WS1496: What’s Next For Multifamily Amid Inflation | Harry Nima-Zegarra

Episode 1496

[INTRODUCTION]

Harry Nima-Zegarra (HN): We are living in an unprecedented time right now. I think, we say that like every couple of months or every couple of weeks, right? Again, from seeing what happened in 2008, to this global pandemic in 2020, that we haven’t seen before, initially, right? Like everyone needed to stay at home and with all the changes that happens, like that may be a perfect storm to create these, the situation where we’re now unfortunately, with which is hyperinflation. And now, like the feds are trying to intervene to manage that, right?

Whitney Sewell (WS): This is your daily real estate syndication show. I’m your host Whitney Sewell. Today our guest is gonna go through all the work to become a physician and then they figure out I need my time back right? I need more time and we need more passive income often to make that happen. And they figure out multifamily syndication is often a way to do just that. 

His name is Harry Nima-Zegarra. He’s a full-time doctor, multifamily syndicator, active in real estate for the last five years currently GP in over 1,000 units in four different states. He also owns and manages single-family homes in Dallas, Fort Worth area. His wife is also a physician, they have two boys and they love to travel, sports, and being outdoors. You’re going to hear Harry talk about numerous things today from active versus passive, but also what he expects for what’s happening next for multifamily and inflation. And then just he goes into REITS versus syndication. I often get questions about that from passive investors. Like why wouldn’t I just go invest in a REIT versus a syndication or vice versa? And so I know you’re gonna learn a lot from Harry today. 

[INTERVIEW]

WS: Harry, welcome to the show. I interviewed lots of people, of course, as the listeners know, often I interview people who were a doctor and they figured out a way to increase their income or a passive income and they find multifamily seems to be a great way to do that. And potentially that’s what has happened to you as you as you’ve learned about real estate, but give the listeners a little more about who you are, Harry, and let’s dive into how you got into this thing we call multifamily syndication.

HN: Yes, yes. First, thank you so much for having me. Your show is a pleasure. It’s an honor to My name is Harry, my wife, Mitzi and I were born from South America from Peru. We came here to the US about 15 years ago, we both are physicians. So we came here like to continue our training. So again, that was 15 years ago. So we were doing because of the nature of medicine and training, we’re doing like the residency fellowships that have specialization. And we were moving every every quite often every two or three years. So we have like in Pennsylvania, Virginia, then when we finished, we went to South Texas, we were there for two years, actually, in private practice. Then, like we move here to Dallas, but we had friends and we also my wife, also she had family. So it was like a great decision to move here. 

And since we came here, like we we love the area, right? Like there’s our kids, like went to school, and they also love their friends their school. So it was an easy decision to stay in the area. And in terms of real estate. So we we also have a little bit of a background of real estate from back of our country. So, in my family. So most of my family they didn’t have the opportunity to go to college. So we are actually like first generation of people to go to college. So that we’re doing business and other things like that, including real estate.

As you can imagine, I mean, it’s very different, like doing real estate in a developing country to here in the US. But we were very interested in already. And the reason why we actually also we did in the start until just five years ago, it was because again, we were moving very often. So it was kind of difficult. So we came here to Dallas, and after a couple of months, as I was telling you, we decided to stay. So we bought our primary residence. And two or three months after that was you’re getting very involved in real estate, initially in residential real estate. And in the last two years, we have been doing commercial real estate specifically in apartment complexes and in syndications.

WS: Nice, well, why not just say passive, you know, maybe active versus passive. I mean, why, especially as a physician, you know, why not just be a physician and just keep investing passively with different operators and deals and not asset classes or whatever, increasing your passive income that way.

HN: And usually, probably because of lack of education, right? Like, you can hear and I was doing a lot of audiobooks and podcasts, like initially on how to invest in real estate. And the first way you learn how to do that is like through residential real estate, specifically to single-family homes, right, like so you can do like flips, you can do long-term rent or short-term rentals. So that’s how we started initially. So I didn’t know better, right?

So we came to Dallas and we started like buying single-family homes. We were doing well actually, we grew quite a lot like we went up to nine properties at some point. I mean, of course, you can imagine as a full time doctors, we needed some help because of that. So, we decided to hire a property manager. But at some point it was getting too busy. And also we have two kids, two sons. One is seven, one is 11 years old. And you can imagine like having two boys at home. It’s also very busy. Fun. 

So we decided to pivot to commercial real estate where again, like we are doing active investment, but also we’re investing passively invest. I’m doing in this moment actively like because I still have the time have the strength. have the passion for real estate too. I’d really like to be involved, but I think at some point, that’s our goal. And I believe that’s also a goal for most active investors to become only passive investors, right? Like, because you, you need to evaluate, like your your time and you need to find balance in your life. Right? I mean, like you need to find this time like to do things that you like with people that you love, right, I mean, at some point for sure we’re buying tech to transition fully to passive investing. 

WS: Yeah, I’ve been so impressed just the multifamily industry, and the business, and how so many people here may just create wealth, right through multifamily syndication and whether they’re active or passive. What do you say is the next for just multifamily and inflation and just our economy? 

HN: We are living in an unprecedented time right now. I think like we say that like every couple of months or every couple of weeks, right? Again, like from seeing, like what happened in 2008, to this global pandemic in 2020, that we haven’t seen before, initially, right? Like everyone needed to stay at home and with all the changes that happens, like that may be a perfect storm to create these, the situation where we’re now unfortunately, with which is hyperinflation, and now, like the feds are trying to intervene to manage that, right, like, so, why that happened? 

Because, again, like we were at home, we were another spending that much money, we were still… most of people, I mean, not in my case, because I was still going to the hospital, so most of people were still like receiving their income or checks. The government has printed money, like at an incredible pace in the last two years, right? Like, I think I heard somewhere like 40% of currency has been printed in the last two years, which is unbelievable, right? And also like the supply change problems, right, like so all that together make like the perfect storm to create these the situation we’re on, right? Like, it hasn’t been like, I guess, like these in the last 40 years, right? Like, we have like these kind of inflation, then it comes the feds, right? 

And we initially think like, they have like many tools, so many ways how to handle this, it turns out is yes, like one way, right? Going up or to go down and the rates and that’s what they have been doing. Right. Again, they have been doing in a very, very fast pace. I’ve been like in different meetups in the end some conferences, and I always listen from experts, right? Again, if there’s one thing that is common in all these experts is that we don’t know what’s going to happen next. Right, like so we’ve kind of think what’s going to happen. And we we can see the past and we can look ahead in the future. Right?

But we really don’t know what’s going to happen. Right? So what do we think is that again, like they’re gonna continue raising these interest rates, because we don’t have the steel inflation under control. But at some point, that’s gonna affect the economy too. Right? And there are some type of businesses that are going to be in problems, right, like, even like the regular people. So in multifamily and in real estate in general, I mean, like, we are not detached from the world for short. I believe it’s also going to affect real estate, and also the multifamily business in some degree. But there are some fundamentals that I believe would put us in a better position, and like you always hear about, like, the devastating housing or units that we have across the country, especially in the in the Midwest and the Southeast, where all the population is going where all the businesses are going, right, like, this is a state where our like, business friendly and landlord friendly. 

So I think, like in general, the real estate and multifamily also may suffer a little bit in the next year or two, like even nowadays, like you’re seeing, like, the LSR difficult to be to be structural right now. Like we see cash flow suffer, like or delay like in the first couple of months or a year. But I think we’re well positioned for the next 5, 10 years. 

WS: Still, you mentioned multifamily may suffer in the next year or two, you mentioned a little bit about maybe cashflow in the first few months. Any other ways you see I mean multifamily suffering or maybe certain deals over other deals you know suffering because of what’s happening in the economy.

HN: Yeah. So, because of what happened last year, a lot of the success of a syndication depends also on the asset management teams. And we have seen because of the supply chains problems, there are some deals or projects where the renovations are delayed. So, they may not be able like to reach like their pro forma rents or income. And also at some point in the last 3, 4, 5 years everyone was doing bridge loans right like so which means that we need to do a refinance in the next two or three years. So there may be facing some some problems and some challenges too at that time, because if cap rates start going up very quickly, or if the lender needs more equity to be hall like so they are going to be in prom.

WS: Yeah. Yeah, no doubt bridge dedt. You got to be careful. Or use it sparingly maybe or there are times to use it, no doubt about it. But however, you got to think about that term when you got to refi?

HN: Yes.

WS: You don’t know what’s really going to be happening three years from now or two years from now or five years from now. Right? So I hope you have a backup plan, to say the least. You mentioned, you know, the asset management team, the operator, it’s so it’s so important. No doubt about it. What about some other benefits that you see, you know, investing alongside a syndicator, or, you know, operator as a passive investor?

HN: And so this is something that I see in general, like in real estate, but especially in multifamily when you invest passively, you can leverage people. So you as a syndicator, who has all the experience, who has the time that has gone through different cycles, and has the expertise. So you leverage people like, and they work for you basically. So you have also diversification, right? Like, you don’t necessarily need to invest in your backyard. 

I mean I live in Dallas and all my single-family houses are in Dallas. But, when I invest passively in multifamily, I have some properties that are in Jacksonville, or in Waco, now we’re racing for one in Arizona. So you have the benefit that they were diversification, it’s like, it’s important, also to mention that when you’re doing it by yourself, all the decisions, all the responsibilities and the liabilities around you. Right, like so. So that’s pretty important. Like, and again, like you, you may like, and you may have a passion for real estate, but not everyone has that. 

And also at the same time, not everyone has enough time to write like, so you’re putting in all the all that important, like on this indicator, which, which is great. Having said all of that, like still, you need to do your due diligence, because they’re indicators and indicators, right? Like, as great as passive investment is, you still need to do some work, right? Like, so you need to do some vetting of your sponsor or like initially, right, like an after you have defined that is a good sponsor, that, that aligns with your values, right, like so. And you’d like the project and the area where they are invest in. So you go ahead and you sign and you commit, and you send your funds, and after that has passed. So that’s, that’s a great thing.

WS: Yeah, no doubt. Yep. Think about just like you were talking about earlier, active versus passive, and definitely many benefits to being passive. But it does go a lot to who that operator is and figuring out that team. Right? But how have you seen him, you know, maybe as an operator, or even as a passive investor, just being able to reduce the risks involved in a multifamily deal or investment?

HN: Yeah, it takes a lot. And it takes a team to do that. Right, like, so one of the things that we do is we invest in growing markets. I was just just telling you about, like, the markets that we invest, right, like in the Midwest, southeast, Texas, and Arizona, right, like, so where we see that the population is moving, where we see like, there’s businesses that are moving business and landlord friendly. Right, like so we also and myself. 

Also, I focus a lot on the asset management team. Because again, like that’s super, super important for a deal to go great or to go wrong. Right, like so I usually focus on someone who has been for years, who is doing this full time, then who is also like, again, like who is able like to be seen as like the property very often, right? I mean, even if the person likely, like lives in the areas even better, right, like, but I mean, like, we understand that we don’t need like to live in the same area, but at least like the if they for the first couple of months, or like the crucial months, like are able like to visit the property often. That’s very important for us. 

And then later, again, like the last part is the underwriting. We’re always talking about conservative underwriting, and whether it means right I mean, I would say it also is conservative and also realistic underwriting right, like so again, like we see how the cap rates are like in the last probably five years, everyone was able like to get like a property and get returns from their investors. Maybe even not as early during that March event, like you have seen like the during the pandemic many of the properties maybe being under undergo any renovations are great things on the business plan, but it’s still because of inflation. Everything went up and they were able like to sell with returns. 

So we see those things and then the writing, right, like I ain’t like things the cap rate, economic vacancy. How’s the rental? I mean, like, we have seen amazing random girls, that may not happen in the next couple of years. So, things that are very important to look when you’re reviewing a deal.

WS: No doubt now some very good points. What about as you were considering, you know, passive versus active, did you consider REITs at all?

HN: Yeah, REITs you have to love him right? And yeah, I mean, they’re a good way to I guess like there’s also another way to invest in real estate. However, we haven’t been exposed that much and then the map we typically don’t invest in that just just mainly because this is kind of somwthing similar as the stock market mutual funds on Wall Street by electrical so you invest in something and again, do not necessarily know who is the operator.

WS: Yeah. Maybe speak to more of the differences between a REIT and a syndications just so the listener in case they are not familiar with the REIT.

HN: Yes, yes. So like the REITs are real estate investment trusts, right like that works similarly as stocks that anyone can buy really. Syndications are more like another available to many people. And actually, it’s more difficult to find them, right. Like you need to know the operator from before or some of them now are advertised like as a 506C. 

So when differences for example, like the number of properties in syndications, there’s usually one or two properties, right, like and you know, the property really well like, because before investing, you need to have that final presentation or the webinar like to see and to take a decision on that. In terms of the rates, you don’t know what’s a property, you don’t know how many properties are you don’t know where they’re located. So that’s one of the important difference then, like a investment minimums, right?

It’s very different because like in REITs, there’s very low minimums, right, like so you can invest. Yes, even with a couple of $100. It’s very easy to invest for syndications is different. And usually, like the minimum of what I’m seeing in this moment is $50 to $75,000. And why is that? And the reason is one so one of the reasons is that we want to have an engineer like syndicators want to have good communication with their investors, right, like so in these projects, multimillion dollar projects, we’re looking to raise sometimes $5, $10, $20 million. And you can imagine, even with $50,000, with $75,000, there’s hundreds of investors, what will happen, who will be less, it will be a nightmare, right? Just to manage all these investors unknown, and no one will be happy with the service that we provide.  So that’s one of the things. 

Then like the liquidity, right, like so, again, like REITs work pretty much as stocks so you can buy and sell if you change your mind, you can sell that like in the next day in two weeks. And that’s fine. For syndications, you need to have the mindset that your investment is going to be locked there in the property for the long of the of the time hold, right like so. And this project usually lasts like for four to six years. So that’s something important that we talk with investors tech before they go in the project like so. Because again, life happens, right? Like and things can change, right? Like I may need to buy a car next year. I mean, I may have a medical emergency or my kid may be going to college. Right? 

Like so we have this insurance, right? Like, I mean, like we, if we’re going to need that money, maybe it’s not like the best idea to invest in syndication. And finally lay the tax benefits, right, like so REITs. Unfortunately, they don’t have that. Because again, it works like more like as a stock as a mutual fund. In syndications, you get all the benefits from real estate, the same way that people who invest in single family houses get they get in commercial real estate, investing passively and even more, right like because in commercial real estate, it makes more sense to do these cost irrigation studies to do the opponents depreciation. And many investors who have our new investors are actually even more for investors who have been investing for a long time is very beneficial. 

WS: Harry, how do you prepare for a downturn? You’re looking at a deal. Now obviously, you chose syndication versus rate, you know, for many reasons that you talked about. But as you’re looking at a syndication now, you know, even passive or active, or maybe some ways that we haven’t talked about that you’d like to see or to personally be prepared for some kind of economic downturn.

HN: Again, like trying to focus or invest in bigger cities or areas that are actually growing. I try to stay for now away from tertiary markets. I, personally, are having really more of extra cash reserves right now, like in my family. And also, that’s something that I like to see in projects. I mean, we don’t necessarily need to raise much more, but I mean, like to have enough reserves like to deal with any problems like that, right? Like, especially in these moments, right? Like, we’re not getting, we still have a lot of inflation, still many of the projects, they are not going to cash flow in the first couple of months, just just because like the rates are so high. So we need to prepare for that, for sure.

WS: And no cash, you crash.

HN: I mean, that’s things of our business.

WS: What’s the thing that you’ve recently improved your business that we could apply ours?

HN: Yes, yes. Well, so one of the things that, like I always tell people is like, when you’re growing, when you’re starting a business is probably like the enemy of, of growing or success is one in in the comfort zone. Right? Like, again, like you are in your job, or you have a company and you’re doing well. And you always think, hey, we can continue growing. But I mean, like, we’re doing so well in this moment. I mean, like, like to risk things more, right. Like, again, like so getting out of your comfort zone and also like fear of failing, right, like so that’s, that’s even worse, like, again, like not doing things right in that moment. So yeah, so so we’re trying to do all these things. I mean, of course, we’re doing big steps and taking partnerships with other people who have been experienced in the field but moving forward.

WS: What’s your best source for meeting new investors right now?

HN: Okay, as you can imagine, You know, I’m a physician so most and my background and my wife still is like being doctors so we are active in social media. So we have our also like our YouTube channel, we are big believers like in education, right? One of the things that I always say, people usually invest or do things in something that they are familiar with, or they’re something that they know, right, so many people, the only way they know to invest in stocks and mutual funds, the 401 K, and that’s why we created this YouTube channel to just to help other people right, like to see that there are other alternative ways of investment, right.

So we have our YouTube channel, we have our website, where we also have our blog, we’re very active and physician Facebook groups. So yeah, so we try to be out there. And I mean, of course, we will love like people to invest with us. But, more important than that is that I want to give education. And also I want to give other doctors and healthcare professionals options for the future.

WS: What’s your best tip for passive investors?

HN: And it was something important when I was starting in this, right, like, you need to do your education, right, like so because it’s your heart and money, you need to be your education in order to be comfortable, and you step in, in doing something new for you like, which is investing in real estate. But as important as that is, at some point, you need to take action, right? Like, I mean, like education can just take you somewhere, but the next step is action.

WS: What’s the most important metric you track? Could be personally professionally? Yeah, either anywhere in between.

HN: Time. But yeah, time. So we do all this where we do really, right, like we do, our W two, we do business and all of that, because we don’t want to trade our time for money anymore, right, like, so that’s what that’s what we do with these passive investments. So personally, what we try to do is like, again, like to, to have more time for our family, for our friends, for our kids to write like so one of these things. 

So for example that we have seen that we have witnessed in real estate is my wife, actually, she has stepped down from from her job as a year in November. And there wasn’t a thing we can because that has given her so much time with the kids. They’re seven and 11. And they’re doing great in school, but it’s still they need like their mom like to do other things and to continue growing. So yeah, time is very important. And actually, also these years, the year where we have traveled like like the most I think we have traveled four or five times already. And loving it.

WS: Yeah, time is slipping away if you’re not tracking it, right, if you don’t know where you’re putting it, and, and you definitely don’t get those years back with the little ones. I’ve got two young boys as well. So they don’t get younger. Yeah, that’s right, they don’t get younger, and you can’t go back and spend that precious time with them. So that’s, that’s very honorable, if you all to, for her to be able to leave her her career path, you know that she obviously didn’t get there. Easy, right? You don’t become a physician overnight? That’s for sure. Yeah, but no doubt she’s doing her calling it right are a very important task as mom to say the least. But what about some habits that you are disciplined about to produce the highest return for you?

HN: There are many things that we have done over the years in medicine,and now in business I believe. One of the most important traits to for anyone is being consistent, right, like so one is that you can have great days, you can have good days, but you’re gonna have also bad days. And the important thing for anyone for success is like to be consistent in that. And the other thing is to be honest and have integrity, right? Like because sooner or later people are not going to know about you, right? Like, how you how you behave, and who are your people on how are your values? Right? So those are two very important things that that we always keep in mind. 

WS: How do you like to give back? 

HN: Yeah, so again, as I was telling you, like a theory of education with other people. And again, when I when I talk with them as as much as we will love them to invest with us. We prefer to give options when I work with other doctors and they show some interest for active investing. I’m very happy and I kind of guide them like through like again, if they’re interested in single family homes or doing other things and even in multifamily, right like is just to give options and and to have at the end of the day, another way to build income and wealth for their families.

WS: Harry, it’s been a pleasure to meet you and have you on the show even just going through active versus passive and what you expect to happen next with multifamily and inflation and some of the benefits that that also are involved. Often people overlook when investing in a syndication or even REITs versus syndication. Oftentimes there’s confusion there, right? I know I talked to passive investors often who are like, well, what’s the difference? You know, or why would I invest in a REIT or just thinking through those things? So thank you very much for your time today. Tell the listeners how they can get in touch with you and learn more about you.

HN: Yes, thank you so much. Yeah, so we have our website which is nimaequity.com, that is Nima — N as in Nancy, I-M-A equity dot com. And we also have, of course our YouTube channel for free education from the basic things to more elaborated things in real estate especially in multifamily.

[END OF INTERVIEW]

[OUTRO]

Whitney Sewell: Thank you for being with us again today, I hope that you have learned a lot from the show. Don’t forget to like and subscribe. I hope you’re telling your friends about The Real Estate Syndication Show and how they can also build wealth in real estate. You can also go to LifeBridgeCapital.com and start investing today.

[END]