Multifamily Syndication 2020 Outlook, Vinney Chopra provides his thoughts for the coming year, 2020 and beyond.
Vinney Chopra purchased his first multifamily property, a 14 unit property for $180,000 in 2008. Today he has grown his portfolio through syndication to 4,100 units worth over $300 million.
It took eleven months for Vinney to raise the money he needed to purchase his first 14 units in 2008. At the time, the financial world was in complete melt down. Banks were not lending, and investors were fearful that losses would continue. Don’t forget, Vinney had never done a multifamily syndication before. But that did not stop him from talking daily with investors and real estate brokers.
Vinney’s concentrated efforts during the 11 months created momentum. Immediately following his 14 unit purchase, he closed on a second property with 109 units. He was constantly talking with investors and brokers. Instead of getting discouraged, he kept in touch and underwrote the properties and made numerous offers. Eventually, sellers and investors were ready to make deals, and because Vinney stayed with it he and his investors benefited.
Scarcity versus abundance. Looking backwards is helpful for where we have been, but not so useful for drawing a clear picture of where we are going. Ask any economist or investor, “what does the future hold for multifamily?” Most will reflect on the incredible period of recent growth and encourage you to sell or accumulate cash and wait for the crash that is overdue.
If you believe in scarcity, and you are expecting a crash, it’s hard to instill confidence in your potential investors that now is a good time to invest. Scarcity yells, WAIT! We should wait until prices cool and deals are more like they were in 2008.
If you believe in abundance like Vinney, you remain active in the market looking to land deals.
From 2008 to 2014, Vinney and his partner did 14 syndications valued at $100 million. Since November 2014, Vinney and his wife have done $230 million, more than double what he did at the beginning of the recovery.
The key to his success is that he stayed in the market. Even when he did not buy a deal in 2018, he stayed in touch with brokers and investors. He studied different markets looking for growth indicators and emerging markets.
To make a sound investment, you need an emerging market. A healthy market for multifamily includes job growth, and inflow of residents that need housing. When demand for housing exceeds supply, you have found a market worth pursuing. The growth of potential renters is made up of three distinct groups, millennials, baby boomers, and immigrants.
Combine this growing demand with the lack of affordable single family homes compared to wages and the demand for rental housing looks strong for the next 20 to 30 years.
Vinney has successfully invested and exited from multiple deals in markets like Texas and Georgia where the demand is super strong. In one case, he invested in 2017 and sold in 2019 for a 50% gain!
There are no guarantees, but if you do your homework, and understand the market dynamics, you can hedge your bet, minimize your downside and take a calculated risk. Housing is a primary need, and apartments are more affordable than single family homes.
The market is dynamic. In 2018, the surge of new investors flooded the market, so much so that Vinney did not buy one property. He believes that the demand was so great, that investors were overpaying for properties. In 2019, he found the over paying buyers were not as numerous, interest rates were lower, which increased cash flow. The combination of these circumstances provided better investment options and he purchased two large newer properties.
Life is full of risk. If you put your money under your pillow, or in the bank, you will make next to nothing. When you leverage into real estate, the bank provides up to 80 percent of the capital needed to buy your property which is in high demand.
Year over year, rents increase, net operating income increases, values in crease, and so too does your equity.
Value add is the best way for a buyer to create equity in his new purchase. An experienced buyer can recognize opportunities the seller is blind to. Value add opportunities range from minimal efforts from raising the rent to market to a heavy lift investing millions into capital improvements.
The key to a successful value add strategy is to recognize the opportunity, and properly underwrite for the cost to implement the changes quickly. You want to hit the ground running as soon as you acquire so that you can benefit from the improved cash flow and increased valuation.
When approaching potential investors, it is important to have a sound strong business plan that assures the investor there is a plan to take care of and return their investment.
Underwriting is key in any market. A good deal is always a good deal.
Multifamily Syndication in 2020
Multifamily Syndication is full of opportunity in 2020. Investors are looking for greater returns than what they are getting in the stock market. For syndicators who recognize this, and understand how investors can invest their retirement funds, 2020 can be a great opportunity for both syndicators and investors.
The national commercial real estate brokers, CBRE, Berkadia, Marcus Millichap have published their market forecast and in all cases, the next 20 years look bright.
Relationships are key to be successful in multifamily syndication. If you have not yet syndicated a deal, Vinney suggest you work with seasoned syndicator to learn how to do it properly. Once you have some experience, you have multiple options available to you. You can raise money or be the key principal leading your own syndication.
Each week I ask my guest, “What is the Biggest Risk Real Estate Investors face?”
Wow, I’m so glad you shared that because I settled three lawsuits. You know, just in the last quarter of 2019. So it’s very fresh in my mind. And actually, one lawsuit was going on for about two and a half years. Nothing major, but it was major in the sense that something happened with one of my contractors on one of my property. And I’m so glad that I have had full coverage, you know. And they said you settle the issue for almost like seven hundred some thousand dollars. And I didn’t have to pay a penny.
Another thing, you know, Darrin, my fire happened, you know. Right there in Atlanta property and that was a fire. I had a twenty thousand dollar deductible only, and that settled for two point three million dollars just to let you all know. But it was only possible because of people like Darrin, you know, who were able to sit down with me and make sure that we get the proper insurance.
I got hacked also in 2017 lost $250,000. And guess what? I did not have the Cyber Insurance. And that got me hurt. And, you know, I never looked back. I always look forward and say, what can I do today to make myself better? And that’s OK. But now I’m fully taken care of by my I.T., Cyber Security and Insurance and everything. So the key thing is I think insurance plays a very important role.
I had another lawsuit with the, you know, firing somebody and they said it’s racial discrimination firing. So these are very important issues. You’ve got to make sure you’ve got great attorneys, first of all, who are with you, dealing with you, looking at your contracts and everything. I’m very happy to say I didn’t have to pay much again. You know, it could have been millions of dollars of lawsuit. But by hiring the right people and having the right insurance companies and all that, it helps a lot.
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