JF1101: How Strategically Partnering can Land you More Deals – with Matt Martyn
From a film and digital company, to a property management company, Matt is cofounder in both. Definitely a strange combination of companie, but it works for him and his partners. They found a deal because of a partner’s aunt was a broker who heard of the deal from another broker, proof that sometimes your network is more important than anything else!
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Matt Martyn Background:
-Co-owner of Cobertyn, a real estate management company for commercial buildings, single-family units, and apartments buildings.
-Co-owner of Ahptic, a Film and Digital Company Worked with Oscar winner Carl Kress and celebrities including Nelly Furtado and Miley Cyrus
-Based in Lansing, Michigan
-Say hi to him at www.cobertyn.com/
-Best Ever Book: Crime & Punishment
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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 fluff. We’ve spoken to Emmitt Smith (yes, he’s a real estate developer; go listen to that episode), Barbara Corcoran from Shark Tank, Robert Kiyosaki and a whole bunch of others.
With us today, Matt Martyn. How are you doing, Matt?
Matt Martyn: Good, how are you doing, Joe?
Joe Fairless: I’m doing well, nice to have you on the show. A little bit about Matt – he is the co-owner of Cobertyn, which is a real estate management company for commercial buildings, single-family units and apartment buildings. He is also a co-owner of Ahptic, which is a Film and Digital Company. He has worked with celebrities in that regard, I imagine… With Nelly Furtado and Miley Cyrus. He’s based in Lansing, Michigan. Matt, with that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Matt Martyn: Sure thing. My business partners and I started our film and digital company, Ahptic, back in 1997. Being a startup, bricks and mortar, you need expensive equipment to film things on a high end… Really just step by step building our company and the equipment, the resources. As opposed to renting from others, we would start acquiring that so we could shoot it ourselves.
Along the way, our landlord – we were in a downtown space in Lansing Michigan – needed to convert that to apartments, and rather than finding another place to rent, we bought a building. We gutted it, renovated it, and it just really took on a life of its own, it was a great thing… Just an excellent experience. It took a long time, a lot of money to do it, but again, we thought in the long-run; we really saw the benefits of that.
A few years later, when the whole bottom dropped out of the Lansing real estate market, we found a duplex in a downtown location – just prime location – and we scooped it up for a steal. It was great in a lot of ways, but it really was not enough of a purchase to justify a shift in our focus and priorities. We were still building this film and digital business, and really the duplex was somewhat of a distraction. But of course, that appreciated, and with renovations to that it came to be a nice little property, and just by fall we acquired three small apartment buildings, and with that we founded Cobertyn Management Company, which has just been a game changer.
Joe Fairless: Yay, three of them – in one shot, or in a short period of time?
Matt Martyn: In one shot, yes.
Joe Fairless: Tell us about it.
Matt Martyn: Well, we’d been looking to really expand into real estate for quite some time, but the single-family or duplex units – buying ten more of those or twenty more of those sounded exhausting, frankly… So my business partner, Dom, had his finger on the pulse, and we discovered these three 8-unit apartment buildings that were off-market, and we made an offer and negotiated it, they kept them off market, and closed on them all at once. And they’re really the right size, goldilocks; they weren’t too big, they weren’t too small. It was not easy for us to lock down the financing – that was very time-consuming, that was more involved than what we had anticipated, but we were able to close on them, and it’s really been a great experience.
Joe Fairless: We’ll start high-level and then we’ll get into some specifics. High-level – how much did you acquire them for and what type of cashflow, or maybe even what’s the cap rate going in?
Matt Martyn: 600k. So far we haven’t aggressively increased the rents on the existing tenants, but as they move out, we’ve been able to increase them to the tune of 25%-30%-35% without any problem finding people to fill them.
Joe Fairless: On average, what’s the rent for a unit?
Matt Martyn: Some of the long-term tenants pay as little as $410, and the shorter term on the newer units would be $550-$570. Now, we are in the process of renovating two of the units that are on the lake, one of which has a lakefront view, that we plan to triple the rent.
Joe Fairless: Triple the rent?
Matt Martyn: Yeah, it’s a prime location.
Joe Fairless: To $1,500?
Matt Martyn: It might be more like $1,500, but it’s right in that range. There’s reason to believe we can justify that. We’re going to see what the market determines, but it’s really exciting. It’s not just that it’s on our city’s potentially only recreational lake and it has a spectacular view of it, it’s butted up next to a park, and one block away from three of the hottest bars in town.
Joe Fairless: Oh, man… It’s the place to be.
Matt Martyn: It’s phenomenal.
Joe Fairless: How much would you need to put into the unit in order to justify or command the $1,500 (plus or minus) rent?
Matt Martyn: The dust has settled on that. My business partner John has been spearheading the renovations, so I don’t have the numbers in front of me, but it certainly makes sense for this in the long run. It’s really exciting.
Joe Fairless: Yeah, and that makes sense… You each have your responsibilities and what you’re focused on in the business, I get that. The reason why I was asking is because you acquired this property at $25,000/unit, and at $550 for a unit, that’s 2.2% of the acquisition of a unit… So $550 is 2% of $25,000, and I was wondering “Well, if they put in $10,000, that’s $35,000 all-in, and if they’re able to command $1,500 in rent”, that’s a — it’s stupid numbers is what it is… It’s 4.2%.
Matt Martyn: [laughs] I would love that. I can safely say that we have been in and are putting more than $10,000, especially into the one with the lake view, we are really going all out – everything, high-end across the board.
Joe Fairless: Right. And that would be one 8-unit that you’d go high end, or are there units within the 8-unit that you would go more high end?
Matt Martyn: Within the 8 units, 4 of them face the lake and 4 of them do not. The 4 that face the lake, we certainly are going all-out. The ones that don’t face the lake – they’re very nice… One of them we’re literally finishing in the next couple weeks, and we’ll see what the market commands for that. But I would say those are 8 or 9 out of 10, and the once facing the lake are 10 out of 10.
Joe Fairless: Okay. And the reason why I was asking about that is because if you were doing a couple apartments within a building at $1,500 but then you’re renting the others for $500, you’d get a different type of resident profile.
Matt Martyn: Oh, no, absolutely not… The ones that don’t face the lake, we were talking maybe $1,100, or something like that. But that would create this disparity. The hallways, everything is going to be high end to maintain [unintelligible [00:08:32].12]
Joe Fairless: So now let’s talk more micro-level on this deal. You said it was an off-market deal… How did you find it?
Matt Martyn: Through my partner’s aunt, who is a real estate broker, and was talking with another broker. He was aware of these properties, and we were able to keep it off market and close the deal.
Joe Fairless: What type of financing did you get on it? You said it was challenging – please elaborate.
Matt Martyn: Well, we know the commercial loans are more challenging than, for example, financing a home as a private loan. We have experience with commercial loans, and we know that there’s a certain degree of difficulty with that. We’ve dealt with loans less than 250k. Once we broke that threshold, we were seeing that the level of complexity and involvement of underwriters was much more involved, and the length of time in vetting was far beyond what we had experienced in the past… And with the length of time that goes by, then that inherently requires more information. For example financials, as a month or two goes by, then you need to provide financials for those months as they pass. I totally respect the entire process, because I would assume among other things, making sure that nobody’s playing a shell game with their money, like maxing out a credit card while they supposedly have the cash in their savings account, or whatever it might be…
Joe Fairless: Right.
Matt Martyn: The process was pretty slow, and in fact, one of the lenders — we’ve had great experiences with both of them in the past, and after all this time, one of the lending institutions was not able to get the information that they needed to from the underwriters… So they eliminated themselves from the process. Our broker was trying to make sure that everybody was keeping things moving as fast as they possibly could, and when it came down to it, they were not able to get the information processed in time, and thus kind of made the decision for us.
We were pleased with the interest rate that we got, and with the terms and everything else, but it was just a lengthy process.
Joe Fairless: Knowing what you know now, what would you do differently if presented the same deal, same exact circumstances from a financing standpoint?
Matt Martyn: Well, we were actively looking, but like so many things that happen in life, there’s the idea of looking, and the idea of “This is the deal we need to close now”, which changes everything completely. So had we [unintelligible [00:11:07].21] then we would have had things more locked and loaded from our end, in a more presentable way. We got things presentable very quickly, but we were not keeping our accounts flush with cash, as a bank would like to see. Things were not as liquid as they possibly could be. We [unintelligible [00:11:24].28] get there really quickly, along with other things, but of course, the endless personal financial statements and that which needed to be provided.
Joe Fairless: Matt, what is your best real estate investing advice ever?
Matt Martyn: If you see a deal, jump on it. I know you don’t wanna make impulsive decisions by any means, but if you know a market and you’re aware of a deal when you see it, there’s all the reason to act. And be ready as much as you can be.
Joe Fairless: You said these three 8-units are in Lansing, where you live – is that correct?
Matt Martyn: They’re in the Lansing area. They’re actually in the surrounding communities, which have great school systems [unintelligible [00:12:06].24] and Williamston, which both are nice little b&b communities.
Joe Fairless: What’s your role on the team? Just taking a step back…
Matt Martyn: By and large I’m involved with the finances, and big picture paperwork type stuff. We all wear different hats at different times. When we were closing on this, there were significant renovations that needed to be done, so I was spearheading some of the bigger projects… Not involving renovating the units as much, but replacing a roof, and decking; we had to tie in the city water in one of the units. So things like that, I spearheaded some specific construction projects.
Joe Fairless: What’s it like to oversee the process of tying into city water and why did you have to do that?
Matt Martyn: That is the lake view property that I mentioned; it was the only one that was not tied in… It was still on an old well. The wells require maintenance, and the cost in and of themselves – most none of the tenants like it, and that also stained the bathroom fixtures. That impeded any ability to renovate. It was a downside to any potential tenant. So that was just really a barrier that we saw to getting these units to where they needed to be. They would never be high-end if they were still tied into this well.
That was a process, like any municipal interaction, and the good news is that as we did that, we actually tied in in a way that will allow us to provide more water, so down the road, who knows, maybe we’ll do a demo and build more units in that spot, given the prime location of it. Should the opportunity ever arise, we are already set for growth.
Joe Fairless: And then what about the replacing the roof and decking – can you tell us about the process and anything that stands out to you?
Matt Martyn: Yeah, the roof had been patched in a few different places, and it’s one of those things where it’s kind of bleeding money slowly, and kind of opening the door to other potential problems, so it makes sense to just get in there, take care of it and call it good for a decade. The decking was — that was one where it didn’t take an engineer to tell us things needed to happen with that quickly… So that was addressed as quickly as possible.
On one of the units it’s an entry directly from outside, so the upper units have stairs on either side of the building and a wooden deck to enter. We saw that, again, as an opportunity to upgrade, so when we were replacing it, not only did we give it the proper support that it needed, but then also expanded it. Now both levels benefit, because the upper units have more room where they could put out lounge chairs or other things to relax up there, and the lower units are more protected from the elements – rain, snow, or whatever. It reaches out twice as far from their building as it did before.
Joe Fairless: Matt, are you ready for the Best Ever Lightning Round?
Matt Martyn: As ready as I’ll ever be.
Joe Fairless: Alright. First, a quick word from our Best Ever Partners.
Joe Fairless: Best ever book you’ve read?
Matt Martyn: Crime and Punishment.
Joe Fairless: Crime and Punishment?
Matt Martyn: Yes, [unintelligible [00:16:28].24].
Joe Fairless: I should be familiar with that book, but I’m not, so I will check it out. What’s the best ever deal you’ve done?
Matt Martyn: My personal home. I paid $15,000 for a foreclosure, gutted it and didn’t put more than 30k into the renovations, and I wouldn’t change anything. I love it.
Joe Fairless: What’s a mistake you’ve made on a transaction that we haven’t talked about already?
Matt Martyn: The duplex that we talked about – it was easy to be lacksidaisical about getting tenants in there. As I said, it was not the focus, it was not our core competency at the time, so we were not as quick as we could have been to get tenants in and out of there.
Joe Fairless: What’s the best ever way you like to give back?
Matt Martyn: With our production company we’re able to send very powerful and compelling messages to issues that matter a lot to us in our community.
Joe Fairless: And how can the Best Ever listeners get in touch with you, Matt?
Matt Martyn: Cobertyn.com. We are actually already managing other apartment units. We talk about lightning speed – this is happening at an incredible space.
Joe Fairless: So you’re doing third-party management as well?
Matt Martyn: Yes, just in the last two months, and that’s already going well. We’re filling units at rent rates that you’d not think was possible.
Joe Fairless: Wow, congratulations. Where are you doing management? Is it just Lansing?
Matt Martyn: Yeah, that one is in Lansing proper, nearby downtown.
Joe Fairless: And how many units do you have under management.
Matt Martyn: Eight.
Joe Fairless: Eight. And why do third-party management? A lot of people steer away from that who are initially interested because of the low margins and a lot of the headaches. And I’m not saying there’s not money in it – I know there is – but it’s a tough business.
Matt Martyn: For us, I think it’s a little bit of a different animal because we have the infrastructure in place from our existing business. It makes sense for us to just grow from here. We hit that tipping point – the duplex did not justify it, but once we moved into having this many units and having people dedicated to maintaining and growing the business, it’s really just a matter of adding this to what we already have.
Joe Fairless: Matt, thanks for being on the show. Thanks for talking about the case study of the three apartment buildings that you acquired, $600,000. Three apartment buildings, 8 units each, so 24 units for $600,000, 25k/unit. You’re increasing rents, and in some cases looking to triple the rent, but also putting a large chunk of money into those units to do so, and looking at it from a long-term play standpoint. Thanks for being on the show. I hope you have a best ever day, and we’ll talk to you soon.
Matt Martyn: Thanks, Joe. I appreciate it.