JF2656: Expanding Your Comfort Circle: From Youth Ministry to Multifamily with Slocomb Reed

December 10, 2021 | Joe Fairless | 00:31:07

JF2656: Expanding Your Comfort Circle: From Youth Ministry to Multifamily with Slocomb Reed

From youth minister to now commercial real estate investor, Slocomb Reed isn’t afraid to take chances to grow. He’s taken his portfolio from the ground up and now owner-operates over 65 units. In this episode, Slocomb discusses his past deals and how risk taking has paid off big time.

Slocomb Reed Real Estate Background

  • Director of Investment Services for The Chabris Group of Keller Williams Seven Hills Realty, the largest real estate sales team in Greater Cincinnati by number of sales.
  • Began investing in 2013. Went full-time as a sales agent in 2015 while continuing to invest.
  • Portfolio: Owner-operates over 65 units ranging from single-families to apartment buildings with 20+ units.
  • Based in Cincinnati, Ohio
  • You can find him at www.linkedin.com/in/slocomb-reed-b7145b1a/

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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 talk about the best advice ever, we don’t get into any fluffy stuff. With us today, Slocomb Reed. How are you doing Slocomb?

Slocomb Reed: Doing great. I’m grateful to be here, Joe. Thank you.

Joe Fairless: I’m glad to hear that and I’m looking forward to our conversation. Slocomb is the director of investment services for The Chabris Group of Keller Williams Seven Hills Realty. It’s the largest real estate investment sales team in Greater Cincinnati by the number of sales. He began investing in 2013 and he went full time as a sales agent in 2015 while continuing to invest on his own. In fact, he is an owner-operator who has over 65 units ranging from single families, to hold and flips, to apartment buildings with 20+ units. Based in Cincinnati, Ohio. With that being said, Slocomb, do you want to give the Best Ever listeners a little bit more about your background and your current focus?

Slocomb Reed: Absolutely Thanks, Joe. I came to real estate investing as a full-time professional youth minister with a bunch of side hustles. I read Rich Dad Poor Dad in the spring of 2013, kind of in preparation for my wedding actually, which was in May of 2013. I fell in love with the Rich Dad books, read several of them, landed on the strategy of owner-occupying a two to four-family as my go-to side hustle. I didn’t know it was called house hacking at the time, because I didn’t find Bigger Pockets until a year or two later. I fell in love with real estate. We bought a four-family, closed on it on Valentine’s Day of 2014, moved in, it turned out I was a natural at dealing with tenants. I’ve never been handy so that was definitely the first thing I hired out, was fixing toilets and things. But I loved the math of real estate. It looked like a space where there was ample opportunity so I decided to dive full-time into real estate.

It looked at the time like becoming a residential sales agent was the best way to do that. I still think that’s a great move for a lot of people. Plus, a youth minister’s salary is pretty easy to replace. I kept a quarter-time youth ministry gig for a few years after that though, while I was in sales full-time. As I did that and used my experience as a sales agent to become a better investor, to represent investors, and learn about the market, the industry, build my own skills, continued investing, bought my second deal, which was a BRRRR deal, in 2016. I have been off to the races since then.

Joe Fairless: As a sales agent, you learned a lot about investing. What are some things you picked up as an agent? Because I ask that for people who are looking to become a real estate agent and transition to investing full-time. I just wanna hear what you learned.

Slocomb Reed: Becoming an agent gives you the opportunity to think like an investor and analyze deals like an investor, effectively for a salary. It’s a commission but you’re getting paid for getting deals closed, whereas most buy and hold investors are putting out money when they purchase. Part of what they’re putting out is going to you in the form of income. So it gives you the opportunity, when you get investor clients, to do a lot more deal analysis, to get yourself in front of other investors, learn what they’re doing, learn by helping them accomplish their goals. Also, when you have a lot of investor clients, you are in and out of a lot of buildings that you’re showing them, getting the opportunity to see what they think about the condition, what issues concern them, what issues don’t, attending inspections, and asking inspectors questions.

Basically, you get to dive head-first into some of the biggest decisions that real estate investors ever make without having the financial risk of putting your own money into them, and in fact getting commissions for doing it. It definitely accelerates the learning curve, for sure.

Joe Fairless: Do you make less money working with investors than you would non-investor clients?

Slocomb Reed: That’s a great question, Joe. I think the best way to answer that for an agent or a prospective agent is that you should find your niche, you should figure out what it is that you’re passionate about. In real estate in general, whether as an agent, some other service provider, as an investor, one thing that’s really helpful is finding the hard work a lot of people don’t want to do, that you enjoy.

For me, I needed time to swing into working with investors full-time, but I enjoy investors more. On a transaction-by-transaction basis, the most important thing for an agent, especially representing buyers – your ability to earn is not only linked to the purchase prices of the properties that your clients are purchasing, it’s also linked to how much of your time is used up representing your client in that transaction. As you get good at sales, and as you get good at understanding investors and their needs and their goals, I got to the point rather quickly where it did not take a lot of my time to help my investor clients find the properties that they wanted. So I would spend a quarter as much time helping my client buy $150,000 investment property as I would helping a $300,000 single-family owner-occupant homebuyer find their home, because I could dial into the investor’s mindset just looking at the property online; I knew which ones they needed to get into and I know which offers they needed to write. So I could get four times as many deals done in that $150,000 duplex range as I could with a $300,000 owner-occupant homebuyer. More income for me, because that was my specialty and that’s the work that I wanted to do.

Joe Fairless: You did single-family homes. When did you buy your first, we’ll call it, five-plus unit property?

Slocomb Reed: My first five-plus unit property was a six-unit, in April of 2019. I had been using virtual assistants in the Philippines to help me with lead generation. I build out a list that they call, and then they basically schedule follow-up appointments with me with the people that they’ve found to be motivated sellers. They scheduled a follow up call for me for a property like this, the amount that the seller wanted for it, made it a really good deal, so my partner and I took it down.

Joe Fairless: How many purchases had you made, either exactly or approximately, up until that point?

Slocomb Reed: That would be four.

Joe Fairless: Four purchases. Okay.

Slocomb Reed: Two house hacks and a BRRRR, a three family and a BRRRR duplex.

Joe Fairless: Okay. You and a partner on the sixth unit, how did you structure it?

Slocomb Reed: He was a client who I actually met when I was presenting at our local meetup here. This isn’t his Best Ever real estate investor mastermind. I was speaking, he came up to me and said, “Hey, it sounds like you need to be my agent.” I said, “Great.” I helped him buy a couple of things and he was hearing about these BRRRR (buy, rehab, rent, refinance, repeat) deals that I was doing, where I was getting all of my starting capital back, and then some, within 12 to 18 months of purchasing. For him, the math made enough sense that he proposed to me, “Hey, if you can find a deal for us to do together where I get all my money back within 12 to 18 months, I’ll fund the deal entirely and we’ll split it 50/50.” I said, “Yes, please. Thank you.” So I found it, I negotiated it, I did most of the management of it while we owned it, and he funded the deal. We ended up actually selling that one rather quickly. We bought it for 225, we sold it for the equivalent of 325 about 16 months later, without needing to do too much work to it in the meantime.

Joe Fairless: So like 5000 in improvement dollars, or if that…

Slocomb Reed: We probably spent 10 grand in improvement.

Joe Fairless: So all in 235, and sold it for 325. How quick was that turnaround, from buy to sell?

Slocomb Reed: It was about 16 months. We listed it in order to sell it, having owned it for just over a year, so we’ve paying long-term capital gains. But also, while we were in escrow, COVID-19 was announced as a pandemic and all the banks that were underwriting loans, at least in the Cincinnati area, started reconsidering those loans. Our buyer lost his loan, and we had to go back to the market. So we were really trying to sell it after 12 months, but ended up at like 16.

Break: [00:09:34][00:11:07]

Joe Fairless: What was the next deal after the six-unit?

Slocomb Reed: The next deal after the 16 was…

Joe Fairless: Did you say 16 or six?

Slocomb Reed: Sorry, six. Only six. My bad. The next deal after the six-unit was a 24-unit on the west side of town that I had actually found off-market for a client of mine who bought it. He’s a non-local investor, he was having trouble finding good management. So I ended up buying it from him about 18 months after he purchased it, and basically paid him what he had in it, and we took over to get it. It was at like 50% occupancy, and some of his tenants didn’t want to pay rent, so we had a lot of work to do to get it up to performing at market. But that was a really good deal for us.

Joe Fairless: Alright. You just bought a 50% occupied property. It’s the largest property you’ve ever bought, by four times. What gave you the confidence that you could turn it around, and then how did you do it?

Slocomb Reed: That’s a great question, Joe. I enjoy expanding my comfort circle, one rung at a time. I probably took on two to three…

Joe Fairless: That’s four; those were four rungs.

Slocomb Reed: I probably took on a couple of rungs of that one. The learning curve was steep to be sure because that was definitely a C-class neighborhood. So we’re talking affordable rents, for sure. There were a lot of things about managing in lower-income areas that I had to learn. But really, what we were looking at was that the deal was good enough on paper. Like what Robert Kiyosaki says, you make money when you buy. And we knew we were getting a good enough deal that no matter how difficult it was to get this place turned around, it will work out for us.

Let me give you an idea of those numbers and you can tell me if there are any more details you want to get into. We bought it for 635, the average rent was around 515 a month, 24 one-bedrooms. We were told that rent would never go above 575 in that area for a one-bedroom apartment like ours. We spent a little under $100,000 getting it totally up to snuff, so in it for around 735. We ended up filling all of the apartments at 650 a month.

Joe Fairless: Wow.

Slocomb Reed: Yeah, when we went for our cash-out refi to finish the BRRRR process. Because it’s a depressed area and there are very few comparable sales, because there just aren’t a lot of apartments in that part of Cincinnati, we were given an 8.6 cap. But even at an 8.6 cap, it appraised for 1.1 million.

Joe Fairless: Wooh, doggies! There we go.

Slocomb Reed: It was a juicy one. Yes, there was a lot of…

Joe Fairless: You said 1.1 million, and you’re all in at 735.

Slocomb Reed: Correct. At an actual eight cap, it would have appraised for one and a quarter. But we couldn’t get the appraiser down from that 8.6. This means it also has a sweet cash flow, because of how high the cap rate is. But yeah, that was a big one for sure, and we knew going into it — we didn’t know that we’d get 650 as easily as we did, we didn’t know that we’d get the 1.1 valuation; we were expecting to be in the high eights, hopefully. But even in the high eights, we knew that we’d have a really nice refinance and we’d have a great property. We actually put it on a 15-year fixed rate mortgage at 4%. Our plan at the moment is to actually let it get paid off and to own it free and clear 15 years from now, because 15 years from now my partner’s younger daughter and my daughter will be graduating from high school. So maybe the coolest phone call I’ve ever had in real estate was calling my parents right after that cash-out refi to tell them that I put a 24-unit apartment building in my daughter’s college fund.

Joe Fairless: Nice. That’s cool. That’s something I know she’ll appreciate, even if she can’t say it now. Or I guess she could say, but even if she doesn’t understand the benefits that will take place as a result that.

Slocomb Reed: I bring her to my projects whenever I can. I’m working on a 26-unit right now, she spent Sunday at Home Depot with me. I was carrying the paint buckets into the apartments and she was carrying the tape. Whenever she gets into a new place, she always says, “Daddy, this house – amazing.” Every time; it’s awesome, it’s adorable.

Joe Fairless: I’d like to get into some more details of how you’re able to turn it around though. Because there’s that 50% occupancy, and I’m glad that we went over the detailed numbers. So that’s what happened, but now let’s talk about the how. How did you go from — and you mentioned “we”. First off, who’s we?

Slocomb Reed: We is my partner and me. It was the same partner I bought the six-unit with. He actually did bring all of the funds to close the 24-unit. Then it ended up being my funds that did a lot of the renovating.

Joe Fairless: How did you do it? How did you get it occupied, stabilized, and get the right people in there, all that stuff?

Slocomb Reed: The first thing here, Joe, is that we got really good debt. I use a commercial mortgage broker here in Cincinnati named Kurt Weill, and he really has his ear to the ground with what local banks here – which ones are hungry to lend to real estate investors and apartment investors, which ones are going to get aggressive and give us really good terms, and which ones are really sitting on their hands and letting the market play out, based on the way that banks run their own numbers to determine what kind of risk they want to take. We were able to get a loan with interest-only payments for one year, and a construction second that covered a lot of that renovation cost. When we took over a 24-unit with 15 tenants in it, and only nine of them felt like paying rent, we had an interest-only mortgage which made it a lot easier to make those mortgage payments with the cash flow from nine of 24-apartments. But also, we had a construction loan with $70,000 of funds coming back to us after we did things like resurfacing the parking lot, replacing all of the original windows and sliding glass doors in these two 1978 12-plexes, and start turning apartments.

Financially speaking, the interest-only debt was really helpful. And the fact that the first 70 grand we spent came back to us from the construction note helped us accelerate that renovation as well. I am doing something similar with a 26-unit right now.

Kind of the steps in that process are 1) establish myself as new management, demonstrate that I respect the current tenant’s homes, and that I expect a level of respect from them that they have not needed to demonstrate before… Because I’m typically taking over from management that’s not as active as we are. The first thing I do is any major capital improvements that are needed. In both cases, this 24 we’re talking about and the one I’m doing now, the first thing is resurfacing the parking lot, getting rid of all the potholes, getting nice, good asphalt, restripe all the spaces, making sure we have enough parking spaces to meet the demand of all of our tenants having cars. In affordable lower-income areas, it’s really important to me that I know I can get tenants with cars… Because having wheels is effectively an employable skill especially when something like COVID happens, a lot of smaller businesses are closing, and a lot of bigger businesses like Amazon and Kroger, the largest grocer here in Cincinnati, are hiring like gangbusters. I want to know that my tenants are the ones who are able to go get those jobs when they get laid off. So resurfacing parking lots is a capital improvement that tenants feel strongly about. It also changes the aesthetics of the exterior a lot. Go ahead and make the property a nicer place to live, and then get the apartments on the market at the higher rent that I’m expecting. And when they start leasing at that higher rent and I know I can get that higher rent, that’s when I raise the rent on the inherited tenants, to whom I have already demonstrated that I’m going to make this a nicer place to live than they had when they moved in.

Joe Fairless: Resurface parking lot… What other things do you do initially to make it a better property that is noticeable to the tenants?

Slocomb Reed: A big part of what they notice, Joe, comes down to communication. We are very proactive in communicating with our tenants. For example, with the 24, when we replace all of the original casement windows and sliding glass doors with insulated vinyl, we made sure our tenants knew that that was going to bring down their electric bills, because these buildings have electric heat and electric air. So they are covering the expense of heating and cooling their own apartments. So not only are the windows and doors nicer, but they’re also going to reduce our tenant’s bills. We introduce it that way when we explain the hassle of having people come into their home and take out their windows, replace them with other windows, and then have to take care of the walls and the pain afterwards.

We did a lot of renovating individual apartments, putting down new LVP, swapping out tubs and vanities, some cabinets, some cabinets we left, and countertops, light fixtures, outlets, switches, covers, paint, of course… Then also, when we had the majority of the apartments renovated and it was time to raise the rent on the inherited tenants, we gave them the opportunity to move into a newly renovated apartment at that same raised rent, which would give us the opportunity to get into their old unit and get that one done, so we can get good rent there as well.

Break: [00:21:20][00:24:13]

Joe Fairless: Really quickly, that’s a 24-unit. The 26-unit, which I heard you say you’re doing a similar process that you did on 24-unit… How did you find the 26-unit?

Slocomb Reed: I’ve found the 26-unit through networking with property managers. I connect with property managers for a couple of reasons. One of them is I effectively am a property manager. I am the manager of my own property, so sometimes I have questions, issues that I’m working on, the opportunity to pick their brains and figure out if there’s something obvious that I’m missing within management and dealing with difficult situations with tenants… But also, I am asking property managers about the clients they have who are a pain. The ones who just want the apartments filled all the time and are never willing to fund renovations, or they’re only willing to fund half of what the property or the unit needs in order to command market rent, and then those owners panic when their only half renovated apartment sits empty for too long, so they ask the manager to put someone in below market just to get it filled so their expenses are being covered… I reach out to property managers to ask about those clients of theirs, and whether or not I can make an offer, let the property manager get the commission for representing the seller, and take the manager’s problem properties off of their hands. I take it over, I manage it, they get a juicy commission.

Joe Fairless: I love that. And you closed on a 26-unit with that approach?

Slocomb Reed: Yes, closed on it last month.

Joe Fairless: Taking a step back, what’s your best real estate investing advice ever?

Slocomb Reed: My best advice ever is to do the thing that you’re thinking about. Go ahead and jump in the pool. Be willing to expand your comfort circle.

Joe Fairless: We talked about how you went from the 6-unit to the 24-unit, so putting your advice into action, and then recently closed on that 26-unit. We’re going to do a lightning round. Are you ready for the Best Ever lightning round?

Slocomb Reed: Let’s do it.

Joe Fairless: Best Ever way you’d like to give back to the community.

Slocomb Reed: I love being involved in youth ministry and the church. I also love doing things like hosting meetups and advising newer investors, people who are going where I’ve been.

Joe Fairless: What deal have you lost the most amount of money on and how much was it?

Slocomb Reed: You know, I haven’t lost money on any deals. Basically, I’ve held things long enough to profit on them. I have had contractors steal tens of thousands of dollars on a property. I bought it well enough that I held on to it long enough that it appreciated and I made a small profit.

Joe Fairless: What deal have you made the most amount of money on and how much was it?

Slocomb Reed: The 24-unit that we just discussed would be the biggest numbers, but frankly, I bought my four-family house hack for 170k in 2014, and just earlier this year, it appraised for 500k. When you look at the fact that I bought it on an FHA loan and I paid 170k for it, and now it’s worth half a million, I’m going to call that the most money that I’ve made on any one deal. I still own that, it was a cash-out refi.

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

Slocomb Reed: The best way to get a hold of me would be by email, at slocomb@tlp-management.com.

Joe Fairless: Best Ever listeners, I want to let you know first that Slocomb will be a new interviewer; he is currently an interviewee right now. He will be a new interviewer along with Ash Patel on the show. I’ve known Slocomb for eight years or so…

Slocomb Reed: Yeah, around six or so years six.

Joe Fairless: Six or so years. Okay. Thank you for fact-checking that. Around six or so years, and I know him originally through the meetup that we do here in Cincinnati. I can tell you that I handpicked Slocomb, and I’m grateful that he said yes to do interviews for this show. Because when I hosted that meetup – I don’t really host it anymore, I don’t really attend it often anymore… Slocomb now hosts the Cincinnati meetup. But when I was hosting it and I would be interviewing people in front of the group, Slocomb always would stand up and ask pointed questions that were very insightful, and I knew from that experience that he’d be a great person to interview guests on this show. In addition to that, as you heard through this interview, he is doing larger deals, and he’s doing them in a way that he’s getting hands-on experience, so he knows the owner-operator front and he’s doing them in a creative way too, which I thought would bring another good angle to the show. With that, I’m grateful to officially announce that Slocomb is going to be doing some interviews. I will still be doing interviews, but I’m scaling back the amount of interviews that I do. Ash and Slocomb are going to be doing more.

Slocomb Reed: Joe, I’d like to speak on this as well. I’ll be quick. We met because I put a super clickbaity post on Bigger Pockets to connect with as many investors in Cincinnati as would comment. Those investors were the people who were going to your meetup, and they told me that’s where I needed to be. Joe Fairless had a meetup in Cincinnati in-person, and there was a great opportunity for me to come, learn, ask questions, take notes, meet a lot of people. I met a lot of clients and a couple of business partners in that room. And as you grew that meetup, Joe, I took advantage of every opportunity I possibly could, to basically ride your coattails and build my own business through the meetup that you created. I was very grateful for the opportunity to start hosting that meetup when it was time for you to step away from that. I’m also very grateful to have this opportunity to be helping host the Best Real Estate Investing Advice Ever Show.

The saying “A rising tide lifts all ships”, Joe – in real estate investing, you’re the tide. And I’m very grateful for the opportunity to be one of these ships that have the opportunity to rise with the tide that you’re building through all the work that you’re doing – your podcasts, your books, your meetups. Thank you, Joe. I’m very grateful.

Joe Fairless: I appreciate that. Best Ever listeners, the quality of interviews will continue to be high and probably even higher, so I’m grateful that we’re able to bring someone on like Slocomb. With that being said, Slocomb – great conversation. Looking forward to everything we have together in the future as well. Talk to you again soon.

Slocomb Reed: I appreciate it. Thanks again, Joe.

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