The Best Shortcut to Getting Started in Multifamily Investing
You know what one of my favorite things is about interviewing multiple people each week for the Best Real Estate Investing Advice Ever Show? Occasionally, I will come across an investor with a mind-blowing amount of creativity and hustle.
They were in a bad financial spot, having no money to invest and no real estate experience. Yet, through massive effort and ingenuity, they were able to get started in real estate investing.
Usually, they identified a unique, unconventional path – dare I say, a short cut – to success.
One recent guest I interviewed that fit the above description was Chris Thomas. In fact, before interviewing him, I read his biography and was perplexed. It said he was a short-term rental investor with only two and a half years of experience, yet he had somehow amassed a portfolio of over 250 rentals (at the time of the interview).
“How is this possible?” I asked myself. Once the interview began, I was even more confused. Chris was in the backyard at one of his rentals, wearing a t-shirt covered in sweat (which I was actually kind of jealous of because it was around 30 degrees in Chicago) and holding his iPhone as the camera and microphone. He tells me that before he got started in real estate, he was a high school dropout on welfare (and was maybe even without a home for a period of time).
After telling me more about his background, he begins to explain his investment strategy. To be honest, even 10 minutes into the interview, I was still uncertain as to how he built his portfolio. All I knew was he somehow began quickly amassing short-term rentals.
It wasn’t until I asked Chris, “how did you buy over 20 rentals in 8 months with no money and no experience? I don’t understand” that I finally realized what he was doing. And the reason for my confusion is that I had never heard of someone implementing that kind of strategy before. I didn’t realize it was possible (or even legal).
Now that I understand what he did, I’m here to convey his strategy to you.
Here is how Chris went from welfare to controlling over 250 units, without prior real estate experience.
Overall, Chris uses over people’s money to lease and furnish individual units in large multifamily buildings. Then, he manages the unit as a short-term rental on AirBnB.
The first thing Chris needed to do was secure private equity from investors. The problem was that he didn’t know anyone with money. So, he told me that for two days in a row, with little sleep, we sent 500 messages on LinkedIn. The reason it took so long is because he had to manually type each message since LinkedIn marks copy-and-pasted direct messages as junk.
Chris found LinkedIn profiles with the word “investor” in their tagline. Then, he reviewed their profile and sent a custom message based on their interests or an article they recently liked. He said the was completely transparent in the message. He explained what he was doing (rent, furnishing, and AirBnBing apartments), that he was new to this but was working with someone who currently managed one AirBnB, and asked if they would be interested.
Of the 500 messages, 40 responded. After further conversations over the phone, 11 agreed to invest.
Next, Chris needed to find units to rent, which also required massive effort. He reached out to many property managers and apartment owners, asking if he could rent, furnish and AirBnB their unit. Countless managers and owners declined. However, enough agreed to allow Chris’s new investors to pick up 3 to 5 units each.
After the investors submited their funds, Chris was responsible for furnishing the unit and managing the AirBnB process in its entirety. The investor is only responsible for signing on the lease and setting up a direct deposit for the monthly rent.
Each investor invests $7,500 to cover the first month’s rent, security deposit, furniture, and Chris’s $1500 to $2000 fulfillment fee. Each month, the investors receive the cash flow left over at paying expenses and Chris’s $500 to $750 management fee, which is approximately $2,000.
When Chris and I spoke, he was managing 70 units for other investors. That means he made between $105,000 to $140,000 in fulfilment fees and was generating between $35,000 and $52,500 each month in income.
Once he had proof of concept with his investors’ investments, he began investing in the units in the same buildings. At the time of our conversation, Chris was personally invested in 187 units.
He said the units generate ~$2,700 per month in income. Based on a $5,000 ($7,500 minus the fulfillment fee) investment per unit, the annual ROI is nearly 650%.
Now, I didn’t write this blog post with the intention of convincing someone to execute Chris’s strategy, because I am uncertain whether it can work in every market (or if it is unique to California Chris’s market) or if it adheres to securities law regarding raising capital.
However, I think we can use Chris’s story as an example of how hard work and imagination can allow you to overcome whatever obstacle is keeping you from getting started or scaling. If a high school drop out on welfare can create a seven-figure real estate business in less than three years without any money or experience, what is your excuse?
Disclaimer: The views and opinions expressed in this blog post are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.