JF2423: Five Billion Dollar Multifamily Business Ideas | Syndication School with Theo Hicks

In today’s Syndication School episode, Theo Hicks, shares five evolutionary ideas for your business. We are going to take advice from Joe Fairless, as he talks about  five lessons about things that you need to do once you have reached a certain size in your business which are, Number one is reduce your liability as a syndicator by hiring an in person compliance expert. Number two is set clear expectations and provide motivation for your team members,. Step number three, is to create a fund for better returns to your investors, Number four is to focus on your investing business, by hiring other people to maintain and grow your thought leadership platform. number five is how to overcome that success paradox which is to find three trusted colleagues to provide you with honest feedback. Let’s listen to this episode for these 5 lessons.

To listen to other Syndication School series about the “How To’s” of apartment syndications and to download your FREE document, visit SyndicationSchool.com. Thank you for listening and I will talk to you tomorrow.

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JF2421: Realtor Challenges & Business Growth with Jordan Nicholas Moorhead

JF2421: Realtor Challenges & Business Growth with Jordan Nicholas Moorhead

Jordan is a Real Estate Investor, Host of the Austin Real Estate Investing Podcast, and the owner of the Moorhead Team. He has been an entrepreneur since he was a kid and got into real estate investing before he got a realtor’s license. He focuses on growing his business, investing in real estate, and helping others get started in real estate. In total, Jordan and the Moorhead Team have acquired 29 units along with syndications. In today’s episode, Jordan will go into the details about single families, multi-families, turn-key, and his real estate background.

Jordan Nicholas Moorhead Real Estate Background:

  • Full-time realtor and investor
  • 5 years of real estate investing experience
  • Portfolio consist of 25 units and 3 syndications
  • Based in Austin, TX
  • Say hi to him at: www.themoorheadteam.kw.com 
  • Best Ever Book: The Lifestyle Investor

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“It’s very hard to find houses for people to buy. It’s very easy to find people who want to buy houses.” – Jordan Nicholas Moorhead

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JF2416 - How to Make the Inc 5000 _ Syndication School

JF2416: How to Make the Inc 5000 | Syndication School with Theo Hicks

Theo is on the podcast to discuss what it takes to become one of the nation’s top companies. Founding a company without any prior experience is a challenging concept to fathom with no one to turn into when unforeseen situations occur. With a majority of companies being founded at a young age, the Founder Syndrome is something to be expected when scaling is at stake— coming from an abrupt success with little to no foundation. From the presentation made by the Co-Founder and CEO of Spartan Investment Group, who experienced 1,479% growth in 2020, any company with the grand ambition to scale should know the three tips to be at the top-most echelon.

Define your culture, develop your plan, and create your team. How can you effectively utilize these points to navigate your company to success? In this episode, Theo dissects and dives deeper into these three vital points to achieve what you have always envisioned.

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TRANSCRIPTION

Theo Hicks: Hello Best Ever listeners and welcome to another episode of the Syndication School series, a free resource focused on the how-to’s of apartment syndication. As always, I’m your host, Theo Hicks. In this episode, we are going to talk about what it takes to become one of the nation’s top companies; I’m going to continue breaking down some of my favorite presentations from the 2020 Best Ever Conference. This presentation was done by Scott Lewis, who is the co-founder and CEO of Spartan Investment Group. They syndicate self-storage deals, and their company was named one of the fastest-growing private companies in America on the Inc 5000 (or 500) list. Their company experienced 1,479% growth in 2020, which was 308th out of all companies, and then 8th for real estate. In his presentation, he kind of broke down three tips for becoming a top company, for becoming a fast-growing company, and making the Inc 5000 list. Ultimately, all of these points surround setting up your company for success and turning yourself into more of a corporation, a very professional, serious company.

Scott says this, he starts with his point number one, which is defining your culture. If you want to become one of the nation’s top companies, you need to define your culture. What does this mean exactly? Well, Scott broke the culture definition down into three different parts. Part one is going to be your why, part two is going to be your vision, and part three is going to be your values.

Your culture is your why, your vision, and your values. Let’s break that down even more. So your why – everyone listening to this knows the importance of a why. We’re not going to focus on this one too much. Your why is why you do what you do, why you go in to work each day. So pretty simple. For all of these three parts of the culture, if you haven’t thought of this already, which you probably have, but the exercise is to actually write down the answers to these questions. So why do you do what you do? Why do you invest in real estate? Why do you want to become a multifamily syndicator? Why are you a multifamily syndicator? What gets you up in the morning? Why do you get up each morning and grind to create a syndication company? Based off of your responses to this question, you’ll want to formulate a one or two-sentence mission statement or why statement. It’s not a paragraph, it’s just a sentence or two.

For all of these parts of the culture, I’ll use Spartan Investment Group as an example, because they made the Inc 5000 list, plus if you go to their website, you’ll see their why, their vision, their values. It’s kinda scattered everywhere, so it’s very easily accessible and you can use this as a guide to creating your own mission statement.

Their mission statement is “To improve lives through real estate.” That is their why, that is why they raise money for self-storage. With this company mission statement, it gets you clear on why you’re doing what you’re doing, and this is the key, it’s an inspiration for you and for your team to show up every single day. Because you’re not going to make the Inc 5000 and you’re not going to become one of the fastest-growing real estate companies in the country by yourself; you need to have a team that is inspired.

I was actually writing a blog post yesterday about this a little bit, and I might get into this later in this blog post. That was based off of Joe Fairless’s Best Ever Conference presentation, which we’ll talk about in the future at some point on this show… But the mission here, the reason why you want to have a strong mission that motivates your team, is because what motivates you is going to be different than what motivates your team. And it’s actually your company, not their company. So it’s figuring out how can you get your team members as inspired and as motivated as you, even though the compensation that you receive is tied to something different than the compensation that they receive.  One way to accomplish that is through a strong mission statement.

The next part of your culture is your vision. Your vision is what you see… So this is where you see yourself going in the future, or at least where you want to see yourself in the future. This is based off of really what success looks like to you. This is more than just a quantitative, “I want X dollars in real estate.” Your vision is more of a qualitative thing. It’s not really going to include numbers; that comes a little bit later. This is just high-level where do you want to go? What does success look like to you?

Back to Spartan Investment Group, the vision that they have listed on their website is “To build a company where a relentless drive fuels our growth and improves the lives of our team and our investors. To do this, our focus is to provide opportunities for our team to grow and achieve their dreams, both personally and professionally. For our investors, we provide only investment opportunities that have been thoroughly scrutinized by our processes. Day in, day out, we work with determination to persevere through every challenge in achieving our goals.”

Break: [00:07:34][00:08:40]

Theo Hicks: I really like how they broke it down to the vision for Spartan, but also for their investors. Because again, where the investors see themselves in the future and what success looks like to them is a little bit different than what success looks like to you, since they’re passive investors and you’re the active investor. Again, what does success look like to you? Where do you see yourself in the future? Write down your answers formulate, about a paragraph, for your vision, so a little bit longer than your mission.

The third part of your culture are your values. After you have your mission statement and after you have your vision, your values are going to be the behaviors that you need to see in your organization, so out of you and your team members, in order to stick to that mission statement and to realize that vision.

For example, Spartan Investment Group’s values are a lot longer than this, but they summarize that with the word GRITT. Their values are growth, respect, integrity, tenacity, and transparency. In order to achieve their mission to improve lives through real estate, in order to realize that vision, they need to have the values of growth, respect, integrity, tenacity, and transparency. Once you have all of these defined, this is really going to be the focus of the entire company. Everything the company does is going to be based off of the mission, the vision, the values. It’s a very clearly defined mission, vision, and values.

To wrap all of this together, once your culture is defined, you need to make sure that this is not just something you’ve written down, but are actually living out, or what Scott calls the say/do gap. You say that your mission is to improve life through real estate, you say that your vision is x, y, z, you say that your values are growth, respect, integrity, tenacity, transparency, but are you actually doing that in reality?

The reason why you obviously need to do that is because if you don’t, your culture isn’t believable. If you don’t live out the values of your company, you’re not going to accomplish your mission, you’re not going to accomplish your vision, because no one’s going to invest with you and no one’s going to want to work for your company. So you need to define your culture and then you need to actually live out your culture and avoid that say/do gap. All of that is one of the three things you need to do in order to create a company that can become one of the fastest-growing private companies in America, and that’s defining your culture.

Step three is developing your plan. You’ve got your qualitative vision, mission statement, and values to guide you as kind of your guiding star, but then your plan is how you actually get there. These are your quantitative actual numerical goals. Once you create these goals, you need to create a strategic plan on how to actually accomplish these goals. When you’re setting your goals and you’re developing your plan, Scott breaks it down pretty well. He says that he recommends spending about 90 days in education mode. You set your goal for yourself, and you need to spend about three months figuring out the best way, the best technology, software, people, strategies, tactics, to actually accomplish that goal.

Once you know what’s out there and what you can use to get there, you want to spend the next three months actually developing the plan. So based off of your experience, your education, go out there and actually make the plan, find the people, find the technology, find the strategies, layout exactly what you’re going to do to get to that goal, and then you go out there and take action.

This is what the best companies do. They don’t just go straight into development mode and then take action, they don’t just educate themselves and then just go out and start taking action, and they don’t just go out there and set a goal and start taking action. They educate themselves first on what they need to do. They actually set a written plan for what they need to do, and then they go out there and follow that written plan.

Even more specifically, when you’re developing that strategic plan during that development stage, Scott recommends setting three overall goals to be accomplished over a three-year period. So every three years you reset your goals. For each of these goals, you have three to five objectives for those goals. Then for each of those three to five objectives, you want to create a list of at least three key results. Think of it as a pyramid – you’ve got one goal at the top, below that goal you’ve got three to five objectives, and below each of those objectives, you’ve got three or more key results to measure those objectives.

For example, one of the Spartan Investment Groups’ three-year goals is to monetize $250 million of commercial real estate with an average margin of 30%, and develop $50,000 of monthly revenue from advisory services. See, very specific – he’s got numbers in there, it’s got days and it’s measurable.

One of the five or so objectives they have for this goal was to build an acquisitions infrastructure capable of nationwide marketing and monetizing 100% of opportunities. So how is the success of this objective measured? They have five key results for this, and one of them, for example, was to create a seamless wholesaling process that drives contracts to package in less than three weeks. Then for each of the objectives that they had, there was a projected completion date, as well as a leader that was assigned to that objective.

Overall, when you’re developing a plan, you’ve got your 90 days of education mode, and then you draft your development mode where you’re creating our strategic plan for the, say, three years. You create your three goals for that three years, your objectives for that goals, and then key results to measure those objectives. For each of the objectives, you have a predicted time and completion date, as well as a person who is responsible to achieve that objective.

If you go to the Spartan Invest website, you can find their two-year plan. It is a very long and very detailed PDF. Maybe you’re saying “Well, how to take 90 days to come up with a strategic plan?” Well, if you see their PDF and the level of detail, then you’ll understand. I just give you one example of one objective that they have of one of your goals. Multiply that across three of those, and you understand how they became one of the fastest-growing companies in the nation.

The third tip he gives about becoming the fastest-growing company in the nation is in regards with assembling the team. How to create your team. Before you even go out there and create a team, you need to understand what you’re really good at and what you’re really bad at.

None of this is really new, we’ve talked about it on the show in the past. But kind of just reiterating that hey, this is a company that grew by over 1400%, made the Inc 5000 list, and they’re doing these things. This is one of the top pieces of advice they give. Sure, it’s simple, but in practice, obviously, not everyone is doing this, or everyone would be growing by 1400% every year.

So before you go out there and create your team or find your partner, you need to understand your strengths and your weaknesses. Now, this is something unique. Obviously, you can take your personality tests and you talk to your friends and your family, but Scott’s unique twist is to work with your spouse to figure out what your strengths and weaknesses are. Because they most likely know you as much or if not more than you know yourself, but they’re going to be more objective than you are. I’ve already said during a presentation, I was like, “Oh, I could see how this could spark an argument.” So make sure you don’t get defensive when you ask them, but this is a great way to figure out what you aren’t good at.

Once you figure out your weaknesses and what you aren’t good at, then you know who you need to hire, who you need to partner with, and then who you need to bring on to your team. Now, you don’t want to just hire people who are good at what you’re bad at. That’s only one portion of it, and maybe even the smaller portion of it. The bigger portion of it is that they align with your values. So going all the way back to point number one, which is defining your culture – they need to be a good fit for your culture.

You can teach people certain skills, certain competencies, but you really can’t teach people character. You can’t change someone’s values by hiring them and bringing them into your company. Even if you could, would you really want to have to teach someone to –going back to Spartan’s values–  focus on growth, respect, integrity, tenacity, and transparency? Probably not. It’d be easier to find someone who already has those, and then if need some extra training, that’s totally fine. So character over competency when you’re hiring team members, but both are obviously important.

Assuming that they align with your values, and they have those complementary competencies, the third thing you want to look at is their experience and their track record. This is also kind of unique. I hadn’t heard someone say it quite like this before, but when you’re bringing someone on, you want to evaluate their track record and make sure that they were successful because they have skills and not because they were lucky. Not because they just happened to get into real estate at a time when any deal you bought, as long as you held on to it, was good, or whatever; insert your example of skill versus luck.

Those are the top three things that Scott Lewis of Spartan Investment Group –a company that grew for over 1400% in 2020 and made the Inc 5000 list– said is the reason why his company was able to accomplish all the things that I just said.

In summary, the three points were… Ultimately it all comes down to your team. But more specifically, the three points were to define that culture, which involves the mission statement, the vision, the values. Then developing your plan, so creating those goals based off of your mission, vision, and values. For each of those goals, having a strategic plan on how to achieve those goals, which includes objectives and then further objective key results.

Then, once you have the foundation set with the culture and with a plan, then you can assemble your team. Again, you want to focus on people who align with your values and have complementary skills, not complimentary luck.

Those are the three things. I really recommend going to learn more about this stuff. Go to the Spartan Investment Groups website because, really, everything that I talked about today they have on the website; they have their culture, their plans… I guess not really their team, but the first two points. Especially that number two, the developing your plan. Their strategic plan is very, very detailed, and I therefore recommend checking that out, Spartan Investment Group.

That concludes this episode on the top three ways to become one of the nation’s top companies. Thanks for tuning in. As always, Best Ever listeners, have a Best Ever day. Make sure to check out our other Syndication School episodes at syndicationschool.com, and we’ll talk to you tomorrow.

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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The views and opinions expressed in this podcast are provided for informational purposes only, 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. For more information, go to www.bestevershow.com.

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JF2409: Billion Dollar Investing Lessons From COVID-19 | Syndication School With Theo Hicks

JF2409: Billion Dollar Investing Lessons From COVID-19 | Syndication School With Theo Hicks

In today’s Syndication School episode, Theo Hicks is going to go back to cover some of his favorite presentations at the best ever conference 2020. We’ll be talking about Jillian Helman of Realty Mogul. Realty Mogul has purchased over $2.8 billion in real estate. Jillian provided tips on things you learned managing a large portfolio during COVID.

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To listen to other Syndication School series about the “How To’s” of apartment syndications and to download your FREE document, visit SyndicationSchool.com. Thank you for listening and I will talk to you tomorrow.


TRANSCRIPTION

Theo Hicks: Hi, Best Ever listeners. Welcome back to another episode of the Syndication School series, where we focus on the how-tos of apartment syndication. As always, I’m your host Theo Hicks. Today, we’re going to go back to cover some of my favorite presentations at the Best Ever conference 2020. A few weeks ago we covered one speaker, today we’re going to cover the second speaker. Today we’ll be talking about Jilliene Helman of RealtyMogul. RealtyMogul has purchased over 2.8 billion dollars in real estate. Not sure if that’s how much they have under management currently or total, but regardless, a massive portfolio.

During her presentation, she provided tips on things she learned managing such a large portfolio during COVID. These lessons really apply to any economic recession, most of them apply to any economic recession. The examples, obviously, are pretty COVID specific. But the theme you’ll notice from a lot of these tips is that about half of this stuff is done before an economic recession even happens.

That’s kind of a theme that I’ve learned from interviewing hundreds of people on this show, is that the people who are successful, or at the very least maintain their business during economic recessions, are the people – which kind of brings us into lesson number one from Jilliene – play the defense before the economic crisis even occurred, rather than once it actually occurred. Making the proper preparations before an economic crisis occurs is really the most important takeaway that she had and I’ve personally gotten as well from, as I mentioned, interviewing people on this show.

The single most important defensive tactic thing you can do to prepare is to make sure that you’re underwriting conservative. So again, this lesson is play defense before an economic crisis, not during. So you don’t want to only be conservative during economic crises, or during recessions. You don’t want to be conservative when you’re looking to buy deals when the market is not doing very well; you want to always be conservative. If you find a deal, no matter what time of the  market cycle we’re in, and it doesn’t meet your investment criteria, don’t adjust the numbers to make your work. It seems simple, but it’s not that easy to follow in practice. For example, don’t make aggressive revenue growth assumptions based on historical trends, like five-year average rent growth, or the five-year projected rent growth… Because some of these markets were growing 5% to 10% in rent every single year. So if you bought a deal, say in 2019, assumed that rents would continue to grow by 5% to 10% for the next five years, and you underwrite that in your deal, and based your purchase price on that rent growth assumption… Well, since rents actually dropped by about 0.1% a year into the pandemic, they drop 0.1% or increased 0.1% – anyway, basically no rent growth at all –  well, that deal is probably not doing very well. Whereas if you made a conservative rent growth assumption of say 2%, and even if rent didn’t grow, you’re in a much better spot than you were if you assumed rent will grow by even more.

Similarly, cap rate assumptions –  we talked about this on the show a lot… Making sure that you’re not assuming the market is better at sale than at purchase… Because again, if that doesn’t happen, you’re in a bad spot. So this is kind of the main example of what ways you can do aggressive underwriting. We’ll go over a couple of other ones a little bit later on, but the whole point here is that be conservative with your investments during times of economic expansion. That way, you are able to maintain or still do well during recessions.

Two other defensive tactics – she talked about the property management company. We’ve got plenty of episodes on how to find property management companies, information on when to bring them in-house… I’m not going to talk about that one too much.

Break: [00:04:59][00:06:05]

Theo Hicks: [unintelligible [06:05] interesting, making sure that you’re having open conversations with your lenders during a period of economic expansion. Don’t only communicate with them when you need to get a loan. Think of ways to stay in contact with them, stay top of mind with them, as well as make sure that you set expectations for what happens when a recession happens. That way, when a recession does happen, you’re able to still get loans, you’re still able to get them to answer the phone if you need to, say, delay a payment or something. You want to have them on your side before the crisis occurs, because then once a recession happens, everyone’s calling their lender. So that’s lesson number one.

Lesson number two is also her lesson from 2019, which is the conference presentation in 2019, which is that the pro forma is always wrong. So when I did the underwriting series, we talked about how you don’t want to trust the listing brokers pro forma; you can use it as a guide, but ultimately you want your underwriting assumptions to come from the actual T12, the actual rent roll, and then conversations you have with your management company to determine exactly how the property will operate. Not exactly, but assumptions about how the property will operate after acquisitions. So obviously, that pro forma is always wrong. But what Jilliene is saying is that your pro forma is also always going to be wrong. So you underwrite your deal and you’re really making some pretty high-level assumptions on your pro forma, on your income and expense statement… And then once you’ve actually gotten the property under contract and you’re doing your due diligence, then you can confirm some of your assumptions, you can adjust some of your assumptions, but there’s always going to be unknowns, which means that your pro forma is never going to be 100% accurate. So in order to account for the fact that that it’s not going to be accurate, then you need to have some buffer room.

She gives four examples of ways that you can, again, prepare yourself for the pro forma not being right. If the pro forma is right or pro forma is better, then you’re fine; you’re actually going to exceed your projections. But if your pro forma is incorrect in the wrong direction, then you want to make sure you have these buffers in place.

The first example – we’ve talked about this, having a contingency budget. Jilliene recommends 10%. We’ve talked about 15% in the past, so 10% to 15% is a solid number. For example, if you expect to invest about $10,000 per unit in renovations, then you want to also include a contingency budget of at least $1,000. Assume it’s going to cost $11,000 per unit; have that $1,000 buffer. Because at the end of the day, if you don’t use that money, it’s not like it disappears; it’s not like you no longer have access to that money that you raised.

The second is to scale back the number of units you expect to renovate and lease. It’s a big one during a pandemic. She talked about this a little bit, one of the things that they did was stop doing renovations. So if you assume that you’re going to renovate 20 units a month, what happens if a recession hits? It’s going to be zero per month, or five per month, or 10 per month; the demand for those goes down [unintelligible [00:09:15].00] your cash reserves. Well, you assumed that you would renovate units faster, which means that your income would increase faster, which means your return would increase faster… And since that’s not the case when you had a super fast timeline, you might not be able to hit your returns.

She didn’t give any specifics on this, but my advice would be to stick to a timeline that your property management company and whoever is doing the renovations. So if your property management company does renovations, then make sure that they are in agreeance with that timeline, and maybe make it a little bit longer too. So a six to a 12-month timeline where you’re doing 20 to 25 units a month probably isn’t the best idea. Probably under 10 is more realistic.

The third example is going to be — we kind of talked about this earlier, it’s assuming an exit cap rate that is 1% greater than the cap rate at purchase. This means that you’re assuming the market is worse at sale than at buy. 1% is pretty high; we usually recommend 0.1% per year, but still, 1% is a really solid conservative assumption. If the deal still makes sense, if the cap rate goes up by 1%, then it’s a really good deal.

The fourth thing that you’re going to want to do is make sure you’re doing sensitivity analysis. When you do a sensitivity analysis, you’ll vary certain metrics on your underwriting model and see how it affects the returns. The two factors that Jilliene talks about were vacancy and bad debt. So all else being equal, if a vacancy goes up by 1%, 2%, 3%, 4%, 5%, or more, or it goes down by a similar number, how does that affect the overall returns to investors? Same with bad debt – bad debt goes way up because you have a lot of skips and evictions during a recession; how does that impact your return? So a 2% bad debt, 3%, 4%, 5%, bad debt. It’s a function on Excel that you can do and you could do this for really any data points you want – cap rates, rental premiums… So kind of just pick a few of these metrics that are impacted by recessions and then shoot them up really high and see how that impacts your returns.

Something that is common now is the base case and then an upside and a downside case. So three different cases with three different metrics saying, “Hey, here’s what we think is going to happen, but here’s what we want to have happen, and the stuff that’s possible to have happen. But also, here’s something else that we wouldn’t want to have happen, and it’s also possible to happen, and here’s how the returns would be affected.”

Those first two lessons are the longest ones, and they are the ones that are done before a recession happens. Once the recession hits, you really can’t do any of those things. You can’t change your underwriting or your pro forma; all you can really do is take a look at these next four lessons.

Lesson number three, once a recession does hit, is to take a breath and be deliberate. Even if you’ve done a bunch of preparations before a recession, it still might be a stressful experience. So it’s very important to relax. When you relax, also use that energy, rather than stress out, to focus on what your priorities need to be. Once you know what those are, focus on them.

Jilliene said that for her properties, obviously, the health and the safety of the residents and her team was important, but on the operational side, keeping up occupancy and shoring up cash reserves were her two main priorities. They came together and determined what they needed to do in order to make sure that they could focus on these two priorities. So occupancy stayed up and they could shore up their cash reserves, so they stopped renovating units, they stopped increasing rents, and they stopped all non-essential repairs to accomplish those two tasks. So not spending money on renovations or repairs to shore up cash reserves, not increasing the rents in order to attract more people to the property. So calm down when these things hit, and then make sure you’re figuring out exactly what you need to do in order to, in this case, keep your occupancy up, make sure you have cash reserves.

Lesson number four is don’t be afraid to innovate. Don’t be afraid to make changes. Whenever really any economic crisis or recession occurs, you’re most likely going to need to make some quick adjustments and quick changes to your asset management strategies, and your acquisition strategies, the type of properties you buy. The faster you can make these changes, the better off you’re going to be. More specifically, to this most recent COVID pandemic-induced recession, a lot of the changes and innovations [unintelligible [00:13:52].27] the way that units were shown; a lot of people began ramping up their virtual tours, their self-guided tours. I think last week, I actually did an episode on some ways to use new technology in multifamily investing, that are currently being used and are kind of on the horizon. We’re not going to focus on this one too much, but the whole point here is that if you have an idea or see an idea that might help you overcome any operational challenges during the recession, don’t be afraid to test that and see if it works.

This brings us into lesson number five, which is to do experiments and test the market. As you’re innovating and making changes, make sure you’re doing experiments to make sure that your innovation actually works, rather than just doing it blindly and then not tracking its results.

For example, Jilliene started doing these virtual tours, realized that the conversion rates she was seeing was higher than the in-person tours she was doing with a leasing agent, so now they’re focusing — I’m not sure if it’s exclusively, but they doubled down on virtual tours, which obviously saves them money as well, plus accomplishes the safety aspect of it too. So don’t be afraid to innovate, that’s lesson number four, but make sure you’re testing these innovations, and then double-downing on what works, and then stopping what doesn’t work.

The last lesson Jilliene learned was to be a stellar communicator. We talked about this a lot on the show. We were talking about, really, the main reason why people are going to invest with you is that they trust you. Ways to create trust is through transparent communication; it’s one of the ways. So making sure that you’re providing consistent updates on the deals, proactively addressing the issues with solutions… So that’s essentially exactly what Jilliene said.

There’s something else that you probably want to do leading up to recession is to always be a good communicator, but it’s not necessary or 100% before, because you might not have a lot of investors reaching out to you when things are going great, when you’re hitting their distributions, and [unintelligible [00:15:54].09] on time. If they’re happy, they might not be reaching out. However, even if your distributions aren’t impacted by a recession, they’re still able to hit the same frequency and amount, you’re still most likely going to have more investors reaching out and feeling concerned about the recession. “What does it mean for the investment? I know I’m making the same distributions now, but what are your future expectations?” Or if you do the pullback on distributions, when’s it going to go back to normal? Are you still going to buy a property? Do you plan on selling? Things like that. So obviously, again, before recessions it makes sense to communicate, but it’s even more important to do so during a recession. Consistent communication is going to be key here.

For Jilliene, they transitioned from doing quarterly updates to monthly updates. In these updates, rather than kind of going over just the operations, they talked about any operational challenges that they had, like dips in occupancy or collections, and then specifically what steps they were taking to proactively address these operational challenges. And also expressing their availability to their investors to answer any questions or concerns that they might have.

In summary for that one, you want to be a stellar communicator just in general, but it’s really, really important to do so during these economic recessions. So increasing the frequency of your communications, proactively addressing any issues you have, already bringing solutions and already having those solutions in place or at least in progress, and then letting them know that you’re here if they wanna talk.

In summary, the six lessons that Jilliene Helman of RealtyMogul, $2.8 billion worth of real estate, learned during COVID was, number one, make sure you’re playing defense before an economic crisis, not during an economic crisis. Lesson number two, the pro forma is always wrong. Lesson number three, take a deep breath and deliberate. Lesson number four, don’t be afraid to innovate. Lesson number five, do experiments and test the market. And lesson number six, be a stellar communicator.

That concludes this episode. We do have a lot of other blog posts related to COVID. We have 25 as of this recording. If you go to joefairless.com and go to our blog topics, you can go to that Coronavirus category and take a look at some blog posts we have on this pandemic. But we also have obviously all the other Syndication School episodes we’ve done so far and all the free documents we’ve given away. Those are always available for free at syndicationschool.com. That ends this episode. Thanks for tuning in. As always, Best Ever listeners, have a Best Ever day and we’ll talk to you tomorrow.

 

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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The views and opinions expressed in this podcast are provided for informational purposes only, 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. For more information, go to www.bestevershow.com.

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HOW TO INCREASE YOUR APARTMENT'S NOI

JF2402: How to Increase Your Apartment’s NOI | Syndication School With Theo Hicks

In today’s Syndication School episode, Theo Hicks, shares about ways to use technology to improve your multifamily investments. This is based on a great blog post that one of our contributors Veena Jetti. She wrote a really good blog post on how we can use technology to improve the experience of our residents at our multifamily investments and improve the amount of money we can generate and turn them into money we can distribute to investors.

To listen to other Syndication School series about the “How To’s” of apartment syndications and to download your FREE document, visit SyndicationSchool.com.

Click here for more info on groundbreaker.co


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners, and welcome back to another episode of the Syndication School series, a free resource focused on the how-to’s of apartment syndication. As always, I’m your host, Theo Hicks, and today we’re going to be talking about ways to use technology to improve your multi-family investments. This is based off of a great blog post that one of our contributors, Veena Jetti posted [unintelligible [00:04:09].24] episode won’t air for a couple of months, but she wrote a really good blog post on how we can use technology to improve the experience of our residents at our multifamily investments, and in turn, improve the amount of money we can generate, and in turn, the amount of money we can distribute to our investors.

Obviously, the concept of the smart house isn’t new. I remember way back in the day that Disney Channel movie, I think it was called Smart House. They had that smart house where they’d press a couple of buttons and it made them a smoothie. We’re not there yet, but we are seeing, on the single-family homes side, a lot of smart houses, and then since there’s been a pretty big increase in the number of households renting. This is moving to multifamily as well.

So a couple of interesting statistics to start off – there’s a report in Statistica that says that more than 33% of homes in the US have at least one form of smart home technology. This number is projected to grow to more than 50% by the end of 2023, so nearly double.

When we look at the revenue generated, the revenue generated from smart home technology was 27.24 billion in 2019 and is projected to go up to 44.79 billion by the end of 2023. So a big industry. As I mentioned, traditionally you’d see this for wealthy homeowners of single-family homes, but now we’re moving more towards seeing smart technology in multifamily. This trend is only being accelerated with the pandemic. Other statistics that are interesting –to kind of, again, bring the point home that this is a trend that’s not going away– is that there is a study that shows that more than 86% of millennials who –from my understanding, they are the largest population group at the moment– wants smart apartments that are well equipped with high-tech gadgets. Even the boomers, the baby boomer generation also like smart apartments or smart homes, with 65% of baby boomers wanting smart apartments.

Now that we kind of set the stage as to why it is that people want these smart home/smart apartment technologies, as well as showing that this is a trend that’s not going away, we have a couple of ways you can utilize technology in your multifamily apartment. So we’re going to go over four ways today.

The first would be VR and AR, which are augmented reality and virtual reality. I interviewed someone who is a VP at apartments.com, and one of the most important things that he said we need to do with our listings is basically making the listing on apartments.com so that someone can rent the home without actually having to go to that home. That would be this VR/AR type experience, where the resident can learn everything they need to know about the specific unit they’re going to rent without having to leave their home. This is a trend that was occurring before the pandemic and is even more relevant today with the pandemic.

This means making sure you have those 3D tours available for your apartment listings. What this VP at apartments.com said, and I kind of already mentioned, is that you don’t just want a generic 3D rendering or VR/AR experience for any random unit, you want to make it as customizable as possible. So you want this to be the actual unit they’re going to rent, or at least the same type of unit that they are going to rent. The more customizable, the better.

From an AR perspective, it looks like there is some technology where you can go to, say, an apartment model unit, or maybe you’re touring the amenities or something, you can hold your phone up to certain areas and it will give you information on that amenity or how much it costs to rent a carport, to rent a storage locker. So when you’re walking around the apartment community, you can kind of hold your phone around, like that Pokemon Go game, and see information and prices of various aspects of the community. I’m sure there are companies out there that specialize in this, and it’s understanding that these are the types of things that residents want to see, and it being very competitive right now, this is a great way for your property to stand out against all the others.

The second use of technology would be AI, artificial intelligence. Obviously, this starts with Google Home and Alexa features, those being you offering those in your apartments. But it can get even more sophisticated than this. One example would be using AI for identity verification. Think of it like an airport; at the airport, rather than having to slowly go through the entire line, and give your driver’s license, and they look at your face, using AI and facial recognition to scan that person’s face to increase that process.

The same thing can be used is being used at apartments now, with facial recognition used to verify guests. So rather than waiting in line at the gate, giving over your ID, typing a code, you can just scan the face – boom, you’re ready to go. Same with the service person, not having to wait at the gate; they can go straight in. Same with coming in and out of the building depending on the type of apartment complex. That’s just one example of how AI is being used in apartments, is that identity verification to make going in and out of properties more efficient.

Number three –this one’s pretty obvious, but I still wanted to mention it– would be the smart spaces in general. So having as much smart technology as possible in the apartment unit and throughout the apartment community. This allows for more cost savings for you, better security for your residents, and then better customer satisfaction, in general; expedite maintenance, turnaround, things like that.

Some examples would be smart lighting, smart thermostat, [unintelligible [00:10:43].12] that you can hook up to your cell phone, Smart Lock, the same thing with a cell phone or fingerprint, various security devices, smart entertainment systems, other automated systems… These are things that don’t require me to actually go and manually do something, but automated on the phone, or in some other form or fashion. Lots of examples of that out there. This is probably the most dominant use of technology at the moment would be smart spaces.

And then the fourth way – this one’s kind of interesting – is utilizing blockchain for your multi-family home. This is something that according to Veena is going to be a pretty big game-changer in multifamily and real estate in the future. So this is the record-keeping technology that is applied to Bitcoin investing. It can be used to tackle really any problems using instant and verifiable transaction recording. Once information is stored on a blockchain or a chain, then it is fully accessible and stored forever. The accessibility is much faster compared to traditional methods. So what does this mean? Well, this will allow you to speed up the leasing process, all the various fees that are required to lease a unit, and also increase the speed at which rent payments are made. As I mentioned, this is going to be a pretty big game-changer moving forward, and maybe something you want to look into now.

So overall, these are just a couple of ways that technology is being used in multifamily homes. There is a lot more technology out there that is being used now, as well as more technology that is going to come in the future. Just make sure you’re staying up to date on the various technologies that are coming out, even if they’re not necessarily directly for multifamily. Maybe this could even be a potential business opportunity in addition to your apartment syndication.

I remember at my first job out of college, in the same building we were in was the office for — it wasn’t DocuSign, but it was one of the other eSign companies. It was just some guy who wrote the code himself, created the company, and sold it for millions of dollars. I can’t remember exactly what he was doing at the time, but that was something that he came up on his own and actually created a business. So once you see these various technologies out there, or can think of a technology and applying it to real estate, it could be very profitable, is my point.

There are a lot of benefits to these technologies, as I mentioned. A few would be that there is improved sustainability, which is not just a function of minimizing the environmental footprint of the building, but it is underlined in the significant reduction of costs. It can be things like lighting, cooling, and heating. Also, you can get real-time data that can provide you and your property management companies with faster insights into what’s going on at your property, which allows you to identify any issues faster and solve those problems faster, reducing waste, improving efficiency, reducing costs. There’s also replacing certain manual aspects of the apartment with automated aspects; you can also reduce costs from having to replace broken light switches and things like that, as well as anything that might go wrong with that appliance that negatively impacts a tenant and legal issues that might arise from that, which is also another way you can save costs.

Finally, and what may be most important, is that these are going to make your residents happy. You’ve got 86% of millennials who want smart gadgets, 65% of baby boomers want smart gadgets, and the generations in between are probably in between those two percentages. Gen Z is probably even higher than 86%. So people want these things, so you’re going to get the benefit of the cost savings, as well as the satisfaction from your residents.

Overall, just keep in mind that you residents want technology, that technology is not going away, and that it can help you reduce costs, ultimately increase your NOI, the value of the property, the cash flow to your investors. So thinking of ways to use technology to improve the experience of your residence is important. It’s going to happen eventually anyway, so why not be one of the first to get ahead of the game to separate yourself from the competition.

For more details on how to use technology to improve your multifamily business, you can check out the blog post Four Ways to Use Technology to Improve Your Multifamily Investments at joefairless.com. If you have any ideas that you’ve seen on the horizon, or if you’re utilizing smart technology at your apartment, I’d love to hear about it. So email me at theo@joefairless.com. I’m always interested in how various technologies are being used to improve really anything, but obviously, we’re in real estate, and so I’m interested in that as well. So theo@joefairless.com.

That will conclude this episode, thanks for tuning in. Make sure you check out some of the other Syndication School episodes, as well as download a lot of the free documents we have available as well. That is at syndicationschool.com. Thank you for listening. Have a Best Ever day and we’ll talk to you tomorrow.

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.

Oral Disclaimer

The views and opinions expressed in this podcast are provided for informational purposes only, 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. For more information, go to www.bestevershow.com.

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JF2401: Grow A High-Income Portfolio with Zach Haptonstall

JF2401: Grow A High-Income Portfolio with Zach Haptonstall

Zach is the CEO & Co-Founder of Rise48 Equity, an experienced Multifamily Apartment investor, #1 Best Selling Author of “Success Habits of Super Achievers,” and the Host & Founder of The Phoenix Multifamily Association. His passion for providing knowledge about financial freedom inspires him to provide passive income opportunities for investors and alike to use their time for more meaningful events such as spending time with families. Currently, he has now 420 units across five properties in Phoenix, Mesa, and Scottsdale worth over $48MM. In today’s episode, Zach will be going into details about his journey and challenges as a Multifamily Apartment investor and his advice on how he got to where he is today.

Zach Haptonstall Real Estate Background:

  • Founder & President of ZH Multifamily
  • He is lead sponsor, general partner, and equity owner of  over $35,000,000 worth of commercial real estate apartment buildings
  • Portfolio consists of 308 units
  • Based in Scottsdale, AZ
  • Say hi to him at: www.ZHMultifamily.com  

Click here for more info on groundbreaker.co

Best Ever Tweet:

“As a passive investor, build your presence and get to know your market while investing with people who are local as they are familiar like you.” – Zach Haptonstall


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, Zach Haptonstall. Zach is joining us from Scottsdale, Arizona. Zach is the lead sponsor, general partner, and equity owner of over $35 million worth of commercial real estate. His portfolio consists of 308 units. Before we get started, Zach, can you tell us a little bit more about your background and what you’re focused on now?

Zach Haptonstall: Yeah, thanks so much, Ash. I appreciate the opportunity to be on the show. This is actually my second time being on the Joe Fairless show, so it’s always a pleasure circling back with you guys.

I was born and raised here in Phoenix, pretty much lived here my entire life. I had different stints in journalism and healthcare, where I did well and was fortunate, but it wasn’t really my passion. So a few years ago in 2018, I basically went all-in on real estate, and we’ve been very blessed just in the last 24 months. Here in the Phoenix market we’ve actually acquired about 90 million worth of apartment buildings and about 700 units. We have another 110 million under contract, another 600 units. So in the next three to four months, and we’re recording this now beginning of March 2021 – in the next three to four months we should double our portfolio and have over 200 million. So basically, the biggest thing, Ash, is I was just looking for passive income. I worked in health care, it was very hectic, always working crazy hours, and I was looking for passive income. So now that I’ve been able to break into this and develop passive income, my passion is really trying to provide passive income opportunities for other investors, and provide that financial freedom so that they can start to ease out of their job, or cut back, and have more disposable income for doing things for their family. So that’s really what we’re focused on now, is really just serving our investors.

Ash Patel: Alright hold on, my head’s spinning. 2018 wasn’t that long ago, and… 90 million dollars. Tell me the details of that journey.

Zach Haptonstall: I was working in hospice care, I was a co-owner of a hospice organization and a director of marketing. I got burnt-out, so in January of ’18, Ash, I resigned and I sold my equity in that company. I had no idea what I was going to do, I just knew I wanted to create passive income somehow, and get control back of my time. So I lived off of savings for about 14 or 15 months. I made no money through all of 2018, and I didn’t have any connections, no family, money, nobody in real estate. I just started reading books, listening to podcasts like this one, going to conferences, and I discovered multifamily and syndication and decided “This is what I want to do.” So 14 months went by since I quit my job and we closed our first deal. It was a long 14 months, burning through savings, going through the grind, the adversity.

So we bought that first deal 24 months ago, and since then we’ve been fortunate to gain a lot of momentum and been able to scale up and continue to syndicate more and more deals. It was really just a matter of just constantly grinding, networking, leveraging my past network, and then more so just going to conferences and being on podcast things like this, that really helped to grow the business.

Ash Patel: Zach, what was that first deal?

Zach Haptonstall: Good question. It was a 36-unit, it was about three and a half a million, so it was a smaller deal; our plan was to syndicate it. My partner Robert and I each had 25,000 non-refundable in earnest money. We tried to syndicate; we were going to investors and nobody wants to invest, because they don’t know us, we have no background. I go “Crap, we better figure this out.” So I’m just calling all these people I had met at conferences, and we had one lady, her name is Elisa Zang – she did a 1031 exchange and we ended up doing a tenant in common, which is not syndication, it’s a little bit different structure; similar to like a JV. But anyway, that first deal there was just a small handful of us, and we put our own money in the deal. We really wanted to learn the business plan and learn how to execute a value-add plan.

So we did well… We sold that deal in 21 months, almost doubled our money, it went very well. It gave us a lot of momentum, experience and confidence to now start to syndicate, take investor money, leverage their money, and grow their money for them, which we’ve been able to do. So it’s been a good development.

Ash Patel: Your first deal, did you not look at doing something that you could take down yourself? You purposely went out and found a potential syndication deal?

Zach Haptonstall: That’s a good question, Ash, because when I quit the job and I said “Okay, I want to go into real estate” I didn’t know anything about syndication. I didn’t know what the word meant, never heard of it, I didn’t know what it meant in this context anyway. I didn’t know about multifamily. I was looking at mobile home parks. I cold-called over 90 mobile home park owners, trying to buy one on a seller carry with my own money. So that was my mindset. But when I started to learn about scale, and syndication, and leverage, I realized I have this much money, I don’t want to put it all into one deal, because then I’m done; I can’t continue to scale.

So, yeah, to answer your question, I wanted to go bigger and I wanted to partner with other people so that I could put my money to work. That was my goal, to put myself in an uncomfortable situation and a scary situation, so that I’m forced to push my comfort zone.

Ash Patel: So three and a half-million dollars for 36 units. Give me more details on that, please. Was it a value-add property? Was it fully leased? Was it in the greater Phoenix area?

Zach Haptonstall: Good question. Yeah, it was in the Central West Phoenix area, right across the street from Grand Canyon University, for those of the listeners who are familiar. 36 units, it was 26 two-bedrooms, and 10 three-bedrooms, so a great unit mix. It was a value-add deal. This was like a late 60s build, but it didn’t have a chiller and it was individually metered for electricity, which was nice. So our plan was to go in there and do exterior and interior renovation. We actually put all new roofs on all the buildings, we did new exterior paint, we recoated the parking lot, we put new LED lighting on the exterior, we put new exterior cameras.

On the interiors, we renovated 26 of the 36 units. So depending on the flooring, we did new vinyl flooring, some of it had good tiles so we left it, we did new countertops, we painted the cabinets, did two-tone paint, new black appliances… This is really a workforce housing type of deal, that was our demographic. That’s most of our deals; we’re doing workforce affordable housing, but we go in there and improve the exterior and interior. It was a great value-add deal; we bought it for 95,000 a door, and we sold it 21 months later for 148,000 a door. It was a quick turn, and that’s just because, again, we were able to improve it, increase the rents which increased the value, and then sell it for that margin for us to make a good profit.

Ash Patel: That’s a great return for your investors. What are some of the challenges with that Phoenix, Scottsdale area?

Zach Haptonstall: In my opinion – I’m obviously biased, but if you look at national context Fundamental Statistics, Phoenix is the strongest –in my opinion– market in the country. When you look at population growth, number one now for the past few years. Job growth is number two behind Dallas. Rent growth has been number one, depending on which index you look at. So it’s extremely hot, it’s extremely competitive; prices continue to go up as they do nationally, cap rates continue to compress… So the big challenge is trying to find deals that make sense and that pencil. We’ve been able to really develop our advantage with the broker relationships.

The first four deals that we acquired in 2019, Ash, there was no secret – they were on the market, we had to compete, go through a best and final process, and we won them. And through that process, I was able to form very strong relationships with the brokers.

For those listeners who are newer, or maybe you’re passive investors, the brokers in any market pretty much control the market. Most of your deal flow is going to come through there. It’s how we get 100% of our deal flow, through the brokers. So through those four acquisitions, we established rapport, credibility, confidence with those brokers, so that now our last three acquisitions have been completely off-market, no competition; we were the only group. We have five deals under contract, like I said, which equals 110 million; we’re close to getting a sixth. These five deals are all completely off-market; no competition. We are probably getting the first look or probably within a group of three to five groups, getting that first look on almost every deal between 15 to 40 million in the Phoenix market, which is really our sweet spot for value-add.

So basically, to answer your question, the competition is tough; to find the deals that make sense is tough. It’s a needle in the haystack. So we’ve been fortunate that we’re active, we’re in front of the brokers constantly, we’re local, so we can act quickly, and we can strike quickly on these deals. That’s what gives us an advantage.

Ash Patel: I’ve seen amazingly low cap rates in Phoenix. What kind of cap rates are you buying these multifamily units for?

Zach Haptonstall: Right now, as of March 2021, this is a four to a four and a quarter cap market. A lot of people think “That’s crazy. Why would you do that? You’re overpaying.” I understand, a four cap is low and it sounds low. But you have to understand the dynamics of the market and these deals. Most people need to realize a cap rate is a fraction; the cap rate is the net operating income divided by the purchase price. When we’re buying a deal, that might be a four cap here in Phoenix, we’re looking at a lot of different factors. In order for our deals to pencil, we of course have to have the value-add upside, where we can go in and we know that we can renovate units, renovate the exterior, increase the rents. That’s a given, we have to have that element for it to work. But in addition to that, we also have to have what we call loss to lease, meaning that the rents are currently below market. So the current rents at the property are already below market, meaning that if that lease expires, then I can renew that lease right now, without doing anything to the unit, and immediately increase it anywhere from $50 to sometimes $200. We’re looking at the loss to lease plus value-add.

There are other components too, which I’ll get into. But when you have those things, you have to realize that these cap rates may be artificially deflated. If their net operating income is very low, because they’re 85% occupied, or half of their tenant base has rents that are below market, that’s going to make your cap rate very low. And because of the market, you’re going to pay the market price per door.

I personally secret shop all the comps. So I drive to all the comparable properties, I walk in there, I get the rents, I tour them, I get the square footage, the price per square foot amenities, what do their finishes look like… So what we do is we say, “Okay, we’re going to take this property to this finish.” Meaning new interior floors, new quartz countertops, new cabinet doors, LED lighting, etc, everything interior. When I’m shopping comps, we’re looking for deals that have that same interior finish, and we’re looking to see what rent they’re achieving.

When we’re projecting our pro forma rents, we’re saying, “Okay, we’ve already seen in the market, in this immediate area. We can achieve these renovations.” And that’s what we’re modeling to take it to. We might buy a deal at a four cap, Ash, but within a year or two, that deal could easily be a six or a seven cap, because we’ve immediately started to push up that NOI. That’s where the returns really start to become lucrative for the investors, which is our goal. So yeah, cap rates are always an important discussion, but you have to understand the market and what’s going in the cap rate.

Ash Patel: Zach, the secret shopping – do you do that posing as a tenant?

Zach Haptonstall: It’s a good question. So initially, when I first started, I was acting like a tenant. I would say, “Hey, my wife and I are looking for this. What do you have?” And I’d go on tour. But I started asking all these questions like, “Is this a chiller or individual HVAC? What are your RUBS or utility costs?” They kind of look at you funny, like why would a tenant be asking these things?

So about a year ago, I was talking to another experienced syndicator. He’s like, “Just tell them you’re buying a deal down the street.” That’s what I do now; for the most part, I’ll just go in there and say, “Hey, I’m Zach with Rise48 Equity, we’re buying an apartment down the street. Is it okay if I ask some questions? I’m trying to do a market survey.” Surprisingly, most property managers are totally fine with it. They’re used to getting calls for market surveys and things like that, and they’re fine to tour you.

Ash Patel: What kind of debt are you putting on these loans? Or what kind of debt are you putting on these properties, rather?

Zach Haptonstall: Good question. So we have a blend of agency and bridge financing. We’ve done seven agency loans, which were all Freddie Mac. In regards to agency, for this market the best loan product is a Freddie Mac floating rate, as opposed to a fixed rate. The reason for that is we have a couple of deals that are fixed-rate, meaning your interest rate does not change over the 10-year term. However, Freddie Mac really nails you on the back end with the prepayment penalty, known as yield maintenance or defeasance. So we actually have deals right now that we could sell in less than 24 months and achieve a 2x multiple for investors, but we cannot sell them right now because our yield maintenance is so high; that’s the fixed rate.

The floating rate means that your interest rate is floating over an index, depending on the loan, LIBOR or SOFR, just depending. What you do is you buy a cap. You buy a cap so that the interest rate cannot go above that. The appeal of the floating rate is that after 12 months, you can sell the property and you only have a 1% prepayment penalty for a Freddie floater. That’s our ideal agency product.

The other product that we’re doing is bridge loans. A bridge loan means that the lender is financing your rehab dollars, and you have a lower debt service coverage ratio requirement, which is important. We have a couple of deals under contract right now that we’re doing these bridge loans on, and the bridge loan terms right now are just amazing, Ash. These are three-year terms with two one-year extensions. So it’s a three plus one plus one, so three to five years. Three years of interest only, non-recourse; we’re getting 75% LTV, and we’re getting 100% of our cap-ex financed. And our interest rate, we’re getting quoted at a 3.4% to 3.5% interest rate for a bridge loan.

The idea with these is to go in, do your value-add in year one or year two, and then in year two or year three you can either sell it, or you can do a refinance, return a big chunk of capital back to investors, and then refinance into an agency loan, a 10-year term, hold it, and continue to cash flow.

Ash Patel: What kind of down payments are you having to put down on these?

Zach Haptonstall: Typically, we’re around anywhere from 25% to 35% would be the max. So 25% to 35%. We’re looking at 65% to 75% LTV, loan to value.

Ash Patel: What’s the difference between a 25 and a 35%? down? What determines that?

Zach Haptonstall: It really just depends on how the property is performing. So you have what’s called a DSCR, which stands for debt service coverage ratio. For easy math, I’ll say it this way – an agency like Freddie Mac, they require typically (in this market anyway; this is considered a standard market) they consider what’s called a 1.25 debt service coverage ratio. What that means is that if your monthly mortgage, for easy math, is $100, then the property needs to be producing at least $125 per month.

When you have a higher debt service coverage ratio, you can get a higher number of loan proceeds. Whereas if you’re not producing a lot of NOI, then you’re going to be limited. For an agency loan, you can be in the 60% LTV, meaning you could be 30% plus downpayment. That’s what makes it tough in a market like Phoenix, because it’s getting so expensive, that a lot of these loans are debt service restrained, because you’re paying X amount of price for a property that needs to have some type of renovation done in order to skyrocket the NOI. Whereas with the bridge loan, they have lower debt service coverage ratio requirements, and they’re designed for these renovations, going in there, renovating it, quickly increasing the value, and then selling or refi’ing it. It really just depends on the purchase price that you’re paying into the NOI, Ash, and that’ll determine what your down payment will be and how much loan proceeds you can get.

Ash Patel: Earlier, Zach, you mentioned that the prepayment penalty is significant. What are those prepayment penalties?

Zach Haptonstall: It’s a good question. Yield maintenance is a very tough calculation. I could not even tell you how to calculate it right now. It’s basically a number that’s tied to the LIBOR index. And as interest rates go down, which everybody expects them to continue to stay low for the next few years, your yield maintenance or defeasance prepay will go up. Yield maintenance basically means that Freddie Mac, whatever their yield was going to be or whatever they’re going to make over a 10-year term, they’re going to make that from you regardless of how long you own it.

Ash Patel: That’s a significant penalty.

Zach Haptonstall: It’s a significant penalty. To give you an idea, we have a deal, Villa Serene. We bought it for 17.5 million back in 2019, 18 months now. Right now, our prepaid penalty if you want to sell it is 3 million bucks. It’s insane. So we are basically waiting until the third quarter, so we can keep pushing the value up to get our purchase price high enough to absorb that prepay and still get our investors at least a 1.8 to 2x multiple in about two years… Which is still going to blow the projections out of the water, because typically we underwrite for five years. We’re going to do very well on those two deals, don’t get me wrong. We’re going to hit a 2x probably within 30 months or less on both of those. But if we didn’t have that yield maintenance, and if we were more experienced in the beginning, we could have achieved that probably in 18 months. So going forward, we’re not doing any more of that fixed-rate yield maintenance; we’re doing the floating rate, which is simply, you have what’s called a 12-month lockout, you cannot sell the property for 12 months after buying it, and then after that, it’s only a 1% prepayment penalty on the loan, which is very minimal. So that’s agency, Ash.

For these bridge loans, what we’re seeing is that the bridge loans will allow you to sell at any point. You could buy it and sell it six months later. Their prepay penalty is also very friendly to us. It’s simply 18 months of interest. Whatever they would have made over the first 18 months in interest, you have to just pay that to them. If you hold it for six months, and you sell it, then you have to pay them 12 months of interest as your prepayment penalty. So it’s not bad at all. In a growth market like Phoenix, you want to have flexible prepay, so that you have flexible exit plans, depending on what you want to do, whether that’s a refi or a sale.

Ash Patel: And how long do you lock your rates in for? Or are all of them floating?

Zach Haptonstall: If you do the fixed-rate, it’s locked in for 10 years with Freddie Mac. That’s the fixed-rate loan; but that has the nasty prepay with the yield maintenance. That’s where they get you, because people are like, “Oh, I want to guarantee my interest rate. I can model that out.” With a floating rate agency and a bridge loan – they’re both interest rates that float over an index. But you buy what’s called a cap. So you’re buying a cap, it’s typically depending on the deal – 20 to 40 grand, you underwrite it into the deal into the model, and that’s paid at closing. So basically, your interest rate will not exceed that amount. So that’s how that works.

Ash Patel: Okay. What’s been your biggest challenge with scaling your business?

Zach Haptonstall: I think the biggest challenge right now is keeping the cost of construction and materials down. In Phoenix, there’s just a lack of supply, for example, of stainless steel appliances, and we’re doing stainless steel appliances in most of our renovations. So in a couple of months here, we’re going to be doing at least 30 to 40 units a month, we’re going to be renovating, across our portfolio. We’ll own about 1,300 to 1,400 units and a few months… And that’s our biggest thing, is making sure that our supply chains are in good shape. We can get appliances and all the other materials – flooring, countertop, cabinets, etc. we can get them on time and on a budget for the supply chain. In addition to that, making sure that our construction crews are renovating on schedule, and are staying under budget. We’ve really been extremely conservative with our renovation budgets by building in a lot of contingency and a lot of cushion. We’re telling our construction crews, “This is your budget”, when internally, we might have two or three grand per unit on top of that, just in case they go over.

That’s really the biggest challenge when you’re scaling and you’re doing value-add – you have to be renovating units, you have to be adding value to the property by renovating it. And labor continues to go up, things like that. So we’re always wary of that, we’re very conservative when we stress test our deals with these models, so that we can make sure we’re staying on schedule and on budget.

Ash Patel: So, Zach, historically low cap rates, historically low interest rates – does that come into play? Does that worry you that if something changes in the market, you’re holding a tremendous amount of assets and you may not be able to dispose of them the way you had hoped?

Zach Haptonstall: It’s definitely a good question and it’s a valid question. We’re always concerned about that and we always keep that in mind. That’s why we have such a conservative stress test for these deals. We’re extremely conservative. In our model, we’re saying that we’re going to hold each deal for five years, and exit in year five or year six. In our model, we’re assuming that right after we buy the deal, there’s going to be a recession or an economic downturn. We’re assuming that rent growth is going to drastically decrease, that vacancy is going to increase, and that expenses are going to increase. And if the deal still pencils and meets that stress test, then we’ll do the deal. Because in our model, we’re assuming that there’s going to be a recession right after we buy it. We can execute our business plan, hold through the recession, sell in year five or year six, and achieve those returns… When in reality, we’ve been blowing those numbers out of the water and selling 18 to 24 months, and matching or exceeding the return we were telling investors over five years.

So you just have to be conservative. You can’t get too aggressive with these deals and with the underwriting; you can’t get caught up in it. We have not won a marketed deal on the market, Ash, in 18 months. August 2018 was the last one we even won a deal. We keep getting second and third place because, in our model, we cannot go to the purchase price that these other groups are paying. They’re getting bid-up on the market, these best and final bidding processes. Just like I said, in a few months when we close these deals, it’ll be our last eight acquisitions were all completely off-market with no competition. That’s probably the main reason they actually work, because we’re not getting bid-up on the price.

Ash Patel: And what are some of the different ways you’re finding these off-market deals?

Zach Haptonstall: It’s all broker relationships, 100%. The brokers that we performed with were probably in the top one to three groups for the top four to five brokers. So we’re getting a first look at a lot of these deals. We perform with the brokers, they know that we can execute, and they bring us the deal. When they have a good deal, they bring it to us first. They say, “Hey, what do you think?” and we act quickly. I cannot stress the importance of acting quickly.

There’s been a few deals just in the last month or two, that it was us and like two other groups. But the other groups – one was in Canada, for example, the other one was in California. Well, you call me – I’ll get out there right now. I’ll be there in an hour to tour the asset. I’ll go shop the comps for the rest of the afternoon. We’ll get a CoStar report, we’ll get a debt quote from our lender the next day, we’ll fully underwrite it, and we’ll be able to make an offer within 24 hours, and we’ll pounce on it.

There was a deal we won four weeks ago, where the group offered around 500k more than us, but we just beat them to the punch. We toured it, we underwrote it, we made the offer sooner, and we already have accepted LOI by the time they were getting ready to schedule their tour. So it was too late for them.

Ash Patel: That first-mover advantage is a real thing. What else do you do to nurture the relationships with the brokers, other than moving fast?

Zach Haptonstall: Good question, Ash. So let’s say you’re newer… And this is what I had to do. In the beginning, I didn’t know any brokers; I’m a younger guy, I was terrified, and I was intimidated by the brokers. You get nervous, because you feel like you don’t belong or do you feel like you’re wasting their time… And you have to remove all that from your mind. So if you’re trying to get into this, then you need to understand that these brokers – they want to tour the deals, because they want to show their seller that they’re getting a lot of volume and a lot of activity. So what I do all the time, – I do this regularly; I just did it last week – if there’s a broker you haven’t talked to in a while, or maybe you’ve never met them, and you know that they’re one of the top brokers, you need to go to the websites of all these brokers… Like CBRE, NorthMarq, Berkadia, Marcus, and Millichap – all these top national broker companies, go to their website, they usually have something where you can sign up for their deals. You can put in your market, whatever… They’ll send you all the marketing deals that they have, and you’re going to start seeing a blast of these deals. Then you need to start calling or emailing these brokers and say, “Hey, I’m so and so; this is our background, this is our business plan. Can I tour?” What I do, Ash, is I constantly crank tours with brokers. I’ll tour deals that I have no interest in buying. I know it’s a crappy deal in a crappy area, but I’ll look through the offering memorandum of the broker, I’ll get some familiarity, and I’ll show up – and I always look professional, I always wear a tie; I’m not saying you have to do that, but that’s what I do. I always look professional, I have a notebook, and my partner and I will go through and tour this asset. We’ll be taking pictures – deals that we don’t even care about, we’ll act like we care. I’ll even ask hypothetical questions to demonstrate my knowledge of the asset, so that the broker knows that “Hey, these guys look legit. They came in, they understood, they look prepared.”

Then a day or two later, I’ll get back to the broker and I’ll just be like “Hey, Mr. Broker, thanks for the tour. I really appreciate it. It was great to see you again. We’re going to pass on this one; we can’t get to your price because of these reasons.” And you give them feedback, that’s all they want. You have to understand, these brokers, 99% of the time, hear “No”, constantly. They’re just trying to get a commission, they have no guarantee check. So you have to constantly crank the volume with them, stay in front of them, and just give them good feedback, so that they don’t feel like they’re wasting their time. If you tell a broker “no” within a day or two and you give them a good reason, then he’s going to be a lot happier than if you just never hear from you again. Because he’s going to be like, “Well, that guy’s not serious. I’m not going to waste my time sending him the deal.”

So I’m constantly staying in front of the brokers, and as I’m walking the property I’m just trying to feel them out. I’ll talk about our criteria like, “Hey, we’re looking for 15 to 40 million dollar deals, with value-add, in these areas, 80’s build.”

And if I’m interested in the deal, then I use that time to try to kind of get into their mind of how I can get an advantage. I’ll usually do the entire tour, learn about the property etc, and then as we’re done walking into the office or the parking lot, I’ll just start to say like, “Okay, so what do you think for terms, Mr. Broker? How much earnest money? Do you think they’re going to be open to a 10-day inspection or 14 days? What does it take to win it? What’s the process?” Things like that. So you just establish that rapport. And yes, I make a point of regularly touring deals with brokers, simply to stay in front of them and then stay on top of their minds.

Ash Patel: Very interesting. I love it. Zach, what’s your Best Ever real estate investing advice?

Zach Haptonstall: Oh, the Best Ever real estate investing advice… That’s a tough one, Ash. I think that you need to understand the market. If you’re a passive investor, I think you need to invest with people who are local. I know a lot of people are not local; I’m not saying you can’t succeed, but I think if you’re getting into it, maybe it’s a new sponsor for you, or you’re not familiar with it… I think being local and investing with somebody who has experience in that market is very critical, because for every investor that’s investing in Texas and they live in Florida, and they’re doing well, I can tell you about five investors who are in a different state, and they’re not doing well. Because they simply don’t have proximity and they don’t have the market knowledge. I think it’s very important to have some type of presence in the market and also invest with somebody who has experience in the market.

Ash Patel: Good advice. Zach, are you ready for the lightning round?

Zach Haptonstall: I’m ready, Ash. Let’s do it.

Ash Patel: Good. First, a quick word from our partners.

Break: [00:30:40][00:31:02]

Ash Patel: Zach, what’s the Best Ever book you recently read?

Zach Haptonstall: I just finished it; it’s like the second time in the last few weeks, and I’m going to read it again. It’s called How to Own Your Own Mind by Napoleon Hill. He’s the guy who wrote How to Think and Grow Rich. This is more of an expansion on those principles, and it goes pretty deep. He’s interviewing Andrew Carnegie, the steel industry tycoon. I think the book was written in the 1920’s, or 30’s, or something, but it’s very interesting. I do audiobooks, Ash. I listen to books when I’m at the gym. But it’s very interesting how a lot of the things he’s saying – and it’s almost been 100 years now – are very relevant. You wouldn’t know that it’s old or outdated. I like that book.

Ash Patel: What was your biggest takeaway from that book?

Zach Haptonstall: There are a couple of things. I think this is a pretty common theme in books that are self-help books. It’s about visualizing what you want to do and then taking the action to achieve it. So How to Own Your Own Mind by Napoleon Hill is all about action and how over the generations and the centuries, there is a formula. If you can envision it, be positive, be determined, take action. That’s the best lesson.

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

Zach Haptonstall: The Best Ever I like to give back… We’ve done How to Feed your Starving Children, I helped with that and donating. We help out at our church. Grace and I want to go on a mission. We were going to do it last year and then COVID hit… And that’s a big thing. As far as the real estate context, I’m always happy to help new people who are trying to get into it, because I went through the grind and I know how hard it is. So I’m always happy to share any of my contacts. I have a truly abundance mindset, so I don’t view people as competition. I’m all about competition, healthy competition. So I like to just give back; people always call me just to kind of pick my brain and I try to help them on their journey.

Ash Patel: Yeah, that’s a great outlook. Zach, how can the Best Ever listeners reach out to you?

Zach Haptonstall: Yeah, you can just go to our website, it’s rise48equity.com. You can email me at zach@rise48equity.com. If you go to our website, you can set up a call with me. If you’re a passive investor looking to invest in deals, I’m happy to educate you on this market and establish a relationship. If you’re trying to get into it on the active GP side, I’m happy to give you any advice, tips, or resources that I have. So yeah, go to the website or email me and we’ll get back to you quickly.

Ash Patel: Zach, thank you for being on the show today. You’ve got a great story. In just a few short years you’ve used some great tactics to take down a huge portfolio. I loved the secret shopper program, the relationship-building with the brokers… You’ve accomplished a lot since 2018. So thank you again for sharing all of your advice and have a Best Ever day.

Zach Haptonstall: Thanks so much, Ash. I really appreciate the time.

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JF2395: How to Manage Your Property Management Company | Syndication School with Theo Hicks

JF2395: How to Manage Your Property Management Company | Syndication School with Theo Hicks

Theo Hicks dives deep into the themes of property management. Ensure that prior to hiring, you ask the right questions. Set expectations upfront with your management company in making sure they can accomplish the job AND have the willingness to accomplish it.

Theo unpacks the five points in dealing with property management: How often do you want to interact with the management company? What types of reports do you want to receive from them? In what form would you want to receive these reports? What metrics should you be looking at? What other things can excellent asset managers do? Listen to this episode as Theo sheds a light onto these compelling questions!

Weekly Performance Review Spreadsheet: https://www.dropbox.com/s/j17v0ib4euafbo0/Weekly%20Performance%20Review%20Template.xlsx?dl=0

Click here for more info on groundbreaker.co


TRANSCRIPTION

Theo Hicks: Hello Best Ever listeners and welcome back to another episode of the Syndication School series, a free resource focused on the how-to’s of apartment indications. I’m your host, Theo Hicks. In the last Syndication School episode, we talked about when to bring your property management company in-house and some of the pros and cons of that. We’re going to continue on the theme of property management company today, and talk about how to manage your property manager.

As a GP, whether the proper management company is in-house or a third party, one of your main responsibilities is to oversee them, to manage them. You aren’t going to be doing the property management duties of actually helping residents sign leases and show units, but you’re responsible for making sure that the property management company is doing those things. So I wanted to do an episode, that I thought I’d done before, but it must have slipped through the cracks, to talk about some of the best practices for managing your property management company, after you’ve acquired a deal and have assumed your position as the asset manager. We’re going to go over five questions to think about.

A theme you’ll see here is that a lot of these management duties, overseeing the management company will go a lot smoother if you set proper expectations upfront, rather than once the property is closed on, management takes over, you explain to them exactly what you want them to do, make sure that before you’re going to hire them, during this screening process, you’re asking them the right questions to make sure that they’re able to do what you need them to do after they’ve taken over management. So what are these things that you want them to do? We’ll go over that in a second.

The theme you’ll see between all of these five questions or five points is that you need to set expectations upfront with a management company and make sure that they’re actually able to accomplish these things and are willing to accomplish these things. As I mentioned in the episode about in house management, setting expectations and having the management company do what you need them to do, implement your business plan to your liking – obviously, a third party can do that but you can get more out of in-house, because it is your management company. You’re in control of that management company, as opposed to overseeing or working with a separate company.

The first question to think about when you’re managing your property management company is how often do you want to interact with the management company? Ideally, you’re going to have weekly calls with your management company. Some people might do it every two weeks; I doubt anyone does it every month, but maybe they do. I’m sure in smaller deals or smaller portfolios it might be a once a month, “Okay, is all the rent collected? Good. Okay, I’ll talk to you next month.” But for larger apartment syndication deals, the ideal is at least once a week. Especially if you’re doing a value-add type deal, or an opportunistic deal, or a deal that involves some sort of renovation to the property, then you’re going to want to maybe even have more frequent communication with your property management company. And then once the asset is stabilized, maybe you can move just to strictly weekly calls, or every two weeks… Again, maybe monthly, but I don’t think that’s probably a good idea… Or as needed. But the idea is that you want to have frequent conversations with your management company.

So again, when you’re having those original conversations, you want to make sure that they’re willing and able to speak with you that often, or however often you want to speak with them, so that you can stay on top of what they’re doing. Because during these calls, these are going to be weekly performance calls, where you’re talking to at least the onsite manager. Ideally, if you’re working with a third party, the regional manager is on this call as well, and it’s going to be, as it implies, going over the performance of the apartment over the past week. You’re going to most likely be reviewing various property reports and them any key performance indicators or KPIs that you like to track.

Which brings us into number two, which is what are these reports? What types of reports do you want to get from your property management company in order to manage them adequately and to make sure they’re doing what they’re supposed to be doing?

The main reports that your investors are going to see are not going to be the same as the reports that you are going to want to see. So like I said, for every single report that you get your management company to your investors, the best practice would be a T12 and a rent-roll. But I’m just going to go through some examples of reports that you might want to consider getting from your management company and reviewing during these weekly performance calls.

The first would be the box score; this is a summary — it might be called something different, but box score is the common jargon. It’s a summary of the leasing activity. It will include how many people moved in that week? How many moved out? What’s the occupancy status for the unit? How many are vacant, but already leased? How many are vacant but not leased? How many are vacant and not least but they’re ready to be leased? How many notices have you received [unintelligible [09:00] notice but no lease? Model units, down, other use… So just a breakdown of how all the units are being used. That’s going to be the box score.

Next, you’re going to see the occupancy reports. So this would be the physical occupancy, as well as the economic occupancy. Ideally, those are broken apart, so you know what’s the rate of occupied units, and also the rate of paying tenants of those occupied units. So collection rate, basically.

Occupancy forecasts, so what’s the projected occupancy based off of the future occupancy statuses. So in that box score, you’ll see these vacant units, but they’re also already leased. So they’re vacant now, but 30 days from now, we expect them to be leased. So our future occupancy is higher than our occupancy now. So you want to know that as well.

Then there’s a delinquency report. So this will be a list of all the residents who are delinquent on their rent, and what the amount of the delinquency is. This is probably something that is super important right now, going through the pandemic and eviction moratorium to people not paying rents.

The leasing reports – this is a summary of any leasing activity. How much traffic did they get to the property? How that traffic turned into leases. Any concessions given on those leases? How much money has been spent on marketing?

The next would be accounts payable. This would be a summary of the money that you still owe to vendors. This is going to include the money owed to the management company. This is important because there’s another report that says “Here’s how much money we brought in this month”, but doesn’t actually show all the money that still needs to go out. So that might be a misrepresentation of how the operations are performing at the property.

There’s a cash on hand report, so how much money is actually in these accounts. We have income and expense statements. This is your T12 breakdown of the income and expenses, and then compared to the projections, ideally. So ideally, they’ll add at the end of this report — so it would be each month broken down if you’ve owned the property for a year. So it’ll be a 12-month breakdown, 12 columns and then the 13th column will be the total, and ideally, the 14th column would have the projections, and then the last column would be the projections minus the actuals. That way you can see exactly how the property is performing, compared to what your projections were.

A couple of other reports – deposits, a summary of the security deposit information. You’ve got a general ledger, a summary of all financial transactions. Your balance sheet, which is a summary of assets, liabilities, and capital. Trial balance, a summary of all debts and credits. Rent roll – we’ve talked about that in this episode; this is one of the things we send to your investors. The exploration report – this is a summary of all the expiring leases. And then maintenance reports – a summary of maintenance issues and cost.

So these are things that we’re going to want to go over; maybe don’t look at the cash-on-hand report every single week, but the box score, occupancy, delinquency – a lot of things are important to know right away. Because if something were to be off, if you’re not in constant communication with your management company, constantly reviewing the reports, then you’re not going to catch the issue until a couple of weeks after it started. So that’s income lost, and then you might need to identify what is actually the problem. Maybe it involves firing people, bringing on new people… So the earlier you can catch these issues, the better. What’s even better is to catch them before they even happen. To do so, you want to make sure that you’re in constant communication with your management company and constantly reviewing the relevant reports with your management company.

Before you do any of that, you need to make sure you’re setting proper expectations with your management company, before you actually bring them on to manage your asset. Because if they’re not willing or able to provide you with these reports, not willing to get on the phone with you and talk through the reports with you, then you might actually be in trouble. It doesn’t mean the deal is automatically going to fail, but you’re not necessarily setting yourself up for success.

The third thing to think about is how do you actually get these reports. There are really two approaches. Number one, that the management company has a software. When you’re working with big unit numbers, most likely that management company you’re working with is going to have software that can pull these custom reports for you, to say, “Hey, I want a box score, I want to see the rent roll, and the T 12. A list of all the deposits, the balance sheet, lease reports,” and those reports that you want. “Can you email those to me once a week? I want these ones weekly, and these ones every two weeks, and these every month.” Then they will set that up in their system so that it automatically generates a report for you once the information has been input. When the week comes, you’d have the report in your email.

Another approach would be to actually have access to their management software; that way, not only can you pull these reports yourself, you don’t have to wait on the management company but you can also look at them whenever you want. So if you want to look at them every day, then you can look at them every single day, or probably even twice a day, three times a day. If you have access to their software, then you can very easily do that and see the metrics or data immediately after it’s been inputted.

Now, if you’re not working with a management company that has this software or if you don’t like the way the reports look, then you can create your own custom spreadsheet, and then send that to your management company upfront and say, “Hey, each week can you fill this out and send this back to me?” We’ve got an example spreadsheet that we’ve provided for free on this show before. It’s the weekly performance review tracker. I’ll make sure that I include that link to download that file in the show notes of this episode as well.

The fourth thing to think about is what metrics should I be looking at? I’ve got all these different reports, those will be analyzed every week. So a natural question will be which reports are the most important or which metrics are the most important? I’ve already mentioned one, and that would be the T12. So how the cash flow, how the income, how the expenses, the net operating income – how does that compare to your pro forma when you originally underwrote the deal and presented a deal to your investors? So you’re going to want to look at that.

So basically, just go down that variance column and any massive variance between what you projected and what’s happening needs to be looked at and focused on. So when you’re having these conversations with your management company, “Okay, let’s bring up the T12. Oh, it looks like our maintenance expenses are way higher this month than any other month. What happened? Is this a one-off event, or it is something that is more habitual that we need to address?” So just kind of focus on anything that has a really high variance.

Something else to think about, especially for value-add business plans, are going to be any renovation-related metric. The number of units that have been renovated relative to your forecasted timeline. If you’ve got 100 units and you expected to renovate all 100 units in 10 months, then you’ll need to be doing 10 units a month. If you’re halfway home, and it’s been five months, and you’ve only renovated 10 units, obviously, there is a problem.

Also, what rental premiums are being demanded based off of those newly renovated units? How does that compared to your projections? If you projected a $100 rental premium, and you’re only getting a $50 annual premium, what’s happening? Is it the management company’s fault? Was it your fault for making too high of an assumption? Did something happen in the market? Maybe marketing’s not right. But the whole point is identifying the problem and then working with your management company to understand what’s causing this problem and then what the solution is going to be.

Other metrics like leasing metrics, cap-ex costs, total income – these may vary from your projections during the first portion of your business plan. For example, the total income may be lower than forecasted after owning the asset for three months, because a lot of people move out once you buy the property and they see that “Oh, they’re making improvements. My rents are going to go up, so I’m going to get out of here now while I still have the chance.”

Or maybe you spend a larger amount of your cap-ex budget upfront because you’re ahead of schedule. Some of these metrics during the value-add portion of the business plan are going to be different than the forecasts. So upfront, these metrics of rental premiums, how fast you’re renovating, are more important than later on in the business plan, these leasing metrics, total income, and things like that. Those are more important than renovations, because renovations are already done.

Other metrics to think about and track that may be the cause of a high variance would be your turnover rate, so how quickly are people leaving. Economic occupancy, average days to lease is a good one, revenue growth, traffic, evictions, leasing ratios, and other metrics from the report that I’ve outlined below. So basically say, “Okay, the most important thing is that I’m hitting my projections. So what metrics should I be looking at that will result in a high variance between my projected and actual income and expenses?” So overall, pick the best strategies to track the variance on the income and expense reports, and then strategize with your management company to figure out any causes of high variance, and then come up with the solutions.

The last thing to think about would be what are some other things that really good asset managers do. First and foremost, I would say it’s looking at the management company as your partner. Since they are your partner, screen them as if they were a partner. Don’t screen them like you’re hiring someone to fix your toilet. They’re not necessarily like a vendor. They might be a third party, but you need to think of them as a partner. So ask the questions like, are they someone that I would want to work with for a long time? Does their track record speak for itself? What are the tenants saying about them? And how professional are they when they’re speaking with tenants? A way to find this out is to roleplay. Find out what other properties they’re managing in the area, go there, and act like you are wanting to lease a unit and see how they treat you. Are they willing to change if needed? Are they saying “I’m only going to do this. If you need me to do something else, I’m not going to do it.” Do the employees like working for the company? Are they engaged in social media? What is their web presence? Things like that.

Think of them as a partner. The best asset managers always look ahead. This kind of comes back to thinking of a management company as your partner. Don’t think about how good they’re going to be today, or in a month from now, or maybe in a year from now, but it is someone that I would want to work with indefinitely? If not, maybe I won’t consider working with them. And even though they are your partner, make sure you’re watching them like a hawk. This is one of the reasons why we do the weekly reviews, to make sure you’re always on top of what they’re doing.

A lot of people, especially on podcasts and stuff, focus on the frontend activities, the sexy activities like finding deals, sourcing capital. A lot of people focus on whether to create an LLC or not. But less people focus on the backend activities, what do you do once the deal is actually closed on, which is the longest part of the business plan, which is asset management.

A lot of the success of your company can be based off of how well you’re able to manage your assets and scale. A lot of this is going to be dependent on the property management company and their staff. So make sure you’re on top of them, make sure you’re watching them and paying attention to them like the success and the health of your business depends on it, because it really does. Obviously, if things don’t work out, don’t be afraid to fire them. I think we’ll focus on that on the next Syndication School episode, “When do I fire my management company and how do I do that?”

Another best practice to make sure you’re staying on top of your management company is to go to the property. You can see their reports, but management companies lie sometimes, or a certain staff member might be misrepresenting a report, and the site manager doesn’t even know about it. So you might think that the property is doing really well and occupancy is great, but when you go to the property you realize that that’s not the case. So trust, but verify; go to the property at least once a month. If you’re investing out of state, find someone local to go around with a GoPro on their head, on their car, and drive the property, or just invest the money and make a trip and go out there yourself. Meet with the team, meet with a few residents, drive the property, make sure everything’s operating properly.

Overall, how to manage a property management company – set up frequent calls with your management company, starting with at least weekly calls. Request the proper weekly and monthly reports to see how well or poorly the property management company is implementing your business plan. Track the most relevant KPIs like cashflow variance, number of units renovated, rent premiums, anything that would impact that cash flow variance. Make sure you properly screen the management company upfront, thinking of them as a partner and continuously evaluate their performance, and then make sure you visit the property in person to make sure that the reports match the reality, or trust but verify.

That concludes this episode. Thank you for tuning in. Make sure you check out some of the other Syndication School episodes, as well as download some of the free documents we have available. Those are at syndicationschool.com. Thank you for listening. Have a Best Ever day and we’ll talk to you tomorrow.

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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The views and opinions expressed in this podcast are provided for informational purposes only, 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. For more information, go to www.bestevershow.com.

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JF2388: Why and When to bring apartment property management in-house | Syndication School With Theo Hicks

In today’s Syndication School episode, Theo Hicks talks about why and when to bring apartment property management in-house. He will be basing this episode on the presentation given by the founder of Ashcroft capital Frank Roessler at the Best Ever Conference 2021.

To listen to other Syndication School series about the “How To’s” of apartment syndications and to download your FREE document, visit SyndicationSchool.com. Thank you for listening!

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TRANSCRIPTION

Theo Hicks: Hello Best Ever listeners and welcome to The Best Real Estate Investing Advice Ever Show. I’m Theo Hicks, and today is Syndication School, where we focus on the how-to’s of apartment syndication. This episode will be focusing on in-house property management; more specifically, as the title implies, why and when to bring apartment property management in-house. This episode we based on the presentation given by the founder of Ashcroft Capital, Frank Roessler, at the Best Ever conference 2021. I really liked his presentation and the information he provided, and I thought it’d be very relevant to our listeners. We will be going over his points today. Of course, I will be adding my thoughts to those as well.

We’ve done a lot of episodes in the past on property management – how to find them, how to qualify them, when to fire them, how to manage them, and that is usually focusing on third-party property management. A company that is completely separate from your apartments syndication business. Maybe it’s just a couple of people, or maybe it’s a national organization with tens of thousands of employees. But either way, the distinguishing factor of third-party management is that it’s third-party. It’s not you, it’s not anyone that is in your actual company, or it’s not your company that you own; it is completely separate and run by someone else.

Whereas the other option would be in-house property management, which as the name implies, is a property management company that you own, that you are in charge of, that works for your apartment syndication company. Today we’re going to talk about, as I mentioned, why would you want to transition from third-party management to in-house property management, or why would you want to use in-house property management over third-party property management from the get-go? So that will be the why. And then the when would be, well, two different times – right away, or once you achieve scale. We’ll talk about the pros and cons of the timing of bringing property management in-house.

One thing that Frank said that I really liked – he said, “I can say this and then I can probably end my presentation here. The only reason why you’re going to bring property management in-house is to improve the performance of your apartment portfolio.” You’re not bringing property management in-house in order to make money, to generate a profit, to save money on a property management fee. That’s not the main reason why you do it. It is also possible that bringing property management in-house will result in a loss. The property management company itself operating at a loss.

So again, the purpose of bringing property management in-house is to improve the overall performance of the apartments that you own. The reason why is because by using an in-house property management company as opposed to a third-party can result in higher quality service to both you, your residents, marketing; they will do faster unit turnovers, more training opportunities for your staff, you can attract top talent… There are all these potential benefits that can come from it being your company. But the keyword here is that these are potential benefits, so you have to make sure that by bringing property management in-house, you can do all these things better than a third-party. If you can’t, then there’s no reason to use in-house property management, because in that sense, you’re going to get a worse service, which is not going to allow you to maximize profits.

One distinction before we move on to the next point is that the property management company itself might potentially operate at a loss; it’s not always going to operate a loss. It might not be a massive loss, and it might break even. However, other aspects of the performance of the apartments are going to improve. So overall you’re going to make more money, it’s just that the property management company itself is not going to be a cash cow for you. The money is going to come from the improvements in the operations of the asset. That’s something important to keep in mind.

So of course, you’re going to be making more money by bringing management in-house, but the actual company itself is not going to be making money. So again, that’s the main reason or probably the only reason why you bring management in-house, it works better.

Now, one of the main reasons why it works better is because there’s a greater alignment of interests between you and the in-house property management. Just think about how a traditional third-party property manager makes money. It’s either $1 per unit per year, which is not really standard; what’s more standard would be the percentage of the collected revenue, also known as fee-based management. There’s a better alignment of interests with fee-based management compared to a per unit per year management, because at least with fee-based management if the revenue goes to zero, then they make no money at all. However, there is still a lacking in alignment of interests, and a third-party property management company is not really incentivized to maximize revenue.

Here’s a perfect example to illustrate that. Let’s say you’ve got a property management company that charges the 3% property management fee, and you have a property that generates $100,000 per month in total revenue. 30% of that goes to the management company, so the management company will make $3,000 per month. Now, let’s say that you asked the product management company to increase the revenue by 25%. So they work really hard over the next year to increase revenue by 25%. The revenue increases to $125,000 per month, which is a massive increase in the value of the property, and a massive increase in the returns to you and your investors. However, there’s not really a massive increase to the property management company, because they only make another $750 per month. So again, that increase of 25% is a lot more impactful to your company than it is to the property management company. So if it is your company that is the property management company, they’re way more incentivized to actually increase the revenue by, say, 25% in this example, because you are their top priority. Whereas for property management companies that are third-party, the way that it works is they just want to manage a bunch of properties. They don’t usescale to make money. So if they lose you, if you ask them, “Hey, can you increase my revenue at 25%?” Like, “No, I don’t think so. We’ll drop you.” Well, they lose three grand a month; they probably work with 100 other operators. Whereas if it’s your in-house brand management company, you better believe that they’re going to focus on doing what you ask them to do, because you own them, you’re in charge of them. So that’s one of the reasons why it could result in improvement in the performance of the property.

The third reason why you’d bring property management in-house is because it improves communication. So what this means is that traditionally, when you’re working with a third-party property management company, or really any property management company, you want to be tracking the important metrics or the KPIs, key performance indicators, of the property. We’ve done an episode in the past on those KPIs, and we talked about how to be the Best Ever asset manager. Now, this is going to be just one example, but let’s say you want to receive KPIs every single day from your product management company. Well, if it’s a third-party management company, they might have their standard SOP for how they deal with KPIs; maybe they only send them once a week, or maybe they only send them every two weeks or every month. Whereas if you have your in-house property management company, from the get-go you say “Hey, we want daily reports at the end of the day.” “No problem.” Whereas again, the third-party management company might not be able to do that.

Something else that’s also going to be good here is that you’ll get more up-to-date, more speedily communications from your property management company. Because again, they are yours; you are their sole priority, as opposed to the third-party property management company which is working with a lot of different operators.

Let’s say you’re working on your emails to your investors, rather than the property management company maybe sending you a snapshot of the data you need once a month, that is out of date by a couple of weeks by the time they send you emails, you can work with your management company to get the information for occupancy collections that exact day.

Also, the improvement in communications allows you to check the status of your business plan a lot faster, which means you are able to catch any problems or any variances a lot faster, as well as make adjustments to the business plan when those challenges actually arise. So those are the three reasons why you bring property management in-house.

Now, when do you do this? As I mentioned at the beginning of this episode, the two times that you can bring property management in house is day one. The second you close on that apartment community, the property management company that takes over is an in-house management company. Or you can wait until you achieve scale and have thousands of units. There are pros and cons to each of these.

Let’s start with the pros of bringing property management in-house on day one. The biggest benefit is that there are no disruptions. So transitioning from a third-party property management to in-house property management is a pretty big process. I mean, transitioning from one third-party property management company to another is a big deal on the property itself. Transitioning over all the new people, terminating contracts, having them take over, any sort of relationship tensions between the new and the old management company… There are lots of problems just taking over the property in general, when it’s already up and running.  It’s kind of similar to transitioning from the old property management company from the old owner to the new owner… But there’s also big disruption with you and your business, because you have to create the company before you actually have a deal.

So in this case, when you don’t have a property yet, you can create your property management company and then transition over to this new property… Whereas when you have a scale already, you’ve got this massive portfolio you’re working on. At the same time, you’re working on creating a brand new business at the exact same time, so that might impact the way that you are able to focus on your current portfolio. Of course, there’s a major disruption to the residence as well, maybe operations within the new management company taking over a large portfolio, whereas again, no property exists yet, and so there’s no operation or residence to really disrupt.

The other pro or other benefit would be a smaller overhead. When you don’t have a property yet, the team you’re creating is not very big; it might just be you and a site manager, and then that’s it, and then leasing staff, which is not going to be that expensive. Whereas when you’re building out an entire property management company that needs to be able to manage thousands of units, you’re gonna need actual executives, directors, presidents, and managers that are going to probably be making low six figures. And you need to create all this infrastructure before the property management company is even making any money, before it actually takes over the portfolio. Whereas again, from day one it’s just you and maybe a couple of other people, really small overhead, not that expensive and not that time-consuming.

Going back to the disruption, by creating a full-fledged property management company that’s going to be able to manage thousands of units – it is going to take some time, as well as money. So those are really the two benefits of bringing property management in-house on day one – zero disruptions and smaller overhead.

Now, however, I think (whatever I’m going to say next) that the benefits of bringing in property management in-house when you have to scale far outweighs the potential drawbacks of the disruption. Because again, the disruption kind of happens anyway when you buy a property, and your new property management company takes over, which is usually why operations are known to not perform as well in the first few months after operations because of the new management. And of course, the smaller overhead is a money issue. But again, you’re not doing this for money, you’re doing this for an increase in performance.

This brings us to the first major pro of bringing property management in-house when you achieve scale, and that is the ability to attract top talent. If you don’t have a property, then that one site manager and a couple of leasing staff people that you’re going to attract, to use in-house management day one – they’re not going to be the best of the best. Whereas if you have a portfolio that’s a billion dollars or a hundred million dollars, the top management professionals and even business professionals are going to be proactively reaching out to you to work with your company to create a brand new company that will manage thousands of units. They can’t wait to be involved in creating a business plan and then implementing that business plan when they’ve worked for a massive corporation and just kind of had to follow the SOP of that company for the longest time.

So you’re going to  have a lot more difficulty attracting the best of the best when you only have one property for your management company to manage. And then with attracting top talent will come the ability for you to implement the best practices starting from day one after you’ve achieved scale and brought management in-house. Because you have that top talent who has years of experience managing apartments for the best property management institutions in the country, they’ll have a lot of knowledge on the market, hopefully… And because of all of this, they’re going to bring their expertise to your portfolio, which will allow you to implement the best practices immediately in order to improve operations… As opposed to bringing them in-house on day one, not really having the best talent, and having to train them yourself or having them learn on your dime. So you really need that track record and have that large portfolio of properties in order to attract that top talent; and once you attract that top talent, then you will, by default, have the best property management practices implemented at your property.

Now the other benefit, as I kind of mentioned earlier, of bringing it in-house, after your achieve scale, is that there is a possibility that you generate a profit, or at least you break even. Whereas if you only have one apartment, there’s zero chance you’re going to be able to cover the costs of a full-time site manager, a full-time property manager, or regional manager, a full-time team member with one apartment. You’re going to operate at a loss for a while until you achieve scale. So again, why not just wait until you scale in order to bring management in-house. This is something I’m kind of biased towards in-house, but I wanted to present to you the different benefits of each, bringing it in immediately or bring it in once you’ve achieved scale.

So overall, the main reason why you bring property management in-house is to improve the operations of your apartment portfolio. The other benefit is that it will increase the alignment of interests, because you’re the top priority, and it will improve the communications between you and your management company.

The two options of when to bring management house would be day one, or once you have achieved scale. We mentioned that the benefits of bringing them in on day one would be no disruptions and smaller overhead… Whereas the benefits of bringing them in once you’ve achieved scale is your ability to attract that top talent, which in turn allows you to implement the best practices, which in turn may allow you to start with a profit margin.

But either way, the main thing you should be thinking about is “Should I bring property management in-house? When I should I bring property management in-house? Will this allow me to improve operations at my property? Can I do property management better than a third-party manager at this particular time?” If the answer is no, then don’t bring it in-house. If the answer is yes, then bring it in-house, whether it’s immediately, or when you’ve achieved scale.

That will conclude this episode of the why and when to bring apartment property management in-house. Make sure you check out our other Syndication School episodes. We also provide a lot of free documents with Syndication School, those are at syndicationschool.com. Thank you for listening. Have a Best Ever day and we’ll talk to you tomorrow.

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.

Oral Disclaimer

The views and opinions expressed in this podcast are provided for informational purposes only, 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. For more information, go to www.bestevershow.com.

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JF2381: Introducing Ash Patel, The New Podcast Host, With Theo Hicks

In today’s episode, Theo Hicks introduces a new host of the Best Real Estate Investing Advice Ever podcast show, Ash Patel. His background is in IT, and he stumbled upon the world of real estate because of the tax advantages.

In 2011, he purchased his first property, a mixed-use building. Pretty quickly he noticed that the commercial part of the building required way less involvement on his side, while the residential apartments always needed additional investment of time and money. From then on, his biggest focus was on acquiring more commercial properties.

Ash has a wide span of qualifications. He does his own property management, chases his deals, and invests in bigger projects with Joe. He is a great addition to the podcast, so be sure to check the interviews he’ll be doing!

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TRANSCRIPTION

Theo Hicks: Hello Best Ever listeners and welcome to another episode of the Syndication School Series, a free resource focused on the how-to’s of apartment syndication. As always, I’m your host, Theo Hicks. Well, today we’re doing something a little bit different. We are going to be officially introducing our new host on The Best Real Estate Investing Advice Ever Show, and that is Ash Patel who is joining me today. Ash, how’s it going?

Ash Patel: Theo, great. Thanks for the welcome.

Theo Hicks: No problem. So moving forward, a few changes to the podcast. I’ll be focused on Syndication School, Actively Passive with Travis, and then we’ll be doing a new series. It’ll be a wrap-up series where we go back through some of the older commercial real estate investing-focused podcasts and extract some of the Best Ever advice from those. Then, as the title implies, mashing them all up into one episode with a theme.

Then for the actual interviews where we talk to guests, that will be exclusively Ash moving forward. So we wanted to have a conversation with Ash, bring him on Syndication School, just to get to know a little bit more about him and his background, and why he is the right person for the job. So Ash, maybe start off by giving us a quick bio on who you are and how you’re involved in real estate investing.

Ash Patel: First, big shoes to fill, following in your footsteps. I am not unlike a lot of our Best Ever listeners, where I started out in the corporate world, did the nine to five. I had a 15-year career in IT, and I accidentally found real estate because somebody told me it’s a great way to get some tax advantages. So back then – this is 2011 or 2012, I don’t even think Joe Fairless was putting out content back then, and Bigger Pockets may have started, I’m not sure. So there weren’t all these resources out there where I could educate myself first, and then get into real estate. So I ended up buying a mixed-use building, just kind of dove in, didn’t know what I was doing, had no systems in place… The building that I bought just needed a ton of work. It had a commercial tenant and retail apartments above it, and I thought “What a home run”, because my mentality back then, Theo, was when the commercial store lease was up, I can get additional income by running the store. So I wasn’t even really focused on real estate, it was just I guess, adding income with a little bit of real estate.

There was a pivotal moment at that location where I was unclogging a tenant’s sink or toilet and I saw the commercial tenant was replacing their entire HVAC system. So at that point, I had an epiphany, “Wait a minute, the residential tenants add wear and tear and destroy your place, while the commercial people improve it on their dime.” That blew me away. I didn’t understand why everybody didn’t do commercial real estate. So from then on, my path was just acquiring more and more commercial properties.

Theo Hicks: What does your current portfolio look like now? Anyone who attended the Best Ever conference heard your amazing presentation. Hopefully, we can get that on the show at some point. But what is the snapshot of what you currently own right now?

Ash Patel: So what I currently own is a mixture of an office building, medical center, still a few single-family homes, mixed-use buildings, I’ve done joint ventures with mobile home parks, some industrial buildings, some shopping centers… A mix of everything; restaurants… So long story, but I’m opening two restaurants and an event center as well. And just like I accidentally got led into this real estate world, I accidentally stumbled into the restaurant business as well. So over the years, I’ve done a bit of everything – ground-up development, flips on commercial, buy and holds, triple nets… But most of my focus has been on value-add. So I don’t want to buy the fully rented shopping center or the fully leased Starbucks on a 10-year corporate guaranteed lease, I want to buy the vacant stuff or the half vacant shopping center where I can go in, add value and maximize returns. I’m a hands-on landlord; I’ve never used a property management company, and don’t think I ever will. My philosophy on that is my tenants deserve my attention, so if there’s a problem, that is an opportunity for me to make a positive impression. So in a nutshell, that’s my experience.

Theo Hicks: That’s super-fascinating, because when you talk to the people on the show, a lot of people’s Best Ever advice is to focus on one thing, find that one asset class, and then within that asset class, find that one particular business plan, that one small niche that you become an expert on. It sounds like you’re kind of the opposite, where you’re doing a little bit of everything. So is there a common thread between all those that allows you to be successful by investing in all the different types of commercial real estate? Is that something you’ve naturally had, or did it take some work to acquire that skill?

Ash Patel: While I could take that as a compliment, it’s really not. I have a short attention span, so I get bored quickly… And I don’t have systems in place. I can’t do what a lot of you guys do, with taking down 20 single-family homes in a month, or buying 100-unit apartment buildings. I don’t have those systems in place and I don’t have the patience for that, so I shoot from the hip a lot. The commonality is I chase cash on cash returns. So most of my deals at entry are 40% cash on cash, and with the value-add are upwards of 70%. So the commonality is just adding value and being able to maximize returns.

Theo Hicks: So I mentioned earlier you gave a really good talk during the Best Ever conference about how you actually chase down these deals. It’s not something that, as you mentioned, is like a quick thing where you can just rinse and repeat. It sounds like with a lot of proactive effort you have going out and continuously contacting people. Can you maybe walk us through one example of that, of you chasing down one of these really high cash on cash return deals?

Ash Patel: Yes. So I will look at every commercial property that comes online in a 100-mile radius several times per day. I’ll scour a bunch of different sources to find that. And a lot of times I win these deals by having the first-mover advantage.

A great example of that, Theo, is there was a Friday night where for the last time that evening I looked one last time to see what new deals popped up. I found a shopping center up for sale; it was listed as a triple net with $117,000 NOI. The listing price on that was $650,000. Now, those numbers don’t add up. Back then, to show you my mindset, I didn’t even know to use cap rate to evaluate the health of the deal. So I just did my simple cursory numbers, and again, it just didn’t add up. The numbers were too skewed. So I didn’t sleep that night; I came downstairs in my office and I researched the property, the neighborhood, the owners, the previous owners, the businesses, their social media profiles… A full eight-hour CSI episode that night.

At about [7:30] the next morning, I figured it was time to wake up this listing realtor and start calling. I didn’t call the night before because it was too late. So I start tracking this guy down and I can’t get a hold of him. So I call his colleagues, I call his boss at his brokerage. Finally, three or four hours later, I get a hold of him. I asked him a few basic questions, and I found out that yes, this was a triple net lease; all of these are long-term tenants, and they’re all on leases that extend out two, three, four years. Perfect, I’ll buy it. I bought that building for $625,000. On Sunday night, we had an executed contract. Monday morning, he received cash offers for $200,000 above list, and my price was $25,000 below list, because I didn’t wait until Monday morning. I chased him down right away. So that first-mover advantage is very important. It’s a combination of finding the deals and doing whatever it takes to take them down. I’ve spoken to a lot of people, and they’ll come to me and say “Ash, I’ve found this great deal.” “What have you done to acquire it or take it down?” “Well, I left a couple of voicemails for the realtor.” “No. No, no, no. That’s your only mission in life at that point, is to chase that guy down, find out about the property and execute that deal. That’s it. You don’t wait. If this is a good deal, whatever it takes to acquire it.”

Theo Hicks: Thank you for sharing that. Something else you mentioned too is that — and obviously, we talked about you chasing down deals, constantly looking at the MLS, and now you’re going to be hosting the podcast, and you don’t have your own property management company, you’re self-managing… How do you have time to do all these things? What’s your tip on how to maximize your time and being very efficient with your time?

Ash Patel: Great question. And thinking out loud, I look at my tenants as partners. So in an office building that I have, I’ve got a tenant who will clean up around the parking lot. I’ll take half of the rent off because she cleans the common areas, the bathrooms, the hallways… And that’s my boots on the ground. That’s essentially my property management company, and you cannot get better than that. Having an actual tenant that’s there, your eyes and ears, your boots on the ground… Because they’re going to take care of your place better than a property management company would. It behooves them to communicate with you and let you know what needs to get done.

So in all of my properties, I’ve got a great relationship with my tenants. As a matter of fact, once a quarter, I host a happy hour, either at my house or out somewhere… And that happy hour is a combination of a team-building, networking session, and then just a have a good time session. So I’ll usually have an agenda where I want my tenants to learn from each other. Maybe you share your ideas about social media marketing; learn from all of these other businesses that are all under one roof or under one landlord, so to speak. That helps build teams as well.

I think from my tenant’s perspective, they realize that I have a vested interest in their success. Part of that is me not wanting them to leave and deal with the turnover, but it’s just a win-win all the way around. So my best property managers are my tenants.

Theo Hicks: That’s a very interesting approach. You passively invest too, right?

Ash Patel: I do. I’ve been investing solely with Joe since 2015. I’ve been in several of his deals.

Theo Hicks: How do you decide how much of your capital to allocate towards passive investing versus your own active business?

Ash Patel: That’s a great question. I think I asked myself that recently and didn’t come up with a good answer. What I’ll tell you is that when you invest in somebody who just has apartment investing down to a science, you maximize your returns, both on cash flow and taxable write-offs. So when I invest with Joe and Ashcroft, at the end of every year I get these huge negative K1s that I get to write off other income against. So I think when people look at passive returns, they often fail to look at the tax benefits of that. So these massive negative K1s can offset other income, and that can be a huge plus to your bottom line.

Theo Hicks: Make sense. What do you do for fun when you’re not doing real estate? What are some of your other hobbies outside of chasing deals, passive investing, hosting the podcast, and all the other businesses you’re going to do?

Ash Patel: So chasing the deals is probably 90% of it. Other things – we’ve got a little house on a lake, not far from here. I’ve got young kids that are eight and 11; I’m spending time with them, we got them into skiing this year… I sound old, but having those kids keeps me active. I get out, ride bikes with them, wiffle ball tournaments, and just really spend time with family. A lot of my friends are also real estate investors as well. So we’ve got a great community here in Cincinnati. Tomorrow I’m hosting a poker game for a bunch of real estate investors. So really just spending time with family and friends.

Theo Hicks: That’s great. So this wouldn’t be The Best Real Estate Investing Advice Ever Show if I didn’t ask you the money question. So Ash, what is your best real estate investing advice ever?

Ash Patel: I should know this… I think there are so many different pieces of advice. For experienced investors, figure out how to scale your business and continue to grow. Because it’s easy to become complacent when you have a decent amount of cash flow coming in. But always keep your eyes on the next deal. How do you grow?

For me, I’ve realized that I need to do more joint ventures and partnerships to help offset some of the management of these assets. So that helps me to continue to grow. But always keep your eyes on your three, four, or five-year plan and figure out how you’re going to continue to grow. Just don’t become complacent.

Theo Hicks: More tactically, what do you do to make sure your three to five-year goal is always top of mind? Is it like a vision board? Is there a written plan? Do you just have it in your head?

Ash Patel:  It’s written down goals. But more importantly, it’s defining the tasks that will get you to those goals. I realized that the problem with me is, I’ve been doing this for almost 10 years and I’m only accountable to me. I’m in my office many hours throughout the day, and it’s easy for me to get sidetracked or go down a rabbit hole and lose hours at a time. So for me to hold myself accountable, I’ve actually just engaged with a business coach. It’s Trevor McGregor. I think a lot of our Best Ever listeners have heard of him or know of him. So that’s me being introspective and realizing that I’ve got a lot of habits that I need to fix. I’m very inefficient at times, and I need to work on that. That alone should help reach a lot of these goals.

Theo Hicks: Ash, should we do a Best Ever lightning round?

Ash Patel: Let’s do it. Again, I should have been prepared for this, but let’s do it. We’ll wing it.

Break: [00:18:28][00:18:51]

Theo Hicks: Ash, what is the Best Ever book you’ve recently read?

Ash Patel: There’s a book called Rocket Fuel. The reason I like that book is because it reinforces that a lot of what I thought were my flaws are not really flaws. In that book, it talks about every great company has a visionary and then an integrator. The visionaries are not taskmasters. I realized I’m by no means a taskmaster. So I need systems or partners to help me with the integration, which is why I got the business coach.

All these years, I thought it was just a flaw that I’ve got a short attention span. I’m not good with backend bookkeeping. In reality, this book just taught me that I’m a visionary, I need to focus on that, and supplement the integration somehow.

Theo Hicks: Yeah, a lot of people when they talk about finding business partners and team members, they’ve talked about that – don’t attempt to force a square peg in a round hole, in a sense. Just figure out what you’re really good at and what you like to do, and then just find a business partner to do the really big thing that needs to be done, or find a virtual assistant, or another team member to do something if it’s a kind of lower dollar per hour activity. So that’s interesting that you said that.

Ash Patel: I wish he told me that a few years ago, it could have helped me out a lot.

Theo Hicks: Well, you’re going to learn a lot doing these interviews. You’re going to learn all the secrets and stuff. Whenever you have a conversation with people, “Oh, I remember this guy three weeks ago, and this is what he did. Now he’s a 100 million dollar real estate investor.”

Ash Patel: I’m looking forward to that.

Theo Hicks: There you go. So we talked about a good deal. Let’s talk about a deal where you lost money, how much money you lost, and then what lesson you learned.

Ash Patel: This is a tough one. So several years ago, I had this inflated ego, because I started investing in 2012, and no matter what you bought through those years, you’re going to make money, you’re going to turn it around. The market was on an upswing. So me, with my big head, I found this auction in a small town called Ripley, Ohio. It was an estate auction where there were real estate investors that were divesting all of their properties. I went in there, and a couple of other guys did as well, and our mentality was we’re going to take over this town, revive it and bring life into these buildings that had been vacant for 10, 15, 20 years. It was just a declining town, a lot of the factories in the area closed, a lot of drug problems… So I ended up buying a couple of single-families, mixed-use buildings, commercial buildings, all of which were in need of massive rehab.

So I figured I was just going to apply the same formulas for success that I’ve used in other properties… And man, none of that worked. I couldn’t find contractors in that area, a lot of people were just out to screw people over… And I ended up losing probably a total of 50, 60, $70,000. I was able to exit out but it took several years. That was a nice kick in the pants that I needed.

Not everything that I touch turns to gold, so come back down to reality and realize that all of this takes work. You can’t just cast your rod, find something and make it work. So there are times where you’ve got to be a lot more diligent and actually look at the numbers, which, again, just a great lesson that I needed to learn.

Theo Hicks: Yes, that’s one of my favorite questions that we ask, because it’s not asking them what’s the worst deal you’ve ever done, because if you kind of think about it, it’s not necessarily the worst deal if, as you mentioned, you learned a lesson from it that helped you not do the same thing again in the future.

So it’s not necessarily the worst deal, it’s just what happened, and then what lesson did you learn that you applied moving forward that helped you. Because you mentioned it kind of brought you down a notch in a sense and made you realize that every single thing that you do is good. So moving forward, you paid a lot more attention to the details. I love that question. You always get great responses. Usually, they always start off like, “Oh, man. Not the worst. Not this. I don’t want to remember that.”

Ash Patel: Yeah, and that is a great question. I think I was lucky, because it could have been a lot worse. So I escaped relatively unscathed and learned a great lesson.

Theo Hicks: True. What is the Best Ever way you like to give back?

Ash Patel: Other than charities, over the years I’ve offered to mentor anybody that wants to learn more about commercial real estate. My one rule is I will match my time with your effort. So there’s a lot of people that come up to me, and they don’t really know what it is that I do, but they see that I’m doing something with commercial real estate and I’ve achieved a little bit of success. They interpret that as mailbox money. Everybody wants that mailbox money. So they come to me, “Ash, how do I get this mailbox money?”

I give them some basic homework assignments, and there are a few people that actually follow through. Those people I will give all of my time to to make sure they’re successful. That’s incredibly rewarding, seeing somebody hungry, put the work in, and actually benefit from that.

Theo Hicks: And then lastly, what is the Best Ever place that the Best Ever listeners can reach you?

Ash Patel: Pretty soon you can probably find me all over the Best Ever brands, website, podcasts. I’m on BiggerPockets, pretty active. Facebook, Ash Patel in Cincinnati, LinkedIn, Ash Patel in Cincinnati. I’m pretty good with getting back to anybody that reaches out to me.

Theo Hicks: Yes, as Ash said, he will be all over the brand here soon. I’m not necessarily sure when your interviews will start, I think in the next few months after this airs. So keep a lookout for those, keep a lookout for the new… I think they’re weekday mashups. So those will air on the weekdays. And yeah, reach out to Ash.

I hope you enjoyed this episode, got to know him a little bit more. As always, Best Ever listeners, thanks for tuning in. We’ll be back to the regular Syndication School next week. As I mentioned, we just wanted to introduce Ash to all the Best Ever listeners. So until then, have a Best Ever day and we’ll talk to you tomorrow.

Ash Patel: 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.

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.

Oral Disclaimer

The views and opinions expressed in this podcast are provided for informational purposes only, 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. For more information, go to www.bestevershow.com.

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JF2374: Four Steps To Build A Lasting Apartment Syndication Team | Syndication School With Theo Hicks

In today’s Syndication School episode, Theo Hicks talks about building a team that lasts. As we’ve mentioned in the previous episodes, your team is one of the risk points of your deal-making process. Nobody wants the hassle of working with people that are not right for your business, and you don’t want to lose credibility by having a high team turnover rate. Theo gives a step-by-step process of putting together a team that lasts and shares some ways of presenting it the right way to your prospective investors.

To listen to other Syndication School series about the “How To’s” of apartment syndications and to download your FREE document, visit SyndicationSchool.com. Thank you for listening!

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TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners, and welcome back to another episode of The Syndication School series, a free resource focused on the how-to’s of apartment syndications. As always, I’m your host, Theo Hicks.

Each week we air a podcast episode that focuses on a specific aspect of the apartment syndication investment strategy. And well, for a lot of these past episodes, we’ve given away some free resources – free PDF how-to guides, free PowerPoint presentation templates, free Excel calculator templates, things to help you along your apartment syndication journey. So make sure you check out those free documents, as well as our past syndication school series at https://www.syndicationschool.com/. And as I mentioned last week, or if you’re listening to this way in the future, the episode about seven episodes before this one, we just had the Best Ever Conference, virtual, for 2021. But nonetheless, still some amazing content.

And what I plan on doing for the next couple of weeks is going over some of my favorite speakers, what they talked about, and then my spin on that and how we can apply that to apartment indications.

So the first speaker presentation we’re going to talk about today was from Liz Faircloth of Real Estate Investher, and she gave us four steps to build a team that lasts. And obviously, your team, as we’ve talked about many times on this show, is one of the three major risk points in apartments indications. So there’s the team, that’s you, and the GP side, your company, but also the property management company managing the deal, your CPA, your lawyer, etc.

And then the other two risk points, of course, are the deal/the business plan and the market. So your goal whenever you are presenting yourself or a deal to your passive investors, is to explain how you are minimizing those three risks. So what are you doing to minimize the chance that your team does something wrong to lose their money, that something happened to the market that makes them lose their money, or something happens in the business plan that makes them lose their money.

So we’ve got plenty of episodes, we’ll go into details on some of the questions that passive investors might ask about your team, things that you can do to present your team properly to your investors, making sure you have a track record, you’re bringing on mentors, things like that. But Liz gave us some very tactical advice, a step-by-step process of how you should approach putting your team together in the first place.

I’ve interviewed so many people on the show, whose best ever advice always involves making sure you find the right partner, especially when it comes to apartment indications, where it takes a long time to get the ball rolling before you even do your first deal. And then once you do your first deal, it still takes time to do your second deal and to scale to a large company. This is like a multi-year process. And if you end up partnering with the wrong person upfront, and you stay with that person or you hire the wrong team members upfront, they’re going to be with you for a while before you start to realize that maybe they weren’t the right fit. And at that point, they might do something that makes your investors lose credibility for you in their eyes.

And so one of the most important things that we stress on this show is the fact that you need to have a team before you start to engage with investors and brokers in looking for deals. Practically, obviously, you’re going to get a property management company to help you look at deals in the first place, but you don’t want to be putting together your team while you’re in the process of talking to investors, while you’re doing deals. Do that all upfront, make sure that you’ve got the right team members, that way you’re setting yourself up for success, you’ll be able to answer those questions that investors and brokers and other property management companies would ask you, and you’ll avoid going through this process for years with bad team members or no team members and losing credibility in the eyes of your investors. But how do you actually do this? How do you build the right team? How do you find team members who will not only be with you for a couple of months or a couple of years, but long-term, will be with you throughout the lifecycle of your company, ideally for forever.

And so Liz gives us a four-step process. It is not rocket science, but it’s something that will take some time, will take some thinking… But as I mentioned before, this will help set you up for success in the long run. Invest time now to avoid headaches later.

So step one is going to be to map out where you want to actually go. So why do you want to be an apartment syndicator? Where do you actually see yourself from an asset under management size of company in the short-term, so by the end of the year, and then more long-term, 3-5 years and further out… Because there’s a huge difference between wanting to have a couple of apartment communities, maybe $10 million under asset, as opposed to having a billion dollars under management, right? The types of people you’re going to need on your team, and the number of people you’re going to need on your team are going to be different. And so you want to create a map of where you see yourself, where you see your company going, and that will define your overall vision for the company. The vision for the company is to have $1 billion under management in 5 years across the country, or in DFW or in the southeast or something.

So once you have your short-term, your long-term goals defined as well as that vision, the next step is to say, “Okay, so this is where I want to go… So which parts of this can I do myself?” So taking a personal inventory. So literally, spend a full day, half a day, on a Saturday, go to a coffee shop—now, I guess, get in your office, and think about all the different things that you personally bring to the table. This is going to be a money and a financial perspective. So what type of assets do you have, but also what are some potential liabilities you have? Do you have any high debts or anything like that? What do you bring to the table from a time perspective? How much time do you have to spend on this business? Do you work a 9-5 and you’re single, so once you’re done with work you can spend all your time in a business, or do you already have a family, and you can only dedicate late hours or early morning? How much time do you have to dedicate to the business? What type of experience do you have that’s relevant to apartment syndications, relevant to what you’re trying to do?

So as we’ve talked about on the show, the two relevant experiences would be your business background and your real estate background. So what’s your real estate investing background? Even it’s something as simple as having bought a house before; that gives you more experience than having done nothing before. Having invested in single families? Have you passively invested? In my business perspective, we’re talking more like high-level, director-level and above, starting your own business, getting promoted.

What about skills? What are your skill sets? What are you good at? Are you a good networker, or are you better at being in front of the computer crunching numbers? What’s your personality like? So this can involve taking a personality test, and figuring out what your personality is like. The personality test that Liz talked about in hers was ranking you on dominance, extraversion, patience and formality.

And then leadership perspective; what is your leadership philosophy? What do you think makes a good leader? Things like that. So basically, you want to create this document that explains what you bring to the table from a money perspective, from a time perspective, from an experience perspective, from a skill perspective, from a personality perspective and from a leadership perspective. And then once you have that, as well as your map, you need to figure out, “Okay, so based off of my map, where I want to go, what can I do? What am I able to do? How can I help this process? What should I focus on?”

And then the flip side of that is, “Okay, what aren’t I good at? What don’t I like doing? Which aspects of this map do I need to bring someone else on for?” And that’s where you determine who you need to meet your goals and your vision. So based off of, again, your vision and what you bring to the table, you’re going to need to find other people who complement your money, your time, your experience, your skills, your personality and your leadership perspective.

So something I really liked from, not 2021 Conference, but 2020 Conference, is once you have this map of where you want to go, “I want to have a billion-dollar apartment syndication company,” then you create an actual corporate structure flowchart of all the different employees that you would need in order to run that side of a business; from Asset Management Director, Acquisitions Director, GPs, say you do an in-house property management company, CPAs, lawyers, things like that; just create a whole flowchart of the company. And obviously, when you first start out, you’re going to be doing a lot of those things, especially on the GP side. But when you have that structure, you can see and envision the different types of people that you will eventually need to hire. So when you first start off, right, you’re doing everything. But then, based off of your personal inventory and maybe spending time underwriting deals, you realize, “Well, I don’t think acquisition is going to be my focus. I don’t think asset management is going to be my focus. I’m better at networking and working with investors. And so the first thing that I need to hire out is an acquisitions manager and an asset management manager.” So I really like that exercise of creating that corporate structure flowchart immediately. That way, you’re always on the lookout for the types of roles that you need to fill.

So at this point, you have your vision, you know what you’re good at and what you’re not good at. And you’ve created this corporate structure flowchart to determine, “Okay, well, in the future, when I have this billion-dollar company, here are roles I’m going to play and here are the other roles I’m not going to play. These are [the people] who I need to bring on.” Now, either day one, as well as on an ongoing basis, you start to bring people and hire people for those positions.

And the two characteristics that Liz says you need to focus on is alignment and diversity. So she said the biggest mistakes that people make when building a team is the lack of alignment and a lack of diversity.  From an alignment perspective, she’s talking about your vision, obviously… So if you’re hiring someone who doesn’t want to work for a billion-dollar company, but your goal is to have a billion-dollar company, things aren’t going to work out for your long-term goals, but also your values. That’s something that you probably defined in your personal inventory, but also expectations.

And then another big one, too… She said that— it didn’t surprise me, because I definitely thought of this before, but never really articulated it out loud, which was the entrepreneurial spirit. So especially when you’re first starting out, people get really excited about real estate, the prospect of leaving their job, and just having a full-time company. And I’ve seen—I’ve been in this for about five years now… You’ll see people get really enthusiastic at first, and then they kind of fall off and disappear. It takes a very special person to continue after that zealous phase ends. So making sure that you find a team member who is not going to “gas out” in a sense, or get really excited at first and then after a few months disappear, and not really have that same spirit as you, it’s huge. That’s got to be one of the biggest problems I’d imagine with partnerships, is both partners are very zealous at first, and then the one keeps grinding through once that initial enthusiasm dissipates, whereas the other person kind of disappears and no longer does anything, and no longer wants to be involved. And then the one team member wasted six months of working with this person, and they need to find someone else. So making sure that you have alignment on the values, the goals, expectation, entrepreneurial spirit, I think will save you a lot of time.

And then the other one was the lack of diversity. Do you remember you took your personal inventory, so what you bring to the table, and Liz says, “Of course, it’s okay to work with people who are similar to you.” But if every single person at the company is the exact same as you, every single person in the company only likes underwriting deals, but aren’t very personable and don’t have good networking skills, then of course, the business is going to collapse.

So rather than bring on people that are similar to you, you want to bring people on who have different personalities, different risk tolerances, different skill sets, different experiences; essentially, the people that complement your skills and your gaps. So if you really like underwriting, and you really like crunching the numbers, then don’t hire a bunch of number crunchers. Hire someone who doesn’t like crunching numbers at all, hates underwriting, but really enjoys talking to investors, or really enjoys managing property management companies, or things like that. So they must align with you from a values, goals, expectations, entrepreneurial spirit perspective, but they also shouldn’t align with you when it comes to things like personality, the skill set and experience.

So there’s certain things that you want to be aligned on, but there’s also certain things that you want to be a lot different on. And understanding how to differentiate between those two is very important to making sure you find the right people. And from there, again, you kind of just continuously hire people and fill in the roles of that flow chart as you expand and grow.

We’ve done a couple of episodes on how to know when it’s the right time to find new team members; it really comes down to that dollar per hour activity. So once you have the ability to focus more time on those high dollar per hour activities, then it’s time to outsource those lower dollar per hour activities to other people.

What I really like about this process overall is that it’s a good way to find business partners, and it’s also a really good way to find employees or people to bring on your team that aren’t necessarily going to be your business partners.

So to summarize, step one is to map out where you want to go. Determine your short-term goals, as well as your long-term goals, and use those to define an overall vision for the company. Step two is to take a personal inventory, to literally spend a day or full day figuring out what you bring to the table, and then determine who you need to bring on to achieve your goals based off of what you bring to the table. And then once you know who you need to bring on, go out and start finding people, and making sure that there’s an alignment, that they align with your goals, your vision, your expectations, your entrepreneurial spirit, with those intangibles… But make sure that they also have a diverse personality, risk tolerance maybe, skill set, experience; someone who complements you on your skills and your gaps.

So that concludes this episode. Again, that was from Liz Faircloth of the Real Estate Investher network. And then I think next week, I will be having a conversation with the new Best Ever host, Ash Patel, and then after that, we will transition back into talking about my favorite takeaways from the Best Ever Conference.

So thank you so much for tuning in today. Make sure you check out the other Syndication School episodes so that you can download all of the free resources we have. That’s at https://www.syndicationschool.com/. And until next week, 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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The views and opinions expressed in this podcast are provided for informational purposes only, 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. For more information, go to www.bestevershow.com.

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JF2367: Maximize Profits With These Three Money Raising Tips | Syndication School With Theo Hicks

In today’s Syndication School episode, Theo Hicks shares three valuable tips that will help you maximize your profits and build trust with potential investors. These tips were originally used specifically for the crowdfunding environment. However, they can be easily adapted for raising capital in other ways.

To listen to other Syndication School series about the “How To’s” of apartment syndications and to download your FREE document, visit SyndicationSchool.com. Thank you for listening!

Click here for more info on groundbreaker.co


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners, and welcome back to another episode of the Syndication School series, a free resource focused on the how-to’s of apartment syndications. As always, I’m your host, Theo Hicks.

Each week we air a podcast episode that focuses on a specific aspect of the apartment syndication investment strategy. For a lot of these episodes we’ve given away some free resources – these are PowerPoint presentation templates, Excel calculator templates, sometimes PDF how-to guides, something to help you along your apartment syndication journey… So make sure you download those free documents. Also take a look at some of our past episodes. All of that is available at SyndicationSchool.com.

I think this might be the first time I’ve talked about crowdfunding on this show. Most people listening probably know what crowdfunding is. It’s one of the many ways to raise capital to fund your deals. And for the crowdfunding strategy, you basically create a platform or you go to a crowdfunding platforms already in existence, you will post your deal on this platform, and then investors from all over the world can look at it and invest in some cases very low minimum investment amounts. So this is different than the typical approach that people will use, especially when they’re first starting out, when they’re raising money from family and friends, and then they expand to referrals from family and friends, and eventually maybe expand out to, say, larger family offices, institutions, or they might go the crowdfunding route.

I wanted to talk about not necessarily what crowdfunding is, or the advantage of doing crowdfunding; maybe I’ll talk about that a different time. But what sparked this was a conversation I had with someone who does crowdfunding. She had three interesting points that she made about what made her successful. And not only do these lessons apply to someone who’s raising money with crowdfunding, but these lessons could also be applied to your syndication business just in general. Because at the end of the day, the idea is how is she able to legally raise money from more people. And we’ve talked about this many times on this show, but the main reason why people invest is through trust… So how can you legally get people to trust you and invest in your deals is really the question… And she had three really interesting responses. Again, none of this is complete rocket science, but what she said really resonated with me, and I wanted to share it with everyone listening today. Again, these are specifically talked about in the context of raising money on a crowdfunding platform, so I’m gonna tweak it just a little bit to apply it to people who aren’t at the point yet where they have the credibility or the track record to post their deal on a crowdfunding website and attract investors.

So the first one is investing your own money. From what I remember, this investor would post her deals on crowdfunding websites, and one of the items listed in the description to attract people to this deal was that her business invested at least 50% of the capital into the deal. So if it’s that million-dollar raise, her company would invest at least 500k. If it was a ten million dollar raise, her company would invest at least five million dollars. You get the idea.

Now, you don’t necessarily have to invest half the money. You might not have half the money to actually invest, especially when you’re first starting out… But this is one of the best ways to create alignment of interests with your passive investors. And when you have alignment of interests, you gain more trust. And when you gain more trust, you’re gonna attract more passive investors.

Basically, what alignment of interests means is that the interests of the investors and the interests of the GPs are the same. Or at least similar, overlapping. Obviously, when you’re investing your own capital into your deals, you are in the same position as your LPs, who are also investing their own capital in the deals. Basically you are an LP. And in this case, this investor was half the LP. So when you go to investors and you tell them that “I’m so confident in this deal, and my team, and my business plan, and the market, that we’re gonna front half the funds”, that’s a lot more attractive that someone who puts no money into the deal.

So at least putting some of your own money into the deal is important, but this individual went above and beyond that, and actually invested half the funds. So a massive amount of alignment of interests, and especially in a market that might be saturated with sponsors and crowdfunders. That’s one really good way to set yourself apart from other syndicators. That might be the differentiating factor that makes one person choose to invest with  you over someone else. “They’re investing  half their money, or a quarter of the LP capital, I’m gonna go with them. They’re really confident in their deal, and they’re more likely to be successful, because if they fail – well, they lose all their money.”

So that was number one. Number two – and again, this is in the context of crowdfunding, but this individual also created their own crowdfunding platform. So rather than going on an existing platform, they’ve created their own crowdfunding portal. So the theme here is taking things in-house, as opposed to using other people’s systems. The more things that you have in-house, the more economies of scale you’re gonna have, first of all. Well, assuming you have economies of scale, is when you can start doing this. And I’m actually gonna do a show probably the next few weeks about bringing the property management company in-house, and the advantages and the disadvantages of that. But for this individual, I’m pretty sure she immediately created a crowdfunding portal.

Most of the time people start by using all third-party, because they don’t really have the economies of scale or the capital to invest in building their own property management company, or building their own crowdfunding portal… But I’m pretty sure she just went straight to that because of the advantages of it. So she hired a web developer, the web developer set everything up, and immediately just started raising capital for their deals, through crowdfunding, on their own portal.

And really, at the end of the day, the two main advantages of this is 1) the future cost savings. As an upfront investment, just like anything, there’s a return on investment, because they don’t  have to worry about paying all the fees of the other crowdfunding platforms, and they can set it up however they want, as opposed to not really having any control… But it also makes you a lot more professional than someone who does not have their own portal, or have everything in-house. So if you have your own in-house asset management team and own in-house property management team, and your own in-house acquisitions team, and you’ve got brokers, and you’ve got lawyers, and they’re all not third-party, working for someone else, but working for you full-time – assuming you have the deal flow and the number of deals – that is a lot more professional-looking and a lot more attractive than someone who’s hiring everything out to someone else, or using someone else’s software.

So from this perspective, for crowdfunding, when she’s talking to individuals or marketing her company, she can say “We have our won custom-made professional crowdfunding platform”, with all the bells and whistles that she has on there, as opposed to saying “Hey, go to this other company’s website to take a look at our deals.

So how can this apply to you? Well, maybe consider getting an investor portal, and maybe consider making your own investor portal, instead of using someone else’s investor portal from a third-party, making your own. Again, “We have your own custom investment portal, and we’ve talked to thousands of investors, and here are some of their main concerns, so here’s how we address those in our own custom portal.”

Again, you  don’t necessarily have to make your own investor portal, because I’m not really sure what the ROI on that would be, but the whole concept here is to have things in-house to save money, and to be more professional-looking.

I’m pretty sure for her crowdfunding platform she incorporate a lot of education, she has memberships, you have to be a member to see the deals, so there’s revenue flow from that… But overall, it just takes hiring a web developer and letting them do their thing.

Now, the last thing she said – and again, this definitely applies to all apartment syndications  – is hiring a legal team. So having a legal team on retainer at all times, as opposed to one-off, by-the-hour projects.

When they obviously initially launched their company, they needed to work with lawyers a lot, and then they also needed to work with lawyers on an ongoing basis as they did more deals, and SEC regulations changed… And again, this is one of the main things that allowed them to be successful, because they didn’t have to consistently worry about paying all this money to lawyers, or the lawyers not having time to get to them, or them not having the right lawyer at the right time for the legal issues that they needed… Or if a legal issue comes up, there’s a long period of time before the lawyer is able to respond… And all those problems she said were solved by having a legal team on a retainer.

So when you’re initially starting a syndication career, you should be definitely working with securities attorneys and real estate attorneys; you need to do that for every single deal. But eventually, if you get big enough, things might start coming up more frequently than just “Hey, we’ve got a deal and we need a PPM a month from now, or a couple of weeks from now.”

So having a legal team on a retainer could save you a lot of time, a lot of money, as well as give you some peace of mind whenever something were to come up. This comes down to just having your team members either in-house, or making sure that your contract or your relationship with these team members – you’re doing it the right way, basically. So those were the three fascinating facts that she talked about, that allowed her to be successful for crowdfunding. I think those obviously apply to crowdfunding; if you’re a crowdfunder, this will be helpful… But also for really any syndicator, investing your own money and creating that alignment of interests, creating in this case for her her own crowdfunding portal, for you just kind of bringing as many things in-house as possible. That makes sense.

Then also making sure that you have a legal team that specializes in what you’re doing on a retainer, to make sure that you’re setting yourself up for success and you’re not gonna run into any legal issues in the future.

So that concludes this episode. When this goes live, we will have completed the Best Ever Conference 2021, so over at least the next two weeks I’m going to be doing some episodes going over some of the best advice provided during that, and then we’ll get back to our regular Syndication School episodes once I’ve exhausted all of those tidbits of advice.

Thank you for tuning in. Again, make sure you check out SyndicationSchool.com for those free documents, as well as past episodes. Until next week, 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.

Oral Disclaimer

The views and opinions expressed in this podcast are provided for informational purposes only, 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. For more information, go to www.bestevershow.com.

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JF2360: Best Practices For Converting More Passive Investors| Syndication School With Theo Hicks

In today’s Syndication School episode, Theo Hicks shares some of the best practices used by Ted Greene, the Investor Relations Manager of Spartan Investment Group.

Theo shares several techniques that’ll help you build trust and form a relationship with potential passive investors. Many syndicators have been in the business for such a long time that it’s hard for them to put themselves into the shoes of someone who’s looking to become a limited partner for the very first time. And while numbers are of immense importance, one shouldn’t underestimate the power of human connection when sealing the deal.

To listen to other Syndication School series about the “How To’s” of apartment syndications and to download your FREE document, visit SyndicationSchool.com. Thank you for listening!

Click here for more info on groundbreaker.co


TRANSCRIPTION

Theo Hicks: Hello Best Ever listeners, and welcome back to another edition of the Syndication School series, a free resource focused on the how-to’s of apartment syndication. As always, I’m your host, Theo Hicks.

Each week we air a Syndication School episode that focuses on a specific aspect of the apartment syndication investment strategy. For a lot of these episodes, we’ve given away some free documents. Free PDF how-to guides, free PowerPoint presentation templates, as well as Excel calculator templates. All of these free documents, as well as the previously released episodes, are on syndicationschool.com.

In this episode, we’re going to focus a little bit on investor relations. We’re going to talk about some of the best practices when you are taking a person who is interested in investing, but hasn’t invested before, or at least hasn’t invested with you, so a non-current investor, and then ultimately converting them into a current investor, someone who’s passively investing in your deals.

Most of the information that I talk about today is going to come from a conversation I had with the investor relations manager at Spartan Investment Group. His name is Ted Green. He essentially talks to investors all day, talks to potential investors, educating them on what they do, and obviously talking to current investors as well. So here are some tips, some things to think about.  A lot of these, at least when I heard them, they seemed counterintuitive… Because most people when they think of converting customers, they think of hot or hard sales techniques, whereas Ted’s approach is a lot more passive and educational, and less aggressive and constantly bombarding them and asking them to invest in deals.

It seems that when you’re dealing with smaller, cheaper widgets, or you’re selling knives, or pens, or something, then that more aggressive approach works, because you’re able to get to a larger audience. So if you have a 1% conversion rate, that’s okay because you’re talking to tens of thousands of people. Whereas when it comes to accredited investors, the conversion rate is going to be more important, because there are less people to talk to. It seems like that an aggressive approach might turn people off… So that’s why maybe these longer-term approaches work. Plus, acccredited investors are definitely more sophisticated as well and they can probably see straight through those hard sales techniques. But anyway, so these first best practices are how the conversation goes on the phone.

What you’re going to want to do, according to Ted, is you’ll start off by obviously doing the traditional standard, “Here’s who we are. Here’s what we do.” But the purpose of the call is to explain to the potential investor the benefits of investing in your apartment syndications. In Ted’s case, it’s self-storage facilities… But investing in apartment syndications compared to whatever else they’re currently investing in. So you give a background of your company, you ask them information on who they are, what they’re up to, what they’re investing in. You find out what they’re investing in – stocks, bonds, 401Ks – and then to have enough knowledge to explain to them why investing in say value-add apartments syndications is more advantageous than investing in the stock market, or investing in bonds, or focusing on a 401k only.

For value-add apartments syndications, obviously, the main selling point, so to speak, would be the consistent cash flow, as well as the forced appreciation. A lot of these stocks, and bonds, and 401 Ks, their value is driven by the market, natural market appreciation. Whereas for value-add syndications, we benefit from that, but if that doesn’t happen, then we also have the added benefits of the forced value through these renovations, through increasing the rents, doing operational improvements to optimize the expenses, to ultimately increase that net operating income over time… Which will not only result in a higher ongoing cash flow, but also results in growth in your actual investment, so you cash out in say five years. We then go off based off your historic track record, we project that you make this much of equity multiple at the exit…

As opposed to if we talk about the standard stock market returns or what happened at the recession, things like that. Ultimately, the goal of that conversation is to position why investing in your deals with your company is better than investing in whatever they’re investing in right now.

Now, something else that I asked Ted about was common objections that come up. He said that about half the people he talks to, sometimes even more, it’s their first time speaking with a syndicator, so you might get a lot of questions that might seem to you to be basic and simple. But to this person, since this is their first time looking at something like this, are not so basic and not so simple. The conversation is most likely not going to be super advanced, so you don’t need to know the specifics on securities law or to tell them different risk disclosures that are listed in the PPM or anything. But more simply, why should I invest in this, how does the process work, type of questions.

This is probably the most fascinating thing that he said. He said that when he talks to investors and they ask him how much they should be investing or how much their portfolio should be in passive real estate investment, and should they transition all their money from their investments into real estate, or half, or a smaller amount, and he always tells them to max out at 10% on their first deal. You don’t necessarily need to go all-in on your first deal. It’s not good to go all-in on your first deal. Make sure it’s something that you’re comfortable with, you like the returns, you understand it first before you slowly, in a ladder approach, increase your investment.

I’m sure when you talk to investors, they’re really going to appreciate that, because it’s a more softer technique. You’re not telling them “Oh, yes. You invest 50% or 100% of your retirement into my deal, and I promise you that I will double your money in five years.” Instead to make them more comfortable, say “You can do 2%, or 5%, or 10% of your investment money into this deal, make sure you like it, make sure you’re comfortable.”

Then what people usually do is they’ll do a ladder approach. They’ll do one deal, and then once they’re comfortable with that, they’ll do another deal, then maybe they’ll do up to five deals at once, and then they’ll wait until one deal sells, and then once that one deal sells, they’ll invest in other deals. Lots of different strategies, but overall, I recommend that you start off with a lower investment amount, and then once you get comfortable, gradually increase that over time.

And for some other common objections, we have a whole Syndication School series, I think. I think it’s like four episodes on the 50+… I can’t remember exactly how many objections there are. 51 objections that you’re going to get from passive investors, so make sure you check that out. If you search on joefairless.com, “Common Passive Investor Objections”, those episodes will come up. So obviously a lot more than that, but “How much I should invest?” is something I don’t think is on the list of questions I answered on that Syndication School episode.

And something else kind of on the same note is that if this might be the first time they’re talking to a syndicator, they’re not going to invest immediately. They might, but they also might not invest immediately. It might be a month, or six months, or a year, or multiple years. The idea of value-add apartment syndications and passive investing in real estate, if it’s new to them, it needs to germinate in their mind. The way to expedite that germination process and to speed up the growth of that apartment syndication tree in their mind is to have a good follow-up process.

One of the best things you can do – we always talk about the benefits of a thought leadership platform on this show – is that when we have a conversation with someone and they say it’s their first time talking to a syndicator, and they ask a bunch of questions about the asset management process or questions about what IRR means or what the returns are… Now, whatever questions they ask, kind of keep a mental list or literally type out the question that they have and at the very end of the conversation, mention that you have a podcast, or a YouTube channel, or a blog, where you do a deep dive into various apartment syndication topics. Based off of the conversation, say, “Hey, there’s actually these two or three playlists, or these two or three videos, these two or three blogs, or these two or three podcasts that will be very helpful based on the questions that you asked. I’m going to send you those links after the call.” That way, you just send off the information to them. Now they have access to your YouTube channel, your blog… And they probably did already, but this way you’re at least directing them to specifically what they should be viewing.

And then really, at that point, put the ball in their court. You don’t want to pressure them , again, because the goal is to not only invest you one time, but to invest with you continuously over the next five, 10, 20 years, however long you plan on doing this for. So put the ball in their court, and then whenever you get a deal, they’ll see it because, they’re on your list. Explain to them what the process is when they’re ready to commit, and maybe you can follow up with them — like, ask them if you can put them on the newsletter list that you have, or things like that.

But Ted really said that the ball is in their court. They don’t constantly call people on a weekly or monthly basis. They had that conversation with them, they direct them to more content, and then if the person is interested, they’ll invest, they want to learn more, they’ll reach out to learn more, or they’ll do a deep dive in that YouTube channel. If you don’t have a YouTube channel, or a podcast, or a blog, then obviously this is not going to work, and you should probably start making a thought leadership platform, or at the very least, maybe make a 10 page PDF FAQ that hits on all the commonly asked questions you get, that you can send to them afterward. Or have some sort of content that you can give to them so that they remember you by. So they don’t just talk to you, and then completely forget about you.

The reason why the YouTube channel is really good is that, well, depending on how much content you have, you might have 10, 20, 30 plus hours of content that they can listen to over a period of a couple of months. As you release new content, they’ll get notifications, and they will continuously have you at the top of their mind so that when they’re finally ready to take that jump into apartment syndications, you’re the first person that they think of.

So those are some tips, some best practices. Just to summarize what we talked about during the conversation, make sure you open up by talking about your company, what you focus on. Learning about what they are currently investing in, that way you can tee up the conversation to explain to them why investing in your deals is more beneficial than investing in what they’re currently investing in.

This might be the first time that this person has talked to a syndicator, so this is a new concept to them, so they might not be asking super-advanced questions, but it’s going to need to germinate in their mind before they make a decision to invest… Again, usually.

A good way to disarm them is to explain that they don’t need to go all-in, they can just do a very small percentage of their investment money, 2%, 5%, 10% in their first deal, just to make sure that it’s something that they like and that they’re comfortable doing. From there, they can do a laddered approach. They can maybe set a limit on the number of deals they want to invest in at a time, or the amount of capital they wanna have invested in syndications at that time, and as they become more mature in the process, they might invest more money, invest in more deals.

Encourage them to take a deep dive into your thought leadership platform. After the call, send them a video or two, or a piece of content or two, or three, that you know will be helpful to them based off of the conversation. Try your best not to pressure them, and just give them information that puts the ball in their court. That’s the best way to get them to invest; not only invest, but also come back after they’ve invested, and then make sure you have an easy way for them to commit once they are ready to invest in your deal.

Also, you can put them on your email lists, your newsletter list, any other stuff you send out, new deal list… That way, when they’re ready, if a deal comes across their table, they can just invest and they don’t have to reach out to ask you for your deal information; they already have it.

So those are some best practices for communicating and converting investors. We’ve got a lot more episodes on investor relations, so make sure you check those out as syndicationschool.com. I think we have like an eight-part series on securing commitments from passive investors, plus four hours of content, plus this, plus some of the other videos we’ve done before on this. So yeah, check those out. Those are at syndicationschool.com.

Until next week, thank you for listening 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.

Oral Disclaimer

The views and opinions expressed in this podcast are provided for informational purposes only, 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. For more information, go to www.bestevershow.com.

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JF2353: 25 Markets Expected To Have The Highest Rent Growth In 2021| Syndication School With Theo Hicks

In today’s Syndication School episode, Theo Hicks shares a list of markets that experienced the highest rent growth in 2020. These markets performed well because of the migration trends we discussed several episodes ago. Due to Coronavirus and the increased possibilities that remote work allows nowadays, many young professionals are moving from expensive big cities to smaller towns and suburban areas that allow a lower cost of living.

Theo also shares a list of 25 markets that are projected to have the highest rent growth in 2021. This list is based on the 2021 Multifamily National Report prepared by Yardi Matrix

Click here for more info on groundbreaker.co

To listen to other Syndication School series about the “How To’s” of apartment syndications and to download your FREE document, visit SyndicationSchool.com. Thank you for listening, and I will talk to you tomorrow.


TRANSCRIPTION

Theo Hicks: Hello Best Ever listeners and welcome back to another edition of the Syndication School Series, a free resource focused on the how-to’s of apartment syndication. As always, I’m your host Theo Hicks. Each week we air a podcast episode that focuses on a specific aspect of the apartment syndication investment strategy. And for a lot of these episodes, especially the earlier episodes, we give away free resources, free documents. These are Excel template calculators, these are PowerPoint presentation templates, PDF how-to guides, something to help you along your apartment syndication journey. So make sure you check out the past Syndication School episodes so you can listen to those, but also to collect those free documents. All those are available at syndicationschool.com.

And today, we are going to talk about rents, or specifically, we’re going to talk about some of the markets that are expected to see the greatest increase in rents in 2021. So we’ve talked in the past about similar topics, about trends going in 2020 and beyond, as well as analysis of what happened to multi-family and what’s continuing to happen to multi-family due to the onset of the pandemic. And one of the things that’s relevant today is going to be migration trends. We did do an episode a few weeks ago about 2020 migration trends, but something that was occurring before the pandemic was a lot of people, specifically the millennial generation, who were beginning to start families, started to transition from the major urban high-cost gateway markets –the San Francisco’s, the New York’s– into secondary, tertiary markets, as well as the suburbs. And this is one of the trends that has accelerated since the onset of the pandemic.

We did do another episode on that, specifically about the number of people who left the urban areas for the suburbs. And one of the main drivers of this, obviously, is Coronavirus, but more specifically, is that people are working from home more. So rather than being stuck in a tiny urban apartment in the city, with everything closed around you… I think they’re opening up back now, but during 2020 things were closed, you couldn’t go to work, you probably didn’t have a car, because you live in the city… So you’re stuck in your tiny apartment, paying a bunch of rent. And these people would much rather move out of the cities to the suburban areas, or at least move to smaller cities in order to have more space, for less money. That way, they could have more space to work, maybe they move closer to family… So those are some of the reasons why this trend occurred. We kind of went into more detail on that in that urban to suburban episode.

Now, the reason why this is relevant is because whenever people are moving to an area that quickly, in a year’s span, the supply in that market is not going to increase in the same proportion. Typically, the supply is going to lag. So when a bunch of them move to a market, then investors say, “Oh, wow. A lot of people moved to this market this year, let’s go there and invest and build.” But until that happens, rents are going to start going up and up and up. And so a lot of these suburban and tertiary markets benefited from this quick migration trend during 2020 due to the pandemic. It’s a lot of really random cities, that no one really predicted, performed really well in 2020.

Some of the cities at the top of this list, some of them are obviously well known – this is just for 2020 – was Sacramento, at 6.1% growth in rent. The Inland Empire, which is also in California, at 7.3%. Phoenix at 4.6%. Tampa, 3.9%. And  Las Vegas at 3.8%. And then the ones that no one predicted, I would say, would be Boise, which was the highest, at almost 10% rent growth, and then Scranton in Pennsylvania at 7.8%.

So now that we’re in 2021, what are the experts predicting for rent and growth? What cities are expected to grow the most in 2021, based off of a year’s worth of data collected on how real estate is being impacted by the pandemic? So I wanted to go over the list with you guys today, and go over the top 10 cities where rents will rise the most in 2021. And then maybe I’ll go into some honorable mentions that are on the top 25 or so. Now, this data comes from Yardi Matrix, which is kind of like CoStar. They have a massive database of commercial real estate transactions and sales. So based off of their massive database of historical data, they come up with these predictions.

Now, the reason why this is important is because, first of all, when you’re underwriting deals in one of these markets, you don’t want to assume that “Okay, well, Theo said that Boise grew by 9.5% in 2020, so I’m going to underwrite a deal in Boise due to the 9.5% market-driven rent growth.” So you still want to be conservative with your rent growth assumptions, and you still want to make sure that you are basing any rental premiums you’re going to demand if you’re doing a value-add play on your rental comp analysis. So make sure you check out our episode on how to perform your own rental comp analysis – we have a blog post on it as well – to make sure that you’re not falling into the trap of assuming that rents are just going to continue to naturally appreciate.

We need to be able to focus on value add appreciation, which means that we go in there and forcefully increase the rents by doing some sort of renovations. But it is good to invest in a market that is far exceeding the national average for rent growth.

In 2020, rents actually went down nationally by -0.8%. So ideally, you beat that. And in 2021 the national assumption forecast is 2%. So when you’re underwriting deals, you want to do your traditional 2% to 3%, probably closer to 2% now, since rent growth has slowed down. But just because you’re in a market that is forecasted to grow by more than 2%, you still want to keep that 2%. So you find that market that performs really well, and then anything above that 2% is just icing on the cake for you. Whereas if it doesn’t happen, if rents were to decrease like they did in 2020, you’re impacted much less.

Let’s say you bought a deal in 2019 and you assumed rents were going to naturally increase by 7%. And we talk about this all the time in this podcast; it’s actually interesting that what we talked about actually came to fruition. So we talked about how you want to make sure you’re making these 2% to 3% conservative annual revenue increases, even if the experts claim that rent growth is going to be 5%, 6%, 7%, 8% in 2020, even if the previous five years rents have grown by 10% each year. That doesn’t matter because, at some point in the future, rents are not going to continue to grow at those crazy rates. So the higher your assumption when you’re underwriting the deal, the more you’re going to pay. And then once the music stops, in a sense, and rents are no longer growing at that rate like it did in 2020, they went down 0.8%, obviously everyone was impacted by that, because no one predicted –at least not that I’m aware of– a negative rate and growth in 2020. But the closer you were to zero, basically, the less trouble you face. So the person who had that 7%, 8%, 9%, 10% assumption was in a different situation during the last 12 months than a person who did the 2%, or the 3%, or even the 1% revenue growth.

So that’s really a long way of saying that unless you’re forecasting less than 2%, then why are you investing there. But if you look at one of these markets I’ve talked about today, and you say “I’m going to invest in Boise because of the rent growth”, make sure that you’re still being conservative. And that’s just like a selling point, or as I said, the icing on the cake with a cherry on top, that “Okay, I’m assuming 2%, but the experts are saying it’s going to grow 8% in 2021.” So we’re being super conservative, and that way, if it doesn’t come to fruition, we’re still fine. But if it does grow that much, here’s how much more the property is going to be in value, or here’s how much more cash flow you’re going to make. Here’s a best-case scenario, baseline scenario, worst-case scenario, sensitivity analysis.

So that point is very, very important… And it might not have been as obvious when I said this a year ago, but now obviously it makes a lot more sense, since rents decrease nationally in 2020. Obviously, some are way worse according to this Yardi Matrix report. I think they said that rents dropped by 13.7% in San Jose, 9.4% in San Francisco, and then 3% in Los Angeles. Whereas on the flip side, Boise is in 9%.

So what are the top markets for 2021? We’re going to go through the list of 10 or so, and then maybe mention some honorable mentions. So coming in at number 10, Cincinnati, Ohio. So the prediction here is 3.3% rent growth. Now, what’s interesting here is that these rent growth assumptions that they’re coming up with are very, very conservative. I’m not sure exactly what it was for the past five years, but 3% compared to some of the places – 5%, 6%, 7%, being the top 10 at 3.3% is kind of showing you that rents overall are slowing down. But Cincinnati, 3.3% in 2021, compared to 2.2% in 2020.

Number nine is Sacramento, which I mentioned earlier, had a really big jump in rent in 2020, of 6.1%. And Yardi Matrix is predicting a conservative 3.4% in 2021. Birmingham, Alabama, which is one of the most interesting ones in the top 10. Coming in at number eight, they’re predicting that rents will grow by 3.4% in 2021, compared to 2.8% in 2020. Next on the list is New Orleans, which I don’t think I’ve seen in a top list before. It’s probably the biggest city on this list that I’ve not seen in a top market list, at least in the past few years. Rents grew by only 0.6% in 2020, but Yardi Matrix is predicting a 3.5% rent growth in 2021.

Another small location on this list is number six, Winston Salem. I think it’s in North Carolina, actually. I remember saying, “Oh, is that in Pennsylvania? Salem, Pennsylvania?” No, I think this is actually in North Carolina. And that’s number six, at 3.6% rent growth predicted in 2021, because of the 6.6% rent growth in 2020.

These next ones are pretty obvious, but I think Winston Salem, New Orleans, Birmingham, Sacramento, and Cincinnati – those were interesting to me. But the top five are [unintelligible [00:14:54] of course. Number five is Phoenix, 3.7% in 2021, 4.6% in 2020. Number four is Indianapolis at 3.9% in 2021, 3.5% in 2020. Number three is Austin, Texas, 3.9% in 2021, -3.6% this year, which I’d be curious to see how they got that prediction, because that’s number three with a pretty big reduction in rents. But they’re predicting a big turnaround in Austin this year. So that’s another highlight of this list. Number two is Salt Lake City, 4.3% in 2021, compared to 3.8% in 2020. The number one on the list is Las Vegas. So rents in Las Vegas grew by 3.8% in 2020, and that prediction is 4.8% in 2021.

So the reason why I kind of say these are conservative because there’s probably going to be a market in 2020 that grows by more than 4.8%; being the highest, I’m sure some market will grow by 6% or 7%. What that market is, I don’t know. Will it be Las Vegas? Will it be another one on this top 10 list? Will it be one that Yardi Matrix predicted as a negative. It’s impossible to tell. That’s why it’s important to also reiterate that forecasts are never perfect. No one, I would imagine, predicted that the market that would experience the greatest rent growth in 2020 would be Boise, Idaho at nearly 10%. I know Boise is slowing down now, which is why it’s not on this top list, but it had a really big jump in rent starting in April through, I believe, the fall, August, October, November timeframe; I can’t remember exactly when it was. But huge jump. No one could have predicted that. So that’s why you don’t want to rely only on rent growth forecast data to select your target market. You don’t want to listen to this podcast and if I say that “They’re predicting 4.8% rent growth in Las Vegas, so I’m going to go buy in Las Vegas this year.” And then just blindly start doing deals in Las Vegas. Obviously, you have to be more sophisticated than that.

But the point here is how do you use this type of information? What’s the purpose of this? On the one end, you don’t want to completely ignore it and say “They’re forecasting a -5% rent growth, but I’ll figure it out.” You also don’t want to go on the other end of the spectrum, which is “Oh, they’re predicting a 5% rent growth, so I’m going to invest here.” You need to look at these types of reports as guides. So if you’re already investing in a market, then it could reinforce your reason for investing. If you’re on the search for a new market, then you can use these types of lists to say “Okay, well they claim that rents are supposed to grow by 5% in 2021, so let’s do some more digging on this market. Let’s take a look at some other economic data. Let’s take a look at supply data, unemployment data, population growth data, job diversity data.” All the things we talked about on this show about how to analyze the market. And then we can decide based off of that whether or not we want to invest.

Then once we make a decision, we want to do a more detailed, submarket, neighborhood-level analysis, to see, of the market average, which one’s going to perform above the average? Because it’s an average. Some places – Las Vegas, for example, is going to grow less than 4.8%. Some places are going to grow more than 4.8% in 2021, assuming that this forecast is accurate. So these are just guides. These are just guides, they’re reinforcing something you already know, another data point that you can add to your stack of data that shows this is a good market or a bad market. And then you also want to make sure you’re performing that deeper-dive analysis.

So before we wrap up, let’s go over some of the other ones for 2021. So all these are basically between 0.5% – so I’m not going to read the percentage points – all the way to the top is 3.3%. The bottom is 2.8%. We’ve got Atlanta, and then Columbus, Louisville, Raleigh, Richmond, Memphis, Tuscan, Nashville, Tampa, and Houston. So those are 11 through 20. And then, I guess we’ll add in the last five, which is Tacoma, Charlotte, Denver, Detroit, and Philadelphia, which are all either 2.8% and 2.7% rent growth.

So what are the big takeaways? Number one, when you’re assuming revenue growth this year, you’re probably going to want to be closer to 2%, maybe even 1%, and maybe assuming rents aren’t going to grow at all in 2021 when you are buying deals. That way it’s just a cherry on the top. Because the average nationally for the forecast is 2.0%. The highest is 4.3%. And Tuscan and Nashville are the last ones at 3%, which are in the top 20. So they’re assuming that only 20 markets or so are going to grow by more than 3%. So when you’re underwriting deals, making a 3% revenue  assumption probably is not the best idea.

If you want more data – because this is just one of one snapshot, one page of the Yardie Matrix report… The US multifamily outlook winter 2021 pandemic prompts rise and rent concessions – ou can check that out; we’ll put a link in the show notes of this episode.

So that’s all I have for today. I hope this was helpful. Let me know if you like these episodes where we dive into timely market data. Just email me theo@joefairless.com and say, “Yeah, Theo I love this.” Or “Hey Theo, I don’t like this. Let’s do something else.” We always appreciate your feedback. Make sure you check out some of the other Syndication School episodes we have, as well as those free documents, at syndicationschool.com.

Until next time. Have a Best Ever day and we’ll talk to you tomorrow.

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.

Oral Disclaimer

The views and opinions expressed in this podcast are provided for informational purposes only, 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. For more information, go to www.bestevershow.com.

 

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JF2346: 6 Tips For Scaling Your Multifamily Business | Syndication School With Theo Hicks

In today’s Syndication School episode, Theo Hicks shares 6 insightful tips on how to scale your multifamily real estate business in the best way possible. The paths you can take will vary depending on your personal goals and business objectives, but Theo’s advice will be helpful no matter if you work all by yourself, have partners, or employees. It will help you utilize your best skills and preserve your vision as you scale.

To listen to other Syndication School series about the “How To’s” of apartment syndications and to download your FREE document, visit SyndicationSchool.com. Thank you for listening and I will talk to you tomorrow.

Click here for more info on groundbreaker.co


TRANSCRIPTION

Theo Hicks: Hello Best Ever listeners, and welcome back to another episode of The Syndication School series, a free resource focused on the how-to’s of apartment syndications. As always, I’m your host Theo Hicks. So each week we will air a podcast episode that focuses on a specific aspect of the apartment syndication investment strategy. And for a lot of these episodes, we have released a free resource. There are PowerPoint presentation templates, Excel calculator templates, PDF how-to guides, something that will help you along your apartment syndication journey. All of these previous episodes, as well as free documents, are available at syndicationschool.com.

In this episode, we are going to talk about scaling. So how do you scale your apartment syndication business? So you’ve done a few deals, maybe two deals, and you want to create a full-fledged syndication business. You want to do it full-time, you want to grow it to a large size. What are some tips? How do you do this?

I remember when a large operator gave a presentation at one of the Best Ever conferences. He mentioned some of the differences between having a single deal or a handful of deals, as opposed to having a massive portfolio. So that inspired this podcast, as well as a conversation I had with an interview guest recently about very quickly scaling his business to over 600 units, I believe in a year. 600 units in one year. So, again, these are some things to think about when you’re ready to make that jump to a larger scale.

And the first one is going to come down to your vision, your “why”. So your vision is not only going to include “I want to be a big-time apartment syndicator”, but more specifically, what is it exactly that you want to be? Where do you see yourself in five years from now? Are you going to be the only person working in your business, or are you going to have employees? Are you going to have five apartment communities, 10 apartment communities? Is it going to be based off of a number of units? How large do you want to be in five years, 10 years, whatever number you want to be? Because the type of business you’re going to have, if you have let’s say $50 million worth of real estate, it’s going to be a lot different than a billion dollars worth of real estate. Maybe you’re going to have an in-house property management company versus a third-party property management company. Maybe it’s going to be you and a business partner, maybe an assistant, or maybe you’re going to have a director of acquisitions, a director of asset management, a director of investor relations… So the bigger you are, the more people you’re going to need.

But it’s also not only a vision of the number of units you want to have and the role you’re going to play, but you also want to think about the type of culture you want to create. Thinking about this ahead of time is very important, because as you’re bringing on employees, you want to make sure that they not only fit the culture and the vision of today – so maybe you only have one property – but they also are on board with your long term vision of owning $100 million, $500 million, a billion dollars in real estate.

Again, just like your business is going to be set up differently if you have a billion versus $50 million in real estate, the type of people you’re going to attract are also going to be different if you are wanting to scale to a billion dollars. $50 million is a lot, but compared to billions it’s not a lot. So making sure that you have the correct understanding of what you want the culture to be like, as well as understanding how big you want to be, and the role you want to play is going to also be important when you are attracting other people.

This comes to the next step of how to scale, which is to focus on what you’re good at. So obviously, when you first start in apartment syndications, you and your business partners are going to be wearing a lot the hats. You’re going to be doing a lot of the boots on the groundwork, touring properties, doing phone calls with investors, writing on the blogs, hosting the podcast, things of that nature. All the different things you need to do in order to be a successful apartment syndicator. But you’re likely good at a handful of those things, and either are not good at or don’t like doing those other things. So if you want to scale, you’re going to need to focus your time on these scaling activities by having more people on your team, so that you can divide and conquer. You only have so many hours in the day, in the week that you can spend on things, and you’re not going to be able to scale to a billion-dollar company if it’s just you and your business partner doing everything. It’s going to be impossible. And even if you are able to do everything, you’re going to burn out eventually. So the goal would be while you’re doing your first couple of deals, identify what you are good at and what you like, and then identify what your business partner is good at and what your business partner likes. And then from there, you can divide and conquer. But then, eventually, you might like something that you either aren’t good at or you are good at something that you don’t like, or good at something that is kind of a low dollar per hour activity. At that point, you want to start outsourcing those duties to other people so that you can spend more time on the high dollar per hour activities. And over time, you’ll slowly chip away until you are only doing what you are good at, what you like, and it’s a high dollar per hour activity, and you’ve got people that work for you who are doing the things that you don’t like, that you aren’t good at, or are those lower-dollar, yet still important activities.

Now, when you are beginning to hire people when you’re scaling, something else to think about would be an addition to them being a good fit with your culture and your vision, is going to be do they have the two characteristics that are very difficult or arguably impossible to teach? And those are going to be number one, ethics and integrity, and number two, drive. So someone who is not a good person and is lazy is probably not going to be a good fit when you’re ready to scale your company. Okay, that’s why it’s important to have an understanding of your overall vision, because maybe some people might be able to get away with having someone like that in the beginning. But eventually, when you’re working in the 10s, the hundreds, and the billion-dollar range, you’re going to need someone who is not going to lie, cheat, and also who’s going to have a strong work ethic. And according to this person that I spoke with, and I guess from my experience too, these things are not teachable. So making sure when you are beginning to chip away at the things that you aren’t good at, you don’t like and are those low dollar per hour activities, make sure you’re finding someone who based off of their track record and their background, have evidence that they have good ethics and have to have the drive. So just making sure you’re asking them the right questions, maybe bringing someone on for a little bit for a test drive. There are lots of different ways to figure that out outside the scope of this conversation. But just making sure that you understand that these are the types of characteristics you want in your team members as you begin to scale.

Something else that will be helpful when you are beginning to scale – and this will be easier as you begin to carve out of things you aren’t good at, and don’t like, and are a low-dollar per hour activities, and give those to other people – it’s making sure you’re spending at least a few hours a day in deep work. So when you first begin, you’re probably going to be multitasking, an email will be open while you’re working on something else on your computer, as emails come in from investors or wherever, you reply right away… When you do your property tour, you get your phone out at the same time while you’re checking your emails… But when you begin to scale and if you want to continue to scale, you’re going to need to stop multitasking and allocate your time more efficiently. And this is where deep work comes in. So make sure that whatever you want to accomplish for that day, you sit down at your computer in your office, in front of that person, on the phone, and you turn everything off. Silence your phone, even turn your phone off if you’re on your computer, turn your computer off if you’re on your phone and focus all your attention on that one thing. It could be for 15 minutes, it can be for half an hour, it can be for an hour, it can be for a few hours. But you can get more done in let’s say, 15 minutes of deep work or half an hour of deep work than you can get done while multitasking for three, four, or five times that amount of time. That’s something you need to start practicing now, so that when you do get to that point where multitasking is becoming super-inefficient, you’ve already got practice doing that deep work.

Next is going to be mentorship. So obviously, it’s possible to scale a large multi-family business in a vacuum. I’m sure it’s happened before, but it’s very unlikely that you’re going to be able to scale a large multi-family business all by yourself. You’re going to need some sort of mentor or guide to take you from where you’re at to where you want to be. And so three tips that we’ll talk about today for finding a mentor… We’ve done a few episodes in the past on mentorship, so make sure you check those out at syndicationschool.com. Number one is going to be that they also align with your vision. So you have a vision of wanting to be a certain size and have a certain culture. So a good mentor will be someone who also has a similar vision, to the same type of culture, the same type of values, and at least the same size of company that you want to be, and type of company you want to be as well. So it’s kind of exactly where you see yourself in five, 10 years from now. That’s who you want your mentor to be. That way, they can show you the fastest way to get there. So same size, similar industry, value… Pretty obvious.

But maybe you didn’t think about that, or maybe your mentor right now isn’t exactly where you want to be. Or maybe your vision was a lot smaller when you had your mentor and now you’re at the same level, but you’re still using them, because they have more experience in you. So it is possible to hop from mentor to mentor as you scale. But making sure they have the same vision as you.

You’re also going to want to find the doers. So you’re going to want someone who is still actively investing. Just because someone created a business… Let’s say your vision is a $500 million business, and they created a $500 million business as well. It’s better to find someone that still has that $500 million business, is still the manager of that company, as opposed to someone who’s no longer actively involved. So how do you find these people? Again, just talk around, get referrals, make sure that they’re actively involved still.

And then the last thing you want to think about – and this is less about them and more about you – is that you want to make sure you’re adding value to these mentors. So one way to add value will be to simply pay them money, but another example would be to do something for them that is priceless. And something that no one else is or can do for them, based off of your unique background, and then adding this value for free. This is going to be different for everyone, but I can’t tell you how many times I’ve talked to investors who will give away their secret sauce, what makes them successful, they give up their contact information on the show, or wherever, they have people will reach out to them, and people don’t really take advantage of that, they don’t act on that. So at this point, simply reaching out to them is adding more value, because these people really like to share their knowledge and teach people. But to stand out, even more, you want to go above and beyond that.

Let’s say you’re listening to an interview on a podcast and they’re an active multi-family investor, $500 million business, and, “Okay, I want to have a $500 million multi-family business. And they’re actively doing it, and it sounds like we’d get along, and they have the same vision and culture as me. So I’m going to reach out to them and send an email.” So rather than just saying like, “Hey, I want to be like you. Can you be my mentor?” It might work, but do some background research on them, either from simply listening to the show, or going on their websites, and figuring out based off of your unique talents and where they’re at in their business, what you can do for them. It doesn’t have to be something to have to be something that’s real estate related. Maybe — I don’t know, this might be a silly example, but it’s what’s coming to my head… We always ask what people’s Best Ever book is. And let’s say they say their favorite book is a Robert Kiyosaki book, or something. Maybe send them an e-book, another Robert Kiyosaki book, or a book that’s similar to the book that they talked about, or something else. My example was all the value I added for Joe when I first started working for him. Completely unnecessarily, I didn’t have to do that, and look what it grew into. So thinking of a way to add value that’s priceless and unique to what you can do.

And then the last tip — so the first tip was vision, the second tip was to focus on what you’re good at. The third tip was making sure that the people you find to do what you aren’t good at and don’t like, and are low dollar per hour activities, making sure they have good ethics and a strong drive. And number four was focus on deep work activities. Number five was mentorship. This last one is to make sure that you do not get overwhelmed when you are in this scaling process. It’s going to be hard, there’s going to be a lot of obstacles you have to overcome, but at the end of the day, there are lots of different ways to scale a business. If you don’t follow every single thing I said today does not mean that you’re not going to scale your business. So just making sure that you are aware of what I just mentioned, and to make sure that you do not let the obstacles that you are going to face stop you from scaling. I think all the tips we talked about, especially having that strong vision, will help.

So there you have it, those are six or so tips on how to scale your multifamily business. Make sure you check out some of the other Syndication School episodes that we have, as well as those free documents, at syndicationschool.com. Thank you for listening. Have a Best Ever day and we’ll talk to you tomorrow.

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JF2344: W2 To Syndicator With Elisa Zhang

Elisa Zhang is the owner/principal of 1000+ unit apartment buildings via 1031 exchange and syndication. After quitting her day job to invest in real estate full-time, she is passionate about teaching others to do the same. She now focuses her time and expertise on helping typical nine-to-fivers to quit their job in 10 years or less.

Elisa Zhang Real Estate Background:

  • Quit her W2 in November 2019 to go full-time into syndication and education
  • 11 years of real estate experience
  • Portfolio consists of 8 properties as a general partner and over 1,000 units in Phoenix & Dallas.
  • Also passively invest in an additional 1,000 units
  • Based in Seattle, WA
  • Say hi to her at www.ezfiuniversity.com 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Get out there and do it” – Elisa Zhang


TRANSCRIPTION

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 talked about the best advice ever. We don’t get into any of that fluffy stuff. With us today, Elisa Zhang. How are you doing, Elisa?

Elisa Zhang: Doing good. Thank you so much, Joe, for having me on here. Big fan of the show.

Joe Fairless: Well, I’m glad to hear that, and I’m grateful that you’re on the show. Elisa quit her W2 in November 2019 to go full time in syndication and education. She’s got 11 years of experience in real estate. Her portfolio consists of eight properties as a general partner, that’s over 1,000 units in Phoenix and Dallas. She also passively invests in an additional thousand units, and she is based in Seattle, Washington. With that being said, do you want to give the Best Ever listeners a little bit more about your background and your current focus?

Elisa Zhang: Sure. So I grew up in China actually, and then moved to Canada, and then moved to Seattle, and landed a tech job, as a lot of our Seattlites are. And from there, we invested using our savings into single-family to start with. We very quickly figured out that we should be doing a cash flow game instead, and moved into multifamily space, self-managed, fourplexes, etc. to start with, and then moved into larger multi-family from there. So that’s kind of a little background on me.

Joe Fairless: Okay. What was your last W2 position?

Elisa Zhang: My last W2 position, it’s the same as it has always been for 13 years. It’s a product manager position or program manager position in a high-tech company.

Joe Fairless: And what were you doing exactly?

Elisa Zhang: Oh, so I was responsible for strategic thinking about where the product should be going after. But it’s also a technical background, so I have a computer engineering background, and I basically [unintelligible [00:04:46].09]  work basically, making sure that my vision is realized on a much smaller scale. And that was a little bit painful, because as you kind of move up more to a senior position in a large corporation, politics kind of get in the way. So 80% of my time, I feel like it’s not serving the customer in the best interest. Also you’re just kind of working in the corporation world… Which is why I kind of started doing real estate, doing a side business… Because what you create when you’re becoming your own boss, you see that direct impact. So that is super-exciting for me, versus kind of grinding in a nine to five.

Joe Fairless: The skills that you used in your W2, what skills have you found that you’ve used the most in what you’re doing now?

Elisa Zhang: I think it actually transitions very well, and I was just about to write an article about that… The project management skill actually translates fantastically into real estate. Because we also know – and Joe, I’m sure you know, when you have constructions, when you have lease-up, all these steps that you’re doing, there’s a lot of follow-ups. There’s a lot of driving everybody to make sure everybody’s on the same page, not rolling all over the places. So I think that skill is very helpful in terms of asset management, as well as raising money. Because when you’re raising money, you’re coordinating with hundreds of people, like you’re doing. That requires a lot of herding cats per se. So that skill set, it was really helpful.

Also, the strategic thinking part was really helpful, in terms of just being the boss of your own company; then you kind of have that vision of where you want to go. So all in all, I was kind of surprised when I transitioned kind of over. I was like, “Wow, my W2 job kind of paved the way to what I do now, even though it’s a completely different career path.”

Joe Fairless: And it’s one thing to understand, “Yes, my skill set translates from W2 to entrepreneurial syndication, real estate investing.” It’s another to tactically see, “Here are some things that I’m doing, that others aren’t doing, because I have the skill set.” So what are some examples of some tactical things that you do that perhaps others don’t do (but they probably should) because they don’t have your skillset?

Elisa Zhang: Using technology, I would say… Because in a high tech software company, there is — I’m not sure if our listeners are familiar with this; it’s a method called Agile methodology, which is you’re basically dividing up developments into small, short cycles. Some are one week, some are two weeks. The idea is that you’re scoping the work so that it can get done within that week, and then making progress moving forward.

That skill set was really helpful in terms of applying the Agile methodology in project management, in constructions, in self-management. And actually, I’m glad you asked this, Joe… Recently, we’ve been using some of the software programs I have been using when I was working in high-tech. Asana is a project management tool, and we’ve been using it. And Slack, in terms of communication with team members, and also just kind of evaluating softwares to make the running of the project a lot smoother.

There’s another program that we usually now use, it’s called Knock CRM. I actually learned about that when one of my coworkers was interviewed for the software. Then I dipped into it a little bit more, and all our property is using Knock CRM right now to efficientize the communications between tenants and the staff, all that stuff, and the cutting down of time spent on that. And also increasing lease conversions, because techs are very high in conversion in terms of sales. So all these are slowly coming back in my life.

Joe Fairless: As far as Agile methodology, I’ve got it pulled up on Google… Is there a book that you’d recommend on that? If not, that’s fine. We can just do Google searches.

Elisa Zhang: I do not, because it’s just work.

Joe Fairless: Okay. You just do it. Yeah. It’s like you were trained on that a while ago. And then Knock CRM is just knockcrm.com.

Elisa Zhang: Yes, that’s correct. Yeah.

Joe Fairless: Okay. So let’s talk about your journey now, a little bit, now that we talked about some tactics that could be helpful for the listeners. So your portfolio – eight properties as a general partner, and then you’ve got passive investments and a thousand units as a limited partner. What came first? I imagine the limited partner stuff, but please educate us.

Elisa Zhang: Yeah, you’re right. It’s definitely the limited partner stuff. But before that, we were managing our own small multi-family. So that kind of has paved a little bit of background.

Joe Fairless: What unit size?

Elisa Zhang: So we started with fourplexes. We bought a couple and then I got bored. So I was like, “Hey, we’ve got to go a little bit bigger.” So we bought 12 units, 10 units… Small multi-family. They’re actually very, very [unintelligible [00:09:53].29]. I’m sure you can attest to it. Smaller properties usually require more hands-on from an asset manager, because the teams are not as professional. And then from there, we learned about investing into larger multi-family. And the decision came in because I lived in Washington, and our property was local before. In 2017 we noticed that we can no longer buy local properties, even small apartment buildings. So I spent a whole year going to three meetups a week, trying to look for a deal. But what I found was knowledge. And then from there, I felt comfortable enough, made enough networking with enough professionals, and felt comfortable enough to kind of move out of state in investing. And then I just started going out of state. I need to go a little larger in order to be able to be scalable. So hence the decision of getting into the larger multi-family. And then from there, we passively invested a few deals, get to know people, and got invited into one deal as a general partner.

Joe Fairless: You went from four units to 12 units, to a 10-unit… What are some challenges that you didn’t think you’d come across on those 12 and 10 units that you did come across?

Elisa Zhang: I did a lot of education before then, too – just kind of listened to podcasts, your show, BiggerPockets, and all that stuff. So I would say the biggest hurdle was financial, which is lending. Because from a four-unit to a bigger than four-unit, you’re crossing the boundary of residential lending to commercial lending. So that first loan, you’re like the bass trout nobody wants. It’s very difficult to beg anyone to get you onto the first loan.

Back then I didn’t really understand the partnering up concept. Nobody ever told me. So you’re just hitting your head on the brick over here over it, over and over again, until someone tells you “Yeah, we can take you.” Which is a local credit union. So we did get financed down on that property in particular, with a commercial loan. But that is after the first credit union got it all the way through and fell through on the 11th hour. And then that person introduced us to another credit union locally and got it done. So it was definitely a very interesting journey. That was very difficult.

The other part of it is I took on one partner. That was intentional. We had enough capital. But we know that after this property if we want to grow more, we’ll probably need to take on a couple more partners. So we were putting a majority of the money, and that was perceived as a lower risk for our investors. So we just kind of went ahead and took on one partner who was my colleague at that time, and then kind of went there. And he’s still my investor to this day, one of my best investors.

Joe Fairless: You said “We took on one partner.” Who’s we?

Elisa Zhang: Oh. I always say we, because it’s me and my husband. But really, I’ve been embarking on the thing by myself once it  was past the fourplex. Because he was basically doing the BRRRR strategy on our fourplex. So he was renovating and I was managing. But once we go beyond the fourplex and also went a little bit further away, he’s just kind of stepping back from that role, because he can’t be renovating them anymore.

Joe Fairless: Does he have a W2 job?

Elisa Zhang: He does not. So I am a single income — our household has always been a single income household. I get paid pretty well with my high tech job, so he didn’t really have a full-time job. So that was his job, which was working for us. Now his job is full time watching out for our kids.

Joe Fairless: There we go. Which is a full-time job.

Elisa Zhang: Absolutely.

Joe Fairless: That’s for sure. So 12 units, 10 units – did you exit out of those?

Elisa Zhang: Yeah. The first one we bought, the 12-unit, we sold it in a year and a half, and basically brought a hundred percent profit for our investor and ourselves. And then 1031-ed into what we call a tenant in common deal. Partner was two other people in Phoenix, into a 36-unit in Phoenix. And we’re actually selling (a year and a half later) out of that thing, and making about 80% profit as well.

Joe Fairless: Nice. That sounds outstanding. So that was your first foray into anything larger than 12 units, that 32-unit. From a limited partner standpoint, how many deals did you invest in on the LP side before you were on the GP side?

Elisa Zhang: I have to kind of think about it. I think maybe three to four or so. It really kind of happened really rapidly, because I had a solo 401k account. At the time I also left my job. I was going through a job transition three years ago, and I was able to use that money and moved into a solo 401k account… And then that’s the money that I can’t really touch and it’s not really doing too much, so I used that to passively invest in a deal and that freed up my cash to do the offers as active partners.

Joe Fairless: Got it. Okay. Let’s talk about the LP investments first, then we’ll talk about the GP stuff. From an LP side, what questions did you ask the general partner? Or what research did you do prior to investing with them?

Elisa Zhang: I really went by a person approach. Every single investment I made, I knew the person individually. And also, I looked at their past track record, I think that was really important. I’m more of a people person. So that was kind of important for me. And other things I looked at is I also took some education with CCIM courses, so I understood how IRRs and all the other calculation happens… So when I look at the underwriting, I would say maybe I’m a little more sophisticated than average LPs. And I look at rental income growth, and I look at reversion caps, and I also look at how feasible the business plan really is. And it looked like a property that has a lot of cash flow and had a pretty good cushion, in terms of how much they’re raising, in terms of reserves compared to their projects. So at that point, it just kind of clicked. Especially, also I had a small apartment experience, so I knew some of the business plans, what that looks like. They weren’t crazy in terms of rent increases, etc. Even if it is, then there’s a very slow step up. That is what I’m kind of looking at.

Joe Fairless: Yeah. And will you elaborate on the rental growth a little bit more? On what would be a red flag? Maybe we’ll approach it that way.

Elisa Zhang: So over the years, I’ve become more experienced with that. So on my first deal when I evaluated it, I was just simply looking at the market rent growth and wanted to make sure that matches with what the migration pattern looks like. For example, Texas back then, and Dallas, you can probably underwrite at 3% rent growth, because that matches with the report. But later on, the market has matured a little bit, so that rent growth has slowed down a little bit. So that’s the stuff that I’m kind of looking at, and also other incomes etc.

Now recently, by doing deals myself, I came to this conclusion. Also, recently the market has changed. It’s not as peachy looking. So when I’m kind of looking at — basically, total income is what I look at now. Because at the end of the day it’s how much you are increasing in total in terms of income, and then what your tenant can kind of weather. It doesn’t matter if it’s other income that increases, or it’s the rent income that increases; there are ways that you can structure it, obviously, that I would encourage people to do, but at the end of the day, they’re going to see what is the bottom line when they pay the rent. So that total income now has just become my metrics on what’s the increase over there.

I think with the recent market, we should probably be conservatively looking at them. In the first year, I don’t want to see anything over 2% on the total income increase… Which is super conservative, because when you’re considering a lot of value add projects, there’s intrinsically maybe 10 or 20% rent growth there just by implementing the market, even with a discount. In the second year, I’m looking at less than maybe 3% increase. And then the third year and fourth year, I have a pretty optimistic view on that, because I think inflation is going to pick up. So over then I’m okay to look at up to a 10% increase. That’s kind of the projects I’m looking at currently, using the current market.

Joe Fairless: It’s interesting that you’re talking about that now that you’ve been on the GP side. You’ve seen some other ways to increase income to help influence that. What are some things that you’re seeing now?

Elisa Zhang: Well, now increase is really difficult, because we’re in the middle of a pandemic. And I think by the time this episode aired, we’ll probably still be in it. So it’s about the preservation of the income. But what we noticed is even on the property that we were doing is, previously we had a plan on doing upgrades, and we were hitting them before the Corona time. And then as soon as that pandemic happened, we noticed the demand for updated units was a lot less. People are rather looking for amenities such as a washer and dryer in a unit. That’s a huge one, especially in the Phoenix market. You almost command a $60 to $100 increase; it depends on where you live. And then it’s a lot cheaper actually to put that in compared to doing the full upgrade in the Phoenix market, because the labor is pretty expensive over there. You can probably get away with $4,000;  that’s if you have to dig a hole in your wall and actually adding the connection itself. So the ROI is actually a lot higher right now, because people don’t want to go to public places to do laundry, and this and that.

Also, the Amazon lockbox in like a slightly better class property… Because again, the convenience is very big. So more amenities now, that’s a way to kind of increase the income, versus just a traditional upgrade. That’s kind of what we noticed in this particular market. Previously, obviously, by just updating the units, I think oftentimes we can hit the market rents that we wanted.

Joe Fairless: What deals lost the most amount of money?

Elisa Zhang: Well, there’s one deal that we are closing. On the 23rd hour it fell apart and we lost $30,000 in that. And that’s all our own money. So that was the first syndication attempt that we put together. So I had a partner in Mississippi and we found this tertiary market. Hindsight is probably a good thing that we didn’t go forward. Everything has lined up. We found the investors, because that was our first deal ever, we found the experienced GP to sign up with us, all that sort of stuff. It was very challenging. Every single step of the way was very difficult, because we tried to do it ourselves, with no mentors. But we got it done, crossed the line. On the 23rd hour, our lawyer — and Mississippi is an escrow state, which means your lawyer does all your closing. And our lawyer is not as experienced as she led us to believe so. She took extra time, because I’m in the Washington States and etc. So doing all these background checks, so she took one extra day.

And then we went back to the seller – and this is direct to seller deal – and negotiated with him and said, “Hey, we just need one more day extension to get the [unintelligible [00:21:24].21] done and we’re good.” And the seller turns around and said, “No, I want to hike up 10% on the purchase price.” I’m like “What? Who does that?” We can’t do that, because we had investor money in there. So we had to say no. And then we tried to save the deal last minute, negotiate with him, but the seller was just not cooperating. So as such, we had to walk away from the deal. And we didn’t have a lot of hard earnest money in, which is good, but we lost to all the expenses that were associated with it. It’s about $30,000 that we lost over there.

Joe Fairless: How many units was it?

Elisa Zhang: It was only 50 units. In hindsight is probably good we didn’t get into it because it was literally in a tertiary, if not like a [unintelligible [00:22:06].12] market.

Joe Fairless: Okay. Do you know what happened to that property?

Elisa Zhang: He still owns it.

Joe Fairless: Really?

Elisa Zhang: Yes. Yup. [laughs]

Joe Fairless: What deal has made you personally the most money to date?

Elisa Zhang: That’s a good question, because I have to kind of go through in my head… It’s a toss-up between actually the fourplex and my small apartment buildings… Which is kind of funny, because some of the deals that we’re still in the cycle for, for the larger apartment, which is why it’s not really comparable… But hey, I would say in four years, we have through a 1031, that 12-unit, quadrupled our equity gain over there, and then we’re doing yet another 1031. So we transferred a 300k to $1.2 million in three years. That’s a pretty good gain, I think. Other ones – I would say the fourplexes that we did multiple BRRRRs on them. So we pulled all our original capital out of it three times, and it’s still cashflowing a thousand dollars per complex…

Joe Fairless: Wow.

Elisa Zhang: …which is pretty good. Yeah,

Joe Fairless: Let’s take a step back… What is your best real estate investing advice ever?

Elisa Zhang: I would say get out and do it, and also get a mentor. We kind of struggled, as I shared that story about that Vicksburg deal. At the time if I had a coach or someone mentoring me on this, then we could have probably more creative maneuvers over there. Or better negotiation tactics, right? Or getting access to better networks, and this and that. So I think that is something I would advise my 10-year ago self, to get in quicker. So that kind of increases your trajectory a lot more and shortens the time that you have to suffer through trial and error.

Joe Fairless: We’re going to do a lightning round. Are you ready for the Best Ever lightning round?

Elisa Zhang: Yes.

Joe Fairless: Alright. First, a quick word from our Best Ever partners.

Break: [23:56][24:45]

Joe Fairless: What’s the Best Ever way you like to give back to the community?

Elisa Zhang: I have started a university called EZ FI University. I like to kind of teach other people what I do and show them there are multiple different ways to reach their financial freedom. So this is one way that I’m giving back right now. And I’m actually also working on my charity strategies to figure out causes that are really passionate to me to give back to the community by donating.

Joe Fairless: How can the Best Ever listeners learn more about what you’re doing?

Elisa Zhang: They can go to www.ezfiuniversity.com to check us out.

Joe Fairless: Thank you so much for being on the show, talking about your background, your journey, and how you have gone from the fourplex to now general partner on eight deals, and the lessons learned on the 12-unit and the 10-unit in terms of lending and bringing on a partner, even though you really didn’t need one, but you saw that it would be beneficial for you to have one in the future that you have a proven track record with. And I think that’s a very valuable insight, especially for those who are starting out. Thanks for being on the show. I hope you have a Best Ever day, and talk to you again soon.

Elisa Zhang: Thank you so much, Joe.

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.

Oral Disclaimer

The views and opinions expressed in this podcast are provided for informational purposes only, 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. For more information, go to www.bestevershow.com.

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JF2339: Where Did Most People Move in 2020?| Syndication School with Theo Hicks

In today’s Syndication School episode, Theo Hicks shares a list of places where most people moved to in 2020. The list is based on the U-Haul report that shows which destinations had the highest net gain of one-way trips made by people who rented U-Haul trucks. Listen to this episode. And while this information doesn’t reflect the full picture of migration happening within the USA, it still gives us a pretty clear idea of which markets are growing and which ones are declining.

Click here for more info on groundbreaker.co

To listen to other Syndication School series about the “How To’s” of apartment syndications and to download your FREE document, visit SyndicationSchool.com. Thank you for listening and I will talk to you tomorrow.


TRANSCRIPTION

Theo Hicks: Hello Best Ever listeners and welcome back to another edition of the Syndication School series, a free resource where we focus on the how-to’s of apartment syndication. As always, I’m your host Theo Hicks. Each week, we air a podcast episode that focuses on a specific aspect of the apartment syndication investment strategy. And for a lot of these episodes, we’ve given away free documents, so make sure you check out those previous episodes, as well as those free documents at syndicationschool.com.

Took a little break last week. I was feeling under the weather and decided not to record because I would have been coughing into the microphone and didn’t want to do that to our editor. But we’re back at it this week, feeling much better. I didn’t have to lose my sense of smell or taste. It was just, as my wife calls it, a man flu. But feeling good. Glad to be back and talking about apartment syndication.

So specifically, as you can tell by the title, we’re going to talk about something timely today and related to markets. So each year U-Haul, of all places, releases an annual report where they rank each state in the US, minus Hawaii, since they don’t as of yet create a car to boat a U-Haul truck… But they do include Alaska, and then they run off the 50. They added in Washington DC as a separate location. So they rank all 49 states, minus Hawaii, plus Washington DC, based off of the net gain of one-way U-Haul trucks that are entering the state, versus leaving the states, based on all of their U-haul transactions.

So whenever someone gets a U-Haul for a one-way trip, they log the destination as well as where they’re leaving from. So for each of the states, they’ll list up all of the people that were going to that market one-way, and all the people that were leaving the market. And then if it was a net gain, that means that more people booked a one-way trip to that market. If it was a net loss, it means that more people booked one-way trips out of that market.

So a little disclaimer that they have on their website, or on this post, they say that “U-Haul migration trends do not correlate directly to population or economic growth. The company’s growth data is an effective gauge of how well cities and states are attracting and maintaining residents.” So of course, they don’t track every single person who is moving out of the state or moving into the state. People might not take a U-Haul, or they might use some other service, they might fly.  For example, when we moved recently, we used a third-party company that the company my wife works [unintelligible [00:06:28].02] to move. So it’s not logging every single person that’s moving. But it can give you a general idea, at least relatively speaking, where people are going, where people aren’t going, since it’s using that same data across all the markets.

And then as multifamily investors, we care a lot about the population trends when we are selecting a target market, when we are analyzing the target market we’re currently in to make sure that it is still a strong market… So you don’t want to just analyze the market once and then assume it’s always going to be good. You want to constantly be looking at it on a yearly basis.  Or if you’re ready to move or expand to other markets, you want to look at population trends. And so you want to see, obviously, a market where the migration is net positive and not net negative. Meaning more people are moving there than are moving out… Because – and this applies to all real estate, but more specifically to multi-family – the people are your supply, in a sense, right? So you’ve got, on the one hand, the amount of real estate available, on the other hand, the number of people.

Obviously, each year, usually in most places, especially the big markets, the amount of real estate available is going up, or the number of units are going up. And then hopefully the number of people are going up at a faster rate, meaning that there are more people than there are actual units. So these locations with really high migration are going to have a greater demand for real estate, which means your vacancies are going to be lower, and you’ll be able to demand a higher rent.

So that’s why I think these U-Haul reports are very powerful. And again, it can help you confirm that you’re in the right market, or help you determine if you need to leave your market, or to expand to another market. Now one last thing before I actually get into the numbers is that these are statewide. Just because your state is at the bottom of the list, or at the top of the list, it doesn’t mean that you should, on the one hand, leave, if it was at the bottom of the list, or on the other hand, stay or go there if it’s at the top of the list. Because it’s still going to be very dependent on the MSA. And then within that MSA it’s going to be dependent on the neighborhood. It can depend on you following the three immutable laws of real estate investing, you having the right team, underwriting the deal properly… You guys kind of get the drill.

So the whole point here is to give you guidance and some markets to maybe investigate further. But this still doesn’t mean that you can throw everything else we’ve talked about out the window and just say, “Oh, well. In this case, Tennessee is number one. So I’m going to sell all my properties and then move to some random rural area in Tennessee, because Theo told me at Syndication School that most people are moving to this area.” So obviously you guys know that, but you always have to remind the people, just in case we’ve got some newer people who are zealous and excited to get started.

So one of the biggest changes, I kind of just mentioned, would be the state that topped the list. So for the first time since 2015, which I believe is when they started tracking this data, a non-Florida non-Texas State had the greatest gain in one way U-Haul trucks entering their state. And of all places, it was Tennessee, which is very surprising to me. Obviously, we’ve got Nashville probably leading the way in that. So the one-way my trips were up 12% year over year, which resulted in Tennessee jumping to the number one spot from the 12th spot in 2019. So a pretty big jump.

Texas, who used to hold the number one spot from 2016 to 2018, so three years in a row, they fell to second place in 2019 and remained in second place in 2020… While Florida took over Texas at the number one spot in 2019, and then dropped to number three in 2020. So top three would be number one, Tennessee, number two, Texas, and number three, Florida.

Now some other markets that had some pretty big jumps in the rankings would be Arizona. In 2019, Arizona ranked 20th, whereas in 2020 they are ranked 5th. The biggest jump was Colorado. So Colorado was ranked all the way in the 40s, in 2019. They were even at 42nd, so essentially almost the last in 2019. But they jumped all the way to 6th place in 2020.

And then another area with a big jump would be Nevada who was 24th in 2019 and then 8th in 2020. So again, it seems here that Texas and Florida are still strong, still a lot of people moving there. But Tennessee, Arizona, Colorado, and Nevada might be four states to investigate further and figure out where in those states people are moving. Most likely, Nashville, Phoenix, Denver, and then… For Nevada, I’m not necessarily sure where that would be. I can’t remember; that must be Reno where all the people are moving. I don’t think it’s actually Las Vegas. But you’ll back check me on that.

Now, what about the opposite end of the spectrum? What about some of the states that lost people based off of, again, U-Hauls one-way trip data? So the states that had the most net loss of one-way U-Haul trips. Not surprisingly, California was ranked 50th, the absolute worst. And that was followed by Illinois, in 49th place. So a lot of one-way U-Haul trips out of California, a lot of one-way trips out of Illinois. Again, going to places like Arizona, Colorado, Nevada, Tennessee, and the other ones in the top 10. I’ll get to it in a second.

So California, nothing new here. They have ranked 48th, 49th or 50th, since 2016. And then Illinois has basically been dead last or second to dead last since 2015. And again, this is when they started tracking this data, 2015. So maybe even longer than that California and Illinois have been at the bottom of the list. Again it doesn’t mean that every single real estate investment in Illinois and California is bad, but just overall people are leaving those states.

Other markets that had some pretty large drops in the rankings… First will be North Carolina. So North Carolina was still in the top 10, but they were third in 2018 and dropped to 9th in 2020. So not that big of a drop, but still 3rd and 9th. I wanted to highlight that. And then their neighbor, South Carolina was 4th in 2019 and then they dropped to 15th and 2020. We’ve got Utah who dropped from 8th to 17th. Alabama had a pretty big drop from 6th all the way to 22nd. Another place with a big drop would be Vermont from, 10th to 26th. Idaho from 11th to 30th, which is interesting because the rents in Boise, Idaho have been exploding this year during the COVID pandemic. And then the biggest drop would be the state of Washington, which went from 5th in 2019, all the way to 36th in 2020.

So basically the markets that did really well are Tennessee, Arizona, Colorado, and Nevada. Texas and Florida remain strong. And then California, Illinois stayed bad. And then some other markets that you might want to keep an eye on if you’re in there would be North Carolina, South Carolina, Utah, Alabama, Vermont, Idaho, and Washington. South Carolina and Utah are still in the top 20, so not that big of a deal. But Alabama dropped from the top 10 to the 20s. Same with Vermont, Idaho 11th to the  30th, and then Washington, a huge drop from 5th to 36th in 2020.

So if you want to check out the full list of 50, you can go to Google and type in just 2020 migration trends U-Haul, and it should pop up. But I’m going to go over the top 10 right now with you guys and girls, and then we will wrap up the show. So we’re going to go to the top 10, plus the ranking in 2019.

So number 10, the state of Georgia who was ranked 16th in 2019. Number nine, as I’ve already mentioned, North Carolina dropped in 9th place from 3rd. Nevada, a huge jump from 24th to 8th. Next is Missouri in 7th place, which is kind of interesting, from 13th in 2019. As I already mentioned Colorado, the biggest jump of all, 42nd place (crazy) in 2019, all the way to 6th in 2020. Another part was the big jump of Arizona, 5th place in 2020, from 20th in 2019.

And then you’ve kind of got the ones that have always been strong, which would be Ohio at 4th (they were 7th last year), Florida 3rd; as I mentioned it was 1st last year. Texas 2nd, still. And then number one, Tennessee, at 12th in 2019. So kind of all over the place.

You’ve got the South with Georgia. Maybe you consider North Carolina, South, I don’t know. And then Florida, Texas, Tennessee. We had the Midwest with Ohio. I don’t think Missouri is considered Midwest. So Missouri is kind of like an outlier. And then we’ve got the mountain, Nevada, Colorado, Arizona. Really nothing in the North-East and nothing in the West. We’ve got kind of South, and then Midwest mountain areas with the coast. I guess the East Coast, the West Coast, not really on this list.

So check out that list of all the 50, and again, this is a report done by U-Haul every single year. So that will conclude this episode. Thanks for tuning in. Make sure you check out some of our other episodes on the how-to’s of apartment syndication. Make sure you check out those free documents as well. That is at syndicationschool.com Thank you for listening. Have a Best Ever day and we’ll talk to you tomorrow.

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.

Oral Disclaimer

The views and opinions expressed in this podcast are provided for informational purposes only, 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. For more information, go to www.bestevershow.com.

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JF2325: 20 Markets to Buy Multifamily in 2021| Syndication School with Theo Hicks

 

In today’s Syndication School episode, Theo Hick discusses the best 20 markets to buy multifamily properties. He also shares the 3 rules that will keep your investments safe and sound no matter the current state of the economy. As long as you’re buying right, your deals will be well-maintained even during the time of economic uncertainty.

Theo based his list of 20 trending markets on the annual report put together by PWC and the Urban Land Institute. Over 3000 real estate professionals have been interviewed in order to put together an in-depth report.

To listen to other Syndication School series about the “How To’s” of apartment syndications and to download your FREE document, visit SyndicationSchool.com. Thank you for listening and I will talk to you tomorrow. 

Click here for more info on groundbreaker.co


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners, and welcome back to another episode of The Syndication School series, a free resource focused on the how-to’s of apartment syndication. Although this will be released in about mid-January, this is my first time recording in the new year, so happy new year’s, happy 2021, and thank you for tuning in.

Today we’re going to pick up right where we left off in 2020 by talking about the how-tos have apartment syndications. Make sure you go and check out some of the older syndication school episodes that we released in 2020, and also in 2019, and maybe even 2018. I’m not sure how long I’ve been doing this for now, but lots of valuable information, as well as lots of valuable free resources to download. These are PowerPoint presentations, how-to guides, Excel template calculators, things that will help you along your apartment syndication journey.

Being the new year, I thought it’d be great to kick it off with an episode that talks about some of the markets to look into 2021. So 2020 has been a pretty crazy year. We talked about the impacts of COVID19 in real estate in general, and some of the projected changes. We did talk about some of the information on particular markets, but today I want to go through a list of some of the top markets to buy multifamily in in 2021.

Now, one of the things that we talked about a lot on Syndication School are these three immutable laws of real estate investing. And the entire concept behind these three laws, which as a refresher, are 1) buy for cash flow, not appreciation, 2) secure long term debt, and 3) to have adequate cash reserves. Now, the idea behind all these rules is that no matter what the condition of the overall real estate market is, you’re still able to maintain your existing portfolio, and then based off of the three rules, being involved with buying allows you to buy new deals. And so follow these rules all the time; you can buy deals during a recession, which we’re technically in right now, and the deals you bought prior to the recession we’ll at least maintain and not be completely destroyed during a recession. And again, when you think about these three laws, the whole point is that you can still buy real estate, you can still buy multi-family, you can still invest during these downturns, during these periods of uncertainty, as long as you’re buying right.

And what I’m going to talk about today is evidence of that point, that you can continue to buy during recessions, downturns, whatever you want to call it right now; we’ll call economic uncertainty. Periods of economic uncertainty. So this is based off of a very lengthy report, that’s over 100 pages long; I highly recommend reviewing it, and I’ll link to it in the show notes of this episode. It’s called The 2021 Emerging Trends in Real Estate. This is an annual report put together by PWC and the Urban Land Institute.

I really like this idea… They essentially interview a bunch of real estate professionals, and then the ones that they don’t interview, they’ll send surveys to. And they do this for over nearly 3,000 individuals. So they say that they interview 1,350 individuals, and then they surveyed another 1,600 individuals. These are people who own commercial real estate, or develop commercial real estate, work for some sort of advisory firm… They are passive investors in commercial real estate, they’re like investment managers, advisors, banks, lenders, homebuilders, land developers, REIT companies… It’s incredibly a broad spectrum of commercial real estate. And they ask them a bunch of questions on what they think is kind of going on, and then based off of the 3,000 or so responses they get, they put together this really detailed report. They also obviously pull data from the Bureau of Economic Analysis, US Department of Commerce, some of the big commercial real estate reporting firms out there, and they put together a really nice report.

And the one thing I wanted to focus on today, as I mentioned in the beginning, are what are some of the markets that we should be looking at in 2021? More specifically, what they did is they asked all of the respondents to let them know, “Okay, so based off of all these major metropolitan statistical areas, MSAs, would you recommend that people either A, buy, B, hold, or C, sell their properties?” And so for all the markets, they compiled all these responses. So out of 100, what percentage said that you should buy real estate in this market? What percentage said “Well, you shouldn’t buy. If you have an existing property, you should probably hold and not sell.” And then “No, if you hold property, you need to sell and get out of this market.”

So these are the markets that all these different active real estate professionals think and recommend that people buy in in 2021. So I’m going to go over those today. This is specifically for multi-family. They have a breakdown of the same survey for other commercial real estate niches, like office, and retail, which – for retail, obviously, not a lot of buy here; a lot of sell actually. They have the top 20 here for retail, and number 20 is 0% buy. And the most is Orlando, which is 28%  buy; it’s kind of interesting.

Same thing for hotel, and then they have other rankings for markets. But again, I want to focus on the buying multi-family. So according to these experts, what are the top 20 markets that experts are recommending that you buy in? And of these top 20, more than 50% of the respondents said you should buy multi-family. And to put that in perspective, for office, for retail, and for hotel – I think they have one other one on here, which is industrial. But for office, for retail, and for hotel, the number one market to buy in, for all three of those, is less than 50%. So office is 45% in Salt Lake City, Orlando, 28% for retail. And then for hotel, it was 23% at Fort Lauderdale.

And so the number one market to buy in for those three asset classes, so less than the top, say, 15 multi-family markets to buy in, with industrial obviously being kind of, in a sense, better and more attractive, and more recommended than multi-family. We’ve talked about it on the show in the past before. So without further adieu, let’s jump into these actual markets. But the whole point of that is just introducing the fact that hey, multi-family is doing a lot better than these other asset classes. And these experts are predicting that it’s still going to do well in 2021.

So number one is going to be Raleigh, Durham, North Carolina. 72% of the respondents recommended buying multi-family in Raleigh, Durham. 20% said you should hold, and 9% said to sell. So that’s the number one market.

The next two are tied for second. Still very high recommendation, at 67%, buy in Tampa, St Petersburg, and Salt Lake City. For Tampa, St. Petersburg, 30% recommended to hold, and 2% recommended to sell. For Salt Lake you have 27% hold, and 6% sell.

In fourth place is going to be Austin at 63% buy, 28% hold, and here we see a pretty high sell of 12%, relative to some of the other ones on this list. Only a few of them have a double-digit sell recommendation. But still the majority think that Austin is a good market to buy in.

This one kind of surprised me, but Boston comes at number five. Boston, Massachusetts at 60% buy, 32% hold, and 9% sell. Now, for some of these, they actually don’t add up to exactly 100%, right? 72 plus 20, plus nine is 101%. I think they rounded these without a decimal point. So they’re all within one percentage point of 100%.

Number six is going to be Boise, Idaho. Now, if you remember from some of the rent analyses that we did in late 2020, Boise, Idaho experienced the greatest rent growth out of any major market since the onset of the COVID-19. I’m pretty sure it’s a double-digit rent growth percentage. So clearly, Boise is going to be on this top list of places to buy, with 59% recommending to buy, 34% recommending to hold, and 6% recommending to sell.

Next we have Nashville, Tennessee, 59% buy, 37% hold, 4% sell.

Next, coming in at number eight we have a repeat in North Carolina this time, it is Charlotte, North Carolina at 56% buy 36% hold, and 8% to sell. Number nine, we’ve got our first repeat for Texas, which is San Antonio, which is 55% buy, 35% hold, and 10% – so another double-digit, but still relatively low to sell.

And then rounding off the top 10, which is one of the only places on this list where no one recommended that you sell – it was a 55% buy, 45% hold, Columbus Ohio. So no one recommended that you sell in Columbus, Ohio. So that is the top 10. Again there’s Raleigh, Tampa, Salt Lake City, Austin, Boston, Boise, Nashville, Charlotte, San Antonio, and Columbus.

So kind of really all over the country. A lot of southern states, but also you’ve got Boston which is Northeast, you’ve got Boise which is in the West, and then you got Columbus in the Midwest. So really kind of all over the place. It’s not necessarily focused on one particular section of the country.

So I’m going to quickly go through the next 10 to round off the top 20. So at number 11, Washington DC at 54% buy, 43% hold, 3% sell. 12, Fort Lauderdale – 53% buy… I’m just talking about the buy here. I want to do all this. So, Fort Lauderdale, it was 53% buy, 39% hold, 8% sell. Atlanta 53% buy, 33% hold, 14% sell. Phoenix 52% buy, 30% hold, 15% sell.

And then the last location that the majority of respondents recommending to buy would be the Inland Empire, which is parts of California, 51% buy, 42% hold, 7% sell. Now the last one, Phoenix – that actually has the highest of these top ones, highest percentage of sale; but obviously, they’re only featuring the top 20. A lot of these markets are going to have a pretty high sell, but they  don’t include those ones on the list. So of the top 20, 17% recommending selling in Phoenix; that’s the highest one.

Next we got Long Island at number 16, which is 46% buy, 54% hold, and then another 0% here for selling. So Columbus, also Long Island – they’re not recommending that you sell. Either buy or you hold. 17 is Cape Coral, Fort Myers, Naples, so third is Florida on the list, in addition to Tampa, St. Petersburg and Fort Lauderdale. It’s 44% buy, 50% hold, 6% sell.

Back to the Midwest in Indianapolis at 44% buy, 56% hold, and the third one on our list where no one says to sell, also in the Midwest (I guess Wisconsin is technically Midwest), Madison, Wisconsin, at 43% buy, 57% hold, another 0% sell. And then lastly, number 20 is Virginia Beach, Norfolk at 33% buy, 56% hold, and 11% sell. So those are the top 20 markets to [unintelligible [00:16:57].21] real estate, but multi-family in 2021.

Now kind of going full circle back to the beginning, back to those three unbeatable laws of real estate investing… Just because 72% of people say you should buy in Raleigh, Durham, it doesn’t mean you should buy every deal in Raleigh, Durham, right? You still need to do your market analysis that we’ve talked about before, and you still need to buy right, you still need to underwrite, you still need to follow the Best Ever practices we’ve talked about on this show. But at the same time, you want to set yourself up for success by buying in a solid market. So these are forecasts, right? These are recommendations from experts. These aren’t, again, guaranteed. Raleigh, Durham is not guaranteed to be the best market. It’s not like — in Columbus they say no one should sell, but then if you own a property in Columbus it doesn’t mean you shouldn’t sell, right? It all kind of depends on where you’re at in your business plan, and things like that. But at the end of the day, the idea behind all this is “Okay, here are some of the top-rated markets.” So if you’re in them, great. If you’re focused on them, great. If you’re not focused on them, you might want to consider looking into these.

I might do some future episodes going more in-depth on this report, because there’s a lot of solid information on here; it’s really long, and I don’t expect every single person listening to this to read all 112 pages. So maybe I’ll do that for you, and we can dive into this on future Syndication School episodes as it makes sense.

So yeah, thanks for tuning in. Make sure you download this report and at least go to the multi-family section of this report, or at least read the key highlights of the executive summary to get an idea of where we’re at as it relates to real estate in general… And more particularly commercial real estate, and even more particularly, multi-family real estate. This link will be in the show notes.

Until next week, make sure you check out some of the other Syndication School podcast episodes, download all those free documents that we have available as well at syndicationschool.com. Thank you for listening, as always have a Best Ever day, and we will talk to you tomorrow.

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