MB284: How to Structure Multifamily Deals to Mitigate Risk – With Andrew Cushman

Financial Freedom with Real Estate Investing

Even if you choose the right property, the wrong debt can wreck a multifamily deal. So, what can we do to manage shifts in the real estate market? How do we structure deals in a way that mitigates risk?

Andrew Cushman serves as Principal at Vantage Point Acquisitions, a private equity firm focused on acquiring and repositioning multifamily properties throughout the Southeast US. He left his 9-to-5 as a chemical engineer for real estate in 2007 and built a lucrative house flipping business before finding multifamily in 2011. Since then, Andrew has successfully syndicated more than 2,100 units and launched The Multifamily Accelerator, a mastermind for active and experienced real estate investors.

On this episode of Financial Freedom with Real Estate Investing, Andrew joins cohost Garrett Lynch and me to explain why he is confident about buying multifamily right now and share what he is doing to maintain deal flow. He offers insight on underwriting to account for a spike in interest rates or a shift in rent growth and shares his secret for finding off-market deals. Listen in as Andrew describes what kind of inflation is good for apartment investors and learn how to structure agency or bridge debt to best manage risk.

Key Takeaways

Why Andrew is confident about buying multifamily right now

• Large, sophisticated groups making offers on small properties
• Right types of inflation benefit multifamily in particular

The kind of inflation that’s good for multifamily real estate

• Labor, cost of building and properties all on rise
• Interest rates stay low while incomes increase

Why Andrew used 12-year, fixed-rate debt on a recent deal

• Buyer can assume debt in 6 years if interest rates up
• Property value likely up if interest rates still low
• Option to hold for 6 more years if market in trouble

Andrew’s top strategies for structuring bridge debt

• Don’t take maximum leverage, negotiate lower interest rate
• 5-year loan affords options while 1-year loan does not

How to mitigate the risk of a spike in interest rates

• Debt structure with options for exit
• Conservative rent growth assumptions
• Modify exit cap rate (+ 10 basis points for every year held)

What Andrew is doing to find multifamily deals right now

• Leverage long-term broker relationships
• Direct outreach to owners in select markets
• Driving for dollars

Andrew’s tips for reaching out to owners directly

• Ask under what circumstances would consider selling
• Be careful not to hurt existing broker relationships

What Andrew is doing to maintain deal flow

• Add team member to increase number of leads
• Consider expanding into new markets

Andrew’s strategy for bidding on listed multifamily deals

• Never win best and final on price (try creative terms)
• Stay involved to stay top-of-mind with brokers

How Andrew thinks about rent increases in his underwriting

• Current level of rent increases not sustainable
• Underwrite to current rents or well below forecast increases
• Buy where renovated rent