Serge Shukhat is a professional multifamily investor, and he believes that multifamily investing beats single family investing every day. At the very bottom of the last crash, Serge worked a corporate job when he stumbled into buying foreclosed houses at pennies on the dollar. He went all in buying as many houses as he could before others discovered the niche. When they did, he profited handsomely and used those profits to progressively buy bigger properties. Upon buying several multifamily apartment units, he was able to achieve freedom and quit his corporate job. Serge now spends his time managing his portfolio and looking for new real estate investment opportunities. During this episode, Jonathan and Serge cover a wide range of topics such as how to buy property at the top of the market, why multifamily investing is the way to go, and how much longer he believes the bull market has to run. You don’t want to miss what Serge has to share.
Lessons from hedge funds on real estate investing
During the last economic downturn, hedge funds began buying foreclosures in bulk. Serge shares that he learned several things from how these hedge funds acted in real estate investing.
- They had a premise and acted on it. Their premise was to buy in a population growing market for 50% of rebuild cost, and simply wait until houses are being built again.
- Don’t base buying decisions solely on cash flow. These hedge funds based their investments on the cost of building new homes in the future and compared the prices to that. It did not matter the timing of the return, simple if the purchase price was less than a new build in the future.
Serge’s takeaways after buying his first apartments
Serge began his real estate investing career by buying single-family foreclosures during the last economic downturn. After buying his first two apartments he had several takeaways.
- You have to do multifamily! Single-family is not manageable and unprofitable.
- Do bigger multifamily. 60 units are barely enough for it to be worthwhile. At least 80-100 units make sense. You will always have to do payroll with a property manager and maintenance and that expense will not change from 60 units to 100 units. So, having more units bring in more money in rent, which increases profits.
- Use professional management for multifamily investing. You want to make money off of an asset, not make money off of how much personal time you are investing in your asset.
Where the market is headed
Serge believes the market will continue to grow in strength in population growing cities. Because of a mass exodus from California, Serge believes the southwestern markets will continue to draw middle and high-income individuals to their lower cost cities. Looking at the history of other California-adjacent cities such as Portland Seattle, he believes their trend will continue.
There is also lots of new money coming into real estate. With multiple loopholes to protect income, real estate allows high net worth individuals to use depreciation to protect their income. These individuals are now looking to syndicators to help them invest in multifamily deals. Serge believes this coupling of helpful tax reform and syndicators helping individuals invest will continue to drive multifamily. He does not see any reasons for it stalling out.
Risks in multifamily investing
Serge does give several threats to multifamily investing that he could see in years to come. He says that the biggest threat to multifamily is a democratic congress because they would likely roll back the recent tax reforms. Interest rates are not a huge risk because they can be absorbed, and there is a good amount of pressure to keep the rates where they are. However, there could be a trainwreck in the long-term. Likely, the depreciation schedule will change and 1031 go away. Serge wonders what the population growth will do or how government spending will affect the market. However, he says to look at sub-markets. How will your local market handle? Regional risk is what matters. Because of this, Serge invests in multiple markets and regions and master the regional economics of a market. He shares that you should look at rents and see how low they can do and you still turn a profit. Always make sure to create a margin to allow yourself to break even. Be sure to listen to hear Serge unpack more on this topic.
In This Episode Serge Shukhat says…
- [2:11] Who he is and what he does
- [5:04] All about Serge’s first deal
- [9:25] A model for hedge funds buying foreclosures
- [12:27] What you can learn from hedge funds on real estate investing
- [16:55] Serge’s takeaways from his first apartment complexes
- [20:55] What he looks for in properties
- [25:56] What syndicators are doing that they shouldn’t be
- [32:45] Where will the market be in the new few years?
- [45:51] Other risks to multifamily investing
- [50:51] Advice to mitigate the downside risk
Resources Mentioned In The Episode
- Jonathan@MultifamilyLaunchpad.com – Learn to be an asset manager and Investor
- Bellwether Enterprise(sponsor) – contact Will Oldham firstname.lastname@example.org
Connect with Serge Shukhat
- Connect with Serge on Bigger Pockets