Perry is a syndicator and an engineering manager at Lyft. He has been working for Lyft for four years and has been doing syndications for one and a half years. In this episode, Perry talks about actively working a senior technology job while doing real estate on the side.
Perry got hooked on house hacking when he first bought a three-bedroom house to live in and rented out the two smaller rooms. Eventually, he moved to the smaller rooms then later shifted to buying a bigger house and following the same strategy.
His strategy for finding roommates has changed over the years. Before, he found his tenants from Craigslist. Since his houses were not located in downtown Seattle, he had lower rents.
Later, he leaned towards getting reserved and introverted tenants. He wanted to distance himself a bit from his roommates rather than become close to them. This way he avoids them getting too comfortable and asking to delay their rent payments.
When he moved back to Seattle, renting out his house in San Francisco became a headache. So he decided to sell it, join a syndication group, and invest in multifamily properties.
Perry works at Lyft 50+ hours a week. He decided to do syndications out of necessity because he realized that he will max out his debt to income ratio and would no longer qualify for a home loan.
He also wanted the opportunity to share his knowledge since he plans on continuing real estate investing.
He and his business partner already had a 7 unit property in Seattle. They wanted to scale up and buy a 20 unit, but the deal fell through. A big syndicator with $19 million in assets and a property management company was the one who got the deal.
Instead of putting in an additional $50,000 premium to every deal that they want to win, they decided that it is better to pay that amount of money to join syndication. So they joined a group in Texas they had heard about.
Their first syndication was a 172 unit in Texas with a purchase price of $13.5 million. They needed to raise $4.3 million. Most of the funds were raised from Perry’s own network including his co-workers at Lyft, family, and friends.
Having a good reputation and being genuine help Perry find investors since 95% of the time, the people he knows approach him wanting to invest their money.
Perry doesn’t like sending out monthly or quarterly emails to update people on what he’s doing. He prefers hanging out with people. Only then does he talk about what he’s doing in Texas and what he’s passionate about.
The downside to his approach is that he doesn’t know how much money he can raise until it’s time to do fundraising.
It took them a year before they got their first deal. During that time, they had to keep making offers and asking the brokers how they can do better. It was an unfair playing field as people who succeed had insider access and information.
Perry likes properties with a good location and good traffic as that is something you cannot control and change.
The 172 unit property they found gets a ton of traffic as around 35,000 cars pass by every day. They can also do a lot of upgrades to add value. They spend $8000 per door to improving the interior and exterior. In total, they put in $1.8 million in capital expenditure.
Being in a Dallas Fort-Worth submarket, Perry felt that it was a deal they won’t lose on.
It was basically a $50 million deal with their leverage at 76%. Luckily, they got a Fannie Mae non-recourse, commercial loan at 3.87% interest fixed for 12 years with a 30-year amortization. Because of the green program incentivizing owners to install more efficient utilities, they received a 0.25% reduction in interest.
One benefit of non-recourse loans is that the owner is not personally liable for paying off the entire loan. It also has a fixed rate compared with bridge loans, which have variable interest rates.
After 12 years, Perry can either refinance or pay then sell the property. But he is not expected to pay up the entire loan at the end of 12 years due to the 30-year amortization.
They managed to get 3 years of interest-only (IO), so it helps them to have lower monthly payments at the beginning since they’re doing renovations.
Rather than do a refinance, Perry suggests getting a supplemental loan to avoid the hefty prepayment penalty. If you sell it, the buyer will assume the loan, and they can do another supplemental on top.
Having a 76% loan-to-cost ratio, their lender pays for their construction in draws. So they are limited to the operating capital they have.
For first-timers, Perry recommends using a trusted lender like Old Capital to be able to close without issues. With their first deal, they were able to have a smooth deal and closed in 60 days.
Since closing on the deal in September 2019, they have completed 80-85% of renovations in six months. They do one building at a time and just ask the tenants to move once a building is finished.
With 7-8 units vacant and one building comprising 8 units, they have enough vacant units to accommodate tenants that they need to move.
Plus, Texas is very landlord friendly and doesn’t require them to empty out the entire property before doing renovations.
They’re able to do pro forma rents and their prices are actually up to par with the competition. On top of that, the units will be renovated. But for the really nice units, they may consider charging a premium.
Perry met his business partner, Ed, on BiggerPockets while he was living in San Francisco. Originally, Ed was going to move to Seattle, but since they were going to do syndications, he moved to Dallas, Texas instead.
Ed works as an asset manager full time. He underwrites the deals and checks out the property. Without someone like Ed acting as boots on the ground, it would have been difficult to get a deal.
Their goal is to get one deal a year and scale it up from there. Due to the coronavirus situation, they are being conservative. But since Ed left his paralegal job to move to Dallas and work full time in real estate, it’s important for them to close on deals.
As for Perry, he eventually wants to work in real estate full time and have his income from there match his current salary.
Perry always tries to optimize for efficiency in every area that he can. He doesn’t like doing small chores like washing dishes, so he uses bento boxes for microwaving his food.
He also hired a maid to do the cleaning and a virtual assistant to do tasks like bookkeeping.
He believes in outsourcing all the tasks he hates doing, so he can spend as much of his time doing the things he loves.
Being intrinsically motivated has been the biggest one that contributed to Perry’s success. If you want something bad enough, you can get creative in finding ways to get it even without having the capital.
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