3 Investing Principles We’ve Stuck to at JP Acquisitions

Navigating the complex landscape of multifamily real estate investments requires a strategic and principled approach. The success of a syndication venture is often directly tied to the decisions made by the managing partners. Being responsible for the investment of others is no easy task and requires logical decision-making, attention to detail, and persistence. 

As we’ve scaled JP Acquisitions, we’ve stuck to a set of investment principles that define the way we look at opportunites and how we operate our business. Our investment principles guide every choice that we make and they can be thought of as boundaries which we work within. While we’re conscious of when a project or task is outside our circle of competency, we’re willing to explore new strategies, systems, and processes so long as they’ve been reasonably thought through. In this blog post, we will explore three of our investment principles that we continue to adhere to for sustainable growth.

Note – The definitions of the technical terms in any of our posts can be found in the glossary section of our website.

Trust the Numbers

Trusting the information that our underwriting (i.e., the numbers) produces is crucial for making informed and sound investment decisions. Being successful in business predominately requires reasoning as opposed to emotional decision making. Underwriting involves a detailed financial analysis of a potential property, taking into account various factors that can impact its performance and profitability. Our underwriting allows us to evaluate multiple key factors before acquiring a property such as:

1.  Risk
2. Returns
3. Alignment of Investment Goals

We target the highest return relative to the risk that we are willing to take. We have a minimum return (IRR) that we target and don’t allow ourselves to bite off more than we can chew. This is why our team meets to discuss the potential blind spots, strategy, and validity of the assumptions in our underwriting model before ever making an offer on a deal. Additionally, our numbers very clearly spell out what the most is that we can pay for a deal. We stick to the idea that missing a great deal is better than overpaying for a deal. If the margin of safety that we build into our numbers causes us to have to step away from a deal, that is fine because we value the flexibility and comfort over doing another deal. At the end of the day, we know we’re making decisions that establish a healthy balance between what our investors are comfortable with and what we can deliver.

Cash Flow is King

Every multifamily syndication shop has a different strategy, although there can be a large overlap. Nevertheless, we’re not interested in what other shops are doing. We focus on our strategy which is built on the foundation of targeting high cash flowing deals. The reason for this is that cash flow creates a margin of safety. Since the properties that we target produce cash flow starting day 1, we know that we are less sensitive to negative forces such as interest rate fluctuations, increased operating costs, and unforeseen capital expenditure requirements. For example, we would rather invest in a cash-flowing deal that has a targeted 14% IRR than a riskier development project with a 20% IRR and no cash flow throughout the projected investment period. This is not to say that one strategy is better than another, a strategy is as good as the people driving the execution. 

Play the Long-term Game

In today’s world, everything is so fast-paced and the number of people who believe in get-rich-quick schemes is incredible. The story of quick riches goes back thousands of years and the precursor to the field of chemistry (alchemy) was based on the idea that someone could transform matter into anything they wished (gold being the most obvious choice). At JP Acquisitions, we play the long-term game and think in decades, not weeks or months. The idea that all good things take time is a cliché, but one that is so often forgotten and the cause of much pain. 

Before I start sounding like a pseudo-philosopher, let us bring this back to the world of real estate. The point that I’m trying to make is that our team is always thinking about how one decision will impact the next. For example, when underwriting we make sure that we’re well capitalized for longer than the projected hold period. Another example is that we always think about how one property will fit into our plans for the portfolio that we seek to build. Basing decisions on long time periods is conservative and in line with our investment strategy. I’ll note here that while we make decisions based on long time horizons, we’re aware of how time can erode returns. Robert Kiyosaki perhaps said it best, “Real estate is not a sprint, it’s a marathon – one that requires patience, perseverance, and a commitment to the long game.”

Conclusion

If there is a common theme among the investment principles that we stick to at JP Acquisitions, it’s that we want to keep things simple and by doing so we are able to mitigate risk. Trusting the numbers restricts our thoughts to a realistic situation and not in a fairytale world. Sticking to our strategy involving investing in cash flow deals allows us to target specific deals with set characteristics as opposed to chasing after everything that we come by. Finally, we play the long-term game as opposed to having to stress our investors and our team about constantly changing focus. If there is one thing that you take away from this post, let it be the acronym K.I.S.S. (Keep It Simple Stupid).

If you have any questions regarding the terms and concepts in this post or previous ones, please reach out to either me (tedi.nati@jpacq.com) or someone on our team so we can help explain further. If you’re interested in investing with us at JP Acquisitions, you can contact us via our contact form, by emailing a member of our team, messaging us on LinkedIn, or signing up for our investor portal to set up a meeting.

As always, I hope you enjoyed reading this post as much as I have writing it. Best of luck!