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Multifamily Funds vs. Syndications, With Dr. Harry Nima Zegarra
Funds and syndications are the two main vehicles for passive multifamily investment, but what differentiates them? On this episode, Dr. Harry Nima Zegarra of Nima Equity, joins the show to discuss the pros and cons of multifamily funds vs. multifamily syndications.
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- The real differences between passive investment in a multifamily real estate syndication versus a fund.
- Risks associated with investing in syndications vs funds.
- The wealth building benefits passive multifamily investing can offer busy professionals in medicine, law, and other industries.
- Which multifamily markets are particularly attractive right now, even in an economically uncertain environment.
- How deal size tends to vary among syndications and funds.
- Which vehicle Dr. Zegarra prefers most for multifamily investing.
- What to look for in a multifamily deal, regardless of structure.
Featured On This Episode
- Multifamily Deals Challenging in Today’s Environment (Multifamily Executive)
- Top 10 Multifamily Markets by Sales Volume in 2022 H1 (Multi-Housing News)
Today’s Guest: Dr. Harry Nima Zegarra, Nima Equity
About The Multifamily Investor Podcast
The Multifamily Investor Podcast covers trends and opportunities in the multifamily real estate universe. Host Scott Hawksworth discusses passive investment offerings in the space, including direct investments, DSTs, opportunity zones, REITs, and more.
Scott: Hello and welcome to the Multifamily Investor podcast. I’m your host Scott Hawksworth, and today we have a great show on tap, where we’re going to be discussing the types of multifamily investments out there, and specifically talking about syndications versus funds. What are things that passive investors really need to know about that? And joining me to offer his insight is someone who has a lot of experience in the multifamily world. He’s also a doctor. I’m talking about Dr. Harry Nima Zegarra. And he kind of parlayed his career as a doctor and got into the multifamily world, which is something we’ve seen before and he’s the founder of Nima Equity. Harry, welcome to the show.
Harry: Hey, Scott, how are you? Thank you so much for having me in your show, very excited about today.
Scott: Yeah, thank you for being here. Let’s kick things off. You know, I was hoping to discuss the types of multifamily investments out there, the opportunities, particularly looking at, you know, funds versus syndications as I said, but there’s also REITs when it comes to multifamily investment, you know, what has been your traditionally preferred method? All the above? Do you like them all? What’s been your experience there?
Harry: Yeah, Scott. Yeah, so that’s one of the things that I love about real estate and specifically, apartment complexes and multifamily, right? So there are so many options out there, right? Even in real estate, we have single-family houses or short-term rentals, long-term rentals, storage, multifamily even that. So similar like that in multifamily. We have syndications, we have funds. And there are other people who also invest in REITs, right?
Harry: So we have been very grateful that we are in real estate for five years already, the initial three years in single-family homes actually in long-term rentals. And the last two years, we have been in syndications, in apartment complexes, right? So we have some knowledge about that. and again so we mainly do syndications actively and passively. We have some exposure to funds, because we think they’re also a great vehicle, right? And also for diversification.
We don’t have exposure to REITs, right? And it just mainly, like in the last couple of years, we have been trying to, you would say to some degree, to stay away from the stock market or from mutual funds, from Wall Street. And as you know, so REITs or Real Estate Investment Trust, they kind of function to some degree as stocks, right?
Scott: Yeah. No, that makes sense. And I mean, gosh, looking at the way markets have been taking it on the chin recently, I can understand that aspect. And really, that’s part of the investment case for you know, multifamily when we’re talking about funds or syndications because you’re kind of, you know, separating and diversifying away from the stock market. But you know, I think there’s a lot to cover with all of that. But before we go forward, I’d love to hear a bit more about your story. You know, you’re a doctor…
Scott: You work in the medical field, and then you find yourself now in real estate and also doing that. What was the journey there? And, you know, What’s your specialty in medicine and kind of how did you come into real estate and specifically multifamily to grow your wealth?
Harry: Yes, yes. So, I always start saying, so I’m still a full-time doctor. I’m a pulmonary and critical care doctor, I work, yes, mainly inpatient, in a tertiary hospital here in Dallas, Fort Worth. And my wife and I, we actually are doctors, we both are from South America, from Peru. We came here about 15 years ago. And many people know how doctors study and train. So after medical school, you need to go into doing extra training, right?
And because of that, you’re moving from place to place every two or three years. So we came about 15 years ago, and we were doing residency, then subspecialty or fellowship, and then going next two, three years into practice. And at the end, so we were moving a lot so we couldn’t get started in anything, right? So at the end, we came here to Dallas Fort Worth, and we were in love with the area and our kids already were growing the oldest one is now 11 years old.
And he knew already and he felt already the sense of, hey, dad, mom. I mean, I’m moving every three or four years. Now, I need some stability here with make some friends.
Scott: Right, set some roots.
Harry: Exactly, exactly, right? And yeah, so we came here to Dallas and we decided to stay. I mean after a couple of months, we bought our main residence, our home. And very soon after that we started investing in real estate. And we started investing initially, most people started investing in real estate here with single-family homes, right? Because we didn’t know better at that moment, right? And also because of lack of education, right?
So you get to see the bigger pockets or you see HGTV I mean and all that. I mean, exciting about the fix and flips and all of that, right? So we actually started with long-term rentals, right? So it was a great experience, actually. And even though our first transaction may have not been the best in terms of the return on investment, for us, it was the best ever. And the reason is because we started that way. And that was the way we started in real estate. And without that we wouldn’t be where we are in this moment. So…
Scott: Yeah, go ahead.
Harry: No, please, please.
Scott: Well, I was gonna say so starting with single-family rental. And that’s a story I’ve heard before, I think a lot of folks kind of dip their toe into that. How do you then go to multifamily and Nima Equity and kind of really progressing? Where does that change happen?
Harry: Yeah, so we were starting in single-family homes and long-term rentals. After a couple of months, the AC of the first house broke, and we needed to replace that. And as you can imagine, being a full-time doctor and trying to deal with these things, it was a nightmare. right? So we decided to hire a property manager. And after that things change because he introduced us to other ways to acquire real estate and to better manage things and processes, right?
So we’re still growing and we grew to nine properties in the Dallas, Fort Worth area. And things were doing great but at the same time, it was taking too much of our time, right? When you have single-family homes, even with a great property manager. I mean, still all the decisions, all the responsibilities and liabilities are on you, right? so you need to be micromanaging these properties, right? So that’s when we came again to the realization that we needed to do more education about these and to find other ways how to invest, right? And to diversify, right?
And that’s where we came to multifamily apartment complexes, and specifically to syndications because they were offering both of these things, right? The active and also the passive investment, that I believe at some point, even all the active investors, their plan, or they’ll go that at some point, it’s to become just passive investors.
Scott: Right, right whether you’re doing you know, 1031 exchanges or, you know, just ultimately having that desire to say, “You know, what, I don’t wanna manage the tenants directly. I don’t wanna, you know, get the call in the middle of the night because the AC broke, right?”
Harry: Exactly, exactly. That happen.
Scott: Right? Exactly. And I think that’s the power of passive investment. So when, as you kind of, you know, went into multifamily, did you start just going in on the LP side with syndications? Or did you go right into you know, what, you know, we’re gonna put our syndication together, we’re gonna be the GPs. How did that all function?
Harry: Yes, yes. So fortunately, in our case, we had already the experience of single-family houses and doing that by ourselves, right? So then, we the same way that we started in single-family houses, we took a good amount of time in educating ourselves, right? So. Because again, when you do single-family houses, I mean, is your money and is your risk. When you’re doing a multifamily investment, you’re dealing with your money with also with the money of other investors, and many of those investors can be, or your friends or your colleagues or your family, so you need to be very careful about that.
So, we did some education again, and after a couple of months, actually, we came to the realization that it was gonna be impossible to do it, right? as a full-time doctor as a full-time professional in general, right? Doing a syndication or managing an apartment complex is more than a full-time job. And even the people who are doing these in full-time, they need partners or they need other people to help them out in doing this, right? And that’s when we decided, actually to join a mastermind to, like an investor group so we can grow together with them. We can learn from them. And also we can decrease the risk every time that we will go in any project.
Scott: Right? Now I mean, that makes sense and kind of looking at that, you know, you’re like, well, I’m still a doctor and I don’t necessarily have the ability to go full-time managing an apartment and handling all that and that’s where the power of syndications can come into play, and investor groups as well. So okay, let’s get to the real meat of what we wanna discuss today.
Scott: Syndications versus funds. You know, our audience is interested in passive multifamily investment. They’re looking for great opportunities, great deals, and then you have these syndications that are out there. And you also have, you know, fantastic fund opportunities, you know, 506 Cs, et cetera. What is the real difference between the two, and maybe the case for either, in your perspective?
Harry: Yes, yes. So, kind of similar as real estate, we have these two options, right? So, and both are great options, great vehicles to invest in multifamily, great vehicles to grow wealth for you and your family, right? So we have these syndications that for some people, they have never have heard before about that, right? Like it’s a fancy word, which just mainly means, froup investment? Right?
And on that vehicle, you have again, you are co-owner and co-partner with another group of investors and together you buy a single or two properties, like a multifamily apartment complexes. In the case of funds, you have a larger group. Right? Many times you have an operator who manages that larger group of investors, and they invest in different properties, right? It can be two, three, it can be sometimes even more properties, right? So that’s one of the difference between one and the other, right?
And again, we are not the same people, each of us. And we have different goals, we have different interests in how much we want cash flow, how much we want the returns, and how much we want risks, right? So it’s the distinction with one another. So now, so one of the difference I always get asked about what was the amount of money or how much do I need to invest in one or the other, right? So one of them is about in syndications as you can expect, so many of them is just for accredited investors sort of 506 C, so they need to have some wealth, right?
So the entry-level is high, right? So we’re talking about some of them around 50,000, or $75,000. In funds is a little bit more flexible, right? So I have seen even funds offering for the $10,000 or so, right? And again, you have many more investors, absent is feel their level of communication, maybe a little bit challenged when you have so many investors, but it’s still I’ve seen great fund managers, and they do a great job on that.
In case of the returns. I mean, you’re just mainly comparing a team who’s managing one property versus another team who has sort of a diversification portfolio. right? so, and when that happens, I mean, it’s a balance, right? So on one side, you may get a higher return on investment. right? But maybe the risk either leave it more elevated than when you manage a fund, right? But again, I guess it’s mainly again, your decisions and what stage in your life you’re in, right?
So historically, the stock market has given us an eight to 10% return, right? So. I mean, last couple of years it was great. And the last year just plummet 30%, right?
Scott: Right, wiped out a lot there.
Harry: Yes, exactly. So in case of the funds is around the 10 to 12% return. So which is great still, right? I mean, I have the other day Warren Buffett saying, “If you can give me 10 to 12% of return that that’s great to me.”
Scott: Right. Then I’m happy.
Harry: Yeah, I mean, I will take that anyway, anything. In case of syndications is a little bit more, right? Like in the 10 to 15 to 16%. In the last couple of years. Again, we always say it was the golden years of real estate, where we were seeing great syndications and returns, and some of the engine start turning around, in three or four years. You are not gonna need necessarily gonna see that in the next couple of years. But again, the returns maybe a little bit more than in a fund. However, the risks associated with that it may be a little bit higher, because we’re talking about a single team and a single property or au, right? So there’s a difference there.
Then we’re talking about the length of the investment, right? Or the liquidity, right? When you’re in a syndication, and syndications that usually will go four to six years. That’s the average, right? There are some syndications again, as I was just talking about in the last couple of years of them the cycle was three years, two years and even less, but usually the average is five to six years.
In funds, we have two different types of funds, right? We have open funds and we have closed funds. The closed funds they work more like a syndication, right? It’s more like a structure that. In the open funds, you have the opportunity to take your money early. I mean, of course, I mean, you cannot take that, the same as stocks, right? That you can sell and you get your money the next day. But there’s processes for that, right? So the funds are, you may say more liquid than syndications in that regards, right?
Then like the, in terms of structure most of them are similar, right? And we know how they offered to investors. They usually offer prefer return on investment around the seven to 8%. And after that I split 70/30, right? And in terms of taxes, also, they are very similar, right? And that’s one of the beauty of syndications and funds. While I guess you’ll still get your K1, and you get past the depreciation from these assets, which that doesn’t happen when you invest in REITs. right? Because they function more like stocks, right?
And finally, again, the transparency, right? So, fortunately, in both of them we have a direct access to the operators and the managers. Again, as I was mentioning before, as some funds may have hundreds of investors, it may be a little bit more difficult to manage that. But in general, is much better, obviously, than buying a stock or leaving our REITs where you can have access to the person who’s managing those investments.
Scott: Wow, I mean, Harry, thank you so much for breaking all of that down. I think it’s clear.
Harry: I hope it’s not that bad or too long.
Scott: Yeah it’s not that bad, And there’s clearly differences. You know, there that risk profile, I kind of wanna dial in on that a little bit more. You know, when you’re looking at syndications versus funds. So from your perspective, is overall fair to say that syndications do offer a little more risk? But can you know, depending, of course, on the deal, offer more compelling returns in exchange for that risk?
Harry: I believe so. I believe so. Yeah. And it’s again, what I mentioned before, right? It’s at what stage of your life? And what’s your level of risk and returns that you want to have? Right? It’s kind of similar as buying stock, right? I buy Apple, and they have return on investment, but also the risk is higher. If I buy it, into a mutual fund. I mean, my return may not be as great as the stock. But I mean my risk is less than that, for sure.
Scott: Right, right. So from your perspective, then when you look at syndications and funds, you’ve mentioned that, you know, you have invested in been involved with both. What’s really your case there? Is it just pure for diversification? Or are there you know, maybe greater access to different markets? If you look at funds and syndications, do you have kind of a balance that you try to strike with that or that you think is worth considering for passive investors?
Harry: Yes, yes. So I think there is market for both of them. And I think is fair to say that investors should look into both of them. I mean, it mainly depends… I mean, and we can talk about the returns of one syndication or one on one fund, but it mainly depends on the track record and the operators, right? And the people who are actually managing those assets, right? You can have the best business model, but if the operator or the asset manager is not a good one, it’s gonna be a disaster, right? And the opposite is the same, right? It may be not the best deal or the best business plan, but if you have a great operator is gonna make a good return on your investment.
Scott: Right. You know, that’s something we’ve talked about a number of times on this show is the importance of the team. So whether you’re looking at a syndication, or you’re looking at a fund, you know, a nice looking fund with a team that doesn’t have a track record, that, you know, otherwise isn’t communicating, whatever. That might be actually riskier, and a less good play, and a syndication that might offer less returns, or maybe a little more risk, just, you know, in the way of structure, but has a team with a track record, and that they can point to and that has had successful deals. And I think that’s also why many passive investors in multifamily after they, you know, have a good experience, you know, with one investment and they have a team that they trust, they come back again, is that been your experience with Nima Equity and what you guys do as well?
Harry: Yes, yes. Again, the team is very important. And especially also the transparency and the communication that you have with your investors, right? There’s things happen and life happens, right? So even despite the best efforts sometimes the outcome, it may not be the best, right? But as long as you have a good communication with your investors, as long as you’re telling them what is going on, as long as you’re telling them, what you’re doing to fix a problem and to prevent that to happen again, they’re gonna see your transparency and your work ethic, right? And they’re gonna come back to you.
Scott: Right, right. I wanna take a step back now and kind of look at maybe the larger picture. We’re gonna get into some macro a little bit here. But I also always looking at the markets. So Harry, what markets for multifamily do you like right now here, as we’re, you know, heading, we’re in October 2022 at the time of this recording. What markets do you like right now for multifamily? And what do you like about them?
Harry: Yeah, so my group, and especially Nima Equity, we have been working in six projects in the last two years. And we mainly focus in the Midwest and the Southeast and also markets Texas and Arizona. right? So. And many people ask why? right? So, and because we see how the trends, right? We see the migration of people, right? The migration of businesses where the businesses are going, right? And also the diversity of business, right?
We are looking for markets that are business-friendly, but also landlord friendly, right? And it’s very different to say, for example, I don’t want to talk bad about California, or LA or New York, right? But it’s way more difficult to do business there in the sense of there. Sometimes it’s not the same to deal with tenants, in a landlord-friendly state, and then in those other states.
Scott: Right and you mentioned, so you know, Southwest, we’ve talked a lot about that so much growth there. Texas, you know, you mentioned you’re in the DFW area.
Scott: I know you just step out your front door, and all you’ll see are cranes, right?
Scott: So, so much growth there. And I think those markets really speak for themselves. You mentioned Midwest, what specific markets in there kind of have your interest?
Harry: Yeah, we have been in Oklahoma, in Kansas City. right? Our rope, in general, focus on those areas, and also in Arkansas. But Nima Equity is specifically in Kansas City, [crosstalk 00:22:17.741].
Scott: And then are those, you know, obviously, they fit into your thesis of landlord-friendly you know, opportunities there. Is Kansas City growing particularly, is there just a lot of population movement there? Or is it just a solid market that you like, in terms of just, you know, jobs and folks living there?
Harry: Yeah. So the populations is still there, there still was some migration event last year when we acquired one of the properties there. But also the price per unit was very, very low compared to other hot markets like Dallas, Fort Worth, or Houston or Atlanta. So we started a way lower price and in those markets, and it makes sense.
Scott: Right, and I think that’s an important thing, because, you know, so many people, they wanna rush to Florida, they wanna rush to Texas, they wanna rush to the Southwest, they want to be like, oh, we gotta get into Phoenix. But there can be opportunity in, you know, a market like Kansas City, which maybe isn’t getting all the buzz, but then you have those lower prices. So the opportunities, you know for that return are greater, and you can really see something there that maybe, you know, some folks might miss, right?
Harry: Absolutely, absolutely. And we have seen that so many times, right? Like the prices in this market like Dallas, like Jacksonville, Atlanta, Phoenix, are super, super high and sometimes even scary, right? So we need to find where the opportunities are.
Scott: Yep, absolutely. Okay, let’s talk macro. I always like talking macro, especially we are in, you know, some very unique times, I would put it, there’s some challenges out there. But there’s still lots of opportunities. First, looking at interest rates, we’ve seen, you know, the Fed continuing to increase those. You know, there’s still a question as to you know, how much will they continue to push those up? Will they, you know, when will they say they’re done? What has been the impact that you’ve seen, you know, as you’re looking at deals with what you’re doing in Nima Equity with your finger on the pulse of multifamily? Is it slowing things down? How is the impact been on the financing side?
Harry: Yes, yes. So it’s very interesting what has happened in these couple of years, right? From the 2020 being in the pandemic, when no one wanted to sell anything or buy anything to the end the influx of capital that historically I mean, we have printed so much money in the last two or three years, right? Like in having the.
Scott: Having the…
Harry: Yeah, yes. And then to have hyperinflation, the highest in the last 30 to 40 years to now increasing the rate so those things are crazy, right? So, and one of the things is that real estate, as great as investment as it is, is not out of this world right? So, it’s still gonna be affected to some degree, right? So we just need to see how things are gonna be affected and how we can deal with that, and how we can change our business planning. And our underwriting for that, right?
So, again, if you think about, how the prices of houses have increased in the last two or three years, they have increased to 30 or 50% in some markets, and now with the interest rates double or more than that, from last year, that acquisition power of many people, I mean, it’s not there anymore, right?
So, we have seen that also, to some degree, not as dramatically, but also in multifamily, right? So we have seen interest rates climbing, and again, in the last two or three years, or even four, many operators were using just mainly bridge loans, right? So, I mean, of course, with the right cap it’s still bridge loans that are different to fixed rates, loans or Fannie and Freddie, right? So, their bases for I mean, the expenses have increased a lot, right? And they’re dealing with that right?
So, in some operators, before in the prior years, I mean, the market was great and everything was going up right? Now, you have to see the real operators, the real asset managers and actually, do work on the properties right? Which is, it may be scary for some people it may be exciting for other people who have been doing the work already for some time, right?
So we see these interest rates, we have seen some impact, again, in how we do the underwriting and the business plan, right? We have seen some of these properties, maybe cash flow may be affected in the first year or two, but it’s still the returns are kind of solid, for five or six years. I mean, of course, we’re not expecting to have super great, awesome like as before, a return of double your capital into what two years or even less, but it’s still our business plan is solid, right? And we see that multifamily is a great field to be in, is also as we’re going in a recession, it has been historically recession resistant.
Scott: People need homes.
Scott: A bit of a broken record with that. But I think it’s just is the truism, that is the investment thesis for multifamily. You know, no matter what is going on economically, when you have recession, you know, people are gonna cut a lot of things, but they still need to have roofs over their heads. So that’s where multifamily comes into play.
When you’re looking at, you know, these rising interest rates, maybe some more challenging, you know, or some more wrinkles, so to speak. On the finance side, is there an impact on syndications versus funds? Does it impact them differently, that you’ve seen? Do you see maybe, you know, less syndications happening or more or less funds? You know, opening up or more? What’s the impact there? Or is there a different impact?
Harry: Yeah, what I have seen lately is that there are some operators or some people who raise capital for syndications, who have been focusing a little bit more on other assets, right? Like storage facilities.
Scott: Right, self-storage, yeah.
Harry: So some funds may decide to do the same, right? It’s still. I mean, as we mentioned at the beginning, when you invest in a fund, the risk to some degrees, decrease compared into syndication, right? So, in this moment, I think it will be fair to say, I mean, if you want to grow your wealth and preserve and have an extra insurance, a fund, like I say is a good way for investment.
Scott: Right, right. Because, you know, at this point, you know, folks are saying, okay, how do I lower my risk, but I still wanna be involved in multifamily? So a fund that’s maybe more diversified, that’s maybe, you know, across many different markets as opposed to one to two buildings, just in the same market can offer, you know, a bit of that risk mitigation that investors would be looking for. So that makes sense to me.
So for you personally, you know, as you’re looking at your deal flow, has your deal flow been impacted? Are you looking at, you know, how have market prices and cap rates been impacted? And kind of the areas you’re looking at, you know, are things pulling down? I know, we’ve had discussions and you know, I’ve been to conferences and seems like there’s a lot of folks that are finally realizing a lot of sellers are realizing, ooh, the prices I want here are not the price as of a year ago. But there was a lot of stubbornness. So is that what you’re seeing? How are markets being impacted? How’s your deal flow been impacted?
Harry: Yes, yes. So we have seen, I mean, of course, from two, three years ago, which was a seller’s market to this year that is switching now to look more for a buyers market, right? So, and initially, it was felt more, when the interest rates started going up, right? It was, I got, three to four months ago, where we saw many deals that were not able to close, or they need to do some of the retraining, or they need to ask for a discount on the properties, right?
So we sold some properties to get a discount of five to 10% of the asking price and for some people that may not sound that much, but in multifamily, we’re talking about millions of dollars.
Scott: That’s a good one.
Harry: Yes. And we saw actually some projects that were not able to close, because of the same reason, right? So. However, in the first half of 2022, we have seen again, the number of or the volume of acquisitions have been the same or even more than in 2021. So initially, there was a retreat of projects or, again, people lighting apartment complex, but it seems it’s getting more stable now, once again, we’re starting to reach, hopefully, a peak on the interest rates. I mean, we still don’t don’t know what’s gonna happen, but we have been following the interest curves and historically, how they behave. And so hopefully, we’ll have some news and hopefully some good news mid-next year, right? So looking at us.
Scott: Speaking of, you know, we’re talking about the economic landscape, and I mentioned, there’s that uncertainty, and we talked a little bit about multifamily being, you know, recession resistant. But at the same time, when you have higher interest rates, I know that, you know, unfortunately, there’s some projects out there where, you know, the financing has become challenging, and, you know, projects are going to get affected and, you know, not going to make the sense that they made in another environment.
From a passive investor perspective, what’s your opinion on the strength of multifamily now, and maybe even the next, you know, 12 to 24 months, where things may go? Or is it just going to be a lot of buying opportunities potentially? Is it something that investors shouldn’t shy away from if they’re looking to grow their wealth in this environment? What’s your perspective there?
Harry: Yes, yes. I mean, of course, it’s gonna be challenging for some or most of the operators. But I think the fundamentals are there, right? As a passive investor, I like this field of multifamily or apartment complexes, because first, as we mentioned before, I mean, it’s not something that I want to buy, or I want to spend my money in, is a necessity, right? So people need a place where to live, right? So, in my group, or in Nima Equity, we focus actually, a bit more on Class B and Class C apartments, right?
So we just mentioned that the acquisition power of people is less than this year, right? Because of the increase of the prices of the houses and also because of increase of the rates, right? So what happens when people is not able to buy a house, they rent, right? And also, there are some apartment complexes that are super nice and are new and Class A, they may not be able to afford the price of those rents. So what they’re gonna do, they’re gonna move to Class B or class C apartments.
So again, solid, so that’s what we’re waiting on. right? So, and so the fundamentals, as I mentioned before, are strong because we have a huge deficit in housing in the United States, right? We were talking just half a year ago that the deficit was four to five million units, in the whole country, right? So, and especially in the places that we mentioned, before, right? So the fundamentals are there, right? Maybe again, we’re gonna be suffering a little bit in terms of cash flow and trying to structure deals, but the long-term fundamentals and the long-term returns on this field are great.
Scott: Right? You know, you mentioned Class B and Class C, and that’s something that you guys are focusing on from a risk profile, when there is economic downturn, you know, folks that might be renting in class C, they may have, you know, maybe more income uncertainty, job insecurity, something that. What’s been your experience there? Do you find that, you know, overall, even if there are some tenants in a class C that, you know, might have some trouble with rent, do you find overall, the way you are able to manage those properties and the operators you work with?
You can kind of mitigate that, I guess, could you just speak to sort of that risk? Because I think there’s a lot of folks that they look at economic downturn, and they might think, well, Class A, that’s I just gotta go there because I gotta go with the lowest risk. What’s the case when you’re saying, hey, class C, you might have a little more more risk with some tenants. But why is that okay?
Harry: Yes, yes. And we have a great example actually from 2020 when the pandemic happened, and we believe, especially the Class C, were gonna be affected a lot, right? But actually they did very well. They I mean, the occupancies, they hide. I mean, actually, we just bought a property in Dallas Fort Worth, a couple of months ago, where were doing the underwriting and the audit of the rents, the rents stay there. I mean, of course, they tried to apply a more conservative approach initially on that property, in the sense that they were not pushing rents, or they were not increasing rents at the pace that they would have wanted. But it’s still the rents were there for the tenants.
Scott: Right, so you have that data point of, hey, again, maybe it does circle back to people need homes. And if there’s a good home that, you know, is maintained and run well, you know, a good multifamily building, then that can balance out maybe any concerns about you know, well, it’s Class C, is the tenant quality, what it would be if it was Class A, and is this more risk than it’s worth?
Yeah, I mean, I guess my last question would be when you’re looking at a multifamily real estate deal, whether it’s a syndication, whether it’s a fund, what are the things that you’re looking at, you know, if you put your LP hat on, what are some of the aspects, you know, whether it’s pure returns, whether it’s pure market, what are maybe some of those signals that Harry really likes?
Harry: Yes, yes. As great as the numbers or returns are, I mainly look at the market. And also, I look at the team that is managing that asset, so those are the most important things for me. Because, again, we’re gonna have a downturn, or we’re gonna have problems with a geographical area. So we always look for, again, as we mentioned before, so areas where the population is going, where the businesses are going, where the areas are strong.
Right? And also, we want a team that is strong and also have boots on the ground, and the asset manager or the operators are doing that full-time. right? Because that’s important for the investors.
Scott: So put in another way, location, location, location and team, team, team.
Scott: I think those are maybe the two big takeaways. Whether it’s a syndication or a fund, I mean, I always encourage folks, you know, when we have pitch days, you know, or a funds presenting, you know, look at that fund, where are their assets? You know, are they in markets that you, you know, feel passionate about? And do those if it’s a fund? Are they really leveraging that diversification? So, hey, they have, you know, a market in Southwest, but oh, they also have kind of plain old, boring Midwest market asset as well, that can kind of offset that, you know, vegas.
Harry: Boring is good.
Scott: Go ahead.
Harry: Boring is good.
Scott: Yeah, boring is good. I think that’s…
Harry: It’s great.
Scott: I have heard that a number of times in multifamily. And I think that’s very, very true. You know, hey everybody loves the exciting story of the, you know, the explosive growth that can happen in a specific market, you know. Hey, let’s all get in a time machine and go invest in Phoenix, you know, 10, 15 years ago. But I think that the boring, you know, solid growth, solid job market, that’s there’s a lot to be said for that.
Harry, thank you so much for joining me on the show today, really breaking down some of the differences in the types of multifamily investments that can be made. And for folks who are watching or listening, if they wanna connect with you, they wanna find out more about Nima Equity, kinds of things you guys have going on, where can they do that? Where should they go?
Harry: Yes, absolutely. So we have our website, which is nemaquity.com, Nima as N as Nancy, I-M-A, equity.com. Right? And we also have our YouTube channel, where we believe a lot of in education, right? So we mainly focus on physicians and healthcare professionals. But I mean, we’re always open to talk with anyone, right? So yes. I mean, I really appreciate you having me your show, we really enjoyed this conversation. And I look forward to continue being in touch with you.
Scott: It’s an absolute pleasure. And we will of course have links to all of those resources on our show notes on multifamilyinvestor.com. And stay tuned because we have more episodes coming up. And if you like what we’re doing here, be sure to subscribe on YouTube or your favorite podcast app. And we’ll be back, and thanks again, Harry.
Harry: Thank you