JF2441_ Stace Caseria_ Real estate Investing with Stace Caseria #SkillsetSunday

JF2441: Real Estate Investing with Stace Caseria #SkillsetSunday

Stace is the owner of Trust Deep, a branding agency and evergreen North properties. Stace has 20 years of investing experience and currently has four properties: a small apartment building and syndication. Stace was involved in real estate for 20 years at the same time building a career in branding in advertising. Stace got interested in the real estate business when his mother started buying single-family homes and renting them, Stace saw the profit potential and got interested in investing in the business as well. In today’s episode, Stace will share how he started in the real estate business and how he faced challenges along the way. 

Stace Caseria Real Estate Background:

  • Owner of Trust Deep, a branding agency and Evergreen North Properties
  • 20 years of investing experience
  • Currently has 4 properties, a small apartment building, & a syndication
  • Based in Boston, MA
  • Say hi to him at: www.trustdeepagency.com  

 

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Best Ever Tweet:

“Mindset matters. Change your mindset. Don’t pursue solely transactional relationships.” – Stace Caseria


TRANSCRIPTION

Ash Patel: Hello, Best Ever listeners. Welcome to the Best Real Estate Investing Advice Ever Show. I’m Ash Patel and I’m here today with our guest, Stace Caseria. Stace is joining us from Boston, Massachusetts.

Stace, how are you today?

Stace Caseria: I’m doing great, Ash. How are you?

Ash Patel: Wonderful. Thank you for joining us. Best Ever listeners, today is Skill Set Sunday, where we talk about a specific skill set that our guest has. Stace is the owner of Trust Deep, a branding agency, and Evergreen North Properties. Stace has 20 years of investing experience, he currently has four properties, a small apartment building, and a syndication. Stace before we get into your skill set, can you tell us a little bit more about your background and what you’re focused on now?

Stace Caseria: Sure. So I’ve been investing, like you said, for about 20 years. I’ve also been involved in advertising for about 20 years. So the same time that I was building my career in branding, advertising and marketing, I was also building my portfolio of properties. And my focus is right now on my business, but I’m hoping to shift that to real estate in the future, so that I’m handing off some of the duties of my job to the folks who work with me and going out looking for new investment opportunities, and hopefully being able to take a little bit more time to do that and less time behind the desk.

Ash Patel: That’s interesting. A lot of people almost do it the other way – they hand off their real estate tasks and focus on their career, but you’re looking to transition into real estate.

Stace Caseria: Absolutely. And there are things I’m trying to bring over to my real estate practice from my marketing practice. What lessons have I learned helping people build brands, retain customers, build loyalty? How can I translate that to my tenants and how I deal with them? And hopefully, instead of having small buildings in the future, someday I have large buildings, that I can look back on and say, “Yes, I’ve built this business the same way I would have helped the client build any other business.”

Ash Patel: Let’s get into that. But I would love to find out how you got into real estate.

Stace Caseria: So I had graduated college… My mother owned a restaurant at the time, and restaurant – it’s a grueling, grueling occupation, so she was trying to get out of that long hours; health was an issue. So she said, “I’m going to start buying some single-family homes and renting them.” And I saw her doing this and I saw the profit potential, and she showed me, she said, “Hey, this are what my mortgage and expenses are, this is the rent every month; you can do the math, it’s very simple, it works. And it’s not a 9-5 job. It’s not something that needs my attention all week long.”

I saw that and I said, “You know, I’d like to give this a try.” It took me a while to get fully invested in the idea… Like, your parents tell you things, like – of course, in one ear, out the other. It takes you a while to say, “This thing really could work.” So I’ve had properties for the past 20 years, but it’s only recently that I’ve been much more passionate about becoming more active in it.

Ash Patel: So a background in branding and marketing – what attributes do you take to your real estate investing?

Stace Caseria: A business doesn’t really exist unless it has customers… And I’m trying to bring the belief that our tenants are our customers and we have to treat them like we would treat any of our customers. So if I owned a shoe store or a car dealership or a restaurant even, too often I see landlords and investors treat their tenants as a necessary evil, not focusing on them as customers, not saying, “How can I provide better value for them?” When we talk about value-add, we talk about, “Oh, we’re going to put in new sinks or countertops” or, “We’re going to paint the place.” We don’t talk about necessarily adding value to somebody’s life or how to make them enjoy that property more.

So I’m trying to bring over the idea that apply customer relationship and customer service tools and processes, apply that to your investing and treat every tenant like they’re a customer. They are a paying customer, they just happen to live in a building rather than buy a product or service from you.

Ash Patel: I have to ask you, I do mostly non-residential commercial investing, but I still have some residential, and I have the same outlook as you with my commercial tenants. I treat them as partners. My residential tenants – I’m very skeptical of interacting with them, because it almost seems like every time I do, I open up a can of worms. So help me be more at ease with that. Is there a fine line where you can’t get too deep into their issues and fall victim to them pulling one over on you?

Stace Caseria: Sure. And I completely understand where you’re coming from. But let’s pretend instead of owning a building, you owned a car repair service center. You wouldn’t necessarily have to get involved into your customer’s life in order to serve them, but what you have to do is understand their need and you have to make sure that you’ve done everything you can to fix their car and get them on their way. The difference with owning real estate is that it’s somehow more personal to that person, and they’ve taken some ownership of your building because they literally live there. But you have to think of them as customers, and you have to think of them as having real needs that you can meet, without overexposing yourself or without being taken advantage of, and there is a line.

I was having a conversation with a syndicator once, and he asked me a similar question. And I tend to think of my tenants as my aunt or uncle who I would want to do well for, I want to help them. But if they asked me for the shirt off my back or something that’s going to hinder my ability to run my business properly, that’s the line. So I will be as helpful as I can, but I’m not going to give product away. I’m not going to give service away. I’m not going to let someone escape from their responsibilities. I’m going to hold them accountable. But understanding that we are partners in this, the same way any business looks at its customers and says, “We don’t exist without those customers.”

Break: [00:06:40] to [00:08:41]

Ash Patel: What are some things that you’ve implemented, where you see a lot of other real estate investors have failed at, in terms of customer service?

Stace Caseria: A couple of things. In my business, we try to get our clients to survey their customers and there’s a couple of reasons why we do that. First of all, you get excellent intelligence, understanding where you’re doing well and where you’re doing poorly. But it shows people that you care about improving your process. So even if somebody has negative feedback, the fact that you asked for it is helpful. It will change their perception in some small way; it might change it in a large way.

So I’ve begun asking tenants, how are we doing? What things can we improve? And I don’t think that’s novel. I don’t think that’s new. I don’t think I invented that. But actually listening to people and stopping by—so I have a building here outside of Boston that I self-manage… And I try to head out there at least once a month. And I will knock on every door and see if people are home and just ask them how’s everything going? I’m hoping that they say, “Everything is awesome, thank you very much; here’s the rent.” But it doesn’t always work that way. Somebody might say, “Hey, while you’re here, can you come and take a look at something,” or, “This happened,” or, “That happened,” or, “This guy’s parking in my spot,” or whatever it might be. And I don’t necessarily want to hear those things, but I do want to fix those problems if they exist. If I don’t ask that question, the problem still exists; it’s just not going to get resolved. So this works the same – even if you have property management in place, you want your property managers to work the way that you want them to work.

So if you want your tenants treated in a certain way with a certain level of respect, or if you want hold a hard line to them – that’s the thing, you have to get your property managers to work on your behalf. So the same way, when I go in and I’ve got my agenda, the things I need to get from people – you’ve got to get your property managers doing the same thing.

Ash Patel: How do you get them to be as attentive as you are?

Stace Caseria: That’s a fantastic question. This is what we do at our agency. So a trustee—we’re a branding agency, and we help brands identify what their mission is, what their purpose is… But then the important part is translating that to employees.

Recently, we did a branding project for a restaurant outside of Boston, and their issue isn’t so much that the marketing people don’t understand the brand or the mission… It’s difficult translating that down to the kitchen staff or the wait staff. So the same way we created a manual for their employees, I would say to you if you have property management in place, you have to figure out what is important to you, the way you want things run, and not just mentioned things casually to people. You have to codify it, document it, put it on paper, give it to them, make sure they read it, quiz them on it; get them to understand that this is real, it’s not a suggestion.

And this is what I mean about translating processes or procedures over from marketing or running a business, or even working in the corporate world, translating that over to your real estate… In corporate America, we would have a procedure manual, like, standard operating procedures of how we do things. There’s nothing wrong with having that for your property manager. So they probably have a ton of landlords who they work for. And they run the gamut, from people who really care, people who don’t care, people who want this, people who want that. You have to let them know, crystal clear, “This is what I expect from you.” And putting it on paper is the way to do it, checking in with them, the progress every quarter or something like that, holding them to those things… And it’s not just the guy who owns the property management company. It has to filter down if he has people working for him. People who are knocking on doors looking for rent – it has to filter down to those people.

Ash Patel: That is great advice, because there’s so many people who complain about their property management company… But had they implemented some of these systems and quiz them and follow up, the experience could be a lot different.

Stace Caseria: Oh, yes. We can’t expect people to know what our intentions are or our expectations, unless we put those out on paper. I mean, they’re basic things like “I expect rent to be collected on the first. If there’s a problem with the plumbing, they call me.” Those are basic things. But you have to go beyond that and say, “How would another business run?” Whether this was a bakery, or a bowling alley, anything like that – how would they run? They would have a set of procedures on how to get the best work out of their employees.

The same way with a property manager or running a business – you have to say, “How do we optimize what they’re doing?” And it’s not like, “Hey, guys, please do a good job for me”, because everybody wants to do a good job. But what does that mean? You’ve got to be specific about what that means.

Ash Patel: Have there been instances where this customer service mentality has backfired on you?

Stace Caseria: Why do you ask?

Ash Patel: Because I’m still thinking of a lot of my colleagues that are residential heavy investors… And hearing this, I’m sure in their minds are thinking, “No way. I want to interact with my tenants as little as possible.” So I want to hear about how this backfired, and what advice would you give to those people that have just had so many bad experiences interacting with residential tenants? Maybe it’s a class C apartment, where there’s professional tenants that know how to game the system. I’d love to hear your thoughts on that.

Stace Caseria: Sure. So I do have a set of tenants who fit the bill here. And I have to keep reminding myself that for me, this is an investment, and at the end of the day, I leave and come home to my family, but they live in that building. So they’ve lived there far longer than I’ve owned it. So they’ve been there 20 years, maybe 18 years. And they have a feeling of entitlement or ownership to the building. And I will do most things that they request, as long as it still sits within my objective. So they’ve asked for a few things and I’m like, “Okay, fine; we need to make some improvements, renovations, that’s fine.” But when the tenants start to ask for something that makes me deviate from my plan, whether that’s the profitability or time commitment or a nuisance to other tenants, for instance, that’s where I draw the line.

And I’ve had to do that recently and say, “Listen, you’re starting to sound like a homeowner here, which is a good mentality to have, but not here, because I’m the homeowner here.” And so I said, “If you want to own a home, that’s fantastic, but this isn’t it.”

So we had to have a clear understanding. You have to do that dispassionately. I couldn’t get upset with the guy, because he’s going to take it much more personally. But like I said, at the end of the day, I leave and come home. He lives there. He thinks that’s his home. It’s not his house, he doesn’t own the buildings. I do. But he believes it’s his home, and he should feel that way. I do like when people feel ownership of the property; they will take better care of things. But when they cross a line, you have to redraw that line and say, “This is where it is, this is how it is. At the end of the day, I own this place. I’m going to try and make you as happy as possible.”

It’s like the same thing — it’s like you walked into the car dealership and said, “I want this car for free.” Nope, no level of customer service is going to allow somebody to break their rules of good business. So that’s the same thing I would say to people. It’s not about being a pushover or it’s not about letting your tenants walk all over you. It’s about recognizing them as human beings, as people who have hopes and dreams and stuff like that, just like I do. But there’s a line and I’m going to do everything I can to help them until we get to that line.

Ash Patel: Stace, in your opinion, has this mentality helped you retain tenants?

Stace Caseria: Yes, not just retaining tenants… So every year, there’s an annual rent increase. So something I’ve started doing is I use Rentometer to get data on rents in the area. I also do a search of https://www.apartments.com/. So whenever somebody’s lease is coming up and I want to increase the rent, I put a package together and I show it to them and say, “Hey, I’d love for you to stay if you can, but I have to raise the rent. And if you can’t stay, here’s a dozen other places in the area.” Of course, I’m not being selective. I’m showing them a range of places. And my property looks pretty good compared to these other places, given the amount of rent. So I find that to be very useful. The last time I did this with a tenant, his reaction was—he looked at the rent increase and said, “That’s not bad. That’s what I want.”

So this is the same thing other businesses would do. They would tell you, “We have to raise the prices,” but they would tell you what you’re getting for that, they will tell you why they’re raising it. Rather than somebody just saying “Hey, I’m raising the rent because it’s January.” It’s very arbitrary to a tenant. I mean, giving them a reason why and giving them a way out, and saying, “You know what, if you don’t want to live here, that’s cool, too.” Nobody has left since I started doing that process.

Ash Patel: And you go there in person and deliver a rent increase?

Stace Caseria: Generally, I mail them. It happens that I was on the property for something else and I handed it to this guy, and he opened it and read it right there. But typically, I would just throw them in the mail. As much as I’m saying I want to be this great guy, I do want to limit my time out there, because I have other things to do. I have a business to run, I’ve got a family. But if there are times when I need to be there just to make sure that people know who I am and recognize me, and they have a personal relationship with me, I will take those opportunities [unintelligible [00:17:11].06] to knock on doors. If I’ve driven all the way out there – because its outside of Boston; if I’ve driven out there, I’m going to spend the time and knock on doors and talk to people and do what I have to do.

Ash Patel: So with your personality, I feel like your rent increase letter is not the norm. What does your rent increase letter say?

Stace Caseria: It generally will talk about the conditions. So right now, the past year, it mentioned COVID. And I said, “I understand that things are tough for everybody, and if you need help with rent assistance, let me know; I can put you in touch with people .” And that happened with one person that said, “Hey, I could use help paying my rent.” It’s better that — [unintelligible [00:17:44].02] pay his rent, then he doesn’t pay me. So it’ll talk about the economy, it’ll talk about things that are going on in the neighborhood…

I think once there was a new building that was being constructed, saying, “I know that there are other options, there’s this new building being constructed.” Spoiler alert, it was much more expensive to live there than in my place, but I just want to be transparent about what’s going on.

I might also say, “In the past year, I’ve also done these renovations to your apartment, whether I painted or put it in a new carpet or something like that. But Just so we’re on the same page, I’m not doing this arbitrarily in giving you a new carpet because I’m an awesome guy. This is a business for me.” So I want to be human, but I also want to be professional about it.

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

Ash Patel: I love that approach. I wonder how few people actually do that. I would envision a lot of people just say, “Hey, by the way, your rent is going up January 1st. Here’s the new amount period.”

Stace Caseria: The problem with that is, if somebody questions it, you need to have a rationale for it. The same way if your cable bill is going up, you want some sort of rationale or this is going to bother you, right? If they said, “Hey, we’ve added 16 new channels and now it’s in HD and you’ve got this DVR thing and—.” They go, “Okay, I’m getting value for this extra increase.” If they just said, “Hey, your cost has gone up. Take it or leave it” you’ll be like, “Why? I need to understand why things are happening.” And if you explain things to people, for the most part, I think people get it. They understand that you’re there; not as a humanitarian, but as a business person.

Ash Patel: That is a great philosophy. How have you used your branding and marketing background to attract tenants for vacant units?

Stace Caseria: I have to say, I’m jealous of people who own new construction, because I don’t have a building like that. But I look at new construction and I say “So what elements are here other than the box that is an apartment? What other things?” So I’m like, “Okay, so there’s branding on the building,” or, “There is signage inside the building,” or they might provide a welcome package to tenants. So I try to do little things like that where I can, to maybe get closer to what the experience might be in a much nicer building; because I’m in the C Class building. But I would love to have a much nicer building, bigger building, newer building. So I’m trying to—

Ash Patel: Bigger mortgage?

Stace Caseria:  Bigger morgage, right. But there are things I cannot provide. It’s an old building, low ceilings… I can’t provide big open concept. There’s no dog park, there’s no swimming pool; I can’t provide those things. They’re never happening; covered parking, never going to happen. But I look for other things that I can do. And I tried to index a little higher in those small things that might have some effect, rather than just throwing up my hands and saying, “There’s no way that I’m going to be able to compete with those other buildings.” But there are things I’ve learned also from the Joe Fairless book about how to add amenities… And it’s not necessarily always adding things like swimming pool or covered parking and things like that; it’s just like small touches that people might appreciate. It sounds so minor when I talk about it, but outlets — the USB outlets [unintelligible [00:21:07].06] I put those in an apartment that I renovated and people were so happy. It’s just a $5 outlet. But looking for small things that will make a little bit of an improvement. Those are things that that I look for.

Ash Patel: Stace, what advice would you give to somebody – let’s say they have 30-40 Classy C units, they’re kind of inundated, they’ve had their fill of tenants stories… How do you get them to reposition their mindset? And what are some practices that they can start doing to get to where you’re at, and build this allure or build an environment where the customers, the tenants all know “Stace is my landlord, great guy.” How do you get somebody who’s been jaded, inundated, to adopt this philosophy? And what specific tasks could they implement?

Stace Caseria: I think before you get to tasks though, with anything in life, mindset matters. You have to change your mindset and you have to understand the relationship not as a transactional relationship, but one where you are providing value and they are providing you with income for the long-term. You have to see people as customers, and you have to see them as your partner.

As you said in your commercial space – you have to see people as partners. So the actual tactic is for somebody who is jaded is I would start with one or two tenants. I always try to start with the biggest problems first, and see if I can solve those. And so if you have somebody who’s a real nightmare – not to the point where you need to evict them, because if that’s the case, then hopefully, they would have evicted them. But see if you can change their behavior toward you by changing your behavior toward them. Call them out of the blue and say, “How’s everything going?” Or send them a letter saying, “I appreciate you being there.” Send them a “thank you” after they’ve paid their rent; that’s going to be odd for a lot of people to receive this thing that says, “Thank you.” And there might be negative consequences to begin with. If someone’s going to say, “Of course, I’m paying my rent, but you never fixed my faucet.” Well, that’s an opportunity to fix the faucet.

But I think once you do that and you show people that you have empathy and you’re a little bit more human, then you can work on the ones that are easier. Start with the hard ones first and get a system in place. Because if you can make a difference with that person, you can make a difference with everybody else.

Ash Patel: That is a great philosophy. That’s one thing that I don’t do, is randomly send “thank you” letters. I host dinners and happy hours for my commercial tenants, but there’s a lot more that I could be doing. What’s your hardest lesson that you’ve learned in your real estate investing experience?

Stace Caseria: This applies to a lot of things in life… It’s not hesitating to make decisions. When you have a decision and you’re pretty sure you know which way you’re going to go… In the past, I’ve waited too long to make decisions. I sold a property last year that I should have sold years before. And I just held on to it for emotional reasons, not looking at the numbers. Because as humans, we make decisions emotionally, we don’t make decisions rationally. I wish we did sometimes. But I held on to this property and I think I was barely making any money each month; it was barely cash flowing. That’s because from the time I bought it to the time I sold it, it had flood insurance, because it was a waterfront property. And flood insurance had gone up 10 times year after year after year. And I kept saying, “Maybe I’ll catch up to this”, and there was no way rent was ever going to increase at the same rate. And I just loved the property being on the water and everything, but I had to realize I should have done this years ago and then just taking that cash and putting it in something else.

Ash Patel: Lesson learned.

Stace Caseria: Hey, something else I wanted to mention before—you said you do happy hours with your commercial tenants. Something that I started doing with my residential tenants is every Thanksgiving I send them a gift card for the local supermarket, because Thanksgiving is an important time with my family. So that’s a way that I can show them some appreciation, and people were blown away the first time they got it; it wasn’t a lot of money that I was sending each person but it was certainly noticeable.

Ash Patel: That is amazing, and simple practices for people to implement.

Stace Caseria: Absolutely.

Ash Patel: Tell me more about your syndication.

Stace Caseria: I’m working with a syndicator now, so I’m invested completely passively in that deal. I would love to transition into syndicating myself, find a syndicator I can work with who might be looking for somebody who brings marketing and branding experience, and sort of have a value exchange there. But I see that as such a powerful force… I know I’m on the Joe Fairless show here… He opened my eyes to this thing called syndication. And whenever I read the book a few years ago, I was like, “This is an amazing thing.” I want to become more active in syndications, and I’m trying to invest in them passively at the moment to sort of understand how they work beyond just reading about them in books; see how they work in real life.

Hopefully, soon I will work with a syndicator and blend my skills, whether it’s how to deal with people or managing the property or helping with marketing and branding of the property itself.

Ash Patel: I think you would do very well using your skill set, your mindset and your customer service practices on a much larger scale. So Stace, thank you very much for joining us today. Your outlook, your mindset – you’ve given me a lot of things to think about, the things that I could do better, very simple things. And for our Best Ever listeners that have a lot of units that they’re inundated with, I think you’ve helped to transition some of that mindset as well. So thank you again for being on the show.

Best Ever listeners, thanks for joining us and have a best ever day.

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JF2430: 6 Multifamily Strategies to Implement in 2021 and Beyond | Syndication School with Theo Hicks

In today’s Syndication School episode, Theo Hicks shares 6 Multifamily strategies that will succeed in the future. Greg Willet presented the six investing ideas and tactics to implement in 2021. The advice is mostly based on the reaction to the recession that occurred after the pandemic. The first tactic is to focus on the markets that outperformed the national average from a rental perspective. The second tactic, don’t bank on a flight to quality. The third tactic is to explore a low capital value add strategy. The fourth tactic is to test out new operational strategies to determine what works today because what works now most likely did not work before. The fifth tactic: focus on renewals to obtain high-quality residents. The last tactic is to make sure you’re focusing your assets of branding and marketing on lifestyle-related factors such as customer service, appearance, ease of living at the property, location, and less on the actual pricing factors.

Listen to this episode to know more about these six strategies.

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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TRANSCRIPTION

Theo Hicks: Hello Best Ever listeners and welcome back to another episode of the Syndication School series, a free resource focused on the how-to’s of apartment syndications. As always, I’m your host, Theo Hicks. Today we are going to continue talking about my favorite presentations from the Best Ever Conference 2020. Today we’re going to focus on Greg Willett’s presentation. He is a chief economist at RealPage, Inc. and he talked about six investing strategies to implement in 2021. Let’s jump right into this.

Obviously, a lot of this advice is based off of the reaction to the recession, or downturn, or whatever you want to call it, that occurred after the pandemic. The first tactic focuses on which markets to target. We’ve had a lot of blog posts talking about the markets that performed the best during 2020, during the pandemic. A really good resource is apartmentlist.com; they update the rents on a monthly basis, month over month growth, and year over year growth. If you take a look at their map, you’ll notice that some of the best-performing markets were all focused on the Sun Belt region.

Tactic number one from Greg is to throttle up your Sun Belt assets. The Sun Belt, if you look at a map, is basically the strip at the bottom of the US, the southern part of the US ranging from Southern California all the way across to Florida. Not every single market in the Sun Belt performed well, but when you take a look at the map, you’ll see a lot of red. Outside of the major markets in California and Texas, and then a couple of other places like New Orleans, Nashville, Orlando, and Miami, basically all the Sun Belt markets experienced rent growths that exceeded the national average of 1.1 in 2020. Some vastly see that number, but others were just in the low single digits, but still very little negative rent growth in that Sun Belt region. So the idea here is to get ahead of that demand by focusing on assets in the Sun Belt markets.

Then the  other markets that performed well, but not as well as the Sunbelt, would be the Midwest. Greg says don’t rule out the Midwest either. Outside of again, major markets like Chicago, Minneapolis, and Cleveland, when you take a look at the heat map of rents at apartmentlist.com, you’ll notice that many of the markets exceeded the national average and most of them had a positive rent growth in 2020. The demand here is not as strong as the Sun Belt regions, but Greg said that because of the lower supply in the Midwest compared to the Sun Belt region, he believes this will drive demand in 2021. So strategy number one, throttle up your assets in the Sun Belt and then do not rule out the Midwest.

Break: [00:04:45][00:06:47]

Theo Hicks: The next strategy I thought was pretty fascinating – he says don’t bank on the flight to quality. Historically, if you take a look at past recessions, what usually happens is that a recession hits, and then the top tier Class A products will discount their rents. As a result of this reaction, a flight to quality occurs, which means that the lower rents of these Class A products will attract renters from maybe Class B, which will then boost the occupants. They take advantage of the better product at a lower price. But during the COVID-induced recession, these rent discounts happened, but did not result in an uptick in demand that was experienced in the past recession. Instead, the opposite happened – there was not a flight to quality, there was a flight to downgrade. Renters had a tendency to move down from A to B, or B to C, in order to save money.

This trend was obviously expedited by the fact that there were stay-at-home orders. We’ve talked about this on the show before, where a lot of people left the major expensive urban areas to move to less expensive suburbs. That’s why you need to take a look at apartmentlist.com, you’ll notice big blue circles in a lot of the major markets, these top tier primary markets, because of the stay-at-home orders and the closures of businesses.

So overall, since this did not happen, he’s saying don’t bank on that happening in 2021. Don’t assume that class A and Class A plus are going to perform very well from an occupancy perspective because the rents are reduced, because that’s just not the case.

There’s a couple of good studies on a RealPage – that’s where Greg is the chief economist. Just go to RealPage and type in flight to quality. There’s a lot of statistics on what happened when the pandemic hit and how a lot of people moved from A to B and B to C. That’s tactic number two, don’t bank on a flight to quality.

Tactic number three is to explore a low capital value-add strategy. This is kind of similar to flight to quality, but the whole point here is that he recommends not pursuing very large, heavy value-add opportunities. So hold off on doing large luxurious upgrades to unit interiors or adding the fancy bells and whistles amenities, and focus more on lower-cost value-adds like deferred maintenance and then some aesthetic or appearance touch-ups of the property. That way, the asset will be much more affordable to a larger group of renters, keeping in mind that the flight the quality occurs, so people are willing to downgrade. These high-quality apartment communities, according to Greg and their data, are not as attractive.

Another benefit of this is that it will allow you to turn around a vacant unit faster, or keep the existing resident, as opposed to forcing someone out in order to spend 10 to 12 thousand plus dollars on a unit renovation. You can do something smaller, take care of some deferred maintenance, and either keep that person in there or keep that unit offline for a less amount of time. This will obviously boost your occupancy. But what’s key here is it will support resident retention at lease expiration. One of the big things right now is keeping people in your units. By doing an upgrade, that doesn’t force a person to move out, and it can help you with your retention, which will help boost occupancy and reduce turnover.

Another advantage would be, down the line, when you go to sell the property, it’ll be more attractive to a buyer. Once things go back to normal, there’s money on the table to do that more expensive, value-add strategy. Tactic number three, explore a lower capital value-add strategy.

Tactic number four – moving into more operational type strategies – is to measure what is working now. To me, this was kind of obvious, but we’ve actually talked about this on episodes before… I believe I talked about this when I went over the presentation… I believe it was Realty Mogul and the advice of the CEO of Realty Mogul in how they were constantly measuring what was working, and then double down, and then when they did something that didn’t work, they immediately stopped doing that. But the point here is to take a look at some of your operational strategies, things that might have been your secret sauce or what worked in the past, and then make sure that it’s still working right now. That’s basically assume that something that worked really, really well two years ago probably is not the best approach right now. Then confirm that that is true by measuring the results, and if it works, keep it; if it doesn’t work, then adjust it. A big example would be testing out different types of technologies on your property that promote social distancing, and things like that.

Something else to pay attention to would be what young adults are doing and how they are reacting to the pandemic, and in 2021, how that’s going to impact the types of units that are in demand… Because Millennials are the biggest portion of the population as of 2019; they overtook the boomers. Once you know what the millennial generation wants, then you can determine what types of units will be in demand, and then you can determine what type of marketing you need to do in order to focus on those types of units that are in demand. Overall, the strategy here is just to measure everything you’re doing. We’ve got a pretty good KPI performance tracker that’s available at syndicationschool.com that can help you with this process. But basically, track and then measure, see how things are working, and then make adjustments if needed. Again, kind of obvious.

Break: [00:12:45][00:13:20]

Theo Hicks: Number five, I kind of already hinted at that, is really focus on renewals. This is one of the strategies I think is very important right now with the pandemic. There’s another good study on RealPage. If you type in apartment resident retention… I think it’s apartment resident retention gets messy. They talk about the large variability in renewal rates across the country. Renewal rate is the percentage of leases that are signing again, as opposed to when the lease expires they leave.

This really needs to be a priority, because you want to hang on to those high-quality residents who are making their payments in full and on time. It might be worth giving some sort of concession – if needed; don’t come off the bat with a concession. But in order to keep someone who’s been paying on time, give them some sort of concession or not increasing the rents as much as you’d want to, or not increasing the rent at all, in order to keep them in the unit.

Something else to pay attention to is the breakdown of renewal rates by unit type. Maybe one-units are experiencing a lot higher turnover, whereas people are deciding to stay in the two-unit buildings more. If you see a discrepancy between the renewal rates for multiple types of units, you need to figure out why that’s actually happening. A really solid thing that Greg said was, “Don’t just focus on the price.” Don’t say “Maybe the reason why my one-bedroom units have a lower renewal rate than my two-bedroom units is because my price is too high. So I’m going to just lower the price and assume the problems will be fixed.” No, you want to focus on other non-pricing factors like maintenance and customer service, Greg said. Those are kind of the two main reasons why people decide to not renew, is maintenance issues aren’t addressed enough, or the customer service at the property just isn’t very good. Overall, the strategy here is to make sure you’re keeping those high-quality residents.

The last tactic that Greg provided was to take back control of your brand. I’ve kind of already hinted at that, but overall, your marketing strategies in your brand for the actual apartment shouldn’t focus on just the price. When you’re trying to attract a resident with your marketing, the main focus shouldn’t be “We’re the lowest priced unit in the market”, or one month of rent half off, or some sort of monetary concession. As I mentioned, that’s not the number one reason why people decide to not renew a lease. It’s also not the number one reason, at least now, why people aren’t deciding to rent. It’s not one of the main factors that people are using to decide whether or not to rent one unit or the other; the focus is more on other non-pricing factors.

So make sure you know who your target demographic is, what non-pricing factor is the most important to them, and then make sure your branding is focused on pumping out that message. It could be customer service-related, so you can focus on why your customer service is the best… It could be just the overall appearance of the property, so you can talk about some new touch-ups you’ve done at the property, it could be just ease of living at the property, all the convenience services that are there. It could be the location of the property… There’s something out there that’s going to track your target demographic more than just the price of your unit, so figure out what that is and then make that be the main focus of your brand.

Those are the six tactics, three of them are kind of overall investment strategies, and three of them are more focused on the operations at your current investments or whatever new investment you’re going to buy. In summary, the six tactics to thrive in 2021 – number one is to focus on the markets that outperformed the national average from a rental perspective in 2022, especially the Sun Belt and the Midwest. I said how apartmentlist.com is a really good resource for that data.

Number two, consider avoiding the top tier Class A-plus and Class A products, since many renters elected to downgrade to class B and Class C in 2020. Number three, instead, consider a low-cost value-add strategy focused on addressing things like deferred maintenance and appearance issues. Number four, test out new operational strategies to determine what works today, because what works now most likely did not work two years ago and vice versa.

Number five, one of the best operational strategies of 2021 is to focus on renewals, to retain those high-quality residents, kind of at all costs, even if it results in not increasing their rent at renewal for a year. Lastly, make sure you’re focusing your assets of branding and marketing on more of these lifestyle-related factors. Again, customer service, appearance, ease of living at the property, location, and less on the actual pricing factors.

That is the advice given by the chief economist at RealPage, Greg Willett. They have some really good analytics and data on their website, so check that out. A lot of the stats or all of the claims I made today are backed up by the stats on their website. I think their website is actually just realpage.com, not RealPage Inc.

That will conclude this episode of the six investing tactics to thrive in 2021, and really beyond. A lot of these things, especially the operational strategies, will apply beyond just this year. So make sure you check out some of our other Syndication School episodes at syndicationschool.com. We’ve got free documents there as well that you can download. I referenced a few in this episode. Thank you as always for tuning in, Best Ever listeners. Have a Best Ever day and we’ll talk to you tomorrow.

Website disclaimer

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

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

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

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

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

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

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

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Theo Hicks: Hello Best Ever listeners and welcome back to another edition of the Syndication School series, a free resource focused on the how-to’s of apartment syndication. As always, I’m your host, Theo Hicks. Today, we are going to talk about five evolutionary ideas for your business. We’re going to continue talking about my favorite presentations from The Best Ever Conference 2021.

Today we’re going to take advice from Joe Fairless. Everyone listening knows Joe, the creator of this podcast, co-founder of Ashcroft Capital, controls over a billion dollars in multifamily. He talks about five lessons that he has implemented in order to not necessarily scale from very small to very big, but the types of things that you need to do once you have reached a certain size in your business. So maybe not necessarily a billion dollars, but after you’ve done a handful of deals, these are the things that you can start implementing in your business to set yourself up for success and to create a foundation so that when you do get bigger, you’re essentially reducing your risk of failure, once you’re really, really big.

The first strategy is to protect yourself from the biggest liability that you’re currently not paying enough attention to. For the vast majority of syndicators, this is going to be compliance. Again, I’m not a securities attorney by any means, but when you’re raising capital for deals, there are certain rules you have to follow; you can’t just do whatever you want, because if you don’t, you might get away with it for a while, but once you’re really big, you might be under the microscope of the SEC. That can cause a lot of trouble for your investing business if you weren’t doing things properly, and if you weren’t too compliant with the rules.

Obviously, most syndicators – probably all syndicators – are working with a third-party securities attorney that they’ve found, who helps them create things like their investment documents, so maybe checking the emails for compliance, reviewing investment summary documents, preparing private placement memorandum, operating agreements and subscription agreements. Maybe the real estate attorney helps you set up your LLCs or whatever entity you’re going to use to hold the property… And as things come up, you’ll ask them some questions.

So the liability is in not having a Securities Attorney or not working with a securities attorney. The liability is also not asking them the questions. The liability are the questions that you aren’t asking. Since you’re not a legal expert, you don’t necessarily know all the questions you’re supposed to be asking, and every single attorney is not going to just give you all the info. You have to know what questions to ask. If you don’t ask the right questions, then you’re opening yourself up to liabilities in the future.

A solution here is to hire an in-house compliance person. So have a legal expert on your team that knows the right questions to ask the Securities Attorney and the Real Estate Attorneys. This will help you cover your blind side. That’s the solution, hire an in-house compliance person to protect yourself from the biggest liability, which is compliance.

Number two is a tip on how to bring the best out of your team. Again, if you’re just starting off, it’s just you and your business partner, and maybe a few other people like a VA or an executive assistant. So everyone’s kind of just wearing all the hats; you and your business partner are doing most of the work. But eventually, as you grow, you’re going to bring on more team members. I’m not talking about having a third-party property management company or working with a broker. I’m talking about having actual people working for you – an asset management person, an investor relations person, underwriting analysts, things like that. As you bring those people on, the roles and responsibilities will get more defined. The asset management person is responsible for all asset management duties; you’ve got an acquisition person responsible for that, and then you as the owner does more of the high-level strategic planning for the company.

Now, when it’s just you and your business partner, then the money that you make is going to be tied directly to the number of deals that you do, and then obviously the size of the deals that you do. You’re charging acquisition fees, your asset management fees… That’s how the company is making money based off of the number of deals. But once you start bringing on employees, then how they get compensated is not necessarily going to be directly tied off of the number of deals. You can’t just give them a fee every time you do a deal, or you’re not going to give them a chunk of the GP on the deals. Instead, you’re going to pay them some sort of salary. So when you’re paying them a salary, then if you do five deals in a year, or 10 deals in a year, or 15 deals a year, how many deals you do, they’re still going to get paid a similar amount of money. So you need to figure out how to motivate them to perform at a high level, so that you’re able to do more and more deals every single year. Because what’s going to motivate you, which is the number of deals that are done, might not necessarily motivate your team member, because they’re not paid any more whether or not you do zero deals or a thousand deals every single year.

The solution here is to create some sort of KPI or key performance indicator for each member of your team. If they’re a content creator and they’re writing blog posts, for example, then they need to get a certain number of views on those blog posts every single month. If they are an underwriter, then they need to underwrite a certain number of deals every single month. So the KPI is a threshold that they need to at least achieve, and maybe if they exceed that KPI or something above that KPI, if they exceed that, then they’ll get a bonus. So “Hey, you need to hit this number in order to keep your job and get paid. But if you go above and beyond, then you’ll get a bonus.” That way they’re motivated and incentivized to exceed that KPI, which in turn will help you as a syndicator do more deals.

Break: [00:07:01][00:09:04]

Theo Hicks: Number three is a tip on how to enjoy a better deal flow, deliver better and more stable returns to your passive investors, and to create more sanity for you and your team. Again, just like the vast majority of the syndicators have compliance as a liability, the vast majority, if not all syndicators, most likely all syndicators who first start out, are going to be raising money for individual deals. So one deal at a time.

So you have your list of passive investors who either invested in a deal in the past, or if you’re just starting out, expressed interest in investing. Then once you find a deal, you present that deal to the list. Then between the time you’ve put the deal under contract and your closing, you focus on securing commitments from those investors. Obviously, you’re working with your attorneys to create the legal documents, and from the entities, and you’re doing due diligence… Then once the deal is purchased, this process starts again. You search for a deal, you find it, you go back to the passive investors and raise money, create the legal documents, do due diligence for that deal.

Now, obviously, this is something that all syndicators do when starting out. It’s a great way to get started, but there’s a lot of inefficiencies and drawbacks when it comes to scaling a business by raising money for one deal at a time. One, it could potentially limit your deal flow, because you’re hyper-focused on a very unique asset class in a single market at a time. Secondly, it is potentially riskier for your passive investors; all things being equal, it’s riskier for your passive investors. But obviously, you could be a really, really good GP and provide a less risky investment to your investors, compared to a really bad GP who does what I’m going to mention in a second, which is Joe’s solution. But again, all other things being equal, this strategy is riskier, because the entire investment amount from the passive investor is used to fund that single opportunity. So if it does really well, they do well; if it doesn’t – well, they don’t do well either. There’s a lot more pressure on you, which is the insanity aspect of it, because you have to race to raise money for all of your deals between contract and close.

The solution is to create a fund, instead of doing single asset purchases. I’ve done a Syndication School episode, I’m pretty sure, on the differences between raising money for individual deals versus raising money for a fund. But if not, there’s definitely a blog post on the website, the pros and cons of raising money with a fund versus individual deals. But why does creating a fund help you accomplish the better deal flow, better and more stable returns, and more sanity? First, for the deal flow – you can be more flexible with the types of assets you target. It generates a better and less risky return, because the funds are now spread across multiple deals and markets. Less capital sits idle, which increases the returns; because once you invest, you start making a return, usually. And then it creates more sanity for you as the syndicator, because the money is committed before a deal is actually identified. So the money is already there, you don’t have to go out there and scramble to raise it. You identify a deal, and you can focus on other things instead of raising money. So that’s number three.

Number four is about getting better results on your thought leadership platform, as well as your commercial real estate business. Something we focus on a lot here at the Best Ever brand is the importance of having a thought leadership platform, podcasts, YouTube channel, meetup groups, conferences, newsletters, things like that… Because it’s one of the best ways to build a reputation as an expert in your industry, which will increase your credibility and ability to attract those passive investors. When you’re first starting out as a syndicator, you are probably responsible for the full thought leadership platform. You read a blog, you write the blogs, you’re editing the blogs, you’re posting the blogs, you’re sharing them on social media. You’re the one that’s responsible for planning and hosting the meetup groups and conferences for your podcast, you’re scheduling the guests, recording the podcast, editing the podcast, posting the podcast, and then sharing them on social media. You’re the owner of the social media accounts – at least one. You probably have Instagram, Twitter, Facebook, LinkedIn… And maybe you outsource a few of the things at the beginning, like editing your podcast, for example, but by and large, you are very, very involved in the thought leadership platform.

The problem is that once the brand begins to grow and you are getting a lot of viewers or readers or whatever, it can become a full-time job. There are people, all they do is have YouTube channels, that’s their full-time jobs. It can take up a lot of your time. Eventually, you’ll get to the point where you have to decide whether you’re going to focus on the thought leadership platform or focus on the actual investing business. Either way, one is going to suffer – either the brand or the business, or both if you’re not balancing it properly.

The solution here is to transition your thought leadership platform to other people once it matures. This is not just outsourcing the editing of your podcast or your blog, and you’re still doing everything else. That means that you have someone that’s not you actually creating the content, doing the interviews, hosting and planning the meetups, and it’s all under your name or your brand. This requires having an editorial director of sorts to manage all of these moving pieces. That way, the brand is still being maintained and grown by your company, but you’re not the one that actually doing that. You could focus more on the commercial real estate business instead.

Break: [00:14:39][00:15:20]

Theo Hicks: The fifth and final evolutionary idea is about overcoming the success paradox. Joe defines the success paradox as the fact that the more successful you become, the less likely you are going to receive feedback or constructive criticism from your team members. When you’re first starting out, you’ve got maybe a mentor or a business partner who can provide you some honest feedback. But as you grow and you bring on more and more team members, they’re most likely not going to want to say anything bad about you to your face. One of the reasons why you got to where you were and why you grew is because you identified your weaknesses yourself, or you had other people point out your weaknesses, and then you focused on ways to improve yourself. But what happens when you get to the point where no one is telling you what you’re bad at? What are you supposed to do? That’s kind of the success paradox, is that the more success you get, the thing that made you successful which was feedback starts to taper off, and eventually disappear entirely.

What is Joe’s solution? He said that you want to find the three people in your circle of influence to provide you with honest feedback. These are obviously not going to be your team members, but friends, spouses, mentors, other real estate entrepreneurs, someone that can tell you what you’re doing wrong and where you can improve.

Also, another strategy is to identify an event that happened at least a month ago, so that the emotional sting isn’t really there, so that you can analyze it objectively, and figure out why that event happened. The event should have been something that didn’t go according to plan. So why didn’t it go according to plan, and then how are you responsible for it taking place? Identify a weakness, something that you’re not very good at, or a mistake that you made, and then figure out what you can do to improve that weakness or make sure that mistake does not happen again.

Then something else that I also really like would be creating a Google Form. Don’t put a box for a name, last name, email address, or anything; just have a box where your team members can provide you with anonymous feedback and then send them that link. It could just be a box of saying, “Hey, send me a few paragraphs about the feedback you have for me.” Or it can be more of a “Rate me on a scale of one to 10 on these different characteristics, or whatever.”

So you can take that Google form any way, but the whole point is that it’s something that your team members can provide you with feedback anonymously, without being afraid of hurting your feelings or you getting mad at them or something.

So that’s it, those are the 5 billion dollar business ideas, since it’s coming from someone who has a billion-dollar company. To summarize, number one is to reduce your liability as a syndicator by hiring an in-house compliance expert. Number two is to set clear expectations and provide motivation for your team members with individual KPIs, as well as bonuses associated with those KPIs.

Idea number three is to create a fund for better returns to your investors, more sanity, and better deal flow. Number four is to focus on your investing business by hiring other people to maintain and grow your thought leadership platform. And then number five is how to overcome that success paradox, which is to find three trusted colleagues to provide you with honest feedback, analyze past events that didn’t go according to plan and how you’re responsible, and then ask for anonymous feedback from your team members.

That concludes this episode. Again, these are five evolutionary ideas for your syndication business. Make sure you check out the other Syndication School episodes we have on syndicationschool.com. A lot of free documents associated with those episodes – make sure you check those out as well. That is that 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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JF2421: Realtor Challenges & Business Growth with Jordan Nicholas Moorhead

JF2421: Realtor Challenges & Business Growth with Jordan Nicholas Moorhead

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

Jordan Nicholas Moorhead Real Estate Background:

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

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


TRANSCRIPTION

Ash Patel: Hello, Best Ever listeners. Welcome to The Best Real Estate Investing Advice Ever Show. I’m Ash Patel and I’m here with today’s guest, Jordan Moorhead. Jordan is joining us from Austin, Texas. He’s a full-time realtor with five years of real estate investing experience. His portfolio consists of 25 units and three syndications. Jordan, how are you?

Jordan Moorhead: Doing great, Ash. How are you?

Ash Patel: Doing very well. Thank you. Before we get started, can you tell us a little bit more about your background and what you’re focused on now?

Jordan Moorhead: My background – I got started in real estate investing actually before I got a realtor’s license. That’s part of the reason why I got a realtor’s license. I owned a fitness business that I started when I was 23; I had some trainers, and I had an admin working with me. We were really helping a lot of people; we had up to 62 clients at one point in time. And I just got bored doing that. Also at the same time, while I was doing that, I said I need to start house hacking. So I bought a duplex. And it just really started from there. I got my real estate license about a year and a half after the duplex. We’ve always just really been into real estate, and it took me until 2016 to get started.

Ash Patel: In Austin, Texas, you guys are absolutely on fire. What is it like being a realtor and an investor in Austin?

Jordan Moorhead: It’s hard for both, absolutely. Probably harder for the investment side. I still invest for cash flow, I’m not financially free yet. It’s very hard to find that in Austin. I’ve found it by taking on really big rehab jobs. The same thing with clients, I’ve found properties that work for the clients that I have, because I work with mostly investors or places that need some sort of rehab done to them. So there’s just not any sort of turnkey rental thing happening here at all.

Ash Patel: So 25 units – what does that consist of? How many single-families or multi-families?

Jordan Moorhead: It’s funny, I should have updated that before we started here. We’re actually up to 29 now.

Ash Patel: Congrats.

Jordan Moorhead: Thank you so much. I started with the duplex, bought a sixplex next, then bought another two sixplexes after that, sold that duplex, bought another two-unit here in Austin. My first single families were actually only about three months ago. So I had 20 units when I started buying single families with a partner in Louisville, Kentucky. Now we have nine single families in Louisville, and I have 20 units between Louisville and Austin.

Break: [00:03:24][00:05:25]

Ash Patel: Did you get your real estate license at the same time that you started house hacking? Or did one come before the other?

Jordan Moorhead: House hacking came first.

Ash Patel: Okay. So you had the real estate bug, and then decided to get your real estate license. What’s it like being a realtor in Austin? It’s probably like fishing in a stocked pond; throw your bait and catch a fish.

Jordan Moorhead: Catch a buyer. The hard part is finding the buyer a house to buy. Right now we have point four months of inventory, which means that everything sold at the current rate that it’s selling, everything would be gone in less than two weeks. The average days on market is 33 days, and that’s from listing to close. That means they’re only on the market for about three days. It’s very hard to find houses for people to buy. It’s very, very easy to find people who want to buy houses.

Ash Patel: And what are you doing to find people that want to list their property?

Jordan Moorhead: I’m calling people. I put aside time every day and just call people. Whether they’re rentals or properties that aren’t on the market at all. Maybe somebody doesn’t know they can sell. I just take the chance and call.

Ash Patel: What kind of investing are you looking for in Austin?

Jordan Moorhead: I’m not doing a ton of investing in Austin, because like I said, I’m investing for cash flow. I’m house hacking in Austin and I’m remodeling properties and taking that money and investing in Louisville where I’m from. I’m from Louisville, Kentucky.

Ash Patel: So give me an idea of what cap rates are for multifamily in probably the hottest market in the country.

Jordan Moorhead: They’re somewhere between three and five for all the different classes. So A, B, and C are just right stacked on top of each other.

Ash Patel: So buyers are buying for appreciation more than cash flow.

Jordan Moorhead: Absolutely. I know people who are syndicating apartment complexes here and they say “Hey, we just know it’s going to go up,” and I think they’re probably right.

Ash Patel: So what’s your rate of return? Zero, except for the IRR when you sell. What syndications have you done?

Jordan Moorhead: I’m actually, with you guys – I have one in Dallas, the Vista 121 property.

Ash Patel: Joe Fairless and Ashcroft.

Jordan Moorhead: Yup, with Joe Fairless. I’ve never organized one myself. I’ve invested in three. I’m in the Vista 121 property in Dallas. I’m in one in Tampa Bay, I think it’s Clearwater. And then I’m in one with Todd Dexheimer in Memphis, Tennessee.

Ash Patel: So somebody that does the house-hacking, you’re a realtor, you see deals all the time. What makes you want to invest passively?

Jordan Moorhead: It’s so easy. It’s just great. You get that check every month in the mail. You don’t have to deal with anything. The hardest thing right now too is finding a deal. My thought process is I don’t have to go out and find them, I just get the notifications from Ashcroft Capital that there’s a new deal coming up, and here’s all the information about it, and here are the expected returns. All you have to do is invest with us and you get the return. I know they pay out, because I’ve done them before. I started small, I started with the minimum investment with you guys, and just continued to invest after that because it’s so easy. There’s no headache.

Ash Patel: Yeah, it’s just that mailbox money. So Jordan, if somebody from out of state wants to invest in Austin, how do they find deals amongst the properties that are available? I know it’s hard to find deals. But what’s the best way to go about it? I’m an out-of-state investor wanting to pump money into this booming town.

Jordan Moorhead: I would say, and what I tell everybody, is look for the areas where it’s going to be growing in the next few years. Look outside of Austin. Where’s the path of progress? Absolutely don’t look in Austin. Don’t look at Round Rock, which is right north of Austin, and it’s been hot for a long time.

Ash Patel: Where is that path of progress?

Jordan Moorhead: Really, it’s almost a reverse C around Austin. You’re going South towards San Antonio. It’s growing like crazy. It’s absolutely growing North. And then on the East side, it’s growing like crazy. There’s nothing but land on the East side and they’re starting to develop it. So smaller towns like Manor and Elgin are really growing quickly.

Ash Patel: Would you look to invest in any of those yourself and do house hacks?

Jordan Moorhead: Yeah, we’re looking for one for my girlfriend right now. The house we’re in, it’s a duplex in East Austin. She wants to buy either a single-family or a duplex, and we’re looking in that reverse C around Austin. So Austin is kind of a rectangular-looking town if you look at the freeways. I always think reverse C around Austin. And that’s where the growth is.

Ash Patel: Got it. What are your challenges right now as being a realtor?

Jordan Moorhead: Finding properties for people to buy. If you’re going up against everybody else that’s putting a 50k to $100,000 over list and they’re waiving the appraisal – it’s hard to make that work for an investor where they’re buying based on numbers. They’re typically not going to throw, at least the people I work with aren’t going to put an extra $100,000 into a deal. It doesn’t end up working very well if you do that. So it’s a big challenge to find them. As I said, I’m steering people a little bit outside of Austin where you can still get some positive cash flow and you’ll absolutely get the appreciation, too.

Ash Patel: Jordan, what’s your Best Ever real estate investing advice?

Jordan Moorhead: Get started and buy for the long term. My best advice that I give to newer investors is to find something where you can add value. I don’t understand turnkey; I don’t see why you want to buy something you can’t fix it up at all, you can’t raise the rents at all. That doesn’t make any sense to me.

Ash Patel: I agree. Jordan, are you ready for the lightning round?

Jordan Moorhead: Absolutely. Let’s do it.

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

Break: [00:11:16][00:11:53]

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

Jordan Moorhead: Lifestyle Investor. I’m actually almost done with it right now. I really like it.

Ash Patel: What did you get out of that book? What was your big takeaway?

Jordan Moorhead: Just to invest to make sure that you’re not working too much and you’re considering your lifestyle when you’re investing. So if you’re investing… Let’s take passive investing, for instance – I think that’s a great way to invest for your lifestyle. It provides you whatever lifestyle you want. You don’t have to sit around and manage your properties all day. So really thinking about the end goal when you’re investing; all passive income is not truly passive.

Ash Patel: Spoken like a true southerner from Austin. This stereotype fits. You’re right. So Jordan, what’s the Best Ever way you like to give back?

Jordan Moorhead: I like to give to charities. There’s a charity that I’ve been giving to, it’s called One Life Fully Lived. A guy named Tim Rhode put it together. It’s just helping people get out of the rut they’re in and develop a life that they can never dream of.

Ash Patel: Got it. Jordan, how can the Best Ever listeners reach out to you?

Jordan Moorhead: Find me on Facebook or BiggerPockets. Really any social media. It’s just Jordan Moorhead.

Ash Patel: Got it. Jordan, thank you for being on the show today. You live in what Elon Musk called the greatest boomtown of our generation. There should be a lot of excitement ahead of you. Thank you for sharing your story with us.

Jordan Moorhead: Absolutely. Thank you, and anybody that’s looking to get started, I think house hacking is the best way to go. But no matter what, find something you can add value to.

Ash Patel: Yeah. Jordan, have a Best Ever day.

Jordan Moorhead: Thanks, Ash.

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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JF2416 - How to Make the Inc 5000 _ Syndication School

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

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

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

Click here to know more about our sponsors RealEstateAccounting.co


TRANSCRIPTION

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Website disclaimer

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

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

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

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

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

Thanks to our sponsors

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


TRANSCRIPTION

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

Website disclaimer

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

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

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

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

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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HOW TO INCREASE YOUR APARTMENT'S NOI

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

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

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

Click here for more info on groundbreaker.co


TRANSCRIPTION

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Website disclaimer

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

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

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

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

Oral Disclaimer

The views and opinions expressed in this podcast are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. For more information, go to www.bestevershow.com.

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JF2401: Grow A High-Income Portfolio with Zach Haptonstall

JF2401: Grow A High-Income Portfolio with Zach Haptonstall

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

Zach Haptonstall Real Estate Background:

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

Click here for more info on groundbreaker.co

Best Ever Tweet:

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


TRANSCRIPTION

Ash Patel: Hello, Best Ever listeners. Welcome to The Best Real Estate Investing Advice Ever Show. I’m Ash Patel and I’m with today’s guest, Zach Haptonstall. Zach is joining us from Scottsdale, Arizona. Zach is the lead sponsor, general partner, and equity owner of over $35 million worth of commercial real estate. His portfolio consists of 308 units. Before we get started, Zach, can you tell us a little bit more about your background and what you’re focused on now?

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

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

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

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

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

Ash Patel: Zach, what was that first deal?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Ash Patel: That’s a significant penalty.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Click here for more info on groundbreaker.co


TRANSCRIPTION

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Website disclaimer

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

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

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

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

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

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

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

Click here for more info on groundbreaker.co


TRANSCRIPTION

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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TRANSCRIPTION

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Ash Patel: I’m looking forward to that.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Ash Patel: Thank you.

Website disclaimer

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

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

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

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

Oral Disclaimer

The views and opinions expressed in this podcast are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. For more information, go to www.bestevershow.com.

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

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

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

Click here for more info on groundbreaker.co


TRANSCRIPTION

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

So thank you so much for tuning in today. Make sure you check out the other Syndication School episodes so that you can download all of the free resources we have. That’s at https://www.syndicationschool.com/. And until next week, have a Best Ever day.

Website disclaimer

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

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

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

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

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

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

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

Click here for more info on groundbreaker.co


TRANSCRIPTION

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Website disclaimer

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

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

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

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

Oral Disclaimer

The views and opinions expressed in this podcast are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. For more information, go to www.bestevershow.com.

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

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

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

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

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TRANSCRIPTION

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Until next week, thank you for listening and have a Best Ever day.

Website disclaimer

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

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

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

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

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

Click here for more info on groundbreaker.co

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


TRANSCRIPTION

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Website disclaimer

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

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

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

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

Oral Disclaimer

The views and opinions expressed in this podcast are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. For more information, go to www.bestevershow.com.

 

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

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

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

Click here for more info on groundbreaker.co


TRANSCRIPTION

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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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