When most real estate investors think about multifamily, the mantra is usually the same: “Go big or go home.” Gurus and Instagram influencers preach 100+ unit buildings as the only path to scale. But what if the real opportunity lies in the opposite direction?
That’s the philosophy behind Terra Capital, led by managing partner Ray Heimann. On a recent episode of Ritter on Real Estate, Ray shared how his team is disrupting the market by targeting small multifamily properties—20 units and below—in overlooked Midwestern markets.
The results? Consistent deal flow, outsized returns, and a strategy that institutional investors are starting to take very seriously.
From Cleveland Roots to a Scalable Investment Model
Ray grew up in Cleveland, Ohio, where his family’s architectural and construction business first exposed him to real estate. After earning his degree at Columbia and building a career in investment banking and private equity, he and his partner, Tom Higgins, began buying small multifamily assets in New York City.
While these early projects were born out of necessity—smaller checks, smaller deals—they revealed a scalable model hiding in plain sight. By borrowing systems from single-family aggregators, Ray and Tom discovered they could apply the same principles to small multifamily buildings, building portfolios with significant upside.
Eventually, their attention shifted back to the Midwest, where the fundamentals made even more sense.
Why the Midwest?
Unlike the flashier markets of Phoenix, Dallas, or Tampa, the Midwest doesn’t make headlines for explosive population booms. Instead, it offers what smart investors crave: stability and resilience.
Ray outlined four key factors his team looks for:
- Recession-resistant employment bases: anchored by healthcare, education, and government jobs.
- Sustainable population growth: not just short-term spikes fueled by risky industries.
- Affordability: landlord-friendly environments with healthy rent-to-income ratios.
- Aging housing stock: especially early 20th-century buildings that offer enormous value-add opportunities.
This strategy has led Terra Capital to establish strong footholds in Indianapolis, Columbus, and Pittsburgh—markets with strong fundamentals but far less competition than “hot” Sunbelt metros.
Cracking the Code of Small Multifamily
So why chase after properties that are “too small for syndicators, too big for flippers”?
The answer is simple: less competition and better entry prices.
Many of the properties Terra buys are mom-and-pop owned, inherited, or simply neglected. They’re often sold by unsophisticated owners, which means Terra can purchase well below $100,000 per unit in prime neighborhoods.
The value creation comes in two stages:
– Renovations & Management: Tech-enabled systems streamline everything from construction to tenant requests, often boosting stabilization cap rates to ~9%.
– Portfolio Premium: By aggregating dozens of small buildings into 500+ unit portfolios, Terra can sell to institutional investors like Blackstone or KKR at significantly compressed cap rates.
This “buy fragmented, sell institutional” model is similar to what single-family aggregators did 15 years ago—and it’s paying off.
Scaling Through Systems and Tech
Managing dozens of small properties across multiple cities sounds like a nightmare. But Terra Capital has solved the “Rubik’s Cube” of scaling with two key levers:
– Acquisitions Engine: A data-driven sourcing strategy that includes cold outreach, Craigslist, Facebook Marketplace, and off-market deals—backed by a dedicated underwriting team.
– Tech-Enabled Management: Cloud-based tools like Buildium, layered with 20+ integrations, streamline everything from leasing to maintenance. Tenants can even troubleshoot repairs via video tutorials, saving time and cost while improving satisfaction.
This disciplined approach allows Terra to comfortably close on ~25 units per month today, with capacity to scale into the hundreds over the next few years.
Lessons for Passive Investors
Ray left investors with several takeaways:
– Look beyond the “guru playbook.” Small multifamily assets can deliver exceptional returns when aggregated and managed correctly.
– Focus on stability over flash. The Midwest may not trend on social media, but its fundamentals make it an ideal long-term bet.
– Systems are the secret to scale. The right processes, tech, and people turn scattered small deals into institutional-quality portfolios.
When asked what he looks for as an LP himself, Ray emphasized passion and vision: “I want to know why someone is doing this. Motivation is everything. I want to invest with people who will still be here 20 years from now.”
Final Thoughts
In an industry obsessed with “bigger is better,” Terra Capital is proving that smaller can be smarter. By focusing on overlooked assets in resilient Midwest markets, they’ve created a scalable model that unlocks hidden value—and one that passive investors should be paying close attention to.