JF2241: Find Off Market Apartment Leads with These 7 Online Services | Syndication School with Theo Hicks

In today’s Syndication School episode, Theo Hicks shares 7 different ways to find off-market apartment deals through utilizing methods that allow you to be on your own personal coach. 

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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. 

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JF2234: 5 Ways to Immediately Improve Your Mindset | Syndication School with Theo Hicks

In today’s Syndication School episode, Theo Hicks, shares some of the most valuable mindset tips he has taken away from some of the recent interviews he has done on the Best Ever Show. Stay tuned in as Theo shares some golden nuggets to help you improve your mind so you can handle stress and grow.

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. 

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JF2227: Why Multifamily In The Suburbs Will Thrive | Syndication School with Theo Hicks

In today’s Syndication School episode, Theo Hicks will be sharing some of the research he has done on the trends of Multifamily as a result of the Coronavirus Pandemic.

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

Joe Fairless: There needed to be a resource on apartment syndication that not only talked about each aspect of the syndication process, but how to actually do each of the things, and go into it in detail… And we thought “Hey, why not make it free, too?” That’s why we launched Syndication School.

Theo Hicks will go through a particular aspect of apartment syndication on today’s episode, and get into the details of how to do that particular thing. Enjoy this episode, and for more on apartment syndication and how to do things, go to apartmentsyndication.com, or to learn more about the Apartment Syndication School, go to syndicationschool.com, so you can listen to all the previous episodes.

Theo Hicks: Hello, listeners and welcome back to another episode of The Syndication School series, a free resource focused on the ‘How-tos’ apartment syndication. As always, I’m your host, Theo Hicks.

Each week, we release a Syndication School episode that focuses on a specific aspect of the apartment syndication investment strategy; make sure you check out our previous episodes. We also have a lot of free giveaways, free goodies, free documents along with those older episodes, especially the first batch, where we go through apartment syndication from A to Z. Those free documents, as well as free episodes, are always available at http://syndicationschool.com/.

In this episode, we’re going to review a pretty heavy data research that I did on the trends of multifamily as a result of the Coronavirus pandemic. I’m going to start focusing on that. I think it’s been long enough since the onset, we have a lot of data to see how people adjusted their lifestyles in order to determine what types of real estate are going to be in demand, and what the new developments are.

One of the things that had been on my mind that I’d seen a few articles talking about was the market changes. So which types of markets are going to be in demand for the future. As you know, as a loyal listener, when we talk about markets, there’s lots of factors that we want to look at, essentially, to paint a supply and demand picture.

One of the metrics that is an indicator of demand is going to be the population change. All other things being equal, if the population is increasing, then the demand for real estate will increase. If the population is decreasing, then the demand for real estate will also decrease. Obviously, that’s just one factor that is relevant to demand. And there’s a whole other side of the equation, which is supply, so you can have an increasing population, but if the supply is outpacing the increase in population, you might have an oversupply issue. I know this is very simplified, but there are people who I’ve come across who will use the population growth, at the very least, as a disqualifier. If a market, whether it be a state or a city, does not have a positive net migration, so if more people are moving out than are moving in, the population is decreasing, then that market is automatically disqualified from contention. Whereas if more people are moving in than are moving out, then the net migration is positive, and they won’t disqualify it.

U-Haul actually has really good net migration data that they release each year. So definitely check that out. If you just type in Google “U-Haul migration”, that will come up.

But the reason why, and it’s kind of obvious, but the reason why you want to understand where people are moving to or where they’re moving from or where they’re out of is so that you can adjust your business plan accordingly. The reason why you want to look at U-Haul’s net migration data, the reason why you want to pay attention to any new businesses moving into the area or moving out of the area, is because if you’re in a market that has more people moving in than moving out, then you’re in a pretty good place, you’re sitting pretty. But if you’re in a market where the trend has turned, and now more people are moving out than are moving in, well, then that might indicate some trouble on the horizon, right? Not guaranteed, not always, but that is something that you want to pay attention to, because that is an indication that demand for real estate will also decrease. If you match that with a really high new construction rate, then you’re in big trouble, because supply is going up and demand is going down which is the opposite of what you want to see.

One of the biggest migration changes, population changes that is due in part to the Coronavirus, but it was happening, and I believe it was happening beforehand — there’s a really good, I think it was a Brookings Institute article that talked about the trend from people moving from urban centers to the suburbs over the past few years. Based off of some of the more recent articles, because of the Coronavirus and a few other things we’ll talk about a little bit, more people are interested in leaving, or they’re saying that “I plan on or I’m searching for, I intend on leaving”, whereas some places they’re actually leaving already. New York is a really good example, to not only show that it’s happening already, but that it’s something that is expected to continue to happen into the future.

An article in The Hill entitled Americans leave large cities for suburban areas and rural towns said that approximately a quarter of a million New York City residents plan on moving out of New York City to some other New York suburb, and another 2 million said that they plan on moving out of state altogether to somewhere else. Also more than 16,000 New Yorkers have already moved out of the city to suburban Connecticut. But this trend is not unique to New York.

There is another analysis done by Redfin, that said that a record number of their users were looking to move to another metro area. This was in the middle of 2020. And that number was 27.4%, I think it was up from 25%. A quarter of their users are looking to move out of the metro area that they are currently in.

The most popular places that people are looking to move to are going to be either the city or the suburbs surrounding Phoenix, Sacramento, Las Vegas, Austin and  Atlanta. And then to round out the top 10 is Dallas, Tampa, Miami, Nashville and Charlotte. And then this analysis also has where they are leaving from, and that would be Los Angeles, San Francisco, and New York. And then for Tampa — because they have it for top origin in states and then top out of state origin. The only ones that aren’t the same would be for Sacramento. Out of state is  Reno, Nevada, and then for Tampa, the out of state is New York or the in-state is Orlando.

On the other hand, the locations with the largest outflows were New York, San Francisco, Los Angeles – I said that already – Washington, Chicago, Seattle, Denver, Boston, Milwaukee and Rockford. That is where these Redfin people are searching to leave these larger metros for these more secondary metros.

Now something that’s surprising to me at the very least was that not only is there an increase in demand in these suburban areas, people leaving the cities to go to the outer suburbs, but there’s also an increasing demand for rural markets, even further out from these cities. This is a US News article, and they said that 57% of realtors that responded to their survey said that they had experienced an increase in interest in rural Montana. A lot of these came from people who lived in major metros in California, so San Francisco and Los Angeles. And the reasons why they were choosing rural markets, in addition to them choosing Montana, in addition to them growing up there and having family there, is because of the low Coronavirus infection rate.

In the same Hill article I mentioned earlier, they talked about how real estate sales were increasing in Montana with a 10% increase year over year. And that rural markets in Colorado, Oregon and Maine experienced similar increases in sales. And so people again are leaving urban areas for suburban areas as well as for rural areas.  Why? Why are they doing this? As I mentioned already a few times, Coronavirus, but there’s also other reasons. Surprisingly, Coronavirus isn’t actually the number one reason why people are leaving.

Another article in NASDAQ entitled The Urban-to-Suburban Exodus May Be the Biggest in 50 Years  provided some data on the reasons why the New Yorkers were fleeing the urban centers for other New York suburbs or leaving the state entirely.

The number one reason was the cost of living at 69%. Below that would be crime at 47%, and then looking for a non-urban lifestyle at 46%. Those are the ones that are above 40%. 40% of the people that respond or more said they were leaving because of crime, looking for a non-urban lifestyle, and the cost of living.

Then the other three that were common was the concern over the spread of Coronavirus, which is at 34%, the ability to work from home which is 30%, and then this last one is typical, it’s with childcare, which is pretty low at 15%.

One of the ones that stood out to me the most — cost of living, crime, looking for a non-urban lifestyle and concern, those three are common. Those aren’t unique to today. Coronavirus, obviously is unique today but the other one that’s unique too today besides the Coronavirus would be the ability to work from home. A year ago, people would not be moving out of cities because of the ability to work from home. That’s something that’s very new. This is one of the biggest COVID-related changes that are driving more people out of urban centers.

According to a blog that I found that tracks remote working statistics said that because of the Coronavirus, 88% of companies encouraged or require their employees to work from home; 88%. And 99%, so essentially universally across the board, people prefer to work remotely due to obviously the Coronavirus. but also because they like it.

Now, I think here was the most important and telling statistic, 88%-99% – what is this compared to? Well, you can compare this to just 3.4% of the US population working remotely before Coronavirus. This is the entire population, so it’s including people that don’t have jobs as well. But 3.4% of the population was working from home before Coronavirus, and now 88%, essentially. That’s a pretty big difference and there’s a possibility to have a pretty big disruption in real estate.

There’s some people who I’ve talked to who’s worked for big corporations, and they aren’t going back until, the earliest, this time next year. It’s kind of hard to tell if everything will go back to normal, and the same amount of people who were working in an office before will go back to the office, or if it’ll be half as much, who knows. But I would imagine it’s not going to be the exact same.

I was looking at some other study that said that a lot of jobs that are in offices can technically be done from home. Who knows, maybe these corporations after seeing people work from home for seven months now, by the time they start having people come back it’ll be at least a year, and maybe they’ll realize that their employees are just as effective working from home, they can save money by not having an office, things like that. Employees prefer to work from home, they have a hard time transitioning back. There’s no parking in downtown areas, because people are probably not going to take public transportation, how’s the elevator situation going to work, and a lots of different issues with going back to offices.

So what is real estate going to look like with more people working from home? One of the things is people moving to the suburbs; because if they don’t have to go to the office, then they’re choosing to live in areas—and this is from the Redfin article I talked about earlier… They’re choosing to live in areas that are more affordable, that are closer to their families, that have access to more local amenities, while still having direct access to a downtown, which is why they’re leaving the urban areas for the suburban areas, because the suburban areas beats the urban centers in all those categories.

But besides market aspects, there’s also the type of home that’s offered in the suburb or the type of home that is available to people that is offered in the suburbs. For example, now that people are working from home and are at their houses are often, they want more outdoor spaces, whether this a private yard for themselves or nearby green spaces and parks. They can go on walks, as opposed to being stuck in a skyscraper apartment type building in an urban center. And they also want to have a home with an extra room, or at least extra space to convert into their home office. As I mentioned, this type of green space is essentially non-existent in urban centers. It’s there, but it’s not as much as there is in suburbs, and it is usually more so in rural areas.

And then also, the cost for this extra bedroom would be a lot higher in urban areas, whereas you can get a lot more bang for your buck in the suburbs. It’s kind of unrealistic for people who are looking to move to a house that has more space to pay a lot more downtown when there’s all these extra benefits, plus cheaper in the suburbs.

They want to see real green grass, real trees, they want a home office. The suburb is really their only option. That or the rural areas; but they still want access to downtown, so that’s why they’re choosing suburbs over a rural area.

What does this mean for you, the investor? As I mentioned earlier, as a real estate investor, in general, you need to have an understanding of the population and migration trends in whatever market you’re investing in, at the very least. And then obviously, when you look to expand, you’re going to look at these things as well. But you don’t want to just look at the trends one time when you choose to invest and then not think about it anymore, because it’s always changing.

Once you’ve selected a market that has good demographics, good economics, you want to kind of continuously stay up to date on the actual metrics, as well as news stories. We’ve talked about this on the show before, setting up your Google alerts for your area and finding the local real estate news.

Based on what I’ve talked about today, if you’re someone who’s heavily invested in a major urban center, it doesn’t mean you should sell all your properties, right? But it might be time to consider pivoting and diversifying into the suburbs, or maybe not buying more in the urban areas, holding what you have, and then pivoting to the suburbs for new acquisitions.

If someone is already investing in the suburban areas, well, you’re in a pretty good spot, because not only are you going to benefit from the increase in rents that come from the increase in demand, but you might also see an increase in value that comes from more than just the increase in rents, but due to cap rates reducing.

Then for people who are less established, who are newer, this is really good news because you can take advantage of this trend towards the suburbs at a low barrier of entry. In the sense, generally, real estate is going to be more affordable in suburban and rural markets. It is a trend you can take advantage of without having to shell out a lot of money to buy in a new gentrifying urban area or something.

In conclusion, no one really knows exactly what the future holds, but due to the information I presented today, as well as stuff I’ve talked about in the past, specifically in the blog post and the syndication school episode we did almost two years ago now, back in January 2019, where I talked about the reasons why we believe multifamily is going to thrive during and into the next recession – well, a lot of these things turned out to be true because of the same metric we talked about; affordability, tightened lending standards, like I talked about last week, things like that. But combine that again, with the migration trends I talked about in this article, and you can kind of stack those two things together and say multifamily in the suburbs is going to thrive in the years to come.

That concludes this episode. Thank you for tuning in. Hope you learned something. Any questions, any comments, any feedback? Let me know at theo@joefairless.com. And maybe depending on what you say, I might read that off on a syndication school series episode or do further research and it might turn into an episode that I’ll give you credit for.

Make sure you check out our other syndication school episodes and those free documents at http://syndicationschool.com/. Thank you for listening. Have a best ever day and we’ll talk to you tomorrow.

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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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JF2220: Why Tightened Lending Standards Benefit Apartment Investors | Syndication School with Theo Hicks

In today’s Syndication School episode, Theo Hicks, shares some of the reasons why the tightening of lending standards will benefit apartment investors in the near future.

 

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

Joe Fairless: There needed to be a resource on apartment syndication that not only talked about each aspect of the syndication process, but how to actually do each of the things, and go into it in detail… And we thought “Hey, why not make it free, too?” That’s why we launched Syndication School.

Theo Hicks will go through a particular aspect of apartment syndication on today’s episode, and get into the details of how to do that particular thing. Enjoy this episode, and for more on apartment syndication and how to do things, go to apartmentsyndication.com, or to learn more about the Apartment Syndication School, go to syndicationschool.com, so you can listen to all the previous episodes.

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 am 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 past episodes, we’ve given away some free resources; these are free PDF ‘how-to’ guides, free PowerPoint presentation templates, and free Excel calculator templates. All of these resources as well as the Syndication School episodes will help you along your apartment syndication journey.

Today, we’re going to talk about some more current events, more market updates.  As you can see by the title, we’re going to talk about the tightened standards that residential lenders have. This is a very recent development, really within the past six or so months, right before the onset of the Coronavirus, and then the largest decrease in the months of April and May. But before we get into that, some context.

This time last year, real estate was really showing no signs of stopping; rents were going up, prices were going up, the stock market was going up… However, like most economic expansions going back multiple years, the economic experts either predicting an impending recession or at the very least, preparing their audience for a potential recession.

Over a year and a half ago, back in January of 2019, we wrote a blog post entitled, Why I’m Confident Multifamily will Thrive During and After the Next Economic Recession. This wasn’t something that we kind of just made up or wrote because we focus on multifamily—obviously, this is a Syndication School podcast, but it was based on some interesting metrics.

If you read that blog post, one of the main things that we focus on is the portion of renters. Every year, the percentage of renters and the percentage of owners are tracked. Historically, what happens is, once a recession happens, then the numbers start to sway more towards more renters. The renters population will start going up. Then once the recession is over, it’ll keep going up for a little bit into the next economic expansion, but then eventually, it starts going back down, and more and more people start to buy homes again, because the economy’s turned around, and the cycle kind of repeats itself.

That’s held true from my understanding, every single recession to economic expansion cycle, except for the most recent economic recession. The one that started in 2006 and it ended in 2008, that recession obviously started off with more and more people renting, but then people continue to rent more and more, even into the economic expansion.

In that article, we talked about how the decade after the recession resulted in the overall increase in the renter population of 25%. And then in 2016, a decade after the start of the recession, more US households were renting than at any point in the last 50 years. It was between a 3% to 1% increase during the 2010/2015. So kind of the back end, where the economy was booming. During this time, the Dow Jones actually tripled, unemployment was cut in half, the GDP rose by nearly $5 trillion, yet more people were renting.

So we said because of this, and then because at the time—the data isn’t super relevant anymore, but essentially looking at some surveys of renters saying what they expected to do; did they expect to move, did they expect to keep renting, did they expect to buy…? If their rent increased, would they move? Things like that.

Because of all this, we said, well, even if there was a recession, because of the increase in renter population during the most recent economic expansion and the increase in renter population during all historical recessions, and due to the fact that the reason why people decided to rent while the economy was booming aren’t going away, therefore we expect multifamily to still be strong, during and after the next recession.

The next blog post I want to point you to is another one that we wrote, and this one we wrote in June and it is called Demand for Multifamily Rentals to Increase by nearly 50% in the Next Five Years. We talked about in the Why I’m confident multifamily will thrive blog post, some of the reasons why more people were renting while the economy was booming, and it had to do with student debt, poor credit, tighter lending standards, which we’ll talk about today. People were starting families later, and their inability to afford home payments, and how these weren’t going away. Then sure enough, a year and a half later, a study comes out in June 17th that says that we project the homeownership rate to decline before partial recovering by 2025, but during this five year period from 2020 to 2025, the demand for rental housing will increase somewhere between 33% and 49%.  Why? This article says because of a lot of people are starting families later, student debt, an inability to make down payments, tightened lending standards. These are the reasons why people aren’t going to be buying homes and the rental demand is going to go up. That was in June.

Then one of the things that they talked about in that article, one of the things that we talked about in Why I am confident multifamily will thrive during and after the next recession is this concept of tightened lending standards. The study talked about tightened lending standards. It has been talked about since the previous recession.

The main topic of today is going to be talking about what that means for multifamily investors… Kind of obvious what that means, right? It’s hard to get a loan for a residential home, and then by default, people are going to rent… But I want to get kind of into more specifics as to how that is measured.

There’s a very interesting monthly report that is released each month by an organization called Mortgage Bankers Association, MBA; not to be confused with getting your MBA in business. They have an index called the Mortgage Credit Availability Index, or the MCAI. That’s just one of those indexes where they take a date and say it’s 100 at this date, and then everything else is kind of compared to that date. So is it getting better or is it getting worse?

According to MBA, it’s the only standardized quantitative index that focuses solely on mortgage credit. The way the index is supposed to work is that it’s a comparison tool. So if the index of 100 was set in March 2012, and you look at it month over month, and you say, “Okay, if this index is declining, that means that the lending standards are tightening. If this index is increasing, then that means that the lending standards are loosening.” Essentially, what this means is that, the higher this number is and the more it is increasing, the more people qualify for financing. The lower it is, then the less people qualify for financing.

They started tracking this data monthly; I believe it was March of 2011. Since March 2011, all the way up until November of 2019, there’s been some months where it’s gone down, there’s been some dips, but overall, the trendline is—it is actually strictly diagonal up, at a 45-degree angle. It’s kind of gradually increasing at the same rate every year, every month during that time. It started back in December 2012 in the high 80s, so a little bit less than that benchmark. And then it’s steadily increased up into the high 180s. So lending standards got a lot looser in November of 2019 than they were in 2012 because of the recession.

Then what happened, because the news broke of the Coronavirus, it wasn’t very concentrated until March, but there were reports on it in Decembe, and so it began to slowly decline. And then most things started closing down and as everyone became aware of the Coronavirus, that is when this index started declining a lot.

There were two really large drops. I included it in this blog post, which is on our website right now, called Residential Lenders Tightening their Lending Standards; Why this is Good News for Multifamily Investors. You can take a look at these actual graphs, and you can see a massive cliff, a massive fall off starting in March 2020. It dropped by 16.1% in one month, down to 152. The next month, it declined by another 12.2%, down to 133.5, and then it had some minor drops. Then it dropped again by about 5% last month in August down to 120.9, which is the lowest it’s been since March of 2014.

Within a six month period, there was a very large, almost 50% reduction in this. It went from about about high 180s down to the 120s, so a drop of about 60 points. So close to a 50% drop; more than 33% drop, I guess.

But anyways, so the associate VP of Economic & Industry Forecasting for MBA, [unintelligible [00:14:26].24] monthly reports, they’ll have a quote from him where he’ll kind of talk about why it went up, why it went down, what this means.

The quote that I have here is very interesting. He says that, “Credit continues to tighten because of uncertainty still looming around the health of the job market, even as other data on loan applications and home sales show a sharp rebound.” And the sharp rebound – there’s an article that came out I believe today about a big jump in home sales. You can find that in Bloomberg.

Anyways, so continuing the quote, he says, “A further reduction in loan programs with low credit scores, high LTVs, and reduced documentation requirements also continue to drive the overall decline in credit availability.”

This gives you an idea of how this MCAI index works. Essentially, I’m trying to think of a good analogy, but basically, you’ve got this pyramid of loans. At the bottom, you’ve got the loans that the most people qualify for, and at the very top of the pyramid you’ve got the loans that need to have astounding credit or have a high net worth, high liquidity to qualify for these types of loans. Whereas at the bottom, you can have a low credit score, very low downpayment, you don’t really need much documentation. I think back before the crash we didn’t need any documentation whatsoever, you can just write down your income and get a loan. [unintelligible [00:15:50].17] Well, that bottom of the pyramid, those are the first types of loans to go away. Once those are eliminated, that’s when this MCAI index will start to decrease, and as those come back, it will start to increase again. So the higher it is, the more people at the bottom of the pyramid can get loans.

What he’s saying in this quote is that because of the Coronavirus, lenders are tightening their standards. What this means is that you need a higher credit score. I believe we did an article, or a Syndication School episode about, maybe it was Morgan Stanley, or one of the big banks was eliminating any residential loans to candidates that had a credit score below 650, I believe. I think it was JP Morgan, or maybe it was Morgan Stanley. It was one of those two.

Again, since we talked about in that Why I’m Confident in Multifamily article, the demand for multifamily – why is it going up? Well, because of the inability to make a down payment. Why is the MCAI index going down? Because of the high LTV loans being eliminated.

Another reason why people are renting is because of the credit scores, they can’t qualify. Well, even more people aren’t going to qualify for loans now, because they’re eliminating low credit score loans up to 650; and then reduced documentation I guess wasn’t technically addressed in any of the previous blog posts.

Overall, as I mentioned in the beginning, people are always going to need a place to live. That’s like the last thing that they’ll give up; they’ll give up a car, they’ll give up entertainment, they’ll give up everything before they give up a place to actually live. When it comes to having a place to live, you really only have two major options, at least, you can either rent a home or you can buy a home.

As indicated by these massive MCAI declines, since the end of 2019, less and less people are going to be able to qualify for residential mortgages. The programs available to people with low credit, who can’t afford a high downpayment for a lower LTV loan, those aren’t available anymore. If those people who would have qualified for those loans don’t qualify for them anymore, their only other option, since they can’t buy a house, is to rent. So by default, more people are going to be renting. That’s kind of the main crux of this post of this podcast, is to take a look at these different metrics and see is this good for buyers or is this good for renters? If it is good for buyers, and obviously, people who fix and flip homes, they’re going to benefit from those types of economies. It is better for renters, and people who do buy and hold are going to benefit, and people do apartments are going to benefit.

Now the last thing I did want to mention before I sign off, I just thought this was kind of an interesting tidbit that was added on to these reports. I was trying to think — I see that there’s a big drop, but this data only goes back until 2011. Like, what happened with this MCAI index? What happened with lending standards after the 2007 through 2009 recession?

At the very end of these MCAI reports, they have a graph where they say, “We expanded the data back by about a decade. We had it go back all the way to 2004 up to 2011” – it’s this kind of this old approach, where they were able to pull this MCAI data that was generated annually. And then they kind of like interpolated it back to be monthly. It was not super accurate. Whereas after March of 2011, they were able to pull these reports monthly and the data is going to be a lot more accurate.

When you look at this graph, you see that, well, before the crash, this MCAI index was almost in the 900s. And so I’m going to go back to June of 2004 – it is about 400; and then it shoots up to about 900 in mid-2006. And then from the end of 2006 to mid-2008 is when it drops down back to 100. When you compare the more recent drop in the MSCAI index, over the past 10 years, it’s a pretty big drop. But if you open it up to 20 years, then it’s not that big of a drop.

When I read that, it makes me think that, “Okay, well, the decline in the MCAI index, the reaction was not as severe because apparently, the [unintelligible [00:20:16].26] were a lot more loose before the 2008 recession compared to now. Hopefully, that indicates that this recession or this setback, or this slowdown, depending who you talk to, is not going to be or is not as severe as 2008.

Again, it’d be good to check out the blog post that we have, Residential Lenders Tightening their Lending Standards; Why this is Good News for Multifamily Investors, just to see those graphs, or you can also go to the website that has the monthly reports. It is called https://www.mba.org/ and then it’s the Mortgage Credit Availability Index, underneath their news, research, and resources page and kind of click-through a few things and you’ll be able to find it.

That concludes this episode of Mortgage News for Multifamily Investors. Make sure you check out some of the other Syndication School episodes we have about the how-to’s of apartment syndication, check out those free documents as well.

Thank you for tuning in. Have a best ever day and we’ll talk to you tomorrow.

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JF2215: Rockstar Capital With Robert Martinez

Robert Martinez is a full-time real estate investor, syndicator, and manager at Rockstar Capital. He has 13 years of real estate investing experience and shares how he got started. He survived the recession and believes it is because at the beginning of his career he was in sales and learned to negotiate and make deals which helped him later in his real estate life especially in outperforming others during the recession.

Robert Martinez Real Estate Background:

  • Full-time real estate investor, syndicator, and manager at Rockstar Capital
  • Has 13 years of real estate investing experience
  • Rockstar’s Capital portfolio consists of 21 communities and 3,762 units
  • Based in Houston, TX
  • Say hi to him at: https://www.rockstar-capital.com/ 
  • Best Ever Book: Gary V podcast

 

Best Ever Tweet:

“Find out what will put you out of business and then develop a plan to defend against it” – Robert Martinez


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners, and welcome to the best real estate investing advice ever show. I’m Theo Hicks and today, we’ll be speaking with Robert Martinez.

Robert, how are you doing today?

Robert Martinez: Hey, how are you, Theo? Thanks for having me on the show.

Theo Hicks: Absolutely. Thanks for joining us. I’m doing well and looking forward to our conversation. Before we get to that conversation, let’s go over Robert’s background. He’s a full-time real estate investor, syndicator, and manager at Rockstar Capital. He has 13 years of real estate investing experience. Rockstar Capital’s portfolio currently consists of 21 communities across 3,762 units. He is based in Houston, Texas, and you can say hi to him at https://www.rockstar-capital.com/.

Robert, do you mind telling us a little bit more about your background and what you’re focused on today?

Robert Martinez: Yeah, so I got started in real estate in 2007, but prior to that, I had no real estate background whatsoever. I grew up in Deep South Texas, like a border town close to Mexico, United States. I went to school at Texas A&M University and I thought I was going to be an engineer when I got out of school. What happened was I got a sales role within a company that makes engineer products. So I started going out to the Ship Channel and to the engineering houses and setting my company’s products.

And what happened to me is a lot like what happens to a lot of people in corporate America; they monkey with your commission plan, they monkey with your territory, they bleed you when you’re working really hard; you’re trying to plant roots and seeds today so that you can harvest them tomorrow and for years to come. That’s not how corporate America works, right? You want to make here, instead corporate America wants you to make down here somewhere, plus or minus $10,000.

I got very disgruntled, I guess, by that, and I wasn’t motivated. When I should have been out there looking for  new business for my company, I was out there trying to educate myself. I stumbled upon a real estate radio show; I listened to it for the better part of two years before I actually went to that real estate club to learn.

Once I went to that club, it literally was like that matrix moment with Morpheus and Neo, where you see the red pill, blue pill. You take the red pill, and you’re going to go back to reality. You take the blue pill, and you’re like, “Wow.” It’s like you see this whole other world that you never knew existed, and you didn’t know it existed because mom and dad didn’t teach you, right? Donald Trump’s kids knew about this stuff, right? Our people that are in the real estate market; but the everyday Joe, he didn’t know that, because if his mom or dad didn’t teach it to him, they didn’t learn it.

Thankfully, I believed in mentorship, I believed in educating myself, I went through the process, I went through the program, and I got to understand the basics of what it was to run an apartment complex.

With a partner, I got started in 2007. Together, we ran 2,000 units. I was the COO of the company, and after 2011, we separated. I started Rockstar Capital in 2011. Since then, we’ve gone on to purchase 22 communities; we own 21 today, just under 1300 units, asset value of under $400 million. I’m a two-time city owner of the year, I’m a two-time national owner of the year, and our claim to fame is that we pulled a tremendous amount of equity out of our communities. We’ve been able to pull out 12 100% cash-out refinance events since 2011, and we’ve won 17 city, state, and national Apartment Association Awards in that time.

Theo Hicks: Well, thanks for sharing that. There’s all these things in your background I’d like to focus on… I definitely talk about the 12 100% cash refi events. Before we get to that, it’d be nice to kind of go back in time a little bit, because I know a lot of people love the origin story.

You kind of mentioned up to the point where you took the red pill, you were all in on real estate, you decided to pursue apartments with a business partner. Maybe kind of walk us through — you don’t have to get super detailed, but maybe walk us through why you selected that partner, why you selected apartments, and then maybe a little bit of information on the first syndication deal. Where that money came from, how the duties were split, things like that.

Robert Martinez: Sure. I chose a partner because I didn’t know any better. I was scared. I believed in fear, and in fear, it was False Evidence Appearing Real. I didn’t think I could do it alone. I wish then I know now what I know, is that I could have done it alone. Financing was available and I would have done a lot better for myself. You talked about fees – he was the syndicator in those first three years and I was the operating arm, so I didn’t get any additional fees. I got the return on my equity. That’s what I got. I worked for it. He was a syndicator. He put the deals together, so he got those deals. And then we ran 2,000 units. I ran deals through the recession. Because of my sales background, I was able to get us to survive the recession. I was able to teach my staff how to sell and ask the basic questions, and how to compete against every day other people.

When we got started, we were dealing with C-class deals, right? Because that’s why everybody gets started typically when you first get certain apartment deals, so it was me against them. It was my sales team versus their sales team, and we won. During that time, we did three 100% refinance events. I don’t take credit for them, but I was the operating arm. I was leading the Salesforce.

And we had a falling out… Because what happens in this world, if you don’t have it clearly defined, and I thought we had an agreement—if you don’t have it clearly defined on what everybody’s roles are going to be, then it start to go bad.

We had an agreement, an agreement that he broke, and when I realized that I couldn’t trust that guy, I don’t want to be in business with you. So we had a parting of ways. And when I started Rockstar, I didn’t have a business partner, I did it by myself. I took the lessons and the experiences that I was able to gain during that time to begin the company.

Theo Hicks: Okay. How many deals had you done up to that point with that business partner before that falling out?

Robert Martinez: He and I did 10 deals right around 2,000 units, all C-Class, B-class deals. At that point, you’re talking 2008-2011. I think we were looking at deals that were in the $30,000 to $40,000 range per unit.

Theo Hicks: Then once that happened, what happened to those 10 deals?

Robert Martinez: My understanding is some of them still exist. Many of them were sold already, and he is not as large as we are today. They’re still around. I don’t have ownership in any of those deals. The deals that I had ownership in have sold already.

Theo Hicks: Okay, so then let’s transition to Rockstar. You had, obviously, a lot of experience from the 10 deals you had done. Let’s just start with the money-raising aspect. How did you get the money for these deals, starting with Rockstar?

Robert Martinez: Well, within that real estate club, I really had developed a name. I was co-owner of that previous company, so people knew who I was through the different events that they would have. For me and my very first deal, I already had a track record. I’m at a little bit different advantage, because I wasn’t a syndicator in those first three deals, but I was the guy running the show. So when we’d have presentations, I am there answering questions. I am there shaking hands and kissing babies.

So when I finally did my first syndication deal, that money came in pretty quickly. It was only about $1.5 million equity raise. We bought it in 2010 and paid $24,000 a door for it. It’s crazy. A 1984 deal; raised $1.5 million. We refinanced it twice since then; we’ve returned 400% back to the investors. It’s probably worth another 300% to 400% in terms of unrealized equity, but we’re in a CMBS loan, so I need a few more years for it to end and then we can pull the cash out again.

Theo Hicks: Okay, let’s focus on that, because I’m sure most people want to hear about it. The best way to go about doing this is to give us an example deal that you were able to do the refinance on. Let’s just pick a deal you’ve done it on – the first deal, the last deal, whichever you choose, and walk us through the numbers, and how did the whole process work, like how you were able to do it?

Robert Martinez: Sure. As you know, if you do this long enough, your model changes, your fee structure changes. Early on, I had a 10% promote. So of that $1.5 million, I would take a 10% override is what I call it; an override on the profits of that. I didn’t charge any acquisition fees, there were no additional other fees. It was a 5% management fee; that was 3% on the property management, and 2% on the asset management. Then we would go in, we would raise the capital, and then we would do a renovation.

I’m very big on replacing all the air conditioners, day one. That’s a lesson that I learned from those first three years in the business. Because the key to successful real estate investing is heads and beds, and you want people to renew. You make your money when people renew, not when they move in. Because as you know, when you have people move in, you’re spending a lot of money; you have vacancy loss, you have to make-ready expenses, you have marketing expenses, you have a wide variety of expenses for that unit. But if they stay, typically they will absorb a rent bump, a nuisance bump as we like to call it, and they stick around, which means that you don’t have any expenses against it.

My whole goal is what can I do to keep them to renew again and again with us?

The number one thing was air conditioners. The number one maintenance headache that any apartment has is the air conditioning, and the number one reason why people move out is maintenance. If you replace the air conditioner — as you hear in Houston, Texas today it’s like 97 degrees; it’s hot, and it’s going to be like that all summer long, probably through November. So if you can replace that one issue and you create a basic service and focus on the basic services, then people are going to stick around longer. So air conditioning was a big deal.

Then we go do our other renovations; we improve the exterior, we add HardiePlank patios so that it has a fresh clean look. We’ll repaint, we’ll update the interiors, we’ll put forward planking down. It’s the same business model everybody has, but what we also like to do is focus on reviews. We didn’t do that then. This was an evolution thing. As times go on, people find you online, so it’s really important to make sure that you’re controlling the narrative and the right story is out there. We don’t want the story to be written by somebody who’s been evicted because they can’t pay rent or somebody who’s not following community policies. We want it to be written by people who are moving in because typically, they’re happy, right? We focus a lot on reviews and then we focus on making sure that all of our basic services are right there in line and they’re consistent.

Theo Hicks: I appreciate that. Let’s talk a bit more about the reviews. What specifically are you doing to get those people who are renewing to do reviews? I guess, is it just happening naturally or is there some sort of productive effort on the part of you and your team?

Robert Martinez: Well, for sure, because first, you need someone to lead. You’ve got to execute. Everybody had the idea for Uber, but nobody executed on it, right? It’s the same thing. If you have the best idea, but if you have no plan to make it happen, then you’re going to have issues.

Reviews were very scary for us in the beginning. Like a lot of people, I would go to https://www.apartmentratings.com/, I’d go to Google, and I always see negative reviews, and everybody was scared. I literally would feel like an ostrich with my head in the sand. I didn’t want to see it, I ignored it. I got a chance to visit with Gary Vaynerchuk a couple times and he kind of said a couple of things that made me focus on brand, focus on reputation, and helped me understand that, “Man, I’m letting somebody control my narrative.”

So what we do is we told the staff not to be afraid of reviews; to go out there and solicit reviews. Every time that somebody is there and they’re moving in, ask them for their review. If you just ask for it, people are probably going to want to give it to you. That’s what we did and we started to build our reputation.

Today, per https://www.apartmentratings.com/, 16 of our 21 sites are ranked in the top 250 in the country. There’s 130,000 communities. I’ve got 16 sites in the top 250. In the top 10, I’ve got six sites, because this has been part of our business model. It’s something that’s a part of our foundational success. We spend a lot of money on the websites, we spend a lot of money on video, but they’re still going to go back and read the reviews because that’s what people do. They don’t want to make a decision on their own. They want to feel safe. It’s a little bit of a herd mentality. When you go to Best Buy and you want to buy a TV or a camera or something, you probably don’t know which one to pick. So you ask the sales guy, he’ll tell you everybody’s buying this one or buying that model. You’ll go to Amazon, you’ll plug in the model, you’ll then see other reviews there and then that’s how you make your choice. It’s no different for apartments. We’ve just got to make sure that we control the narrative and the best story is out there.

Theo Hicks: I appreciate you sharing that. Of all of the 12 cash out refinances you’ve done, on average, how soon after you’ve acquired the property, are you doing these?

Robert Martinez: Well, it’s definitely changed, because in the early years and back in 2008 and 2011 and 2013, we could do those in a 24 to 36 months cycle. It was that good. But as everything gets more expensive, and the cap rates get a little tighter, and there’s more competition, it’s now pushing out to three years or four years. We’re able to get the cash-out, but it just takes a little bit longer now, starting out with COVID-19 that happened and everybody’s budget can be in a little bit off and the investor sentiment is off, the economic outlook is off, it may take a little bit longer. But if you just follow the model, it’s going to be fine. But today we’re looking at probably between 36 and 48 months.

Theo Hicks: Okay, Robert, what is your best real estate investing advice ever?

Robert Martinez: Man, you’ve got to go big or go home. I bought a deal that was 51 units. We were dipping our toe into the class-A market. I bought it in midtown, which is just outside of downtown Houston, a very hot area, a very trendy area. I thought, “It’s just 51 units, I can control that. I’ll be okay.” But what I didn’t understand is that any blip, my occupancy moves. So as they’re building a lot of new properties in the area, we were getting dwarfed out; these properties are coming up, they’re leasing up, they have every amenity in the world. I’ve got 51 units, I got a small pool, and I have an executive style fitness center.

When I did underwriting on that deal, it was $100 a barrel here in Houston for oil. When we closed the deal, it was $60 a barrel in oil. And Christmas that year after we bought the deal, it was $30 a barrel in oil. We really went into a gunfight with a knife. We had to get better. If I had had marketing dollars, if I had a bigger budget, I could have done better on that deal. But what I did learn – I learned websites, because you have to fight against it. We didn’t have any websites. I learned websites. I learned reviews are very important. That was one of the first properties that we got that was ranked really high. That probably was ranked in the top 1% in the country for resident satisfaction every year that we owned it, but it was one of those ‘necessity is the mother of invention’. We had to survive. But what if I would have had 300 units, 400 units? I would have had more marketing dollars. I would have been able to have more budget to pay for a better manager in the chair because that person sitting in the chair is running a multi, multi-million dollar deal. You’ve got to make sure you have the right person in that chair. And if I’m paying $40,000 a year or I’m paying $80,000 a year for the manager, you’re going to get a different performance, and I realized that. So as we move forward, we’re focusing on larger deals, because more units give you more ammo, it gives you more options.

Theo Hicks: Do you mind, before we go on to the lightning round, just elaborating a little bit on the website?

Robert Martinez: We had a website. It’s funny, right, because I had no websites. My marketing budget consisted of pretty flags, banners, and color on the outside of the property. We did a lot of resident referrals. We did a lot of advertising in different periodicals. But we had no social media presence whatsoever. We had no website presence whatsoever. We had to learn that and I learned it on the fly. That’s how I discovered Gary Vaynerchuk, was trying to learn from mentors like that, and going to visit Gary a couple of times, and understanding what I needed to do to separate from the pack. Our website had no teeth to them. They were just basically a shell. It was a pretty picture, a couple of links, and that was it. I didn’t understand SEO. I had to educate myself. I self-educating myself, but I also brought in people into my company that were where I wanted to be.

I brought in somebody that was working at another company and they [unintelligible [00:18:19].11] running 10,000 units, and I had to pay for that person. That came out of my pocket. But I had to learn that. I had to go through the process of understanding where we were weak. Together, we learned social media, we learned Facebook ads, we learned Instagram. Today, we have a guy that focuses on nothing but Google ads; like the SEO, the keyword placement. It’s just things that we didn’t even look at before. We’ve got a complete team, where three years ago I had nobody on the marketing team. Today, I’ve got seven people on the marketing team, because I realize how important leads are, I recognize how important follow-up is… We have a 24/7 call center now, so we never miss a call. It’s not just like an answering service that you pay 90 bucks for a month. It’s a live, breathing person that has access to your property management software that can schedule the appointments for you. It’s just been an evolution for us.

Theo Hicks: What would be the one thing you’d recommend someone do to improve their branding, when they obviously don’t have as big of a budget as you to hire a full team and 24/7 ads and one guy who’s doing Google ads and things like that? The one thing they should do today.

Robert Martinez: If you don’t understand that it’s all about the phone, then you’re dead in the water. You deserve to go out of business. You’ve got to immerse yourself. You can go to YouTube, you can go to Google, and you can educate yourself. Before I brought anybody in, before I started to take money out of my pocket and do that, I spent money on myself. I invested in myself first, before I invested in anybody. When they brought them in, they didn’t have social media experience. I had the social media experience. I learned how to do a Facebook ad. I learned that by watching Gary. I learned it by self-teaching yourself.

You’ve got to be a little innovative, right? Because every day, somebody’s trying to put you out of business.

One of the key takeaways from meeting Gary was he said, “Come up with a way to put yourself out of business,” and remember when he said that to me, and I’m like, “What do you mean?” He goes, “Find a way to put yourself out of business before somebody else does it to you first,” and that makes sense; because if you don’t try to find your weakness, someone’s going to exploit it. And you don’t have a chance to develop a defense against it. And that’s what I did; I realized that we had no brand, we had no reputation, our properties were unknown. During that pandemic, you survived during COVID-19 if you were still online 24/7.

Right now, during COVID-19, a lot of people saw occupancies go down. Our occupancies went up. Last year, 7% of our total leases were through our website only, meaning that they didn’t come into the office whatsoever. They did the employment screening online, they did the resident verification online, they took the tour online. We spent a lot of money for virtual reality tours where they can go room to room to room, click different buttons, it’ll send to different parts of the property, they can see the amenities.

Today, that’s over 30%. We actually have more completed applications today year to date than we did last year, yet our lead count is down. How did that happen? Because we were online. We were live 24/7. When the rest of the world was shutting down, our offices were still open virtually. That’s what I’m talking about; being able to plan ahead and think about when times are not going to be so good.

That’s being a wartime general. A lot of peacetime generals out there that thought that the world was going to continue to keep going and the harbor was going to stay full and all boats are going to float. But the wartime generals had been through the recession and they’re thinking about when times are tough, “What can I do to prepare for it?” That’s some of the things that we did.

Theo Hicks: I really appreciate those. That was really solid advice. One more time – find a way to put yourself out of business, and then—

Robert Martinez: Yeah, find a way to put yourself out of business, and then develop a defense against it. What is your weakness? And he is very big on doubling down on your strengths and hiring your weakness… As you’re getting started — I mean, I have 4000 units today, but I started with a 118 unit property, all by myself. It was me, the property manager, and two maintenance guys outside, and today I’ve got 4,000 units. That means I wore every single hat. I wore the underwriting hat, I wore the operator hat, I wore the owner hat, I wore the investor hat; I wore them all. And today, I now have people there.

What we’ve done is, I’ve focused on what I’m good at, doubled down on that… And systematically start to hire your weaknesses. Marketing was a weakness for us; when I realized that we weren’t able to stay alive and fight against better competition because they have a social media presence, because they’re buying your keywords up… You have to understand, “Hey, I don’t understand this. I need to bring somebody in here that does, so we don’t die.” Again, find a way to put yourself out of business, and then develop a defense against it.

Theo Hicks: Perfect. Okay, are you ready for the best ever lightning round?

Robert Martinez: Yes.

Theo Hicks: Perfect.

Break: [00:22:31] to [00:23:45]

Theo Hicks: Okay, what is the best ever book you’ve recently read?

Robert Martinez: I’m embarrassed to say, right? I think I told you, I just got the Jaws book. I’m not a big reader. I’m more of a guy that likes to sit in the car or sit at my computer with my air pods in. I listen to a ton of podcasts. I listen to everything Gary spits out, because he gives out some amazing information for free. And if you’re a good business guy, you understand how your business works, you can identify, you can take those lessons from him. I love the Gary Vaynerchuk podcast. I love Grant Cardone’s podcast. When I need a little jolt of energy, I need to feel like I can run through that wall, I’m going to go listen to Grant. But if I need some real stage business advice on how I can implement and make my company better, I go and I follow those guys. That’s all I need right now.

Theo Hicks: If your business were to collapse today, what would you do next?

Robert Martinez: I’d do it over again, because I believe there are some things that will never go away; your need for food, your need for water and air, and you’ve got to have a roof over your head. I think if you focus on a business that services one of those items, you’re going to be okay. I would do multifamily all over again, and I just would probably do it differently.

Theo Hicks: Do you mind telling us about a deal that you’ve lost the most money on? How much did you lose? What lesson did you learn?

Robert Martinez: I’m very fortunate; I’ve never lost money on a real estate deal. For those of you that are struggling right now, I’ve been in deals that were struggling during the recession that looked like, “Man, we’re never going to get out of this.” But you never lose money till the day you sell. So just find out a way to keep it going, because when it’s bad, it’s bad, but when you’re running through hell, you don’t stop. You keep going. You want to get out on the other side. I’ve been very fortunate. I’ve gone through my ups and downs of deals, but I’ve never lost a deal. I’ve never lost money in a deal.

Now, did I make less money on a deal? Sure. That 51 unit deal. I had delusions of grandeur, I was going to pull another 100% equity out, and it didn’t happen. In the end, we wound up with 27%, which was around 8.5% annualized return; not the best return. By far, the lowest return. But the lessons I learned from that deal, were amazing.

I learned social media because of that deal. I had to go see Gary Vaynerchuk because of that deal. I learned resident reviews because of that deal. That deal created our whole marketing team later on, because I realized I’d bought a deal and I didn’t understand how to stand out above the noise. That deal forced me to learn how to do it, and I learned through the 51 units, “Man, you need to be looking at 351 units, 451 units, you need more size. More doors is better for you.”

Theo Hicks: What is the best ever way you like to give back?

Robert Martinez: I think there’s two ways I want to make sure that I give back and I’m remembered for; what I’ve done for my team and what I’ve done for the community.

Internally, I’m very big on trying to help my team out. I’m in a position where I can help and I know that. I’m in a position where they’ll take advice, they’ll listen to me, and its mentorship. I try to give everybody 51% of the relationship. I say, how can I help you? What is it you’re trying to do? Where are you struggling at right now? Let me see what I can do—because really all it is, is just a little bit of knowledge. Somebody wants to buy their first car, but they don’t know how to do it. They don’t know where to go, they need some help on their credit. You give them some advice. You tell them where to go. They want to buy their first house, you help them get out of debt, you help them save money, you give them advice, and they start to listen to you. I don’t do it for them, but I give them advice.

Here in the company, I told everybody that I want to see you get your real estate career started while you’re working with me. If you put $5,000 in any of my deals, I will match you $5,000. That is better than any 401k. That’s better than anything, because they will learn what real estate advantages are. They’ll learn cash flow, they’ll learn appreciation, they’ll learn the tax benefits, and I want to be that guy that teaches them. That’s a standing offer I have within my company.

For the community, I try to do as much as I can. There’s little stuff like the back to school events and working with the local Apartment Association. But my mom got hit by breast cancer back in 2016 and it was a very scary thing for me. I didn’t know what it meant. I had to educate myself on it. I realized how easy and preventable it is with just raising awareness. One in seven women will get breast cancer in their lifetime, but it’s like 90% are curable and preventable if you get it early, and you get the proper treatment.

We started a breast cancer walk back in 2016. We’ve done four years now of that, and I’m really proud of how much money we raised for Susan G. Komen, and have raised for Breast Cancer Awareness. And what we’ve done for families of our residents here where we help sponsor screenings, we’ve done financial assistance… But I just always go back, “What do I want to be remembered for?” I don’t want to live in regret. I want to make sure that I’ve done everything I needed  to do business-wise, everything I needed to do for my children to become the best mentor and the best father I can be for them. And for my team, to let them know that they had someone that cared about them and that I gave them a head start somewhere, where maybe if they hadn’t met me, they would be in a different position.

Theo Hicks: Wow. And then lastly, what’s the best ever place to reach you?

Robert Martinez: That’s a great question. I’m really focused on social media right now. You can find me on LinkedIn at Robert Martinez, I produce a lot of free content. On Instagram, I’m out there @apartmentrockstar, and I have a personal brand page, the https://www.theapartmentrockstar.com/ You can find out all of our live events, you can find out our coaching, you can see a lot of free videos. I even have a comic book on there. There’s a lot of free content to learn from me, but you can go to https://www.theapartmentrockstar.com/ and you can find me there.

Theo Hicks: Awesome. Robert, I really enjoyed this conversation. You have a lot of knowledge and you gave us a lot of knowledge in this episode. Definitely worth relistening for sure. There’s a couple of—again, a lot of takeaways here, but a couple of the biggest ones, at least for me personally, was, first of all, when you talked about making the money when you renew. I think that was really powerful, and it’s so obvious, right? But I don’t think a lot of people think about it that way.

You talked about obviously, if you’ve got people staying, resigning their lease, you’re automatically knocking down your vacancy loss, you’re make-ready expenses, your marketing costs, and you’re still getting that rent bump, right? When you look at a T12, you’ll see there’s a pretty big make-ready expense. There’s a pretty big vacancy expense. There’s a pretty big marketing expense. So being able to knock that down is huge. Every dollar saved increases the value of the property at even greater amounts. I really liked that you said that. You gave us examples of things that you do in order to promote that.

The biggest one you said was replacing all the A/C units from day one. I’m sure anyone who’s ever lived in a hot climate can understand how annoying it is when your A/C goes out for sure, so I bet that helps a ton.

You gave us a few other examples. Another huge takeaway was your focus on reviews. I hope I wrote this down right, but you said 16 of your 21 sites are in the top of 250 in the country for reviews and then six on the top 50, right?

Robert Martinez: That’s correct, on https://www.apartmentratings.com/.

Theo Hicks: On https://www.apartmentratings.com/. Obviously, getting people to renew is huge here, but you’ve said that really all you’ve done is just whenever staff are interacting with residents, so whenever someone is signing a lease or if someone is going to renew a lease, you simply ask them to sign a review. And you mentioned the reason why reviews are so powerful is because of that kind of herd mentality, and people are going to make their choices based off of what other people have already decided, right? So if they hate your apartment, then they’re not going to go there. If they love your apartment, then they’re more likely to go there. I appreciated that.

You also went over your best ever advice, which was to go big or go home.

Robert Martinez: Yeah.

Theo Hicks: I’ve talked about this before in Syndication School, but when you’re doing these apartment deals in that medium-range, and in your case is 51-unit deal which ended up working out, and you’ve got these bigger communities around you that have all the amenities on site, you are going to have a hard time attracting residents. Plus you’d have less money to spend on things, like you mentioned, marketing and a manager. When you’re dealing with apartments, the bigger the better, because you have more economies of scale.

Lastly, you talked about the Gary V. quote on find a way to put yourself out of business and then develop a defense against that. That was very, very powerful advice. I’m sure you could do a whole book on talking about different tips and steps for doing that.

But those are some of the biggest things I took away. A lot more really solid advice this episode. I really appreciate you coming on the show.  Best Ever listeners, as always, thank you for listening. Have a best ever day and we’ll talk to you tomorrow.

Robert Martinez: Thanks so much for having me on the show.

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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JF2213: How to Approach The Renewed Eviction Moratorium | Syndication School with Theo Hicks

In today’s Syndication School episode, Theo Hicks, shares some insight on the new eviction moratorium and who this applies to, and what you should be doing as an investor.

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 to another episode of The syndication School Series, a free resource to focus on the ‘How to’ of apartment syndication. As always, I am 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 have released free documents, either free pdf ‘How to’ guides, PowerPoint presentation templates and Excel calculators that will help you along your apartment syndication journey. Make sure you check out the previous Syndication School episodes, as well as those free documents at syndicationschool.com

Today, we are going to be returning to the Coronavirus, and we’re going to talk about the recent CDC Eviction Moratorium. This was signed early in September, and effectively banned evictions nationwide through the end of the year.

The previous eviction moratorium expired at the end of August, and then there was like a week where you were allowed to do evictions, and then this renewed eviction moratorium came into place.

Today, I wanted to talk about who this moratorium applies to, and then some of the things that you should be doing, and mostly continuing to do, right? These are things you should have been doing already and you’ll just have to continue doing them until the moratorium expires.

Who does this eviction moratorium apply to? What type of resident is eligible? Here’s some of the criteria that you can find, and all this is on the CDC website.

One, the resident has sought all available government rental assistance. There are some websites you can go to where rental assistance is available to residents. I’ll read this off a little bit later in the episode. The resident also cannot earn more than at $99,000 or $198,000 combined. Below that, they cannot be evicted. The resident can’t pay the rent in full due to substantial loss of income. The resident is trying to make timely partial payments to the extent they can afford to do so, and the resident would, if evicted, likely end up homeless or forced to live in a shared living situation.

It sounds like the resident would need to submit a CDC declaration form to notify their landlord that they’re not going to be able to pay rent because of one of the aforementioned reasons. If you are to receive one of these from your residence, well, what should you do?

The first thing you should do is reply, in writing, and encourage them to make partial payments, whether it be of rent or any other things that are due to the extent that they can, in accordance, again, with the CDC declaration where they may be able to pay some of their rent, but they just can’t pay all of it. They might be able to make partial payments, right? Because they’re supposed to be trying to make partial payments to the extent that they can in order to avoid being evicted under this moratorium. You can also remind them of the rental amounts that are due at this time, and that they will ultimately need to be paid. Just because someone is not evicted doesn’t necessarily mean that the rent that they can’t afford to pay now are forgiven. Let them know, “Hey, please pay what you can, because these rents will be due at some point” or else once the eviction moratorium has expired, then they can be evicted.

Also, one of the other stipulations is they’re supposed to have a sought all available government Rental Assistance Programs. It probably makes sense to provide that information to them, because that’s again, more collections for you.

In this written correspondence, you can include a list of resources, like the ‘How to’ of resources, so how to say this to some non-profits that received some emergency solutions or grants, or community development block grant funds from the original CARES Act, and those can be used for rental payments.

The websites are going to be https://www.hudexchange.info/, http://hud.gov/coronavirus, and then https://home.treasury.gov/policy-issues/cares/state-and-local-governments. We have these links on our website under the blog post the CDC Eviction Moratorium – What You NEED To Know, posted on September 16. Either type in the links I just said to your web browser, or you can click on those links from that website.

There might also be some other local programs available, so make sure you are investigating that and providing that info to your residents as well.

The next thing to kind of think about would be okay, well, let’s say that the resident doesn’t meet the criteria, or you’re uncertain if they’re meeting the criteria – what should you do? Ultimately, that’s going to be up to you, but there are penalties and they’re actually pretty severe for individuals. It would be if you just own the property yourself as an individual, and you evict someone who falls under the eviction moratorium stipulations. It’s up to $100,000 fine and one year in jail, or if the resident ends up dying because of this eviction, the monetary penalty is even higher, up to $250,000. Then if it’s an organization or if it’s the syndication, the penalties are even more severe.

Again, keep that in mind if you’re going to attempt to evict someone. Also, keep in mind that because of the current climate, you might draw additional judicial scrutiny. There might be a news article written about you. Again, keep all the negative consequences in mind when you consider evicting someone, even if they explicitly fall outside of these stipulations.

Now I did a Syndication School, Episode 2046, 11 Tips for Collecting Rent During the Coronavirus Pandemic. I think these tips still apply today; since you can’t evict people, you’re going to want to figure out ways to collect more rent. I’ll just very quickly to go over those again, but I went to a lot more detail on those in that episode 2046.

One is, offer discounted rent to people who pay rent on time or early. Offer a repayment plan. Allow the residents to apply any security deposit to the rents. Ask residents to pay for security deposit insurance. Communicate with residents to see who can and cannot pay rent. Volunteer your units for free to Coronavirus volunteers. Use federal or local programs created for landlords and renters. Ask residents to pay rent with a credit card. Offer an emergency repayment program. Provide free rent to residents who lost their jobs, and then reduce rents to break-even.

Some of these are going to be delayed, and the rents would be paid eventually. Some of them are most likely going to be a forgiveness or written off as a concession, but if you listen to the episode, I go into more detail on those. I think the most interesting one would be applying the security deposit to their rent and then having them do security deposit insurance at the same time.

One thing I guess I didn’t put on here was, if you do need to come to some sort of repayment program, maybe extend their lease. But again, the potential drawbacks of that are if they’re not paying rent right now, then you might be stuck with someone that you can’t evict for even longer. So make sure you check out that episode.

Another thing that I think would make sense to check out would be Episode 2074 where I went over some of the changes and adjustments that you can make when actually underwriting deals right now. This is when you’re looking into new deals. Check that episode out as well.

Now, one of the things I wanted to mention that is important to keep in mind, because as I said, just because someone is protected under this eviction moratorium, and let’s say they pay partial rent, or they’re not paying rent at all – at some point that rent is not forgiven. It’s going to need to be paid eventually.  So so me of the things to kind of think about is okay, well, if I have all these residents with really, really high balances, what’s going to happen once the eviction moratorium actually ends? They have the option of either paying that high balance or leaving. This is something that you’re going to want to kind of be thinking about now, even though it might not necessarily happen. That eviction moratorium at the earliest, will expire in early 2021, and it’s really hard to tell if it’ll be extended or not. But assuming it expires in 2021, and assuming that you’ve got a certain percentage of residents who aren’t paying rent, you can kind of figure out how much bad debt you’re going to have come the eviction moratorium. Kind of think about, okay, well, what percentage of these residents are just going to skip and disappear once the eviction moratorium ends? What percentage are going to actually attempt to pay off their debts?

One thing that you can consider doing is obviously that repayment program, and thinking about that now and having that conversation now with your residents, because if they skip and that’s money that’s essentially gone, unless you want to pursue them legally. But most likely, you’re going to have a very high bad debt if they skip, and so what can you do today to minimize the number of skips you have in three, four or five months from now, that is going impact the cash flow and therefore impact the distributions you can send out to your investors.

That’s why I think the repayment program is going to be powerful. You can spread out the money owed maybe in another lease price, and assign an additional year, and then that rent is going to be higher. Essentially, their balance owed divided by 12 is what’s added to each month of rent.

I guess the main point here is, is to be aware that this rent is not forgiven, this rent is owed, and if it is not paid because the resident skips out, then that’s going to be a revenue loss. It’s going to be bad debt. If you have a portfolio right now, you should have a decent understanding of what that’s going to look like, based off of the number of skips you saw during the pandemic in general… But some of the skips that you saw towards the end of August, when the eviction moratorium was going to end, and then before anyone knew there was going to be a new one –  did the residents who had high balances, the ones who you had a hard time getting in contact with, the ones who were not sticking to their repayment program, did they leave in August or early September? Then that should give you an idea of what will happen from the beginning of 2021; lots of things to follow up with.

I recommend checking out the blog posts we have; the CDC Eviction Moratorium – What You NEED To Know. I recommend checking out the Syndication School Episode 2049, where I went over 11 tips for Collecting Rent During the Coronavirus. I listed them today, but I go into more detail on each of those. Some of them are self explanatory, some of them by me just reading off the bullet points, like offering emergency Repayment Program or ask residents to pay for security deposit insurance. Those aren’t necessarily self explanatory, and I go into those in a lot more detail in that episode.

Then if you are looking into new deals, make sure you’re understanding what changes need to be done to underwriting by listening to Episode 2074, Ashcroft Underwriting Adjustments During COVID-19.

That’s going to conclude this episode. Thank you for tuning in. Make sure you check out all of those resources I just mentioned, make sure you check out the previous Syndication School episodes, as well as the free documents we have for those. And then 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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JF2206: How To Underwrite Apartment Deals With No Financials | Syndication School with Theo Hicks

In today’s Syndication School episode, Theo Hicks shares how to go about underwriting apartment deals when you have no financials. This would rarely happen but when it does it is typically when you are approaching an off-market deal. This is a question Theo gets a lot and so today he will walk you through how to handle underwriting with no financials. 

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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JF2204: Investing While Overseas With Vincent Gethings

Vincent is the co-founder and COO of Tri-City Equity Group and is an active duty Air Force. Vincent shares the steps he took to begin his investing journey while still being active duty in the Air Force and not seeing the properties. He explains how he built a team through social media and through this team he has been able to grow his business to now a portfolio of 120 units.

 

Vincent A Gethings  Real Estate Background:

  • Co-founder and COO of Tri-City Equity Group and active duty in US Air Force
  • Has 6 years of real estate experience
  • Portfolio consists of 120 units (20 owned, 52 partnerships, 48 syndications)
  • Based in Oahu, HI
  • Say hi to him at: http://tricityequity.com/ 
  • Best Ever Book: Traction

 

 

 

Click here for more info on PropStream

Best Ever Tweet:

“Set goals based off your potential and not your abilities” – Vincent Gethings


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners and welcome to the best real estate investing advice ever show. I’m Theo Hicks and today, I’m speaking with Vincent Gethings. Vincent, how are you doing today?

Vincent Gethings: Good. Thanks for having me on, Theo.

Theo Hicks: Oh, yeah. Thanks for joining us. Looking forward to our conversation. Before we dive into that, a little bit about Vincent’s background. He’s the co-founder and COO of Tri-City Equity Group as well as active duty in the Air Force. He has six years of real estate experience and his portfolio consists of 120 units, broken down between 20 units owned, 52 from partnerships, and 48 from syndications. He is based in Honolulu, Hawaii, and you can say hi to him at his website, tricityequity.com. So Vincent, do you mind telling us a little bit more about your background and what you’re focused on today?

Vincent Gethings: Absolutely. So like you said, I’m active duty Air Force; I’ve been in about 14 years. So I do a lot of project management. I’ve done resource management before, so handling funds for big duty projects. Started getting into real estate investing, quickly wanted to scale up to multifamily. It didn’t take too long, about two years, to realize that small single-family, sub four-unit properties just were very hard to scale, especially because my entire strategy is out of state; being in the military, I’m always going to be out of state, essentially, from my market. So I wanted to scale up so I can afford the better systems, better quality project managers, property management systems… So I scaled up to multifamily. Now we’re looking at 50 to 100 unit property, B, C class. So we’re targeting El Paso right now. It’s our main market. We’re looking to take on a secondary market here, this Q3, Q4 this year.

Theo Hicks: Nice. So that will essentially double your units, right?

Vincent Gethings: Yes. So we’re eyeing up a couple properties right now. Nothing under the contract. We’re in June 2020, so market’s still uncertain. So we’re eyeing properties, but we haven’t pulled the trigger on anything yet. We’re still waiting to see if we can get some clarity on what the next year or two years is going to look like.

Theo Hicks: Perfect. So you’ve got 120 units. How many actual properties is that?

Vincent Gethings: Great question. So that’s seven properties.

Theo Hicks: And what’s the breakdown? So how many of those do you own? How many partnerships and how many are syndications?

Vincent Gethings: Well, I have 20 under my personal ownership. That was where I started, was I started with the zero down, VA house hack; that was my start. I made a bunch of capital off that. I was in Bay Area, California while it was crazy appreciating; took that capital, invested that. At the time, all I knew was small multifamily duplexes and fourplexes. So I went on a tear and bought six small multifamilies, had 20 units in about 18 months, and then that’s when I realized that I needed the partner to scale, and the next unit we closed was a 52 unit with a JV in Michigan. And then from there, we did our first syndication, which was actually closed two months ago in April now, during the height of Coronavirus. It was also our first syndication was that last 48 units.

Theo Hicks: Perfect. I want to walk through each of those. Let’s focus on the 20 units first. So six properties, all bought out of state. Obviously, the first one that you bought, you lived in it. So do you mind giving us some pointers, some tactics, some tips on how you were able to buy those properties, and then how you were able to manage those properties without being there in person?

Vincent Gethings: Absolutely. So the first properties I bought, I took that seed money from that live-in, VA, house hack, whatever the term we want to use. Took that seed money– it was about 150 grand I made off that first property from that VA loan, and then I started buying the out of state. So when I went into this, I went in with the mindset that I’m never going to work on these. I didn’t want to buy the properties down the street, become a landlord, and also the handyman and everything like that, because I know with being active duty military, I’m going to leave in three years, and I’m never going to come back to, say, Bay Area, California. So I didn’t want to have these properties sprinkled throughout the country at each base that I’ve lived in. I know that’s a very popular strategy for people in the military, and it works for them. That just wasn’t for me. So I picked the one location, said I’m going to build my team there, and I’m going to put my roots down there and scale up from that.

The way I did it is, I started with property management first, started building my out of state team, so property management first. Then I got a colleague. For this instance, I used BiggerPockets. Did their search feature of finding very active people in that market, set up some phone calls with them and developed a relationship, and said, “Hey, can you be my boots on the ground? If I have a property that I’m interested in, would you drive by it, maybe go do the– meet my agent out there, do the walkthroughs?” They were happy to do it, both for their personal experience, and then I would throw some money their way for their time, much appreciated. And then I had my agent.

So the way I pictured this in my head was a Venn diagram;my initial team was a Venn diagram. So one circle is my property manager, one circle was my agent, and one circle was my colleague, and they all overlap a little bit, and then that center in the middle was the synergy. So having all three of these people on my team, knowing my criteria of what I’m looking for, visiting said property – it’s the four-unit that we own – and reporting back to me their different perspectives on that deal… For the property manager, he would say, “Hey, these are the issues. We’re going to see a property manager. Here’s the upside I see.” That colleague might say he’s looking at that property from an investor [perspective]. He’s like, “This is what I see, value-add” or things that you might want to look at as an investor, maybe some cap ex item. And the agent, they’re going to report back and she’s going to tell me what she thinks about the price compared to the market and the neighborhood and everything like that. And then I can not be there at all. I can be 3,000 miles away, all three of these people report back to me. In my head, I’m putting together this picture of all of their stories and perspectives overlapping. And then when I’m done, I have this full thesis of this property and I have a very clear picture and understanding of the condition the property, how it’s going to perform, so I can do my due diligence and pull the trigger on that property without ever being there. So the first five properties I bought, all the duplexes and fourplexes, I don’t think I’ve seen any of them before I actually bought them. So I was 100% out of state.

Theo Hicks: So I think the property management company and the real estate agent, obviously they get paid after you buy a property, and I’m sure you did your due diligence on them to make sure they were experienced, but I’m curious about that boots on the ground person. So what types of qualification did you want out of that individual? Because obviously, you can’t just have a complete novice do it. Maybe you did; I don’t know. But I’m just curious to see what you did to screen that person initially.

Vincent Gethings: The first level of screening was at the time, I knew BiggerPockets, I read Brandon Turner’s books. So that was my base of my education at the time. That’s why I was investing in small multifamily. So I went to BiggerPockets, searched the zip code, and then I just filtered by pro members. So at the time, I was like, “Well, if they’re a pro member, they’re obviously invested enough into this industry to purchase the premium subscription at BiggerPockets.” So that was my first level. And then I looked at how active are they. Are they posting? What kind of portfolio do they have? And then I filtered it down more. And then I called a couple people, and I was like, “Okay, I need somebody that understands multifamily.” So I wasn’t going to send a wholesaler to go inspect a four-unit property. They might be pretty good at coming up with a valuation, but they’re probably not gonna be very good at understanding the value adds or the systems that need to be in place to run this property long-term as a landlord or an asset manager. So I looked for somebody that was actively investing in multifamily, and that’s where I found my good friend now, Manny, in Michigan, who’s just been a huge asset to my team.

Theo Hicks: Alright, perfect. Let’s transition to the JV deal. So do you wanna walk us through that? So you’ve got your six multifamily deal. Well, I guess, five, including the house hack, and then you decide to move up to this 52-unit deal. So do you wanna walk us through after you made the decision, what do you do, why did you decide to JV as opposed to doing it yourself, how’d you find the deal, what was your responsibilities, what was their responsibilities, things like that?

Vincent Gethings: Absolutely. So this was fall 2018, I hit the ceiling, so to speak, this plateau in my growth; in the current systems I had set up, we were seeing cracks in the systems and being able to grow further. So I knew that there was something wrong, but I wasn’t smart enough to know what I didn’t know. So I went out and I sought mentorship, did one of those paid mentorship programs. After vetting quite a few of them, it was an absolute godsend to me, and my team. I quickly found what I was doing wrong or how I could grow, and that was fall of 2018. By January or February 2019 I was in contract on the 52-unit. So that’s how fast I was able to figure out what I was missing in my education and my knowledge, break through that barrier and scale up.

I found this 52-unit through broker relationships that I was developing. Got them online, got the LOI, and then through meetups is how I found my partner. So I went to meetups, started talking about people that were interested in investing out of state. I’m in a capital market in Honolulu, Hawaii. There’s a lot of equity here, but the cap rates and the barrier to entry here is just outrageous. So there’s a lot of people that are like, “Look, I have a lot of equity, say, in my house, and I want to do a HELOC, or I have a lot of money in my IRA that I want to do self-directed, but there’s nothing around to buy. We’re looking at $200,000 a unit here.” So they’re looking for somebody to do out of state, but they just didn’t have that connection in the lower 48 to go and start that process.

The niche for me here was go to meetups and start finding people that are interested in multifamily, interested in out of state, in mainland. They just need the person to make that connection, that bridge. I found three investors very quickly that were able to come up with 25% of the deal. So it was very easy. Everybody just 25%, about  $98,000 each is what we had to come up with, closed that 52-unit. We closed it, and I actually did a very creative strategy, because at this time — and as you know, brokers are very skittish on your credibility and your ability to close. And at this time, I thought I had 20 units, I thought I had some credibility. That was not the case at all, because the 20 units are all residential-sized property. So I had to prove myself.

The way we did it was the 52-units is more of a portfolio. It was an 8-unit, a 12-unit, a 32-unit, all in the same town. I said, “Look, we can buy the 8-unit cash. We had enough money right then to buy the 8-unit cash, and that’ll show you brokers and sellers that we are serious. I’m serious about scaling my company and I have what it takes to close this deal.” So I bought the 8-unit cash, and that gave me the time to put together the loan with the bank because also had the credibility issue with the bank of, “Okay, we see you can do small units, but what makes you think you can do a 52-unit reposition?” So I had to court them also, and they took longer for them to underwrite.

So I bought the 8-unit cash to show them I was serious. That gave time for the bank to underwrite the entire portfolio. And then what we did when the bank gave us that commitment, I ended up using the 8-unit as the downpayment. So I crossed collateralized the 8-unit as the down payment for the rest of the property, and then wrapped all 52 units back together into one loan.

So that’s how we were able to creatively close that with not really having the credibility on the team, because two of them aren’t real estate agents, the other team member’s a military member like myself. So we lack the credibility on our team and that’s how I solved that problem in being able to close that for both the brokers, the seller, and the lender, was that creative structure.

Theo Hicks: Nice. So after that, you moved down to the syndication. So I guess my question on that is, why didn’t you do the same thing as the JV? You had three investors come in including yourself… What made you decide to do syndication instead?

Vincent Gethings: One, we wanted to scale our company up further in syndication. Some ways, it’s a progression. Other ways, to me, I think it’s just another tool in your tool belt, that you should, as an investor, you should be aware of and experienced in. So some deals, you might be able to do JV. Some deals you might be able to do syndications. So whatever that right for that job to take down that asset, and one, for personally, I just wanted experience in syndication.

Another side of it is, we wouldn’t have had the equity upfront as easily as we did the first one. So a lot of our capital was deployed in that first 52-unit, and we’ve only owned it for a year. So we haven’t refinanced yet, we haven’t sold it yet, so a lot of our equity’s still tied up in that one. So that was obviously, the biggest factor of going to syndication. The other side of it is the desire to scale the company even further and get that experience. And the second syndication was a 48-unit, so it wasn’t like we went from 52-unit to 150, 200-unit deal.

Theo Hicks: Who were the investors? How’d you meet those people?

Vincent Gethings: We did the common thing of getting an Excel sheet and picking our power base and write down all of our family, our friends, our uncles, our aunts, our co-workers, our acquaintances that we know that all had expressed interest in investing in real estate, or maybe that we’re partners with on smaller deals, and we wrote it all down and we started courting these relationships even further. So obviously with the SEC law, you had to have that pre-existing relationship, so we didn’t go out and meetups or shouting from the rooftops, “Hey, we got a deal. We’re syndicating.” We stuck to that power base or that circle of influence of people that we already had pre-existing relationships with. And we only had to pull on 10 or 13 investors on this one. So very small; $50,000 was the average investment.

Theo Hicks: Okay, Vincent, what is your best real estate investing advice ever?

Vincent Gethings: Best real estate investing ever is set goals based off of your potential and not your abilities.

Theo Hicks: Do you want to elaborate on that a little bit?

Vincent Gethings: Absolutely. So a lot of people have these limiting beliefs, and what I see a lot of people, they set goals of what they think they can accomplish right now based off of their current experience, their current education levels, their current partnerships or whatever they have. So they set their goals extremely low. They use that SMART acronym, which I absolutely hate, because the R in smart is realistic. I absolutely hate that, because you sell yourself so short.

Giving you an example… My original goal, when I did this, I thought I was like, “I’m gonna do a SMART goal, because that’s what we’re supposed to do.” It was 20 units in 10 years. So two units a year was my cash flow goal. I did 20 units in 18 months once I actually started opening my mind up and growing myself, actively trying to grow my experience, my team members. And then now, my team is at 120 units, and I’ve only been doing this for five, six years. I think that the sky’s the limit, now that our eyes are getting more open, we’re adding more tools to our tool belt.

So I think the biggest thing is people sell themselves short because they want to set realistic goals for themselves. They do it based off of their ability and not their potential. So a big example of that is the 10X rule. I read that and I was like, “Well, 20. Well, scratch that off and write 200,” and that’s what was my goal, and I quickly went from 0 to 120 in a very short amount of time once I did that. So absolutely set big, hairy, audacious goals, and then take massive action toward them. Don’t be realistic, because it doesn’t give you any room to grow.

Theo Hicks: Alright. Are you ready for the Best Ever lightning round?

Vincent Gethings: Let’s do it.

Break [00:18:11]:04] to [00:19:35]:06]

Theo Hicks: Alright, Vincent, what is the best ever book you’ve recently read?

Vincent Gethings: Best ever book I recently read is Traction.

Theo Hicks: If your business were to collapse today, what would you do next?

Vincent Gethings: Be a commercial pilot.

Theo Hicks: Nice. Is that what you do in the Air Force right now, piloting?

Vincent Gethings: No, I wish. No, I wish. I am not a pilot. I’m not Air Force pilot, but I do have my pilot’s license, and I have a small plane out here in Hawaii that I use for island hopping. So If everything went to hell, I would go finish my commercial rating and go be a commercial pilot.

Theo Hicks: Have you lost any money on your deals yet? If so, how much did you lose and what did you learn?

Vincent Gethings: Not actualized losses yet. So back to my original four-unit – I bought a four-unit for $170,000, put about $50,000 into it for renovations, making it really nice, best place on the block. So I thought you were supposed to do that to get the rent premium. Went and got it appraised, and it was worth $170,000, and I was like, “I don’t understand why.” And the appraiser said, “Well, it’s a residential property. I don’t care how much you raise rents. We go off comp value, and you have the only four-unit in this neighborhood. So it’s worth $170,000 because we don’t have anything to go off of as far as what it’s actually worth.” So on paper, I lost, say, anywhere from 30 to 50 grand on paper. But I haven’t sold the place yet, so it’s not actualized. But that was a huge lesson and that was the last straw for me of like, “Okay, I’m done with residential. I’m scaling. I’m going to partner up, and I’m going to scale and do commercial where the valuations make sense.”

Theo Hicks: What is the best ever way you like to give back?

Vincent Gethings: Mentoring people, especially in the military. Financial education, financial literacy is huge for me. I see a lot of people that just come from home with a good financial intelligence, and they just make very poor decisions very early on in their careers. So I spend a lot of time giving them a lot of books, Rich Dad, Poor Dad or Dave Ramsey’s Total Money Makeover. So stuff like that and just coaching them how to make budgets, how to think about investing, the different shades of money, so to speak… How currency works is very big for me.

Theo Hicks: And then lastly, what is the best ever place to reach you?

Vincent Gethings: I’m on LinkedIn. So Vince Gethings on LinkedIn, and then connect@tricityequity.com.

Theo Hicks: Alright, Vincent, thanks for joining us today and very systematically — I can tell you’re a project manager, the way that you just knocked through everything, boom, boom, boom, step by step process for how you grew from your first zero percent down VA house hack to owning and controlling 120 units now, and hopefully, in the next few months, doubling that with your next syndication deal.

I think some of the biggest takeaways was I liked how you were able to find your boots on the ground in a state that you didn’t live in. So you mentioned how you went on BiggerPockets and you filtered by the pro member, and then you looked at those pro members to see how active they were, what portfolio they had, and then you spoke on the phone to make sure that they were actively investing and actually understood multifamily.

You also mentioned how you were able to do your 52-unit deal and build that credibility with the broker and the lender by instead of trying to buy all 52 units with 25% down or 20% down, you went in there and said, “Okay, I’ll buy this 8-unit all cash,” to show that you’re serious, and then you were able to actually not put any money in the deal and just use the 8-unit as a down payment and refinanced everything and cross-collateralized it into one loan.

And then you talked about how you were able to raise money for your first deal, which was that Excel spreadsheet exercise, which, Best Ever listeners, we talked about something similar on the show before, where you write down every single person that you know. Then you took it a step further and let everyone you know that you’d already talk to about investing in deals, and you were able to pull together 10 to 13 investors with an average of $50,000 each. And then lastly, your best ever advice which is instead of setting SMART goals, you set the SMAT goals. Or I guess, try to figure out SMAUT, so unrealistic goals.

Vincent Gethings: The Boston version, the SMAT goals.

Theo Hicks: The SMAT goals, yeah. So set goals based on your potential, not based off of what you can currently do, your current abilities or what you can currently do. So Vincent, really appreciate you coming on the show. Best Ever listeners, as always, thank you for listening. Have a best ever day, and we’ll talk to you tomorrow.

Vincent Gethings: Thanks, Theo, for having me on.

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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JF2202: Adding Another Asset Class Your Portfolio With Vinney Chopra #SituationSaturday

Vinney is the CEO of Moneil Investment Group and Moneil Management Group and is also a returning guest from episode JF805. In today’s episode, he will be going over how he decided to start developing a new niche in multifamily and why. He will be discussing new ground-up construction of luxury assisted senior living.

 

Vinney Chopra Real Estate Background:

  • CEO of Moneil Investment Group and Moneil Management Group
  • A full-time investor with 35 years of experience
  • Over the past 12 years has completed 28 syndications; 14 of those in the past 3 years
  • Controls over $330 million, and 4,100 doors
  • Based in Danville, CA
  • Say hi to him at: http://vinneychopra.com/ 

 

 

Click here for more info on PropStream

Best Ever Tweet:

“Senior living has been outperforming apartments for the last 10-15 years” – Vinney Chopra

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JF2199: SEC Modernizes the Accredited Investor Definition | Syndication School with Theo Hicks

TRIn today’s Syndication School episode, Theo Hicks, will be sharing the SECs recent expansion on the definition on what a “Accredited investor” is. There are two types of people who can invest in syndications; the sophisticated investor, and the accredited investor. Today we will focus mainly on the accredited investor definition.

 

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 PropStream


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. Each week we air a syndication school episode that focuses on a specific aspect of the apartment syndication investment strategy, and for a lot of these episodes, we’ve released some free resource. These are free PDF how-to guides, free PowerPoint presentation templates or free Excel templates that will help you along your apartment syndication journey. So make sure you check out other episodes and those free documents at syndicationschool.com.

In this episode, we are going to talk about the SEC’s recent expansion on the definition of what an accredited investor is. So as a refresher, the two types of people who can invest in apartment syndications are going to be the accredited investor and the sophisticated investor. We’re gonna focus more so on the accredited investor in this episode, but the sophisticated investor is someone who does not meet the accredited investor qualifications but has sufficient investing experience and knowledge to weigh the risks and merits of an investment opportunity. So if you are raising money under 506(b), then you are allowed to raise from up to 35 of these sophisticated investors, assuming you have a pre-existing substantive relationship with them. So to learn more about that, you can check out our syndication school episode where we go into more detail on 506(b) versus 506(c). But if someone is an accredited investor, they can invest in any apartment syndication. They can also invest in crowdfunding as well, which I had a really good interview with someone about crowdfunding yesterday, that I’m sure I will be discussing on syndication school at some point. But still, currently today, because this is a new definition, it does not go into effect. I think they released it at the end of August and they said it’ll go live in 60 days. So by the end of October, this will go live. So technically right now, you’re still only allowed to raise from accredited investors who are qualified under the old definition.

So as a reminder, the old definition is going to be someone who has an income that is greater than $200,000 per year. Or it could also be $300,000 combined between an individual and their spouse in each of the prior two years, and then it reasonably expects the same for the current year; so you can qualify with your income. And then the other most common way to qualify is to have a net worth over a million dollars, whether that is as an individual or with a spouse, and then this excludes the value of the personal residence. So they can’t use the equity in their house or whatever to count towards their accredited investor status.

And then there’s a few others that might be relevant to you when you’re raising money, because sometimes people want to invest through an entity. So any entity in which all of the equity partners are accredited investors will also qualify, and then any trust with total assets in excess of $5 million does not form specifically to purchase the subject securities, whose purchase is directed by a sophisticated person, is allowed to also invest. A broker who’s not accredited can invest on behalf of a trust that meets these requirements. So there’s a long list of other ways people can qualify to become accredited. If you just go to the IRS website… I’m pretty sure it’s under regulation D. You’re going to find all of the different ways people can qualify.

Now as I mentioned, the SEC have recently changed the definition. I guess some people were fearful that the definition would become less; it would be limited. But anyone who is an accredited investor today was an accredited investor yesterday and last year is still going to be an accredited investor once this new definition comes into effect in October. So this definition only adds new accredited investors, not removing any accredited investor. So that’s the good news. But the bad news side is that it was not expanded that much. So the first expansion was people who had Series 7, Series 65 or Series 82 licenses are now technically considered accredited investors. Also, investment advisors registered with the SEC or any state. And then something that was surprising was that venture capital fund advisors and exempt reporting advisors now qualify as accredited investors, which is interesting, because if you remember what I said prior that – a sophisticated person, an investment broker… So talking about the sophisticated person who’s not an accredited investor who can invest on behalf of a trust.

By sophisticated, it means the person or the company or the private fund offering security reasonably believes that this person has sufficient knowledge and experience in financial and business matters to evaluate the merits and risks of the prospective investment. So the exact same as the definition of the sophisticated investor that could invest in 506(b).

So the main point here is that the individual needs to be sophisticated in order to invest in the syndication, whereas a venture capital fund advisor and then exempt reporting advisors are not required to pass any exam or demonstrate any financial knowledge or sophistication. So this seems to be the first, if not a rare example of someone who’s allowed to invest without needing to meet the old accredited or the old sophisticated requirements.

A couple of other additions, expansions to the accredited investor definition – LLCs that are otherwise qualified can invest just because the LLCs were started after the existing regulations on who is or isn’t an accredited investor came to be. So it’s just adding that in there. Entities not currently listed, including Indian tribes, governmental bodies, funds, and entities organized under the laws of foreign countries that 1) own investments and then investments in excess of $5 million and 2) were not formed to invest in the securities offered, meaning they were pre-existing, rural business development companies, family offices with at least $5 million in assets under management and their family clients, as each is termed under the Investment Advisors Act of 1940. So if you remember, we did an episode recently about family offices. So I think maybe that they just reduced the assets under management, maybe… Because I didn’t know that you could raise money from family offices before.

And then the last one are knowledgeable employees of a private fund, but only with respect to investments in that fund. So this last one, essentially what this means, is that individual and institutional investors that have the knowledge and the expertise to participate in private capital markets, which includes apartments syndications, now qualify as accredited investors based on defined measures of professional knowledge, experience or certifications. So rather than just them needing to meet a certain income or net worth or assets under management, they can also qualify as an accredited investor based off of a sophisticated status. Maybe in between or who have a little bit more experience than a sophisticated investor, then they will qualify as an accredited investor.

And then the last thing is that currently, the net worth and liquidity is based off of your spouse. So you have to be actually legally married, whereas now, the definition expanded to someone that you’ve been a cohabitant, occupying a relationship, generally equivalent to that of a spouse for at least seven years. Now, this obviously isn’t a massive change, but it could be an indication of bigger changes to come. And then also especially, this last example where people can qualify with different designations/credentials, so they don’t actually have the liquidity or net worth, is going to open up industry self-regulatory authorities and accredited education institutions to create various certifications, designations or credentials or courses that the SEC would approve for accredited investor qualification.

So someone can take some course and then get a certificate that will allow them to be a accredited investor, which obviously would lead to a lot more people learning about securities, and then being able to participate in apartments syndications and crowdfunding, which is obviously something that could be massive and tap into a massive portion of the population that can’t invest now because they lack the knowledge, expertise or the money.

So I would say out of all of these changes, the LLCs might be helpful. People can invest with an LLC now instead of an LP or something. But this last one where people who have certain certifications are allowed to invest, people can create new certifications that are approved by the SEC. So this is why it’s very important that you get the word out about what you’re doing… Especially now, even if the people you have a pre-existing relationship with don’t know about apartment syndications or aren’t qualified to invest in apartment syndications, because once these qualification courses start coming out, they can take those and be allowed to invest.

So if you want more info about the SEC release, their press release is on August 26, if you just google “SEC modernizes the accredited investor definition fact sheet”, you’ll go to the page that goes into more details, and then there’s obviously a lot of blog posts that have been written about it as well. You don’t technically need to go read the facts. I’ve summarized it pretty well in this episode, but if you want to read the more legal jargon as opposed to the laymen terms that I just gave you, then you can go check that out again. That’s “SEC modernizes the accredited investor definition”. So that will conclude this episode. Thank you for tuning in. Make sure you check out those other episodes and download those free documents at syndicationschool.com, and until next time, 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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JF2198: Mentor Boost With Bruce Petersen

Bruce Petersen is the Founder and CEO of Bluebonnet Asset Manager LLC and Bluebonnet Commercial Management. He started his real estate journey in 2011. He was a previous guest on episode JF1274, we highly encourage you to check out his first one to get an understanding of his full story. 

Bruce Petersen  Real Estate Background:

  • Founder and CEO of Bluebonnet Asset Manager LLC and Bluebonnet Commercial Management
  • Started his real estate journey in 2011, buying his first deal (48-unit) in 2012
  • Portfolio consists of 6 syndications and 1,108 total units
  • Based in Austin, TX
  • Say hi to him at: https://apt-guy.com/ 
  • Best Ever Book: Sell or Be Sold 

 

 

 

Click here for more info on PropStream

Best Ever Tweet:

“Find a coach or mentor to have a model to follow, why try and reinvent the wheel?” – Bruce Petersen


TRANSCRIPTION

Theo Hicks: Best Ever listeners, welcome to the best real estate investing advice ever show. I’m Theo Hicks and today I’m speaking with Bruce Petersen. Bruce, how are you doing today?

Bruce Petersen: I’m doing great, man. How are you?

Theo Hicks: I’m doing great as well. Thanks for asking and thanks for joining us again. So Bruce is going to be a repeat guest. He was on here a little over two years ago. If you want to check out his first episode, it was Episode 1274 – Challenges That Syndicators Face When Executing Their Business Plans. So today, we’re going to catch up, talk about what Bruce has been up to since then. As a refresher, Bruce is the founder and the CEO of Bluebonnet Asset Management and Bluebonnet Commercial Management. He started his real estate journey in 2011, buying his first deal, a 48-unit deal in 2012. His portfolio now consists of six syndications and over 1,100 units; 1,108, to be exact. He is based in Austin, Texas, and you can say hi to him at his website, which is apt-guy.com. So Bruce, do you mind telling us a little bit more about your background and what you’ve been up to since we last spoke?

Bruce Petersen: Just a quick recap of who I am and where I came from… I’m a college dropout, barely got out of high school, grew up pretty poor. I think it’s a fairly common story, so I’m not really different there. I fell into retail for about 18 to 20 years, did that until I realized, “This sucks.” I convinced myself like a lot of people in retail do – “Well, I’m a people person, so I like retail.” And then 18 years, 20 years later, I thought, “Okay, I’ve been lying to myself. I do like people, but I don’t like what I’m doing.”

So in 2008, I believe it was… 2009, somewhere in that area, I walked away. I was 43 years old, decided, “I gotta find something else to do with my life, because this is not working for me.” So I just started educating myself on real estate, found a very highly qualified mentor; that was a godsend for me. Found that person in 2011, worked with her for a while, and got my first property in 2012, and I held that for almost two and a half years. It was a syndication. Sold it for a 300% passive investor return. Now I tell everybody going forward, “Don’t expect that. We’re a totally different market than we were back in 2012.” But my first one was very successful, and I’ve just been off and running since. I met my wife through real estate. So I’ve been married now for almost six years. So that’s going very, very well. We do it together. She’s the CFO and I’m the CEO, and we’ve been doing it ever since and having a ball.

Theo Hicks: Thanks for sharing that. I believe, on that first episode from the show notes I read, that we’ve talked about that 48-units syndication deal. So let’s not focus on that. Let’s focus on a more high level of syndication advice. But one thing you didn’t mention in your little intro was your mentor. So this is coming out– this is in the future, but today, I just recorded a syndication school episode talking about mentorship based off of a blog post one of the members in our team wrote about how to hack and save decades of time by finding a mentor. So it sounds like a mentor was one of the main reasons why you were able to be as successful as you are today. Maybe walk us through how you found this person, why you picked her and why it was beneficial to you.

Bruce Petersen: Tony Robbins’ Napoleon Hill thing – find a mentor, find a coach, a model, somebody that you can follow behind, why reinvent the wheel. I’m saying things that everybody’s heard before, but a lot of people still don’t believe it strongly enough to go out and do it because they don’t want to pay somebody. Well, why would you not pay somebody to teach you how to have a multiple hundred thousand dollar business or even a million-dollar business? A lot of people will spend $50,000 to $200,000 or more on college, go for four to eight to 12 years, and that’s totally fine. Many of those people don’t get a job in the discipline that they studied. And if they do, they don’t like it very often. So I don’t know why people wouldn’t find a mentor. They can shorten your timeline to success. They can help you avoid a lot of landmines, because there are going to be a lot of landmines, I promise. No matter how good you are at this, there’s always going to be something that’s going to come up, and if you’ve never done it before, you don’t know how to deal with those landmines that you trip over.

So yeah, I was very fortunate to find a very, very good mentor. She was a multifamily broker, actually. So she was a buyer’s broker; very rare in this industry. But she had tons of experience on the management side and on the purchase side. So it was a perfect match for me. I listened to her because I knew I didn’t know what I was doing. I’m a retail guy. I’m smart, but I don’t know this industry. So I had to listen to her, trust what she was saying was true and just execute on the roadmap; and I did, and it worked so well. So I just released a book called Syndicating Is a B*tch. It’s hard. It’s very lucrative. It’s very, very rewarding. But in the book, I implore people, I’m going to teach you every step of the way how to do a syndication. You still need a mentor, because this is only a book. It can’t deal with all the things that pop up that were unforeseen, like a black swan event we’re dealing with right now. We’re dealing with COVID-19. Nobody saw this coming. If you don’t have a mentor that’s been through some ups and downs in the industry, this is gonna be really really hard for you. So yeah, man, I cannot agree with you guys’ take on it. You do need a mentor. Don’t do this alone.

Theo Hicks: I really like your analogy or metaphor or whatever; it’s comparing it to college. I think that’s a really good way to position it. People will spend tens, sometimes hundreds of thousands of dollars to go to college, and the reason why they’re doing it is because they need that degree to get a job in order to make money. So they’re willing to invest that capital into four years of their life into school in order to get a job to make money. So why wouldn’t you do the exact same thing? Why do you expect someone to mentor you for free or just to not do it at all, when you can potentially have an ROI, as you mentioned, of ten to a hundred million dollars or even more? I like the way you position that.

Bruce Petersen: I think there’s a bad stigma in the industry right now because when you hear the word mentor, you think guru. And then guru makes you think of the guy in the 80s and 90s that would pitch crap to you at 1 o’clock in the morning, and you take pictures and videos on a yacht that he rented for the day and a car that he rented for the day, and that’s what people think of. That’s not what a true mentor or a coach is. They’re not selling you a bill of crap. They’re teaching you the right way to do it. Again, find somebody that’s been successful doing it. Not everybody’s going to be a great mentor… But yeah, I agree with you guys completely on it.

Theo Hicks: So you’ve got your syndication book; I enjoy the title. So let’s talk about raising money. Everyone loves to hear about raising money, so maybe walk us through some of your tips or since you wrote the book, maybe you’ve already got a five-step process to raising money for deals, and let’s approach this from raising money for your first deal. So let us know what type of background someone needs before they can get to the point where they can raise money, and then let’s talk about what your top tips are for going out there and making sure you can raise money for your first deal.

Bruce Petersen: Alright, so it all starts with the investors. People ask me all the time that are just getting started, and I mentor people myself now… And one of the first questions is, “Bruce, okay, this is great. I’m super excited. Well, do I find the investors first or do I find the deal first?” You better find the investors first. If you find a deal with no investors, legally, you’re probably going to get yourself screwed up because you can’t raise money the way you’re probably going about it; you’re probably going to go about it backwards. So you’ve got to be careful there. And then if you can’t raise the money, you’re gonna have to drop the deal and you’re gonna start to burn your name in the industry that “Oh no. Bruce is a tire kicker. He can’t come through at the end and close. So he just ties up a property for 30 to 60 days, and then he has to bail.” Get your investors first.

Bruce Petersen: Tip number one to me would be over, over, over raise. If you think the property that you’re targeting for your first property — because you have an idea that “My first one, I want to be maybe a 20-unit or 40-unit, maybe built in the 80s. This is my rough price per door.” So you have an idea, I hope, of what it is you’re trying to find for your first deal. And let’s say that first deal is going to cost you about $500,000 in a cash raise to get it. The cash raise would be your down payment, your closing costs, your rehab that didn’t get rolled into the loan, and any operating capital that you may need. So let’s say you need $500,000 to close this deal. You better raise a $1,000,000 to $1,500,00, and that chokes people. Well, I promise not everybody’s going to come through at the end when it’s time to put money in your bank account, because something will have come up in their life. They maybe had a family emergency, they maybe just decide “I don’t want to invest with anybody anymore” or maybe just to be honest, maybe they don’t like you now that they’ve got to know you a little better. So just be prepared for– you’re probably going to have at least 50% of your list not come through. So you better over raise. So that’s tip number one.

Tip number two, for me, would be you got to get out there. You’ve got to be agreeable. You have to have a good personality. This is very personality-driven and based. If people don’t like you, they’re not going to give you their money. I had a guy come up to me after an event one day and I had presented on stage, and he came up to me after… “Bruce, man, I love your story. I’m going to be a syndicator, too. This is great. I understand spreadsheets and everything. But there’s one problem, Bruce. I’m a jerk.” I’m like, “What? Come on, man. Really?” He said, “Yeah. I’m a jerk. People don’t like me and I hate people.” I was like, “Well, you can’t do this.” And he looks shocked like he was gonna cry. I’m like, “There’s a lot of money to be made, but if you’re just not a pleasant person, nobody’s going to give you their money.” So know who you are, present yourself professionally and with dignity. Don’t be rude, don’t be aggressive, don’t be arrogant. Because a lot of the people you’re going to be talking to trying to raise some money, they’re probably a bigger deal than you are. So keep your ego in check. One of the key things that really helped me early on was I started my own meetup back in 2011, and all but two of my first investors in that 48-unit deal came from that meetup. So we got to know each other for about six to nine months. They got comfortable with me having no experience, having no job, but they got to know me very intimately,  so they agreed to invest. That was a big help for me.

Theo Hicks: So my next follow up question was going to be what’s the process that someone should go through in order to create their initial list of investors or people? It sounds like for you, for your first deal, everyone came from your meetup group. So your advice would be to start a meetup group, I’m assuming, right?

Bruce Petersen: Absolutely. And if you don’t want to do that, that’s totally fine. If it’s not your personality to lead something, there’s nothing wrong with that. As long as you do have an agreeable personality and you’re likable… Well, just go to the Joe Fairless stuff, the Jake and Gino stuff, the Michael Blanc, go to all the different events that are going on around the nation. You’ve got to get out and mix and meet with people. So I think that you don’t have to start a meetup; it definitely helps. There’s a definite way to go about doing this in the right order. I would say, dress the part. I don’t want to get stuck in the millionaire mindset thing,  the millionaire next door. Don’t dress below your means. Dress at your means or above. You have to convey confidence and success when you meet with people. Have a good quality business card, dress appropriately. Don’t dress over your head. Don’t show up in a $400,000 car if you work at McDonald’s. Don’t do stupid things like that. Act like you belong, but still, keep yourself in check. But yeah, just get out to all the things you can get out to, join some of the groups that are out there too. You can get some education from the groups like your group, you can get educated there. You’ll meet other members that are looking to get into deals or looking to raise money themselves.

So the biggest thing is be engaged. Make sure you understand who you are.  I’m naturally introverted. I can be on stage and talk to 20,000 people. I light up, I’m fine. You put me in a room with people I don’t know, and I got to go work the room and network and I freeze. I just completely freeze up, and I honestly– this is not an exaggeration… I try to find the quickest exit because I get really, really uptight. I’m very aware of that. My wife is just the opposite. She hates being on stage, but she loves working a room. She used to be a flight attendant. She’s very, very good at that – striking up small talk with people. So I smartly go, “Okay, I’m not good at that.” So I follow my wife around the room, I’m not embarrassed to admit it. I just follow her around like a puppy dog. She strikes up the conversation. I come in. I can now participate in the conversation because I didn’t have to start it. But again, I know my weakness and I work with what I have.

Theo Hicks: I think that’s super important to know. So you talked about a tactic for actually going about raising money, but what are your thoughts on the experience, the background, the track record someone needs to have before they even consider raising money? When they raise money on their first deal, their second deal, their 10th deal? Is there a certain number of transactions? Is it a certain dollar amount of deals done? What’s your thoughts on that?

Bruce Petersen: Again, so on my first deal, I had no experience, I had nothing. I had never invested in real estate my life at that point, but again, it’s personality-driven, so I didn’t let that stop me. Don’t look for excuses not to do it because you’re always going to find that excuse not to get out there and do it. You don’t have to have experience, but you have to be transparent. Let them know up front, “I have no experience.” One of them laughed at me in my face. “I’m not gonna invest with you.” I didn’t take it personally. “I totally understand. You don’t feel comfortable investing with me and that’s okay. No worries. I want to move on and keep meeting other people.” Don’t get tore up by rejection, it’s going to happen. But again, just own up to who you are and what your experience is.

What I tell people that I’m mentoring is, when you decide, “Okay, you’ve been getting educated for a while, Johnny, and it’s time to go out and let’s go do your first syndication now. Well, when you walk into a room, you have to be confident. Again, don’t be arrogant, but be confident. I have no experience, Mr. or Mrs. Prospective Investor. But I’ll tell you what, this is what I’m doing. I’m targeting a 40-unit to 60-unit property in my hometown in Austin. I’m targeting something probably built in the 80s.”

Have the elevator pitch for what you’re trying to accomplish. That will convey confidence, that will convey preparedness, and people will become more and more comfortable with you because you have an idea. If you walk into a room and say, “Yeah, I’m gonna try to be a syndicator and try to do a deal.” “Well, what are you looking for?” “I don’t really know. Probably something close to my house.” So if you go into it like that, it’s like being a jerk. It’s not going to work. You have to be prepared. Again, you don’t have to have experience. Own the fact that you have no experience, but be prepared with somewhat of an elevator pitch that’s true and genuine, and walk into a room with confidence. That’s it.

Theo Hicks: Perfect. Okay, Bruce, what is your best real estate investing advice ever?

Bruce Petersen: I hit on it a little bit, but you’ve got to know who you are. The book that I wrote is designed to help people understand that syndication is not for everybody; it really is not. Everybody thinks it is for some reason, but it’s like any other business. If you’re not an entrepreneur by spirit, if you don’t have the personality that people are going to be drawn to, I don’t know that this is the right move for you. So I think it’s self-awareness. You have to know who you are. If you’re scared of people or if you’re a jerk and nobody likes you, be honest with yourself. We all like to lie to ourselves and make ourselves out to be bigger than we are in our own minds. I get it. I’m probably guilty of it sometimes, too. But if you lie to yourself in this, and you go out and raise $500,000, and you’re not equipped emotionally, mentally, any way to handle this, the deals not going to go well and you’re gonna have a lot of very unhappy investors on your hand, and you’ll probably never do another deal anyways, because it’s not gonna go well. So that’s my biggest thing is just be self-aware. If this isn’t for you, go find that thing that is for you. There’s lots of ways to make a lot of money in this world. You can have all the money you want. You just got to find the thing that works for you. So – self-awareness.

Theo Hicks: Perfect. Okay, are you ready for the Best Ever lightning round?

Bruce Petersen: Yep, let’s do it.

Break [00:18:57]:04] to [00:19:59]:03]

Theo Hicks: Okay, Bruce. What is the best ever book you’ve recently read?

Bruce Petersen: The best ever book that I’ve recently read… Honestly, it was one I was very hesitant, but I was looking for the next book. I read Sell or Be Sold by Grant Cardone. I don’t like that flashy sales guy with the shirt halfway unbuttoned and gold medallion hanging around his hairy chest. Don’t like that image, but I read it and it’s fantastic. I gave it to my staff to read. It’s an incredible book.

Theo Hicks: If your business were to collapsed today, what would you do next?

Bruce Petersen: Well, I firmly believe I know how to make money. Now that I got out of the 9 to 5 – or really for me, 9 to 9 – working for somebody else, I’ve learned how to make money. So if I couldn’t do this– I’ll be honest, I’ve got some money saved up now, so I’ll be fine for a little while, but I would probably just devote most of my time to teaching. I absolutely love everything about teaching. That’s why I love being on stage. I’ll be on stage for free or I’ll pay people to let me on their stage because I just want to help people. So if I couldn’t do this, I would just find a way to teach.

Theo Hicks: So you’ve got six syndication deals. Tell us about the best deals, not your first deal. You already talked about that 300% return. Tell us about your second best deal as you’ve done so far, specifically in the apartment syndication arena.

Bruce Petersen: So I’ll talk about one of the most recent ones, actually. We bought it in 2017, roughly a 200-unit property in North Austin, and we’re getting just hammered with yearly tax increases, yearly insurance increases that are just higher than anybody’s ever seen, but we’re so profitable there. We bought a fully stabilized asset. We expected to maybe have a little bit of upside when we sell five to seven years later, but this deal has been so strong. We keep pushing rents, we keep doing unit upgrades, we keep instituting new revenue streams that weren’t there before, and everything we’ve tried there has worked.

We communicate very well with the residents. We make sure they understand we’re in this together with them. We’ve created a fantastic feeling of community there. And this fully stabilized asset, well, we just added executed a 50% cash out– well, not a cash out, refinance. It’s the same concept, but it’s a supplemental loan. So we were able to take out more loan dollars because we drove our value tremendously higher. So again, I think it was letting the residents know that we’re on their side. They’re willing to pay for some extra stuff, because they don’t want to leave us because they know they’ve got a good thing where they are. It was built in 1973, nothing special in a C class neighborhood. But again, everything we do here has worked and we started rolling out a lot of these ideas to other properties in our portfolio.

Theo Hicks: What is the best ever way you like to give back?

Bruce Petersen: Well, one of the most interesting things that we’ve done, the most rewarding things, we had a 120-unit property that we own, again, in Austin, and we realized that it was very working class, they have a hard time making ends meet, putting food on the table even sometimes. So we thought, “It’s time for school.” Most families in this neighborhood can’t even afford the $20 to $30 it’s going to cost to buy all the school supplies that kid needs for the upcoming school year. So we reached out to all the local schools, found out what all the different grades needed. We bought all the school supplies for every student on our entire property. We fed them pizza in a vacant unit one day.

So they came in and got pizza at the front door in the kitchen with my daughter – she was handing out pizza – then they walked over to a table with my wife and the property manager, and they got to pick their own backpack. Then they went into the bedroom with my autistic adult daughter and she had said, “What grade are you in?” So she was able to hand them their grade-specific pack, and these kids walked out with the biggest smile on their faces because they’re prepared this year; they don’t have to worry about it. That’s the coolest thing we’ve ever done, but we also hope to open a 24-unit to 36-unit affordability-based nonprofit apartment complex for adults with intellectual disabilities in the next five or ten years. So that’s our next big thing.

Theo Hicks: And then lastly, what is the best ever place to reach you?

Bruce Petersen: The best way to find me is just apt-guy.com, like you said; it’s the website. You can see a little bit more about what’s inside the book, decide if you think it’s a worthy purchase. If you’re thinking about syndication, I firmly believe it is, because I’m just going to tell you the truth. This is what it is and if you want to do it great, it’s a great way to do it, go about making money, but this is what it’s really about. You can follow me on LinkedIn, Apartment Guy, or you can go to Instagram, @apt.guy.

Theo Hicks: Perfect. Okay, Bruce, I really appreciate you coming on the show and talking to us today; solid information. I like the way that you break everything down by here’s tip one, here’s tip two, here’s tip three. So I really appreciate that makes it better and easier to digest for our audience. So just to quickly summarize what we talked about. We first talked about mentorship. I said this earlier that I really liked your analogy, comparing it to people spending all their money on college, then they can’t find a job afterwards a lot of the time. Whereas people are super hesitant to spend money on a mentorship on, a coach, and you mentioned why that is, that people have a negative connotation with a mentor, but you talked about how it’s helped you on. On our blog, we’ve got plenty of articles talking about how mentorship has helped Joe, mentorship has helped every single person who’s successful. So I really appreciate you reinforcing that.

We talked about your top tips for raising money for your first deal. You said the first thing you need to realize is that the investors comes before the deal. You gave an explanation of why that is. And then your top three tips for raising money is number one, make sure you’re always over raising. So if you need to raise $500,000 for a deal, then you should be raising $1,000,000 to $1,500,000. We talked about number two, which is a get out there. The fact that this is very personality-based. So you can start your own meetup, you can go to meetups, go to different events across the nation to just get your face out there. And then you talked about what type of personality you need when you are out there. And then you also, number three, was to dress the part. So don’t dress below your means. Dress at or slightly above, but don’t go too intense. I think the example you gave was rolling up in a $500,000 car when you work in McDonald’s; don’t do that. You talked about if you need experience to raise money, and your answer was no; don’t use that as an excuse to not raise money. But you need to be transparent. You need to let them know that you don’t have experience, but still have an elevator pitch to show that you do know what you’re talking about, at the very least, and that will portray confidence, it’ll show that you’re prepared, that you have an idea.

Something else that you said too that I think is very important is that people are gonna say no. People are gonna say no, whether you’ve got a bunch of experience or no experience. Not every single person you talk to is going to give you their money. So don’t take it personally,  move on and keep meeting other people. And then your best ever advice was, know who you are, have that self-awareness to know what you aren’t good at, and [inaudible] maybe apartment syndications is not for you, and if it’s not for you, there’s still plenty of other ways to make money out there.

The next example you gave before you gave that advice was how you’re really good at speaking in front of large groups of people, like on stage, but you have difficulties and gets a lot of anxiety working a room, whereas your wife’s the exact opposite. So you have the self-awareness to know that about yourself, and rather than forcing yourself to be the person who’s in charge, walking around the room, you just let your wife do it. You follow her around and then accomplish the same thing without the anxiety. So I appreciate you sharing all that advice, Bruce. Best Ever listeners, as always, thank you for listening. Have a best ever day and we’ll talk to you tomorrow.

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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JF2192: Insurance & Apartment Deals | Syndication School with Theo Hicks

In today’s Syndication School episode, Theo Hicks shares some of the lessons he learned from interviewing an insurance broker on the Best Ever Show.

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 PropStream


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners and welcome to another episode of the Syndication School Series – a free resource to focus on the how-to’s of apartment syndication. As always, I am your host, Theo Hicks. Each week, we air our syndication school series that focuses on a specific aspect of the apartment syndication investment strategy, and for a lot of these episodes we’ve been releasing free resources that’ll help you along your syndication school journey. A lot of these documents were released with the first chunk of syndication school series, where we went through the apartment syndication process from A to Z. So if you want to check out those episodes, the more recent episodes and get those free documents, go to syndicationschool.com. And today, we are going to talk about insurance and what you need to think about when you are obtaining a quote when underwriting an apartment deal.

Now before I go into these tips, a little bit of context. So I was interviewing someone a few weeks ago from when I’m recording this, so early August… He is essentially an insurance broker, and he was saying that insurance rates and therefore insurance premiums have been increasing recently in the apartment multifamily realm. He says that you can expect anywhere between a high single-digit up to 20% increase depending on what market you’re in, and he said that’s because the insurance market is usually going to be delayed by about a year compared to the overall sales and buying market.

More recently, the insurance market has gone from a soft market, he says, where insurance companies were competing for business, meaning that the syndicator, the investor could shop around and get a lower rate and therefore, a lower premium. Whereas now it’s the opposite, where it’s a lot more competitive for the investor. So multiple investors are now fighting for one insurance company. So he says that not only are the rates higher, but they’re also not even getting insurance on certain types of properties. So with all that being said, all of these are things to consider now with insurance rates going up and with insurance companies being a little bit more picky about the types of deals that they provide insurance on.

First and foremost, I guess this is not gonna be considered part of the eight things, but this is maybe a bonus one, which is, make sure you talk to your insurance broker or whoever your insurance agent is, ASAP to get an understanding on what rate changes have been and what types of deals they may or may not be providing insurance on, because you don’t want to spend all this time underwriting a deal, getting it under contract just to realize that you’re not able to secure insurance because of some reason that we’ll talk about here in a second. So that said, let’s go through these tips.

The first one is how to set the insurance assumption when you are underwriting. So traditionally, for the past ten years, let’s say, they’ve been setting the insurance premium to the T12 insurance premium. So whatever the current owner is paying, the underwriter assume that they’ll pay something similar or the same. Whereas now, with rates going up and the premiums going up, you no longer want to simply assume that the insurance rate is going to be the exact same because as I mentioned, it is now a hard market and insurance rates can go up in the double digits in certain areas. So it is more important than ever to now speak with your insurance agent during the underwriting process so that you have an understanding of how much the insurance is going to increase. So give them some information about the deal and ask them what they expect the premium to be, or at the very least, what they think the rate increase is going to be. So that’s number one. Do not use OM insurance premiums anymore.

Number two is about the history of losses. So in order to provide you with an accurate insurance quote, your insurance provider is going to need the history of losses from the current owner’s insurance provider. So if the property has any past claims during the past how many years the owner has owned the property, your insurance agent needs to know because the history of the property is going to determine the rate, and it might even determine whether or not they will give insurance at all on the property. So if you do not provide them with the history of losses, then they’re going to assume that there is no history of losses, there have no claims, and will create an insurance code based off of a clean property history, which is okay if the claims history is actually clean. But if your insurance agent gets their hands on the history of losses during the due diligence period and there is a history of losses, then it’ going to change your insurance rates significantly and your premium is going to also increase significantly.

And as I mentioned, they may not even provide insurance at all, at which point you’re scrambling to get a new insurance provider. So to avoid all of those difficulties, reach out to the broker or the owner and ask them for the history of losses so you can send that to your insurance agent. The guy that I interviewed said that this is not very long process. So it’s just a button they click to generate it. So it’s not like they’re writing this out from hand or anything. It’ll be very helpful in helping you underwrite the deal properly.

Next is understanding the difference between the deductible and the premium and which one you want to have higher because they have an inverse relationship. So the premium is what you pay each month or each quarter or each year, and then the deductible of what you pay when you file a claim. So if you pay up to the deductible ceiling and then once that ceiling is passed, the insurance company covers the rest. But as I mentioned, there’s an inverse relationship between the deductible and the premium. So when you are getting an insurance quote, the higher the deductible, the lower the premium. And then the higher the premium, the lower the deductible.

Now since we’re buying for cash flow and not appreciation, then you want to get the insurance quote that has the lowest premium and then the highest deductible that you are comfortable paying. This will result in a lower premium, a lower ongoing operating expense, and higher cash flow. So when you’re asking for quotes from your insurance provider, ask them to provide you with multiple quotes with varying deductibles and premiums. So say, “Hey, what’s the highest deductible, what’s the medium deductible, and then watch the lowest deductible, and then what’s the associate premium with each?”, and then decide whether you want to go with the highest, the medium or the lowest.

Now on a similar note, number four is going to be understanding the actual deductible because you’re going to see two types of deductibles for commercial apartment communities. There’s going to be a deductible per occurrence and a deductible per building. So as the names imply, the deductible per occurrence is one deductible pay per occurrence. So if three buildings are affected by a fire or whatever or a hurricane and you file a claim, then you need to pay your deductible one time if it’s a deductible about per occurrence before the insurance kicks in. If it is a deductible per building, then in that same situation, you’re going to have to pay that deductible three times before the insurance comes in. So obviously, the deductible per building is going to be lower, but if multiple buildings are hit, it’s going to be higher than the deductible per occurrence. So you’re gonna want to make sure you know what types of deductible is in the insurance quote. Is it per occurrence or is it per building? And then you’re gonna have to decide which one you want to go with. Probably the per occurrence or the one that results in the lower premium.

Next is going to be about loss of income coverage. So apartment insurance doesn’t just cover the physical asset. It can also cover loss of income as well. So you want to determine if you are going to receive any reimbursements from a loss of rent if the property is damaged by a covered loss like a storm or a fire or a hurricane or a tornado or whatever. And then if you do, you want to know what the terms are. So is it just all of the income for the damaged buildings for a certain period of time? Is it up to a certain amount? Is it a percentage which is dependent on what the covered loss is? So you want to know exactly what types of claims will allow you to continue to generate income on those down units.

Another type of coverage you can get is a liability insurance. So this covers you legally if someone at your property, whether it be a tenant or a visitor of a tenant is injured. So if they slip on ice or they tripped on the stairs, they get hurt and they sue you, well, this could be hundreds of thousands, if not millions of dollars in legal fees and settlements. So you can get commercial general liability insurance, and a good rule of thumb here is $1 million per occurrence and $2 million overall in general liability coverage. So just say, “Hey, I want commercial general liability insurance included on my quote, and I want the $1 million per occurrence and then $2 million in general liability coverage.”

Next is going to be the replacement cost for the insurance. So this is just something not super important, but it’s also– well, not super known; this is a specific detail of the insurance. But you won’t know how the insurance company is calculating the replacement cost of the property. Are they just basing it off of the purchase price? Are they basing it off of some sales comp or comparing it to other assets in the area? What you want to have had is you want the replacement cost to be based on the price per square foot to actually rebuild this specific property. So wherever the replacement cost is included in your insurance policy, make sure it says, “Replacement costs based off of price per square foot to rebuild.” Again, that way, if something were to happen and the entire property were to be destroyed, you actually have the money to have the option to rebuild the property in full.

And then the last thing that I wanted to say that you should consider is to join REAPA. So we have no affiliation with them whatsoever, but it is a website where you can join for a couple hundred bucks per year. They partner with a variety of industry leaders in the real estate realm, and through these partnerships, their members are able to get discounts on certain things, including insurance. So it’s like– I can’t remember what the exact terminology is, but when you have a master policy with insurance company, or if you bring them enough people, you can get a discounted rate. So it’s like a bulk discount in a sense. So by going through this company, you can get a reduced insurance rate. So this is very helpful, especially since as I mentioned at the beginning of this, insurance premiums, insurance rates are increasing.

So those are the things to think about when you are getting an insurance quote. Again, this doesn’t cover every single thing, which is why I have the coverall, which is talk to your insurer. You can make sure you are adequately inputting the correct insurance amount when you are underwriting your deals. So that concludes this episode. To check out some of our other episodes as well as those free documents, visit syndicationschool.com. Thank you for listening. Have a best ever day and we will 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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JF2185: Tips On Converting Apartments Into Condos | Syndication School with Theo Hicks

In today’s Syndication School episode, Theo Hicks, shares some ways you can convert your apartments into condos. This will give you more options when it comes to buying apartment complexes. 

 

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 PropStream


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners and welcome to another episode of the Syndication School series – a free resource focused on the how-tos of apartment syndications. As always, I’m your host, Theo Hicks. Each week, we air a syndication school series episode that focuses on a specific aspect of the apartment syndication investment strategy, and for a lot of these episodes, we offer free resources. These are free PowerPoint presentation templates, Excel templates, PDF how-to guides, something that will help you along your apartment syndication journey. So make sure you check out those free documents as well as past syndication school episodes at syndicationschool.com.

In this episode, we’re gonna talk about an interesting strategy; an interesting, unique syndication type of deal where you’re buying an apartment, and rather than doing a turnkey where you hold it for cash flow or doing the opposite end which is an entirely distressed deal, and then stabilizing the deal and either selling it or holding on to it and that’s how you pay your investors, or the in-between value add where you have a deal that’s stabilized, but needs some care… Maybe you just renovate some of the units, upgrade some of the amenities, and then increase the cash flow to pay your investors. This strategy is a fourth, which is– well I guess, another one would be developing. So you buy a piece of land and you develop the apartment. So you raise money for that, develop the apartment and either sell or hold… And then I guess the fifth strategy would be to buy apartments and to convert them into condos. So this is going to be about condo conversion.

So this is apartment syndication and technically you are doing an apartment syndication, because you’re buying an apartment with other people’s money, but on the back end, you’re not selling it as an apartment, you’re selling it as condos. So like a development deal, the condo conversions is going to be a little bit different and require more effort. I won’t say more effort, but there’s more things you need to do for development deals and for condo deals; as you’re doing heavy construction, the units are gonna be vacant.

So if you are looking at a deal and it’s in a market where there are a lot of condos, or condos are popular, or you just want another option when you’re analyzing deals,  because the more options you have, the more deals you can do – I wanted to do an episode that went over some of the things that you need to think about before you submit an offer on an apartment deal that you intend on converting to condo.

So I’ve got a list of things that are a little bit different for condo conversions than for your traditional turnkey, distressed or value-add apartment syndication deal. The first one, and this is kind of the all-encompassing, which is to speak to an attorney. So the process for converting a condo is going to vary from state to state and from city to city, county to county. In some states, it’s a lot easier to convert to condos; other places, it’s a lot harder. So you’re gonna want to speak to an attorney that specializes in these types of condo conversion projects. That way, you can ask them what the entire process is, what the steps are, how long the steps take, what the costs are for the various steps, just to get a general understanding of one, is it even possible to do a condo conversion project in the market, and then if you are, what are some of the things that you need to do in order to get to the point where the condos are completed and ready to be sold.

On a similar note, you’re also going to want to talk to someone who actually specializes in condo conversions on the investment side. So an investor who has done condo conversions before, because you’ve never done it before – well, you might not necessarily know what you’re doing, you might run into a lot of mistakes, and when we’re talking about using other people’s money, well, every mistake is less money that goes to your investors and potentially eating into the capital that they invested. So it’s always good to have someone on your team that has experience doing what it is you’re trying to do, and even if you’re doing value add, you want to have someone who has experience in value-add syndication. So in addition to the attorney, make sure you have someone who’s done these types of deals in the past, and ask them also, “What’s the process like? What are some of the things that I need to think about? What are some of the things that most people miss?” just your traditional conversation.

Now, one of the biggest differences between your traditional syndication deal and these condo conversions would be the process for vacating the property. So it’s going to be more or less challenging depending on the laws surrounding condo conversions in that market. So that’s why you’re gonna want to talk to your attorney to ask them what the laws are, because some places there are a lot of laws that protect the rights of the people that are currently living in the property. So let’s say you see a property that you think is a good potential condo conversion deal and every single unit is occupied, but they’re all month to month, and so you say, “Oh well, I can just go in there and I can give everyone a notice to vacate, and then within 30 days the entire property is vacated, so I can start with my renovation. So I’ll have a 30-day window where I can’t do anything, but then after that, I can add in the renovation time, and then I can calculate the hold period.” Well, depending on the market, you might need to give a longer notice to vacate time than your traditional 30 days if you plan on converting to condos, and then in some places, even if you are able to send out these notice to vacate, you might, depending on the laws, have to cover relocation costs. You might even have to give them a chance to purchase the completed condo. You might not even be able to give them a notice to vacate depending on how strong these laws are. So if you buy a property with the intent of doing a condo conversion and you don’t know what the process for vacating the property is, and you’re in one of these localities that make you pay them $1,000 or whatever to move, or you can’t have them move at all and you have to organically move, then obviously your whole period is going to be way longer, those holding costs are going to be way higher, and you might not even be to do the condo conversion project at all, and obviously, that’s going to affect the returns to your investors. So that’s probably one of the first things you’re gonna want to look at if you are considering a condo conversion project, is what’s the vacating the property process like?

Next, you’re gonna want to understand the hidden fees. So there’s a lot of extra fees associated with condo conversion that you’re not going to see in the traditional value add type deals. Of course, your attorney can help you uncover these, but a few of these are going to be application fees with the city, surveying fees, attorney fees, and then fees related to code compliance. And then once you’ve actually done the condo conversions, the city’s gonna want to inspect the condominiums and make sure that they’re up to code, and if they’re not up to code, then you’re going to have to address those issues. So there’s gonna be a fee associated with any of those issues you need to fix.

One recommendation would be to hire a private condo pre-inspection specialist to inspect the property first, to give an opinion on potential code violations and the cost of repairs. That way again, rather than the city inspector coming saying you need to do XYZ, you do XYZ and they come back and say, “Oh well, you did this one wrong, you need to do the ABC now,” and then wasting more and more time increasing the holding costs… Have this pre-condo inspection guy come in after you’ve done the conversions. He can say, “Hey, these are the ten things you need to do.” You do all ten, the inspector comes, there’s no issues and you can move on to the next step.

One other hidden fee can be your increased insurance costs, because the insurance to cover condos is higher than insurance to cover apartments. So while you’re waiting to sell, your holding costs as it relates to insurance, is going to be higher. So make sure you’re getting a quote for the new insurance premium, and then you’ve got to keep in mind of the upfront and back-end fees that you as a syndicator are going to charge for putting the project together and manage the project, as well as the brokerage fees. So those are some of the hidden fees. Obviously, there’s more, but those are some of the main ones.

Next is going to be financing. So since you’re buying an apartment and converting it into a different property code, and it’s going to be vacant and not be generating any income, you’re not gonna be able to get your traditional loan. So you’re gonna need to speak with a mortgage broker who specializes in condo conversions so they can help you secure the right financing for the deal. And obviously, you’re gonna wanna have these conversations before you put the deal under contract, so you have an adequate estimation of the debt service, as well as the other important loan terms, like interest-only periods, what the loan term is, if there’s gonna be a balloon payment or prepayment penalties, interest rates, if they’re fixed or adjustable, financing fees, closing costs, really everything else associated with the loan. But you want to know upfront what types of loans you can get, so you can estimate that debt service so you have a more accurate holding cost.

Next is gonna be the timing. So again, you’ve got the upfront cost, the backend costs and also the hidden fees in the middle, but also the holding costs. Things like insurance, things like taxes, things like utilities, these are things that you have to pay regardless of whether or not the building is occupied or not. So in order to understand what the whole holding costs are going to be, you need to understand what the total holding period is going to be. So to determine that, you need to estimate the timelines for each step in the condo conversion process. So what’s the time it takes from buying it to vacating the building? Once the building is vacating, how long are the renovations going to take? How long does it take to convert the units to condos, to do whatever you need to do to address deferred maintenance, to do whatever you need to do in order to get the common areas up to par? And then once everything’s done, you’ve got the inspection and they’re ready to be sold. First of all, how long does it take to actually get the condos listed? So those are the things you need to do. As I mentioned, the inspections, you have to set up the HOA, any other post-conversion requirements, and then once they’re ready to be sold, how long will it take for you to sell all of these units? So that is going to be the average days on market, and then the closing timeline like. Once it’s under contract, it takes 45 days to close, or whatever.

You add all these together, and that’s going to be your hold period, and maybe you want to add an extra month or something for contingency, and then that’s how you can calculate your holding costs. Obviously, the next thing is, well, what are the holding costs? I already mentioned this, but these are going to be the ongoing expenses that you pay during the hold period. So these will be your insurance, your taxes, your utilities, your debt service. Obviously, since you aren’t going to be generating any cash flow during the conversion process, unless it takes a long time to vacate the property, maybe you got a few months of cash flow coming in, but obviously not enough to cover all of the holding costs… So these expenses must be covered in that initial equity raise. You need to make sure that you’re raising money to cover these holding costs.

Next are going to be the renovation costs, which we can break into four categories. First is the cost to convert the apartment units into individual condos. Second is the investment amount for the condo common areas. Next is the cost to address deferred maintenance and the next is going to be the contingency budget. So you’re gonna wanna make sure you have a grasp on all of these costs before you submit that offer.

So this is where you want to talk to, again, that person who specializes in condo conversions or a contractor to understand how much it costs to convert the condo, what types of common area investments should be made, deferred maintenance – you’re just going to need to get a contractor in there – and then a contingency budget; 10% to 15% is usually the traditional contingency budget.

Next is to understand the sales process. So obviously, you’re going to need to understand what the after-repair value is of each of the individual condo units so that you can determine how much money you’re going to make at sale, which requires doing a sales comparable analysis and figuring out how much condos are going in that area. Of course, you’re gonna want to do this beforehand, because you’re not gonna be able to set an offer price if you don’t know what the exit price is going to be. You’re also going to want to understand the costs associated with selling the properties, like the marketing expenses, if any, as well as the broker’s commission.

And then lastly, since this is a syndication as you are raising money, you need to figure out how the limited partners are going to be compensated, so you can determine if it’s actually a good deal for them or not. So first, what type of return are you going to offer? Is it going to be a preferred return? Is it going to be a profit split? Or is it going to be both? More importantly, when are they going to get paid? So they’re not going to get paid during the hold period, that’s for sure, because it’s not going to be generating any cash flow. It’s going to be more like a development deal where they get either a preferred return that accrues, or they’re gonna get a profit split at sale, but is it going to be after each condo unit sale or is it going to be once all the condo units are sold? So when they get paid is going to affect not only the IRR. So those are the things to think about if you want to convert an apartment into condos, and really the team member that you’re going to need to have in place prior to putting an offer in your first deal is obviously going to be the attorney that we talked about, we talked about the mortgage broker, we talked about the listing broker, we talked about the contractor, and then also, you’re going to want to find someone who’s investor who specializes in these things. And then all of those team members – attorney, mortgage broker, listing broker and contractor don’t need to specialize in the condo conversions. It doesn’t need to be the only thing they do, but it needs to be at least a part of their business. You don’t want to have a contractor who’s never converted an apartment to a condo before, or same with the attorney; especially the attorney, and the mortgage broker. Obviously, you might be able to find a mortgage broker that just specializes in condo conversions, but most likely they’re going to be some bridge lender that focuses on bridge loans in general.

So those are some of the things to think about when it comes to converting apartments to condos, when you’re raising money from investors to do this. So I think that’s everything. So we’ll conclude this syndication school episode. Thank you for tuning in. Make sure you check out the other syndication school series episodes as well as those free documents at syndicationschool.com. Again, Best Ever listeners, thank you for listening. Have a best ever day and we will 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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JF2178: Two Ways To Grow Your Syndication Business On The Radio | Syndication School with Theo Hicks

In today’s Syndication School episode, Theo Hicks, two ways to grow your apartment syndication business by using the old fashion radio, that’s right, the radio. 

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 PropStream


TRANSCRIPTION

Joe Fairless: There needed to be a resource on apartment syndication that not only talked about each aspect of the syndication process, but how to actually do each of the things, and go into it in detail… And we thought “Hey, why not make it free, too?” That’s why we launched Syndication School.

Theo Hicks will go through a particular aspect of apartment syndication on today’s episode, and get into the details of how to do that particular thing. Enjoy this episode, and for more on apartment syndication and how to do things, go to apartmentsyndication.com, or to learn more about the Apartment Syndication School, go to syndicationschool.com, so you can listen to all the previous episodes.

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. Each week, we air a single syndication school episode that focuses on a specific aspect of the apartment syndication investment strategy, and for a lot of these episodes, we release free resources, especially the ones earlier on. These are free PDF guides, PowerPoint templates, Excel templates, something that’ll help you along your apartment syndication journey. All of these free resources and past syndication school episodes are available at syndicationschool.com.

Today, we are going to be talking about the radio. So I’ve interviewed a couple of people on the best real estate investing advice ever show about their usage of the radio to grow their real estate businesses, and so I want to talk about two episodes in particular. One, I did with Chris Arnold, that is Episode 2150, and the other one is with Erick Hatch, which has not aired yet, but I would imagine it’d be airing in the next few months, so keep an eye out for that.

So both of them are wholesalers, fix and flippers, and the did their lead deals using the radio, and I’m going to talk today about how you can use the radio to not only generate most likely smaller apartment deals — I’m sure it’s possible to get 100-unit, 200-unit deals on the radio, but most likely you’re looking at smaller, 50 and below… But more importantly, how you can start to generate potential investors interest and start to grow relationships. Obviously, depending on whether you 506(c) or 506 (b), you’re gonna have to approach it differently, but I’ll go into more details on that second step.

The first step is how to find deals, and that’s through radio ads, and the reason why is because– and I didn’t know this, but the radio reaches around 90% of adults, and since adults are the ones who are selling real estate and listening to the radio, that is a great way to generate leads. Again, this is most likely going to work for smaller deals, but I don’t see why this wouldn’t be a strategy you can use to generate apartments. So someone uses this and it works, let me know for apartments because most of the time, I hear about it for smaller deals, but the cost is so low that I would imagine it would make sense to attempt to do this for apartment deals. If you can get a hold of some mom and pop owners who listen to the radio, that’s probably your best bet.

So knowing that – Chris Arnold, we’ll start with him. He has done over 2,500 deals on the radio. So essentially, the strategy is four steps. Very simple. Well, I guess, first, another reason why he uses the radio is because most people listening to this who have read the title and said “The radio? No one listens to the radio anymore”, but they do. A lot of people listen, but not a lot of people advertise real estate on the radio. So there’s a massive supply and demand imbalance. You’ve got a lot of people listening to the radio potentially wanting to sell their deals, whereas there’s not a lot of people talking to them on the radio.

So the four-step process – number one is to define your target audience. So if your goal is to target mom and pop investors, so demographic over the age of 50, let’s say, which is the target demographic for Chris, then you have to think of what their motivations are. So if they’re over the age of 50, they’re mom and pop, then their motivations are to retire, maybe they’re tired of being a landlord, maybe they inherited an apartment from their parents who recently passed away… So since that is his target audience, then the next step is to create the advertisement targeted towards that audience.

So again, let’s go with 50 mom and pop, maybe they’re looking to retire, maybe they inherited the property, maybe they are tired of being a landlord. So the advertisement isn’t just some vague, “Hey, we buy apartments. Let us know if you’re interested in selling.” It’s very specific and talks to and touches on the pain point of that target demographic. So in his advertisements, he’ll say, “Hey, are you retiring? Are you tired of being a landlord? Did you inherit a property? No problem, we can buy your property all cash. Just give us a call on–” whatever number it is. So if you listen to the episode, he goes into detail on what his exact messaging is, but the most important thing is you need to mention the pain points, the motivations in your advertisement.

How you actually create your advertisement – you can either do it in home with a microphone, because again, it’s just audio, and if you don’t have the proper equipment, then you can use a local radio station studio. They’ll allow you to use their studio assuming you pay for the advertisement, which brings us into number three, which is how do you find a radio station.

Of course, this goes back to your target audience.  So once you’ve got your target audience defined, you’ve got your advertisement script written, then you figure out where you’re gonna air the advertisement, what radio station; which is actually pretty easy. All you need to do is figure out what type of music the target audience likes to listen to. So if you’re talking about the demographic that’s 50 and older, then they typically will listen to classic or old rock stations, and so you want to focus on those stations. If your target demographic is in a rural area, then country music, he says, are best. If it’s in a city, hip-hop or urban station might be better, or R&B, pop and hip-hop would be your best bet. But most likely, since you’re targeting the older demographic for these mom and pop investors… Classic, rock, old rock, country music stations will probably be your best bet to generate those leads.

Now, this last step is very interesting, which is to negotiate the pricing. So once you’ve identified the radio station, what most people typically do is they’ll call into the local radio station, and then they will ask for the media packet, and then they’ll get a media packet, which is a PDF with the various packages they offer, this many spots per month, and then there’s a price, and then they’ll just pay the price. So what Chris does is he’ll pull reports on the value of the radio station prior to calling, what the actual value of the time on the radio is, and then based off of that report, he’ll calculate how much the advertising spot– it’s a 60-second advertising spots, I think, he says he gives 100 per month. So he’ll calculate, “Okay, so 6,000 seconds.” So he’ll calculate “Okay, how much should I be paying a month for 6,000 seconds of ad time based off of this radio station’s value?” And then when he calls in, rather than saying, “Hey, can I see your media packet?” he says, “Hey, I did research and here’s how much money I’m willing to pay for the spot.” So start there. Obviously, not every single time they’re gonna not just say, “Oh yes, sure. We’ll take that”, but it’s much better to do that to at least know if the dollar amount in the media package is way inflated and overpriced, and then you can get a lower rate.

So Chris pays $1,500 for 100 60-second ad spots per month. So three spots-ish per day for $1,500 dollars per month. Now obviously, this price is going to vary depending on where you live. Chris does this in, I believe, Dallas, Texas. So he’s in a pretty big market. So again, this is more for finding deals, and I think, since this is only $1,500 dollars, I think it’s worth trying for six months to see if it works because again, one apartment deal will far outweigh the costs associated with advertising.

But the other episode with Erik Hatch, I think, is gonna be more interesting, because rather than airing ads on a radio station, he says he has his own radio show. When he told me this, I was surprised because I had this conversation with him and we had gone over all the various things he’s involved in in real estate; he does a lot. He does real estate software and he does deals himself, and then he also has a show on a radio station. So the reason why it’s not that difficult to get a show on a radio station is because they’re actually looking for content from people that they don’t have to pay.

So the way he explained to me is that if they want to fill an hour show, a three-hour show or any FM radio station, AM radio station, they reach out to someone, and then they pay this person money every single day, every single week, every single month, every single year for their show. And obviously, they make money by doing advertisings on that show and then commercials on that show. Whereas if you, the real estate investor, wanted to start a radio show and you reach out to them with your interest in starting a radio show, well, you pay them. So it’s way better from their perspective to have you host a radio show than it is for them to pay, assuming that you actually bring and attract listeners.

So what he does is he’ll do a show — and this is something very familiar to your traditional thought leadership platform that we’ve talked about a lot on this episode. So he did the show and he’ll blog about it. He’ll usually record his show in video format, and so he’ll post clips to YouTube about it, social media about it. He’ll tag the guests that he has about it… And it allows him to be perceived as the local expert, which again, we always talked about that with the thought leadership platform.

So what he did is he started at the most popular station first. Again, going back to that defining your target audience, and then figuring out what music they listen to. So in this case, if you’re looking to attract passive investors, whatever your criteria is for your passive investor, which we’ve talked about on the show before, how to define that, so you can check out that episode, then you need to figure out what FM radio station to do your talk show on, or what AM radio station to go on and do your talk show on depending on what high net worth individuals are listening to on their way to work. And he’ll just talk about investing. He won’t say, “Hey, I’m looking for deals,” or, “Hey, come invest in my deal.” He just talks about real estate investing. He gets his name out there and positions himself as an expert in the area. So if you’re on the radio talking about real estate all the time, and you’re interviewing real estate investors, you’re gonna become pretty well known, and people are gonna know who you are. So I guess technically, this could help you find more deals. The brokers will know, “Hey, you’re that guy on the radio station.” You’ll be more credible in their eyes and they’ll more likely be willing to give you their off-market deals.

Something else interesting that he says he does is he’ll have vendors advertise on his show. So he’ll do a live read. So rather than the commercials which the radio station makes money on, he’ll do live reads during his actual show. So does this sound familiar? It sounds a lot like a podcast or a YouTube channel, and as opposed to just posting it on iTunes, you take a step back, and the conception of the content is the radio show. So you do the radio show, and then that audio gets uploaded to the podcasts app, the iTunes app, all the other podcast apps; that’s audio.

You can go on YouTube as video, you can make your clips and post it to social media, you can write blog posts about this radio show, and you’re getting the added benefit of it being on the radio, as opposed to just being a podcast. And I’m not sure what’s even better – because he didn’t necessarily talk about how difficult it is to get a radio station to accept you, but he started this a while ago, and he does 20 to 30 flips per year. That’s what he does deal volume-wise. And if you have an existing podcast, and you can show the radio station when you call them and say, “Hey, I got this podcast. It’s got this many downloads, this many reviews, this many weekly listens. I want to do a one-hour show,” then you start at the most popular radio station and work your way down until you get someone to say yes.

As I mentioned, I’m sure you could technically use this to directly market for the leads. I think the better strategy here with the radio show is the same reason why you create any thought leadership platform. One, it’s for your own education. You can create your own customized education by deciding who to interview. The other benefit is that you’re already doing it. If you already have a podcast, it’s not that difficult to transition that to a radio station, because you don’t have to go in there — you can go in their studio, but you can also just record in your own home studio, especially if it’s just going to be audio, and then you send that in and then they just press Play. So that’s the other benefit.

I think the main advantage is going to be in regards to becoming the expert in your local market; becoming the go-to guy for real estate. Everyone knows who you are, you’ve interviewed a lot of people in the market, and then not only can you use that and leverage that when you’re talking to potential investors, but you might get people actually reaching out to you and asking if they can invest in your deals, and then you get to know them, and then they’re legally allowed to invest in your field.

So two ways to use the radio. One is to use it as advertising, legitimate advertising commercials, and the other one is to use it as a thought leadership platform. So again, very interesting strategies, very unique strategies that not a lot of people are doing… And especially now, recording this in August of 2020, when essentially everyone is still working from home, this is going to be, I think — people can begin to expand their future business by expanding what they’re doing right now and using the extra time that they have to grow and evolve into different marketing strategies, into different ways to find deals and tap into things that you might not necessarily have thought of before or had the time to pursue.

So at the very least, people should be doing a thought leadership platform, and doing a radio show is just one example of that, that I think, has a lot of promise. I remember I was really excited after talking to Erik and hearing about all the success he had on the radio station and how seemingly easy it was. All he did was just call and ask, and he asked a couple of times, just like when you’re cold calling. He asked enough people until they said yes, and now he makes money via advertising, he gets to talk to all these great guests, he’s an expert in the area, everyone knows who he is. He’s finding deals, he’s finding private money… And he didn’t say how much he paid for the radio station, but again, do one deal and it pays for itself.

So that concludes this episode, How To Use The Radio To Grow Your Apartment Syndication Business. Make sure you check out those other syndication school episodes we have from the past, 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.

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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JF2171: | 3 Steps to Hiring An Underwriting Analysts Syndication School with Theo Hicks

In today’s Syndication School episode, Theo Hicks, will be going over 3 steps to hiring an apartment underwriting analysts.

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 PropStream


TRANSCRIPTION

Joe Fairless: There needed to be a resource on apartment syndication that not only talked about each aspect of the syndication process, but how to actually do each of the things, and go into it in detail… And we thought “Hey, why not make it free, too?” That’s why we launched Syndication School.

Theo Hicks will go through a particular aspect of apartment syndication on today’s episode, and get into the details of how to do that particular thing. Enjoy this episode, and for more on apartment syndication and how to do things, go to apartmentsyndication.com, or to learn more about the Apartment Syndication School, go to syndicationschool.com, so you can listen to all the previous episodes.

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. Each week, we air a syndication school episode that focuses on a specific aspect of the apartment syndication investment strategy, and for a lot of these episodes, especially the ones in the past, we’ve released free resources for you to download. All of these free resources as well as past syndication school series episodes can be found at syndicationschool.com.

The subject of today’s class is going to be how to hire an underwriting analyst. So an underwriting analyst is someone on your team whose main responsibility is to evaluate the incoming apartment leads. So that is their main responsibility. Sometimes depending on where you’re at in your business, you might have an underwriting analyst fulfill other secondary roles as well, like helping with due diligence after a deal is put under contract and creating the investment summary to present to investors, performing any market research required during the underwriting and due diligence process, or really any other analytic responsibility like reporting in the asset management phase.

So when you are deciding to hire a underwriting analyst, the first thing you need to do is define the role that is what do you want them to focus on. Do you want them to focus only on underwriting, or do you want them to focus on other aspects of the due diligence or the asset management process as well? Once you’ve defined the role and the responsibilities, you can define the requirements of a prospective candidate. So you need to have a background an individual will need in order to be a successful, effective underwriter. So ideally, they have previous underwriting experience, or at the very least, have experience using financial models in Excel.

Now, a great way to get a free underwriter – because you’re gonna have to pay this person if they’re experienced; so the more experience they have, the more expensive it’s going to be… But a great way to get multiple free underwriters is to find someone who is interested in becoming an apartment investor or an apartment syndicator, but doesn’t have the experience or the capital or the network to do deals themselves, and they’re still in the education phase. Well, you can offer to educate them by giving them a free cash flow calculator, a financial model, how-to guides and videos of how to actually underwrite deals, and then in return, they will underwrite deals for you for free as long as you give them feedback on their underwriting. So the underwriting is obviously not going to be perfect, and you yourself are going to need to have underwriting experience if you’re going to train people, but we’ll get into that a little bit later, of how to do this without having any expertise yourself.

The analyst is also going to need a high level of proficiency in Excel at minimum. So even if they don’t know how to do financial modeling, they don’t know how to do underwriting, they need to know how to use Excel. It’s a lot easier to teach someone how to input data into the cash flow calculator than it is to teach someone literally how to input data, how formulas work in Excel. So they need to have some level of proficiency in Excel, since they’re going to be required to pull data from various reports – T12s, rent rolls, OMs, rent comp analyses, market analyses.

In order to avoid making really simple operator error mistakes, they need to also have a very high level of attention to detail, as well as strong financial, quantitative and analytical skills. Sometimes you’re going to allow them to send you deals within a few days, maybe even a week. Other times, you might need to get a completed underwriting model within the next 12 hours. So ideally, they also have the ability to work under tight timeframes, which means they might have to work on weekends and nights as well… And of course, if they’re going to do something else besides simply underwriting, they’re going to need skills in that area as well. For example, if they’re creating investment summaries, well then, they’re gonna have to know how to use PowerPoint as well. They’re going to need to know how to multitask if they’re going to be bouncing additional roles in addition to the underwriting, and then depending on how your business is set up and the role you want the underwriting analyst to play, they might actually need to live in a specific location. So we’ve got skills and we also have physical locations. So if you have an office, well, they’re gonna need to live in the general vicinity of the office if they’re required to come into the office, which isn’t as important right now, since we’re all stuck at home, but eventually, when people return to offices, if you have an office or you want to have an office in the future, you might want to consider hiring an underwriter who lives in the area. Also, let’s say that you have them involved in the due diligence process, well then they’re gonna need to live near the property, so they can go there and perform that.

So once you actually know the requirements you need for your underwriter, which I just laid out –  it might be a little bit different for you, but essentially, this is what you want in the underwriter – then when you screen applicants; you ask them questions to determine whether or not they meet these requirements. But before we get to that, you need to find applicants. So after you define these responsibilities, after you’ve defined these requirements and you’re ready to generate prospects, you need to create a professional job listing. You should include biographical information about you and your company, as well as the responsibilities and requirements that we just discussed. And then once you have the job posting created, then you go ahead and post it to various job listing websites. You can post it to LinkedIn, you can post it to BiggerPockets, you can talk about the analyst role on your podcast or other thought leadership platforms to promote the job listing. You can share on social media, you can promote the job at local meetup groups once we get back to local meetup groups, you can create a landing page on your website for the job [unintelligible [00:09:52].22], you can hire a recruiter, you can put it on one of those recruiting websites… There’s countless ways to generate leads. It depends on where you’re at in your career. If you don’t know anyone at all, well you’re probably not at the point where you’re ready to hire an underwriting analyst anyway, so the other option would be essentially, anywhere in your network; wherever you’re currently at, is where you can generate interest in your position.

Once you generate interest, you want to go ahead and screen the applicant. So the best screening processes are done in two phases. The first will be an initial interview probably over the phone or in a Zoom meeting, and that’s just to determine if they actually meet the requirements that you have listed in the job posting. So here are some questions that you’re going to want to ask. So general questions – ask them what their current day to day tasks are, ask them how much time in their day is spent underwriting deals, ask them who they currently report to, how big is the current analyst team, and what do they like about multifamily investment. Just general background, what they’re doing now, what they have done regarding underwriting.

Obviously, if they haven’t done underwriting in the past, they’re not going to have answers to these questions, and one of the important requirements is previous underwriting experience.

Next is going to be questions related to market knowledge. So ask them what markets have they worked in, what markets are they experts in. Next, you can ask them what markets do they think would be good multifamily markets to invest in, to gauge their expertise. And then the last question you can ask about markets is what are your thoughts on the state of multifamily sales prices at the moment, and where do you see them headed? So again, just gauge their knowledge on the market, as in the market that you’re gonna invest in, but also the real estate market as a whole.

Next are gonna be questions about underwriting. So ask them on a scale of 1 to 10, 1 being a complete noob and 10 being an expert underwriter, what is your level of financial modeling? So how good are they at modeling deals from their own perspective? Can you create your own model from scratch? Please give a few examples of advanced formulas you would use in a model. We’ll get into how to gauge their answers in a second. Let’s just get through the questions. Can you please explain your underwriting process of a recent deal you underwrote? What was the business plan? …to kind of gauge, “Hey, do you have experienced underwriting value add deals like what you’re doing or turnkey deals or distressed deals, condo conversion?”, whatever types of deals you’re doing, they need to have experience underwriting those types of deals. So you want to ask them, “Please explain your underwriting process on a recent deal,” but also ask them, “Hey, what’s your experience on our business plan, the value add business plan, the turnkey business plan?”

Last underwriting process-related question would be, “Are you involved at all with presenting the deal to senior members of the company or investors?” Next, you can ask them about their understanding of debt. So have they ever worked on obtaining new debt, refinance, supplemental? If I referenced the term ‘agency lender’ or ‘bridge lender’, do you know what that means? A due Diligence question – describe what type of due diligence you have performed and what typically goes on. Do they know what typically goes on during the due diligence process? And then your general employment information, employment in the future outlook, where do you see yourself in five years, ten years? Why are you looking for a new job? Describe a challenge you faced at your current or past position and how you overcame it. How do you think you can create value with this company? What is your salary expectation for this position? What do you like to do outside of work?

Now some of these are, as I mentioned, general questions you’d ask about any role, but the answers that are most important are going to be the ones relating to the market knowledge and relating to the underwriting process. And then if you want them to do due diligence or help with that, then obviously the debt due diligence questions are important as well, but let’s focus on the market knowledge and the underwriting process.

So they need to have market knowledge in order to perform the rent comp analysis and sales comp analysis during the underwriting process. So if they don’t work in your market or they don’t have a good answer to what markets they think are good to invest in and why, or they don’t have an answer as to their thoughts of the sales prices, they’re not going to be able to perform rental comp analysis effectively. They’re also gonna need a high level of financial modeling. So ideally, an 8, 9 or 10. They’re going to need to be able to create their own model and understand the complex Excel functions such as the ‘lookup’ and ‘if’ formulas, and you’re gonna want them to understand the various terminology like renovating units, rent premiums, agency debt, as well as experience with the business plan.

Now, here’s what’s important – what if you are not good at underwriting? What if you don’t like underwriting, but if you’re not good at underwriting, and that’s why you’re hiring underwriting analysts? Well, if you just listen to their answers in the interview and you hire based off of that, how do you know that they’re telling the truth? So you hire them and they start underwriting deals and you don’t really know if they’re underwriting the deals properly or not. That’s why the second step of the interview process is for them to actually underwrite a sample deal, so you can confirm that they actually know what they’re doing. So you want to send them a sample deal, including a rent roll, a T12 and the offer memorandum, as well as a financial calculator, and so this has to be something that you have filled out already… And you send them a blank cash flow calculator, you send them the how-to guide, you send them how to fill the calculator out, you send them the sample deal, and you ask them to send it back within a certain timeframe, and then once they send you back the model, you compare the inputs to the accurate, filled out model, to determine if they told you the truth or if they don’t know what they’re actually doing. Now they don’t have to perfectly underwrite the deal, but the results need to be close. So if a few inputs are off, if their term projections are close, but a little bit off by less than a few percentage points, then it’s fine, they made a simple mistake. But if it’s way off, we’re talking 6%, 7% return difference, a bunch of inputs are wrong or they didn’t input everything properly, then they probably aren’t gonna be a good fit for the role.

One sneaky thing you can do to test their attention to detail skills would be to make one change on the rent roll, the T12. So maybe make a bunch of units vacant on the rent roll or make one maintenance expense very, very large, and then see–  when they come back, you can say, “Hey, this deal looks really good, except there’s this really weird thing, that all these units are vacant or in the revenue on the rent roll, the master revenue and the T12,” or, “Hey, I saw that there’s a one time maintenance expense of $100,000; that’s weird,” just to see if they catch that, or if they just mindlessly input data. So that’s a great way to catch the attention to detail.

Then at that point, depending on how they do with the interview and the financial modeling practice, you can go ahead and decide whether or not you want to hire that person. If you’re still unsure, you can do a test period where you say, “Hey, I’m gonna send you deals for the next month, and then we’ll further evaluate your skills to see if it’s worth hiring you full-time.” So that could technically be a third step in the process, which is, first step is to interview you, second step is to do one sample deal, and the third step is to do a month worth of deals to see if you’re able to stick to the time frame, if you’re able to multitask, if you’re able to have good, solid attention to detail and underwrite these deals properly. So ideally, you know what you’re doing, you know how to underwrite deals, but if you don’t, the way to overcome that is to have a sample deal filled out already, and then test to see how close their underwriting is to that sample deal.

So that concludes this episode on how to hire an underwriting analyst. I guess the last thing we didn’t really talk about is when do you decide to hire an underwriting analyst… And like all things, it depends. You can start right away, or you can wait until you’re further along in your business and you don’t have time to do it anymore… Because really, they’re a time thing or a expertise/don’t like thing. So it’s either where you don’t have time to underwrite anymore, it’s a job that you can outsource for $10, $20 an hour and your time is worth $100 an hour at this point, and you’d rather talk to investors, do other things than spend time underwriting all day. Or if you just don’t like it and you’re really bad at it; then if you’re really bad at it and don’t like it, then you should probably hire someone, especially if you’re really bad at it and you don’t know what you’re doing, you need to hire someone. If you don’t like it, it’s up to you. But again, it’s either your timing, you don’t like it or you lack the expertise or the skill.

So that concludes the episode. Thanks for tuning in. Make sure you check out some of the other syndication school episodes, as well as our free resources 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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JF2164: Tips for Creating A Compelling Property Management Incentives Program | Syndication School with Theo Hicks

In today’s Syndication School episode, Theo Hicks, will be going over some tips on how you can create a property management incentives program. He will be giving you the process on how to go about creating your program and advice on the type of incentives you can offer.

 

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 PropStream


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners and welcome to another episode of The Syndication School series – a free resource focused on the how-tos of apartment syndication. As always, I’m your host, Theo Hicks. Now we are gonna start airing one syndication school episode every single week in addition to another show we’re starting off with me and Travis. I don’t have a name locked down yet, but it’s gonna be focused mostly on passively investing. So whether you are a passive investor listening to this or an active apartment syndicator listening to this, I think these episodes will be valuable whether, again, from a passive investor perspective learning the tricks and tips for that, as well as the active syndicator, understanding what it is that passive investors are actually looking for. But this is going to be Syndication School to talk about the specific aspect of the apartment syndication investment strategy. We’ll continue to release free documents in syndication school when it makes sense as well.

Today, we’re going to talk about property management incentive programs. So we’re gonna be talking about how to create this program for your management companies. This will be a post closing or I guess, at the earliest, post due diligence phase step, and the reason why you want to do an incentives program is because it will create an additional alignment of interest between you and your property management company, because the better they perform, the more money that they make.

So we’ve talked about other ways to create an alignment of interest, bringing on a team member, an experienced team member creates alignment of interests between you and your investors, and then with that team member, from lowest to highest alignment of interest, you have them getting an equity stake in the deal, which is a little bit lower than the next one, which is them investing their own money in the deal, where they have skin in the game. Above that would be them investing their own money and/or bringing on their own investors, and then above that would be them signing on the actual loan. So this incentive program falls probably in between you just bringing them on and giving them equity in the deal, but this is still a great way to create alignment of interest, because based off of whatever your incentives program is, they achieve that goal, then they get paid more.

So what is an incentive program? Simply put, you give your property management company an objective and if they complete that objective, then they are given a reward. That’s the simplest way to explain what an incentives program is. The incentives programs are going to fall into one of two categories. So for the purpose of this episode, we’re going to call them Type 1 programs and Type 2 programs.

So Type 1 incentive programs are incentive programs that begin at acquisition, and then they end at sale. So these are the types of programs where the objective is not necessarily never fully accomplished, and we’ll give some examples, but this is something that whatever reward they get, the possibility of continuously getting that reward every month, every quarter, every year, or all three. So that’s the Type 1 program – start at acquisition, end at sale. The Type 2 would be the one-off incentive programs that starts and end over a fixed amount of time.

So what are some examples? So for Type 1 incentive programs, the most obvious would be the property management fee, which is technically an incentive. It’s going to be used all the time, but that is considered an incentive. The objective is for them to effectively manage the property, to make sure the property’s occupied, make sure expenses are kept low, and their reward is their property management fee. The reward is also not getting fired if they do a poor job. So that’s the base level incentives program that everyone is going to have.

Other ones are them investing their own money in a deal. So the objective is they invest their money, the reward is they get the compensation given to the limited partners. If you’re getting a loan guarantor – same thing, they’ll get either a chunk of equity or a one time fee. Bringing on their own investors, same thing, they’ll get a chunk of equity. So the reward for all these are more equity or more cash flow. So those are kind of like basic, simple incentive programs.

These next ones are what you would probably consider incentive programs. So you can create these Type 1 incentive programs based off of KPIs, the Key Performance Indicators, and we’ve done an episode in the past on the property management weekly performance reviews, and in that series, we offered a free document which was that KPI tracker. And on that document, you’ll have all of the various KPIs that you will want to track on a weekly basis at your property. Of those KPIs, you can create various Type 1 and Type 2 incentives programs. So for example, the objective for an incentive program could be to grow revenue by a certain percentage each year, or maintaining or exceeding a specific occupancy rate, like 95%. So that could be something that you have an agreement with your property management company from the get-go, that as long as revenue grows by 5% every single year, then you’ll get an extra 1% bonus; or if you are able to maintain a 96% occupancy rate, for every month you exceed that, you’ll get some bonus. So those are examples of Type 1 incentives programs; so the KPI is revenue growth and occupancy rate.

Now make sure that when you are doing these Type 1 incentive programs that the objective actually makes sense and actually results in alignment of interest. So for example, a really bad incentive program with a bad objective would be to grow the occupancy by a certain percentage each year, because there is a limit to the occupancy growth. Once they’ve achieved 95%, 96%, it’s gonna be very, very difficult for them to achieve a 5% growth without, in their mind, sabotaging, reducing occupancy and then bringing it back up again. So just occupancy fluctuating up and down so they get paid more. So that’s why having an occupancy threshold that they need to maintain or exceed is a much better objective when you’re using an occupancy KPI. Same thing for total revenue growth. Setting a total revenue growth goal of 20% is too unrealistic and is not going to accomplish what you set out to accomplish. So those are examples of Type 1 incentive programs.

Type 2, again, are the one-off incentive programs. So these are ones where you can target a specific underperforming KPI. So let’s say, for example, your occupancy rate drops to just below 90%, then you can create an incentives program, and the objective would be to achieve a specific occupancy rate within a specific timeframe… Say, 95% occupancy within two months. And you can apply this to many of the other KPIs too if they fall below whatever your projections are. So if you do the KPI right away in the beginning to maintain the 95%, or you can do this in addition to that already incentives program. If your occupancy or some KPI falls below your projections or it doesn’t necessarily have to be below your projections, it could be non-stabilized or something else, you can set up a just one time Type 2 incentives program to get that number back up. Once they’ve achieved that occupancy rate, then they receive the award and that incentive program expires, and then you’ll do another one or not do another one, depending on how the property performs.

So let’s compare these two. Both can be very beneficial. The Type 1 incentive programs will create that alignment of interest from the get-go, and then the benefit of the Type 2 incentives program is that they can be used during the business plan to target and improve a specific lagging KPI. Of course, you might be saying, “Well, Theo, why don’t I just do all Type 1 incentive programs? That way, I don’t have to worry about a KPI ever lagging.” Well, as I mentioned before, one reason why is because if you set an objective to increase the occupancy rate by percentage, it’s not going to actually create an alignment interest, but the second point is that you need to be very, very careful and mindful when you’re creating these incentives programs, because you have to make sure that it’s actually incentivizing the management company and it’s incentivizing you; that it’s a win-win scenario.

So I already gave the example of the occupancy rate percent increase each year could potentially result in the property management company purposely sabotaging the occupancy, so that they can then be the knight in shining armor, increase the occupancy rate by that 3% they need to increase it by, and then getting that bonus.

Another example would be if you set an occupancy-based Type 1 incentives program. Let’s say, it’s to maintain a 95% occupancy rate. Well, how are they going to accomplish that 95% physical occupancy rate? So that’s just the number of units that are actually occupied. It has nothing to do with the rents demanded for those units, the concessions that were given for those units… So setting a Type 1 physical occupancy goal or even a Type 2 physical occupancy goal is probably not the best incentive program, because the property management company can sacrifice other aspects of the P&L in order to get that number to 95%.

So a much better KPI would be the economic occupancy rate. Another example would be a number of new leases based incentive program; 20 new leases every single month. Well, what’s stopping them if that’s the goal from letting in unqualified renters to inflate those new lease numbers? So you have to be very, very smart when you are creating these incentive programs, because you don’t want to shoot yourself in the foot. So Type 2 incentive programs are gonna be really good for the KPI based objectives. So if a KPI is lagging, then you’ll want to target that with incentives, and then the Type 1 incentive programs are gonna be much better for these non-KPI based objectives, like the property management fee, and then other ways to create alignment of interest like them investing in the deal and things like that… Because again, you don’t want to incentivize the management company to do things that actually hurts you.

So a few other best practices when creating an incentives program – first, you want to make sure that the objective set is realistic and attainable. We’ve already given examples of what would be realistic ones, but an objective to, say, raise the occupancy just below 90% to 85% and you set an incentives program to increase occupancy to 100% in two weeks – that’s unrealistic, very difficult. I mean, obviously, it’s possible, but very difficult to accomplish. So a  really good strategy to ensure that the incentive programs are practical is to actually plan a brainstorming session with the key members of your property management team and discuss objectives, metrics for those objectives, and then the actual rewards. What do they want? Which brings me to my second best practice, which is to be creative with your rewards. So maybe, after the brainstorming session, you realize that the property management company just wants money. They just want a cash bonus or a gift card, but other rewards would be dinners with you or someone else in your company. You could offer them an extra paid vacation day. It could be a free education or training course which helps you and them. It could be a special trophy or plaque that gets passed around every single month. Just be creative about your rewards, make it fun. Not only incentivize them to do it for monetary reasons, but also because it’s fun; it’s a competition.

Then lastly – and this is really important – you do not want to create an incentives program that actually punishes the management companies for failing to achieve the objective. So when you set incentive programs, you want it to be, “Here’s the objective. If you achieve the objective, you get rewarded. If you don’t, then you don’t get rewarded,” which, in a sense, could be considered a punishment, but you don’t want it to be, “If you have achieved the objective, then you get a 1% raise in your management fee. If you don’t, then you get a 1% decrease, and if you fail three objectives then you get fired.” That’d be a really bad incentives program, because that’s not creating an alignment of interest, that’s just helping you in a surface level, but also, it’s not necessarily helping you because your management company is not going to achieve that incentive, they might get fired and that is going to affect the operation that’s your property. So don’t reduce management fees, don’t give out any punishment if they don’t achieve the objective. The only time you necessarily want to punish your management company is when you actually fire them, and I believe we did an episode on how to approach firing a property management company. Actually, it was a Follow Along Friday that Joe and I did, where we went over how to fire a property management company. If you go to YouTube and say ‘how to approach firing your property management company’. It was released July 26, 2018. Joe and I went through that process.

So obviously, it’s not that you never want to punish your management company, but you’re not going to fire them for not achieving the objective in an incentives program, you’re gonna fire them for other reasons. So maybe incentive programs would be a good way to give them a chance to not get fired, and then in that sense, you might fire them after an incentives program failure, but overall, you don’t want to punish them over an incentives program.

So overall, these incentive programs are a great way to create that extra alignment of interest with your management company, as well as help you target specific KPIs that start to lag. So right now, amidst the pandemic, right now might be a great time to implement a fun, engaging, realistic, attainable incentives program. Even if they don’t meet that goal, that push up in economic occupancy or revenue or whatever, it could be very helpful.

Anyways, that concludes this episode, that is how to create a compelling property management incentives program. Make sure you check out some of the other syndication school episodes and those free documents 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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JF2157: 8 Apartment Syndication Lessons From Tools Of Titan | Syndication School with Theo Hicks

In today’s Syndication School episode, Theo Hicks, will be going over 8 key lessons he learned from the book Tools of Titans by Tim Ferris. 

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 PropStream


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners and welcome to another episode of The Syndication School series – a free resource focused on the how-tos 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, and for a lot of these episodes, we’ve offered some free resources for you. These are free PowerPoint presentation templates, Excel calculator templates, PDF how-to guides, some resource to help you along your apartment syndication journey.

All the past Syndication School episodes as well as free documents are available at syndicationschool.com, and in this episode, we are going to go over some of the top apartment syndication lessons from Tim Ferriss’ book Tools of Titans.

So we’ve actually referenced this book before on the syndication school when we talked about the concept of 50-50 goals, which I will briefly reiterate later on in this episode, because that is one of the lessons, but in addition to that, we’ve got seven other lessons that we took from the book, Tools of Titans. A really big book, but it’s written in a way that allows you to go to a specific type of person. It’s got a really good index, and it’s got really good searchability. It’s the kind of book that you can read front to back, or you just read it to get little tidbits, little pieces of advice that you want to get from the Titans, the billionaires, the icons, the world-class performers, and maybe by Tim Ferriss. I have a blog post on this, but the blog post was written geared towards passive investing. So I wanted to take these same lessons and apply them to you, who is an aspiring apartment syndicator. So again, these are eight lessons; let’s jump right into it.

The first one is to ditch conventional marketing. Essentially, what Tim Ferriss means here is that the traditional conventional way of advertising, those days are gone. He says that if you want to breed substantial results for your marketing efforts, you need to think outside the box; you need to be creative. He talks about how the traditional way is the hard sale, whereas now it is better to abandon that super aggressive approach and be not more passive, he says, but more elegant and more subtle. So a perfect example of this would be providing free content to potential customers. So as opposed to a straight-up going from meeting someone to asking them what you want, add value to them first. That’s a lot more subtle and elegant way to, in a long term, create and breed better results, as opposed to as Tim Ferriss mentions the conventional way, which is the super hard sale, and both in person as well as in your copy. So maybe a good first step would be to, for example, take some writing course. So there’s the Udemy who has a lot of good courses. You can take a copywriting course to figure out what’s the best way to create copy that is able to attract customers without turning them off by being overly aggressive. So Ferriss swears by this method of subtle and elegant advertising as opposed to the super-aggressive approach. That’s lesson number one.

Number two is to not fear fear. So rather than avoiding unpleasant feelings, foreign feelings, he says that it’s better to actually embrace those. He says that, for example, the fear of taking some risk. Of course, it’s good to take calculated risks, but if you let your fear dictate your actions, then you aren’t going to take really any action at all because there’s always some excuse we can come up to ourselves to tell us why we shouldn’t reach out to that broker property management company or why we shouldn’t get into apartment syndication in the first place.

He says that if your behaviors are often dictated by fear, be more mindful about the emotions that you’re giving your energy to. So just your standard mindset advice, which is just to be aware of your fears. I was interviewing someone today and a good exercise she says was to journal. Say, for example, you have some thoughts that’s keeping you from taking action. Let’s say taking action from, I don’t know, reaching out to a broker – so journal and write down specifically what that thought pattern is in your mind and that’s resulting in you not taking action, and then ask the follow-up question – Is this true? Do I have evidence to support that this thought is true? Do I have evidence to support that the outcome I’m afraid of is going to happen? If that outcome that I’m afraid of actually happens, what is the result of that? Is it the end of the world or will I actually learn from it and grow from it? So that’s the point, I think, Ferriss is making here is that– as Trevor McGregor says, “There’s no failure. There’s only feedback.” So don’t be afraid to fail, because when you fail, you’re going to learn a valuable lesson that as long as you apply that lesson moving forward, you are better for it. So that’s number two – don’t fear fear.

Number three, and this is very, very important for apartment syndications, is that qualifications don’t matter. So the idea that you need to have this massive amount of knowledge on a specific topic or a specific industry in order to take action doesn’t sit well with Ferriss, and he says that as long as you have a passion, then you’re going to be able to get through any obstacles. But a big obstacle from people starting in apartment syndications is “Well, I don’t have the knowledge or the education or the experience. There’s something I’m lacking that I need before I can go out there and do big deals and raise money”, and while it’s true to a degree, it’s unlikely that you’re gonna go from graduating high school or college with no relationships, no knowledge whatsoever of multifamily, and then do a 500-unit deal with $20 million raise. Sure it’s possible, but there’s also on the opposite of the spectrum is don’t spend years and years of years educating yourself on something and saying that “Well, I can’t do anything until I’ve reached some arbitrary point of knowledge.” So have your bases covered, but as long as you have that passion, as long as you have that drive, and as long as you have at least some foundation set up, what Tim Ferriss believes is that failure– you ultimately not reaching your goals is something that’s just not going to happen. So he thinks that passion and drive is more important than having the right qualifications.

Something else he doesn’t necessarily talk about here is that you can hack this qualification process by bringing on team members who have that experience. Finding that product management company that has that experience, finding that mentor that has that experience. So again, ultimately, you do need to have that education part covered, which is what you’re working on right now, but you don’t need to spend ten years educating yourself on apartment syndications before you do your first deal. So that’s number three.

Number four is to become comfortable with public speaking. So he talks about how a lot of people have a fear of public speaking; maybe one of the biggest fears. But Ferriss believes that there is a strong connection between being successful and being a good speaker. So a thought leadership platform is a perfect example. Let’s say you’re already super successful; then by you getting good at public speaking, you can inspire other people to follow in your path. So obviously you might not be a master, but as you become more and more comfortable with what you’re doing with the apartment syndications, make that thought leadership platform. Get out there and share your advice with other people even if you’ve done one deal. It’s huge that you’ve done one deal, but even when you’re in the process of doing your first deal, that information is going to be valuable other people. So focus on that as opposed to focusing on how scared you are, a public speaker.

That’s Joe’s big piece of advice is that whenever you are public speaking, as opposed to focusing all of your attention on yourself and how you feel your anxiety and fears of speaking, focus on the audience and adding as much value to them as possible. Another really good way to get better at public speaking would be to take some course. So I took the Dale Carnegie public speaking course, and at the end of the day, once you have that training, it’s very difficult to be afraid of doing a normal talk in front of people because of the different outlandish, goofy things than if you do in front of a complete stranger. So they make you go through these exercises where you humiliate yourself, not in a gross way, but you act and you say completely absurd, outlandish things.

One of the exercises was you had to go up there and sing the “I’m a little teapot” song while doing a teapot thing and singing it in a really high pitched voice. Then everyone’s sitting in a circle and you act like you’re a mountain troll or something, and you say the fee-fi-fo-fum thing. Some girl got so into it; it was really funny, but it shows you that if you’re able to do something like that, then you’ll be able to stand in front of people and have a normal talk as opposed to having to do the little teapot, I guess is the point. So Dale Carnegie; you can look that up. It’s pricey, but again, just think of it as an investment. So that’s number four – become comfortable with public speaking.

Number five is to ask these stupid questions. So you’d think that this would be only relevant to passive investors, but this is also relevant to you, for a longer learning process; and this could be literally asking a mentor or a property management company or a broker stupid questions, or it could be you asking yourself stupid questions to make sure you actually know what you’re talking about. Because at the end of the day, it doesn’t really matter what you’re doing, there’s nearly an unlimited amount of information that you could discover, and the more information you have, the better decisions you’re gonna be able to make. So if you’re interviewing a bunch of property management companies, don’t be afraid to ask them a question that you deem to be stupid. It is going to provide you with information that you need in order to make the correct decision on who to invest with. So there really isn’t a stupid question when it comes to interviewing people, and at the same time, if by asking yourself what might seem like stupid basic questions and then seeing if you can answer them, it’ll also promote growth. Because if you realize, “Well, hey, I actually don’t know the answer to that question. So now I need to go out and get the information,”  and even if no one’s going to ask you that question ever, you’re still gonna have more knowledge and get closer to mastery of a specific subject, and then ultimately, more mastery of the apartment syndication strategy as a whole. So that’s number five – ask the stupid questions.

Number six is to not sell yourself short. This is where that 50-50 goals comes into play. So it’s easy to think that you are not progressing. You set a goal for yourself to do apartment syndication for the year and then you don’t do that goal, and then in your mind, the year was a complete failure. Keep in mind something that Joe always says that he got from, I believe, Tony Robbins…. It’s that you think you can do more in a year than you can actually do, but you think you can do much less than you can actually do in five years or in a decade. So this is a very long-term strategy. Real estate is a long term strategy. It’s not a get rich quick scheme. So if you end up not achieving your quarterly goal or your yearly goal, try not to stress out about it so much and instead use the 50-50 goal approach, which was from this book as well, and it says, “50% of the success of a goal is actually achieving that defined outcome.” So if your goal is to do an apartment syndication, then half of your success is if you actually did that deal, but the other half of this it says, “Did you learn anything during that process?” So let’s say you didn’t achieve your goal of doing an apartment vacation in your first year… What did you do that got you closer to doing an apartment syndication? Who did you meet? What piece of education did you gain? Do you have a team built? Have you spoken with people about raising money? Have you attended some– I guess you can’t really attend much stuff now, but have you taken a lot of online courses or have you been listening to a lot of podcasts to determine if you actually made progress towards doing apartment syndications. Did you create some process or system that you’re going to take with you for the next 10, 20 years in your journey? So half of it is the defined goal; the other half is actually the systems and the information and the people that you gained along the way. So that’s number six – don’t sell yourself short.

Number seven is to find an uplifting community. So it’s technically impossible to do anything in life by yourself. Even if you’re in a cave by yourself, eventually you’re gonna have to interact with someone to get food or water or whatever. But obviously, we’re not in caves here, but the whole point is that no matter what you do, you need other people, you need help from other people, and this is especially true for syndications. You need your team to help you manage the deals, to close on the deals, to fund the deals… But at the same time, you also want to have another team of people who are doing what you are trying to do or have already accomplished what you are trying to do, and surrounding yourself with a community of people that align with you, align with your goals, align with your values. A fellowship of sorts, where you’re doing the more technical stuff with your property management company, your broker, and then you’ve got your other team where you can talk more abstract, long term strategies, get tips and different processes and things that work for them. Overall, have people that you can talk to that have similar interests, similar goals, similar values. So this is your core group of people that you can rely on.

Then lastly, and this is pretty straightforward, but you got to show up. At the end of the day, none of the other things are gonna matter if you don’t actually take action and show up. So this is the glue that holds all the other lessons together, is that you have to show up to do marketing. You have to show up to overcome your fears. You have to show up to be a public speaker. You have to show up to ask questions, to find a community. You have to take action. You have to, every single day, do something that is bringing you closer and closer to whatever your goal is.

So those are the eight lessons from the Tools of Titans book that we took away and again, there’s this based of a blog post, but it’s not written towards syndicators, so I thought it’d be great to go over today’s lesson. So to summarize is ditch conventional marketing, don’t fear fear, qualifications don’t matter, be comfortable with public speaking, ask stupid questions, don’t sell yourself short, find an uplifting community and show up.

If you do these eight things, you’ll be well on your way to becoming a syndication titan like those who are interviewed in the Tim Ferriss’ book. So that concludes this syndication school episode. Thank you for listening. Make sure you check out some of the other Syndication School episodes about the how-tos of apartment syndications. Make sure down all those free documents; that’s 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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JF2148: Self Storage Classified As A National Park With Scott Krone

Scott is the founder of CODA Management Group with experience in architectural design and development. Scott shares his journey in real estate and the reasons he determined to shift towards self-storage and now he owns a self-storage space that is now a national park location. He shares how he was able to get his building under the national park registrar. 

Scott Krone Real Estate Background:

  • Founder of CODA Management 
  • Has 25 years of development and design building experience
  • Portfolio consists of over 47 syndications, and 400,000 sq. ft with 2,750 storage units under management
  • Based in Wilmette, IL
  • Say hi to him at: https://www.codamg.com/ 
  • Best Ever Book: 

 

 

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Simplicity of product, we took the Henry Ford model, “you can have any color car you want as long as its black” – Scott Krone


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 talk about the best advice ever; we don’t get into any of that fluffy stuff. With us today, Scott Krone. How are you doing, Scott?

Scott Krone: I’m doing well. Thanks for having us.

Joe Fairless: Well, I’m glad to hear that. It’s my pleasure. A little bit about Scott – he’s the founder and director of development for CODA Management Group. They focus on self storage facilities, and in fact, not only do they focus on it, they develop them. They’re in the process of closing on their eighth self storage facility. They have about 2,000 units right now with about 3,000 that are coming online soon. Based in Chicago, Illinois. With that being said, Scott, do you want to give the Best Ever listeners a little bit more about your background and your current focus?

Scott Krone: Sure. I’d love to. My background began in real estate when I began getting my masters of Architecture, way back in 1991. So I’ve came online just as we were in the midst of the recession back in ’91, and I was involved heavily in multifamily at that point in time, and then 1998, I started CODA and we were a development, design-build firm, and we focused on single-family, multi-family, mixed-use apartments. Now, since ’13, we’ve been focusing on self-storage as our investment portfolio. So during that time, I’ve obviously seen the ’91 and the 2001 and 2008 recession, and it certainly looks like we’re heading into it at this point in time.

Joe Fairless: So development, design, build; originally focused on multifamily and single-family homes. Did I hear that correct?

Scott Krone: That is correct. When I got my master’s degree, I was working for a developer who owned an architectural design-build firm as well, and my master’s thesis was a 400-unit development that we worked on for six years, and I did other multifamily for him during that period of time.

Joe Fairless: Okay. What did you learn in that process that focused on multifamily development, design-build that you’re applying now with self-storage?

Scott Krone: Well, the way I view it is self-storage is just a more simplistic version of multifamily; it’s an apartment without toilets and sinks. But we have a greater diversification within the product type, but what I did learn is obviously, the importance of understanding the capital stack, how to leverage the capital stack in a conservative manner, but also to enhance our investors’ rate of returns, how to acquire, how to develop efficient designing of the units and the layouts so that we can maximize the rentable square footage of the building, and then obviously, I also learned throughout the construction, the best practices for building and how we can apply that to self-storage.

Joe Fairless: Well, let’s talk about a couple of those things that you mentioned – how to leverage the capital stack in a conservative manner, but also help yield good project returns to investors. Can you give some specifics on that?

Scott Krone: Absolutely. A few things that we’ve done is that we’ve acquired assets that had cell towers, and we’ve sold off the cell towers, other buildings that we’ve been able to acquire historic tax credits. So those historic tax credits get funneled back to the investors. We’ve done PACE financing, we’ve done opportunity zone funds. We’ve created two funds for our investors on that, so they can shelter their capital gains. We’ve worked with IRA investors… And the other one is obviously cost segregation. So something that we can do with cost segregation on an apartment or self-storage facilities that we couldn’t do with condominiums.

Joe Fairless: For the efficient designing of the layout to maximize the rent per square foot and just not overbuild unnecessarily, what are some things you learned there?

Scott Krone: Well, efficiency is the most important thing when we’re looking at something. So minimizing length of hallways, how to create variation within the unit product type. So the more regular the building that we have and the more regular the common spacing, the more efficient that we can get. So we have to balance the building code with the travel distances and egress and all those sorts of things, but how to lay out the units so that we can reduce those hallways and those travel distances so that we can get more square footages of rentable square footage of the building.

Joe Fairless: With what you’re doing now, self-storage, as you said, you look at it as a more simplistic apartment community; it’s an apartment that toilets and sinks. Why switch over to self-storage and why switch over at the point in time that you did?

Scott Krone: Well, we were coming off the crash of 2008, 2009, and everyone was jumping into multifamily. I felt that there was huge cap compression going on and there was a lot of competition within it. And when I began studying the self-storage, I couldn’t find a distressed self-storage facility. I could find plenty of distressed apartment buildings, but I couldn’t find a distressed self-storage. So that alerted me that something was different with this asset class. Once I got more involved with them, then I understood more of the demographics and how we can study the market to determine which areas need self-storage and which ones are oversaturated, and so it was easier to monetize or put a number to the product than it was within multifamily in terms of demand, where the supply is and what those indices were.

So what I see is that one, it’s a reduced risk because we can analyze it better; two, my operational costs, my capital expenditure’s about 10% of what it would be compared to multifamily to get the same number of units, and then the third one is it’s the simplicity of product. We take the Henry Ford Model that used to be famous for saying you could have any color car you want as long as it’s black. So with self-storage, I don’t have to worry about if the counters are the wrong color or the tiles the wrong color or the carpet is. You can have a white locker or you can have a white locker.

Joe Fairless: How do you determine the demand for self-storage? You were talking about that earlier; I would love to learn more.

Scott Krone: The metric is the number of square feet a locker per capita, and there’s services out there that can provide that, and it’s based upon a one, three and five-mile radius. So for the most part, across the country, the saturation level of square feet of lockers per capita is seven, and higher density markets like New York or places in Florida, it might be nine, or the South– the South is becoming very saturated now.

Joe Fairless: You said most markets. Is that based off of a one, three or five mile?

Scott Krone: Yes, they’ll look at each of those. So for instance, you might be high within one mile, but if three miles and you’re good, then they’ll broaden it to the three-mile, because most buyers are within three miles in a heavily urban setting. In a more rural setting, there’ll be five to seven and a half miles. Most people won’t travel more than seven miles to go to a self-storage facility.

Joe Fairless: Alright. So it’s number of square feet of locker per capita, and it’s based off of a one, three and five-mile measurement, and you said most markets are 7,000 square feet or what– you said, 7.

Scott Krone: 7 square feet of lockers per capita.

Joe Fairless: 7 square feet of lockers per capita. Got it. Okay. Give us some extremes for what would be above that, like a rural area, and below it, what those numbers are. What would New York City be, versus Green River, Wyoming be?

Scott Krone: Without knowing where Green River, Wyoming is —

Joe Fairless: I know the former mayor of Green River, Wyoming. That’s why I brought that up. [laughter]

Scott Krone: Okay. I’ll give you an example. We were at a conference one day and I was talking with a woman who was a multifamily and single-family developer in the Austin, Texas market, and she learned what we did and she goes, “Oh, I have a property that’s five acres. I’m planning on building 100,000 square feet of self-storage there,” and I said, “Have you done a saturation study? Have you done a feasibility study? She goes, “No, I figured when we do it, they’ll just tell us what we have to build,” and I said, “Well, before you start going venturing down this path too far, you might want to make sure what your saturation level is, because if it’s too high, then you’re gonna be wasting your money. In fact, you’ll be risking losing all your money.” So I said, “Where is it?” She gave me the address. So I plugged in the address in Austin, Texas, and immediately 18 facilities came up within three miles; I sent it off to our people that do our reports for us, and they came back and said it was nine without her facilities. So if her facility comes online, it would be around ten. So what that means is that you’re going to have slower absorption rates, you’re gonna have lower pricing and it’s going to put a lot more economic pressure on your feasibility model.

To put it in perspective, when we went into our market in Chicago, we had half a million people within three miles and the feasibility report came back at two. So if I’m going into a market at two compared to nine, I’m certainly going to take the market that was two. Now you might say, “Well, I see plenty of self-storage facilities in Chicago.” That’s true, but within three miles of this location, there was only two square feet of lockers per capita.

Joe Fairless: You said when you got her address or zip code, you plugged it in, and then you got initial information, then you sent it to your feasibility people. What are you plugging it into? What software program?

Scott Krone: Well, it’s very highly complex detail.

Joe Fairless: You’re setting me up. What have we got? Google? What are you doing?

Scott Krone: [laughs] Google Maps was my first.

Joe Fairless: Okay.

Scott Krone: It’s my first indicator. And when I do that, it’s always just to get a sense… Because everyone says, “Oh, there’s no self-storage around me,” and then I ask for the address and I put it in, and inherently, it’s a type of thing that people are not aware of. It’s like when you say you’re going to buy a blue car, then you notice every blue car around the neighborhood, but until that point in time, you’re not recognizing how many blue cars are out there. So the first step is just for me to plug it into Google Maps, and I put in self-storage near that address. I can’t do the zip code because that’s not even specific enough. I have to put in that specific address. So when I just look at it, if I get a sense of how many are around there, if there’s two or three, I’m like, “Okay, makes sense.” If I see it’s 10, 20 and it’s not a really urban area, then I’m going to think this is way too much, and that’s just the thumbnail test before we start really digging into the details and the nitty-gritty of the due diligence. If it doesn’t pass that first litmus test, then I’m not going to do it.

The second litmus test is then I’ll turn it to satellite and see what the product of housing stock is around that neighborhood. So if I see a lot of empty yards like farm country, this and that, or not a whole lot of homes or apartment buildings, that’s also another indicator. Take your Wyoming city, if I plug that in and I see it’s mostly rural and there’s five facilities, that’s not going to look real good for you, but if I say it’s incredibly dense area and there’s five facilities, then there could be probabilities or it could be possibility there.

Joe Fairless: One, put in the address and then look for self-storage nearby, then do a follow-up and see what type of housing is around it. Do you want more apartments than homes?

Scott Krone: What we want is density. So it doesn’t have to be necessarily apartments per se. So for instance, our property in Chicago– when the city of Chicago did away with public housing per se, like Cabrini-Green and Robert Taylor homes, etc., they went from this 60-story, 10,000 people per square mile density and they put them all in row houses. In Chicago, there used to be a three-story house and then they converted them to three apartments per house. So our project in Chicago is surrounded by homes like that. So we have 500,000 people in predominantly what we would classify to look at it as single-family homes, but they’re really apartment buildings because they have three units. So if we see a lot of tight clustered housing stock in and around there, then we’ll get a better sense of the fact that it’s a dense area. So for our Class A facilities, we’re looking for anywhere from 100,000 to 500,000 people in the radiuses, depending on what the saturation level is. If it’s only 100,000 people and it’s at seven, then it’s going to be very hard to fill it up. If we have 500,000 people, and it’s a two, then it’s going to be very easy to fill it up.

Joe Fairless: Then the next level analysis is, as you mentioned, sending it over to the team that does your feasibility study. So what are they looking at that you’re not?

Scott Krone: They just pull more resources. They’ll pull census’ tracks, they’ll pull what the growth is, what the medium income is and what the segment of the population is, and the reason why we do that is because the medium income and the other demographics, renters versus owners, will give us a sense of what type of locker to put in there. So the more affluent the community is, the larger the demand for bigger lockers. The less affluent the community is, then there’s a greater demand for smaller lockers. So we’ll get a sense of what configuration we need to do to put in that building in order to maximize the marketability, the saleability of our product.

Joe Fairless: What’s considered a large locker versus a small locker?

Scott Krone: An average locker is 90 square feet. So if you’re median income, 90 square feet is the average. So that would be a 10 by 10 as your basis point for what a typical locker is. We go up to 20 by 30, and we go as small as 5 by 5.

Joe Fairless: So let’s say it’s in a more affluent — or we’ll talk specifics. Let’s talk about the facility that you have that is in the most affluent of your areas, based off what you own. What’s the configuration there?

Scott Krone: Well, that’s a great question because we specifically went through this. We were having trouble leasing them up, and when we were talking with the sales team, they were saying, “We’re sold out of the 10 by 20s,” and we said, “We need more larger lockers,” and we were looking at the configurations, I said, “What happens if we convert the 10 by 10s into 10 by 20s?” and they said, “We will have that much more success.” Even though the person is renting the same amount of square footage, there was something in their mind that just said, “Okay, I need a 10 by 20.” So we took out the metal walls and we leased up all the 10 by 10s, [unintelligible [00:17:34].04] we convert them to 10 by 20s.

Joe Fairless: Wow. What does it take to do that conversion?

Scott Krone: Well, when we’re dealing with Class A, we’re taking existing commercial buildings, either office or warehouses or retail, and we’re converting them into self-storage, which means that our lockers go up to 8 feet. And once you get to 8 feet, then there’s chicken wire across the top, and the reason why we have chicken wire is we need to be able to get light, heating and more importantly, fire suppression in each individual unit. So all it is, is a corrugated metal wall. So it was a sill track that’s tapped into the concrete of the flooring. So it’s a matter of removing the wall, screwing that wall to the end wall and pulling up the track and keeping the track in the unit as well. So we had the ability of converting it back, but it was just a matter of relocating the single corrugated metal wall.

Joe Fairless: What’s the largest conversion you’ve done?

Scott Krone: Square-footage-wise?

Joe Fairless: Yeah.

Scott Krone: Well, to date, the largest one is our one in Milwaukee where we got historic tax credits, and we went through the process of converting that into a national park. So we will charge tickets if you want to– if you’re on a national tour of the Grand Canyon Yosemite, you can stop by our self-storage facility. That was 100,000 square feet.

Joe Fairless: Wait, timeout. What did you say?

Scott Krone: It’s in a national park. It’s gonna be registered. When you make a building historic, you get historic tax for it. You go through the Department of Natural Resources and they make it a national park.

Joe Fairless: Your self-storage facility?

Scott Krone: Our building that is now self-storage is going to be on the National Park register, yes.

Joe Fairless: Okay. There’s the trivia question… What was it prior to you doing this renovation?

Scott Krone: It was the first fireproof building in Milwaukee, and they used it for hard data files. So everything from banker boxes to election ballot tickets, all those sorts of things. Obviously, when people are going from a paper world to a digital world, companies didn’t need to run big floor spaces of storage because they had it all on a computer in a gigabyte or trillion byte or whatever the latest measurement of computer storage is. So by dividing it, then we can rent smaller spaces to the residential community as well as its commercial community, and so we’re just finishing up that process right now. We got SBA Financing on it, and we’re going to be finishing up in the next six weeks to get this thing done.

Joe Fairless: What’s the total square footage for that one?

Scott Krone: That one’s 102,000 square feet, and the project that we just went under contract for in Lowell, Kentucky is actually going to be 140,000 square feet, and we’re gonna make it a combination of mixed flex space, as well as self-storage. So we’ll have about 80,000 square feet-ish of self-storage and about another 60,000 square feet of flex space.

Joe Fairless: What was that building prior to what you planned on doing?

Scott Krone: Originally, it was a candy factory, and right now people have been using it for storage. They’ve been using it for making envelopes. They still make envelopes there with these presses from the 16th century, which is crazy, and I don’t know who they get to repair those things, but they have a Xerox copier there… We actually also have a church that is inquiring with us to begin planting the satellite campus at that location.

Joe Fairless: Taking a giant step back, what is your best real estate investing advice ever as it relates to your area of expertise?

Scott Krone: Well, I don’t think it’s just limited to my real estate expertise, but my mentor always told me to look at best case, worst case, and what most likely will happen. So I think a lot of people look at best case and then maybe what most likely will happen, but with stress tests and looking at the downside, if we can make it work with worst case, then that’s what we go forward with.

So we always try to be conservative and making sure that our numbers are accurate and as good as we can possibly get them, so that we have that worst case in mind. So that might be multiple exit strategies, that might be looking at if we lose rent, if we lose market share, each of those things, to make sure that we’re still able to perform.

Joe Fairless: The challenge I have with worst cases, regardless of however you’re modeling it in worst case, it’s never going to be the actual worst case, because I guarantee you someone – and I could probably come up with – but what if this happened on top of that? So how do you really identify when you say worst case? It’s never really the true worst case, but where do you stop? Like, “Okay, this is a reasonable worst case,” whereas that other worst case, you’re tripping on some drug and that’s never going to take place.

Scott Krone: Well, I think that’s part of the experience we’re going through now. We’re not quite into this fourth recession right now, but it’s all indications leading that it’s going to be heading that way. So I’ve been able to see what worst case looks like. The crash of 2008 was really, incredibly devastating from a lending perspective, and we had to alter and shift very quickly in order to survive during that period of time, but we also didn’t get over-leveraged and that was one of the things that kept us afloat. So with this one, I think, are we in a worst case right now where there’s no definitive timeframe of getting back on the highway here? There was a clear exit ramp, but there’s not a clear entrance ramp.

So if we’re going to look at what it takes to cover our debt service– so typically, before this new environment, we would say “How much product could come into the marketplace that would drive down our costs?” and that’s where we go back to our due diligence on the front end. And then in that case, what is the likelihood or the probability of a property getting rezoned, or the ability for another product to come up and be part of the competition? So we look at what are the barriers to entry in that marketplace and seeing how much resistance there is to that product.

For instance, in Milwaukee, we knew that they were not going to allow any new self-storage to be rezoned. So we were fortunate that our property had the zoning when we bought it; we didn’t have to go through that rezoning process. So what we do is, we look around there and say, “Okay–” So we will then look at raising the cap rate and seeing what the margins would be once we do that.

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

Scott Krone: Sure.

Joe Fairless: Alright, let’s do it. First, a  quick word from our Best Ever partners.

Break: [00:24:18]:03] to [00:25:02]:08]

Joe Fairless: Best ever way you like to give back to the community.

Scott Krone: Well, one of the ways in which I do it is I’m part of a nationwide organization of about 35,000 people. We have a private Facebook group community, and I do a weekly Tuesday Tip. I go on there and people post questions, they post victories, they post what we call Celebrate Wins. So I go and just look for ways in which I can answer questions based upon my experience of now being in the street for 30 years, I bring a little bit more than most people have in that community. So I offer a different perspective. That’s one of the ways I enjoy doing, is just taking some time and answering people’s questions or helping them up or calling them up and just helping them through their challenges.

Joe Fairless: What’s a deal you’ve lost money on?

Scott Krone: It was a single-family house. The market crashed and we paid off the bank in full, but we didn’t get all of our equity back, and so that was a tough one.

Joe Fairless: What is the best ever deal you’ve done?

Scott Krone: Well, the best ever deal, from a percentage point of view – and this is going back to before the crash and the crazy economic structure that was there – we bought a house for $600,000, I put $400,000 to build a new house, and I sold it for $1.6 million and I only had $60,000 down. So I did the whole thing, a $1.6 million house, I did with $60,000. So the rate of return on that one was phenomenal.

Joe Fairless: How can the Best Ever listeners learn more about what you and your company are doing?

Scott Krone: Our webpage is www.codamg.com. And you can certainly send us an email at info@codamg.com. One quick story about that house. I took my oldest daughter, we went and watched The Big Short, and she’s like, “Did that stuff really happen?” I’m like, “Yep, and it’s paid for your college right now.” [laughter]

Joe Fairless: Your timing was good on that one. Well, Scott, thank you for being on the show; I enjoyed our conversation. Thanks for talking about your self-storage tips and getting into the specifics of capital stacks and how to leverage capital stack, as well as feasibility studies and how to take a look at self-storage and some different considerations as well. So thanks for being on the show. I hope you have a best ever day. Talk to you again soon.

Scott Krone: Thank you very much.

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JF2144: Read 52 Books In A Year | Syndication School with Theo Hicks

Does reading 52 books a year sound daunting to you? Yeah I thought so, well today Theo Hicks will be going over a popular blog post that Travis Watts from Ashcroft Capital recently published on the importance and techniques to reading 52 books in a year. Theo will be sharing the techniques he learned from reading this blog post and if you’d like to read it yourself check it out here

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

Joe Fairless: There needed to be a resource on apartment syndication that not only talked about each aspect of the syndication process, but how to actually do each of the things, and go into it in detail… And we thought “Hey, why not make it free, too?” That’s why we launched Syndication School.

Theo Hicks will go through a particular aspect of apartment syndication on today’s episode, and get into the details of how to do that particular thing. Enjoy this episode, and for more on apartment syndication and how to do things, go to apartmentsyndication.com, or to learn more about the Apartment Syndication School, go to syndicationschool.com, so you can listen to all the previous episodes.

 

Theo Hicks: Hello, Best Ever listeners and welcome to another episode of The Syndication School series – a free resource focused on the how-tos of apartment syndication. As always, I’m your host, Theo Hicks. Each week, we air two podcast episodes that help you in your apartment syndication journey, and for a lot of these previous episodes, we’ve offered some free resource. They’re PDF how-to guides, PowerPoint presentation templates, Excel calculator templates, something that’ll help you along your apartment syndication journey even more so than just these weekly episodes. All of that is available at syndicationschool.com.

Today, we are going to talk about a life-changing technique that I learned from Ashcroft Investor Relations, Travis Watts, and that is how to speed read; how he was able to read 52 books in one year. So I used to be an avid reader. I’m just starting to get back into it. Again, at least reading books and not just blog posts/articles… So I wanted to go over this blog post with you, Best Ever listeners, just in case you haven’t read it, but even if you have read it, I can give some additional advice on some strategies I’ve learned to be better at reading or how I read, because Travis obviously includes a lot of great examples in here as his examples as well. So I felt I could add a little bit of value here.

So in this blog post, first he goes over a few case studies. First, he’s trying to convince you why it’s important to read before he goes into how to read. So he starts off by talking about Tony Robbins, who coined the term CANEI, which stands for Constant And Never Ending Improvement, and that he emphasizes the importance of reading as a way to constantly improve yourself. There’s a book that he wrote called MONEY Master the Game where he says, “As a young man, I decided I was going to read a book a day. I didn’t quite read a book a day, but over seven years, I did read over 700 books,” so about 100 books every single year. “So how can you read, on average, 100 books every single year?” He goes over even more case studies.

He has Warren Buffett – everyone knows who he is – who spends five to six hours every day reading a book. Now obviously, you might not be able to spend five to six hours every single day reading. Warren Buffet has an established business. So if you’re grinding, you’re hustling, trying to scale, your time might be spent better doing that as opposed to reading, but reading is still important nonetheless. Especially one of the world’s richest men is spending five to six hours every day, probably close to a third of his waking hours reading. Not just books, from my understanding, he also reads a lot of online content as well, newspapers, things like that.

We’ve got Bill Gates, who said that he reads about 50 books a year; so about a book each week. Mark Cuban, who spends about three hours reading every day. He attributed his early career success in life to reading. So again, just because you don’t think you got the time, just because you think it might be more important to spend your time, as I mentioned, hustling, grinding for deals… Mark Cuban, pretty successful person, billionaire, owner of the Dallas Mavericks, said that in the beginning of his career, he attributes reading to his massive success.

You’ve got Oprah Winfrey, who is an advocate for reading and strongly recommends her talk show viewers to adopt the habit of reading. She often refers to reading as her “path to freedom” due to these tough start in her career. So again, just like Mark Cuban, she attributes her success to reading early on in her career.

You’ve got Mark Zuckerberg; he’s a strong believer in reading. He believes that if you want to improve the quality of your life, you must commit to personal growth and development. He also adheres to Tony Robbins’ CANEI approach.

Elon Musk, who devoted a huge chunk of his time to reading when he was young. When he was in grade school, he read about ten hours a day, and I remember reading about that or at least hearing it when I listened to– it was in an autobiography; it was the biography of him where he talked about– I’m pretty sure he just went to the library in South Africa and just spent all of his days there reading.

So clearly, reading is very important if you’ve got billionaires, world’s richest people reading a ton and talking about the benefits of reading. So because of this, Travis decided that he too was going to take a stab at an aggressive reading strategy. He was going to try to read 52 books, so one book a week, for a year, but then he said that he knew that he would likely fail if he tried reading books in a traditional fashion, one page at a time from front to back, so he took a couple of speed reading courses and learned a powerful reading technique. So he outlines the technique that he used that allows him to read 52 books every single year… And he actually mentioned this here too, that this is more specific to the how-tos in the self-improvement books, but I do think that this would also work in real estate books as well. It depends on the type of book. For example, if you’re reading The Best Ever Apartment Syndication book and you’ve never done an apartment syndication before, then following this technique might not be the best approach just because it is a step by step process for completing an apartment syndication, and so it goes to the education of exercise you need to do… But if it’s a traditional how-to or self-improvement or self-help book, then I think this approach is perfect for that.

So here’s his five-step process. So first, set aside three different 15 minute or 20-minute intervals for reading a book each day; so a total of 45 minutes. So this could be 15 minutes in the morning, 15 minutes in the afternoon, and 15 minutes in the evening; and then if you need to, set a timer.

Now I think this is important because if you tell yourself that I’m going to read for 60 minutes every single day, that’s a long time. An hour is a long time, especially if you’re not used to reading, especially if you haven’t read a lot. So you’re likely going to avoid that. I think a better example would be fitness. I personally think that the reason why a lot of people have a hard time getting started is because they don’t want to spend 60 minutes in the gym. So a much better way to start off is to, rather than working out 60 minutes straight, maybe do a few different cycles of push-ups, sit-ups and air squats in your office. Maybe do that ten different times a day; maybe do five push-ups, five sit-ups, and five air squats. Do three rounds of that and do that five times throughout the day. It’s a lot easier to do that because that takes two minutes to do. Let’s say it takes five minutes to do. You do it ten times, that’s 15 minutes. You’re probably not gonna do it ten times, but at least if you do it one time, it’s better than not doing it at all.

I think the purpose of this is to give yourself much more smaller goals that are more easy to mentally digest and get into. Saying, “Well, I only need to read for 15 minutes–” well, that’s 15 minutes, compared to the “Oh, I can sit down here for 60 minutes,” you’re wondering about what’s going on in your emails, what other things you need to do. So I really like this technique of breaking it into different intervals. Of course, if you’re able to do 60 minutes straight, by all means, do that, but breaking the intervals, I think is a lot better.

So right when you wake up, it may be one of the first things you do, and then before you take your lunch break, you read 15 minutes again, and then maybe take 15 minutes at the end of your workday or after dinner, or before you go to bed to read as well. So that’s step one.

Step two is to decide ahead of time what your goal is for reading the book. So what are you seeking to learn from the book and how will that help you in your career? So depending on where you’re at, this might be something different. If you’re obviously just starting off, then you’re likely going to maybe need some help with this mindset; maybe you’re gonna need help finding deals. If you have an established business, maybe you want to learn how to be a better leader. But defining specifically what you want to accomplish by reading this book is going to be important for the later steps.

Step number three is to use a bookmark or sticky notes to save important pages or sections. Use a pen to circle or underline key tips or ideas. So when I read books, right now, what I do, I don’t necessarily follow the speed reading technique, but when it comes to the sticky notes, and then the pen idea– so a really good strategy is while you’re reading anything that’s important– let’s say you’re reading one chapter; it’s a 20 chapter book. If you are planning on reading the full book, while you’re going through it, you have a highlighter. I like a highlighter better, just because with a pen, I’m ripping the pages and I can see the pen on the page behind. So I found a page that looks like I underlined something on the page behind it, and sometimes the lines are so close together that I can’t really get a pen in between lines without going over one of the lines. So it looks like I’m crossing something else. I personally am a highlighter person plus it’s a lot brighter, but a pencil works. But you’re still gonna need a pen because what you do is you read a chapter, you highlight things, and you go back over that chapter and you read what you highlighted, and you take one of the bigger sticky notes, and you just either summarize in sentences or summarize some bullet points and the main takeaways from your highlighted sentences, and then you put that sticky note at the front of that chapter. That way, whenever you’re going back to your book, you open the book up and if it is a 20 chapter book, you’ve got 20 sticky notes, rather than having to go through every single page and look at the actual highlights. All you need to do is look at 20 sticky notes to read the entire book again. So that’s essentially what he’s saying, but I think you should take it a step further. Rather than just using sticky notes to save important pages, use sticky notes to summarize the different things you underlined or highlighted in that chapter.

So step four is to read the front cover first, then the inside jacket, and then the foreward introduction and first chapter. So if you’re reading a softcover book, the front cover has the title and then any subtitle, and then the inside jacket for hardcover books will have a description of the book, but obviously, for a softcover that’s on the back. So if you’re reading a softcover book, it would be – read the front cover, read the back cover, read any of the things before the actual book start. So it might be an intro, it might be a foreword, it might be a preface, they’re all called different things. Read everything up until the first chapter, and then read the first chapter. After that, you go all the way back and read the last chapter, which is typically depending on what book your reading. If it’s a self-improvement or how-to book, it’s typically going to be the conclusion. Summarizing– not to just say summarizing, but summarizing the content of the book. After you read the last chapter, go back to the table of contents and select the most relevant chapters for your goals and only read those. So cover, back cover or inside jacket, everything up to and including the first chapter, and then the last chapter. You have a pretty good idea of what information is going to be in the book, and then going to the table of contents, you can pick out specifically what you want to read.

So maybe I got ahead of myself talking about our Best Ever Apartment Syndication book, because obviously, if you are just starting out, you should read the entire book, but if you’re already doing syndications and maybe you just need help on raising money or maybe you just need help on building a brand or maybe you already are really good at raising money and building a brand, but you just need help finding more deals… Well, if you simply go to the table of contents and it says How to find more deals, you read that book, review that chapter in one day and you’ve essentially gotten what your goal was out of that book in one day without having to read all 450+ pages. So really apply that to anything.

So that is Travis’ five-step technique for being able to read a book in a week, and depending on how specific your goal is, you should be able to read a few of these books in a day, and it’s 45 minutes to an hour. So maybe you spend your first interval reading the front cover, the inside jacket or back cover, the forward introduction and the first chapter, and that’s your first 15 minutes or 20 minutes, and then you take a break, and then on your next 15-minute interval, you read the last chapter in the book, and then go back to the table of contents and determine which chapters are the most important, and then at the end of the day, you read those irrelevant chapters, and then boom, the book is done and you can move on to the next book.

Now in his blog post, Travis says that the goal of using this technique is to extract a few key ideas, concepts or takeaways that you can implement in your life, because most people only really retain 10% of what they read anyways. So if you’re going to read a 100-page book, you’re likely only going to retain ten of those pages. That’s not exactly how it works, but you get the idea. Whereas this technique will allow you to retain information quicker and more efficiently and offers you the ability to go back later and skip directly to the most relevant information by using those bookmarks, notes and annotations. So again, if you’re struggling to read because you’re overwhelmed by how big the book is, this is a great way to pull out the important information that you need now, ignore the fluff that you don’t necessarily need to know right now, and then move on to a different book afterwards.

So definitely try this technique and let us know how it goes on our Facebook group. You can email me at theo@joefairless as well, and hopefully, you too can be like Travis and read 50 books per year or if you’re feeling very bold, you could be like Tony Robbins and read 100 books per year. I think following this strategy you could probably read 300+ books per year because you could probably go through one book per day as I mentioned earlier.

So that concludes this episode on speed reading. I hope you enjoyed it. Make sure you check out some of our other syndication school episodes and those free documents; those are available at syndicationschool.com. Thank you for listening 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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JF2143: COVID-19 June Rent Collections | Syndication School with Theo Hicks

Theo shares the rent collection data for June 2020. During COVID-19 the rent payments were actually the highest it has been since COVID-19 started. He shares some thoughts for you to think about to be better prepared for July rent collections.

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

Joe Fairless: There needed to be a resource on apartment syndication that not only talked about each aspect of the syndication process, but how to actually do each of the things, and go into it in detail… And we thought “Hey, why not make it free, too?” That’s why we launched Syndication School.

Theo Hicks will go through a particular aspect of apartment syndication on today’s episode, and get into the details of how to do that particular thing. Enjoy this episode, and for more on apartment syndication and how to do things, go to apartmentsyndication.com, or to learn more about the Apartment Syndication School, go to syndicationschool.com, so you can listen to all the previous episodes.

 

Theo Hicks: Hello, Best Ever listeners and welcome to another episode of The Syndication School series – a free resource focused on the how-tos of apartment syndication. As always, I’m your host, Theo Hicks. Each week, we air two podcast episodes that focus on a specific aspect of the apartment syndication investment strategy, and for a lot of the episodes, we offer free resources, especially during our first part of these syndications school series where we went through the entire apartment syndication process from A to Z, from having no experience or knowledge of apartments syndications to selling your first deal. So make sure you go back and check out those episodes and check out those free documents, and then also some of the future episodes where we go back and go into more details on some of those steps. We’re also providing documents as well; all of that can be found at syndicationschool.com.

Today, I’m airing this in the beginning of July; you’re listening to this probably in the middle of July, so we’re going to go over the rent payment tracker. We’re going to go over the NMHC rent payment tracker, National Multifamily Housing Council, to see how the rent collected in June compares to May and April. And since we are into July, we can also take a look at the beginning of July. So we’ve got some good news and some maybe not so good news, and again, this payment tracker started back in April because that was the first full month of the Coronavirus.

So I think this will be the second or the third syndication school episode we’ve done. I believe I did one for May, and I might have done one for April; I’m not 100% sure, but if you want to get the actual data that I’m talking about, you can just google ‘rent payment tracker’, and then it’ll bring you to the NMHC rent payment tracker website. They essentially track the rent paid by the week ending on the 6th of the month, the 13th of the month, the 20th, the 27th and then the end of the month, so on weekly basis. So as of this recording, all of June data is in; obviously, all of April and May data is in, and then the data ending the week of July 6th is also in. So we’re focused mostly on June, and then at the end, we’ll also mention July, and then of course, next month around this time, we will be going over July’s data in full.

So first let’s go over what it was like last year in 2019. So for 2019, the rent collected for the total month actually goes down month over month. So April 2019, 97.7% of renters pay their rent and May, it went down slightly to 96.6%, and then in June, it went down to 96.0%. So traditionally, at least historically last year, it was about 96% each month, but gradually going down month over month.

Now let’s go into 2020. So April, which was the first full month of Coronavirus was 94.6%, so 3.1% lower than the previous year. So clearly, a pretty big impact from the Coronavirus. Now, again historically, from April to May and May to June, the rent collections is likely to go down, but since April was so low due to Coronavirus, it’s really hard to predict what’s going to happen. So in May, due in part to the stimulus package, the percentage of renters who paid their rent on time actually went up to 95.1%. So compared to April, that’s an increase of 0.5%, but still less than the rent collected in May 2019. So it was 1.5% less in May 2019, which we talked about and last month’s episode.

Now let’s go to June. So in June, the percentage of renters who paid rent on time was 95.9%. Up 0.8% for May and actually only down 0.1% from June 2019. So due to the stimulus package and due to things beginning to reopen in June – again, I’m sure there’s other factors as well – but people were able to pay their rent in a similar proportion compared to June. So obviously, that is great news. So you’ve got the same amount of people paying rent in June during the Coronavirus than the people who paid rent in June last year without the Coronavirus.

Now, obviously, this doesn’t mean that is going to continue to go up. If you’ve been paying attention in the news, it seems like they’re saying that there’s a second wave potentially coming. I’m not sure if places are actually closing down at the moment, but we do have some July data. So we have the week ending by the 6th. So just like April, May and June in 2019, the percentage of rent collected in July was less than June. I’m not sure why people are paying rent less in the summer; I’m sure that’d be an interesting thing to look into, but 79.7% of people had submitted rent by the 6th of the month in July 2019 as compared to 81.6% in June, 91.7% in May, in 92.9% in April.

Now going back to 2020, again, April was the lowest. It was much lower, it was actually still about 5% lower by the 6th, which is the same as it was for the entire month, and then for May it bumped up 2.2% from April, but still below May 2019, and then June was actually more than 1.1% below June 2019. It was actually almost 1% lower, but it seems like people are paying by the end of the month, probably at least in part, rent payment programs that say, “Hey, you can pay rent by the end of the month. You don’t need to pay it on time; as long as you pay it by the end of the month, we’re okay with it.”

Now July, by the 6th, only 77.4% of people have paid their rent by the 6th, which is less than the percentage of people who paid their rent by the 6th in June, in May and in April. So it’s been the lowest since the outbreak of the coronavirus pandemic. So every single time they update the data on NMHC, they input a statement, a quote from the president who’s talking about why he believes that it is tracking in this way. So I’m just gonna go ahead and read that to here to you. So it says, “The National Multifamily Housing Council, NMHC rent payment tracker found 77.4% of apartment households made a full or partial rent payment by July 6th in a survey of 11.4 million units of professionally managed apartment units across the country. This is a 2.3 percentage point decrease from the share who paid rent for July 6th, 2019”, as I mentioned, which was 79.7%. So 79.7% minus 77.4% is where they’re getting that 2.3% from, and compares to 80.8% that paid by June 6th, which is a 3.4% decrease. “This data encompasses a wide variety of rental properties across the US which can vary by size, type, and average rental price.” So obviously, some people are collecting a lot less than this and some people are collecting a lot more than this. This is just an average.

So here’s where the quote from the NMHC president comes in. He says, “It is clear that state and federal unemployment assistant benefits have served as a lifeline for renters, making it possible for them to pay their rent. Unfortunately, there is a looming July 31st deadline when that aid ends. Without an extension or a direct renter assistance program, the NMHC has been calling for since the start of the epidemic, the US could be headed toward historic dislocations of renters and business failures among apartment firms, exacerbating both unemployment and homelessness.”

Now, it sounds scary, but there are talks of an additional stimulus package, additional direct payments for the American population, which is what they’re referring to here. I think the July 31st deadline might be the PPP program he’s referring to, but it does seem like another stimulus package is on the horizon. Obviously, it’s only July 9th, so it’s still too early to tell what’s going to happen by the end of the month; things seem to be happening pretty quickly. At least the stimulus package happened pretty quickly last time. So hopefully, that alleviates this problem, but it’s just something to keep in mind, that we’ve done previous episodes on syndication school, we’ve done previous blog posts on syndication schools on how to approach this coronavirus pandemic with your residents, and really, probably the most important thing that I’ve learned from interviewing people on the podcast is having conversations with your residents, understanding if they have the ability to pay rent or not, and understanding if they do have the ability to pay rent, where that money is coming from, and if it’s something that they’re going to be able to continue to do in the future. So it’s better to have those conversations today in the beginning of July, than wait until the end of July or into August and realize that your residents aren’t paying rent.

So I think the number one takeaway I’ve gotten is to have a conversation with your renters to see what they’re capable of doing, and then come into some agreement at best, but at the very least, you have an understanding and you know what they are capable of, and so you can plan ahead to know what to expect in August, and if you need to cut any expenses or cut any projects you have so that you have enough cash to hold you over for August or any of the future months. But again, all of this could be alleviated by another federal package.

So overall, make sure you’re staying up to date on what the federal government is doing, what your state is doing, what your city is doing, and then have that conversation with your residents to understand what they’re capable of doing.

So that concludes this episode. As I mentioned, we will likely do, at the latest, another update on the rent payment tracker the same time next month. But again, this data is released every single week, so I might briefly mention it at the beginning of syndication school every week; we’ll see. It just depends on if the data is drastically different than what it has been.

So until tomorrow, make sure you check out those syndication school series episodes I talked about in the beginning of the show, as well as download some of those free documents. All of that is available at syndicationschool.com. Thanks for listening. Have a best ever day and I’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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