The success of any business is usually determined by how much the owner is willing to work to achieve his dream, and being visionary so that the market dynamics do not cause adverse effects. Chad Doty ventured in an industry he had hated as a young adult all because he had a checklist of the business he wanted to run for the rest of his life. Fortunately, it paid off, despite not knowing what it takes to run a successful company in the real industry. However, Chad had to be a strategic leader for the business to make the millions it does today. So, how has he done it? Let's see how Chad Doty built a $300 MM real estate empire from scratch.
Picking real estate
Chad chose real estate by going through criteria when selecting a profession; he wanted one that was evergreen, had barriers to entry, was tax efficient, had annuity plus spike income as well as something he would be comfortable doing for the rest of his life. Chad selected real estate because it met all these criteria, even though he had no experience in the field. He started by buying a 6-unit project in Richmond, then a 12-unit. However, he wanted to expand, so he partnered with Ed to create 37 Parallel after which they purchased a 112-unit apartment. Since then the ride has been profitable making over $400 million in transaction volume.
Settling for Multifamily properties Real Estate
In real estate, you can make money in multiple ways but for Chad; he wanted something that would still make sense in the long term. He, therefore, did not focus much on the money, knowing that even if he made little profits, every deal would still bring in returns. He concentrated on offering something he knew he would be good at and searched for a business model that helps him achieve that. However, Chad never experienced those single life-changing moments to convince him that he had made the right decision in settling for real estate. Instead, as he continued in his business, he discovered several things to keep his faith in the real estate industry.
He discovered that single-family homes were difficult to scale and he had to work thrice as much to get half the money. This discovery prompted him to shift to multifamily properties. For him to decide to go all multifamily, he did his research on the demographics. He concluded that 18-35-year-olds were the largest renters with a population of about 80 million owing to the immigrants' increase. Also, those who are 55 and above make up for the fastest growing rental group, preferring to rent due to the economic needs and preference and the lack of yard maintenance.
Chad Doty buys property for long-term purposes and will only sell before the planned time if it makes sense. Usually, their strategy is to acquire, renovate and sell after five years. According to his research, the wealthiest companies are not those who sell now and then but those who accumulate property, with the goal of keeping it for twenty years. Such firms sell if the market dynamics shift in a way that does not favor them or they receive an offer that out-sizes their current projections.
For instance, Chad's company bought a project in Louisville worth $10 million. 2.5 years later, they got an offer from a 20,000 unit buyer who was moving from another state. Since Chad did not want to sell the property, he came up with a ridiculous price to scare off the buyer who still insisted on buying it. Consequently, they sold the project for $30 million which turned their cash flow by 30%, to the benefit of the company's investors.
Buying from dependable market anchors
Chad only buys from stable market anchors such as higher education institutions, health care facilities especially hospitals, and state and local government projects. They look for something that will likely last forever basing this on a project that has been there for the last five or ten years and has an optimistic future in twenty years to come. The company also uses the "grandma rule" which states that if they would not invest their grandmother's last $100,000 in the project, then the company will not either. He, therefore, does not buy in areas that are retirement-centric since growing an income from such locations is difficult as renter's choice keep varying.
Chad prefers a market he can predict, and since renters go for locations that are close to their job centers, he invests in such areas. For example, single people will look for entertainment spots, amenities, and areas close to transport facilities. Families, on the other hand, seek proximity to schools and locations where crime level is low. Chad does not care much about style when buying and therefore does not invest in high rise properties. Instead, he prefers garden style, 2-3 story buildings, and resident type over building type as well as B- to A- properties.
Written by Garrett Parker
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