How to grow a really large multi-family portfolio

[TangoWhiskey]

Looking at the REIT's out there and the big portfolio holders, there seems to be only a small handful of ways large portfolios were put togethor and they all hinge around different ways to gather the capital necessary to establish the momentum and growth rates that will get you to a certain size.



The ways I can think of are:



1 - direct personal ownership rolling over to a REIT - you either have or can access a lot of capital or you find individual JV partners to put togethor a large enough portfolio you control to roll over into a small REIT and grow from there through access to private or public capital markets



2 - pooling existing asset contributions from other owners - Killam supposedly followed this to start - created a corporate structure and convinced owners to put their buildings into it in return for shares and cash (maximising exit value and exit options for the owners).



3 - finding and pooling capital from investors to grow a syndicate or LP or several of these to the minimum asset size necessary to be a REIT. Private REITs like Skyline/Centurion/IGW seem to be able to develop very rapidly within the space of only a few years, so that minimum size can't be too large.



Can anybody think of any other ways really large portfolios get put togethor?



Thanks

 

[mfoster]

I am not an expert on real estate...but sounds to me this is a great idea I do have some investments (stocks) in REITs out there so I like the concept of it.



mf

 

[Thomas Beyer]

[quote user=TangoWhiskey]Can anybody think of any other ways really large portfolios get put togethor?
Besides the three reasons mentioned you can write on big cheque to get a large portfolio, if you have access to banks or wealthy individuals that trust you in your ability to execute.



This is extremely rare, as most big portfolios started with small ones and knowledge is created not in one big bang but in incremental stages.



Look at any successful firm, be it software or manufacturing or retail or restaurants or real estate: they all started small and grew from there !



What makes you so special to avoid this usual path ?

 

[TangoWhiskey]

[quote user=ThomasBeyer]What makes you so special to avoid this usual path ?



Starting small and working up is a necessary first step but once one hits a certain readiness you need to look at additional strategies to speed up growth. You decide when and how. Finding the path that fits your own abilities best (what should I focus on and who do I need to partner with so they can focus on what they're best at?) may chop half the time off the journey to whatever level you've decided on. If you have any ambitious ideas or dreams of starting a REIT, you had better make that journey as fast as possible as otherwise it will be a really long one. Some people will have those dreams and its a fun thing to think about how one would do it.



In a chapter of a real estate investing book done by the Keller Williams people they have a chapter around how to get to 1 million per month in passive income. This book is for people who have never invested before. Real estate is one of the few financial things where any one starting at any level can accomplish the biggest thing.

 

[MaximeValmont]

Starting small is not for everyone.





It's not for me anyway. I always knew I wasn't going to start with buying a house, then wait one year and buy another one etc etc. This doesn't make any sense to me, at all. I've even heard a guy on this forum saying he doesn't even bother trying to find unvervaluated properties and he also don't negociate the price....When I read that I laughed for a good 45 minutes straight. It takes 15 minutes to make an offer and you can save lots of cash. but this guy didnt have the time for that? He prefer to wait and see if his building is going to appreciate???? Give me a break. I hope this guy Real Estate isn't for him soon.



Look, They way I see Real Estate is this : You make your profit when you buy. If you don't make profit when you buy, you don't know what the hell you are doing.



Real money is made when you buy undervaluated properties and you make a huge profit the moment you take ownership. THEN, you can choose to keep it long term or flip it, depending on your strategy.



Buying at market value and waiting for it to appreciate is for amateurs, IMO.


You need to find motivated buyers. Squeeze their heads and get an amazing deal.


Now, You want to know how to start without any cash? Easy : Knowledge. Take Sam Zell or Donald trump for exemple. Remove all their money and contacts tomorrow morning...And three years from now they are both rich again. How? They would find an amazing deal, structure an Amazing deal, Go see a buyer and take a % of ownership of take a huge commission. That's it.



How to start in Real Estate the right way, IMO



Step 1)Find undervaluated properties

Step 2) Find Buyers and take a % of ownership, cashflow, or cash, whatever.

Step3) Keep that money

Step 4) Repeat.



One day you'll have enough to go in commercial properties right away. That's where the fun is.



Valmont

 

[Thomas Beyer]

[quote user=TangoWhiskey]In a chapter of a real estate investing book done by the Keller Williams people they have a chapter around how to get to 1 million per month in passive income. This book is for people who have never invested before.


That's why so many people have done it ... And collect $1M a month ..





















not ..



go slow and methodically .. and you will be rich beyond measures !! Skip a step .. and you may fall off a cliff and never recover !!

 

[TangoWhiskey]

[quote user=ThomasBeyer]go slow and methodically .. and you will be rich beyond measures !! Skip a step .. and you may fall off a cliff and never recover !!




Indeed ....



The danger of skipping a step and falling off a cliff to be never heard from again seems to refer to the dangers of excessive financial leverage ... but the post is really about how to maximise non-financial leverage as a path to growth. ie, get other owners to pool buildings in an LP or corporation or use JV partnering using OPM or find access to public/private equity markets without excessive financial risk to oneself ...



I know a guy in his mid 20's who over the course of the last 12 months took down a 7 million dollar portfolio deal without using his own money through a combination of JV seed money, spotting a big value play and then using a master lease situation to have control over the buildings and raise rents. He refi'd after a year to pay out the owner and took ownership of 70 units by only injecting 300K between start to finish. Hardly any of it was his own cash. He gets most of the reward for no money in. That's great leverage. But he did it by leveraging non-financial assets - his unique strengths and relationships plus a great value play overlooked by others.



Now he's financially free. One deal for 70 units. No money. That's growth through non-financial leverage as his own financial risk was low.

 

[MaximeValmont]

What you will find on this forum are the safest kind of Real Estate investors. I don't even know if you can call it safest.. Let's call it slowest type of investors.


It seems to me that you understand that if you want to make it big in this business, you need creativity, knowledge and contacts.


The guy you talked about is what i'm talking about when i'm talking about leverage. This guy gets it, and will make it big in this business. And you too.





Valmont

 

[Thomas Beyer]

[quote user=MaximeValmont]Starting small is not for everyone.


indeed .. like winning the lottery .. it is not for everyone although millions try every week ..



[quote user=MaximeValmont]Buying at market value and waiting for it to appreciate is for amateurs, IMO.
... but it works ..



[quote user=MaximeValmont]Look, They way I see Real Estate is this : You make your profit when you buy.
that is only one way .. there are several other ways. The best way to make money in real estate: actually owning some. Then improving it. Increase the value. Rent it & pay down the mortgage. Re-fi in 5 or 10 years. repeat.



Some strategies like buying below market and taking down 70+ unit portfolio's from old guys without any money do work .. but you cannot rely on them. Take them as they appear, but do not build a business model on it !



Send me an invite from your yacht once you own it. I'll bring the champagne. Then we can swap stories.

 

[TangoWhiskey]

So far we have the following ways to get a big portfolio quickly:



1 - slowly, through capital of one's own or JV relationships which means building a big database and creating a lot of relationships plus a track record with one's own capital

2 - faster, through learning how to pool capital from savers via either public stock markets or private capital raising in an LP or syndicates

3 - faster, through owner contributions of existing buildings into a private (LP/REIT) or public (REIT or public corporation) pool

3 -fastest - some combination of 1, 2 and 3

4 - targeting VTB's and master lease options to reduce down payment requirements

5 - get a big LOC from a wealth foundation or bank etc and finding the crappiest buildings to renovate/re-tenant/refinance (I know a guy who added 800 units to a 200 unit portfolio last year using this method, so it seems to work ... at least in the short term).

6 - targeting multi family seller distress in markets where the real estate cycle has crashed (hello US) - money will go furthest of all here - although that ship has probably already set sail.



Any more??? The forum is great for the sharing and contacts - I have learned tons on it, especially from Thomas - and so far I haven't found anything like it in Canada.... I'm looking for input from anybody who can provide meaningful input on buying 20 +unit buildings to rapidly grow a large portfolio. If anyone can add to this list or share thoughts/observations that would be great.



Cheers

 

[TangoWhiskey]

[quote user=ThomasBeyer]Some strategies like buying below market and taking down 70+ unit portfolio's from old guys without any money do work .. but you cannot rely on them. Take them as they appear, but do not build a business model on it !






Some traders would refer to this as borrowing money from the market - you are taking a trade that is not repeatable and you can't build a reliable income stream from those circumstances (when it comes to trading anyway). But the phase of the market you in are determines whether a type of opportunity is rare or not. Thomas is right that you can't build a business model on the opportunity I mentioned - in Canada you probably can't and in Alberta you definitely can't - but you better be ready if that non-repeatable opportunity shows up in your market - or you can switch markets to where that opportunity is present (hello US)!



Ultimately one's own personality determines where one will grow to, and how. A few people will seek to do this as fast as possible. Every big business or portfolio started with one person, and in all likelihood they didn't have a lot of money. They figured out how to do it and they got it done.



So how many other ways are there to do it and how many large multi-family portfolios are out there?

 

[RedlineBrett]

[quote user=TangoWhiskey]'m looking for input from anybody who can provide meaningful input on buying 20 +unit buildings to rapidly grow a large portfolio. If anyone can add to this list or share thoughts/observations that would be great.


All you need are the following:



1. A means of raising capital consistently

2. A local market where there is enough volume of multifamily buildings trading to meet your goals

3. A loyal management team to manage this growth and pull it all off for you.



without a lot of experience and contacts, I doubt anyone could do all this quickly.



You sound too impatient . You don't get rich quick with multifamily real estate and it's really more of a weath-protection asset class than wealth generation.



If you want to get rich quick in real estate it usually means you need to either get into development or innovate a new business model that does what the existing ones can't. And good luck finding anyone willing to roadmap either for you!

 

[MaximeValmont]

ThomasBeyer, So you don't have the time to negociate when you buy a building, but you have time to come post here all the time?



And don't compare starting big to winning the lottery. If this is how you see it, No wonder why you haven't done it ( No disrespect). Thousands of people have done it, and it has nothing to do with luck.





Ps : Better be a quality bottle of champagne.

 

[TangoWhiskey]

[quote user=RedlineBrett]You sound too impatient .



Real estate is full of true stories of people who figured out how to leverage in many different ways to accomplish amazing things quickly. Trump may have started with the benefit of a builder/developer father and a life of exposure to real estate but the story of how he pulled off his first big value add of a skyscraper that was run down is truly amazing. There were literally dozens of moving parts and nobody would have bet on anyone pulling it off, let alone a guy starting in his late 20's. I recommend George Ross's book for real estate investors - he's Trump's lawyer and a great knowledge resource on his own.



Careful creative leverage will do amazing things. Leverage is more than just money. Real leverage is the use of the muscle between our ears to learn from the experience of others. So thanks for the reply as this is the real value of this great forum.



[quote user=RedlineBrett]You don't get rich quick with multifamily real estate and it's really more of a weath-protection asset class than wealth generation.







This may be your experience in your market but it isn't mine. Markets aren't the same across Canada or the world and the time and price point of entry into those markets also affects perception of the returns achievable. Success in our two deals to date created enough income and wealth to allow my wife and I to leave well paid jobs. To get to where I want to go I now need to focus on growing as fast but as safely as possible. This means finding and exploring alternate forms of leverage to further boost prudent financial leverage. Hence the questions...



The real problem with waiting for great deals and super high returns is the fact that if you have the patience for dealing with a lot of people and an organization then sooner or later your time will be better spent pooling capital from people who will accept (much) lower returns than you. Your job is then to close on enough ok deals using their money and wait for time to deliver your cut of the spread between market returns and what the investors expect.



As far as I can tell the most likely path to a big portfolio and then cashing out of it for top dollar is probably to use your first few years and your seed capital to find great deals and create a portfolio of buildings using your own and JV money. Then sell those assets to a pool of money you created yourself (hello REITS/a corp like Killam/or an LP). You spin off the financial risk at top dollar, maximise your exit value AND create a semi-perpetual stream of income for yourself as your fee for creating, managing and growing the whole structure. Take your cut of the returns you deliver to others rather than focusing on returns for yourself.



That is true leverage and it ain't financial in the way we usually think of.



Doing things as quickly but safely as possible is not impatient, its being efficient.



We are here to build wealth. That's it. Take the slow road or the fast road but neither is inherently more or less risky than the other depending on how you do it.



More input would be great from people on these alternate forms of leverage.

 

[TangoWhiskey]

I realised writing the last post that fundamentally once one hits a certain size and profile then one concentrates not so much on finding deals to generate 1-3-5 % above normal market returns for that asset class but using your track record to pool money and then taking the 1-3-5 % spread between what the normal market returns are and what the passive retail investor expects. That's an interesting use of leverage and how to grow a portfolio.



The best part is you almost certainly sold the lowest performers in your portfolio to the investor pool you created and kept the best for yourself. That's a great exit strategy - sell the bottom two thirds and pay down the mortgages of your top performers while keeping a passive income stream for managing the ones you sold to the pool of investors. If you're fair about it it should even be win win.



Thomas - would you say there's much truth to this?

 

[Thomas Beyer]

[quote user=TangoWhiskey]Thomas - would you say there's much truth to this?


There is no shortcut to real estate success. It is about finding appropriately valued assets in growth markets, holding them while improving them (to various degrees), selling some but not all, re-financing them once in a while and redeploying capital. The "fast way" exists in midnight TV commerials to sells books and CDs (or podcasts these days) .. But that is not realistically doable in the real world. Yes, once in a while you stumble across a home run property and you hit if out of the park. I may have had 2 or 3 of those out of over $125M in transactions over the last 15 years, but that is not a reliable repeatable business strategy.



You can make money in at least those 54 ways in real estate, dependng on how much money, skill and time you have

a) buy ugly, very cheap, flip

b) buy ugly, cheap, fix up, sell

c) buy ugly, cheap, fix up, rent, re-finance

d) buy nice, rent, keep forever

e) buy very nice, with low mortgage, collect a cheque every month, "retire"

f) buy average, fix up as required, rent, re-finance



a) - f) works on houses, townhouses, condos, multi-family, office, trailer park, industrial, retail, hotels



so 9 asset types times 6 ways = 54 ways to make money in real estate .. and combined with 3-5 financing methods there are over 250 ways. All with their pro's and con's .. all with different money, skill and time requirements

 

[RedlineBrett]

[quote user=TangoWhiskey]. I recommend George Ross's book for real estate investors - he's Trump's lawyer and a great knowledge resource on his own.


I read his book 8 years ago, along with several trump books. "the art of the deal" is also a good read.



At the end of the day real estate success is all about finding great deals, getting them funded and repeating as fast as possible.



[quote user=TangoWhiskey]. To get to where I want to go I now need to focus on growing as fast but as safely as possible. This means finding and exploring alternate forms of leverage to further boost prudent financial leverage


It will come down to your tolerance for risk and how bad you want to be rich. Making margins at 1-3-5% are nice returns, but you aren't going to get rich quick with that math. But now you don't have the job to fall back on. (congrats, by the way - that's a big step) So that deal that may lose 10k/month for a year will look differently to you than it would have when you didn't have your own costs of living to support. It stops being a hobby.



Today I am going down to my lawyer's office to pick up a cheque for ~$363,000. It is the proceeds of a refinancing I did on one of my properties I purchased in 2008 + the contribution of a new investor that wants to ride the wave with me. I paid retail for the property, but bought it in the right area with foresight based on my intimate knowledge of my local market. I will own half the asset with none of my own money in it plus a modest sum for my efforts over the last 4 years. My investor is getting a pay-day, but has decided to roll their investment and profit into my next venture - a property I purchased for full asking price with no conditions sight unseen while I vacationed with my family in Kelowna. They didn't ask or care to see any income projections or financials on the new deal. I know my market, they know me, done deal, next.



Still, it took 4 tumultuous years, a lot of work, free management, me covering a few expenses and vacancies so as not to startle my investor and the right timing. It's nowhere near enough to retire on, but having several such deals in the pipeline would put anyone on the right track. It is classic residential income real estate and is a very repeatable business model that any investor can do anywhere... just need to be able to look out a few years and have the discipline to stay the course.

 

[TangoWhiskey]

[quote user=RedlineBrett]At the end of the day real estate success is all about finding great deals, getting them funded and repeating as fast as possible.



And if you want to get really wealthy, once you know how to find great deals and get them funded, the next step is to grow the organization that does all of the above. And with that time freed up the next step is to grow an organization in a related business. And once you have four or five separate businesses all generating large profits in their own right - and you don't grow them unless they have a high likelihood of hitting strong profitability - you are surely a very very wealthy person.



It does come down to comfort level and confidence, but by learning how to raise capital and being willing to reach out and tap into the experience of others, you should be able to pull off the above in 10 years or less. Ultimately only you determine how high you will go, but you can definitely do it quickly. 10 years is not a long time.

 

[Thomas Beyer]

[quote user=TangoWhiskey]Ultimately only you determine how high you will go, but you can definitely do it quickly.


Man plans .. and God laughs.



Set your goals high, you may reach it .. or you may not. Capability, attitude, market timing, "fate/providence" all have to line up. It is not as predictable as you may think.

 

[TonyMandrique]

I'd been following this thread and it's amazing to know more avenues in creating huge wealth through real estate investments. It's really worth being in here.