JF2101: What Does Financial Freedom Mean? | Syndication School with Theo Hicks

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In today’s episode, Theo brings up the topic of what is important in life? He starts to question what does financial freedom really mean to you? He shares a popular blog post where a nurse interviewed her patients who were close to their end of life and asked them each the question “what did they regret?”. This episode will help open up your mind to discover what it really means to be financially free? 

 

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

JF2092: From IT Sales to Multi Family Investing With JP Albano

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JP started in IT sales and later found an interest in multifamily investing. Today he owns 70 units in Houston, Tx, and 165 units across the metro Atlanta area. His first deal was partnered syndication, where he learned a lot of lessons that he implemented in his journey forward in acquiring multiple properties. He shares some of the lessons he learned from a deal where he lost over six figures.

 

JP Albano Real Estate Background:

  • Owner, of JP Albano
  • He started in IT sales and later found an interest in MultiFamily investing.
  • Today he owns 70 units in Houston, TX, and 165 units across the metro Atlanta area which are currently undergoing successful repositioning.
  • Resides in Serenbe, Georgia
  • Say hi to him at https://www.jpalbano.com/

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Best Ever Tweet:

“Partner with a more experienced person in a group and seek to offer value in some way.” – JP Albano


TRANSCRIPTION

Joe Fairless: Best Ever listeners, how you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless. This is the world’s longest-running daily real estate investing podcast where we only talk about the best advice ever; we don’t get into any of that fluffy stuff. With us today, JP Albano. How you doing, JP?

JP Albano: I’m doing wonderful. I’m so excited to be here, Joe.

Joe Fairless: Well, I’m glad to hear that and I’m glad you’re doing wonderful. A little bit about JP – he started in IT sales, found an interest in multifamily investing because he wanted another way to provide for his family. Today, he owns 70 units in Houston, Texas, and 165 units across the metro Atlanta that are currently undergoing repositioning, so we’re going to talk to him about that. Based in Serenbe, Georgia. Did I say that right?

JP Albano: You got it, Joe.

Joe Fairless: Serenbe, Georgia. So with that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

JP Albano: Absolutely. So background, as you mentioned, has been IT sales; I got into multifamily as a way of trying to figure out how I can generate – I’m doing air quotes, but passive income. I’m still waiting for the passivity to kick in, but what I didn’t realize is number one, how much I would enjoy pursuing multifamily deals, and just how incredibly rewarding it is to work in an industry where everybody wants to partner and everyone wants to get things done. Compare that to my sales career, it’s a bit of an uphill battle. You’ve got customers who don’t want to talk to you, competing partners that want to sell competing products… So it’s a refreshing place where I can come into it and pick up the phone and call people and welcome the opportunity to partner and grow and build together. So where we are today, we look at assets that are B and C class. We do the value add. like everybody else.

We have a different spin on multifamily than most people. We really want to dial-up and change the way multifamily is done today by adding up higher levels of customer service, and really treating the people that live there with more dignity and respect than they’re otherwise getting today, and we’ve got a whole business model around how we do that. We look for properties that are 250 units in size, across a variety of markets here in the south and southeast.

Joe Fairless: Okay, so up to 250 or 250 plus?

JP Albano: 250 plus.

Joe Fairless: Okay, have you closed on a 250 plus?

JP Albano: No, the biggest we’ve got right now is almost 100 units. Well, we’ve had a 100-unis and a 60-unit, so in total, that’s the 165. But the biggest we have so far is a 96-unit.

Joe Fairless: Okay, biggest is 96. So why aren’t you focused on other 96 units?

JP Albano: It’s a great question. In order for us to really demonstrate our ethic and our core values for our business here at significant lifestyle communities, to demonstrate that customer service level, we really need to support the staff, and we found that in order to do that, we need properties that generate enough revenue to support the payroll “burden”, and 250, that’s the sweet spot.

Joe Fairless: Okay, so you’ve got 70 units in Houston and 165 across the Atlanta area.

JP Albano: Yes, sir.

Joe Fairless: What came first of those two?

JP Albano: The Texas properties.

Joe Fairless: Texas properties. Okay, tell us a story about the Texas properties.

JP Albano: So my first deal was really more of a key principle or limited partner in a deal. The idea going into that was that I was going to get some experience or at least talking points that I can use to leverage that with brokers and get access to more deals. What I found that is 1) it gave me more confidence, but 2) it didn’t really necessarily lead to more door openings; maybe it did, maybe it didn’t. But my real, real first deal for the Best Ever listeners here is a 28-unit property in Houston, Texas, that me and three other gentlemen, we pulled down, we syndicated. That was our first deal that we really did on our own. We syndicated the deal on top of that. Talk about baptism of fire. There’s a lot of learning opportunity there and a lot of growth that happened. What really got me excited was the personal development that came from that; coming from most people when they’re getting into active real estate investing, getting rid of a lot of limiting beliefs, the idea of “asking people for money” instead of looking at it as providing opportunities for people to get great returns; just going through all those sorts of things. But that was about a $2 million acquisition price. We raised about $700,000. We got a number of friends and family with about $20,000, $25,000 or so, and the property is currently undergoing a really successful repositioning. We had some battle with a third party property manager that seemed like he was saying all the right things and doing the right things. The problem was they weren’t really delivering. So that was a really good learning opportunity that came out of that.

Joe Fairless: Okay, please elaborate.

JP Albano: Yeah, sure. So we had a property where our business plan was to go in and renovate the units, increase the rents, the normal stuff. The problem was we weren’t getting tenant showings. People weren’t biting on the higher rent increases, our renewals were falling through, and we had very little visibility into what the current third party PM was doing. We had a portal that we can log in, we could see leads, but they use a different system outside of that to actually nurture the leads. So we couldn’t see that. So as far as we could tell, we’ve got people putting emails and phone calls in and no one really following up.

Then we found ourselves in a funny spot where we tried to move away from them and suddenly realized that that size property, 28 unit, is a funny place. It’s not small enough for the single-family people to want to care about, and it’s not big enough for the bigger real property managers to wanna deal with. So we almost were forced to take over property management ourselves, which we ended up doing. So we bought some big boy property management software, which we’re moving the rest of our portfolio into, and one of my partners who’s local to the deal took over the day to day management. I’ve gotta say, it’s probably one of the best things we ever did because in a matter of, I want to say, two to three weeks, we got all of our vacant units rented up, and we have a waiting list for our property.

Joe Fairless: You said the first deal you did was at 26 units. Did I write that down correctly?

JP Albano: Yeah, this one we’re talking about right now was 28 units.

Joe Fairless: 28, sorry. 28 units, and you syndicated it…

JP Albano: Yes.

Joe Fairless: So how much equity did you raise in the syndication?

JP Albano: The total raised was about $700,000 to $800,000 if I remember correctly.

Joe Fairless: Okay. What was the purchase price?

JP Albano: It was a $2 million purchase price. So we also raised money for the capital improvements and there was an extra, above ordinary closing costs.

Joe Fairless: Okay. Do you know about how much the legal fees were to syndicate that?

JP Albano: It wasn’t that bad. I want to say it was between $8,000 and $12,000. Yeah, it wasn’t awful.

Joe Fairless: Okay, cool. So with that deal, it was you and how many partners?

JP Albano: It was four of us total. So three other gentlemen.

Joe Fairless: Okay, and how did you split up your roles and responsibilities?

JP Albano: That was a good learning opportunity as well. That when we split up pretty much evenly amongst ourselves. Everyone got 25% from an ownership standpoint. As far as responsibilities go, we didn’t really define who would be doing what, we just had the understanding that each of us is going to contribute in whichever way was possible or wherever we need help; that sort of mentality. It worked out fairly well. As time went on, we saw that the property required a lot more care and feeding than we were expecting, simply because we were under the impression that our third party PM that we were paying money for was gonna be managing the property, but the reality was we were working on the property almost every day for the first four to six months.

Joe Fairless: Okay, so that was your first deal. Do you still partner with those same three other people on deals that you’re working on now?

JP Albano: We are still in communication on other opportunities as they come up. Absolutely, yes.

Joe Fairless: Okay, so what’s the last deal you bought?

JP Albano: Last deal we bought was – oh, this is an interesting one… This one was in October, it was a 57-unit in Hapeville, Georgia, which is a city inside of Atlanta. It’s just north of the airport in Atlanta.

Joe Fairless: Okay. Did you have the same three partners on that one?

JP Albano: No, that was a different deal, different opportunity. I partnered on that one with my current business partner, Matt Shields, on that one, and a few other friends and family. We did not syndicate that one, we just raised money from about eight other people because we bought the property for a song.

Joe Fairless: Okay, got it. So it was a joint venture then.

JP Albano: Exactly, exactly.

Joe Fairless: Okay, so you had a joint venture on that one. So tell us the business plan on that, and first off, how’d you find it?

JP Albano: That property was interesting. My real estate coach, Bill Ham, had notified me. He knew I lived in the area, and he knew that there was something that I and my team could take down. He was at the same time closing, he found himself in a situation where he was closing two properties at the same time. This one would require a lot more work, so he was a little disinterested in it. So his offer was, “Hey, pay me a finder’s fee and you guys can have the contract.” So that’s what we did. We call it a unicorn, really. It was an original owner for 60 years. You wouldn’t even tell this property existed, because when you get off the highway to get there, it’s down the street of a dead-end road. So unless you venture down the street a little bit past the trees, then you’re greeted by this oasis of a smorgasbord of different houses.

The gentleman that was running it previously, was running it as a weekly rental property, again, for the last 60 years. Rents for about $100 a week or $400 a month, and this is in a submarket where a one-bedroom apartment was average rents are $915. So we saw an opportunity to increase the rents, not necessarily to $400, but somewhere in the $500 to $600 range. We had a variety of challenges around not having actual financials. This was the definition of mom and pop. So things were written on carbon copy paper. There were no systems in place, there was very little documentation, so we had to underwrite that with really good finger in the air assumptions on things and being very aggressive with respect to what losses we can expect, things like that.

I can happily say so far, knock on my thick  Sicilian head, that things are turning out a lot better than we ever anticipated. There’s been a tremendous amount of demand for that type of housing. People have the ability to pay weekly because frankly, these people are in a financial situation where they just can’t manage their money well enough to be able to do monthly rents. And they like the area, they like the job opportunities that are there. They like being close to Atlanta. We have a waiting list and we haven’t even advertised any of the property.

Joe Fairless: With that deal, what’s been something that surprised you in a bad way about it?

JP Albano: In a bad way? I would say that– I guess I didn’t recognize or realize that the people that do live there — well, I feel like they’re trying to do their darndest best. A lot of them have sorted and troubled histories and backgrounds. I’m not surprised. I think there might be a few registered sex offenders that live there. So as a family man and a father of two children, two girls, I should say there’s that part that doesn’t sit super well with me, but at the same time, they are human beings. I’m sure that they have atoned for their sins in the legal system. So that’s probably how I would answer that question, Joe.

Joe Fairless: What deal have you lost the most amount of money on?

JP Albano: Oh, it’s a good question. So this was a deal that, as of last Monday, I should say that I learned that the deal was dead. It’s been dragging on for almost a year now. It was a 300-unit student housing property that I was part of the earnest money and due diligence contributor in the GP team; that was my contribution. The team that was running the deal lost the contract. It’s through a variety of mishaps, not being able to raise the capital, some shaky business with the loan, with the deal sponsors themselves. It’s a story for another day, but yeah, I lost a six-figure amount of money on that deal. Pretty sad.

Joe Fairless: I’m sorry that happened.

JP Albano: You know what the good part about is, Joe? It’s a good story to tell to other people in my community and other investors and show them, hey, bad things happen. And it’s okay because you grow from it, you learn from it, you make the best of it and you try to learn from those things, and that’s how I really moved on past it. Honestly, it doesn’t really bother me anymore. It’s just more [unintelligible [00:14:05].18]. It was more of a giant waste of time than anything else, and that’s really the biggest sucky part of it; just a waste of time, for no reason.

Joe Fairless: I get that. So knowing what you know now, if you were presented a similar opportunity somewhere else–

JP Albano: Oh, yeah.

Joe Fairless: –what questions would you ask, now that you know what you went through?

JP Albano: You ready? How much of your money, Mr. Deal Sponsor person or Mrs. Deal Sponsor person, are you putting in the deal? How much of your skin is in this game? And that was the problem; they didn’t have any skin in the game.

Joe Fairless: Got it. So they worked with partners. Those partners did put up the earnest money, they did not, deal fell out of contract, partners who put up earnest money lost money – is that basically what happened?

JP Albano: Exactly, exactly.

Joe Fairless: Got it. That’s a big question to ask. Any other questions? Because let’s say they say, “Oh, I’m putting in 50k of my own money.” Anything else you would ask about that?

JP Albano: I would, yeah. “Let’s also do a personal guarantee on that.” I would be comfortable with that, the personal guarantee, and also understanding how much they are on the hook for as well, and I think that’s fair. And maybe even hashing out a plan, a go-forward plan. Let’s say there’s a couple of partners in the deal and JP is being asked to contribute 20 grand or 30 grand for some due diligence stuff, whatever. “Okay, guys, what happens if we lose the 20 grand? Is everyone gonna contribute $15,000 or some amount of money to help recoup the cost?” I think that’s a fair way of doing it, and just having that conversation about, okay, what happens worst-case? Because those go down; it’s part of life.

Joe Fairless: Well, let’s reverse the focus, and let’s talk about the deal you’ve made the most money on.

JP Albano: That’s lining up to actually be this 60-year-old original owner property.

Joe Fairless: Well, let’s talk about money in the bank, as of this moment, out of all the deals that you’ve done. So the most amount of money in the bank you’ve earned from a deal to date. What is that?

JP Albano: That’s a hard one to answer because all of the money in the deals coming out of them are anywhere from $500 to $1,000 of distribution, which I’m extremely appreciative, Universe, but it hardly is that a number where anyone’s going to crash their car or hit repeat on their smartphone.

Joe Fairless: By crash their car, they’re crashing it because of excitement.

JP Albano: Actually, they’re staggered, they’re staggered.

Joe Fairless: Okay, I was wondering why they’d– that’s a lot of money. Okay, I’m gonna end it on a high note; go find the tree. [laughter]

JP Albano: The funny part about it, Joe, is I’ve been doing this for a number of years and I totally recognize this as a long, long haul game. I’m sure you’re in the same boat, and I’m okay with the very, relatively speaking, small returns right now, because I’m building something that’s going to be bigger than myself and bigger than the partners that I’m working on it.

So I see that there’s a lot of upside and a lot of impact that we can make on the people that we affect and touch in our communities and our investors’ lives as we make amazing returns to them. So that’s the part I’m more excited about right now, and the financial part will catch up to me later on.

Joe Fairless: On the 96-unit, for example, $500 to $1000 a month – I assume it’s from the 96-unit because it’s the largest one, but correct me if I’m wrong.

JP Albano: Yeah.

Joe Fairless: Was there not an acquisition fee? Is there not any–

JP Albano: Oh, yeah, you’re right. Yeah, you’re right. There was, actually. So the fee we got was a $30,000 split from that. So you’re right. Thank you for prompting my memory on that.

Joe Fairless: Okay. So you got probably like–

JP Albano: My portion was 30k on it.

Joe Fairless: Oh, well, there you go. Who needs 30k? Yeah, 30k is nothing, right?

JP Albano: I’m so good at spending money on building this business and scaling out a team that it’s really not.

Joe Fairless: Fair enough. Well, let’s talk about you’ve got the portfolio and you’re focused on finding another acquisition that’s twice as large–

JP Albano: Yes, sir.

Joe Fairless: –as what you’ve acquired, and you said at the beginning of our conversation, that you pride yourself on higher levels of customer service. Will you elaborate on how you deliver on that with the community level?

JP Albano: Yeah, that’s a great question. There’s a couple of aspects of that. One is really making people feel like they are part of a community, and I know that’s an often thrown around term, community and belonging and stuff like that. We’re building a business where that is a core, core function of our membership coordinators. The people that are greeting the prospective members and the people that want to express interest in living there.

For example, we have our people go out of their way to introduce a prospect to any other members of our community that might share similar interest, because you really want to show them that, hey, there are other people just like you that live here as well. Isn’t this wonderful? You want to learn about, ask questions about the people that are expressing interest in living in that community. And what I found is when I’m doing my secret shopping, going to different apartments, I can count on maybe one hand how many times a leasing agent actually asked my first name or even what brought me in today. The first question out of their mouth is usually, “When can you move in?” or “When do you need the unit by? How many bedrooms?” It almost goes without fail, and so I don’t feel that the industry is really delivering on this idea of excellent customer service. Especially in the workforce class housing product, where blue-collar people, hard workers, they’re honestly not used to being treated like if you were a resident at the Ritz Carlton. I don’t know if it has to be that extreme, but that’s just the direction that we choose to operate our business on. So it’s a tremendous opportunity there.

Joe Fairless: So a couple of questions that the person who greets the prospective resident asks out of the gate… What are some other tactical things that if a Best Ever listener’s listening to this and they want to implement something, what are some tactical things we can do?

JP Albano: Very basic questions, greeting them with a smile, standing up and maybe instructing your staff to be able to make it clear that they are excited that someone came in and is inquiring about your property. So asking the basic questions, what’s your name, greeting them by that name, showing a warm and caring welcome, ask them what brings them there today, and then easing into the topic rather about what brings you in and what answers can we provide to you about our community that you want to know about it.

Because reality is 80% of a person’s decision to move into your property is made when they pull up; that’s the whole curb appeal thing. The rest of the experience is either going to move the needle further in the direction of yes or it’s going to dissuade them from wanting to live there. So I just see a lot of properties falling short on that.

The other part of it too is really if your leasing agents are speaking with a prospect and Mrs. Smith walks by, and then in your conversation with this prospect you learned that they like gardening or they like dogs or whatever, have the leasing agent to go out of the way and introduce Mrs. Smith to this prospect. “Hey, Mrs. Smith, I wanted to introduce you to JP. JP here loves gardening.” What that shows you is it shows the prospect that, hey, this is a community that I can fit in, I can get plugged in right away and really have a sense of belonging. I think that’s what’s missing in multifamily housing today.

Joe Fairless: Once they are in the door, and they say, “I love to rent,” and they do rent, do you have anything within your system that delivers on that customer service aspect, that may be outside of — or when you were talking about it, were you really thinking about that initial interaction and impression with them?

JP Albano: Yeah, the initial interaction and impression is the biggest part, because they’re really just not going to get that anywhere else. At least not that I have experienced thus far.

Joe Fairless: Based on your experience as a real estate investor, what’s your best real estate investing advice ever?

JP Albano: If you’re early in your (we’ll call it) active investing or real estate investing career, you really need to show that you can close deals with brokers to win deals. It’s a very competitive market. So you’ve got two options, in my opinion – either buy a small property and you grow bigger over time. Eventually, you’ll gain credibility and the experience to show that you can close deals, and incrementally growing the unit size and your account a bit at a time.

Alternatively, option two is you partner with a more experienced person or group. Maybe you seek to add value in some way, offer help to raise capital by introducing your friends and family to them so they can start to build relationship with those deal sponsors. I guess, in a short time, you’ll start being part of the general partnership pool and you can point to those deals while you build up your investor base, allowing you to have more street cred, if you will, with those brokers, and give you the opportunity to really scale your business and scale your real estate career a lot faster.

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

JP Albano: Bring it.

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

Break: [00:22:45]:03] to [00:23:33].10]

Joe Fairless: What’s the best ever resource that you use in your business that you couldn’t live without?

JP Albano: Neighborhood Scout.

Joe Fairless: What do you use it for? Neighborhood research? [laughs] As soon as I asked that question, I was like, “Oh, that’s a dumb follow-up question,” but will you elaborate a little bit?

JP Albano: Glad to. So Neighborhood Scout is a great first pass tool to use to help get a sense of what a neighborhood or a market looks like where a property’s located without physically being there. Especially if it’s a market that you’re unfamiliar with, it’s a great way to get a sense of what the crime rate looks like, what the schools look like, what’s the median income… All the basic things you want to know before you make a decision if it’s worth to go physically there and visit this property.

Joe Fairless: Best ever book you’ve recently read.

JP Albano: Becoming Supernatural by Dr. Joe Dispenza.

Joe Fairless: What’s the best ever way you like to give back to your community?

JP Albano: So I’m an accountability coach with the Jake & Gino group. I enjoy helping students, I’m super passionate about real estate and also growth and personal development. So I like helping get them into the game. I also really enjoy pointing people in hopeful directions around health-related issues, as I’m very passionate about bio-hacking and health and fitness.

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

JP Albano: Check me out on jpalbano.com.

Joe Fairless: JP, thank you for being on the show. Thanks for talking about how you’ve built your portfolio, how you’ve partnered with others, some lessons learned on that 300 student housing project for what to do, questions to ask, and then just your overall approach to business. So thank you for being on the show. Hope you have a best ever day. Talk to you again soon.

JP Albano: Thank you so much show. I really appreciate you.

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JF2088: Pros and Cons of Securing A Supplemental Loan | Syndication School with Theo Hicks

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In this Syndication School episode, Theo Hicks, will be going over the pros and cons of securing a supplemental loan. These episodes are to help you become a better syndicator so we hope you enjoy the help and let us know by sending us a message. 

 

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

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

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

 

Theo Hicks: Hi Best Ever listeners, welcome to another episode of the Syndication School series, a free resource focused on the how-tos of apartment syndication. As always, I am your host, Theo Hicks. Each week we air two Syndication School episodes that focus on a specific aspect of the apartment syndication investment strategy, and for most of these episodes, we offer a free resource to you. These are free PDF how-to guides, free PowerPoint presentation templates or free Excel calculator templates, some free resource to help you along your apartment syndication journey. So all of the past free documents as well as past Syndication School series episodes can be found at syndicationschool.com.

In this episode, we are going to talk about the pros and cons of securing a supplemental loan. So on a previous Syndication School episode, I had gone over how to actually secure a supplemental loan, but I didn’t go into the pros and cons. I briefly mentioned how it’s different than a refinance, but I wanted to do another episode that went in depth into the pros and cons of securing a supplemental loan compared to, say, a refinance or a sale, because the supplemental loan falls into the category of when the passive investors in your deals receive a large chunk of capital back or a large chunk of money back. Obviously, one of those is the supplemental loan, another one is a refinance, another one is when you sale. So if passive investors receive all or a large portion of their equity back at sale, at a refinance and/or at securing of a supplemental loan. So in this episode, I wanted to just highlight what a supplemental loan is again, go over the pros and cons of the supplemental loan and then also briefly talk about why Joe and Ashcroft prefer to secure supplemental loans.

So first, what is a supplemental loan? It is a type of loan that is subordinate to the senior indebtedness. So it’s the fancy definition of a supplemental loan, but basically what it means is that the senior debt, which is the original debt used to acquire the apartment community, so the agency loan that was put in the property, that is the senior debt, and that must be paid first by the general partners.

The supplemental loan is a separate loan that is obtained, and then it is paid after the senior debt is paid. So year one, you pay your monthly debt service for the agency loan, and let’s say you secure a supplemental loan at the end of year one – you’ve got a new loan now. So the way that it works is you pay the same debt service you paid before first, and then the next portion of the cash flow goes towards paying the debt service on the new supplemental loan.

Now, a supplemental loan is only available if the original debt is a agency loan, so Fannie Mae or Freddie Mac. Those are the two that offer the supplemental loans. You’re not going to be able to get a supplemental loan on any other loan but those two. That doesn’t mean that you can’t take out equity in different ways, but the actual word supplemental loan only applies to agency loans, and it can be secured at 12 months after the origination of that original loan or the most recent supplemental loan.

You can’t get your first supplemental loan until after 12 months, and then you can’t get another supplemental loan if available for another 12 months after that, so 24 months after the first loan, and then supplemental loans are not the same as a refinance because a refinance is replacing the original debt with a new loan. So that agency loan is paid off entirely and then a new loan is put on the property for a refinance. Whereas for a supplemental loan, the original agency loan is still in place and an additional supplemental loan is also put in place. So there’s two loans, as opposed just one.

So let’s go over the pros. So there’s five benefits of getting a supplemental loan. The first is that it converts the equity created in the property to cash that can be distributed or used for further capital improvements. So the entire purpose of a supplemental loan or refinancing or selling is to access the equity that is created, and supplemental loans is one of the ways to do that. So you buy a property, you increase its value, and one of the ways to tap into that value without having to sell or get a brand new loan is to do a supplemental loan.

Another benefit of this supplemental loan is that it closes quicker and has less risk than a refinance.  So now we’re going into why the supplemental loan might be a better option than refinancing. So first, supplemental loans require less due diligence and underwriting than the refinance. So for a typical supplemental loan, the lender is gonna order an appraisal, a physical needs assessment, which is a property condition assessment or inspection, as well as reviewing the previous 12 months of financials. Whereas with a refinance, the same is required, but there’s also additional full underwriting of the sponsor and more due diligence required. So basically the same due diligence you did when you initially acquired the property will be done again by the new lender, but since you’re getting a supplemental loan through the same lender, all that has been done. They just need to make sure that nothing has changed during the first 12 months. So obviously, it’s faster because you have to do less due diligence, and there’s also a little bit less risk, because you’re not necessarily guaranteed to get that refinance, whereas you’re more likely to get the supplemental loan again because you’re getting it through the same lender that you’ve got your first loan. So that’s number two.

Number three is that supplemental loans are also less expensive. So since they’re faster and they require less due diligence, they’re also going to be less expensive, with lower closing costs compared to the refinance. Number four, the increased LTV that comes from a supplemental loan helps make assumable debt more attractive to a buyer. So what does that mean? So securing a supplemental loan increases the loan to value on the property, and the loan to value being — an 80% loan to value means that the bank hold 80% of the property value as debt, and then you have 20% in equity. So normally, agency loans are more stringent on their LTV requirements, and are capped at around 70% at origination, which means that they will lend up to 70% of the purchase price, and then you, as the general partner needs to put down the remaining 30%. And then as you implement your value-add business plan, you increase the value of the property. And when you increase the value of the property and the loan amount stays the same, then the LTV actually is reduced. So let’s say you buy a property for a million dollars, you put down $300,000 and the bank puts down $700,000. Let’s say you double the price of the property to $2 million. So the value of that property is $2 million, but the debt is only $700,000. So the LTV was originally 70%. Now it’s cut in half to 35%, and it’s calculated by taking that $700,000 divided by that $2 million number.

So now you’ve got the 35% LTV. Now generally suppplemental loans allow for up to 75% LTV. So going back to our $2 million example, now that the property is worth $2 million, the bank is willing to lend up to $1.5 million. So since they originally loaned $700,000, they loan you $1.5 million. The difference between the two is $800,000. So you could technically secure a supplemental loan for $800,000 and have an LTV of 75% as opposed to the 70% LTV at purchase. This allows you to increase the leverage. So now you’ve got 75% leverage as opposed to 70% leverage, which allows you to pull out more equity, but it also allows a potential buyer to assume the senior and supplemental loan with less money down. So as opposed to having to put down 30%, they can put down 25%. So the higher the LTV, the less money a buyer who’s going to assume that debt has to put down to obviously buy you out of the deal.

So if you’ve got 40% equity in the deal and  a 60% LTV, then they’re going to have give you 40% to buy the deal from you they assume the 60% loan. But if it’s 75%, then they need to put down 25% and buy you out and assume that 75% LTV loan. So overall, higher LTV makes an assumable debt more attractive to a buyer, and that’s accomplished by doing the supplemental loan, because it allows you to push up that LTV from 70% to 75%.

Then the fifth benefit is the ability to secure multiple supplemental loans. So I mentioned this a little bit earlier – so I get my first loan on May 13, 2020 from Fannie Mae, and I can get my first supplemental loan on May 14, 2021. So 12 months after the first loan. Now, Fannie Mae limits the supplemental loans to one, unless the loan is assumed, and then the person who assumed that loan gets another supplemental loan; so they can get their one supplemental loan as well. But for Freddie Mac, they allow unlimited supplemental loans as long as the most recent supplemental loan was secured 12 months or more before.

So I buy my property and I close and I get my debt on May 13, 2020 through Freddie Mac. I can get my first supplemental loan on May 14, 2021. I can get my second supplemental loan on May 14, 2022, or later, and I can keep repeating that process over and over again as long as obviously the LTV requirements are met. So those are the five benefits.

What about some cons of the supplemental loan? Obviously, it increases the debt service. So since you are taking out more debt, then the debt service, the monthly mortgage payments on the property increases. However, this is going to be the same case for refinance as well obviously. So it’s not just if you do supplemental loan, it goes up or if you do refinance, it doesn’t. Additionally, since these are amortizing loans versus interest only, monthly payments tend to be a little bit higher, even at lower interest rates. So there’s not gonna be an interest-only supplemental loan. You’re gonna have to pay principal and interest, so it’s gonna be a little bit higher compared to an interest-only refinance type of situation.

Another potential con is they’re only available through the agencies. So you can only get your supplemental loan if you’ve got Fannie Mae or Freddie Mac debt on your property. So only having two lenders available limits your ability to have lenders bid against each other to offer the best terms, but because both lenders are government-backed entities, rates are already generally going to be lower than private lenders. So it’s not that big of a deal, but the con here is that unless you have a Fannie Mae or Freddie Mac loan, you’re not gonna be able to secure a supplemental loan.

Number three is there’s limited flexibility with exit strategies. So agency loans are ultimately sold to investors as bonds. So they’re securitized and then sold to investors as bonds. So because of this, it adds a hurdle to the exit of the property. So a loan assumption [unintelligible [00:15:42].16] that the terms of the existing loan are better than market at the time of sale, so this is not gonna be a problem. So if your loan has a lower interest rate than the market interest rate at the time of sale, then it should be fine. But if the market rates are lower at the time of sale, a defeasance fee is going to be required to sell the property free and clear, which is a type of prepayment penalty, and this fee is typically paid by the seller. So if you want more information on defeasance and yield maintenance and prepayment penalties, check out everything you need to know about prepayment penalties on Syndication School. What it’s saying is that, sure, your loan can be assumed by a buyer, but if you need to actually sell the property free and clear and get out of that loan, you’re most likely going to need to pay a prepayment penalty, especially if you secure a supplemental loan.

Then number four is that interest rates can be higher. So the spread on floating rate supplemental loans tends to be higher than the spread on the same type of loan on the senior debt, making the supplemental loan’s interest rate higher. For fixed rates, senior and supplemental loans, the rate fluctuates with the market at time of origination. So compared to refinancing, you’re probably gonna have a higher interest rate. So these are the four cons.

Now why does Ashcroft Capital secure supplemental loans? Well, because they’re great tools for deals that have long term agency financing on them, because it allows Ashcroft and Ashcroft’s investors to get rewarded for executing the business plan by adding value to the property. So as I mentioned, typically agency loans are more stringent on their loan to value requirements, compared to private bridge types of financing. Those are normally capped at around 70%. But as Ashcroft continues the business plan and the overall value of the property increases, that LTV shrinks below the original 70%. I’ve already given an example of that by saying if you buy a property for $1 million at a 70% LTV and increase the value to $2 million, that LTV is now 45%; and since you can get a supplemental loan at 75%, that creates an opportunity to obtain a large amount of money back for investors.  So those are the pros and cons of supplemental loan. That is what a supplemental loan is, and that is why Ashcroft Capital prefers to secure supplemental loans.

That concludes this episode about the pros and cons of securing a supplemental loan. Until next week, make sure you check out some of the other Syndication School series about the how-to’s of apartment syndications. Make sure you check out some of the free documents we have available on there. All that is at syndicationschool.com. Thank you for listening and I will talk to you soon.

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

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

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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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JF2087: How To Find and Qualify an Executive Assistant | Syndication School with Theo Hicks

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At some point during your journey into real estate investing you will want to hire some help. In this episode, Theo Hicks will go over how to find and qualify an executive assistant that will help you in your business.

 

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

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

 

Theo Hicks: Hi, Best Ever listeners. Welcome to another episode of The Syndication School series, a free resource focused on the How-to’s of apartment syndication. As always, I am your host, Theo Hicks. Each week, we air two Syndication School episodes that focus on a specific aspect of the apartment syndication investment strategy, and for most of these series, we offer some free resource to you. These are free PDF how-to guides, PowerPoint presentation templates and Excel calculators. These free documents will help you along your apartment syndication journey. All of these free documents, as well as past Syndication School series, can be found at syndicationschool.com.

Today, I wanted to talk to you about finding what might potentially be your first hire, and that is a executive assistant. So in this episode, we are going to focus on how to find an executive assistant as well as how to qualify an executive assistant.

Now, I was interviewing someone on the podcast about a month ago, and I believe he was involved with a VA servicing company, or he started it… I think he started it, a VA servicing company. So he helped businesses find virtual assistants for whatever they wanted to do, and one of the questions I asked him besides when to hire a VA – is  what do you have them do? So I wanted to quickly talk about that really quick, because he had a very interesting strategy that he thinks people could do right away today to figure out what types of things they can have their first hire, their first VA, their first executive assistant do.

So the exercise is very simple. What you do is you pull out a piece of paper and you make a vertical line right down the middle. So you’ve got a column on the left side and a column on the right side. On the left-hand side, you write down every single thing that you either aren’t good at doing or that you don’t like doing, that you currently do in your business, and on the right-hand side, you write down everything that you like doing and are good at doing in your business as well.

So on the left-hand side, you have the things you don’t like or are bad at. On the right-hand side are the things that you’re good at or you do like, and this is something you can do either one time, just sit down for 10 to 15 minutes and write it all out, or it’s  something – and this is probably the better approach, you can walk around with this piece of paper or take notes on your phone and then write it on a piece of paper at night throughout the week. That way you can track, okay, during the week, here are the 50 different things that I do. I’ve got 10 things on the left-hand side that I don’t like to do, that I’m bad at, and 40 things on the right-hand side that I like to do and then I’m good at. And that is going to be your document that tells you what you should outsource first.

So all the things on the left-hand side are what you should be focusing on outsourcing to other people first, and all the things on the right-hand side are what you’ll have more time to focus on once you’ve actually outsourced the left side things. So I would definitely recommend doing the exercise. I really like that. It’s very practical and something you can do right away. So once you’ve got that exercise done and you know what you don’t like doing or what you’re bad at, then you know what types of things you could have your executive assistant do.

So let’s start off by first talking about how to find an executive assistant. So we’ve got four different ways to find your executive assistant. Number one is to use your social network and ask for recommendations from people that you already know. Obviously, the best way to find really any team member or someone to invest with, someone to work with, someone to be involved with is through recommendations, through someone in your current network. So if you like that person in your current network and they refer someone to you, you can assume that you’re going to, most likely, like that person as well. So you should provide a few details of the position to people in your social network or anyone in particular that you know has contacts with executive assistants, and then obviously, give them some contact information so they can contact you if they are interested. So these are things like LinkedIn, Facebook or people that you already know in the real estate industry. So that’s one way, is just someone in your current social network.

Number two is to use Indeed, ZipRecruiter or similar websites to post the position. So just create a job listing and post it to an online job listing website. You can customize the job listing to suit your needs, and it can even be down to the preferred location of the candidate. So if it’s something that you want them to come to your home office, then obviously you’d want them to live near you. Or if you don’t really care, these types of websites give you lots of customized features to select different types of characteristics you are looking for.

For these sites, unlike Facebook and LinkedIn, which you already probably have an account, you’re going to need to set up an account on these if you don’t already have one; and then once you have your account, once you have your job listing, just like if you’re posting a unit for rent or have a property for sale, be prepared to receive a lot of contacts. So that’s why you’re going to want to focus on understanding exactly what you want this executive assistant to do and who you want them to be, and that, in part, comes from doing that left side/right side exercise, because you don’t want to waste time talking to a lot of people who could easily have been screened out if you would have created a better job listing. So make sure you know and narrow down the scope of the position before you post to a place like Indeed or ZipRecruiter. So that’s number two.

Number three is you can just consider hiring a staffing agency. So there’s a lot of companies out there whose sole purpose is to find employees that you need. So for example, I know in a previous job that I got, I got it through a staffing agency. So a business goes to a staffing agency and says, “Hey, I have a job opening, here are the requirements for the job, here’s what I’m looking for. Go out and find me someone,” and then the staffing agency goes out and finds someone, interviews them, pre-screens them, and then if they are a good fit, they will pass on the information to the business owner. So in this case, you would go to a staffing agency, tell them the scope of the position you’re looking for, for an executive assistant, a staffing agency will go out there and find multiple people, interview them based on the criteria you provided them, and then if two, three, four people makes sense out of the 50 people they talked to, then you’ll just be speaking to those four people, as opposed to having to talk to 50 people if you were to do it yourself.

Some of these staffing agencies also do temp-to-hire situations. So something where you don’t have to hire them full time right away, they can work for you temporarily as a test and if you like them, you can hire them. If not, you can go ahead and find someone else through that staffing agency. But the major pro of the staffing agency is that most of the candidates will come pre-screened already, as opposed to you having to do all of that on your own.

Then the fourth way to find an executive assistant – and this will be more if you need someone immediately; you don’t have a few weeks or a few months to go through the hiring process with a thing like Indeed or ZipRecruiter or through social media or through a staffing agency, but you need someone working for you next week or tomorrow – then you can use a website like Fiverr or Upwork and just hire a virtual assistant in the meantime.

So let’s say you do your left side, right side exercise, then you realize that, “Man, I really don’t like doing this one thing and I don’t want to do it ever again. I’m just completely done,” then you can go on a website like Fiverr, create a posting for that particular thing. Maybe it’s you don’t like scrubbing lists or something for direct mailing campaigns. Well, you can find someone on Fiverr to do that for you. They’re gonna be a lot less expensive than hiring a full-time executive assistant, and you’ll be able to get them on your payroll, in a sense, immediately.

So those are the four ways to find an executive assistant. Now, what types of things do you ask them when screening them once they’re actually found. Now, obviously, it’s going to be very specific to your real estate niche. So an executive assistant who’s working for, say, an apartment syndicator might be a little bit different than an executive assistant who’s working for a wholesaler or fix and flipper, or someone who just sends out a lot of direct mailing campaigns. So obviously, you’re gonna want to add to this list specific questions on whatever niche that you’re in.

You’re also going to want to add specific questions based off of the result of your left side/right side exercise. So if there’s ten things you don’t want to do or you don’t like doing, you’re not good at doing, and you want an executive assistant to those ten things– well, obviously, when you’re talking to them, you’re going to want to know if they are actually capable of doing those things, but besides those two things, these are a few general questions that you can ask a executive assistant regardless of what real estate niche you’re in, or regardless of whether you’re in real estate or in some other line of business.

So the first question is  what software programs have you used in the past and how would you describe it your computer skills? Obviously, we live in the age of technology. So an executive assistant who’s doing administrative tasks is going to need to know how to navigate a computer. Especially if you are doing really complicated real estate strategies like apartment syndications, there’s a lot of different softwares and programs that they will have to use, rather than having to do everything manually. Maybe a system you’ve already put in place that you want them to take over. Well, if you don’t have computer skills, then it’s not going to be a good fit. Again, assuming that you want someone that has good computer skills.

Number two – describe a time you had to adjust a schedule due to unforeseen circumstances. So executive assistants are typically responsible for managing the schedule, the calendar of the person they’re working for, and if you need to change something on your calendar or if someone needs to reschedule something with you, how are they going to handle that situation? Can they handle that on their own or will they need you to be involved in that? Because at the end of the day, the purpose of the executive assistant is to make your life easier. So if you have to be involved in tasks you don’t want to be involved in, like scheduling, then it defeats the purpose of having an executive assistant.

Number three – what are your strategies for managing your time when dealing with multiple urgent tasks simultaneously? So asking about their ability to multitask – because again, being an executive assistant isn’t a job where you do the same thing every single day. Things that come up that are higher priority, so how do they prioritize things? How do they make sure they get the higher priority things done first, while also addressing other things that need to be done at the same time?

Next question – describe a time you identified a problem and proactively created and implemented a solution. So again, very similar to the second question about describing a time you had to adjust a schedule due to unforeseen circumstances. The purpose of the executive assistant is to make your life easier. So if they’re able to identify problems and fix problems without you even being aware of it, that’s gonna make your life a lot easier, as opposed to them finding problems and then needing you to actually fix that problem. Obviously, there’s gonna be cases where they can’t fix everything, but there are times where they should be able to do that on their own.

Next – how would you deal with an angry person demanding to speak with an unavailable executive, or wanting to speak with you, who’s unavailable? So if someone calls the executive assistant that’s really upset, how do they handle that situation? What are their communication skills like? What are their people skills like? Can you give me an example of when this happened in the past? This is especially important if you’re doing things like cold calling. Whenever I talk to someone about cold calling, they always say, “Well, most of the time, they don’t answer, and if someone does answer, it’s oftentimes they’re angry with you, they get mad. And then there’s other times where obviously, we make a deal.” So if you’ve got an executive assistant who’s screening phone calls for you, most likely, eventually, they’re going to speak to someone who’s angry. So how do they handle that?

Next – what do you believe an executive assistant brings to a company? So just getting an understanding of what their expectations are of an executive assistant. The next question – how do you anticipate the needs of an executive? So again, making the executives’ lives easier, making your life easier by anticipating things and being proactive as opposed to reactive.

Next – why do you think you’re well suited for this position in particular? Pretty self-explanatory.

Then lastly – what do you enjoy most about administrative work? So all those questions, at the end of the day, are trying to accomplish – one, are they capable of doing what you need them to do, and then two, are they going to be able to make your life easier? That’s really the two questions you need to have answered. Are they capable of doing what you need them to do, and by hiring them, is your personal life, is your business life going to be easier? Also, getting an understanding of what their expectations are of the position. So you can get understanding of what they’re going to do once you actually hire them.

So just to finish off the episode, I wanted to go over — I’m not going to read it in its entirety, but I do have a sample posting that Ashcroft Capital has used in the past for finding an executive assistant. So obviously, Ashcroft Capital is an apartment syndication business. So some of the wording will be a little bit different based off of, again, your particular real estate niche. But at the same time, the structure of this, I think, can apply to all positions, and then obviously, a lot of the stuff in here can be used as well.

So the way that the job posting is structured, it starts off with a bio of Ashcroft Capital, and then it goes into a bio of them as an executive assistant. So these are the characteristics that we want to see in our executive assistant. The third is the responsibilities of the executive assistant, and then the fourth are the requirements. So obviously, in the bio, you want to put the name of your company, what your company does, some of the statistics of your company, and then also in that section is what you’re hiring for. So it says, “We are hiring an experienced, reliable, task-oriented executive assistant to a co-founder of our company. The executive assistant will be responsible for performing a number of business, as well as personal administrative duties. This is an ideal position for a well-qualified candidate to get in early and grow alongside of a powerful and entrepreneurial investment firm.”

Basically, just summarizing the entirety of the other remaining three sections. So who will you work for, what do you need you to do, what’s the benefit to you? Boom, boom, boom.

So the section two is the ‘about you’ section. So this is a paragraph that describes ideal characteristics of the executive assistant. So it reads, “You are a highly motivated professional and capable of managing your workload and prioritizing tasks in a fast-paced environment. You take initiative and think through questions that might be asked and proactively address them before they are asked. When it comes to completing your tasks, you’re consistently reliable. You’re a self-starter and can start and can work autonomously. You want to be a part of something special. You want to a career, not a job. You want to work with a small, but dynamic team that is accomplishing big things.” So as you can see, in that ‘about you’ section, that corresponds with a lot of the questions that you’re going to ask during the interview process.

Next are the responsibilities. So whatever responsibilities you want them to do, make sure you list those out as well. So for example, completes projects or special assignments by establishing objectives, determining priorities, managing time, gaining cooperation of others, monitoring process, problem solving, making adjustments to plans.

And then lastly, the requirements– so obviously, read these just so you have an understanding of what the requirements were for the executive assistant role that Ashcroft Capital is hiring for, because again, you don’t want to hire just anyone. You want someone who has experience, who has certain skills, and then you’re also gonna want to mention the pay.

So requirements, “This is primarily a work from home position, but might require working from an office one or two days a week.” So are they capable of doing that? Two is polished, written and verbal communication skills. Three is at least five years of being an executive assistant. Now this, obviously, is going to depend on where you’re at in your business, because at this point, Ashcroft has 22 properties, 8000 units worth over $900 million, so they could demand someone who had experience.

If you’re just starting out and looking for a executive assistant, you’re probably gonna have a hard time hiring someone who has a lot of experience, but you might be able to. So this part’s really up to you. Then lastly, experience in real estate finance and/or legal is preferred, but not required. So ideally, they have an understanding of the base understanding of finance, in general, if they’re gonna be working for a real estate company… But at the end of day, that’s not a absolute requirement, especially if they are a solid executive assistant and are able to learn on the fly.

Then the last requirement would be, how do they actually apply? So for this listing, it says, “When you apply, please provide a cover letter with your resume,” and then it has a salary of $45,000, plus the opportunity for up to $25,000 in bonuses… Just to give them an idea of how much do you pay an executive assistant.

So that concludes the episode. Now you know everything you need to know about hiring, finding, qualifying an executive assistant, and also, you learned the left side of the paper/right side of the paper exercise for actually figuring out what you would need an executive assistant to do.

So thanks for listening. Until next time, make sure you check out some of the other Syndication School series about the How-tos of apartment syndications and check out some of the free documents we have as well. All of that is available at syndicationschool.com. Thank you for listening and I will talk to you tomorrow.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

 

JF2074: Ashcroft Underwriting Adjustments During COVID-19 | Syndication School with Theo Hicks

Listen to the Episode Below (00:14:41)
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Theo is back with another Syndication School episode and this time he is going over how Joe and his team at Ashcroft Capital are making adjustments to how they underwrite future deals during this pandemic. 

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

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

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

 

Theo Hicks: Hi, Best Ever listeners. Welcome to another episode of the Syndication School series, a free resource focused on the how-to’s of apartment syndication. As always, I am your host, Theo Hicks.

Each week we air two podcast episodes that focus on a specific aspect of the apartment syndication investment strategy. For the majority of these episodes we offer a free resource that will help you along your apartment syndication journey. All of these free resources, as well as free Syndication School episodes can be found at SyndicationSchool.com.

In this episode we’re going to go back to talking about the Coronavirus. We took off about a week or so, and we’re gonna jump back into it because today I want to talk about some of the changes that Joe and Ashcroft Capital are making to their underwriting of value-add apartment deals during and then probably after the Coronavirus pandemic.

The purpose of this episode is going to be to outline the four main changes that Ashcroft Capital is making to the underwriting of new deals currently, and then for the — I won’t say foreseeable future, but at least for maybe the next few months after the Coronavirus pandemic is over.

Overall, the underwriting changes really need to be on a deal-by-deal basis, because different markets have different rules as it relates to Coronavirus. This means that the economy is being impacted differently… But there are a few items – four items in fact – that Ashcroft thinks are important to consider.

First is going to be year one operations. It should be expected that there will be an increase in things like vacancy, bad debt and concessions throughout 2020. And then once things settle down a bit and the economy reopens, it is also possible that some residents will no longer be able to afford living at the property. So the two things – number one, some of the income loss items, like vacancy, bad debt and concessions. When you’re making your assumptions, you should be projecting that they will be higher than usual. Based off of the T-12 or current market rates, you can’t really use those for vacancy, bad debt and concessions right now, because it’s a different environment, and once the Coronavirus ends, it will also likely be a different environment.

Secondly, once the economy reopens, the residents that are currently living at that property – so if you buy a property now, once rent repayment programs are ended, or rent delays are ended, evictions are allowed again, maybe expect to have to evict more tenants than you usually have to, because they’ve just been living there and maybe paying partial rent, or just doing what they could… But once it’s over, they can no longer pay the full amount. That’s year-one operations.

Number two is rent growth. The rent growth for 2020 in the vast majority of markets is projected to suffer, as unemployment rises. But the silver lining is that most of any rent lost in 2020 is expected to be recovered in 2021. From my understanding – I believe I’ve talked about this in one of the episodes – the rent growth is supposed to suffer; rent growth isn’t gonna go negative, it’s just going to be less. I’m pretty sure the most recent calculation I saw was about 1.3% percent, as opposed to 2%, 3%, 4% we’ve been seeing for the past decade or so.

Apparently, this dip is supposed to be temporary… So this dip in rent growth to the 1% range is temporary, and then in 2021 it’s supposed to go back to what it has been before. Obviously, when you’re underwriting a deal, the year one rent growth and year two rent growth should reflect the immediate area and the demand in the market. So obviously, you don’t wanna just use the 1% average. You wanna figure out “Okay, what do the experts think will  happen to rent in this specific market in the next two years?” And then probably be even more conservative and assume that it might be less than that. That way if it’s better, great. If not, then you’re still able to hit your returns to your investors.

Where does this information come from? Your management company. We’ve talked about the importance of your property management company, how to find a property management company, so you can find all that information at SyndicationSchool.com.

Number three is going to be debt. As of right now, most private lenders – these are basically the bridge lenders; the ones that do the 2-3 year renovation type loans – are taking a pause from lending. But lenders that are still active are being extremely conservative with their loan proceeds and terms.

I talked in a previous Syndication School episode about JP Morgan Chase, for example, has changed their lending criteria; this is for residential loans, I understand that, but it’s just an example of a lender becoming extremely conservative. They’re only lending to borrowers with a credit score of 700 or more, and who can put down 20% or more. So that definitely limits the pool of people who can get residential mortgages.

Similarly, other lenders are doing the same for commercial loans. I think one of the biggest changes is the reserve amounts that are required. Now, the agencies are lending, but they are also being conservative on their underwriting and requiring large upfront reserves for debt service payments. So the reserve requirements are changing. Typically, you create an  upfront reserves account called an operating account for unexpected things that happen at the property, but now in addition to that you need another upfront amount of reserves that are a lender requirement.

So more conservatives proceeds should be underwritten, and the underwriting needs to include these upfront reserves, as they will  impact the equity required to fund. So you’re gonna need to raise additional money now from your investors, even though the cashflow is not going to be going up. Typically, if the deal is cash-flowing $100 per door and you need to raise X amount of money, well now that deal might be cash-flowing $75 per door and you need to raise even more money from your investors. That’s why if you’re looking at deals right now, you’re gonna have to negotiate a lower purchase price because of these new lending criteria, and the rent growth, and the year-one operations that I’ve talked about previously.

So what does that mean more practically? Make sure that you ask your lender or your mortgage broker about the new loan-to-value requirements, the new upfront reserves requirements, and other terms that you need before you submit an offer on a deal. So you need to have an understanding of whatever lender you’ve been using or you plan on using, what are the terms of the loans they’re offering, what are the LTV terms, how much money do you need to put down, how much money do you need as upfront reserves, what are the interest rates, what’s the amortization? Is there anything that I need to  know that’s changing, so that I can underwrite my deals properly? Because if you don’t know what the debt is going to be, it’s gonna be impossible to submit correct offers on deals.

And then lastly, for value-add deals, depending on the deal, many owners are pausing their interior renovation programs until the market is restabilized… So when you’re underwriting a deal, it may be wise to assume that the value-add program does not start until the overall market stabilizes.

Now, this is something that’s gonna be obviously up to you, depending on the state you’re investing in, or the local area you’re investing in, if construction is considered an essential service, if construction companies are still working, things like that… But you need to think about “Okay, I plan on going in there, renovating all these units and doing all these exterior upgrades”, but what are the typical ways that you renovate interiors? Exterior renovations are likely fine, assuming that business is essential in your state, but interior renovations is the one that might be delayed because of the fact that residents aren’t able to move out right now.

So again, to summarize, the four changes that Ashcroft are making – and again, these four points came straight from the director of acquisitions at Ashcroft Capital – is the year-one operations. Things like vacancy, bad debt and concessions should be assumed to be higher, at least during year one. Rent growth should be assumed to be lower than  previous years, so whenever you’re underwriting your annual rent growth increases, or even when you’re determining what your rent premiums are going to be, you need to have a detailed conversation with your property management company to determine how to calculate that. So annual income growth is typically 2%-3%. You definitely wanna be underwriting maybe a 1% or 1,5% at least for year one and year two… And then when it comes to rent premiums, again, you have to see what’s the demand for those units in the immediate area? What are the prices on the newest leases in that area? It can’t be leases from a year ago or six months ago, or really even two months ago. It needs to be probably within the last few weeks to a month – what are the rents being demanded for those specific units?

Number three is debt, so making sure you have a conversation with your lender, so you know exactly what types of terms they’re offering on their loans now, including what sort of upfront reserves requirements are needed.

And then lastly, for the value-add deals, understanding that you’re likely going to need to delay any interior renovations until the market restabilizes and Covid is gone, because you’re not allowed to evict people, tenants are probably moving a lot less because of the Coronavirus… So those are four things to keep in mind when underwriting deals.

Obviously, if you are out there underwriting deals, I’d love to hear from you what you’re doing, so we can maybe add to these four points. So if you have any advice, any things that you’re doing differently when underwriting, please let me know by emailing Theo@JoeFairless.com. And of course, anyone who reaches out and I include their information – obviously, it won’t be in this episode, but I’m gonna turn this into a blog post, so I  will definitely give you a contributor status for the blog post, since you contributed to underwriting advice to the document.

That concludes this episode. To listen to other Syndication School series about the how-to’s of apartment syndication and check out some of our free documents, please visit SyndicationSchool.com.

Thank you for listening, have a best ever day, and I will talk to you soon.

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.

 

JF2073: How To Calculate Class A and B Return Projections | Syndication School with Theo Hicks

Listen to the Episode Below (00:22:44)
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In this Syndication School episode, Theo will first review the difference between Class A and Class B investors. Afterward, he will share with you how to calculate the projected returns for each class, and to follow along with Theo you can download his free excel document below.

Free Class A and Class B document

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

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

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

Theo Hicks: Hi, Best Ever listeners. Welcome to another episode of the Syndication School series, a free resource focused on the how-to’s of apartment syndication. As always, I’m your host, Theo Hicks. Each week we air two podcast episodes that focus on a specific aspect of the apartment syndication investment strategy.

For the majority of these episodes we offer a free document. These are free Excel template calculators, free PDF how-to guides, free PowerPoint presentation templates, some sort of resource that will help you along your apartment syndication journey. All of these free documents, and past free Syndication School series are available at SyndicationSchool.com.

In this episode we are going to talk about how to calculate the returns to limited partners when you have a two-tiered path of investment structure. What does that mean? Well, generally when people get started as syndicators, they offer one investment tier to their investors, and it’s either a preferred return only, a profit split only, or a combination of the two, with the most common being an 8% preferred return, and then a 50/50 or a 70/30 profit split.

Now, as you gain more experience, or even at first, you might decide to offer two investment tiers – class A and class B. Our episode is focusing on what are the differences between class A and class B. I’m gonna do a quick refresher on that, talking about the advantages and disadvantages of each, and then I’m gonna talk about how to actually calculate the return on investment and the internal rate of return to investment tiers.

For this episode, I’ll be giving away a free document. It will be a  calculator that will allow you to automatically calculate the ROI and the IRR based on the steps I discuss in this episode. So I’ll talk more about that free document here in a little bit.

First, let’s just do a refresher on class A and class B. Class A, investors sit behind the debt in the capital stack, which means that when all expenses are paid, including the debt, the next cash goes to the class A investors. Class A investors are offered a preferred return that is generally higher than the preferred return offered to class B investors.

On Ashcroft deals, the class A preferred return is 10%. Class A investor have virtually no upside upon disposition or capital events, nor do they receive a split of the ongoing profits. So they are getting the 10% or whatever the preferred return is, and then that is it. But in order to be taxes the same as class B investors, they do get a very small piece of the upside, that varies from deal to deal… So they do get a small piece of the upside for tax purposes, but overall they’re not given a large upside in the deal.

In Ashcroft deals the class A tier is limited to 25% of the total equity investment, and the minimum investment is $100,000. So the reason why is because let’s say year one the project cash-on-cash return is only 7%, and you may say “Oh, well I can’t pay my 10% preferred return then.” Well, if only 25% of your investors are offered a 10% preferred return, then you can hit that preferred return of 10% to that portion of investors. I’m not sure exactly how that math will work out, but as long as these class A investors aren’t making up a large portion of your investor pool, then you don’t need to have a 10% project cash-on-cash return to distribute 10% to the class A limited partners.

Now, of course, other syndicators may offer a different preferred return, or have different equity percentages or different minimum investments. That’s just what Ashcroft does currently, and I just wanted to give you an example.

Class B investors sit behind class A, so all expenses go out, including debt, and then class A investors get paid, and then class B investors get paid with what’s left. But they sit in front of the general partners generally in the capital stack, so they get paid before the GP is paid.

Class B  investors are offered a preferred return that is lower than the preferred return offered to class A investors. On Ashcroft deals that return is 7%, compared to that 10% for Class A. If the full preferred return cannot be paid out each month, or each quarter, or each year, depending on what the payment frequency is, then it accrues over the life of a deal.

Class B  investors do participate in upside upon disposition or capital events. On Ashcroft deals the split is 70% of the profits up to a 13% IRR, and then 50% of the profits thereafter. The Class B  minimum investment for Ashcroft is 50k for first-time investors and 25k for returning investors. Actually, now that I’m thinking about it, I think that Ashcroft recently reduced the class A minimum investment to 50k. [00:09:04].21] and really all other types of tiers offered. Syndicators may offer different preferred returns, profit splits, different minimums for these class B investors.

So since class A investors are in front of class B investors in the capital stack, they are paid first, plus the class A investors are offered a higher preferred return, therefore the class A tier is a deal for investors who prefer a stronger ongoing cashflow… So they’re more likely to get this cashflow, and it’s higher than what it would be if they were class B.

Since class B investors are sitting behind the class A investors in the capital stack, they are paid what is left over after the class A have received their preferred return. So if the full preferred return isn’t met, it accrues and is ideally paid out upon disposition or a capital event. So class A investors are offered a lower preferred return, but they do participate in the upside upon disposition or capital events like  a supplemental loan or a refinance… So the overall return over the life of a deal is higher for class B investors, compared to class A.

Class A is gonna get 10% a year, or whatever that percentage is, class B might get less than their preferred return year one, maybe 5%, but maybe eventually their cashflow goes up to 9% or 10%, but then they’ll get a massive 20% return on investment at sale over the life of the investment. It’s really at the end where they surpass the class A investors.

So the class B tier is ideal for investors who want to maximize their returns over the life of the investments. And if I’m the person who wants both – if I want strong ongoing cashflow AND to participate in the upside, typically that passive investor will be allowed to invest in both. So if you have a passive investor that wants to do both and you’re offering class A and class B, they should be able to invest a portion in class A and a portion in class B. So that’s what class A and class B are, as a reminder.

Now, how do you calculate the returns? I recommend downloading the document and having it open right now in Excel, but I will assume that you don’t have it open, and I will do  my best to explain exactly how to calculate. At the end I will discuss in more detail how the free document works. So the first thing that you need to know in order to calculate the returns to class A and class B investors are 1) total equity investment. So this is the total amount of money that you as a syndicator raised from investors for the deal, because that’s what’s gonna be their capital account and that’s what their return is gonna be based on… And then assuming it’s a five-year hold, you need the project-level cashflow; that’s income minus expenses gives you the NOI. NOI minus debt service gives you the cashflow. So you need the cashflow for year one through year five, as well as the sales proceeds.

Basically, you have year zero a negative amount of money technically, because that’s what the investors are paying, and then year one, year two, year three, year four, year five you’ve got your cashflow coming in positively, and then for the sales proceeds it’s just the profit remaining after all expenses are paid at sale. If you’ve downloaded the simplified cashflow calculator, it should be as easy and copy and pasting these figures into this model. As a reminder, the sales proceeds is the sales price minus the debt owed to the lender, minus any closing costs you need to pay for, minus any other costs associated with the sale, like disposition fees, broker’s fees… And then what’s remaining is the total sales proceeds. So that’s one bucket of numbers that you need.

Next you need to determine what the structure is going to be for class A and for class B. So for each, you need to know what the preferred is going to be, and what the profit split is going to be. So for the purposes of this document, the preferred return to class A is 10%, and the profit split is zero. For class B the preferred return is 7% and the profit split is 70%.

Now, the next step is to determine what that preferred return amount looks like for class A and class B. Basically, for class A you need to determine of the equity investment which portion is class A. To keep things simple, in this calculator it’s just set at 25%; obviously, you can go in there and manually adjust it if you want to. Class B is set at 75%, but you can go in there and manually-adjust it, if you want to.

So you’ve got 25% of the equity investment, you multiply that by the preferred return percentage of 10% to get the preferred return amount. Same thing for class B. So Class B  you take 75% or whatever percent of the equity investment, multiply it by the preferred return, which is 7%, and you’ve got the preferred return amount owed.

Now, if you remember, class A is paid first. So when you’re looking at your year one cashflow number, you take your year one cashflow and you subtract the class A preferred return amount completely out of there. And then what’s left over is what goes to class B investors.

Now, let’s say that year one you are able to cover the entire preferred return amount to the class A investors, but the cashflow that’s remaining is not enough to cover the preferred return owed to the class B investors. Obviously, they’re still going to get paid, but it’s not gonna be full. So in the sample cashflow calculator that you download it shows that the class B investors only get a 3% return on investment year one, as opposed to 7% preferred return that they’re owed. Every time that happens, for every year that happens, you need to track how much of the preferred return is actually accruing. So if they’re given a 3%, then they’re owed an additional 5%. So that’s going to accrue.

Now, for this particular document the way I have it set up is that it accrues and then it is paid out at sale. I’ll talk about how that happens later, but it’s not gonna be paid out the next year, it’s gonna be paid out at sale. If you want to have it paid out the next year, you’re gonna have to do some manipulations to the cashflow calculator.

Basically, you repeat that process for each year. This is how it works in this cashflow calculator. Let’s say at year two you take your full cashflow  for year two, you pay your class A investors their preferred return if the remaining amount is greater than the preferred return owed to the class B investors. So class B gets their full 7%, so the profits remaining after the 10% is paid to the class A, after 7% is paid to class B, that extra cashflow is going to be split. In this case, 70% goes to class B and 30% goes to the general partners.

Now, typically, profits are considered a return of capital, preferred return is considered a return on capital. So whenever capital is returned to them, then their capital account reduces. Now, in Ashcroft deals the preferred return is always gonna be based on the original investment, and then the general partners will catch up at sale. So what that means is whenever the class B investors are receiving a profit split, you need to track that so that you understand “Okay, after five years I’ve returned a  total of $15,000 to investors from this profit”, because they’ve got $15,000 in profit, therefore they’ve been returned $15,000. Therefore at sale, I’m gonna return them their full equity minus that $15,000 they’ve already received.

Basically, the two things that you need to track whenever you’re paying out your class B investors is if they’re not receiving their full preferred return, how much is accruing that year, and then number two, if they received a profit split, how much profit do they make, because that’s something you need to track, because that’s considered a return of capital.

So you repeat that process for years one, years two, year threes, year four and year five. When you do that, you should have a total class A accrued preferred return number, and a total return of capital from the profit split for the class B investors.

Obviously, if you aren’t able to distribute the full 10% preferred return to the class A investors, then the same concept applies… But since they’re not receiving a split of the profits, you only need to focus on the preferred return accrual and not anything about them receiving a return of capital, because they’re not.

Alright, so now you sell the deal and you have your sales proceeds calculation… So you’ve already copied and pasted the sales proceeds into the cashflow calculator… So now you need to determine which portion of the sales proceeds goes to class A, and which portion goes to class B. If you remember, class A is in front of class B in the waterfall, so class A gets their equity back first. That one’s pretty simple, because class A did not get a return of capital, so they receive their entire equity investment back. So the sales proceeds are a little bit less.

Next is the money that goes back to the class B investors. If  you remember, they’re owed three things at sale. First, they’re gonna be owed their equity back. So the equity they receive is going to be their total equity investment minus whatever capital they’ve received thus far as profits. So if they’ve received $15,000 in profits, it’ll be their total equity investment originally, minus $15,000 which is returned.

The second thing that’s returned to them is the preferred return that they’re owed. So whatever the total accrued preferred return number is, that is also owed to class B investors. So it’s the equity owed, plus preferred return owed. Lastly, it’s going to be the profit split. So whatever is left over after the class A is paid, class B has received their equity investment back, class B has received their accrued  preferred return, the  remaining profits are split 70/30 between the class B investors and the general partners.

Now, if you have some sort of tier structure where it’s based on IRR, and once there’s a 13% IRR it drops to 50%, you’re gonna have to do that calculation on the back-end, because that’s not what this does. This is just a straight-up profit split, just to keep things simple.

So the remaining profits are multiplied by 70%, and that also goes to the class B investors. So if you’re got profits of class B investors, plus preferred return owed to investors, plus equity to class B investors. So now you have a total proceeds to the class A, which is just their equity investment, and a total proceeds to class B.

Now what you wanna do is you wanna create a data table so that you can do your IRR and your ROI calculations. The ROI calculation is pretty simple – it’s just their initial equity investment divided by the money that they’ve received each year; so year ones, two, three and four it’s just the cashflow they’ve received… So for the class A it’s always gonna be 10%, for class B it’s gonna be ideally 7%, maybe lower at first, and maybe eventually higher… And then same thing for year five, but this actually includes the sales proceeds as well, so it’s gonna be a number that’s ideally over 100%. Then you can average all those to get your annualized cash-on-cash return.

Then for the IRR calculation, it’s just an Excel function where you basically do =IRR and then you highlight year zero through year five, and then it’ll give you what the IRR is.

Now, let’s talk about how to use this model. On the document that you’ll see there are a few locations that you need to input data. Basically, everywhere you input data, it’s gonna be in red, to make it very simple for you.

So you need to input the initial equity investment year one, two, three, four and five, project-level cashflow, the total sales proceeds for project-level, and then the preferred return percentage and the profit split for class A and class B. Once you input those numbers, it’ll automatically calculate year one through five cashflow for class A and class B, as well as the return on investment and the internal rate of return. So it’s essentially a very simple calculator.

And again, where you get the equity investment year one, two, three, four and five and sales proceeds numbers from – that comes from your simplified cashflow calculator that you gave away a while ago now. So if you wanna find that, go to SyndicationSchool.com to download that document.

That concludes this episode of Syndication School. Thanks for listening. Make sure you download your free calculator for calculating class A and class B return projections. Check out some of our other Syndication School episodes and those free documents as well.

Have a best ever day, and I will talk to you tomorrow.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

JF2067: Rent Or Own Post Coronavirus | Syndication School with Theo Hicks

Listen to the Episode Below (00:15:39)
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Coronavirus pandemic has been a disruption to normal living; from social distancing, to working from home, and even how you look at someone when they cough. We have also seen how banks have been changing the way they lend money, Theo goes over a recent article JP Morgan Chase released on the new rules around borrowing for home loans and how this could be the beginning of how all banks could change. He explains how this could impact the housing market and provides additional studies on what we can expect in terms of house sales.

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

Best Ever Tweet:

“Obviously they will not live on the streets, therefore, they are more likely to move into an apartment and rent. ” -Theo Hicks


TRANSCRIPT

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

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

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

Each week we air two Syndication School episodes that focus on a specific aspect of the apartment syndication investment strategy. And for the majority of these episodes we offer a free resource. These are free PowerPoint presentation templates, Excel calculator templates, PDF how-to guides, documents that will help you along your apartment syndication journey. All of these previous documents, as well as previous Syndication School episodes are available for free at SyndicationSchool.com.

In this episode I’m gonna try something a little bit different than what we usually do, maybe a little bit more speculatory – if that’s even a word – than usual. I was reading some articles about the ways that banks have been adjusting to this new Coronavirus world… And I came across some interesting things that I thought would have a future benefit to apartments… So I kind of wanted to run through some of those, and then I’d love to hear anyone’s thoughts about what I talk about today.

So if you have thoughts, either in agreement or disagreement with me, I would love to know… So you can send those to me at theo@joefairless.com, or you can just message me on Facebook, or post something in the Facebook group and tag me in it. That way, if what you think I’m saying today is absolutely crazy – which I don’t think it is, but maybe you do – at the very least I can know that and maybe we can have a follow-up next week or in future weeks about what I’m gonna discuss today.

I don’t think this is anything too crazy. I think a lot of people will agree with my logic… It all started when I came across an article stating that J.P. Morgan Chase, who is the largest lender by assets in the U.S, as well as the fourth largest lender overall, made two announcements. The first announcement – I’m recording this on the 22nd of April… This one came out on the 13th of April, so about  a week ago. It says “J.P. Morgan Chase to raise mortgage borrowing standards as economic outlook darkens.”

Basically, the key point from that article is that customers applying for a new mortgage will need a credit score of at least 700, and will be required to make a down payment equal to 20% of the home’s value.

So I did a little research… Okay, 700 seems high, and 20% is obviously a lot higher than the 3.5% for your typical residential homes… So I took a look and found out that according to Experian, approximately 58% of Americans have a FICO score of at least 700. And then I also wanted to figure out what the average down payment is for a home, and  it is 10%. Obviously, average isn’t the median, but I think it’s safe to assume that the majority of people aren’t putting down 20% for their homes. Most people are  putting down 5%, 3.5%, and I’m sure the average is 10% because some people are putting down 20%.

So J.P. Morgan Chase is basically only allowing people who have a credit score of 700 and the ability to put down 20% to buy a home. So based off of the Experian numbers and the average down payment numbers, potentially the vast majority of people can no longer afford to buy a home through J.P. Morgan Chase. Obviously, this is just one bank… But the assumption would be that if they’re doing this to hedge against risks, then other banks will probably follow in suit in the coming months, which — obviously, it’s only been a week, so it’s too hard to tell. So that was one interesting thing that I saw.

And then secondly – and this is more recent, too – this is the article that came out within the last few days… And it says that J.P. Morgan Chase temporarily terminates HELOC loan offerings. So Home Equity Line of Credits.

So not only is it more difficult to get a new loan through J.P. Morgan Chase, but it’s also impossible to pull equity out of your existing home if you have a loan through J.P. Morgan Chase. Now, again, as I mentioned before, one bank – I understand. But typically, from my understanding, if one bank does something, other banks are more likely to follow in suit.

So why am I talking about residential loans? Well, obviously, if residential loans are more difficult to secure, then people who would typically be in the market to buy a new home or need to buy a new home, or people who are in the middle of a move, or maybe once they begin to allow banks to foreclose on people, they aren’t gonna be able to qualify for a new home, and obviously they’re not going to live on the streets. They’ll cut other expenses, and that’ll be one of the last expenses they cut, therefore they’re more likely to move into an apartment and rent… Because maybe their credit score isn’t high enough, maybe they can’t afford the down payment for a new loan.

And even if they do have the 20% down payment to pay for a home, and they do have the 700 credit score or higher, because of the surge in home values during the most recent recession, they might not be able to get the quality of home they want, and therefore resort to renting a home or renting an apartment of that quality. So that’s another interesting observation that I had.

Say I’m used to living in a $500,000 home, and maybe I was putting down 5%. That’s $25,000. Well, now if I need to put down  20%, and all I have is $25,000, I can really only afford a $125,000 home. So I’ve reduced the amount of house I can buy by 400%. So if I’ve got $25,000 in cash, that’d be something I get per year on a house, then that’s 2k/month. Would I rather rent for 2k/month, or would I rather put a down payment for a $125,000 house? That’s another interesting observation.

Now, something else that’s interesting too is that one of the main benefits of buying a home, especially during the most recent economic expansion, was the insane increases in property values that came from natural appreciation. So I looked it up and according to Zillow, the average home value increased from 175k on March 2010 to 248k in March 2020. So that is an overall increase of 47%, or about 4.7% per year. So that means that on average, every single year, my house value grew by 5%.

So if I had, again, a 175k house, in ten years that house is now worth 248k. So 4.7% return per year just by living in your own personal house – it’s a pretty good return. However, when the Federal Reserve came out with their March consumer survey, they said that they expect home values to only grow by 1.32% this year, which is the lowest reading since this survey began in 2013.

So again, not only is it harder to buy a home, but even if I were to scrape together my 20% down payment, one of the main financial benefits of owning a home, which is that increase from natural appreciation, is basically gone… Which again, makes renting more attractive.

Now, once the Coronavirus occurred and people had to shut down their businesses, the number that was floating around for number of people who were out of work was about 16 million. I’m sure it’s a lot higher, but that’s one of the original numbers. I think it started off as 9, and then it was 16. So because of this, the number of borrowers on residential mortgages who requested to delay mortgage payments rose by 1,900% in the second half of March. Obviously, these are the types of people that can’t pay their mortgages and are asking for help, which the federal government has done by halting foreclosures.

So the question is “Will foreclosures resume before or after these borrowers are able to secure new employment?” Because if it resumes before, and these people need to delay their mortgages but they can no longer delay their mortgages without being foreclosed on, then these people may potentially lose their homes and have to rent as well.

So overall, because of this tighter lending criteria – again, that is the 700 credit score, 20% down payment, just J.P. Morgan based currently, and also the ability to not pull your equity out of your own home anymore, which I guess is another benefit of owning a home, is that the equity that is created you can pull out, which J.P. Morgan Chase is not allowing people to do at the moment… So that’s the tightening lending criteria.

We’ve also got the lowest projected home value increase since 2013 of 1.32%, compared to 4.7% in average the previous ten years. You’ve got the massive increase in the mortgage delay requests, which is 1,900%, you’ve got 16 million people – probably way over 16 million people now – who had jobs a month ago that no longer have jobs. This indicates that more people are going to be renting, as opposed to buying… At least in the next few years.

And to end, another interesting statistic from the National Association of Realtors – in March they announce that they expect home sales to be around 10% lower compares to the historical sales for this time of the year. So in March the previous  years – this March is 10% lower. So again, we’re already seeing right away that less people are buying homes. Obviously, that means that they might just be staying in their current homes, or renting, but obviously as more and more people don’t have the ability to  buy a home, renting is going to automatically become the default attractive option to these people.

So I’d love to know what you guys think. Do you think that more people are going to be renting or buying in the next few months, and maybe the next few years, after this is all over hopefully? You can let me know either on the Facebook group by tagging me, or you can privately message me on Facebook, or you can email me at Theo@joefairless.com.

Until then, make sure you check out some of the other Syndication School series about the how-to’s of apartment syndication. Make sure you check out those free documents we have on there as well. Those are at SyndicationSchool.com.

Thank you for listening, have a best ever day, and we will talk to you tomorrow.

 

Website disclaimer – Should be prominently displayed on website

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 – To be read at or near beginning of podcast

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.

JF2066: 11 Questions Passive Investors Want to Know | Syndication School with Theo Hicks

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Theo is back with another Syndication School episode and this time he will be going over the 11 questions most passive investors will ask you before they invest in your deals. Theo hopes he can arm you with the right mindset when answering these questions to put you in a good position to find investors.

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.

Best Ever Tweet:

“Making sure you let them know what your financial review process is very important because if you aren’t reviewing your financials your investors are not going to like that.” – Theo Hicks


TRANSCRIPTION

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

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

Theo Hicks: Hello, Best Ever listeners, and welcome to another episode of the Syndication School series, a free resource focused on the how-to’s of apartment syndication. As always, I’m your host, Theo Hicks. Each week we air two podcast episodes that focus on a specific aspect of the apartment syndication investment strategy.

For the majority of these episodes – sometimes they’re part of a larger series – we offer a free resource. These  are Power Point presentation templates, Excel template calculators, PDF how-to guides, something that accompanies the episodes that will help you on your apartment syndication journey. All of these free documents from past episodes and series, as well as those past episodes and series can be found at SyndicationSchool.com.

In this episode we are going to talk about some of the questions you should be prepared to answer when you are speaking with potential passive investors. Way back in the day when we did the original series, we did an episode that talked about how to prepare for potential objections from investors, especially when you’re first starting out. So you’ll definitely wanna  check out that episode. I think it’s over 50 objections, and we go through those in multiple episodes, and talk about “Hey, these are things that your passive investors might ask you either upfront, or when you actually have a deal.” Then we talked about the ways you should be responding to those questions.

This episode we are going to go over 11 more questions. Some of them are repeats from before, some of them are new, but these are questions that the Ashcroft investor relations person has come across more recently, with the Coronavirus pandemic. So these aren’t specific to the Coronavirus pandemic, but these are the types of questions that you should expect investors to ask whenever there’s a looming recession, or thoughts of a looming recession, or something is going on that’s not your economic boom, whenever things are just kind of naturally going well. So let’s just jump right into those questions. We should be able to get through all of them today, in this episode.

The first one, and probably the most important question that you’re gonna get asked during potential recession times is “How are you adding value or hedging against valuation reductions and rent reductions.

More specific to the Coronavirus, in January everything looked great. In February everything was fine; it was a normal year as an apartment investor. And even the beginning of March was pretty normal. But by about mid-March things started to change, and by the end of March there were stay-at-home orders, businesses were closing or shutting down, or at least reducing their hours of operation… Some sort of change that affected the workforce.

Obviously, as an apartment investor the residents are able to pay for rent and pay you by their jobs. So if they can’t leave their homes or if they lost their jobs, then how are they gonna pay rent? So these are things that passive investors are definitely thinking about right now. How are you ensuring that you’re going to be able to collect rent, and in turn make sure that you’re able to maintain the value of the apartment? So you need to have an answer to that, you need to have specific answers to what exactly you are doing.

We’ve talked about ways to do that in previous episodes, where I talked about how to make sure you’re able to collect rent, so definitely check that out… But you’re gonna wanna have a specific answer to that proactively, because your investors are gonna be asking you that question.

Number two – and this is more of a general one, but “Can I run a  background check on your key people?” Obviously, you should always answer yes to this question without hesitation. These people are investing a large amount of money with you, and they wanna make sure that there are no red flags for you or other sponsors on the deal. Basically, the same way that you would be screening a potential resident, they’re gonna be screening you, because it’s even more important, because they’re giving you a lot more money proportionally than the residents are.

Next question, how frequently are you communicating with your investors? This is on an ongoing basis, so proactive communication, but also how quickly do you commit to responding to investor inquiries?

Right now, in a time like the Coronavirus, investors are probably reaching out to sponsors a lot more than they usually do. So you’ve gotta make sure that in times of economic certainty, if you say that you’re gonna be replying to questions within 24 hours, and then something like the Coronavirus happens and you’re no longer responding to questions in 24 hours – well, then that’s not gonna reflect good on you and your business.

This applies to all these questions, but when you’re replying to investor questions, you wanna make sure that your replies apply to times of economic expansions and recessions. And if they don’t, you need to make sure that you’re distinguishing between the two, because if you are getting a new investor during an expansion, and you say “Oh yeah, I send out emails every month, and then I’ll reply to you within 24 hours”, and then a recession occurs and you’ve got all these investors reaching out to you and it’s actually impossible for you to reach out within 24 hours, what are you gonna do in that situation? Probably let your investors know that “Hey, I’m not gonna be able to reply to you as soon.” But having some sort of communication and letting them know what’s typical, and then obviously if something happens, here’s how it will change.

Next question, “What is your financial review process?” Every month or every quarter – ideally every month; maybe even every week – you should be reviewing the financials of the deal. These are the T12’s, the rent rolls, the bank statements, making sure that all of your i’s are dotted and t’s are crossed… So make sure that you let your investors know specifically what you do when you’re reviewing the financials. So what financials do  you look at? Who else is able to look at these financials? Is it also being checked by some third-party? Is  your property management company look at it? Do you have someone on the team that specifically analyzes these financials? What do you look for? Typically, you wanna look for the variance between your projections and your actuals… Things like that.

So making sure you let them know what your financial review process is is very important… Because if you aren’t’ reviewing your financials, your investors are not going to like that, because you won’t be able to catch issues sooner.

Next question, “What is the worst-case scenario, and how do you try to mitigate that?” Obviously, the worst-case scenario is you lose their money, and then you do a capital call, and you lose their money again. So what types of things have you put in place to make sure that that doesn’t happen? What types of things have you put in place to make sure you don’t need to do a capital call? What types of things are you doing to make sure that you’re able to preserve your investors’ capital? We’ve talked about this countless times on Syndication School. Obviously, it starts with the 3 Immutable Laws of Real Estate Investing, which is buy for cashflow, not appreciation, make sure you secure long-term debt, and make sure you’ve got adequate cash reserves. So those are the three most important and best ways to make sure you’re conserving investor capital. So again, not making the money, but also not losing their initial capital.

So they don’t really care what the worst-case scenario is, they care how that worst-case scenario affects them; how much money could they lose. And again, the answer is they could lose the money they invested, you ask for more money, and they lose that. And I guess the worst-case scenario is they give you more money and you lose it again. So what types of things are you doing to mitigate the risk of that happening?

Next, “Can you send me investor references? Current, and on deals that have sold.” That’s also important. Typically, when you think of references, you think of just the current deals, but also investors that maybe invested on a deal that sold, and did not reinvest. So make sure that if they ask for references, you say yes. If they ask specifically for people who no longer invest with you, then give them those references as well.

Next, “In your return projections, are the numbers presented project-level, or net to LP?” Obviously, whenever you are underwriting your deals – and we’ve talked about this on the Syndication School before – you’ve got your overall cash-on-cash return and your IRR, which are the two most important metrics… And then you’ve got your LP level IRR and cash on cash return. Those are not gonna be the exact same, because even if the investors invested all of the capital into the deal and the GPs had no money invested into the deal, you as a GP are still getting fees upfront, you’re getting ongoing fees and profits, and you’re getting fees and profits at sale. So not all the profits are gonna go to the limited partners.

So if you’re presenting project-level returns, and you aren’t projecting LP-level returns, then you’re not setting yourself up for success, because what’s gonna happen is once you begin to send out distributions, or maybe even all the way up until you sell the deal, and the investors are getting returns that are below the project projections, because the project projections are going to be different than the LP projections, they’re gonna be confused and ask you “Hey, you told me that the returns are gonna be 20%, but they’re actually 15%. What’s going on?” And obviously, one of the answers could be that you didn’t meet your projections… But another answer could be that “Oh, I gave you the wrong projections”, which is probably even worse.

So make sure that whenever you are sending numbers or projections or returns to your investors, you’re sending them returns to them. They don’t really care what the overall project returns are, they wanna know what money they actually get.

Next, “How much liquidity do you keep as reserves in each deal?” Right now that’s huge. People who did not have liquidity are struggling right now, and those who had liquidity and reserves are not struggling as much. So how much money are you saving upfront, at closing, when you purchase the deal, and how much money are you saving on an ongoing basis? Because if something happens unexpected, you’ve got enough cash in reserves to cover the expense of that, or to cover any reductions in income, reductions in rent collections that come from some sort of event like the Coronavirus.

So the rule of thumb is about 1% to 5% of the purchase price as an operating account upfront, and then $250 to $300 per unit per year in reserves. So the first one is upfront, the second one is like an operating expense that comes out before you calculate your cashflow.

Next question, “How much do the principals or company invest in each deal, and at what level?” I’m pretty sure when I originally talked about the GPs investing in the deals, Ashcroft was not doing the class A, class B. So there’s an extra layer to this question, which is 1) how much money are they investing, and 2) are they as class A or class B?

Actually, I had a conversation with Frank, who’s one of the founders of Ashcroft, at the Best Ever conference, and I was asking him about class A and class B, and he mentioned that he invests as class B, because that creates a lot more alignment of interests… Because for the class A they get the 10%, but they do’t participate in any upside. Whereas class B gets a lower preferred return, but they do participate in the upside. So if the deal does really well, they do really well. If the deal doesn’t do very well, then they don’t do very well.

So when you are thinking about whether or not you wanna invest in your own deals, the answer should obviously be “Yes. You need to invest in your own deals, so that you have skin in the game, so that you have alignment of interests.” Because if an investor asks you “Are you in investing in your own deals?” and you say “No”, you’d better have a good answer — and I don’t even know what a good answer could be that would alleviate any concerns that they had.

But going above and beyond that, not only do you wanna invest, but you wanna invest in the class that is benefitted by the deal doing well, and suffer from the deal not doing well, which creates even more alignment of interests. So let them know how much money you have in the deal that you’re investing as the class of investor that participates in the upside and the downside.

Next, “Who will be managing the property, and how long have you been working with them?” So we’ve done countless episodes on property management companies. Obviously, the property management company is going to be managing the property, and the one question they’re asking here is “How long have you known them?” So obviously let them know how long you’ve known them for and how long you’ve worked with them for, how many deals you’ve done with them… Check out the Syndication School about “The ultimate guide for finding a property management company” for more on that, because that was basically the entire episode, or maybe two episodes talking about how to find a property management company, how to screen the property management company, and also how to be prepared to answer the questions that they have about you.

But obviously, the property management company is the most important team member besides the members of the general partnership, because they’re the ones that are responsible for the day-to-day operations of managing the day-to-day operations at the property. And especially at times like Coronavirus, you wanna make sure you’ve got a property management company that’s rock-solid, because a lot of adjustments need to be made in a health crisis like this, and if you don’t have a rockstar property management company, you’re gonna be in trouble… Especially when it’s harder to collect rent, people are working from home, so you can’t really do in-person tours, things like that. So you wanna make sure you have a property management company who’s flexible enough to handle these types of unknown events that occur.

Last question is “How many deals have gone south or sideways, and how do those affect your strategy?” Obviously, if you haven’t done many deals before, then you aren’t going to have an answer of a deal that’s gone south or sideways… But I guess if you have only done one deal and that deal went south or sideways — they don’t really  want a horror story; you’re not supposed to scare them about what went wrong. What they wanna know is what was the mistake that was made or what was the problem, and was it your fault or was it not your fault, and then what did you do to solve that problem?

So if it was a really small or minor mistake, then let them know that it was a small, minor mistake. “We’ve implemented the solution and we’re still able to provide our investors with returns.”

Essentially, all these questions – they wanna know “Is my money safe?” and “Will I be able to make money?” So when you’re replying to these questions, keep that in mind. Remember that that’s why they’re asking these questions. They’re not asking it because they wanna know a funny story about  a deal that went sideways, they wanna know “Okay, what happened to people’s money in that deal? Is this something that could potentially happen again?”

So those are 11 questions that every passive investor is most likely going to ask you before investing in a deal with you, especially if they’re not a family or a friend. Obviously, if you’re doing 505(b) you need to have a pre-existing substantive relationship, but maybe you only know them for a year, and they’re gonna ask you these questions.

Families and friends will probably ask you most of these questions too, but basically what you wanna do is make sure that you’ve got answers to all these questions. You don’t wanna read a script to these people. If they ask you “What is your financial review process?”, you don’t wanna go to your Word document and read “Well, my financial review process is…” You don’t wanna read it to them, you wanna just sound natural and genuine, but at the same time you also don’t want to not have an answer, or not have a clear answer, or have one of those runaround answers, where you don’t necessarily work your way around the answer, but you don’t actually answer the question…

So have everything written out in bullet point forms before you hop on a call, or before you even start doing calls; make sure you know exactly how you wanna answer each question, or at least the main points you wanna hit for each question. That way, when they come up you have an answer that, again, is actually hitting at what they’re actually asking you, which is “How are you gonna protect my money?”

So that concludes this episode. Until next time, make sure you check out some of our other Syndication School series, as well as all the free documents that we have. Those are at SyndicationSchool.com. Check out our Coronavirus blog landing page, where all of our blog posts related to the Coronavirus are. That’s joefairless.com/coronavirus.

Thank you for listening, have a best ever day, and we will talk to you tomorrow.

 

Website disclaimer – Should be prominently displayed on website

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 – To be read at or near beginning of podcast

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.

JF2064: A Passive Investors Perspective During The Coronavirus With Travis Watts

Listen to the Episode Below (00:24:27)
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 Travis is a full-time investor and the director of Investor Relations at Ashcroft Capital. Travis has written some articles on our blog to help investors during the Coronavirus pandemic we are all going through today. As a full-time passive investor, Travis gives his perspective on what he is seeing in the current market and what he is keeping an eye out for. 

Inflation article

 

Travis Watts Real Estate Background:

  • Full-time passive investor
  • Director of Investor Relations at Ashcroft Capital
  • In 2009 he started investing in multi-family, single-family, and vacation rentals
  • Based in Denver, Colorado
  • Say hi to him and grab a free passive investor guide at Ashcroft Capital

 

 

 

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Best Ever Tweet:

“There is always a silver lining, there will always be opportunities that pop up. Look at this as an opportunity to educate yourself” – Travis Watts


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. I’m Theo Hicks and today we’ll be speaking with Travis Watts. Travis, how are you doing today?

Travis Watts: Hey, Theo. I think I know you from somewhere, don’t I?

Theo Hicks: Yeah, I think I know from somewhere as well. If you guys don’t know, Travis is the director of investor relations at Ashcroft Capital. That’s how I know him. I met him at our first quarterly meeting. I’m looking forward to our conversation, because I haven’t been able to have a long conversation with him yet, so I’m looking forward to getting some advice… Just like you guys are looking forward to it as well.

A little bit more about Travis – he’s a full-time passive investor, as well as the director of investor relations at Ashcroft Capital. In 2009 he started investing in multifamily, single-family and vacation rentals. He’s based in Denver, Colorado, and you can say hi to him at AshcroftCapital.com. You guys should all be able to spell that by now.

Travis, before we begin, we’re gonna be talking about the Coronavirus today. Travis has some really good articles on our blog right now, so we’re gonna talk about one of those in particular, and maybe talk about the other one as well.

Before we get into that, Travis, do you mind telling us a little bit more about your background and what you’re focused on today?

Travis Watts: Sure, I appreciate that intro. So I got started in real estate, as probably a lot of people do, probably the majority of real estate investors – single-family. It kind of led to trying to scale that portfolio up… The problem that I had personally, which isn’t applicable to everyone, but I was working a full-time W-2 job, more importantly a 98-hour workweek job, where I was away from home, completely dedicated to that… And as I started trying to scale the single-family on the side, doing some flips and vacation rentals, things like that, it just got to be too hands-on for me, which — I had to go back to the drawing board, learn how to become a completely passive investor, what strategies and assets and things like that existed… And that’s where I ran into syndication investing in real estate.

I made a complete transition around 2015 through 2016, where I was selling all my single-family, I was going all-in into multifamily and syndications… So that’s brought us to the last 5-6 years. I came onboard with Ashcroft to just help spread education around passive investing and what benefits those can have for certain people’s lives.

Theo Hicks: Perfect. Thanks for sharing that. One article that I really liked was your article about inflation, and how people can benefit from the inflation from printing off two trillion dollars in cash… Do you wanna summarize that article? And then if there’s anything else you wanna talk about as it relates to inflation.

Travis Watts: Yeah, and again, I think that article is out there both on the Best Ever Community – I put it out there I think under my Bigger Pockets as well, things like that… So check it out. But the concept is pretty basic, really. This is a topic we could have talked about a year ago, two years ago, five years ago… And that’s just this idea that the Federal Reserve is printing money, every time we’re going into these crisis situations – 2008-2009, now this pandemic here being probably the worst in terms of what we’re gonna see in money printing… But that’s devaluing the purchasing power of the dollar.

There’s a lot of scary headlines out there that you read, about the mortgage crisis, and just what’s unfolding, and all this scary bad news, but here’s a way to look at it in the light of real estate, whether we’re talking single-family, multifamily, whatever. When you’re acquiring debt, so you’re going out to get a mortgage, you’re hopefully getting some long-term fixed-rate debt, depending on what you’re doing, meaning that you’re locking in a payment every month, that’s gonna be due. Let’s just call it $1,000/month for a owner-occupied home, that’s your mortgage payment. So that payment, on the debt side, is never gonna change for 15 years, 30 years, whatever kind of mortgage you get.

The idea is as we move forward and the Fed continues printing and printing, and the purchasing power of the dollar is going down and down and down, you’re basically using cheaper dollars to pay off that debt. So what is $1,000 in today’s money could be worth $200 down the road in the future. So it’s gonna make it much easier to pay off that debt long-term, and more specifically in terms of investment real estate, where tenants are paying that off anyhow. So that’s what the article is kind of about, from a high-level, for those that may not be tuned in. Yes, the Fed has already printed a couple trillion dollars, and that can quickly escalate to 4, 6, 10. I hear all kinds of numbers out there.

The scary thing to think about is — this is how inflation is created. Basically, inflation is the cost of goods going up year after year after year, so it takes more and more dollars to purchase the exact same thing, years down the road. So the crisis here, in my opinion, if you wanna look at the negative side of things, is we’ve got 2019, four trillion dollars in circulation. That’s like our money supply. So if the Fed’s gonna go and print four trillion dollars as an example, then theoretically we’re gonna have some massive inflation kicking in at some point, theoretically a doubling in price… Maybe not today or tomorrow or next year, but down the road.

So if anything, look at this in a positive light – we’ve got all-time low interest rates; it’s a great time to be refinancing projects, and potentially getting involved with real estate, if that’s something that you haven’t done yet or that you’re currently doing. So a little long-winded… There’s still hopefully some value in reading that article, but that’s the high level.

Theo Hicks: Obviously, it makes sense to get debt, but since I’ve got a $1,000 payment and I’ve got 100k (let’s say) sitting in my bank right now, and five years from now that 100k is gonna be worth 10k… Practically speaking, should I pay down my debt on my properties?

Travis Watts: Yeah, that’s a good question. The way I look at it is “What’s my alternative?” In general right now we have a lot of low interest rate debt for things like real estate, whereas a lot of folks might have at this time high interest rate debt. They might have personal loans from a bank, or credit card, or retail debt… Things they’re paying 10%, 15%, 20%, 25% annually on. That’s what I’d be focused on right now paying down.

And what I mean by alternatives – if you’ve got a 3,5% mortgage today, could that money be better utilized if you were to invest it in something that could produce a higher return? Like a 8%-10% annualized cashflow return. So I’m not giving any kind of financial advice to anybody, but it just depends on your situation, what kinds of debt you have, but certainly for the folks that are saying “I have $100,000 in the bank account. I’m just gonna let that sit and ride for the next 10-20 years as my little reserve account”, you’re most certainly gonna be losing a lot of that purchasing power over that time, so I’d be looking for ways — while safely and conservatively keeping your emergency fund in place, certain months of living expenses (3-6 months is what you commonly hear), I’d be looking at places to park that capital, things like real estate, that are kind of a hedge against inflation, somewhat.

Theo Hicks: Okay, thanks for sharing that. Changing gears a little bit – so you are a full-time passive investor… Most of the people I’ve talked to about the Coronavirus are actively investing, so we talked about rent collections, and making sure they can pay their mortgage payments, and asking how much cash reserves they have… But something that I’d be interested to ask you about as a full-time passive investor is are you still seeing opportunities to invest in right now, or has that slowed down? And if so, what’s your strategy over the next 6-12 months as a passive investor? Are you kind of in a holding pattern, are you still looking for deals? Things like that, if you could talk about that for a little bit.

Travis Watts: Yeah, absolutely. I guess the unique perspective or the benefit of not only being an investor with one group like Ashcroft, but being an investor with 14 different groups is I get invited to a lot of webinars, a lot of conference calls, I get a lot of email updates, I get a lot of “Here’s what we’re doing in terms of Covid” and all this kind of stuff… So I have a bit of a broad perspective on what a lot of folks are doing out there.

In general, this interview is taking place mid-April. This is our first real impacted month. This whole Corona thing got real serious towards the end of March, and then rent was due April 1st. So my opinion here is that a lot of people were already kind of set up and primed to pay their rent anyway. They already had it in the bank, or in their savings account… They were ready to go for April. I’m a little more concerned maybe with May and June, and however long we’re in this lockdown, and the economy is shut down, and things like that.

What I have seen more specifically, to answer your question, with these different syndication groups in general is a little bit of wait-and-see right now. It’s a little too early to start calling the shots, it’s a little too early to start saying “Oh, there’s all these new deals popping up, things like that.” It’s hard to look at a T12 statement and have that make a lot of sense, looking at 2019 numbers, when now we’re in this state where we don’t know what our collections are gonna end up being. So I’m a bit of the same mindset.

I did invest in some recent deal that have closed through the March timeframe, and I think one in April… But at this point I’m focused more on making sure I have adequate cash reserves personally on hand, in case things pop up; capital calls, whatever. Or best-case scenario, I just hoard a little bit of cash and then maybe by late summer there’s some deals popping up that make a lot of sense to get involved with, and we’ll have the cash to do it.

So that’s kind of where I sit. It’s a little bit of sit-and-wait probably through April and May, and hopefully we’ll know a whole lot more in June, and hopefully the numbers start making sense again, and the economy starts reopening. But we’ll see. Who knows.

Theo Hicks: Exactly. So definitely wait and see right now. So you mentioned that you’re getting a lot of communications from either deals you’re investing in with all types of sponsors… Do you mind walking us through, as a passive investor, what types of communication you’re getting from syndicators? More specifically, maybe tell us what a good communication looks like at a time like this, and maybe some things that you see and it’s kind of making you worry when you consider a bad communication.

Travis Watts: Something I’d talk about on the podcast is why I like syndicate groups that not only distribute monthly distributions, but hand-in-hand they report monthly. I think in a time like this it means a lot. No one wants to sit here 3-4 months to wait on an update to see how their property is doing.

Some groups to this point that are quarterly that I’ve invested with have literally sent out one communication since this whole thing started to unfold… And I don’t appreciate that. I’m all about transparency and proactiveness, communication… So what does that prompt investors to do? Call. Email. Just bug you to death. So why don’t you just get the information out?

What am I seeing is a lot to do with helping the tenants, helping educate how they can file for unemployment if they’ve lost their jobs, how they can maybe get on some kind of payment plan and maybe make a half payment on the first and a half payment on the 15th, resources for companies hiring in the local area… There’s obviously some businesses somewhat thriving right now. It’s kind of a weird word to use… Amazon’s hiring, grocery stores are hiring… There’s a lot of opportunities. I invest mostly in workforce housing, B and C class properties, so a lot of these folks are in an income range of 30k to maybe 60k/year household income… So a lot of opportunities are available for folks like that, depending on the area where your property is located.

So in general, that’s the communication I’ve been getting – let’s wait and see how collections pan out, and here’s where we are as of today, and how does that compare to the previous quarter. Look,  I don’t need a communication every day, because it doesn’t make a lot of sense, but I think at least a monthly communication is ideal. A lot of groups have been doing webinars, Q&A calls, things like that… And I think that goes a long way as well in a crisis situation like this.

Theo Hicks: Another article that you wrote on the website – and I’m sure it’s on LinkedIn and your Bigger Pockets profile as well – is about the mortgage crisis. Do you mind talking about that for a little bit?

Travis Watts: Sure. That one’s a little more technical. I think there’s a lot of key elements that are just probably better read through the article itself… But basically, what you’ve been hearing a lot in the headlines is things like this mortgage forbearance, or people aren’t paying their mortgages, they’re not paying the rent… Well, the thing is there’s a chain effect here. It starts with, let’s say, the homeowners saying “I’m not gonna make my mortgage payment”. But then what a lot of people don’t understand is that mortgages are often sold. And they’re sold, they’re wrapped up into collateralized mortgage obligations, investments basically that people can invest in, where you’re investing in different tranches, and things like that…

So you’ve got the bank or the lender, you’ve got the tenant, and then you’ve got the investment, then you’ve got the investors behind the scenes there… And it’s like “Who’s left holding the bag here?” That’s kind of what the crisis is – trying to figure out what kind of stimulus is coming for who exactly; it’s gonna start with probably the person that’s supposed to be paying their rent or their mortgage, and then it’s gonna go as a trickle-down effect. But it could completely implode parts of the lending industry… So it really is a crisis in a sense, but… Anyway, there’s much more detail that’s probably better found in the article… But yeah, that was another recent one that I’ve just put out.

Theo Hicks: You don’t have to answer this question if you don’t have to, because I’m putting you on the spot, but I did read recently that Chase changed their mortgage criteria… So they’re only lending to people that have a credit score of 700 or higher, and then 20% down payments… Which seems to be one of the first residential lending institutions to make changes such as that.

I guess my question would be “Do you think that that is gonna be an opening for other lending institutions to also change their lending criteria?” And if yes, what kind of effect do you think it’ll have on the overall real estate market?

Travis Watts: Yeah, I’m happy to give a high-level overview… And that’s kind of how that article ends, that I wrote – what are the practical takeaways here? Well, if you’re selling a home, it may be a little bit harder, for obvious reasons, to get a buyer, just because people aren’t getting out as much, or they  may not be in the investment market space as much right now… But more importantly, to your point, someone who’s qualified. So which lenders are still lending? And if they are, like you said, I think that banks are gonna be tightening up quite a bit right now… Obviously, to lower their risk. They don’t want any defaults, and there’s probably a lot of defaults coming their way.

In fact today – maybe yesterday – was the earnings report for a lot of banks, and they’re in a bad place right now. They see a bit of a grim immediate future here, at least talking through the next quarter. With all of this mortgage forbearance, and people not paying, and unemployment spiking… It’s a tough time to be a bank.

If you’re buying – to your point – you may have to have a little bit better credit, you may need to put a little bit  more down… If you’re selling, it’s a little harder to find a qualified buyer… Obviously, that’s gonna have an effect in the residential space, of course, 100%. But in no way, shape or form, in my opinion, are we talking about something similar to ’08, ’09 housing real estate crisis. That’s not exactly what’s happening this time.

Theo Hicks: Thanks for sharing that. Is there anything else you wanna mention as it relates to the Coronavirus and real estate that we haven’t talked about already before we hop into the lightning round?

Travis Watts: There’s always a silver lining to this stuff. Even ’08, ’09 — yes, it’s bad news, and there’s negativity everywhere, and nobody knows, and where is the bottom, but there’s always going to be opportunities that pop up… Not only in the syndication space, in the publicly-traded stuff… Look at this as an opportunity to 1) above all, educate yourself. This is a really great time to educate yourself. Figure out what your goals are… And it’s a great time to get started. As you alluded to in the beginning of this podcast, I got started in 2009. Well, that was not quite the absolute bottom of the market, but it was pretty near and close to it. And riding the way up over the next decade is helpful, for a lack of better words. It wasn’t the perfect time to get in, but it was a pretty decent time… So just hopefully you can keep your job, and your income, and your business running through this. Hopefully the stimulus money can help soften the blow on that front, and then wait and see what opportunities can come over the next 6-18 months or so.

Theo Hicks: Alright, Travis, are you ready for the Best Ever Lightning Round?

Travis Watts: Let’s do it!

Theo Hicks: Alright. First, a quick word from our sponsor.

Break: [00:19:48].09] to [00:20:50].16]

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

Travis Watts: I think you just said the title of it – it’s the Best Ever Apartment Investing Book that you and Joe wrote. That’s actually a really great book that you guys wrote. I actually just bought that the other day and gave it to someone who was looking to be a GP themselves.

One that’s kind of a classic, that I’ve recently re-read is Awaken the Giant Within, a Tony Robbins book. I don’t even know when he wrote that. Probably in the ’80s. But man, is it just timeless; great insight and info for self development.

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

Travis Watts: What would I do next… I’m trying to make this as short as possible, but I’ve always been a huge advocate of the FIRE Movement (Financial Independence, Retire Early), which has a lot to do with reducing your expenses and overhead, making as much money as you can make, and investing that into things that produce passive income. I would stay on the passive income route, I would just look for an opportunity to make as much income as I could, and put my focus back there again.

Theo Hicks: Do you mind telling us about a deal that you’ve lost the most money on? How much you lost, and the lesson that you learned.

Travis Watts: Yeah, I invested in something I clearly didn’t know that much about. It was a distressed debt syndication fund. Sometimes I experiment outside of real estate; that was one of the first big experiments I did. I put maybe — I don’t even know; there were two funds, and I put maybe 175k in, and lost (to date) maybe 40%-50%. It could be a lot worse… It’s in a receivership now, so who knows what that will end up being… But it was a rough ride.

Theo Hicks: What about the best ever deal that you’ve done?

Travis Watts: The best ever deal was actually in the single-family space during — I think it was like 2014 to 2015. I bought a house from a bank, I paid 97k for it. I didn’t do anything to it. I just rented it out as is, and I sold it two years later for 215k.

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

Travis Watts: My time. Week to week I take calls with all types of people, not only investors, but people looking to house-hack, or do a fix and flip, or become a GP, sometimes an LP… I just love sharing experience, talking through things, handing off resources… I just mentioned the book you wrote with Joe – I gave that as a resource to someone just last week… So just sharing my time.

I just wish that there had been more people in my life when I got started, that I could have reached out to, to say that classic “Hey, let me pick your brain for 30 minutes.” I give people that opportunity.

Theo Hicks: Then lastly, what’s the best ever place to reach you?

Travis Watts: Probably email. Travis [at] ashcroftcapital.com. Or ashcroftcapital.com/passiveinvestor. I’ve got a free passive investing guide there and it connects you with me if you’d like to jump on a phone call as well.

Theo Hicks: Perfect. Best Ever listeners, make sure you take advantage of that, and make sure you check out the two articles that we talked about today. The first one is “How inflation can benefit you over the next decade”, and the second one is “The Mortgage Crisis: Will You Be Affected?” As Travis mentioned, the Mortgage Crisis one goes into more technical detail on that.

Besides those two articles, the one other main takeaway that I got was you talking about the types of communications you’ve been getting from different sponsors… You’ve got some people who haven’t reached out at all, some people that are reaching out a little bit too much. The sweet spot is monthly communication, letting you know what’s going on at the property and being transparent and honest.

I think that is it… Travis, it’s been nice talking to you. Best Ever listeners, as always, thanks for listening. Have a best ever day, and we will talk to you tomorrow.

Travis Watts: Thanks, Theo.

 

Website disclaimer – Should be prominently displayed on website

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 – To be read at or near beginning of podcast

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.

JF2060: Coronavirus and Commonly Asked Passively Investor Questions | Syndication School with Theo Hicks

Listen to the Episode Below (00:20:11)
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In this episode, Theo goes over a recent blog post written by Evan an Investor Relations Consultant at Ashcroft Capital called “Coronavirus and Commonly Asked Passively Investor Questions”. Theo goes over the entire blog post and adds additional value by adding additional commentary from his point of view.

Coronavirus and Commonly asked passive apartment investor questions

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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Best Ever Tweet:

“Your investors are more focused on you not losing their money.” – Theo Hicks


TRANSCRIPTION

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

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

 

Theo Hicks: Hi, Best Ever listeners, welcome to another episode of the Syndication School series, a free resource focused on the how-to’s of apartment syndication. As always, I’m your host, Theo Hicks. Each week, we air two podcast episodes that focus on a specific aspect of the apartment syndication investment strategy, and for the majority of these episodes, we offer a free resource or document. These are PowerPoint presentation templates, Excel template calculators, PDF how-to guides, things that will help you along your apartment syndication journey. All of those free documents for past Syndications School episodes as well as the past Syndication School episodes can be found at syndicationschool.com.

In this episode, we are going to be talking about some of the common questions that passive investors are either proactively asking or most likely thinking about as it relates to their apartment syndication investment and the coronavirus. So the investor relations person at Ashcroft Capital, Evan, wrote a nice blog post about some of the questions he’s been receiving from investors, and this link was included in the Ashcroft investor email updates this month. I wanted to go over the blog post on Syndication School today and add my thoughts to the post and go into a bit more detail on some of these questions… Because most likely, your investors are thinking about these questions, and if you are sending out monthly emails, then it might make sense to include some FAQ documents, or in the body of the email address, some of these questions that your investors asking, so that you’re not feeling a lot of one-off questions to save both you and your investors some time. So if you want to follow along, you can.

The blog post’s entitled “Coronavirus and the Commonly Asked Passive Apartment Investor Questions”. So I’m just going to read the blog post and then stop whenever I want to add in my own thoughts. As everyone knows, the world has changed dramatically in a very short amount of time. It started with some warnings about a respiratory disease spreading across the Pacific Ocean, but quickly jumped coasts and ground our economy and country to a halt. When I am speaking to our investors – again, this is Evan, not me saying this – my goal has always been to understand their goals and problems first, and then offer solutions for those goals and problems.

So as I mentioned, you’re gonna want to proactively address these things to your investors, as opposed to waiting for them to come to you and asking you questions. It’s your job to think ahead, understand their goals, what they want, and have the questions that they’re going to want to answered; not things that you want to have answered, but what they want to have answered. Back to the blog post.

However, as Coronavirus and the economic fallout has become the only news reported, those goals and problems have shifted from optimistic (retire early, passive income, doubling money) to conservative (how are you protecting my money?). So as I mentioned in the previous Syndication School episode to this one about communicating with investors, sure, your investors care about making money, but in reality, when push comes to shove, they’re more focused on you not losing their money. So I talked about this all the time, about the principle of loss aversion – people are more affected by losing money than by making that same amount of money. So I have a stronger reaction to losing $5 than I do to making $5. Obviously, their reaction’s even more strong if it’s $100,000 or a million dollars. So based off of the Coronavirus and knowing that your investors are focused on you not losing their money, what types of questions do you think that they’re thinking about? So back to the blog post.

So what questions are investors asking: “How has your business model changed?” First and foremost, Ashcroft and our property management partners are abiding by all CDC, WHO, and local jurisdiction guidelines. We are cleaning common areas and model units more frequently, maintaining more distance during showings, and allowing for work-at-home for our employees when feasible. Additionally, on the asset level, we are doing far more virtual showings through tools like Zoom, Skype and FaceTime.

As I mentioned, I’m gonna reference the communicating with investors Syndication School episode a lot. So if you haven’t listened to that one, make sure you listen to it. It’s the one just before this one. So I’m going to call it the  communicating with investors Syndication School episode, without having to say “the one before this one” every single time. But in that episode, I mentioned that for these virtual tours, these YouTube tours, Ashcroft included the links to those in their email updates. So anything special that you’re doing, make sure you’re including the links, so your investors feel as involved as possible. And then obviously, I think it’s pretty obvious that people are following CDC and WHO guidelines, but you can mention that too if you want to. So back to the blog post.

On the investment front, we have always maintained an extremely conservative underwriting standard. Typically, our exit cap rates assume a 10-bps increase in rate per year over our initial cap rate. For example, if we assume that we hold a property for 5 years, the exit cap rate is generally 0.50% higher than our initial cap rate. This makes the conservative assumption that the markets will be worse when we sell than when we purchased the property. So that’s one very important point to make.

So if you did not conservatively underwrite your deals, then those people are having a lot more difficulty right now that people who did conservatively underwrite deals. So a lot of the guys that I’ve talked to in the Best Real Estate Investing Advice Ever show, the regular show, a lot of the people that I talked to about the coronavirus that were obviously facing issues, but were confident that they’d be able to weather the storm was because of their conservative underwriting.

So one example of that would be to not assume that the market is going to be better or the same at sale. Assume it’s going to be worse, which is a higher cap rate, so that’s worth a bet. So even if the in-place cap rate is 5% and then when you sell, it’s an 8%. so it’s 3% higher, if you assumed that 5.5% or 6%, sure, your projections aren’t gonna be accurate, but they’re going to be a lot more accurate than the person who assumed that it’d go from a 5% cap to a 4% cap, or a 5% cap to a 5% cap. Now, the people who conservatively underwrite their deals are looking like geniuses right now. So that is one example, is the cap rate. Evan’s got a few other examples in here, so back to the blog post…

When researching market rents for our renovated units, we historically underwrite rents that are below competitive properties, in order to create projections that we are very comfortable that we can obtain. So what he’s saying here is that when you’re doing a market rent comparable analysis — well, let’s take a step back really quick. So if you have not been conservatively underwriting deals, then this is going to be a great lesson to make sure you’re conservatively underwriting deals in the future. So rather than– if you are facing difficulties right now because of the underwriting, rather than giving up, just take this as a learning experience. Get through it and come out of the other side literally stronger, because now you understand exactly what mistakes were made, underwriting or something else, and just make sure you use all that in the future.

So back to the blog post and talking about the renovated rents. So when you are doing rent comp analysis, the best practice is to determine what the average rent per square foot is for the competitive properties that are obviously close to the subject property, assuming you’re in a major metro area. So let’s say that you look at ten properties that are all fully updated to the same degree that you plan on upgrading your property, and you’ve determined that the dollar per square foot is $2. So rather than assuming that you’re going to get $2 per square foot at your property, you can assume something that’s slightly less than $2 per square foot. That way, not only are you trailing the market leader, but you’re also trailing the average. So if you do that and the projections still net whatever return your investors want, if you buy the deal, then if it is below average compared to the market, then you’re still hitting your projections. If it’s average, you’re exceeding your projections, and if you are one of the market leaders, you’re far exceeding your projections. So that’s huge.

So if something like this happens and rents go down, then you already underwrote lower rent in the first place. So, sure, the rents might go below your projections, but you’re gonna be in a lot better spot if you assumed a below-average rent than if you assumed an average or above-average rent. Back to the blog post.

Additionally, the loans that we place on our properties are generally very flexible and help get us through slower periods. This is why we always stress in the Three Immutable Laws of Real Estate Investing to get a loan that is equal to or greater than the hold period. So if you plan on holding on their property for five years, the loan should be five years or greater. So if you’re doing bridge loans, that’s okay, as long as you have the ability to extend the bridge loan once the three-year period is over. So back to the blog post…

As the markets adapt to a post-COVID-19 world, we will continue to use conservative assumptions when underwriting new potential acquisitions. Depending on the market and property, we may decide to further adjust vacancy, bad debt, rent growth, and renovation premiums to more accurately reflect the recovery of the markets.

So yeah, just– not just continue to underwrite deals the exact same. So sure, you can be a conservative underwriter now, but the conservative underwriting from a year ago might be considered aggressive underwriting in three months from now, especially if vacancy is really low or bad debt is really high, rent growth is really low. So just make sure you’re staying up to date on the market vacancies, the market bad debt rates, and the rent growth projections, so when you begin to look at deals again, you are not just using the same standards as before, because those might be out of date, or are most likely going to be out of date. Back to the blog post.

Finally, for the investments we’re looking at, we have not changed. These Class B assets in Class B neighborhoods have historically shown to withstand recession pressures best. With median household incomes in the $80,000 range, our tenants tend to not be the first hit when economic downturns arise. They have savings and can withstand a short period of uncertainty. If those economic pressures spread and begin to affect our tenant base, it is also affecting the Class A tenants. At which point we get the stepdown effect. When we lose tenants, we are gaining the tenants coming from the Class A properties, since a Class B property has many of the same amenities as Class A – pool, workout facility, in-unit laundry – and are still located in good school districts and near employment bases. These step-down tenants do not need to make as big of a lifestyle change, while saving money on rents.

So what he’s saying here is that if you’ve got Class A, Class B, and Class C… Let’s say, everyone is financially impacted by some events like the coronavirus. Then the people who are Class A are no longer gonna be able to afford Class A, so they’re gonna have to be forced to either stretch themselves to continue to pay rent on their Class A, or take a property that’s maybe not as new, but still has all the same amenities as their Class A property, but the rent is lower and more manageable for them. So they decide to move in the Class B property which is the property that Ashcroft Capital holds.

Now, the people who have a Class B are also financially affected, but the change from Class B to Class C is a lot different than the change of Class A to Class B. So you’re more likely to get a higher percentage of people going from A to B, then you would from B to C, depending on how large of a financial impact it is. But even if the percentages are the same, the people that you lose that go to Class C properties, you’ll gain the same amount from Class A properties. Alright, so that was question number one. Back to the blog post for question number two.

“With all the uncertainty, how are you protecting my investment?” It starts with our conservative underwriting. Then we take it a step further. We run a detailed sensitivity analysis to understand how far off we can slide on rents, occupancy, and cap rates. On a typical deal, our breakeven occupancy in NOI is in the high 60% to mid at 70% range. When looking back at previous recessions, these markets’ occupancy rates bottomed out at 87%-89%. This allows us a certain level of comfort and certainty to maintain positive cash flow and distributions, thereby allowing us to ride out any downturn and never forcing a sale.

So I think that plenty of investors know what the breakeven occupancy is. That is the occupancy rate such that the NOI is equal to the debt service. I think letting them know what that is will relieve a lot of stress or uncertainty that they have about you losing their money… Because if you tell them that, “Hey, we can cover our expenses all the way down to a 65% occupancy rate. In the past recessions, the occupancy rate has never dipped below 85%. We’re always going to be able to cover our expenses, unless something insane happens that’s never happened before.” And then you can show them, “Hey, our current occupancy is this. Our trending occupancy is this, and our current occupancy is 88%. Our trending is 88%, breakeven occupancy is 65%. So you don’t have to be worried until you see occupancy rates in the low 70%, and then it might be time to panic.” I mean, obviously don’t say that, but that’s something in their minds. It’s like, “Oh, okay. Well, breakeven occupancy (explaining to them what that means) is 66%, and the current occupancy rate is 88%, and oh, in past recessions it has never dropped below 85%. So okay, I’m more confident in your ability to protect my investment.” Back to the blog post.

“What are your thoughts on how things will play out?” We do not have a crystal ball, but we do have data from the 2008 recession, which was not only kicked off by the credit crisis, but additionally, we had the H1N1 global pandemic spreading in the spring of 2009. Multifamily as an asset class faired the best of all real estate during the last recession. After their grocery bill, the second bill consumers pay is rent. In the near term, we understand that consumers and our tenants will feel some pain, as everyone is, and we are adjusting our underwriting in assets to account for this with increased vacancy, bad debt and lower market rents. So I’ve already talked about that in previous answers.

Last question is, “Is real estate a good investment in these uncertain times?” We continue to be bullish on multifamily real estate. While people may choose to not open a new retail store or expand their company, needing more office space, people will always need a place to live. When we provide a clean, modern space with all of the amenities of the newly built complex, but at 30-40-50% less in monthly rent – compared to Class A, he’s talking about – we will continue to see strong leasing momentum. Additionally, we are not relying on market appreciation for our investments. We view each property as a standalone business; one which we know how to grow income, regardless of the market cycle. We can add more income by implementing our value-add investment strategy and force appreciation. And that stronger income stream will always have a value to a future buyer, even if the cap rates relax.

So here’s one of the three immutable laws of real estate investing – don’t invest for natural appreciation. So if you invest and assume that cap rates are just going to keep going down, then cap rates go down, [unintelligible [00:17:25].15] to the same value goes up. Well, once cap rates don’t go down anymore, then your projections are way off.

On the other hand, the value-add business model is about forcing appreciation by focusing on the other variable in the equation, which is income. So rather than assuming that the cap rate’s gonna keep going down, the cap rate is kept the same, or in fact even goes up, but the income goes up through the value add program.

So again, as I mentioned earlier, sure, there’s gonna be an increase in vacancy, bad debt, but all those things are assumed based off of the current market and the projections for the market. So using those, you determine, “Okay, well, I might be able to invest $8,000 per unit to increase rents by this much money.” Obviously, the expenses might be a bit higher, but you’re still increasing the income.

As we’ve mentioned, that stronger income stream will always have a value to a future buyer, so even though the cap rates go down – so people are gonna want to buy a property that the income is going up, as opposed to from an owner who just was betting on the cap rates going down.

Basically, what he’s saying is that as long as you’re doing what you’ve already been doing, if you’re underwriting conservatively and not attempting to gamble and buy on natural appreciation, then it might make sense to eventually, buy more properties in the coming months. So again, if you want to read that in full – I basically read it in full – but it’s Coronavirus and Commonly Asked Passive Apartment Investor Questions. I think that me reading it and expanding on it a little bit more, I think this episode will be valuable enough by itself, as opposed to having to read the article.

So make sure you guys check out some of the other Syndication School episodes we have about the coronavirus; these are the more recent ones. We’ve also got a coronavirus landing page. It’s joefairless.com/coronavirus. You can check out our blog posts. Syndication School of course at syndicationschool.com. We’ve got free documents on there as well. Thank you for listening and I will talk to you soon.

JF2059: SOS Approach to Managing Your Investment During Coronavirus Part 2 | Syndication School with Theo Hicks

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In this episode, Theo continues the series on the SOS approach to managing your investments during a pandemic from episode JF2033. The SOS approach is a three-step process to guide you on what you should do during a crisis event, and after it passes. SOS acronym stands for Safety, Ongoing Communication, and Summary. Theo will be breaking down each step so you can have a better idea of what you should do during today’s pandemic. 

 

Part 1 of SOS: JF2033

 

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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JF2053: 3 Ways to Get Cash From The CARES Act | Syndication School with Theo Hicks

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In this episode, Theo shares three ways to get cash from the CARES Act. He explains the 401k distribution, Paycheck protection program loan (PPP), and the Economic Injury Disaster Loan (EIDL) in detail so you will be better prepared during this pandemic. 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. 

 

Best Ever Tweet:

“Understanding the CARES Act can help many individuals.” – Theo Hicks


TRANSCRIPTION

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

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

 

Theo Hicks: Hi, Best Ever listeners. Welcome to another episode of the Syndication School series, a free resource focused on the how-to’s of apartment syndication. As always, I am your host, Theo Hicks. Each week, we air a podcast episode or two podcast episodes that focus on a specific aspect of the apartment syndication investment strategy, and for the majority of these episodes, sometimes they’re part of a larger series, we offer a free resource – PowerPoint presentation templates, Excel template calculator, PDF how-to guides, something to help you on your apartment syndication journey. All of these free documents from past Syndication School series episodes as well as the episodes themselves can be found at syndicationschool.com.

In this episode, we are going to talk about three specific aspects of the CARES Act, the Coronavirus Aid, Relief and Economic Security Act that was recently passed, three aspects of that that can help you get cash to hold you over if your properties are struggling and you need some cash to pay investors to cover expenses to your mortgage and things like that. So we’re going to go through those three in this episode today.

The first one is going to be some changes they made to retirement accounts such as a 401(k) and an IRA. So if you have a 401(k) and IRA, this applies to you. Obviously, if you don’t, then the other two, I think, will be much more advantageous. But the first change is that you are going to be able to take out a large withdrawal of up to $100,000 from your IRA or 401(k) without having to pay the early withdrawal fee or the income tax right away. So usually, if you wanted to pull money out of your 401(k) or your IRA early, you’d be required to pay the withdrawal fee, which is 10% as well as the income tax on that distribution. Whereas now, you are able to take a coronavirus related hardship distribution of up to $100,000.

People who qualify for this coronavirus related hardship are people who are diagnosed with coronavirus, have spouses or dependents who have been diagnosed with coronavirus or those experiencing financial consequences from the quarantine, which is pretty vague. So the rules are actually really loose.

So if you’re an investor and you’ve seen a reduction in rent, then you’re experiencing a financial consequence from the quarantine, and are able to pull out up to a 100k out of your 401(k) or IRA without paying the early withdrawal fee. So this provision may help, as I mentioned, you, but this is also something that might be able to help your residents, depending on what type of properties you’re investing in. If you’re investing in Class A properties, maybe your residents have 401(k)s or IRAs they can tap into to pay for their rent. It’s another way to pay rent as well. But of course, obviously this is something that can help you as an apartment syndicator, cover expenses as well, and it could also cover living expenses too.

If you are putting everything into a property to pay your investors, but you’re not making money yourself, well, pull some money out of your 401(k) if you need to, to hold you over until the property turns around. The up to $100,000 distribution – not only do you not have to pay the early withdrawal fee, but it’s also tax-free for three years, at which point you need to either replenish the money, put it back into your account or you need to pay the income tax on that. Now, if you haven’t experienced a Coronavirus-related hardship, which if you’re a real estate investor and based off of the loose requirements, you should be able to be considered having faced a Coronavirus related hardship… But let’s say, for some reason, you haven’t, your properties are perfectly fine, your business is perfectly fine – well, you can still access up to $100,000 from your 401(k), and you do this through a loan.

So in the past, if you wanted to take a loan against your 401(k), the max was 50%, or 50% of the vested amount, whichever was higher. With the CARES Act, the maximum amounts has been doubled to $100,000. So the loan process is the same, which means you need to pay back the loan with interest, or else it will be treated as a withdrawal and will be subject to the income tax and the early withdrawal fee. But instead of being able to pull out only $50,000, now you’re allowed to pull out up to $100,000. And similarly, this loan may be used to cover– this can be something that your residents can use to cover rent, you can use it to cover business expenses or living expenses. Plus, you could also use it to potentially acquire a property.

A lot of people use their 401(k)s to buy properties. So you could also take up to $100,000 out of your 401(k) to buy more real estate. So the two 401(k), IRA retirement-related things that the CARES Act allow is number one, if you’ve experienced a Coronavirus-related hardship, you can pull up to $100,000 out without paying the early withdrawal fee and then not having to pay taxes for three years. Whereas before, if you pulled out a 100k, not only would you have to pay the early withdrawal fee, but also income tax immediately. And then secondly is, if you have not experienced a hardship or if you have and you want even more money, you can take up to $100,000 from your 401(k) as a loan as opposed to the previous $50,000. So that’s 1A and 1B.

The second way to get cash from the CARES Act is going to be the Paycheck Protection Program Loan or the PPP Loan. So this is something that is new. The third thing we’ll talk about is something that’s previously existing, which is expanded upon us, the Economic Injury Disaster Loan. But first, we’ll talk about the PPP loan.

So the PPP loan, as the title points to, helps you pay your payroll costs, during the coronavirus. So who qualifies? Small businesses. So this is a small business loan; you need to have under 500 employees. It can be an S Corp, a C Corp, an LLC… It can even be a sole proprietorship or an independent contractor or someone who’s self-employed. So that applies to basically all real estate investors. And then when you are obtaining the loan, in order to qualify, you need to certify that your business has been economically affected, or there’s economic uncertainty to make the loan necessary. So there’s a portion of the application you fill out that you need to basically prove that you are being economically affected by the coronavirus.

With this PPP loan, you can get up to $10 million, but the amount is going to be based on your payroll costs. So in order to calculate how much money you can get as a PPP loan, you want to determine what your average monthly payroll cost was for the past 12 months, and then multiply that by 2.5. So if your average monthly payroll is $100,000, then $100,000 times 2.5 is 250k. So you can qualify for a $250,000 PPP loan.

Things that are included in this payroll calculation are salary, wages, commissions, payment of vacation, sick parental family, medical leave, payment of retirement contributions, group health coverage premiums, state and local taxes. It doesn’t include federal taxes and it doesn’t include payroll costs for those making more than $100,000. And these are things that apply to you and your employees. Obviously, if you’re an independent contractor, you probably don’t have employees, or if you have your property under the single purpose entity, you can still qualify for the PPP loan. It would just be whatever salary wages that you yourself got.

What can the money be used for? Payroll for you and your employees. But what’s nice is, you can also use the money for rent, mortgage obligations, utilities, and other debt obligations you may have. So you can pay the mortgage on your apartments or you can pay utilities on your apartments with the PPP loan.

The interest rate is essentially interest-free; it’s only half a percent, so 0.5%. And the repayment period is two years, and loan payments are deferred for the first six months, and there’s no prepayment penalty, so you can pay it back whenever, and there’s also a way to have the loan forgiven.

So there is a loan forgiveness provision which states that you’re eligible for loan forgiveness for the amounts you spend over the next eight weeks after receiving the loan on certain qualifying expenses. And these qualifying expenses of the business over the eight week period include payroll costs, rent, interest item, mortgage debt, and utilities. So depending on how you use the loan, you could have the majority of it or all of it forgiven, meaning you never have to pay it back if it’s one of these qualifying expenses. And if the amount that could be forgiven is determined by the bank who actually grants the loan, and once you request forgiveness, the bank will have 60 days to approve or deny the loan. What’s also nice is that you are able to have more than one small business loan. So you could get the PPP loan, you could also get the EIDL loan, which I want to talk about next.

So just to summarize, the PPP loan, the Paycheck Protection Program, is for small businesses, so you have to have under 500 employees. That applies to most entities, but you can get up to $10 million. That loan amount is based off of the average monthly payroll for the last 12 months multiplied by 2.5, and the money can be used for payroll, but it can also be for rent, mortgage obligations, utilities, and other debt obligations. Very, very low interest and needs to be paid back within two years. Payments are deferred for six months and you have the possibility of having most or all of the loan forgiven, depending on how you use the proceeds. So that’s number two – the PPP loan.

Third is going to be the Economic Injury Disaster Loan, the EIDL. So the EIDL is an existing program that was expanded upon through the CARES Act. So in order to qualify for the EIDL loan, you need to meet the definition of a small business, which is something that’s organized for profit… and this applies to the PPP loan, too. You have to be a small business, because these are things that are gonna apply to most of you – organized for profit, has a place a business in the US, operates primarily within the US, is independently owned and operated, and is not dominant in its field on a national basis. So assuming you meet those criteria, you meet that definition of standards, the size standards are 500 or fewer people, and then you need to be located in the US. So assuming you meet those three, then you could qualify for the Economic Injury Disaster Loan. I’m not sure what’s easier to say – the Economic Injury Disaster Loan or the EIDL. Well, probably EIDL.

So you can borrow up to $200,000 through this program without a personal guarantee and you can be approved just based off of your credit score. You do not need to prove that you can’t get credit or money anywhere else. So you don’t need to prove that this will be your last resort and you need this loan to survive. If you’re getting a loan over $25,000, then you’re going to need to have collateral, which can be your small business. It doesn’t need to be your property, doesn’t need to be anything that you personally own. And probably one of the things that most people are talking about this is that you can get a $10,000 loan advance very, very quickly to provide for immediate support while you wait for the proceeds from your EIDL loan.

So the EIDL loan, you can get up to $2 million to provide working capital for your payroll costs, debt, expenses like that. The interest rate is 3.75% and the loan term can be as long as three years.

There’s one year of payment deferrals, although the interest does begin to accrue right away. And then as I mentioned, you can get a $10,000 advance, which is effectively a grant. When you request that, when you fill out your EIDL application, it should arrive within a few business days. And the money is yours and does not need to be repaid whether or not you qualify for the EIDL loan. So it seems like it’s just free $10,000 that you can get by just applying, assuming you meet the criteria. I went to the website and it said that it takes about two hours and 10 minutes to complete, but I know a few people who filled it out very, very quickly. So basically for this EIDL loan, the majority of it remains the same of how it was before, the biggest change is the $10,000 advance.

So when you apply, you can get a $10,000 advance in a few days that you do not need to payback. So it’s basically a grant given to you. And then after that, you can apply for up to $2 million to pay for things, assuming you can prove that you’ve been financially impacted by the coronavirus.

So those are the three main ways to get money from the CARES Act. The first is being able to pull money out of your IRA and 401(k) without paying the early withdrawal fee and the larger loan amount that you can take against your 401(k).

Number two was the PPP loan, which will help you cover payroll costs, but also rent and mortgages and utilities and things like that. And then the Economic Injury Disaster Loan, the EIDL loan is another loan that gives you a $10,000 advance. The loan terms are a little bit higher interest rate, but a longer payback period and a longer payment deferral, and you can get up to $2 million for the EIDL loan compared to the up to $10 million for the PPP loan.

So again, those are the three main ways to get cash from the CARES Act. There’s a lot more things in the CARES Act that are going to positively impact your investing business, but I think those were just kind of the main three that most people are talking about now, that we wanted to talk about today.

So thank you for listening. In the meantime, make sure you check out some of our other Syndication School series about the how-to’s of apartment syndication, make sure you check out our coronavirus page on our website – this is joefairless.com/coronavirus, where we post all of our blog posts about the coronavirus and different developments in regards to that, and also make sure you check out some of the free documents we’ve been giving away for Syndication School. That’s available at syndicationschool.com. Thank you for listening and I will talk to you tomorrow.

JF2050: Managing and Dealing During The Coronavirus With Shannon Robnett

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Shannon has 25+ years of real estate experience owning 500+ properties, experienced builder, and syndicator. His family has always been in real estate where dinner conversations consist of real estate deals. In this episode Shannon shares the ways he is approaching his investors and residents to make sure they are all taken care of and his business stays safe. 

 

Shannon Robnett Real Estate Background:

    • 25+ years of real estate investing experience
    • Developer, builder, and syndicator in multi-family and industrial
    • Currently owns 500+ properties
    • From Meridian, Idaho
    • Say hi to him at: www.shannonrobnett.com  

 

 

Best Ever Tweet:

“Communicate early and often” – Shannon Robnett


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. I’m Theo Hicks and today, we’ll be speaking with Shannon Robnett. Shannon, how are doing today?

Shannon Robnett: Good, Theo. How are you?

Theo Hicks: I’m doing good, thanks for asking, and thanks for joining us. Today, we’re gonna be talking about the coronavirus, which seems like everyone is talking about today.

Shannon Robnett: That’s for sure.

Theo Hicks: So we’re gonna ask Shannon how the coronavirus is impacting his business and the things that he is implementing in order to combat it. But before we get into that, let’s go over Shannon’s background. So he has 25+ years of real estate investing experience, he’s a developer and builder of all types of real estate, as well as a syndicator; he currently owns 500+ properties, and he’s from Meridian, Idaho, and you can say hi to him at his website, which is shannonrobnett.com. So Shannon, before we start talking about the coronavirus, do you mind telling us a little bit more about your background and what you’re focused on today?

Shannon Robnett: Sure, Theo. So I grew up in a real estate family, so I watched my parents do deals at the kitchen table and talk about if we sold this, we could buy that. My mom is a third-generation realtor, my son is a fifth-generation realtor, and my dad is a general contractor. So I kind of got that growing up. I didn’t really see that there was much option for me with that background. So I’ve always been about doing deals and putting things together, and we’ve just been able to continue to grow a business that meets the needs of our clients, meets the needs of our community. So with that, it’s definitely kept me busy and given me a lifetime’s worth of work.

Theo Hicks: Perfect, thanks for sharing that. As you mentioned before, you’ve started — so you’re a builder and developer. So you build all types of properties – commercial, industrial, multifamily, retail, but then you mentioned that you don’t own those. But you own 500+ properties. What are those? Are those multifamily, or are those something else?

Shannon Robnett: Currently, we just finished 180 doors. We’re in process, right now, of constructing one particular project of 191. We’ve got another project at 36, and then we’ve got two other projects that total another 200 doors that are under construction. So we develop those, we find the ground, we put the deals together. I also own industrial space. We’ve got multi-tenant industrial buildings all over the valley. But the retail business, the office business is just a little bit different business, and is just one that I’ve chosen to stay out of, and we’re seeing a decline in retail, we’re seeing a decline in shop space, and things like that. So that’s just an area that I’ve stayed away from.

Theo Hicks: Okay, and then all of the other multifamily projects you were talking about, will you then own those or manage those afterwards, or do you then sell those?

Shannon Robnett: Our goal is to build them up and then sell them, essentially to another one of our entities that is a syndication entity. I also do have a property management company, so I keep real tight control on what value my tenants are getting, making sure that we’re more concerned about the bottom line, giving the tenant the experience that they’re willing to pay for, because we all know, at the end of the day, that affects the value of the property through the cap rates. So we’re always, always managing our own.

Theo Hicks: So, for your syndication business, are you raising capital from other people to fund those deals?

Shannon Robnett: We are raising capital from other people. We’ve got a pretty good network. Obviously, we’re always willing to have other people join our projects, but we’ve been pretty good with that. Myverticalequity.com is where our capital raise is centered out of, but our investors that are on our syndications are in the mid-20s for their returns, in their IRR.

Theo Hicks: Okay, yup. So the reason why I was asking you all of those questions is I wanted to see what you were all involved in, so I can figure out what type of questions to ask with the coronavirus. But it seems like you’re involved in everything, so can we take this really in any direction. So let’s start with property management. So you said you have your own property management firm. Before we start talking about communicating with tenants, let’s talk about the operational perspective. I know a big thing right now is collecting rent. So we’re recording this on April 8th. So April 1st was the first of the month, when rent was due. So maybe walk us through how that went, what type of things you did to make sure you were able to collect the rent, what types of concessions that you guys came up with for your residents, or really just walk us through what happened.

Shannon Robnett: Okay. So when this whole thing started coming out, we sent out a memo to our people. It was about the 25th of March, and we hand-delivered it, actually put it on everybody’s door, letting them know that we were interested in understanding if they were affected by it and if they could let us know that there had been some change; maybe there was a letter from their boss or their unemployment filings or medical notice, we were willing to work with them.

So our approach was always to reach out to our tenants first, because we want to maximize that experience for them. So contacting them about this early really put us ahead of the curve, because we started hearing rumblings, we started having tenants come to us, and everybody is afraid of the unknown. They don’t really know what’s going to happen next. They don’t know how secure their job is. So just being able to come and talk with us.

Then when it progressed a little further and we started seeing states shut down and things like that, when we closed our amenities, we immediately told the tenants that in April, that we would not be collecting for the RUBS, nor would we be collecting for the cable, and the internet. So the tenants felt like they were being compensated for not having the amenities. So from there, we were able to really build a bridge with them and begin to continue the conversation. Moving forward, we had about five people come forward and most of them were interested in how this month was going to go, but how next month was going to go. So we were able to build a bit of a forbearance where we reduced the rents here, and then extended them by another year in the property, and spread out the discounted rent over that time period. So they were able to feel like we heard them, they had a choice in how that was going to go, we weren’t looking for a raise for next year, but we were able to spread out the discount of this month and next month over that period of time.

Theo Hicks: Okay, so we’ve talked about the residents side of things. What about your investors? So how did you handle communication with the investors? So these are deals where you, obviously, raise money from people, they’re used to getting their returns, they’re used to things just going as normal. From here on out, you really don’t know what’s going to happen by the end of the month, so what types of conversations, emails, phone calls have you had with them?

Shannon Robnett: Well, Theo, we used the same philosophy with our investors as our tenants, and that’s  communicate early and often. So we reached out to them with an email, letting them know that we didn’t know what was going to happen. However, we reminded them that we did have cash reserves that we could pull from, that we weren’t in trouble of not making our payments this month, nobody had issues with any of those things. And really before they ever got concerned, we took the proactive step with them and just let them know there was no reason to be concerned. And then after that, as always, we’ve really tried hard to stay in front of them, and most of our investors aren’t that concerned, because we are always communicating often.

Theo Hicks: So you sent an initial email. After that first email, how often were you sending emails? Every day, every week?

Shannon Robnett: We gave them an update on the fifth, and then we’re starting to do a weekly wrap up. Hey, here’s how many people we had come in looking for some assistance, here’s what we think to do, here’s how we’re going to handle it, here’s how that would potentially affect cash flow. So we’re going to start doing that on a weekly basis as we move on, just so that we over-communicate and don’t run into issues.

Theo Hicks: Okay, and then what about on the opposite side. We talked about deals that you already completed, that you have a property management company, have tenants, have investors. You mentioned that you’re working in a few development deals. Are those being impacted at all or are those still on schedule, everything is going smoothly?

Shannon Robnett: Well, construction is considered an essential service. So our contractors have been on site and moving forward as scheduled. It has given people a time to pause, as far as jumping into our deals, but it’s also been a funny time because we’ve seen a lot of people wanting to get out of the stock market and coming to us and saying, “I decided I want to invest with you guys now.” So we’re seeing both sides of the spectrum there, where we’ve got people coming into our deals faster than we thought, on stuff that we have shovel ready that we’re moving forward on. Some of the stuff that’s in planning that’s out six to nine months I don’t think is going to be bothered, but right now, we don’t know.

Theo Hicks: Okay. As you mentioned earlier about forbearance – are those conversations you’re having with your lenders?

Shannon Robnett: No, we’re not in a position where we need to have a forbearance conversation with our lenders. We’re just doing that with our tenants and we’re structuring it… Because everybody’s hearing that word in the media, and tenants like to get what everybody else is getting. So having them talk about, “I’ll give you half off of April and half off of May, and then we’ll add it on to June and July and spread it out over the next 12 months. And maybe that requires a lease renewal, but we’re great [unintelligible [00:10:32].28].”

Theo Hicks: Alright, and then another question. Obviously, they recently passed– it was last week, I don’t know time is like a time warp right now…

Shannon Robnett: Right. You’re running in quicksand.

Theo Hicks: I saw a funny meme – January is 31 days long, and then February is really short, it’s 28 days long, and then March is 6000 days long. Something like that.

Shannon Robnett: Right, right. Exactly.

Theo Hicks: But anyways– so they passed the CARES Act. I was wondering if you have investigated it or are taking advantage of any of the loan programs – the EIDL, the PPP loans at all?

Shannon Robnett: Yeah, we have applied for both the PPP and the EIDL loan program, and the reason that we’ve done that is because our employees were really excited when we applied for the PPP program, because they knew that there was an opportunity for additional protection for them, and it also puts us just in a stronger position on a balance sheet to have those funds available if we need them. They’re grants that can be paid back, but if you’re not applying for them, you’re definitely not going to be eligible. So having the opportunity to get the cash while it’s available is definitely, I think, prudent business.

Theo Hicks: Yeah, and then for the EIDL, that $10,000 advance is considered a grant. I don’t think you got to pay that one back, is that right?

Shannon Robnett: That’s my understanding as well.

Theo Hicks: It’s confusing, but it’s my understanding too.

Shannon Robnett: Yeah, and that’s the thing. We’ve applied for this and I’ve stayed in touch with our lenders on this. Everybody’s trying to get to the bottom of it. I know that– typical government, they say, “We’re going to do this,” and then they throw it off onto another agency that’s got to sort out how that actually gets implemented. But from the standpoint that cash flow right now or cash in hand right now is what everybody’s looking for, any opportunity to increase that and have that to work with later is definitely a great option.

Theo Hicks: Okay then the last question, I’ve been asking this to everyone who I’ve talked to this about… Where do you see your industry – let’s just call it, I guess, development – in six months or a year from now or once this is all over? Do you think it’s gonna snap back to normal or do you think there’ll be any changes, and if so, what do you think those changes will be, and then are there gonna be opportunities, just like there were after the 2008 recession that people should be aware of?

Shannon Robnett: I think that we’re going to snap back fairly quickly. The biggest difference between right now and 2008 is that there’s inventory shortages everywhere. So with the inventory shortages, I think we’re going to see it snap back pretty quickly. I don’t think that we’re going to go into an 08′ type recession, because that had a lot of product available. But I do see that there are some people that shouldn’t be in real estate, that are going to get removed fairly quickly… But those of us that have been here for a while that are about staying the course, I think you’re going to be just fine.

That’s the way it is with development. We’re always looking 12 to 24 months down the road anyway. So I see that we’re going to see some positive changes in how the lending market is going to respond to this, because I think that, like most things, lending has been getting a little bit loose and a lot of people that maybe shouldn’t be doing this are getting in the waters which is making it a little muddy.

Theo Hicks: Yeah. I think that’s a common theme that everyone thinks that this is going to, in a sense, weed out the fakers, so to speak, that shouldn’t be investing in real estate. So I guess that’s probably a plus plus, once they do leave and they’re trying to sell their properties. Those are opportunities for people to take advantage of.

Shannon Robnett: Yeah, like Warren Buffett said, “When the tide goes out, you can see who’s swimming naked,” and I think that there are going to be opportunities, but I don’t believe that they’re going to be the opportunities that we saw in ’08, ’09, because most people, if they’re not in a cash flow position right now, they’re not far from it, because they’re not dealing with the vacancy that would require a lot of discount in multifamily. Single-family is still selling very well. In most areas, there’s not enough inventory of that. So if their single-family product comes back on the market, they’ll get snapped up pretty quickly.

Theo Hicks: Alright. Well, Shannon, I really appreciate you coming on the show today and sharing your background, first of all, but also how the coronavirus is impacting your business and some of these solutions you’re putting in place. Just to summarize, from a resident-tenant perspective, you mentioned that you initially sent out a memo, hand-delivered memos – first time I heard about that – to all of your tenants asking them to let you know if they’re going to be affected financially by the coronavirus.

So you reached out to them first and early; it was a theme with communication. You mentioned that once you closed the amenities, you told residents that you would not be collecting for the RUBS or internet or cable. So they felt like they were being compensated for not having the amenities, because as everyone knows, those aren’t a monthly fee or anything. They’re just built into the rent. I thought that was a very solid approach. And then, you mentioned that people who needed help, you extended their lease by a year, and then spread their delayed payments over that timeframe. So that was your repayment strategy.

For the investors, you mentioned that you sent them an email on 5th of April that you don’t really know what’s going to happen, but here’s all the measures we have in place that makes us think we’re going to be okay. We have reserves, we’re not getting any trouble paying any expenses. So just like the tenants, you acted quickly. You mentioned that you’re also doing a weekly wrap up emails. I really like that. So just mentioning, “Hey, here’s what happened this week, here’s who needed help, here’s we’re going to do, here’s how it’s gonna impact the financials, but we were still okay.” So just trying to stay in front of them as much as possible.

You mentioned from a construction perspective — I didn’t know that construction was considered an essential service, so you’ve got your contractors are still there working. You got some people who are not interested in investing, but then you’ve got more new people coming in who want to get out of the stock market because of how poorly that’s been performing.

You mentioned that you applied for both the PPP and the EIDL loans, that your employees were excited about the PPP because of the extra protection that they’ll get, and that it’s good to just to have cash right now, because you have stronger balance sheets.

We talked about your post COVID predictions, that you don’t think it’s gonna be as bad as 2008 because the fact that there are inventory shortages right now, and that you think that once it’s all over, people who shouldn’t be in real estate will have been kicked out, and that there’s gonna be positive changes in lending and lending requirements because it’s been a little loose, which just allowed these people to come in… And again, that you don’t think it’s going to be like 2008 because vacancy was much lower then and inventory was much higher then. So I think that covers everything we’ve talked about.

Shannon Robnett: That’s it.

Theo Hicks: Again, really appreciate you coming on the show and being willing to talk about this stuff.

Shannon Robnett: Thank you, Theo.

Theo Hicks: I’m glad to hear that you’re doing okay. I’m glad to hear that you’re safe. Stay safe. Everyone listening, stay safe. Have a best ever day and we will talk to you tomorrow.

Shannon Robnett: Thanks, Theo.

JF2047: 2008 vs Coronavirus With Chris Clothier

Listen to the Episode Below (00:21:53)
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Chris is a partner of REI Nation and he personally owns $12-15M in residential holdings and commercial real estate. Chris has been on the show before on two other episodes, links are provided below. In this unique episode, Chris shares his thoughts on the differences and similarities in the 2008 crash and the current coronavirus pandemic.

Previous Chris Clothier episodes.

3 common mistakes forming a business partnership

Faith will ruin real estate business

Chris Clothier Real Estate Background:

    • Partner of REI Nation 
    • REI Nation manages an $800 million (M) portfolio consisting of single-family residentials
    • Chris personally owns $12-15M in residential holdings and commercial real estate
    • 18 years of real estate investing experience
    • From Memphis, TN
    • Say hi to him at: www.reination.com   

 

Best Ever Tweet:

“You need to be in planning mode, you have to plan for the 10 things that could happen.” – Chris Clothier


TRANSCRIPTION

Joe Fairless: Best Ever listeners, how you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless. This is the world’s longest-running daily real estate investing podcast where we only talk about the best advice ever; we don’t get into any of the fluffy stuff. We’ve got a special segment for you today. We’ve got Chris Clothier on the show and he’s gonna be talking about the differences between 2008 and the current real estate market with the coronavirus pandemic. So, first off, Chris, welcome and good to talk to you again.

Chris Clothier: Yeah, Joe. Thank you for having me. I appreciate the chance to just jump on here and chat with you a little bit.

Joe Fairless: Well, I always jump at the chance to talk to you. I have a lot of respect for you as a business person and as a human being, so I’m grateful for talking to you as well. A little bit about Chris – he’s a partner of REI Nation. REI Nation manages a $100 million portfolio consisting of single-family homes. He personally owns between $12 to $15 million residential holdings and commercial real estate. He’s got nearly two decades of real estate experience, based in Memphis, Tennessee. So, Chris, can you give a very, very brief refresher of your background, and what you do, just for some context for our conversation? …and then let’s talk about your thoughts on the differences between 2008 and what we’re currently experiencing with the coronavirus pandemic.

Chris Clothier: Absolutely. So for those who don’t recognize the name REI Nation, my family founded the company called Memphis Invest, and Memphis Invest rebranded as REI Nation when we moved into our seventh market for managing single-family homes for passive investors. So we started in Memphis back 2002, 2003 range. Today, as you alluded to a few minutes ago, we’re managing over 6000 single-family homes for passive investors, and really our specialty is what’s become known as the turnkey niche. So we are purchasing, doing high-end renovations, then placing long-term residents into those homes, and then we manage them once they are purchased by a investor that wants to be strictly passive. They just want to own the asset, have someone else manage the day-to-day. That’s what we do today. That’s about an $800 million portfolio spread across seven cities in the southeast Midwest area.

Joe Fairless: What are the cities?

Chris Clothier: We’re in Memphis, of course, where we started, and then we’re now in Dallas and Houston, Texas. We’re in Oklahoma City and Tulsa, Oklahoma. We’re in Little Rock, Arkansas, and St. Louis, Missouri.

Joe Fairless: Okay, got it. Cool.

Chris Clothier: And as you alluded to, we were a growing company in the very, very early days of the boom for passive investments, when it was becoming very popular across forums online and across the ability to use the internet to reach out, connect and due diligence on passive investments around the country. We were right there at the forefront of it before the first recession hit.

Joe Fairless: So how did tenants, how did owners react then versus what you’re seeing now?

Chris Clothier: Well, the interesting dynamic between the two is that back in 2008, there were a lot of people that were talking about a housing bust, that there was a bubble that had been created artificially, and that was through people that were buying property that had no business buying property, people that were highly, and even over-leveraged. You just had this inflation of value that there were a lot of people that were warning at the time that it was unsustainable, and then you had suddenly, this slow drip of bad news. It started, of course, with Bear Stearns crashing, and then – I’ve got my dates pretty close to accurate – about 15 months later, Fannie Mae pulling out of the investment market and dropping investors from, I believe, ten properties down to three properties that they would finance overnight. So from a Tuesday to a Wednesday, you went from having an approved loan and a property under contract, to your loan was canceled. Even if you had a closing set for 8 a.m. in the morning, it was no longer closing. So there was this slow drip of a crisis developing and all sudden, boom, one day you had the drop.

What’s happened here now is really a compression of just bad news and fear. But many of the hardships that are going to face the real estate industry as a whole, they’re still in front of us. They haven’t really hit yet. This is a whole new set of issues, from rent and mortgage abatement and some of these other things that are coming up, and the difference right now is that there’s no room to even take a breath. You’re talking about over a two-week period, we went from full occupancy and business as usual, to the likelihood of collecting percentages of rents rather than full rents. Whereas before, you had a little bit of time to prepare and you could see things down the road. This is one of those things that just smacked us all right in the mouth in a fairly short period of time.

Joe Fairless: So what’s your communication approach when, inevitably, you’ve got your customers reaching out to you personally? I know there’s got to be a chain of command where they’re reaching out to their point person, but they’re also reaching out to you too, saying “Hey Chris, what’s going on with my property?” So with 6,000 individual units– that’s a lot of owners. I understand that many owners buy multiple properties, but I’m sure you’ve got some approach where it’s like, “Okay, here’s my message now to my clients, and then here’s my approach, XYZ.” So can you talk about that?

Chris Clothier: Yes. There are 2,000 owners of those 6,000 properties. So you’re talking about a massive number of people, and all are going to have an individual situation to them. So the first thing that we did was we did not rush to communicate out anything. We took our time to absorb, to bounce a lot of ideas off one another. We spent a lot of time understanding what was happening rather than trying to react and put out multiple messages. And ultimately, the message we went out to our client base with was that we are preparing daily.

We remember what the 2008 crisis looked like, we remember the daily grind, we remember the fact that you had to have a plan A and a plan B and a plan C, you had to be thinking through every possible scenario and each way you could react, because there’s so many things happening. Whether you’re a single landlord or you’re a business owner with a smaller business, none of it matters. You have to be in constant planning mode, and what I mean by that is you can’t plan for what’s going to happen, you have to plan for the ten things that could happen, and then how do you react to those.

Then the bigger thing for us, I’ll tell you, we’re very confident right now. Mostly we’re confident because we feel that we have prepared as best we can. [unintelligible [00:07:38].20] I don’t know of anybody that I’ve spoken with out there that had a plan for it to stop a pandemic in this type of scenario. But all of us planned for if something bad were to occur. So all this was was we spent a lot of time ramping up, discussing, training, changing scripts, and by scripts, I mean, we have to know how to answer questions. Now you’re talking about from an owner and a resident standpoint, and we have to practice and practice and practice and practice what our message is, and make sure that we properly plan for the messages we’re giving, if that makes sense. I mean, you can’t just say something. You have to have a plan behind it. “This is exactly what we’re doing and why we think it’s gonna bring us and you the most success.”

Joe Fairless: What is your resident message?

Chris Clothier: The resident message was simpler than the owner message, I will tell you that. The resident message was that — we did not go out with a big message in advance of telling everybody of any plan. Every single resident in every one of our properties knew that rent was due on April 1st. So we did not communicate any mass message of what we were going to be doing in advance. What we chose instead was on an individual one-on-one basis, as residents are calling us, informing us of hardship, we have a list of resources for them, we have questions we have to go through with them, we have verification steps that we have to take, that are gonna verify that you are truly in a hardship. Then, the reality is that right now, housing is massively important to each of these residents. They don’t want to stress about housing.

So, the message becomes, “While rent is due, not paying anything right now really cannot be an option. You have to make some effort towards paying rent while we verify your hardship so that we’re able to fight for you on your behalf to an owner that they’ve done the best they can, they’re doing everything they can to meet their obligation, this is where they’re at.” We try and keep to a minimum the number of people that do not pay any rent for whatever the reason, valid or not. We’re trying to keep that to a minimum. So our message is one of compassion. We have a lot of steps we’re going to take, but you don’t take those steps until the month goes on. So again, nobody’s late with us until three or five days after rent’s due. So right now, nobody’s late.

Joe Fairless: Note to listeners – we’re recording this on April 2nd.

Chris Clothier: There you go. Sorry about that, Joe.

Joe Fairless: We took a similar approach, by the way, with no formalized communication to residents about rent in particular. We have apartment communities, so it’s a little bit different. Certainly, about amenities and social distancing among the community and staffing hours and all that, but that’s apples and oranges right now, so I won’t mix that up into this conversation.

But we took a similar approach where rent was due April 1st, and we’re going to have those conversations on an individual basis now. What about a different approach? Because I saw a post on Facebook – so it’s definitely true – where someone proactively gave all their residents 15% off rent, and they were getting at least from one resident, very positive feedback. For the record, we did not do this, so I’m not saying you should have. But I’m just asking, why didn’t you do something like that?

Chris Clothier: We discussed it. So here we are again, we’re recording on the morning of the 2nd April, and we already know that over 30% of our residents paid on time in full through the first day, and that percentage will grow through the second day and the third day; payday is Friday. There’s a certain percentage out there that are going to pay on time that are not having any issues right now. Heck, Joe, we had over 12% of our residents paid early, before the 1st. So their rent for April was in March, and most of them are paying the 28th, 29th, 30th, 31st those days. They’re making auto payments in their portal. So had we arbitrarily given a discount across the board, we have a fiduciary responsibility to our owners to make sure that we are doing what’s in their best interest too. There will be cases where we have to work with a resident. There are going to be cases where we’re going to have to do discounts and we’re going to have to implore owners to work with them.

So we chose, and we will continue this message to our residents, that those that can pay, should pay, and those that are in hardship should communicate, and that’s the route we’re taking… Because we don’t know what’s going to happen in May or June. So someone who could pay full in April may need help in May. I wouldn’t be able to give them the help that they need then, not arbitrarily cut it across the board. So we don’t know that we’re right, but we are very confident in our approach. So far, it’s bearing fruit. So far– in fact, we have a great plan for those that cannot pay on time, and we have a great plan for those that can, and we’re executing.

Joe Fairless: If I cannot pay on time, and I verified my hardship through the list of questions that your team asks, but I do make an effort to pay; say I paid 10% of whatever the rent is, what happens to the remaining 90%?

Chris Clothier: It’s gonna be again, on an individual basis, but I can tell you on the front end, we’re not here to make late fees and make life more difficult for anybody, and we’re not here to put anybody out of their home when the eviction proceedings are unfrozen. So there are a lot– I don’t have the exact number, but I know it was a good percentage of owners that proactively reached out to us and said, “Hey, I want to help my resident if they need help. I’m in a good position, so I don’t have to have full rent.” And what we’ve told all of our owners is, there will be a time and a place to make that decision. Let’s not proactively reach out, because there’s 6,000 residents here. Let’s not reach out to them to say, “You don’t have to pay.” Let’s review. It may be 30 or 60 or 90 or 120 days down the road when decisions have to be made.

And if we can communicate that the resident had great communication with us, they applied for all the assistance they could get, they applied as much of that assistance towards rent as they could, then I have a feeling that we’re gonna have a lot of owners that say, “Okay, that’s what I’m going to lose this year. Whereas I anticipated making a higher cash return, this year I may not make that cash return, but I reduced my principal, I’ve got an occupied property with a good tenant, I’ve worked at some goodwill, and we’ll just move forward.” That’s what I think a lot of owners are prepared and understand they’re gonna have to do this year, not all of them, but some. Some will be affected that way.

Joe Fairless: Looking back to 2008 and comparing it to today, you mentioned some of the differences at the beginning. But, what are some similarities that you see?

Chris Clothier: Well, I see the unfortunate effect of this compounding of issues that, if I were to guess, I would say that some markets, some neighborhoods, some areas, some classes of properties, however, you want to designate it, they’re going to be impacted by foreclosures months from now. They’re going to be impacted by an increase in vacancy and maybe a decrease in rent. Now this isn’t across the board and each market’s different, but you’re going to see those things happen. It happens slowly. Back during the crisis of ’08, by 2009, 2010, if your market was going to be affected on the real estate side, it was. It took a solid two years, but by then, there was no escaping. If your market was going to see an increase in foreclosures, a compression of rents, a compression of value, it had happened, and I think that’s going to happen again here. This is a completely different crisis, but now, the financial side is going to start taking its toll on the real estate, and people’s ability to maintain and stay in their homes and avoid foreclosure and eviction. So those things, they’re lagging, and hopefully it’s not massive, hopefully we can get through this… Which is a major difference from back then.

At least with a crisis like this, there’s hope of a cure to come out of it, a flattening of the number of people that are being affected… All these different things that we can see that didn’t exist in a way in ’08 and ’09. Back in ’08, ’09, we had no idea what was going to happen next. At least, now we know that with some degree of certainty that we’re going to get through this, and the faster we can, the less effect it’ll have on the number of foreclosures there are and where they occur, and rent rate compression and value compression. I don’t think it’ll be as widespread, but the longer this goes, you can see where that’s going to come 6, 9, 12 months down the road.

Joe Fairless: One interesting thing that I think will take place is the fire sale like we had, after the ’08 crisis – it won’t be nearly like that at the end of this, for many reasons… One of them being people have been squirreling away money, anticipating some correction. They had no idea, I don’t think anyone had the idea it would be a virus. You’d think that they thought that it’d be something else, but people have been squirreling away money and the distress properties that do come up, it is my belief, there’s going to be a lot of competition for those distressed properties. Whereas in 2009, 2010, there wasn’t nearly as much competition because of what you said, the uncertainty.

Chris Clothier: Oh, I think you’re spot on. You’re exactly right. So there’s not a liquidity crisis, yet. So as long as there’s liquidity in the market and there’s appetite for buying, I agree with you, 100%. We shouldn’t see that anyway. And look, between you and I and all of your listeners here, any investor that came through the ’08 and ’09, many of them that I’m talking to, they’re advising newer investors that this whole idea of “This is what we’ve been waiting for, now we can finally get involved in the market and prices are going to fall and I’m going to send out some great deals”, so many of us remember the destruction that came from ’08, ’09, ’10 to lives, to people individually. Certainly, none of us are hoping for that. Anybody that came through that is hoping for a calm, recovery and exit out of this, not something that’s volatile, with high losses. If you invest properly in real estate and you invest with good fundamentals, you can always find good deals. You don’t have to hope for or wait for some massive crisis to make your windfall.

Joe Fairless: Anything else we should talk about that we haven’t talked about as it relates to what’s going on right now compared to ’08 and just your overall approach?

Chris Clothier: The biggest thing I can implore everybody is that it’s not too late to plan. If you haven’t planned yet, that’s okay. Even by the time that you hear this, you need to be planning for what can come next, and worst-case scenarios and how do you navigate those issues. You need to be overly communicating with your partners, with your lenders, with your clients or residents. If this has shown us anything, it’s that we’re pretty weak when it comes to control, which actually is a very strengthening approach. We don’t know what’s coming next. So we get stronger by planning  for everything, so that we’re not surprised. So no matter what happens, we can look back and say, “I’ve got a plan for this and I’m going to execute that plan.” That’s the way we came through ’08 and ’09, and that’s exactly what we’ve done today. We have just very calmly said, “Let’s get to work.”

Joe Fairless: What you said at the beginning, you did not rush to communicate anything; you had conversations amongst yourselves and figured out the approach. What was your response to the owners, to their clients before you had that formalized communication ready to go? What were you telling them in the meantime?

Chris Clothier: Well, for us, we have for many, many years had a program where we call every one of our clients, every month. So we built up this massive goodwill through relationship. So for us, there was no need to rush out because we were already talking to every client, and the conversations that the clients had with us was, “Hey, I know y’all are planning and preparing. I just want you to know that I’m okay not getting rent or help my client out. Let me know when you know what you’re going to do.” So we didn’t have a clientele that was in the dark. We had a clientele that, because we call them every single month — and that was our message. “Hey, we called you every month for the last 12 years for this day, because this day would come, when there would be uncertainty and fear, and you needed to know that we were on top of it.”

So there was not a need for us necessarily to get something out quick, and when we did get something out, we chose to do it by video, which we posted a message that they could all get to. So we put it on a website page so they could get to the message, and the message again was very clear, that (again) we’re confident.

Joe Fairless: Who was talking in the video? Was it just you?

Chris Clothier: It was just me.

Joe Fairless: Just you. Got it. Well, how can the Best Ever listeners learn more about REI Nation?

Chris Clothier: We have a very active blog at reination.com. We have a video series out there to help investors learn and all of it’s free. There’s nothing behind a paywall, you don’t pay anything for it, that kind of thing. I’m also extremely active on social media sites and even on sites like BiggerPockets. So I think I’m pretty accessible. You can come to reination.com, learn more about our company. You can always reach out to me. You can connect to us through social media or through BiggerPockets, and we’re happy to do what we can to help investors today navigate, get through this.

Joe Fairless: Thanks for talking about the macro-level picture, as well as getting the specifics of how you’re communicating with the owners of the properties, as well as the residents. Enjoyed our conversation, as always. I hope you have a best ever weekend and talk to you again soon, Chris.

Chris Clothier: Thanks, Joe. Take care.

JF2046: 11 Tips for Collecting Rent During The Coronavirus Pandemic | Syndication School with Theo Hicks

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In this episode, Theo shares 11 tips for collecting rent from your tenants during the coronavirus pandemic. These ideas and tips are from research around the real estate investment community, from some of our previous guests, and from the Best Ever FaceBook community.

 

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. 

 

Best Ever Tweet:

“During this pandemic, one idea is to apply your tenant’s security deposit towards rent and apply a discount to help your tenant’s out.” – Theo Hicks


TRANSCRIPTION

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

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

 

Theo Hicks: Hello, Best Ever listeners. Welcome to another episode of the Syndication School series, a free resource focused on the how-to’s apartment syndications. As always, I’m your host, Theo Hicks. Each week, we air to podcast episodes that focus on a specific aspect of the apartment syndication investment strategy, and for a lot of these episodes we’ve been releasing free documents as well; how-to PDF guides, PowerPoint presentation templates, Excel calculator templates, things that will help you along your apartment syndication journey. All of these free documents and past Syndication School series episodes can be found at syndicationschool.com. Today, we will be continuing with our coronavirus-focused episodes and talking about how to collect rent. So some tips on collecting rent.

When this episode airs, the first of the month of 1st of April will have arrived, and in previous months, apartments syndicators really knew that the vast majority of the residents were going to submit their rent on time and in full, something that we didn’t really have to think about at all, unless we were just buying a property and knew that tenants weren’t the best and the plans have turned them over. But the majority of the time, they’re going to pay on time; that’s not really something that was focused on. Whereas now with the coronavirus pandemic, a lot of people losing their only source of income, being furloughed indefinitely, laid off from their job, hours cut back, it’s the first time that rent is due during this pandemic time. So we wanted to provide some tips on how to collect rent.

So they did pass the $2 trillion Stimulus Bill, which is going to extend a direct cash payment to certain individuals if you qualify. So it’s $1,200 bucks for most American adults and $400 or $500 bucks for each child, as well as some money for businesses, cities, states and small businesses, hospitals, things like that. So that is obviously one option. If your residents are able to get that direct payment, then that can help them cover rent for a month or two. But besides that, I wanted to provide some other tips on how to collect rent that’s not the direct cash payment that’s coming from this stimulus bill.

In this episode, we’re gonna focus on 11 ways that you can still collect rent during the coronavirus pandemic. This comes from research that we did across the Internet and things that other investors are doing, plan on doing. So that’s where this information came from.

So the first piece of advice came from our Best Ever show community on Facebook, which I highly recommend following or liking if you aren’t already, because we’re posting some coronavirus related content every day and we are asking for people that are currently following the page to provide their input on things that they’re doing. So a lot of active investors are providing some very solid advice, and these first three approaches are coming directly from that group.

So the first came from Justin, and this one’s pretty simple. He’s just going to offer a small discount to residents who pay their full rent early or on time. So if they pay their rent a week early, a few days early, and it’s in full, then he’s going to give them a minor discount. So obviously, the discounts and the timing of how early, it is up to you, but the goal is to motivate residents to pay their rent before it’s even due; so pay it early. That way you have an understanding of how much you’re going to be collecting for that month and in return, you’re giving them a small discount. So that was number one.

Secondly, Justin’s also going to set up a repayment plan for residents who cannot pay their full rent on time or pay their full rent early. This is going to allow residents to make up for their unpaid rent later. So that’s another strategy that I’ll talk about later in this episode about a potential repayment plan, but if they don’t pay rent, then you create some plan for them to repay it in the future before their lease expires. So just helping people out that aren’t able to come up with rent. Justin is offering a small discount if they pay early, and also creating a prepayment plan rather than evicting them, or you’re charging them money with interest or something. So those are the first two strategies.

The next strategy comes from Julie, also from the Best Ever show community. It’s a very unique approach to collecting rent. I believe I talked about this on last week’s Syndication School, but first thing she’s doing is allowing her residents to apply their security deposit towards a reduced monthly rent payment. For example, if you have a resident who owes $1,000 per month in rent and has a $1,000 security deposit, well, what Julie did is she allowed them to use that security deposit to cover two months’ rent. So she discounted their rent each month for two months by 50%, so $500 each month, and they were able to apply that $1,000 security deposit to their rent. So at the end of the lease, they won’t get that $1,000 back, because the $1,000 should be sitting in a bank account somewhere. So you just take money from the security deposit bank account, and deposit that into your rent collection account.

Now in return for this discounted rent and with the ability to apply the security deposit to the monthly rent, Julie was making the residents sign a new lease. So six months or twelve months depending on what their current lease is, as well as sign up for some security deposit insurance. So the service she uses is called Rhino, and it’s $10 per month per $1,000 in the security deposit insurance, and then depending on the residents, she wants to see two to three times, the security deposit amount in coverage. So if they owe $1,000 for security deposit, then they’ll pay $20 to $30 per month for security deposit insurance, and security deposit insurance covers damages and unpaid rent. So if they can’t continue to pay rent, well then Julie can make up for that by having that security deposit insurance and collecting rent that way.

So she had just started this during the coronavirus pandemic and hasn’t actually filed a claim yet so you’ll want to check out Rhino or some other security deposit insurance company. The strategy here is to allow your residents to use their security deposit to pay their rent. Julie did a reduced rate just because she wanted to cover two months as opposed to one month, so pushing the problem away two months as opposed to one month. So you can reduce it by 33%, or you don’t have to reduce it at all. You can make them sign a new lease or not sign a new lease. You can make them sign up for security deposit insurance, you can make them do something else, but the overall strategy is to have them use their security deposit to pay rent in return for doing something else that you want them to do. So that is strategy number three.

The next two strategies, four and five, they came from actually a Best Real Estate Investing Advice Ever Show podcast interview that I did with Daniel, which actually aired this past weekend. So I think it aired the 29th or the 28th of March, and the first tip that he provided is to communicate with all of your residents to understand their ability to pay rent in full and on time. So you don’t want to skip this step. You don’t want to just not say anything to your residents in general. Obviously, you want to communicate them with the safety precautions that need to be taken by them and that you are taking during this time, but you also want to communicate with them about their ability to pay rent, because not every single resident is going to have a problem paying rents.

So you don’t want to assume that every single person at your apartment community is not going to pay rent, and then apply whatever solution to everyone. So if you’re gonna do Julie’s solution, for example, and allow them do their security deposit and reduce the rent by 50%, you don’t want to do that to every single person. You only want to implement some solution for residents who will have a problem paying their rent. For the ones that don’t have a problem paying their rent, you don’t really need to do anything. If they’ve kept their job, if they already work remotely or work for an industry that’s not affected by the coronavirus, then nothing really changes for them. It’s for the people who cannot pay rent on time. If you don’t communicate with the residents, you’re not going to know, and you might end up losing more income that way.

So, Daniel, he had a long-term rental portfolio and he has a short-term rental portfolio, so all of his long-term residents are able to pay rent on time. So since he’s a sales manager, he had the conversation with his residents or he knew from past conversations with residents, whether or not they were financially impacted by the coronavirus. And fortunately for him and his residents, none of them were financially impacted by the coronavirus. They all had their jobs and were still getting paid, and so they were all able to pay rent on time.

Obviously, his short-term rental portfolio was a different story, and that’s something that I’ll talk about in the next tip, but if he didn’t communicate with residents or if he wasn’t a sales manager and didn’t know that all of his long-term residents could pay on time, well, first of all, he might have been surprised come April 1st, but secondly, he might have applied the solution that resulted him losing income that he didn’t necessarily need to lose, because some of his residents might have been able to pay him on time. So this is a very important step, very important tip, which is to make sure you understand where your residents are at financially before implementing or offering some discounted rate to them.

So, Daniel’s other tip was very interesting. So as I mentioned, half of his portfolio consisted of long-term rentals, so 12-month leases, which as I mentioned before, he didn’t expect to be impacted by the coronavirus. Obviously, it’s still really early, but at the time of the interview, he knew that the residents were gonna be able to pay their rent on time.

The other half his portfolio were Airbnb rentals. So obviously, with all the stay-at-home orders, most people aren’t traveling and staying in short-term rentals anymore. I did interview someone in North Carolina, I believe, who said that the little municipalities he said he’s in actually started to ban any lease that was less than 90 days. So short-term rentals are completely shut down in his local area. So for Daniel in particular, since all of his short-term rental clients canceled the leases, he pivoted and is trying to market his properties to traveling nurses, because all of his properties that he uses for short-term rentals are really close to hospitals. But he’s not able to do that for every single property.  Some of these properties are still vacant.

So what he said, and what I thought was really interesting, was that he plans on volunteering up his units to volunteers that are coming to the hospital. So people that work for Red Cross or other professionals that are traveling to the hospital to volunteer and help with the coronavirus. Something he said that was very interesting was that the worst-case scenario is that you would help someone else. So for him, he’d much rather have someone living in his unit and being able to use it to do good than just have it sit there vacant, because he’s gonna lose money regardless. So in his mind, he wanted to help people, rather than to have it to sit vacant. So I thought that was a really interesting, altruistic strategy. So another tip you can use, not necessarily to collect rent, but a way to give back and help people during this crisis.

These next tips come from Brandon Turner over at BiggerPockets. He created a YouTube video with the strategy that he is going to implement for collecting rent during the coronavirus pandemic. He had a five-step plan or five tips, and I really liked three of them. So the first one was to keep an eye out for federal and local programs that will be created to help residents pay their rent. So a perfect example would be the direct cash payments to qualifying individuals in the $2 trillion Stimulus Bill that passed March 27th.

So research online and figure out what other programs there are available. I’ll talk about another program on the Syndication School episode tomorrow or directly after this one, and that was included in the $2 trillion Stimulus Bill. So that was number one, or Brandon Turner’s first tip, which was number seven overall.

Another idea that he had, so eight overall, is to have residents pay rent with their credit card, so very simple straightforward. It allows them to delay paying their rent in a sense, by a month or longer than that, as long as it makes the minimum payment on their credit card bill… And I believe Brandon said that he was going to waive the 3% credit card fee that is incurred when you use your credit card to pay rent on their portal. So you might have to set up a portal or do some extra steps to accept credit cards for rents, but Brandon waived the fee. You can or can’t do that, depending on what you want to do, but that’s another way to collect rent, is to have them use a credit card.

Then his third, which is number nine overall, is to offer his residents an emergency rent deferral program, which he said was a last resort and something that he only brings up if all the other options don’t work. So for his program, as I mentioned earlier in this episode, Justin also had a repayment plan, but he didn’t get into specifics. Brandon got into specifics of his repayment plan.

So what he does is he allows his residents to defer paying their rent for up to two months. And then, once that two months is over, or one month is over, they are able to pay the rent back over a 10-month period. So let’s say, for example, a resident misses their $1,000 a month of rent payment on April 1st and on May 1st. So there are $2,000 in the hole, they’re not allowed to miss it in June. So they must pay their rent in full in June, but they’re also going to owe 10-month installments for the $2,000 that they didn’t pay. So it’ll be $1,000 plus 200 bucks for a total of $1,200 per month, starting in June, and then ending after 10 months. So that’s the plan.

Actually, I think he delayed the 10-month repayment program by a month. So for example, if they’re gonna miss April and May, they wanted to pay 1,200 bucks until July. So they [unintelligible [00:16:13].17] at June, as long as they pay their $1,000 a month, they’re fine, and then starting in July, they’ll give him 1,200 bucks.

A few other tips that I came across – some of these are pretty simple, but one is just to offer free month of rent to residents, as long as they can provide you with a financial hardship letter from their employer, stating that they have been laid off or furloughed due to coronavirus, or a note from their doctors saying that they have coronavirus. So this really could be applied to all these.

So if you want to, you can only apply these types of things to people who can prove that they’ve been hit financially from the coronavirus. So a letter from their employer saying that “Yes, we’ve had to lay off employees because of this reason, and Billy Bob is one of them.” Or, “Yeah, his hours have been cut because of the coronavirus and his pay’s been reduced because of the coronavirus,” things like that. So again, that’s up to you. You can apply these solutions to all residents or you can apply them only to people who can prove that they’ve been hit financially by the coronavirus. It’s really up to you. These are all just strategies that we’re throwing out there. You can use them or not use them.

The other one is to reduce your rents to the point where you don’t make any money, but are still able to cover all of your expenses. So let’s say that you’ve got a 100-unit property and you find out that 30% of the residents have been laid off from their job and can’t pay rent. And then let’s say that the breakeven economic occupancy is 70%. Well, 30 units is 30% of the total units that are there. So if none of those units could pay rent, then you’re at 70% economic occupancy, assuming that all other 70 units are paying their full rent. So you could technically offer no rent to those people and still not lose money. So figure out what your break-even point is and then know that you’re able to reduce rents by that much, but no lower, in order to continue to cover all of your expenses.

So those are the 11-ish tips for how to collect rent or help out your residents during the coronavirus pandemic. To summarize, it was, one, offer a discounted rent to those who pay early or on time. Number two is offer a repayment plan. Number three is to allow residents to apply their security deposit to their rent. Number four is ask residents to pay for security deposit insurance. Number five is to communicate with residents to see who can and cannot pay rent. Six, is volunteer your units for free to coronavirus volunteers. Seven is to use federal or local programs created for landlords and renters. Eight is to ask residents to pay rent with a credit card. Nine is to offer an emergency repayment program. Ten is to provide free rent to residents who lost their job and 11 is to reduce rents to break even.

Now before we go, we did create a page on our website, where we post all of our coronavirus related content. It’s joefairless.com/coronavirus, it’s pretty simple. We update that every single day with blog posts and different articles. So if you’re interested in learning more tips on how to maintain your properties during the coronavirus pandemic, I recommend checking out that.

Also, check out our other syndication school episodes and those free documents. Those are available at syndicationschool.com. As always, thanks for listening, have a best ever day, and we will talk to you tomorrow.

JF2039: Experience Shouldn’t Stop You From Starting With David Toupin

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David started investing when he was 19 during his junior year because he didn’t want to go the corp route. Broke, no money, no ability to get a loan, and put a 12-unit under contract. He had about 120-units syndicated before he graduated college. This is a must listen to episode If you want to learn how to overcome the objection “You have no experience.” 

David Toupin Real Estate Background:

  • Real estate investor and entrepreneur, Co-Founder of Obsidian Capital, a real estate investment firm
  • By the age of 24 he has acquired nearly 600 apartments valued at over $50M, and has a $10M new development projects working on now 
  • Based in Austin, TX
  • Say hi to him at https://www.obsidiancapitalco.com/

 

Best Ever Tweet:

“The answer to the question “You don’t have any experience, why should I invest with you?” The answer to this question was the numbers. Showing them proof that it is a good project” – David Toupin


TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, David Toupin. How are you doing?

David Toupin: I am doing fantastic, man. How are you?

Joe Fairless: I’m glad to hear that, I’m doing fantastic as well. A little bit about David – he’s a  real estate investor and entrepreneur, co-founder of Obsidian Capital, which is a real estate investment firm. By the age of 24 he has acquired nearly 600 apartments, valued at over 50 million dollars, and has ten million dollars’ worth of new development projects that they’re working on right now. Based in Austin, Texas. With that being said, do you wanna give the Best Ever listeners a  little bit more about your background and your current focus?

David Toupin: Absolutely. Thanks for having me, man. I started investing – to give you the short version – when I was about 19, turning 20, in college. It was my junior year. [unintelligible [00:01:38].27] internships, didn’t wanna go the corporate route, so I started looking at buying multifamily properties. I was broke, had no money, had no ability to get a loan, and I put a 12-unit under contract in Michigan, near where I grew up… And that was like “Oh, crap. How do I buy this now?”

Joe Fairless: Where in Michigan?

David Toupin: It was in Metro Detroit, a city called Garden City, so a C area. Nothing sexy about this property at all, but it was something I ran some numbers on and it worked. I made an offer, and at that point syndication wasn’t really — I don’t know, were you doing your podcast in 2016?

Joe Fairless: Yes.

David Toupin: Okay. There weren’t as many podcasts and sources out there at that time as there are now for syndication… So I just kind of stumbled across a little bit of stuff and figured out I could put a PPM together, raise some money. Long story short, I raised a couple hundred thousand dollars, found somebody to sign on the loan, I bought that… Then I did it a couple more times. I had about 120 units syndicated before I graduated college.

Joe Fairless: How many units?

David Toupin: 120.

Joe Fairless: Wow. Before you graduated college… [laughs]

David Toupin: Before I graduated college.

Joe Fairless: Where were you going to college?

David Toupin: University of Detroit Mercy, studying finance. I didn’t really go all that often. I skipped most of my classes. My conversations with every teacher in the beginning of the semester went mostly with me telling them that I work a lot, and that real estate is my focus, so I’ll come when I can. [laughs]

Joe Fairless: Did you get a degree?

David Toupin: I did, yeah. I got a finance degree.

Joe Fairless: Nice.

David Toupin: And I just kind of kept doing that. I partnered up with a guy out of Texas after I bought about a little over 200 units. He had owned about 4,500 apartments throughout Texas, sold most of them; he was twice my age, extremely smart guy, very humble. We saw eye to eye morally and ethically, and had some bad experiences in the past, so we thought that it would be a good idea to partner up… So we did that. We bought a deal together in Houston, it went fantastic. 160 units. So we started Obsidian Capital together a little over a year ago, and we’re approaching the 600 unit mark together. We own some land and are doing some new development now.

Joe Fairless: Boy… We have a lot to talk about. Okay, let’s just go from a chronological standpoint… You were in college, you got the 12-unit under contract, you didn’t have any money,  you raised a couple hundred thousand dollars and you got a co-signer. Was the co-signer also someone who brought in some money?

David Toupin: Yeah, I think maybe 25k.

Joe Fairless: How did you meet the co-signer?

David Toupin: Just through networking. It was another local fix and flipper. I started doing some wholesaling and flipping, so that was someone I’d met and we partnered on that deal.

Joe Fairless: So you were doing wholesaling, and through the wholesaling business you met this fix and flipper, and then this fix and flipper co-signed. What was the liquidity and net worth required that you needed help with at the time?

David Toupin: So the purchase price was 560k; 45k/unit was the purchase price. So probably half a million in net worth, and a couple hundred in liquidity.

Joe Fairless: Okay. And the couple hundred thousand that you raised – who participated in that deal? Not names obviously, but just how you met them.

David Toupin: Yeah, we would call from friends and family category. Not really family, just more friends and people I had networked with. I think we had 6-7 people in at anywhere from 20k to 50k. The total amount was about 200k.

The majority of those were other local entrepreneurs, somebody who has owned an insurance agency, somebody who flipped houses… So just a couple of people who wanted to invest in something passively, and we were able to get them in on that.

Joe Fairless: What’s the answer to the question, when it was asked to you, “You don’t have experience. You haven’t done this yet. Why should I invest with you?”

David Toupin: The answer to that question was the numbers… And  I think that was a big thing for me, as I’m a big analytical/numbers person. The easiest way to overcome that objection was showing people proof that it was a good project. Showing them the price compared to other comparable sales, showing them the rents compared to where properties on that street were getting, so that I can increase them, and showing them the proforma… It really helped me to overcome the “Hey, you’re only 20 years old and you’ve never done a deal before” objection. I got that a lot, although [unintelligible [00:06:09].05] I don’t get it as much now, but through my third deal, where I had to raise 1.7 million on a 96-unit – and that was extremely difficult, overcoming the age and track record.

Joe Fairless: Say it’s a cynical investor and the numbers and the market data speaks for itself, and then they say “That’s great, David. The numbers do look favorable, but you’ve never executed on the business plan. Anyone can be a spreadsheet millionaire. Why should I believe you can execute the business plan?” What was your response to that?

David Toupin: My response is I’ve toured all of the comparable properties in the market, I’ve met with management companies, discussed the business plan, and the fact that it’s only a 12-unit project doesn’t leave a ton of room on the table for failure when it’s a high-occupancy market. And the property is already fully occupied. From there, it’s really me walking them step-by-step what the plan was gonna be. Getting tenants out one by one, as their lease is renewed, and offering them to stay at the new renovated rent mark. If they didn’t wanna stay, their lease would end, they would move out, and we would renovate it and bring in somebody else at that higher rent mark.

So just kind of walking them through that process made them more comfortable… But to  your point, there were a lot of people that heart that and said “No, I’ll pass”, and they weren’t comfortable with it. So it really came down to having a lot of people look at the project, to say “I’m interested. Yes, I’ll invest with you. I’ll take a chance.”

Joe Fairless: And how did you get to that number of people for your first deal? What were your avenues?

David Toupin: A lot of them were people through meetups, local groups… I would ask for referrals. The guy that signed on the loan – he brought in his network… So I think the key is networking.

Joe Fairless: That’s helpful, when you have a relationship with an influencer who’s signing on the loan… So in this case he believes in the project, clearly, otherwise he wouldn’t be signing on it. And then he’s already got connections with others. So what percentage of investors came through that investor’s connections?

David Toupin: I would say half and half.

Joe Fairless: Cool. That’s a great way of doing it. How did you structure it with that investor, in terms of general partnership fees and ownership?

David Toupin: We split it all evenly. So we did an 8% preferred return to investor, with 80/20 split over that. Then 3% acquisition fee on the purchase price, and then myself and him split all that down the middle.

Joe Fairless: Cool. Do you still have it?

David Toupin: We do not, no. It sold out a little over a year, and actually another 12-unit we bought just down the street from that – same thing, same structure, same partnership, and we sold that one as well.

Joe Fairless: Okay. That was deal number one. And then deal number two was — what did you say, a 20-unit?

David Toupin: Deal number two was another 12-unit, on the same street.

Joe Fairless: Oh, that one. Okay. We’ll skip that one. How about your third deal that you mentioned? I think you said it was a 1.6 million raise?

David Toupin: Yeah, so it was a 1.7 million raise…

Joe Fairless: Okay, 1.7…

David Toupin: And it was 96 units. We got it from a mailer… It’s a really interesting story. The guy owns over a billion dollars in real estate. He’s a local Michigan, old-school (71-72 years old now) investor, and he’s really heavily invested into senior living developments, and hotels, and stuff like that; class A apartments. This was a ’79 build, 96-unit, in a B minus area, that he had built 40 years prior, and owned free and clear, so he held it the whole time

We got a call from him, and he was open to selling, from a mailer. That was just a really simple “Hey, I see you on this property. Interested in making you an offer? Give us a call if you’d like to sell.” Timing worked out. We ended up building a good relationship with the guy, negotiated a good price, and we bought that one off-market for 43k/unit; we renovated it, we’re all-in for about 50k/door, and about six months ago sold it for 70k-71k a unit.

Joe Fairless: Bravo.

David Toupin: That one did very well. Thank you.

Joe Fairless: This was your third deal at the time; you’ve bought two 12-units up to this point. You’re sending out mailers, and the owner who owns over a  billion dollars of real estate calls you up. Were you a little nervous?

David Toupin: I had no clue, to be honest with you. My first conversation with the guy, I had no clue. He said he owned a lot of real estate. He was like “I own a couple thousand units free and clear, and I own this and that”, and I was like “Alright, maybe… Is this guy the real deal?”

Joe Fairless: That could go one of two extreme directions.

David Toupin: Exactly.

Joe Fairless: “Hold your wallet and hide your kids” or “Okay, this could be a long-term partnership thing.”

David Toupin: Exactly. And it was super-interesting. I ended up building a good relationship with the guy. And coming from those first two 12-units, I ended up partnering with the same game on this one as I did the first two 12-units. He sponsored the loan again, and we raised equity together… So I actually built a really good relationship with the seller, and I think that’s what really helped to get the deal done.

And Joe, I ended up living in this deal, and kind of house-hacked it. It was one of my greatest learning experiences. I was 21. We bought it in 2017, and I got in, oversaw about a half a million dollar renovation, which I had never done before… Self-managed the deal. Freddie Mac small balance loan. I’m not sure why they let us self-manage it, but they did… And I had an on-site manager and maintenance person. I took a two-bedroom, I kind of tricked it out, I lived in it, and it went really well.

Joe Fairless: What do you mean, you  tricked it out?

David Toupin: I renovated it, did kind of a cool renovation on it, and then I also paid the highest rent on the property.

Joe Fairless: [laughs] Got it. So you ended up buying this property and living there… What were some challenges overseeing that type of renovation project, having never had done that before?

David Toupin: I don’t even know where to start. It is a big process, managing that kind of a renovation. I will say, I got it done under budget, but it took probably six months longer than it should have.

Joe Fairless: Okay.

David Toupin: The biggest thing is — if I were to do it all over again, I would have vetted three general contractors to oversee the unit renovations, and I would have tried to put one group in place that could tackle all of the unit renovations from start to finish. When a unit moves out… They’d do 2-3 units a month, and when somebody moves out, they’d go in there and knock it out.

We tried out three different small-time contractors. One was a group of 3-4 brothers… We call them van contractors, that work out of a van. A couple guys. So it was just a hodge-podge of renovations. We ended up hitting the rents, but the unit turns took longer than they should have, it wasn’t the same quality level across the board… And if I were to do it all over again, I would have just hired one group to tackle all the unit renovations, to keep it consistent and to keep it easy.

Joe Fairless: You said you had bad experiences in the past, you and your new partner. So what was your bad experience?

David Toupin: The business partner I’ve had on some of these deals did not see eye to eye in a lot of areas… I’m very by the book, I would say, and reputation is important to me, and making ethical decisions is also really important to me. That’s kind of how I was raised, and I think that’s how you should act in business… And I didn’t see that from this partner, so I just decided “Let’s sell everything off, we’re gonna do well, and let’s part ways on a good note.”

Joe Fairless: Yup.

David Toupin: That’s kind of what happened… And it led me to find my current business partner, who sees eye to eye with me exactly, and it’s a really good situation. So no regrets. You have to go through that kind of stuff, to learn and figure out what works, what doesn’t work. And I guess if I have any advice or suggestions on that to other people – I know a lot of people getting into this business, syndicating or partnering, and starting groups and stuff… Just try it out. Do a deal separately, before you go and start a business with somebody; just test run it, and see how you operate together before going down that road.

Joe Fairless: Yeah. And you ended on a high note, and everyone made money, and then they brought you to the current partnership. What are some examples of the ethical dilemmas that you came across?

David Toupin: Situations where — let’s say, for example, we were to have the ability in an operating agreement… So this is the structure of that deal; the goal was to go in, renovate it, bring the value up within a couple years, refinance, get all the capital back to investors… Our equity would then go up to 50/50. Then we were gonna hold long-term, that’s what we told them.

So what was brought up was “Hey, why don’t we refinance, our equity goes up to 50/50, and then we sell the property?” I was like “Well, that doesn’t make a lot of sense and that doesn’t look too good on us. I don’t think that’s something that we should do.” It was pretty obvious that the goal was to refinance, our equity goes up, and then we sell it and WE make a lot more money. But that was not ethical in my mind. That wasn’t the plan we discussed. And if we’re gonna sell the property now or in the short-term, we should just sell it and give them the profits that they should get.

Joe Fairless: That would burn some bridges… [laughs]

David Toupin: It was a pretty clear [unintelligible [00:15:42].20] So things like that…

Joe Fairless: It was tactically sound, but come on… If you wanna do another deal, and just wanna look yourself in the mirror…

David Toupin: Yeah, good luck doing another deal with those investors.

Joe Fairless: Right. And there is a ripple effect with that too, word of mouth.

David Toupin: Absolutely, there is. It’s a small world, and you’ve gotta be really careful who you’re working with. Not to get  too deep into all that, but it’s something where — that kind of stuff is really important to me, to act in our investors’ best interest and by the book.

Joe Fairless: What was the challenge that your current business partner had in the past?

David Toupin: He had a business partner that — they owned about 300 million dollars in real estate together, and after a couple years he wasn’t really pulling his weight, and stopped showing up to the office a lot… And once they started making a lot of money, he was–

Joe Fairless: Jetsky-ing, and gallivanting around…

David Toupin: Exactly. He was going out and buying Ferraris instead of being in the office, putting together deals. So for him it just wasn’t working out anymore, and… Glenn’s a lot like me, he’s a very ethical guy, and there were just things that he was seeing that he didn’t like anymore… So they decided to do the same thing, “Let’s sell everything off.” So because Glenn and I went through a similar experience, we told our stories and we’re like “Man, we might as well try partnering, because we really went through the same thing and see the same way, and see eye to eye, so let’s try this out.”

Joe Fairless: Alright. You went to development – why are you doing development?

David Toupin: So I moved to Austin, Texas in the past year, so  I’m down here now where he lives… And we’ve found a piece of land, it had a good price, it was already entitled, ready to build… We’ve been wanting to get into development for a while. It’s a really, really good market down here for development. Absorption is great, solid rental rates here in Austin, and it’s just growing like crazy. Right in the path of progress where this project is, and it made a lot of sense.

To do this size, sub-100 units, to us was a great way to start getting into development. We didn’t wanna start doing a 200-unit project. The 50 to 100-unit range is a great starting place for that, because you can still do a HUD loan, and it’s easier to get in without having prior development experience.

Joe Fairless: How was it easier — I think that it’s just more units, but it’s the same process.

David Toupin: I just noticed after talking to a lot of lenders and other people who have developed before, they just suggested starting at that level is gonna be a lot easier to get into, and to qualify for a loan, and just to really cut your teeth on, as opposed to going into that 100-200 range to start.

Joe Fairless: On the project level, what are the projected returns for this development deal?

David Toupin: We’re in the high teen IRRs on a five-year. This is kind of our projection. But we plan to hold this long-term.

Joe Fairless: And that’s on a project level ?

David Toupin: No, investor level.

Joe Fairless: Oh, okay. Yeah, on a project level.

David Toupin: At project level it’s gonna be low to  mid twenties – 22, 23 internal rate of return.

Joe Fairless: And I’m assuming based on how resourceful you were in college and leading up to this point you’ve also been looking at other opportunities, existing product. First off, is that a correct assumption?

David Toupin: Yes, that’s mainly what we do, is existing.

Joe Fairless: So I imagine that you could find existing product with a value-add business plan that would be a similar project-level IRR projections… And if that is the case, then why go through the risk of ground-up development?

David Toupin: A couple of reasons. One is we have several investors that are really interested in new development, so that sparks our interest right off the bat, because we know that we have the equity behind us.

Second of all, it’s something that we’ve been really interested in, and we want to have as kind of a branch for our company going forward, the new development side of things. And then lastly, it’s not something that we’ll do anywhere; it really depends on the location. And for what  we’re doing and what we’re building, in Austin, for example, a B class product, if you’re buying an ’80s or ’90s product, it’s selling for anywhere from 120k to 150k per unit right now.

We’re building this for 108k a door, and it’s gonna be brand new. And with land, we’re closed to 130k. So we’re all-in in that mid-range of where a ’90s product is selling. So to us, that just clicked. It just makes sense. Why would we buy in Austin an ’80s product for 130k a door, when we can go and build brand new, higher-quality for around the same price?

Joe Fairless: Based on your experience, what’s your best real estate investing advice ever?

David Toupin: Oh, man… My best advice ever in real estate is know the numbers. If you know the numbers, you will make smart decisions, as long as you’re conservative, and you will really be able to talk to anyone about it, from investors, to lenders, bankers, partners… Knowing the numbers is your greatest tool.

Joe Fairless: We’re gonna do a lighting round. Are you ready for the best ever lightning round?

David Toupin: Let’s do it, man.

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

Break: [00:20:55].09] to [00:21:39].10]

Joe Fairless: Best ever resource you use to stay up to date with what you need to stay up to date with, business-wise?

David Toupin: CoStar News.

Joe Fairless: What’s a mistake you’ve made on a transaction that we haven’t talked about already?

David Toupin: A mistake I made on a transaction… Not going to the right lender from the start.

Joe Fairless: And what do you do now, what questions do you ask to determine what the right lender is, or which one is not the right one?

David Toupin: Well, I’ve learned which — project-specific… In the beginning I didn’t know about agency loans, so I went with regional bank loans, when we should have done agency, just because we didn’t know about it. So I guess that was a mistake that would have been solved by knowing the right lender to work with.

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

David Toupin: Educating other young people that are in their twenties, and in college, and that want to get into real estate.

Joe Fairless: And how can the best ever listeners learn more about what you’re doing?

David Toupin: You can follow me at Instagram @realestatejedi, Facebook – look me up, David Toupin, or website ObsidianCapitalCo.com.

Joe Fairless: Well, thank you so much for being on the show and talking to us about the early deals, the 120 units you had syndicated before you graduated college; fist bump to you, I’m raising my fist right now to you… And congratulations on what projects you have upcoming, as well as finding a business partner that aligns with the way you think and the way you wanna approach business.

I enjoyed our conversation, I learned, and most importantly, Best Ever listeners, I hope it was valuable to you. Thanks so much for being on the show; I hope you have a best ever day, and we’ll talk to you again soon.

David Toupin: Thanks. I appreciate it.

JF2033: SOS Approach to Managing Your Investment During Coronavirus | Syndication School with Theo Hicks

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In this episode, Theo will give you a three-step approach to what you should do during a crisis event, and when it passes. The three-step approach will be easy to remember by using the acronym S.O.S, which stands for Safety, Ongoing Communication, and Summary. Theo breaks down each step so you will know in detail so you have a better idea of what you can do during today’s pandemic. 

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. 

 

Best Ever Tweet:

“Until this goes away you want to make sure your continuously communicating with your investors and with your residents” – Theo Hicks


TRANSCRIPTION

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

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

 

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

Each week we do two Syndication School episodes. Sometimes they’re part of a larger podcast series that’s focused on a specific aspect of the apartment syndication investment strategy. For the majority of these episodes we give away something for free. These are free PowerPoint presentation templates, Excel calculators, PDF how-to guides, something to help you along your apartment syndication journey.

All of the past syndication school episodes, as well as these free resources, are located at SyndicationSchool.com. Today is going to start a new longer series about the current Coronavirus epidemic we’re going through.

As I’m sure you’re aware, the CDC is responding to an outbreak of respiratory disease caused by a novel/new Coronavirus that was first detected in China, and which has now been detected in almost 70 locations internationally, including the U.S. as of today, which is March 24th.

The virus has been named SARS-CoV-2, and the disease it caused has been named Coronavirus disease 2019 (Covid-19). As a result, the main economic factor that everyone tracks, the Dow Jones, dropped more than 10,000 points over the past 30 days. It looks like as of this recording it has popped back up over 20,000, but still, essentially a 10,000-point drop.

According to the CDC, the best way to prevent infection is to avoid being exposed to this virus, therefore social distancing has been one of the main methods to combat the virus. Some states are issuing stay-at-home orders, like the state that I live in, Illinois.

As a result, many people are working from home, and others have been either laid off or furloughed, so don’t have money coming in.

As real estate investors, this is really one of the main concerns, in addition to obviously the safety of themselves, their team members and the residents… Are the residents – if you’re a multifamily investor/apartment syndicator – can the residents pay rent on time? So what’s gonna happen on April 1st if nobody pays their rent?

Obviously, this is a crisis, and from a business perspective whenever a crisis occurs, you need to have a process for approaching the situation. Since we are apartment syndicators, we need to have  a process for approaching our passive investors.

I’ve talked about this approach before, it’s called the SOS approach to managing an investment during a crisis. We originally came up with this during Hurricane Harvey two years ago, but the same overall concept applies. So this is the overall 3-step approach you want to use once a crisis like the Coronavirus begins, and then what you should do right away, what you should do during it, and what you should do once it has passed.

In the coming weeks, the goal would be to talk about more specific things that multifamily investors can do based on if people don’t pay their rents; what if you can’t pay your mortgage, should you be buying, should you be selling? We’ve kind of compiled a whole long list of questions that we plan on answering… And not only us answering, but we’re gonna share it on our Facebook group. So if you haven’t done so already, make sure you join the Best Ever Show community on Facebook and reply to those questions in order to add value to the community, provide others with solutions that you’ve come across, find solutions, as well as have the opportunity to be featured on the Best Ever Blog, as well as on the podcast.

The acronym for this 3-step process, as I mentioned, is SOS. It stands for Safety, Ongoing communication and Summary. The first step when  a crisis occurs is to ensure the safety of both the people involved, as well as the money. So from a people perspective, for the Covid-19 crisis, it involves the safety of your residents, and then your team members… So obviously reaching out to your team members and making sure they’re okay, offering to, if they don’t do so already – for real estate investors it’s a little bit easier, because they most likely don’t have an office, but offering or allowing them to work from home… And then when it comes to the residents, what we did is we sent out a couple of websites, as well as a note to all of our residents…

So I’m just gonna go ahead and read that note here, just so if you haven’t done so already, you wanna make sure you’re notifying your residents of anything they’re supposed to be doing, important safety information, and then what you’re doing to ensure that the virus does not spread at your apartment community. So our letter read:

“Dear residents,

With the recent reports surrounding the 2019 novel Coronavirus there is an increased concern with the health and well-being of our families, loved ones, and communities. We would like to take this opportunity to remind everyone of the resources in which you can follow the preparedness, prevention and developments. For the most up-to-date information on the Coronavirus, please visit the CDC website at *link to the CDC website* or international updates at *link to the WHO website*.

We are continuing to work closely with our property teams and vendors to take extra precautions. We would request that any resident that is experiencing symptoms of illness, stay home and contact their local health provider, in line with the CDC-recommended guidance.

Additionally, please do not enter any public common areas or leasing office on the property if you are ill, running a fever, or experiencing symptoms of Covid-19. If you require maintenance services and are experiencing symptoms of Covid-19, please advice the management personnel prior to their entry into your home, so appropriate precautions can be taken for the staff and other residents.

If you are Covid-19 positive, only emergency maintenance requests will be addressed, until further notice. We appreciate your understanding and efforts to promote healthy communities for everyone who lives, works and visits the community. We are committed to providing you with the highest quality of service and we will continue to stay informed about the situation to ensure recommended measures are followed. Should you have any questions, please do not hesitate to contact the property management through your resident portal, by phone, or by email.

Sincerely, our property management company.”

In addition to that we sent out a health flier, a workplace and home handout, as well as an additional letter to the residents.

So that covers the safety side for the residents and for the team members. Obviously, the other end of that would be the investors as well, which is kind of in line with the money aspect, because it’s the passive investors’ money from the deal, so you’re obviously worried about their health, but also making sure that you’re able to keep them from losing money.

At this point it’s difficult to tell what’s actually going to happen, how it’s going to impact multifamily… Obviously, the stock market has been going down; it’s briefly going up today, with talks of federal government intervention in the economy, but it’s still down overall for the past 30 days, which typically means that more money will flow into real estate. However, at the same time many people are losing jobs or being furloughed, which means they might not be able to pay rent on time. We’ll have to see how collections are impacted over the next few months and what people are saying… But one interesting strategy that we did come across as of now – and it is posted in our Facebook group – comes from Julie Fagan. Basically, she’s going to allow residents who have lost their jobs or lost income to use their security deposits to pay for rent.

For example, if a resident owes $1,000/month in rent and put down $1,000 security deposit – well, then she’s going to discount the rent to $500/month, and that security deposit will cover two months’ worth of rent.

Now, in exchange for this help, the residents are required to sign a new lease, so a new 12-month lease or a 6-month lease, depending on what the original lease was… As well as sign up for security deposit insurance. Basically, it’s an additional $10-$15 per month to cover the security deposit experience.

This is a good strategy, because it helps the residents, but it also allows you to not necessarily get your full month’s rent right now, but over time you make up the difference with that security deposit. I’m sure we’re gonna hear a lot of interesting strategies over the next few months, of what people are doing to collect rent in this time, so definitely stay tuned to our Syndication School series, as well as our Best Ever Show community on Facebook, because we’ll be having conversations with actual investors about that in the future.

So that covers S of the SOS, so Safety of the people. Safety of the money is something that’s to be determined, and we’ll really need to determine if your property is gonna be impacted by these lower rent collections.

Number two is Ongoing communications. Obviously, you initially let your residents know about the crisis, make sure they’re okay. Any initial safety precautions that need to be taken… And then obviously, on an ongoing basis, give them updates if anything changes. So if the local government or the state government or the federal government makes any changes at things that you’re required to do, any new safety information, make sure you’re continuing to communicate with your residents… But also make sure that you communicate with your passive investors.

For us, we’ve sent out one notification to our passive investors so far. It’s pretty similar to the information we sent to the residents about important safety information, but we also obviously talked about the money situation.

What we said in our email is:

“We have been working closely with our property management partners; it’s too early to tell what impact the pandemic will have on our properties, but we will have a better idea during the April monthly email update, and will provide a status update at that time. That gives us a chance to see how April rent collections look, and also what impact the virus has on the markets, and some markets where our properties are located. As a reminder, your monthly update is sent out by this date.

For March,  you will receive your monthly distribution as planned. If you would like to read the official communication our residents have received, you can click the links below to view documents that our property management companies sent out to residents” and then we’ve got links to those.

“Lastly, our team and our property management partners are getting updates via CDC and WHO, and local health departments in the cities and states in which we own. Our teams are then communicating the information to on-site staff to adhere to. Some of those updates are…” and we go through a list of things like “Stay home if you’re sick. Wash your hands with soap. Avoid close contact with people.”

Then we ended up with saying “We will send a more informed update on any business implications during our next monthly update, which will be received by this date.”

Obviously, that’s the first point of communication. Once we see how rents are impacted, we send another update in a month from that communication, so in about 20 days or so… And again, if any of the safety information changes, you obviously wanna include that in there. And then just continuing to monitor the situation, and letting them know that you’re continuing to monitor the situation. “Here’s what we’re actually doing to alleviate any issues if there are any problems that we come across” and then when you will contact them again.

Basically, the structure of the ongoing communication is make sure you’re addressing what you said you were gonna do before. In our first email we said “Hey, we’re gonna reach out on this date. And here’s the information that we’re gonna include in that correspondence”, so making sure that you are actually doing it on time, and doing what you say you’re going to do… And then also explaining in that email what you plan on doing in the future, and then when you’ll follow up with them again.

It’s hard to tell how long this will go on for, how long the ongoing communication, the O aspect of the SOS will continue for, but until this goes away, you wanna make sure that you’re continuously communicating with your investors and continuously communicating with your residents… But make sure you’re not over-communicating. You don’t wanna send daily updates. Make sure you’re only sending updates when you have substantive information to provide, as opposed to doing hourly updates or daily updates.

And then lastly, once we’re past this, a summary. Once things return back to normal, obviously send your residents a notification that things are going back to normal. We go back over things that had changed, that are now going back to normal – because who knows how long this will take [unintelligible [00:14:25].12] At the same time, with your  passive investors, you wanna summarize any actions that were taken during this time. If distributions or operations were disrupted, what the plan is to get those back on track, or how long it’ll take to get those back on track, and really anything else that’s relevant to your passive investors or your residents that is going to happen after this event has occurred that’s not usual; you’ll wanna let them know in the last summary email.

Overall, when a crisis occurs like the Coronavirus, you wanna follow the SOS approach – the safety of the people and of the money, the O is Ongoing communication to provide your investors and your residents with status updates, and then providing a summary once things return to normal.

As I mentioned, we’re going to be having a lot of conversations about the Coronavirus on our Facebook group, that is the Best Ever Show community on Facebook. Make sure you are following that, so that you can take advantage of not only all of the information that will be provided, but you can provide us with input as well… And then also have the opportunity to be on the podcast – this podcast – as well as on the blog.

Until then, make sure you check out some of the other syndication school series we have, download our free documents, stay safe, have a Best Ever day, and we will talk to you tomorrow.

JF2028 : How To Attract Investors, Establish Credibility, and Fund Deals With Hunter Thompson #SkillsetSunday

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Hunter Thompson is a return two time guest from episode JF1545, and JF1220. In this episode, you will learn a ton from Hunter on attracting the right investors, how to establish credibility and fund your future deals. This exact same information has helped him raise more than 30Mil in private capital. He has a book called “Raising Capital for Real Estate” so be sure to check his book out to ensure you can get more info on this topic. 

Hunter Thompson Real Estate Background:

 

Best Ever Tweet:

“Content creation is one of the most efficient ways to build your brand but also raise capital.” – Hunter Thompson


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. I’m your host today, Theo Hicks, and today we’ve got a two-time repeat guest, back for a third time, Hunter Thompson. Hunter, how are you doing today?

Hunter Thompson: Hey, Theo. Thanks again for having me on.

Theo Hicks: Absolutely. I’m looking forward to our conversation. Today is Sunday, which means it’s Skillset Sunday, where we go over a specific skill that our guest has. Today we’re gonna be talking about how to attract investors, establish credibility, and fund deals.

A little bit about Hunter before we begin – he’s the founder of Asym Capital, which is a private equity firm. He has raised more than 30 million dollars in private capital. As I mentioned in the intro, he’s been on the show two times before; listen to his episode 1545, “Seven due diligence items for passive investors and passive investing opportunities”, as well as 1220, “He took his money out of the stock market to syndicate self-storage and mobile  parks.” Both of those links will be in the show notes as well.

He just had a book come out. We’re recording this in the past, but when this episode airs, the book will be live. That book is “Raising Capital for Real Estate: How to Attract Investors, Establish Credibility and Fund Deals”. You can buy that book by click on the link in the show notes.

He is based out of L.A, and you can say hi to him at asymcapital.com. Hunter, before we get into the main skill of today, do you mind giving us a little bit more about your background and what have you been focused on since the last time we spoke?

Hunter Thompson: Yeah. So it’s interesting, there’s so many ways to make money in real estate. I mentioned earlier about conducting due diligence, which is obviously critical; if your deals don’t perform, no one’s gonna get paid… We talked about mobile home park businesses, self storage business… But in my opinion, this element of real estate is the most important, sought after and lucrative part of the entire business. I was at a conference recently where someone said “Is the money in the deal, or is the money in the money?”, and man – the money is really in the money.

Now, that could be the case that not everyone agrees with that and not everyone wants it to be that way, but it certainly is, at least for right now. In those earlier interviews I had been focusing on very much of the same; we have been focusing on the recession-resistant real estate asset classes, most notably mobile home parks, self-storage, and workforce housing, or C and B class apartments. I’m really comfortable with those, from my perspective. I know that a lot of people are more and more interested now  in the “recession-resistant” real estate asset classes.

From my perspective, it’s always a good time to invest in recession-resistant real estate, not just late in the cycle. Because when the economy is booming and the capital markets are loose, you’re going to get the advantages there. But when the economy is correcting or there’s a recession, you still get the advantages of the stable demand for that product. So more of the same – I experienced a lot of success and a lot of growth and a lot of scalability, and that’s what we’re really gonna talk about today.

Theo Hicks: And you wrote a book, which is a great accomplishment. I’ve written three, working on the fourth right now, so I totally understand the work and effort that gets put into that, so… It’s always great to talk to the fellow authors who’ve gone through that experience.

Hunter Thompson: I appreciate that. I’m going through the experience that most people go through when they write a book, which is — you know, I have waited a long time to build up the knowledge to feel comfortable sharing with people, because I want to make sure that I was bringing a lot of value to the table. So I wrote the 60,000 words in about 60 days… And I was like “Wow. When is the next one gonna be?” And then I started the editing process and realized “I’m never gonna write another book in my entire life.” That’s where I’m at right now.

But no, I’m really proud of it, and also I have been really fortunate in the sense that I’ve been able to give back to the community… But I’m really happy and looking forward to the response to this, because there’s so many key takeaways. I’ve spent $100,000 on legal fees in 2018. A lot of what I’ve learned in pursuit of that is in the book, and of course, the strategies and systems that I’ve outlined are what has enabled us to get to where we are today… So I’m really happy to hear both of those responses.

Theo Hicks: So the title of the book is, again, “Raising Capital for Real Estate: How to Attract Investors, Establish Credibility and Fund Deals”. You did kind of drop a bomb that you paid 100k in legal fees and you learned some lessons, so do you wanna walk us through what happened, and the lessons that you learned?

Hunter Thompson: Oh, jeez. If you wanna start with the securities law stuff, that’s gonna probably bore your listeners to death. It’s one of those things where — when you’re dealing in the world of securities, you’re entering a new dynamic, where not only pooling investors together has significant legal implications. You have to stay within the SEC’s guidelines. But as an investor, it’s very favorable, because not only do you get the economies of scale going along with pooling investors together… In the sense of if you lose $25,000 in a syndication, it’s very hard to pursue someone and spend less than $25,000 on legal fees. But if you cumulatively invest in a syndication, there’s much more ability to pursue someone if they act in bad faith… Because cumulatively, each person may invest $25,000 and you may cumulatively be able to come up with a quarter million dollars, which is gonna actually do it.

But from a big-picture perspective, I’ll give away something that took me a lot of money to realize – and maybe not everyone listening to this agrees with this, but I’m a huge proponent of the 506(c) offerings. Those are the offerings which allow you to publicly solicit. It doesn’t necessarily mean that you “don’t wanna know your investors” or that you’re actually interested in publicly soliciting investors… But the solicitation or the 506(c) offering requires that you have a third-party verification of your investor status as an accredited investor. I think that level of scrutiny really adds to the protection of the [unintelligible [00:06:48].05] the person who’s actually creating the deal.

I don’t have to worry about going on  a podcast or going on a webinar and conducting an in-person dinner – all of which I talk about in the book – I don’t have to worry about saying the wrong thing at those events, which can cost me later down the road. If you’re using 506(b) – and please don’t take this wrong, this is just my perspective – there’s so much grey area surrounding it that I just don’t feel comfortable with it. Once you do create your 506(c), I think you’ll never create another 506(b). Just my opinion, of course.

Theo Hicks: I actually just did an interview earlier today – I’m not sure if it will air before or after those one – with Ryan Gibson; he does 506(b), and he basically mentioned the exact same thing. He has a really good process for making sure that he is going by the book. So make sure that if you are doing 506(b) you check out that episode and learn his process for making sure that he has that pre-existing relationship with them. Alright, thanks for sharing that.

Let’s go into the book… Attract Investors, Establish Credibility and Fund Deals. In the context of — let’s say I have not done a syndication deal before, but I do have previous real estate experience. So I’m not a complete newbie; maybe I’ve done — let’s just use me as an example – I’ve done 15 units worth of multifamily before, and I want to scale up and raise capital for a 50-unit building, and I want to attract investors. What should  I do?

Hunter Thompson: I’ll tell you what I did, and you can use it as a playbook of what not to do, when I started thinking about scalability. Back in 2011 I saw a great opportunity in the mobile home park business. I spent about two years learning every single thing I could as an investor, flying around the country, doing due diligence, taking it very seriously, as a full-time job. By 2013 I figured I had established a track record, I had created some amazing relationships with some high-caliber operating partners, and wanted to create my first fund.

Basically, what I did is I had an investor luncheon where I invited extended friends and family and their plus-ones or plus-two’s (they had to be accredited investors), I went through a 30-minute presentation, and at the end of the presentation I handed out a piece of paper so that people could write how much money they are interested in investing. I agreed with my partner that we’d at least raise half a million dollars; I thought I could raise up to a million dollars. There was 30 million dollars of net worth in this room.

I went through the presentation, I was very comfortable speaking in front of people, I answered some questions, and resulted in me raising a total of zero dollars. This was heartbreaking. And really what the book is about is realizing what I did so wrong, and then creating the infrastructure to do the opposite of that.

What I did wrong was that I envisioned myself going out and finding investors, converting them to investors in real estate – which is basically like a pseudo-religious experience, to say “Okay, I’ve invested my whole life in the stock market…” Now in this 30-minute luncheon this person is gonna start investing in not only just real estate, but the mobile home park business.

So I’m thinking about it in the wrong way. I needed to create an infrastructure that attracted the right people, that were already interested, converted them through education and indoctrination to a certain extent, and then close them through this sales process. So there has never been a more favorable time to create that infrastructure now. So if you haven’t really started doing this content creation — it is so asymmetric; it’s one of the most efficient ways to build your brand, but also raise capital… Because if you go through the process of writing ten articles, which we can talk about in a second how to do that, just writing the articles alone will help you communicate more effectively to future investors, so much so that it’ll pay for your time. That’s if no one even ever reads the article. So the book is really about how to create that infrastructure and then funnel people through the sales closing process.

Theo Hicks: Alright, so let’s talk about the infrastructure for a second. Content creation – basically, what you’re saying is that  you want to have some sort of thought leadership platform where you pump out content, and then use that to educate people and attract people who are already interested in investing. Then once you have those people who are already interested, that’s when you close them.

Hunter Thompson: Exactly. And that’s how you create a system that’s actually scalable. Because a lot of these sales strategies may take you from closing 40% of your investors to 60%. That’ll be a remarkable increase. But if you only have ten people in the room, that’s going from four people to six people. I don’t wanna go from four to six. I wanna go from 4 to 4,000, and the only way to do that is to attract the right people.

One of the things I talk about in the book which is a reoccurring theme is time batching. I’m hyper-obsessed with productivity, so I like to do things only in increments of 60 minutes to 180 minutes. And I don’t like to shift gears cognitively when I do these tasks. So what I’ll do is I’ll block out the 60 to 180 minutes, and all I will write is up to 100 topic article titles. These are things like “Five reasons to invest in self-storage; is the mobile home park business actually recession-resistant; what does low interest rates mean for housing?” Those are three, so if  you wanna use those three, go ahead; you’re only gonna have to come up with 97 more.

And then I go and sort those articles up, put them in Excel, put them in numeric value in terms of how quality I think they are and how aligned with my business they are, sort in terms of numeric value and then write an article about the first ten. And that is the beginning of your lead nurture process. I’m telling you, just going through that process alone is gonna help you. And then if you still have some below that ten that are still compelling, I would write outgoing emails – these are probably 300 to 500 words – I would write those emails about those remaining topics. And you’ll probably work your way down to where it doesn’t make sense to write about topics about things that are low on the numeric value. Stop that, put those emails in an outbound drip campaign so that your new investors receive one every single week, and that’ll give you time to focus on other areas of your business.

Three months later you come back, you’ve gotten a lot more knowledge, you’ve got a lot more topic ideas… Do the same thing again and constantly push those emails that aren’t as aligned with your business out months and months and months, and eventually you’ll have an entire year of outgoing email campaigns, so that you can spend your year focusing on operating the actual real estate or other things regarding content creation.

Theo Hicks: That’s a fantastic strategy, very specific. I really like that. But that’s kind of step two, but first I need to have my list of these investors. So you said that what you did wrong was you were trying to find people who weren’t interested in real estate and converted them to real estate. Instead, you wanna find people who are already interested in real estate, educate them on the deals that you do… But it seems like that’s what the article part is. But how do I actually find these people and get them on my list in the first place?

Hunter Thompson: Yeah, so the way that I’ve been able to do this is in effort towards those content creation strategies. So we did  not do paid marketing. I used to go to 3-5 networking events every single week; that’s fine, but it didn’t really help the scalability. So from my perspective, the pursuit of actually creating that content will attract thousands of people.

Now, of course, the content has to be quality, but write the content with that in mind. The goal should be to write something that your friends and family, and also the people that are interested in investing are interested not only in reading, but sharing with your friends. This is how you get things to become viral.

Now, if you wanna supplement that with paid marketing, that’s totally reasonable. I know a lot of people that have done that and have had success, but that just hasn’t been the route that we’ve used. So from my perspective, really the creation of the content will attract the right people.

Theo Hicks: Perfect. So you create the content, you’ve got the emails going out, you’ve got the blogs going out, people are reading these… How are  you converting them into investors?

Hunter Thompson: You kind of work your way up in terms of sophistication. I’m a huge proponent of writing a really quality eBook. This is something that’s probably 10,000 words. If you  have a topic that you think is really compelling that’s kind of evergreen — like “Stock market versus real estate” I think is the name of Michael Blank’s book. It’s a great example. That’s always going to be something that he can use.

In an eBook I like to use more things like detail, data, graphs, back up the claims that you’ve made in some of the articles that you’ve mentioned, and be very aware of who your readership  is going to consist of. I don’t think it’s wise to hyper-niche yourself into “Single moms with dogs” type of stuff, but you definitely wanna have an idea of who your ideal investor and who  your ideal reader is.

Now, if you don’t really like writing, for example, you can outsource this. One of the things that we’ve done – and I know that you guys have done as well – is have a friend interview you on a topic that’s very specific, do a one-hour interview, then convert that interview into a transcripted eBook. Just go to Rev.com, it’s about a dollar per minute of audio. If you wanna email me at info@asymcapital.com, I’ll shoot you an email of one of our transcripted podcast interviews we’ve done… It’s the easiest way to do that.

By the time that someone goes through reading an eBook that you’ve written that’s in that 10,000-word range (about 45 minutes to read), they’re going to be very interested in moving forward with you. Then you can move forward with the actual sales process, and looking at the particulars of the deal… But from my perspective, having a combination of articles, maybe some interviews that  you’ve done on podcasts and this eBook will get you so far along the lines that by the time you get on a phone call with someone, if that’s required, you’re going to be basically answering questions that they have, as opposed to trying to hard-close them, which is not scalable and not a good idea in the real estate sector.

Theo Hicks: Do you wanna walk us through what a typical conversation would be like for someone’s who’s read your eBook, or read some of your blogs, and then you schedule a call with them and you’re kind of having a conversation with them to get them to invest? How would that conversation go?

Hunter Thompson: Yeah, certainly. I’ll start by saying this – not only is it good for credibility, it’s actually good for you and your time as well to make everything as systematized as possible. So if you’re gonna be doing anything, whether it be having a phone call, writing an eBook, writing some articles, ask yourself “Why am I doing this? How can I make this systematized?” So for calls, I like to say there’s only two reasons to jump on a call with an investor. It’s either to have an introductory call, which is usually 30 minutes, or a due diligence call, which is usually 30-60 minutes, depending on the types of questions that they’re asking.

So when I jump on that first introductory call, my goal is to listen to their story, establish if they’re accredited, I want to learn about their experience investing… And here’s the really important part – I wanna hear their motivations for investing. Now, if you do 100 of these calls, you’re gonna hear the same things over and over again, so don’t block out the actual answers that they say. Listen to the nuances, because the nuances are gonna come up voluntarily.

You may hear things like “I really like the cashflow, because I wanna pay off my expenses in order for me to retire.” Or “I wanna invest in deals that have predictable outcomes, as opposed to the stock market, which I don’t really trust.” Then the conversation will transition over to me, and I’ll talk about two really important things here – my last straw moment, whether it be in the stock market or when I realized that my other career wasn’t going to get me the financial freedom that I was looking for, why did I transition out of a typical lifestyle into the world of real estate.

The reason this is important is that we didn’t learn about alternative investments in high school and college. Everyone that’s having this conversation with you – they have that moment when they realize “This typical way of thinking about money  is not going to get me anywhere.” So I transition from the last straw moment to my key motivating factor, and really address what motivates me to help people invest like this.

Then I directly address their reasons to invest, whether it be the cashflow, the lack of predictability of the outcome, or the fact that they think the stock market is too high, and say “That is absolutely correct.” I affirm that those fears are genuine, but there’s another way… And that’s when I outline our general investment thesis, answer any questions that they have, and make sure to stick to the time commitment, which is that 30 minutes.

The introductory call – half of it is about creating that credibility, and the way to create credibility is ensuring that they know that your time is limited, as well as the investment availability. So that’s kind of a brief introduction to introductory calls.

Theo Hicks: Perfect. Is there anything else as it relates to how to attract investors, establish credibility and fund deals that you wanna talk about before we close out the call?

Hunter Thompson: Yes, I’ll say this – your willpower is limited. There’s been many scientific studies about this – people have limited willpower throughout the day, but also over the long-term as well. The reason I say this is that it’s absolutely critical to find a mentor that you can inspire them to share their playbook with you… Because that’s gonna help you get over those humps when you run out of that free will. You’re gonna feel exhausted. But if you have someone that you know has succeeded and they’re depending on you to succeed, it’s absolutely helpful to have them push you along. The number one way to inspire this is just to have a real significant sense of urgency about accomplishing your goals.

Mentors are so drawn to momentum… So if you can show that mentor you attract the right people… And that’s someone that not only has helped me in my career, but I’ve also helped other people, when I’ve seen their momentum and wanna help them along.

Theo Hicks: Well, Hunter, very powerful content. A lot of these things I hadn’t heard of before, I hadn’t thought of in this way, so it’s been a very good interview for me as well. I’m actually looking forward to taking a look at your book as well. Again, that is “Raising capital for real estate: How to attract investors, establish credibility and fund deals.” A link to that will be in the show notes.

Thanks again for coming on. Just to summarize — I can’t summarize everything, but some of the big takeaways that I had… I really liked your time batching concept. How you implement that is you will do things in increments of 60 to 180 minutes. The specific example you gave was you will write down 100 topics for articles in that timeframe, and then you’ll put them in Excel, and then assign  them a numeric value based on how powerful you think the article will be. Then you will write an article about the top 10 articles, and then you will write smaller, shorter emails about the remaining topics. You repeat this process every three months, with the goal of having a year’s worth of content, so you can focus on other aspects of your business.

Something else I really liked on the content creation was the eBook idea. If you don’t like to write, a perfect way to overcome that is to have a friend interview you on a topic that you want to write about, that you’re very knowledgeable about, have it transcribed and turn that into an eBook.

Then lastly, we talked about when you’re actually talking to an investor on the phone, and the only two times that you believe you should talk to an investor on the phone is [unintelligible [00:21:43].10] or a due diligence call, and you walked us through exactly what you will do during that due diligence call. Basically, the outcome is to figure out what their motivation for investing is, making sure you’re listening to those nuances, and figure out what they’re (in a sense) fearful of; then affirm that those fears are genuine, that there is another way, and that’s when you present your option to them, and always making sure that you stick to the time commitment.

So again, Hunter, really enjoyable conversation. Looking forward to checking out that book. Best Ever listeners, thank you for tuning in. Have a best ever day, and we will talk to you tomorrow.

JF2018: Debunking The Most Common Money Raising Myth | Syndication School with Theo Hicks

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In this episode, Theo joins the myth busters crew and helps you understand why the idea of “you must have a history of multi-family deals to raise money for syndication.” He explains why as long as you have experience in either 1 of 2 other options you can still raise money for your apartment syndication. Listen to the full episode to learn what those two other options are. 

 

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. 

 

Best Ever Tweet:

“The concepts of creating and executing a business plan apply universal, apply to real estate and any other endeavor you go into.” – Theo Hicks


TRANSCRIPTION

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

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

 

Theo Hicks: Hi, Best Ever listeners. 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 am your host, Theo Hicks.

Each week we air two Syndication School episodes, on the podcast as well as in video form on our YouTube channel, that focus on a specific aspect of the apartment syndication investment strategy. For the majority of these episodes we offer some free documents. These are free PDF how-to guides, PowerPoint presentation templates, Excel calculators that will help you scale and grow your apartment syndication business.

In this episode we’re gonna do some myth busters on this show, and we’re going to debunk a very common money-raising myth that I’m sure you’ve heard countless times; it’s out there on the internet, in podcasts, on forums… People say that you need to have a strong track record in multifamily in order to raise money for apartment syndication.

The idea is that you haven’t done a large apartment deal before, and you want to raise capital from people to do your first apartment deal… But since you haven’t done one before, no one’s gonna give you their money, no one’s gonna trust you; they’re not gonna think you can do it, they’re not gonna think you can conserve and grow their capital, so they’re gonna go ahead and go with someone else who’s gotten done 10, 20, 30 syndication deals… Because it’s less risky.

We’re gonna debunk that in this episode, and then we’re going to talk about the things that you actually do have to do in order to raise money. Just because you debunk one myth doesn’t automatically mean that the opposite is true, that you don’t need a strong track record… Because you actually do need a strong track record, it just doesn’t necessarily need to be in multifamily. Because if that was true, the majority (if not all) of apartment syndicators just flat out would not exist.

There are people who do have experience in multifamily who become apartment syndicators. Maybe they had a lot of money and they were able to buy an apartment community with their own money, and they bought it, they managed it, they sold it, and they used that experience to raise money from people, so that they can scale their business, because they don’t have enough money to do 1,000 units a year, only 100 units a year. Or maybe they worked for a large multifamily institution as an asset manager or as an underwriter, or as a property manager, or had some other involvement in large apartment communities that covers one aspect of the apartment syndication business plan.

Maybe they were a mortgage broker for large apartments, maybe they were a property manager for large apartments, things like that. But many more, if not most – I would say the vast majority of apartment syndicators, including Joe, did not have any involvement whatsoever with large 50+, 100+, 200+ apartment communities before doing their first deal. So that alone basically debunks it.

It would be impossible for anyone to raise money if they needed to have experience raising money. It’s impossible to do something if the only way to do it is having experience doing that thing. It doesn’t make any sense.

So for any syndicator, they were at some point in their careers where if you’re someone who has this belief, if you do believe in this myth, are sitting where you are right now. They wanted to purchase a large apartment community, they wanted to use other people’s money to do that, but they didn’t have the experience. So what did they do? They didn’t let the myth of needing a strong track record in multifamily stop them from just doing it anyways, and doing it successfully.

So if you too want to debunk this myth in your mind, we’re gonna talk about the three things that you need to do, and then we’re gonna talk about something interesting that I heard at the Best Ever conference a few weeks ago, that was around the same topic, and what’s inspired this episode.

So the first thing  you need to do is you need to change your mindset… Yeah, that’s it, change your mindset. Alright, number two — no, I’m just kidding. I’ll go into that a little bit more… So not only is the need to have a strong track record in multifamily a myth, but it’s also a limiting belief, which is a story that you’ve convinced yourself to be true. It’s a powerful story, but it’s still not true, as we’ve already displayed in the opening of this episode.

The analogy that I used is that it’s like watching a horror movie about the Boogieman, let’s say; it’s just a story, it’s just fiction, but it’s such a powerful story that every night for the next 20 years before you go to bed you check your closet, you check under the bed, you check the garage, you check the basement, because you think the Boogieman is down there, because in the movie you watched the Boogieman hides under the bed, hides in the closet, hides in the basement. But as we all know, the Boogieman isn’t real, and neither is this limiting belief about the requirement to have a strong record in multifamily.

The main difference between a syndicator who’s done a billion dollars’ worth of deals and an apartment syndicator who wants to do deals but hasn’t done one before, is this belief in the Boogieman. So just remember that the Boogieman isn’t under your bed, he’s not in the basement, he’s not in the closet, and you don’t need a track record in multifamily to raise money from people.

If you want some more practical advice, if the Boogieman story isn’t enough for how to start working on changing your mindset, some more practical things  you can do – check out our Success Habits category at our blog. So go to thebesteverblog.com, check out the goals and success habits category of blog posts, and there’s lots of blog posts on there that you give you practical things that you can start doing today to change your  mindset, and then just apply the concepts to this belief, and the fact that you can’t raise money because you don’t have any experience in multifamily.

Now, as I mentioned in the beginning, the myth is only partially a myth. The first part, the part that you need to have a strong track record, is actually true… It just doesn’t necessarily need to be in multifamily. There’s two different areas that you need to have experience in. It can be one, the other, or both… But it needs to be at least one of these.

The first one is a strong track record in business, because investing in real estate in general is running a business. You hear this all the time, “Treat your real estate investing like a business.” But apartment syndications are even more like a business. Essentially, what you’re doing as a syndicator – and as an investor, but there’s a lot more moving parts for the apartment syndications – is that you’re creating and then you’re executing a business plan. So you determine what you’re going to do, and then you actually do it.

So step one is determining what to do, making sure it’s the right thing to do, and then the second part is actually executing your plan. If you have a strong track record in business, then you have the skills to create and/or execute a business plan. It might not be obviously specific towards real estate, but the concepts of creating and executing a business plan apply to real estate and really any other endeavor that you go into. If you know how to execute your business plan, then you can do apartment syndications.

Now, what do I mean by having a business track record? It doesn’t mean that you just graduated from college and maybe haven’t even started a job yet at a large corporation like a Fortune 500 company, or that you’ve been there for a few years, in the same role, and gotten some positive feedback from your boss, or you feel really  good about what you’ve done. That’s the experience, but that’s not a strong experience. It also doesn’t mean that when you are a kid you started a lemonade stand or a newspaper delivery business – unless, obviously, it was a massive success. Then [unintelligible [00:09:24].27]

I believe I talked about this on Syndication School – the two tips that you can learn from a lemonade stand. I guess a lemonade stand partially works, because we did do an episode and a blog post about how a lemonade stand can help you in your real estate investing business… So definitely check that out; it’s funny, it’s cute, and it’s packed with some pretty solid advice.

So those don’t count. Again, a lemonade stand kind of counts, depending on how you do it… But what does count is you’ve either started your own business – and it doesn’t really matter how big the business is, how small the business is – and it was successful, which means it was profitable. So you either made money on an ongoing basis, from sales or whatever, or you created the company and then sold it for a profit. So that’s one example of a strong business background, because you created a business, you created a business plan and you successfully executed the business plan, which is reflected by the fact that you made money.

Then the second one would be that you can be the guy that graduated from college, got an offer to work for a Fortune 500 company, but you need to have also been promoted multiple times in that company. So if it’s a large corporation, to like a director level or higher; if it’s a smaller company, there’s not really room for promotions or growth, so there has to be some other measurable metric that shows that you were successful at what you were doing. So if you were in sales, for example – I know there’s not a lot of room for promotion in certain sales roles, because that’s what I used to do… But if you continually grew your customer base or grew your sales revenue, or won awards for Salesman of the Year – these types of things would be relevant to having a strong business background, because all those things show that you can create and  you can execute a business plan. And that’s what you want to have here, because 1) you need to be able to do that to be successful, and 2) you need to be able to portray that to your investors.

If you don’t have any business experience and they ask “Why should I invest with you? What skills are you bringing to the table?” and you say “Well, I just got hired at a really big company”, that might work for some people, but you’re not gonna be able to grow a syndication model off that experience. So that’s the second thing you need to do.

So the first is mindset, the second is business experience… The other experience that you need to have if you don’t have business experience – what you should have and is very helpful to have, even if you do have that strong track record in business experience, is to have real estate experience… And I guess to be more specific, I’ll say non-multifamily-related real estate experience. Here you have  a little bit more flexibility than you do in the business realm, because you really wanna be involved in real estate in any realm, and then use that experience to transition into apartment syndications and raise money.

So you can be an investor, a wholesaler, fix and flipper, single-family rentals, small multifamily rentals, a developer… It can mean that you were a property manager, or worked for a property management company, it can mean that you taught other people how to become an investor – that’s what Joe did – it can mean you were a broker, a realtor, a lender, a mortgage broker… Some sort of involvement in real estate. Because when you’re involved in real estate, you understand how the transactional acquisition process works, as well as the management and disposition of real estate. So you’re specialized in real estate, you already have an insider knowledge of how the process works; now all you need to do is apply that knowledge and those skills that came from that knowledge to the larger apartment communities. So real estate experience that’s not necessarily related to multifamily is a requirement if you don’t have the business background, and a huge plus even if you do have that business background.

In conclusion, thinking that you need to have a strong track record in multifamily before you raise money for apartment syndications is a myth; it is similar to the Boogieman – it might be a scary myth of raising money without having the multifamily experience, but it’s still not true. People do it all the time, people have done it all the time, and people will continue to do it all the time.

Then once you’ve got these three things covered – the mindset, the business and the real estate experience – you’ve got most of your foundation set. The last thing you need to do – which is what you’re doing right now – is to get educated on the apartment syndication process. So you can buy our book about apartment syndications, you can listen to all the Syndication School series podcasts, download the free documents, you can go to our blog categories and read about apartment syndications… You can go anywhere on the internet and read and learn about apartment syndications; go to conferences, seminars, just so you understand the more specifics of the syndication process and how it either differs from whatever real estate you were involved in before, or getting an understanding of real estate in general, as well as apartment syndications, if  you  have that business background.

Now, the last thing I wanted to mention, which I think I mentioned in a previous Syndication School episode about the Best Ever conference and the top ten lessons that I learned, was about something that you can say in order to overcome an objection that an investor has about your experience.

So maybe you tell them about your real estate experience and they still say “Well, that’s all fine and dandy, but I’d much rather invest with Billy Bob Joe over here, because Billy Bob has done 20 apartment syndications, they still own 17 of them, so I feel a lot more confident investing with them. I feel  a lot more confident giving them my money than giving you my money; you have only done one deal.”

The response you’d give to that, which comes from Neal Bawa, is what he said at the conference… It’s something along the lines of – don’t see exactly how I’m gonna say it, but the overall concept applies – “Sure, they’ve done more deals than I have, but since they have so many deals in their portfolio (say 17 deals) and they’re bringing on this 18th deal, most likely you’re only going to get one-eighteenth of their attention… Because they still have to focus on all their portfolio, managing all those employees, all those investors…

So the type of relationship and the type of attention that you’re gonna get from someone who has 18 deals is gonna be way less than the amount of attention you’re gonna get from me. Because this is my only deal that I’m working on right now. In fact, since it’s my only deal, I’m basing my entire reputation, my entire business on this one deal… Because if the deal isn’t successful, then my business is not successful, and then I am not successful, and then as a result you are not successful. There’s a very strong alignment of interest… Whereas if you’re investing with this larger company, if that deal fails, they still have 17 other deals, and 17 other deals’ worth of investors who are happy. And sure, you’re not happy, but they’ve got this large business and they don’t care about you.”

Say that however you want, but the concept is that  if you’re this new investor, you can overcome that objection by explaining it around and saying “Not only is me not having experience not a problem, but it’s actually a positive because of…”

So the three things, again, are mindset, business experience and real estate experience to overcome this money-raising limiting belief that is indeed a myth… And then from there, if you have those bases covered, you need to get educated on the process so that you can speak intelligently about the apartment syndication to your investors, and then obviously increase your chances of being successful in implementing the business plan.

So that’s it for today. Make sure you check out some of the  other Syndication School series and the free documents with those at SyndicationSchool.com. Thank you for listening, and I will talk to you soon.

JF2017: How to Underwrite an Apartment Syndication Deal With No LPs | Syndication School with Theo Hicks

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In this episode, Theo shares how he would go about underwriting an apartment syndication deal when there are no LPs or maybe as a joint venture. He uses a simplified cash flow calculator to help him through this process and walks you through what he is doing along the way. Download the FREE calculator so you can follow along with Theo. 

 

FREE DOCUMENT: Simplified Cash Flow Calculator: https://www.dropbox.com/s/pfwff7g1vmhoi95/Simplified%20Cash%20Flow%20Calculator.xlsx?dl=0 

 

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. 

 

Best Ever Tweet:

“Syndication School is a free resource to teach others how to do apartment syndication” – Theo Hicks


TRANSCRIPTION

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

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

 

Theo Hicks: Hi, Best Ever listeners. 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 am your host, Theo Hicks.

Each week we air two podcast episodes; we also release some in video form on YouTube, and they focus on a specific aspect of the apartment syndication investment strategy. For a lot of these series, including the episode today, you’ll get a free document. These are free PDF how-to guides, PowerPoint presentation templates, Excel calculator templates, things that will help you along your apartment syndication journey.

In this episode we’re going to talk about underwriting. We’ve already done an eight-part series covering the entire process for underwriting a value-add apartment syndication deal. So if you wanna check that out, go to SyndicationSchool.com and you will find those episodes there.

This is going to be a continuation (kind of) on that series. We’re gonna talk about how to underwrite apartment deals when there are no LPs, so there’s no one that’s actually passively investing in the deal, and when you are going to be doing a joint venture.

A lot of people aren’t necessarily going to be buying apartments through syndications. Maybe they are just learning about syndications, they wanna asset-manage the property themselves and acquire property themselves… Maybe they plan on just doing  a joint venture with certain people, where you’ve got 4-5 people who are bringing the money and doing all the work… So this  episode is gonna focus on those people.

I’ve got the simplified cashflow calculator up, and that is the free document that we gave away for the first series I mentioned earlier, about how to underwrite a value-add apartment deal… So there’ll be a link to that again to download that in the show notes.

Basically, what you wanna do – because right now the cashflow calculator is set up so that the equity is coming from passive investors; you offer them a preferred return and/or a profit split, and then based on the profit split you (general partners) get paid. Then it will project up to 10 years, but the cashflow would be to the limited partners based on their investment, based on their preferred return, based on the profit split. Then once you sell the property, it’ll calculate which sales proceeds go to them based on, again, their investment, and the profit split, and then the hurdles you have… And then it’ll calculate an IRR based on all the cashflow and all of the sales proceeds distributions.

So the first thing you’re gonna want to do to adjust this cashflow calculator so that you can set it up for either a JV or having no passive investors – which I guess it’s the same thing; when you’re doing a JV there’s no passive investors… But if you are the sole person doing the deal and bringing all the money, or you’ve got multiple people coming, the first thing you’re gonna wanna do is go to the LP/GP returns data table, which starts in row 66 columns B and C, and you’ll wanna set the preferred return to 0%, and  you’ll wanna set the LP split after preferred return to 100%. That way the cashflow calculator thinks that all the profits, all the cashflow go to the limited partners, the people who are bringing the equity. And since there are not LPs, it says LP but actually this is you.

So if you are the person who’s doing this deal by yourself, and you’re bringing all the money, then the cash-on-cash return, the cashflow, the IRRs for the overall project and to the LP on the cashflow calculator should be equal. That’s the first thing you’re gonna wanna do.

The second thing  you’re going to want to do is  you’re gonna go to the IRR calculation tab and you’re gonna want to change the Equity due at sale equal to the original equity amount… Because right now the cashflow calculator is set up so that anything above the preferred return is considered a return of capital, and it reduces the capital balance, it reduces the amount of equity that the LPs have in the deal… So that reduced amount is what is returned first to the LPs at sale, and then the remaining distributions are split. But since there’s no LPs, there really is no capital reduction… Because yeah, sure, it’s actually being reduced, but for the purposes of this, you don’t wanna have it reduced, because you want all the proceeds from sale to go to you, the one investor.

Now, once you’ve done that, the outputs of the cashflow calculator are set, and if you are funding the deal yourself, you  don’t need to do anything else. The cash-on-cash returns, the cashflows, the IRRs, the sales proceeds – those will all be what you are getting for the deal.

Now, this is a little bit different if you’re doing a joint venture, because for joint ventures it doesn’t automatically mean that all five people on the JV are bringing five equal amounts to the deal. So you’re gonna have to approach it a little bit differently and do some extra calculations offline.

The first thing you’re going to want to do is to determine how the ongoing profits are going to be distributed. A very simple breakdown would be you’ve got five LPs, and each of them get 20% of the cashflow. So you’ll go to your cashflow calculator tab, you’ll go down to the Cashflow in row 60, and you’ve got the total cashflow and the cash ROI… For the total cashflow you wanna copy those five years, ten years, however many years it is, into a different Excel calculator, and then multiply each of those by 20%, and that is the amount of cashflow projected to go to each of the JV partners.

Obviously, that’s a simple example. Five partners broken apart in five equal parts. But if you’ve got two people and one person’s got 70% and the other person’s got 30%, whatever the share that that individual gets of the cashflow, you’re gonna want to multiply the total cashflow that’s outputted from the cashflow calculator by whatever that percentage happens to be. It’ll be the year one through five, seven, ten cashflow projected to go to those partners.

Now, for the sales proceeds it’s going to be  a little bit different, because if – continuing with our example of five JV partners – only two of them brought equity, then when you sell the deal and you’ve got your sales proceeds remaining after paying down the remaining loan balance, and paying the closing costs, whatever those sales proceeds are, you’re not going to split those into five equal parts, or whatever the breakdown happens to be… Because the first portion of that needs to go back to those people who invested.

So if you go to the IRR calculation tab, if you remember, in cell H2 we set the Equity due at sale to the actual equity… It’s unlikely that the cashflow given to the people who invested is going to be considered a return of capital… Although if it is a return of capital, then you’re going to reduce that number in H2 by whatever equity was returned, and that’s how much is due at sale.

So if the total investment was eight million dollars, and from the cashflow they received you decided that their equity was paid down by two million dollars, then they’re only gonna get six million dollars at sale.

So assuming that the equity is the same and they’re not receiving return of capital, then the equity due at sale is the original equity investment… So you’re gonna subtract that from the sales proceeds, and then those get distributed to the people who brought money, based on their percentage of the equity, so 50/50 in our example.

Then the remaining balance, so the sales proceeds  minus the equity due at sale, or the original equity investment – that difference will be split between the remaining (in our example) five JV partners. So if there’s five million dollars remaining after all the equity being paid back to the people who invested, that five million dollars will be split one million dollars to each of the partners.

From there, once you know what each partner gets at sale, you can go ahead and create your data table of return projections to each member. Continuing with the example of five people with equal ownership share, year one through five all five JV partners will get the exact same cashflow amount. Hopefully it increases each year, but all five partners will receive the same cashflow number.

Then at the sale at the end of year five, for example, continuing with our example of two partners bringing the money and the other three partners not bringing any money, then those two partners that brought money are gonna get more money at sale because they’re technically getting back the money that they invested, and then from there the remaining profits are split evenly between the five, and then  you’ll have your total amount of money received at year five. From there,  you can calculate the cash-on-cash return for the people who invested, although that cash-on-cash return isn’t gonna be really relevant here, because of the fact that most of the partners didn’t invest any money anyway, so it was gonna be an infinite return on investment.

Maybe you wanna see your infinite return on investment, so you can go ahead and put that in your data table… And then you can calculate an IRR in a similar way, but again, for those who didn’t bring any money it’s gonna be infinite, because IRR is based off of money put in, and then how much money you got back out for the money you put in based off of the time value of money. Since you’ve put no money in the deal, then it’s not gonna make a difference.

But the IRR and the cash-on-cash return – those are relevant for the people who are using the cashflow calculator for their own purposes, for their own deals, or they’re the only person who is bringing the money.

Now, as I mentioned in the episodes where I went over how to do the underwriting on a value-add deal – I’ll mention it again here – it’s called a simplified cashflow  calculator for a reason. So if you go to the Welcome tab, it’ll tell you what assumptions were made for this cashflow calculator. It says that renovation costs are excluded from financing, so they’re not included in the financing… So if you want to do that, you have to change some formulas up. The asset is stabilized after 12 months, so if your renovation timeline is 18 months, 24 months, you’re gonna do some manipulation as well… And  it also assumes a disposition at the end of year five. So those are three things you cannot change with the click of the button.

But as I mentioned in those episodes as well, you wanna use this as a starting point, and then from there you wanna add tabs like rental comps, you wanna add some project summary tabs, maybe make it so you input stuff in a different page; you can make it a little bit fancier, but this is just a great starting point for people, because there’s not a lot of free cashflow calculators out there for apartment syndications that include limited partners.

What you can do, as I mentioned in this episode, is easily use this and convert it to a cashflow calculator where you are the only person investing, or you and three, four etc. amount of people are doing a joint venture.

So make sure you download this simplified cashflow calculator, even if you don’t plan on doing  a JV or investing in the deal yourself. This is a powerful tool for anyone who wants to do apartment syndications, because this is Syndication School, but there are people that might start off by doing deals themselves, they might start off by doing a JV to get their feet wet, so that they can eventually use that experience to raise capital from passive investors.

So thanks for listening… As always, these episodes are available at SyndicationSchool.com, where we talk about the how-to’s of apartment syndications. You can also download this free document, as well as the other free documents we’ve given away in the past, at SyndicationSchool.com.

Thank you for listening, and I will talk to you tomorrow.

JF2011: The Best Ever Conference 2020 Part Two| Syndication School with Theo Hicks

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This is part 2/2 of a Syndication Series Theo started in Episode JF2010 where he goes over the best tips and advice he gained from the speakers and conversations he had with other investors at the Best Ever Conference 2020 in Key Stone, Colorado. The Best Ever Conference hosts many great speakers who talk on multiple real estate investing topics but the ones Theo will be sharing today are focused on Apartment Syndication. Enjoy this episode as he explains his takeaways from day one of the conference and what he felt was very helpful from different speakers.  

Best Ever Tweet:

“As a GP this is obviously a good thing because if it’s just a straight up profit split you end up making more money, as opposed to having to give away 8%, 10% of the deal before you make a profit split ” – Theo Hicks


TRANSCRIPTION

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

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

 

Theo Hicks: Hi, Best Ever listeners. 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 am your host, Theo Hicks.

Each week we air two podcast episodes that focus on a specific aspect of the apartment syndication investment strategy. For the majority of these episodes and series we offer some free PDF how-to guides, PowerPoint presentation templates, Excel calculators, things like that that will help you on your apartment syndication journey. All of those free documents, as well as past Syndication School series can be found at SyndicationSchoo.com.

This is going to be a continuation of yesterday’s episode, or if you’re listening to this in the future, the episode before this one, where we are talking about the top apartment syndication lessons from the Best Ever Conference 2020.

Yesterday (or the episode before) we talked about day one lessons, and today we’re gonna be talking about the day two lessons. The first set of lessons comes from the session called The Life of a Champion, which is the talk given by Buffalo Bills Hall of Fame wide receiver Andre Reed.

He basically talked about what makes someone a champion. The three things that he says makes someone a champion is number one, to value your huddle. Again, he’s a football player, so this is applying to football, but extrapolating this to real estate, valuing your team. Making sure that everyone on your team is on the same page, that everyone knows what the game plan, what the business plan, what the strategy is, and that everyone is executing the business plan… And then making sure that everyone is respecting each other and listening to each other’s input and feedback. That champions lead by influence and not by authority.

Number two is Know your role. Champions know what they are the best at, and they know what everyone on their team is the best at… Well, I guess, taking a step back, they know what they’re the best at, and then they create a team of people who are the best at things that they’re not the best at. They know what their team is the best at, and so they let them focus on those aspects of the business. They know what they’re the best at, so they focus on those aspects of the business, and everyone comes together to use their strengths for the betterment of the team.

Then number three is that you win some and you lose/learn some. Champions know that things are not always going to go according to plan, and that as a result they know how to handle things when everything goes wrong, and they know that once they figure things out, when they make it through this obstacle, they’ll come out the other side even stronger.

Then the fourth lesson from this talk, kind of bringing all three of these characteristics of a champion together  – he says that being a champion is not based off of luck. So valuing your huddle, knowing your role, knowing that you win some and you lose some is not something that you just luck into. It’s not the shake of an 8-Ball, as Andre Reed says. It comes from hard work, and then consciously following the lessons one through three of being a champion.

That was an interesting talk… I actually met Andre. I didn’t realize it was even him until he started passing around his Hall of Fame ring, which — I won’t say literally, but figuratively the size of my head. It was huge. I didn’t realize he was sitting right next to me at the breakfast table. I got to hold his Hall of Fame ring, which he says is one of 170 of those in the entire world.

Anyways, next is John Sebree, who was in the debate from day one… I can’t remember, I think he works for Marcus & Millichap. I can’t remember who he works for, but he’s a big-time broker. The two things that I got from him was, number one — well, I should talk about lesson number two, because yesterday I mentioned that talk about this, but… In the intellectual debate he talked about how demand is outpacing supply for multifamily… So John actually went into the numbers of this and says that housing construction has fallen short of demand.

From 2000 to 2007 there was an oversupply of 2.5 million units. From 2008 to 2020 there’s an undersupply of 1.5 million units, which means that they need to build 1.5 million units to meet the demand. So that’s going back to yesterday’s thing… But similarly tied to that is that there is increasing demand for class C assets, because most of the new construction has been for class A multifamily. So there has been and will continue to be a demand for workforce, affordable housing, which is reflected by the lower vacancy rate and higher rent growth for class C compared to class A.

Basically, they’re not building enough units, and what they are building are all class A, so there’s not enough class C properties. So the vacancy rates are really low, because people are afraid to move out because they’re afraid they’re not gonna find another place to live, which is resulting in an increase in rent… So class C is a good asset class to be investing in right now, according to John.

And then similarly, secondary and tertiary markets are in demand. Most of this new construction for class A and most of these class A deals are being built and done in these primary markets, so people are starting to move into secondary and tertiary markets as well… So you’ll wanna move there before everyone else is, and start doing deals there, because of the high competition in these primary markets. So that’s John Sebree.

Next is The Age of Data, with Michael Cohen of the CoStar Group, and Jeff Adler, which I’m sure you’ve seen… I get emails of him all the time, from Yardi Matrix. They had an interesting lesson about how to find deals. The first tip was about these on-market deals, saying that basically no matter what, you’re gonna overpay for an on-market broker-listed deal. So you need to make sure you’re buying it in a market that allows you to offset overpaying for it. They said that this is done by investing in markets with high net migration; so a lot of people moving in will allow you to offset the extra money that you pay for the deal.

More specifically on finding deals is that you can look at loan maturity data to see what owners have loans coming due soon, and then you can use CoStar or Yardi Matrix data to come up with a valuation of that property, and then reach out to the owner to buy the deal… And they’re saying how you don’t wanna reach out to them and then they ask you how much it’s worth and you say “Oh, well I’ll get back to you.” Instead, you wanna come up with the valuation first, and when they ask you that question, say “Well, based on what I have, I think it’s worth this much… But can you give me some more information, so I can confirm or adjust this number?” That was interesting.

We’ve talked about people’s loans who are coming due being good targets before, but just the extra tip of making sure you have a valuation for the property beforehand is kind of new.

Next is probably from the apartment syndicators’ perspective probably one of the better panels, because it was stories of raising capital. I’ve got three lessons I wanna go over from here. The speakers were Matt Faircloth, who I’m sure you know; he’s got a pretty big presence on YouTube. Then we’ve got Ryan Smith, and we’ve got Neal Bawa.

The first lesson comes from Ryan Smith, who says that he believes we’re transitioning from an LP market to a GP market, which as a general partner, as an apartment syndicator, that’s good news to hear, right?

He says that the margins  on apartment deals are being pinched and put under pressure, so as a result he thinks that 1) GPs are gonna do less deals that they expect this year, which may or may not seem like a good thing or a bad thing to you, but… Because they’re doing less deals, because the returns on the deals are getting lower, there’s gonna be more capital looking for deals than there are deals available.

So he thinks that the 8% to 10% preferred returns that are being offered right now are either gonna be reduced, down to maybe 6% or 4% or 2%, or they’re gonna go away entirely and it’s just gonna be straight-up profit splits. Or there’s gonna be some more  unique passive investor compensation structures in the future.

So as a GP, this is obviously a good thing, because if it’s a straight-up profit split, you’re gonna end up making more money, as opposed to having to give away 8%, 10% of the deal before you make a profit split. So that was Ryan’s prediction, and I thought that was pretty interesting.

Number two – and this is Neal – this is gonna be big for people who haven’t done many deals or haven’t done a deal at all… He says that a track record is not required to raise capital. He says that this is completely a limiting belief, and that it’s pretty easy to debunk, because no one would be on-stage talking about raising capital if they needed a track record to start raising capital… Because everyone raised money for their first deal without a track record, so obviously it’s possible.

He says that people don’t invest in projects, they invest in people, so it’s less about the deal, it’s less about your experience in this particular type of investment strategy, but it’s more about the emotional connection you have with the investor, how candid you are, how well you come across, and how specific you are that matters.

He says a great way to combat a potential passive investor who says “Well, you don’t have a lot of experience, and this guy over here has done 18 deals, so I’m gonna invest in his deal.” And you say “Well, I don’t have a track record, that’s correct, but if you invest with this syndicator who has their 18 deals, then you’re gonna get at a maximum one-eighteenth of their attention and effort… Whereas if you invest with me, you’re going to get 100% of my effort focused on this deal, and I’m actually going to stake my business, my reputation on this one deal.”

So kind of just turning the tables on them and saying “Well, sure, they have a lot of experience, but here’s something that’s negative about that. And sure, I don’t have a lot of experience, but here’s something that’s positive about that.”

Then number four was also Neal Bawa, and he was talking about the fact that you’re not gonna scale by adding more content, you scale by repurposing content. So you’re not going to triple your investor base by increasing the amount of content you put out by tenfold, because it’s just not possible. There’s only so much new content you can create… So instead you wanna repurpose content that’s already been created, which is (if you’ve noticed) something that we do a ton on the Best Ever team.

He says that for example — let’s say he records a one-hour podcast episode; well, he’ll take that podcast episode and break it down into one-minute clips. Maybe he’ll get 10-15 one-minute clips from an hour podcast episode…  So there’s one repurpose. Then he’ll take those 15 clips, take the best ones and then push those out to his investors. Then he’ll take those 15 clips and then another 15 clips from another podcast, and maybe 15 clips from another podcast, and maybe 10 podcasts’ worth of clips and then turn that into an eBook. Then he’ll take the podcast, the eBook, the shorter clips, push that out on Facebook, push it out on social media, on LinkedIn, things like that.

Basically, he said his objective and your objective should be to repurpose every single piece of content at least ten times. Not once, not twice, not five times, but ten times.

We seem to be focusing a lot on Neal Bawa in this episode, because we’re back with Neal again… He gave his advice on some 2020 real estate location trends. And I’m not gonna go too into detail on what he talked about, but basically he has his five metrics that he looks at, so I’m gonna quickly run through these.

Number one is population growth. They only invest in cities with a population growth of at least 21.25% between 2000 and 2017. Number two is median household income – he wants to see the median household income growth of at least 31.5% between that same date range. Number three is median home values. He wants to see a growth of at least 42.5% between that same date range. Number four is crime levels only invest in cities with a crime level index calculated by city data that has been gradually decreasing and is below 500. Then number five is the 12-month job growth – only invest in cities where the 12-month job growth is above 2%. So those are his five metrics.

He talked about how easy it is to look those metrics up, and then based on that, two markets that you’ve probably never heard before that are really strong in all five of those categories – St. George, Utah, and Yuba City, California. I’ve never heard of them before, but apparently, based on Neal’s metrics, these are solid locations. Other top markets were Raleigh NC, Reno NV, Gainesville GA and Asheville NC.

One of the things he said right at the beginning of his speech, kind of  setting up his talk about how important data is, is that the Bible got it wrong by one letter. He says that it isn’t the meek who will inherit the earth, but the geek. So not the meek, but the geek. Then he went into the types of things that geeks should be looking at.

Next we’ve got Frank Roessler, who’s Joe’s business partner. He talked about underwriting and asset management. He went into the asset management duties when managing a single property, as well as managing a portfolio. We’ll talk about the portfolio one.

He said that the two things that change when you’re asset-managing 20 properties as opposed to one property. Number one, managing the scale properly, so doing things like implementing a system of schedules or reminders, creating daily/weekly/monthly to-do lists, having an organized file-sharing platform where each deal has its own folder, and each project in that deal has its own sub-folder.

We’ve got delegating tasks to other team members, because obviously one person can’t wear all the hats. Not becoming too emotionally invested. Celebrating wins only for a small period of time, and then using problems as a learning experience… And then secondly is adding in more sophisticated processes – getting a revenue management software like YieldStar or LRO, doing cost segregation analysis to accelerate your depreciation, hiring a local tax protester to protest your taxes each year, because taxes are gonna be your greatest expense…

Recapitalizing, so having new investors coming and buying shares, as opposed to selling the property, to make sure the taxes remain the same… Because something Frank says is [unintelligible [00:16:00].09] increase the value so much, the taxes will increase at sale, and that’s something that investors really don’t wanna see. They don’t wanna buy a property where the taxes go up a ton… So recapitalizing is a good way to avoid that.

Doing 1031 exchanges to defer taxes, purchasing interest rate caps on floating rate loans… And then once you’ve done a certain amount of deals of debt with agencies like Fannie Mae or Freddie Mac, you can access a security line of credit, and then use that line of credit to buy deals, so that you don’t have to pay any prepayment penalties.

Something else that’s interesting that Frank said is why do you need asset management if you’ve got a great property management company. Number one is the biggest risk point is the execution of the business plan. So you can do everything right, but if you don’t execute the business plan properly, then the project is gonna fail… So there are hundreds of moving parts that need to be taken into account when executing a business plan, so having someone to oversee all the moving parts is important… Because the property management company is just one of the moving parts, but there’s a ton of other things going on that your property management company necessarily isn’t doing or isn’t responsible for, that the asset manager needs to do.

Then secondly, the property management company does not have ownership stake in the deal. And even if they did, it’s not gonna be as much as the ownership stake that you have in the deal, and their reputation isn’t necessarily on the line. If they mess up, they can go somewhere else and continue managing properties. If you mess  up, then your business collapses. So no one’s gonna take care of the property as well as you, the asset manager.

We’ve got two more lessons. Next is Taking the Next Leap – this is a panel Joe did with some of his clients, talking about how they took the leap to do more syndication deals.

One of his clients, [unintelligible [00:17:41].04] had a really funny way to build a relationship with brokers. For his first deal he said that it took three years’ worth of networking to do his first deal. It involved conversations on the phone, actually flying in-person to the market and meeting with brokers in person, wining and dining them, reviewing deals and providing feedback – all the things we’ve talked about before. Basically, everything he could to prove that he was a serious investor, who could close on the deal.

So that’s how he did his first deal, but eventually, he still after this had a hard time getting a deal. He was invited to multiple best and final offer rounds, but wasn’t able to get the deal… And then he said that he called his dad and said “Dad, I’m flying to town. I want you to go to the store and buy ten bottles of Dom Perignon”, and he went and met all ten of his brokers, gave them all bottles of Dom Perignon, and sure enough, within a week, he had a deal. So if you wanna find a deal, buy your brokers some Dom Perignon… Which I think is champagne.

The last lesson comes from Bryan Ellis, who’s the CEO and host of Self-Directed Investor Radio, selfdirected.org. He was talking about the Elite Capital-Raising Webinar Strategies. Basically, talking about how to create the best webinars.

He said that the first thing you need to realize is that people aren’t investing based on rationality, they are actually rationalizing. So he says that when someone sees a webinar, the first thing that happens is they have an automatic response to the deal. Something that [unintelligible [00:19:10].01] they have no control over whatsoever; it automatically just happens, similar to if you put your hand on a hot stove and you pull your hand away automatically. You don’t put your hand on there and say “Huh. This hurts. I think I’m gonna pull my hand away now.” So that’s number one.

Then after that they have this automatic response result and emotional stimulus, which is the gut feeling they have about the deal and what you’re saying to them. So do they like, do they not like it, is it scary, is it interesting? Then after that, they will then think about all the data and facts that you present to them about the deal, and then from the automatic response, it’s resulting in emotional stimulus, and the analysis of the data and facts, they will have their impression of the deal. Now that they have the impression, they will go back over those three points and they’ll pick out all the different pieces that make the most sense to them and support their impression, and they ignore the rest. And then they decide. So basically, they decide on their impression of the deal, which comes from their automatic response and emotional stimulus, and not the facts and the data.

Most webinars focus on the facts and the data and not the emotional stimulus and the automatic response. So a few tips that he gave about how to get more capital commitments from fewer investors, with less resistance and less time, which is obviously focusing on the automatic response and the emotional stimulus, is number one, create questions in the mind of the prospects. Don’t answer every single question; make sure you leave some unanswered questions that can only be answered by reaching out to you and taking the next step that you want them to take.

Number two was to create urgency by design, so let them know why investing now will be better for them, and then number two was to have someone else tell your prospects why they should invest. This is gonna be ideally someone who’s more credible in the eyes of the investors than you, and this could be an example of someone who’s currently investing in your deals. An example that Bryan gave is he had someone else that was actually a speaker come on stage and talk about how great his services were.

He said that “I’ve gotta come up here and say the exact same thing, but you’re persuading more by him coming up and saying how great my services are.” That’s Bryan Ellis, the last lesson.

Those are the syndication lessons from day two. Again, the day one lessons, all of them, and the day two lessons, all of them, are on our blog. So if you go to JoeFairless.com, Resources, Blog, or if you just search “Top lessons from every BEC2020 session”, both of those blogs will come up, and you’ll get all of the different lessons that I got from the Best Ever Conference 2020.

Then make sure you listen to part one of this episode as well, where I went over the main apartment syndication related lessons from the conference

That concludes this episode, as well as this series, “The top apartment syndication lessons from the Best Ever Conference 2020.” Until next time, check out some of the other Syndication School episodes, as well as take a look at those free documents that we have on there. All of those are available at SyndicationSchool.com.

Thank you for listening, and I will talk to you soon.

JF2010: The Best Ever Conference 2020 Part One| Syndication School with Theo Hicks

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In this episode of Syndication School, Theo shares the best tips and advice he learned from The Best Ever Conference 2020. The Best Ever Conference hosts many great speakers on different real estate investing topics but the ones Theo will be sharing today are focused on Apartment Syndication. Enjoy this episode as he explains his takeaways from day one of the conference and what he felt was very helpful from different speakers.  

 

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“Don’t make offers in your personal name so basically create a separate LLC, that you use to make offers and then have something in the contract that allows you to assign the contract to yourself, and the reason why you want to do this is because if you walk away from the deal the seller can sue you personally for damages.” – Theo Hicks


TRANSCRIPTION

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

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

 

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

Each week we air two podcast episodes that focus on a specific aspect of the apartment syndication investment strategy. For the majority of these episodes we give away some free stuff – free PDF how-to guides, PowerPoint presentation templates, Excel calculators… Things like that, that will help you on your syndication journey. All of those free documents from past episodes, as well as the past episodes, can be found at SyndicationSchool.com.

This episode is gonna be part one of a two-part series about the Best Ever conference. I just got back from the Best Ever conference two days ago. This will probably be airing about a week after the conference has ended, and this year the conference is focused on apartment syndication, active investing, and then passive investing, with a focus on multifamily. Obviously, there were other talks as well, but for this, being Syndication School, I wanted to go over some of the top apartment syndication takeaways that I got from the conference, that I thought would be helpful for those who either couldn’t see every single panel or talk, or those who were not able to attend.

Now, if you want a full breakdown of all of the talks from the Best Ever conference, we’ve got two blog posts. They’re both called “Top lessons from every BEC 2020 session.” There’s one for day one and one for day two, and it goes over the main takeaways for each of the sessions. I’m only gonna focus on the ones that were related to apartment syndications, and the ones that I thought had lessons that were interesting, things that I hadn’t necessarily  thought of before and I wanted to share with you. So this is gonna be part one, where I’m gonna focus on day one. Then depending on how many lessons we get through today, we’ll finish up day one tomorrow and then move into day two. So let’s jump right into it.

The first lesson comes from Glenn Mueller, who is or was (I’m not exactly sure) a professor at the Denver University, and I’m pretty sure he has a Ph.D. in real estate. One of the things that was interesting is he talked about the current economic expansion, and why it’s been one of the longest – I think this is THE longest; I don’t think he said this, but someone else mentioned that this is the longest economic expansion in recent history, starting back from the 1950s… He talked about why, and he called it a “lower for longer” environment.

Basically, what he said is that the three main drivers of real estate demand are gonna be population growth, GDP growth, and employment growth. As you know, we talk about population growth and employment growth a lot when talking about which markets to invest in… So compared to previous periods of expansion, being from the end of a recession to the beginning of a recession – that’s the period of economic expansion – these three factors (the population growth, the GDP growth and the employment growth) have been lower compared to the previous expansions.

The current expansion that we’re in, the growth of those three factors has been lower compared to the growth of the same three factors in all previous economic recessions. He also said that these income drivers are essentially identical to the cost of real estate. The GDP growth, for example, and the employment growth, and the population growth have been very similar to the interest rates. He said because of this we’re in an equilibrium state where one’s not higher than the other, and that’s why this current expansionary period has been more stable, has been the longest, and why he thinks it’s going to continue to be stabilized, be equalized, and not enter a recession. That’s Glenn Mueller, from Denver University, saying that we’re in a “lower for longer” environment. I thought that was interesting.

The next one was Jilliene Helman, who is the CEO of RealtyMogul. Her talk was “Lessons learned from crowdfunding two billion dollars in commercial real estate.” There’s actually two pieces of advice that she gave that I thought were interesting. One of them is funny, the other one is — and I guess it is practical, but it’s a little out there. I thought it was funny, and everyone laughed when she went over this lesson.

Basically, she said that when she first started, she was a little afraid of raising capital from her family and friends. Didn’t think she could get the return that they wanted, was afraid that she’d lose their money… So in order to overcome the fear of taking a risk and potentially facing bad consequences, what she did is she decided to start illegally parking all over Los Angeles… And ultimately, she said she ended up paying $1,000 in parking fines, but by doing this she was able to change her mindset around fear and taking risks.

Basically, what she did is she took a risk that she knew there would be negative consequences for eventually, and then once she went through those negative consequences of paying the fine, she realized that it wasn’t that big of a deal, and that the fear that she had for illegally parking was blown out of proportion compared to the consequences… And she could just figure it out by, in this case, paying it, but for raising money she then realized that it’s something she could do, it was just kind of an irrational fear that she had. I thought that was funny.

A way to get over fear is to put yourself into situations where you know you’re gonna get rejected or you’re going to fail. That way you get used to the emotion/feeling of failing, so that if you were to do it in real estate, it wouldn’t completely take you over and make you not be able to figure out a solution. I thought that was kind of funny.

Then her other lesson that was a lot more relevant to apartment syndications is that the proforma is always wrong. In this case, I don’t think she’s just talking about the proforma that you’ll get in an offering memorandum from a broker who’s listing an apartment deal, but the actual proforma that you create. The income and expense projections that you create for your deal, based on your assumptions.

Since it’s always going to be wrong, she gave advice on four things you can do in order to minimize the wrongness. You’re gonna be wrong, so if you are wrong, you need other things in place to offset that wrongness.

The first thing was to have a minimum 10% contingency budget for your capital expenditures, and I think she’s also applying this to the expenses as well, so maybe having a reserve fund of 10%. So that was number one.

Number two was to use a cap rate at exit that is at least 1% greater than the cap rate at purchase. We’ve talked about that before on Syndication School.

This one was interesting… She suggested to reduce the number of units that you plan to renovate each month, and that you plan to re-lease each month. She actually uses 4-6 units per month, and sometimes up to 8 units per month, as opposed to 10, 15, 20 units per month. That’s huge, because obviously, if you are cutting the number of units you’re renovating in half, that extends your renovation timeline by two times, and you are going to achieve your stabilized rent twice as later… Which means that, for example, if you cut the renovation timeline from 12 month to 24 months, being stabilized at year one, and then having it 30% greater at year two is a lot different than being halfway to your stabilized rents at year one, and then fully to your stabilized rents at year two. Huge difference in cashflow, huge difference in the value of the property.

So again, these are all conservative things, and if you are able to exceed these and do better, that’s just more money in your pocket… But in order to make sure that you’re not being aggressive, you want to – according to Jilliene, follow these steps.

And then the last one is to increase the vacancy and the bad debt during the renovations period. We’ve talked about increasing vacancy before, but she also increases the bad debt, because whenever you’re doing the renovations at your property, there’s gonna be chaos, there’s gonna be noise, there’s gonna be dust, there’s gonna be people everywhere… And tenants are more likely to want to move out because of that skip-out on their lease, which results in bad debt… But also, for the vacancy part of it – and we’ve talked about this before, but just as a refresher, if you’re raising rents by a couple hundred bucks, the demographic that’s currently there is not gonna be the demographic that pays two hundred bucks more. So you’re actually gonna want to turn over the residents, and then the ones that you aren’t turning over, expect some of them to skip and leave because of the increases in rent, because they can’t afford it. So that was Jilliene Helman.

The next one was a panel with a  bunch of securities attorneys called “The unknown unknowns of SEC law”, and there were two lessons from here that I wanted to highlight. Number one was that if you have an investor who is not happy, buy them out. What they were saying is that the SEC isn’t out there searching for apartment syndicators who raise a million dollars incorrectly or out of compliance. That’s not what they do. They’re only gonna come after you — I guess not only, because they possibly could come after you without someone coming to them, but most of the time they go after syndicators who have done something wrong to their investors. The investor reaches out to the SEC, and then the SEC pursues the syndicator. So it’s more of a reactive, as opposed to proactive on the part of the SEC.

The investors can potentially reach out to the SEC without you doing anything that you think is actually wrong. So if you do have a disruption like this, they said that the best approach is to just buy out that investor, especially if they’re  a small investor. If they’re 1% of the total capital raise and they’re out there reaching over to the SEC because they’re confused of what preferred return meant, they thought that 8% preferred return meant 8% each month, not each year, if they’re going to SEC thinking that you’ve lied, even though they’re wrong, that’s still gonna be a major headache for you. So in order to avoid these types of disruptions or potential lawsuits, you can just buy the investor out. It saves you both time and money. I thought that was interesting.

The other lesson was about the differences between a JV and a syndication. What they said is that for a JV, the people who are involved all need to be active in the business. But what you might not have known is that you can have someone who invests, say, 90% of the capital, and their active involvement is deciding the compensation structure for the sponsor. So they pick what the acquisition fee is, they pick what the asset management fee is, and according to these lawyers, that can be deemed a JV, even if they’re not asset-managing the deal. They’re the ones that upfront picked and decided what the fees were, so that’s an active role, therefore it could be a JV. I thought that was pretty interesting. I didn’t necessarily know that someone could just pick the fees and be considered a JV. Maybe I misunderstood what they said, so don’t just take my word for it when you’re structuring any type of syndication or JV. Make sure you’re talking with an attorney… But that’s what they said, and that’s what I’m telling you today.

The next lesson is from Joe. This one was funny – basically, he was talking about how to accomplish more. This was similar to the Jilliene Helman illegally parking lesson, but a little grosser… Basically, he said “How to accomplish more is to have a thorn.” A thorn is a negative experience that you can draw upon to propel yourself forward.

For example for Joe, his thorn was he had a bad deal, where he ended up losing money on his first deal, among other things that went wrong with that deal… And he never wants to experience that again, so he uses that negative experience to propel him to always make money on his deals, because he does not wanna go through all the chaos that happened when he ended up losing money on the deal.

So he said that everyone needs to have an experience like this, that is something that they are kind of avoiding and using to propel themselves towards something else. If you don’t have the thorn, another strategy is to make a thorn up. Basically, say “If I don’t accomplish X, Y, Z, then I am going to have to do something really bad, that I don’t wanna do”, and that’s gonna be your thorn. An example that he gave was holding dog poop in your hand and licking it.

So let’s say you have a goal of syndicating one deal in 2020. Your thorn, the thing that you don’t want to have happen again could be that if you don’t syndicate a deal in 2020, then the next time, the 1st January 2021 you have to pick up the first dog poop that you see, smell it, rub it in your hand and then rub it on your face, or something… I probably wouldn’t lick it, because I think you’d get sick from that, but… Just something really gross like that, that will mentally make you not wanna put the dog poop on your face and get the deal done.

I thought that was really funny, really unique, and I’m sure that it works. If there’s something else that you really don’t wanna do, like “I don’t wanna go skydiving”, or something that you’re afraid of, something that’s gross, something that scares you, then you can use that as a punishment, in a sense, for if you don’t accomplish whatever goal you want to accomplish. So that’s Joe Fairless, lesson number one – if you  wanna accomplish more, lick a dog poop.

The next one is going to be Alex Racey, who is a Special Ops guy. I think he was in the Army; I’m not sure he was Army Rangers, or Green Berets, or something, but he was in the special forces in the Army… And he was talking about peak performance. Basically, what he was saying is that there’s the human performance, physical performance, and then mental executive performance. And your human performance is based off of eating, sleeping and moving/exercising, and if you don’t have peak human performance, you can’t have peak executive performance. So those two are tied together.

Basically, if you’re not in good shape, then you are limiting your ability to run a business, to accomplish goals, to scale a business, things like that. He talked about three performance categories that I thought were interesting. He says that most people fall into one of these three categories when it comes to human performance.

The first one was kicking the can. I probably fall into this category right now a little bit… So someone who was a star athlete in high school, or college, or maybe when they first graduated college they got in a really good shape, or at some point early on in their lives they were in really, really good, peak athletic shape, and they obsessed with it, they focused a lot of their time and energy on the physical side, and then once they got a job, they shifted 100% of that energy to their job, and they stopped working out, stopped eating well, stopped sleeping well… Maybe made a lot of money in their job, maybe were really successful in their job, but their physical and their mental/emotional health was lacking. This is the guy who works all day and then maybe drinks all night, or something.

Then – this is called kick the can, this is the person who says “Eventually I’ll get back into working out. Eventually, I’ll focus on my sleeping or eating, but for now I’m just gonna focus on my job.” That’s kicking the can.

The second category is the head in the sand. This is basically someone who’s overwhelmed with the total number of different fitness routines, and sleeping advice, and diets out there, hundreds of thousands of these things, and they don’t know how to pick between the two, so they say “Screw it! I’m just gonna put my head in the sand and just ignore all of it and just forget about it… Because how do I know which one’s right, how do I know which one to pick? Just forget about it.”

And then the third one is the all good. He had pictures, cartoons to represent each of these, and the cartoon for the all good is the one where the dog is in the house, sipping the coffee, and the house is on fire, and he’s saying “Everything’s all good.” Basically, this is someone who is working out, is eating well, is sleeping well, but they  maybe are overdoing it, maybe they are not doing it totally 100% properly, and so they have issues. Maybe they’ve got joint pain, or back pain, or acid reflux, or insomnia, or some issue… So again, on the outside everything looks like it’s fine, but on the inside is where they’re having the problems, and this is the category Alex said he falls into.

So you don’t wanna be in either one of these three categories. You wanna be in peak performance. So he said that in order in peak performance, optimize your human performance for each of those three categories, you want to look up and research the following three factors. For eating, you wanna look up metabolic flexibility; for sleeping, you wanna look up sleep hygiene, and for moving you wanna look up minimum effective dosing. So if you follow those three things, you’ll have peak human performance, which will also as a result positively impact your executive performance. So that’s a lesson from peak performance, Special Ops veteran Alex Racey.

Next we’ve got a lesson from Clint Coons, who is (I believe) an attorney, and it was about asset protection and planning for real estate investments. Pretty quick lesson, but basically what he was saying is that don’t make offers in your personal name. Create a separate LLC that you use to make offers, and then have something in the contract that allows you to assign that contract to yourself. The reason why you wanna do that is because if you end up walking away from the deal, the seller can sue you personally for damages.

So let’s say you put a property under contract and then 30 days later you cancel the contract, but during that 30 days if the value of the property drops by a million dollars, they could technically come sue you for that million dollars. But if you put the property in an LLC name that doesn’t own any property, then they can’t sue you personally, they can only sue the LLC, which doesn’t own anything.

The last section I wanted to talk about was the intellectual debate that was basically between two people on one side and two people on the other side, and the topic was “Will you have greater success over the next years if you sell more than you buy in 2020?”

We had Neal Bawa and John Sebree, who said “yes, you’ll have greater success over the next years if you sell”, and then you had Jilliene Helman and Jamie Smith saying “No, you should buy more.”

I’m just gonna go over the arguments on both sides. For the ones that said you should buy more, they set the stage by saying that you’re only buying things that are long-term value-add deals, in quality markets, with quality underwriting and management. One of their best arguments was saying that when you sell a property, you lose the future wealth potential of that property, because you no longer own it, you’re no longer benefitting from forced natural appreciation. But also, you’re going to be taxed on the money that you actually make. So not only are you losing out on the future wealth, but you’re also losing a portion of the income that you’re getting because of the capital gains taxes at sale. I thought that was pretty interesting. That was Jamie Smith.

Then Jilliene had three reasons why you should be buying more. One was that interest rates are extremely low, there’s a huge demand for multifamily but not enough supply, which we’ll talk about a little bit more in tomorrow’s lessons, and you will lose 2% each year due to inflation if you are liquid, so “Where else can I put my money? If I put my money in my bank account, it’s just gonna lose money, whereas if I keep it invested, even if the rents go down, rents are low, my returns get lower – I’m still making a return, as opposed to actually losing money.”

And then lastly, they said that if you are buying, besides long-term value-add deals in quality markets, with quality underwriting and quality management, you should be playing defense and  investing in asset classes such as mobile homes and affordable housing, which they say continue to perform during recessions.

On the other hand, we had Neal Bawa and John Sebree, who said that “No, you should sell more in 2020”, because 1) people are no longer underwriting deals based on fundamentals of a property, but on aggressive proformas. They’re also more leveraged and securing loans with longer interest-only periods, and sponsors are trying to maximize fees. They talked about government is continuing to spend our tax dollars to create inflation, which they said is quantitative easing, and that this is unsustainable.

They talked about how rent growth is slowing and expenses are increasing, which means NOI growth is slowing. They said that an economic slowdown is inevitable, and you want to have cash to take advantage of opportunities. That people are buying overpriced properties from veteran investors who are waiting for a recession… So basically saying everyone buying right now is a bunch of dummies, and everyone that’s selling are all the geniuses who know what’s happening and taking advantage of these dummies.

They talked about the trillion-dollar debt deficit, they talked about people from get-rich-fast courses are flooding the market, and that the Fed continues to cut interest rates, even though the economy is supposed to be strong, so what do they know that we don’t know?

What’s funny is they had this heated debated back and forth, and then the ones who thought that you should buy more were the ones that ended up winning the debate, and then at the end they were like “By the way, we just kind of drew straws to see what side of the debate we would be on”, and that it’s not actually what they even believe… [laughs] They were just doing it because that’s what they picked, and they needed to come up with reasons why on their side… So just because they said all these things doesn’t necessarily mean they believe their side of the equation, which I thought was kind of a funny way to end the debate, and a funny way to end the episode.

So to close this one out, these are the top apartment syndication lessons from day one of the Best Ever conference from 2020, in February.

In the meantime, until we come back tomorrow, check out some of the other syndication school series about the how-to’s of apartment syndication, check out all of our free documents. All those are at SyndicationSchool.com, and make sure you pick up your ticket for the 2021 conference at BEC2021.com. It’s the cheapest it’s ever gonna be, so if you want to attend it next year and see these talks first-hand, you’ll want to go to BEC2021.com.

Thank you for listening, and I will talk to you tomorrow.

JF1997: Markets With The Most Job Growth in 2019| Syndication School with Theo Hicks

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Theo Hicks shares the top states and cities with High Job Growth Markets in 2019. The information in this report is important to you because more jobs equal more demand for rentals. Listen to see if you are in one of the top job growth markets, and if you are, please let us know how this has impacted your business.

Best Ever Tweet:

“We also like to end our emails with some sort of market-related update whether specific to the neighborhood, city, or state-specific, so if you’re investing in the market that I mentioned today then this is great information you can include in your emails” – Theo Hicks

The Best Ever Conference is approaching quickly and you could earn your ticket for free.

Simply visit https://www.bec20.com/affiliates/ and sign up to be an affiliate to start earning 15% of every ticket you sell. 

Our fourth annual conference will be taking place February 20-22 in Keystone, CO. We’ll be covering the higher level topics that our audience has requested to hear.


TRANSCRIPTION

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

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

 

Theo Hicks: Hi, 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.

Each week we air two Syndication School podcast episodes – they’re also available on YouTube in video form – and these focus on a specific aspect of the apartment syndication investment strategy. For the majority of these episodes and overall series we offer free resources for you to download. These are PDFtemplates, Excel calculator templates, PowerPoint presentation templates, something that accompanies the episode that will help you on your apartment syndication journey.

This week we are going to do our second-ever Best Ever market report. This time we are going to focus on the markets with the most job growth in 2019. If you wanna check out the first market report that we did, it was last week, or if you’re listening to this in the future, about six or seven podcast episodes ago. We focused on the markets with the most rent growth.

So rent growth, job growth other economic factors are indications of the demand for real estate in a market. And since we are apartment syndicators, we care about the demand for real estate in particular, and we care about the demand for rentals. So it’s pretty obvious, but people need jobs in order to pay for their overall living expenses… And the largest living expense that people have is their homes. I think on average people spend around 30% of their income on their home or renting expense. So the more people that have jobs in a particular market means the more potential customers for you as an apartment investor. More potential renters, more people who have the ability to pay their rent on time and be high-quality tenants.

So each month, the Bureau of Labor Statistics releases a whole slew of economic news releases. If you wanna check those out, go to BLS.gov and go to their News section. I’ll include a link to their main page, with all of their monthly and quarterly and annual economic press releases… But the one we’re gonna focus on today is the one that focuses on the labor force growth in the metropolitan statistical areas, as well as the unemployment. Those are included in one news release. Basically, in this release it’ll have a few paragraphs just talking about some of the major highlights of the report, and then at the bottom they’ll actually have a full data table that has all 50 states, and the labor numbers and unemployment numbers. Then below each of those states they’ll have the MSAs (metropolitan statistical areas). I’m gonna say MSAs moving forward, instead of saying metropolitan statistical areas… They have the MSAs for each of those different markets below there.

So it’s very easy to just copy and paste that data table into Excel, and then you can filter it and see which states or MSAs have the most total jobs, most job growth, most number of new jobs added, and then unemployment numbers and change.

Here I want to focus on some interesting highlights from this report. The report I’m focusing on is from December 2018 to December 2019, so it covers basically  all of 2019, and we can see which markets had the most job growth. And again, more jobs equals more demand for rentals.

So the first thing that was interesting was the top two states for the total number of jobs added was 1) Texas, 2) Florida. And again, similar to what I talked about in the first market report about rent growth, just like that, you’ve got the markets that Joe invests in – Texas and Florida – topping this list as well.

Let’s go to the top ten states… Number one was Texas; they added 250,000+ new jobs. Florida was 178,000 at number two. Number three was New Jersey at 164,000. Washington was number four, at 140,000… But that was interesting, Washington state… Virginia – number five at 133,000. Tennessee – number six, at 113,000. North Carolina – number seven, at 112,000. Maryland – number eight, at 103,000. And Pennsylvania and Arizona was basically the same, at 102,000, for nine and ten.

But again, top two states – Texas and Florida. Texas is the only state that added over 200,000 jobs over the last 12 months, basically covering 2019.

For the unemployment numbers, all of those top ten markets, with the exception of Tennessee and Pennsylvania, saw a reduction in unemployment, so that’s another positive sign. So you wanna see the number of jobs going up, but you also wanna make sure that the total number of unemployed population is also going down. Those are a comparison of the unemployment rate for December 2018 to 2019.

The greatest reduction was actually in Washington, of 0.9%. Florida also had a pretty large reduction of 0.8%. Then the ones that went up was Pennsylvania, which went up 0.7%, and then Tennessee went up 0.1%. So if you’re investing in any of those top ten states, then you are in a market that’s experiencing a lot of job growth, as well as most of them are enjoying a reduction in the unemployment. But the majority of states and a majority of markets also saw a reduction in unemployment.

Something is interesting too, moving on to the markets – a lot of the big markets actually experienced more job growth, more total number of new jobs added that a lot of states. So the number one MSA, with the most number of new jobs, was the Washington-Arlington-Alexandria MSA. It added a total of 106,000 jobs. So only seven states – North Carolina, Tennessee, Virginia, Washington, New Jersey, Florida and Texas actually added more jobs in that 12-month period than Washington.

And then similarly, number two MSA was Dallas-Fort Worth-Arlington, and the total number of jobs added in that MSA was greater than all states except for those top ten states. So the total number of jobs added in Dallas-Fort Worth-Arlington was greater than the number of jobs added in 40 states as a whole, including all MSAs and all non-MSAs.

The same applies to Phoenix-Mesa-Scottsdale, which was number three, and Seattle-Tacoma-Bellevue, which was number four.

Then the number tenth, just because I like top ten lists – the number tenth market was the Orlando-Kissimmee-Stanford, and that market added more jobs than about 34 of the states as a whole. That’s pretty impressive, that you’ve got a total number of jobs added to MSAs that are greater than the numbers added in a state, making it seem like those MSAs are many states themselves.

The unemployment numbers are a little different, because most of the MSAs and most of the states experience a reduction in the unemployment, and all the unemployment rates are hovering around 2,5% to 3,5%, with some minor exceptions.

Now, something else – because obviously, the total number of jobs added is just an absolute number… Let’s take a look at the percent change in the jobs. Looking at this, the first major MSA that comes up would be West Des Moines, who experienced a 5% growth. They went from 354,000 to 370,000.

The next large(ish) one would be the Nashville market. It experienced a growth of approximately 4%. Then the next one after that would be Richmond, with 3.75%, and then we’ve got Baltimore at 3.6%, and then we’ve got Phoenix at 3.3%. So a lot of smaller MSAs were able to see a job growth of greater than 3%.

Why is this important? I’ve already mentioned the fact that people need jobs to pay for it, but this is also very relevant information that you can include in your investor updates. As I mentioned in the Syndication School series about the ongoing communication process with your investors, in those emails you include things like occupancy rates, and month-over-month changes in occupancy rate, you wanna include information on the number of new units you’ve renovated since the last month, any changes in the rental premiums you’re demanding… Ideally, you’re at least meeting your rental premium projections; ideally you’re exceeding them.

Then we also include things like capital expenditure project updates, as well as updates on any community engagement events that are being hosted… But we also like to end our emails with some sort of market-related update, whether it’s specific to the neighborhood, or the city, or something that’s state-specific. So if you’re investing in any of the markets that I mentioned today, then this is great information that you can include in your emails.

So you can go to the BLS.gov website, download these reports on a monthly basis – or on a quarterly basis – determine where your market ranks on the list… Obviously it helps you stay up to date on the economic growth (or maybe decline) of your market, but it also gives you relevant information to include in your investor email.

For example, if you’re investing in the state of Texas, then in your next email update to your investors you can include the fact that the state of Texas was the number one state in the country for total number of new jobs added. And it is the only state that added more than 250,000 jobs in 2019.

Then if you are investing in Dallas-Fort Worth-Arlington area, for example, then you can say that the specific market that we’re investing in is number two in the country for MSAs and the number of new jobs. Then if you’re investing in Houston, that’s also ranked very high. It’s actually ranked number five on the list for total number of new jobs added.

If you’re investing in maybe a little bit of a smaller market, then maybe the total number of new jobs might not be the most relevant factor to use… So you can focus on the percent change. So if I’m investing in a market like Austin, then I can say that the job growth was 2.5%. So it’s not necessarily in the top ten, but it has experienced a very large job growth overall, just because the market itself might be a little smaller. Or Des Moines, as I said earlier, was number one for percent growth for a large(ish) MSA.

There’s lots of different things you can do with this data, and this is just one report that the BLS has. There’s countless other reports on there that you can focus on to pull data from, to reinforce the strength of your market with your investors.

So again, I’ll have a link to a page where all of the reports are. You can also see on that page if they have an Archive link, so you can look at archived historical data. So if you’re focusing more on doing market research to see maybe which market to expand to, or you’re focusing on what market to pick in the first place, then the historical data might be a little bit more relevant, because you can track longer-term changes, as opposed to just one-year at a time.

So I’ll make sure I include that link in there, and I definitely recommend checking that out and downloading the data into Excel and then manipulating it with filters and things like that to determine which data best supports your market.

Thanks for listening. Make sure you check out some of the other Syndication School series about the how-to’s of apartment syndications, and check out all the free documents we have available on there as well. All of that is at SyndicationSchool.com.

Again, thank you for listening, and I will talk to you soon.

JF1996: Communicating With Your Investors When Selling Your Deal | Syndication School with Theo Hicks

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In this episode, Theo explains the communication process with your passive investors when you decided to sell your deal. Theo first gives you the outline of the process and then dives into each step into detail with you to make sure you are prepared to communicate with your investors when you are selling your own deal. He also explains the email templates Joe uses when he has sold his own deals and makes them available to you.

Best Ever Tweet:

“Now it’s going to be a little different if you decide to do a 1031 exchange. That means the investor has the option to A. Cashout Profits, or B. Exchange their initial investment plus their profits into a new deal.”  Theo Hicks

The Best Ever Conference is approaching quickly and you could earn your ticket for free. 

Simply visit https://www.bec20.com/affiliates/ and sign up to be an affiliate to start earning 15% of every ticket you sell. 

Our fourth annual conference will be taking place February 20-22 in Keystone, CO. We’ll be covering the higher level topics that our audience has requested to hear.


TRANSCRIPTION

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

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

 

Theo Hicks: Hi, 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.

Each week we air two podcast episodes, that are also released in video form on YouTube, and they focus on a specific aspect of the apartment syndication investment strategy. For the majority of these episodes, including this one, we offer free resources for you. These are free documents, PDF how-to guides, PowerPoint presentations, Excel template calculators, things like that that will help you on your apartment syndication journey.

This episode is going to be about the communication process with your passive investors when you’ve decided to sell your deal. We’ve already done a Syndication School series on the process on your end, how to prepare and execute the backend sale of your property. This episode is going to focus more on the communication process with your investors… So how you let them know you’re selling, what information to include in those, and then we’re also going to provide you with a free document that has some email templates. Obviously, deal-specific information is removed, but the overall templates are what Joe has used when he has sold a few of his deals.

Overall, the process works like this – once you’ve gotten a deal under contract with a buyer, then you want to notify your investors, announcing the sale. After that, you want to limit your ongoing communication and only send them something if there’s some sort of update on the deal – if the closing is pushed back, if the contract is canceled… And then if you’re doing a 1031 exchange or not, you’ll have additional communication, which I’ll talk about in a second.

Then it’s up to you, but if you want to, you can send an email notification about a week before the scheduled closing date, just to let your investors know that you are on schedule to close, and then remind them of your process at close.

Then you wanna send them an email once you’ve received notification that the deal has actually closed, whether you’re there in person or it’s an email from someone letting you know “Hey, the deal is closed.” Then you will also want to send follow-up emails after that if you decided to do a 1031 exchange.

That’s the overall process. Let’s dive into the specifics. The first email will be sent, as I said, once you’ve gotten a deal under contract. You don’t wanna do it once you’ve listed the property for sale, you don’t wanna do it once you’ve received an offer; you wanna do it only when you’ve gotten a signed contract and the buyer has entered their due diligence. Just because someone sends an offer doesn’t mean that you’re gonna be able to negotiate a contract, and also just because you list it for sale, it might take a few months to get it under contract, and you don’t want to send things to your investors that are gonna confuse them and result in unneeded extra email sent to you.

So once the deal is under contract, you want to send them the sales announcement. In the free document we have, there are two templates that you can use when the deal is under contract. The first one is gonna be a general disposition email that you will send, and this is an email you will use if you are not doing any sort of 1031 exchange; your plan is to sell the property and then distribute the proceeds to your investors, and then that’s it, the deal’s done.

In that email – I’m not gonna read the exact template. You can see that by downloading it in the show notes of this episode, or at SyndicationSchool.com… But the information you wanna include in it is 1) letting them know that you have actually got the deal under contract; you wanna let them know what the projected closing date is. If the buyers have some sort of extension, then you wanna mention that… For example, “We’re projected to close on April 1st, but the buyer has two 15-day extensions that require an additional 100k each in earnest deposit, so the latest we would close would be May 1st.”

So just letting them know “Hey, we’re expecting to close on this date, but it could be pushed back.” So setting all the expectations upfront.

Another piece of information you’re gonna want to include are the projected returns to them. You want to let them know how much money they should expect to make on the sale. Typically, what we do is we’ll say a percentage, and then we’ll say the overall IRR for the project projected, and then we’ll give an example of what they would make at sale. So we’d say something like “At sale, expect to make a 30% profit for the entire deal. That equates to a 20% IRR. For example, if you’ve invested $100,000, at sale expect to receive your initial $100,000 investment back, plus an additional $30,000 on top of that.”

Then you can also let them know when to expect to receive that distribution. If you plan on sending it after closing, and then say “Hey, we’re sending it after closing. Expect to receive it within five business days.”

Now, it’s going to be a little bit different if you decide to do a 1031 exchange. That means the investors have the option to either a) cash out and get their profits, or b) exchange their initial investment plus their profits into a new deal. If you want to do that, you’re gonna want to present that option to your investors. So you can either say “We’re doing this. If you’re interested, let us know”, or you can say that you are trying to determine if it makes sense to do a 1031 exchange based on the interest from your passive investors.

In that disposition email you wanna include the same things you included in the other email, let them know the deal is under contract, let them know the projected closing date, let them know the expected profits to be received at sale, and then ask them to let you know if they want to participate in the 1031 exchange or not.

Then obviously, from your end, if you have enough people who are interested, then you can go ahead and send another follow-up email, mentioning that you are going to do a 1031 exchange. “If  you haven’t done so already, please let us know if you want to either a) cash out, or b) do the 1031 exchange.”

From that point, you can split the investors into two buckets. One would be the people who are participating, and the other one would be people that aren’t participating, just because the information they’re gonna receive moving forward is gonna be a little bit different.

Now, if you’re not doing a 1031 exchange, then I’ve already explained what to include in that email. The next email you would send would be if there’s any sort of update. If the contract is canceled, you wanna let them know. If the closing date is pushed back, you wanna let them know. You can send them an email the week before you close if you want, and then obviously the last email you’ll send them will be the closing email.

In that closing email, basically just reiterate what you said in the announcement video. You’ll say “We’ve just closed. This is how much money you should expect to make, and here’s when you should expect to receive that distribution check.”

For the 1031 exchange – a little bit different. If you decided to do the 1031 exchange, you split your investors into two buckets, you really can technically send the same email to all of them, and just say (in bold) “If you’re participating in the 1031 exchange, here’s what you need to know. If you’re not participating in it, here’s what you need to know.” For the ones that are not participating in it, the process is similar to if you weren’t doing one in general. You’ll let them know, “Hey, here’s the day we’re closing. Here’s how much money you’re gonna make, here’s when you’re gonna get it.” There’s a little bit of an extra step that they need to do for the 1031 exchange, but you can work with that with whatever consultant you’re using, and your lawyers.

For the people that are participating in the 1031 exchange, then you’ll obviously still notify them when the deal has closed… But in that email, rather than letting them know when they should expect to receive their distribution, you should let them know the projected timeline for that 1031 exchange. So let them know how long you have until you are required to identify a property, how long it is until you have to close on that property… There are specific rules for the 1031 exchanges; you’ve got a certain amount of time to identify a new property from the time of close, and then you’ve got another timeline, which is longer, where you need to actually close on the property. If you’re comfortable, you can let them know that these are just the maximums, but we expect to identify a property within a shorter timeframe.

Now, once you’ve actually identified a  property, then you’re going to want to let them know. Depending on how you are notifying your main investor list about new deals, you can mention in there that “This is the deal that investors who invested in ABC Property will be automatically invested in via the 1031 exchange.” Then you might also want to send a separate email to those 1031 investors, letting them know that this is the deal that their money will be exchanged into.

There’s a lot of different ways to approach it, but overall you  wanna make sure that you are providing your investors with the relevant information. If you aren’t doing a 1031 exchange, let them know that the deal is under contract, let them know when the projected closing time is, let them know if there’s any potential extensions for the closing time to be pushed back, and then what’s required on the part of the buyer to get those extensions, and then let them know how much money they should expect to make, making sure that you tell them that (if this is what you’re doing for your deals) this includes the return of their investment, plus the additional profits, and then let them know when and how they will receive those profits.

Then for the 1031 exchange, if you’re doing that, again, you can keep it in one email and send it out to all the investors in that deal… Or you can split them apart, but — you wanna make sure that you are asking them if they wanna participate, so that you have a list of the ones who are participating, the ones who aren’t participating… Just because, again, there’s a few extra things you need to do on the back-end after sale to make sure that the people who aren’t participating are officially exited from the deal and no longer have any obligations… And then the ones who are participating, that you are able to continually update on the status of the exchange. So the ones who are not, your disposition email will be very similar to the disposition email if you weren’t doing a 1031 exchange at al. Again, “We’ve closed. Here’s how much money you’re gonna make, based on a sample investment. We plan on sending it out on this day. Here’s how quickly you’ll get it (five business days etc.) It will be a check in the mail.”

Then for those who are not, you’ll be updating them when you’ve identified a property, and then again, when to close on the property. Then from there, you just add them to the ongoing update list for that new property that their funds were exchanged into.

Overall, that is the process for notifying your investors of the intentions to sell, as well as going all the way through the closing period. And then if you’re doing that 1031 exchange, the communication process you’ll have with those investors afterwards.

So again, we’ve got a free document that has the disposition closing email templates. The first one, again, is that general disposition email for when you’re not doing a 1031 exchange. The second one would be a disposition if you are doing a 1031 exchange, but you haven’t split the investors into two separate lists, you’re just sending out one email to people who are and aren’t, and you’ve just made sure you’ve highlighted the sections that are relevant to those who are and aren’t participating.

The third template would be if you decided to split off and you wanna send one specific email to those who are participating… And then template four would be the other side of the coin, which is those who aren’t – this is the email you’d send to them.

So again, you can download that for free at SyndicationSchool.com, and it’s also in the show notes of this episode, or in the description, if you’re watching this on YouTube.

Until the next Syndication School episode, make sure you check out some of our previous Syndication School episodes and series about the how-to’s of apartment syndications, and download today’s free document, as well as check out some of the past free documents.

Thank you for listening, and I will talk to you tomorrow.

JF1990: The Cities with the Largest Rent Growth in 2019 | Syndication School with Theo Hicks

Listen to the Episode Below (0:17:05)
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Theo dives deep into the top cities with the highest growth in rent. Everything being equal, a higher rent growth should mean higher payouts to your investors over time. Of course there are multiple factors to take into account, as Theo explains by giving an example of how some towns will have high growth rent but the other important factors are missing so it would not be a good fit to invest in. The states with the most cities listed are Texas, Nevada, and Phoenix.

Best Ever Tweet:

“You always want to be conservative in your annual income growth assumption, if its 5%,10%, 4%, 3%, whatever it is you want to assume it’s going to grow less than the previous historical rate” -Theo Hicks

The Best Ever Conference is approaching quickly and you could earn your ticket for free.

Simply visit https://www.bec20.com/affiliates/ and sign up to be an affiliate to start earning 15% of every ticket you sell.

Our fourth annual conference will be taking place February 20-22 in Keystone, CO. We’ll be covering the higher level topics that our audience has requested to hear.


TRANSCRIPTION

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

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

 

Theo Hicks: Hi, Best Ever listeners, and welcome to another episode of The Syndication School series, a free resource focused on the how-to’s of apartment syndication. As always, I’m your host, Theo Hicks. Each week, we do two Syndication School episodes that focus on a specific aspect of the apartment syndication investment strategy, and for the majority of these episodes and series, we offer free documents. These are free PDF how-to guides, PowerPoint presentation templates, Excel template calculators, things like that, that will accompany the episodes and help you on your syndication journey. All of the past syndication school series and past free documents are available for you at syndicationschool.com.

In this episode, I’m going to try something new and we are going to talk about the state of the apartment multifamily market in terms of rent. So we’re going to talk about the cities with the largest rent growth in 2019.

Obviously, the rents are going to be important for multifamily investors and apartment syndicators as well as for your passive investors, because the rents are the income side of the equation, and all things being equal, the higher the rent, the more cash flow you can distribute to your investors, as well as the higher the value of your property. So it’s an indication of the demand of apartments in a market, if the rents are continuing to increase.

An increase in these rents, in a sense, can be directly correlated to an increase in demand for rental property. So when you’re selecting a market to invest in or analyzing the current market that you’re in, you’re going to want to see an increase in rent. In particular, what’s going to be more important is that not only is it increasing, but it is increasing at a rate that is greater than the national average and greater than inflation, really. So just because it’s going up by 0.1% each year, doesn’t necessarily mean it’s a good market. Now, even if it’s going up by 0.7% each year, it does not automatically means a good market, but it means that that market should warrant further investigation.

This is going to be data for January 2019 to January 2020, so very timely information… My plan is to do further conversations like this on other important supply and demand, and multifamily metrics, and then continue to do them on an ongoing basis as the data is updated. So I’ll do this again in 6 months, or in 12 months with the new data.

So for that timeframe of, again, January 2019 to January 2020, the national average change in rent was 1.6%. Now comparing this to the same time period in 2008, it also increased by 1.6%, so pretty flat… However, in 2017 it increased by 2.6%. So on the surface, this seems to indicate that the rent growth is continuing (based off of last year’s numbers) to be sluggish on a national scale compared to previous years. Because I think in 2016 it was also around 1.6%, then the years previously it was greater than that. So it looks like in 2016 it was also 1.6%, but in 2015 it was greater than 3%.

So on the surface, it seems like, okay, well, it looks like rents are slowing down. However, because it is an average, there’s going to be markets that are performing way worse than the national average, but there’s also going to be markets that are performing a lot better than the national average. So you as a an apartment syndicator need to not take this as something that says, “Okay, well, I probably shouldn’t invest,” but instead take it as a positive and say, “Okay, well, where can I go that is experiencing rent growths that are greater than this national average?”

So overall, and this is just again for 2019, out of the 720 U.S. cities that the data was collected for – and this is coming from Apartment List Rentonomics – of those 720 cities, 217 experienced rent growth of 2% or more. So again, greater than that 1.6%. 96 had a rental growth of 3% or more; 36 had a rental growth of 4% or more, and 12 had a rental growth of 5% or more, and these are going to be the cities of all sizes. I think they put a limit on them. I don’t think we’re talking about cities with four people in them, because you know, not a big enough sample size.

The city that actually had the greatest rental growth is the city of Madison, Alabama, which I’ve personally never heard of before, but it’s got a population of 50,000 people, and it increased by 6.9%, so significantly five times greater than the national average. Now, you’re probably not going to go invest in Madison, Alabama, because it might not meet the other important metrics for a target market, which you can learn about those by going to joefairless.com, or you could probably just google “Joe Fairless target market” and there’s some blog posts, as well as past Syndication School episodes that have talked about how to analyze a market and all the important metrics.

But I wanted today to focus on some of the large U.S. cities that experienced the most rental growth from, again, 2019 January to 2020 January. So we’re going to talk about medium one-bedroom rents, medium two-bedroom rents, and then that year over year change. So nationally, the medium one-bedroom rents were $952 and then medium two-bedroom rents were $1,193. Again, that year-on-year change was +1.6%.

Coming in number ten is going to be Arlington, Texas, with a medium one-bedroom rent of $1,016 and medium two-bedroom rent of $1,262. So both greater than the national averages, plus a year-on-year change of 2.6%, so 1% greater than the national average. What’s interesting here is that being large cities the rents are going to be higher than the national average. So not only you’re benefiting from the rental growth, but you’re also benefiting from the higher rents.

Coming in at number nine is another town in Texas, more specifically Dallas-Fort Worth area, and that is Plano, Texas. Medium one-bedroom rents are $1,186; two-bedroom, $1,474; year-over-year change is 2.8%. Joe, in his business, invests in both of these markets, so it looks like they are on the right track and those markets are continuing to do well and be strong investment markets.

Next, we’re moving into number eight, and we’re going across the country – at least from where I’m from – to California. So Stockton, California is coming at number eight. The medium one-bedroom rent is $994; two-bedroom, $1304. So a pretty big gap between those two compared to the gap between the national averages for one and two beds. That’s something else that’s interesting, that it seems like two beds make more sense in this market than the one-bedrooms do… Unless these one-bedrooms are obviously very small, and you had to know what the square footage was to be exact, but I’m assuming that they’re probably proportionate… And the year-over-year change is 2.8%.

Moving in number seven, we’re getting to the cities that have a year-on-year rental growth greater than 3%, to Las Vegas, Nevada, which has been a very strong market for rental growth for quite some time. I think the last time I did an analysis of this was 2017, and Las Vegas was in the top five, for sure. One-bedroom rent, $963; two-bedroom, $1,193, which is very close to the national average. So $1,193 is the national average, and then $963 is $1 greater than the national average. So right on point with the national average in terms of rents. However, the year-over-year change is two times greater than the national average, at 3.2%.

Number six, we’re going back to Texas, to Austin, Texas, where the one-bedroom is $1,191; two-bedroom, $1,470; year-over-year at 3.3%.

Five, we’re moving a little bit to the North-East, to Nashville, Tennessee. One-bedroom at $947, a little bit less than the national average; two-bedroom, $1,163. Also, slightly below the national average. However, the year-over-year rental growth was 3.3%.

Coming in at number four is Colorado Springs, Colorado, which is also another strong market. It has been a strong market over the past few years. Medium rent for one-bedroom is at $986; two-bedroom, $1,272; year-over-year change is also 3.3%.

Now, the last three are going to be all in the West – two are in the same state,; they’re basically right next to each other. We’ve got three, Phoenix, Arizona. One-bedroom rent, $883; two-bedroom, $1,101. So both below the average. However, year-over-year change is 3.7%. The top two are the only major cities that break the 4%, and number one actually breaks 5%.

Number two is going to be Henderson Nevada. One-bedroom rent, $1,127; two-bedroom, $1,397. Both greater than the national average, and of course the year-over-year rental growth is also greater than the national average, at 4.2%.

Then coming in at number one is Mesa, Arizona. One-bedroom, $915; two-bedroom, $1,140. Again, both below the national average. However, the year-over-your increase is 5.1%.

So going back to those top 10 cities, we’ve got three cities in Texas, we’ve got two in Nevada, two in Phoenix, and then randomly, one in Colorado, one in Tennessee, and one in California. But lots of West Coast cities, and then obviously Texas is the most dominant in the top three, and two of those are actually in Dallas-Fort Worth. So two locations are close to each other. In fact, Mesa and Phoenix are actually very close to each other as well, and Henderson and Las Vegas are also very close. So kind of just two big cities by each other, but Texas seems to be very dominant on this list. Then obviously, Arizona is twice in the top three.

So if you want to get more information on the rental growth, you want to go to apartmentlist.com, check out their National Rent Data Rentanomic section. They update this data every month, so you can get the year-on-year rental growth from whatever the current month is to the previous month. They’ve got data up to the month after. So they add the January data, and by the end of January [unintelligible [00:13:18].05] February. So the next update will probably be late February, early March. We’ll also include data on some of the previous years as well, comparing some of the big cities with a lot of rental growth, to the five year average to the previous 12-month period.

It’s nice to have a little data table that you can look at that has every city that they analyze and get the medium one-bedroom and two-bedroom rents. You get the month-over-month rent change, as well as the year-over-year rent change. Then they also have rental reports on some of the biggest cities. So Denver, Atlanta, Charlotte, Chicago, Colorado Springs, San Francisco, things like that.

So I hope you enjoyed this breakdown. I plan on doing more in the future, and if you have a recommendation on a certain metric you want me to analyze, let me know at theo@joefairless.com. I’m opening up the email inbox, so feel free to reach out for a specific metric – vacancy, occupancy, cap rates, anything specific you want me to go over. And if not, I’ll choose, and hopefully it is going to be helpful for you and your syndication business… And it should be.

Now one last note before we sign off is – let’s say you decide to say, “Well, Mesa, Arizona sounds amazing. 5% rental growth?” [unintelligible [00:14:31].24] analyze and say it’s been 3% plus over the past five years, so you decide, “I’m going to move my investment business there/ I want to start my investment business there.” Then you start looking at deals, you start underwriting and you get to the point where you make your rental growth assumption, your annual income growth assumptions. And you say, “Oh, well, the past five years it has been increasing by 5%, so let’s go ahead and assume it’s going to continue to increase by 5%, and then I sneakily buy a deal for more than what other people can because I’ve got stronger projections.” You don’t want to do that, because you cannot predict that it’s going to continue to grow by 5% each year, which is why you always want to be conservative in your annual income growth assumption. So if it’s 5%, if it’s 10%, if it’s 4%, if it’s 3% – whatever it is, you want to assume it’s going to grow at less than the previous historical rate.

For our deals, we do 2% to 3%, depending on the market. So if we’re looking at Mesa, we’d probably be closer to 3%. If we’re looking at a place like Stockton, California, we’re looking at closer to 2%. So you do not want to assume that it’s going to continue to grow at that same rate, when you’re underwriting. Now, in your mind you can say “Well, I think it’s going to continue to grow by 5%.” So if it does grow at 5%, and you’re only assuming 2% – well, you are just getting extra meat on the bone for yourself.

So that’s gonna be my parting note when  talking about these rents – you don’t want to assume that the income is going to grow at the year-over-year change, the month-over-month change, the five-year change, the ten-year change; you want to be conservative in that assumption.

That concludes this Best Ever market report. To listen to other syndication school series in the meantime until we come back next week, and to learn about the how-to’s of apartment syndication, you can go to syndicationschool.com. Also, again, those are where our free documents are located. Thank you for listening. Have a good day and I will talk to you soon.

JF1989: Learn the Difference between Preferred & Cash On Cash Return | Syndication School with Theo Hicks

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Theo explains in detail the difference between Preferred Return and Cash on Cash Return. At the end of this episode you will be able to communicate with your investors in a way that will make them comfortable enough to trust you as an expert GP. You will also walk away with examples on how Joe handles his deals and the creativity he utilizes between Series A and Series B investors.

Best Ever Tweet:

“Depending on how the math works out the class B investors are definitely not going to receive their entire preferred return for that year, and the class A investors depending on what % of the  LP they make up, may also not get their full preferred return.” – Theo Hicks

The Best Ever Conference is approaching quickly and you could earn your ticket for free. 

Simply visit https://www.bec20.com/affiliates/ and sign up to be an affiliate to start earning 15% of every ticket you sell. 

Our fourth annual conference will be taking place February 20-22 in Keystone, CO. We’ll be covering the higher level topics that our audience has requested to hear.


TRANSCRIPTION

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

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

 

Theo Hicks: Hi, 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 syndications. As always, I’m your host, Theo Hicks. Each week, we air two podcast episodes, also released in video form on YouTube, that focus on a specific aspect of the apartment syndication investment strategy. For the majority of these episodes and series, we offer some free resource to you to download for free. These are PowerPoint presentation templates, Excel template calculators, PDF how-to guides, something that will accompany the episodes that will help you further your apartment syndication business. All of these free documents, as well as the past syndication school series episodes can be found at syndicationschool.com.

In this episode we are going to focus on the differences between preferred return and cash-on-cash return. So obviously, there are two different return factors that you are going to be presenting to your passive investors. It’s important for you to understand the differences between these two, so that if your passive investors were to ask you any questions on “Why is the preferred return 8%, but you’re telling me that my cash-on-cash return is 10%? How does that work?” Well, after listening to this episode, you will have an answer to provide them that makes sense in their eyes.

Of course, the way that the preferred return and the cash-on-cash return work is going to be based off of the types of offerings that you offer to your investors. In a previous syndication school series, we talked about the pros and cons, the differences between Class A and Class B investors. If you’re going to decide to offer two different structures to your passive investors, or you might just offer one different tier– so if you’re offering two, you’re gonna have different answers to offer to each of those investors, depending on which tier, which structure they’ve decided to invest in.

So first, some definitions. The preferred return is going to be the threshold return that is offered to the limited partners that is received before you, the general partner, receives any profits. If you structured the partnership such that the asset management fee that you charge is in a position behind the preferred return, then you don’t get paid at all until they make their preferred returns. You don’t get a part of the profits, nor do you get your asset management fee.

That’s one thing you can do to create a stronger alignment of interest between you and your investors by putting an asset management fee in second position, which we’ve talked about on the syndication school series in the past.

The cash-on-cash return is going to be the overall actual returns to the limited partners over the lifetime of the project. So those are the definitional differences, but it’d be better to explain it to your investors in terms of some example, because they can look up the definitions themselves. Just providing them with the definition isn’t necessarily answering their question because they want to know what that means to them in actual dollar amounts.

For example, for Joe’s deals they distribute returns on a monthly basis. So the preferred return is going to be prorated. So when we tell an investor that they’re going to make a 10% preferred return that’s going to be distributed monthly, that doesn’t mean that they’re going to get 10% each month, or 120% for the year. The preferred return is typically going to be in terms of an annual number.

Also, for Joe’s deals there’s the Class A and the Class of B structure. Based off of the way that deals are structured, Class A investors get their preferred return first, and then once all Class A investors have received their preferred return, then the Class B investors will receive their monthly return secondly. So if you just have Class A investors, then they’re the ones that get paid, and then once they get paid; you, the GP, which might be considered Class B, you then get paid. If you have the Class A and Class B structure, then you’re Class C and you get paid last.

So if you do have the Class A and the Class B structure, let’s say that one investor invested $100,000 as a Class A investor, another investor invested $100,000 as a Class B investor. In Joe’s deals, he offers a 10% preferred return to the Class A investors and a 7% preferred return to the Class B investors. Therefore, each year, the Class A investors will receive $10,000, which equates to $833.33 per month in distributions, assuming that number is met because B investor will get their 7% preferred return, which would be $7,000 per year, or $583.33 per month. So that’s just the preferred return portion.

So assuming the deal hits the projections, and assuming you projected at least a 10% preferred return to your Class A investors, and at least a 7% preferred return to your Class B investors, that is the distribution they’re going to get each month. So you’ve got the definition of preferred return, and then you can explain to them based off of a sample investment… If they’re a Class A investor, here’s how much money you’ll be distributed as a preferred return each month. As a Class B investor, here’s how much will be distributed to you each month. So that covers the preferred return portion.

So what about the cash-on-cash return? Is it going to be higher, lower, different than the preferred return? So first, finishing up the preferred return, they’re gonna want to know, well, is that guaranteed? Am I guaranteed to get that $800+ per month as a Class A investor or $580+ dollars per month as a Class B investor? Or are there situations where I will not receive that distribution each month? There’s actually two scenarios where the investors would not receive their monthly distribution.

The first scenario would be if the general partner projected a return for year one – maybe year two, but let’s just stick with year one – if you projected a return in year one that is less than whatever that preferred return is. So if you offer a 10% and a 7% to your passive investors, and that total preferred return equates to, let’s just say, $100,000 per year, but your year one projection is going to be $80,000 per year, and then maybe year two you get above $100,000 and you’re projecting $120,000 per year… Well, year one, depending on how the math works out, the Class B investors are definitely not going to receive their entire preferred return for that year. The Class A investors, depending on what percentage of the LP they make up, may also not get their full preferred return. But if it’s only off by that much, it’s likely that the Class A investors will see their full preferred return, especially since, at least for Joe’s deals, the Class A investors make up a smaller portion of the pot; so I think it’s a maximum of 25%. But the Class B investors get their full preferred return because the projected returns are less than the return needed to distribute all the preferred returns. That’s one scenario.

The second scenario would be if the return projections are equal to or greater than the preferred return. So projection-wise you should be able to distribute everything, but when the actual returns come in, it comes in at less than the preferred return. So continuing with our previous example, you need a 100k to hit the full preferred return distribution to your investors, just  100k. And then you projected $110,000, so $100,000 plus $10,000 leftover – we’ll talk about what to do with that 10k in a second – but in reality, you only are able to get $90,000. Then again, Class B is not going to hit that full preferred return.

So if that happens, well, the process will depend on how the partnership was structured in the PPM. So for Joe’s deals, for example, the difference between whatever the preferred return is supposed to be and whatever the actual return was, assuming it’s a negative number, assuming there’s a difference, then the preferred return would accrue and then be paid out in the future.

Now, some syndicators will have a structure where the preferred return accrues, other ones won’t. Some will have a structure where the preferred return will be paid out in the next year or next month, or whenever the cashflow supports the distribution, or it’ll accrue until the sale. So it really depends on the structure; you can be anywhere in between, and it’s really up to you. So you’re gonna want to let your investors know, “Okay, well, here’s what the preferred term is, here’s an example. But if we don’t hit that number, here’s what happens.”

So now let’s talk about the cash-on-cash return portion of this, and this is what Joe does for his deals. You’re going to approach this differently, but at some point, if you’ve structured a deal such that there’s a profit split– so if you’re just offering a preferred return, then the preferred return is going to be equal to the cash-on-cash return. So for Class A investors, for Joe’s deals, they do not participate in the upside. So the preferred return is equal to the cash-on-cash return. Class B, on the other hand, do participate in the upside, so the preferred return is not going to be equal to the cash-on-cash return. That’s why I said in the beginning, it’s different for Class A and Class B investors.

For Joe’s deals, in particular, every 12 months – so 12 months, 24 months, 36 months, etc. – they will reevaluate the performance of the deal. So after 12 months, they’ll take a look at the cashflow and see if the deal cash-flowed more than the preferred return. If it did, then that extra cashflow will be distributed in a one-time payment at the end of that year, based off of whatever that profit split structure is.

As I mentioned, for those deals, these types of structures, the Class A investors are not going to get a profit split. In return, they’re offered a higher preferred return that’s paid out first before the Class B investors get paid. Whereas Class B investors are offered a lower preferred return, and they do receive a profit split. So any of the profits that are determined at the end of the 12-month cycles will be split between the Class B investors as well as the general partners.

Now, there’s two cash-on-cash return metrics that are going to be important to your investors, and those are the ones that include the proceeds from sale and do not include the proceeds from sale. So for the Class A investors, these two cash-on-cash return metrics are going to be the same, because they are not participating in the upside, and therefore they’re not participating in the ongoing profit split, and they’re not participating in the profit split from the sales proceeds. So the preferred return is 10%, the annualized cash-on-cash return excluding profits from sale is 10%, and the average annual cash-on-cash return, including the profits from sale, is also 10%. So 10% across the board; pretty simple to explain the differences between the preferred return and the cash-on-cash return to Class A investors, because there is no difference; they’re going to be the same.

Class B is going to be a little bit different, again, because they are participating. So the preferred return and the two cash-on-cash return metrics – all three of those are going to be different, unless you’ve magically only hit the preferred return number, and then at sale there is no profit, there is no loss, it’s just even; which is not going to happen. So they’re going to be different, even if it’s just a few decimal points off.

Let’s do an example for the Class B. We’ve got a Class B investor who invests the $100,000 into an apartment syndication and they’re offered a 7% preferred return, and the predicted hold period is going to be five years. You honor the deal and you determine that the cash-on-cash return projections, excluding the profits from sale, is going to be an average of 8.2% each year. So year one, you’re assuming you’ll make 7% cash-on-cash return; year two, 7.4%; year three, 8.2%; year four 9.1%; year five, 9.4%. The average of that is 8.2%, therefore the average cash-on-cash return to Class B investors excluding the profits from sale is going to be 8.2%.

So we’ve got a 7% preferred return, assuming that projections aren’t hit. Assuming that it accrues, the preferred return is going to be 7%. Their cash-on-cash return excluding profit and sales is going to be 8.2%, so now we’ve already got a difference of 1.2%. Again, at the end of year one, when the deal’s analyzed, it’s determined “Okay, there is no profit to split, so there’s no extra distribution. Oh, end of year two, we determined that we can distribute an extra 0.4% investors to give them a total return of 7.4% for the year; 7% being the preferred return, 0.4% being the profit.” Those two combined are going to be the cash-on-cash return. Same for year three, year four and year five.

Now let’s say that the goal is to sell the deal the end of year five, because you may have this conversation upfront with them. The projected profits at sale is determined to be approximately at 59% of the Class B investors’ initial investment. So for year five, they’ve already received the 7% preferred return, they’ve received the 2.4% profit projected, so 9.4% cash-on-cash return excluding the sale that we mentioned before, plus the additional 59% that they’re going to get at the end of year five when the deal is sold. So the total return for year five is going to be 68.4%. So going back to the other cash flows of year one through four, of 7.4%, 8.2%, 9.1%… Now year five, including the profits on sale, is going to be 68.4%. You average those numbers and you get the average return of 20%, including the profits from the sale.

So again, 7% cash-on-cash return, excluding profits from sale, is 8.2% per year, and the cash-on-cash return, including the profits from sale, is going to be 20%. So a little bit more difficult, a little more complicated than just simply saying, “Oh Class A investors, it’s just 10% across the board.”

Now, logistically, how will this work? Well, from the investor’s perspective, month one through month 12 they’re going to receive, assuming projects are hit, that prorated 7%. So if they invested the $100,000, they’re going to get that $583.33 per month. Then at the end of those 12 months it was determined that there are not profits, so they’ll just get the $580+ distribution. Months 13 through 24 – same thing, prorate is 7%. At the end of year two it’s determined that the projections were hit, we can distribute that extra 0.4%, so they’ll get the same $583.33 plus 0.4%, so an extra $400 in that distribution, assuming they invested $100,000.

Same thing for year three, they get an extra 1.2%, so $1,200. End of the year four it’s gonna be 2.1%, so $2,100. End of year five it’s going to be 2.4%, so $2,400 plus the distribution from the sale.

Depending on how you structure it, you don’t have to wait until the end of 12 months; you can do it on a monthly basis. You can wait until the sale, you can really do whatever you want. But that is the explanation for the differences between the cash-on-cash returns and the preferred return… Keeping in mind that there are two cash-on-cash return metrics.

To quickly summarize– so this is what you can put into emails, is that the preferred return is going to be the threshold return that’s offered each month. It’s a percentage, and assuming that the projections are hit, you’re going to receive that percentage. If that percentage is not hit, then fill in the blank; it’ll accrue, or it won’t accrue.

The cash-on-cash return is a return metric that includes the preferred return plus the extra profits you receive. So if you don’t receive profits, the preferred return and the cash-on-cash returns are going to be the exact same. If you do participate in the profits, the cash-on-cash returns are going to be higher than the preferred return.

There’s gonna be one that excludes the profits from sales, so that’ll just be your yearly preferred return plus your yearly profit, and there’s one that includes a profit from sale, which is the same plus the additional split of the sales proceeds. So those are the differences between the cash-on-cash return and the preferred return in practical terms, with examples.

Until tomorrow, make sure you check out some of the other Syndication School series and episodes about the how-tos of apartment syndications and make sure you download those free documents we have available as well. All those are at syndicationschool.com. Thank you for listening and I will talk to you tomorrow.

JF1983: The Apartment Syndicator’s Guide to the Best Ever Conference Part 2 with Theo Hicks

Listen to the Episode Below (0:25:47)
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Theo concludes this series with his final tips for aspiring syndicators who are planning to attend the Best Ever Conference in Keystone, CO on February 20-22, 2020. You know what to bring, what to wear, and have defined an outcome… now what? Theo explains how to set your schedule and get quality face to face time with high-demand speakers.

 

Best Ever Tweet:

“You’re going to want to implement any lessons you learned from the Best Ever Conference immediately because that’s when you’re going to have the most motivation.” – Theo Hicks


The Best Ever Conference is approaching quickly and you could earn your ticket for free.

Simply visit https://www.bec20.com/affiliates/ and sign up to be an affiliate to start earning 15% of every ticket you sell. 

Our fourth annual conference will be taking place February 20-22 in Keystone, CO. We’ll be covering the higher level topics that our audience has requested to hear.


TRANSCRIPTION

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

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

Theo Hicks: Hi, Best Ever listeners. Welcome to another episode of The Syndication School series, a free resource focused on the How-to’s apartment syndication. As always, I’m your host, Theo Hicks. Each week, we air two podcast episodes that focus on a specific aspect of the apartment syndication investment strategy. For the majority of these episodes, sometimes they’re series, we offer a free resource. These are free PDF how-to guides, Excel template calculators, PowerPoint presentation templates, things that will help you in your apartment syndication journey. All of the previous Syndication School episodes, as well as these free documents, are available at syndicationschool.com.

Well, this is part two of a two-part series entitled, “Apartment Syndicator’s Guide to the Best Ever Conference.” So I recommend checking out part one, which was yesterday. Or if you’re listening to this in the future, the episode directly before this one. In that episode, we focused on how to prepare for the Best Ever conference. So we talked about what to wear, what to bring. Then we focused on making sure you have a defined outcome for attending the meeting so that when you’re there, you can make sure you’re spending your time efficiently. Then we went pretty in-depth into the Whova app that you can download, and definitely going to want to take advantage of before attending the conference and while at the conference. So I talked about some of the things you can do with it before you’re at the conference.

We’re going to talk about a little bit more today about how you can use it during and after the conference. But before we move on to the second aspect of this guide, I wanted to finish up the preparation section, which is to read up on the speakers. So you can do this on the app, or you can do it on the website. So you can go to bec20.com, and then go to the Speakers tab, and it will go through a list of all of the speakers who are presenting at the conference. Then for each of those different speakers, you can click on their picture on their name, and it will give you some biographical information about them. So for example, the first speaker on the list is Jilliene Helman, who is the CEO of RealtyMogul. It says, Jilliene is the founder and CEO of RealtyMogul, a private equity firm focused on investing in commercial real estate. In this capacity, Miss Helman has invested in over $2 billion worth of real estate and is a pioneer in real estate crowdfunding. She’s a certified wealth strategist and holds FINRA Series 24, 7 and 36 licenses; recently named FinTech Woman of the Year, Jilliene has been featured in several media outlets, including CNBC, The New York Times, Yahoo! Finance, Forbes, Entrepreneur, and Bloomberg. So, essentially the exact same thing for every single speaker.

So depending on what your specific outcome is for the conference, it may include either attending the presentation of a specific speaker, or it may involve actually speaking with, one-on-one, with a speaker. So again, this is also available in the Whova app. What’s nice about the Whova app is that you can go to the attendees, you can click on the speakers, we can go ahead and find Jilliene on here. We can click on her name, and then it will actually tell me when she is giving her presentation, what time, what day and then what it will be on. So I click on Jilliene Helman, it says she’s on a panel, The Age of Data. She’s on that panel with three other individuals.

I could also do the same thing on the website. So on the website, I could go to the schedule, and then I can scroll down until I find the day that she is speaking. I already know that it’s on the 20th, I know it’s on The Age of Data. So we’ve got Panel: The Age of Data. We’ve got Jilliene Helman, Jeff Adler, Michael Cohen, and Samuel Viscovich. I click on it, and it gives me a little bit more information on the presentation.

Now, if you’re interested in learning more about The Age of Data – maybe that’s one of your outcomes, is to learn how to automate your business more, how to get more out of using the various datasets that are available out there, then that’s definitely going to be a presentation that you want to go to.

Then you’re also going to want to actually attempt to speak with that person while you’re at the conference. So before you go to the conference, you want to know exactly what speakers you want to see. That involves investigating each of the speakers. So you go to the Whova app or visit our site, find them, see what they do, see what panel they’re on, and then maybe narrow it down to a handful of speakers you want to meet, and then go to their websites, go to their LinkedIn pages and do a little bit more investigations on them, on their background… Because you’re going to want to have a written list of questions that you want to ask them one on one before you’re attending the conference.

A great way to stand out in their mind, and to have them interested in talking to you, is to bring up some piece of information, some personal information that you would not have known without researching them. So something that you found while you were looking at their LinkedIn page or their Facebook page or the website that is relevant to you, and bring that up during the conversation. You’ll stand out and then you can have some common ground and then show that you’re prepared and then go through some of your questions.

Obviously, don’t ask all the questions. Obviously, don’t ask a question that they answered during their presentation. I’ll go into exactly how to approach them, but for now, this is just a preparation. So find the speakers that you want to meet with while you’re at the conference by looking at the different presentations that they’re are doing, what they do, do some extra research on them online, and then come up with some questions to ask them when you get to speak to them, one-on-one in person at the conference. Then how to approach that one-on-one conversation – we’ll get into it in the next section, because now moving on to what to actually do while you are at the conference.

The three main things that you’ll be doing at the Best Ever conference is one, you’ll be listening to speakers. Number two, you’ll be browsing the various exhibitor sponsor booths. Then three, you’re gonna be networking with people who are there, whether it’s the speakers or it’s with the attendees. Now, all three of these are going to be important, but depending on what your specific outcome is, one or two might be more important than the others. So obviously, when it comes to the speakers, I mentioned before in preparation you’ve already researched the speakers, you already know exactly what talks, what presentations you want to attend. Of those speakers, you know exactly which one do you want to talk to and you have your list of questions.

At this point, you should have all the different talks bucketed into one of three categories. So these are one that you must attend, these are ones that you have to attend in order to accomplish your goal. Number two are the ones that you’d like to attend if you have time, and then number three are the ones you don’t need to attend. So you’ve got your schedule set at this point, so you know that you need to go to the must-attend sessions, and then depending on how things go, you might be able to attend some of or all of the sessions you’d like to attend. Then whenever there’s a session that you don’t need to attend, you know that you can use that time to focus on the other two, which are the booths and then networking.

So something else you can also do is take a look at the exhibitors. Back to our Best Ever app – go to the attendees, you’ve got the exhibitors; there are 10 people, and you can go through and see all the different exhibitors. So we’ve got GigaFly, we’ve got Axiom Workforce, we’ve got Costar, we’ve got RealtyMogul… So of all those exhibitor booths, you’re going to want to check out what those companies do, what type of services they provide and see if going to that booth and asking them questions, learning about their services will help you with your specifically defined outcome for the conference.

Then from there, again, if you’ve got part of your schedule set with the must-attend apartment syndicator related presentations, then now you know, “Okay, well during the ones that I don’t need to attend, or I don’t want to attend at all, I’m going to go to these three booths during one of the networking breaks. I’m gonna hit all three of those booths during one of the networking breaks. I’m gonna hit all three booths during two of the talks I don’t need to go to.” Now you’ve got the exhibitors you want to go talk to and you’ve got that scheduled. Then again, make sure you’re prepared with the questions you want to ask them so that you can use your time efficiently.

Now that you’ve got those two parts of your schedule set – the presentations you’re going to attend and who you’re going to speak to from the exhibitor booths, the rest of the time can be spent networking with speakers and other attendees. So in preparation, you have your list of questions for the speakers at these must-attend presentations. You’re also likely going to have other questions that come up during the presentation, as well as questions you can remove because they were answered during the presentation. At some point during the conference, you’re going to want to talk to them.

So here’s an inside tip. Let’s say you want to talk to Frank, Joe’s business partner, about underwriting. You’re sitting there, you’ve got lots of questions, and then you tell yourself, “Okay. Well, once Frank is done giving this presentation, afterwards I’m gonna go up and talk to him.” He had his presentation, you’ve crossed off maybe half your questions because Frank answered them, and then you added maybe five more questions to ask him about underwriting or whatever. And you said, “Okay, I’ve got my top questions that I want to ask him about underwriting. ” Then you sit back, he gives this presentation, it’s over. You get up and you wait in line for half an hour to talk to Frank. That’s one way to go about doing it.

But an insider tip for how to talk to Frank or any speaker much easier is to not talk to them immediately after their presentation. That’s probably going to be the hardest way to talk to them. Then the second hardest would probably be speaking to them either at some point after their presentation, so later that day, because people are probably thinking the same thing like, “Oh, well, I’m not going to talk to him directly afterwards, because that’s when everyone’s gonna want to talk to him. So I’m gonna wait an hour, then I’m gonna talk to him.” Many people are probably thinking that. So something that’s even better is to talk to them before they even give their presentation, because that is probably when the least amount of people are going to be talking to them. Because not every single person is going to be as prepared as you.

Not every single person is gonna have gone through the list of speakers, know exactly who they want to talk to, or exactly what they want to say that person, and then think, “Okay, well, I’m gonna talk to them before. Maybe if they give a presentation day two, I’m gonna talk to them in the morning of day one.”

Now if you’re really good, the best way would be to figure out a way to meet with them during lunch, the breakfast period or the after-party, or during breakfast & lunch, or afterward the next day. The best would be getting dinner with them before the after-party. Because I remember during the first Best Ever conference – now, there weren’t as many people at that first one, but I was able to get dinner with– I think it was me and three of the speakers. So it was me, a newbie investor, with three super experienced investors. One of them had raised a billion dollars for their deals, or raised four billion dollars for the deals. Another guy had done a bunch of single-family homes and now these mobile homes. The other one is a full-time passive investor.

So the best way to get all of your questions answered and more is to figure out a way to get dinner with them. I’m not exactly sure how insane this conference is going to be, I’m not sure if the speakers are going to have their dinners pre-planned and they’ll get dinner together… But if you hang out at the end of the day and don’t leave immediately, then you see speakers talking, float out over there and start talking to them at that point and then ask them, “Hey, what are you guys doing for dinner?” and see if you can tag along. That’d be the best approach. So you’ve got your top few speakers you want to meet with. Sure you can ask them questions during the conference, you can wait in line like everyone else, or even attempt to do the Best Ever approach and try to get lunch or dinner with them for a more intimate one-on-one setting.

So you’ve got the speakers, and you’ve also got the attendees, which are gonna be a little bit easier to access; maybe a little bit harder to find exactly who is the best attendee to talk to. Again, there is the search function on the app where you can look up people in the general admission, but there are 265 people, so you’re going to go through all those different profiles to see who’s the best people to talk to. But do the best research that you can. It’s good to just be random and meet random people but go in there with a plan. Have a few attendees that you want to speak with, message them on the app beforehand, maybe say, “Hey, do you want to meet up for coffee before?” or, “Do you want to just make sure that we see each other during one of the networking events?” Or you can just approach them and say, “Hey, I saw your profile on here and wanted to learn more about you and ask you some questions.”

If your outcome is finding an apartment syndication partner, the people who are most likely to partner with you are going to be other attendees who have the same goals as you; the same goal of finding a partnership. So go on the app beforehand and maybe post a forum about what you’re looking for at the conference, and then see who replies. Go on there and look for posts of people who are a similar background to you, are in a similar niche as you and who are apartment syndicators, and see if you can meet with them.

Now, when it comes to the relationship– so I talked about in part one that you want to bring business cards, but you don’t want to just hand out as many business cards as possible. You don’t want to just do drive-by’s and [unintelligible [00:15:56].01] your business cards, going up to groups and saying, “Hi, I’m Theo. Here’s my business card. Alright, catch you later.” That’s not the best approach to achieving your outcome… Unless your outcome is to hand out 100 business cards, which again, isn’t the best approach to the conference.

So instead of doing that, the best ever approach is going to be focusing on creating one deep relationship each day. So you’ve got two days, so one outcome you can have is to form two deep relationships with people who are potential apartment syndication partners or potential apartment syndication mentors, or employees, depending on where you’re at in your career, during the entire conference.

So these are the people that you are spending time with in the networking sessions, at the after-party, during dinner, during lunch, during breakfast. You’re sitting with them at the conference. Just form a relationship that’s deeper than just surface level with one new person per day. That doesn’t guarantee that they’re gonna become your partner, your mentor, that you’re gonna get some financial benefit out of the partnership, but you’re setting yourself up for success, because you’re much more likely to have a long-term relationship with someone that you are meeting with, talking with, learning about on a deeper level, than you would be by just handing out business cards or just talking to people for a little bit, very surface level and then moving on.

So once you find that one person that you resonate with, that is complementary to what you’re looking for, or someone that you could be a potential mentor, I highly recommend attempting to continue to form that relationship throughout the rest of the day, and then focus on another person the next day. Because one deep relationship is much better than speaking with ten people for a few minutes and then handing them a business card. I know for me, my first conference, I organically, naturally followed this approach and was able to form some very deep relationships. I’m looking forward to meeting these people again when I come to the conference.

So next, we have the Whova app. I talked about how to use the Whova app in preparation, a little bit about how to use it while you’re there, but just a quick list of all the different functions of the Whova app. So you can create a profile so other attendees can learn more about you. You can view the entire agenda for the conference. You will receive notifications when a new session begins or when a session you’ve scheduled begins. So once they’ve given their presentations, whoever is present on the screen, it will be uploaded to the Whova app under their session on the agenda. You can download that into your computer and see that afterward. So that in combination with any recordings you have is very powerful.

You can click on their biography and learn more about them, and you can leave comments on the session or on their page about what you learned, questions you have. You can browse the list of conference attendees, and you can send and receive messages from the attendees as well as the speakers and the exhibitors. You can create a post or browse existing posts in the community forums – we’ve talked about that already. You can browse open job listings, so people that are looking to hire can post job listings on the Whova app, and you can apply for those jobs. Or you can post your own listing. Post pictures, participate in giveaways and you can earn points, and there’s much more.  So I recommend, before you’re at the conference – I’ve already talked about this – download the app, figure out how to use it, and then also learn how to use it while you’re actually at the conference.

Then the last thing would be to not leave until Sunday. So if possible, stay for the entire duration of the conference. Most people fly in Wednesday night or Thursday morning, and then they will fly out Sunday night or later so that you can maximize your networking. So the formal conference is over, but you can still get dinner with someone that night without having to fly out that night and go home right away. You can have a whole extra five, six, seven hours of networking by flying out on Sunday.

Then lastly, so the conference is over, what do you do afterward, what are some of the best ever practices for post-conference? I guess the first thing would be to determine if you’ve achieved your apartment syndication goal. Hopefully, you did. If you didn’t, hopefully, you can attempt to accomplish it afterward by following up with certain people that you’ve met at the conference, that you weren’t able to meet at the conference. So let’s say that there’s a speaker you wanted to talk to, but you never had a chance to– well, you still have the app. You can still message them and schedule a phone call, have them on your podcast to get some of your questions answered, or hopefully accomplish your goal. But regardless, you’re going to follow up with really anyone you met at the conference, at a more than surface level. Especially the people that you’ve formed a deep relationship with. So it could be that Monday after the conference or sometime during that week after the conference, follow up with these new people that you met. The sooner you follow up, the better, because it’ll increase your credibility in their mind. Plus the content from whatever you guys talked about will be top of mind.

So a good strategy would be to go to their LinkedIn page– unless you got their phone number or their email… Go to their LinkedIn page and send a follow-up message. In this message, include a piece of information that was brought up during the conversation. It can be like a joke, something funny that happened, it could be personal information, it could be some lessons that you learned from the conversation. Then also try to immediately add value to their business. So when you spoke to them in person, you had an outcome for the conference. Hopefully, they also had an outcome of the conference. So what was that outcome for the conference? Is there a way that you can help them achieve that outcome if they didn’t achieve it, or to build on the outcome if they did achieve it at the conference. Offer to add value in some way. So if they mentioned that they were looking for a partner – well, either you can say, “I might be interested in partnering with you” or “I know someone else who is interested in partnering with you. Let me send you his contact information.” Proactively do this; add value to their business. Then for the people that you form a deeper relationship with, you will likely have their phone number or email, so you can do the same thing in that form instead.

Now if you met through the conference and you made some commitment with them – you planned on sending them something, sending them your contact information, sending them someone else’s contact information, a book recommendation, going on their podcast, bringing them on your podcast, any sort of commitment whatsoever – make sure, number one, you’re recording that either in your notepad, or you can record it in the Whova app, but make sure you’re following up on those things are right away. Then obviously, you’re gonna want to implement any lessons you learned from the best ever conference immediately, because that’s when you’re gonna have the most motivation. So if your outcome was to learn how to do some direct mailing campaign, then make sure you do the direct mailing campaign that we could get back to start that pattern.

Then lastly, take advantage of any discounts that are offered for future conferences. So last year or two years ago – I’m not exactly sure if we still do this, but I’m pretty sure that we do – if you buy your ticket within a certain timeframe after the conference and you attended the conference, you get it at a significant discount. So if you got a lot out of the conference this year, and you plan to come back next year, you might as well buy your ticket right away, because that’s when it will be the most inexpensive.

So that is the apartment syndicator’s guide to the Best Ever conference. You got a lot of these things that can be applied to really any type of investor, any type of real estate professional. I tried to throw in some apartment syndication specific examples, but in reality, this is the approach that can be used at any conference. Maybe minus the Whova app. But I would say that the most important things to do are, number one, make sure you’re prepared with your specific outcome for attending, and the based on the outcome, determine what speakers, presentations you must attend, what booths you must attend, and then what speakers and then what general admission attendees you need to speak with in order to accomplish that goal. I would learn how to use the Whova app, I would also make sure you’re focusing on building one or a few deep relationships each day, and then make sure you’re following up with whatever you committed to doing after the conference and then implementing any lessons you learned immediately that Monday or Tuesday, because that is when you’re going to have the most motivation.

So if you want the written version of what I talked about today– it’s called, “The First Timer’s Guide to the Best Real Estate Investing Ever Conference.” Then the information on the speakers, the schedule, buying a ticket, if you haven’t bought a ticket already, that’s bec20.com. Then the Whova app is just W-H-O-V-A on the App Store. If you buy a ticket, you should be getting an email with instructions on how to download and log in to the Whova app.

That concludes the series on the apartment syndicator’s guide to the Best Ever Conference. In the meantime, until the conference, and until next week’s syndication school, make sure you check out some of the other episodes we have, as well as download some of our free documents at syndicationschool.com. Thank you for listening. I look forward to seeing all of you at the conference. I will talk to you soon.

 

JF1982: The Apartment Syndicator’s Guide to the Best Ever Conference Part 1 with Theo Hicks

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Theo shares his best tips for aspiring syndicators who are planning to attend the Best Ever Conference in Keystone, CO on February 20-22, 2020. In this episode, Theo discusses how to prepare, what to expect, and how to make the most of the conference.

 

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“You’re going to want to have a specifically defined outcome for attending the conference. You’re paying all this money to get a ticket, to fly out there, time away from your business, time away from the family, paying for the hotel, so you don’t want to just come in here and wing it.” – Theo Hicks


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Our fourth annual conference will be taking place February 20-22 in Keystone, CO. We’ll be covering the higher level topics that our audience has requested to hear.


TRANSCRIPTION

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

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

Theo Hicks: Hi, Best Ever listeners. Welcome to another episode of The Syndication School series, a free resource focused on the how-to’s of apartment syndication. As always, I’m your host Theo Hicks. Each week, we air two podcast episodes, also YouTube videos, that focus on a specific aspect of the apartment syndication investment strategy. For the majority of these episodes and series, we offer some sort of free documents. These are PowerPoint presentation templates, PD, how-to guides, Excel calculator templates, things like that, that accompany the episodes in the series.

All of the previous syndication school episodes, as well as the free documents, can be found at syndicationschool.com. In this two-part series, we’re going to be talking about the Best Ever conference. So if you’re listening to this in real-time, the conference is less than one month away, in Colorado again, no longer in Denver. Now it is at a ski resort in Colorado. I thought it would be a good idea to do a Syndication School series on the apartment syndicator’s guide to the Best Ever conference. This is going to be based on a blog post that we wrote, which is the first timer’s guide to the Best Real Estate Investing Advice Ever Conference. So if you haven’t attended the conference before, or if you want to have some tips on how to approach the conference, specifically as an aspiring or a current apartment indicator, I wanted to talk about that today.

Again, this is going to be a two-part series. I’m going to go through as much as I can in this episode, and then the next episode is going to conclude the series. So the first thing I wanted to talk about is how to prepare for the Best Ever conference; most of the things will apply to everyone. I’ll talk about when they’re specific to apartment syndicators.

So the first thing that we have in this blog post is what to wear. This is a conference where you can really wear whatever you feel the most comfortable and confident in. You’re not gonna want to wear something just because you think you’re supposed to wear it, because you’re not going to be comfortable, and when you’re not comfortable, you’re not going to be able to get the most out of the conference. So this may seem like it is not important, but if you aren’t used to wearing a suit, and you wear a suit or a designer suit, you think that wouldn’t matter as much, but most likely, that’s going to have some impact on your ability to network, because you’re gonna be worried about how you look the entire time.

So if you want to wear a T-shirt and jeans, that’s not a problem. Obviously, if you want to wear a suit, that’s okay. But no matter how you dress, if you been in these conferences before, you’re gonna have on the one hand, people wearing really nice suits and the other hand, people wearing T-shirts and jeans. This includes the speakers, by the way. So as I mentioned, don’t wear a specific outfit just because you think you’re supposed to look a certain way at the conference, for real estate investors.

Again, people are gonna be wearing a wide range of different clothing because the attendees at the Best Ever conference cover a wide range of real estate investing niches. You probably don’t want to wear sweat pants or something you would work out in. That’s probably a little bit too casual. We also want to keep in mind that the conference is going to be in Colorado, so if you’re like me, and you’re used to living in Florida, make sure you bring some winter gear, make sure you bring a coat. I’m not necessarily sure if there’s gonna be any outside walking. I remember in Denver it was helpful to bring boots, because you had to walk from the hotel to the conference center. But just make sure you have the outfits that will keep you warm. So don’t just bring T-shirts, like I probably would automatically, because again, I’m used to wearing T-shirts or short-sleeve shirts in Florida.

We’re also going to have a happy hour, as well as an after-party, so you want to make sure that you’re also bringing some clothes for that as well. If you’re a dancer, make sure you bring your dancing shoes.

Then lastly, if you are interested, since this is at a resort, feel free to stay for a few days afterwards and enjoy the ski slopes, the resort, Denver or somewhere else in the general area for a vacation. If you do that either before or after the conference, make sure you’re bringing the proper clothing and gear for that. So overall, wear whatever you want, whatever you’re most comfortable in. That is going to help you set yourself up for success for the conference.

Now, what else should you bring with you to the Best Ever conference? Well, number one, you want to bring your phone obviously, as well as a charger. We’ll go into more detail on the phone aspect of it in a little bit with the Best Ever Whova app. But you’re going to want to bring your phone because of capturing people’s contact information, scheduling future meetings using the app, as I mentioned, taking pictures and posting those to the app, as well as to Facebook. Then bring your charger too, because your phone’s going to die pretty quickly if you’re using it constantly. A lot of people will actually record the different speakers, so you can use your phone for that, or you can bring a recorder for that. In the future, after the conference is over, most of the presentations are being recorded and we’ll have those videos. I’m pretty sure people that attend will have the ability to download those for free or purchase those– I’m not a 100% sure exactly how that happens. But I do know that there will be recordings.

Another tip is to bring one of those little portable chargers that you charge it in your computer or USB, and then you can just plug your phone into it and charge it that way, and not having to have access to an outlet. Because I remember the first conference– you see a lot of people that were kind of hanging out by walls because they were charging their phones or their laptops. The more time you’re spending on your phone charging it, the less time you spend on networking. If you don’t want to use your phone for recording for power conservation purposes or whatever, you can always buy a recorder to record your presentations as well.

Also, you’ll wanna bring your business cards. There’s something interesting on the app where you can just scan someone’s business card and log their contact information in the app. We’ll go into this a little bit later in this episode, or maybe in the next episode, but you don’t want to just bring a bunch of business cards and just pass them out to everyone. Or at least that’s not all you want to do. You want to also make sure that you’re having in-depth conversations with people. Again, we’ll focus on that a little bit later.

As I mentioned, a digital business card saving on the app – you can use that. You’ll also want to bring a notebook and pen to take notes. Make sure you’ve got some extra room in your luggage because there’s a lot of booths, and the booths are giving away some free stuff. So make sure you got some room in there to stuff all your free swag into there. We also do giveaways, so if you win a prize, you’re gonna want a place to put that as well.

At this point now, let’s get into some more things that are specific to apartment indicators. So you’re also gonna want to come with an outcome for attending. So out of all the different things, this is going to be the most important, because you’re going to want to have a specifically defined outcome for attending the conference. You’re paying all this money to get a ticket to fly out there, time away from your business, time away from the family, paying for the hotel… So you don’t want to just come in here and wing it. You don’t want to just show up and just see what happens. You’re going to have a specific outcome. Since you’re an apartment syndicator, depending on where you’re at in your business, you’re going to have a different outcome. So for example, let’s say you are someone who’s just starting out, maybe you’ve been listening to Syndication School since the beginning and you’ve been looking forward to the Best Ever conference for the past 12 months because you are interested in finding a business partner. Well, it’s likely that you’re going to find someone else, or multiple people are the Best Ever conference, who are in similar situations. Because there’s going to be hundreds of people at this conference.

So if your goal is to get a business partner, that is a good start, but that’s not specific enough, because you’re going to want to know exactly what you need out of the business partner. So for example, let’s say you are interested or have a background or skills in the asset management or acquisition aspect of apartment syndications, but you’ve not pulled the trigger on doing any deals because you don’t know how to find the money. You don’t have a network of high net worth individuals, you’ve reached out to family and friends, but no one’s really interested or doesn’t have the money at the moment, and the biggest pain point for you, the biggest thing holding back is private equity. Well, that would be a specific outcome for the Best Ever conference – to find a business partner who has the ability to raise capital. So with that outcome in mind, you can prepare for the conference with the focus on finding that individual. We’ll go into how to actually do that in a little bit.

Again, it could be the opposite, where you’ve got a lot of money, but you don’t know how to do syndication, so you can find someone who’s experienced in apartment syndications while you’re at the event. Or maybe you just want to learn more about a certain topic. Maybe you want to learn more about underwriting, maybe you want to learn more about asset management, maybe you want some tips on how to raise more money. So whether it’s an educational specific outcome or a business partner-specific outcome, or you’re looking for a deal, you want to know exactly what your outcome is for attending the Best Ever conference before you show up. That way, you can spend your time efficiently, and then when you leave the conference, you’ll know if you were successful or not, because if you didn’t achieve your outcome, then you weren’t successful. And if you did, then obviously you were successful. Lastly, if you want to stay there for a vacation, something else to bring would be a snowboard or skis or whatever.

Alrighty, so what else do we do in preparation for the conference? You’re going to want to download the Best Ever Whova app. So once you buy your ticket, then you can download the Whova app  in the application store on your iPhone or on your Android device. The Whova app has a lot of different functionalities. It will be something that’ll be a very powerful tool for you during the conference.

I’ve got the app open up on my phone right now, so we’ll just go through it before the conference, so this is exactly what you’d be doing for the conference. So when you open it up and you go to the home screen, it has a section for additional resources and a section for the event description near the bottom. So I’m on the iPhone; it might look a little bit different on the Android. So at the bottom you have the home and then you’ve got the agenda tab. So on the agenda tab, you’ve got the schedule for the two days; so Friday, the 21st and Saturday, the 22nd.

If you scroll down, you’ll see in order all the different panels, speakers, presentations and sessions. So it starts off with the welcome, and then we’ve got the first speaker, Whitney Sewell, talking about– it says, my first Best Ever conference, so what he’s done since then. Then you’ve got Economic Update with Glenn Mueller. Then if you click on it, it will tell you if this is something that’s focused on active or passive investing. It’ll allow you to add it to your agenda, so you’ll get notifications while at the conference that a presentation you signed up for is coming up. It’s got the speaker, so you can click on the speaker and you can read their biographical information and learn more about them, and you have the ability to send the speaker a message. So if your outcome was to learn more about, in this case, the commercial real estate economy and what it has been looking like and what the forecast is, well, you’re gonna want to meet Glenn Mueller, so you can have that as your outcome – meet and speak to Glenn Mueller.

Next, we’ve got a keynote speech, lessons learned from crowdfunding $2 billion in commercial real estate. So if your goal is to learn more about raising money, well, that’d be a great session to attend. So it’s the same thing for everything. Eventually, we’ve got a networking break, and it goes through all the different sessions for the day, which ends with the cocktail hour at night. Then you go to the next day, Saturday, the same thing, all the different sessions, panels, speakers. What’s interesting too is that you can find a lunch mate. So if you go to lunch, if you can find people to have lunch with, so again, if your outcome is specific to a certain thing, which it should be, you can find other attendees that are also focused on that same niche, so multifamily apartments, whatever. You can invite them to lunch on the app without even meeting them in person yet.

Next, you’ve got the attendees tab at the bottom. So from here, it lists out all the attendees. So you can look by categories, you can look at the people who have booths, speakers, the organizers, some VIPs, the sponsors, and then general admission. So again, for everyone who attends a conference, like you, you’ll fill out your information on the app, and you will be able to find other people who are attending the conference and you can send them messages beforehand.

For example, I’ve got a message that says, “Hey, Theo. I’d love to meet up with you. I’m also a chemical engineer by trade. I’m super excited to work with you on underwriting in Joe’s mentorship program. See you in Keystone.” So that’s one individual that I’ll be meeting up with at the conference. I’ve got other messages where someone’s invited me to a meetup group that they have. These are things that seem like they’ll occur during the networking breaks or out in the lobby of the conference. We’ve got a “How to Start and Scale a Syndication Business on a Budget” with 71 people attending. This is a meetup that I’m assuming will be occurring in some location in the lobby, and Ellie will be presenting about how to start and scale a syndication business on a budget.

So again, there’s countless different opportunities at the conference to achieve your outcome. You’ve got the speakers, then you have the ability to speak to the speakers. You’ve got the booths, you’ve got the exhibitors, you’ve got various sponsors, you’ve got these meetup groups, you’ve got the ability to actually network with people out in the lobby, you can schedule meetups, you can schedule lunches with certain individuals, whether it’s speakers or general admission. So lots of different opportunities on this app.

Next, we’ve got the community. So this is pretty cool. The community is like a forum, where people will post different questions or topics for people to post under. So for example, we’ve got two meetups. There are 38 meetups that people have scheduled for the Best Ever conference that are, again, outside of the actual scheduled sessions. So these are meetups that are created by people who are attending the conference. For example, we’ve got a meetup group for a specific area, Fort Wayne, Indiana. We’ve got a meet up for passive cashflow, we’ve got a meetup for underwriting deals, for accounting done right, single-family investing, multifamily master… So this is probably something that you’re definitely going to want to do based off of your outcome. So if your outcome is to learn more about raising money, you’re going to find a meetup that focuses on raising money.

Here’s another one… So if you want to learn how to expand your thought leadership platform, your podcast, we’ve got a podcasters meetup. If you live in a certain area and you want to learn more about the market, for example, let’s say if you live in Florida, we’ve got a Central Florida networking meetup. If you want to work out, we even got a Friday morning run that you can do.

Then after the conference, you’ll have the ability to get dinner with people, so there’s plenty of drinks and dinner meetups on here as well. Then you’ve also got different topics that you can post on it. You’ve got asset protection, we’ll be having a fireside chat on asset protection… It’s what questions– it’s actually the person who’s gonna be interviewing the panel, asking us the attendees, “What questions do you want me to ask during the panel?” So there’s those from the panels. We’ve got someone here who’s asking a question about losing money. “Any story that you can share about losing money in real estate, what went wrong?” So again, you can technically get your outcome accomplished before even attending the conference by creating a forum post on this community page.

Then the last tab is going to be your messages. So anyone who sends you a message, it’ll appear on this page, and then you can create a message by clicking at the top right. That will give you the ability to select anyone who’s signed up for the conference and email them. You can search by their name, their affiliation, their location. Or you can just scroll through and look at their businesses, what they do – are they a speaker, a sponsor, who are they? Again, if your goal is to meet a specific person or to learn a specific thing, you can get that through this app.

So again, the app is very powerful, I would definitely recommend the second you buy your ticket going on there, looking through the agenda, looking through that community page, see if you can find any meetup groups that are relevant to you, find any– after the first day, getting drinks or after the second day, getting drinks with people, meeting people for lunch, meeting people for breakfast in the morning, meeting people during the networking breaks, and then for the messages, you can meet with specific individuals that you want to reach out to, to help you accomplish your specific defined goal.

So I think it’s a good place to stop. We’ve talked about what to wear, what to bring and then we’ve gone pretty in-depth on the app. You should get an email or have been getting emails about the app as well, how to download it and a little bit of information about its functionality. But again, this is an apartment syndicator’s guide to the Best Ever conference, so any outcome that you have, for those listening, it’s going to be apartment syndication related. So when you’re on the app, when you’re looking at the agenda, and you’re looking at the attendees and looking at the community, you want to find things that are multifamily related, and that are related to raising money for multifamily deals. We’re gonna talk about underwriting, asset management, raising capital, or talking about the actual condition of a market… Those are the types of speakers, of panels, of presentations, keynotes, and community events that you’re going to want to be involved in.

Then when you’re considering reaching out to people using the messenger, you’re also going to focus on people who are actually where you want to be. So if you have never done a deal before, then you’re going to want to find people who have done deals before. If you’ve done a few deals, you’re going to find someone who’s done more deals than what you have done. Then consider just sending them a nice friendly message, pretty quick and succinct, mentioning your background, and that you’re interested in having a quick conversation with them at the conference.

So in the next episode, tomorrow, we’re going to talk about the last thing that you need to do in preparation for the conference. Then we’re going to talk about how to actually approach the conference once you’re actually there. Then we’re talking about what to do once the conference is over. Again, all from the perspective of an apartment syndicator. Until then, I recommend listening to some of the other syndication school series episodes on the How-to’s of apartment syndication, and to download the free documents that we have available. All that is on the syndicationschool.com Thanks for listening. I’ll talk to you tomorrow.

Syndication School with Theo Hicks

JF1976: 8 Tips To Nail a Podcast Interview Part 2 | Syndication School with Theo Hicks

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In Part 2 of this series, veteran podcast host, Theo Hicks, explains some best ever practices for all things podcasting. Catering to the audience’s needs is a no-brainer and finding out why people listen is something you should determine in advance. Listen to this episode to hear the rest of Theo’s best ever advice for how to interview on podcasts.

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TRANSCRIPTION

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

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

Theo Hicks: Hi, Best Ever listeners. 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.

Each week we air two podcast episodes that are generally part of a larger podcast series that focus on a specific aspect of the apartment syndication investment strategy. For a lot of these series and episodes, we offer a free document for you to download. These are free PDF how-to guides, PowerPoint presentation templates, Excel calculator templates, something for you to download for free that accompanies the content discussed in that series or episode. All those free documents as well as the previous Syndication School series episodes and series can be found at syndicationschool.com.

This episode is going to be part two of a two-part series entitled, “Eight Tips to Nail Your Podcast Interview.” So the last Syndication School episode, or yesterday, if you’re listening to this currently, we went over tips one through four. Today we’re going to finish up the eight with tips five through eight.

So really quickly, and I definitely recommend listening to part one, but just as a refresher, the four tips were – number one, we talked about the best ever practices for the equipment that you’re going to want to use when you’re being interviewed on other people’s podcasts. Obviously, the same equipment applies to your own podcast as well. Number two is to make sure you have a web presence prior to being interviewed on the other person’s podcasts, so that when people listen to it, they have somewhere to go to find more information about you, and ideally for you to capture their contact information once they’ve arrived at your web location. Number three is going to be best ever practices for how to prepare for the interview. Then number four is going to be the best ever practices for what to do after the interview is over. So I went in a lot more details on those four in the previous part, part one. So definitely check that out. Again, today, we’re going to go over four more tips to nail your podcast interview.

So overall, tip number five, is to make sure you determine before going on the podcast, why people actually listen to this podcast. So always ask the host why people listen to their podcast. What does their audience want? What is their audience trying to get out of listening to this person’s podcast? At the very latest, this needs to be done in the minutes before going live. But ideally, you’re doing this a few days beforehand, so that you have time to prepare. Because when you know why people are actually listening to the podcast, you know what you should and shouldn’t talk about, as well as how to [unintelligible [00:05:01].23] the conversation.

For example, people listen to Joe’s podcast, to this podcast, because they want to hear the best ever advice that the guests have about their successful real estate career. But they want it in a short, no fluff format. So typically, our shows are under 30 minutes, probably on average 20 to 25 minutes. So really short, concise, to the point, no fluff advice, and then specifically the best advice that they actually have for how they’ve been successful and how you can also be successful. So if I’m being interviewed on that type of podcast, then I’m going to make sure that I keep all my advice really concise, and to the point. I’m going to make sure that I’ve got an answer to the question, “What is your best real estate investing advice ever?” Be able to answer follow-up questions on that, and keep in mind the entire time that these are people who want to be as successful as me, supposing I’m a multi-million-dollar real estate investor, so what’s the best advice ever that applies to those types of people?

On the other hand, you’ve got a podcast like BiggerPockets, which was a little bit different. So the BiggerPockets podcasts, people that listen to that are going to hear a casual, much longer, and more conversational type chat about the failures, successes, motivations and the lessons learned. So if you go to the BiggerPockets podcast, that’s essentially a summation of their description – a casual, longer form, more conversational chat about the failures, successes, motivations, and lessons learned from the guests.

They also do the lightning round, but they don’t have the money question like Joe has. Theirs are also much longer, like an hour, an hour and a half in length. So if I was being interviewed in that podcast, I would prepare entirely differently. I’d make sure that I had multiple stories to tell, multiple pieces of advice to tell, have stories about failures, have stories about successes, but detailed stories on those, because I have to talk for an hour. Talk about things that motivated me, a long story about why I got started, maybe five or six lessons that I’ve learned so far. So I need a lot more information for those podcasts, because listeners are there to hear a ton, as opposed to Joe’s are concise, to the point, here’s everything you need to know and nothing else.

Some people also listen to a podcast for a specific niche. So they might be looking for niche-specific advice. So for example, you’ve got Jake and Dinos’ Wheelbarrow Profits Apartment Investing podcast. Obviously, by the title of it, the listeners really only care about apartment investing. Similarly, you’ve got someone like Kevin Bupp who has a mobile home park investing podcast. So the listeners want to hear about mobile home park investing. So if I’m going on Jake and Dinos’ podcast, I’m not going to talk about mobile homes, or single family homes; I’m talking about apartments. If I’m going to go on a mobile home podcast, I’m not gonna talk about apartments or single family homes or office centers or shopping malls or whatever. I’m going to talk about mobile homes.

It seems pretty obvious, but you need to make sure that you know why the audience is listening. Then make sure that everything you say is directed specifically toward that audience’s needs, and then avoiding any topics that they’re probably not going to be interested in. So, again, how do you figure this out is you ask the host, “Why do people listen to your podcast?” You can also get a pretty good idea of why people listen to the podcast by looking at the topics of some of the previous podcasts, as well as reading the description they have on their iTunes podcast page, because when they create the podcast, they’ll have a description they use to attract people and say, “Hey, this is what we’re talking about.” So people that read the description, and then listen to some of the podcasts, realize that, “Hey, this is for me.” So obviously, the description and then what they talked about in previous podcasts are going to give you a great idea of all the reasons why people are actually listening. So that’s number five.

Number six is to make sure you have a call-to-action, which I briefly mentioned it yesterday, but I did say I would elaborate on it in a more detail in this episode. So at the conclusion of most podcasts that are interview format, the host is going to ask you, in this case, the interviewee, to tell the listeners to tell their listeners where they can learn more about you, and your business, or  something along those lines, ask you for a concluding statement. They might just say, “Oh, to wrap things up, you got anything else to say to us?” or whatever. So you’re gonna be allowed of some concluding statement on the majority of podcasts you’re interviewed on.

At this point, whether it’s them asking you about where they can find more about you, or just to give a concluding statement, you want to make sure that you have a prepared reply. You don’t need to script it out, but just have an idea of what you’re going to say. This needs to include some call-to-action. Ideally, the best ever practice would be to have a call-to-action where you’re giving the viewers something for free. The action could be something as simple as just, “Hey, email me” or “Hey, go check out my website”, but going back to the last episode, one of the benefits is you want to increase your followers because the more followers you have, the more potential investors you have, the more potential team members you can find, the more potential partners you can find. So in order to maximize the conversion rate from the podcast, you’re going to want to offer something for free for them to download.

So you can ask them to send you an email to get this free thing, you can create a landing page where they sign up, and they sign up for your newsletter and they get this free thing… But whatever it is, you should send them something for free, and then capture their email address. Those are the two main important keys to your call-to-action. So, “Hey, I’m giving you something free and I want your email address for it.” Don’t say it like that, but that’s your goal. So whatever form your call-to-action is, however you’re capturing their email address, whether it’s them emailing you — a landing page is much better, because they might look at other parts of the website as well. The free item then can be an eBook that you’ve written, it could be a blog post that goes into more depth on whatever topic you discussed, it could just be a free subscription to your newsletter… That’s probably the most simple approach. But an eBook or some document that goes into more detail on the episode is great, because then you can have a document created, you can hit some of the highlights of the document and then say, “This is the taste. If you want more information on what I talked about– I gave you tips one through five. If you want tips six through ten, go to my website, sign up for my newsletter, and I’ll send you the free ten tips to nail your podcast interview.”

Another benefit besides just capturing their email addresses and again, increasing your followers, your newsletter list, is that you can actually determine the success or the failure of the interview, because you’re not gonna have analytics to the interview. So technically, I guess you would ask the interviewer, “Hey, it’s been a week, how many views did my podcast get?” But that really doesn’t really matter alone. You also need to know how many views the other podcasts and interviews they’ve done and have gotten, and thus actually see if it was a hit or not. And you’ve got to know what their average viewers is. You could technically ask the interviewer for that, but they’re probably busy and don’t want to give you all the information. So instead, you can use the email capturing process to determine how successful the interview was.

I got interviewed on the BiggerPockets podcast and I had ten email signups. I got interviewed on Joe’s podcast and I got a 100 email signups… So obviously, my content resonated a lot more with Joe’s audience than the BiggerPockets audience. Now you know what type of podcast to go on in the future, so that you’re maximizing that conversion rate. So that’s number six, call-to-action.

Number seven is going to be have prepared stories. So no matter what the format of the podcast is, you are going to resonate with the listeners the most if you’re telling stories, as opposed to just going through a list of things, giving them stats. You can do that, but you also want to back them up with an interesting story to tell.

So depending on the podcast – if I was going to be in Joe’s podcast then maybe I’d make sure I had three or four stories to tell. If I was going on the BiggerPockets podcast, I’d probably have a list of ten stories to tell. Then depending on which way the conversation goes, I can naturally bring up one of my prepared stories. You don’t wanna force the story in there. For example, maybe you’re in apartment syndication, you’re talking about how you found your first deal and I go, “Well, really funny story. One time after I bought a deal…”, or maybe a story about you meeting a property management company or something completely random; it’s an interesting story, for sure, but it has nothing to do with your first deal. So that’s why you wanna have multiple stories prepared so that you can naturally bring that story up, because it’s related to a question that was asked.

So for example, as I said, if you’re asked about your first deal, don’t talk about how you met your property management company or talk about your job that you had before getting the real estate or talk about the deals which you sold, which is obvious… But if you’ve only got one story prepared, and that’s the one, well, you’re going to bring it up eventually. But you’re also gonna want to make sure, as I said before, that you don’t say something like, “Oh, well I bought it for $100,000. I put $50,000 into it, and then the value was $200,000. It was a solid deal.” That’s interesting, a little bit, but you can definitely make it more interesting, more entertaining, because that’s boring. So instead, you can tell an interesting story about your first deal; something funny that happened, or unexpected that happened, or an interesting lesson that you learned.

So my go-to story, my bit is that when I bought my first deal, I was super excited about getting into real estate. I was 23 years old, I think; just out of my work training. Out of all my friends, I was the only person that bought real estate, so I thought I was so cool. I went to the house, I’d taken a bunch of selfies to post on Instagram about buying my first house. I just thought I was the coolest guy in the world.

My plan going into it was to start to do the renovations the day that I closed. I closed on a Thursday. My goal was to go over there, take the pictures, and then start pulling up carpets that night, and then working through the weekend. so that the next week, the contractors could come in there and start doing their work. But of course, since I’m this cool guy, I was like, “I not gonna do that now. I’m going to go out and celebrate how cool I am.” So the weekend goes by. This is in February in Ohio, so it’s freezing. Then I show up to the house on Monday, ready to go with all my carpet removing tools. I open the front door and I hear a very faint sound, like a wishing sound. It sounded like static. I was like, “Oh, that’s weird.” So I walk in the living room and I start ripping up carpet and I’m like, “What is that sound? That doesn’t sound right.” So I’m looking around for the source of it, I’m walking around, playing like “You’re getting hotter, you’re getting hotter, you’re getting colder, you’re getting colder.” So it started getting hotter as I approached the basement door, and I open the basement door up and now it’s a really loud whooshing sound, but I still can’t identify what it actually is. So I walk down the stairs and I turn, because you go down the stairs, and then behind the stairs is a bathroom. So [unintelligible [00:15:46].11] second I look and literally there this Niagara Falls just pouring down out of the ceiling into the basement. I’m freaking out at this point; I don’t even know how to turn the water off. So I googled “How to turn water off in your house,” I identified the master valves, I’ve turned that, and then all the water in the house turns off. One thing led to another, it all got figured out, but what happened was that my real estate agent – again, this is my first time buying a house – she told me to make sure I transferred the utilities into my name. So the word “transfer” to me meant that I need to transfer from their name to my name, so that I’m paying. Because if I don’t do that, then they’re gonna keep paying the utilities and that’s not fair, and they’ll have to come to me and ask for money, so I need to make sure I’m transferring beforehand… And I didn’t. That means, as I know now, that the utilities actually get turned off, because the owners will say, “Hey, we don’t own this property anymore. You need to stop utilities on this day.” So they stopped; the heat turned off. It was freezing cold outside, so the pipes froze, and then it warmed up a little bit. The pipes thawed, the pipes burst while it was frozen, and the water had been pouring in the basement for– I don’t know how long it was doing it, but my water bill was some insane number, because it was all just pouring straight into the sewers.

So that is a more interesting story to tell than just saying, “Well, I bought my first deal when I was 22. I bought it for $170,000. I put 20k into it and I rented it out for three years and I sold it.” I can say that, but adding in that interesting story, I think it’s interesting, now. It was kind of depressing at the time, but now I think it’s funny. So, think of stories like that. Little funny things that are entertaining things you can add into your prepared story. So that’s number seven – have prepared stories, as opposed to just running through facts about your deals.

Lastly, number eight is going to be lists. So give your advice in list form. In addition to having your stories, you’re going to want to also format your advice in the form of a list. People listen to podcasts and read blogs. We’ve got BuzzFeed, for example, 17 different ways to make a cupcake. People love lists. So whenever a host asks you a question, or whenever you’re giving advice on a specific topic, make sure it’s in list form. So eight tips to nail your podcast interview, or as I said before, 17 different ways to make a cupcake… As opposed to just randomly talking about things and transitioning from one to the other without actually mentioning you’re transitioning; it’s better to say  number one is this, number two is this, number three is this, number four is this. Number one, here is a funny story; number two, here’s a funny story; number three, here’s a funny story; number four, here’s a funny story.

So for example, let’s say they ask you about mistakes that you’ve made. You can say, “Well, it’s a good question. Here’s five mistakes that I made on that deal. So mistake number one was I forgot to put the utilities into my name. Here’s a funny story about that. Number two is I didn’t get a 203k loan. Instead I invested all the money myself for renovations. Here’s a funny story about that.” So not only is it really more entertaining and more engaging, but it also is going to help the listeners more easily understand what you’re saying, as opposed to your advice being all over the place.

So those are the eight tips to nail your podcast interview. Being the Best Ever podcast, I’m going to give you a bonus tip. Actually, it’s because I missed this in the outline in part one, and that is your bio. So whenever you are being introduced on a podcast, they’re going to read off some biographical information about you so the people that are listening know who they’re listening to. The host is going to likely ask for you to send them something before the interview, that includes what you want them to read during this section.

So some best ever practices for your bio that you send to them is to keep it to two paragraphs at most. You don’t want it to be this super long in-depth bio, because number one, it’s going to be wasting time that you could be using to discuss advice on the podcast. Plus, you can just discuss things that you’d left out later on in the podcast. Anyways. The bio should include facts about your business, and it should focus on how your specific background and your expertise and your business is going to be relevant and add value to the listeners. You know what they want to hear, so what in your background can you leverage to display that you are someone that they should listen to, and you’re someone that they should want to listen to.

Then you’re going to want to provide the host the link to your website, ideally that landing page, so that they can learn more about you and your company. They probably will ask you for a headshot as well, because they’re going to want to make a nice little fancy design of them and you, and then the caption would be the title of the podcast. So make sure you’ve got a nice professional picture to send them and it’s not a selfie of you at the bar or something… Which might work on certain podcasts, but most likely not.

Lastly, you’re going to want to provide them with your email address, your phone number, and then your username, so they knew who to send the Zoom invite to or they knew who to call on the Skype call… And then anything else that they asked for.

So a pretty short bonus tip, but just again, all these things are very similar, just making sure that you’re curating everything that you do to the specific audience. So for the bio, you want to make sure that your bio that’s going to be read at the beginning of the podcast is going to be included in the show notes of the podcast is information that’s relevant to the listeners. You know what they want to hear, so you know what you can put in your bio.

So those are the eight plus the bonus tip for how to nail your podcast interview. As I mentioned, on the last episode, we’ve got a full series about building a brand. A portion of that focuses on starting your own podcast, and some best practices on that but also a blog, a website, all the things that you need in order to successfully maximize your success on someone else’s podcast. So make sure you check that out as well and then download those free documents. Then of course, check out the other syndication school episodes as well. All of those are available at syndicationschool.com. Thank you for listening. Have a best ever day and we’ll talk to you soon.

JF1975: 8 Tips To Nail a Podcast Interview Part 1 | Syndication School with Theo Hicks

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In the first episode of this two-part series, veteran podcast host, Theo Hicks, explains the importance of a thought-leadership platform and the benefits of starting and being on podcasts. From what equipment to use to how to conduct the interview, Theo shares his knowledge from his years of experience.   

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“Just to name a few [benefits], you’re able to tap into a network of brand new listeners and that means you’ll have more potential followers of your own. ” – Theo Hicks


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TRANSCRIPTION

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

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

Theo Hicks: Hi, Best Ever listeners. 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. Each week, we air two podcast episodes that focus on a specific aspect of the apartment syndication investment strategy.

For the vast majority of these episodes and series, we offer something for you to download for free. These are documents such as PDF how-to guides that accompany the episodes. We’ve got Excel template calculators, PowerPoint presentation templates, things like that. The free documents, as well as the past free syndication school series episodes, can be downloaded and listened to at syndicationschool.com.

This episode will be part one of a two-part series that we’re calling, “Eight Tips to Nail a Podcast Interview.” So you may be thinking, “Why is me being interviewed on a podcast relevant to apartment syndications?” There are a lot of benefits to not only starting your own podcast or some other thought leadership platform, but also getting yourself exposure on someone else’s podcast. So to name a few, you’re able to tap into a network of brand new listeners. That means that you’ll have more potential followers of your own thought leadership content. Then from an apartment syndication aspect, that means you’ll have more potential investors, more potential team members, more potential partnerships, brokers to find deals from etc. So depending on the podcast, you’ll accomplish one or more of those goals, which is why you want to be specific on what podcasts to go on. But we’ll get into that a little bit more in part two.

Secondly, another benefit would be that you are going to likely be forming a new relationship with the host of that show, who is obviously, as motivated as you are, since they are not only actively investing in real estate, but also are taking the time to record, edit, post, market podcast, interviews. Then a third benefit, which is probably the most important, and that would be it’ll give you the opportunity to display your expertise to this new audience. So lots of benefits. Ultimately, the benefits of going on other people’s podcasts is similar to starting your own podcast, but the only major difference being that you’re most likely having the opportunity to tap into a brand new audience that is already established. Ideally, you’re getting on podcasts that have more listeners, more viewers than yours, especially if you’re just starting out. Obviously, if you’re just starting out, you’re not going to get on the top of the top podcast unless you’ve got something interesting to say. But slowly, over time, as your podcast grows, you’ll be able to get onto more and more podcasts and bring them on yours as you go on theirs. It’s a win-win scenario. So that kind of setting the stage is to explain why we’re talking about this, and why it’s important to go on other people’s podcasts.

The rest of this part and then part two tomorrow, or if you’re listening to this in the future, the episode after this one, is going to focus on some tips that Joe has learned from obviously creating his own podcast, but at the same time being interviewed on other people’s podcasts as well. So some of these things apply to both doing your own podcast as well as being interviewed on other people’s podcasts, but some of these are just specific to being interviewed on someone else’s podcast.

So tip number one is making sure you have the right equipment. So if you want to know what equipment Joe uses for his podcast studio, you can go to joefairless.com and then under the Resources tab, at the top of the screen, you can scroll down to Joe’s Recs. It’ll start with recommendations for books to read. So if you’re interested in finding some book recommendations on general entrepreneurship, apartment investing mindset, and  sales negotiation, there’s about 50-some books on that that Joe is recommending. Then below that is going to be the podcasting tools. So he has his links to the equipment that he’s using. So obviously, one thing you’re going to need is a microphone. So for this, if you’re watching it on YouTube– I also mention what I’m using to listeners, because if you’re watching on YouTube, you can see it, and if you’re listening to it, you can’t really see. So the microphone – obviously important, because you want to have good sound quality. You’re not going to want to go on someone’s podcast, they have really nice microphone and then you sound like you’re underwater or like the old school 20 years ago radio sound quality. You don’t want that; you want really clear, crisp quality for your interview. Because why would someone listen to you if they can’t hear you? There’s some assumptions that go into the person that didn’t take the time to get nice mics.

You want to sound as professional as possible, which requires a reliable microphone. Joe uses the ATR 2100 microphone; it’s still a great one. He’s got a little foam ball on it as well. He’s also got the mic stand that he uses. So you can find those links in Joe’s Recs tab. I use a Blue Yeti microphone. I have a little off the mix filter, then I’ve got this arm that I use that’s attached to my desk. So me and Joe’s are a little bit different. But again, the point here is to have, at the very least, a decent sounding microphone. The more professional side of the microphone, the better. The stand is helpful because you don’t want to hold a microphone with your hand. You want your hands to be free so you can take notes on what to say next.

Next, so you need a camera. So I’m pretty sure Joe and I have the same camera. We have the Logitech camera. If you just go to Amazon and just google “Logitech camera,” it’s probably the most popular podcasting camera out there that most people are going to use. So they’re pretty cheap and really available… But most likely you might be interviewed for video as well. If not, then you might be– during the interview, you might be seeing them, they might be seeing you. So you’re gonna want a nice camera for that. Plus, if you have your own camera, you can make YouTube videos and convert your podcasts into video form for more content. So starting out, I used my iPhone. The camera on the iPhone isn’t actually bad. The only issue is that I couldn’t figure out how to hook it up to my computer, so they were kind of completely separate.

But these are just– get a camera that you can plug into your computer and then record the video on your computer. Because if you’re doing a Zoom call, it’s gonna be tough if you got your phone mounted up there, because it’s really small, and if you need to change something, you’re gonna stick your finger up close to the camera and it’s gonna look a little strange. So make sure you get a separate camera. Ideally, it’s an HD camera, so the quality is high and it’s not standard definition… Because it’s gonna be weird if you’re being interviewed on a podcast, they turn it into a video, they have a really high quality camera and then yours this fuzzy standard definition So, again, that camera is the Logitech camera. Just go to Amazon, you can find that pretty easily.

The next piece of equipment you’re going to need are headphones. So you don’t really need to have nice, fancy headphones. You just want to make sure that you have headphones in your ears so that there’s no feedback. You don’t want the echo from the audio coming out of your laptop or your computer into your microphone, and then playing back into their recording and it’s like a feedback loop. So if you ever heard a podcast where there was echo, it’s probably because a person doesn’t have headphones on. I’ve got these really big noise-cancelling headphones, which are helpful for working in general. So if you have multi-purpose headphones, you can get the noise-cancelling ones, or you can just use those regular in-ear iPhone headphones that are probably the most popular.

Next, you’re going to want to make sure that you have the correct software. So you’ll want to know what you need to use to call into the podcast. We use Zoom. Other people might use Skype, so make sure you actually have that downloaded on your computer before the interview so that you’re not waiting for the download to complete before you can hop into your interview and potentially show up late.

The location, which I guess is kind of like the equipment – you want to make sure you’re in a quiet spot. You don’t want to do an interview in a public place like a coffee shop, just because you don’t want any background noise to be picked up by your mic. So pick a room in your house that is quiet, close the door, and then make sure you put your phone on silent… Not just vibration, because the vibration may be picked up. Also, you don’t want your phone ringing in the middle of the interview and interrupting the flow.

So once you get your microphone, your camera, your headphones, you download the software and you’ve got your location, make sure you test everything before the interview. Make sure that your microphone is working. So maybe do a test recording to make sure that the audio is fine. Make sure that your camera’s on and picking up video. Make sure your audio is actually going into your headphones and not out to your computer. Make sure the software opens up and you’re able to do a little test call to make sure that you can actually connect. Then maybe record audio for a minute and then play it to see if you can pick up any background noise in the location that you’re at.

Make sure you’ve got a good internet connection as well. So if you know that if you’re using multiple things in your house or on your computer and the internet slows down, maybe turn the Wi-Fi off in your phone, maybe unplug your Smart TV or your Roku, whatever. Anything else in your house that’s using the internet, make sure you turn that off. That really is all you need to know about your equipment. So that’s tip number one – make sure you have all the proper equipment, and make sure all this is functioning properly before you get on the interview.

Tip number two is make sure you have a web presence. So when people hear you on the podcast –  you give an interview, they post it a week/a month later, if they’re interested in learning more about you, the first thing they’re going to do is open up a web browser and search your name, or search your company name on the internet or on Google, to see if they can find you. So if you do have a website, you’re definitely gonna see a spike in traffic to your website and social media profiles, so make sure you’re taking advantage of that and you’re prepared to capitalize on that.

So before the interview, make sure that all of your social media platforms – your Facebook page, your Twitter, your LinkedIn profile are up to date with the most recent information that you’ve given in your bio during the interview. Then if you have a website, make sure that is also up to date. We’ll get into this a little bit later in the next episode – that you’re ready to capture the information of anyone who has come to your website.

So if you don’t have a website, this doesn’t mean you can’t be interviewed on podcasts. You can direct them to your social media page, but it’s gonna be a lot more difficult to capture people’s contact information if you don’t have a website. So at the very least, have a lead capture page that you’re sending people to at the end of the podcast. Plus, me personally, if I’m listening to a podcast and they send me to their social media page, they have less credibility in my eyes than someone who sends me to a really nice designed website with a lot of information, they’re giving away free content, they’ve got pictures and they’ve got descriptions of themselves and things like that. So that’s number two – make sure you have a web presence and make sure it’s ready to go once you are being interviewed on the podcast.

Last two for this episode. Number three – I guess there are multiple tips in this, but these are just tips about the actual interview itself. Number three is going to be tips on how to give a best ever interview. Then number four is gonna be the best ever practices to do after the interview.

So here are some of the best practices that you should implement when it’s time for the interview. This would be a few minutes beforehand, until the end of the interview. The first thing that I used to do when I had a laptop – and again, this is going to depend on the quality of the machine/computer that you have. So if you have a desktop, it’s probably not going to be an issue. But if you’re working on a laptop, it could be a problem. So you want to make sure that you’re closing out all the applications on your computer, except for the ones you’re going to use.

So if it’s a Zoom interview, you’re gonna have Zoom open, maybe have a web browser open if you’d like to search for things while you’re being interviewed, and then maybe have a Word document open. But if you realize that that’s still not enough, and you’re still having issues with connection, or the call is dropping, then maybe you can just have Skype open. You’re gonna have to search things on your phone, and you’re gonna have to have a notepad for taking notes on. So just make sure again that you’re not dropping calls, that the connection isn’t lagging. You can tell during the call if it’s lagging, because they’ll start lagging on your screen. So that doesn’t guarantee that it’s you, but it’s probably you if you’re not used to giving interviews and they are.

Something else that I previously mentioned – again, depending on the power of the machine, turn off Wi-Fi on all the other devices if you’re using a Wi-Fi on your laptop, including your cell phone, and any other smart device that you have in your house. Again, this will minimize the chances of you dropping the call or having choppy connection.

Something else that you can do and I always recommend doing before the interview, is going to one of the internet test speed sites and running an internet connection test. So if you just google “tests internet connection,” there’s a bunch of different websites. So you can just easily click “go” and it’ll give you your upload time and your download time. Then you can compare those to the setting on Skype or Zoom, and they’ll let you know what download time you need in order to have a standard definition connection or an HD connection. If your internet isn’t up to speed, then you’re going to want to make sure again, you’re turning off devices, turning off applications, and just crossing your fingers that it works. If it doesn’t work, you might have to consider upgrading your internet. But most of the basic internet packages these days should be fine and can support you being interviewed on Skype or zoom. But again, you might have to close some things out on your computer.

Something else that you should do — it might a little weird if it is a video, but if it’s audio you should definitely do this, which is to have water handy. I have this big one gallon water jug that I have next to me that is called The Coldest Water. So I try to have a gallon of water every single day. Obviously, I don’t drink water much while I’m doing the syndication school series because we’re also doing a video as well, but if you’re not used to doing podcast interviews, especially early on, you’re going to want to have water next to you because you’re going to get nervous and you’re going to get parched and you don’t want to clear your throat a bunch or start coughing or start mumbling because your mouth is really dry. So always have a nice cup of water handy or whatever your preferred beverage is. Then make sure if you’re going to drink, unless you’ve got a silencer on your water jug, make sure you mute yourself so that the people listening don’t hear a massive slurping sound of you drinking your water every five minutes.

Another tip is to turn off all sources of potential background noises. So if it’s going to be a half an hour interview, and you know that, say, when your AC system kicks in or your furnace kicks on, it makes a big clicking sound or a large banging sound or something, you’re going to make sure that you turn that off. You don’t want any TVs out in the background. Something else too that’s key is that, if you’re going to type or you’re going to be clicking your mouse, make sure you’re muting yourself, because depending on the quality of microphone you have, it’s going to pick up the clicking sound and the typing sound and that’s going to be annoying to the listeners. Try not to move around in your chair a lot either. Your chair might be squeaky and that might be picked up.

A good practice is to just mute yourself when you’re not talking. In a software like Zoom, you can easily click mute and then it’ll give you a message saying like, “Hey, you’re on mute.” So if you are doing that strategy, make sure that you unmute yourself before you talk again. If you’re not used to it and you’re going to be nervous, you might forget to unmute yourself, and you’re going to be talking and the podcast interviewer is going to be polite, and probably not say anything, or maybe they might say something awkward like “Hello?” and you realize you’re on mute. Again, that’s going to ruin the flow of the conversation. So if you’re going to mute yourself, that will probably be edited out, but that’ll still ruin the flow, and it might make you really nervous and flustered and forget what to say or not say what you wanted to say. So if you think you can handle it, just mute yourself when you’re not talking to avoid making any sounds that are gonna be picked up while the interviewer is talking.

So these are all things to do prior to the actual interview. Make sure that you’re actually logging into the interview a few minutes early. That way, if there is any sort of back and forth in the beginning, that doesn’t eat into the actual scheduled podcast time. I guess these are also all pre-interview preparations. Make sure you get a good night’s sleep beforehand. You’re probably gonna be nervous if it’s your first podcast, so go to bed extra early. Maybe get a little bit less sleep the night before so that you are tired and can sleep easily the night before your podcast interview. Because you’re not going to want to be tired; you’re going to want to be clear, be your best self.

Something else – and this is hard, but try your best to avoid using filler words. Those can be edited out, but like I just did, don’t say “um”, “yeah”, “so”. Most people know what filler words they typically use, so whatever one you use in day-to-day normal conversation, you’re most likely going to use them a lot more when you’re being interviewed on the podcast, especially because — they’re called filler words for a reason; you say them while you’re thinking of the next thing to say, and when you’re nervous, when you’re in your earlier podcasts, you’re going to say a lot of filler words. So they can be edited out, but try your best to avoid those.

Then make sure that when you’re going into this, you have a call-to-action that you want to say. A call-to-action rehearsed to actually conclude the episode. So this is going to be what do you want them to do? Do you want them to go to your website? Do you want them to go to a certain page on your website? Do you want them to go to your social media profile? Do you want them to call you, email you, download something you have for free? What specifically do you want your listeners to do after they’ve listened to the podcast, after they’ve listened to the great advice you’ve given that’s going to add value to their business? What else do you want them to do in return for all that value that you provided? So that’s number three, a whole bucket of things that are tips that can help you best prepare for the actual interview.

Number four is going to be what to do after the interview. So once the official part of the interview is over, depending on the schedule of the interviewer, there’s going to be at least a minute of chat back and forth with the host before you sign off. So at this time, if you want to, you can ask for any feedback on how you did, as well as asking them questions about when the interview will air, how you’ll know, things like that.

A good recommendation is to– either on that same day or the next day, send a follow-up email to the interviewer expressing gratitude for them bringing you on their show. If you’re an overachiever, you can actually send them a gift card or a small gift. Something really inexpensive, a card that’s like a few dollars, but it’s a reflection of your character in the eye of the interviewer. If you remember, one of the benefits of this is your relationship with the interviewer. So if you’re an aspiring apartment syndicator, maybe you’ve done a few deals, or maybe even one deal, or maybe you’re trying to do a deal, or you’ve invested in a few deals, and you’ve gotten on this podcast, this big-time apartment syndicator… Or maybe it’s just an apartment syndicator who’s done twice as many deals as you have – it’s a pretty good relationship to build and cultivate, because they’re where you want to be in the next few years, so sending that small gift or thank you card can strengthen that relationship even more than the podcast interview itself.

And then once you know when the interview is going to air– so typically they can give you a timeframe or a specific date, because for our interviews we know specifically they’re five months in advance of when an interview is going to air… You want to make sure you’re preparing your listeners for the launching of the interview with some promotional social media posts to build up anticipation.

So maybe right after that happens, have a blog post or a Facebook post that mentions that you were at this interview, or have a picture of yourself afterwards or a screenshot of the interview. Then a few weeks before the interview, prepare people for it. Maybe if you talked about ten things each week for ten weeks, and you write a blog post in-depth on each of the one things you talked about and then boom, the podcast’s launched, everyone’s ready, and they know exactly what you’re going to talk about. So that’s just an idea, but do what you want to do, what’s unique to you. But you want to do something, rather than just be interviewed, and then once it airs, just post that and then that’s it.

Once the interview is actually live, you want to make sure that you’re sending out your podcast to your newsletter list. You want to make sure you’re sharing your link to the podcast on your personal blog and website. You also make sure you’re sharing it on your various social media profiles.

You want to include a quick description of what someone will learn by tuning in to the episode. Then increase the engagement of the social media post by tagging both the profile of the host, as well as the page for the podcast itself, the show page. Then make sure you’re liking and replying to comments in a timely manner. So that’s specific to Facebook.

So those are the four-ish (it’s more than four) tips on how to nail your interview on someone else’s podcast. In the next episode, we’re going to go over four more ways, for a total of eight ways to nail your podcast interview.

So until then, I recommend checking out some of the other syndication school series. We had an eight part series, I believe, that went in-depth on how to create and grow a brand about your own podcast, your own blog, your own website, and a lot of things that we mentioned in here that you might not have done already… So go back and check out those episodes, listen to those, download the free content so you can get caught up to speed, so that you are prepared to be interviewed on other people’s podcasts. Then the other syndication school episodes as well, as all the free documents we have are available at syndicationschool.com. Thank you for listening. I will talk to you tomorrow.

JF1969: The Pros And Cons Of The Two Most Common Investment Tiers | Syndication School with Theo Hicks

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We’ve talked a lot on how to structure deals with passive investors. This episode will cover a much higher level conversation on deal structure with passive investors. Theo will explain an approach that Joe and Ashcroft have used, having multiple compensation structures in the same deal, allowing investors to choose the best investment for them. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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“They have decided to offer a two tier investment structure, rather than just one”

 


The Best Ever Conference is approaching quickly and you could earn your ticket for free.

Simply visit https://www.bec20.com/affiliates/ and sign up to be an affiliate to start earning 15% of every ticket you sell.

Our fourth annual conference will be taking place February 20-22 in Keystone, CO. We’ll be covering the higher level topics that our audience has requested to hear.


TRANSCRIPTION

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

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

 

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

Each week we air two syndication school episodes, generally a part of a larger series, but we’re going through a lot of standalone episodes at the moment. And these always focus on a specific aspect of the apartment syndication investment strategy. For a lot of these series and episodes, we offer some document for you to download for free – PowerPoint presentation templates, Excel templates, PDF, how-to guides, things that accompany the topic that we discussed in the episode. And all of these free documents as well as free syndication school series can be found at syndicationschool.com.

In this episode, we are going to be talking about the pros and cons of the two most common investment tiers. So we’ve done a lot of episodes in the past about how to structure the deals with your passive investors. If you want to go into a lot of detail on that, check out those syndication school episodes about how to structure deals with your passive investors. This is going to be a little bit more high-level and talk about something that Joe has done on his deals that’s slightly different than what he was doing when we wrote the book and when I recorded those episodes.

So the reason why this change has [unintelligible [00:03:49].08] typically what happens is, apartment syndicators will offer one type of offering of compensation structure to their passive investors, and most commonly– again, this is not always the case, but the most common structure you’re going to see for value-add syndications is going to be a preferred return, and then possibly some profit split. So 8% preferred return and then 50/50 profit split thereafter, or 8% preferred return, and then 70/30 profit split up to a certain IRR threshold, and then above that IRR threshold, it’s 50/50.

But one issue with just offering one single compensation structure on your deals is that it’s a one-size-fits-all approach; you’re assuming that this structure is going to work for everyone. Whereas in reality, typically in accredited investors, even sophisticated investors will have goals that will fall into two categories. And the one-size-fits-all approach might help one of those types of categories of accredited investors achieve their financial goals, but maybe not necessarily the other.

So one category would be people who are just investing for ongoing cash flow. They don’t care about getting a massive upside at sale, they just want a place to park their money and to beat the market in regards to cash on cash return, and then get their money back at the end of the business plan, say five years later. Whereas other people don’t care as much about ongoing cash flow. They want a place to put their money. They’re not worried about making a return on it on an ongoing basis, but they do want to make a large lump sum, maybe double their money in five years, for example.

So in order to offer investment opportunities, compensation structures that allow Joe to match the investment goals of both of those categories, they have decided to offer a two-tiered investment structure as opposed to just one. So rather than just offering Class A, now they have Class A and Class B.

So in this episode, we’re going to talk about what Class A is, what Class B is, and then compare the two and discuss which one of those classes applies to those two categories of accredited investors.

Class A investors will sit behind the debt in the capital stack. So you’ve got debt, and the next is going to be Class A. So you pay the debt first and then you pay the Class A investors second. The Class A investors are going to be offered a preferred return that is going to be higher than the preferred return offered to Class B investors. So if Class A investors are offered a return of 10% per year, let’s say, then Class B investors will be offered something below 10%. The Class A investors will also have virtually no upside upon selling the deal or any capital event like every financer’s helping them alone, and they also do not participate in the profit splits. So anything above that 10%, they are not getting a 50/50 split of that. But because of tax purposes, so that the Class A investors are taxed the same as the Class B investors, they are provided some upsides – it’s just very little; just enough so that they are classified in the same tax situation as Class B investors.  And then for Joe’s deals, the bucket of Class A investors are limited to 15% to 25% of the total equity investment.

Another characteristic is a higher minimum investment. So typically, the minimal investment is 50k for the Class A investors, to $100,000. Now, of course, this is just what Joe does, but any of these numbers can be different; the preferred return to turn can be different, a small upside given the percentage of the total equity could be different, the minimum investment could be different, but typically the minimum investment is going to be higher than Class B. The allocation is going to be less than Class B, and the preferred return is going to be higher than Class B, but the upside is going to be less than Class B. So going to class B — I guess I said what class B is, but more specifically, Class B investors sit behind the Class A, and in front of the general partners in the capital stack.  So you’ve got the debt, and then behind that is the Class A. So class A gets paid first after the debt, and then Class B gets paid after Class A, and then behind that would be Joe and the general partners, who I guess are Class C, and they are paid last.

Class B investors are also going to be offered a preferred return, but that preferred return is going to be much lower than the preferred return offered to Class A investors. So the Class A investors are going to be offered a 10% preferred return, the class B investors are going to be offered a 7% preferred term. Both of those are paid out monthly, so it’s gonna be 10% divided by 12, multiplied by your investment for Class A, or 7% divided by 12, multiplied by your investment for Class B. And again, since these Class B investors are sitting behind the Class A investors in the capital stack, the 7% is paid out monthly after the Class A has received their 10%, which is one of the reasons why the Class A investors are limited to 15% and 25%, since that preferred term is going to be higher, and the deal itself most likely is not going to have a 10% return, day one. It’s going to be somewhere in between 7% and 10%.

So you’re gonna want your Class B or Class A to be above and below whatever that return on the deal is, and then we can mess around with the amount that’s allocated to each (15%, 25% whatever) to make sure that you’re able to pay out both, ideally.

Now, if this full 7% can’t be paid out for some reason, then it will accrue over the life of the deal. So if the Class B investor only gets a 5% return year one, then that 2% is going to accrue and it will be paid out at some later date, whether it’s the next year, at a capital event or at the end of the business plan, when the property is sold. So at some point, they’ll make that preferred return, but they’re not necessarily going to get that preferred return on an ongoing basis. So, the probability of the Class A investors receiving their 10% preferred return is much higher than the probability of the Class B investors receiving their full 7% preferred return based off of the capital stack.

Now, in return for this less likely chance of getting on an ongoing basis – they’re going to get it eventually – is that the Class B investors do participate in the upside upon the sale and upon any sort of capital event. So on Joe’s deals, the Class B investors will receive a profit split of 70%. So any of the profits above their preferred returns are split between the Class B investors and the general partners. Class B gets 70% of the profits, general partners get 30% of those profits, Class A does not get any percent of those profits. or very, very minimal, again, for tax purposes.

Once the return to the class B investors has equaled 13% IRR, then the profit split goes to 50/50. Again, keeping in mind that the IRR is not going to be above zero until they receive all their money back, which most likely is not going to happen until sale… So the profits will be split 70/30 up until sale, and then a portion of the sales proceeds will most likely be split 70/30. Then once that threshold is hit, 13% IRR, whatever IRR threshold you decide to use, then it can change to 50/50 or 60/40 or again, or whatever you decide.

The minimum investment for class B is $50,000 for first-time investors and $25,000 for returning investors, so much lower than the investment for the Class A investors. And again, like I explained for Class A, the other syndicators might have a different preferred returns, different profit splits, different thresholds, different minimum investments, again, depending on what they’ve decided to do with their investors. This is just what Joe does as an example, but the general concepts still apply.

So let’s compare the two rules. So Class A investors are in front of Class B investors in the capital stack, so they’re paid first. Additionally, the Class A investors are offered a higher preferred return, so if you’re an investor and you are interested in a stronger ongoing cash flow, then Class A tier is ideal for you, because of the fact that you get paid first and the payment that you receive is the highest of the two classes.

Class B investors are behind the Class A in the capital stack, so they are paid with what is left over after the Class A investors have received their preferred return. If that leftover money is not enough to meet that preferred return member, then that is going to accrue and will most likely be paid out upon disposition or a capital event.

Class B investors are offered the lower preferred term, 10% versus 7%, but they do participate in the upside upon disposition or capital events like a supplemental loan or a refinance. So since they participate in the upside, but also have the drawbacks of not necessarily getting money on an ongoing basis, then the overall return over the life of the deal is actually going to be higher for Class B investors because the fact that they are participating in the upside.

So for Class A it is going to be 10% because they’re always making 10%, whereas for Class B, it could be as low as 7%, but most likely is going to be higher because they are getting some of the profits as well. So what does that mean? That means that class B tier is going to be ideal for accredited investors who want to maximize their returns over the life of the investment, as opposed to getting a strong ongoing return.

So in the beginning we said that the two categories are 1) they invest for ongoing cash flow, so Class A, and 2) they invest for upside, Class B. Well, what happens if I want both? What happens I want to have an ongoing cash flow, but I also want to participate in the upside? Well, for Joe’s deals, in particular – again, this might vary from syndicator to syndicator – but the passive investors can do both. So they can invest $75,000 as a Class A investor and then $25,000 as a Class B investor and participate in both of the upside and the ongoing profit.

From the apartment syndicators perspective, this is gonna be beneficial because you’re able to fulfill the needs of more investors. So if you’re just offering a Class A, or say, a nice preferred return, but no profit split – well, your accredited investors who fall into the category of wanting a strong, ongoing cash flow, but no upside, are going to be interested in your deal. But the ones that aren’t necessarily worried about ongoing cash flow and want to participate in the upside aren’t going to look at your deals, and obviously vice versa as well.

If you’re only offering upside to a lower preferred return, but a nice juicy profit split, then the people who are the accredited investors who want to receive more upside in the deal are going to be interested, but the ones who want a stronger ongoing cash flow are going to go somewhere else.

So you’re able to appease, in a sense, both categories of accredited investors by offering these two different types of investment tiers – a Class A and a Class B. Then even better, is if you allow a single investor to participate in Class A and Class B. And in this case, if you remember, the minimum investment for Class A was $100,000, but in the example that I said, they’re only investing $75,000 because the total investment needs to be $100,000. So if you are participating in Class A, your total investment needs to be a 100k. So you can invest 100k grand into the Class A, or you can invest 75k in the class A, and 25k into class B.

In conclusion, offering these two different tiers – or heck, more than two tiers; three tiers, four tiers, whatever – in your apartment syndications will allow passive investors to select the investment option that meets their financial goals, as opposed to either you fit them or you don’t fit them.

I went through, for Joe’s deals, how they offer the Class A and the Class B. The Class A are for a higher preferred return that is paid out first, but Class A investors do not participate in the upside. Class B investors, on the other hand, are offered a lower preferred a term that is paid out after Class A makes their preferred return, but they do participate in the upside. Therefore, Class A is going to be ideal for accredited investors who are more interested in the ongoing cash flow. And Class B is going to be more for the accredited investors who are more interested in the up side, as well as wanting a higher return over the life of the deal.

So that concludes this episode. To listen to some of the other syndication school series, as well as to download all of the free documents we have available, those are at syndicationschool.com. I’ll be back tomorrow. Until then, have a better day I’ll talk to you soon.

JF1934: Everything You Need To Know About The LLCs In Apartment Syndications | Syndication School with Theo Hicks

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Forming an LLC happens with each new deal in apartment syndications. Theo will be going over some of the details of how when to set them up, and how to do it, and what the LLC’s usually consist of. We’ve included a document for you to use to follow along with Theo, but this does not take the place of legal counsel! You will NEED to consult with an SEC attorney when pursuing an apartment syndication. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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TRANSCRIPTION

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

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

 

Theo Hicks: Hi, Best Ever listeners. 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.

Each week we air two Syndication School episodes; those are released on the best real estate investing advice ever show on iTunes, and then we also post them a little bit later in the week in video form on our YouTube channel, so you can check those out in either form. Those focus on a specific aspect of the apartment syndication investment strategy. For a lot of these series we offer a free resource. These are free PowerPoint presentation templates, free Excel calculator templates, free how-to guides, something for you to download for free that accompanies the episode and the series. All of those free documents, as well as past Syndication School series and episodes can be found at SyndicationSchool.com.

In this episode we’re going to dive into the limited liability companies in apartment syndications. This is gonna contain everything you need to know about the LLCs in apartment syndication. This is gonna be a pretty detailed episode, so we’re going to offer the document that I’m using as a guide for free; that way you can read through all of this and have an understanding of all the various LLCs you’re going to want to create when you’re doing an apartment syndication deal.

This is particularly what  Joe does for his deals. This is not the end all be all, it’s just gonna be an example of how Joe does his deals, and most likely what most syndicators do… But before we get into that, disclaimer – as you know, I’m not a securities attorney, I’m not a real estate attorney, so this is gonna be a general overview of the types of LLCs that Joe uses for his deals when he’s doing his apartment syndications, based on his experience.

We always recommend speaking with your real estate attorney, your securities attorney prior to forming any sort of LLC, prior to making any sort of legal decision. This is just a guide to push you in the right direction.

So if you’re able to, I recommend having this document open; if not, no problem. Download it later and read through it. It’s pretty self-explanatory.

There are actually gonna be four different LLCs that are created for the purposes of an apartment syndication. The first one is just gonna be your company’s LLC, so Theo Hicks LLC, Joe Fairless LLC, Ashcroft Capital LLC. This is gonna be the limited liability company that has an operating agreement that defines the roles, responsibilities and ownership percentages for the apartment syndicators. So this is gonna be the main LLC that you will create for your company. If it’s you and one other business partner, you create this LLC and the operating agreement is between you and your business partner, outlining who does what and who owns what percentage of the company.

Then a little bit later on, when we talk about the third LLC — so your company LLC is actually going to be a member of a later LLC. I’ll explain that once I get down to that point. These are all connected like a web, which is why it’s important to have this document, so you can follow along easier. And then this LLC also has the contractual rights to purchase properties, and then it has a right to assign the contract to the property’s specific LLC, which we’ll get into next.

So when do you create this LLC? Well, the specific time to create your company’s LLC – people have different opinions on when to create it. Our recommendation is to actually wait until you have your first deal under contract. It doesn’t take a long time to create an LLC; it’ll be like a week… And it’s better to do it once you have the deal under contract, just because if for some reason you and your business partner don’t end up doing a deal, you’ve kind of wasted that money required to form the LLC… And at the very least, don’t form it until you are familiar with the apartment syndication process and are serious about doing a deal.

So don’t just listen to Syndication School one time and be like “Oh, that sounds great. I wanna become an apartment syndicator” and before listening to all Syndication School episodes, before finding a business partner, before creating a team, before educating yourself on the process, you just go out there and form an LLC. That’s not what you wanna do.

At the very least, wait until you’re actually educated on the process and are committed to doing a deal. So  that’s number one, it’s gonna be your company LLC. Number two is gonna be the general partnership LLC for the specific property. This is what’s actually going to be the property that you assign the contract to. When you actually put a deal under contract, you either have your company LLC created or you don’t; that’s gonna be the company that actually signs on the contract, and then you’re actually going to assign that contract to the general partnership LLC for that particular property that you’ve created.

So your company LLC is gonna be used for all deals; these next ones are gonna be specific to a deal. So the property, general partnership LLC is the property that owns and operates the apartment. And then the sole member of the LLC is gonna be an LLC that we’ll talk about in a second, and the managers of this LLC are the individuals who sign on the loan.

Being the general partnership LLC, this is the LLC that has unlimited liability in the deal, whereas your passive investors, the LP, has limited liability in the deal. As I mentioned, this LLC is gonna be newly created for each new deal, and you create this LLC once you have the deal under contract, because you don’t know how to name the thing until you actually have the deal under contract. The format of this is gonna be Property Name GP LLC.

Number three is gonna be Your Company Name, Property Name LLC. And this LLC is the sole member of the general partner, which is the LLC I just talked about… And this is actually considered a class B limited partner, or a class C limited partner, if you’re offering class A and class B shares to your limited partners. In other words, this LLC has an ownership stake in the specific property LLC, and this ownership stake is the percentage of the deal that is taken by the GP.

If you are doing a 70/30 split, then this LLC – Your Company Name, Property Name LLC – has a 30% share in the deal. So this LLC is what allows you as a syndicator to take your portion of the profits. Now, the members of this LLC are going to be your Main Company Name LLC (the last LLC, that we’ll talk about in a second), as well as if the loan guarantor is a third-party, and then the managers of this LLC are going to be you and your business partners. And like the previous LLC, as I mentioned, these are going to be newly-created for each deal, and it won’t be created until the deal is under contract.

The last LLC is going to be the Property Name LLC. This is the LLC that your investors – and also the previous LLC we’ve talked about, Your Company Name + Property Name LLC – owns units of. So if it’s 70/30, then Your Company Name, Property Name LLC owns 30%, and then your individual investors own 70% combined. Maybe one owns 1%, 10%, 12%, whatever; depending on how much they invested.

And then there’s gonna be a subscription agreement for this Property Name LLC that outlines the price of the units which the investors agree to pay, and the general partners agree to give them the specified ownership stake in that LLC.

So class A and then class B, when applicable, if you’re doing class A and class B [unintelligible [00:09:25].11] are owned by your investors, and then class B or class C – again, if you’re doing class A and class B  for your investors – are owned by you and your company. And this is a newly-created LLC for each deal, and it is going to be created after you put the deal under contract.

To summarize, you’ve got your Main Company LLC, which is going to be a member of that LLC that I talked about, the third LLC, which owns a 30% stake in the deal… And it also has the right to assign the contract to the general partnership LLC. The general partnership LLC is going to be the sole member of the LLC that has a 30% stake in the deal, and then the Your Company Name + Property Name LLC is the one that has the 30% stake in the deal. And then the deal itself, that is 100%, is the Property Name LLC, where 30% goes to the GP, and then 70% goes to your pool of investors.

So again, I highly recommend downloading this free document, just so you can clearly see what LLC is a member of what, who is a manager of what, how the money flows from the deal to the GP and the LPs and things like that. We’re gonna have that document available for free to download in the show notes of this episode, as well as in the description of the YouTube channel. And of course, you’re gonna also find it at SyndicationSchool.com.

A little bit of a shorter of an episode. Again, I recommend downloading the document, but as well consulting with your attorney before you start creating these LLCs, which you’re gonna have to do anyways when you’re creating the PPM, so you might as well have them help you create the LLCs.

Until Syndication School next week and until Follow Along Friday tomorrow, I recommend listening to some of our other Syndication School series about the how-to’s of apartment syndication, and make sure you also, again, download this free document to have a better understanding of what we discussed today.

Thank you for listening. Until we talk again, have a best ever day, and we will talk to you soon.

JF1933: When To & When To NOT Work With Private Equity Institutions | Syndication School with Theo Hicks

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After you’ve done a deal or two, you may have the opportunity to work with private equity institutions. Joe and Ashcroft Capital choose to not work with them ever, but that doesn’t mean you shouldn’t. Theo will cover why we do not work with them, and when it might make sense to work with them. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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TRANSCRIPTION

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

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

 

Theo Hicks: Hi, Best Ever listeners. 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. Each week we air two episodes of the Syndication School series on the best real estate investing advice ever show on iTunes, as well as in video form on YouTube, and we focus on a specific aspect of the apartment syndication investment strategy.

For the majority of the series, especially our earlier series, we offer free documents. These are PowerPoint presentation templates, Excel calculator templates, PDF how-to guides, some sort of resource for you to download for free, that accompanies the episode or the series. All of these past series and these free documents can be found at SyndicationSchool.com.

In this episode we’re gonna talk about when to work with and when not to work with private equity institutions. First I’m gonna define what these are, and then we’re gonna go over what to think about when you are considering raising money from private equity institutions.

Private equity is an asset class composed of pooled private and public investments in the property markets. That’s the textbook definition. What that means is that private accredited institutions such as pension funds and non-profit funds and other third-party asset managers who invest on the behalf of institutions will invest in these private equity real estate funds that are then used to buy real estate. One way that it could be used to buy real estate is to invest with an apartment syndicator of some sort, whether it’s a developer, a value-add syndicator, distressed syndicator, turnkey syndicator, or whatever.

A caveat would be that this is really only gonna be relevant to people who have done deals before, so you’re not going to be able to get a line of credit or funding from a private equity institution if it’s your first deal or your second deal. You’re gonna wanna have a track record, because they’re going to base their funding on the deal, but then also on you. But if you’ve done some deals, then you can consider working with institutions. We’re not gonna talk about exactly how to work with institutions here, but we’re gonna talk about when it makes sense to work with them and when it makes sense not to work with them.

Joe does not work with private equity institutions because of the way that his deals are structured. It really depends on how your deals are structured to determine if it makes sense to work with them.

We’re gonna go over the reasons why Joe doesn’t work with then, and then we’re also gonna talk about reasons why if his deals were different in this way, then this is how he would be able to work with them.

The first thing is that the private equity institutions are only going to review a deal that’s under contract. Once you’ve got your PSA signed with the seller and you already have your relationship with this institution, it’s only at that point that they’re going to actually perform their due diligence on the deal to determine if they’re going to provide funding. So they’re not going to do due diligence and let you know that they’re gonna fund the deal before you put it under contract. So you’re doing all of your upfront due diligence, underwriting, and then once you determine that the deal makes sense, only then will they actually look at the deal to see if it makes sense to them, to determine if they’re going to provide you funding.

This could pose a pretty big problem, especially if you’re working in a pretty competitive market that requires a non-refundable earnest deposit… Because generally, if you’re raising money from just regular passive investors and not a fund, you don’t have hard commitment, but you have an idea of how much money you’re capable of raising beforehand; it’s what we recommend, at least – you wanna have the money before the deal. So you wanna have verbal commitments, you wanna have a list of investors, and then know how much money that they are capable of investing, and then based on the summation of that list, you can determine what size deals you can look at. If you’re capable of raising a million dollars, then you can assume that you’ll probably have to put down between 30% to 35%, so you can look at deals that are three million dollars and lower.

When you’re working with an institution – sure, you might have an idea of the line of credit that they’ll give you, how much money they’re willing to fund in total, but since you don’t know if they’re actually going to fund the deal or not beforehand, and you put down a non-refundable earnest deposit, if they don’t fund it, then you’re gonna lose that earnest deposit.

Obviously, it’s possible  to lose the non-refundable earnest deposit by raising capital from a group of individual accredited investors, but the probability is going to be lower, because as I mentioned before, you already have an idea of how much money you’re capable of raising, plus ideally you’re not going to push that ceiling. Obviously, it’s good to push yourself, but if you’re capable of raising a million dollars and you only need to raise 500k, well you’ve got a lot of options to raise money from people. Only half of the investors need to actually invest the amount they said they would invest in order to hit that threshold… Whereas if you’re doing it with a fund, it’s just one entity that’s investing… And if they say yes, then you’ve got the money; if they say no, you’ve got no money. And then obviously, if you are able to close, then you’re gonna lose that non-refundable earnest deposit. So that’s one thing.

If you need to go non-refundable, it might not make sense to use private equity. If you do go refundable, then the next thing to think about is this next point, which is that private equity institutions typically will not approve their funding until a minimum of 30 days after contract. So you put the deal under contract, they do the due diligence – they’re not gonna instantaneously come back to you in one day and say “Oh yeah, we’ll fund this deal” or “Nah, we’re gonna pass on this deal.” It takes a while to do due diligence, so expect for it to take at least 30 days for them to approve or deny funding after the deal is placed under contract. And of course, this is an issue if you don’t have  a long contract-to-close time period. Typically, it’ll take anywhere from 60 to 90 days to close on a deal; so PSA-to-close, 60-90 days.

Well, for Joe’s deals, the formal funding period usually will begin a few weeks after placing the deal under contract, so say day 14. And then the goal is to secure all the money that’s required to close by at least 30 days prior to closing. So if it’s  a 60-day close, then day 14 to 30 hopefully they get all the money at that point, or at least the majority of the money.

Now, what happens if you raise money from institutions and you have a 60-day contract-to-close? Well, you do all your due diligence, you’re preparing to close, and then they don’t get back to you until day 30, and they say “Oh, we’re not gonna close on this deal.” Now you only have 30 days to fund your deal from your individual passive investors, whereas on the other hand, if you raise money from individual people, you would have 45 days to raise money. So that 15 days is gonna be pretty important. If they decide to obviously fund the deal, then no problem, but… There’s also the possibility that they won’t fund the deal.

If that’s the case, well then you have a condensed timeline to raise money from your list of private investors. And hopefully you can get it done, but again, the probability is lower of getting it done in that compressed timeframe. If you’re unable to raise money, you can’t close on the deal. If the earnest deposit is refundable – great, you get it back. If it’s non-refundable, well then you’re going to go ahead and lose that non-refundable earnest deposit.

Now what happens if “I have a refundable earnest deposit, so I’m not really worried about any of this, because even if they say no and I can’t raise the money, I’ll just get my money back.” Well, that’s not necessarily the case, because there’s more than just the earnest deposit that’s on the line. There’s other money on the line, but your reputation is also on the line. So when you are 30 days or more into the due diligence process – again, it takes 30 days for them to approve or deny it; or at least 30 days, maybe even longer. It could take two months. You might not get an approval until you’re supposed to close. But let’s just say on the fastest end 30 days. Well, at that point you’ve done inspections, you’ve done appraisals, different surveys, and these things aren’t free. These things cost money. And if you close, you’re gonna reimburse yourself if it comes out of your pocket, but you’re probably gonna be 5k, 10k, 20k out-of-pocket depending on how big the deal is.

You’ve also got legal costs as well, putting together PPMs in other contracts, creating the LLCs… Those aren’t free. And if you fail to close on the deal, even if you have a refundable earnest deposit – sure, you’ll get that back, but you’ll also lose all of that upfront due diligence costs and legal costs if you’re unable to close. There’s really nothing you can do about that at that point. That can happen in general if you don’t close, you’re unable  to raise money… But as I mentioned before, the probability of raising money from your pool of investors is higher than raising money from one specific fund, because only one entity is making the decision on whether or not they’re gonna fund the cost of the deal.

But again, it’s not all just money that’s on the line as well. Your reputation is gonna be also at stake. If you were to pull out of a deal because you couldn’t raise enough money – either the private equity people back out and then you can’t fund the deal from your passive investors – well, your reputation is gonna take a hit, first of all, with the seller, so the person that you’re buying the deal from. And if that seller owns multiple apartments in that area – well, if they go to sell another deal in the future, you’ve reduced the likelihood of being awarded that contract, because the last time you weren’t able to close.

Also, if the seller is pretty involved in the local real estate market, knows a lot of real estate professionals, other investors, brokers, things like that – well, your reputation might also take a hit in the eyes of those other professionals of the greater real estate community in that area, because you’re gonna be known as a person who can’t close on deals. Even if it happens just one time, the word gets around.

Additionally, your reputation is going to take a hit from the listing broker as well, for very similar reasons. This could potentially be even worse, because the seller might own maybe five deals, so you’ve kind of lost on those five deals, but the broker might be listing hundreds of deals in their lifetime… And if you’re unable to close on one of those deals, you’ve reduced the likelihood of being awarded another deal that is listed by that  broker, because similarly, you didn’t close, and they think of you as someone who wasted their time and was unable to close on the deal.

And then similarly to the seller, the broker also has a relationship with other brokers in the area, other investors in the area, and it’s kind of like a domino effect where you also might have issues getting deals from other brokers as well. Not all brokers, obviously… But again, the entire point of this is that if you do not close on a deal that you put under contract, at the very least you’re likely not going to get awarded another deal by that broker or that seller, if the reason why was because yo could not follow up on your commitment. If you had to  back out because there’s a problem with the deal, that’s different. But if you could not qualify for financing and you couldn’t raise enough money, that’s different than backing out because of some environmental issue or something like that.

So if you’re unable to raise money, which is more probable if you’re raising money from a fund, then it’s a double-whammy. You’re gonna lose your earnest deposit, unless it’s refundable.  But even if it’s refundable, you’re gonna lose all the upfront due diligence costs, and your reputation is also going to take a hit.

So when should you work with a private equity institution? The main factor would be if you have a long contract to close timeframe. You’ve got a lot of time before you close, so you don’t have to worry about waiting a month or two for the institution to get back to you and let you know if they could fund it. And if they say no, you have plenty of time to raise money from your list of private investors; ideally you have that, and you’re not just relying solely on private equity. But again, since you’re likely experienced, you’ve raised money from people before so you do have a network of passive investors that you can tap into, if you’re unable to quality.

So the main thing would be if you have more than 90 days, so like 120 days plus maybe a few 30-day or 15-day contract extensions, that would be good time to use the private equity institution. If you don’t need to go non-refundable on your earnest deposit, similarly, because if you’re unable to secure the funding from the private equity institution because they denied funding, and you’re unable to get money from the passive investors, then you could at the very least get your earnest deposit back… But again, you still have the issues with the upfront due diligence costs, as well as the reputation. So ideally, you have a long timeframe, so that if you’re denied funding, you can raise money from your passive investors.

Overall, the three reasons why Joe personally does not work with institutions is 1) they don’t review deals unless they’re under contract; 2) they deny funding until at least 30 days after the deal is under contract, and 3) if you’re unable to close, you lose money and reputation. So that is when to work with and when not to work with private equity institutions.

Until tomorrow, check out some of our other Syndication School episodes on the how-to’s of apartment syndications, make sure you download the free documents we have available as well. Both are available at SyndicationSchool.com.

Thank you for listening, and I will talk to you tomorrow.

JF1920: The 51 Responsibilities Of The General Partnership Part 2 of 2 | Syndication School with Theo Hicks

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Yesterday Theo began discussing these 51 responsibilities. Today he will finish the rest of the responsibilities that he didn’t get to yesterday. You won’t hear a detailed breakdown of each responsibility, we’ve already done that throughout syndication school. The focus of these episodes is to help you figure out how to divide up these responsibilities among your team and business partners. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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TRANSCRIPTION

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

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

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

Each week we air two podcast episodes that are focusing on a specific aspect of the apartment syndication investment strategy. For the majority of these episodes – or series; right now we’re doing a two-part series – we offer a free document. These are PowerPoint presentation templates, Excel templates, PDF how-to guides, things that accompany the series or the episode, that help you grow, scale, start an apartment syndication business. All these free documents, as well as past Syndication School episodes/series can be found at SyndicationSchool.com.

This is part two of a two-part series entitled “The 51 responsibilities of the general partnerships.” In part one we first discussed the context of why we’re even talking about this, which I’ll get into in a second, and then we went into the first 28 roles and responsibilities of the general partnership, which make up the pre-contract phase, the “Hey, I wanna do apartment syndications” to “Oh my god, I have my first deal under contract.” All the various steps involved to get from that starting point to that first ending point, in a sense.

In this part we’re gonna talk about the remaining steps, roles and responsibilities 29 through 51. Again, taking a step back, to give context for why we’re talking about this, when you’re doing apartment syndications you are most likely not doing them by yourself. If you’re doing them by yourself, then this is not 100% relevant to you. But if you have a business partner, or multiple business partners, then you need to figure out who is going to do what. Who is responsible for what aspect of the business plan, and making sure that these are defined, so that everyone knows what their roles and responsibilities are, and everyone knows what everyone else in the partnership is supposed to be doing, rather than keeping it vague. The best way to do this is to know, from beginning to end, what all of these roles and responsibilities are.

You can go through all of these roles and responsibilities, learn more about these roles and responsibilities and what they entail… Which is not the focus of this series, because it would take 20 episodes to discuss this… Which is true, because we’ve actually done 20+ episodes on each of these specific tasks. So we’re gonna have  a blog post in the show notes with the links to blog posts and Syndication School episodes where we go into more detail on each of these steps, so that we don’t have to focus on that in this series.

But again, the entire point of this two-part series is to list out in two episodes all of the main roles and responsibilities of the general partnership, so that you can take this information which is in this free document that you can download in the show notes or at SyndicationSchool.com, to assign each of these responsibilities to you or your business partner(s), so that you know exactly who’s responsible for what. Then at that point you can set up an accountability system, do weekly calls to make sure everyone’s doing what they’re supposed to be doing, things like that. But that’s, again, not the focus of this episode. The focus of this episode is to talk about the things that need to be assigned to people.

So in part one we went over the pre-contract phase, which is one through 28, so  I’m gonna quickly just read those. I went into a little bit of detail on each of those, and kind of how to think about assigning these… But again, in the blog post there are links – probably 90% of these have links to some other blog post or Syndication School episode where you can learn more about how to actually execute this responsibility.

Really quickly, the pre-contract phase 1 through 28 is:

  1. Select Potential Target Investment Markets
  2. Evaluate Potential Target Investment Markets
  3. Select 1 to 2 Potential Target Markets
  4. Create Website
  5. Create Company Presentation
  6. Define Target Audience for Thought Leadership Platform
  7. Create and Grow Thought Leadership Platform
  8. Create an In-Person Meetup Group
  9. Create a Facebook Group And/Or Page
  10. Find, Interview, and Select Property Management Company
  11. Find, Interview, and Select Commercial Brokers
  12. Find, Interview, and Select Mortgage Brokers
  13. Find Business Partner
  14. Find a Syndication Accountant
  15. Find a Real Estate Attorney
  16. Find a Securities Attorney
  17. Find a Loan Guarantor
  18. Define Responsibilities for Each Business Partner
  19. Set Investment Criteria for Deals
  20. Set GP compensation structure
  21. Set LP compensation structure
  22. Create Investor Email List on MailChimp
  23. Find Passive Investors
  24. Build Relationships with Commercial Brokers
  25. Subscribe to Commercial Broker’s On-Market Email Lists
  26. Implement Marketing Strategies to Generate Off-Market Deals
  27. Underwrite Deals
  28. Submit and Negotiate the PSAs.

Again, for each of those in the last episode we kind of briefly hit on what each of those are and why you need to assign these to people… And the ultimately, the purpose on your end is to assign each of these 28 responsibilities to a member of the general partnership based on their background, their experience, what they’re good at and what they actually like to do.

Similarly, you’re gonna wanna follow the same process for the remaining roles and responsibilities, number 29 through 51. So we are going to go over 29 through 51 in the same fashion we went over 1 through 28 in the previous Syndication School episode. And again, for all the ones we’re going over today, only one doesn’t have a link to another blog post or Syndication School episode, just because it’s more of a checkmark thing… And I’ll mention what that is when we get to it.

So 29, who performs due diligence on the deal? Which is a pretty large role. This is the person who is responsible for once the deal is under contract, making sure all the inspections are done, all the reports are created, reviewing these reports, using these reports to update the underwriting or to confirm the underwriting assumptions, deciding if there’s some aspect of the due diligence that disqualifies the deal or requires going back to the owner/seller and renegotiating terms or the sales price. Again, I’m not gonna go into all the detail on the due diligence; that’s just kind of a general overview. There’s a link for more… I think we have like an eight-part series on doing due diligence in Syndication School. So who’s responsible for managing this due diligence process?

Number 30 is to create the investment summary. This is gonna be a long, 20, 30, 40+ page document. Usually it’s gonna be in PowerPoint format; we do have the investment summary template at SyndicationSchool.com for you to download… But this is gonna give you a general overview of the deal, of the property, the market, and your business plan for the deal. And then whatever else you wanna include; maybe a section on case studies of successful deals you’ve done in the past. This is a thing that you send to passive investors when you are announcing the deal. So who’s responsible for creating this investment summary? Most likely, someone who has had a hand in or is responsible for underwriting, because a lot of the information that is included in the investment summary – the majority of it in fact – comes from the underwriting. It’s all the assumptions made, the market research done, rental comps, financial analysis, things like that. Who’s making that document?

Number 31 is to announce the new deal to the investor list. When you have a deal under contract, you’ve got your investment summary done, you’re performing your due diligence… At the same time, you want to announce your deal to your investors, so you can start the process of securing commitments from your investors. This starts with an email that includes information about the deal… So who is writing this email? Who decides what goes in this email and what doesn’t go in this email? So overall, who’s responsible for creating this email. Most likely it’s gonna be the person who’s responsible for managing the entirety of the email list, so sending out all the emails to the investors…

Unless you want, again, to have multiple people, there’s gonna be one person who sends out the investment [unintelligible [00:10:29].24] 31, which is the announcing the new deal to investors, and maybe someone else is responsible for sending out ongoing email updates to the investors. Again, whatever you wanna do, but again, this is a specific duty, announcing the new deal to your investor list; you wanna know who’s gonna do that before you get to that point, and you’re not arguing over who’s making this email.

I guess a more general point to make is another reason why you want to  define all the roles or responsibilities upfront is because you don’t wanna have to stop and have a back-and-forth negotiation or argument with the members of the GP each time you get to a new step in the process. Like “Alright, the deal is under contract. Now starting to do due diligence. Well, who’s responsible for managing this? Well, I don’t wanna do that. I underwrote the deal, so why would I have to do due diligence? You should do this.” You wanna have all this stuff defined upfront, so you don’t have to argue over every single step in the process as it comes up. You know from the beginning “Alright, Theo, you underwrote the deal. Now is my turn to take over and do due diligence.” Or “Theo, you underwrote the deal, so you’re also gonna do due diligence as well.” Again, all this is defined upfront. So that’s 31, announce a new deal to the investor list.

Number 32 is perform the new investment offering conference call or webinar. When you are doing the call or webinar, presenting the deal to your investors – who’s on that call? Who’s responsible for setting up the call in number or the webinar? Who’s responsible for creating the structure for a new investment offering call? Who’s actually gonna execute the call? Who’s gonna talk on the call? Who’s responsible for gather the Q&A from your investors? That’s what I talked about in the last episode – it’s not just perform a new investment offering conference call or webinar; there’s a lot of subcategories or subduties underneath that, that need to be assigned to people. For each of these, in reality it’s not for every single one, because some of them are pretty straightforward, like “Announce new deal to investors. Who’s creating that email?” But for something like 32, performing the new investment offering conference call, there’s a lot of other steps that go into executing that conference call. Maybe one person isn’t gonna be responsible for all of it.

So when you get to this point in the document, you’ll be like “Alright, what all needs to be done to actually execute the new investment offering call?” And then based on all those steps, who is gonna do what? Is it gonna be one person, or is this person responsible for the logistic aspect of it, but then this person is gonna present part one of it, and then another person will present part two, and this person right here is kind of just responsible for the Q&A; if a question is asked about the business plan, then this person answers. If it’s asked about the market – well, this person knows a lot more about the market… Things like that. So that overall concept can be applied to the majority of these roles or responsibilities.

Number 33 is sending the conference call or webinar recordings to investors. Pretty straightforward, but you’re gonna wanna send an email to your list of investors, because not every single person is gonna attend the webinar or conference call. So again, who’s responsible for sending out that information to the list of investors?

Number 32, create legal documents and send them to investors. To formalize their investment, they’re gonna need to sign a PPM, the operating agreements… So who’s responsible for making sure those are created? Who’s responsible for working with the securities and the real estate attorneys to make sure that these are set up on time, and then who’s responsible for making sure that these get to the investors, who’s responsible for making sure that these get to the investors? Who’s responsible for making sure that the investors are actually signing them? Things like that.

Number 35 is create the LLCs. We actually haven’t done a full Syndication School episode on this; I don’t think we have. We will in the future, but basically – there’s various LLCs that are involved in the apartment syndication process. There’s the general partnership LLC, there’s an LLC that owns the deal that the limited partners invest in, and maybe the limited partners have their own LLCs that they’re using to invest in the deal… But overall on the GP side there’s a few LLCs that you’re gonna wanna create; at the very least, one for the GP and one for the deal. So who’s responsible for making sure those LLCs get set up?

Number 36 – this is the only one we don’t have a link  of to a blog post or to a Syndication School episode about, because it’s “Ensure passive investors’ money is transferred.” I won’t say it’s simple, but it doesn’t really warrant a long, drawn out, 30-minute episode or 1,000-word blog post. Basically, it’s just “Did the investors send their money or didn’t they send their money?” Or did they say they sent the money and the money got there, or did it not get there? So it’s kind of just  a check box thing, but somebody needs to be responsible for making sure that passive investors are sending in their money… Because you don’t wanna sit at the closing table and no one’s looked at this, and you don’t have enough money to close on the deal.

Number 37, set up the operating bank accounts. Before you close, you’re gonna wanna have all your bank accounts set up. So again, who’s responsible for going to the bank and setting these up? There’s three main accounts. Again, we’ve got a link to that, so I’m not gonna go into what those operating accounts are. If you wanna learn more about those, make sure you click on that link in the blog post in the show notes; or if you’re watching this on YouTube, it’s also in the description.

Number 38, secure financing. Again, a very general, broad, large step. But who’s responsible for securing the financing from the lender, based on whatever assumptions you set while you were underwriting the deal?

So all the work that’s required to go into securing financing, which again, you can learn more about by clicking on the link in the blog post in the show notes – who’s responsible for each of those steps in that process?

And then 39, closing on the deals. Who’s responsible for the few days leading up to the actual closing date, plus the closing date? Who’s responsible for managing that entire process? Who’s the person that the broker is going to be contacting, the title company is gonna be contacting, who’s wiring the funds, who’s signing the documents? Things like that.

So 29 through 39 – those are the contract to close phase. The last phase, 40 through 51, is going to be the post-closing phase. These are essentially the asset management duties. So who’s gonna be the asset manager will most likely be doing most of these responsibilities, but then the person who’s the investor relations will also be doing another portion of these responsibilities as well. So number 40 is create the investor guide. This goes in tandem with 41, which is notify investors of closing.

In order to notify investors of closing, you’re gonna send out an email to your list of investors. Obviously, who’s responsible for sending out that email list? Who’s responsible for deciding what goes into that closing email?

One of the things that you’re gonna want to include is an investor guide, which is a separate document that they can download, that kind of answers FAQs about investing in the deal; when they get paid, tax timing, things like that. So who’s making this document? Who decides what goes into this document and who’s making sure this document goes to the investors and is sent to the investors? So that covers 40 and 41 – creating the investor guide and notifying investors of closing.

Number 42 is sending monthly recap emails to investors. Who’s responsible for gathering information from the property management company, that is used to create these monthly recap emails? Who’s decides what goes into these monthly recap emails? Who drafts these monthly recap emails? Who reviews these monthly recap emails, and who ultimately sends these monthly recap emails

Number 43, sending quarterly financials to investors. Who’s gonna get the financials from the property management company? Who decides what financials to send, and who ultimately sends these to the investors?

Number 44 – sending the K1 tax documents to investors. Again, who is responsible for gathering these K1s, or who’s responsible for making sure that the accountant is sending these K1s to the investors? Who’s responsible for letting the investors know when they’re coming, how the K1 process works? Things like that.

Number 45 – this is kind of general, but answering incoming questions from investors. In all of your emails or in all of your communications with investors, when you say “If you have any questions, you can contact this person”, who is this person? Who do you want your passive investors to direct their questions to, and then who’s responsible for making sure that these questions get answered?

Number 46, oversee the property management company. Again, this is basically the asset manager. So who is the asset manager? Weekly performance call with the property management company – again, the asset manager most likely. Frequently analyze competition to set rents, 48. Number 49 – frequently analyze the market to determine when to sell. So for 48 – who is responsible for doing rent comp analysis on an ongoing basis? If it’s a property management company, who’s responsible for reviewing that and deciding if it makes sense to increase rents, to reduce rents, to do specials…

Similarly with frequently analyzing the market, when to determine to sell, number 49… Who’s doing that? Your property management company might be doing that, but if they’re not, or if you also wanna do that, who’s reaching out to brokers and getting a broker’s opinion of value, and then ultimately, who decides when to sell the property? Is it gonna be at the end of the hold period? Is it gonna be if you can hit a certain return threshold to your investors? What’s that return threshold and who decides what that return threshold is? This is a very important step, because you may wait until exactly five years to sell, but maybe you wait more than five years to sell; maybe you sell after 2-3 years. Ultimately, you need to have a process for how you’re gonna determine when to sell and if one person has the ultimate decision-making power to determine when to actually sell? So this is a very important thing that you wanna define upfront, because it’s probably something that if you wait until after you’ve closed, you’re probably not gonna be able to come to an agreement on when’s the right time to sell.

Number 50 is to ensure the correct distributions are sent on time. So who’s sending distributions to investors? Most likely your property management company. Who’s responsible for overseeing the property management company to ensure that they’re sending out the correct distributions on time? Who’s the person that’s gonna notify investors when these distributions are coming? And things like that.

And then lastly, who is overseeing the sale of the asset? Basically, the entire process that you did on the front-end, interacting with the listing broker and the seller – who’s gonna be that version for your deals? So who’s gonna work with the broker to essentially go through the entire process of selling the deal? So from listing the deal to actually doing all the due diligence on the deal, to closing on the deal?

Number 29 to 51 – for all of those, except for number 36, ensure passive investor money is transferred, there are links to blog posts, to other Syndication School episodes. You don’t have to find all these yourself if you don’t want to. We wanna make it easy, because we went over a lot of information, and I was not able to go into detail on all of these, because again, it would be a 20 or 30-part podcast series, which I don’t have a problem doing, but I don’t want you to have to sit through all that again, because we’ve gone over all of this before in blog posts and in Syndication School episodes.

So the next step for you is to download the free document that has all of these listed out, download that blog post that you can click on the links to go into more detail on some of the responsibilities you’re unclear about, and then ultimately the goal is to assign each of these roles and responsibilities to a specific member of the general partnership, and then from there you can set up some sort of accountability system, meeting frequency, to make sure that the members of the GP are actually executing these roles and responsibilities.

That concludes this two-part series, the 51 responsibilities of the general partnership. To listen to other Syndication School episodes about the how-to’s of apartment syndications and to download the free documents and the free blog posts in this case, visit SyndicationSchool.com.

Thank you for listening, and I will talk to you tomorrow.

JF1919: The 51 Responsibilities Of The General Partnership Part 1 of 2 | Syndication School with Theo Hicks

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Theo has already covered most, if not all of these responsibilities in detail on previous episodes of Syndication School. The purpose for this and tomorrow’s episode is to explain how to divide these responsibilities among your team members and business partners. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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“This document has all 51 of the main responsibilities”

 

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The Best Ever Conference is approaching quickly and you could earn your ticket for free.

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TRANSCRIPTION

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

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

 

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

Twice a week we release the Syndication School episodes on the best real estate investing advice ever show, podcast, as well as in video form on YouTube, so you can watch those either place. Each of these episodes will focus on a specific aspect of the apartment syndication investment strategy. For the majority of these episodes, including this one, we offer some sort of resource for free. These are PowerPoint presentation templates, Excel templates, PDF how-to guides, free resources that accompany what we’ve talked about in the Syndication School podcast and video episode, and of course, as I mentioned, these are free for you to download. You can download these free documents, as well as listen and/or watch the previous Syndication School episodes at SyndicationSchool.com.

This is going to be part one of a two-part series, and we’re gonna call this The 51 Responsibilities of the General Partnership. Before we dive into those responsibilities, we’re gonna talk about probably less than half in this episode, and then in the next episode, part two, we’re gonna talk about the remaining tasks. We’ve talked about all of these tasks before in detail in our previous Syndication School episodes, and we actually have a blog post as well written on this… So if you go to that blog post – which we’ll have in the show notes – you can click on the links. That will direct you to the Syndication School episode or a blog post that goes into more detail on those steps.

So the purpose of this episode is not to go into detail on all 51 steps, because it would be probably a 20 or 30-part series… But we’ve done that already; there are probably 20 to 30+ episodes where we talked about these in the past. Again, SyndicationSchool.com, just search whatever role I’m talking about and you should be able to find the episode on that.

The purpose of this episode is to talk about how to break apart these roles and responsibilities within the general partnership. More than likely, if you are going to pursue the apartment syndication investment strategy, you’re not gonna do everything yourself. You’re going to have one or multiple business partners… And the reason why you’re gonna want multiple business partners is because not every single person, including you, is going to be excellent at all 51 of these various roles and responsibilities… Which is why typically when you have a syndication, you’re gonna have multiple members – probably two being the most common  – on the general partnership, and one person does, say, 25 of these roles and responsibilities, and the other person does 26 of these roles and responsibilities.

So the purpose of this episode is to outline all 51 of those roles and responsibilities, give a very brief description of each of those, and then once you know these 51 main responsibilities, you can use the free document, which is the “GP Roles and Responsibilities” document and you can input the names of all the members of the general partnership, and then for each of these different responsibilities you can assign who’s responsible for that. So when we go into these roles and responsibilities, I’ve broken them down into three phases. The pre-contract phase – these are things that are from “Okay, I wanna do apartment syndication” to “I have a deal under contract.” Everything in between that, which is a pretty lengthy process.

The next category are going to be the contract to close. So “I’ve signed the PSA. What are the next steps until I actually sign the closing papers and I actually take over the deal?” And then the third category is going to be the post-closing phase. That is after closing on the deal, to when you actually sell the deal.

So what’s nice about the document we’re providing you with is that it has these 51 main responsibilities, but each of these responsibilities could technically be broken up into maybe two different duties, or maybe 20 different duties. So they’re kind of just general; for example “Select a potential target investment market.” Within that, you can say “Okay, what exactly are we going to do to find these target markets?” And we’ve talked about this in episodes before… But if you want to, you can break apart each of the 51 roles and responsibilities into multiple roles or responsibilities, if in this case for selecting a potential target investment market maybe you’re both gonna be involved in that; maybe one person’s actually going to find the market, the other person is gonna maybe go there, because they live in that area… Maybe one person is gonna look at these four markets, another person is gonna look at these four markets…

Obviously, this is not an all-encompassing, locked-in document. It’s something that is going to be a starting place for you to take and expand, based on specifically what you’re doing for apartment syndications.

So overall, the entire point of this series is going to be to explain to you the main responsibilities of the general partnership, so that you can determine which roles you are capable of fulfilling, and then once you’ve got those roles filled out, the remaining roles will need to be fulfilled by someone else (or someone else) and at that point you can go out and find that right business partner. So this is something that you’re gonna do upfront, before you even begin to look for deals, put your team together… You need to figure out who’s gonna do what before you do any of that. So that is the time in the process where this document is going to come into play.

With all that being said, let’s jump into the 51 main responsibilities of the general partnership. We’re gonna go over as many as we can in this episode, and then in the next episode we’re going to finish it off, and then we’ll  kind of close out this series. And again, this document is available to download for free at SyndicationSchool.com or in the show notes of this episode… But you don’t necessarily need to have this document open during this episode for it to make sense, because it’s really just a list of all the roles and responsibilities, and then a column that allows you to put in the person responsible for it. And I think there’s also a dropdown menu, so you put in “Okay, this is Jim and Bob, and Theo and Joe are the GP membership”, so each of those 51 roles, there’s a dropdown menu where you can put Jim, Bob, and Joe and Theo.

So first is the pre-contract phase. Again, this is from “Okay, I wanna do an apartment syndication” to “We’ve got a deal under contract.” These are all the steps that are required to actually set up an apartment syndication business, and then find and put that first deal under contract. So the first three roles and responsibilities are kind of wrapped into one. They are technically distinct, but they’re all focused on finding the market to invest in. This is a starting point, so at this point you’re educated on apartment syndications, you’ve met the requirements to become an apartment syndicator, so you’ve got a real estate background, experience background, and you’re actually starting to launch your business. The first thing you’re gonna wanna do is find out where you’re gonna invest.

Number one is to select potential target investment markets. So you’re gonna wanna find five, ten, twenty, however many markets you want to have in your initial analysis, places that you’re interested in investing, and places that you know really well, places you’ve lived before, places you’ve visited, and that’s gonna be your initial list of places to invest in. So someone needs to come up with this list. Who’s responsible for coming up with the markets we’re gonna evaluate?

And then number two, evaluat