JF1100: Flipping for 3 Years, Before Going Bigger With Syndications with Pete Halm
Pete and his wife were house flippers in LA from 2011 to 2014. One day, they decided they wanted to do more bigger deals. When they met a mobile home park investor, they partnered together to syndicate their first mobile home park! Pete has tons of great advice for every level of investor. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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Pete Halm Real Estate Background:
-Partner at Vineyard Investment Partners
-He founded The Deal Hunta and started flipping houses in LA
-Keen eye for value-add opportunities and is dedicated to optimizing investor returns
-Degree in City Planning from the University of N.S.W. Sydney, Australia
-Based in Los Angeles, California
-Say hi to him at www.vip-assets.com
-Best Ever Book: Rich Dad, Poor Dad
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Joe Fairless: Best ever listeners, 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. We only talk about the best advice ever, we don’t get into any of that fluffy stuff.
With us today, Pete Halm. How are you doing, Pete?
Pete Halm: Good day, Joe. How are you doing?
Joe Fairless: I’m doing well, and I’m guessing that you’re not from Los Angeles, California, even though you’re based in Los Angeles, California. I’m guessing you’re from Australia, am I right?
Pete Halm: I’ll tell you what, you’re pretty. I’m from [unintelligible [00:01:31].19] down under, but I’ve been up here for quite a while, a couple of decades.
Joe Fairless: Okay. Well, you still have the Australian charm, that’s for sure. I also have a cheat sheet in front of me that says you’re from Australia too, so I think I’ve got an advantage there.
A little bit about Pete – he is a partner at the Vineyard Investment Partners. He founded The Deal Hunta and started flipping houses in Los Angeles. He has a degree in City Planning from the University of New South Wales. With that being said, Pete, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Pete Halm: Yeah, absolutely. I came over to this country basically looking for cash-flow, because it doesn’t really exist in Australia. My wife and I started out flipping homes; we watched those shows on TV and we thought “You know what? We could do that, too.”
We actually started, and we were pretty successful for a couple years, probably 2011 to 2014. That was working pretty well, but as prices rose, profits were shrinking, and we figured there had to be a better way. We decided to go full-time into real estate and just learn everything we could. We started getting a lot of education, and getting mentors, and we learned that you can actually go a lot bigger that we thought we could go, and we learned about using other people’s money.
Joe Fairless: And what did you buy once you got those insights?
Pete Halm: We started out buying a mobile home park, a very small deal in North Carolina. It was a value-add opportunity where there were a lot of vacant lots and a lot of the park-owned homes were in a lot of disrepair, so it was a big turnaround in that, and it’s actually starting to work now. That was about a year ago.
We’ve only been doing this probably for about a year, so we’re relative newbies in syndication and in getting into bigger deals. Then we actually syndicated a couple of apartment buildings in New Mexico, and our whole thing is value-add, just finding properties that we can actually turn around.
Joe Fairless: Well, let’s talk about this, that’s some interesting stuff. You can call yourself rather new to the syndication stuff, but you and your wife were flipping homes from 2011 to 2014, right?
Pete Halm: Right. But we were using our own money, and we did a couple of deals using hard money. But we had money for one deal, and we’d have to wait until we got the payoff for that to move on to the next, so we kind of felt like we had our hands tied; we didn’t know how to go bigger.
Joe Fairless: And that’s when you were introduced to syndication. Was the mobile home park a syndicated deal?
Pete Halm: Yes, it was.
Joe Fairless: How many lots in the mobile home?
Pete Halm: 109 lots, and we only have two other investors in that deal. It was a pretty small one, but that was our test to see if we could do it, and if we could get the message across to investors to let them know that there’s more out there than putting your money in the stock market.
Joe Fairless: From single-family homes, where you were doing fix and flip, the natural evolution or progression is multi-family, which you said you did two of them, and we’ll get to that in a second… But you went to mobile home parks – how did you come across that and why mobile homes?
Pete Halm: Well, I guess we started from single-family homes and we started looking at duplexes, fourplexes, eightplexes, and then we figured we’ve gotta someone go bigger, and we soon realized that in this business you can’t do it alone and you need to partner with people. We had to start networking, and we met someone who was doing mobile home parks and managing them. He came to us and said “Are you interested in syndicating a deal?” We did, and it was a very small deal; he basically held our hand through it, and we learned as we went. We probably made some mistakes along the way, but we learned.
Joe Fairless: So did he have the deal?
Pete Halm: Yeah, he had the deal.
Joe Fairless: What value did he need you to bring?
Pete Halm: Well, he was in this situation of getting a lot of deals under contract and not having the funds to see them through, so it was like “Well, I’ve got this deal here. Can you help me close this deal?” So that’s what we did. It allowed him to move on to what he was good at, which was actually finding the deals and building out his property management company across the country to run the properties.
Joe Fairless: So he’s managing the mobile home park?
Pete Halm: Yes.
Joe Fairless: Okay. Basically, he found the deal, he didn’t have the money, but he had the management in place, so he needed the money. Is he on the general partnership side with you all?
Pete Halm: He is, yes.
Joe Fairless: Okay, cool. What lessons did you learn on this one in particular?
Pete Halm: On this one in particular? Number one, get out there and talk to people on the ground. We found — being in Los Angeles, it was kind of daunting to get out to different parts of the country and find deals, but we went into this deal initially without visiting the property, and we’ve learned from that that every single deal, get out there, visit the place, day time, night time, talk to everyone you can, and make sure you have the right team in place.
Joe Fairless: As far as visiting the property, what would be some things that you would have uncovered and perhaps approached differently if you had visited before getting into the deal?
Pete Halm: When a seller or an owner says that the property is 90% occupied, you wanna know who’s occupying the place. We’ve had this experience going forward with our multifamily properties, of finding a lot of tenants who are not really desirable, and just getting the monthly rent out of people can be really, really difficult. Just finding out who your tenants are is probably the biggest thing.
Joe Fairless: Yeah, I’ve experienced that first-hand on my first syndication… The difference between physical and economic occupancy, physical being the percentage of people who are living there, but then economic – people who are actually paying to live there… Which is a big difference sometimes.
Pete Halm: It certainly is.
Joe Fairless: So you would talk to people on the ground and you would do a little bit more due diligence on the economic versus physical occupancy…
Pete Halm: Yeah.
Joe Fairless: Would you do another mobile home park?
Pete Halm: Well, as a matter of fact, we are doing a deal at the moment in Louisiana. We’re attracted to the area because we’re just seeing all these economic indicators, a lot of jobs coming and a lot of construction, so we’re actually doing an RV park, and we’re looking right now at getting mobile homes onto the property. So we’re working on that at the moment.
Joe Fairless: How did you structure the deal with your general partnership and your investors on the mobile home park, your first one?
Pete Halm: Well, we actually created an LLC for the entity, and the investors are passive investors. Our LLC is in partnership with the other general partner who is running the property.
Joe Fairless: And are you on the general partnership side?
Pete Halm: Yeah.
Joe Fairless: Okay. And what’s the structure with the limited partner versus the general partnership? Do you have a preferred return? Is it 50/50, 70/30, 60/40?
Pete Halm: It’s 25/75.
Joe Fairless: Okay, cool. And is there a preferred return?
Pete Halm: No.
Joe Fairless: How long do you plan on having that property?
Pete Halm: That’s a really good question… I have no idea.
Joe Fairless: What’s the business plan? I guess that’s a better question.
Pete Halm: Well, if we look at 3-5 years, we may do a refi in a couple years if interest rates are still low, and pay all the investors back. We’ll see what happens. But it’s a very small deal. Maybe once the initial capital is all paid back, we’ll just hang on to the thing and it’ll just keep cash-flowing forever. Who knows?
Joe Fairless: You’ve mentioned it’s a small deal, but I think 109 lots is not a small deal. I think that’s pretty large. But everyone has different contexts for what a small and large deal is. What about your apartments? You said you’ve syndicated two apartment buildings… What city?
Pete Halm: Albuquerque.
Joe Fairless: In Albuquerque… And the mobile home park was in North Carolina?
Pete Halm: North Carolina.
Joe Fairless: What city?
Pete Halm: It’s near Jacksonville, North Carolina. There are a bunch of Jacksonvilles around.
Joe Fairless: Yeah, I’m not familiar with that, but okay, so one’s in North Carolina, and you’re in Los Angeles. You’ve got a mobile home park in North Carolina and two apartment buildings in Albuquerque. How the heck did you come across those two apartment buildings?
Pete Halm: Well, we were looking in Texas, Oklahoma, Kansas City, Florida, and it seemed like everyone was looking in these areas, and I just said “You know what? I’ve created a persona, “the Deal Hunta.” And I just figured I’m like this Aussie, like a crocodile hunter, so I’m just gonna get out there and, beside wrestling with crocs, I’m just gonna find markets that are kind of off the radar, off the beaten track, and I thought I’m gonna stop looking at the places everyone else is looking, that have this huge growth, and I’m gonna start looking for places that maybe are fairly stable, and looking to the reasons why they’re stable, and how they got through the downturn in 2008.
So we looked at New Mexico and found that there was a high percentage of government jobs and military jobs there, and there’s a lot of government research facilities, and during the big downturn they didn’t shed a lot of jobs. What’s happening is that the government tends to be slow to add jobs and slow to reduce jobs, so we looked at the market and we figured it’s fairly stable, it doesn’t have the growth that you’re seeing in a lot of other areas, but we figured we could make it work if we find the right properties.
So I jumped in there, I spent a couple of days just talking to brokers, property managers, a couple of real estate attorneys…
Joe Fairless: Were you there physically, or did you just call? Physically, you flew there and you met with people. Okay.
Pete Halm: Just things kind of fell in place, and I’m kind of relying on my gut more and more these days. I just had a good vibe about the place and how everything was falling together, and within a month we had two properties under contract. How do you get all these happening so fast? I think one of the things was I was looking at properties that a lotof people had seen before and kind of overlooked… I actually found these properties on LoopNet, and I looked at the asking price, and I said “Well, you know what? The asking prices are meaningless to me. I just have to do the numbers and see what works for me.” So I did the numbers, I came up with a number that worked for me on both properties that was probably about 20% under asking, and we had the offers accepted.
Then the next question was whether to actually do a syndication as a portfolio, or keep the deals separate. Well, we actually kept the deals separate, but in hindsight I think it would have been a lot easier to put them into one portfolio.
Joe Fairless: Why is that?
Pete Halm: Well, one property might be doing better than the other, and you can average out the returns. The other thing is — I guess in dealing with investors it would have been easier to have a portfolio. Initially, we thought it’s probably gonna be easier for investors to understand a simple deal, which is just one property, and that might have been the case; that may have been why we were able to raise the money for both of these deals… But the raises happened sort of one after the other, and that was last September, October (the deals are fairly recent). We only actually closed on them in November.
Joe Fairless: Congratulations on the closing for both of them.
Pete Halm: Yeah, so one was a 77-unit building, the other was a 51-unit.
Joe Fairless: And they were different sellers?
Pete Halm: Yes.
Joe Fairless: What was being overlooked? What aspects did you find areas of opportunity where others overlooked them?
Pete Halm: One of them was in a nicer area, and the interiors hadn’t been touched in probably 30 years, so we figured we could get in there and upgrade them to the level of the submarket. The other property was in a worse part of town, but we were seeing other properties around there being rehabbed, and we were seeing rents jumping up. I think the second property, there were people scared off by the way that that submarket was perceived before, as being like a really bad area.
Both properties have actually been a lot of work, but we’re seeing the turnarounds now, we’re seeing that the rehabbed units are getting above the proforma prices… And in the second property, where it’s in the area that’s not as desirable, we did a really nice paint job and just fixed up a bunch of things on the exterior, and now we get a lot more drive-by traffic.
Joe Fairless: Yeah, congratulations on the strong start to both of those.
Pete Halm: Thank you.
Joe Fairless: For people familiar with Albuquerque, what submarket is the nicer one in, and what submarket is the one that people might be less inclined to invest in?
Pete Halm: The nicer market is called Uptown.
Joe Fairless: Of course it is! [laughs]
Pete Halm: Exactly. It’s called Uptown, and it’s walking distance to some really nice malls. Actually, what we’re doing there – we wanna turn that building into a cultural and art icon. We’ve commissioned a mural by a fairly well-known Native-American artist. That’s all happening in the next month, and we’ve invited the community to come along and actually create the background for the mural. We kind of hooked up with this organization called “We Are The City” in Albuquerque, and they’re gonna be giving the public balloons filled with paint and fire extinguishers filled with paint, to basically [unintelligible [00:16:45].19] this big 60×25 wall. They create the background and create some excitement about the property and the project, and then the artist comes in and does his mural on top of that. Hopefully, we’ll also elevate the whole area. It will get onto the art tour map of the city.
Joe Fairless: How much does that cost, to commission the well-known Native-American artist?
Pete Halm: That’s 10k.
Joe Fairless: And a mural – is it just on one side of the building, or is it at the front monument sign? Where is it?
Pete Halm: It’s on a side of the wall that has a lot of visibility from the major streets around there, and even from one of the more upscale shopping centers, you could probably see it from there.
We’re all about uplifting a community and creating a place where the tenants are proud to live.
Joe Fairless: And the other submarket?
Pete Halm: The other one is in an area called South-East. I don’t think it’s a bad area, but in the past it had this reputation. It’s right near the VA Hospital, and it’s near a military base… It’s actually near the main airport. We’re actually targeting veterans for that property. We’re actually putting up a big banner there saying — actually, one of our partners in this project is a vet, and the on-site property manager is a vet, so we’re saying “Veteran-owned, veteran-managed, veterans welcome!” That’s the target there.
Joe Fairless: Bravo on being very specific on who your target audience is and then catering to them. That’s something that you don’t hear frequently when you talk about these deals, and it’s pretty impressive that you’re very narrowly-focused.
Pete Halm: Thank you. I guess that’s a personal thing, where I always found I was taking on too many things, not focused… So I’m learning that build a niche, focus on that niche, and do the best you can in it.
Joe Fairless: And with that last part that you said, “Build a niche and focus on it”, how would you reconcile that approach with you buying mobile home parks and then also apartment buildings? You know I had to call you out on it, right? [laughter]
Pete Halm: Exactly, yeah. It started out with the mobile home parks — we didn’t know where to go, we were just trying something, and I think at this point in time we’re finding it harder to get multifamily deals under contract where the numbers work. I think we have two niches that we are looking at: one is the multifamily, and the other is we’re gonna keep on in that mobile home park/RV park area, and we’ll see which area wins ultimately.
I don’t know, we may end up focusing more on one in the future, but at the moment I guess this second deal came out of the fact that something fell into our laps, and also there was a frustration of not being able to find the multifamily deals that we need to find, and we’ve built up quite an investor database, and I get calls and e-mails from people saying “What do you have? Have you got anything?” So it’s kind of like, well, we wanna be able to have something that we can provide and just help people out, because we see what goes on with people’s retirement funds, and they’re totally tied into Wall-Street… And the market might be up now, but I don’t believe it’s gonna be up for a long time, up for much longer, and now’s a great time, I think, to get into real estate, even if the real estate prices are high.
I think there are submarkets that are on different parts of the cycle, and we’ve just gotta keep looking and finding those areas and finding the deal.
Joe Fairless: What is your best real estate investing advice ever?
Pete Halm: The best real estate investing advice is get a mentor or mentors. Don’t go alone. Get help, education, and build teams, teamwork.
Joe Fairless: Are you ready for the Best Ever Lightning Round?
Pete Halm: Sure.
Joe Fairless: Let’s do it. First, a quick word from our Best Ever partners.
Joe Fairless: Best ever book you’ve read?
Pete Halm: Rich Dad, Poor Dad.
Joe Fairless: Best ever deal you’ve done?
Pete Halm: It probably was the first single-family flip.
Joe Fairless: What’s a mistake you’ve made on a transaction?
Pete Halm: Not reading all the fine print.
Joe Fairless: What fine print did you not read?
Pete Halm: All the fine print.
Joe Fairless: [laughs] “Just what I said, Joe – all the fine print.” Fair enough. Was there a monetary loss as a result of not reading a certain aspect of the fine print?
Pete Halm: Not really… I’ve learned now, if you can’t read it, get somebody to read it with you. Get a lawyer.
Joe Fairless: Best ever way you like to give back?
Pete Halm: Just helping kids.
Joe Fairless: And where can the Best Ever listeners get in touch with you, Pete?
Pete Halm: On Facebook I’m “The Deal Hunta.” The website is vip-assets.com.
Joe Fairless: Pete, thank you for being on the show, talking about your syndication deals, from the 109 lots mobile home park in North Carolina to the two Albuquerque apartment buildings – the 77 and the 51-unit… How you went there – you traveled from L.A. to Albuquerque, and how you sniffed out Albuquerque because you were looking for a market that other people weren’t talking about, but still in your opinion is stable, and the reasons why it’s stable: the high percentage of government and military jobs, and how they don’t usually get added quickly or removed quickly, based on your research. And your very specific focus on who the properties are targeting primarily – clearly, you rent to everyone, but primarily you have a target audience.
Then also commissioning a mural by a well-known Native-American artist for one of the properties, and getting into the specifics of that.
Thanks for being on the show. I hope you have a best ever day, and we’ll talk to you soon!
Pete Halm: You’re welcome. Thanks so much, Joe!