Cash Flow Champs Real Estate Podcast

Jorge Abreu has been Investing in Real Estate for over 16 years now. He started in Single Family, small Multifamily properties and eventually worked his way up to large 100+ Unit Multifamily properties. Jorge has wholesaled over 250+ Single Family Properties. Fixed & Flipped over 200+ SF. Developed and completed several new development projects, over $40 Million in ground-up construction. He is now an Active & Passive Full Time Multifamily Real Estate Investor.

What You’re Going to Learn:

Comparison between Single-family & Multifamily Space
The Main Aspects to Consider in Multifamily Syndication
The Importance of having Mentor in the RE Industry
Challenges faced in Raising Equity
A Piece of Advice by Jorge Abreu

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Show Highlights

Comparison between Single-family & Multifamily Space

Paul Senior- Tell us a little bit about your background. Anything we have missed here that you’d like to add to your bio?

Jorge Abreu- Absolutely, Paul. Thank you for the introduction. I have been on this real estate investing journey for almost 17 years now. I graduated with an electrical engineering degree from Florida International University and started working in UPS’s engineering department. However, that was not my long-term plan. During college, I already knew that I did not want to be an engineer and wanted to start my own company. Although I was unsure about what exactly I wanted to do, I became really interested in real estate investing and started looking more into it. So while working that engineering job, I also invested on the side and eventually closed enough deals to quit my W2 job. That was approximately 17 years ago, and since then, it has been a journey. I started in the single-family space and did a ton of fix-and-flips, seller finance, and ground-up, and had a smaller rental portfolio. About six years ago, I got introduced to large multifamily syndications, and I fell in love with them instantly. Closing one deal right off the bat, I already had the economies of scale that took me years to build doing the smaller multi and single-family deals. I put all my focus towards it, sold whatever single-family and smaller units I had, and as you mentioned, since then, we have transacted on quite a few deals. I have been really focused on continuing to grow that portfolio and provide good deals for our investors to invest in.

Paul Senior- No, that’s great to hear. It’s definitely been a journey, but I’m happy with where we are today. As for your question, I would say that I initially got into engineering because I was good at math and science, and it seemed like a stable and lucrative career path. However, I always knew that I wanted to start my own company and be my own boss. Real estate investing was something that always intrigued me, and after doing some research, I realized that it was a viable path to achieve my goals. So I started investing on the side while working my engineering job, and eventually, I was able to transition to real estate full-time. It’s been a great decision, and I’m excited to continue on this path.

Jorge Abreu- I didn’t have a strong desire to be an engineer. However, I’ve always been good with numbers, and engineering involves a lot of math, so it was a natural fit for me in terms of my skills and abilities.

Prashant Kumar- Could you please compare your experience in the single-family space with your experience in the multifamily space? Our audience would love to hear about the scalability and growth rate between the two. What were your results before and after transitioning to multifamily, and how did they impact your overall investment strategy?

Jorge Abreu- Leading up to transitioning into large multifamily, I had built up around 50 units spread out between small multifamily and single-family homes. My team and I were managing the properties ourselves without any third-party property managers or onsite staff. We had to collect rent and handle other management tasks, which was a lot of work.

As the market continued to heat up, I sold off those properties and shifted my focus to fix and flips. We were renovating properties by adding second stories and completely gutting them, and I loved transforming them. However, at our peak, we were doing around 50 fixe and flip a year in addition to wholesaling over 100 properties. It was very transactional, and I felt like I hit a ceiling in terms of scaling the business.

That’s when I discovered multifamily syndications, and we started taking down properties with over 100 units. Our first multifamily property was only 37 units, and it was a great learning experience. We realized we still needed to be more hands-on at that point and didn’t have the right onsite staff. From there, we decided to focus on properties with 100 units or more. We completed a 216-unit property, followed by a property just under 200 units. We then jumped to a 1200-unit portfolio and an 850-unit property, and now our deals typically consist of around 300 units. This sweet spot makes property management a lot easier and allows us to manage our onsite team more effectively, rather than managing the properties themselves. As a result, we can scale our business faster.

Prashant Kumar- Yes, that’s awesome. It took you several years to build up to 50-60 units in single-family and small multi, but after transitioning to multifamily, you were able to acquire a portfolio of 1200 units.

The Main Aspects to Consider in Multifamily Syndication

Prashant Kumar- How many deals are you currently doing in a year?

Jorge Abreu- Sure, our goal for this year is to close 12 deals in total. The market is quite interesting, to say the least. Although we are still hopeful that we can achieve this target. In 2021, we closed around 18 to 19 transactions, which added up to over 3000 units. However, the market has become a bit more unpredictable since then. Last year, we closed fewer deals than that but still had a good run.

Prashant Kumar- This is super awesome. Moving from smaller units to larger multifamily properties has definitely been a game-changer for our business. Not only have we been able to scale our business significantly, but we’ve also been able to increase profitability and generate more cash flow from each property. It’s been a huge shift and has allowed us to take our business to the next level.

Jorge Abreu: That’s a fair statement. I’ve heard others say the same thing and they’re not wrong. If you go for smaller units and maybe try to JV it instead of syndicating and using your own money, you’ll have a bigger piece of the pie, but you’ll also spend all your time managing it. On the other hand, if you take a smaller piece of that pie and scale it with a team, you can add more time to yourself. That’s my goal. I want to build something bigger than myself and buy my time back.

Prashant Kumar: It really sounds like getting into real estate has to be a very intentional approach from the beginning. Starting with smaller family deals might give you a bigger pie, but it’ll take more time. If you had that lightbulb moment in the beginning, would you have started with multifamily? What are your thoughts on that?

Jorge Abreu: Absolutely. I don’t think you have to start with a single family. I learned a lot from it, for sure, and gained a lot of experience. I’ve been through a down cycle and understand what we’re about to go through. Not every recession is the same. But I realized that the market is not always going up and you really need to understand your operations. Great experience, but not a necessity. I think you can go straight into large multifamily. However, I do recommend partnering with experienced individuals. That co-GP and partnering with others is very acceptable. So, I suggest you partner with someone and learn from them about however many deals it takes to get there.

Paul Senior: I’d like to explore that a little more because my experience is similar to yours. I was a real estate broker in the Maryland DC area for 16 years, during which time I built a portfolio of single-family homes. But as you said, you do hit a bottleneck at some point and wish you had learned about other opportunities earlier. So, you talked about partnering with operators who are already in the multifamily space. Can you expand on that a bit and what someone who wants to move directly into multifamily investing should keep in mind?

Jorge Abreu: Absolutely. The first step is to get educated about the multifamily space because it’s very different from single-family investing. You need to understand how to value properties and realize that you’re buying a business and not just a house. So, getting educated on the ins and outs of multifamily investing is essential. If you want to accelerate your learning, I recommend getting a coach. I did that before getting into single-family and multifamily investing, and it has been incredibly helpful. It’s essential to learn from someone else’s experience.

When it comes to doing multifamily syndications, there are two main aspects to consider – finding deals and bringing equity. If you’re good at one of those two aspects, you can leverage your strength and partner with an experienced team to do deals together. You can also focus on managing the deals, operating them, or even underwriting them, depending on your strengths. So, find one of those aspects that you’re good at, partner with an experienced team, and learn hands-on.

The Importance of having Mentor in the RE Industry

Paul Senior: There may be a space for those who want to stay in the single-family space and that’s perfectly fine. However, if you wish to scale your portfolio to get in the thousands of units, doing it one by one in terms of single-family is going to be pretty difficult.

Jorge Abreu: For those who prefer single family, I suggest investing passively in multifamily to take advantage of depreciation and avoid getting overly taxed on single-family earnings.

Prashant Kumar: So, if I understand correctly, there is no need to start by investing in a single-family home or have a large amount of money to get into multifamily. As long as you have learned the business, received coaching, and have the ability to find a deal or raise equity, you can jump into multifamily. Can someone fresh out of college start in multifamily?

Jorge Abreu: Absolutely. If they have the skill sets to hustle and find a deal and have connections or don’t mind networking to build up equity, there’s no reason why they can’t start in multifamily.

Prashant Kumar: And what is the importance of having a coach or someone to guide you through this journey?

Jorge Abreu: While there’s a lot of free content available online, such as YouTube videos, to learn about real estate investing, a coach can help you avoid common mistakes and provide guidance on the best strategies to use. They can lay out a clear path to success and help you get there quicker.

Prashant Kumar: I know you have a group as well. What are you doing to expand your presence in the market and find more equity investors?

Jorge Abreu- We use various marketing strategies, including social media, blogs, podcasts, speaking at events, and networking. We have also done some paid advertising and plan to do more in the future. When leads come in, we have systems and procedures in place to handle them effectively. We take the time to understand their goals and needs before trying to fit them into the right deals. Investor relations also play a significant role, and we receive many referrals from our current investors.

Challenges faced in Raising Equity

Paul Senior- Jorge, it seems like the market has changed a lot recently, even in just the past six months or a year and a half. It’s a completely different market from what it was before. Can you speak to the challenges you’re facing in raising equity in this type of market, especially with the Fed raising interest rates in recent months?

Jorge Abreu- Yes, it’s definitely more challenging to raise equity in today’s market. Finding good deals that make sense financially is also more difficult. However, as long as we educate our investors about the market, we haven’t seen too much hesitation from them. The media’s portrayal of certain events as catastrophic can also affect investor confidence, but it’s important to remember that it’s just part of the market cycle. We focus on what we can control, like entering deals at a reasonable price point and structuring them properly. As long as a property is generating cash flow and we have manageable debt, we should be okay. Looking back at the history of real estate, there have been cycles of ups and downs, but overall, the industry has always been profitable. We just need to stay educated and prepared for whatever comes our way.

Paul Senior- That’s great to hear, Jorge. So are you looking to expand into more markets or are you primarily focusing on your current strong markets to continue providing value to your investors?

Jorge Abreu- Yes, we do a good mix of both. We focus on strong markets like DFW here in Dallas, as well as other Texas markets and Florida markets that have shown strength. However, finding deals in those strong markets is becoming increasingly difficult due to high demand. So we also seek out up-and-coming markets with strong population and job growth that are undervalued and have growth potential. We have been successful in finding these sleeper markets and capturing their value before they become too saturated.

Prashant Kumar- That’s interesting, Jorge. As you’re expanding, I’m curious about your internal team. Could you tell us more about the structure of your organization? Who is responsible for handling the different aspects of the business such as investor relations, property management, and construction?

Jorge Abreu- I can explain. At Elevate, I hold the CEO title and serve as the visionary to build the team. While I still play a significant role in acquisitions and high-level asset management, we have a director of asset management and a director of acquisitions. My partner and co-founder, Eric, handles daily operations as CEO, while Brian oversees equity raising and investor relations. We’re currently bringing on an investor relations expert to focus solely on talking to our investors and raising equity. For construction, I’m the CEO, but we have a strong, self-sufficient team under me. Lastly, for property management, we brought on partners, one as the CEO and the other as the CEO of Elevate Real Estate Management, allowing me to stay at a high level.

Prashant Kumar- That’s a solid team. Can you give me an idea of how many employees are in each section – operations, asset management, investor relations – and whether they’re employees, contractors, or partners?

Jorge Abreu- Sure, between the three companies, there are about 45 individuals in total, including partners and employees.

Prashant Kumar- Got it. No, I didn’t mean to go too much into this. The important thing is the structure of the business.

Jorge Abreu- We’ve kept overhead as light as possible to avoid a massive overhead burden, which is a challenge in multifamily syndication due to limited cash flow for the syndicator. Therefore, we only prepare for overhead growth when we anticipate it. However, with our construction and management companies, there’s constant cash flow, allowing us to leverage it.

Prashant Kumar- Syndication is not a particularly cash-flowing business, apart from the upfront fees received, followed by a dry spell lasting several years during which only minimal fees are generated. This makes it challenging to manage employee salaries and overhead expenses. It’s important to have a steady cash flow to keep the business afloat and reinvest profits from previous exits. I just wanted to provide a glimpse into the business structure, which includes operations, asset management, property management, and construction management, with you serving as the visionary and your partner by your side. This is the basic structure for our audience who want to become active syndicators. At some point, they will have to do that. So that was the basic idea.

Overall, how would you say your journey has been? Has it been great? Would you like to share some good moments, and bad moments?

Jorge Abreu- As for my personal journey, I’ve found it to be an exciting and demanding industry. Being a successful operator requires a strong team, as maximizing investor returns and NOI takes a lot of effort. The market, as well as unforeseen events such as COVID or the Fed raising rates, demand flexibility, and constant adjustments. Inflexible individuals who do not adapt risk being eliminated. Overall, my journey has had its ups and downs, but I feel that I’ve gained a wealth of experience and knowledge over the years.

Prashant Kumar- And what is the ratio you would think that elimination is? I would see that 90% of the people do get dropped off. I guess those who are not able to sustain themselves.

Jorge Abreu- Now is when it happens, right? So when you start going to a down cycle, you’ll see some syndicators disappear and they’ll have to find something else to do or go back to their W2s or whatever it is. So it is what it is. But just to me, I love it. It’s a great business. You just got to make sure that you’re able to adjust pretty much with the market.

Prashant Kumar- These are some deeper nuggets that you are telling though. It is important for the newer bees to come and listen to these things so that they can understand the experiences you are sharing.

A Piece of Advice by Jorge Abreu

Prashant Kumar- We are getting into the lightning round. One piece of advice that impacted your life and how do you think it could help others?

Jorge Abreu- I am often asked about the key to success in real estate, and my answer always comes back to focus. It was something that really hit home for me while reading the book Traction, which emphasizes the importance of honing in on one thing and avoiding being spread too thin. At the time, I was juggling a variety of real estate ventures, but once I shifted my focus to multifamily real estate, I saw exponential growth. There is a lot of noise and numerous ways to make money in real estate, but my advice is to pick one and commit your time and focus to it. Once you’ve achieved success in that area, you can branch out into other asset classes or even vertically integrate, although I recommend doing so gradually as you continue to grow.

Prashant Kumar- Great advice indeed. Stay focused and consider getting a coach to help develop your skill set. You don’t necessarily need a lot of equity upfront to enter this business. Take it to step by step and learn from someone who has experience. Additionally, don’t try to expand into all areas. Instead, focus on what you enjoy and are good at, and as you grow in that space, you can add other pieces of the business, such as property management or construction. That summarizes everything so that people can get the most out of it in a few sentences. Paul, do you have any final questions?

Paul Senior- Yes, Jorge, could you please share some personal habits that you practice consistently that help your business grow?

Jorge Abreu- First and foremost, I prioritize staying active. I work out almost every morning, which helps me start the day off in the right mindset. Additionally, I use as many software and systems as possible to make efficient use of my time. I heavily rely on my calendar and various software tools.

Paul Senior- So you plan your week ahead and operate according to that plan?

Jorge Abreu- Absolutely, I plan months in advance at times. Though things change here and there, I’ve got trips and properties planned months ahead, and check the events that I’m going to be attending. Every day, I prep myself, so at the end of the day, I’m preparing for the next day, seeing what I’ve got and ensure that I’m ready for it.

Paul Senior- Are there any books you recommend, especially for those who are starting out in this business or just business in general?

Jorge Abreu- For business in general, I’ve already mentioned Traction, which is a great one. For multifamily, I think Joe Fairless’s book, Best Ever Apartment Syndication, is amazing. It’s really detailed and informative.

Paul Senior- Fantastic. I would like to thank you for being a part of the Cash Flow Champs Real Estate podcast today. Your time and insight are highly appreciated. You’re an inspiration to many, and your achievements are nothing short of amazing. I wish you continued success in 2023 and beyond. Once again, thank you so much.

Jorge Abreu- Thank you. I appreciate being here.