Synopsis
Cherry is a full-time physician in Portland, Oregon. She has also been passively investing in real estate for 4 years now. There are many ways to get into real estate investing, and today, we find out how a full-time physician got started in apartment syndication.
Key points
Do Your Research
When it comes to starting the real estate investing journey, most people do single-family homes that they later put to rent on Airbnb. Cherry made sure to educate herself first and figure out which investment to put her capital in.
As a physician, she didn’t want to put money in retirement accounts like the 401(k). Real estate appealed to her, so she spent 3-6 months Googling and doing her research. She also listened to podcasts like BiggerPockets and Joe Fairless’s “The Best Ever Real Estate Show”.
Why Multifamily Properties
There were core things Cherry considered before deciding where to invest. She thought of how active or passive she wanted to be and the risk of an investment. She wanted to put her money to work by trading in her capital, which is different from her work as a physician where she traded her time for money.
When it came to comparing multifamily versus single-family properties, Cherry looked at them as a business. So she checked how each is operated and evaluated as a business. Valuation, scale, and predictability played big parts in her decision. Compared to multifamily homes, adding $10,000 in a kitchen renovation of a single-family doesn’t translate to an extra $10,000 in rental or appreciation.
Finding A Partner
Building relationships is important. Cherry suggests that when choosing a general partner, first get to know them as people and as a firm and know what kind of assets they invest into.
It's necessary to vet the sponsor too. For Cherry, she suggests meeting them in person. She went to a conference, met the people, talked to them, looked at their properties, and searched about the podcasts they’re on and what kind of projects they’re into.
Things New Investors Should Be Aware Of
Look at the assumptions on a project and verify the numbers. This could be done by looking at the rent of similar properties, finding out the average for things like expenses which are usually at 45-50% to operate the property. Or ask them how they came up with the numbers.
There are a lot of moving parts, so educate yourself on the asset you’re investing in. This way you'll feel comfortable when you understand where your money is going.
Leveraging Or Financing The Deal
Banks typically finance 65-80% of a project, so make sure to watch how much it is leveraged because you don’t want it to be over-leveraged. Having a debt-service coverage ratio of 1.25 is considered healthy.
The Market For Apartment Syndications
Cherry usually invests in apartments greater than 100 units. Anything below 80 units, you won’t have the power of scale. So she prefers bigger markets like Dallas.
She might leave 20-30% of the units unrenovated so that buyers who come in see that there’s still value they can add on. Interested buyers could be other sponsors who may have sold a smaller unit before and now want to buy a bigger one, or real estate investment trusts (REITs) which look for a slow steady return for their investors.
As for Cherry, she plans to keep pouring her income into more and more of these investments. Syndications last between 5-7 years. She likes that timeline as typically it takes 5 years to execute these kinds of properties.
Moving Into The GP Side
Beginning in August 2018, Cherry shifted to becoming a general partner. Nobody does this alone. You have to find great deals, you have to know how to asset manage these deals, and you need investors.
She wants to help other investors invest in these projects and be part of the team that analyzes them. She loves engaging in organic conversations to let people know what she's working on. She has also built a website she will use as a platform and will do one-on-one phone calls with interested investors.
She still looks at deals as a passive investor and wants a conservative, nice attractive return. She checks the opportunity costs because managing property takes a lot of time.
Relationships Are Key
Syndications involve partners and investors and are potentially 5-7 year deals. At the start, there's the time given for getting to know the people, figuring out your plan, and finalizing who will be your investors.
When Cherry started, her co-investors were her own family, friends, and colleagues. Now, she has a real estate physician platform.
Home On The Internet
The point is to build relationships instead of raising capital. Cherry wants to educate people and find a connection. Physicians trust other physicians, but it still comes down to getting to know your investor.
She targets physician-specific podcasts and forums. She also sends monthly newsletters with curated content.
Impact Of COVID-19
April and May turned out very well surprisingly as Cherry collected 98-99% of the rental payments. Retail and hospitality are not doing well. Cherry prefers evergreen assets since people will always need food and shelter. This makes them recession-resistant.
For bigger apartments with 100 units and above, there are benefits in predictability and stability because your finances will still be okay even if 3 people don’t pay rent.
Government assistance may have also helped people in paying their rents during this time. At the core, relationships matter, there will just be different ways to build it.
What’s Next
Cherry plans to keep growing her network organically. Every physician knows 100 physicians. She’s getting referrals, so she doesn’t have to work as hard. If people have a good experience with you, they will naturally refer you to others.
Ideally, she could go part-time in her job now because her cost of living is not that much. But it’s more of a mental game for her. Within the next 3-5 years, she plans to move to work part-time.
For investing and finances, everything you do somehow does revolve around money. So Cherry suggests thinking of how you can be intentional with your money rather than avoiding it altogether.
Last Tips
Before jumping in, be intentional. Find what fits with your lifestyle and philosophy better.
Resources
References
More from our guest
- You can connect with Cherry at The Real Estate Physician or email her at cherry@therealestatephysician.com.
- Don't forget to grab her free ebook available on her website.