I recently listened to a panel of experts who buy and sell online Amazon businesses. The entire time I was listening, I couldn’t help but see the similarities to multifamily investing. While these businesses sold different products from nutritional supplements to deodorant, there were some lessons from these entrepreneurs I thought were important to you as you run your multifamily investing business.
- Attention and Differentiation. Every Amazon business had to not only have the consumer’s attention, but differentiate themselves in a crowded market. How are you differentiating yourself as a buyer? Once you buy a property how are you changing the visibility, curb appeal, and the tenant experience at your property? Who are you using to list your property when you go to sale the property? How many buyers will they be in front of? You must have first have attention and then differentiate yourself throughout the multifamily investing process.
- Rating and Reviews matter. Amazon reviews are everything. People sort by price and by rating. For a multifamily property, there are reviews online, but what if you had reviews based on your past transaction experience. Which brokers, property managers, previous sellers would say “It was a pleasure working with you and I would want to do another deal with this investor”. The multifamily community is small even in a large MSA like DFW so make sure you do what you say you are going to do, and be easy to work with.
- Buy vs. build. Many of the panelists were entrepreneurs who had started their own businesses and realized the challenges of building something from scratch. They had moved from starting one business at a time to buying existing businesses because they had in-place cash flow for better financing and they knew they could increase value of the business by growing revenue. Very similar to the multifamily value add business model, you can step into day 1 cash flow and then improve the property to drive higher revenue and value.
- Recession Proof. Overall thesis of these investors was Amazon sales are going to continue to increase market share of retail. In the same way apartments are expected to continue to be the housing choice of a larger % of the overall population due to higher interest rates, higher housing prices, and less tax incentive to buy. Many panelists were investing in recession proof products (think Deodorant vs. fidget spinners). Even in a recession the purchases that are needed will still be purchased the same way that B and C multifamily properties will still be occupied in a recession. Make sure your debt has enough loan term to weather a recession so you can come out the other side of it.
Multifamily investing is a business and you should treat it like one. Always interesting to hear the pros and cons of other business models as it sometimes points out the beauty of your business. One of the last comments was about how reoccurring monthly subscription models trade at a higher premium. Netflix, Hulu, and cell phone providers all use monthly subscriptions. The Amazon businesses that were able to build a subscription model are trading at a higher premium compared to businesses that rely on one-time purchases. Subscription businesses provide a reliable and predictable monthly income stream the same way the monthly rent on annual leases is built into the multifamily business model.