Achieve Wealth Real Estate Investing Podcast

James: Hey audience, this is James Kandasamy from Achieve Wealth Podcast. Today, we have Coach, Trevor McGregor from Vancouver, British Columbia. But you know, he's been seen all over in the US, in a lot of conferences giving keynote speeches. So Trevor is a real estate coach, a consultant, a keynote speaker and many other things. Trevor, why not you tell the audience what do you do and what are the things that I missed out?

Trevor: Oh, well, thank you very much, James. Great to be on your show. I love your show. And yeah, you know, predominantly, my background is in business. I worked in the Fortune, you know, Fortune 500 company; it wasn't a Fortune 500 company itself, but I worked in corporate. It felt like a Fortune 500 company because I did a little bit of everything as the director of operations. I was involved in everything from marketing to finance, HR, site selection; you name it, I did it. And at the same time, as I was working in corporate, I also became a real estate investor. So I started investing in condos, townhouses, duplexes, fourplexes, single family homes. And at the same time, I also really got into personal growth. I was studying the likes of Tony Robbins and Jim Rohn, a little bit of Napoleon Hill.

And so, I had this trifecta going of corporate, of real estate, and a personal growth that eventually morphed into me doing a little bit of coaching in corporate and in real estate and in personal growth. I went on to start working with Tony Robbins. For those of you that know Tony Robbins, he's a business strategist and he loved that I had a background in business, a background in real estate and that I was big into personal growth. And so at some point in my career, I decided to just leave the corporate world and just end up doing coaching, consulting, keynote speaking and full-time real estate investing. And that's really what I do today.

James: Very interesting. So I believe that success in anything that we do is 80% psychology mindset and personal growth, internally, right? So tell us about the steps that any real estate investor needs to achieve his dream or his or her dream to become a really successful real estate investor. I mean, you have coached a lot of people, so why not we go through the list of what are the most important things that any real estate investors should look at?

Trevor: Absolutely. I'll be happy to. And I guess it all starts with understanding that there are two things. So I'll share two things before we get to the list, James, because I'm telling you, I've coached real estate investors all over this beautiful blue planet. You know, the majority of them have been in the United States, some in Canada, some in Europe, some in Australia, New Zealand, even as far away as Asia. And after doing over 20,000 coaching calls, that's an actual statistic, I found that it really boils down to just two things. You know, the first thing is to really have what I call a high-performance mindset. You've got to get what's right between the ears before you can even go out there and do the second thing, which is modeling; modeling best practices. You know, learning from people like you, learning from reading great books, attending conferences. Because if you can show up with a powerful mindset and you can model best practices, you can really take your real estate portfolio through the roof. Does that make sense?

James: Yeah, yeah, absolutely. Absolutely. So let's go to more things in how the journey can be started, right?

Trevor: Yeah. Well, absolutely. And I call it the seven simple steps to extraordinary real estate success. Because again, I've identified that if you do these seven things, you're going to be wildly successful in real estate. And if you miss one of these seven things, it can take you a long time to get to your ultimate outcome. So the very first thing that I always talk about, and it's always number one with people, whether you are new to real estate investing, maybe you are an expert at it, is that there's always something going on where we need to confirm with your mindset. Because we all have limiting beliefs, we all have doubts, we all have fears, we all have anxiety. And oftentimes we'll say things like, you know, it's tough to find great deals, right? Or maybe you've heard all the good deals are gone, or that it's hard to raise money nowadays because there's so much competition Or what if the market crashes?

And so those are all questions that if you don't get your head around those things, they can literally paralyze someone and stop them in their tracks. So what I come in is I come in as a coach and I take a look at things like, well, what are your beliefs? What are your values? What are your rules? How were you answering those questions? Because I'm telling you that there's a new way of thinking and behaving that you've got to really latch onto. Because if you don't, those limiting beliefs are going to hold you back. Does that make sense?

James: Yeah, that makes sense. But where do you think people get the limiting belief? I mean, it seems to be everybody having it, right? And how can they cure that limiting belief?

Trevor: Well, limiting beliefs come from what we perceive as being true, right? So if someone says, "Oh, it's hard to raise capital."

You've got to ask, "Is that really true?"

And the answer for some is, "Yeah, it is hard to raise capital."

And from others you go, "Well, other people have seemed to raise capital so I might just investigate how they're doing it."

Let's take James Kandasamy if we take a look at how much money you've raised in your time, I mean, there was a time where you had raised $0 and now you've gone on to raise tens of millions of dollars. So I always say to ask the question, is that really true? Is it hard to raise capital or do you maybe need to find a mentor or a coach like James or take James's program to really find out how other people are doing it? And that's the one thing that you've got to remember is for every problem that you've got or that you're facing, somebody does have the solution. But you can't sit there and think that it can't be solved. I mean, it's imperative that you really understand. That's why coaching and mentoring exists. And that's what I love about you, James, is you do all of this in your own real estate deals and you're an expert at it.

James: Yeah. It's very tricky, right? So there are so many reasons that even I was giving, sometimes I have self-talk and would say, Oh, that's no deal. Well, I really have to force myself to think that, okay, I need to be finding different ways to find deals. That's not like there are no deals, you just have to think differently and ask different questions.

Trevor: It's really true because today alone, I mean, if we take a look at today, somebody that owns an apartment building somewhere today is going to be diagnosed with heart disease or cancer, right? And they're gonna want to sell their property. Tomorrow, somebody's going to be getting divorced and they're going to need to sell their property. Tomorrow or the next day, someone's going to be going, man, it's too hot to live in Texas. My wife and I are ready to move to Florida and live on the coast where it's a little bit cooler. So you've got to believe that as the Baby Boomers age, and as people come up with real-life conditions like heart disease, cancer, divorce, moving, there's going to be more and more apartments for sale every day because that's what's happening to these apartment owners. So again, you've got to condition the belief system to believe that every day there are new great deals about to come online. Does that make sense?

James: Yeah. It's all about belief systems and I think it will appear, right? And I think you always have to think about how can you do things differently from everybody else. And a lot of times people are just want to be handholding. They want someone to hold their hand and show them...basically, they want to be fed by the spoon. Everything you want to be given just like that. It's not how it works. I mean, for example, when I started in multifamily in 2015, it was hard to find deals. Everybody say it's pricey. I used to buy deals, the deals and my market used to be like 55 a door and that was like expensive and I had to find different ways to buy deals at 35 a door.

But the thing is it has been pricey since 2015. If you think the market is hot right now in 2019, I tell you it was really hot, even in 2013, 2014. It has always been hard. There was no such thing as it was easy last time. So, you know, it's going to be always difficult. You just have to find some different value proposition and do things differently from everybody else to get ahead. And that's what I did even in 2015. I used to start looking for direct to seller marketing, which nobody else was doing. I did find deals and that's how I penetrated the market. Otherwise, I would have been complaining and talking the same thing all over again.

Trevor: Well that's it. And people don't know what they don't know until they know. And I'll say that again: People don't know what they don't know until they know. And you have to absolutely start out by putting one foot in front of the other and starting to get some traction. Starting to look at, well, what are the different areas I could get a deal, find a deal, talk to a broker, go direct to seller? I mean for the committed, there's always a way; would you agree?

James: Yeah, absolutely. I mean, for the committed and people who want to really, really be successful. A lot of people out there, like to be successful or they want to be, but there is no requirement for them to be successful. It's not like do or die. So it's not like breathing for air when you're underwater. When your head is pushed underwater, you want that air. That's how you should feel it when you want to be successful. So if you have that feeling then you will be successful. But if you want to be like, yeah, I mean, you know, if you are taking it lightly and if you want to be or you like to be successful, then, of course, you're not going to be successful.

Trevor: That's it.

James: Yeah, absolutely. So let's go for the second step after the mindset. What do you think is the next one that is very critical?

Trevor: Well, I'll tell you, this is a big one too, James. And it really is what I call a lack of a strategic plan. And that means, as real estate investors, we've got to start with the end in mind. We've got to start with our outcome, we've got to get crystal clear on what it looks like. Are we going to invest in state or out of state? Are we going to invest with a partner or by ourselves? Are we going to look for properties that are in B class or C class? Are we going to look for things under a hundred doors or over a hundred doors? And so, I always remind people to sit down with a pen and a paper and get clarity on what their ultimate outcome looks like. And then from that place, we can reverse engineer it and start building the steps to move in that direction. Does that make sense?

James: Yeah. Yeah. Correct. And I think it also helps the person when they communicate with other people. So let's say when they're very, very specific with their goal, it helps them a lot. Like when they talk to a broker, if they say, I need a hundred unit in a C location with a C minus a property or B and a C location and I want this kind of expense ratio. Then that's definitely going to be very, very helpful for the broker to really, really give you the deal that you want. So what do you think?

Trevor: No, you're spot on. And again, you're going to start to really understand that the 80/20 rule applies; where 80% of people are just phoning up a broker and saying, what have you got for me? Whereas 20% of the people are going into that call with the broker with a lot of specificity like you would do: here's what I want, where I want it, what my budget is, here's my team. We've got capital ready to deploy and we're ready to take down a deal. Because let's face it, the world has sped up so fast and there's so much competition out there that if you can't speak intelligently to a broker and tell them what you really want and where you really want it, he's going to go give it to someone else who is specific. Does that make sense?

James: Yeah. Yeah. And I've seen brokers where I started talking to them for the first time, they call me immediately because even though they do not know who am I, but they said, well, your sentences tells me that you know what you're doing and you know exactly what you want, which is very important. Alright then, I want to buy a multifamily deal. I want to buy an apartment. So that's so high level.

But how do you think they should sentence it? I'm trying to think through this question here, how do you think a newbie or a new person who is trying to get into this business should phrase the requirement?

Trevor: Absolutely. So, it's a great question, James. And I think that today you can do it solo, but it's a lot easier to do it with a partner. Somebody like you where they might be able to say that my partners and I are looking for X, Y, Z. Because the first thing out of a broker's mouth is, do you have experience? Have you done a multiunit apartment deal before? And instead of saying, this is my first time and the broker going, Oh God, here we go again. It's literally, yes, my partners and I have done three deals or my partners and I have done seven deals or we currently own X number of doors. Even though the partner may own the doors and it's your first time kind of hanging onto the coattails of the partner, it's still credibility.

So you never want to lie to them but you do want to really take a look at, well, if I was to partner with someone who's already done what it is I'm trying to do, could I go faster? Because at the end of the day, and even as a master platinum coach, and again doing 20,000 coaching calls with real estate investors, I know that the whole goal is to turn decades into days. And it could take you years to break through with the broker on your own, where you partner with the right team and you can turn decades into days and really start putting yourself out there in a great way. Does that resonate?

James: Yeah, that resonated. So I'm trying to get your thoughts. Why do you think it's important to get a mentor rather than trying on your own?

Trevor: Well, again, I think that it's really, really intelligent to read books, listen to podcasts like yours, go to real estate events and really understand that if you could really turn those decades in today's, why wouldn't you? Why wouldn't you want to have a coach or a mentor or an accountability partner or somebody in your tribe that has already done what it is you're trying to do? Because my mentor and coach, Mr. Tony Robbins says, "Success leaves clues."

And again, if we take a look at your success and Shante success, I mean, you've gone on to do, you know, I don't even know what you're currently sitting at, James, you'll have to tell me.

James: I've got like 1300 units.

Trevor: Yeah. That's a lot of units, not to mention, you're also a coach, you're also a speaker, you're also an author. You've got great training programs. So if I could learn from a guy like James Kandasamy or not, I mean the choice is obvious. I want to absolutely take a sneak peek behind your curtain and see what you've learned so I can turn those decades into days.

James: Yeah. It's crazy. I've met people who are really, really smart and I've talked to them about coaching, but somehow, some people just do not want to do coaching. I don't know why they think it's a bad thing. Because I had a lot of coaches, a lot of mentors. And a lot of times these people want to try to come into the business and do the business on their own, but they're not very, very successful until now. Because they can do auxiliary work, they can do the ecosystem work, but they can't be the primary keepers. I mean, coaching itself takes a lot of time. I can teach you 'A', I can teach you G but I can't teach you A to Z unless you go through the entire program. And A to Z will take you to become a true person who knows everything. We're on the top of the food chain, that's what I would say as an operator.

So sometimes people learn how to raise money or sometimes people learn how to do asset management or how to underwrite, but nobody really learns everything. So a coach would be able to tell you what's the fastest way to go from A to Z and don't make the mistakes. I think they can avoid a lot of mistakes and in the commercial real estate industry, it's just multimillion-dollar business. You know, you're handling investor's money if you're doing syndication, it's very, very key that you get someone that you can trust and have gone through that path and can tell you what are the traps to avoid. So I think that's very important.

Trevor: Yeah, well, that's the main thing. I mean you talk about people really having three different modalities. Some people want to go out there and be the guy that finds the deal or the gal that finds the deal. Some are underwriters and the real numbers people and they want to work with the numbers and make sure it's all the numbers jive. The third type of person who wants to run and manage the asset. Maybe the fourth type of person wants to raise capital.

So again, at the end of the day you've got all of these core modalities, but there's all these submodalities like contracts and due diligence and really legal and financial analysis. Like at the core, where you're really protecting your earnest money or protecting time. Because I think time and money are the two greatest commodities in this game we're playing, called multifamily real estate. So when you think of checklists, when you think of really understanding and appreciating where do people succeed and also where do people fall down, I think it's like absolutely paramount to you being able to go further faster. Would you agree?

James: Yeah, absolutely. Absolutely. Let's go to number three. What do you think is number three?

Trevor: Yeah, number three. I know it's the following in, it's called systems for support. Yes. Systems for support. Because you can't just go out there and freestyle today, you've got to create systems.Systems that might include a team. Systems that might include who's responsible for what. Systems that might include technology. Systems that remind you, when are you supposed to reach out to that broker again? When are you supposed to drive neighborhoods? When are you supposed to go to meetups? I mean, most people get up on Monday morning and go, gosh, what should I do to move my real estate business forward this week? And James, I call that hopium. You know, that's hoping you're going to find a deal, hoping you're going to find an investor. And if you want to play in the upper echelon of real estate, you've got to have tried and true systems where all that stuff's laid out well in advanced Monday morning. And when Monday morning comes, you start working on the urgent and important activities. Does that make sense?

James: Yeah. Yeah. It's very important. I mean, I think when I was starting up, I'm just sharing my experience because you brought up things that bring back memories. So when I started up, I was doing Excel sheet, everything. I even invested in management and all that. But as I grew bigger, I knew time was very important. You don't want to waste a lot of time and some things you can use for you to scale. Like even like all my investment management right now, there's a tool that I use right now. So no more doing Excel. So yeah, I mean even in the past six months, I put in a lot of time into creating systems and processes and procedures on my vertically integrated company so that we can scale. So, yeah, absolutely agree. Are there any tools that you recommend to create this kind of system?

Trevor: Well, it can be simple tools. It could be Excel. For somebody who's starting out, there are other underwriting programs. If you want to be a little bit more sophisticated, you might need CRMs to keep track of your investors because you're not just reaching out to two or three people. I mean, oftentimes we say that going out there and raising capital is a lot like flipping over a card from a deck of cards. And James, I know you've heard this cause we worked together, but you might go out there to an investor group or you might go to a meetup or you might go to a conference and you might literally share a unique opportunity with somebody and see if they want to put some money in. And every time you ask someone whether they want to come in on a deal, I call it, it's almost like you're flipping over a card. And sometimes you're going to flip over that card and you're going to get a two or three and they're not going to invest.

Then you get somebody that might be an eight or a nine and they were close to investing, but they don't want to come in. And you keep flipping over cards and keep flipping over cards until you find an ACE. And an ACE is where you get an investor that literally comes in and puts 50 or a hundred or 250 candy or deal. And then you got to keep going out there and flipping cards. But if you don't know when your next conference is, if you don't know when the next meetup is, if you don't know who you're going to be getting in front of in the local community or maybe other parents of your children's, you know, maybe your children's have friends who have parents or professionals or doctors or whatever, I'm telling you, you're really running a risk of finding a great deal and then not being able to fund it. And that would be a tragedy today. So, people will always say to you, would you rather find the deal and then the investor or find the investors and then the deal? And it's almost a chicken and an egg. I always say I'd love to have a pool of people that are ready to invest so that when I know I've got that deal that I can move quickly on it. How would you speak to that, James?

James: Yeah, so I think yeah, I did the same as well. I mean, I tried to add value to a lot of investors and get them wanting to be in my list. Because they get so much value, they want to know what's happening. They want to know like how does the tax benefit comes in? How does asset protection come in? So I do a lot of webinars. So I give a lot of values and build that database with my investors. And it's also building a trust system because a lot of times, I think investors really want to work with someone they already know. They know, like and trust. And I've seen many, many times people come and ask me out of the blue, you want to invest with me? I said I do not know you man so how am I going to invest? It's just so difficult. So, yeah, I would agree with you, you need to have a group of investors first, then you go and find the deal. At least give them hope that you're looking and always give value to the investors so that they know that you are really caring for them.

Trevor: That's it. It's really all about adding value, adding massive value, adding more value than your competitor adds. And I'm telling you that that's really what makes the world go round. We're all here for nothing more than to grow and to contribute. And if you want to grow, you've got to be ready to contribute. And if you want to grow, you also have to be ready to have others contribute.

And that really does lead to number four, which is what I call having pillars for support. And pillars for support or where you start assembling your team. Do you have the person that can sign on the deal? Do you have the lender? Do you have the investors? Do you have the appraisers? Do you have the underwriters? Do you have the property managers? Do you have the general contractors, the roofers, the plumbers, the landscapers? You know, the same thing with a really good attorney. Same thing with a really good CPA, who knows all the tax advantages of real estate. I mean, if you're not assembling your pillars of support, you're really gonna miss out on optimizing and maximizing the performance. Does that make sense?

James: Yeah, absolutely. Absolutely. And I would add more to that. It's like when you have pillars of support, if you have a mentor, the mentor can tell you exactly who you want. I mean, you can get a PPM lawyer, but who's the best out there? The mentor can tell you because they've already gone through that phases of trial and error. Same thing with lenders as well, who's the best lender to work with you? And that's a lot of nuances in each of these, which can change your deal dramatically. If you don't underwrite properly, it can change your deal. If you don't have the right lender, it can change your deal. It also gives you an edge in terms of a buying deal in this market. If you know somebody that other people do not know or there are some things in that one person, you know that no one else knows, it gives you an edge in terms of winning deals.

And there are so many nuances and everybody has their own style and it's not written in any book. I probably need to write a book one day. There's just so much of a value proposition on specific lenders, specific lawyers, specific underwriting techniques that people have gone through this and would know that not many people know. So yeah, I would agree to get in all the team establish, but at the same time, if you have a mentor, you will absolutely know who's the best team out there for you.

Trevor: That's it. And that's a huge part of real estate today. And it's paramount. It's an absolute must and not a should. Otherwise, you face a lot of challenges and then those challenges end up costing you money and those challenges end up costing you time. And not just your money but again, if you're using OPM or other people's money, the last thing you want to do is have to go back and explain that you didn't hire the best of the best for capital preservation or to make sure they redline anything in the deal that doesn't work or whatever. So it's a huge, huge part of what people really need to consider when they go out there and start doing this in a major way.

James: Got it. Let's go to number five.

Trevor: You got it. Number five is my favorite category and it kind of speaks to the last two, but it's officially called poor time management. Because James, here's the truth. I can tell the quality of an investor's outcomes by where they spend their time. And I'm going to be just completely honest with you that we all have the same amount of time. We've got something called, The Rule of 168 and what does that mean? Well, it means we all have 168 hours a week. Now, wee sleep for a bunch of those. We eat, we pay the bills, we spend time with the wife, the kids, the husband, the kids. But what are you doing with the rest of your time? Because you've got to make sure that you're not just doing lower-value activities, but you're doing higher-value activities.

Things that can get you deals, things that can get you to meet different apartment owners, things that could get you in front of more brokers, things that can help you turn in more LOI, things that can help you really find a unique tribe of other investors. Where you're not just going out there and spending your time looking at individual investors but maybe you tap into someone who got a really nice big Rolodex so we can optimize and maximize our time.

Because at the end of the day, most people fall down here and they're not doing the things that they should be doing. They're doing busy work. For a lot of people, they think they're being productive but in an eight hour day, if you look at the statistics in America alone, people are only productive for about three hours of every eight hour day. And I'm certainly not saying that to you or me because I know how hard you work and you know how hard I work. But really, I would ask the listeners to really get crystal clear on, where am I spending my time and is there an opportunity to take it to a new level? Does that resonate?

James: Yeah, it resonated very well. But let me give you some experience from time management. I used to work in one large company, the largest semiconductor company. And you know, after a few years I realize everybody's busy for nothing. There's so much of meetings and we are busy with meetings and when we're having meetings we are doing another work. So everybody in the meeting is on the laptop doing something else and the is still running. And there was another meeting to tackle too many meetings. There was a meeting, task force to reduce meeting. And the meeting task forces meeting too many times and at the end of the day, they got killed. So I mean, I left the company, I went to another much more smaller company, which is much higher efficiency and they don't have...they have half an hour meeting, nobody does work during the meeting, it's so much efficient.

And I realized, wow, I missed so much of my time, you know, many, many years working in the first company and it's just ridiculous. You're a W2 employee, you are working on this big corporate bureaucratic company and you realize, half of your life is gone in meetings. You get paid and all that but what's the point? I mean, you are losing time throughout your life. And it's just so much of difference between a large company and small company, which runs much more efficiently. And yeah, time is something that is like a bank account where you deposit 24 hours everyday, but you're losing every day as well. You're losing all the money. You can't take it back. So imagine that kind of every day you start back early morning, you put back 24 hours and you can't really take it out again because it disappears at the end of the day. So either you use that whole 24 hours or it disappears at the end of the day.

Trevor: I think that's it. And really what I would say to the listener there, James is really, check-in with yourself, whether you're being outcome-focused or whether you're being task-focused because there's a big difference. If you're outcome-focused, you're really going, okay, what is the outcome for this meeting I'm about to go into? What do I need to achieve? Or if you're picking up the phone, you've got to start with, what's the outcome of me making this call? What am I really trying to get? Or what's the outcome of going to this meetup? Or what's the outcome of sending in this LOI? Or what's the outcome?

Whereas task-based people are just busy working off of a to-do list. They're just trying to get things done rather than really focus on, does this really help me go further faster? So I encourage everybody to get crystal clear on becoming an outcome-based thinker rather than a task-based thinker. Does that make sense?

James: Yeah, that makes sense. So can you give some example? Let's say if someone go to a conference, what are the outcomes that they can plan to get from the conference?

Trevor: I think that's a great question. Maybe you want to come out of there with 10 new contacts, 10 high-level contacts. Maybe you want to learn the next greatest thing about what's going on in the market. Maybe there's someone from Marcus and Millichap who's presenting there that puts up all these graphs and you start to see where millennials are not moving into and places where millennials are moving into. Maybe it's something about cap rates. Maybe it's something about legal or financial analysis or my favorite one, how to keep more money out of Uncle Sam's hand and put it into yours. Because I think real estate is the greatest wealth vehicle on the planet and there's so many tax advantages. But if you don't go a conference going, I'm going to come home with one or two new things about how to really optimize my taxes, you could be missing out. Versus just going to a conference to go to a conference and thinking, well, I'll just soak up whatever I can soak up here and that's it. Does that make sense?

James: Yeah. Yeah. I'm guilty of that. Sometimes I go somewhere and I don't really think about what outcome do I want. So I need to improve on that too. But that's really good advice because I think, as you said, time is very limited. You want to make sure you get outcomes for any action that you spend time on. Especially when you are getting away from your family.

Trevor: Especially if you're on a weekend conference or you going to fly to a different city or if you're spending a lot of money. I mean, the money's important, but you can always make more money, James, you can't get your time back as you alluded to.

James: Yeah. Yeah. Okay. I'm going to ask you a dangerous question. You have been to many, many conferences for real estate. So without naming names, I mean, what kind of real estate conference that you think is the most beneficial for a newbie to start up in this syndication?

Trevor: Oh, that's a great question. I think you want to find somebody who has got, what I would say as a heart-centered tribe and what do I mean by that? Well, it's somebody that isn't just putting on a conference to make money, but somebody who's putting on a conference to really teach, to really coach, to really train, to really mentor, to really facilitate. And it's not where the speakers stand on stage and just pound you with information, information, information, information. Because I like those events where the newbie can go and do a lot of networking; have lunch, have dinner, ride in an Uber with somebody else because it's really, first of all, the human experience. And I think real estate is really not about being in the real estate business, it's about being in the relationship business. But secondly, I find that the events where you can go and have some networking time or break into small groups or do some focus groups or really have panels that talk about best practices, those are the types of events where I see newbies going into and coming out of there going, Oh my God, that was worth it and more.

Because it's not just the information they got, it's the transformation that they see in other people who have already started to do what it is they want to do. And they get inspired, they get engaged, they get enrolled, they get compelled and say, well, if they could do it, is it possible that I could do it? And those are the best types of events for people to go to.

James: Got it. Got it. Awesome. Okay, let's go to number six.

Trevor: You bet. Number six is all about leverage. It's all about outsourcing. It's all about that old model being broken of try to be everything to everyone. So what do I mean by that? Well, if my passion is going out there and finding great deals, and that's what I'm really good at and that's what I love spending my time doing, then that's what I should do. And that means I might give the outsourcing to someone else. That means I might give the underwriting to someone else. That means I might give the asset management to someone that's maybe really good at managing the asset.

So I'm a big believer that if you try to do every single thing yourself...I think it's good to understand it and have a taste of it but at the end of the day, what are you really good at and what do you love doing? And then are you able to outsource or delegate some things to other people who are passionate about what they do? What do you think of that?

James: Yeah. I mean, I was doing a lot of things on my own and actually we got really, really busy. I mean managing almost a hundred million dollars in assets and what I've learned for the past one year, I think well maybe one and a half years I've started outsourcing. I have like three VA's right now helping me all the way all over the world and they're really good. It takes time to train them, but once they're trained, they are really, really helpful. And I'm trying to focus a lot more on the most important stuff that can play to my strength and that's really good advice. Got it. So let's go to number seven.

Trevor: Yeah. The final one, number seven, is really all about taking massive action. It's where the rubber meets the road. Because you can get rid of limiting beliefs and you can create a plan and you can create systems for support and you can literally figure out what you're going to do with your time, you can leverage things to other people. But if you're not out there driving neighborhoods, talking to brokers, go into conferences, hiring a coach, learning the tax advantages, you're really fooling yourself.

Because when I say take massive action, notice I'm throwing in the word 'massive', right? It's not like, do a little bit and then stop and then do a little bit and then stop. I believe that momentum breeds momentum and the more you get excited about it and fired up about it and you go out there and do it, it's amazing to see how investors, whether they're new, intermediate, or even veterans can really put the ball in the hoop and really find some great deals out there.

The other thing that's kind of an extension of that is to have some sort of accountability. Whether that is a partner, whether that is a coach, whether that's a mentor. I mean, most people find that they get excited for a little while and then the going gets tough, James and then the path of least resistance kicks in and they find themselves watching Netflix every night instead of going out there and going to the meetups, going out there and driving neighborhoods. So you've gotta be very, very careful that it takes massive action, course-correct as you go. And then make sure you've got some system of accountability so that you stay on track.

James: Yeah. That's why I like a grant Cardone's 10 X, right? Because it's just a representation of taking massive action. Why are you looking at 1X or 2X 3X and that drives a lot of action, a lot of effort from your side. So I think that's what it means. A 10 X is not really, you know, he's asking you to really hit 10 X. Because it's not like not realistic. Of course, it's possible but I think the thing is, your thought process and the amount of work that you put in to go to that 10X, represent massive action. And I think that's important. I think mentors and coaches are very important because they hold them accountable. When someone is holding you accountable, you are like answerable to someone.

If you're on your own, you are like, okay, I can do whatever I want. So that's what happened. Even when I was doing my single-family, because single-family, you own everything. And sometimes we don't even look at financials, money come in, sometimes we lose money in cashflow. We don't really care. But when you have passive investors with you in multifamily, we are like looking at finances every day because now we feel very accountable to everybody. Because we are syndicating and holding passive investors and people trusting you. So that accountability factor is very, very key to have in yourself to be successful.

Trevor: That's it. That's it. And if you follow these seven simple steps and you really maybe go back and rate yourself on a scale of one to 10, where are you with your beliefs? Where are you with knowing your outcome? Where are you as systems for support and on and on and on. If you rate that out of 70, it's going to give you a score and then you're going to be able to start to take a look at how to close that gap. Because we're all humans and we all want more. We want more deals, we want more money, we want more fun, we want more love, we want more experience and travel. And I really do believe that you can have it all in real estate, but you're gonna need to really own those seven simple steps. And not just that one time, you've got to check in with them at least once a week or once a month. And then keep moving forward with what it is that you want to achieve.

James: Awesome. Awesome. That's absolutely a lot of value, Trevor. So why not tell our audience how to get hold of you?

Trevor: Absolutely. Thank you. It's really simple to reach out. There are two ways you can do it. You can simply go to my website, which is trevormcgregor.com. Or if you ever want to have a call and you're somebody who is serious about scaling your real estate and taking it through the roof. And right now, James, my clients collectively that I have in front of me right now, own $1 billion worth of real estate. So they're really serious about growing their portfolio and having a big impact. Anyone who's interested in playing at the next level and needs a high-level coach to help support that, you can simply go to www.coachwithtrevor.com. You can fill in your details, click the send button and we can set up a complimentary 45-minute call where I can hear more about what's working for you, what's not working for you, and we'll show you how to close that gap. And at that time, if you want to hear more about my coaching, I'd be happy to share it with you. But my main intention is to give you massive value on that call.

James: Awesome. Awesome. All right, Trevor, thanks for coming in on the show. I'm sure you added a lot of value to our listeners and audience and happy to have you here. Thank you.

Trevor: Thank you for having me on, James. And the final thing I'll say is, you know what? Have passion and have hunger. Because if you're passionate about real estate and you're hungry to go to the next level, that's where possibility lives. So thanks for having me on.

James: Awesome. Thank you.

James: Okay. So let's get started.

 Hey audience, this is James Kandasamy from Achieve Wealth Podcast. Today, we have Tim Bratz from Legacy Wealth Holdings. Tim is a multi-family syndicator/sponsor who owns almost 3200 units almost valued at 250 million dollars in value.

Hey Tim, welcome to the show.

Tim: James, I appreciate you having me, buddy, thank you. 

James: Absolutely. Happy to have you here. I've been trying to get you on the show for some time and we have been playing tag on the appointments. That's good. So, can you tell me which market are you focusing on right now? 

Tim: I'm actually in six different markets, six different states. I'm pretty heavy in the Southeast. Majority of my property, about 70% of my properties are in South Carolina and Georgia, but I'm also in Ohio which is where I live. And then I'm also in Texas, Oklahoma and I got a couple of vacation rentals down in Florida as well.

James: Okay. Without going too much into detail just quickly, how did you start? And then how did you scale to 3,200 units within how many years? 

Tim: Yeah. Well, I mean, I was going through college when the last market cycle was going gangbusters. So 03 to 07, I'm going through college, everybody said if you wanna make money get involved in real estate. I ended up moving out to New York City because my brother was living out there. And I became a commercial real estate agent for businesses. You know, so I broker leases and I brokered a lease that was 400 square feet in Manhattan. It was $10,000 a month and so I was like the wrong side of the coin. I need to be owning real estate not brokering it.

So I got into a lot of the residential stuff. I think a lot of investors get into real estate because of the lure of passive income and residual income, but then many of us get stuck doing this transactional stuff of flipping houses and wholesaling. And I went through that same phase, you know, I thought I had to stockpile my own cash. I didn't understand that you could syndicate, that you could raise private money and bring in equity partners and how your sponsors to then cosign on loans. I didn't know that that was possible. 

So I went through the whole residential side of things and bought my first apartment building the end of 2012. So just like seven years ago. It was a little eighth unit building and I fixed it all up, put tenants in place and I was like man, I'm making better returns on this than I am flipping houses and it's way less headaches. And so I bought another eight-unit and kind of built up a portfolio about 150 units with some partners.

          That partnership ended up going bad a few years later. In 2015, I ended up liquidating everything and then just going back out on my own. And so I started on my own and just kind of partnered up with a couple of people that they just started raising money for different projects and I partnered up with good operators and bring money to those projects and help sponsor those loans or I started buying my own properties here locally in Cleveland. And over the past four years, pretty much in August of 2015, I started buying my own stuff.

So it's been right at four years now. I built up a little over 3200 units, 3207 units as of today, about 251 million dollars worth of property value and my model is based on the residential realm, actually. I buy properties and I got to be all in for 65% of the stabilized value because that's what the model was. I never read a book. I never went to a seminar before. I just kind of developed it myself and I started buying properties, apartment buildings, the exact same way. 

So I have to be able to buy it, renovate it, be all in for 65% of that stabilized value. And so a lot of the buildings that I buy, you know, I'm into a building that's worth 10 million dollars for about six-six and a half million dollars. So on the 250 million dollars worth of property, I only owe to lenders and my equity investors, it's like right at 150 million dollars. So we have a lot of equity in our properties too. 

James: Got it. Got it. So it's very interesting you bring up that 65% because that's the exact number that I had when I was doing my single-family for zero money down. So I counted if I get at 65% ARV, which is after repair value, you should be able to do a second load, which is I call it as a double closing of a loan. I have two loans; one loan is like you do like a short term loan and at 65%, you buy it, you take a rehab loan and then you flip it to the long term loan.

Tim: Yes. That's my entire model. So I don't traditionally syndicate, I buy distressed assets. I'm bigger than some of the smaller investors but not quite a hedge fund or a Reit and I'm willing to get my hands dirty, I'm willing to actually do the work. So I take on a little bit more distressed type properties.

I only buy in A and B Class areas, but the properties are typically C-Class type properties that need physical improvements, better management. Like really not just value-add but like a total repositioning a lot of times. We're remarketing, rebranding, all that. And so, we come in and we fix it all up and because we force appreciation because we can make it happen and really create the appreciation versus speculating on appreciation and hoping values go up over the next five years, we're able to create a lot of equity in that first 12 months and then we're able to turn around and refinance and cash out our investors.

 So instead of selling, I just refinance at like a 70% loan to value that gives me enough money to then, pay off my bridge loan. Or that short-term construction loan is and it helps me pay off my investors and to me, it's more predictable. It's more predictable to know where interest rates and where the economy is going to be 12 months from now or 18 months from now than it is like maybe 5 or 7 years from now. Five or seven years from now, we could have a very different economy, very different political circumstances; could have three different presidents in the next five years, right? So we just don't know.

 And for me, I like the predictability of buying at a wholesale price, creating an appreciation and then cashing out my investors. Now it's you know for lack of a better term house money in play, right? So now we can let the property ride and we can hit sit on it. It doesn't matter what happens to the economy for the next 10 years, I have a long-term, long amortization schedule fixed interest rate loan, non-recourse loan in place; where the market can go up it can go down, I still have tenants in place paying the debt service, paying the operating expenses, and putting cash in my pocket and I could ride this thing out because I don't owe any of my investors any more cash. 

James: Got it. Got it. So yeah, that's exactly the deep value add, that's how I position it where you buy it at really good value; very, very low level.  You really put all your effort to push up the first appreciation and then you go and refi in 12 to 18 months, I guess right?

Tim: And we built some new construction stuff too, down in the Southeast. We built some townhouses. Like we'll do new construction, it'll be like an A or B plus kind of an area but it's not luxury. We do only workforce type housing so we can build townhouses for about $85,000 per unit, 80 to 90,000 per unit and they'll rent for about 1,300 bucks a month for us.

And so that allows us to get the values where we need it to then refinance and do the exact same thing just for new construction. So we do a little bit of that and more repositioning of existing assets though.

James:  Yeah, very interesting. I really like the model. I was doing it like two-three years ago. I mean, for me, I got worried about the market and I start, not looking for deep value add and also deep value add is harder to find. Even though you find it, what happened the sellers are basically taking the value by pushing up the price on the deep value add and because of that, it's not a deep value add anymore.

Tim: Right. I don't pay a seller for the value that I'm going to bring to the property, right? So there are some sellers that you know, they're like, oh, well, this could be worth this much. Yeah, but I have to create that value. You're not creating that value. So we find we're a lot of times direct to seller, off-market type property. You know, we're big enough now, especially in Georgia and South Carolina, we have the broker relationships where we're one of the top five buyers in town and you get those deals before they actually hit the market.

But in a lot of other markets, I'm not, you know, the biggest buyer in town so I have to go off-market, direct to seller, kind of stuff. And we get a lot of our properties from Mom and Pops who have owned it for 20 30 years or inherited the property. They just didn't put any more money back into it.

You know, the total debt on the property is very low if at all and they just don't want to put any more money into it. They don't want to do the work so we buy it from them. Or I buy a lot from smart entrepreneurs, really sharp people who make a lot of money in their traditional business and they just put their money in real estate and then they didn't have a joint venture partner.

They never got educated. They don't know how to manage a management company or interview a management company and they just get abused in the business. So they're like I'm making too much money in my traditional business, this thing is going to sink me. Let me just fire sale this apartment building.

So that's where we buy most of our properties from. And then again: we reposition it, we do the stuff that that hedge funds aren't willing to do, and we're qualified enough to take down a 200 unit building that needs a pretty heavy value-add. I do it that way. But like you said though, James, I'm starting to buy a little bit more stabilized assets, more like 85-90 percent occupied of just a little bit of tweaks in the common areas and amenities and then bumping up some rents. We're doing a little bit more of that right now just because of where we are in the market cycle. 

James: Yeah, correct. But you gave a lot of details that I want to go a bit more detail into that. So you said you look for deals that are in class A and B, but more distress. And I mean you're basically shrinking your funnel as well because you're going for that...

Tim:  Niche gets rich, right?

James: Exactly. [11:02crosstalk]

Tim: People say hey real estate's mine age. Now real estate's an industry, right? Apartments aren't even initial. You need to figure out what you are really, really good at. And one of the things that I'm really good at is 80 units to 100 units that are distress. It's bigger, it's too distressed for the small guys to get a loan on it because they don't have the background or the resume to go and take down that kind of stuff and the qualifications do that because they haven't done it before. It's a big project, big value add and at the same time, it's too distressed for the hedge funds because they just want to park money and let it sit, let it ride, and let it cash flow from day one.

So this is my niche. It's A and B Class areas; good areas, desirable areas, just distressed kind of properties and we're able to get in there and we have all the financing, the relationships are all in place. We could raise the money pretty easily because we can cycle our money every 12 to 18 months. I don't have to wait five years to get my investors their money out; I can cycle at every 12 to 18 months. So as soon as I pay him back guess what they say, let's go do another one. And then they're involved in you know, three deals in five years versus one deal in five years and it makes my life easier because I don't have to go and raise money from new people all the time.

James: Got it. Got it. That's a really good model. So that's the investors after you cash out when you pay them back, do they stay in the deal as well?

Tim: Yep. So mine's a little bit different than traditional syndication. Usually me and my joint venture boots-on-the-ground partners, we keep 70 to 80% of the equity in the deal and then we pay a pref, a fixed pref to our investors regardless of the properties performance. So even if it's not cash flowing it's predictable because I know that if I'm borrowing 2 million bucks, I'm paying, let's say, 10% pref, I'm going to pay $200,000. That's just a cost of the deal. I got roofs, I got flooring, I got paint, I got cost of capital; it's an extra $200,000. 

So I build that into my model and then I can make those payments to them. They feel more confident, more comfortable because now they have a predictable return on their investment. Then I refinance, they get all their money back off the table and then they still maintain 20-30% ownership without any money invested and we're able to do that again and again and again. And so, you know with traditional syndicators if I try raising money from somebody who's used to traditional syndication, they're like, why would I ever do that? Well, you get a predictable return and secondly, you get 30% ownership. 

But if all your money is in three different deals, it's actually 90% ownership because 30% 30% 30%. And so overall, they're actually ahead of what they would do in traditional syndication where they might get 70 or 80% of the equity in one deal. So, it actually works out better for the investors, works out better for me but it's a lot of work on my part. We spend a lot of money.

 Sometimes we spend a lot of money on advertising in new markets until we have those relationships built up and then, in order to find those off-market direct to seller deals and it's a lot of work. Like my business partner down in Georgia that I own a bunch of property with, he goes and sleeps at the properties for three nights a week. He spends four full days there, sleeps in a B-class apartment, you know, on a blow-up mattress, the guy is worth 25 million bucks. And then his brother who's our other partner is worth another 25 million and they're sleeping at the properties, doing the work, kicking the tables, making sure construction ends up on time, on budget and that's what you need to do man.

I see a lot of people who are trying to be this puppet master and they're not willing to actually do the work of taking ownership over this thing. They just want to go and syndicate and then go back off to whatever they're doing. And to me, like there's something to be said about just having old school diligence and work mentality and what you can get done if you're willing to do that kind of stuff.

James: Yeah, real estate is very, very powerful; especially commercial real estate where you can force appreciate. And especially if you are going to get the majority of the equity in the deal, why not I sleep, right?  In 12 months, 70 to 80% of this deal is going to be mine. Why not work hard, I'm with you.

Tim: It's a season of your life. If you're putting your head down for a year or 18 months, but then you can generate millions of dollars of equity, why not do that? And so yeah, that's kind of the mentality that we take. 

James: Correct. Yeah, it's very powerful to create wealth and I think the investors appreciate that as well because now you're able to give them back their money and all that. But your model is assuming that you are able to refi into a long term loan in the 12 to 18 months, right? So what happened if that model breaks?

Tim: Yep, absolutely. So that's the inherent risk with our model is what happens if rates change, what happens? If banking tightens up, what does that all look like?

So a couple of things. One, I don't think rates are going to change as much in 12 or 18 months as they would maybe in five or seven years. So to me, we underwrite the deal - like right now, I just closed on 500 units. I got 2 buildings, around 250 units each last month and I got a 3.83 and a 3.88 interest rate. Even right now, rates went up back; they're hovering around for four and a quarter right now for stabilized assets.

We're underwriting the deals with 4.75 to five percent interest rate on the back end for a stabilized property. So we're taking on some of that, some of that, we're underwriting it for that. We also underwrite our rents very, very conservatively and we're at such a low basis in the property, usually around 60% of what that stabilized value is, we have options. So Fannie and Freddie are tightening up big time right now. That's okay because we're at such a low basis that we can still go over to CMBS - commercial mortgage-backed security - or a life insurance company and even though they offer a lower loan to value, I'm okay with that because I'm at a low enough basis. I can still cash out my investors.

 So worst-case scenario, my investors still get their money back and we have a lower LTV loan. So maybe there's not some refi proceeds or anything like that that we can take off the table but at the end of the day, they're going to have more equity, you know, their equities gonna be worth more in the property and the cash flow is going to be more on a recurring basis for that. And the other thing is even when banks stopped lending to people in 2009-2010, guess what? They were still lending to somebody and it was the people with big balance sheets, with stabilized portfolios. And I have a big enough balance sheet and stable enough portfolio. I'll be able to get refinanced regardless of what happens in the next 12 to 18 months so I'm not that concerned about it.

And again, because our basis is so low, we have such high cash flow on these properties. I have different options and have a good team of mortgage brokers. Who even if I had a slap another, you know three-year loan on there, even if it was at 6% interest rate or six and a half percent interest rate, I can still cash flow;  it's enough. It covers my operating expenses, it covers my debt service, still puts cash flow in the bank. You know, it's a crappy conversation that I have to have with my equity investors, but they keep on making ten percent on their money so they're happy.

          You know, the worst-case scenario is they get their money back in 48 months; then, you know it is what it is. So I've taken a look at all the downside. I've talked to people with billion dollar portfolios and said, hey poke holes in my model. And that's the inherent risk is what if you can't refinance? So that's one of the things. The deals that I just closed last month, they were already in that 85-90 percent occupancy range. Like right at 90-91, I think is what they were. And so we got a Fannie Mae loan actually on it. That's a construction loan that we'll be able to put a supplemental debt on it. So, it's already a long term loan, 30-year amortization, couple years of interest only. And then, whenever we create the appreciation, 12 months 18 months from now, we'll be able to put supplemental debt, which is kind of like a second mortgage almost but through the same lender, so they're cool with it. And so the only real risk I'm taking is the interest rate on that portion of the debt.

I owe 17 million dollar mortgage on it right now. And then the other will be about another 7 million dollars. So the only real rate risk is I'll get home at three point eight percent on 17 million dollars, even if the other 7 million goes a 5%, my blended cost of capital still four and a quarter or maybe a little less. So, you know, that's another way that we're reducing that ongoing risk. 

James: It's very interesting. Now you're convincing me to do deep value add again. So because it's just so hard to mess up.

Tim: I mean, the construction is where it all comes down to. I mean, if you stay on time and on budget, you're in good shape. But if you don't have a good construction partner like you can really get burn bad in the deep value add stuff. So you've got to understand what your team looks like, what your strengths are, what your weaknesses are. And for me, we're okay with it. We're pretty good at it and we have a really good construction team. 

My partner in Georgia, man, I put him toe-to-toe against anybody in the country from a construction standpoint. He can build new construction, he can renovate existing units. And because he has the mentality of 'let me go and sleep at the property' three nights a week, away from his family, away from his five kids, you know, he's willing to take that on because it's again a season of his life. Like that's kind of partners that I like to partner up with.

James: Yeah. Hustlers, they will go really far in life and that's what we need. It's very interesting. So I mean, is there any deal that you find that you didn't do? That you think you should have done and after you passed on it, you realized, ah, should have done that deal? Is there a deal that you look at... 

Tim: That's a good question.  Let me think on this. We try to kill deals. I try to kill every deal that comes across my plate, especially right now. I try to look for every reason to walk away from every deal that comes across my desk. If I cannot kill the deal then I know it's a good deal. And so, you know, as soon as you're like, 'hey, well, I think I can scale back construction and make it work', wrong idea, wrong strategy. Because the last thing you want to scale back is the construction of the value-add process. Because then your rents aren't going to hit where you expect them to hit because you're not able to attract better tenants or higher quality tenants and they don't see the value that you're adding to the property.

At the end of the day, like people like, 'oh, I think we can make this one work.' No. The only way you can make it work is if you go back to the seller and negotiate a lower purchase price because that's the only variable in this equation. You know, what rents are going to be is what rents are going to be; what the construction budget is, is what the construction budget is. The only variable here is the purchase price. And you know, you make your money on the buy side. So are there deals that I passed up on that I should have moved on? Maybe but for me, man, I don't have much of a risk tolerance. I only buy stuff that I know that is very predictable to me.

That's why I don't play the stock market. I can't control if you know Volkswagen -  I can't control if Elon Musk smokes a joint on public television and the stock drops by 15%; you know, I can't control that. I like being able to control real estate and having very predictable returns for me and my investors.

And sometimes it's a gut check, you know. Even if everything looks good on paper, but my gut doesn't feel good about it, I'll say no to a deal. It's just that I've seen enough deals go south. And as quickly as we can build our net worth, being in commercial real estate, one bad deal can take out your legs and wipe you out totally. So I'm just not willing to take on that risk, especially when it takes so much work in order to get to where we are. 

James: Yeah. Yeah. I mean I want to touch on your gut check thing because I know numbers don't lie and we are numbers guys and when underwriting, we want to make sure things work on paper and all that. But I've walked out of a deal because everything works very well and the numbers look good, but there is something wrong in that deal that I didn't discover and I've walked out from that kind of deal as well. And that's very important. I mean, real estate is not only science where everybody says a numbers game and people that are good in numbers will do it but there's a lot of odd to it as well where it's just something wrong somewhere and it comes from experience.

Tim:  That's the only way you get that, from experience and it's usually personnel kind of things that make me walk from a deal. I'm just not comfortable with that joint venture partner, with that management company or with whatever the seller is saying. You can kind of see through the lines once in a while, whatever that is. Yeah, I mean my model is I'm really good at raising money. I'm really good at sourcing deals. We're pretty good at creating - like we can handle a lot of the back office type stuff. 

I'm back in Cleveland, Ohio now, is where I live, we can handle a lot of the management side of things; collecting of rents, work orders, telecommunication; all that kind of stuff, all the administrative side. From here in Cleveland, we just need a local boots-on-the-ground partner and some local property managers, maintenance personnel, and I always have a joint venture partner locally. And so if that joint venture partner isn't strong enough, then usually I'll walk away from the deal. Because man, I think it's important to have somebody with vested interest, with equitable interest in the deal; who's local to the property, who can go put their eyes on it a couple of times a month; to keep everybody honest, to keep the management company honest, to keep the local property manager, maintenance personnel, leasing agents and just come in and kick the tables once a month and just let people know that we're paying attention. Because if you don't pay attention, then they take advantage of you. 

James: Yeah, it's hard work. I mean, I know exactly how you feel in terms of how much hustle and how much detail and how much you have to be on top of the property managers because it's not their baby, it's your baby. And there's so much of details that if you don't ask them, they're just going to slack off right? 

Tim: Yes.  

James: They are paid differently from what we have paid for and we are the owners and it's just completely different ownership level, right? So that's very interesting. Is there any deal that you think after you bought it didn't match from what you thought in the beginning. You thought this is how I'm going to execute it but once you buy, it's like, oh, it's completely different from what I thought and how did you overcome it?

Tim: Yeah, I mean every deal is a learning experience and you to get punched in the gut enough times and eventually you learn. Fortunately, you know when I was growing my portfolio, I bought my first building in 2012 and I bought an eight-unit building for $30,000. So I'm in Cleveland, Ohio buying units for $4,000 a unit. I put another, I don't know, 50 grand into it. So I'm all in for $10,000 a unit. And it's hard to lose. And so in 2012 2013 2014 as I'm growing my portfolio, while I'm going through these learning curves, the market is getting better and that was able to absorb a lot of my screw-ups early on. So I still made money on every single deal that I did even though I was learning on a lot of these things.

There's only one building, a 44 unit building, that I bought about 2-3 years ago maybe that I've lost money on. It was one of those things, hey, I saw the leases, I saw the rent roll. It was 80% occupied and I bought it from a guy that I know, somebody that I actually know. And so, I bought 44 units and he's like, "Yeah, man, 80% occupancy."

"Great, man. I'm going to come in, I'm going to renovate the last whatever 9 units and turn those over. I got a local team." He was out of state. 

"So like my team can come in clean it all up clean up the common areas. I think I can make $300,000 on this thing in the next 12 months pretty easily and it'll cash flow a little bit in the meantime."

So I buy it and I find out it's only 25% economically occupied. So there are 35 tenants or something in place and only 11 of them are actually paying rent. And so I learned my lesson there, you know. It's not about occupancy, it's about collections. 

And this is a buddy of mine. This is somebody I've known for many years and grabbed dinner with him, his wife, my wife and not a lot of times but a few times and close enough where I call him a buddy. And all of a sudden, he sells me a building, tells me it's 80% occupied, doesn't tell me it's only collecting 25%. And all of a sudden, I had to kick out 24 tenants and turn over 24 additional units. 

So imagine what that cost does now to the $300,000 I thought I was going to make? And this was one of the only times I brought an investor in and he wanted 50/50 of the deal: "Let me bring the money, you do the deal."

 "Okay, cool."

 And I'm stroking a check for about 35 40 thousand dollars when it was all said and done. And I could have gone to that investor and said, "Hey, man, I need 20 grand from you. I'm putting up 20 grand of my money. We're selling this thing. It's a pain in the butt. We're gonna lose money on it. But, you know, we gotta get rid of it. And that's part of the deal." 

Instead, I stroked the entire check, gave him 100% of his money back and because he didn't make a return, I gave him equity in another deal of mine, without him having to put up any money just to kind of soften that blow. And so I think when you do the right thing by your investors word spreads, you know, he says great things about me, he wants to invest in more deals with me and stuff now. It is, do the right thing knowing that there's always another deal. There's always another opportunity.

 That one, we could have held on to the property long-term and let it cash flow. That's a cool thing about buying apartment buildings. You can really screw up and if you had to, you can hold on to it, manage it, let it cash flow for the next 10 years and eventually, you'll actually make money on these things even with that big of a screw-up. But for me and where my long-term vision is and my team and everything else, it was just more of a C-Class type property. It took up too much management and too many headaches. It wasn't big enough. We couldn't really scale it. So we made just a business decision to sell it and to eat that loss. But it's the only building I ever really ever lost money on.

Now we've gone through pretty much everything and we've gotten kicked in the crotch enough times where we know what to look for across every building. Like it's very hard to pull the wool over our eyes unless it's like grossly fraudulent on the sellers part. 

Another big thing that I didn't know early on that I wish I should have done that's always a consistent issue with every building we've ever bought is like the plumbing and the drain tiles leaving the building. It's always one of those unknowns. So now, we spend three to five thousand dollars to scope every single drain line, in every building that we put under contract to ensure that there's not going to be this massive plumbing bill, unexpected plumbing bill, once we buy the property. So that's one of the things that's been a big deal.

          And then just verifying collections. Like those two things from a financial due diligence and a physical due diligence perspective like those two things that we've dialed in now and we always did everything else. We always inspected the rooms in every unit, the electrical panels. One of the other things that I didn't do early on that I do now, we've done for the many years now, is I used to only walk the vacant units and the common areas and the mechanical rooms. And then all of a sudden, you realize that they're not showing you all the vacant units. There are other vacant units that they're telling you that they're occupied, they just didn't want you to see them. And like I bought buildings where tenants were turning on and off their faucet with a wrench because there's no actual faucet. So you don't realize a lot of that stuff early on when you're a dumb kid. But I've been through all man. I've been everything. We walk every single unit on a 500 unit apartment building. We will walk every single unit and we'll put a report together on every single unit.

It's a one-page, just kind of condition report. We'll take 30 pictures of every single unit. We put it all into like a Google Drive or Dropbox folder. In that way, we have all the information we could ever need on this property. We're not relying on our memory to look up all that stuff.

It's all there. Our contractors can see it during the entire due diligence period, all that stuff. And so I think everything's a learning curve. I think you learn from everything. The thing in this business though is like if you can get past all those learning curves, if you can get past some of those losses and some of those getting punched in the stomach, eventually, you're process is so dialed in. 

Like they can't pull the wool over your eyes that you cannot lose on deals. And that's why we walk away from a lot of deals that we do because they're waiting for somebody who's an idiot who doesn't know what they're doing to come in and buy their property and overpay for it or not do the due diligence that they're supposed to be doing and all these other things. But eventually, you know what you're doing enough, where your risk is so minimized because you've done all the due diligence on these things, it's a very predictable business at the end of the day. Like you said, it's all about numbers, right?

James: Yeah, I mean, it's crazy nowadays, right? I mean with the market being as hot as it is right now, with so many people looking for deals and so many bidding war. So nowadays, the smarter thing that a lot of brokers and sellers are doing, they say day one hard money. Now, they lock you in. So you go into a bidding war, you pay this huge amount of hard money and sometimes they don't even give you early access., So now you're locked in. You can find a thousand and one things and yet we are locked in.

Tim: No, I don't do that stuff. I don't play that game. You don't need to if your off-market direct to seller. If you're going through brokers, they're going to do that to you, you know. And there are some people who have crazy money and they're willing to risk that; I'm not willing to risk any of that stuff. A lot of people, they spend a lot of time on ROI - return on investment. I spend a lot of time on return on ROI - return of investment, you know, and making sure I get all my money back.

I never ever want to risk principal.  

I mean that deal, that's just too risky of a deal. If they want hard earnest money from day one and I haven't already walked the entire property, I'm not interested in doing it. I think once you get to a point where if you're partnered up with a great sponsor or you are a great sponsor yourself and you have the business acumen that like you have James or that I have like I'm able to posture up with these sellers now and kind of say, "Hey. Yeah, no problem. You can go steal somebody's earnest money. That's okay. You can go ahead and do that. But they're not gonna be able to close on this deal because you're lying about the condition of the property or the financials whatever. Or if you're willing to actually sell it to me, give me my opportunity to do my due diligence and shoot straight with me on everything, I promise you, I'm more capable of closing than any of the other people that you're getting bids from right now or you're getting offers from right now."  And so I've been able to kind of build up my credibility in that way where sellers are willing to take less money and offer me better terms than they would maybe with somebody else because they know that I can close on the property. They don't want to get dragged through the mud. 

James: Correct. Yeah, this is very interesting, nowadays, the way the market is being played. They're putting all these handcuffs of hard money, day one. And there's another handcuffed where they said you must do lending with our own in-house lending. So that's another handcuff. There are two or three handcuffs that brokers are putting on sellers. And the third subtle handcuff that they do; nowadays, when they close, they send out an email saying that, oh, this buyer paid day one, you know huge amount of money $500,000. They're telling everybody else.

Tim: They're trying to set that expectation. 

James: If you want to come and buy deals nowadays, you better be ready. So many handcuffs are being put on buyers. But I think a lot of sellers, you know, if they want to work with a good buyer, people who want to really do business, they don't know want to just make the money on earnest money and waste a lot of time getting people to walk through all their units and getting their stuff all being nervous.

 So just find a guy who's willing to do it and who is the true buyer. Who knows what he's doing and can close. 

Tim: The good brokers with long-term visions and long-term goals, know how to find quality buyers and that's better than just anybody who raises their hand with earnest money, you know. In every hot market, there are people who are short-sighted, who got into real estate real quick just because they wanted to get rich quick, kind of a thing. And they'd rather just do it that way and then anybody who raises their hand, they're willing to go with and those aren't the brokers you want to work with. You want to work with the people who have been around the block a few times, who understand what a good buyer looks like, can build those ongoing relationships. Because as soon as the market shifts, if things cool off, it's going to clean out all the unqualified buyers and unqualified brokers as well.

James: Correct. So, let's go to a bit more personal side of things. So what I like about you is you're very, very positive. So you like to look at life very positively and you know, it's hard to do because sometimes you always have something negative that comes in. So do you want to explain about in this business, yeah, you always want to say something negative that you always want to talk about but how do you maintain that positivity? 

Tim: Yeah, I mean, you know, I told you the story when we met up a couple of weeks ago or a month ago. I mean, just less than 90 days ago, I was out golfing and I got rocketed to the face with a golf ball, 100 miles an hour from about 30 yards away. It shattered my upper maxilla bone. It knocked out four of my front teeth and shredded my gums. And my lip opened and I was bleeding like crazy. I look down. I'm like, oh, I feel my teeth dangling from my gums and I look down at the ground and I kind of took a knee to make sure I didn't pass out. I looked down at the grass, I'm like, "Man, this grass is really well-manicured; like beautiful grass here, on this golf course."

 And I'm like, How the hell am I able to keep up such a positive attitude in this?" You know, I'm thinking about my thoughts. I'm very reflective in that regard. And I was like, "Well, here's why I can see it positive because I got hit my mouth and not in my eyeball or my temple. I could be blind or dead if this thing was an inch higher than where it was."

          And so, man, I don't know if it's the law of attraction. You can call it God, you can call it, you know the universe and call it whatever but I think when you put the positivity out, it comes full circle. It's kind of like you reap what you sow kind of a thing and I sow seeds of positivity. And so, I jump in the golf cart and I get taken back to the clubhouse.

You know, who's dining in the clubhouse? There are two dentists and an ER nurse having dinner in the clubhouse. They put me in there. They look at my teeth. They drop what they're doing. They take me to their dental office, 15 minutes down the road. They stitched me all up. They put my teeth back in and I'm able to save my teeth and 90 days later, you couldn't even tell that this whole thing happened. Like I'm still going through some cosmetic stuff, but overall like it was a terrible situation, but I think because I was positive it all just kind of came to fruition. 

So, you know, one of the things I've always practiced is not saying I have to do something but saying I get to do something. When I go out to dinner with a bunch of my friends and I pick up the tab,

they're like, "Dude, you don't have to do that."

" No, I don't have to do it but I get to."

 The reason that I do what I do is so that I can help people out and I can pay it forward. "Oh, hey, you don't have to cover that bill. You don't have to do this"

 'No, but I get to."

          I had to eat soup for about a month afterward, but I'm thinking you know, I'm eating a tomato bisque basil soup. I don't have to eat mud pies like people do on the other side of the earth. I don't have to walk two miles each way to go and get fresh water like people have to do on the other side of the earth and some people on this side of the earth. I get to eat soup, I get to eat something that's a bisque that has basil in it. Like are you kidding me? Like there are people who would kill to be able to eat that kind of stuff. I didn't have 14 teeth knocked out, I only had four teeth knocked out.

 I think when you just compare it and you put it in that type of perspective of, man, it could have been way worse, you know, like the situation could have gone - and there are still people even with me with my teeth dangling from my mouth, being in that circumstance, I'm still in a better circumstance than a lot of other people who don't have any food, who don't have any shelter, who don't have any clothes, who don't have any support. They're being trafficked by like human trafficking like all that kind of crazy stuff.

 Even when I have to go out and raise - I had to raise 7 million bucks for deals last month, and now I don't have to raise 7 million bucks. I get to raise 7 million bucks; that's a pretty awesome problem to have. And I think just putting it in that perspective of shifting your 'I-have-to' to 'I get to', will really make you more gratuitous or have more gratitude for life.

James: Was it because of your parents or do you think because you just had some event in your life that you think now I have to change my time or it's just how you have been?

Tim: That's a good question. My mom as always been very positive. My mom as always been, hey, you have something else to compare it to. Compare it to this, compare it to that. And I think that's probably what planted the seed of always looking at it from, "Yeah. You're right. I guess it could be way worse, right?"

It could have been totally different circumstance. She always used to say, "Hey, if that's your biggest problem today, you've got a pretty good life, Tim." When I was growing up: "Ma, I don't know what I'm gonna do like my basketball just popped."

"If that's your biggest problem today, it's a pretty good problem to have." You know, you're safe. You're secure, you're healthy, you have a family, you've got people who love you, you've got food with food on the table and clothes on your back and a roof over your head. Like all those kinds of things like you put in perspective. There's people dealing with a lot worse things.

And yeah, I think my mom kind of rooted that into me maybe early on and it definitely stuck and man, I just show gratitude. Especially once you have kids, you know, and you realize man like all I want is their safety and their security and their healthiness and their happiness and as long as they're happy and I'm happy. That kind of a thing that's really amplified it over the past four years. I have a four-year-old and a two-year-old now. And so just putting things into in the perspective that way has been a big deal. 

James: Awesome. Awesome. Is there one proud moment in your life that you think you will be remembering it for your entire life? 

Tim: That's a good question, James. You've got some good questions there, buddy.

James: I want you to think and answer. 

Tim: Yeah, you know, I mean, is there one...

James: One proud moment that at the end of your life, you're going to say that I'm really, really proud that I did that and it's going to be you know.

Tim: Yeah, I don't know if it's one specific moment, but maybe just like kind of how I live my life.

I try to do it on a daily basis and maybe it's not something profound. Maybe it's not something that's like one specific thing that was a catalyst. You know, I'm driving to the office today to come and talk to you and some dude cuts me off. Maybe he's got some priorities or something going on. I don't know what other people are going through, you know and for me to judge or get pissed off because somebody cut me off, why would I do that?  

I'll tell you if there's a really proud moment, once my kids grow up to be decent human beings, you know, and making sure that I want to live my life as an example of what an exceptional life can look like. So I want people to be like, hey, if Tim Brax, some kid from a blue-collar family in a blue-collar town, outside of Cleveland, Ohio can build up a big portfolio and still maintain good health and still maintain positivity and still maintain great relationships with his wife and with his children, with his friends and still engage and and maybe not be balanced but have harmony in his life, like if this guy can do it, I know I could do it.

 If I can inspire people, whether that be one moment in time by a Facebook post or an event that I host or being on a podcast, if I can inspire people to just be their best which is what I have on my wall here and that's not 'do' that's 'be' you know, that's like consumed that all together.

It doesn't have to be the best. It would be your best. There's always gonna be somebody more capable, more resources, more whatever. You know, I don't think it's healthy to compare yourself to other people but to compare yourself to yourself and making sure that you're advancing on a daily, weekly, monthly and annual basis is a big deal.

And so, I think I just try to make my kids proud, make my mom proud, make my wife proud, make my friends proud. Inspire other people and I try to do it more in the daily activity versus just do it one time and look at that one moment. I try to give back and try to - like I had suites to the Cavs games when LeBron was here in Cleveland. All right, and so when was that, two years year to go? Two years ago, I think. No, it was last year, I think. And so last year, I had a suite to the Cavs. I got the entire series for the first series. I figured who they're playing, but essentially when you buy a suite, you get it for the entire series, however many games they play at home and they played four games at home. And so, you know the first game I went to, I brought some business partners and was able to pay for the suite that way. And then, the second game I brought some family and the third game, I'm like, hey, I was excited to go but like I'm not as excited as I was maybe the first or second time and I'm like somebody else deserves this more than I do because I've already had this experience right? Like, how can I pay this forward? 

And so I posted on social media, "I got a suite to the Cavs game. I have 18 tickets that I can give away, a couple of parking passes. It's stocked with food and drinks and whatever you guys want. Like does anybody know of a family or a few families that I can give these tickets to that maybe wouldn't have this experience on their own but really deserve because of how good of a people that they are?"

 And man, like it got so much momentum and got so many shares and then the news picked it up and came and did a story on it. And I had about 5-600 applications that came through for people nominating other people to get tickets to this Cav suite. And so, it was actually really hard to break it down and essentially I found four or five families. I think five families that four tickets a piece that I gave the tickets to. And it was pretty easy to narrow it down to like 25 because I wanted somebody who had maybe faced adversity, overcame the diversity and then found a way to pay it forward; not just overcoming it but actually paying it forward and creating a difference. 

So, you know, there was one girl whose sister died of an accidental overdose of drugs and now, this girl who's still alive, her younger sister goes around and speaks at different schools about opioid problems and drug problems and how to overcome that and different resources to plug into for that, you know. And so I'm like, wow, this girl, at the age of 16 years old is making an impact on the world; like she deserves some tickets.

There was another gentleman who lost his daughter to a congenital heart defect. She was 3 years old, you know and loses his daughter to this congenital heart defect. And instead of like, I mean, I can only imagine how dark of a place he must have been in and he ends up opening up a nonprofit organization to help families with other kids with congenital heart defects to give them the support and help and the conversations and everything and making a massive impact up here in Cleveland, Ohio. This guy is such a good guy. I give him the tickets and he gives them to one of the people that are in his nonprofit, you know. And it's like, man, these people are just amazing individuals.

          And so I found five awesome families like that, that we were able to give the tickets to and like doing stuff like that really makes me feel good. And what's even better is that there were 500 people who I was able to create a catalyst by doing this who now, 500 people are thinking in a positive way about people who make a positive impact on their life. And just that positive ripple effect that's created, I think is really, really powerful and it was really, really cool to see.

James: Yeah. When I talk to you, I get very inspired because it's not about the portfolio of real estate or [49:17unintelligible]  rights, it's how you look at life and how you look at things. How you think positive and that's the most important when I look at a person.

Tim: Yeah. And you do an awesome job with it, man. I mean, you realize that it's not the portfolio, it's not the money that's noble. It's what you can do with the money that's noble and utilizing it for good. I could afford a really expensive fancy exotic car and I drive a $20,000 Jeep just because I don't really care. I know that there's a bigger impact I can make by being a better steward of my Capital, putting it in more deals or paying it forward in ways like that. So I get more fulfillment from that than from maybe driving something fancy. 

James: Yeah, even for me, I can't really imagine driving exotic car because, do I really need it? 

Tim: At the end of the day, it'd be cool. I'd rather just go and rent one. I know I'd have buyer's remorse. I just know myself personally and I know that as soon as I bought it I'd be like, I don't really need this. And here's the thing. I like watches. I like clocks. I like taking nice vacations. I like traveling first class. I like that kind of stuff. I like making memories and traveling the world; I love all that. So that's where I get my drive from on making a lot of money. For other people, they like fancy cars, they like fancy houses; that's okay.

 I got a good buddy, man, he drives a Rolls-Royce and has multiple hundred-thousand-dollar watches, you know. But I know he doesn't do it for flashed and to impress other people. He does it because when he looks down at his watch and when he gets in his car, he always sits back and he's like, "Man, I had to overcome some adversity, I had to go through some shit in order to get this watch. In order to be able to afford this car. And I've had to grow as an individual, as a person and make an impact on enough other people's lives, positively, that then the universe came back and gave me enough money to be able to afford this car and afford this watch."

And so, I think it depends on perspective and that's how you look at it. Like I have nothing against people who have fancy nice things, material type things. Because I know he's one of the most giving people that I've ever met as well and so it's perspective. 

James: Yeah, it's perspective. Yeah, awesome, Tim. So why don't you tell our audience how to get hold of you? 

Tim: Yeah. I mean, I'm pretty active on social media; you can find me on Facebook Tim Bratz. I run my own Facebook account, you know, it's not somebody else running it. I do some education stuff on how to get involved in apartments and things but hit me up with a message there if you're looking for formal education. I give a lot of away a lot of free content, a lot of free insight and I try to provide a lot of value on social media and stuff so just connect with me on Facebook. 

That's gonna be the best way and, yeah, man, James, I appreciate all the value that you give and all the value that you create and all the content that you put out there and, man, you're creating the ripple effect yourself on making a positive impact on people's lives. So appreciate you too, brother.

James: Yeah, absolutely. Absolutely. Thanks for coming on the show. It was really a very inspiring show. I'm sure for me and for my listeners and everybody's going to be enjoying it. 

Tim: Appreciate it, brother. Thank you so much.

James: All right. Bye.

James:  Hey audience, welcome to Achieve Wealth Podcast. This is James Kandasamy. Achieve Wealth focuses on commercial real estate and especially focusing a lot on Value Add Real Estate. And today we have Kimberly Radaker Bays from Dallas, Texas. Kimberly has done almost 430 million of assets specifically multifamily.

 

And this is just under her own asset management. And you know the 430 million represents almost 7200 units. Currently, they still own like 5000 of those units. And they focus a lot on deep Value Add which is an asset, not say an asset class, it's a type of Value Add that you know, gives you the highest return, right.

 

So they have done almost 10 deals up to now. One important thing that I want to mention before we bring Kimberly live is that Kimberly owns; construction management, property management, asset management and she also owns materials management, which is an important aspect of Value Add in vertical integration as well.

 

So hey Kim, welcome to the show.

 

Kimberly:  Hi, thanks so much for having me.

 

James:  Good, good. So I mean, you own a lot of units. You have been very successful in your Value Add Real Estate acquisition and you're playing in one of the hottest market, Dallas. So, can you briefly walk our audience and listeners through on how was your journey since the day you started? What year did you start? And can you just walk through your whole experience?

 

Kimberly:  Well, I started in 2007, with some single-family houses and kind of did that when my kids were really little. And then as they got a little bit older, it was harder to take them into Value Add, fix and flips and rental houses and that sort of thing when they were getting into stuff. And so, took a little bit of time away from single families and then got into multifamily in 2011.

 

So bought the first property, was a 77 unit property in Irving, Texas. And went full cycle with that one in only 15 months and then did 1031 into 244 unit property. While we still own that one, we brought 444 unit property in Arlington. And then kind of as we sold, it just kept growing. So purchased three properties in 2015, which have now all been sold.

 

And we bought three in 2016, three in 2017 and seven in 2018. And then one so far this year. So all of those, we still own; the 2016 and on, we still own at this point. So that's 4874 units across 14 properties scattered all across the Metroplex, Easter Garland and West to West Fort Worth so.

 

James:  Awesome. Awesome. And you do a lot on deep Value Add, right? So can you explain why did you choose deep Value Add?

 

Kimberly:  I guess we weren't scared of it. And we had sort of a knack for it from doing some of the single-family stuff that we had done previously. So we got started with that. And so because we do self-managed because we have our renovation teams in-house because we have the materials import it's a lot easier for us to undertake some of those projects.

 

I mean, there's some of those projects that I definitely would never hand over to third party management. It would just be a real mess if you did, probably so it really takes an awful lot of hands-on stuff. And even then there's plenty of speed bumps that roll along with deep Value Add.

 

We have a property that we purchased almost two years ago, that had 200 hard down units that hadn't been occupied in at least 13 years that we know of. My guess is closer to 16 or 17 years. So that's been an ongoing project. And it's definitely hit various little bumps along the way with city inspectors and various things.

 

And, you know, pipes that hadn't been used in forever, most of the copper was gone, all those sorts of things. But we finally have all, almost all the way back online so.

 

James:  So when you analyze deep Value Add, right, I mean, I'm sure you look for the value like you bought deals where there was a lot of units down and I think there's a lot of mismanagement and I  mean, is that kind of deal easy to find nowadays?

 

Kimberly:  No, it's not. The ones that are that deep Value Add are very, very few and far between at this point. But there is a ton of Value Add still available, just kind of depends on what you're looking for. So there's a lot of properties that have had some work done to them. But maybe more of the exterior has been done in the units, haven't seen as much on the interior.

 

And there's also a lot of room for Value Add on the management side. There's a lot of owners particularly that have owned for a long time in the market that haven't kept up with the rental increases that DFW has seen over the past five years. And so oftentimes, even a property that's in pretty decent shape, you can go in and definitely do some renovations and add some value there. But a lot of value can also be generated just by getting all the units up to the market.

 

James:  Yeah, I know it's harder to find the deep Value Add nowadays. And for example, the last deal that you did, you bought one deal this year, right? Can you describe how many units is that? And can you describe the characteristics of that deal?

 

Kimberly:  Sure, absolutely. So that property is 650 units in Dallas. And that one actually is a pretty good example of what I'm talking about as far as just making a difference in management. Some of the units have been renovated, not quite to the way that we would renovate them. So there's some stuff that we're adding to that.

 

But they're at least kind of some partial renovations done there. But they have third party management on that site and occupancy had really dropped. And they replaced the third party management company and the new management company to get it filled back up, but not really at market rents. And so the rents were quite a bit below.

 

So just kind of walking in the door, we were able to lease many of the units for $100 or $140 more the day after we took over than what the prior management was leasing for right before then. So there's a lot of Value Add that we're achieving just by taking a step up closer to market.

 

James:  So Dallas is a very hot market, I'm sure. I don't know, I'm not sure about this or is there a lot of people looking for that kind of deals and how did you get that deals? Why did the broker bring it to you or you have to go through the entire bidding war process?

 

Kimberly:  On that one, there was sort of bidding but it was, one of the things I think that really helped on that one it's the broker that we've had transact with many times before, but also sort of a neat story. The seller and I ended up on a panel together at a local conference in the offer process. And so I think it was right when we were at best and final.

 

And I was like, hey, this is the property that you own right? And he's like, oh, yeah and so anyway, we became kind of friends through the whole transaction. And even a little bit before that. So I think definitely, that relationship with the seller helped as well. So there's a lot of sellers that we've purchased from that helps us find deals.

 

It is a very, very competitive market right now. I will tell you, we've looked at probably 120 deals since then and there's two or three that might work out depending on kind of where the pricing shakes out. So but that was, you know, it's really, really hard to find anything in this market at the moment. But there is something occasionally.

 

And there are some things that we're able to do that some other groups might not be able to because of the import because of the stuff that we have in-house because of those synergies and cost savings that we're able to achieve.

 

James:  Got it. So, I mean, you said you underwritten like almost 120 deals, right? So do you do a sniff test? And can you explain to us what a sniff test and all of that 120 deals?

 

Kimberly:  Sure. Well, I have somebody that helps with acquisitions and gets everything kind of loaded up for me, runs all the preliminary underwriting. So that definitely helps a lot because being able to do that all by myself would be very challenging. We also had an intern this summer that helps with some of the properties that we get less than ideal data for as far as bad formats.

 

And when you get, you know, a PDF rent roll that doesn't convert well and all those sorts of things. So, but definitely, we have sort of a preliminary underwriting that we do and the spreadsheet that we've built in terms of what we feed in and what we can get out of that. And then obviously, much more detailed if it passes the initial sniff test.

 

But there's a lot that we do look at, just in terms of what percentage is renovated, the general area, what we think we can do with the property. Fortunately, because we own in so many different areas of the Dallas, Fort Worth metroplex, it makes it pretty quick and easy to underwrite a lot of the properties because we can look at them very quickly.

 

And we own a lot of properties, that would be a comp or we have owned something that was a comp or we've already evaluated something that was a comp. And so oftentimes we're able to look at the rents and kind of know whether or not something's going to work pretty quickly.

 

James:  Got it, very interesting. And I mean, because you know, deals are hard to find, right? And you have to have that big funnel of deals and that's a great tip to use some interns to do some underwriting. Because underwriting does take a lot of time, especially when you have you know, rent roll in PDF that doesn't convert and look at a lot of things inside the rent roll. and how's your company structure right now? I mean, I think you are like the CEO and how many people working for you? Asset Management, underwriters analysis? Can you describe --

 

Kimberly:  Maybe 160 people under the total umbrella. So we own the management company. So that includes both management and maintenance personnel that are out on the sites, regional managers, our accounting department, the material sales division, the guys that work in the warehouse, all the guys want our renovation crew. And then as well as you know, people that handle a lot of the investor relations, the acquisition and underwriting all those pieces.

 

James: Did you say 60 or did you say 160?

 

Kimberly:  176.

 

James:  176, okay, I was writing 60. So yeah, that's a big crew. And so you have the whole construction management, property management and materials as well, right. So can you describe how is the materials companies being set up on top of the property management, construction management, or maybe the whole, how the whole chain of vertical integration works? And how does it benefit in terms of giving you a value proposition for you to win deals or do very well in certain deals?

 

Kimberly:  Sure. So in this multifamily is sort of our, the materials' import arm, also we have a graphics division. So we have started doing signage, both internally and for other groups as well. So materials and graphics both do internal business for our projects. And then also, a good amount of sales is from other investors in the area. So we have, we do sell the parts.

 

But as far as to our properties, one of the big advantages were able to have it both on the graphic signage, branding and then also on the materials' import. We pass all of that through it just basically loaded costs. So I mean there's some cost allocation just in terms of the staff at the warehouse, in the storage facilities and those sorts of things. But it's all basically at cost.

 

And so that's a huge saving to our investors, that translates into additional return for them. We also, the construction arm is really a big partner to the property management arm. What we do for the construction is really the internal stuff. There are tons and tons of great general contractors as far as the exterior. It's very easy to get different people to compete on projects.

 

And there are quite a few really good players in town. But the interior renovations are really something that a lot of construction groups struggle with. And so that's the biggest reason that we brought it in-house. A couple of times we've tried using third-party vendors and every time we have, we've always sort of regretted it and brought everything back in not too long afterwards.

 

So we really have enjoyed having that piece. The big thing that enables us to do is we're actually, our renovation crews are actually, the person that's managing though this is kind of plugged in through our property management stuff so we know exactly what the status is. We know when a new unit is coming up. We know how to prepare for it and schedule it, to get everything ready to go on that front.

 

James:  Got it, got it. I mean, do you have any partners of managing this 176 people company?

 

Kimberly:  My husband now kind of runs the exist side of the business with the materials and construction and graphics. He kind of took that over. He was healthcare executive for a long time and then came in, join the team a few years ago. But otherwise, I don't have any actual direct partners, just an outstanding team of people around me so.

 

James:  Wow, that's very impressive. You're managing 176 people.

 

Kimberly:  It's really long term place, that are very close friends and everybody really does an awesome job. I've got a really strong team around me, certainly couldn't do this without them. But as far as actual partners, don't have partners at this point.

 

James:  Absolutely. That's really impressive.

 

Kimberly:  Had some partners earlier on but they --

 

James:  Yeah, I don't think, ever interviewed anybody, I mean, even though I interview a lot of operators relating to someone who has, you know, $430 million in assets under management, I think 5000 units are pretty common. But someone who has completely vertically integrated, including materials and have 176 people to manage,  that's a big accomplishment. And congrats to you.

 

Kimberly: As I said, I have an outstanding team around me.

 

James:  Yeah, absolutely. Absolutely. The team.

 

Kimberly:  [inaudible 0:13:34] the whole leadership team is really incredible and each plays their own piece of things very well.

 

James:  Okay. And I want to give credit to your materials companies exponential materials group, right?

 

Kimberly:  Right. And so we actually rebranded recently as exist multifamily. So from the EX from exponential and then import services and technology, because we actually are developing some technology to help with the Value Add process. And then we have the import division, obviously.

 

James:  Okay. So let's talk about that.

 

Kimberly: Multifamily, what we rebranded as this spring.

 

James: What technology are y'all developing to help with the Value Add process?

 

Kimberly:  Well, so the pieces that we already have kind of completed and ready to go are all of the due diligence pieces. So both the lease audit and the unit walks, getting counts for all the units so that we know exactly what we need to have in our material kits to do the renovations. So that piece of it's done.

 

And then we're just continuing to work on integrating it into our property management software. So that a lot of the things that we have to do a little bit more manually now, in terms of processes to walk through, you know when units need to be walked, what the processes, what pieces they need and all of those sorts of things will be much more automated as we go through them. So we just keep automating more and more pieces as we can.

 

James:  Got it. So what you're saying is you are creating a due diligence software. So when you do your due diligence also on top of giving what needs to be changed, it also it gives you the materials needed to change and also packages into certain kits?

 

Kimberly:  Yes.

 

James:  Oh, that's awesome.

 

Kimberly:  Think about our material business through. Right now, it does due diligence, but it's really more going to be Value Add software when everything is kind of complete. It's really going to manage the whole Value Add process, really kind of cracking some of the key pieces of asset management along with the due diligence process, the materials, supplier acquisition,  tracking and kind of really being able to monitor staff and progress very easily, even when remote. So it's all a work in progress. And everything always takes a little longer than you think it will.

 

James:  Yeah, I mean, creating software and a structure does take a lot of time. But at least you have a really good vision to integrate the whole process because I know I do a lot of Value Add as well. And you just have to manage, how many units we have, what is the cause and you know, do the exact right thing for that particular unit or not, right, because after closing, you know, yeah, we are running like 100 miles an hour, right. And we don't have a team.

 

Kimberly:  Sure, absolutely. So, my husband, Matt is actually really, really good at kind of all of that process flow stuff. So he's been kind of really leading a lot of the stuff on the development side. But we do have the due diligence available. So it's really convenient for us because, the material side of the business, we actually offer kits to our customers.

 

So we will come out, walk through the various floor plans at your property, get it you know, accounts for this is how many vanity lights, this is how many cabinet poles, this is how many tiles you need if you're going to replace the backsplash, all of these things, make the whole parts list so that the manager is actually able to call and just say, hey, I need a kit for AHU and B1 this week.

 

And we will deliver a single box that has the ceiling fan, the tile and everything that you need for that unit, exactly down to the precise number that you need in that box. So that everything could just go into the unit, everything gets installed, all the trash goes back in the box, and you can throw it out again.

 

James:  Wow, that's awesome.

 

Kimberly: So it's a really cool feature that we have that is unusual from us to the materials suppliers.

 

James:  Got it and how much volume do you all do? Or how much revenue you all do in your materials business? Just to get the scale of how much it --

 

Kimberly: Think we are going to hit about 5 million this year if memory serves.

 

James: And that's for everything, right? When you guys use for yourself and you sell to others.

 

Kimberly: Right. We're probably about a 30% customer would be my best guess at the moment. The other 70% is all third party business.

 

James:  Wow, 70% is for other people and 30% is for yourself.

 

Kimberly: I mean, we're starting to do some of the marketing efforts on that now. And now that we own 100% of it. But everything that it's grown to that point has all just been kind of word of mouth. A few other friends of ours that were investors were like, hey, can we get some of this stuff, too? Yeah, sure, we can work through that. And so it's just kind of grown from there.

 

James: Got it. That's very interesting. And let's go into to Value Add, right. So let's say your budget got cut into half, right, let's say you're supposed to have a $1 million in rehab budget, now you only have 500,000 rehab budget, right. So what are the most important things that you would prioritize in a Value Add repositioning of multifamily?

 

Kimberly: So I think a really big piece of it is just hitting the Wow. So there's obviously different, you know, arguments about how far is too far and what you need to renovate in particular unit. But basically, the thing that I have found is, you just want to make sure that you have enough there to get the Wow.

 

So if you don't have enough, you don't want anybody to ever be looking at it and go, oh my gosh, it's this beautiful apartment. Oh, there's that brass doorknob over there. So I've seen some other renovations that other people have done. So I'll say don't forget the inexpensive details that make the Wow work, even if you are kind of cut on budget.

 

So there's definitely some bigger things that are more expensive. But some of it, a lot of the unit interiors make a huge difference. You know, as far as making sure that everything is fixed up nicely, I mean, you know, get I guess getting a rehab budget cut in half would never be a very fun thing.

 

James: Yeah, that's what I mean, it forces you to think right, what is the most valuable Wow you can get right. Let's say you can spend $1 and get that big Wow versus spending $10 and getting smaller Wow. So which one is the biggest wow versus the amount of the money --

 

Kimberly: I mean, if the painted exterior is really horrible, then that can make a really huge difference. If it's in pretty good shape and it's not in bad condition, then that's probably on the lower end of things. So it sort of just depends on that particular properties. There are certain properties where I would say the exterior has to be a huge piece of the Wow.

 

And you absolutely have to get that right. And then there are other times when it's like the exterior really isn't bad. So if you focused on your interiors for a while you could probably get your rents up and then generate enough income to be able to check most of the exterior.

 

James: Got it.

 

Kimberly: Apologized for the ringing in the background.

 

James: No worries, no worries. So what's there a deal, a deep Value Add deal that you have done? And you know, you had set an expectation in terms of proforma and what you can expect, but when after you close on it, you realize your proforma was completely out because of something, right? Can you describe that kind of deal? And what did you learn from it?

 

Kimberly: We haven't had any that we weren't able to work through the proforma. I mean, there's certainly been bumps in the road and everything. I suppose with [inaudible 0:20:51] one of the properties that we have right now as I said, we're coming up on two years. And finally, now all of the down units are going to be done before the two-year mark.

 

But we were really kind of hoping when we walked into it that it was going to be done in a year. And we hit various different problems along the way. One big thing was when we got the first building online, everything was fine. People were moving in, everything's been working great. But we got to the electrical inspections on the second building. And electrical inspector came in and said, well, you can't have electrical panels in the closets in new construction.

 

I said, well, it's not new construction, it was built in 1974. And they're like, nope, you can't have it in new construction. So we have, I mean so kind of had to pause on work for several months while we work through that issue because we didn't want to continue working on the rest of the buildings without knowing whether or not that was going to be an issue that we were going to have to move later on.

 

So there was definitely some delays regarding stuff like that with the cities. The cities are always a little bit challenging to work with. So those can cause some timing delays, which can impact proforma a bit. But we've been very fortunate, we've always been able to really hit the rents that we were projecting. Oftentimes, you know, there can also be issues on any project with property taxes, property taxes are really a big thing.

 

And so one of the, we've shifted some of our underwriting for stuff that we're looking at now. Dallas County and Tarrant County are completely different in terms of how they respond and what you have to do on underwriting and new properties at the moment. So Tarrant County, we have numerous lawsuits pending that are about to be filed, I guess, based on property taxes. But all of those basically got assess, 97% to 98% purchase price.

 

James:  Wow, both in Tarrant and Dallas County?

 

Kimberly:  Just in, Tarrant County,

 

James:  Oh, in  Tarrant, okay.

 

Kimberly:  Dallas County was much, much more forgiving. But then Dallas County also has some of its own issues as well. So you know, there's some really good rent growth going on in Tarrant right now. And we'll see how all the litigation turns out on the properties taxes, but that always takes a long time to play through. But that's definitely been a big piece of the underwriting at this point, in terms of how things are impacting the performance of the portfolio that we bought in the middle of last year.

 

We're actually very fortunate, I guess. It's partially in Dallas County, partially in Tarrant County. And so we were way over budget on property taxes on the Tarrant County side, but way under budget on the Dallas County side. And netted out to about $3,000 below budget across the whole portfolio, six properties.

 

James: Okay. Wow, that's interesting.

 

Kimberly:  It's amazing how close you can tie out to your performance in a way that's completely unexpected.

 

James: Yeah, I think deep Value Add,  I mean, it offers you a lot of parameters to be forgiven, right, in case you found something that is not as what you thought about because there's so much of upside that you can make mistakes and still come out really good.

 

Kimberly: Oh, absolutely. That's very, very true. And also, I mean, just anytime you have a good rehab, I mean, any deep Value Add, you're going to have a really large rehab budget. So even though things can go wrong, it's still a small percentage, just exactly to your point. You know, if you have a million-dollar renovation budget and you encounter a $200,000 expense you weren't expecting, it's not any big deal. If it was a million-dollar renovation budget, that's a pretty huge deal.

 

James: Yeah, absolutely, absolutely. I mean, I realized that, whenever I do deep Value Add, you know, there's just, you find things that you didn't expect in the beginning before you close. But you know, you always have some things to work around because you have so much cash to play around, right, in terms of Value Add?

 

Kimberly: Well, we try to be really conservative too in terms of what we budget, make sure that we have some contingencies. I always try to make sure that we have a decent bit of cash on hand like that's really one of my big focuses, is trying to make sure that we always have enough cash in the bank. That when things don't go quite as planned, it's not the end of the world for anybody, you know.

 

A huge priority for me is to make sure that we never have a cash call, we never have and I don't ever plan to if there's any way I can avoid it. So that's one of the big things that I really focused on is making sure that I maintain enough cash. We have enough cash at closing, to be able to do what we need to do, cover some bumps in the road, cover a few delays.

 

Make sure we've got some contingencies just in case, you know, as you're going through your Value Add process occupancy slips a little bit more than you plan, all those things I try to really plan for and try to hang on to the majority of any cash flow. And so we've got everything really sort of wrapped up at least the big line items taken care of and completed.

 

And then at that point, we know what kind of cash we have to work with them. And we can start paying it out but without ever having to worry about missing a distribution or cutting a distribution or anything else. So that's always just a constant kind of steady or steadily increasing process after that.

 

James: Got it. So what are the tools that you use for asset management? I mean, you have like 5000 units right now. And can you tell us some of, you know, tips and tricks in asset management that you're using nowadays to manage all these 5000 units?

 

Kimberly: Well, I guess we've got a lot. I mean, I've been very, very fortunate over the past year because I used to do a lot of the oversight on the accounting side very personally, I still do review the financials every month. But I've been very fortunate to really build out the accounting team.

 

Got some great people on the accounting team now, to where getting to the point where the last couple of months, by the time that the financials have actually gotten to me to review, I really have basically no questions. And so that's definitely sped things up a lot. I think we're getting some really good interaction between the property managers and the accountants.

 

So that they are asking the right questions, we're getting the right information back. If something isn't working well, it's getting put in front of the Director of the Operation or the Regional Manager so that we can address stuff and change policy. So that's a big piece of it, is really kind of the interaction between the asset management, the accounting, the property management, getting all the teams to kind of work together.

 

We obviously have, you know, an inordinate number of spreadsheets and different tools and reports that we look through as far as the out of our property management software to determine kind of how the assets performing. Got monthly reports that kind of track where we're going on the projects, where things are heading, where we're over budget, where we're under budget, how we want to prepare for all of those things.

 

James: Got it. That's very interesting. And before I forget, so are you, I mean, I know a lot of deep Value Add does need a lot of short term loans. And are you still doing short term loans nowadays?

 

Kimberly: We do bridge loans.  I am not a huge fan of huge prepayment penalties. So I really have sort of shied away from doing most of the, if any long term loans. We did one, we were actually able to sell and kind of the buyer covered a lot of the cost of getting out of that loan. But that was multimillion-dollar prepayment penalties that would have been owed.

 

So that can definitely have a big impact on returns in the future. So especially because a lot of our investors are really looking to increase their net worth so we do shorter-term hold periods. It never made sense to me to get tied into a 10-year loan if the plan is really to hold three to five years. So we've been very, very fortunate recently.

 

We've been able to work with a lot of really good bridge lenders. We have a bank that has done several loans with us, some that have already been paid off and some that we still currently own. And then also a life insurance company that also does some bridge loans. So we try to really look for things that give us a decent bit of exit flexibility.

 

So that have prepayment penalties that burn off within two to three years at the longest. But then hopefully that have some extensions available or that have longer terms than that, to give us some flexibility so that we don't get caught in terms of having to refinance in a really tight window.

 

James: So aren't you worried about now, where we are at in the market cycle? And you know, bridge loan does costs certain expiry, right after a few years. Aren't you worried about that or do you think that risk is mitigated?

 

Kimberly: Not really because like I said, so the properties that we bought last summer, we actually have a five-year loan with a two-year extension available. That has basically no prepayment penalty, once you've paid about two and a half years of interest. So I can enter and we actually are able to pull various properties out sooner as long as we still hit that interest reserve.

 

So if we sold one today, we would have to hold the others maybe two years and 10 months or something instead of two years and six months to break even on that. But really we have pretty much free exit from two and a half years to seven years from purchase. So that gives a long time that you can still sell some things ahead of time, if you know things stay good for longer. And at the same time, if things go bad soon, you have time to hold through.

 

So been really looking for stuff, not real short term.  The real, real short term bridge loan two years, you know, with some extensions and that sort of thing, I think can be kind of risky at this point. But we've been able to get quite a bit of stuff that's, you know, sort of a five year fixed, but that's free and clear exit after three, sometimes with some extension flexibility in there.

 

So it's got a lot of, you've got long enough to ride through things. We've also been able to find some of those, fortunately, that are bridge loans that are fixed rate, which is very nice. So it is a little bit higher interest rate than a Fannie or Freddie. But having that extra flexibility really matters to me, because even with like a Fannie Mae loan, yes, you have time now to get through a downturn.

 

But none of us really know where the economy is going to be 10 years from now or 12 years from now, either. So on any of those, it's really just sort of oftentimes a three month free and clear exit at the end. So that's still a very narrowed point of time to transact or to refinance. Even if it is a long, long time from now, it's still a pretty narrow window to hit.

 

And so a lot of the loans we've been able to do, give us quite a wide window of, you know, a couple of years in which we can transact or refinance, whenever it makes sense with the market.

 

James: Got it. Very interesting answer. I really like having a five years fixed rate. And after that another two more years extension because I thought the bridge loans only three years plus two looks like the other options as well available on that.

 

Kimberly: There's a lot of different options. I mean, there's a lot of people that are just doing like a three plus one plus one or a, you know, three plus two kind of thing. But there are definitely others that will do different options. And that will get more creative and really do what it needs to do in order to meet your project.

 

And so we've been very fortunate to find some of those and develop good relationships with some of those lenders that think a little bit outside the box. And we've been able to structure some stuff that really does give us a nice window in which to exit it sooner or if it's later just depending. Because nobody quite knows, everybody thinks something's going to happen, but nobody knows when.

 

James: Got it. Very interesting. So can you name your secret sauce to success, like a couple of secret sauce, that you think, you know, this is my secret sauce to success?

 

Kimberly: Well, my team is a huge piece of my secret sauce to success. The fact that [inaudible 0:32:22] barely needs any sleep certainly helps. So I think a lot of it really is just how hands-on most of us are with the projects, with the process. Even as we've grown, obviously, each of us has smaller and smaller pieces across.

 

But we really do pay attention to those things, we pay attention to the details. I think it's been really important that we do genuinely care about our team members and our employees. I think that they get that and I think that gets us better people. And for the most part, it's allowed us to retain better people. Obviously, this is a very, very tough labor market.

 

So anytime there is a position that's open, it is a challenge to fill it. And it's a challenge to find the right person to fill it. But I think some of that really kind of genuinely caring about the team has made a difference for a lot of other people. Other secret sauce, I guess, I always kind of looked at the renewals a little bit differently than was standard in the property management industry.

 

I think things have shifted a little bit more towards my way of thinking about it now. But I remember when I first kind of joined the industry in 2011, everybody was very used to well, okay, are we going to do a 3% increase or we're going to do a 5% increase? Everything was the percentage increase over what the person was paying at the time.

 

And so one of the things that I always looked at was, now you really have to look at it in a more finite dollar amount. Because if you have somebody let's say that's already $20 over market, for whatever reason, maybe they took a short term lease the first time around and then you've got somebody else that's 150 below market, why would you give the bigger increase, if you do a percentage increase to the guy that's already paying over market, then you went to the person that's hundreds of dollars below market.

 

So really kind of structuring some unique formulas to try to balance things out. That's one of the things I've learned a lot about as times gone on. It was always kind of my original, foundational idea was that you should give a bigger increase to the person that's further below market. But then also really kind of gotten to fine-tune a lot of that through the years.

 

And it varies it through various seasons and through different properties and different areas of town. But really have found kind of a matrix of stuff that I do to try to find the right balance on renewals, so that we get as much more additional rent as we possibly can, without dropping occupancy too far.

 

James: So what is that metrics? Can you share it with the audience? How do you decide, let's say, --

 

Kimberly: It's a lot more complicated than that. I don't even know the [inaudible34:49]. As I said, I guess that's part of the secret sauce. I will give some of it, but it is just kind of, you know, really bouncing through and finding the right balance. Like I said it varies considerably property to property.

 

I have some properties where they can, you know, you can bump people straight up to the market even if it's $150 increase, it doesn't matter. They'll just pay it. And I've got others where you know, if there's if it's nearly that large, then you, you just kind of able to tweak it, going through it.

 

James: Yeah, we do a lot of that, too. I mean, when someone is below market, we usually go person by person and make sure you know, is there anything that you can do to upgrade and don't hurt them, right. I mean, you give them something and you do partial increase, rather than just completely bring them to market.

 

So that some of the things we do as well, find the right metrics, I guess, right. Is there a proud moment in real estate ventures that you think I'm really, really proud of this particular moment and I'm going to remember that for my life? Can you describe that moment?

 

Kimberly: I guess there's a lot of really big things. I guess, one of the biggest is just hearing some of the investor testimonials that we've done recently. This is the first time that we've ever had a five or six C offering open which allows us to do advertising to the greater populace. Everybody before was just a five or six B where somebody had to already be on our list prior to the time that the offering open.

 

And so we actually had some of the investors come in and do testimonials. And that was pretty cool to really, I've heard a lot of stories. But to have people that were actually willing to even go on video and tell their story and tell about the difference that it's made in terms of what they've been able to do with their family, people that have been able to retire, that didn't expect to be able to retire.

 

People that were able to stay home with kids or retire early or take trips that they never thought were possible. That's been a pretty huge thing to kind of just really hear the difference that it's made to people. I mean, that's sort of the biggest goal is to make a difference. And I guess one of the other really proud moments is just kind of some of the programs that we have at the sites as well.

 

We partner with a lot of level 1C3 that do different benefits. So we've got some that will help with during hard times to cover rent, we do Angel trees for some of the residents. We've got vendors that have work through us to try to help various residents along the way. We have an organization that actually teaches classes to improve job skills and financial management skills with some of our properties that are in a lower-income area.

 

And so I actually remember when he was calling, the nonprofit was calling to work with us and you could tell I guess, well, you know, he kind of gave us his pitch and whatever. And we're like, yeah, that sounds great, we'd be happy to help. And he just kind of didn't know what to do with it. It was kind of funny. He had --

 

James: Because everybody rejected them, right?

 

Kimberly: He had more objections ready but had no idea what to say when somebody just said, sure we can do that, we'd be happy to, we'd love to work with you. So that was pretty cool to relate. We work on trying to bring programs and really try to make a benefit to the residents as well make sure that we're taking care of the people that take care of us.

 

James: Yeah, it's amazing how many people treat, you know, real estate as just a money-making tool, right. But I mean, it's more of a life-changing tool, right. You can change a lot of people's lives by not only collecting rent but providing other services that they may not have access to which a landlord can do, right.

 

Kimberly: I mean, it's a huge way to really benefit the lives of others. I mean, yes, we make money for the investors. And we're very fortunate one of the cool things about our company is that we have had lots of smaller investors. There are lots of investors that have been with us since early on, that have doubled and tripled and quadrupled their net worth.

 

And so there's many of them that were not accredited when they started with us that now are and so that's one of kind of my own personal goals is to help 100 people become millionaires, that that's kind of what my personal goals. But then also just the difference that it makes to employees. We try to give everybody a great place to work.

 

And so, you know, when we first started with that first property, we had one manager and one maintenance guy, two employees, I think there were six contract guys that were helping with some rehab, but that was about it. And now we're over 176 employees. And all of those people have a good solid job to come to where they're treated like family and where they have benefits and everything else.

 

And we've given the employees opportunities to invest periodically throughout the projects. And so that made a big difference for them as well. And then just really making a difference for the residents. We try to give them a good place to live, yes, we do increase their rent. So sometimes we are the big bad wolf in that regard. But we try to at least give them a really nice place to live.

 

We try to take care of things, fix things when they're broken. It's amazing the properties that we've bought that have had tarps on the roofs and you ask the residents and they're like, oh, we didn't. But why didn't you tell us sooner? We didn't really think you were going to do anything about it. It's been like this for three years.

 

Like, why should anyone have to deal with a roof leak for three years, that's just ridiculous. And so it does make a difference to go in and clean up some of those properties that have been sort of ignored or just treated as an ATM.

 

 

 

 

 

James: Yeah, it's amazing on how much people owning apartments, but never really cared for the apartments. It's a complex asset class to manage, right? I mean, you have to manage the property, you have to manage rent increases, you have to manage tenants or to manage vendors, you have to manage banks, right?

 

There are so many things that you have to manage and it's just not easy to manage. And not many, very few property management company can do that. And whoever can do that, they need to be really good at it.

 

Kimberly: It is definitely a challenge. There's a lot of investors or people that have been interested in investing. They're like, oh, I want to do what you do. And I'm like, okay, well, make sure you think through it really carefully first. It's a great thing to do. It's a great business to be in, don't get me wrong. But this is not easy. This is not just I'll buy an apartment, you know and it'll print checks. And it'll be so simple.

 

You're going to to have staff that has to run them. And even if you have third party management, you still have to watch the third-party management company. And you have to figure out how you're going to step in when you have, you know if there's an issue with that. And there's a lot to keep up with and a lot to manage if you really want to do it well. It is a pretty forgiving asset class as you mentioned, especially on the Value Add side.

 

So you know, yes, if you're trying to hit 100% return and you know, you only hit a triple oh, shocks, we only made 80%.

 

James: Still awesome.

 

Kimberly: So far we've been able to hit our targets, but that is definitely much easier. I suppose than buying something that's really just cash flow, where all you have to do is upset one resident and your occupancy slip just enough that you're not making quite as much as you thought you would before.

 

James: Yeah, correct. All right, Kim, why don't you tell our audience how to find you and how to get hold of you?

 

Kimberly: Sure, you can reach out to us at exponentialpropertygroup.com is our website. There's lots of information on there, as well as some of those investor testimonials that I talked about. Some pictures of the properties that we own and have managed and also ways to contact all of us for any more information that we can provide.

 

James: Awesome, thanks for coming into the podcast. It was one of the huge Value Add podcasts. I mean, you gave a lot of Value Add advice, at the same time, you give a lot of tips about Value Add as well. So really appreciate it and thanks for coming in.

 

Kimberly: Yeah, thanks so much for the opportunity. I really appreciate it. I'm glad I finally got to meet you.

 

James: I'm really glad to meet you too. Thanks.

 

James: Hey, audience. Welcome to Achieve Wealth podcast. Achieve Wealth podcast focuses on value add real estate investing. I'm James Kandasamy. Today I have an accomplished couple, Jack and Michelle Bosch. And Jack and Michelle Bosch have done more than 4000 land flips across the nation. Land flips is something very interesting to me. And, you know, it's an asset class, or an asset class, which I think is very interesting. And you can learn how we make money out of it. They've done a lot of single-family houses. And they also have done apartments; 330 units apartments. And, you know, they are continuing to look for more and apartments as well, but I think they are the masters of land flip. Hey Jack and Michelle, welcome to the show.

Michelle: Thank you so much for having us, James we're excited to be here.

Jack: Thank you for having us, James.

James: Tell me, did I miss out anything in your credentials or you know, did I --

Jack: No, other than we're both immigrants, we both came from other countries. So we started here with, just like you, just came over from another country and so we have that in common. But now we flip now 4000 pieces of land. We teach it now; so we have seminars on that. But then for asset allocation, basically the money we make for land flips and whichever way rental properties now, we rolled that into more and more two apartments now.

Michelle: Yes.

James: Got it.

Michelle: To produce what we call one-time cash with the land flips like you work for a once and you get paid once. We're also able to produce some cash flow because we are also able to sell those properties using seller financing, you know.

James: Got it.

Michelle: And so you do get some mailbox money, but those notes usually come to an end once the property is paid off. And so, we're always in the back of our minds is okay, let's roll cash profits and cash flow into what we call forever cash, which would be a partner.

James: Got it. Before we go into the detail of land flipping, I want to understand your background because I know all of us are immigrants So can you tell me when did you guys move to the country? And how did you move? Were you already successful on the day that you land in this country?

Michelle: Oh no.

Jack: Of course, we're like, we're a billionaire.

James: Did you find gold outside the boat?

Jack: No. So, Michelle…

Michelle: Yes, for me I came from Honduras here in 1995 to study. I came to a tiny little town like about three hours South-West of Chicago called McComb, Illinois, that's where I met this man in the middle of the cornfields. It's basically university town, you know, and nothing else to do.I came here for a business degree, my undergrad, and I was in my senior year there, my third and last year when I met Jack. We shared some upper finance courses together because he was here for an MBA, 10 months. He met me and then he couldn't leave anymore.

James: Got stuck, you got stuck in the US.

Jack: She's right. She summarized it. I came in 1997, Michelle was in her last year in undergrad. I did come in for a Masters to that same university that had an exchange program with the university I used to go to Germany. And I was kind of like be able to kind of accomplish three goals in one year. Number one; I was able to get an MBA in the United States because it was an accredited school and I was studying business Germany. Already had enough credits and I just needed these 10 months, was enough to give me the American MBA. They give me, I tested out and all of these other things. Number two, I was able to get credit for the missing classes in Germany. So with that, I didn't have to go back to Germany to do more classes. I completed my degree in Germany, those same classes gave me the MBA. Also helped me complete my degree in Germany and improve my English. And the fourth and most important thing, I met this one.

Michelle: But to answer your question as to whether we came here successful, absolutely not. I came in with two suitcases to my name, Jack pretty much the same. You know, I was raised by a single mom and my father passed away when we were very, you know when I was very young. And it was, you know, she was sending me here to study with a lot of sacrifices. I had to take several courses, you know, take seven courses per semester, like advanced as much as possible, because I couldn't afford to be in the US for more than two and a half, three years, you know what I mean?

And eating soup towards the end of the semester when you run out of money. And, but I didn't have, I did have in the back of my mind the thought that real estate has been incredibly good for my family. You know, before my father passed, he had made an amazing decision. And it was to buy a piece of commercial property that to this day spits out cash, you know, for my mother. And so --

Jack: And that piece of property brought her to college here in the --

Michelle: Got me through college.

Jack: And still sustains her mom over there. Yes, in my case and my dad's, again the same thing my mom, not the same thing but similar. My dad is a high school teacher, retired now. My mom's a stay at home mom. So no, I came here with student debt. I came here with enough money to pay for one semester, I didn't have, really didn't have a clue, how I would even pay for the second semester. Luckily, I got a job at school. The first car that I bought in the US was a $900 old Chevy caprice, like the old [inaudible05:31] car that they use to drive around --

James: It had four wheels, right? Four wheels?

Jack: Four wheels, yes.

Michelle: And I was like Jack, why did you get this, I mean, there are so many cars, why did you get this car? And his answer was like, cars in Germany are so tiny, I was looking for the biggest car possible in the US.

Jack: Like Germans and every single one of them bought the biggest car that they could find.

James: That's good. That's good. Yes, I like to, that's a very interesting story from both of you, right. So I like to, I mean before we go into the technicality of the commercial real estate and all that, I like to understand a lot about the thought process and you know, the people behind it, right. Because I think that's what makes everybody successful. It's not about the tool like real estate, right. So tell me about what was your family thinking when looking about the US from outside, right? Did they think the US is the land of opportunity, easy to get rich? Or how I mean, can you talk about the process that when families outside of the country when they want to send their children to the US, what do they usually think, you know, what do they think that you kids will get here?

Jack: Well, I think Michelle's mom was perhaps not thrilled that she would stay here.

Michelle: Yes.

James: But not thrilled?

Michelle: No, yes.

James: Okay.

Michelle: The whole point was to come here, study, not find a husband, go back home and basically help her manage, you know, this piece of real estate and hopefully, you know, continue growing the legacy that was left to us.

James: Okay.

Jack: Next, get a job, right?

Michelle: Yes, yes.

Jack: Same thing here. My parents were absolutely not thrilled that I was staying here behind. They, I literally had the job lined up in Germany. I had the, I just put my student furniture in my parents' basement. I had a good degree from a good university and good things and they're like, what are you doing? What are you staying there? What's going on there, you're so far away. In particular, my mom had a really hard time with it for several years. But then once they saw our success, particularly once we entered real estate, and once we saw success and what that success actually means for them too and for us. It's like we don't, we see our parents, this year we see my parents three or four times even though they live in Germany. And it's like, and they, we support them a little bit financially. They get to come here and they get to spend time here. And they see that they don't have to worry about us like we're the one or like, we're my, Michelle and our family, they don't, they're like a peace of mind. They're okay. They're good. They're happy financially, they're good. So, you know what as a parent you wonder, you want to have that feeling. So they know, ultimately, it's a good decision and took them like 15 years to say that, but they did.

Michelle: Yes, I mean, we also contributed to, you know, being able to retire Jack's dad before time. You know, a couple of years before he had been working as a school teacher for many, many years. And he was just at the point where he just didn't want to do it anymore but he couldn't leave it because, you know, that involved a big reduction in his pension if he did. And so we put the pedal to the metal back then and it was just through land flipping, to be able to make up for that, you know, for those two years of early retirement and being able to retire him early. So --

Jack: So he ended up retiring a year and a half, two and a half years early because of that and

James: Wow, awesome.

Jack: And so overall so now they totally have changed.

Michelle: Yes, so family has been always I think also big why for us, a big driver to get things done.

James: Got it. That's absolutely what happened, you can come here and help out your family back home. It's just sometimes people, I mean sometimes they think that okay we want to come to the US and stay here but that was not the case for both of you, right? I mean, you came to study and you're supposed to go back. But you got stuck with each other.

Jack: The United States is a wonderful country to be. But then we also, we realized, I don't want to live in Honduras, Michelle didn't want to live in Germany. Nothing wrong with these two countries, they are beautiful countries but language barriers, cultural barriers [inaudible09:40] we're already here, let's try to make this work here. We got lucky, we both got jobs here. We got the job that got the visa, the h1B visa, took five and a half years to get to that process.

Michelle: And it was a job, jobs we both hated. But we were handcuffed because of the, you know, green card situation. And so we had to stay but --

Jack: Yes, but yes, it was just something, let's see if we can make this work here because we like it here. And we --

James: Got it.

Jack: Beautiful neutral ground also for us.

James: So do you think that as an immigrant, did that whole life situation gave you a boost, a reason for you to be successful in the US?

Michelle: Absolutely, it like, I think it was incredible, it gives you an incredible drive and hunger. Like I don't come from a wealthy society like Jack's, you know. I was going back to a third world country, you know, yes, from a middle-class family, but still to a very poor society. And so for me, yes, that, you know, that was an incredible drive, you know. You still go back home and those wealth disparities between the haves and have nots are brutal. And so you definitely don't want to be caught in the haves not part. You want to be caught in the other group of people. So, yes, that was definitely a big, big drive for me for sure.

Jack: Yes, absolutely, yes, same here. I mean, but a different way. Here, it's more like I could, anytime I could have left and go to Germany, first-class country, Mercedes Benz, would've gotten a good job with a BMW as a business car and expense budget and staying in nice hotels and all those kind of stuff. But the overall I mean, there's something really amazing about the US and I keep saying and it's not like blind nationalism. It's just for business and for success and for comfort, and for just that particular business. It's just an amazing country. It's like so once we started setting our eyes on that, it's like, it's so easy to do this. And definitely helps to be an immigrant, I don't know if the hardship helps if you use them, right.

Michelle: Yes.

Jack: So we use them as fuel. We used them as a reason why we needed to succeed because we did not want to live a life like I was travelling 100%. I mean, sounds glamorous, like I was jumping the plane on Monday morning going somewhere. But I was staying in Holiday Inn Express where ants were crawling up the walls. And in some cases, and usually, in small towns, where there are five restaurants, three of them are fast foods and I was like working in some companies up till midnight and I didn't enjoy it. So I use those things as fuel to say okay, I really got to do something extra in order to succeed. Now, having said that, being an immigrant here, which as you can probably confirm, is you start, you see way more opportunity that the non-immigrant see. Because it's not normal to you, what you see around you is all new. So as it's new, you look at it from a different angle and you see the holes in it, based on compared to what you see in other places in the world. And it's like well, and any kind of opportunity that ever existed is really masking itself as a problem. So you see, like anything that created like glasses, have been created because people don't see up with eyesight anymore. The problem is the eyesight gives is the solution. So anything even multifamily is the solution to a problem. You take a problem, you take a problem property that's been run down and you make it into the prettiest property in the neighbourhood. You provide a solution for people who want to save, solid, good well-working place, affordable place to live you can make something out of that. And it's true for everything and as an immigrant, I have a feeling you see that much more than then if you're born and raised here and it's everything is just normal.

James: Yes, yes. Hey, I had a friend from the UK and he left the UK came to the US and he kept on telling me this. I don't know whether the UK or entire Europe, right, I mean it's a well to do country, it's a rich country but there's no easy part to break out from your circle.You can't break out as a breakout and go to the next level, you’re always within that, you're probably working, you're earning, you're learning, you are living an average life like everybody else, but you can't break out to the next level. So I'm not sure how is that in Germany, but in the US.

Jack: Plus Germans, they don't move a lot. So you're on top of it, almost like down by your social circles, that like there's a party, a thing and a friendship. So if you start breaking out, you become you're almost alienating the people around you.

Michelle: An anomaly.

Jack: An anomaly.

James: Okay.

Jack: And if you don't have the stamina to keep that off and build a new circle of friendships or so, then you're going to be pulled back down. And that's another benefit as an immigrant, it's like, hey, it's like you didn't burn the boat but you cut the ties. It's a brand new world, it's a brand new opportunity, you associate yourself and make friends with those people that you want to make friends with. And it's just a, it's almost, it's a brand new world. It's a different thing.

James: Got it.

Michelle: I think especially in Jack's case, you know, resonates with that because he comes from a very small town in Germany. And he's like, there are some people that even though I didn't want to socialize, I had to because it was such a small town.

James: Yes, that's true.

Jack: Once when I was younger I was in college, I went to study in Spain for half a year. I came back went to my favourite bar and they just asked me, hey you looked tan, what do you want to drink? So nothing changed in like eight months or so. And not a single thing had changed, the same people were sitting at the same desk, tables, in the same bar, drinking the same drink. And 20 years later, still is nothing has changed. It's still, you know, look older and unhealthier but other than that it's the same thing.

James: Yes. That's maybe that's why the index happiness index is much higher in some European country. People are just happy with the way they are, right?

Jack: Yes, and there's no judgment in that.

Michelle: Yes.

James: Why do you want to rush? Why do you want to rush? Why do you want to get rich just leave as it is, right so?

Jack: Yes, there's nothing set to be there but if you have ambitions if you enjoy growth, like a bit like we enjoy personal growth. We're really on a personal growth journey, it comes with challenges, it comes with new hurdles, it comes with expansion and so it wouldn't be my work.

Michelle: And those challenges, you know, are our part, we know are part of the journey. And you think that the goal is you know, a worth goal, but it's really, the goal is a being on a constant process of becoming, an expansion kinda like what Jack said.

Jack: And the wealth comes as a side benefit of that.

James: Got it. Got it. So let's go to your businesses. So you guys, you had your green card, you came here. You worked for how many years did you work on a corporate life?

Jack: Five and a half.

Michelle: Five and a half.

James: Five and a half, so what happened after five and a half? When did you start your land flipping thing?

Jack: Well, the land business, we started about three years in or two years in we realized this is not what we want to do with this job thing. So we started dabbling with real estate. And we really didn't find success until about four years into it, until the end of 2002. So --

James: Hold on, on the two years that you realize that your work is not the thing that you all wanting to do, right?

Jack: Right.

James: What was that ah-ha moment, say that?

Jack: The ah-ha moment was actually, for me was the first particular day that the company of 7000 people, let go a 1000 people in one day. Michelle: Right after September 11.

Jack: And the economy did a massive shift downwards, the software company that had grown from 500 people when I joined them to 7000 people, three years later to two or three years later, we're starting to go back down from 7000 to 4000 people. And they did that in one year. As a matter of fact, it was within three days, during that one year.

James: Wow.

Jack: So one day 1000, another day 1000, another day 1000. These cuts were like for a few months apart from each other. But the first time that happened was when they literally, left and right when they when we were at the customer side, there was a software company. But I don't know anything about software and just wasn't a business, account department.

They, business analyst, we were so worried about the customer side, that the phone would ring and our network was shut down. Usually, connect the internet to our corporate networks to get to files and stuff, all of a sudden, nobody could get into the network. It's like, oh, you get it, you get it.

Michelle: You know what's happening, right?

Jack: We started calling people in other offices, what's going on, you get in, no, nobody could get in. It's like oh, our network is down. Next thing you know, few of them, was over the phone rings, the guy picks up and all the colour leaves his face. And three minutes later, he picks up, he grabs his stuff and says, hey guys, nice meeting you. I was just fired. And he basically picks up his stuff and leaves. And that's it. And I was like, what you mean that's it? Like, again, Germany, if somebody fires you, they have to give you three months, --

Michelle: Three months.

Jack: Three months notice.

James: I thought it was 12 months notice.

Michelle: Yes, so then you can actually train your replacement.

Jack: Train your replacement and so on and or least have to pay for three months, some company say go home, but they have to pay for three months. Here, you're off and they gave him I think of four weeks severance if they signed something that they wouldn't sue the company.

So and then during the course of the day, a whole bunch of people that I knew were let go. And I was sweating bullets, obviously, you know, we both were sweating bullets, because obviously, we work --

Michelle: And at that point, I had joined actually Jack's immigration, you know, files and paperwork because we figured, okay, there are very few people trying to emigrate from Germany. And there's so many more coming from south of the border, that stuck on Jack's application. And so we were both, you know, on his paperwork.

Jack: So if I would have lost that job, we would have 60 days to find another job or leave the country. So at that moment, we realized, okay, this is, we're so breaking replaceable here, we're just a number in this big wheel of 7000 people. And after the day only 6000 people were like, okay, we got it, we got to do something else. We don't like it. After five and a half in an industry, you're almost like pigeonholed in that industry. I didn't want to stay for the rest of my career in that industry. So we wanted to get out. And we didn't know how to do that we just looked around. And after a few months or weeks of looking, we came across real estate, tried all kinds of different things, but couldn't get anything to work until we came across land flip.

Michelle: And I think the land flipping thing was even, like falling forward.

Jack: Yes, like pure coincidences, just like --

Michelle: We're looking into taxing and taxing you know, taxing investing. And I had gone up to somewhere in Northern California to a taxing option and stumbled upon, you know, a piece of land, a lady that owned a piece of land and we auction it off. And we're like, oh my gosh, you know, how could we do something like this? But instead of waiting until an auction happens, you know, how can we get to people much, much sooner. And because if she's a, you know, an owner of vacant land and wanted out, there must be other people.

Jack: So we started sending direct mail to owners of real estate who have back taxes. And only people that own land, call us back. And --

James: You know what, that is exactly happened to me. I was trying to look for houses and all the people with land call me back. I said I don't want land, I want houses.

Jack: There you go, you just missed out on a big opportunity right there.

James: Yes, I should have known you guys.

Jack: And then one guy had a property, it was worth about $8,000. But he hadn't done it, what's called a percolation test to make sure to put a septic tank in there, to see how the water, how fast the water sinks in the ground and it hasn't passed the septic test. So to him, it was worthless and he was leaving the state and he was wanting to leave. And he's like you guys can have that thing. And it's like, well, how about $400, he's like take it. So we got this thing for $400. And we sold it literally the next day to the neighbor across the street for $4000.

James: Wow.

Jack: And that became the beginning --

Michelle: And that's because our negotiation skills sucked. We were, the neighbor shows up

Jack: And they just offered 4000 and we said, yes.

Michelle: We were ecstatic, you know.

Jack: Instead of like negotiating, we're just like --

James: You were like 10 times more, that's it, done, right?

Jack: Right. And then the next deal was 10,000, the next deal, babe then we got to deal with like 21 properties for $30,000 that we sold for over $100,000. And then all of a sudden things started working. And then we also realize that most people that want to get rid of these properties don't actually even own property taxes. So now we go after all the general land and we generated millions of dollars, and we started doing this part-time then. Then Michelle quit her job because she was on the visa, started this full time. And then in March of 2003, I got, we got the green card. And then a few months later we felt comfortable.

Michelle: I retire again.

Jack: Retire, exactly.

James: So my wife styles me.

Jack: Then so in October of 2003, we quit our job, but it just we stumbled into that, bonded, built it up. And then for several years, we put the blinders on and all we did was land flipping. We only put our head up when the market crashed and everyone around us was losing money and we're still making lots of money. And then that's when we started buying single families and then later apartments.

Michelle: Because we could buy houses here for forty, fifty thousand dollars, you know, with five grand in repairs and rent them for anywhere between $900 to $1100.

James: Yes.

Michelle: So you know, it made sense. And we had all the cash profits, you know, from the land business, because that land business actually, we're able to grow it very rapidly to almost an eight-figure business. You know, the first year we did about 60 deals, the second year, we did about 120 deals, 130.

Jack: The third deal, 3800 deals.

Michelle: Because we use them, we figured out a way to flush a lot of these properties. And by using auctions. So we used to have big live auctions, you know, we advertise on TV, radio, billboards, periodicals, online flyers. And get like 600 people to a room here in the Phoenix Convention Center, and sell them in one day 250, 200 to 250 parcels. And so we were quickly able to scale that and --

Jack: Build a bigger operation then, with like 40 full-time people. At the auction days, we had 120 people work for us, it was a big operation and we built them. And then we use those profits to then get into the forever cash market meaning buy, put asset allocation, as I call it, take the money we made and roll it over into something that brings cash flow for the rest of our lives. Now we have like 50, completely free and clear rental properties, which now have quadrupled in value. And we still own.

James: That's awesome. Awesome. It's very interesting on how you stumble upon doing yellow letters. So that's how, I mean, I was looking for houses. And I believe I look at tax lien lease, if I'm not mistaken, people who didn't pay tax because most of the people who have an empty land, they don't want to pay the tax, right?

Jack: Right.

James: Because I think there's no cash flow, there's nothing coming. So

Jack: Exactly.

James: So many calls coming back, I was surprised at the number of response, people calling, but was calling all for empty land. And I say, I'm not going to buy that. So but looks like you guys monetize that I, I should have known that.

Michelle: And you know, and even there, it's like in our countries, there's no way that you're going to lose your property over for taxes. But here in the US, you do, you know, the tax lien foreclosure method or through the tax [inaudible 0:25:16]. So those are opportunities that perhaps we were able to really, you know, hold on to because neither of our country's --

Jack: We would like, it blows away that people would even let these properties go for taxes, it was a perfect opening for us. And yes, so we monetize it in two ways. We learn, we wholesale them, we wholesale them. And we still do that, we just sold one week, actually two last week and, I don't know, every week there are sales. And we wholesale them, basically we buy something for $2,000 and go sell it for 10, that's not a bad profit, right?

James: Absolutely.

Jack: You can live off that. And plus, they're very affordable these properties. Or what we also do is we sell a seller financing. So a couple of months ago, there was one particular deal I want to highlight, is we bought the property for $5,000, an empty lot here in the city of Phoenix. And we sold it for $64,000 with a $6,500 down payment. So if you do the math, we paid five for them, and we got 6,500. So we got all ready --

Michelle: Our money is back.

Jack: The moment we sell the property, our money is back. And now for the next 20 years, we get $500 a month and we'll make over $112,000 total on a property that we have zero money in, the moment we sold it.

James: That's awesome. That's awesome. So let's walk through the land, the best land flipping strategy. Right?

Jack: Okay.

James: Because you guys have done it many times, right? So first is where do you get the list of landowners? What the, where's the best place to find?

Michelle: So there are three possible places, we are still in love with a more difficult one. Because the harder it is for me, the harder it is for everyone else.

James: Correct.

Michelle: So there are places like Rebel gateway or Agent Pro, where you can get lists. And I think these two --

Jack: Lists services.

Michelle: List services that basically,

Jack: Online lists services,

James: Lists source, right? Is it list source or --

Jack: List source or logic or agent pro 24/7.com. There's a whole host of different websites.

James: What kind of list should we look for?

Jack: We're looking for land lists, ones with value

James: Other criteria, right?

Jack: Yes, land, the other criteria is that the land value is below $100,000. Typically, because we found that to be our sweet spot, now you can go up above, but then your response rates are going to drop. [inaudible27:41] the pay for these properties just skyrockets and so on. But you can do those deals like we have a student the other day that made $192,000 flipping a deal that he put on the contract for much more than we usually put the properties under contract for. It went for 80 and he sold then for, what is that, close to 270 or something or 300. And then he made his offer to closing costs 192,000. But usually beyond that, we like out of state owners, but they don't have to be out of state. So there's a couple of other criteria. Then once you get that list, --

Michelle: You send them you know, you send them a letter and you can either you know printing stuff and stamped and lick all your envelopes and your letters. Or you can send it through a mailing house if you want to outsource that and send out letters and just hold on to your seat because you're going to get --

James: You're gonna get a lot of calls.

Michelle: A lot of calls.

Jack: Right, you're going to get a lot of calls, exactly. We did, for example, yes, when you send out these letters also, so we don't use the yellow letter, we've developed our own letter and split tested that hundreds of times until we got it to a point where we could not improve the performance of it anymore. And so our letter sometimes, there are a few counties where you get lower response rates, but usually, you get at least a four or five, six percent response rate. And it can go as high as 15 to 20%.

James: So let's say now someone calling you, say I will land to sell, can you buy from me? What are the things you look for, to see whether you want to take down their number and follow up with them?

Jack: First thing is motivation.

Michelle: Yes.

Jack: Because almost any kind of land sells, it's just if you get it cheap enough. Now, having said that, there are certain areas, certain pockets that we don't buy. I mean, there are areas in Arizona, where its land, an acre of land is worth $500, that's not worth pursuing. So the value needs to be there. So we typically don't just go below $100,000. We also start above 10,000. So that we have, --

Michelle: So you don't get crap.

Jack: So you don't get crap.

Michelle: Yes.

Jack: So good language here. So you gotta get you together, you don't get junk land.

James: Thanks for being nice.

Jack: Yes, we have that ongoing, she's the foul mouth in the family.

Michelle: Hey, you throw me under the bus.

Jack: So then you, yes, you sent out these letters, I thin I forget the question.

James: The question is, once they call, what are the criteria --

Jack: You asked them a few questions, you go through a list of questions that we created the script for and asked like if there's early access, if there is utility to the properties, and none of those things is a deal-breaker, they just determine how much you ultimately going to offer for property.

James: Got it. And how do you determine what you gonna offer?

Jack: Comparables, you run for market comparables similar to houses plus there are a few extra ways, like for example, particularly in rural areas, there might not be comparables of the same size. So if you're looking at five acre parcel, and you only have like 10 and 20 acre parcels, and there's no other five acres to sold or listed, you gotta adjust for size sometimes. So basically, a 10-acre parcel is listed or sold for $30,000. Well, five acres, not automatically worth 15, it's more worth a little bit more, because in rural areas, the smaller the parcel, the higher the price per acre.

Michelle: Yes.

Jack: So you get down, it's like the other way around, the bigger you go, the more kind of volume discount you get on the acreage. So going from 20 to 40 is not a doubling, it's more like a one and a half times in value.

James: Got it.

Jack: So 20 is, so the value over 20 years because of comparable shows you that's $40,000 and an 80 is not a 20 to 40 or 40-acre parcel is not $80,000. It's more like $60,000. So there's kind of you can adjust for those things. But the nice part is we buy our properties for five to 25 cents on the dollar. So that's the key to this entire thing. Because when you buy at 10, 15, 20 cents on the dollar, you can be off in your analysis and still make money. And you can make money by selling the reseller of financing and getting a down payment that pays for the property. And you have so much margin of error and so much offer in there that it's almost impossible and I'm not saying it is but it's almost impossible to screw up.

James: Yes, yes. And what tool do you use to find those comparables?

Jack: We use, we go on Zillow, we go on Redfin, we go on realtor.com, we go on landwatch.com, the same free websites, because I ideally go on the MLS, but the MLS only has, doesn't have all the land is allowed land it sells like owner to owner. And also even if you have access to the MLS, we do deals from Hawaii to Florida. Our students do deals out of the country, you usually only have access to the MLS in one little pocket. So it's impossible to almost have access to the MLS all over the country.

Michelle: And it's relatively easy to do the comparable analysis we develop, like our own proprietary software that basically connects through you know, to Zillow, Redfin and all these services. So when I'm at a record, you know, and I'm looking at it immediately it populates for me, you know, whatever comparables. And if it's a little bit, you know, more, if it takes a little bit longer for me to do that, it's maybe eight to 10 minutes, you know, to look up a record elsewhere, specifically, like if it's an info lot, and it's completely built out, you kind of have to like back into the value of the land by figuring out, you know, what are the average, you know, prices in homes in this area? What is the average square foot? How much would it take a builder to, you know, building your house and, and kind of that way back into the value by --

Jack: So we build five methods to the value of the thing, not less, not the least is actually assessed value, any counties the assessed value as a relationship to the market value. And if you can prove over the first 10, 20 analysis that you do that this relationship is reliable, and you can just use the assessed value too for evaluation.

Michelle: In a particular county. Yes.

James: So you have to pay property tax on all this land, right? Do you try to flip it within the year so that you don't pay property taxes?

Jack: As a matter of fact, the way most of our students are doing this is that they don't actually ever buy the property. What they do is that they put the property on a contract and then go market the property right away, and then either do an assignment or do it what's called a double closing, where they use the same day transaction where they buy it and sell it both in the same day. And the buyer brings up all the funds that pays everyone. So --

James: That's a wholesaling technique, right?

Jack: It's a wholesaling technique,

James: Yes, like in houses, that's what --

Jack: Exactly it's same, the same technique just that we use land for it. And the nice part about land is there's no tenants, no toilets, no termites, there's no repairs. There's no you don't have to show anyone the property.

Michelle: James and in the competition --

Jack: Is almost none.

James: That's why so many people call me.

Jack: Somebody on this podcast just told us that he walked away from owning land because he didn't know --

James: I know. You know, I was thinking that time why are these people selling all their land. I mean, there must be some business here. But I was so busy looking at houses, right. And I thought…

Jack: Right and that's the normal thing. So there's almost no competition. And for the last 12 years, we have done this entirely, virtually we have not looked at a single piece of land ourselves.

James: Yes.

Jack: Google Maps, Google Earth, you can see it all, you don't, Google Street View, you can just drive by your lot, take pictures. And it's all there, no reason to get dirty and dusty out there.

Michelle: And that's another thing that I think I want to add in terms of like how simple it is. And now that we've like perfected our system, how predictable it is, you know, is that when we started looking into real estate, because we're both not from here, we had no clue completely clueless about construction, about estimating repairs for kitchen or bathrooms, for flooring, for roofing, we had no idea. And you don't have to deal with any contractors, any, you don't have to deal with any of those headaches that usually you have to deal with improve property when you're dealing with land. So that's something else we forgot to mention.

Jack: And that's actually why we also, the main reason why we didn't jump from that multifamily right away, but we took the bridge of single families because we first needed to learn the details of how much does it cost to rehab a kitchen and the bathroom, and the flooring and windows and things like that. We didn't want to tackle a $10 million project first. We wanted to go, start small, so we bought some rental houses with their own money so if we make mistakes, it costs us money and not our investors. And little by little we then learned and after realizing that we can manage those also remotely because our houses are in three different markets; Phoenix, Cleveland, Omaha and an even though new houses in Cleveland, I just hold a show last week. I may have a few houses that I couldn't even find anymore because I haven't, the last time I saw them was like eight years ago, and they spit out cash flow every month. The property management companies who charge them, everything is good. So after that experience was like we're ready for a step up and now buy the bigger buildings and manage them. And we can also do that remotely.

James: Okay, that's awesome. So I'm thinking why did I miss this opportunity, right? And I think the answer to my question was, I do not know who to sell to. So how did y'all solve the problem? How do you go to market, okay, today you get land, how do you go and find the seller?

Jack: So initially, we started with eBay and newspapers and then we figured out this big land auctions. But the big land auction stopped working about 2007, 2008.

Michelle: And started doing online auctions.

Jack: And then we started doing online auctions, we shifted, started everything online. So since about 2008, the middle of 2008 now, we have been pursuing and we have been selling all our land online through websites like Craigslist, through Zillow, through MLS. If you own the property, if you have a paragraph in it, it's just that you're allowed to market it. You can even a property if you own it, it's easy to sell it on the MLS anyway, if you don't own it, you can have a paragraph in your contract which we have, that allows you to market this then you can put it off to the brokerlessMLS.com for $99 goes on the MLS. Again, but in other, this land specific websites like land watch, landfliprealtor.com again, land of America and the biggest one that is right now driving the most traffic for us and everyone else is the Facebook marketplace.

James: So they are people looking to buy land from people?

Jack: Oh, lots of people like --

Michelle: Facebook marketplace and Facebook groups land, land groups.

Jack: Yes, Facebook land groups. Yes, there's a big market. I mean, we focus on three kinds of land. Number one [inaudible 0:38:34] lots, can sell immediately to a builder. Number two, the lots in the outskirts of town, right, if this is the city right on the outskirts of the city, that's where we still buy land because it's in the path of growth. Cities like San Antonio, cities like Austin, cities like Dallas, cities like Phoenix, cities like LA, like Denver, all over the country, they're growing, their growing infill. They're there. They're growing in the outskirts of town we're there and there are two ways and the third way is we're focusing on larger acreage in the more rural areas. And that is for the multi-billion dollar market off RV, ATV's, hunters, campers, how would you love to have a 40-acre ranch out into the hills of East Texas, right? Wouldn't that be beautiful?

James: Yes. Absolutely,

Jack: Yes. And there's millions of people that are looking for that. And then we put the one on top because we get so cheap. If you offer those properties with seller financing, they sell very quickly.

Michelle: Or a discount --

Jack: Or discount or market value, wholesale, there is price, will advertise it's a good property, it sells very quickly. And for example, one of our students just posted something that they put, they put an ad on the Facebook marketplace and within 24 hours that has 4250 people look at it and comment and message them. And obviously, they had to take the ad down and had multiple offers on the ads in one day. Now that's not necessarily typical, it might take a few weeks for the property to sell. But there are buyers with it's a b2c market right, we're the business to the consumer market. And the end consumer buys a lot of these lots and the [inaudible40:18] lots are B2B to the builders.

Michelle: Yes.

James: And how do you check the entitlement of the land? What is it zoned and all that?

Jack: There's another company,

Michelle: Yes, so you go through a title company, make sure titles free and clear.

Jack: There are title companies that we use are not the same companies, different department that we use when buying a $10 million apartment complex than when we buy for it for a $30,000 piece of land. Obviously, the cost is different because they charge us a minimum cost, which is usually anywhere between $700 and $1200 a deal. But if you're about to make $50,000 on there, you can pay $800 and then make 14,200, still okay.

James: What about land, which has a utility or going to get utilities, is that much higher price than?

Jack: Usually it is and usually it's already, Michelle you can.

Michelle: Go ahead.

Jack: Usually, it's already in the assessed value included, occasionally it's not because the assessors like a year or two behind. But it's definitely already when you run your comparables, it's already in the market because that word is out and then other properties in the market are going to be listed higher, which tells you, okay, or listed or sold higher, which shows you the market value is higher. So your offer is going to be higher and the seller is going to be happy to accept it. And you make more money in the process.

Michelle: And it's much more attractive to buyers too.

Jack: And it sells quicker. Yes.

James: Yes. So I can see people like me doing this, right, because I already have done the yellow letter marketing, I know all the languages and you know all that. But so anybody can do that, right? It's a simple business, which makes a lot of money. And you are basically bridging the gap between people who need the land versus marketing to their direct seller who is in a distressed situation or who just want to get out from. Most of the time they inherited the land, they don't want to pay tax and they just get rid of it.

Jack: Looks like you talk to a few of them.

James: I did, talk to a few of them. A lot of them said hey, you know, my mom gave me and she died and now I have to pay property tax on it. And can you buy it or not?

Jack: Exactly right. Michelle: So you're helping them and then you're helping your buyers too. And I think the how quickly you sell the property has a lot to do with how you market the property, how what kind of listing you create, you know. There's a lot of crap where you just show a piece of dirt and no, you need to dream it, you know, you have a catchy headline. I mean, you have to understand a little bit of marketing and copy and grabbing people's attention and so on and so forth. But nothing that you can't learn.

James: Yes, absolutely. Absolutely. And what do you think? I mean, you have a property software on it, right? What problem does it solve?

Michelle: So what that does is, so back in the day, when we were starting, and we were doing in just a few deals, you know, we could manage to keep our stuff, you know, on paper, on an Excel spreadsheet. But the moment we basically started really scaling this, you know, at the point that we started doing the auctions, we could no longer continue using Excel spreadsheets, we really needed you know, a CRM. And not just a CRM to keep track of our buyers and our sellers, but to keep us organized in our process flow. From the moment that the mailing went out to the inbound call being received to are we ready on the status where we've done research and ready to send an offer, has the offer come back, accept it and we sent this out to title escrow, is it back? Is it ready to be put into the catalogue for the auction, you know, for sale? And so it basically it's a process deal flow from beginning to end for land specifically.

Jack: And we build the software in-house that guides you along step by step through the process of buying a property, keep them organized, like statistics, as tax, there is a built-in buyers website, seller's website, calculator for the numbers and things like that.

James: So why do you need like, you know, like you said, you have like 15 staffs, right, you have the CRM, what function does the staff do?

Jack: The staff does the work, I mean, the CRM organize to work for you, but somebody needs to put in the data. And somebody really needs to press the buttons and do the --

Michelle: And somebody needs to pick up the calls from the buyers. Like we have a lady that is just in charge of that as of this position, basically, there are other people making sure that the phone rings and she's just answering them.

Jack: But having said that, this is us, right, we want to spend our time with our 11-year-old daughter travelling the world. We want to spend our time focusing on apartment complexes and not focusing but spending our time, we love learning right and looking at complex deals and things like that. So after building our land business to the level that wanted to build it, we started putting a team in place of it. Having said that, we have many students that run one of them, at the top of the head, I think of one of them is also a coaching organization. He is on track this year to do 120 deals alone with one assistant with one virtual assistant. So the thing is, because it's simple because you don't have to rehab anything, because if you don't have to do anything like that, he can do a, he can do 120 deals just as a two-man or a man and woman, kind of show. And so you don't need a big staff is a point, we have a staff of like somebody picks up the phone calls, answer them they, you can outsource everything. So we use a mailing and a call center to take the phone calls, we use a mailing house to send out the letters. So what we have inhouse is somebody does the deal analysis to figure out what the properties are worth, and somebody who team of two people that prepare the listings and go sell the properties. Anything else you don't really need, anything else you can do, you can outsource.

Michelle: And documentation, unless you like to work with documents, paperwork.

Jack: But all of that is electronic. Again, it comes in we have buyers signed by DocuSign. We have, we scan things, we put it on to Dropbox, we use different files. We attach them to our CRM and stuff. But it doesn't require a lot of people to do this, which makes it even more profitable.

James: Yes, yes. I mean, I think you've sequence it very nicely so that you can scale gracefully and you can have your own time too, awesome.

Jack: Probably the biggest thing I think that this business because there's no competition and as you said the sellers have people that are, there are people that inherited this property, they're not getting 25 letters a week, like the hospitals. They're getting nothing a week, so when your letter comes in and when you make that offer, we sent the offer by mail to them, we give them 10 days to actually accept the offer. Then when we buy it, we get a contract and we have three months or four months or six months, whichever we want to close on it. So it destresses the entire thing. That means we can design this business around our lives. And so the life designing with a life --

Michelle: Retrofitting it into the business,

Jack: Yes, determining when we have free time. So it's truly a business that can be done based on everyone's work schedule and in full time can be designed such that you work with around the things that are important in your life.

James: So does it still work now in this economic cycle?

Jack: It's actually right now is the best market that we have seen in probably 15 years.

Michelle: Yes.

James: Why is that?

Jack: Because the market is up so it means that buyers are, still buyers will, the sellers will always be there.

James: Sellers always be there, yes.

Jack: There's always going to be people that inherited the property and don't want it anymore. But the buyers are right out there, right now out there in the market. They're positive, they're upbeat, they want to buy these properties. They want to take them up, take their RV's up there.

Michelle: Ride their RTV's.

Jack: Ride their RTV's, spilled something on it so the properties are flying off the shelves, and probably the big right now our properties and our students' properties, we see the highest margins that we've probably seen since we teach this.

James: Awesome, awesome.

Michelle: We have people that are doing this that are you know, stay at home moms, single moms to Rob, who's a dentist, he no longer is a, well, he will always be a dentist, I guess. But he sold his practice because, you know, 10 months into the land flip he's like, I don't need to be behind the chair anymore. And now his wife who is also a dentist is looking to sell her practice as well, to people that are having a job still in parallel because they, you know, they are already 30 something years in it. And they're like they have just one more year for their pension. So they don't want to go back and are doing it in parallel. I mean, we have --

Jack: It's across the board.

Michelle: It's across the broad, from all works of life.

James: Yeah, I can see anybody doing this, right? It doesn't take a lot of time and effort, not like house flipping or even rentals or…

Michelle: Yes, in the house flipping world, you get a call from a seller and he says I'm interested. I mean, you better meet him at the property, like within a few hours, because you're going to have two or three people that are chasing the same house.

James: Yes, yes, yes. That's what happened to me. I missed out on the land flipping, I went house flipping, life has become so busy. So coming back to the next level commercial asset, not the next level. I mean, the other commercial asset class that you guys are doing, which is multifamily, right. And you said you're doing it so can you explain that to me why you're doing that?

Jack: Yes, we're doing that for long term generational wealth. So in other words, right now we do syndicate deals. So we have some deals that we make very good money, but and we have our assets and our paid-off properties. But so we wanted to take the next step in complexity, the next step and leverage the next step in personal growth. So we --

Michelle: Exactly, I think our investing has really followed our own personal journey, you know, of development and growth. So

Jack: Right, so one of the things, so we started buying these properties. And the first one, we realized, we syndicate it with our investors. And then the second one, the first few we syndicate investors. As a matter of fact, the first one we came in as a junior partner. So we raised the thing, the guy that couldn't raise all the money. And the moment he was about to lose this deal and he basically said, like, if you guys raise half of the money, you get half of the deal, which is obviously a great, great deal. I've never come across that.

Michelle: And we're gonna learn how to do it, as he has been doing this for many years. I'm like, that sounds like a perfect situation.

Jack: But we also needed to put in $80,000 in escrow deposit, which we could have lost. So it was, he asks for something and he gave something, was a great deal. So we came in, we ended up raising 60% of the money. And doesn't matter, we didn't get more than 50% of the deal. We got in we learned a ton and then we started doing this on our own. And the first few deals like there was just, we have a lot of income, but we have like your cash availability is not always $3 million, right? So we basically looked at it as like we needed $3 million. Let's put some money in ourselves and let's raise the rest through syndications. So we did a syndication for the last few deals. And at some point of time, we might transition into doing deals without investors, the reading hold on for the long term, 10, 20, 30 years, and then our daughter can potentially then inherit and she can keep them or sell them and upgrade them and so on. But in essence, it's a way to, what attracted us to it over the single families is that there's another layer of management, another layer of separation between us and the actual issues on the problem.

Michelle: Yes, because now all of a sudden, you know, when you're looking at 100 doors at a time, and that scale allows you to have you know, on the ground, a full time, you know, leasing person, a full-time person for repairs or maintenance. Another one that is turning units around, you know, we have the regional director with, you know, with the property management. And so for us, it's really a lot of asset management, but not the everyday thing of like, would you approve, you know, the repair on a toilet or on this, small things--

Jack: Which, today, I got two more in our single families because they have an authorization limit of $500 on me there because I don't trust them with more. So on a single family, so everything over $500 goes to me, which is literally something three or four things a week that happen especially in summer when it's hot, and AC breaks and so on, that are just like driving me crazy. Because every single time it's like they don't give you the information you need. They don't give you the details you need, you have to jump on the phone call, you have to email back a few times. They don't follow the instructions and how to submit it versus when you operate on a larger property, you can distance, you're removed from these things. You get a status report, you can dive in with your expert partner on the deal, I mean, the regional manager into it. And more than anything, the other thing we realized is you very well know, you can force appreciation and you can force value increase rent, which on the single-family house, you can just, you just cannot do.

Michelle: Yes. And elevation is not based on the income but it's fixed but based on other properties.

James: Yes, yes I always say that you can build a house, painted with gold, on real gold but the value is still going to be following the other houses surrounding it.

Jack: Exactly.

James: Are you guys using the depreciation from multifamily to offset the active income on your land?

Jack: Yes. Of course, yes. Big time. I mean we --

Jame: That's double right. Jack: We have done on all the units we have, we have done the cost segregation study, and it is literally.

Michelle: It shows a lot of the profits from the land flipping even from the educational business, you know, it's a very purpose-driven business for [inaudible 0:54:03] and it throws a nice chunk of cash. And I'm like, we need to, you know, protect that. And so we're, it feels like, you know, with apartment investing, we get to have the cake and eat it too, in terms of, you know, getting the cash flow in.

Jack: We get cash flow, we get income, any cash flow, we get appreciation and we get the tax benefits that wipes out almost the entire income of the other things that we do. So it's a it's like a dream come true. Yes.

James: Yes. So you want to consider real estate professional, not because of the land, but because of that single-family homes?

Jack: Because of really everything I mean,

Michelle: That's all we do.

James: If you do just land, are you considering real estate professional?

Jack: Yes, the land is real estate. As a matter of fact, I always say that when somebody says I've never dealt with land, only do houses. I said like, it's actually I said, it is actually an incorrect statement. Because you have never bought a house --

James: Without the land?

Jack: What you buy is the land and the house on it.

James: Yes, correct.

Jack: That's truly a land transaction that had a house on it. The legal description of the property is not the house, it doesn't say it's a four-bedroom, three bath house, no, you're buying this lot, lot number 23 with whatever it happens to be on it. And what is on it is a luxury house or a dump is just defines the value differences. But so with a real estate professional, doesn't have to be defined by analysis, or commercial, or you can be land too

James: Got it, got it. So let's go to a bit more personal side of it. So no technicals? So why do you guys do what you do?

Michelle: I think for me, you know, in the beginning, it was about us having freedom of money, time, you know, relationships. And right now, it's about freedom of purpose, you know. It has you kind of like, you know, when you're struggling, somebody is listening to this, they're struggling, or they have a job they hate or whatever, the very first thing that you look at is how can you take care of your immediate family? When you have that taken care of, then you start looking at, okay, how can I, you know, start, you know, helping them my church or helping in my community or helping on a much, much larger scale. So for me, you know, a lot of my, you know, what drives me right now, and my purpose and my why is to become a mentor and a leader. You know, for other women to start investing in real estate, to start, you know, having their money work for them, for example, and set an example, you know, I want to be a hero for my daughter. And I want her to also grow into a lady that you know, knows how to manage your finances, that is very comfortable with investments, whether small or large and so on. So,

Jack: For me, along the similar lines, I remember the year 2007, when we were and we had accomplished our first major, big financial goal, which was a certain number, I feel everyone has their number and goal in mind. And we had just moved into a gorgeous, semi-custom home that we designed from scratch up and all of a sudden, we're like, you reach those goals, and you almost like fall into a hole. And we fall in that hole because you expect to be like all candy and rainbows and everything and unicorns, but actually the quite opposite of that. But it's like for a moment you celebrate and then you're like, what now, right? So we basically sat down and was like, okay, so we can sit down now and we can go retire in essence, we can go sit down, we can do nothing. But we realized, for example, there's a charity in Michelle's home country Honduras, that we said we could go work in charities, in charitable work. But we realized, we're really very good at getting businesses to a profitable stage, we're good at kind of creating money,

Michelle: That's kind of like our genius.

Jack: And so that we are not the person that's going to live in the Honduran in rain forest jungle and feeding the poor, so but it's close to our heart. So why don't we stick to what we love doing

Michelle: Our strength.

Jack: So that we generate the money that we can be more impactful in those kinds of things. And as a side thing, I love real estate, I mean, I don't see myself not doing real estate ever. I mean, I hate it the entire the IT industry. I'm not personally involved in the continuous development of our software, because I'm kind of scarred from that time in the IT industry. I get involved into the what the vision is of it, but, and then we have a great guy that drives the implementation of these things. But we focus on deals, we focus on and if I can focus deals for the rest of my life and opportunities then I'm a happy camper, it's just what I love doing. So and it throws off money and that allows us to help more people, that is awesome.

Michelle: And be transformational in the way, you know, and the way we treat our investors and the way that you know, people that want to participate in our deals.

Jack: So the teaching side of things, we started the teaching side of things also kind of like almost like a mission kind of the point of view that not that we need the rest to save the world. But there are so many people out there that do real estate either the wrong way or that they don't know that there's an easier and simpler way that you can do real estate. And learn and grow build the confidence and capability in your life that then allows you to do whatever the heck you want to do afterwards that we feel like I was called to teach this and show the land flipping part of things to people. So they can also get on their own feet. And we have had years where we lost money in that business where we put it on their own pocket for and it was still fulfilling because we see the difference that it makes in the people's life. So we were committed and our core values are to be transformational.

Michelle: Yes. And it's not just walking a person through a deal by really sculpting someone's spirit you know, someone's confidence, someone's courage through the process of a real estate deal. So it's incredibly rewarding work for sure.

James: Okay, okay. So why don't you tell about how to find you guys. How can the listeners find you?

Jack: Easiest way to find us on the land flipping side is to go to landprofitgenerator.com and you can also go to www.orbitinvestments.com, there's a link over to the land flipping side. There's a couple of other links on too.

James: Okay.

Michelle: I'm on Facebook Michelle Bosch, Instagram michelleboschofficial.

Jack: And again on the land site we since we don't teach the apartment complex things, you do that. We have no educational things about that, we just, we do syndicate with investors. We do probably similar deals and but on our website like all the educational things all about land flipping.

So we have a Facebook group called Land Profit Generator Real Estate Group. So everything we do on the land side is called land profit generator. So you look for land profit generator, you find us and orbit investments is more like the overall holding company above everything else with links to all the different pieces that we do.

James: Awesome. Well, Jack and Michelle, thanks for coming in. I learned so much and I learned what I didn't miss too, but I'm sure the listeners learned a lot of things from today's podcast. Thank you for coming in.

Michelle: Thank you so much for having us, absolutely.

Jack: Looking forward to seeing you at the next mastermind.

James: Absolutely. Thank you

Michelle: Thank you, bye.

James: Hey, audience. This is James Kandasamy. Welcome to Achieve Wealth through Value Add Real Estate Investing Podcast. Today, I have Anna Kelley from Central Pennsylvania, who owns around 175 units, around $16 million in worth until now. And you know, I should have invested passively in 900 units. And she's also under contract on around 200 units right now. Hey, Anna, welcome to the show. Anna: Thank you so much for having me. Good to see you, James. James: Good to see you too. And, I mean, for those who do not know, we also have a YouTube channel that shows all our interviews. And you can catch up with us on iTunes or Stitcher or YouTube or Spotify so go and do that. I'm actually in one of my property here in San Antonio so trying to do it from my office. And Anna, are you in your office or where are you right now? Anna: I'm in my home. I'm not actually in my office. James: Yes. Good. Good, we work from home, I guess, right. Anna: Yes. James: So Anna, why don't you tell our audience about yourself? Anna: Sure. So I started out in real estate about 20 years ago, just kind of dabbling in real estate. And I started out doing some property flips and some single-family rentals. And then I slowly started moving up to small multi-unit properties, like four-unit apartment buildings, 10 unit apartment buildings. And I recently last May retired from my full-time career, I worked for AIG for 20 years. And I really built my real estate portfolio up on the side, part-time for all of those years. So busy mom, have four children. And I just went full time. And now I'm focused on and have been focusing on for a while much larger apartment building assets. James: Got it. So let's go back to the beginning. I mean, you work at AIG, which is a big insurance firm. And can you just quickly tell us what was your role? Anna: Sure. So at AIG, I had various different roles. I did internal management, consulting, product development, and then I moved into a role that was very compliance heavy. We worked with private placement hedge funds wrapped in an insurance product. So we worked on SEC audits and filings, reviews of PBMs and hedge funds and things of that nature. James: Got it, so it looks like you have some PPM level syndication experience, even at your workplace, I guess, is that right? Anna: Definitely, we worked with alternative investments for about 17 of the 20 years that I worked there. James: So you work there for 20 years and when did you start to real estate venture? Anna: Why I'd say, you know, I dabbled, I bought some, you know, singles and I bought a flip. And then 12 years ago, when I moved from Texas to Central Pennsylvania to start my husband's chiropractic business, we were looking for properties to lease for his office space. And we found that it was very difficult to do that. But they had a lot of buildings that came with tenants, you know. Older buildings on Main Street that had been converted to businesses on the first floor, most of them had residential rental space on the top floors. And so we bought a building and inherited tenants. We had three tenants with his commercial space. James: Okay. Anna: And then that kind of threw me into the idea of having tenants and having a little extra cash to cover the mortgage. And then at that same time, James, we sold a house in Houston that we lived in, liquidated everything, we had to come here and start a business. And so I knew it wasn't very wise for me to buy another home right away. And AIG let me work from home on a very temporary trial basis to see how it worked out. So I bought a four-unit apartment building for us to live in. So we downsize significantly and house hacked, basically, to make sure that our business expenses, you know, for the space and our housing expenses were covered if I happen to lose my job, you know, 12 years ago when we started out. So that got me into starting to think about and invest in residential real estate. James: Got it. So you basically, you did not like had an ah-ah moment, I need to go tomorrow and buy real estate. You were actually thrown into it? Anna: Well, I'll say this before I went to work for AIG. I was in private banking, I was a Financial Relationship Manager for Bank of America. And so I handled the top 10% of the wealth in our bank, both small businesses and individuals. And what I found is that many of them owned real estate and had accumulated their wealth in real estate or were already investing in real estate. So in my young 20s, I was very interested in real estate thought that it was something lucrative that one day I'd like to own, but I really didn't start thinking too much about it until I had my first child in 2003. And all the flip houses shows, you know, we're coming on and I thought, oh, I can flip a couple of houses and be home with my child. And so I dabbled in flipping before the rental real estate. But my move here is what kind of gave me the impetus to think about rentals more quickly. James: Got it. So, I mean, I never had a woman guest until now. So you are the first one. And I'm very -- Anna: Oh, thank you. James: We have a lot of listeners that are listening everywhere and I'm sure a lot of them are women. So I'm trying to get from a woman’s perspective, on how could they start like what GF started, right? I mean, your husband is working and you are working too. Like, I would say what do you think could be the secret formula, or they're just the formula on how can any woman start while they are in your own position? Anna: Sure, you know, there are different ways to starting, a lot of it James truly does depend on the personality of the person, your family dynamic. You know, how much support you have for watching your children? What other income sources you have, you know, when you're starting out? And how much basically time and money that you have available to get started? So, you know, people that have very, very limited time might have the significant cash flow or they might, their spouse might make enough money that they could really get started more passively. And that's where maybe they want to start investing in other apartments syndications or getting invested as a passive partner maybe joint venturing with someone that has experienced you know, buying and managing either a single or a small multi or a larger and then just investing with money. And learning how to review the financials and review the operations each month and each quarter. Just to kind of get yourself familiar with what it's like to own and manage an asset might be a good way to get started. For someone like me, that doesn't have any cash and really wants to get invested by investing time, you have a lot more opportunity to really educate yourself through reading books and through podcasts. And going to meetup groups to learn what it takes to ask actively, evaluate deals, find them and hire people to update them and improve the values and put a renter in or you can start learning the skills yourself. You know, my husband and I when we started out, he did a lot of the maintenance and I painted every unit. And I called flooring contractors and you know, designed kitchens and help paint cabinets. I mean, we did everything actively because we started out, we had liquidated all of our, you know assets and started out with quite a bit of debt to start a business and we're running that. So we really didn't have a lot of money. So we invest at the time. So there are many ways to get started. But I'd say definitely align yourself with other people that already know what they're doing, attend some meetup groups, listen to podcasts. And then just decide whether you want to be active or passive for your first one or two until you kind of learn what you like, what your personality works well with and kind of what works within your family dynamic. James: Got it. So who convinced who between you and your husband? Did he convince you to, hey let's go and do, spend time and rehab this real estate or did you convince him or how did you? I'm trying to understand how did the discussion happen? Because a lot of people are struggling, I mean could be struggling, right? How do I convince my spouse especially from a woman to the husband side? Usually, the husband can convince the wife, right? But you are the one who's active right now real estate, how did that work out? Anna: Yes. So it's one of those things when we talk about the personality of the individual. When you're married, there are two people involved in your decisions. And my husband and I, from the beginning, have always looked at our finances and our lives as a partnership. But we kind of has our roles in reverse. I mean, he's a doctor, he's a chiropractor, he went to school for a long time. He's very smart. But he's very hands-on and a people person, he doesn't like the finances, he's not financially minded. He's not the kind that wants to be an entrepreneur and grow a big business, like he's content, just having a small practice, and letting me handle all of the finances. So because I had a background in finance and understanding investments, I pretty much have always handled our investments. And when we decided for him to start the business, I kind of took over the operations and learned how to, you know, run a chiropractic business and set up insurance and all that kind of stuff while he was the doctor and saw the patients. And so when it came to real estate, I said, listen, we're starting out with a lot of debt after paying off all of the school that it's just not financially wise for us to do anything other than buying something so we have tenants helping to pay the rent. So it was easy initially to get Vincent to buy his practice and our building, just to be financially wise and not going into more debt. But growing that beyond that was definitely me as the driver, he was busy with this practice. He did not like to do maintenance, but he learned to do it and liked the fact that once we did rehab units, they were worth a lot more and we had a lot more cash and could keep buying them. But I've been told multiple times, slow down, pull off the brakes, we have enough units, why do you want to keep growing? And I am like because I'm passionate about it. And I'm passionate about the wealth that it can create. So I've been kind of the driver. And he's been very supportive and very hands-on for the 70 units that we self manage in our area. But definitely likes that I'm now buying much larger assets where I'm asset managing and he's not involved day to day in the management and maintenance of the properties. James: He must be very happy now. Anna: Very happy, yes. James: Yes, we started with 45 units. And my wife used to be sitting there whenever we were missing our property manager in the beginning, I mean, she was sitting there doing things and I didn't do maintenance. But, I used to be with her and trying to buy this and buy that and make sure you know the contractors are lined up. And it's a lot of work, but it involves teamwork. And yes, we are two different people, we have to learn how to work with each other.

Anna: For sure. James: That's good. And so you started with 70 units, with the chiropractic real estate, right? I mean, is it like a commercial center? Anna: It is. It's a commercial mixed-use building. So there's a commercial space that his business lease's from my business. And it had three tenants, three, you know, residential renters and four garages to that property. James: Got it. So you got some kind of tax benefit, I guess because the [inaudible11:44] is leasing from the owner itself, I guess, right? Anna: Yes. James: So get some write off there, good. And how did you, I mean, so after that and then what was the next acquisition that you did? Anna: So James, as many people were affected by the 2008-2009 economic crash. Imagine working for AIG at the time and AIG, you know, coming in and having one of the largest insurance liabilities of any other provider in the country between mortgage insurance and credit default swaps. And I worked for them. So I had already, I had been working for them for a year on a work from home basis. And we thought we were going to be laid off, my stock went from 1-o-1 a share to 43 cents a share. My retirement funds were almost just destroyed. They were destroyed. I lost about two thirds within a week. And I decided, oh man, I'm going to lose my job. My husband has a brand new business with hundreds of thousands of dollars in startup debt and I'm the sole income. So what are we going to do? And the only thing I could think to do right away was to borrow from my 401k, about $50,000 that I had left that I could borrow and buy another four-unit because I thought at least if I buy another 4 unit, I'll have another, you know, $1200 to $1500 dollars a month of cash coming in. And that's in the asset, that is solid and stable that I won't lose any more in the stock market, no matter what happens. So that was my next acquisition. Again, it wasn't really thinking about oh, this isn't a phenomenal investment. It was, what can we do to survive? And I know that cash flow is a good thing. And that residential real estate will not go down in value significantly compared to the stock market. James: Got it. So after that four-unit, what did you buy the next one? Anna: Another four units. James: Okay, and when did you start with the 70 units where you self manage? Anna: Okay, so what we did, we self-managed, again, initially just out of necessity, not having a lot of extra cash, thinking our finances were not super stable because I was the sole breadwinner at that point. My husband's income was nice, you know in six figures gross, but it was covering expenses. And so we just we're continuing to find ways that we could cash flow and make the most cash and be willing to put in the time to do it ourselves and learn at the time. And so we kept buying a couple of single-family homes that we bought as foreclosures, renovated them and instead of selling them as a flip, we did a cash-out refi, we kept them as rentals, we took the proceeds to buy another and another. And then we did the same thing with small four-unit apartment buildings. So four-unit apartment buildings were kind of my niche and the sweet spot for several years chains. Because there were in a smaller area, I'd say maybe a tertiary market right outside of Hershey. And there's not a lot of apartment complex supply, no big complexes, but there's a lot of demand for housing. And so most of the rental real estate here were four-unit apartment buildings that had been built that way or converted, you know, couple decades ago. And there weren't a lot of big buyers buying those four-unit building. So they'd sit for a while. So I kind of I saw a niche where I could buy properties without having a lot of competition. And I could basically treat them like a larger commercial asset, but on a, you know, on a four-unit scale instead of a five or six-unit scale. And so I kind of honed my skill in updating those units, managing those units, raising the values, cashing out repeating. And then decided, okay, now it's time, once I built up, you know, a strong six-figure passive, you know, net rental real estate portfolio, then I decided, now I can retire and I can scale and start going after much larger assets. And so that's what I did.

James: Okay, got it. So when was the first time that you acquired a much larger than four-unit property? Which year was that? Anna: Okay, so in 2018, I had basically created a five-year plan James in 2013, that by 2018, I wanted a $5 million portfolio, you know, about $150,000, at least in passive income, and then I would retire and start going for a bigger one. So I'm my goal in four years in 2017. And then just started kind of working my way into, you know, saving six months of salary and expenses for all my buildings and starting to look for larger deals. So I found the first larger deal for me, it was a 73 unit apartment building, right outside of Hershey, Pennsylvania, that I found off the market and I [inaudible16:20] on that with two other owners. That was a six and a half million dollar purchase 73 unit. And we closed on that in 2018. James: Got it. So how did you manage your time? I mean, your husband is working, and you are doing this fourplex, fourplex, fourplex and your four kids. And you give some tips for people who are in a similar situation and how can they manage and be as successful as you are? Anna: You know, I think really the key to my success has just been resilience and grit and determination. I worked truly, most people say oh, rental real estates passive. But I like to say and I totally believe James, that passive income is built on the blood, sweat and tears of active income. And it takes years of active, sometimes to build up the financial wherewithal that you can truly become totally passive. So between my husband's business and my work, and my rental real estate, I truly worked 70 to 80 hours a week over the last 10 years, in order to be able to get to where I am. My four children are all involved in sports, pretty competitive sports. So we have sports every morning, we have sports after school every day. And most days, it's seven days a week, you know, multiple tournaments on a Saturday and on a Sunday. So every waking moment when the kids went to school before I started work, I did real estate. My lunch breaks, I did real estate. My vacation days, five out of six weeks a year, I did real estate, you know, evenings between when the kids got home and I worked, it was real estate. And after nine when the kids were in bed, I often stayed up till midnight to get things done. So it was very time-consuming. But I'm very, very grateful that I stuck with it and did it. And it was just a matter of utilizing every day, I didn't watch TV, we didn't have cable, I didn't go do a lot of recreational things, I really, you know, not nose to the grindstone just focused on building the portfolio so that I could retire and spend more time with my kids. James: Yes, it's really hard work, I can really appreciate what you've gone through. Because I was working and my wife was like running around in the beginning. I mean, I only stopped working after we had like, 340 units. Now we have like, 1300, it's a lot of work, right. So based on what you're saying, it can be done. It's just like not, please don't give excuses, right? Anna: Exactly. I'm here to tell you, you know, if I can do it, working full time, running my husband's business, four kids and doing it, you know, anybody can do it if you just have grit and determination. So you make the time for what's important to you. And I knew that it was important to me to be able to work myself out of my job. And especially with AIG, you know, a couple of years ago, they said, we really are going to sell our unit, and we need to all be prepared to figure something else out in terms of career. So that kind of drove me to have executed my plan in a certain period of time. And now you know, that I'm retired, I'm still very, very busy. But I have the freedom to control my time, you know, to do what I enjoy and go after larger deals where I'm not having to be quite so involved in the day to day. James: Yes Can you define what is grit and determination in your mind? Anna: Sure, so grit is the ability to stick with something, no matter what comes, no matter what obstacles without basically, you know, melting into a wallflower. And just keep ongoing. And, you know, there's been a lot of studies done on what makes people successful. And you know, some kids were tracked from high school, through college, through their professional lives and they were really surprised that the top students like the valedictorian, the [inaudible20:04] rarely ended up actually being the most successful people in their professional lives. It was usually the people that went through a lot of hardships, and just kept going and push through and got creative and figured a way through and around every obstacle and became stronger and more confident, and determined. And those are the people that ended up the most successful. So I just I think it's an extra drive and extra determination and a willingness to keep pushing through no matter what and to not give up on your goals. James: Yes, so look, I mean, I always tell my listeners and whoever talked to me that it's always, you know, whether you want to be successful, or whether you like to be successful, whether you required to be successful so, I mean, if you have been this successful, you must have that, I really need, I really required to be successful. I mean, is that true statement that you came to that way? Anna: I think so. I grew up with very, in very humble means. And I always knew that I wanted to create a different type of lifestyle and a different financial future for my kids and I was just determined to do it. So I've always been driven, I've always taken on challenges. You know, my first job at Bank of America, I won the number one ranked Financial Relationship Manager in Texas and Employee of the Year awards at multiple jobs, my first couple of years. Because I've always had, that I'm going to be the best, I'm going to succeed, I'm going to achieve and do whatever it takes attitude. So I think part of that was ingrained in me from a young age. James: Yes, I think it's important, I mean, just the personality itself and the drive to be successful and the requirement; I mean, because your husband and your AIG was going downhill and you must be successful otherwise, your family, it may not be in a good place, in terms of financial. So that's really good. So describe to me, what was your toughest day in a one day when you have like four kids and all going to all these classes and schools and all that? Have any time where you think that, oh, my God, this is just too much for me as a mom and as a real estate sponsor? And can you describe that feeling and experience? Anna: Yes, I just actually, you know, Facebook is kind of a mixed bag of whether you like it, or whether you don't. But I like the Facebook memories that kind of pop up and remind you of something. And I had something pop up this last week, about a three day in the life of a real estate investor that works full time and has four kids. And I looked back and thought, well, I don't know how I survived it. But back in February of 2018, I believe it was, I had a call that there was mould in the basement and that they were smelling mould. So they opened it up and there was a lot, well, you know, I'm thinking it's probably like a dripping water heater or something we walked in and there was literally like six inches of goopy mould hanging from every rafter of every space in the basement of a three-unit apartment building with the ground floor, a dirt floor. And when we opened it up, I mean, it was just really bad. And what had happened was a hot water heater, pressure relief valve had failed in the basement, nobody seemed to notice nobody called us. The person in hindsight said, you know, I thought my hot water pressure was kind of low and not as hot. And I should have called you well, within about a six week period, six to eight weeks, somewhere in there, our entire three in an apartment building was just covered in mould. And inside all the units, I had to meet the tenants, it was snowing and really bad weather. And I had to call, you know, restoration companies and re-home all my tenants and get all of this stuff out of the property. Right after that, we had another property where a roof blew off in another big storm. And we're handling the kids and multiple other small things were going wrong, we had a couple of frozen pipes because it was a winter that the ground was just frozen for so many days. So we're dealing with frozen pipes, re-homing tenants, working full time, insurance, the tenants all wanted to sue me because there was mould and their kids were sick and going to the hospital. And my kids were just young and very needy. And it was like a two or three week period where I thought I'm done, I can't do this anymore. It's not worth it. It's too hard. And I kind of had a little pity party for a few weeks and said, okay, I need to take a break. I'm not buying anything else. And I took about a three-month break where I didn't buy anything else. And I just kind of took care of those issues. And then, you know, said I need some breather time, we went to the beach. And after I got back from the beach, I'm like, okay, I'm refreshed. It's behind us now that I've handled that period can do anything and just kept going.

James: It's crazy the amount of pressure and tense moment that you have during that kind of things with family and issues with the deal. So I want to ask one last question before we go into the details of some of the deals that you have done here. So why do you do what you do? I mean, you don't have to do this right now. Right? Anna: So a couple of things, James, I'm really passionate about real estate, I'm really passionate about wealth building. And there is nothing like real estate to build wealth. You know, I started out teaching clients about mutual funds and stocks and bonds and how they can make you know, eight to 10% returns on their money if you time everything right. And realize that it takes money to be invested in the stock market. It's volatile and it's risky. And really, people can go from nothing to multi-millionaire in a couple of years of investing in real estate if they do it the right way. And so I've just seen the real power in that. You know we went from literally negative $750,000 net worth when we started my husband's business to a several million dollar net worth and just a few years of really aggressively buying rental real estate. And so it changes lives. And I want people to know, especially women, that that you can change your financial family trajectory, not just for today, but for future generations. And also we're providing really good housing to people. So you know, I grew up in government housing, my mom was a single mom, she was a property manager for a government housing apartment complex. And I know what it's like to grow up in an apartment and we didn't have the best amenities. You know, all my friends were wealthy, and I lived in a little apartment complex. And I've worked with inner-city kids who live literally in shacks with dirt floors in the middle of Houston, Texas. And to be able to empower people and say, your life can be different. And I can show you the financial tools to take better steps and to know better so that you can create generational wealth for yourself. And it just empowers me, it drives me to keep doing it, not just for my own wealth accumulation, but to help other people to learn that they can do the same.

James: Yes, that's very interesting. I mean, what you say this, anybody can do this, right? And I know a lot of people are listening to you, there will be some people who think, yes, I can do it too. Then there's another group of people, they're going to give reasons, oh, Anna has this, Anna has that, that's why she's successful. So if you are the one who's giving reasons, I know you want to stop that, because indefinitely, you can make money in real estate, especially millions of dollars, if you really work hard. And if you really, really want it, a lot of them just do not want to do the work. They really don't want the success, they just want to continue with their life and just go ahead and do whatever they've been doing and let the life takes wherever it takes them. Anna: Yes and I think part of that James, for so many years, you see these teams, these shows reality TV, and people convince you that it's easy money that you can do it, that you can be successful. There's coaching programs and gurus that you know, charging five, ten, twenty thousand dollars to sign up and learn how to do real estate. And they promise you that if you follow these three steps, you're going to be independently wealthy in a year or two. And I think when reality hits people, and they start investing, and they start to see how hard it actually can be on a day to day basis until you build up that experience and that wealth, they just give up and they feel like failures because they've been sold an unrealistic expectation of getting rich quick in real estate, when it's really the long game. You know, you're playing a long game, it takes sometimes longer than it should you know, some people get lucky or find the right network and connections and very quickly can build wealth. But for most people, it's slow and methodical growth. And it's just people need to realize that it's not easy, but it's not that complicated if they just stick with it. James: Yes. And they are people who did one real estate and failed badly. And they gave up on real estate. So there other people that you know, yes, one time fail doesn't mean anything we could, we would have failed many times, I guess. Right, so.

Anna: Sure. I lost money on my first flip. And I was convinced I'd never do another one. And yes, I changed my mind quickly. And I've done a few but rental real estate is really where the wealth build up comes. James: Yes, yes, in my single-family days, I do like 11 rentals, but I was also doing two flips. And I regret doing flips, because I made like, 40,000 on one flip and I buy a loss and $1,000 on another flip. And that thousand dollars feel very painful. Anna: Yes James: Because you shouldn't be losing money in real estate, but it really taught me a lot of things on how I didn't do it right in terms of the flip. But just because somebody did one and they fail, doesn't mean the whole real estate is a scam. Right? Anna: Absolutely. James: Definitely make millions of dollars in real estate, especially if you're living in the US. Anna: Yes, yes. James: It's a country where it allows anybody to grow, there is no limit is just you. Right? Anna: Absolutely. James: So no reasons, right? So if you give reasons, that's you so that's the only thing. So let's go to some of the deals that you have been done. And you so you are buying fourplex, fourplex, fourplex. And you started [inaudible30:21] on the 70 units and you self manage and you go into the syndication, why are you going into syndication now? Anna: So, I think some of it comes back to the time and the money, that spectrum of do I have more time or do I have more money? When I got started, I didn't have money and I could have said I didn't have time, but I made time. So it was a heavy, heavy time investment. As I built wealth and as I built more cash flow, it just made more sense for me to be able to scale larger with other partners and to be able to be an asset manager, operator, rather than the property manager or the maintenance person. So I've gotten to a point in my life where even though I've retired from my job, I really want my evenings to be free with my children and just to be wife and mom in the evenings and just spend a certain number of hours a day doing real estate. And so I got to a place where I had to say, you know, how can I really scale if I'm still self-managing many, many more units, it's going to take me a lot longer of full time effort, even though I don't have a job. And I wasn't really willing to sacrifice any more years with my children working more than 40 hours a week. And so I wanted to control my time and continue to scale. So I figured I needed to start working with other people, utilizing other people's time and other people's money. And the larger multifamily allows you to do that because you can afford full-time property management, full-time maintenance staff and really become more of an asset manager and business plan executer than you are an individual who self-managing your own properties. James: Yes, business plan executer, that's the operator definition, I would say. Anna: Yes. James: How do you define operator slash active asset manager in your mind? Anna: Sure. So an operator is basically the person responsible for operating that asset soup to nuts and executing your business plan. So it's generally, you're just general partners. And there will be either all the general partners will be involved in the asset management or overseeing the business plan and making sure that your plan for that particular property is being executed the right way. So for example, if we're buying a value add property, like the 73 unit that we did and the others that I go after, it's a property that is usually poorly managed, its expenses are not being managed well, the rents are below market, and perhaps the units need to be updated in order to maximize the rents so that you can then increase the value of that property. So as an asset manager and operator, I'm working with our property management company or a property manager and with our contractors to make sure that you know, when units come available, we turn those units quickly, we update them on time and on budget, we raise the rents, we get the new tenants in there. So that we can execute our plan to raise the values before we sell or refi. And we work with the property managers to make sure that they're cutting the expenses in the way that we planned, that they're monitoring the expenses, monitoring the rents, making sure rents are being collected, and you're just basically overseeing soup to nuts, all of the things that are supposed to happen to make your asset more valuable. James: Got it, do you think there's a certain advantage of being a local asset manager? Anna: I would say yes, in that really bad, unforeseen, unexpected things happen, like mould damage, or like when blowing roofs off or a hurricane, you can be at that asset very, very quickly. And you can also stop in and visit with your property manager, your property management company on a monthly basis, bimonthly basis and just say, hey, let's walk the ground, show me what you're doing. And there's just never anything as valuable as actually being on the ground and seeing it. However, in today's world, where we have the technology, we have zoom, we have our phones, where we can take pictures, and we can walk around, it's pretty easy to do things virtually as well. So while the operator in me that's always had, you know, my boots on the ground, and always been able to see kind of likes the control of being able to be at a property within an hour. It's not necessary, if you trust your team and have a good team that's boots on the ground, and can just go to your asset maybe once or twice a year. So I haven't really done it from afar. I'm asset managing my first property that we have under contract right now, two properties in Atlanta. And so I'll be sharing asset management responsibilities there. And that'll give me a little better feel for how much easier or harder it is to do from afar. James Got it. Got it. So let's come back to value add. So all the deals that you're buying a presume are value add, right? Anna: Yes. James: I mean, you're adding some things to the operation, either the income or the expense, right? So what do you think is the most valuable value add in your mind? Anna: So I really like Class A to B areas and an older building because your area you can't change, a lot of syndicators go after class C area, workforce housing and older buildings. And so you're struggling not only to bring the asset up to today's standards but also with a tenant pool who may suffer more heavily if we head into a recession or they may be more susceptible to losing jobs and not being able to pay rent. Where when you're in a nicer area where there's really good school districts and people want to live, there's a lot of good employers and a lot of good shopping and things around, you're always going to have people that want to move into that area because it offers the best lifestyle for those people. And so if you can find an older asset, you know, you're not struggling with the area to keep your units filled. It's just a matter of now offering an asset that people want to live in while they are in that area. So I'm really a value add investor, not doing like full major repositions, taking units in a C class area, that's 40% bacon and trying to fill them up. I like stable assets in a stable area that just needs some updating and operational efficiency in order to bring them up to today's standards. James: Good, that's very interesting. I never heard that from anyone else. Because the strategy is for you to look for the good area, but look for older buildings and try to improve from those older buildings, I guess. Anna: Yes. James: Okay. Interesting. But what about the like interior rehabs and do you do any like rehabs on the inside? And do you think is there any specific rehab that you think is more valuable than others? Anna: Sure, you know, it's really market-driven James's I know that you know, but for your listeners, every market demand something different. So where some parts of the country in order to get you to $1100 a month rent might demand granite countertops, and they might want really nice luxury vinyl plank flooring, other areas like tile, and they don't like granite, they like maybe stone countertops, and other areas to get that much, you might be competing with a $3,000 a month luxury apartment that would have granite and vinyl plank and maybe 1000 would get you carpet and a nice floor-laminate. So you've really got to look at what does your particular market demand and not just assume that every rehab has to be a cookie-cutter that looks the same.

So what I do is I look at what is the competing market? What is the complex is offering to get that top rent that they're getting today? And I kind of secret shop those complexes or go on their website and see what those units look like. So for the 73 unit, for example, our property was a 1985 vintage when we bought it in 2018. So it was a little bit older, had a lot of original oak cabinets, plain commercial grade carpet, old looking vinyl. And basically we went in and we just changed up the flooring to vinyl plank flooring in the main living areas with carpet in the bedrooms. And the reason we did carpet in the bedrooms is because it's really cold in the northeast. And so a lot of people don't like solid flooring in their bedrooms. So we kind of save a little bit of money on doing carpet in the bedrooms and vinyl plank elsewhere. And we replace some countertops and updated old cream-coloured appliances to stainless steel, or very nice white depending on the unit. And then we painted the apartments, a soft, grayish color kind of more on the gray side. But the flooring has kind of had some greys and browns that go well with everything. And really for just a couple thousand dollars in new flooring and paint and some countertops and appliances, we were able to raise the rents $200 a unit. So it was a significant increase in rents because when we bought the property, not only were the units kind of dated, but the owners had not raised rents on several other tenants for several years. And so the property right next door to ours was asking 175 to 225 more a unit with the exact same floor plans as we had. So it was a great property because we didn't have to do a whole lot in order to bump those rents and achieve that big increase in value. James: Got it. So I want to go a bit more detail on how did you choose your rehab plan because you said you did countertops, you did stainless steel and a few other things there. But it's for example, how did you choose? Why did you want to install stainless steel appliances? Can you give some education on how did you go to that process, say I want to do stainless than black appliances? Anna: Well, and again, this is we've kind of left appliances, we've kind of played with it a little bit because we had so much room to bump the rents. And we looked at what is next door offering? They're the biggest competitor. So next door had certain units where they offered a premium package with stainless steel appliances. But the standard package didn't, it had white appliances. So we said for the first couple that comes available, let's do the vinyl plank, let's paint them. And if there's a cream color, for example, one unit had a cream color stove and a white refrigerator and cream color, you know stove and we said let's keep the brand new white refrigerator. And let's just put in a white dishwasher, a white stove and see if we can get the rent that we want without going stainless. So we did that on a few. And we had a huge waiting list of people that wanted those apartments, they couldn't care less about the stainless steel and so we didn't do it. So you know initially we thought we were going to go all stainless but people, we've been achieving the rent bumps we want without having to do stainless. And so we haven't done it at this point. James: Got it. Yeah, that's how you and I think that's a good strategy to look at the base on where you didn't want to overspend versus how much rent bump you need, right, because -- Anna: Yes. Sorry, go ahead. James: No, I mean, somebody can use that extra money for something else. Anna: Exactly. And the other thing, you know, because I focused primarily in my general area, I know the market like the back of my hand. So the buildings that we bought the 73 unit and the subsequent 31 unit that we just brought too, they're basically my direct competition. So I know what tenants are looking for, I'm already offering it in my town. And basically within a 30-mile radius, we know this is what the market demands, this is how much room we can get for it. And so while people think, oh, I need to do all these fancy bells and whistles, you really just need to look at what your competition is doing it over, improve it to the level that you're going to get the top rent, but don't over-improve it to the point here that you're spending needless cap backs, that aren't going to get you that much of an incremental rent bump. James: Got it, sounds really awesome man. Let's go back to the slightly more personal side. Is there a proud moment in your real estate career that you are really, really proud of, one moment? Anna: One moment, I think, on my 73 unit, sitting down with my JV partner and his partner that he had partnered with stuff, and really being able to convince him that this was an amazing asset to invest in. And he agreed to fund my first large syndication deal. So I was just really proud that I was able to build up the financial knowledge and build up the confidence and the track record from what I had done on a smaller scale that investors would trust me to take their investment and really manage an asset well for them. James: That's where you broke out from the four units to more than 70 units, which is a big achievement, I guess, right? Anna: Yes. And I think that and the day that I retired, when I was able to retire from a job where I worked with accredited investors to be able to say, you know what, I'm retiring, I've replaced my income, I've more than doubled it, I'm now an accredited investor. And I don't ever have to work for someone else, again, I think is probably one of the best moments of my life. James: Yes, that's really important. Can you name like three or five advice that you want to give for newbies who want to walk along your path? Anna: Sure, I'd say educate yourself as much as you can, you know, listen to these great podcasts and just learn from people that have already done it because you learn the things not to do and you learn that the good habits to do to kind of make yourself an excellent investor. So really commit to your education, podcast, read some books and attend some local investor meetup groups so that you can align yourself with other investors. So one is education. One is networking and alignment. And you'll get some continual growth and continue education just from learning from people that are in your network that are already doing what you want to do. I would say also start really looking at yourself and what your goals really are. So like you said early in the podcast, many people think they want to be a real estate investor. But when they discover how hard it is to do so, they kind of back off and maybe flounder for a while. And all of us can do that if we really don't know why we're doing something. So look at yourself, ask yourself what you really want in life. And why do you think real estate can get you there and then back into how much time and money am I willing to commit to my real estate investing venture. And if you don't have a lot of time, you've got to commit yourself to find money or finding other people's money or working with other people. And if you have a lot of time and not money or I think vice versa, then you need to really be willing to put in that time. And so look at your why; look at your time and your money and start figuring out how best to utilize every moment of time that you have, every moment of cash you have and other people's time and money so that you can start to scale as quickly as possible. James: Awesome, awesome. So Anna, why don't you tell our listeners how to get hold of you? Anna: Sure. So I'm on Facebook as Anna ReiMom Kelley. And I have a Facebook group called Creating Real Estate Wealth that lasts with Anna ReiMom, where we talk about real estate and really creating wealth and kind of the good, bad and the ugly of all the different asset classes. And you can email me at [email protected]. James: Well, Anna, thanks for coming into the show and providing tons of value. Anna, you gave a lot of very good perspective from how you juggle your role between being a mom and being a wife and trying to grow the business and I think our listeners would absolutely get tons of value out of this. And as I say there's no reason not to be successful in anything that you do and real estate is just a tool. You can be successful in anything but you can be successful if you really put your heart into it. If you really, really want it you will be successful. I mean, if you give reasons, there are tons of reasons you can give not to do something. Anna: Absolutely. Thank you so much for having me, James. It's been my pleasure. James: Thank you, Anna, bye. Anna: Bye.

James: Hi listeners, welcome to Achieve Wealth Podcast. This is James Kandasamy and Achieve Wealth Podcast focuses on Commercial Real Estate Operators who are killing it in all kind of commercial real estate asset classes. Today, I have Kyle Mitchell. Kyle is from California who has bought his first deal of 42 units in the market of Tucson, Arizona and he's going to be sharing his experience on coming to that first deal. Kyle is also a co-host of his weekly real estate podcast, which is Passive Income True Multifamily Real Estate. 

Hey, Kyle, welcome to the show.

Kyle: Hey James, how you doing? I'm happy to be on and thanks for inviting me. 

James: Oh, it's an honor to see someone, you know starting to buy in this market, in this red hot market right now where it's so competitive; even though it's still the best time to buy just because of the climate of buying the deals. The interest rate is really good and there's a lot of capital looking for a place to park their money and make money as well but the biggest problem is finding the right deal. So tell me about your journey. I mean, when did you start looking for deals? I mean, when did you start even thinking about investing in real estate?

Kyle: Yeah. So I've been investing in real estate since 2013 and how I got started was even in high school, I invested a little bit of money in the stock market. I had a couple of thousand dollars invested in the stock market and I lost it in six months and it was nothing that I could do about it. And I just learned quickly that I wanted more control over my investments and I just started looking online and listening to some podcasts, reading some books. Like most people, Rich Dad Poor Dad was one of the books that changed my life and I just knew I want to get into real estate. So I bought my first single-family home in Long Beach, California, southern California and started building up a small portfolio of single-family homes across the United States. And from there, I learned quickly that I couldn't scale as fast as I wanted to single-family homes, and I wanted real estate to be my vehicle to provide myself and my family with financial freedom. And so I started looking at some other asset classes and that's when I found multifamily.

James: I got it. Got it. Got it. You just reminded me of something very interesting in my life when I went into real estate. I mean, the first time I read Robert Kiyosaki's book, maybe like 10 15 years ago when I was busy working and I never understood the book. I'm not sure, I know it changed a lot of people's lives when they read it. I mean, I recently read it again and now, it all makes sense. In the beginning, it didn't make sense. I say, what is this guy talking about? Because we are so busy on a W-2 job and especially me, I can never understand what is it he's trying to talk about? So what was the aha moment when you read that book, I mean, what is that? 

Kyle: Yeah, to be honest. I did read that book and I reread it several times. The one that really changed my thinking was his Cash Flow Quadrant Book if I'm being honest but he really teaches you how to understand how your time works for you, basically. And so, being a business owner and an entrepreneur, you can have other people working for you while you make money. Otherwise, you're trading your time for money, being an independent contractor or a small business owner or W-2 employee. And so that was the biggest mindset shift to me is really purchasing assets not liabilities that cash flow while you sleep and having other people work on them for you.

James: Got it. Got it. Yeah, I mean, I don't know, there may be people who are in W-2 job who have read his book and never get it and I was one of them. Because I think when you're working 9 to 5, W-2 job you're busy and suddenly when you get this knowledge about, hey, you can do business, you can do investment, it's like completely out of your arena right. I read a few pages and I gave up on it because it just doesn't align to me.  So for the people who are in W-2 job just be aware, sometimes it may not align with you because you are busy working in your own job, but I think when you mingle with people in real estate or with the business people you get it but if you are just working in your table to job, you may not get it. Just to be aware, you have to change your network to really make a shift in your life. 

So tell us about how did you choose to be an operator? Because you bought this 42 units recently and I remember talking to you like one year ago when I meet you in California or maybe six months ago when we met up there in Long Beach and you were like, I want to get into the game. I know multifamily is really good and you started your own meetup and everybody's excited. And you said, okay, I want to get started with the capital raising and we had that discussion about being an operator and what's your background.

 Tell me about your background and how did you choose to become an operator? 

Kyle: Yeah, so my background is being an operator and that's why I'm an operator now, but my background was in the golf business and I was a general manager and a regional manager for a golf management company for about 15 years. So what I did was manage people, manage the business, manage the P&Ls, drive revenues, control expenses, hire/fire, manage people. So my whole entire background is really in operations and Logistics in business. And so at the time when we were talking, I was really struggling because I knew when I first started our company that I wanted to be an operator. However, it's a hot market. It's very tough to find deals and I was kind of like that Facebook frenzy, the fear of missing out, you want to get in the game. And so I was struggling because I was presented with some deals to raise capital on and I knew these people and they were good operators and it was a really good opportunity for me to jump on board.

I decided not to jump on board, not because I didn't believe in the operator or the deal but really because I wanted to stick to my values and who I believe I am and then also my strengths and my strengths are really as an operator. And so we passed on those and just kind of kept grinding and I knew we would eventually get to the point where we did get a property and we can operate it on our own and that's kind of where we are today.

James: So were you able to see someone else whose an operator and you can align with it or how did you know that being an operator is what you want to do?

Kyle: It's because of my background. It's just something that I'm naturally kind of transferring over from the golf business to here. I think a lot of people here, okay, you're in the golf business; that's completely different than real estate and that may be the case. But we're doing the same things in the golf business that we're doing in real estate. We are driving our revenues, we're controlling our expenses, we're making sure that our employees or our third-party property management company are doing the job that they need to do to operate the property.

So it was an easy transition really for me and it's just something I've been doing for so long that I really enjoy it. I'm not a big sales guy. I mean, we do find our own deals and do all that kind of stuff too but as far as raising capital, it wasn't something that I was really in love with doing. And really with an operator, it's the stuff that I love doing; diving into the P&Ls, working out the business plan, working together with the third-party property management company to make sure that we are doing the right things to get to the numbers so our investors make their returns. 

James: Yeah, I mean, with so much Capital nowadays looking for a place to park their money and make money. So sometimes it easier to start with being a capital raiser or being a partner who's bringing a chunk of capital. But for me, it's always the operator whose at the top of the food chain. They make the most money, they control the whole deal, they are the backbone of the business.

This person who's the operator is so important because they know the detail of the business. They know how did they come up with the per forma of rent increase? How did they underwrite the deal? Which comps did they go and shop? And when some things don't go right, the operator has to bring back the plane to the flight path again and they are the one who can control all that.

 Whereas if you're in any other role it's very hard for you to do that. And I think it's important that the investors need to know who are the operators because the operators are the backbone of the deal. I think that's a very key fact. So coming back to the deal that you did, how did you choose to do 42 units and not 10 units or 100 units? 

Kyle: Yeah. So I think in a perfect world, we would have probably started with something a little bit larger, but I think you also have to know your limits as an operator and as a money raiser. And so, let's just say we were going to go after a 10 million-dollar deal, that's 120 units, you can back into the number that you're going to need to be able to close on. So you need 3 million dollars for the down payment, another let's just say million for the capex so you're at 4 million. So does your net worth and liquidity get to what you need to close on the loan? Can you raise 4 million? 

And so all those things we had tracked and we felt that this 42 unit at the price point that it was that we could raise enough money, we have the net worth to put in to take it down and it's a good size property to have our first deal.

James:  So how did you align your team to be ready to take on that 42 units? I'm trying to figure out how did you come up with that 3 million-dollar limit. So you must have either your net worth or someone who acted as a key principle as a KP. 

Kyle: Yeah, so this is an interesting story, actually. Originally, we were going with the Freddie Mac loan and the team was my fiance and I, who is my business partner, and then our parents were going to sign on the loan as KPs to bring on the net worth piece and liquidity. And halfway through we were, I wouldn't say we're struggling with the capital raised but we were not feeling as comfortable as we should have. We had to raise about a million dollars on this deal and about three weeks in, we're about halfway there. And so the plan was to bring in another partner to help with asset management and raise Capital if we were not able to get there and use our extension.

Well at that point, our mortgage broker said, hey, Kyle, it's too late to bring on a GP. We've already submitted your loan application to Freddie Mac. We're not adding any more GPS. So then, we were stuck between a rock and a hard place, to be honest, because it was either continue to raise what we're doing the 506B, so it's not like we can meet new people; our network is our network at that time. And so we would really have to grind it out and convince some of the people that weren't on board to come onboard or come up with our own capital or switch over and try to find another lender. And the reason why we were in that position is I fully believe that you need to raise a hundred percent of your capital or else you just can't execute on your business plan.

 If your business plan is to raise a million dollars and you only raise 700,000, you're $300,000 short on executing on your business plan. And that's very crucial and we are not the type of investors that utilize the cash flow from our properties to put back into the capex. We feel like that could really hurt you. If the revenues go down or for some reason you have a big expense, you don't have cash flow that month, now all of a sudden you can't put money back into the property and your business plan suffers. So we always raise the capital upfront for the capital improvements so that we can execute them, whether our incomes are up or down.

So we decide to switch; 29 days left to close after our extension, we switch from Freddy to Fanny and a new lender and it was a pretty stressful time. But so we brought on a KP to sign on it and that KP we had known for about 10 months. We've been building a relationship with them and wanted to do other deals. We looked at several other deals together and we met through our meet up. And there was one other partner that came on board that helped with asset management and we raised about 900,000 ourselves and this other person came in and raised 100,000 to close. And we literally record about an hour before we were supposed to close.

James: Got it. Got it. That's very interesting. So how did you align passive investors before your first deal? 

Kyle: Yeah, so we had been building our investor list for over a year before we got this deal. And so it was something that we had planned all along. And the reason why we really hadn't done a deal up until that point, we wanted to make sure that we felt comfortable with the amount of money that we could raise so we did several things. We obviously went to networking events. We started our own meetup and we also told all our friends and family what we were doing and through that, through our monthly newsletter, we had an email drip campaign setup or it's 20 months of emails just educating them on who we are, what we do, why we do it and it's really about adding value to other people and educating them about what you do and making them comfortable with what you do. So after about a year, we built up that list and it's several hundred people up at this point and we felt comfortable to where we could raise the money. 

James: So which channel was the most effective? I think you did some kind of drip campaign through your emails and you did a meet-up and you also tell everybody and is there anything that I missed out of and can you explain which one was the most effective in getting the passive investors because you are new. I mean you're completely new. 

Kyle: Yeah, I would say it was 50/50 between friends and family who have known us for a while. And then the meetup. I would definitely say the meetup group was the strongest one. Because at the meetup, on a monthly basis, we had been doing it for 12 months at that time, you're seeing people face-to-face for 12 months and you're becoming friends with these people and very close to them and getting to know them on a personal level. I mean really building that strong relationship with them. So I think that was the strongest for sure.  We do have a podcast as well, but that didn't start until March of this year so that was not something where it was kind of on board quite yet. 

James: Okay. So today, let's say, you found the deal you underwrite it, it works well; so how did you communicate that to the people in your list? And so how did you convince them to invest with you? 

Kyle: Yeah, so it started with an email but it also took a ton of phone calls. I mean, I think it's all on the follow-up when you're raising money and you can't just call someone, after seeing him, six months later and say hey, I've got a deal, do you want to put in 50,000 on this deal? It's really about building that relationship. So, every month I try and reach out to our investors and whether it's through email or text or phone call, I try and touch them in some way on top of our monthly communication with them, through our drip campaign and database emails. But it was really about talking to them, meeting them in person for coffee one by one and telling about the opportunity that we have.

James: So apart from the 50% of investors, which came from your friends and family. I mean, they're friends and family and they don't mind giving you some money. So the people who are complete strangers and you have build up that relationship, so what do you think is the biggest factor that they trust you with their money?

Kyle: The value that we've added to them. If they want to hop on a phone call with me and just ask me for advice on where they're going with their real estate career, we would do free calls. I think also the meetup, the podcast, monthly emails; it's just everything that we provide for them. We also have a free online passive Investors Guide that they can read that's about 30 40 pages that help to educate them. And I think the other thing was they just saw the passion in us. 

I mean, Lita - who's my wife now, fiance back then - we would drive to Tucson at 2:00 in the morning because we both had full-time jobs at that time and I've since left but she still had one and she only gets one day off a week. So on her day off, we would leave at 2 in the morning, 2:30 in the morning, get to Tucson around 9:00 or 10:00 a.m, tour properties, meet with investors, brokers for about 8 hours and then drive back and get back the next day at like 1:00 or 2:00 a.m. So just telling the story about what we're doing and how hard we're working, I think people saw it in us that this was something we were very serious about, we didn't take lightly and we operate our company as a business, you know, this is a serious business and we're an investment firm and we take it seriously. We don't do this part-time and we don't do this kind of on the side, which you can certainly do and I know several successful investors who do that, but they also take it very seriously like a business and I think that's a very important thing.

Kyle: Yeah, certainly but I would say that I don't think you can learn everything from a mentor until you actually go through it. I think mentorship is needed and you definitely should have one so you can limit your mistakes, but you just don't know what you don't know and really until you go through that process, kind of like what I went through with the lending experience. It's really difficult to get that through a mentorship program, sometimes, at a certain point, you just gotta jump in there and do it. 

James: Yeah. Yeah. I know some people go for boot camp after boot camp, mentor after mentor and never get started. So sometimes you just have to bite the bullet and take a chance on a deal that at least makes sense. So other than the financing issues that you mentioned in the beginning, throughout the closing process, was there any big aha moment that you see throughout the process with the first deal? 

Kyle: Yeah, I think we would have just lined up our partners beforehand instead of trying to do it all on our own. We could have gotten it done on our own but it was just a very stressful thing and it could have really put our investors' money at risk, which is something that you just don't want to do.

So I think lining up your team upfront. But I think from like an operations standpoint, I think where my experience helped is that - and during the close, you still need to make sure the property is operating on a positive note. If it starts to go back, your proceeds from the lenders are going to get cut and a lot of other things; your returns are not going to look as good. 

So you need to stay on the property management company that's currently managing it, whether you're going to switch over or not. You're going to have to manage the broker to make sure they're doing everything they can to make sure that they're renting up, they're still putting renovations in there and they're managing it at the level that you want it to be managed when you take over.

James: Yeah, absolutely. So that's what you want to make sure that everybody does that. And what about any issues in the money race, were there any surprises at the end? 

Kyle: No, actually there wasn't. I mean, we raised all the funds prior to close, which was fantastic. I would say that raising money, you really get a peek behind the curtains of people's lives; whether they're closing on a house and need to show liquidity and can invest or they're out of town for a while or they're having a baby so they can invest. So all I would say is that if you plan on raising a million dollars, you should probably have 2 million dollars of commitments. Just because someone says, "Yes, I'll invest" doesn't mean they will. And something can be going on in their life where, yeah, they want to commit and invest but it's just not the right timing. So raising money, it's a huge timing thing.  You're raising money for 30 to 45 days and so, it's not a big window and there are things going on in other people's lives that may stop them from being able to commit to that one deal. 

James: Got it. Got it. So Kyle, I mean you are a new person, bought your first deal. What was your strategy to find that first deal? Brokers, off-market or what did you do?

Kyle: Yeah, it was really networking and leveraging the brokers as much as I can but it was driving out to the markets and it's something that we still do to this day. We're in the market every single week because we believe in those strong relationships and meeting people face-to-face and showing them that we're serious. I think a lot of out-of-state investors call brokers on a regular basis, but hardly ever see them face to face. I found it very beneficial to have lunches and dinners and coffees and touring the properties with the brokers and having face-to-face because you get to learn who they are and even outside of the business aspect, you get to know them as a person, as an individual, so that's been really beneficial to us. So the way we found the 42 unit; we were in town, in Tucson and one of the brokers called me and said, hey Kyle, we just got the keys to this property. Would you like to walk it with us? I haven't seen in any of the units and so we walked it and so we were the first ones to see it and it was three weeks before it was on market. And by the time they brought it to market, we had done all of our due diligence. We had a head start on everyone and we were able to take it down. 

James: Yeah, it's interesting. I mean usually brokers, especially on a much larger deal, they are very, very skeptical or they do not want to deal with a lot of new people. Because there's a lot of people looking at the much larger deal and you went to 40 something unit, which a lot of big guys don't look at it, which I think is absolutely a good strategy for a person to start. I know a lot of people out there telling just go and buy above 100 units because there's so much capital you can syndicate but it's also harder to get started because there are a lot of people looking at above 100 units. So I started with 45 units and I really learned a lot. So do you think you are learning a lot and how many months already right now?

Kyle: It's been two months since we've closed and yeah, absolutely, I am learning a lot on the whole process from A to Z. Now we're in my comfort zone, where I'm operating the property, managing the property manager. So I'm still learning on how the property management company kind of does things but I really do feel like I'm in my comfort zone right now.

James: Awesome. Yeah, I mean you really learn a lot when you buy deals on your own and you buy smaller properties because you're going to be learning everything. But the thing is, the knowledge that I got from 45 units and the knowledge that you're getting in the 42 units is going to take you to above 1000 units pretty easily because you are doing it yourself. So sometimes when you buy a too big of a deal, there are too many GPs in the GP shape and you give it to a third party, you're not there, you're not being an active asset manager you may skip a lot of knowledge.

          So do you have a property manager right now for 42 units or how is that being worked out?

Kyle: We do and I think we got lucky on this. We have a property management company that is the biggest Property Management Company in Phoenix, and they also have a lot of properties in Tucson. It just so happens that most of their owners have sold their properties in Tucson so now they're trying to build back their portfolio, so I caught them on a really good time. They know I want to scale in those two markets and so they typically do not manage properties under 100 units and we were able to convince them to manage this property. So we don't have full-time staff, but we have a part-time leasing agent and a part-time maintenance person, but we're able to piggyback off of another property so that they're both full-time employees.

 And so that's worked out really good and having a third party property management company that's as large as they are were able to leverage. They have an in-house GC team. We can leverage all their relationships. They have an in-house marketing team. So there's not a lot of 42 units that have their own Facebook page, their own website and all that kind of stuff and this third party property management company does that for us.

James: Awesome. That's very interesting because I know 42 units are going to be hard to have. I think you probably can have like one person but you are managing with the leasing agent and part-time maintenance so that's awesome. And they are sharing it with other properties, which is really good. And so why did you choose Tucson?  

Kyle: You know, first we were looking into Phoenix and Phoenix is a really hot market right now and we love everything about it. It's just very competitive. So a lot of the brokers that we were talking to said Kyle what you're looking for value-add, B to C class assets take a look at Tucson. And at that point, this was a year and a half ago or just over a year ago, we weren't really sold on it because we didn't know much about it. So what we did is we started going out there every week and start learning the market; the rent growth, the population growth. All those metrics are very good in Tucson and they follow the Phoenix market. So the more time we spend out there, the more we started to like it.

          Now, I would say about Tucson is you have to be careful where you buy. It's definitely a pocketed area, but it's got job diversity just like Phoenix does and that's why we like both of those markets. The proximity of them is another good point for us. I'm out in the markets every week and so I can either drive or fly but be there pretty quickly. Whereas if I was investing in Florida, it would be difficult for me to make it out there on a weekly basis and dealing with the time changes and things like that. 

James: Got it. And what is the value-add that you see in this deal?

Kyle: Well, there's a lot of value-adds on it. The previous owner was a very hands-off owner. And the first time we saw the property, it was pretty evident there's just not a lot of money being put back into the property. The sign on the front on the corner had a phone number that was disconnected. They did not have any online presence so I'm actually not even sure how they were leasing up the units so that was an opportunity right there. And we've already been able to get the performer rents prior to any renovation starting just by having a phone number that works, having someone that responds.

You know, the property management company that they had in there was a single-family home provider so any type of service call, they're getting charged 35 40 dollars an hour, even if it's to open the door for someone and so there's a lot of repair and maintenance money in there that is being wasted. But overall, it's just being mismanaged from an income standpoint and an expense standpoint. 

James: Got it. Got it. So, I want to go back for people who are newbies who want to get started in this business, is there any advice that you want to give to newbies that you want to emphasize right now?

Kyle: Yeah, I've said this a lot lately and it's, just get out of your comfort zone. It's something that is very difficult at times but once you start doing it, you really start to get comfortable with being uncomfortable and that's been the biggest thing for us. I would say 15 months ago, I would not be able to speak on this podcast. I could not speak in front of a group of people at a meetup, I was just terrified. And I just decided to jump right in. So we've got two meetups now. I've got a podcast and I quit my job to pursue this full time. We've just closed on our first property and now I'm on other people's podcast so I would just say get out of your comfort zone.

I try and do something three or four times a year now that gets me out of my comfort zone because as you get out of your comfort zone, you grow as a person, you grow as a business owner and you will elevate your game that much faster.

James: Yeah, yeah, absolutely. Absolutely. So why do you want to do this for the rest of your life, why?

Kyle:  It's building generational wealth. Multifamily is not 'get rich quick' by any means but it's definitely getting rich over a long period of time and you can build generational wealth, which is what I'm focused on and really want to provide my family with that opportunity. But at the same time, we're helping other people build generational wealth and that's what I love the most. We can add value into other people's lives and we can help create passive income for other people. A lot of people who we talked to don't know about multifamily or passive investing. They only know the stock market and so we really want to help educate people and say, hey, look, there's another way, there's a better way and there's a better way to diversify your portfolio as well. So we love helping other people build generational wealth while we do the same thing.

James: Awesome. Awesome. I know you have been on a few other podcasts, is there anything that you think that you have not shared in any of the podcast that you want to share to our listeners?

Kyle: Yeah. Actually, aligning your interest with your business partners. So my business partner is my fiance and I think that a lot of people ask us how do you work with your significant other and I don't think it's for everybody but the one thing that has worked really well for us is making sure that we wrote down our goals and aligned our interest before we started anything to make sure that we're on the same page. So even through ups and downs, we always remember and look back to that and say okay, these are our goals. So even if it's not your fiance or significant other, if it's your business partner, you've got to make sure that your goals are aligned before. Otherwise, once you're doing deals, it's just too late to start having those kinds of conversations. So definitely have the conversations upfront. 

And while you're building your team, make sure that you take the time to get on the same page because a lot of people just want to get going now and if you want to get going now and you get the wrong business partner, it's going to come crumbling down in the future. And so, take more time upfront to set up your teams and align yourself with the right people so that you can streamline your business and really be off and going on the right foot.

James: Awesome. Awesome. Where and how our listeners can find you? 

Kyle: Yeah, sure. We've got our podcast that you mention, which is Passive Income Through Multifamily Real Estate. Our website is www.limitless-estates.com, and you can shoot me an email at Kmitchell@limitless - estates.com. 

James: Awesome, Kyle. So thanks for coming over to this podcast. And for the audience, just to announce our launch of our own mentoring program. It's called multifamily A to Z Mentoring Program: Learn how to be an Operator.

 I'm not sure, is there any program out there that teaches any newbies or anybody who want to get started in this business and how to be an operator and we want to cover A to Z because we do A to Z. So Property Management, Asset Management, raising money and how to build a business by itself.

So we have launched that, if you are interested, let me know. Send me a mail [email protected]. I think we are done. Thank you very much, Kyle, for coming on board and you add tons of value to our listeners. Thank you. 

Kyle: Thanks, James. I had a blast.

 

James:  Hey, audience welcome today to Achieve Wealth Podcast. I'm James Kandasamy. And we're going to be talking to Jason Pero from Pennsylvania. Jason owns almost around 900 units. But the fun part is, he has like over 600 units on his own and a lot of it is duplexes, quads and small multi-families and he recently started syndicating around 300 units. So, hey, Jason, welcome to the show.

Jason:  Hey, thanks for having me, James. I'm glad to be here.

James:  Awesome. Thanks for coming in to the show. I'm always impressed with people who have build-up that many unit count; 600 units on your own without syndication so you're basically an independent rental owner, that we call it. And I just want to go deeper into that. Can you briefly describe how did you accumulate the 600 units and how many years did it take?

Jason:  Sure. So my wife and I started in 2001. You know, even before we were married, a few years out of college and we bought our first duplex and we did it the old fashioned way. We saved, we both work, we saved one person's salary and save that towards our down payments. And we would go with just traditional bank financing, 15-year mortgages, 75% loan to value and we just went really slow and steady early on. So, in 2001, it was a two unit, in 2002 was another two unit and a four unit and then the next year, it was a four unit that actually --

James:  Hold on, I need to clarify something. So did you come out from college and start doing this?

Jason:  Yes, so I graduated in 1999.

James:  Okay.

Jason:  And so started working, I didn't know a whole lot about money growing up and started making a little bit of money out of college. And I realized I wanted to, at that time, I just wanted to be build wealth and be millionaire.

James:  Wow.

Jason:  And all that kind of stuff. In one of my internships, I learned about rental properties and that seems like all the wealthy people had their money in real estate.

 

James:  Okay.

Jason:  So I started doing all my research and reading books and try to talk to different people that own real estate. And so we were able to do that in 2001 and just kind of went slow and steady. And so my wife worked as a pharmaceutical sales representative, I did that for a few years as well. And then got into medical device sales. And so each year, we buy a few rental properties and along the way, some sort of like career-changing deal with come along.

2005, we build up to 23 units and then all of a sudden, I met a guy that had 56 units for sale that he was willing to hold the paper on, in owner finance and so that took us from 23 to 79 overnight. And then we just kind of kept the same process; saving our money, buying a property, couple properties a year and then 2008 hit and there was a ton of property that was getting foreclosed on. So I was buying up singles and doubles and triples as fast as I could rehabbing them, refinancing them, getting my money back and repeating the process.

So we did a lot of that from like 2008 through 2012 when I left my day job. So at that time, we had about 290 units and again, we were living like way below our means, reinvesting everything back into the business. So we just put a ton of our own sweat and money into the properties in those early years. And we just kept buying over the last several years so it's been seven years since I left my day job. And when I was working, day job for a living, I'd always said I was a little bit nervous to take on private money or deal with investors. Because maybe I was afraid but I felt like from a mental and emotional standpoint, I wanted to be there for that investor, I didn't want anything to go wrong. And I knew if I was a travelling salesperson and I'm working three hours away, God forbid something goes wrong, I don't want to like I didn't want anything to happen to that investor's money. But once I quit the day job, sort of like on my own in my own portfolio every day, started networking with and meeting private lenders, private investors and did a bunch of that over a period of years.

So more properties that were owner finance, more of these, like hard money loans from loan sharks and the guys that want to charge you 10%, 12%, 18%. But we're able to get into more and more properties like that. And all the while we kind of heard about syndication, knew what it was, didn't really have the confidence, I think or just was missing like one piece of the puzzle. And honestly, when you and I met at Rod Cleaves’ house little over a year and a half ago, something in that weekend just click and said no, I know how to do this, this is easy.

James:  Easier than buying --

Jason: Yes, yes. And then from that point on, like the first syndication we did, found a great deal that we're bringing investors in on, then found another that and now we have another thing in the pipeline. So just everything kind of builds on itself, you know, have this natural progression. So sorry, that was a really long answer.

James:  No, I mean, I really enjoyed but I want to go a bit back to the beginning when you started because a lot of fresh out of school or a lot of graduates or anybody coming up from school, I'm just trying to see how they can get the similar mindset. How can they walk that steps that you took? Because you said you graduate in 1999 and 2001, you started buying and you said your hunch for real estate, you got it during your internship. But was there like any mentor to tell you to buy or you think that okay, I can do this? And what was that ah-ah moment that pushed you out of your comfort zone to buy your first house?

Jason:  So I'll back up; so when I was in college, I did a number of internships with financial planning companies. My original career, I thought I was going to be a financial planner.

James:  Okay.

Jason:  I never did that but I did a few internships and during one of them, the financial planners had me going through clients files and setting up appointments to meet with them. And one of the things, I was sitting there learning and I'm like, oh my gosh, how does  like a dual-income family, like a doctor and a lawyer only has a network of you know, they're making a half-million dollars a year, but their net worth is like $50,000. And then I'd see another file that these two school teachers may be making a combined income of 75,000 or 80,000 a year, had a net worth of like 5 million.

James:  Wow.

Jason:  And as well, they want a bunch of rental properties and I'm like, what's that? And so somebody kind of gave me, you know, hey, this is how, you know, well, a lot of wealthy people have money in real estate. So I got thinking and I really wanted to go down that path like becoming a millionaire. And how do I do that, I read 'Rich Dad Poor Dad', read the 'Millionaire Next Door'. So it was the 'Millionaire Next Door' talks about living below your means and that most millionaires don't drive Lamborghinis but they drive a nice used Honda or Toyota and things like that.

So it was reading and learning some of these mindset things. And the first job out of college, I was a kind of entry-level sales job. But there was a guy there that had a few rental properties. And I'm like, man, this seems really interesting, what do you do, how do you do? And I started asking him questions and he was telling me to read the same books that I just read. And kind of the pieces was coming together and like, well, if I want to be a millionaire, I have to make my money work for me. And so I was putting money in my 401k and starting IRAs, but I also saved every available penny I could. So then, I was talking around family friends, and just maybe kind of not real mentors, but people that were maybe my parents' age that I knew that they knew, and I said, hey, does anybody know about rental property? And turns out that one of their friends or people they were acquainted with, owned rental property. And they said, hey, we might have a property for sale. Hey, come take a look at it. And it was like a $32,000 duplex.

And I mean, not a lot to speak of, but I'd saved up about $5,000. And there was enough for like at the time to have like, first-time homebuyer loan program. So I had enough money for a down payment, got a decent loan on it. So I only had to put like, 10% down in closing costs, and all that kind of stuff. But got into it and the rents at that time were like for 2 bedroom apartments, they were $375 a month and I raise the rents to 500.

James:  Got it.

Jason:  And all of a sudden, I'm making money and I said, wow! It paid my student loans. I need to buy another one so I can pay for my car payment, and I just sort of thinking about it that those terms. And so like, they were a mentor in a sense, the guys that sold me my first series of properties, because I mean, they were typical, like they had a W2 job, you know, retired from that after 40 years and gold watch kind of thing, but at their peak, they maybe had 25 or 30 rental units and they never saw real estate as a full time endeavor. But they saw it's a great way to build extra wealth for retirement. And so I kind of remember it vividly, I bought several properties from these guys. And I met this guy, the first formal mentor I had in the business in 2005. And I was doing my walkthrough of this property with the guys that sold me a few handfuls of my first units. We were on top of a roof, you know, looking at this roof on the property I was looking to buy. And I asked him, hey, I met this really interesting guy by the name of Richard and he has 130 rentals. It's all he does. What do you think about like real estate as a full time thing? And he said, man, I don't know, I don't know how anybody can do this full time. And he just really pooh-poohed the idea.

But then I met and went with this guy, Richard, he goes by the name Dick. But I met with Dick and I was like, really impressed with this guy. He shows me all of his rental properties and says, hey, you give me 10% down and I'll hold the paper. And he seemed like he got a really good job at General Electric. You know, nice enough guy but he had this little empire of like properties. I thought that was the coolest thing in the world. And he was making it at the time, what I thought was a lot of money and he was doing a lot of good things. And he had enough money to get back to charity and he seems to travel and do, like, live life that he wanted to live. And he worked hard, but he didn't have to work for the man, he was doing his own thing. And so, after we close on that 56 unit deal, he really became that mentor to me. And it always stuck with me that even though we've sort of grown apart and we don't see each other nearly as much as I'd like to these days, I've sort of taken what he's done for me and I tried to do that with a lot of younger investors.

And I just was telling somebody this a week or two ago that I feel like our industry is, I mean, certainly there are people that don't want to help but I would say more often than not, there are people more than willing to show others the path and say, hey, look, I think I can help you out. I mean, don't want anybody to take too much of your time and make it a full-time job to mentor somebody but I think, as a group, most of us real estate entrepreneurs [inaudible12:47] And just like to, it kind of, you know, as some people showed you the way of coming into it, you can help these younger guys and gals out too.

So, I think, for your younger audience members, like, the key is maybe just to try and meet people that have been doing it, become friends with them, ask them questions and their knowledge, we all like to talk about our successes and our failures and all that stuff. And that's it, you know, you buy a coffee or a beer or lunch or something like that and you can soak it up.

James:  Absolutely. Yes, yes. Yes, I mean, that's just a very impressive build-up of your rental portfolio. And I'm just trying to get that the time where you will push over the cliff. So I mean, push out the cliff to be successful. I mean, you can correct me, you had a lot of desire to become a millionaire, right after school and you saw that you have a lot of desire and you went and seek out a lot of information from different people. I think it's some mindset that you really want to do it, has pushed you towards buying all this rental, taking all that information, and really taking action, which I think is very impressive.

And a lot of college dropout, not college graduates, or any graduate, high school graduate, anybody who have finished their studies, they can do exactly what you're doing.  But they have to have that desire to come to your level, to be a millionaire. Go and seek that information, take the risk, right? I think that is what you have done very well up to now. And you're right, usually, real estate entrepreneurs usually share a lot of information, and it's just whether whoever receiving the information is going to go and take action or not; that's very important. So, that's very, very interesting.

And the 900 units that you have, a lot of it is duplexes, quad and out of the 600 units that you own on your own, I think 300 is syndicated so how many are duplexes, quads? And how many units are like small multifamily? Do you have that number?

Jason:  Yes. So out of that 600, there's about 120 that I've ended up, well, I still technically own but I'm holding the paper, I've sold them on land contract. And so yes, so about 120 to 150, that smaller, single-family duplex quad. And I've tried to hold on to the things that say 8 units or above and --

James:   Got it. And I think for every big deal we do, I sort of have this internal, like a mental rule that trying to evolve the portfolio. And so, with a lot of that smaller stuff it's starting to spin off the smaller properties, whether it's selling it to and holding the financing to up and coming real estate investor or just selling on the open market and divesting of it.  I think every time you pick up a 205 unit, or 100 units that becomes your focus. And then, you don't want to think the quality of service or the quality of that duplex or quad to suffering, you just you kind of graduate and move on into newer things. And so, at some point, in all of our careers a 10 unit, or 20 unit, and it seemed to be the biggest thing in the world. But ultimately, when you close bigger projects, that becomes, you know, --

James:  So small, right?

Jason:  Yes. So I think it's important to evolve the portfolio. And so we have been in the process of trying to spin off the smaller properties, but in a control, smart way. So you don't want to give them away, but at the same time, I don't want to be managing those same things 10 or 20 years from now either.

James:  Yes, yes. So right now you have moved from duplexes, quad to smaller multi-families, you know, 50 something units and you said you hold a note for 100 something and now you've moved to like 200 units syndication, 100 units syndication, right? So why did you move from owning on your own to a syndication model?

Jason:  So it was interesting. I knew at some point, if real estate is all that I did, I'd run out of my own available money. We have to have money to live on and reinvest into the business. But in order to take down, say, a 4 million or 10 million dollars project, it took me a while to wrap my head around that. I used to think that, okay, I'll refinance my portfolio and use that money to buy into a larger property. But as you see, with a lot of these larger properties, that the types that people's raise money for syndication, is the timeline, is a heck of a lot faster than what you can do a refinance.

So realizing if you want to lock up 100 unit property, you know, 60 days, 90 days, I mean, these processes move fairly quickly. So, that was one thing. The other part was I became friends, with a gentleman that was my [inaudible18:03] on units we syndicated. And we really said, hey, we should buy real estate together, we could create some sort of offering and I just wasn't thinking big enough. And then, when this 86 unit came along, I said, this is perfect, the light bulb went off and said, hey, we need to raise a million and a half dollars and we'll go out and get agency financing and it just went really easy. And you can still end up having the control.

So for me a little bit of it was controlled, a little bit of it was, I mean, not just from an ego standpoint, but I think we do a really great job of running and managing the property. You know, I like the idea of being the majority owner of the property. So I felt like, oh, yes, maybe I only own 15% of the deal but I'm the majority owner as a 15% owner of the deal. And then you can get at the higher-quality property; property that appreciates as the economy goes, you know, we can be much more manipulated by cap rates, and just has a much higher upside. And I guess what I like to say predictability.

So the problem I found with the duplexes, and the quads was that, sure, I can make the same amount of money every year, but it was a heck of a lot of work. And it can be really unpredictable, you could have, you know, both units in a duplex become vacant in a month and then you're 100% vacant and it's wildly unpredictable as you scale. And so I found with like the larger properties, if you run it tight, and you have good management and you pay attention to the details, you can predict what your income is going to be every month. And I just got to a point in my life where I'm like, I just want a steady paycheck out of this business. I don't want to have that level of unpredictability. And so, from a syndication standpoint, you get a distribution every quarter. As the GP, we have that piece, and it becomes something where you're within a few percentage points of what you've budgeted plan out every year. And I found that that was another ah-ha moment.

So with my some of my smaller and even medium-sized multifamily properties, the 25 units and the 50 unit type of thing that I had, is that I went back and I had a 26 unit I brought in 2008. And I ran the numbers every year from 2008 and I've never made more or less than a few thousand dollars, like, for instance, the property makes $115,000 a year on average, it's never been below 112 and never been above 118.

 

James:  Okay.

Jason:  Yes, that's a clue. And I'll look at my other properties like that, yes, they're all within a few thousand of each other. And I said, well, this is a lot better than then chasing a single-family home, that becomes vacant and sits vacant for four months because you've got to pull out the trash and your carpet and exterminate and do all those things. So it's one of those things that sort of self-realized as we went along, is you have these larger properties, if you run them well, just create that level of predictability that you want as an owner. But I would say that it's really easy to sell to somebody looking to invest passively in your deal that, okay, if we modeled this this deal correctly, then you're going to get this return on your investment, every quarter, every year that you're involved in the deal.

James:  So the predictability has become very key, I guess. And the scalability because you have a lot more units and you would have budgeted for occupancy loss and having vacancies and expenses and all that in the bigger one. And you have a lot more room for error in terms of occupancy, I would say compared to a single-family and duplexes.

Jason:  Right.

James:  Right. Interesting. So was the experience that you gain from quads and duplexes, did it help you out when you come to syndication and run this bigger, larger properties?

Jason:  100%, I mean, I think a couple of things. And I think having my own money, into the business and building it with my wife's and my own hard-earned money, you know, the wins are all yours, and the mistakes are all yours, too. And so, you know, we started out painting our own units, cutting our own grass, leasing the units ourselves. And then even for building, you know, our own employees, I mean, you know, it was us, kind of managing those employees a lot early on, and dealing with tenants, I mean, dealing with tough situations.

So, if it comes down to me managing a property manager, I've got that track. Not that I know it all, I mean, I still feel like I'm learning every day but I have that, some level of experience to say, here's how we should handle the situation. Because, you know, we've seen this is or this is the type of scenario that we've dealt with. And I think, when it came down to raising money for these last couple of deals, having a track record and saying, you know what, not only have I learned how to finance properties, not only I learned how to manage properties, you know, dealing with private money, we dealt with tenants, we sort of work at all aspects of the business.

I think that's just that, earning your doctorate in this business or earning your degree in this business. And I think it helps to start out small. Now, I would just say that that's not for everybody. I see some people that are wildly successful jumping into really large syndications. And I certainly would never talk down people's hopes and dreams and goals to go big. But I think that to weather the storms and deal with difficult scenarios and difficult situations, it's always good to have some level of something that you've done on your own, whether it's small and syndication don't become the only, it's not the only way to make money in this business.

You know, a lot of us that syndicate, do a lot of other things. So, [inaudible24:08], people may flip, they may be a realtor that be involved in different things. So I just think that having that background and experience, you know, with smaller properties, building a team, those are all things that come in really handy, you know, as it relates to the larger --

James:  Larger one, yes. Yes, I'm a strong believer of coming, growing from small [inaudible24:38] from single-family quads, duplexes, and then growing. I mean, I know people go direct to let's start with hundred units plus a lot of gurus teaches that, because, there's so much money out there, and they said you can syndicate. But I think the problem is you mentioned right when the storm comes in, right, I mean, you may not know what happens when the vacancy drops, you may not understand the tenant profile, why certain tenant leaving rights, especially if you're giving to third party management.

So you are basically a pure syndicator; you're just a guy who raises money, finds the deal and trying to run a business plan on a booming market, right? I mean, we know a lot of people have been successful, but all this, lot of people has been successful in the past nine to 10 years of expansion. So we do not know whether they are good, or the market was good so we will know once the market turns. So how much people know, what the signs of real estate? I mean, there's so much of things in real estate like contract management, understanding tenant demographics. When people move in, walking, how's the leasing experiences so much of science behind it, you wouldn't understand it if you're in a strong market, right? You'll think, oh, it's going up to 95% occupied, oh, I'm making money all capitals, compressing it, nothing on your effort. But when the cap rate is decompressed that's when they the tenants leave, or when your market starts doing very well, I mean, you have to have those skills to manage that budget, to manage that shift. And I think I think it's important to start from small, that's what I feel, I mean.

Jason:  I'll give an example I had since we self manage, I mean, I'm not the one out showing units and advertising units, but I was between property managers had one guy phasing out, and he actually bought several properties for me. And so he kind of graduated into being a full-time investor and had a new guy coming on and we were about a month in between. And the first deal I syndicated it's an 86 unit property, it had 16 vacancies. And I'm like, you know, not only am I investor on the general side, I put my money in this is limited; I can't live with 16 vacancies. So I went out and I showed the units myself. I got things rented and did the hard work, none my time should be spent doing that, I don't love that. But I know how to do it from years and years of doing it early on.

So I went out and I got like a dozen units rented in a month and got that down to four out of 86. And then when our new property manager started, he was able to just kind of hit the ground running. But so I think that that's like an example of why it's good to be able to have that experience. And like you mentioned contractor management. I mean, you just recently, I know you've seen how to disaster one of your properties. And if you don't know how to deal with contractors negotiate the best price and make sure they're showing up to work every day and keep things on a schedule, you know, things can go really wrong when things go sideways in business, you have to have that sort of that people management side of it from dealing with tenants to contractors and banks and all that kind of stuff.

 

James:  Yes, absolutely. I mean, I just came back. I mean, before this podcast, I was sitting like, almost two hours in one of my property which we are recovering, with my property manager, regional and planning out the make ready plan. And how do we do this because sometimes you can't expect them to do the whole plan, right? I mean, sometimes we have a lot more planning skills and I have to tell them from day one to do this, how many of units, have to give them each plan. So they recover very quickly. And you can't do that if you don't have the real in a single-family, or quads or duplexes construction experience, right.

You can't do that, because you're going to be taking the words from the property manager or your regional right. So yeah, I think it's important that you really learn the science of real estate, especially now when the markets are good. It's hard to learn when the market is bad because things are really going wrong at that time. So that's very interesting. So how is the Pennsylvania market? Can you describe it? I mean, I never interviewed anybody from Pennsylvania and I like to understand the market and how do you underwrite the deals over there? So high level, you did all your deals in Pennsylvania, because you live there, I guess is your backyard.

Jason:  By default when I started out buying singles and doubles then, we're doing it ourselves. I didn't know any other way. I'm like, why would I buy something in Cleveland, I gotta drive an hour and a half every day to Cleveland. So you know, Pennsylvania is a funny state. So we have Philadelphia on one side of the state, Pittsburgh on the other side of the state and in between, and no offence to anybody else in Pennsylvania, but it's like, it's Kentucky. I mean, it's just farms and everything else and there's not a whole lot of population but there are areas like Harrisburg, Scranton, Erie, where I live. And so there are these tertiary markets.

And so, Philadelphia and Pittsburgh are like any other bigger market where cap rates are compressed and they have a ton of population, there's a ton of employment. But I'm a big fan of the tertiary markets and places like you're in Erie, Pennsylvania or York, Pennsylvania or even like Dayton, Ohio, I consider a tertiary market. Canton, Ohio, Akron, Ohio, like, you know, Rochester, New York is a secondary market, but maybe a smaller town around that, for instance. So, and my reason being that when you have areas like Denver in Nashville or Austin, Texas, that over a period of time had, you know, that population growth of a million people or more over a 10 year period, when 2008 happened, or after 911.

And now there was a huge pullback in the economy and people losing jobs and unemployment goes up to 8% or 9%. Those are areas where people are losing jobs, those are areas where the rents kind of pulled back, because you all of a sudden, there's these in multifamily, you do value add after value add and rents reach it's peak, at some point when the economy turns those rents out to pull back. So the flip side is where there's a lot of time growth, like in Erie, Pennsylvania, it is slow and steady. So, in 2008, home sales, slow down, but nothing, that the values never went the other way.

And we still live in an area where we have several universities, we have several hospitals, we have to the nation's largest medical school, in Erie, Pennsylvania, and so there's a lot of students, there are manufacturing jobs, there's other like medical and some technical type jobs, but just a smaller geographic area, smaller economy. Now, the downside is we never have this wild booming prices and you can't really ever bank on a lot of appreciation. But at the same token, when the economy pulls back, our rental base really isn't going to be affected. So, for instance, if I have $700 or $800 a month apartment and 20 tenants lose their jobs, well, they'll still be able to afford the rent on unemployment. Now, it maybe tough for them but it's not as though they're paying 1500 dollars a month rent.

And so I look at it from a practical standpoint, that while I should be able to maintain my occupancy levels and fight through an economic downturn. And so the nice thing with the area that I kind of proved itself out in this last syndication. We had several people from out of state come in and really liked the idea that there's this level of predictability that, okay, when the market turns, we're not going to lose if you know, 100,000 jobs a year, because there are 100,000 people that live in the city of Erie, there's another 250,000 that live in the surrounding county. So our greater metro area is about 300, 000 to 350,000 people, that's still sort of a small area, and, you know, the largest employer might employed, you know, 5000 people, and there are several larger small employers like that.

So the economy is set, sort of stable, you know, you go to Gary, Indiana, or places like that same thing. And so the other thing that would protect somebody on the downside is just making sure you have optimal financing locked in, though for the most recent deal, we locked into 12 years fixed as opposed to 10 years fixed. Even though the prepayment, our maintenance is up is nine and a half years, you know, we have a little bit of flexibility. So if we are in an economic downturn, you know, I saw it in 2008, saw a lot of people lose their investment. I think, locking into something that gives you that flexibility to weather a national or international economic downturn, least for a few years, not that you can totally time the market, but you have enough flexibility to when you want to exit the property.

But such as Pennsylvania, these other smaller markets, I mean, I think if you're in it for the long haul, that's your strategy is like, long term cash flow, I think you can't really go wrong with these smaller areas. You know, there, there's just there are jobs, you know, I mean, and they're not the highest paying jobs throughout the growing areas, but it's a different sort of business model. We told our investors in these deals, hey, this is a 10-year hold and we may hold longer if you want to stay longer. And I think that people like that idea, as opposed to like, doing like a three-year payback or a five year refinance, like, we're just holding into a longer and I think that's it's a different strategy. But it feels to me for investors that want sort of that long term stability and predictability.

James:  Yes, I mean, real estate, in general, is a long term play, right? So is Pennsylvania landlord friendly state? I'm not sure you know what it means because you only buy that, you didn't compare to the taxes or anybody else.

Jason:  But you know we have friends, --

James:  Okay.

Jason:  Probably the same friends around the country. And what I will say is, it's not like California, it's not like New York.

James:  Okay.

 

Jason:  So hear these horror stories where it takes months and months to evict somebody. Pennsylvania is fair, there's actually some legislation to make it even better. But you know, speaking from a practical standpoint, if you have to evict somebody, and you follow the letter of the law, to the day, it's about 40 days.

James:  Okay, it's not too bad.

Jason:  And so it's not too bad.

James:  Yes.

Jason:  Well, it's fairly easy, especially if you're looking to terminate a lease for behavioural issues or whatever, it's not you can't get them out in 10 days, but you're not waiting three or four months to get rid of somebody. And people have if tenants appeal not to get too far in the weeds, but if they appeal an eviction, they have to put their money into an escrow file, they just don't let the tenants like dictate the policy. There are actual things in place that make sure that it's so overall, I'd say it's more landlord friendly than most.

James:  Yes, I think it's almost similar to what we have in Texas, I'm sure there are more details there. But in terms of eviction, and putting money in escrow when they get evictions and all that is similar to what we have in Texas. So what about underwriting? So when you underwrite deals, multifamily deals in Pennsylvania, do our taxes go up as per the purchase price and how much percentage it grew up? How do you underwrite?

Jason:  So on smaller properties, they don't. I think if you're more distressed, but let's just say places where opportunities would be occurring, those types of like C and D class neighborhoods, they wouldn't, because the city or the municipality wants people to continue to invest there. But we budget for a tax increase based on there's a common level ratio that, you know, based on the purchase price, the value of the property, we should budget for X amount of, you know X amount of dollars.

James:  But how many per cent do you go up to purchase price? Is like 100% of purchase price times flat rate or is it 80, 90, 70?

Jason:  Well, yes, is about 80% of the purchase price.

 

James: Okay, got it.

Jason:  But what I would say is that you know, we've appealed that before. So, as an example, I bought an eight-unit, wasn't the big property, I paid a premium for that for the deal, I paid a little more than I would have sold for on the open market. But the seller had said, hey, look, I'm going to sell to this price, they held the paper at 25 years fixed rate at 4%, no balloon, no prepayment penalty, and I had to put 5% down, great property, the returns are great, but it was a paid more than it was worth. You know, there are different ways to look at that but that was flagged for a tax increase. And so, you know, we fought that, and have made a very strong argument that, well, look, this is the reason we bought this was because of premium financing.

And I've seen friendly neighbour, one of my properties, they bought a very large complex, and they're fighting a reassessment. Because even though they put a certain amount of money into the property and it's a large complex, like, they're arguing that, hey, you know, it's going to take, we paid a premium, because there's not a lot of property around like this, but it was severely distressed and we're not going to see a return on our investment for X amount of years. And so I think oftentimes, rather than just try and fight the assessment as a fight, sometimes you can go in and negotiate and create a situation where you talk to the board.

So there's a board of folks that they work for the school district, for instance, you know, the appropriate school districts and say, they flag these properties, then they try and increase your taxes. So as the property owner, you have to go in with a realistic approach to say, hey, look, I know, these taxes are going to go up, but hey, I bought a property and here's why we pay more for it, or here's the story. And here's how long of the time is going to take to increase the taxes and sometimes getting a little bit more personal and we still want to an attorney involved, and you still want to be able to with someone experienced with that type of appeal.

But I think that oftentimes, if you kind of go into it with a positive intention, and are truly enough, you're doing a value-add to the property, things like that, you're able to kind of create some sort of negotiation that those boards will oftentimes, like, at least in smaller areas are typically friendly. I mean, I don't want to jinx myself and get into a situation where your taxes double but I think you can oftentimes negotiate what that actual raise would be. But to answer your question when it comes to underwriting, will typically still budget that common level ratio, which is 80% of the purchase price, say, hey, we're budgeting worst case scenario, here's what the taxes are. And here's what we asked, so here's what we got the budget.

And great if they don't get raised, you know, for five years, and they don't get raised at all, then we lucked out but we live in an area where they don't look at every single transaction. I mean, I've been fortunate in some instances where the taxes have stayed the same, and I paid a lot more than what the previous owner did, but they kept the taxes the same. So they're not as aggressive as other areas. But that being said maybe it's just a matter of time before they really see it. And I just think it's always a matter of when you underwrite, you got to play it for the worst and play it for those increases, but when they come like try to negotiate and try to fight those increase because more often, you can have some level of compromise.

James:  Absolutely, yes. Yes, I'm surprised that you can negotiate to that level, which makes sense, right? I mean, these are some county I think they're not very flexible. So what about insurance? I mean, do you get a lot of snowstorm and storms in that, n Pennsylvania? I know it's, I know, it happens but can you tell us how is the insurance costs that you and your underwrite?

Jason:  Our winters are terrible, I mean if you like to ski and you like outdoor stuff in the winter, but yes, I guess our insurance does cover for things; like a few winters ago, there was a terrible snowstorm and ended up being the second-highest or third highest snowfall of all time in the US, in the major metros, almost 200 inches of snow that fell back winter, it was disgusting, but there was a lot of roof damage and gutter damage and all sorts of building damage.

So I think insurance companies, they billed that into their underwriting. But yes, you plan for those things. You know, as I built my business, from a practical standpoint, have always tried to hire maintenance guys that can handle like your general things, like, you know. If I call a contractor to repair gutters and [inaudible42:37], he may bill $10,000. But I know that I can have my guys in-house do it for $3,000. So we try to take an approach where if there's a lot of stuff that we can fix, we do it ourselves, but here really the winters and the worst things that can happen. And so, you have to kind of bill that into your plan. But there's a lot of things you can do to mitigate damage in the winter, and it just becomes a different different analysis. I mean, I'm sure people have own properties and like, where you're at Texas, or Arizona, where it gets really, really hot, there are other things that they have to do to plan out for insurance or if you live in a hurricane area, the same thing. So I think that when you underwrite from an insurance perspective, especially on the larger deals, they're going to give you a plan, they're going to tell you, hey, these are the things we need to do.

And so oftentimes, as the owner operator, you got to take care of those issues, whether it's deferred maintenance or just ongoing maintenance. A lot of your listeners might know that the letters going to ask for those repairs so that keeps you from having, you know, it's that routine maintenance and ongoing maintenance that you have to do with your property to ensure that you're not just like waiting for some big insurance claim to happen to put money back in the property. So, in a sense, the lenders forcing you to make sure you keep up with your property.

James:  Got it. So you self manage your own property and you started from quads and duplexes, is that right?

Jason:  Correct, yes.

James:  Right. So what do you think is an advantage to self manage? And what's the disadvantage of self-managing this larger apartment complexes where you're buying a 200 and 100 units right now?

Jason:  I mean, I think I'll start with the disadvantages, I think the disadvantage is that you're at some level, you're always involved with managing employees; so you deal with those people, you're dealing with tenants and their problems. And now, you know, at our level, where I've got a number of employees, I don't have to really get involved with the tenant level too much anymore. But that sort of the problem is that you're going to find yourself in the mix and dealing with situations too close to home. And so if you're a passive investor, you're just getting a return on your money. So when you self manages, you're earning that kind of, like, extra return that you get.

But the advantage of self-managing, I think, you can control the property better. You have a better handle on what's going on because you're right at the front lines. I think, with a lot of syndicators, at least, well, even people that have smaller portfolios, and if they tried to get a third party manager, that's the hardest part of the business is finding a quality, third party management. And I think if, you know, somebody said it once, and it's not entirely true but somebody said to me once that no one's ever going to manage it, as well as the owner. And I feel like if you have your skin in the game, you know, if you self manage it, you're going to make sure things go right.

Like the idea that I jumped out, try to fill 16 units when I was between property managers were, if that was with a third-party manager, well, right, and I can manage my property manager and say, hey look, you got to be refreshing the ads every day on apartments.com. I need you to track your leads and follow up with people. And you can control the process to make sure that you're at the occupancy level that you want, making sure that your maintenance calls are being followed up on. But that is a little bit of a headache, but at the same point, you know that you learn that. I mean, if you self managed, you're getting typically in a syndication, you're going to have the property management fee, the asset management fee. So yes, it's work, but it's extra income. And if it's something you enjoy doing, you know, leading a team of people to manage the property, it can be a lot of fun and rewarding, too.

James:  Yeah, it's very rewarding, because now you're doing the whole pipeline end to end and how are you controlling a deal. So let's go back to a bit more personal stuff, right? What do you think is like the top three things that are your secret sauce to your success?

Jason:  Okay. Let's say one would be not giving up, just always maintaining a positive attitude. That sounds so simple, but I mean, there are literally things every day, as you know, in this business that make you question like, why am I doing this? Why am I still, this is driving me nuts. And so I just think, you know, always keeping that positive attitude, because what you focus on expands. And if you're focused on the negative, then all you're going to see is the negative. And so, but it's true in any business, not just apartments, so that's one thing.

Number two, I've had a lot of success with getting off market deals, whether it's been the 205 unit or a duplex when I was starting out. You know, just really see the value of building a relationship with sellers, building relationships with brokers and so it's that relationship building, where just trying to take a genuine interest in other people become friends with them. And you know, hey, someday down the line, we may do business, and it always seems to come back in spades, later on. So that's probably like, the second thing I think I'm pretty good at.

And the third thing is just, knowing what's a good deal and being able to pull the trigger, not overanalyze too much. I know a lot of times you get stuck in the weeds, and it shows the underwriting and things like that, where you just spend too much time dealing with, you know, just analyzing, not pulling the trigger. So that could be a fall at times but I think that's worked in terms of being able to take down properties and just make a decision and move forward. But knowing when to pull back and knowing once you know, when things aren't right.

James:  Yes, interesting. And why do you do what you're doing every day?

Jason:  Yes, I mean, as I said, earlier, I started out I was 23 years old, I wanted to be a millionaire, that was great early on. Well, at some point, it became the ability to be free of a job and not that for its own sake, but to be around for my family and friends. And so many people slave away on a day job and die young, because they traded their time for money. So evolved into that and really now I feel like creating better properties in our city, helping improve our area, providing valid and quality employment on a scale to people that are looking for work. You know, being able to get to have that freedom to spend with my family and again, being able to live a large and rich life of being able to give back to others and using our platform or the money we make, to make a better world for other people and give back.

James:  Very noble means. And is there a proud moment in your whole real estate career that you think I'm really, really proud of a thing that you did and that's something that you can never forget?

Jason:  You know, the easy answers probably always, like the most recent deal, you know, dealt. I think that, for me, probably one of the proudest moments, just being able to walk away from the day job. You know that was, I was making a really good income. And there's probably a four or five year period there, where I just kept saying, I'm going to leave my job, I'm going to leave my job. And I just finally got the courage to be able to, like walk away and have that confidence in myself that I can do this and have it be sustainable living. I just, you know, for whatever reason, was probably full of more self-doubt that I needed to so just being able to just kind of like barrel forward and do it, I was really proud of that moment.

James:  Yes, that follows you until the end, but it's memories so awesome. And I think that's what we have Jason, why don't you tell our audience on how they can get in touch with you and where's the best place to reach you?

Jason:  Sure. If anybody wants to get on my calendar and have a chat, they can find me on LinkedIn, Jason Pero. They can find me on Facebook as well. If you want to have a chance to get my email, [email protected] and then my cell phone. I can get that out as well, too.

James:  Okay. You don't have to give it out on the podcast.

Jason: Okay.

James:  But yeah, it's up to you. Okay, so awesome. Thank you very much for joining us, Jason. I really enjoyed learning about the Pennsylvania market and how did you grow from quads and duplexes to like almost 900 units right now, under management and I did learn a lot and I'm sure my audience will too. Thank you very much.

Jason:  Thank you, James.

James: Hey, audience and listeners, this is James Kandasamy from Achieve Wealth Podcast where we focus a lot on value-add, commercial real estate investing and we usually talk to commercial real estate operators who have been very active buying deals nowadays. 

Today, I have Brian Murray. So if you have not heard about Brian Murray, he's the author of the best-selling and award-winning book: Crushing It in Apartments and Commercial Real Estate. And he owns almost 700 units right now on his own and I think out of 700, 600 of it is apartments and 100 units are on office sites.

Hey, Brian, welcome to the show. 

Brian: I'm really happy to be here, James. Thanks for having me.

James: Really happy to have you here. And so tell me about, how did you go from 0 to 600 multifamily 0 to 700 asset classes on your own without syndication?  

Brian: Yeah, well, you know, I started 12 years ago and I'm located in Upstate New York. That's quite a bit different market than New York City. But my first property was an office building and it was a distressed office building and from that very first deal, I did a lot of value-adds. Frankly, I really didn't know what I was doing, I was kind of figuring stuff out as I went along but I progressively made that property perform better over a couple of years and added a ton of value. On that deal, I assumed the mortgage and on my second deal, I did an owner/finance situation. It was another property that was half full, I filled it up and refinanced out of both of those and bought three more properties and followed that path the entire way. Which is find well-located properties that were not well managed or had some other large value-add component, exercise that value add and then refinance, take cash out and buy more properties. And that's the exact path that I followed to get to where I'm at today.

James: That's crazy, which is good. I mean, that's the model that, I mean, it's an absolute value-add model, which is basically the theme of this podcast. And so did you buy and then improve it and then refinance the money out or did you sell it and I didn't get that far, can you clarify that?

Brian: Yeah. So I refinance the money out. I am primarily buying hold, still to this day. But especially in the first 10 years, I think I sold one or two properties, smaller properties, for the most part, during that time. I am selling some of my smaller properties right now to redeploy those funds into larger properties, but my strategy has really been buying hold.

James: Awesome. Awesome. So before we go further, I want to clarify about your book, Crushing It. I mean, I remember asking this question to you when we met face-to-face. So did Gary take the 'Crushing' name from you or you took it from him? Which one is that? 

Brian: You know, so his book, Crushing It, came out about a year after mine but he launched a book called Crush It prior to when mine came out. But he took the Crushing It and you know, but that's fine. It doesn't matter. It's all good. 

James: Well, it must be a good name because both of you are like a best seller, you know, in your own domain. So awesome. So right now what's your plan? I mean you own this many units on your own and what's your plan right now? 

Brian: So right now, I'm really focused on diversifying. I was really excited to do my first Mastermind, which was last year, which is how you and I met and I met some great people at that Mastermind and highly recommend that to other people; surround yourself with other folks that are doing what you're doing. But when I went off to this Mastermind, it was really eye-opening for me because pretty much everybody there was doing syndication and it was a model that was really new for me and I just learned a ton about what people were doing. 

And my model has worked great for me up to this point, but I've reached a size, we're growing purely organically. It's becoming more challenging to maintain that pace of growth. I think also with valuations at a higher point, it's more and more challenging each year to pull that much value-add out with refis. I think another factor that's come into play is I've been very, very dedicated to putting every dollar that I've earned back into my real estate. That's been a been a big part of how I've done what I've done is to continuously reinvest back in. As a result of that, to this point, I've been living fairly frugally and you know at a certain point, you want to not have to put every dollar back in but you know, to maintain that growth rate, I've got to look at other options.

I also want to diversify geographically because most of my properties are in one location. And so I'm in the middle of my first syndication right now and I've met so many good people that now, I'm developing partners and looking at new markets and it's very exciting for me. I love to learn, I love to try new things and getting into these other markets and, you know, meeting accomplished people like yourself, it's very motivating. So I'm just super excited about it. 

James: Yeah, it's eye-opening when you go and talk to different people who are doing the same level as you are doing much more higher level because you can see a lot of different thought processes and how people do things.

So why are you moving towards syndication? I mean, you own like so many units on your own, can you go into a bit more detail on why do you think syndication is going to be beneficial for you right now in this market cycle as well or on your investment side? 

Brian: Well, you know syndication, it does open up a lot more opportunities in terms of size. So for example, right now, I'm looking very closely at an apartment complex that's approximately 300 units. It's in a market that's new for me that I've been doing a lot of research on and that would be a real challenge to try to pull off on my own. It really wouldn't be possible right now.

So the property that I've purchased strictly on my own, without raising any outside money, I did last year, it was 126 units and you know to try to purchase something that's 300 plus units that wouldn't be possible for me right now. So it's pretty exciting and I think another thing is I really enjoy working with the idea of doing some projects with partners and getting into some of these new markets. So, there's another piece of it that's kind of exciting is, I've reached a point where I've done pretty well for myself and the idea of helping other investors who want to put their money to work to achieve their goals, I think that's going to be rewarding too. That if a project does really well that, it's all those limited partners that come in that can then improve their lives through their investment as well. And if I can be a part of that, I think I'll find that very rewarding. 

James: Okay, that's awesome. So scalability is important and you think of helping others as well to make money, especially I think other investors or other GPs who needs your skills, I would say?

Brian:  Yeah, absolutely. Yeah, and that's one of the things that's great too is I've found that it's meeting these other people that are doing it, I've got a different experience. So just like I'm learning from people like you, I'm finding that partners I can bring some different perspectives and value to the table as well. So you always want to partner with people that have strengths in areas that are different from you and that's what makes a strong team.

James: Absolutely, especially in commercial real estate because the number of knobs that you can tune, there are so many knobs and especially like in multifamily because it's very management intensive compared to the triple net, other commercial properties. Multi-family is very management intensive and it gives a lot of ways to make more money or to scale down or to scale up. Even though you'd be really, really skilled at that but it just gives you a lot more opportunity. And the lease is one year term or six months term; you can quickly raise or reduce rents, it gives you a lot more fungibility, I would say. I mean, you have like SAS, we talked, in the beginning. You have like 600 units multifamily and 100 office space?

Brian: Yes. 

James: So can we go a bit more detail into the office? What kind of office is it and how did you strategically balance within the 600 and 100 office? Is it optimistic or what did you see and why did you do it? 

Brian: So I started off with the office and actually, my second property was retail and so, starting on that commercial side was really interesting. I think one of the things that did for me is really emphasized my focus on customer service and customer care with tenants. And when I tried my first multifamily, I think that there were differences but they're also a lot of similarities. So the value-added approach that I was taking to office retail worked just as well with multifamily. And our focus on really taking care of our tenants as our customers really served us really well in that area also. Over time, as recently as two or three years ago, we had reached a point where up to that point we had more office and Retail and then about two years ago, I would say, we were 50/50 and now we're closer to two thirds, maybe even 70% multifamily with the rest commercial in terms of the makeup of our portfolio.

So as time went by, we've really gravitated toward multifamily and that's our 100% focus right now. I think the biggest thing is that there's a number of things we like about multi-family. From our experience with commercial, you've always got a little bit more risk because you tend to have, not always, but you often will have tenants that comprise a disproportionately large percentage of your income and that can leave you really vulnerable if somebody leaves.

So, on more than one occasion, we've had a commercial property where someone that takes up more than half of the space in that property, leaves unexpectedly. And then you've got with one tenant leaving, you have a property that is negative cash flow. And if you don't have a portfolio in place to support that, that can be devastating and it's really not fun even if you have a portfolio to perform it. And then when you go to backfill that space, it's more challenging in commercial properties because you oftentimes have to find the exact right tenant for that space, for that location, for the tenant mix and the property, for the configuration of the floor plan. There's a lot of things that you know, different commercial tenants are looking for.

 If you just adjust the rents up and down or maybe offer some concessions, a lot of times, the market doesn't immediately react to that. So turning that dial like you do in multifamily, you have less control. So if you're looking for a particular type of commercial tenant, it could be, it's not unusual for us to sit on a vacant space for one two or more years before the right tenant comes along and fits in and takes that space. With multifamily, you've got those dials that you can turn and say, Hey, you know, we're going to run a special. We're going to bump rents, we're going to drop rents and you usually will see a pretty quick reaction from the market to the changes that you make and from my perspective, that's better.

 You always want to have more control and the ability to adjust with your market, adjust to combat your competition and different things like that. And frankly, we've enjoyed working with the tenants. I think there's a perception out there that a lot of people would love to invest in commercial because they think they have this idea that working with white collar tenants would be much better, wouldn't have the problems but in our experience, they can be more challenging. They can be more demanding and sometimes even unreasonable with what they're looking for and you don't usually find that as much with the residential tenants in multifamily. We do primarily workforce housing and the people that we deal with there, tend to be good down to earth people and reasonable. So we appreciate that. 

James: And when you talk about office, this is the normal office tenants, I guess? 

Brian: Yeah full-spectrum, mostly professional tenants. We've got plenty of medical tenants. We have lawyers, accountants, all types, we've got not-for-profit offices, engineers and architects that would pretty much any type of white-collar professionals.

James: Got it. That's very interesting. So when was the aha moment that, hey, I should do multifamily because you are focusing a lot on office, what was that triggering moment where you say, okay, I may need to look at this multi-family?

Brian:  Well, I don't know if there was a specific moment. I think it happened gradually over time. When we had about 50/50 multifamily and Commercial, I think one of the big things was watching the performance of the two halves of the portfolio and seeing which half was performing better and part of it had to do with the types of value-add projects we were finding and I thought we were better able to execute on the value-adds on the multifamily side. And that portion of our portfolio just kept outperforming the commercial side and I just saw in the market that we're in, more opportunity there and I felt like it was more stable income based. So, I think I think it just happened gradually over time and you kind of tend to slowly move in the direction that's performing well and where the needs are in your Marketplace.

James:  Got it. So all the deals that you have done on multifamily, how did you choose? I mean all these deals are in Upstate, New York, is that right?

Brian: Yes.

James: So you may not choose the city because that's where you live, the area. But how did you select the submarket? Okay, this deal is good in this submarket, what are the parameters that you looked at When you look at a deal in multi-family?

Brian: So, we have a really close familiarity with the subtleties of the market and so it's fairly nuanced like there's not one overarching thing. One of the primary drivers of the market where we are is not that far away is a fairly large military base. And so one of the factors that we look at is,

well, we definitely welcome military tenants, we have shied away from the properties that are closer to the military base and tend to have a really high percentage of military population. That's just because there's so much turnover, lenders are less excited about lending those properties because they know that long-term, there could be downsizing. A base could close, there's exposure with that.

So we have gravitated within our region to the areas that are maybe we will have some military but not be all military and into the communities where people want to live, in the parts of the city that we feel are strong and good safe locations and convenient locations for the major employers in the area.

James: Got it. Got it. And on average right now, what is the price per door in that market? Because I never talk to anybody from New York who's buying multifamily. I mean, Upstate, New York,  New York City, but in general, can you give us some guideline on price per door? What cap rated stabilize deals are being bought right now?

Brian: Yes, absolutely. So it's a really, really wide range. So that's what I would say at first. The most recent stabilized property that we purchased we paid about 60,000 a door. There are properties selling in the area, 80,000 plus per door, not that often but a lot of the properties we've got, we've purchased a couple of decent sized properties at auction. We've purchased a lot of distressed properties. 

The 126 units that we purchased last year, we paid in the 40s per door and that's pretty low for this area actually, but also the occupancy was below 60% when we bought it and it had a lot of deferred maintenance. So I do feel like we got a fair deal and a good deal on that because there was so much upside but there was a reason that it was priced that low. And so you can come along properties in this area that have low price point sometimes even down into the 30s per door, but usually, there's a reason why they might be in severe distress. But for stabilized properties, I think you're mostly looking at maybe 50 to 70 a door. 

James: Okay. You also mentioned that you're looking at other markets now? 

Brian: Yes.

James: And why is that and what're your criteria to look for in other markets? 

Brian: So the number one reason is really a risk management type of approach. Where anybody who's come in and taken a close look at our business and one point even a few years back, I had some graduate students come in and they analyzed it and everybody said, hey, you're kind of crazy. You've got all your properties concentrated right here in this one city and now they're all within maybe half an hour drive of that City and there's a lot of risks involved to that.  

So if that City that I focused on starts to decline or say that military base that's not that far away, if they downsize then that all affects my portfolio. So I've known for a long time that it would be wise to diversify geographically and it's time to do that. Another factor is frankly, this is not a huge City. It's not a big area that I'm in and we've got limited opportunities for growth here. There's a limited number of properties that come onto the market and realistically, it's time for us to look to other places. So it's a variety of things.

James: So let's say you're looking at a new city, a city A and a city B, what do you look for in that city that you think is going to be appealing to you? 

Brian: Well, I think there's a variety of different factors. Probably the number one thing that makes the city appealing is job growth, job creation. Being located in Upstate New York, it's not a strong area for job growth. There are pros and cons to being in a market that's undesirable. So I have less competition. I can buy things at much higher cap rates and I can get properties to cash flow better if I have less competition and higher cap rates.

So, there's sometimes you can look at it and say, hey, if you're in a market that's less desirable, sometimes you're getting properties at a great deal and there's something to be said for that. But as I look to new markets, I'm trying to find something where cap rates haven't dropped too far and you can get a reasonable return but you've got that benefit of healthy growth in population and jobs.

But I think because I'm looking for more geographic to looking for a market that's going to show more stability, it's on an uptrend and just like any other place, no matter what market I'm looking at, I've realized over time just how critical the specific location with any city is.

 So almost any City has their good parts and the bad parts and so you could take any market that you choose and break it down into all different, more and less appealing locations. And so, I wouldn't just throw and say, hey, this one city is great, even though the population is growing and you and I talked about a property not that long ago that you are familiar with the location and you very wisely were like, oh, that's not the right deal. It might be a good city, but that's not the right part of the city.

James: Correct. So, I mean, you are sitting in Upstate New York, you looked at the entire nation. Can you give us the top three cities that you think that you want to delve in?

 

James: Brian, so you are sitting in Upstate New York, and you looked at the entire nation, you know how multifamily works because you own 600 on your own. So you just briefly outline what are the things that you look for in a city. So can you name like top three cities that you think that you want to be involved in that you think has a strong growth story? 

Brian: Well, it's a work in progress for sure. And what I would say is sort of the candidates that I've narrowed it down to the commonality would be they tend to be the places that people are migrating to and being in Upstate New York where a lot of people are leaving the area, I want to look toward the places they're going.

          And so, primarily in the Southeast, pretty much our candidates or everything from starting in probably North Carolina going down to Florida and you know all the way over to maybe the little bit in Texas, but I think Georgia is an interesting market that a lot of people are pursuing. I'm partnering on a project in Kentucky right now and we're looking at North Carolina and there are some very attractive markets in Florida as well. 

James: Got it. Got it. Got it. Before I want to go into the deal level analysis that you do,

I want to quickly ask this question because you know, it's very unique to you because you had your own deals and now you're going into syndication, right? So what do you think are the skills needed from yourself when you are having your own deals, where you can skip a distribution or whatever happened to the deal is your own problem. So now you're going into syndication, where it involves a lot more people. What do you think is a few skills that syndicators need to be successful in syndication?

Brian: Sure. I mean I would say start a start with one of the big ones which is something that I don't have, which is an investor base and that's a whole job unto itself. Over the years doing what I've been doing and getting some acknowledgments for that, I had a lot of people approach me over the years and say, hey, you know, can I invest and I never took them up on that and now I'm doing that. But what I've realized is in getting to know all these folks that are out there that there's a lot of people who are interested in partnering with me who already have those investor bases and have that skill set of managing those investors and taking care of all aspects of that. 

So at this point, I'm primarily thinking that I bring more value in the weighing on the underwriting and the property and identifying all the value-add opportunities and making sure that people look at it as more than a spreadsheet because there's so much more. I toured a property last week and was able to uncover quite a few things. The broker that was there. I was one of the last people, they had about 40 tours and I came through and identified some significant value-add opportunities that the broker said no one else picked up on. And I think that that's something I didn't discuss but we've managed all of our own properties that whole time and so, the knowledge that you get from that just brings so much better of analysis to a deal to make sure you're vetting it properly, you're not overpaying, you're also not underpaying and that there might be value there that you're not realizing. That some of the assumptions that you're making for rent growth are real and can actually be feasible for implementation.

And so, you know, those are some of the things that I bring and the experience and having the portfolio I have may give lenders a lot of comfort. And so, I'm recognizing that, hey, I could focus on my strengths and bring some things to a partnership and take those areas that I don't have and other people might and partner up. So if someone's going to do it on their own, they've got to have a pretty broad skill set and that's a challenge, to have the operational knowledge and bring that side and also have the people skills and the investor relationships, it's not easy. I have a lot of respect for people that are doing it all.

James: Absolutely. So you are two operators, where you underwrite deals, you understand the operation and you're doing your own asset management. You're missing the investor base creation side of it, which I think you are either partnering or slowly building that up so which is awesome. For me, the operators are at the top of the food chain because they are the backbone of the whole deal. They know what's happening in terms of the rents, how many percents of rent increase is happening on each unit? How many units are being turned? What is the make ready period, what's the delinquency? What is the idling unit period? That's a lot of parameters in the multi-family operation which can be optimized and if you know that very well, your underwriting can be very, very solid, I would say.

 Brian: And I think you also bring a reality check. I think that the folks that are operating in the syndication space that don't have as much operating experience, it's easy to look at numbers and assumptions in a spreadsheet and it's challenging to actually recognize what that means in terms of the actual human beings who are there living in the apartments, what it means for the contractors and the property managers and whether what you're assuming is even practical. I look at a spreadsheet and I'm looking at it realizing, hey, you know, I looked at it once a day and I told somebody I'm like, do you understand how much drama will be involved in this?

So if you haven't done that you don't know. And sometimes that translates into you might need to maybe tone back your rent growth or you might need to say, hey, maybe we implement something like this over time so that we don't have an all-out rebellion on our hands. So, you know, it's a challenge to bring all those things to the table.

James: Yeah, I've seen people who come to me, you know, first few deals and say, oh, this is all bills paid, I'm just going to change it to tenant pay bills. I say, well, that's easy. We can see the value. Well, you do not know how much drama you're going to have there and you might not able to do that on a specific property, a specific location.

And they say they want to do them; Utility Bill back, they want to increase the rent, they want to charge covered parking, they want to do laundry increase. So many things they want to do at the same time and I can tell you, they don't have the experience actually. But the thing is, a lot of people have been making money even without all the skills. And I always tell them everybody's a champion in a bull market. 

Brian: Exactly, yes. A rising tide lifts all ships, right? 

James: Correct. So, people may not look at that skill more in detail or give due consideration to that type of skills where the operation is important, but I think it's important if you want to sustain good rent growth across different market cycles. So coming back to underwriting. So right now you are looking at deals, how many percents of deals do you reject immediately by just looking at it? 

Brian: Wow, I would say well over 90%. 

James: Okay. So the 10% that you have or what do you look for in that 10%? What do you do? What are the steps that you take to look at that 10%?

Brian: You know, I think the very, very first thing I do is I look at the T12. I want to start my analysis of a property by looking at actuals. And then I'm going to base the current situation and the actuals, going to kind of weigh that against my own experience. So, how does the target asking price or the whisper price or whatever they have, how does that compare to the actuals?           And then based on my experience looking through those actuals, what do I see that jumps out at me that might create value? And if you look down through and start looking at the comps and really piecing together this puzzle about, what opportunity is really here? Is the valuation based on something that's completely unrealistic? A lot of times, you'll recognize that some brokers are way better than others at doing a realistic model and pro forma and that's much appreciated. Because you see too many where they'll say, oh, you know, the labor is going to be whatever, $300 a door, and you know, hey, that's crazy. Like it should be 1100 a door or 1000 a door in that market and you know, you'll find out that well, it's been managed by the owner and they don't track the labor.

But if you see that it's based on the labor is $2000 a door and you know, hey, we could get that to 900 realistically and still do a good job of maintaining that property, then you start to see an opportunity. It's a combination of running numbers and logical analysis based on experience, is really what I would say it boils down to.

James: So in a new market, how would you determine payroll and [12:09unintelligible] on property taxes because this differs by market?

Brian: Sure. So all those things are going to vary by market, although many of them will fall within a range. So you're going to say, well, in that market it's going to tend to be higher or lower and I will use my best judgment but if it passes a certain level of scrutiny, that's when you want to really get an established reputable local property manager involved who could look at it and say, okay, for this market specifically, these assumptions you've made are realistic or not realistic. The same thing goes with construction costs they could vary and I can look at it and say, I think that new flooring should be this much but hey, maybe in that market, flooring is much more expensive or maybe it's a lot cheaper. So, you know it's going to be within a certain range, but you just need to figure out how you need to tweak it to get to that market. 

James: Got it Got it. Got it. I mean since you have your own property management in your own backyard and now I presume you looking at third partying your property management in this new market, is that correct? 

Brian: That's correct. 

James: So, what would you think is the most important factor to look at that third party property management company?

Brian: Well, at this point, I would say yes, we're relying on third-party property managers. We may eventually consider expanding into new markets or operations, but not doing that right now and evaluating the property managers, it's been a very interesting process. I think you need to look at the full picture. I don't think there's any one thing you can look at. For a project that we're underwriting right now, in evaluating the various property managers, of course, we weigh referrals, you know, that's always good to hear referrals but I think one of the things that are appealing about the property manager that we ended up selecting for this project that we're pursuing is they actually specialize in this specific type of property that we're looking at. So, they have a track record and experience of nearly 10,000 units that are specifically C-Class properties that they've done value-add and executed those successfully. And a fair percentage of those are in the specific market that we're looking at and so there's a lot of things that just lined up. I think if I had to pick the one thing from my interaction with this firm because they toured the property with me as well, but I actually was very impressed with their analysis of our underwriting.

They actually went through our assumptions and they toured the property on their own before I got there and gave us their own analysis and without us asking, they also toured the comps and gave us some feedback on that. I was impressed. You could tell that they went out of their way to look at the right things. They looked at the types of things that I would look at and they identified things and based on that write-up, I just said, hey, this is a firm that's experienced. They get it. They did a thorough job. They were professional, they were responsive and you know, it really checked a lot of boxes in terms of giving us an overall sense of comfort with the possibility of working with them.

James: Awesome. Awesome. Let's go to a bit more on the value-add side because you have done a lot of value-adds because you buy refi and keep it more long-term. So what is the most valuable value-add multifamily from your experience? 

Brian: I would say that the most valuable is it's different for almost every property. If I had to pick, you know, I think that sort of the Big Bang low-hanging fruit tends to be the, I'd say, clean paint landscape, kind of like the surface stuff. If a property is dirty and not well kept and then you make it clean and you put a fresh coat of paint and you landscape it, it can change the entire image of property of fairly modest cost and that can have a huge impact. The rent adjustment is sort of obvious, I think everybody looks at that. I guess big picture if the landlord is way undercharging, of course, you know, that's an obvious big easy one, but one thing that we've ended up doing in a number of cases that is less obvious that people almost never talk about is lowering rents. And in the 126 unit that I mentioned earlier, that's under distress, that's the first thing that we did is we went in and by our assessment, they were trying to charge too much which was a major factor in why the occupancy was so low.

 So we immediately went in and cut all the rents and that might seem counterintuitive for a value-add person but over the last six months, we've raised the occupancy 25% and one of the big reasons is we lower the rents and so the net change in terms of the net operating income of that property it skyrocketed by lowering rents. So that also further demonstrates that it really varies, you kind of have to you know. It's sort of like if you look at five different people and say, you know, what change would you make in each person to improve their overall wellness? For some people, they might say stop smoking and some people might say, well, that one needs to eat better so you can't kind of really say well, what's the one thing overall?

 James: How did you decide to lower the rent? What was the data that you looked at and decide, okay, I just need to reduce the rent here? 

Brian: Well, you know, that's one of the fantastic things when you've got so many properties in one market. You know immediately that based on your other operations that something's off. You know when it's low, you know when it's high, you know when the fees don't match what's present in that market or the concessions don't match. 

It becomes very simple. If you're going into a new market, you've got to study those comps and do the best you can and hopefully, tour those comps and do your own homework. But it's one of many advantages of having a concentration of properties in one area. In addition to all the many operational efficiencies that you can have is that you have that market specific knowledge

that is there's no substitute for. 

James: Got it. Got it. So when you decide to lower the rent, I mean it is a counter-intuitive but I think it makes sense in value-add, especially when you go with that kind of low occupancy. You need to do something to bring up the occupancy because once you bring up the occupancy, you can do a lot of other things.

Brian: Exactly.

James: You can't do it when the occupancy is low and you're adamant about pushing up the rent. So was your thought process, rather than I leave this unit vacant, that's the biggest loss compared to giving [19:48inaudible] $25 or $30 increase that doesn't make sense. 

Brian: Yes. That's right. So, you know that's been one of the strategies that I've adhered to and has worked well; you lower the rents and lease it up and then you make improvements as you go and then you raise rents from there. Nothing more expensive than vacant space. The other piece of that which is an advantage of not syndicating is that I have been able in many cases to fund many of the improvements out of cash flow.

So with this particular property, we did lower the rents, but the occupancy has been brought way up. So we've just crossed a threshold where now this property is cash flowing again and all that cash flow is going to be directed right back into making improvements, probably, for the next few years at least. And so, that's a perfect example of well, if you're going to syndicate and you need to pay investors, you really can't be investing all of your cash flow back into a property. 

So what do you need to do? You need to raise some money up front to pay for those improvements and not count on cash flow so that you can achieve your investor returns and start to get them their money back. 

James: Yeah. That's the one thing different with syndicated deal versus owning your own deals. You don't have to raise so much money so you can take your cash flow and just put it back. With a syndication [21:27crosstalk/inaudible] and you may lose deals because you're competing with somebody who has a lot of money versus somebody who is syndicating. 

Brian: That's right.

James: It's very interesting. So in terms of, I'm going to your personal side, is there a proud moment in your life or not in your life, toward your real estate career, that you think, I would remember that moment throughout my life until the end; can you describe that moment? 

Brian: Oh, wow, you know there's been so many moments, but not all good. 

James: No, no, the proudest moment where you think you really made a big impact on something. 

Brian: I never really expected this but some of the proudest moments that I've had has been since my book came out and I would have never guessed that that would lead to that but some of the feedback that I've gotten from readers that they've shared with me that it's changed their lives that they started into investing and have already built portfolios. And to see the direct link between the book and people, you know, really making improvements in their lives has been extremely rewarding.

So I think one of the great things is that I really went into the idea of writing the book just because I wanted to share what I've learned, the mistakes I've made and to help other people, but I never really thought that it would sell very many copies or that people would have that kind of effect and the fact that it did. When I get a letter, a note from somebody, it's been extremely rewarding. So now I kind of remember that I think that's been a big impact. 

James: Yeah. It's interesting. I mean, I get a lot of notes from my books as well and sometimes you don't really take it seriously because for us it's just common knowledge from what we have learned. But some notes do make us think, oh, I really really made an impact on someone. I mean, it's mind-blowing in how many lives can be changed with the things that you share in a book. 

Brian: Right, right. Yeah. Absolutely. 

James: Yeah. So the next second question is why do you do what you're doing?

Brian: Well. You know and it's interesting. I mean actually, in the book I share at one point, this was a few years back, I had somebody come up to me and they said you know, how much is enough? Like you are so greedy, why do you keep going? And I just realized that this person doesn't understand, they missed the whole point that it's just rewarding to take a property that's not performing, that's in distress, that's maybe even a bad thing in a community and to turn it around and make it a better place for people to live. You help the tenants and you help the community and to do that and start to get involved. Like I do meetups now and I met new people and threw those in the book to help other investors, and so, you know, I look forward to going to work every day. I enjoy it. I enjoy the challenge of finding and executing on properties that aren't achieving up to their potential and making a better place for people to live and more profitable at the same time. So I just think it's fun. Like I enjoy what I do. 

James: Yeah, it's like a discovery, you're trying to discover these from your paper to the real stuff. Especially when you are underwriting because you're assuming a lot of things and how does that whole assumption become a reality? You know, it's very interesting to see the output of that become [25:42inaudible] people's lives, which is just...

Brian: Absolutely.

James: So we really had a really good knowledge box from you, Brian. So can you tell our listeners and audience how to get hold of you? 

Brian: Sure, you know, your listeners can find me on Facebook. You can find me on LinkedIn, you know, you can find the book on amazon.com or on the book website is crushingit.info and my company's website is Washingtonstreetproperties.com 

And if anybody is interested in reaching out, I'd be glad to hear from them. 

James: Awesome, Brian. Thank you for coming and joining us. I think that's it. Thank you. 

Brian: Thanks, James, was an honor.

James:  Hi listeners and audience, this is James Kandasamy from Achieve Wealth Through Value-add Real Estate Investing Podcast. Today, we have Brian Hamrick. Brian owns 370 units which 2/3 of it is syndicated, the remaining is owned by him. He's from Grand Rapids, Michigan. He does multifamily, self-storage and also non-performing notes and Brian is also the past president of Rental Properties Owner Association. 

Hey, Brian, welcome to the show. 

Brian: Hey, James, great to be here. Thanks for having me. 

James: I'm really happy to have you here. I mean, you have been podcasting for the past three years.

You have a really good audience because I remember after showing up on your podcast, a lot of people did contact me. So I'm sure a lot of people love your podcast as well. 

Brian: That's fantastic. I'm glad to hear that. 

James: Yes. So can we go a bit more detailed into what is this Rental Properties Owners Association, how do they add value to syndicators or landlords or tenants? Can you describe a bit more on that?

Brian: Sure, the Rental Property Owners Association, which I'm a past president of, I'm currently on the executive committee and I sit on a number of different committees, they are a landlord representation organization. 

So we also work a lot with Real Estate Investors and provide all kinds of training for both landlords and Real Estate Investors. Every year, we have an annual conference where we have National Speakers come in and talk about all different types of investing asset classes and whatnot. And really I got involved with it because when I moved here to Grand Rapids, 15 years ago, I was looking for a professional organization that I could become part of that would help me network with other professionals in the industry. People who own rental properties and knew how to profit from it and also just an organization that would help teach best practices so I could learn the ropes how to do it and certainly through the Rental Property Owners Association and the people I've met there, I've learned a lot. 

We provide a lot of training but probably what I consider most important of all is we have a legislative committee that works with lawmakers, both local and at the state level, to help push through bills that help rental property owners and also help prevent bills from becoming a reality that would hurt us; anything that has to do with like rent control or some of those hot button issues that as landlords and rental property owners would like to avoid. 

James: Yeah, very interesting. So like New York and I think, Oregon now is rent control states, if I'm not mistaken, so they probably have similar Association like yours in that city, I guess.

Brian: I would hope so. It sounds like they're fighting a losing battle as you and I both know as rental property owners, you know, I believe you invest out of state, out of your area, is that correct? 

James: No. No, I'm from Austin. I invest everything in Austin and San Antonio.

Brian: Okay. So would you even consider investing in a city or a state that has rent control? 

James: No. Of course not. 

Brian: Yeah. It's really detrimental to the market and I think it's going to cause a lot of problems. I used to live in Santa Monica, California where they had rent control and you can see the negative results of that.

James: Oh, Santa Monica in California, did they have rent control in the past? 

Brian: Yeah, a lot of the Los Angeles counties, you know, it's kind of county by county, city by city, area by area, but there is rent control in Los Angeles in certain areas and you can just see how rental property owners, who own buildings in rent control areas, have no incentive to put money back into them. They're not putting the capital expenditures back into their property to keep them in good shape because there's no incentive to do so. They can't raise rents beyond a certain amount each year and you know, so why would you invest $100,000 back into your building if you're not going to get that out in value?

James: Yeah. Yeah. It doesn't make sense for a business. So you may not run it as a business, you may be just run it as cash flow, I don't know, it's like a cash flow investment. I guess you don't have to spend any capital on it. 

Brian: I can see how if you've owned the property for a long time and you bought it at the right price at the right time, you could probably be doing well with cash flow. But in these markets where you see a lot of rent control, they're expensive markets. So I'm not really sure once rent control is instituted in these markets what's going to incentivize new investors to come in and bring fresh money into the market.

James: Interesting interesting. So coming back to your portfolio, can you tell me in terms of your holdings, how much is multifamily, how much is self-storage? How many percents of each one of these and how much is non-performing notes? 

Brian: Sure. Sure. So multi-family is my bread and butter. I've been doing that since 2008. I moved to Grand Rapids in 2005 and 2008 the bubble burst, you know, we entered the Great Recession, it was a buyers' market. I bought my first 12 unit, I was using my own money in the beginning, started using other people's money and then started syndicating. 

We currently have about 370 units here in the Grand Rapids area, Grand Rapids, Michigan and that's multi-family residential. In 2018 we purchased a self-storage facility, it's about 28,000 square foot, we're currently adding another 15,000 square foot to it and that's been a fantastic investment, I really love self-storage. And then, as you mentioned, I host a podcast - The Rental Property Owner and Real Estate Investor Podcast - and one of my guests over two years ago was a gentleman by the name of Gene Chandler and he was investing in non-performing notes and I really liked his strategy so much that I ended up investing well over 300,000 dollars with them and the results have just been fantastic. 

James: So, you now do multifamily and now you're doing two other asset class. So can you tell me what does multifamily did not offer that these two other asset class offers?

Brian: Well, I like you, I'm investing in my own backyard for when it comes to multifamily. Even though I've bought and sold over 450 units, in 2015, I stopped buying multifamily altogether because the values had gone to a point where I could no longer justify syndication. I couldn't get the returns that I needed for my investors to be able to to pay the prices that people were asking. The last two deals I found - one was off-market, one was kind of in between market - and I can go into details on that but anything that I saw after that point just, I was so spoiled by the prices I was getting between 2008-2014, that I started looking for other asset classes. 

And there were probably about 3 years where I just sat on the fence, waiting to see if the market would change or something else would come along. And at some point, one of the people who I met through the podcast, brought me a self-storage deal that he had found off-market. I looked at it, I like the numbers. His underwriting was very conservative, but the numbers were very compelling and we ended up buying that in 2018. And just in one year of basically bringing the rents up to market value and switching to a virtual online web-based management system, we were able to add over $700,000 in value to that property.

So I like the simplicity of managing and owning self-storage more so than multifamily because in multifamily, you have tenants and plumbing issues...

James: So it's very Property Management intensive, right?

Brian:  It definitely is and the self-storage, it's not. When you have turn-over, you're basically sweeping out a metal shed, you know, so it's a lot easier to manage and own and operate self-storage, especially when you're in a good market and I think we bought in an excellent market. It's just north of Lansing, Michigan. And then with the non-performing notes, I found a strategic partner who handled a lot of the nuts and bolts of that and I was able to invest with him somewhat passively so I enjoyed that aspect of investing there and the returns we were getting were very good. 

James: Interesting. Yeah, I mean, as I mentioned in my book, commercial asset classes go in cycles. I mean, I know I'm a multi-family guy and your bread and butter is multifamily but if you find the right operators in other asset classes, you can make a lot more money or equal amount of money as what you're making with multi-family. So, would you think so?

Brian: Absolutely. Finding the right strategic partners in other asset classes that's one of the things I set my mind to when I realize I'm just not seeing the returns I want to see in multifamily and apartments in my area where I'm comfortable investing. Now, have you looked at other asset classes?

James: I did look at a few asset class. I mean the asset class that I looked at is also like, you know, self-storage or mobile home parks but it's also in demand. I'm surprised to see here that you found something in 2018 because I thought self-storage is a hot asset class as well, I will risk going after that.

Brian: Yeah, it was a lucky strike and we've been looking for similar opportunities. But yeah, we're not finding them. What we're doing instead is building ground-up construction in self-storage, finding locations where the demographics are right and the need for more square footage of self-storage space is there and then we go in and fill that need.

James: Yeah, but I'm happy that you are looking at multifamily is not like the only asset class throughout the whole real estate cycle. I mean you felt like in 2015, things picked up and you really can't find the prices that you want and you have changed strategy which is how an investor should be. You always want to look at what's available out there, the deal flow because the economy is still doing very well. There's a lot of capital out there and it's just harder to find a great really-making-sense deal. I wouldn't say deals, making sense deals in multi-family, something that makes sense. It's just so hard to find out nowadays.

Brian: Absolutely. As an investor, you have to stay nimble and flexible and be open to other opportunities. Now, I know a lot of people in our field, our asset class of multifamily and apartments will find strategic partners outside of their area like in Texas or Georgia or wherever and partner with strategic partners who are able to find better value and better yields in their Investments. But I've had some bad experiences early on with some single-families that I owned out of state so I've always been very hesitant since then to own rental property, residential rental property, out of state.

James: So you like to have any property within your own backyard, but you like to diversify within asset classes. Some people have one asset class, but they go across the nation. Like some people like to buy multi-family across the nation, wherever make sense but you are doing it the other way around.

Brian: Yeah. Since I've branched out into self-storage and non-performing notes, I'm comfortable switching up asset classes.

James: Awesome. So on self-storage, are you the operator, are you the primary guy? 

Brian: No, my strategic partner is. He's the one who found the deal off-market, he negotiated it. I basically came in and raised the money; we syndicated that and raise the funds to be able to acquire it.

James: Got it. Very interesting. And on the performing notes, you have a strategic partner, I would say, right?

Brian: Yeah, I have a strategic partner on that. He's the one who knows that world. He's been doing it for well over six years now and really knows how to negotiate with the lender who we're purchasing a non-performing note from. He works with the homeowners to try to keep them in the home and figure out if that's even possible and then knows who the title company is that he should work with to get the right due diligence done and he's got the different scenarios in his head of how we can profit off of these notes. If we keep the homeowner in the home, what are the strategies there for us to maximize our profit or if we have to go through the foreclosure process. How do we go about that and maximize our returns in those cases as well.

James: Interesting. Interesting. So if you get a multi-family deal today, would you still do it?

Brian: If I found a deal that made sense and my underwriting shows that I could get the returns to my investors that they're accustomed to, I'd do it in a second, absolutely. 

James: Okay. Okay. So let's talk about the market and submarket selection. So why did you move from California to Grand Rapids, Michigan?  Everybody's heading to Texas and Florida from California. 

Brian: I'm from Michigan, originally.

James: Oh, you're from Michigan? Okay, that makes a lot of sense. 

Brian: Yeah, my wife is from here as well. So we met in California but decided okay, if we get married, start a family we didn't want to do it in Los Angeles, it's just too busy there. 

James: Makes sense. Yeah, I mean just based on data that 50% of the population move to Texas And I think there's a lot more but Texas and Florida is the favorite destination for people from California.

That's why I was asking the question. And how do you select the submarket in Grand Rapids, Michigan? Like how do you select which submarket to really do the deal?

Brian:  Well eyes because I live here, I am looking within a half hour to an hour of where I live. Grand Rapids is very strong, has very strong demographics. It's one of the few Midwest cities that really bounce back strong from the Great Recession. A lot of diversified manufacturing industry. Furniture, Amway is here, we've got a lot of different industries and employment based here. So when I look at submarkets, I'm looking more at the neighborhoods, what's the crime rate in that neighborhood? What's the income level in that? What kind of rents can we command and by the way, I'll buy B properties and C properties or you know, C minus properties that we can push into that C plus B minus range. But I will avoid the The D areas and I've seen a lot of opportunities in the D areas. And by D, I mean where you have a lot higher crime rate, where you have a lot more evictions and tenant turnover and problems. 

So I'm just very careful about and I work with the property management company that has a good grasp of these areas. So when we look at a property, we can really get a sense of if we buy this, is there an upside value, can we improve it and get higher rents, get better residents in here or is it going to be bound by the neighborhood it's in, that where it is now is what just where it's going to be?

James:  Got it. Got it. Interesting. What about underwriting? I mean, when you look at a deal like I mean when you are buying multifamily, right? So how would you select the deal? Let's say a hundred deals been sent to you, do you know how many percents of it you would reject?

Brian: Right now 100%. I'm not even looking right now, but what I'll do is I'll do a quick rule of thumb. Okay, what's the net operating income? What's the cap rate that they're asking? Is there upside potential? And of course, if it's listed by a broker, they'll always tell you the market the rents are way under market. you can raise the rent. No problem. That's sometimes true, sometimes not true. 

But this area is so strong that any seller right now knows that they can get top dollar and while there's a lot of Institutions and out-of-state investors and even International investors who are willing to pay top dollar, the yields that they are willing to accept are much lower than what I'm willing to pay, which is why I'm not even looking at the moment. 

James: Very interesting. Now I see it's happening across the country. I thought it was only happening in Texas and Florida but looks like across the country, that's what's happening. It's just so hard to find deals that used to make sense to us long time ago, right? So it's crazy out there. 

Brian: Yeah, and it could just be that I'm spoiled because I was buying during a period when I could buy it at eight nine ten caps. And now, when I see things at five six, six and a half caps, I don't even want to consider them. But had I bought it at those cap rates between 2015 and 2017, I would have made a lot of money. So maybe I'm just a little too stringent in my criteria right now. 

James: Yeah. That could be it as well. 

Brian: Are you buying right now?

James: Well, I mean, well, I'm still buying if I find the right deal. It's just so hard to find the deal that makes sense for my criteria, and I'm sure that's the same thing as your criteria. I'm still buying if I find the right deal but I'm not underwriting a hundred deals, you know, in one month. You know, whatever deal comes to me, I usually know that within the quick look, I know whether it makes sense for me to underwrite or not. And sometimes brokers will call me if they know that a certain deal is something that I would do. That's the only deal that I look at. 

Brian: What's your quick back of the napkin way of determining whether or not you want to invest in something?

James: If it's an email blast, I probably wouldn't look at it. 

Brian: Yeah. Yeah, you kind of eliminate the ones that go out to everybody. 

James: Yeah, it's already got everybody on his shop date and coming on an email blast.

You know, you have to go on a best and final and best and best and final and then this ultimate best and final offer, which is you're shooting in the dark, right? You're basically bidding against yourself. [20:45 inaudible] I'm not really in a desperate mode to buy deals that go through that kind of process. So when I look for value-add if there's a true value-add deal, I mean, minus the crime rate area, I definitely know the area that has high crime rate, I can check it out quickly Class B and C, but need to have true value-add that we can go and add value. I don't really look at the entry cap rate, but I look for the spread of the cap rate from the time I buy to in the next two years kind of thing without any rent increases. 

Brian: I think part of part of my problem, one of the reasons that I've just been on the fence is because we bought a value-add property back in 2015. It was an older building, built in 1920 and it was such an exhaustive process to go in and add value to that property. I was over there like every day.

James: It is very tiring to do those value-add deals. To do deep value-adds, I would say.  

Brian: Deep, deep value-add. And so my bandwidth for more opportunities was just completely limited because I was so exhausted by working on this one particular project. Now, luckily, we got it to a point where we added tremendous value to it and we're very proud of the work we did but you have to weigh the opportunity cost when you do those value-adds because sometimes they're so intensive that some of the lower hanging fruits, you bypassed that.

James: Correct. Yeah. I see some syndicators doing deals every month and they're not doing a deep value-add or they're just doing the lighter value-add. Maybe they're just doing a yield play. [22:30inaudible] they can buy every month. They can claim 5,000 units or 3,000 years versus deep value-add to be like 100 and 200 and 300. It's a really really deep value-add. You probably make a lot more money than the guy who owns 3,000 to 4,000 units, but it's a lot of work. 

Brian: It's more than just asset managing. You kind of become a de facto developer.

James: Developer, a huge project manager. Yes, so many things but the deep value-add gives you a sense of accomplishment.

Brian: It does.  I'm very proud of the work we did on this particular property and more so than any of my other properties because I didn't have to put nearly as much work into them. 

James: Yeah, and the deep value-add it becomes a case study, right? Because it truly shows your skills to turn around property.  And people who have done deep value-add it's going to be easier for them to do the lighter [23:30inaudible]  

Brian: Yeah, yeah, that's an excellent point. 

James: So that's very interesting. So can you name like 2 or 3 secret sauces to your success?

Brian: The two or three secret sauces to my success. I'm sorry if you hear that printer going in the background there. 

James: It's okay. No worries. 

Brian: Hopefully that ends soon. Secret sauces to my success; I think doing the underwriting, running my numbers. I always like to say, I like to see my numbers in bullet time. To see all the Matrix, you know, everything slows down and you can see it coming at you. I want to know what are the real expense is going to be after we've acquired the property. One particular mistake that I see a lot of investors making is they assume that the property tax is going to be the same as what the previous owner was paying and that's just not the case.

So right there that's one of the main factors that I look at right away, is what is the property tax going to become once I buy this property and that eliminates 50% of the deals that I would even consider. So number one secret sauce is just really understanding the numbers. Not just where they are today, but where they will be once we acquire the property. Number two is having the right team. I am all about partnering with strategic partners who add value because they understand inside and out the asset class that you're investing in. The reason I was able to expand my multifamily portfolio was that I partnered with someone who owned his own property management company and managed the type of properties that I wanted to acquire.

That without his assistance and without his team that really knew how to go in and do the due diligence and help me assess upfront, what are the capital expense costs going to be? What are the true costs going to be when we acquire this property? Without that, I would have made a lot of mistakes. The same with self-storage. I partnered with someone who even though he's young and new, somewhat new to the business, he had really studied it, talked to a lot of professionals, been mentored by people and really understood inside and out how we could add value to that self-storage facility. And everything that he put in his pro forma ended up becoming a reality.

With my non-performing note partner, I mean he knows that world inside and out. So when we acquire a note, the first 12 that I bought with him, we only had one that we lost money on and that was about $1,700. 

James: Out of how many notes? 

Brian: We bought 12 notes to start with because I like to test before I bring other investors in so I bought 12 notes with my partner, I JV with him. Five of the notes our average return was over 80%.

 James: Wow. What timeline?

Brian: A year and a half.  Well, actually, each note is kind of on its own timeline. So I'll tell you that of the twelve notes that he and I purchased together, five of them are closed and paid off like we've made our profit. Our average return on investment, before we split 50/50, our average return was 81% and that included the one note that we lost $1,700 on. Some of the returns that we're getting are phenomenal. Five of the notes are re-performing, which means that we were able to keep the homeowners in their homes, which is fantastic. That's our number one goal. Our average return on those notes as we collect the monthly income is 30%. And then two of them are in some form of foreclosure. In fact, we're about to sell one. We just listed it today actually, so we should make a decent return on that. We always try to work with the homeowner and keep them in the home. Half the time we're able to do that, half the time it just doesn't work out. But you asked me the timeline so, of those five notes that we closed, our average return was 81%, the average number of days that we were in each of those notes was 163 days so that took less than half a year.  

James: I mean, those are good great numbers. I mean, I mentioned in my book, find the right operator in that asset class and partner with them or invest with them for passive investors. So as I said in every asset class, there's always good operators. So the numbers you're telling me in non-performing notes in self-storage are huge, right? I mean, I know multifamily you can make money if the market went up and you have a really good operator that can handle that. On average, not everybody is making what you just told me right now on self-storage. So why is multifamily more popular than other asset classes?  

Brian: There are more people teaching it. 

James: That's absolutely my point.

Brian: Yeah, I mean like there are some excellent instructors out there in multifamily and you and I are both the part of a group with one of them. I mean great top-notch training material. Okay. Yeah, there's just fewer people out there. Whereas you have between 10 to 20 people out there teaching multifamily, you could count on one hand the number of people teaching self-storage and it's even less teaching the non-performing note. 

James: I understand. Yeah, it is it is true. There's a lot more people teaching multifamily, a lot more boot camps, a lot more 2 days weekend seminars on multifamily compared to self-storage or non-performing notes. And I think multi-family is also very simple to understand, it's a house. Not many people understand what is non-performing notes. 

Brian: Yeah, there's all that educational like just understanding and wrapping your head around the concept. I got into multifamily because I understood the economy of scale and I understood people have to have a place to live. So if you can get them to pay their rent and that rent pays all your expenses plus the mortgage, well, you can make a lot of money that way. And then once I understood the next level of value, which is the income valuation method, how commercial multifamily is valued based on the income method and you can increase your returns exponentially if you understand that. The relationship between cap rate and your net operating income and value that was very compelling to me. And I think that still is very compelling when it comes to investing in commercial real estate whether it be multifamily or self-storage. I think non-performing notes, there's a lot more perceived risk in that because it's not valued based on any  - it's hard to understand how that's valued because there are so many different scenarios in which you can profit from non-performing notes. That you can't just say well we value it this way and if you buy this note, this is what you're going to make, it's kind of a crapshoot. But if you do it right and you partner with someone who knows how to avoid the dogs, you can actually make a lot of money doing it. 

James: So what is the most valuable value-add in non-performing notes?

Brian: You mean an example of one of our...?

James: No, not an example. I'm talking about what is the one thing that if you do the most of the time or the frequency of things that you do in non-performing notes that you get the most value out of?

Brian: Well, yeah, it differs note by note. I'll give you two examples. One is a property that was pretty much a teardown property that we bought the note on in Middlebury, Indiana. We paid $5,000 for this note and I asked my partner, I mean it's $5,000, this property is a teardown. How are we going to make money on this? And he said, well, we're not buying this for this property for the house that's on it. We're buying it for the land because it's right next door to a farm and this farm is owned by this Amish family. So he sent a realtor over to the Amish family and they ended up paying $35,000 for that note. So after closing costs and paying the realtor and getting our initial $5,000 investment back, our profit was over $24,000 that represented a 245% return and we did that in less than two months.

James: Yeah, but you need to identify that opportunity. I mean, it's not like you can go and buy any deals right now. Okay, very interesting.

Brian: Yeah. Yeah, absolutely. Another quick example of how you can profit on notes and I don't want it to lead you to believe that your best profit is always going to be a few foreclose or take possession of the property because you can still make a lot of money if you can work with the homeowners. We bought a note on a property in northern Michigan, probably about 9 or 10 months ago now. And I believe the numbers were in the line of we paid $20,000 for this note, got the homeowners re-performing, the unpaid balance on this note is $41,000. Once we have them season for 12 months, meaning that they're paying on time for 12 months - we've been working with them with a mortgage loan originator, where they can go and get new financing, permanent financing of FHA or Fannie Mae type loan in place with much better interest rate much better payments. Well, when they go do that, they're going to pay off that unpaid balance. So our $19,000 investment, now that I'm thinking about it was $19,000, our $19,000 investment, we're going to get paid that $41,000 of the unpaid balance on their note, plus the money that they've been paying each year.

So our return on that is going to be 100%, it's actually over a hundred percent.  

James: Across how many years? 

Brian: We'll be out of that in under 15 months.

James: Okay, interesting.

Brian: Because they're going to refinance and when they refinance, we get paid that unpaid balance.

James: Got it. Got it. What about on the multifamily properties that you own before 2015? What do you think is the most valuable value-add that you really like? 

Brian: Well, they're all great because just anything I bought between 2008 and 2012, I've achieved an infinite return on those. 

James: Okay. So refied it by and you kept it?

Brian: Yeah. Yeah, we've refinanced, pulled our initial investment out. We have no money in the properties and we're collecting cash flow every month. So you can't calculate a return on that. Probably one of the best examples is a 37 unit that we purchased. We bought it at a short sale in 2009, was about 600,000 is what we paid for it.

We put a $200,000 into it right away to replace roofs, windows. It was a hodgepodge of heating systems. There's electric baseboard heat and hot water boiler heat and then gas forced-air furnace heat. It just depended on which unit you were looking at. So we replaced a lot of the mechanicals, made it as much of a new property as we could, as far as just the mechanicals and the roof and the windows.

And we refinanced it once it had over 1.1 million dollar value, pulled all of our initial investment out plus some extra cash flow and then we just refinanced it again, put a tenure fixed loan on it through the Freddie Mac. small apartment loan. So we got great terms on it, 30-year amortization. At that point, it valued over two million dollars. So we've added a lot of value to it and the compression of cap rates didn't hurt either. 

James: Yeah. Yeah. Those are the awesome deals, the deep value-adds. That's where you can go and refi and make it infinite written because you pulled out all your cost basis.

Brian: Yeah, yeah. Yeah, that's the goal to achieve infinite return. Whenever we can do that, that's what we do. 

James: Absolutely. Aren't you worried about the state of the market right now in real estate in general? 

Brian: You know, gosh, I was more worried about it two years ago than I am now probably.

James: What has changed?

Brian: Probably because two years ago, I was thinking, oh, it's going to turn any minute now and then it only got better and better. You and I both know Neil Bala and we talked to him at the last event we were at together and he made a very good case for the continuation of this market. And it basically rests on the fact that the United States, it's one of the few, if not the only places in the world where you can go to get real yield on your investment. We're seeing a lot of international money coming into the United States because in their countries, they're seeing negative yield or 0 yield. Here even if you can still get three or four percent yield on your investment, that's a lot of money. It's bringing a lot of money into this country and that's going to prop up our values for quite a long time. On top of that, I've always fought or believe that interest rates were going to rise and I've been believing that since 2000 and they keep going down. And even now, as we're speaking, they're talking about lowering the rate again by the end of the year. So that interest rate risk, I know we're playing with fire here and eventually, we're going to have to pay the piper but our government seems to keep coming up with ways to prolong this growth and the increase in prices. So am I worried? Not in the short term. No. No. The Economists I listen to are saying, oh, it's going to be a roaring 20s for us. Things are really going to hit the fan and. 2027, 2028, 29.

James: Interesting. Yeah, because I think I don't know, maybe my thoughts are similar to yours somehow the Fed has figured out how to do quantitative easing and quantitative tightening. Somehow they're able to contract the economy and bring it down. So they could have found some new mechanism to keep the economy going even though our thought process always has been real estate goes in cycles. But at some point, you will hit an affordability issue, it can't [40:13unintelligible]  go up all the time, right? 

Brian: Yes. 

James: The prices can go up because the interest rate is coming down because now you can get more cash flow. But at the same time, you can't keep on increasing rent because our wages are not going up so much. I mean, I'm not an economist but at some point, you will hit some roadblock, but I'm not sure where is it and how is going to come. 

Brian: Yeah, well, we're seeing a plateauing I think right now in just the rents that we're able to charge, the prices that people are willing to pay but it's still a very strong market. Now, don't get me wrong, I'm not going out there and just buying stuff like crazy because I am very conservative and like I said if I can't get the returns that I need to bring investors into my deals, I'm just not even looking at it. I don't anticipate that the market is going to have a huge correction, there might be a bump, I think if you're in a good market, like Grand Rapids, that bump won't be nearly as severe as some other places.

 I'm keeping my eye on the market but at the same time, investing conservatively in asset classes that I think will be able to withstand the next correction. 

James: Awesome. So let's go back to a personal side of things, right? So is there a proud moment throughout your career in real estate that you will remember for your whole life, one proud moment?

Brian: One for a moment to put on my tombstone.

James: Yeah, absolutely. That you really think that hard, I'm really proud I did that. 

Brian: Yeah. So a couple of answers. I mean any time we're able to go in and improve a property and improving neighborhoods, that always makes me proud, you know, that we're adding value to a neighborhood and community. The older building that I told you about here in Grand Rapids,

it was built in 1920. When we bought that it was very tired, kind of poorly managed, it was losing money. We were able to turn that around so I'm very proud of that. I'm very proud of the fact that we also fought very hard and work very closely with the city to be able to put a restaurant in that building.

So the fact that when we bought it it was 96 apartment units and about 6,000 square foot of vacant commercial space. Now we had to work with the city to get it rezoned because it had been vacant for so long, it had to be reverted to being zoned residential. So we spent over a year trying to get it rezoned so we could add commercial in there, but we filled up all 6,000 square foot including a restaurant and that took about two or three years to do. 

So when I think about what I'm proud of I think I'm definitely proud of that. 

James: Awesome. That there is hard work  because you're turning the zoning from residential to mixed use. 

Brian: Yeah, mixed-use residential commercial, just dealing with parking, number of parking spots and green space and tree canopies. I mean, it was a massive undertaking. 

James: Yeah. It's very interesting that kind of work. I did one that was borderline and we merged it with an apartment and we did so many things. It was a very unique value-add that we recently refinance. 

Brian: What was it, a lot of work for you?

James: It was a lot of work because you have to go through, you know, buying the deal - you had to buy two deals at the same time. One is the apartment and one is the land and then we have to go to the city to merge these two plots. Then you had to rezone it, then you had to - I mean replot it, rezone it And then after you do a tree survey, you have to do so many different surveys have to do to get that. It's not normal in a residential, you know, where you buy today and increase rent, reduce expense kind of deal. But it's very interesting and people got 80% of our money within 15 months, which is huge, just by doing this creatively. 

Brian: That's fantastic. Yeah. Yeah, you talk about its zoning and tree, you know. 

James: Yeah, zoning and tree and all those.

Brian: So it's a whole new world and it definitely is costly and time-consuming because you have to have experts on your team. You got to bring experts like architects. 

James: Yeah, we brought in architects, engineers. 

Brian: Yeah, engineers who even understand what it is that the city is asking for because if you were trying to do that yourself, you just would be a mess.

James: Yeah. I mean the good thing about what you said about what I'm proud of this kind of process and 99% of the syndicators don't have that kind of experience.

Brian: Yeah. I didn't have that kind of experience but now I do. 

James: Most of the time, you just buy buildings and, you know, look at increasing income and reducing expenses and after that, at some point you sell but you don't do different contracts buying land and doing kind of things.

So another question for you, Brian, why do you do what you do? 

Brian: I love it. I love what I do. I feel very entrepreneurial about it because I've been an employee up until about five or six years ago. Whatever it was I was doing, whatever job,

I always embraced it and did the best I could. But what I love about being an entrepreneur, being a full-time real estate investor, now syndicator/asset manager is that it's all very self-motivated. I'm the one who decides what needs to happen, what I need to pay attention to on a day-by-day basis.

I don't have a boss or anyone else telling me, 'Hey, Brian, go do this' when I'm like, 'no, I want to go do this instead.' I get to call the shots. So that's what I love about it. I get to call the shots, I get to take time off if I need to take time off and I get to kind of fill my day with activities that I want to be doing.

James: Awesome. Hey Brian, you want to tell our listeners and audience how to get hold of you? 

Brian: Sure, James. First of all, you can go to my website, which is higinvestor.com. That's HIG is Hamrick Investment Group. You can also listen to my podcast and James you've been a guest on there so you can definitely listen to me interview James. It's the Rental Property Owner and Real Estate Investor Podcast and it's sponsored by the RPOA, which we begin this conversation talking about. And if you want to get in touch with me, you can also email me [email protected].  

James: Awesome, Brian. Thanks for coming in and adding value to my listeners and audience and to myself as well in the kind of things from our discussion here. I think that's it. Thank you very much. 

Brian: All right. Thanks, James. It's been a pleasure. It's a lot of fun.

James: Lot of fun, thank you.

 

James: So few things; we want to go through some of the markets and some of the value-add stuff and I think you do a lot of student housing things. Also, we can go through that as well. Yeah, that should be what it is. And okay, let me just get started.

So 1 2 3...

 Hey audience, welcome to Achieve Wealth Podcast where we focus a lot on value-add real estate investing. Today, we have Jeff Greenberg who has more than 40 years experience in management, staff supervision, development, and training. Jeff has been investing since 2007 and has more than 40 million multi-property projects consisting of around 2,000 units. So deals that he controls consist of student housing and some of the multifamily units across, Georgia, Arizona, Texas, and Ohio. And Jeff focuses a lot on value-add student housing, which is very interesting. Until now, we have a lot of podcast interview on conventional multifamily in workforce housing, but now, we're going to talk a lot more about student housing. Jeff has also done market rate and also senior living multifamily properties.

Hey, Jeff, welcome to the show. 

Jeff: Well, how you doing today? 

James: I'm good. So thanks for coming in. I want to go with more details on how did you get started because you rent a thousand units across different states. So can you describe to our listeners and audience on how did you get started? 

Jeff: Well, probably similar to a lot of other people, I started out with single-family, but actually never did any single family deals. That was in 2007 when the prices were going down so fast that it was hard to do much in the single-family area as far as REO properties, the bank's weren't releasing them. So I did bump into a guru and so I did go to seminars and did get some mentoring around in 2007-2008. And then started with my first property that I ever bought, other than my own personal residence, was a 20-unit property and it was a syndicated deal.  So we brought in investors into that first deal and that was essentially my entry into it. skipped right past all the single-family stuff.

James: And what year was it, Jeff?

Jeff: That was the first property we bought, actually it was in 2010.

James: Okay. So 2010 you started with 20 units and the guru and the cost that you had taken was that more multifamily or was it more a single-family size?

Jeff: It was all multi-family stuff. 

James: Okay, got it. So you got into that and then you started buying 20 units and which market was that? 

Jeff: Well, that Market was in Harlingen, which is in South Texas. Okay. It's near Brownsville and McAllen, for those people that know that area. 

James: Okay. Okay. So 2010 was supposedly supposed to be a perfect time to start investing in real estate after the 2008 crash. So can you describe what happened in your first deal? I mean at high level and what happened and how did you come up, in terms of the results for the first day of...

Jeff: Yeah. The first deal, that property was only three years old. It was built in 2007. It was a hundred percent occupied and it was in a very slow growth market. So we had big plans for raising rents and they were already paying electric so we were planning on billing back water. And the problem was it was very difficult to raise the rents. We were getting a lot of resistance and doing the bill back of the water, we met with a lot of resistance.

So we had nowhere else to go. It was already a hundred percent occupied because it was a new property. And so that was a plan which didn't work very well because we couldn't get those rents up. It took them a long time to get the rents up. So the lesson learned from there was that you needed to do more research on to the potential for the value-adds. And in that property, we held it for six years; we were supposed to sell in five. We held it to 6 because we drew a line in the sand as far as what price we would take and it took us an extra year before we are able to get that price in order to get the investors a fair return.

But it took us an extra year. Otherwise, there wouldn't have been much much of a profit on that property. So it was a seminar.  

James: I mean, that's awesome that you're sharing your first lessons learned, right? Because sometimes you know, we forget that there are things that we missed out or there are things that you know, we don't really see it when you go and buy a multi-family. Sometimes you buy in a hot market and it went up 200-300%. People think that they did the work but that's not going to be the case all the time.

Jeff:  Well, that's basically what happened on the next property though. So the next property was a property we bought in Houston where it was a foreclosed property that we were buying it. The owner we were buying it from actually bought it as a foreclosure so he had had it for about two years. It is 62 units so he bought it for 600,000 and we bought it for 1.3 after he had it for two years and so we got it for about under 21,000 a unit.

 And at the time, in Houston, the values were going from 25,000 to maybe 35,000 a unit so we still bought it under market value and then in three years, we sold it for 2.7 million. And the reason we got that value part of it, it was 85 percent occupied when we got it. We got it up to 95 percent occupied. The revenue was about 36,000, we got it up to about 42,000. But also at that time, the cap rates compressed so we bought it at a 9 cap and sold it at a 7 cap. So we got the advantage of the market, the market appreciation as well as what we did for it so that was a perfect storm for us.

So it completely made up for our first one, in that the investors got a 120% return on a three-year whole. So a 40% annualized return, which nobody complained about.

James: Yeah, absolutely. 

Jeff: But that's unusual and that was totally different from the other property where the investors got a lot better than they would have in the bank, but they didn't get a fantastic return. So different properties, different deals. 

James: So I mean that too is conventional multifamily, right? 

Jeff: Yeah.

James: And how many conventional multifamilies did you do before you start hitting into student housing? 

Jeff: Well, the next one after that actually was a student house. I mean, I was invested in another person's deal that was about 700 units 20 million dollar deal that we were in. But the next deal I did after that, actually, we broke up our partnership. My partner back decided not to do real estate anymore and I continued on my own and that's when I got a small property in Ohio. I had a 19-year-old student that went and found this property for me in Oxford, Ohio, and that's when I got into student housing. So we were talking, we mentioned earlier as far as how it getting into student housing, I really didn't plan on it. It was my intern that found the property and said, "Hey, let's get this," and the numbers look good and we got into it. So that was our first student housing deal in Oxford. 

James: Yeah. I mean, I'm going to go a bit deeper into that. But I mean you are now in California, you are based California, but you have been buying in McAllen, Texas and Houston and Ohio. So how did you decide on where to go or is it just whatever opportunity that comes to you?

 Jeff: Well, I've been pretty opportunistic, basically, when an opportunity comes in. Right now, we're kind of reversing out a little bit and trying to do more focus on markets. But at that point in time, we were just looking at opportunities and when an opportunity came we did our research on the market and did it afterward, rather than doing it up ahead of time. We decided do we really want to be in this market and if we did then we went up to the property. But it was more properties came to us from different directions. The one in Georgia, I had a lady working with me that I had trained and she developed a relationship with a broker in Georgia and that was pretty much where we got the Georgia property from, which was our next student housing property. 

James: So one thing I want to clarify. You said you had an intern and you have this lady that you have been training. So do you have interns working for you or do you have students that are looking for deals?

Jeff: Yeah. The first one was an intern that I had trained and then after that, there was a group of people that came to me and asked me to train them and so I started training them and teaching them how to find properties. And in the last three years, we've done a couple of deals together, but they basically found the properties.

Yeah, and you know that I've been training them as we've been going, showing them a lot of the different aspects of it; doing due diligence with them and taking them on the tours with a lot of those students. Since then things have changed a little bit but at that time, those were people that I have trained.

James: So is it like part of your mentoring program or you just train for fun kind of thing?

Jeff: It wasn't a formal mentoring program, but it was kind of a mentoring program. 

James: Okay got it.

Jeff: But it was just more informal that I had helped people and in turn, they would bring properties in and if I like them, would go after them. Say it saves me underwriting a hundred deals to find one, they would underwrite a hundred deals, bring me one and I'd only have to look at a few of them. So much of our deals that I had to look at, you know, when they would bring them supposedly all ready to go and I would decide yay or nay on them if I liked them.

James: Okay, got it. So coming back to the student housing and you said one of your interns found it. And, I mean, can you describe how did he find that deal? 

Jeff: Well, he was embarrassed to tell me, actually. He was embarrassed to tell me until after we had closed that he actually found in on LoopNet. And you know there are deals on LoopNet but usually, they're overpriced or maybe there's some other problem with them and it so happened that the seller was beaten up by two other buyers prior to my purchase. We got it for a much lower rate.

So at the price that we got it at,  it was a great deal but at the original price, it wouldn't have been.

 James: Got it. Got it. So let's describe the process. So this intern brought you the deal. So what are the few things that you look at the deal that you think you're going to take a second look at it?

Jeff: Well, I mean several things. The one thing I had my interns do is I want to do as little work as possible myself. So I told them I want bullet points on why I want to be on that market, you know, what's the advantages of this market? With student housing, the emphasis is more on the school, but all the different reasons that this is a great market to be in and also as well as the numbers for the property itself.

 And basically, they have to come in and give me a sales pitch and convince me with a presentation that this is a deal I want to do. And on the regular market rate ones, you know the typical stuff with the employment and the population growth and the age of the population and all of that typical stuff that we look at. Over the student housing, it's the size of the college, the percentage of rooms available on campus versus off campus, basically, the health of the university. The location of the property, how close it is to the university, those kinds of things that we look for more so on the student housing.

James: So, can you go a bit more, dig deeper into how far from the campus which you consider in campus versus other campuses?

Jeff:  Well, as far as what we look for, typically, we want something within a mile of the campus. My Georgia one is a block away, my Ohio one is within what they call a Mile Square. My Arizona property is a little bit farther out. It's two miles off campus and that one, it's a little bit more of a struggle but you're not going to get the prime rates and we understood that because when you're two miles out. So you want it close by the campus, you want it on the right side of the campus, rather than way away from the classrooms where people still have to walk a mile across the fields to get to campus. So you want to be on the the the closer side where the classes are but it will help you out also if you're near. the bar district or where all the hangouts are that sometimes will make up for being a little bit far from the campus. 

If you're where all the hangout places, the cool places are that helps you out. The other thing in student housing is the bedroom bathroom parody. If you could get a one-on-one with a one-bedroom and one bathroom that's going to be a lot better than your four twos or your 3 ones or whatever. The more bathrooms you have, they like that. Also, it seems that student nowadays, they want to share with fewer people. So a 4-2 wouldn't be as popular as a 2-1, you know where you still got two people sharing a bathroom, but you only have two people that have to get along with each other. And if you could get a 1-1, you're even better off; that they're a lot happier with. 

In fact, I was talking to someone the other day that I had some 4-2 that I actually split them in half and made two ones out of them. Just had to put a kitchenette in order that they have fewer people to share.

James: Okay, interesting. So have you started focusing fully on student housing now or you're still doing conventional multifamily?

Jeff:  We're doing both because I do like the fact that people mess up student housing and it gives us an opportunity, you know, everybody we know from the groups we're in, everybody's looking for value-add multifamily, but there are fewer people looking for value-add student housing. And so that just gives me a little bit of an advantage on that. But other than that, I mean that's the main reason I'm looking at student housing is that there are fewer people looking at it and if you know what to do with the student housing, there are certainly some great opportunities. I don't think I would recommend it as somebody's first opportunity, the first investment because there is a little more risk into it, but it's a good asset class. 

James: So let's discuss some of the risks that's involved with student housing. So can you outline a few risks that a newbie should watch out for student housing? 

Jeff: Yeah. Well, part of the risk is missing the lease up window, wherein multifamily if you don't get it leased it up this month, maybe I'll lease it up next month. But on student housing, if you get it leased up by a certain time and each campus is usually different, if you don't get it leased up in time, during that time, you may be stuck with empty units for the whole year. So you've got to get it leased up during that time. 

The other thing is, you're going to have higher turnover and it depends on the property as well. My Georgia property, we're hardly getting any turnover because there are not a lot of other options in the market. My Ohio property there's plenty of other options so they may go from one property to another each year. Same with my Arizona property, they may switch around. So it's going to depend on what's available at their price range if there's going to be turnover. 

My first year on the Ohio property, I think was like 85 percent turnover, which most people will freak out thinking, you know, okay, 85% and it's all at once. It's everybody's gone at the same time. And so, you've got to turn all these units and have them ready for the new tenants coming in. So we always budget for a higher expense as far as because of the turnovers because turnovers, as we know, is one of our bigger expenses so we'll budget for that.

 A lot of people think that student housing, you have a lot more in the way of damage and we really haven't seen that, we haven't seen a lot of damage. And the thing is we charge back everything that's caused by the students that not that normal wear and tear. I mean, we get things; wine stains in the carpeting or iron marks where they put an iron down on the carpeting and melted the carpet, shot glasses or beer caps in the garbage disposal. We do get lockouts, you know, where were you're having to fix the door because somebody kicked it in, in order to get in or you get domestic disputes where some boyfriend goes and punches a wall because he's pissed off or something. I mean, we do get some of those but the deposits cover most of that stuff. 

James: Got it. I'm sure the parents will pay too, I guess.

Jeff: Yeah. Yeah, if it gets beyond the deposit we have then the parents will usually jump in.

James:  And how much is the turnover cost that you usually budget for student housing like in conventional usually like for me I usually budget like $100 per unit, per year?
Jeff: As far as for turnover?

James: Yeah. Not repair and maintenance,  just turn over. 

Jeff: Well, if we look at the overall repair and maintenance budget usually we're about five or six hundred, overall. And my student housing ones, my Ohio, I believe we're at 1,800 per units.

James: Repair and maintenance?

Jeff: Yeah.

James: Well, that's a lot. 

Jeff: I have to lower that down. I don't even think we're using that but that's what I originally put it about.

James: Okay. Got it. Yeah. Because usually total repair and maintenance plus turnover is like 500 to maximum $600 on conventional. 

Jeff: Yeah, I mean, mainly because of your turnover costs. On that property, we've been painting every wall every time we turn over. I'm not sure if we need that but we've been doing that. It's been a little bit higher. I mean, it's been higher on that one. The other one in Georgia, our turnover costs aren't nearly as much. 

James: And what do you expect other than, do you do anything special to reduce your turnover cost?

Jeff:  Well, we try to encourage re-leasing and we do give lower rates for those people that are releasing as well as if they release early, we do give them discounts on that.

And in the thing is, on my Georgia property, if they release, we may keep their rents at the same rate or maybe just raise it slightly in order to keep them in because that saves us a lot of money. That saves us a lot of money on the turnovers. 

James: Okay, correct. What about the interior? Like carpets vs. vinyl vs metal. 

Jeff: Typically, I mean, we don't have to make it too fancy. But we do put, I believe in the Ohio one, we've got the role on vinyl flooring. In the bedrooms, we do have carpeting. It's just Formica countertops. We don't need to do anything fancy and that's going to depend as well on the demographics of your clients.

My Ohio property is upper middle class. It's Miami University and it's probably an upper-middle-class clientele. My Georgia property is a very low economic clientele, they would be thrilled with anything we put in there. So we just kind of resurface the Formica countertops. We did some chemical wash on the showers and the tubs and repainted everything. We do have nice laminate floors in there, except for the bedrooms. The bedrooms are the only rooms with carpeting. We just painted the cabinets. From the state that they were in, what we did just totally brightened up the property.

I mean, just totally changed it. They were a mess and this isn't an old property. That's a 1999 property but there was some old indoor-outdoor carpeting in the hallways that just look just totally disgusting. That we put all vinyl laminate in the hallway and it looks great now.

James: Awesome. And what about during the summer? I mean a lot of them don't stay in the unit, right? So they still pay for the summer or does it get re-rent or is it vacant or what's happening?
Jeff: Again, that depends on each of our markets. And the Georgia one, I believe we are 70% for this summer, which is high. I think last year we were about 60 percent during the summer. So those that are going to summer school can stay there. But in August, we'll be back up at 98 to 100% on that property. 

That was a property we bought at 30% occupied and now we're over 100, we're at 100 like it's not over. We're at 100% occupancy on that one.

James: And what about students which is more like, you know, four-year degree versus postgraduate degree, have you tried experimenting with that?

Jeff:  You know, my Ohio property, we have some studio apartments and a lot of those are rented to graduates as well as young Professor. So yeah, those are great tenants if you can get them. The graduates, they're a little more mature and you never hear anything from them so those are great on some of the properties. We do have graduates in some properties, but most of them are second-year students. Typically the schools require that the students stay on campus the first year so as freshmen, so we usually get them as sophomores.

James: Got it. So coming back to the demand side of it for student housing. I'm just trying to understand but I lost my train of thought here. I mean, for example, let's say the price, in terms of rent, I mean the rent is much higher compared to the normal workforce housing. Do you think that's a benefit as well? 

Jeff: Yes. Yes. Absolutely. And the rent is higher than we get more benefit from the additional rent than it costs us on any additional maintenance expenses. So there is a higher cost benefit that we do get from the student housing. So that's one of the things we like. The other thing that we do like also about the student housing is it is fairly recession-resilient and you know, we all know that we're at a high point in our market right now, we don't quite know what's going on, as far as where we're going to be in the economy. And student housing, historically, has done very well during down markets and that's something also that I look at when I look at properties. How well did it do during the last recession and to see how far down it dipped. And typically you find that student housing and as well as self-storage typically do well in those markets. And so that's another reason why we like looking at those deals. 

James: Well, yeah, I mean the rationale is people go to school when the economy is downturn right?

Jeff: That's part of it. And the other thing is parents are going to try to get their kids into college as soon as they get out of high school because if they lose them to the workforce for a year or two, it's going to be really tough getting them back in. So if a parent is going to be paying for their kid, they are going to find a way to do it. Otherwise, they may not get them in the college later on.

 James: Got it. So, in terms of value-add and I'm sure you are trying to make your community, in terms of student housing much better than other communities. So is there one of the value-adds that you do in your community that you think, you know, you will be able to command much higher rent and much higher occupancy?

Jeff: Well, the one we haven't really done is the bed to bath parity. And as I mentioned the person that broke a 4 2 into a 2 1 that was a value-add because as I said, the students prefer not to share.

If you could add another bathroom, so you've got 2-2 even if it's a small little bathroom, you know, or just a makeup area with a sink that's of great value because the students now don't like to share the bathrooms. 

In Ohio, I've got some 4-4s, as well as some 4-2s but they love having their own private bathroom. In Arizona is all 5-2s - five bedrooms, two baths. That's not as desirable. If I could put in some other baths, I would probably you know, make people happy but that's well expensive. That's not a real cost-effective way of doing it. But also in the Georgia property, we put Wi-Fi throughout the property. So essentially, anywhere they get on the campus or on the property they've got the Wi-Fi. So that was definitely a value-add that we put into it.

James:  What about other things like study rooms or the Library, the community?

Jeff: We just redid our office and we did put in a workspace.

James: A workspace, a business center. 

Jeff: Yeah a business center. Exactly. We did put in a business center where they could come in and print if they need to print documents because a lot of people, a lot of the kids have their tablets or their laptops or their phones or whatever, but they may not even have printers these days. And I guess a lot of the stuff they submit right online in a PDF to their teacher whatever but we did create the business center so they could come in and print stuff out if they need to. And also have a scanner where they can scan their documents. 

The other thing that we were looking at but we may leave for the next owner because we are selling this property, is a picnic area. We haven't built that yet; put a picnic area with some barbecues and that kind of stuff but that's the last phase of what we've been trying to do on this property. The main thing on this property is, the students have loved it, just fixing it up so it's much more livable. It was pretty disgusting when we got there. I mean it was a nasty place and that's why it was 30% occupied. And now, we've got the premium property in the market. 

James: Yeah. I mean, there you go. I mean, value-add in terms of managing it. So people love that.

Jeff: And then the other thing that we did on this particular property is we got a relationship with the school. We went on campus and talk to all the coaches and told them we wanted them to send their athletes over to the property. And at first, well, the track coach went and looked at us like we were from Mars and said, "Why would I want to send my kids over there?" And then we invited him to come over and look at the property to see what we have done. And now we've got a bunch of athletes over there now after they've seen the improvements we've done.

 We also have participated as a sponsor with the athletic department where we give them a donation every year and we've been able to get an advertisement spot on their Jumbotron during all home basketball and football games and so we've been putting our advertisement there. That's why we're essentially 100% with waiting lists on the property. You know, we got a relationship with them, we went and communicated with the police chief and the mayor. The mayor actually came out to our open house wearing one of our t-shirts, the mayor of the city.

So we got really involved with the community and it's a small market but we did get involved with that and all of that essentially added value. As I said, we've got a waiting list now, we can raise rents. The main thing that we were emphasizing throughout this two-year hold, we've only had it for a little over two years, was getting the occupancy up. That was the big thing. I wanted the occupancy up, I didn't care about raising rents. Now, we've got the occupancy now, we're going to start raising rents. Or what we're doing is we're actually selling it. So we're leaving it for the next person. The next guy could come in raise rents without having to do anything. They can come in and raise rents without having to do anything just because we've redone this entire property. 

James: Awesome, awesome. Very, very, very, very interesting tips on how to get engage in student housing marketing. So what about financing, who gives the financing? Is it still agency loans or is it small Banks or how's that? 

Jeff: Well, we'll start off with the Georgia, probably. The Georgia property we paid all cash. At 30% occupied we weren't going to be looking for a lender. Yeah, my Ohio property that was a challenge and it ended up that I went with a privately owned bank. It's not a small bank, it has 36 branches so I wouldn't call it really small but it's privately held and they loan in Kentucky and Ohio, I think. So if anybody's looking for either student housing or lending, they do those two states. They're actually a Kentucky-based lender. The Arizona one was just a regular bridge lender that funded that one and eventually, we'll go out of the bridge into an agency loan. 

James: So you think you can get an agency loan on student housing? 

Jeff: Yeah. We can get an agency loan.

James: Because I know usually when I go to an agency, they usually ask, you know, how many percents are students, how many percents are corporate housing and all that so I'm not sure.

Jeff: Yeah, I don't remember if it's Fannie or Freddie that will do student housing. But they do require a certain population. I think it's 15,000 student population, something like that.

James: Got it. Oh, really? Okay, that's interesting. 

Jeff: Yeah, but I don't remember which one it was but one of them will do agency.

James: Yeah, that's awesome. So, let's go back to slightly more personal questions. So do you have any proud moment in your real estate career that you're going to remember for a long time, that you think 'I really, really did something that I'm really, really proud of', do you want to share that? 

Jeff: Oh, I could go back to the Georgia property where I had a period that I actually was brought to tears. When we were doing that video that I was talking about that we gave to the school to put on there, our advertisement, I actually went down and did the interviewing of the students myself for that property because I have a background in video. And the stuff that our property management was taking was just horrendous. 

I went down there and interviewed the students and I didn't tell them who I was, they didn't know I was one of the owners or the owner. And the last question I asked them was if you had an opportunity to talk to the owner or to let the ownership know, what would you tell them? And some of the answers that I got were just tearjerkers. I mean, I had one girl that said that she was so happy with her new room that she now can actually bring her mom and show her where she lived that she was actually proud of where she was living now. And some of the other students were just saying, how much safer they felt, you know, much nicer environment.

We had gotten rid of all the riffraff. We had gotten rid of a lot of people that were not students, but they were just living there and just smoking dope and we had increased the security and we had the police coming by, you know, just to keep things safe. And so just talking to these kids, they're not kids, they are 19- 20-year-old, you know, young adults, but that was one of the most rewarding moments I had. Because here they were, this is a low economic area where most of these students have very disadvantaged upbringing and we were giving them a nice clean safe place to live that they can be proud of. 

And they appreciate it much more so than some of the other properties where we may have upper-middle-class people in there that probably don't appreciate what you're doing as much as these guys do. So that was just an absolute, you know, great opportunity to be there with these guys. 

James: Yeah. It's very interesting on how we as entrepreneurs and operators change people's lives and it's just so fulfilling when you do that. And for me, It means a lot. Making the money, I mean, this story, you will always remember it. Sometimes you forget about how much money you made in that deal but you will remember how you impacted people's life, which is amazing.

Jeff: Yeah, I mean, that's what I think about. I mean certainly we're all going to make money on this deal, you know, a good amount once we sell this but that feeling, you know, I'll have all the time. I mean that was great, you know hearing these guys. 

James: So any advice that you want to give for newbies who want to walk your path in multifamily and student housing in general; if they want to be as successful as you?

Jeff:  The thing is, find somebody that has walked the walk. You know, it could be a mentor, it could be a formal mentor, it could be somebody that's doing it. If you find somebody in your area or someone you meet up that is successful in whatever it is they're doing, be it multifamily, student housing, you know, senior living whatever; you find somebody else that's successful and find a way of being some kind of service to them. How you can help them out and go to them with that, hey, I would like to help you out. Do something and learn from them. That's the best way to learn anything is to be working with somebody else that's doing it. You know that would be what I would do. I did some formal mentoring in the beginning and that helped me get started. I would have loved to have been working side by side with someone with more experience. As it was, my partner and I were both about at the same level when we started but being around someone that's been there and done that is a great way to start out in this business. 

James: Awesome. Awesome. Hey Jeff, we almost there to the end. You want to let our audience know how to reach you?  

Jeff: Well, you can email me [email protected] or you could go to my website, which is also www.synergeticig.com

 You could also get a hold of me at Bigger Pockets and I'm around on the forms a little bit.

James: Yeah, I remember when I was starting in real estate, I used to see you a lot on Bigger Pockets. So it's good.

Jeff:  I haven't been on as much lately. I need to start renewing some of that but I was on a lot in the beginning. That got me a lot. I mean it got me on my first podcast so...

James: Awesome. Awesome. Well, Jeff, thanks for adding value to our listeners and audience here. I'm sure we learned a lot. I learned a lot as well, in terms of student housing and the nuances of how to add value in student housing and how to operate and at least look at the deal. And so it was very good to have you here, and that's it. Thank you very much and talk to you soon. 

Jeff: Thank you.