The Process of Building a $300M Multifamily Investment Business – Weekly Podcast Recommendation

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BiggerPockets Podcast Episode 317 w/ Chad Doty

This week’s podcast recommendation is a BiggerPockets episode with Chad Doty, co-founder of 37th Parallel Properties. 37th Parallel is a multifamily investment business that was founded over 10 years ago. I really enjoyed this episode because Chad dives into high-level topics about the 4 components of every real estate business, how he built a $300 million multifamily investment business, what his multifamily investing strategy is, how to locate great multifamily markets, and the best way to start investing in real estate.

Main Topics of Episode

4 Components of a Successful Multifamily Investment Business

1. Capital Development– raising equity and debt

2. Deal Development– Who is sourcing your deals? What MSA, submarkets, neighborhoods are you looking at for deals? Ask yourself, are you getting deals from brokers? What relationships do I need to build to get more deals sent to me?

3. Business Architecture– the act of working on your business. Ask yourself, what are the pieces of your business that need to be improved/systematized?

4. Asset Management– Managing the asset’s operations. Ask yourself, how are you optimizing value in the properties you own? Can you improve capex budgeting, renovations, your on-site team?

  • Capital and deal development are the most important to have when you start your business. You can then focus on business architecture and eventually asset management
  • The asset management side can rely on 3rd party property managers at the beginning of your businesses life
  • It is really hard to outsource capital development. You or your partner needs to be skillful in capital development
  • Find a partner that specializes in 2 of the 4 components

Building a Real Estate Business

  • Single-family investing is a great way to start in real estate investing but you want to eventually transition into multifamily investing. Having 100 single family properties is like herding cats whereas having 100 multifamily units is like herding cattle
  • Chad recommends new syndicators/real estate investors to find capital, then find 1 or 2 property managers that align with your goals, then understand who your closing/title company will be, and then talk to a broker
  • When investing in a new location, you need to find a property management team that understands your goals and desires of a partnership. Chad’s company wants to work directly with the regional and property manager, so they found a 3rd party property management company that accepts Chad’s desires
  • Chad has 13 people on his team that consist of an office manager, controller, financial analyst, technology analyst, Chad and his partner, 2 registered sales reps that help on raising equity, one marketing head, and 2 asset managers

Multifamily Investing Strategies

  • When underwriting a property, decrease the going in occupancy by 2% more than you think and raise it to market occupancy after 2 years. By doing this you are giving yourself a buffer in case you are missing some expense while underwriting
  • Value Add Strategy: Fade your Competitors- If you have 2 competing assets within a mile radius that are rented $150 more per door than your asset because they have better flooring and countertops. Make upgrades that are similar to your competitors but not as nice. That way, you can market to potential tenants that your asset has just as nice of an interior but for $50 cheaper!
  • When adding value, you can only decrease expenses so much. Focus on finding ways to increase revenue and utilize the economies of scale by saving money per unit during Capex/renovations
  • 80% of your renters already live within 5 miles of your asset
  • 50% of Texas residents will live in the Dallas, San Antonio, and Houston triangle in the next 20 years
  • Chad is investing in the Carolina cities that have over half a million people, Atlanta, and in Texas
  • Rule of thumb: For every 50 units, there should be one full-time employee. If you own a 100 unit, you will have one on-site property manager and one maintenance man

Who Should Listen?

This is a great podcast to listen to if you are currently a multifamily real estate investor or trying to develop a team and need clarity on how to departmentalize your business. If you are looking for a more high-level multifamily investing episode, this is for you.