Joe continues to share value, and he has done that since episode one. Today you’re going to hear from someone who took his advice and contacted the guests on the same podcast to help him close a 23 unit multifamily deal…you could be next!
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Jordan Madewell Real Estate Background:
– Owner of Jordan Madewell Construction Company
– Began real estate investing 2 years ago and currently owns 2 single family residences
– In November 2016, syndicated a 23-unit multi-family with a deal sponsor
– Currently looking to scale portfolio up to several hundred more units in the next 12-24 months
– Based in Lubbock, Texas
– Say hi to him at http://www.madewell-construction.com
– Best Ever Book: The Noticer by Andy Andrews
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Joe Fairless: Best Ever listeners, welcome to the best real estate investing advice ever show. I’m Joe Fairless and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any fluff.
With us today, Jordan Madewell. How are you doing, Jordan?
Jordan Madewell: Joe, thank you for having me. I’m great!
Joe Fairless: Nice to have you on the show, and especially someone who is living in the town or the city where I went to school, Lubbock, Texas, home of Texas Tech University. A little bit about Jordan – he is the owner of Jordan Madewell Construction company. He began investing in real estate two years ago and currently owns two single-family residences, but get this – in November of 2016 he syndicated a 23-unit multifamily deal. We’re going to talk about that for sure.
He’s currently looking to scale his portfolio up several hundred more units in the next 12-24 months. With that being said, Jordan, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Jordan Madewell: Sure. When I grew up, my parents and grandparents both were in the construction and real estate business, so I’ve been around this all my life. Recently over the past few years I got back into construction after doing financial services. A lot of people [unintelligible [00:03:31].11] house hacking. We lived in our first house and then later turned it into a rental.
We bought the second single-family in October 2015 and I can remember this perfectly… We literally were driving home from the closing, and I turned to my wife and said “We shouldn’t have bought that property.”
Joe Fairless: Uh-oh… That’s not what she wanted to hear.
Jordan Madewell: Right. She turns to me and says, “Why? Did we do something wrong? Is it a bad deal?” No, it’s not a bad deal. With the same amount of time, effort, energy and really money in some cases we could have bought 10, 20 or 30 units. That just kind of put me on this path of education and learning and reaching out to people and going for apartments and small multi-family. I just thought “This is the next step. This is the progression of what we need to be doing to hit our goals.”
We did that, and over the next six months I read everything that I could get my hands on. Your podcast was one of the ones that I found and came across, I listened to a ton episodes, so thank you, by the way… I reached out to different people and found myself kind of a mentor/co-sponsor type of a person to finally go after my first deal with.
Joe Fairless: Outstanding. Who is that person?
Jordan Madewell: His name is Kenny Wolfe and he’s about six or seven years into multifamily and commercial real estate, and probably has about 1,700-1,800 units under management. He’s a great guy; our philosophies on investing really aligned, and when I found this little 23-unit in a town a couple hours North of Lubbock…
Joe Fairless: Which town?
Jordan Madewell: Canyon, just South of Amarillo… Just a small college market up that way. So as soon as we found that deal, we went after it and closed three months later. That was August when we found that deal, and we closed on that in November.
Joe Fairless: Well, I want to spend our time on this 23-unit deal. Before talking about the actual deal, I wanna spend time on what you did in the six months leading up to the 23-unit deal. You said you listened to podcasts, mine was one of them… What other podcasts did you listen to?
Jordan Madewell: I got a lot of education out of a finance podcast called Old Capital.
Joe Fairless: Yeah, Michael Becker, Paul Peebles…
Jordan Madewell: Yeah, great guys. Smartest guys in the room. And they were very instrumental just listening to them… But I’ll tell you, I picked up the phone and called their office and visited with them and asked them questions, and they were just extremely helpful in that. I would suggest or recommend anybody reaching out to those guys and listening to their podcast.
Joe Fairless: What questions did you ask?
Jordan Madewell: One of the questions that was probably one of my first ones was “What are the two or three action items I need to be doing today to prepare myself?” because I just got through saying I need to be educational and learning, I also realized at some point you need to start acting and stop trying to learn everything in the book and start doing. So I’m big on action items and goals, and timelines, and that type of deal. So that was one thing I said, “Hey, what do I need to be doing in the next few months to get ready for this? What do I need to be looking for? How do I need to evaluate these things? What can I do to get more comfortable running numbers?”
Joe Fairless: What was the answer?
Jordan Madewell: Well, they’ve told me kind of all of the above. They told me “Keep reading your books, keep listening to this podcast and you’ll get more comfortable in hearing different terminology, you’ll get more comfortable in hearing how things are financed, keep reaching out to other people that you come across on podcasts, on platforms, online, on meetups… Everybody you talk to, keep having those conversations, keep asking questions and keep learning deals.”
Another great podcast obviously is Bigger Pockets; I listened to those guys over the past couple years, and they have some of their spreadsheets and models that you can run stuff on, so I found a lot out on there as well.
Joe Fairless: So you’ve listened to podcasts, you’ve reached out to the hosts… Did you reach out to guests that were on the podcast?
Jordan Madewell: That is literally how I found co-sponsors, deal sponsors, partners… That’s how I found Kenny. I heard him being interviewed on Old Capital’s podcast, and the things he talked about in his interview really resonated with me, and I just thought to myself “I’m gonna call the guy.” So whether it be naivety or ignorance, I just reached out and called him, and we had a series of phone calls over the next several 4-6 months I would say. Everything from just “Hey, what would you do in this situation? How would you handle that situation? What do you think about this deal I found? Would you run the numbers on this? What price would give here? How do you determine this rehab?” I just kind of picked his brain for probably six months and weeks.
So that’s how I found him, I just reached out to him from the podcast.
Joe Fairless: And what did you give him and what did he give you?
Jordan Madewell: Well, in our specific 23-unit deal we partnered up as the management team. A lot of these projects, as I’m sure many of your listeners know – basically, there’s a general partner or the management group, and they keep a portion of the project and give the rest of the entire deal away to the investors that put money into it. So that’s what he and I did – we split the management group in our first project.
Joe Fairless: And what was the structure?
Jordan Madewell: For the most part on all the projects that we were looking forward to going forward, we did a 20% ownership and raised money for the remaining 80%.
Joe Fairless: Is that what you did on the 23-unit?
Jordan Madewell: Yes.
Joe Fairless: Okay, so 20% general partnership, limited partnership 80%, right?
Jordan Madewell: That’s right.
Joe Fairless: And how much did the general partnership bring to the deal, if any?
Jordan Madewell: We took the 20% and then we only needed to come up with about 450k between the down payment closing cost, some of the rehab and working capital… That’s kind of all the numbers we raised – so we raised about 450k, and out of that, our management group I think put together right under 50k of that 450k. So we put roughly 8%-10% into the deal of our physical dollars.
Joe Fairless: Cool. So you put in 8%-10% of the overall equity and you got 20% for putting the deal together and everything else, right?
Jordan Madewell: Right.
Joe Fairless: And what type of fee structure do you have? Do you take an asset management fee or an acquisition fee, construction management, anything like that?
Jordan Madewell: We just do a straight 1,5% asset management fee paid out of the net operating income. We didn’t do an acquisition fee on this project, or a construction management fee. None of those, just the 1,5% asset management fee.
Joe Fairless: What type of loan do you have on it?
Jordan Madewell: Right now we have a bridge loan. That was part of the opportunity and part of the downside of doing a 23-unit deal… It’s almost kind of too small. It was basically poorly mismanaged. The property was only 10 years old; it’s still in pretty good shape really from a maintenance standpoint, so it didn’t have a lot of cosmetic or aesthetic repairs or rehab needed… So really, the biggest thing that was our opportunity in creating value was the property manager before was just a small mom-and-pop – nothing wrong with that, but they had an insurance package that was entirely too expensive; they had the daughter living on site, being the on-site property manager, so she got free rent and she was getting like 20k/year to manage the property.
On a property that size, between those two things, that equaled something close to like a 24%-25% management fee. So they were just kind of milking it and not really running it like a business, and especially if you ran it for investors.
So we basically came in and we put in a better insurance package, we cut the management fee down to what would be appropriate, which ends up being – I think we’re in between 6%-7% on a project that size. Basically, we did what little maintenance and repairs and rehab needed, and now we’re just in the process of renting it back out… Because the other catch was the daughter had a full-time job outside of being this property manager, so she didn’t really care whether the units were rented or not.
So we took over this property, and there were like six or seven units vacant. On a 23-unit complex, that’s a big deal. We didn’t qualify for the Freddie Mac or Fannie Mae loan programs that are so desirable for multifamily because we’re under that 85%-90% occupancy threshold that a lot of those programs need to qualify for.
We basically took it to a local bank, put it on bridge financing…
Joe Fairless: Which bank?
Jordan Madewell: It’s called AimBank; they’re just a small commercial bank in West Texas, but we have a good working relationship with them and they kind of have a good appetite for business and commercial real estate, so it was a good fit for them. But they effectively gave us the same terms as a Fannie Mae type deal, except that it’s just a bridge. So that allowed us to get in and have some interest-only financing, still have a good amortization, still have a competitive interest rate, and just give us time to go and get that property stabilized.
Joe Fairless: And what is your role and what is Kenny’s role in this deal?
Jordan Madewell: Me and Kenny, and we have another partner that’s on Kenny’s team – all three of us combined… He raised a little bit more money for the down payment than I did, but basically I handle most of the day-to-day. Then us three meet and go over all of the more high-level details – we go over the monthly reports, we go over the lease renewals… We’re just kind of in contact with the property manager on a regular basis. But any of the day-to-day decision-making that needs to be done that the property manager doesn’t have the authority or doesn’t want to make a decision on, I’ll usually handle that.
But otherwise, his big role is helping us secure the permanent financing we want, and he was instrumental in getting the down payment raised… And I really needed somebody like him as kind of a safety net or an insurance policy of my own, if you will. I felt confident in what I was doing, but I wanted to make sure I was doing things the right way and the best way. And the fact that he’s closed on 12-15 deals or whatever it is, I know he knows what is a good way and a good process to do things, and trying to avoid winging it as much as possible, if you know what I mean.
Joe Fairless: And how much did you put into the deal of your own dollars? You said 50k came from the general partnership.
Jordan Madewell: I put in about 20k of my own money.
Joe Fairless: And what is your percent ownership of the general partnership?
Jordan Madewell: Half. I own 10% of that 20%.
Joe Fairless: And with the investors do you have a preferred return or any structure on top of the 80/20?
Jordan Madewell: Our projections and strategy for the [unintelligible [00:15:17].12] was we wanted to return approximately 10% or better on an average annual based on five years, basically. That’s what we’re trying to do as a percentage of what they put in. Somebody put in 10k – I’m trying to give them $1,000 in cashflow a year over a five-year period on average. That’s our first goal – 10% or better cash-on-cash.
Our second goal is that we’re gonna either refinance the property and pull enough cash out to return all the original principal to the investors, or at the point where it makes more sense, we’ll just put the asset up for sale and dispose of it, basically to achieve one or the other… But we usually wanna try to do that in about a 5-7 year time frame. If we can do it sooner – great, but effectively, that’s gonna double an investor’s money if I can get them 10%/year while they’re hanging out, and then either cash-out refi or a sale and return on that plus gains. In that timeframe, it really should be a pretty good investment for any of our limited partners.
Joe Fairless: When I said preferred return, what I was referring to is investors get a percentage of the profits before there’s an 80/20 split.
Jordan Madewell: Yeah… If it does better, they get better. If it doesn’t perform… What it gets is what they get. If we do 8%, that’s what they get. If we get 15%, they get all 15%. We didn’t do a preferred on this one.
Joe Fairless: How did you find the management company?
Jordan Madewell: Two ways. One, my brother is a real estate agent in West Texas and has a close relationship with these guys. And two, I knew that they had a couple of properties that are similar size in the same market, really even in the same part of town as the property we just bought… So we felt like they were a good fit because they literally knew the neighborhood. Six blocks away is where is one of the other properties they’re managing. And because we already had a good knowledge of who they were, because of my brother’s relationship with them.
Joe Fairless: Based on your experience, what is your best real estate investing advice ever for someone who wants to do a syndicated deal like you just did?
Jordan Madewell: A couple of things… If you can find a mentor or find what I would call a co-sponsor that has been through it and has already had success and that already has the credibility and the track record and really even has the investor network and database, it’s gonna make your life a lot easier. If you can find that person and they would be willing to do a deal with you, that’s gonna shorten your learning curve immensely, and they’re gonna help you learn the right way, instead of you just finding out through hard knocks. So that would be my first thing – find somebody you can team up with.
My second thing would be do as much as you can to learn, actively get out there and meet with people, even if you don’t do anything with them. I think that that is as valuable as any… Just get exposed to that world. As you know, Joe, so much of the multifamily market in any given area is a pretty small community; they all know each other, they all know who’s buying, they all know who’s selling… So just kind of getting exposed out there, that you’re out there and you’re interested, you’re wanting a deal – that’s gonna be helpful to start getting your name out there. A mentor, and just getting involved I think are the two first steps that I would take or I would tell somebody to take.
Then if I had to tell you another one, it would just be that at some point you’ve gotta start doing instead of reading. I wanna know everything and I wanna do it simple, and I get kind of the paralysis of analysis, you know? I just think that stops a lot of real estate investors – they’re looking for this magic unicorn that doesn’t exist, and sometimes you’ve just gotta act.
Joe Fairless: Did your brother find the property, since he’s a real estate agent in West Texas?
Jordan Madewell: No, we knew of this property from some previous relationships. I reached out to them, just trying to put some [unintelligible [00:19:38].00] “Hey, if you’re ever in the neighborhood of selling or wanna look at getting rid of the property, let me know.” I thought that was a two-year conversation; “Oh yeah, I’m gonna have to wait forever and maybe they’ll call me”, and it just happened that they had just recently put the property up for sale. Maybe we looked into that, but I just knew of that property, and it was kind of in a market where I felt comfortable in. I’m from the Amarillo area and I grew up in Canyon originally, so I knew it was a good market for the college being there, it was a good market because it was stable, and it wasn’t run down.
So I just knew that market and I had kind of been looking all over West Texas because in my mind that was the place to start, since I could get there… Even if it wasn’t in my backyard in Lubbock, that was okay to me.
Joe Fairless: Are you ready for the Best Ever Lightning Round?
Jordan Madewell: Yeah, let’s do it.
Joe Fairless: Alright. First, a quick word from our Best Ever partners.
Break: [00:20:38].11] to [00:21:32].09]
Joe Fairless: Best ever book you’ve read?
Jordan Madewell: The best ever book I’ve read is probably The Noticer by Andy Andrews. Not necessarily a business book, but it just gives you some great life perspective.
Joe Fairless: The Noticer, by Andy Andrews?
Jordan Madewell: Yes, sir.
Joe Fairless: Best ever deal you’ve done?
Jordan Madewell: [unintelligible [00:21:52].16] start my own construction company… I would say that’s probably the best deal I’ve ever done – started that. But I bought my first single-family rental – I bought it at the right price, and I’ve held on to it, and that’s turned into a real cashflow. I look forward to do more of these multifamilies… So I’m gonna have to say my next multifamily deal will be my best ever.
Joe Fairless: Best ever way you like to give back?
Jordan Madewell: I like doing stuff like this. I’ve done some other podcasts and I’ve had dozens of people reach out to me via e-mail and phone and text and Facebook and whatever… I’ll talk shop all day about real estate. So I love talking about that from this standpoint, and just giving my two cents. Otherwise, we do a lot of stuff with our church, and I give money to missions, and the local church camp we work with… So if I’m not doing stuff from that standpoint and giving back, I love just helping other people think through real estate deals.
Joe Fairless: What’s one or two mistakes you’ve made on the 23-unit that — if you don’t wanna classify it as a mistake, then things you would do differently for the next syndication that you do, whether it’s about the actual deal, or the structure, how you found it, whatever.
Jordan Madewell: I would add one more piece of advice to doing something as a must – getting an SEC attorney. They’re gonna really be invaluable in putting together your PPM and your other type of work you’ve gotta file.
Otherwise, I would go bigger. I thought just getting into a deal was the most important thing – and it is – but I would say it made the deal that much harder to finance, it makes it that much harder to keep occupied at 90%, which is a big threshold for people, and it just makes watching the pennies that much harder to do. So I would actually go bigger on my next deal, or I advise that. That would be something I would do over.
That would probably be my biggest one – just go bigger. As weird as that sounds as a mistake, that one thing is giving me more heartburn out of this whole entire project, even though it’s been a good project.
Joe Fairless: Where can the Best Ever listeners get in touch with you?
Jordan Madewell: They can e-mail me: firstname.lastname@example.org. I’m sure you’ll have my name in the show notes, but they can e-mail me… Or they can call my cell – 806 570 02 64. I’ll be happy to do what I can to visit or answer any questions.
Joe Fairless: Jordan, thank you for being on the show. Thanks for talking about how you had the a-ha moment with your single family after you just closed on the second one, and then you spent the next six months listening to podcasts; a couple that you mentioned – Old Capital, Bigger Pockets, and then this podcast, Best Real Estate Investing Advice Ever. Then you didn’t just listen, you reached out to people, you talked to them, you communicated with them, you asked them questions, and then ultimately you reached out to the guests that were on the podcast, and that’s something I encourage as much as I can remember to encourage the Best Ever listeners – don’t just listen to these shows, reach out to Jordan. Talk to him, talk to the other guests who were on the show and learn from them, build relationships with them and see what type of value exchange (if it makes sense) that you all can do.
Thanks for getting into the details of how you structured the deal with your investors, as well as with your general partnership deal, and then the lessons learned along the way. One of them is make sure we have an SEC attorney who puts together the right legal documents, and then go bigger. One thing that you said at the very end that I hadn’t consciously thought of is that when you do have a smaller deal (say, a 23-unit) — and it’s so funny, I am catching myself now, because now I’m saying “a smaller deal” when I say 23 units, but earlier, five years ago, that was a large deal to me. So it’s all relative… But from a commercial real estate standpoint and from a loan standpoint, a smaller deal, a 23-unit. You said it’s harder to keep occupancy at 90%. I never thought of it that way.
Conversely, it would be easier to keep occupancy at 100%, because you only have 23 units, but it does go both ways, so it’s important to make note of that, and I’m glad you called it out. And you said you have to watch the pennies a lot closer, and that’s very true… That’s also a very good lesson – and training, rather – for larger deals, because you’re conditioned to be looking at the properties a lot closer, because you have to, with the 23-unit.
So thanks for being on the show. I think overall your approach aligns with the West Texas mantra of “You roll up your sleeves, you get to work, you treat people right and you get your job done.” That’s why I loved going to Texas Tech University.
With that being said, Jordan, I hope you have a best ever day, my friend, and we’ll talk to you soon.
Jordan Madewell: Thank you, Joe. I appreciate this.
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