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In the biggest multifamily deal of his career, Chris Greco brokers a $35M deal between long time client Michael Hananel of WNY Metro Horizon and Nick Sinatra of Sinatra & Company Real Estate. Deals like this don’t happen over night. They take years, in this case 10 years as it was reported in the Buffalo News. Clients are not always looking for the deal either as was also the case. It takes a savvy broker to know when the opportunity is right for his client. In this case a client was able to cash out at the right time and a buyer was able to nearly double their portfolio. Chris and Mike have worked hard to build the WNY Metro Horizon portfolio so finding the right buyer was critical. Buffalo Rising reports, “I am proud of our accomplishments over the past ten years in Buffalo real estate,” said Hananel. “We have become the largest provider of green housing in Western New York, working closely with our community partners, vendors and employees. While I hadn’t been seeking a buyer, I am excited that Chris Greco approached me about this strategic transaction with Nick Sinatra as he will continue to fulfill the vision we have had for these properties by merging our management team with his and continually investing in and upgrading the properties to benefit the tenants and the community.”
There are many factors that are important to deals like this. What are some of those factors? Greco clients hear a lot about how market climate and lack of inventory make portfolio purchases very attractive. Keeping your inventory in good condition is also important and something that Greco clients are encouraged to do. As quoted in Business First, Sinatra said, “the strong condition of the apartments and its healthy rent rolls were other key factors in his decision to move forward with the deal.” At Greco Real Estate.com we work with our clients well after the deal has closed to make sure they have the strongest portfolio possible in case the market is right to sell. We are proud of Chris Greco and the hard work he puts in on behalf of his clients. He treats every deal like a $35 million dollar deal.
One of the best lessons my father ever taught me was about leverage. I didn’t even know it at the time, but now I have come to realize the importance of the lesson. By definition leverage is the use of borrowed money to finance the bulk of an investment. Actually it’s much more than that. It’s about building your net worth. So how do you get started you’re asking yourself? Perhaps my multifamily investment story can explain it.
I purchased my first multifamily dwelling in 1995 several months after I got married. Since my father was a realtor, he showed me how owning would be more valuable than renting. I had a steady teaching job and good credit, but little savings. I was also young and scared, but I had a lot of faith in my father’s wisdom. The house was an old Victorian in the city of Buffalo with tremendous character. We lived on the first floor and rented out the two units on the second floor. The rent covered our mortgage and most of the maintenance costs associated with the property. It was a gift at the time since my husband was running a start up business and the tax write offs were a nice balance. We purchased the house for $90,000 with a 15 year fixed rate conventional mortgage that rolled in our closing costs. We used some of our wedding funds for the required 20% down payment. In other words, we leveraged 80% of the deal or $72,000.
Five years, and two children later, we had out grown our one and a half bedroom multifamily investment and were ready for our dream house. Much like our market today, finding a moderately priced house ($150,000) that wasn’t a major fixer upper in the Elmwood Village was next to impossible. We happened upon a house that was priced above what we were looking for ($279,900), but had some income attached to it. Since we had become used to the idea of having other tenants in the house it was worth consideration. After walking through the house with the listing agent and some other realtors, we knew this was it. How could we make this work? The house was $130,000 more than we could afford!
When we sat down with my father, he showed us how it could work. We were already preapproved for a mortgage ($150,000), we had the income and equity from our first multifamily investment (~$93,150 in value plus $28,000 annually in rent) and there was an income apartment in the new house thus ($20,400/year), our net worth was greater than we realized thus we could leverage more. Suddenly, the asking price was doable. That was the second time we recognized that our first multifamily investment was indeed a gift. The equity we had built up in that property had qualified us for a home that our mere salaries would not have and because we were adding additional income with the new rent we were able to purchase our dream home with other people’s money. It was a successful start up.
A recent article in the Buffalo News business section painted a grime picture for those folks heading into their retirement years. The number of folks heading into retirement who are off track for retirement income adequacy has risen steadily over the years to a staggering 53% in 2010. Assuming this trend continues, most of us can plan to work well into our 70s. Most people have been counting on Social Security and their own retirement funds assuming this would be enough, but it isn’t. So what should someone in their 40’s be doing right now to plan ahead? Do what Don Roberts did. At age 46, Don bought his first investment property, a two story brick building on the corner of Hertel and Crestwood. The building has 5 storefront rental units and 10 one-bedroom apartments on the second floor. At the time this property was available Don was able to purchase it with highly leveraged financing with the understanding that there would be little to no cash flow, but figured he could pay off the loan by the time he was planning to retire. It was the ideal retirement replacement income. Don kept the property in good condition doing most of the repairs him self and was always fully occupied. Since Don was self-employed he just looked at this property as another business. Don is an example of a disciplined investor who can separate his salary or self employed income from his investment property.
At Greco Real Estate we encourage our clients to look for multiple streams of retirement income, multifamily investment being the strongest and most lucrative one. Don Roberts was ahead of his time when he planned this for his family. In today’s world it is becoming more than just a good idea, but an essential part of effective retirement planning.
Not everyone is cut out to be a multifamily investor. You have to have the right attitude toward the work. Ray Bova, Jr has the right attitude and today has a very successful multifamily business for himself. While he credits others who showed him the way, he is responsible for the success he has today. Here is what Ray shared with me about his success in the multifamily investment market.
The reason I got into property management was for supplemental income. I started out watching my father, and he had much success with it. He was the one who encouraged me to enter the field of multifamily investment. My father showed me a lot of troubleshooting solutions when maintenance issues arose. He “held my hand” as I was going through rental property “boot camp.” He also encouraged me to talk to Chris. He was my first mentor, and Chris was the one who helped me understand the business of multifamily investment. He gave me advice that helped me get to the place I am today. He was (and is) always available for me when I had questions. He offered guidance and suggestions. No matter how small or large the sale was the service was always the same. He’s been a great role model for me. Chris’ advice that a successful investment means keeping the properties in good condition, and investing into them is advice that has worked.
My strategy when I first started out was to survive. Getting rents in was important, but not always possible. You have to have a strong work ethic. I wanted people to know that I took care of the property, and I think the tenants and neighbors recognized that. I think the tenants took pride in the property because I did. Now 10 years later, I am in a position to be able to continue to improve upon my buildings and offer my tenants a great place to live.
In my observation the biggest change in the multifamily rental market is that there are more people leaving their homes and looking for rental places. Sometimes they seem to want what they had when they had their home life and that is not always possible in the rental market (i.e. dogs). People hope to have something included in the rent. Whether it’s a utility or special service. Over the years I’ve gotten better at being more understanding of people and their needs. It’s their home, but at the same time it’s my building. We need to work together on this. I always do my best to be there for them when they call, and in return I expect them to be there for me when rents are due!
The best advice I received about rental property and multifamily investment was the simple things. First, keep expenses down and rents up. Also, putting money back into the property helps you to be able to raise rents and encourages the tenant to take better care of the unit. People want to be proud of where they live, whether it is in an apartment or a house. Second is having a goal – where do you want to be in 1 year, 10 years, or 20 years? Do you want to own property closer to where you live? You have to think about what’s important to you. Third, there is a certain point where you can’t do everything yourself. You need to bring people on and delegate. Surround yourself with a good team. Make sure you have a trustworthy plumber, painter, electrician, accountant, realtor, etc. They will be your greatest assets. Also, remember that some tenants will gladly shovel, clean hallways or do yard work for a reduced rent.
What does the future hold? I think the rental market is still growing. Look at all of the new buildings going up. Many people still don’t want to be bothered maintaining property. Some people are not able to own a home due to their economic situation. The economy is driving a lot of people to the rental market. I see multifamily investment as very strong.
Myron Robbins came back to Buffalo 38 years ago with a degree in industrial engineering and management. Unsatisfied with what the rest of the world had to offer, he came back home to find his fit. He found it in a 6 unit building on West Delavan. Myron is what we at Greco Real Estate consider a multifamily investment success story. He listened to his broker’s advice and his instincts, and has built a wildly successful business outfitting Western New York’s multifamily dwellers. I spoke to Myron recently about his multifamily investment property strategy and his impression of the rental market. This is what he shared with me.
When I moved back into the area, I met someone who rented me an apartment. It was a nice place with fair rent in a nice area. The man told me he made good money doing little work and I thought I could do that. I had some money saved up so I bought a place. He lied. It was the hardest thing I had ever done. Property management is a lot of work.
My view of investment property, particularly multifamily properties, is it’s money you use to buy a job and you decide what kind of job you want to do. When you decide to buy a building you look at the profit and loss statement, but you don’t inherit it. You determine how successful your investment is. It’s one of those situations that if you have the money and you can get a mortgage you can do it. Not everyone is successful at it because they don’t want to do the work that needs to be done. You don’t need a degree or a license you just need to know how to deal with people. You are dealing with their safety, their comfort. It requires attention, decision making, knowing how to do the work or hiring people to do it. You need to know the market like how to get good rents and good tenants. We look at our tenants as partners with us. We have a no smoking rule, no party rule. That works for our tenants. We like when our tenants call. We see ourselves as problem solvers. I have observed that most people don’t take great care of their property. Putting your money in multifamily, you need to be committed to what you’re doing. You are going to get calls when it’s not convenient. You’re like a volunteer fireman. You need to have the right people in place to respond.
My strategy is to concentrate on buying property that is in a good neighborhood, meaning the quality of life is there- short drive or walk to the grocery store, mix of houses and apartments, activities like restaurants and shops. It’s got to be where people want to live. People ask me to manage their property all the time. What we do is very special. I couldn’t manage a property for 5-10% of the income. It would be more like 25% because we put so much back into the property. I don’t think most multifamily investment property owners feel the same way about it as I do. It is so important that the people who work with you feel the same way about management that you do.
I see Buffalo as a work in progress. Most middle end tenants are professionals or semi-professionals who are educated and may only be here for short term so they aren’t looking to buy. The low interest rates and the price of homes hurt us because more people buy. It slows down the rental market, but never halts it. The rental market is very stable. A gradual increase in rents and good supply keep us healthy. There aren’t too many new developments. Just enough to keep up with demand. There hasn’t been a lot of change in the market until recently since the Buffalo Medical Campus, Roswell Park and UB moving into the area. It will be interesting to see where it goes.
Anyone who is familiar with Buffalo Management Group can see the pride that Myron takes in his work. They get the job done and done right. He has grown his 6 units (which he still lives in today) to almost 1,000. He has clearly made Buffalo a more beautiful place to live.
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