MB 096: Multifamily Investment Outlook for 2018 and Beyond - with Neal Bawa

With 3,600 members, Neal Bawa’s multifamily meetup is the largest in the US. Would you believe that when he started the group, Neal had zero multifamily experience? Neal’s background is in technology education. He spent 15 years running a traditional company—and paying massive taxes—when his boss turned him on to the tax benefits of multifamily. Neal invested in a handful of single family homes, triplexes and fourplexes to learn the game, and he was ready to take the next step when he learned about a 12-plex deal that he couldn’t afford on his own. By then, Neal had established his multifamily meetup, where he was candid about the fact that he didn’t have experience. Rather, he shared what he DID know—his research and knowledge of the numbers. And on the night that Neal shared the story of the 12-plex deal, he discovered that he had a knack for raising money as well. Today, Neal and his partner have 1,000 units, with plans to hit 1,700 by the end of the year. Neal joins me to discuss how he was able to position himself as a leader despite a lack of track record and why his ability to tell the story of a project led to success with raising money. He talks numbers, sharing the importance of understanding the economics of an area before you invest and his take on the top two markets for 2018. Listen in for Neal’s insight around stock market corrections, partnering with experts and diversifying your real estate portfolio. Key Takeaways Neal’s transition from single- to multifamily Multifamily scales much better, always the goal Bought single family, tri-/quadplexes to learn Found 12-plex deal, told story in meetup Discovered knack for raising money Why Neal established a multifamily meetup without a track record Desire to share knowledge, network Honesty re: lack of experience resonated How Neal’s meetup group supported his growth Encouraged meetup members to form groups (e.g.: underwriting) Learned from each other through open share Experienced future partner joined group Neal’s advice around avoiding the mistakes he made early on Don’t assume taxes will stay the same Gain understanding of tenant quality How demographics can impact returns Delinquency levels of African American tenants Marginal difference on western seaboard Three to four times higher in Midwest Vegas as transitional area, high turnover Work numbers into underwriting Neal’s top market picks with growth and value potential Sacramento Orlando Why multifamily investors should adjust their expectations 23% cash-on-cash returns no longer realistic Interest rates increasing, cap rates decreasing Rent growth slowing down (still above trend) Red flag if syndicator promising same returns Neal’s take on whether it’s a good time to get into multifamily Anticipate massive housing shortage Gap in supply/demand in Class B, C Once in a lifetime opportunity Neal’s insight on market corrections Assume will happen, plan for it Returns will drop, but good properties will survive How multifamily performed in the last recession Better than most asset classes Still had cashflow (down to 4%) Deep crash = opportunity 4% default rate What’s next for Neal Expand network and diversify Acquire student, senior housing Partner with expert in industrial Connect with Neal Multifamily U