Multifamily real estate has been an extremely strong asset class for investment in recent years. Demand for apartments and other forms of rental housing across the United States has surged to all time highs. While real estate developers continue to pursue opportunities for new construction, the supply hasn’t kept up with the surging demand, leading to increased income for properties along with increased asset values.
While many large Class A apartment complexes are owned by institutions, smaller multifamily real estate deals have become a hot pursuit from a wide range of individuals starting out their real estate investment journey. Some of these investors begin their journey buying and managing individual rental houses before upleveling into multifamily, while others dive into the deep end to acquire apartment buildings or mobile home parks immediately. We’ve seen a significant rise in the number of multifamily real estate educational programs, software platforms for analyzing deals, and a host of other services to support investors new to the real estate game.
However, new investors still face various hurdles in completing their first acquisition.
For starters, new investors do not have a track record. This can impact their access to capital on both the debt and equity sides, as capital sources typically prefer placing capital with more experienced investors. Large capital transactions come down to trust. It’s similar to finding your first job — jobs require experience, yet gaining experience requires work experience.
Besides the experience and knowledge required to transact in multifamily real estate, an investor’s personal finances can also play a role in the lending and syndication game. Certain lenders have strict minimum net worth and liquidity requirements, and others view a borrower’s financial strength as one of a few key ingredients in the underwriting equation which can be balanced out by other factors. Either way, lacking financial strength commensurate with the size of the deal can often hamper newer investors.
That’s what happened to one sponsor, who we’ll call Gary, on his second multifamily investment deal.
Gary started his career as an industrial mechanic and later moved into a planning role for a large steel manufacturer. While his career progressed, he also felt trapped in his day job with little flexibility. That’s when Gary started learning about real estate investment.
He started his real estate journey in the single family rental (SFR) business, eventually not only owning but also developing rental properties. The experience with single family homes was rewarding, but Gary realized that the way to scale his real estate investment business was to get into apartment investing, where he could acquire more units on the same property in order to scale.
Once Gary had enough capital built up from his W2 job and his SFR business, he was able to take down his first multifamily property, and was soon eying another. By networking with people interested in passive investment in multifamily real estate and showcasing his early track record, Gary set his sights on a larger 77 unit multifamily deal in Eastern Texas. The property needed some work, including exterior paint, resurfacing of the parking lot, new handrails, and a new laundry room. Gary also planned to add a playground to make the apartment community more appealing to young families.
While Gary’s liquidity was now limited, he was able to syndicate more than 80% of the equity required between various passive investors in his network to make the acquisition. He was in the clear to close the acquisition, improve the property, and enjoy higher income and property value.
Only it wasn’t all clear.
The bank Gary was working with couldn’t approve his loan due to his stretched personal financial picture. While he was able to raise the money to invest in the deal, those investors weren’t backing the loan, and Gary’s own finances weren’t enough to get the bank’s credit committee comfortable with the risk.
Along the course of networking with other real estate professionals and investors, Gary had met Jim Biggs, a multifamily investor from Chicago. Jim had made his first real estate investment back in 1994, transitioned to multifamily in 1998, and made lots of money leading up to the 2008 global financial crisis (GFC). In the aftermath of the GFC and economic recession that followed, Jim never gave up on real estate investing, but took on a mentality: he would pass on all the lessons he had learned the hard way, and support new investors on their journeys to learn how to break free and gain economic independence.
When Gary brought Jim his situation with the multifamily deal, Jim not only offered advice, but he also offered to become another sponsor of the deal, which includes co-signing on the loan in order for Gary to get the deal done in exchange for a minority portion of general partner (GP) equity in the deal. As a GP, Jim would take a portion of the earnings on the property alongside Gary.
This wasn’t the first time Jim Biggs supported a newer investor along their real estate journey. After Jim started getting more involved in helping new real estate investors, he ultimately realized that he can support these new investors in a couple of distinct ways, and he sought to formalize each one. First as a deal sponsor and also as a coach and mentor.
Sponsoring deals alongside newer investors has become an extension of Jim’s real estate investment company, Jiroma Enterprises. While he loves supporting these new investors in this way, Jiroma has a “strike zone” of qualities that need to be met in order to become a co-sponsor:
On the coaching and mentoring side of the house, Jim now works with other multifamily investors he has known and partnered with to create the GOB Network, his first formal education platform for new and rising multifamily investors. It has attracted hundreds of members that learn from the more experienced investors present, as well as trading data, strategies, and investment opportunities within the network. The network charges no membership fees, and provides online resources and group video calls as well as a Slack channel where members collaborate.
Jim estimates that he has coached, mentored, or supported upwards of 1,000 professionals formally or informally to date.
Want to connect with Jim? Visit https://www.gobnetwork.com/ and tell Jim StackSource sent you!