Multifamily Real Estate: Market Insights featuring Nick Stromwall

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In the inaugural episode of The Self-Directed Edge, Joel Landon sits down with Nick Stromwall, fund manager and capital raiser at Rise 48 Equity, to break down what is actually moving in the multifamily real estate market right now.

Nick brings 20 years of real estate experience and oversees more than 12,000 units across Phoenix, Dallas, and North Carolina. In this conversation, he shares why he believes the next 12 to 18 months could be one of the best buying cycles for multifamily in recent memory, how Rise 48 evaluates and acquires properties, and what self-directed IRA and Solo 401(k) investors should understand before putting retirement capital into commercial real estate.

In this episode:

The shift toward operational value add and how scale creates an edge Why the next 12 to 18 months may be a historic buying opportunity in multifamily The three ways multifamily generates returns for investors What Rise 48 looks for before acquiring a property How Rise 48 approaches downside protection and capital preservation Why community at the property level improves financial performance How self-directed IRAs and Solo 401(k)s can access multifamily syndications

This episode is educational in nature. Heritage IRA does not provide investment, tax, or legal advice. Consult your CPA or financial advisor before making investment decisions.

Transcript

SPEAKER_01 0:00

Welcome to the Self-Directed Edge, a podcast for investors who want their retirement capital doing more than sitting in the market. I'm your host, Joel Landon, with Heritage IRA. Each episode I sit down with operators, fund managers, and alternative asset specialists to break down the strategies, asset classes, and opportunities that self-directed IRA and solo 401k investors are actually using to build wealth outside of Wall Street. We're talking real estate, private credit, precious metals, and everything in between. The kind of investing most people don't even know their retirement account can access. This isn't investment advice, it's education. Let's get into it. Okay, welcome back everybody. Joel Lannon here from Heritage IRA. I've got a good friend that I've known for a while now, Nick Stromwall, joining us today, and I'm excited about him being here because this is essentially us kicking off a recurring recording for you, our audience. And so what I thought I'd do is uh bring Nick in and give him a chance to talk a little bit about himself, his background, and then ultimately I'm gonna hit him up with some questions that he can answer for us. So, Nick, thank you so much. I'm gonna let you take it away.

SPEAKER_00 1:17

Yeah, awesome. What a privilege to be here. Excited to help the community. The cool thing about this alternative real estate space is there's just so much information and so many great leaders uh to learn from. So I feel like as much as I'm here, you know, contributing, I'm here learning just as much as well. You know, just quick background on my um, you know, who I am, uh, have been in the real estate world for really the last 20 years, started off by purchasing some single family duplexes, Airbnbs, had a small portfolio, um, had a growing family and realized it was really hard to both kind of be present as a husband and father in in my work, and then as well as you know, managing multiple properties. So went more on the passive route, learned about commercial real estate and syndications, and now have been a fund manager and also a capital raiser really for the last four years. So I've identified really great best in class sponsors across multiple asset classes and have developed a you know a network of really impact-focused investors that want to not only multiply their money, but maybe even more importantly, multiply their impact. Um, so excited to you know, share some of the things that I'm learning uh in the space here today. Awesome.

SPEAKER_01 2:34

Thank you so much, Nick. I appreciate you sharing that. And why don't we just jump right into it, uh get into the meat and potatoes and uh hit you up with some questions here. Take your time and uh answer these based off your experience. Um first one is you know, what trends are you watching most closely in multifamily or in the multifamily market today? And how have those trends changed over the last year or two years?

SPEAKER_00 2:59

Yeah, I think the biggest thing is is a new shift towards more of an operational value add. And what I mean by that is, you know, in general, in a multifamily space, the value add space, which is you know, buying older apartments that need some love, putting some money into those, raising the rents because people are willing to pay for a nicer place to live. Um, that's kind of been the business plan for a long time. But I'm seeing a lot of people in the space, and what we're doing is more of an operational value add where we're able to just leverage our size. We now manage um over 12,000 units across our three markets. And we're able to go to our suppliers of internet and telecom and streaming services. And instead of our individual residents setting up contracts with them, you know, everyone wants recurring revenue. So we've been able to help our partners by building in those costs into a um, you know, into the lease of our agreement with our residents. And then we're able to negotiate, you know, better uh services for our tenants, you know, more additional streaming services, additional packages. Um, and it serves our you know partners because they can have you know more recurring revenue. And then we actually get a blessing of that too, with you know, larger profit share. So that's just leveraging our size. And I think that's a a huge win for a lot of people in the space. I really think we've we've hit the bottom of the market and really the next 12 to 18 months, I believe, will be one of the best buying cycles for the multifamily space. So, as a as a prospective investor, this might be one of your best opportunities to jump into uh multifamily. A lot of my investors love multifamily because it provides you know consistent cash flow. Uh, we pay monthly distributions, typically 60 to 90 days after we close. Um, you know, you also get the upside and the appreciation of the property. So, two ways to grow your uh revenue source. One is the organic rent growth. So a lot of cities have seen negative organic rent growth, but that tide is turning now to a positive organic rent growth, meaning there's not a lot of new deliveries of new apartments coming online. So, as more and more people move to certain areas, you know, we like Phoenix, we like Dallas, we like North Carolina, more and more people are moving to those places. There's not enough, you know, supply to meet that demand, therefore prices go up. So that's one way to force growth. The other way to force growth is the value add. So you put some money into each individual unit, people will pay for a nicer unit and you can force appreciation that way. And then the third, you know, third way I love multifamily is you got that cash flow, got the appreciation. And then we're seeing some some awesome tax saving potential now through a cost segregation study and through depreciation. So those three areas have been um, you know, one reason I I love multifamily.

SPEAKER_01 5:59

That's awesome. Thank you, Nick. And I'll just um add first and foremost, I appreciate that information. Super insightful. Uh, those listening right now, this is obviously an asset class that you can invest in with an IRA. You could do that with the solo 401k. You could even invest in these assets that RISE 48 offers uh as an individual. It's not just limited to IRA investors. So really, really nice opportunity for um any one of those investment entities. Um, another question I wanted to ask you, you know, when evaluating a multifamily property, and you talked about the markets that you guys prefer, what are the top three things your team looks for before deciding to acquire it?

SPEAKER_00 6:41

Yeah, day one cash flow positive. So we're typically targeting um opportunities where it's 90% or more occupied. And, you know, we were looking for that day one uh cash flow positive type of situation. So if we can solve someone's problem who's trying to sell, um, you know, a couple examples, you know, out of out of the country owners, um uh groups that are trying to liquidate a portion of their portfolio in one geographic area to move to another one. You know, really common one right now is someone's loan is coming due, it's maturing, and they have to sell before a maturity date. So we're able to come in and offer, you know, a fair and market rate, um, but we're often not the highest offer out there, but we've really established ourselves as a group that has a hundred percent close rate. So if a prospective seller needs to sell, you know, the rise 48 offer tends to go to the top of the service. So cash flow positive, we're looking for um areas where there's um more and more people moving to because there's great jobs being formed there. Um, we're looking for typically red landlord-friendly states that just allows us to operate um, you know, with with all the different operational efficiencies that we need. And then, you know, desirable areas. A couple of our last properties have been right along some nice park preserves. These are areas where people want to live. You know, in, for example, in Raleigh, I think the median sales price of our home now in the area that we've recently purchased in is $600,000. For a lot of um first-time home buyers, that's just out of the price range, number one, for their current income levels. And then number two, with where the pricing is for loans, it's just it's just a little bit out of reach for some people. So we want to provide not only affordable, but also desirable places with the amenities that people want, whether that's a fitness center or a pool facility or a dog park or a playground facility, the things that people really want, those are the types of assets that we're looking to acquire. Awesome.

SPEAKER_01 8:55

You know, every investment has its risks. There's no question about that. But what are some of the biggest misconceptions investors have about commercial real estate and what risks should they understand before investing?

SPEAKER_00 9:07

Yeah, I mean, it's it's technically always possible to lose your investment. And that might sound like a scary thing to say, but it's it's always a possibility. You know, worst case scenario is always all of your tenants lose their jobs, they can't find a new job, and you can't find new tenants to replace them. Um, that would be kind of worst case scenario. We're mitigating that through our business plan by finding areas where there's lots of people moving too because there's great jobs and great opportunities. And we're not necessarily worried about that being the main the main cause. I think sometimes, you know, some groups, you know, purchase buildings and they don't quite understand the full life cycle of the of the asset. Some people are are doing it more for a buy and hold, kind of hold it forever. We're all about the velocity of money. So if we can get our investors, you know, their projected return before our five-year hold period, you know, we're typically targeting roughly a 2x return in five years. But if we could hit a 1.6 equity multiple in two or three years, we'll we'll look to sell that deal all day long because we want to help our investors really steward their capital and grow it and multiply it. And our deal flow is so good, we're typically transacting on eight to 12 deals per year that we know that there's gonna be another deal around the corner. So if we can take someone's capital, um, be a good steward of it, multiply it, carry it forward, then the hope would be that those investors would want to invest with us again.

SPEAKER_01 10:36

Right on and you know, you brought up returns in general. Many investors focus heavily on projected returns. In your experience, what are the most important indicators of downside protection in multifamily?

SPEAKER_00 10:51

Yeah, I think for groups that are using uh variable interest rate uh loans, that they mitigate that with a rate cap. So we typically buy a three-year fixed rate, you know, right around the 4.75% range is kind of where we're targeting. And that allows us um a couple kind of unique features. A lot of times when you have fixed rate long-term debt, if you execute your business plan, it goes really well and you want to exit early, you often have to pay an early early payment penalty, also called defeasement. With a lot of the variable interest-only loans, you actually don't have those early prepayment penalties. So if we're able to execute our business plan in 18 months instead of three years, and it's opportunistic to sell in 18 months, we can do that while still maximizing investor returns. I think you know, having multiple levers in your underwriting is also important. So if we wanted to go to a fixed-rate product after we executed our business plan, we underwrite our deals uh so that we can do that. Um, and then, you know, having healthy reserves when you uh purchase the property at a property level also give you more flexibility and room. Um, you know, if if you discover something or if the market crashes or if something happens in the future, having that property level reserve that's not tied to you know a new roof or capital expenditures uh is really important. So we found those three things to be helpful. And then I think on top of that, you know, groups that are uh that are focused both on protecting investor capital and mitigating, you know, types of risk, but also really serving the people at the building. You know, I'm going to an event in a couple days, we're just calling it serve day. Some of our investors are flying into one of our properties. Um, some of our key partners are gonna be there. We're gonna have the fire truck come out, we're renting a bounce house, we're having um some food trucks there. Um, and it's just gonna be an event to just love on the people in our building. A lot of our uh buildings have families and kids. And when you can focus on um raising the people by just providing sources of community, you know, food is always a great way to do that. But we do back to school drives and we do um, you know, backpack drives there, we do Easter egg hunts and different things. And those those events aren't just let's put it on the calendar to do something good, but when you create community at your buildings, I think the stat is people typically in these buildings have two friends or less. So if you can create a context for community, people get to know each other, then they're gonna invite their friends to come live with the building and they're probably gonna want to renew their lease and live there longer because they actually have a sense of community. So we found that when we focus not only on the uh return, but also on the people, um, that tends to make our projects be really successful. And then when you focus on the people, that turns around and helps your financial bottom line too.

SPEAKER_01 13:48

That's awesome, Nick. Super unique and it's cool. I saw a communication come through my inbox recently about that serving opportunity. Um so I appreciate you sharing that for sure. And to just round this out, I wanted to ask you a final question here. And I mean, you guys have obviously been extremely successful at Rise 48 Equity, and I'm just curious, what do you think the multifamily industry is getting wrong right now?

SPEAKER_00 14:13

Yeah, um that's a really good question. Um, I don't know if I have a great answer because I think it's really dependent on the the individual. But you know, I think if you jump at every opportunity um without slowly going into it, I think that's when people get into trouble when they have to transact on a deal in order to get the acquisition fees to make the deals work. You know, we're typically looking at a hundred opportunities, maybe making offers on two or three and then moving forward with one or two. But we've got a multi-step um process to really discern if an opportunity is really an opportunity. So obviously we have certain targets that we're we're looking for. Um, and if we can hit those in a first, second, third round pass, then we'll do our um, you know, full, full due diligence package to really understand if a if a project makes sense. But probably going too too quickly into opportunities and not really taking your time or having a process or a team to really understand if this is a deal that really makes sense.

SPEAKER_01 15:16

Right on, Nick, super insightful. We're gonna make sure that every month we have you back on sharing insights related to you know commercial real estate in general, but um maybe you can even give us some updates in the market um, you know, as we as we continue to do this. So I do appreciate your insights for sure. And if we had somebody listening that wanted to get connected with you or Rise48, what's the best way to do that?

SPEAKER_00 15:41

Yeah, just send me an email, uh Nick at rise48equity.com. I also write um almost daily on LinkedIn, and you can learn from me there and would love to see if there's a a way to help serve you. Right on. Appreciate that, Nick. Thank you so much for tuning in, everybody, and we'll talk to you soon. Thanks a lot.