AMA
We are a very small but growing real estate shop focused on acquiring and developing Multifamily, Outdoor Hospitality and Industrial assets in the southeastern US.
Plenty of way smarter guys on WSO here is what we have accomplished so far. We started part time while keeping our day jobs in January 2017.
As of 3/8/23:
- Outdoor Hospitality: 7 acquisitions, total transaction value $26M
- Multifamily: 9 acquisitions totaling 675 units, 2 ground-up development projects totaling 126 units
- Industrial: Two projects under construction totaling 50K SF, 5 acquisitions totaling 160K SF
Are you hiring?
I wish! Not at the moment.
What was y'all's prior experience before starting out on your own? Or do you plan to, and if so when? From what I understand this is something you guys currently do on the side.
Outdoor hospitality - is this just Airbnbs/Glamping? Assuming these are very feast or famine. What type of returns do you have on these pro forma? How did you source these deals, and what type of debt terms were you getting? Did you have to operate for a whole year to produce a PnL (assuming these are some type of outdoorsy Airbnb) to get cash-out refinance proceeds from a lender?
On the multifamily side, if you have 9 acquisitions totaling 675 units I'm putting that at ~75 units/property. The economics to have a dedicated property manager per site don't really begin to make sense until you reach +130 units for a property. Do you have one dedicated team that covers all 9 properties? How does their management fee work (3% of EGI)?
Are you guys still currently doing this part time in addition to your day jobs? How many guys in your partnership?
Curious to hear your responses - I plan to go out on my own one day as well. Cheers
What was y'all's prior experience before starting out on your own? Or do you plan to, and if so when? From what I understand this is something you guys currently do on the side. I was in the construction business working as a project manager on heavy industrial projects. My partner comes from the real estate private equity world.
Outdoor hospitality - is this just Airbnbs/Glamping? Mostly RV Parks with some glamping and marina. Assuming these are very feast or famine. What type of returns do you have on these pro forma? Wide range here but we pegged the target IRR in the 16-18% range over 5-years. How did you source these deals, and what type of debt terms were you getting? Not many brokers who specialize in this product but we made friends with all of them. We only found 1 deal off market and the rest were through a broker. Debt terms were solid via Unity bank. We havent closed on anything lately but our last deal we secured 5 year fixed, 20-year amort, 5.10% with 12mo IO. Did you have to operate for a whole year to produce a PnL (assuming these are some type of outdoorsy Airbnb) to get cash-out refinance proceeds from a lender? I assume that to be the case but we have not crossed that bridge yet. We sold 3/7 parks within 14 months of ownership to a larger group. We are going to ride out this 5% rate until we have to make a move on the remaining 4 parks.
On the multifamily side, if you have 9 acquisitions totaling 675 units I'm putting that at ~75 units/property. The economics to have a dedicated property manager per site don't really begin to make sense until you reach +130 units for a property. Great question. Our unit count on multifamily acquisitions took place in this order -- 18 units, 26 units, 22 units, 80 units, 55 units, 110 units, 96 units, 128 units, 140 units. Do you have one dedicated team that covers all 9 properties? We self manage our multifamily portfolio (for the most part). One of our properties is about 4 hours from where I live so we have some help managing that property but everything else is close by. How does their management fee work (3% of EGI)? That is about right.. some are higher than others but we average around 5%. In my opinion it is hard to create a profit center via self management but it does allow us to underwrite deals quicker and with more accuracy.
Are you guys still currently doing this part time in addition to your day jobs? We are doing it full time. How many guys in your partnership? Just two partners.. We hired an asset management guy last summer though.
You and your partner self-manage ~675 units of multifamily? Can you elaborate a little bit on this?
I'm assuming you mean you don't hire out a third-party management company, and hire direct handyman/property managers to cover them.
How does this work exactly? How many boots on the ground do you have? Or are you saying that you and your partner are the ones actually doing all the repairs and AM (excluding the new hire guy)?
Appreciate your response - I've though that mobile park homes have been an underappreciated niche asset class for awhile. Glad to see them get some play.
What is Outdoor Hospitality? Campsites?
Yes. It is our sexier way of saying trailer park.
Well trailer park could be manufactured housing, which is different from like an RV park, I'm assuming you mean the latter? If so that seems like a solid business. I imagine low opex for some basic utilities and taxes and then just coupon clipping.
Would love to get back into this. I was a REI firm doing acquisitions, marketing, and data analytics. I loved it. Congrats. This is my dream to do it myself.
At what point did you quit your full time jobs to pursue this fully? How old were you/how much experience did you and your partner have before purchasing your first property?
At what point did you quit your full time jobs to pursue this fully? I quit my job way too early.. Wife was 7 months pregnant and I was 31. How old were you/how much experience did you and your partner have before purchasing your first property? My partner is 15 years older than me and has 10x the experience. I bought my first small investment property when I was 23 years old.
We had purchased ~400 multifamily units and were in the process of closing on our third RV Park when i quit my W2 job.
Are you raising equity on a deal by deal basis? Do you have a key principal with a large balance sheet to provide net worth for loans and to sign guarantees?
Are you raising equity on a deal by deal basis? Yes we have done everything on a deal by deal basis but we are actually in the process of pulling together our first small fund right now. Do you have a key principal with a large balance sheet to provide net worth for loans and to sign guarantees? We do. We have two guys that have really helped with balance sheet and liquidity constraints.
what did you give up for signing guarantees? Currently going through the same thing.
To me, finding the right partner and convincing them to not only work with you, but also give you millions is the hard part of starting a development shop.
How did you convince a private equity guy to partner up with you? Were you recruited or did you recruit him?
Also how long did it take you two to close your first deal and how long did it take to get the next?
How did you convince a private equity guy to partner up with you? His younger brother was one of my really good friends growing up. I had purchased a few small deals and was in a rut so I called him for some advice. We built a friendship from there and landed on a simple agreement. I do most of the work and he keeps most of the money. We slowly moved to a 50/50 partnership after a bit of luck.
Also how long did it take you two to close your first deal and how long did it take to get the next? I think it took 4-5 months before we closed on anything together. We found our second deal while in DD on our first deal. The third deal took another 6 months or so.. We have averaged 4-5 deals per year over the last 6 years.
Very interesting...How do you go about sourcing new deals? Are you mostly pursuing off market deals and how do you generally find those?
How do you go about sourcing new deals? We definitely source off market deals but mostly broker relationships. We identify properties that we really want and find a way to buy them.. rather than cold calling all day. Are you mostly pursuing off market deals and how do you generally find those? We started out only focused on off market stuff via mailers and cold calls. That definitely worked but looking back, all of our higher quality deals were done through a broker.
When you say your team aims for a 16%-18% IRR, what is your holding period for these deals before exiting/having to return capital to investors?
What’s the average LTV when taking on debt?
Lastly, what is your stabilized Yield-on-Cost for these projects?
Thanks!!!
When you say your team aims for a 16%-18% IRR, what is your holding period for these deals before exiting/having to return capital to investors? ~5 years
What's the average LTV when taking on debt? ~65%
Lastly, what is your stabilized Yield-on-Cost for these projects? Definitely depends but I think we are in the 7.5% - 8% range on average. If we can build 150bps of spread within 3-years we consider that a Win.
Are you recruiting unpaid interns?
Are you recruiting unpaid interns? Not necessarily but I am always happy to help where I can. Feel free to DM. Thanks.
Could you provide a range of how much you make a year or how much you have averaged since you started?
Could you provide a range of how much you make a year or how much you have averaged since you started? I can tell you that I am always cash poor. I did not take a salary for several years but I pay myself $96k per year right now. We "made" $800k in acquisition fees & development fees last year but we never saw a penny of that because it was completely used as co-investment in our deals. Could I pay myself much more? Yes. But I think we will be in grow mode for several more years.
Wow.. sticking to a $96k salary while raising a kid/family sounds challenging.
What kind of multi deals are you looking at in the SE and how do you feel about current competition?
What kind of multi deals are you looking at in the SE and how do you feel about current competition? Honestly, we aren't looking for multi deals right now. We wasted a ton of time with sellers who missed their chance to sell and have not accepted the current market conditions.
Last Question,
But what was the Capital stack of your first “real” commercial deal that got you started?
Also what city/region do you focus on?
Thanks Again!!!
But what was the Capital stack of your first "real" commercial deal that got you started?
Debt: 54% LTC
Pref Equity: 20% of Total Cost
Common Equity: 26% of Total Cost
Also what city/region do you focus on? We are in Austin, TX, Baton Rouge, LA MSA, Mobile, AL MSA & have one project in Pensacola.
When starting out in 2017, did you have a detailed business plan with deadlines that you were trying to meet for purchasing your first property or was it more serendipitous following your first acquisition?
Were there any organizational tactics that helped you and your partner work together and stay on track to execute in terms of identifying markets, properties, raising capital, etc. - while also keeping up with your day jobs?
I am trying to do the same thing, and my partner and I have day jobs that require a lot of hours. We have struggled to prioritize building our own business given the demands of our days jobs, so we are currently trying to improve our process.
When starting out in 2017, did you have a detailed business plan with deadlines that you were trying to meet for purchasing your first property or was it more serendipitous following your first acquisition? Not at all. Our plan was to focus on where the opportunity was.
Were there any organizational tactics that helped you and your partner work together and stay on track to execute in terms of identifying markets, properties, raising capital, etc. - while also keeping up with your day jobs? Nope. We just focused on doing one deal at a time. Truly no magic formula to the little success we have had.
My advice would be to just focus on buying the absolute best deal that you and your partner can handle right this minute with some friends and family cash. Then do another one, and another.. That worked for us.
Seeing as you've been in business for ~6 years now, have you managed to earn any back end promotes on deals you've taken through their life cycle? You mention upthread you target ~5 year holds, so I'm a little curious what the economics look like. Sounds like you gave away between 30-50% of your GP interest in order to bring on a guarantor, so I'm trying to get a handle on the profitability of doing this. Obviously the fees are great and building a balance sheet will lead to more and more success in the future, but just curious how well things have gone in "Phase I" or whatever of your business.
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