I want to talk about team versus deal, and this is specific to a multifamily investment where we’re going in and pooling capital from a bunch of investors. Let’s say you’ve got 20, 30 investors on a project. You go out and buy a building in order to get returns and make money.
I’ve seen that most people tend to focus on the deal. What are the returns? What market is it in? What’s the population growth look like? Those are all really important metrics that the deal has been evaluated the right way, and there’s a lot of due diligence and evaluation that goes in on the front end of a multifamily investment. That’s extremely important. This is where I’ve seen people tend to focus the majority of their energies on the deal, but I would like to say in this video that really the team absolutely 100% comes first. You could have the best deal on the planet in terms of the return projections and things like that, but if you don’t have a good team managing that deal, a bad team can 100% ruin a good deal, without question.
What am I talking about by team? Well, you got the sponsor, the person putting the whole thing together. You got the property management company, who’s probably the most important team member. They’re going to be managing the asset day-to-day in terms of HR, accounting, marketing, leasing. I mean, the critical life blood of an apartment community is the management team, and really, the staff who’s on site and who’s managing the staff, so the property management company is critical. The construction management is also critical. If there’s a rehab component, those things are critical in order to create a successful business and a successful operation in a multifamily investment.
I would urge you, if you’re evaluating multifamily investment, really focus on the team. I mean, we all as investors, and I’m a passive investor too, I want to dive to the bottom line. I might get an investment summary and look through it and go, “What are the returns? What’s this going to net me over five years?”
The truth is, those returns are contingent upon a lot of things: what’s the economy going to do, what are cap rates going to do. We look for opportunities where we can force appreciation and create value, where we’re not buying, “Hey, well, the market’s going on, and so we’re going to hope that it appreciates over time.” We’re not buying projects for that reason. We’re buying projects where we can say, “There’s a problem with this property, and we can go in and proactively improve it. It’s an operational problem, or it’s, needs a million dollars of improvements, and the current owner’s not going to do it, and we can take it from here to here by proactively making these improvements, not just hoping for improvement.”
As you’re looking at those return numbers on any kind of a project, that’s great. It has to be underwritten correctly. It has to hit certain return metrics for it to make sense for you or I as an investor, but you really want to look at the team that’s running that deal day-to-day, the sponsor, the property management company, the construction management company if there is one, and you really want to understand that well. That’s going to be the make-or-break on most deals, not necessarily the deal itself, but the team running a deal. Do your due diligence on the team. There’s a list of questions you can ask any sponsor or any property management company running a deal, and you’re going to want to understand those things before you invest capital. Thanks.