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Micro Family Investing, Cash Flow, and Creating Community Impact · The Academy Presents podcast

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  Did you know that 90 % of the world's millionaires
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  invest in real estate? Well, I'm Angel with the
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  Academy Presents Real Estate Investing Rocks,
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  and I'm here to help you if you want to go for
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  your piece of that pie. Are you new? Are you
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  new to this and you just don't know where to
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  start? It's okay. Are you someone that has invested,
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  but you feel stuck, you feel like you've lost
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  momentum, you don't know where to really head
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  from here? Are you a seasoned real estate investor
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  who is doing great but maybe you just want to
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  hone a few skills here and there? This is the
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  place for you. The Academy Presents Real Estate
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  Investing Rocks podcast will connect you with
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  industry experts so that you can save time, avoid
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  costly mistakes, and begin living the life you've
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  dreamed of all through real estate investing.
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  You're already taking the first step. just by
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  joining us here today. Hey guys it's Angel from
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  the Academy Resents. We're here at the Real Estate
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  Investing Rocks Summit and I've said it a bazillion
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  times but these are my favorite six days of the
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  year because we do this twice a year. March and
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  September we've got the three -day virtual summits
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  where we discuss all things real estate investing.
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  Lots of times we have that multi -family lean.
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  But we try and add in some residential, some
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  fun, some oil and gas. We throw it all in there.
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  And actually, my friend Nicole here, she really
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  specializes in something that she calls micro
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  family. So. a little bit different from what
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  the rest of us are doing in multifamily and also
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  different from what people are doing in residential
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  multis. So it's more than the two three four
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  unit and less than say those 300 unit multifamily
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  complexes. So I'm going to let Nicole kind of
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  intro herself here and then we're going to get
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  started. So Nicole I'm turning it over to you.
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  Hello. Thank you, Angel, for having me on again.
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  Yay. Excited to be here. So about me, I am, like
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  Angel said, I am a small multifamily investor,
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  which I call micro -family. But I like to be
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  more in the commercial side than residential.
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  I'll do residential multi, but it got to be at
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  least three, four units. I prefer four if I get
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  my hands on a four. The main thing is between
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  five and 20 units, I feel like that's a sweet
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  spot. For one, newer investors looking to get
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  started in multifamily because it's something
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  you can bite and you can chew on. And it's something
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  that I think a lot of people can, even if they're
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  nervous about getting in the commercial side,
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  they can basically, they can see themselves doing
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  five units. They can see themselves doing 10
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  units. It's not too much, right? A lot of people
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  that I've had conversations with, When you talk
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  about all of the gurus who say do 100 plus units,
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  you might as well go big or go home and same
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  amount of work, blah, blah, blah. It might be
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  the same amount of work. There's a little bit
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  more for 100 units, not exactly the same. But
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  the difference to me is if you're doing a hundred
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  plus unit building for your first deal, more
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  than likely you're going to be partnering with
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  a more experienced operator because you don't
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  have that experience. How are you raising capital?
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  How are people going to trust you with capital
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  when you've never done anything and let alone
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  a hundred unit deal? Right. So if you're partnering
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  with a more experienced capital operator and
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  you're helping to raise capital, maybe you help
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  with a little bit of operations here and there.
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  At the same time though, the amount of capital
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  that you can potentially raise is normally a
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  super small subset of what the total raise is
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  and your end up getting and your responsibility
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  level is going to end up being super small too
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  because you don't actually have experience yet.
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  So you're like helping out and your return is
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  so small. And everyone says, oh, it's better
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  to have a small piece of a big pie than, you
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  know, whole apple. I kind of beg to differ. It
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  really just depends. Like, I have a three unit
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  myself. And before they were doing the rate hikes,
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  but I was getting like three or four thousand
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  dollars a month in cash flow after all expenses.
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  Like the rate hikes have kind of definitely eaten
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  into that. But I'm still cash flow positive,
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  a few grand. You know what I mean? And that's
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  just different than like The 1 time acquisition
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  fee of. $850 that I got from raising for a large
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  deal and you don't you barely get any of asset
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  management if you're going to get any of that
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  at all you're mostly going to get whatever at
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  the very beginning for acquisition fee and after
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  you turn the units because there's no there's
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  little cash flow at the beginning because most
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  of these are value adds as you build up the the
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  rent and equity and all that then you get your
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  payout at the end but then it's also after you
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  put the passive investors first and so if things
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  go wrong most of the time you're going to to
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  take care of your passive investors before you
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  take your cut so that you can raise again in
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  the future. But all that says, like, at the end
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  of the day, you're going to go a little bit up
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  front. You wait years, and you get a little bit
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  at the end. So what do you do for all those years
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  in between where you have no cash flow, if you
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  spent all your time and energy raising for this
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  one deal? And then maybe you do another deal.
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  But if you add up how many deals you would actually
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  have to raise for and be participating in every
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  year on a consistent basis to make your cash
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  flow steady throughout the years, it's something
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  that people don't really think about. And I guess
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  newer investors just because they don't know
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  that they should be thinking. They don't realize
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  that that's the reality of how it ends up being.
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  So all of that rant to say that when you're doing
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  a smaller deal, the smaller micro family deal.
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  You could have more control, and you have a better
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  chance, you have a higher percentage of, even
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  if it's $3 ,000 a month that you get to, is your
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  portion, like that's still $3 ,000 a month. That's
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  consistent, right? You might not get an acquisition
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  fee, but I would rather not have an acquisition
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  fee than have like the monthly cashflow that's
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  gonna help my living expenses and help me get
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  to the financial freedom numbers. So. That's
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  kind of my rant on all the conversations that
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  I've had with like all of my colleagues, with
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  newer investors, with more experienced investors,
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  with people like kind of make things work at
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  the same time as me. You know what I mean? We're
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  like in the same playing field at some times.
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  And for my own experiences with my small multis
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  versus the syndications that I've been a part
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  of. So raising money is definitely a lot harder
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  than I think most people think. when they get
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  started and it's a lot of work. It's a lot of
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  work to do that and gain that credibility and
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  post on social media and having conversations
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  with everyone. Um, and just learning multifamily
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  and trying to make things work. So every once
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  in a while there's, there's an exception to the
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  rule. I know like one or maybe two people that
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  have met and actually talked to who were able
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  to go right into, and actually, you know what,
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  that's a lie. They didn't go right. Cause he
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  started with small multiface, started with micro
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  family. And then he went up into, he decided
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  to sell those and use it as a capital for him.
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  his runway for the years that he did not have
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  a job because he quit his job, sold his micro
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  families, and used that capital to sustain him
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  during the time where he was building up his
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  investor base. So that's something people just
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  don't think about. OK, that's not even what we're
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  supposed to be talking about today, but I just
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  got on a whole rant. So you bring up a really
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  good point, and I swear we'll get into it. But
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  I remember when you showed that chart. And I
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  think people don't realize that a lot of deals
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  will do a 5 % carve out for the capital raising
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  portion. So you're getting 5 % of 30%, which
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  is very little. And so you think you're going
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  to get this sizable acquisition fee, and it turns
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  out being so much smaller than you thought it
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  was going to be. And then you move into this
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  position of Well, how the heck many deals do
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  I have to do to make any money? And when I'm
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  going to run out of investors. So what I've been
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  telling people here recently, probably for the
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  last six months is if all you have is $50 ,000,
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  either pass and invest or work tail off and get
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  on a DP team, a major portion of the GP. I don't
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  mean like more than anybody else. I mean like
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  10 to 20 % of the GP. Because if you're co -GPing
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  for deals and you've co -GPed 5, 10, 15, even
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  20 deals, you're still not going to know as much
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  about syndicating a deal as a person that's done
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  one deal that has 10 to 20 % of the GP. Because
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  that person is going to the weekly meetings.
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  They're a part of the deal. They may have even
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  signed on the loan. And it's a completely different
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  relationship. Or if you have $50 ,000, find one
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  joint venture partner and buy a micro family
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  because that's literally how much I needed for
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  the down payment on my first micro family. How
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  much did you learn with that? You learned a ton.
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  I learned a ton. A shit ton. Am I allowed to
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  curse? Yes, so much because it was a heavy value
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  add. I won't say heavy. Mid -level could be considered
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  heavy. But, um, and then we ended up having to
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  sell fund repairs and me just being, um, doing
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  asset management and trying to be on the property
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  manager as much as I needed to, but without being
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  the squeaky wheel. Cause you want to be a good,
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  a good person to work with. And, but you still
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  need to get things done in timeframes. And I'm
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  still dealing with that now, like even on our
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  second purchase together with the same partner
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  and same property management company, because
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  there's just a lot to learn that over these past
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  couple of years with being hands -on, you just
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  have a different appreciation for the work involved.
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  And when you're newer getting like helping out
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  an experienced GP, you don't really get that
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  level of hands -on experience that you're expecting
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  to get. No, and that kind of segues us in, you
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  know, you don't want to be that squeaky. Well,
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  you want to be good to get along with. But at
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  the same time, when you get a letter on July
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  31st that on August 1st, your residence voucher
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  or government assistance is over. I mean, that's
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  some squeaky wheel stuff. But you know what?
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  That's the building that I self manage. So that
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  letter. Yes, that letter came straight to me
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  and not through a property management company
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  because I probably would have blew a gasket even
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  more and it's just okay. So let's get into the
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  weed of things. So being an investor for me is
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  more about is more than just providing decent,
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  clean living and housing, the thing that everybody
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  says about the benefits of being an investor.
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  I like to take it a step further. I want to feel
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  like I'm impacting a community that really is
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  overlooked and underserved. So whether that's
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  economically or ethnically, whatever that is.
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  So I wanted to make sure that I'm, I want to
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  try to veer my investments to having more of
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  an impact on those types of communities really
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  in need. And when I had the opportunity to get
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  like, connected with the director of a homeless
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  shelter here in the city. And I found out about
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  the voucher program that New York City runs called
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  city. I thought that this was great. It's kind
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  of comparable to section eight, you know, and
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  I always heard about that, but I'm always nervous
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  about how to screen tenants correctly. But now
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  that I had this in, you know, they were helping
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  me screen tenants and they would present me with
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  a few different tenants that they thought were
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  good and what the issue was, why they were having
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  issues finding housing. And I like being that
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  person who can like, if it makes sense, I can
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  also. bend the rules a little bit and give somebody
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  a chance, right? Like I'm still, I'm not doing
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  this for free. You know, I still have a family
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  to support, you know, but at the same time, like
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  I'm, I tend to have a heart and I'm understanding
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  certain things. And so with the tenants that,
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  um, that got presented to me, they all came from
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  the shelter and they all had city FEP vouchers
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  with varying levels of, um, of contribution that
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  they had to provide to it. So one tenant did
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  had no contribution. She did not have a job.
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  She was studying to be a home health aide because
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  she helps her grandmother who's a hand beauty.
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  Then another tenant had a $300 contribution and
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  the rest was covered by the program. The third
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  tenant had like $1000 contribution and the rest
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  was covered by the program. So all different
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  varying levels and people have their. their kind
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  of criteria for or investors have their criteria
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  for what kind of tenant on a voucher like what
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  those metrics should be. Some people only want
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  someone who has no contribution so they know
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  all their money is coming every month. Another
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  person will want somebody who works and has some
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  type of tenant contribution because they want
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  to know that that person is being responsible
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  and they're going to work and they have something
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  to give, they have some skin in the game, right?
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  So there's all these different things. So back
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  to the letter, right? The letter I got. So I
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  had had warnings about CityFeps. I did a lot
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  of research before I accepted them and from what
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  I could to gather and from what I got from another
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  investor who was getting CityFeps clients, it's
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  all about just making sure you're on top of your
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  tenants and making sure that their cases are
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  renewed each year. and that um or renewed when
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  they're about to expire which is not supposed
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  to be a year it's supposed to be every five years
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  for the city steps program so i thought they're
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  coming right out of the shelter so they won't
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  need their cases renewed for another five years
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  right