Why having a mentor for my first multifamily deal cost me nothing?
I often get the question from aspiring multifamily active investors: what made a significant difference for your first deal? A mentor.
My first steps in real estate
When I started my career in Real Estate, like a lot of people on this website, I did a lot of research, particularly on BiggerPockets, and listened to a lot of Podcasts. The BRRRR approach, while appealing, looked like a big undertaking: how much would I have to learn about flipping houses? After a brief experience in turnkey single family rentals, I decided to focus on commercial multifamily syndications.
More research, more podcasts, I started to know the language and understand broad concepts, but it was not sufficient to put it all together. Then I looked for a quality course and found one with good reviews (on BP). This comprehensive course includes many case studies. It helped me learn how the process works, but I had no experience doing the steps. I was confident I could run a deal, but not to the point of doing it alone.
Having done most of my professional career in aviation, I will use this analogy: you can study how to fly a small aircraft reading a book, watching videos and fly it in a simulator, but it does not mean you're ready to fly it in real life.
First deal and how much a mentor helped
I found my first deal - an 80-unit apartment complex, see my First Deal Acquisition post for more details - and solid partners. Being a newbie, they assigned a mentor to me to oversee me through the whole process.
I felt much more comfortable knowing that I had a knowledgeable and experienced mentor working the deal with me.
Here are some of the areas where my mentor provided much needed value:
- Confirm the market and submarket were worth investing in
- Materialize the partnership with the senior partners
- Help me negotiate the contract with the seller
- Assist me to define a schedule of tasks
- Share his network of 3rd party: Property Manager (PM), real estate lawyer, syndication lawyer, loan broker
- Help me further consolidate the underwriting for projected income and expenses, define the renovation scope, fine tune the financial strategy (split, loan and holding period) and update the projected returns
- Bring on his experience to navigate the Due Diligence (DD) must haves and less crucial items (the seller was not sophisticated and some elements were not available)
- Aid me to get back the seller on undisclosed items discovered during DD
- Mentor me for preparing a solid presentation for the investors
- Introduce me to investors
- Guide me to navigate the closing process
- Oversee with me the transition of the property to the new PM
- Help me set up weekly status reviews and KPIs with the PM
- Make sure I did not forget anything!
How much does a Mentor cost to run a first multifamily deal?
Out of pocket: $0, yes ZERO Dollar.
How can that be possible? Well, the mentor was compensated for his effort by a piece of the General Partnership.
Besides the unbeatable out of pocket $0 cost, the additional benefit of this mentoring model is that the Mentor is personally invested in the success of the deal, because they put sweat equity in the deal. Now, it does not mean the Mentor could have done anything to close on the deal, because there was oversight by the senior partners and a formal go / no go decision at the end of DD.
And yes... we got the deal closed!
I am not saying that this acquisition was as pleasant as a walk in the park, but I had always someone available to get guidance.
Here is a real life scenario that occurred on a deal on which I was in the shoes of the mentor: the survey is not acceptable by the lender because the scan provided is hard to read. Of course, this issue will come up at the eleventh hour, at the very end of the contractual time frame to close. You will need a new survey, that is an extra week minimum.
What if the seller has a change of heart (or a better offer): will the seller accept to extend the closing date? Are we going to be able to close the deal or just lose the deposit (that became hard money by then)?!
Here is what an experienced mentor will help mitigate the situation before and after it arises:
Make sure your contract offers sufficient extensions for closing
Make sure the real estate attorney provided the survey to the lender early in the process
Make sure the lender and title company accepts the survey early in the process
Negotiate an additional extension if it was not part of the contract
The road to a first acquisition can be arduous and subject to pitfalls. Especially if it is a syndication, you must provide a top service for your investors. There are a lot of moving parts in a deal: a mentor will help you to focus on priorities and navigate the waters.
What is your experience on your first deal or working with a mentor?