JF2777: The Key to Exceptional Asset Management ft. Brendan Chisholm

Before he became a multifamily syndicator, Brendan Chisholm worked for multiple Fortune 500 companies. His previous roles in program management, lender management, operations, and contract negotiation all helped him cultivate the skills needed to excel in asset management. In this episode, Brendan discusses his firm’s latest value-add deals, what the asset management process has been like, and his advice for syndicators who struggle with organization.

 

Heavy Value-Add in Newnan, GA

Brendan’s firm, BKC Holding, LLC, bought a multifamily property in a blue-collar neighborhood outside the Atlanta metro area in February 2021. The original plan was to rent out the renovated units for $1,000, but one year later, they are renting at $1,350, which is 35%–40% above their original projection. Brendan credits both conservative underwriting and sheer luck. Now, he says, the plan is to continue driving top-line revenue and make sure expenses fall in line once the refinance process begins. 

 

His Approach to Asset Management

Brendan has picked up some valuable skills from working in corporate America. He’s extremely organized, is able to put trackers in place, and “takes the bull by the horns” when it comes to developing and executing a business plan with his team members. He maintains regular contact with the construction and operations teams, as well as the regional property manager.

 

Brendan’s Advice for Syndicators

He recommends establishing a big-picture goal first, then working backward and identifying smaller tasks and completing them one at a time, building momentum to reach your ultimate goal. The most important skill he’s developed is organization — if you’re not an organized person, Brendan recommends writing everything down. If you’re unable to do it yourself, find an executive assistant who can help! 

 

Best Ever Lesson

“This is a team sport and the best part about this is everybody has their own strengths. Just go towards those strengths. Double down on your strengths within apartment syndication and then the team will fill in the rest of the way with you. You don’t have to be a jack of all trades to be able to do this.”

 

Brendan Chisholm | Real Estate Background

 

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TRANSCRIPT

Slocomb Reed: Best Ever listeners, welcome to The Best Real Estate Investing Advice Ever Show. I’m Slocomb Reed and I’m here with Brendan Chisholm. He’s joining us from Stanford, Connecticut. He is the founder of BKC Holdings LLC. They are the GP of a 53-unit apartment property in Newnan, Georgia, 70 units in Rock Hill, South Carolina, and he’s an LP on 272 doors in Houston, and 64 in Columbia, South Carolina. Brendan, can you start us off with a little more about your background and what you’re currently focused on?

Brendan Chisholm: Sure. Background since graduating from college in the late 2000s, I was working for multiple Fortune 500 companies in program management, vendor management, and operations. Now working full-time for a telecom provider, doing business developments, negotiating right of way and right of entry agreements with multifamily developers in that area; my five to nine, which is my core focus outside of my family. I’m also a general partner, as you mentioned, on 123 units, all acquired within the last 13 months.

My focus within our group is asset management, so really doubling down on that. The deals that we have are pretty heavy value-add deals, so a lot of attention is being paid to making sure that we’re optimizing the performance of those deals.

Slocomb Reed: Gotcha. It sounds like you have a lot of experience with contract negotiation. Outside of your apartment syndication, are you involved in acquisitions at all as well, or primarily just asset management?

Brendan Chisholm: Primarily asset management. One of the partners in both of our deals has more of a focus on the acquisition side. I’m more on the asset management, vendor relationships, property management relationships, as well as lenders and looking over all those fund loan docs.

Slocomb Reed: Awesome. You have a lot of experience negotiating with contractors and vendors, and it sounds like also local regional authorities for your current job, negotiating right of way access… I can see where a lot of that translates well into asset management. So you’ve bought two properties, one of them, the one in Rock Hill, South Carolina was very recent. How long ago did you buy in Newnan, Georgia?

Brendan Chisholm: We bought the deal in Newnan, Georgia on February 23rd, 2021. We bought the deal in Rock Hill, South Carolina on February 11th, 2022.

Slocomb Reed: Gotcha. So you’ve had the one in Georgia for a year now. You said you focus on heavy value-add, so that first year is very involved. Tell us about that deal, tell us about your acquisition of it, what you were looking at, what you were projecting back in February of 2021, and how the last year has gone.

Brendan Chisholm: Sure. Last year — so we purchased the deal for $4.2 million, it’s a 53-unit deal, off-market, put about $800,000 of CapEx into it. At the time of acquisition, the deal was at 78% occupied; there was nine total down units at the property itself. We went in planning to renovate 23 of those units; 30 of those prior were owner renovated. The nine down units plus the 14, we went in, upgraded all of the kitchens, and all of the bathrooms. Did some flooring, and painting, as well as install all-in-one washer-dryers into the units. The total all-in cost is just under $5.3 million with closing costs and all of that.

For those what we consider our owner renovated units, we were underwriting just under $1,000 for what we thought we could get for those renovated units based off of what market comps they’re using, what we saw as benchmarks for the area. A year later, we’re 35%-40% above our underwriting, getting $1,350 for all those two-bed one-baths. Had a lot of success at that property so far, and just making sure we’re driving top-line revenue, and making sure the expenses fall in line for when we start the refinance process in a couple of months.

Slocomb Reed: Awesome. Within Georgia, where is Newnan?

Brendan Chisholm: It’s 40 miles southwest of downtown Atlanta, 30 miles southwest of Hartsfield Airport, right off of I-85.

Slocomb Reed: Gotcha. So not quite Metro Atlanta.

Brendan Chisholm: No, it’s not. It’s about a 50-mile radius outside of Atlanta. Had some good stories happen in the Newnan since we acquired the property. Plans to bring in some industrial distribution centers. It’s more of a blue-collar area in the southwest part of the Atlanta metro.

Slocomb Reed: Blue-collar area in Georgia, outside the Atlanta metro is not the kind of place where you expect a 35% rent growth or a 35% rent increase above projections. What accounts for that?

Brendan Chisholm: What accounted for that? Low inventory; supply was very tight. At the same time as our acquisition, one of our ceiling properties also was acquired. So I think with a moratorium on being able to build properties in Newnan at the time, just a low supply, a low absorption rate, we were able to capture the rent, and a lot of the rent growth that was slanted down in Atlanta, as well as the outskirts areas as well.

Slocomb Reed: Gotcha. You mentioned you guys are headed towards a cash-out refinance; the plan is to hold this long-term. Are you still planning to sell soon, are you refinancing your limited partners out or are you keeping them in the deal?

Brendan Chisholm: We’d like to keep them in the deal. That’s one of the things we’re going back and forth with just based off of the valuation of the property and how high we are with our business plan. But ideally, we’d like to get some long-term debt on this and just hold it for quite a while. The valuation seems good, so we should be able to return the 75%-100% of the LP capital back to them. Then we’ll recalculate distributions at that point, but at least have very little capital at risk for our investors, and being able to send them monthly mailbox money.

Slocomb Reed: Yeah. It helps the IRR a lot when you give them back three-quarters of their money after around 15-18 months, right?

Brendan Chisholm: Yeah, it sure does.

Slocomb Reed: What are you projecting now?

Brendan Chisholm: For an IRR for the deal or for —

Slocomb Reed: Yeah. How soon do you think you’ll sell? What do you think your returns are going to end up being?

Brendan Chisholm: We underwrote this going in for a five to 10-year hold, which is a pretty broad number of years, but… With the plan that if we can manage the execution risk which was the value-add portion of it, it would return a large portion of the capital at the time of refinancing, and then hold it for five years afterward. We’re at a point now where the tailwinds that occurred in this market and at the property, we’re low 20s, 20%-24% IRR on this deal with a good 2+ equity multiple based off of how long we hold the deal for. But as you said, a 0.75 or a 0.1 equity multiple at the time of refinancing is almost like a multifamily BRRRR.

Slocomb Reed: Yeah, it’s awesome. I do have to ask, Brendan, based on the analysis that you were doing leading into the February 2021 closing, analyzing rents at $1,000 a month market and then ending up at $1,350, how much of it was your conservative underwriting and how much of it was luck?

Brendan Chisholm: I would say a combination of both. The luck occurred from just having the tailwinds of the rent growth at our backs. I just did a recent comp analysis for all the surrounding properties and — I’m not saying it gave me a chuckle, but what a difference a year makes, Slocomb. We were looking at the deal and the rents that we’re capturing now are some of the stuff for the class B plus, class A minus properties in that area. Those have gone up $200-$300 plus, and the whole market has shifted where that class B property has assumed those class A rents.

Conservatism is definitely good, but even when we were doing a conservative underwriting, we were still forecasting a 15% IRR. So it’s a lot more with just the tailwinds going in our backs, but I think it’s a combination of the two, I would say. Conservatism as well as luck. And sometimes it’s better to be lucky than good.

Slocomb Reed: Another factor here to your point, Brendan, because it sounds like the cosmetic finishes that you were putting into the units that you renovated were likely low A, high B class comparable, even if your location wasn’t. In an interview like this, a conversation between two people – you have to admit this is anecdotal, but I believe one of the things that we’re experiencing right now across the board is that millennials are less concerned with location and more concerned with cosmetics, updates, and the condition of the apartment itself, in a lot of cases.

This is not the best way to put this, Brendan; this is not directed at you, because I’m doing the same thing. It’s letting investors like us get away with being in a non-optimal location if we are delivering high-quality apartments. As you said, you redid bathrooms and kitchens and that’s stuff that millennial renters care about more than preceding generations. I think that’s part of what’s happening here.

Brendan Chisholm: You’re right. In a recent acquisition that we have in Rock Hill, we’re going to be doing a similar model as well. It’s one of those things – you buy in a certain class that you can keep your purchase price at a lower amount, and then you put in $20,000-$30,000 plus combined between interior and exterior renovations, and you have a superior product to what your comps are. It’s easier to be able to close the gap between where you think your benchmarks are and exceed your underwriting targets to make sure that you’re delivering upon the forecasted projections that you’re putting out there.

Slocomb Reed: Yeah. Let’s transition a bit, but let’s say on this deal, Brendan. You were the asset manager overseeing an $800,000 CapEx budget in a year or less, in the first year of the ownership of the asset. What did that look like at the beginning? How involved were you in that renovation?

Brendan Chisholm: We have six people as general partners on this deal. Everybody was trying to figure out once we got the deal under contract, where is everybody’s fit there. I saw there was an opportunity to apply what I’ve learned in corporate America. Just from being able to be extremely organized, putting trackers in place, and then essentially grabbing the bull by the horns and making sure I was working with the two guys who were on the acquisitions, and helping develop the business plan to carry out the business plan on our end. You start putting more things in place and it just becomes much easier to track for this first deal, and then be able to transition all of your trackers and KPIs over to your next deal as well.

Break: [00:14:31][00:16:18]

Slocomb Reed: Were you the one who was in conversation with the property manager regularly or the general contractors about the work getting done?

Brendan Chisholm: Yes, I was one of the three people who were in constant contact there.

Slocomb Reed: Gotcha. What did that constant contact look like?

Brendan Chisholm: At first, it was trying to make sure that we could have weekly meetings with the construction team as well as the operations team. And then because our construction team is an arm of our property management team, we just combined those two into weekly meetings until we started really seeing the stabilization of the property. Once we started getting into the high 80s and low 90s occupancy rates, that’s where I started to transition into weekly calls with the regional property manager, just to figure out how morale is doing at the property and what is needed to be able to do everything.

At that same time when I transitioned into those weekly meetings, we were able to move our operations call to a monthly basis. So it’s just staying on top of everything… There are still tasks involved with running our large syndication, similar to a business that needs to get done, not just on a property level, but as well as on a general partnership level… And making sure that we’re still delivering upon everything that we need to do on our end.

Slocomb Reed: That makes a lot of sense. Given your Fortune 500 background, Brendan, and how well that has translated into asset management for apartment syndication, Brendan, talk to the Best Ever listeners for a moment who are involved in asset management who don’t have your corporate background. They haven’t been involved in high-powered conversations with government agencies and contractors in their day job. What skills directly carried from your corporate career into asset management that you think people should be developing if they’re involved in asset management?

Brendan Chisholm: It’s a great question. I will say, I haven’t been involved with government contracts. But to your point, a lot of the things that I’ve applied is that in any project that you’re doing, you have an overarching goal of what you need to do. And then you need to be able to reverse-engineer how you’re able to get to that goal. There are sub-tasks that you need to be able to do and check off to make sure that you’re building momentum to that ultimate goal, something 30, 60, 90 days out, to keep yourself as well as your team on track.

With apartment syndication, it’s a team sport, and making sure that everybody’s contributing or everybody’s at least taking on a role… And then making sure that they deliver upon their timelines, to making sure, Slocomb, if one of your tasks is XYZ and we give you a two-week timeline, and I’m the person on the 13th day going, “Slocomb, are you ready to deliver upon this for our next meeting?” or  “Joe, where does this task stand?” So it’s being task-oriented, but having a higher goal in place to make sure that everything is being done in a timely manner, to deliver upon your results.

Slocomb Reed: To make sure I’m on the same page with you, Brendan, you’re talking about beginning with the end in mind, having the bigger picture goal first, and then from there, moving back towards what goals need to be accomplished in order for the big goal to be possible, and then what tasks need to be completed in order to hit each of those goals that play into the bigger picture.

Brendan Chisholm: You’ve put it much more elaborately than I did.

Slocomb Reed: [laughs] I don’t know about that. I got to listen to you explain it and then just have to summarize, so thank you, Brendan. Having the background that you have and now getting into value-add apartment syndication, what’s the most important skill that you have developed now as an apartment indicator over the last year and a half?

Brendan Chisholm: Most important skill… I think it’s organization. Just being organized, more so than anything else. I think that it goes hand in hand with the asset management role, because in an asset management role you are not managing the day-to-day operations of the property, you’re overseeing them; and making sure along those lines, that — as I’ve just mentioned, it’s keeping the wheels turning for the business. It requires me who writes down everything…

If you were to look at my task, it’s just filled with post-it notes, as well as project management trackers I use to make sure I’m staying on top of it, just so I understand where everything is going at that time, or what are the deliverables on the 18th of the month or the 22nd of the month, or is it something on a quarterly basis? Just making sure that the wheels are turning to ensure that the property is still running at full speed ahead.

Slocomb Reed: Brendan, are you familiar with the DISC profile?

Brendan Chisholm: I’m not.

Slocomb Reed: Okay. For our Best Ever listeners who are familiar with the DISC profile, I’m an SI, which is about the least organized personality profile that you can have. Brendan, talk to me directly – and hopefully, our Best Ever listeners get some value out of this. I do a lot to create systems, and most importantly, delegate tasks that require high levels of organization. Being organized does not come naturally to me. There are plenty of things in real estate investing that do; I try to make sure my time is focused on those. But also, I’m an owner-operator, so at the end of the day, everything falls on me. What advice do you have for me, some simple things that I can do that would help me stay more organized, and our Best Ever listeners of course?

Brendan Chisholm: Of course, I write everything down, I always carry my journal around. This isn’t my actual journal, I have a journal where I write my goals down every single day. But this at least, when I have conversations with people, either to be a property manager or a lender, I’m writing down things that are actionable for our entire team to be able to send them out. I’ll put it in here, and then making sure it’s uploaded into our project management system if it’s an action item for another team member. Just what else is there to do.

As I said, I’m a big advocate of just writing stuff down because I’m very forgetful, if it’s not written down and right in front of me, if it’s not scheduled onto my calendar. If you are looking at the calendar that I have for both work and personal, it’s just filled with each task that I have to do throughout the day, and making sure that I’m apportioning time throughout the day to ensure it’s completed. I have stuff throughout the day to make sure I pick up my kids from daycare, but I haven’t forgotten a single child yet. Hopefully, my wife, when she listens, smiles and nods.

Slocomb Reed: Yeah, hopefully so. My wife, she might not be smiling, but she’ll definitely nod when I talk about how disorganized I am. I’ll say, to that point, Brendan, I’m a big fan of alarms and calendar events. But also, and this is for our listeners as well, if you have a personality similar to mine where you’re much more people-oriented than task-oriented… I hired an executive assistant, and she is much more of a task-focused, detail-oriented mind of a steel trap kind of person. So whenever I need to remember something, I don’t write it in a journal, I message it to her. And then every day for at least 30 minutes, she and I have a meeting where she reminds me of all the things I message her and asked her to remind me of. She also helps me review emails and other correspondence. But literally, she is my checklist. I just send her throughout the day, throughout the week, it’s the middle of the night on a Saturday night, I can’t sleep and I think of something that I’m going to need to remember when I wake up in the morning or first thing Monday morning, I just shoot her a message, she clocks on Monday morning, she sees it, and it’s on my itinerary for later. In my experience being organized is critical, it also can be delegatable.

Brendan Chisholm: Yes, it can be. That’s a very good recommendation. One of the people in our general partnership has done something similar as well.

Slocomb Reed: Nice. And I will say, my executive assistant is a virtual assistant in the Philippines. I will also say, we’re recording in March of 2022; I’ve been working with virtual assistants in some capacity in the Philippines since 2014, so I’ve gotten good at it. But it is possible to hire someone affordably virtually to handle a lot of the responsibilities that an executive assistant handles. Brendan, are you ready for our Best Ever lightning round?

Brendan Chisholm: I am, Slocomb.

Slocomb Reed: Awesome. What is the Best Ever book you’ve recently read?

Brendan Chisholm: Zeckendorf. It’s the biography of Bill Zeckendorf, who was a real estate developer, pre-World War II, post-World War II, from New York City. He has his fingerprints on a bunch of office developments throughout all of North America.

Slocomb Reed: Nice. What is your Best Ever way to give back?

Brendan Chisholm: My wife and I both donate to our local food bank every single year, making sure that we can bring Thanksgiving dinner to the locals in our community.

Slocomb Reed: What is the Best Ever lesson you’ve learned in apartment syndication?

Brendan Chisholm: This is a team sport. The best part about this is everybody has their own strengths; just go towards the strength. Double down on your strengths within apartment syndication, and then the team will fill in the rest of the way with you. So you don’t have to be a jack of all trades to be able to do this.

Slocomb Reed: Awesome. Brendan, a related question, what’s your Best Ever advice?

Brendan Chisholm: Best Ever advice – grind with a purpose.

Slocomb Reed: Grind with a purpose. That’s great. Brendan, where can people get in touch with you?

Brendan Chisholm: You could find me at my email address brendan@bkcholding.com. Hopefully, by the time this podcast comes out, I’ll have a refurbished website at brendanchisholm.com. Or you can find me on your social media, LinkedIn, Instagram, or Facebook.

Slocomb Reed: Awesome. Well, thank you, Brendon.

Brendan Chisholm: Thanks, Slocomb.

Slocomb Reed: Best Ever listeners, thank you as well. If you got value from this episode, please do subscribe to our show, leave us a five-star review and share this with a friend who you know is involved in asset management or executing a value-add business plan in commercial real estate so that this conversation with Brendon Chisholm can add value to them too. Thank you and have a Best Ever day.

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JF2773: 9 Ways to Acquire Multifamily Deals in a Hyper-Competitive Market ft. Cody Laughlin

Cody Laughlin serves as managing partner and director of acquisitions for his Houston-based multifamily firm, Blue Oak Capital. Since joining forces with his two partners in 2019, Cody has learned a thing or two about navigating the hyper-competitive multifamily market. In this episode, he explains what actions have helped his team to acquire 750+ units across four properties:

1. Prioritize broker relations. Brokers are your gatekeepers to the commercial real estate world, Cody says. All of his deal flow comes through broker relations. He and his partners have a list of about 40 brokers across their markets, and they make an effort to engage with each of them regularly.

2. …But make sure you don’t waste brokers’ time. These are very busy individuals who are going to spend their time where it’s most efficient — on people who are closing deals. Cody focuses on building broker relationships by closing deals and getting transactions done rather than attempting a wine-and-dine approach. 

3. Find ways to add value. Everything right now is coming down to price and risk capital, Cody says, so you have to find ways to be creative and add value when you’re acquiring properties. 

4. Be prepared to pay full market price. You’re also going to have to put up some sizable risk capital to give the sellers confidence that you’re fully bought in and you’re going to make this transaction happen, Cody says.

5. Increase your due diligence and inspection periods. The faster a seller can get to close, the higher your chance of getting the deal awarded. 

6. Leverage the experience of other operators when necessary. Due to the aggression in the marketplace and not having quite the track record as some of their competitors, Cody and his partners began cosponsoring with other operators with more experience and added value to those deals by raising equity. 

7. Build a robust marketing funnel. You’ve got to go out there and build your network, and you do that through thought leadership platforms, Cody says. He and his partners started with a meetup and a podcast, then incorporated email marketing and social media to grow their network even more.

8. Establish trust and relationships to attract investors. Cody believes creating successful investor relationships comes down to focusing on their needs, finding an alignment of interest, and being authentic. That method has worked well for him and his partners. 

9. Take action. Right now is still a phenomenal time to be in commercial real estate, Cody says. Although it is hyper-competitive, you can’t let that deter you or put you in a state of fear. Put yourself out there, take action, and go find opportunities.

 

 

Cody Laughlin | Real Estate Background

 

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TRANSCRIPT

Ash Patel: Hello Best Ever listeners, welcome to The Best Real Estate Investing Advice Ever Show. I’m Ash Patel and I’m with today’s guest, Cody Laughlin. Cody is joining us from Houston, Texas. He is the managing partner of Blue Oak Capital, a multifamily acquisition firm focused on existing core multifamily assets across Texas. Cody’s portfolio consists of being a GP on almost 850 units, and he also works part-time as a registered nurse. Cody, thank you so much for joining us, and how are you today?

Cody Laughlin: Ash, I’m doing great, man. I want to thank you so much for having me on. I’ve been a big fan of the Best Ever podcast for many years now. It’s just an honor to be here, not only as a fan, but as a guest.

Ash Patel: Cody, the pleasure is ours. Before we get started, can you give the Best Ever listeners a little bit more about your background, and what you’re focused on now?

Cody Laughlin: Absolutely. Again, as you mentioned, I’m a managing partner at our company Blue Oak Capital, and I’m also the director of acquisitions for our team. We focus on core, core plus assets across Central Texas, Houston, and San Antonio, primarily. I’ve been a real estate investor since 2010, spent many years in the single-family residential space, pursuing multiple different strategies in residential real estate… But realized after many years and after a lot of expensive lessons along the way that this is just really a hard model to scale.

For me, real estate was a path to financial independence, financial freedom, and entrepreneurship. So after many years of going through a lot of headaches, I decided to make a pivot and pursue multifamily syndication as faster scalability to reach my investment goals and theses. So here we are, met two great partners, we formed Blue Oak Capital in late 2019, early 2020, and we’ve been off to the races since.

Ash Patel: Before multifamily was it just single families?

Cody Laughlin: Yeah. Single-family, and I actually pursued some non-real estate-related business ventures, but that’s another topic for another day.

Ash Patel: That’s a whole different podcast subject. The two partners, how did they come into the mix?

Cody Laughlin: Networking. I was working with a different partnership group on another opportunity. In late 2019 I was introduced to my first partner John through a mutual connection, and we just really had a great synergy and great alignment of interests. We started finding opportunities to work together and really saw a long-term partnership developing, so we decided to formalize our partnership through that opportunity.

Midway through 2020, John met our third partner, Brian, through a virtual networking event, and connected with him offline, started building a little bit of rapport, and introduced him to me as well. Again, just great synergy, great alignment of interests, great complementary skill sets to our partnership. The stars aligned. We added Brian to our team and – just one more pivotal piece to the puzzle, so to speak,

Ash Patel: Is it one of your goals to do real estate full-time?

Cody Laughlin: Absolutely. This is definitely the long-term vision for us, and this is where we see our path to securing that financial independence that we’re all trying to achieve.

Ash Patel: And your role is director of acquisitions. How do you find multifamily units?

Cody Laughlin: That’s a great question. It’s really challenging right now in this market cycle. But all of our deal flow comes through broker relations. Brokers are your gatekeepers to the commercial real estate world, especially in the size of properties that were looking at, the 100-plus unit apartment buildings. All of our deal flow comes through broker relations, just nurturing those, and trying to be involved in looking at any opportunity that comes across that fits our investing thesis.

Ash Patel: What is your investment thesis?

Cody Laughlin: Again, that core, core plus really for us right now is our primary strategy given where we’re at in this market cycle and the execution risk that comes along with the value-add play, especially when you’re paying a premium, like we are right now in today’s market cycle. We really like the newer stabilized product, something that can be a long-term hold, with less deferred maintenance, less cap-ex needed to properly operate. We’ve made that pivot kind of halfway through last year and made that our core thesis moving forward.

Ash Patel: Cody, you’ve mentioned market cycle a few times. Give me your thoughts on that.

Cody Laughlin: Oh, man. It’s an interesting one, for sure. We entered multifamily 2019; a very, very bullish cycle. I think a lot of people at that time thought we were maybe at the top of that expansion cycle. With COVID hitting, again, everybody thought, “Okay, here’s the correction”, and then what would we see after? The market just exploded even more, and just even more aggressively. So I definitely think that we are still in an expansion part of the cycle as of United States. If you look at the supply and demand imbalance, we are in a significant supply shortage for multifamily housing and residential housing. There’s still a lot of tailwinds for supply and development. I think we still have a bright runway here for the next couple of years as far as commercial real estate goes.

Ash Patel: That’s why you guys are buying mostly newer properties?

Cody Laughlin: Yeah. Again, I think, obviously everybody knows right now that we’re entering a rising interest rate environment; how that will impact multifamily I guess it will be dependent on how aggressive the Fed will raise rates this year. But I think with that, if the market does slow down any at all, or even pull back some over the next couple of years – again, we want to be in a position to hold assets longer term, five, seven, even 10 years. When you’re holding that ’60, ’70 product that constantly has deferred maintenance issues or you’re constantly worried about what problems are going to need to be fixed tomorrow – that kind of rustles your feathers a little bit. We’d like to be able to sleep better at night, knowing that we have a quality product that doesn’t have all those deferred maintenance headaches that come along with it.

Ash Patel: Does your business model have value-add, or do you buy fully renovated properties?

Cody Laughlin: We’re typically finding properties, like I I said, that are in great shape and newer products. We are looking for a light value-add component. If you think about the market and how fast expectations are changing, how fast standards are changing, we’re looking for a product, let’s call it 2000-2015, that could use a light cosmetic upgrade. Maybe changing the color scheme, color palette, adding a few modern technologies like prop tech, things like that, that are becoming an expectation for today’s renters and demographic. So we are looking for a light value-add component but we don’t want to get into something that requires a $15,000-$20,000 per door renovation. Something just a few thousand dollars per unit that we can make a quick turn on, and capture upside on that.

Ash Patel: Cody, you mentioned broker relationships. Is it one broker, is it many, is it two or three that feed you most of your deals?

Cody Laughlin: Yeah, it’s many. We have a long list of broker relations across our markets, and we try to engage with each of them. I spend probably more time with those who are capturing most of the market share in our markets. There are several that we probably engage with more often than with the other ones. But yeah, I think you’ve got to be careful with isolating yourself just one or a small list of brokers. We probably have 40 brokers between our two markets.

Ash Patel: When you sell a property, do you just spread the wealth amongst these brokers?

Cody Laughlin: Well, there hasn’t been a circumstance where we’ve gone full cycle yet. But there is a kind of industry courtesy that’s expected that — most often you see when a seller sells an asset to you and you complete that transaction, when you’re ready to bring the deal to market and go full cycle, it’s a common courtesy that you go back to that same broker, barring a negative conflict. But we would expect to extend that same courtesy.

Ash Patel: That’s a good point. How do you get in front of your competition with these brokers?

Cody Laughlin: Now, this is a great question. It’s increasingly harder to stay competitive in this market cycle; even guys that are much more experienced than we are, that have much larger portfolios, are having challenges in today’s marketplace. Everything right now is coming down to price and risk capital. Ultimately, those are the two biggest drivers in today’s marketplace. I don’t think there’s really anything that’s market rate and that’s at a discount anymore. We get price guidance, and that’s kind of your starting point now, it’s no longer your target. So you have to find ways to be creative and find ways to add value when you’re acquiring properties… But you have to go in knowing that you’re going to pay the full market rate and you’re going to have to be putting up some sizable risk capital to give the sellers that confidence that you’re fully bought in, and you’re going to make this transaction happen. And then also looking at ways to increase your due diligence periods, your inspection periods; looking at shorter timelines. The faster a seller can get to close, the higher chance that you have of getting the deal awarded. I think between those three factors, that’s the most effective way to be competitive right now.

Ash Patel: Are there any soft sells? If you think back to like pharmaceutical or medical sales reps, they’re wining and dining the Docs a lot. Do you guys do that with brokers?

Cody Laughlin: I was just speaking on this with another podcast… To me, I don’t really find that to be very effective in the initial engagement. I think after you’ve transacted with a broker and you’ve kind of built that relationship and that trust of knowing that, hey, you can take a deal to close, then that’s an opportunity to make it more personal. But ultimately, these are very busy professionals. Let’s face it, there are a thousand new syndicators every single day that are calling all the same brokers. Their time is becoming more and more limited, which means that it’s becoming more and more valuable. They’re going to spend it where it’s most efficient which is going to be on guys who are closing deals.

Our focus is, “Hey, let’s close deals first, and let’s build a relationship that way. And then I’d be happy to take you to dinner and stuff after that.” But I don’t want to waste the broker’s time. I want to build that relationship by closing deals and getting transactions done.

Ash Patel: Good point. Cody, 850 units – how many properties is that across?

Cody Laughlin: That’s across four properties.

Ash Patel: What markets are you in?

Cody Laughlin: Again, our primary acquisition pipeline is Houston, San Antonio, and Central Texas, but our portfolio as a whole – we have three assets here in Texas, and then one in Columbus, Ohio that we co-sponsored.

Ash Patel: Why Columbus?

Cody Laughlin: The relationship with their lead sponsor; we currently sponsor Chris Jackson of Sharpline Equity; I’ll name drop for him. A great guy; we just wanted a way to build that relationship with them and work with those guys. They’re present in that market, they have assets in that market, so we trusted not only their experience, but their presence in that area. Once we looked at Columbus, we saw that it had really good fundamentals, so it gave us a lot of confidence to participate in that. But it’s just like anything else, it comes down to relationships and experience.

Break: [00:13:26][00:15:13]

Ash Patel: What value did you bring to the table?

Cody Laughlin: Our primary value proposition was being able to raise capital. We’d spent about a year and a half building a framework and infrastructure for our business, building out our database through our marketing funnels, so that way we can position ourselves to go and syndicate and raise capital. Ideally, that was going to be for our own deals. But again, with the aggression in the marketplace and not having quite the track record as some of our competitors, we knew that we had to leverage the experience of other operators to really break-in. So that’s how we started; we started co-sponsoring with other operators that had much more experience and we added that value through raising equity. We also love to participate in the asset management side as well, to be involved in some of the decision making and give input where it’s needed, and help direct the business plan.

Ash Patel: Cody, can you talk about the differences between multifamily in Columbus, Ohio, a typical Midwestern city, versus Texas?

Cody Laughlin: Different demographic. Obviously, the demographic there is a little bit different than it is here. Whether that be lower-income, working-class versus similar demographic here. Houston primarily where we’re based out of, it’s primarily a low-income working-class demographic. But on this core, core plus product, we’re typically focusing on more of your white-collar, young working professionals. I think that’s the biggest thing, is just working demographics. Both states have very similar laws and legislation around business owners that support business owners. We definitely liked that aspect; we want to be in business-friendly states for sure. But I would say the demographic is probably the biggest difference between the two.

Ash Patel: And rent growth, appreciation, cap rates?

Cody Laughlin: Cap rates are a little bit looser there. We’re seeing cap rates at about, call it, maybe five, mid-five cap rate, whereas, versus Texas here, everything’s kind of a sub four cap right now, which is kind of crazy to talk about; two years ago, we’d be gawking at that. But now it’s that’s our standard. It is more of a cash flow market, you’re going to be able to find a little bit better yield in a market like Columbus, versus here in Texas. Again, it’s very, very hyper-competitive; pricing is aggressive. It’s kind of harder to find those yields here in Texas.

Columbus, if you look at it from a fundamental perspective, it’s one of those Steady Eddy markets. It’s not like robust growth, you’re not having this massive net in migratory patterns like you’re seeing here in Texas. But it’s a great community for acquiring assets, operating efficiently, providing a good quality resident experience, and then just holding them for five, seven years for cash flow.

Ash Patel: Cody, you mentioned, you spent the better part of a year setting up your business before you started acquiring properties. One of the things you mentioned was your marketing funnels. Can you give us an example of some of those?

Cody Laughlin: Yeah. We built out a robust marketing funnel, and we started out with different thought leadership platforms, very similar to what we’re doing now. Our podcast, our meetup… And really, I give a lot of credit to Joe because I read his book, the Best Real Estate Investing Advice Ever book. He laid that out in his book, you’ve got to go out there and build your network, and you do that through thought leadership platforms. So we started that, we started a meetup, and started the podcast… And as we started to build our network, then we started putting things like our newsletter in place, our email marketing, and then really leveraging social media. This is a big one – social media is the way that the world is connected today. If you’re not visible on social media, then you’re really missing out on a prime opportunity to grow your database.

So we leverage social media in addition to our thought leadership platforms. And especially through COVID, when everybody was secluded to their homes and not really getting out and doing face-to-face networking, I think we 4X’d our database that year just because of all the virtual networking we were able to do and the outreach that we had from all those different funnels. So thought leadership platforms, social media, and email marketing were the biggest funnels for us.

Ash Patel: You know, I just googled that not too long ago. Best Ever listeners, if you google “Joe Fairless thought leadership platform”, he breaks down, I think it’s a top 10 list of things that you can be doing to increase the size of your network. Awesome. Is there a particular niche that you’re looking for in terms of size of units, purchase price, and cap rate?

Cody Laughlin: For us, we particularly look at value over count. We’d like to be above 100 units just from an operational efficiency perspective. As you go bigger, things get easier to operate, you can have larger teams, your property management teams can have more staff to operate your business plan… So we like to be typically above 100 units, but for us, we focus on value, and this is really from the debt side. Anything over 20 million, kind of the same thing, the debt gets a little bit easier, terms get to be a little bit more flexible; especially with the transactional volume of last year, the bridge, everything was executed on the bridge, so all the debt funds and bridge lenders really kind of exhausted their debt funds. Anything below 20 million, terms are a little bit more rigid, they were going to make you pay heavier spreads on some of those terms… Wo we like to really be above that $20 million thresholds. For us, our buy box is call it 30 to 50 million, 100 to 250 units I would say, and really focusing on that 1990s vintage or newer.

Ash Patel: Cody, what’s your return to investors?

Cody Laughlin: It’s going to be very deal-specific. For us, what we’re seeing in the marketplace right now, especially in our markets in this core, core plus product, we’re looking at a 4%-6% cash-on-cash, call it 12%-13% IRR or higher, and then we always look to achieve a 1.7X multiple. We’re typically modeling all of our business plans on a five-year hold.

Ash Patel: How do you sway investors to your deals when the returns are fairly similar amongst a lot of multifamily syndicators? What separates you guys?

Cody Laughlin: Well, it comes down to trust and relationship. You’re right, there are plenty of other operators out there that are probably equally or much more qualified than we are. But being able to leverage our relationships with investors, we find people that are attracted to us, for whatever reason… We like to think we’re good guys, we’re authentic, we’re transparent, and we’re relatable. We’re everyday people, just like you and me Ash, and I think that’s something that people can relate to. But aside from that, it’s just again, offering something of value, offering people opportunities to get into this direct private real estate, like commercial real estate, and grow their portfolios in a way that suits their thesis. But I think it just comes down to again, focusing on the relationship, finding that alignment of interests, and being authentic is key. It’s worked out very well for us.

Ash Patel: How often do you communicate with people in your database that are not investors?

Cody Laughlin: We send out monthly newsletters, that’s our primary way of communicating. Then we have a weekly, what we call drip mail campaigning that goes out. That’s to share the different content that we’re curating or things that we find valuable, that we can share through our database. Even though somebody is not actively invested with us or maybe not in our database, our direct contact list so to speak, we still try to engage with people, and we look for opportunities to add value to other people. “Hey, you may not want to invest with me and that’s completely fine. But maybe we know somebody that might be better suited for you. Or maybe we can make a referral to a connection, or a professional that may help you grow your business.”

So we try to have as many of those touchpoints as we can. We’re talking to potential investors or partners on a weekly basis. Brian is our second partner, third partner, and he’s our investor relations director. Between his schedule and mine, we’re connecting with 10 to 15 people a week on average, and just looking for ways to add value. It can’t just be about us. We’re not trying to be selfish in how we get value. It’s about how we give value back to others as well.

Ash Patel: Cody, what is your best real estate investing advice ever?

Cody Laughlin: Oh, that’s a good question. I would definitely say, take action. I think right now is still a phenomenal time to be in commercial real estate. It is hyper-competitive, but you can’t let that deter you or can’t let that put you in a state of fear. Put yourself out there, take action, and go find an opportunity.

Ash Patel: Cody, are you ready for the Best Ever lightning round?

Cody Laughlin: Let’s go.

Ash Patel: Let’s do it. Cody, what’s the Best Ever book you recently read?

Cody Laughlin: Think and Grow Rich. I read that book many years ago and I’ve been reading it again. Success is a mindset, so I really love just revisiting that book and its core principle. I highly recommend that one.

Ash Patel: Cody, what’s the Best Ever way you’d like to give back. So

Cody Laughlin: We leverage our platforms to try to give back to our community, for example, in our live in-person meetup events that we host every month. This past Christmas, we actually hosted a toy drive. For attendance, everybody, their admission to attendance was donating a toy to a local toy drive, which we ended up donating, I think over 100 toys to a local charity. That was really special. So we like to leverage our platforms to try to give back to our communities.

Ash Patel: Cody, how can the Best Ever listeners reach out to you?

Cody Laughlin: Well, we’re not hard to find. I like to say we’re all over social media. You can find us on LinkedIn, @codylaughlin. If you want to check us out, you can visit our website at www.blueoakinvestment.com. If you want to reach out to me directly, feel free to email me at cody@blueoakinvestment.com.

Ash Patel: Cody, I’ve got to thank you for your time today and for sharing your advice. You started in 2010, single-families, 2019, going to the multifamilies, assembled a great team, and you’ve got a great niche. Thank you again for sharing your story.

Cody Laughlin: Thank you so much for having me, Ash, I appreciate it.

Ash Patel:  Best Ever listeners, thank you for joining us. If you enjoyed this podcast, please leave us a five-star review and share this episode with anyone who you think can benefit from it. Also, follow, subscribe, and have a Best Ever day.

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JF2766: 5 Tips for Transitioning from Syndications to Funds ft. Ken Gee

Ken Gee is a longtime multifamily syndicator who recently started his own fund. Ken tells us what his journey has been like, what he’s learned, and what advice he has for other syndicators looking to make the same transition:

  • Retain your syndication investors when you make the switch. Ken was told it wasn’t possible, but he was able to retain 90% of his syndication investors as fund investors by designing the fund terms to remain as close to syndication terms as possible and waiving commitment fees.
  • Deploy capital responsibly and in a timely manner. Ken recognizes that he now has time constraints. It’s his responsibility to deploy investors’ capital without taking too long because every minute his investors’ capital sits in a bank account, it’s earning nothing.
  • Make sure you know what you’re doing before handling other people’s money. Investors are going to ask you tough questions, and you need to understand your business well enough to be able to answer all of them. If you’re not in that position, Ken says, then you probably shouldn’t be trusted with other people’s money.
  • Total transparency is the key to attracting investor capital. The number-one thing potential sponsors need to know is whether they can trust you. Ken recommends creating a profile on a site called Verivest, which vets all of your deals to ensure the investors who visit the site know you’re credible.
  • After closing a deal, sit on your hands for a bit. Based on personal experience, Ken recommends taking 30–60 days after closing a deal to get to know a property before launching into renovations. This way, if you need to reallocate your improvement money, you can do it in a smart way.
  • Do the work and play the long game. When it comes to purchasing apartments, Ken says it’s imperative to thoroughly understand the numbers, the neighborhood, and why people want to live in your property. Doing the work and playing the long game in this business, he says, is the key to success.

 

Ken Gee | Real Estate Background

  • Founder of KRI Partners, part of the KRI Group of companies, which is a real estate syndication and real estate private equity firm that specializes in the acquisition and management of multifamily apartment assets located in the South.
  • Portfolio: 
    • They have completed 16 deals (10,000+ units) worth ~$50M. 
    • They invest as LPs in all their deals, and Ken has personally invested in two deals as LP ($100,000).
    • They focus on B/C class value-add multifamily between 100–250 units. 
    • They are GP of several syndications and one blind pool fund. 
    • They also do some third-party management.
  • Based in: Cleveland, OH
  • Say hi to him at:

Greatest Lesson: Sit on your hands for 30/60/90 days after buying a property to make sure you know everything you need to know before spending your renovation budget. This hedges against spending all your money only to discover problems you didn’t know about.

 

Click here to know more about our sponsors:

Deal Maker Mentoring

 

PassiveInvesting.com

 

 

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TRANSCRIPTION

Ash Patel: Hello Best Ever listeners, welcome to The Best Real Estate Investing Advice Ever Show. I’m Ash Patel and I’m with today’s guest Ken Gee. Ken Gee’s joining us from Cleveland, Ohio. He is the founder of KRI Partners, which is a real estate syndication and private equity firm specializing in multifamily. They’ve completed 16 deals as GPs and have also started a fund. Ken, thank you for joining us and how are you today?

Ken Gee: I’m doing great. Thanks so much for having me.

Ash Patel: It’s our pleasure, Ken. Before we get started, can you give the Best Ever listeners a little bit more about your background and what you’re focused on now?

Ken Gee: Sure. Well, our focus now is 100% multifamily. I started this company back in 1997, back when I was at Deloitte. I spent seven years in public accounting as a CPA with Deloitte, and spent five years as a commercial lender with a local bank. During that time, I bought my first apartment building in a suburb of Cleveland, an area called Shaker Square near Shaker Heights. Over the last 23 or so years, I continued to buy and sell; about 15 years ago, we left. Well, we’re still in Cleveland but we don’t do anything in Cleveland anymore; everything we do now is in the growth states right now. Central and Northern Florida is where our focus is.

Ash Patel: How long did you work for Deloitte while you were doing real estate?

Ken Gee: Yeah, that’s a good question. It was probably three or four years maybe, something like that.

Ash Patel: That’s some long days.

Ken Gee: It was. It’s interesting that you say that, because I had to make sure that the property that I bought was big enough, that allowed me to have someone on site. It was a whopping 28 units. But I could pay a part-time woman to live there. I gave her a unit for free and she did a lot of the leasing and met the vendors and things like that. Yeah, it was tough. We did all the bookkeeping, of course, ourselves but – yeah, it really drove the bus in terms of what type of property we bought. It’s probably the reason we didn’t start out like a lot of people do with singles and doubles.

Ash Patel: Ken, when you say “we”, who purchased that first property? Was it just you? Did you assemble a group of investors or partners?

Ken Gee: No. It was me and my in-laws. I wouldn’t advise everybody to do this, but I borrowed half of the down payment on my home equity line, my in-laws put in the other half, and we bought the property. They trusted me; it’s your family, it’s the easiest way to get people to trust you. We worked for three years, and we each put in 35,000 on that first deal, and we each got back 100 three years later. That’s how we did it. It wasn’t until probably 2004 or 2005, something like that, before we started inviting other people into our deals. Because I don’t like learning on someone else’s dime, I don’t think that’s fair, so I wanted to learn as much as I could on my own dime, making my own mistakes. We’re still learning, don’t think that we aren’t learning even today. But it was important to me that we could get our feet wet and really kind of figure out what’s going on and show some success before we went out and invited other people into our deals.

Ash Patel: Can you give us the progression between when you started on that first deal and when you took on other people? How many deals were there?

Ken Gee: Probably seven or eight maybe. I’d have to look to be sure, but it’s somewhere in that range. Probably six, seven, eight; they were all in Cleveland.

Ash Patel: Were you just recycling your own money for that?

Ken Gee: Yeah.

Ash Patel: In terms of scaling your company, what was your first hire?

Ken Gee: What’s my first hire? Oh, a bookkeeper. Somebody to work in the office to help me out.

Ash Patel: What was your next hire?

Ken Gee: I’ve gotta back up, my first hire was that property manager lady that helped me on my very first deal. So yeah, let me correct that; she was the first person. The second person was probably a maintenance person, the third person was probably a maintenance person. Then probably, after I left Deloitte, I hired somebody to work in the office with me, in the back office. And then I couldn’t tell you what was next after that.

Ash Patel: As you’re scaling the company, have you taken on partners, or is this wholly owned by you?

Ken Gee: The company’s wholly owned by me. There have always been other partners in my early deals; other than the ones I deal with my family I also did some deals with a local attorney, who’s now retired. He was kind enough to trust me and had faith in me early on. We did a number of deals together. That’s kind of how that progressed.

Ash Patel: Got it. Ken, now you’re starting a fund… There seems to be a lot of interest in people wanting to start funds. Why did you make that decision?

Ken Gee: Good question. The first fund is behind us, it’s done, raised, closed; it was about $13 million. The reason we did that – we were buying primarily in central and northern Florida. A super competitive market as you can imagine, I’m sure you know that. People that we compete against for deals, they’re generally syndicators. So think about this, “Mr. Seller, I want to buy your property. I’m a syndicator, I promise you, I’ll be able to raise the money to get the deal done.” Then I come along, “Mr. Seller, I have a fund, I’ve already raised the money. Consider my deal over the other guys.” Guess what? Money in hand is usually going to get the deal. I call it – the syndicators put the deal ahead of the money, we put the money ahead of the deal to make us stronger buyers in the markets that we’re in.

The other thing that happened – a lot of other smaller things happened that I didn’t necessarily understand upfront, and that was that you were implicitly a more sophisticated buyer. Sellers recognize that and appreciate that. You’re going to be more efficient, because you have more experience. It’s hard to raise a blind pool fund if you’ve never done this before. Most people give their money to those kinds of folks in the business. And the last thing was the brokers took us far more seriously because they knew we had the money, and they know that we’re at a timeframe to deploy the capital. So they were more incented to bring us deals because they knew that we would get them closed.

Ash Patel: Can you walk us through starting a fund and getting capital from investors? Really, the whole process up until you’re deploying it.

Ken Gee: Wow. Let’s just talk about the fund itself. Well, the experience was already behind us, so we made the decision…

Ash Patel: Sorry, another way to phrase this question. Sorry to cut you off. If you take somebody who’s syndicated deals, how does that person transition into starting a fund?

Ken Gee: Yes, I’ll tell you how we did it. Everybody told me in the beginning that you have to be careful when you make that jump from a syndication to the fund concept. Your syndication investors will not follow you. I thought, “Well, I don’t want that, because they’ve been with me for many, many years.” I felt like I was deserting them. So the first thing I did was I made the terms of the fund look and feel very similar to that of a syndication – 80/20 split, a preferred return, you get all your money back before the split… So it felt very much like a syndication. Acquisition fee and disposition fee…

Typically, funds have commitment fees. It just didn’t make sense to me that you should pay me a fee, because you committed to invest in my fund. I just mentally had a problem with that. I’m like, “I haven’t done anything for you yet. Why do you owe me a fee?” Because first-time funds are very hard to do, at least I’m told. And it is tough. A lot of people won’t even talk to a first-time fundraiser. I wanted to make it very easy for people to transition and follow us, because they’ve been following us for many, many years, successfully. I didn’t want to make it hard for them. That’s how we set our terms.

Then of course, you go to the attorneys and tell them what you want to do. Then you go through the whole process of creating the documents; that’s never any fun. You want to make sure that you understand the SEC rules, because you don’t want to get in trouble with those. Our fund is for accredited investors only, on purpose, because of lots of strategic reasons that we did that. And personally, I wasn’t used to raising money outside my circle of influence, I just wasn’t. So it was probably right during the pandemic, or early on.

Three years ago, I would tell people — you would never catch me on a Zoom call like this. You just wouldn’t, I just wasn’t comfortable doing it. So I pushed myself out of my comfort zone to get into digital marketing and online marketing. I did some presentations at The MoneyShow in Orlando, and was once even a featured speaker there. What I learned was, “You know what? This is actually fun”, to share what I’ve been doing for 23 years with other people and help them understand why I’m so passionate about what we do. So that whole fundraising process really became a process where I was telling our story. People understand why we do what we do, and then they make the decision to take the journey with us. Is that helpful?

Ash Patel: Very helpful. What percentage of your syndication investors followed you to the fund?

Ken Gee: Oh, geez, probably 90%.

Ash Patel: So you proved your friend wrong.

Ken Gee: I love doing that, yeah. When I went into public accounting, they said, “Ken, don’t do it, you’re going to be too old to get into public accounting.” Then they said, “Don’t go into the tax side because they only hire auditors.” I proved them wrong. I love it when people challenge me like that.

Ash Patel: Good for you. Ken, how early do you take investors’ capital for the fund, versus the date that you deploy it on?

Ken Gee: That’s a good question. In the fund, especially when you’re paying a preferred return, if you call capital and put it in your bank account, you’re going to owe a preferred return on that to your investors. That’s a really expensive way when you’re not doing anything with the money; so we call it as we need it.

Ash Patel: The clock starts…

Ken Gee: Pardon me?

Ash Patel: The clock starts when that wire hits?

Ken Gee: It does. So we call the capital. In a fund, your investors are making commitments to you. 100,000 was our minimum investment; they committed that they would give us 100 grand, and then once we had all our investors, they got some percentage of the total; every time we called capital, that’s the way they would send their funds.

Now, in return – this is a really important concept with the fund that’s different than a syndication – if an investor is going to make a commitment to us, to commit 100 grand, a half a million, a million (we have some pretty big investors), well, they can’t do anything else with that money. So now, the responsibility becomes mine to deploy that capital very responsibly, but not take too long to deploy it, because every minute it sits in that bank account, you know what it’s earning. Nothing. So the whole fund concept comes with some responsibilities that most people don’t think of right away. In our fund, how did I deal with that? I dealt with it by making a very short commitment period. From the time our first deal closed, we have 18 months to deploy the rest of the capital.

Most funds are three years or four years. I just thought, “Good Lord, that just seems too long to me.” I just didn’t think it was fair to try to tie up someone’s capital for that long. Because once they sign that subscription agreement, they’re obligated to send us the money when we call it. These are just some ways that we try to deal with all the concerns that someone might have with investing in a fund, and make sure that we’re putting our investors in the best place we can.

Ash Patel: You just mentioned that once they sign the subscription agreement, they’re obligated to send the money when you call for it. How does that work? Do I commit in the subscription agreement that I’m going to forward $100,000, and then I just wait until you have the deal?

Ken Gee: Yeah.

Ash Patel: Okay, so you’re not sitting with idle capital in a bank account looking for a deal.

Ken Gee: I’m not, but they have the capital sitting idle somewhere.

Ash Patel: Right. You’re not paying the preferred return until the wire hits?

Ken Gee: Correct. You couldn’t afford to do that, there’s just no way. On our first fund, our preferred return was 7%. Find an idle investment that pays 7%.

Ash Patel: What are your typical returns now, on this fund?

Ken Gee: We haven’t turned any deals yet in this particular fund. We closed our first deal at the end of October of ‘21 and we’re about to go under contract for our second deal. I don’t know when this will actually air, but probably by the time it does, it’ll be closed. We’re working on our third and final deal for this fund, and then we’re going to start fundraising for our next fund. Does that make sense?

Ash Patel: It does. From your investor’s perspective, do you tell them that you’re going to put four properties into this fund, or is it a time period that you’ll hold it open, or is it a certain raise?

Ken Gee: Yeah. It could be any combination of the above. What’s important is when you have conversations with investors… Everyone has to talk to me before they can invest, and it’s important to me that I understand what they’re trying to achieve with their first personal financial objectives and things like that. In this fund, it was always my goal to close at between $10 and $15 million, to be able to deploy it in two or three assets, and I committed that it will be somewhere in central and northern Florida. Those are some of the parameters that I set for the fund. So we’ll probably get to the third; we closed it at $12.5 million. So you don’t know exactly where each deal is going to be until you find it.

Some people will go out and buy a bunch of deals, and then go from a fund and put those deals inside the fund. I was concerned about doing that, because if you think about it, if I go out and buy the deals, then I sell it to the fund, I run the risk that somebody might be concerned that I’m marking those assets up, and making a profit on them personally even before they get in the fund. So I try to eliminate, when I do this, every possibility that — we’re all in this together, we’re all going to make this investment together, so we go out of the market and buy the deal; I don’t know if it’s going to need 4 million, 6 million, or 3 million, so it’s going to depend. That’s part of the process of investing in a blind pool fund, is you really need to vet your sponsor, make sure you understand who they are, and trust that they’re going to do what they say, which is the reason most syndicators, people starting out in this business, don’t start out with a blind pool fund, because there are so many variables that people don’t have any way to say “Okay, what types of deals this can do, what can I expect?”

When we underwrite our deals – you asked about returns – we underwrite to an annual of 15%, that’s our goal, returns to the investors. And mostly we were able to beat that. We’ve closed a few syndications prior to this, one closed at 22% annual return to the investors, another one was at 38% annual returns to investors… So it depends on the deal and exactly what’s happening, but we’re targeting a minimum of 15. And as you know, with any investment, there’s no guarantee we’re going to hit that. I’m always going to try to beat it, but that’s what we do on our underwriting, that’s what we shoot for.

Break: [00:17:17][00:19:14]

Ash Patel: You’re a guy from Cleveland and now you’re buying properties in growth states in the South. How do you find deals?

Ken Gee: Well, interestingly, we are vertically integrated. That means we manage our own properties, we also do third-party management. We’ve been in Florida for 10 or 15 years but in May of 18, we made the strategic decision to open our doors for third-party management. We’d already managed a ton of properties before, we recruited a senior management team, so our senior management teams manage over 16,000 units. With tons of experience, we went out not only managing our own assets in the various markets in central northern Florida, but we managed them for others. What happens is when you help a broker, not a sell a deal, but when a broker refers his or her client to you and you manage the deal, they want it to be successful so they can get it back and sell it for that person for a lot of money, that’s the whole plan.

Well, we became a trusted management referral for them so when you’re standing next to someone in a transaction, instead of using an adversarial position like you usually are with a broker, you develop a really different relationship with those brokers. You just do because you’re helping them do their job. They’ll call us for underwriting advice from time to time, what should payroll be, what should this be, what should that be? We developed that different relationship so we are so very, very networked throughout the market that we’re in. That’s how you get the deals, quite honestly. They have to know you perform and you have to get to know them so that you’re on their radar so that they’ll actually give you a shot at these deals.

It’s all about networking, getting to know people, and really getting to the point where you develop a very trusting relationship with them. Because their goal is to close a deal without being re-traded, without their seller getting mad at them. Think about all those things that are important to a seller, we deliver that every time and we help them deliver that when they refer us their clients on deals that we don’t do.

Ash Patel: Ken, you mentioned earlier that you never wanted to go outside of your circle to raise capital. What advice would you give that individual that has had a good run with friends and family, but now is in a position where they need to go outside of their circle?

Ken Gee: Let me just correct the statement a little bit. It’s never that I didn’t want to, I’d never understood what it meant to do that. Until you do it, you don’t really understand. What I tell people that are trying to make that jump –this is important to me and I get really passionate about this topic– is to make sure you know what you’re doing before you ask someone else for money that you don’t know. If you lose your own money or maybe even your family’s money, they’re family, they can’t get away from you.

But when you’re dealing with someone else’s money, I will tell you that the burden, the responsibility that I feel for someone else’s money is many multiple times how I feel about my own money. If that was my own money, okay, that’s fine, I’ll make it back or whatever. If I were to lose someone else’s money, that would be terrible. The number one thing I want to see people do is to make sure they know what they’re doing. Because when you’re sitting in front of an investor on a zoom call very similar to this, they’re going to ask you tough questions. You need to understand your business well enough to be able to answer any question about anything at any time. If you’re not in that position, then you probably shouldn’t be going out getting money that isn’t yours.

Ash Patel: What is the best tactic that you would recommend somebody use to attract investor capital in terms of marketing? How do you…

Ken Gee:  In terms of marketing? Wow, our capital comes in from so many different sources. Some of it was referrals, some of it is just pure digital online marketing, some of it is doing podcasts like this, people get to know who you are. What people want to do is they want to know and understand who you are. They’re trying to figure out, are you someone that they can trust, that’s the number one thing. Somehow you have to get in front of them and show them that you really know what you’re doing and you really are going to put their interests first. So many people in this business don’t do that, I’m sure you know that. It’s tough, that’s what they’re trying to figure out.

However you can get in front of them and show them that you’re the real deal, that you’re going to have their back no matter what. If it means you need to cut your fee in order to get them the return that you promised them, then they need to feel like you’re going to do things like that for them. Again, our sources are our investors online, we got a lot from The MoneyShow. Just get outside your comfort zone and figure out how to reach new people. Verivest is another one. We’re on Verivest, I don’t know if you’ve ever heard of that. We love this site. Transparency is really important to me so if you go to verivest.com you’ll see us, they vetted our entire 23 years of track record.

I had to send them tax returns and bank statements and settlement statements for every deal that we’ve ever done. It’s important to me that you can now go to our Verivest page, and you can see that they’ve taken tide, all the numbers are real, I proved it to them. They went online and did some search to try to find deals that some sponsors might hide, they also did a full background check on me, things like that. It’s places like that that people go to because they’re trying to find good, trustworthy people to give their money to. When you’re fully transparent and you have someone look under the hood to the tune of vetting every single one of your deals, that makes people feel better about who you are and what you’re doing.

Ash Patel: Ken, what’s the hardest lesson you’ve learned in real estate?

Ken Gee: What’s the hardest lesson I’ve learned?

Ash Patel: A tough lesson, one that hurt.

Ken Gee: One that hurt. I’m sure I’ve learned a lot of lessons. But probably the number one thing that I always want to see people do. I see people when they get a deal and they close it, they’re full speed ahead with their renovation, they cannot wait to get it done. A long time ago, I was the same way. I spent all my rental money and then I learned something about the property that I wish I would have known 60 days prior because I wouldn’t have spent all my money the way I did. I don’t remember what it was now, it was a long time ago. But the lesson that it taught me was, when you close, just sit on your hands for a minute.

The world’s not going to go away in 30 or 60 days, just sit on your hands. You know the seller didn’t tell you everything, there are probably things going on in the property the seller didn’t even know. It gives you time to get to know the property and find out where the skeletons are so that if you need to reallocate your improvement money, that you do it in a smart way. That’s probably the toughest lesson I learned. Because I went into my own pocket, I did what I had to do. You’re going to go into your own pocket, fix whatever it is that needed to be fixed, and that hurts. I wasn’t prepared for that. But now, I preach that lesson all the time, hopefully, it’s helped some people. I know it’s helped us a lot in our renovations

Ash Patel: Ken, what is your overall best real estate investing advice ever?

Ken Gee: Do the work. I talk to people every single day that want to get into this business. It seems really easy, real estate seems like it’s easy. How hard could it be? You buy a property, you rent it out to people, you have extra money, you put it in your pocket, it’s done. But these apartment buildings, especially the larger they get, they’re businesses. You’ve got to understand what the numbers are really going to look like, you’ve got to understand what’s going to happen in a neighborhood, you’ve got to understand why people want to live on your property versus the guy next door, you’ve got to understand all this stuff.

It’s just human nature to take the fastest route from point A to point B. I would submit to you that if you slow down and do the work and play the long game in this business, that’s how you’re going to be successful. That’s the number one thing I like to see people do, is just do the work, just do full underwriting, do all this work at least two or three times so you understand before you start using general terms to analyze real estate deals, because I think it’ll serve you really, really well.

Ash Patel: Ken, are you ready for the Best Ever lightning round?

Ken Gee: Sure.

Ash Patel: All right. Ken, what’s the Best Ever book you recently read?

Ken Gee: Grant Cardone’s 10X.

Ash Patel: What was your big takeaway from that?

Ken Gee: I’m going to use my term. If you think you can kill an ant with your finger, use a sledgehammer, because then you know you’re going to get it done. We’re trying to be really successful in everything that we do in life. If you give it just enough effort to hopefully get there, well, there’s a really good chance you’re going to fall short. If you give it so much effort that you’re giving it 10 times the effort that is probably necessary, you know you’re going to get there. That’s my takeaway from that book.

Ash Patel: Thank you. Ken, what’s the Best Ever way you like to give back?

Ken Gee: Teaching people and helping them learn. When I started out, I started out so long ago, the only guy out there to help me was the guy named Carleton Sheets. If you know the name, most people probably don’t. But that just showed you, when I learned, that was the only thing out there. Learn from Joe and from podcasts like this, learn as much as you can. I love to get back through this process because then when people learn what I’ve learned, they’re going to be incredibly successful in their investing future. There’s no better feeling than that than to know that you actually helped somebody else get to where they want to go. That makes me feel good.

Ash Patel: Ken, how can the Best Ever listeners reach out to you?

Ken Gee: Sure, kripartners.com. If you add the /ebook, you can get my free eBook, Multifamily Real Estate is a Total Game Changer. I wrote the book and it just covers two topics. Number one, everybody knows you can make a ton of money in real estate, you just have to figure out how it’s going to fit in your life. If you think about that, that’s a big issue for a lot of people. Should they be a passive investor? Should they buy a duplex? Should they buy an apartment building? What should they do? How do they fit it into their life? Secondly, because I believe most people should probably be passive investors, how do you vet sponsors? You can already tell from what I talked about, that I’m passionate about transparency, vetting sponsors, and things like that. I want to help people vet sponsors properly so that they put their money with the right people. kripartners.com/ebook.

Ash Patel: Ken, thank you again for sharing your story with us today. All the way back from 1997, working at Deloitte, being a lender, getting into multifamily, and now starting a fund. Thank you for all of your advice today.

Ken Gee: Thanks so much for having me.

Ash Patel: It’s our pleasure. Best Ever listeners, thank you for joining us. If you enjoyed this episode, please leave us a five-star review, and share the podcast with somebody you think can benefit from it. Also, follow, subscribe, and have a Best Ever day.

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JF2765: Market Comparison: Appreciation in Denver vs. Cash Flow in Cincinnati ft. Sarah May

Denver-based Sarah May and Cincinnati-based host Slocomb Reed discuss in-depth how cap rates and population growth impact the way investors operate in their very different respective markets. A few topics they cover include: 

  • Ideal cap rates. In Denver’s current market, Sarah wants to see about a 6% cap rate when purchasing a value-add property, with an opportunity to sell between 4% and 5%. In Cincinnati, however, Slocomb says investors are seeking to purchase at an 8% cap rate, but will typically end up purchasing in the 5.5%–6% range.
  • Appreciation vs. cash flow. The lower cap rates in Denver mean investors won’t see as much cash flow as investors in Cincinnati, where lower population growth is reflected in its higher cap rates. However, the potential for appreciation is much higher for Denver investors. 
  • Population growth. While Cincinnati is seeing both rent and population growth, the rates don’t compare to Denver, which Sarah says is projected to beat the national average in population growth for the next five years. 
  • Raising rents and increasing property value. Sarah points out that in lower cap rate markets like Denver, incrementally raising rent by even a small amount can result in a big multiple when it comes to adding property value.
  • Three things that will help you succeed in any business. Sarah believes mindset, focus, and follow-up are key when it comes to making it in real estate. That means having the right attitude and perspective, being able to limit your options enough to put all your energy into one pursuit, and following up in order to discover unlikely opportunities.

Sarah May | Real Estate Background

  • Co-founder of Regency Investment Group, which owns and operates apartment communities. Their business model is to buy older properties that are in need of renovation and/or improved management.
  • Portfolio: 
    • GP of five properties with over 450 units in Colorado, LP of 1,200+ units
  • Based in: Denver, CO
  • Say hi to her at:
  • Best Ever Book: The Go-Giver by Bob Burg

Greatest Lesson: Grit. Stick to it and amazing things will happen. Approach problems with the mindset that there IS a solution and I’m going to find it. Don’t give up even if we haven’t won a deal for a while. Good things are just around the corner.

Click here to know more about our sponsors:

Deal Maker Mentoring

 

PassiveInvesting.com

 

 

Follow Up Boss

 

TRANSCRIPT

Slocomb Reed: Best Ever listeners, welcome to The Best Real Estate Investing Advice Ever Show. I’m Slocomb Reed, and I’m here with Sarah May. Sarah is from Denver, Colorado. She’s the co-founder of Regency Investment Group and they GP value-add apartment syndications. They currently have five properties in their portfolio with just over 450 units, all in Colorado. They’re also LPs of 1200 plus units. Sarah, can you start us off with a little more about your background and what your current focus is?

Sarah May: Sure, I just wanted to say thanks so much for having me on, Slocomb. I really appreciate being here. I got started out probably like a lot of the listeners that have a W2 job. I’m originally an aerospace engineer working for a large company and just discovered real estate, reading that little purple book Rich Dad Poor Dad. Got really fascinated by it and so slowly started buying rental properties while working a W2 job. I was successful with that and wanted to learn how to go bigger, faster, and found out about syndication. After getting mentors and coaches, joined a mentoring program and started our syndication company, Regency Investment Group. As you said, we have five projects, about 450 doors from moderate to more heavy value-add deals, and always looking for new properties that we can outperform for our investors.

Slocomb Reed: Nice. You were just telling me before we started recording that you just went full-cycle on a deal that closed last week?

Sarah May: Three days ago.

Slocomb Reed: Three days ago. Nice. So this week. It’s currently March of 2022. Tell us about that deal. What were you projecting going in, what happened, and then what did you end up selling at?

Sarah May: Sure. We bought it in May of 2017. It’s a really nice C-class property, maybe B-class, in a good part of town here around Denver, 100 units. Our business plan was to renovate all the unit interiors; they were mostly original, or lightly upgraded [unintelligible [00:05:34].25] We told our investors that with our business plan we could about double their money, maybe slightly over. I think we projected a 1.2 equity multiple… No, that’s not right. Anyways, 100% gain on their original investment. So if they invested 100,000, we were projecting 200,000 by the end of our five-year business plan. We just sold this week, and are getting about a 3X multiple on their money; maybe a little bit better, actually. It was a great property, the market definitely helped us out here in Denver. It’s been a hot market and cap rates have compressed, as they have elsewhere, and we’re excited to [unintelligible [00:06:13].14] for everyone involved.

Slocomb Reed: Sarah, what did you buy it for, and at what cap rate? And then the same thing, what did you sell it for and at what cap rate?

Sarah May: We bought it for 150,000 a unit, and that was about close to a six cap at the time, and maybe a 5.7 cap rate…

Slocomb Reed: That was in 2017?

Sarah May: That was in 2017. And that was a high price in 2017, or so we thought. But now we sold it for about 228,000 a door, and that was about a 4.5 half cap rate on trailing numbers.

Slocomb Reed: Gotcha. So you buy this in 2017, projecting a five-year hold, of course not knowing that COVID was going to happen. It sounds like this deal would have been a solid return for your investors without COVID. But then, with the pandemic and with what’s happened to the economy and the real estate industry since then, even better returns. Frankly, everyone I know who was investing in real estate in 2017 and before has a similar story to tell, which is great. The people who were investing before the pandemic are seeing great returns as they should.

Best Ever listeners, this is a shameless plug for the Best Ever conference. I’ve met Sarah and her partner at the conference. In fact, we sat across one another on the bus, on the way to the Best Ever party at one of the bars in downtown Denver. It was supposed to be a 30-minute drive, the driver took a couple of wrong turns and it ended up being 45. This means that I spent 45 minutes peppering Sara with questions about Denver, and their syndicating, their deals, and what did the market look like. First, I will say that it is at the Best Ever conference that you have the opportunity to get stuck on a bus across from someone like Sarah and have these kinds of conversations.

So if you want to meet people like Sarah, or like any of the thousand other people who came to the Best Ever conference in 2022, if you want to meet those people in 2023, the best way to get stuck on a bus with them is to go to the Best Ever conference. But the other thing that I want to do while getting to know Sarah and getting to know the Denver market – those 45 minutes of questions were really about me trying to figure out how to compare Cincinnati, Ohio where I’m from, which is a cash flow, higher cap rate market, to what’s happening in Denver. I’ve had a lot of time to muddle over some of the things that we discussed… Basically, I want you to have the opportunity to hear part of the conversation that Sarah and I had on that bus.

Let’s start here, Sarah… Part of the conversation that we had was just cap rates. In the interest of helping our Best Ever listeners understand the differences between the opportunities available to then, investing in MSAs like Denver and MSAs like Cincinnati – tell us, what your cap rates look like right now in Denver? The deals that you’re interested in buying, the LOIs that you’re writing, at what kind of cap rate are you looking to purchase, and then what are you currently projecting as an exit cap rate?

Sarah May: It’s definitely more competitive now than it was even a year ago. After COVID, the market skyrocketed and got really hot here in Denver. So as far as cap rates now, it does depend a little bit on if there’s value-add or not, but a little bit counterintuitively. If the property is old, and needs a lot of work, and there’s an upside, it will ironically sell for a lower cap rate, because there is that upside, even if the property’s kind of beat up.

There was a 100-unit deal we were looking at in Colorado Springs in Metro South of Denver, and they want to sell it at a three cap. There’s some value-add that needs to be done, some improvements that need to be made. If you look at enough deals, there are levers to pull and things that you can do to make the property more attractive, and the financials more attractive. But buying it at three cap is tough. So it ranges; kind of these B and Colder deals that we look at, from a three cap up to about 4.5 cap.

Slocomb Reed: That’s based on actuals, that’s based on current performance. That’s the performance you’re paying for when you buy a value-add deal. Man, my stomach is turning in knots hearing about the idea of buying a three cap because I think Cincinnati, and ain’t nobody doing that here. What would you consider a good operating cap rate to be? Let’s say you bought one of these deals, it worked out for you, this is a deal that you want it to buy… After you have the opportunity to add value, what are you expecting the cap rate to really be when it’s all actually stable and performing at market?

Sarah May: We want to see above a six cap still on value-add, ideally; or at least close to a six cap in this market. Some of that’s through a combination of putting in better property management, renovations, and the general market appreciation, everything’s going up. So around a six cap, and then we model around a five cap on the exit; maybe slightly below or above, depending on the sub-market, where it’s located. That’s kind of the game that you play. If cap rates stay at 4% like they are now, that’s just a bonus on the back-end.

Slocomb Reed: Gotcha. So based on your purchase price, do you want to get it up to performance at a six cap, with the opportunity to sell between four and five.

Sarah May: Right.

Slocomb Reed: Gotcha. And you were telling me before we recorded that the deal you just sold, after going full-cycle,  you sold for a four and a half cap.

Sarah May: Right. I think we’ve modeled six cap on exit, so the cap rates help surpass investors’ returns.

Slocomb Reed: It was in 2017 that you modeled a six cap model.

Sarah May: In 2017 yeah.

Slocomb Reed: Yeah, totally. A lot of things made more sense then than they do now. I’ll say, in Cincinnati, people are very excited when they can buy a seven cap currently. Not all people, the Cincinnati homies like me, the people who were investing here five years ago. Historically speaking you want to see an eight cap in Cincinnati because that’s when you see really a cash flow, and again, most people are coming to Cincinnati for cash flow more than appreciation. But right now, your purchase cap rate in Cincinnati for apartments, if you’re focused on B areas, you’re probably going to end up with a purchase in the 5.5 to six cap range. What makes that interesting to value-add investors, eight cap is really our benchmark. You said that you want to get up to six, in Cincinnati, we want to get up to eight.

Sarah May: Yeah, it’s a totally different market. I think it’s not really a trade-off, but the appreciation in the market like Denver can be a huge benefit on the back end. It’s a little bit delayed gratification versus what you have in Cincinnati where you get that nice cash flow check every month which definitely is what a lot of investors want. In Denver, it’s more of like a little bit of cash flow every month, but then on the back end, the game can be two or three times what you got from the cash flow while you owned it for five years. In this 100-unit property that we just sold this week, I think our total distributions to investors, 40%-50% of their original capital were paid out as cash distributions.

But now, on the sale, they’re going to get another 250% back as cash distributions for the total equity multiple of around three. You don’t get the cash flow but you get the potential for higher profits on the back-end, and in a market like Denver, population growth, employment growth, landlord and business-friendly, those are the things that we look for. I think Cincinnati has a lot of that too, but maybe just the more stable population. What are your thoughts on the market and Cincinnati versus Denver?

Slocomb Reed: We’re not seeing the growth that you are, absolutely. It’s reflected in our cap rates, to be frank. A couple of responses to what you just said. The first is, if you decide that your investment vehicle is the apartment syndication, then yes, you have to be more patient to make money in Denver. Because you’re just not going to see cash flow the same way that you will at such a lower cap rate. To your point, what you’re returning to your investors, Sarah, is not as much during the ownership of the asset. But upon sale, what you’re able to deliver is much greater than what you would get at a higher cap rate.

However, if you’re looking at real estate investing, and if you’re looking at apartments as a long-term buy and hold, like an ideal hold period of forever, Warren Buffet style, I would say that is a time when Cincinnati looks more appealing as well because your cash flow is going to stay steady the whole way through. In places like Denver with lower cap rates, you will have the opportunity to do more cash-out refinancing or cash out more as the property increases in value, as appreciation just happens naturally in a market like that, by comparison to Cincinnati. But you’re not going to have nearly the same cash flow through the duration of the ownership of the asset.

Sarah May: Yeah. When I was just getting started, while still working my engineering job, I didn’t even model an exit. All I modeled was what’s my cash flow going to be when I buy the property? That was over 10 years ago/ Back then, the crazy thing was if it didn’t have 20% cash flow per year, we were going to pass on it. It’s just funny how things have changed. But for people looking to get out of the rat race a little bit and get that financial freedom, that cash flow can be invaluable as well. Make sure you have enough money coming in every month to cover your living expenses and things like that. I don’t think it’s a one size fits all strategy by any means. But being in Denver, we take the benefits of being in Denver with the appreciation potential and make the best of it.

Slocomb Reed: Yeah, absolutely. Sarah, I’ve modeled out a couple of things for our conversation. I want to talk about a recent experience I had repositioning an apartment building in a C neighborhood of Cincinnati. You and I talked about this a little bit on the bus on the way to the party at the conference. I bought, in 2019, 24-unit in a C, C minus part of Cincinnati. I’m high on and I’m bullish now because I’ve already got 24 doors, so anything I add is just increasing scale to a portfolio that’s already performing. If you were just pinging the reputation of investors in Cincinnati, this would be a low C part of town. After our reposition, to use some simple numbers that will be easier for the Best Ever listeners to follow along with, basically, we got this property, this 24-unit after all of our value-add was done.

By the end of 2020 to early 2021, we got it up to an NOI of $100,000 a year. We had difficulty with appraisals because that particular sub-market within Cincinnati was not proven. Remember, this is March of 2021, just a year ago, we appraised at an 8.7 cap. Our NOI of $100,000 got us a valuation of 1.1, basically. Only because I’m looking at the spreadsheet, I want to give you some other numbers. We know that we could sell it between a seven and an eight cap, at an eight cap it’s worth 1.25 million, at the 4.5 cap that you just sold your property at, it’s worth $2,222,222.

This means in order to buy $100,000 in NOI, in Denver at that 4.5 cap, you’re putting out over $2.2 million. Whereas in Cincinnati, for that same $100,000 of NOI, if you’re buying it on market and it’s relatively stable, you’re probably in the 1.4 to 1.5 range because you’re paying a high six or low seven cap for that money. I use eight cap because that’s kind of like the historic number, that’s like the cash flow benchmark when you, Sarah, say that you want to get up to six during your operations, we want to get up to eight.

Let’s talk about one of your deals now. When you have an incremental rent increase, you decide, “Okay, it’s time to raise rents.” Or you’re thinking, “For our annual rent increase this year, we’re going to go from X to Y” What is X, what is that base rent that you’re looking at, and how much is the increase right now?

Sarah May: On Denver properties, I would say an easy number to use for a one-bedroom would be $1200 a month in rent. But people are coming in $100-$200 under that and then we’re bumping them as close to $1200 as we can just because that’s where the market is at. For two bedrooms, anywhere from $1400-$1500, so it’s a pretty high rent increase. One thing that’s nice in these lower cap rate markets, which you’ve probably put two and two together as well, is every time you raise the rent by $100, to use a five cap for an easy estimate, you raise the rent by… What would that be? Let’s say $1000 a year, that would be an easier number. If you raise the rent by $1,000 a year at a five cap, you’ve added $20,000 in value to your property. It’s a big multiple every time you add that extra money onto your NOI.

Break: [00:19:57][00:21:53]

Slocomb Reed: First of all, let me say, for the Best Ever listeners to give them a point of comparison. $1200 is what Cincinnati investors are trying to get Section 8 to pay for three-bedroom apartments and houses in lower-income neighborhoods here. Just a point of reference. There are $1200 a month one-bedrooms in Cincinnati, but only in very premium locations.

Sarah, we stabilized in March of 2021, this 24-unit in Cleaves, the part of Cincinnati I was talking about earlier, that I’m bullish on. I would buy this thing again, for sure and I’d even buy it right now because I like the area. There’s not a lot of apartment inventory there, which has been helpful for us because there are some major employers in close proximity, like Amazon. We don’t really know what exactly market rents are in that area for our one-bedrooms because there aren’t a lot of comps. When we refinanced, our base rent was $650 a month for a one-bedroom. We charged pet rent and there are other things. It’s a neighborhood that ends up with some tenants who pay late fees, but the base rent is $650 a month.

We decided to try bumping it up to $700. Everyone stayed and it was still easy to fill up our apartments. We did that just recently, a $50 a month rent increase. Projecting as conservatively for increased expenses at an eight cap increases the value of our 24-unit by about $150,000, for that $50 a month rent increase. Yeah, Sarah, you can say “wow” but if it were in Denver at a 4.5 cap, it would go up by over $250,000 for that same $50 a month rent increase.

To your point, this is different from a lot of interviews for the Best Ever podcast, Sarah, because we’re revisiting a conversation that we’ve already had to the benefit of our listeners, thankfully. We couldn’t get all thousands of you onto the bus with us, but this is an important thing to hear fleshed out. Let’s take a couple of minutes and you pitch Denver to your investors. Why should people invest in Denver and not Cincinnati? I will pitch why people should invest in Cincinnati and not Denver. Let’s just see what happens. I’ll go first since I just sprung this on you.

Sarah May: All right, cool.

Slocomb Reed: Speaking about $100,000 NOI in a building. As we were saying, in Cincinnati that’s going to run you about 1.5 to purchase and you’re going to get in around a seven cap or a little bit lower. Meaning that our cost of entry is much simpler, it’s lower, you get more net operating income, and therefore more cash flow for your dollar. You come to Cincinnati because you want to know that your asset can, not only have cash flow, but remains cash flow positive if rent rates recede. Because our cash flow is so much higher, we can take a hit better than Denver can.

We are seeing rent growth, there is growth in Cincinnati generally, though it’s not the same growth that you’re seeing in Denver. We are projecting… Well, I won’t say that we’re projecting compressed or even the same cap rates. I think everybody should be expecting cap rates to go up a little bit right now. We are seeing rent growth, we are seeing some population growth, it’s a solid stable place to invest, and you’ve got great cash flow. Your cash flow should increase and you’ve got to hedge if there’s an issue because you’re not going to go in the red if you have to reduce your rents a little bit.

Sarah May: All good points. I was trying to take a few notes on things that you said. I would just say, hearing Denver to Cincinnati, the reason people would want to invest in Denver is that it’s a primary market. You get the best financing available from the lenders. Even though the cap rates are lower, your interest rates are lower too, so there’s still a spread there to make money. It’s also a great place where people want to live and work, lots of recreation, though that contributes to the strong job growth, strong population growth, with continued projections that is going to beat the national average for the next five years or longer.

Also, if you look at the real estate industry data, even though we’ve had some monumental years of rent growth, last year was 18% on average in the Denver Metro area. Even these conservative market data sites still say we’re going to see above 10% rent growth in 2022 and just tapering from there, 8%, 7%, etc. Those numbers are something to get excited about. The market data is really strong and the other thing is, even though it’s less cash flow, it’s still cash flow in Denver. I think that’s something important to keep in mind. We’re not buying vacant properties, we’re not losing money when we buy properties, we’re making money from the very first day that we’re owning a deal and that provides extra stability, and lower risk.

We do sensitivity studies on all our deals as well and usually, we could withstand a 40% impact on our ramps and still pay our bills. There are still some strong numbers, good cash flow, and great appreciation potential. One thing I learned recently is Denver is rated the number one airport in America. I don’t know how they got that rating but there’s tons of money going in for renovations and expansion. I think it’s over a billion dollars. That will be good for the economy, transportation, jobs, and things like that. That’s my take on Denver.

Slocomb Reed: Sarah, to both of our points, the Cincinnati airport is way easier to navigate than the Denver Airport.

Sarah May: I believe it. I don’t like the Denver Airport either.

Slocomb Reed: The reason is though, that before the Great Recession, Cincinnati was the main delta hub for the Midwest. They have since moved it to Detroit, which means that we have almost twice the infrastructure we need for the volume of flights that we have. That’s why CVG is so easy, flying in and out of Cincinnati is, because we have twice as much infrastructure as we need. Because Delta moved out, Detroit was growing faster. To your point, we do have population growth, we have rent growth, we have wage growth, we’re attracting employers to Cincinnati, just not nearly at the clip that you are in Denver. But we have a very easy-to-navigate airport because it’s too big for the flights that we’re actually bringing.

In summary, I don’t think we’re surprising anyone, but I think it’s helpful to flesh this out. A 3X equity multiple on a five-year hold, impressive. You can’t even get that with COVID numbers in Cincinnati. At the same time though, if your focus is cash flow, when I was modeling out, to your point about being a primary market, you have some better debt options than we do. I still see our cash flow numbers. I was building out models, taking the different cap rates for the same NOI. Even with our lower debt structures, depending on the deal, I think your cash-on-cash return still ends up being five to 10 points higher in Cincinnati than it does in Denver. Just simply because the difference between interest rate and cap rate is still proportionately higher than Cincinnati.

If your goal is if you’re underwriting to a whole period of a few years and looking to sell, Denver looks great. Cincinnati, that works, but if you’re looking for long-term cash flow, if your kid was just born and you’re wondering how well your property is going to be performing when you need to pay for college, Cincinnati has got that cash flow. Sarah, thank you. Are you ready for a Best Ever lightning round?

Sarah May: Sure thing, Slocomb.

Slocomb Reed: What is the Best Ever book you recently read?

Sarah May: I really enjoyed the book The Go-Giver by Bob Berg. It’s written as a story of a young business person who wanted to get ahead and getting mentored. But really the gist of the book is that the more you want to get, the more you have to give. If you put your focus on giving as much as you can, you will receive more in abundance. I just really enjoyed that book, I highly recommend it.

Slocomb Reed: What is your Best Ever way to give back?

Sarah May: Right now, I am enjoying being involved with my church, their community outreach program, and also working on starting up a real estate meetup in Denver. It’s still in the beginning phases there, but I want to spread the word about real estate and meet other great people in our local area.

Slocomb Reed: What is your Best Ever advice?

Sarah May: My Best Ever advice is to focus on three things for success in business. Mindset, focus, and follow-up. Mindset, have the right attitude and perspective, and also believe in yourself. Focus, be able to limit your options enough to focus on one thing, and put all your energy there. Tony Robbins likes to say “Where focus goes, energy flows,” so be focused. Follow up, a lot of times great things happen when you follow up. Something that you used to think was a dead end and, all of a sudden, when you follow up, new doors open. Mindset, focus, and follow up.”

Slocomb Reed: Awesome. Where can our Best Ever listeners reach you?

Sarah May: Thanks. Obviously, social media or our website. But really the best way to get a hold of me is to send me an email. My email is sarah@regencyinvestmentgroup.com.

Slocomb Reed: Awesome. Well, Best Ever listeners, thank you for tuning in. If you got value from this conversation with Sarah May about the Denver market, the Cincinnati market, and the comparison between lower and higher cap rate apartment investing, please do subscribe to our podcast. Please leave us a five-star review and please share this episode with a friend you think we can add value to through this conversation. Thank you and have a Best Ever day.

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JF2759: Improve Your Underwriting With These Data Science Tips ft. Nelson Lin

Want to up your underwriting game? Nelson Lin, a data scientist and multifamily syndicator, shares his strategies for analyzing data, including how to create your own database, ways to deduce value-add opportunities, rent pricing, and more!

Nelson Lin | Real Estate Background

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TRANSCRIPT

Slocomb Reed: Best Ever listeners, welcome to The Best Real Estate Investing Advice Ever Show. I’m Slocomb Reed and I’m here with Nelson Lin. Nelson is joining us from Austin, Texas. He’s the founder of Subtle Asian Management which does data science consulting for commercial real estate firms to help them apply machine learning algorithms. He’s also a GP in 164 units in two deals in Chicago and Jacksonville, Florida, and he’s an LP on over 3000 units and two industrial properties. Nelson, can you start us off with a little bit more about your background, and then tell us what you’re currently focused on?

Nelson Lin: Yeah. I am a data scientist, I live in Austin, Texas right now. My background – I basically build machine learning models and algorithms for mostly hedge funds. My biggest client is Brookfield Asset Management, I help them with their residential division. They have 10,000 single-family homes, for example. What I do is I crunch numbers and I output either projections for the future, or sort of help guide on both asset management and on acquisitions. My background is mostly around robotics originally, but I’ve transitioned from the tech space where I used to work for Apple and Microsoft in Columbia, where I graduated from. Eventually, I went into real estate and I found a niche where there’s a combination of large firms that own a lot of real estate, and have a big need for managing, organizing, and finding data within their massive pool of properties.

Slocomb Reed: Gotcha. Give us some specifics on the things that larger real estate firms do that you’re building machine learning algorithms for, so that they can improve their processes.

Nelson Lin: I can’t reveal too much data, obviously. One example is [unintelligible [05:12] of about 10,000 single-family homes to their subsidiary contracts. On the 10,000 single-family homes, you actually have a lot of data now to work with. Everyone knows about Zillow rents, and Zillow estimates. The hard part with Zillow rents is that any Joe Schmoe landlord could put their listing as a rental. When you don’t have good data, you don’t really have good models. So when you’re a professional landlord with 10,000 single-family homes, you have a lot more data to work with, cleaner, and overall, you can get a much more accurate model. So the “Zillow rent model” I built for them is about half the error rate compared to the actual Zillow model that they use.

A few things about that as well – they focus on internal data, and a lot of proprietary sources that Zillow probably doesn’t have access to. On top of that, the company is very vertically integrated. So other than just acquisitions and finding what the Zillow rent price should be, we’re tracking down tenant management issues. For example, if you have a tenant coming in, you can give a ballpark estimate based on certain information, like how likely are they to default on rent. Machine learning and data science are these large buzzwords, but they’re very slowly being adopted into the real estate space, mostly because of how hard it is to get organized and clean data. And really, only commercial hedge funds and large firms right now have access to that information.

Another way I’ve been helping is there’s a fund out in Dallas, I’m building them a lead generation model. One thing I’ve been doing is putting an ear and scraping from different websites sources to figure out which companies are going bankrupt. In Texas, for example, these are called war notices. War notices will tell people, “Hey, this company fired 100 employees recently.” You can use that to track and figure out, for that state, which company that is, and then on top of that which properties they own, and you can get to them ahead of time before they go on the market, because usually after a layoff, they also try to divest themselves of the asset.

So there’s more than one way to define machine learning in commercial real estate, but lead generation, asset management, and acquisitions – there are quite a few ways to implement data to scale up and build your business, which is also stuff that I’m applying to my own GP business.

Slocomb Reed: I want to get to that Nelson, and I want to talk about how you’re applying this to your own GP business, but correct me where I’m wrong on what you were just sharing with us, Nelson. It sounds to me clearly that in order to  build quality machine learning algorithms, you have to have a large, accurate data set. In your experience, it’s the much larger companies, it’s the hedge funds, it’s the ones that own tens of thousands of rentals that have a dataset large enough for you to work with, so that you can create models for them to learn from their own data. Let’s say I just bought my first single-family rental. I’m not coming to you to ask me how much to rent it for, I need to just go to Zillow, don’t I?

Nelson Lin: More or less. Most of these companies, I have NDAs with them, and they’re not going to be sharing their proprietary data. If they do sell it, usually only other hedge funds are the ones buying it, because the license will be, say, $10,000 a month to source data from another company that owns several thousands of units. So it does feel unfair in a lot of ways trying to compete, but there are still ways for you to keep up and track, mainly through census information. FRED for example is also really useful.

Slocomb Reed: What is FRED?

Nelson Lin: FRED is the federal database that the government keeps. There’s a lot of economic data, for example, Case-Shiller and different rent CPI changes that you can use to track how the prices have changed, and how inflation is doing in a specific city. It’s a pretty good historical model, but if you just type in “FRED economic data” in Google, it should pull up that website pretty quickly.

Slocomb Reed: Okay, gotcha. You are in two general partnerships – 72 units in Chicago and 92 units in Jacksonville. Within your general partnerships, are you the entire general partnership, or do you have a specialization within those partnerships?

Nelson Lin: Yes. Obviously, being a data scientist, my role in the group is largely doing the math underwriting, but I also raise capital. My experience being on both east and west coast, in the finance and tech industry, a lot of my network is in both of those industries. So they generally have capital invest, but they would, say, never leave Brooklyn, ever. They would never want to get out of the Bay Area, California. But if I am somebody who’s in Chicago, a place they might visit once or twice in a lifetime, they’ll gladly put money in places that cash-flow, that have a cheaper per dollar cost, and overall, there’s easier access that I can provide them by being a boots on the ground person.

Slocomb Reed: Gotcha. Two questions for you, Nelson. The first question is how are you using your experience as a data scientist to inform your underwriting beyond what the rest of us typically do? Nelson, the real question is how can I learn how to use data science to improve my underwriting? Tell us what you’re doing, but let us, the Best Ever listeners and especially me, know how it is that we can improve our own underwriting by doing it more like how you’re doing it.

Nelson Lin: Got it. So you don’t have to go as advanced as, say, building a regression model. They tend to be expensive jobs to hire for, and they also are often above and beyond what’s necessary to do well in real estate. One way to really improve your underwriting is – I don’t think that most syndicators are keeping a good track of OMs that they’ve already seen. One major aspect that they could really use to benefit themselves is to take a large sample size and use the estimates to figure out how conservative can I be on that.

I’ll give an example. In Chicago, I have a list of dozens of OMs in the last year that I’ve seen for apartment complexes. I have the age listed, but more importantly, I have all the expenses listed. So when you take enough samples, you can figure out what’s the average, but on top of that, you can figure out what is the tail end of the properties that might seem interesting or totally off. So if you have, say, 30 properties, you’ll get an average that you can use as your underwriting. But you can go the conservative case, which is say the maximum 33rd percentile for what you would pay in water expenses. I’ve actually gone through OMs now and seen, “Hey, this property is actually at the 99th percentile for water expenses per unit.” Why is that the case? It becomes pretty evident that there’s a leak somewhere in the building.

Slocomb Reed: Nelson, let’s stay on that example. When you’re looking at an offer memorandum and you see 99th percentile water expense, the first alarm bell in my mind is, “Hey, if I find that leak, my operating expenses should go down dramatically. There’s value.” Is that the kind of thing that you’re doing?

Nelson Lin: Exactly. Usually, I check on the water expenditure side, “Hey, there’s a leak,” or maybe there’s an opportunity to replace with low-flow water items. At the same time, we also look at electrical expenses. These are super high; probably they either haven’t separately metered out or they haven’t switched to all LEDs. On the HVAC side, maybe they’re using all older boilers, something of that nature. Or you can check, “Hey, within this parabola or within this range that’s normal, where are the numbers off on my expenses?” And from there, you can figure out a value-add, very quickly, without even having to visit the property, that it stays outside of the normal range of what these expenses should be.

But you can’t really do that until you have a database of maybe 20 or 30 OMs that you’ve probably already looked at, but you’ve never kept track of in, say, an Excel sheet. Something like that, you don’t need a programmer who costs six figures a year to run your business for. You could keep track of it yourself, hire a VA. Whatever is your underwriting, you should be accumulating a list of expenditures that you’re spending, and then based on that, you could figure out where does this property land on the average just for each dollar amount.

Slocomb Reed: Nelson, this is really helpful. That makes so much sense. For everyone who’s in acquisitions, reaching out to brokers, getting themselves in front of deals, we could be collecting data from all of those offer memoranda to figure out, as you said, the bell curve of each expense, water expenses that are way too high more likely than way too low, or things that are being underestimated. Often, especially in a Midwestern market like mine, like Cincinnati, with a smaller property, you’re talking about an unsophisticated seller… And sometimes the broker has to create a proforma because they’re not getting sophisticated actual expenses from the owner.

If you’re building that dataset, it makes sense that you can be using it as a cross-reference for the expenses on the deals you’re currently underwriting. To your point, 99th percentile water bill means there’s a leak. I find the leak, I stop the leak, I’ve immediately added value. Where else in deal analysis is your work background proving itself out to be very advantageous?

Nelson Lin: In any business there are two ways to make money. Your profit is entirely determined by revenue minus expenses. I’ve talked about estimating your expenses; you can also do the same thing with your revenue specifically. If you’re estimating your revenue, it’s very difficult to take just three comps in the area and say, “This is it. This is the whole number.” Usually, within a statistical sample, you’ll want, say, for example, 30, to get to a normal distribution. That looks like a curve, that makes sense. For example, if you’re in a classroom and you only have three kids in the classroom, it’s hard to say, “Hey, the average height for all kids of this age is six feet. For fifth graders. These are the really tall fifth graders.” Ideally, the more samples you have, the more of a curve it looks like, the more balanced that you can get for a number; you can figure out what the normal range is.

In real estate, when you’re acquiring new properties, a lot of people will just take the three best, highest rental comps in the area to show, I guess, investors. It’s hard sometimes, because there isn’t a lot to work with. But if you give them a range, that gives them an idea of how conservative do I want to be. Maybe you want to, say, take the lowest range and give them an idea of a worst-case scenario, versus something that’s a best-case scenario on the high end. You shouldn’t be sharing deals based on only the high-end scenario, of course, you want to be as conservative as possible.

There’s a website called rentometer.com that I like a lot, because it splits up based on that number. It has a 50% mark, a 25% mark, and a 75% mark. That means I know what my high target is, what my likely average target is, and what’s my conservative rent case. How do I compete against, say, all these other properties in this area and all these other syndicators in the area? I want to be conservative; I want to target that 25th percentile for the rent. Maybe not 99th, because you don’t want to be too conservative and price yourself out of the market. But on the acquisition side, you can also space it apart and then figure out from there how should I be properly purchasing.

If you look on rentometer.com as well, they actually show you which properties are in the green, which means it’s cheaper than the average. They also show you the red, which is what’s more expensive than the average. On the rentometer.com map, you can actually see “Oh, there’s a group of red properties”, and when you look through it, you figure out oh, this is totally new construction, A class neighborhood of apartment complexes. The one I’m buying in is largely green in this area. Even though the average within a neighborhood might be high, I am in the cheap neighborhood that’s a few blocks away.

This might not happen in most markets, but in Midwest, like Chicago, it changes within three to four blocks. A whole street could be class A storefronts, and then you have four blocks later some of the roughest neighborhoods in town. The one particular I’m thinking of is Oak Park and Austin in Chicago. When you are taking estimates, you want to look at the area, but you also want to figure out what is my range. I would say that data acquisition side would be really helpful when underwriting.

Break: [00:18:19][00:20:15]

Slocomb Reed: A couple of other things here. I pronounce it Rentometer, but I don’t know how it’s supposed to be pronounced. It’s an affordable service. As a real estate agent, I compare it to sold comps for real estate sales, because typically what you’re seeing in Rentometer is something that has already leased, or that was advertised for lease several months ago. I also use a combination of Zillow and apartments.com in other places to figure out the “active comps”. As an operator, Rentometer usually has a larger data set, especially now, than the active lease listing websites. But the active lease listing websites give me a good idea of what my competition is right now.

Nelson Lin: Agree, yeah.

Slocomb Reed: I’m putting myself in the mind of a prospective tenant… They’re not going to Rentometer to see what rents were six months ago in the neighborhood; they’re going to Zillow, Hubzu, Dwellsy, whatever, and seeing, “Okay, which apartments can I see this weekend?” Another thing that helps, to your point about the high red rents and the low green rents – it helps to have a street by street, block by block understanding of neighborhoods as you were saying. But also, that can be an indicator that if you’re buying in the “green area” where rents are low, that rents could be rising, because amenities are being added to the neighborhood.

Most often, at least in Cincinnati, we’re seeing that that new construction, those new construction apartments that would have the higher-than-average rents, the first floor is entertainment, retail, restaurant, bar, the kind of things that the people living in the green, more affordable apartments are going to be attracted to, and you should see rent growth in the area.

The other thing that I use it for is trying to figure out which amenities actually increase rent rates, and which don’t. I assume you’re doing something similar, Nelson, when you’re analyzing for renovations. How much does it help to put laundry in the units, how necessary is it to have off-street parking, those kinds of things? When did you guys buy your deals in Chicago and Jacksonville?

Nelson Lin: Chicago was actually beginning of 2021, I believe, and then Jacksonville was like 2021. It was COVID buys.

Slocomb Reed: Yeah. Tell us more about the Chicago deal, what attracted you to the market first, what attracted you to this property, and with what projections did you buy it in early 2021?

Nelson Lin: Got it. Chicago, the one thing that everyone will tell you and talk about is that it’s a terrible market to invest in.

Slocomb Reed: That’s why I wanted to talk about that one. Yeah, Nelson, let’s go.

Nelson Lin: Across the board, all of the multifamily syndicators and large investors you’ll talk to will say, “Why are you investing in Chicago? What are you doing?” To that, my response is that “Most people don’t invest in Chicago.” Good luck finding something at market price in Austin, where I live right now. In Chicago, the thing is we can pick up properties at roughly 40%-50% off the stabilized basis value. We are not necessarily competing with the whole country for properties in Chicago, unlike say in Austin, or pretty much anywhere in Texas right now. Sp we are buying in specific submarkets, so we’re not just buying in Chicago anywhere.

Chicago is the third biggest city in the country. What does that mean? Certain neighborhoods are the sizes of cities themselves. One particular area we’re buying in, it’s called Bronzeville. If you look at Rentometer, if you have a pro account, and pretty much any sort of historical trend site, there is a lot of creative appreciation that you can have, mainly because rents have increased by double-digit amounts even before the pandemic, for the last three or so years; prices have doubled since 2017. This is a small sub-market that is outperforming most places in the US that I’ve seen. But at the same time, it’s big enough for the city that you’ll get, for example, tier 1 lending, because you’re in Chicago; it’s a major gateway city. When we got CBRE to fund the loan, we got some pretty good deal terms that it would be harder to do in, say, Chattanooga, Tennessee.

Slocomb Reed: Let’s dive into some of these numbers now. 72 doors in Chicago – when was it built, what’s the unit mix? And then tell us, how much did you pay for it and what kind of lending terms did you get?

Nelson Lin: Got it. This is actually split across many buildings. One was 18 units, and then a bunch of smaller six units. Deal terms are 3.75%, with a bridge, I believe, a construct loan of a few hundred thousand… The numbers for that one, I have to actually pull them up real quick. But I think the Jacksonville one might be more interesting, just because it’s more recent. Can I explain that one instead?

Slocomb Reed: Let’s stick with Chicago, since we’ve already started there.

Nelson Lin: Okay. No worries.

Slocomb Reed: We’re also running a little short on time.

Nelson Lin: I’ll probably do that then. In Chicago, the deal terms are 3.75%, tier 1 lending, it’s a gateway city in Chicago. The deal was split across multiple properties. We bought it all-in; I want to say the first property was 1.5, and then the other one was two, so all-in the value I believe it will be around 6.5 million, when it’s all said and done. The first property, all-in costs are around 1.5 million, should be worth 2 million when it’s done. The other property we bought all-in for 2.5 million, but we believe it’ll be worth around four when we’re done. So the other packages, we are selling some of the smaller six-units. And then the deal size, I don’t have it off the top of my head, unfortunately.

Slocomb Reed: Gotcha. What attracted you to Chicago though, is that Chicago is a large enough market that it’s composed of submarkets. One of the things that I find true in Cincinnati, which is much smaller, a third the size of Chicago I believe, is that even within an urban area the size of Cincinnati, when you have a lot of new redevelopment attracted to one particular neighborhood or one part of a neighborhood, the tide rises in the surrounding neighborhoods as well. If you wanted to say Cincinnati is an X market, it’s a seven cap market or something like that, you’re missing out on what’s happening at a more micro level.

What you’ve found in Chicago was a particular neighborhood that has seen a lot of appreciation recently, and an opportunity to buy a collection of smaller properties that don’t hit the inbox of a lot of syndicators, A, because it’s in Chicago, B, because they were smaller properties, that gave you this opportunity to take advantage of… They’re not just rent growth trends in places like this, they’re re-urbanization trends, all things considered. That’s pretty exciting. You guys underwrote this to a five-year hold, I would imagine?

Nelson Lin: We actually are at the seven-year hold, and we’re estimating at 22% IRR. The big reason was that most of the value came from the beginning. It’s hard to do the math on it exactly, but across 72 units, 18 of them we bought at 90k a unit, because those are a lot of three beds, and we actually have some four beds in there as well so they’re bigger units. Another 54 we bought were a bit smaller, and we bought them for around 50,000 per unit. So the all-in math is we’re buying at around 60% of what the stabilized value should be, putting another 20%, which is probably 20-30 grand even per unit.

We’re all in for 80% of the full value, based on today’s market comps. So if we were to sell, we could make that 20% profit, or we could actually refinance out and do a major BRRRR. The cap rate in Chicago right now for the areas we’re in is still around 6%. Everyone likes a BRRRR deal, but imagine doing that on 72 units in Chicago, for example. It’s very hard to pull that off in a city like Austin, just because it’s so competitive.

Slocomb Reed: Yeah. Being so competitive in Austin is one of the reasons why you’re able to pull it off in Chicago, because everyone is paying attention to Texas in the southeast. Nelson, are you ready for our Best Ever lightning round?

Nelson Lin: Yes, I am.

Slocomb Reed: Awesome. What is your Best Ever way to give back?

Nelson Lin: I run a group called Subtle Asian Real Estate. I give back a lot of information and teach people how to invest in real estate. A lot of them are starting from zero to one. I used to put a lot of time into a food pantry when I was living in Chicago, but since I moved, I have mostly been focusing on educating and helping people get started in real estate.

Slocomb Reed: What is the Best Ever book you recently read?

Nelson Lin: I’m currently reading The Gap and The Gain. I had a bit of a mindset shift recently, and I’ve been getting help a lot. People point towards the gap and the gain to sort of pick up on what it’s like to be an entrepreneur and do better in my business.

Slocomb Reed: What is the Best Ever skill you’ve developed in commercial real estate, outside of your data science background?

Nelson Lin: I think the Best Ever skill I’ve developed is raising capital; it’s something that I didn’t expect to do. But for example, the Subtle Asian Real Estate group is now that 13,000 members. It was a pandemic project and it’s kind of taken a life of its own. I’ve recently had a lot of people reach out not just to hear how to start investing but also to be an LP in my groups.

Slocomb Reed: What is your Best Ever advice, Nelson?

Nelson Lin: My Best Ever advice – don’t dive into something without doing the research first. I made a mistake on a flip recently, which would probably be, if I remember correctly — there’s a section on what’s your worst deal? I’ll save it for that if we’re going to that next.

Slocomb Reed: We’re not, no. But tell us about it.

Nelson Lin: I went into a flip without knowing the flip business very well. I got caught up in the market, it was hot, and we ended up holding it for 11 months. We didn’t lose money, we still bought it decently cheap, but I did not pick the best renovation stuff for it.

Slocomb Reed: Did you have high-interest debt?

Nelson Lin: No, luckily, I [unintelligible [00:30:32].05] But it was low-interest, and luckily, even though we paid off the debt, it was still a harrowing situation to have an empty, vacant unit for 11 months.

Slocomb Reed: Gotcha. Nelson, where can our Best Ever listeners get in touch with you?

Nelson Lin: You can either find me by googling Nelson Lin or subtleassets.com, those are my websites. You can also find me on my Facebook page, Subtle Asian Real Estate. Those are probably the best ways you can reach out to me.

Slocomb Reed: Great. Well, Best Ever listeners, thank you for tuning in. If you’ve gotten value from this episode, please subscribe to our podcast. Do leave us a five-star review and share this episode with a friend whom this conversation with Nelson can add value to. Thank you and have a Best Ever day.

Website disclaimer

This website, including the podcasts and other content herein, are made available by Joesta PF LLC solely for informational purposes. The information, statements, comments, views and opinions expressed in this website do not constitute and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. Neither Joe Fairless nor Joesta PF LLC are providing or undertaking to provide any financial, economic, legal, accounting, tax or other advice in or by virtue of this website. The information, statements, comments, views and opinions provided in this website are general in nature, and such information, statements, comments, views and opinions are not intended to be and should not be construed as the provision of investment advice by Joe Fairless or Joesta PF LLC to that listener or generally, and do not result in any listener being considered a client or customer of Joe Fairless or Joesta PF LLC.

The information, statements, comments, views, and opinions expressed or provided in this website (including by speakers who are not officers, employees, or agents of Joe Fairless or Joesta PF LLC) are not necessarily those of Joe Fairless or Joesta PF LLC, and may not be current. Neither Joe Fairless nor Joesta PF LLC make any representation or warranty as to the accuracy or completeness of any of the information, statements, comments, views or opinions contained in this website, and any liability therefor (including in respect of direct, indirect or consequential loss or damage of any kind whatsoever) is expressly disclaimed. Neither Joe Fairless nor Joesta PF LLC undertake any obligation whatsoever to provide any form of update, amendment, change or correction to any of the information, statements, comments, views or opinions set forth in this podcast.

No part of this podcast may, without Joesta PF LLC’s prior written consent, be reproduced, redistributed, published, copied or duplicated in any form, by any means.

Joe Fairless serves as director of investor relations with Ashcroft Capital, a real estate investment firm. Ashcroft Capital is not affiliated with Joesta PF LLC or this website, and is not responsible for any of the content herein.

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JF2758: 3 Simple Rules To Becoming A General Partner (2,800+ Units!) ft. Maggie Cheung

How do you make the jump from being Limited Partner to General Partner? Maggie Cheung, co-founder of Sage Investing Group, took the same leap and now is GP of over 2,800 units. Maggie reveals how she went from LP to GP, and discusses her business’ strategy for targeting financial experts as investors.

Maggie Cheung | Real Estate Background

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Ash Patel: Hello Best Ever listeners. Welcome to The Best Real Estate Investing Advice Ever Show. I’m Ash Patel and today’s guest, Maggie Cheung. Maggie is joining us from my home state of New Jersey. She is the co-founder of Sage Investing Group, which provides multifamily real estate investment opportunities to investors who are auditors, accountants, or in the finance industry. Her portfolio consists of $227 million of assets under management. Maggie, thank you for joining us and how are you today?

Maggie Cheung: Good. Thank you for the intro, Ash.

Ash Patel: It’s our pleasure. Maggie, before we get started, can you give the Best Ever listeners a little bit more about your background and what you’re focused on now?

Maggie Cheung: Yeah, definitely. As you mentioned in the background, before I joined this three years ago, this real estate investing journey, I was a full-time corporate employee. For almost 13 years I was in the audit field; I audit the banks, and I audit the bank’s investment vehicles such as multifamily commercial business. But there are just a lot more zeros in those terms. Now I do the same thing, but I’m actually acquiring assets with less numbers in the back, but nonetheless, it’s 100 plus units. We try to acquire 100 plus units with good value-add, and those are things that we like to offer to our investors and bring other people like us along to the journey.

Ash Patel: Maggie, I had to reread that intro a couple of times. I didn’t believe somebody actually caters to auditors, accountants, and people in the finance industry. My only thought was you had to have come from that background to be able to relate to those people. Nothing against those industries, but it’s almost like walking into the lion’s den and pitching these savages. Explain to me the challenges of having those people and some of the benefits of having people in that industry.

Maggie Cheung: You actually seem like you have some experience with those people.

Ash Patel: Just no different than any other real estate investor. We should stop calling them “those people”.

Maggie Cheung: Yes, my people.

Ash Patel: Okay, we’ll call them your people. Perfect. I don’t know if that’s any better, but alright.

Maggie Cheung: Yes. You do know [unintelligible [00:05:12]. Originally, I know myself, I’m the worst critic and I’m an auditor and so a skeptic at heart. So we weren’t sure if this is really the way we want to go, this is the identity that we want to do with Sage Investing Group, which is what our company is. But after a few years in, we just started attracting the same people with the same mindset, and then ultimately, we’re like, “Okay, I think we just can’t shy away from ourselves.” I think most of the time it’s just that getting ourselves comfortable around a deal takes a while, because we’re such a skeptic; we question everything under the sun.

So I think we’re in the best position to pitch the deal because we know what others, accounting and finance people, are thinking ahead of time, and we’re trying to get ahead of that, because I feel people like us hold ourselves back from investing. So the more that we can provide, the more education we can provide to our investors, and the more they feel more comfortable, they are more likely to see the opportunity to invest in real estate, which has tremendously changed our lives, change my life personally. So we would like to bring that to our people.

Ash Patel: Yeah, I admire that approach. Auditors especially, their job is to find things that are off. Day in and day out, they’re looking for anomalies. So it’s great that you’re pitching to that level of sophisticated investors. What are the benefits of having these very stringent, analytical, financial background people as investors?

Maggie Cheung: I think I enjoy it because as much as I feel like I think I cover everything, I’m sure there’s always something that I haven’t seen or haven’t uncovered. So I do appreciate it when investors are bringing up these questions. We do take it seriously and we consider it in our own underwriting or any deal, or any future deals that we look at with that critical eye. We do collect that information and also take that into consideration.

Ash Patel:  Maggie, in the past, I’ve had the pleasure of interviewing a number of people that have come from the financial planning field, and asked them, “Why have you never pitched real estate to your clients?” Often, it starts with they never knew the potential returns of real estate. But even when they found out about those returns and other aspects of the investment, there’s no way for them to make money on pitching these deals, there are no kickbacks. So how do you get people in the finance industry to look at real estate, and in your case, multifamily investment options?

Maggie Cheung: That’s a great question, Ash. I usually present it the way… Because I invest in a lot of the deals myself and it’s been a few years now, so I know I started to see the potential growth of it. I think people in my, I guess, former life and people who are my friends now, they’re starting to see a little bit more of the traction and potential long-term benefits of investing in real estate. So I think through my own experience, I’m able to connect with them. Because I am like them, they see a little bit more outside of just stocks, investing in stocks, and investing in just single-family homes around the backyard. I think that element helps a lot in that conversation.

Ash Patel:  I would love to roleplay a cocktail party with you. Imagine your home or somebody else’s home and it’s just a pre-dinner cocktail party full of people from the financial industry. Specifically, I want to say financial planners, let’s make this a challenge. How would you strike up a conversation and how would you lead that into investing in real estate?

Maggie Cheung: Yeah. I typically don’t like to present something if I can’t help them. I would like to have the conversations like — if it’s a financial planner, I definitely like to ask like, “What are your investing? What are your returns like? What type of asset are you investing in?” I would like to see if they have experience in multifamily real estate. If this is something that I can help with, I would definitely like to share that. Not everyone I think will be able to satisfy everybody’s investment profile, investment appetite. Because like you Ash, I know you invest in commercial and also multifamily. So I know in commercial you probably are looking at a higher return, like 30% or more, than multifamily, where it’s more around 20%. So you definitely will have to consider that person’s risk appetite, and risk profile, investment philosophy. I do like to pitch — not pitch, but I like to try and see that they have a diverse investment asset. That might be something that I can help out with on that angle.

Ash Patel:  Got it. Alright, so let’s dive into you. How did you leave that industry and get into multifamily?

Maggie Cheung: As I mentioned, I was working in corporate, I was an auditor for a bank. I was working quite a bit, and I had two young kids, and working 80 hours a week. My husband is also an auditor, so imagine the conversation we’d have at home. So we decided that after having my two kids, one of us had to step back. It doesn’t make sense to have a young family and also continue our corporate careers in both angles. So I decided to take a step back on my side, but I actually thought about going back maybe a year. But during that time, I was thinking it just didn’t make sense. I was pretty much on top of my career, I was a VP. I don’t know if I could dedicate the same amount of effort to corporate life and also to my family.

So I decided that, okay, I have to have something more flexible, and we always wanted to do real estate investing. So I sat down with my husband, “Okay, give me a year to figure this out.” I did exactly that. I tried different types of real estate investing, I became a real estate agent, I joined a lot of meetups, I invested in private lending. I also shadowed a builder, who was also a former accountant, and she showed me the way how to flip the home. In the midst of that, I also invested in limited partnerships and syndication. That’s when I really understood the power as far as syndication. It also is very familiar to me, because I have seen these deals package on the bank side when I was working in the bank.

Now coming as an investor, I looked at the deal, how was it pitched, and how was it put together… The SEC filings – because these are private offerings, have to be filed with the SEC… All that was very familiar to me. So I just thought, “Okay, how can I get from limited partnership to general partnership?” That took me a year to figure it out. Finally, throughout the year, I decided, okay, multifamily makes the most sense in terms of my background. I know the background, and how my corporate life [unintelligible [00:12:22].22] I feel like there are a lot of things that I could offer in multifamily, and also bring our investors along.

Break: [00:12:29][00:14:26]

Ash Patel: How did you make that transition from LP to GP?

Maggie Cheung: I think, like most investors, I recognized that I cannot do it alone, and especially my whole entire life was in corporate audit. A lot of my peers and family members do not have any experience in multifamily real estate, so now I recognize that pain point. I know that I need another circle, another network. So I did join a mastermind group, so that I can come within the same realm as other real estate investors who are also hungry and also excited to take down these larger deals.

Ash Patel: So you grew your network…  And what was the first deal that you were a GP on?

Maggie Cheung: The first deal was a 156-unit property in Kansas City. It was three years ago, and it was owned by a church, so the rents are really, really, really low. I will say that the three-bedroom was like $600l; now the last time I checked, it was $1,100 for three bedrooms. But needless to say, it was one of the best deals that invested in.

Ash Patel: How did you find that deal, or who found that deal?

Maggie Cheung: Yes, I just connected with another real estate investor through the network. She’s amazing, she was almost sort of like a mentor to me. She invited me to the deal, invited me to learn about the deal as a general partner. I was really fortunate that I was able to relate to her and connect with her through this mastermind group. We hit it off right away, we met, she just invited me to the investments.

Ash Patel: Maggie, what was the value that you brought to become a GP?

Maggie Cheung: I think, like all auditors, we point out all the risks. So I think early on when I view the deal, I scrub through it this way that I also did at my previous job. I look at the risks of “Okay, is the property in a flood zone? What is the breakeven point?” So I scrub through the entire deal from beginning to end, I just list out all my questions. But of course, I definitely appreciate that she takes the time to take a look at my questions, but also sharing with her that these are the questions I’m asking, because I wanted to make sure I’m helping her to find all the risks in regards to a deal. I think that’s why she appreciates my honesty.

In terms of that, I’ll also help her with the investor relations side. A lot of the post-acquisition, we helped her on putting investor emails together. So those are the things that I contributed from her angle. Also, because I have a finance background, I look through the financials and ask those questions, making sure the PM is booking the right entries, so we can make sure that we have all the financials in order to help the K-1 deliver timely.

Ash Patel: And on today’s deals, do you still have that same role, or has that expanded?

Maggie Cheung: It did. Last year, we acquired Sage. Sage acquired the first deal where we actually sourced the deal from the beginning to the end. It’s 126 units in Dothan, Alabama. We actually are acquiring another portfolio there right now. We’re under contract for another portfolio deal in Dothan, Alabama.

Ash Patel: Maggie, I forgot to ask you, the deal in Kansas City – why did the church own a multifamily property? Was it just an investment?

Maggie Cheung: I think they looked at it more like a charity and they operated like a charity. The rents are extremely, extremely low. As I mentioned, it was $500 to $600, and there were people there, they were there for a long time. There was a guy there that lived since 1970.

Ash Patel: How do you raise rents on somebody that’s been there for 40 years?

Maggie Cheung: Yeah… I’ll say we don’t go in there and kick everybody out. That’s not really typically what we try to accomplish. On this front, we try to explain there is new ownership. What we try to do is put in place value [unintelligible [00:18:36].07] that people can see. Sprucing up the landscaping, fixing up the roof, fixing up [unintelligible [00:18:42], showing people that we actually care about the property and we’re actually working towards creating a community there. So we spent a lot of money up front, but we did not raise rents, we did it on a gradual basis. Then when the timing comes and the lease is up, it’s an easier discussion. They get a little more buy-in from the tenants; ultimately, they’re our customers as well, so we want to make sure that they feel we’re putting value in their eyes before we raise those rents over time. So it’s three years in the making.

Ash Patel: Got it. Maggie, what advice would you give somebody that wants to become a GP on a deal?

Maggie Cheung: I think first it’s just to surround yourself and see if you can get in close contact with other people who are GPs themselves. Because it might be something, a shiny object, but it might not be a fit for everybody. I think having that conversation – we understand what is involved as a GP, because it is a lot of work. I don’t think being prepared for that before you jump in is really helpful. So connecting with people like yourself or myself and anyone else in that position, and hear them out on their journey… And listen to your podcast, of course, to really understand that that is a role that you want to play.

Ash Patel: If somebody came to you, let’s say at the Best Ever Conference, and said, “Hey, Maggie, I would love to GP with you on a deal.” What would your response be?

Maggie Cheung: I think, like your yourself, Ash, it will be what value that person can provide in the general partnership. Whether their background, or net worth, or something that they will be able to provide in our next deal, that will be helpful. Ultimately, it’s not just that; I also want to assess the person as a character. Are they a man or a woman of their word? It’s really — I don’t know what to say, like hunger or excitement; they’re really putting in all the efforts upfront in order to make the deal happen… Because you have to be dependable.

So it takes time for me to assess that, but I am happy to maintain that relationship to see. The thing is, with auditors, things take time and relationships take time. It takes time for me to assess if that individual is really fit for a partnership, because it is like a four or five-year relationship.

Ash Patel: I got it. So really, if somebody wants to become a GP on a deal, one, they have to identify what kind of value they would bring, two, they’ve got to find somebody that’s got a need that matches those values, and three, there’s got to be a personality fit. Three simple rules to becoming a GP, right?

Maggie Cheung: Yeah.

Ash Patel: Awesome. Maggie, what is your best real estate investing advice ever?

Maggie Cheung: You just have to start somewhere. People like me, my people, I think you can assess all day and get analysis paralysis, but at some point, you have to make a move in order to move somewhere.

Ash Patel: Maggie, I forgot to ask you, did your husband quit his auditing job, or is he still an auditor working 80-hour weeks?

Maggie Cheung: He’s still in his full-time job, but we’re making plans.

Ash Patel: Alright, good. Maggie, are you ready for the Best Ever lightning round?

Maggie Cheung: Yes.

Ash Patel: Alright. Maggie, what’s the Best Ever book you recently read?

Maggie Cheung: It will be Atomic Habits?

Ash Patel: What’s your big takeaway from that?

Maggie Cheung: Just implement something small every day, and focus on that. Just do one thing at a time, but build upon the habit.

Ash Patel: Maggie, what’s the Best Ever way you like to give back?

Maggie Cheung: I like to mentor other people. I like to give back based on what I learned, and hopefully, that will help them get to their goal faster.

Ash Patel: I would imagine you have a lot of people wanting you to be their mentor. How do you qualify who you choose to spend your time with?

Maggie Cheung: I do talk to kind of assess what they’ve done. What action are they doing in order to reach their goal. I do give people the benefit of the doubt. If I connect with somebody who mentioned that they want to reach a goal of acquiring a property for Airbnb and so forth, I would keep in touch with them the next time I talk to them. If they show that, or they visited the market, they actually presented an analysis to me, I see their potential. But if the next time they show me okay, they haven’t moved the needle anywhere, I’m probably going to distance myself a little bit more on that.

Ash Patel: Great advice. Maggie, how can the Best Ever listeners reach out to you?

Maggie Cheung:  It’ll be maggie@sageinvestinggroup.com, or you can reach me at my website, sageinvestinggroup.com

Ash Patel: Maggie, thank you again for being on the show and sharing your story with us. Three years ago, you were working 80-hour weeks and now your GPs on deals. You’ve got a tremendous number of assets under management. Thank you for sharing your story with us.

Maggie Cheung: Thank you.

Ash Patel: Best Ever listeners, thank you for joining us. If you enjoyed this episode, please leave us a five-star review and share this podcast with someone you think can benefit from it. Please also follow, subscribe, and have a Best Ever day.

Website disclaimer

This website, including the podcasts and other content herein, are made available by Joesta PF LLC solely for informational purposes. The information, statements, comments, views and opinions expressed in this website do not constitute and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. Neither Joe Fairless nor Joesta PF LLC are providing or undertaking to provide any financial, economic, legal, accounting, tax or other advice in or by virtue of this website. The information, statements, comments, views and opinions provided in this website are general in nature, and such information, statements, comments, views and opinions are not intended to be and should not be construed as the provision of investment advice by Joe Fairless or Joesta PF LLC to that listener or generally, and do not result in any listener being considered a client or customer of Joe Fairless or Joesta PF LLC.

The information, statements, comments, views, and opinions expressed or provided in this website (including by speakers who are not officers, employees, or agents of Joe Fairless or Joesta PF LLC) are not necessarily those of Joe Fairless or Joesta PF LLC, and may not be current. Neither Joe Fairless nor Joesta PF LLC make any representation or warranty as to the accuracy or completeness of any of the information, statements, comments, views or opinions contained in this website, and any liability therefor (including in respect of direct, indirect or consequential loss or damage of any kind whatsoever) is expressly disclaimed. Neither Joe Fairless nor Joesta PF LLC undertake any obligation whatsoever to provide any form of update, amendment, change or correction to any of the information, statements, comments, views or opinions set forth in this podcast.

No part of this podcast may, without Joesta PF LLC’s prior written consent, be reproduced, redistributed, published, copied or duplicated in any form, by any means.

Joe Fairless serves as director of investor relations with Ashcroft Capital, a real estate investment firm. Ashcroft Capital is not affiliated with Joesta PF LLC or this website, and is not responsible for any of the content herein.

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JF2756: How One Cup of Coffee Kick-Started Her CRE Investing Career ft. Alessandra Thompson

When a mentor offered to grab coffee with Alessandra Thompson if she was ever in town, Alessandra didn’t hesitate. The next day, she showed up to Nashville, and that coffee date ended with a business partnership. Alessandra shares how she made the bold move to move across the country from California to Tennessee, her experience as an underwriter and asset manager, and what she’s planning for the future.

Alessandra Thompson | Real Estate Background

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TRANSCRIPT

Ash Patel: Hello Best Ever listeners, welcome to The Best Real Estate Investing Advice Ever Show. I’m Ash Patel and I’m with today’s guest, Alessandra Thompson. Alessandra is joining us from Nashville, Tennessee. She began her journey into real estate syndications after moving across the country. Alessandra now has two properties under management and she handles day-to-day asset management and operations. Alessandra, thank you for joining us and how are you today?

Alessandra Thompson: Thank you for having me. I’m doing really well. I’m happy to be here, excited to just be on the show.

Ash Patel: It’s our pleasure. Alessandra, before we get started, can you give the Best Ever listeners a little bit more about your background and what you’re focused on now?

Alessandra Thompson: Yeah. A little bit about me is that I’m originally from California. I started my real estate investing journey probably last March 2020. A little bit of education a couple of months before. I always knew that I wanted to just get into something that would free up my time and where I wanted to live, and also just help me out financially. This is something that I just wanted to really get educated in. I started out by just looking at all the different ways of how I could get out of my W-2. I wanted to get more passive income, so this is something that just clicked with me in the multifamily world.

I was just working in marketing in Los Angeles and it wasn’t until COVID that I realized how unhappy I was with just going into an office, especially with the LA traffic. I was able to just get my life in order of where I wanted to be. I fell into multifamily, I found some mentors and people that were doing what I wanted to be doing, and I just got started and moved to Nashville to be in my market. I’m just super-excited to be here. I love the industry, I love the multifamily space. That’s a little bit about me.

Ash Patel: I’ve got a lot of questions. First of all, you’re in your mid-20s and you had this epiphany that you wanted more free time, you weren’t happy with the W2. Do you know how many people I interview in their late 30s, 40s, and 50s that had just had that revelation? How did you come to this? I would Imagine a lot of people at that age are just like, “Alright, I’m going to work, I’m going to grind harder, and then I’ll retire early. Or I’ll save up enough money and then I’ll move on to something else.” How did you have this awesome mindset at that young age?

Alessandra Thompson: I think it’s just that I’ve never been able to sit still in an office, and look outside and be like, “I want to travel the world and I want to be able to have the opportunity to spend more time with my family and friends.” Also, my father passed away about four years ago and he was working until the day that he passed, and that just really struck a chord in me that that was something that I could not do. I wasn’t able to spend enough time with him, I wasn’t able to just be able to go on a trip with my family and friends, or go out somewhere, because it was always just about work. I think that life is meant for more than that. I think that there are just boundaries that need to be had, so I wanted to just be able to free up my time and be able to do the things that I want to do, when I want to do them. That’s a lot of where it came from.

Ash Patel: Yeah, sorry to hear that, and thank you for sharing that. So you had that in the back of your mind… How did you bring yourself to take the action of leaving your job, pursuing real estate and moving to Nashville? Now, you said Nashville was my market – did you have the property first, or did you move to Nashville just because Nashville is awesome?

Alessandra Thompson: That’s a really long story, but I’ll get into the nitty-gritty. I was living in Los Angeles and then COVID happened. I didn’t see anyone for three months, I was just like, “I’m just going to get my life together a little bit.” My brother was living in Florida, he was doing door-to-door sales, and I just went. So I haven’t seen anyone — Florida seems like the other right place to go just to visit. So I went and visited, I stayed there for the entire summer, I started doing door-to-door sales with him. I made a good amount of money doing that while working my marketing job at the same time. I knew that I’d always wanted to get into real estate, so I was just like, “Okay, I’m going to put this money to use. I’m going to buy maybe a duplex and rent out one side.”

It didn’t seem like it was going to replace my job or my W2, and so I wanted to think outside the box of like, “How can I scale bigger?” That’s when I started falling into multifamily. I got on Clubhouse when it first started. It was an interesting space, because I was just asking any question I wanted on the platform and just meeting different people, getting on phone calls, asking all the questions that I could, just jumping on the phone with people. My mentor now, the people that I work with were in the space and I just jumped on a call with her and she said, “That’s awesome that you want to get in the industry. If you’re ever in Nashville, let us know, we’ll grab a cup of coffee.” I was just jumping around from state to state, and I was like, “Okay, I’m going to go to Nashville tomorrow.”

I packed my stuff up and I just moved to Nashville. I’d never been here before. I thought it was coming into old country, but it’s actually very different than that. I showed up and I was like, “Hey, I’m here for coffee.” I was still working my marketing job, so I had that security on the back end. So I just told myself to take that risk, take that action, see if there’s any value that I can provide for these people. They happened to have an open position and they gave me the opportunity to start working with them, so I quit my W2 job and jumped straight into multifamily. I think through experience, I’ve been able to just grow a lot quicker and educate myself a lot faster by being like, that boots on the ground.

I took action, because if I didn’t, then I would be in the exact same position that I was before. I think that in my mind, I was just like, “Well, the worst that can happen is that I move home, so I might as well just go test it out.” I had really great time driving across the country, so that was a win for me. It has been working out, so I’m just really grateful and excited.

Ash Patel: I love your story. What did you end up buying first?

Alessandra Thompson: We went in on a property in Little Rock, Arkansas. It’s a 36 unit and that was last July. There was a lot to be done; it was a 1935 build and we just went straight in, replaced property management. We ran into some issues and delays with closing, just because of the HUD statements. We also found there’s a huge groundwater stream running under the property, and we had a big mold issue which just delayed closing a lot. I’m actually going there tomorrow, I’m going to drive there and take a look at it. I’ll post it. So yeah, that was the first property that I closed on.

Ash Patel: Hold on, we’re diving into some of this stuff. I’m very curious. When you say we, this is you and the person you had coffee with?

Alessandra Thompson: Yeah, we’re partners.

Ash Patel: Okay. There’s a story there that I need to hear. You had coffee and then you became partners. How did that happen?

Alessandra Thompson: I was able to come in and work with them as their underwriter and just doing day-to-day stuff, and now I’ve grown. Because I didn’t know anything when I first started, so they didn’t have to give me that opportunity. But they saw the hard work and determination, and so I was able to just start small, just doing basic things. Then I started to just keep educating myself, really looked through how the process worked, and now I’m working in asset management and going out to contractors, speaking with contractors, property managers, underwriting the deals still… I’m doing a lot of work on that end, and so I was able to just partner with them on the property.

We got it through our lender relationship. He actually lived in the area in Little Rock, Arkansas, so he thought it was a really good opportunity. It was on the MLS, it’s a 36-unit. No one’s going to go on the MLS to buy their house and be like, “I’m going to buy this 36-unit to be my residence.” We were able to just go in there and get the financials. It’s a great little deal, it’s right off the main street of downtown, so that’s just been so exciting to see. It had a lot of different challenges to it, so I was able to just grasp how to deal with them. I think that’s the way that I’ve learned the most, is just through experience. So that started from coffee, yeah, to answer your question. [laughs]

Ash Patel: Were they blown away that they said, “If you’re ever in town”, and the next day, here you are?

Alessandra Thompson: Yeah. It’s a funny story to always tell but I think it all just comes with taking that action and just showing up. Even if you don’t know what to do, just take that next step because that’s what’s just going to propel you into the next step, and the next step. I wasn’t very educated in it and so it just takes time, but they were blown away.

Ash Patel: I would be as well, that’s incredible. I was going to ask you a question and you just answered it. The question was, what advice would you give somebody that’s in their 20s, or even — I don’t think age matters. Somebody that’s in a W2 job, hates it, realizes they’re sacrificing all of their time, it’s not where they want to be… And what you’ve just said, I think is the answer. Just take the next step; whatever step it is, take a step.

Alessandra Thompson: Take a step, even if that means reading a book about it. I think that just meeting people that are doing what you want to be doing, getting on the phone with people, going to meetups, having conversations, or attending certain webinars, it’s all going to be helpful, because you’re just going to build upon that, it’s always going to take the next step. There’s a lot of fear that’s involved, and I think that’s what people are afraid of is just getting out of their comfort zone.

I’ve been uncomfortable for the last year but I know that every time that I conquer the next step, I can look back and be like, “Well, I did this, so why can I do the next one?” I think it just comes with, “Okay, where am I going to direct my energy to, and what’s going to get me to the next level?” It just all begins with believing in yourself, but also just taking that action and not letting fear guide you.

Ash Patel: I’m sorry, I’m blown away. You have an incredible outlook, a great mindset. Back to the Nashville deal – you also mentioned you found it on the MLS. Something I tell our Best Ever listeners often is to look for mis-marketed or mismanaged deals, and the MLS is a great spot to look, because a lot of people are looking to brokers. I have broker relationships, I look for off-market deals. While all of that is great, we’re missing the low-hanging fruit, that new or inexperienced residential realtor that lists a multifamily or commercial property on the MLS; there’s a ton of that out there. So I’m glad you brought that up as well. You ran into a lot of issues there… What was your role in resolving the mold issues, the HUD issues?

Alessandra Thompson: That was just speaking with our lender and speaking with the previous sellers of just how are we going to handle this mold issue. But it took a lot of just back and forth with the groups. My role I think came mostly with property management. I was just helping the transition of property management groups in the due diligence phases of how are we going to switch over the utilities, or collect the balances, and just working between those groups. We actually ran through the property management group that we hired secondly; they were not doing the job that they said they were doing, so we had to like pick up a lot of work, and so I was on the phone with contractors. I even posted Facebook Marketplace posts to get people into the unit. It was great, to just experience what day-to-day life looks like for a property manager. It’s a lot of work, but it’s just been helpful for me to learn. Really just a lot of communication and the due diligence of just switching over companies.

Break: [00:14:37][00:16:33]

Ash Patel: Alessandra, how much hand-holding have you received, or is this just learn as you go?

Alessandra Thompson: It’s learn as I go. At first, I think the biggest challenge was speaking with contractors, like “What is the standard pricing? Where are we supposed to be? What’s the timeline?” I think that I just had to get accustomed to that. It took a lot of asking a lot of questions and getting a lot of different quotes to compare. I think it’s just been learn as I go. Jason Yarusi, the person that I work with has a great background in construction, so it’s just in his brain. So I could just turn to him and be like, “What is this? What is that?” That’s why I think it’s so important to partner with people that are just doing what you want to be doing, that have that experience. I think that’s the best strategy to just get into the place that you want to be, because you can just learn as you go from experts and people that are experienced.

Ash Patel: What’s an example of a mistake that you’ve made and what would you have done differently?

Alessandra Thompson: Oh, man. I know I’ve made many mistakes, but I don’t know why I can’t think of one right now.

Ash Patel: Think of an embarrassing moment, an “Oh my God” moment, or “I can’t believe I did this.” Something that stood out, something crazy.

Alessandra Thompson: Oh, I can’t even think of one, but I know that speaking of contractors I’ve probably said some dumb stuff, because I just wasn’t accustomed to like, “How does this electrical thing work?” I’m sure I just sounded silly, but I genuinely cannot think of what I’m really…

Ash Patel: No, that’s a good example. What would you have done differently? Because there’s a learning curve, you talk to somebody who’s been doing this for X number of years, and here you are asking a silly question. Is there something that you could have done differently?

Alessandra Thompson: Yeah. During the due diligence phase, there was one point where I was on the property and we were doing the inspection. I was on the property with 12 different contractors, and three of them getting different bids from everyone, so I started to just lose track of what I was supposed to be doing. I think that I could have been better at just writing everything down and recording what I was doing. Also, it’s a space that I wasn’t fully understanding yet at the time, so I think just being more educated and having someone that’s more of an expert on-site would be helpful. Now I can go in there like a breeze and speak to those contractors.

Ash Patel: Like a boss.

Alessandra Thompson: Yeah. So I think it just takes practice. But I’m sure I’ve said some silly stuff.

Ash Patel: We all have. What was your next property?

Alessandra Thompson: We are doing a 20-unit motel conversion up in North Nashville, we’re turning it into a short-term rental community, an Airbnb. This one has just been a full project. It’s been really exciting, because I can just drive over there, it’s like 10 minutes away, and just to really get down into the nitty-gritty of every layer of the process, versus the other property that is in Little Rock. It’s just focusing on that communication with the property management that the business plan is going according to plan, which it wasn’t with them at first, so that’s why we had to also re-hire a new property management company; now it’s going smoothly.

This one we’re just handling on our own and it’s just been getting people onsite, making sure that the schedule is just completely – no holes in it, because there are so many people in and out, like “Okay, the electrical needs to go here but we need to make sure this is done first; then the electrical needs to go back again.” I think it’s been really fun for me. I know it sounds stressful for a lot of people because we have to make sure we’re doing a lot of everything on time, but it’s fun for me to just see it happening before my eyes.

Ash Patel: How did you guys find this deal?

Alessandra Thompson: This one was actually through a broker.

Ash Patel: It was marketed as a hotel?

Alessandra Thompson: It was marketed as a motel. Yeah.

Ash Patel: Okay. The great idea of turning that into short-term rentals – doesn’t Nashville have very strict rules on that?

Alessandra Thompson: They do. So with zoning, you’d want to just contact the zoning department. But here, because it was already set up as a motel, it was perfect because people are just coming in and out anyways. But there are a lot of issues with the zoning department.

Ash Patel: What’s your role on this project?

Alessandra Thompson: I’m doing asset management, so I am always out there just with the contractors. It’s a lot of work and just making sure everything’s going according to plan, according to budget, speaking with the lenders on draws… Just out there.

Ash Patel: Asset Management sounds simple, but you’re doing everything – the renovations, the lease-ups… You’re going to run the asset once it’s up and running as well, right?

Alessandra Thompson: Yeah, we have a third-party short-term rental property management group that’s going to come in as soon as the property is ready. But because there’s such an overhaul of work right now, it’s probably not going to be online until April or May, just because there’s so much to be done. It’s been quite a journey. It’s exciting because Nashville is such a good market for people coming in and out, especially – apparently, there’s more bachelorette parties here than there are in Las Vegas.

Ash Patel: Nash Vegas.

Alessandra Thompson: Yeah. The numbers are great, and it’s super exciting. I’m excited.

Ash Patel: How many hours a week do you work?

Alessandra Thompson: A lot. I feel like I couldn’t tell you, because I wake up so early, like four in the morning. So I’ll be emailing at four in the morning, or when I go home, and I’ll be up on my email at 7pm underwriting a deal… It just doesn’t end, but that’s okay, because I enjoy it.

Ash Patel: The reason I asked that question is I want to contrast that to when you had your W2 job in that office, in traffic. Even though you may have worked less hours back then, the smile on your face now is amazing, because you love what you do and it’s very fulfilling. Congratulations to you. Again, at a young age, having this stuff figured out… What are you doing to inspire other people?

Alessandra Thompson: I just want people  — especially there are not a lot of women in the industry, and I think that a lot of people just are afraid of getting into something like this because there’s a lot to learn. But like we said, it just takes taking those small steps. I think to inspire other people, I love to set up Calendly links and just have phone calls. I like to help with mentoring others, so I’ll just randomly get on a meeting with someone and overlook a deal with them that they’re looking at. Help them point out what they’re missing, how they could improve, who they can talk to, what they can just do to be stronger on their underwriting.

Then also just getting on panels or podcasts like this; I just want people to know that if they want help, I’m happy to just be a resource to them. I love helping others, and I want them to know that they are capable of doing something like this too, because I didn’t use to think that I was, but I also just pushed that out of my mind. I was like, “Okay, well, why can’t I do it?” Just letting other people know that it’s possible to do what you want to do and make the leap.

Ash Patel: You are incredible and very inspirational, and  I’m glad you’re doing that. Where do you see yourself in five years?

Alessandra Thompson: As I said, I want to have that geographical freedom, so I would like to travel a lot, but I also would just like to keep scaling my portfolio with multifamily, possibly get into development at some point. I don’t know what the future holds, but I think I’m on the right track to just leveling up each year, each year just trying to get better. Also just spending more time with family and friends. I love traveling, it’s my main goal. I love eating at restaurants, so I’ll be eating some more. [laughs]

Ash Patel: Do you get to travel right now?

Alessandra Thompson: Right now, a lot of US travel, so I’ve been doing some of that. Like Denver at the conference, that was fun. I’m going to go to New York for my friend’s wedding, which will be good. But I haven’t been out of the country since before COVID, so that’s something that I really want to make sure I’m doing… But I’ve been very busy right now so I’ll make it work, I’ll figure it out.

Ash Patel: Good. What does your team look like right now? Is it just you in that one partner, or is it is a giant company?

Alessandra Thompson: There are three of us. It’s Jason and Pili, they are amazing at what they do, and I’m so grateful to be a part of the team. So yeah we’re just going to continue scaling and growing as a group, and seeing where we’re going to go next.

Ash Patel: I am excited for you. Alessandra, what is your best real estate investing advice ever?

Alessandra Thompson: Just get started. I think that just take action, don’t let fear guide you. I think success lies on the other side of fear. Just know that you’re capable of doing anything that you set your mind to. Just take action.

Ash Patel: Alessandra, are you ready for the Best Ever lightning round?

Alessandra Thompson: Oh my gosh, these stress me out, but yeah.

Ash Patel: Well, you’re stressing me out now. All right, listen, let’s take a breath, and let’s get through this. Alessandra, what is the Best Ever book you recently read?

Alessandra Thompson: Oh man. I read the Psycho-Cybernetics book is really good. Just shifting your mindset of the way that you see yourself. I think that once you shift the way that you see yourself, then you can shift the way that you act on daily actions. That’s a great book, everyone should read it.

Ash Patel: Alessandra, what’s the Best Ever way you like to give back?

Alessandra Thompson: Give back? For friends and family, I love cooking a home-cooked meal and sitting down at the table, just being there together and checking in on everyone. That’s why I love to get back to my family and friends.

Ash Patel: Alessandra, how can the Best Ever listeners reach out to you?

Alessandra Thompson: They can reach out to me at alessandra@yarusiholdings.com. They can find me on LinkedIn, Alessandra Thompson. Send me an email, that would be great.

Ash Patel: Your information will be in our show notes as well. Alessandra, it was actually a very good pleasure meeting you at the Best Ever conference. Glad we got to do this podcast together. Thank you for sharing an inspirational story. Moving from California to Nashville, showing up because somebody invited you for coffee, showing up the very next day. You’re on your way to building a great portfolio. Thank you for sharing that inspiration with us and the Best Ever listeners.

Alessandra Thompson: Thank you so much for having me. I’m looking forward to hearing the episode. It was so great to meet you at the conference.

Ash Patel: Thank you again. Best Ever listeners, thank you for joining us. If you enjoyed this episode as much as I did, please leave us a five-star review and share the podcast with anyone you think can benefit from it. Follow, subscribe, and have a Best Ever day.

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JF2749: Broker’s 4 Invaluable Tips for Finding Multifamily Deals ft. Beau Beery

What’s the best way to find multifamily deals? According to Beau Beery, it’s having a good relationship with a broker! As a multifamily broker, Beau reveals how high-net-worth investors find and make deals, how they increase the probability of making more deals, and what you can learn from their strategies to scale your portfolio.

Beau Beery | Real Estate Background 

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TRANSCRIPTION

Slocomb Reed: Best Ever listeners, welcome to The Best Real Estate Investing Advice Ever Show. I’m Slocomb Reed and I’m here with Beau Beery. Beau is joining us from Gainesville, Florida. He’s a multifamily broker specializing in conventional and student housing over 10 units in the northern half of Florida. He’s also the author of the book Multifamily Investors Who Dominate. Beau, can you start us off with a little more about your background and what you’re currently focused on?

Beau Beery: Yeah, sure, no problem. I went to the University of Florida back in the late ’90s, got a marketing degree, went to work for Trammell Crow Residential, which was the leading apartment developer in the country at the time. I was doing on-site leasing and sales, I got to understand the multifamily business from the ground floor, which is really, really awesome. I had great upline, and had great coaches. I went back and did a master’s degree in real estate at the University of Florida, which is currently the number one program in the country, graduate real estate program. Then I went and worked for a development group that mostly developed, owned, and managed office, retail, industrial, and multifamily. I brokered and managed the portfolio, I did that for 10 years.

Then I started to think, “Well shoot, I’m pretty good at this. What if I did this for 10 people? What if I did this for 20 people? What if I did this for 30 people?” The brokerage world was calling at me. So in 2010, I acquired a Coldwell Banker Commercial Franchise with some partners, and we just blew up, it was awesome. I did only multifamily brokerage while my partners ran the company. I was number one in the state of Florida almost every year for Coldwell Banker Commercial, and I was in the top three in the nation in all 40 countries for almost all of those years as well. I just sold that company to my partners last year, and now I just have my own boutique multifamily brokerage firm called Beau Beery Multifamily Advisors. I broker anything over 10 units, market rate, or student housing in the Northern half of Florida. That’s my story, brother.

Slocomb Reed: Nice. When did you buy the Coldwell Banker Franchise? How long have you been brokering multifamily?

Beau Beery: That was 2010 when I acquired the franchise; it was me and three other partners. We also had a Coldwell Banker Franchise, so we had about 90 residential agents. My partner’s ran that firm, and then we had about 12 or 15 commercial agents, and I ran that part of it. But I did nothing but brokerage for my side; I just brokered multifamily assets.

Slocomb Reed: 2010 is an interesting time to get into brokering multifamily…

Beau Beery: Yeah, man, for sure. Actually, it was interesting to just be alive in brokerage, period. When I acquired that company with the partners, we had a very limited number of months of reserves left; after 100 years of that business being in business, it was about to go under. Everybody was, everyone in brokerage; everyone in the market was struggling, they were barely surviving. We came on, and I mean within a few months, we just started killing it. When I came from working for one person to brokering for others, I had built a name for myself 10 years prior. So day one, when I acquired the Coldwell Banker Commercial, everybody who had been following me for 10 years was blowing up my phone for that first 30 days, and we must have racked up three or four dozen listings. I was the number one agent in the entire market year one, and then it took off from there. It was just a great story, it was good timing, and then I exited at a good time.

Slocomb Reed: Yeah, 2010 was a great time to get listings.

Beau Beery: Yeah, for sure. There were plenty of listings. It was finding the buyers man, that was the key. Now there’s that’s plenty of buyers and no listings. [laughs]

Slocomb Reed: Yeah. So you had 10 years’ experience before acquiring the commercial brokerage with Coldwell Banker in 2010. Fast-forward another 10 years for me Beau, 2020. The market’s been completely turned on its head. It usually turns on its head faster than every 10 years, but even prior to COVID, we were in a market where it was very difficult to find sellers and it felt like everyone was a buyer. I know in my conversations with commercial brokers, their buyers list has four or five digits, and that’s just the people who are getting the emails when they take a listing. So what is it that you’re doing now to get in front of listing opportunities to be on the listing, the selling side of multifamily deals?

Beau Beery: Yeah, I take a very digital approach to how I get my listings. It’s a system that I’ve been creating for years and years, and it’s an algorithm. I use a CRM called RealNex, realnex.com. What I did was, about 15-16 years ago, I exported every single apartment complex that exists in the Northern half of Florida, anything that was over 10 units. I exported from the property appraiser websites. Property appraiser websites are the only source of data that is accurate. All these other subscription-based websites that people subscribe to, they are not 100% accurate. They all get their information from property appraisers.

Slocomb Reed: Beau, I want to make sure we’re on the same page here. When you say property appraiser websites, are you talking about…

Beau Beery: Tax assessors.

Slocomb Reed: Yes, so you’re talking about local or regional government authority public records.

Beau Beery: That’s correct. County tax collectors are the only human beings, or the only websites, the only municipality, whatever you want to call it, that has the information on every asset, because they want to tax you. All the websites you subscribe to – CoStar, Reece, whatever it is – they have good information. Basically, what they’re doing is they’re assembling information into an easy-to-read format and they’re charging you money for. But it’s being input by a lot of young folks who don’t do real estate; so a lot of the data is incorrect. They don’t know what a qualified sale is, sometimes they don’t know the difference between market rate and student housing. There’s a lot of stuff that’s inaccurate. And I saw that. So a long time ago, I exported every asset, imported it into a CRM… And I’m leading to answer your question about listings; this is all part of the story.

So what you get from the property appraiser website, is you get a parcel number, you get an owner name which is always an LLC, you get an address, sometimes you get number of units, depending on the website, you get the age, you get what it sold for, and when it sold, and that’s about it. But oftentimes doesn’t give you the number of units, the bedrooms, sometimes the ages are not in there, the type of construction sometimes are not in there, the actual principal of the company and their contact information, how much value-add is left… Property appraiser websites don’t rank them, A, B, C, all this stuff. So I spent a tremendous amount of time and resources getting all of the physical data perfect. Everything about the physicality of the asset, who owns it, what they paid for, everything, and created a database. And over time, I tracked a number of indexes. I tracked when the mortgages end, I tracked when it last sold for, so I tracked all the sales. I can tell you what the number of months is someone’s going to hold it based on the type of asset, the size of it, the market it’s in, and most importantly, the type of owner, whether they’re a syndication or private. I track all of these sales in different silos. So as soon as someone buys a complex, I go ahead and put a date into the future of when I think it’s going to sell based on a bunch of other indexes that I’m tracking, combined with when the mortgages end, combined with the type of owner and when their equity is going to mature and they have to go ahead and sell for their investors… So there are all kinds of things that are intersecting, and I’m inputting in dates.

So every day when I walk in my office and I pull up my CRM, I pull up today’s to-do’s, there are two or three phone calls that I have to make to people who own apartment complexes that are ripe for selling today. These are phone calls that I put in last month, last year, or sometimes 10 years ago. It’s also discussions I have with owners. Over time, as you can imagine, I have lots of phone calls with owners who say, “Hey, Beau. Our loan doesn’t come up until 2025. We cannot sell before then. Our defeasance is too huge until 2023.” So I get that information. If their defeasance is too huge until 2023, I may start calling them in late 2022 or mid-2022 to start feeding them information, getting on their side, adding value to them, so that they think of me once that defeasance burns off, and now they’re capable of selling.

Slocomb Reed: Beau, this is fantastic. I know that there are some of our Best Ever listeners who do their own lead gen. The vast majority of them are not brokers, but a lot of people are hungry enough for good opportunities that they are going direct-to-seller. Especially when you say 10 units, going direct-to-seller is much more common for us investors in that 10 to 40 units space, because it’s much more likely that those mom-and-pop style owners don’t already have embedded broker relationships. First, let me ask you, Beau, in your experience, does that hold weight? Is 40 units a good metric? Under 40 doors, the majority of the owners don’t already have a brokerage relationship, but above 40 doors they do?

Beau Beery: Definitely not. To say the majority, absolutely not; they’re using brokers, period. Is there a greater chance under 40 units of getting a deal directly from the seller than above 40 units? Absolutely. But you have to understand, the guy who owns a 20-unit complex that is worth $2.5 million, he’s probably fairly sophisticated. That’s probably not the only one he owns, it’s probably not the only one he has transacted in the past. He’s not living in some silo somewhere, away from the world, and doesn’t understand that you can hire a broker and get 15 offers in two weeks. Everyone knows you can do that.

If you’re buying quadruplexes, duplexes, 10 or 12 units, there is a higher likelihood that that person isn’t in our world, transacting on a regular basis, and may entertain an offer from some guy he doesn’t know who calls him off the street. But logically speaking, when you own a reasonably good asset, you’ve probably transacted before, you’ve probably stayed with your ear to the ground, you’re probably getting calls from brokers every week educating you on the world, which is why 93% of every deal that sells over 10 units is done by a broker. That is an actual five-year study I did, it’s in my book right there. I studied 31% of every transaction over a five-year period where I literally called the sellers and I determined that 92.77% of every deal over 10 units was done by a broker, because it just makes sense for them to do so.

What I try to coach investors on is you can try to be the guy who calls the seller directly, because there’s a higher profit margin, or at least you think so, and your profitability per deal, over time will likely be greater than the guy who only focuses on network and the brokers. But the guy over here who networks with brokers has a much higher net worth than this guy over here. Because this guy is hitting base hits left and right, he’s doing way more deals per year; he doesn’t have to hit a home run every time, he doesn’t have to feel like he’s sitting around a fire drinking beer with his buddies and tries to brag about a deal he got direct from the seller. That doesn’t mean anything to this guy; he’s trying to build a huge treasure chest of assets. Because the more number of units you buy, the more powerful you become; because the more units you own, the more I as the broker want to bring you deals, because the sexier you look to the seller, the easier it is for me to sell you as the winning bidder in a multiple offer situation to the seller.

The guy who’s buying one or two deals a year directly from the seller, because he’s making as many phone calls as he can and he’s only getting one or two of those a year… And by the way, there’s nothing wrong with that, but that guy is never going to be able to compete against the guy who has nine complexes that he bought in the last 18 months using brokers. It’s a relationship business.

Slocomb Reed: Absolutely. Beau, I may be showing my Midwest-ness here when I talk about 40 doors… Because I’m based in Cincinnati, Ohio, and when you’re talking about predominantly C-class inventory – I’m not saying all the inventory in Cincinnati is C-class, but that’s what I’m focused on presently – one of the numbers that we’re pushing on if your property is 50% or more one-bedroom apartments… We’re just now seeing properties get around 65,000 a door. In your from-the-gut example of a 20 unit being worth 2.5 million, there are not a lot of 20 units at 125k a door in Cincinnati, at least in C-class areas, which I think lends itself to some more mom-and-popsmanship in a market like ours than a market like yours.

Of course, you have much better analytics than I do. I get what you’re saying about the investor who is networking with brokers, doing more deals, and building their network faster than the person who’s going off-market, trying to hit home runs. In the interest of giving you a platform, let me play devil’s advocate.

Beau Beery: Please.

Slocomb Reed: My ability to purchase is limited. And if I go to raise capital, I’ll be working primarily with sophisticated limited partners who have serious return expectations. So I feel like I need to hit homeruns. I have the wherewithal to do off-market lead generation and do a lot of digging to find a few homeruns this year, because a few homeruns this year is as far as my capital can stretch. And frankly, because I’m only hitting homeruns, I’m going to be able to perform, ideally, cash-out refinances within a 12, 18, 24-month time period, and get my capital back out so I can go digging for more homeruns.

Looking at someone in a circumstance like that, where capital and the ability to raise capital is a serious limiting factor, and understanding that the margins for forcing appreciation are often lower on brokered deals, why is it that I should be looking, or someone in this situation should be looking at brokered deals instead of trying to go direct-to-seller?

Beau Beery: It’s just to just increase the probability, it’s a statistical fact. Listen, the difference between someone who buys a couple of deals a year and someone who buys lots of deals a year – it’s not their smartness or the amount of equity they have or experience oftentimes, it’s how many deals the other guy sees. The more deals you see, the greater probability you have of getting in the game. That’s it. Now, that’s not to say, if you have the ability to have a junior or someone else on your team doing the letters directly to sellers, making the phone calls, whatever – awesome. Do it, because that doesn’t cost you anything. But if you are the only principal in your company, and you’re trying to pick up assets, and you have a limited time in your day, why wouldn’t you increase the probability of acquiring any asset? Why would you limit yourself to trying to find the only person who’s going to entertain an offer from some guy they’ve never met in their life, who calls him and says the right thing at the right time? That’s all I’m saying.

I get where you’re coming from, and it works for people, and if you’re good with picking up a couple of deals a year, that’s all good; there’s nothing wrong with that. I’m telling you information about how to become a giant. I’m giving you information about the most elite investors in the world. These guys are doing a dozen deals a year on a regular basis for 20 years. The only way you do that is networking with every broker, so that every broker brings you every deal that they come across, both before it goes to market, and after.

It’s just a statistical thing. I’m saying, if you’re going to spend your time somewhere, should you spend it to trying to find a needle in the haystack, or should you go to where the vast majority of the deals are? When you get good enough at and you build enough of a reputation of closing, you get to see the broker deals before they ever hit the market. You can be one of the limited number of people who see it before it goes out.

Slocomb Reed: Sam, that’s a very valuable point.

Break: [00:20:44][00:22:41]

Slocomb Reed: I want to ask about your database. You’ve used public record information and your own digging to accumulate a very powerful database that you use at a very high level to make sure that you’re having conversations with owners at the time that they are most likely to be selling.

Beau Beery: Right, oftentimes they don’t even know it.

Slocomb Reed: Yeah, totally. I want to compare that to the broker who gets a Costar subscription or buys a list and just starts calling people. Beau, how often, when you’re making your two or three phone calls in the morning, are you calling people who are already having conversations with other brokers, who have not gone to the lengths that you have to make sure they’re making the right phone calls?

Beau Beery: Every seller has heard from eight brokers that week, that’s a fact. Every one of them, from the guy who owns 12 units to the guy who owns a 1200-unit complex, they’re getting calls from brokers on a regular basis. There’s a couple of trains of thought on the brokerage side. Most national brokers – now, I’m going to do a general statement here, which is not fair, because there are going to be some anomalies within the national brokerages. But the national brokerages, the CB Richard Ellis, Marcus and Millichap, Colliers – all these are big, giant companies that are very, very good at what they do. They are investor-driven, they’re commission-driven, they want to do deals. So many of the agents, particularly the younger guys coming up, they are called demons. “Hey, my name is Beau Beery, do you want to sell?” “Hey, my name is Beau Beery, do you want to sell?” “Hey, my name is Beau Beery, do you want to sell?”

Slocomb Reed: Yup, I know a lot of those guys.

Beau Beery: Right, that’s their game. That’s good, it builds up a skill for that young person, it drives listings eventually, and those listings go to the head honcho broker. When I say head honcho – usually within national teams, there’s usually a two-partner partnership. There are always these two guys who are fantastic at what they do, they partner together, they have three or four juniors under them, they have analysts, and so on and so forth. Those juniors are doing the dialing for the dollars, they get a hot one, they turn it over to the major partner, the guy gets the listing, and they go to sell it.

What happens is everyone knows those shops. When they call, that’s what they’re going to ask for, is the listing, and they almost become white noise. For most investors, it becomes annoying. Now, I try to take the long game. The long game for me is I add as much value as I possibly can. When I’m making those several calls each morning, I’m not calling asking for a listing; I very rarely asked for listing. All I’m trying to do is add as much value as I can to their business. I’m talking to them about what rents are doing nearby, what amenities are driving up rents, what amenities can be added, sales that happen nearby, what construction costs are running for different things, changes in the market, just adding value. What I want is, when that person sees me show up on their cell phone, they answer the phone, because I’m going to add value and not ask for a listing.

Now, I will say this – a lot of the national shops do way more business than I do as a whole. They may not make more money than me as in net, because they have franchise fees, cuts with the house, junior, assistants and all these things, but they’re going to get more listings. So you as the investor should be networking with every one of those major brokers, because they’re fantastic at what they do. And when you go to sell, their selling point is they have national offices, they have offices in different countries, and so on so forth.

The reality is every broker has the same access, the same number of buyers, whether you’re a little old me, or your CB Richard Ellis. That’s what technology has done for this world. I literally have every human being on Earth, that owns every asset in the state of Florida, and everyone on earth who wants to own assets in Florida who doesn’t already. It’s literally a touch of a button that I have access to them.

So the two different approaches are just call, call, call, call, it’s a number of probabilities, and they’re going to get listings. They’re going to say the right things, especially if you’ve got some of these junior guys who are very good at what they do, they’ve got good verbal skills, so they get the listings.

And the partners they’re doing it for are making calls to their key prospects, doing the same thing. They already have prior relationships, they’re tight. I’m taking a different approach, because I’m not a giant national. I have to be more of a SEAL team member. I think long term. I want someone to look at me as someone who’s a true advisor, who is there to grow their portfolio, grow their business over a 30-year period. And I’ll do less deals, but I’ll have a waiting list of folks who want to work with me.

Slocomb Reed: Beau, as an apartment investor, let me say that I wish I had brokers like you calling me, offering to add value. I am a one-man band when it comes to being an owner-operator, for the most part. I have capital partners, but it’s my advice and my expertise that they’re relying on. I’m still trying to figure out what amenities in what areas are worth how much in rent increase… So if you’re an apartment broker in Cincinnati and you’re listening to this, get my contact info so that you can add value to me and all of my buddies who own apartments. What Beau is saying here is gold.

Beau Beery: Sure. And it works both ways. The thing is that you as an investor is in more competition by far than I am. For me, in the Northern half of Florida there are about 50 brokers that I compete against. You as an investor are competing against tens of thousands of people, but only a very limited number of those tens of thousands of investors are networking and building relationships with brokers, so that there’s this mutual adding value to each other. So I would encourage you to reach out to every multifamily broker in all the markets in Cincinnati, and create – not just a business relationship, but you talk about what you guys do on the weekends, your hobbies, wives, and kids, and over time you develop these personal relationships so that I like reaching out to you and telling you about amenities that people are putting in that are driving up rents, and how people are cutting down on bad debt. So brokers get to see from dozens and dozens of the top investors in the world how they’re operating tremendous businesses, and you can gain that information from them. They’re happy to share with you.

I have a lot of stuff in my head I love to share with folks; that’s why I have the YouTube channel and the book and all that. You just have to reach out to them. And for you to then be able to take some that information and share with your investors and some of your equity – that makes you look like the expert.

Slocomb Reed: Beau, are you ready for our Best Ever lightning round?

Beau Beery: Bring it on!

Slocomb Reed: Beau, what is your Best Ever way to give back?

Beau Beery: For me, it’s two things. It’s probably my YouTube channel. I put a tremendous amount of really high-quality content on there. It’s called Beau Knows Multifamily; it takes a lot of time, it’s a lot of research. Every time I do a deal and if something went bad or good, I’m putting out a video about it. My whole thing is trying to educate investors, both beginning to advanced level guys as much as possible, because the better everybody gets at this buying and selling game in multifamily, it makes my job easier; it brings up the level of that. And the second way is I take on a lot of calls from beginners. I’m very sharing of my time.

Slocomb Reed: Beginner investors or beginner brokers?

Beau Beery: Both. I’ve got more brokers that call me than investors, but I get a lot of beginning investors that call me, and I just have short conversations with them about the inventory that’s out there, what they need to do to prepare packages to hand to brokers, how they need to get letters of recommendation, who to talk to on the lending side, where they may find equity… I want to get them started, because to me as a 46-year-old, I’ve got another 15 years I want to do this. If I can grow some along, they’re going to stick with me for a long time; they’re going to want to pay me back if you will. Not that I’m doing it for that, but there’s a mutual respect. If I can help them, they’ll want to help me.

Slocomb Reed: What’s the Best Ever book you’ve recently read?

Beau Beery: My favorite book is probably Deep Work. I think the author is Cal Newport, and the whole premise is that there’s a two or three-hour window of your day where you want to carve out, where you cut out the whole world. You turn off the noises on your computer, you turn off your cell phone, you don’t check social media, your family doesn’t come in the door, and all you do is that one thing that nobody’s better at than you. For me, it’s interacting with my rank A customers, adding value in their lives and their business, so that we do more deals together. That two-hour window from nine to eleven in my business, I’m in this room, it’s completely shut off, and all I do is talk to my top customers. For you, it’s finding deals.

Slocomb Reed: What is the Best Ever lesson you’ve learned as a commercial broker?

Beau Beery: Man, I would say it is working with high-caliber, quality, empathetic, non-bull in a China shop type of investors. Because people who have bad reputations, people who re-trade assets, who bad-mouth assets, who renegotiate terms, who redline contracts to insanity, who do all the things that push a bad reputation, what happens is that crap rubs off on you. Even though you’re not that person, I’m the broker in the middle, and the more difficult the person is that I have to work with, that crap rubs off on me and the other party sees it, and they don’t know how to separate the two as much as they should. So I try very, very hard, in every transaction I do, I have a qualification checklist that I go through before taking on a listing, and most of the checklist has to do with the type of investor they are, the character.

Slocomb Reed: Beau, what is your Best Ever advice?

Beau Beery: My Best Ever advice is two things. Number one, if your overall goal is to accumulate as much units as you can, your whole job should be networking with as many brokers as you can. I go through a full process on how to do that in a book I wrote.

Number two, you have to become a master at the analytics. The reason there are 15 offers in two weeks on every deal is not because they’re smarter than you or better than you, it’s because they know the market like the back of their hand. They know as soon as the listing comes to market, they already know what that deal is worth, they know what they can take the rents to, they know what they can sell it for in three years, they know what the remodeling costs are going to be, they know who’s going to manage it, they already know who’s going to do the lending… They know all this stuff. I should be able to ask you about rents, absorption, sale prices, renovation cost, in any market, in any sub market you’re in. And the better you can get at that, the faster you can react.

Slocomb Reed: Beau, how can people get in touch with you?

Beau Beery: Three ways now. I’ve got a website, beaubeery.com. The reason you want to go there is because whether you invest in Florida or not, you’ll want to see all the metrics and the data I have for the markets that I cover. That’s the kind of data you want to master for your market. Second way is – I know I’ve mentioned it, but this is my book; you really need to get this. I don’t make a bunch of money selling books; I’m telling you because this is the inside stories between brokers and sellers and how they choose buyers.

And the third way is my YouTube channel, the Beau Knows Multifamily. I’ve got playlists on there for beginners, for advanced level guys, I’ve got analytics stuff on there… Every now and then I’ll put new listings on there before I send to anybody else.

Slocomb Reed: Awesome. Best Ever listeners, thank you for tuning in. If you’ve gotten value from this episode, please subscribe to our podcast and leave us a five-star review. If you know someone who would get value from listening to this episode with Beau Beery, please share this episode with them. Thank you and have a Best Ever day.

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JF2748: Success in Multifamily: Tips for Partnerships, Investor Pitches, and Finding Deals ft. Ace Karimi

Ace Karimi, co-founder of Invest Capital, began his real estate journey with his business partner focusing on single family wholesale and flipping. Together, they scaled into multifamily and now are GPs of 238 units. Ace shares how his partnership thrives, the ins and outs of the first multifamily deal he closed, and his tips for pitching to investors and finding deals.

Ace Karimi | Real Estate Background

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Ash Patel: Hello Best Ever listeners, welcome to The Best Real Estate Investing Advice Ever Show. I’m Ash Patel and I’m with today’s guest, Ace Karimi. Ace is joining us from the DC Metro Area. He is the co-founder of Invest Capital, a multifamily acquisition business. Ace’s portfolio consists of being a GP on 238 units. Ace, thank you for joining us and how are you today?

Ace Karimi: I’m doing great, Ash. Thank you for having me.

Ash Patel: It’s our pleasure, Ace. Before we get started, can you give the Best Ever listeners a little bit more about your background and what you’re focused on now?

Ace Karimi: Absolutely. First off, thank you guys for having me here. My name is Ace Karimi. I’m a 27-year-old real estate investor based out of Washington DC. Our company, Invest Capital, currently manages and owns almost 240 units. I think 238, to give you the precise amount, Ash, and we’re constantly acquiring and growing more. We went full-time into multifamily about two years ago, started out in the single-family space back in 2018. We started initially doing wholesaling and flipping real estate; that’s essentially how you make money in the single-family space – you get it at a good price, you add the value to it, you renovate it, then you sell on a back-end. It’s still an operation I have going on, I love it. That’s an operation I only do here in the DC metro area, just because it’s local, and I have on my contractors and connects out here. It’s good for short-term money; that’s one of the theme series, it’s short-term and long-term money, that I’d love to talk about later on. I think if you want to be a very successful real estate investor, have both; you don’t need to have one or the other. I feel like too many people are all short-term and no long-term, or all long-term and no short-term. I think it’s good to have both, so that you can still live while you’re going to get wealthy over time. So that’s our approach here with Invest Capital. We want to make sure that the people who invest with us, they’re still getting the returns month in, month out, and at the same time, they have massive upside in the appreciation and the principal pay down, and then just the values of the property themselves. So that’s where we’re at now, full-time multifamily investors. We’re looking to grow and we’re here to answer any questions to give more people value in what we’re doing.

Ash Patel: Ace, when you were doing the wholesaling and flipping of single-family houses, was it just you or did you have a team or a partner rather?

Ace Karimi: My partner Akam and I started both businesses together, we’re 50/50 partners. Initially, it was just me and him going out hunting for deals, going on acquisitions appointments, putting properties under contract. Within a few months, after closing a few deals, we were able to create our own office space and hire acquisitions people, we hired dispositions, transactions… We had a team of about 10 people back in 2018.

Ash Patel: Did either of you have real estate experience before you partnered up?

Ace Karimi: No.

Ash Patel: Okay, so the two of you together decided, “Hey, let’s do this thing. Let’s figure it out.”

Ace Karimi: Pretty much.

Ash Patel: Okay. You’ve been partners now for about five years?

Ace Karimi: Exactly.

Ash Patel: Alright. What are the challenges with having a partner?

Ace Karimi: It’s a good question, Ash. You’ve got to make sure you’re on the same page, for one, because it all goes back to making sure you’re both hitting the same goal from both of your angles as possible. For us specifically, because we do have a lot of similarities together, it’s making sure that we’re not doing the exact same things all the time, and  to make sure we have divided responsibilities. I love closing deals and he loves closing deals, which is something we share in common. And I love raising the capital and he loves raising the capital, too. But beyond that, it’s actually the day-to-day, week-in week-out to do stuff that we need to execute on, making sure that we’re both crystal clear and not stepping on each other’s toes, and really simultaneously moving towards the same vision together.

Ash Patel: It sounds like you guys are both visionaries.

Ace Karimi: You could say that.

Ash Patel: Do you have struggles when it comes to execution?

Ace Karimi: Not really.

Ash Patel: You’re not going to admit that you have struggles, but did you have struggles in the beginning? Because you guys seem like you want to interact, and do the high-level deals, do the lunches, the investor meetings, but you don’t appear to be the type of people that love sitting behind a computer, getting into the trenches, doing financials, paying bills, getting quotes, and that kind of stuff.

Ace Karimi: What I was trying to say there, Ash, is with the vision stuff, we don’t. We’re very clear in the big picture stuff and where we’re trying to go. The challenge is definitely the execution, for sure; that’s why I’m making sure that we’re still able to get things done. Because it’s not our strongest suit to do the actual day-to-day activities. Essentially, being an entrepreneur and even a syndicator, you’re able to get other people who are even better at what you lack to help complement your strengths. So essentially, with us and what we’re doing right now is we have a team that’s doing the day-to-day stuff. That’s probably not the things that we’re the most excited about, nor are we the best at, but we understand what needs to get done, and they implement it, and they do the week-in, week-out activities. It definitely is a challenge, I’m not going to lie, but it’s good to have people around you.

Ash Patel: Ace, who was your first hire, what position?

Ace Karimi: Acquisitions.

Ash Patel: Let’s keep going down the line. What was your next hire?

Ace Karimi: It was an assistant; essentially, admin/assistant.

Ash Patel: Is that shared between the two of you?

Ace Karimi: Yeah, pretty much.

Ash Patel: And that’s a game-changer, isn’t it?

Ace Karimi: It helps a lot to take a lot of the menial tasks out of the way, for sure.

Ash Patel: Is this person virtual or in-person?

Ace Karimi: Virtual.

Ash Patel: Okay, what challenges do you have to overcome, versus having somebody that’s in-person next to you?

Ace Karimi: Well, the thing is, you just got to make sure you communicate very clearly with them, because they’re not right next to you. So make sure your instructions are very organized and step by step. That’s one of the things that we really have to pay attention to, is making sure that the instructions you put in the Google doc lines up with the video that you shot, and what you’re giving them on a week-in, week-out basis… Because they’re just going to follow what’s written, usually.

Ash Patel: Awesome. Ace, can you take us through your multifamily acquisitions? When you guys decided from flipping and wholesaling, you’re going to get into multifamily, what was your first property, your first acquisition?

Ace Karimi: We closed on a 72-unit property here in our home state of Virginia in December of 2020. We got that under contract in the summer of 2020, that was our first [unintelligible [00:09:03].04] “Hey, we’re about to get our first multifamily deal”,  which was really exciting. It took about I think five or six months to close. We initially reached out to the owner, actually directly. I somehow got hold of him. I had a good conversation, he knew some of the areas that we grew up in here in Virginia, we were familiar with him… He actually developed the complex which is awesome. A great guy, a much older individual, and he’s owned it since he built it, back in the late ’70s. He said it was probably time for him to move on, take the proceeds, and give it to his kids or something. We put in an offer, we sent over an LOI. The only thing is he didn’t have an email, so we needed to get his attorney information.

There’s a lot of creative problem-solving that goes on… So we went and got his attorney’s information, and we were essentially like, “Hey, look, we’re trying to put an offer on this property, an LOI.” The attorney writes back to us by email and he says, “Yeah, he’s never going to sell. Don’t waste your time.” Then we look at each other and we’re like, “Maybe we should keep moving on.” But then we’re really like, I said, “Dude, who cares?” An offer is an offer; we might as well just put it out, we already put the time into it. So we’re like, “Hey, it doesn’t matter. We spoke with Mr. Waldrip,” which is the name of the individual. “Here’s the offer. We just want to follow through on our word.” He received it, he actually emailed us back a week later, surprisingly, and he countered.

Ash Patel: I thought he doesn’t have an email.

Ace Karimi: His attorney emailed us back, and [unintelligible [00:10:21].16]

Ash Patel: Got it, okay.

Ace Karimi: Because he has a fiduciary responsibility to have to share whatever offers he gets. So we get a counter, and he says, “Hey, Mr. Waldrip wants to do the deal at this higher value.” We put out an offer of 3 million, it was 72 units, which was still a great price… He countered back at 3.75, which to me – it’s a multi-million dollar building and I’m getting it at a discount, so I’m like, “Why not? Let’s do it.” We tried to negotiate a bit, tried to meet him in the middle, he just knew what he wanted… Essentially, we’re just like, “Let’s just do it.” There’s still upside, it’s probably worth five and a half to six million, and we can get some good returns and get our feet wet in the game. So we went through that and we got under contract, we raised the funds on it.

We actually just completed construction. It’s been about 14 to 15 months now, and we just completed all the renovations. There are a few more units to turn, but we added a dog park, we fixed the exteriors, we’ve been restriping and resealing the asphalt on the parking lot… It really looks like a repositioned property, and we raised the rents up from about $600 on average to $1000, which really is a big jump. But it was under-market rents, so now we’re actually entering our first refinance with that property, which is awesome, and it’s way beyond the valuation that we originally thought. So it’s exciting.

Ash Patel: Ace, how did you find that deal?

Ace Karimi: We went direct, because I believe we got this information from the property manager. It was a referral. But we got his number from somebody and then we just called him.

Ash Patel: When you were wholesaling, did you have all your systems in place where you sent out postcards, skip traced people?

Ace Karimi: Yeah. Pretty much, we did.

Ash Patel: And are you doing that for multifamily?

Ace Karimi: No, not yet. We haven’t done a lot of direct marketing, things like that. There’s been some telemarketing, a lot of phone calls… But I noticed even while that may still work, any form of outreach is good. It’s better to align yourself with other professionals, like brokers and managers and existing players to try to refer you to deals. I think that’s the best way to get deals as you elevate higher up in this game.

Ash Patel: Let me play devil’s advocate. What about those owners like the one you purchased from, who really had no intentions of selling until he was given an offer? Why not use all your knowledge, experience, and systems to blanket a larger population of multifamily owners?

Ace Karimi: We’re doing it, we’re slowly rolling it out. The thing is we hired the acquisitions for the multifamily; we’re not talking about single-family here. We hired our acquisitions and we’ve been putting a lot of time into training him, just to be able to get the process down, the evaluation underwriting… Because we ideally want him to just be responding to all the leads and responses coming in. We’re slowly getting to it actually, we are. But the thing is, we don’t want to just hit any in every market, and just blanket the country or an entire region, because in this game, the more you know about specific markets, the better, well prepared you are.

If I’m in DC and I enter Phoenix, Arizona and I don’t really know anything about that market, I may be able to find some owners here and there, but it’s not the best to go into a scattered approach. I think it’s better to start with specific areas and markets that are local to you or your region, and just focus on that… Because there are thousands of properties. So just focusing on that and going deeper as opposed to going wider is our philosophy right now. As we continue to grow, we’ll definitely do more outside of our area.

Break: [00:13:45]- [00:15:41]

Ash Patel: Ace, did you raise capital for that property, the 72-unit?

Ace Karimi: Yeah, it was 1.5 million.

Ash Patel: First time raising capital?

Ace Karimi: First time.

Ash Patel: Alright, take me through that process if you don’t mind.

Ace Karimi: Essentially, you have to know your offering. The good thing is you always want to lean on somebody who has at least got some of the presentation materials that you can use. We have friends, we were in real estate already, we knew people who were in commercial, so we’re just like, “Hey, what do you normally give to them? Do you have an offering sheet, a presentation?” We leaned on a few people to see what’s the best way to present the information. Essentially, all you’re doing to investors is, “Hey, I have an investment opportunity. Here are the returns. Is this something you’d be interested in investing and being a part of?” So I wanted to make sure we came across professionally, first of all. We could do a webinar… There are so many different ways to present a deal.

What we did was we came up with a two-page highlighted investment summary that we always send out, and essentially always do our underwriting first; we look at where the rents are over the next five years or so. For this one, we’re holding long-term, for about seven years. We get our underwriting down, because you want to do your homework before you approach anybody. So you do your homework, you do your underwriting first, you look at what the valuation of the property is going to be, and then you look at the projected returns; you find these spreadsheets online, or I’m sure on the Best Ever underwriting podcast. So you get these spreadsheets, underwrite the deal, look at the value, look at the returns… You’re like, “Okay, is this good enough? Can I get like at least 2X, or something better, maybe an infinite return for my investors?”

Because you want to feel good about the deal and you want to know this is something that I know if somebody invests their money in, they’re going to do well. I don’t like to pitch or sell or share any opportunity that I don’t personally believe in; it just doesn’t make sense. Why would I waste my time and other people’s time and money? We actually already liked the deal from what we saw; where we knew it was a deal, we already knew. We just didn’t have the exact metrics and numbers and returns down, so we went and did our homework, got an experienced apartment investor to look at it, he said, “This is accurate.” We put it into a two-page spreadsheet and we made a whole slide deck about it. Essentially, we knew our deal and what the numbers were.

We said, “Hey, look, here’s our game plan. This property’s $500 under-market rents, believe it or not. Here are the five property comparable in the nearby area that are already achieving $900 to $950 rents, and we’re at 550. The reason is that the owner didn’t raise their rents, they weren’t directly involved with the property anymore.” They’re just like, “You know what? The tenants have been there for 20 years, I don’t really care.” They haven’t really done any upgrades to it. So we knew the story of the property, and we said, “Hey, look… It’s under-market rents, we can go in there, we can add value, and increase the rents. And based on the increase, we can get the valuation to a $6 million valuation, in which, hey, you would be getting a 20% IRR.” That’s what you want to mention, “Hey, you’ll get a 10% cash on cash based on your numbers.”

But for us, we said, “Hey, look, we can refi you out, give you all your cash back in about 24 months, and then you can stay in the deal in perpetuity. You can get your money back cash out free, or you can use it for whatever else, and you can stay in the deal.” That’s essentially how we approached it. We showed people that, “Hey, look. This is an opportunity that you can hold this asset with us for a really long time. Or you can just hold on to it based on whenever you refi; you’ll still get your money back and it’s house money in play at that point.”

Ash Patel: Ace, once you return the initial capital, do they still get 8% pref, or whatever the pref is on the deal?

Ace Karimi: There’s no pref; the pref gets removed. Whatever percentage of ownership that they have in the asset, they’ll get that percentage of the cash flows in perpetuity.

Ash Patel: Got it. Were these investors friends and family, or were they new people that you met?

Ace Karimi: There weren’t really a lot of new people. We actually did meet a few new people, introductions from friends and family… But yeah, surprisingly, the best way is to just look at your existing network of people. Eight out of I think the 11 people that invested in that property with us were already in some sort of relationship with me or one of my partners. And then three of them were friends of friends of that person.

Ash Patel: What’s a hard lesson that you learned on your first multifamily deal?

Ace Karimi: First hard lesson… You’ve got to be patient, I think that’s what it is. You’ve got to be really patient. It’s like, you close on a deal and you enter into it, and you’re like “Okay, great. We’re going to do all these things, we’re just going to switch out units like this, and people who have been there for so long, they’re just going to leave easily, no problems… We’re going to do all these renovations and rehab…” When in reality, it’s a long process in terms of what it takes to actually turn 72 units; or it was like 40 of the units had to be turned, to get a new tenant base in there, to the timeline of construction, to get the asphalt done, to get the playground installed.

Things do take a little bit longer than you expect, and there’s always a little bit more involved even than which you come in for. So always be prepared to do a little bit more, go the extra mile, because there’s no such thing as easy money at the end of the day. Look forward to the project itself, and the time will show up. If it goes away earlier than planned, great. If it goes a little bit later than planned then prepare for that. Be patient.

Ash Patel: Ace, what’s a tough time that you had with your partner and how did you resolve that?

Ace Karimi: You’ll be surprised that we don’t get into it a lot. Here’s our philosophy – it’s not about I’m being right or you’re being right. It’s just like, “Hey, what idea makes the most sense that we can think about logically?” That idea wins. A lot of times, if it’s not mine, I’m actually happy. I’m like, “You know what – that’s going to work better for our results.” Something that Ray Dalio said – I have this book up here, and he says, “It’s an idea meritocracy. It’s an environment where the best ideas win.” So I’m not so attached to always being right and trying to stroke my ego. I want results, not only for me, but for people around me. So we always intellectually work through things. I don’t have too many. I usually like to deal with things at the moment.

There are disagreements, like with one of my partners on one of the deals as to how he wanted to run things, because we did defer to him to run some of the operations, because he’s the asset manager. At first, we’re just like, “We’re not really a fan of some of these methods.” But at the end of the day, I’m like, “You did sign up for that role, so we’ll trust you a little bit more and we’ll back off.” That’s what you’ve got to do sometimes.

Ash Patel: Ace, what is your best real estate investing advice ever?

Ace Karimi: The short-term and long-term approach, I guess that’s what it is. Take yourself a few steps back. Don’t look at apartment investing, wholesaling, flipping… These are all strategies. I like to use all the strategies; I don’t like to identify myself as a wholesaler or flipper, or even just an apartment syndicator. I’m a real estate investor. So being a fully trained real estate professional, what you want to do is you want to have a toolbelt filled with different tools that you can use. If you need to ever wholesale, if you ever need to flip a property or a complex, if you ever need to raise money, be prepared to do all the above.

Sometimes you can make money in the short term on any deal, sometimes you can make money in the long term. With the commercial stuff and the apartments, don’t plan on it to take a year to two years. That’s just going into it with the wrong mentality. Plan for that it might take five years or longer. Five years is usually the average for syndication or an apartment deal, but always plan for it to take longer than you plan when it comes to your long-term goals. At the same time, for your short-term stuff, take the time to do it. Do the flips; the flips are nice, you can make good money flipping and wholesaling single-family homes or even other types of properties, because it’s good short-term income. But instead of just using that and going to spend it, take that money, save it up – you’re going to get hit with capital gains anyway – and park it into the apartment buildings or into long-term assets. In that way, you’re getting the best of both, and you’re able to get the depreciation so that you can write off a lot of your gains on your short-term stuff.

You want to accelerate the time it takes to accomplish your goals and be wealthy and financially free, so it’s good to do both. Maybe not in the beginning, but do a single-family project here and there to make some short-term money, and then go hard with the multifamily if that’s what you really want to do long-term. Work the process to its advantage in both regards.

Ash Patel: Ace, are you ready for the Best Ever lightning round?

Ace Karimi: Okay, go ahead.

Ash Patel: Alright Ace, what’s the Best Ever book you’ve recently read?

Ace Karimi: Ultimate Sales Machine, a great book.

Ash Patel: What was your takeaway?

Ace Karimi: Man, awesome book. This guy worked for Charlie Munger, which is awesome; he did all his sales stuff. One of the things was what I mentioned earlier, which is to go deeper into what you’re doing, and not wider. He talked about how they had Fortune 500 clients and they were trying to reach out to the next 1000 big companies to try to get as clients for their marketing services. Instead, they did their research and they found out, “Hey, these 45 clients are bringing in most of our business. Why don’t we go deeper with them and who they know?” And the business tripled like that.

Ash Patel: Ace, what’s the Best Ever way you like to give back?

Ace Karimi: I like to do things like this… I try to share my lessons and experiences, things that I’ve had shortcomings on, things I wish I knew sooner and I learned during and after. I love to be able to just help shorten people’s curves to get to where they want to go.

Ash Patel: Ace, how can the Best Ever listeners reach out to you?

Ace Karimi: Follow me on social media. On Instagram, I go by @ace.invest, on Facebook and LinkedIn; just add me as a friend. Reach out to me, message me and say “Hey, I saw you on the podcast. Would love to connect. Appreciate what you gave.” If you have any critical feedback, please let me know. It’s Ace Karimi, just my name, on Facebook.

Ash Patel: Ace, thank you for sharing your time with us today. Telling us your story from starting out in single-family homes in 2018, wholesaling, flipping, graduating the multifamily, and now up to 248 units. Thank you very much for your time.

Ace Karimi: Graduating, I like it. I’ll see you, Ash.

Ash Patel: Best Ever listeners, thank you for joining us. If you enjoyed this episode, please leave us a five-star review and share this podcast with someone you think can benefit from it. Please also follow, subscribe, and have a Best Ever day.

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JF2744: Raising Rent? Here’s 4 Ways to Keep Tenants Happy ft. Sia Senior

What’s the best way to navigate raising rents with your current tenants? Sia Senior, Principal and asset manager at Arrowhead Capital, shares with us the best ways to work with tenants during rent raises to avoid turnover and sour relationships among the community.

Sian Senior | Real Estate Background

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Slocomb Reed: Best Ever listeners, welcome to The Best Real Estate Investing Advice Ever Show. I’m Slocomb Reed and I’m here with Sia Senior. Sia is joining us from Upper Marlboro, Maryland, one of the Maryland suburbs of DC. She is the principal and asset manager at Arrowhead Capital, which acquires multifamily assets in the mid-Atlantic and the Southeast. She is an LP on 134 units, she self-manages over 20 single-family and small multifamily units, and she has a smaller asset acquired through a JV partnership. She came to real estate investing as a high school math teacher. Sia, can you start us off with a little bit more of your background and what you’re currently focused on?

Sia Senior: Sure. Thanks for having me. I really appreciate it, Slocomb. As you said, I am a former high school math teacher. I started in real estate in 2003, with the encouragement of my husband. I did that part-time, doing real estate on the weekends in the summer. We got our first long-term rental when we decided to house-hack and move into the house we have now and rent the property that we had when we first got married. So recognizing all the benefits and the nice income that came from that, it didn’t require a lot of work, didn’t require me teaching, we continued to add properties to our portfolio. We did some flips, about eight, in the DC area and Baltimore as well, and just kept adding to our portfolio until we got ready in 2020 to start scaling up and adding multifamily.

So we joined some communities to get a better understanding and education on that, did some networking, and connected with people to be able to take down a 16-unit at the end of 2021. Now we’re focused with Arrowhead Capital, which is our real estate investment firm, where we’re focused on adding more to the portfolio, but also connecting with passive investors and people who don’t know they can be passive investors. We’ve got an educational piece of our real estate firm that wants to inform people who may be not aware of the benefits of real estate investing and may not have the time like we do, managing our own units, that can still benefit from it. Our goal is to get people on board and educated about this, so that they can grow their generational wealth, as we are doing right now.

Slocomb Reed: Awesome. Tell me about the 16-unit that you recently acquired?

Sia Senior: Sure. It’s a 16-unit townhouse asset in Johnson City, Tennessee, connected with a couple of other partners who have found that asset through their networking, brought it to us, and we just thought it was a good asset to start with, particularly because we were really focused on really growing our wealth and connecting with people who have similar values and guidelines that we do. That worked out really well for us, because it’s a smaller unit; right now, we’re managing over 20 ourselves, so it was a great way for us to kind of test the waters and see what skills I have in managing our single-family and our four-unit, what can translate over to that 16-unit, to see how it’s different. Obviously, with 20 units plus, different buildings and that kind of stuff, it should be easier, we would hope, managing a 16-unit, or at least managing the manager. We have a third-party property manager on the 16-unit in Tennessee.

So I’m excited to join, and it was a great opportunity too for us to get out of the two of us being a team, and open ourselves up to other individuals, to get different perspectives, and just unite and connect in that way. That’s how we’ve found that, and it’s been good so far. We’ve got great returns on it so far, we’ve got 100% collection, which is great, we always like that, and we’ve got some great potential for what we plan on doing with the property. It was actually self-managed by the owner who had actually built it in the early 2000s. So we feel that inviting in a third-party managed to kind of improve the efficiencies of it, that that can be really beneficial for us. We’re excited about all the potential with that.

Slocomb Reed: How big are these townhouses?

Sia Senior: They’re two-bedroom/two-bath, they have a garage, they’re three levels, so they’ve got the two levels up top and the garage on the bottom. They’re really nice, actually. They were kind of overbuilt for the area, which is great for us because the rents are under-market, so we have great potential to just maintain it, taking care of little maintenance here or there, and bringing it up to market rent. That’s what we’re excited about.

Slocomb Reed: Gotcha. So two-bed/two-bath townhouse apartments, with garages, that were built just around or under 20 years ago. Give us an idea of the numbers on this deal. What did you buy it for? Is there any money that you had to put into it? What kinds of returns were you projecting, and what’s happening right now?

Sia Senior: We purchased the asset at 1.5. It is still a finance, lease financing.

Slocomb Reed: Nice.

Sia Senior: Very nice. They did a good job negotiating that 1 million, so we had to come with the rest as a group. The projected return – so right now we’re projecting an equity multiple and a seven-year hold, so we’re like 2.3 is the goal. And we’re pretty much considering that the properties were really under-market in the beginning; we’ve been able to re-lease, resign, renew some of the tenants, increasing some of the rents. We are actually responsible landlords, which I enjoy, and owners in that, because we could significantly raise the rents and be at market. But we recognize and see that humanity in our tenants and recognize that this could be a shock for them, so we’re working to do it responsibly. If it’s not a place where they’re able to stay because of the rents, working with them with the property management that’s there to facilitate a good way of working together to get to everybody’s goal, where they have some place to live that they can afford and we can also still improve the asset and get it running in a performance peak that we like. That’s kind of what we’re doing right now with it.

Slocomb Reed: Gotcha. It sounds like especially with your experience as an owner-operator with the single-families and small multifamilies that you were buying before you started looking at larger deals, it sounds like you have a lot of experience in hands-on property management. I’m an owner-operator too, so I am the management company. I’m in too much of the nitty-gritty right now. Question for you, for our owner-operator listeners, but also for our listeners who are planning value-add business plans that they need to execute on… When you acquire an asset like this, when you know that you’re going to raise rents on the tenants who are currently there, how do you go about that? How do you make sure that the good tenants you want to stay in their townhomes will want to stay after the rent goes up?

Sia Senior: Right. It is a challenge to have the asset perform at peak performance while also recognizing the humanity and the fact that really, real estate is about people. There are people that live in the property, we want to recognize that they need shelter, just like anyone else. So what we’ve worked with – at least on the 16-unit asset, and now I’ll talk about what we do with our personal portfolio… Like I said before, we’re really working on performing them. The truth of the matter is that if you’re under-market, it’s not like people can’t really afford it, they just haven’t had the benefit of having to pay less rent. But if the markets are increasing, that’s also because people can afford to pay a little bit more. So you kind of find that balance where you inform, you educate, you give them time to either decide, “Yeah, I’m willing to pay more, because I see this as a great deal, and increasing my rent is still worth it for me to stay here.” Or if not, giving them two to three months renewal, two to three months to manage and look for other places to live. That’s kind of what we’re doing with the 16-unit.

As it pertains to our single-families and small portfolio that we have, the same idea. When you self-manage, sometimes you get your [unintelligible [00:10:41].20] and you try to work with the tenants. But what we learned, especially coming into the multifamily space, is that that is great, but also, you can do well by doing good as well. We have increased our rents with our tenants, but recognize that we try to balance what they can afford when we look at in terms of their income coming in, getting a good idea about that, and what makes sense. So we try to balance us being profitable with them also having a place to live that they can afford, that works for everybody. If that’s not the case, we give them enough time. Sometimes we give them resources on other locations that might better fit them in terms of what they’re willing to pay for. Sometimes they just don’t want to pay more, and that’s okay. We’ve worked with them to get them transitioning to a new place and giving them the time they need to do that, while also recognizing that we are also in this for making a profit. We want everyone to have a win-win situation.

So that’s going to be it for us – the key for us is really communicating with the tenants. We’ve had great relationships with all of our tenants from before the pandemic happened. We had a very little turnover; in fact, we only have one that we had to evict, because she just refused to pay. But everyone else, we were able to work with them, we got them the assistance that came through.

I credit our relationship with them and working with them before the pandemic and recognizing that this is a relationship to get us to where we are right now. We’ve been fortunate in that sense. So they don’t mind when you raise the rent, especially if it hasn’t been a while and they recognize that you’ve given them value. Addressing all their needs appropriately, in an adequate amount of time, and just communicating with them, so they know you’re not just this figurehead, but you’re a human being too that has kids and has regular issues that they have. We’ve been fortunate in that sense.

Break: [00:12:16][00:14:13]

Slocomb Reed: Communication is absolutely vital for sure. In my experience as an owner-operator, I have a lot more of C-class properties right now. I know you have a third-party property manager there in Johnson City, you’re in Maryland, but you also have your own portfolio in Maryland… As an owner-operator, I do fully agree that good communication and frequent communication, if not over-communication is absolutely vital. In my experience, every issue that a tenant has falls into one of two categories. It’s either maintenance, they need a place to live where everything works, everything functions, there is heat in the winter, there’s cool air in the summer… But the other category – everything is not maintenance, in my experience. If it’s not a maintenance issue, it’s a respect issue. It’s about tenants feeling respected by their neighbors, by their property manager, and by their landlord. I cannot overemphasize the value of communication.

I wish I was buying townhouse apartments built 20 years ago. Unlike the brick bunker, three stories, built in the 1960s or 70s, cramming as many apartments in a building as you possibly could 50 years ago is the stuff that I’ve been buying recently. So we end up having to do probably more value-add than you do. But one of the things that I do is when I take over management, I open with, “We’re the new game in town, and we are making this a better place to live.” Over-communicate, but also make sure that tenants hear from us, that we are improving their home. We do some of the major capital stuff, resurfacing parking lots, replacing windows, adding Wi-Fi, the big stuff, finally having the common areas professionally cleaned… The carpets have been sitting there just soaking in everything for five years… We do that stuff first, while talking about making it a nicer place to live, and then we raise rents.

Sia Senior: Exactly.

Slocomb Reed: Because to your point, Sia… You put this really well – it’s about this business doesn’t work without profit. We’re still in the business of providing a home and treating people with dignity and respect. There’s a balancing act that you referenced there that’s absolutely vital in what we do. For those of our listeners who don’t get involved in the day-to-day operations, I hope what you’re getting from this is that the people who are in your day-to-day operations, your property manager, the people who are creating your business plan, that they have this in mind, treating people with dignity and respect. Absolutely. Sia, the 16-unit in Johnson City is a joint venture. What is your role within the partnership?

Sia Senior: So I’ll be doing a little bit of the asset management with the team. A majority of the people on the team are either former or current military, and so we have a potential for being deployed. There’s a lot of overlap where we kind of cover each other in case that happens. I’ll be using my experience and skills from the asset manager part to kind of play a role there, and just to see. I’m also going to be looking at the finances, because obviously, we need to make sure that financially, the property is doing well, so that when we’re ready to do a refinance, that we can do that and that the property is performing well. So I’ll be looking at the metrics of it and all the finances, looking over it, and then comparing it to see what we can do in terms of exit plan or refinance, if that happens to be the goal. The good thing is that I actually have an MBA in economics and finance, so that will help me in that a little bit, too. So yeah, I’ll be doing that with my main two roles, basically, and helping with that.

Slocomb Reed: That degree sounds very valuable. Mine’s in philosophy in Spanish. I’ll tell you what, the Spanish is coming in clutch right now. It’s a lot easier to get my rehab done with the Spanish. Philosophy is helpful in other ways, but not as directly correlated as your education. Sia, you developed a skill set as an owner-operator and with your portfolio there locally before you started looking at other deals… Which of those skills are proving to be the most valuable now that you are investing at a distance with joint venture partnerships?

Sia Senior: I’ve developed a lot of skills while I’m working with the tenants. I think being a former teacher and just recognizing that they’re different personalities, and knowing how to approach that, whether it be with your tenants, whether it be with your coworkers, your colleagues, whether it be working with maintenance, or the construction crew and trying to get them to work with you, I think that is a skill that I have in terms of trying to relate to people and letting them see the sincerity about how we’re approaching things. I think that’s one great skill, because then they recognize that it’s not me against them, but it’s how can we work together and let’s get our goal together.

I think that’s really important, because if you recognize that you’re all on the same team, then it’s easy to work together to get to the goal. So I try to keep that in mind with the tenants, with my coworkers, with my colleagues, partners, and things like that. And then I think just having experienced so many different units, even though they’re pretty close together… A majority of our units are in Baltimore, but we have some in the DC area as well. Just being able to organize and manage all of that… I’ve used our property management software to help me keep that stuff organized, so that I know the rent’s coming in, I know what’s going out, I know the expenses, and I can have a good handle on that. So I think those are the two main skills that I bring, that can help benefit the teams that I join.

Slocomb Reed: Awesome. What kinds of deals are you guys looking at acquiring now?

Sia Senior: Two types of deals. In particular, we want to still do joint ventures, and we’re looking in the Baltimore area because it’s in our backyard. But we’re also looking at places like North South Carolina, Indiana, and Ohio, because we like the cash flow that is a potential there. For me, I’m focused on those types of deals that we could keep in our portfolio with other partners and help us grow wealth-wise generationally, for our family, our friends, and kids.

But we’re also looking at deals that have nice upside, that more kind of syndication plays, larger units. Particularly, because I feel like there are a number of people in our community that doesn’t really have access to those types of deals. So we are looking at deals that can bring them that potential, where we could syndicate and bring in partners who didn’t really even know about this, as we didn’t years ago, and provide them opportunities to invest in these types of deals, whether it be a 506C, 506B, or maybe even a title III, which we’re also looking at joining. That will allow people who may not have those accredited qualifications, but still want to invest and have funds, want to learn, and be able to develop and increase their wealth as well. We’re open to all of those.

Slocomb Reed: Awesome. Well, Sia, are you ready for the Best Ever lightning round?

Sia Senior: Yes.

Slocomb Reed: Sia, what is the Best Ever book you’ve recently read?

Sia Senior: I have two. The first one is The ONE Thing by Gary Keller, and the other one is The Millionaire Real Estate Investor. I think they go hand in hand, particularly because The ONE Thing helps me focus on my goals and make sure I have the priorities straight, so that I can be a little bit more productive. The way we built our current portfolio was based on the Millionaire Real Estate Investor. So getting the goals, making a plan, and then acting on it. Those two I think went hand-in-hand in really helping us. I like to review them even though I’ve read them before, just to kind of solidify and keep me on task. Those are my two good ones.

Slocomb Reed:  The ONE Thing is fabulous. The Millionaire Real Estate Investor was the first book I read that gave a proper 30,000-foot view of everything that real estate investing can be, and figuring out how to invest in real estate in a way that will help you achieve your own goals. It’s also the only book I’ve ever read that includes the metric return on equity. Especially when we’re experiencing as much appreciation as we have the last two years – this is being recorded in February 2022 – return on equity is a vital metric that I had never even heard of until I read that book. So those are both great. Sia, what’s your Best Ever way to give back,

Sia Senior: My husband I tithe to our church, and we give to charity, which is part of who we are and our value system. We also like to give our time. In terms of real estate investing, I’ve done a couple of webinars with family, friends, and people that are familiar with me to inform them about real estate. I’ve also started a Facebook group that is called Sage & Steward Real Estate Investing, that talks about the wisdom and wise types of investing, along with stewardship and taking responsibility and managing the assets and the people in the assets in a responsible manner. Those are two ways that I like to give back.

Slocomb Reed: Awesome. What’s the Best Ever lesson you’ve learned while investing in real estate?

Sia Senior: The Best Ever lesson… I think, for me, having been in this for a long time, the best lesson is to be consistent with what you’re doing and stay persistent. It’s really just being focused and recognizing that wealth is not built overnight, and that it takes some time to work on, but you can do it. There are times when we’ve had some interesting times with tenants that we’ve had to work through, but in the end, we end up working it out. And it’s because we’ve been consistent with what we do, and trying to add to our portfolio each time, meeting the needs of the tenants, and growing in that manner, so that we even get referrals now. That’s probably my best lesson.

Slocomb Reed: Gotcha. What’s your Best Ever advice?

Sia Senior: My best advice is, I think the things that I learned from the two books, which is to set a goal for yourself, make a plan, and then just take that first step forward. I talked about the two books – they’ve really helped me to really move forward. It’s not easy, but it’s simple, and if you keep that in mind that you’ve got a goal, you make your plans to attack those goals, and then you take a step in moving towards the actions, then that’s going to be really helpful to you.

Slocomb Reed: Awesome. Sia, where can people get in touch with you?

Sia Senior: You can find me on LinkedIn. I try to do a post every once in a while. As I said, I mentioned the Facebook group that I have, Sage & Steward Real Estate Investing, so you can find that there. You can also reach me at sia@arrowheadcap.com.

Slocomb Reed: Great. Well, Best Ever listeners, thank you for tuning in. If you’ve gotten value from this episode, please subscribe to our podcast, leave us a five-star review, and please share this episode and this conversation with Sia Senior with a friend, so that they can receive value from our podcast, too. Thank you and have a Best Ever day.

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JF2743: 5 Signs It’s Time to Break Up with Your Business Partner ft. Andrew Schutsky

You’ve found a great deal, but are the people working on it right for you? Andrew Schutsky, Founder of Redline Equity LLC, believes that partners can make or break a deal for an investor. In this episode, Andrew shares his insight on networking and how to properly select a business partner.

Andrew Schutsky | Real Estate Background

  • Founder of Redline Equity LLC, a real estate syndication firm specializing in the acquisition, improvement, and management of large apartment buildings.
  • Portfolio: Ownership interest in over 1,100 units including both GP and LP positions.
  • In his first five months, he closed two deals as a GP: 94 units and 43 units.
  • Based in: Thornton, PA
  • Say hi to him at:
  • Best Ever Book: Principles: Life and Work by Ray Dalio

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TRANSCRIPTION

Slocomb Reed: Best Ever listeners, welcome to The Best Real Estate Investing Advice Ever Show. I’m Slocomb Reed and I’m with Andrew Schutsky. Andrew is joining us from the Philadelphia, Pennsylvania area. He’s the founder of Redline Equity which focuses on large value-add apartment deals. Between being a GP and an LP, he has over 1,100 doors. Andrew, can you start us off with a little more about your background and what you’re currently focused on?

Andrew Schutsky: I guess I could go a little more to [unintelligible [00:03:06].26] here. I’ve got a full-time W2 working as a CIO for a medical technology company, so completely independent of the real estate angle. Balancing that, running a family, two younger kids, married, all that stuff. On the real estate side, I really got started back in 2007 with my single-family. The first house I lived in became a house-hack before anybody really called it that. It spiraled from there and I thought that was the path, was to keep acquiring single-family houses in neighborhoods that were close by, and easy to manage. Started down that path, and moved into the short-term rental business in 2015 on the Jersey Shore area. Again, thinking “Wow, this is awesome.” I kept going and then ran out of money pretty quickly on the down payment side. Started looking at other options and partnerships and JVs, and started looking at small multi, four, eight units, and I’m like, “Okay, this is manageable.” Then my eyes got opened, found a thread on BiggerPockets one day in mid to late 2020. And I’ve been reading a lot of the stories and backgrounds of fellow syndicators and I’ve been trying to follow in their footsteps and it launched from there. I read a number of books, went hard on podcasts, started going to meetups, and now here we are a couple years later from that point, very busy and engaged.

Slocomb Reed: Yeah. I have here that you closed your first two deals in just five months. Tell us about that, closing two deals in your first five months; what do you count as day one and what is it that you went through to put those two deals together so quickly?

Andrew Schutsky: I love it. Day one for me it was when I formally launched the LLC, which was December 2020. I couldn’t tell you the exact day. And then closed the first deal in April of 2021. The second one following that in May of 2021. For me, again, a busy working W2 professional, not a lot of spare time, and just really trying to focus on starting to build out my brand, telling friends and family what I was doing, started going to a number of meetup events. I think I probably went a little hardcore. My wife would probably agree.

I met a few potential, or I guess, future partners, and found the role for me luckily. I was willing to do, at that point, anything. Started out that [unintelligible [00:05:12].09] wound up being the tech behind the scenes, wound up helping with the acquisitions, and then from there, it’s spiraled.

Slocomb Reed: Are you working with partners right now then on the GP side to put your deals together?

Andrew Schutsky: That’s correct. Yup.

Slocomb Reed: Within your partnerships, what is your focus? What do you specialize in?

Andrew Schutsky: It’s funny, it took me a while to get dialed in. I think one of the mistakes I made in the beginning was trying to build the brand, be the social media guy, find the deals on-market or off-market, and raise money. And I’ve kind of backed into a point where I’m like, you know what- I’ve got a great professional network, and word of mouth is getting out, we’re delivering on our commitments… I’m now focusing on the brand and investor relations side of things and raising capital.

Slocomb Reed: Nice. You have other people then on your team who are more focused on acquisitions and asset management?

Andrew Schutsky: That’s correct. Yeah, mostly on-market right now, but we’re starting to build that direct-to-seller campaign like everybody else is doing in the country right now too. We’re not unique in that regard.

Slocomb Reed: Thus far — you said December of 2020 so we’re coming up on about 13-14 months, based on the day that this is being recorded, since you dove headfirst into apartment syndication with your W2 on the side. What are your biggest lessons learned in the last year and a half?

Andrew Schutsky: I guess for me, there’s a lot of potential partners out there to find deals. I was really hungry in the beginning. Luckily, they were both performing well. But communication styles and values don’t always align. Now I’m becoming a bit more selective in who I work with and working styles; simple things like are they showing up on time, do they share the same principles I have in terms of quality and integrity? You get more particular the more deals you do. The fewer time and minutes you have, you want to spend them with people that you really, really enjoy being with. That’s my biggest takeaway.

Slocomb Reed: Andrew, tell us more about that. Give us some specifics on what you’re looking for in a partner.

Andrew Schutsky: There’s different ways to skin the cat when it comes to multifamily. Some guys want to go after as many possible doors in a year; five, six, seven, 10,000 doors over a year or two. For me, I guess the bar is still high in terms of volume, helping as many people, partnering with the most amount investors, and helping as many people as I can… But not at the expense of quality or integrity. For me, the asset itself has to meet certain criteria, which is probably a little more conservative than a lot of the market’s doing right now, so it might take a little longer. In terms of overseeing the asset and team communication, somebody who shows up on time, somebody who’s willing to go the extra mile to make sure things are done on time, to follow up with contractors… I’m not doing asset management, so I expect certain communication for weekly updates or monthly updates and things are in sync. That’s what I owe to my investors. For me, I hold up a pretty high standard for communication and that’s what I’m looking for in partners as well.

Slocomb Reed: A high standard in communication. How far down the line of partnering with someone have you gone before realizing that they weren’t the right fit for you?

Andrew Schutsky: In the beginning, it was a lot of what I’ll call speed dating. You know almost off the bat, first day, first 15 or 30-minute phone call. In most cases, like “Okay, we’re not complementing each other. You’ve already got enough of this, and we’re overlapping.” Sometimes it’s the third or fourth call, or like I’ve gotten pretty far into underwriting and I’m like, “Okay, cool. We’re going to do this. I’m transferring money out of my account to stand up the at-risk capital side of things”, and you’re like, “Something doesn’t sit right.” That’s happened two or three times, and sometimes the things you walk away from are the best deals you do.

Slocomb Reed: Walking away is one of the best decisions you’ve made.

Andrew Schutsky: Oh, yeah. For sure.

Slocomb Reed: Gotcha. Can you give us an example, without naming names, of people you stepped out of partnering with, of one of those times where the best decision you could make was stepping away?

Andrew Schutsky: Oh, yeah. We had an asset that we’re looking at in Dallas with a partner down there. It was the first time I would have worked with this group and individuals. Both the initial documentation, the underwriting, the OM, all the package we were about to pitch to investors all looked pretty good. Went through a second iteration, went through a VA to put everything together, he’s about getting ready to do the pitch deck to investors and the webinar, and then we got some updated financials and they’re totally different. And I’m not a finance guy by trade, but it doesn’t take much to set off the alarm for me in terms of things that are not consistent. If I’m seeing jumps in the historical by a large amount, to me, red flag. It wasn’t like it was called out and say “Hey, there was an error.” It was like, “Oh, yeah. It’s fine. It’s going to work…”

Slocomb Reed: Andrew, are you saying that you were sent a second set of historical financials that was significantly different from the first?

Andrew Schutsky: That’s correct.

Slocomb Reed: Okay. Whose error was that that you were given two separate sets of financials in the same time period?

Andrew Schutsky: To this day, I’m not 100% sure.

Slocomb Reed: You’re just 100% sure it wasn’t the right deal, because you were told two stories.

Andrew Schutsky: That’s correct. To me, it didn’t matter the fact that it wasn’t called out from that team; that wasn’t my role [unintelligible [00:10:08].04] calling it out was a red flag for me. It was enough to say, “I’m fine waiting for the next one.”

Slocomb Reed: The team who shared those financials with you – let’s see if we can cut them some slack. Was this the kind of deal that was more heavily value-add, where historical financials just really have no reflection on what the property will be doing three to six months after you own it? Or is this one of those situations where you were planning to keep most of the inherited tenants and not push rents too far?

Andrew Schutsky: Yeah, this wasn’t a huge value — it wasn’t like it was $400 or $500 bumps. It wasn’t ingesting millions of dollars into an asset, correct. So it was a high-risk situation for me and relatively [unintelligible [00:10:52].00]

Slocomb Reed: Gotcha. You’re GP on two deals currently?

Andrew Schutsky: Correct.

Slocomb Reed: Okay, how did you find those partners?

Andrew Schutsky: Straight up through networking. I mentioned I hit the events side of things pretty hard in early 2021, and I was attending every one. At that point, all virtual, this was right in the midst of COVID. I was thinking it was going to take me years to find a deal and find the right people, because at that point, I’m really not engaging with brokers. I’m saying, “Hey, let me see where I can help.” I call it sweep the floors, so to speak, in the beginning, and making 15 to 20 partnership calls in nights and weekends following those events. With that volume, it’s kind of a numbers game to find the right fit, but it’s a lot of work and networking and hard work to find the right fit, and that’s how I found these two individuals I’m working with still today.

Slocomb Reed: Through networking and events. Where specifically did you meet them?

Andrew Schutsky: This one, I think was a mix of the MFIN conference, it was a virtual one. The second one was Northstar Real Estate.

Slocomb Reed: Gotcha. Cool. So both at conferences or events.

Andrew Schutsky: Correct.

Slocomb Reed: Gotcha. Nice. Those were both virtual events?

Andrew Schutsky: Correct. Sorry, I said Northstar, it was not Northstar; I couldn’t remember the second one. That was the one I missed in the summer, but I forgot the name of the second conference. Both conferences, correct.

Slocomb Reed: Both conferences, both virtual. Virtual requires extra effort to reach out and connect with people.

Andrew Schutsky: Now luckily, some of these events have apps. Like the Whova app you have for the Best Ever one coming up here at the end of February. That’s a great way, especially when you got five, six, seven, 100 people. You’re never going to meet all those people face to face anyway, so the apps are great too.

Slocomb Reed: We are recording just a couple of weeks before the conference. This episode may air just before or just after. The Whova app, I need to spend some more time diving into that to do the pregame networking as well for sure. What advice do you have for people who are going into networking events, whether virtual or in person, for the sake of finding potential partners?

Andrew Schutsky: I guess number one, do your homework. If you have access to an app like Whova, where you kind of know who’s coming, and if you’ve been in the circles of Facebook groups and BiggerPockets, you’re going to recognize a number of the names. Learn a little bit about the background of people that are coming and focus on quality over quantity. If you try to hand out your car to one or 200 people, it’s going to be a mile wide and inch deep, that depth of relationship. I’d rather focus on one, two, or three people in a day; you’ve got potentially a weekend or two days. Focus on quality over quantity, but if you do that homework ahead of time, you’ll know who you’re going to target and who might be a better fit versus, “Okay, yeah. They’re not going to be in the realm of what I want to do.”

Slocomb Reed: Gotcha. So dig deep and try to identify people before the event that you want to meet.

Andrew Schutsky: Correct.

Break: [00:13:37][00:15:33]

Slocomb Reed: Andrew, let’s make this a little more personal. I want you to give me individually advice for myself, that hopefully our Best Ever listeners will get some value out of. The Best Ever conference 2022 will be my first in-person networking meetup, and I am looking to connect with people who are interested in getting into medium and large-sized apartment deals for the buy-and-hold long-term strategy. I’m looking to underwrite to a five-year hold, maybe a cash out refinance down the line to increase ROI by returning capital to investors. It’s within apartments, but it feels like a niche, because underwriting to the five-year hold has been the sexiest thing for the last several years.

Andrew Schutsky: It’s the norm.

Slocomb Reed: Here’s my niche. I’m interested to meet people who are already doing it, I’m trying to figure out whether or not it’s a model that works, that appeals to people who are looking to place capital as limited partners, and I’d love to find people who are already doing it and winning. I recognize that I have weaknesses, and that I am much more of a team sports guy. I have skills that will definitely complement partners, and there are things that I need from partners in order to succeed at a high level. All that being said, Andrew, how do I find these people at this conference?

Andrew Schutsky: I guess before you even go looking, you need to know what you’re looking for and why. So a couple of things. One, I would say, be very crisp and clear –I wasn’t good at this in the beginning– about what value prop you’re going to bring. Is it one thing, is it two things, is it “Hey, I’m strong in financials and underwriting,” or “I’m great at asset management,” or “I’m going to help in investor relations, communication, networking, and things like that,” and “What are you looking for?” You mentioned, “Hey, I’ve got some gaps.” The more crisp and clear you are on them, the more we’re going to be relatable to people. The more calls I do with people –I got one coming up right after this– I’ll get emails saying, “Hey, I can do asset management,” or “I can do investor relations,” or “I can go find deals,” or “I can write letters to sellers.” Well, that’s kind of vague. What are you best at, if you had to pick one thing? Especially if you have limited time, if you had to pick one thing, what do you have to offer, and then why is it going to be a slam dunk where there are other people or the hundreds of people they could work with? You get that clear, you get your 60-second pitch down, you’re going to get somebody’s attention much more quickly than if it’s generic like, “I’ll do anything. Yeah, let’s figure this out as we go.” You might have a very limited window with this individual or group, and there’s a lot of people, so you’ve got to be able to be really succinct and crisp on what you’re asking for and what you bring to the table.

Slocomb Reed: Andrew, I’m taking notes right now. I hope our listeners are taking notes as well. First things first, I need to understand my value proposition, and understand how to pitch myself to people who may be interested in partnering with me. What’s next?

Andrew Schutsky: I mentioned being able to do a little background work. You’re going to know, primarily, if you’re on social media at all or any of these Facebook groups and networking groups, you know who’s going. You know what groups are investing in the areas you may be targeting; you may or may not know their hold strategy at that point; not everybody advertises that, but a lot of people do. If it’s a 506C deal you might see business plans with two to three-year holds, or I’ll call it a long-term fix and flip on smaller levels.

Doing your background work, a lot of these higher-level names will advertise what they’re doing. Do the background work on them and reach out and know who you’re selecting. And out of those five, six, 700 people, or maybe 100 people. Know your top 10 or top 20 and who you’re going to have to try to go after and network with.

Slocomb Reed: Andrew, this is great. I’m going to push for this episode to air before the conference, ideally, more than a couple of days before the conference.

Andrew Schutsky: Great. Yeah, it’s timely.

Slocomb Reed: Specific to Best Ever 2022, there’ll be several hundred people there. I’m busy, I want to make sure that I’m optimizing the experience and the opportunity involved in this conference. Can you give me an idea of how much time in hours I should spend preparing for the conference by figuring out who’s going to be there, what are they doing, what are my opportunities to meet them, making my top 10 or top 20 list, and figuring out how I can track those people down? At a conference like ours, with so many high-powered investors and several hundred people in attendance, how much time should I be spending in this preparation you’re talking about?

Andrew Schutsky: First thing I’ll say, you don’t need to kill yourself. Most people are not going to go through extreme efforts of doing or reading biographies of the people attending, so the fact that you’re going to spend maybe 10 or 15 minutes researching an individual group and what they’ve done in the past, what are they looking for… Take a look at their website – how long does that take? Maybe 15 minutes a group. If you do that for four or five or 10 groups… You’re not talking about days, you’re talking about a few hours here and there. Maybe you do it at the airport before; you’ve got downtime there, you’ve got downtime before you go to bed or first thing in the morning. Why not leverage a half an hour here and there just to take a couple of notes. Most people will be impressed by that. Like, “I love what you did down in Georgia, that 86-unit you guys closed on. Tell me more about that. What did you struggle with? What would you do differently next time?” Most people are not going to go to those lengths, so you’re going to impress an individual or group by just spending those 15 minutes to learn more about them.

Slocomb Reed: That’s incredibly helpful. Andrew, thank you. Best Ever listeners, I hope you are writing down things as fast and as furious as I was just now. One quick question, change of topic before we get into the next segment of the episode. I think I heard you mentioned that you use a virtual assistant to help you with your underwriting.

Andrew Schutsky: It’s funny, we started out with a VA in the beginning, and honestly, it was not working for me. It’s funny enough, again, through networking at a local meetup group, I found a younger individual who I was talking about what I was doing, and the deals we’ve just done… He’s like, “That sounds great. I’ve got a supply chain and finance background. Would you mind if I helped you with deal analysis?” So kind of I trained him up, local guy, 20 minutes away from me, we hit it off, and now we’re analyzing 10 deals a week together. So that took the place of the VA, and it’s a win-win, because I can get him in this first deal, and it’s no money out of pocket, no frustration dealing with non-native English speakers, too. So that was a win-win. I’d recommend the same for anybody looking for similar type help. There is someone out there that would do anything to get into a deal, and there’s a lot of financial savvy people out there.

Slocomb Reed: Absolutely. Andrew, the reason I ask is that I have a lot of experience with virtual assistants. I try to only give them work that allows for mistakes. If they mess something up unintentionally, maybe it’s because of some sort of social miscue –because mine are all international– I know that I can clean up after them. I don’t know that I would use someone like that for… Thinking specifically, most people who are using VAs are using VAs because they’re diligent, hardworking, and affordable. Underwriting deals for me, doesn’t seem like something I would readily give in that regard. Someone with a finance background, particularly in real estate, I could see that being beneficial. Yeah, okay, that makes sense.

Andrew Schutsky: Yeah. The initial thought was that the most time-consuming piece you know is take the OM, take the trailing financials, and just plug them into the spreadsheet. Don’t make any wild assumptions around any of the growth, just plug in what’s in the OM, one for one. It’s starting to work but, again, I’d rather much have someone with a background, like you said, that can take it a couple steps further than just copy and paste.

Slocomb Reed: Yeah, totally. I have a VA specific to this, several hours a week of copy and pasting that needs to be done. I wouldn’t do that with my underwriting. Andrew, are you ready for the Best Ever lightning round?

Andrew Schutsky: Let’s go, man. I’m ready.

Slocomb Reed: Awesome. What is your Best Ever way to give back?

Andrew Schutsky: I’m also a podcaster, and I really enjoy sharing everything that I learned always so much, in every episode with all of our listeners out there.

Slocomb Reed: Nice. What’s the name of your podcast?

Andrew Schutsky: Crushing Cashflow.

Slocomb Reed: Crushing Cashflow. Nice. What is the Best Ever book you’ve recently read?

Andrew Schutsky: I’m just about finished, but it’s not a new book. It’s Principles, by Ray Dalio.

Slocomb Reed: Principles by Ray Dalio. That’s in two parts, isn’t it?

Andrew Schutsky: It should be, it’s about 600 pages. It’s a lot to take in, and it’s separated into life principles and work principles, correct.

Slocomb Reed: Gotcha. Okay, I think work principles was released first, and that’s the one that I’ve listened to. Ray Dalio narrates the audiobook, which is helpful.

Andrew Schutsky: I think I’d struggled to get through that one in the audio form; it might be a little dense. But it’s good, it’s full of information, just stuff you got to go back and re-read twice though.

Slocomb Reed: Yeah, absolutely. The Rewind 15 seconds button is really helpful for the audio stuff. What is the Best Ever skill you’ve developed since you got into real estate?

Andrew Schutsky: I don’t have a financial background, and I’ll never be a pro underwriter with the best of the best. But that’s something that I’ve probably taken a 200% increase on, just out of necessity, because I like to double check those that aren’t right. For me, that’s the area.

Slocomb Reed: Andrew, what is your Best Ever advice?

Andrew Schutsky: Number one, pick one thing that you’re good at, roll with that, and go really deep, really far. Don’t try to be everything to everyone. Don’t try to please everyone.

Slocomb Reed: Lastly, Andrew, where can people get in touch with you?

Andrew Schutsky: I love it. Our company name is Redline Equity. Our website is investwithredline.com. You can email me at andrew@investwithredline.com. You can find us on Facebook and LinkedIn. Crushing Cashflow, our podcast is on Instagram, Facebook, and LinkedIn as well.

Slocomb Reed: Best Ever listeners, thanks for tuning in. If you’ve gotten value from this episode, please subscribe to our show, leave us a five-star review, and please share this episode with your friend so that we can add value to them, too. Thanks again and have a Best Ever day.

Website disclaimer

This website, including the podcasts and other content herein, are made available by Joesta PF LLC solely for informational purposes. The information, statements, comments, views and opinions expressed in this website do not constitute and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. Neither Joe Fairless nor Joesta PF LLC are providing or undertaking to provide any financial, economic, legal, accounting, tax or other advice in or by virtue of this website. The information, statements, comments, views and opinions provided in this website are general in nature, and such information, statements, comments, views and opinions are not intended to be and should not be construed as the provision of investment advice by Joe Fairless or Joesta PF LLC to that listener or generally, and do not result in any listener being considered a client or customer of Joe Fairless or Joesta PF LLC.

The information, statements, comments, views, and opinions expressed or provided in this website (including by speakers who are not officers, employees, or agents of Joe Fairless or Joesta PF LLC) are not necessarily those of Joe Fairless or Joesta PF LLC, and may not be current. Neither Joe Fairless nor Joesta PF LLC make any representation or warranty as to the accuracy or completeness of any of the information, statements, comments, views or opinions contained in this website, and any liability therefor (including in respect of direct, indirect or consequential loss or damage of any kind whatsoever) is expressly disclaimed. Neither Joe Fairless nor Joesta PF LLC undertake any obligation whatsoever to provide any form of update, amendment, change or correction to any of the information, statements, comments, views or opinions set forth in this podcast.

No part of this podcast may, without Joesta PF LLC’s prior written consent, be reproduced, redistributed, published, copied or duplicated in any form, by any means.

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JF2733: Avoid These 5 Costly Mistakes with Multifamily Insurance ft. J.T. Lynch

Are you getting good advice from your insurance broker? Do you have the right coverage for your properties? Insurance broker J.T. Lynch reveals five common mistakes investors make when dealing with multifamily insurance, and how to properly select and dissect a plan.

J.T. Lynch | Real Estate Background

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Ash Patel: Hello, Best Ever listeners. Welcome to The Best Real Estate Investing Advice Ever Show. I’m Ash Patel and I’m with today’s guest, JT Lynch. JT is joining us from Denton, Texas. He is a broker at Ramey King Insurance, which has specialized in multifamily insurance for over 35 years. JT also has four years of real estate experience. JT, thank you for joining us, and how are you today?

J.T. Lynch: I’m doing great. Thanks for having me.

Ash Patel: It’s our pleasure. Before we get started, can you give the Best Ever listeners a little bit more about your background and what you’re focused on now?

J.T. Lynch: Sure. I actually started out in personalized insurance and then quickly realized that commercial is the way to go. Getting into the agency that I’m with – it’s a private family brokerage. It’s actually been in Denton, Texas since 1889, so it’s been around forever. My boss, he specialized in multifamily for over 35 years, and we’re all over the nation as well. The pandemic is terrible as it is; it’s actually opened up a lot more for our business because of the Zoom meetings, to be able to meet people farther away than just North Texas. It’s a great industry to be in, I love meeting all different syndicators and everyone that’s helping out in the whole process. It’s like a smaller type of family, so I love the environment.

Ash Patel: JT, help me understand that… Why are you now able to get more clients post-COVID?

J.T. Lynch: We did a lot of events, face-to-face events, maybe at a different location here in Dallas. But with Zoom, it opened people’s eyes to go, “Well, since we can’t go anywhere… Well, I’ll get on this Zoom. I heard about this Zoom right here.” Now people are coming in from Georgia and California. It made the world a lot smaller. Now it’s kind of a norm; people are doing more podcasts and Zooms, it seems like. When you’re going to an event, you can only go to one thing a night almost if you’re going in person, but with Zoom, you can do almost unlimited throughout the day. It’s just allowed us to reach more people to be able to help more people and more properties.

Ash Patel: Got it. Four years of real estate experience. What is that? What have you been doing?

J.T. Lynch: Multifamily insurance… I’ve got a passive deal going on right now looking to do more, possibly looking to get more involved; looking to learn as much as I can as well. I’ll be at the Best Ever conference coming up here on the 24th to the 26th, so I’m looking to learn as well, and get more involved. But right now, it’s mainly just the multifamily insurance space.

Ash Patel: But your real estate experience is on the passive side.

J.T. Lynch: That’s correct.

Ash Patel: Alright. What are mistakes that are made with multifamily insurance?

J.T. Lynch: Oh, man, there’s a lot. One of them is just not having your team together. You’re looking for properties, you finally find what you think is the right one, but then you don’t have an insurance broker that you’d go to and trust. So if you don’t have your insurance numbers lined up, we all know that everything is so tight these days that if you thought this property was going to be $300 a door, but now it’s actually more like $500 a door – well, that’s going to throw everything off from the start. So I would say get your team together first; not just your syndication team, but your brokers, anybody else that’s part of the deal – get them together first. That way, when you find the right deal, it’s easier to take down.

Ash Patel: No, what mistakes are made from an insurance perspective?

J.T. Lynch: From an insurance perspective, it’s not even knowing what to expect. You don’t know if the property’s in a flood zone, maybe it’s a property that’s built in the 1960s to the 1980s and you’re not looking out for aluminum wiring, or you’re not looking out for the Federal Pacific Stab-Lok breakers. Having your team in place, as I said before, with a broker that you trust, they’ll let you know things to look out for. Before you submit an LOI, I would tell you for instance, “Hey, this property, it looks like it’s in a flood zone, whatever. Expect to pay $5,000 more in premium because of that. It looks like on the T12 their insurance had increased quite a bit back in August. It looks like there could have been a claim, so make sure to ask the owner and broker about that.” There are different things that we can find before you even submit the LOI. Again, a good team member put in place will help you with those, because that’s the first mistake you’re going to make, and it can be a costly one.

Ash Patel: And T12 is trailing 12 months.

J.T. Lynch: Yeah, that’s your trailing 12 months of the different finances that come into play, like insurance, for example.

Ash Patel: Okay, I have to ask you. I interviewed somebody not too long ago where there was a tornado, and the roof flew off the building, and a lot of water damage. The insurance company didn’t cover it, because they claimed there was no tornado in that area, and the roof was faulty. How do you deal with a situation like that?

J.T. Lynch: Well, with something like that — first of all, you’ve got to make sure that you have the right coverage. If you’re not covered for wind, or named storms, or whatever that could come into play in that area, then that’s, again, another mistake. But if you’re on the coasts and you don’t have named storm coverage, the named storm comes through like a hurricane and does damage that you don’t really have much to fight against. So first is to make sure that you have the right coverage.

Ash Patel: Wait a minute, so there is specific coverage for when they name storms, like Sandy and…?

J.T. Lynch: Yeah, that’s correct. If you’re, say, on the coast near Florida, almost anywhere in Florida actually, or Houston, Galveston, that type of coastal areas – yeah, they’ve got a deductible for a named storm.

Ash Patel: If you don’t have named storm coverage, do you not get covered if the weather people name the storm?

J.T. Lynch: That’s correct. You could have a normal storm come through, just a normal thunderstorm that may do damage to the property – you’ve got a deductible for that. But a named storm that gets big enough to be named, that does damage and you don’t have the right coverage, then you could be paying for that yourself. It’s just like being in a flood zone and not having flood insurance. So you got to make sure that you’ve got the right coverage for your property and where you’re at. That’s the first step to that.

Ash Patel: Okay, that’s insane. How are we supposed to know that? Unless the insurance broker tells us these things, how do we know?

J.T. Lynch: The good news is your lender is going to help you as well. The lender looks at it as “This is my property until you pay it off.” So they’re going to want to make sure that they’ve got all these different items covered, so they’ll have a checklist of items depending on the property and where you are, of the types of coverage you need. Especially if you’re getting an agency loan, a Fannie or Freddie loan, or bridge loans are really popular nowadays, your lender is going to let you know exactly what you need for that property.

Ash Patel: Alright, so I recently switched a few years ago to a new insurance person, and they kind of yelled at me. They said I’ve got earthquake coverage on all of my properties. Well, the reason for that was the last broker said Ohio’s on this fault line, blah, blah, blah, and scared me. So I’m paying $20,000 extra a year for all my properties on earthquake coverage. Okay, well, who do I believe? You guys all steer us in different directions, so how do we know who to believe?

J.T. Lynch: It’s a tough thing. Obviously, we want you to be insured properly, If you didn’t get earthquake coverage and then there was an earthquake event, then now it’s on us for not even mentioning it. The proper thing is to mention that there is a possibility of an earthquake happening in this area and then ultimately, it’s up to you. There have been earthquake events in Oklahoma and Texas too, and there’s a lot of speculation as to why. Some people think it’s just because of a lot of the fracking that goes on here, so there are slight tremors. There are some properties that choose to get earthquake coverage just in case. That comes down to your risk tolerance. If somebody is more willing to take that gamble and not spend that extra money just because they know that there’s not a ton of earthquake events in the area, it’s all a gamble. Our job is just to line it up for you, let you know what the potential hazards are, and give you statistics and a good idea of what is good to be covered. But ultimately, it’s up to you. It’s all a gamble, really.

Ash Patel: There are a lot of horror stories from people dealing with insurance companies. What’s the worst horror story you’ve dealt with, with an insurance company?

J.T. Lynch: The story that you brought up, about the roof flying off the apartment complex and then saying that it wasn’t even a storm. I’ve heard of different scenarios like that, of just trying not to payout. Our job as brokers is to find you the best carrier that will fit your lender requirements. We’re also trying to find you the best premium as well, but that’s not always the most important, we want you to have the best coverage as well. So we’re going to go out to multiple carriers to find the best options. Part of that is going to a trusted carrier that we know is going to take care of you. I don’t deal too much with the claims process whenever there is a claim, but I do make sure that the right parties are talking to the right people, that you’re talking to the claims adjuster… And in the event that it’s not looking like the payout is going to happen as it should, then there are some other options there for you. It really depends on the situation that happened, but our job is to get together the right narrative of what happened, what you did or didn’t do to have it properly covered, to make sure to bring the correct narrative, to make sure it’s covered properly. There are a lot of crazy horror stories out there. Unfortunately, a lot of times it’s because the owner or the agent didn’t have it properly insured. It’s ultimately what it comes down to. We try to get it right from the start, and hopefully, we can avoid some of those.

Break: [00:12:23][00:14:20]

Ash Patel: JT, I’ve interviewed a lot of people that came from the financial industry and transitioned into real estate. When I ask them, “Why didn’t you recommend real estate investments when you were in the finance industry?” their answer is always “Well, there is no way for us to get paid on those investments.” Because mutual funds will give them all kickbacks and bonuses, real estate syndicators don’t do that. But they leave the finance industry, because they realize there’s so much more money to be made with real estate investments. Are you guys similar, in that certain companies will pay you higher based on what you bring them?

J.T. Lynch: No, not necessarily. One carrier may give you 5% in commission for each sale that you bring, another might give you 8%-9%. There are not that many carriers really that will write multifamily. There’s a ton that will write your business auto, there’s a ton that will write your single-family house, but there’s not a ton that will do multifamily. So as far as the payouts, the commission splits and all that, we really don’t even pay attention to it. We want the best option for the client as far as coverage and premium go, and that’s it. Because if we’re not getting the business at all, then what does it matter? If we’re getting business that is extremely expensive or not the right coverage – well, then that doesn’t help me down the road.

We want to do what’s right from the start, so the commission splits and all that, I don’t pay attention to it at all. [unintelligible [00:15:50] they do differ. Some of these carriers, they’ll tell you, “In order just to access me, to get quotes from us, you have to bring in a certain amount of premium every year.” Some of your small brokers that are just getting into this might not have access to these carriers, just because they’re not bringing in enough business yet. There’s a lot that goes into it, but I hope that answers your question.

Ash Patel: It does. Does that mean the vast majority of people could be influenced by the percentage commission they receive?

J.T. Lynch: It could be, but it’ll catch up to you really quick. Once you start seeing that quotes are much higher than your buddies down the road, and “Hey, you’re only bringing me three different options. I heard of another broker that’s going to multiple other places.” People are smart, syndicators are smart, they talk; like I said, it’s a big family. So if you’re not doing the right things, you can get away with it for a few properties, but eventually, they’re just going to go to where they’re treated right. So doing the right thing at the start is the best way to go for

sure.

Ash Patel: Can you talk to the Best Ever listeners a little bit about personal and business umbrella insurance?

J.T. Lynch: Yeah, absolutely. An umbrella policy is something that most lenders are going to require. The size of the umbrella really depends on the size of the property. If you think of 100 units versus 200 units, the 200-unit has more risks, because there are more people; not just tenants, but family members of tenants, friends of tenants, people coming and going. That could get into an accident on your property and you could get sued for it. The umbrella kicks in after your general liability limits have been exhausted, so usually, you’re covered for a million dollars insured liability per occurrence; but what if they sue you for $2 million? Well, your million dollars is covered through your regular general liability policy, and then your umbrella kicks in to cover you for the rest. Most umbrella policies are really inexpensive, so to get $5 million worth of coverage, it can cost you $2,000 extra in your premium. It’s a great thing to do. Again, your lender is going to require that amount that you’re going to need.

I have a personal umbrella policy for myself. I’ve got an eight-year-old, and my wife is expecting, we’re due in July; we’re not a huge family, but still, my umbrella policy is $120 for the year, something stupid like that, or maybe $180, and it’s a million dollars for our whole family, and it travels with us wherever we go in the world. In the event that something happens and we get sued over what our general liability limits are, that umbrella kicks in and it helps us out.

Imagine you’re driving down the road, you run through a red light and crash into somebody’s really nice car, and this person happens to be a surgeon who makes 500k a year. Now all of a sudden, they’ve hurt their hand and they can’t work for a few years. So your normal auto limits aren’t going to cover that type of lawsuit, so that’s where your umbrella kicks in to help you out. Again, it’s so inexpensive; just buy it, and then it’s added into your normal renewal every year. You won’t even know the difference and you’ll have that peace of mind, you’re protected.

Ash Patel: JT, here’s a silly question. You take somebody that’s done a handful of two to four-unit properties, and all of a sudden, they get a $5 million deal that’s 100 units; can they just go to their existing insurance broker? Or is there something different about those larger multifamily deals?

J.T. Lynch: That’s a great question. A lot of the captive agents like farmers in State Farm, a lot of them can only do two or four units; they can’t get much bigger. So when you’re getting into the bigger properties, you’re going to need an agent that is specialized in these bigger properties, that has access to these carriers that will write them. So I would say yes and no; it depends on the broker, it depends on who they can access in order to be able to help you out with those.

Ash Patel: Got it. What is your best real estate investing advice ever?

J.T. Lynch: I would say be an open book and be willing to help as many people as possible. As I said, this is a huge family and I was helped out tremendously when I first started. I just try to give back that way, and try to help as many people as I can.

When I go to a conference or when I’m on a Zoom call to meet new investors, I don’t tell them what I do off the bat, I try to figure out what they’re doing and how I can help them. I’ve been doing this a long time, so I’ve got a large network of, obviously, other syndicators, CPAs, attorneys, so there’s a lot of places that I can lead you. I’ve found that helping others first makes all the difference in the world. You’ll start getting referrals, and your business will travel in ways you didn’t even realize it could.

Ash Patel: JT, are you ready for the Best Ever lightning round?

J.T. Lynch: I am. Let’s do it.

Ash Patel: What’s the Best Ever book you’ve recently read?

J.T. Lynch: Richest Man in Babylon. Our boss had us read that. It’s been around forever, and it’s a great book; everybody should read that.

Ash Patel: What’s the Best Ever way you’d like to give back?

J.T. Lynch: Like I said, just making sure that I’m helping others in their goals, whether it’s introducing them to my network, or helping them with insurance; however I can give back to the multifamily family is the best way.

Ash Patel: JT, how can the Best Ever listeners reach out to you?

J.T. Lynch: The best way is through email jtlynch@rameyking.com.

Ash Patel: JT, thank you for joining us today and sharing some insights of the real estate insurance industry, the insurance industry as it applies to real estate.

J.T. Lynch: Absolutely.

Ash Patel: Thank you again for joining us. Best Ever listeners, thank you for joining us as well, have a Best Ever day.

J.T. Lynch: Alright, thank you.

Website disclaimer

This website, including the podcasts and other content herein, are made available by Joesta PF LLC solely for informational purposes. The information, statements, comments, views and opinions expressed in this website do not constitute and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. Neither Joe Fairless nor Joesta PF LLC are providing or undertaking to provide any financial, economic, legal, accounting, tax or other advice in or by virtue of this website. The information, statements, comments, views and opinions provided in this website are general in nature, and such information, statements, comments, views and opinions are not intended to be and should not be construed as the provision of investment advice by Joe Fairless or Joesta PF LLC to that listener or generally, and do not result in any listener being considered a client or customer of Joe Fairless or Joesta PF LLC.

The information, statements, comments, views, and opinions expressed or provided in this website (including by speakers who are not officers, employees, or agents of Joe Fairless or Joesta PF LLC) are not necessarily those of Joe Fairless or Joesta PF LLC, and may not be current. Neither Joe Fairless nor Joesta PF LLC make any representation or warranty as to the accuracy or completeness of any of the information, statements, comments, views or opinions contained in this website, and any liability therefor (including in respect of direct, indirect or consequential loss or damage of any kind whatsoever) is expressly disclaimed. Neither Joe Fairless nor Joesta PF LLC undertake any obligation whatsoever to provide any form of update, amendment, change or correction to any of the information, statements, comments, views or opinions set forth in this podcast.

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JF2731: One Simple Strategy for Sourcing Off-Market Multifamily Deals ft. Akam Ahmedi

How do you pursue sellers who are on the fence about selling their property? Akam Ahmedi, co-founder of Invest Capital, shares his successful follow-up strategy that has helped him close on three multifamily properties, one of which took two years to close. Akam divulges how he found these off-market deals, along with the details of these properties.

Akam Ahmedi | Real Estate Background

  • Co-founder of Invest Capital, which specializes in acquiring off-market opportunities by going direct to seller and buying properties at highly favorable prices and terms. They value-add Class A and B areas, aim to refinance within two to three years, and give their investors their original principal back.
  • Portfolio: GP of 240 units; $30M in AUM.
  • Five years of real estate experience — entered multifamily one year ago.
  • Based in: Washington, D.C.
  • Say hi to him at: www.investapts.com | Socials: https://shor.by/xiOM

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Joe Fairless: Best Ever listeners, how are you doing? Welcome to The Best Real Estate Investing Advice Ever Show. I’m Joe Fairless. This is the world’s longest-running daily real estate investing podcast, where we only talk about the best advice ever, we don’t get into any fluffy stuff. With us today day, Akam Ahmedi. How are you doing, Akam?

Akam Ahmedi: I’m doing fantastic. How are you, Joe?

Joe Fairless: Well, I’m glad to hear that, and I’m doing fantastic, too; looking forward to our conversation. A little bit about Akam, he’s the co-founder of Invest Capital, and their website is investapts.com. Props to you for getting that URL; that’s very intuitive to remember based on your business. Your business is primarily buying apartment communities, you’re a GP on 240 units, and those 240 units are worth about $30 million. Based in DC. With that being said, do you want to give the Best Ever listeners a little bit more about your background and your current focus?

Akam Ahmedi: Yeah, absolutely, Joe. Thanks for the intro there. It all really started coming out of college about five years ago, got into the marketing space, helping small businesses with their marketing, Facebook ads, Google ads, that sort of thing. That didn’t quite work out, didn’t like clients we were working with at the time, so I jumped into single-family wholesaling. About 2018, the beginning of 2018, I did a bunch of deals in the DMV; it stands for DC, Maryland, Virginia. We got into that, we liked what we were seeing there. However, it didn’t meet the long-term goals, but it was great for short-term cash.

We decided to get into flipping to bolster those numbers, the net numbers, and that increased our bottom line. That still didn’t hit our long-term goals; it did hit our short-term goals, and it bolstered it even more. We got into the next best thing, single-family, that’s very, very familiar right? Multifamily – we decided we wanted to do larger units upfront, take on the challenge, so we got into multifamily about a year and a half ago, closed our first deal. One and a half years later, we’re still doing about 24 flips a year in the DMV, but our primary focus is our commercial real estate business and going after these larger multifamily assets, 150 plus units.

Joe Fairless: Thank you. Some follow-up questions… First, marketing business – it didn’t work out; what specifically didn’t work out about it?

Akam Ahmedi: That’s a great question. If I could go back, I would have made it work out. At the time, one, I was inexperienced. The avatar that we were going for was the reason I believe it didn’t work out. We were learning a lot about marketing and the different types of strategies we can help business owners with. However, the avatar, when you’re going for a restaurant, that’s not bringing a lot of revenue and you have to charge them $1,000 a month. You start to realize that you can’t really provide a superior service for $1,000 a month. You also realize that lower-end clients – granted, they’re still in business; I wish them the best of luck, but they’re usually the biggest pain in the behind. You learn it the hard way, you could barely pay the bills, let alone provide a really good service. By the time the service was provided, there was no leftover cash to keep the business running or even pay the bills.

Joe Fairless: Okay, makes sense. So if you had to do that business again and you could not do real estate investing, how would you make that business successful?

Akam Ahmedi: The marketing business?

Joe Fairless: Yeah, the marketing business.

Akam Ahmedi: That’s a great question. Our avatar would change. I haven’t really thought about it, but just top of my mind, go for higher-end clients, individuals that are looking for lead gen, and a high-ticket space, aim for that. I would really niche down. In my mind right now, as I’m thinking about it, there could be a few things, but it would have to be in a high ticket space. The reason being is I’m all about the superior product, superior service, just top of everything, and that’s the reason you want to charge a lot. That way, if you’re charging say $10,000 to $15,000 a month, you could bring in a lot of weapons to provide that service that goes over the top, that raises their bottom line and makes them happy. Ultimately, they’re going to be happy to pay you 10, 15, 20 whatever the amount is, as long as you’re providing a superior service. That’s how I’d answer that question.

Joe Fairless: Now, you said “we” when you’re referring to your business and now I’m moving on to real estate. Who is “we”?

Akam Ahmedi: “We” is myself and my partner, Ace Karimi.

Joe Fairless: How do you know Ace?

Akam Ahmedi: Ace and I met in college at James Madison University; he transferred in, I believe, his junior year. It was kind of a lucky situation. My roommate and his roommate were best friends in high school, so when he transferred in, our roommates got together, they invited us out, and that’s how we met for the first time. From there, it was just clicking, growing and learning, and becoming closer friends. Then after college, we jumped into a few different business ventures together and it all worked out well.

Joe Fairless: How many years ago did you graduate college?

Akam Ahmedi: I don’t even think I’ve ever been asked that question, but six years ago now. In about three months, it’ll be six years.

Joe Fairless: Got it. Well, hopefully, that’s not the only question I ask that you haven’t been asked before. Otherwise, I’m not doing my job. Alright, so you two did wholesaling and flipping, and then you went to apartment communities… How many apartment communities do you have?

Akam Ahmedi: We currently have three apartment communities.

Joe Fairless: Okay, and they total 240 units. Can you give us a unit breakdown per community?

Akam Ahmedi: The first one was 72, the second one was 64, the third one was 102.

Joe Fairless: Got it. Where are they located?

Akam Ahmedi: Virginia and Maryland.

Joe Fairless: How did you find the 72-unit?

Akam Ahmedi: The 72-unit was off-market. We were reaching out to a bunch of different property managers and owners, and one of the property managers –well, specifically for this property, for the 72-unit– we built a really good rapport with. She had mentioned that the owner was very old, elderly. At the time, that’s all we knew; he was about 97 to 98 years old. We found out what his phone number was; not through her, but through our research online, and come to find out he was a very big player in the market. He actually built the properties to where we happened to be the second owners of that property. He built the shopping center that just sold actually a few months ago. He passed away about three months after we closed that deal, unfortunately. He passed on a pretty large estate of a lot of real estate, retail buildings… What is it called? Elderly homes, nursing homes, apartment communities, and then a bunch of…

Joe Fairless: Assisted living.

Akam Ahmedi: Correct. Single-tenant retail. So he was actually in his own assisted living facility. We didn’t know why he had three different nurses – we thought that was kind of strange – until we were doing our due diligence on the property and one of the employees at the property mentioned that he actually owned and built that assisted living facility, which made even more sense at the time.

Joe Fairless: Yes, yes. You were connecting with property managers and owners, you said, and a property manager told you about him, and then you got his information, his phone number and you called him up. Let’s dissect that some. Tell me about your approach for finding and speaking to the property managers, please.

Akam Ahmedi: That’s a great question. It’s definitely evolved over time. In the beginning, we were heavy with direct-to-seller, talking to professionals in the space, specifically in Virginia and Maryland at the time. Our approach then was, “Let’s reach out to these people that are as close to the owners as possible, or the owner themselves.” In an ideal world, you want to speak to the owner themselves. Everyone else can help you, kind of; sometimes they get in your way, most of the time. At the time, we didn’t know any better, we just reached out to a bunch of people.

The approach was this – we call and we talked to him; for this specific 72-unit, reached out to the property manager, talked to him a little bit about the property, tell them that we’re buying in the area, that we’re investors in the area that we’re buying, that we have the experience… And really just build rapport. You’re not pressing for sale or anything; you just kind of gather information to make them feel comfortable with you. At a certain point, she started feeling comfortable and gave us information, like the man who is 97-98 years old, gave us information that the contractor who happened to be really good friends with the owner at the time was just ripping him apart in terms of what he was charging them.

They were such good friends that the owner in the assisted living facility wasn’t taking the matter seriously in terms of when his employees would say, “Hey, they’re charging a lot of money for each unit turn.” They’re charging like $1,000 to replace some blinds. When we were doing our financial due diligence, it was unbelievable what the contractor was doing. So when we started gathering information, we saw the opportunity. Not only was he 97-98; as you know, Joe, that means… Hopefully, he lives as long as possible, but that estate’s going to pass eventually, that there could be some motivation there to sell; even if it’s not at a discount, at a solid price.

The property was in great condition, believe it or not; it needed unit turns, but the exterior was phenomenal. It just needed a few items and amenities. So it really just came down to understanding “Hey, there may be some motivation and opportunity here after hearing a few pieces of information from the property manager.”

Joe Fairless: You researched property managers initially, or you researched properties initially?

Akam Ahmedi: We researched properties initially, and then reached out to…

Joe Fairless: So you had a spreadsheet of all the properties that you researched, or did you buy that information from somewhere?

Akam Ahmedi: Yes. At the time, it was Reonomy.

Joe Fairless: Oh, sorry. Yeah, got it. So you used Reonomy… And when you initially spoke to that property manager, how do you build rapport with them?

Akam Ahmedi: That’s a really good question. I guess it’s done naturally, but when you reach out, you reach out as someone that is interested in purchasing, interested in helping in any way they can. When you talk to a property manager, you’ve got to be careful, because if they think you’re going to purchase, they think they’re going to lose their job. So you state the elephant in the room and almost immediately, if you’re going to mention that you’re interested in purchasing, you let them know like, “Just so you know, this doesn’t put your job at risk by any means. Usually, when we buy properties, we keep the property manager on board as long as they’re doing great work.”

The following question for me is always, “I’m assuming you do great work, right? That’s probably why you have a job and it’s fully leased.” If they start feeling comfortable, they say yes, and then you continue the conversation. But you have to state that, because otherwise it’ll be a brick wall.

Joe Fairless: Yup, got it. Okay, that’s helpful. And you did not ask for the owner’s contact information, because you said that you found that phone number through a different means. I assume just skip-tracing, or was it just you doing a Google search, or something else?

Akam Ahmedi: You can use software like True People Search, or Fast People Search. Typically, they have really good information. As long as that name is not something like Steve Smith; there are thousands of Steve Smiths. For the most part, it’s pretty easy to find; you put in the location, you put in their first and last name, and you can reverse it. If you have the person’s address but you don’t really know their name, you can reverse their address, it’ll give you their name, and give you the number. Different ways to go about it, but I love using True People Search.

Joe Fairless: That’s what you used in this case?

Akam Ahmedi: This is what we used in this case.

Joe Fairless: Okay. So you got the phone number, you just dialed it up, and the gentleman answers. What do you say?

Akam Ahmedi: My partner actually made the first call to the owner, and for some reason, the owner could barely understand him. I don’t know why. He was old, his hearing was the best. So he passed over the phone to me after making the initial call and getting the conversation started… And it was really just about — with a guy like that, you had to call him in the morning, because he got kind of grumpy past like 12pm. So with a guy like this, you immediately get into it. “Hey, this is who I am. My name is Akam, it’s nice to meet you, sir. The reason I’m calling is that I noticed that you have this property here on 123 ABC Boulevard. I happen to live in the area, I grew up in the area, I own a few properties, and I love what I saw. Are you open to an offer?” A lot of times you get some resistance, because they hear it all the time, people just saying that, but they don’t actually send them an offer. Or they say that and they lowball the hell out of them.

In this case, we let them know we’re always very competitive with our offers. At first, he was just like, “I’ve already been offered 3.8 million. I’m not taking anything less.” We’re like, “Okay, that’s great. Are you open to selling?” His answer was, “Not at this time” at that moment, so we kept following up over the course of weeks.

Joe Fairless: Once a week, every day, every other day? What.

Akam Ahmedi: It depends on the seller. In this case, it was probably twice a week. Give them some space, but not too much space. Twice a week, we kept calling him, and eventually got to the point where he was just very open to it. Some days he wasn’t, some days he was, and all of a sudden, one day he was just like, “I want this much.” So he’s like “Just send in your offer.” So I got his attorney’s information. This is where you have to lead as the, I guess you call it the sales rep, or whatever, the person calling. You have to lead them; it’s something I learned immediately, even in the single-family space. You can’t wait for them. They’re the ones that are waiting for your offer, so you have to lead them.

This is your process; they’re just going to follow you along, your process.

So at that point we took control, got his attorneys information. The first offer we sent, I believe — I don’t even know, I think it was somewhere around like 3.2 or 3.5; automatic rejection. So we came back a week later, offered him 3.8, he accepted. This is where it gets a little shaky… He accepted, and then when we called them back, he was just like, “I’m not selling anymore.” We found out later that his attorney was the guy that was getting in the way.

So what we did was now we followed up even harder. Two or three times a week at a time, and he wasn’t interested, he wasn’t interested. About a month and a half later, we called them, we had it at 3.75, and he was open to it. I remember I was in Tennessee at the time at a mastermind, and I was eating lunch. I was alone but I was like, “Okay, for some reason I know this can get done.” I picked up the phone and I called them, I said something… I was like… What was his name? Louis. “Louis, this is Akam again. How are you?” He’s like, “Yeah, how are you doing?” I said, “Hey, I just want to reach out to you. I would like an answer on if you want to move forward or not. I know some days you do, some days you don’t, but I would just like to let you know that we’ve put in hours of time, a lot of due diligence on this, spent a lot of time researching this property and whatnot, and spent countless dollars with attorneys getting a PSA sent over to you, only for you to back away. I find that extremely disrespectful, but it’s okay. If you don’t want to do business with us, just please let us know. If you do, let us know that too, so that way we can get something done.”

I think that really hit him, because I think it was the disrespect. Him realizing that he wasted not just my time or the team’s time, partner, resources, the people around us, and obviously a few dollars. So I let him be and kind of gave him about four or five days. The next time I called him, he was very happy to talk to me. I just said, “Louis, reach out to your attorney, give him a call. He needs to hear this from you and say you’re ready to do the deal. Can you do that for me?” He said “Yes.” I said, “In about 10 minutes, I’m going to call you back to verify that you did that. Once I call you back, I’ll call him and we’ll get the paperwork started.” Within 30 minutes, PSAs were out, and we were going back and forth on the PSA. Within a few days it was signed.

Break: [00:18:24][00:20:20]

Joe Fairless: Wow, there’s a lot going on there. What did it appraise for?

Akam Ahmedi: I think we got it for 3.8 and it appraised for 4.4. We’re about to refinance on that property, Joe. We’re looking at an $8 million valuation.

Joe Fairless: Wow. How much did you put into it?

Akam Ahmedi: We put in about 450k, so 3.8 plus 450l. After all of the costs, were about 4.5 all in.

Joe Fairless: Let’s talk about the 64-unit. How did you find that?

Akam Ahmedi: That’s a good question, let me think… It was my partner that found that. Interestingly enough, that was also a property manager, believe it or not.

Joe Fairless: A different one?

Akam Ahmedi: A different one. This one’s in Maryland, right by Ocean City, Maryland. I’m sure a lot of people are familiar with that area.

Joe Fairless: I’ve been there.

Akam Ahmedi: In your younger years, I’m assuming.

Joe Fairless: It’s actually for work, so it wasn’t as fun as one might imagine.

Akam Ahmedi: Right. Good beaches, though; great beaches there. He reached out to what he thought was the owner’s number, my partner, but it was actually the property manager and this woman…

Joe Fairless: How did he get the number to begin with, where he thought it was the owner?

Akam Ahmedi: This is also from Reonomy. In this case, he called thinking it was the owner; it was not the owner, it was the property manager. And my partner and she talked for a good hour and a half. I remember I was leaving the room when he first initially called her. Then I come back again after getting some food and he’s still talking to this lady. I remember he puts it on mute and he’s like, “This is something hot, hot.” [laughter] So I know the look in his eyes, and he’s excited. I’m just like, “Okay, cool.”

So that deal, they talked, they built amazing rapport, and between that conversation and over the next two weeks, they were not really going back and forth, they were just keeping in touch. She was letting him know that she was going to let the owners know, “Hey, that you’re interested in buying, that you’re a serious buyer, and see what they say.” Believe it or not, they were all about it; they wanted to sell. It was their time. There were four partners, it seemed like two of them were active and two of them were passive. That’s what it seemed like.

Joe Fairless: Lazy.

Akam Ahmedi: Correct, something like that. I don’t know what kind of stuff was going on.

Joe Fairless: Probably supposed to be active, but weren’t doing their share, and the other two partners probably wanted to get out of there.

Akam Ahmedi:  The other two partners wanted to get out of there, but I’ll be honest, even the ones that weren’t doing their share weren’t doing much. [laughter] These guys were a classic mom-and-pop; they’re like 60 years old, but they’re not your classic older people. They were just all over the place. They had a lot of energy, all over the place. [unintelligible [00:23:00].16] and then we’ll tell you what happened in due diligence.” These guys were definitely comedians, they were really funny to be around.

But my partner built a great rapport with the property manager, and the property manager put in a great word. She was sick and tired of always trying to do improvements to the property and the owners just would not accept it. I think Ace really hooked her with that part. He was saying how in our group, we let the property managers speak freely, give us a lot of feedback, and we like to implement things and improvements to make the communities better. I think that stuck with her, so she reached out to the owners, and then finally made the connection to Ace. We got down to the LOI and it was accepted for 4.5. At this point, the LOI was based off of information they’d given us, even rent numbers and NOI.

Joe Fairless: I’m sure it’s all factually true.

Akam Ahmedi: Almost. [laughter] So once we get the LOI, we say “We’ll get you to PSA, but we need to see the financials first before we put this in official writing.” So they sent us the financials; the NOI was like 100,000 less than what they said. 100,000 to 140,000 less than what they said. At this point, my partner wasn’t as excited, because they were stuck on this 4.5 million number… It didn’t make sense at 4.5; we were buying like at a 3.3 cap in like a 6.5 cap market. As we both know, Joe, sometimes you don’t always buy off a cap, because you realize that there are so many improvements that can be made from a rent perspective, or even on the expense side. But in this case, it didn’t make any sense. So from there, that’s when I took over. I saw that he kind of lost that excitement, and he felt like his time was wasted.

So over the next few weeks I was talking to them. The main guy that I was speaking to, I talked to his partners every time he spoke to me. From that point on, Joe, I remember one day I was talking to him, I think his name was Joe too, actually. We were in Florida at this time, in Fort Lauderdale and I gave him a call, we had set up a meeting with him and his other active partner. I had told him something like, “Hey, Joe, realistically, we put an offer of 4.5 on a table based off of the information you gave us. And then when you gave us actual financials, it was way off. $120,000 off. We were originally buying at around a 5.5 cap anyways, but now we’re buying it at 3.5. No one in this world will buy that property for a 3.5 cap.” I was like, “If you don’t want to do that deal with us, that’s fine. But we’re going to have to be at,” I believe I said 3.4 million. It was 3.4. And he was just like “Oh, that’s low. There’s no way they’re ever going to accept that.” I was like, “Well, look, the reality is we’re not paying 4.5, and no one else will. And I don’t say that disrespectfully. I’m just telling you that it doesn’t make any sense for anyone.” He said, “Okay, we’ll let you know.” And he counters us, I think a day or two later after talking to partners, at 3.65. We thought about it for a day, but then we realized, “Wait a minute, this is a great deal at 3.65.” So we did the deal, and then due diligence and all that started.

Joe Fairless: How long from start to finish did it take to get a signed contract for the 72-unit? The same question for the 64-unit, approximately.

Akam Ahmedi: From the day we spoke to the seller, initial contact?

Joe Fairless: The initial contact to signed PSA, for both deals.

Akam Ahmedi: I like that question a lot. I feel like a lot of people think this happens so quick. This is not a single-family. The first deal, the 72-unit was three months, 90 days; I believe it was May to August. And then the 64 – wow, the 64 had to be five months. It was October to March or April.

Joe Fairless: Thanks for sharing that. And then really quick – anything in the due diligence that you want to mention? It seemed like there was something wacky going on during due diligence.

Akam Ahmedi: Yeah, you could tell it was wacky. Once you’re doing due diligence, there’s a physical and financial side. We were seeing the physical, we knew it needed some love, really just needed to turn it into a community more than anything. That project – we’re still spending, about 900,000 in CapEx. During due diligence, these were the type of guys, you could tell, that they will lie just about almost everything. You could tell, especially when you did your research and you looked over everything. One of the guys — you know, we would throw out ideas, “Hey, why didn’t you do this at the property? Why haven’t you done that to the property? X, Y, and Z?” And his thing was, “Oh, it sounds like a great idea. Yeah, do it, do it.” We asked him once — I believe my partner asked him, he said, “Do you know how much that would cost?” He said, “No, it doesn’t matter. It’s going to add plenty of value.” So you could tell these were mom-and-pop, they didn’t really know what they were doing, if they just had money, they threw it into something. For them, they got extremely lucky. I don’t want to call it lucky, but they did great on that property. They sold it for 3.6, but they picked it up, I believe in 2005, for I think 700 grand. So they did really well for themselves; and they were crushing it from cash flows, even though it was so inefficient, just because their basis was so low.

Joe Fairless: Yup. 102-unit, really quick, like 30 seconds or less – how did you find it?

Akam Ahmedi: Two-year follow-up, that one was direct-to-seller. He was a psychiatrist, he and his wife; his wife was the property manager of the property. She was 83, he was 84; they were going to sell it during COVID, but then they wanted to travel and she was like, “I don’t want to just sit at home with my husband.” But it was direct to seller, True People Search, through Reonomy. That was a two-year follow up, Joe. That was, I think, May of 2019 was the initial contact, and we didn’t get it under contract until June or July of last year.

Joe Fairless: Wow. Well deserved. Nice work on that. I’m glad that you talked about how long it took, and the effort, and the steps that you and Ace took to build rapport and to go from initial contact to under contract. I didn’t even ask how long to close, but just three months from initial contact to PSA being executed on the first deal, five months on the second deal, and two years on the third deal. But man, isn’t it worth it for just that effort? The amount of money that is made as a result of those follow-ups was incredible. Taking a step back, what is your best real estate investing advice ever?

Akam Ahmedi: If the numbers work, do the deal. Don’t always look for the home run. If it’s a really good deal for you and your investors, or just you, take the deal. That’s how home runs are made; a lot of times you don’t know until you do the deal.

Joe Fairless: We’re going to do a lightning round. Are you ready for the Best Ever lightning round?

Akam Ahmedi: Always.

Joe Fairless: What deal have you lost the most amount of money on, and how much was it?

Akam Ahmedi: What’s that city in Texas?

Joe Fairless: Lots of them.

Akam Ahmedi: It’s oil.

Joe Fairless: Forth Worth? Dallas?

Akam Ahmedi: No, it’s not a big city.

Joe Fairless: Lubbock? Amarillo?

Akam Ahmedi: It’s San something. It’s not San Antonio, it’s San something.

Joe Fairless: San Angelo, San Marcos?

Akam Ahmedi: San Angelo, thank you. San Angelo, a 100-unit asset, lost 40 grand on it. But we didn’t close on a deal because we were putting our investors at risk. We did not want to do that, so we took the loss on the earnest money.

Joe Fairless: If given the same opportunity, what would you do differently so you did not lose the money?

Akam Ahmedi: Would have taken control with our team members and vetted the deal the last day of due diligence.

Joe Fairless: What deal have you made the most amount of money on, and how much?

Akam Ahmedi: Single-family side, about 350k; multifamily side, it’s going to be the 72-unit here soon. It’s going to cash a check of about 300,000 from refinance proceeds, and then once it sells, it’ll probably make a million each for myself and my partner.

Joe Fairless: Best Ever way you like to get back to the community.

Akam Ahmedi: Helping others. What I mean by that is I do donate money to charities, but more specifically, when I’m physically interacting with individuals and helping them with knowledge and giving them feedback from my experience. Right now, I coach two people, real estate, absolutely for free. We just get on a weekly Zoom call. I like to do that, I feel like I could make my most impact there as of right now.

Joe Fairless: How can the Best Ever listeners learn more about what you’re doing?

Akam Ahmedi: That’s a great question. Just connect with me on LinkedIn, and connect with me on Instagram, or TikTok, @akinvest.

Joe Fairless: Akam, thank you so much for being on the show. What an enlightening conversation about how the perseverance is required to get deals done, but then also tactically how to make that happen. Thanks for being on the show. I hope you have a Best Ever day and talk to you again soon.

Akam Ahmedi: Thank you, Joe. Hope you have a great day, too. Thanks for having me on the show.

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