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Do you for beginners? Do you, do you recommend either trying to join an established team or making your own team? And then two, if you do recommend joining a strong swimming team, What are some of the things, and I get that this is team dependent, but it’s just kind of like in general, what are some niches that you see that like beginning investors can help fill as an operator?
I know other investors are romanticizing, multifamily investing, and I’m looking to learn from other investors mistakes. I know you are. You found the right place. Welcome to Myers Method present multifamily missteps.
Hi everybody. And welcome to Myers methods. Presents multifamily missteps. I’m your host Jerome, and we’ve got a special segment today. I’m in. Marcellus Marcellus McKinley is here today and he is going to get his multifamily career. Kick-started he’s, uh, he’s already involved. Shout out to both for the assist and man, I’m just grateful to be able to share the Mike with you today, man.
So do me a favor. Tell the listeners a little bit about you and then we can dive into whatever questions you have for me. Yeah, man. So I’m Marcellus. Um, so I’m active duty air force. So I’ve been in for about 10 years now. Um, I’m stationed down here in the, uh, Virginia Beach area and there Norfolk and Langley air force base.
And yeah, man, um, you know, just a little bit of background, you know, started a little bit in the residential. Space for real estate. And, you know, I was at LP on my first deal here in Newport news and kinda caught the magic. And then, you know, after that, you know, I was off to the races man. So, you know, just kind of joined up with the act duty, passive income group and kind of been hitting the ground running, just trying to learn as much as I can.
So that’s outstanding. Tell me more. How did you end up being an LP? Most people are LPs. They don’t even know what an LP is. That’s the limited part in there. Ladies and gentlemen, limited partner. So how’d you get the money up to do that? Let’s kind of go on to journeyman, I assume you want to be active.
That’s why we’re talking today, right? Yep, exactly. So I guess kind of make a long story short, you know, I had, you know, as soon as I got here in Virginia, you know, I, I really wanted to invest here. You know, it was kinda just cool in general, I’m from Virginia originally. So, you know, back home, you know, it just had a lot of opportunity and you know, now that I’m older, I kind of wanted to, you know, set that kind of legacy.
So I’ve been saving up money for a while. Just kind of paying attention. Yeah. Different avenues and different methods to kind of, you know, help with this some investments. And I joined the local REIA group. So one of my friends down here, who’s a realtor, you know, I’ve been talking about real estate, you know, I’ve been doing the whole thing, you know, looking for flips, doing stuff like that.
And, um, it was around July of last year. You know, I had recently closed one of my properties down in Memphis. Um, she reached out to me, she’s like, Hey, You know, we’re looking at trying to take down a unit, a 16 unit down here, would you want to invest with us? I was like, yeah, sure. Why not? You know, like, I’d heard something about apartment investing.
I thought it was kind of cool, you know, something to kind of get into, you know, just to, uh, you know, the size and the scale of it really kind of intrigued me. And then, you know, kind of after that, you know, I got like my first distribution check, you know, so we’re doing quarterly distributions and I was like, man, this is nice.
I like this mailbox money, man. So, you know, kind of after that, that kind of like really made me interested in kind of learn more about multifamily and, you know, just learn about the scale and the size and, you know, just, just a lot of the capabilities that you kind of have with that. I was like kind of sold after that.
So, you know, that’s when I started making a pivot to multifamily. Beautiful. All right. So you’ve gotten into a deal. But it’s not yours. You’re riding along, right. You’re on the jumbo jet. You’re ready to jump off and get your fighter planning. Right. You ready to be the pilot? You’re in the air force? I don’t know if you’re actually a pilot.
I’m just throwing stuff out there. But, uh, talk to me, man. What, what questions can I ask answer for you? Yeah, so I think the biggest thing that I’m just kind of having right now is trying to find the balance of, you know, developing the skills of being able to be a GP. So general partners. One of the things I’m trying to look to do is, uh, do underwriting, you know, so like if my job, I do a lot of analysis, you know, deal with numbers on a daily basis, you know, that’s something that, you know, kinda I cleave to.
So I’m trying to like build my skills at that at the same time. But then also too, you know, obviously with multi-family, a lot of these are expensive. You can’t take them down on your own, you know, you need to be able to develop an effective team and be able to do that together. And I guess just the biggest thing for me is like how.
I know that I’m not supposed to do that alone, but how do I find that balance of like being able to network and be social and do those things to be able to develop that kind of team while also building those skills necessary? Cause you know, like the last thing I want to be is like, if you’re like, Hey, get a team together and they’re like, Hey, well what’s this.
And I’m like, I don’t know. You know, like I want to be useful, you know, I want to add value to whatever team I joined. So it was just trying to find that balance. Just how do you do that as a beginner? Yeah. So what I see most frequently is people join either one of the groups around the country that are doing syndication, or they take some form of a course and become part of a cohort, right?
Because all the people that are there in essence are interested, at least curious about the thing, right. They, and they’ve taken it to the next level. They’re not just going to meet ups. They’ve actually invested some money to say I’m serious about this. I want to go to the next level. And so that’s usually the way that people do it, the other way to do it.
It’s a little bit slower. You spend more time kind of going through people who aren’t really serious is going to meet ups, unfortunately, because of COVID you can attend meet-ups around the country, right. And meet people from all different walks of life who are interested in various different markets and begin to build those relationships there.
The issue with that though, is there, isn’t a common hood right there. Isn’t a goal for the people who are going through a course, the goal is getting through the course, having the knowledge necessary. And while you’re going through it, potentially finding a deal that you can bring back to everybody to talk about.
Right? So that would be the way that I see it happen most commonly. Now the question is how much of an investment are you going to make in order to get into that space? If you think you need to go do a hundred unit plus, and some of the other things where a lot of syndication educators talk about, it’s probably going to be something more than 30 grand, right?
Usually somewhere between 30 and $70,000 is what I hear normally, depending on what upgrades, bells, and whistles you get, you know, it’s like customizing a car at this point. Right. Right. Then there’s, you know, you could take a course, you know, we offer a pretty cool course. That’s 11 weeks. And, you know, right now that one is priced at three grand and you’ll be connected, not only with the people that you go through the course with, but also with the alumni.
Right? So the people who’ve come before you, and then you usually there’s access to some speakers and some other stuff from our conferences and things, but you all speak the same language because you guys are all affiliated with kind of the same thought process. We get pretty excited about this. And I think this one’s probably a pretty big deal.
We are the only people that talk about joint venturing. And so what I think you were saying is your first deal, you joint venture with some of your friends, be careful with that passive investor, just throwing it around because. If you’re a passive investor, they should have syndicated, there should have been a PPM and there’s a violation of securities law.
If that stuff didn’t happen and it’s all good until somebody gets upset because they didn’t get some money or something. Right. And so do be really particular when you’re picking your words. And when you move forward and do your own deal. Make sure you’re being very clear about whether your joint venturing or during this syndication with your partners.
Okay. No, that’s really good. No, I appreciate that. Um, yeah, no, that’s good. Uh, I guess kind of a second question I’ve kind of had with that too, is, um, you know, just trying to take action, you know, just trying to learn how to do. How do you develop relationships with brokers? I know that’s a big question.
Everybody’s got it. But what are, what are some things that you think are good ways to kind of start developing relationships with brokers? Yeah. So brokers are the source for deals, in our opinion, we want to go direct to seller, right? So I’m just going to put that caveat out there. As far as developing relationships with brokers, I tell people to go to the multiple listing service crack C loop.
Uh, wherever else, right? Some of that stuff ends up getting in and up on the regular MLS that’s for residential. And you reach out to the broker and you ask them about the deal. You talk about the deal with them, and if you can get them to meet you at the property to tour, right, bill, you tour the deal with them.
And you use that as an opportunity to talk about what you like about it, what you don’t like and explain to them what you’re looking. And the goal isn’t necessarily to buy the deal that you’re touring. That’s just the get time with the broker so that you can start building the relationship they see you’re real.
See, you’re interested. See, you actually know what you’re talking about so that you can get on the preview list or the pocket listing list, because that’s where you can actually probably negotiate something that makes sense.
Okay. Sorry. I’m just writing some notes.
Yeah. Yeah. That’s not, it helps a lot because I’ve been kind of just trying to cold call people and stuff like that and get it. That’ll work. You just don’t have anything to talk about, right. There’s nothing to talk about. Oh yeah. Hey Johnny. Uh, Now what, how’s it going? How’s the weather, if you could talk to them about their listing, because I mean, at the end of the day, they are looking to sell something, right.
They only make money when he sells something. So if you can talk to them about the thing that they’re trying to sell and explain to them why you like it and what you have questions about. And I mean, my favorite thing is when I talked to a broker and it was like, I know it’s overpriced, but just bear with us and we’ll see if somebody buys it at this price.
And if they do. Then great for everybody. If not, then when the owner’s a little more interested in being flexible, I’ll give you a call. Nice. That’s what I enjoy. And it happens pretty regularly. So I like that. Um, so I guess here’s yeah, here’s another one. It’s kind of an interesting one, but I like to ask this one a lot.
What do you think is some bad advice that you hear a lot out there? Like ones that you’re like, I don’t know why, why I stopped telling people that, like, what are some things that you hear out in this space that you think is some bad advice, man, and you’re trying to get me on the soap box. My favorite one is go buy a hundred unit building for your first deal.
I, I tell people not to go chase Moby Dick. No, you’re going to be captain ahab. They have, it’s going to take you to the bottom of the sea. Go get some tuna in the boat, right, right. You’re down there in the tower water. You see the DC boats going out every now and again. Look, man, go, I’ll get some tuna, come back.
Show everybody how much tuner you caught. They’re going to say, Hey, we want to go fishing with you. You go out with a bigger boat. The next time you get more fish, bigger fish. Maybe he gets four fish this time instead of tuna. Show everybody what you got, you go back out again with a bigger boat, with more people.
Then maybe you go get a well or shark, right? He come back, he show people she got, and you go back out again with a bigger boat, but everybody just wants to go get Moby Dick and get the biggest boat that’s out there. That doesn’t work. And so what I see most people do, especially if they haven’t run a business.
Is, they go try to start their syndication business and they go try to get a hundred unit plus building and they’re competing with everybody else that’s in the space because there’s but so many of those in your city, right? Right. It’s a, when one comes up, there’s eight offers. Well, for every a hundred unit building, there’s probably 20, 10 unit buildings and there’s probably, I don’t know, 15, 20 unit buildings.
And so you can go buy all of them. That’s the tuner established some track record. Right. And then when you go talk to the broker about that a hundred unit deal that you wanted to talk to about when you had notes, nothing you say, yeah, man. So, you know, we’ve been buying stuff on the south side of town, you know, we bought this 10 and we bought this 20 we’re about 50% through the repositioning.
I really liked that market and we’re looking to go bigger and it looks like you’ve got this list. And so we’re, we’re looking to scale up and we’d love the opportunity to look at this deal and try to negotiate something with you and your client. Totally different conversation from, Hey, I live in an apartment and I’m going to buy a $2 million asset.
Where’s the money coming from? Uh, uh, I I’m, I’m part of a syndication group in a nationwide network of investors. And we’re what. You’re laughing, but I mean, that’s what people are taught to think is silly. I’m mostly laughing because I, I, I initially tried to go down that road and it didn’t work out too well for me.
So lesson learned and you know, it’s, I don’t know. It’s refreshing that you said that because it’s just. You know, that’s kind of what I’m looking at right now is that that 20, 25 unit, you know, that kind of small spot, you know, cause like you said of not competing with people that have been doing it for a very long time and are really good at it.
But then also to kind of like talk back down the hatches, get my systems together and then be able to take on those bigger deals once I kind of understand all those processes and things like that. Well, and I mean, I’ll be honest, man. Somebody just presented a 60 unit deal to me. Did the model. And cash on cash is 1% per year.
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Let’s get back to them. You got to renovate. I, I don’t understand why you would want that outside of having a place to park money. I think you can do other stuff with your money. I don’t think you have to park it in a really heavy lift. It’s not going to pay very well. So, you know, at the end of the day, though, the game is really building track record, like you would in anything else, right?
Anything else you have to build your track record? I don’t know why people think that you should tell new folks to skip those. Yeah. And I say it repeatedly. I think every educator started doing medium-sized deals and I call them medium something greater than 10, but less than a hundred, right. The stuff that’s residential for less, I call that small and then kind of no man’s land is between five and 10, because I feel like if you can do five, then you might as well do 10 and you know, under a hundred because that’s usually the breaking point when you can have onsite property managers.
I think playing in that space with third party, property management and getting everything together is the game. I think that’s where the opportunity still sits in the marketplace. And so that’s why we focus on that piece of the multi-family. Um, I don’t even know the multifamily industry, your multi-family investing.
No, that’s that’s really good, man. Yeah. It’s uh, that’s definitely, uh, some advice I’m going to try and do for next time and not trying to take on Moby Dick the first time. Um, yeah, man. So I think kind of another thing for me is, you know, so, like I said, I’ve been kind of trying to sharpen my pencil, trying to do the underwriting.
Um, I guess just. I know, it’s kinda like, like with a lot of things it’s just practice, but what were some things that you did in the beginning with your underwriting to get better at that? You know, did you just do a lot of practice deals? Did you just work with somebody else? Like how did you do it? Uh, I did it the wrong way, so I probably shouldn’t tell you how I did it.
Cause I still, I own a deal where I modeled the taxes at a thousand dollars in they’re 10,000 a year.
You can’t ever make up that NOI ladies and gentlemen and operating, income’s always going to be $10,000, at least $10,000 lower than what I’ve projected. So I didn’t do it the right way. Right. I said, I know what I’m doing. And here here’s the, here’s the worst part about all of it. I would take the actual collected.
I would take the market. I would take the market rent, so gross potential income from market rent. And I will use the expenses that the owner gave me and put it in and I all it works. That was awful. Right. But that’s what I thought I should do because I saw somebody say that on a video, somewhere on YouTube.
So, you know, and this is the other piece of advice that I didn’t bring up, but I should have been, I’m going to because Hey, we’re here. And this question kind of connects to the last one. So self-educating is the most inefficient at any effective way to get it to this. Because there’s so much that you don’t know that you don’t know.
Right. I call it an unconscious incompetence. And so what I would say is you want to have somebody walk you through the process or what it should look like, then you do it based on that. And then you present that back to the person who taught you how to do it, and you want the person to do. Tells you how to do it, to be someone who is actually operated.
Right, right. Cause it’s easy to say, oh yeah, expenses are 50%. But if your rent’s over a thousand dollars and your expenses are 50%, there’s probably something wrong with your operations because it usually doesn’t cost $500 a month per unit to run the property. Right. On the flip side, you know, people who have eight unit are probably going to tell you that they’re running it for a hundred dollars, a unit per month.
And while that may happen every now and again, it’s not going to happen all the time. Right. And so getting some real understanding, not just the percentage guidance, because that’s what everybody throws around, getting some real understanding of the actual numbers and what they should look like on a monthly basis.
The thing that I actually, that actually taught me the most was going through appraisals. And so every time we did a deal, we would get appraised. And I would comb through the appraisal and look at how they came up with the valuation for the property. And it’s usually based on an income approach and in that income approach, they would have whatever they thought rents would be.
But what I was most interested in is what were the expenses and then kind of the percentages, because appraisers don’t just do it based on the income, a percentage of income for expenses, they actually get raw numbers and put them in. And then that’s how they come up with the operating expense per door for the property.
And that is insanely accurate. And if you talk to anybody, that’s doing loans, especially agency debt, you’re doing the same thing. So we should do what they do. Yeah, absolutely. Cause they’re going to determine if you get that money or not. And so, but that’s how on the backside I learned, but I bought deals.
And it’s crazy. Cause the mistakes I made, the vagueness, the partners missed it. Everybody missed it. Right. But you know, it just got, it is what it is. And so it, it just shows me that, you know, everybody’s not paying all that much attention. And so you gotta be really careful when you’re the deal lead.
Right. When you’re the delete, it sits on your shoulders. And so if you screw it up, you probably need to do something to make it right. Yeah.
So, I guess kind of on that note, or kind of similarly related to kind of the team question. So I kind of have a two-part one. So one, do you for beginners, do you, do you recommend either trying to join an established team or making your own team? And then two, if you do recommend joining a strong swimming team, What are some of the things, and I get that this is team dependent, but it’s just kind of like in general, what are some niches that you see that like beginning investors can help fill?
I think you can feel whatever your natural skillsets lend to. Right? If you’re analytical, then naturally you’re going to gravitate to the underwriting and potentially the asset management. If you’re really good at dealing with people and cultivating new relations. Then maybe you’re out raising capital and handling investor relations or finding different vendors that may be able to support you guys building relationship with property managers, et cetera.
Um, and so those are the two things that I think in up being the biggest. Right. It’s and I guess the third thing is probably getting new deals done. Right? So there’s deal finder, there’s asset manager. Managing it afterwards, in some spaces there’s construction management, because you’ve got a big project and you need to manage that.
And then there’s the capital raising piece of it. If you’re going to do syndication and those are all separate functions. And this is part of the reason why I’m not excited about new people doing syndication. It’s two businesses. There’s the actual operating business, the finding deals getting deals closed and then operating them.
And there’s the raising money business. And both of them have to be built if you’re going to syndicate. I think it’s a whole lot easier for you and your friends. Partners can come together and build an operating company. Right? You get your Jon boat, you go out and get some fish come back, and then you, you guys can buy a bigger boat, but you show people that you know how to.
Um, and then the other piece of it is, you know, you don’t, you don’t get in a place where the check is too big for somebody to write. You don’t have a problem. If money solves your problem and you have money, right, right. You don’t have a problem. If you have a problem that money gets off and people forget that these properties don’t always behave the way you expect.
And so if the property doesn’t behave the way you expect it to, it usually means you’re going to have to write a check, right? If nobody has any money, you end up in a mess potentially losing the property or whatever else. Right. So it’s really orders of magnitude. Right? You, you buy a deal. It’s a hundred thousand dollars.
The things that can go wrong for a hundred thousand dollars deal are very different from the things that go wrong on a million dollar deal. Things that go wrong on a $10 million deal. Yeah. Most people are scared of that. All they, they’re not scared of that because they are unaware of that. They’re only looking at the acquisition fee.
They’re only looking at a potential return on equity and all this other stuff. Right. They don’t realize that there’s a risk that needs to be mitigated in match. Yeah. Yeah. And that’s definitely, I don’t know. Yeah. I’m definitely sensitive to that because you know, at the last, at the end of the day, you know, like whoever I invest with or whoever’s money, I would be able to get like, that’s the last thing I’d want is to be irresponsible with their money, you know, to make sure that in making sure that the investors get what they need.
So it’s just trying to figure out how to do that and make, make the most sense of it. Guess. So, yeah, not everybody has your same opinion, right? If you look at a lot of folks in Silicon valley, it’s just money. Oh yeah, no worries. Right. But when you prize other people’s money higher than you prize yours, when you respect the trust that a person has to have in order to offer you their capital, which is usually.
One of the top two things that they value in life. Right. You don’t want to, you don’t want to minimize that. Right? You don’t want to, you don’t want to take that for granted. And so I think your heart and spirit in the right place there, for sure. I appreciate that.
But no, I think, I mean, those were a lot of the big questions that I had, man. Uh, I appreciate your time and not, it’s been good. Just chatting with you, man. This has been good. And I appreciate you. I both tagged you. I was like, let’s see what happens. Well, here we are, man. I’m super excited to just be able to sow into you.
And I’m looking forward to seeing you on the other side of this thing. When you close that deal, I need you back on. So we could talk about what you learned. One day. I’d love to have you come speak at conference because that’s, my goal is to bring more people into this space and allow them to share, especially when you’ve got a genuine heart like yours.
So brother, I appreciate you. And to the listeners, hopefully you got a tremendous amount of value for this thing. I had so much fun sharing. Took me back down memory lane. And, uh, I just want you to all know, like your dreams should be real and the pack is with you. We’ll talk the favor, give us a five-star rating.
Give us a review and share this with somebody who’s interested in and tell the next time the package.
