JF1448: From Single Family Flips To A 40 Unit Syndication with Justin Fraser
Justin has been an investor for 4 years, but only recently went away from flipping homes. He decided he wanted to move into large apartment communities, and did it! If you want to do the same thing, hear what he did to complete his first syndication, so that you can do the same! If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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Justin Fraser Real Estate Background:
- Real estate investor since 2014
- In May of 2018 he closed his first apartment syndication, raising over $600k for the deal
- Based in Milltown, NJ
- Say hi to him at https://www.88realestatecapital.com/
- Best Ever Book: The Due Diligence Handbook
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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, Justin Fraser. How are you doing, Justin?
Justin Fraser: Hey, Joe. I’m doing great; really happy to be here.
Joe Fairless: Well, I am glad to have you on the show, and nice that you are happy to be here. Justin has been a real estate investor since 2014. In May of 2018 he closed on his first apartment syndication, raising over $600,000 for that deal.
He’s based in Milltown, New Jersey, and with that being said, Justin, will you give the Best Ever listeners a little bit more about your background and your current focus?
Justin Fraser: Sure. I started with a single-family rental, and got the bug of real estate investing from there. I formed a company, flipped a house, bought on a few more rental properties, and decided that it was too slow, honestly… So I decided that I wanted to elevate my game and my portfolio, and get into syndication. So we closed on this 40-unit this past May, and that’s my sole focus now – looking for the next property.
Joe Fairless: So you’ve got a 40-unit that you closed on… How much did you make on that 40-unit so far?
Justin Fraser: What do you mean?
Joe Fairless: How much have you made? What was your acquisition fee?
Justin Fraser: Oh, the acquisition fee was around 40k or so, 2% of purchase price, and I did have some other team members that I split that with.
Joe Fairless: Got it. And how did you find the other team members and what were their roles?
Justin Fraser: I had a mentor – you know Matt Faircloth; he is my mentor on this project, and really in all things… He guided me through this project, and in exchange gets a piece of the equity and the acquisition fee… But incredible, because he lends us credibility and experience to the project, so… Happy to have him aboard.
Also, another team member who helped to qualify for the loan. He and I negotiated he was gonna help personally guarantee the loan in addition to me, so he took part of the acquisition fee for that as well.
Joe Fairless: Cool. Well, you do what you need to do to get the first couple deals done, right? And then you figure out how to position things in the future… The 40-unit – you raised $600,000 for it… Where did that money come from?
Justin Fraser: That money came from my network. I run a REIA meeting in Princeton, New Jersey. I’m connected with a lot of investors, but not just real estate investors. It came from neighbors, family members, friends… Anyone and everyone that I could speak to about this deal, they heard about it… Probably to the point of annoying them, but that’s okay. I’m happy to annoy you with stories of the property I’m gonna purchase… And I even have my boss involved on this deal.
Joe Fairless: Wow. You are all-in, my friend.
Justin Fraser: Absolutely.
Joe Fairless: Where do you work — or no, we don’t need to know the company, but…
Justin Fraser: I work for a software company; I manage software projects.
Joe Fairless: Alright, you do software.
Justin Fraser: Yeah.
Joe Fairless: What’s your boss say about you doing this thing on the side?
Justin Fraser: He’s so encouraging… It’s really cool. He owns a few properties as well, so he gets it. We have a very great policy where they’re flexible with me at work, and… I take care of my job first; I have to, because that’s the income and that’s how I help qualify for this loan… And then the real estate is a night, weekend, and every minute in between type job.
Joe Fairless: Do you work from home?
Justin Fraser: I work from home about one or two days a week.
Joe Fairless: Okay. So that $600,000 came from any and everyone you came across – from the REIA, the neighbors, the family, the friends… Now, looking at it a bit more closely, the 600k – how much of it was from the REIA?
Justin Fraser: I would say more than half. Over 350k or so.
Joe Fairless: About 350k or so, okay. And how is the remaining 250k or so broken out?
Justin Fraser: I don’t wanna get into specifics with the individual people, but…
Joe Fairless: I’m not asking for people’s names; I’m wondering like family, or friends, or neighbors… Just categories.
Justin Fraser: No, just a little bit — one extended family members, a good chunk from a neighbor, and the rest just personal network, other people that I’ve known in life.
Joe Fairless: Okay, cool. How did you present it at the REIA?
Justin Fraser: Personal connections to people, people that I have already had a relationship with, and just started telling everyone, and re-telling — because a lot of people knew me already, so I had to essentially reintroduce myself to them and say, “Hey, (without standing up in front and advertising, or anything) I’ve got this cool property project going on, this cool property… Let’s talk.” A lot of people showed a lot of interest. But a lot of the investors have their own projects going on, and their funds are tied up in their own flips… So where I thought I might be able to just raise the whole thing through my network there, I didn’t quite get as much, because people have — of course, if you’re an investor, you’ve got money tied up in other projects.
Joe Fairless: And then following up on the last thing that you mentioned, the neighbor – what is their social security number?
Justin Fraser: [laughs]
Joe Fairless: Just kidding. Alright, so the REIA that you started – when did you start the REIA?
Justin Fraser: It’s something that had been in existence for a while, and I took over… So I took over managing this meeting over a year ago.
Joe Fairless: How did you come to take it over?
Justin Fraser: I started volunteering. About three years ago I started volunteering at this REIA. I was getting a lot of value out of it, and so I sat at the front desk and checked people in, and did sort of the grunt work of the organization, and just started making connections with people like Matt. Actually, Matt was running this meeting before I was, so… Making connections with the people that I knew were going to help my business in the future… By taking some grunt work off their plate and doing the things that they didn’t wanna do, like the paperwork and the check-in process.
Then an opportunity came up to help out in a larger role, doing some planning, and then eventually the opportunity came up to take over.
Joe Fairless: How did the opportunity come up to take over?
Justin Fraser: Well, I think that the person that was running it beforehand got really busy and had other priorities… So because I was project manager, as I told you, running an event is not a problem, and so I was there; I was the next person that people thought of, because I was always there helping out.
It’s a bit of work as well, but I volunteered because I see the long-term benefit in being the person at the front of the room, being the person that people see as the person that knows what they’re talking about.
Joe Fairless: Big less there for a lot of investors who are looking to do larger deals or raise private capital for their fix and flips, or whatever type of venture, that’s for sure.
Okay, so that’s how you got to 600k. It’s a 40-unit… What’s the business plan?
Justin Fraser: We are putting about $300,000 into renovating. Right now some of the units are as low as $150 below market, but the property is built in 1986, and most of the units have not been touched since… They are 32 years or older, so they all need kitchens, bathrooms, floors. The previous owner did a little bit of renovation on 10 of the units, so I would say 30 or so need the full renovation. Also, exterior work; we’ve gotta clean up the outside of the property.
It’s a C property in a C area, but it’s in an area that has rent growth, job growth, and you can actually see the path of progress coming down the road, about a quarter mile away, with a bunch of new commercial development.
So we’re able to capitalize on hopefully that, but that’s not in the proforma. The proforma is about getting up to market right now, and if the whole market elevates after that, that’s just a bonus for us.
Joe Fairless: Where is it located?
Justin Fraser: Portsmouth, Virginia.
Joe Fairless: Portsmouth, Virginia… How did you come across the property?
Justin Fraser: I came across this property through a broker… It’s a broker that I had met looking at a property a year ago. I had looked at some things that he had available, I didn’t love them, but told them “This is the type of deal I’m looking for”, I followed up, drove back down anytime he had something that he thought met my criteria. I just stayed in touch with him, and I did this with a lot of brokers in a lot of towns.
Eventually, this guy called me back and said that the seller had just listed with them, they hadn’t done their full marketing package yet, but it was pretty much exactly the type of deal that I was looking for. So he called on Thursday, and I was there on Monday, and just jumped on it right away, because it was exactly what I’d been telling him for 6+ months that I wanted to do.
Joe Fairless: What were you telling him for 6+ months that you wanted to buy?
Justin Fraser: I was looking for a 50-unit or more, so he missed the mark there, but I’m okay with that… [laughs] In the 2-3 million dollar range, where we could add value. I wanted a property that needed work. I didn’t want something that was turnkey, and I also didn’t want something that was in total shambles; I wasn’t doing a new construction, or anything like that.
I wanted it in an area that I thought made sense, in the Portsmouth, Norfolk – that whole area I really like. And we talked about price per unit and everything else, so when this deal came up, it hit pretty much every box.
Joe Fairless: How much did you buy it for?
Justin Fraser: 2,25 million.
Joe Fairless: 2,25 million. Okay, got it. And you’re putting in 300k, you’re looking to get a $150 rent increase… So that’s $7,500 per unit, so that’s a 24% return on your renovations, and you’re looking to exit in what period of time?
Justin Fraser: We have a five-year note right now… So I’d like to refinance; I expect that we should be able to get between 80%-100% of our investors’ money back when we refinance in five years.
Joe Fairless: Is that what you projected to them?
Justin Fraser: That is, yeah.
Joe Fairless: Really? You projected that you’re gonna get 80%-100% of their money back?
Justin Fraser: Absolutely.
Joe Fairless: In how many years?
Justin Fraser: In five.
Joe Fairless: Oh, in five. Sorry, I was thinking in two, on a refinance.
Justin Fraser: It’s a five-year note right now, so we’ll hold for the five years, do our renovations, and then do a refinance in five years.
Joe Fairless: Okay, I’m with you. And the challenge that you’ve come across – that you weren’t expecting, since you’ve closed about three months ago – is what?
Justin Fraser: Every day there’s a challenge, of course. We’ve got a good property management team and contracting team doing their work… We’ve renovated a few units and we are showing them, but people are not applying.
I don’t think we’re over-priced on the rent, but I think that the exterior of the property — I think I undervalued how quickly we needed to do that renovation. There’s trash, it’s a bit of a mess, there’s trees over-growing… We didn’t have big lighting at night, so it was just dark… I did not expect that, so we’re accelerating the exterior renovation work, so that we can make it a cleaner, better place to live, and then we expect we’ll be able to fill those units.
Joe Fairless: How did you pick your property management company?
Justin Fraser: I started with Bigger Pockets, asking for recommendations from other people… And then back in last July, when I started looking at properties, I brought each property management company out to a different property, and had them walk through the properties with me… It was basically a walking interview, and I would get their feedback and opinion on the property; I wanted their opinion on how they were going to manage it, where they thought we could trim expenses… They would look at the T-12’s and give me feedback on that… Essentially, it’s like an extended interview for each property manager at a different property.
Joe Fairless: How many did you do that with?
Justin Fraser: Three.
Joe Fairless: And what were some answers that you got to your questions with one you didn’t hire?
Justin Fraser: Well, no one really had bad answers. I didn’t find anything that was a total deal-breaker. But the team that I ended up picking, they had 350 units or so, so this 40-unit would be a significant portion, whereas some of the others that I had interviewed had thousands under management, and I wanted to feel like I am important, and I wanted to feel like I could get that personal level of attention, because I know that I’m gonna have a lot of questions and I know I’m gonna require lots of updates because of my first time through… So that’s ultimately why I picked this company.
Joe Fairless: What was the largest property that they managed within the 350 at the time?
Justin Fraser: 24, I believe.
Joe Fairless: What gave you the confidence that they could manage a property almost twice as large as anything they have ever managed before?
Justin Fraser: I spoke to a few of their current owners, and the people that they’re managing for, and a lot of it for me is personal connection and conversation and plans around this, and I feel like they are a company that is set up for growth, and I like their style, and I’ve really felt a strong connection with them. And honestly, like everything, we’ll try it out, and if something doesn’t work out, then we’ll do what’s best for the business and make a change, but… I feel very good about this decision.
Joe Fairless: On the challenge that you’re working through a solution on now – they’re showing, but the residents aren’t applying… How much of a factor of that do you attribute to the property management company?
Justin Fraser: That’s a great question. I think the renovations need to happen first. I think that the property itself is just not there. Maybe another management company could bring some tenants in at a lower rate, or maybe slack on the qualifications, but we’re not giving in on credit scores or income requirements… We’re staying firm to that.
We just have to bring our product up to something [unintelligible [00:14:18].18] will be interested in renting out.
Joe Fairless: Is that something that the management company says “Hey, Justin, we’re showing, but these potential residents aren’t applying, so we recommend XYZ”, or are you seeing the numbers and you’re like “Wait a second everyone, what’s going on? Should we do this or should we do this?”
Justin Fraser: It’s an open dialog. We meet every Friday and talk about everything that’s happening, and we have conversations more frequently if needed. Together we’ve been seeing it, and I’ve been at the property every 3-4 weeks, so we have a good working relationship… So it’s just a natural question, because units have been sitting there for a few weeks, so that’s just something that we’ve been focusing on and talking about together.
Joe Fairless: How do you structure those Friday conversations with your management company?
I actually have the manager and the contractor on at the same time, because there’s so much happening in both aspects… So we talk about the tenants that have not paid, or problem-tenants first. When we closed at the end of may, we had a few tenants that did not pay June’s rent. It’s natural, I guess, to expect. They’re testing us.
So we finally just have gotten through our eviction and got a few of those units back. Two months, not too bad on the timeline there. So we talk about status of tenants, any problems that they’re having, anything that I need to know about. We talk about the current plans for renovation, we talk about anything going on with the area, anything that I’m not seeing… I get news alerts, and weather alerts and anything like that, but they’re keeping me up to date as if I’m there, so I know a full picture about the property.
Joe Fairless: A lot of people want to scale. You started with single-family rentals, you flipped a house, as you mentioned, you got a few more rentals, and then boom, you went to a 40-unit. You raised more than half a million dollars. What do you think is it about your or your personality or your approach that got you to the next level, whereas others don’t get there, they just think about it?
Justin Fraser: I think it comes down to making a plan and taking action. I manage projects every day of my life, for my day job, and this is another massive project, but the difference here is that it is tied to my Why and my reason for wanting to do it; it ties back to my family and my wife and my son… So I just have this drive where I knew that I need to scale up because of the life that I wanna be able to provide for my son and my wife, and that just fuels me.
In those days where you’re stressed and just having a terrible day and you think the deal’s gonna fall apart – we’ve had many of those… That’s what keeps me going and that’s what gets me back on the phone, or following up, or doing that paperwork that I had been putting off… Because I tie it directly – if I do this, then I will get the life that I wanna have for my family, and I just keep that at the top of my mind.
Joe Fairless: It’s beautiful. Absolutely beautiful. You mentioned there were multiple days where the deal was falling apart and you had to remind yourself… What’s a specific instance of a day when that happened? You don’t have to tell me the day obviously, but what specifically happened on a particular day where the deal felt like it was falling apart?
Justin Fraser: I was almost done with my capital raise and almost done with the study period, where the deposit was about to become non-refundable… And I had an investor call me – he was in for $100,000; he had not wired his money yet, but he had verbally committed, and he had a project that was going sideways and he just was not feeling comfortable putting money into this deal, because he thought he might need it for something else…
So I was 4-5 days away from my deposit becoming non-refundable, and I was like “Am I even gonna be able to raise this money anymore?” Everything was crashing down and I remember just sitting there, my head was in my hands, I’m like “What am I going to do?” It was really tough, because I was at the end of all my extensions. I’d gone through everything, and I knew the seller wasn’t happy about all the extensions I had used, but I went back to him and I said “I need another one that’s not in our contract…”
Joe Fairless: [laughs]
Justin Fraser: …which he did not take very well. I had to negotiate and I gave him an extra percent of the purchase price; we had originally been under contract for less, and I added a percent in exchange for a 30-day window.
Joe Fairless: How much was that?
Justin Fraser: 18k, or something like that.
Joe Fairless: 18k. And how much more time did you have?
Justin Fraser: I got an extra 30 days, and that’s all I needed. I just needed the deposits to not go non-refundable. It was a lot of money that I didn’t wanna put on the line if I wasn’t 100% sure I was going to be able to raise the rest of the raise… It was incredibly stressful, but all I needed was that 30 days. I had other people lined up, they just needed a little more time to get over that finish line.
Joe Fairless: Wow… It’s such a good story. I’m so grateful that you’re on the show… What is your best real estate investing advice ever?
Justin Fraser: Great question… I think my advice is to have the people around you that can answer the questions that you have… Because no one knows everything. If you can establish a network of people who can make connections with you or answer those questions when you’re stressing out late at night or whatever it is, you’ll be able to get through it.
Joe Fairless: I completely agree, especially in this business… With real estate investing even more so, and apartment syndications; there’s so many nuances and it’s so important to have some people in your corner.
Justin Fraser: We’re gonna do a lightning round… Are you ready for the Best Ever Lightning Round? First though, a quick word from our Best Ever partners.
Joe Fairless: Okay Justin, what’s the best ever book you’ve recently read?
Justin Fraser: The Due Diligence Handbook is something I was reading right before I was doing due diligence, and that really helped me through the process.
Joe Fairless: It’s a great book.
Justin Fraser: It was very helpful as I was going through that process as a first-timer.
Joe Fairless: Best ever business decision you’ve made?
Justin Fraser: Bringing on a mentor that could give me the credibility and guidance through my syndication process.
Joe Fairless: Best ever deal you’ve done that we have not talked about already?
Justin Fraser: My very first deal. It was a single-family property, it was cheap, it was in Trenton… I’ve had a ton of problems with it, but it gave me that taste of cashflow and it gave me the excitement of real estate investing, and I’ve learned so much from it and that’s what set the foundation for everything else.
Joe Fairless: What’s a mistake you’ve made on a transaction that we have not talked about already?
Justin Fraser: I’ve let tenants go way too long without payment, thinking that I could just collect their late fees, and then all of a sudden the late fees don’t come in and you’ve got months without payment, and then you’ve got an eviction, so… You can’t be too lenient with those tenants. You’ve gotta stay on top of them.
Joe Fairless: Best ever way you like to give back?
Justin Fraser: Help out through that REIA. I spent a lot of time helping new investors; I have a few students that I coach and just help them get their first deal. I think that everyone should be a real estate investor, and I just try to help as many people as I can do that.
Joe Fairless: Best ever way the Best Ever listeners can get in touch with you?
Justin Fraser: My website, 88realestatecapital.com.
Joe Fairless: Justin, thank you so much for being on the show. I loved talking to you about your first syndication, how you raised $600,000… You were volunteering at the REIA three years ago, and at first you were working the desk, doing some administrative stuff, then you started planning the events, and then when there was an opportunity for you to lead the REIA, you stood up and volunteered your services, and as a result, when you were looking to go larger, you brought $350,000 from that leadership position, or as a result of that leadership position and all the time you had put into it years prior. It’s certainly a lesson for many investors.
I mention all the time, if you have time to attend a meetup, then you have time to create one. In your case, you attended but then you volunteered your time and maximized the amount of value that you’d get from attending… So either way, you either create one or you just volunteer – you maximize while you’re there.
Then some challenges you’ve had with the 40-unit, solutions that you have in place, and challenges you had getting the deal to the finish line with the equity raise, and going back to your reason why… And I can tell when you talk about your reason why, you say it with conviction, that’s for sure, and that’s the type of conviction that you had whenever you were going through the process to get this deal done… Really cool to hear this.
Thank again for being on the show. I hope you have a best ever day, and we’ll talk to you soon.
Justin Fraser: Thanks a lot, Joe.