Savvy investors want to invest in what’s trustworthy. But how do you know where and who you can trust with your investment? This is a really important question to ask.
We specialize in multifamily property investments. Let’s say a real estate property comes on the market and we get it. We can say, “wow, this is great. We want to present this to investors and offer this to them.” But how can our investors know it’s a great opportunity and a trustworthy investment?
The first thing a good investor would do is they look at the track record. If you want to invest in company, you’re going to want to ask them about their past. “What’s their track record? How many deals have they done in the last year? How many deals have they done in the last five years?”
We know that the market cycle goes around about every 10 years, the real estate market cycles around about every 10 years. And wherever we are today usually by five years from now we should be in a completely different position.
For example, we would ask, “Okay. How did your team perform? How did your other investments perform in the 2008, 2009 market crash and recession? How did you guys perform the 2001 market crash and situation?”
Past performance is something that you’d want to ask and talk about because it matters. It matters how they handled distress times. It’s how they’re going to handle it if something happens in the future. It’s always great when the returns are great. It’s when there’s a problem that you want to make sure that your team is ready and experienced to deal with that problem. Track record is important.
You want to also ask, if they’ve exited any deals? It they’ve purchased a property, renovated and repositioned it, got the returns they were supposed to get, and then exited the property and sold it.
In Multifamily Real Estate Investing, an investment cycle starts from purchase, to renovation, to increasing rent, and finally sale. And all through that entire scope of work is where the returns come.
You want to ask, did you guys go through the entire cycle of an investment property? And if the answer is yes, then the next question is always going to be if they met or exceeded their projected returns.
Did you meet or exceed your projected returns? Is their underwriting good enough to project their plan?
Underwriting is when we do an evaluation before to see what is going to be the plan over the next few years.
- What is the plan over the next five years of when we’re going to increase rent?
- How much money is it going to cost to do the renovations?
- Where are we getting the money from?
- Who’s financing? Who’s lending? What are the interest rates?
- When’s the refinancing?
All those numbers get put into the underwriting, which is a numerical version of a business plan. And this is important because if the returns are as what’s projected means that their underwriting is good as well.
Track record and underwriting are important.
The second question you want to know is who their team is.
Multifamily Investing is not about some fantasy miracle property – it’s the team. The money is in the team that’s assembled to complete the project. One person should not be doing an entire 30- or 40-million-dollar deal alone. You’ve got to have a team. You’ve got to have someone specialized in each area.
For example, we have a person who does lending; that’s their specialty. A person who does construction. That’s their specialty. A person who does renovation, and a person who does marketing. These are individual people & groups who all have skin in the game to make sure they perfect their specialty to get the property to perform well. It’s a huge part of what makes this a smart investment.
The next important part of evaluating the trustworthiness of an investment is location. It makes a difference because there are different markets, primary market, secondary and tertiary markets.
And these are just fancy words for saying, is the property in a central city location? That’s the primary market.
Let’s say a property is in the center of Miami or it’s in a Phoenix or it’s in New York. These are primary markets and they’re more stabilized and they appreciate it a certain way.
A secondary market is just outside the main city area.
And tertiary market is well outside the main city. The reason for this distinction is really about job growth, economic development and the development of the city itself.
In the central city there’s a lot of jobs. Multifamily Investing should be looking for job growth. That’s what we follow. Where there are jobs, people move. When people move, they need a place to live, and that’s where multifamily properties thrive.
The next thing you want to ask about is paperwork. I can’t tell you how many horror stories I’ve heard where people invest and there’s no paperwork. There’s no contract – nothing.
You should have paperwork in hand that shows you that you are an owner and you have equity and you are part of the project. It sounds simple and obvious, but it’s actually an important step some less experienced investors forget about.
For everyone who invests with us, we give them documents (and we have a whole file for them) all nice and neatly put together that says you are a real part of this investment. Here is your paperwork that you can go and you can take to any lawyer to verify, to double check, to make sure that if anything, this is all true and this is all done properly.
It proves that there’s no foul play and no funny business. And the whole point is to make it easy for you to know what’s going on. We understand investing can be a fearful experience. Get your important documents in-hand and reviewed.
At Multifamily Equity Partners, we keep our promises on time, every time. And we pride ourselves on that because we are here to reassure you to build that trust and to show you that we really invest in great properties.
The next part of a trustworthy investment: you’re getting regular updates. Regular updates are good because you don’t want to just give your money and then never hear from them again, or for months on end.
So you want to know what’s happening in the property – what stage it’s in. Then you want to have either quarterly or monthly updates to know that you are aware things are happening.
The last piece is really just to develop a relationship to be involved in the process to say, “Hey, I want to know a little more about this property and who is on the team. How does this actually work?
You want to know when you can expect returns, or you want to see some underwriting. You don’t need to be a professional in accounting, but you may want to say can you just give me just a general lay of the land of properties and the underwriting and the valuation so I can see for myself. That’s a great way for you to know what to trust and what not to trust.
There are a lot of people who make bad investments or just weak investments. And the reason is because they believe that they’d rather get 3% on their money where they’re certain they’ll get a return than invest with a specialized team and get 15 to 16% returns on their money.
Their intentions are good. And they say that “it’s because I don’t want fraud, I want to be certain I like this.” But in reality, the biggest challenge that they face is that they don’t know how to evaluate who is trustworthy and who is not.
They believe themselves to be the only trustworthy person. They take $300,000 and buy a single family house. Then they believe they’re going to rent that single family house for $1,500 or $2,000 and get maybe two to three percent return on their money. And they’re happy because they’re paying down their mortgage. They believe that this is a great investment and they have a house and everything is secure.
What we want to share with people is that the point is not to keep buying houses and keep buying weak investments, but to spend some time to learn to just invest in yourself.
You’ve got to learn how to evaluate who is trustworthy and who is not. You need to know how to ask the right questions. Use the list above. It’s yours now, so you can know how to evaluate who is trustworthy. How to do a basic evaluation on any property yourself. How to get a general overlay of how a property can perform and what the potential is.
And then once you become a wise investor and educated investor, you’ll really be able to leverage these amazing teams, these amazing groups that open up investing on a high level.
We’re evaluating properties regularly, and if you want to see what’s currently in progress, reach out to us. See who’s on the team that makes these investments so much better than the weak investments most people are making.