JF1301: Starting & Operating An Asset Based Investment Fund While Building A Rental Portfolio with Jeff Wallenius
Jeff started as a flipper on the side while also being a professional firefighter. Realizing that flipping didn’t align with his cash flow goals, He started funding out-of-state turnkey providers. Jeff is also working on his own rental portfolio and has aggressive goals for how many units he wants to own. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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Jeff Wallenius Real Estate Background:
-CEO of North Peak Investments, an asset-based investment firm
-Professional firefighter who began flipping houses in 2005
-Started an investment fund in 2015 funding out of state turnkey operators, Fund #2 in 2017 funding flips
-In 2013 he began flipping 10-12 houses per year
-Currently building his rental portfolio with goal to get to 160 doors by May and 1000 in 4 years
-Say hi to him at http://www.northpeakinvest.com/
-Based in Portland, Oregon
-Best Ever Book: The Legacy Journey
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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. We only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Jess Wallenius. How are you doing, Jeff?
Jeff Wallenius: I’m good, Joe. I appreciate you for having me on.
Joe Fairless: Well, it’s my pleasure, nice to have you on the show. A little bit about Jeff – he is the CEO of North Peak Investments, which is an asset-based investment firm. He is a professional firefighter who began flipping homes in 2005, started an investment fund in 2015, and in 2013 began flipping between 10-12 houses a year; currently building his rental portfolio with the goal of getting to 160 doors by May and 1,000 in four years. Based in Portland, Oregon… With that being said, Jeff, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Jeff Wallenius: You did a great job there. Like you said, professional firefighter – I’ve been in the fire service for 17 years, third generation, so I’ve been in the blood… I started flipping houses in 2005; I had a construction background, so I’d start do all the work myself on those houses [unintelligible [00:03:26].01] and all that stuff… I finally figured out that that was the wrong way to do it, and I started paying contractors, and that’s kind of when we ramped up in 2012-2013 and started doing a little bit more volume.
From there, flipping is great, and I enjoy flipping houses. The problem is when you stop flipping houses, you stop making money. I wanted to build that generational wealth, so I started looking at rental properties and I started researching turnkey… That was a new concept for me, and I started looking across the Midwest. It’s hard to make anything work here in the West Coast cashflow-wise, so I wanted to find other areas that made sense to jump into that buy and hold strategy. I did a bunch of homework, and lo and behold, I came across a gentleman here locally that was funding a lot of these turnkey providers. He said, “Hey, why don’t you build an investment fund with me?” Well, I’m dumb enough to try anything, so let’s give it a shot”, so that’s when we built that investment fund out of the first investment fund that I put together.
We put that together, we started funding a lot of these turnkey providers, and that opened up a lot of opportunities and relationships, and I started really seeing the opportunities that were in the Midwest and South. Flying out there, meeting these teams on the ground, meeting these partners… From there, it progressed into building those relationships out further, finding a business partner locally that had a lot of strengths that I did not have as far as marketing, and some business acumen. So I teamed up with my business partner Grant in 2015, and we thought “Well, let’s create North Peak Investments.” That created North Peak Investments.
We started another investment fund and right now we’re working in the Midwest primarily (Midwest and South), we’re flipping houses… We’ve got some investors on board with our investment fund, things are going great, I’m building up my rental portfolio, and… That’s a quick overview, I guess.
Joe Fairless: Help me understand the process, and in particular the first one… What did you bring to the table and what was the fund around? I thought I heard you say “funding turnkey providers” – if you could clarify that.
Jeff Wallenius: That’s a good question. So the first fund that I put together was — actually, it’s named Firefund; I sat with a bunch of my brothers and sisters in the firefighter department, sat across a coffee table and had a bunch of speeches that I gave them and said “Hey, here’s what we can do with your money. We’re investing in the Midwest”, and luckily, having 15 years in my current department, I had that trust level that we carry in the fire service, so going out and raising money – I wouldn’t say it was easy, but they had a trust level and a comfort level with me, with my background with flipping.
With my business partner in Lake Oswego that I had formed that relationship with we started funding a lot of these turnkey providers. We would provide the money to have them buy their properties and fix those properties and get them turnkey ready. Then they would go off and market those to the end buyer.
Joe Fairless: Okay. You would provide debt financing to the turnkey providers.
Jeff Wallenius: That’s correct.
Joe Fairless: And what were the terms that you’d give them?
Jeff Wallenius: Oh, expensive. Our money were expensive for them. I’m not gonna give the full details on that, because that was my business partner in Lake Oswego, I’ll let him jump into that, but… Our money was expensive. The reason why these turnkey providers used our money is because it was easy, and there was no monthly payments on accrued interest, which with these guys and gals that are doing high volume, that’s really a big deal, so it made sense for them. It provided a great return for our investors, and the model is still intact today.
Joe Fairless: Okay, so that was your first fund, providing turnkey providers money to then they go operate their business, and that’s still in existence. What is your second fund that you have now?
Jeff Wallenius: The second fund that we put together is jumping in through the SEC guidelines as a 506(c), and the 506(c) allows us to flip properties. We’ve got properties we’re flipping in several different regions, so that provides that financing for the purchase and rehab with those funds. I started looking at syndicates, and syndicates are great, and there’s different ways to run those, as you know, as apartments, or doing a big buildout… What I wanted to do was do something with single-family, which kind of changed opportunities for investors to be involved. It spread out risk for us, as we were doing multiple projects, and the timelines in the single-family are obviously a lot quicker than doing a large play on an apartment reposition or buildout.
Joe Fairless: Okay, so you’re doing flips across the country. How many markets are you in?
Jeff Wallenius: Right now we’re in three primarily.
Joe Fairless: Which ones?
Jeff Wallenius: Indianapolis, Jackson, Mississippi and Oklahoma City, Oklahoma.
Joe Fairless: Okay. How the heck did you pick those three?
Jeff Wallenius: [laughs] Great question. Basically, partners on the ground that I had met with this first fund that I put together, and spending time and really vetting out those areas, vetting out those partners is really where it started. Then knowing those areas and knowing the economic factors and driving factors behind those markets is really where we started. But really, it all comes down to your team on the ground, that’s really where everything is made and lost, really. I would say our partnerships have been the main factor there.
Joe Fairless: And going back to the first fund, why did the person who had the money partner with you? Maybe I misheard you, but I thought you said that there was a person who was already doing financing, and then they partnered with you to create the fund, but maybe I misunderstood you or didn’t hear that right.
Jeff Wallenius: That’s a good question. They were already funding a lot of these turnkey providers, had great relationships, had a long-term track record of investing in real estate… They invested with me or partnered with me. They didn’t have a fund; what they would do is bring in large investors on a one-off basis, so… I don’t know why he took a liking to me, that makes no sense to me. He didn’t need me, but I guess I wooed him with my charm and wit… That’s a pun there. A bad one, at that.
He just gave me an opportunity; I guess I bugged him to the point where he said finally “Why don’t you build a fund?” I think he probably thought that I wouldn’t put that together or be dumb enough to try it, and I definitely am dumb enough to try it, so… I guess I fooled him.
Joe Fairless: Okay. If I were to ask him that question, what’s your best guess that he would say, the business reason why he partnered with you?
Jeff Wallenius: I had a background obviously in real estate, and over 35 flips here locally. I think hard work, motivation… I bugged the heck out of him. I said “Hey, let me come right along with you, let me come sweep your floors or make your coffee…” I think he saw that I was serious about doing what I do and wanting to learn, and being teachable I think really is a factor today that those investors look for, and those people that have been there…
I mean, I’m in that now, that I’m finding those teammates that really are driven, and finding those people that you don’t have to drag. I don’t wanna drag anybody along in my company, but if I can find those that every now and then I have to pump the brakes on, and they’re out there driving and building out their own systems and their teams, and they have a vision for where they wanna go, I think those are the people you wanna partner with. Selfishly, I think that’s what he saw in me, and I’ll take it.
Joe Fairless: What was a learning experience , just any one learning experience that you got from building out that fund, the first one?
Jeff Wallenius: I think I had no idea the opportunities that were in the Midwest and South, so that was a real eye-opener, traveling out there and meeting these partners on the ground and driving through these projects and seeing these projects and seeing the land cost and the taxes… Growing up on the West Coast – I’m a born and raised Oregonian – it’s a whole new world, and I had no idea that that existed out there, and that those opportunities existed, so I think that was the big learning piece for me, really opening my eyes to being able to invest outside of my little bubble here in Portland, Oregon, and that this whole (for lack of a better term) world was opened up to me, investing-wise. I think that would be paramount for me.
Joe Fairless: What were your specific responsibilities with the first fund?
Jeff Wallenius: I was the liaison between my investors that I had brought into that investment fund and the partner here locally that was deploying the capital. I would maintain all the accounting, I would maintain all the information that was generated through the fund as far as what projects that we were investing in, the details on all that; I would relay that information to all of my investors. And the key was transparency on that. My investors had access into all the files, they had access, looking privileges to the bank accounts…
Being in the fire service and having to sit down across the table from these guys and gals that were investing with me and having coffee, I needed to make sure that everything that we did was transparent. That’s what my role was.
Joe Fairless: Got it. And just so I’m understanding the terms, you said “Liaison with the investors on the ground (so the firefighter people) and the partner locally deploying the capital”, so that would be the turnkey property management people?
Jeff Wallenius: That was the partner here locally that had all the relationships, that was deploying the capital to the turnkey providers.
Joe Fairless: I’m trying to understand – who’s deploying the capital? It sounds like both of them are deploying capital, both of them are investing – the firefighter friends and the partner locally.
Jeff Wallenius: Yeah, I’ve got this thoroughly confused for you. So my firefighter friends would invest in my investment fund, and then I would work with my partner here locally to determine where to deploy those funds, to which turnkey provider.
Joe Fairless: Oh, okay. Got it. Firefighter friends invest in a fund, like a blind pool, basically, and then you would consult with your partner locally to then decide where those funds go, to which turnkey provider?
Jeff Wallenius: You got it, yeah.
Joe Fairless: I’m with you, cool. The fund you have now – what is your responsibilities?
Jeff Wallenius: My responsibilities now is more of a ground operation. So I coordinate with our ground partners. I’m coordinating every day, I talk to my ground partners every day, for multiple hours a day, and we talk about projects that we have currently going, and how those are going, where we’re at in the process…
I also talk with my ground partners to see what upcoming projects we have coming down the pipe and what capital outlays are gonna be required for that, and then working with my business partner who is raising the capital along with myself, and just making sure that we coordinate having the funds readily available, and as we bring in more money, that we have projects readily available to allocate those funds. So a little bit of everything there, but my main role is dealing with the ground partners in the projects upcoming.
Joe Fairless: How have you learned to evolve your qualification process for a ground partner?
Jeff Wallenius: I could probably spend half an hour talking on that alone. The major thing for us is having the same moral compass that we (Grant and myself) have. That’s really important. I think that is really vetted by determining when things go poorly or not the way that they were supposed to go, how does the ground partner react? I think anybody is easy to work with when things are going great, so as we work through processes and we work through deals, and maybe a project goes the wrong way and it loses money – I mean, it’s real estate, so those things do happen – it’s really seeing how our ground team reacts to that; that’s really important to us. We wanna make sure that we’re aligned with like-minded individuals and really that core piece of us is having that same moral compass. Doing the right things when it’s hard.
Joe Fairless: How do you qualify that, or determine that before something poorly happens?
Jeff Wallenius: You can’t really, other than taking them for their word, especially when you’re just starting off, I think that’s a difficult piece. If you’re opening a new market and you’re trying to find a ground partner, you really have to take them for their word… But we ask all those questions, “What happens when something goes south? Can you share some experiences, one that has actually happened for you and what you did?”
We have a very important fiduciary responsibility to our investors, so when things go South, we wanna know how our ground team operates. As we move through the process and we start moving through deals with these ground teams, we make sure that we’re constantly aligning with them and have that same mindset. But really, it all comes down to when something does go south, how they react, and then we kind of move from there.
Joe Fairless: How do and how don’t you want them to react when something goes the opposite of what you expect?
Jeff Wallenius: Well, our mindset when something goes south is that our investors don’t lose money. We need to make sure that our investors’ capital is preserved… So when something goes south, as we’ve done before, we pay out of our pockets to make sure that it was made right. If we have ground partners that share that same sentiment, then we’ve got something good there. That’s exactly who we’ve aligned with now; we’ve had a couple that have gone south, and that’s exactly what’s happened – we’ve all reached into our pocket and made it right for our investors and we’ve moved on.
If we had somebody that had backed down on that concept and wouldn’t share in that same idea, then that’d be a problem for us.
Joe Fairless: What is your best real estate investing advice ever?
Jeff Wallenius: Really my focus is not on money, and I think if I could relay any advice, it’s don’t focus on money, don’t focus on profits. If you really focus on providing a service and helping others achieve what they want to achieve… I don’t wanna go off on a long spiel on here, but for example, if you’re trying to buy a flip property and the seller is motivated to sell, determine why they need to sell, what do they need out of this? Versus going in and say “Hey, I need to buy it for X amount of dollars”, determine what the seller needs – maybe they need cash right away, or maybe they need monthly payments, or maybe they just need to get out of their payment. If you figure out that you can help people through this process, everything else falls into place. So don’t focus on money, don’t focus on profits, focus on helping others achieve their goals, and really everything else falls into place.
Joe Fairless: You mentioned an example with a flip and why they’re looking to sell and what do they really need… Are there any other types of questions that you ask? It sounds like you’re a couple levels removed from talking directly with sellers on fix and flips, but maybe with your investors or something like that, so that you’re asking the right questions so that you can be in a position to help others get what they’re looking for.
Jeff Wallenius: As far as investors go, is that what you’re asking?
Joe Fairless: Yeah, investors, or whoever you’re generally working with to accomplish that.
Jeff Wallenius: Yeah, all across the board. With investors the same thing applies – what is an investor looking for? Some people are looking to own real estate, and they wanna own those rentals and those buy and holds, and really in that scenario I wanna be able to provide transparent advice on not only turnkey, but owning real estate, so that people have realistic expectations when they get into owning real estate.
Some investors just wanna have a passive return, and that’s it. Some investors are very well off, and they’re not necessarily worried about the returns, they just don’t need to lose money. You just kind of have to determine where each investor lies, what their situation is… I always love getting in front of people and having a sit-down conversation; obviously, that’s not always possible, because investors are all over the place… But really feeling what their scenario is, learning more about them, what drives them, kind of what their situation is, and from there you come up with a solution and a game plan that works best for them.
Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?
Jeff Wallenius: I’m ready.
Joe Fairless: Alright, let’s do it. First, a quick word from our best ever partners.
Joe Fairless: Best ever book you’ve read?
Jeff Wallenius: The Legacy Journey, Dave Ramsey.
Joe Fairless: Best ever deal you’ve done that wasn’t your first, wasn’t your last?
Jeff Wallenius: Man, I’ve had a lot of good deals. I would say the most unique deal for me is the — recently we bought a house and got a free church.
Joe Fairless: Will you elaborate on that, just so we understand how that happened?
Jeff Wallenius: Well, I could run it the other way too, we bought a church and got a free house. The church owned that property, and it had a house that was adjacent to it that they were selling as well, so… Basically, the purchase price allowed us to buy one, fix it up, and sell — right now we’re doing a remodel on the church, so sell the church and [unintelligible [00:20:47].16] free house.
Joe Fairless: What’s a mistake you’ve made on a transaction?
Jeff Wallenius: We invested in a horse training facility in Oklahoma City. It kind of went south, we ended up owning the property, which has been a learning curve for my business partner and I to figure out all the horse terminology, and training, and the track speak, and become horsepeople. That’s probably been the worst deal, but it’s starting to turn around and become a pretty interesting deal.
Joe Fairless: Best ever way you like to give back?
Jeff Wallenius: I really like giving back my time. I’ve had a lot of people that have helped me through the years as far as advice and taking me under their wing to learn about real estate, so I like doing the same thing. I’m more than happy to talk with anybody that’s looking to get into real estate, providing transparent advice on the pros and cons to every side of this thing and making sure that they know what they’re getting into, and helping any way that I can in that scenario.
Joe Fairless: And how can the Best Ever listeners get in touch with you and learn more about your company?
Jeff Wallenius: Our website is NorthPeakInvest.com, we’re on all the social media – Instagram, Facebook… And my e-mail, email@example.com would be great.
Joe Fairless: Well, Jeff, thank you for being on the show and talking about how to you got going, and thank you for doing what you do for the last 17 years as a firefighter first and foremost, and then talking to us about your approach, how you built a relationship with the local person who had the money, and if he perhaps were to be asked that question about why he partnered with you, he would say that you had the local experience, you worked hard, you were persistent, motivated, teachable, and saw that you were serious about doing what you say you’re going to do.
I love the analogy… That can be applied to anyone who’s building a company – you want to have to pump the breaks on people, versus dragging them along. You might have said “driving them along”, but I said versus dragging them along… It’s an analogy that plays well with any business. And then the evolution of how you’ve built your partners in the local areas, with picking the right partners based on what your mission is and the approach you take.
Well, thank you sir for being on the show. I hope you have a best ever day, and we’ll talk to you soon.
Jeff Wallenius: Alright, thanks a lot, Joe, for having me on. I really appreciate it.