JF2514: 30 Banks and 30% Down to $3.6M Homes with Stephanie Walter

When Stephanie transitioned into multifamily, she may not have expected her first syndication to be a fraternity house in Colorado; however, she’s an expert in trying new investments that are out of her comfort zone. Since then, she’s added retail, apartments, and soon, development for multimillion-dollar homes all in different markets. She talks about her biggest challenges and where she’s found the greatest return on investment, as well as her exit strategy. 

 

Stephanie Walter Real Estate Background:

 

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TRANSCRIPTION

Ash Patel: Hello, Best Ever Listeners. Welcome to the Best Real Estate Investing Advice Ever Show. I’m Ash Patel and I’m here today with our guest, Stephanie Walter. Stephanie is joining us from Lakewood, Colorado. She is the CEO of Erbe Investment Group and has 17 years of real estate experience. Stephanie has also been a syndicator for the last 10 years. Stephanie, how are you?

Stephanie Walter: I’m good. Thank you for having me.

Ash Patel: Thank you for being with us. Before we get started, can you tell us a little bit more about your background and what you’re focused on now?

Stephanie Walter: My background is, I was actually an insurance agent for the last 16 years. And I had invested a lot in single-family homes. Then about 10 years ago I started looking at syndications and started raising money for those syndications. Really, really enjoyed it, and just put in my retirement to sell my business in December 2020. And that is really what I focus on now, is just raising money for syndicated deals.

Ash Patel: Congratulations on leaving your 9-5, or selling your business rather.

Stephanie Walter: Yes. Thank you.

Ash Patel: Great. So how many single-family homes did you have?

Stephanie Walter: I had actually about four, so not a lot.

Ash Patel: And then what motivated you to transition to syndications? Did you go right from single-family investing to syndications?

Stephanie Walter: Yes, I sure did. I don’t know, something about it appealed to me; the apartment, the economies of scale, all that good stuff. Having a group of people together, I like that idea. So once I got into it, and the more I learned about it, the more excited I became. So I just jumped right into it.

Ash Patel: Good. What was your first deal? Do you remember?

Stephanie Walter: Oh, yes.

Ash Patel: Let’s hear about it.

Stephanie Walter: Actually, it was a fraternity house.

Ash Patel: Awesome.

Stephanie Walter: I still have it, up in Fort Collins, Colorado. And I started with a partner who had to exit out of the deal for personal reasons. So I was left kind of holding the bag on that one, and did the whole thing from start to finish; I had to go to 30 different banks to find the financing, and I did everything myself from beginning to end, and realized at the end of that, that I’d never, ever wanted to do that again. It’s been a good asset, but at the same time, it is a little bit of a scary asset, in the sense that I have had one of the fraternities have to move out. And thankfully, right during COVID, actually; but quickly found another fraternity that wanted to go in there. But you always have that in the back of your mind that you have one tenant, and they may decide to leave, so…

Ash Patel: So this is still a fraternity house?

Stephanie Walter: Yes.

Ash Patel: There’s college kids living in there?

Stephanie Walter: Mm-hm.

Ash Patel:  And they pay you rent, or does the fraternity as a whole just pay you?

Stephanie Walter: Yes, the fraternity as a whole pays me. So they pay everything except for my insurance. So it’s not quite a triple-net lease. But—

Ash Patel: And you were in the insurance business – is a fraternity a lot more expensive to insure?

Stephanie Walter: Yes. [laughs]

Ash Patel: Alright, so why did you go to 30 banks? Why did they not want to lend on this?

Stephanie Walter: There was a lot of reasons, but largely the aspect of having a fraternity and there, they didn’t like it. The price point, it was over a million dollars; I think it is a small deal. It was like 1.4 million. So I eventually found a local bank. I called lots of local banks, but I did find one guy and he was super nice and ended up getting it done. So I’m grateful for that.

Ash Patel: And were you able to get financed just because it was a local bank, versus out of the area or larger national banks?

Stephanie Walter: It was, I think, almost entirely based on it being a local bank that knew the property well and knew its location and the dynamics of Fort Collins, knowing that there’s a real shortage of fraternity houses up there. So I think it was just all of those things combined together.

Ash Patel: And this was a syndication Stephanie, right?

Stephanie Walter:  Yes.

Ash Patel: How many investors were on this syndication? And were any of them wary about investing in a fraternity house?

Stephanie Walter: Well, that was the benefit of starting your first syndication – you go and you hit your friends and family, right? So my brother-in-law was the best, because this was the fraternity; the fraternity boys that were in there were his old alma mater, or whatever the term is—

Ash Patel: How about that? Full circle, huh?

Stephanie Walter: Yeah. So he loved the idea. But yeah, just had a little bit weariness, but we’ve had it for quite some time now, and they like that cash flow check that comes every month, and it’s been a good asset, definitely.

Ash Patel: So would you take on additional fraternity houses, or would you recommend others follow suit?

Stephanie Walter: I was going to take on an additional fraternity house right after this one, and it came up in Florida. And this is what I would tell people – be very cautious of the environment where the fraternities are located and the university. Fort Collins had a really unfortunate thing happen to one of their students who actually passed away in a fraternity house 15 years ago, so they took all the fraternities off-campus. And now they’ve let them all back on, but they’re very, very, extremely strict about what they allow them to do. There’s no parties, technically no alcohol, and if they are caught violating any of these things, they can be kicked off the campus. So in that environment, I would say it’s really great. I think it’s been a definitely a really good asset for us.

But the one in Florida, there was no oversight whatsoever. We went down there and it was really eye-opening just how trashed out the whole house was; it was beyond, really.

Break: [07:04] to [09:06]

Ash Patel: Stephanie, is there a national organization that signs the lease? And is it a year-to-year lease, or is it long-term?

Stephanie Walter: Yes, there is a national fraternity that signs the lease, and this one goes in increments of three years.

Ash Patel: Okay. So if they get kicked off campus, is there any kicker where they don’t have to pay rent, or do they still have to pay?

Stephanie Walter: Well, the only situation I’ve had is where the guys just couldn’t recruit because they got into trouble and they couldn’t fill the house, and they let me know right as COVID was happening last year, and I would have had some repercussions, but I found another fraternity that just picked up immediately where they dropped off, and we were out of no funds. We kept the security deposit to address some of the issues when they left, so I think that went really well. But yes, there’s some things written in what penalties would be there, depending on where in the lease that would happen.

Ash Patel: That worked out very well for you.

Stephanie Walter: Yes.

Ash Patel: What were the numbers? And did the investors make their money back on this deal? Has it been paid out?

Stephanie Walter: It has not been paid out. Again, it’s sort of friends and family in this one.

Ash Patel: Okay.

Stephanie Walter: So I just kind of went back to them and said we could sell it. I don’t feel like it’s come to its full potential yet. I’d like it to get up to $2 million before we sell it. And with the cash flow, we were able to keep increasing the rents every year, and it really flows about 12% preferred return just gets paid out every month. So there really is no reason that they want right now to exit.

I have thought about it because, since we’re such a good group and great group of investors moving into a multifamily deal in another state, I’m not crazy about Colorado for multifamily. But right now, the environment of multifamily is just so gosh darn competitive right now and I think we’re just going to wait it out a little longer.

Ash Patel: So would you do a cash-out refi? Or have you done a cash-out refi to pay back your investors, or friends and family?

Stephanie Walter: We are looking to do that this year.

Ash Patel: Okay. And how much did you have to put down on the fraternity?

Stephanie Walter: We put down 30%.

Ash Patel: Okay. And is that because it’s a high-risk investment?

Stephanie Walter: Mm-hmm. And really, that’s the best terms we could find with the bank.

Ash Patel: Yeah. Interesting. What was your next deal, Stephanie?

Stephanie Walter: The next deal was a retail center in Tallahassee, Florida. And that one was a really good deal as well. So that one we bought from a church. Actually, there was a church right next to it that had owned it and tried to manage it for years, and had just completely grown tired of it, so then just sold it to us on really good terms. But that was my second deal. So I was thinking I’d be raising for apartments, and ended up raising for a fraternity, and then retail. And everybody wants to scream and run from retail, and that was even before COVID. But I think when we exited there, it ended up being annualized returns of about 42% a year.

Ash Patel: Wonderful.

Stephanie Walter: Yeah. So that—

Ash Patel: Can we dive into that deal?

Stephanie Walter: Sure.

Ash Patel: How many units were there?

Stephanie Walter: There’ s 12 units, it was 105,000 square feet.

Ash Patel: Wow. Okay, and what was the purchase price?

Stephanie Walter: The purchase price was $3.2 million.

Ash Patel: And how did you pitch this to your investors who thought they were getting into multifamily?

Stephanie Walter: I pitched it for the team, for me and for my partner, Veno. He lives in Florida and before he became a syndicator, he would buy retail all over Florida, and do what we did with this one, which was try to improve the appearance. And there were some things that needed to be adjusted on the roof, new roof, new parking lot… But what was really nice with this one was the market was really changing a lot in Tallahassee. There was a mall that was less than a mile away from this one, and the state of Florida had purchased it. My partner found out, so about 7000 new employees were going to be located there to work. So—

Ash Patel: Great news.

Stephanie Walter: Yeah, we felt like that would be really good for our place. So yeah, it turned out well.

Ash Patel: And Stephanie, on this deal, your partner brought a lot of expertise in the retail arena.

Stephanie Walter: Mm-hmm.

Ash Patel: Okay. What was your biggest challenge on that property? Was there a lot of vacancy?

Stephanie Walter: I think just improving it in general, switching some tenants… I think what was really nice about that partner is he’s very proactive. So even before he closed on the deal, there was about 25% of the property had been a movie theater, which was vacant, and he was able to talk to a mountain climbing gym in Florida. I don’t know why there’s a need for a mountain climbing gym, but he got them interested and excited to help them actually start the SBA process, and they qualified to put — I think it was a little over a million dollars of improvements in that space, and then they took it over. And they’re still there now.

Ash Patel: That is an amazing use of those high ceilings. And converting a movie theater into a rock climbing gym—

Stephanie Walter: Yeah.

Ash Patel: —what a great creative idea.

Stephanie Walter: Yeah.

Ash Patel: So that’s great. So this tenant put a million dollars into your building…

Stephanie Walter: Mm-hm.

Ash Patel: That’s amazing.

Stephanie Walter: Yeah.

Ash Patel: So how did you achieve that 40% return? Obviously the tenant putting that kind of money in leasing that space out helped a lot. So what were the other factors that led to a 40% cash on cash return?

Stephanie Walter: Well, the rents were much lower than the market. So just adjusting some of them. I think there was—including that area of the mountain climbing gym was vacant, and the current owner was a church so they didn’t really know what they were doing. So they weren’t charging any CAM charges, the common area maintenance charges… So just by adjusting those in little increments, it was amazing how much cash ended up being generated. So within the three years, the property was valued at $6 million. So it almost doubled.

Ash Patel: That’s amazing. And is there an anchor tenant in that shopping center?

Stephanie Walter: There’s a Chuck E. Cheese. Other than the Chuck E. Cheese, there’s no real national chains. There’s a little bit of everything – a restaurant, a daycare center, a little mini-church, a Dollar Store, I guess that would be more of a national one… And then the rock climbing gym is located in Tallahassee.

Ash Patel: Interesting. So a mix of mom-and-pop and a couple of national tenants there.

Stephanie Walter: Mm-hm.

Ash Patel: Are they all on long-term leases?

Stephanie Walter: Yes, that was another thing that we really wanted to solidify. There was a lot of people, their leases had expired when we purchased it, and they were just kind of going month to month. So I have to credit my partner – he actually lives in Fort Lauderdale, but he will go up there almost on a bi-weekly basis to talk to all the tenants and ask them, “What things would you like us to do in this area?” And he’s just really good at making people feel like they’re part of this environment we’re trying to create for them. So they became very loyal and we’re happy to sign for more, as far as the rent went.

Ash Patel: That is a great approach. How did you find the buyer who you sold the property to?

Stephanie Walter: That was just someone that had approached us in the area. We didn’t work with a broker. It was just someone that approached us directly.

Ash Patel: Great. And do you remember the exit cap rate and the entry cap rate?

Stephanie Walter: We’re talking a while ago… I think the exit was 16 or 17.

Ash Patel: Okay.

Stephanie Walter: Oh, the cap rate of what we sold it to the people that were buying it?

Ash Patel: Correct.

Stephanie Walter: In environment, it was a five.

Ash Patel: Wow. That’s amazing.

Stephanie Walter: Yeah.

Ash Patel: And how long did you hold that property for?

Stephanie Walter: We had that property for three years.

Ash Patel: Okay. So you had a great success with your retail shopping center. What was your next deal? Was it back to retail, I’m hoping?

Stephanie Walter: No, this time we went into Waco, Texas for a multifamily property, 55 units. It was built in the ’60s. It’s unique in the sense of its location. So it was really like a C, aged property, in an A area. It was surrounded by million-dollar homes. It’s in a strange little area of Waco where there aren’t any other apartment complexes anywhere near.

Ash Patel: And why Waco? Why did you pick that area?

Stephanie Walter: Well, the deal was brought to us by someone in the group of people, our community I’ve already mentored. So the lady had brought it to us. And then of course, we do like a major deep dive in the area to see if it’s worth looking into further, and for sure it was. So that one was an excellent area. That’s where our first apartment where we have been going in and we do little micro-renovations and each unit, and that’s where we implemented that strategy.

Ash Patel: Let’s talk about that. What’s a micro-renovation?

Stephanie Walter: A micro renovation – we do vinyl flooring, possibly new appliances, painting, new light fixtures, possibly new countertops in the kitchen and the bathroom. We try to keep the costs around $5,000 or $6,000 per unit.

Ash Patel: And how many units was this property?

Stephanie Walter: This one was 55 units.

Ash Patel: What was your biggest challenge with that property?

Stephanie Walter: I think that property – my partner really, really likes to get everything to where it’s automated, which is fantastic. But trying to get some of the older tenants to be okay with paying their rents in an automated way online, trying to train basically your new tenants to do what you like them to do… And then also to go online if they have any issues in the unit that they need some maintenance with also using that same system.

Ash Patel: How many investors did you have on this one, and what was the purchase price?

Stephanie Walter: That one, again, was $3.5 million.

Ash Patel: And how many investors?

Stephanie Walter: We have one big investor in that one, which was nice. So we ended up having five investors.

Ash Patel: Okay. And do you still own that property today?

Stephanie Walter: Yes. We own that one. That one we actually purchased in 2019.

Ash Patel: And do you have an exit strategy for your properties? Is there a certain number of years that you want to hold them, or is it open-ended?

Stephanie Walter: It’s kind of open-ended. We like to bring it back to our investors to see if they want to stay in or if they want to exit the property. But usually, we bring it back to the investors — well, actually, not usually. All the time, we bring it back to the investors to see what they would like to do.

The idea is that usually we market our properties to hold for shorter hold times, which is the 3-5 years. So if it comes to the point of us selling it, we’d like to have an agreement that we all want to go in that direction.

Ash Patel: Got it. And Stephanie, is this the same partner that you have in the shopping center?

Stephanie Walter: Yes.

Ash Patel: Okay. I like him; we have the same philosophy with our investors. I come from insurance as my background, and he was a commercial broker for 30 years. So we both want to be sure our clients are as happy as can be. So I think that we both approach our deals in how we can make our investors happy people.

Ash Patel: That is a great combination of skillsets and a great outlook that you guys have. So in the future, are you looking for multifamily shopping centers, or just whatever you could find a deal on, or fraternity houses?

Stephanie Walter: No, that’s why I like my partner, because he is looking for the best deal. And right now, I’m sure by the time this one airs, this one will be closed. But we have a development deal, which is completely different and out of both of our comfort zones a little bit, but it’s a really cool deal that I’m currently raising for now. It’s 24 homes. It’s in Broward County, Florida, which is just booming right now… And actually, they’re going to be entirely green homes. So they can be completely off the grid, which a lot of people are excited about.

Ash Patel: And neither one of you have experience in developing homes.

Stephanie Walter: We don’t—

Ash Patel: But this is perfect for you guys.

Stephanie Walter: Yes. Well, my partner lives about 20 minutes away, and he’s very familiar now. We obviously partnered with a builder. So we’re very familiar with this builder, who is our partner in this deal as well. We feel really confident with the environment. And Broward County is kind of like almost everywhere, at least in Colorado right now, where the inventory of single-family homes is, I heard, somewhere where they were saying it’s 40% lower than the lowest that’s ever been recorded. So single-family inventory is really, really low in Florida, as well as there’s a lot of wealthy people that are moving into that area, just kind of a mass exodus from New York. I saw an article today from Silicon Valley. So that’s another one kind of — I believe it’s knowing your area, finding people with the right expertise, at the right time. But we will look for multifamily after this.

Ash Patel: And what’s the price range of these houses?

Stephanie Walter: They’re between $3.2 million and $3.6 million. Each of them are on an acre of land, which in this area, this town, Davie, Florida, every person that has a house there – that’s just part of the zoning; they need to be on an acre of land, which is really cool. I wish it was that way where I lived in Colorado.

Ash Patel: Yeah, this is a fun project.

Stephanie Walter: Yeah.

Ash Patel: Stephanie, what’s your best ever real estate investing advice?

Stephanie Walter: My best ever real estate investing advice… I believe probably just trusting your gut, but also just really getting educated. I’ve been doing this for a long time and I still will go in if I see someone having a webinar with some interesting content… I like to just always be educated, surround yourself with really good, smart people. I used the example of when I was learning to ski – they always said find a skier that’s better than you to go with and you will become the better skier, and that’s definitely what I found in this profession.

Ash Patel: That is great advice. Stephanie, are you ready for the lightning round?

Stephanie Walter: Sure.

Ash Patel: Great. First, a quick word from our partners.

Break: [24:55] to [26:57]

Ash Patel: Stephanie, what’s the best ever book you recently read?

Stephanie Walter: I have just read Killing Sacred Cows by Garrett Gunderson. Love it. It talks a lot about how wealthy people view money, and it’s a lot different than how us average people do.

Ash Patel: Very interesting. And Stephanie, what’s the best ever way you like to give back?

Stephanie Walter: I love to give back because, well, like I said, I’ve just sold my business, so now I’m somewhat retired between raising money for deals. And I have found this great little niche in these charities around where I live, and they constantly need money. And I guess I have a skill for raising money, so that is what I do with these different charities, is I go in and help them raise money for their fundraisers or whatever they have going on. Because I feel like that’s what I’m good at and that gives back for sure.

Ash Patel: That is a great way to give back. Stephanie, how can the Best Ever listeners reach out to you?

Stephanie Walter: You can go to my website, which is http://erbeinvestmentgroup.com/. I have a free report on there. If you’re considering passive investing, it’s the five reasons why passive investing might be for you.

Ash Patel: That is great. Stephanie, I loved hearing your story today, starting out with single-family homes, and then taking a big leap into fraternity houses. And then from there, the multifamily, the shopping centers… And now a crazy energy-efficient housing development, where houses are worth millions of dollars. Good for you for tackling a lot of these great projects and showing us that your partnerships are really key in your success. So thank you again for sharing your story with our Best Ever listeners.

Stephanie Walter: Oh, thank you.

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