JF2344: W2 To Syndicator With Elisa Zhang

Elisa Zhang is the owner/principal of 1000+ unit apartment buildings via 1031 exchange and syndication. After quitting her day job to invest in real estate full-time, she is passionate about teaching others to do the same. She now focuses her time and expertise on helping typical nine-to-fivers to quit their job in 10 years or less.

Elisa Zhang Real Estate Background:

  • Quit her W2 in November 2019 to go full-time into syndication and education
  • 11 years of real estate experience
  • Portfolio consists of 8 properties as a general partner and over 1,000 units in Phoenix & Dallas.
  • Also passively invest in an additional 1,000 units
  • Based in Seattle, WA
  • Say hi to her at www.ezfiuniversity.com 

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Best Ever Tweet:

“Get out there and do it” – Elisa Zhang


TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless. This is the world’s longest-running daily real estate investing podcast, where we only talked about the best advice ever. We don’t get into any of that fluffy stuff. With us today, Elisa Zhang. How are you doing, Elisa?

Elisa Zhang: Doing good. Thank you so much, Joe, for having me on here. Big fan of the show.

Joe Fairless: Well, I’m glad to hear that, and I’m grateful that you’re on the show. Elisa quit her W2 in November 2019 to go full time in syndication and education. She’s got 11 years of experience in real estate. Her portfolio consists of eight properties as a general partner, that’s over 1,000 units in Phoenix and Dallas. She also passively invests in an additional thousand units, and she is based in Seattle, Washington. With that being said, do you want to give the Best Ever listeners a little bit more about your background and your current focus?

Elisa Zhang: Sure. So I grew up in China actually, and then moved to Canada, and then moved to Seattle, and landed a tech job, as a lot of our Seattlites are. And from there, we invested using our savings into single-family to start with. We very quickly figured out that we should be doing a cash flow game instead, and moved into multifamily space, self-managed, fourplexes, etc. to start with, and then moved into larger multi-family from there. So that’s kind of a little background on me.

Joe Fairless: Okay. What was your last W2 position?

Elisa Zhang: My last W2 position, it’s the same as it has always been for 13 years. It’s a product manager position or program manager position in a high-tech company.

Joe Fairless: And what were you doing exactly?

Elisa Zhang: Oh, so I was responsible for strategic thinking about where the product should be going after. But it’s also a technical background, so I have a computer engineering background, and I basically [unintelligible [00:04:46].09]  work basically, making sure that my vision is realized on a much smaller scale. And that was a little bit painful, because as you kind of move up more to a senior position in a large corporation, politics kind of get in the way. So 80% of my time, I feel like it’s not serving the customer in the best interest. Also you’re just kind of working in the corporation world… Which is why I kind of started doing real estate, doing a side business… Because what you create when you’re becoming your own boss, you see that direct impact. So that is super-exciting for me, versus kind of grinding in a nine to five.

Joe Fairless: The skills that you used in your W2, what skills have you found that you’ve used the most in what you’re doing now?

Elisa Zhang: I think it actually transitions very well, and I was just about to write an article about that… The project management skill actually translates fantastically into real estate. Because we also know – and Joe, I’m sure you know, when you have constructions, when you have lease-up, all these steps that you’re doing, there’s a lot of follow-ups. There’s a lot of driving everybody to make sure everybody’s on the same page, not rolling all over the places. So I think that skill is very helpful in terms of asset management, as well as raising money. Because when you’re raising money, you’re coordinating with hundreds of people, like you’re doing. That requires a lot of herding cats per se. So that skill set, it was really helpful.

Also, the strategic thinking part was really helpful, in terms of just being the boss of your own company; then you kind of have that vision of where you want to go. So all in all, I was kind of surprised when I transitioned kind of over. I was like, “Wow, my W2 job kind of paved the way to what I do now, even though it’s a completely different career path.”

Joe Fairless: And it’s one thing to understand, “Yes, my skill set translates from W2 to entrepreneurial syndication, real estate investing.” It’s another to tactically see, “Here are some things that I’m doing, that others aren’t doing, because I have the skill set.” So what are some examples of some tactical things that you do that perhaps others don’t do (but they probably should) because they don’t have your skillset?

Elisa Zhang: Using technology, I would say… Because in a high tech software company, there is — I’m not sure if our listeners are familiar with this; it’s a method called Agile methodology, which is you’re basically dividing up developments into small, short cycles. Some are one week, some are two weeks. The idea is that you’re scoping the work so that it can get done within that week, and then making progress moving forward.

That skill set was really helpful in terms of applying the Agile methodology in project management, in constructions, in self-management. And actually, I’m glad you asked this, Joe… Recently, we’ve been using some of the software programs I have been using when I was working in high-tech. Asana is a project management tool, and we’ve been using it. And Slack, in terms of communication with team members, and also just kind of evaluating softwares to make the running of the project a lot smoother.

There’s another program that we usually now use, it’s called Knock CRM. I actually learned about that when one of my coworkers was interviewed for the software. Then I dipped into it a little bit more, and all our property is using Knock CRM right now to efficientize the communications between tenants and the staff, all that stuff, and the cutting down of time spent on that. And also increasing lease conversions, because techs are very high in conversion in terms of sales. So all these are slowly coming back in my life.

Joe Fairless: As far as Agile methodology, I’ve got it pulled up on Google… Is there a book that you’d recommend on that? If not, that’s fine. We can just do Google searches.

Elisa Zhang: I do not, because it’s just work.

Joe Fairless: Okay. You just do it. Yeah. It’s like you were trained on that a while ago. And then Knock CRM is just knockcrm.com.

Elisa Zhang: Yes, that’s correct. Yeah.

Joe Fairless: Okay. So let’s talk about your journey now, a little bit, now that we talked about some tactics that could be helpful for the listeners. So your portfolio – eight properties as a general partner, and then you’ve got passive investments and a thousand units as a limited partner. What came first? I imagine the limited partner stuff, but please educate us.

Elisa Zhang: Yeah, you’re right. It’s definitely the limited partner stuff. But before that, we were managing our own small multi-family. So that kind of has paved a little bit of background.

Joe Fairless: What unit size?

Elisa Zhang: So we started with fourplexes. We bought a couple and then I got bored. So I was like, “Hey, we’ve got to go a little bit bigger.” So we bought 12 units, 10 units… Small multi-family. They’re actually very, very [unintelligible [00:09:53].29]. I’m sure you can attest to it. Smaller properties usually require more hands-on from an asset manager, because the teams are not as professional. And then from there, we learned about investing into larger multi-family. And the decision came in because I lived in Washington, and our property was local before. In 2017 we noticed that we can no longer buy local properties, even small apartment buildings. So I spent a whole year going to three meetups a week, trying to look for a deal. But what I found was knowledge. And then from there, I felt comfortable enough, made enough networking with enough professionals, and felt comfortable enough to kind of move out of state in investing. And then I just started going out of state. I need to go a little larger in order to be able to be scalable. So hence the decision of getting into the larger multi-family. And then from there, we passively invested a few deals, get to know people, and got invited into one deal as a general partner.

Joe Fairless: You went from four units to 12 units, to a 10-unit… What are some challenges that you didn’t think you’d come across on those 12 and 10 units that you did come across?

Elisa Zhang: I did a lot of education before then, too – just kind of listened to podcasts, your show, BiggerPockets, and all that stuff. So I would say the biggest hurdle was financial, which is lending. Because from a four-unit to a bigger than four-unit, you’re crossing the boundary of residential lending to commercial lending. So that first loan, you’re like the bass trout nobody wants. It’s very difficult to beg anyone to get you onto the first loan.

Back then I didn’t really understand the partnering up concept. Nobody ever told me. So you’re just hitting your head on the brick over here over it, over and over again, until someone tells you “Yeah, we can take you.” Which is a local credit union. So we did get financed down on that property in particular, with a commercial loan. But that is after the first credit union got it all the way through and fell through on the 11th hour. And then that person introduced us to another credit union locally and got it done. So it was definitely a very interesting journey. That was very difficult.

The other part of it is I took on one partner. That was intentional. We had enough capital. But we know that after this property if we want to grow more, we’ll probably need to take on a couple more partners. So we were putting a majority of the money, and that was perceived as a lower risk for our investors. So we just kind of went ahead and took on one partner who was my colleague at that time, and then kind of went there. And he’s still my investor to this day, one of my best investors.

Joe Fairless: You said “We took on one partner.” Who’s we?

Elisa Zhang: Oh. I always say we, because it’s me and my husband. But really, I’ve been embarking on the thing by myself once it  was past the fourplex. Because he was basically doing the BRRRR strategy on our fourplex. So he was renovating and I was managing. But once we go beyond the fourplex and also went a little bit further away, he’s just kind of stepping back from that role, because he can’t be renovating them anymore.

Joe Fairless: Does he have a W2 job?

Elisa Zhang: He does not. So I am a single income — our household has always been a single income household. I get paid pretty well with my high tech job, so he didn’t really have a full-time job. So that was his job, which was working for us. Now his job is full time watching out for our kids.

Joe Fairless: There we go. Which is a full-time job.

Elisa Zhang: Absolutely.

Joe Fairless: That’s for sure. So 12 units, 10 units – did you exit out of those?

Elisa Zhang: Yeah. The first one we bought, the 12-unit, we sold it in a year and a half, and basically brought a hundred percent profit for our investor and ourselves. And then 1031-ed into what we call a tenant in common deal. Partner was two other people in Phoenix, into a 36-unit in Phoenix. And we’re actually selling (a year and a half later) out of that thing, and making about 80% profit as well.

Joe Fairless: Nice. That sounds outstanding. So that was your first foray into anything larger than 12 units, that 32-unit. From a limited partner standpoint, how many deals did you invest in on the LP side before you were on the GP side?

Elisa Zhang: I have to kind of think about it. I think maybe three to four or so. It really kind of happened really rapidly, because I had a solo 401k account. At the time I also left my job. I was going through a job transition three years ago, and I was able to use that money and moved into a solo 401k account… And then that’s the money that I can’t really touch and it’s not really doing too much, so I used that to passively invest in a deal and that freed up my cash to do the offers as active partners.

Joe Fairless: Got it. Okay. Let’s talk about the LP investments first, then we’ll talk about the GP stuff. From an LP side, what questions did you ask the general partner? Or what research did you do prior to investing with them?

Elisa Zhang: I really went by a person approach. Every single investment I made, I knew the person individually. And also, I looked at their past track record, I think that was really important. I’m more of a people person. So that was kind of important for me. And other things I looked at is I also took some education with CCIM courses, so I understood how IRRs and all the other calculation happens… So when I look at the underwriting, I would say maybe I’m a little more sophisticated than average LPs. And I look at rental income growth, and I look at reversion caps, and I also look at how feasible the business plan really is. And it looked like a property that has a lot of cash flow and had a pretty good cushion, in terms of how much they’re raising, in terms of reserves compared to their projects. So at that point, it just kind of clicked. Especially, also I had a small apartment experience, so I knew some of the business plans, what that looks like. They weren’t crazy in terms of rent increases, etc. Even if it is, then there’s a very slow step up. That is what I’m kind of looking at.

Joe Fairless: Yeah. And will you elaborate on the rental growth a little bit more? On what would be a red flag? Maybe we’ll approach it that way.

Elisa Zhang: So over the years, I’ve become more experienced with that. So on my first deal when I evaluated it, I was just simply looking at the market rent growth and wanted to make sure that matches with what the migration pattern looks like. For example, Texas back then, and Dallas, you can probably underwrite at 3% rent growth, because that matches with the report. But later on, the market has matured a little bit, so that rent growth has slowed down a little bit. So that’s the stuff that I’m kind of looking at, and also other incomes etc.

Now recently, by doing deals myself, I came to this conclusion. Also, recently the market has changed. It’s not as peachy looking. So when I’m kind of looking at — basically, total income is what I look at now. Because at the end of the day it’s how much you are increasing in total in terms of income, and then what your tenant can kind of weather. It doesn’t matter if it’s other income that increases, or it’s the rent income that increases; there are ways that you can structure it, obviously, that I would encourage people to do, but at the end of the day, they’re going to see what is the bottom line when they pay the rent. So that total income now has just become my metrics on what’s the increase over there.

I think with the recent market, we should probably be conservatively looking at them. In the first year, I don’t want to see anything over 2% on the total income increase… Which is super conservative, because when you’re considering a lot of value add projects, there’s intrinsically maybe 10 or 20% rent growth there just by implementing the market, even with a discount. In the second year, I’m looking at less than maybe 3% increase. And then the third year and fourth year, I have a pretty optimistic view on that, because I think inflation is going to pick up. So over then I’m okay to look at up to a 10% increase. That’s kind of the projects I’m looking at currently, using the current market.

Joe Fairless: It’s interesting that you’re talking about that now that you’ve been on the GP side. You’ve seen some other ways to increase income to help influence that. What are some things that you’re seeing now?

Elisa Zhang: Well, now increase is really difficult, because we’re in the middle of a pandemic. And I think by the time this episode aired, we’ll probably still be in it. So it’s about the preservation of the income. But what we noticed is even on the property that we were doing is, previously we had a plan on doing upgrades, and we were hitting them before the Corona time. And then as soon as that pandemic happened, we noticed the demand for updated units was a lot less. People are rather looking for amenities such as a washer and dryer in a unit. That’s a huge one, especially in the Phoenix market. You almost command a $60 to $100 increase; it depends on where you live. And then it’s a lot cheaper actually to put that in compared to doing the full upgrade in the Phoenix market, because the labor is pretty expensive over there. You can probably get away with $4,000;  that’s if you have to dig a hole in your wall and actually adding the connection itself. So the ROI is actually a lot higher right now, because people don’t want to go to public places to do laundry, and this and that.

Also, the Amazon lockbox in like a slightly better class property… Because again, the convenience is very big. So more amenities now, that’s a way to kind of increase the income, versus just a traditional upgrade. That’s kind of what we noticed in this particular market. Previously, obviously, by just updating the units, I think oftentimes we can hit the market rents that we wanted.

Joe Fairless: What deals lost the most amount of money?

Elisa Zhang: Well, there’s one deal that we are closing. On the 23rd hour it fell apart and we lost $30,000 in that. And that’s all our own money. So that was the first syndication attempt that we put together. So I had a partner in Mississippi and we found this tertiary market. Hindsight is probably a good thing that we didn’t go forward. Everything has lined up. We found the investors, because that was our first deal ever, we found the experienced GP to sign up with us, all that sort of stuff. It was very challenging. Every single step of the way was very difficult, because we tried to do it ourselves, with no mentors. But we got it done, crossed the line. On the 23rd hour, our lawyer — and Mississippi is an escrow state, which means your lawyer does all your closing. And our lawyer is not as experienced as she led us to believe so. She took extra time, because I’m in the Washington States and etc. So doing all these background checks, so she took one extra day.

And then we went back to the seller – and this is direct to seller deal – and negotiated with him and said, “Hey, we just need one more day extension to get the [unintelligible [00:21:24].21] done and we’re good.” And the seller turns around and said, “No, I want to hike up 10% on the purchase price.” I’m like “What? Who does that?” We can’t do that, because we had investor money in there. So we had to say no. And then we tried to save the deal last minute, negotiate with him, but the seller was just not cooperating. So as such, we had to walk away from the deal. And we didn’t have a lot of hard earnest money in, which is good, but we lost to all the expenses that were associated with it. It’s about $30,000 that we lost over there.

Joe Fairless: How many units was it?

Elisa Zhang: It was only 50 units. In hindsight is probably good we didn’t get into it because it was literally in a tertiary, if not like a [unintelligible [00:22:06].12] market.

Joe Fairless: Okay. Do you know what happened to that property?

Elisa Zhang: He still owns it.

Joe Fairless: Really?

Elisa Zhang: Yes. Yup. [laughs]

Joe Fairless: What deal has made you personally the most money to date?

Elisa Zhang: That’s a good question, because I have to kind of go through in my head… It’s a toss-up between actually the fourplex and my small apartment buildings… Which is kind of funny, because some of the deals that we’re still in the cycle for, for the larger apartment, which is why it’s not really comparable… But hey, I would say in four years, we have through a 1031, that 12-unit, quadrupled our equity gain over there, and then we’re doing yet another 1031. So we transferred a 300k to $1.2 million in three years. That’s a pretty good gain, I think. Other ones – I would say the fourplexes that we did multiple BRRRRs on them. So we pulled all our original capital out of it three times, and it’s still cashflowing a thousand dollars per complex…

Joe Fairless: Wow.

Elisa Zhang: …which is pretty good. Yeah,

Joe Fairless: Let’s take a step back… What is your best real estate investing advice ever?

Elisa Zhang: I would say get out and do it, and also get a mentor. We kind of struggled, as I shared that story about that Vicksburg deal. At the time if I had a coach or someone mentoring me on this, then we could have probably more creative maneuvers over there. Or better negotiation tactics, right? Or getting access to better networks, and this and that. So I think that is something I would advise my 10-year ago self, to get in quicker. So that kind of increases your trajectory a lot more and shortens the time that you have to suffer through trial and error.

Joe Fairless: We’re going to do a lightning round. Are you ready for the Best Ever lightning round?

Elisa Zhang: Yes.

Joe Fairless: Alright. First, a quick word from our Best Ever partners.

Break: [23:56][24:45]

Joe Fairless: What’s the Best Ever way you like to give back to the community?

Elisa Zhang: I have started a university called EZ FI University. I like to kind of teach other people what I do and show them there are multiple different ways to reach their financial freedom. So this is one way that I’m giving back right now. And I’m actually also working on my charity strategies to figure out causes that are really passionate to me to give back to the community by donating.

Joe Fairless: How can the Best Ever listeners learn more about what you’re doing?

Elisa Zhang: They can go to www.ezfiuniversity.com to check us out.

Joe Fairless: Thank you so much for being on the show, talking about your background, your journey, and how you have gone from the fourplex to now general partner on eight deals, and the lessons learned on the 12-unit and the 10-unit in terms of lending and bringing on a partner, even though you really didn’t need one, but you saw that it would be beneficial for you to have one in the future that you have a proven track record with. And I think that’s a very valuable insight, especially for those who are starting out. Thanks for being on the show. I hope you have a Best Ever day, and talk to you again soon.

Elisa Zhang: Thank you so much, Joe.

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