Charles:
Welcome to another episode of the Global Investors Podcast; I’m your host, Charles Carillo. Today, we have Jay Biggins. He has over 25 years of experience with value-add multifamily assets, including apartment rehabs and condo conversions. Jay founded Multihousing.com in 2000 and has successfully completed more than 150 purchase and sale transactions across the spectrum of affordable housing communities. His projects generally range from 50 to 350 units and are located throughout the Southeastern US, with current investments in Virginia, North Carolina, South Carolina, Georgia, Florida, Alabama, and Mississippi. Thank you so much for being on the show!
Jay:
Good morning. Thank you for having me.
Charles:
So you started in multi-family housing. Can you give us a little background on yourself personally and professionally that kind of got you into investing in multi-family real estate and founding your company 25 years ago?
Jay:
Sure. I had recently sold a business and while I was kind of on the in-between, I started making some small investments duplexes and triplexes while I continually search for a new career path. And then after turning some of those buildings for profit and then reinvesting, I had done it enough times where I, a light bulb went off that, Hey, this, this actually is my new career path. And then I started buying a little bit bigger and a little bit bigger and then eventually multiple deals per year and you know, just kind of grew from there. Awesome.
Charles:
Awesome. So can you give us a little bit, kinda like a breakdown, a little bit of what you’re doing now, what your company really focuses on? You’re in a number of different states you guys don’t syndicate, is that correct? It’s all you’re on capital? We do not. Okay.
Jay:
We do not, but it seems like everybody we sell to does I, there’s a few maybe that, that do not. But, but one of the things I, I really like and enjoy about the multifamily space as opposed to, let’s say not necessarily other commercial real estate food groups, but more so other investment types like securities, stock market or day trading, or what so many other people do is, you know, I really came to the realization a very long time ago. I have zero controls in investing in equities and if something goes wrong in my business, it’s, it was at my hand. I had some control or I had something to do with that. So, you know, I’ve always enjoyed the multi-family space because I win or lose, you know, based on decisions I’ve made. Not some company, whether it’s Apple or IBM or McDonald’s, I have no idea what’s going on with those contracts or, you know, whatever their revenue streams are or challenges are.
Jay:
So I don’t like throwing darts at the board. I try to, you know, manage the risk. Every investment has some risk, but at least if I’m in control of it, I felt like that put my family in the best position to succeed. So that’s, you know, one of the main reasons I’ve always enjoyed multifamily and our business is we are typically, and I didn’t start out this way, I started out as a market rate investor, but we typically buy mostly affordable housing communities. We have a number in Texas these days. In fact, I, you know, I listened to your intro and it said over 150 transactions, I think, I think we did 150 transactions just in the last three years. So it’s kind of escalated quite a bit. But, but very modest start. I, I find that there’s different ways people enter this business and some are like I did, you know, just whether it’s single family or duplex or triplex and they grow up into a bunch of units or more. So these days I see people, even young kids that come out of school, they, they do a small raise and their first deal might be a hundred units. And I don’t think there’s any right or wrong. I think it’s a journey and it’s been fun and rewarding for many reasons.
Charles:
So when you got started and what, what were you doing? What kind of size properties did you start with? Were they, they’re small multis near where you were and how did you, you know, what kind of class properties did you really start in?
Jay:
I started with really c class assets. Very small properties because it’s really all I had the financial wherewithal to buy mm-hmm <affirmative>. And then there was a one point in time when I had kept building the equity up and building the equity up and then all, you know, all along pulling money out to pay the household bills for, you know, a long time. That’s why it took a little while to really gain any kind of scale for that reason, but mostly c class assets. And back then, you know, a c class asset traded at like a nine cap or a 10 cap. So when we had all this cap rate compression over the years and I started seeing six caps on C class assets, I started thinking to myself, my goodness, it’s gonna be a, it’s gonna be a tough go ahead of us, you know, buying c glass assets outta six caps.
Jay:
So I started about 10 years ago looking at lite properties and I didn’t really know anything about them. It was kind of a new thing expiring lix coming out. And I just thought if I have to buy a six cap, at least let it be on a new vintage product with artificially low rents, and I figure I, you know, I’m just gonna be cash flowing these deals. I probably won’t be able to sell them off like I had in the past. But we quickly realized that that actually wasn’t true. We’ve actually probably done better in the affordable space than we ever did in the market race space. So mostly what we’re buying these days are low income housing, tax credit, affordable properties. Doesn’t mean that there’s any rental assistance with those properties. It just means you can’t rent to people who make too much income. And that’s usually a threshold of 60% of area media income. And there’s different restrictions on different properties. But it’s a pretty simple process to follow. And but yeah, we’ve, we’ve just found that we, we’ve really enjoyed our asset classes come up a lot. And, and the affordable spaces where we have been investing, you know, again, probably 80, 90% over the past 10 years.
Charles:
So that was one of the ways I want to talk about here. And the conversation was going into, and you brought up Litech, which we’ve really never spoken about on the show before. And some of these other, when I was doing research for the show, there’s U-S-D-A-A lot, a lot of different programs that you’ve utilized or companies utilize for purchasing properties, as you were saying, you know, better quality properties that have some sort of assistance one way or another, whether, I guess it’s lower tax property taxes, and then you have to follow a certain guidelines of how you can and who you can rent it to. Can you give us like a, a quick overview, kind of a couple different programs that you use, maybe what Litech is and kind of, so maybe like the pros and cons of using that. I think you went over a little bit of it and you know, how that works and how you found that this is a superior way of investing in affordable housing.
Jay:
Well, yeah, sure. I can get into that. I don’t know if it’s necessarily a sub necessarily a superior way of investing or not. I don’t think there’s ever any right or wrong. It’s just, you know, you pick a business plan and you execute on it. And in our particular case, the business plan was, it would be an easier go of fixing the set of problems on a property built in 2000 versus a property built in 1970. So yes, with some of those 2000 built product that we’ve been buying that have litech restrictions on ’em, yes, you have some limitations, but it’s not really any different than following a lease. If you had rent a unit to a tenant, you have to follow the lease. Well, if you buy a litech restricted property, you follow the land use restriction agreement. And it’s, it’s really pretty simple stuff.
Jay:
We’re not running outta poor people. So we’ve made a living by over-delivering to an underserved market. And that’s a mantra around here. And we feel pretty good about it. And we get paid. We’re not saints. You know, we don’t do it for charity. We make good money, but we give something for it. And usually our tenants are thrilled after we come in and take over a property and do a, a major upfitting. And a lot of investors, they’ll ask us, well, why are you doing that? Your income is restricted, you’re not gonna get any more rent. ’cause We really bring in like class A finishes to affordable housing. And yeah, we probably spend more than we should, but it’s just a path that we have chosen. And we kind of rinse and repeat over and over and over as we buy multi-family properties that are usually distressed in one way or another, or mismanaged. We fix problems for a living. And it, it usually comes through an an over improvement strategy, but yet will yield results over time.
Charles:
Is that yielding results because you’re getting maybe higher occupancy, higher renewals?
Jay:
Well, that, yes, actually that’s pretty astute because our properties that are, you know, maybe somewhere between 2002, 2010 vintage, and then we go in and do a major upfit and let’s say rents in the market might be 1400 and our rents are a thousand. And we actually are better looking product than that $1,500 market rate deal. We’re full all the time. So yes, that’s, that’s part of the strategy. Is
Charles:
There special financing that’s available for some of these deals? Or is it your typical, I mean, kinda agency lending and local banks? Regional banks? Well,
Jay:
I do think they all like to loan on affordable housing because of their CRA that they get the check boxes on. But honestly, we haven’t taken much advantage of that over the years, mostly because everything that we buy, we tend to be short-term holders. We don’t set out to be a short-term holder. Everything we buy, we intend that, okay, we are gonna hold this for long term. It’s just that we’ve had so many unsolicited offers along the way that we are, had been able to exit so many properties early on in our hold cycle. But every single asset we we purchase, we think, okay, this is gonna be a five year plus hold. And we’ve just been very, very fortunate where our average old times probably been more like 12 to 16 months.
Charles:
So how does, like, you know, high level when you’re looking at a property, it’s kind of when you start beginning the underwriting process, what would you say for yourself, I imagine you guys go through a thorough underwriting of every performance, the whole nine yards before you purchase. But what high level when you’re into this a affordable housing, you know, kind of class, are, are you looking for when you see the, when you see a property, are there a few things that you’re really checking those boxes first before you go further?
Jay:
Well, I really love that question because mostly everybody always wants to know how do you find your deals? And, and that’s like, geez. I mean, that’s the whole ball of wax, right? Buying right <laugh>. But your question is really good because it’s more like how do you look at the deals you’re buying and it’s really where the money’s made. So we look for missed opportunity. Our, again, one of our mantras is we fix problems for a living. And those problems and challenges on every asset are different. I mean, sometimes it’s the same, but, you know, sometimes it’s a physical condition, sometimes it’s a management issue. Sometimes the property’s a hundred percent leased, but the rents are way below market. And those are of course, everybody’s favorite because there’s little dollars to spend in those scenarios. We still find ways to overspend, but yeah, we look for, for missed opportunities.
Jay:
What I’ve heard from many people when they’re taking a first look at a deal, they say, yeah, the first question we ask and the first thing we wanna know is why are they selling? And I always kind of get a laugh out of that because honestly, I could care less why they’re selling. I’m only glad that they are selling, particularly if I see value in it. I don’t think it matters why a seller’s selling at all. I think it only matters. What can we do? And that’s what we focus on. What, what is it now? Where is the missed opportunity in the way they’ve been running it? Which is probably why they’re selling and, and how do we fix it? So that’s always, that’s always what we’re focusing in on. And, and it can be any number of different things.
Charles:
Yeah, that makes perfect sense. I think. I think that’s a question that people bring over from single family. ’cause Then they know how <laugh> how low they can shoot their offer. You know what I mean? For the maybe. Yeah. But I see that, you see what kind of motivation, I guess it is, that’s a motivation type check. But the problem is that when you’re getting into multi-family, when you talk to people that try to bring some of those,tactics to multifamily, you’re selling to someone that’s already cash flowing most likely. You know what I mean? So it’s kinda difficult, you know, you’re not, your water didn’t get turned off, you’re, you’re still making money. It’s kind of difficult to say, oh, you need to sell this, or I have to sell this. You know what I mean? Right. Well, it’s usually not that situation. I’ve
Jay:
Learned a long time ago when whenever I try to count somebody else’s money mm-hmm <affirmative>. It never works out for me <laugh>. So I I don’t really look at the, the whys I just of why they’re exiting or, you know, how I might be able to exploit that. I just try to negotiate as best I can see Elaine to, to make some corrections or, or a path forward for us to execute our business plan. And then once we find that we go all in.
Charles:
So once you go all in, in on a business plan I mean, how do you guys handle your property management? I, I was reading before that you guys don’t utilize any third party, but I also read in the intro that I don’t know how many states it was, it was like 6, 7, 8 states that you guys were involved with in the southeast here at us. I mean, how do you guys handle that? The management like that? Well,
Jay:
That’s again, another great question. We’re probably in more states than that right now. We’re probably like nine, 10 or 11. I’ve always been of the opinion that third party management is death by a thousand cuts. It’s no one, there’s not any one thing that causes you to go wrong. It’s a thousand little things. Mm-Hmm <affirmative>. So what I learned early on is when you have a third party manager, you have to manage them. And if you’re not managing them, somebody’s gonna eat your lunch. Mm-Hmm <affirmative>. So I’ve also found that it’s not any more difficult to manage my own manager than it is to manage a third party company. So we just save fees and cut out a couple layers. Our managers on site typically appreciate that ’cause there’s less middle managers that they have to answer to. There’s a lot less reporting of middle managers trying to justify their salaries.
Jay:
Then guess what else? We’re really dialed in to each property. Like we know what’s going on. And that’s also one of the ways we’re a little bit different is we’re not, a lot of people in our business I find are in the money business and apartments are really their conduit. Whereas we’re in the apartment business. We’re very much operators and like today as an example, as soon as we’re finished with this call, I’ll be taking this jacket off, getting a t-shirt and shorts and I’ll be loading a box truck parked in the parking lot here full of gear and inventory going up to a property that we’re transitioning right now to upfit it. So that’s just part of what we do. And everybody within our organization is, is both hands-on. And, you know, behind the scenes we, it is just a mentality. All of us engage in, in physical activity on every property. And then of course, you know, we run operations from various locations as well.
Charles:
When, when I was looking, you know, in your bio the properties that you buy, and I’ll tell you from an issue we had years back, my first like larger property that I bought, I bought it with investors I know seven years ago, eight years ago now. But when I started buying multifamily property in oh six, I self-manage. It’s a small portfolio of small multis. I had you know, probably may six years, something like this. You know what I mean? And the thing though is that it was c class properties and I got it running really well and I gave to a third party management and that was my first time ever doing that. And my dad had owned a lot of de class properties before, years and years back. And that was terrible. He self-managed ’em all, but he had like his own teams and stuff and he never used a management company.
Charles:
And when I used it, obviously that transition was very rocky and I could see some of the benefits. ’cause I was a small operation. Everything was really close. Now the problem was, I found, was that when I went and bought my first larger property, it was only 59 units, but it was difficult for penciling in onsite management. This is what I’m getting to. So how are you guys how it’s much easier to self-manage. I understand if I had onsite management that I could hire full time. Does that make sense? Yeah. And then I could oversee them from, you know, from where you guys are in South Florida here. But the thing though is that it’s different if it’s like 50 units, you know what I mean? Versus like 105, you know what I mean? So how, tell me about how that dance kind of goes. Because if you have properties that are a little bit more spread, that management becomes a lot more difficult. You know what I mean? With smaller properties?
Jay:
Well, that is a theme and I’ve heard that over a, you know, 20 plus year career. For us, I have just found that it’s not quite that challenging. You know, we have no problem hiring a, a manager on a 40 unit property, whereas other people might say they can’t get economies of a scale. It is nice if we have a 40 unit that maybe we have something nearby that’s another 30 or 50 or 60 and maybe we share some staff. Mm-Hmm <affirmative>. It, it’s not very difficult with putting a manager on site. It’s a, it’s a little bit more challenging with the maintenance person. So what we do on the smaller properties is a lot of times we’ll just, we’ll just do contract maintenance as needed. And, and then we also spend so much on these properties in the early onset, and we put it as part as the acquisition costs that, you know, our properties are usually in really good shape.
Jay:
So we don’t have a tremendous amount of heavy maintenance post stabilization. I don’t, I almost said post-closing, but we do spend a lot post-closing, but post stabilization mm-hmm <affirmative>. It’s almost like a new property again. So the CapEx for the next several years is very light. But we’ve just found that, you know, you have to again, hire a third party manager and it’s just as easy to put our own people in there. I, I’ve been really opinionated on that over the years, but recently I’ve seen a few of my colleagues go by the way of self-management. And honestly, they, they probably would’ve been just better off keeping third party. ’cause It just depends. I mean, you have to be really engaged and really involved. It can’t be passive if you’re gonna self-manage. It’s, it’s not passive. It’s fully engaged. So we, we enjoy that engagement.
Jay:
But if it’s you have to know yourself there’s like, there’s really not a right or a wrong way. As long as you’re meeting your objectives and you’re executing on your business plan and you’ve, you’ve factored in the models whichever way you’re going to go, but you need to be engaged. It it, if you’re an operator and a, and a general partner, you must be fully engaged in every asset to be successful. Is, is really what I’m saying, whether that is self-managed or third party. But if, if you’re an LP and you’re a passive investor, that’s perfectly fine. But if you’re a GP and an operator, whether you’re running the manager or running the third party manager, you, if you’re not fully engaged, you’re gonna be losing out somewhere in your cash flow. And NOI.
Charles:
Yeah, no, that makes sense. I think when with that example of that 59 unit, we was between putting onsite management, like onsite leasing person and maintenance, and that was the one that was like, you know, that was kind of dragging a little bit on the cashflow I guess you would say. But the thing that was that we bought some other properties around it over like the next year, which kind of evened that out. But the thing is, the maintenances I found is kinda like the whole key to it. If you have the good handyman, I guess we can use that term sale or maintenance person. Yeah, I agree. And I think when I had like good maintenance people, like everything ran fine when I, you know what I mean, I could leave for you know, a week at a time or something like this and everything ran smooth, you know what I mean? They went and they were proactive and you trusted ’em with all the keys and everything like that. And tenants, you know, they had a good relationship with tenants and all that kind of stuff and it worked out well. But that’s what I’ve, I’ve found that that maintenance people, that team is like the whole key to the self-management or if you had third party, ’cause sometimes they might just use your, you know, your handyman or maintenance person as well.
Jay:
Well it’s a, it’s a good point. And some, there’s other creative ways you can make that work too. So if you have a really clean cut handy person or maintenance person that is also articulate, you can oftentimes have the maintenance on a small property, have the maintenance, do like an assistant manager’s role. So you have kind of an all-in-one on smaller properties mm-hmm <affirmative>. But we’re all trying to squeeze out a little bit of extra cash flow and you know, if we could just make two plus two equal five on every deal, it kind of gets us there. So I, I have a little catchphrase that we like to use around here and what we call it the four Cs and could also be called the five Cs. So two plus two equals five. And if you just pay attention to this, it operating a multifamily property is, is just this simple.
Jay:
The first C is curb appeal. If you have your property where it shows well inside and out, you, you’ll be able to get to the second C, which staying at capacity. So if you have your curb appeal in place, you keep it at capacity. The only other thing you really need to do is have good collections. And if you have good collections, the last of the, the, the Cs would be manage your costs. So if you’re doing all those four things, well, two plus two equals five, which is maximizing cash flow. So that’s your five Cs. So it’s property management is really just that simple. It it, I know people try to complicate it and, and, but if you just really do those four things well, everything else falls in place. Curb appeal capacity, collections costs, yeah. Curb efficien in those areas and you will win.
Charles:
Yeah. The, that was one thing I had with when I went to third party on my own small portfolio properties initially years back was the collections. I mean, they just weren’t as aggressive on collecting and it was was C class stuff. So I mean, like, no one’s like, you know, it’s not like they’re on the first of the month, you know what I mean? You have to go and like be a little bit more proactive to get paid, you know what I mean? Uncertain for certain people or you had to be there going right to the last minute to pay and they wouldn’t follow up with people. And it was just, yeah, that was one of the things I had perfect, like, great collections when I, when I did it myself, you know what I mean? Or one of my, you know, had somebody that worked with me on it, but yeah, the curb appeal I found with the properties that look nicer, it’s easier to rent the units and it’s easier to get those renewals, which is where obviously I found I, I start making real money, you know what I mean?
Charles:
When I Yeah, there prep ’em, there’s
Jay:
A whole lot we can unpack with each of those four Cs. But it, but yeah. You know, and what comes with accomplishing each of those, but if it’s just that simple, if you do those four things well, you will be successful in your business.
Charles:
So Jay, a couple things. I mean, you, you, you grew this whole, you scaled your whole portfolio, this whole business. It’s all your own capital with partners capital maybe JV capital, but not, there’s no syndication to it. What do you think are the main reasons why you’ve been able to grow and scale your business so successfully over these couple decades?
Jay:
Well, I think it kind of goes back to what I said earlier is we over deliver to an underserved market and we get paid well to do that, believe it or not. And it, it, it plays out very, very well. So when we have the lowest rents in the market and we have one of the nicest properties in the market, we’re always full. And so once we have a stabilized asset, we prove out a model. It doesn’t seem like there’s any shortage of people knocking on our doors, always trying to acquire that asset from us. So really what’s happened is we, we’ve been so successful on our operational model that our assets are turning over so much faster than we could have ever imagined. Again, we set out to buy everything with a, a longer term hold and we have to be prepared for that. But our average hold time over this 20 year span has been like slightly over a year. And mostly because of demand for the product. So I think that’s really why we’ve been able to grow so much is because our business model has been successful and, and by redeploying equity, you know, we maybe deploy, let’s say for example, a million dollars on a deal and when that comes back in looking like $2 million, well that’s just that much more we can buy. So it’s just been scaling up through increased revenue, quite honestly.
Charles:
Do you guys have your own construction arm of your business for doing all your renovations? So
Jay:
We do not, but we have a number of contractors that follow us all around the country and do our work. Nice. Yeah, so it’s really just nice because if I started with a new crew every time I’d have to be on site all the time at each location we have 27 properties transitioning at the same time. I can’t be in 27 places telling GCs and, and subcontractors what to do. So, you know, if somebody renovates one of our community rooms, you know, once or twice they know it’s kind of rinse and repeat. So the next five or six or seven, they don’t need me there telling ’em what kind of floors to use and what to put on the walls and et cetera. We still, we still load all the box trucks though ourselves and we still furnish ’em up ourselves. And that’s challenging enough, especially when I have to get trucks from South Florida to West Texas. But we have been able to manage so far.
Charles:
Nice. So as we’re wrapping up here, I mean, what do you think are some of the common mistakes you see real estate investors make over, I mean, decades of experience of being in an a multifamily investor?
Jay:
I really feel that it’s a layer of removal from operations. I find that most of the people that I see that haven’t done well is because they’re in the money business and not in the apartment business. ’cause You can underwrite these things a million ways to Sunday and you can be an accountant that that’s running multifamily operations, but if you don’t know your property, then you’re not physically seeing these assets, at least at, you know, on some type of regular basis. You, you’re just out of touch and you know, let’s say 5% vacancies in emergency. I don’t think people realize you, you’re at 95% occupancy and everybody thinks, hey, we’re really good here, but you’re not. It’s, that’s, you know, you’re, you’re two bips away from being like crisis mode because 5% vacancy goes to 8%, vacancy goes to 11% vacancy faster than you, you know, can really even keep up with it if you’re not com really dialed in. But by being involved and visiting your assets at least monthly, even on stabilized assets, you’ll kind of get an idea of what’s going on. But the people that I find that that struggle are the ones that really are just in the money business and they’re not in tune with their physical assets.
Charles:
Yeah, that makes perfect sense. I’ve also, when people tell you they use the P word passive, you know what I mean? And it’s, even if you have a property manager, I mean, it’s still at best to send me passive business. I tell people, you know what I mean? I had always had to manage that person and make sure they’re doing stuff and asking why there’s these costs, what’s this expenses we’re using for this? It’s a lot of work. You still have to be active in it.
Jay:
Agreed. I I just think the, the best owners and best gps are those that visit the assets regularly and stay dialed in with their, with the actual manager on the property, not just, you know, whether it’s a a mid-level manager or regional manager or vp direct contact with each manager and direct eyes on the asset on a regular basis, I think is is also part of what it takes to be successful. Yeah,
Charles:
No, that’s, that’s great. It’s funny, I had a call with this investor like a year ago and I remember telling him I was just at the property, it was in Georgia that we have, and he, he, he was so amazed that I went to the property. I’m like, what <laugh> what other, how are your other deals? Do they not go there to the property to check on them? I mean, this is like a normal thing. Like who do you invest with on your other property? They just like do it from afar. I mean, that’s, that’s crazy. You don’t walk on and like have an unannounced visits. But yeah, I guess it’s a normal thing, like you’re saying that people are in the money business, not in the real estate business. Yeah,
Jay:
We try to get to know 10 our tenants at now, we can’t know all of our tenants of course, but I try to know tenants at every single asset. Yeah. So whenever we’re there, I usually, you know, make it a point to reach out and say hello to the handful that we may have met and wanna make sure people are doing well. And it’s also the best way to stay in tune with how your property’s doing, by having a relationship with your, with your tenants. So, you know, we try to do that as much as possible.
Charles:
Jay, so how can our listeners learn more about you and and your business multi-housing dot com?
Jay:
Yeah, so I mean that’s, you know, in, in one way. Our, our website is multi-housing dot com. My email is just my name Jay, JAY at multi-housing dot com. We stay pretty active in all the different trade conferences and we love to set up and, and meet our colleagues and and so forth at those events and open to, you know, anybody reaching out with any questions or, or new markets or any of the stuff we covered, whether it’s by phone or, or email.
Charles:
Okay. Well Jay, thank you so much for coming on today and I mean, you’re right here down in South Florida next to me, so I’ll have to meet up sometime and connect here.
Jay:
That’d be great. Thanks for having me on. Have
Charles:
A great rest of your day. I’ll talk to you soon. Okay.
