Finding Value in Today's Multifamily Market: Insights from Gary Lipsky of Break of Day Capital

Written by:

Steve Marcinuk

Date:

18 Jun 2025

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“For a while there was a struggle with sellers being realistic on pricing, which led to a tremendous lack of deal flow in 2023 and early 2024. Now they seem more realistic, and we’re seeing deals that are 20-30% discounted with some really good opportunities,” explains Gary Lipsky, CEO and Founder of Break of Day Capital and host of the Real Estate Investor Podcast.

As the multifamily investment landscape continues to evolve, investors are navigating a market characterized by higher interest rates, expanded cap rates, and changing dynamics. For Lipsky, whose portfolio includes over 1,400 units acquired with investors, the current environment presents distinct opportunities for those who know where to look.

Market Timing: A Window of Opportunity

After a period of stagnation in transaction volume, Lipsky believes the market may be approaching a favorable entry point for investors. “I feel like we’re close to the bottom. You never know until you can look back a year or two later, but interest rates are still relatively high compared to where they’ve been. Cap rates have expanded quite a bit in our market, 20 to 40% even.”

This expansion in cap rates, coupled with more realistic seller expectations, has created what Lipsky sees as a window of opportunity. “There’s definitely a good buying opportunity now, because things will change. Deal flow will pick up, and the things that you buy now will be worth significantly more in a year or two.”

From Accidental Landlord to Multifamily Mogul

Lipsky’s journey into real estate wasn’t guided by family mentors or early exposure to the industry. “I wish my parents or other relatives got me into real estate at an earlier age,” he reflects. Instead, his path began in 2002 with the purchase of his first home in Los Angeles.

“I was having a kid at the time, and I didn’t have money down, but we were able to buy a house. I had debt and wasn’t fully qualified, per se. It was a half-million dollar house, and I’m thinking, ‘What the heck am I doing?'” Lipsky recalls.

What seemed like a risky move was actually informed by careful market research. “I had really studied sub-markets in that area for quite some time and knew I was going to convert the garage into an office space and get $720 of rent each month for my business. That was going to pay basically a third of my mortgage.”

This initial foray into property ownership planted the seeds for what would eventually grow into a substantial multifamily investment operation. “Little did I know that this was the beginnings of ultimately owning over 1,400 units with investors,” he says.

Evolving Investment Strategy

Break of Day Capital’s approach has shifted in response to changing market conditions. “In the beginning, we were much more value-add for almost all our deals. Up until our last deal, we’ve averaged a 40% bump in NOI over the first 12 months of takeover,” Lipsky explains.

However, with rental growth stagnating in many markets, the company has adapted its strategy. “We’re not seeing as many of those opportunities right now, particularly because you’re not getting as much rent growth. Most markets are flat, maybe down 1-2% or up 1%.”

Instead of relying heavily on rent increases, Lipsky’s team now focuses on operational efficiencies to drive returns. “On a deal we bought in 2023, almost all of that NOI increase was through a bunch of different savings.”

Finding Value Through Operational Excellence

Lipsky outlines several key areas where his team consistently finds value:

• Water Conservation: “A water savings plan is one of the first things we do. We expected to save about $100,000, and it cost us $50,000 the first year with the rebate. Within six months, it more than paid for itself and created several million dollars of value to that property.”
• Payroll Optimization: “Looking at payroll, there’s usually, depending upon how someone operates, an opportunity to trim some payroll without hurting your property.”
• Marketing Efficiency: “We look at marketing expenses – what’s converting, not just generating leads. We were just looking at some data two days ago with my asset manager. We got 500 leads from one source, but we only got one lease from it. That’s obviously a complete waste of money and time.”
• Landscaping: “If they don’t have desert-scape, we can take out some of the grass, and sometimes they have rebates for that too, and save significant money there as well.”

Current Investment Criteria

Break of Day Capital has refined its acquisition criteria to focus on properties that align with current investor preferences. “We’re typically looking at 150 units or more. We want B-class to A-minus properties,” Lipsky says.

This represents a shift from earlier investments. “In the beginning, we did a lot of C-class, more rougher stuff, but now we want to be more core, Core-Plus where there’s good cash flow. That’s what investors really want these days.”

The emphasis on cash flow reflects changing investor sentiment in a more challenging capital-raising environment. “It’s really hard raising money, so you have to make sure that you’re serving your investors well. Right now, because they’ve had some setbacks in some other deals, cash flow is very important.”

What to Avoid in Today’s Market

Not all value-add opportunities are created equal, and Lipsky is cautious about certain property characteristics. “Boilers and chillers – we’ve had a bunch of different deals that were good opportunities, but given where we are, those are 1970s products. It’s just getting older and older, and certainly those have a much higher expense rate.”

Instead, Lipsky sees better opportunities in newer vintage properties. “When we’re looking at our portfolio and looking to sell some things in the next few years, that newer product is where I think the best opportunity is right now – maybe 90s to 2020. There’s some lift involved, but not like a big lift.”

The Importance of Focus for New Investors

For those just entering real estate investment, Lipsky emphasizes the value of specialization. “One of the big things I talk about to a lot of new real estate investors is focus, focus, focus. Because in the beginning, it’s overwhelming – that looks interesting, that looks interesting. There is no depth to their analysis. They’re a mile wide and not a mile deep.”

Before expanding into any new asset class, Lipsky recommends building expertise in a specific area. “We want to create thousands of data points so we really feel like we understand what we’re getting into.”

Navigating Syndication Investments

With syndication receiving mixed coverage in mainstream media, Lipsky believes investors need to understand both the opportunities and potential pitfalls. “A lot of people don’t know the opportunity that they can invest in a big property or fund because their financial advisor is not really bringing those opportunities to them. They want the fees from stocks or traditional investing.”

The key to successful syndication investing, according to Lipsky, is evaluating the operator. “Just because someone has a strong social media presence doesn’t mean they are a good operator. We always communicate to people just starting out to really focus on the jockey, the operator, because they can make a bad deal good or a good deal great.”

Recent market challenges have exposed inexperienced syndicators. “I think that’s what’s happened in the last few years – a shakeout where a lot of people came into the industry promising high returns and realizing this is a business, this is a lot of work. It’s not something that you can just jump in because you took a course and learned from a guru.”

Misunderstood Tax Benefits

Looking ahead, Lipsky highlights one area where investor education is particularly lacking: tax benefits, specifically bonus depreciation. “Bonus appreciation is supposedly coming back, which is a huge thing. I think that’ll bring a lot of investors into play.”

However, the mechanics of these tax advantages are often misunderstood. “A lot of people don’t fully understand it. They hear, ‘Oh, if I invest $100,000, maybe I get an $85,000 loss on my K-1 and I can use that immediately.’ Well, the reality is, a lot of people can’t take advantage of it unless you have other passive losses that year. Otherwise, you can carry it forward.”

There are also long-term implications that investors should consider. “There’s some catch-up too when that property is sold, and certainly, the longer you hold that property, the less of a catch-up.”

Looking Forward

For investors interested in multifamily opportunities, Lipsky’s Break of Day Capital continues to seek partners for their carefully selected investments. “We’re definitely seeking investors,” he notes, directing interested parties to the company’s website (breakofdaycapital.com) for educational materials, newsletter signup, and information about current offerings.

Lipsky has also authored a book, “Invest Smart: Spotting Red Flags in Real Estate Syndications,” born from witnessing common investor mistakes. “We were trying to educate them,” he explains, underscoring his commitment to investor education alongside his investment activities.