In today’s market, turning a profit on multifamily investing requires intelligence, tenacity, and a solid plan.
That’s why Reap Capital is thriving. The Dallas Fort Worth-based investment firm generates strong profits for its investors by leveraging its holistic buying, managing and development strategy. We spoke with David Lilley, Founder & CEO, and Brent Cheney, Director of Investor Relations, about how Reap created its successful approach to multifamily investing and management. Then we got the inside scoop on The Landry, their latest investment opportunity.
Scaling Up Quickly
Lilley founded Reap Capital in 2017. He made his first multifamily purchase, the 6-unit Beach at Bayshore property, just a year later. “I was drawn to the economies of scale associated with multifamily real estate,” said Lilley. “In 2018 we bought that six-unit property in Tampa, and then a couple months later we acquired a 16-unit property in Chandler, Arizona, and then just continued to acquire bigger and bigger assets.”
Lilley and his growing team showed a natural talent for finding and executing profitable investments. The internal rate of return on the first property was 10.51%. The second? 43.58%. As of 2023, the firm’s overall IRR sits at an impressive 40.26%, with an average of 30 months held.
Reaper
“David has distinct insight since he was self-taught,” said Cheney, who was Reap’s first hire. Cheney explained how Lilley brought the skills and fortitude that he developed while serving in the Marines to the real estate investing business, particularly his “work ethic and loyalty.”
The firm’s name, Reap Capital, is a reference to “Reaper,” Lilley’s unit’s callsign in the Marines. “He’s been thoroughly vetted at the highest levels of government and held clearances with the Department of Defense and the State Department,” said Cheney.
“For investors, turning their hard-earned money over to somebody that they can trust is invaluable.”
The Efficiency of Vertical Integration
Lilley leveraged his wealth of experience when developing Reap Capital’s vertically integrated investment and management strategy. Reap handles acquisition, management and construction in-house, maximizing efficiency at every step of the way. This is possible because “we’re typically the largest investor in our projects, and our net worth across the company is tied into our assets,” explained Lilley. “We’re aligned with our investors in a very meaningful way.”
Reap’s investment process begins when they identify an opportunity based on their intimate market knowledge. While they’ve invested successfully in Arizona and Florida, their main focus is their home state of Texas. “I’ve been in Dallas for 10 years, and everyone else in the company basically grew up here,” said Cheney.
“Location is fundamental to our investment strategy, and being based in the best market in the nation for growth affords us a unique advantage.”
Once an opportunity has been sighted, Reap moves in to make the purchase and begin creating value via its in-house Property and Construction Management services. “Our property management company operates for the benefit of our investments. We reinvest all fees and have never taken a distribution from that entity,” explained Cheney. “This enables us to be competitive with compensation to maintain a strong team and absorb many fees often billed to the asset, all of which enhances the value of the property for our investors.”
Of course, there’s more to the business than rigid timelines and market efficiency. The overall goal of adding value to their property has the secondary effect of improving the quality of life for tenants. “Being able to give a family a quality, safe place to live at an incredible value while hitting our investor returns is really fulfilling,” said Cheney. “Everybody wins.”
A Proven Track Record
Reap Capital’s record of investments speaks for itself. Their local expertise in the Texas market gives them an inside track on mismanaged and distressed properties, such as the 262-unit storage facility in Texas. The firm invested a mere $130,000 in improvements and sold the facility after 27 months for $1.7 million more than their purchase price.
In a similar vein, the firm acquired Sierra Heights in an off-market transaction and turned the mismanaged 136-unit rental property around by implementing its own management and renovations; they closed on the sale of this asset in June of 2023 after a short 25 months of ownership and net their investors a 1.86x equity multiple.
Introducing The Landry
All of Reap Capital’s experience and strategy comes together at The Landry, the firm’s latest investment opportunity. The 288-unit rental property in North Arlington, Texas, has a foreign seller who is forced to sell at a loss due to an expired interest rate cap and pending loan maturity. “There are definite signs of mismanagement,” said Lilley.
Due to the distressed nature of The Landry, this asset is ideal for Reap’s brand of adding value. Reap is taking over management and plans to renovate 194 of the property’s classic units with stainless appliances and quartz countertops.
The comps that the Reap team found were beyond encouraging. There is a property adjacent to The Landry that sold a year ago for 40% more a door.” When it comes to rental comps, the numbers look even better.
“From a rent perspective, there’s about a $500 rent gap to renovated comps, and there is an asset of inferior quality across the street that just went on the market a couple weeks ago achieving $220 higher rents than our proforma rents.”
These numbers come thanks to Reap’s vertical integration and the team’s abundance of caution when it comes to underwriting. “Our conservative underwriting allows us a lot of room for error,” explained Cheney. “Between renovating the classic units and improving operations, we should be able to exceed our investor return projections.”
Reap anticipates that returns at The Landry will be in line with their previous investments. “We’re looking at a 21.9% IRR with a 2.47x Equity Multiple, and cash on cash will bump up against 10%,” said Lilley. “On paper, it’s the best deal we’ve ever underwritten.”
Follow this link to learn more and get involved with Reap’s latest investment opportunities: https://reapcap.com/investor-sign-up/