The Door Fallacy

A Moses Kagan inspired post:

We often get asked how many doors we operate.

An understandable question to get an idea of how much real estate somebody owns/operates.

However, door counts can be misleading.

Let me explain:

We’d much prefer to own 50 doors in a Class A area where we can receive the top-end of market rents and ultimately attract high quality tenants.

On the other side, we could operate 150 doors with a median rent of $800, in sub-prime areas.

5-plex in a desirable location with $12,000 in gross rents > 15-plex on the outskirts of the city with $12,000 in gross rents.

Given the choice of the two, we’d prefer properties located on good dirt vs. seeking out density.

Taking it a step further, we’re dealing with less tenants/leases/complaints given the smaller headcount but still receiving comparable gross incomes.

Prime locations with access to amenities typically appreciate at a higher rate than others and have more consistent demand.

With that said, we prefer to sacrifice scale for quality (location, renter base, general trajectory).

The Early Pain Points

One of the biggest struggles when we first got started was scaling after deal #1. 

I didn’t want to take outside capital until I did a project of my own and ultimately had proof of work.

The first purchase was an FHA loan on a duplex that allowed me to house hack.

Closing on the first deal felt good for about 10 minutes and then I quickly realized I needed to do multiple of these to ultimately create the company I envisioned.

So, that’s what we began doing.

After the first, we purchased our second 7 months later off-market.

After the second, we scaled into larger apartment complexes and bought our third property 5 months from the last.

After the third, we had built up trust amongst our brokers and were now starting to see more off-market deals, pocket listings, and other special situations.

We leveraged this and sourced our fourth property just over 5 months from the last purchase, off-market.

During the renovation period of our fourth purchase, we received word about another apartment complex (in an area that we target) potentially getting listed in the next month.

We arrived in 15 minutes, underwrote the property in the car, and were the first offer in.

It was one of only a few times where we’ve sent in a full price offer.

Why?

The property was significantly undervalued (6 figures+).

We knew from the start that it was either a mistake or there was something deeply wrong with the property.

After checking the latter of the list, we found it was an oversight and the listing team quickly came to same conclusion after receiving numerous offers within a few hours.

We ultimately won the bid but can confidently say all the transactions leading to this one, allowed for it.

If we didn’t have a track record of closing, executing nice renovations, managing properties well, and doing things the right way- we very well wouldn’t have been gotten the contract.

That reputation is still being substantiated each day and our hope is that it continues to position us well within the markets we target.

Crossing T's and Dotting I's

One of the first things we do at the end of each month is review our account statements for each entity we operate.

We have a good idea of what’s coming in and out but double checking these details allows us to catch any mistakes or inefficiencies.

From utilities to maintenance, costs can vary depending on the season so we look to have a granular understanding of what to expect and how much these can vary.

With this, we’re ensuring that we’re not overpaying or missing any items while solidifying future underwriting through the existing portfolio we have.

We treat $1 the same as $100,000 and leverage that mindset in everything we do.

Emphasizing the importance of every cent, detail, and process ultimately puts us in a better position to execute.

Everything comes down to the bottom line so we place a lot of energy on it.