VIRTUS PROPERTY GROUP
Get To Know More About Our Niche Apartment Investment Approach
HOW TO GET STARTED IN MULTIFAMILY: INVEST IN CLEVELAND
Honestly, there are as many opinions on multifamily investing as quarterbacks on the Browns cut list.. From city to city, state to state, everyone’s got their own avenues. Virtus Property Group’s no exception – our founders are born and raised here in Cleveland and we’re a niche investment firm focused on 15-150 unit apartment buildings in/around the Cleveland, Ohio, area.
That being said, if you happen to be interested in generating cash flow via multifamily investments, here’s our informal advice on getting started. But first…
It’s what we know, where we are, and we’ll be the first to tell you Cleveland isn’t the best burg in the country to invest in. Each of the top 100 cities across America has its ups and downs – the majority of vetted/accredited local and out of state investors we work with are attracted to Cleveland because it’s stable. Generally speaking, there’s not the same level of value-swings in one direction or another. Cities like Miami or Seattle, for example, see substantial market cycle swings. So, new investors could hop at a seemingly ‘sweet deal’ by the water and a year or two later discover the property’s crashed in value (or gone into the stratosphere).
Cleveland experiences less sharp up and downswings – market rents are stable along with the cash flow they provide. In our network are definitely mentors and investors who diversify into other distant lands, but for now, we’re focused on Cleveland.
Now let’s chat about getting started. What follows isn’t a doctoral thesis-level breakdown, just some of the basics. In other words, if you’re a seasoned investor these next sections will just be a refresher.
STEP 1: JOIN A QUALITY MF INVESTOR NETWORK
There’s no such thing as an unknown, spontaneous multifamily real estate deal in Cleveland. Just like no mysterious companies exist who magically go public on Wall Street without a whisper. As in, multifamily properties don’t just pop out of nowhere and cause folks with under-performing capital to start running around like crazy. As you’ll see, they’re listed. Selling a 100+ unit multifamily property is similar to selling a single family home – if you want it sold you can list Online and start taking bids today.
On the other hand, if you’re looking for an amazing deal you’re going to sort through a ton of listings. When you research or focus on a specific area, like Cleveland, it helps streamline the process a bit. And…when you let brokers and teams like Virtus conduct professional research, put together deal packages, and filter the unending flow of properties coming onto the market, you fine tune your approach.
Fact: For both seasoned and new investors alike it can take sifting through 75-100 deals before spotting one that meets buying specifications.
One of the core issues newcomers run into is that commercial real estate is relationship based.
When a great ‘best of the best’ deal lands on an experienced broker’s desk, they broadcast the opportunity to their network of friends, investors, fellow professionals, and so forth. In turn, their network knows about it relatively soon and have a much higher chance of being able to get under contract before it’s publicly listed.
The good news is this is perhaps the toughest part of the journey for new investors – getting into a relative amount of ‘networks’ with active/successful real estate investment firms who offer partnership opportunities and syndications. It’s really about how many relationships like these you can effectively manage so you aren’t constantly missing good deals.
Each of these firms is going to have unique ways of managing deals, their own offers for investors, and deal flows. Set out to find a number of investors you feel comfortable with who are active in an area you’re interested in.
Some people get lucky and partner with quality firms like Virtus Property Group from the get-go, while many others go through (often costly) trial and error.
Or, they attempt the DIY route and go on a blitz self-study binge trying to wrap their minds around the complexities involved in multifamily investment. This is 100% doable, no different than independent stock market-based investing, but there’s a lot to know and you’ll eventually reach a point where you’ll still need to get into a network, whether a private firm like ours or through local brokers.
For those looking to go more on an independent path where they’re managing the investment deals and then managing the properties after acquisition, the first step is identifying the city(s) to focus on. No, not 100, just a handful (or one) is fine, 2 to 3 at the most. Then work on meeting and interacting with everyone they can involved in real estate in those areas. Use assets like LoopNet to find the active brokers in the area and reach out to establish a relationship… eventually deals will surface suiting your needs.
STEP 2: LEARN & OUTSOURCE
Once you’ve arrived in a ‘network’ or two, or are getting help through a firm or syndication team, you’ll need to make a decision on how involved in this process you want/need to be.
Now, if you live in Cleveland and know your way around the market already… great! One of the benefits of our network for newcomers is that we create the numbers (deal package that breaks it down). You then are able to evaluate the properties and understand why we like the opportunity. We select deals, put them together, and do all work… with only a few properties a year compared to the number of available properties at any given time.
Our deals are qualified for us to invest our own money in.
You then can begin sizing up quality multifamily properties: rents, utilities, income/expenses, neighborhood, niche market analysis, repairs, etc. rather than having to do this all yourself.
For some investors, they just want to grasp market basics, understand core acquisition data in potential deal packages, and know what they’re looking for in terms of multifamily deals – not to mention cash flow or revenue goals. Other than that, they lean on professionals, no different than depending on the educated pros in precious metal or bond investing.
You’ll start being shown deals from this area to that, this property to that, and as mentioned above it could take some time until you find a good fit (or the firm/broker you’re working with spots one ideal for you).
STEP 3: JOIN A SYNDICATION
If you don’t have the capital and don’t want to build a crew of fellow investors, brokers, property managers, title companies, attorneys, etc. and syndicate the deal yourself… you’ll need to join a team.
Each team does things their own way, so here’s our approach:
OUR NICHE ACQUISITION STRATEGY
We buy under-performing small to mid size multifamily properties (B & C from 15-150 units to reduce competition) with demonstrated strong cash flow being held back by poor property management and deferred maintenance. Our goal’s to raise occupancy and income at market rates through strategic controlled upgrades we manage or set in place – for example, the Ratio Utility Billing System (RUBS).
Sounds simple enough, right? Truth be told, there’s far more involved and lots of people/paperwork/variables, which is again, why many investors prefer to invest with specialists:
- You, as the investor, aren’t ‘doing the work’ and you don’t ‘hire’ someone to do it
- If we put a package together you can choose to put money into it or not. That’s all.
- If you pass that’s fine, and natural, the next deal is but a couple months away.
- Or, if you bring a deal to us we’ll conduct the same due diligence we do on all of the properties.
Simply put, it’s not a situation where you say to us,
“I want you to find this type of property for me, then I’ll put my money in.”
With Virtus and other firms, or even brokers, it’s more about getting into our email list and occasionally we say:
“Here’s a property we feel is a worth investing in for A, B, and C (D, E, F…R) reasons – with plenty of data to back up our position. We’re putting X amount of our own money in, and here’s why you should get involved. You in?”
From those who pitch in the process unfolds like clockwork, year after year. It’s a way of generating cash flow, which in America right now, is simply one of the safer and more reliable choices than other more conventional options.
THE TYPES OF PROPERTIES WE LOOK FOR…
It’s very straightforward – a couple examples of motivated sellers would be folks retiring (increasingly common) or interested in selling because they’ve become overwhelmed managing the property.
Mom & Pops
You hear this a ton in the industry. Mom & Pops refer to under-managed or neglected properties that got that way for a large array of reasons. Often what we find is somewhere along the line current owners begin perceiving the property as burdensome. This then leads to disinterest in maintenance and keeping market pace.
Replacement Cost After performing extensive due diligence on each opportunity, we ensure we get under-performing properties at wholesale prices below replacement costs.
Commercial property value is determined by cash flow, so after we’ve taken specific measurable steps to increase cash flow, we refinance to pull out equity which is then distributed to investors. Some of the funds are rolled into the next deal where the cycle starts again.
But let’s not get ahead of ourselves. First, we have to purchase the property.
WORK WITH US
WE ARE ALWAYS LOOKING FOR POTENTIAL INVESTMENTS IF YOU ARE AN INVESTOR, BROKER OR IF YOU WANT TO LEARN MORE ABOUT VIRTUS PROPERTY GROUP PLEASE CONTACT US.
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STEP 4: FINANCING THE DEAL
The VAST majority of people who get involved in multifamily real estate investment lack the liquidity or net worth to purchase buildings of, say, 50+ units. As mentioned, anyone can start small and work their way up over time (depending on skill & savvy), but these size of deals and profits are a ways off…hence why syndication is a popular option.
You pool your money together with a group of other vetted, committed investors and share the profits (See Step #3). Through an firm like Virtus, from start to finish our projects are overseen by attorneys, asset managers, etc., to ensure all the i’s are dotted and t’s crossed. By the time your collective capital’s been invested, the deal has been poured over by a team of people looking at the numbers from every conceivable angle. Our extensive network of professionals includes some of the top resources in the country
Let’s be frank here, serious multifamily investment isn’t something you just Google and go at. You can’t just browse Linked In and cobble together a team capable of pulling this off…
Well, okay that’s not true, it’s possible. A handful of insanely industrious people have likely done it, but could you within a reasonable time-frame with your own money? Again, we work with the most qualified and knowledgeable individuals in our niche and ensure no one on our team misses any details. If we did, we wouldn’t have a network. They depend on us for deal management as well!
Speaking of which…
STEP 5: MANAGE THE DEAL
Again, before a penny’s been invested ALL needed repairs are factored in. But, it’s just different once the team’s fully invested and renovations start. There are all the contractors to work with, sourcing materials needed like cabinets, toilets, faucets and hardware (something we help with via our Factory Direct Materials), and overall managing every aspect of the property while working with a range of city/state real estate professionals. Average Deal Timeliness & Turnaround
Again, it’s likely to take a couple months just to spot your first deal. Or, you might spot one tomorrow, there’s no objective rules here. This is how we run our system though, but each deal is different and there are always extenuating circumstances.
We host roughly four investment rounds a year; about one per quarter.
Each deal within a round is ‘first come first serve’. Once filled, everyone else has to wait until the next deal is put together. We do not hold money – capital is only collected once all due diligence has been taken, research conducted, and the investment is ready to be made.
Once the property has been acquired and is inhabited by residents, participating investors can expect quarterly payments provided there are distributions. Each properties exact plan will be slightly different. The deal prospectus will provide an anticipated project plan that will outline the execution plan for each property.