and look at look at their deal when they come out with an om and read
R-T-F-O, yeah, that’s like, I don’t know if you’re familiar with the internet, RTFM, read the F in manual. In this case, it’s read the F in OM. The brokers put a lot of time and effort into creating those offering memorandums, and they will answer a lot of your questions. And if you don’t understand something in it, call the broker and go, hey, I see here on, ⁓
⁓ the water expense, you use the T3 versus the T12 number. Why did you do that? They actually love questions like that because that tells them that you actually took the time to dig into the OM and that you’re starting to understand it. And if you don’t know, if you don’t understand any of those words I just said, you need to go back and become familiar with what a T12 is. It’s just a, it’s a.
financial report that shows the trailing 12-month history in all the different expense categories. ⁓
Dylan Silver (07:25)
Now,right now specifically, I know there’s a lot of distress with operators. And so because that is the case, I’m also thinking, and I could be totally off base here, that some of these properties may be in actually great condition. There’s just distress on the financial side from the operators. So does that mean that there’s maybe less value add opportunities right now, where you’re really maybe able to acquire a
property because the operator is distressed and not necessarily the property itself.
Shawn (08:00)
So yeah, so when you’re looking for distress, it falls into three categories. You’ve talked about two of them. There’s the financial distress, there’s operational distress, and then there’s more of a…I guess for lack of a better term, environmental distress, where the market in general is, you really wanna get out of that market. We’ve never seen that here in DFW. Now there may be little pockets of it here and there. And again, this goes back to why you’ve got to learn your area. There are parts of Dallas, like the mid-cities area, which is where most of our properties are.
Dylan Silver (08:30)
Right.Shawn (08:42)
and the mid-cities areas located exactly where you think it would be. It’s between Dallas and Fort Worth. And it’s a great area ⁓ for a whole lot of reasons. We don’t have time to go into all of their virtues today, but there are also parts of Dallas that I would never invest in, at least not today. And that’s just becauseof the economic situation where they’re at. We have very clear criteria. And that’s another thing. If you’re new, you need to figure out what your criteria is. Unless you have a construction background, I wouldn’t recommend that you go chase heavy value ads, which is what we do. There are a lot of work. I would say if it’s your first foray into multifamily ever, ⁓ start simple.
Dylan Silver (09:24)
Yeah.Shawn (10:10)
You know, don’t have to have one that’s going to be, ⁓ you know, two or three extra investors, money, or even your own money. You know, get in, learn the, learn the ropes. and ideally, you know, find somebody, you know, a coach, a mentor, somebody I’m not going to, I’m not going to promote any of them. There’s a ton of coaches out there. Some of them good, some of them not do your own homework. you know, I had a coach, it helped me out a lot.kept me from making some mistakes, but it also got me into a community where I met my current partners with Craft Capital. And so that’s another advantage of you know some of the coaching programs is really the community as much as it is the coaching and whatever services they offer.
Dylan Silver (10:56)
Now, I know you’re focused on DFW, And so for folks who are outside of DFW and thinking that they can invest in DFW or even out of state, right? And there’s a lot of that. To me, I almost wonder like how, and again, I’m not saying this like carte blanche, like this is always true, but I feel like you’re in a way ⁓ setting yourself up for.Shawn (11:09)
yeah.Dylan Silver (11:21)
tough times ahead because you’re competing with folks like yourself who this is their backyard. They understand the market like intimately. And so I don’t really know how people can be effective operators unless they have a partner who is there on the ground when you’re looking at these larger deals.Shawn (11:39)
Well, and you hit it right on the head, Dylan, that you’ve got to have somebody on the ground. I was invested in a deal as a limited partner on a property out in Tyler, and it’s a great team, ⁓ you know, well-known people that they didn’t have anybody on their team that was local.They didn’t know and understand that market like they thought they did. We ended up losing 91 % of our capital on that deal.
Yeah, so you again, this kind of goes back to you got to know your market. You’ve got to know your tenant demographic. ⁓ You know, if you’re if you’re out there in Tyler and your tenant demographic is a bunch of good old boys that like to hunt and fish and drink beer on the weekends, you’re not going to be raising their rent three percent every year. Because every time they get a raise, it goes to beer, fishing and hunting equipment.
Dylan Silver (12:38)
Yeah.Shawn (12:44)
It’s just a fact of life. I grew up in the hills of Tennessee, so these are kind of my people. I know them.Dylan Silver (12:51)
I’ll pivot a bit here. You know, Tyler, I mean, depending on the way you look at it, I know a lot of single family investors that might invest in, you know, Denton, but they’ll look at deals in Tyler. But then when you’re dealing with economies of scale, right, you know, the upside is higher, but then the downside is lower as well. You know, for folks who are using, let’s say like property management companies, ⁓Shawn (13:18)
Mm-hmm.Dylan Silver (13:19)
Is there a number of doors where you would recommend someone have before they start looking at that? And then also as well, is there maybe a downside from outsourcing that completely and not having that be someone in-house?Shawn (13:36)
There’s about 20 questions in all of that. So for property management, property management’s great. If somebody is getting started in single family, ah you know I get it. You know that’s You know you can’t go out, you don’t have 100 or 200 grand to go and invest in a multifamily deal. ⁓you know learning and doing the single family thing is great. You you get to learn about all of the headaches of leasing, all the headaches of maintenance. And what you’ve got to remember with multifamily is those headaches for one house are multiplied 100 times in 100 unit property, maybe more. ⁓ Because you’ve got
A hundred houses under one roof is essentially what that is.
Outsourcing your property management is great when you get to the point where you can’t handle the day-to-day leasing, the day-to-day maintenance calls, the day-to-day whatever calls that residents have. ⁓ Sometimes they just want to call you and talk. I’m serious. We’ve got one of our properties, we’ve got a guy that
Dylan Silver (15:26)
Right.Shawn (15:43)
He’s been in the same unit for, think, going on 30 years now. And every morning he comes into the office to give a report of what’s been going on. He’s better than a security system. The guy knows everything that’s going on on the property. But he comes into the office and sits down and chats with the property manager for 10, 15 minutes. And then he goes back and goes on his way.Dylan Silver (16:06)
Yeah, that’s part of his routine. I like that guy. He’s, like you said, better than a security system.Shawn (16:10)
Oh, yeah,yeah. And, you know, and, you know, he doesn’t want us to update or fix or anything in his apartment. If something breaks, he wants it fixed. you he doesn’t want to add new ceiling fan, doesn’t want us to paint, doesn’t want us to do new flooring. You know, he’s he doesn’t want his stuff moved. You know, he’s set in his way. That’s fine. You know, we and you know, we. But anyway.
Property management is great. The number of units is really gonna depend on the property management company. There are some property management companies that specialize in single family property management and some of them will do as few as one property.
Dylan Silver (16:40)
Mm.Shawn (16:50)
You know, the most commercial property management companies, they really don’t want to deal with anything less than about 50 units because they want to be able to have a full-time property manager on site. And less than 50 units, it’s hit or miss on whether it’ll support a full-time property manager. Because one of the things you got to, yeah, I was just going say, one of the things you got to remember, yeah, yeah, you’ve got to rememberDylan Silver (16:58)
Yeah.Yeah, I’ve heard that before too.
Shawn (17:18)
You’re paying that person’s salary. That comes out of the property budget. The property management does not pay their salary directly. They manage all of that for you. Yeah, they manage all the accounting and everything for you, but the money comes from your property operations.Dylan Silver (17:30)
Yeah, you’ve got to be aYeah, and you know, one of the things about, you know, these properties, I’ve heard this from other investors, is like the level of effort to buy and manage, you know, 30 properties is not so dissimilar from, you know, 50 or 70, right? And so if you’re going to buy 30, you might as well do 50. And, you know, that may be counterintuitive for folks who may be thinking like, I got to stair step my way into, you know, larger multifamily investing, especially coming from like the single family space. But
Shawn (18:04)
Yeah.yeah.
Dylan Silver (18:08)
You’re buying yourself a whole job if you’re gonna be managing these deals yourself.Shawn (18:14)
Yeah, and one of the big cautions I would recommend is that, you know, when you do get a property management company, you still have to manage the property management company. You know, your role moves from day-to-day property management to asset management. And it’s a different focus. You still have to look at the books. You still have to make sure that they’re accounting for everything.You’ve got to make sure that that onsite, you know, isn’t taking your money and rat-holding it away somewhere. I’ve never seen that happen, but, I’ve heard stories ⁓ of it happening.
Dylan Silver (18:55)
Yeah, mean, it does. It certainly does happen. think choosing the wrong property manager can certainly be a deal breaker, right? It can cause distress for sure.Shawn (19:03)
Oh, yeah, yeah.mean, you know, and even changing property managers is difficult. And the deal I was telling you about out in Tyler, they did a retrospective after everything was said and done. And one of the things they realized that they had done wrong was when things weren’t going the way they wanted, after about three months, they changed property management companies.
And you would think, well, that makes sense. know, the property management is not doing what you want. Instead of working really hard with the property manager to go, hey, look, we got to fix this. Every time you change property management, you’re going to lose probably two months of momentum because it’s going to take time for that new property management to come in and get things set up, get the people familiar. know, ⁓ now there’s nobody in the office that the tenants know or recognize.
And so it’s a disruption to everybody’s routine. And a lot of times you don’t think about that.
Dylan Silver (20:10)
Yeah, you’re just thinking, let’s get the new man on deck, get someone off the bench. And that’s another ⁓ delay in operations. are coming up on time here though, Shawn. Any new projects that you’re working on, and then also as well, what’s the best way for folks to reach out to your team if they’re interested in reaching out to you?Shawn (20:32)
Sure, yeah,absolutely. ⁓ So we just closed on a property back in September. ⁓ It’s a smaller 104 unit property in the Irving area here in Dallas. It’s about a $2 million rehab. So we’re a little over halfway through the rehab on that. ⁓ That’s our current project. And then we’re still screening properties. We’ve looked at close to 40 properties this year ⁓ since the first.
And so, I mean, we’re You know, we’re continuing to look. We’re being very selective, which is why we screen a lot of properties. ⁓ But yeah, that’s kind of what’s, mean, you no great revelations. It’s like, you know, it’s like, if you’re single family, multi-family, doesn’t matter. You gotta go through and look at all the deals.
And the way we’re able to look at that many properties quickly is we have screening criteria, which is why I said earlier, you need to really understand what is your buy box? What makes a good property for you? What makes a good property for me may not be the same thing that makes a good property for you.
Dylan Silver (21:41)
Yeah.Yeah, mean, I have this is on a very granular level, certainly not multifamily scale, but an Airbnb host told me like, hey, if you’re going into short term rentals and you don’t like being a host, that may be a problem. If you don’t enjoy hosting people, even though you’re not waving hello to them, you’re to be dealing with them all the time.
Shawn (22:06)
Well,yeah, one of our partners has several luxury Airbnbs here in the DFW area and he doesn’t host them. He’s got somebody that he hires that is a highly rated Airbnb host that manages ⁓ the hosting for his properties.
Dylan Silver (22:25)
Yeah, that’s definitely one of those things. ⁓ Shawn, again, thank you so much for your time today. Thank you for coming on the show.Shawn (22:32)
Yeah, sure, and to answer the last part of your question, if people want to get in touch with me, they can go to our website at craftcapitalinvestments.com. That’s craft with a C, investments with an S at the end.
