Matt Perrin, Jeremy Green, and Lissette Calderon all started their own multifamily companies. But each of them got to that point in different ways. Perrin was president of Mark-Taylor Residential in Phoenix, while Calderon worked for bigger firms, most notably The Related Group of Florida in Miami. Green, on the other hand, had no experience in multifamily when he decided to jump in. Instead, he came over from Wall Street, where he worked for CBS SportsLine.com.
Despite the different routes these three people took to starting their multifamily businesses, they all learned some important lessons useful to any aspiring multifamily executive. Building a multifamily portfolio is a true business challenge, but the following five rules will help you achieve your goal.
1. Secure Your Funding
"The amount of money needed in order to get into the game is substantially more today than it ever has been."-Jeff Allen
When Jeff Allen, president of Allen Realty Co. in San Juan Capistrano, Calif., and former managing director of multihousing for SSR Realty Advisors in Morristown, N.J., started his first portfolio more than 25 years ago, things were different. Property prices were cheaper because multifamily wasn't the hot investment vehicle it is now. But with property values rising and a flood of outside investors entering the market, start-ups must be financially fortified from the get-go. "The amount of money that is needed in order to get in the game is substantially more today than it ever has been," Allen says.
Thus, unless you're Bill Gates, you'll need some help. "If you have no money, you usually need to find investors, friends, or families that have money," says Jeff Greene, president of Millennium Holdings in Hollywood, Calif.
This is a departure from 25 years ago, when Greene needed only financing to buy properties. If he were starting today, Greene says, it would be difficult to acquire properties by himself because of cost. Instead, he would have to give up a share of ownership. "It's very hard to rely on financing alone today because the cap rates are so low," he says.
The increased competition means that a young portfolio may swing and miss several times before it gets on base with acquired properties and developable land. That's why Allen cautions start-ups to make sure they have enough capital in reserve. "Don't underestimate the amount of capital that's required to fund the pursuit costs, overhead, and expenses associated with optioning property and going through the due diligence process and entitlements process," he says.