March 12, 2022

JF2748: Success in Multifamily: Tips for Partnerships, Investor Pitches, and Finding Deals ft. Ace Karimi

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Ace Karimi, co-founder of Invest Capital, began his real estate journey with his business partner focusing on single family wholesale and flipping. Together, they scaled into multifamily and now are GPs of 238 units. Ace shares how his partnership thrives, the ins and outs of the first multifamily deal he closed, and his tips for pitching to investors and finding deals.

Ace Karimi | Real Estate Background

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Ash Patel: Hello Best Ever listeners, welcome to The Best Real Estate Investing Advice Ever Show. I’m Ash Patel and I’m with today’s guest, Ace Karimi. Ace is joining us from the DC Metro Area. He is the co-founder of Invest Capital, a multifamily acquisition business. Ace’s portfolio consists of being a GP on 238 units. Ace, thank you for joining us and how are you today?

Ace Karimi: I’m doing great, Ash. Thank you for having me.

Ash Patel: It’s our pleasure, Ace. Before we get started, can you give the Best Ever listeners a little bit more about your background and what you’re focused on now?

Ace Karimi: Absolutely. First off, thank you guys for having me here. My name is Ace Karimi. I’m a 27-year-old real estate investor based out of Washington DC. Our company, Invest Capital, currently manages and owns almost 240 units. I think 238, to give you the precise amount, Ash, and we’re constantly acquiring and growing more. We went full-time into multifamily about two years ago, started out in the single-family space back in 2018. We started initially doing wholesaling and flipping real estate; that’s essentially how you make money in the single-family space – you get it at a good price, you add the value to it, you renovate it, then you sell on a back-end. It’s still an operation I have going on, I love it. That’s an operation I only do here in the DC metro area, just because it’s local, and I have on my contractors and connects out here. It’s good for short-term money; that’s one of the theme series, it’s short-term and long-term money, that I’d love to talk about later on. I think if you want to be a very successful real estate investor, have both; you don’t need to have one or the other. I feel like too many people are all short-term and no long-term, or all long-term and no short-term. I think it’s good to have both, so that you can still live while you’re going to get wealthy over time. So that’s our approach here with Invest Capital. We want to make sure that the people who invest with us, they’re still getting the returns month in, month out, and at the same time, they have massive upside in the appreciation and the principal pay down, and then just the values of the property themselves. So that’s where we’re at now, full-time multifamily investors. We’re looking to grow and we’re here to answer any questions to give more people value in what we’re doing.

Ash Patel: Ace, when you were doing the wholesaling and flipping of single-family houses, was it just you or did you have a team or a partner rather?

Ace Karimi: My partner Akam and I started both businesses together, we’re 50/50 partners. Initially, it was just me and him going out hunting for deals, going on acquisitions appointments, putting properties under contract. Within a few months, after closing a few deals, we were able to create our own office space and hire acquisitions people, we hired dispositions, transactions… We had a team of about 10 people back in 2018.

Ash Patel: Did either of you have real estate experience before you partnered up?

Ace Karimi: No.

Ash Patel: Okay, so the two of you together decided, “Hey, let’s do this thing. Let’s figure it out.”

Ace Karimi: Pretty much.

Ash Patel: Okay. You’ve been partners now for about five years?

Ace Karimi: Exactly.

Ash Patel: Alright. What are the challenges with having a partner?

Ace Karimi: It’s a good question, Ash. You’ve got to make sure you’re on the same page, for one, because it all goes back to making sure you’re both hitting the same goal from both of your angles as possible. For us specifically, because we do have a lot of similarities together, it’s making sure that we’re not doing the exact same things all the time, and  to make sure we have divided responsibilities. I love closing deals and he loves closing deals, which is something we share in common. And I love raising the capital and he loves raising the capital, too. But beyond that, it’s actually the day-to-day, week-in week-out to do stuff that we need to execute on, making sure that we’re both crystal clear and not stepping on each other’s toes, and really simultaneously moving towards the same vision together.

Ash Patel: It sounds like you guys are both visionaries.

Ace Karimi: You could say that.

Ash Patel: Do you have struggles when it comes to execution?

Ace Karimi: Not really.

Ash Patel: You’re not going to admit that you have struggles, but did you have struggles in the beginning? Because you guys seem like you want to interact, and do the high-level deals, do the lunches, the investor meetings, but you don’t appear to be the type of people that love sitting behind a computer, getting into the trenches, doing financials, paying bills, getting quotes, and that kind of stuff.

Ace Karimi: What I was trying to say there, Ash, is with the vision stuff, we don’t. We’re very clear in the big picture stuff and where we’re trying to go. The challenge is definitely the execution, for sure; that’s why I’m making sure that we’re still able to get things done. Because it’s not our strongest suit to do the actual day-to-day activities. Essentially, being an entrepreneur and even a syndicator, you’re able to get other people who are even better at what you lack to help complement your strengths. So essentially, with us and what we’re doing right now is we have a team that’s doing the day-to-day stuff. That’s probably not the things that we’re the most excited about, nor are we the best at, but we understand what needs to get done, and they implement it, and they do the week-in, week-out activities. It definitely is a challenge, I’m not going to lie, but it’s good to have people around you.

Ash Patel: Ace, who was your first hire, what position?

Ace Karimi: Acquisitions.

Ash Patel: Let’s keep going down the line. What was your next hire?

Ace Karimi: It was an assistant; essentially, admin/assistant.

Ash Patel: Is that shared between the two of you?

Ace Karimi: Yeah, pretty much.

Ash Patel: And that’s a game-changer, isn’t it?

Ace Karimi: It helps a lot to take a lot of the menial tasks out of the way, for sure.

Ash Patel: Is this person virtual or in-person?

Ace Karimi: Virtual.

Ash Patel: Okay, what challenges do you have to overcome, versus having somebody that’s in-person next to you?

Ace Karimi: Well, the thing is, you just got to make sure you communicate very clearly with them, because they’re not right next to you. So make sure your instructions are very organized and step by step. That’s one of the things that we really have to pay attention to, is making sure that the instructions you put in the Google doc lines up with the video that you shot, and what you’re giving them on a week-in, week-out basis… Because they’re just going to follow what’s written, usually.

Ash Patel: Awesome. Ace, can you take us through your multifamily acquisitions? When you guys decided from flipping and wholesaling, you’re going to get into multifamily, what was your first property, your first acquisition?

Ace Karimi: We closed on a 72-unit property here in our home state of Virginia in December of 2020. We got that under contract in the summer of 2020, that was our first [unintelligible [00:09:03].04] “Hey, we’re about to get our first multifamily deal”,  which was really exciting. It took about I think five or six months to close. We initially reached out to the owner, actually directly. I somehow got hold of him. I had a good conversation, he knew some of the areas that we grew up in here in Virginia, we were familiar with him… He actually developed the complex which is awesome. A great guy, a much older individual, and he’s owned it since he built it, back in the late ’70s. He said it was probably time for him to move on, take the proceeds, and give it to his kids or something. We put in an offer, we sent over an LOI. The only thing is he didn’t have an email, so we needed to get his attorney information.

There’s a lot of creative problem-solving that goes on… So we went and got his attorney’s information, and we were essentially like, “Hey, look, we’re trying to put an offer on this property, an LOI.” The attorney writes back to us by email and he says, “Yeah, he’s never going to sell. Don’t waste your time.” Then we look at each other and we’re like, “Maybe we should keep moving on.” But then we’re really like, I said, “Dude, who cares?” An offer is an offer; we might as well just put it out, we already put the time into it. So we’re like, “Hey, it doesn’t matter. We spoke with Mr. Waldrip,” which is the name of the individual. “Here’s the offer. We just want to follow through on our word.” He received it, he actually emailed us back a week later, surprisingly, and he countered.

Ash Patel: I thought he doesn’t have an email.

Ace Karimi: His attorney emailed us back, and [unintelligible [00:10:21].16]

Ash Patel: Got it, okay.

Ace Karimi: Because he has a fiduciary responsibility to have to share whatever offers he gets. So we get a counter, and he says, “Hey, Mr. Waldrip wants to do the deal at this higher value.” We put out an offer of 3 million, it was 72 units, which was still a great price… He countered back at 3.75, which to me – it’s a multi-million dollar building and I’m getting it at a discount, so I’m like, “Why not? Let’s do it.” We tried to negotiate a bit, tried to meet him in the middle, he just knew what he wanted… Essentially, we’re just like, “Let’s just do it.” There’s still upside, it’s probably worth five and a half to six million, and we can get some good returns and get our feet wet in the game. So we went through that and we got under contract, we raised the funds on it.

We actually just completed construction. It’s been about 14 to 15 months now, and we just completed all the renovations. There are a few more units to turn, but we added a dog park, we fixed the exteriors, we’ve been restriping and resealing the asphalt on the parking lot… It really looks like a repositioned property, and we raised the rents up from about $600 on average to $1000, which really is a big jump. But it was under-market rents, so now we’re actually entering our first refinance with that property, which is awesome, and it’s way beyond the valuation that we originally thought. So it’s exciting.

Ash Patel: Ace, how did you find that deal?

Ace Karimi: We went direct, because I believe we got this information from the property manager. It was a referral. But we got his number from somebody and then we just called him.

Ash Patel: When you were wholesaling, did you have all your systems in place where you sent out postcards, skip traced people?

Ace Karimi: Yeah. Pretty much, we did.

Ash Patel: And are you doing that for multifamily?

Ace Karimi: No, not yet. We haven’t done a lot of direct marketing, things like that. There’s been some telemarketing, a lot of phone calls… But I noticed even while that may still work, any form of outreach is good. It’s better to align yourself with other professionals, like brokers and managers and existing players to try to refer you to deals. I think that’s the best way to get deals as you elevate higher up in this game.

Ash Patel: Let me play devil’s advocate. What about those owners like the one you purchased from, who really had no intentions of selling until he was given an offer? Why not use all your knowledge, experience, and systems to blanket a larger population of multifamily owners?

Ace Karimi: We’re doing it, we’re slowly rolling it out. The thing is we hired the acquisitions for the multifamily; we’re not talking about single-family here. We hired our acquisitions and we’ve been putting a lot of time into training him, just to be able to get the process down, the evaluation underwriting… Because we ideally want him to just be responding to all the leads and responses coming in. We’re slowly getting to it actually, we are. But the thing is, we don’t want to just hit any in every market, and just blanket the country or an entire region, because in this game, the more you know about specific markets, the better, well prepared you are.

If I’m in DC and I enter Phoenix, Arizona and I don’t really know anything about that market, I may be able to find some owners here and there, but it’s not the best to go into a scattered approach. I think it’s better to start with specific areas and markets that are local to you or your region, and just focus on that… Because there are thousands of properties. So just focusing on that and going deeper as opposed to going wider is our philosophy right now. As we continue to grow, we’ll definitely do more outside of our area.

Break: [00:13:45]- [00:15:41]

Ash Patel: Ace, did you raise capital for that property, the 72-unit?

Ace Karimi: Yeah, it was 1.5 million.

Ash Patel: First time raising capital?

Ace Karimi: First time.

Ash Patel: Alright, take me through that process if you don’t mind.

Ace Karimi: Essentially, you have to know your offering. The good thing is you always want to lean on somebody who has at least got some of the presentation materials that you can use. We have friends, we were in real estate already, we knew people who were in commercial, so we’re just like, “Hey, what do you normally give to them? Do you have an offering sheet, a presentation?” We leaned on a few people to see what’s the best way to present the information. Essentially, all you’re doing to investors is, “Hey, I have an investment opportunity. Here are the returns. Is this something you’d be interested in investing and being a part of?” So I wanted to make sure we came across professionally, first of all. We could do a webinar… There are so many different ways to present a deal.

What we did was we came up with a two-page highlighted investment summary that we always send out, and essentially always do our underwriting first; we look at where the rents are over the next five years or so. For this one, we’re holding long-term, for about seven years. We get our underwriting down, because you want to do your homework before you approach anybody. So you do your homework, you do your underwriting first, you look at what the valuation of the property is going to be, and then you look at the projected returns; you find these spreadsheets online, or I’m sure on the Best Ever underwriting podcast. So you get these spreadsheets, underwrite the deal, look at the value, look at the returns… You’re like, “Okay, is this good enough? Can I get like at least 2X, or something better, maybe an infinite return for my investors?”

Because you want to feel good about the deal and you want to know this is something that I know if somebody invests their money in, they’re going to do well. I don’t like to pitch or sell or share any opportunity that I don’t personally believe in; it just doesn’t make sense. Why would I waste my time and other people’s time and money? We actually already liked the deal from what we saw; where we knew it was a deal, we already knew. We just didn’t have the exact metrics and numbers and returns down, so we went and did our homework, got an experienced apartment investor to look at it, he said, “This is accurate.” We put it into a two-page spreadsheet and we made a whole slide deck about it. Essentially, we knew our deal and what the numbers were.

We said, “Hey, look, here’s our game plan. This property’s $500 under-market rents, believe it or not. Here are the five property comparable in the nearby area that are already achieving $900 to $950 rents, and we’re at 550. The reason is that the owner didn’t raise their rents, they weren’t directly involved with the property anymore.” They’re just like, “You know what? The tenants have been there for 20 years, I don’t really care.” They haven’t really done any upgrades to it. So we knew the story of the property, and we said, “Hey, look… It’s under-market rents, we can go in there, we can add value, and increase the rents. And based on the increase, we can get the valuation to a $6 million valuation, in which, hey, you would be getting a 20% IRR.” That’s what you want to mention, “Hey, you’ll get a 10% cash on cash based on your numbers.”

But for us, we said, “Hey, look, we can refi you out, give you all your cash back in about 24 months, and then you can stay in the deal in perpetuity. You can get your money back cash out free, or you can use it for whatever else, and you can stay in the deal.” That’s essentially how we approached it. We showed people that, “Hey, look. This is an opportunity that you can hold this asset with us for a really long time. Or you can just hold on to it based on whenever you refi; you’ll still get your money back and it’s house money in play at that point.”

Ash Patel: Ace, once you return the initial capital, do they still get 8% pref, or whatever the pref is on the deal?

Ace Karimi: There’s no pref; the pref gets removed. Whatever percentage of ownership that they have in the asset, they’ll get that percentage of the cash flows in perpetuity.

Ash Patel: Got it. Were these investors friends and family, or were they new people that you met?

Ace Karimi: There weren’t really a lot of new people. We actually did meet a few new people, introductions from friends and family… But yeah, surprisingly, the best way is to just look at your existing network of people. Eight out of I think the 11 people that invested in that property with us were already in some sort of relationship with me or one of my partners. And then three of them were friends of friends of that person.

Ash Patel: What’s a hard lesson that you learned on your first multifamily deal?

Ace Karimi: First hard lesson… You’ve got to be patient, I think that’s what it is. You’ve got to be really patient. It’s like, you close on a deal and you enter into it, and you’re like “Okay, great. We’re going to do all these things, we’re just going to switch out units like this, and people who have been there for so long, they’re just going to leave easily, no problems… We’re going to do all these renovations and rehab…” When in reality, it’s a long process in terms of what it takes to actually turn 72 units; or it was like 40 of the units had to be turned, to get a new tenant base in there, to the timeline of construction, to get the asphalt done, to get the playground installed.

Things do take a little bit longer than you expect, and there’s always a little bit more involved even than which you come in for. So always be prepared to do a little bit more, go the extra mile, because there’s no such thing as easy money at the end of the day. Look forward to the project itself, and the time will show up. If it goes away earlier than planned, great. If it goes a little bit later than planned then prepare for that. Be patient.

Ash Patel: Ace, what’s a tough time that you had with your partner and how did you resolve that?

Ace Karimi: You’ll be surprised that we don’t get into it a lot. Here’s our philosophy – it’s not about I’m being right or you’re being right. It’s just like, “Hey, what idea makes the most sense that we can think about logically?” That idea wins. A lot of times, if it’s not mine, I’m actually happy. I’m like, “You know what – that’s going to work better for our results.” Something that Ray Dalio said – I have this book up here, and he says, “It’s an idea meritocracy. It’s an environment where the best ideas win.” So I’m not so attached to always being right and trying to stroke my ego. I want results, not only for me, but for people around me. So we always intellectually work through things. I don’t have too many. I usually like to deal with things at the moment.

There are disagreements, like with one of my partners on one of the deals as to how he wanted to run things, because we did defer to him to run some of the operations, because he’s the asset manager. At first, we’re just like, “We’re not really a fan of some of these methods.” But at the end of the day, I’m like, “You did sign up for that role, so we’ll trust you a little bit more and we’ll back off.” That’s what you’ve got to do sometimes.

Ash Patel: Ace, what is your best real estate investing advice ever?

Ace Karimi: The short-term and long-term approach, I guess that’s what it is. Take yourself a few steps back. Don’t look at apartment investing, wholesaling, flipping… These are all strategies. I like to use all the strategies; I don’t like to identify myself as a wholesaler or flipper, or even just an apartment syndicator. I’m a real estate investor. So being a fully trained real estate professional, what you want to do is you want to have a toolbelt filled with different tools that you can use. If you need to ever wholesale, if you ever need to flip a property or a complex, if you ever need to raise money, be prepared to do all the above.

Sometimes you can make money in the short term on any deal, sometimes you can make money in the long term. With the commercial stuff and the apartments, don’t plan on it to take a year to two years. That’s just going into it with the wrong mentality. Plan for that it might take five years or longer. Five years is usually the average for syndication or an apartment deal, but always plan for it to take longer than you plan when it comes to your long-term goals. At the same time, for your short-term stuff, take the time to do it. Do the flips; the flips are nice, you can make good money flipping and wholesaling single-family homes or even other types of properties, because it’s good short-term income. But instead of just using that and going to spend it, take that money, save it up – you’re going to get hit with capital gains anyway – and park it into the apartment buildings or into long-term assets. In that way, you’re getting the best of both, and you’re able to get the depreciation so that you can write off a lot of your gains on your short-term stuff.

You want to accelerate the time it takes to accomplish your goals and be wealthy and financially free, so it’s good to do both. Maybe not in the beginning, but do a single-family project here and there to make some short-term money, and then go hard with the multifamily if that’s what you really want to do long-term. Work the process to its advantage in both regards.

Ash Patel: Ace, are you ready for the Best Ever lightning round?

Ace Karimi: Okay, go ahead.

Ash Patel: Alright Ace, what’s the Best Ever book you’ve recently read?

Ace Karimi: Ultimate Sales Machine, a great book.

Ash Patel: What was your takeaway?

Ace Karimi: Man, awesome book. This guy worked for Charlie Munger, which is awesome; he did all his sales stuff. One of the things was what I mentioned earlier, which is to go deeper into what you’re doing, and not wider. He talked about how they had Fortune 500 clients and they were trying to reach out to the next 1000 big companies to try to get as clients for their marketing services. Instead, they did their research and they found out, “Hey, these 45 clients are bringing in most of our business. Why don’t we go deeper with them and who they know?” And the business tripled like that.

Ash Patel: Ace, what’s the Best Ever way you like to give back?

Ace Karimi: I like to do things like this… I try to share my lessons and experiences, things that I’ve had shortcomings on, things I wish I knew sooner and I learned during and after. I love to be able to just help shorten people’s curves to get to where they want to go.

Ash Patel: Ace, how can the Best Ever listeners reach out to you?

Ace Karimi: Follow me on social media. On Instagram, I go by @ace.invest, on Facebook and LinkedIn; just add me as a friend. Reach out to me, message me and say “Hey, I saw you on the podcast. Would love to connect. Appreciate what you gave.” If you have any critical feedback, please let me know. It’s Ace Karimi, just my name, on Facebook.

Ash Patel: Ace, thank you for sharing your time with us today. Telling us your story from starting out in single-family homes in 2018, wholesaling, flipping, graduating the multifamily, and now up to 248 units. Thank you very much for your time.

Ace Karimi: Graduating, I like it. I’ll see you, Ash.

Ash Patel: Best Ever listeners, thank you for joining us. If you enjoyed this episode, please leave us a five-star review and share this podcast with someone you think can benefit from it. Please also follow, subscribe, and have a Best Ever day.

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