JF1158: Syndication 101: Apartment Syndication Process Cont’d #FollowAlongFriday
We’re back today with Joe’s and Theo’s business updates and observations from the past two weeks. They dive into listener questions, continued from the last #FAF. All of the questions are syndication questions that almost anyone who wants to syndicate a deal will have. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
Link to Part 1 of Syndication 101: https://joefairless.com/podcast/jf1144-how-to-work-with-3rd-party-management-companies-followalongfriday/
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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 fluff.
We’re doing Follow Along Friday today, and we are going to talk about observations that we’ve had over the last week or so, what we’re up to, and really think about throughout this conversation (as we always do), how this applies to you… Because it’s less about what we’ve got going on, it’s more about what we’ve got going on as it relates to helping you along your journey. So how do we wanna kick it off?
Theo Hicks: Well, I’d say we start with your observations. I know you’ve done some exclusive interviews lately you wanna discuss today…
Joe Fairless: Yeah, I interviewed Jay Williams… He is a former NBA basketball player. He was drafted in the first round by the Chicago Bulls in (I believe) 2002, and he’s actually the second overall pick. He was the one behind [unintelligible [00:02:05].12] so number two overall pick.
Theo Hicks: He played for Duke.
Joe Fairless: He played for Duke in college, coach K. We talked about coach K. a little bit in the interview. He was (I believe) [unintelligible [00:02:23].02] second team in his first year as an NBA player. Then he got on a motorcycle in the summer off-season – or whenever off-season is for NBA – and he ended up crashing it into a pole at 60-70 mph, and that ended his career as an NBA player. What we talked about is just overcoming adversity, number one. Number two — because I figured he’s talked about that story a lot since it happened approximately 15 years ago, so I didn’t wanna focus that much time on the story; we know what happened, and now what has transpired since then.
One of the things he mentioned is that — he’s got these different ventures… He’s an ESPN analyst for college basketball, he is involved with a talent agency to negotiate contracts with sports stars and brands, and branded content, basically. He’s got a lot of different things that he’s done really well, and he talked about how he brings in people into this team. He makes it incredibly challenging to do so, and one of the things that he mentioned that really resonated with me is a story… He said that he created an internship, and when he was seeking applicants for the internship, he got tons and tons of people [unintelligible [00:03:59].04] and the people would write these long, long e-mails and messages, and put together this bunch of stuff, but then there was no follow-up afterwards with the applicants; that was all they did – they wrote a long e-mail or they did an application, and there was nothing else that was special about it… And he talks about the way that he looks at it – he measures hustle, and how do you consistently hustle throughout your professional life.
It’s how he got to where he was at Duke, where he was really successful, and then in one in the NBA, consistently hustling, and as a professional too, consistently hustling.
So let me just finish that story – so he got a bunch of applicants, none of them except for maybe one or two actually had some follow-up after they submitted stuff. Then the person that got the internship, Jay said “Okay, now go”, and the person’s like “Oh, well I was waiting for you to give me some stuff”, and he’s like “No, no, no… You know what I’m looking for – you go make some stuff happen and then you come back to me.” It is that sort of entrepreneurial hustle mentality that he looks for, and it’s so true… That is what’s required as successful real estate investors and entrepreneurs.
What this reminds me of so often is when I speak at a conference, and afterwards people come up and there’s this long line of people… Well, I’d say nine out of ten of them have expressed some desire to stay in touch or work with me or learn other things that we talk about, but one out of twenty probably have some sort of follow-up afterwards… And usually, none. The reason why – I’m guessing – is because generally speaking people do what is convenient for them at the time, when in reality when it’s inconvenient for you, that’s usually when you’ll make most of the difference.
For example, when people are at a conference, it’s very convenient to walk up to a speaker, because they’re already there, it’s top of mind, but when it’s not top of mind later, that’s when you really break through with the outreach to the particular speaker. It’s important to consistently hustle, and it reminded me of just the things that I see with our culture in general, wanting instant gratification and not consistently doing stuff over a long period of time. That’s something I wanted to point out.
Theo Hicks: Yeah, two things are interesting there. One, Jay Williams is such a big name, and you would think that he’s getting probably thousands and thousands of applications, and you’d expect that maybe a hundred people are following up, but the fact that only a couple followed up for someone like him is just kind of interesting and it proves your point, that it doesn’t really matter who it’s actually happening for the follow-up… Or following up when it’s inconvenient to you is difficult.
The second thing too that resonates with me, because I found myself doing it, particularly at your conference when there’s all these speakers around that are super successful real estate investors… You’re talking to them and you’re asking for advice, and in the moment you feel super jacked up and it’s like “Man, if I was like this at all times throughout the year, I would have a billion properties at that point”, but the hard part is taking that motivation or whatever that is that you have in that moment, and having it continue with you when you’re by yourself.
You can listen to a podcast, you can go to a conference, but that’s not where most of the work’s done; most of the work’s done, at least from my perspective, for my properties it’s the day-to-day grind of figuring out maintenance issues. This is for smaller properties – I’m sure it’s different for you, but figuring out maintenance issues, tenant relationships… Things that you would never even think of, because you’re used to listening the high-level stuff and you can’t really get into the day-to-day details at a conference, because you’d be talking to them ten hours to get all that information.
I feel like every time I come on Follow Along Friday I’ve got some information that happened from the past week, things I had never even thought would happen in real estate, so… I totally agree with what you’re saying.
Joe Fairless: Yeah, we’re in the moment at the time, but then what does it take to maintain that mindset? I’m actually going to Unleash the Power Within in Palm Beach this next week… I’ve done it before, and one of the things I learned the last time I went is that you control the emotions that you experience at any point, you’re in control of it. Now, it might not seem that way, but you choose to experience the emotions that you experience. Certainly, you might immediately get pissed off about something, but then if you actually think about “Okay, here’s what I’m experiencing and here’s the emotions”, then you can actually decide how you feel. I think Abraham Lincoln said that; he gets a lot of quotes attributed to him… I don’t know how many he actually said, but I think he said that you can choose to be happy, something along those lines.
You can choose to have that persistent, consistent hustle; it’s just a matter of making that conscious choice and also having enough pain associated to it for not doing it, and pleasure associated to it for doing it.
Theo Hicks: And I think momentum helps, too. It’s a lot harder to start building momentum; once you’re building momentum practicing doing what you’re talking about…
Joe Fairless: Yes, seeing the results…
Theo Hicks: So is that the main one, like the week-long seminar?
Joe Fairless: That’s Date With Destiny, this is Unleash the Power Within… This is four days, maybe three days. Date With Destiny is one week. That’s the documentary that’s [unintelligible [00:09:28].15]
Theo Hicks: I’m looking forward to hearing some — because I’m sure you’ll have a lot of insights from that.
Joe Fairless: Yes, I will. I will take notes. Cool. Let’s see, what else…? I mentioned going to Unleash the Power Within; also, tomorrow I’m headed to Lubbock, Texas, because I’m on the alumni advisory board there. I’ve been going to the advisory board meetings for almost ten years, I think… Maybe not ten, that makes me seem really old… [laughter] I don’t know, like eight or nine years I’ve been on the board, and that is something we’ve talked about before – that’s something that I have built relationships through, and over a million dollars worth of investors have come through the Texas Tech alumni advisory board. That is not something I joined in anticipation of finding investors, because I wasn’t doing this ten years ago; I was in advertising. It was just something that I feel passionate about helping students, and that’s the best approach to take – find something you’re passionate about, get involved, something you enjoy, and then the business relationships will ultimately come from that.
Theo Hicks: Is that an annual event?
Joe Fairless: It’s an annual event. I don’t think I’ve missed a year; I go every year. Colleen is coming with me for the first time. She’s gonna see dusty West Texas, red dirt cows and cotton fields, but it’s also a place that has people who are true to their word and people who mean what they say, and there’s a place in my heart for it, so I’m a big fan of going back.
Theo Hicks: Anything else going on?
Joe Fairless: I think that’s what I’ve got. What’s going on with your properties?
Theo Hicks: Since we’ve last recorded the podcast, I remember I was talking about the boiler issues I had… And I can’t remember if I mentioned this or not, but there was another issue. Originally, remember how I was telling the story about how there was some minor noise in one of the boilers and the tenants were complaining about it, and I went in there and it was nothing?
Joe Fairless: Yeah!
Theo Hicks: Well, I had another complaint from the other building about noise, and this one was an actual issue. The second I went in there I knew exactly what it was, because it was the same problem I had on the [unintelligible [00:11:42].01]
Joe Fairless: You’re getting good at boilers.
Theo Hicks: I’m getting good at diagnosing them; I don’t touch them at all, but I’m getting good at least at diagnosing what the problem is. I kept getting notifications from multiple tenants saying that there’s these loud clanking noises in the walls, and they think it’s from the radiators. One of them was even sending me Google images, screenshots of what the potential solution was…
But I went there, and for the boiler we’ve got — there’s still a motor on the boiler, and the motor wouldn’t fire up… So the boiler would turn on, the burner would turn on, and then the motor would go to kick on, and it wouldn’t work. And I guess the motor — I’m not sure if it actually cools it down, but the motor doesn’t kick on and the system overheats, and then there’s this [unintelligible [00:12:21].06] it makes a ton of noise… So that’s what was happening.
It’s actually the same thing that happened at my first home, where my boiler wouldn’t turn on, and the system would make these really weird noises because it wasn’t running properly. Anyway, so I had the guy come in and look at it, and it ended up being — luckily, he only charged me for the actual motor itself; he didn’t charge me for the labor, because I’ve been paying him so much money… But now for the past week and a half I’ve had no complaints about the boilers. We went through and tested all the–
Joe Fairless: Bravo!
Theo Hicks: So they all work. After — I calculated this morning, it was $8,400 to get all three boilers up and running, which I believe is less than the cost of placing one full boiler.
Joe Fairless: What was the down payment for one of those properties?
Theo Hicks: I don’t know, like 55k…
Joe Fairless: Okay, alright… So not quite up there. There’s still room though, there’s still hope. You can try and match your boiler expense to your down payment, because that’d be a good story.
Theo Hicks: I don’t want that happening, but it would be a good story in a couple years from now. But luckily, the rents are high enough at the properties… That’s like two-and-a-half, three months’ profit that’s lost, which obviously sucks, but it’s not like a whole year is wiped out. If it was like a single-family and the boiler went out, a year or two years might have been wiped out, so that’s kind of the positive of coming forward in this.
Joe Fairless: That’s a great point. We always talk about economies of scale, but getting into a specific example like that is helpful to illustrate the point of economies of scale with multifamily properties versus single-family. Because when my tenant moves out from one of my homes and we repair a bunch of stuff – $5,000, and there’s profit for $250, so whatever that is… More than one year, I’ll tell you that. You’ve got $8,400 worth of expenses for a boiler, and then you recoup that in about three months.
Theo Hicks: Yeah, which would be nice. I didn’t put in any personal funds, which is nice; it’s all from collecting the rent the first month, and then basically having to pay a mortgage payment with basically what — because we got to keep all the rent, minus water bills and stuff like that. So that basically covered all these boiler expenses.
It’s so interesting, because I bought the duplex… I was at a similar online price for my first duplex that I was for each of these individual properties…
Joe Fairless: And each of these individual properties are four units, right? So you bought your first, you’re talking about…
Theo Hicks: Yeah. The rents are higher for the fourplex, even though each of the individual units are lower than the two duplex units…
Joe Fairless: Oh, different area?
Theo Hicks: Different area, for sure… Because the duplex was in Oakley, which is a lot nicer area than the area I’m living in, but based off of the rents that I’ve been seeing, I’m gonna be able to increase the rents on this one and get even more. And if you look at it strictly from strictly the rent-to-purchase price ratio, it’s well above 1% for sure, and it’s gonna go even higher here soon.
I’m gonna go look at a duplex tomorrow that’s off-market, that I got through my real estate agent… But I don’t even know if I want to buy duplexes anymore, because I can get a fourplex for the same price as a duplex and have more units…
Joe Fairless: For the same price?
Theo Hicks: Yeah, so I can a four-unit for 220k – this is what I bought this fourplex for – or I get a duplex for 220k. So I was like, “Why would I even buy a duplex, unless the rents are twice as high as each of the individual four-units?” Obviously, there’s higher expenses for the four-unit, and you have more contact with your residents, but that has been very surprising, how much more smoother the four-units run compared to the two-unit. Because I’ve got six times as many units as I did before, and I feel like I’m spending the same amount of time…
Joe Fairless: Really?
Theo Hicks: Yeah.
Joe Fairless: Even after all the boiler stuff you feel like you’re spending the same amount of time on 12 units as you were two?
Theo Hicks: Yeah, I’m comparing apples to apples… Because right from the beginning of my two-unit, I was there all the time, getting everything fixed up, turned and ready to go for the new resident. So time will tell; if things continue to fall apart at this property, then yeah, I’ll spend a lot more time there.
Joe Fairless: You were doing unit turns to get them prepared on the duplex, but you haven’t done a unit turn yet on this…
Theo Hicks: There was one that was vacant.
Joe Fairless: Okay, so you got in there and you got some rubber gloves on and scrubbed things…?
Theo Hicks: It was all done. I guess what I’m saying is after the two units, once they were actually done, I still had to go in there all the time, because these small things would happen; there would be leaks here, or an issue with the plumbing… So I felt like the first couple months I was spending a lot of time there, just like with the four-unit. But what’s even nicer with the four-unit is that I can tie it all up, so if I’ve got something to do here, here and here, I can go once instead of three separate times.
The economy of scale [unintelligible [00:16:54].18] two issues in three different units, or three issues in three different units, you can go there at once, versus having to go to different locations, different times of the day. I just think it’s overall a lot more convenient to have four units, compared to the duplex, from my three months experience so far.
Joe Fairless: But you have more experience with the duplex, so… You said you’ve got an off-market deal – how did you obtain this off-market opportunity?
Theo Hicks: My realtor just texted me and was like “Hey Theo, I’ve got this deal. Do you wanna come take a look at it?”
Joe Fairless: They haven’t posted it publicly…
Theo Hicks: No, not yet. It was funny, because we get breakfast every once in a while, and she always tells me she looks at me like at her son…
Joe Fairless: Okay… [unintelligible [00:17:35].23]
Theo Hicks: We’ll get breakfast, and then — she’s really nice, and whenever she gets any sort of off-market deal (usually they’re two units)… That’s kind of my main off-market lead source.
Joe Fairless: You just need one. Ideally, you have three sources that are bringing you deals, but if you’ve got one… You’re only gonna close on one at a time usually, so that’s great.
Theo Hicks: And she also offered to do direct mailing for me. I was sending her a spreadsheet of what I want, and then she’ll pay for —
Joe Fairless: And how did you get the professional relationship with her?
Theo Hicks: One of my good friends bought a property… Going back in time, back in 2013-2014, I met a guy at work – my best friend now – and he bought a duplex maybe three or four years prior at this time, and that’s who he used as an agent.
Joe Fairless: Does she send him the off-market deals?
Theo Hicks: Not anymore. [laughter] [unintelligible [00:18:34].23] It’s not like I had to consciously try to hold the relationship, it’s just kind of like a normal friendly relationship, and he ruined it. It was a little silly, but he just didn’t use her on a deal, and she kind of felt betrayed, and then they had a weird falling out, and then I was like “Well, this works for me then.”
Joe Fairless: Alright, there you go.
Theo Hicks: So the third thing that I just — kind of an observation, not really any sort of lesson I can think of, but… Something I didn’t really think about as much when I was listening to podcasts is doing strictly research, as opposed to doing it first-hand, is kind of like the relationship you have with tenants, especially if you’re gonna be managing the properties.
If I could go back, a couple things I would do differently is 1) definitely have a Google number and not give my personal number… But 2) I would set expectations for how I want to approach maintenance issues.
For example, something I didn’t do when I initially reached out – I didn’t follow up after I asked them to provide me with a list of issues that they had… And then also telling them “If you have any maintenance issues whatsoever, no matter how big or small, let me know and I’ll decide what we’ll do about it.” Because I keep finding all these problems, but they’re not telling me; I’m having to find them myself. I just happen to be in their unit doing something else, and I see that their sink is leaking. Or I go in the garage because the garage is having problems, and I see there’s water leaking from the ceiling. Or someone tells me that their drain is clogged, so I go over there and then [unintelligible [00:19:59].18]
So it’s kind of just figuring out how to have the tenants communicate to you all these issues upfront, so you can just address them within a week, instead of thinking you’re done and then something else if popping up.
So I think what I would have done differently is obviously the Google number, because things keep popping up and I get a phone call on my personal phone and I don’t know who it is at all; I don’t know if it’s someone from work, someone that I just don’t have the number saved if it’s a resident… But then also kind of [unintelligible [00:20:30].04] or maybe even doing some sort of walkthrough in each individual unit when I first get there…
Joe Fairless: Yeah, with the resident…
Theo Hicks: And just asking them, “What issues do you have? Do you have any leaks? Are your radiators not working?”, just so I can kind of proactively get ahead of things, instead of being reactive. Because mentally, it feels a lot differently. When I’m proactively addressing things I feel like I’m doing something, whereas if I’m reactive I’m just like “Oh, my god…”, it’s like a headache.
Joe Fairless: Yeah, especially if you go with the drain thing and they don’t have it, but then next door they do, or both of them have it. It’s like, “Oh, wait… What?!” I can see that…
I’m speculating now, so take that for what it’s worth, but it might be a couple things – one is they are still getting used to the maintenance being addressed when they say something. And two, it could be ease of sending that information to you, if there’s a really quick and easy way of doing that, versus them thinking they have to write an e-mail, or pick up the phone and call… If they just maybe [unintelligible [00:21:34].13] take a picture and text it to a number, and then you have all these pictures in your Dropbox, or something… [unintelligible [00:21:42].00] Then you just log in and see if there’s any pictures, and see who [unintelligible [00:21:47].29] those might be a couple reasons.
At the end of the day though, if it’s bad enough, hopefully they’ll start communicating. But if you do a walkthrough, then certainly that will cover anything that’s present at that time.
Theo Hicks: I think the first point you made, about them getting used to the maintenance – I think something else that is important… We’ve kind of talked about this before, but having a conversation with at least a couple of the residents during the due diligence period, just to ask them (either directly or indirectly) how the current owner is approaching maintenance requests… Like, “Do you have maintenance requests that are outstanding that the owner hasn’t addressed for a while?”, because that’s one of the biggest issues in this particular situation, that the owner didn’t address any of the maintenance. So from the tenant’s perspective, once they have one issue addressed, like “Oh wow, this guy is on top of it”, so they keep sending more and more in… Which I guess is fine, but it gets overwhelming sometimes. But it is what it is.
Your idea of somehow — because some of them do send pictures, which is very helpful… But somehow automating it, so it’s all coming to one thing, versus one’s an e-mail, one’s a text and one a phone call. So those are my three major updates. I’m gonna talk about how my showing went the next week.
Joe Fairless: Cool, alright. Yeah, next week I’ll be in Florida for Unleash the Power Within, so we’ll pick up Follow Along Friday in two weeks.
For the Best Ever Conference, Terrell Fletcher is going to be speaking… One of our new speakers. You can go to BestEverConference.com and see all of the speakers. Terrell, for anyone who isn’t an NFL fan, then I will let you know he is a former NFL player. Typically, you see bigger guys make the NFL – and Terrell can kick my butt, but relative to other NFL players, he is smaller, especially for his position, which was running back. He basically had to create a niche for himself as an NFL player, and he did a great job of it for the San Diego Chargers.
He is now retired and he’s very inspirational when he talks. I don’t know if the interview I did with him has aired…
Theo Hicks: It did, it aired.
Joe Fairless: Okay, so you’re familiar with him then, Best Ever listeners. He’s gonna be speaking at the conference, and many others. If you haven’t got your tickets yet, then go to BestEverConference.com, or at least go there and check out all the speakers.
Theo Hicks: The last thing, we writing on a book… Do you wanna mention that today?
Joe Fairless: Yeah, we’re doing an apartment syndication book. Basically, a how-to guide from start to finish for how to do apartment syndication. That will be going live either this December or in January – to give us some buffer, right? We’ve got the outline, we’re writing the chapters, and we’re going to have a book that is much needed for everyone who is doing apartment syndication, because I know there’s not one out there that specifically addresses how to do an apartment syndication in the way that it allows you to pick it up and then actually follow the process.
Now, no book will cover all aspects of doing apartment syndication, and ours won’t either, because there’s always gonna be a grey area in every single deal… But whenever I was studying apartment syndication and I was looking for a book, basically a how-to guide, I didn’t find one. There’s some that nibble at the corners, but there is not one in my opinion that covers it from start to finish how it should… So that’s coming out.
To learn more about it, I guess you can go to ApartmentSyndication.com. Make sure you’re subscribed to the newsletter there, and you’ll be notified once the book goes live.
Theo Hicks: And finally, we’re gonna do our review of the week, so make sure you subscribe to this show on iTunes and leave a review. This week we’ve got James K. He said:
“I’ve been listening to Joe’s podcast for a while now, along with a bunch of others. The thing I would say about this podcast is that it’s absolutely filled with gold mines in terms of really good ideas about how you should be operating your real estate investing business. And if you’re not treating real estate investment as a business, then you should be. I listen to the concepts he exposes in the podcasts carefully, and even write some of them down. You can tell that doing monster deals and operating huge complexes are second nature to him, so he might very casually give you a checklist or advice on what you should be doing, but some of them could make or save you hundreds of thousands of dollars, so make sure you don’t miss them.”
Joe Fairless: Any of these tips that we talk about today or on other episodes, they could save you or make you a whole lot of money, that’s true; it’s just a matter of what you do with them, right? Nothing in life has meaning until you decide what meaning you give it. Our conversation is only interpreted based on how you choose to interpret it… So thank you, James, for that review.
Those reviews help because it allows us to continually get high-quality guests on the show, because they’ll go look at the reviews, see that we’ve got a loyal audience of Best Ever listeners, and then they’ll say “Yup, thumbs up. I’m in.” So thanks for listening. Theo, you’ve got anything else?
Theo Hicks: No, that’s it.
Joe Fairless: Thanks for listening, talk to you tomorrow.