Facing an investment flop can be a crippling experience, but Dr. Johannes Urpelainen quickly learned from this experience and carried on with building his legacy. In this episode, he shares his story, tips, and tricks for getting started in the industry. He emphasized the ins and outs of the hospitality industry and ways to increase cash flow.

Dr. Johannes Urpelainen is a Principal at Oasis Equities. He has a Ph.D. in Political Science (University of Michigan, 2009) and is a tenured Professor of Energy, Resources, and Environment at Johns Hopkins University.

[00:01 - 06:08] From an Investment Flop to Monumental Success

• Johannes' story from an investment failure to building a real estate empire
• Running multifamily and focusing on hospitality through AirBnB and hotels
• Johannes explains the ins and outs of the hospitality industry

[06:09 - 19:28] What it Takes to Manage in the Hospitality Industry

• The similarities between acquiring hotels and multifamily
• Why the recession is not a concern in the hospitality space
• The role of 3D printing addressing the housing shortage in the U.S.

[19:29 - 20:24] Closing Segment

• Reach out to Johannes
• • See links below
• Final words

Tweetable Quote

"Real estate is kind of a legacy industry, right? We don't see too many new innovations, roughly the same as 100 years ago. But with 3D printing, that could change because if we can drive down the cost very significantly and build these a lot faster, we could really start making progress on the housing shortage, which is pretty extreme in the United States today." - Dr. Johannes Urpelainen

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Connect with Dr. Johannes Urpelainen on Linkedin. Check out his website and email him at [email protected].

Connect with me:

I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.

Facebook

LinkedIn

Like, subscribe, and leave us a review on Apple Podcasts, Spotify, Google Podcasts, or whatever platform you listen on. Thank you for tuning in!

Email me → [email protected]

Want to read the full show notes of the episode? Check it out below:

Johannes Urpelainen 00:00

Real Estate is kind of a legacy industry, right? We don't see too many new innovations roughly the same as 100 years ago. But with 3d printing, that could change because if we can drive down the costs very significantly, and build these a lot faster, we could really start making progress on the housing shortage, which is pretty extreme in the United States.

Intro 00:21

Welcome to the How to Scale Commercial Real Estate Show. Whether you are an active or passive investor, we will teach you how to scale your real estate investing business into something big.

Sam Wilson 00:33

Dr. Johannes Urpelainen is a principal at Oasis Equities, a real estate investing company. Johannes, welcome to the show.

Johannes Urpelainen 00:40

Thanks. Sounds great to be here.

Sam Wilson 00:42

Absolutely. Johannes, there are three questions I ask every guest who comes to the show in 90 seconds or less. Can you tell me where did you start? Where are you now? And how did you get there?

Johannes Urpelainen 00:50

I started by making a pretty bad investment here, where I live in Arlington, Virginia, in a condo before I had any idea what I was doing. Learn from that mistake, did very well on the passive investing side during the pandemic, and about a year ago, decided to launch my own investment company called Oasis Equities.

Sam Wilson 01:11

That's a really fast 123 step there. Okay, so you owned a condo that was a complete flop, then you started doing passive investing. And that did really well for you. You said you know what? I can do this on my own. What was that? What asset class and what are you working on right now?

Johannes Urpelainen 01:29

I've done some multifamily. So I have a few code GP positions. We have an ID two unit in Atlanta and a 300 unit in Orlando, Florida. But recently, I've been very focused on hospitality. So run a few Airbnb s in West Virginia. I am a cold GP on a new construction in North Carolina, for a kind of beach community. And right now I'm working on closing on three hotels, one of us Virginia, two in Arkansas.

Sam Wilson 02:01

Okay, tell me about I don't know, I'm thinking here on the show. If I had anybody come on and talk about hotels, if we have it's been hotel conversion projects, or something a little bit more off the beaten path, but a straight hotel investment we've not really talked about lot here on the show. So give us the give us the mechanics of investing in hotels.

Johannes Urpelainen 02:24

Yeah, so the basic idea is very similar to multifamily. You're looking to buy something where you can buy at a low basis. And then you can add value with renovations, better management, new revenue streams and all that the challenges that you faced with hotels, it's seasonality, and the income is more kind of variable. As we saw, for example, during the pandemic. The other issue is that cap rates are higher. So that means that when you add value when you went away, it doesn't translate into quite the same increase in the value, as you see in multifamily. But the beauty of hospitality is that there's almost an endless number of things you can do to add value, you can take Highway motel, and turn it into a cool boutique hotel and make a lot of money doing that.

Sam Wilson 03:15

Very, very cool. So with the options for investing in hotels, you know, seemingly endless options for investing in hotels, how to how have you found an effective way to kind of filter through those and find the investments that are right for you?

Johannes Urpelainen 03:31

That is a very good question. I'm myself more on the cash flow, side of investing. So I always try to find assets that would do quite well as is. So I don't go for vacant hotels or very heavy value ads, I'm looking for something that's kind of working okay, as is maybe has a cap rate of like nine or 10 or something so that I basically pay $10 for $1 of net operating income. And then I do things I improve the marketing. Many of these hotels are owned by kind of mom and pop operators who don't understand dynamic pricing, who don't understand how to optimize their websites and all that. So that alone can sometimes give you five to 10% net operating income by just improving the pricing.

Sam Wilson 04:22

Is there a brand in particular that you hunt for or that you found that to be the right brand to buy inside of I don't even know necessarily how Hotel Management works is the brand actually just the manager of it like a property manager? How does that whole system inside how does that work? I don't I have no idea.

Johannes Urpelainen 04:40

Yeah, so there's really two different types. One is the so called flag hotels. So think of like Hilton or Holiday Inn, Marriott, those are the ones that are branded and if you go for those, then you are restricted by their brand guidelines, which can be very strict. So I actually prefer the word With boutique hotels that don't have a flag, because I can do whatever I want with those.

Sam Wilson 05:05

Got it. So a boutique hotel that doesn't have a flag. Does that mean that when you go there, you're not necessarily like you pull into a town you're not seeing? I mean, what's the name of a hotel you're buying right now? And is it just a name that you guys are giving it? Or is it?

Johannes Urpelainen 05:20

Yeah, let me give you one example. So we are about to close on this asset. It's called the cheat River Lodge. It's a very simple, small nine units in a beautiful location. It's been operated by this couple now, for 40 years, I think they don't have any kind of branding beyond a very simple website, and just a lot of word of mouth. So when we buy it, there's no restrictions, nobody's going to tell us that you need to have this kind of breakfast. And you don't need to have those kinds of line ends or anything like that, we can do almost anything we want with that, if I instead went and bought the Hilton, they would have this very long agreement that we'd say this is what it has to look like, this is what the pricing has to be like, This is what the services need to be. They're very strict about that.

Sam Wilson 06:09

Got it. Okay, so what's the play? So you got a nine unit hotel that this couple zoned it for 40 years? I know you mentioned that you'd like to buy for cash flow, but I would imagine that there's a lot of deferred either maintenance and or, you know, like you said operationally, deficiencies, operational deficiencies in properties like this. So what's what's the play for you when you buy this nine year old hotel?

Johannes Urpelainen 06:31

Yeah, so there's a few things to do. One is, of course, we do need to do some renovations, there is deferred maintenance. And there's a few things that just outdated right, so we'll replace the flooring, we'll fix a few roofs, things like just got a similar thing you would do in a typical multifamily acquisition. Then on top of that, we put in new furniture, and some other things like you know, coffee makers, fridges, maybe a few new air conditioners, things like that, we work with the third party manager with whom I work before who's very good at this kind of very small hotel management. And then once we stabilize it, and once we are cash flowing, so that we are not bleeding anymore, hopefully in the next three to four months. Then after that, we get creative. So this one comes, for example, with five acres of land. So we could do glamping, we could do tiny homes, we could put pizza shop, we could put a general store there, there's just a lot of different things we can do with this one,

Sam Wilson 07:33

where where does a property and may not give you know specific location, but I'm really just thinking outside of the box of a nine unit Hotel? Where does something like that do well that you feel comfortable then buying enemy? Is that is that? Are there nine unit hotels everywhere? And I'm just not seeing them? Or can you give any shedding light on that?

Johannes Urpelainen 07:53

Yeah, it's first of all, it is difficult, because if you have such a small number of units, it's hard to find management, you cannot have kind of like, on site, full time manager, everything has to be done. And I'm going off contract basis. So that's tough. But for example, with this one, it's right on the river. There's a lot of like fishing, there's hunting, there's hiking, there's all kinds of, you know, sports activities, outdoor activities, and it's also in a fairly good location. There's a number of cool small towns around it. It's not too far off a drive from Pittsburgh, or DC or North Carolina, even if somebody really wants to come to West Virginia. So you just look at these opportunities. And most of them don't make a lot of sense. But every now and then you find something where there's an opportunity to add value and increase the cash flow.

Sam Wilson 08:45

I've heard of people taking small boutique hotels like this in turning a more into Airbnb style, you know, getting rid of the front desk getting rid of kind of a lot of the ancillary services that don't necessarily generate revenue. Is that is that part of your strategy?

Johannes Urpelainen 09:02

Yeah. So I think if you think of the management here, I think many of the hotels traditionally have had these, for example, somebody at the front desk, right? That really only makes sense if you're looking at the kind of full service where people expect kind of white glove treatment, right. But the boutique hotel typically you don't need that. So you can save quite a bit of money by not having front desk at all. You definitely want to list on Airbnb. So for example, this one has these cabins cabins are great for Airbnb because people pay a lot more for them than they would for a hotel room. So you want to list those. But at the same time, it's also funny seeing everybody going from Airbnb hotels, when people start seeing these really these economies of scale, because the problem with Airbnb, it's hard to scale. Every asset is different than it's just one asset. So unless it's a complete blockbuster, you're talking about maybe like 5060 say About $1,000 of gross cash flow, it's very hard to scale that up.

Sam Wilson 10:05

Hmmm, that is awesome talking about third party management of this, how did you locate a third party manager willing to take on just nine units, or I guess nine?

Johannes Urpelainen 10:14

So, I had worked in other Airbnb acquisition acquisitions with the same guy whom I met through one of my business partners, he's done a good job with the others, he's bringing in good money. And the management is generally almost hands off for us every now and then we need to do some things that the owner needs to do. But generally, the performance has been good. So I just asked if he felt he would be able to take this on. And he said, it looks looks doable. He gave us some estimates of how much money he thinks we can make with this, those were in line with our estimates and what the property has been doing historically. So feel pretty confident about that.

Sam Wilson 10:51

How do you underwrite these? I mean, is there the guess what do you project if you don't mind sharing kind of, you know, where it is now to where you think you can take a property like this.

Johannes Urpelainen 11:03

So the underwriting is surprisingly similar to multifamily. You have all the same things, you have different expenses, your property management fees, you have gross income, the few things that I think are different one is the seasonality. So you gotta be ready for those slow seasons when you have to have reserves, and you might barely break even or even be at a loss. So that's a big one for something like this, these nine units, I think, right now, their gross total is probably something like 150,000. By just improving management, a little bit of renovation, we can probably add another 20 to 25%. And if we then get into this, like lamping, and other general store mode, we might bring in another 15%. So at that point, we would pay well over 200,000. And that would be a pretty good place to be.

Sam Wilson 11:53

Got it. Okay, that is that's absolutely awesome. I love I love looking off the beaten path. I mean, the hospitality sector, of course, has done really well in the last couple of years. Is there? Is there any fear and or contingency plans if we go into a recession? Or if maybe the cash flows change?

Johannes Urpelainen 12:15

So for a recession, I'm not too concerned about the recession, because in my role, looking at the data that we have, these malls are limited. Service hotels tend to do well, even in a recession, they might not do crazy well, but they'll do well enough that we can pay the mortgage and the expenses and all that something like the pandemic, if that happened again, that would be a tough place to be. But I think maybe now that we've seen it, once we have a better idea of how to play it, I wouldn't expect the same kind of uncoordinated, you know, a blind get a lockdown. So I think we would say something a lot more kind of targeted and sophisticated next time around.

Sam Wilson 12:57

Right, right. Yeah, absolutely. You have been involved in some really unique, unique investments. I know you and I talked a little bit about a 3d printing opportunity that you're involved in right now. Can you give us give me some insight on that what kind of turn left out of the hospitality space maybe a little bit and talk about this other opportunity that you find compelling?

Johannes Urpelainen 13:20

Absolutely. This was actually a key reason why I went from being just a passive investor to, to active. So about a year ago, I made a venture capital investment, my only venture capital investment in my life, to this company called Family communities, which is based in Houston, Texas, and they use 3d printing technology to produce these duplexes that they will then rent out so it's built to rent. But with this technology that dramatically reduces the cost and time to develop this when I made the investment and visited them. The CEO actually asked me to help them. So I joined the company. As a consultant, I've been helping them with developing these sites, looking at the markets doing some underwriting, financing, things like this. And what is cool about this really is that real estate is kind of a legacy industry, right? We don't see too many new innovations roughly the same as 100 years ago. But with 3d printing, that could change because if we can drive down the cost very significantly, and build these a lot faster, we could really start making progress on the housing shortage, which is pretty extreme in the United States today. So I've had a great time working with this company. And that experience kind of gave me the confidence to go and start doing my own joint ventures and syndications.

Sam Wilson 14:41

That's really cool. Kind of a backdoor entrance into the into the real estate market as

a whole. What size of home how fast can it be produced? What are the major? Obviously a housing shortage is one of the components that we're trying to solve. But how does this How does this meet many of the problems that we're facing today?

Johannes Urpelainen 15:03

So let's say we have a family that's looking for a home and they want a house, they don't want to live in a studio apartment or something like that. Okay. And it's pretty hard to find those today, just a year ago, they were very expensive. Now, they're a bit less expensive, but it's 7% interest rates, the Bank is not going to give you the money, right. So what we do is we build these 3d printed duplexes, so two units in each, they have a yard, and the only common wall is between the garages, right. So there's not really the sense of living next to a neighbor, right, they're more like separated from each other, the size of the unit is about the smallest one that we have is about 1300 square foot. So it's like a very small house size, it comes with a full garage, where you can actually fit three cars, there's a, there's a backyard, there's a fence, all the appliances, everything is very top notch, and then you pay rent as if you were living in an apartment complex, but it feels more like single feminine living, which again, for families in particular is in very high demand.

Sam Wilson 16:17

Are they? So when you say 3d printed? Does that mean the walls? Does that mean the roof? What is what of this is 3d printed? And how does it speed up the process?

Johannes Urpelainen 16:27

Yeah so of course, you need to start with the site work. And that is done. As always, there's the usual leveling, beside the infrastructure, all that that is what it is, we don't have any major innovations on that. But then when you actually put together the kind of like structure of the house that is done with the 3d printer in one week, okay. So instead of, you know, weeks and weeks, months of work, you put the structure together in one week, and it's designed in a way that everything's kind of ready, the electric is very easy to put in, the plumbing is raised to put in, you put the roof on it, you put in the flooring, the appliances, and you're basically ready to go. So we can reduce the overall time by months, we can probably reduce it to a half by with 3d printing.

Sam Wilson 17:15

Wow, that's wild. What about building codes? I mean, I don't even know the right question to ask on this. But the materials that whatever materials it takes to do 3d printing, how has been getting that incorporated into the local building codes? What's what's been that process? Like?

Johannes Urpelainen 17:34

That's a great question, it is a very important issue. Fortunately, Texas is an easier place to do this than many others, because mostly, the building codes are pretty easygoing. And zoning is not extremely restrictive, what we did for the first time, so this is a very early stage, this is a tech company, right? With the first side is just build a good relationship with this community. It's called Waller. It's northwest of Houston, about an hour's drive on their Houston Austin Highway, which was just opened up about a year back and it's now seeing this massive migration into it, because a great place to live. And so we just built this relationship with tell their, you know, Town Council and all the other people that we have the solution here we can build first dozens and then hundreds of units for you. We can bring in people here, there is a very large factory there with this company, Daikon, which is, I think, the largest producer of H back equipment in North America. So their biggest site is there, that site alone has 10,000 people working there. And they typically drive two hours to work right now. We can reduce that to 30 minutes. So it's very attractive for the community. Think about the tax income economic with this.

Sam Wilson 18:49

Yeah, absolutely. No, that's really, really fascinating. I love I love out of the box solutions. And this will be a fun one to see as you guys bring it to market and see this kind of catch on. Johanna, it's been a pleasure having you on the show today. I've learned so much from you. I don't know much about either of the things you talked about today. So I got a full education here listening to you talk just about 3d printing, manufactured housing, talking about taking hotels, and getting into the hospitality space, how you got involved in that, where you're finding opportunity, bringing property managers on and how you're turning those, and really just finding unique opportunities here in the commercial real estate space. So thank you for taking the time to come on and share your experience with us today. If our listeners want to get in touch with you learn more about you. What is the best way to do that?

Johannes Urpelainen 19:36

Yeah so I would first of all, check our website. It's called Oasis equity. So just always equities.com and easiest way to get in touch with me directly is on LinkedIn. I'm the only $100 bill on the world so I'm pretty easy to find.

Sam Wilson 19:51

Fantastic. Dr. Johanna, certainly appreciate your time today. Thank you so much. We'll talk again soon.

Johannes Urpelainen 19:56

Thanks for having me.

Sam Wilson 26:21

Hey, thanks for listening to the How to Scale Commercial Real EstatePodcast if you can do me a favor and subscribe and leave us a review on Apple podcasts, Spotify, Google podcasts, whatever platform it is you use to listen If you can do that for us that would be a fantastic help to the show it helps us both attract new listeners as well as rank higher on those directories so appreciate you listening thanks so much and hope to catch you on the next episode.

Brett Bowman is Suncrest Capital's Chief Investment Officer. His conservative approach to underwriting helps minimize risks while maximizing investor returns. He has been investing for over 12 years, acquiring $20M+ in assets, spanning single-family rentals, multi-family, industrial, and mobile home communities. He has a background in high-tech where he managed multi-million dollar budgets in hybrid corporate finance & large-scale program management roles. He holds a degree in Finance from the University of Utah and an MBA from Duke University.

In this episode, Brett reveals how they have taken down over 1,100 mobile home lots across 20 communities in less than two years. He credits their success to having strong partnerships and teams and establishing efficient business systems. He also gives expert insights on mobile home parks and offers valuable advice to those who want to enter the space.

[00:01 - 11:01] Partnering, Building Systems, and Managing Teams

• Brett tells us that the key to his success is partnerships
• They use Gino Wickman's EOS and different software to work efficiently
• He talks about the benefits of hiring VAs with higher-level skill sets
• When you have your own model or way of working, you know exactly where to go to play with the numbers
• Their three inflows: Crexi, individual brokers, and cold calling team
• How he and his partner are delineating their duties

[11:02 - 20:17] State of the Market in the Mobile Home Park Space

• The mobile home park market is definitely getting hotter

• Tip from Brett: Have the rent increase go high before you buy
• Collections actually go up during a recession because people don't want to get evicted
• What they are doing to create a safe place for their tenants
• They have a very strict policy against having sex offenders in our parks
• They don't neglect to trim trees

[19:48 - 24:02] Closing Segment

• Lesson from Brett: find a partner and make sure you vet them
• Reach out to Brett!
• Links Below

• Final Words

Tweetable Quotes

"These deals are going to be tighter and tighter with the rates continuing to go up and sellers, I just don't see them getting realistic anytime soon from a cap rate perspective." - Brett Bowman

"Trees can be the enemy of a mobile home park if you're not on top of it." - Brett Bowman

"Building a relationship before becoming partners can be important 'cause it's pretty hard to sever a partnership, especially once you've bought multiple projects together." - Brett Bowman

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Connect with Brett at suncrestcap.com and email him at [email protected].

Resources Mentioned:

Traction by Gino Wickman

Rocket Fuel by Gino Wickman and Mark C Winters

Connect with me:

I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.

Facebook

LinkedIn

Like, subscribe, and leave us a review on Apple Podcasts, Spotify, Google Podcasts, or whatever platform you listen on. Thank you for tuning in!

Email me → [email protected]

Want to read the full show notes of the episode? Check it out below:

[00:00:00] Brett Bowman: This will be our first recession that we've held mobile home parks for. So we've done some research for how the industry has done historically, and from what we've seen, the collections actually go up during recession because people are, you know, hunkered down. They don't want to get evicted 'cause they really have no other option at this point. So they just really want to prioritize the rent. I will say over the last few months as I think we've been going into this recession, we've seen that, so we've seen our collections have kicked out quite a bit. And so we're in high nineties for the first time. We generally hover in the low nineties on our collection and we're 98% collection. We're starting to see that trend.

[00:00:49] Sam Wilson: Brett Bowman is the CIO and co-founder of Suncrest Capital, which has acquired over 1,100 mobile home lots across 20 communities in less than two years. Brett, welcome to the show.

[00:01:01] Brett Bowman: Thanks, Sam. Great to be here.

[00:01:02] Sam Wilson: Hey man, the pleasure's mine. Brett, there are three questions I ask every guest who comes to the show: in 90 seconds or less, and you tell me where did you start, where are you now and how did you get there?

[00:01:10] Brett Bowman: Yeah, so I started with single-family rental. Now I'm doing mobile home parks, at a syndication level. So we've got, like you said, we're actually just a little over 1200 units now. We just had a big closing last week. And to get there, you know, honestly, the one thing I can attribute to is partnerships. So I started off partnering as a limited partner. Grew into junior GP where I kind of started learning how to really take on deals, work with investors, underwriting, forecasting, all that kind of stuff, obviously, the operation, and then currently have a partner, Ryan Hill, that I do everything with at this point.

[00:01:45] Sam Wilson: Man, that is awesome. What do you feel like have been the, I know one of the things we talked about here earlier, or before we even started recording was systems and relentless grit. It's one thing to have grit, but it's another thing, you know, if you don't have systems that go with it. How did you develop the systems that have helped you guys take down this many units so fast?

[00:02:04] Brett Bowman: Yeah, good question. So this has been a lot, lot of work over time. The main system we employ is actually from Gino Wickman's Traction book, Entrepreneurial Operating System or EOS. And there's a few aspects of it, but the critical one for us anyway is every Monday we have a 90-minute weekly pulse where we go through, really, anything like all the high-level issues and it's just, it's a standing agenda. I can go into more detail if you want, but it's a standing agenda that every week we don't have to, we just rinse a repeat. There's not really a whole lot of up has to go into the agenda. You spend a lot of time talking about your key issues and for us, some of those issues have to do with either collections or some major project that we need to make sure we get right. And then you talk about what do you need to do over the next one to two weeks to fix this issue. So you kind of drill down the path in a very eye size chunk. The other aspect about it is setting annual and quarterly goals. And so we're really relentless about how we structure those goals, measuring the goals, tracking every single week, how we're doing on the progress, all those kinds of things. So there's a few things we've done from an operations perspective. On the deals perspective or on the acquisitions perspective, we've kind of tried to do the same thing, but we use Trello as a tool that we use for tracking a lot of different things. We do projects there, we do our mobile homes there, we do deals. And we essentially start every deal in the vetting column. And if it passes that, then it'll go to the next column and the next column. So we have a few phases we go through just to underwrite the deal, and once we've underwritten it, we decide, okay, we're going to make an offer. Then we move it to the next, where we're like kind of negotiating it, and then a few of them getting into that column. For the most part, I'd say one out of 20 deals maybe gets to an offer stage for us, 'cause we're eliminating quite a few. And honestly, we have a team of really strong VAs that help us do most of the first part of the process, which I think is unique for us. Most people are doing that themselves. And I actually have an underwriter by background, so that's something I enjoy doing. But we have a team of VAs that can take so many more deals than I can. And then we do the final stage of underwriting after that.

[00:04:09] Sam Wilson: How do you, I guess developing even, I mean, the systems inside of systems, but developing the system for a team of VAs to underwrite those deals and not unintentionally, but pass up on things that might have some merit to 'em.

[00:04:26] Brett Bowman: Yeah, for sure.

[00:04:27] Sam Wilson: What's that system been like where you can train somebody else to say, you know, put this in the round bin, or no, let's advance this to the next stage?

[00:04:35] Brett Bowman: Yeah, good question. So and I probably shouldn't call them VAs per se 'cause they are, you know, typical RVAs, generally we're paying $5 or $6 an hour. This team, we pay $20 to $25 an hour. So they're definitely higher skill set, but they're virtual technically.

[00:04:49] Sam Wilson: That's a salary of 50 grand a year.

[00:04:52] Brett Bowman: Yeah. I mean, it's nice 'cause we have that flexibility. We can use them as needed, but not always. But we have triggers. So we have different rules of thumb that we've given them that if we put it in a column and to move it, they have to get kind of a buy-in from one of us. So one of our employees is actually a finance or has a finance background as well. So he kind of manages them and he'll give the yes or no to move it as a pass of it forward, but they'll generally come to us and we'll recommend it. So they'll say, Hey, we've reviewed this. We think we should advance for these reasons, or We think we should pass for these reasons. And almost always, we agree with whatever their recommendation is. The only time we've pushed against it is if it's a market we know well, and we think that we can get better on the assumptions, things like that, that we might push against the recommendation.

[00:05:36] Sam Wilson: Yeah. 'cause I mean that's just the word assumptions there was, I think the key. There are, I mean, underwriting is a lot of assumptions. And getting into that where you're like, oh, okay, this is, we can do this in this market and training someone else to understand kind of that. It's subjective in its own right. I think knowledge is a challenge. Building that process, what's that been like, you know, taking it out of your head and getting it into a remote team's head?

[00:06:04] Brett Bowman: Yeah. So when we first started working with them, it's been probably 18 months now. Their background is more in multifamily, so they hadn't really done mobile home parks before. So I developed my model first and they were using my model. And then one of my partners, Matt, I used my model and kind of advanced it to the next level. So they're now using that model. And to my knowledge, the only mobile home park model these guys have ever used is our model. So we know exactly, you know, when you're using your own model, you know exactly where to go to play with the numbers 'cause it's just, it's easy to know where your assumptions lie, right? So training them on the big unique aspect of mobile parks is infill. So if you're buying a hundred mobile park space, but there's only 80 that are filled in, you've got a big assumption of how fast can I fill those other 20. So we always look to make sure that they're infilling of the places we think is realistic because if I say I can fill all of those in six months, that's very different than, it's going to take six years to fill 20 spaces. That can change your IRR assumptions dramatically. So we got to make sure that's right. We also have kind of given the rules of thumbs for like where we want them to start on CapEx numbers, where we want to start with operating reserves. And then we also tell them where we need our splits to be for investors, the investor IRR. Those kinds of things we've all got documented, so they kind of know what they're looking for and that's part of the reason why they're able to recommend whether to pass or fail 'cause we've given them those metrics.

[00:07:26] Sam Wilson: Let's talk a little bit, I love that. Thank you for taking the time to share with us kind of how that process has evolved 'cause I'm sure it has been a process and I'm sure it's something where you guys are constantly tweaking it, going back and saying, hey, we could improve this along the way, but it's getting it started, I think is the key there. So good for you for getting things figured out, getting the deals to your VAs so they can even underwrite it. The mobile home park space is very competitive. A lot of money has come into it as you well know. I'm not in the mobile home park space, so I'm telling somebody that probably knows way more about this than I do. But what's that process been like building the acquisition side or even just the lead development side of your business?

[00:08:04] Brett Bowman: Yeah, so I would say if I was going to start off with this and didn't have any leads at all, I would start with Crexi. I go to Crexi and set up alerts for states you're interested in, size you're interested in, asset class, all that kind of stuff. I would also say just get a digest 'cause I used to do it where every deal would come to me, and now I've decided it's one email a day, which is nice 'cause I can see all the deals at once real quick. So I still do the Crexi thing. But then over time, I've developed relationships with brokers. So I've got, I'm on most brokers' lists, at least in the markets we're in, at least as far as I know. I guess I wouldn't know if I've got a broker that I'm not on their list, right? So developing relationships with the brokers, and then it took us more time, but over the last several months, we've also developed a cold calling team. So we have a handful of people that just part-time do cold calling for us, and part of that process is we've got to build lists for them to call and make sure the lists are accurate, and not the whole thing in and of itself, and then they call. And then depending on how that deal looks, we'll underwrite that deal. So there's kind of the three different, there's the Crexi, the individual brokers, and our cold calling are kind of our three inflows.

[00:09:08] Sam Wilson: How much of your day now is spent actually managing people versus managing the business itself?

[00:09:16] Brett Bowman: I would say for me anyway, most of it's the business for me. For Ryan, my partner, that's more the kind of operations guy, he's probably the opposite, where he's spending most of his time on people, like managing people, training people, holding people accountable, checking out a project satisfaction kind of stuff is more him.

[00:09:33] Sam Wilson: Got it, got it. No, that's great. I love the delineation of duties there. I just, when you build systems, I think that's one of the things that every business owner's end goal obviously should get to the point where it's like, hey, you're managing people who are managing the process. It sounds like you guys have done that there, which is really great. But I also just wondered, you know, what that process looked like for you. So it sounds like you are more on the asset management side of things, in the day-to-day, is that right?

[00:10:00] Brett Bowman: Yeah. And really what I'm working on is more of the, like, you know, just to do another Gino Wickman book, right? Rocket Fuel is kind of a sister book to the Traction book, and Rocket Fuel is all about finding the right partnership. And essentially there's two types of partners that they talk about. They talk about a visionary and an integrator, right? And an integrator is more about, like, being able to pull the right people together, the right systems day to day. And the visionary is a little bit more like high-level looking strategy. So Ryan and I, technically we've taken the test, we're technically both visionary. Like, he's acting as the integrator 'cause we need someone in that role. And he's kind of the best suited for it at the moment. So for me, I definitely am more far-ranged, like, where do we want to acquire, what markets do want to expand into, building relationships with high net worth individuals from an investor perspective, things like that. Do we need to hire more employees? How are we doing recruiting-wise? Where do we go? And Ryan's more, okay, we've got these projects, need to be executed, need these contractors. He's meeting with contractors, meeting with our property managers, those kinds of things.

[00:11:01] Sam Wilson: Got it, man, that's really, really cool. Tell me about the mobile home park market. You know, we've seen here in the last couple of months, especially with interest rates rising, with cost of debt, you know, skyrocketing, we've seen some softening in some asset classes that have been particularly hot. I know mobile home park's very attractive as well. What's the market like? What's the state of the market in the mobile home park space?

[00:11:24] Brett Bowman: Yeah, it's gotten crazy for sure. In fact, over the last couple of years, we've been into it, we've seen it get hotter and hotter. People who have been doing it 20 years have just said the same thing. It just keeps getting hotter and hotter. What's been interesting this past year with rates changing. I'll just give you one of our acquisitions as kind of a case study. We really like Springfield, Missouri. We had four parks there about a year ago that we closed on. So in December of 2021, we had kind of a pocket listing come in from a broker that offered another portfolio of six mobile home parks in Springfield, which, of course, we were very excited about. We ended up getting it under contract in February at 18.5 million. And it was, you know, the rates were in the threes. We were looking at some really nice leverage. And then by the time that we were getting closer to closing at the end of April, early May, rates have changed so much that everything kind of fell apart on the deal. Fortunately, we had, you know, enough people in the deal that wanted to make it done, that we continued to work through it and had various crazy creative things we were trying to do to make this happen between seller financing, preferred equity, all that kind of stuff. Ultimately, we ended up doing a retrade on it. So we re-traded it down to 17.5. And then on the GP side, the partner side, we took a little bit of a shared what we normally would make from a commission standpoint and a back-end standpoint so that we could keep our investors whole on what they were going to make. And so between the retrade and then our concession, we were able to still get the deal done with the same terms we'd expected for our investors. And we finally just closed on that two weeks ago. Oh, and then the other thing I should say is we had the seller increase rent in July while we were under contract to, not quite market, but still closer to market, which helped improve the cap rate, which helped improve our going in that service coverage ratio, which, with increasing rates, was kind of critical going in right? To have that going in DSCR be more sustained. So few things we had to change in the environment to make it happen. I definitely think having the rent increase go live before you buy is a great tip for future people. I think we'll do that. Maybe not every time, but I think we'll consider that every time. And yeah, I just think going forward, these deals are going to be tighter and tighter with the rates continue to go up and sellers, I just don't see them getting realistic anytime soon from a cap rate perspective.

[00:13:39] Sam Wilson: Don't expect that anytime soon. What was that conversation like with the seller, getting them to increase rates? I mean, I think it would be kind of interesting to be in that position as a seller, having a new buyer come in and say, hey, you go out and, you know, Mr. Seller go out or Ms. Seller go out and increase rates. I'd be like, well, shoot, why didn't I do this two years ago?

[00:13:58] Brett Bowman: Yeah, it was interesting for sure, and that part wasn't as hard of a negotiation as, you know, obviously we're re-trading another million, we're taking a million dollars off the purchase price. That was the harder conversation. But the rent increase, we just kind of showed him the numbers and said, look, you know, with this, our cap rate was, I think we were at 6% cap rate, or maybe it was 5.8, something like that cap rate. And increasing the rent took us to about 6.5, which made the debt service coverage ratio show above 1.35. And so it was relatively, hey look, we need you to do this. We have to have this in place for at least one to two months before we close. That's the only way we're going to get this bank to finance it. And so it was kind of, If you want to close, if you want the money, you got to do it kind of a conversation. So it was a little bit more straightforward than a lot of negotiations are.

[00:14:43] Sam Wilson: Right. No, I think that's an absolute pro tip. Absolutely. Thanks for sharing that. I hadn't actually heard of anyone, I mean, I'm sure it's happened a lot more than I know, but that anyone's successfully pulled that off. They're pretty close getting the seller to raise.

[00:14:57] Brett Bowman: It's nice 'cause not only do you walk into the better cap rate, better coverage, but you also aren't the bad guy 'cause the seller did it. So you come in a few months later, or even a month later and you've, you know, even though you're the one that pushed for that rent increase, you get to start fresh with the residents and, you know, have your own policies come in.

[00:15:14] Sam Wilson: Yeah, absolutely. Speaking of policies and not being the bad guy, I read a, there's a newsletter that comes out every, I think, it's called MHC or MHP Weekend, I don't know, I can't remember what the name of the newsletter is, but I read it every weekend 'cause it's always interesting just to hear what's going on the mobile home park communities. And, you know, there's a lot of a lot of activity, a lot of buzz about communities pushing back on rent raises, on people going to the city level or the county level and, you know, forcing landlords to not be able to raise rents, things like that. Have you experienced any of that, seen any of that in your portfolio and or around you? Can you speak to that at all?

[00:15:54] Brett Bowman: We haven't seen it yet. So the markets we're in are, we're mostly in Kansas City, Springfield, and then up in Des Moines. So far those markets haven't seen that too much. The closest we've come is in Des Moines. There's a larger operator that owns a couple of mobile home parks, and their rents are close to $700 a month, where we've done two increases and we're still around 400. They have taken a lot of heat, a lot of bad press and we've, you know, had some homes move into our community from that. So there's been some, some word from, like, the local mobile home community association that there could be some regulation coming in largely because of some of these players raising rent so much, but nothing yet. Nothing's been official yet.

[00:16:37] Sam Wilson: Got it. Okay. Very good. Let's talk about tenants for a second. What's the kind of feel from the tenants right now? I mean, is it something where people are keeping up with their rent payments? What does this demographic do in a potential recession?

[00:16:50] Brett Bowman: Yeah, this will be our first recession that we've held mobile home parks for. So we've done some research for how the industry has done historically, and from what we've seen, the collections actually go up during recession because people are, you know, hunkered down. They don't want to get evicted 'cause they really have no other option at this point. So they just really want to prioritize the rent. I will say over the last few months as I think we've been going into this recession, we've seen that, so we've seen our collections have kicked out quite a bit. And so we're in high nineties for the first time. We generally hover in the low nineties on our collection and we're 98% collection. We're starting to see that trend.

[00:17:29] Sam Wilson: That's amazing. That is not the answer I would've would've expected, but, you know, hey man, that's no complaints from the landlord side of things.

[00:17:38] Brett Bowman: No, not at all. And the way that I've heard it explained is, you know, you've got your top tier class A apartment complexes, and if people living in there start struggling, they're going to go down to Class D or Class C, you know. And so by the time you're down to mobile home park, it's not necessarily your bottom run 'cause, honestly, I think in some cases people prefer that over apartment complexes, 'cause, you know, you don't have immediate neighbors. You can park right next to your home. You've got bigger space, you own your home, those kinds of things, right? But at the same time, it's sort of the last safety net in a lot of cases, right? So by the time that you're there, you really want to make sure that you're safe.

[00:18:12] Sam Wilson: What's one management and or ownership tip you might give? If somebody doesn't own a mobile home park right now, that's something you're like, hey, this is something we do at our parks to, you know, cueing off your word, safe there? Or it's like, what do you guys do to keep this, the right tenant, the right property, clean environment where people feel safe when they go home.

[00:18:34] Brett Bowman: Yeah, we have a few things we do. The first is we have a very strict policy against having sex offenders in our parks. I haven't done a whole lot of multifamily myself. The only multifamily I've done has been, like, an LT. So I don't know if this is a common problem with multifamily, but in mobile home parks, we frequently will see that the previous landlords have had, you know, very severe sex offenders in their park. So we just sent out notices for sick. The six communities we bought, we have six we're evicting for that are sex offenders. And that's largely 'cause, you know, everyone, we all have kids ourselves and we just don't believe that we need to be the second chance for some people. And these communities have children running around, so we don't want that. That sends a message to the community. The other big thing that we do and again, probably doesn't really resonate with apartment complexes, but we make sure we trim trees all around. So tree trimming is often neglected by owners. And we've had trees fall and break homes before in the past. It's a big storm, so fortunately no one's been injured yet, but we like to prevent that from happening. So trees can be the enemy of a mobile home park if you're not on top of it. So, again, we just closed on this park about 10 days ago, this portfolio of six. So we're already doing tree trimming this week.

[00:19:46] Sam Wilson: Right, and I could only imagine that for a lot of your legacy mom and pop owners, I mean, tree trimming is expensive.

[00:19:52] Brett Bowman: It is, yeah.

[00:19:53] Sam Wilson: Across across. I mean, gosh, you can take down, I'm just thinking of the last couple of trees I've taken down on my own property. I'm like, well, there was 4,000 bucks a tree.

[00:20:00] Brett Bowman: It really does. It's crazy. I mean, we budgeted, I'd have to check for sure, but we probably have about $80,000 we budgeted for this portfolio for just tree trimming, just for tree removal.

[00:20:10] Sam Wilson: Wow. Yeah. Yeah. And there's your answer as to why, again, legacy owners probably are going, eh, that's 80 grand. I don't need to spend.

[00:20:16] Brett Bowman: Yeah, exactly.

[00:20:17] Sam Wilson: That's fantastic. Let's rewind a little bit. How long have you been investing in real estate altogether? Single-family homes all the way through to mobile home parks.

[00:20:25] Brett Bowman: I'm about 12, 13 years.

[00:20:28] Sam Wilson: Okay, cool. Let's rewind 12, 13 years. What is one thing you feel like you've done really well that other investors maybe that aren't as far along as you are, should emulate?

[00:20:37] Brett Bowman: Well, I mentioned the partnership thing. I probably would double down on partnership. So when I was doing single-family homes, it was just me. I was, like, learning obviously from realtors and agents and I was joining groups and, you know, there were in-person and Facebook groups that I was learning a lot from, read a lot of books, those kinds of things. But as I started getting into more multifamily, that's when I felt partnerships really helped because the level of complexity is just so much higher when you jump into something like industrial or retail. Even now, I've never done self-storage. I wouldn't want to get started on self-storage by myself. I'd probably want someone that has had a lot of experience that I can partner with and learn it from. So I think partnerships can be really critical. I would also hedge and say, you know, you don't want to just jump in just 'cause somebody's got this experience. You got to make sure you can mesh and you know each other and you can trust each other. So building a relationship before becoming partners, almost like dating before getting married, can be important too 'cause it's pretty hard to sever a partnership, especially once you've bought multiple projects together.

[00:21:35] Sam Wilson: Absolutely. Absolutely. Well said. And if there was one thing that you could go back and maybe do differently, or a mistake you could help our listeners avoid, is there anything that comes to mind?

[00:21:46] Brett Bowman: So every time we buy a property, we do what we call a postmortem, where a couple of weeks afterward, we all meet together and say, Okay, what did we learn from this acquisition? What went well? What didn't go well? And we always find things that are surprises every time that you're like, okay, I thought we knew everything about this before we bought it, right? And then a week after you buy it, you're like, okay, didn't know about this, didn't know about that, you know? So we just, we continue toward due diligence list, right? I would say the biggest thing, especially in mobile home parks. I think going forward, we will always scope sewer line, always. It's an expense. It's at least a couple thousand dollars to go out and, you know, if you end up not buying the mobile home park, you lose the money. But at the same time, you could get stuck with a mobile home park that has crushed in clay pipes that you got to spend 200 grand to replace all. So you'd be better off knowing ahead of time, hey, either I need to walk 'cause this is going to cost too much. Or I've got to go back to the seller and say, hey, we need a $200,000 price concession 'cause we've got to fix these pipes.

[00:22:45] Sam Wilson: Right, man. I love it. I absolutely love it. Brett, you've given us all sorts of good things to think about here today from the scope in the sewer lines to, you know, partnering up early out of the gate to, what was your one earlier where you said, oh, it was getting the seller to raise rents before you even closed. So, yeah, lots of pro tips today. Brett, thank you for taking the time to come on the show. I've certainly enjoyed it. If our listeners want to get in touch with you or learn more about you, what is the best way to do that?

[00:23:11] Brett Bowman: So our website's probably the easiest. It's just suncrestcap, short for capital, dot com. My email address is also Brett with TT, so B R E T T @suncrestcap.com. But my email address is listed on the website.

[00:23:22] Sam Wilson: Awesome. Fantastic. We'll make sure we include that there in the show notes as well. Brett, thank you for taking the time to come on the show today. I do appreciate it.

[00:23:28] Brett Bowman: Of course, Sam, thanks for having me. Been fun.

Realizing the significance of your life can prompt you to think deeply about your purpose - it goes beyond accumulating riches. In this episode, we have Josh Cantwell sharing his story as a survivor of pancreatic cancer. He also shares practical tips on what it takes to find the right partners and to operate in favorable lanes to set one's real estate business to success.

Josh Cantwell is a family man, father of three kids, and school and club volleyball coach. He is the CEO Owner/ GP 3000 Apartment Units. He is also a pancreatic cancer survivor.

[00:01 - 07:07] Going Beyond Riches and Living One's Purpose

• Josh on starting as a financial planner to earning income passively
• Serving a greater purpose than simply making money
• Being a pancreatic cancer survivor and realizing one's purpose

[07:08 - 25:31] Finding the Right Lane to Boost Profitability

• Josh shares his story on the motivation to go bigger
• Creating a competent team with optimized skill sets
• Tips on setting yourself up on the right posture for private investors

[25:32 - 26:48] Closing Segment

• Reach out to Josh
• • See links below
• Final words

Tweetable Quote

"He [Josh Cantwell's father] said, 'Look, son, in the second half of your life, you have to figure out why you were one of the six that were spared because 94 people out of 100 who are diagnosed the same as you are dead. And so you have an obligation; you have more talent than you need. You were spared for a reason.' " - Josh Cantwell

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Connect with Josh Cantwell on Linkedin. Check out his website and email him at [email protected].

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Want to read the full show notes of the episode? Check it out below:

HTSCRE#709

Josh Cantwell 00:00

You know what I realized, Sam? When I started buying multifamily, is that there were these swim lanes, right? So I think the first thing is identifying as the owner, CEO, or founder. What are the swim lanes that if you grow a big enough portfolio that somebody can just do that one thing.

Intro 00:15

Welcome to the How to Scale Commercial Real Estate Show. Whether you are an active or passive investor, we will teach you how to scale your real estate investing business into something big.

Sam Wilson 00:28

Josh Cantwell has been an entrepreneur his entire adult life with his partners, who now own and manages over 4400 units of value out apartments. Josh, welcome to the show.

Josh Cantwell 00:39

Hey, Sam. Thanks for having me on. Man. I've been looking forward to this one. Let's get it going. Man. Thank you.

Sam Wilson 00:45

As have I; there are three questions Josh asked every guest that comes to the show in 90 seconds or less. Can you tell me? Where did you start? Where are you now? And how did you get there?

Josh Cantwell 00:54

I started actually, as a financial planner, I learned about real estate because my clients all owned more money and had more money in real estate than the stock market. So I started way back in my early 20s. Where am I at right now I'm happy I am, I probably work about 20 to 25 hours a week. But super balanced life. I'm a volleyball coach, a football coach, a basketball coach, I've got three young kids. And this is the sweet spot for young kids in spending time with them. So I've got to do that. That's where I'm at now. I've got an amazing team. I've got my partner Glenn that handles our CapEx. I've got my partner Tyler who handles all of our operations and asset management. And we've got a CFO that handles our finances. And so I'm very fortunate to be able to focus on the financial the money, raising capital, working with investors, and acquisitions. And where I'm going is all I care about at this point is more passive income, more freedom of time, more freedom of relationships, being able to support my, my single mom, my father passed away a couple years ago. And being able to pass along all the things that we've done, learned and acquired, and use that for the greater good. The key things in the groups and the charities that we care about. That's where I'm going.

Sam Wilson 02:13

That's cool. I just from a purely, I guess, I'm going all the way to where to put this, you said you're trying to develop more passive income, to what end? There's always this next level, I think that every entrepreneur wants to get to and it's this insatiable, like, Man, if I can just get the next and then it becomes its own kind of self uncertain goal and in its own right. Why do you want passive income?

Josh Cantwell 02:40

So so our company, our HQ is called 950 management. So we don't have a goal of of acquiring 10 million of passive income right now we've got about $13 million a year flowing in and gross income through my apartment complexes. And that's just my Cleveland based portfolio. does not count the stuff we have in Houston does not count the stuff we have in Atlanta. That's just the stuff in Cleveland in my backyard about 13 million bucks. Right? You know, it's interesting, Sam, when I when I meet with like, I met with the president of my old high school paddle a Franciscan High School. And they have all these goals for how to impact young kids, high school kids, right? Their endowment, they need to build tuition that they need to pay for trips, all these different sport functions and Fine Arts. They don't have enough money, you know, so 950 management is important to me, because 950 management represents 950 units, it's our annual goal to buy 950 units. And the reason why 950 Sam is because we make about $1,400 of net free cash flow per year per unit. So that 950 times 1400 represents $1.2 million, it's $100,000 a month. So my goal every year is to add $100,000 a month of net free cash flow not noi, but after all the expenses after all the debt service and after all my investors pref payments and everything. Because that is forever income that can be used to impact those types of organizations that are going to take care. I'm very passionate for kids. I think there's more kids growing up in divorce houses. It's a fact that 70% of African American kids are raised in single parent homes. It's a fact that more parents are disenchanted that are worried about more about their own social media profiles and raising their children. So I think kids are at significant disadvantages, even though the world is more rich and wealthy than it's ever been. And so I think that really is my goal is just, you know, passing that back and taking care of those kids basically ages kind of five, six, all the way up to 18 years old. And so that's where the 950 comes in. That's my annual goal. So there isn't like an end game for me. It's 950 a year.

Sam Wilson 04:56

I love that. No, that's great. And the reason I asked that because I knew you had more to it. There was more to the story that man, I just want to add another zero to my bank account like, yeah, it's at some point that becomes meaningless. So I love I love the trajectory of, hey, this is where we're going. And here's why it serves, it serves a greater purpose than just making more money.

Josh Cantwell 05:19

The other thing Sam is listen, like I'm a pancreatic cancer survivor. Oh, wow. Pancreatic cancer had just a 6% survival rate. When I was diagnosed. Wow. I was diagnosed in 2011. And shortly after I was diagnosed, Steve Jobs died of pancreatic cancer, he had the same exact diagnosis as me saying the same style of pancreatic cancer, there was almost the same exact diagnosis and he died. I'm 35 years old wife, two small kids, my wife was eight months pregnant. And now I get this diagnosis. And I find out that the world's probably most famous human is dying of the same disease that I was just diagnosed with. And I'm like, Oh, crap, right, my father to his credit, and again, my father died just a couple years ago. But my father was my first great entrepreneurial mentor, he was an entrepreneur. And he said, Look, son, in the second half of your life, you have to figure out why you were one of the six that were spared, because 94 people out of 100, who are diagnosed the same as you are dead. And so you have an obligation, you have more talent than you need. You were spared for a reason. You have a beautiful wife and children that you're given a second chance to, to be with them and help them and grow that family. So now in the second half, I'm still I've been 10 years now since that recovery, that surgery and recovery, but I still feel like I'm trying to figure it out. But multifamily is the avenue the tool that I found to be most successful, I've done residential investing, I've done private lending, I've done commercial investing of all different types, hard money lending, the infinite income, the long-term passive income, equity, all those different types of tax advantages. All of that serves my greater purpose of using the talent and the second chance that I was given. So it has that larger purpose for me.

Sam Wilson 07:08

That's awesome. I love that. So that puts you roughly 46 at this point. All right. You bet. Okay. Okay. That's awesome. And one of the things we talked about here before, before kicking off the show was that you had been investing in real estate for 20 plus years, and then it's only been really in the last eight years. It's something that's cooked coincides nicely, right along with, you know, getting over pancreatic cancer. You've been investing in commercial real estate for the last eight years. What What was the transition other than maybe commit pancreatic cancer is that hey, go do something bigger. What was the motivator for moving into commercial?

Josh Cantwell 07:47

The transition was painful, Sam, it was awful. No, because I was I was I was realizing in 2010 2011, we had made a lot of good choices. We got into Pre Foreclosure investing, residential, short sales, all that kind of stuff, foreclosure investing before the crisis. So we started in 2004, or five, six, a crisis happens and oh, wait. We're ahead of the game. We become a national speaker, all these kinds of things. But I'm also realizing that resi is very transactional. And if you buy even a single family, a duplex is just not very big. A four Plex not You're not really moving the needle all that much. So I had this desire to get into commercial didn't know how then I was like, then I was really ripped out of the game. When I got diagnosed with cancer. I was pulled away from my business for about nine months, about three months prior to the surgery, preparing all kinds of doctor's appointments, just a bazillion tests. And my wife, you know, it was eight months pregnant. She had an emergency C section. So I had to help her with that even though I knew I was sick. You know, I had my son was born right before my surgery. And then six months after my surgery, no income, no, like zero, my bank accounts dwindling down to nothing. Even though I had success in resi and made a lot of money. It was just it was bleeding. I was hemorrhaging. I had employees, I couldn't pay my personal bank accounts feeding the business that's dwindling down from hundreds and hundreds and hundreds of 1000s down every month, like by 50 grand a month negative going down, down down. So it was painful. But what I realized coming out of that was that I had made this mistake. Okay. I read Rich Dad, Poor Dad like everybody else about passive income, right? Robert Kiyosaki, Robert Allen, multiple streams of income and I thought I was doing it but I really wasn't I was just flipping houses for income. So what I knew, though, what I knew was Razzie. So I decided to stand up a private equity fund, recruit all this private capital into a PPM into a private equity fund, and then lend it out in private money and hard money loans for both resi and small balanced commercial, started creating passive income by being that lender out of the fund and that worked, but it didn't create enough passive income and then every six months to two years, those loans would pay off and I'm like, crap, I gotta, I gotta go make Another loan I hated when loans got paid off, right? Because they were producing passive income, right? And then my investors in the Fund started asking me, Josh, you know what, this is great. But what else do you got? And I had some buddies of mine that started investing in apartments back in 2015 2016 2017. And they needed more equity, they needed somebody with a balance sheet to kind of co sponsor their loan. So I started out doing co sponsorships and raising capital. And then I realized, like, wow, why don't I just do the operations also, and then that evolved into that, so it's very much an evolution. And I kind of feel like, honestly, like the world, God, whatever you believe in, right? I believe in God and follow Jesus Christ. But whatever you believe in, I feel like the world pushed me down this path and taught me these lessons. So I could end up where I'm at today. Because without the lesson of cancer without the lesson of the private equity fund without the lesson of Jvn, on my first couple of multifamily deals, I wouldn't know exactly how to operate the business today. And all that's lined up to where we have a really tight operation today.

Sam Wilson 11:03

Yeah, it sounds like you have an incredibly tight operation today. I mean, you named off two or three other seats on the bus that you have put in there, you had your asset manager, you had what was your What were you had four to four people, including yourself?

Josh Cantwell 11:18

my partner, Glenn, handles our capital improvement swim lane, because we own the construction company, we do a lot of value add improvements, and we do them all in house. So we own we own we are the GC, Tyler is our partner, and he handles all of our asset management. So he oversees the third party property managers, our third party property managers can't stand us because we asset manage the shit out of them. And then Roberto, is my CFO. And he has a small piece of equity that we've given him in some deals. But he's the CFO that works with our property managers and our capital improvement to kind of do all the financials. And I focus on all those financials, the underwriting acquisitions, and raising all the capital. So I get to sit way above the business, outside the business and above the business. And I get to do things like podcasts and investor relations, investor recruiting. And of course, I get the final say on everything we buy, the final underwriting the final review and the final price. So I really feel like each one of us is sitting in in the right bucket in the right swim lane that optimizes their skill sets.

Sam Wilson 12:25

How did you build that team? I mean, was this from just years of being in the business and saying, hey, I want to start something great. You want to come join me? What was that process like?

Josh Cantwell 12:36

You know, what I realized, saying when I started buying multifamily is that there were these swimlanes. Right? So I think first thing is identifying as the owner or co founder, what are the swim lanes that if you grow a big enough portfolio, that somebody can just do that one thing, right? So I thought, okay, somebody is going to need to basically look at all the deals and focus on broker relationships and acquisitions, somebody is going to really need to focus on recruiting capital, working with private investors, somebody is going to, if we're going to do the construction, and do it well, and control the process control expenses and budget, someone's gonna have to do that, somebody's going to have to do property management, or sit above the property manager, somebody's got to take care of the financials. So we broke it out into five swimlanes. And then a couple of those were able to kind of come together were like, really Glenn focuses on this capital improvements, but he's also got relationships with some investors, right? Tyler doesn't really have many relationships with any of our investors. But he's a little younger, likes to hustle likes the communication and networking with brokers. So he had about 100 units of single family that he was managing. So he was already kind of good at Property Management knew a lot about the costs of materials and labor. So we first of all paid attention to what the swimlanes could be, we drew out all the job descriptions. And then over time, we realized that there were certain people that were on the team that were already kind of fit those, right. I met Roberto, my CFO 15 years ago, and I actually met him he had moved from New York, New Jersey to the Cleveland area. I hired him through a temp agency. I just needed more finance and accounting help. He had just moved into town. He you know, so we brought him on. And he's just evolved over that he's been in digital marketing with me, he's been in resi, flips the fund. All that's been an evolution. I think the big thing, Sam with the team is that you have to hire the right people. Sure, that's critically important. But I think a lot of small business owners and entrepreneurs have way too short and way too immediate of an expectation of new hires, they expect you to come in and be Superman in the first 30 to 90 days of the new hire. The beautiful thing about commercial investing and multifamily is that it's an infinite game, you're playing the long term, right? And when you do that, you can have a longer term view of your staff. So I tell my team like it's gonna take people a year until they really know all the systems the site Software, the people, the culture, personalities, everything that they need to be successful. So, you know, those are some of the things that went into these. I met Glenn in college, he had moved away, he was in corporate world forever. He was getting a divorce, he called me up and said, Josh, I'm moving back, I knew Glenn had a tremendous amount of fortune 500 experience. And I knew he'd be great at SOPs and defining swimlanes and managing the day to day operation of the business. And then Tyler, we brought on actually as our VP of acquisitions when we had the fund, years and years ago. So he was he was he was the director of Quicken Loans. So he was used to the transactional nature of that he was used to the transactional nature of property management. And when we decided to go into full time and push all of our chips in as an owner operator, I knew he'd be good at property management and acquisition. So some of them I kind of stumbled into, but I think it started Sam with knowing those swim lanes, and we knew what we were trying to find a recruit to.

Sam Wilson 15:58

And that's, that's so imperative, I think, is defining, you call it defining your swim lanes. I think it even goes to, you know, the one step even further back, which is, you know, where are we swimming? Like, where are we going, like, what, what do we want and why? And when know that and you can put the people in the lanes, and then you can build your team. But I love

Josh Cantwell 16:19

But I love that, like we talked about right? That was that's that's what we knew what we wanted to do 915 or 50 units a year. And then the swim lanes of who do we need to help us do that? Right, right.

Sam Wilson 16:28

No, that's absolutely awesome. I love I love that you guys have done you do this number off the top of your head. But you said you just wrapped up I think you're 19th syndication. Right. That's, that's really cool. Other than raising money from private investors, have you guys done anything on the institutional capital side of things?

Josh Cantwell 16:47

Not for equity? No. Well, I have one deal, one large 100 million dollar deal we own in Houston. It's a 552 unit. It's actually 600 units. Now, because we did some conversions, which we turned, we turned some big. It's huge. Oh, yeah, I thought you're making a comment.

Sam Wilson 17:06

My mic is on mute. That that's massive. But that's a small city, almost 600, or it is 600 units.

Josh Cantwell 17:12

Yeah, we converted some of the large three, three and four bedroom units into smaller ones and two ones, because they were the big footprint was too big. And honestly, there's not a lot of demand for a four bedroom, apartment, or even three bedroom apartments. So we converted it but long short, the raising capital is key, right. But that one had some institutional money on it, we had a family office that came in, wrote a check and recruited some capital, and they became a GP. But almost everything else we do is truly, you know, they're mostly accredited investors. But it's guys that put in between 100,000. And let's say a half a million. And I spend a lot of my time talking to those guys warming them off asking questions, creating that prior existing relationship. Because I like the control that that gives us, the more institutional equity we give, the more family office equity we recruit, the less control you have, they want more control, for sure. And I like to have as much control as possible. So that's why we started the construction company, we focus on really true private investors, they're not mom and pops, these guys are usually accredit very credited with you know, millions of dollars, but some people are not, you know, some people are, you know, they're not accredited, we do a 506 b. And they've got, you know, 100, grand, 20 grand, and we'll do some 506 B stuff, because we've got a lot of relationships. But that, to me is key, that that money, that private money, that allows you to control the deal, keep more equity for yourself, and ultimately dictate where you're going to go and not have Big Brother looking over your shoulder.

Sam Wilson 18:45

Right. And I've certainly heard it, you heard arguments on both sides of the of the city, or the story here, where it's like, hey, you know what institutional money is the way to go. And I also hear from your side, which is, and I tend to probably fall more into your camp than not, which is like, we want to be in control. We don't, I don't need somebody breathing down my neck. It was it was somebody else I had on the show a while back. And they said that they said, Man, that's all they did was institutional capital. And then one day, they just said, we're out, like not doing that ever again. And all they do and this guy raised, you know, hundreds of millions, if not billions. And he just said, no, no, no, we're only doing private capital from this point forward. So it's always interesting to get the multiple perspectives on why people do what they do. You said you really enjoy the conversations you have with your investors. What what do you feel at least I heard you say that maybe you didn't actually say that, but it seemed like you enjoy it. So maybe put words in your mouth. But what do you feel like are some key questions that you really like to ask investors as you get to know them that maybe are not the standard, just canned questions here?

Josh Cantwell 19:48

Here's I think it's I think it starts with posture and here's how I posture with private investors. Whether somebody finds me through a podcast or gets referred to me or follows me online Aner opts into our investor portal, or it's just a friend that refers a friend doesn't matter where they come from, I always start with the same thing, which is if I get on the phone with them, and we have a zoom call or one on one, I'm going to start and lead with this. It's posture 101. It's actually posture 401, in my opinion, which is, look, we do all of this through private placement, memorandums and Federal Securities exemptions. The SEC has certain rules and restrictions. And the SEC requires that I have a prior existing relationship with investors before they invest. So even if I had the best deal ever, and you had a half a million dollars that you wanted to cut a check for today, I cannot take your money. Okay. So the good news is, is that the SEC requires that I have a prior existing relationship with you before you invest. So if it's okay with you, there's no pressure here. I can't take your money anyway. If it's okay with you, I'm just going to ask you a lot of questions about your risk tolerance, about your current assets, your goals, your family who helps you make investment decisions? I'm going to ask you questions like that, because I've got to check the box with the SEC. Now Sam, I've postured up to say, one I'm not desperate for your money to I'm going to follow the rules, it's required. Three, even if you wanted to cut a check, I don't need it. I'm basically telling them psychologically, I'm not desperate for your money, right now. I'm willing to take my time to get to know you. And then finally, Sam, one of the things I'll say is listen, and I bet I've seen this forever, even when I even when I needed money. I would say this anyway, I would say, look, I could use your money, but I don't need it. I can use your money, but I don't need it. Okay. So I am in the fortunate position that investors that want to invest with me have to qualify to work with us, they have to go through an interview process. Now it is sec require it. But I'm fortunate enough to have a lot of investors, and I get to pick and choose who I get to work with. Okay, so I have a very strict policy in my business. It's called the no dipshit policy. So I don't want anybody in my business and it's going to wreak havoc on the business, that's going to ask 42 million questions. It's going to be disrespectful to my staff. So this is all the posturing. Then when they understand that, then I can ask them questions like, okay, have they invested in real estate before? If they've done syndications before they've done stocks, bonds, mutual funds, do they have a financial advisor? Do they have other people that make help them make financial decisions? What are they investing for? How long can they put the money away for what kind of returns they expect? Have they invested in cannabis crypto oil and gas leases, anything that's non traditional, and then that's all the first appointment first meeting. Then typically, the second meeting is I bought a week later, two weeks later, get back on a zoom. And I'll say, look, in the second meeting, I'm going to show you a past deal that we've done. And I'm going to ask you some more questions and verify everything that I learned in the first meeting so we can continue to establish this relationship. And then at the end of that second meeting, I might show them a past deal, some preferred returns, you know, what kind of equity people got. But I say, Let's This is a past deal. You can't invest in this. So this is not an offer. And then I say, Look, you know, the third meeting, we're going to just verify this stuff again. And I still I'm not going to pitch them a deal. And then I'll say posture, I'll say, look, if I found a deal like this, that let's say paid an 8% pref with equity refi and 42 months or 48 months equity in perpetuity 20 to 25% annualized return. If I found a deal like that. Do you or anybody that you know, would be interested in something like this? And they'll say, Yeah, me? What about me? I'm interested, okay. So I'm not asking them directly ever, if they want to invest someone, if you or anybody, you know, interested in something like this, I just want to be the top of mind reference, if you know anybody else that might be interested. So I'm never directly asking them Do you want to invest in this deal? Okay, posture, posture, posture, usually three meetings, I still haven't pitched them a real deal that they can invest in. Oh, they're foaming at the mouth to now get into a deal because I I've slow rolled them. I think the slower you go, the more money you're gonna raise. That's my philosophy.

Sam Wilson 24:05

I couldn't agree with you more. I love the idea. You've given us a step by step playbook there. Thank you for unveiling that for us. Because that there's you take more steps to this. And I think even I certainly you have more steps in your process, certainly than I do. And I think that's, that's brilliant. I love the slow play method. And it's not it's not all psychological games. I mean, everything you're saying there is true. And I think the more we let go and the more relax, the more our investors feel relaxed.

Josh Cantwell 24:35

Yeah, no question. I think some of the biggest mistake people can make is to say, well, if I find a great deal, the money will come. Right. Like you have to warm up a lot of money in order to posture with brokers who control a lot of the deal flow as we know or even posture up with a seller if you're direct to seller to tell that broker and the seller. I've got all this money warmed up. I'm just looking for the right deal, right versus send me deals Deal, deal deal deal, and then I gotta go hustle to find all the money. I had a friend of mine who just lost 40 and $50,000 of hard earnest money on a deal because they couldn't get it all raised and closed. They went through two extensions and then still couldn't close lost 450 grand, that's a painful ask lesson, right? That's because they thought if I find the deal, I'll get the money to me. It's warm up a lot of money, then posture up with the brokers try to find some off market deal flow, and then say, Hey, I've got three, four or five $10 million, whatever. I'm gonna buy one really good deal. To me. That's a better approach.

Sam Wilson 25:32

Josh, I love it. You've given us so much to think through. You've shared with us so many insider insights here into your business how you guys have grown the struggles you guys have had things you've done right? Things you've done wrong. You got us a playbook here for reaching out to investors. This has been just a value packed episode. Want to say thank you for coming on the show today. I certainly appreciate it. If our listeners want to get in touch with you to learn more about you. What is the best way to do that?

Josh Cantwell 25:57

Oh, yeah, I'm all over social media to connect with me on Facebook, follow me on Facebook. Or you can go to our main website, Freeland ventures.com. There's everything from our portfolio, a bunch of YouTube videos, training videos, it's all at freelandventures.com.

Sam Wilson 26:12

Freelandventures.com We'll make sure we include that there in the show notes. Josh, thank you again for coming on the show today. I do appreciate it.

Josh Cantwell 26:19

Sam, thanks so much for the invite, man. had a blast.

Sam Wilson 26:21

Hey, thanks for listening to the How to Scale Commercial Real EstatePodcast if you can do me a favor and subscribe and leave us a review on Apple podcasts, Spotify, Google podcasts, whatever platform it is you use to listen If you can do that for us that would be a fantastic help to the show it helps us both attract new listeners as well as rank higher on those directories so appreciate you listening thanks so much and hope to catch you on the next episode.

How do you stay competitive during uncertain times?

Here to share expert insights is Arie van Gemeren of Lombard Equities. He talks about navigating the political climate and the pandemic as a real estate investor and finding success on the West Coast. He also discusses his background in venture capital and how he is applying the skills and knowledge he learned there to multifamily.

Since founding Lombard, Arie has built the portfolio to over $50 million in assets and delivered excellent returns to the Firm's investors. Prior to founding Lombard Equities, Arie was a Principal at Rising Tide Ventures, a technology and healthcare investments firm, where he focused on FinTech and real estate technology companies. He previously worked at Goldman, Sachs & Co., and before this was an equity research analyst with Fisher Investments. Arie is on the Board of Directors for Bay Scholars, a Bay Area Philanthropy focused on delivering excellent education to deserving youths via the Catholic School System. He graduated from UC Davis with a dual major in History and Political Science.

[00:01 - 05:01] From Wall Street VC to Real Estate

• Seeing that a lot of investors are not committing to venture capital, Arie felt like he could deliver better outcomes in multifamily investing
• Now they are aiming to be the biggest player in West Coast multifamily

[05:02 - 13:27] Investing in the West Coast and Thriving During the Pandemic

• Despite the issues in landlord restrictions and tenant laws on the West Coast, Arie believes there are a lot of opportunities there

• Don't let politics decide your investing
• Progressive cities attract talents and people are going to keep coming there
• Tenant right laws provide stability
• A lot of landlords are selling based on their political ideals and there are less buyers
• During COVID, they didn't have nonpayment problems because they invested in upstanding locations
• If you have good housing, you will get good tenants and they're the least likely to not pay

[13:28 - 18:48] Lessons Learned from Venture Capital

• Being VC, your reputation is very important and you have to get into deals with high outcomes
• Writing a memo down is really valuable because it can help in your thought process
• There is an enormous amount of pressure to always be in a deal, there should be discipline to slow down

[18:49 - 20:20] Closing Segment

• Reach out to Arie!
• Links Below

• Final Words

Tweetable Quotes

"Right-leaning landlords are selling based on political decisions. Like, let's go in and buy those properties. 'cause they're not thinking about this from the bigger picture." - Arie van Gemeren

"We're really focused on sort of white-collar neighborhoods and places with a great nightlife, a lot of fun that has a high caliber type employees or professionals that are living there or want to live there." - Arie van Gemeren

"You should play devil's advocate with yourself, and if you get through that process and at the end you're like, yeah, I got to do this deal, I just think it protects you, right?" - Arie van Gemeren

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Connect with Arie at [email protected] and visit their website at www.lombardequities.com.

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Want to read the full show notes of the episode? Check it out below:

[00:00:00] Arie van Gemeren: We do deals, right? And so, like, there is an enormous amount of pressure internally, externally to, like, to do deals, right? And so you have to constantly check that impulse, right? And as a syndicator, you know, you get paid to do deals. Like, you get paid a lot of money to do deals and you put up a lot of money to get deals done, right? So, like, the many pressures to like make you do a deal are huge.

[00:00:32] Sam Wilson: Arie van Gemeren is a former Wall Street venture capital executive turned real estate investor and entrepreneur. Arie, welcome to the show.

[00:00:39] Arie van Gemeren: Thank you for having me, Sam. Good to be here.

[00:00:40] Sam Wilson: Absolutely, my pleasure. Thanks for coming on today. There are three questions, Arie, I ask every guest who comes from the show, in 90 seconds or less, can you tell me where did you start? Where are you now and how did you get there?

[00:00:50] Arie van Gemeren: I started in traditional Hyde finance. I was a stock market research analyst, went to a major Wall Street Bay, worked for a private family office and venture capital, and during that whole time, was investing in properties on my own behalf, my own money, and was doing well. You know, I like to think I was a good investor, and I certainly, the market helped me at the same time, started investing in the mid-2010s then, yeah, and then at some point, I realized I knew a lot of the individuals who were really interested in doing real estate, but were really good at what they did. And there was a really big opportunity to take what I was doing, kind of upsize it. So we started doing syndicated deals. I started my firm in 2020, the depths of the pandemic, right, when everyone kind of went home and was trying to figure out what to do. And that's when I decided to pull the trigger and kind of go start my company. And, yeah, we've been investing across the West Coast, in the United States, really focused on the San Francisco Bay area, Portland, and Seattle, buying core kind of inner city and close to inner city value add multifamily deals. We're up to a little over 200 units now across our portfolio and continuing to expand, have a bunch of stuff in contract right now and where are we going? We're, you know, trying to be one of the larger players on West Coast multifamily real estate and eventually extend out to Denver and Salt Lake City as well.

[00:02:07] Sam Wilson: That is awesome. So you've been buying property from 2010 to 2020, and in 2020, you said, you know what, I'm going to do my own thing.

[00:02:16] Arie van Gemeren: Yeah, well I didn't start in 2010. I wish I started in 2010. I would be way better off now. I started it as in the mid, like, in the 2015, 2016 rates when I kind of started.

[00:02:27] Sam Wilson: Not a bad time to get in.

[00:02:29] Arie van Gemeren: Not a bad time. Oh, yeah, Not a bad time.

[00:02:32] Sam Wilson: No, for sure. Not a bad time, but you weren't getting the basement pricing, the bargain basement pricing that you would have in 2010. That's for sure. Either way, what was the compelling reason in 2020 for you to get into how you add multifamily, especially in the West Coast?

[00:02:47] Arie van Gemeren: So, you know, in venture capital, I was focused on, you know, property technology investing and financial technology investing and also raising capital, right, and I have met a ton of really interesting and influential family offices across the West Coast and in Mexico as well. And the commonality across them was there was a lot of suspicion of the venture capital business. Like, what's the cash flow? How secure is my investment? Like, is this going to make me money? I struggle with this. And most of these families had sizable real estate holdings. and you know, in 2020, tech investing sort of hit a big lull, and everybody was sort of waiting, right? And investors were not committing to venture capital. And I had seen in my own underwriting and my own deals that I felt like I could control the outcome a lot more with multifamily investment. So my thought process was, Hey guys, like we've been talking about VC, I don't know if you knew this, I'm doing real estate and this is kind of what I had been seeing happen, and I really believe in it. I know you do, too, because your family's been in real estate for a hundred years or whatever, whatever the story is, right? And so why don't we do something together, go in and kind of make this happen and, and do some deals together, right? And there was a lot more appetite and interest for that, and I think in an uncertain environment, the ability to kind of probability weight your outcome to be like, look, if I put conservative members in here, I assume rents drop when I have a higher cap rate on X, a whole bunch of stuff, I can still kind of tell you what your return's going to be, right? Versus pitching VC was like, it's a great idea, right? They have no revenue and it might happen, right? And if it works, it's going to be awesome. You're going to make a ton of money, but like, it's really likely it's not going to work with a harder pitch, right? So that was kind of why we launched this thing, right? And there's been a ton of investor appetite and interest.

[00:04:29] Sam Wilson: Yeah, that is almost two completely opposite ends of a sale. Like if you get lucky, we'll hit a home run and it'll be great. What do they call that? I'm going to probably use the right word 'cause it's not the space I'm in. They call it unicorn or something like that?

[00:04:43] Arie van Gemeren: Yeah, yeah, yeah.

[00:04:45] Sam Wilson: And that's what, you know, sets you right for life. Whereas what you're buying now is, I mean, it's stable, it's predictable, it produces revenue, and it's like, okay, you just clip the coupon and off we keep going. It's just not that, not that wild and crazy, but it sounds like one is a much easier sell. Tell me this. Portland, Seattle, Bay area, not typically, I know obviously it's there, people invest, there's lots of people buying, you know, value add multifamily in those areas, but by and large, the sentiment is fairly opposed, I would say. Buying in West Coast cities just from landlord restrictions to tenant laws, to all those things, you say that, that is a prime opportunity and those are great, great places to invest. Break that down for me.

[00:05:27] Arie van Gemeren: Yeah. I'll start with a fundamental lesson I learned in my stock market kind of equity research days. The CEO of my firm is a very large money management firm on the West Coast. You know, what I would always say, don't let your politics decide you're investing, right, 'cause, like, you have your politics, have your political views, whatever they may be. Don't let that control what you do from an investment perspective, because the two don't always go hand in hand. Like, you could really believe in something, but that doesn't mean that it should inform how you think about investing. So that was kind of, I had that framework right where it was. I don't agree with a lot of the West Coast politics and politics in many of these great progressive cities, but, like, it doesn't mean that there's not a great investment opportunity, right? And I felt like the word on the street and what I was hearing was a lot of like, you know, a lot of landlords in Portland and Seattle were like, this place is becoming a, you know, a disaster, and I got to get out of here. I got to take my money out. I want to go to a red state, I want to go to Idaho. I want to go somewhere else where it's, like, it's a much friendlier business environment and there's no denying, right, it is a friendlier business environment and I'm not contesting that at all. My contention was this, you know, major, like very progressive left-wing cities on the West Coast, have an appeal that is hard to dispute, right? Like, I mean you look at the Bay Area, you got Stanford, you got Cal, Santa Clara, like major, major university ecosystems, right, that are continuing to pump out graduates, very smart graduates right from all over the world. Like, the international families all would chill to send their children to Stanford and in Cal Berkeley, right? And they do and they send their kids there and other, and, like, very bright children who are graduating from school. That's a great crop of candidates for, you know, companies, right? And if you want to get the best graduates from Stanford, you got to continue to have a presence in the area for those internships to bring those kids up, right? And so I felt like there was a theme of, like, everyone's leaving and the Bay Area's going into a secular decline and, like, rent states are on the rides and these cities are going to be great 'cause business is great. And I'm not denying any of that. I'm just saying I thought that the backlash against the progressive stronghold was sort of overblown, right? So that was the first piece. The second piece is I actually take the contention that these cities with very protective tenant right laws are perversely good for investors, right? So little known fact, the guy that wrote the code for San Francisco Rent Control was one of the largest multifamily owners in San Francisco, and I'd heard it said that in conversation. He said, I love rent control. I love it because it puts a floor on all my assets. Like, I'm never going below that floor ever, right? I'm only going up and it provides a ton of stability for my building. And I love it. Like, I wrote that code and I like that code and I don't want it to go away. That gives me a competitive advantage. That was from a major, like, a major investor, right? And the things I've observed in these markets is rent control, like, difficulty building, right? Like, all these things, they actually increase supply or they decrease supply, right? So, like, you never have enough supply in these cities. And my observation and I think this is happening, right, many of the up and booming markets in the southeast, right, in Florida, and these different markets, in my opinion, are probably headed for an oversupply problem at some point, right? Because you have the population growing, but it's also, like, there's no limitation on supply. Like, developers can build and build and build. Arizona's a great example of that, right? Where it's like Arizona was hopping, like Phoenix, you know, the money was pouring into these cities, but like, it was very easy to build, right? By contrast, in Portland, as an example, like the city passed a law that, like, if you want to build a new building, 30 plus percent of the housing in it needs to be affordable, right? So if you put wages and material costs so that you know, have both gone up, right? Developers aren't building anymore and you can actually see permits drop off a cliff when that happens, right? But Portland's still growing, right? Like, Portland's growing it double the national growth rate. So is Seattle, right? So they're growing, but you don't have supply. So there's like a broken supply and demand function in these cities. And I think, thirdly, like, you know, we have a hundred years of anecdotal evidence to tell us that Florida is a boom and bust market, right? I mean, it's been going on, like, since the early 1900s. And I would argue that a lot of these, like, cities, like, Manhattan, I would put in the same bucket, right? Manhattan with San Francisco, Seattle, are much more of a smooth ride, right? Like you're not going to have huge dropoffs, you're just going to have a slow, steady kind of taking up. And I would argue that's pretty conservative for investors. So we took that thesis and we're like, look, right-leaning landlords are selling based on political decisions. Like, let's go in and buy those properties. 'cause they're not thinking about this from the bigger picture. They're just like, this place has become really unfriendly to me. I want to get out of here. It has become unfriendly, right? I'm not disputing that, but it's, like, but you can work around. And there's less buyers, right? So you're not competing with as many people. So there's a lot of reasons why, you know, it's worth fighting through the complexity. I think the return is there firstly.

[00:10:23] Sam Wilson: I think that's a very compelling thesis, and I've always said that any time you get governmental involvement in things, you know, especially when they start making just arbitrary rules, whatever it is, rent control, you name it. It creates a market distortion for looking for it. So I love your very clear explanation as to why you're finding opportunity and value in those markets. Obviously, decreasing supply and stable and or increasing demand, I mean, that's great for the investor. What are things, you know, as you went through COVID, as you went through 2020, how did you guys navigate some of those very tenant-friendly landlord laws maybe that would've kept tenants in your buildings that maybe weren't paying, things like that?

[00:11:11] Arie van Gemeren: So we did very well during COVID, and I think partly it's because we were really careful with location. One of our kind of core beliefs or tenants has been to only buy and already upstanding in great locations, right? So we're really focused on sort of white-collar neighborhoods, right? Like, places with a great nightlife, a lot of fun that have a high caliber type employee or professional that's living there, or wants to live there, right, your a 20 to 28-year-old software engineer, right? So, like, an example would be Capitol Hill in Seattle, right? Capitol Hill in Seattle. Like, you're within almost walking distance of Amazon's headquarters. It's got the highest concentration of happy hours, right, highly paid, and like pretty legitimate tenant profile. And because of that we had very, very little COVID-related delinquency, very little. And I know by contrast I've talked to guys that own very large portfolios, like, workforce housing-focused assets and their delinquency was much higher, right? Like, they were like 10 to 20% non-pay. And we were probably, like, 1% to 3% non-payment. I just think it's location, right? Like, I mean, you're just owning, if you own housing, that is attractive to young professionals, you know, like, they're the least likely to not pay, right? Because it's not good or them. So they're going to get their parents to help or they're going to pay, like, or they have a great job. Software engineers were not really affected. So, you know, we did that. I will say, you know, people in the Bay Area have gotten in trouble with the tenant protection laws, you know, where like Oakland and Berkeley and San Francisco are some of the last cities that still have an eviction moratorium, for example. And now I'm going to contradict myself, right? But this is some of the danger of this. It's like the city council of Oakland would like to never release the eviction moratorium. Their preference would be to like never let it go, you know, and my question is, like, so someone could not pay rent and you could never get rid of that tenant. And it's like, yeah, that's the stuff that's sort of scary where you're like, well, that's a good argument to not do it, right, because there is a political angle here that's a real problem. But that being said, there's already lawsuits working through the core to say, like, you're now impeding my right to my property right. And I'm pretty sure you can't forever prohibit someone from evicting a non-paying tenant in their building. So they'll get around that. But I mean, for us, we didn't really have to navigate COVID nonpayment.

[00:13:27] Sam Wilson: Arie, tell me this, you know, coming from a long history in venture capital, what are kind of some of the crossovers there? I know I know you went to, you know, the people that you were working and said, hey, I see opportunity here. Do you want to partner on this? But I guess, are there lessons that you learned in doing venture capital that you've then applied to what you're doing now in multifamily?

[00:13:48] Arie van Gemeren: Yeah, there's a couple, right? So deal flow in venture capital is very important, right? So at every beat, there's a lot of money in venture capital, and there's a lot of money because there's a lot of high returns, right? But the little-known fact in VCs is like being in the right deals where the high return comes from, right? And you have to get into those deals. So there's always entrepreneurs raising money. That doesn't mean it's a good investment, right? There's always someone asking for money and so you have two things happening, right? Your investors, your LPs are paying you a healthy salary and everything else to find deals. You have a natural, like, desire to put money to work because you've been given money to put the work, so you have to find deals, right? And so deal flow is one of the highest and most important things, but it's got to be a good deal, right? Very much like our business, right? Like we need to find deals, but it can't be a bad deal, right? So, you know, the process of finding deals in VC was very analogous, finding deals here, right? It's relationship building, it's adding value for people. It's being in touch with guys. It's demonstrating, you know, good characteristics that people want to do business with you and they want to work with you. I mean, being in VC, your reputation is very, very important, right, because entrepreneurs want investors that are thinking of them and are helping and, like, and providing value for them. And so, you know, as we know, brokers also want to work with buyers that close deals execute, do what they say they're going to do and they're honorable and they, like, they live by their work, right? And so there was a lot of the dialogue between those two, doing good deals is also really, really important, right? And so one of the tips I kind of learned from the VC business is to try to write an investment memo to myself, right, 'cause I'm really a firm of one right now, but when I have employees, I'm going to enforce that same thing. And we had to do that in VC because we had to get our deal through a committee. So you had to write a long-form memo, risks, opportunities, what could go wrong, why I like the team, a whole bunch of stuff, right? And I've found that the clarity of writing a memo down is really valuable. If you're writing a memo on a deal and you find yourself on every question trying to convince yourself, like, why you got to do this deal, but you feel like you're fighting resistance, it's a great warning sign, right? And I do think that the discipline of, like, putting it on paper, right? It could be a two-page memo, but it should be like a formulaic memo. Like, why I like this deal? What am I missing? Why would I argue against this deal? Like, you should play devil's advocate with yourself, and if you get through that process and at the end you're like, yeah, I got to do this deal, I just think it protects you, right? I mean, like, Buffett has that famous quote of like, you should think of the best thing as a punch card and you only have 10, right? And you should think of, like, if I do a deal, I only have nine left in my life. That should be how you think about doing a deal, right? If your deal is one of those 10, like, great, but, like, put it on paper, right? Like, do that. That was a cool thing I took from VC and I haven't seen a lot of guys in the syndication business doing that. I know that at bigger private equity real estate shops, it's very common, right? It's a Wall Street practice, it's a VC practice. But for younger guys, smaller guys, guys who are starting up, I do think it's a good practice to build.

[00:17:00] Sam Wilson: Oh, that's an amazing practice. And I love that I kind of feel like I do that when I'm reviewing a deal deck, right? When we're putting together our deal deck like that, it's kind of that same process, but maybe not as truncated, but maybe not as concise. There we go. That's the word I'm looking for. But I like that tip of going through that practice 'cause I'm certain you've uncovered along the way a few deals maybe that you shouldn't have done.

[00:17:24] Arie van Gemeren: Yeah. Yeah. I mean, yeah. The danger of being a deal guy or gal, right, is that like we do deals, right? And so, like, there is an enormous amount of pressure internally, externally to, like, do deals, right? And so you have to constantly check that impulse, right? And as a syndicator, you know, you get paid to do deals. Like, you get paid a lot of money to do deals and you put up a lot of money to get deals done, right? So the, like the many pressures to, like, make you do a deal are huge. And you got to like, you got to find a way to get out of that for a second, right? And get out of that cook pot and be like, should I do this deal, right? Because there's the broker's pressuring you to do it. The broker only gets paid if the deal gets done. Your attorney wants to deal to get done. Your investors want, you want against them. Your wife, your husband probably wants you to get it done 'cause you get paid. But you're like, you know, and you got to check that, right? It's really hard. It's hard. It's hard, right? I mean, it's a hard thing to do.

[00:18:16] Sam Wilson: It truly is. The discipline to slow down and say no, because you're absolutely right. Like, if you're not doing deals, if you're not consistently presenting opportunity to your investors, they go to other places.

[00:18:28] Arie van Gemeren: Totally. Yeah, exactly.

[00:18:30] Sam Wilson: The reality of it. They're not waiting nine months for you to come back with your next deal and be like, oh, cool, I'm still sitting on that half a million dollars, I'm going to put in your deal. Like that, come on. So there is that constant pressure, like you said, for many, many sources to continue to put out deals. But I love the way that you think through that. Arie, it's been an absolute blast having you here on the show today. I certainly appreciate it. I've learned so much from you. I mean, the venture capital world is something I know absolutely nothing or very little about, so it's fun to get perspective from somebody that's been in it for such a long time. And then how and why you're finding opportunity there in the West Coast cities. I think you presented just an absolutely impressive case as to why, you know, you're investing there and why there's opportunity there. And then how you guys are working around some of the political and or market risks and finding opportunity there. So thanks again for breaking that down for us. Certainly appreciate it. If our listeners want to get in touch with you, learn more about you, what is the best way to do that?

[00:19:24] Arie van Gemeren: You can go to my website, www.lombardequities.com, and it's probably the best way. And then by, you know, my email is [email protected]. So if anyone wants to reach out or chat, I'm always happy to talk with anyone, especially about this business. I love it and I can talk for hours about it. So, yeah, it's been a pleasure to be here, Sam. Thanks for having me.

[00:19:43] Sam Wilson: Thank you, sir. For those of you listening, that's [email protected]. We'll make sure we also put that there in the show notes. Thank you again, Arie, have a great rest of your day.

[00:19:53] Arie van Gemeren: Thank you.

Achieving financial freedom is the goal in mind for many of those who are building their real estate empire. A common misconception is that you need to have many properties to reach this. In today's episode, Zeona McIntyre, a real estate investor and author, shares her experiences and advice on the medium and short-term rental business. We discuss the importance of automating your business to free up time to focus on other aspects of your business and how it can only take a few properties to own and manage to attain financial freedom.

Zeona McIntyre has been a real estate investor since 2012 and personally owns 12 properties (and counting). She is the co-host of the Invest2FI Podcast. In her career, she has guided dozens of clients to financial freedom and is proficient in using Airbnb, house hacking, and other creative rental strategies. She assists her clients using proven research processes to help eliminate risk. Zeona is a licensed real estate agent in Colorado with a nationwide referral network.

[00:01 - 11:26] How to Make Money as a Medium-Term Rental Manager

• Analyze the markets to invest in, follow trends, and diversify your holdings
• Platforms to use for rental management; finding the best deals through networking
• Zeona talks about her experience through AirBnB hosting

[11:27 - 21:58] Optimize through Automation for Real Estate Rentals

• Zeona shares the software she uses for more optimized systems
• How moving to medium term rentals mitigates risks associated with short term rentals
• Why you do not need many properties to manage to achieve financial freedom

[21:59 - 22:59] Closing Segment

• Reach out to Zeona
• • See links below
• Final words

Tweetable Quote

"The cool thing about short term rental versus long term rentals is that you can be financially independent on one or two places rather than needing like 20 to 40… If it's just managing your own, there's a lot more in it for you." - Zeona McIntyre

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Connect with Zeona McIntyre on Instagram. Check out her podcast Invest2Fi and email her at [email protected].

Resources Mentioned

30-Day Stay by Zeona McIntyre

Why You'll Probably Never Run Out Of Money - Mr. Money Mustache

Connect with me:

I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.

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Want to read the full show notes of the episode? Check it out below:

Zeona McIntyre 00:00

I love to travel and investing really allowed me to do that because even today, I can be halfway across the world and bookings come in through my phone. And I could just do all the same things that I've been doing here in Colorado, so it's super easy. So I think just giving you location freedom, time, and freedom is really important. And I'm just addicted personally to buying houses so life just so people know. You could be with two to four properties you don't need to have ten or twelve.

Intro 00:30

Welcome to the How to Scale Commercial Real Estate Show. Whether you are an active or passive investor, we will teach you how to scale your real estate investing business into something big.

Sam Wilson 00:42

Zeona McIntyre went from $50,000 in debt to financially free in just two years with Airbnb. She's been an Airbnb host since 2012. And she teaches listeners how to achieve financial freedom through a real estate podcast, Invest2FI. Zeona, welcome to the show.

Zeona McIntyre 00:57

Thank you so much. I'm excited to be here.

Sam Wilson 00:59

Absolutely. The honest three questions asked every guest who comes on the show in 90 seconds or less. Can you tell me where did you start? Where are you now? And how did you get there?

Zeona McIntyre 01:08

Whoa, 90 seconds or less? Okay. I started by doing rental arbitrage. So they call it now where you essentially rent and re rent out on Airbnb, so it's kind of like subletting. But that was a great try before you buy experience for me. So I got really hooked on Airbnb and then ended up making it a whole career over time I manage in five states over 60 units. And now I just managed my own places. But I have 12 units in four states. So I have a little investing add betta? Yeah, I'm really into furnished rentals. So I help people achieve financial independence through short term and medium term rentals, basically.

Sam Wilson 01:54

Tell me this, I mean, can you define for our audience, the difference in the short term and a medium term rental sort of thing?

Zeona McIntyre 02:01

So a short term rental is under 30 days, and it ends up being usually three to four day nights, you know, people just come for a short stint and go back home. A medium term rental is over 30 days, and it's furnished. So it's kind of like just the longer short term rental. And then this tends to be digital nomads, traveling nurses, people doing renovations in their homes. There's lots of tenants in that category.

Sam Wilson 02:25

Got it. And so you're you went from 60 units down to 12. In that 12, whatever you've done with those 12, in the short and medium term is enough to leave you financially independent.

Zeona McIntyre 02:36

Oh, yeah. I mean, that's the cool thing about short term rental versus long term rentals is that you can be financially independent on one or two places rather than needing like 20 to 40.

Sam Wilson 02:47

And so why did you I guess, why did you back? I mean, obviously, the I could, I could guess, but I'm able to hear from directly from you. Why did you go from 60, down to 12 and just say, that's all I need?

Zeona McIntyre 02:58

Because I was managing other people's. So that's the worst job. And so if it's just managing your own, it's, there's a lot more in it for you. So I'm happy to manage my own properties. But I definitely don't want to do other people's anymore. But it was a great way to start. And what I tell people a lot is just like if you're doing wholesaling, or flipping, co hosting or managing properties as a way to build up some capital. So you can go buy properties, I don't think that's where you want to stay.

Sam Wilson 03:25

Now, when you say manage, I'm thinking like, and I use Airbnb quite a bit when I travel, of course, there's you get there, and there's a local property management company. But that's not what you were doing, or was it?

Zeona McIntyre 03:38

I was not local, but I was a property management company at the time. So luckily, so much of its automated, and so much of it happens online. And so the only people that needed to be local were the handyman or the cleaner.

Sam Wilson 03:50

Right. No, that's, that's absolutely true. So you you had those properties, you said, You know what, that's too much work. I'm going to offload that I'm going to focus on my own. What are what are some of the key lessons you would say that you've learned or things that you've done really well that other people should emulate? In their medium or short term rental business?

Zeona McIntyre 04:09

Yeah, I mean, I think really analyzing what Mark has to be in like, following the trends is something I've done really well. And that's worked in my my favor, I think a lot of times people get stuck saying, Okay, well, I can only invest within four hours of where I live, for some reason. That's an arbitrary number. I found that if you are more than like half an hour away, you're never going to see that property. So four hours doesn't mean anything. But yeah, people will get stuck in their neighborhood. And I think when you can open up and say wow, the whole United States is my oyster and I can invest anywhere then there's a lot more opportunity. So that's definitely something I've done.

Sam Wilson 04:45

How did you select the 12? I mean, the 12 properties spread across four states it's like, it seems like if you went long in one market you get two or three and then scaling that would be easier by staying in one market. Why did you go multiple markets?

Zeona McIntyre 04:58

Oh, yeah, not here to make why is easy. Yes, that would be the easy thing to do. But what is cool about it is it also gives me diversity, right? So if I had all my properties in one place, and there was a fire or a tornado, I would be kind of out of luck. But so I've got them in different areas that helps. But I think what I've found is that different markets have different horizons where they're up and coming. And so that's kind of what's happened for me is like, I hear something through working with a lot of investors, I do a lot of consulting. And people will say, Hey, I heard about this market, it seems really good. And then I go check it out. And I'm like, You're right. Let us buy there.

Sam Wilson 05:39

Other than luck at selection, what are some common questions that people come to you when they are looking for consulting help on their business?

Zeona McIntyre 05:47

Definitely, market selection is a huge one, people just don't know where to start. The other is around the management because there's so much automation, it really can be hands off. And so I think it's just important to learn all those skills. So you're not burning yourself out?

Sam Wilson 06:03

Yeah. What do you when you say, learn those skills? What are some things that come to mind when you say management and learning those skills?

Zeona McIntyre 06:10

Yeah, so we're short and medium term rentals, I have a series of I think it's seven emails that go out automatically to my guests. And that's at the time of booking today, before Tuesday's before showing up maybe the day after check in something like a day after that for trash. You know, I've got all these things so that I'm getting ahead of the guests before they have questions for me. And then I don't have to communicate. So it seems like I'm really involved. And I'm on top of it, and I care about them. But it's all happening automatically.

Sam Wilson 06:40

That's awesome. Now do you utilize more platforms. I had a conversation literally yesterday. And I think I'll talk to you about this a little bit pre show. It's a house that used to be my office, it's next door to my house. And I've used it for an office for a couple of years. But I built a new office for me here at the back of my property. So now I've got an extra house next door. And I bought were the kind of specializes in the same thing as you do is medium term rentals. And he kind of worked out a series where he uses Airbnb. But then he also posed for that medium term rental on I think he uses Zillow, you know, he posted out there and says, hey, it's a furnished rental. And then he also works in tandem with that with insurance companies. So burnouts and things like that, or house burns down, they don't want to go to an apartment, and the insurance company doesn't want to put them in apartment, they don't want to board their dogs and take care of, you know, paying for their meals out, you know, for the next nine months. And so they'll pay a very hefty premium for just a house. And so he's going to look nice, oh, man, it'd be perfect house, we could, you know, absolutely turn this into a medium term rental. But a whole bunch of different I'm getting my question eventually. He's a bunch of different platforms, from Airbnb to Zillow to some other stuff. Do you kind of use all those in as similar to that or do you stick to one platform?

Zeona McIntyre 07:56

So, we use Airbnb because there's a lot of seasonality there and up, get really high rates. And then we also use furnish finder, which is started with medical professionals. But now it's kind of exploded to all kinds of people looking for furnished rentals. So those are the platforms we use. But through furnish finder, we're also networking. And so this is something that's kind of above and beyond, you definitely don't need to do this. But if you're trying to get the most cash flow you possibly can get, then it is worthwhile to network with the placement agencies and the insurance companies. And so once you kind of figure out who those couple of companies are in your area, I've got automated messaging, like we already talked about, but I'll be like, Hey, how you doing? How's the Happy Easter, just keeping in touch with you, you know, and so we had a contract just recently, where it's our slow season, and we had no bookings. And then somebody booked us for an insurance there was like a fire at a house. And we ended up getting 2000 A month cash flow on this property that like we thought was just gonna sit empty for this month. So feeling really excited. You know, there's definitely some great options and opportunities through contracts. So this if this manager really truly does contracts, that's that's a golden goose you got there.

Sam Wilson 09:14

Yeah, it is. I mean, in the numbers he was posting, because he owns about 10 of them here in the Memphis market at this point, nice numbers he was posting and that's all he does is insurance days, you know? Yeah, was it he uses Airbnb to kind of fill in the gaps. So stay for, you know, six months and he collects an incredible, you know, four or five times normal monthly rent premium, but then he'll use Airbnb for and he only sets it for two weeks out, it'll go okay, we're going to, you know, between now and the end of what we're recording this October 25. So say he doesn't have anybody coming in. He'll just set it two weeks to where he can always fill it with Airbnb for a couple of weeks and then have it available for a longer term or medium term stay through the insurance company. I was like, Oh, that's pretty.

Zeona McIntyre 09:58

Yeah, absolutely love So your area allows short term rentals. Right? So that's kind of like the thing is that a lot of people move to medium term because they're not allowed to do short term. So it's great that Memphis is still pretty open.

Sam Wilson 10:12

Yeah, it is. I mean, of course, they've they've, you know, they've cracked down in certain capacities on it. But yeah, it's still it's still fairly, fairly open. What? Talk to me a little bit about that, where you say people are moving to medium term rentals? What are what are some kind of loopholes that people should be looking for? If, if any?

Zeona McIntyre 10:30

Yeah, so the great thing with the 30 day limit is that it's really a gray area, right. So as soon as you have 30 days, you're not seen as a short term rental. So that means you don't have short term rental tax, you don't have to get special permit all this kind of stuff. It's grouped in with a long term rental. So people just you kind of slide right under the radar there. But you're still able, if you negotiate contracts to get the same rate you would get on a short term rental with less headache, less turnover, less expense. So it's kind of the win win. It's gotten really popular recently.

Sam Wilson 11:03

Yeah, no, it absolutely is it it's always funny the entrepreneur finds out and I use the word loophole. I don't like it. We're loophole. I think anytime I like that word. I call it government created market distortions, where it's like for the person that's looking, they're gonna find the distortion created by the by the whatever rule, let's go, Okay, well, here's a distortion. Well, okay, well, now we can do this in a 30 day, and suddenly, you've got a strategic advantage over somebody who's not paying attention. It's like, well, thanks for making it hard. But thank you is also for paving the way for me to make more money. Appreciate that. So go in with your eyes wide open. What tell me about automation. I mean, I know automate, the big it's a buzzword, people are talking about automate that, you know, automate. If you can automate delegate, blah, blah, blah, a lot of times I find automation becomes just more cumbersome than just picking up the phone. How have you found a way? And I'm right, but how have you found a way because clearly, you've love automation to make your business more automated in what we're kind of some of the learning curves are learning things along the way.

Zeona McIntyre 12:06

So I started Airbnb in 2012. Before it was much of a thing. And then all the software came out in the next few years, because people were like, oh, people are making all this money. Let's try to get them spend their money on us, right? So it's really confusing. When you start to look out and go, Oh, my God, there's hundreds of software's, what do I actually need, so I only do three. And so it's nice to kind of show people that you only need a couple. One of them is auto messaging. So if people are interested in what I use, just reach out to me, the other and that's calendar management. So if you're on a couple of websites, it kind of like brings it all in one place, which is helpful. Yeah. The second one is pricing software. And so this is only important if you are doing you know, like your property manager is going to do a little Airbnb in the middle, you don't want your price to be $100 a night, every single night, you want it to be variable, because certain nights there's going to be like a college game or something going on weekends need to be higher. So that happens for you automatically, and you might tweak it, but it's good to know that it's there, because it's seeing stuff that you're not seeing. Yeah, and then the third thing is if you are doing the medium term rental, you need to do leases and tenant screening. So there's a veil that I use, it's free, and they have the leases on there, where you just fill in the blanks, you can e sign, they really make it easy for you. So I try to like do as much stuff that's like quick and easy.

Sam Wilson 13:30

Absolutely. Is there a sweet spot like when you look at you know, if you were gonna grow your business, or if you're gonna add more properties to it, what what what are the the characteristics that that property has to have in order for you to buy it?

Zeona McIntyre 13:46

It's interesting, I think for medium term rentals, I'm really liking two to four units and the reason being is I like having either the the ability to say I'm going to have two units long term and two units medium term just so you have something that's an anchor so that you're not fully vacant ever and also just having like one building you know that you're not having to do the grass because you're paying the utilities you do the grass, you do the snow maintenance, right? So like that kind of stuff is easier than having 10 single family homes when you've got like more units in one place.

Sam Wilson 14:20

Yeah, no, I love the idea of a quad Plex. That's really that's really smart Allah in any idea of splitting it half and a half long and medium term. What is investing done for you, like, you got your short term rental business, medium term rental business, you have found your financial freedom, what's life look like for you now?

Zeona McIntyre 14:39

I love to travel and investing really allowed me to do that because even today, I can be halfway across the world and bookings come in through my phone and I could just do all the same things that I've been doing here in Colorado, so it's super easy. So I think just giving you location, freedom, time, freedom is really important. And I'm just dicted personally to buying houses so life just so people know, you could be with two to four properties, you don't need to have 1012. That's just a personal preference.

Sam Wilson 15:11

Got it? No, I love that I love any business that you can run from anywhere in the world is a good business. Certainly, in my book, what are some risks? What are some? What are some things that you either see, economically, politically? What are some risks in your model? And then how do you mitigate those?

Zeona McIntyre 15:31

I think moving to medium term is my way of mitigating that. Because recently I've been seeing Okay, coming down the pike is this like recession, right? We've been kind of been talking about it forever as a common is a common. But with that, it just makes it so that people say, Okay, if I normally fly by plane, I might do vacations by car instead, right. And if I normally do vacations by car, maybe I'm just gonna do the only trips I have to do and that's seeing family and an urban market. So I'm trying to keep my stuff a little bit more urban and a little bit longer stay because of that, because I just think right now, short term rental is just a little less, there's a little less demand, and it's temporary, but you gotta change with the times.

Sam Wilson 16:13

Well, right. And I think one thing that we saw in 2020, that I'm not sure we expected was just the explosion in short term rental demand. I mean, yeah, you compare here October 25 2022, to say, October 25 2019. Are we still higher, maybe in demand what we were in 2019? Or is it just lower? You know, compared to the 2020? Demand?

Zeona McIntyre 16:38

Yeah, I would say that's interesting. I don't know exactly. I'd say we pre pretty close, and maybe just touch under what 2019 was. And then 2020. There wasn't much until towards the end of the year, but 2021 was the biggest year in history. For short term rentals. It was crazy. Will that come back? Yeah, probably once the recession is over. I think just so many people are saying, I don't know what's going to happen. So many things have swung out really wildly recently, that they're like, let's just save our money and stay home for a minute. Yeah, we're down.

Sam Wilson 17:10

Let's hunker down. And so you you mitigate that risk by moving to the to the medium term rental model.

Zeona McIntyre 17:15

yes, because these people have to travel. So it's kitchen remodels, it's fire or some kind of, you know, something wrong, that was insurance wise, it's going to be traveling nurses were that's their job, they you know, and traveling nurses have exploded since COVID. There's just such a need for medical professionals, especially after everyone got super burnt out and left the industry. And so that's going to continue, and there's a real shortage for medium term rentals. There's just not as many furnished rentals out there. So 100%, if you're gonna do that one next door, I would do it. Yeah. I've said on that.

Sam Wilson 17:52

No, I'm not. I'm not We're not sitting on it. I just thought it was very interesting. I'm like, Oh, this is this is a fortunate timing. I get to interview somebody else that has a lot more experienced in the in the industry than I do. If someone were starting out today. What would you what would you say are some some lost? Like, like imperatives in their business in the medium and short term rental business?

Zeona McIntyre 18:14

Yeah, I mean, I think the automations are a must. Because that really takes you from being like, I don't know, trapped in the business, right? You're a slave of your phone of saying, well, now I have to respond within the hour that's kind of required of me. But if I've got all these automations in place, you can have a message that goes out before the hours up, if you're not able to get to it, you know, so there's just things like that, that I think you need to try to do right away. And people think, Oh, well, I only have one property, I don't need to do it. But you're making a big job for yourself if you're not doing that.

Sam Wilson 18:46

Right. Anything else come to mind?

Zeona McIntyre 18:49

I mean, I think if anybody's interested in trying it out, the great thing about Airbnb is like, you can literally leave for a weekend and put your house up. And if you don't like it, you can never do it again. But it's not like you have to go and spend 100 grand and buy a house and get all this furniture, you know, just try it.

Sam Wilson 19:07

Right, right? No, that's absolutely awesome. Anything else? Here is the honor that I should have asked you or that we should be thinking about as it pertains to your business model.

Zeona McIntyre 19:18

Well, I mean, I could talk about my book for a second. I just do a little shameless plug. I wrote a book with bigger pockets. So it's published through them. It's called 30. day stay the Real Estate Investors Guide to mastering the medium term rental and it's a real sorry, it's a super thorough on how to just get started. And then it's got a lot of case studies, a lot of stories that I think make it really easy to learn and a fun read. Check it out.

Sam Wilson 19:47

Awesome. Where do we get a copy? I know you mentioned bigger pockets is that the best place to source that?

Zeona McIntyre 19:52

That's the best place it's still preorder. I'm not sure when this is launching but it is bigger pockets.com/thirty-day-stay and if you use my name's Jana, you'll get 10% off.

Sam Wilson 20:04

That's awesome. When is that supposed to go live?

Zeona McIntyre 20:07

They will start shipping them out November 10. That might be for we're out. Yeah. Yeah. It'll be it'll be around the corner. Yeah, absolutely.

Sam Wilson 20:17

Yeah, absolutely. Absolutely. So 30 day stay, you can find that on bigger pockets.com zeod. This has been awesome. I've loved I always love the story when someone says, Look, you know, I was in debt. And then within two years, I was financially free. That's a big, a big, huge journey. One last question for you on that front. Is there any tools or resources as you achieve financial independence that really helped you kind of, I guess organize that in such a way that you could say, hey, look, now I'm financially independent? Was there something you use? Was there a particular tool, an asset, a spreadsheet, a source?

Zeona McIntyre 20:50

That's interesting. I don't I mean, I still kind of track all my expenses and meant I think it's nice to just be on top of what you're spending. I really liked the blogger Mister Money Mustache, and one of his recent posts, he did put kind of a tracker that said, I think the blog post is called why you will never run out of money. And so if you're already being financially kind of like frugal and smart, and then if you own even one or two properties, it helps you project out on that spreadsheet, like what it's going to look like, even when you're 100. And that gave me a lot of relief. Like oh, I'm so good. I'm probably going to die with $10 million. Like, you're fine. Just trust.

Sam Wilson 21:33

Yeah, cuz I mean, that's that's a real question. I you know, anytime financial independence, it's like, more money doesn't necessarily solve the problem. I mean, as Yeah, any any winner of the lottery can probably attest, like more money doesn't necessarily make you financially independent. It might even just make you poor. So I always was curious what tools and what kind of changes people made along the way as the more money came in how they organized that and you gave us some great resources there. So Jana, thank you for coming on the show today. Certainly appreciate your time. And love your story there. If our listeners want to get in touch with you or learn more about you what is the best way to do that?

Zeona McIntyre 22:07

So Instagram if you're on there. I'm at Zeona McIntyre. I answer all my DMs. So look for me there and then if you just want more podcasts to listen to go to Invest2Fi, that's our podcast on house hacking to financial freedom.

Sam Wilson 22:22

That's awesome. And Invest2Fi is the number two, Fi. So invest, the number two, Fi. That is awesome. Zeona, thank you again for your time today. Certainly appreciate it.

Zeona McIntyre 22:33

Thank you.

Sam Wilson 14:34

Hey, thanks for listening to the How to Scale Commercial Real EstatePodcast if you can do me a favor and subscribe and leave us a review on Apple podcasts, Spotify, Google podcasts, whatever platform it is you use to listen If you can do that for us that would be a fantastic help to the show it helps us both attract new listeners as well as rank higher on those directories so appreciate you listening thanks so much and hope to catch you on the next episode.

In this episode, we are joined by Jonathan Tonks of Provision Space. Jonathan is a continuous improvement engineer for a multi-billion dollar automotive supplier where he leads cross-functional teams to increase revenue and improve the efficiency of a 600-person manufacturing facility, and is passionate about developing leaders through business creation and investing for generational wealth.

Jonathan discusses the lessons he has learned through the years in the real estate industry. He reiterates the importance of nurturing relationships based on trust and shares the mistakes he committed so you won't have to.

[00:00 - 05:46] From a Mechanical Engineer to an Entrepreneur

• Jonathan utilized his analytical side and improving his business acumen has been one of his focuses since starting out
• He transitioned from a single duplex into his first multifamily deal with the help of his mentor

[05:47 - 08:35] Build Relationships First

• Track record is essential and establishing trust that you can deliver

• Prioritize building relationships before talking business

• Here's how you could focus on relationships:

• Always get to know them

• Do calls and meet them in person

• Give value that is different from the return on investment

[08:35 - 14:44] Partnering Your Way Up to Success

• Red flags according to Jonathan:
• Not protecting the investors by not underwriting conservatively
• Not having a relationship with the property managers, boots on the ground
• The team is the most important part of the deal
• Where Jonathan sees his business in the next five years
• The rate of increase of rent growth is one of the risks in the multifamily space
• This is why it's critical to vet the people you work with to mitigate risks

[14:45 - 21:04] Closing Segment

• Jonathan shares his personal habits that helped him be on track and keep his vision and goals
• How to deal with unmet goals and practice gratitude
• Reach out to Jonathan!
• Links Below

Tweetable Quotes:"To be in a business, in general, especially be the founder of CEO, you got to be the master for the brand." - Jonathan Tonks

"Truly building a relationship first, and if a business relationship comes from that, then that's great." - Jonathan Tonks

""It's a skill when you think about it, when you you can develop a skill to see the good things." - Jonathan Tonks

---------------------------------------------------------------------------------- Connect with Jonathan on his website or through Linkedin!Connect with me:

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Want to read the full show notes of the episode? Check it out below:

[00:00:00] Jonathan Tonks: I recognize the blessings and the relationships that are going through and the opportunities. So just trying to be humble and, and aware of those areas. But also I physically have a vision board. I think that's incredibly important, whether you're a virtual kinesthetic learner or not, to put pictures up, writing 'em down. I'll even give you an example, so at the beginning of 2022, right before the new year, I was creating this vision board and I put up there on my finance section, that I wanted to be a GP on 500 units.

[00:00:42] Sam Wilson: Jonathan Tonks is a mechanical engineer turned commercial real estate investor. Jonathan, welcome to the show.

[00:00:48] Jonathan Tonks: Thanks so much, Sam. Happy to be here, man.

[00:00:50] Sam Wilson: Hey, the pleasure's my Jonathan. There are three questions I ask every guest who comes in the show: in 90 seconds or less, can you to tell me where did you start, where are you now, and how did you get there?

[00:00:59] Jonathan Tonks: Absolutely. I'll do my best to keep it short and sweet. But I started out as a mechanical engineer, like you said, working up into the automotive industry. That's where my family started and was coming from. I was just following in the footsteps of my parents, had the opportunity when I moved out of the house, graduated from university to buy my first real estate properties a duplex. It's house hacking that one, living in one unit, renting the other. Quickly realized that I wanted to scale that. Portfolio and best way, in my eyes at the time to do that was to get into real estate syndications. So I started joining some conferences, mentorships and different programs that would help me learn the education side and then apply all the knowledge into real-time opportunities and that is what I'm due today is large multifamily syndications all over the country.

[00:01:44] Sam Wilson: That's awesome. Going through mechanical engineering, I guess, what is that? A four-year degree or is that a six-year degree? What is that?

[00:01:50] Jonathan Tonks: Well, the one I did was about five, five years.

[00:01:53] Sam Wilson: Was there ever in that process that idea that, hey, I'm not going to be a mechanical engineer forever?

[00:02:00] Jonathan Tonks: Oh, yeah. And I didn't know what capacity it was going to be. I wanted more the management route. So my dad had worked his way up the corporate ladder at General Motors and, I saw what type of influence he had in his company, and he started as electrical engineering, worked his way up. So I knew there was some foundation work that I had to build, being the engineer, but I always imagined I would turn into a management type role or leadership type role. But again, wasn't until just in college and trying little micro businesses and then buy my first real estate property. That's when it started to click. Then I was like, yeah. I'm more of a business mind guy and I want to create, so that's how I transitioned a little bit.

[00:02:37] Sam Wilson: Right no, and that's what I've seen, and forgive me if I group all engineers into one box, but engineers are very, you're very analytical. Like, you need to understand things, which is great. I appreciate that. I'm very grateful for the engineers in our life 'cause if we didn't have nothing would work. So thank you.

[00:02:53] Jonathan Tonks: Partially true. Yeah.

[00:02:56] Sam Wilson: What do you mean?

[00:02:57] Jonathan Tonks: So we always find two ways, two easy ways of doing it, but...

[00:02:59] Sam Wilson: That may be the truth as well. I don't I don't know. But how did you, in that process of going, okay, I want, I'm more entrepreneurial-minded. In my opinion, there's a lot of kind of finesse that goes into, there's numbers and then there's also, hey, I think there's kind of some more subjective parts of this business that we understand, that we say, hey, we can make this work. How have you meshed those two?

[00:03:21] Jonathan Tonks: Well, that's a great, great segue into it is I started out with the analytical side of learning how to underwrite and learning how the numbers actually work, because I think to be in a business in general, you have to believe in and to especially be the founder, CEO, you have to believe you gotta be the master for the brand, right? So it started analytically of, okay, the return metrics are something that align with what I would do as a long-term strategy. And then it just hashed out from that to, okay, I really enjoy speaking with people and sharing what we do with others. My role is now more on the investor relations side and bringing on passive investments to our opportunities. So for me, it became, I had to understand, like you said, how it worked, understand the numbers, and then it transpired to what are my actual core competencies that I can add value to other people.

[00:04:08] Sam Wilson: What's it been like learning the underwriting models in the multifamily business? I mean, did you get in there, and again, I know everybody's got their own sets of skills, but you, when you looked at that, did you say, man, there's so much more we could do better on these models, or did you find it to be fairly sufficient.

[00:04:26] Jonathan Tonks: The ones that I have been using, I felt were quite elaborate and detailed, which for me it was more at the beginning I was overwhelmed because it's like, there's so much terminology here that I don't know. Like I thought like just use 1% rule and you kind of go from there. But there's so much more than that. And thankfully, I think the partners that I have are so detail-oriented on that side of the spectrum, on, on the underwriting side, that it's really helped me move forward, knowing that they've got quotes for all the expenses, and they've got all the relationships with the bank and the financing all set up, all ready to go.

[00:05:01] Sam Wilson: How did you transition from a single duplex into your first multifamily deal?

[00:05:07] Jonathan Tonks: Yeah, I joined a mentorship program. There's a lot of them out there. But I joined one that just resonated with, where I was at, found a coach through that group, had been to a lot of conferences just to build some networking and skills in understanding the business. And my coach at that time had given me the opportunity to partner with them on an asset they were taking down. And the only areas where I could truly add value was in raising capital. So that was kind of my shot and gave me a target to shoot for and I delivered on that one. So that was my first entrance into the commercial side. Thankfully for him and I, that's where I've been sticking with, going forward, capital raising.

[00:05:46] Sam Wilson: Right, right. And that is a common entrance, I think, for a lot of people. What are some things you feel like you learned in that process that other people should, you feel like other people will learn, but then maybe some things you learned in that process you didn't expect?

[00:06:01] Jonathan Tonks: Really, Sam, the thing I'm continually reminding myself on is how long of a process actually is to get the track record it takes to scale. 800 pluses at a time. The first asset that I had that opportunity to raise capital on was, I think just kind of a godsend in terms of how it went. I had a few investors already kind of watching my progress over my years, people that I've known for a long time. So I wasn't a cold calling people successfully and bringing 'em on to the investment, but just the patience that it takes to keep getting back up after rejection and people with lots of questions, which are no problem. Love answering that. Of course, being results-driven, high-performing individual, you want to just be closing multiple million dollars at a time and it just doesn't happen like that right off the get go. You have to build that trust and show that you can deliver.

[00:06:49] Sam Wilson: What are some things you'd feel like you learned in those, especially in those initial first capital raises? Like, what are some things that, you know, you learned in doing that, that either you feel like you could have done better or that you feel like you did really well?

[00:07:04] Jonathan Tonks: Yeah, I've had multiple scenarios where, because I am more analytical and I see the value, and I'm trying to, I guess, ask for the close too quickly, something that I sometimes do. And it's not because I want to pressure people into investing and I've had people say, I might say no a hundred times, but the 101st time, I'm going to invest with you. I'm like, that's totally fine. I'm going to be doing this for the rest of my life. So just whenever you're ready. But there have been times where I didn't prioritize building a relationship first, especially someone I meet for first time or at a conference and I go right to, hey, you want to take a look at our opportunities that we got coming down the pipeline? And it's really changed my perspective over the last six to eight months on focusing on truly building a relationship first and then if a business relationship comes from, then that's great.

[00:07:53] Sam Wilson: What are things you feel like you do now to build that relationship first? Like, when you say that, what does that mean to you?

[00:08:00] Jonathan Tonks: It's really just starting off getting to know them. So I always call everybody, we always start with the call. I love meeting up in person with people, so I did that in person. I have it in person meetup group every month in our local city. So try to attract people and invite people to that and even if it's not networking with myself, it's networking with other people in the area that can beneficial to them. So just trying to give value different ways that may be different than just a return on investment. So starting with multiple touch points, a few calls, in person, and just examples.

[00:08:35] Sam Wilson: Yeah, absolutely. Let's talk about, you're partnering your way to success, which is, I mean, it's a great model. I've got partners like similar to you and I think a lot of people do all around the country in various assets. Some I brought other investors to, some I am the investor in, and it's it's a great way to grow and scale. But I also get shipped a lot of deals that I just say, man, this is not for me, or, I just don't like the deal at all. What are you seeing that's coming across your desk, either from your current partners or from maybe your investor group or your mentorship program that you say, man, that's not a good fit for me, if any? And if you do have those, why do you saying no to some of those deals right now?

[00:09:20] Jonathan Tonks: Actually just have an article that's coming out on a few days that I sent up to everyone on my distribution list about some red flags, just because it's been a topic that's come up quite frequently. And the red flags, not to touch on all of them, but just a few of 'em that you're asking about. I still see some very aggressive assumptions moving forward in terms of rent growth and not counting for vacancies. And when people say we've underwritten this conservatively, I think that's kind of a buzzword that everyone uses is conservative underwriting. Okay, you plan, but what other things are you implementing to ensure that you're protecting your team, the investors all the way to it, capping the interest rates. You know, did you buy a rate lot? Did you underwrite with the higher exit cap? With all these different stages that are going to look negative on the pro forma because it's not full growth for however many years that you're holding it. But just little things like that stand out to me. And then again, this is really difficult and I try to give back to the people who were with me when I first got started. But a lot of younger and new investors in the space that bring us to deals, but don't have the relationships with property management or people boots on the ground. When I get a deal that's, for example, just use me, let's say I gave you Sam a deal. I'm living in Michigan, but this opportunity is in Phoenix, Arizona. I've never been to Phoenix, but I know some guys over there. Would you want to invest? I mean, come on. You know, so there's little things like that. It's building those relationships.

[00:10:46] Sam Wilson: Yeah, no, certainly, certainly seen a lot of that. And again, everybody, I don't want to talk down or poorly on anything, but the team is the most important part of the deal, and I've said that on this show a thousand times. 80% of your work should be done on the team. And I see a lot of these deals getting put together, like you're saying with, you know, this hodgepodge collection of like, wait, who's driving the bus here? Hey, I got this deal, like you said. No, I'm out just 'cause I don't understand the team structure on that. So that's very, very important. Tell me this, when you look to the future and you say, okay, this is where I want to be, what is your business look like in, I don't know, you picked a number, 2, 5, 7 years, whatever it is. Where are you going, Jonathan?

[00:11:32] Jonathan Tonks: Yeah, we're going to be partnered on the billion advance sets in the next five years. And that's just a personal goal for me. I know there's early talks of developing some other businesses in other companies as well, but sticking to the multifamily syndications in five years, actually I'll say four years since we've been in business over a year. And again, that's going to come down to the relationships and talked about, there's quite a handful of individuals that I had vetted than I've been spending a significant amount of time with that I trust completely. And now I feel comfortable presenting opportunities too. So it's just being positioned well in that space moving forward.

[00:12:08] Sam Wilson: Got it. No, I think that's certainly admirable. I love that. Jonathan, here's a question for you. What are some, I mean, as an analytical individual, what are some risks that you see in the multifamily space, if any, right now? I mean, can you kind of quantify some of those and maybe how you guys are mitigating those?

[00:12:28] Jonathan Tonks: I think there's always risks you did in the last three years. It's been risk, but it's acceptable in order that we're going to sit investment. But some of the things that I'm pursuing in the future, we touched on this with some of the red flags, but just the rate of increase of the rent growth, it probably won't need 25 or plus percent annually for the next few years. And I don't think that's terrible moving forward. It's just something we got to kind of get used to now. That's a really high-level item, but some other risks could be when everything's going good, it's great to see the best in people, but when it's not going the best you really see, it's that team that you jump in really quickly with if they're really made up the type of character and fibers of individuals that are going to be looking out for best interests of investors. So not so much on the analytical side and the underwriting side do I see the most. I see it more. And I could include myself in this, having been through 2008 timeframe, I didn't live through that as an investor. I was young at the time, I remember it. But being partnered with people who have gone through things like that and know how to manage expectations and know how to communicate to investors, our hope and prayers that we never have to have a capital call and we never miss a distribution of course, just making sure that the farms are with are mature enough to be able to handle those conversations and to be able to do so in a way that's in best interest of everybody.

[00:13:53] Sam Wilson: Yeah. Rent growth. It is interesting to see where rent growth goes and certainly, you know, the 20, 25% sounds a little pie in the sky at this moment. Do you think we'll ever experience rent decreases in markets? And if so, why couldn't that possibly happen?

[00:14:10] Jonathan Tonks: I could see in certain markets, I wouldn't say as, I would say the Southeast or the Midwest as a whole, I couldn't predict that fully. I know because I grew up in Metro Detroit area, that there's certain markets and certain submarkets that experience, continue to experience negative growth and that's why we very strategic about what markets would to invest in. So to answer your question, there's probably a few and we strategically get the ones that we believe are going to continue to grow incrementally despite, what's happening or stay level.

[00:14:41] Sam Wilson: Right. No, I love it. I think that's great.

[00:14:44] Jonathan Tonks: Jonathan, tell me this. I mean, everybody's got their own ideas of what success is. We've talked about, you know, you having a billion assets under management in five years. What are things that you do, what are personal habits that you've instilled in your life that allow you to stay on track and keep what your vision is in front of you? There's a few things. And I am very much in love with my morning and evening routines and I try to stick to them as much as I can. But, I was actually mentioning this to a good friend of mine the other day, that one of the morning routines I do is taking cold shower, love cold showers, more so not for the physical benefits. I just love it for the mentality. But some more practical things that I've really tried to stick to helps keep my goals on the forefront is just stacking gratitude every morning, doing some journaling and writing and expressing the things I'm little grateful for, me kind of seeing things that may seem insignificant. But I've been doing it for so many years now that I don't know what my life would be like if I didn't do it. I didn't recognize the blessings and the relationships that are going through and the opportunities. So just trying to be humble and aware of those areas. But also I physically have a vision board. I think that's incredibly important, whether you're a virtual kinesthetic learner or not, to put pictures up, writing 'em down. I'll even give you an example, so at the beginning of 2022, right before the new year, I was creating this vision board and I put up there on my finance section that I wanted to be a GP on 500 units, and at the time I had 60, so I just started and I'm just writing numbers, right? It's a nice round number. It's a good goal. And that was probably in April, early May, and I still had 60. I'm like, okay, I see the pattern. I'm not growing where, to get to 500 by the end of the. And again, that goes back to the patience side, but just looking at it every day and seeing it on my board every morning. Not to stress you out or put this overbearing weight on you but just to remind yourself like, were you serious about putting that up on the board and what are you going to do to reach it? And cut to like the last few months of the year, we're going to surpass 600. And I mean, that's pure manifestation in my mind to have that on the board and to see it come true.

[00:16:56] Sam Wilson: Yeah. No, I think I think that's incredibly, incredibly helpful and I think you hit on something that a lot of people experience, which is that when you see an unmet goal, it's like, oh, crud. Like I didn't get this done yet. Like, man, I'm stinking, but I think, and hopefully we all set goals that at some point, maybe are a little bit loftier than what's completely achievable. But I think you touched on how you don't get down about that by, what'd you call it, stacking gratitude.

[00:17:25] Jonathan Tonks: Gratitude, yeah.

[00:17:27] Sam Wilson: That's really, really cool. I love that. Do you journal that out? Do you put that in, you actually physically write it down every day?

[00:17:34] Jonathan Tonks: Yeah, I have two separate journals. One is for business ideas or interesting comments that I hear on a podcast or that I hear in person. But then I have another journal that's, it's just fives lines each morning and five things I'm grateful for. And I try not to be too broad and I try to be very specific, about something that's happening. So then it's different every day. For the last five years, I don't think I've written the same thing I've been grateful for once, but I don't think I've ever repeated. I try to be very intentional and it doesn't have to be five. It could be two or three, you know, trying to encourage yourself from those days that you aren't grateful and aren't looking forward to the day, just find something.

[00:18:11] Sam Wilson: That's it, man. Yeah. And I don't know how you do that 'cause I Itried that at one point. I I probably follow your footsteps a little bit in that I went like 12 or 18 months where I wrote down something I was grateful for, but I found myself every day like going, Huh. Like, health? Yes. Always grateful for health. So it's, like, health's made it to the list.

[00:18:31] Jonathan Tonks: It's a skill when you think about it, when you can develop a skill to see the good things and not just from a, like, a naive, optimistic view. It's let's look for things and let's get out of the state that it's all about consumption and it's all about me and I'm not hitting my goals. You're not there yet, but you will. So let's find something to be thankful today, right?

[00:18:52] Sam Wilson: And that ties directly into seeing and seizing on opportunity. I think any time that you can see and seize the gratitude that's, you know, express gratitude with the things that are in your life, it also allows you then to turn around and go, okay, there's opportunity out here and kind of opens up your eyes to maybe some things that you're looking from a gratitude perspective as like, man, I'm really grateful for people in my mentorship group. Oh, wait, look, here's the guy in the mentorship bringing a deal to me with, you know, 200 units, and there you went from 60 to 200, whatever it is.I think those are all uniquely connected in some capacity and certainly, gratitude is something that I think all of us could probably use more of in our life. So this has been loads of fun. I've loved hearing your story, especially going, you know, starting out this year at 60 units and now you said you're going to pass 600 before the year's over?

[00:19:37] Jonathan Tonks: We'll pass 600.

[00:19:39] Sam Wilson: Congratulations, man. That's that's 10x. Grant Cardone to be proud of you. Or is that somebody else? I don't know. Either way, I probably butchered it either way, but certainly love hearing your story, how you have partnered your away to success, how you have found a way to take down 600 units this year, going from mechanical engineer and approaching this from an engineering perspective, but then also finding ways to kind of set so of the analytical sides away, aside, and then also bring in some more subjective sides of this business and how you've incorporated all that. Certainly loads of fun. I appreciate you coming on today. Jonathan, if our listeners want to get in touch with you or learn more about you, what is the best way to do that?

[00:20:13] Jonathan Tonks: Yeah, best way, pretty active on LinkedIn. Just my name, Jonathan Tonks on LinkedIn or you go to our website, we have all the previous deals we can take a look at, some valuable content like I mentioned in a few days, coming out with some more information. Website's just called provisionspace.com. It's my website and I'd love to talk with you.

[00:20:30] Sam Wilson: Awesome. We'll make sure we include that there in the show notes as well. provisionspace.com. Jonathan, thank you again for coming on the show today. I do appreciate it.

[00:20:38] Jonathan Tonks: Thank you, Sam.

Earning through passive investing is a dream for many, but how do we do it wisely? In this episode, we welcome Lee Fjord to discuss the importance of evaluating deals thoroughly before submitting an offer. He mentions why he avoids anything with a shorter-term horizon in order to keep his deals flexible and able to meet the needs of his clients. Listen in for more practice advice when approaching property investing.

Lee Fjord is a results-driven, goal-oriented professional real estate agent and investor with a "go-getter" attitude, currently focusing on brokering commercial real estate transactions throughout Greater St. Louis and surrounding markets. He approaches each client with the goal of meeting or exceeding all of their expectations to ensure the creation of "long-lasting" and trusted relationships.

[00:01 - 12:43] Pay Attention to Debt - Impact and Implications

• The caveat to purchasing older properties
• Lee on the types of debt to avoid - shorter-term horizon and less security
• Realizing the value of the assets and the impact of debt on cap rates

[12:44 - 21:58] How to Build a Business to Sell

• Lee shares his thoughts on growth markets around the US
• What it takes to scale a management business
• The key to building your team is to find those with relevant experience

[21:59 - 24:11] Closing Segment

• Reach out to Lee
• • See links below
• Final words

Tweetable Quote

"Focus on the type of debt that you're placing on the property. Because at the end of the day, that's what's going to, you know, save or kill your deal… If you didn't plan that out accordingly or properly, or you didn't execute your business plan perfectly to hit that, you might be in for some trouble." - Lee Fjord

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Connect with Lee Fjord on Linkedin. Check out his website and email him at [email protected].

Resources Mentioned

Built to Sell by John Warrillow

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Want to read the full show notes of the episode? Check it out below:

Lee Fjord 00:00

We focus on the bottom line of the debt, you know, focus on the type of debt that you're placing on the property. Because at the end of the day, that's what's going to, you know, save or kill your deal. At the end of the day, if you've got the wrong data on whether that'd be the rate or the terms, or the horizon. If you didn't plan that out accordingly or properly, or you didn't execute your business plan perfectly to hit that, you might be in for some trouble.

Intro 00:26

Welcome to the How to Scale Commercial Real Estate Show. Whether you are an active or passive investor, we will teach you how to scale your real estate investing business into something big.

Sam Wilson 00:38

Lee Fjord is a multifamily syndicator based out of St. Louis, Missouri. He's the founder of green forest capital, and they do value-add multifamily assets in the Midwest and the Southeast. Lee, welcome to the show.

Lee Fjord 00:49

Sam, thank you. Thank you. Thank you. Thank you. I'm really excited to jump on the podcast and bring some value to your audience.

Sam Wilson 00:58

Oh man, this would be a good time. Three questions I ask every guest who comes on the show in 90 seconds or less? Where did you start? Where are you now? How did you get there?

Lee Fjord 01:06

started in the trenches as a property manager. I, you know, am now a full-time investor syndicator with 588 doors under my belt. Roughly five deals have gone full cycle on a 38 unit that doubled in value in 30 months. And I got there by partnering with amazing folks who rely on me and my team to be able to execute, you know, the business plan with them and on the RAF.

Sam Wilson 01:36

Love it, man. That's fantastic. And you guys are exclusively focused on the multifamily market.

Lee Fjord 01:42

Absolutely. So, bread and butter value at apartments in the Midwest and southeast. That's what we do workforce blue-collar housing. We provide wonderful, clean, modern places for people to live and grow and become the best versions of themselves.

Sam Wilson 01:59

When you say workforce housing, it conjures in my mind, a 1960s 1970s build classy c minus needs a lot of work. dispel that myth for me, if you can, please what is workforce housing to you.

Lee Fjord 02:15

So workforce, and I consider more blue collar housing where it is, you know, it's the it's the place where the guy who changes your oil lives, it's where you know, his wife or fiance who is the assistant manager at Applebee's lives you know, where they, you know, maybe they start a family or maybe it's the place where you're, you know, a postal worker who is now you know, retired and living on fixed income lives out, you know, the remainder of their years until they need you know, a place to place to go so those are kind of the two major demographics that we provide housing for our people that are eventually going to be homeowners and people who are no longer able to maintain or want to maintain a home but aren't a class people they aren't granite countertops and stainless steel you know appliances type folks, they're you know, regular everyday people age we generally focus on 1980s or newer, we try to buy newer assets because they carry with them a lot lower level of deferred maintenance, you know, so on and so forth. So 1980s or newer, generally is what we try to try to focus on

Sam Wilson 03:29

what are you guys doing? I mean, the theme that all of us here probably at every conference every podcast we listen to we hear workforce housing or we hear the term affordable housing, which I don't even know how you define what affordable is but I digress. Affordable housing all these things it's like how are you finding opportunity right now are you finding assets that pencil that then you know are able to meet the demographics needs that you you guys serve? I guess I see a lot of garbage assets out there how are you guys finding the right assets in today's market being as competitive as it is?

Lee Fjord 04:07

My trash bin is full of garbage deals that I've just thrown you know, you look you evaluate your view, you toss you look, you evaluate your review you underwrite then you toss you look you evaluate you underwrite your submitted offer you toss it, look you underwriters, you submit an offer, you get approved, then you do inspections, then you toss. I mean, it's a process and it's a full time job of you know, picking the needle out of the haystack the right opportunity. We don't buy deals that Jen that don't work or at least obviously everyone wants to say we do that or you do your best to do that. But at the end of the day, we have some pretty stringent requirements on the type of asset that they were willing to acquire. I agree there's a lot of people that did dumb deals over the course last couple of years. You know, we we focus on the bottom line on the debt you You know, focus on the type of debt that you're placing on the property. Because at the end of the day, that's what's going to, you know, save or kill your deal. At the end of the day, if you've got the wrong debt on whether that'd be the rate or the terms or the horizon, if you didn't plan that out accordingly or properly, or you didn't execute your business plan perfectly to hit that a year, and you might be in for some trouble. So yeah.

Sam Wilson 05:25

Absolutely know that. That's super insightful. Tell me about what you guys today is, oh, we're recording this October 25, of 2022. So I'm not sure exactly when this will go live. But for those of you who are listening know that this is relevant as of today. So tell me what are you guys seeing on debt terms right now? And how are you securing that in such a way that it makes sense to you?

Lee Fjord 05:48

Each deal is different, but one, and generally, a different type of debt type is applied to each deal type. So what I will say is we don't do any form of bridge debt, we don't do non recourse bridge debt that has a, you know, a shorter term horizon on it. Historically, we do either longer term agency debt options. Or we will do bank debt, where we literally put our name on the line, where we put our deposits on the line with the bank in order to negotiate better quality terms with that local lender, which not a lot of syndicators are willing to do. But we are on the right deals on the right side and the right areas. So bridge bank is how we do it bank that right now we're seeing in the mid to low sixes. So like six and a quarter, six and a half is what I'm getting right now on bank on bank debt quotes. And then on agency, it's slightly lower, we're in the high fives, you know, on on agency debt options, which considering that literally in December, a year ago, less less than a year ago, we locked in a 10 year note below three and a half. So for three and a half to five and three quarters is a big deal.

Sam Wilson 07:12

That's a really, really big deal. What has that done to your projections, if anything?

Lee Fjord 07:20

so we focus on the value of the deal and what size of debt we can do. So the proceeds on the loan are going to be I don't know, let's call it seven and a half million, the most I'm going to be able to pay for that property is $10 million. Now the brokers right now, which I used to be one with a publicly traded company, right now they're trying to sell buyers on Oh, no, it's just lower leverage, you just the property still worth 12, you just can only get seven and a half and dead on it. So it's still it's still a $12 million property even though it doesn't qualify for the right amount of leverage. Or you can go get bridge that good luck with that, too. So no, prices are coming down sellers are realizing that you you know the value of your asset and is based upon the amount of debt you can take on it. So what's literally cap rates are directly correlated to debt cost. So yeah, those two are projecting five, four, and a quarter four and a half cap rate exits now or next year, or good luck to them.

Sam Wilson 08:31

Man that's in this is a point of contention, where I hear this argued both ways. You know, in in Illinois, anybody's necessarily 100%. Right. But I have to agree with you. I mean, it's like it just doesn't make sense. I had somebody shipped me a deal literally this morning. And it was just the the bike cap rate was below the cost of or I guess above the cost of debt, whichever one Oh, look at that. Yeah, he was like wait, like, the day I buy this. I'm paying more for the debt than what this produces like this is I don't care what the value add plan is like, now we're gambling. That's assuming that you can go and execute a value add plan and increase revenues, blah, blah, blah, and then cover that no, like, it's just not going to work. And I think I think there will be a reckoning, it's going to take a minute to use to use a term. But it's it's going to take a while for this to work out. We're finally I think sellers are going oh, I've been sitting on this for a long time and I can't seem to move it was because you're asking too much for it doesn't make sense.

Lee Fjord 09:30

Yeah. Well, you know who the last person is to find out how much the property is worth. Right? Who's that? The seller?

Sam Wilson 09:40

And I think I think that's painfully true. One thing I want to circle back on is your story of coming from the property management side of things. I've often wondered. And maybe that's the entrepreneur and me but there's always a head scratch when I'm like, wait, you understand everything about this business? Why are you still in the property management side? Now? I've been out, that's the business they built great. But a lot of times I see people working in property management, and they know more about how to own and run a big multifamily property that I would argue.

Lee Fjord 10:12

Yeah. Oh, yeah, you learn in the field; that's where I learned, yeah.

Sam Wilson 10:17

How did you then get the bug and say, "Wait, I want to, you know, move over to the ownership side and not be in the employee slash property management side?"

Lee Fjord 10:26

I was lucky enough to have someone come into my life who kind of brought me under their wing and told me, you know, Lee, this is great, what you're doing, you're learning all these skills, but what are you gonna use them for? And it was like, and then it was, I don't know, and he goes, eventually, you're gonna own things. And I go, Okay, tell me what that's like. And he's like, Well, I got started, essentially, you know, from the bottom where you were. And now, you know, at the time, he was the guy who doesn't even have to bother posting about their plane on on Instagram, or Facebook, because he doesn't care. You think he's got the place and Aspen and the place, beachfront house in Malibu, and literally, he's one of those people that couldn't care less, right. And that's who I would eventually want to be as the guy who, you know, couldn't really care less and learn from him. It was you own things. That's how you, you know, how you become wealthy and not by feeding things or building a, you know, theoretically building a property management business, but you're just building the business, what do you do with businesses, you run them, and you sell them? Right? And you make take that money, go buy things with it? Right? So then you own it. So the only reason why you go vertically integrated is to sell the business and he who builds a vertically integrated business in order to make sure it's done right or whatever. It's like, no, now you're, once again, you're still doing it wrong. You build a business to sell just like you, you know, that's what you build a business for.

Sam Wilson 11:58

Yeah, no, that's, that's absolutely right. I think it was. influential book for me was John Warrillow is Built to Sell never read, it was like, Oh, I actually owned a company at that point in time when I read that book, gosh, going on a decade ago now. 13 years no, yeah. Anyway, a while ago, and it was kind of the lightbulb moment was like, Oh, wait, I'm building this so I can sell it like that's that's the that's the point of it is to is to build this to sell it and then setting it up such that I could sell it was was a great a great first move. And that was that was really influential for me how you guys are kind of buying things that are maybe off the beaten path of other investors like a lot of people who you mean if I hear Dallas Fort Worth multifamily syndicator again, it's like that's great. Now you guys are doing it and you're crushing it. But there's more markets than that. And you guys have found a unique way to get into some smaller niche markets maybe that don't have the demographics that a Dallas Fort Worth might, how are you underwriting those in such a way that you feel like it makes sense but then also not just justifying it but then making those opportunities work.

Lee Fjord 13:11

So we I love growing tertiary markets outside of, you know, top 40 MSS. That's what I love, where the people live, where the growth is generally happening is you know, where you can really jump in and make a big splash is in those municipalities that are you know, 50 to 100,000 You know, that is where I find you can still buy assets directly from the original owners where you can go find a mom and pop sitting in the office chain smoking marbles, maybe not them but you know somebody I've seen it before. Sure, I haven't bought one from one of those yet but you see it all the time in these smaller markets. You do have to plan accordingly for your exit though you have to determine who your future buyer is ahead of time and what are they or how are they taking out debt what is their most likely level of you know, spread between rate and cap rate that they're willing to you know, adhere to or or apply the purchase towards, and we increase that spreads. So normally the spread is 100 basis points. Sometimes in a major MSA like Dallas or Atlanta that's growing or whatever it might be more like 75 So if you've got 5% debt you can buy a deal it's a five and three quarter cap whatever. So ours is spread a little bit wider it's more like 150 basis point spread. So you know if we are buying it we believe that in debt or is going to be five and a half we plan for a seven cap exit you know and if we do better that's great. But we generally also look for below institutional size investment properties but also above you know your standard mom and pop so we only look generally for 100 Plus, occasionally we'll make a small exception, like on this current, you know, future one that's just below by about, you know, five or six units, whatever. But I've tried to do it with the 70 unit, I've tried to do it with a 76 unit, I've tried to do it with a 38 unit, and it just doesn't work. So you gotta go 100 Plus, or compile multiple assets. And we like, yeah, you know, county see diverse, diverse economy, in, you know, areas that are a little bit more landlord friendly, as well.

Sam Wilson 15:32

Yeah, absolutely. Now, have you guys built since you have a history in property management, are you guys vertically integrated now?

Lee Fjord 15:37

So we rely on third party, professional management groups to be able to jump in and run the day to day aspect of the asset, you know, well, and execute our business plan. My role is putting together deals, finding creating relationships with investors, and then asset managing the deal, and then executing the business plan, making sure that we are building putting the roofs on properly with the right contractor make sure that all that is done. Management is a very low margin business. Our company they recently took over the 138 unit earns 3.5% of the gross monthly 3.5% of the gross, okay, yep. I mean, that's after all expenses and everything. And that is directly our full profit margin or whatever. But when you add it all up that one property, that one three and a half percent, it barely equates to a full time salary, level of income for that company and profit. But if you eventually you have to scale, you have to have you know, whatever 40 projects that you manage in order to have it make sense, right? Yeah, yeah. Theoretically, one day, but I don't know, I'd rather build a, you know, a brokerage business because quite honestly, the profit margins on brokerage are much, much greater brokerage, or construction or, you know, whatever.

Sam Wilson 17:14

That makes a lot of sense. Thanks for taking the time to break that down for us. Tell me what are some things from your experience in property management, maybe that you look for that other people may be would not.

Lee Fjord 17:27

they need to have direct experience in managing perfectly similar assets in the exact same market. So if I'm looking for someone to manage my 138 unit in Arkansas, they need to already be managing 100 Plus apartment complexes within a 45 minute radius of that exact property has to because the last thing you want is to bring somebody in who has to create all new relationships with service providers, whatever, staffing, that's the that's the bottom line with management, it literally all comes down to who is your who are the people, the boots on the ground, people making sure to execute the, you know, the top of the funnel business plan? And how well are they trained? And how well are they managed? And how much? You know, how often are they, you know, increasing the amount of training and expectations and all of that? How professional are they? Are they college grad type people? Are the AC certified people? Are they just some guy with a rusty pickup truck and some person who has a residential real estate agent license?

Sam Wilson 18:39

Like, understood? No, I think that's that's incredibly helpful. Have you ever had trouble finding a management company that met your criteria?

Lee Fjord 18:48

Oh, absolutely. And in that case, I won't go into the market. If I don't have a management company identified who's ready to take over an asset in that map in that township or municipality or location, then we just don't we'll, you know, that's the most important the most important part of the business plan. It's not can I get the money from the investors? Is it in a you know, is it in you know, Texas, like, not every part of Texas is good, by the way, just let you know, there are some some really bad places in Texas to invest your money that aren't very far outside of Dallas or Houston or Austin, like, good luck. So you know, it just so long story short, the manager if you don't have that lined up and you don't have a qualified manager, then we don't go there. We'll just pass on the deal. You know, but usually that's part of the process in establishing the markets that we look for deals is do we already have a manager there ready to go?

Sam Wilson 19:47

Yeah, that's that's awesome. And would you recommend that to somebody that that's kind of where they start?

Lee Fjord 19:52

Always. Build your team and not just have your you know, like your, like sponsorship group? you're you know, but all your all of your subcontractors, your insurance broker, your property manager, your, you know, your loan broker, make sure that you have someone who is lined up ready to go experienced and doing stuff. And who is ready to go to, you know, go to that property or knows how to do it already. And also a team who qualifies to build your team based upon the types of deals you want to do, or limit the deals you choose to look at to the deals you can take down or have experienced doing.

Sam Wilson 20:35

I think that's great. That's great advice. A when you rewind your investing career, what's one thing you've like, you've done really well, that other people should emulate?

Lee Fjord 20:44

One thing I've done really well, you know, I, I have done my best to create connected personal relationships with my, with my management staff, with my partners with the subcontractors that I work with. You know, it's this isn't just it is real estate is not, you know, Monday through Friday, nine to five, you get to know people in the evenings and the weekends and, and in the early mornings before the sun has come up. And that's when you get the extra mile out of people and with people you know, they want to see that you are willing to do it. I literally was the guy at my very first decent sized property picking needles out of the bushes with my well not bare hands. I was wearing gloves. But that's just the type of property that you start I started with I started with a D that I turned into a sea. And you know, it started with cleaning out the landscaping and getting rid of all of the the needles and the band aids.

Sam Wilson 21:59

Absolutely. It's in your reps in you've got to get your reps in. And that's yeah, kudos to you for for pressing on and getting beyond beyond that stage and then finding a course now your guys's niche in the in the criteria that you've really developed it sounds through a lot of experience, you know, the criteria used to buy and just how you you know work with property management you've shared so much with us here today, just on your investing journey. That's been super insightful. Thank you for taking the time to do that. Lee, this has been an absolute blast. Thanks again, for coming on the show here today. Last question for you is this if our listeners want to get in touch with you or learn more about you what is the best way to do that?

Lee Fjord 22:38

The best way is on I'm on my website. It's green forest capital.com. You can also find me on Facebook. There aren't many fiords li fjord FJ already out there. You literally typed that in. And pretty sure I'm the only one that I know of. So find me on Facebook, send me a message. I personally know all of our investors, they have my cell phone number we are we love partnering with people who are not interested in being a landlord driving around town and a rusty pickup truck with a weed whacker in the back. You know your time is better spent allowing and working with other people who have already made the mistakes Been there done that and can help you avoid those things. I wish somebody would help me avoid them. But instead I just became the guy who does them does learn from my mistakes.

Sam Wilson 23:34

Absolutely. And we'll make sure we include that there also in the show notes Lee, thank you again for taking the time to come on the show today. I certainly appreciate it.

Lee Fjord 23:43

Thank you.

Sam Wilson 14:34

Hey, thanks for listening to the How to Scale Commercial Real EstatePodcast if you can do me a favor and subscribe and leave us a review on Apple podcasts, Spotify, Google podcasts, whatever platform it is you use to listen If you can do that for us that would be a fantastic help to the show it helps us both attract new listeners as well as rank higher on those directories so appreciate you listening thanks so much and hope to catch you on the next episode.

Samuel Sells is back in our show today to talk about how you can change the trajectory of your real estate business with an institutional partner. He digs deep into connecting with the right institutional partner, vetting them, and doing your part to prepare and meet their criteria as well. He also gave us the advantages and disadvantages of institutional partnerships.

Previously, Sam joined us on Episode 690 to discuss using money to make a difference. He is the Chief Executive Officer of Wild Mountain Capital.

[00:01 - 07:48] How to Start Finding Institutional Partners

• Sam explains what an institutional partner is
• They bring large amounts of cash to the table
• Closing with an institutional partner is a cash-negative event
• The institutional partner is going to vet you so they have to know you

[07:49 - 19:05] One Call, One Check: Working with Institutional Partners

• Here's how Sam can help you connect with an institutional partner

• Why going with an institutional partner is easier than raising capital
• One downside to this: institutional partners have the right to fire you and lock your equity and cash
• This is why it's important to be educated and have knowledge of on-ground work
• When can you start looking for institutional partners and how much should you have?
• You have to know your trajectory and goals
• Doing due diligence, having attention to detail, and being in a ready position are critical in institutional deals

[19:06 - 22:07] Closing Segment

• How having an institutional partner has transformed Sam's business
• Reach out to Sam!
• Links Below

• Final Words

Tweetable Quotes

"I always taught my troops like trajectory matters. What do you want to be in your life?" - Samuel Sells

"If you're thinking you're just going to turn it over to a property management firm and wait for your updates, you can sit out to your investors and hope all goes well, this is not for you." - Samuel Sells

"It's changed everything so it put us on a different trajectory that I didn't know existed for the longest time." - Samuel Sells

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Connect with Samuel at WildMountainCapital.com and SyndicationLaunch.com. Email him directly at [email protected].

Connect with me:

I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.

Facebook

LinkedIn

Like, subscribe, and leave us a review on Apple Podcasts, Spotify, Google Podcasts, or whatever platform you listen on. Thank you for tuning in!

Email me → [email protected]

Want to read the full show notes of the episode? Check it out below:

[00:00:00] Samuel Sells: The joint venture institutions always want the right, and they should because they need to respond to their investors that if you are screwing up the deal, then they can fire you and then your equity in the deal and your growth will get locked in.

[00:00:27] Sam Wilson: Sam sells came back on the show in here today with us. If you hadn't caught Sam before, he was on episode 690, which is going to be actually pretty here recently. That was on October 20th, 2022. We covered some awesome stuff about his backstory, but today we're actually going to cover kind of part two of working with institutional partners and this is going to be what we focus on here today. So Sam, thanks again for coming back on the show. I certainly appreciate it. And again, as probably said before, love your first name, so welcome back.

[00:00:55] Samuel Sells: Yeah, thanks, Sam. And by the way, we have the two best moms in the world who named us Sam. I mean, it's just, how can we...

[00:01:07] Sam Wilson: No idea. But I certainly am grateful and I think we actually, you know, were of a similar age, I would imagine. Sam was not a popular name in, I guess, I was born in '81. There weren't many many of me around back then.

[00:01:21] Samuel Sells: No. Yeah, I was born in '79, so we're both 20, 25, you know?

[00:01:26] Sam Wilson: Right, right. 25 and hard, my friend. 25.

[00:01:32] Samuel Sells: Yeah.

[00:01:33] Sam Wilson: I'm looking forward to this conversation today, talking about working with institutional partners and or larger check writers, things along those lines. It's kind of that next level, I think, for most syndicators, most capital razors, most of us, myself included in this, have no idea how to do that. I raise money from all my friends, from colleagues, from family, from people you know, obviously, that listen to the show. I've never worked with institutional partners, so I get to ask you legitimate questions as to how it's done. How do you even start working with an institutional partner?

[00:02:07] Samuel Sells: Yeah, great. Great question. Look, you know, I look at syndication and commercial real estate, and I really look at like five major levels of success, right? And, you know, we learn how to raise money. We learn how to operate, learn about loan, and then we learn how to put that together, raising money for our own deals. And then we go into, you know, the next level is to work with institutional partners. Now, there's levels after that. Institutional partners for syndication is like, Hey, X, Y, Z company. You know, are you interested in this deal? I need $20 million. And they're going to say, great. You have 10%. So do you have $2 million? Like, yep, I got 2 million cash. It's our own cash. Not great. We'll do you the other 18. We love this deal. We'll work it out, you do a joint venture agreement, you sign, they deliver $18 million, then you do your $2 million. Now that institution is funded through a fund. They're either insurance company or they're like, select life insurance or car insurance or health insurance. They have these massive amounts of money. They got to do something with pension funds, that's your teacher. Your money's going into a pension fund. Pension funds invest in real estate a lot because real estate is so much better than stocks, and they need to have a reliable source of income, not put all of our money on red, spin the dial, and hope it works out. So that's why they come to real estate operators. Now, these big funds, they don't want to do the work.

[00:03:38] Sam Wilson: Right, right.

[00:03:40] Samuel Sells: They want somebody else to do the work and so they need a commercial real estate operator to do the work. Now, that is somebody who's going to be responsible for the asset management, responsible for the property management. They may not necessarily have to have PM in-house, but they need to have a great working relationship with one. It actually helps if you have PM in-house with a lot of institutions. Some institutions say no, we want one and it's always going to be a third party because it's easier to fire them, hire somebody else. It just depends on the institution. But these institutions have large amounts of cash. So if you're a syndicator or even an operator, you want to go to the next level where you're, you want to buy a hundred million dollar deal and you need a $30 million check. It's easiest to go to an institution and get that for one person now. The institution has requirements and things that you've got to be able to do. And so if you've never done this yourself, the best thing to do is to hire a mentor. I started helping people make that transition into working with institutions 'cause we've been down that road. So all of a sudden we went from raising money from our friends and everybody else to doing institutions. Sorry, that's a lot of words.

[00:04:48] Sam Wilson: No, that's absolutely, absolutely great. I'm really curious. One, how do you find the institutions and then, and you alluded to this where you talked about the criteria for the sponsor. I mean, again, you know, what are those things that you're going to have to the personal development side of things as a sponsor that you have to be in order for an institution to even look at? I mean, I feel like many people, especially as they're kind of getting their feet under 'em, getting traction, they're not going to have the boxes checked off. Institional partners are going to say, yeah I want to work with you.

[00:05:21] Samuel Sells: Right? So you need to go down that path, right? And you may never want to work with the institution. You may only want to work with retail capital just because of how things are set up and how the cash flow works. When you close an institution, it's a cash negative event, okay? So you're going to get an acquisition fee, but you're looking at like a 1% or 1.5% percent acquisition fee unless you can talk to your institutional partners in a more, you need 10% of the capital minimum. 10% to 20% is normal. So like I said, you know, you need $10 million check. You need a million dollars of your own cash. Can't be any other investor's cash, has to be your own cash now. So the pros, what they do is they set up a new company, they've put in a couple of partners that bring cash to the table, and then that company links with the institutions and do that. And that's a pro tip through that management company that's set up with a partnership, et cetera. So that's kind of how you can get around that a little bit, as long as institutions are cool with that. There's definitely systems and set criteria that you need to make and reach, and it's really not as unattainable as you might think. If you're in the military, you're, you're familiar with MEPs. It's kind of like going through MEPs. You're sitting around waiting, and then you get every board of your body checked. They're going to go do an incredible amount of due diligence. They're going to listen to your podcast and our partners like, Sam, I heard you on this one podcast and you said this.

[00:06:47] Sam Wilson: Tell me more about that.

[00:06:48] Samuel Sells: It's like, oh, okay. They want to know who you are inside now because they know they're partnering with you and the deal may be a 10-year hold, right, a 20-year hold. So they really want to know who you are.

[00:06:59] Sam Wilson: Yeah. So vetting the sponsor is, or, yeah, vetting you as the sponsor. Obviously, they're going to do a deep dive on you, which is, which I think is the one thing that I tell everybody who's a passive investor anyway. It's like you're vetting your sponsor. I mean, that's 80% of the work.

[00:07:15] Samuel Sells: So that's 80, yeah, that's it. Like, real estate's, the real estate and the market's going to determine a lot of it. And you know, if your sponsor isn't responsive and, you know, changing out PM companies or leading the property management company to do a better job or, you know, reading the tea leaves and doing this or that, or they were dumb and paid away too much for the property going in because fear of missing out or whatever. You know, and they have a high basis then you're in trouble. It's all about that base.

[00:07:48] Sam Wilson: Absolutely. How do you find, I know you brought somebody on your team to kind of, you know, bridge that gap initially, but how would you recommend somebody find institutional sponsors slash larger check writers such as, you know what we're talking about here.

[00:08:05] Samuel Sells: Yeah. So two ways. One, easy, just reach out to me and if you're already operating, you've got a bunch of exits, and you've got a ton of assets in management, and I'll just connect you with, we'll just get you connected with equity and help you close your deal. And we can do that on a fee basis. It's quite like we would deal with any other person, but as equity broker and using those relationships. If you've never done that and you've only got, let's say 20 million of assets or 5 million of assets, you're like, Sam, help me get on a trajectory, so that one day I can make one phone call and connect a 20 million check because I don't want to go do the tap dance. And raise money all day long.

[00:06:49] Sam Wilson: Right. There is that. I think that's one of the greatest attractions to having an institutional partner is that, man, it's one call, one check. This is a lot simpler than I say, raising capital, which I love talking to investors. I love raising money. But it is herding cats.

[00:09:06] Samuel Sells: I mean, it is herding cats and, can't please everybody all the time. And somebody will be like, hey, yeah, you're two days late and I'm, like, life.

[00:09:16] Sam Wilson: I hate to say it, that I'm guilty of it, too, as a limited partner in other deals 'cause there's no, as a passive investor, there's not the pressure that you feel, you can't convey that pressure to a limited partner. It's like, hey. For me it's like, man, I'm busy. I got deals I'm working on. Yes, I'm going to invest 50 a grand or a hundred grand in your deal, but I got to take care of this first before I get to the bank and wire and crud, I'm two days, like you said, I'm two days late. Their problem is not necessarily mine, and that's not a good attitude to have for a guy that's raising capital, but it's just reality.

[00:09:45] Samuel Sells: It's just reality, you know? We're, we're still humans. We still got lives to sort of kids and, and family or, you know, we still have things to do. Right?

[00:09:54] Sam Wilson: No, we can put guys like me out of our life. Okay. This is a single check. Tell me about, I mean, that's some of the attractive parts. What are some downsides maybe to working with larger institutions?

[00:10:10] Samuel Sells: So with that one check, there's a big stick, right? And in the joint venture institutions always want the right, and they should because they need to respond to their investors that if you are screwing up the deal, then they can fire you and then your equity in the deal and your growth will get locked in at that point. And so you'll still be an owner, but you're essentially moving from the sponsor role to an LP role. So you'll still make money off the deal. But for example, on the project we have with an institutional partner, we put in about 500,000 of our own cash. We'll make about $7 million over the course of 10 years coming out now. I think we'll make a lot more than that because we're year, you know, we're over a year ahead of our projections for value and revenues and occupancy. Everything else, we're just killing it. And our partners are super happy with us, even in a bad market, like it's getting out there, we're still doing fantastic, but our base is really low. We bought well and our partners and us get along really well. And so it's that relationship becomes extremely key. And so if they want to meet twice a week, you're going to meet twice a week, but, they're professionals and they got all these guys hired from Harvard and Yale and Stanford and you know, Cornell or whatever. And these guys have studied and a lot of times they're very, very book smart about all this stuff, but they've never done on-the-ground work. And so you do have to do a little bit of education like, hey, I know, you know, we need to do this, but you know, with sewer breaks under the ground, it costs $8,000 to repair. I can't do anything about that other than get it done as quickly as possible.

[00:11:51] Sam Wilson: Right, right. Yeah, absolutely. When should someone in their capital raising, syndicating investing journey, when should they begin starting to think about, okay, now it's time to start looking for institutional partners?

[00:12:06] Samuel Sells: So you could start from the beginning of your career as an operator. So I look at, like, when you begin, you should really probably start on the capital raising side because properties become so expensive. And that way you can get it to much bigger deals. So you go from being a capital raiser, learning how to build that foundation to operating your own properties. Now that you've worked with other operators who have done it really well or bad, and you've learned from them, and now you've become an operator. And once you become an operator, I I am, you know, retired Air Force guy. I always taught my troops like trajectory matters. What do you want to be in your life? If you want to be a chief, fantastic. Let's set a trajectory for you to make Chief. If you want to become an officer and you know, whatever, then let's get you on a trajectory to do to that. And so as an operator, start at the beginning and say, you know, someday I want to, I just want to work with single check writers, and I want to own a billion dollars worth of assets and I want to buy those over the course of five years. Great. You can do that without building a massive capital-raising machine to go that way. It's a different path, right? Or you want to do both, which is what we do now. We raise private money and we do, you know, institutional cash, and those, we reserve different deals for different groups based off what we know their requirements are and what they're looking for.

[00:13:28] Sam Wilson: Do you, on those different deals for different groups and those, kind of a left turn in the conversation, but is that the only criteria? Is that, you know, that some groups are looking for this and some groups are looking for that? Or is there more that goes into deciding who you shop these deals out to?

[00:13:45] Samuel Sells: Yeah. It's also capability, like our own capability to raise money. Like, if we know we can only raise $5 million because our network is relatively small, then we will do deals with, you know, our private citizens that are up to $5 million of cap raise, right? But I know if I'm going to the institution, 5 million is the smallest, right? And institution's going to come too, they want bigger checks because, think about it, they have a billion dollars on their hands and they've got to place. And they want good deals, and so they're calling and us or asking for deals all the time. They were like, I've only got the small deal because this is the only one I could find I could pencil.

[00:14:25] Sam Wilson: Right. Right. Yeah. They don't, I guess, what is that, if they have a billion to spend 5 million at a time, that's what? 200 deals. That's a lot of deals, right? Who wants to be involved in 200 deals, 5 million at a time? That's a lot.

[00:14:40] Samuel Sells: I don't. Yeah, as an operator, you're like, you're out of your mind, you know?

[00:14:46] Sam Wilson: That's for sure. That's for sure. What is, and I guess that's the next question, is that when it gets to those bigger, bigger deals, you know, 50, a hundred million dollar deals, it gets very competitive because there's a lot of big institutional capital chasing those deals. Are you even finding ways to underwrite and make those pencil today?

[00:15:06] Samuel Sells: We have it. So we found really around $30 million, between $15 and $30 million is where we've been able to get things to pencil more often than outside of that. One, because the competition is less. And two, because we're small enough that we still want to make money. We're not in it just to close deals. And you'll meet plenty of institutions that are like, our cash needs to go somewhere because 4% return, 6% return is better than zero and negative. And they will not put the stock market 'cause that's just dumb. And so I say that because ultra wealthiness down. Regular citizens, it's like, it's the thing to do because that's what everyone tells you to do because the institutions make the most money when you do that, and then they invest your money into real estate by the way. That's how that cycle works. Anyhow, so they're willing to pick up a hundred million dollar deal with not very much meat on the bone, and they'll call it a value add deal because you can increase the rents by $10.

[00:16:11] Sam Wilson: Right.

[00:16:11] Samuel Sells: So just buy it, they'll jack up rents, don't add any value, and make a little bit extra return. If the market goes sour, they're still better off because they're going to hold up for 30 years, who cares?

[00:16:22] Sam Wilson: Right. Yeah. And so that's, I guess, the answer to the question, which is, you know, are you finding those larger deals? And you answered it when you said 15 to 30 million is kind of where you guys are finding, which is still, I mean, if you're getting 20 or 30% leverage on that, you're still raising, you know, 9 to 12 million bucks a deal depending on what your CapEx plan is. I mean, is that a range when you start getting over into double digits? Is that when you can start talking to institutions or is there, is it need to be bigger than that?

[00:16:47] Samuel Sells: Yeah, so 10 million, you'll find a lot of institutions that'll do $10 million checks. You'll need a million dollars of your own capital or form a, you know, management company with them once you get cash in the bank ready to get deployed, and then find a really good deal. And you know, we can help do that. There's others that know how to do this. There's not a lot, particularly in a syndication space, given presentations to others on this is how you do this and people have no idea, right? So when you syndicate, you put your 50k in and you're really on the GP side, you got five sponsors. By the time it all whittles down, yeah, you're going to make some money on the deal. It's just you're not going to be that much and you're really doing it for experience. And so you can keep doing it. And maybe you're doing it for the acquisition fee. It's the opposite way around. When you deal with the institution, you're going to make a ton of money doing, you know, what you really want to do, but it's going to be a negative cash transaction at the beginning. So you're not going to make money on the clothes, you're going to make money on the hold.

[00:17:48] Sam Wilson: Right, right, not that any of us should be doing any deals to make money on the close, I mean, certainly I think that's icing on the cake and for us, it covers expenses. It puts a little bit in our pocket maybe, but it's something where, you know, buying for the cash flow should be what we're doing anyway.

[00:18:03] Samuel Sells: Yeah, sure. But you're right. Look, you know, every deal we do, we'll have hundreds of thousands of dollars by the time we close a deal just in due diligence, earnest money at risk. My staff doing all the work, so I don't feel bad at all about our, you know, acquisitions fees because that pays real people real dollars. And so when we do institutional deals, I have to have that money and we just eat it until we get paid, you know, down the road. And so you have to be in that ready position. The interesting thing too, your attention to detail on these large deals is, with them, is higher because they expect more, and they can't expect more, and they're going to hold you accountable to it. And so you just need to be ready to perform. And if you're ready to perform like we have been and at the end, it's worked out really, really well. But if you're thinking you're just going to turn it over to a property management firm and wait for your updates, you can sit out to your investors and hope all goes well...

[00:19:00] Sam Wilson: This is not for you.

[00:19:01] Sam Wilson: It's not for you,

[00:19:03] Samuel Sells: right.

[00:19:04] Sam Wilson: What has it done for your business? Like, how has this changed or trajectory of your company in bringing on institutional partners and what should someone else expect if they really follow the plan you've set forth?

[00:19:17] Samuel Sells: It's changed everything so it put us on a different trajectory that I didn't know existed for the longest time. It put us on a trajectory to, you know, obtain a billion dollars worth of real estate and for us, value add real estate. It's heavy lift. We need really good, strong partners and we, so we do try and want deals to go out to retail investors, friends, family people that we know, people that we get to know, but we also want to have the capability of doing very large operations because the economies at scale are just so much better. You could hire more staff, you can hire the best you could, you know, so on and so forth. So it's it just puts you on a different trajectory. Doing both answers the question of I need cash flow upfront to fund my team to do the work they need to do, and we want to, you know, make a huge difference. And so by doing both, we can do both. Ultimately though, you know, you want to become one of those funds that's, you know, the next level is where you hire, as an institution, you hire as operators and you get to sit back and your asset managers do the work and you just come to work and sign stuff and then go back to the ED.

[00:20:33] Sam Wilson: I love it. I love it. Sam, this has been incredibly insightful. Thank you for taking the time to break down how you guys have found opportunity and how you guys have worked with institutional partners to give us some really practical advice and just some how to on this. I certainly have learned a lot today 'cause again, this is something I know absolutely nothing about. So thank you for taking the time to educate me and also our listeners. I certainly appreciate it here, the second time having you on the show. If our listeners do want to get in touch with you, learn more about you, what is the best way to do that?

[00:21:02] Samuel Sells: Yeah, reach out to me via email, [email protected]. You can go to our website at wildmountaincapital.com. By the time this is broadcast, you could probably go to syndicationlaunch.com, which is our new learning platform. It is, In the early stages. So if it's ugly, yell at me saying, this is ugly or it needs this, I'm happy to fix it. We are working on that because we really have learned that not very many people know how to do these other aspects, and we're happy to help and teach because partnerships make everything better.

[00:21:36] Sam Wilson: Yeah. That's awesome, Sam, thank you again. Certainly appreciate it. You have a great rest of your day.

[00:21:40] Samuel Sells: Thank you, Sam. Always a pleasure.

How do you go from zero to over five hundred doors in 18 months? Tate Siemer takes us on his journey in getting there. In this conversation, he shares advice on how to find and secure larger checks for deals and how to scale a business to new heights Listen in!

Tate Siemer is the CEO/Managing Partner of GreenLight Equity Group. The company acquires and operates commercial multifamily assets (apartment communities) in Utah, Oklahoma City, and Columbus, Ohio. Currently 320 doors, $24M AUM. 252 doors under contract. Their mission is to achieve exceptional returns for our investors by improving communities and expanding well-being through progressive solutions in multi-family housing.

[00:01 - 07:07] Discover the Magic of Multifamily

• Tate on getting into real estate in the '06 and catching the multifamily bug
• The lightbulb moment of seeing the magic of multifamily regarding cashflow
• Growing wealth with mitigated risk and tax advantages

[07:08 - 12:01] Failing Foward - Be Watchful of the Market

• Financing through lending and raising investor capital
• Creatively finding ways to do a full cycle in a deal
• Going through the shifts, spikes, and fluctuating interest rates

[12:02 - 16:06] Tips for Expanding Your Network

• Striving to be in a better position in strategic relationships
• The benefits of masterminds and conferences in expanding your network

[16:07 - 18:10] Closing Segment

• Reach out to Tate
• • See links below
• Final words

Tweetable Quote

"We lost our earnest money on it… That's painful. It's something that happens in this industry. It's why they call it investing. It's why they call it earnest money, risk money… There were a number of factors–the shifting market, the spikes, and interest rates… Fail forward." - Tate Siemer

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Connect with Tate Siemer on Linkedin. Visit his website and email him at [email protected]

Resources Mentioned

Failing Forward: Turning Mistakes Into Stepping Stones for Success by John C. Maxwell

Connect with me:

I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.

Facebook

LinkedIn

Like, subscribe, and leave us a review on Apple Podcasts, Spotify, Google Podcasts, or whatever platform you listen on. Thank you for tuning in!

Email me → [email protected]

Want to read the full show notes of the episode? Check it out below:

Tate Siemer 00:00

There's nothing better you can do to learn this business than actually do deals, in my opinion. And, you know, as entrepreneurs, we bite off big bites and big chunks and we solve big problems. And sometimes as an entrepreneur, you've got to put something under contract that you're not 100% sure how it's gonna get done. And, you know, we've done that we've been very successful and we've also stumbled a few times.

Intro 00:24

Welcome to the How to Scale Commercial Real Estate Show. Whether you are an active or passive investor, we will teach you how to scale your real estate investing business into something big.

Sam Wilson 00:36

Tate Siemer is the CEO and Managing Partner of GreenLight Equity Group. They currently have $58 million in assets under management about 600 units. Tate is also the host of The Apartment Gurus Podcast. Tate, welcome to the show.

Tate Siemer 00:49

Sam, it is a pleasure to be with you can't wait for this.

Sam Wilson 00:52

Absolutely. Pleasure is mine. Tate, there are three questions I ask every guest that comes on the show in 90 seconds or less. Can you tell me where did you start? Where are you now and how did you get there?

Tate Siemer 01:02

Well, as far as real estate goes?

Sam Wilson 01:06

Sure!

Tate Siemer 01:07

So well, real quick backstory. I'm originally from Cincinnati. I grew up there, suburbian kid, Catholic High School, not a Catholic guy. I was never Catholic. I just went to the school because it was great school. But I moved to Utah in 1999 last century, to ski, to chase a dream of skiing in the Rocky Mountains. And I've lived here for 23 years and have really adopted this as home. Originally a photographer by trade professional ski photographer, also weddings and portraits, and did that hard and heavy for about 10 years. But in 2006, I got into real estate investing, really just through a friend, a buddy that was in a class, a basic flipping class on how to invest in single family and and small multifamily. And, really, that's how I got into real estate. I got my I eventually got my realtor license, started flipping homes on my own, also went to work for some other investors. And then and 2011 teamed up with my current partner, Carl York, who was my original boss in Salt Lake City and 99, actually, but so we've been working together for 23 years, mostly on in different, different businesses. Four years ago, four or five years ago, now we caught the multifamily bug through we really had a 12 unit, kind of fall in our lap from a wholesaler that brought it to us and said, Here's a great deal, you guys should do it, here's how I would do it. And we ended up buying it and really saw the magic of multifamily in terms of being able to buy something that produces cash flow that was new to us. new concept, believe it or not to I mean, it was something we had never really seriously considered as you know, as as a lane to get in. But once we got in that lane, we have not left we're we're singularly focused on on multifamily. Specifically, like you said, we have about we have 595 doors under management right now. And with seven different communities and Columbus, Ohio and Oklahoma City, those are two target markets. We all we do also do deals in Utah, here in Utah as well. So So yeah, that's kind of a real quick brief thumbnail of kind of how we got to where we are super excited about this space, love it really in love with the work. I do love doing the podcast, as I'm sure you can relate Sam and I love being able to be a contribution to other people along the way. So that's really what I'm all about.

Sam Wilson 04:00

That's awesome. Tell me about the transition that you went through, as you discovered the cash flow like that being a new concept. Can you can you tell us about that?

Tate Siemer 04:11

Actually, I remember the moment really well when we were underwriting that deal and and analyzing it and my, my partner, Carl looked at me and he goes, he goes, Dude, can you shoot any holes in this deal? Like, I mean, we're making like, it's profitable, like it's, it's a deal that's that now this particular community was half vacant. Six of the 12 units were vacant. The other half were paying very, very low rents. The place was in shambles. And so we basically got everybody out and it did a head to toe remodel, everything from the membrane TPO roof down to mechanicals flooring, solid surface counters. We really did them up well windows and For us, it was really a matter of seeing, for the first time, everything we had done up to that point is what I would call speculative in nature. In that we were buying properties for a certain price, figuring we could add value to them for a certain expense, and sell it for a profitable price at the end of the process, right? We did that with single family houses, we did that with land. And we even did that with new build development. And every single deal that we did was speculative in nature in that way, when the apartment came along, and all of a sudden, we had like income and cash flow and revenue that we could underwrite. It was a whole new thing. I mean, it actually required a whole new spreadsheet, you know, a whole new model for us to underwrite it. And it was, it was quite a profound moment, really, because there's nothing like a live deal to bring home, all the advantages of multifamily and all the hardships to like, there's nothing better you can do to learn this business than actually do deals, in my opinion. And, you know, as entrepreneurs, we bite off big bites and big chunks, and we solve big problems. And sometimes, as an entrepreneur, you've got to put something under contract that you're not 100% sure how it's gonna get done. And, you know, we've done that we've been very successful. And we've also stumbled a few times. Yeah. So you know, back back to that, that kind of that light bulb moment of seeing the magic of multifamily. It's something that I now consider almost a moral imperative of mine, to get the word out there, that this is a fantastic option for investors to put their money in into, you know, private deals that are cash flowing, that are going to grow wealth, that are going to be risk mitigated that are going to bring tax advantages. So yeah, super exciting space for us.

Sam Wilson 07:08

I love it. A full gut job on a 12 unit is your first, how did you get over the industry experience? Maybe the lender would require? And then how did you get it financed?

Tate Siemer 07:21

Well, we did that one with hard money. So we didn't, we had from the single family days, we had a lender here in town, local hard money guy that trusted us knew us very well. He financed 90% of the purchase and 100% of the fix up. And then we actually raised investor capital for the rest. So we did that deal with no money out of pocket, we actually had to bring in a little bit of money at the end to complete the capex we were doing, but essentially, no money out of pocket for the purchase and, and the fix up. So yeah, it was it was a good one.

Sam Wilson 08:06

That's awesome. Do you still own that deal today?

Tate Siemer 08:09

We did. We went full cycle on it. We stabilized it, we doubled the rents there from where they were. And it's a very transitional part of Salt Lake City. So there were good properties around us and not so good properties around us. But we were able to really set the neighborhood standard for high rent levels on small one bedrooms.

Sam Wilson 08:29

That's awesome. Very, very good. Well done getting that one. That one, you know, done full cycle, but also just you know, creatively finding a way to take that down. I think that's as people start to scale into larger assets. It's a common question is like, Well, how do I get? How do I get that first deal done? How do I and obvious there's a million ways to do it? So I think it's interesting to hear what people have done and how they finance their opportunities. You said you'd stumbled a few times, maybe a long way since then, what are some of those things that come to mind when you say that?

Tate Siemer 08:58

Yeah, a recent example of something that didn't really go the way that we wanted it to was, we had a very, very nice building in Columbus under contract. And it was a $27 million acquisition. We had about a $12 million equity raise to get done and which was quite a bit more than what we've ever raised before. And so we we sourced, we went to work sourcing, Institutional Equity, private equity, and we got we got some people on board real early that we weren't ready to jump into bed with just yet because of our loan. And then when we got the loan solidified and in place, and this was during that rapid, rapid shift in the market, the debt market. When we finally got that loan in place, we went back out had have a hard time finding equity, we finally found a source that wanted to do the deal. And then as the market shifted, and our due diligence time expired and went by, we, they backed out, they kind of left us at the altar, so to speak. And so we weren't able to get that deal done. We lost our earnest money on it. And, you know, that's, that's painful. And it's, you know, it's something that happens in this in this industry. It's why they call it investing. It's why they call it earnest money, risk money. Obviously, it's something that we never foresaw happening. But, you know, there were a number of factors that the shifting market the spikes and interest rates, and, and the, the shift and equity and their equities, perspective on the market, really ended up hurting us a lot. So we've been in kind of regrouping mode. And one of the things that we're doing, Sam is we're looking at smaller deals now, deals that we know that 100%, we can find, we're actually under contract on another 12 unit in Salt Lake City. So we're, you know, super exciting property, we're currently currently in the middle of raising capital for that, it's when you go big, sometimes you get you get pummeled, like surfed the big waves, and you're gonna get pummeled eventually, some sometimes. So that's one. That's one example. We had, early on in our Oklahoma City deals, we had a property manager that was managing all of our properties there that we had to fire, which was also painful, and a number of different ways. But that was kind of a blessing in disguise, because we found a absolutely amazing property manager to come in on those. So. So yeah, fail forward, right. Like there's a book called Fail forward. And I think it's a great concept. It's all about embracing the failure, learning from it, growing from it and being becoming stronger from it.

Sam Wilson 12:02

What were some of the key takeaways, maybe that you guys either jotted down or just kind of stuck in the back of your head and said, Hey, we have a deal this size Next time, we're going to do it differently? What are those things you would do differently?

Tate Siemer 12:15

Yeah, I mean, it's, it's really interesting, because in the process of trying to get that deal done, we started a lot of relationships with larger equity sources, larger check writers. So we're going to be in a much better position with relationships in place, and even people that we're working on relationships with, with some family offices that are that are, we're trying to play the long game, right? Like, we want to be, we want to find somebody that wants to grow with us, we have big aspirations, we want to be at 200 million assets under management in two years, getting that going from 60 ish million right now to 200. Is is going to take some large unit count properties and, and and large acquisition larger checks from equity. So so really, I think, for us the lesson is relationships. When we started with that deal, we didn't have any equity relationships in place aside from our, our own investor network that we market to. So having having that in place will serve us very, very well moving forward.

Sam Wilson 13:33

What are what are some things that you know, just more of a practical advice? What are some things you have done to put yourself in front of those larger check riders or bigger equity sources? If I were to do that today, what would you tell me to do?

Tate Siemer 13:48

I would say, Join masterminds go to networking events, whether they're virtual or in person, go to conference national conferences, and ask everybody you know, who they know, that might be able to help them in the larger check area of the business? And, you know, so for us, it's really just been a lot of conversations and a lot of referrals. A lot of Yeah, hey, I know this guy, or I know these guys. Also, there's brothers equity brokers, and they're more than happy to work with you. They that's how they feed their families. So there's, there's, you know, get on LinkedIn, Google debt, slash equity or debt and equity for commercial real estate, and just start reaching out to people you will find it.

Sam Wilson 14:40

That's really, really great advice. Thank you for taking the time. Does that concern you? You know, as you're moving forward, I know that the having having a larger check writer back out of your deal cost you a deal, is that certain you or is there a way to kind of mitigate or ensure that when you get a At least a verbal if not written commitment from a large equity source that they're actually going to follow through.

Tate Siemer 15:05

Well, we never did get a written commitment from that source. We did get a verbal commitment, but, you know, yeah, I would say it never stopped raising capital until the checks, you know, cleared and in your account, right? That's really like, don't stop picking up the phone until that happens. And, and not that we really did that. It all it all kind of happened pretty fast. But you never want to count your chickens before they hatch. So yeah, just keep raising.

Sam Wilson 15:37

That's exactly it. I can't tell you, you know, how often, you know, we'll get soft commits or even Hey, you know, I've even had people signed Doc's and then just never get around to, like, oh, yeah, no, we're coming. And then brother died, just keep raising, and then eventually, you just turn it off. It's like, Well, I'm sorry, you didn't get done. So I think that. That's great. Great advice. Certainly there. I want to hear a little bit about your coaching program. We've got about two minutes left here. And I want to hear about that there before we sign off.

Tate Siemer 16:07

Sure. It's called multifamily accelerator and, and basically what it's designed for either an aspiring multifamily investor, or an existing multifamily investor that wants to scale up. For the aspiring investor. It's all about getting that first deal done. So it's a really comprehensive, deep dive into everything that it takes to get a deal done. Because the first deal is the hardest deal by a longshot to get done. And once you get it done, things start rolling. It's Michael blanc talks about the law of the first deal. And that's a real thing. Yeah, so it's, it's a hybrid coaching format. It's group coaching, combined with lots of one on one time with me. And it's just a multifaceted program that is, is designed to really catapult you to the next level that you want to get to.

Sam Wilson 17:03

That's awesome. Love that love that if we want to learn more about you take your coaching program, your podcast, all those things are the best places to find that.

Tate Siemer 17:13

Yeah, invest with green light.com invest with green light.com. And, and you can always email me to either through that, or at Tate at GL equity group.com. And, yeah, that's really the best way to reach me. I love to hear from people. I'm also on all the social media platforms at Tate seamer. So love to hear from you guys.

Sam Wilson 17:38

Awesome, Tate. Thanks again for your time today. Certainly appreciate it.

Tate Siemer 17:41

My pleasure, Sam. Thank you.

Sam Wilson 14:34

Hey, thanks for listening to the How to Scale Commercial Real EstatePodcast if you can do me a favor and subscribe and leave us a review on Apple podcasts, Spotify, Google podcasts, whatever platform it is you use to listen If you can do that for us that would be a fantastic help to the show it helps us both attract new listeners as well as rank higher on those directories so appreciate you listening thanks so much and hope to catch you on the next episode.

In this episode, we welcome Matt Hansen. He is an experienced apartment investor with 2,200 units and the founder of Hansen Holdings. Matt shares how he started investing as a side hustle and became a full-time investor. His advice for anyone who wants to get started is to become a limited partner before becoming a general partner to gain an understanding of what goes on behind the scenes in multifamily. He also highlights vetting your partners, being transparent with your investors, and getting educated in order to be successful.

[00:01 - 04:05] Supply Chain Director Turned Investor

• Matt talks about working as an executive in a supply chain company
• He transitioned to real estate because, for him, it's simpler and more fun
• Initially, he only invested in stocks but realize it was difficult to protect his portfolio
• Investing in single-family and then going bigger to multifamily

[04:06 - 08:56] From Limited to General Partner: What You Need to Know

• He strongly recommends coming as a limited partner first in order to learn the ropes

• The main lesson Matt learned from being a limited partner was the value of vetting, good communication between partners and investors, and going beyond the primaries
• He became a GP behind the scenes for a time and went full-time in real estate after retiring

[08:57 - 23:25] Building Processes, Building Relationships

• How he leveraged his supply chain and business expertise as an investor

• Operating with discipline and creating a control plan
• Doing due diligence
• Being a part of a mastermind has been an advantage for him
• Matt explains why sellers and brokers love their team
• The future is uncertain but it's important to factor that in underwriting
• Currently, his focus on raising capital
• Education and investor relations are keys to success in this industry

[23:26 - 24:42] Closing Segment

• Reach out to Matt!
• Links Below

• Final Words

Tweetable Quotes

"I have a hundred percent of my investments in Wall Street. No control over it. Those guys are running their own show out there." - Matt Hansen

"I treat my investors that bring a hundred thousand as I did my multi-billion dollar clients, and I think that's something people lose sight of a little bit." - Matt Hansen

"It's really vetting, vetting, vetting. You're investing in a deal. You should be doing due diligence as well. Take a look at the market. You can Google anything, right?" - Matt Hansen

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Want to read the full show notes of the episode? Check it out below:

[00:00:00] Matt Hansen: Well specifically for, say, due diligence. We have phenomenal property managers that we work with, but we still help confirm what they do. They look at every single lease. They walk every single property. They keep a track of all that, but we help keep track of them as well to make sure, okay, you know, did you do all these things? And they always do, but we still have the responsibility to our investors that we did check every single lease agreement in the 227-unit apartment. We did walk every property. We did look at all the contracts for all the third-party providers to make sure are those tier and conditions favorable.

[00:00:46] Sam Wilson: Matt Hansen is a retired corporate executive that transitioned to full-time real estate investor. His portfolio includes over 2000 units of multifamily apartments. Matt, welcome to the show.

[00:00:57] Matt Hansen: Thanks so much for having me, Sam. Glad to be here.

[00:00:59] Sam Wilson: Absolutely. The pleasure is mine. Matt, there are three questions I ask every guest who comes from the show. In 90 seconds or less, can you tell me where did you start? Where are you now, and how did you get there?

[00:01:08] Matt Hansen: Well, I started, as you know, a retired corporate executive, which prepared me really well because buying multifamily, basically you're buying a business. So that was my background. And then how I got there, I joined a high price mastermind out of Dallas. I live in Michigan and that's how I started to really passively invest initially for a couple of years. Then I started running deals as a general partner, and now we're just doing, having fun. I partner with all my friends. We buy properties in Texas, Florida, Arizona, Georgia a little bit, some of the Carolinas, and that's kind of where we're at. We're just looking at growing our portfolio and helping as many people as possible get their money out of Wall Street and put it into Main Street in apartments.

[00:01:47] Sam Wilson: I love it. Absolutely love it. That's it. That's certainly a topic that is near and dear to my heart, especially, you know, helping people go from crud, what do I do with my money to then, I had somebody recently call me and they're like, hey, wait, so is this a return on my investment or return of it? I'm like, That's a return on it. They're like, wow, and these just keep coming. I'm like, yeah, it's fun, isn't it? So good for you for helping people out with that. That's awesome. What was your corporate career?

[00:02:13] Matt Hansen: I was a global supply team director, so it was a Fortune 100 company, so we have products at 86 countries around the world. And my job was to make sure these hazardous materials got in planes, trains, automobiles, barges, you name it, we shipped it. And I was a global director, so I had teams stationed all in every area of the world that were responsible for that. Pretty high-stress stuff. A lot of cost-benefit analysis, risk analysis. That was my job. So that's why I transitioned to multifamily, running business was so simple for me and fun.

[00:02:44] Sam Wilson: That's what I was going to ask. Is this easy for you?

[00:02:47] Matt Hansen: So much easier. The moving parts are pretty minimal here, compared to moving chemicals, you know, around the world in containers and vessels and all sorts of stuff. So, yeah, this is fun stuff. It's really fun to me because the stuff I had to deal with before. I retired. kinda in the middle of COVID. So I avoided a lot of that supply chain stuff, so it worked out pretty well 'cause I know it's a nightmare to be in supply chain.

[00:03:09] Sam Wilson: I can only imagine, can only imagine. That's fantastic. What was the impetus to get involved in commercial real estate, specifically multifamily.

[00:03:19] Matt Hansen: It was really 2008, 2009. I lost about $300,000 in the stock market. My wife and I have always done single-family home flipping here and there just as a side hustle, but that's when the light bulb went on. Hold it. I have like a hundred percent of my investments in Wall Street. No control over it. Those guys are running their own show out there. And I worked for a large corporation so I kind of know how things operate. So that's when I kind of light went on. We did a little bit of more of single family flipping. And then about six, seven years ago, I got into large multifamily and it's no work at all. It's just running a business and that's stuff I was trained to do. That's kind of what it was, is to get out of Wall Street, protect my, and now my portfolio, 60% of it's in real estate, right? 20% still in the stock market stuff I can't get out and the other 20% venture capital stuff. So it was really, Wall Street pushed me out, said, hey, you are going to do something else.

[00:04:05] Sam Wilson: Right. Yeah, no, no. There's nothing like the pain of a large loss that you go, oh, okay. I need to change my approach here. You came in as a limited partner. That was kind of your first experience. Would you recommend that to anybody else looking to get in or is another path you should, you would recommend they take?

[00:04:23] Matt Hansen: Strongly recommend coming as a limited partner. I did a lot of limited partner. Well, I had some 401k money that I was able to eventually roll over into a self-directed IRA. But yeah, because that way you see what's really going on without having any skin in the game. You're a limited partner, you're not liable for anything, thinking let's go sideways. But you learn, how does a good general partner manage? How do they treat you? And I learned just as much what not to do as what to do, and I've invested in probably a dozen deals or so. So that was a great learning, so before you go, it's kind of before you go off and be a general partner, you need to know what it's like to be sitting in the limited partners position, and are you feeding them information or keeping them updated on what's going on with the property? Are you letting them, What's going on the market? Those are the types of things that I really value and I make sure all my investors, full transparency. There's no hidden stuff. I tell you what's going on at all times. I think that's pretty critical.

[00:05:14] Sam Wilson: Absolutely. Yeah. And it sounds like maybe that was one of the things that you aspired to do well after being involved as limited partner. It sounds like maybe communication was one of those things that you wish you had more of.

[00:05:26] Matt Hansen: Exactly. Yes.

[00:05:27] Sam Wilson: That's a great piece of advice. Was there anything else that you took away from the limited partnership experience that you said either I want to repeat or I want to do better?

[00:05:36] Matt Hansen: Mostly, the communication really was the number one thing. The markets, do your own due diligence. I had one deal that went sideways that I passively invested in, and it's cause I didn't vet all the partners and I should've. I just vetted the primary one I was investing with. But the other two ended up running the show and he stepped away. Again, that was a lesson learned. Vet everybody, all the partners, who are the asset managers, who's going to run that asset, who's their backup, most importantly. And that's what I didn't check, that was one of my biggest lessons was. Vet all the partners that you're investing with.

[00:06:05] Sam Wilson: What do you say to that? Who is their backup? Like, how do you guys handle, because I asked to sponsor this a couple of years ago on a deal I was investing in. I said, so what happens if the two of you get run over by a bus? Like, then who's running the show? And they didn't really have a good answer, which was fine. I mean, it was a good buddy of mine. I invested anyway in the deal, but we made a lot of money on it. It was great. But even so, it's a question that's still lingered. That was like, well that's, I wonder how that works out. What do you guys do today?

[00:06:31] Matt Hansen: We do have two people that are the primaries at all times. They're on the calls with the property manager once a week, so there's two people that are already fully in the loop and knows what's going on. And then there's usually four or five people that are general partners and all of us could step up and run it, asset manage, no problem. We all have, one of my partners has 10,000 units. The bench strength is so strong that if the two primaries walk away, there's probably three more that are just as good as them that can step up to run the show. And that's why I say vet all the primary partners, not just one and two. That's great. But the third, Yeah, we've got third and fourth there in our deals.

[00:07:05] Sam Wilson: Right. That's a great piece of advice and probably something as I passively invest with other operators around the country, I don't spend enough time probably going beyond the primaries. Like, okay, this is who I know I'm working with. But getting into the bench and figuring out who the entire roster is is, you know, probably an important part of that. You went from the LP side of things to where you then said, hey, we're going to launch into the general partnership side. What was the driver there for you? Were you bored, you were in retirement? Why become a general partner even?

[00:07:34] Matt Hansen: Yeah. I was moonlighting, so I was a side hustle and still working as an executive, but I got to the level where I wasn't, wasn't really working that hard. I didn't really have a full-time job. I was there for what I knew, not what I did. So I would show up for meetings and things like that, but I still have a lot of extra time in my day. And then it's when I thought, well, I'm doing this limited partner thing, I got time I could start doing general partner. So what I did though is I would run the deal from LOI, letter of intent to close. I didn't do any of the fancy stuff outside. I didn't do any outside marketing. I created the marketing materials, but I didn't market it as myself because there was a little, I didn't want to get in trouble with my corporate gig. So for about four years. I did that behind the scenes stuff, and then when I retired about two years ago, then I could openly say, hey, this is what I'm doing, you know, which was a real, created a deficit because I've been doing this for six years, multifamily, but nobody knew it until recently, so I had to kind of start developing my track record with these people that don't know me, even though I've been doing it for six years. I've done great deals that went full cycle. So that was a bit of a challenge, keeping it secret, if you will. And then eventually, I don't want to retired, I could just talk openly. So it was creating a runway. So when I did retire, I had another business. I'm never, I'm like you, Sam. I know, I can tell already you're going to, the person's going to work until you're 80, 'cause that's the type of person you are. You're not going to sit and do nothing. You got to do something. And this is fun.

[00:08:56] Sam Wilson: Right. That's absolutely right. No, I think that's great. So you went into the general partnership role. What were some of the things or some of the methods maybe that you have used to take down deals? I guess I'm really curious when someone steps into this with a brand new perspective of, like, maybe you weren't brand new 'cause you were a limited partner, and you're GP behind the scenes. But now you're coming on the guy in charge of the show. So what did you do maybe differently than other people were doing? Or what did you repeat that you would say, hey, this is how we're going to, the method we're going to use to acquire, own, and operate assets?

[00:09:30] Matt Hansen: It really came from my corporate experience. So I'm a Green Belt Sigma trained, so I have this methodology of, you know, measure, analyze, improve, and control. And so you just implemented this, so you're buying an apartment complex. It's just a project and I used to work on billion-dollar projects where we're putting in a new supply chain plan. We have to figure out what the supply chain network looks like. Same thing for this. We're buying an apartment. You need to make sure your attorney's on board, your insurance company, your tax person, you know, your property manager. You assign those tasks with deadlines and specific action plans. So there's a formula. So the group that I belong to had a pretty good formula that we just kind of followed, but I made sure we had the operating discipline to follow that. You check every single box. You don't leave one out, but you're buying a $40 million apartment complex. You've got to do your due diligence, and you check the due diligence of other people as well. So I think my corporate experience was priceless for this 'cause it was easy to step in and say, I run a literally a billion dollar project. This is a 40 million. And it's much simpler. So that's really what it is. It's processes, systems, and a control plan, which most people aren't familiar with. If you're going to do it, follow up and measure, measure, measure to make sure it's getting done.

[00:10:41] Sam Wilson: Can you define that maybe more clearly when you say a control plan?

[00:10:46] Matt Hansen: Well, specifically for, say, due diligence, we have phenomenal property managers that we work with, but we still help confirm what they do. They look at every single lease. They walk every single property. They keep a track of all that, but we help keep track of them as well to make sure, okay, you know, did you do all these things? And they always do, but we still have the responsibility to our investors that we did check every single lease agreement in the 227-unit apartment. We did walk every property. We did look at all the contracts for all the third-party providers to make sure are those tier and conditions favorable. Was there a kickback that they had gotten earlier that applied to this year? Did we get that money? There's all these little things that if you don't have a process in place to double check it and to make sure it happens, it might not and it could be catastrophic.

[00:11:34] Sam Wilson: What did you do? Did you build those processes or when you came on board, were there other team members that had kind of already, you know, because that takes time? That takes time and experience to build those. How did you perfect those?

[00:11:48] Matt Hansen: Our team, our mastermind had a, like a 42-line item checklist, and then that's really most people just kind of gloss over the whole thing was, did you implement it? That's what my job was, to make sure. So a lot of it was kind of done for me. Yeah, I would tweak some things here and there, but 90% it was already ready for me. And that's why I paid all this money to be part of this group, this elite group. And they really did a good job. And I'll say it, it's Think Multifamily out of Dallas, Mark and Tamiel Kenny, I'm going to go ahead and say they're phenomenal. It's a small group of people, like there's over a hundred. It's not one of those big groups that there's thousands and thousands. I personally know every person in this group, and Mark and Tamiel have our backs with expertise. I've been doing it for six years, but every single deal, you know, something new comes up that you haven't seen before. Well, Mark's been doing this for 20 years. He's seen everything. He's been through every cycle, so I've got that back. He's always got your backs, and that's a big advantage of being part of a group like that. I'm not off on my own doing that.

[00:12:41] Sam Wilson: Absolutely. How are you guys finding right now? I mean, multifamily has been on a tear for a while. What are you guys doing that separates you from all the rest of the people out there buying multifamily assets?

[00:12:55] Matt Hansen: Well, we do a lot of deals. I think in the last few years we've done 103 deals, and brokers love us. Sellers love us. The deal we're doing in Florida right now, we bought from the same seller earlier this year, and I don't think we're actually the highest, highest offer, but they knew certainty of close, we're great to work with. We're going to do what we say we're going to do. We're not going to retrade at the end and all that stuff. So our track record. My partners in my group, it's so strong. There's a little town called Decatur, Georgia, outside of Atlanta. We've got like, I think eight or 10 deals there now because the brokers just love us. So they feed you deals if you're, if you prove you can close and you're easy to work with. So that's really, and again, it's an unfair business as you know. It's a relationship business. And our relationships are so strong because we perform so well, we get deals that other people don't.

[00:13:46] Sam Wilson: Right, right. Yeah, that's absolutely simple. Talk to me about interest rate risks, what you guys are doing to hedge that. How are you funding and arranging the capital stack maybe differently now than what you were even 12, 18 months ago?

[00:13:59] Matt Hansen: You know, this, it's a leading question now. You've got to have your your rate locks and all your other cap locks and all those things. So things that we're costing us two years ago, $40,000 to, you know, say, okay, when we have to have a bridge loan, in three years, we're going to refinance it. It's going to control the rate. It's not going to go up. You know, 3%, it controls that. So you kind of prepay it. Well, a few years ago, we have a deal in Memphis that I think we paid $40,000 for our rate lock, a rate cap, and now it's like, hundreds of thousands of dollars. The future's so uncertain. But we factor that into our underwriting. Interest rates have went up now, you know, a couple of percent, but it's surprising. When we rerun the numbers and it's like a fraction of a percent return impact to our investors typically. The numbers have changed a lot. We're not saying, you know, when I did do deals two years ago, it was 10 to 14% cash on cash returns. Now we're saying seven or eight. So we have had to adjust that and it's tough for investors to take that, but it's the market. We're not going to say we can do 10% 'cause you can't anymore. You know, you've got to say the range has gone down because the market has changed. That's what we've done. We've adjusted our expectations of the investors along with the market. And then just do everything possible to control that number and try to predict what's going to happen the future.

[00:15:11] Sam Wilson: Absolutely. And that's something I was actually working on a spreadsheet this morning. And it was kind of a little bit of a head-scratcher. It's like, gosh, as we watch inflation skyrocket, As we watch interest rates go up, the unfortunate reality is that returns go down. It's like, oh, man. Like you'd kind of think you'd want 'em to like track in parallel in some weird way to where it's like, oh, okay, well I know that everything costs more. And I know that we could, but look, hey, we're all making more money along the way, so it evens out. That's just simply not the case. And we were even working on arranging a debt deal and it was like, okay, well, gosh, like, anyway, I won't bore you with the deal specifics, but it just, I guess, I'm just agreeing with your point there. It's like, oh, we just have to reset investor expectations. How has your business for you personally changed and why? In the last 24 months,

[00:16:03] Matt Hansen: I've really focused on capital raising and putting earnest money into deals and because it's so much work to run a deal now. Like, two years ago, pre-COVID it was so simple. It seemed like it 'cause now you have insurance are going up crazy and then interest rates with the lending brokers and, and all of those things. So I've actually chose to say, okay, my partners are stronger than that, stronger than me and that, and they really enjoy it. And I've known them for years and years so I know I can trust them with the process in place that I've kind of taken a backseat to it 'cause I'm retired, I don't want to work that hard. So that's how I pivot Sam, is like I backed off a little bit then I'm allowing the people that are much younger than me, you know, in some cases that want to really, really work that hard. And then I of course work with them on, you know, counseling to make sure things done right. But that's kind of how I pivoted 'cause it has make it more challenging to find deal. It is really has been.

[00:16:53] Sam Wilson: What has that process been like for you? I know you said that you had to kind of keep what you were doing under wraps until you retired, probably, if I can find the word here today, once you retire. But then once you got out, you're like, hey, you can tell everybody what you're doing, which is critical to raising capital, is being able to tell their people what you're doing. What's that process been like though, as you've kind of stepped away from the deal? What did you call it? LOI to close and now it's, hey, I'm going to focus on capital raising. Talk to me about that a little bit and just the fundraising, capital raising side of your business.

[00:17:23] Matt Hansen: It's really about education, education, education. I remember when I was new to investing that some of the general partners I had invested with didn't really disclose everything to me. They didn't, you know, I read through the PPM 120 pages and all that stuff, but they didn't tell me, like, the distributions aren't going to start for six months to a year because we have to renovate the units. I had my first three deals. Nobody told me that. It was like, so I make sure that I'm overly transparent with my investors or potential investors 'cause I know what that was like sitting in that position, and I walk them through moving their money from an IRA to a self-directed IRA. I get on the phone with the financial institutions with them and help them do those things because I know how challenging it is. But I think that's the limited partner in me. It was like, okay, I handhold everybody with white glove treatment through the whole process because I was that guy, six, seven years ago. So I think that's really what the big advantage is that I know all that stuff and that I know what it's like to be that individual. So it's really education, and just recognize it may take two years before somebody's willing to take the leap to invest. And sometimes it's two days, you know? It just depends and everybody's different. And I'm just accepting of that because I want them to be comfortable with their investment.

[00:18:32] Sam Wilson: That's exactly it. Yeah. And I think the funny thing is that the more comfortable I think I've become with just letting people do what's in their own time, the more money comes in easier. It's like, you know what, hey, if this is for you, get in. If it's not okay, don't. It doesn't bother me one way or another. This is the opportunity. And the bus is leaving, so if you want to go over the ride, I'm driving. So let's go. And if you don't get in, no problem. And I think that what's been funny is just watching people pile in. It's like, oh, yeah, it all went in on. They're like, okay just the more you relax, the easier this becomes. And, you know, you want people to do what's best for them. I mean, that's the whole point of bringing limited partners on is to do great things for them along the way. So that's fantastic. Tell me this, Matt, when you think about risk in the marketplace, when you think about what you guys are buying, when you think about things that could go sideways, is there anything that comes to mind? And if so, how are you guys mitigating that?

[00:19:25] Matt Hansen: We're still buying the Class B, C plus properties and you know the saying that, well, when the economy's bad, the people in the A's move down to the B's. When the economy's good, the people in the C's move up to the B's. So we still stay in that medium value, light value add in the Class B stuff. But I know people that are buying class a's properties, but your returns are not going to be the same. And we've got the model in place, we've got large construction companies that will travel anywhere around the United States for us to do the exteriors for us. So they come and boom, do that quickly. We know like in trust. And we know the markets, we only play in the markets with high population growth and high employment growth, so Florida, Texas, Arizona. It's still almost not, it's not, say, dumbing proof. You have to have the systems in place and the connections. But you know, I love Michigan, but I don't invest in Michigan. And I have investors here like, why don't you buy something to Michigan? Well, there's negative population growth and there's really not the place where I want you to put your money. Does Edward Jones going to tell you to invest in your local town? No, they're going to put you in whatever stocks they think are going to make the most money. And it's not in your hometown probably. But try to relate to that. So we've got a system in place. We've been doing this long enough that we stay in markets that even though the market goes rough. I think we're going to be fine. Our properties in Florida, there's still strong, strong demand. We're projecting, you know, $200 to $300 month rent growth after we've renovated the units just 'cause there's so many people moving there. So if that's how we protect our investors. We don't invest in markets that we don't have the data to prove that, for next 10 years, this is going to be a great market. This is where we want to put money.

[00:20:53] Sam Wilson: Right. Yeah. And Florida is one of those places where people are just going in droves. So that's certainly a great leading indicator for a place to buy apartment complexes. That's awesome. Matt, one last question for you. If you could go back through your investing career and if, or actually two last questions. They're both sides of the same coin. First question is there anything that you feel like you've done really well that other people should emulate?

[00:21:19] Matt Hansen: I would say running a deal and really the investor communication and that's so critical. And people, like, are worried about the deal and they don't worry about their clients. And again, I worked for a corporation. My early years I was a customer service manager at a chemical, large chemical company. So I dealt with, Rubbermaid were my customers a big huge was multi-million. You took care of them. I treat my investors that brings a hundred thousand as I did my multi-billion dollar clients, and I think that's something people lose sight of a little bit. They worry about the deal and they're not, they're forgetting about their investors. I think that's my secret sauce is I really take care of mine because they make it possible. They're the ones bringing in the down payment.

[00:21:52] Sam Wilson: Correct. Correct. Absolutely. Now, if there's anything you could do differently, or a mistake you could help our listeners avoid, what would that be?

[00:21:59] Matt Hansen: It's really vetting, vetting, vetting. You're investing in a deal. You should be doing due diligence as well. Take a look at the market. You can Google anything, right? Take a look at the crime rate. Take a look at the population growth. Don't take everything at face value, particularly when you are new. Like, now I invest in all sorts of venture capital stuff. I invest in a vineyard with one of my close friends. I didn't even read anything 'cause I've known her so well that I just signed the documents and sent it in. But that's a situation where this is something I've personally known with, known for a long time. But do you do diligence, particularly when you're new, and even if you're not, you know, make sure you're just double-checking things here?

[00:22:36] Sam Wilson: Absolutely, and that's always amazed me when people are willing to spend a hundred thousand dollars with me, but don't spend the 500 bucks in a daytime to fly out there and actually see it. It's like, come see this with me anytime, any day. It's 500 bucks in a day your time, and you might find out you hate the project and walk away and that's okay. That's okay, but at least you did your due diligence and so I've actually made that a personal rule until this year when again, going back to the who I'm investing with is more important than what I'm investing in. Yes. This I kind of broke that rule a few times and I'm just like, just send me the docs. It's fine. We're just go, go.

[00:23:14] Matt Hansen: But you know their track record, Sam, right? You do have a comp and your expertise is so high that you look at something real quick and say, Yep, this is good. So there is a difference. And if you're new in somebody or you're a veteran investor like you.

[00:23:25] Sam Wilson: Correct. Yeah, there is that differentiator there. But still it is amazing what people will or will not do when it comes to spending that amount of money or investing that amount of money in the due diligence part of it. So that's really fantastic. Matt, I've appreciated having you on the show today. Thanks for coming on. It's been great learning about you, your corporate career transition to limited partner and then to a general partner. And even how within the general partnership side of the business, you've even transitioned now to focus almost exclusively on the capital raising side of things and working with your investors. So certainly appreciate your insight, your market insights, and how you guys are finding opportunity and value today. If our listeners want to get in touch with you, learn more about you, what is the best way to do that?

[00:24:02] Matt Hansen: Just go to hansenholdings.com.

[00:24:05] Sam Wilson: That's H A N S E N holdings.com for those of you who are listening. We'll also make sure that's included there in the show notes. Matt, thank you again for coming on today. I certainly appreciate it.

[00:24:15] Matt Hansen: My pleasure, Sam. Thank you.