Mobile home parks have less risk than multifamily housing when it comes to inflation. Mobile home parks are tough to manage and can be difficult to find qualified third-party contractors. The hardest lesson for the mobile home park owner is to make sure they buy the right properties.

In today's episode of How To Scale Commercial Real Estate Podcasts, we are joined by Charlotte Dunford.

Charlotte is a graduate of The Georgia Institute of Technology where she earned her B.S. in Business with a focus on business analytics and technology. Along with her business partner, Rick, Charlotte started Johns Creek Capital, LLC in early 2020. From only 2 investors at the beginning of the firm's founding, Charlotte and the team led the company to 23 investors with subscriptions ranging from $10,000 to over $2.7 million each. Charlotte is also a Certified Associate in Project Management.

Let's join Charlotte as she shares her insights and story!

Highlights:

[00:00 - 06:08] Mobile Home Parks Still a Good Investment

• Charlotte Dunford is a partner at Johns Creek capital, and they own 27 mobile home parks in their portfolio.
• They recently sold one park, but are in the process of acquiring another.
• Mobile home parks are relatively tough to manage, and it can be difficult to find qualified third-party contractors to take care of onsite maintenance, usually taking care of everything themselves.

[06:08 - 11:46] Risks Associated with Mobile Home Parks in This Economy

• Mobile home parks have less risk than multifamily housing when it comes to inflation.
• There are fewer good deals and great deals available, so it is important to do your research before investing.
• Rent increases in multifamily housing typically exceed those in mobile home parks by a wider margin.

[11:46 - 17:4 Substantial Rent Raise

• The hardest lesson for the mobile home park owner is to make sure they buy right and have the right infrastructure in place. This can be expensive to fix.
• Sewage leaks are a common issue and can lead to high water bills.
• The mobile home park owner also has to be careful with advertising and budgeting for lot practices in order to attract tenants.

[17:39 - 19:21] Closing Segment

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

Tweetable Quote

" You just have to make sure you buy right with the right infrastructure in place because you can't change the infrastructure of the park and those problems can be extremely expensive to fix." Charlotte Dunford

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Connect with Charlotte Dunfordby visiting johnscreekcapital.com

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

[00:00:00] Charlotte Dunford: I think as far as. The total landscape of mobile home parks, the whole industry is getting consolidated from the top down and there are less and less mom and pop owners, which means that there are, will be less and less good deals and great deals out there. So I would say for those of you who want to invest in mobile home parks right now is still a good time to jump in because we're still early on in the curve of the entire real estate cycle for mobile home parks. So I think that's the opportunity right?

[00:00:38] Sam Wilson: Charlotte Dunford is a partner at Johns Creek capital. They are a private equity firm focusing on the mobile home parks. Charlotte, welcome to the show. Thanks so much for having me. Hey, no problem. Glad to have you on. There are three questions. I ask 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?

[00:00:57] Charlotte Dunford: So I started with, , a corporate job out of college, just like a lot of people do. And, after which I, in this, in the same time I was buying mobile home park, sorry, real estate, while I was holding that job. But soon after that, my salary was not enough to fulfill the ambition of, scaling the business. So I quit my full time corporate job while my husband was still in school. So kind of a risk for us, but with a calculated risk, cuz I was already buying, , homes on the side having some real estate experience and start in 2019, our first mobile home park and then scale to today's 27 mobile home parks with a total asset value. Investor subscription of five, roughly $5

[00:01:39] Sam Wilson: million. That is really cool. Absolutely fantastic. So you guys own 27 mobile home parks at this point.

[00:01:46] Charlotte Dunford: Yeah, in our portfolio, we have owned 27 mobile home park. We recently sold one. , but we are also in the process of acquiring another

[00:01:53] Sam Wilson: one. Sure.Okay, cool. How are mobile home parks, how do you quantify that? Is it by the number of pads that are in them or What do you say, when you say, Hey, this is what we own? Cause the number of parks versus the number of pads is probably entirely different, right?

[00:02:09] Charlotte Dunford: So a number of parks is not really, the Doors as far as in commercial estate or multifamily. So in mobile home parks, you're really looking at occupied lot.

[00:02:17] Sam Wilson: . Okay.

[00:02:19] Charlotte Dunford: Number of pen-paying tenants.

[00:02:22] Sam Wilson: Right. Okay. Gotcha. So you guys have 20 or 27 parks that have come through your portfolio. What I guess what, how many, what's the average pad per park, then

[00:02:33] Charlotte Dunford: average pad per park. We're looking at anywhere from 2010 to 20 lots, all the way to, 30 lots. So that's, we're in the smaller space. So small to medium-level mobile home parks are kind of a niche within a niche which means that we don't have a lot of competition. We can get parks at a. Attractive cap rate, right? Yeah. So on average, you're looking at about 2020 pads.

[00:02:56] Sam Wilson: Gotcha. Okay. Now, this is cool. Yeah, because a lot of times we hear, especially on this show, like, Hey, go bigger, sooner, faster. And that's gonna be one of the ways that you scale, but it sounds like you guys have found a way to actually kind of go the other direction in order to grow. Can you talk to me a little bit about that?

[00:03:13] Charlotte Dunford: Well, the most important thing is the good deal is to acquire at a good rate and you buy, right? So in order to buy, right, you must focus on vicious and opportunities where you can escape competition, sort of. So there are only two ways to do this. One is a focus on a space where. Most people are not looking at, or they have been ignoring for some reason or number two. You're so competitive to the point that you have just have so much money. You're one of those big institutional funds that you just rule out competition justed by being so big. So for us, we're definitely not the second one, but we're the first one we're focusing. Diamond in the rough, not necessarily we're going after it because it's small, but it represents a lot more lot of things such as higher cap rate and, more solid deals, deal structure, and easier to fund and also very attractive returns.

[00:04:06] Sam Wilson: Right. How are you finding one of the things I've heard is that it's challenging the smaller, the. Mobile home park or mobile home community is the harder it is to manage the harder it is to find and support say onsite maintenance, things like that. How have you guys found a way to scale with the smaller parks?

[00:04:25] Charlotte Dunford: Right with the smaller parks. I wouldn't say that it's more difficult to find onsite maintenance onsite maintenance is always, you find the local contractors with any bigger parks. If you wanna hire someone full time, that would be an expense, but that's not really the model that we underwrite sorry, under operate under. So it's a lot of times we under we operate everything in house. So we take over the management once. By the park, instead of outsourcing it to the third party, property management firm who would not really put enough effort as much effort as we would like them to be as much as we would ourselves, because, we always have our own asset. In mind. And we also invest in in all of our own deals on top of our investor funds. So, given that mobile home park is relatively a tough asset to manage and also because they're smaller and, generally if you're not. Under, you're not, a hundred pads and above, it's extremely difficult to find any third party person. So what we have, we do have onsite person, but he's not getting free rent. Just to fix our park up. That doesn't really work in any scenario. I don't think, what we'll do is that, If he is a contractor, we just pay him an hourly rate. And he has to, the rent rate is the same that way. If we wanna raise rent, we don't have to raise someone's rent for by a hundred dollars at a time because, he, all of a sudden he was paying nothing and now he's paying everything. And that way it just never good is not a good business practice. And we just never see that working out for anyone really.Big or small.

[00:05:59] Sam Wilson: Okay, cool. Tell me this. What are some risks you see in the mobile home park space right now that you guys are actively trying to mitigate?

[00:06:08] Charlotte Dunford: Right. Mobile home parks actually in this economy has lots of risk mitigation against inflation actually. Relatively less risky than a lot of other multifamily. First of you have less cash tied into the deal. So that's already less risky. But I think as with any investment vehicle, there are risks. So for mobile home parks, I would say the number one thing is that, like I said earlier, you have to buy, right. You have to make sure the utility structure is solid. The biggest money loser in mobile home park is utility issues. So that includes. Overpaying for utility bills that includes utility sewer and water leakage that not only means the higher utility bill and repair maintenance bill that could also shut your park down, which is the biggest risk because the health department may go after you and they have the right to shut the park down. And I think the biggest risk is to really be careful with the park infrastructure and to make sure that you don't have any, I. Issues because insurance companies, a lot of times, if you have a park that's really rough shaped, they, they'll probably not ensure you. And that's another risk that people need to be careful with.

[00:07:15] Sam Wilson: Yeah, no, certainly certainly insurance is a big ticket item for many of us right now. What are some things that you can do to bring down? I guess some of those potential costs. I know you said that if you have a park that's in rough shape, But, I mean, if you have a 10 to 20 unit property, I'm assuming a lot of those are mom and pop run, and maybe some of those have deferred maintenance. How are you guys overcoming that?

[00:07:37] Charlotte Dunford: So we actually don't we, we avoid all the properties that have really significant different maintenance because different maintenance don't do anybody, any good different maintenance is like taking a shower. If you don't take a shower, it's bad. But if you take a shower you're just normal. So it, it doesn't really add any value, even if you take care of different maintenance. So even if, just because a park is mom and pop run doesn't mean that it has significant different maintenance issues. Doesn't mean that the mom and pop run park. Are rough shape because for decades, all the mobile home parks have been mostly mom and pop run, and some mom and pops do a good job in running those mobile home parks. So I wouldn't say that's an issue. As far as bringing down the costs of different maintenance, again I think you just have to have a really solid infrastructure the park the conditions of the roads, conditions of the homes, age of the homes and the utility structure.

[00:08:29] Sam Wilson: Got it.That's really cool. Now, are you guys doing any park owned homes or are you guys strictly lot rent?

[00:08:35] Charlotte Dunford: Well, we sometimes have to have a mix because a lot of those parks. They don't, we don't have a, rule that says it has to be alternate own home, but we definitely wanna focus on majority tenant own homes. And if there are park home homes, then the Parkland homes have to have in good condition. And we have to look at their ages of the homes too.

[00:08:54] Sam Wilson: Right. Yeah. I would imagine park own homes, bring their own stat of of challenges maybe that that you don't want to deal with. What are opportunities right now that you guys are seeing in the market, as it pertains to mobile home communities?

[00:09:08] Charlotte Dunford: Well, I think the affordable housing crisis in the country is worsening. And it's always been there, but it's worsening in today's economy. So as far as opportunities, I think the overarching big problem of the affordable housing crisis definitely presents ITSs own opportunities. And I think as far as the total landscape of mobile home parks, the whole industry is getting consolidated from the top down and there are less and less mom and pop owners, which means that there are, will be less and less good deals and great deals out there. So I would say for those of you who want to invest in mobile home parks right now is still a good time to jump in because we're still early on in the curve of the entire real estate cycle for mobile home parks. So I think that's the opportunity, right?

[00:09:50] Sam Wilson: Right. Yeah, absolutely. Absolutely. Yeah. The affordability, I mean, that's something that, I mean, it's just, it's Countrywide and there's not a whole lot you can do about it. But tell me this, how, I guess we, we look at rent increases in multifamily and then compare that to mobile home parks and do they keep up neck and neck as far as percentage increases in a particular area or do they differ somehow? They're

[00:10:15] Charlotte Dunford: definitely not the same as far as percentage increases. Usually depending on the area, we usually don't wanna raise the rent more than $50 per year and in some areas $25 per year. So it really depends on what the last rent was increased and the market rent in the area. And as far as market rent, you're not only comparing what the other mobile home parks are charging in lot run, but also what. The other housing products are charging. What you really wanna do with mobile home parks is to provide the best option for best value for money is affordable housing, right? It has to be less expensive. So you really wanna have a gap four to $500 gap between mobile home park law rent and the, other housing , let's say mortgage or apartment building, single family, home rentals, their rent amount. You wanna make sure tenants are really getting this less expensive option. That's really the key.

[00:11:06] Sam Wilson: Right. So you're saying if apartments are renting it a thousand bucks, you don't wanna have your lot rent meeting or higher than say 500,

[00:11:14] Charlotte Dunford: right? No. Yeah. 500 bucks in lot rent is almost, very, is pretty rare even in the heated markets. It's well, unless you're in a really heated market like Arizona or in Allen, California, but in the most part of the Midwest and Southeast you're looking at in the 200, $300 range,

[00:11:31] Sam Wilson: Got it. Which goes back to your, don't increase 25 to 50 bucks a year because obviously 50 bucks on a $300 rent that's one six. So roughly 16 and 0.6%. Raise if you raise it 50 bucks that year. So that's a pretty substantial substantial rent raise there. That's really interesting. What would you say has been the hardest lesson? That you've learned since you bought a mobile home park in 20, bought your first mobile home park in 2019.

[00:11:58] Charlotte Dunford: So the hardest lesson, , like I said before, is. You just have to make sure you buy right with the right infrastructure in place because you can't change the infrastructure of the park and those problems can be extremely, expensive to fix. So you wanna make sure you're really careful with the utilities.

[00:12:15] Sam Wilson: Got it. Very careful with utilities, what was the, I guess when you think about, when you say that what's the story that comes to mind for you?

[00:12:23] Charlotte Dunford: So the story that comes to mind, there's several stories, but mostly, related to sewage leaks and just waterline leaks. So, sometimes you can be very careful with the utilities, but you still, sometimes you get sucked into the problem. So just really make sure you have enough reserves to, , prepare for any potential issues. They may not always happen, but when they do happen, they're gonna be expensive. So I think. Sewage leaks, which leads to, higher bills. And, we once , took over a park where they were paying $7,000 per month on water bills. So there were leaks everywhere and the previous seller just paid the fees, which was ridiculous. So we really. Went out there and, hired pretty much a huge plumbing team to really identify and locate all the leaks. And we fixed all the leaks. And that brings down the normal water bill, which is about 12, $1,200. So think about a $7,000 per month in water bill bring down to $1,200. That's a value add in itself. So you gotta be careful and it's expensive fix, but it did make the money back pretty quickly.

[00:13:30] Sam Wilson: Oh, yeah, no, that's a that's. That to me just sounds like opportunity where you go. Okay, cool. So clearly there's an expense for you, which brings your net operating income down, which means that I'm gonna pay you less for the property. That's

[00:13:41] Charlotte Dunford: right. Yeah. So for the seller, he was really baffled on why , The water bill was so high. He never really thought to even to do the plumbing job and to really fix the thing, didn't really understand $7,000 in water bill was outrageous. , but for us that turned out to be opportunity. We're able to get their property at very significant discount and we were able to fix that

[00:14:00] Sam Wilson: problem pretty quickly. Oh yeah. Oh yeah. No, that's really cool. Do you guys buy parks that are, that have low occupancy with the intent of increasing that occupancy?

[00:14:12] Charlotte Dunford: We do buy parks with lower occupancy. As far as the intent to, increase ly that, a few years back, it was a lot easier to buy used mobile home mobile homes. There are new mobile homes and bring them to, to your park. Now with the labor shortage, it's extremely difficult to acquire, , mobile homes used or new. To your and bring to your Park's extremely expensive endeavor, and that will cost you more money than what the value would be for a $100 lot run. , so nowadays, , for a lot, I think a lot of operators then for us, for sure, we we have the intent to advertise the park, advertised a lot, and, we budget for lot practice to attract tenants, to bring their own mobile homes into our park.And that's how we tend to, increase document.

[00:14:59] Sam Wilson: Right. How, what, why does someone move their mobile home? , if you raise rents 50 bucks, it's gonna cost them. I had, I don't know, five, 10 grand to move a mobile home. Why do people actually end up moving their mobile homes? So

[00:15:13] Charlotte Dunford: people don't really move their mobile homes from other parks. Period. They don't do that. Very rarely do they do that. So the only chances they move their homes into your park is they're buy a new home and they're doing, it's a financing package with the mobile home dealer that they're doing this through financing, they don't really, pay out of pocket some may, but most don't. Buying them. , but they certainly never moved their mobile home from an existing lot or existing mobile home park that they were living in to another park. So that almost never happens. They usually sell it or walk away. So in the cases where mobile homes do get moved is because they're buying a new home and move it into your park.

[00:15:53] Sam Wilson: Got it. That makes a lot of sense. So if you're buying a park with low occupancy, one method would be to advertise for people or maybe even coordinate with your local distributor or supplier, whoever it is you have to go to for mobile homes, coordinate with them and just let 'em know that, Hey, you guys have spaces available, right?

[00:16:12] Charlotte Dunford: and then you can pay them a kind of a commission if they were successfully able to, , bring a home into your park and that's a really good deal for you,

[00:16:21] Sam Wilson: right? Yeah, absolutely. That's some of the best marketing that's out there. What's kind of a going rate for that. Say somebody say I went to a local dealer and said, Hey man, send me some of your people buying new homes. What should I anticipate paying.

[00:16:34] Charlotte Dunford: So it depends on what kind of people you're talking to. So you can pay maybe a thousand or if it is a tenant in your park that you're saying doing a referral program, maybe $500 in cash, or sometimes gifted cards work, but mostly, if you go any lower than that, I don't think any or Anybody would be too interested in do, doing that much hassle for you,

[00:16:55] Sam Wilson: right? Yeah. Right. So a dealer sends a prospective tenant your way with a new mobile home. You can expect to give them roughly a thousand bucks and say, Hey, thanks for right.

[00:17:05] Charlotte Dunford: Right. If the tenant ends up moving in, of

[00:17:07] Sam Wilson: course. Sure. Yeah, absolutely. That's a very interesting way. Filling your parks. Have there, have you had any challenges buying a low occupancy park and then filling it?

[00:17:18] Charlotte Dunford: So I think the in filling is always challenging. So I wouldn't say that, if your, primary overarching strategy is infilling that's not what we specialize in. And we don't really focus on that because in today's market, it's just not a viable solution, not so much, , because it takes, like I said, it doesn't make sense economic economically. So we don't really focus on that. So I wouldn't say there are any challenges in us actually trying to do that because that's not really our strategy.

[00:17:47] Sam Wilson: Got it. Got it. That's really cool. Charlotte, if you were to think about your success from point 19 till now, what would you say is one of the keys that has helped propel you forward?

[00:17:59] Charlotte Dunford: One of the keys is to make sure that you build a really powerful team that is a team sport. You can't do this alone, and you wanna make sure that you have your team members who are very specialized and very good at what they're doing. And you guys work as a team and achieve the common goal. So that's the most important thing. I think, as someone who wants to start a company, as someone who wants to scale their business, you wanna make sure that you're not the only person doing, wearing all the. You have to delegate, you have to assign those people who are good at what they're doing to do that job.

[00:18:32] Sam Wilson: Right. Who was the first key team member you brought on?

[00:18:36] Charlotte Dunford: Well, I think the first one is my partner. He's not a team. He is a team member, but he's my business partner. So he has a really good engineering background, construction background, and backgrounds in running businesses in, in general. So that was really a no brainer.

[00:18:51] Sam Wilson: Got it. That's absolutely awesome. Charlotte, thank you for taking the time to come on the show today and really break that. Thank you so much for having me the mobile home park space, how you guys are finding opportunity in the small to medium sized parks. Some of the risks that we can hopefully avoid and, especially as it pertains to infrastructure and things like that. And then also some just helpful tips and tricks on how to fill our parks. If we're buying these and there's lower occupancy, how to coordinate with local dealers. And bring prospective tenants new prospective tenants into the park. So that's loads of fun, been a pleasure to have you on. If our listeners wanna get in touch with you, learn more about you. What is the best way to do that?

[00:19:28] Charlotte Dunford: The best way is to find me at our website at johnscreekcapital.com. And we'll go from there. Great.

[00:19:35] Sam Wilson: Thank you, Charlotte. Appreciate it. Have a great rest of your day.

[00:19:38] Charlotte Dunford: You too. Bye.

Robert Ritzenthaler is the managing partner and CEO of REM Capital helping fellow business owners and real estate entrepreneurs learn/grow their business, manage risk, minimize their taxes, and achieve their goals.

Listen in as he shares the value of finding the right talent for your team and how being surrounded by the right people could help with your business' growth.

[00:01 - 01:57] From CPA to Building Best in Class Multifamily Investment/Management Firm

• Robert moved from Dallas to New York working in commercial real estate
• He started REM five years later that has since grown into $350+ million in assets under management

[01:58 - 07:28] Growing A Successful Business

• Communicating his experience with his equity partners and putting down deals together has helped with his rapid growth in the industry
• One-on-one phone calls are vital to raising equity

• Robert's three pillars of business
• People on investment
• Relationship people in the operations
• Signing off in every single deal
• Transparency
• When you focus on building relationships and transparency, you may lose a few deals along the way but there would always be referrals from people who appreciate what you did

[07:29 - 19:27] Finding and Retaining Talents

• Finding opportunities in today's market
• Think long term
• Stress test a deal to make sure you can make past any downturn
• Here are the risks that Rob and his team are trying to mitigate
• Finding qualified people
• Retain talent through creative benefits
• Help shift your employees' mindset by educating them

[19:28 - 20:39] Closing Segment

• Reach out to Robert!
• Links Below

• Final Words

Tweetable Quotes

"It's just transparency, not trying to pretend that you know everything, not trying to put on a show not trying to be sales-y, but just to be totally honest with people." - Robert Ritzenthaler

"Without them, without the people working inside of our company, we don't have a business at all." - Sam Wilson

"You're helping them. They're helping you. We're all in this together." - Robert Ritzenthaler

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Connect with Robert for passive commercial real estate investment opportunities! Follow him on LinkedIn, visit the REM Capital website, or 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:

[00:00:00] Robert Ritzenthaler Well, we have started a program where employees can invest in our deals. So giving them ownership, kind of making it more of a transformational process for them to where it's not just a job. It's not just hey, we got a 401k. But hey, you come work for REM. You can actually invest in the deal where you work. Pretty cool.

[00:00:30] Sam Wilson Robert Ritzenthaler grew up in construction, he was a CPA turned to Wall Street, then manage over a billion dollars in assets for a REIT. And currently, he's building a great multifamily real estate business one day at a time. Robert, welcome to the show.

[00:00:45] Robert Ritzenthaler Hey, appreciate it, man. Great to be here. Thank you.

[00:00:46] Sam Wilson Absolutely. Robert, 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?

[00:00:54] Robert Ritzenthaler You got it. We'll do it. 60, maybe because I'm from New York. Love it. So I grew up in Dallas, in the construction business, moved to New York, as you said, spent a number of years in commercial real estate working for other guys making a bunch of money, but five years ago decided to start REM with the idea that there was a opening for a little more institutional approach to individual investors getting into the multifamily space. And we have since grown it to about 350 ish million assets under management got 22 properties scattered around the southeast, Midwest and Texas. And well, at least with what we got under contract will be just across the half a billion mark by the end of the year. Well, end of Ambit fourth quarter. So yeah, cruising along.

[00:01:39] Sam Wilson That's awesome. I love that. What do you feel like was one of the things that really propelled you forward? I mean, 330 million in assets under management is quite explosive growth in the last five years? What were what what would you say was one or two of the major keys that helped you kind of make such rapid growth?

[00:01:58] Robert Ritzenthaler Yeah, that's a great question. I think, one for sure, was being able to communicate the experience that we had to the equity side of the house, because obviously, that's a big hurdle. When you're starting out on your own. How do you convince somebody to, you know, part with a million 100,000, whatever it is, and put it into a deal. So I think that was key. And of course, that 20 years of experience in the business definitely helped out, it would have been a lot more difficult to come out of the gate, saying, hey, you know, I just quit it. Nothing wrong with that, hey, you got to start somewhere. But I think it would have been a lot more difficult. So that was number one. And then I think number two, had a pretty good sense of how to put deals together from again, past experience. So kind of from structuring, to underwriting to stress testing things of that nature, so that we didn't have any blow ups, so to speak. Now, you know, this market has been ridiculously forgiving to all of us, which has been wonderful. But we had a couple of challenges. Our first deal, actually, that year, if we owned it, tornado came through and rip the whole thing up. And we went from 99% occupancy to zero in about 48 hours. So yeah, that's a good, good challenge to navigate that, which we did, and we had the right insurance coverage, we had the right working capital set aside, got that thing back up and running, rebuilt it and released it in the middle of COVID. And today, it's cranking along, you know, generating nice, whatever, nine 10% monthly distribution for our investors. So you know, those things help. It builds a good track record.

[00:03:32] Sam Wilson They do. Yeah, you Nobody wants a tornado no matter what. That that's never good. What you said there early on, you said communication to your equity. That was one of the things that really helped you out, especially having the industry kind of experienced to go with that. Yeah, what are some more, I guess defined things. When you think of that, you say, hey, this, this is one thing that I feel like other people maybe aren't doing or that they could do better?

[00:03:59] Robert Ritzenthaler Yeah, absolutely. So I think one on one phone calls are absolutely vital to raising equity, or bringing equity, whatever you want to call it. I think that's true, no matter if you are just getting into the business, or you get a billion dollar company, I have said three, three, sort of core things that I will do, regardless of how big we get. And two of them are people people on the investment, that relationship people in the in the operation side of it, that relationship and then signing off on every single deal that we do. So those are the three pillars that I'm not giving up, no matter how big we get. So that's how important it is to me is having that relationship with your with your equity folks. But I think inside of that, s and say, Hey, this is what We've got, this is how we run the show. Obviously, if you don't know what you're doing, that's going to be more challenging. But even if you don't, I think transparency and honesty and just, you know, showing your integrity is super important. Because again, it's that know, like, and trust factor, if somebody can trust you their money, they're going to hand it over, they feel like no, no, we have this guy, then it's gonna be a lot more challenging. So I really focus on that. And I think people appreciate that. And it's a little bit almost anti sales. You know, some of my guys chide me a little bit about that. They're like, Robert, you need to just close the deal. And I'm just so focused on wanting to understand each person's goals, objectives, where they're at in life, what they want, and making sure that it's a good fit for them. And I think people appreciate that. And you lose a few. But that's okay. Because there's 10 more referrals from the, from the folks that really appreciate it. So I think that's been some practical things that I would recommend folks do, man.

[00:05:56] Sam Wilson And you're further down this down this path than I am. But I would say that, just just just to agree with you. One is the one on one phone calls are critical. I was I was listening to somebody talk the other day, and they said, they said, hey, you know, I didn't get much response from this deal with that, that they had put out. And I said, Well, how many people have you called, like, you can email all you want, you can send text blasts all you want, but if you picked up the phone, like it's 1980. Yep. And hit dial. And they're like, Well, no, I didn't do any of that. I'm like, You should do that to everybody on your list, and then see what response you get. Because I know I dramatically respond different to a passive investment solicitation. If somebody calls me directly, and it's like, hey, hey, Sam, I want to know if you're interested, well, yeah, maybe you send me an email, man. And there's nine out of 10 chances. I've hit delete, like, I gotta I gotta keep moving. There's 300 emails in there. I think the other thing that that, that you said that I really liked, there was just kind of letting go, right? I think the more I've raised more capital, the less connected or less attached I get to, are you going to invest in this? Or would you like to invest in this like, Hey, this is good for you get in? If it's not, don't I don't care? Right. And I will tell you, the more I've said that the more money has come in, right. I don't care if it's good for you get in and great. And if it's not okay, no problem. I enjoyed our conversation. And that loosening up the his it's been, you know, that's really great. So thank you for taking the time to, to share with that share with us, you know, kind of your approach on that front. That's really, really cool. You say the market has been ridiculously forgiving. Tell me how are you guys finding opportunities now? And where do you see us going? Since maybe we're exiting this ridiculously forgiving phase?

[00:07:40] Robert Ritzenthaler Maybe temporarily? I don't know. I don't see the Fed changing their policy that much. But no, it's great point, I think, you know, in the past, it was kind of throw a dartboard and you made money in multifamily. Right. And I'll be honest with you, I think it's going to come back to that in a fairly short order. Could be wrong, but I think you know, give it a year or two, and we're probably going to be back to that era, just because of the supply and demand curve that you can't really change overnight. That's a 1020 year problem. But interim, currently, we feel like there's a six to 12 month window of opportunity for folks that are operators, meaning you know how to control that process. In our case, we've got, you know, 8085, I don't know, we might be at 90 people on the operation side of the business. So being able to have control of the business execution, being able to know what you're doing plug in and knock things out is super important. But also focusing on cash flow, versus just buying an asset and hoping that the value goes up is also really important right now, we've always been that way. So for me, I look at the business fundamentals. And I say, Hey, am I making more money next month than I am this month? Yes, absolutely. People say yeah, but your interest cost goes up. That's true. But my rents going up faster than the interest cost. So and my interest cost is much smaller percentage, my rents, you know, that's the whole top line. So I think there's an equation in there that tells us that the business itself is continuing to do better. Yes, we understand that valuations are taking a bit of a pause, but again, a year or two from now. I'll bet your money, they're coming back. I am betting money that they're coming back.

[00:09:21] Sam Wilson Oh, I think that's that's really, really, really, really beneficial. Do you see a lot of fear in the market? Right now? I think we see it across a variety of, you know, any investor, you know, it's, it's pumped out in the news. Of course, the news is built on fear. So I'm not sure that that's, that comes as a surprise. What are you telling investors right now, and I know you just kind of hit on that a little bit saying that we're in the six to 12 month window, how are you making sense or logic of where the market is right now?

[00:09:50] Robert Ritzenthaler So I think the most important thing, which again has always been true, is stress testing the deal to make sure that you can make it past any downturn. So like instituted, they haven't done this in years, I stressed that at our trust us and one of our deals up to eight and a half percent interest, five years from now, at a 60% leverage. So I mean, this is like valuations drop, interest rates stay high for five years, what does that look like? Hey, you know what we can refi the debt we have today, and we're good, we didn't have to put a penny into it. So that's the kind of thing that I haven't done in a while. But to me, that gives you confidence to say, okay, you know, what, we're getting this deal for 234 $5 million, less than we would have paid five months ago, we're gonna get that $5 million back at some point. So if my business model works, and his stress tests, we need to keep moving forward. Because on the flip side, you put that money in cash, it's going down in value eight to 9%, every year, some would argue a lot more, but let's just use the headline number. So I feel like it's kind of a no brainer in that sense. But again, the opportunity has been more for the operators that are looking at it long term versus the guys that are kind of the fix and flip. I think that's where the markets gotten a little quieter, which is great. Because that's our competition. So hey, you guys just take a little break for a couple years here, or six months, whatever it is, you know, let us let us step in for a little while. And that's kind of what we're seeing on the deals that we're getting right now.

[00:11:19] Sam Wilson Yeah, I mean, that does it certainly, it certainly creates a great opportunity for you guys. You know, on the acquisition side of things, I like the idea of just thinking long term like, Hey, we're gonna build this portfolio. Yeah, it this is a long a long term play, what are some risks that you guys are actively trying to mitigate right now?

[00:11:40] Robert Ritzenthaler Well, the biggest risk, I don't know if I would say we're mitigating and we're definitely working on it as people, the biggest challenge is people because it is so hard to find good help. And that's one of the reasons that I don't think the economy is going to go to some long lasting recession, because right now, everybody who wants a job has a job, and we can't find people to help. And until that really gets pulled back, which to me, I mean, we haven't seen any effect with all these interest rate increases. You know, we've seen the stock market drop, we've seen real estate prices moderate, you know, new home sales come in a bit. Nothing has happened to the wage growth. Interestingly enough, the Fed mentioned that last week, when they raise the rates, they specifically said, Hey, we've seen the supply side start to come in. But this whole wage thing is still going. And we're a little concerned about it. Now, the interesting part about that is that if you look back, I don't know, three to six months ago, Chairman Powell specifically said, we're going to let wage growth run because it's so far behind, which it is, if you look at everything else, wage growth is way far behind. So in my mind, I'm hearing him say one thing to keep the markets happy. But in reality, they're like, Hey, this is just fine. We're good. Let those wages run. Now from a multifamily perspective, I'm thinking, two thumbs up, because as those wages go up, they can afford the rents. We keep chugging along. Everybody's happy. So but I guess getting back to your question about the the challenge, it's really finding qualified people. And we're trying to mitigate that through specifically finding recruiters, Headhunters, people that we can rely on to specifically target other folks that are that are currently employed, convince them to come work for us, because that's our limiting factor right now. And and I'll admit, it's tough. I mean, it is a, it is a war for talent. I was just on a podcast last week with some, some other guys talking about it. And you know, if you can get the people there to renovate the units, you will lease them and you will lease them at a higher number. Question is, can you turn that product to the faster you can turn it the faster you're making money?

[00:13:48] Sam Wilson Right. And I guess that's the question is, is what type of talent when you say that, what is the missing talent piece to?

[00:13:56] Robert Ritzenthaler Well, the biggest the biggest chunk is maintenance and renovation. For us. That's the biggest piece because you got to go in there with our model is we're doing value add, so we're going in, we're finding properties that need better management, they've got some deferred maintenance, and they need renovations. So we're picking up work orders that haven't been, you know, handled in 3, 5, ten years, and we got to fix them all within a short order, you know, it's a 24 month business plan, right? So we got to have maintenance people, then we got renovations got to get in there, turn, you know, 80 to 80% of those units within the first 24 months as examples. So you get a lot of stuff happening. And you got to have a lot of good people to get it done. So that's kind of the biggest challenge that we're facing right now. Just what are some?

[00:14:38] Sam Wilson What are some creative things you guys are doing in order to attract that talent?

[00:14:43] Robert Ritzenthaler Well, we have started a program where employees can invest in our deals. So giving them ownership, kind of making it more of a transformational process for them to where it's not just a job. It's not just hey, we got a 401k But hey, you come work for REM. You can actually invest in deal where you work, pretty cool. Now many maintenance people that can say, hey, I own a piece of this property. Right? So that's one of the things that we're doing. And I think, you know, it takes a little bit of time for people to really understand even how to communicate that to the prospective employee. It's one thing to have me sit there and explain it, but I'm not gonna sit there on any every single interview, you know. So get even getting my people to understand that and communicate that takes time, it takes a little bit of education on my part. But I do think that's something that will set us apart and create some value that isn't that common in our space.

[00:15:35] Sam Wilson It's not common, and I guess that would be the hurdle I would see is the is what you just mentioned there is being able to effectively communicate to that maintenance and renovation staff. This is this is what's being offered you, I'll give you a quick Case in point, I used to own a service business. And I said, Okay, to the employers, I said, Look, I can put you on a pro rata sharing program. Whereas if you get XYZ done, you could make maybe, say 90 grand a year, or you can stay hourly, like you are, and you'll probably bring in between 45 and 60. Right? Yes. How many of those employees and I was like, this is not just fictional numbers, like I can tell you based on our revenue, if we could just switch these things around, this could be your additional revenue income, zero, none of them took it. They said, Well, man, the problem is, is that you know, I'm gonna get paid monthly on that, and weekly on that, and I just can't fit. And I could never figure out a way to commune I'm like, Wait, so you're gonna pass up a 50% Bump and pay just simply because you don't understand it? Yeah, the problem is mine, I never did find a way to communicate effectively. So I'm just curious how you guys structure that in such a way that then becomes appealing to the people that you're, you know, offering that to?

[00:16:49] Robert Ritzenthaler Yep. And we've had the same exact challenge. And that's where I've realized, Hey, this is going to take a concerted effort starting at the top of me to educate everybody across the board. And in some ways, it kind of hit me that, hey, wait a minute, I'm educating our investors, I'm educating, you know, the folks around us, the stakeholders that are part of the business, I'm not really educating our employees. And, hey, why not? I mean, they're just as capable as anybody else of being part of this process. So that's what kind of clicked in my head. Right now we have an annual leadership conference, that's part of what we do is educate, we're thinking about going to a twice a year, you know, a biannual Leadership Conference. And that's one of the things that we're teaching is, how do you invest? How do you grow beyond just being a maintenance guy? You know, there's a lot to it. And there's fear, because people think, Well, wait a minute, that's not guaranteed. But about that, you know, and so it's, there's a whole educational component, you know, good friend, my Rod, that's all he does is just train people on how to do that. And it's super important, because it's a complete different mind shift. And I come from an entrepreneurial family, right. So for me, it's like waking up in the morning and big deal.

[00:18:00] Sam Wilson This is, all we know, is put Yeah, label like What do you mean, I don't get paid? Regulates. That's why I've never known regular pay, like exactly, no. But for the rest of the world doesn't think like that. I think you hit on a really key, something really, really unique there is that we do spend all this time educating our investor base, putting stuff out on social media doing, you know doing podcast, stuff like this, but but I think a lot of us don't spend any time on our own in house people going, Hey, wait, you too can learn how to invest in real estate like that? Absolutely. That's brilliant. So I think that's, that's a really cool take on how it is that you guys are finding talent and then bringing them in, but also making them part of the deals and building generational wealth for them, too, I think. Yes, exactly. Because without them without the people working inside of our company, we don't have a business at all.

[00:18:46] Robert Ritzenthaler Right, right. Well, I think to a lot of people look at it as they say, Well, what if I promote this person too far, they're gonna leave and then you know, they work for a few years, they're gone. Okay? The fact is not everybody wants to go from 40 to 80, to 120 to 240. That's not what they're here for. They're happy doing their job. The question is, how can you provide a long term sustainable retirement growth, whatever. And I think that's a great way to do it. It really gives that sort of two way, you know, loyalty, if you will, because you're helping them. They're helping you. We're all in this together now. Right. So anyway, that's, that's the thought process.

[00:19:28] Sam Wilson That's really cool. Robert, I've certainly enjoyed having you on the show today. Thank you for breaking down what it is, you guys see in the marketplace, how you're mitigating risk, how you guys are finding talent, what you guys are raising capital and your communications to your equity partners, and just kind of your thought process behind that. And the of course, the one-on-one phone call. I love that. That's one of the things that we were talking about that but I think that's cool that you guys are really making that a priority. So thank you for taking the time to come on the show today. Certainly appreciate it. If our listeners want to get in touch with you or learn more about you. What is The best way to do that?

[00:20:01] Robert Ritzenthaler The easiest way is either our website or remcapital.com. Or email me, [email protected]. Happy to chat. Awesome.

[00:20:01] Sam Wilson Thank you, Robert. Have a great rest of your day.

In today's episode of How To Scale Commercial Real Estate Podcasts, we are joined by Shawn Dimartile

Shawn is a founding member of Pac 3 Capital, He directs and oversees capital improvement projects and is responsible for identifying, analyzing, and underwriting all acquisitions. Let's hear more about Shawn's story of how they made 40 Million In assets under management and how they are currently moving into boutique hotels and properties.

Highlights:

[00:00 - 05:32] Opening Segment

• Shawn is a former traffic controller for the FAA
• He met his partners that were all interested in real estate and they jump right in liquidating their 401k taking their saved money to a 32-unit apartment complex
• Walking away from a 6 figure income W2 job is monumental for Shawn.
• Shawn adds that being an FAA while building a real estate portfolio is tough.

[05:33 - 11:14] How to Profit from the Boom in Boutique Hotels

• Investors can benefit from buying boutique hotels, which are becoming increasingly difficult to find.
• There is always a risk when investing in these types of properties, but with the right strategies, it can be a profitable venture.
• One way to mitigate risk is to list the hotel on Airbnb or another similar platform.

[11:14 - 16:31] How to Underwrite a Boutique Hotel

• Buying a boutique hotel can be more complicated than buying a multi-family property, as data collection and research are required to make accurate projections.
• Small-time operators typically have bad financials, and it can be difficult to find comparable properties.
• Returns for investors can be high, depending on the property's renovation potential and return profile.

[17:39 - 19:21] Closing Segment

• Reach out to Shawn Dimartile
• • See links below
• Final words

Tweetable Quote

"Going into a boutique hotel space is always gonna be like, it's a little bit different than multi-family because when business is booming, it's booming and it fluctuates for example COVID really hurt the hotel industry more than they affect multifamily" -Shawn Dimartile

You can mitigate a lot of that risk and you can just increase your income by putting your boutique hotel and listing it on those kinds of platforms That's a great way to mitigate that risk because even in the economic downturns, people are going to Airbnb and trying to book those smaller units building.." -Shawn Dimartile

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Connect with Shawn Dimartile by visiting www.pac3capital.com/

or email him at shawnpac3capital.com

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

[00:00:00] Shawn Dimartile: the general business plan is to go and do our value. Add right away, take the property offline or half of it offline at a time, go in, completely renovate it inside and out. Add amenities, like some hot tubs, maybe some cool fire pit areas.

[00:00:13] Shawn Dimartile: And then after we have 12 full months of financials. So, with renovation, I'll probably take about 17 months to get a full 12 month PNL to show a bank and then refinance and pull all of our capital back return all the capitals.

[00:00:25] Shawn Dimartile: And then sell in year three or five, and our investors are, can see a 2.5 X to three X equity, multiple.

[00:00:32] Intro: Welcome to the how to scale commercial real estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.

[00:00:45] Sam Wilson: Shawn Dimartile and his partners are multifamily, syndicators, boutique, hotel operators, and short term rental investors. He and his partners have over 52 million in assets, under management. And they're also hosts of the multifamily takeoff podcast and host their own real estate.

[00:00:58] Sam Wilson: Meet up in San Diego. Sean, welcome to the

[00:01:01] Shawn Dimartile: show. Thank you so much for having me on Sam. I'm

[00:01:04] Sam Wilson: stoked. Hey man, pleasure's mine. There are three questions. I ask every guest who comes from the show in 90 seconds or less. Where'd you start? Where are you now? How'd

[00:01:11] Shawn Dimartile: you get there? All right. In 90 seconds or less where I started as a, as an air traffic controller for the FAA.

[00:01:17] Shawn Dimartile: That was my w two job before I quit in March. I met my two partners air traffic control. We were all interested in real estate investing. And we jumped right in by liquidating our 401ks. Taking our saved money and buying a 32 unit apartment complex. Our, we have our own, we start our own podcast as well.

[00:01:33] Shawn Dimartile: We call it the multi-family takeoff and that's just kind of a play on word since we're all our traffic controllers, right. Fast forward. And. We got some mentors and we started growing over the past year, especially exponentially did two big syndications last year. Right now we're sitting at 300 multi-family units.

[00:01:50] Shawn Dimartile: We have our own portfolios of numerous Airbnbs, single family, and we've started purchasing boutique hotels. We close on the first one on Monday, man.

[00:01:59] Sam Wilson: That's a lot of moving pieces. I love that. And so it was just March here of 2022. When you waved goodbye to being an air traffic controller. That's

[00:02:07] Shawn Dimartile: right.

[00:02:08] Shawn Dimartile: I think it's a scary thing for anybody to do. No matter how many assets you have to quit that guaranteed income w two. And it was a really good job, high six figure income. Right. So, to walk away from that was definitely monumental, but it's definitely allowed me to focus on this real estate, more raising capital and putting all my energy into.

[00:02:26] Shawn Dimartile: Yeah.

[00:02:26] Sam Wilson: I mean, for people that don't know air traffic controllers, I mean, that's that, like you said, [00:02:30] it's a very nice paying job. I mean, those are, oh yeah. Those are hard things to to walk away from where'd you work

[00:02:35] Shawn Dimartile: out of. So I worked out of a, there's a facility here in San Diego and it's a radar only facility called SoCal TRACON and I control the approaches and departures for long beach airport, Fullerton, Los salamis, and Torrance.

[00:02:48] Shawn Dimartile: And I did that for six years.

[00:02:50] Sam Wilson: Wow. Wow. That's a, yeah, that's a, in some of the busiest airspace in the world. Exactly. there you are coordinating all those flights, man. I bet your stress level has gone down just slightly.

[00:03:02] Shawn Dimartile: Absolutely. Absolutely. And you're working crazy hours in that job. Like all shifts. I would work morning, night and graveyard shift in a five day span.

[00:03:11] Sam Wilson: Ooh, wow. Yeah. Wow. Yeah. That's yeah, that's that? That's awesome, man. Good for you. And you're stuck in a radar facility with probably no outside windows or anything else for that.

[00:03:22] Shawn Dimartile: Correct. It's a dark area. It's cold in there and you're working crazy hours, man. So, yeah.

[00:03:27] Shawn Dimartile: And trying to build a real estate portfolio while you're doing that is tough. Right,

[00:03:32] Sam Wilson: right. But you've done it. I mean, that's the thing is, as you guys have done it, tell me when, I guess, since this is so fresh for you, when did you know that, Hey, I'm onto something. I can , not only onto something, but I can now replace my income and, or at least I have enough momentum to know that what we're doing is gonna be worth the investment.

[00:03:50] Shawn Dimartile: It was a combination of getting the multifamily, syndications, the big ones closing on those last year. Which increased my net worth substantially enough to where I know that over the next couple years, as those refinance and sell, I'll have a lot of income coming in that I can use. But the biggest thing was building the cash flow.

[00:04:08] Shawn Dimartile: I needed to sustain myself. So I basically built enough cash flow through my short term rentals and everything to where I was meeting, what my take home was from the w two job. And that was the point where I realized, okay, now I can step away. This will sustain me. I can count on it. And then I'm just gonna go really hard on the real estate.

[00:04:28] Shawn Dimartile: So it was really, once I knew that my long term strategy was gonna be, was gonna be bringing in income over the next three or five years, and then my cash flow could sustain me over that period.

[00:04:39] Sam Wilson: Right. That makes a lot of sense. So you close two big multifamily syndications. You've got some short term rental.

[00:04:45] Sam Wilson: And then you said, Hey, wait, there's something to the boutique hotel space, walk us

[00:04:51] Shawn Dimartile: through that story. So it started with the fact that multi-family is so competitive right now. And it's so difficult to find deals. I mean, you know [00:05:00] how it goes, underwriting 100, 200 deals, and then a couple of those might make sense to make offers on, to meet your investor expectations.

[00:05:07] Shawn Dimartile: You might make some offers, but then they're hyper competitive. So it's tough. To find the deals right now, very tough. And you have to put in a lot of time and energy and resources into networking with brokers and underwriting, like a, having someone underwriting for you full time, whatever it is.

[00:05:21] Shawn Dimartile: So as we kept looking for deals, underwriting months going by and how difficult it was, we were realizing what our short term rentals, just how insane the cash flow was on like, Airbnb properties, et cetera. And we had heard of other people taking down these boutique hotels and what we liked about.

[00:05:38] Shawn Dimartile: Is that we can get a hotel, let's say, for example, this 10 unit that we're getting on the California coast of Northern California, we close next Monday. We can, you can find a lot of these boutique hotels that are operated by, family operated or mom and pop operated, just like a lot of the value add multifamily with a ton of value, add a ton of inefficiencies, just all kinds of leverage.

[00:05:59] Shawn Dimartile: You could pull to increase the NOI. And you could find those with relative ease. Now there's not as many as these of these boutique hotels as multifamily, but you could find some deals right off a loop net. That makes sense where you're buying at a higher cap rate. Like a 12 cap, for example, you can go in as cash flowing day one, and you can drastically increase the cash flow.

[00:06:20] Shawn Dimartile: So we're kind of. Combining what we've learned in short term rentals and Airbnbs and whatnot, and what we've learned in multi-family. And we're kind of combining the two, and now we get the benefit of all that value add on those short-term rentals and using the commercial form valuation and cap rates.

[00:06:37] Shawn Dimartile: Why? And so there, we just see a ton of opportunity here and we've pivoted because we're seeing that like, okay, we can put. All this time and energy into these assets right now, where there's just loads of them with virtually no competition. And we can accomplish the same thing for our investors as we are with our multi-family investments, but with higher cash flow.

[00:06:57] Shawn Dimartile: And so we're basically just kind of evolving with where the market is right now and going, where we see opportunity. And even more reason why is because so many cities and municipalities are either banning it, a short term rentals outright on single family homes, or they are restricting them and capping how many can be and making it a lot more difficult.

[00:07:17] Shawn Dimartile: And you can find these boutique hotels and markets like that and target those. And reduce the amount of competition on the short term rentals,

[00:07:27] Sam Wilson: right? Yeah. That, that, that was gonna be the the [00:07:30] question is because if it's already a hotel it's already a short term rental. The likelihood that there's retroactive, all that stuff gets grandfathered in or is already zoned for that.

[00:07:43] Sam Wilson: So

[00:07:43] Shawn Dimartile: exactly. If it's zoned for it, that's the big thing, because if it's zoned as a bed and breakfast or a hotel commercial, then those rules don't apply to you. Most of the time, these regulations are just targeting single family homes. They're not targeting for example, Airbnb. The regulation will read that a single family home, these are the restrictions if it wants to be a short term rental, so you'd completely avoid the regulations.

[00:08:05] Sam Wilson: Right, right. And that's the beauty of it is you can go into, and we've mentioned this several times on this show, which I'm not a favor of intervention or, the political risks that go along with investing in certain areas or just can be completely frustrating, but yet there's, it always creates some form of market distortion.

[00:08:23] Sam Wilson: I think and you have to be, you can get mad about it or you can find a way to exploit it and I'm gonna use that word, exploit it and, or use that market distortion

[00:08:31] Sam Wilson: We go there and there's all these there's taxes or there's this, or there's that. But I think it also creates market distortions. If you're prepared to exploit those market distortions, use an investor can benefit from those same political kind of risks that whatever are in that area.

[00:08:45] Sam Wilson: So in this case, it sounds like the ability to buy a boutique hotel is really advantageous. If you're in a climate where it's like, oh, Hey, short term runners are really getting clamped down on. Right. Does that sound about right?

[00:08:57] Shawn Dimartile: That sounds, that is exactly right. I couldn't have said it better myself.

[00:09:00] Shawn Dimartile: I mean, It, like you said, like in San Diego, for example, they're gonna severely restrict the number of Airbnbs or short term rentals, single family in the city. They're gonna cap it at 1% of the housing supply. There's all these other rules and San Diego is just an insane market for short term rentals.

[00:09:15] Shawn Dimartile: I mean, as an example, I have a duplex that grosses over $220,000 a year, one side is a two bedroom, the other side's a three bed and a city like this, where there's gonna be far less of those houses available for people to rent. You could take advantage of that if you can find a boutique hotel. That makes sense.

[00:09:34] Shawn Dimartile: Right? So you're just, you're evolving with the market. You're taken what the defense has given. And and making adjustments,

[00:09:41] Sam Wilson: right? Yeah, absolutely. What are the risks you see in moving into the boutique hotel

[00:09:47] Shawn Dimartile: space? So I think that the risk in, going into a boutique hotel space is always gonna be like, it's a little bit different than multi-family because when business is booming, it's booming [00:10:00] and, they just, it fluctuates more.

[00:10:01] Shawn Dimartile: Right. So there could be like, for example COVID really hurt the hotel industry. It hurt them bad. And then that was just an unforeseen black Swan event and things like those will affect. Those boutique hotels more than they would affect multifamily. Cuz then multifamily like yeah, people could maybe not afford to pay rent anymore, but they are on a lease and they owe you that money.

[00:10:22] Shawn Dimartile: Whereas with short term rentals, it is a little bit different. Now you can try and mitigate that risk in a lot of ways. And one of the things that we notice like Airbnb itself, that platform That they have more market share on short term rentals than all the major hotel companies. And these boutique hotels, you can list them on Airbnb.

[00:10:38] Shawn Dimartile: That's where people are increasingly looking to book. So, I see that you can mitigate a lot of that risk and you can just increase your income by putting your boutique hotel and listing it on those kinds of platforms. That's a great way to mitigate that risk because even in the economic downturns, people are going to Airbnb and trying to book those smaller units building.

[00:10:58] Sam Wilson: Have you seen any decline in demand on the short term rental

[00:11:03] Shawn Dimartile: side? There was a decline in demand last year, a little bit, there was a dip this year there's been a huge increase even with the hotels they've bounced back massively since this time, last year. And that's, it was COVID there was a lot of restrictions and that's gonna hurt everybody whenever you can't.

[00:11:20] Shawn Dimartile: Go out to dinner in a given city where like, if your boutique hotel is in little Italy, but you can't go to any of the restaurants it's not gonna do as well.

[00:11:27] Sam Wilson: Right. Absolutely. Talk to me about the underwriting of those. you're looking at a hotel, you're looking at buying it. It's been run, I'm assuming by some mom and pop or, similar operator.

[00:11:38] Sam Wilson: How do you underwrite that? How do you make projections? What are some things that, that you feel like our listeners should know if they're looking at this type of investment?

[00:11:48] Shawn Dimartile: So it's go, it's gonna be a lot more complicated than in some ways than underwriting a multi-family property. The data can be a lot harder to get.

[00:11:56] Shawn Dimartile: So, number one, if you're buying these from these small time operators, they're typically gonna have really bad financials. I had one send me a word doc with just like two paragraphs and they were missing the vast majority of expenses and stuff that you're just gonna have to expect that, that you're gonna get garbage.

[00:12:11] Shawn Dimartile: And you're gonna have to work around that. You're gonna have to either find somebody that's done this before and use some of their income and expense numbers to look at. We will use co-star reports, run reports on similar nearby properties. We like to look at air DNA data. Which is a short term rental data business.

[00:12:29] Shawn Dimartile: We'll combine [00:12:30] that with the co-star data because you can look at short term rentals on air DNA that are a shared room and fine data on nearby boutique hotels that way. And what kind of revenue they're bringing in. So you gotta use a lot of different sources on the 10 unit we're buying. We even went to the nearby properties and just straight up, asked the manager on site, Hey we're buying this one.

[00:12:50] Shawn Dimartile: We wanna ask you a couple questions. And they, a couple of them literally opened up their books and showed us everything. We wanted to know what their revenue was, all that kind of stuff. So I think a combination of those three strategies, you can collect enough data to help you find average nightly rates, occupancy, and things like that, to see what your baseline is.

[00:13:09] Shawn Dimartile: And then also what you think you can get with the renovations and. Better projections, but it takes a lot of digging because. There's so many factors with short term rentals,

[00:13:18] Sam Wilson: right? Yeah. And that's it. And I think your key point there's, it takes a lot of digging. It doesn't sound like there's one, 1 cent.

[00:13:25] Sam Wilson: Not that there is one central source for anything, but it sounds like this one takes a lot more just kind of craft and nuance to it than just like, Hey, we're gonna underwrite and look at the five, properties around. It's like, okay, we're gonna have to build our own data table

[00:13:36] Shawn Dimartile: here.

[00:13:37] Shawn Dimartile: Yeah, exactly. And like with like co-star and multi-family, you could pull just about any bit of information that you want on comps. Right. But if you're looking at boutique hotels, a lot of those boutique hotels aren't reporting their income and information to co-stars. So like that makes it a lot more difficult.

[00:13:53] Shawn Dimartile: And that's why you have to do a lot more boots on the ground and investigative work. You know what I mean? Why do you think these

[00:13:59] Sam Wilson: sellers are selling.

[00:14:02] Shawn Dimartile: A lot of, so the two sellers that we've, so the one we're closing on next week and another one we got an offer in both sellers are similar. They've, they're older in age and they wanna retire.

[00:14:10] Shawn Dimartile: They've owned these properties for just a really long time and they're ready to dump them. We've got an offering on a property with the lady wants, she's owned it and live next to it, this seven unit bed and breakfast for forever, and she's just ready to retire and doesn't wanna deal with it anymore.

[00:14:26] Shawn Dimartile: And so we run into a lot of that. And that's really what we target, to be honest with you. I'm, we're interested in the value add properties where we don't think they're running it right. And they're ready to get rid.

[00:14:36] Sam Wilson: Right, right. Fantastic. Talk to me about the return profile. I know you had mentioned that give a duplex there in San Diego, that's just, off the charts, revenue on the grocery revenue side of things, how does that differ when you start getting into the boutique hotel space?

[00:14:52] Shawn Dimartile: So when you get into the boutique style hotel space, you're definitely looking at smaller nightly rates, lower nightly rates, simply because it's not a standalone house and [00:15:00] it's a smaller room and whatnot, right. But, essentially the returns our investors are seeing, and what we're projecting, we're able to, the general business plan is to go and do our value. Add right away, take the property offline or half of it offline at a time, go in, completely renovate it inside and out. Add amenities, like some hot tubs, maybe some cool fire pit areas.

[00:15:22] Shawn Dimartile: And then after we have 12 full months of financials. So, with renovation, I'll probably take about 17 months to get a full 12 month PNL to show a bank and then refinance and pull all of our capital back return all the capitals. And in some cases, when we're underwriting all the cap investors capital plus a little more on top.

[00:15:39] Shawn Dimartile: And then sell in year three or five, and our investors are, can see a 2.5 X to three X equity, multiple. So really robust returns, basically what people were seeing in multifamily five to 10 years ago. Right,

[00:15:52] Sam Wilson: right. Yeah. Absolutely. Tell me about running these. I mean, other than, platform platforms like Airbnb, what does the day to day operations look like for you guys?

[00:16:03] Sam Wilson: How are you managing that

[00:16:04] Shawn Dimartile: side of the business? So it's a multi-pronged approach. What we do is we convert these into the main thing we do is convert them into a self check in operation, just like with an Airbnb property. Okay. And the reason is because we can reduce payroll because we don't need a manager on site to simply hand people keys.

[00:16:23] Shawn Dimartile: Or answer questions or whatever. So we can reduce that payroll drastically. And oftentimes that opens up an Inkeeper room or an office that we can also make a unit. So we put the keypad locks on every single door. We will put it on booking.com have its own private website listed on Airbnb and VRBO O and across all those platforms the guest will get self-checking instructions.

[00:16:44] Shawn Dimartile: We have 24 7 guest communication via virtual assistant and some full-time employees. So they'll be able to answer all the guest questions via phone call, direct message, whatever, if they have any trouble getting in, we also have. Right next to the key pad lock. We put a spare key lock just in case something like that happens.

[00:17:03] Shawn Dimartile: And so the day to day operation is made much easier. That way it can all be done remotely. And then we have full-time cleaners that can handle certain tasks with this. But if there's, a maintenance request that needs to be made our 24 7 staff will be able to get that message, call a handyman call a plumber, whatever needs to be done.

[00:17:21] Shawn Dimartile: So all of the management is done remotely and it's a lot more efficient that way. Yeah,

[00:17:27] Sam Wilson: absolutely. Absolutely. Yeah. So you [00:17:30] and you, and then you guys of course are the backstop to that management. So there's not a third party management or anybody else coming in, that's helping you run these,

[00:17:36] Shawn Dimartile: right? We do have a third party management, but it's owned by my partner, rich, my partner, rich summers has his own management company for short term rentals.

[00:17:43] Shawn Dimartile: And then we use his management company, but we're able to streamline pretty much everything. I mean, we even give our cleaners An Amazon account and multiple accounts where they can order supplies as they're going low. So that's all automatic and we don't have to do it ourselves. So automating a lot of the operations increases efficiencies helps us have more revenue and decreases the expenses.

[00:18:05] Sam Wilson: Absolutely. What is a cash on cash? Like on average, I know you probably can't talk, deal specifics, but for a limited partner coming into a deal, what do you guys target for an acceptable cash on cash return to your investors? Because these are heavy income producers. And so I'm just curious what that looks like.

[00:18:21] Shawn Dimartile: Absolutely 15 to 20% cash on cash plus. And as the years go on and after we've repositioned it, that could increase on some of these deals. So really nice cash flow, in multi-family. It's kind of the opposite. Like you might get, like, if you're getting six to 10% in cash on cash, you're doing pretty dang good.

[00:18:38] Shawn Dimartile: And then, obviously your investors, they make their money. When you sell or refinance, they'll get a big pop when you sell. And then their average annual return IRR will look really great. And with these boutique hotels, it's a, it's kind of in the middle because you're gonna get really nice cash flow and still get a good check when we sell.

[00:18:55] Shawn Dimartile: Right. No,

[00:18:55] Sam Wilson: that's absolutely cool. I love the ability that you guys have found to pivot and to pivot quickly, I mean, you started off, I think you said with two big multi-family syndications, you had some short term rentals and he said, wait, there's an opportunity here in the boutique hotel space.

[00:19:11] Sam Wilson: And that's that's really cool. And I love the kind of thought process behind it. How you guys have done your underwriting. How you've gone out to the street level literally. Yeah. To find out and make your own kind of market comps, if you will, for what these assets can produce.

[00:19:24] Sam Wilson: So that's that's absolutely cool, Sean. Thanks for coming on the show today. I certainly appreciate it. If our listeners wanna get in touch with you and learn more about you, what

[00:19:31] Shawn Dimartile: is the best way to do that? You can go to pack three capital.com. That's P a C the number three C a P I T a l.com. And you can click on the, contact us button and fill that out, and then I'll reach out to you within 24 hours.

[00:19:47] Shawn Dimartile: And you can also just email me directly, Sean, at pack three capital.com SSHA w [email protected]. Awesome.

[00:19:53] Sam Wilson: Thank you again for your time today. Chanon certainly appreciate it.

[00:19:56] Shawn Dimartile: Absolutely. Thanks for having me.

[00:19:57] Outro: Hey, thanks for listening to the how to scale [00:20:00] commercial real estate podcast. If you can do me a favor and subscribe and leave us a review on apple podcast, Spotify, Google podcast, 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.

In this episode, we welcome Dr. Axel Meierhoefer, Founder and CEO of The Ideal Wealth Grower, to offer his perspective on what's happening in the world and how real estate can still be a profitable investment even as the value of the money decreases. He digs deep into economic cycles, assets with long-term potential, and what we should be doing now to build and protect wealth. To Dr. Axel, the end goal is time-freedom point, where we can be free to choose what we want to do with our time and without having to worry about money and expenses.

[00:01 - 07:02] Stop Trading Time for Money

• Dr. Axel talks about how he started his journey to financial independence
• What is the time-freedom point?
• Through conversations about his investments, he's able to educate others about wealth-building

[07:03 - 24:14] Invest in Assets That Hold Their Value

• Cycles in the economy repeat themselves, with periods of prosperity followed by recession
• Understanding these cycles will help us make better investment decisions
• More thanan money, we need investments that retain value and create legacy like real estate
• Is economic realignment under way?
• Solving the illiquidity through tokenized real estate
• Dr. Axel goes into detail how their platform works and how shareholders can benefit from the system

[24:15 - 26:03] Closing Segment

• Reach out to Dr. Axel!
• Links Below

• Final Words

Tweetable Quotes

"If you want to do something that creates a legacy, that gets you to the time freedom point, that allows you ultimately to turn something over to your kids and their kids can turn it over, you need something that retains value." - Dr. Axel Meierhoefer

"One thing I know is people still need to live somewhere, right? And people still need to have some means of exchange with each other if they want to have any form of economy." - Dr. Axel Meierhoefer

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Connect with Dr. Axel at the Ideal Wealth Grower's website!

Resources Mentioned:

• The Fourth Turning by Neil Howe and William Strauss
• The Sovereign Individual by James Dale Davidson and William Rees-Mogg

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:

[00:00:00] Dr. Axel Meierhoefer: And that's why I'm saying we need to be aware. That's why these kinds of studies about, you know, where are we, where are we in the cycle, can this keep going on, or are we moving closer and closer to kind of like a realignment of some kind? And I think we do, I mean, certain things. I think we see it, you know, there's war in Ukraine, there's increasing friction between the United States and China as the two biggest economies in the world. Things are changing.

[00:00:38] Sam Wilson: Axel Meierhoefer is the founder of Ideal Wealth Grower and host of The IDEAL Investor Show. He's a mentor that helps his clients reach their time freedom point. Axel, welcome to the show.

[00:00:49] Dr. Axel Meierhoefer: Hey, Sam. Thanks for having me.

[00:00:51] Sam Wilson: Hey, the pleasure's mine. Actually, there are three questions I ask every guest who comes in 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?

[00:00:59] Dr. Axel Meierhoefer: Yeah, absolutely. Well, I started in Germany, came over to the US with the military, stayed longer than anticipated, and then actually had to decide, do we go back or do we stay? We decided to stay and out of that came a job in the civilian world as an executive in a software company, which begged the question, okay, so do you want to work forever or do you find a way to, you know, have a point in time when you don't have to work anymore? I said, no, I don't want to work forever, but how do I make that happen and started to research. And at the time stock market was terrible. So I looked for alternatives, found real estate really studied, turned our house that we lived in into an investment property. So we could move and basically went down that rabbit hole deeper and deeper and deeper. And ultimately now where we are is I founded an organization called Ideal Wealth Grower, which invites people to receive mentorship to go down the same path that I've gone down to build a residential real estate portfolio and reach what we, like you said, call the time freedom point, which we define as the point in time on the calendar where your passive income, the money that your investments make is equal or more than your life expenses, including like having a vacation and getting some nice things and going out to dinner and all the other stuff that you have and keep growing from there. And then you have the freedom to decide, okay, if I don't really need my regular job or whatever other income source you have, what do I want to do with my time? Which can mean you keep doing what you're doing, because you love it, or it can mean you want to do half of it because you don't love it so much and do something that doesn't make money, but you love that more. Or you can say, Hey, you know, I don't want to do very much at all anymore that is creating time for money, but rather do things that I'm really passionate about it. And don't care about money because I know my passive income is taking care of me and my family.

[00:02:57] Sam Wilson: I like the idea of that. It's certainly a theme that we've had here a lot on the show, which is, you know, no longer trading time for money. I mean, that's a common theme, I think, in most real estate investment circles. But tell me this, do you have, and I know it depends on the types of investments that you're putting people into, but is there a general rule where you say, okay, if you're going to make investments, is there a nest egg size? Let's say you're trying to replace, we'll just keep this easy math, that you're trying to replace a hundred thousand dollars a year income. What do you see most people needing in order to get that far in a passive investing, I guess, portfolio? They need 1 million, 2 million, 5 million. What do you see on average?

[00:03:41] Dr. Axel Meierhoefer: Yeah. I mean, that million in asset value is one way to look at it. What I have done is actually to look at what is a realistic cash flow outcome from a residential real estate property, meaning like a three bedroom, two bath, four bedroom, two bath single family home or duplex, something like that. What I found is for, like what you're saying, a hundred thousand is kind of like in the area of about 8,500 a month or something like that, you're looking anywhere between 10 and 15 properties and depending on how much income, how much disposable income you actually have that can take anywhere from 8 to 12 years to get there.

[00:04:18] Sam Wilson: Got it. That's a very precise answer. I appreciate that. That's very, very helpful. That's really cool that you helped people kind of get down that path. How did you hatch the idea that you could bring other people along this journey?

[00:04:30] Dr. Axel Meierhoefer: Well, I didn't hatch it to be very honest. Actually, other people hatched it so to speak for me and they hatched it based on the fact that, as I got more and more passionate and excited about the whole investing, I don't know, some people might say it feels a little bit like bragging, but I just felt it was exciting to me to tell other people what I was doing, you know, telling people, Hey, I found this awesome property in Idaho and I bought it and it's managed and it makes, at the time when we first started, it makes $200 a month. And then a couple of months later, we meet for, I don't know, Memorial day or Thanksgiving or something like that. And somebody says, so anything new that then you're doing? And I said, oh yeah, yeah, I found a new one in Ohio that I'm doing now, right? And so over time as I kept, my conversation became more and more I did this investment, that investment and so forth. And some of my friends and colleagues were saying, wow, I mean, you, aren't you afraid that, you know, like how do you know that they work? And so, I have always been in this kind of instructional, loving to educate other people kind of frame of mind. So I immediately started to get a quote, unquote, lecture people, oh, I'm looking at this and we analyze this and this and that and so forth. And after a while, people basically knew, okay, if we ask him something, he's going to probably go down that rabbit hole again. But there were also sometimes situations like I had a property we lived in California, in the Santa Barbara area. And when my wife and I moved, we turned that property initially into an investment property and then ultimately 1031 exchanged it into a whole bunch of smaller properties in the Midwest. So that was a great new story for our friends and family. And at some point, people back to the point of hatching said, you know, for years now you have been telling us about it and you have all this kind of fancy language and stuff like that. But the bottom line is you're obviously making the money because sometimes the conversations were okay, so you're doing this consulting work and the economy is going up and down. Do you always have enough money to actually pay for everything? And you're living in pretty expensive areas? And I said, well, you know, it's been all my business initially, but now it's subsidized by more and more of the passive income. And I'm actually looking forward to the day when all the passive income is enough. And I don't really have to necessarily work in any kind of regular job anymore. And that was probably the hedging point, right, where people said, well if that is really what is happening, you should tell other people how they can do that too.

[00:07:02] Sam Wilson: That's awesome. I love that. What are you telling people right now? I mean, the conversation, I mean, obviously everybody's crystal ball is broken, but people are looking right now, I think, especially investors are going, where are we? Where are we going? What's coming down the pike? I don't know. What are your thoughts on that?

[00:07:20] Dr. Axel Meierhoefer: One thing that I've always been interested in let's say the last year or two, I have really started studying quite a bit is to see how have we, and to your original question, how did we get to where we are right now, but on the bigger picture. And so if somebody were to ask, okay, what did you study? Where did you go? What did you find? I, for example, looked at a book that I really, really recommend is called The Fourth Turning, which actually describes that economy and social developments are happening in cycles that are anywhere between about 90 to 120 years long. The two authors analyzed that for the last 500 years and found that about a hundred-year cycles keep repeating themselves. So if you look at where we are right now, we are at the end of a hundred-year cycle that started with The Great Depression, right? So if you read it, I don't want to go too deep about what that particular book says, but fundamentally that's one thing to say, okay, what are the indications of where we are and what is to be expected? Another one is the book called The Sovereign Individual, which basically was written just when the computer age started projecting that microprocessors and the internet and mobile phones and all that kind of stuff is fundamentally going to change our society. And I think we've all seen this, but what hasn't happened, and you and I, before we started recording, touched on blockchain and crypto and stuff like that. The Sovereign Individual is basically going through the extreme, in a sense to say, we need to have sovereign money, right, and you, if you think that through what I'm taking from, that is, well, ultimately the things that make us as individuals, sovereign, if that's really something that we want or that we believe that we have rights and so forth, then the things that we can really influence ourselves. So I go back to the fundamentals and say, okay, we, as human beings need shelter. We need safety. We need food. And we need one thing that Maslow doesn't have in his basics for pyramid of needs is some way to exchange with each other. Now, right now, if you take the money that we are always talking about, when we are talking about real estate investing is basically the money governed by our government. And we have ours in dollars and the Japanese have Yens and the Chinese have Won and the Europeans have Euros and sometimes you might be lucky to live in an area where the money is at least reasonably stable, even though if you look from The Great Depression to today, 99% of the value of the dollar is gone. If you compare what was the dollar worth in 1923 and what it is now, what you can take in 1913 when the federal reserve was started, anywhere between 95 to 99% of the value is gone, right? So why is that relevant? Because every kind of money, things like pretty pictures under the pieces of paper that have ever existed ultimately become worthless. So for me, going back to your original question, that means what I'm looking at is what are the things that retain their value. Nobody would debate that a gold coin, a one ounce gold coin has value, had value 5,000 years, 2,000 years, a thousand years, and today, right? I think something similar will happen with something like Bitcoin. But the other thing is when we go back, anything that is related to real estate always had value. And even in the way that we built here in the US, which is not like the Romans built or some of the early Europeans built, but even our houses now is a hundred years. And when you look at a house that was built in 1913 and kept up well, because $4,000 to build a really nice house then, that house is probably $400,000 now.

[00:11:15] Sam Wilson: Every bit of.

[00:11:16] Dr. Axel Meierhoefer: And the thing is what is really an interesting way to think about, when the people in 1913 when the fed was created, moved into this brand new house, did they get any different value from the house in what it is for? What does it provide? To somebody who buys that same house now fully renovated by a turnkey provider. And the new family moves into that same house, they get the same fundamental value of living in a space and all that out of the house. But it's a hundred times more expensive. Or you could say your money is a hundred times less valuable. Those kinds of things go through my mind. And that's why I'm saying, you know, for the people that I work with, I always want to get the message across that if you want to do something that creates a legacy, that gets you to the time freedom point, that allows you ultimately to turn something over to your kids and their kids can turn it over and so forth, then you need something that retains value. And that's where you get to real estate and gold and silver and maybe Bitcoin and things like that.

[00:12:22] Sam Wilson: Yeah. That is absolutely, absolutely true. The other way I think about that is things that can be repriced or repriced easily. I think about, you think about real estate. Okay. So you buy an income-producing real estate. Well, today you're paying in dollars, and then maybe it's next year, our version of money has changed, but I can still then reprice that to whatever that day's version of money is, is that kind of what you're saying?

[00:12:48] Dr. Axel Meierhoefer: Well, that's one way to look at it or you could basically go and say, okay, how much did an ounce of gold cost in 1913? How much does an ounce of gold cost right now? And how many ounces does it take to buy the house? And if you compare that to the number of dollars, you will be shocked because obviously, I'm not pooing currency because it's a dollar or because it's a yen or because it's a Euro, the system in and of itself, the way we are living in and where we are right now, if you look at our economy and you said the crystal ball is broken, true, but there is a lot of facts. You can't debate or deny the fact that we have more than 30 trillion, I can't even fathom what that means, but 30 trillion in national debt. That doesn't include city debt or state debt or anything like pension plan debt. Anybody who's ever done anything in business or even in your private life, where you're so, so over-leveraged in debt. Now we go and bring it to our real estate investing or your Bricken Investment Group and you think about, and talk to your clients. I'm sure you're bringing this up too. When the media tells us the federal reserve has increased the interest rates by 1%, for now one and a half percent in the last two cycles, it gives us automatically because we think in those categories, oh, one and a half percent. Yeah. That's something, but it's really not that much. It takes on a different quality when you look at it that, okay, that debt that we had in 2021 cost us 562 billion in interest at 0.25% interest. Now we are at 2.5%. How much is that? That's eight times as much. Well, and basic math tells us if it was 560 billion, it's eight times more interest and all we're talking about paying interest on it, it's eight times more than that, right? So we are looking now at potentially paying $2 trillion just an interest, but guess who is paying that? Anybody who pays taxes that in some way. And that's why I'm saying we need to be aware, and that's why these kinds of studies about, you know, where are we, where are we in this cycle, can this keep going on, or are we moving closer and closer to kind of like a realignment of some kind? And I think we do. I mean, certain things, I think we see it, you know, there's war in Ukraine, there's increasing friction between the United States and China as the two biggest economies in the world. Things are changing, not necessarily with guns, in Ukraine, yes. But in the bigger picture, we are not really shooting at each other, which used to be the way, right, the French revolution, World War I, and World War II and stuff. We used to shoot at each other and then at the end we reorganized everything. That's how the United States became the number one dog in the game, right? But I hope at least that we are not going to shoot at each other to realign, that we just realign by recognizing that certain things are just not sustainable going forward anymore. How is that going to look like? I can't predict, but one thing I know is people still need to live somewhere, right? And people still need to have some means of exchange with each other if they want to have any form of economy. However, that might look like. I don't know if we all going to have Bitcoin and Lightning Network in the future as our way of exchanging, or if we have a hybrid between regular money and digital money, who knows. But the means to exchange a service for a good, you know, something you do for some food that you buy or a car you want to have, and one of the ways that we are doing it in our Ideal Wealth Grower system is to help people to have value assets that even as the value of the money is declining, the value of the property remains. It's just more money. But that house in 1913 and the house in 2022 is the same house, fully renovated, same service that it provides to you. It's just more little pieces of paper that you need to put on the table.

[00:17:00] Sam Wilson: Right. Yeah, absolutely. I like that idea where the value of whatever it is you're investing in remains absolutely the same. Tell me about this. You guys have, are working on, or maybe you currently have a platform where it is bringing some liquidity to real estate investments. I know, especially for us here on the commercial side, when someone parks a hundred or 200 or $500,000 with me. That's a pretty illiquid investment for actually all of us, myself included. I'm in plenty of deals right now that are completely illiquid. My capital is parked. Of course, I get my returns, but it's still parked capital. How are you guys solving the liquidity issue in real estate investments?

[00:17:43] Dr. Axel Meierhoefer: Well, the way we are serving it is basically by what I call fractional or tokenized real estate investing. And it's in a sense, you know, yes, you are a person. Yes, you may have an asset like a house, but for the stuff that you do, you get paid in some form of income salary and stuff like that. If you take that analogy and you try to transfer that into a typically illiquid asset, like real estate, we are using a platform that a friend of mine has founded where they go out basically and say, okay, let's look at the criteria that we want to have for a well-performing residential real estate property. Let's say a fourplex, and that fourplex is somewhere in the Midwest and it costs $240,000. And we have four units, each unit is rented for 600 bucks. So we have $2,400 rent. Now I would say, and I'm sure you would say just on the phase, regardless of how the process works underneath, that's 1% performance between purchase price and rent. That's pretty good. And if these four units are reasonable, like one or two bedroom, one bath units, $600 a month is actually not really an outrageous level of rent, right? So you have some of the criteria, then you look at the region where it is and you find out, well, this house is in a nice neighborhood. It has good access to reasonable schools to shopping, to transport and all those things that you would normally use to identify suitable properties. So this company, this platform goes and said, let's sign a contract for a 123 Bricken Avenue where this house happens to be. They put it under contract and the right next step is to say, okay, now let's form an LLC. That we call 123 Bricken Avenue, LLC. And because it's $240,000 and we want to sell the shares at $50 a pop, it's, what, $4,800. And then they put that literally on the platform. And so we have two scenarios, people who come to us and say I have 10, 15, $20,000 that I can use to invest. And we all know how the markets have gone up in value. That's typically right now, too little to really be able to make an investment in a full property, right? If you take our $240,000 property, we need $48,000 down payment for 20% up. So if you have 20 or 25, I would say, well, let's park it in our cash flow parking spot, which is this platform because that 123 Bricken Avenue for your 20 or $25,000, we can get about 10% of that LLC in shares. Of those 4,800 shares, we can get probably 450 or 480 for the money you have. And you will participate in the performance of this property, in the cash on cash return. They have $2,400 rent, the depreciation, all the good stuff that I'm sure you have many times mentioned on how real estate is actually a really good investment and what it does for an investor. All of that, you participate in. The only thing that you don't have when you invest in this platform compared to buying a property outright is the leverage, right? Because if you had to only put in these 20% slash $48,000 and you get a $240,000 property, you make all the rent, you get the whole benefit, but you only needed to put 20% in. Well, if you go on that platform, it's basically a cash purchase. But the beauty is, and why we are recommending it is for one, for this person that has that 20, $25,000. But also for people to say, I know real estate investments is getting me into valuable assets just as we discussed earlier. But I only have a few thousand or I can only really put a couple of hundred dollars aside, but then you can get familiar, go through the same process, all the things that we normally do as I mentioned, and putting your money into this cash flow parking spot until it has grown to be enough to make a direct investment into your first own property. And the reason it's liquid, because that's what you were asking, Sam, is how do you do it to keep it liquid is that, in this kind of investing, it's a cash purchase and the rent proportionally to how many of the shares you own? Let's say you own 450 of the 4,800, you get proportionally that's about 9% or so, 9% of all the things, the depreciation, the rent, and so forth. You get every day. Now you don't get your tax papers every day. You get that once a year, but the rent is basically in your account. You can log into your account. And every day at 6:00 PM, you see the rent for the day is there, which also means if the day comes where you say, Hey, Sam actually wants to now buy this property next door. That is the same thing, same price, same rent, same thing, but they want to own it together. Well, then we sell our shares. We got our rent yesterday at 6:00 PM. And we get the value of our shares, plus any kind of appreciation and now have that cash to buy the property next door. That's just another fourplex, the same thing on the same street, right? So that's basically how we basically keep the liquidity because I call it the share, meaning like the relationship between those who actually have the property on the platform and us as the investors is updated 6:00 PM every day. So the fact that your share, basically your relationship with the providers is up to date at 6:00 PM every day, which means you basically are good. You have your rent money. Everything is in your account. If you say, I want to sell my 450 shares tomorrow, you get the value of your shares. If there was any appreciation in the property, then they're not $50. There might be $51 now per share. Plus you get got all your rent up until yesterday night. So you're all good.

[00:23:43] Sam Wilson: That's amazing.

[00:23:43] Dr. Axel Meierhoefer: Obviously, these shares don't go back to some kind of title company. They just go to somebody else, either in the LLC or on the platform where every Friday after 3:00 PM, any shares that have been provided back to the platform for, say, for anybody who goes there and wants to have some more, right? So it's basically, very, very liquid in that sense, but all the rules, all the things that we and your audience are familiar with when it comes to residential real estate investing apply except for the finance.

[00:24:14] Sam Wilson: Right. Axel, this has been absolutely fascinating. Thank you for taking the time to come on the show today to kind of break down where you think we are going in the economy. We've talked a lot about money. We've talked about ideal wealth growing and talking about, you know, finding the right amount of cash flow to how much money you're looking to replace. Things like that. And then also just a really unique platform that you guys are working on that is bringing liquidity to the real estate, I guess, you could call it shares space 'cause they're, that is really what's lacking is liquidity amongst shareholders. So I think that's going to be a really interesting thing that, you know, and we see this coming. It's something that's been needed for a long time. So thank you for taking the time to kind of pioneer that product and figure it out here for our investors. If we want to get in touch with you or learn more about you, what is the best way to do that?

[00:25:00] Dr. Axel Meierhoefer: One best way is to just go to idealwealthgrower.com and wait about 30 seconds and something pops up and says, set up a call, so you can do that. And you get like, an invitation to the newsletter and stuff like that. But also if you just put Ideal Wealth Grower into Google or any other search engine, we are pretty much on any social platform and so forth. So there's a thousand roads that lead somehow to get to us and get in touch.

[00:25:26] Sam Wilson: Awesome. And we want to make sure, of course, we put that in the show notes, idealwealthgrower.com. Axel, thank you again for going to the show today. I certainly appreciate it.

[00:25:34] Dr. Axel Meierhoefer: Yeah. Awesome. Thanks, Sam. Thanks for having me.

In today's episode of How To Scale Commercial Real Estate Podcasts, we are joined by Anthony Walker.

Anthony Walker is the CEO and managing broker of Buckingham Investments Anthony started his career in business school, working as a corporate insurance officer before deciding to become an individual commercial real estate investor. Anthony is a big believer in helping new investors get started on their real estate journey by teaching them the basics of real estate finance and how to write an investment plan. let's dive in and hear more of Anthony's journey.

Highlights:

[00:00 - 05:17] How to Scale Your Commercial Real Estate Business

• Anthony Walker is the CEO and managing broker of Buckingham investments, a Southern California investment brokerage that helps clients learn to plan and invest in real estate.
• He's been investing since 2006 and owns about 150 multifamily units in the area.

[05:17 - 10:38] Southern California's Opportunity

• There is a niche for brokers that do educational work, but few that do both.
• Anthony notes that he tries to put the needs of his clients first, but will still take on a good deal if it comes across his desk.
• Anthony feels that the environment in California makes it difficult to be a property owner, but also says that there is business being done and people are making money.

[10:38 - 15:57] Southern California's Rent Control Markets: Difficult, but With Potential

• The market is very varied and has a lot of opportunities for investors, depending on the area they're in.
• Rents are high and continue to grow, making it difficult for tenants to afford to live in Southern California.
• Interest rates are rising, making it more difficult for people to borrow money and buy homes.
• There is an increase in multi-generational households and roommates, making it harder for people to afford rent.

[17:39 - 19:21] Closing Segment

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

Tweetable Quote

"We've got to keep an eye and see changes in the economy that seems to be happening daily right now. What sort of impact does that have on rent or affordability? It's definitely becoming more common for people like to get roommates, multi-generational households, and stuff like that. It's becoming a lot more difficult for people here to afford the rent. So, you've got to keep an eye on that." - Anthony Walker

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Connect with Anthony Walker by visiting www.buckinghaminvestments.com

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

[00:00:00] Anthony Walker: So you have to kind of take what you're reading in the papers with the grain of salt. A lot of that I think is geared towards a single family marketplace. But , this is definitely an environment where you've gotta be a good operator. You gotta be able to select tenants. Well, you gotta be able to run your buildings.

[00:00:12] HTSCRE Intro: Welcome to the how to scale commercial real estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.

[00:00:24] Sam Wilson: Anthony Walker is a CEO and managing broker of Buckinghamn investments, a Southern California investment brokerage that helps clients learn plan and invest in real estate. He's been investing since 2006 and owns about 150 multifamily units in the area. Anthony, welcome

[00:00:38] Anthony Walker: to the show. Thank you.

[00:00:40] Anthony Walker: Great to

[00:00:40] Sam Wilson: be here. Hey man, the pleasure's mine, Anthony. There are three questions. I ask every guest who comes in the show in 90 seconds or last, can you tell me, where did you start? Where are you now? And how did you get

[00:00:48] Anthony Walker: there? Oh yeah. Great question. I started in business school, I guess at the very beginning.

[00:00:55] Anthony Walker: I was working a corporate job almost 10 years in the insurance industry and realized that was never gonna get me where I wanted to be from a lifestyle or finance perspective. So went to business school to figure out what kind of business I could work for myself. And took a real estate investing class there in the MBA program at Loyola Marymount here in the LA area great program by the way, and just needed to figure out how to get in.

[00:01:16] Anthony Walker: I wanted to start buying buildings. It seemed like that was a, a great business model. You could No need to learn how to code or make some Avention right. This is a centuries millennia, old business, I should say. So, after committing to doing commercial real estate there, I got introduced to a.

[00:01:33] Anthony Walker: 50 60 year company called Buckingham investments that I run now started as a client first bought a personal duplex about 12 years ago And have been scaling my portfolio up ever since then refinancing doing exchanges I joined the company as an agent about 10 years ago Got my broker's license opened Our Torrance office took the

[00:01:53] Anthony Walker: company over as CEO about five years ago And along the way have been slowly developing a portfolio of small and medium sized buildings here in the LA area. Now we are a company of about 45 agents, three offices. We are the number one buy side brokerage company in the long beach and ports submarket in co-star here in LA.

[00:02:15] Anthony Walker: So,, we're the first stop for buyers looking to get started on a, on a multifamily portfolio. And we use my experience to help people understand how to do that.

[00:02:22] Sam Wilson: That's cool. Can you break down, buy side versus sell side for our listeners?

[00:02:26] Anthony Walker: Yeah. So a lot of brokers actually learn how [00:02:30] to focus on building their business through getting listings.

[00:02:33] Anthony Walker: That's kind of the gold standard. , when you start as a broker, you're always taught, go meet sellers, try and convince them to sell. That's better. That's better business than working with buyers. Cuz if you get a listing it's almost a guaranteed paycheck. You can use the marketing materials for the listing to advertise your own services.

[00:02:50] Anthony Walker: Well, , our founder Jack Buckingham way back in the 1960s realized that most brokerages. Give all the buyers to their junior people with no experience. And so buyers, generally the experience has been pretty bad. When you walk into your average commercial real estate brokerage company, you're working with new people, and generally they're only gonna show you their own listings, or if they show you other people's listings, they're just not taking a very sophisticated approach to it in a lot of cases, obviously with some exceptions.

[00:03:17] Anthony Walker: So, , our company was started at the very beginning to help people have a more holistic approach. And get great representation, whether you're on the buy side or the sell side. So a lot of clients start with us as a buyer. A lot of clients are buying their very first investment property with us or their very first apartment building.

[00:03:33] Anthony Walker: And we've got all kinds of systems and educational materials in local research. We do ourselves to help people really understand what they're doing before. They're in a high pressure. Hey, you need to buy this property type situation

[00:03:45] Sam Wilson: It's it sounds like, and I know this is a wrong probably a wrong analysis here, but it sounds like you guys have a way of onboarding clients.

[00:03:54] Sam Wilson: Maybe that don't have a deep bench of experience in the commercial real estate

[00:03:57] Anthony Walker: space. Absolutely. Yeah. That's our specialty. Is helping people get started or maybe they've bought a couple buildings on their own and don't really know how to scale up. And they haven't taken, , they never took a finance class in school and they're just not taking a, a sophisticated kind of structural approach or really have a strategy in mind.

[00:04:16] Anthony Walker: Right. So we'll help people write an investment plan, understand time, value, money, all that kind of stuff. Yeah. That's absolutely our specialty.

[00:04:22] Sam Wilson: That's really cool. I mean, what you guys do is, is it's unique. I think in. That it's a blend of a lot of what we do here on the investment side. Like one of my jobs is obvious to educate our investor.

[00:04:33] Sam Wilson: It's to educate, , just putting out loads of content. You don't normally find the brokerage firm out there going, Hey, here's how you invest in real estate. And here's all the educational content and oh, Hey, here's also by the way, our meet up and then also we'll help you buy and, , help you write your investment plan.

[00:04:49] Sam Wilson: I mean, that's a pretty, a pretty robust operation. Has it always been that way or has this kind of been an iterative process for. It

[00:04:57] Anthony Walker: actually has always been that way. We've been [00:05:00] operating that way since the 1960s. And I can't believe people O other brokerages haven't really done this. It, everyone still just seems to focus on kind of going after transaction by transaction.

[00:05:13] Anthony Walker: And there's very few companies that do what we do. So there's some other brokerages that do great research, which is part of what we do, but not very many that do a lot of educational stuff. And it's great for people. , wanna actively invest. They want to go find the property, maybe manage themselves, maybe not go get the loan, but there's not, good service for people that are looking to do that out there.

[00:05:33] Anthony Walker: And so it, it's still, , 70 years later almost now fits a niche. Believe it or not that nobody else is really doing, man. I

[00:05:41] Sam Wilson: think that's super cool. Tell me this. How do you balance cuz you're an active investor as well. How do you balance putting your clients' needs ahead of your own? Because I think they'll be very, I'm just, again, I'm just speaking.

[00:05:55] Sam Wilson: Totally. I mean, when a great deal comes across my desk, I'm not calling you Anthony about it. I'm like, well, shoot, man. That's that's, I'm gonna go work on this. So tell me how, how do you balance that?

[00:06:05] Anthony Walker: Yeah, totally. I mean, first of all, , most of my investments are just personally for me. So with that being said, I don't have the ability to buy every good deal in the market.

[00:06:14] Anthony Walker: I wish I did, but I, I just don't, you know, I can probably buy two, maybe three a year. Right? Last year I bought four, which was an exception and, you know, you'd be surprised how many different people have. A really a different criteria set that they're looking for in a building, just because the building's a great deal for me doesn't mean that it's the right fit for another one of our investors.

[00:06:35] Anthony Walker: I tend to work on a little bit of the larger side purchases in our market versus a lot of our investors probably are not chopping in the same price range that I'm looking in for the deals that we do syndicate here. Those are also on the larger side too. And so generally we're not competing with most of our investors in that space and that's deliberate.

[00:06:52] Anthony Walker: So I'm not out there buying two to four unit building. Me personally, , I tend to buy 10, 12, 15 unit properties, 20 plus for the syndicated stuff. And it's pretty rare that there's really a conflict that being said, you know, as a broker, I want my clients to have a great experience. And so if somebody's ready to go or they're in an exchange, you know, I can wait and I'll get the good deal over to the client.

[00:07:14] Anthony Walker: I'd way rather. A good relationship with them, a great reputation, get some more referrals out of a good experience on their side. And especially, you know, if there's a timeframe that they need to hit, there's always more deals for me. And I kind of know the long term of it. I'm not that focused on [00:07:30] stealing every deal that I can, you know, so it it's worked out most of the time and I really haven't run into conflict of interests a

[00:07:36] Sam Wilson: lot.

[00:07:36] Sam Wilson: No, that makes a lot of sense. And I appreciate you breaking that down. I mean, when there's, when there, like you said, not every deal is for every. investors Just, I mean, and just, yeah, it's just like every passive investment isn't for every investor. Yeah. Like it's, everybody's got their own flavor of what works . For them.

[00:07:53] Sam Wilson: You're in Southern California. You say there's opportunity for the people that are outside of your state You guys have a bad rap. I mean, it's like everybody just says, Hey, we'll invest everywhere. Except for drum roll California. What do you say to

[00:08:08] Anthony Walker: that? Surprise. Surprise. Yeah. You know, it's it's funny how that's been the, just the sound bite over the last five to seven years and I get it.

[00:08:16] Anthony Walker: I mean, California, I think most of that stems from the, you know, legislative environment, the regulatory environment here, it is difficult to be a property owner in California. Not gonna sugarcoat that. We have more tenant protection laws, more rent control type, you know, laws to worry about here than probably anywhere else except for New York.

[00:08:37] Anthony Walker: And so you need to understand that to operate here. On the other hand, the reason that environment exists is also sort of a chicken and egg dilemma, right. They have to legislate here to protect tenants because it's so good to be a property owner. That the free market alone would probably not deliver even results for residents.

[00:08:59] Anthony Walker: Now, you know, obviously the best way to solve that is actually let us build our way out of supply crisis that we have right now. And we're not doing a very good job of that, but barring that these sorts of this environment is more a symptom of what makes investing here work so well. If you unpack it at a much broader level, We've lost a little bit of population here in the LA over the last year.

[00:09:19] Anthony Walker: I know that's a favorite thing to point at, but it's somewhere around a hundred, hundred 50,000 people, you know, in a Metro area with over 10 million, right. That's not gonna move the needle. And the people that we're losing are the people at the very bottom of the income spectrum and the people that we're gaining are coming here for very high paying jobs.

[00:09:36] Anthony Walker: And so when you look at what we do have, we have a gross metropolitan economy that delivers over a trillion dollars in gross metropolitan product a year. That's the third, most productive in the entire world. And it's the second largest commercial real estate. Market only after the New York area here.

[00:09:52] Anthony Walker: So, there's obviously business being done and people are making money at LA. So the idea that everybody's living leaving is just ridiculous [00:10:00] to me. But you need to know what you're doing to operate here and, you know, honestly, that that supply constraint is what's gonna just do you a ton of favors over the long run you're going in.

[00:10:07] Anthony Walker: Cap rate might be low, but over time, These properties, your rent growth is incredible here. You're almost never gonna have issues with vacancy or leasing. There's always gonna be demand for your units. And the fact that it's very difficult to add more supply there's no extra land makes it really good to be a long term landlord here in Southern California.

[00:10:28] Anthony Walker: Although obviously you have to learn how to operate in this environment.

[00:10:31] Sam Wilson: Well, yeah, that's it. I mean, it, cuts both ways. And I think people right over overlooked that it's wait, The very thing that creates such a favorable, favorable. If I could speak today, investing environment is the, is the very thing that can make it very challenging.

[00:10:46] Sam Wilson: So , learning how to navigate those, the nuances of that particular market, I think is the the trick there. Is there anything that comes to mind when I say that when, you know, I say navigate the nuances of the market, that you're like, man, here's some things that if you were to invest in Southern California, that I think you should absolutely know.

[00:11:01] Anthony Walker: Absolutely. So you you've gotta understand local jurisdictional differences in rent control regulations. So the whole state of California is rent controlled. Now that started at the beginning of 2020, and the statewide version of rent control is pretty vanilla. It's actually pretty easy to operate here where that's all that you have.

[00:11:19] Anthony Walker: You can increase rents by 5%, plus the change in CPI every year with a maximum of 10. So currently with inflation running so hot, we can increase rents 10% right now. Which is plenty, you know, I don't know if I wanna make an increase more than 10% anyway, without causing a whole bunch of vacancy that goes hand in hand with just cause for eviction protections for tenants you know, you've gotta have a reason to vacate a tenant and you can't just give somebody a 60 D notice and get 'em out, but there are different.

[00:11:46] Anthony Walker: Cities in the area that have more restrictive rules, you need to be aware of. So for example, the city of Los Angeles, if you're in the city of Los Angeles, they have a much more restrictive rent control called the rent stabilization ordinance or RSO. And if you're a local investor here, you know, that that only applies to properties built in 1978 or earlier.

[00:12:05] Anthony Walker: So that makes it very difficult to operate on those buildings, but it creates inefficiencies. That can be. Exploited for lack of a better term. If you're an investor, if you really, you know, have the capital and you know how to, how to work with these tenants and you can roll your sleeves up, it's mostly cash for keys, but you can buy buildings with rents, you know, a hundred percent upside in rents and [00:12:30] priced accordingly.

[00:12:31] Anthony Walker: And so if you think about it that way, yes, it's difficult to work in that sort of environment. But if you're really good at. You can do really well. On the other hand, if you buy stuff in the eighties in LA, you don't have to deal with that. And you only have the statewide rank control to worry about. So it's really different.

[00:12:44] Anthony Walker: So understanding the differences there and there's even county differences and all that kind of stuff is really, what's gonna set it apart when you're considering investing here in the local area. And then the fact that our market is so varied. I've got the map behind us on this map. You've got cap rates in the ones and you've got cap rates in the fives, or even in the low six's, depending on where you're.

[00:13:04] Anthony Walker: So within a one hour drive of where I am right now, you can have anything you want on the risk return spectrum, which makes it a great market to participate in as.

[00:13:13] Anthony Walker: well

[00:13:20] Sam Wilson: That's really interesting. You know, that you say, I mean, all the nuances, both from the city, from the county.

[00:13:25] Sam Wilson: I mean, you're going one to six in cap rates. Yeah. That is the easiest way or the best way. Maybe not the easiest, but what's the best way for an investor to educate themselves before they take that. plunge

[00:13:36] Anthony Walker: Well, shameless plug time. You, you can give us a call. We specialize in helping people make sense of this.

[00:13:42] Anthony Walker: Maras here in the local area. Our companies called Buckingham investments. We've got a ton of free educational materials online, whether it's our YouTube channel our monthly seminars, we've got downloadable guides. We also just. Completed a, graphical market research dashboard on our website. So you can drill in even by unit count area, zip code.

[00:14:04] Anthony Walker: And this is just in Southern LA county that we have active right now, but we're flushing that out to make it larger and you can see, okay, where's the, where are the cap rates in the ones and the twos, right. And where are the cap rates higher and, and you know, what corner of the market do you wanna work in?

[00:14:17] Anthony Walker: So there's a lot that you can do to kind of understand that a little. Big differences in, in the metrics on the two to four unit properties versus the five and up. And of course that's because of the financing differing so much between those two. But there are a lot of people transacting here.

[00:14:31] Anthony Walker: There's a lot of business being done. The idea that it's, it's a ghost town here is just not true.

[00:14:37] Sam Wilson: It's not true. And if you're looking to

[00:14:38] Sam Wilson: invest there, that might be a might be a prime time to start looking in Southern California. Tell me this. What are some risks, I guess that you see you know, in the market in general right now that people maybe you're taking on that they could otherwise avoid.

[00:14:53] Anthony Walker: Yeah. I mean, I think the big question on a lot of people's minds is affordability you know, for tenants. So we have interest rates [00:15:00] rising aggressively. It's becoming more difficult for people to become first time home buyers, which of course puts additional pressure on the renter market. Rents here are really high and continue to grow.

[00:15:12] Anthony Walker: So, we've gotta keep an eye on that and see. Changes in the economy that seem to be happening daily right now. What sort of impact that has on, on rent or affordability? It's definitely becoming more common for people to, you know, get roommates multi-generational households, stuff like that. And it's becoming a lot more difficult for people here to afford the rent.

[00:15:33] Anthony Walker: So, you've gotta keep an eye on, on that. I think in our area the class a stuff. It is tricky, you know, you're, you're top of the market rents on that, on those type of, of products, B and C apartments are a little bit easier to work with. Other risks I would keep an eye out for, you know, are obviously our interest rate risk, but everybody's talking about that right now.

[00:15:53] Anthony Walker: You're, you know, average commercial real estate. Loan's gonna reset in three or five years. So we have to think about where interest rates are gonna be during that time and where we can get rents to so that if it's modeled out, we're still gonna be able to do okay with the properties that we. own but I don't think you've got any supply side risks whatsoever here.

[00:16:09] Anthony Walker: We can't really add it. You know, to the extent that increasing interest rates affects demand, maybe that will balance out our market a little bit. We just finished our second quarter research and it hasn't. Been reflected in the pricing metrics yet. We're just not seeing that. And I think multifamily is gonna remain a really popular space to be in.

[00:16:28] Anthony Walker: So you have to kind of take what you're reading in the papers with the grain of salt. A lot of that I think is geared towards a single family marketplace. But you know, this is definitely an environment where you've gotta be a good operator. You gotta be able to select tenants. Well, you gotta be able to run your buildings.

[00:16:41] Sam Wilson: Well, that's it, that's it. And, and if somebody else I was speaking to earlier today the term, he. Was pocket economics or pocket economies. That's what he says, pocket economies. He goes, man, you know, once you get to know your market, he goes, I don't really care. What's going on on the macro scale.

[00:16:57] Sam Wilson: I don't care. What's being, you know, blabbered across whatever your news channel of choice is about what the, what the economy's doing. He's you gotta know what's going on in your very local market. Even down to the street by street, he goes, cause it's those pocket economies that totally will you determine the success or failure of your investment?

[00:17:15] Anthony Walker: absolutely. I, I think you can't emphasize specialization enough and you know, that's something I'm personally totally on board with. I I'm very specialized. My favorite market is long beach, which is a pretty small little market and I know it block by block. [00:17:30] I know exactly what I'm gonna be able to get for rent.

[00:17:32] Anthony Walker: I know exactly what I want to do for renovation on a unit at this area versus another area. And I think, you know, as the cycle kind of rolls over this time around. People are thinking it's gonna look more like it did in 2007, 2008, right? That's what everybody expects. Right? Systemic crisis. Everything goes down 30 to 50%.

[00:17:51] Anthony Walker: There's gonna be blood in the streets. It's gonna be great. I don't think that's what's gonna happen at all. I think to your point, it's gonna be very localized. So you know where there was a lot of additional demand over the last year. Maybe that's gonna come back down. Some markets got super heated over the last two years in the pandemic.

[00:18:07] Anthony Walker: Some didn't our. It kind of experienced the opposite. Right? We had people moving outta large cities. Now they're getting comfortable moving back in our, market's been a little more of a stable up into the right thing where some of these other markets that were really overheated are, are coming back down faster.

[00:18:24] Anthony Walker: So I think just like you said, to the extent, you know, your own local market, you're gonna do really well. That's

[00:18:29] Sam Wilson: awesome. Anthony, thank you for taking the time to come on the show today and really share with us your expertise there in the Southern California markets. I certainly enjoyed it. You've shared a lot of very valuable information with our listeners.

[00:18:41] Sam Wilson: If they wanna get in touch with you or learn more about you, what is the best way to do that?

[00:18:45] Anthony Walker: Absolutely. Check us [email protected], all kinds of free stuff there To your desires and then I'm sure you can find me on LinkedIn. Anthony Walker, Buckingham investments. There's lots of Anthony walkers, but I think only one with Buckingham investments.

[00:18:58] Anthony Walker: So feel free to shoot, be a message or an email and I'm always available.

[00:19:03] Sam Wilson: Yep. And we'll certainly put all your contact info there in the show notes as well. Anthony, thank you again for your time. I do appreciate

[00:19:09] Anthony Walker: it. Thank you.

[00:19:10] HTSCRE- Outro Hey thanks for listening to the how to scale commercial real estate podcast If you can do me a favor and subscribe and leave us a review on apple podcast Spotify Google podcast 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

Life Mission Capital Managing Partner Micy Liu started as an LP in December 2020 and now is a Co-GP and fund manager in over a thousand units. In this episode, she reveals how she's able to quickly scale her portfolio and established credibility with her investors. Coming from a data analytics and science background, she also gives us data-driven insights on underwriting, quantifying and assessing risks, and investment assets that we should be keeping an eye on now and in the coming years.

[00:01 - 05:01] From Data Science to Real Estate

• Micy on how she got started on real estate and multifamily
• How being a data analyst and scientist came into play in her real estate journey
• Ways to develop a sphere of influence and expertise
• Building a network and doing due diligence

[05:02 - 15:21] Checking the Inputs to Get the Right Outputs

• The ability to refinance, expense ratio, and risk-adjusted returns are some commonly overlooked inputs in underwriting
• It is important to quantify the risk involved in a particular investment in order to make an informed decision about whether or not it is worth taking on that risk
• Micy is seeing a lot of opportunities right now in mobile home parks, RV parks, and build-to-rent because of the housing shortage
• Institutional money is pouring into the space

[15:22 - 16:48] Closing Segment

• Reach out to Micy!
• Links Below

• Final Words

Tweetable Quotes

"There's two pieces. You find the right people, but also do the due diligence on it to make sure the numbers and everything checks out." - Micy Liu

"As a passive investor, I try to put a number next to it and say is this something that I feel like as an intelligent investor, I would put my money towards for that type of returns?" - Micy Liu

"A lot of times people just look at returns. They don't look at the risk-adjusted returns." - Micy Liu

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Connect with Micy! Head over to LifeMissionCapital.com and check out 100 Questions to Ask Before Passively Investing in a Syndication Deal and more!!

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] Micy Liu: Everything to me is like a model. You have the input, you have the model, you have the output. So a big component in making sure the output is successful is, you know, the jockey. So understanding how they fit opportunities and also design the process myself. You know, I do a very thorough due diligence myself from the jockey to the specific investment and understanding how to put that together. And I spend a lot of time doing underwriting on those opportunities as well.

[00:00:36] Sam Wilson: Micy is the managing partner of Life Mission Capital. She started being an LP in December 2020, and now as a Co-GP and fund manager on over a thousand units as of summer 2022. Micy, welcome to the show.

[00:00:48] Micy Liu: Thank you. Thank you so much, Sam. Excited to be here. And since our last meeting in the Intelligent Investor Conference.

[00:00:55] Sam Wilson: That's right. That's right. We did. We connected there at the Intelligent Investor Conference here in, I guess, that'd been January here.

[00:01:02] Micy Liu: Yeah. Time flies.

[00:01:04] Sam Wilson: You were one of the five, I think, or four or five crazies that got up with me and worked out, I think, at 6:00 AM, so thanks.

[00:01:12] Micy Liu: Yeah, it was a pretty intense workout.

[00:01:14] Sam Wilson: We had fun though. We had fun though. You could hang. It was lots of fun. Micy there are three questions. I ask every guest who comes in 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?

[00:01:26] Micy Liu: Yeah. In terms of commercial real estate, I started learning about it March last year. One of my friends told me about apartment investing. At that time, I was struggling with tenant and toilets with my smaller portfolio. That's more a personal portfolio. And I was like, oh, let's go check it out. Let's learn about apartment investing, syndications. And I spent about six months to eight months really diving into it, talking to different general partners as limited partners and see, you know, who are the people I can not only invest my passive money with but maybe potentially good partners in the future. And I really dove into underwriting. And so from there, you know, I started getting to Co-General Partner opportunities that I believe were a good fit using my data analytics background. And then I find also fund to fund opportunities are also a great way to scale along with my passive investors as well. So that's kind of what I went to to get started and to get to where I'm at today.

[00:02:23] Sam Wilson: That is really cool. That was March of '21 or March of '20 or?

[00:02:28] Micy Liu: March '21

[00:02:30] Sam Wilson: March of '21. Okay. Wow. All right. So March of '21, you said, Hey, I'm going to start becoming a general partner in some of these assets, bringing some investors to those deals. How did you establish confidence in those investors early on that you had? I mean, how did you establish, I guess credibility, is like the question I'm asking.

[00:02:52] Micy Liu: Yeah, I think a big thing about when it comes to investment in general, there's two pieces. You finding the right people, but they also do the due diligence on it to make sure the numbers and everything checks out. So as a data analyst to data scientist- kind of background, everything to me is like a model. Your input, you have the model, you have the output. So a big component in making sure the output is successful, you know, is the jockey, so understanding how they fit opportunities and also design the process myself. You know, I do a very thorough due diligence myself from the jockey to the specific investment and understanding how to put that together. And I spend a lot of time doing underwriting on those opportunities as well. You know, as soon as I understood how everything checks out, what inputs are, how it impacts the output and who are the people I can talk to, to verify my numbers, leveraging my mentor with the CCIM, also a third-party consultant who manages, you know, investments for a $36 billion private equity firm. And he does acquisitions, asset management. So once I knew that I felt a lot more comfortable. It definitely wasn't bad on my own, just say, Hey, you know, do it with me. One partially because I wasn't confident to start with, but second, just having the, you know, my network as well. My network at the time, you know, I didn't have a lot of people who were doing investments in my immediate circle and who maybe qualified to invest. So I had to kind of create a lot of things from scratch, not just my sphere of influence, but I also sphere of expertise as well.

[00:04:23] Sam Wilson: How did you develop a sphere of influence with your passive investors early on?

[00:04:29] Micy Liu: I showed them basically my expertise, my understanding, you know, 'cause since March, you know, just between March and December, I probably went to five different conferences, and I also went to the local meetups, and I also went into apartment tours, hotel tours. I mean, there's asset class have been observing for, you know, since last year. This is our second observing, but we just haven't dove into it without the right sponsors that we felt comfortable with right now. So we're just keeping our eyes on many things, but just waiting for the right time to tune in.

[00:05:02] Sam Wilson: Got it. That's really cool. One of the things you had mentioned there was inputs to outputs there in your underwriting, how you want to make sure, as a data scientist, you get your inputs right, so that your outputs come out. Obviously, you mentioned, you know, betting on the right jockey, but what do you feel like were some inputs that you maybe think other people overlook, discount or, you know, that you underwrite differently maybe than what some other people do? What are some things that come to mind when I ask that question?

[00:05:31] Micy Liu: Sure. Some of the things, you know, especially this year, right, with interest rate changes, that people maybe begin their investors take for granted is the ability to refinance. So can they really refinance within two years, not just from a construction schedule standpoint, but from, you know, the lot of interest rate change that we could potentially see coming? And if that deal has to have the refinance in order to hit the IRR, you know, it concerns me. So I see a lot of beginner investors, they don't look at that. They'll see like a sky-high IRR, but then how, you know, how likely is the refinance? So that's like the first thing that came to my mind. And then apart from that, another thing would be the expense ratio, which varies, you know, even in the particular asset class really varies by state and different things as well. So how to check? Maybe the corresponding report, local investors you have in the area. Are those expense ratios, do they make sense? You know, it's a little bit harder if you don't have a property management in the area to tell you, you know, what's the typical numbers, but you can typically get a close enough count to know if they're really off on directions. I would say those are the two things that came to my mind. And then the third thing I would say is just the intro and exit cap right now, right? Like from multifamily, which is kind of my, my bread and butter started learning from the beginning and everything else I do today is housing because what I look at is I take, you know, multifamily is the core. And then whatever is the difference between multifamily and mobile home parks and RV parks and build-to-rent, I'm basically taking a deviant of it and say, what are the additional things I have to learn to feel the knowledge gap in that space? Who are the people I need to, you know, have the insight to work with and to understand how this process works, to understand the due diligence gap I need to fill? But essentially with that, big thing that would be underwriting for the past, you know, maybe two, three years for people just write 50 basis points per year in terms of cap rate expansion. But right now, you know, we look at things typically a hundred basis point in enter and exit expansion, at least, if it's a five-year hold or three year hold. Even look at diversifying the portfolio. So people, a lot of times they just look at returns. They don't look at the risk-adjusted returns. So all that is to say the third point I wanted to bring back home is risk adjust your returns to understand the risks behind those returns that the sponsors are providing and understanding if it's worth the risk, right? 'Cause like RV parks, you're dealing with it's more unless you have a large permanent residence in there, you got a lot more daily transactions, you know, your Springfield portfolio, we get snow up here. So how do you counterbalance those risks instead of just the returns that people see?

[00:08:05] Sam Wilson: How do you underwrite for a risk-adjusted return? How do you even quantify that?

[00:08:12] Micy Liu: It's really hard to quantify because it varies by the market as well. Today's market, right, we look at multifamily typically having more of a 15-person plus IRR, that's a little bit more of the usual compared to before you can get to close to 20-person IRR. I mean, obviously, there's some people that can do higher or lower. So if a more stable, long-term housing is providing me that type of return, so when I move into RV parks or mobile home parks, for example, RV as well, so, you know, being observing hotels since late last year, I've gone to 10 days of full, you know, the hotel operations monitoring, looking at how the sponsor look at hotels look at acquisitions, and so is short term rental portfolios. Like, the reason I mentioned those is they're more on a daily rate, right? You're to have more legal risks, more daily rate fluctuations, and change of weather, all those things. So it's hard to put a number on it, but mentally I'm preparing myself, you know, it has to be significantly higher because of those things. You know, at least 20 to 30% and some, in some cases could even be higher, right? Like, and then we move into things like crypto mining, which, you know, I haven't dived into in details, but I know some of my partners, they do that. You know, so that's like significantly high risk. So I think it really varies per person. I feel like it has to be justified. To me personally, when I think of it myself as a passive investor, try to put a number next to it and say, you know, is this something that I feel like as an intelligent investor, I would put my money towards for that type of returns.

[00:09:41] Sam Wilson: Micy, here's a question for you. Just help me clarify 'cause maybe I'm not understanding. Let's say there's a deal and it's got a, and I'm trying to keep this easy, and I'm not even sure if I can make up an example for this, but let's say it's got a 20% IRR, right? And you're saying, okay, but how much risk is attached to that 20% IRR? And you're trying to find a way to say maybe there's 30%. I'm again, I'm making up numbers here, 30% or 40% risk to that. And I don't know how you quantify that, but maybe on a risk-adjusted basis, it's more like a 12 IRR, is that what I'm hearing is when you say, okay, what are the likelihoods that I'm taking on more risk in this category? And then how do I quantify that and put it into a model that I feel comfortable with, did any of that even makes sense?

[00:10:24] Micy Liu: Yeah, it does. So it starts with looking on the baseline, looking at, you know, like interest rate, right? Like what people can get via some of the other alternative investments from the safest one to potentially the riskiest one. And then kind of within that kind of where the risk portfolio could fall. And, you know, in terms of real estate investments, the bread and butter for me that I can always refer to is multifamily investments, stable housing. So from that, what are the additional risks we're adding on? It's really hard to say, you know, because it's daily rate, which can plus 5% risk. Like I'm not able to really do that yet. But you can kind of, you can kinda see just from more of a subjective opinion standpoint, perhaps, you know, me as also a passive investor. Most of the time I invest alongside of my investors as well. How would I feel about it concerning those risks involved? No, we can't always foresee COVID and you know, those strange events that may be happening, but just from a normal world standpoint, the likelihood of those things happening. And try to put a number to it in a way that people feel those returns are adjusted. That's why we expect higher returns when it comes to hotels, senior housing, you know even RV parks, 'cause you have additional operations involved, more employees. That's also, you know, higher, potentially higher risk in terms of employees and also more daily turnover, things along those lines. But you know, people could argue the other way, but we're just talking by, in terms of to generate the same amount of revenue, you know, how much more operations and process you need to have involved. And I have to kind of plug in that I also have a data internal audit background. I worked in the data analytics field for internal audit and everything we do is like risk factors in that position and when I work in that role. So I think came out of that, I have a different lens when I look at businesses because of that.

[00:12:12] Sam Wilson: I can only imagine that you do. Where are you seeing opportunity right now? I know you've invested in multifamily. Everything, you said, you want to focus on things that are housing related, but what are you studying right now, if anything, outside of multifamily where you see opportunity?

[00:12:29] Micy Liu: Yeah, I would say is mobile home parks, RV parks, and also build-to-rent. Mobile home parks and RV parks have, you know, depending on the different tier of RV parks are going to have a different clientele and in terms of income and their lifestyles. And then the same thing with build-to-rent as well. Build-to-rent, you could also have different tiers. So those are the two things I'm looking heavily at just because the numbers don't lie. The, you know, housing shortage will have 4 and 5 million for the next, as of right now, even for the next 10 years, if you try to fill that gap, right? Like we're still, even if we're overproduced our housing production by 60%, we'll catch up in 10 years. That number is pretty crazy. And, you know, people are championing left and right so many institutional investors going into producing housing, and I know RV parks don't always get approved, so, but the build-to-rentspace is booming. So how to tag along and, you know, provide returns for our investors while solving a real need out there, whether it's affordable housing or a tier up from there. I think those are the key to solve the problems for the future. And, you know, once the gold is there, people rush into it, even though there's some limited operators out there. So we want to capture that window of opportunity, similar to what we saw in multifamily for the past, you know, five years or longer.

[00:13:42] Sam Wilson: Right, right. Yeah. Build-for-rent is a is a or build-to-rent, build-for-rent. I mean, that that is quickly, I think becoming an industry term, maybe that even a year ago was kind of off. It was just not as well known, but unfortunately, I think we're becoming more and more a nation of renters. And there's just, if there's a need, then we as operators and as real estate professionals are here to fill that need. So, you know, build-to-rentI don't think is going away. And I'm thinking it's only going to increase. How have you found the right operator, the right person to work alongside in the build-to-rent space that makes sense for you while scaling your business?

[00:14:22] Micy Liu: So I'm actually still in the, I would say, in terms of the research I need to be done, I'm probably still at a 20 to 30 percent mark in finding that operator and other opportunity. So I have some from a local sphere of influence. I don't mean physically local, just mean virtual network as well. Actually, one of the things I'll be doing near this month. Because for me, build-to-rent, that probably won't be working on that this next month, maybe a little bit later down the road, like sometime later this year. So I'm kind of just building up additional references and who to work with. You know, sometimes building that relationship may or may not be the right timing due to various reasons, but understanding how that works about the asset classes, build-to-rent is probably one area which is building construction, generally, is probably area that I'm potentially being interested in being more of an operator on. On the other side, I'm more interested in just working with already experienced partners in doing that. So it's also intentionally planting the seed for potentially in the future.

[00:15:22] Sam Wilson: That's awesome. I love it. Micy, this has been a great time. I love learning about your business, the way you've scaled quickly, bringing the data scientist approach to underwriting, to vetting sponsors, to looking at potential asset classes. I think there's a lot here to learn from you, just in the very quick way you've aggregated all this data and made sense of it. I mean, it takes, yeah, it takes to the rest of us a lot more time, I think, to figure some of this stuff out than what it takes you. So you've got a natural gift for it. Love to see what you've done with it. If our listeners want to get in touch with you or learn more about you, what is the best way to do that?

[00:15:57] Micy Liu: Yeah, thank you. Go to my website, lifemissioncapital.com. There's several ebooks. One of them is called 100 Questions to Ask Before Passively Investing in a Syndication Deal. So that's a great way for people to scale in commercial real estate that's why I'll definitely check that out. Otherwise, yeah, you know, my website has my contact information.

[00:16:15] Sam Wilson: Awesome. lifemissioncapital.com. Micy, thank you again for coming on the show today. I certainly appreciate it.

[00:16:21] Micy Liu: Yeah. Thank you so much. Thank you, Sam.

In today's episode of How To Scale Commercial Real Estate Podcasts, we are joined by Ari Rastegar. Ari is the founder and CEO of Rastegar Commercial, an Austin-based real estate investment, and management company, discusses how his company has succeeded in investing and exiting in 38 cities across 12 states by leveraging deep value and high return investment strategies. Rastegar also discusses how their health and wellness focus has helped them to create a profitable venture. Ari's advice is that when it comes to scaling your business, you should scale yourself.

Highlights:

[00:00 - 06:10] Rastegar Real Estate Ventures Adds In-House Architecture and Civil Engineering

• Ari Rastegar, a self-made mogul, and commercial observer, founded Rastegar in 2000 with a $3,000 loan and has since invested and exited in 38 cities across 12 states.
• In 2013, Google chose Austin as their beta city to lay a billion dollars of hardware to bring Google fiber to the city, which was indicative of the city's potential.
• Rastegar is currently developing a property in Austin with in-house architecture and civil engineering capabilities.

[06:10 - 11:51]Austin's Top Real Estate Investor Says Vertical Multi-Family is the Most Accretive Asset Class Right Now

• The key to success in the real estate market is being able to pivot and adjust quickly when opportunities arise
• The real estate market is always difficult, but when you focus on creating value for your investors, it makes the process easier
• Mortgages are often bundled and sold as bonds, so it is important to stay up to date on the bond market in order to make the most profitable investments

[11:51 - 17:37] How to Scale Your Business: Fail Forward

• The market for multifamily housing is softening, and this is causing people to make bad investment decisions.
• To make informed decisions, you need to look at the market on a city-by-city basis, as well as the micro corridors within each city.
• One way to scale your business is to scale yourself. This means that you should focus on growing your team and expanding your operations.
• Failure is part of the process

[17:39 - 19:21] Closing Segment

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

Resources Mentioned

The Gift of Failure: Turn My Missteps Into Your Epic Success

Tweetable Quote

"When you add in any of these health components, it needs to be a value add to the end user tenant, not just being done for show or trying to check an ESG box. And when you do something that's actually creating value for the end user tenant, whether through, health and wellness through the architectural design, the interior designs, et cetera, it tends to be absorbed in the market much more quickly than trying to force it down their throat." - Ari Rastegar

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Connect with Ari Rastegar through LinkedIn, Instagram, Twitter or visit Rastegar Property | Facebook

rastegarproperty.com/

The Gift of Failure Podcasts

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] Ari Rastegar: So when you look at the overall averages of the United States and you look at these things, they're being bastardized by the numbers out of, Los Angeles, San Francisco, New York city, Chicago, and it skews the average to a place that you can't make appropriate investment decisions within pocket economies.

[00:00:16] Ari Rastegar: So you need to underwrite deals. Not only on a city by city basis by almost by a block by block basis.

[00:00:24]

[00:00:36] Sam Wilson: Ari Rastagar has been dubbed the Oracle of Austin by Forbes enlisted as one of the commercial observers. 100 most powerful people in real.

[00:00:42] Sam Wilson: estate. The self-made mogul built an empire boasting hundreds of millions in assets across 38 cities. Ari. Welcome to

[00:00:49] Ari Rastegar: the show. Hey, thanks for having me. The

[00:00:51] Sam Wilson: pleasure is mine. All right. There are three questions. I ask every guest who comes on the show in 90 seconds, or last, can you tell me, where did you start?

[00:00:57] Sam Wilson: Where are you now? And how did you get

[00:00:59] Ari Rastegar: there? Sure. 90 seconds will be tough but I started the firm with a $3,000 loan when I was back in law school. And kind of after two community colleges and delivering pizzas and flipping burgers through high school was kind of a run moved to New York city, spent several years on wall street and then came back to my hometown in Austin to really launch the firm.

[00:01:21] Ari Rastegar: And as you mentioned, we've now successfully invested and exited in 38 cities, 12 states and seven different asset classes.

[00:01:29] Sam Wilson: That is a lot of momentum to build from a $3,000 loan. What year was

[00:01:34] Ari Rastegar: That you graduated? That was 2000. That was 2005. And I was running that initial firm for a couple years and then 2008 happened and that, that came to a screeching halt.

[00:01:45] Ari Rastegar: Luckily I got my Got my $3,000 back and my scholarship money. And I spent a few years on wall street working for some of the greatest minds in the world. And started this brand Rastagar about seven years ago.

[00:01:57] Sam Wilson: When did you know you were onto something? , that's, there's a lot of moving pieces there, but at what point did you say, man, I've got , a viable business plan and I'm going along.

[00:02:06] Sam Wilson: Whatever that was when was that?

[00:02:08] Ari Rastegar: Well, the impetus for Austin, which is obviously, a big part of our business or the Austin MSA, I should say, was in 2013 when Google chose Austin as their beta city to lay a billion dollars of hardware to bring Google fiber to the city. And when the.

[00:02:27] Ari Rastegar: Ability, of financial service companies, technology [00:02:30] companies to utilize Austin became viable. It became, became pretty indicative that the city was gonna do something special and the city's gorgeous, right? It's we have more public parks than any top 10 city in the United States.

[00:02:43] Ari Rastegar: City's built on lakes, the hill country full of trees. And I guess the, the cheeky way of saying it. is It's really easy to get to Texas from Austin. It only takes about 15, 20 minutes. .

[00:02:55] Sam Wilson: That's awesome. That's awesome. So you saw these improvements happening in the city. You saw Google fiber coming to town and you said, Hey, we're gonna go long in Austin, but yet you're in 38 cities.

[00:03:06] Ari Rastegar: Yeah. And so, when we were starting the firm it was really important from a risk mitigation standpoint to, not try to do too many things at once. In-house meaning, it was only probably year four of the company till we started doing our own in-house property management.

[00:03:21] Ari Rastegar: Our in-house own in-house acquisitions, equity, stacks, debt financing. So before we started, as in a co-investment structure of working some of the best operators of the country, and investing, alongside them in, LP structures originating debt but really, piggybacking alongside their acquisition methodologies, their ability to execute.

[00:03:41] Ari Rastegar: And so we were able to cast a very wide net early on to be able to show, show the market that we had fuel flow. The market we could create alpha in several different asset classes, we've always been agnostic to the, to the asset class. We're very much, deep value and IRR driven.

[00:03:59] Ari Rastegar: And once, we were able to execute, it made sense for us then to start bringing more of it, more of the methodologies in house and that's what we've done. And so, today we have a 24,000 square foot office building under construction at the hard corner of east eight and I 35, which is, dead heart, in the middle of, the, the most robust part of Austin, which will end up being our global headquarters.

[00:04:22] Ari Rastegar: As well, so it's pretty cool because we have in-house architecture competencies, in-house civil engineering competencies that we actually acquired the land. In-house we were able to go through the zoning practices. We designed the building and brought on Corgan, one of the best architecture firms in the world to be our architect of record.

[00:04:42] Ari Rastegar: And now we are developing the property ourselves. So it's, a really exciting time to kind of go soup to nuts and be able to be responsive to the environment, cuz it's very much a post COVID structure having staircases on the outside. Windows that O that open and close and a variety of health mechanisms on the [00:05:00] inside were even.

[00:05:01] Ari Rastegar: Conceptualizing using a a product that has these, specialty lighting that replace LEDs that actually enhance cognitive function and helps your brain stay in line with circadian rhythms and just bringing wellness, health and wellness to the forefront through the practice of real

[00:05:19] Sam Wilson: That's really cool. And I think that's that's something that's lacking in the marketplace is bringing that health and wellness. We agree. tell me about that. How did you, how, I mean, obviously you see the need, but then monetizing that need in making it a profitable venture is, can be two separate things.

[00:05:37] Sam Wilson: How have you found a viable business plan? Both of

[00:05:40] Ari Rastegar: those. Sure. I mean, it's look, you gotta sharpen your pencils. No question. But for us, it's about staying in line with the core values of the firm and, anybody that knows me knows I'm a health fanatic to say, to stay the least. And so these things are very much are, a, an extension of, what we believe is a firm.

[00:05:58] Ari Rastegar: building in, these different methodologies, whether it's touchless entry, whether. it's, specialty, HEPA filters and L E D lighting won't affect the budget, as dramatically as some of these other changes will. So I think the key is not trying to do everything all at once.

[00:06:15] Ari Rastegar: It's trying to kind of pick a little bit of a corner that stays in line with that core value and letting that grow organically. So in this particular instance, putting staircases on the outside of a two-story building, wasn't a dramatic change to what the overall. Find out a budget was, but, for, prospective tenants that would want to be a part of this building being in this post COVID environment, it's a huge value add.

[00:06:38] Ari Rastegar: So the key is when you add in any of these health components, it needs to be a value add to the end user tenant, not just being done. For, for show or trying to check an ESG box. And when you do something that's actually creating value for the end user tenant, whether through, health and wellness, through the architectural design, the interior designs, et cetera, it tends to be absorbed in the market much more quickly than trying to force it down their throat.

[00:07:03] Sam Wilson: Absolutely. No I love that. One of the things you said here a few minutes ago was that you've been asset class agnostic. Is that still the case today.

[00:07:11] Ari Rastegar: It is. so we, our predominant focus, we've been in self storage, student housing, office, industrial retail, you name it. And when the time was right, back in 2016, 17, we exited a lot of our retail positions that exited a lot of our self storage positions [00:07:30] before the market changed. So, we still have a very good taste in our mouth about those asset classes in the past, but that's clearly not gonna be the bulk of, where we're focused now, Nora's office, quite frankly, if this wasn't going to be, our headquarters and wasn't a smaller.

[00:07:44] Ari Rastegar: Smaller footprint type strategy. It wouldn't be in line with, what we believed. , the location is second to none in Austin, it's a boutique building. And so we had a lot of risk mitigation strategies in place. And because of that, the demand has been has been off the charts. Our core focus is around multi-family acquisition, namely value, add.

[00:08:03] Ari Rastegar: , vintage multifamily, 1960s, 1970s product that we can go in and renovate and bring to a Class A interior and charge charge outsized rents from, what the product was originally along with industrial development. We have six. 600,000 square feet of industrial that we're build building on 50 acres close to the Austin airport and, just a hop, skip, and a jump from Tesla's Gigafactory.

[00:08:29] Ari Rastegar: So if you look at cities , that are growing, namely in the Sunbelt, whether you take the Austins, the Dallas Nashville, Tennessee, Phoenix Raleigh, North Carolina Tampa, Orlando, Florida, a any of these, any of cities that share a similar. ethos to Austin, they're gonna need apartments because the people coming are transient.

[00:08:48] Ari Rastegar: And so when you come in transient for a new job, you're not necessarily looking to buy a house, day one, you wanna get your feet wet, understand what schools you want to be in. If you have a family. So the need for apartments is is dramatic. One, two is supply chain logistics, industrial.

[00:09:04] Ari Rastegar: So those are the main things that we're really focused on in addition to building industrial and building multifamily. So that's our core focus for this foreseeable future within the Sunbelt geography. But I'm never I'm never scared of a good deal. I joke with people all the time that, , I'm always a buyer and always the seller.

[00:09:21] Ari Rastegar: You might not like my price as a buyer or a seller, but I'm always a buyer and I'm always a seller. , , I'm happy to pay 20 million for the Plaza hotel. That's worth probably a billion. No, one's gonna sell it to me, but I would buy it.

[00:09:33] Sam Wilson: I love that. I love that. Was it hard when you had fast?

[00:09:38] Ari Rastegar: What's that?

[00:09:38] Ari Rastegar: Yes. If it was, if you're asking if anything was hard, the answer is yes. You can end the question.

[00:09:43] Sam Wilson: into the question. Yes. It's all hard. That's a fact and

[00:09:46] Ari Rastegar: that's, it's all hard and expect it to be hard. Don't expect it to be easy if you do your there it is folks there it is , straight from the horse's mouth question for you is this, you built these verticals, you built, , self [00:10:00] storage, you built, whatever else you were invested in office and X, Y, Z.

[00:10:03] Sam Wilson: Was it hard pairing those off or slowing those operations down saying, Hey, look, , we're no longer buying self storage. We're no longer.

[00:10:11] Ari Rastegar: Nah, no, it's not. , it's No, it, you look at the end of the day, this is all about your investors and all about creating value for your clients. And it's also about following the debt mechanism.

[00:10:23] Ari Rastegar: , as we kind of joke, you have to when the bond gods speak, you need to listen. And at the end of the day, all mortgages or the vast majority of mortgages are then bundled and so sold off as bonds. So watching the bond market very closely and understanding what the bond gods are wanting as for for offerings, really show you, , where in the market there is going to be financing opportunity because real estate really doesn't work without accreta financing.

[00:10:51] Ari Rastegar: There's other businesses that have better margins. Have lower risk mitigation strategies. If you're not using financing, if you're not getting quote levered returns. , when you watch these asset classes start to get hot. That's when I pull back a little bit, we were buying self storage.

[00:11:04] Ari Rastegar: When people gave me this kind of sideways, look of you're buying a shed, , hold on. You're what, is that But That's the least sexy thing ever. And My response was always that the financial statements is the sexiest thing I've ever seen. , so it's really about just being responsive and not getting too emotionally attached to, , your own strategy, your own thing.

[00:11:23] Ari Rastegar: And remember that you're here to create value for your investors. And when you have that at the core at the front of mind it's easy to pivot to pivot into other places where there's deep opportunity.

[00:11:33] Sam Wilson: Absolutely. What are the bond gods telling you? Right. now?

[00:11:36] Ari Rastegar: The bond gods are telling me right now that multifamily is probably the most accretive asset class at the moment.

[00:11:44] Ari Rastegar: Fannie Mae and Freddie Mac are as robust they've ever been. The interest rates, , obviously are starting to go up to counteract inflation. A lot of people that's staring the shit out of for us, we see as a huge buying opportunity. Cause a lot of our competition is sitting on the benches and I've always looked at it like of a hundred basis points and financing is ruining my deal.

[00:12:04] Ari Rastegar: I have no business doing that deal. Yeah,

[00:12:08] Sam Wilson: that's absolutely right. , and I've heard that from a lot of people, who come on the show, this is a daily show, and I've heard this more and more people say there's a softening in the multi-family market. Whereas previously there may have been 20 offers on a property.

[00:12:20] Ari Rastegar: , look at it this way. Look at it this way. So , when you talk about the market, , the macro outlook of the United States is not indicative of pocket economies. , [00:12:30] so when you look at the overall averages of the United States and you look at these things, they're being bastardized by the numbers out of, , Los Angeles, San Francisco, New York city, Chicago, and it skews the average to a place that you can't make appropriate investment decisions within pocket economies.

[00:12:46] Ari Rastegar: So you need to underwrite deals. Not only on a city by city basis by almost by a block by block basis. So you need to not only zoom in to that city, but then zoom in on the micro corridors and underwrite risk within the micro corridor. So if you look at Austin as an example, we're a hundred thousand units short of apartments, a hundred thousand.

[00:13:06] Ari Rastegar: Think about that number. They say, oh, multifamily, softening, not in Austin, Texas. Right? So, so you need to look at the market that you are investing in and make educated decisions. Based upon those in particular things. And I don't wanna say ignore the macro outlook. It's always, should be under consideration and understanding it, but to make investment decisions about Austin based upon what's going on in New York is just idiocy.

[00:13:30] Sam Wilson: Yeah, absolutely. What are you guys doing about that? A hundred thousand units short there building more. Tell me about that.

[00:13:39] Ari Rastegar: So we have on a master plan development in Kyle, Texas, we own 318 acres and we're building a substantial amount of houses build for rent, and which is another one of the strategies that we're very keen on for the foreseeable future.

[00:13:53] Ari Rastegar: And then we have about 1400 multi-units that will be developing within that corridor over the next five years. In addition to multifamily development project on south Congress, which is, the most famous street, in Austin, in addition to continu, continuing to make acquisitions, rezoning, some existing properties, existing multi that we have now for more height and more density.

[00:14:14] Ari Rastegar: And just creating opportunities, , that will, , be able to house these, transient individuals coming into Austin. That's

[00:14:21] Sam Wilson: awesome. That's a lot of moving pieces there. How have you maintained or gained traction? , one of the things that, you said early on was you guys have been in a lot of different asset classes.

[00:14:32] Sam Wilson: How did you gain traction with a wider

[00:14:34] Ari Rastegar: focus? Yeah. , again, it's look. I've been involved in pretty much every asset class in all parts of the capital stack, my entire career. , and because of that, developing , very deep relationships from New York on down, , with the brokerage community, with the financing community, with the investment community, , and just listening.

[00:14:54] Ari Rastegar: Really listening to where people want to be, where people are comfortable with and really sharpening [00:15:00] our pencils on where value is, , creates scalability. Cause at the end of the day, , if you can solve a problem for a public pension fund solve a problem, , for your investors or be in a place, , with your banks that fit within the box of them to be able to finance, you have to be sensitive to all these different positions.

[00:15:16] Ari Rastegar: And once you're sensitive, To those positions and you have the outlook of creating value, for your clients more so than yourself opportunities present themselves. That's

[00:15:27] Sam Wilson: That's absolutely fantastic. I love that. Tell me about a time when you got something wrong or you made a mistake.

[00:15:34] Ari Rastegar: , I wrote a whole book about it.

[00:15:36] Ari Rastegar: So the gift of failure, my book, will tell you more than you ever wanted to know. Every chapter covers a cataclysmic failure that, that I endured in a lesson that was extrapolated from that failure. And so I literally spent, , the better part of 18 months, deep diving into those issues.

[00:15:54] Ari Rastegar: And I assure you, There was more failures than I'd care to admit, but now that it's in writing, it's there for the world to Do you

[00:16:01] Sam Wilson: feel like, do you feel like is, failure just part of the process and

[00:16:06] Ari Rastegar: It's a great question. it's a great question. It's something that we talk about on our podcast that, that came out last week with some of the greatest minds, spiritual leaders, celebrities this, that exact question.

[00:16:17] Ari Rastegar: And, , I've come to think in my mind, , success and failure kind of two sides to the same coin and to bifurcate them and call them different or put a negative connotation on failure. , and a positive connotation on success is just inaccurate. , when you're, , one or two years old learning to walk, , you stand up, you fall down, you stand up, you fall down, you stand up, you fall down and your parents don't say, oh my God, , Billy and Jane will never walk ever again.

[00:16:40] Ari Rastegar: , you just keep going through that process. And you quote, as John Maxwell says, you fail forward. , and so I've come to realize that, , failure itself, doesn't denote success. It's the introspection into failure, extrapolating a lesson by putting the onus on yourself and not putting the blame into external factors.

[00:17:01] Ari Rastegar: Using that lesson to then progress is what leads to success.

[00:17:07] Sam Wilson: That's absolutely awesome. That's absolutely awesome. Tell me, I guess when it comes to scaling, what's one piece of advice you would give to somebody maybe earlier in their career. What's one piece of advice maybe to go back and give yourself earlier on.

[00:17:19] Sam Wilson: If you could and say, Hey, here's a way to move further,

[00:17:22] Ari Rastegar: faster. I'll give you a different answer. , the best way to scale , in your business is to scale [00:17:30] yourself. And so your business is a limitation of you. It's almost like you're, you're the trunk and your business is the branches.

[00:17:37] Ari Rastegar: So in order to scale the business, you need to invest in yourself. You need to find. All the points where you are standing in the way of your own success, whether that's the extra 20 pounds you need to lose, whether that's, , kicking some, , habit of smoking or drinking too much, whether that's, , learning to meditate, whether whatever that, whatever , your issues are and whether we like to admit it at all, we all know what the maladies that we suffer from.

[00:17:59] Ari Rastegar: So what I would encourage people to do is find one of the melodies, find one of the vices, find one of the things that's hindering you. And attack it with reckless abandoned. And what will happen is that will free up the space and build self-confidence and unlock that, that sleeping genius, for lack of a better explanation which within your brain and the scaling of the business will be a , natural iteration.

[00:18:22] Sam Wilson: That's awesome. Absolutely love it. Ari, thank you for taking the time to come on this show today. Thanks for having me. If our listeners wanna get in touch with you, learn more about you, your podcast, your book, how do they do

[00:18:32] Ari Rastegar: that? Yeah, so the podcast is called the gift of failure. You can go, , you can go to the apple store, , and find it there.

[00:18:38] Ari Rastegar: It's also on Spotify. The book releases on September 27th and a simple Google search in my name. , I'm pretty, pretty easy to find, unfortunately. , so , if you wanna find us the company's RAIC our property and, shouldn't be too hard for you.

[00:18:52] Sam Wilson: Fantastic. All right. Thank you again for coming on the show today.

[00:18:54] Sam Wilson: I certainly

[00:18:55] Ari Rastegar: appreciate it. Thanks buddy.

Whether you're a startup or a fast-growing company, it's important to integrate technologies into business processes, especially as real estate continues to undergo digital transformation.

Today, Lauren Bahr talks about how they are bringing teams together online to collaborate on the entire lease life cycle. She is the Vice President of Finance at Occupier, a solutions provider for real estate and accounting teams to seamlessly manage leases and maintain compliance. Lauren also breaks down the New Lease Standards and offers valuable advice to navigate the changes in the industry.

[00:01 - 09:58] The Future of Lease Management

• Lauren talks about her background and how she came to work for Occupier
• Occupier makes lease management easier and helps finance teams be compliant
• How brokers can benefit from using Occupier
• Their biggest differentiators: user experience and being a one-stop-shop for collaboration
• Businesses should leverage software sooner rather than later in order to have a stronger foundation

[09:59 - 18:14] On Lease Accounting and Finance

• What is ASC 842?
• Understanding the true financial obligations of the company
• How this impacts the way we balance our sheets
• Mistakes people commonly do on the lease side
• Data should be easily accessible and digestible to avoid costly errors
• As hybrid and remote work continues, there is a greater need for a software like Occupier

[18:15 - 19:32] Closing Segment

• Reach out to Lauren!
• Links Below

• Final Words

Tweetable Quotes

"We wanted to build a product that truly corrals everyone around one piece of software." - Lauren Bahr

"You want to make sure that you're investing in scalable processes way sooner than you actually need it because you're not going to have enough time to build a foundation when you're tripling in size." - Lauren Bahr

"Having everything in a place that's easily digestible can avoid a lot of heartache and money and mistakes." - Lauren Bahr

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

[00:00:00] Lauren Bahr: I would say, you want to make sure that you're investing in scalable processes way sooner than you actually need it because you're not going to have enough time to build a foundation when you're scaling, when you're tripling in size, right? Now's the time to do it when you're stable.

[00:00:28] Sam Wilson: Lauren Bahr is the VP of finance at Occupier. Lauren, welcome to the show.

[00:00:33] Lauren Bahr: Hello. Thank you so much for having me, Sam.

[00:00:37] Sam Wilson: The pleasure is absolutely mine. Lauren. 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?

[00:00:45] Lauren Bahr: Yes, I love it. So I started at PWC. I'm an accountant by nature of school for accounting. So entered the audit practice at PWC, then transitioned into more of a consulting, technical accounting consulting, but also process consulting, helping, accounting teams with our month-end close process, one of the most terrible processes for a lot of accounting teams, then, you know, transitioned into a startup as the head of corporate accounting there. And I'm not kidding you, my very first day at that, company, I met the Occupier team. That was because the real estate team was like, Hey Lauren, you need to sign with Occupier. So like, I don't even know who Occupier is, why do we need them, blah, blah, blah. So by lunchtime, I. Not a chance. We're not signing with Occupier and basically fast forward a year and a half later, the Occupier team's like, Hey, remember when you said absolutely no to us. Well, we'd love to have you come work for Occupier. So, they had made a lot of headwinds in a year and a half. Obviously, I wouldn't be here and I didn't believe in the product and the story more importantly, like who we're trying to help along the way, but a little bit of luck and some hard work is I guess why I'm here at Occupier now.

[00:02:04] Sam Wilson: That's awesome. So let me get the story straight. You're working somewhere. It's your first day on the job and they're like, Hey, we need to bring this new client on board. And you said, no, I don't want to work with them.

[00:02:12] Lauren Bahr: Yeah. I said, not a chance. Love it, but it's not going to work out for us because they hadn't built out certain features of the product suite yet. So basically I sat by myself at lunch because of Occupier.

[00:02:29] Sam Wilson: And then 18 months later, you're working, not just, you know, service provider slash client relationship, you now work directly with them.

[00:02:36] Lauren Bahr: Yep. So, you know, that was about a year and a half ago, so. It's been good.

[00:02:43] Sam Wilson: There must have been a compelling story somewhere along the way that said, Hey Lauren, we've got a really cool product and we're going to solve all the world's problems. And you said, yeah, I believe in that. What is that?

[00:02:54] Lauren Bahr: So my story with this is I have firsthand experience with it that I knew as soon as I had gone through implementation at the said company with a different provider that okay, I needed to go through that experience to realize the value of Occupier. And without that, I don't think I would've been able to really emphasize as, you know, as big of a deal as it is. So I'm happy I went through that, but now I'm happy to help other people on the other side.

[00:03:25] Sam Wilson: So tell me, so what does Occupier do? Yeah. Give us the skinny on what Occupier does, what industry problem they're solving. We'll love to hear all that.

[00:03:33] Lauren Bahr: Yeah. So we are a lease management solution. We start with site selection, helping real estate teams even select where they want to open their new offices or retail spaces, managing that whole process with legal, designers, everything that goes into opening up a new space. Then we take that information into our lease administration tool, which is going to organize all of your critical dates, run schedules, clauses. You're going to be able to search through if you wanted to search through your security deposit clauses across your entire portfolio, very Google-like, functionality that makes it really, really seamless to do that. And then all of that information feeds into our least accounting product, which helps companies maintain compliance with ASC 842 and IFRS 16, which are the new lease accounting standards. So we make it extremely easy for finance teams to adopt the new standard.

[00:04:30] Sam Wilson: You just said a lot of things that don't mean a lot to me.

[00:04:32] Lauren Bahr: I know I said a lot of things. I don't know if that's a high-level view.

[00:04:37] Sam Wilson: No, I love it. I mean, it's funny 'cause you say stuff like that and I go, you know what? No pun intended, but that's not the space I'm in. You know, I'm not in the multitenant business to business retail, industrial, whatever, you know, I don't have 500 tenants and go, okay, especially on that scale. I'm familiar obviously with multifamily loans like that, but it's like, okay, this is kind of a very nuanced product. It's like I'm exposing my ignorance here, right on the podcast. But when I think about lease management, especially as it pertains to, you know, large retail strip centers or something like that. I keep going back that as my example, I usually think, okay, there's a broker out there somewhere that handles that leasing side of thing, they're a leasing agent. Do you work with them? Do you work with the owner? Where in this mix do you get involved?

[00:05:20] Lauren Bahr: Yeah. So we do work with some brokers. So some brokers will just be helping their clients, just select spaces. Other brokers also have been leveraging us to perform lease administration services where it's more of, again, managing those rent schedules. Okay. How much is owed rent? We have a rent abatement period. So a free rent period for six months. Okay, when do I really have to start paying rent? And then also managing all of those clauses and rights that you have. Most importantly too, is the renewal options. Let's say that, you know, you're not in love with a space and you have a renewal option on year four. If you kind of forget where that renewal option is in all of these massive heaps of lease documents, you may miss it and be forced to stay in that space. So not only is it going to be costly to stay in the space that you don't want to be in, but it's also just a strategy-wise impact too.

[00:06:17] Sam Wilson: Right. So you're saying from the tenant side, you guys also kind of interface with the tenants and letting 'em know, Hey.

[00:06:22] Lauren Bahr: Right. So usually, we can sometimes be an extension of a client's real estate team. If they don't have a formal real estate team, then oftentimes we could be working with the broker as well to support their processes.

[00:06:38] Sam Wilson: Got it. Okay. That's really, really cool. When you look at this product, what were the main, I get what you're doing, but tell me what were the main pain points that you guys said, Hey, we can solve this in the industry?

[00:06:49] Lauren Bahr: Yeah. So I think our biggest differentiator, I think there's two. One is the user experience. Man, if you just log onto it, it looks so fresh and so seamless, very intuitive compared to some of the other competitors on the market. And then the other thing was that we wanted to build a product that truly brings, corrals everyone around one piece of software. And so other competitors may only do lease administration or lease accounting, but there's so many different people involved in leases from the finance team, real estate team. You have HR, corporate, IT. There's a ton of different hands in this jar, right? And so having a software that everyone can truly collaborate on or a single sense of truth is, you know, kind of paramount in my mind.

[00:07:44] Sam Wilson: Right. No, that absolutely makes sense. Next question for you is this. When someone looks at your product, at what point in the process, at what point in their scaling process do you say, Hey, that's what it makes sense to reach out to you or a member of your team and say it's time to bring Occupier on? I mean, I'm thinking if it's me. Yeah. And let's say I own one building that has four tenants in it. I probably don't need your services, but maybe I'm wrong.

[00:08:06] Lauren Bahr: Yeah. So I think about it more for, I think at least, you know, around 10, 15 leases, you may want to consider leveraging software, but also if you think about your growth trajectory over the next two years, if you have a real estate team that's very active, maybe you are a new gym, you're the new CrossFit, right? And you're planning to expand into all of these new markets. You may need software way sooner rather than later. You know, I went through this experience at one of my previous companies. We had doubled in size. We went from 25 locations to 50 locations and within three months which is crazy to go through that. But it really emphasized that we needed a software to help organize everything, right?

[00:08:58] Sam Wilson: Right, and that goes back to the title of the show, which is How to Scale. And I mean, that's something I've heard, you know, from many, many people on this show, which is that, you know, you should be just as afraid of success as you should failure. It's like, 'cause you know, for you guys going from 25 to 50, all of sudden's like, oh crud, like, are we actually prepared for this?

[00:09:15] Lauren Bahr: Oh, yeah, I know, right? Yeah. I would say, you want to make sure that you're investing in scalable processes way sooner than you actually need it because you're not going to have enough time to build a foundation when you're scaling, when you're tripling in size.

[00:09:31] Sam Wilson: Right. Right.

[00:09:32] Lauren Bahr: Now's the time to do it, when you're stable.

[00:09:35] Sam Wilson: Right. And that's a hard thing to do. And I think it's one of the themes I've watched over the last probably six, eight years is watching the teams that build, like you said, they build the platform, they build the foundation long before they need it, like, okay, we're going to build this out. It's probably a little oversized for now, but soon enough we're going to need that. So I think that's a really helpful piece of information. You threw out some things I don't even understand, which is a lot of what you said, but adoptions and lease accounting rules and things that changed.

[00:10:05] Lauren Bahr: Yes.

[00:10:05] Sam Wilson: Can you break down for us what's happened in the industry and what all that means?

[00:10:09] Lauren Bahr: Yes. So it's probably the biggest thing to happen in lease accounting in 20 years. So what's happening is right under the historic legacy gap, ASC 840, operating leases, which is the majority of leases did not have to be on the balance sheet. And instead, they were kind of tucked away in the notes and disclosures of financial statements. And so financial statement users just could not get a good grasp of what company's true, liabilities were and their true financial obligations. And so. With that ASC 842 came to light and said, no, no, no, everything has to come on the balance sheet so that everyone can understand the true financial obligations of companies. You know, it makes a ton of sense because most of the time, you know, real estate is the second largest expense for companies, only second to payroll most of the time. And so of course, you're going to want to have more insight into that.

[00:11:16] Sam Wilson: Right. And that makes a lot of sense. Yeah. And you're saying that from the tenant perspective, like their lease has to be on their balance sheet.

[00:11:23] Lauren Bahr: Yep, yep. So from the tenant perspective, yep, because now it's going to come in as a right use asset versus maybe the landlord probably owns that it's probably just a fixed asset for them. So you just being able to utilize the space for 5, 10 years, whatever your lease term is, Hey, that has to come on the balance sheet, but also your remaining lease payments also has become on the balance sheet in the form of a liability.

[00:11:49] Sam Wilson: Right. Yeah. Just like, I guess, just like a loan would.

[00:11:51] Lauren Bahr: Yeah, exactly. It's just like a loan. Very, very similar.

[00:11:55] Sam Wilson: Yeah. There's an outstanding obligation and it's due every month, just like a loan payment.

[00:11:59] Lauren Bahr: Due every month. Yeah. So it was just this kind of crazy loophole that existed in the financial statements for such a long time. And so they've been talking about it for, you know, just kinda like when is this going to go into effect? And so think ultimately it's for the better.

[00:12:18] Sam Wilson: Was the advantage in not disclosing that just making financial statements look better or what was the reason?

[00:12:24] Lauren Bahr: Yeah, so the advantage was just pure, I mean, it does look better from a balance sheet perspective, but I think it was also just process-wise if finance teams could actually do the necessary work in order to get what that right-of-use asset and the lease liability balance would be. 'Cause really they have to create amortization schedules, very similar to like a loan amortization, like even just a mortgage loan. They have to do that for every single lease that they have. You know, that's a lot of work for teams to pressure our teams into doing. And actually, this was supposed to be in effect for private companies in 2020. And they said you know what? You guys are going through enough. We're going to delay it until 2022. And so there's been some reprieve because I know how much of the process changes this.

[00:13:21] Sam Wilson: Right, right. That's really interesting. Absolutely. Interesting. Tell me this, what are some problems that you see that people are or are mistakes that you see people making on the lease side that you could say, or either the tenant or on the landlord side that you'd say, Hey man, these are some really avoidable problems. And maybe you guys solve, maybe you don't, but what are some things you see on that side you'd say there's some mistakes we could very easily avoid.

[00:13:47] Lauren Bahr: Yeah, I think it's just not having clear access to the data points within your lease schedule. So for instance, I think it came out pretty recently that Gap, had missed, Gap, the clothing company had missed one of their critical dates. And how they have had this elevated in a software that's telling them, alerting them like ours is six months in advance. Hey, you have a critical date. You have to do something with that, right, having everything in a place that's easily digestible can avoid like a lot of, lot of heartache and money and mistakes.

[00:14:22] Sam Wilson: Yeah, I think that's absolutely great. Cool. I've absolutely enjoyed this. There's been a lot of fun learning about, you know, Occupier what you guys do, lease administration. One of the things I didn't, I guess, I'm going back through my notes here, one of the things we didn't really get to talk about much was on the kind of new space development side of things. We've kind of talked a lot about, you know, once the product is in place and once you have tenants in place and how you guys. And kind of management that whole side of it, but give me a breakdown on the site development site acquisition, what are you guys doing on that front? I guess that's a part of your business I don't think I quite understand.

[00:14:58] Lauren Bahr: Yeah. So what we do is right now, that process is usually handled in Google sheets, Excels or massive email threads between your broker, your real estate team, your legal team. And so what we do is basically have all of that information within our software product that says, Hey, we're trying to open up a new office in St. Louis. Here are the five locations that we're going to tour. Here are the thumbs down, thumbs up for if people liked it when they toured, when the schedule of tour is, what stage it's in, if it's in legal review, if you've negotiated the contract, what was the original terms of this, the contract. And so you can kind of really play out the entire life cycle of just selecting your space.

[00:15:50] Sam Wilson: Wow. That is really, really cool. And it sounds like you guys are, I mean, again, if in 18 months you said 18 months ago, this company was not at a point where you felt like it was somebody you wanted to work alongside. Now you work alongside 'em, you guys are, you know, rapidly developing a very useful product, it sounds like, otherwise you wouldn't be there. What are some things that you look at just on the horizon you say, Hey, here's some other problems in the industry we haven't yet found a way to solve, but we're actively working on.

[00:16:16] Lauren Bahr: Yeah. You know, I think the question that's on everyone's minds is how the real estate landscape is going to change as people are trying to do hybrid work or remote first work. And how does real estate play into that? Does that mean now that you have smaller hubs and the cities that most of your employees are in or how do you, do you have just one major hub and slide people in? And so there's a lot of different question marks on the real estate strategy, as it relates to people in, you know, in companies right now.

[00:16:53] Sam Wilson: Interesting. Interesting. And what are your guys' thoughts around that? I mean, is there a way that you see you guys kind of plugging into the industry and becoming problem solvers?

[00:17:02] Lauren Bahr: Yeah, you know, I think with this, it really emphasizes even more a need for Occupier just because there's going to be different types of lease schedules and probably even more leases is what the trend that we're seeing is that people are kind of breaking out. If you look at our company, you know, we only have less than 50 people, but we have four leases because now we're all scattered throughout the country, right? And so you can see that permeate between a lot of other companies as well.

[00:17:32] Sam Wilson: Right. Yeah, absolutely. That's an interesting comment where you say that you'll see more leases and obviously your case in point is your own company, 'cause you're right. Keeping track of four different leases across four different building types and sizes and locations and ...

[00:17:45] Lauren Bahr: Yeah. Yeah, it's interesting. 'cause people have this notion that, oh, well, leases are going to be gone because no one's going into the office anymore. Well, that's not necessarily true. And you always have retail space as well. And so leases are not going anywhere unfortunately.

[00:18:01] Sam Wilson: Right. I can't imagine that, but that just proves the, yeah. Proves the need for what you guys do. I think that's really, really cool. And love how you're you're thinking ahead there again, that you're going to see more leases, not fewer, so absolutely awesome. Lauren, before we sign off here, is there anything else that you'd like to share with our guests maybe that I didn't ask that you feel like is really important or valuable piece of Occupier you'd like to share?

[00:18:23] Lauren Bahr: You know, I think our team is wonderful. And I would love to get to know anyone that's listening to this, either a demo or just, anything, an email. So, you know, it was been a pleasure talking to you today, Sam, I think you asked some lovely questions.

[00:18:40] Sam Wilson: Well, thanks. Thanks. No, no, yeah. I'm not sure I believe you, but I thank you, nonetheless. Last question here for you, Lauren. If our listeners want to get in touch with you or learn more about you, what is the best way to do that?

[00:18:49] Lauren Bahr: Yeah, the best way to do that is on LinkedIn, Lauren Bahr, or you can email me directly at [email protected].

[00:18:57] Sam Wilson: Awesome. And if you're looking for her on LinkedIn, that's Lauren Bahr, spelled B A H R. Lauren, thank you so much for coming on today. I certainly appreciate it.

[00:19:06] Lauren Bahr: Thank you so much again, Sam.

In today's episode of How To Scale Commercial Real Estate Podcasts, we are joined by Sach Jhangiani. Sach is the Co-founder and Chief Marketing Officer of Elevate Money, which works to remove barriers so investors can access the benefits of real estate investing with as little as $100. making life easier for investors to start earning passive real estate income.

Let's dive in!

Highlights:

[00:00 - 05:31] How to democratize real estate investing with Elevate.money

• Sach shares how he started doing part-time jobs at credit suites for 17 years.
• taking his experience into account Sach wanted to leave a legacy and co-founded Elevate Money with his colleagues.
• Its mission is to democratize real estate investing and give the average investors access to the same wealth-building tools that the wealthy have used for generations.

[05:32 - 10:59] Elevate: The Simple, Easy Way to Invest in Real Estate

• Create a profile and answer a few questions to get started with the regulatory bodies
• Connect your bank and invest in real estate through Elevate, which takes on the risk and manages the assets for you
• Sach shares that they did a survey and the results showed that younger investors want to invest in real estate, but don't know where to start or how to do it safely
• Elevate provides a platform and tools for investors to build a balanced portfolio of high-income producing assets

[11:00 - 16:16] Platform Provides Liquidity for Real Estate Investors

• How the company offers a platform for investors to invest in real estate deals.
• The company tries to be conservative with its investments, focusing on deals with high-quality tenants and minimizing its risk.
• The company also tries to be profitable from the start, leveraging no more than 60% of the value of the property.

[16:17 - 22:06] Closing Segment

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

Tweetable Quote

"It's your long-term savings account. You shouldn't be pulling in and out of it all the time and that's where compound interest will benefit you." - Sach Jhangiani

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Connect with Sach Jhangiani by visiting their website at https://www.elevate.money/

or find them on the iOS appstore

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

[00:00:00] Sach Jhangiani: so from a business model, we look at things of, how much money are we spending to acquire customer.And ideally what's the lifetime value of that customer, because again, real estate is sticky. You're not supposed to be trading this you're supposed to in it. We recommend a minimum of three years, but ideally 5, 10, 15 years building your long term world. It's your long term savings account.You shouldn't be pulling in and out of it all the time. And that's where compound interest will benefit you. If you look 10 years later, you'd be like, oh my. How do I have that much money? Right. And that's the goal for the investors.

[00:00:39] Sam Wilson: Sach is the co-founder of real estate investing app elevate.money with 15 plus years on wall street, such and his team started elevate.money with the aim of making real estate investing accessible for all such. Welcome to the show.

[00:00:52] Sach Jhangiani: Thank you, Sam. I really appreciate it. Happy

[00:00:54] Sam Wilson: to be here. Hey man, the pleasure's mine, there are three questions.

[00:00:57] Sam Wilson: I ask every guys who comes to the show in 90 seconds or last, can you tell me, where did you start? Where are you now? And how did you get there?

[00:01:03] Sach Jhangiani: Absolutely. So I started my adult career on wall street. I was living in New York city. I had a part-time job at credit suites, walked into trading for, and that was it.

[00:01:14] Sach Jhangiani: I was in love at the attention the action, the energy I had to be there. And I figured it out a way to get in that field. And I did that for about 17 years. And through life, you grow, you have different experiences and you wanna take that those experiences and pass them along and share the knowledge and the wisdom.

[00:01:28] Sach Jhangiani: You gained to help others. And so wall street was great for me personally and professionally, but it really didn't satisfy that part of what I wanted to be in life and distorting the legacy I wanted to leave. And that's where elevate money comes in. So with elevate money to platform that I co-founded with the two of my partners, About a year and a half ago.

[00:01:47] Sach Jhangiani: And our mission is to democratize real estate investing and give the average investor access to the same wealth building tools that the wealthy have used for generations. That was not previously accessible until some regulations of change. And now platforms like us are bringing these alternative investments.

[00:02:04] Sach Jhangiani: Directly to the consumer without a middleman, without a money manager, without high fees. And giving them the same resources that the wealth they've had for a long time.

[00:02:12] Sam Wilson: Yeah, no, that's really cool. I mean, I love the idea from a high level there's there, there's a lot of things I'm sure you've had to think through in a lot of legal hurdles and a lot of compliance hurdle.

[00:02:24] Sam Wilson: I mean, I get dizzy just hypothesizing over what those possibly were. [00:02:30] So how did you clear a lot of those obstacles that have just kind of institutionally and structurally been put in place that would prevent an app like yours from ever coming to market?

[00:02:40] Sach Jhangiani: Yeah, it's a great question.

[00:02:42] Sach Jhangiani: There's two answers to it. One is my co-founder Harold Hofer is actually a pioneer in real estate crowd funding. This is the second company he's launching the space. So he's dealt. A lot of those problems for a long time before and has found solutions. So we had a little bit of a head start there where, he knew the playing field.

[00:03:00] Sach Jhangiani: He knew who we needed to talk to what we needed to get done and how to get it done, to get the platform up and running, to get past all the regulation and bring it to market, knowing what we can say, what we cannot say, all these things I think are important to understand because there is a lot more regulation when you're dealing with reggae, which is the.

[00:03:18] Sach Jhangiani: Way we could do it is through the jobs act, there was an opportunity for companies to start raising capital for investments. From the average investor, they didn't need to be accredited. They didn't need to have a million dollars or make 250, 2 $50,000 a year. They could be, an average person, but they're more regulated the S sec regulates those companies way more.

[00:03:39] Sach Jhangiani: So we're one of those companies. And so just understanding those hoops and knowing what needed to be done. So we had a little advantage.

[00:03:45] Sam Wilson: Gotcha. Yeah. I mean, that's that's it you have to have a team member and, or be the person that understand. How to navigate those waters.

[00:03:52] Sam Wilson: Cuz again you threw me in that arena to be like, I give up, this is gonna be chaos. So that's that's really cool that you guys figured that out. So walk us through how the platform works. How do you guys onboard properties? How do you guys onboard, investors? How, what just give us the lay of the land.

[00:04:11] Sach Jhangiani: Sure. So it's we try to simplify it as much as possible and the thought processes. We've seen other platforms do this, bringing real estate investment, to the average investor. And one of the things we realize is that when you're investing a hundred dollars, $500, a thousand dollars versus, $25,000 or a hundred thousand dollars, the level of due diligence, the level of time and understanding you, having that process maybe less and also the energy you wanted to put into less.

[00:04:39] Sach Jhangiani: And so we wanna make sure things were simple enough to underst. And also do all the heavy lifting for the investor. So instead of saying, Hey, here's 10 properties pick the one you like the best and they don't have the resources to go do the underwriting or due diligence on 10 proper. Around the country with us, they're investing in a portfolio.

[00:04:57] Sach Jhangiani: So we use a re structure. And with that [00:05:00] re structure, what that allows us to do is to continue to accumulate investors, add more properties into that portfolio. And then every investor gets a Al ownership of the entire portfolio. So the more inve Western investors we get. The more properties we buy, the more diversification within that portfolio there is for all investors.

[00:05:19] Sach Jhangiani: So that's the simple structure. And then from the platform perspective, it's really simple. I mean, it takes about five minutes to become a real estate investor and elevate that money. And basically you start the onboarding process. Create a profile, a few questions for the regulatory bodies.

[00:05:34] Sach Jhangiani: And then in essence, you're doing a ID verification choosing the investment amount, connecting your bank. We do an ACH to your bank, collect the money you get approved, and you're a real estate investor. And that's as simple as it is. We take that money. We find buy and manage properties. We collect the rent, we take out the fees and we then pay dividends on a monthly basis.

[00:05:56] Sach Jhangiani: So to date, we've paid a. Dividend payment since we've launched a platform with an annualized yield of about six and half percent.

[00:06:04] Sam Wilson: That is great. I love that. I mean, so you guys are the ones personally acquiring the assets.

[00:06:12] Sach Jhangiani: That's right. That's a great point because you will see a lot of platforms out there who are choosing to really be a middleman where they're the kind of the marketing agency and they're going out and saying, Hey, invest in real estate, come on our platform.

[00:06:25] Sach Jhangiani: And you'll see all these different investments on those on the platform. But. People making the investments, you don't know much about them and they could be, 50 different people, a hundred different people. And so it's really just a marketplace connecting, buyers and sellers in essence.

[00:06:39] Sach Jhangiani: What we're doing is we're taking that risk off the table and we're saying, the buck stops with us. So tomorrow, when COVID happened, if you had a portfolio and you bought four or five properties and one or two, weren't getting yield. And you call the BU's platforms. Well, they'd have to either call all of these different counterparties or hand them off, hand you off to them.

[00:06:57] Sach Jhangiani: And you're like, well, I didn't work with them. I worked with you with elevate. There's no one else. So we're doing the in-house management. We have a CIO who, is bought about over half a billion dollars worth of real estate in the space with. Co-founder at their previous company.

[00:07:12] Sach Jhangiani: So we have a team in place that does all the work and manages all of this stuff. And that team will continue to grow as we grow. It's kind of

[00:07:20] Sam Wilson: a chicken and egg question because you need to have teams in place who are acquiring assets. And then you're building out this platform side of things, which is really the marketing arm, [00:07:30] just like a lot of us as syndicators.

[00:07:31] Sam Wilson: It's the marketing arm, it just on, on a, with a very different focus and a very different way of acquiring capital. But I guess, how did you guys finally form this into where you said, Hey, this is a viable, this is a viable idea. And we've actually got something that we can then grow.

[00:07:48] Sach Jhangiani: Yeah. So we did a survey, we thought to ourselves, Harold's idea when he came to myself and Alex was listening.

[00:07:53] Sach Jhangiani: I did this before and we raised, 400 thousand dollars of assets under management in my previous online craft funded platform. But we targeted a different audience. And I believe that now with acorns, with Robin hood, with all of these betterment wealth front, all these platforms, this younger audience is looking to invest online and there is no real estate solution targeting them, speaking to them, offering this product to them.

[00:08:18] Sach Jhangiani: And I believe that. That could be the future. Because again, this is an audience that is gonna grow. These investors are getting older, they're gonna earn more money. They're getting in the workforce. They're, millennials and younger, even, I should say while baby boomers, let's say who may control a lot of the wealth in the country today, they're gonna be dying off and getting out of the workforce.

[00:08:36] Sach Jhangiani: So we're betting on a smaller investment size, a smaller capital. Outlay today with a younger investor, but one that's gonna continue to grow with us and be the predominant investment group in 10 years, where it's predicted that millennials will overtake baby boomers and wealth in the country by 2030.

[00:08:55] Sach Jhangiani: So that's the bet that we've made from an audience perspective. And so we did a Sur survey before we launched the platform and, the results basically said that these younger investors wanted in invest in real estate, just didn't know what to do, where to go. Or to buy how to do it, or didn't have the capital to do it.

[00:09:12] Sach Jhangiani: So those are all the things that we solve. And we put a deck together. We got some investors, we raised a seed round. We bought our first property. We reg you know, got our our product regulated and set up by the sec license and done all that stuff. Built out the website and started to run traffic and we've been getting customers and they've been investing.

[00:09:31] Sach Jhangiani: And one really interesting fact that I'll share is that which we were surprised too. We didn't know the number. We read this high, this early, but 40% of our sales of shares per month come from existing customers. Even though we've only been around, for about eight months to the public.

[00:09:47] Sach Jhangiani: And what's interesting about that is about 28% of that 40% comes from auto invest. So because these are smaller incremented investors, somebody might say, Hey, let me invest $500 a thousand dollars, but [00:10:00] then I'll also put a hundred or two 50 every month and then build that over time. And then over the course of several years, I've put in several thousand dollars.

[00:10:08] Sach Jhangiani: And then I'm reinvesting all of those dividends. So now that's constantly compounding and that's where the power of the investment comes in. It's not like crypto or, a high, a tech stock that could go up 10, 20, 40, a hundred percent up today. Probably also won't go down that today, but it, over time, the compound interest will.

[00:10:28] Sach Jhangiani: Will benefit an investor. And that's what we're trying to educate this investor group say, Hey, listen, you don't have to put all, don't put all your money in this at all, but definitely you should have some portion of your portfolio. Build a balanced portfolio, should have high income producing hard assets, and this is the easy way to do it and get the benefits.

[00:10:47] Sam Wilson: That's really cool. What is, I mean, a lot of times you hear investors or syndicators say, Hey, you know what, we're raising our minimums. It used to be 50 grand. Now it's a hundred. And then I hear some guys in gals saying, well, it was a hundred. Now it's 200. Like that's their minimum investment because the smaller, the investor, the smaller investment amount, typically the greater, the amount of work per that investor.

[00:11:09] Sam Wilson: Cuz if somebody gives me five grand, that's all they can afford to invest in a deal. One. They probably shouldn't be investing in my. And secondly, they're gonna be very worried about that five grand. How do you guys address that without just creating enormous amounts of communication and work on your side of the table?

[00:11:25] Sach Jhangiani: Well, I think that's the beauty of sort of digitizing the platform. So, most of the, this young. Audience is used to not really talking to people all the time. It's used to getting all the information online wants 24 7 access wants to be able to look at it, wants it to be visual, wants knowledge, education, all of those things.

[00:11:43] Sach Jhangiani: And if you satisfy them with that and you have good investment, a good product that they're earning interests in growing their wealth. They're gonna stick with you and they're gonna add more good over time. And so that's what we're. That's how we're addressing it. And then from the investment perspective, we, it's not, like we say, you can only invest $500.

[00:12:03] Sach Jhangiani: I mean, you can invest hundreds of thousands of dollars, the platform. And we have investors that put as little as a hundred dollars to start to test it out and see what it's like. And we also have people who put 20,000 and 50,000 and a hundred thousand. So you know, it all kind of averages out. And so from a business model, we look at things of, how much money are we spending to acquire customer.

[00:12:27] Sach Jhangiani: And ideally what's the lifetime value of that customer, because [00:12:30] again, real estate is sticky. You're not supposed to be trading this you're supposed to in it. We recommend a minimum of three years, but ideally 5, 10, 15 years building your long term world. It's your long term savings account.

[00:12:38] Sach Jhangiani: You shouldn't be pulling in and out of it all the time. And that's where compound interest will benefit you. If you look 10 years later, you'd be like, oh my. How do I have that much money? Right. And that's the goal for the investors. So, because it's sticky even if they're smaller increments and people on average will hold the investment and add to the investment over a long period of time we can be profitable, on a lifetime value for that customer.

[00:13:00] Sach Jhangiani: Yeah.

[00:13:00] Sam Wilson: Talk, talk to me about the liquidity of this OB, obviously when you're buying shares and a syndication, yeah. It's an illiquid investment. Is that the same true on your, yeah,

[00:13:10] Sach Jhangiani: it's same true. So what we do is we give I dunno if it's exactly two or three months and have to check, but the first short period of time, two or three months, they can actually change their mind and pull their money out without any penalty.

[00:13:20] Sach Jhangiani: And again, we realize like a lot of our investors are new, they're younger. They might. Wanna dabble in this. They wanna see if it works. They wanna see if we pay an interest payment. They wanna see if it's real. So we give them the freedom to say, Hey, come in. And if you change your mind within the first two or three months, no harm, no foul.

[00:13:38] Sach Jhangiani: Send your money back all good after that it goes into I believe it's a two year lock. Maybe it's a three year lock. I can't always forget the two and the three, but then it goes into a certain lock period where now you're holding the investment for a period of time to earn, your income and let the portfolio be stable.

[00:13:53] Sach Jhangiani: You can always take it out with a small penalty. So you probably give up some of your interests to do that. But generally that's the goal is that, we get people in, if they're comfortable with it, they're in it for at least two or three years. And ideally by then, we've proved to them that we're helping them accomplish their goals.

[00:14:11] Sach Jhangiani: And they're now making more money cuz they've grown and all those other things. And instead of taking money out, they're actually adding more money in and that's that would be the kind of business goal.

[00:14:22] Sam Wilson: Got it. I love it. What are you guys seeing for opportunity on the acquisition side?

[00:14:27] Sam Wilson: Because you guys are running a full-time real estate acquisition and investment company. Where's the opportunity live for you now?

[00:14:35] Sach Jhangiani: Yeah, so we, we do a whole lot of due diligence and again, when you're a platform like ours we made the bet or the bet we made the we had the view and the strategy that we don't want to take on a lot of.

[00:14:47] Sach Jhangiani: We rather, so if you're an investor and you're saying, Hey, I just saw, a real estate deal with 18% yield, 22% yield. That's not who we are, cuz we're not doing development deals. We're not doing fix and flips. So we're [00:15:00] not taking that level of risk. And the main reason is our goal is to build a very big platform.

[00:15:06] Sach Jhangiani: And so we don't wanna have a hiccup along the way where we hurt investors, cuz things can happen. Things can go wrong, especially in the beginning when you don't have the history and you're small and we start taking outside's risk for people, something doesn't pan out, then it's over. Then it's like, well that didn't work.

[00:15:20] Sach Jhangiani: We didn't make money with them. They're not good at what they do. So our view is to be more conservative. So we build a. And we're also looking income producing. So we're not really betting all our chips on the capital appreciation. We want income producing day one. So we're buying properties that have existing tenants.

[00:15:39] Sach Jhangiani: We're looking for leases, minimum of five years. Ideally the portfolio is a lease of 10 years on average high quality tenants. And, we do due on the tenant, on the location, on the business, on the property, all of these things to make sure that, this is a good asset that can sustain, economic cycles that can sustain different things that can happen.

[00:15:58] Sach Jhangiani: And we have a high quality tenant. They can pay their rent. That's the goal. And then we leverage no more than 60. So we're a minimum leverage from that from a real estate perspective that, tomorrow things do take a down shift. We're not all levered in and kind of squeeze there. We've got a lot of equity in the deal from the beginning.

[00:16:16] Sach Jhangiani: And so with that, we're able to pay, earn our income, take our fees, take do all the management, run all the expenses and pay out about a six, 5% cash on cash yield for the investor. And then ideally over the course of a year through asset appreciation tax benefits, all of that stuff that flow through, the net, the gross could end up being, maybe 9% or 10% for the, I.

[00:16:38] Sam Wilson: Got it. That makes a heck of a lot of sense. Certainly appreciate that. Let's talk about one last kind of logistical question accounting. I mean, accounting on the back end of this, just like, again, it goes back to the legal and accounting are the two hurdles I see in this, in, in my own kind of analysis.

[00:16:55] Sam Wilson: How have you overcome and settled that you have investors coming in and out all the time? It. Seems like there'd be a lot of movement there.

[00:17:02] Sach Jhangiani: Yeah, there is. And we have one someone on our team that kind of does a lot of the analytics and also just manages that process. But we also have a third party kind of fund manager that we work with and outsource that work.

[00:17:15] Sach Jhangiani: Now that's an interesting question because that's how it's done today. And I actually believe that the future of. Is something that, I think people talk about, but they look at it from a different perspective. That's where blockchain and tokenization and things like that will come in[00:17:30] from a utility perspective, not really to create liquidity in real estate where people are trying to trade a commercial property every day, which is not really the purpose of the asset, but really on the back end of all of the questions that all of these things that you're bringing up, there's a lot of nuance.

[00:17:44] Sach Jhangiani: There's a lot of labor. There's a lot of time. So time and money. Generally, the investor is paying for. Right. And so as we evolve and we're already starting to kind of think about this stuff. So, hopefully we'll be an early adopter. If it's, when it's ready. I don't think it's ready today, but it could be a year from now.

[00:18:01] Sach Jhangiani: It could be two years from now. I do think that process will be in a smart contract. And so you'll be buying a token that represents the portfolio. And then that smart contract is constantly calculating how many shares are outstanding? What's the net income, what's the, who gets what and the transfer happens immediately back into your P to your.

[00:18:20] Sach Jhangiani: Wallet, if you will versus, oh, the fund, we closed the books and now we send them information, the fund manager, the fund, manager's calculating all this stuff. Four days later, they come back and tell you, then you gotta ACH the money to the, for three days back to the investor, you lost, 10 days and you're paying people for that.

[00:18:36] Sach Jhangiani: Right. So I think that's gonna benefit investors from a time and yield perspective. Cuz they'll get that money. That's not getting.

[00:18:45] Sam Wilson: I love it. I love it. I love the forward thinking there. I love the problem. You guys have solved so far in the marketplace. I mean a lot, again, a lot of moving pieces and you found a solution to to yeah.

[00:18:57] Sam Wilson: To, to a lot of it. So I think that's really cool. So thanks for taking the time to come on the show today. If our listeners wanna get in touch with you, learn more about you and or your app, what is the best way to do.

[00:19:08] Sach Jhangiani: best way to do that is check out our website, elevate, do money, or find us in the iOS app store.

[00:19:14] Sach Jhangiani: Android app will be launching soon and we have a support desk with emails all that stuff on the website. And someone on our team is always there to answer questions and connect with,

[00:19:23] Sam Wilson: Our audience. Awesome. We'll make sure we get that also in the show notes there. elevate.money such thank you again for coming on.

[00:19:29] Sam Wilson: I certainly appreciate it. Likewise, Sam, you have a

[00:19:32] Sach Jhangiani: wonderful day.

Tomas Sulichin, President of the Commercial Division of RelatedISG Realty, sits down with us to share expert insights on current market conditions in Florida. A Miami native, he has a decade-long career in the competitive South Florida CRE market, and, today, he details its explosive growth for the past few years and how it is leveling out due to market corrections. He explains why they are still optimistic about the long-term prospects and also discusses strategies to succeed in the development space in South Florida.

[00:01 - 12:00] The Growth of Florida's Real Estate market

• Tomas on achieving great success at 35
• He introduces Related Group and ISG
• With their diverse portfolio, they have a holistic view of the market
• South Florida is seeing a record number of relocations to the region
• Data gathering is critical, especially because there's a lot of speculation and pessimism
• Why Tomas is remaining bullish on the market

[12:01 - 16:18] Development Risks and Opportunities

• Development is high risk but has high return potential if done correctly
• Opportunities for development are available in certain asset classes, such as multifamily and industrial
• It's important to be creative and strategic to stay competitive

[16:19 - 19:19] Closing Segment

• Tomas' hope for the future
• Reach out to Tomas!
• Links Below

• Final Words

Tweetable Quotes

"I think that we were at a point with the most liquidity that the world has ever seen." - Tomas Sulichin

"If you look at the national news, I wouldn't get out of bed 'cause everything seems negative. Then you actually look at the record, we track the sales, we track the volume and it's positive." - Tomas Sulichin

"When you're in a competitive market, you really have to try to get creative and reposition an asset." - Tomas Sulichin

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

[00:00:00] Tomas Sulichin: Well, when you say development itself, I'm thinking of ground-up development, which is basically buying raw land and either entitlement or whether it's entitled and building a building. To do that, that's something that's easy to say that you do. It's very difficult to do it well.

[00:00:27] Sam Wilson: Tomas is the President of the Commercial Division for Related ISG. He leads the commercial team's expansion in South Florida, leveraged by the firm's established strength in the residential market and development. Tomas, welcome to the show.

[00:00:39] Tomas Sulichin: Thank you. Great pleasure to be here, Sam.

[00:00:41] Sam Wilson: Hey man. The pleasure's mine. There are three questions I ask 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?

[00:00:50] Tomas Sulichin: So I started from a real estate household. So this is something that I've been around my whole life. Basically, it's a passion of mine. I see myself going into this well into my older years. I started, I mean, as as anybody else, I mean, from the bottom, basically very basic parts of the job. And I was able to really find a passion for it and I believe, scale myself up. I'm 35 years old, so I think I've done exceedingly well for myself at this age. It's still far from where I want to be in the next five or 10 years. But you have to be happy, but not complacent.

[00:01:23] Sam Wilson: Far from where you want to be. We'll circle back really on that question. Can you tell me what does your company do precisely if possible?

[00:01:34] Tomas Sulichin: Sure. Even though it's a simple question, it's a little bit of elaborate answer for my side.

[00:01:38] Sam Wilson: By all means, we have time, so carry on.

[00:01:41] Tomas Sulichin: Okay. Perfect. So we have two companies, one being Related Group, which is the largest development company in the state of Florida for the past, basically 42 years. We've done everything from ultra-luxury condominium projects latest ones being Armani. We recently launched Baccarat Towers in Brickell at a price point of around $1,300 a square foot, all the way to affordable housing. We recently completed Liberty Square, which is 2200 units, subsidized housing, and also mixed-use projects. So we do sometimes retail components, sometimes the office component just to better serve the community. The other side of the company is ISG, which International Sales Group, which specializes in the sales of these ultra projects or these large scale projects. Myself, personally, I lead the commercial division on the broker side. So I represent everything from buyers that are looking to purchase land to develop or existing assets, repositioning assets, and I get involved depending on what the client's needs are. I could get involved in raising equity, taking a part of the deal, or simply being a broker depending on what their needs are.

[00:02:48] Sam Wilson: Got it. That's really intriguing. I mean, there's a lot of moving pieces in all of that and I bet it gives you kind of holistic view of the market. Would you say that's fair?

[00:02:58] Tomas Sulichin: It does. 'cause it gives us a view. I mean myself, my day-to-day really is focused on the commercial sector, but I think commercial and residential really go hand in hand. If you have a strong residential market, I think that you're going to see commercial real estate also do exceedingly well and vice versa. If there's not a lot of companies that are relocating companies that are expanding, retail's not working good, you're usually going to be followed by a softer residential market. So being that our company has a very strong footprint in South Florida. Even though my sector is kind of niche, I get to see basically everything that's going on and it's important. I mean, to have, I think knowledge is power. So the more knowledge you have, I mean, the better you're going to.

[00:03:39] Sam Wilson: Do you see any warning signs? Do you see any caution flags going out saying, Hey, I guess, do you see anything in the market right now that people are taking unnecessary risk that maybe they could offset?

[00:03:50] Tomas Sulichin: Yes. I mean, if you turn on the news, I think that you're going to see a pretty grim picture of what's going on right now. You have a 9.1 inflation rate, which is the highest, I don't know. I mean, since, I don't know, The Great Depression.

[00:04:02] Sam Wilson: Early eighties.

[00:04:02] Tomas Sulichin: The seventies, since, the nation well before I was around. So it is a little bit concerning overall when we really do focus and, I mean, South Florida, fueled by international buyers, by buyers from a lot of different states from the Northeast New York, New Jersey, Connecticut from the west coast. And you have a record number of companies relocating over here and permanent residences relocating over here. So when we look at the local market, that's really my day-to-day job. I really do not see any warning signs. I mean, you're seeing, we're tracking sales year after year, every year we produce something that's called the Miami Report. So we do, we're very big in data gathering. And when you look at the sales, you look at the volumes and you look at what's going on, it's really a positive picture. When you look at people's opinions or when you look at interest rates and declining, that is something that is somewhat concerning and something that you have to take into consideration when negotiating deals, especially cap rate deals or deals that are going to be on a cash flow. But it's a reality of the world that we live in that you always have to adapt.

[00:05:03] Sam Wilson: Right. Yeah, absolutely. And you guys are focused strictly in the Florida market, is that correct?

[00:05:08] Tomas Sulichin: Correct. So we're mainly based out of South Florida, which would be Palm Beach, Broward, and Dade county. But we do also real estate, I mean, we have projects right now going on in Naples, which would be the West Coast of Florida, in Sarasota, in Jacksonville, that's a great market, Tampa, Orlando, and Tallahassee. So we do have a footprint throughout Florida, but I wouldn't say that the same strength of the company is going to be in Miami as in Jacksonville or in Sarasota.

[00:05:35] Sam Wilson: Right. Right. Have you seen any softening and I know Florida right now it is just, I mean, it's growing like wildfire, so maybe this isn't a fair question for you, but maybe it is a fair question because, you know, everybody's always said that real estate is local. There is no national real estate market. like that because, you know, again, you listen to the news, you listen to any other talking head and in the end it's going to be like, oh no, the bottom's going to go out and the sky's falling at the same time. But for you, you guys are just seeing an incredible boom, but is there any softening in your market or is there any changing investor preferences that you've noticed here in the last 12 months? You'd say, Hey, that's something we, that should be discussed.

[00:06:11] Tomas Sulichin: Well, I mean, interest rates and commercial real estate really go hand in hand. So that's something that we were coming off of historically low interest rates. I mean, we were able to get loans at 3%, sub 3%, bridge loans at 4%, 5%, 6%. Right now, I mean, you're seeing that we've gone up over 150 basis points, the announcement right now that they're going to go up maybe another 75 basis points. So that's something that's definitely taken into consideration and certain deals that we're trading at historically low cap rates. We were buying, or I was seeing clients by class C multifamily add four caps or four sub caps. And. That is something that you simply can do unless you're getting a very, very low interest rate. I mean, most of the time these transactions are going to be heavily leveraged because that's the only way how to make sense out of it. Your cash and cash return is good, even though the overall return, as you would see on paper, doesn't seem so good. But right now, being that the reality is that interest rates have jumped up, we do have to make adjustments. Overall, again, I'm very bullish on the market. We're still tracking an enormous amount of deals. We're still, our phone is really ringing off the hook. The way that I analyze real estate at this point and I think anybody does is pre-COVID, post-COVID. Post-COVID, we saw Miami basically go through an accelerated growth up to the term that is almost non-sustainable. I mean, you can't have a regular market grow 30%, 40% year after year. So at certain point, you have to a little bit plateau. It has to even out, things have to fall back to normal and have growth, and it's steady big growth, but not to a level that residential rent goes from $3,000 to $6,000 or $5,500. That's not normal. So I'm actually happy to see certain corrections within the market. And then also certain properties that I think were very extremely overpriced that they're now they're getting a little bit of a price adjustment not because the market is necessarily an overall correction, just because a property that should have been $10 million, they were advertising it or trying to sell it at $13 million because of the combination of being fueled by South American investors, Northeast investors, and extremely low interest rates. So right now, I mean, we're seeing some changes, but again, overall, the picture seems very positive in our view.

[00:08:33] Sam Wilson: Right. Yeah. I mean, just to recap that, we've seen explosive growth and what you're seeing is not necessarily a downturn, but just a normalization where maybe the trajectory is not straight up into the right like it has been. It might be, you know, flattening out and that's okay.

[00:08:48] Tomas Sulichin: I mean, it's almost necessary. I wouldn't even say that it's okay. It's almost necessary for a market to be sustainable.

[00:08:53] Sam Wilson: Right. I mean, we've printed so much money. The number is astounding that we flooded the economy with where is that extra capital going in my assessment? I would've said over the last two years, it's had a flight to assets, which is why asset prices have been, you know, skyrocketed there's been cash available. Valuations have skyrocketed. So as that starts to normalize, is that capital all been absorbed into the market? And I know I'm asking a kind of a broad question. Has it been absorbed into the market or is it something where it's just patiently waiting for opportunity?

[00:09:24] Tomas Sulichin: So I think that we were at a point with the most liquidity that the world has ever seen and not only, I mean, if we look outside of real estate. I mean, you look at luxury goods and LVMH did the record year of sales in. 2021. I mean, you see a Rolex price that retails at 34,000 being sold for 150,000. You see a car that again, the MSRP is 80,000 being sold for double. So we saw just overall the effects of 10 trillion being printed, cryptocurrency going skyrocketing and stock skyrocketing, and everybody was really liquid. I think right now you're seeing a little bit of the pullback from that 'cause I mean you're seeing corrections throughout different markets, but again, I think that the investment grade of people that really buy commercial real estate is very different profile than somebody that's buying Bitcoin or somebody that's buying a Rolex watch. So you have to separate that and you can't kind of pull everything together. I see the memes, which I laugh. I'm a big social media guy. And then I was seeing the memes going like, stock market with the grim reaper, luxury goods with the grim reaper, and then followed by the real estate, like knocking on the next door. I really don't think that that's something that's going to happen because you can't just pull everything together the same way that you said, Sam, that if you look at the national news, I wouldn't get out of bed 'cause I mean, everything seems negative. Then you actually look and we look at a record, we track the sales, we track the volume and it's positive. So there has to be certain corrections and there's going to be some aftermath of $10 trillion being printed. That's the reality. And we're seeing inflation, we're seeing the feds fighting that with rising interest rates. But the reality is in the market, at least in the market that I'm in, that I'm an expert in, that we're experts in, we see a very positive picture. You see companies like Citadel relocating a thousand employees that was announced a couple of weeks ago, one of the biggest funds in the United States, Ken Griffin. So you see things like that happening month after month, which before it it was nonexistent in South Florida. We just didn't have that level of buyer, that level of company basing itself out of here. And we have companies now like BlackRock or Microsoft leasing in Brickell one after another.

[00:11:36] Sam Wilson: Right. That's wild. And until that excess capital is fully priced into the market, I just don't, I mean, maybe I'm crazy, maybe I'm wrong. I just don't see asset prices declining.

[00:11:47] Tomas Sulichin: I would agree with you.

[00:11:48] Sam Wilson: Yeah. And that's going to take a long time to get 10 trillion kind of fully absorbed into the market and have the market accurately priced. Now, according to how much how much money is out there chasing yield. So that's really interesting. Let's talk about development and development potential risk and opportunity. What do you see on that front right now? If someone were to get into development, what do you see as the low-hanging fruit in development today?

[00:12:15] Tomas Sulichin: Well, when you say development itself, I'm thinking of ground-up development, which is basically buying raw land and either entitlement or whether it's entitled and building a building. To do that, you really, I mean, that's something that's easy to say that you do. It's very difficult to do it well. So anybody could call themselves a developer and I've seen a lot of people buy lands, spend years trying to build something, and really get little to no return afterwards. And I've seen companies, I'm not even thinking about our own company, I mean, countless companies or individual do and execute that very successfully. But that takes a lot of market knowledge. It takes a big team in place, whether it's from architects to city expediters, to the right construction companies. So while development is the highest return, it's the highest risk because I mean, you have to do the most in order to get it versus trying to buy let's say an existing multifamily and reposition it or not necessarily reposition it, but do a value add deal, try to increase the rents, clean it up, maybe put some partitions, turn one-bedrooms into two bedrooms. So as anything in life, the higher the risk, the higher the return. The reality is that when you're developing ground up again, I think that you have to be very knowledgeable. My first, when we started the podcast, I mean, when I said, I'm a long way to where I want to be, I mean, my long-term expectation is to really develop deals myself, be called a developer. I could technically maybe put that in my business card, but I don't think I'm there yet. So that's how much I respect the industry and how much I respect the people that really do that well.

[00:13:43] Sam Wilson: Do you see opportunity right now? I mean, is there an asset class in particular, you said man, or a type of asset, you said this is something that's missing in the market at large, that people should be focusing on you know, that maybe again would be just ripe for or just full of opportunity, you got anything on that front?

[00:14:01] Tomas Sulichin: Sure. So I think, I mean, the opportunities were really, you have to put work into the building. There's certain asset classes that obviously outperform others. Multifamily was one of the strongest one, followed by industrial, which we saw huge need for logistics. I mean, at least in South Florida, we have an average price point on industrial at $200 a square foot for sales versus the national average, which is 134. So it's a very big difference of, of what's going on over here. The reality is that, but to create value, I think that you can be looking for what we call for coupon clipper deals, meaning that everything's already done, they renovated the building, or all you have to do is maybe put a little bit of paint on the facade. That's not the reality of the market, at least in a market like South Florida which is extremely competitive. And when you're in a competitive market, you really have to try to get creative and reposition an asset. A good example is last year I purchased a building, which historically was a warehouse. Then for the past, maybe 15 or 20 years, it was utilized as a church and it was being sold as a church. When we looked at it, we saw the location, which was a very strategic location next to a major highway, very close to some big points in South Florida within the Miami market. And I walked the building and I looked at it and I said, Hey, this is an industrial property. I mean, right now, I mean, they have altar and they have all these different things, but we could really turn this back into an industrial property and get substantially higher rents and higher value for the property. And we basically did that. It was a long process. I mean, it's a year process. It's not that something that you say like, oh, in two months, I'm going to change this up and then have it fully running.

[00:15:38] Tomas Sulichin: So we really give ourselves a 12 to 18-month window to do something like that. But that's really how you create value to try to see an asset that maybe somebody's overlooking and then create the value reposition. When you're aiming for the sectors that are doing exceedingly well, again, you're going to be, people are, most of the time sellers are going to be asking top dollars. So if multifamily is trading very good, because everybody needs housing or industrial, there's no vacancy you're going to be paying higher money for those. So sometimes even looking at the assets that haven't performed as well, sometimes also creates additional value, whether it's hotel or whether it's retail.

[00:16:16] Sam Wilson: I love it. Absolutely love it. Let's circle back to the beginning of our conversation where you said you're far from where you want to be. Let's personally find out from you what you want the future to look like and how you intend on getting there.

[00:16:30] Tomas Sulichin: So again, real estate is something that I see myself working a long time in really into, I don't ever see myself retiring, maybe just switching positions or sitting at the different side of the table, but it's something that I foresee myself and even my children working into. Myself, I've been in sales for quite a long time, basically every job, I've never had a job that was salary based ever since I was 17 years old, my first job was at a mattress store for a few months, and that's when I started kind of learning sales and kind of progressed from there. So I liked sales job at the same time I really would love to see myself in the next 5 or 10 years switching more into a development position and being able, maybe it's an egotistical thing, but I would love to drive by building and look at it 20-story, 50-story, whatever it is and say, I put that there. I mean, that's going to be there well after I'm gone. So, when I say a long way from where I want to be, again, I'm in the sector I want to be. And in the business I want to be. But again, I think I, there's still a lot of room to grow and especially in a market like Miami, where you have people like Gil Dezer or Jorge Perez and these mega multibillionaires. So I always am happy of what I achieved. But I'm not a person that's ever complacent, so I'm never going to sit back and say, oh, I got a good commission. So now I don't have to show up at work tomorrow, or I don't have to show up at work for the next few months. I mean, you get a commission, you wake up the next day and go right back at it again to make sure it keeps happening.

[00:17:57] Sam Wilson: I love it. I love it. Tomas, thank you for taking the time to come on the show today. You've certainly given us lots of good things to think about both from a macro market perspective and also in the Florida markets there. And just how it is that you, how you guys are taking down deals, how you guys are brokering risk you see in the marketplace. It's, yeah, it's certainly been a great conversation. I've really 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?

[00:18:23] Tomas Sulichin: So I would say it's either by email or even through Instagram. So, my email is going to be Tomas, T O M A S @relatedisg.com or my Instagram is @the_sulichin, which is very easy to pronounce and spell, but it's S U L I C H I N. So either one of those, I always look at my messages or my emails.

[00:18:47] Sam Wilson: Wonderful. Tomas. Thank you for coming on the show today. Certainly appreciated

[00:18:51] Tomas Sulichin: Sam. It was a pleasure to be here at any time. Thank you.