Achieve Wealth Real Estate Investing Podcast

James: Hey audience, welcome to Achieve Wealth Podcast, where we focus on value add, real estate investing across all commercial real estate. Today we have Paul More from Valence Capital. Paul also has a podcast called How to Lose Money and also a frequent contributor to BiggerPockets. He produces live video blog content on a weekly basis, he's also the author of The Perfect Investment book, 'Perfect Investment creates entering wealth from historic shift to multi-family housing'. And has a forthcoming book on self-storage investing. Hey, Paul, welcome to the show. 

Paul: Hey, it's great to be here, James. Thanks for having me on.  

James: Well, really really happy to have you here. So you have been an inspiration to me because I've read a lot of your articles on Bigger Pockets. So I want to go into some of the articles in BiggerPockets which is like, for example, recently you wrote about real estate tsunami, right? And the other article such as, 'Why do some people will continue to overpay for multifamily?' Can you explain what's your thought process behind these articles?  

Paul: Yeah, you know a lot of what I'm trying to do is warn people that there is a market cycle, you know, and a lot of people who are successfully investing the last decade since the crash, don't realize that it's going to come down, it's going to change. It may not drop drastically like the last bubble that burst in 2008. But here's the thing, I just read a book called Mastering the Market Cycles by Howard Marks and I think you and I might have talked about that book before and you know, there's always people saying it's different this time.  

And the truth is I want to tell people, especially newer people on BiggerPockets, no, it's not different this time. There are things that change every cycle and yes, we may be hovering around a different mean of the cap rate, you know might not return to an average of eight and a half like it did historically, maybe it'll return to an average of seven or six and a half, I don't know but I do know that it's not different. It's always--there's a book out there that I think it's called 'It's Different This Time: eight centuries of financial Folly.' And it explains going all the way back to I believe the 1200s, how everybody always thinks it's different this time, but it's not. And we need to be very, very careful to not overpay for multifamily or any asset class.  

James: Got it. So don't you think with the tenants, the renter's base of millennial who just moved more into becoming renters, don't you think we're going to have a continuation of multifamily boom in general? 

Paul: Yeah, I absolutely do and I actually believe that if I was going to invest a million dollars and it had to stay locked up for a hundred years if I had to pick one asset to put it in, it would be multifamily. Because I truly believe that the multifamily, you know, the nicer ones at least they're being built around Austin or around me here in Virginia, I believe they're still going to be lived in as apartments, a hundred years from now. I'm not sure that Self Storage will still be popular in a hundred years and I don't know where mobile home parks will be, I think they'll be around but multifamily is certainly on the way up.  

The problem is, there's a thing called supply and demand and there could be a situation where people are overpaying for assets in the wrong location. I mean, there's some overbuilding going on, like there is, in any cycle in any asset class. I'm just trying to warn people don't be taken in, be really, really careful. I was at a conference in December, James and a very famous multifamily syndicator got on stage. He wasn't scheduled to be there, I guess they invited him up when they saw him there and he said, hey, go ahead and overpay for multifamily. It's okay to overpay. Just get in the game you need to get in. And I thought he was kidding and I thought that there was going to be a punch line to the joke, but there was none, he was not joking. And his quote actually turned out, I wasn't sure I heard him right, I was shaking my head kind of bewildered and his quote actually went out all over the Internet later. So I was correct, I heard him right and I just don't agree with that. 

 And I tell you, Warren Buffett, Charlie Munger, Howard Marks, a lot of great investors, you know would not agree with this. And so, I'm trying to side with the more conservative great investors on this one.  

James: Got it. Got it. And what triggered you to write that book? I mean, there must be something that triggered you to write 'The Historic Shift to Multi-family Housing' and you also mentioned, "The Perfect Investment', what are the components of multifamily do you think that has that perfect perfectness? 

Paul:  There's a lot of books out there about how to get into single-family and the BRRRR Strategy on BiggerPockets and wholesaling, flipping, building a portfolio. There are lots of books on apartments, but I didn't see one that was specifically geared to people to help them to realize how they could make the jump up from a few duplexes to being part of a large scale commercial multifamily project. And so, I wanted to write that for those people and it really struck a chord. I have a storytelling fashion manner and in the book, I tell a lot of stories and it really struck a chord with a lot of people. I mean people are telling me that it's the most pivotal multifamily book that they've read and I still believe everything I wrote in it, even though I wrote it three years ago.  

Some of the statistics, you ask what makes multifamily so great. A couple of the things are; number one, the government. Now, the government tinkered in the housing world in 1995 or so. They said everybody that can fog a mirror should be able to buy a home and they pass laws that motivated, let's say, to put it lightly, motivated Mortgage Companies to give mortgages to anybody even if they couldn't prove they had good credit or even if they didn't even bother to prove their income. I had a guy I know who was making about 40,000 a year, James and he bought a $600,000 mansion as his second home and I think it was to impress his family back in his hometown. Well, he didn't impress them much when the notice went out in the newspaper about four months later that he was in default and it was foreclosed on but anyway, that's what happened. Well, in 2005 that bubble began to burst and from 2005 to 2015 well, first of all, from '95 to '05, homeownership rose to from 64% up to 69.2%. From 2005 to 15, it dropped back to a historical level of about 63%. Every one point drop means 1 million new renters into the renter pool and of course during the recession and then the aftermath of the recession, there was a lot of building going on so there became a supply and demand imbalance. That's number one.  

Now number two. There are four demographic factors. Number one and that is Baby Boomers. They're the smallest group of renter's but they're the fastest-growing group. And the statistics say that when a baby boomer 50 60 70-year-old rents, they never buy again and that's happening more and more. And part of the reason, James, is we learned during the recession that our home, our single-family home wasn't what our grandparents told us, it wasn't our greatest investment. A lot of people, you know, were leveraged to the hilt and they lost their homes.  

And so, another group that saw this were the Millennials, that's the second demographic group. And they realized single-family homes is not my greatest investment and why should I be tied down to a, seemingly, overpriced home with a 30-year contract in this part of town when I might have new friends or new adventures or a new job opportunity on that other side of town or that side of the country next year? And so, Millennials also have record amounts of student' in credit card debt, and they don't want to get tied down and they don't have a huge propensity to save. So Millennials rent far more than buy. Now, that's changed some, a few years since the book but, you know, Millennial still have a propensity to rent more than buy. 

 A third group is immigrants. Immigrants, on average, rent more often and for longer than folks who had their descendant, you know that was born in America. The fourth group that I didn't cover in the book is Gen Z and I was really surprised. As far as I know, the Gen Z group is the only group that came right on the tail of another large demographic group and they're actually about the same size, about 78 to 82 million strong. And so, this group we can only guess will be renting more than buying. So those are some of the factors. I will tell you that because of all this, multifamily, large-scale multifamily has almost a zero default rate Nationwide. In fact, from what I understand, well, I mean I can tell you during the Great Recession, multifamily was only at, I think, point eight percent default rate, I think it was point four percent default rate, in fact, with Freddie Mac specifically. And Freddie Mac, on the average for single-family homes, was a four percent default rate. So it was only 10% of the default of single-family and now it's virtually zero. It's about 98 or 99% less than single-family homes. So the default rate is very low. Again, the risk compared to the return is very favorable for multifamily.  

James: That's a very long but it's a very detailed explanation for why multifamily will continue to be in high demand for a lot of people who need housing. The other thing I want to add is a lot of things are moving to the cloud. A lot of work is no more like I have to drive to somewhere to work, right? So everything is in the cloud right now. So it's easy for people to move and change jobs and go live somewhere else and everything is in the cloud, right? So with the technology changing, you know, you just make more sense to rent. Do you think we are becoming a renters Nation?  

Paul: You know, Germany has about 60--let's see, we have 63 or so, maybe 64 percent home ownership right now. Germany has about 42 and Dallas, Texas near you is below 50. I imagine Austin might be below 50. We're older cities, you know, more mature cities that don't have a huge amount of migration coming in right now. Like Detroit is over 70% homeownership. And so I think if you look at the trends, I think we're becoming more and more a renter nation and it remains to be seen how it will shake out in the coming decades though.  

James: Yeah. Yeah. Yeah. I'm going to be posting a chart which shows all the cities in the US and it shows the homeownership difference from 2010 to 2018 and you will see some of the Cities there, it has like almost thousand over basis point change in the home prices well, and how are people going to afford it in the cities. So, you know some cities are going to be more renters city, faster than everybody else. So that's very interesting. I mean, what are the things that all multi-family investors need to be careful of at this stage of the Market cycle? 

Paul:  I think just you know, the Euphoria of potentially overpaying or potentially buying a C-Class property and treating it like it must be a like a B class. Yesterday on our podcast, we had Monique Calm and Monique is really large, really big in the female commercial real estate space. And she said her biggest mistake was buying a D-class property in the euphoria of 2016 and treating it as if it was a B-class property. And, of course, those are very different things and she got out by the skin of her teeth after losing a lot of sleep and through a lot of pain and I think that's a really big risk. I think the risk, anytime you're at this hype part of a market cycle the risk is, you know, believing that it'll never change. As I said, things are different this time. Well, no, things are probably not different this time. It's going to burst. 

 Now, it may not drop like a rock as it did in the fall of 2008, I don't think it will but that's a risk and we got to be really careful not to overpay.  

James: Okay got it. Got it. But do you think the information about multifamily is also very widely known right now? It's no more hidden investment asset class ready. So do you think that can cause the whole Market to shift as well? Maybe our circle is whoever we know in multifamily. I may be wrong by saying everybody knows about multifamily because I still find a lot of investors who don't know about multifamily yet. Do you think because of the knowledge that has been disseminated by social media and lot of clubs and lot of groups and just there's so much of information out there about multi-family, do you think that would impact what's the next recession or the crash that's coming? 

Paul:  So let me ask you, James, do you mean because there's so much information out there that there are so many more investors coming in at might keep the market, keep the price up a little bit?  

James: Yeah. So many less sophisticated investors are coming in so, for example, mobile home parks, like five years ago, nobody wanted to touch it. But now there are so many people who want to do mobile home parks. Self-storage was not known, the same thing with multifamily 2010; nobody wanted to touch it because it's considered expensive. It has always been considered expensive for me. But do you think just because of the information and the knowledge that people have right now about how to run asset management of multifamily, you know that could change the landscape? 

Paul: It's possible. I'm not sure. I think that amateur, I shouldn't say amateur, most investors tend to buy high and sell low and even experienced investors do that. We discussed this on my 'How to lose money podcast often and so you know whenever there's a motion involved, it's very, very hard to predict the timing and the future. I can tell you the higher things go the lower they will go later because the same people who were the most euphoric to buy at the top are the same people who think they've never ever buy again at the bottom. And, of course, Warren Buffett and others us, you know, you need to buy when things are the opposite of what they seem and we know that. 

James: Correct.So what do you think we should be doing as multi-family investors who know how to run, how to do asset management, how to buy deals? I mean, we already have the knowledge, right? So a lot of people who already have the knowledge but what should they be doing like at thisMarket cycle? 

Paul:  I think being very, very careful. I keep beating the same drum actually, James and that is just really really being wise. Having a default of know; why not have a default to say, hey, I'm looking at this multifamily deal. I'm going to start out by saying, I'm not going to do it. Then letting the numbers, letting the demographics, letting everything else convince you that you should do. You know, it's as entrepreneurs and investors we're naturally an optimistic bunch, we naturally want to do things, we want to say yes. And then, once we are way down the road with it, you know, then everything looks good. And even the things that look negative, we somehow in our minds twist into something positive.  

Well, what if we started out with a no and let that be our default and then we let the numbers and everything talked us into it? I think that would be a good way to go for any kind of investment.  

James: Yeah, that's absolutely, really good advice. So let's move on to your recent adventures, right?So you have been looking more into self-storage. I mean, investing with self-storage, even though you said you're investing with another operator, right? So is that right, self-storage only? Are you do also mobile home parks as well? 

Paul:  Yeah. About a year and a half ago, we were beating our head against the wall, trying to find multifamily that made sense and we finally decided, hey, let's expand outside of multifamily. So we started researching self-storage and mobile home parks and we found out the formula to do it. We found out how to do it, what made sense, what were the best steps and we were pretty much on paper or in a book, we were able to understand what to do; what the steps were to do a very, very profitable deal. Well, that didn't mean we had done it and I had to look at my team and say, guys, you know, we know how to do this, but we're late and the market cycle prices are high in all these asset classes. Maybe we should invest with some experts who already have a team, who've already been doing this for decades. 

And so we decided, as a company, to pool our resources and our investors' resources together and invest with operators. And so we spent a long time, last year vetting great operators, and we're still doing that now. Trying to find great operators to invest with and then, investing with them in their best projects. And by doing that, we're getting the benefit of all their years of experience, their acquisition pipeline. A lot of them have great off-market deals that I don't have access to and the expertise to drive the highest income and the highest value and the highest return on equity for the investor.  

And so that's what we're doing. In fact, Wellings Capital has put together two funds recently to allow people to invest in these other experts, these best-in-class operators deals.  

James: So do you get similar loan terms like in self-storage as well? Like is it a non-recourse type of loan or do you get like government loans like Fannie and Freddie? So my government loan I would say.  

Paul: Yeah, Fannie, and Freddie love self-storage and mobile home parks. In fact, the interest rates for mobile home parks, surprisingly, are lower than multifamily, quite a bit lower and Freddie and Fannie allow at least Freddie Mac allows syndicators to refinance and to take basically additional equity out of the property twice in the first five years. And those two refinances are at the same interest rate as they went in at, guaranteed upfront and there's no penalty. So it's a great opportunity to you know, get in below to sometimes below 4 percent interest and then pull out safe Equity to hand back to the investors which we love to do. Because if we can hand them all their money back in the first five years, well, they can go out and reinvest that and then the money left in our deal is really essentially zero, so they're effectively getting what is called an infinite return on their investment at that point. 

James: Yeah, I remember Fannie Mae entered mobile home parks like two years ago. I mean, that's where I was looking at mobile home parks. And that's the time like Fannie Mae came in and I was surprised even when they started itself they already told everybody about, hey, you can do a multiple refis on the same project, which was very interesting because it's hard to do on a multi-family. There is prepayment penalty, you have the fees and you know, it's just so hard to increase the value so much and you know, we had to do double refire within a short time. And so that's interesting. Is that the same thing in Self Storage as well? Does Fannie and Freddie loan non-recourse loans in self-storage? 

Paul: I'm not as familiar with Fannie and Freddie's take on self-storage specifically because a lot of the operators we worked with either use, one bank, in particular, is called Live Oak Bank, and they're very aggressive in Self Storage, especially the smaller deals. And then there are some REITs. In fact, the REIT that owns U-Haul and I'm struggling to remember the name of the REIT, actually does a whole lot of the debt in Self Storage. There's other Regional Banks like BB&T and others that provide loans as well for self storage. Those seem to be the most popular with the operators, we've been working with at least. 

James: So what about challenges in self-storage? Because self-storage is pretty easy to be built, right?  Anybody can build something because it's cheap and if you find land. So aren't you worried about that kind of coming into self-storage?  

Paul: I am worried about it. In fact, I thought about doing a self-storage project myself, 20 years ago this year, in 1999. And my concern was, well, I built it on the edge of town here and there are all kinds of farmland just outside of City Limits. Well, as the town keeps expanding what if another nicer self-storage facility comes in and a year later, I'm in trouble? And you know, there's truth in that so there are very important things you have to look at when you invest in a self-storage deal.  

For example, we just invested in a Minnesota deal, it's near Minneapolis and it's in a town. It's in a suburb that has already changed the zoning and said no self-storage is allowed in the city limits unless they're in an industrial part. Well, that bodes really well for this self-storage project because it's right in the middle of a bunch of Townhomes, single-family developments, multifamily some retail. It's right there on the main Boulevard in town and it's a perfect location. And now that the competition is relegated to industrial parks, it made it a really good opportunity. There are other factors we look for in evaluating self-storage.  

And for example, we want to see less than an average amount of square feet of Self Storage in a say a three or four-mile radius around this one. So here's how you look at it. You look at the total square feet of Self Storage in it, let's say a 4-mile radius, and then the total people in that radius and you're looking for the national average might be around seven square feet per person. Well, if you're in a market like our Minneapolis one, where the average square feet per person was only two and a half square feet, then you can basically say that that market is undersupplied. And so, it's undersupplied because you know, it's much less than the national average. And then places like Florida, Texas, California, the average square feet per person is likely much higher because they don't have basements typically and they're rarely using their attic because it's so hot. And so those have even higher demand than the national average. But those are the kind of things we look for as we evaluate these things.  

Another one that my friend invested in was in a basically a sleepy town called Marietta, Georgia. It was sleepy years ago. Now, it's a booming suburb outside of Atlanta and this, you know, 1978 facility was looking pretty tired. Well, he bought it and he is making into a gleaming beautiful facility right on the main boulevard in town.  

James: Awesome. That's very interesting on how Self Storage has changed throughout the years. But I think if you look at like the last 15 years, I mean, I did a lot of analysis on asset class and Self Storage is one thing that has never dropped in demand since past 15 years.  

Pauk: Yeah. It really hasn't. 

James: Yeah, there's no data that shows that it has dropped a lot. So that's a really good asset class. So right now, you are like investing with some operators, right? So, how did you choose your operator? What was your criteria? What did you look for in them that you feel comfortable about them and you know placing you and your funds money? 

Paul:  Yeah, so we're looking for you know things like high character, high ethics, high integrity, you know, can we really believe what they say? We're looking for competence a second see, you know, we're looking for people who have a phenomenal track record, happy investors, professional, you know bookkeeping and operations. We're looking for people who have weathered the storm and we'd like to know how they weathered the storm, what they did during the recession, what they learned from it and what they're doing now to protect themselves against the next downturn? We're looking for conservative, people who are not taking on way too high of Leverage. We're looking for operators who might be better operators than they are many razors and they might need some money to you know, fund some equity, to fund their deals. We're looking for operators who are willing to give us a better deal than a retail investor. 

And what that means to me, is that as a fund we might get a better ROI than an investor coming off the street to them. Which means that we can offer when our fees are factored in, for running the fund, keeping the lights on. We're giving our investors still a better or about equal deal to what they would get if they went directly to them. We're not vetting operators. A lot of people ask me this one; are you vetting them based on geography? And I would say if I was an operator myself, I would absolutely be looking for the right geography, but we're actually trying to merge; we're trying to bet on the jockey and let them pick the horse. Let them pick the geography.  

So for example, I'm talking to a guy in the Pacific Northwest, which I know very, very little about. I'm heading out there June. We don't know that area really well, but he does and we trust him to make the right decisions to invest in those areas like, Washington, Idaho and, Oregon. 

James: Got it. So is this like 506C offerings? Is that what they do?  

Paul: Yeah, so we are a 506C which gives us the maximum flexibility to invest in a 506C or a 506B syndication.  

James: Got it. Got it. So I want to take one of the points that you mentioned in terms of, you know, selecting the operator, right? So how do you know they have a good track record?  

Paul: Well, I mean, if they're making this offering if they're reporting their track record and they're going back and showing line-by-line the different deals they bought you know, they're going to have to tell the truth on there or they can get in trouble. But another thing we do is we talked to some of their references, we talk to investors that invested with them. Sometimes we'll try to find an investor or two that they didn't know that we asked you know that we happen to run into. We really look to people who have gone before us in this business. 

 A lot of people know and maybe you know, Jeremy Role for example. He's in LA and Jeremy has a phenomenal track record of investing and he's very very conservative our first conversation, years ago I was trying to pitch him to invest with me. He said, well, I'm probably not going to invest in your deals. I'm probably a lot more conservative than you are. So he started that's what I said a while ago. He started with the default of no and by saying no first, I had to try to convince him that it would be a yes. But anyway, Jeremy is super conservative and when he really likes an operator that gives me a reason to believe that we're going to like them too.  

James: Yeah. I know Jeremy and his investment criteria, which is really conservative and I interviewed him on the fourth or fifth podcast. Once I launch people can listen to that podcast as well. And let me see. Is there anything that you want to share in this podcast that you have never shared in any other podcasts or your own podcast? 

Paul: Oh that's gonna be really hard to think of. I talk a lot so I can't think of anything that would be completely unique. I will Circle back and tell you briefly that one of the reasons Self Storage demand has never gone down at least, you know to this point--now, by the way, that doesn't mean there couldn't be a market that's oversupplied. I heard of a self-storage facility last year that was foreclosed on because it was in an oversupplied Market you got to be smart.  

But think about it, James, in a good Market, people are filling up their Amazon carts or their Walmart cards and they're buying more stuff and they need a place to put it. In a bad Market, people are often downsizing from a let's say 4,000 square foot home to 2,000 or 2,000 to an apartment. They need a place to put their stuff and for a relatively small cost, they can put their stuff in self-storage. And think about this if I was charging $1000 a month for your apartment in Austin and I raised, may be low and I raise the rent by 6%, you might move rather than pay me $720 in the next year.  But if I was charging you a $100 for a storage unit and I raised it 6%, you're probably not going to move, spend a Saturday, get a U-Haul, get your friends to pack up your junk, I mean, your treasures and move them down the street to save $6 a month.  

Tenants are very very sticky in self-storage. It's very similar to mobile home parks. If you raise the rent 10% you know, are they really going to move down the street, spend $5,000 to move their trailer down the street to save $30 a month on lot rent? Probably not.  

James: Yeah, and also the leases are monthly right? So that makes changes in rent much more quicker and rapid right? 

Paul: Right. Yeah, a lot of self storage operators raise the rent twice a year.  

James: Got it. Got it. That's very, very good to know. So throughout your real estate life, is there any proud moment that you think make yourself proud even until now that you think you really had a huge contribution to someone or can you describe that moment? 

Paul: Yeah, I mean there's probably a few I think I can tell you about my worst deal and my best deal. I'll try to do it quickly. My worst deal was a 5-acre subdivision that I bought, excuse me; a five-acre piece of land that was Waterfront. I bought it in 2006. I was flipping Waterfront lots at this Lake and I really believe very speculatively, by the way. I really believe that the road in front of this five-acre lot was going to be made from a private into a public road and that would allow me to subdivide the land. Well, that wasn't the case. There wasn't going to be a public Road. And we were wrong and we went into the Great Recession with $860,000 in debt on that five-acre piece of land and we were paying that debt along with, we had two and a half million dollars in total debt, my family did and that was part of our business. And my partner left and that left me with all the interest in January 2008. Well, I told my friends and I told my family, we're going to start giving our way out of debt, which was kind of crazy. But I really believe my back was against the wall and I had to try something and so I really believed in, you know, the law of sowing and reaping another people call it karma that I would give and it would come back to me.  

So we started giving a very significant check, a very significant amount of money for us, at the time, every single week we gave it to nonprofits and to our church and we really believe that it would pay off. Well four weeks later, I had a light bulb moment, a light bulb idea to take the law that would not allow me to subdivide and sell off this land and turn it on its head and actually subdivide and sell these four, now actually 5 1 acre parcels. So we did that; we sold the land, we sold four of the five lots in the fall of 2008 and I was completely debt-free 13 months later.  

James: Wow. I'm a strong believer in the law of karma, right? So that's really good. Very inspiring story. Thank you for sharing that. 

Paul: You bet.  

James: Yeah. I know. Why do you do what you do? I mean, you have a lot of things that you have done for the past, you know throughout your life, right? But why do you continue doing what you're doing this?  

Paul: Well, you know you wrote a book on the power of commercial real estate didn't you? 

James: The Passive Investing in Commercial Real Estate. 

Paul: Yeah, exactly. Well, I mean I can show and you can show, a real estate investor how to take $100,000 in over 20 to 30 years turn that into you know, three to five million dollars. The power of commercial real estate investing is really amazing and it's more amazing when you think that the tax laws favor us so much that you know, it's possible to do what I just said. It's not guaranteed by any means, but it's possible to do that and pay very little taxes along the way. 

 Once I discovered that you can drive, you can force appreciation in Commercial Real Estate, I was completely hooked. For example, let's say you're Chip and Joanna Gaines Jr. And you can beautifully renovate a house from, let's say, half million dollar house, what's that? Dan?  

James: They're in Reco, right?  

Paul: So yeah, right. There are a few hours away from you right now. So let's say you can renovate that house from a half-million-dollar house up to a million dollar house. But if you're in a neighborhood of $400,000 houses, you're probably not going to get your million out of it because values are derived by comparable properties. Not so with commercial as you know, the commercial value formula is the value, is the net operating income divided by the cap rate. And so if you can find a way to increase the operating income and if you can possibly find a way to compress the cap rate and there are ways to do that, then you can dramatically increase the value of that asset. And if you take leverage into account, then you can even more dramatically increase the value of the equity. And so $1 increase in income per month at a commercial property, take that $1 that's $12 a year divided by a normal cap rate of 6% or 0.06 and that $1 of $12 excuse me .06 is 200 dollar increase in value.  

So if you can go around and find ways to save or add a dollar to your income, every month, then you can dramatically increase the value of the property and even more so, increase the value of the equity in the investors pocket.  

James: Yeah, it's just so amazing the commercial real estate. The defaults appreciation play is just so powerful. Especially if you can do value add on top of it. I mean, that is the value add; cash flowing plus the force appreciation value add that's the power of it.  

Paul: Yeah, right, really is.  

James: Awesome. Awesome. Thanks for that explanation. So Paul why not you tell our listeners, I don't see any questions coming in. So we're just going to go ahead and listen. If you guys want to type in any questions in our Facebook group. Go ahead and do that.  Paul, why don't you tell the listeners how to get hold of you and reach you?  

Paul: Okay, great. My website is wellingsCapital.com and they can reach out and fill out our contact form and reach me there. 

James: Awesome, Paul. Thanks for joining us today Paul, and thanks to the audience for joining us today. Hope we gave a lot of value to everybody and that's it. Thank you, and bye.  

Paul: Thanks, James. 

  

James:  Hi audience will come to Achieve Wealth Podcast, a podcast where we focus on value add commercial real estate investing. Today we have Devin Elder from San Antonio, to be part of our guests today. Devin Elder is principal of DJE Texas Management Group. Since 2012, DJE has completed more than 200 plus investment transaction and has an ownership stake in more than 1000 units just in multifamily in central Texas. Devin, why not you, tell about yourself, whatever I've missed out. 

Devin: Hey James, thanks for having me on, appreciate it. There are a lot of details in there, a lot of ups and downs and learning and all kinds of things that go into these deals. As you know, I started out in the single-family world, same as you and I never really left it. I mean, I've been doing single family since 2012 and then a few years ago, was able to find a really great partner, a younger guy with a construction background and I was getting busier in multifamily. So I said, rather than just kill off this revenue stream in a single family, I would just bring on a partner, have him run it. And I and obviously my company too and we still run it, so we still do a lot of single-family but me personally, I'm focused about 90% of my time on the multifamily business, it's what I do today. 

 

James: Okay, good. And you are a native San Antonio, right? Have you lived there for forever? 

 

Devin:  Yeah, more or less. I mean, there are some times throughout my life when I didn't live here, for a few years here and there, but yeah, for the most part, I grew up here. I graduated from the University of Texas in San Antonio, went to high school here, the whole thing and now I'm trying to buy as much of it as I can. And it's really funny because there are areas in San Antonio, I'm 40 years old, so I'm going, man, for 40 years, this area is not good and now all of a sudden, the hipsters want to live there or whatever. So we're like buying these houses and selling these houses in areas that are coming up for the first time in my lifetime. It's really interesting to see, and you know how much it's changing here. I mean, you've got to frost tower downtown, you've got the Pearl massive development there, you've got cranes in the sky and in downtown San Antonio for the first time in a long time. It's good to see. 

James: Yeah. Yeah. I remember my time when I started in real estate.  I'm from Austin, San Antonio. It's like one to one and a half hour drive. I mean we've got northeast one and a half hour drive and it's crazy on the price difference between Austin and San Antonio and the demographic difference.  I remember someone telling me because I was looking at deals in Austin and at that time deals in Austin was like, you know, when I look at single family homes and it was like 100,000, 120, in downtown, it's busy. And at that time, I had a limited amount of money when I started out, I only had like 50,000. I thought, okay, maybe I can buy two deals here but I want to grow very quickly. 

 And I went to talk to someone, he said, why not buy in San Antonio? I said, I'm not driving there for one and a half hour then. And then, at that time it hit me like a brick because hey, I'm just being lazy not driving that to buy more deals. I mean, you want success in life, you have to take that drive or drive one and a half hours, nothing. Then I look at the prices in San Antonio and I realized the amount of equity that I can generate. By buying in San Anthony, I can buy like six to eight houses there compared to Austin, which is like two houses.  Just because it's a lot more cash flowing deals in San Antonio, there's not much of appreciation play with the now things have changed, but it's just a lot of houses at that point of time, its a much larger city, more cash, was a lot of diversity there and that's why I started driving to San Antonio almost every day, not every day. I think a lot of times on the weekend, after work, we used to drive to go see houses and start buying houses there. So what'd you like about San Antonio? You have been there and what do you see in San Antonio that  

 

Devin: Yeah, yeah. I mean, I like it. I've got a family and it's a great city to raise a family in and there are lots of family activities from a real estate investment perspective. Historically, we've been fairly slow and steady, right? So we didn't really see a big upset in values in 2008, it just kind of went flat for a little while but historically we haven't seen a tremendous amount of appreciation either. Just kind of slow and steady is the name of the game. That's heating up a bit in the last few years and it's changed, but still relative to markets like Dallas, Austin, San Antonio is still relatively quiet, relatively lower costs and some of these assets, especially like the multifamily stuff so that's good. I like this market and investing here for just kind of the long haul, just kind of slow and steady increase. 

 Really, we've got some good fundamentals in terms of employment. We're not wholly dependent on the price of oil or one sector; we've got a lot of military here, we've got a lot of medical here for sure. San Antonio is trying to get our tech sector ramped up and there are some local entrepreneurs and some of the guys that were a part of Rackspace and left Rackspace, are really doing a great job building technology companies and software companies here. It's very early stages, but I think in the future that does really well for San Antonio when we can start to grow some more technology companies here. So all of that is I think, trending well for San Antonio. And then just looking at the net positive migration numbers, right? How many people are moving to San Antonio. 

 We're still kind of a workforce housing town. Just because people are moving here doesn't necessarily mean that they're the super high wage earners or whatever. But it's a good metric that you look at when a lot more folks are moving here than leaving. And in the space we play in, workforce housing B and C multifamily, those folks are going to continue to need housing and it's really impossible to build a 1980 200 unit apartment complex, the only stuff that gets built is brand new. So there's kind of a supply constraint there, which I think plays well with the business model. 

 

James: Got It. So yeah, often to San Antonio corridor, it's a huge growth corridor up from what I see. I mean, Austin with the high tech and the high cost of living a lot of people are going in between, Austin, Kyle Buda, San Marcos, New Braunfels, and San Antonio So it's just expanding in a huge way. And if you look at San Antonio, I think that's the closest city to the border, to Mexico; closest biggest city if I'm not mistaken. And the I35 is considered the NAFTA highway, which is good because that's a lot of business going between the US and Mexico. So what are you focusing on right now in real estate? Can you tell me your real estate focus now and we can go into the details? 

 

Devin: Yeah, so I mentioned I've got the single-family business, which is very active. We do flips and things like that. We're building some houses, different things like that going on. But really, as I mentioned, my focus is multifamily. And really, we've got a really good team for all the parts of the business that happens; underwriting and acquisitions and asset management and those kinds of things. Me, personally, I'm really focused on the equity side and putting together equity for the projects that we buy and then the acquisition side. So really going out there and looking at every deal, underwriting every deal, touring every deal. We're focused exclusively on San Antonio. I mean, I've looked at some stuff. I own a property in Seguin now, which is about 45 minutes outside of San Antonio. 

We look at properties in New Braunfels or San Marcus. I don't get up to Austin just because I haven't seen how stuff is going to pencil on the acquisition side up there. But also we're really busy in San Antonio. I'm looking at as much stuff right now as I'm happy to be looking at and touring and underwriting just by focusing in this market. So really we're looking for stuff that's over 100 units, 150 plus units, that type of thing that we can buy and do some kind of capital improvements; four, five, six, $7,000 a door of capital improvements. And that kind of run the gamut from just deferred maintenance to sprucing up the outside of a property. Maybe there's a rebrand or maybe there's kind of a management or operations issue, we can go in and fix. Something that we can go in and create some kind of value. Because at the end of the day, it's all investor return driven. So when we look at deals really like the one thing I look at in our underwriting, it's what's the equity multiple over our whole period, you know, are we gonna be able to double people's money in five years? If not, then maybe that's something that we pass on. And then if you do that, if you look at the equity multiple of around two, then your IRR is typically going to be high teens and your cash on cash probably going to be somewhere in the seven to 10 range over the whole period. So the cash on cash numbers kind of work themselves out and the IRR, we're really just looking to see is there a way to add some value cut expenses, improve our rental income by making some improvements and so forth and just hold onto these things. We like a lot of sponsors, underwrite typically five-year-olds and just go in and execute the improvements over the first year or 18 months and then just kind of hang on to the properties and try and grow that portfolio.  

 

James: Awesome. So what's your favorite value add strategy? I mean, I think you have given a lot of the value add deals, right? Why not you describe some of the few deep value-add deals that you guys have time done and we can go into a bit more details into that.  

Devin: Yeah, yeah. There's a property right now that we're actually just kind of coming out of our cycle on, a pretty heavy lift and there was a lot of section eight in that property. And then there was also some weird units where they were calling them three bedrooms and four bedrooms, but it was really two one bedrooms on top of each other and they put a spiral staircase in between. And so that was kind of a weird deal where the property was originally built as a much larger property so we went and changed it back to the larger property, basically adding units and then changing it from an all bills paid property to none of the bills being paid by the property. And so that was a pretty drastic repositioning of that property where that's tough to do and there are a lot of moving parts. It's not like just going in and making some little improvements, it was like completely re-characterizing this property as a market property versus like a lot of sectioning that was in there. 

 So that part was definitely a challenge. Fortunately, we budgeted well for it upfront. A property like that you want to leave a nice fat contingency number in the budget because you can go through and get all your inspections done but we know in real estate, especially old stuff built in the 70s whatever it is, that there's just going to be stuff that comes up there. So you want to be well capitalized. Fortunately, I've been in construction for a lot of years on these single-family houses, I've seen absolutely everything you could imagine, where we just spent $100,000 renovating one house. So it's like we've seen and done everything and so none of this stuff really surprises me. It's just that on the apartments you gotta watch out for things like $100,000 plumbing bill that could come up if it's a really old property or different things where the rehab numbers just get bigger. 

But yeah, as far as value-add strategies, I mean on that particular property there was a lot to do. The stuff we're looking at, it seems like lately more now it's really just about kind of doing some interior updates where you're putting in kind of the classic vinyl plank and two-tone paint and new fixtures and then doing what you have to do to the exterior. Or sometimes that's a rebrand. My favorite exterior thing is the solar screens because it might be like 10,000 bucks for a whole property and it like completely changed the look of the property. So I always want to put those on if a property doesn't already have them. 

 

James: Yeah, that's interesting. I mean, I love the solar screen is just I've tried to kind of put it in my properties but haven't gotten a chance yet, but I know the money you spend, it really gives you the exterior look that is very nice, a very clean look, rather a very sharp look of the property.   

 

Devin: Yeah, and then it hides the blinds and it hides all kind of covers a multitude of sins. So I like doing that where possible, it has a nice impact. And I think like aesthetically it has one of the biggest bangs for the buck. You know, if you try to go paint a whole building that's going to be like ridiculously expensive. And you know how much you can on that but it's tough sometimes. 

 

James: Correct. So let's go back to that. A property where you have to do a country Gresham change, right? Because that's a major change, right? And changing from all bills to bills paid, that's another major change. And are you eliminating section eight people and getting into a conventional market as well? 

 

Devin: Yes. 

James: Okay. That's another big chase. So you're doing a lot of changes in that deal. So how long do you expect to turn around to stabilization? 

 

Devin: Well, it took about a year to get it stabilized and we're there now, so that's changing the bills from all bills paid to nothing. And it was interesting because we didn't really factor in or underwrite like a big huge rent bump. Usually, sometimes you say, hey, we want to do $4,000 on the inside and that's going to be $100 rent premium and so I think that is like $1,200 a year divided by 4,000, you're getting a 30% ROI on your interior upgrade if you spend 4,000 and you get $100 rent from rent bump. That's kind of like a typical underwriting ROI exercise that you would do. On this property, we didn't see it on really the rent bumps. In fact, the rents didn't really change a whole lot. But we're taking about, something like $200,000 of utility expense off so it kind of almost doesn't matter whether you're raising rents are lowering expenses, it all drops to the NOI [16:09inaudible} 

 

James: Correct. So you go into that building, let's say the broker takes you to the unit and how do you identify the opportunity? 

 

Devin: Yes. So the opportunity on the utilities was just kind of at the first pass of the underwriting saying, hey, based on the location of the property and what we think we can spend and improve it and rebrand it that we can make this a market property. And then the opportunity to convert some units were actually on the first two or after like we'd done some underwriting and looked at it, and then we started seeing all these funky staircases. And first of all, they just look dangerous, right? I mean you don't see spiral staircases in properties and probably for a reason. And so once we figured out the original layout of the property and said, you know what, we're just going to take these out, add some units, it's going to be safer. We're going to change the unit mix because there'll be more one bedrooms on the property, but we're okay with that. And then a kind of underwrote that and said, hey, we've got a pretty low basis now if we're looking at it as 130 unit property and we're picking it up at this price then our basis is pretty low, we feel pretty good about going in and making those changes. But the conversion opportunity, we didn't discover it till we actually did some walk-throughs. 

 

James: So what about the parking lots and parking spots because that can be a problem with the city, right? Because usually, they go by unit mix. 

 

Devin: Yeah, for sure. Luckily the parking ratio was really very good, to begin with, because the property had originally been built as that higher unit count. So it wasn't like we were building new units on dirt and we're running in parking constraints, we're actually just kind of returning the property to its original setup. And so the parking ratio still is pretty good even with all those units. 

 

James:  Okay. So the guy who you bought it from, he may be the one who had converted by making like, two one-bedrooms into two by twos, I guess?  He may have done that. 

 

Devin: They had it for five or six years. I don't think it was them, it was some previous owner. Who knows how many times it's changed hands. I guess I could go look it all up, but it definitely wasn't the donor we bought from, who knows how long it had been in that state.  

James: Okay. Okay. So that's very interesting. So what about on the interior side, is there are any unique value add strategy that you really liked to do that you think is the biggest bang for the buck?  

 

Devin: Yeah. You know, you start to tour all these apartment units and see everything and it's like, man, do they start to all look the same, right? You got vinyl planks, two-tone paint, gray walls, updated fixtures and it's all kinda the same thing, resurfacing countertops so that's all kind of the same. One of my favorite things is those little metal pull bars, you can get them for like a dollar on Amazon. You order them a thousand at a time or whatever. Sometimes we'll re-phase cabinets, but usually, we'll just paint cabinets and instead of the little knob pulls, we'll do the pull bars; it costs slightly more but in the scheme of things, we're talking about a dollar per bar instead of maybe a quarter per knob and it just gives it a nice look. I really liked that look and it's really inexpensive. Another thing that we're doing in a property that we just bought is this stone back-splash and it basically just goes right on. So it's 3D, three dimensional, it looks really good, it looks expensive but it actually doesn't really cost us that much and we do it all in house. We use third-party property management, but the property just bought the stone cutter and they can just go in there and cut it and put it right on and it looks really sharp and that's a nice improvement versus like actually going in and putting in subway tile or something that's going to be a lot more costly.  

 

James: Interesting. I've seen like where it comes in pieces, but are you talking about the whole thing coming together? 

Devin: It comes in the 12 by 12 pieces, but it basically just sticks right on. So all they have to do is make the cuts. 

 

James: Got it. Interesting, I need to check that out.  

 

Devin: And I've seen like the mosaic tile stick on stuff, but I don't think that stuff's going to hold up for a while, this is more like stone and it goes right on.  

 

James: Do you remember what's the name of it?  

 

Devin: I don't, I could send it to you, but I don't remember off the top of my head.  

 

James: And how much does that cost to do it? 

 

Devin:  I think it should be costing us $150 to put in.  

 

James: Yeah, that's really cheap, right? Just put it in at 150. A lot of people like the back-splash. And that's very interesting that we can put that in. And I know about the pull ball of the cabinet. That looks really nice as well.  

 

Devin: Yeah, it's a nice easy upgrade.  

 

James: Absolutely. Yeah. Got it. Got it. Got it. So is there any deal that you thought was not a good deal and you walked away and later you found out it's a good deal? And can you describe what you could have done to catch that opportunity? 

Devin: You know, I feel that way all the time. You know, I underwrite a deal and then I maybe offer on it and the offer wasn't high enough and we lose the deal. And then I see a friend of mine buy it or something and I'm going, well, so they saw something in it, you know, I couldn't get it to work, but what did they see in it? Or like there was another deal that I was like way low on our offer price, I was like $2 million low on our offer price, which I was like, that's as high as I can get it to underwrite to. And then, I see it come out on crowd street and some firm California bought it and they were like super aggressive on their numbers. 

And I'm going, man, this is a big firm, they have 5,000 units, I have to assume they know what they're doing and they're being really aggressive. And so, there's not a deal that I can point to, specifically, and say, oh, that was the one that got away because if we lose a deal, I just move on. I mean, we're looking at so many deals and touring so many deals that I don't really worry about it if we lose a deal, I mean, that's just the name of the game you're going to lose. My philosophy is you're going to lose most of the deals and that's okay. That's just the game. But I do see stuff that we look at and then somebody else buys it and sometimes I scratch my head and I wonder how they're making the numbers work. 

So, a lot of that I think, unfortunately, is that we've just been in kind of this market where stuff's been appreciating. I mean, we see that a lot on the single family. Like we buy a project and then we rehab it and maybe we go over on the rehab budget, but in the six months it took us to buy to sell, there's been appreciation and it's like, wow, that's really good when it's working for you, but it's not always going to go in that direction. So I think we've seen a lot of that in multifamily and you have to be very cautious right now in this stage of how long we've seen asset prices increasing and just not assume that that's going to kind of continue forever. 

James: Right. Yeah. So let's go to a bit more personal side. What do you think is your top three things that you have inside you that is your secret sauce in becoming a success in the business?  

 

Devin: Yeah, I think early on, it was the absolute decision to make this a success. And by decision, you may have heard that the root word of 'decide' is to cut off, right? So it means to cut off any other alternatives. And I think looking back, it's easy to just say, oh yeah, I just made that decision but it's very extremely difficult in the beginning, getting started without really any money to get started or any knowledge or experience. It's not like my family has done this or I learned this from somebody that was close to me, it was really just going out and figuring it out.  

So making the decision early on that this was going to be what I did and it was going to be a success and not being a dabbler. A lot of people want to kind of just try things out and I don't think that's the recipe for success in anything. Like it's more like a marriage. Like you commit to it forever. And so I committed to this early on and put everything I had into it in terms of my resources and my money and everything in it and it had to work right? And when it has to work, I think you find a way to make it work. So that the first one. And kind of the most important thing was just being very decisive about this being what I was going to end..... 

 

James: When did you decide, was it when you were in school or when you're doing your W2 job?  

 

Devin: Yeah. While I was doing my W2 job, I, I did my first couple of houses and I decided because I really wanted to get out of my W2 job and I didn't even know that real estate was going to be it, I just didn't want to work for somebody forever.  

 

James: And do you have a triggering point that at that point where you decided, I'm going to do this full time?  

 

Devin: Yeah. I was fortunate in my first career I worked at a really fantastic company and I had a great couple of years. And then after awhile, I started to get a little bit restless and I thought maybe there are better opportunities. And I started kind of moving to different companies, trying to find the next promotion or whatever. And then, I just kind of discovered after a few years of doing that, that it was the same everywhere I went, every company, it was just the same stuff I had to deal with. And somewhere along the lines I just really kind of discovered that I wasn't going to be happy unless I was an entrepreneur unless I was calling my own shots. So that was really the catalyst for me to say, I have to get out of here. My older brother is an entrepreneur, he has been his whole life and I have always appreciated the level of freedom he had, even if other things were crazy. Because as an entrepreneur, there's definitely some crazy stuff, like you have to be on board for that, but I'm definitely on board for, I think I'm just cut out to be an entrepreneur and now that I am an entrepreneur, I'm much happier. So it was finding that vehicle, I didn't know that it was going to be real estate, but I knew first I wanted to be an entrepreneur and then I figured out that real estate was going to be it. 

 

James: Any other thing that you think is your secret sauce?  

Devin: I think, finding people that are really good at things and giving them tasks. Because as an entrepreneur, you wear so many hats. It's really important for me to, once I figured out one little process that I give it to somebody else, right? Whether that's like editing my podcast or doing my underwriting, it's like I can do all these things but as a CEO of a company, I shouldn't be doing any of those, I should only be doing a handful of things. And I think it's very tempting for people to spend hours, let's say, underwriting a deal or pulling apart a financial statement on a T12 of a property. It's like, well, you can find really good people to do that, probably better than you, and then you can focus your time on other things. 

 So I'm very big on a dollar per hour activity and I keep spreadsheets and everything to track all this stuff of what are the highest dollar per hour activity, things that I can do and I need to find somebody else to handle all the other activities.  

 

James: Awesome. Awesome. Is there any proud moment in your life where you think you are really proud of in real estate ventures?  

 

Devin: Yeah, I mean, quitting my day job was a big one. I mean, I was very, very proud of that.  

 

James: At the point of quitting or after a few years after quitting? 

 

Devin:  No. Definitely just getting to the point where I had enough cash flow and everything to be able to quit my job. That was a very big step. I'm very proud of some of the renovation work we've done and this is like single-family and multifamily, but there are hundreds of properties in San Antonio that are like nice properties now because of the work we did, you know? And so we're not buying nice looking properties most of the time, we're buying properties and spending 1 million bucks on making them nicer. And so that's pretty cool to be able to do that. And that's having an impact, even a small impact, on the city that I live in and I love that.  

And then now as I've been in business for a while, giving other people some opportunities, you know, whether that's some of the people that work in my business, giving them an opportunity through the company and giving investors an opportunity. So many of my investors you talked to, they didn't know they could put money into a deal like this and make this great return and not have to do any work. And it's like, people just don't even know that it's an option, you know? And so to be able to have people participate in that is really very rewarding. So I'm very proud of like the renovation work that we've done and we've raised and return millions of dollars of capital at this point and that it feels very good to be like a good steward of other people's money, I'm very, very proud of that piece, probably more than anything.  

 

James: Absolutely. I think it's very fulfilling taking a distressed property and changing it. I mean we did a lot of single-family and now we're doing multifamily, but we remember one of the flips that we did, we bought like 42,000 if I remember correctly, and sold it for 140. But we also put like 40 to 50,000 into it but that was a complete change in the house and until now I can remember that house and how it was when we left it. And even when you're old, I'm sure I can drive by that place and say, you know, we flipped that house to look as nice as right now. So, yeah, it's very fulfilling. 

 

Devin: Yeah, it is. I was driving around the other day and I was in this part of town called Beacon Hill, which is like this big up and coming area of San Antonio is kind of on a little bit northwest of downtown. And I don't remember what I was doing over there, I'd met somebody for lunch or something, but I said I'm going to drive down the street where I flipped a house and then I just drove by it, it was like two years later, oh, the house looks good. And I said, you know what, I flipped another one on the other street. And so I drove like four or five houses in that area that I flipped at some point over the last couple years. I said, hey, we did a lot of houses and you spent a lot of time and money and energy over here and it's cool.  

 

James: Yeah. It gives you a lot of happiness inside you. I mean, what are the habits that you think that you have mastered or want to master that you think makes you a very successful entrepreneur? 

 

Devin:  It's definitely systems. So I'm very naturally inclined towards putting together systems. So I like to figure out what a process is and cut it down, anything; whether it's the acquisition process on multifamily or any part of the business. 

I like to figure it out, boil it down into stages and then within each stage, go down the steps. And then I like to really document the steps and to give them to other people. And that's really the key for me is I take a process, really spend time breaking it apart and then figure out every single little minute step. I have like a standard for creating training and that is I want to be able to take somebody who's walking down the street and pull them into the office, and if they can read and write, they'll be able to do the task the way that I'm training them, right? So very simple. And I think about McDonald's like as a good example, not that the food is anything great, but the systems are just tremendous, right? 

 Teenagers run McDonald's, right? It's a tremendously successful enterprise but the systems are so important. So I'm a big systems guy and that's kind of the thing that I'm always striving to do. Is anytime I'm doing something, I go, can I systematize this and automate this and give this to somebody else? And so, that's something that I'm focused on all the time. Now there are some things you can't, so like broker relationships, face to face time, things like that. Like there's no automating those things and that's okay but I want to automate and systematize everything else so that I spend my time, my very short time and energy on the most important things. So definitely just being disciplined about creating those systems and it's difficult but if you can be patient and create one little system or process and automate it and you extrapolate that towards the future of how many times this little task that takes me five minutes, if it's off my plate for the next thousand days, how much time is that going to save me? So I'm always kind of just trying to fine tune that and really segment all the pieces of the business and get them into the hands of people that are the right fit for whatever task or job it is. 

 

James: Yeah. That's something that I'm learning to try to do as well. I mean, my wife and I, we are such a control freak in our business and we want to make everything perfect but it's basically impacting our lives. Because now we have to try to do everything. So as we grow big, right now we have like 30 employees. We recently hired people on the corporate side to help us and it is becoming much better now, but still, it does just take time to really give up that particular work to someone else. And the way to do it is to create systems and process and manuals and all that. So we are actually learning how to do that right now. So it is a very hard thing to do, especially when you grow from small to big. Unlike you go into a big organization, you already know everything is set up but now you're going from doing it yourself, but now you're to delegate to someone else and the understanding that the other person may not do it as how well you can do. And you have to understand that and live with it. 

 

Devin: Yeah, it's a very tricky thing and that's business. It's tricky because you are an equity owner and you would do anything for the business. And then you've got somebody at $12 an hour that's just not going to, you know, if you gave them half the company, they'd work as hard as you but you're not giving them half the company. You can't give everybody half of the company equity that's not how it works. So the way I try to approach that is just creating really, really clear training. One of my assistants is overseas and it was very frustrating for me at first to work with her because I couldn't just like say, here's the problem, just deal with it. She just didn't have that skill sets and just fix it. But I started really creating very specific training on step by step, by step by step. And not only did that make it easier for me to understand the process, but it made it easier for her to understand and everybody was happier. 

 And so, we use something that a friend of mine turned me onto, it's called Loom and it's a browser extension and for recording little videos. And so there are hundreds of videos in my organization for how to do everything. And so that allows me to kind of give it away and if I sign a task to somebody or there's an automated task, it also includes a link to the training. So if they haven't done that task in a month, they get the task but Hey, there's also a link to a three-minute training, which anybody could learn for that little task. 

And over time, instead of like building a operations manual, which to sit down and write would be murder, right? It would just be awful to sit down and write the whole thing. I basically have built the operations manual one tiny task at a time and put it all in a spreadsheet that's by the system, right? Whether it's the accounting system or the marketing system, whatever it is. And so there's this whole library of content basically to how to do just about anything in the business. And so it's been a hard process getting all that going. But, again, the freedom that comes from--it's still me dictating, this is exactly how I want this thing done; I set it up and then transferred over to somebody else, one little task at a time and just have transferred hundreds of tasks over a few years of doing that. 

 But yes, it's difficult because nobody's going to do it as well as an owner or cares as much as an owner, but there are just inherent limits there.  

 

James:  Yeah, absolutely. Absolutely. Let's go to another one more topic. Let's say a Newbie who wants to walk your path and be very successful in real estate, single family flips and now into multifamily; what are the 3 to 5 advice that you would give them to get started in this hot market?  

 

Devin: Yeah, it's definitely a hot market. I would say, the number one thing is don't try to do this yourself. Like all yourself, there's too much, right? I mean, this is a business like any other business and you wouldn't try to just go open up a dry cleaner and say, hey, I have zero experience in this business, but I'm going to go open a dry cleaner and it's going to make money, right? There are too many things you don't know.   

So like in multifamily, the underwriting, the broker relationships, raising capital, asset management, renovations, all those things are like big topics, where there are lots of variables and you're not just going to learn that stuff overnight. So I think somebody who wants to get in, don't try to do it yourself, but you can partner with somebody that's done it and try to add value to them and be a part of a larger deal. That's kind of from where I sit now, what I wish I would've known kind of earlier on, that you can partner with somebody on a bigger deal in various ways. You've got to be able to add some kind of value to somebody that's further down the path. And if you can do that, then you can get on a larger deal, but you don't have all the responsibility on that project and then you can get in that world and start learning through doing. Because I think we really do learn through doing. And so, that's kind of what I would recommend is, don't assume you have to go out and do it all yourself because I think that's just a recipe for frustration and potentially, for disaster. 

 

James:  Awesome. Awesome. If there any funny stories from residents or tenants that you want to share with the audience?  

 

Devin: There are so many.  

 

James: Choose the funniest one.  

 

Devin: Ah, this is sad. Sad, but funny. So we're doing this project that was like, oh, crazy turnaround project, right? Like 15,000 a door renovation. Crazy. So there's something called a writ of possession and so when you evict somebody, you go to court. And I was actually doing this on this property. I use third-party management now, so I don't go to court and evict people, but I've done that over the years, I've done all of it. So we evicted this guy for nonpayment and that's just how it goes, you don't pay, you can't stay, it's not a charity we're running. 

 

James:  This is Texas and it's landlord friendly. 

 

Devin:  Very landlord friendly. So anyway, we go, we evict this guy, he doesn't move out, whatever and he's got stories. And so finally we get to sink all the writ of possession we filed, the bear county sheriff comes out and they stand outside for an hour. They don't touch anything, but they just stand there to make sure nothing like violent happens. And so we get the crew in and we start moving this guy's stuff. So they opened the door and the guy who'd been like completely combative and everything, he opens the door, the sheriff is there, he's got a neck brace on and he's like, Oh man, oh he can't, he's wearing this neck brace. And I'm like, I've never seen this guy in a neck brace. Right? So the guys move everything out on the lawn and as soon as the sheriff leaves, he walks out on the steps, pulls the neck brace off, starts smoking a cigarette, right? The neck brace was totally just a prop for sympathy. Who carries a neck brace around just to have it for sympathy? And I was like, ah, man!  

There's a lot of stories like that. Like, we're buying properties that are, a lot of times, beat up but at the end of the day, you can't have any business' product for free if you're living somewhere, you need to pay for it and that's, how it goes. So a lot of stuff like that for sure. 

 

James: Interesting. Interesting. Yeah. I think that's it, Devin. So why don't you tell about yourself and how can the audience reach you, in case they want to reach you and where to find you best. 

 

Devin: Yeah. Yeah. So we've got all kinds of stuff online and content and stuff like that out there. The easiest way is through the main company website, which is djetexas.com. So that's Delta, Juliet, Echo, texas.com. And if you hit the website, you'll see links to everything else and in a way to if you want to schedule a 15 minute call with me and learn about this stuff or you want to take the next step in this career for yourself, whatever it is, I'm happy to chat with people. So that'd be the best way is the website. 

 

James: Awesome. Thank you for joining us today, Devin, and for all the audience, thanks for joining us. You can always join us into our Facebook group. It's called Multifamily Investor's Group. It's like almost 700 people right now, within one month so join us. And there's a lot of very meaningful discussion happening about multifamily, and we'll talk about other business issues as well over there, but join us today and thanks for joining today for the podcast.  

 

Devin: Thanks, James. 

 

James:  Bye Bye. 

We started Raven with a goal of building a business model which helps us build and protect wealth together with our investors for decades to come. We want a repeatable, scalable, and sustainable business model which will stand to the test of time and market gyrations with reasonably predictable returns.

https://ravenmf.com

James: Hi listeners, welcome to Achieve Wealth Podcast. Achieve Wealth Podcast True Value in Real Estate Investing focuses on key players in valuable estate investing specifically on Commercial Real Estate asset class. Today we have Michael Becker who has done more than 7,200 units, primarily, I believe in the Dallas area, I know Michael can help me fix that. But you know, he has done a lot of deals in the past few years that he has been investing. Hey, Michael, welcome to the show. 

Michael: Thanks for having me. Appreciate it. 

James: Good, good. Can you tell the listeners about things that I missed out about your credentials?

Michael: Yeah. So, Michael Becker, I'm based in Dallas, Texas and I'm a banker by profession. That's kind of how I got into the business was loaning money to other people and went out on my own about six years ago now, so about six years of experience. And as we talk right now, we're just closing up our 34th and 35th acquisition. So puts us about 70 to 100 units that we've done in our career.

So far we going full cycle on 16 deals. So we refinanced three out, return some Capital still own and we sold 13 of them. So as we talk, we currently own about 5,000 apartment units, the vast majority of those are up here in Dallas Fort Worth, which is where I'm based. We have 400 units in Tyler and then we have 900 units in the Austin markets. So we're Texas-based focused, predominately on Dallas Fort Worth and Austin for where we look to buy.

James: Awesome. Awesome. So rarely, I get to interview someone who has come from, you know, brokerage business and also the landing site, right? But I always wonder why Brokers and lenders who lend money and trade deals never really become the buyer or the owner of the assets, right? So what was your triggering Aha moment that you said, hey, I should better just, you know, go on the other side of the table here and start buying deals rather than lend money?

Michael:  Yeah to be a banker, you have to have a certain like mindset and generally pretty conservative and if you start becoming successful like I was as a banker making a lot of loans, they try to tie you in the bank by giving you stock options and have more investing period so it's kind of the longer you wait, the harder it is to leave. But for me, I was 35 when I left the bank, I'm 40 now, and we're just like this little fork in the road, I felt that if I stuck around it was going to be that much harder to go. And really what I did was this all day every day was making loans to other people like yourself that would be a buyer, distress deal, renovate and sell it for big profits and I kind of realized I was on the wrong side of all those deals. It's better to be the borrower than a lender. 

And you know a lot of great clients, a lot of them are friends, my friends still to this day, and I was looking at a lot of them and I was like thinking myself like if that guy can do it, I definitely could do it. You know, not that they're not smart. But what I like about the business it's a really, really simple business at its core; it's not always easy to execute but it's pretty simple to understand. So I had a lot of connections, had a lot of experience, you know, I underwrote deal after deal after deal, I knew everyone in Dallas Fort Worth, I was in the industry. I just wasn't doing anything about it. 

So I met my business partner, Shawn, back when I was at the bank and he was helping people out of California buy properties in Texas. I made a loan to them. And so, he was kind of sick of working for his boss the broker and I was sick of working for my boss at the bank and so we kind of went out on our own. And like I said, we're probably the second or third most active B classifier in Dallas Fort Worth and the current market cycle. So we've been pretty active here in Dallas Forth Worth. 

James: Got it. Got it. That's interesting. I always wonder, I mean, what do the Brokers and lenders see in themselves that they want to continue doing that rather than owning an asset?

Michael:  You know, when you think about it though, like as a banker, you don't have any money at risk, you got other people's money at risk, you got your clients' money, you got the bank's money and you know for you to go tie up a deal, especially today, I mean, you posted up six figures in earnest money or God forbid, you know, well north of that hard earnest money day one and get all this like Risk and then you got to go out and raise, syndicate the capital. So to take that to do what we do for a living, you got to have a certain amount of guts to go out and do that because you know, you're taking a calculated risk along the way and you don't have a paycheck.

So if you don't do business you don't get paid. So that's a certain minority of people in the world I can go on and take that type of risk on and thrive and if you go out setting cases up like I do, you just have to be comfortable taking that kind of risk. And on top of that, you know, most of the stuff is on recourse, where you still sign and carve out. Some bankers get pretty, pretty nervous about signing, you know, I have 4- 500 million in debt right now so I mean that's a lot of money, you know, and to try to take that mentality, it's just a different type of mindset for sure. 

James: Yeah, I guess the entrepreneurship mindset and whether you want to do it, I mean, especially if you have gone through the last crash in 2008, you can be very scared. 

Michael: That's right, for sure.

James:  So let's come back to how did you scale up to this large portfolio, right? Because I used to listen to your podcast when I started in this multifamily investing in 2015. When I was listening,

I know you had like, first year in[05:47unintelligible] you had like 1000 units and now you have like 7,000 units, right? I mean maybe now you own like 5,000 units, but what was the system's process if you put back yourself back into that time and I know you made mistakes from then until now but you know, what are the teams or what are the processes and who would you hire first to grow to this scale? Because now it seems like clockwork for you because you guys have been...

Michael: Yeah, so we started out, it was pretty lean. So when we first started out, I did the first four deals, first 800 units. I still worked at the bank and then I kind of had enough scale that I felt like I could you know, keep going. I had enough credibility in the market place; you buy one deal, you get a lot of credibility. You buy four like quickly everyone in town knows you're out there buying it because like I mentioned, I had a lot of resources like from the standpoint like all I did, all day, was underwrite apartment loans.

I had a lot of connections to a lot of people. What was holding me back was that everyone thought of Michael Becker as a banker, they didn't think of me as a principal so I had to kind of change the perception in the marketplace what I was from a banker to a principal. So once I did that, that changed it pretty quick and then from there, we sort of started to scale. And so it was my partner Sean and I and we had one employee when we started. We kind of did a little bit everything and we all do a little bit everything when you're that kind of small.

And so, you know, we were just kind of guys who were doing deals and then all of a sudden we woke up. I think we had seven or eight deals and we had all this work on us and there was still just three guys out there doing deals. So we had to figure out how to systematize so we started out with someone that's got an IT project management background experience actually, so she came in and kind of did operation; we were disorganized with stuff everywhere.

So like our Dropbox wasn't orderly, you know, just wasn't everything wasn't save down. We didn't have any documentation of processes and procedures. So she came in the systematically, you know by meeting with me for two hours at a time., she'll talk about whatever, interview me and systematically built out all our policies and procedures and organize everything. You know, our chaos for life got real organized over a six to a 12-month period from there. Then we added an analyst to kind of help on top of it. And then we started layering in an administrative help on top of that and then you know, we start getting Asset Management help, hired a professional asset manager and then you know, we hired transaction people to kind of help run process the escrow and things like that. So those are the types of teams, you know, we have a third-party management company. I think you're vertically integrated when you do management in-house. 

So we're able to manage 5,000 units with nine people; basically my partner and I and seven employees. We've got ahead and taken the approach. So I want to hire really high-quality people, pay them a little bit more money, but just be a little bit leaner. So that's kind of the approach we've taken because I really don't like managing people. So the lesser quality people will take a lot more of my resources so I rather pay someone that's a killer really high salaries and trust they can go out and do the job. But you know, admin help is the first thing I think you need. Someone to make sure you get organized. You have a process, make sure you get an investor database. Be really helpful, if you do syndication dropboxes, so we use dropbox all the time. 

You'll have internal chat systems. Those are things that kind of we can do quick little messaging, you know, all sorts of stuff like I talk about, about raising money more efficiently if you want to go down that path or if you want to talk about operation, we talked about that too. But just trying to use technology and work smarter not harder. And every time we do a deal, at the end of the deal, we always have a Post-mortem meeting where we go over the good and the bad and we take away lessons that were bad and then we take those and try to improve the process for the next deal. 

And when we first started out, they were a lot of bigger issues and now, fortunately, the issues are really small and minor because we got the list of stuff you don't ever want to do again list, got really long pretty quick and try not to make the same mistake willingly twice.

James: Yeah, so can you name like top three things that you have realized from that not to do list, can you share it with the listeners? 

Michael: I mean around raising capital in particular, you know, we first started out, we had a database and I needed to raise a million. I remember I had to raise a million four for a deal, I think it was a million five something like that. And it took me about 20 25 people somewhere in that range to get a million five in, a hundred thousand minimum. We first started out I'd get a package. I need be able to an investor. I set up a call and have an hour-long call, 45 minutes to an hour long call and I had to do that 25 times. Now, what will do is we'll email the list, we hit schedule webinar and it's at, you know, seven o'clock Central Time on Wednesday. People that can attend Live, great. If not, we'll send them a recording of the webinar. And then they can watch the webinar when they want to and then I have a five-minute call with them if I need to resolve. So I presented all the materials of the deal so maybe a lot more efficient that way.

Whereas, you start scaling up doing like webinars a lot more efficient way to present your opportunity than one on one calls. Because, for example, we just finish up with 24.6 million dollar equity raised and if I had to do that one call at a time like that is so huge, you can't do that. It's going to be 200 people basically invested to get 24.6 million. So, you know, you'd have to have 300 calls to get that and that just isn't an efficient way of doing it. So, that'd be one thing. 

Another thing that's been official, as I said we got an investor database. So when you invest with us, you go to our database or portal up our website you fill your stuff in electronically and you electronically sign your documents. And that's a much easier way of going about it and getting the old school, paperwork out, that's kind of how we started. And then finally what was another good way to be able to work efficiently. You know, I think we got more efficient the way we've kind of work it and keep people in line and we clearly communicate what's expected of people and we're really consistent with it.

So those are things you grow into, those aren't things you necessarily have money to do out the gate because we, you know, spent a couple of thousand bucks a month on our investor database. So if you have zero units to spend $24,000 a year on a database doesn't make sense. But you know, gotowebinar is certainly something you can do and you can use a Google sheet instead of a set of a database until you ultimately get enough revenue where you can afford some of the more technology tools that are available out there. 

James: Yeah, yeah. In fact, I just launched my investor database yesterday, which was a lot of my investors love it. They just say it's so nice for them to see their dashboard, in terms of investment because a lot of them have multiple investments with me and it's just nice for them to see. And all the documents are in one place and they can just log in and get the report. They just love it.

Michael: And it'll help you when it comes to tax time to track all your distribution in there, I'm sure and then you don't have to go recall your distributions at the end of the year to do your K1s.

James: Got it. So coming to I mean you must have a good number size of passive investors. I mean, how do you select certain passive investors for certain deals? I mean is it first come first serve or how is that?

Yeah, so we have, let's see, I did 900K1s last year. I think I had about 500 unique investors when we closed the year out. We just raised, I'm not quite sure what the stats are of how many are a repeat, how many are new but I probably have 600 unique investors who've literally invest with me at this point in time. And we're going to do 12-1300K1s  next year easily. So yeah, we generally will so we definitely have like a blacklist, right? So if we take your money and you're a pain, we'll make sure we don't take your money again. That's certainly the thing I think everyone should do that for sure.

 On the front end if we think you're going to be a pain we'll generally kind of blacklist you as well, life's too short. Yeah, too many people, we don't have time to have a little distraction. But basically when we have an offering, we'll just go in the database and you'll get together like the MailChimp will send out a little, hey, coming soon email or save the date email, got a future opportunity coming up and then you just email the database and just generally first come, first serve.

 Sometimes we have a couple of guys that we know that we have a special situation with that. They're like, hey, I have this money. I want to place it with you. Maybe we'll give them a little bit of a head start to deal from time to time. But generally, send it out first for people to pay attention, fill the paperwork out, get it all done, wire the money in, those are the ones that get into the deal.

James: Yeah. I mean, I agree with some investors being a pain. I mean, it's just so hard to win. Especially sponsors like us. I mean, there's so much of moving parts and so much hard money in and on day one, I mean, so much money stuck on escrow and this has so many things going on in closing a deal. And there will be some people we just had to deal with it, right?

Michael:  Yeah, so, you know, it wasn't the vast majority, people are great and but you know, one of the things that I was talking with one of my buddies, he's syndicating his first or second deal, yesterday, and he was getting a little frustrated, it wasn't going quicker and I'm like well just because you have a deal in escrow and you have a deadline and it's important to you, doesn't mean that it's not as important to investors, but they have other stuff going on their lives. So you got to be able to make sure you meet your deadlines. So you got to consistently communicate deadlines and be proactively reaching out to people and you know, you gotta push sometimes to get these people. Because if you don't stay in front of them, they're going to get distracted and something else in life is going to come up and they'll just simply forget that, you know read about your deal. They don't mean to and it's kind of like happens.  

James: Yeah. Yeah, I always communicate as well to make sure that everybody knows the timeline and when do we expect things and keep on communicating to them because everybody's working on getting things done, the passive investor, the sponsors and all that. So that's important. And so the type of deal nowadays that you're doing because usually I mean, I'm not sure whether you know, I wrote a book called Passive Investing in Commercial Real Estate where I categorize three different types of deal, which one is core, the other ones are light value add the other ones a deep value add. So the type of deal that you're doing, can you describe those characteristics?

Michael: Yeah. So when we first started out, we bought a whole lot of[16:37unintelligible] that's kind of generally where we started out that's where most people start out. So the first probably ten deals may be more raw 1960s 1970s vintage stuff and then about two years into the business,

we started to transition more in the B-class. So Texas, things like the 1980s vintage. And then really the last two to three years the vast majority of what we have done had been kind of more B plus, A-minus. So things kind of like late 90s all the way to about 2008; that's kind of my most favorite part of the market, as we sit right now.

 We have done a couple of brand new deals. We had some exchanged money, we sold a BDO and we just bought a brand-new 17:16unintelligible]  and then we bought a few deals a little bit older than the 90s. But generally speaking, if you ask me, A-minus is my favorite space and a couple of reasons for that. Now one, if you go back when I first I bought my first apartment 2013, I bought a brand new class A Deal in Dallas for about a 5 cap, a BDO was like six and a quarter six and a half cap and a CDO was like eight, eight and a half cap. Fast forward to today an ADO is like a 475, a BDO is like a 5 and the CDO like five and a quarter by five and a half, something like that, right? So what used to be a big gap is now really, really narrow. 

So we have the ability to track larger amounts of capital. So it make as much sense to me to be on a risk-adjusted return basis to buy a 1970s piece of crap building if I can buy a 2004 vintage building for a similar cap rate. So that's kind of what we're focusing on. And the stuff that was built that's 15 years old, stuff kind of on the 2000s. Still, most of those have like white appliances and cheap light fixtures and you know, no backsplash and you know cheap cabinet fronts. You still do similar value add things like flooring, appliances, fixtures, backsplash, cabinet fronts and still push the rent lift up a hundred dollars or maybe more per unit by doing the work.

So that's kind of my favorite part on the market and then just kind of we've been fortunate enough to have a couple of deals go full cycle and return a bunch of capital. So we have a lot of money in our database and so I can't simply go raise two or three million dollars, that's just too small, you know, we need to be raising, you know, nine ten million time minimum; it's just too small. So we're just trying to do a little bit of a larger deal. And that's kind of what we've been focused on and say light value add, A-minus that's the vast majority of what we do with a couple like more newer stabilized kind of deals then thrown them in if we do an exchange or we just think we're getting a good basis on a deal.

James: Got it. Got it. And also the other thing that I mentioned the book is the passive investors will be, they would like to invest based on their preference or based on their investment cycle. So when you look at your passive investor demographic, do you see some differentiation in terms of these are the group of people that like to invest in my deal?

 Michael: Yeah, I mean, listen with 700 different people that invested with us you get a little bit of everything, right? You know, but that's one of the things that we always try to make sure we stress is you know, hey, here's what to expect. You know, we're really explicit about what the projections are, the timing and amount and the timing of the cash flow and when you do a syndication, ultimately most of those things need to sell at some point. It's hard to keep a whole bunch of unrelated people to together for perpetuity; forever is not a good hold in a syndication environment. That's cool if it's like you or you and a partner or a really small group of people, but when you have, you know, a hundred unrelated people that's hard. So we want to make sure when we're communicating with them that--and they understand like, you know what to expect and I also let them know if we're going to sell it and it doesn't fit what your objectives are, then this isn't a good thing for you to invest in.

 So we try to be really explicit. So we match expectations properly because what I don't want is a year down the road, for you to be upset because you thought you were investing in, you know, one thing and there's really something different so, you know trying to be explicitly and very clear to our investors is what we're trying to do. 

James: Yeah, that's good. That's the best way to just make sure that everybody knows what they're getting into right? So with the market at the current cycle right now, I mean in DFW Austin, you know, the whole taxes or places where you're investing it's very hot right now so, where do you think we are right now and how your strategy has changed in terms of acquisition?

Michael: Yeah, I mean. You know, this has been a hell of a run where we're nine years into this thing or something like that. I mean, it's been one hell of a run. You know, with that said, the more we focus on a predominately Austin which is where you live in Dallas which is where I live and if you look at the population projections about three weeks ago, I've done this with staff about three weeks ago. The Census Bureau came out and kind of have stats for the growth 2018. So Dallas, Fort Worth from 2010 through 2018 over an 8 year period, there are a million more people in here in 2018 that was in 2010. So, we went from that 6 and a half million people to about 7 and a half million people and their projections in Dallas Fort Worth are to grow from about 7 and a half million people to almost 10 somewhere between the next 12 to 15 years.

So to put that in perspective that's about two and a half million more people coming to Dallas, Fort Worth if the projections are right. So that's the equivalent of like the entire metropolitan area of Charlotte or Orlando and then putting it on top of Dallas, Fort Worth today. And everything I just quoted to you about Dallas, if you take the percentages, it's even higher in Austin. So Austin is growing even faster on a percentage basis. If you feel like just driving around, there are just more cars, more people all that. So I don't know a whole lot, James, but I know if the equivalent of the entire metropolitan area, Charlotte is put on top of Dallas Fort Worth[22:50unintelligible] have to go higher right? They just have to go higher. So what we want to do is, you know, make sure that we're focusing on the right locations within the metropolitan area. You know, we're trying to buy away from these Supply the best we can. We're buying like Suburban multifamily deals in better school districts. We're trying to focus on basis. So we're trying not to pay Crazy Prices. One of the strategies we've done here recently is focused on properties that you can come buy and assume someone else's mortgage and you get this avoids having a large yield maintenance or the [23:24unintelligible] prepayment penalty. So you get a pass along a lower cost to you as a buyer. So that's a way to kind of counteract that a little bit.

 What you give up as a buyer; you give up five years of interest only on the front end as you're assuming a mortgage that's most likely already amortizing so kind of hurt you up from yield. But if you save a million dollars or two million dollars in basis, you know, one day, that's going to burn down if you need to sell it or refinance it free and clear. So that's one strategy we've been doing. And then here's another thing. I mean you own a bunch of stuff to San Antonio like those we were talking about before we started recording.

You know, this is one of the things I would say, it's completely unfair business, you know, a lot of it who you know, what you know, what chips you can trade. And you know, I own a lot of stuff in Dallas but I walk in the San Antonio, you know, you have more clout in San Antonio than I do, just because I don't own. So the Brokers are more apt to sell you something than someone that doesn't know that market. So we're at this point in the cycle doing 35 deals or some like that at this point, we know everybody, everyone knows us that our Brokers are players in town. So we get our unfair share deals. So, you know, we're looking at a lot of stuff and we're trying to be selective with it. It's also as far as strategy goes, you know, the lone assumption route has been something that's been successful for us. And then two, we put up a lot of hard money. That is the other thing that helps.

 So you can put up a lot of hard money, get aggressive with your terms, you know, act quickly, you know, we got a deal in escrow that we officially never got to tour, you know, so we had to go shop it and then we never got to tour it and so we just basically got it in escrow went hard [25:10unintelligible]  without ever having an official tour and I can do that because I've done 30 something deals. You don't do that on your first deal. So I know what's up, I know what's going on and we did our due diligence and we didn't find anything that we didn't already expect. So we knew what to expect and that's what experience and repetition gives you a psyche.

I got my 10,000 hours and I kind of know what's going on. I kept having to make better decisions, quicker with that level of experience. 

James: Yeah and brokers love it too because for them is like you're a very easy buyer because you already know the submarket. You're not going to give a surprise and they have done deals with you.

They just love it things to go much smoother. They make money as well. So they love the repeat buyers and the local players, as well.

Michael: Yeah, that's right. And then we're all friends like we go and have drinks together we go to the baseball game together. We all become friends and you know people do business with people they know like and Trust so being local in the markets that we own and operate in. I was at lunch before this podcast and ran from the[26:17unintelligible] Brokers because of their office across the street from me. Walking down the street and you ended up having lunch in these just randomly. And as I was walking out, one of my competitors who own like 12,000 units whose office is around the corner for me walked across me in the hallway, you know, and on the sidewalk, I mean so this like being proximity and doing a lot of deals that stuff helps.

James: Got it. Got it. So let's say nowadays, what's the process of your firm looking at a deal? So let's say today there's a deal coming. I mean, it's not on the market, the broker tells you, who looks at it first, how does it come to your eyesight before? 

Michael: Yeah. The way we are set up, a deal comes in, say I get it, you know comes across my desk. You know, I basically kind of where's it located? You know, what's the basic price? Right? So I'll just kind of go to Google Map. Make sure you kind of know the location I'm in and I know whatever location that they are sending us. Like we know like the markets because we're in the market.

So, you know, usually, most of the deals are like, no, it's the wrong location or no, you're prices are extremely insane. I'm not paying that price per unit for this type of product. And so usually a lot of people kind of get kicked out, but if it passes kind of that basic high-level test, then at that point usually we'll do like a real get the financial statements in from the seller. And then what we'll do like a real back of the envelope analysis. 

We'll spend 20 to 30 minutes doing a real high-level underwriting just to make sure that it kind of passes the high-level test and usually a lot of those deals die right then. So, you know, the deal was just like, you know the match it doesn't work. It's just way too expensive or we don't think there's not much upside in the rinse. Just whatever it is. We kick a lot of deals out that way. Then if it passes that deal usually at that point, we'll do a full underwriting and that will take this like four hours. You know, we have a CFA that's our analysts. Our analyst will go underwrite the deal for four hours. Since it's my partner and I, then my partner will go through and kind of review the model.

And once you review the model, it passes that, then, you know usually, most of the deals kind of die right there then they don't really work. But the deals that kind of pass that screening that's when you know, we'll kind of get down and get serious about it. And I think that point that's usually when I go tour. So that point, they pass all the tests so we set up a tour maybe put [28:34unintelligible]  in early kind of depends on the situation.

And so, you know, we're looking at you know, 60 70 deals to get one that actually makes something like that. That's probably somewhere in that kind of General ratio is what we look at. And we just have like little series of check marks along the way that we gotta like, you know, but doesn't pass this one little test and let's just kill a deal and move on. I found on the biggest cost to have in my life anymore, stop tuning cost. So if I spent a lot of time on one thing it's at the expense of something else. So my time is precious. So just trying to make sure I get, you know, use that the most widely and don't chase these deals for you know weeks and weeks. I never had the opportunity of actually making it in a day. So that's hard to do when you're first starting out and that's a lot easier to do when you have some experience. 

So when you start out, you got to learn these lessons sometimes the hard way. You got to underwrite this deal that if you would have just at the end of it just kind of be self-reflective like, you know, what could I have seen earlier on this deal that would have stopped me from wasting a week of my life on it? You know, you need to start that. I think that's what separates a better apartment owner, ownership syndication type groups from the less successful ones. 

James: Yeah, I agree. I mean, I don't look at more than five parameters in any P&L to decide whether I want to dig deeper. So what's the ratio of deals that you look at verses you looking at and passing it to your analyst for the four hours underwriting?

Michael:  I mean, it's probably pretty limited. So if it's called 60 deals to get one, I mean it's probably, at least half just get killed or your pricing is way too high or it's the wrong location or the deal too small or something physically about the deal I don't like. So that's probably half of them and the ones I've been going to like get a back-of-the-envelope, we probably kill, you know, the 30 that make it through on the 60 we're probably killing, you know, so that's 20 right there. Then we'll probably underwrite, you know, ten to get the one type of thing. 

James: What do you look for in a location? 

Michael: You know, yeah, so we're Suburban multi Family Guy. So good Suburban location that is in the better school districts, you know near major thoroughfares preferably to have access to Lifestyle and Retail amenities like, you know, like they are near a Starbucks, near a good grocery store, you know, retail restaurant, stuff that people want to live in. First and foremost, low-crime area too, I don't want to buy in the hood. So, you know, no low-crime area. Those are the things I look for and we're targeting, you know, preferably 200 plus unit, A-minus family deals, but that's kind of my perfect deals. An A-minus deal with more than 10% or an upside, you know it's well located, low crime, better School District, near employers, near retail and restaurant. That's kind of what I look for.  

James: So, can we go a bit more deeper into the back of napkin underwriting? So, let's say there's a $10 million deal you know, 50 unit, maybe a 100-unit deal, how did you underwrite that? Back of the Napkin.

Michael: I mean, so what is the first major metric is a, you know, one other [inaudible31:51} ransom what's our basic market survey say . So, pull a [inaudible] and look at the market rent. So then how much upside do we have in rent? So, I say, so, if there's only 5% upside in rents then it's probably not ideal for us, you know, we typically 10 plus percent in upside of rent to make the mass work. So, if I only have 5%, I know when I layer in my sponsorship compensation it's just not going to make sense. All right, so you know, like it's just not going to have no margin for us to be able to go attract capital. So, that's the first thing and then we'll then obviously go down and like other income or other income opportunities, then obviously look at the expenses as well.

Michael: So, you know, one of the deals were we just got awarded, the payroll is by 1600 ,1650 a unit and it should be 1200, you know, so we can on day one, boom, take 450 out of payroll that certainly helps quite a bit. So, we're looking for things like that, that's kind of what it is. And you know, basically for maybe if you think about it at its simplest form, James, like, I need to do a deal I need to be able to deliver somewhere between 13 to 15% IRR today that's what takes me to attract capital. So if I can't get a deal layer in my compensation layer in whatever capital you need to do, um, you know, talk to the purchase price and I don't have enough upside of rents because at the end of the day, if I can't produce a 14% or 15% IRR over a five year hold period, my investors don't want to invest. So, I can't spend time on deals on can produce those types of returns. So, we're just trying to find, stuff that has enough upsides would be able to produce that. So, whatever that is, reducing expenses, increasing income, the two most common things, or is there some sort of way we can get a different type of debt quotes that may be kind of juices, some of these returns or whatever the specific situation is to that property. That's kind of what we're trying to get to the heart because, if I can't produce a 14 or 15% return, I need to shoot the deal and move on.

James: Got It, got It. So, coming to 13,14% IRR is it to investors, or is it overall returns on ...

Michael: Investors right. So, if it’s like 15 investors 17 and a half, 18 to the deal and you put a sponsor comp in there? So, it's got to be, I gross 8 total 18 they get up 15 and our structure or something, something like that.

James: Got It, got It. Yeah. It's interesting on the debt code side, no, sorry, before I go there, how do you know that the seller is not taking some of your upside? Because nowadays that's what sellers do, right? They price it slightly higher; they give you upside, but they price it higher, which erases your upside. So how do you determine that?

Michael: That's the whole thing why we don’t buy c class anymore because of the same catch, so yeah you know, that's the thing so I mean, all these deals that have a lot of upside have a lot more interest and so they can again, bit up and the cap rates are compressing. So, the trick is you got to overpay a little bit, but you can't overpay too much. Right.

James: Right.

Michael: And that's kind of like what you're doing. So, at the end of the day I got to, I, it's as simple as I deliver a 15 IRR and if I can't deliver, I can pay up to a certain price and then you start doing past out price and I can produce the returns I need. And that's kind of when we back off.

James: Okay.

Michael: So that's kind of how I think about it, so, every, most of the deals we'll work out at a price. So, we just kind of get to where this is the Max price what we can do to push to push out a 15 IRR for investors. And so that works up to 20 million and 20 million, 100,000 it doesn't work. So, you got to kind of draw the line in the sand and have a lot of arms in the fire. You get a whole bunch of deals working all at the same time. Usually, they start popping.

James: Yes, yes, yes. The basis of my question is because they could be $150 or hundred dollars a rent bump potential, but the seller has priced it so much or we could have outbid--

Michael: Yes.

James: --so much that it's not worth it, right. So, to do that because you might be just getting--

Michael: Yes, there's that. And then you get a little nervous for some of the less-- the newer people in the business, with little less experience like you're going to pay a five cap for 19 C class, 1917 deal. Okay, location and suburban St. Tonio or Dallas or whatever and then you're going to perform like a five and a half or five 75 extra cap. Five years down the road for a c class deal, maybe that, maybe that's the right cap rate, maybe it's not, it needs-- as you go and improve the property, you're able to increase rents and by extension, you value you’re in a why. But at the same time, the more upside you take out of these deals because your turnover, 50% units upgrade them, shrinks your buyer pool cause everyone wants value add. So, the more value you take out on the deal, your cap rate actually goes up. So, it's like a weird little dynamic you're in that you got to like, you got to factor in. It's like a 3-D puzzle you're doing because what's great because you're increasing, you're why. Because you're raising your rent, but at the same time you're also expanding your cap rate, as we sit in the same marketplace. So, it's interesting, complex puzzle, the marketplaces are right now.

James: Yes, I was talking to a broker and you say hottest deal to sell nowadays it’s like deals where everything is done right, 90% is done.

Michael: Yes.

James: Nobody really wants it because everybody wants value add right?

Michael: That's probably the opportunity to go buy a bunch of that stuff. Cause that's what today is. And then if you can get higher leverage loan, you get a 75% loan and get a good low-interest rate and get a bunch of I Own and go buy a deal that's turnkey. Maybe that's a better way of going, to be honest with you. And just kind of get a little bit more your return from current yield versus a big pop on the backend. That's thought about strategy, to be honest with you, it's a lot more safer than going and doing a bunch of work on a property--

James: Yes.

Michael: --and paying a 475 cap for 1970 deal. I'd rather pay a six and a quarter cap for six and a half cap for a deal that's already done.

James: Yes, because the backend is not certain. Right. Nobody knows what's going to happen--

Michael: Right.

James: --at the [inaudible37:58] cap rate, so.

Michael: That's right.

James: So that brings to my next--

Michael: And then you do all the work, you might expand your cap rate anyways. And then you're doing all this work to only get half the payment. So, I think if I could go back in time, I would've bought every deal on a bridge loan. I would not have spent a single dollar in renovations and just operate it, wait five years and you sell it in today's environment for like a freaking 475 cap, that would have been a better decision with the benefit of hindsight.

James: Yes, correct. Correct. So how would you-- sorry, in terms of cash flow vs. IRR vs. Equity multiply, right? So, what do you see, what is the most important number that-- for you, right, I know you're passive investors need to look at?

Michael: Yes. You know, I think everyone, that everyone's different too. Like, all my investors have different things that are most important to them. I think, honestly at the end of the day, a pair of this investment, that investment, IRR is really kind of the driven. I'm not the biggest IRR in our store. We, I think the cash on cash certainly matters because I can't pay my bills on IRR, but I can with a check every month. So, I, that certainly protects it. But at the end of the day, really, we're focused kind of when we're-- comparing this, it's up to you in the next one, really kind of IRR. Because you know, if I'm able to come in this deal, I assume a mortgage and refinance in the third year or something like that and have a partial return of capital that pops my IRR pretty, pretty good. And I keep take some of this capital and return to my investors quickly. Two-year period, you know, 30% of their money back through a refi or something like that. That certainly is attractive. So, we'll, I think I kind of focused on IRR when I'm making the decisions on which deal, I want to buy, which deal I don't. And we've been, we like [inaudible39:54], we've been focused many deals about loan assumptions recently trying to get a lower basis. So, the first and foremost I'm focused on basis, making sure I buy a deal that's a relative value to everything else is trading right now. And I, cause I was only two things. You can't change on a property; you can't change your purchase price and you can't change location of it. Everything else you can kind of modify can always refinance it. I can always improve the property, but I can't change what price I paid or where it's located. So, we'll locate a deal with good prices, and I think everything else will kind of generally work itself out.

James: Got It. And got it. How do you make decent between buy and hold for long term vs. buy and buy and refi? How do you decide?

Michael: Yes, so if it's a syndicated deal, we've done a couple deals, especially when it first started out doing dentures where it's like what equity partner in us. Those deals we tend to hold longer. We bought a bunch of workforces, we sold them, we exchange, like A-minus or a product. So, we did a bunch of that. And then when it's a syndication people for like forever is not a good whole period if you're in syndication. Because people want, return on their money as well as return of their money and kind of the intermediate term. So, we're typically performing a five-year hold period. I think you'd be going much past seven. Most people kind of like, you know, shoot, I don't want to tie my money up for 10 years or 20 years. Now I kind of want to get my, I kind of want to see a return of my money as well as the return on my money. So, it kind of depends on the thing, but that's a heck of a lot of work buying and selling these things. So, it was just a lot easier just to kind of hold and it's kind of operate, especially the way we're set up with a third-party management company that does all day today. I, managing a bunch of thousands of apartment units. It's kind of like adult daycare.

James: Yes, it's adult daycare, it's a good one to see.

Michael: It's property management as a business of problems. I mean, there's always a problem, like every day, always, problems everywhere. So, if you have third-party management to kind of oversee that and we're set up and I have an asset manager that layered in between me and them. As a principal, the way we're set up, it's really not that bad on the day today. So, what we've been kind of focusing on is we're just selling the older stuff and buying newer, nicer stuff. Cause there's old stuff, I mean, not only, it was great, and we made a bunch of money, but you have asphalt parking lots and casts on sewers and t one 11 siding, Hardie. You go renovate a deal and two or three years later you've got to renovate the deal because the parking lot needs to be redone and you painted over wood.

So, then you've got to have more wood of what, right? You got to go paint over again. And you can't cast, our sewers are collapsed in every time you turn around and get, dig it up and replaced sexting sewer pipe. So, you have all these like nonrecurring items that recurrent all the time. So, doesn't impact in a live per se, but it impacts your actual cash and the bottom line? So, I'm so I think the actual net cash you can pay out, it's not that different on a higher cap rate, older deal versus, or maybe a little bit lower cap rate, better quality deal if you're going to be in these deals for a long period of time. So, we've been just trying to get younger in our portfolio, so stuff I owned a day, I'd be much more likely to want to hold than the stuff I owned in 2014, 2013 cause those were just tougher, older, older deals. And I think that's what I've seen been kind of like the natural progression of most people that do what I do for a living. Just over time. One of the things, one of my mentors told me once when I first got in the business was, you own apartments in dog years, and every year of ownership feels like seven. So, like over time, you know that statement is very, very true. The older the property and the smaller the property, the more true that statement is. The bigger, nicer. It's just easy, just easier. So, I don't know if I answered your question,--

James: [inaudible43:42].

Michael: --but those are the-- between owning or selling a deal.

James: Absolutely. Absolutely. And-- so let's go back to a bit more personal stuff, right? So, can you name like three things that you think is your secret sauce in, scaling up to this level?

Michael: Yes, so, first and foremost, I mean I'm pretty tenacious and I had a lot of ambition, so, that was, that was a lot of it, right? I was like, I was willing to do what it takes to get to where I got. So, we had a lot of experience, background, and training and that certainly, so first and foremost, I just really, really, really wanted it. And like last weekend I flew to Jacksonville, not check, yes, Jacksonville, Florida, I'm sorry. Losing track of where I was. So, I was in Jacksonville for 21 hours. I spoke in front of 300 potential investors. I flew back home. I did that Saturday morning, came back Sunday morning and three weeks earlier I was in Newark, New Jersey, went to some hotel conference room on a Saturday, came back on Sunday. So, I'm willing to sacrifice a good chunk of my weekend to go out and get in front of investors so I can then do these larger deals. So, if you're not willing to put in the work and do what it takes and you're only, you're going to get a moderate your success for sure. Second thing was, I had a great background being a banker for over a decade and I just did deal after deal after deal. So, I've got a great education on my, on the bank Stein. So, most people don't have that. Cause then they're not bankers. Right. But, go get educated. That's the other thing I would, I would say get educated, higher from a reputable mentor. There's a lot of people out there put the time in. Become a student of your craft, go listen to this podcast, or listen to our podcasts, read books, do stuff like that. That’s a great way of learning. These podcasts are great. Like we host the Dole Capitol podcasts or your podcast. You're going to sit here and talk to me. So, it looks like about at least 45 minutes here-

James: Yes.

Michael: --at this point. And you get to your conversation from two guys that own almost 10,000 units collectively for 45 minutes for free. And there's a lot of wisdom and nuggets, but I think hopefully you can take out of that. Um, so, my background, my education was certainly it. And then really just a lot of its just relationships. You know what I mean? A lot of this is as simple as just don't be a jerk. That's, that's a lot of it, right? So, the brokers want to do business with people they know, like, and trust. They want you to be honest with them. They want you to be, do what you say you're going to do. And if you could just do that and be in a good guy and be friendly with them, man that goes a long way. It really does. So those are, those are three things I've done pretty well in this business.

James: Got it, got it. And why do you do, what you do, I mean, where are you?

Michael: I understood back, couple of things, right? To have a better life to be able to, the monetary if you'd have done well, the very rewarding monetarily. I sit back, so I got a couple of things happen, reflecting back on this, cause you know, we've done a lot in a short period of time. When I was 2010, so my mother passed away in 2010. So, I was like 32, I'm 32, 31, something like that at the time. And, so she was like 57 when at the time she passed away and then she-- her and my father sacrificed to save all their life to then be able to retire one day and then go have all those great traveling adventures in the sunlight and do stuff that was great in life and she didn't get to do that. She works to sacrificed and saved and I never got to-- the fruits of it. So, I kind of, that was a thing that kind of burned into my mind that I need to be able to do something young, unable to take a risk young. So, then I can then enjoy a lot of stuff in life. So shortly after, that's when I really first started was in 2011. I bought a bunch of rent houses in 2011. I [inaudible 47:28] my mom passed away and that's kind of really when I started like taking risks and doing stuff because being a banker, you're just naturally conservative. You're not really wanting to go take risks. But I started small and kind of got some confidence and then a transition in the multifamily.

So that was one thing. And then, and then when I was about 34, 35, I was sitting at the bank and I worked for a large, large national bank and then, I was really successful, and they're kept trying to promote me. And, when I was looking at the bank and I looked at my boss and my boss's boss and his boss and thinking about what they do all day, it was kind of depressing, to be honest with you. Like I didn't want to do that. And I felt like a, it is a metaphorical thing, but it felt like a little fork in the road. Like I'm 34, 35 and if I don't go out and take a chance like right now, and I wait one more year, every year is, we made a little bit harder to go out and take this risk. But if I like go out right now, I saw the market, the market was right. Capital was blowing and the deals are so good. And I knew that because I was in the industry. So, I was like, if I go out and I fail I can always come back and be a banker because I was a really good banker and I can, y'all are going to need to be a banker.

But if I go out and I succeed, then I can have a great life and get to go to Hawaii for three weeks. Like I'm going to this summer, I'm just going to pick up the family in Hawaii for three weeks. I'm just going to work from Hawaii for three weeks to sort of be in a hundred degrees in Dallas. Right. So that's what you, that's what I get to do today. And I get to pay for my sister and her family to go to Hawaii because we've taken the risk and been successful and those are-- that's kind of, I guess some of my whys right there.

James: Yes. It's, it's interesting on how you're tenacious. I mean, whether its real estate or anything. And you can do this in anything, right to, you just have to be--

Michael: Yes.

James: --persistent in doing it and know your why and just push it. And I can change your life. Right? So.

Michael: In every transaction, there's always a problem, right.

James: Yes.

Michael: So that's the thing too. And that's what I always fall back on. Like there's always a problem. There's always stress, there's always, whatever. And you just got to like push through who's going to put your head down. You just got to push through. Just kind of will it, so do what you needed to do, you know? And not that every time I feel frustrated and you were not getting a deal, right? Like I've gone months and months on a deal, I just do more. Like, you know, I make more calls, I go do this, I'm proactive. I'm just like more always answer. So, we don't get what you want to do. More effort, not, that's usually, usually tends to work out pretty good for me.

James: Good. Good. We're coming to the end. One more question. Do you have any like a daily habit or daily ritual that you do that contributes to your success or effectiveness in life?

Michael: I'm not the most, I don't really read a lot of books. I don't really meditate on do any of that. So, what-- I, I do find myself from time to time, I'll go down the rabbit hole of doing something and like burn off 30 minutes by all my life around the internet or something like that in the middle of the day. And I always try to catch myself and say, okay, like I just need to prioritize. So, I have a hundred things to do every single day and I need to ensure I know what the most impactful thing is. And I focus my time on that. Cause, sometimes you let the tyranny of the urgent get in the way of the important. So just cause I have 40 emails on red, I need to go clear. It doesn't mean that's the most important thing for me to do right then. Even though that's like dinging on my screen in front of me. Sometimes I'll try to shut that out, focus on what are, what is the most important thing. And then I know when I, I'll schedule time to come back and clear my emails out an hour later down the road when I kind of get done the most important thing. Because, if you're in a Sproul, I'll leave you with, it's kind of, there's this whole thing that I've, I've definitely learned in this business, as a syndicator, as someone that does, find that puts together an apartment operators, apartment investment opportunities or any sort of opportunity like that. The best way you make, the way you make money in this business, you've got to find deals and find money. Going to find deals and find money and everything else is sort of noise. It’s all really important. You got to operate; you've got to do all their things right. But, that doesn't really, that's not driving revenue. So, if you want to focus on revenue, you've got to find deals or find money. So, I'm not talking to brokers, I'm not talking to my investors, you know, everything else is, not driving revenue. So, at the end of the day, I always try to remember that when I'm deciding, what do I spend my time on. Do I spend my time on this or that, that's always in the back of my mind?

James: Got it. Got it. Is there anything else that you want to share in this podcast that you have not shared in hundreds of other podcasts that you have been? I should have [inaudible51:57].

Michael: I, I think, we do a pretty good job. So, I would, if you want to know more about me, I think really there's a couple of ways you can, the easiest way to find me, just get my company's website, which is a company spiadvisory, just go to our website www.spiadvisory.com. It's spi like spy advisory dot com. There's a contact us form, fill that out. I always happen to have in 10 or 15 minutes. A telephone call, listeners of the podcast. You guys are interested in maybe working with us or really the best way if you want to know more about me or if you listen to this podcast or [inaudible] or. So, you can listen to a dual capital podcast. So that's on iTunes or Stitcher or YouTube or anywhere you're probably listening to me right now. You can find the old capital real estate investing podcast. So, we have probably 300 episodes in the archive or more at this point. So, we do interviews with other people kind of similar to this format. As well as we do a little short one where my partner Paul interviews me and asked me one question a week and I answered about one specific topic. So, if you want to know anything about and just all-around apartment investing in your or some form or fashion. So you want to learn more about me, that's a good way to kind of-- I talk, I have a lot of stuff recorded that's out there that, but if you like this, you may, you may like that and hopefully can provide some, a little nub. It nuggets on different little talk topics, to listen to those.

James: Yes. Yes. I learned a lot from you. I mean, listening to you from different, different podcasts throughout my apartment investing journey. So, I'm thankful for that. And I think that's it. Hopefully, all the audience and listeners got the value that they want to get or getting from Michael and myself. I think that's it. Thank you.

Michael: All right. Thank you.

 

Kenny has been investing in multi-family real estate since 2010. Soon after, he co-founded Wolfe Investments (originally Wolfe RE Mgmt) in 2012. He has been involved in over $130MM+ worth of commercial real estate transactions throughout Texas, Colorado, Louisiana, Oklahoma, and Ohio. Kenny is passionate about ensuring the success of every investment for his loyal investors.

Jeremy has been a real estate and business investor for over 16 years who left the corporate world in 2007 to become a full-time passive cash flow investor. He is currently an investor in more than 70 opportunities across over $500 Million worth of real estate and business assets. As Founder and President of Roll Investment Group, Jeremy manages a group of over 1,000 investors who seek passive/managed cash flowing investments in real estate and businesses.

Edward “Eddie” Lorin founded Strategic Realty Holdings, LLC as a culmination of his years of experience in investment real estate and as an offshoot of Strategic Realty Capital (SRC), which he also co-founded. Since 2008, SRC has purchased over 15,000 units in more than 70 transactions valued at over $1 Billion, and has built a strong performing portfolio. All of SRC’s apartment assets were purchased opportunistically and successfully re-positioned into thriving communities.

The Achieve Wealth Podcast

Host: James

Guest: Ben Label

Title : Underwriting Phoenix with Ben Leybovich

 

James:  Hey, welcome audience to Achieve Wealth Podcast. This is where we look at operators around the countries and learn from them. And I really appreciate you being here just because you have thousand and one things to do somewhere else. But listening to us or listening to me on this podcast gives me great pleasure to be with you all. So today I have a very nice guest and I would say a well-known guest in the bigger pockets and outside of bigger pockets community as well. Today we have Ben Label, which is from Phoenix; hey, Ben, thanks for coming.

 

Ben: How are you? It's a pleasure to be with you. I do a lot of these podcasts, but I have fun every time.

 

James: Yeah, that's awesome. Yeah, we want to go a bit more into detail, so I'm sure you've gone into a great line in other podcasts as well, but there are a few things that we look for. I mean, I'm an operator. We would like to go into a lot more details, into the numbers and the strategies and all that just because we want to learn and my audience want to learn and we listen to podcasts to learn, right? Because everybody's spending the time to listen to each one of those podcasts and there are thousands of those out there but I think it's important that we learn from each other. Right? So, Ben has been almost investing in multifamily residential real estate for over a decade and he has been on numerous times featured in Bigger Pockets Podcast. I've been following him since the very early days when I started in single family and I've learned a lot of things from Bigger Pockets.

 

He has been featured on like three different episodes in Bigger Pockets, he is also the creator of Cashflow of Freedom University and author of House Hacking. He and his partner, Sam Grooms, has been a buying deals in Phoenix market. I think they close on 98 units and recently you close on 130 units, is that right?

Ben: 117, it's 117, last week we purchased.

 

James: 117. Okay. So why don't you tell us about yourself to our audience on aspects that I've missed out about introducing you?

 

Ben: Well, thank you again for inviting me, I appreciate it; I like doing these things. Who doesn't like to talk about themselves, especially when you were so good-looking like me and I guess most often do, it's fantastic, right? Sam is like, not showing up for this, he knows how it's going to go. I don't know, my story has been very kind of public, through Bigger Pockets and elsewhere. Folks, you know, my website, justaskBenwhy.com, my stories are all over that website.

 

I basically was informed that I have a medical condition called multiple sclerosis when I was in college. I'm a professional fiddle player, but I wasn't able to do that because it's kind of hard to do that when your hands don't work like they're supposed to. So it was a kind of a long path toward discovering some way of making money that wasn't reliant upon my physiology to the extent that music would have been. And I kind of,  through zigging and zagging through this rationale, I ended up eventually in real estate. I bought a few single families first, figured out that I didn't like it, went onto small multifamily, syndicate larger apartments today, with my partner Sam Grooms in Phoenix. And that's kind of my story.

 

James: Yeah. Hey, thanks Ben. So I remember you, were in Ohio and you moved to Phoenix, what is the reason for that transition?

 

Ben: Well, there are many reasons. Like everything in life, I think there are synergies that need to take place in order for things to really work and gel and work properly. For one thing, I'm 43 years old, I was 40 years old at the time we relocated. My mentor, who is no longer with me, once upon a time told me, whatever you're going to do, do it by the age of 40. If you don't do it by the age of 40, you're not going to do it in your life. It's a lot easier to keep the ball rolling that's already going than it is to start the ball rolling at the age of 40, midlife basically.

 

So that was one kind of driving force is that I felt like Ohio wasn't the place where I want it to be but you know, the driving force for that timing happening the way that it did was really, I was cognizant of my age and I just wanted to offer myself and my family a good opportunity, [05:42inaudible] start in a better world. That's one thing.

 

The second thing is I wanted better weather, I wanted blue skies, palm trees; I wanted low property taxes, I wanted a good business environment, I wanted a lot of growth. If I never see snow in my life is going to be too soon, I'm completely done with snow. I wanted educational opportunities for my children that I simply wasn't able to attain where we were in Ohio. All of those things, just kind of synergize together and we moved so far, everything's working out absolutely beautifully. My kids are having fabulous educational opportunities and my wife has been a very successful Real estate agent; she makes a lot of money. I am syndicating buildings that it's not something I could do in Ohio just because I wouldn't allow myself when we talk about the underwriting, we can touch on why I wouldn't do it in Ohio or Midwest in general. And then, my job as a function of sitting down by my pool and working my way through some spreadsheets and making some offers and my life is a beautiful thing right now. So that's how and why we ended up in Phoenix.

 

James: Yeah. Let's talk about markets in a short while. So once you moved to Phoenix, I think you met Sam here and you guys started a partnership, right? So my first question is, why do you want to partner up? And second is, how did you choose the partner or how did you choose Sam and what are the skills that you guys see that was complimenting?

 

Ben: Sure. Well, first of all, the reason I wanted to be in Phoenix is because I want to be in a growth market. We buy only in Phoenix because it is a very, very serious growth market and I happen to be very bullish on it and see quite a bit of runway still. Now, for instance, we took a look at Texas because Texas, everybody likes Texas, but Texas was a market that started recovering like 12 years ago so it is a very seasoned recovery at this point. There are other places, Phoenix among them that is a younger cycle still. So I feel because of that and a lot of other, be it income growth, rent growth, occupancies, a lot of other metrics are just looking better to me in Phoenix than in a lot of other markets so that's why in Phoenix.

 

The way we met is I was putting a deal together that didn't materialize, it fell apart, but Sam was going to be one of the investors as a limited partner in that deal. It was also a red D and after the fact, after the thing fell apart. Well, actually before the thing fell apart, he called my attention to the fact that I had a mistake in my underwriting. It wasn't a very serious mistake, but it was an oversight on my part and like nobody finds mistakes in my underwriting. So I'm like, who the hell is this guy and how is it that you know? So I started looking into him and the thing about him was he took the offering memorandum and he milked the spreadsheets to reverse engineer my offering memorandum and he found an inconsistency that I had missed. And I was just like, wow! So we had lunch and when that deal didn't materialize, the two of us just kind of got together.

 

He's a CPA with SCC reporting background, so he obviously has a lot of strengths that are complementary and scalable, complementary to mine. He didn't have operational experience, but he had a lot of bookkeeping and accounting and paperwork wise, corporate level, institutional level experience. And he's obviously a very strong underwriter because spreadsheets are like his bloodline. So that worked and that's why it worked. And the main reason that works, because I like him a lot and I trust him. I don't have to worry about him stabbing you in the back. I would be amazed that ever happened and I don't believe it, he's just a good person. So that's how that worked and that's why we're in Phoenix, kind of the high level, tips of the trees; we like the market and that's why we're together because we have a very complimentary skill set.

James: Good. Good. So let's go down into a little more details into the deals that you guys do. So you have told me why Phoenix. So at a high level, Phoenix did go through a huge upswing and the downswing when on the previous market cycle of market correction in 2008, so aren't you worried about that? [10:41inaudible] I think you froze.

 

Ben: Yeah, we froze up a little.

 

James: Okay, go ahead. Yeah, I can edit that out. So did you hear my question?

 

Ben:  You're freezing up again. Yeah.

 

James: Okay. So nothing now it's good. So my question is, Phoenix did go through a huge downturn, it was a huge swing in 2008 so aren't you worried about Phoenix going through that again?

 

Ben: You're freezing up, James. Breaking up real bad.

 

James:  I'm not sure what's happening. Is it good?

 

Ben: It's good now.

 

James: Okay. Let's see.

 

Ben: No, freezing up again.  Wow!

 

James: Really?

 

Ben: Okay, you're back now.  Okay, let's try it again.

 

James: So let's go into the details of the market. Phoenix went through a huge downturn during the last 2008 crash, the real estate and the economy crashed so aren't you worried about that?

 

Ben: No because Phoenix today is a different market from Phoenix 10 years ago. So Phoenix 10 years ago was very heavily reliant on construction. A lot of the GDP in the state and Phoenix, in particular, was all about construction. Construction is like 10% of our economy today. We have a very diversified economy, meaning; tech, banking, health-care are the three kinds of big industries, they're very well diversified. So additionally, the population growth that we experienced in Phoenix prior to the last cycle was all driven by a snowbird housing. There was a lot of housing being built for people from the Midwest, from Canada. Well, what happens when the economy crashes is these people lose nothing but just dropping the bag and making themselves scarce so we had a lot of foreclosures because of that. The dynamics are completely different now because of the population growth, while we still have people coming in, snowbirds, but we have a lot more true retirement.

So this isn't a second home, it's actually the first home for a lot of people that are relocating here. We also still have snowbirds, but by and large, our population growth is driven by economic growth. We're located in a place where you have California over here, Texas over there and Mexico over here, top 20 economies in the world and we're within a day's drive so it's a good place to be in terms of commerce and trade and all of that. And then there are little things like, listen, 20 years ago the HVAC units couldn't even keep up with 115-degree weather and today it's just really a non-issue at all can so life in Phoenix has become more comfortable.

 

The infrastructure is very new because the whole place is new. The property taxes are extremely low as compared to the Midwest or Texas. The regulatory environment is very friendly to business and as California experiences what it experiences, we are certainly benefiting with x coming out of California and we are one of the places that they're going, Seattle being another one, Texas being another one, but they're definitely coming here. So the economy is very much more diversified than it was prior to the last crash. So that's kind of the big picture view of why would answer no, I'm not, I mean, I'm always concerned. People ask me, what are you afraid of? I'm afraid of everything but you have to be logical about how you kind of respond to things and look at facts. And the facts are that nationwide, last I read, average apartment rent stands at $1,470 per month; in Phoenix, we're at 1070. Maricopa county, which encompasses all of Phoenix and surrounding MSA is the number one growth county in the entire country.

 

Phoenix is the number two growth city in the entire country. We now have a population of 5 million so we're number five largest city in the country. And with the proper regulatory environment, the low taxes on property, all of those things, insurance costs are lower because we don't have hurricanes, we don't have fires, we don't have all the nonsense right? We don't have the freezing pipes in the middle of the winter, we don't have any of that stuff so there's a lot of positives. So the question people are asking is, hey, here's this growth market. Our rent growth in 2018 clipped at 8.2 %.

 

James: Wow! That's huge.

 

Ben: Well that's because we're 1070 and nationwide, you're at 1470. There's a 25% delta in the highest growth market in the country so you are asking yourself, why? Basically, you're saying, why would an average rent in like Cincinnati, Ohio cost more than it does in Phoenix, which has the good weather, all the growth and all of the income growth and all of the job growth and everything and the population growth? So that's why the investors are asking themselves, can Phoenix organically catch up to the national averages? Like forget surpassing the average, can we catch up to the national?

 

And if you say yes, it's because you see what's happening economically. If you say yes, then if you deploy your capital at five cap and you just sit on it until that process kind of happens on your basis, you're at six and a half gap three or four years later without having to do any value-ads. So this is why the cap rates are so compressed in Phoenix is because people are just making a play on the fact that Phoenix has undervalued. For the type of economic prowess that is currently taking place in Phoenix, it's just undervalued; rents are undervalued, property is expensive relative to the rents. But if you consider the prospects of rents going up, if you look at Marcus and Millichap, they're predicting this year at 6.2%; if you look at Colliers, they are over 7% so again, depending on who you look at. I think we're going to be closer to 7% just because we have such delta and because of what I am personally experiencing in this environment.

 

We just have a lot of upside, the ceiling is very high. Juxtapose this against Austin, which is stalling out at this point, it is a very seasoned market. The rent growth is stalling out, the vacancies are taking up, so now it's Texas, so can it continue being Texas for the next five years? For all I know, yes, but given the choice to be in a younger cycle such as Phoenix or to be in a seasoned cycle, but in a very strong location, historically that's proven itself, I don't know, that's where people kind of make their bed, I guess and make their beds. I like Phoenix, I'm bullish on Phoenix and I'm not even looking to any place else because if you can be in Phoenix, why would you look at anything else?

 

James: Yeah, that's exactly my point as well. I'm in Texas and I'd rather invest in my backyard even though it's competitive over here. But in your backyard, you have a lot of control. You can go and drive by and see it compared to somewhere else. I mean, real estate is so localized, it's important for you to know your own back yard. So coming back to the sub-market, how do you choose the sub-market, is there a specific preferring for sub-market compared to the deals itself?

 

Ben: I don't really worry about sub-markets because I don't buy buildings, I buy stories. So if there's a good story for a specific building, because all it is is that you are looking for a delta, the money is always in the delta. So if you can purchase the building here, but the story suggests that the building,  the future valuation is going to be recognized here, then that's the delta I am paying for, that's what I'm buying. I'm not actually buying the cash flow, I'm not a cash flow investor when I syndicate these things. Cash-flow is there as a pathway to generating wealth and generating equity but that's it. There are not cash flow investments because you can't drive the IRR on cash flow, it's discounted too much over time and you need the appreciation. The appreciation is in Delta and the delta is in the story.

 

So we bought a Kenyan 35 and that's half a mile away from a university, a Grand Canyon University that grew from 2000 students to 20,000 students in 10 years. Received public status Accreditation, is investing $1 billion into their campus, gentrifying everything around them, of course, as usually happens with the universities when they grow and they're going to be at 30,000 students within next five years. So I'm buying a building half a mile away, that's my story there. I buy another one over here that is in the middle of a huge redevelopment and rejuvenation by the city. The city is deploying a lot of capital. There's a lot of class A infrastructure coming in, both in terms of retail and office space and everything else. So I buy this class C building, it's surrounded by all this class A stuff. It's uniquely positioned to be able to compete with class A on finishing textures when I'm done remodeling, but at a much lower basis. So my rents don't have to be anywhere near where the class A rents are and so, it's a story, it's always a story.

 

What is happening economically that is going to give my building desirability that is uncommon at the basis that I will be at. So the sub-market itself doesn't really, I mean, yeah, I guess there are places you wouldn't want to go, but we wouldn't look in those places because nothing is happening in those places. The whole point of where we want to buy buildings is because things, good things are happening in that location, that's why we want to buy a building there, especially in this season cycle.

 

James: Yeah. So what you're saying is there are places that you wouldn't even look at it, right? It's basically a sniff test. Yeah, this area, I'm not looking at it.

 

Ben: Well, there's area and there's a building. I mean, I get these emails, 100 a week and the vast majority of them go into the trash before they're even opened. And of those open, vast majority go into the trash and that's got to do with age, quality, construction features because you can put lipstick on a pig, it's still a pig. You can put a gold plated toilette in a pig, it's still a pig. Because of what it is, where it is, it's gonna attract the audience that it's going to attract, there's nothing you can do with it and I don't want those buildings like that.

 

I want the building, which inherently the bones of it are just something that's not coming through in a recognizable way, shape, and form for the marketplace. But if I put some money and energy into this asset, I can bring back what it already is. I'm not trying to take a pig and make it into a unicorn. I'm trying to make a unicorn that's been completely messed up and it looks like a pig, but it's a unicorn, it's not a pig. I just have to re-sculpt it, redo it, I have to clean it up, improve and then the market will see it for what it is, which is a unicorn. That's what I want and that's a function of both location and the asset itself.

 

James: Yeah, I mean, so I think what you're describing is what I would describe as building upside. So I look for deals where I know today I can go and just improve on it; either by capital or reducing expenses and just realize that upside that has been hidden inside that building and that's a lot of it in multifamily, right? And it just you're to find that kind of deals. It's hard to find that kind of deal, but that is the real deal, right? Compared to buy [24:23inaudible] 

 

Ben: Right. Then it's a needle in a haystack. In fact, I mean, if you are not doubling, almost practically doubling your NOI in the first three years, you are not buying the right kind of building because that's what it takes in my experience is almost doubling the NOI in three years.

 

James: Yup. So let's go to underwriting. So where are you getting your deals, are you getting from brokers?

 

Ben: Brokers; they're off-market but they're brought to me by brokers.

James:  So why do they come to you?

 

Ben: Because I close.

 

James:  Okay. No, there must be, I mean brokers do a lot of off-market but they look for qualified buyers, right? So especially people who have done deals with them so maybe...

 

Ben: Right, so that's why, and I mean, even if I didn't do a deal with this broker---I don't know, I don't want to drop names because I don't want to but the national brokers, one of them reached out to me yesterday because even before we closed last week on the last one, somehow everybody already knows that we're going to close on it. And so these guys started coming out of the woodwork. Well, this schmuck emails me, he calls me twice in a row, he says, Oh yeah, I got an off-market property for you. I said, okay, go ahead and email me the nondisclosure agreement, I will sign it and email me the stuff. Well, he emails this property to me; well another broker already showed it to me two months ago, not requiring any kind of nondisclosure.

 

It was a pig; it was the very thing that we're describing, the 'don't do'. It's the wrong shape, it's the wrong footprint, it's the wrong mechanical layout, it's the wrong age, it's the wrong location; It's the wrong everything. And these guys call you and they say, well, you know, you can get it for 75 per door. While I'm like, I would rather pay a hundred a door but get quality, that's going to be worth 180 when I'm done with it, rather than paying 75 per door because whatever money I put into it, it's still going to be worth 75,000 per door when I'm done because the market has decided this is a pig. It's worth 75 per door, that's it. There's nothing you're going to do to move that hurdle and so you get a lot of that.

 

But you also get some serious brokers. Like the biggest brokers in Phoenix is not national brokers, they are local, but they're the biggest by volume. They do the most deals in the apartment space and those guys bring me deals, they're deals, and they're not the only ones, other people do as well. We've tried to go after some deals with other brokers, we came really close. We weren't able to, for one reason or another, to execute those deals, somebody else got it or whatever. But sometimes brokers have deals and they're off-market deals. The question of, what's it gonna take to get those deals? I just don't have an answer. It's all about relationships and I'm going to have to convince somebody that you are worth having a conversation with and that you have a good chance of executing. Obviously, it gets easier immediately after the first deal closes, immediately.

 

James:  Just because of the credibility.  Let's say today a broker sends you an OM, right? So some random broker and he said it's a deal and you know it's not a pick, right? So, you know there's something more I need to do my secondary inspection here or my secondary underwriting here, right? So how would you go about underwriting the deal?

Ben: Well, the first and most important thing in the underwriting process is to place after renovated rents because if you mess that up, everything else just doesn't matter. Where most of the money is, is knowing down to the dollar and the cents where those rents are going to be after you are done fixing the community and fixing the unit. So that's the first thing I do is like if it's well located, it's the correct year, it's the correct HVAC, it's the correct roof, it's the correct XYZ, which I can tell just by looking at this thing, it's in the correct sub-market, where I know I would want to be, the next step in the process is just to put it through the underwriting that begins with placing rent, understanding what the rents are going to be.

 

James: So how do you place rents? I mean, how do you do the rent comps?

 

Ben: So, for me, if a broker is sending me something like this, what is accompanying it is some kind of Yardi report or metrics or something; some kind of report on the sub-market, which is going to give me the comps. Now those reports aren't correct, they're probably within 20% margin correct. We are looking in the market that's trending seven, 8% per year, obviously, those metrics will be off. First of all, I know what the rents are in Phoenix, MSA for the class of asset I want to buy in, in the kind of location I want to buy in. To validate myself, I then look at that report. Now, the underwriting, for the most part, is an automated process because we kind of know what the OPEX is. There's really very little magic to how much it costs to run these buildings.

 

There are a lot of reports that study and track by the state, by the locality, by the city, what the operating costs are running and so we underwrite to the averages and we have our own trailing numbers, which we use in the underwriting. So we do massage those for every deal, depending on the size and the complexity of the mechanical and things like that. The R&M is going to vary and certain services are going to be required here they're not required there, contract services, things like that. But by and large, I know that on the operating side, I'm going to be somewhere between $4,200 per door and $4,600 per door. $4,600 per door is on a smaller asset, maybe 100, maybe 95; $4,200 per door is 120, 140 is going to tick up because now I need more payroll. And so you know what those dynamics look like. We can kind of, we're both, Sam and I, are starting with numbers filled in because we know where those ranges are and this is just for the first path, right? First time through. Now, if the first time through, I mean, like it takes me about...

 

James: Let me quickly interrupt you. So how many percents of operational income is that? [32:06 crosstalk] do you look at percentages as well?

 

Ben: Yeah, that's the beauty of Phoenix. You're talking about being under 40% on a stabilized basis.

 

James: Under 40? That's really good.

 

Ben: Between 35 and 40%. Well, this is the thing about Phoenix. I have to tell you; like I studied the operating costs all over the nation, I will tell you that in Texas it's over $6,000 per door because the property taxes are so high. In Cincinnati, Ohio, it's over $6,000 per door. Over there, it's for a different reason; it's all hilly, the buildings are all older, there are boilers involved, there are flat roofs involved, pipes freeze all the time and building sit at the bottom of where water flows and you just got RNM and contract nightmare.

 

In Phoenix, because property taxes are so low because the insurance is so low and because frankly a lot of things are easier in Phoenix because of the weather, it never snows, such things, the operating costs, If you look at the national reports that indicate per city, you will see that Phoenix is in the mid $4,000 per door. Now, as a relationship to the rent though, that's very low because even though Phoenix is lower than the national average, still when you're running at $4,500 plus or minus like we just purchased last week. So my underwriting for that asset is right around 45 $4,600 per door on the OPEX. But dude, we're running, let me calculate, we're running, which is 98 units at about $34,000 per month.

 

James: That's awesome.

 

Ben: $4,000 per month divided by 98 times 12. Yeah, 4163, under $4,200 per door, that's OPEX. Now obviously you're going to have cap acts that you are exchanging blinds fixed. It's not part of the scope is just part of the turn on each unit. But with my underwriting, 4,600, I really don't think we're going to need it. In fact, we can run a 117 unit on the same payroll that we run 98 unit. So theoretically that OPEX number, it should be closer to 4,000. So in terms of relationship to the top line, you've got very, very pleasant circumstance in Phoenix that you can't achieve in a lot of other places.

 

James: Yeah, I think your rent is high compared to the Texas market. I mean, forget about Austin, Austin is a different market, right? But if I look at my San Antonio deals, usually my expenses are 4,500 4,600 but my rents are also lower so I end up my expense ratios like almost 50%. But what you're describing to me in Phoenix, looks like mobile home parks expense ratio because I know there are mobile home parks expense ratios like around 35 to 40%. So if you can run at 40% that's a really good market because your income is high and your expenses are low.

 

Ben: I'm going to look at it right now.

 

James: Okay. That's really good numbers in terms of percentage relationship.

 

Ben: Yeah. So in the first year, I'm projecting 49%; second year, 39%; in the third year, 35%; and then it ticks up a little bit because I'm using a little more O&M as my remodel gets seasoned and it gets older, a little more money for turns, a little more money for O&M and those kinds of things. So, but yeah, we're staying underneath 40%.

 

James: That's very interesting. So is that what you're consistently seeing even on the broker O&Ms?

Ben: The broker O&Ms are going to be even lower. The broker O&Ms on deals like this, come with like $3,900 of operating costs; 38, 39, which is unrealistic. If you go to the bank, trying to get financing on that, it's not possible. So for the bankers, you have to show underwriting in the mid four thousand, you just do. But I have to say that in Texas if you are showing 45, $4,600 per door, that's really good. [36:47inaudible] a lot higher than that.

 

James: Yeah. We have our own operation, we want to be integrated so we are able to run it much leaner.  And the question I have for you on the property taxes, how do you [37:05inaudible] property taxes in Phoenix? I mean do you have the same or do you increase a bait? Because I know in Texas

 

Ben: In Phoenix, there are regulations in place that were passed about three, four years ago. Whereby the municipality is not allowed to raise property taxes any more than 5% per year, this applies to the assessed value and the actual tax bill so it's regulation on the books. So the tax on the writing and Phoenix is the simplest thing ever because you don't have to guess, you don't have to take a basket of properties, you have to do nothing. You know you're not going to go up any more than 5% so in my underwriting I use 5% a year, which is the worst case scenario done. Now there are caveats if you are going to put another building on the property and trigger reassessment, that triggers all kinds of circus; we don't do that. I won't buy anything that requires me to move exterior walls, to do that kind of stuff.

 

James: So what are you saying is even though the property has changed, hand the maximum they can do is 5%, wow! It's awesome.

 

Ben: And this is what I'm telling you about the regulatory environment being conducive to doing business. They don't change the chase sales. And everybody says in Texas, oh, just buy the LLC, they will never know what you pay. They're not stupid, they're going to look at the loan. They're going to apply the LTV in reverse, they're gonna get what you paid and they're going to assess your taxes up to Wazoo. I mean, the glutens up there, it's laughable, it's hilarious. And Texas has always scared me because of that because I can't underwrite taxes. The same is true in the Midwest, the Indianapolis. I remember I'd paid an attorney, we were looking at a deal in Indianapolis. Well listen, it has in place property taxes of about $60,000 but if I were to follow the letter of the law, I was getting three times that much. Which obviously is going to penalize the building and obviously the broker wasn't showing that much increase.

 

So I paid an attorney to speak to an attorney. Even they can't tell you because yeah, they're not chasing sales, but they are going to take a basket of properties, like properties and like location, they're going to kind of synergize all of that data and they're going to increase everybody by the same amount. But who knows what kind of basket of properties it is, which properties make it into the basket, when were they sold? So the only thing you can do there is looking at trailing billings and back into the probable increases. But it's not scientific, over here, no more than 5%, boom. And so far that's exactly what has been 5% per year.

James: That's awesome. I mean in Texas is just so crazy in terms of property taxes. You do not know what to underwrite. So I always underwrite to a hundred percent increase, just to be safe in terms of underwriting but it's also a problem because you can buy a deal, which is like 24 years, not changed hand and now you're at a hundred percent, which can be huge. And it's mismanaged expectations between buyer and seller because the seller is going to say, hey, this is what I'm running and buyer's going to say I've done completely different and it's just hard to do business, but that's very interesting on how they do it in Phoenix. So how do you underwrite like miscellaneous income in terms of after you take over?

 

Ben:  Well, the next step in the process. So once we put it through the underwriting and it looks good, Sam and I drive out to the property. We'll look at the property, we like it, we go home, we really dial in our underwriting; what do we think the rents are going to be? What do we think the expenses are going to be? If it still looks like it's a deal, the next thing that happens is we send it over to our property management company with 20,000 units under management and obviously all kinds of access to all kinds of trailing data that we don't have. So the ultimate decision on where the rents are going to be, where the OPEX is going to be, all old form of it that ultimately is all approved or okayed by them or adjusted whichever way they see fit.

 

The rubs, the utility income is a very simple proposition. I mean, I underwrite 90% recovery and sometimes we can do better, but I underwrite 90% recovery. Whether you do it, whatever methodology you use, a third-party or Rubs or whatever, RPM likes to use third party, but because of legal absolve, so to speak, they like to offset the risk in that way. And as of late, past few years, regulatorily, it has become more and more difficult but I shoot for 90% recovery of the properties, utility bills, and other income is just purely specific to the property. What I'll tell you on the other income is that when we're taking, I have to back into that conversation a little bit.

 

What different about Phoenix than it is about most other places including Texas, value-add means something very different here. Usually, when we do value-add, we're looking for a mismanaged department [quote-unquote]. Well, mismanaged usually manifest itself in vacancy. So a big part of our value-add is to put proper management infrastructure in place and to capitalize on that vacancy and to bring it from 12% 14% to 6% which is, according to the market, that's where you supposed to be, right? So you do what you gotta do to fill those units. The issue with Phoenix is that they can see, pretty well doesn't exist. It's such a high growth market and there's such a lack of demand of 800 to $1,000 units; there's just such a lag because you can't afford to build it.

So there's such a lack of that demand that that asset class is basically full. Even like the most poorly run properties are operating at full occupancy.

 

James: So you're saying lack of supply, not lack of demand.

 

Ben: Yes, lack of supply, I'm sorry. There's a lack of demand and there's a lack of population growth, but there's a lack of supply. Specifically in that price 800 to 1200, because the basis of building it, will fall at $200-225 a square foot, you got to get higher rents than that. And so, for the huge section of the population that needs those 800 to 1200 rents, there is a lack of supply on that. So what is value-add? Well, value-add is $300 per door in this case. Well, let me walk you backward; we just closed on 117 units. The physical vacancy on an annualized basis in that sub-market is 2.6%. Now, can I underwrite that? No, I have to underwrite 6% plus economic vacancy.

 

But just speaking about the physical vacancy, I have to underwrite 6%. I am penalizing my underwrite because the seller is operating at 2.4. When we took over, there was zero vacancy. There's one down unit and zero vacancy.

 

James: What about the economy occupancy, how much do you underwrite that?

 

Ben:  I underwrite economic occupancy, 9%. Somewhere between nine and 10 but on this deal, I did 9% and so five to six of it is physical vacancy and three to four of it is, the rest of the economic vacancy. But what I'm saying is that if the building is operating at zero vacancy and the sub-market is operating a 2.6% vacancy and I am underwriting 6% vacancy, I am penalizing my underwriting 3.4% so I need the first amount of value-add just to compensate that so I can break even. And then I need a whole bunch more value-add so I can actually create the delta so we can create enough profit margin for the IRR to work. So what this ends up looking like as value-add in Phoenix is $300 per door.

 

James: How did you come up with $300 a door?

 

Ben: It's just what it takes, in order for me to back into the IRR to the partners that is going to be attractive for people to invest. What it seems to me, I need, and it seems to be across the board for every deal that we do, what it's requiring is $300 per door value-add. So we're buying these deals that have, talk about a unicorn, $300 per door on value-add; only because we don't have a vacancy.

 

In most places, like if you have physical vacancy of 10% that you can fill, then maybe you just throw some lipstick on the pig and make another $75 a door, paint the cabinets, do some resurface countertops, do something like that, get another $75 of value-add and you are good; your IRR works because there was vacancy in place that you are able to fill. We don't have any vacancy so we actually have to do the heavy lifting to recapture the loss to lease and to get the renovation bump and cumulatively what it's taking us is $300 per door. Anything less than that and we can't get the margins that we need.

 

James: So my understanding when you talk about $300 a door, I mean when I underwrite my deals, the $300 a door is basically just the rent but you are saying the $300...?

 

Ben: No, it's cumulative between LTL so about 175 of it. The reason the occupancies are zero is that obviously, the rents are too low.

 

James: Okay, got it.

 

Ben: You should never have zero occupancy. If you are staying with the market and you're pushing your rent, you should never have zero occupancy. So the fact that the occupancy is zero is because the rents are too low so on day one, we're walking in and we're raising rents at 150 to $175 on the renewals and the rest of it is a bump due to the renovation so cumulatively.

 

James: Okay, got it.

 

Ben: So you have their stated rent, then you have their actual rent roll, which there's a bunch of loss to lease between the rent roll that they're actually getting and their stated rent. Now we're coming in, we're saying no, no, our classic rent is going to be this right here. So now we're going from their LTL all the way to our classic brand. And then on top of it, we're saying, but after we remodel, there is another piece of it that gets tacked onto the end. Cumulatively, that entire process in Phoenix, MSA in Class C value-add property, in my experience, $300 per door plus or minus is what's required.

 

James: That's awesome. And what is the total IRR that you look at for?

 

Ben: I look to deliver to partners, something in the mid 14 to 15 if I hit 14% IRR on a 10 year hold and I always underwrite 10-year hold, I don't want to sit there for 10 years but especially because we're late in the cycle, I underwrite a 10 year hold. So on a five-year hold, it ends up somewhere around 17, 17 plus. And of course, if we can exit sooner, then those numbers get [49:52crosstalk]

 

James: So let's talk about once you close on the property, right? So yeah, you underwrite everything on the paper and it all looks good so now you close on the property, right? So now you have a task of pushing up that rent. So how do you go about pushing up that rent?

 

Ben: So I don't do it, my PM does it.

 

James: But you're going to hold the strategy to it, right? I mean, are you going to tell them how to write it?

 

Ben: Correct. So we had a meeting on the day after we closed at the property. We had a meeting, the meeting was the property manager that's on site, the regional and Sam and myself. And what we discussed is that because, in the next three months, there are only about three or four leases coming up for renewal each month on 117 unit property. Right now we don't have a classic rent. As leases come up, you can either stay in the unit as is and pay us our renovated pricing, but you're welcome to leave. And then we'll renovate the unit and somebody else will move in and pay the renovated pricing because the business plan calls for rent, so much renovated pricing to be entering to payroll each and every month.

So because we don't have enough vacancy coming up, we're basically not renewing leases and we're not putting any in place. I mean, it's unreasonable to ask people to pay the rent as if the apartment has stainless steel and granite but I don't care if they leave, they're entitled to leave and they should leave. The fact of it is, is that they're probably not gonna find anything better to go anyhow. At the end of the day, as long as I'm getting the rent, I don't care if I remodeled it or not because as long as I'm getting my rent projections, I'm in good shape. But I am prepared for a certain number of people to be, I don't want to say forced out, but they're welcome to stay as long as they pay our rent.

 

James: Yeah. So you're renting is like 300 so there are two components to it. One is just a loss to lease even without renovation. And on top of it, there's a renovated you need so you can do two ways, right? One is you can just not renovate and just go halfway up there. But I think what you're saying is you write a business plan calling it.

 

Ben: We don't want to do that for one very specific reason. This has been the model over the past five years. The model is $4,500 of renovation buys you painted cabinets, refaced cabinets, resurface countertops, maybe upgraded appliances, not stainless steel, maybe black, some fixtures, some flooring, and some paint. That's what $4,500 buys you. We're spending $7,500 per door and that gets us, granite, it gets us 100 hung sinks, It gets us stainless steel appliances, it gets us nicer flooring, paint all the rest of that. So the reason we're doing that is not so much that we couldn't make our numbers work, it's driven by the cycle. We are late in the cycle and when the cycle changes, I want to have the best product in the sub-market at that price point.

 

When everybody starts taking on 'loss to lease' when everybody starts taking on concessions when everybody starts the race to the bottom, my thing is I'm paying for my staying power at that point, but I'm paying for it now, I'm doing the Rehab now. So we're accomplishing two things with that; number one obviously we're repositioning the property, we're repositioning the tenant base, we're creating a more manageable situation. And number two, the product that we ended up with three years down the road has a lot more staying power then another kind of product that wasn't as renovated.

 

James: Especially if you're going to fork out that much of money right now and make the deal work, you can always invest in that product right now as well.

 

Ben:  So these are syndicated deals so we collect the money up front. There's nothing worse than coming to your partners and saying, hey, we need $1,000 more. So we collect all the money up front and we deploy it right away and we re-positioned the property right away and 18 months down the road, we arrive at a situation where we start having an exit. Now our buyer may look very different 18 months down the road from the buyer three years from the buyer five years from the buyer seven years down the road. But we have a compelling story to tell at that point in time. We start working on that story right away, on day one.

But yes, our renovations are good renovations; we replaced the cabinets, they're getting new kitchens, they're getting new bathrooms. These are seriously upgraded units when we're done with them. The pricing is phenomenal; we're getting stuff done for 7,500, $8,000 on the interior that other people are complaining costing them $13,000 to do and they're not wrong. It's one of the benefits of having a PM with 20,000 units on her mat and there's a pricing power that comes with that both in terms of subcontracting and in terms of materials, how they source their materials. We could work our IRR having deployed half the funds, just get lower rents but for less money, we could work it.  Then there's just the other piece of it, which is that three years from now when the market does cycle, potentially, what do I want to own at that point?

 

James:  You want to one of the best product

 

Ben: I want to own the best quality that people can buy for that amount of money.

 

James: Got It. Got It. So what do you do, I mean, we have a few more minutes to go, very quickly; what do you do in terms of asset management? Are there any systems that you put in to manage the assets?

 

Ben: Yes, we use IMS.

 

James: The IMS is on the investor side, I'm talking more about the property side. I'm looking at property performance.

 

Ben: They use Yardi. The PM uses Yardi and then we get reporting weekly from on site in terms of, it'll have things like to date collections, it'll have vacancies, it'll have remodeling information, like how many units were remodeled, how many units of pre-leased, how many units are leased, all that stuff. Vacancy; it'll have delinquency, it'll have a promise to pay all of that stuff. So it's a one-page report that kind of gives us a bird's eye view in the whole thing. And then once a month, at the end of the month, we get a packet this thick. I mean, I've never tried to print it off, but I'm sure it'd be this thick, from the PM and that includes everything; everything, trailing, everything.

 

James: Yeah. So one question that I ask all of my podcast guests is, what is the most valuable value-add that you see in your experience?

 

Ben: I think the finishing textures inside of the units. I think that people are willing to forgive you. And you know, we do things like upgrade laundry, little rooms we build out. We don't build a separate building, but like if our laundry room is this big and it only needs to be this big, we're going to put a wall here and make a gym over here and add and the laundry room over here, things like that we do. But people are willing to forgive you so much if you create an interior that looks good and functions well. I mean, I don't care what you do on the exterior, if the inside of the unit is not great, it's just going to be difficult to drive rents. Now, once the inside of the unit is great, there's a bunch of other things you need; you can't have an ugly looking laundry room, you can't have no amenities, you can't have a shitty looking office, it's a complete packaging thing.

 

But I don't know, I mean, I guess my perspective is different on it. I don't nickel and dime my renovations because I'll never get the rents because of what we talked about. I don't want a hodgepodge unit, like painted cabinets that are 30 years old and resurface countertops. I just don't want to be left standing holding that bag if I have to be in this property for another five or seven years, for example, I don't want to be holding that bag for that long. So I've never really gone through and said, okay, how much is the countertop worth? How much are new cabinets worth? Because we're doing all of it. I have my scope, I know what's included. And at this point is just the easiest thing because we dialed it in, we know where everything is coming from. The PM just orders everything, we know how much it costs. If this kitchen is a little bit bigger, it's got one more extra cabinet, well, pricing goes up by $135. It's not difficult at this point to know what the remodel is going to cost.

 

James: Yeah. So you primarily focus on all of it inside the interiors?

 

Ben: Yeah.

 

James: So a lot of people are trying to start in multifamily nowadays. I mean, multifamily is a buzzword right now, right? I mean, the economy is doing very well, everything is so good. What would you advise to a Newbie who's trying to get started in multifamily? That's a long sigh.

 

Ben: I don't know because the economy's doing really well, that means the competition is very stiff. The thing is, you really got to know what you're doing it, this isn't a good time for newbies because the economy is doing very well and it'll probably continue doing well at some point and they'll go down and it won't do so well. And the decisions you make today could hurt you tomorrow and if you are just starting out and you are a Newbie and you're looking at, I can't imagine how you do large multifamily and you haven't bought some four-plexes before and some six-plexes, having to internalized all that stuff, you're better off just investing money in somebody else's deal, honestly, I feel at this point, because the stakes are too high. I am buying at four and a half gap, you can't make money at four and a half cap, you can only lose money at four and a half cap, which is why I buy a needle in a haystack; a very specific asset. If you are a Newbie, what the hell do you know to be able to do anything of what I do?

 

James: Correct. Right. That's so many details in renovation, finding deals, underwriting deals so many skills involved, right? It's not like anybody can jump in and do it right now.

 

Ben: Which is why we have this conversation, which it should be attractive to more seasoned people, to people like us, people that already have that ball rolling and they're maybe trying to break out to the next level. So if you're talking to me about newbies, this isn't a conversation they should even listen to because half of it they will not understand.

 

James: They wouldn't understand. You have to do it to really appreciate it. At least you should have flipped one property. [1:02:17 crosstalk]

 

Ben: Listen, underwriting is expressing with numbers, a behavior of people and the interaction of people and property, that's all it is. If you've never dealt with a tenant once in your life, how do you know what those dynamics even look like?

 

James:  Correct. I've seen a lot of newbies right now immediately, they're buying 100 units, 200 units. I mean, yeah, the market is so good right now, you're relying on property management, there's a lot of wind on your back. Right? The appreciation itself carries you up, but that's not going to be happening all the time. Everybody is a champion of bull market. So yeah, we started in the single-family, we did so many single families. We learned through the hard way when contractor management, it's a skill by itself, right? The whole timeline management. So that's really good advice, Ben. And is there any other things that you want to share to our audience that you have never shared in any other podcasts?

 

Ben: Yes, I think I shared everything about me in every other podcast, I want my own podcast to share the rest of it. And I'm not sure what the hell I'm going to talk about on my podcast because I already said everything on everybody else's podcast.

 

James:  Yeah. We already listened to Ben in something else.

 

Ben: But it's going to be very, very high level and like, I'm not going to make those excuses. I'm like if you're a Newbie, you probably shouldn't listen to this because we're going to be talking about stuff that you have no idea about. A friend of mine who's no longer with me has always said to me, 'stumbling blocks and stepping stones look a lot alike from a distance'. So if you are a Newbie, what I am telling you is be really sure that you know the difference between a stumbling block and a stepping stone before you step. So many of you guys are stepping first and then figuring out if it was a stumbling block or a stepping stone and that could be a very painful process. So I don't know, education.

 

James: Education Yeah. Go through the hard work of going with smaller deals first, that's what I would say. Just learn the ropes, learned the whole thing, make sure that you can do it. Syndication, turning around properties is not for everybody, that's how I would say. I mean, there are a lot of people who can do it but start small and grow and learn the skills.

 

Ben: Yeah. I very much disagree with the gurus who say, hey, it's just as easy to buy a 100 as it is to buy 10. This is true; it is just as easy to buy 100 when you know what you are doing. But the way you get to know what you're doing is by having bought the fourplex and the six-plex and the 10 unit. I disagree; I think it's criminal advice to send people directly into large multifamily. Have this be your goal, be excited about it, be whatever. But you need to internalize the dynamics of the game. People act in ways that are going to shock you and the numbers reflect that, don't be stupid. Don't be going and saying things like, ah, okay, here's the income. Let's just use 10% from property management and 10% for vacancy. Those things,  get a little intelligent about what you're doing.

 

For instance, the conversation I have with people all the time, listen, in a $500 rental, if you have to replace a furnace, it costs you $2,500; in a $1,200 rental, if you have to replace the furnace, it also costs you $1,200 or a $2,400. As a percentage of the top line, you see how that's a totally different figure. That's because all of the expenses in real estate are dollars, they're not percentages. We back into percentages. So James and I know what our percentages are because we've studied the dollars and we backed into the percentages. So if we ever use a percentage, it represents a dollar. What you guys, newbies, do a lot is you take this rent and then you divvy it up percentage wise to this, this, this, this, this. That's just not how real estate works and that's how you get hurt.

 

James: Correct.

 

Ben: Simple things like that that amaze me, that people don't think about and don't know and they jump into this stuff because Marcus and Millichap says on the proforma, this is how much percentage you need to allocate to XYZ, that's just nuts.

 

James: Absolutely. Absolutely. So Ben, thanks for being here. Do you want to tell our audience how to reach you?

 

Ben: Yeah. You're not getting my personal phone number. You're not getting that, James can have it, but you can't. But you can email me at [email protected] or you can just go to, justaskBenwhy.com and we'll look over my website. You can email me through the website as well if you'd like. But yeah, I have a couple of different email accounts for like serious people and then people like you, I'm not giving up those.

 

James: All right, thanks Ben for being..

 

Ben: To all the people that I offend, you know, I get on a podcast with one goal in mind; offend as many people as you can, Ben because like if this is your brand is what you do, so go for it. I think I offended a few people, didn't I?

 

James:  No, I think I like the real numbers, the real details because sometimes some gurus out there makes real estate and multifamily so easy. I mean people don't realize it, people are selling education as far right. So it's not that easy, there is a lot of science behind multifamily, there's a lot of hard work behind it. It takes a lot of experience looking at hundreds of underwriting numbers and trying to figure out, and of course, there's also another aspect of, now I already buy it, now I'm going through the whole real asset management stuff and they realize, oh, whatever and the road was completely different from what I'm doing asset management, right? So realizing that it takes a lot of experience as well.

So it's a learnable trick, but there's also a lot of hard work involved in growing and doing the real stuff, that's what I see. So that's really good advice, Ben. So thanks for being on the show for my audience. Thanks for being here. As I said, you have a lot of things to do outside of listening to this podcast and I really appreciate you guys being here. We hope we really delivered value to you guys. That's the reason I'm doing this podcast, to give true value to listeners and learn as much as possible before dabbling into real estate and multifamily commercial real estate. Thanks. And I'll talk to you all soon.

 

Ben: Thank you.

 

Brian Burke is President / CEO of Praxis Capital Inc, a vertically integrated real estate private equity investment firm. Praxis operates on multiple platforms, currently managing active syndications for the acquisition of multifamily, single family, and opportunistic residential assets in US growth markets.

Ep#2 From Selling Books to Flipping Apartments with Vinney Chopra

 

Achieve Wealth Vinney Chopra 

Title : From Selling books to Flipping Apartments with Vinney Chopra  

 

James: Hi, audience, welcome to Achieve Wealth Podcast and my name is James [00:12unintelligible] today, we're going to be talking to Vinney Chopra who has been in many podcast that most of you have heard, but I strive to make my podcast different from everybody else. I'm going to be asking different questions. 

 

But at a high level, Vinney Chopra has done more than 200 million multifamily portfolios, you know more than 3,100 apartments under management. He spent a lot of money on his internet education, it's been more than 37 years and he's also a motivational speaker with more than 10,000 speeches given. He's an investor, educated motivator and well known for his smiles, welcome to the show. Hey Vinney, welcome to the show. 

 

Vinney: Thank you, thank you so much, James.  

 

James: [01:00crosstalk] something on your introduction, you can continue giving your part of the production.  

 

Vinney: Oh, totally; no you did a fine job. I came from India with seven dollars, some of the friends know me and I'm a mechanical engineer and sold books, encyclopedias, just to let your audience know and also, I became a promotional speaker.  

We've been investing in single-family homes, James, for over 35 years and just found out that a single family is not going to get us where we wanted to go. As a family with two children and my wife and I, we moved to California near San Francisco. A lot of people talk about real estate here somehow, you know, and of course, the houses have gone in value, a rental property is beyond, have gone in value. 

 

Then I got stuck; I became like, you know broken in 2004 in California. And at that time, I had to make a decision, do I sell single-family homes and make money that way or do I do something different? And I wanted to do something different so that's when the world of syndication hit me and multifamily and I've never looked back; it's been an exciting journey.  

 

James: Good. Well, you are like me, I started single-family. I'm an electrical engineer, I came into the US, somewhere in 2008 and we were here before that but 2008 was when we fully relocated here. It's basically a mind-blowing thing on how much you can achieve in the US. 

 

Vinney: Yes. Yes.  

 

James: So question for you; when you came with six dollars or seven dollars in your pocket, did you come in as an engineer or did you come in as a student or how did you come up?  

 

Vinney: You know, I came as an engineer. I was working for Larsen Toubro so actually I resigned there so I had just the qualification of a mechanical engineer, but then I came here to go to George Washington University as a student of MBA in marketing. 

 

James: Okay. 

 

Vinney: Yeah.  

 

James: I did my MBA too but I did it before I came to the US. So question for you; when you're a single family, I mean, I have my own perception about single-family and multifamily, but why not you tell me what is the difference that pushed you from single-family to multifamily? What was that point?  

 

Vinney: You know, the big thing was, we were owning every money. I have the amount, you know saving Streamwood will go ahead go to Arizona go to this place that place buy you know, single-family homes, 450,000, 180,000 like that and then lease them. Actually, we used to do the master lease in that one with the option to sell, the option to buy actually, back then and we'll get a little bit higher down payment from the residents, but then they started looking into staying in our home as if they're going to buy it in two years, by fixing their credit and things like that.  

 

But what I found was that a lot of these buyers were not able to buy after 2 years, first of all, so the property was still in my lap. And then we were living in California so it was quite tough to manage them so 10%, 8% of the rental was going into the management companies anyway who were living there. Then I was able to do my own contractors and everything because they would charge me too much money so I try to make contractors and keeping them in my iPhone and if they tell me there is something needed in their apartment like in Arizona or in Georgia or in Texas, 

I'll go ahead and send my own contractors and make deals with them.  

 

So it kind of involved me more than I wanted to and yet at the same token when the boiler went out, James or something went out, it was total cash flow gone, you know the whole end of the year you work hard a little bit, but then at the end, nothing happened. So that's why multifamily made sense to me; like in 2004, where if I buy 20 units and if one person leaves, I still have 19 intact there or two people leave, we have 18 intact economies of scale all that stuff.  

 

James: Yeah, so I think just to clarify some things that we may have touched; the lease option is basically an option to buy when you get a single family and basically it's a very good model single-family rental because now the tenant could have a higher down payment and they are taking care of the house like their own house, because they think that they're going to be owning it in two years and for us, we think that they're going to take care of this in two years, but sometimes it doesn't work that way [05:54crosstalk] single family I think, you are talking. A lot of times, you make a lot more money in single-family in terms of cash on cash return if you buy it right out, I would say, right?[06:06inaudible] you can have a big cap X and wipe out your entire cash flow and I see the big money you make in single family or the more stabilized cash flow you make is when people are staying there for long term. 

 

 Vinney: Yes. Yes. 

 

James: [06:21unintelligible] two years, four years that they don't disturb you anymore, then you start making money [06:24unintelligible] in one, two years, you are not going to be making any money in a single-family.  

 

Vinney: Yes, that's so true James.  

 

James: Yeah, but one thing I realized is I try to do the lease option in Texas and I realized in Texas, they have some kind of six months restriction or they just don't allow lease options in Texas. 

 

Vinney: Oh, I see I see, I didn't there. Yeah, I didn't. That's really good information over there. So let's go to multifamily; I mean, why did you choose this asset class? I mean I try to make this podcast independent of asset class because, for me, any asset class goes in cycles so why did you choose multifamily?  

 

Vinney: Very good point, you know, I think being an engineer and you are also an electrical engineer, we have a logical mind, right? So when people told me that you know, hey, do you want to go into office space? I started learning about office space, and I said, okay, what are the factors that will really affect that office space if the business leaves or their business goes down and they have a five-year lease? Then, of course, you know if they don't pay your rent, I mean, they can't pay rent if the business is going down and things like that, kind of made me realize that I'm stuck with that resident or that tenant, I should say in the commercial lease that I'm thinking. And then we looked at Hospitality again the hotels and all that. I looked at in the industrial but something which really made sense to me was multifamily apartments. 

 

Because in apartments my paycheck was not based on one tenant, that was the biggest thing which kind of logically made sense to me. That I had 100 tenants in 100 unit; my first one was only 14 units as many of you people know and 14 units, next one was 109 units, right away and it just made sense, logically. Even if we have two three four people leave, it doesn't matter because we have so many others, you know to take care of the residents and take care of the mortgage and expenses and everything.  

 

The other factor, James, was also the value-add function, that was a huge factor. The value-add was amazing because you are able to do forced appreciation, is the word we use now, in multifamily as compared to like leasing a building for 10 years or five years, five years plus, five-year clause with a small appreciation; you can only do so much. 

So the numbers don't really work that high with IRR and the return on investment. I find with the multifamily by increasing the rent and increasing the NOI, decreasing the expenses, you're able to bring the value of the multifamily much higher than a commercial building I could make so those things kind of made sense to me. 

 

James: So one of the challenges in multifamily is, I mean as many income streams, you can see rate but one of the challenges in multifamily that I've seen and a lot of operators have seen is basically a property management. Because now, I mean compared to office, office is you know, that's high vacancy and all that but you're dealing with professional tenants [09:58unintelligible] here, you're dealing with class B and C, I'm sure that's a focus that you are looking at as well. So how did you solve that property management problem? Because that's a big problem. 

 

Vinney: You know, it is a huge problem, James. You are 100 percent, right and your audience would really like to look into this one because we did hire, by the way, a well-established company out of Dallas when we bought in Midland, Odessa areas there; the nearest one was Dallas and they did a fine job, by the way, they did a fine job. 

 

The only trouble was that we were not really getting hold of the situation of cash flow because they were doing cash and accrual together and that can mess you up very badly because what they are saying then is, at the end of the month we say, "Oh, how much cash did we make?" They said: "We made this much, oh, by the way, you can't touch it. You cannot touch it because we have so many bills from this month, we need to pay yet." They're going to come next month so they keep 10,000 per month in the balance and give us this small to give to the investors, I mean that was really, really sad. 

 

So anyway, the other thing was, they were spending money like nobody's business because it's not their money anyway. Every dime, everything was being charged, which I can understand; every travel, everything. I mean, they bought something for the thing, they charged it, right? So that's when my partner and I decided: "Oh my gosh! We're not gonna do it." 

 

So we hired a professional consultant who had great Property Management skills and she was also teaching; also, by the way, we paid her 35,000 at top, 35 or 30 thousand. We always believed in paying the money to learn from the very best people; that's what happened with me with Trowbridge, with Kim Taylor our syndication attorney who's done 26 syndications, 27th now; my big fund, 50 million dollar fund, they have done that too.  

 

But the thing is I believe to get from the master, learn from them quickly and then apply just quickly apply that you know. That's what we did; we started our own management company and we have never looked back. 

Of course the hiring and keeping the morale up, I would say, having the challenging issues. 

 

James: When HR issues, right? So now [12:38inaudible] 

 

Vinney: Exactly; we didn't have it before, we have an accounting department, big one, accounts payable department right here. Then we now have with Moneill Investment Group, Moneill Management Group, we have a full HR person full-time, benefit person and payroll in a consultant. 

 

James: How many staff do you have in your [13:03inaudible] 

 

Vinney: We have 67 full-time staff right now, we are thinking to hire more so if we're going to go higher and then of course as we sell, we just sold two properties. I'm so happy because we had some pretty big paydays, you know last few times, you know, and so we are selling some assets but we are looking to buy more too.  

 

James: So how's the structure of your property management? So you say you have 67 staff, do you have a CEO for your property management? 

 

Vinney: I'm the CEO of the company, but then I have asset managers or team leaders, we call them, asset manager or team leaders and then there are Community managers at each property. Like we own 10; we owned eight now over there in the [13:53crosstalk] yeah, they are Community Manager or Property Manager. 

We don't use the word property manager, we use the word community and we never say apartment complex, we always say community, Moneill communities.  

 

James: Oh, that's good.  

 

Vinney: Yeah. Moneill Premier Communities; that's how we promote ourselves.  

 

James: Yeah, and we call our tenants, residents right? 

 

Vinney: We always call our tenants residents; residents lifestyle of the Moneill communities that kind of thing. We bring cafes, we bring dog parks, we bring a lot of great stuff, media centers. Every time when we buy an asset, I put 10,000 easy into the restructuring of the leasing office, you know, and buy brand-new computers, brand-new everything, brand new desks, all that because it just says a lot to the residents; that a new company is taking over and they are not slumming it, you know, they're going to invest in to the property. 

 

James: You don't have Regional Managers; you have Asset Managers and you have Community Managers. 

 

Vinney: We do; every property has Community Manager then Assistant Community Manager or leasing agent, we call it slash leasing agent, plus lead maintenance that will be the lead tech and then the fourth employee or team member at that property is called porter or helper. 

 

James: Who does the Community Manager report to? 

Vinney: The Community Manager reports to the Asset Manager; team leader or asset manager.  

 

James: You are doing exactly like what we do; we spend a lot of the office and our office looks really nice, new computer, we take care of our staffs and all that. So among the amenities that you have installed, you have 3,100 units, which community do you think is the most appealing to class B and C residents?  

 

Vinney: Okay, good point. You know we made a lot of money in Midland Texas, by the way. We were making 45 thousand dollars net-net every month, literally so that is a Premier Community Cornerstone; we sold it, by the way, now and we gave our investors 40 percent IRR, 40 percent returns per year for years and three months in a row. 

 

James: No, no my question really, is the community; is it the dog park is better [16:29 crosstalk] 

 

Vinney: Oh, I see. 

 

James: The community that you think is the most valued by Class B and C [16:36crosstalk]  

 

Vinney: I would say you can get good mileage, I'm so glad you said it, curb appeal. I would say definitely flagpoles; I buy these flagpoles from Georgia, these are 30 feet high. Flagpoles, not just 20 feet slim ones, I pay $700 per flagpole, but they make a statement. I mean people going [00:17:00unintelligible] by the road, they look at it, they say, "Oh my god! Wow! How beautiful it's like and four of them." I always put four, I never put two. And then I buy the biggest flags like, 8X4 or whatever they are so they fly high and we change the flags also every 3 to 4 months; we have different colors, things like that. So curb appeal is big in my thing, right?  

 

The second thing we do is definitely get the restructure or do new flooring if you need to, for the resident Center or office, the leasing office because that needs to really show class; class is important and then, of course, the furniture, right? For the residents Media Center, I go to Del company dell.com. I have a business account and I buy for $483 all-in-one, 24-inch, these big monitors, which is already included with that CPU and also $483, beautiful. And then I buy desks, very beautiful ones, you know, I may send some pictures to you and that way, it gets also the residents can use that anytime. Keurig machines, always Keurig machines, K-Cups, cookies, an ice chest, you know, all that so that you know, that is big but then dog parks, let's talk about that. 

 

Some people have talked about dog wash, I have not instituted that at all yet, but dog parks, yes. We are very cheap, $99; $99, you could buy these beautiful dog waste green, whatever the stations we call them and we put them six seven eight of them all around the community right away, that's shows.  

And then also I am very big in bind sign. It's been big in signs and the best things to get it is actually from Amazon. I'm buying my products from Amazon like crazy. I have, you know, like set up each of my properties even the lights fixtures, I'm finding them 40% cheaper on Amazon compared to [19:29unintelligible] supply, HD Supply.  

 

James: Correct. Correct.  

 

Vinney: It's amazing.  

 

James: So what about in the miscellaneous income right? So in your miscellaneous income, you have your covered [19:40unintelligible]  

 

Vinney: Yes. 

 

James: I know what other things like insurance and all that, which miscellaneous income gives you the most bang for the buck? 

 

Vinney: Okay, the number one, which I do it right away from the get-go, is the utility reimbursement, utility reimbursement drop systems is my number one priority and I go to the hilt. I try to get to the maximum; 90% collections of my bill after water, trash, pest control, and gas all that Because electricity is given to the residents, individually meter, but then I'm very big in also looking at our vacant units electricity bill, how much are they and outside lighting. If the sensors are not working, I buy the sensors right away because we don't want the outside exterior light to be burning 24 hours, they need only come to on dawn and dusk so that's a huge part.  

You were asking me some things about what other facilities, playground. Playgrounds are great. 

 

James: What about the washer-dryer income, do you tend to buy washers and dryers? 

 

Vinney: Oh, big time; I have written most of my properties brand new contracts if they are expired. I get paid about six to seven thousand dollars as a sign-up bonus. At Cornerstone, I got 35,000 sign up bonus, by the way, for bringing cable inside my community. So I gave to this local company my contract for cable for all the residents and they gave me 35,000 bonus and I've done that several other places also. 

 

Now in New Houston, I have one property, we charge $20 per resident for cable; it's all central and then we pay, I think we make about half of that is profit, by the way. But I love the coin Max new machines, which are the card reader machines; card reader, no more coins. So whenever you actually get in to buy a new property, you talk to the rep of that Community, even though they have already five more years or ten more years still coin max lease is there but you could ask them to change the machines and make the laundry, we call it clothing Care Center or like that nice fancy name or laundry, clothing center. 

 

James: Under a contract, they allow you to change? 

 

Vinney: Oh, yeah. Oh, yeah, you say: "Oh my God! These machines are no good, they are breaking down." 

 

James: What if I tried to terminate the whole contract first? 

 

Vinney: Well, I don't think you can terminate, they have strict laws and all that but they would love to help you and work with you. That's what I did, by the way, and they will help you paint and all floating also, I use some of the money from them to do that. Like the property I just sold [23:04unintelligible] Nasa; very nice property, beautiful gardens everything and the seller put in 3.6 million into it, renovating it when I bought it. But the laundry facilities, both of them were like shambles, totally shambles so I took up on that and got brand new machines, brand new everything so it was nice.  

 

James: What about the interior rehab; usually, what's your budget and what do you think is the mix the most bang for the buck? 

 

Vinney: Okay, I would say the fixtures; see the thing is like I find of course counter-tops, kitchen counter-tops and the bathrooms many of the bathrooms, I even changed them put the one single shell in there or some times I even do the tiling, depending on the community. 

 

James: Are you talking about the back-splash? 

 

Vinney: Back-splash tiles in the bathrooms also; that works pretty well. And you can buy these really cool ones which look like you have put like 20 different tiles, but they're in a mesh so you just put it in there and put grout in there and it' quickly done; it's amazing and it's beautiful. 

 

James: And it comes in square sizes, right? 

 

Vinney: Exactly. But we do try to do the light fixtures; that's a big one in the bathroom like in some of my nicer communities, we are putting these lights, LED lights, like when the water comes out, the lights come. And then switches, it's very cheap; you could buy these switches and then put USB in there, that's all.  

 

James: I actually think I should try this; how much does it cost the switch with the..? 

 

Vinney: Not that bad you go for bulk; I always put Google; whatever I want, I put Google and try to save your Amazon Beats somewhere else and I buy them 200-250. Sometimes even the Chinese; oh my gosh! I came across a supplier in Atlanta, they've got a big warehouse and they can sell what I can buy at Home Depot for whatever, 1495, they gave me for 695, oh my gosh! So every dollar saved is a dollar earned.  

I tell my teams, I tell my community managers, I taught them now. I said you got to get three bids and then after you find out and you want that company to do it, ask them for 18% off again on top of it. James, most of the time, I get that 18 to 23 percent odd number; it has to be an odd number. I tried it nine years back and ever since I've been doing it and it's so important that you tell them: "Hey, I really appreciate you, I like your work, everything but our budget does not have that." Bring it back to the budget and then they would love to do it because they have these full-time employees and if they don't have a job, shew! 

 

James: I mean when you have a big amount of a number of units, they are willing to really work with you so that's really good.  

 

Vinney: They really do, they really do, exactly.  

 

James: So you use vinyl flooring, I would say? 

 

Vinney: Yeah, we do faux, those are really great; you can cut them, you could put them, they are very durable and some of them, I think we work with several different vendors and they give us really good things. Please, also some of your audience, if you are looking at me or seeing, please ask your district manager to give you some of their remaining flooring in the warehouse; they will deep discount them. 

 

James: Oh, really? 

 

Vinney: I don't mind.  

 

James: Why not? 

 

Vinney: No, I mean, we did it in some of my renovation deals just recently. They said: "Vinney, okay, we'll sell you at half the price." 

 I said: "I'm fine, sure." 

 

James: Do you sell vinyl plank or do you do vinyl roll? 

 

Vinney: Okay, vinyl plank also and rolls also, we do both.  

 

James: Okay, depends on whoever gives the cheaper, right?  

 

Vinney: Yeah and depends on if it's a 'B' asset in a nice area that way. 

 

James: What about advertising? What do you think is the most effective advertising [27:42unintelligible]   

 

Vinney: I am so glad you're asking me, James.  

 

James: I know the details, right?  

Vinney: You do, you know, you are a great performer, I can tell already, you know. See the thing is, 81 percent of the residents when they are looking into moving into a community, they Google search. When you Google search apartment in Angleton, for example, Texas where my assets are and other places, you will come to my property first; wow! Why? Because apartments.com has 81 percent of the market and I actually, worked with them and they gave me a discount of $150 per month to get all the assets as a bulk so I tried to do that. It's good to do master businesses and you know preferred vendors we call them.  

 

James: Okay, so use apartments.com or? 

 

Vinney: Apartments.com, our own website, Craigslist, we do everything; oh, yeah, all three. 

 

James: Do you do Google AdWords? 

 

Vinney: OK, Google AdWords; we haven't done that much because what we find is that, most of the time people are able to drive-by; I'm very big on drive-by that's why I buy those flag poles and everything and then we do Master canvassing the business. So we give 5 percent off and I would love to send you some--you know, my daughter actually Monica is very much involved in our business now and she is the graphic genius and she's actually taking care of all my CEO responsibilities, I love that. But the best thing is that she designs and our graphic artist in the Philippines, 

they design a lot. Also, by the way, I can put you in touch with them, they've been with me like for the last 5 years, let's say, you know because my Moneill Investment Group, Management Group is only 4 years old. 

 

I started four companies, first of all, I can say four you know, like ideal investment, ideal management, with my partner. We did 14 syndications, then I did 12 syndications in two years and two months in my Moneill Investment Group in 2014, November, I started that. We were in 67 employees like that within the two-year span but I didn't count my old payroll, by the way, that was about another 35 before so in total, we had about over 100 at one time.  

 

James: So you basically have given up on third party property management company? 

 

Vinney: Oh, no, no way. No way because again, I don't want to sound very arrogant; they do a good job, but they have profitability built in every place. I mean, even the contractors I hired, it's amazing how much kickbacks to get in this whole business. There is profit profit profit profit; they charge you 30% for the materials, they charge you 30 to 40% above the labor even 50% above labor. You know, it's amazing. 

 

James: Just so much because it's not their baby. 

 

Vinney: No, it's not. That's the hardest part; you can find some great property management companies, but you have to work so hard to find them because the thing is, it just will not work for them. You know, I mean, you got to get honesty; honest people are there, they are there. 

 

James: but do you think this property management company used---I mean what I've heard is, you have to still be a very active Regional Manager type of even though you give it a third party, you can't just leave it to them.  

 

Vinney: No, you cannot; see the thing is, actually that's how I teach my students also to work with smaller property management companies because they will like to give you more weight. You have to learn the business; the idea is to make your own property manager, it's not rocket science. It seems like that way, it's not that bad at all because once you hire Property managers who have 15 to 20 years of experience, that's what I decided in my new company, right? 

 

I said I'm not going to hire people who are like two years three years four years because they are just learning; I want to pay a little higher amount, but let's hire some better quality managers who know the fair housing laws who have gone through several CCIM, you know other property management32:35crosstalk] yeah, right exactly, who know the situations and then we train them, by the way now. So in our company, Monday at 2 PM and Friday at 2 PM, every week we train our team through Zoom meetings all across our properties, that's their set time.  

 

James: So, what do you train them on?  

 

Vinney: All different topics; like leasing 101, taking care of the MMRs and how to do this, how to do marketing, how to do all this and we record all that. So now we are designing a Property Management Academy from my Online Academy, which is going to be multifamily management Academy. I already have the domain name that I got five years back because I knew I'll be doing that. 

 

James: That's very good. So, let's go back to a different topic other than the property management side of it; let's go to Asset Management, buying deals, acquisition, right? So, is there a deal that you thought was a bad deal and you walked out of it and later you realize it was a good deal?  

 

Vinney: You know, that's a good point, James. I would say that once I walk out of there, I don't keep any contact with a broker because once I make a decision, I'm fast, quick, you know, I mean, I think Grant Cardone says that, yeah, I follow him little. 

But the thing is he says winning--no, he didn't tell me; he tells his audience that you got to really do your due diligence even before you put 'LY'. Once you put 'LYs' go with a letter from my broker also, by the way, because whenever I get a pocket listing, I send it to, Brandon Brown LMI Capital, my broker and he underwrite it. 

He gives me everything I need to know; I also give the address to my insurance agent and he gives me the real cost. Also then we go to the assessor's office, we find out the property tax also in real terms, what it's going to be. Those are the big, three things that you need to close on the property. I'm happy to tell you that I've closed on all 26 syndications on time and never faltered from LY to contract to closing. 

 

James: That's good; that's a quality of a good buyer [35:14inaudible]  

 

Vinney: People like that; like in Houston, I started buying and there was no property in the county I wanted to buy, James. I went to the big Cheese's and I shared with them, you know, I'm a broker in California, my humble opinion, I know you're saying in the area I want to buy that there's nobody there, there's no listing. Would you please call the buyers who you sold to five years back and tell them, are they interested in selling to this Indian chap who wants to buy their properties? I said that to ARA, to Marcus Millerchap, to Houston property; all these people, within three months, I started getting listings, bucket listings. I mean. they were just coming from every which way and I was syndicating, every second month, I was closing a deal.  

James: Do you like Houston mark? 

 

Vinney: I love it. I love it. I think if anybody's listening to me, you're missing the boat if you're not in Houston, especially after Harvey; rents went up, they stabilized, I own 10 properties there. I've sold two already, one to Sienna Willa; just to let your audience know, just to kind of give them a little taste of it, 3.550 I paid, three million five five zero but it had 16 unit burned down. Sixteen units, one building was burned down so I bought it and we just sold it for 8.6 million. 

 

James: Wow! That's awesome. 

 

Vinney: My investors are loving us and everything and I knew I'll double their money in four, three to three and a half years or something which I did so that's exciting. So Houston is there, just that it's not oil dependent as it used to be. It's medical, big medical center, IT, NASA and Retail Center. 

So those are all very positive things along with oil also some portions of it and petroleum and gas and all but Houston is the way.  

 

James: So really, let's switch back to slightly different more personal stuff so why do you do what you're doing? 

 

Vinney: You know what, I don't need to do anything, to be truthful. We are fully, fully very well settled, everything and I just have passion. I'm 67, by the way; I'll be 67 in August, August 27, please send me flowers- just kidding - when I was doing W2 job, James, I would really get up at six thirty seven, quarter to 7:00, 7:00; I'm up at 4:30, I'm up at five o'clock now, doing my miracle morning, doing my chanting and listening and yoga and all that and my exercise and I'm on the vision board now for the next 25 years. 

 

James: Wow! 

 

Vinney: Up to 92; I'll be 92 then but you got to have that passion and I'm so passionate. What would I do, otherwise watching TV, looking at all these news that I cannot do anything about it or volunteer? I love to do a lot of volunteer work, which I'm doing but the key thing is how much can you do? 

 

You got to have the passion. So my real passion right now is that 50 million dollar fund to buy quarter billion dollar in real estate and then sell and then teach. I think my passion also is now I've been a motivational speaker all my life; 37 years career in motivational speaking and fundraising, that's what my business, by the way.  

I only worked like four months in a year for 37 years, real work; each month I had almost fun, my life has been like that. So with my teams of people, I can delegate quite well, I can compartmentalize quite well and I just enjoyed traveling. My family goes out for four, five, six, vacations and I come into my office and just crush it.  

 

I have a lot of topics I want to talk more and I do Master coaching now also for such a small price. I get people telling me, you should be charging 40,000, 50,000 easy for what you are giving us and I charge five, only five so it's ridiculous. 

But I'm not here to make money, my money comes from Acquisitions. 

 

James: Absolutely; I think that's important because the audience needs to know sometimes people do stuff not for money, right? I mean, yeah, we do it for money but there's a lot of 'why' behind it. 

 

Vinney: Exactly; you know the family, the education. 

I mean, why I got into real estate was to give good education to our children, you know, he went to Berkeley, Monica went to UCLA, not a single loan. No, nothing; Mom, Dad took care of everything, you know like that. Retirement, other things, buying, you know. 

 

James: Family is the time when... 

 

Vinney: Yeah, charitable trust all that, you know and building schools, all the good stuff, it's so important in life. So as you asked me in the 'whys'; I am so fired up at this stage in my life and I feel that I have a lot more years to give. 

 

James: I think you're thinking you can contribute a lot more to humanity, right?  

 

Vinney: Surely; and the passion also James, if you don't mind, it's with youth. I also own Youth Academy, youth multifamily Academy, youth school training, all that. My passion is to teach students from high school level to even College levels to really get into the entrepreneurship model. Getting into designing an LLC, forming a Wyoming LLC and cheaply, very cheaply but then saving the money and getting it to the 401k and all that and starting a business on the side as they are learning so that by the age of 21- 22 to have a duplex they own themselves. They could live in one side and the other side, the resident will be paying for there and it will be free and clear.  

 

James: [41:47inaudible] 

 

Vinney: You know, that's my passion and I want to convert my lectures into Spanish, Indian language and French and Italian like that.  

 

James: So we are coming to the end so I know you have to run somewhere but one question; do you have like 3,100 units and [42:08unintelligible] operator, is there any funny story from tenants that you can share with the audience? 

 

Vinney: Oh my God, lots of them; oh my God James.  

 

James: The funniest ones?  

 

Vinney: The excuses we get from the residents, you would not believe. I mean, they said, oh we wrote a check and the dog ate it. I know this is ridiculous. What! You say, what! Oh, yeah, I had the money order and this happened that happened; we get so many different ones.  

 

Now, we do texting; we do texting, by the way, through our software we could text, we can get them to opt-in and then we can text them, rent is due on the first, it's late on the fourth, but then they have all the sobbing stories. I mean, again, I have a bigger heart but my property managers, they align me. They say, Mr. Vinney, you got to just not give because we have to be fair housing laws, right? You have to be only fair, you cannot give any preferential treatment to anybody.  

 

But you know, we do have within our company, I would love to mention, you know, we have like a grant we established. So that's where some of our team members need some extra money, we are able to do it through the grant. Harvey happened, we donated, my wife and I donated, into the grant for our team members and we got them trucks, we got them other stuff and cars and things like that, you know, because they were helping us. 

 

You know, it's no fault of theirs that Harvey came and they lost their vehicles and things like that but funny stories, oh my gosh! And oh, wait a minute, not only just the residence; I know, I know, I mean, how about even the team members too, we have lots of community stories. One thing I would like to say that is no matter how difficult the situation comes, we should always take a first look at it because things happen for a reason.  

 

We need to listen to what they are trying to say, we got to just listen and then find a win-win situation. And many times if we do that way a lot of times the residents feel better, they do, the team members feel better and you every aspect, vendors. I get really antsy when they're not doing their job correctly and this and that and shoot out some emails and all that but then I say, "Hey I was a little bit harsh, I apologize but we need to get it though." 

 

James: So how can my listeners find you?  

 

Vinney: Oh sure; actually, we have two different, very nice; they could text the word 'learn' 4 letter word to 4 7 4 7 4 7. So they can just text that and my team members will be able to send them my academy information, what's entailed, some testimonials; I'm getting testimonials like crazy from my students who have crushed it within three months, they are buying like 200 units and 150 units, raising two million dollars by using my deck of the cards, credibility kit and all the things and scripts. But then the other one is syndication; if they can text the word syndication to 474747, they can reach my team also, and that is to partner with me. They can also invest with me, partner with me on the GP side and invest as an accredited investor in the fund.  

 

 James: Good, thanks Vinney for joining me today. Basically, my first podcast and was really happy to have you here and my audience, you know, hope for me to bring more quality content to you guys. 

As I said, I'm going to ask different questions, not the normal high-level questions, we want to go deep into the details. 

 

Vinney: I would love to, James if I can refer any way and get congratulations to you. If you want me to hit certain other aspects even just going deeper for your audience as you get their questions, I would love to spend time with you. 

 

James: Yeah, I mean, I think that's important because a lot of podcasts goes super high level and you want to learn. I mean, if I want to spend [46:41crosstalk] I want to learn as much as possible in this. 

 

Vinney: That is so true, that's missing, I think you know. I know my friend Whitney has started syndication and we are going to do there also because people want to listen and they say what can I apply it right now. 

 

James: And for those who do not know, we launched our book this week, Passive [47:02inaudible] 

 

Vinney: Congratulations, I'm so proud of you.  

 

James: Yeah. Thanks, in two days, we have international bestseller because even in Canada, we hit number one too so that was... 

 

Vinney: I love it. I love it. That's so wonderful, congratulations. 

 

James: You can go to Amazon and get it and there's a free audio-book which will be announced at the end of this podcast. 

 

Vinney: Awesome. Well, I'm buying it right now, I'm going to go to Amazon. Hey guys, everybody, buy James book. Yes. Yes. 

James; We have 21-star reviews right now and a lot of really good reviews, I didn't expect. It was a small [47:34unintelligible] project, you can't make money selling books. 

Vinney: No you can't, it's like parting knowledge, that's so true.  

 

James: I want to make sure my passive investors get educated as well because it's just mixed makes it much more better.  

 

Vinney: Totally, totally, alright James. Thank you. Thank you so much.