JF2628: Laying the Groundwork for your First Syndication with Tim Vest

With a background in technology, Tim Vest’s first step into real estate was land development. Now, he’s involved as a GP, LP, and KP in several multifamily syndications. Today, Tim is talking about the importance of having an exit strategy, why he became an LP before becoming a GP, and why he spent a whole year laying the groundwork before his first syndication.

 

Tim Vest 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 with today’s guest, Tim Vest. Tim is joining us from Huntersville, North Carolina. He is a full-time technology manager for a large bank and investor. Tim is a KP, GP and LP in multifamily syndications.

Tim, thank you for joining us. And how are you today?

Tim Vest: Hey, Ash. How are you doing? I’m doing well. Thanks for having me on.

Ash Patel: I’m very well. Tim, before we get started, can you give the Best Ever listeners a little bit more about your background, and what you’re focused on now?

Tim Vest: Yeah, sure. So again, Tim Vest, I’ve got an IT background, and have been doing it for 23 years, ever since I graduated from NC State here in North Carolina. And I have a strong background in IT, founded a couple of small little IT startups, a couple of app companies. And then around 2006 I got into real estate. Met a couple of guys I was working with at an IT company, and they were doing some real estate investing, and it kind of piqued my interest; I had always had some interest in the real estate space. So I got involved with doing land development; buying raw land, getting it ready for developers, then selling it off to them. I did that for a couple of years, until 2008/2009 happened; I hit a little bit of a snag with that. But then around 2010, I started to get back into it with some fix and flips and single-family rentals, and around 2018/2019 I made a pivot into the multifamily space, and that’s where my focus is now.

Ash Patel: IT guys doing land development. What’s going on?

Tim Vest: Yeah, IT guys doing land development… So the way that happens is in the IT world we make pretty good salaries, we tend to have a little extra income… So we were able to leverage our income, our W-2s and our credit to work with developers that needed help getting land prepped to bring it to the general public. A lot of times these large homebuilders or even small homebuilders, they leverage their own credit, their own capital to secure the land, where they work with a landowner to secure the land, but then they look for people to come in and help them with the capital needed to then put utilities and infrastructure in place to then actually build on the land.

Ash Patel: You guys were essentially money partners on the deal.

Tim Vest: Yeah, pretty much.

Ash Patel: What kind of returns did you see from that?

Tim Vest: It was significant. So on those types of deals—I’ll just give you one example. On those types of deals on 100-acre plot, we’d buy 10 acres for, say, $500,000. And then within 18 months, we would typically sell that back to the developer for $625,000. So on those $500,000 plots, $450,000 of that was financed, $50,000 down from us, and then a total cash return of $125,000 in addition to our $50,000 back within 18 months.

Ash Patel: Beautiful story.

Tim Vest: Yeah.

Ash Patel: Tim, in 2018 multifamily – did you get tired of the single families?

Tim Vest: Not so much that I got tired of it. Well, the land thing, that stopped happening in 2008. Our development partners with the 2008 market crash for real estate, they ceased to exist anymore.

Ash Patel: Did you guys get burned on that?

Tim Vest: Oh, yeah, big time.

Ash Patel: To the tune of?

Tim Vest: To the tune of about three times what we actually made.

Ash Patel: Oh, no. So everything you put in was washed away, plus some.

Tim Vest: Yeah, and we spent about two years cleaning that up, just personally cleaning that up. Because a lot of people — not just land, but even homes at the time, something that you had a loan on for $500,000 may only be worth $250,000. And in some cases, banks were calling loan dues to get risky creditors credit they deemed risky off their books. So we went through that.

Ash Patel: So you guys were in the weeds for a while. Luckily, you still had your IT career.

Tim Vest: Yeah, we were in the weeds. Fortunately, looking back on it, one of the best things coming out of that was we did not know at the time about other people’s money. So we did not have investors. We were doing it with our own. So the only money we lost was ours. So while that was painful, I was at least able to put my head on the pillow at night knowing that I didn’t lose somebody else’s money. Because that’s a whole different ballgame.

Ash Patel: That’s a whole different ballgame. And Tim, were you jaded in just sitting on the sidelines for 10 years?

Tim Vest: No—

Ash Patel: [Inaudible [04:41] real estate?

Tim Vest: Yes, I was on the sidelines for a couple of years. I got back in a couple years later with the fix-and-flip and single-family stuff. So I wasn’t so much jaded. One thing – for a couple of years sitting there cleaning things up, what I kept looking back at was I knew things went south, but look at what I was able to do in a short period of time. I was able to take $50,000 and it turned it into $125,000 in a very short time.

So instead of being jaded, what I actually started to look at was, what did I do wrong? What did I do wrong? Where did I put myself in a risky position? And I’ve said this a couple of times to a few different people, what I kept coming back to was, I didn’t have cash flow on these properties, so I couldn’t wait things out. And I had no exit strategy that was not dependent on the developers themselves. So when my developer partners went away, I had 10 acres of land sitting in the middle of the North Carolina mountains with no infrastructure, and you couldn’t get to it without a four by four or on foot. So that was difficult for someone like me, that wasn’t in the development space themselves. So no exit strategy, and there was nothing else I could do with this land at the time.

Ash Patel: Did that developer just disappear, just ghosted you guys?

Tim Vest: No… To their credit, they didn’t really ghost us or disappear. They couldn’t do business. They were overleveraged; banks were calling on them, too. They just had to close the doors as well. I would be remiss if I said that it wasn’t painful for them. Those development partners had been in business for a very long time, 20 years plus.

Ash Patel: Yeah.

Tim Vest: And they no longer existed after that. So I’m sure that was tough for those guys.

Ash Patel: Yeah. So single-families, and then to syndications. How did you come to find that?

Tim Vest: Probably the same way a lot of other people do. But again, single-family, I was running them, saw the cash flow, loved it; it didn’t scale very well, although I think there’s some ways now to do it a little bit better. But it wasn’t scaling very well. I’d created basically another full-time job for myself, and I was reaching limits to what I could do with my own money.

So I started to look for other places to go, and as I was looking where to pivot, sold off my portfolio and pivot into, one of the things I kept saying to myself was “I have experience with tenants and renters. Let me just do this in properties that are bigger than a single-family home. So let me do it in a quad or a tri or a fiveplex.” And then I met a mentor who was like, “Well, why are you stopping at fiveplex? Let’s talk 20, 30, 40, 50 units.” He’s like, “The more tenants you can get under a single roof, the better it scales.” So that’s kind of how I landed in the multifamily space, was by taking some of the experience and naturally transitioned from single-family into multifamily. And then one of the biggest things I did for myself was finding a mentor that would help me move into that space.

Break: [07:30] to [09:03]

Ash Patel: What was your first syndication?

Tim Vest: So my first syndication was actually as an LP. I did not go in as an active partner at the time. I wanted to get some experience, so I invested as an LP in a 42-unit property in Mobile, Alabama. That was the first multifamily syndication that I participated in.

Ash Patel: How are the numbers on that?

Tim Vest: They’re good, we’re still in that deal. So for the numbers are good. I think we’re coming up on a refi of it here in the next 60 days, where it’s looking like all investor capital is going to come back to the investors. So I’ll get my initial capital back. And so far, we’ve been hitting the pref, which is right at a seven pref every quarter, so I can’t complain right now.

Ash Patel: Yeah. Tim, I love that you invested as an LP first, before becoming a GP… Because I think it’s so important that people see things from the investors’ perspective – the communication, the returns, the treatment of the investors is so important.

Tim Vest: Yeah, and I also want to understand – before I went to ask people for money and do a syndication, I wanted to understand being an investor in a syndication as well. I wanted to see it through the lens of an investor before I took on the role of asking people for their money.

Ash Patel: How did you choose this particular deal to invest in?

Tim Vest: I was working with a couple of different syndicators at the time; I actually was trying to vet them out, getting to know them. And it just so happened that I had built a pretty good relationship with a sponsor team on this one. So when it came time, when I started to feel comfortable with investing as an LP, I kind of gravitated towards this group of guys, because I had built a really good relationship with them. And that’s how I landed—

Ash Patel: Are they local to you?

Tim Vest: They are not local to me. So I’m in Huntersville, and they’re actually on the ground there in Mobile.

Ash Patel: So a great question is, how did they, and you, build a great relationship remotely? Because I think there’s some valuable lessons to be learned here.

Tim Vest: Lots of Zoom conversations, lots of phone calls, and quite frankly, texts, texts till 11 o’clock at night, where we’re just chatting with each other. It really wasn’t that difficult for me. Again, being in the IT space, I fully admit that I’m used to doing a lot of things remotely. I’ve managed teams overseas for years, and built relationships that way. So I was comfortable with that, and I felt like I have a pretty good read of most people through those types of means of communication. But it wasn’t quick. I didn’t talk to him one time and decide to do it. I was having multiple conversations with them over the course of months.

Ash Patel: And what was it that they did that the other syndicators didn’t? Was it just continuing to have conversations with you over time? Did the other syndicators not spend as much time with you?

Tim Vest: So here’s one of the funny things… This particular syndicator, in all the conversations we had, never once asked me to invest in their deal or asked me about money. It was just conversations; his kids, my kids, what he and his wife are doing, what me and my wife are doing, what my goals were as an investor, those types of things. Never really, “Hey, do you have $50,000 or $100,000 to put into a deal?” nothing like that. So that was one of the things I liked, was this particular guy was just being very genuine, and it didn’t come across as a hard sell. It just seemed to be building a relationship, building a rapport, and I really liked that, because quite frankly, that’s how I approach things as well. I like to know people that are investing with me, before we go down that route.

Ash Patel: Tim, did you initiate every conversation, whether it was on the phone, Zoom or text? Or did they proactively reach out to you throughout this process?

Tim Vest: It was a mix of both. So I didn’t initiate every conversation. They didn’t initiate every conversation. There were times when they would reach out to me, there were times when I would reach out to them. So it was definitely a mix.

Ash Patel: That’s great. So they took an empathetic approach to really learn about you. And not just, “Hey, are you going to invest or not?”

Tim Vest: Yeah, correct.

Ash Patel: Yeah, that’s great. So when it comes time for you to do your own syndication, take me down that route.

Tim Vest: So when it came time for me to do that, my first indication was not in a deal—on the GP side, the first one I did on the GP side was not in a deal that I found myself. I had a partner or a connection here in the Huntersville-Charlotte, North Carolina area, who was doing a deal in Winston-Salem. And he reached out to me saying, “Hey, would you be interested in participating in this?” And we knew each other through mutual connections and had had some conversations before? Oddly enough, we worked W-2 jobs at the same company. So I met him for coffee, we chatted, we talked for a little bit. I didn’t commit at that time, I went home, I thought about it for a couple of days, I had a few more conversations with him, and then said, “Yeah, I’d be interested in participating on this, going to be some boots on the ground, since I’m not too far from Winston-Salem, and also raising some capital on it.” So I committed to raising $500,000 in two weeks, and hit that number.

Ash Patel: So you’re IT buddies?

Tim Vest: No, it wasn’t my IT buddies. It was people that I’d been having conversations with over the previous year. Because when I say I pivoted into multifamily – I spent a good year to a year and a half pivoting, and laying some groundwork, laying the foundation, building my network before I did my first LP deal, and definitely before I participated in my first syndication as a GP.

Ash Patel: Can we dive into that as well? I think that’s so important.

Tim Vest: Sure.

Ash Patel: So the time that you spent building your network, marketing yourself – what types of activities did you do to accomplish that?

Ash Patel: A number of things. One, like I’ve mentioned earlier, finding a mentor. That was one of the biggest things for me, as I knew from my land development days that I wanted somebody that had been there, done that, here in the multifamily space, and I wanted to be able to have access to that individual.

So I spent some time finding that person, build a network around that. I vetted my mentor. I think I nailed it down to three guys. And I was like, “Alright, now I’m going to kind of stalk them a little bit, quietly,” monitoring what they were doing, looking up their deals, looking up their track record, and landed on a guy out of Ohio and started working with him. And that went really, really well. I knew that one of the places that I would need a push was in the capital raising space, building my network of investors. So I went after a mentor that would be able to help push me in that space, and he definitely did completely change my mindset around those types of things.

And then went about spending the next year kind of building my network of investors through friends and family, through coffee conversations, through Zoom meetings, and through social media, quite honestly. I leveraged LinkedIn and Facebook quite a bit consistently, every day, multiple times a day, and then would have conversations with people I’d meet through that.

And then I also set aside a chunk of money for myself, that I always call kind of personal development, personal education, that I would use for joining mastermind groups and building my network through mastermind programs with people who were looking to do the same thing in real estate. So all of that combined.

Ash Patel: You put a tremendous amount of time into this. And when people think, “I need to grow my network,” I mean, that’s a lot of effort that you’ve put into it.

Tim Vest: Oh, yeah. It’s not quick, for sure.

Ash Patel: And then how did you market yourself? How did people know that, hey, you’re also a real estate investor, and not just an IT guy?

Tim Vest: I just talked about things I had done. I was very open about things that I had done. I was very open about the mistakes I’d made back in 2007/2008. I was very open about where I had gone wrong there, as well as how I pivoted and went into other areas of real estate, and I would just have conversations about that. So I think the feedback I get from people a lot is that they feel like it’s genuine. And they’re appreciative of the fact that I’m willing to not just talk about everything that went right, but I’m also willing to talk about things that didn’t go so right.

Ash Patel: That is incredible. And are you doing a lot of this on social media, or in person, or both?

Tim Vest: Both – social media, in-person and then through Zoom calls and phone calls.

Ash Patel: You are a KP, LP and GP. Can you explain the difference between a KP and a GP for our listeners?

Tim Vest: A GP has a much more active role, at least in my mind, the way I separate it. A GP has a much more active role. A KP can be active, but typically not as much. But a GP is involved in all aspects or can be from capital raise investor relations, asset management, those types of things of when you get the property under management. KP is a little bit more of just doing the sponsorship piece of it. In fact, I’m actually talking to somebody right now about being the KP on one of their deals that they’re doing where they need somebody to come in and help them qualify for a Freddie loan. So we’re talking about what my background is, what my business partner’s background is, and if we are able to help them qualify for that. So I think that kind of sums it up.

Ash Patel: Yeah. So a KP or a Key Partner has a specific role that they have to fulfill, and in return, they’re often awarded equity in the deal.

Tim Vest: Right.

Break: [18:05] to [20:59]

Ash Patel: So what are you working on now? What’s the deal that’s in front of you?

Tim Vest: The deal we’re working on right now is a deal in Georgia. We don’t actually have it completely nailed down, so I’m not going to talk too much about exactly where it is.

Ash Patel: Just give us coordinates, latitude and longitude.

Tim Vest: [laughs] Yeah, we’ll just say north of Florida. But we’re working on a deal in Georgia right now that is a 56-unit property, and we’re looking to get into that one for a little under $60,000 a door. And the cap rate would be around a seven cap on purchase, which right now, sitting here today is pretty good with the way the market’s going right now. So that one will be a true value-add; there’s quite a bit of work that needs to be done on it, quite a bit of exterior work, but nothing that’s real scary. We’ve walked into properties where our general contractor or our engineer’s like, “You need to do significant work to make sure this building doesn’t fall down.” This one is more cosmetic; there’s just some neglect on the outside overgrown bushes, needs some paint here and there, take some graffiti off some storage units in the back, stuff like that. So we’re really excited about that one, and that will actually be our first foray into Georgia. We’ve done Virginia, North Carolina, South Carolina, and Alabama, but we skipped over Georgia up until now.

Ash Patel: How did you find that deal?

Tim Vest: Broker connection. Completely off-market. We have a strong broker connection with a really good independent broker who seems to like how we take deals down, how smooth we try to make the process. And once we proved that we had the ability to close and that we could close smoothly, those types of things start to show up in our inbox or we start to get phone calls on those pretty quickly.

Ash Patel: So with all of your networking, do you also include brokers in that networking?

Tim Vest: Oh, yeah, absolutely. 100%.

Ash Patel: Yeah, that’s important. So it’s not just chasing people with money—

Tim Vest: No.

Ash Patel: —and [Inaudible [22:51] all the deals, brokers, everybody.

Tim Vest: Yeah, you’ve got to have the full thing. Obviously, if you do this long enough, you run into guys who, all I want to do is raise capital, and I want to participate that way. We really appreciate that, and we have partners like that as well, that are huge to being successful here. But at the same time, it takes the money and the asset, the property, to do a deal. So you’ve got to fund both, and that requires direct to seller, that requires broker conversations, you name it. So yes, those broker connections are key.

Ash Patel: How much money are you raising for this deal?

Tim Vest: So if we move forward with this one, the total raise will be just over $2 million.

Ash Patel: And how much of that is CapEx?

Tim Vest: The total CapEx on that one will be just under $1.2 million.

Ash Patel: So $800,000 to acquire it, and then $1.2 million for CapEx?

Tim Vest: Yup.

Ash Patel: What’s the purchase price?

Tim Vest: The purchase price on this one will be $3.4 million.

Ash Patel: And is your capital stack fully loaded, ready to go?

Tim Vest: Yeah, it is. Absolutely.

Ash Patel: What will the return to investors be?

Tim Vest: So right now — we always do conservative projections, almost worst case… But on a conservative underwriting model, we’re looking at around an 18% IRR, just over 10% cash-on-cash and then it just under 2.1 equity multiple on a five-year hold.

Ash Patel: Got it. Tim, what is your best real estate investing advice ever?

Tim Vest: Best real estate investing advice ever… For me, just based on my personal experience, I would just have to say, don’t let the bumps, don’t let getting knocked down once or twice keep you from getting up and moving forward. I could have easily let 2008 keep me from getting back into the real estate game at all. I didn’t and I’m very, very glad I did not. Over the last five years, especially over the last 18 months, it’s been phenomenal.

Ash Patel: Yeah, you are a great example of that. Tim, are you ready for the Best Ever lightning round?

Tim Vest: I hope so.

Ash Patel: All right. We’ll find out. Tim, what’s the best ever book you recently read?

Tim Vest: Best ever book I recently read is Who, Not How; just all about scaling and enabling that.

Ash Patel: What’s the best ever way you like to give back?

Tim Vest: The best ever way I like to give back is just having conversations with other people who, like me, were just getting started off at one point in time. So when people call and they have just questions about starting, I like to actually spend some time and talk to them about that.

Ash Patel: How can the Best Ever listeners reach out to you?

Tim Vest: Yeah – we mentioned social media, I’m on LinkedIn, under my name, Tim Vest or you can at me at tvest@harvestpg.com.

Ash Patel: Tim, thank you so much for joining us today and sharing your story from being an IT guy, getting rocked in 2008, but learning from that and picking yourself up, and now you’re doing syndications, you’re partners on multiple deals… So thank you again for all that advice today.

Tim Vest: Yeah, Ash. Thanks for having me on, and I appreciate it.

Ash Patel: Awesome. Best Ever listeners, thank you for joining us and have a best ever day.

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