Life Mission Capital Managing Partner Micy Liu started as an LP in December 2020 and now is a Co-GP and fund manager in over a thousand units. In this episode, she reveals how she’s able to quickly scale her portfolio and established credibility with her investors. Coming from a data analytics and science background, she also gives us data-driven insights on underwriting, quantifying and assessing risks, and investment assets that we should be keeping an eye on now and in the coming years.
[00:01] – [05:01] From Data Science to Real Estate
- Micy on how she got started on real estate and multifamily
- How being a data analyst and scientist came into play in her real estate journey
- Ways to develop a sphere of influence and expertise
- Building a network and doing due diligence
[05:02] – [15:21] Checking the Inputs to Get the Right Outputs
- The ability to refinance, expense ratio, and risk-adjusted returns are some commonly overlooked inputs in underwriting
- It is important to quantify the risk involved in a particular investment in order to make an informed decision about whether or not it is worth taking on that risk
- Micy is seeing a lot of opportunities right now in mobile home parks, RV parks, and build-to-rent because of the housing shortage
- Institutional money is pouring into the space
[15:22] – [16:48] Closing Segment
- Reach out to Micy!
- Links Below
- Final Words
Tweetable Quotes
“There’s two pieces. You find the right people, but also do the due diligence on it to make sure the numbers and everything checks out.” – Micy Liu
“As a passive investor, I try to put a number next to it and say is this something that I feel like as an intelligent investor, I would put my money towards for that type of returns?” – Micy Liu
“A lot of times people just look at returns. They don’t look at the risk-adjusted returns.” – Micy Liu
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Connect with Micy! Head over to LifeMissionCapital.com and check out 100 Questions to Ask Before Passively Investing in a Syndication Deal and more!!
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Want to read the full show notes of the episode? Check it out below:
[00:00:00] Micy Liu: Everything to me is like a model. You have the input, you have the model, you have the output. So a big component in making sure the output is successful is, you know, the jockey. So understanding how they fit opportunities and also design the process myself. You know, I do a very thorough due diligence myself from the jockey to the specific investment and understanding how to put that together. And I spend a lot of time doing underwriting on those opportunities as well.
[00:00:36] Sam Wilson: Micy is the managing partner of Life Mission Capital. She started being an LP in December 2020, and now as a Co-GP and fund manager on over a thousand units as of summer 2022. Micy, welcome to the show.
[00:00:48] Micy Liu: Thank you. Thank you so much, Sam. Excited to be here. And since our last meeting in the Intelligent Investor Conference.
[00:00:55] Sam Wilson: That’s right. That’s right. We did. We connected there at the Intelligent Investor Conference here in, I guess, that’d been January here.
[00:01:02] Micy Liu: Yeah. Time flies.
[00:01:04] Sam Wilson: You were one of the five, I think, or four or five crazies that got up with me and worked out, I think, at [6:00] AM, so thanks.
[00:01:12] Micy Liu: Yeah, it was a pretty intense workout.
[00:01:14] Sam Wilson: We had fun though. We had fun though. You could hang. It was lots of fun. Micy there are three questions. I ask every guest who comes in the show. In 90 seconds or less, can you tell me, where did you start? Where are you now? And how did you get there?
[00:01:26] Micy Liu: Yeah. In terms of commercial real estate, I started learning about it March last year. One of my friends told me about apartment investing. At that time, I was struggling with tenant and toilets with my smaller portfolio. That’s more a personal portfolio. And I was like, oh, let’s go check it out. Let’s learn about apartment investing, syndications. And I spent about six months to eight months really diving into it, talking to different general partners as limited partners and see, you know, who are the people I can not only invest my passive money with but maybe potentially good partners in the future. And I really dove into underwriting. And so from there, you know, I started getting to Co-General Partner opportunities that I believe were a good fit using my data analytics background. And then I find also fund to fund opportunities are also a great way to scale along with my passive investors as well. So that’s kind of what I went to to get started and to get to where I’m at today.
[00:02:23] Sam Wilson: That is really cool. That was March of ’21 or March of ’20 or?
[00:02:28] Micy Liu: March ’21
[00:02:30] Sam Wilson: March of ’21. Okay. Wow. All right. So March of ’21, you said, Hey, I’m going to start becoming a general partner in some of these assets, bringing some investors to those deals. How did you establish confidence in those investors early on that you had? I mean, how did you establish, I guess credibility, is like the question I’m asking.
[00:02:52] Micy Liu: Yeah, I think a big thing about when it comes to investment in general, there’s two pieces. You finding the right people, but they also do the due diligence on it to make sure the numbers and everything checks out. So as a data analyst to data scientist- kind of background, everything to me is like a model. Your input, you have the model, you have the output. So a big component in making sure the output is successful, you know, is the jockey, so understanding how they fit opportunities and also design the process myself. You know, I do a very thorough due diligence myself from the jockey to the specific investment and understanding how to put that together. And I spend a lot of time doing underwriting on those opportunities as well. You know, as soon as I understood how everything checks out, what inputs are, how it impacts the output and who are the people I can talk to, to verify my numbers, leveraging my mentor with the CCIM, also a third-party consultant who manages, you know, investments for a $36 billion private equity firm. And he does acquisitions, asset management. So once I knew that I felt a lot more comfortable. It definitely wasn’t bad on my own, just say, Hey, you know, do it with me. One partially because I wasn’t confident to start with, but second, just having the, you know, my network as well. My network at the time, you know, I didn’t have a lot of people who were doing investments in my immediate circle and who maybe qualified to invest. So I had to kind of create a lot of things from scratch, not just my sphere of influence, but I also sphere of expertise as well.
[00:04:23] Sam Wilson: How did you develop a sphere of influence with your passive investors early on?
[00:04:29] Micy Liu: I showed them basically my expertise, my understanding, you know, ’cause since March, you know, just between March and December, I probably went to five different conferences, and I also went to the local meetups, and I also went into apartment tours, hotel tours. I mean, there’s asset class have been observing for, you know, since last year. This is our second observing, but we just haven’t dove into it without the right sponsors that we felt comfortable with right now. So we’re just keeping our eyes on many things, but just waiting for the right time to tune in.
[00:05:02] Sam Wilson: Got it. That’s really cool. One of the things you had mentioned there was inputs to outputs there in your underwriting, how you want to make sure, as a data scientist, you get your inputs right, so that your outputs come out. Obviously, you mentioned, you know, betting on the right jockey, but what do you feel like were some inputs that you maybe think other people overlook, discount or, you know, that you underwrite differently maybe than what some other people do? What are some things that come to mind when I ask that question?
[00:05:31] Micy Liu: Sure. Some of the things, you know, especially this year, right, with interest rate changes, that people maybe begin their investors take for granted is the ability to refinance. So can they really refinance within two years, not just from a construction schedule standpoint, but from, you know, the lot of interest rate change that we could potentially see coming? And if that deal has to have the refinance in order to hit the IRR, you know, it concerns me. So I see a lot of beginner investors, they don’t look at that. They’ll see like a sky-high IRR, but then how, you know, how likely is the refinance? So that’s like the first thing that came to my mind. And then apart from that, another thing would be the expense ratio, which varies, you know, even in the particular asset class really varies by state and different things as well. So how to check? Maybe the corresponding report, local investors you have in the area. Are those expense ratios, do they make sense? You know, it’s a little bit harder if you don’t have a property management in the area to tell you, you know, what’s the typical numbers, but you can typically get a close enough count to know if they’re really off on directions. I would say those are the two things that came to my mind. And then the third thing I would say is just the intro and exit cap right now, right? Like from multifamily, which is kind of my, my bread and butter started learning from the beginning and everything else I do today is housing because what I look at is I take, you know, multifamily is the core. And then whatever is the difference between multifamily and mobile home parks and RV parks and build-to-rent, I’m basically taking a deviant of it and say, what are the additional things I have to learn to feel the knowledge gap in that space? Who are the people I need to, you know, have the insight to work with and to understand how this process works, to understand the due diligence gap I need to fill? But essentially with that, big thing that would be underwriting for the past, you know, maybe two, three years for people just write 50 basis points per year in terms of cap rate expansion. But right now, you know, we look at things typically a hundred basis point in enter and exit expansion, at least, if it’s a five-year hold or three year hold. Even look at diversifying the portfolio. So people, a lot of times they just look at returns. They don’t look at the risk-adjusted returns. So all that is to say the third point I wanted to bring back home is risk adjust your returns to understand the risks behind those returns that the sponsors are providing and understanding if it’s worth the risk, right? ‘Cause like RV parks, you’re dealing with it’s more unless you have a large permanent residence in there, you got a lot more daily transactions, you know, your Springfield portfolio, we get snow up here. So how do you counterbalance those risks instead of just the returns that people see?
[00:08:05] Sam Wilson: How do you underwrite for a risk-adjusted return? How do you even quantify that?
[00:08:12] Micy Liu: It’s really hard to quantify because it varies by the market as well. Today’s market, right, we look at multifamily typically having more of a 15-person plus IRR, that’s a little bit more of the usual compared to before you can get to close to 20-person IRR. I mean, obviously, there’s some people that can do higher or lower. So if a more stable, long-term housing is providing me that type of return, so when I move into RV parks or mobile home parks, for example, RV as well, so, you know, being observing hotels since late last year, I’ve gone to 10 days of full, you know, the hotel operations monitoring, looking at how the sponsor look at hotels look at acquisitions, and so is short term rental portfolios. Like, the reason I mentioned those is they’re more on a daily rate, right? You’re to have more legal risks, more daily rate fluctuations, and change of weather, all those things. So it’s hard to put a number on it, but mentally I’m preparing myself, you know, it has to be significantly higher because of those things. You know, at least 20 to 30% and some, in some cases could even be higher, right? Like, and then we move into things like crypto mining, which, you know, I haven’t dived into in details, but I know some of my partners, they do that. You know, so that’s like significantly high risk. So I think it really varies per person. I feel like it has to be justified. To me personally, when I think of it myself as a passive investor, try to put a number next to it and say, you know, is this something that I feel like as an intelligent investor, I would put my money towards for that type of returns.
[00:09:41] Sam Wilson: Micy, here’s a question for you. Just help me clarify ’cause maybe I’m not understanding. Let’s say there’s a deal and it’s got a, and I’m trying to keep this easy, and I’m not even sure if I can make up an example for this, but let’s say it’s got a 20% IRR, right? And you’re saying, okay, but how much risk is attached to that 20% IRR? And you’re trying to find a way to say maybe there’s 30%. I’m again, I’m making up numbers here, 30% or 40% risk to that. And I don’t know how you quantify that, but maybe on a risk-adjusted basis, it’s more like a 12 IRR, is that what I’m hearing is when you say, okay, what are the likelihoods that I’m taking on more risk in this category? And then how do I quantify that and put it into a model that I feel comfortable with, did any of that even makes sense?
[00:10:24] Micy Liu: Yeah, it does. So it starts with looking on the baseline, looking at, you know, like interest rate, right? Like what people can get via some of the other alternative investments from the safest one to potentially the riskiest one. And then kind of within that kind of where the risk portfolio could fall. And, you know, in terms of real estate investments, the bread and butter for me that I can always refer to is multifamily investments, stable housing. So from that, what are the additional risks we’re adding on? It’s really hard to say, you know, because it’s daily rate, which can plus 5% risk. Like I’m not able to really do that yet. But you can kind of, you can kinda see just from more of a subjective opinion standpoint, perhaps, you know, me as also a passive investor. Most of the time I invest alongside of my investors as well. How would I feel about it concerning those risks involved? No, we can’t always foresee COVID and you know, those strange events that may be happening, but just from a normal world standpoint, the likelihood of those things happening. And try to put a number to it in a way that people feel those returns are adjusted. That’s why we expect higher returns when it comes to hotels, senior housing, you know even RV parks, ’cause you have additional operations involved, more employees. That’s also, you know, higher, potentially higher risk in terms of employees and also more daily turnover, things along those lines. But you know, people could argue the other way, but we’re just talking by, in terms of to generate the same amount of revenue, you know, how much more operations and process you need to have involved. And I have to kind of plug in that I also have a data internal audit background. I worked in the data analytics field for internal audit and everything we do is like risk factors in that position and when I work in that role. So I think came out of that, I have a different lens when I look at businesses because of that.
[00:12:12] Sam Wilson: I can only imagine that you do. Where are you seeing opportunity right now? I know you’ve invested in multifamily. Everything, you said, you want to focus on things that are housing related, but what are you studying right now, if anything, outside of multifamily where you see opportunity?
[00:12:29] Micy Liu: Yeah, I would say is mobile home parks, RV parks, and also build-to-rent. Mobile home parks and RV parks have, you know, depending on the different tier of RV parks are going to have a different clientele and in terms of income and their lifestyles. And then the same thing with build-to-rent as well. Build-to-rent, you could also have different tiers. So those are the two things I’m looking heavily at just because the numbers don’t lie. The, you know, housing shortage will have 4 and 5 million for the next, as of right now, even for the next 10 years, if you try to fill that gap, right? Like we’re still, even if we’re overproduced our housing production by 60%, we’ll catch up in 10 years. That number is pretty crazy. And, you know, people are championing left and right so many institutional investors going into producing housing, and I know RV parks don’t always get approved, so, but the build-to-rentspace is booming. So how to tag along and, you know, provide returns for our investors while solving a real need out there, whether it’s affordable housing or a tier up from there. I think those are the key to solve the problems for the future. And, you know, once the gold is there, people rush into it, even though there’s some limited operators out there. So we want to capture that window of opportunity, similar to what we saw in multifamily for the past, you know, five years or longer.
[00:13:42] Sam Wilson: Right, right. Yeah. Build-for-rent is a is a or build-to-rent, build-for-rent. I mean, that that is quickly, I think becoming an industry term, maybe that even a year ago was kind of off. It was just not as well known, but unfortunately, I think we’re becoming more and more a nation of renters. And there’s just, if there’s a need, then we as operators and as real estate professionals are here to fill that need. So, you know, build-to-rentI don’t think is going away. And I’m thinking it’s only going to increase. How have you found the right operator, the right person to work alongside in the build-to-rent space that makes sense for you while scaling your business?
[00:14:22] Micy Liu: So I’m actually still in the, I would say, in terms of the research I need to be done, I’m probably still at a 20 to 30 percent mark in finding that operator and other opportunity. So I have some from a local sphere of influence. I don’t mean physically local, just mean virtual network as well. Actually, one of the things I’ll be doing near this month. Because for me, build-to-rent, that probably won’t be working on that this next month, maybe a little bit later down the road, like sometime later this year. So I’m kind of just building up additional references and who to work with. You know, sometimes building that relationship may or may not be the right timing due to various reasons, but understanding how that works about the asset classes, build-to-rent is probably one area which is building construction, generally, is probably area that I’m potentially being interested in being more of an operator on. On the other side, I’m more interested in just working with already experienced partners in doing that. So it’s also intentionally planting the seed for potentially in the future.
[00:15:22] Sam Wilson: That’s awesome. I love it. Micy, this has been a great time. I love learning about your business, the way you’ve scaled quickly, bringing the data scientist approach to underwriting, to vetting sponsors, to looking at potential asset classes. I think there’s a lot here to learn from you, just in the very quick way you’ve aggregated all this data and made sense of it. I mean, it takes, yeah, it takes to the rest of us a lot more time, I think, to figure some of this stuff out than what it takes you. So you’ve got a natural gift for it. Love to see what you’ve done with it. If our listeners want to get in touch with you or learn more about you, what is the best way to do that?
[00:15:57] Micy Liu: Yeah, thank you. Go to my website, lifemissioncapital.com. There’s several ebooks. One of them is called 100 Questions to Ask Before Passively Investing in a Syndication Deal. So that’s a great way for people to scale in commercial real estate that’s why I’ll definitely check that out. Otherwise, yeah, you know, my website has my contact information.
[00:16:15] Sam Wilson: Awesome. lifemissioncapital.com. Micy, thank you again for coming on the show today. I certainly appreciate it.
[00:16:21] Micy Liu: Yeah. Thank you so much. Thank you, Sam.
