Making the leap from Wall Street to real estate was a hard decision done by Linying. She is one of the Founding Partners at Akras Capital, a multifamily real estate syndicator. Her company helps investors earn passive income and achieve financial freedom. Today, we find out how Linying has been able to leverage her experience as a buy-side trader to be successful in her real estate entrepreneurial journey.
Linying had a long career in finance working as a fixed income trader and analyst where she managed money for large institutions and traded corporate bonds for 10 years.
Then she reached a turning point in her career. Money was no longer an issue, so she started wondering what her purpose was. Working in finance, she didn’t have much control. She was just another cog in the wheel.
She decided that she wanted to control her destiny and have the flexibility to manage her time. So she and her friend, Kristina, both quit their jobs in Wall Street and traveled.
Initially thinking that she’d go back and look for another job after she gets back from her travels, it took 8 months before Linying decided to leave corporate altogether and become an entrepreneur.
At that time, she already had a triplex in Boston that she did a house hacking strategy on. Bought in 2010, she lived in one unit and rented out the other two units until she later moved out and bought her own condominium.
The triplex was an excellent deal because she got it for a really good price with the rental income increasing in the years since. The cash flow was so good that it was able to cover both her mortgages and her travels in Asia for 6 months.
Cementing the decision was having her friend, Kristina, with her who wanted to go into real estate. Having worked together for 4 years in their last jobs and traveled together, they had already laid down the foundation of their business relationship.
Most of their families found it difficult to understand why they would quit their cushy and comfortable jobs to do something risky. It helped that Linying’s partners had the same mindset and were able to support and lift each other up. This gave them opportunities to focus on some of the things they talked about on a daily basis.
From the very beginning of their partnership, they already talked about their goals and ethos. Linying believes that this is key to the success of any partnership because they needed to determine whether they wanted and valued the same things.
The partners also figure out their own complementary skill sets. So each one is responsible for tasks that they are good at.
Real estate is an essential need. It is also recession resilient because there will always be a need for shelter.
Their focus is to build passive income, so they can step aside in the future and hand the day-to-day operations to someone else. What they want for themselves is the same thing they want for their investors.
Since other real estate models required them to be very active and constantly putting in the hours, multifamily syndications were a better fit for their goal. Because while they’re actively working right now, they plan to be put in processes that will allow them to be less active in the long term.
The three partners have different role definitions.
Linying is focused on acquisitions. Her role is to uncover opportunities and decide whether they’re worth investing in.
Their other partner, Charley, has a strong background in marketing. He is in charge of doing the monthly newsletter and capital raising efforts.
Kristina handles asset management. She spends her time talking to portfolio managers, vendors, contractors, and brokers and goes through the due diligence process.
Most of their deals were sourced entirely off-market. When they want to invest in a market, they make sure to get to know all the people active in the market, brokers, wholesalers, bankers, etc.
The deals that come in are the result of the relationships they have built.
The partners have a spreadsheet with a list of 15 criteria that they look for in a market. They’d look at the cities that score the highest and then go check out the city.
There is a greater focus on cash flow opportunities in the markets they choose. They’ve invested in Spokane, Washington, Florida, and Dallas. But with Spokane becoming increasingly more tenant-friendly, they are now transitioning to landlord-friendly Arizona.
After experiencing connected water and sewage lines problems in a past deal, their buying criteria now prefer assets built in the 1980s, so they won’t have to deal with asbestos and sewage and plumbing issues.
The partners also look for properties that are 75 units up for their syndication deals. The property needs to be big enough to allow them to put in an on-site property manager, leasing manager, and maintenance crew.
Class B assets are their sweet spot as they stay away from Class A and C assets. There also has to be a value add as they don’t want turnkey properties.
Most of their loans are coursed through agency financing like Fannie Mae or Freddie Mac.
They typically raise 30-35% with 20% used for the down payment and the rest for closing and capital expenditures. Syndication is like raising a private placement fund. Investors typically come in as a purely limited partner and bring in between $50,000 – $1,000,000.
As a general partner, their role is to execute the business plan while the limited partner just enjoys the cash flow.
Returns have been going down lately for their syndications. But their limited partners get a preferred return where they get cash flow of around 6-7% per deal before the general partner gets paid.
Their deals have a 5-7 year holding period with their required rate of return (RRR) at 10-14% and the annual return is at 13-17%. They try to underwrite very conservatively so that they meet the returns they project to their investors.
The way Linying sees it, real estate is a form of finance as you are also buying and selling investments.
While working as an analyst and trader, they had to do an economic strategy outlook. This was something she did for 10 years. There is also due diligence done on corporate bonds. At the end of the day, it’s about the numbers- which makes sense and which don’t.
Her career in finance honed not only her analytical skills but also her skills in relationship building. She learned to build relationships in all areas as it was also part of her job in Wall Street.
Working as an apartment syndicator, their proforma on a deal is based entirely on their assumptions. It’s key to have a great understanding of what your investors want as
When they do their underwriting and their due diligence, their assumptions are mostly conservative and achievable. Because if they project this kind of return, they will want to meet or exceed those expectations.
New investors need to understand the management team and look at their track record and abilities. They shouldn’t just look at the presentation and decide to invest just because the numbers look great. Understand the deals first and how the team underwrites their deals, and don’t just believe the presentations.
It’s good to invest in operators too because they are the ones with control over the business plan. There are people out there who only raise the funds and do not do anything else.
A common trap is not understanding what you don’t know. The entire due diligence process is full of traps, so partner with an experienced operator to save yourself a lot of headaches.
It’s also best to become a limited partner first before becoming a general partner. You learn and get access to different networks, different conferences, different resources that are new to you which you can then apply later.
The eviction moratorium is definitely a problem as it is set to continue. But they haven’t seen as much of an effect in real estate now although there could be more pain down the road.
Linying sees that it would be hard to get back to the previous level of the U.S. in a short time period. It’s a wait-and-see approach for them now.
With rates staying low now, they don’t have any concerns about rates going up. But the prepayment penalty in commercial loans is one thing they do think about.
While they will continue with their current model, they’re keeping their eyes and ears open to potential shifts and different opportunities. Linying sees that the current situation presents a lot of opportunities not present before COVID-19.
So they’re eyeing doing something on the development front
For now, they foresee no rent growth and are keeping their loss-to-vacancy numbers high. They’ve become even more conservative in their underwriting to capture potential risks down the road.
The distribution on one of their assets has been paused as well as they find it better to sit on cash than have banks come after them should they run out of cash.
In 10-15 years, the partners want to be able to step into a more strategic position. By then, they hope to have built a portfolio of assets and have a solid group list of investors.
Then they each will pursue their own passion projects, whether it’s for a non-profit, traveling, or family.
Get started early. Invest in real estate now.
Don’t time the market because you might miss the opportunities there.
Just find the right deal and think about your long-term goals.
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