On the show today we talk… Multifamily Deal Room with Jennings Smith!
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Show notes: Multifamily Deal Room with Jennings Smith!
Jennings background
He grew up in Tennessee and had an affinity for construction. He got his builders license at 19, but was working 50-60 hours a week, which he thought was too much.
In the summer he would rehab rental homes, working 12-14 hours a day.
By the time he graduated from college he’d built a few houses, and had things to show people.
Then the recession hit, and he was in debt from the IRS, employees, and mortgages.
This was hard, but it taught him a lot! There are good times and hard times, and rental properties can smooth out highs and lows.
After the economy came back he moved from remodeling to more rental homes.
He saved up about $5k and found a beat up double wide to buy. As a contractor he fixed it all up, and sold it for like $18k on owner financing. Then the owner stopped paying him and ripped the double wide apart.
At that point Jennings almost quit. But rolled up his sleeves and fixed it back up and sold it.
After a while he bought a few more trailers, and had some cash flow, but realized it was going to take him a LONG time to reach his goals.
Mentors
Jennings went to his mentors and said he wanted to have 1000 rentals, and they told him not to do it with single family houses.
Then he learned about creative financing, which is much more interesting to investors because there’s a lot more to be made.
When you look at what the billionaires are doing…. They aren’t messing around with single family homes. There is no scale to it.
What would you say to someone who wants to scale up
If you have a couple rentals already… you can do this! You have all that you need to buy multi family rentals.
Buying apt complexes is like buying a cash flowing business. You need to know how to manage a business.
The foundation is underwriting. You have to understand the mechanics and basics to know what you’re talking about.
3 pillars that you need
Find a deal – Loan sponsor – Money/down payment
You need to start with if this is something you want to do. That’s important!
How did Jennings break through the barrier of the first deal
Start small. Think about an 8 unit, 12 unit, 16 unit. You probably only have to raise 2-3 hundred thousand.
On Jennings first deal he looked and finally found one. He needed 90 grand, and pitched it to an investor that said no. It took 3 investors to find the money. And he had to negotiate with the investor.
He worked hard and got the NOI up to where he wanted. They ended up selling it and made great money!
That give him confidence to keep closing on bigger units.
Do people need to be open to taking a secondary deal
Apartment guys make it too complicated sometimes.
If the napkin deals don’t pencil, Jennings isn’t buying them.
Education vs. Grit vs. Networking
The single family game is a loan wolf game, but multi family is a team sport.
Jennings partnered and that put gas on the fire.
Loan sponsor
The first big deal he did was $5million. He needed net worth, experience, and liquidity. He had experience, but not the others. But with a partnership you can group these things and do the deal. It’s all about having relationships, and that you will do what you say.
This is why he recommends starting small.
To really scale you need capital. And most investors are constantly broke, but Jennings keeps money in the bank for when something goes wrong.
You need experience, so start small.
What is a good deal structure and expectation when partnering
You have to be realistic and the person who’s putting in the money, it has to be worth their while. He’s seen people work hard for very little.
There are a couple ways to structure is in basic ways…
- A straight up split of percentage.
- There is a preferred return where the first X percentage goes to the investor. So they get that first. But the syndicator can be working hard for very little. Jennings had a bad deal that he talks about on his podcast.
He recommends the straight up split in the beginning. Keep it simple.
What is the Deal Room
He looks at his own journey to share what’s worked and what didn’t work. Then that morphed into people asking to train them. From there he created a course that was good, but people didn’t get great results. The students asked for ongoing mentoring.
When he was looking back, not having a mentor was really hard.
If you join the Deal Room you get the course, you get trained on underwriting, they plug in his loan sponsors. Then they have conferences and Zoom calls. They create partnerships. It’s so cool! Every week deals are coming out of the Deal Room.
Can someone with money to invest join the Deal Room
Yes. Even as a money investor you should learn about what a good deal is.
There are 10-15 people that have joined to find deals.
Is this free
The Deal Room is application only. It’s $400/month. GetInTheDealRoom.com and checkout the video.
If you have no experience you won’t be approved. But if you have done some things in real estate, they can help you and commit to that. He only wants to take money from people that will close a deal in the next 6 months.
How important is it to make relationships to brokers
Brokers are awesome, and he’s found about half of his portfolio from brokers. If you have a good relationship with brokers, you can get to see deals before they’ve been pushed out.
But you can burn up brokers quickly. If you don’t know how to speak the language of commercial real estate you can do more harm than good.
There is no substitute for putting in the hard work and learning the language.
It’s not hard, but you have to put in the work.
Are there underwriting mishaps that you see
Location, location, location. Is it a growing market, is it a good area. People underestimate how long it will take to fill a multi family rental property.
You really need to verify numbers.
Expenses will run higher than single family. 45-50% or higher is standard in multi family. Everything needs to be accounted for.
Julie finds that brokers have tighter numbers.
How about bridge loans
Never say never, but he wouldn’t be doing bridge loans right now. He exited two bridge loans last year because he was nervous.
He likes to work with a local bank/credit union.
In real estate pretty much the only way people go bankrupt is if they run out of time.
What about loan to value (LTV)
The last couple they’ve done 65%, and that’s enough to get the investors cash out.
Where can everyone follow Jennings
The best place is JenningsSmithJr.com. And Unlock Your Life Podcast for people stuck doing something they don’t want to be doing.
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