What Type of Multifamily Properties We Buy and Why

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This Money Monday$, we will let you in on the types of multifamily properties we buy! We will be going over the asset class, condition, and strategy that we have for buying multifamily properties!

VIDEO TRANSCRIPTION

00:01
boom
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welcome back to
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money mondays monday monday monday
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welcome back everybody monday mondays
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every monday 3 30 central ish talk about
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a bunch of different things we talk
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about real estate and real estate ben’s
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hair and real estate and beds like being
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an entrepreneur
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we are talking about types of
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multi-family properties we buy oh
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a little bit of it love it ask us that
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often we figured hey let’s do a whole
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topic on it and you know that’s kind of
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what we’re gonna do so if anyone has
00:31
comments questions please let us know
00:33
right if you have suggestions for future
00:34
episodes please let us know as well
00:35
that’s how we think of these episodes
00:37
yeah yeah we always get feedback you
00:39
know or sometimes we’re just picking
00:40
topics out of a hat
00:42
either way we want it to be interactive
00:43
so we want people to engage so ask
00:45
questions give us a like give us a share
00:47
that’s the you know the the biggest you
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know thing that we love to see is people
00:51
enjoying the show right no no so let’s
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hop right into this so the type of
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multi-family properties that we buy
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right now as we’ve always talked about
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on this show you have to determine your
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box right you know i mean what do you
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want to buy there are certain guys that
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will only buy a class deals in primary
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markets or
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you might even be more specific they
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only want to buy a class deals and say
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houston
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right we’re our box a little bit bigger
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so uh we typically want to buy 80s and
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newer
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properties that are going to be in
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primary markets specifically san antonio
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houston atlanta and we love to do
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florida too right
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doesn’t necessarily have to be some
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heavy value add play we do like some
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meet on the bone
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but we can also you know get away with
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just doing a management play as well
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right there just needs to be some kind
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of component there where we can increase
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the value you know within a year or two
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right so those are the that’s that’s our
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box right
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so you know as far as markets that we’re
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interested in like i mentioned right you
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know san antonio for specific reasons
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houston for specific reasons atlanta we
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love as well right we’ve been successful
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in all three of those markets we’re
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ultimately based in houston so we know
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that that’s our backyard
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but ultimately what we’re looking for is
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you know and this is a little bit
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different in atlanta the last 18 months
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but you know good cost basis
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in relative in relation to the rents
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that you’re getting right you know if
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there’s a good spread there then you’re
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typically going to make money right now
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atlanta has since ran up quite a bit in
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price as we’ve noticed
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in the last you know probably 18 months
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and even within the last six months has
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probably gone up another 20 or 30
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percent
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but you know those are the other reasons
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why but we love texas and georgia for a
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lot of some same the similar reasons
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that we’ve talked about in the past
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right landlord friendly
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business friendly
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you know tax friendly job growth
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population growth it’s got all the major
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boxes that we check absolutely right be
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smart right you know as operators we try
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to do our best to reduce risk but let
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the markets help you don’t
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try to go into a detroit if you don’t
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know what you’re doing don’t try to go
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into cities that aren’t growing right
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yes people can make money there it’s
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easy you know it’s not easy sorry
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with the right process you can right if
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you know what you’re doing but at the
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same time it’s also easy to
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kind of mitigate the risk upfront right
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do your business plan but also try to
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let the market help you along the way
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right time helps fix any problems on
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real estate it really does no it does
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and so that’s only if you’re with a
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growing market
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probably with a non-growing market it’s
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a complete opposite right so definitely
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something to think about make your life
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easier right and who knew we’ve done
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secondary tertiary markets but even in
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those markets we still look for growing
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markets right we i don’t think we’ve
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ever done a
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shrinking market actually no we i not
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wouldn’t right scared of the single the
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one-trick pony markets too yeah
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there needs to be some diversification
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on the economy right and why do we care
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about that right and ferris just touched
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on it if it’s got one factory or one
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industry in it
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and say that factory goes out of
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business or that industry goes elsewhere
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guess what you’re screwed so you need to
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have some diversification because
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ultimately what you need in order to
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increase value and increase the rents at
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your properties you need demand right
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you need people moving there
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jobs being created therefore people
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needing a place to stay therefore you’re
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going to have renters right so you need
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to understand that and right and and
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ultimately we’ve seen a couple people
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they play in michigan in the detroit
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area but they know those areas very very
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well they know what pockets to be in
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you know what basis makes sense you know
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but for us right we’re going to stick
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with what we know places that are
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ultimately going on the upswing as far
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as population and job growth and that is
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the sun belt
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you know um specifically even more
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specifically than that texas georgia and
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florida
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right
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so another question that kind of came in
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on this topic right was what unit counts
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are we interested in i would say it
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ultimately just depends on the revenue
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that comes in right because we
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ultimately want to be able to manage the
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deal with either a third-party
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management company or with our own
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management company disrupt management
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right and here in texas that’s how we
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manage our deals as disrupt management
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so i would say that’s probably typically
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75 to 90 units and above yeah right
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um and ultimately we just closed a 530
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unit complex so i’d say that’s probably
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capping out at about as big as we’re
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willing to go as well right because if
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you get into some of these really really
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big properties it starts becoming gonna
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buy it the the the the buyer the buyer
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pool starts shrinking pretty
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significantly
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and so i would say probably 530 units is
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probably about as high as i’m willing to
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go
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on the unit count but it goes back to
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folks
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using management companies right we’re
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not here to self-manage we’re not here
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to
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you know um you know me and ferris are
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not going to be collecting rents and
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doing work orders right we have teams
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that do that right and you need to have
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enough revenue to justify that and then
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we’ve kind of seen the sweet spot is 75
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to 90 and above depending on where
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you’re at and how much rents are in that
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place
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so
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what value add qualifications does the
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asset need to meet
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so i think i kind of touched on this
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earlier right you know i think in in the
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end there’s a lot of different things
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the one that everybody talks about
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that’s not easy to do is is management
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right yep so management is a value add
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now it’s hard to find deals that have
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real management right especially if
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you’re using third-party management you
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know how likely is one third party
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you’re gonna do a much better job than
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the other third party right that’s one
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thing
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um the other one that really we do all
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day and every day is really interior
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upgrades right what can we do to improve
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that interior usually revolves around
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kitchen flooring
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paint right don’t think you know granite
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countertops backsplash paint it’s really
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not that hard guys and you are looking
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for ways to be able to push rents right
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you know and you really want to be able
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to get probably if you want rules of
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thumb twenty percent return right on
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your money so spending ten thousand
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dollars i need to be able to get twenty
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five hundred dollars in rent increases
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that year yep so that’s kind of the you
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know the most common value add that i
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would say most people do right and again
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there can be other things right make it
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look better added amenities all of these
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things are
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items to improve a property right so you
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can ultimately get a better tenant which
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reduces delinquency reduces turnover and
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maybe even get a premium
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and one thing that that we’ve been
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looking at a lot right i mean raising
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rent is easy folks everybody gets that
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okay we’re gonna come in we’re gonna put
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5 000 a door into it and we’re going to
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raise rents 150 bucks right but where a
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lot of the meat can be is on other
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income as well right so what we’re
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looking at is you know are they
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are they you know um collecting the fees
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that are pretty much customary for a
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certain sub market or you know certain
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asset class right you know are they
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collecting those pet rents are they
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collecting you know reserve parking are
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they you know um doing rubs on their
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utilities right are they
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you know maybe building back some kind
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of a wi-fi internet cable package right
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you know that could that could drive
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some additional revenue because you’re
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really if you’re not if you’re just
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focusing a hundred percent on the on the
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rental rates right you’re gonna lose out
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on the opportunities right because right
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now you’re having to squeeze juice in
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different spots and other income is a
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great opportunity for you to just you
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know maybe put some money into it um you
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know in order to recoup those fees and
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sometimes like i’ll give you guys an
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example tech package we’re starting to
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roll this out to all of our properties
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not just you know the latest ones but
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some of our older ones as well right
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it’s
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cheap right you’re putting a couple usb
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ports in there you’re maybe putting a
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nest thermostat maybe some kind of a you
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know a an automatic lock or an app
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that’s tied to the lock right you can
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look in august locks or yale has some of
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those as well right but all in you’re
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probably spending maybe 350 400 bucks
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right on top of that you can charge a
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premium of typically 30 to 50 depending
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on the submarket that you’re in so the
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return on your investment is pretty
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strong on that right so you should look
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at those types of additional income
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things and add that into your value-add
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plan too right so you know but the the
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easiest stuff is right you’ve got down
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units you’re gonna bring those online
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you’ve got deferred maintenance you got
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to do that right aesthetically pleasing
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make sure that the property’s painted
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the parking lot looks good lands the
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gate being fresh pool is blue
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you know those things are easy right
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it’s digging in a little bit they’re
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easy but not everybody’s able no yeah
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you got it but my point is these days
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with where asset values are now you have
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to dig into a deeper layer and try to
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find those that gold right whereas
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before you’re just finding gold on the
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top right now you have to dig a little
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bit deeper and find it right so those
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are some of the things that we’ve done
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and just some examples of stuff but
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ultimately drop it in the comments let
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us know what you’re doing to increase
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the value we love it
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uh what specific metrics do you like to
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see when underwriting a property
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so i think that this all once again goes
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back to the box that you’re in right
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yeah because one person’s good deal is
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another person’s bad deal yeah and like
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we said ultimately guys it needs to be
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risk adjusted
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that’s a great point one
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deal and one return it’s about how much
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work and effort are we putting into that
09:53
deal how much risk is are we and the
09:55
investors putting into that deal right
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and do the returns make sense i’d rather
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buy a very easy
10:01
great deal great location if i’m getting
10:03
the same returns as the deep value add
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and not a great part of town and you’re
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seeing we’re seeing some of those right
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to give people some examples right we’re
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seeing value-add deals classy properties
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getting a 15 irr when it whereas you’re
10:17
able to get
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you know maybe an a minus deal in a
10:20
significantly better part of town it’s
10:22
30 years newer and doesn’t have any
10:23
deferred maintenance and it’s a 13 and a
10:25
half 14 ir right if you really start
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weighing the amount of time and effort
10:30
and risk that’s involved in that i would
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take the 13 and a half all day long
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right and our investors are clamoring
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for that stuff too so that’s what we’re
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typically trying to chase these days
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right because value-add the cap rates
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versus a more stabilized product have
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almost converged and now cap rates on
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value add stuff is lower
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than an a minus deal in some cases right
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so you have to just you have to bake
10:52
that into your analysis the market has
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shifted
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right you know people are looking for
10:57
meat and so therefore cap rates have
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compressed significantly and you need to
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understand does it make sense to buy
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that three and a half
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value-add 1970s deal versus maybe a four
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four and a half on an 80s product or a
11:11
90s product right
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you know so those are some of the
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specific metrics right you’re looking at
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ir you’re looking at total return you’re
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looking at cash on cash you’re looking
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average annualized return we’ve talked
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about this on those shows those are the
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four metrics that are not necessarily
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the end-all be-all but probably at a
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high level as far as investor returns go
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those are the ones that we focus on the
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most but there’s other things that you
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need to take into consideration too
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to determine if it’s a good deal or not
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right so those are some of the specific
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metrics that disrupt equity looks like
11:40
looks at and
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ultimately let’s hear from you guys
11:44
right what else are you guys looking for
11:46
whenever it comes to specific metrics
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right
11:49
so
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ultimately we’re shooting this after the
11:53
fact
11:54
but what are we gonna talk about now
11:55
what’s about what’s coming up in
11:57
february multi-family investor network
11:59
conference right this is our biggest
12:01
conference it’s here in our backyard
12:02
here in houston if you’re in houston or
12:05
you’re in this country or you’re on this
12:06
planet which i know everybody else is
12:08
definitely come check it out right it’s
12:10
it’s you know should be if you’re on the
12:11
moon don’t check it out about 500 people
12:14
there we’re gonna have some fantastic
12:15
speakers tom will wright
12:17
garrison you know other people garrett
12:18
something for ass protection many other
12:20
people it should be awesome yeah you
12:22
know it’s and again it’s a it’s really
12:24
meant to be just kind of a neutral place
12:26
to network and meet people right come
12:28
learn more about this business go build
12:30
partners and that’s how things happen so
12:32
we’ll see you guys there use the coupon
12:34
code disrupt get a hundred dollars
12:36
prices will go up every month and you
12:38
know from from now until the event so
12:40
you know
12:41
continue until uh what’s that url man
12:44
just so everybody knows
12:45
mfinvestornetwork.com definitely go
12:47
check it out so february 12 2022 folks
12:51
you have no excuse for giving you plenty
12:53
of time to plan this out it’s a one-day
12:54
event we focus on networking building
12:56
those relationships because not only is
12:58
it a numbers game but it’s a
12:59
relationship game and in a lot of ways
13:01
and we’ve seen this more and more as
13:03
we’ve matured in this business right the
13:05
relationships that you build
13:06
not only with investors people think of
13:08
it’s all about investors right we we put
13:11
on a lot of our and
13:13
investor network conferences and these
13:15
different meetups that we do too to
13:16
determine who we might want to partner
13:18
with as well right we’re also trying to
13:20
develop relationships with brokers right
13:22
we’re trying to develop relationships
13:23
with vendors in the market right that’s
13:25
important you need to on you need to
13:27
have those relationships in order to be
13:28
successful so don’t think for a second
13:30
that you can do everything from behind a
13:32
keyboard because it doesn’t work like
13:33
that right and i know covid everybody
13:35
got slowed down but hopefully by
13:37
february 12th 2022
13:39
i don’t know maybe they’ll have the
13:40
lambda variant but we don’t know we’re
13:42
hoping not right then uh
13:45
check it out it’s going to be fun so
13:46
what’s coming up next week right and i
13:48
think we’re going to probably have tarik
13:50
help us co-host we’ll do the week after
13:51
next week is memorial day so that’s okay
13:53
oh oh okay you’re right talking about
13:55
navigating the closing process in
13:57
multi-family tara can tell you all about
13:58
the medical process
14:00
look
14:03
so we’re probably going to focus a
14:04
little bit on once again on the investor
14:07
relationship side what does that look
14:08
like and then also i can kind of give
14:10
you guys some insight on what we’d look
14:12
for right you know and along the way and
14:14
what we’re doing at certain parts of the
14:16
process right there’s a whole timeline
14:18
people are always that’s one probably
14:20
the biggest black box for people and
14:22
that’s nothing that any guru or any
14:24
training program is even talking about
14:26
is what do you need to do to get a deal
14:28
close right you’re just fumbling around
14:29
and hoping that for the best right you
14:31
might get in trouble and you might
14:32
ultimately blow a timeline so we’ll give
14:35
you some insight on that so
14:37
boom
14:39
that was pretty that was pretty good so
14:41
every monday 3 30 central ish so if you
14:44
have any questions comments please leave
14:46
a comment let us know otherwise we look
14:48
forward to seeing you guys in two weeks
14:51
two weeks all right thank you

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