Categories: Podcast

103 – Creating a Multifamily Empire in New Jersey – Aaron Fragnito

Synopsis:

Aaron is a real estate investor in New Jersey and invests locally in commercial multifamily assets. He’ll be sharing his story of how he created his company and how his strategy differs from others in his industry. Listen to this episode if you want to learn how to properly invest in commercial multifamily.

Key Points:

When you’re evaluating a real estate deal, don’t worry too much about what a property is making now, figure out what it can make after stabilization and create a plan to get you there as quickly as possible. Your reputation is incredibly important, so guard it with your life. The property management’s goal is to put the least amount of time per building, so it’s best to have your own management team to take care of the asset. When you’re just starting out, pick one strategy and stick to it. You’ll be better off in the long run.

Show Notes:

Who Is Aaron Fragnito

Aaron is the co-owner of a company called People’s Capital Group. They buy real estate in New Jersey and are focused in that area. They are kind of like a one-stop-shop for investors who can buy a property from them. People can invest passively in an apartment building with Aaron in New Jersey that they’re buying on a commercial scale and invest passively as an investor.

How Did Aaron Get Into Multifamily

The first property that Aaron bought was a single-family home flip. He lost $7,000 and was a very affordable lesson for him. The second property he bought was a six-family and thinks almost multi-families are more forgiving than single-family homes. You can rent them out and cover your costs and generally, you don’t have to do an amazing renovation to the unit where you’re fixing and flipping a home. He and his partner got the house from “We Buy Houses Sign”.

How To Find Deals

It’s hard to find a good deal. The challenge right now is finding a discounted apartment building, not overreaching. They find leads via Direct Mail and have billboards. They also do advertising but the best source is the Sheriff’s sale auctions. Aaron does about 3 to 4 Sheriff’s sale auctions a week. They’ll cycle about a million dollars in cash through the auctions to buy properties when they go to foreclosure and that’s a great way to get discounted real estate if you know what you’re doing.

Finding Commercial Properties

The commercial properties are mainly direct mail and just knowing the right brokers and right wholesalers. They have a great network of realtors and brokers that work with them on the commercial side and wholesalers as well and just direct mail to landlords.

How Does Aaron Finance The Properties

Aaron does a regular long term loan. Local banks and small credit unions, those are always great ways to get a decent loan. So they’ll raise extra cash for the repairs and will get a bank loan for about 75 to 70% of the purchase price. They’ll raise the down payment and the closing costs. They’ll put that all together and do an equity split with the investors. Investors get 60% ownership of the building Aaron gets 40% ownership of the building. They own the management company and that’s the secret weapon that allows them to really control the building and control the reposition.

Kind of Properties That Aaron Is Purchasing

Bigger is better. Aaron likes 6 to 25 units. Aaron is doing about one acquisition every quarter and finds 6 to 25 units as it’s kind of the sweet spot that is less than 5 million. When you get with over 25 units over 5 million, you start to deal with really hot shop brokers, landlords that are savvier. It’s a different type of negotiation, a different experience, and you tend to pay more for that real estate. Anything less than 6 units really don’t cash flow all that well.

Biggest Challenges Facing In Real Estate Investing Career

The biggest challenge is juggling the process of investor demands. You’re juggling relationships with high net worth individuals, small scale investors, and relationships with landlords and brokers. It’s a lot about creating a solid, professional brand, being an individual who works with integrity and works with real logic and professionalism. You have to first win over people’s interest in you. If you want to raise a lot of capital, you have to be a likable, trustworthy individual with a good track record but could be all destroyed in one second with social media these days so you got to be smart. The hardest part is juggling relationships and the timing of putting people’s capital to work with closing on a large piece of real estate which is unpredictable and filled with challenges.

Tips For New Investors

The easiest way to get started is to start small. There’s no harm in getting started with a two-family or three families. Single-family flips are less forgiving because you can’t rent them out while you’re trying to sell them or you’re trying to renovate the other units. So with multifamily, buy, renovate, refinance out or buy, renovate, sell, hold on to stuff that does cash flow is a good strategy.