JF2111: Going From Duplex to 89-Units With Brock Mogensen

June 13, 2020 | Joe Fairless | 00:20:23

JF2111: Going From Duplex to 89-Units With Brock Mogensen

Brock is 2 years into real estate and essentially started after seeing his dad owning 2 duplexes and how it can help with your income. His first deal was a house hack on a duplex and afterward, he saw the potential and took off running. Now he has a portfolio consisting of an 89-unit apartment, 20,000 sq ft of retail space, and 18,000 sq ft office space. 

Brock Mogensen  Real Estate Background:

  • Principal at Smart Asset Capital
  • Portfolio: 89 unit apartment, 20,000 sq ft of retail space, and 18,000 sq ft office space
  • Investing in real estate for 2 years
  • Located in Milwaukee, WI
  • Say hi to him at: www.smartassetcapital.com 

 

 

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Best Ever Tweet:

“Partner with people that lack your strong suit and vice versa because I think those are the best partnerships where each can complement each other” – Brock Mogensen


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners, and welcome to the best real estate investing advice ever show. My name is Theo Hicks, and today we’ll be speaking with Brock Mogensen. Brock, how are you doing today?

Brock Mogensen: I’m doing great. How are you doing, Theo?

Theo Hicks: I’m doing great as well, thanks for asking and thank you for joining us. Looking forward to our conversation. A little bit about Brock – he is a principal at Smart Asset Capital. He has 22,000 sqft. of retail space and 18,000 sqft. of office space. He’s been investing in real estate for two years, is located in Milwaukee, Wisconsin, and you can say hi to him at SmartAssetCapital.com. Brock, do you mind telling us a little bit more about your background and what you’re focused on today?

Brock Mogensen: Absolutely. I’m about two years into real estate, so somewhat new compared to the more seasoned people… But essentially, in a nutshell, I got into real estate after seeing my dad having on two duplexes. So on a smaller scale, he owned that and I just saw what it can do for your income. So I knew right away, as soon as I got to college, I’d save some money up, buy a duplex, and get going. So I did that about two years ago, I saved some money, bought a duplex, house-hacked it. After I did that, it really just opened up my eyes, like “Wow, there is massive potential in this space.” And from there, I kind of spent some time on “Which route do I wanna take? Do I wanna do the wholesale thing? Just accumulate a portfolio of single-family and duplexes? Do I wanna flip houses?” And I ultimately ended up on syndication.

From there, I kind of spent 6-7 months just really learning it, paying for courses, going to the events, reading books, podcasts, all of it… And just kind of spent some time really learning it. Specifically, I focused on the underwriting side. I come from an analytical background, so that’s where I thought I could provide the most value. So I spent some time learning that.

From there, once it came time where I felt confident, I kind of realized I don’t have the background, I don’t have the net worth, I don’t have any of it to be able to go out and buy these larger deals. So I did some networking, and ended up finding two partners that do have the experience and everything needed to get into it… Through the component of underwriting, the analytical side of real estate I went in where they lacked their knowledge in, and we created Smart Asset Capital.

After that duplex – it was about 6-7 months after that, where we ended up getting this 89-unit deal under contract, closed that… So that’s about a year ago now. Then from there I just kind of saw, based on — you kind of heard that I have some retail, and office in our portfolio… We kind of just came across those opportunities, and they made sense. Multifamily still remains to be our core, but we kind of took advantage of those situations, and now we kind of have different asset classes and are willing to pivot where we see right opportunities.

Theo Hicks: So you went from the duplex as your first deal, and then decided to scale up… And the next deal about 6-7 months later was a 89-unit deal, and you did it with two partners. Let’s go step-by-step and let’s focus on the partners first. How did you find them, and then how did that conversation go? Either they convinced you to come on board, or you convinced them to come on board and partner up…?

Brock Mogensen: Finding the partners was actually through Bigger Pockets. I’m just always on there, messaging people, networking… I had been meeting up with one of my partners a few times for coffee, and at the beginning stage we were always talking “We wanna go big”, and we were talking about it… And through those six months we kind of both had the same vision, and we were like “Well, we have the same idea. Let’s partner.” So us two partnered.

Then we came across the 89-unit deal and we realized we might be biting off more than we can handle. He had another buddy that already had a big portfolio, has a full property management in-house, the whole thing. So it was like “Let’s bring him on.” We did, and that’s what created the three partners in Smart Asset Capital that tackled that 89-unit deal.

I think that my first partner I had already kind of convinced, but the one that brought the experience to allow us to do that deal – I definitely had to do some convincing, because obviously I have a duplex, I don’t have a lot of cash in the bank to be able to get on the GP right away… My convincing came through the aspect of my corporate background and what I’ve kind of studied so far.

I consider myself strong in the side of reporting, underwriting, and then [unintelligible [00:07:13].18] most stuff that takes place behind the computer is what I like doing. So I handle all investor reporting, all that stuff. They saw the value in that, where they didn’t necessarily wanna do that side of it, or that wasn’t their strong suit, and they kind of saw the value in bringing me on. So that’s kind of where I found myself getting on the GP.

Theo Hicks: Okay, perfect. So there’s three people on the GP. It sounds like you focused on the upfront underwriting, and then the ongoing — I guess, in part, asset management, and investor relations…?

Brock Mogensen: Correct, yeah.

Theo Hicks: Okay. What do the two other partners do, and then could you tell us a GP breakdown? What percentages did you get, what percentages did the other two get?

Brock Mogensen: I’d say they both are definitely more heavy on sales. They both come from the sales background, so obviously that goes hand in hand with having a bigger investor database. That’s definitely where they’re strong. But I think different than a lot of other syndicators – we all intertwine our roles, we all put a hand in on asset management… Although I handle most of the reporting and KPIs on a weekly basis, we all kind of lend a hand there.

So I won’t say we have specific, defined roles and they don’t cross paths, but yeah, as far as their strong suits, they’re more on the sales side, and they’re able to bring in investors better than me. But yeah, I think that’s really what I’ve found, and I tell people – partner with people that lack your strong suit, and vice-versa, because I think those are the best partnerships, where you can each complement what others lack.

Theo Hicks: And how did you decide who got what percentage of the GP?

Brock Mogensen: We split it a third, a third, and a third. It was just real basic. We didn’t really [unintelligible [00:08:42].08] each other on that. We just split it 33.3% each.

Theo Hicks: Perfect. Do you mind telling us what your normal day-to-day is like as an asset manager? I think not many people focus on talking about that, so maybe getting in the nitty-gritty details… When you wake up on a Monday, and then you go to bed on Friday, what do you do in-between, work-wise?

Brock Mogensen: Yeah, great question. I agree, not many people talk about the asset management. That’s one of the most important things, I’ve come to learn. I think really on a weekly basis — we have a weekly call with our property manager on Monday night, and every Monday morning I put together an extensive KPI report, where we pull all of our information off AppFolio – pretty much everything you can think of that you wanna track on a weekly basis.

We recently hired a virtual assistant. Previously, I was handling creating that report every Monday. It only takes an hour or so to put together, if that… So I’ve kind of trained our virtual assistant and handed that off to him, so he runs that report every Monday morning, and it hits our inbox. We’re able to see all the KPIs.

And then on a weekly basis, what I will do is I will keep a running Word document each week… And as I’m always in AppFolio – every other day, pretty much, looking at the numbers, and going through there… And I’ll just keep notes throughout the weekly basis, like “Oh, this and this… I wanna ask our property manager about this.” And I’ll create an agenda. So throughout the week I’ll just tally up some notes, Sunday I put it together in a nice format, drop it in a Google box, our VA attaches that in the weekly Monday morning email, so right then and there on our Monday night call we go off of that email. We have our KPI report we’re reviewing, plus that agenda, and that’ll go through every topic that we need to talk about. From there I’ll take notes, and then just kind of ever-evolve and keeping that agenda going.

Theo Hicks: Are you doing this full-time, or do you have another job?

Brock Mogensen: I do have a full-time W-2 in marketing… So yeah, balancing both – it’s possible. I think it requires a lot of work. To my benefit, I’m a single man, no family, so I have more free time than most people… But I think that’s a lot of people’s limiting belief – I don’t have time/I have a full-time job.

When I got started – I’m working a full-time corporate job; at the time I was finishing up my MBA, so I was taking three classes at once for that… And I closed that 89-unit deal, all at the same time. So it’s possible. I think people that say “I don’t have time to do it” are just making excuses. If you really wanna do it and you’re set on it, you’ll make time to get it done.

Theo Hicks: Do you have a plan of what point you’d be able to quit that job, or do you plan on just continuing to work and doing this part-time?

Brock Mogensen: I go back and forth on it. I do have a cashflow goal; I think I kind of laid that out, what I wanna hit to be able to support my expenses and my lifestyle… So I think once I hit that goal, then I’ll kind of make the decision. But for now, I do alright. My corporate job – I’m able to have both streams of income coming in. It definitely helps to have that second stream… So I don’t have a definite plan as of right now. I think one day it is the goal, absolutely, but I think right now I’m just kind of taking it step by step and seeing how it goes… And if I can balance doing both right now, why not have two sources of income?

Theo Hicks: Perfect. Do you mind telling us more about that 89-unit deal? You and your first partner found the deal… Can you tell us how you’ve found it, and then what you bought it for, and what the business plan was?

Brock Mogensen: We found that one on LoopNet, actually. I actually saw it first come through off-market, from a broker; so it was from a broker. And we kind of had our eye on it; the price wasn’t right for us, and I kind of kept my eye on it. 4-5 months later I see it pop up on LoopNet. We stay in touch with the broker, we  were emailing him saying “Oh, what’s going on with this deal?” It happens to be that it fell out of contracts, and we kind of saw that opportunity. We were like “Let’s put an offer in at the price that makes sense for us.” We did, the seller was over it and wanted to just get rid of it, so we ended up picking it up for a discounted price, just purely from following up with that broker, knowing that it was under contract, but you never know what happens… So we did that.

We ended up picking it up for 3.55 million… So yeah, 89 units, in the Milwaukee, Wisconsin area, C-class. The value-add we saw on that — it wasn’t a huge value-add. Essentially, what we saw was expenses were ran super-high… So having the in-house property management has allowed us to not bring it down by a huge amount, but by a certain percentage point that over the long term we saw it as a value-add play.

Theo Hicks: And then what about the capital for that deal? Out of a four million dollar purchase price, how much money did you raise and then where did that money come from?

Brock Mogensen: Our total raise on that was 830k. We did agency debt on that. That was purely raised through private equity, mostly through my partners’ connections. We each raised a portion of it, and then we also bought 10% on the LP side, just because it kind of aligns our interests when we’re talking to investors. I’m personally putting an x amount of dollars into this deal, so I have vested interest, not just our free equity, you could say. So that’s essentially how we did it.

Theo Hicks: How much of that did you raise?

Brock Mogensen: Not much. Under 100k. It was around there.

Theo Hicks: Who did you raise that from?

Brock Mogensen: Just existing relationships. People I’ve met throughout the past few years at meetups, and stuff, a few family friends… So not necessarily a large amount of the raise, but my partner brought most of his connections for that.

Theo Hicks: Okay… So you got 89-unit deal, and then you’ve got 20,000 of retail space, 18,000 of office space… Is that one building, multiple buildings?

Brock Mogensen: Two different buildings. Those were both bought in the past couple months, and those were kind of just bought through my partner’s relationships. He has  a full-fledged brokership as well, so he was able to source those deals off-market, direct to owner.

Theo Hicks: How was the asset management different on the apartment versus the retail and the office space?

Brock Mogensen: The KPIs are gonna switch up a little bit. None of us are experts in either of those spaces, but we’re learning a lot around structures. We have triple net leases; that’s a great part of it that we were able to bake in, and we’re also learning more about how that works operationally.

The asset management – we’re doing the same structure, with weekly reports, weekly calls… But I think it’s still kind of ongoing, learning more about  both of those spaces. We just kind of saw an opportunity to pivot when cap rates are so low in the multifamily space. There’s obviously great deals out there; we actually have another one under contract right now… But I think we just kind of pivoted and saw a good opportunity there, against the risk, so we pulled the trigger on both of those.

Theo Hicks: Alright, Brock, what is your best real estate investing advice ever?

Brock Mogensen: I’d go back to just — if you have your mind set on wanting to get into syndication… I know there’s people who think you can’t do it, you have to have experience, you have to have this… I think my story kind of just goes to show that if you wanna do it, you can make it happen. I always tell people, the best way to do it, and just kind of going off of how I did it, is find one aspect of syndication — there’s many different aspects… Find one aspect of it and become an expert in it. Spend a lot of time just becoming an expert in that aspect, and then you’re gonna have to find partners if you don’t have the experience. Do like I did, find partners that lack that component, and just [unintelligible [00:15:15].24]

Theo Hicks: Alrighty. Are you ready for the Best Ever Lightning Round?

Brock Mogensen: I am.

Theo Hicks: Alright. First, a quick word from our sponsor.

Break: [00:15:26].10] to [00:16:18].15]

Theo Hicks: Okay, Brock, what is the best ever book you’ve recently read?

Brock Mogensen: I think the best one I’ve recently read — I’m reading “Trump Style Negotiations” right now. That one’s pretty good. It’s all about his attorney and different real estate deals he’s done, and how he’s negotiated them.

Theo Hicks: If your business were to collapse today, what would you do next?

Brock Mogensen: What I’d do, and what we’d kind of go in, especially going in the timing right now going in, we keep strong reserves, so I always make sure to have enough reserves on-hand to cover any uncertainty… So a big component is making sure you have the reserves in the bank to cover stuff.

Theo Hicks: What is the best ever way you like to give back?

Brock Mogensen: Right now it’s through education. I’m always available to get on a call with people that are looking to get into syndication. Any time people wanna ask question about it or are looking to get into it, I’m always willing to make time for that. In the future I do have bigger goals of giving back monetarily, but until I get to that point, that’s the way I’m giving back.

Theo Hicks: Okay, I’m gonna make this one up on the fly, and it’s gonna be about asset management… So what’s the one component of asset management that you think is the most neglected?

Brock Mogensen: Incorporating data. When it comes to asset management, the most important thing to me is data. You have to be able to first have the tools to access that data. That’s usually through a property management software. So if you’re hiring a property manager, make sure they have a system in place to where you wanna see real-time data, and then being able to take that data and incorporate it into models that display in real time your KPIs. That’s why I’ve kind of developed a KPI template on my website, actually, that people can access if they wanted to. But yeah, just being able to track on a real-time basis I think is the most important part.

Theo Hicks: Perfect. And that is at smartassetcapital.com?

Brock Mogensen: Correct, yeah. At that website you’ll see at the Education tab I have a few different eBook downloads, and that asset management template there for people to download.

Theo Hicks: Perfect. And then lastly, what is the best ever place to reach you?

Brock Mogensen: Through the website. That will prompt me to get an alert. Otherwise, my email is brock [at] smartassetcapital.com. I’m happy to talk to anyone.

Theo Hicks: Best Ever listeners, definitely take advantage of that one, whenever someone provides their personal email address. Brock, thank you for joining us today. You are a testament to the fact that you not only don’t need a lot of experience to get into syndication, but you can also do it while having a full-time job. I think those were the two biggest takeaways that I think the best ever listeners will get from this conversation.

Just to summarize our conversation – we talked about how you got into real estate because your dad actually owned two duplexes, and you saw what it could do for your income. So you got your first deal through a house-hack, so a great way to get into real estate is through house-hacking a duplex, which is owner-occupying it. You ended up moving on to syndication about 6-7 months later, after a bunch of education… And this goes into your best ever advice, because you focus specifically on underwriting. So find something about syndication that you can become an expert on, focus on that.

Then you found two partners that had a lot of experience but were lacking underwriting. So find your area of expertise, and find partners who lack that area of expertise. Then you talked about how you’ve met your two partners, how you met the first one on Bigger Pockets, and then you met him for coffee… Classic Bigger Pockets is reaching out to people and meeting them for coffee and finding a business partner or some sort of opportunity out of that, so I’d love to hear that. Both came across the 89-unit deal and decided to bring on a third partner, who had the experience with doing deals in the past. They had sales experience, they could also bring on the investors… And then you talked about how the GP is split a third each way.

You talked about what your week is like as an asset manager… So weekly call with the property management company every Monday night, you do your Monday morning KPI report, which is created by a full-time VA, and during the week you have a running Word document that you use to keep notes, with questions, to create an agenda for that call. Then we went into specifics about your 89-unit deal, the importance of continuing to follow up with brokers on deals that aren’t necessarily able to secure upfront. Then we talked about how the asset management is a little bit different for retail and office. You use the same structure, but the KPIs are different.

Brock, thanks again for joining us today. Best Ever listeners, thank you as always for listening. Have a best ever day, and we will talk to you tomorrow.

Brock Mogensen: Thanks, Theo.

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