Welcome to the 300 new people that joined the newsletter this week — We now have 1,863 readers in our community! I started this newsletter 1 year ago with 21 readers and it’s awesome to see the growth. I’m happy that you trust me enough to learn from me every week. I’ll continue to deliver great content for you.
This week I wrote about how I’ve purchased $150M of Real Estate over the past 18 months. For those of you who are interested in buying Real Estate, this will be helpful to show you how to create processes. For those of you who are my passive investors in Real Estate, this will show you some of the inside baseball. The only way to acquire properties successfully is through having strong systems and processes. I’ve posted the blog post below.
Also, at the very bottom of this email, I have an exciting announcement for anyone who is interested in learning more from me about how to buy Real Estate.
With that out of the way, here’s the blog post on my acquisitions system:
✍️What I Wrote this Week
Over the past 18 months, I've bought $150M of Real Estate.
Acquiring deals is not easy. You have to know how to find them, analyze them, what to look out for. You need to be as good of an investor as an operator, and vice versa . Acquiring properties at scale is even harder. The only way to do it is to have systems so you run your acquisitions process like a well-oiled machine.
In this post, I'll walk you through my acquisitions process. We'll start at the point when you are negotiating the deal and go all the way through to the day you get the keys and takeover the property. Keep in mind, from my vantage point I have a team and partners that I've worked with and developed over time. For example, I have a property management team that will do a lot of the execution, which you may not have depending on where you're at with your Real Estate journey. Regardless, you can use my framework and process as a jumping off point for you to develop your own processes and also have a vision of how those systems will evolve in the future as you scale.
Before we get into the contract negotiations, a lot of work is completed beforehand such as underwriting, touring the property, looking at the competition, and so on. I have videos on my Youtube channel that you can find here that cover those other topics. For this post, we'll dive into the 3 main parts of of the acquisitions process:
Contract Negotiations
Due Diligence
Financing
Contract Negotiations
First, you submit a Letter of Intent (LOI). If that LOI is attractive to the seller, they will accept your offer. At that point, either you or the seller will send the first version of the PSA (Purchase & Sales Agreement) which kicks off the contract negotiations.
The most important thing during contract negotiations is speed. You want to review the contract and provide feedback as quickly as possible. I target to have contracts signed within 7 days of getting the first version of the contract. You'll need to understand what matters to you in the contract and what you are willing to concede on. In today's market as of this writing, it's important to understand that it's a seller's market. Particularly, in an asset class like Multifamily there is strong competition from buyers so you need to be realistic with how you approach negotiations.
One of the biggest mistakes I've seen is that legal counsel can get in the way of the deals getting done. You, and only you, are responsible for managing your legal counsel. Sometimes, lawyers think that they are the ones leading the deal and this can get in the way. You need to make it clear that your attorney is your advisor and partner and you respect their opinion and value their insight. But ultimately, you need to be in the drivers seat making decisions and deciding what you want in the contract. Another mistake I've seen is that things go too slow and you act passively. You need to have a sense of urgency. When the contract isn't being revised and turned back to someone quickly, or emails aren't getting returned it's up to you to step in and make it happen. I once saw two lawyers send a contract back and forth for 2 days with no communication on the changes. The seller's lawyer striked out a clause in the deal. The buyer's lawyer put it back in and sent it back. The seller's lawyer striked it out again and sent it back. And so on. No communication - just striking things out in a contract and sending back and forth. If things are moving slow, you streamline it by going directly through the broker to the seller or directly talking to the seller (figure out how the broker wants this communication to happen).
Another example is when I was working on a deal where we needed an Estoppel certificate from the Homeowners Association. Our attorney was sending emails to the lady at the HOA that sounded way too much like corporate speak and was filled with lawyer jargon. She wasn't responding. After a couple days of this, I found her number online and gave her a call. I was extremely nice to her and I talked to her like she was a real person. Later that day, she sent over the estoppel. A couple months later, I met her for breakfast and got to know her and asked questions about what we can do as new owners of the property to help support the HOA. When things aren't getting done, you need to step in and work your magic. Separately, in these transactions it can sometimes feel like you're just talking to one person at a big company, but you have to realize that these are real people that you're dealing with and if you can connect with them and show them that that you're also a real person, it's much easier to get things done. After the contract is signed, the next area is Due Diligence.
Due Diligence
Due Diligence is when you now have a chance to go deep and make sure that the property and financials are in the condition that were presented to you before you signed the contract. But before you get on the actual property, you need to make sure you're preparing your team and vendors for what they need to do and which dates they need to come to the property. This can be tough when you're negotiating PSA because you're not sure what date you will sign the contract. Here's what I like to do: provide a proposed date to the PM after your LOI is accepted. Then keep them up-to-date through your contract negotiations if anything is changing. Also, have a due diligence schedule ready to go that you can send to seller. This makes it easy for the seller to know what you'll be doing, what's needed from them and it keeps things organized. Everyone appreciates this organization and proactive communication. If you click here, you can see an example of my due diligence scope & timing sheet that I send to sellers when we sign the PSA. Upon signing the PSA, you also want to send a contact info sheet with each person from your team, their role, and contact info. You're the Coach, drawing up the plays and letting the players play.
Once you sign the PSA the seller will also send you other files in the War room which is where all contracts, environmental studies, bank statements, rent rolls, and other relevant files are for your due diligence. All the files that you need for due diligence will be outlined in your PSA. If anything is missing, the person from your team needs to compile that list quick and send to the seller so they can upload the missing files. Every day during Due Diligence is crucial. Always ask your team 1-2 days after the war room is live, what files are missing. Here's a tip: Something is always missing. Your property management and due diligence teams need to review all these files. They make make sure that leases are in line with what the financials show in terms of rent payments, they need to review the contracts that the current owner has with vendors to see if you want to keep those contracts or terminate them, and a variety of other things. Due diligence is crucial. Operate with speed and be thorough. The last area is Financing for your deal.
Financing
Financing for your deal relates to both Debt and Equity. On most deals, you're taking a mortgage from a lender and putting your own equity into the deal. You want to be setting this up in advance. For example, if you have equity investors you wan to put together a deck for your investors, host a webinar, have a Frequently Answered Questions doc so you can proactively answer standard questions, and so on.
For the lender, you also want to have your Personal Financial Statement (PFS) prepared, your Schedule of Real Estate Owned (SREO), and your business plan for the Lender. You want to be working with your loan broker early to determine the different debt sources and the advantages and disadvantages of each type of debt. Before you even think about acquiring a property, you should've developed relationships with loan brokers and ideally chosen one to two that you know you want to work with. They should be looking at the deals before you even consider making an offer so you know what type of debt can be placed on the asset. The great loan brokers know the area & markets that you're investing in really well so they can provide you guidance on if they think the property is a good.
If you're raising equity from investors, you need to work with a Securities attorney early on to draft the PPM (private placement memorandum), create your organizational chart (how the different entities are structured), and create and file all your entities. When you're raising money, you need to be very very careful of how you do it because the SEC takes this very seriously and there are rules and regulations in place. Managing money is a huge responsibility and it's taken seriously.
In order to keep all of this structured and not get overwhelmed, I suggest that most people write all of this on a calendar if you need to. Timelines, owners, checklists. It will make sure that your team knows what to execute on. This way you will have the time to think, strategize, (and dive in when needed)
Every broker and or seller I've worked with says that we’re some of the best people to work with. Why? Because, we set deadlines and clear expectations, move fast & don't create roadblocks, and proactively communicate delays and questions we may have. This often helps us get first look at deals. Follow this system and you will create your own competitive advantage for deal flow.
As I mentioned in the intro, an exciting announcement: I’m working with Maven to launch my beta of a cohort-based-course in July to teach people how to buy Real Estate. It’s called “Get Rich Slow: How to build wealth in Real Estate”. If you’d like to apply to be selected, you can fill out an application right here.
We’re selecting 20 - 40 people for the initial cohort. We’ll meet 2 times a week for 3-4 weeks and go deep on how to buy Real Estate. This will be for beginners or people who are looking to scale their real estate portfolio. The goal is for people to have purchased a property by the time the course ends.
Maven just raised $20M from one of the best VC’s in Silicon Valley, Andreessen Horowitz, and I’m excited to work with them to bring this crucial course. If you’d like to apply to be selected, you can fill out an application right here.
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Have a great Sunday,
Rohun
Very productive and informative thanks for sharing. Also curious to see what a day in the life looks like
This is very detailed and informative, thank you. Also curious to see a day in the life