Today's Guest is Eric Brewer.

Since 2006, as a real estate investor, Eric has done over 3000 residential real estate deals in Pennsylvania and Maryland. His experience covers purchase, renovation, direct to seller marketing, novations, turnkey rentals, and property management. Join Sam and Eric in today's show.

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[00:00:00] Intro

[00:00:26] Eric's journey from the car business to real estate investing

[00:01:01] Eric's path to becoming a CEO and his leadership philosophy

[00:11:07] The style of management and leadership in the car business

[00:12:57] Transitioning from the car business to real estate investing

[00:14:02] Joining a mastermind and implementing new leadership habits

[00:23:14] The importance of personal and business alignment

[00:23:28] Closing

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Connect with Eric:

Instagram: www.instagram.com/eric_brewer_invest_/

Facebook: www.facebook.com/eric.brewer.79

Web: www.brewermethod.com

Connect with Sam:

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

Facebook: https://www.facebook.com/HowtoscaleCRE/

LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/

Email me → [email protected]

SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson

Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234

Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f

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

Eric Brewer (00:00:00) - Those relationships, whether it was my choice or their choice to leave. When that ended, it exhausted me. I took it personal, which as much as people say business and personal are two separate things. I think that's a myth. I think if they are, you're doing one of those wrong. If your business isn't a little bit personal and your personal doesn't have a little bit of business in it, those two are out of alignment and need to be fixed. Welcome to the How.

Sam Wilson (00:00:26) - 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. Since 2006, Eric Brewer, as a real estate investor, has done over 3000 residential real estate deals in both Pennsylvania and Maryland. Eric, welcome to the show.

Eric Brewer (00:00:50) - Thanks for having me, Sam. I'm excited to be here.

Sam Wilson (00:00:52) - Absolutely. Eric The pleasure is mine. There are three questions I ask every guest who comes on the show in 90s or less.

Sam Wilson (00:00:57) - Can you tell me where did you start? Where are you now and how did you get there?

Eric Brewer (00:01:01) - Cool. I started in the car business. I cut my teeth in real estate as a cold call refi lender that was cold, calling people in 2005, just trying to get them to refi their existing mortgage. So got sort of indoctrinated in the world of real estate. Um, I am now, um, a true, I believe for the first time ever CEO in charge my organization where I have three words that define my daily roles and responsibilities, and I literally make no decisions in regards to properties or pricing or personnel. With the exception of our executive team, which is comprised of a CLO department business unit leader for every important part of our business. We operate in three states currently opening up a fourth, um, July 1st and I got here through a combination of uninhibited willingness to fail, probably a delusional perspective of what was possible, um, and an exceptional support system of people that kind of peeled me up off my back each time fell down.

Sam Wilson (00:02:16) - And that's really cool. A lot to dive in. There are a lot that we could we could really dive in on in particular, if you. If you don't mind, give me a quick summary. I know you just kind of gave us the high level and most of the time I pick I started on that on those three questions and we take it from there. But I feel like there's more to your story maybe that we should hear. I have no idea. Okay. I don't actually, I have no idea. But give give us give us give us the give us your story if you can, and then we'll kind of take it from there.

Eric Brewer (00:02:49) - So I I'll go back as far as I can remember and feel as relevant. Um, right around my sophomore year in high school, I got off the beaten path, and, um. There was a separation between my mother and father, and I was left basically alone for very. For way too long. And at that point is a 14 or 15 year old, you know, teenager.

Eric Brewer (00:03:17) - I started doing stuff I shouldn't have been doing. I stopped studying. I start partying. And then one thing leads to another and I'm barely limping out of high school with a diploma. Attended summer school, failed summer school, started my senior year as a junior, had to do a bunch of makeup classes, work a part time job because my parents wouldn't pay for me to go to a tutor because they'd already, you know, kind of survive the embarrassment of summer school. So was just kind of a knucklehead. Mean wasn't like robbing banks or jewelry stores or anything, but like, you know, just wasn't doing the right things and, you know, took a senior week after when most seniors go to the beach and sort of party a little bit to celebrate their graduation. That lasted about six months for me versus six days for everybody else that had a college to report to or a meaningful job or some type of responsibility. And six months later, all my friends had gone off to college or had real jobs and had zero direction about where was headed in life and reached out to my dad.

Eric Brewer (00:04:20) - And he's like, Hey, no, this isn't probably what you want to hear, but you should strongly consider the military. My father was a lifelong military retiree in the US Army. His father retired from the Air Force. A lot of my aunts and uncles, we were a military family and I did reluctantly. He was like, Hey, don't think have any other choices. I'd work like a construction job for a week and a half and realized I'd rather punch myself in the face than ever have to do construction again. And, um, got shipped off to basic training. Probably the best thing that best thing and worst thing that ever happened to. I knew for sure it wasn't for me. But at that phase in my life that it kind of smacked the ignorance out of me. And it was a big eye opener. Um, so did my time in the US Army was a 68 Lima, which back then was an avionics communications repairman. Um, had zero interest in it. Don't even remember why I chose it is because it was as far away from battle as possible, and it was probably one of the lower physically demanding jobs in the military and had a good enough test score to qualify.

Eric Brewer (00:05:30) - So anyway, came home from that and zero civilian application for, you know, working on helicopters back home where I'm from in central Pennsylvania. So came back home. I ended up applying for a ad in the newspaper at a car dealership for a lot Porter, which is you organize the cars on the lot, you do some deliveries and was like, Oh my gosh, a Mercedes and a Toyota dealership that was already sort of a car, you know, had a lot of interesting cars and an affinity for for for cars. And I show up, showed up for the interview. And the only real clothing had was my military uniforms, like 37 pairs of jeans, shorts and white tank tops and the double breasted pinstripe suit I wore to my senior prom. So the most appropriate one thought to wear was my double breasted suit. So I'm sitting in this waiting area at the car dealership. And have you ever been to like a the waiting room at the service department? Like it's a high tension environment, right? Like, everybody's sitting there.

Eric Brewer (00:06:34) - They've already been there too long. They're kind of pissed off with the guy because they came in for an oil change and now they got a build at 700 bucks. And I never forget the guy's name was Mark Smalley, and he was the service manager, comes out into this waiting room and he's looking around and he like double takes and looks at me and goes, Eric and I stood up at attention, Go, Yes, sir. And he goes, You wore a double breasted suit to a $7 an hour job and said, Yes, sir. And he goes, You're hired. And my career in the car business started right there at seven bucks an hour. Flash forward eight years. I was the general sales manager had basically held every position in the dealership. And just through sort of determination and a lack of any real other obligations than to try and make money and put food on the table. For myself, I was working anywhere from 65 to 95 hours a week throughout my career there. And after eight years in the automotive business, eventually selling five, 600 cars a month, managing 100 plus employees, I'd gotten burned out.

Eric Brewer (00:07:38) - That business has a way of. Taking its toll on your soul and also was about to have or just had my first child and knew that I couldn't be a good car guy and a good dad at the same time. So chose to go the route of being a good dad. Um, tried to figure out what I was going to do with my life. Didn't know when got out of the car business once again reached out to my dad and he's like, Hey, don't think you're just good at cars, you're good at management, you're good at marketing, you're good at sales. Where could you leverage that experience and not have to work 95 hours a week and had sold some some cars and done some business with real estate agents, appraisers, you know, lenders. And I'd also really valued, um, at that car dealership would say our expertise was finance. We were able to help people with little money down and bad credit, big down payments, very rate conscious people that owed too much on a trade, too many open auto loans.

Eric Brewer (00:08:40) - We were known for being absolute wizards when it came to finance and we could figure out how to get more people in a car than our neighbor. So I'm like, Listen, I want to get into real estate. It's a good, I think, parallel for for my experience that I'll have a short learning curve and want to start in finance. So I went to 3 or 4 local lenders, interviewed their weighed the comp plans, training, all that stuff, and started working with a place called Comfort Home Mortgage. And the way I started was cold calling Internet leads that they got for people that wanted to refi Sota crap ton of loans made a boatload of money and about six months into that my mentor from the car business called me and said, Hey, I'm selling the dealership. He was like 39 years old, nowhere near being ready to to retire. He had a motor that to this day, I've never seen anybody match. He was just always the first guy there, the last to leave. He was just an absolute assassin.

Eric Brewer (00:09:42) - And he invited me to be partners with him and open a real estate investing company. And one phone call and one lunch later. Um, see, our property group was born in 2006 and flash forward today. Now it's been rebranded as Integrity First Property Group. Him and I are still very much friends. I bought him out about four years ago and now we have 40 employees and operate in three states.

Sam Wilson (00:10:08) - Wow, that's crazy, man. You never know when one or what one thing will lead to the next. I mean, that's that's that's an awesome, awesome story how you just you got into it. Um. You know, there's probably a lot of our listeners that can relate to that. I know. I certainly can. That kind of wandering in the beginning where you're like, Oh man, like I have no idea what to do next. And then it's not like you figured it out just by, you know, through through trial and error. And I think you said that there in the beginning, one of the things you said was an uninhibited, I think, willingness to fail.

Sam Wilson (00:10:42) - Yeah. So that's really, really cool. What were some of the things because you also mentioned how you're now the CEO of your company. Right. And you said if something doesn't fit inside of these three words, you mentioned that I never caught what those three words were and then kind of back. Tell the backstory, if you can, of how you came up with those and how you've kind of developed this philosophy of leadership.

Eric Brewer (00:11:07) - Yeah, it's, um, so I'll go back to like, uh, the, there's, there's nothing more I think, different than the style of management and leadership that I experienced in the car business in the late 90. So what is widely become accepted as the right way to lead and manage people now? Like it was literally just like you see in the movies. I mean, it was a bunch of, you know, guys and $1,500 suits, chain smoking cigarettes, cussing like sailors. Operating in the grey, like throwing fistfights in the back lot and people like, I got fired once a month.

Eric Brewer (00:11:53) - Like it was. It was the absolute wild, wild West. Right. And it's it's not what I would describe as servant leadership, Let's just put it that right. And think what we've learned over time is like people just cannot work under those circumstances for an extended period of time. We've realized that people now appreciate probably more so than income the opportunity to have balance or attach purpose to the work that they do. And, you know, so for me, for about ten years, leaving the car business, um, I've managed very much the way that I was managed, right? So remember, um, you know that about every three years, um, I would have almost 100% turnover in my company. And it was like after the third cycle of that, I'm like, This is exhausting, right? And this will make more sense when we get to what my I believe my sole purpose is here. But those relationships, whether it was my choice or their choice to leave, when that ended, it exhausted me.

Eric Brewer (00:12:57) - I took it personal, which as much as people say business and personal or two separate things, I think that's a myth. I think if they are, you're doing one of those wrong. If your business isn't a little bit personal and your personal doesn't have a little bit of business in it, those two are out of alignment and need to be fixed. And I just you know, we were making a lot of money doing a lot of deals, having awards and accolades to be able to show externally, but internally was starting to feel a little bit like I did at the end of the car. Business was starting to feel burned out, but felt it was more my wrongdoing than it was the nature of the business. And I started seeking answers. I got into a mastermind, completely changed my life, was introduced to an implementer, hired them to come implement into my business about seven years ago, completely changed my perspective on leadership management, delegating tasks. The role of a CEO, um, just turned everything upside down.

Eric Brewer (00:14:02) - And over the last 6 to 7 years, I've slowly been unpacking my bad habits and replacing them with more productive leadership habits was probably the world's most toxic manager. And now I think if you were to ask people that know me and spend time with me, I've become, um, someone that a lot of people follow in regards to leadership, which is almost embarrassing to me to think about because of how far I think that I've come and how much I look back on the way that I used to make decisions. And the way that I used to communicate with people and how polar opposite it is from today. It's amazing that didn't just run myself off a bridge seven years ago or have someone run me off the bridge that worked for me because they couldn't stand being around me. But um, yeah, that's iOS and a mastermind completely changed my my personal and professional, um, experience.

Sam Wilson (00:15:02) - Wow, that's that's, that's awesome. What I mean, when you say and maybe you gave some of this color if your leadership style was forged in the car dealership world, you know, if that was if that was where you took your your operating cues from and that carried over into then what you were doing, I can imagine, you know, you already mentioned kind of what some of those toxic habits maybe were, but how did you get plugged into let's talk about the mastermind and then the of course, iOS is is traction, right? Yeah.

Sam Wilson (00:15:35) - Okay, cool. So those of you who are listening, obviously, Gino Wickman, how do you say his name anyway? You can look up the book Traction.

Eric Brewer (00:15:43) - Gino Pacman. Gino, it's.

Sam Wilson (00:15:46) - Wick. Something I can't remember.

Eric Brewer (00:15:47) - Yeah. Wickman You know, Wickman.

Sam Wilson (00:15:49) - Wickman Okay. There you go. Look up that book Traction, because that's what Eric is referring to. Obviously, you've heard that book on this show before, but and everybody said the same thing, like, Hey, this book changed my life, changed the way we do business. How did you pick a mastermind? I mean, this is this is a this is a personal question for me, Eric, because, yeah, something I've thought a lot, a lot about, and I'm like, Oh, I want to do that. But if you've done any cursory searches, there's about 900,000 of them across the United States.

Eric Brewer (00:16:20) - So I had. Really no clue what a mastermind was. I'd never been to one. It was completely off my radar.

Eric Brewer (00:16:29) - And I live in central Pennsylvania. My mentor and business partner at the time, Craig Rich, lived in Baltimore County. So there are only about 40 minutes apart. And part of our natural growth in central Pennsylvania where we started flipping houses was we eventually moved in to Baltimore County and we were talking about think at this phase in our business from really oh five, oh six, all the way up to around 2012, 13, 14, 15, we bought almost all of our inventory off the public auctions, sheriff sales tax sales. What we would constitute is like on market, right, non direct to seller. And as the the real estate market started to recover, as funding became more readily available for investors, that inventory started to become more difficult to acquire. Our margins started to compress and we went through started looking for advice on direct to seller. And we actually we ended up with like two options. One was a franchise, um, without saying exactly, there was really two franchises out there that, you know, 7 to 10 years ago were around and go, Hey, we'll do direct the seller for you.

Eric Brewer (00:17:48) - You just give us the money and we'll mark it for you through billboards and and all that stuff. And you can, you can, you know, absorb our brand and you just have to go out and buy the house. Okay. And through that process got introduced to a man named Brad Chandler who operates out of like the DC metro area. And we had like a mutual friend or something and someone connected us. We set up a zoom call with Brad, and Brad was like, No, no, I wouldn't go the route of the franchise. You need to join Collective Genius. That's the mastermind that I'm in. It's changed my life. Everything that I do today in my business came from there. Let me invite you as my guest. So me and my partner, Craig Rich, went to, um, a meeting. We were extended an invite. We spent three days there, completely blew our mind. And at the end they said, Hey, do you want to join? We'd like to extend an invite.

Eric Brewer (00:18:41) - We think you're a good culture fit. You bring value to the community. We'd love to have you. And we signed up. And, you know, now it's been seven years there. Now I'm actually part of the leadership team at Collective Genius, so I'm one of about a half dozen or so people that run, facilitate and drive the strategy behind that mastermind. And literally every aspect of my business has the fingerprints of on it, starting with the introduction to a guy named Gary Harper and Susan Harper, who runs Sharper Business Solutions, who came here back then and implemented for me over. We spent three days, ten hour, three, ten hour days together where they ripped apart my business, my organizational chart, our systems, our processes, everything. And we built from the ground up. And yeah, it completely changed the trajectory of our business.

Sam Wilson (00:19:36) - That's cool, man. I love that. I love that. Very, very cool. Thanks for giving us some insight on that. You did mention and I've asked I asked this once, but I'll go for it again, the three words you said, Do you remember what you were talking about on that front? We said, hey, there's three.

Eric Brewer (00:19:48) - Yeah. So part of the the exercise inside of, of interaction is defining like what you stand for as a person and then attaching sort of your personal y, driving that down into the business's sole purpose and then the company's core values and then making sure that that resonates and translates down into the most entry level person in the company, right? They all need to be speaking the same language, showing up for the same reason with the same end goal in mind. And we started with purpose. And I don't know if you've ever, you know, gone through the exercise of defining your why or your purpose, But it is hard. It is. And, you know, so I have I have been literally been working on that for about five years straight. And I've wrestled with it. Right. I always felt like I was giving surface. Well, I want more money. Why? Well, want more time? Why? Well, it gives me more freedom. Why is that important? It's like, dude, like, can I just give you the money answer or the family answer? And we had gone through a quarterly planning session where Gary came back 3 or 4 years later after we initially met, and he was working on this purpose with me.

Eric Brewer (00:21:01) - And I said, Yeah, man, it's my purpose. My why is to positively impact the life of my family. And he looked at me and goes, I think you're full of. And I said, What? And he said, You mean to tell me that God puts you on earth to positively impact the life of seven people? That's it. Seven people. That's all you're capable of. And after I got a little upset with him, I realized he had a valid point. And I started, you know, it was really about my family, their families, their grandkids, my employees, family. It was a much bigger, you know, group of people that I wanted to have an impact on. I was just I was living small. And that's triggered this whole sort of purpose. I asked myself 15 times a day now, why? Why is that important? What's that mean to you? Is that a big deal? A little deal? So the three words for me currently today that I can summarize my job description as relationships experience freedom.

Eric Brewer (00:22:10) - And then each of those have like their own sort of nested like if you say, Eric, what do you mean by relationships? Hey, my focus each and every day needs to be to develop new, meaningful relationships and nurture existing meaningful relationships. Yeah, right after I do that, that creates a unique, pleasurable experience for everybody that I come in touch with. New people, existing people, employees, vendors, Customers. Investors. Bankers. Everybody. And as a result of doing those two things, the natural result of that is to have freedom, right? So those are the three aspects of my job description and my life that get as much of my focus as I can responsibly manage.

Sam Wilson (00:22:53) - Man, this has been fantastic. Eric, thank you for taking the time to come on the show today. You've given us so much to think about. We didn't. This have been a little different show and I kind of felt that that was going to be the case. Just talking to you before we kicked it off was like, you know what? We're probably not going to talk all that much about real estate, but you have driven home tremendous value here to me personally and I'm sure also to our listeners here today.

Sam Wilson (00:23:14) - So thank you for taking the time to be very real and just tell tell your story and what you've learned and your journey thus far. Certainly appreciate it giving us tremendous value If our listeners want to get in touch with you or learn more about you, what is the best way to do that?

Eric Brewer (00:23:28) - You can follow me on Instagram. I'm pretty active on there. I'm posting 3 to 5 times a day. A lot of the conversations you and I had today, I'm sharing real life experiences on Instagram. It's Eric underscore Brewer underscore invest.

Sam Wilson (00:23:41) - Awesome we will make sure we put that in the show notes Eric thank you again for your time. I do appreciate it. Thanks buddy. 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 Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories.

Sam Wilson (00:24:10) - So appreciate you listening. Thanks so much and hope to catch you on the next episode.

Today's guest is Matt Burk.

Matt is the Founder, CEO and Chairman of Fairway America and Verivest. He has spent 30 years acquiring, managing and selling syndication and fund products. Join Sam and Matt in today's episode.

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Intro [00:00:00]

Matt Burke's background and experience [00:00:40]

Opportunity and catalyst for Fairway America and VeryVest [00:03:18]

The challenges of raising capital for a fund [00:10:26]

The learning curve for first-time fund managers [00:12:24]

The difficulty of raising capital in the current market [00:18:05]

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Connect with Matt:

Linkedin: https://www.linkedin.com/in/mwb/

Web: fairwayamerica.com

Verivest: verivest.com

Ebook: https://fairwayamerica.com/access-our-top-5-considerations-in-private-real-estate/

Connect with Sam:

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

Facebook: https://www.facebook.com/HowtoscaleCRE/

LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/

Email me → [email protected]

SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson

Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234

Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f

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

Matt Burk (00:00:00) - So a lot of the things that we do are speaking from our own experience. Right? And, you know, but people, it costs money to raise money. Yeah. And there's all kinds of things that you can spend money on to try to go raise it, many of which don't work. Or let's say they might work for certain people, but they're not suitable for certain types of funds, certain sizes of funds, etcetera. And people don't really understand that until after they've spent the money and figured it out the hard way. 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.

Sam Wilson (00:00:40) - Matt Burke is the founder and CEO of Fairway America. And very fast. He has 30 years of acquiring, managing and selling syndication and fun products. Matt, welcome to the show.

Matt Burk (00:00:51) - Exam. Happy to be here?

Sam Wilson (00:00:52) - Absolutely. Matt. The pleasure is mine. There are three questions I ask every guest who comes to the show in 90s or less.

Sam Wilson (00:00:58) - Can you tell me where did you start? Where are you now and how did you get there?

Matt Burk (00:01:02) - 90s or less. So I started in California, went to started through real estate finance, started my own company in my late 20s. Been running it for 30 years. Done a lot of deals. Real estate loans, real estate acquisitions, run a bunch of funds. Now we help people set up funds, we do fund administration and we invest in alongside real estate entrepreneurs all over the country.

Sam Wilson (00:01:28) - Wow. That's a lot. That's a lot of experience. What what were the kind of reasons for the different iterations of what you've done over the last 30 years?

Matt Burk (00:01:40) - Well, you know, well, I think it's a combination of setting goals and targets and knowing where you want to go. And then, you know, I think I've read that the definition of mean luck is what happens when preparedness meets opportunity, right? So, you know, I'd say I've tried to always be prepared and then respond to opportunities and hasn't always been, you know, tried a lot of things.

Matt Burk (00:02:03) - Some of them have worked great, some of them haven't worked so well. But hopefully you learn from your mistakes and, you know, you keep you keep moving. I think Great Recession had a big impact. You know, losing a company early 90s company shutting down that I work for, you know, had a big impact and forced me to. That's what precipitated me launching the company. Right. So, you know, macroeconomic events certainly impact directions that you that you take. But, you know, all in all, it's been a it's been a pretty remarkable journey. And as they there's the cliche goes time goes by pretty fast.

Sam Wilson (00:02:38) - That that it does I was reading through I didn't actually finish it yet but I picked it up there at the best ever conference this year your your book capital attraction you wrote that what, maybe eight, ten years ago.

Matt Burk (00:02:51) - 2016.

Sam Wilson (00:02:52) - Well, okay. So even earlier than that, so 7 or 7 years ago. And just some fascinating stories you had in there.

Sam Wilson (00:02:58) - I mean, you've done a lot of different things inside of the real estate space fund space. It I'd love I'd love to. If we had more time, I would get into the really nitty gritty on that. But why is it that you are doing what you're doing now? What was the opportunity you saw both with Fairway America and with very vast.

Matt Burk (00:03:18) - Yeah, I think a lot of it came out of the Great Recession. I mean, we were private money, private money lenders for many years up through and to the Great Recession and certainly still do loans today since then. But in 2011, we we had a large credit facility with Wells Fargo Capital Finance on our fund. And they did not renew and they forced us to have to wind that fund down. Well, that experience of having to go to all your investors and tell them that they're kind of stuck in a fund that you now have to wind down was I'd say that was the biggest catalyst toward the things that we do today, right? So I did successfully wind that fund down.

Matt Burk (00:03:59) - It was a painful experience. You know, my investors got their money back, but it took a while. But, you know, I think we earned a great deal of respect from those investors on, you know, because it's not when things are going wonderfully that defines people's character. It's when, you know, things are tough that people see, you know, who the real what they really got with other people. And so that that certainly defined us. But coming out of that, Sam, we had to wind down the fund. We we well, you know, we shrunk the company and I kind of fundamentally reevaluated our business model. And at the time, I had a number of people come to me asking about saying, Hey, I think I'm setting up I'm thinking about setting up a fund. Now, I know you've set them up and you've now wound them down. Like, what do you think of this and what do you think of that and what do you think of the other thing? And realize, Sam, that there's a lot of people who are doing deals one asset at a time, who have thought about the idea of setting up a fund, but who really don't understand what they're getting themselves into.

Matt Burk (00:04:59) - Right. And they have to and and historically and even today, it's still very true. The only real place that they know to go is a lawyer and they go to securities lawyers who you know and look, you need a lawyer and lawyers and a integral part of it. But a lawyer is only one spoke in a wheel right. That you need that spoke in order for the wheel to run. True. But it's not the center of the wheel. It doesn't it comes at it from one angle. So as a result, I find that that managers setting up funds expect things from lawyers that they can't really deliver. And lawyers expect managers to know things that they just don't know. So there was a real opportunity in the marketplace to help people set up their own fund, do it properly from the beginning. And that was kind of the catalyst. We started doing that in 2013. Since that time, we've set up several hundred funds for managers all over the country with all different real estate types, you know, from run and loan pool funds to buy in properties to rehab and to buying discounted notes, tax lien certificates, you name it.

Matt Burk (00:06:04) - We've set up a fund for it. And you know, that gave rise then to our fund administration business and all of that. Sam to make a long story short, if it's not already too late, um, the idea was that through that process, Fairway would find people that we would come to know who we could then invest in and alongside, you know, the vehicles that they created. So that's kind of the model that we've created over the years. We've tried a lot of different things even since then. And again, but but foundationally, that's that's kind of what we do today. And, you know, the Great Recession was a big part of why that happened.

Sam Wilson (00:06:41) - Interesting. Tell me, I guess, what do you see? You know, and I'm sure we could actually remember some of these from your book, but what are what are just for the purposes of the show, what are some of the things that people are commonly getting wrong over and over again that you guys are helping them avoid?

Matt Burk (00:06:59) - Oh, man.

Matt Burk (00:07:00) - I mean, there's too many to count, really, Sam But I think they set up the wrong structure. They don't understand the structure that they set up. So they really don't understand the vehicle that they're actually trying to sell to investors. They somehow think that that by setting up a fund, the capital is going to magically show up. You know, they think that they're going to be able to go find other people to raise the money for them because they don't really want to do it themselves. They'll spend a lot of money on a lot of different things that mostly don't work. So I see people waste a huge amount of money on panaceas that they that they try to get to, to launch the fund to raise the capital that ultimately aren't as good as they are hoping them to be. So there's any number of common and repetitive, I'd say mistakes or misconceptions, I'll call them that people have that, you know, that we try to help them avoid.

Sam Wilson (00:08:02) - Got it. When you say when you say they're spending money on things that don't work, is that in do you mean that in relation to once the fund is launched, then in the way they market it, does that mean in the way that they even structure the fund? What do you mean by that?

Matt Burk (00:08:16) - All of the above.

Matt Burk (00:08:17) - So I've seen people spend, you know, tens of thousands and in some cases hundreds of thousands of dollars, you know, in legal fees, launching or creating vehicles that never get off the ground, that they never raise a single penny. But they spent a lot of money trying to set it up. And partly it's they don't set it up. Right. Or they have they have misguided perceptions around what what it's going to do for them if they do it. So, you know, we're we're we try to be extremely straightforward with people and say straightforward is a good adjective to describe me, Sam, And sometimes perhaps to my detriment. Right? Because I'll tell people, if I don't think that you should be setting up a fund, I would say save your money, Right? That's not for everybody. Absolutely. And then once they launch the fund, I've seen people spend all kinds of money on various things to attempt to raise capital that that really, you know, and look and some of those things, Sam, I've spent the money on to try to raise capital and wasted plenty of money.

Matt Burk (00:09:25) - I mean, so a lot of the things that we do are speaking from our own experience, right? And you know, but people, it costs money to raise money. Yeah. And there's all kinds of things that you can spend money on to try to go raise it, many of which don't work. Or let's say they might work for certain people, but they're not suitable for certain types of funds, certain sizes of funds, etcetera. And people don't really understand that until after they've spent the money and figured it out the hard way.

Sam Wilson (00:09:53) - I would venture to say, and I'll see see if you agree or disagree with this, but that if if it's like like the word you use, there's a panacea. If it seems like it's a panacea to whatever your problem is when raising money, it probably isn't. Is that a problem?

Matt Burk (00:10:07) - That's a pretty good rule of thumb.

Sam Wilson (00:10:10) - Yeah, absolutely. Because there's enough gimmicks and there's enough, you know, hey, done for you X, Y, and Z out there that promises the moon and man, I've just never seen any of that outside of just really hard work in raising capital.

Sam Wilson (00:10:24) - I mean, raising capital is work. Absolutely.

Matt Burk (00:10:26) - It's very Yes. And I think like some people think that they if they set up a fund that somehow the capital is just going to show up and it's going to be there, I'm like, no, it's harder to raise money in a fund than it is one deal at a time, because at least on the individual deal, the investor knows what deal they're putting their money into. Right. In a fund. And there there are funds out now, you know, customizable funds where they're and they're really not a fund but it functions like a fund for the investor but it still preserves their ability to pick and choose one at a time. It doesn't necessarily solve the manager's problem of having capital readily available to it. Right. But there's I don't know, there's there's just a lot of, um, I'd say my experience, Sam, is that every person who raises money from investors to acquire real estate based assets of some type, whether it's the property directly or making a loan or buying discounted notes or, you know, fixing and flipping houses or whatever it is.

Matt Burk (00:11:24) - If it requires them to raise capital from other people, right. To do it on a regular basis and build a business around that at one point or another, they've tried, they've thought about how do I do this more efficiently, right? Especially as you scale, the more deals you do, the more work it is, the more people try to find a way to do it more efficiently. Well, a fund is a way to do that in theory. So a lot of people think about setting up a fund and it's kind of sexy. I want to be a fund manager. If I had a fund, I can, you know. So our mission is to really help real estate managers understand what they're getting themselves into, make good decisions along the way, maximize their return on the investment that they make, and have a clear idea of what of what to expect, you know, and then coach them and guide them and help them along the way and provide them with services that enable them to focus on what they do best, which is real estate and and capitalize them, you know, through our vehicles and invest in alongside those managers.

Sam Wilson (00:12:24) - Got it. What are what are some what are some of those manager's problems? You know, I'm thinking about especially the first time, say first time people for their first fund like what are some what are some learning curve things that as they manage a fund that's very different maybe than managing a, you know, one deal at a time syndication.

Matt Burk (00:12:43) - They extrapolate how a single deal works into a fund model and they don't appreciate or understand the difference between how a pooled investment vehicle functions financially versus how a single deal functions financially. So they get terminology mixed up and they and they will they will oftentimes not really grasp until they get into it for a while how the financial information works and inside of a pool. Investment fund. But if you think about it, Sam, it's like it's like a mutual fund, right? It's like if you own a share of a mutual fund, the performance of that fund is based on the collective performance at any given point in time of all of the underlying assets in that fund that then contribute to positively or negatively to the financial outcome of that vehicle.

Matt Burk (00:13:40) - And then you have to run it through the vehicle's performance, you know, and then the vehicle has expenses associated with it. And only then do you have a net return to those investors, positively or negatively. People get that confused all the time.

Sam Wilson (00:13:58) - That that honestly, it's hard for me to understand how how they get that confused. But I could see how the accounting gets more confusing.

Matt Burk (00:14:08) - It's an order of magnitude more difficult, particularly for a lot of real estate people who by and large are not accountants. Right now you will get some people who come from an accounting background who appreciate it more quickly and understand it. But a lot of times, in my experience, the people who set up their real estate people, what they love to do is find property, you know, acquire. It's the asset, it's the acquisition, it's the leasing, it's the execution, it's the construction, right? And then the selling, that's what they love doing, kicking dirt, you know, visiting real estate.

Matt Burk (00:14:46) - ET cetera. But figuring out the difference between accrual accounting and cash accounting and net asset value determination of share price and all of that is generally not there expertise. So that part requires significant learning. And it's I use this analogy all the time, Sam. It's like, you know, you, you cannot you cannot learn physics before, you know, trigonometry and you cannot know trigonometry before you know calculus and you cannot know calculus before you know algebra. You cannot know algebra before you know arithmetic, right? So you cannot just skip straight to trigonometry. You have to go through the progression. Right? And that's very true for fund managers. You know, they need to learn. And the only way to learn really is by by doing we can accelerate that learning. But there's inevitably a learning curve that just takes time for people to to grasp. And some do it faster than others. But but it always requires some amount of time.

Sam Wilson (00:15:49) - Are there any resources you would recommend to expedite that learning process or things that that potential fund managers should be digging into right now? Any books, any any any really.

Matt Burk (00:16:02) - Mean you know, the book I wrote, Capital attraction is is a good, you know, starting point. I wrote a lot of blogs on a lot of these subjects over the years that are available on our resource page. So we have we've produced a lot of material on it. I would say there are other good books out there on capital raising and things like that. Um, I haven't seen a lot of stuff and granted I haven't looked all that much lately. But on this topic specifically for non institutional managers, I think another thing I've noticed over the years is that most of the fund management literature is geared more toward institutional funds and they don't really work the exact. I mean, there's a lot of common themes obviously, and a lot of similarities, but they don't function exactly the same because of the deal sizes are so much smaller, right? And because you're typically the people we work with, their, their, their investor base is high net worth, you know, accredited investors, not California state pension fund.

Matt Burk (00:17:01) - Right. So it's a different beast a little bit. That said, a good one is there's one called the rev inner rev org. And this is a European outfit, but it talks a lot about management, you know, fund management practices. There's a lot of terminology in there about fees and and how things are done and best practices and, you know, managers scoring and all that. Again, it's a European thing, but I found that pretty valuable over the years. It's very institutional, so I'd caution people not to take it, you know, as gospel. But but it is useful to managers to learn.

Sam Wilson (00:17:39) - Absolutely. Absolutely. That's great. Talk to us about raising You've raised an enormous amount of capital over the years. Everything I'm hearing in the market right now and maybe you can speak to this from the Fairway America side, is that it's becoming harder for sponsors to raise capital right now. Is that what your guys experience is? And what are some things maybe you guys are doing differently than maybe what you were doing two years ago?

Matt Burk (00:18:05) - Uh, well, the first part of the yes, no question, it's much more difficult, right? The last year or so, it's gotten progressively more challenging to raise money from high net worth people.

Matt Burk (00:18:15) - With interest rates being up, they have more options to generate, you know, real time return. I'd say it's risk off. By and large, people are nervous. I think people raised a lot of money in the last ten years in private real estate. A lot of those a lot of money's tied up and people can't get it back right now and they're concerned about the performance of those deals. And so they're sitting on their wallets. Right, Right. That said, I think there are the bigger the dollars you get, the more people are looking for opportunities, you know, But they're also pretty picky right now. So family offices, for example, I think you have a lot of money are looking around for. I think people sense that there's going to be some good opportunities coming up but haven't really seen them. To realize all that much just yet. So as a result, we're seeing a lot of inactivity, I think. You know, we we have our deal volume has gone down considerably in the last, you know, six, eight, nine months.

Matt Burk (00:19:11) - You know, But we're also looking we have moved up a little bit into more a family office, you know, type investors, I'd say quasi institutional, not the pension funds and so forth, but but more larger check writers than, you know, then high net worth accredited investors typically. Now, that said, we have a lot of high net worth investors. They do continue to invest, but I'd say more selectively.

Sam Wilson (00:19:35) - Got it. Got it. Very, very interesting. And what's one piece of advice you would give to people raising money right now? One thing you said, hey, you know, this is this is a lesson I learned the hard way and you should learn it sooner than later.

Matt Burk (00:19:49) - Honey, the best advice I. Always give people is be a great underwriter of deals. Right. Be worthy of money. If you know don't don't compromise your standards on on the deals that you put the money into. Treat that money as if it was your own right. And if you do that generally, if you have great deals, you can get the money.

Matt Burk (00:20:10) - Right? If you have marginal deals, it's harder to get the money. Although I've seen plenty of people who are good marketers that can raise money with where the deals weren't that great, you know? So that does happen too. But yeah, I'd say be it be worthy of the money and do great deals and generally you can find the money.

Sam Wilson (00:20:27) - Fantastic. Matt, I've really enjoyed having you on the show today. You've given us a lot to think about here. Learned a ton about you, learned a lot about Fairway America and very vast. I love what you guys bring to the market. It's certainly certainly a need in our space, as I can personally attest, for what you guys do. And I appreciate you coming on today. If our listeners want to get in touch with you and or very fast and learn more about you, what is the best way to do that?

Matt Burk (00:20:50) - Uh, emails you can get me on LinkedIn or email is great. Matt. Matty Dot Birkbeck know at either Fairway America or wherever either will get to me so yeah I appreciate you having me on the show.

Sam Wilson (00:21:06) - Absolutely. Thank you Matt. Have a great rest of your afternoon.

Matt Burk (00:21:09) - You too.

Sam Wilson (00:21:10) - 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 Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.

Today's Guest is Paul Thompson.

Paul has been featured in numerous real estate podcasts and hosts his own podcast called Ready Investor One where he teaches the mindset and mechanics of real estate investing. Join Sam and Paul in today's show.

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[00:00:00] Intro

[00:01:34] The challenges of ground-up development

[00:05:18] Dealing with entitlements and negotiating with the city

[00:10:02] The entitlement process and financing

[00:11:48] The decision to pursue larger projects

[00:13:38] Underwriting multifamily properties

[00:20:45] Paul's journey from single-family investing to multifamily development

[00:20:29] Challenges faced in ground-up development

[00:21:14] Closing

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

Paul Thompson (00:00:00) - The way it works in the development business is the longer you hold the land, the more money you make. So the sooner you sell, you can still make money, but you make less money. So like, well, we don't need to sell this this property right now. Let's go to the next level and do the horizontal development. Well, once you do that, you're like, Well, can't we keep some of it and do the multifamily side of it as well? And that's where we stand. Welcome to the How.

Sam Wilson (00:00:23) - 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. Paul Thompson has been featured in numerous real estate podcasts and hosts his own podcast called Ready Investor One, where he teaches the mindset of real estate investing. Paul, welcome to the show.

Paul Thompson (00:00:45) - Thanks for having me, Sam.

Sam Wilson (00:00:46) - Absolutely. The pleasure is mine. Paul There are three questions I ask every guest who comes on the show in 90s or less.

Sam Wilson (00:00:51) - Can you tell me where did you start? Where are you now and how did you get there?

Paul Thompson (00:00:55) - Where did I start? Cut my teeth in multifamily. I'm sorry. Come on. Teeth with single family and have since gone to multifamily. I did that as a way to escape my day job. I was a corporate guy. Recovered. I'm still recovering, I think, from being a corporate drone. And so now I have a portfolio of single family in Little Rock, Arkansas, where I live, but now I'm doing multifamily development in syndications in the Dallas-Fort Worth market.

Sam Wilson (00:01:24) - Wow. Wow. That's a big jump. What what was the thing that really compelled you to say? All right, we're going to go do something bigger.

Paul Thompson (00:01:34) - Well, I bought I bought and sold a lot of single family. Like I've gotten really good at doing that. If it can be done in single family, I've probably done nearly all of it and it became kind of pedestrian to me and I was playing it a bit safe.

Paul Thompson (00:01:49) - And if you really want to scale, which I did, then I wasn't sure that buying 100 single family properties was the best play and I wanted to jump off in the deep end. So instead of just buying an apartment complex, I decided to do a ground up development. So I just I really went for it.

Sam Wilson (00:02:07) - Wow. Okay. So you took on the ground up development project on your own. You said, All right, we're going to do a ground up development. It's a multifamily property. Uh huh. Whoa, whoa. Walk us through walk us through that. I mean, that's ambitious. Like that's I mean, just to get lending, to get investors, to get all those things lined up, you had to do a lot of things, right? What were they?

Paul Thompson (00:02:27) - Yeah, I'm still in the middle of it. So we'll we'll give you a full report in a couple of years when it's all said and done. But the learning and the process so far was that I was a member of a mastermind where we were working on mindset and trying to figure out kind of what our bottlenecks are and kind of designing our life.

Paul Thompson (00:02:49) - And I have a good life. I've nothing to complain about, but I felt like I had the potential to do a lot more. And I met a really good friend and he and I are still business partners at this mastermind. And he said, You know, I live in Dallas and I feel like we're in a good market. I really want to get into this land business. Interested in since you've done a lot of wholesaling and flipping and stuff, you kind of know the marketing side better than I do and our values aligned and we're still, you know, considered one of my best friends in the world and talked to him on a daily basis. And I really enjoy that business. So that's how it started. And then it evolved from there to, well, we've got the land entitled now. I mean, like let's we could just sell it. But the way it works and the development business is the longer you hold the land, the more money you make. So the sooner you sell, you can still make money, but you make less money.

Paul Thompson (00:03:41) - So like, well, we don't need to sell this this property right now. Let's go to the next level and do the horizontal development. Well, once you do that, you're like, Well, can't we keep some of it and do the multifamily side of it as well? And that's where we stand.

Sam Wilson (00:03:55) - Wow. What was the timeline from? Hey, here's an idea to when you identified a parcel that you said, Hey, this is a place where it will work.

Paul Thompson (00:04:04) - You probably took 3 or 4 months and made lots of offers not knowing we were doing. We did the I come from a kind of a wholesaling marketing background so I can do that. I don't necessarily say I enjoy it, but I know how to do it. And we sent lots of letters to landowners and we ended up finding a friend of ours that had a property and he's in the business and he had a property and said, This is a small one for me, probably smaller than I care to fool with. Would you guys be interested? I'll you'll pay me an assignment fee, but I'll show you the ropes and here's a good project for it.

Paul Thompson (00:04:36) - And that's that's been all we needed because that has then kind of dovetailed into a couple of deals.

Sam Wilson (00:04:43) - Right? So were you guys were you guys marketing for off market land then?

Paul Thompson (00:04:47) - We were.

Sam Wilson (00:04:48) - Gotcha. Okay. So yeah, I was wondering, I'm like, if you're going to, you know, again, if you're the DFW market, there's a property on the market. I mean, getting just the credibility with the brokers and with the sellers that says, Hey, we're going to take it's hard.

Paul Thompson (00:05:00) - Yeah, yeah.

Sam Wilson (00:05:01) - It would be hard. So finding it off markets probably a little bit. A smarter way to go about that. So you had the idea. Four months later, you acquire the land and then you're like, okay, we're going to go through entitlements. What are some things that you learned that maybe you wish you had known early on about entitlements?

Paul Thompson (00:05:18) - Lesson number one you don't buy land unless it's entitled. You can get it under contract subject to getting it entitled. And that's the way we do it now.

Paul Thompson (00:05:27) - But the first property we bought a little too quickly and it ends up we're going to be okay with it. But we had a surprise development in the middle of our process that the city didn't really want to do what we want to do with it. So we had to I mean, it's it's what they call it's in the county or in the Texas. They call it the edge. And it was kind of out in the county there. And that gives you options. You can annex into the city or you can stay in the county and it gives you some options. And basically we're running into some hassles with the city. And they're not. They say they want to do all the things you want to do, but then when it comes time to negotiate what they call the developer's agreement, they're like, well, we don't want to commit to anything. It's like, well, I'm not going to annex into the city unless you commit to something. And, you know, just that's that's the process of entitlement is dealing with the cities and going through the legalities and negotiating with lawyers who everybody typically means pretty well, but no one person has the say.

Paul Thompson (00:06:26) - So you're having to kind of like piece all this things together and even the people you're interfacing with, with the city, they're the city planner or the city attorney. They're not the city. They're just like employees of the city. And so this is really weird dynamic where you're trying to get the council to agree to something, but the council has no idea what you're doing. Because they're not involved in the conversations.

Sam Wilson (00:06:50) - So how do you how do you work around that?

Paul Thompson (00:06:53) - Well, you fight with the city planner. I say fight, but you have very pointed conversations with the city planner and especially the city attorneys. And you're like, no, the city does want to do this because they're going to get tax revenue. Does the city want tax revenue? Well, of course they do. Okay. Well, then this is how they get it. And you just have to play that game a lot and negotiate back and forth, have lots of meetings. Like, sometimes it feels like I'm back in corporate because I'm like, trying to, like, herd the cats a lot.

Paul Thompson (00:07:18) - And. And when it goes well, it's awesome. And when it doesn't, it's really frustrating.

Sam Wilson (00:07:23) - Yeah, man, I can only. I can only imagine what? How would you, other than waiting, you know, to close on the land, subject to whatever your plans are, getting entitlements done. What what else would you do to maybe expedite that process and or just kind of grease the wheels?

Paul Thompson (00:07:41) - I have learned that you don't expedite the process. No matter what you think you can do to make it go faster. The process is the process. And it's it's just government, right? So, like, you just can't make it go faster. So you basically have to negotiate with the seller to allow the and educate them that this is what it takes in any developer who's going who's worth their salt is going to do this, this, this same thing. They're not going to just buy it hoping and wishing that that that we're going to get the the terms we need from the city.

Sam Wilson (00:08:13) - Um, could you have gone to the city in advance and said, Hey, what do you guys want?

Paul Thompson (00:08:20) - Yes, we did.

Paul Thompson (00:08:21) - We can. And we did. And they said, we want this. This would be great. Let's annex. And then, you know, 18 months into the process, like, okay, well, we want you to help us get the financing. That'd be the only reason we actually annexed into the city is to help get a what they call a district created to do the financing. And they said, Yeah, yeah, we'll do that, but we're not going to promise we will. It's like, Well, then we're not going to annex to the city. Right, right.

Sam Wilson (00:08:44) - And you guys wanted to be annexed into the city for valuation purposes. Being attached to for.

Paul Thompson (00:08:52) - The financing, the city can help you qualify for financing. Public improvement. Financing.

Sam Wilson (00:08:57) - Right. Right. Which I'm sure is much more favorable terms than maybe what the street rates are.

Paul Thompson (00:09:02) - Yeah, right. Very much. It's a bond, right? So you raise a bond and the people who go and get the benefit of it, pay it back over time.

Sam Wilson (00:09:09) - Right. Very interesting. Okay, man, that's a lot. So you got through entitlement, you said. And so now you're, what, two years in at least? Yep, yep. Two years in, you get the land entitled. And then you came to a fork in the road. You said, Hey, look, I can sell this or we can go vertical with it. And it sounds like it sounds like you love hard things just from.

Paul Thompson (00:09:31) - No, like, actually I'm lazy. Like, why did I sign up for this? But then you look at the the potential profits know like, oh yeah that that adds like a whole nother zero to your profit. And I was like, okay, maybe it's worth it.

Sam Wilson (00:09:44) - Right? Right. Zero zeros are important. So you decided to go vertical. Like what? What was the next I mean, because at this point you're a lot of money in you're a lot of money and you're a lot of time. Yeah. Any any idea how many acres is this project?

Paul Thompson (00:10:00) - The whole thing is 36.

Paul Thompson (00:10:02) - 13 of it will be developed into multifamily and the other 23 will sell as townhomes. And basically we'll sell it, put what they call paper lots, we'll sell it 20, we'll sell the 23 acres to a builder to do the townhomes and the duplexes and whatnot. A build to rent model.

Sam Wilson (00:10:19) - Got it. Got it. Okay, cool. But still, so you got see and even so, you've already gotten all your, like you said, paper lots. I mean, the place is basically drawn up at that point. Right, right, right, right. Forget what I was going to ask you. It was about a oh amount of money that you're in on a project like this. Like what? What would you budget if you were to turn around, do this again? Maybe you already are doing this again. But we.

Paul Thompson (00:10:40) - Are. Um, I mean, you need access to, you know, probably tens of thousands if not hundreds of thousands of dollars to pay for and pay for entitlements.

Paul Thompson (00:10:54) - And the studies and like, it's not uncommon for our earnest money deposit to be like 70 grand. Yeah. So it's not trivial amount of money. This is probably not something that you stumble into as a newbie having no experience, right? Um, yeah. And which is what we were, we were newbies and had no experience, so we made some mistakes along the way. But we were, you know, I'm in my 40s, my business partner is in his late 30s and we have established businesses otherwise. So this is not like the only thing that we're relying on. This is I think of business development and kind of like when you come in investing, single family and existing multifamily are more stable and defined, but then you can have these bigger projects that you kind of go go for gold. And this is what this is. This is a much bigger play, a longer term, and I'm not looking for immediate near-term cash flow. This is like like life changing wealth potential.

Sam Wilson (00:11:47) - Right, Right.

Sam Wilson (00:11:48) - No, absolutely. Clearly, you have the long game, the long game in mind. And I kind of suspected the answer to your, you know, or yeah, I suspected your answer to the question, which was, hey, you know, you could be hundreds of thousands of dollars in on this project by the time you get to entitlements. So we kind of learned plan B of it where you're going to sell that, you know, the other 23 acres off to developer, you guys are going to build the multifamily property on the 13 acres. But you liked it so much that now you're going back and you're doing it all over again.

Paul Thompson (00:12:18) - Yes, we are under contract on other projects and we're negotiating on with the cities to see if they're willing to play ball. And we make a decision right before our earnest money goes hard if the city is willing to to play or not. And we've gone on our contract on multiple occasions where we've had the property under contract, earnest money approaching, going hard, but we can't get up, can't get it back and we have to back out and tell the seller that this is like we explain this on the front end, that this is a risk of this.

Paul Thompson (00:12:52) - And most sellers that own that kind of land are sophisticated enough to kind of get the game enough that they understand. And they and I was still out money because I paid for all kinds of studies. And, you know, sometimes you can be out 30, 50 grand and realize this is not a viable deal.

Sam Wilson (00:13:09) - Wow. Wow. Man, that's tough. That's tough. What is what you talked about the financing side of things. But what is it like underwriting multifamily mean in today's environment? It's an ever changing environment, especially buying land developing. I mean, that's a long a long time time frame. There it is. What's a what's a strategy or how are you kind of offsetting or compensating for some of that unknown that we seem to have right now.

Paul Thompson (00:13:38) - So we take the we pay for market studies, which again, it can be 5 or $6000 and they and they provide like like a 60 page report on what's happening in the marketplace given where you are. And you take they give you a range of what things will rent for, you know, say a three, two or rent for, you know, 1600 to 1800.

Paul Thompson (00:13:57) - So we will run the numbers at 1500. So we kind of round down and we do our valuations based on that. And you determine what your NOI is based on, the number of units you think you're going to get, which again is, you know, this in a given like you think you're going to get 200 units, but you only get 188. So you you do like the 80% number of that and then you do these engineering estimates, which they call an opinion of probable cost. And you and you really got to understand the assumptions that they're making because most of the engineers are trying to do right by you and they make really, really, really conservative numbers and they make it super expensive. So they're so you have to kind of dial that into reality. Which is a whole process to learn. But once you kind of get your costs of what you think it takes. I went to an actual builder and said, What does it cost to build something? And they said, In today's market, it's $135,075 per square foot, so budget for 185.

Paul Thompson (00:14:54) - Okay. So we budget for 185 and then we determine, okay, like what's the going rate, determine the value? Well, we we run the conservative side of the cap rate. So in Dallas, it can be as low as four and a half. Five. We run it a five and a half, five, 5.8.

Sam Wilson (00:15:11) - That's a lot. That's a lot. A lot, A lot of things to consider there. Love. I love the the ambition and the just hey, we're going to go for it and figure it out. But it sounds like it sounds like you've done this, though, strategically. I think that's that's it. Maybe I'm wrong. Does that sound right? I'm going to say.

Paul Thompson (00:15:29) - I did because I can't defend myself in the event that I didn't.

Sam Wilson (00:15:35) - Love it. I love it, man. That's that's really, really cool. One of the other things, though, that it looks like you've done just from going through our show notes and then talking here before we kick this off, was that you've also just focused the side of your business on the capital raising side into other opportunities.

Sam Wilson (00:15:51) - Is that still something you do and if so, why? When you are apparently so busy already on your own deals?

Paul Thompson (00:15:57) - Well, my role in my own deals is that I'm the capital raise and the capital stack guy. So that's that's my angle. So my business partner is more of the finding the deals and analyzing and dealing with it with the the engineers and whatnot. I'm more of the the CFO role, right? So that's, that's where I sit. And whether it's for my own deal that I'm developing or for somebody else's RV park or somebody else's multifamily, I like getting to know investors. I like the marketing side of that because you're dealing with typically very consummate professionals and they're super curious about the business and they're not experiencing it yet. And they asked typically very shrewd questions based on their level of sophistication. They just don't know this business yet. And I enjoy that process of hosting webinars and meeting. I do a lot of Zoom calls with with investors to understand, you know, what they're after and what their goals are.

Paul Thompson (00:16:52) - And like, you know, this may not be a good fit for you, but, you know, down the road there might be something else that is.

Sam Wilson (00:16:56) - Sure. No, that's really, really cool. Anything that you have previously been investing in that you're now just like. Not interested in anymore.

Paul Thompson (00:17:06) - Yeah. So I ran an experiment for a while, though, where I was running with what I call mid term rentals, where I take basically you're focusing on traveling nurses, traveling professionals, and you're using Airbnb to market it. And I still have three units that do this with because I've already put the investment in the process in place, but I don't enjoy that business. That to me is personally exhausting. Like I have just three of those and I spend more time thinking about those than I do the other 40 long term rental units I have in Little Rock.

Sam Wilson (00:17:36) - Wow.

Paul Thompson (00:17:37) - Right. So even though they're only turning over once every 6 to 12 weeks, we have to turn it over every time because someone has lived there oftentimes for months at a time and it needs a major cleaning.

Paul Thompson (00:17:49) - And so after the cleaning, we have to go there and look at it and say, is this good enough? And nine times out of ten, it's not like it needs a little bit more. And so we have to get the cleaner back over there or me and my wife will do the last few minute items. I don't enjoy that part of it. That's not the kind of business I want to be in long term. But it's good to know I ran an experiment and it's a great model if you're that kind of operator. I am not that kind of operator. And so you need to know your pros and cons like, like what are you good at? And that is not what I'm good.

Sam Wilson (00:18:14) - At, right? No, that's really cool. I love I love that. And it's funny how different, different investing styles fit different personalities where it's like, you know what? There's people got a I got a buddy of mine that he loves the mid term rental thing. I mean that's all Yeah.

Sam Wilson (00:18:29) - Is mid term. It's a good business. A good business. Great makes great money. It it at scale and that's his thing. Yeah. You know doing capital raising like what you and I do and then you know getting involved in ground up development would not be his thing. So I think that's what's fun about this business. We all all get to choose. What has it been like for you? What are some systems that you either have implemented that you really liked and or systems you're still working on inside of your business that you're refining?

Paul Thompson (00:18:57) - I have found that I am a high startup, low follow through personality. This is like a real thing. This is like somebody came up with those words before I did, right? Like, this is a thing that people have and I am that person. I love dealmaking. I love deal structuring. I love putting things together, but I don't want to operate the deal. That's not my strength. I'm a visionary, not an operator. Right? So I need an operator.

Paul Thompson (00:19:20) - And for an example of the mid term rentals, I have completely outsourced the management of that to a good friend of mine and she does an amazing job. She gets 15% of all revenues, so she gets paid very well to do that and she does a great job and we still get pulled in occasionally to take care of things. So we're having to train our our cleaner, our local cleaner to look at things the way we would look at things. And so we have created her a checklist. And she's so good that we're afraid to run that by her too much and be too critical because we don't want to run away. Right? So that's something that me and my wife are working on. My wife likes to like fiddle with these things. And to me it is a money in money out box. But she likes to make a nice place to live. I care nothing about that. My wife does. So we have to like marry those two approaches and my wife can think about what the what kind of flowers that we're planting and I can think about, you know, what what the process is, the checklist for the cleaner to make sure that they're cleaning underneath the furniture because people have been there for a long time.

Sam Wilson (00:20:23) - Right, right, right. Yeah. If you have hardwood floors or whatever, you don't you don't want to get on your hands and knees and see nothing but dust.

Paul Thompson (00:20:29) - Right. Which is what happens if we let just the cleaner do what she would normally do because she turns over Airbnbs that are like 2 or 3 day stays. They don't get that dirty. When someone lives there for six months, it gets dirty. It needs a full overhaul. So what her checklist for a midterm is completely different than for a short term?

Sam Wilson (00:20:45) - Yeah, absolutely. Absolutely. Very, very interesting. Paul, I love what you're doing. This is I mean, you got your hands in a lot of different things, everything from long term rentals, mid term rentals, land acquisitions, entitlements, now doing massive development projects, it sounds like. Yeah, it sounds like you stay a fairly busy. This is this has been certainly enlightening to have you here come on the show and just share with us today. I appreciate your time.

Sam Wilson (00:21:10) - If our listeners want to get in touch with you and learn more about you, what is the best way to do that?

Paul Thompson (00:21:14) - The best way to get a hold of me is that my website. Paul David Thompson. Com. I think you'll drop that in the show notes. But it is spelled the way you might expect. I say this a lot, but I have a curse of a common name, so I had to use all three of them to make sure I got my own domain. All David thompson.com.

Sam Wilson (00:21:32) - That's awesome. Paul We share the same middle name. I like it. This is great. Thank you again for coming on the show today. I do appreciate it. Appreciate it. Sam 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 Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show.

Sam Wilson (00:21:56) - 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.

Today's guest is Travis Baucom.

Travis is the founder, and CEO of Balcomie Capital. Balcomie Capital is a boutique firm for high-net-worth and high-income individuals that specializes in a seldomly invested but well-known property type that performs better than most others.

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The Challenges of Managing Rental Properties [00:02:25]

Transitioning to Self-Storage Facilities [00:01:54]

Unloading the Rental Portfolio [00:07:15]

The challenges of managing a large portfolio [00:10:05]

Transitioning to self-storage facilities [00:11:45]

Working on a self-storage development deal [00:16:33]

High Net Worth Individuals and Ultra High Net Worth Individuals [00:20:20]

Lessons from Flipping Houses [00:21:33]

Contact Information [00:22:00]

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Connect with Travis:

Instagram: https://www.instagram.com/travis_baucom/

Facebook: https://www.facebook.com/people/Travis-Baucom/8359225/

Twitter: https://twitter.com/TravisBaucom?s=20

LinkedIn: https://www.linkedin.com/in/travisbaucom/

Website: https://balcomiecapital.com/

Connect with Sam:

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

Facebook: https://www.facebook.com/HowtoscaleCRE/

LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/

Email me → [email protected]

SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson

Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234

Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f

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

Travis Baucom (00:00:00) - Like the short term middle business is just like the flipping business in the sense that you're always on, you're always game, you're always having to, you know, focus on customer service, etcetera, etcetera. Storage is like managed. It really is. You set it and forget it. One of my I have 50,000ft² that's managed by one person. 396 tenants. She's awesome. And I call her maybe once a month. Welcome to the How to scale commercial real estate show.

Sam Wilson (00:00:27) - Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big. Travis Barker is the founder and CEO of Alchemy Capital. Alchemy Capital is a boutique firm for high net worth and high income individuals that specializes in the seldomly invested in but well known property type that performs a lot better than others. Travis, welcome to the show.

Travis Baucom (00:00:51) - Hey, nice. Nice to. Nice to meet you. Thanks for having me.

Sam Wilson (00:00:54) - Absolutely. Travis. I appreciate it. There are three questions, the three questions I ask every guest that comes on the show in 90s or less.

Sam Wilson (00:01:01) - Can you tell me, where did you start? Where are you now and how did you get there?

Travis Baucom (00:01:04) - Yeah, so I started in the residential space buying single family homes, specifically foreclosures back in 2012. I didn't have a lot of money, so that was kind of that that's if I was going to get into real estate investing, that was going to be the only way to do it. Or at least that's how I saw it. And I really wanted to be in the residential space. Over the next eight years, we bought over 400 houses and then we realized that, you know, this is probably not where we want to be long term. It was going to be a hard place to ever retire from because of the the plate spinning and the wheels that are always spinning. And the residential space made a big switch to self-storage for the most part exclusively self storage. We have a few, you know, hobby projects that we do. But yeah, we, we own over 1800 units of self storage facilities in Texas, one in Oklahoma, very large.

Travis Baucom (00:01:54) - We we focus on buying like a mom and pop property and then expanding it. You can make tremendous yield doing that. And as far as moving forward, we're going to focus on the acquisition and the development of Class A self storage facilities.

Sam Wilson (00:02:11) - And that's really, really cool. I love that the 400 houses, that's that's a lot of houses to buy. A lot of closings. That's a lot of paperwork. Like how in the world and do you still mean with those rentals with those houses.

Travis Baucom (00:02:25) - Yeah So so you had you had to buy it and that's 400 transactions and then you had to sell them, which is another 400 transactions and not including the utility payments and the constructions and the massive amount of employees it takes to manage that stuff. And so, yeah, that's we bought, like I said, in 2012, we bought our first house, bought another house late 2012, 2013, about four houses we started. We kind of were tripping up or falling forward or failing forward, whatever you have have.

Travis Baucom (00:02:53) - So we mess up and be like, Man on the next one. We're going to fix that. And then we get to a point where we were buying 5 to 7 houses a month, then 10 to 15 houses a month. It was kind of backloaded, meaning that we kind of, you know, ramped it up. And then 2016, 17, 18, we bought a ton of houses. So 2016, but 56, 2017 was 87, then 2018 was 91 until October of 2018. And then I got I was so burned out of trying to keep it all together, I hadn't been able to take a break. No. Vacation. We didn't have money for vacation. We were just continually putting money back into the system. And I was like, This sucks. Like like give me a job for 75,000 bucks. Like, like, I'll take it immediately. You know, that wasn't even what we lived on, you know, It was just like I was just so miserable that I was willing.

Travis Baucom (00:03:46) - Like, I remember seeing a homeless guy once panhandling, and I'm like, man, like, dude, just got it. He's got it so easy. All he has to do is hold out his hat and get paid money and have some sob story. You know, here I am, like trying to keep every banker and construction guy or, you know, contractor at bay and in private investors and employees afloat. Like it was like all on me. It's like that that statue with the dude with the world on his shoulders. You know, it's a horrible way of making wealth and making income. I'll just tell you that. And I will I will debate anyone on that topic because I have the stories to prove it. But yeah, it was there was we made a hard decision in 2018 to quit and just like started we had at that time, we had 40 renovations going, 42 renovations and 72 single family home rentals. And we just I was like, I'm just going to wind down and restart.

Travis Baucom (00:04:41) - I like in my head I was like, We should have like 700 grand. When all this is done, everyone will be paid back. Debit card or credit cards will be paid back. In reality, that's not what happened. When we like the the values were greatly skewed. The renovation budgets were way under budget. And you know, when you go 20 grand off of a renovation, it's not like that money just comes out of nowhere. That's a profit from another deal. You had to put in that and you're not able to live on that. You're not able to pay payroll on that. And so no. One, I have not met anyone. There's three operators in America and I know most of the massive house flipping operators. There's three operators that I think actually do well on it. Otherwise, everyone has struggles. I see more people struggle on this single family game. Then I see people successful in the single family.

Sam Wilson (00:05:32) - Game and that way you guys were strictly flipping or were you? I heard you say rentals or Yeah.

Travis Baucom (00:05:37) - We had 72 rentals to go. We were to my before everything just kind of dried up. I was planning on just like we're going to buy rentals and, and then when I get to 300 rentals I'm not flipping houses anymore and I'm firing everybody. I'm going to hire a really smart person to manage all three of those. And I'm and I'm going to retire because I hate this so much. But you have issues like when you have 72 rentals and they're class C, class B rentals and you have Hvac s, those tenants are too busy surviving to replace the filter. Yep. You know, and if they're not surviving, they're probably, you know, like just doing other things that will cause them to forget to take care of the property or they just don't care. And, and so your AC goes out and then that's all the landlord fault because he put in a crappy AC even though that the AC was new 12 months ago they just, you know like we had this really rough small apartment complex.

Travis Baucom (00:06:33) - The tenants would actually take the fiberglass. Uh. A filter out and like strip it and put it in their joints. So. Because he knows why. Why are y'all doing this? Like what? What the hell? This is not good for you. Like, oh, guess it's a little higher. I'm like, Gosh, Oh, my God. Just give me just leave. I just want to be out of this so fast. It was that was that was the worst. I think it's still the worst property in that in that market. Just such a I don't the guy I sold it to is a friend of mine now and he still every time talked to me he hasn't gotten it full so.

Sam Wilson (00:07:07) - All right so now we the 65 seven.

Travis Baucom (00:07:08) - Yeah. So that's why get out of it.

Sam Wilson (00:07:10) - Now we know why you got out of it. What did you do with the rental portfolio? How did you unload that?

Travis Baucom (00:07:15) - Just sold. Yeah. So? So 2018 In October 2018, I actually ran out of money.

Travis Baucom (00:07:19) - We just were so because everything, everything had just explained, just we were out of cash. And so I was like, well, I can't make payroll and I don't really even like these employees anymore because they they're, you know, that guy is the one that under underbid the property. He paid too much for the property. This guy is the one that paid the drywall bill three times the same guy. I didn't realize that. You know, like all y'all are fired. And so I fired everybody on one one day. And I took I went home. 42 renovations, 72 houses. I list everything we had. And so, like, I spent 2 or 3 days. I was a real I'm a real estate broker and I listed everything I had. And if it was a half done project, we would list it like somebody wants to buy it for what we owe on it, we'll take it. And so at that point, I just took tranches of five. Like, I'll take these five houses and I'll renovate these five houses with these five crews and then these five houses and these five houses.

Travis Baucom (00:08:12) - And eventually the crews didn't like the way all of a sudden they had the gravy train. They would just submitted invoice get paid and was like, No, you missed the spot, missus. I was just all of a sudden running my business like a business. And they were used to my construction manager just writing a check whenever they needed any money for anything, for whatever reason. And then. Yeah, And then the 72 houses, like we sold some tranches of those, you know, the property manager was still money. We found out, I found out after every every can everybody that the property manager was actually just kind of milking us, you know, like not, you know, telling us to replace final plant that had been using his construction company to replace all do all the work. So real bad. Just real environment, honestly, was the worst. That's the only word I can think about using. Um, and yeah. And so we just it took me 28 months to unwind all that and then we were out of it.

Travis Baucom (00:09:03) - We didn't have most of it. Most of the debt was paid off if the debt hadn't been paid off. We had agreements for those people. And so every bank, despite that catastrophe, every bank got paid back plus interest, every hard money lender got paid back plus interest. Every investor get paid back plus interest. And if they didn't get paid back plus interest and we were setting up monthly payments with them. And so my thought is if I could just took care of the people that helped me get to where I was, then they will help me get to where I want to go.

Sam Wilson (00:09:31) - And so and so you said, all right, you had enough enough of the housing game that were you out that killed you. What what did what are you going to do differently? Because, I mean, it's one thing and I'm going to I'm going to offend you here maybe a little bit. But you seem like somebody who likes to shoot straight. So it's one thing to say, well, you know, employees did this, employees did that, employees did this.

Sam Wilson (00:09:52) - But there has to be some lessons for you in there as well, like from a from a leadership perspective and also from a in my next company, in my next version of real estate, I'm going to do something differently. What are some of those?

Travis Baucom (00:10:05) - Yeah, yeah. And thank you for calling me out on the the the finger pointing. So to say that a different way is not everything that happened in my business was my fault. I did you know, there was so much going on. I didn't know the guy was the drywall guy was getting paid three times for one job, you know, But everything was my responsibility. And that's when I took, you know, and I was so burned out, I'd have been like, just slagging and slagging. And then then I'm like, all right. Like, for me to get out of this without losing everything, gotta make some hard decisions. And so that's when so the 28 months of me like, you know, the first 7 or 8 months of that was pretty painful because we were still out of cash, people wanting money.

Travis Baucom (00:10:44) - We were having to explain the same story over and over. And so one thing that I did to choose, you know, I chose not to do. One thing that happened when I decided to take everything home is I read Ray Dalio's book Principles. Um. Good news for everybody that doesn't want to read a book that's 1800 pages, whatever. You can just get on YouTube and Google. Ray Dalio principles. There's actually an animated version of that entire book that goes that's covered, very entertaining. That's done in 34 minutes, so you can learn all the principles. In the book principles that you need to. And so one of those principles for me is if I'm going to invest in something, it has to be making money every day, every week or every month that it has to pay cash flow every day, every week, every month. So flipping a house is just out of the question. Like we might flip a house Just. Just to make a quick buck. But we're not going to build a business flipping houses ever again.

Travis Baucom (00:11:45) - Right. And I don't recommend anyone doing that if you're listening to this. And so. So by focusing on assets that make money every day, every week, every month, we eliminated most of the stuff we had been doing. And so the highly speculative, highly value add house buying business. And so. So originally we started buying short term rentals before Airbnb took off. Those are working really well. Those make money every day or every week. And then we're like, All right, hospitality assets are pretty risky in a recession. They don't perform very well. So we're going to need a hedge. So how do we hedge? Just find the most. What is the opposite of a really, you know, hospitality makes really great yield in a good, good market, especially in a good, a good, good economy and a good market. What's the market or what's the asset class that we need to buy in to make sure we hedge for this? And that's where we found storage. And then after we bought our first portfolio storage portfolio, I'm like, I'm selling the short term rentals because because self storage is so easy compared to, you know, driving Friday evening when I'm hanging out with my son and having to fix a whatever, you know, whatever the heck Wi-Fi password issue or something like that, driving 20 minutes and 20 minutes, it goes an hour of my life.

Travis Baucom (00:13:00) - And just also, that lady might give me a five star review, you know, And I'm like, that's not the life I want to live. I want to set it and forget it. Like, this is like the short term middle business is just like the flipping business in the sense that you're always on, you're always game, you're always having to, you know, focus on customer service, etcetera, etcetera. Storage is like manage. It really is. You set it and forget it. One of my I have 50,000ft² that's managed by one person, 396 tenants. She's awesome. And I call her maybe once a month. And so like if I think of I need to call, see what's going on, sometimes it's just send a text because she has it down. I can pull up immediately, I can pull up the dashboard and realize, oh, 98.1% of our tenants have paid on the fifth part of fifth of the month. I don't have to worry about it. She'll call me if there's a fire, a robbery or a theft, or if something catastrophic is happening.

Travis Baucom (00:13:54) - Otherwise I just need to call her and make sure she knows I'm thinking of her and that she's valuable to my company and that we really think are thankful for her, that sort of thing. So. Right. It's the opposite of like having to like do massive operations and take care of human beings in short term rentals.

Sam Wilson (00:14:12) - Oh, human beings and short term rentals or even I mean, just just looking at.

Travis Baucom (00:14:17) - Generally.

Sam Wilson (00:14:18) - Well, just going back to the flipping business. I mean, my gosh, like, I'm with you, man. I did a lot of it. Not nearly as much as you did, but I did a lot of it. And it's like I just I couldn't go back to it. I couldn't go back to it. Too many moving parts. And I think I think part of what I hear you saying here is building, because for some people, flipping is fun. Like, they want to do that. They want the phones, they want they want the busyness, they want the contractors and the painters and this and that and the closings.

Sam Wilson (00:14:43) - And there's something they just enjoy that frenetic activity. But it sounds like for you, you've really want to build a business. It kind of suits who you are, maybe not so much necessarily chasing the like.

Travis Baucom (00:14:55) - Hey, totally.

Sam Wilson (00:14:57) - Massive empire you're building.

Travis Baucom (00:14:59) - So, you know, in 2018, when I wrote down Principles of How I Want my Life to look, yeah, I also wrote down like, because I was so frustrated and sad and angry that I hadn't been able to create the life I wanted in eight years of flipping houses or six years of flipping houses. And so I'm like, What do I really want? I'm like, Well, I want stars. Season passes. I want maps, season passes, I want this, I want that. I want to be able to mountain bike. I want to go for vacations a year with my family. I want to go on four getaways with my wife. All this stuff that I'm writing down, I'm like, I'm going to create this now and fund this environment as opposed to my business owning me.

Travis Baucom (00:15:33) - I'm going to actually own the business and it's going to serve me the way I want it to serve. And so that's that's another reason why short term rentals are gone. And self-storage is is where we're headed because we just you know, I can go mountain biking on Monday and I can go mountain biking on Friday and then Tuesday, Wednesday, Thursday can knock all the stuff out I need. And sometimes I don't even have those three things. When we're raising capital, we're really busy. But when when we aren't raising capital, we're just looking for the next deal. And that takes 3 or 4 to five hours a week to do. Right.

Sam Wilson (00:16:02) - What's the deal you're working on right now? You know, there has been incredible interest, obviously, in the self storage space. Yeah, I'm thinking back from when I first started really learning about and investing in commercial real estate, which is now seven years ago, you know, self storage was it was warm ish, you know, and it became a very hot asset class.

Sam Wilson (00:16:22) - I think it is still has a lot of attraction for a lot of people. But what's a deal you're working on right now? And why is why is it in particular a great deal?

Travis Baucom (00:16:33) - Sure. Sure. Yeah. Would like to hit on the reason why self-storage is hot right now is just to work from home is primarily the reason. And then there's a lot of traffic, a lot of trains transitioning of housing. So those two things are driving a ton of demand because if you're if you're at home and Airbnb, who pays a ton of money since you're talking about short term rentals, they pay a ton of money for their employees. And they literally said, hey, indefinitely, you can work remotely, you can work wherever you want. We're not going to tier your salary like Facebook is tearing people's salary depending on where they live. So me living in Waco, Texas, if you work for Facebook, you're going to make a lot less than if you were. San Francisco is call it. They call it like the work work market algorithm or something like that.

Travis Baucom (00:17:16) - But Airbnb is like you can work indefinitely. So several buddies of mine in Waco that it would never work for like a national company now just they work for a California company and they make like $130,000. It's a huge salary in Waco. And so so what that says now that you can work at home indefinitely, you just cleared out the room that you had all your boxes in your storage room and now that's your office. And so a lot of that's happening. The deal we're working on right now is in Texas. It's an Austin MSA. It's a city called Georgetown, Texas. It's the wealthy or most expensive, fastest growing. Suburb of Boston. Um, and it is it's grown 35% in five years. So healthy growth is 2% a year according to Gallup. Um, so should have grown 10% it three and a half. That so we're building a huge one of the last C1 zone areas meaning C1 is a zoning that allows storage by special use permit. So there's not going to be that many places that anyone can even build a storage facility or get permission to build a storage facility.

Travis Baucom (00:18:27) - So we're building it at the corner at a major intersection in one of the last zoning plots that is allowed to build storage. It's 967 units. It's 107,000ft². It's main. It's going to be managed by extra space, which is about to be soon to be the largest facility owner in America. Um, they have some of the highest or some of the most advanced technology. We're going to get that thing filled up really quick. It's going to be awesome. Um, it looks more like a hotel than it does a self storage facility. It is gorgeous. It's beautiful. And, you know, our our cost is somewhere around 17 million for that stabilized value on the five years, 26 million stabilized value on a ten years closer to 33 million. And that is based on a five and a half cap, which is where public rates are. So buying.

Sam Wilson (00:19:18) - Wow, that's cool. I wish we had more time to dig in to have you back on the show here in a few months and just follow up and and get the update on on that project because that mean that's one.

Sam Wilson (00:19:31) - So it's a development deal, right? Yeah. There's a lot of ground out there. Yeah. Ground up deal. So people are afraid of development right now. In general, you're in self storage, But yes, it's a hot asset class. But I think on a on a probably dollar for dollar, you know, multifamily to self storage, the dollars probably don't even compare self storage still doesn't hasn't been trading nearly as much as maybe what multifamily has. So I think you're still in a really cool asset class on that front. You're in a booming town in a in a C1, What do you call it? The C one Zoning, Yeah, all of those things together sound like a really fantastic project. Give us just maybe the 22nd version of, Let's see, we're recording this on May 30th. What what, what is capital doing right now? Like, what are, what are someone you have an awesome project like this. Any challenges on that front? Any successes on raising capital in this environment?

Travis Baucom (00:20:20) - Yeah.

Travis Baucom (00:20:20) - So I'd break it down to people with high net worth individuals and then ultra high net worth individuals, high net worth individuals, which probably were me and you would fall in. We our available cash is either on the sidelines we're not gonna put anywhere or it's in deals. Right. And we're living off of our income don't have an income. But um, ultra high net worth individuals, they are still interested sporadically. The hard thing about storage is, you know, most people's visual or mental picture of a storage facility is just a crappy, like metal building with some boats around it. Maybe a. Breaking Bad meth or something like that. And so it's not really well, well appreciated it at this point. But but yeah, ultra high net worth individuals are still are still committing for deals they are running bigger checks. You also have you have private equity. You get family offices. Those come with a lot of strings attached. A lot of you basically lose a lot of your control that way. But if it's, you know, if you want to get a deal done in 2023, 8.25% interest with wherever the heck inflation is, that might be your only option.

Travis Baucom (00:21:32) - Right?

Sam Wilson (00:21:33) - Right. Very, very cool. I love it. Travis, thank you for taking the time to come on the show today. I certainly appreciate it. I learned a lot from you, certainly from the pains of flipping 400 houses and then exiting that finding what you're into now, why you love it. I mean, the idea that your phone doesn't ring certainly speaks to my heart. That's a that's an amazing asset class to be. And I'll call you once a month and we'll see see how things are going. So very, very cool if our listeners want to get in touch with you and learn more about you, what is the best way to do that?

Travis Baucom (00:22:00) - Yeah, the best way is on our website. It's dot invest in storage deals, dot com.

Sam Wilson (00:22:09) - Invest in storage deals. We will make sure we put that there in the show notes. Travis, thank you again for coming on today. I do appreciate it.

Travis Baucom (00:22:15) - Yeah, appreciate it, man. Thank you.

Sam Wilson (00:22:17) - Hey, thanks for listening to the How to Scale Commercial Real Estate podcast.

Sam Wilson (00:22:21) - If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.

Today's guest is Cooper Drenner.

Cooper served in a business development role for Heritage Title for over 9 years. His diverse background serving clients in a variety of roles is an ideal fit for his position at Wildhorn Capital, where he manages the company's capital relationships.

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[00:00:00] Intro

[00:00:41] Cooper's background

[00:04:51] Wildhorn's involvement in various forms of housing

[00:08:28] The Stickiness of Single Family

[00:09:30] The Growth of Austin and San Antonio

[00:12:39] Transaction Volume and Cap Rates

[00:17:36] Buying Price per Pound and Underwriting Deals

[00:19:17] Focus on Build-for-Rent Development Deals

[00:23:29] Partnership and Deal Structures in the Build-for-Rent Space

[00:26:28] Cooper Dresner's background in commercial real estate

[00:26:28] Wildhorn Capital's focus on multi-housing

[00:26:28] Various forms of housing

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Connect with Cooper:

Web: https://wildhorncap.com/

Linkedin: https://www.linkedin.com/company/wildhorn-capital/

Connect with Sam:

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

Facebook: https://www.facebook.com/HowtoscaleCRE/

LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/

Email me → [email protected]

SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson

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Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f

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

Cooper Drenner (00:00:00) - Where are we? Excellent. They're not giving real estate away in all these great markets. They're. They're are expert in all those spaces. And so it's a little bit of the analogy. Always uses say, what do you, you know, go into a restaurant. It's a lot easier to go to a restaurant that only serves pizza and know that they do pizza well. But it's not. Oftentimes you go to a restaurant and say, you know what, They do great. They do Mexican food well and they do sushi well and they do pizza well. And so I think we're focused every day on being the best operators of multi housing that we can possibly be. 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.

Sam Wilson (00:00:41) - Cooper Dresner served in a business development role for Heritage Title for over nine years. His diverse background serving clients in a variety of roles, an ideal fit for his position at Wild Horn Capital, where he manages the company's capital relationships.

Sam Wilson (00:00:54) - Cooper Welcome to the show.

Cooper Drenner (00:00:56) - Thank you, Sam. Thanks for having me. Happy day after Memorial Day, I guess when we're when we're filming this. And so I don't know when folks will be listening to it, but it's good to be back in the office and figuring out how to make things make sense right now. Absolutely.

Sam Wilson (00:01:12) - Yeah. We're recording this here on May 30th. We all just came off of a long weekend. Yeah, it was a great a great weekend. I don't know how things were for you there in Austin, Texas, but it was beautiful for us here in Tennessee. Cooper I've got three questions for you, the same three questions I ask every guest who comes on the show in 90s or less. Can you tell me where did you start? Where are you now and how did you get there?

Cooper Drenner (00:01:32) - Absolutely. So I started on Born and Raised in Austin, Texas, actually, the only city I've ever lived. So grew up here. Land use attorney son. So I've always been around and involved in commercial real estate business here, went to the University of Texas, got out immediately, went working for a commercial real estate developer and doing retail work, and then, you know, been fortunate again.

Cooper Drenner (00:01:55) - So much of I think the my my story and wild horn story is a little bit of the boy who was born on third base but pretends he hit a triple. Austin, Texas has been the fastest growing market as it relates to jobs over the last 15 years. And so much of not just our company, but a lot of companies success has been where we are located and figuring out how we leverage what makes Austin a great place to live and move. And so Wild Horn is a small housing operator based out of central Texas. We focus on kind of all sectors of the housing space and love what we do, love where we get to do it.

Sam Wilson (00:02:32) - Man, that's really cool. I'm I truly am jealous of your, um, kind of just hyper focus in one market. I mean, I think that's one thing that people struggle with so much. It's like, Hey, we could do this, we could do that. They're kind of all over the place. But you it sounds like really just been all in on Austin, Texas from the get go.

Cooper Drenner (00:02:53) - It doesn't mean we can't get shiny object syndrome just like everybody else. I think sometimes the goal is to make sure you look at something, evaluate it doesn't mean you just turn a blind eye to something that looks interesting. But figuring out how to pick something up quick and put it down quick. Um, you know, one of the other things that we realize is there's, I think as an investor, I like hearing focus because, you know, I do this too. I'm an investor with a lot of other groups, and it's never a great sign when you sit down with someone for coffee and every quarter and they got, Oh, we're now we're doing self storage and now we're going and now we're doing office and now we're doing prep fund or now we're doing an ATM fund or something else is when you talk to Wild Horn, it's going to be Austin focused and it's very likely going to be housing focused in some way, shape or form. Everything we do sort of lends itself to that. And I think, you know, this this podcast focuses on scaling.

Cooper Drenner (00:03:45) - I think that has really helped us scale in much the same way. Um, and I think, I think the last thing with it, Sam, is just, you know, where are we? Excellent. They're not giving real estate away in all these great markets. They're, they're are expert in all those spaces. And so it's a little bit of the analogy I always use, as I say, what do you, you know, go into a restaurant? It's a lot easier to go to a restaurant that only serves pizza and know that they do pizza well. But it's not. Oftentimes you go to a restaurant and say, you know what, They do great. They do Mexican food well and they do sushi well and they do pizza well. And so I think we're focused every day on being the best operators of multi housing that we can possibly be.

Sam Wilson (00:04:22) - No, that's cool. I like the way you said that when you said, you know, you don't go to get Mexican food, sushi and pizza all on the same on the same.

Sam Wilson (00:04:31) - I wouldn't I wouldn't want to go there like just as just from a.

Cooper Drenner (00:04:35) - Factory's pretty good but mean they're not excellent at anything and we want to be hyper focused where we can be the best.

Sam Wilson (00:04:40) - Right. You said you said you are involved in the housing business in some way, shape or form. What are those various forms then that you're involved in?

Cooper Drenner (00:04:51) - Housing for sure. So we own and operate about 4000 apartment units here in Austin traditionally have not been a developer. We've bought and operated assets, kind of our 80 vintage, so b B to B plus all the way to brand new every reason we've done a deal. And I would say the other question that always comes same is how do you capitalize your deals? So we have some deals we've done with institutional partners. We have some deals that we've done with our friends and family network. And if that is interesting to you, um, our website is, is Wild horned and we've got a portal and if you have any interest, feel free to log on and check us out and put yourself on our newsletter to see, to see deals.

Cooper Drenner (00:05:33) - And then we've bought deals with just individual families really, that started as $100,000. Investor And you know, after doing business together said, hey, we're having usually it's around a capital event. You know, Hey, we're selling this asset, we're selling this company, we'd like to buy an asset with just you and Wild Horn. So we we currently own and operate about 15 assets. We're a partner in a development in San Marcus called the Merriman, where we partnered with a multi housing developer. Again, this idea about being an owner and operator, the business plan on that asset, Sam, is to go a little bit longer. Our debt made sense to allow us a lot of optionality, especially in a market right now where who knows what interest rates are going to be in the next 24 months. Right. And so we we are going to be taking over the operations of that asset and running the lease up of it. And then we've been working for about the last six months on a on a build for rent platform.

Cooper Drenner (00:06:27) - We really again, housing trends I think are pretty similar among markets that are growing, where people are moving that, you know, with interest rates staying high or longer, people are going to be able to own less homes and they're going to be less people that can afford to qualify for loans. But I think at their core, people desire the living experience. A lot of times of a home, which is a yard, a dog where a dog can run, having if you have kids, the ability to have your kids in a separate room having it. I have a I have a single mom and never really appreciated the importance of an attached garage for people that they want to be able to pull their car into their their garage, you know, put the door down and be able to walk directly in their house and never have to go outside. And so we've been working a long time on a on a single family for rent platform that we think we may have our first deal here soon and are excited about that space because if you followed any of the trends nationally, that's been the the hardest place to enter and probably the stickiest place where your renter lives.

Sam Wilson (00:07:29) - Yeah, man, the build build for rent is a trend that I just I only see accelerating. And it's something even probably seven, eight years ago, some friends of mine here in the Memphis market were doing build for rent. And I'm like, That's just the weirdest concept. I just couldn't wrap my head around it. And now I'm like, Wow. Like, it's everywhere. I mean, I get it now. Obviously. It's funny you.

Cooper Drenner (00:07:53) - Bring. It up. We bought it. We own a deal in San Antonio with a family that is a built for rent deal. Before they were called Bill for rent deals, right? We called it kind of a villa style lock and leave townhome living. And the data is fascinating. Owning one of these, you can operate them more cheaply. Your renter stays, you know typical on a on any kind of multi housing asset. Your renter your your your your interest is about 50% of the time upon renewals. Right. You're turning that unit over 50% of the time in this aspect your your renter stays 70, 75% of the time.

Cooper Drenner (00:08:28) - So they're really leaving because they're moving somewhere else. Totally. They've had a really big life change, a divorce. Some kind of splitting or they're buying a house. And so a lot of it's just the stickiness of the quality of life that, you know, a typical single family for rent, housing, either whether it's a duplex or a standalone house, is 15, 1700 square feet, an 800 square foot apartment. Not a lot of times the trends say that people are slashing half their stuff. Uh, those things tend to grow. And if you if you've tracked or invested in the, the self storage space that that has, that has proved that out over the last decade.

Sam Wilson (00:09:12) - Right? Yeah. Undoubtedly. Undoubtedly. So you got your hands in build for rent. You have 4000 plus apartments right now and you're in you're solely focused there in the Austin, Texas market. One thing you said is that right or there anything else there in the house?

Cooper Drenner (00:09:30) - Essentially Central Texas is probably right. Austin, San Antonio.

Sam Wilson (00:09:34) - And the.

Cooper Drenner (00:09:34) - Okay, you're down here. Those are those are big growing cities. But it used to feel like forever a farmland in between. But door to door San Antonio is really about an hour from from Austin. And so with the growth of some of the what we're smaller markets but some of the fastest growing cities in the country between those cities are growing together more like Dallas-Fort Worth. And I'm not sure what I'm sure there are other examples of this across the country. But DFW, that has always sort of resonated with people and realizing that those cities have grown together more. And there's been a again, we're on a scaling podcast when when you when you line up the economic development on two cities in one city shrinks or another's weaknesses and vice versa, that has a multiplying effect from a from an economy standpoint.

Sam Wilson (00:10:20) - Yeah, no, absolutely. I did not realize that San Antonio was only an hour really from Austin. I mean, that's.

Cooper Drenner (00:10:28) - The other dirty little secret is San Antonio's had a more resilient economy than Houston or Dallas.

Cooper Drenner (00:10:34) - It's a different economy, but it is, you know, San Antonio with, you know, Austin touts. And I've been involved with Austin's economic development fund for the last decade. But it you know, we really had a group of citizens and a mayor and a governor that got it all together back in 2001. That's the cause for Austin's growth as we started raising economic development funds and four year tranches and started playing the economic development game So well, we've we've probably hosted a thousand cities in the last 16 years. Some of those visits are multiple visits. Nashville, Tennessee being one. Nashville has just copied our plan, which is nothing. That's not a wrong thing. But if you raise the money and you do it correctly, you should. In your line from a city and state perspective, it's really obvious to see why people are fleeing. And no, no shots, but it's obvious to see why people are fleeing. San Francisco, Really? California in general, New York, Illinois, some of the highest tax jurisdiction states right.

Cooper Drenner (00:11:35) - Have been the biggest net creators of both jobs and people. Um, San Antonio has been, I think, the number six economy in the country for the last 15 years. Without really trying that hard at it. San Antonio is is also a much bigger city than people realize. I mean, much bigger than Austin. So it it's it's a unique place that if you don't live in Texas you may not understand it very well. Austin gets the above the fold name recognition for good reason. But San Antonio has sort of been the in the analogy of the tortoise and the hare. They have always been the tortoise, but they've just been consistent.

Sam Wilson (00:12:11) - No, that's cool. That's great. And what a great spot for you to be in. Let's talk then. I mean, nationwide, multifamily, multifamily, from a transaction standpoint, you know, as of like two weeks ago was down 75% year over year. We Are you guys seeing similar slowdowns? I know Texas is basically its own country. So it's, you know, kind of kind of maybe not comparable to to to, you know, look at it or, you know.

Cooper Drenner (00:12:39) - We are I mean, I don't I don't know if 75% on transaction volume, but but we're well above 50. I was going to probably say 60, 65. Um, a little of it. I'll give you this analogy saying or I'll give you this real life example. So we looked at a deal that traded recently, won inside our assets. So I'll just I can only speak to my data, but I think this is proving true. And what you see, you know, our data flow just in an industry, especially in a state, is pretty good. Um, we had about 4% growth to our NOI, our 4% growth to rent growth in Q1. We've seen NOI growth a little bit above that, um, which is great historically, right? Ring growth at 4% would be great. That's way down from where we were for the last year. But historically positive. It seems like that's more by way of renewals than a new tenant. If a new tenants around moving around, they're probably more aware.

Cooper Drenner (00:13:34) - They're probably moving because they can't afford what they had a little bit more. They're probably a little bit more careful on what they step into because they've seen things rise, but we're sort of up in that regard. But which is still in all the food groups, the major product types and all the countries is very healthy. So most deals are trading at between still somewhere between a four and a 3:45 and a half cap. Wow. And I know we have a lot of investors that listen to this podcast. I'm always going to pause and throw in what I would call the meter. This is what if I was an investor? As an investor, things I'd be asking about. We've quickly forgotten how to talk about cap rates on what our going in cap is. Yeah. My question always to both a broker and as an investor is, all right, what's my going and cap rate? And someone's gonna say, oh, it's a five cap. Well, you can calculate a going and cap. Is it AT1? Is it AT3? Is it looking forward cap rate? As an investor, you should always ask if it's not t three over t 12 adjusted for what your new taxes are going to be.

Cooper Drenner (00:14:36) - And these days, and this is the biggest thing that should be brought up in this podcast a lot going forward is insurance. We're in an insurance crisis in the multi housing market. If it's not T three over t 12 tax and insurance adjusted, we're not talking apples to apples and cap rates. So what I'm talking about a four and a 3:45 and a half cap where deals are trading is um is is t three over t 12 tax and insurance adjusted. But that's where deals are trading, which is still incredibly low. For across the country. Deals are still trading at that level. But I'll also tell you, your price per pound dollar feels really, really good. And so the example I was going to bring up, we had a deal under contract this time last year that we ended up dropping just because the market started really moving dynamically right now. Yeah, we didn't we didn't walk earnest money on this deal. We just we tied it up and very quickly knew our underwriting and the seller did.

Cooper Drenner (00:15:28) - We just sort of agreed. Actually I say that we never fully put it under contract. We we just for reputational purposes, wanted to just sort of have a transparent conversation right before we sign the PSA. And we both kind of agreed to go, let's let's see if things settle out. But we had it under contract, I think, at 280 a door, which felt good at the time. It still was down off peak pricing. Sure. That deal I saw in a package for 215 a door recently. It was shown at 20 IRR. And again, an investor question, um, if a deal in central Texas was showing to your base case underwriting a 20 IRR any time over the last decade, something was either too good to be true man, they stole it or something was amiss. At this point, debt was, you know, you're solving for debt that is is much higher than it was. There was a little line item there in the bottom. A question I'd always ask is, in your base case underwriting, are you assuming any kind of refinance or supplemental loan? Just a just a great question, right? Um, because just as a just as a data point, if I knew where interest rates are going to be in two years, I shouldn't need your money.

Cooper Drenner (00:16:38) - I shouldn't be doing real estate. I can make an incredible amount of wealth doing a lot easier things than what I'm doing right now. So that's the that's to say, the smartest people still struggle with that answer. The forward looking sofr curve has been historically wrong 100% of the time. It's okay to make guesses. It's okay to say this is what I think it's going to be. But if I'm ever making big financial decisions where all of my returns is based on being able to peg that rate and I'm being inherently on the aggressive side, as an investor, I would be a little dubious. So but to that example I was giving. The deal underwrote better at $285 a door than it did at $215 a door because of where the debt was. So to to. I'm going to make myself a true Texan in this case. It's a great time to buy the cow, but it's a really bad time to buy the milk. Your your cash flow on these deals is never is going to look really poor right now.

Cooper Drenner (00:17:36) - But if for some reason, as an owner, you like buying price per pound, which by the way if you're if you can and you can live like that, it's a great time to buy. But your underwriting is going to be really, really not really, really bad, but it's going to be not what you want it to look like. And so you it's a great time to buy deals in Austin and you're seeing deals trade in Austin where people are coming in saying, great, I love this basis. Another interesting data point, Sam, is everyone sort of solving for the same debt? No one's really going in with bridge financing like they were. You know, all buyers are sort of underwriting to the five year agency, five year Freddie note and sort of buying down your your prepayment penalty like three years. And so you're going to live in this sort of onerous debt for three years. But at the end of three years, when if you think interest rates in the market are going to be in a better place.

Cooper Drenner (00:18:26) - I do personally do. It's going to be a great time because you're going to have the ability to refinance at that moment and you're going to love your basis, but you're going to be kind of feeding the deal along the way. And I know I use a lot of real estate terms and kind of inside of real estate terms, and that might not be our total audience. But I go back to that. It's a great time to buy the cow. It's just you can't buy the milk as well.

Sam Wilson (00:18:48) - Right? Right. Nuts. I like that analogy. I hadn't heard that. And that makes that makes a lot of sense. So it sounds like you guys are pencils up right now and still trying to. Not trying, but still going out and acquiring deals.

Cooper Drenner (00:19:03) - You know, we're we're we're we're not totally pencils up. If if we had a family or we had the right bucket of money or a partner that needed to get dollars out because of a 1031 And we have a couple families and folks that we're looking at.

Cooper Drenner (00:19:17) - What we're what we think is really interesting right now is if you can figure out how to make developments pencils. So we're working on a couple development deals in the BFR space because to your data point about transaction volume down, the development pipeline is pretty much off the table. I think 80% of the development pipeline across all product types is pencils down because office is sort of a four letter word right now and I'm not sure 100% agree with that, but it is a four letter word to your lender. Right? And and so we're working on and I think we'll be raising on a couple build for rent development deals where our partner on these deals and this platform is going to be is actually a home builder. And so we're choosing to build the deals at smaller margins so we can over we can look past and get past what is somewhat more onerous debt because we're developing into kind of a no supply environment in two years and we can choose to to take a lower margin to make these deals pencil better. And so that's what we're really been mainly focused on in the last six months.

Cooper Drenner (00:20:23) - And what I think will be focused on for the next six is, is a build for rent pipeline that we think is really exciting and frankly, is is what renters are telling you they want to do right now as well. So and again, I'm a little superstitious. As soon as I say that, maybe we'll find something on an acquisition standpoint, but I can't be mad at it too much because it's also what has been, as an investor, great comfort that Austin multi housing is still garnering, I think nationwide the lowest cap rates of any product type. It's it's because people are still moving here in droves with an economic development head on. Sam We tend to steal market share in these environments in recessions more so than we do when times are good.

Sam Wilson (00:21:09) - Right? Right. No, I like that. I like that. That that makes a lot of sense. I mean, yeah, and there's there's and that was something. I was talking to a banker on Friday and I just said, hey, you know, what's, what's what are you guys not lending on right now? Like, what's a bucket you guys are not looking to fill from a lending perspective? And he goes, new development.

Sam Wilson (00:21:31) - He goes, we're just we're just not doing it right now. How are you guys overcoming that obstacle? Are you guys just raising it on cash? What's your how are you now?

Cooper Drenner (00:21:39) - We actually we actually got two lender term sheets. So I think that sort of speaks to I think you're right. I don't lenders aren't looking to do deals right now. Just historically. That's not their bent. They're not looking to do deals. Right now. The single family for rent space underwrites really, really well. And being able to to partner and own the expertise of actually doing the construction ourself and self performing in that way and with with our home developer being our partner and who's doing this stuff in central Texas and. Just you know, I think a lender. Right. Is only got a few arrows to shoot and they want to shoot them at the best risk adjusted places to shoot them. And the single family for rent space, I think is the best risk adjusted. So I never thought I would be feeling like I've, you know, shot the moon by getting it to lender term sheets.

Cooper Drenner (00:22:32) - But I got two in hand last week, which is a great feeling. So, um, and there's a little bit of not trying to roll the rock uphill. It's, you know, in central Texas a little bit, we're kind of California in this and that we constrain supply by true environmental reasons and it's a little bit it's been our blessing and our curse that Houston's a great city. But again, I told you from the beginning, I'm a land use attorney. Sun So no land use in Houston makes no sense to me. I view everything in that prism of supply and demand. Why is what we have here by right give us an existential advantage versus somebody being able to show up and put it up next to us. And so but yeah, we feel like we've sort of found something. It's not how we started out, by the way. It's not like, Oh, the lenders told us this is what they'll do. And we went searching for it. We kept looking at these type of deals and this opportunity and this partnership and went, This feels like it's still making sense.

Cooper Drenner (00:23:29) - Should we keep going? This feels like it's still making sense. Should we keep going? Right. And I think that's a little bit of wild horn. How we think about investments is just intellectually curious. This deal we really like, does it continue to make sense? But but not trying to sort of go, hey, I'm going to grit my teeth and figure out how many times I got to run into this wall to make this thing happen. And so we sort of backed into this this way through this partnership. And then these deal structures and lenders felt the same way. And so that's that's been a comfort man.

Sam Wilson (00:23:58) - That's really, really cool. Cooper I've got so many more questions for you. Unfortunately, we are at the end of the show. This is still been a great I'll come.

Cooper Drenner (00:24:05) - Back on Sam sometime if you're not sick of me, but I know I'm long winded and I apologize in advance for.

Sam Wilson (00:24:11) - That. No, no, you've shared some great stuff with us today. No, not long winded at all.

Sam Wilson (00:24:15) - Think. Think. Yeah. You've shared so many things with us. Everything from just how you have been so hyper focused there in Austin and in the I guess you call it the central Texas market. Is that right? Yeah.

Cooper Drenner (00:24:27) - Absolutely.

Sam Wilson (00:24:29) - Down to San Antonio. You've talked about you guys owning 4000 units. You've talked about why you see opportunity there in the build for rent space. I mean just and yeah, lots and lots of great stuff that you share with us here today. Certainly appreciate you taking the time to come on the show. If our listeners want to get in touch with you and learn more about you, what is the best way to do that?

Cooper Drenner (00:24:47) - Yeah, I mean, my partner is is a guy named Andrew Campbell. He actually started Wild Horn and I join Andrew as a partner. We own the deal together and it's we're a small company. We we want to maintain and operate that kind of white glove approach. And so you can access on our website, Wild Horn, we're on LinkedIn and all the other, you know, easy socials to find us.

Cooper Drenner (00:25:14) - You'll deal with us. We have a director of investor relations who who helps us. But one of the things that we get high marks on with our investor, Sam, is like we produce a lot of investor content, not just, you know, SaaS about us, but we really want our investors to feel like they know us, that they can get in touch with us, that they know what's happening in our deal. Again, if I'm putting my investor hat on, that's one of the first questions I'm asking is what does that regular cadence look like, good or bad news? As an investor myself, I want to know early. I want to know what our plan is. I want to feel like I trust you. I understand things happen. But I want to. I heard this one time and I'll leave you with this. Everyone always agrees on what happens. Tends to happen when things go really, really well. But I want to invest with and work with the person who thinks like I think when things aren't going well and that's not always when someone can control it.

Cooper Drenner (00:26:09) - But I really want to understand how someone thinks in that moment. And I think investor communication is the best way to do that. So if you want to get in touch with us, either our website or on the socials, and we'd be happy to set up a call and introduce ourselves. And sometimes it's easy to meet someone outside of a deal just so you get a chance to know someone when you don't feel like they're pitching you, right?

Sam Wilson (00:26:28) - Absolutely. Absolutely. Cooper Thank you again for coming on the show today. I certainly appreciate it. This was loads of fun.

Cooper Drenner (00:26:34) - Thanks, Sam. Appreciate you.

Sam Wilson (00:26:35) - 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 Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories.

Sam Wilson (00:26:57) - So appreciate you listening. Thanks so much and hope to catch you on the next episode.

Today's guest is Phillip Vincent.

Phillip has been in the real estate business for 25 years and found my niche working with the senior living industry and helping families as they transition. Join Sam and Phillip in today's episode.

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Introduction to Senior Living Industry [00:00:00]

Philip Vincent's Real Estate Journey [00:00:53]

Connecting People in Senior Living [00:04:52]

The acquisition process [00:08:49]

The cost versus value guide [00:09:33]

Scaling the business [00:14:18]

The Challenges of Estate Sales [00:16:36]

Revenue and Costs of Estate Sales [00:17:29]

The Difficulty of Getting Rid of Stuff [00:18:10]

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Connect with Phillip:

Facebook: https://www.facebook.com/MomsHouseCertification

Web: momshouse.com/sam

Connect with Sam:

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

Facebook: https://www.facebook.com/HowtoscaleCRE/

LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/

Email me → [email protected]

SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson

Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234

Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f

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

Phillip Vincent (00:00:00) - Senior living industry is like a car dealership that does not buy the trade in. So they sell cars all day long. They sell them, sell them, sell them, but they don't buy the trade in. And what's happening is think about the car dealership industry. If they stopped buying trades today, would people stop buying new cars? No. Would it slow the whole dang process down tremendously? Yes. Yeah, because I can't buy the new $80,000 truck until I sell my old $50,000, you know? Right. Right. And so that's what and by the way, this this senior limit industry, they say they push them out the door. They spend millions of dollars a month to get people to come do tours only to push them right back out the door and say, go talk to a real estate agent. And when do you guys figure that out? Please come back and see us.

Sam Wilson (00:00:40) - 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.

Sam Wilson (00:00:53) - Phillip Vincent has been in the real estate business for 25 years, but he found his niche working with the senior living industry in helping families as they transition. Philip, welcome to the show.

Phillip Vincent (00:01:03) - Sam Thank you for having me on here.

Sam Wilson (00:01:05) - Absolutely. The pleasure's mine. Philip there. Three questions I ask every guest who comes on the show in 90s or less. Can you tell me where did you start? Where are you now and how did you get there?

Phillip Vincent (00:01:13) - Sure. Where did I start? I started in this business backwards. I started off building new houses when I was 20 years old, so I just started off in development. I worked my way back to being a wholesaler, and so most people do the exact opposite. They want to be a wholesaler and work their way into those bigger things. And I just found my personality. I didn't like the timelines of those new creation of permits and dealing with cities and all their inspectors and all those things. I just and all of that was because I like to pick out the colours.

Phillip Vincent (00:01:44) - And so I'm not a home builder anymore. I don't consider myself one. I'm really more of a connector of people, a lead aggregator, if you will. And I'm excited to talk about with you, with everyone listening today about what we do.

Sam Wilson (00:01:56) - Yeah, absolutely. And just just to give our listeners here a quick preface, this show is 99.9% of the time focused on commercial real estate. But I think this will be a fun conversation for us here today, Phillip, because you're going to give us some insights on how to scale maybe something on the single family residence side of things, which people always tell us. They say you can't scale single family. And I, you know, there's some there's some exceptions to that, obviously. Yeah. But anyway, before before I steal all of your thunder, I just want to kind of put that preview in there that, hey, you know, we're going to talk about something different today. I'm excited about it. I know you're excited about it, so let's kick it off.

Sam Wilson (00:02:30) - What do you do now that you said that you told us initially you've gone from X or you've gone from Z back to A I guess, what do you do now in the wholesale side of your business?

Phillip Vincent (00:02:41) - Yeah. And so I won't bore you guys with the whole I've been in real estate for 25 years story but in that I've always been looking for where are the best leads coming from? Where are the best leads? Me And you were having a beer right now. We would talk about where are we getting our leads from? Where where do we procure this stuff? Where does the leads happen? And I was like everybody else. And, you know, the eight, nine, 2008 and nine downturn, I was looking at REO properties or bank owned properties like everyone was. Even to this day, people are like, Oh, you buy foreclosures? No, not. Not at all. Hardly ever do I buy a foreclosure. Um, and in 2011, I discovered what seems so obvious when I explain it to you guys.

Phillip Vincent (00:03:16) - It's kind of like when peanut butter met chocolate. It was like, Well, yeah, of course that's who's selling their house. So I want you guys if you're if you buy single family houses, if you're not driving, close your eyes and tell me, what was the average age of the last five houses you bought? Were they 28 years old or were they 82 years old? And almost everybody was like, Oh, yeah, I buy houses from seniors all the time. And I said, Yeah. And what's usually happening in their lives that makes them need to sell their house. And guys, people are like, Oh, this is like probate. Well, this is before that, this is in front of that. And people are like, What a great little niche you have there. And I said, Well, let's talk about the numbers For all my numbers people out there, it's seven out of ten Americans over the age of 65 will live in assisted care before they pass away. Seven out of ten.

Phillip Vincent (00:04:01) - And there's 10,000 people turning 65 every day. Just because I've been doing senior living since 2011, no one listening right now is behind right now. This year that we're in, 2023 is the first year of the oldest boomers starting to go into senior living. So we have what's called in the industry a silver tsunami that's so big that's coming. Our own government doesn't know what to do. They're scared. We should all be scared. It's the first time ever two that we have more over 65 year olds in our country than we do under 18. Well, guys, that's not good for our gross domestic product and for just the wait on the system. It's assuming what's what does the tsunami do? They're going to live in this care. And everybody says they're going to wait for their inheritance. You're not probably going to inherit your parent's house. They're going to need to sell that house to pay for their care because care is going up and people are living longer. And so what I teach people to do was a long story to how to get to what I do.

Phillip Vincent (00:04:52) - I, I connect people that are moving their moms or dads into senior living. That is the flash point of when they say, man, we need to sell the house because the place I always say, Sam, if you and I are brothers and we go to pick out a place, we pick out the cheapest one for mom, or of course we pick the nicest one. It's it's our mother. Of course, we pick out the nicest one and she's got a pension of 2800 a month. The place we picked out 6000 a month. And I look at you, Sam, and say, you're my more affluent brother, Sam. So can you pay that $3,300 a month difference And you say no or you say, Yeah, I'll do it for a month. But dude, then we gotta sell.

Sam Wilson (00:05:25) - Sell the house, right?

Phillip Vincent (00:05:27) - Instantly. And then what do we do? We go, Uh, man, I don't live in town where Mom lives. You don't live in town where Mom lives.

Phillip Vincent (00:05:32) - And that's the house she's lived in for 40 or 50 years. Right. So everybody calls a real estate agent. Let me say and let me give you guys a good analogy of what this industry is. Senior living industry is like a car dealership that does not buy the trade in. So they sell cars all day long. They sell them, sell them, sell them, but they don't buy the trade in. And what's happening is think about the car dealership industry if. They stopped buying trades today. Would people stop buying new cars? No. Would it slow the holding process down tremendously? Yeah, because I can't buy the new $80,000 truck until I sell my old $50,000, you know? Right. Right. And so that's what and by the way, this this senior limit industry, they say they push them out the door. They spend millions of dollars a month to get people to come do tours only to push them right back out the door and say, go talk to a real estate agent.

Phillip Vincent (00:06:17) - And when do you guys figure that out? Please come back and see us. Mm Well, what a broken process that is. Because with real estate agent, by the way, I am a real estate agent. I have my license and. And I'm an investor. So if you guys are listening right now, you can be an investor and a real estate agent, but it's not how you show up in senior living. I show up as a senior transition specialist. I'm there to meet the family at their level, unlock the equity out of their home, help them with the stuff, help them with your VA benefits, help them with placement agencies. We work with all the big placement agencies. There's people out there that are in their lane in senior living. And if you and I are brothers, it's a very traumatic time for families that get along. Sam Don't get along during this process. They just don't. It's just hard because no one wants to think their mom is getting older. I always say you never take a healthy mom to senior living.

Phillip Vincent (00:07:06) - You wouldn't do that. There's something going on. It's usually a fall. And so mom's house was designed to ease that burden for the adult children moving their parents into senior living.

Sam Wilson (00:07:17) - Got it. So tell me all the things that you do there again, because I'm not sure in my mind I had this as very simple. I said, All right, cool. Somehow you're finding which we didn't quite get to that yet, I don't think. But you're finding the leads as those people are moving to senior living, you're getting the house under contract and you're selling that off. Is that sure?

Phillip Vincent (00:07:35) - Sure. That's a simple way to say it. That is what we do. And I would say what lives before that is empathy. We always say we're in the hugs and kisses business. If you're very, very transactional, this is not for you. Right? Because senior living will cheer you up and spit you out. And so if you do have love and can lead with love, Senior Living wants you to help them.

Phillip Vincent (00:07:54) - My students nationwide always laugh when they start going out and networking with the right people. Because I teach. I teach my students how to actually build relationships with people in senior living that are giving those families that hard advice at that hard time. Because finding we always call our daughter Judy, by the way, the adult child is helping mom, as we call our daughter Judy. Finding daughter Judy on her own is hard because a lot of times they live the average is 400 miles away from their parents. So that's a fragmented list. And so what we do is we actually work in the senior living industry. And you ask me, what were those again? There was VA in attendance benefits, downsizing companies, placement agencies, elder care attorneys. Of course, the house is what we specialize in, but we all stay in our lane and we go in a holistic approach to help this family. Sometimes they need all of our services, sometimes they need one of our services. But the idea is we lead with love, helping where we can.

Phillip Vincent (00:08:44) - And what's right behind doing this is getting the chance to buy a lot of real estate.

Sam Wilson (00:08:49) - How? How so? How do you acquire and or find these candidates? Like there's there's got to be a way that you identify those potential people to work with.

Phillip Vincent (00:09:00) - Yeah. So I call them favor coupons. All those people I just named. We have a family referral network where we all bring those families to the table and say, Hey, this person needs this. And so I'm actually part of the senior living sales process. I'm part of the CRMs that are in senior living. So if me and you took Mom to go see ABC Senior Living, we end up in the CRM and they'll ask us how we plan on paying for care and we'll say, Oh, we're going to need to sell that house. And they say, Oh, we've got a free resource called Mom's house. Would you like to burn them to come out and take a look and make you a no obligation offer? They can help with the house and the stuff.

Phillip Vincent (00:09:33) - And we say, Of course, why not? We got to I got to fly back to town anyway here soon. I would love to get this taken care of. And you know, when we met with that real estate agent, they said we had to clean the place out the forever home and do the rehab items so we could get that. What's that magic word? Top dollar. I love that word because everybody wants top dollar. I want it. You want it. We all want it. And we use tools like and anyone listening. You guys, this is gold. I'm going to give you gold right now. The cost versus value guide. If you Google cost versus value guide. Sam If you put a $15,000 deck on your house, it cost you 15 grand. How much value did you add to your house? You want to guess?

Sam Wilson (00:10:09) - As much as I value as I find and enjoying the deck.

Phillip Vincent (00:10:12) - Well, that's good. I like that. And by the way, that is the right answer.

Phillip Vincent (00:10:15) - But they actually put numbers against it. It's about $0.63 on the dollar.

Sam Wilson (00:10:19) - Okay.

Phillip Vincent (00:10:20) - So you lose six, seven grand, right? And so imagine our mom's house, it doesn't need one thing. It needs 14 things.

Sam Wilson (00:10:29) - Absolutely.

Phillip Vincent (00:10:30) - Absolutely right. And so and by the way, every item is that everybody's like, what about the kitchen? Kitchen's one of the worst. It's one of the most expensive rooms and it's one that you get the least amount of value back. And so what you'll find is these families are going, well, hold on. If I rehab it the way the real estate agent said, and by the way, guys, it's hard enough to rehab in your own towns. Imagine trying to now rehab a house across the 400 miles away where your mom lives. If you think you're going to get a good deal from the contractors.

Sam Wilson (00:10:56) - No, no.

Phillip Vincent (00:10:57) - No.

Sam Wilson (00:10:58) - Of course you have kids and you work a full time job. And by the way, let's go back to 400 miles away again.

Phillip Vincent (00:11:04) - Yep. And daughter Judy's married and her needy husband's like, Can we get back to our normal lives, brother? I see the weight come off their shoulders all the time. By the way, I haven't said the f word yet. Fulfillment. Um. Being part of Mom's house. Buying real estate this way is the fulfilling way to do real estate. If you've been saying I don't want to do bandit signs, I don't want to do cold calling, I don't want to do text message blasting. It's because it's all that stuff is cheesy. Right? And a lot of people and by the way, I've done all those things I'm telling on myself here. I've done those things in the past until I found this where I'm like, Man, I get to do something good in the world. I get to buy real estate and it's reoccurring too. That's the cool thing When you build relationships like I have with the right people, I'm a tool for them. So if you're a placement agent or an elder care attorney, you need that house to sell, to sell to, to open up those funds so they can get to where they're going.

Sam Wilson (00:11:56) - Um hum.

Sam Wilson (00:11:57) - That's really cool. Yeah, that's a great I mean, that's a much warmer conversation on on for you. You're not going in as the typical and I've I've wholesale some deals over the years and it's like. You know, there's there's just a different approach to to it when you're going in there knowing you're going to wholesale it versus like because you're just going in and trying to get the contract and then get the contract and then go sell it to sell it to your buddy down the street. Like that's a different deal than like, Hey, we're going to come in and actually help you guys get everything you need out of this and get it done and get it done fast and really serve the the customer there in the end as well. So I think that's probably the difference in what you're doing.

Phillip Vincent (00:12:39) - I like to think of it as I'm sitting on the same side of the table as them, and we're looking at the options together, right? And when I clearly show them all their options, whether it's to go down that route of rehabbing and listing retail, I want to show them that.

Phillip Vincent (00:12:52) - And what I found is saying when they show them it honestly, they're like, I didn't want to do that anyway, nor do I know where the money's going to come from. Remember the analogy? I said if mom's pensions 2800 a month and the place we put her in six grand a month, well, we're running up this bill over at the community. Where's the $38,000 going to come from for the rehab? Is that also from Sam? Because come on, Sam, put the money and get back. We'll get it back. Mean. And then does that make you in charge of the rehab now do you pick out is it three tab shingles or architectural shingles or what brand hot water heater. You people don't have time for this, right? And by the way, if they wanted to rehab it, Sam, they would they would have never called me. That's how I look at it. They would already rehab it if the family really wanted or if they wanted to keep it in the family, they would have already done that.

Phillip Vincent (00:13:32) - They would never be in my web. But when they do, they're saying, I don't want to go that retail route. I want this other option. And that's how Mom's house was born.

Sam Wilson (00:13:41) - How scalable is what you do? I mean, do you guys work nationwide? And what's what's your.

Phillip Vincent (00:13:45) - We are nationwide.

Sam Wilson (00:13:46) - Okay.

Phillip Vincent (00:13:47) - Yeah. And so, by the way, if you're that person who runs a big business like a big wholesaling or rehabbing business, this is for you. And what I mean is I'm going to teach you we use the analogy of the crock pot in the vase. And so most real estate investors are crock pots. We're a little utilitarian, we're not pretty. We just get it done. Like you said, we come in brute force and we simmer all day long, Right and right. And that's most people probably listening right now. If I'm being stereotypical, I will teach you how to hire the vase in your town that's already known, liked, and trusted by everyone in senior living.

Phillip Vincent (00:14:18) - And they will go procure your relationships. You get to stay the real estate investor. So that is infinitely scalable because I used to try to, two years ago try to teach crock pot to be more vase like and it just doesn't work.

Sam Wilson (00:14:30) - What do you mean when you say vase?

Phillip Vincent (00:14:32) - Vase means what's a vase? It's a it's beautiful. It's it's you have to caress it. It's more caring. You know what I mean? It's something that you have to treat nicer, right, than a crock pot. I'm going to bang a crock pot on, but a vase. Oh, man, I'm going to hold that differently. And so we use that analogy of like who we are as humans. And so I'm more of a crock pot by nature. And so I had to become more like a vase when I worked in the senior living because it's not brute force. Right, right. And so if you are a person that wants to scale this business, it probably won't be you scaling the networking.

Phillip Vincent (00:15:03) - I'll teach you how to find that vase who's in your town. If you live in Tulsa, I'll find that person that's already in Tulsa that's already been there. Might be a social worker, you know, they probably already have been working in senior living.

Sam Wilson (00:15:13) - Got it? Got it. You'll find that person that that already has the connections in place that that that you need. And in the end, I mean, is the ultimate goal then I guess once you once you've done the and what do you do with the content. I mean this is something that actually a family member of mine was buying an auction company and they're like, Dude, the amount of real estate and contents that come through these same idea is what you're talking about. Different, different stuff. I mean, you certainly have to work alongside of estate sales and people like that. That mean because the estate sales happen, you know, a long, long before people die. Much of the time, I would think.

Phillip Vincent (00:15:49) - If they're if they're downsizing.

Phillip Vincent (00:15:51) - That's true. Yeah. But if they're moving into senior living, they're going to go from on average of 2000 square foot house with maybe a basement filled with things. And they're going to move into a 350 square foot apartment, a condo. They have, you know, 95% too much stuff. And so to answer your question, the stuff can be trickier than the house. Yeah. And I teach all my students to not get into stuff business. I know, like American Pickers and Pawn Stars and all these shows make it look fun to be in the stuff business. I don't want to be in the stuff business. You all end up being a hoarder if I do that. And so you can't. There's not a lot of money in it. And so what I do is I freely refer those out to other people that are in that business. And I wanted to talk about estate sales for just a second. Sure. Everyone has treasures down to trash. We all do in our houses. There's I hate the word.

Phillip Vincent (00:16:36) - I don't like to say junk, but we have treasures down to trash. And depending on how the family meets me is how I help them. If they think everything's worth $1 million, I'm going to have to go find a guy that collects salt and pepper shaker collections because I'll be damned if Dad didn't have all the salt and pepper shakers in the world, right? Or Beanie Babies or whatever it might be. And so the estate sale. What I wanted to say to you is that. I've got a butt for every saddle. Meaning if you have super high end stuff, I know who to call. If you have regular stuff, I know who to call. If you have just needs to be cleaned out, I know who to call. There's not one answer for stuff. It's multiple skilled people in your markets, in your vendors packet, your credibility packet, we call it. And so I want to give you guys a stat that can be scary and shocking. In Saint Louis, the average estate sale cost I'm sorry, the revenue created by putting the sale on like how much all this stuff sells for is between 3 and $5000.

Phillip Vincent (00:17:29) - That's what the that's how much all the stuff sells for the gross sale. Gross sales. What do you think it cost to put the sale on, Sam?

Sam Wilson (00:17:35) - Three grand.

Phillip Vincent (00:17:36) - 3 to $5000. Right.

Sam Wilson (00:17:39) - Wow. Now, that's that's that is everything from the 75,000 to the $7.5 million home. That's this. That is. Yeah.

Phillip Vincent (00:17:48) - And here's why. There's not that many $7.5 million homes.

Sam Wilson (00:17:51) - No, I'm just I'm just trying to.

Phillip Vincent (00:17:52) - Yeah, there was a company that came in and said we're only going to do a state sales 15 grand and above. Well that was 0.01% of the market. So they went out of business, they raised 15 million and they were called everything but the house and they went out of business because they were saying, we don't want 99.9% of the market that has way, way, way less stuff.

Sam Wilson (00:18:09) - Right.

Phillip Vincent (00:18:10) - And you can't even give stuff away right now. You're like your your relative was talking about today's adults are children like in their 20s moving into their they don't want grandma's old bedroom set even though it's probably better than what I would buy at Ikea.

Phillip Vincent (00:18:24) - You can't give the China away. They don't have a can't put it in the dishwasher. They don't even want it. Right. And so stuff is very hard. We help them with the stuff because the better we help with the stuff, the easier it is for them to move in to the community.

Sam Wilson (00:18:36) - Yeah, absolutely. Absolutely. Yeah. We used to buy, you know, we did the foreclosure circuit like you were talking about there early on in that. Even then, we would just when we would buy the house, we'd walk in. It's full of stuff. I would just call the local. Thrift store or whoever, and they would just send a truck out. I mean, they'd clean out appliances, the whole the whole shooting match, just like I just I'm not messing with a house full of stuff, which was really sad to see. I guess in that situation, houses full of stuff.

Phillip Vincent (00:19:05) - Just lots of pictures, right? You see the like, it's like, don't who's going to take your pictures? You know.

Sam Wilson (00:19:11) - I wish stuff like that. We got boxes of photos till I'm like, why do we still have these? Can we scan these in? But I digress. I digress. This is really interesting. Philip Love, I love what you're doing. I like the approach that you're taking. It is definitely nuanced, but it also serves. I think that's that's the cool part about what you're doing. You're not just thinking there's nothing wrong with making a buck. I served a lot of people even when we bought and sold wholesale houses that, you know, they were in a pinch. They wanted out, they needed money, they needed it like then. And so we bought it and they moved on. But it was very transactional, I think, as you said. And I think that's what sets up sets apart what you're doing in that. Like you said, you're sitting on both sides of the table and I really like the way that you acquire these clients of yours too. I think that's really cool because, I mean, it's not it's not direct mail, cold call, it's not the bandit signs.

Sam Wilson (00:20:00) - It's not, you know, Google ads. It's none of the none of the normal channels in order to find a very motivated seller. I mean, in this case, I mean, this is a highly motivated seller. It's like when you get this done, when you do it now and we don't have time to monkey around with it. So think that's very, very fascinating.

Phillip Vincent (00:20:14) - Your whole life changes when you only work with people that have raised their hand and said, I need to sell my house, right? Instead of like trying, you know, what is direct mail? It's basically spraying and praying. Right? And I don't I like direct mail. I'm not against direct mail. I'm just saying why? You know, if you think about it, why are you mailing to people over 65 have lived there 20 years and have equity? Why are we mailing to that list? Right. That's a pretty common one. Well, it's because you're waiting for them to say, Oh, now is the time.

Phillip Vincent (00:20:38) - And my whole business is they've already raised their hand and said it's you know, there's probably about ten reasons why these are the best leads. And number one is I don't have to convince them of motivation at all. Right? They had it before they ever got to me, right?

Sam Wilson (00:20:50) - Right. Yeah. No, that's very, very cool. Philip, is there anything else that that you want to talk about today that haven't covered thoughts about your business, thoughts about your approach? Anything on that front that we should chat about before we wrap this up?

Phillip Vincent (00:21:04) - It's a bold statement, but if you don't take this seriously and you are a person that buy a single family houses, you will be buying houses from someone else that did over the next 15 years. That's how big this wave is. And the senior living industry doesn't know it. But the best real estate lead source that's out there and I'm shining a big, bright light on it. So I'm out here today talking to people. And if you are a person that wants to buy a single family homes in perpetuity, right, at least the next 15 years as this wave comes through, a once in a lifetime wave, take this very seriously.

Phillip Vincent (00:21:36) - And so I'm looking for some of you that are listening. Not all of us. Some of us are too transactional. And so for those right people that say, hey, I think I'm going to be good for this, I love my power couples, you know, we're like, he's a nurse and she's been doing real estate on the side. Like, those are my favorite people because they, they, they get this whole thing. One's a crock pot, one's a vase. Like, oh, we can do this. And so it's fun to have people like that in our program.

Sam Wilson (00:21:58) - Absolutely. Philip, thank you for taking the time to come on today. If our listeners want to get in touch with you or learn more about you, what is the best way to do that?

Phillip Vincent (00:22:05) - Yeah, for anyone who wants to learn more about this, just go to Moms house.com/sam Sam mom's house.com/sam Sam.

Sam Wilson (00:22:15) - Awesome Well thank you for using my name there here to tag the listeners here on the show certainly appreciate that thank you very much Philip anything else we can do for you? Please let us know.

Sam Wilson (00:22:24) - And thank again for your time.

Phillip Vincent (00:22:25) - Thank you, guys.

Sam Wilson (00:22:26) - 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 Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.

Today's Guest is Andrew Lofredo.

Andrew is the CEO of CRE Vertical Advisors. He leverages his extensive experience in commercial real estate to provide private investors and family offices with a tailored investment and services platform. Join Sam and Andrew in today's episode.

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The Background and Experience [00:00:44]

Services Provided to Family Offices [00:02:15]

Approach to Investing [00:09:34]

Longer-term focus [00:10:52]

Challenges in today's market [00:11:43]

Managing disciplines and objectives [00:14:32]

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Connect with Andrew:

Personal Linkedin: https://www.linkedin.com/in/andrewlofredo/

CRE Vertical Advisors Linkedin: https://www.linkedin.com/company/cre-vertical/

Twitter: https://twitter.com/AndrewVLofredo

Connect with Sam:

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

Facebook: https://www.facebook.com/HowtoscaleCRE/

LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/

Email me → [email protected]

SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson

Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234

Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f

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

Andrew Lofredo(00:00:00) - But it's really about managing all of those disciplines. And, you know, our approach is, you know, the way we the way we say it is first, let's define what our objectives are, but then manage all of those disciplines to achieve those objectives.

Sam Wilson (00:00:16) - 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. Andrew Loredo is the CEO of CRE Vertical Advisors. He leverages his extensive experience in commercial real estate to provide private investors and family offices with a tailored investment and services platform. Andrew, welcome to the show.

Andrew Lofredo(00:00:42) - Thank you. Thanks. Thanks for having me.

Sam Wilson (00:00:44) - Absolutely. The pleasure is mine. Andrew There are three questions I ask every guest who comes on the show in 90s or less. Can you tell me where did you start? Where are you now and how did you get there?

Andrew Lofredo(00:00:53) - Sure. And that's that's a long time since it's been a close to 30 years.

Andrew Lofredo(00:00:56) - But I'll do my best. So I start I've been in real estate for a long time, actually started off doing residential brokerage, believe it or not, but really quickly transitioned into commercial real estate. And I'm sure we'll get into this, but I've touched nearly every aspect of the commercial real estate industry. Started off as an R, a clerk out of out of college, transitioned into tenant rep brokerage, representing office tenants, looking for space while I was doing that, actually became a property manager and went to law school in the evenings while was a property manager and ended up practicing law briefly in real estate but quickly transitioned back to property and asset management. Worked for a number of large firms, CBRE, and then transitioned into working for some of my clients direct direct owners, and through that experience developed a good model for working with wealthy families and family offices and direct owners and ultimately created my own shop to do just that. You know, bring bring together some institutional management with, you know, working with those the nuances of family offices and an entrepreneurial environment.

Sam Wilson (00:02:15) - Yeah, absolutely. Well, tell me this. What what are some of the problems that you guys solve for that family office high net worth individual.

Andrew Lofredo(00:02:25) - You know it's it's it can vary and that and that's where actually one of the problems we solve is there's a lot of nuances in the way family offices are structured. It requires a bit more hand-holding than than working with institutional investors. You know, sometimes that's just a matter of, frankly, dealing with disputes, dealing with families that don't see things eye to eye. Sometimes it's dealing with varying degrees of real estate knowledge. Sometimes it's inherited wealth. Um, there's taking the next generation, you know, under under my wing and helping them understand what they're, what they're working with. And really some of it just comes down to it's a key. It's a fundamental part of the way we approach the business is just working with the family to clearly define their objectives, because it's not it's not always the same. And you might not even be the same among family members.

Andrew Lofredo(00:03:24) - But working to set a clear objective is a critical component of what we do. And then obviously delivering the strategy on that.

Sam Wilson (00:03:31) - Right, Right. So family offices may come to you with a portfolio they own and or they may come to you and say, Hey, we would like to have a portfolio that looks like this, and then you guys will go out and help them acquire those assets and or manage those assets, is that right?

Andrew Lofredo(00:03:48) - Exactly. And sometimes it's a matter of both really taking over an existing portfolio, working with them. A lot of times these are very long term holds. You know, it's not the traditional what you would see in terms of the, you know, five year old, you know, buy a buy a value add, do your do your strategy and sell it in 5 or 7 years. You know, a lot of these families, these are legacy properties. So it's a matter of really looking at them and saying, okay, how can we continue to add value to this? Is it still right for you to own this based on your objectives? And if we're going to sell it, there's obviously additional tax issues.

Andrew Lofredo(00:04:28) - When a family is held a property for years normally as a zero or, you know, zero basis. So then we have the issue of, okay, how do we move into the next whether it's a 1031 or some other tax strategy? Um, so it's and just explaining that to them and understanding what their, what their opportunities are is, you know, that's again, a critical component of it. And not everybody and I don't mean this in a negative way, not everybody understands it because it's not what they do. They may have inherited. You know, a lot of these companies, for example, were retailers. They're no longer in the retail business, but they own their real estate now. So they become real estate people and they need somebody to really guide them through that.

Sam Wilson (00:05:13) - What's the difference in the types? And this is probably more of a just a curiosity question, but working with someone who is bootstrapped their way to wealth, this is working with the person that inherited it. Is there is there a different kind of approach you have to take with.

Andrew Lofredo(00:05:28) - Those clients. There is. There is. And it's it's you know, and again, it can vary because I've dealt with families where you have the bootstrap and you have the next generation that worked with the bootstrap and then you have the next generation that's removed from the bootstrap and each one has a different, you know, a different approach. Sometimes it's really just a matter of actually understanding the business. The further removed you get, the less there is of an understanding of the business. So it becomes a bit more educational, right? And that's part of what we do. You know, it's speaking in layman's terms. You know, I'm not just, oh, this is the cap rate, this is the IRR above. It's, you know, again, it's not meant to be sound like a negative, but it's a matter of how you explain what you're doing and how you're adding value. So sometimes the value, it's not as clearly understood the further you get away from the bootstrap or in terms of in terms of what you're doing.

Andrew Lofredo(00:06:24) - So it's a matter of education, I think is the critical part of it. And frankly, you know, when you're dealing with family offices after a certain point in time of being removed from the bootstrap, it simply comes down to an expectation of continued cash flow from the properties, you know, almost as if it's the guaranteed income. So when you take over that type of portfolio, there is also an education process. On the importance of reserves, the importance of how you actually continue to maintain that property. So it's it requires a lot of dialogue and explanation, you know, on why why I'm doing what I'm doing really to help them preserve their wealth, but to make it make it clear what the what the strategy is.

Sam Wilson (00:07:13) - Yeah, I bet. I bet it does. It seems it seems like a very white glove sort of service that you guys are providing there. What's it been like building your own kind of internal team to help you accomplish this?

Andrew Lofredo(00:07:28) - You know, I think that that's an important part of it, the way the way you mentioned the white glove service, because it really is, you know, when when I deal with my clients, you know, in addition to the regular real estate aspects of it, you know, we're dealing with trust structures and multigenerational items.

Andrew Lofredo(00:07:45) - So I often, you know, understand their structure better than they do because I'm in the weeds on it. So when I'm building my team, it's it's also making sure I have a team that's interested in that kind of valued approach and that hand-holding. So, you know, as, as I look for people, it's definitely critical that we have the real estate knowledge, but also the, you know, I don't hire people that, you know, will say that's not my job description because, you know, when you work with the types of clients we have, you get thrown a lot of curveballs. You need to wear a lot of hats. And that's what I love about it. You know, I mean, today, as a perfect example, I was negotiating a contract this morning. I'm having this great conversation with you. And then after this, I'm out to meet some contractors to walk through space. And you know, that that to me is what excites me about, you know, about this role and about what we do here, again, gets very granular.

Andrew Lofredo(00:08:48) - And that's what I look for from my team, you know, and the important part, though, is, you know, don't get me wrong, I need to set a very clear structure and guidelines so people know what they're accountable for. Um, but we, we all need that flexibility in our in our job descriptions, right?

Sam Wilson (00:09:08) - Absolutely. How do, how would you say your clients approach the way they invest versus. Just a regular guy off the street. What are what are some different methods or some ways, ways that you see the family office, the high net worth individual, the private investor. What's what's what's their strategy and what's what's a what's a what's something we can learn from what they're doing.

Andrew Lofredo(00:09:34) - Think you know and that's again appreciate the way you worded that because it's something that I look to do with others that I try to bring in on the investments is it's a focus on generational wealth and a longer term hold. Um, you know there's there's a number of different ways to look at it.

Andrew Lofredo(00:09:53) - There's a focus on cash on cash return tends to be, you know, the dividends, the distributions tend tend to be a focus. But there's also you'll often see some patient money. Again, it's not the 3 to 5 year flip. It's okay if I were to buy this property and hold it long term, pass it on to the next generation. What's that going to look like for me? What do I need to invest now? Um, and you know, what will that look like in the future? It also tends to be lower leverage. Um, you know, we, we're often and you know that that allowed us to do you know right as the interest rates were going with one of my clients I did seven revise and the reason we were able to get, you know attractive rates was because their TVs were mostly below 50%, you know, so it's not looking for the quick IRR in terms of just leveraging and then selling based on some appreciation. Not that there's anything wrong with that.

Andrew Lofredo(00:10:52) - I've done that in my life as well. Sure. But their focus tends to be, you know, longer term.

Sam Wilson (00:10:59) - Wow. Okay. And that's very different. I mean, we're working on some stuff right now that's eight, 8 to 10 year and pitching that to investors. You know, it seems long, you know, to a lot of stuff that people are seeing out there and they're like, oh, eight years. I'm like, yeah, it's not it's not that long. I mean, really not.

Andrew Lofredo(00:11:19) - But when they're used to it, you know, a three year or they hear a three or a five year and five years is the long part of it. It it starts it starts to seem long. But, you know, as I'm sure you're seeing, things are it says a lot of uncertainty in the market. And it it it puts us in a position where it takes a little longer to execute a strategy. And you have and you have to build that in you know, you have to build that into it.

Sam Wilson (00:11:43) - Right, Right. And especially after coming off of the high of, you know, all these five year projections that ended up being 18 months, you know, turnaround deals in multifamily and everything we've seen for the last 4 or 5 years, it's, you know, five years does seem like a long time. I like the way you put it there. Patient money, a focus on cash on cash return, lower leverage. Is there anything else or some some shifts that you're seeing kind of even now in the way that your clients are approaching today's market?

Andrew Lofredo(00:12:14) - Well, you know, it's a little tough now with the you know, with interest rates where they are, it's harder to execute. And that's also it's part patience. But sometimes patience leads to waiting on the sidelines too much. So there's that balance between are we are we being patient or are we just out of the game? Right, Right. So I think that's part of it. And then and rightfully so, when you're dealing with family offices, there's there's opportunity costs involved.

Andrew Lofredo(00:12:39) - You know, if we're looking to buy a retail property that the seller still wants to sell it at a at a four cap because they haven't made adjustments to where we are in the market. But now we can just put money in a, you know, in a money market or a CD and make 5%, you know, so it's it's not just real estate family offices. Look at a larger, um, you know, opportunities for to put their money for for their for their wealth. So you know that that comes into play as well is what what you know where else can we put this money and what would our, what would our returns be. Um, so that's you know, that's certainly a factor and I feel like I'm getting that question more. As interest rates have gone up, it was very easy to underwrite when you're doing a deal at, you know, 3.2% as a as opposed to, you know, 5 or 6.

Sam Wilson (00:13:31) - 5 or 6 or Yeah, we're even seeing stuff even a lot higher than that, which is right, Which is crazy.

Sam Wilson (00:13:37) - It's crazy times that we are in so CRE vertical. I mean you guys, you guys have to manage a lot of different people. You know, as you're working with these family offices, you've got you've got everything from what you guys do to asset managers to and I'm not even going to name them all. Maybe you can talk to the unique challenges maybe that that family office comes to you guys to solve as it relates to that.

Andrew Lofredo(00:14:00) - Yeah. And that's that's, you know, really the way we designed this firm. You know, as I was mentioning in the beginning, I've touched just personally have touched a lot of different disciplines within the real estate, you know, within the real estate industry throughout my career. And as part of that, as I grew throughout my you know, throughout the progression, I realized that really all of these are connected and to provide, you know, true quality and value. And it's it's not just doing what you're doing in silo, it's managing all of these disciplines.

Andrew Lofredo(00:14:32) - And that's really where the name Comfort comes from. You know, it's we manage all the district disciplines within the real estate vertical, hence the vertical and that that covers really, you know, there's of course asset management, there's property management, there's leasing, there's construction, there's the acquisitions and dispositions, there's risk management. And that's just within the real estate world. And we and we handle all of that. But then when you're dealing with family offices, there's also working with outside folks. Um, you know, there's, there's the legal, the estate planning, making sure we're communicating with their estate planners. There's tax planning. You know, we, we do regular property accounting, but we're, we're not tax people. We coordinate with their, their tax people. Um, you know, the same thing with, with attorneys. I'm an attorney myself, but as I like to refer to myself as a recovering attorney because, you know, I don't practice. I'm a real I'm a real estate business guy who happens to be a lawyer.

Andrew Lofredo(00:15:33) - But we work very closely with outside counsel on the leases. And there are other agreements, but it's really about managing all of those disciplines. And, you know, our approach is, you know, the way we the way we say it is first, let's define what our objectives are, but then manage all of those disciplines to achieve those objectives. And hence that's where, you know, I say it a lot. It might be corny, but it means. It means something to me is where we connect the dots across the industry because that's, you know, that's really that's our value add, especially when you're working with more of an entrepreneurial or a family organization is we may not do everything in-house, but we try to as best we can, is to help them connect all of those disciplines to really get get after their objectives.

Sam Wilson (00:16:19) - Right. Because the amount of time it takes just to coordinate all of those things can be mind numbing. I'm just thinking about a deal we were doing recently where my attorney was talking to their attorney who was talking to them, who's my attorney is talking to me and we're going back and forth and trying to make and it was just a single purchase and sale agreement.

Sam Wilson (00:16:36) - I mean, it was not that hard, but it was still 20 emails and a lot of like, hey, there's subparagraph B 0.9. You're like, okay.

Andrew Lofredo(00:16:42) - This is.

Sam Wilson (00:16:43) - So doing what you guys are doing, I can only imagine brings incredible value to those family offices because this is this is not just one deal. This is at scale. And you really, really need to be you guys in the quarterback position running, running the whole thing.

Andrew Lofredo(00:16:58) - Yeah. And that's the way I prefer it. I mean, sometimes it obviously creates, you know, stress. But you know, ideally we do asset management and property management generally. I want to do both, you know, not, not, you know, or just the asset management we will sometimes do for select clients, just property management. But being in the driver's seat or at least having a seat at that table is is our value add. But it also makes my life easier because I can come in and and quarterback it and at least try to try to drive it as opposed to you can sometimes end up chasing your tail if you're not in control of the situation.

Andrew Lofredo(00:17:36) - I can.

Sam Wilson (00:17:36) - Only imagine. Andrew This has certainly been insightful. I do appreciate you taking the time to come on the show today. You've told us a lot. Well, your history in and of itself, of just what you've done in the real estate space is really, really cool. You've given us some nuances to how the family offices think into what they are investing in right now and kind of the strategies they are taking. The idea of generational wealth and thinking about it from that perspective I think was a really cool point you made there as well. But certainly appreciate you coming on the show today. This has been great. If our listeners want to get in touch with you and learn more about you, what is the best way to do that?

Andrew Lofredo(00:18:06) - Well, you can certainly check out our website. It's it's CRE vertical. You know, there's a link to my LinkedIn there as well. You know, feel free, of course, to fill out one of our forms and contact us. We have a book, a call if somebody and it's a free consultation, if somebody wants to talk to us or of course subscribe to our newsletter and it's fairly easy to find me on on LinkedIn, which is probably where I'm most active from a social media standpoint.

Andrew Lofredo(00:18:32) - So it's just. Andrew Loredo And you know, again, happy to, happy to connect with anybody on that platform.

Sam Wilson (00:18:41) - Andrew, thank you so much for your time today. I certainly appreciate it.

Andrew Lofredo(00:18:44) - Yeah, thank you. Glad to be here.

Sam Wilson (00:18:46) - 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 Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.

Today's guest is Mason McDonald.

Mason is a former hospital CEO turned full-time land flipper that utilizes systems, people, and processes to earn massive profits and invest into commercial real estate.

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Getting Started in Land Flipping [00:01:16]

Becoming a Hospital CEO at 26 [00:02:19]

Finding Success in Land Flipping [00:04:40]

Different types of land and their profitability [00:09:46]

Managing the business through efficient processes [00:11:09]

Using other people's money for deals [00:17:28]

Access to Institutional Capital [00:19:20]

Investing in Commercial Real Estate [00:22:39]

Managing Volume Business [00:24:48]

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Connect with Mason:

Linkedin: https://www.linkedin.com/in/mason-mcdonald-748110113/

Facebook: https://www.facebook.com/masonm1/

Web: https://www.coachingwithmason.com/

Connect with Sam:

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

Facebook: https://www.facebook.com/HowtoscaleCRE/

LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/

Email me → [email protected]

SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson

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

Mason McDonald (00:00:00) - Whenever I got out of the corporate environment in health care, which is the most overregulated industry in the United States, I got creative. And that's where I kind of shot myself in the foot. I didn't get any deals for four months because I was texting and calling and doing all this fun, creative stuff. Then I sent more mail and I got five more deals that made me another 100 grand, you know, right after that. So where I've shifted my approaches, you know, don't get creative until you've worked a system to death, you know, copy and paste what other people are doing, because it works. You don't need to be creative in real estate to make tons and tons of money. You just need to do what works and replicate it and, you know, outsource your and delegate all the stuff you're bad at. Welcome to the How to scale commercial real Estate show.

Sam Wilson (00:00:44) - Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.

Sam Wilson (00:00:54) - Mason McDonald is a former hospital CEO turned full time land flipper that utilizes systems, people and processes to earn massive profits and invest in a commercial real estate. Mason Welcome to the show.

Mason McDonald (00:01:05) - Sam It's so good to be here.

Sam Wilson (00:01:06) - Absolutely. Mason The pleasure is mine. There are three questions I ask every guest who comes on the show in 90s or less. Can you tell me where did you start? Where are you now and how did you get there?

Mason McDonald (00:01:16) - Heck yeah, yeah. So as you mentioned, I was a hospital CEO that stumbled across land flipping, bought my first deal in November of 2021, sold it in early 2022, and made a profit of 115,000 on my very first deal, which allowed me to prematurely. I had quit my job and jump into this full time. So now, you know, a year and a half in created a business that should have an EBITDA right around one and a half to $2 million this year and, you know, have a full time employee that's managing it for me.

Mason McDonald (00:01:51) - And now I'm focusing on bigger, badder stuff like commercial real estate, raising money, lending money, all that fun stuff.

Sam Wilson (00:01:57) - Man, that's really cool. Let's talk let's talk about this. I see here, for those of you that don't know and I've never actually talked about this on the show, I always just asked this question just to get to know our guests. I always ask, what's one a fun factor, a surprising view about you? And the guest will share that with me there in the in the kind of onboarding section. And it said that you were a hospital CEO at the age of 26.

Mason McDonald (00:02:19) - I was. And I had the blood pressure and health related issues of someone that was, you know, 62 instead of 26.

Sam Wilson (00:02:28) - Right, Right. What how does one become a hospital CEO at 26? I mean.

Mason McDonald (00:02:35) - Yeah. So I you know, I followed the traditional route. You got a good undergraduate degree, got a master's degree and then worked my way up for a large hospital management corporation, went from, you know, being a resident to having 90 employees in my second year to having, you know, I was in my third year and then CEO in my fourth year, got the job offer when I was 26, had just added a lot of value to the company, had, you know, younger, more innovative approach to increasing profit, reducing expense and treating your employees and patients.

Mason McDonald (00:03:09) - Right. So yeah, had a lot of success in corporate America, which is why people think I'm crazy, that I, you know, made it to the top and jump jump ship, you know, a year after being a CEO.

Sam Wilson (00:03:20) - Yeah. So let me I'm bad at math here, Mason and I'm just doing working back 26 minus four years working at the hospital puts you at 22. How did you get an undergrad, a master's degree and all of that by the age of 22, What year did you graduate or how old do you mean graduate High school?

Mason McDonald (00:03:37) - I was a 17 when I graduated high school. My parents just started me, started me in school early. I don't know if it was I was smarter, had too much aid, and they needed to get me out of the house. So school was always kind of easy for me and but I'm more of the entrepreneurial business type, which is why, you know, I wanted to be a doctor originally and made that pivot my senior year of college to, you know, I have an undergraduate neuroscience degree with a premed concentration that, you know, beyond being able to sound fancy and sound smart, never use it anymore.

Mason McDonald (00:04:10) - But yeah, yeah, I was always young, didn't drink alcohol till my senior year of college. So good for.

Sam Wilson (00:04:17) - You. There's a lot to be said for that, man. That's. That's a lot of moving. Moving pieces and. Yeah. Good for you. You're a lot smarter than I am, I promise you that. But you got to the top and you found out there's nothing there. And you said, okay. Yeah. Go do land flipping. How did you stumble across that and why land flipping versus the 1000 other possible ways that you can enter the real estate space?

Mason McDonald (00:04:40) - Yeah, absolutely. Yeah. So made it to the top. And I was I'm a healthy guy, you know, active, decent diet and everything. Hypertensive stage two blood pressure for people listening that my blood pressure was running 165 over 100 which is you know and I worked in a hospital. So that's not not a good look. If the CEO is dying from health conditions in their 20s, from stress.

Mason McDonald (00:05:03) - I was working all the time, sleeping, none So always invested in or interested in real estate. Listen to all the bigger Pockets episodes, read 100 books about real estate and everything and just couldn't get started. I'd saved up some money, was actually going to go invest in a syndication opportunity for a townhome development in Colorado Springs, and the guy that was pitching it also told me that he flips land and he was making about 60 grand a month on his notes that he owner financed on land. And I said, Well, that's more money than the 8% in three years that you're promising me on this syndication deal. So, you know, did did what you know, everyone should do is I invested in education and land flipping. And yeah, that first deal kind of broke my brain of making 100 and 114, 5 or 115 grand on my very first deal. So yeah, that right there broke my. Brain and made me realize, Oh crap, I can make a lot more money with a lot less stress and a lot less work.

Mason McDonald (00:06:01) - You know, flipping the land.

Sam Wilson (00:06:03) - Right, Right. No, that's. That's really, really cool. Is it was it the gambler's curse? Where the first time you go in gamble, you make a pile of money, and then from then on, you just get just get get it handed to you. Or have you found a way to repeat those sort of return profiles over and over.

Mason McDonald (00:06:21) - Repeat over and over. But with that being said, you know, I stopped doing what made sense whenever I do it. So, I mean, I, I target people that have owned land for a long period of time and I direct mail market. And, you know, whenever I got out of the corporate environment and health care, which is the most overregulated industry in the United States, I got creative. And that's where I kind of shot myself in the foot. I didn't get any deals for four months because I was texting and calling and doing all this fun, creative stuff. Then I sent more mail and I got five more deals that made me another 100 grand, you know, right after that.

Mason McDonald (00:06:55) - So where I've shifted my approaches, you know, don't get creative until you've worked a system to death, you know, copy and paste what other people are doing, because it works. You don't need to be creative in real estate to make tons and tons of money. You just need to do what works and replicate it and, you know, outsource your and delegate all the stuff you're bad at.

Sam Wilson (00:07:14) - Right. Well, let's talk We'll get we'll get we'll get to that. How did you educate yourself on this space?

Mason McDonald (00:07:20) - Yeah, I took one of those land flipping courses and then read the books on it, you know, The Dirt Rich by Mark Podolsky and listened to all the podcasts and everything. So I paid for a course and love it, you know, my, my mentor who took the course, we own a commercial building together. He's a good friend and everything. But as I was going through it, I was like, Man, I feel like I just bought snake oil at the county fair because this doesn't seem legitimate.

Mason McDonald (00:07:43) - Legitimate? It doesn't seem real, but.

Sam Wilson (00:07:45) - Right, right. It's funny because I was explaining for those of you again, who are listening that they don't know everything. Of course, we don't talk about everything we get involved in because some of it's just stuff that's you know, there's there's the investments we talk about to our investor base and then there's the stuff that I do on the side that's just kind of like, hey, this is fun to, you know, to go invest in. And land is one of those one of those things where it's like, Oh, hey, you know what? There is an opportunity to generate sizable returns inside of the land space. But what were some of the things maybe in those first four months? I know you mentioned, um, you mentioned that you were trying to get creative, you were doing cold or you in cold calls, you were doing all the different texting, all this different stuff, and you figured out that everybody in the land space says, just go back to direct mail.

Sam Wilson (00:08:27) - Yeah. So. So what, what, what? I guess how much money and how much mail did you send before you ever got your first deal?

Mason McDonald (00:08:35) - Uh, I sent 1200 pieces of mail to make that first deal happen and I'd gotten other deals, but I passed up on them because I didn't think the returns would be as decent. I mean, even now I've got probably 2 or 300 in our cold lead section where we could make money on it. But, you know, if it's buy for 3000, sell for 5000 after, you know, title costs, which I insure every purchase and everything like that, it's not worth it, which is why I go for the, you know, the two deals I was talking about just before the show started, we paid 150 for each of them. So 300 total and we're putting them on the market one for for 50 and one for 275, you know, so it's, it's easier to make 100 grand at once than it is to make, you know, two grand 100 times.

Mason McDonald (00:09:18) - Or you can tell I'm not good at math. So which is why big numbers, I'm like, I don't understand big numbers. Let's do more big numbers.

Sam Wilson (00:09:25) - Right? You to take your shoes off for that one. Hey, so let's talk about this. There's 100 different strategies even inside of the land flipping space. There's people that buy infill lots or people that buy rural only. There's people that, you know, buy like you're talking about commercial development sites. I mean, there's there's a bunch of different strategies there. Have you honed in on one in particular?

Mason McDonald (00:09:46) - So not exactly. I stay away from kind of the recreational land just because that's going to typically sit for a while and you have to do a seller finance deal to make it make sense, which I like the quick return on cash. So but all that to say to me, it's just math. I don't care if it's industrial or commercial or vacant residential if if there's transaction volume in the area, you know, meaning properties are selling in the last 30, 60, 90 days.

Mason McDonald (00:10:14) - And if I can get a legitimate comparable analysis from a local realtor that says, hey, it's worth this much, then it's just, you know, a returns game of okay, and you know, which I attempt to double the money from like a HUD to HUD perspective of, you know, buy for 150, sell for 300 type of stuff. But yeah, so I've built out my business to have both the, the volume business of the, you know, ten, 15 K profit deals and the vacant, the vacant land and the infill lots and the nice subdivisions. And Colorado or Arizona's where we work primarily as well as some of these larger deals where it takes more time, where it's a luxury buyer of we got one that just hit the market a few weeks ago, paid 350 have it on the market for 675, where it's kind of a one of a kind product. So that'll take a few months to sell. But if you can kind of stagger your business and also use other people's money, I don't use my own money in deals anymore.

Mason McDonald (00:11:09) - Um, you know, that's kind of how we built the business. So Jack of all trades master None.

Sam Wilson (00:11:14) - Yeah, let's talk about that. And I like the idea you're talking about the volume business and then also doing the bigger, the bigger deals, because you got to I'd imagine you got to you got to catch the any fish that makes sense. Small fish with the big fish and help you take those down. But how do you how do you manage all that? And then I want to get into the money side of things. So yeah, you manage it from a people and processes perspective because there's a lot of mail to send, There's a lot of data to dig through. There is a lot of phone calls to return and or answer. There are title companies, there's money wire. I mean there's just all these little it almost boils down to a lot of administrative stuff, I would imagine. How do you make that?

Mason McDonald (00:11:54) - It adds up. So, you know, for for anyone in manufacturing or health care that's listening, I have a lean Six Sigma black belt, which is a process improvement methodology, you know, founded by Toyota, so obsessed with efficient processes that reduce waste and eliminate variation.

Mason McDonald (00:12:10) - So I, I pull the data myself now. And since I have such a wide net that I cast, it doesn't take me a lot of time. I send neutral letters. I don't do the blind offers like a lot of people do. You know, I send postcards. I'm the guy that sends the silly postcard of, you know, I want to buy your land for cash. You know, stop paying your property taxes, get paid for your land, stuff like that. So that doesn't take a lot of time to send five, ten, 15,000 letters a month. I have a full time acquisition manager that's salaried plus commission where paying him, you know, not not an overly competitive salary, but a very substantial commission to manage every other aspect of the business. And he's way smarter and way better at it than I am. So he manages it all. We have a call once a week, kind of going through the leads and everything, and he sends me stuff for approval and then he submits it to title and coordinates with the realtor and everything like that.

Mason McDonald (00:13:00) - So for me, it's kind of just, Hey, send a wire this date, which, you know, go online, send a wire really quickly, and then, you know, signing any necessary documents with the title company. So it's it's definitely administrative stuff that down the road I want to outsource when I feel more comfortable, you know, because he just started about a month and a half ago. But yeah, I hate to say it, it sounds as easy as it is, but it is relatively easy to keep it managed. You know, pull the data from prop stream. I use Pebble as my CRM, which you need a CRM if you're doing this much volume. Otherwise you're going to do what I did, which I used Excel for the first nine months and I lost all sorts of leads because I might be decent Excel, but you know, if you have a crayon box CRM that makes it super easy to to do everything, do that. So that's kind of the highest level of how I keep it organized.

Sam Wilson (00:13:51) - How did you find your lead man or call me your lead manager, your acquisitions manager? How did you find that person?

Mason McDonald (00:13:59) - Yeah, I posted on LinkedIn that I was hiring. I've got a pretty big professional network on on LinkedIn and got I got 20 or 30 applications within the first week or two. So of all of them I looked at who would make me the most uncomfortable to hire. And it was by far this guy because he's got 20 plus, 20 plus years of experience in real estate and, you know, commercial, you know, finance, doing finance for big banks, doing land acquisition and multifamily acquisition for large companies. And he runs his own syndication business on the side. So I was like, this guy makes me really uncomfortable to hire because he's way smarter than me, which is always what I recommend doing is hire people smarter than you and it's going to break your mind and change all the paradigms you have because. Then you don't realize what's possible.

Sam Wilson (00:14:48) - Y y love that. Thank you.

Sam Wilson (00:14:50) - Thank you for giving the clarity on who you hire and why. And I don't really heard it expressed that succinctly. It's hard to hire someone that makes you uncomfortable. Think that's really, really cool. Talk to me about the types of sellers that you find. Why? Why are these people selling this land at discount? And then we'll start there.

Mason McDonald (00:15:12) - Yeah. So I try to reduce and simplify everything as much as I can. I'm a pawn shop for land. I buy land for cheap and I sell it for more. I have people that are motivated sellers and I have people that are unmotivated sellers where for me, it's not an emotional decision. It's a math decision of whether the return makes sense. So why people sell to me? You know, I think we're a legitimate business where we can send proof of funds. So many people aren't going to close those deals. You know, and there's plenty of deals I haven't closed. But you're able to communicate and say, hey, this just doesn't fit our buy box.

Mason McDonald (00:15:43) - Sorry. You know, I can refer you to someone else. So I've had sellers as sophisticated as former hedge fund managers out in Connecticut to as unsophisticated as someone that inherited this land that their family's owned for 100 years. So it's just whether or not the price works for them of a lot of people, you know, and depending on your marketing campaign and your tactics and everything, you know, I went hard and heavy on the property tax marketing campaign and people were like, oh, shoot. Uh, you know, property taxes just went way up in Colorado. I want to get rid of this land and stop paying it. So, you know, we come up with a price that's fair. And I always tell everyone or my acquisition manager now tells everyone of, Hey, if you want top dollar, go to a realtor. If you want quick cash and convenience, come to us. You know, let us get this headache off your hands. You know, we'll solve your probate problems. We'll solve whatever problems you have.

Mason McDonald (00:16:31) - And, you know, then you won't have to think about it anymore. It's the same reason people use a pawn shop of, you know, they, you know, had a divorce or they had some something or something, and they don't want to deal with selling it themselves. They're going to just get rid of it to get it off their mind. So. Right.

Sam Wilson (00:16:45) - Yeah, no doubt. No doubt. The same as same pawn shops or even the estate sale analogy or just like bring them in, they auction everything off and then you're done.

Mason McDonald (00:16:54) - Oh, yeah. So it's not always the motivated seller of, you know, I've had people that are like, Hey, I need to claim a loss this year. You know, I'll sell it to you at a discount to claim a loss. So, you know, and the person I'm referencing that did that, you know, we did a I bought two pieces of land from him. You know, I had offered him over over double of what you know, he we ended up walking away with and that's making me I don't know another six figures on those two deals.

Sam Wilson (00:17:19) - That's awesome. Let's talk about the money side of it. You mentioned that you don't use your own money anymore. You use none of your own money or you predominantly use other people's money.

Mason McDonald (00:17:28) - I use other people's money. So I have a, I don't know, maybe ten that I'm selling right now that I have my own cash in right now. But for me, I think it's this. It's a difficult balance for someone that has a relatively high level of understanding of finance, of I know having a ton of cash on hand is not great, but me feeling super liquid helps me sleep better at night. Sure. So I'd you know, I'm happy to give up money in the deal to help, you know, the three F's of friends, families and fools investing with me make insane returns where an investor just makes 6,062% cash on cash return in 71 days. You annualize that. That's over 1,000% just doing a JV deal with me. So it's exciting to be able to help those people. And then yeah, so whenever all of these other ones sell that I have my own cash in, I just I won't use my own cash for anything besides marketing expense, you know, and just general OpEx within the business to help me sleep better at night.

Mason McDonald (00:18:27) - There's more than enough money for everyone to make a ton of money in this. And if if I sleep better and my returns are less, that's a win for me. I didn't leave a hard job to go get another hard job. Right?

Sam Wilson (00:18:38) - Right. Understood that man. Tell me tell me this. What's the what's been the common structure that you've set up with your JV partners? How do you how do you guys take that down and what do you guys find is fair?

Mason McDonald (00:18:49) - Yeah, it varies on the property and kind of the capital invested, but they're basically funding the entire deal, give or take a few hundred bucks of closing costs coming a little higher or something like that. And I do varying profit splits from, you know, 90, ten, ten to the investor, 90 to me all the way up to 5050, where to me, if I get a deal under contract and it's a big one and don't have the cash or refuse to put the cash in the deal, you know, I'll give up more of a profit split than it's probably smart.

Mason McDonald (00:19:20) - So and the point I'm making on that is part of the reason why I'm able to have success in this business where a lot of people are focusing on the desert squares where you buy for 500 and sell for 1500 and can take take these big deals is one. One of my investor networks couldn't do it without them. But two people will realize in land. One of the reasons it's such a hard niche to get into is you're not going to be able to really get access to institutional capital. If you go to a bank and ask them for a loan on, on, on, on a land flip, they're going to laugh at you where it doesn't matter how much money I made. Since the the asset class is different, which is also a pro because I'm not paying capital gains taxes or short term capital gains taxes, it's taxed as inventory since I'm not making any improvement. So you know, and.

Sam Wilson (00:20:04) - I'm missing I missed that.

Mason McDonald (00:20:06) - Yeah. So for the land flippers out there, which I'm not a CPA, not an attorney, this is what my and my attorney have said, blah, blah, blah is land is taxes, is inventory.

Mason McDonald (00:20:15) - So I'm not paying any capital gains taxes on it. It's just inventory. So I have it set up as an escort where I have to pay myself a fair and reasonable salary. And then, you know, I can buy land for 100 grand for 500 grand, and it's just inventory. So pretty cool. Pretty cool set up there. So that's how it's worked so far from a tax perspective for me. But my investors are happy and since you can't really get access to that institutional capital where I bought a new truck last year for the business and even though we we business had been making money and stuff, I had to have my wife co-sign on it and everything. And but that was a fun perk because I got to buy a new truck and then depreciate it fully last year. So, you know.

Sam Wilson (00:20:59) - Right? Yeah. Those are. Those are those are those are excellent benefits to what it is that we do. So like your ideas on money. Think the other thing is that at some point we all run out of money and I think that's one of the things that early on I was gosh was the first deal I syndicated.

Sam Wilson (00:21:16) - In 19. Yeah, it was 2019 and there was this internal and I was new to the newer, to the commercial real estate space. And there was this internal sort of shame that I didn't have all the money personally to take this deal down. And I was like, Oh, man. Like, I got to go like bring friends and family and other people in on the deal. And yeah, I don't have enough of my own money to actually get this deal done. And now it's like, obviously it's what we do every day as raise money because we're taking down deals that I mean, we just can't possibly begin to think about taking down.

Mason McDonald (00:21:44) - Absolutely. Well, you can't grow in scale. And what's going to happen is the inevitable of, you know, I was tired of that entrepreneurial life cycle where I'd go buy a bunch of land and then I'd go sell it and I'd be like, Man, I'm rich. And then I'd go buy a bunch of more land and I'd look at my business checking account and it's like, Dude, how did you allow yourself to get $12 in your checking account? And then it'd sell and I'd be like, No, I'm rich again.

Mason McDonald (00:22:05) - And I just couldn't do that anymore. Which is why it's like, you know, I'd rather be liquid. And then it gives me more opportunity to invest in, you know, syndications and other deals that are going to give me the tax advantages that land doesn't give me. Because even though it's taxed as inventory, if you're making seven figures, that's that's a lot to pay in taxes. So, you know, the strategy is take that profit. It's a great active business and then take it and go invest it into, you know, depreciable assets like multifamily or like commercial building or, you know, any sort of commercial buildings or industrial or whatever it is.

Sam Wilson (00:22:39) - Is that the long term strategy than to go take your profits from this and park it into passive investments and or your own personal passive investments. Is that kind of the the goal in the long term?

Mason McDonald (00:22:51) - Absolutely. Yeah. I've got I've got one commercial building that I own right now. You know, it's still getting renovated because it's in a small mountain town in Colorado, but it's going to be workforce housing, you know, mountain towns out here that they they're struggling to find affordable housing.

Mason McDonald (00:23:05) - So I enjoy that you're able to help the community provide a safe, low cost, you know, opportunity. That's a rent by the door model. So you end up cash flowing pretty significantly as well. But yeah, so take the profit from land invested in commercial real estate. You know, the one thing I learned about my first deal was it's a lot easier to tackle those big deals than it is the little one. So I'd rather go by, you know? However, big apartment complex over a single family home or small multifamily. So, yeah, take it, take it there. And then also lending money. You know, something I'm getting into now of investing in other people, you know, and allowing them to manage my money for me and then everything else and using it to go have fun, go on vacation and all that kind of stuff too.

Sam Wilson (00:23:50) - Man, that's cool. I love it. There was one one more question. Oh, here it is. I forgot. I forgot what it's going to ask you.

Sam Wilson (00:23:55) - What is like what's the what's a challenge that you're facing inside the land business right now? Like, what's the what's an obstacle that you're like, Man, this is this is something we're working on that I just haven't solved yet.

Mason McDonald (00:24:06) - Yeah, I think for me, um, you know, kind of initial challenges and how they've evolved is so I went from an executive, you know, with hundreds of employees, you know, a couple dozen direct reports and everything to self-employed. So a lot of work wasn't getting done because I was like, Man, someone needs to do that. And then I'd look in the mirror and it's like, Oh, crap, it's me. So I, you know, figured that out and, you know, started working harder and everything like that. But I think for me, it's, you know, effectively managing kind of what we were talking about of the volume businesses versus like the huge business of I've got a ton of those which take more time. And when I look at it and I'm like, Oh, it's only been three weeks since that since I purchased that property, it hasn't sold yet.

Mason McDonald (00:24:48) - So I want more volume in the business rather than more of these big deals to manage that more effectively, I think is one of the biggest challenges. So it's just adjusting My expectation of my cash on cash return per deal doesn't need to be 250%. It can be 50%. And if I can move it way quicker, then then that's perfect. That's money. So kind of adjusting the expectations that I got from the first deal to make it more of a volume business in addition to the other stuff.

Sam Wilson (00:25:18) - Right, right. And last question here for you, and this is again, going back to more the more the operations side of it. But how many of these parcels do you buy, if any, and then end up owner financing those?

Mason McDonald (00:25:29) - I only have a handful of notes right now of the properties. I kind of determine with the realtor whether it makes sense. So it's more the, the rural recreational. I've got maybe ten that I'd be willing to part ways with, you know, from a seller finance perspective.

Mason McDonald (00:25:45) - And the way I look at that is if I sell those on terms one, I'd get most of my cash invested back myself and two, that would sustain all the operating expenses of the business. So I think it's a more property by property approach where, you know, it's just whatever makes sense for your books and your risk level, you know, in case you have to foreclose on someone or, or whatever.

Sam Wilson (00:26:08) - Right. Right. No, absolutely. Absolutely. Mason You've given us a ton of things here to think about today. I love the land business. This is the this is a blast. It's here in your story here and what you've done and how you've done it and you've done it really with a I mean, a pretty light team. It's you and one other person and you've got a rock in business. So I think that's that's fantastic. Thanks for taking the time to come on the show today. If our listeners want to learn more about you or get in touch with you, what is the best way to do that?

Mason McDonald (00:26:35) - Yeah, I'm so happy to be here.

Mason McDonald (00:26:37) - You know, for me, I use LinkedIn the most, so look me up on LinkedIn. Mason McDonald And you know, I help business owners that are looking to get involved in land get started. So I do coaching as well, but I only do it with people that I know are going to be closing deals and being successful. So typically you have to have been a business owner or an executive already. So coaching with Mason and then, you know, you can message me there as well. And if you're looking for investing opportunities, diversify your portfolio either of those places. And we can just chat, chat about land, talk about land all day. So I'm happy to talk to anyone interested.

Sam Wilson (00:27:13) - Sounds good. Awesome. Mason, thank you again for your time. Appreciate it. Have a great rest of your day.

Mason McDonald (00:27:17) - Sam, you did the same.

Sam Wilson (00:27:19) - 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 Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen.

Sam Wilson (00:27:32) - 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.

Today's guest is Farhan Abbasi.

Farhan is the Founder, CEO of Nue Holdings, a real estate private equity and management firm offering investors capital-protected capital growth and income in multifamily, single‐family, coliving, and vacation rental real estate. Join Sam and Farhan in today's episode.

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Lease Types [00:10:08]

Future of the Industry [00:06:35]

Background and Business Launch [00:01:04]

Approaching new markets [00:12:30]

Challenges of scaling [00:17:25]

Investing in yourself [00:18:41]

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Connect with Farhan:

Linkedin:https://www.linkedin.com/in/farhanabbasi/

Web: https://staynue.com/

Email: [email protected]

Connect with Sam:

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

Facebook: https://www.facebook.com/HowtoscaleCRE/

LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/

Email me → [email protected]

SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson

Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234

Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f

--------------------------------------------------------------

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

Farhan Abbasi (00:00:00) - And so what we do is we have a three tier system where the revenues, like I said, it's typically over two x what the regular release would be, right? So the revenues first go toward the operating expenses, including the management fee. And then we have some sort of a rent hurdle, which is not a rent guarantee, but it's it's it's it's a next priority after OpEx. And then once that rent hurdle is met, then there's some sort of a profit split. Welcome to the how to scale commercial real estate show.

Sam Wilson (00:00:32) - Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big. Farhan Abbasi is the CEO and founder of Stay News.com. That's stay in. They specialize in vacation rentals. Farhan, welcome to the show.

Farhan Abbasi (00:00:52) - Thank you, Sam. Great to be here. Absolutely.

Sam Wilson (00:00:54) - The pleasure is mine. Farhan, There are three questions I ask every guest who comes on the show in 90s or less. Can you tell me where did you start? Where are you now and how did you get there?

Farhan Abbasi (00:01:03) - Yeah, totally.

Farhan Abbasi (00:01:04) - You know, I spent seven years at Ernst and Young as an accounting nerd, left as a manager and serving Fortune 500 asset management firms like State Street, Charles Schwab, hedge funds, etcetera. And in my final year, I actually lived out of a suitcase staying at five star hotels in New York, San Francisco, Kansas City, London. When I left the firm, I lived out of a backpack in youth hostels for a year. So I began to understand the spectrum of hospitality. And believe it or not, the most memorable times were not necessarily the ones in luxury, but in uniqueness of experience. And so that inspired me to launch Stay. Newcomb Stay. And which was my Boston trip at the time with the mission of offering shared experiences and personal choice. So the growth of that business led me to launch my investment arm, new holdings and new holdings where I partner with sponsors as code to offer investors access to multifamily, single family and of course, vacation rentals. We also dabble in early stage ventures using our own capital.

Farhan Abbasi (00:02:03) - But meanwhile, you know, Stay Nu continues to grow. We're entering new markets and we deliver higher income and lower vacancies to owners and developers.

Sam Wilson (00:02:11) - That's really cool. So let me get this right. There's two two sides to stay new. It is one is a management company, so it's where you guys go in third party manage for other short term rental owners. And then there's also you guys buy and operate your own assets.

Farhan Abbasi (00:02:27) - That's right. And on the investment side, it's typically with developers where we help in some way advisory due diligence, raising capital. On the management side, it's asset light and we offer, you know, revenue share agreements, profit share agreements. Sometimes we do master leases, but the whole idea is to offer guaranteed or incremental income to owners and with with developers, it would be to shorten the lease up process.

Sam Wilson (00:02:58) - That what what is the explain that to me, because I'm not sure I completely understand what is the missing what is the missing piece or what is the advantage that developers get by working alongside of you? And I'm going to tag on to that question as well.

Sam Wilson (00:03:13) - I'm assuming this is development specifically for a short term rental.

Farhan Abbasi (00:03:18) - It would be a multifamily asset. Typically it's mixed use. It would generally it would be a residential property. And the idea is, you know, the future of of living is not going to be one type of living. It's going to involve long term leases. It's going to involve short term leases, flexible stays and elements of hospitality and different elements. I'm not saying a hotel condo, but I'm not saying a, you know, a short term rental only building either. But I think the future involves flexibility and choice, and that's what we should all like, look for to strive for. So in other words, you know, imagine a multifamily 200 unit where perhaps ten or 5 or 20 of those units have some sort of flexible stay element where people can book for their relatives. You know, you don't necessarily always want your brother in law or a sister in law to live in your apartment. But you know what? Hey, I'll book one for you just down the hall or whatnot.

Farhan Abbasi (00:04:22) - It's that type of thing. And yeah, I mean, it's you know, I think that essentially answers it kind of delivers an unmet demand think in many neighborhoods around the world, around the country as well.

Sam Wilson (00:04:34) - Absolutely. That'd be really great. You know, I can only imagine how great that would be, especially and I'd imagine there's a certain a certain class of apartment where that would work or multifamily property where that would work, where it's, hey, my brother in law is going to the town or their family's coming to town. Let's rent one of the furnished units. They can take that one for the weekend. Right, Right. So tell me. Yeah.

Farhan Abbasi (00:04:54) - And that was just one use case, right? You have all kinds of other use cases as well. And you do have different, you know, high end, low end type of options, you know as well.

Sam Wilson (00:05:04) - That's very cool how when you when you thought through this kind of idea, you know, I guess living out of a suitcase saying to yourself, okay, people are looking for experience, people are traveling differently, staying differently.

Sam Wilson (00:05:17) - How did you synthesize this into a cohesive business?

Farhan Abbasi (00:05:22) - Right? Yeah. You know, it all it all came down to the value, to the different stakeholders, right? So with the, with, with, with the guests, they want a flexible stay experience. They want cleanliness, they want, you know, kind of a good value. So, you know, depending on the market with with owners, they they are looking for either guaranteed income or incremental income. And so you kind of just kind of put those two needs together and deliver a product that meets those needs. Of course, you know, neighborhoods want some a place that's safe, you know, and and calm and clean. So you kind of have measurements for not having parties and that sort of thing to kind of keep it clean. But yeah, I mean, you know, it's really about finding those unmet needs and putting together a service. And yeah, we have over a decade of experience, you know, doing this where top ten in Boston and we're ready to expand outside as well.

Sam Wilson (00:06:25) - That's really cool. What what would you say the future of your company is like? Where where is this Where is your company and the industry as a whole going?

Farhan Abbasi (00:06:35) - Yeah, totally. So, you know, the the the industry is generally it's growing. First of all, you know, there's a crazy statistic that I read someplace that said 70% of bookings around the world are still done offline. And what I mean by offline is that there, you know, perhaps, you know, they're done by cash or cheque or they show up and they swipe the card, but they're not booked on the website prior to arrival. And what that tells me and by the way, that number is shrinking. It's shrunk a lot in the US, but it's still I still speak to people that only take cash or maybe they get mailed cheques. Believe it or not, they still exist. So, you know, that spells an opportunity for me to like, modernize the industry and and feel like, you know, we're at the forefront of that.

Farhan Abbasi (00:07:30) - What we're looking to do is enter into tier one and two markets across the country and then the world. We have a plan to franchise. We're building that up as well. We want to offer entrepreneurs the opportunity to land and expand in their own markets anywhere in the world and along the way, we we plan to build some some tech that would support all of the different stakeholders that had mentioned. Right, creating a guest care, property care, client care for our property owners and then, you know, spin off potentially to build a service for the vacation rental of managers in the world.

Sam Wilson (00:08:13) - Right. Wow. So you think I mean, not do you think, you know, that there is just still an incredible amount of untapped potential in this in this industry? Oh, yeah.

Farhan Abbasi (00:08:23) - It's growing. And as you know, you know, asset classes around, you know, around the world or I guess in the US especially, you know, multifamily is kind of almost priced to perfection. And there's a lot of shakeup going on right now.

Farhan Abbasi (00:08:36) - But, you know, perhaps there's opportunities in office and retail, but it's it's kind of like a one of those uncertain environments. Vacation rentals, on the other hand, you know, of course, it certainly has its its impact in terms of global recession. And the pandemic was a tough one. But generally speaking, it's for yield chasers, right? If for people who are seeking yield and higher return with some capital protection, a reasonable level of it, it's a really good deal from a risk return perspective. So yeah it's it's think it's it's just compared to all the other asset classes it's think it's just a great one.

Sam Wilson (00:09:21) - Oh absolutely. Absolutely. From a from a yield standpoint it's been in the right, the right places and the right markets. And I think you mentioned that you said tier one and two markets. It's been you know, I've got some some friends in the business and I personally am not in it, but it's we're doing very well. We're doing very well doing. I think that's that's one of the cool, cool parts about it.

Sam Wilson (00:09:42) - Was going to ask you what was it We're losing my train of thought here. I don't know. Let's let's jump to this one. Here's another one I had for you. You had mentioned this early on on your kind of the different types of leases that you guys are.

Farhan Abbasi (00:09:58) - Yes.

Sam Wilson (00:09:59) - Owners. And there was there was a whole bunch of them that you mentioned there. How do you know which one is right for each particular situation? And can you explain? Yeah, man.

Farhan Abbasi (00:10:08) - Yeah, totally. Sam So, you know, leases are higher risk, higher return. They also don't have the best rep in the industry. But, you know, hotels have been doing it for the longest time. They take on master leases. So, you know, there's a term called lease arbitrage, right? You know, we typically look at leases as a almost as a way to enter a market and also opportunistically where if the deal makes sense and the owner is on is not interested in and sharing in that higher return.

Farhan Abbasi (00:10:48) - Right. They just want to fill their their units and get a guaranteed amount that will look at that as a way to, you know, and you know, typically, you know, kind of open kimono right here. You know, a good rule of thumb is if the the revenue is about two X or more of what the lease cost would be. And then, um, so anyway, if you think about that, like, you know, for the owners, we try to generate an incremental income of 10 to 30% or more by sharing them, sharing the profits with them. But again, you know, there's actually a third there's a hybrid. So we talked about a lease guarantee. We talked about a revenue share where they share in that upside. There's a third that we do. It's a bit of a private equity concept that we've incorporated into old world property management, which is waterfall. And so, you know, and you know, as an investor, you know about it. But essentially what.

Farhan Abbasi (00:11:52) - This, this this meets the need for an owner that says, hey, I want some of the upside, but also want some downside protection. And so what we do is we have a three tier system where the revenues, like I said, it's typically over two x what the regular lease would be. Right? So the revenues first go toward the operating expenses, including the management fee. And then we have some sort of a rent hurdle, which is not a rent guarantee, but it's it's it's it's a next priority after OpEx. And then once that rent hurdle is met, then there's some sort of a plot profit split.

Sam Wilson (00:12:30) - That's really, really cool. I haven't heard of people employing that method yet. I think that's. That's a lot of fun. How do you approach when you're going into a new market? Like what's the what are the steps you you are taking to scale your company in a new market?

Farhan Abbasi (00:12:46) - Yeah. You know, it's like said, we're looking at building a franchise system that'll really scale.

Farhan Abbasi (00:12:52) - Think right now we're in the expansion phase where we are looking at we're having conversations with developers that have a need to fill, you know, 100, 200 units. And we can we can probably, you know, reduce their sub timeline in half by taking over a portion of their properties that gives them generates income right away, hits the ground running. We can actually set up a unit in about 2 to 4 weeks time frame, whereas typical developments look at a 1 or 2 year time frame to fill up. So as you can imagine, you know, we can we can take over vacant units like with the snap of a finger almost. So you know that those are the kind of conversations we're having now with with building communities and also, um, also targeting individual owners that have, you know, 1 to 40 unit portfolios that also are looking for vacancy management. But perhaps they're interested in that waterfall that I mentioned where they want some upside. They also want some downside protection. They own single family homes, condos or small multis that are, you know, duplex triplex type of stuff.

Sam Wilson (00:14:15) - So let me just get this right. You go to a developer and you say, Hey, Mr. Developer, you've got a 200 unit property that you're developing. We can cut your lease up time in half. Right. And you do this by taking on how many of those? 200 units. How many of those do you take on and say, Hey, we can turn these into short?

Farhan Abbasi (00:14:34) - Yeah, that's right. The answer to that depends on the developer's appetite and the zoning, you know, in that area. Right. And by the way, this is not all short term rentals where, you know, we're talking medium term rentals one month or more. We're talking co-living units where they're annual leases but split up on a permanent basis. Um, we, we employ all of these strategies to ensure that the property gets its highest and best use and think that resonates with developers. And so when they hear that, they obviously have some questions and from from that conversation we're able to kind of bring it down to how many units make sense.

Farhan Abbasi (00:15:21) - But I would say that it typically part of the overall portfolio of a mixed use asset where first floor is retail. You know, then you have like floors 2 to 5 being long term rentals of which we could take half a floor, for example. It could be a section, it could be sprinkled around. So we're flexible on the way we enter into a building. It's really kind of a partnership, obviously, and we make sure that there's value for all parties.

Sam Wilson (00:15:47) - Got it. That's really, really interesting. How how do you go about locating or finding those developers that you want to work with? I mean, it's got to be a unique probable problem. Imagine a unique conversation and a unique developer that is, you know, willing to have these conversations with you, right?

Farhan Abbasi (00:16:05) - Yeah. So I would say that, you know, I have two advantages. One is I'm part of the Harvard network. And I you know, I did an advanced real estate program there. I made 33 very close friends from my class, all of which who are very well connected to the developer networks around the world.

Farhan Abbasi (00:16:25) - I mean, some of these guys that I'm personally hang out with are building $100 million buildings on a per building basis. And and then and then the second piece is that, you know, we you know, I involve my my new holdings my private equity arm is partnered with with syndicators. And in these type of multifamily syndications, they're not necessarily developments, but they're also syndications that perhaps have a bit of a of a they have a mandate to to to force higher income. Right. And so as a as I form these partnerships, I'm able to involve stay Newcomb as an option for as part of their business plan.

Sam Wilson (00:17:14) - Got it got it. I love that. Let's talk about this. What's one of the biggest challenges maybe you have faced in either scaling your company or that you guys are facing right now? And how do you plan on overcoming it?

Farhan Abbasi (00:17:25) - Yeah, you know, love this question. I would say it's to balance the multiple stakeholders needs, right? So we flex properties to its highest and best use.

Farhan Abbasi (00:17:34) - We have to deliver above market income to our property owner, clients and investors. We also have to provide a flexible experience to our guests and residents and then of course, our neighbors. We join them to make sure that the communities are safe, calm and clean. Um, and then finally, you know, have to offer growth opportunities to our global staff around the world. So it's like walking a tightrope to ensure value for all stakeholders, right? But when done right, the view is great.

Sam Wilson (00:18:05) - That's really, really cool. Yeah, it's funny. Who was it? Somebody came on the show a long time ago and they said. They said it's not. It's not when you scale or when you. When you grow your company, the problems go away. They just change. And so, you know, it sounds like for you, these are it's just the iterations of your company and going, okay, now we've got to take care of everyone involved in this picture. Yeah. And that's maybe something earlier on that you didn't have to deal or handle or even think about at that point.

Sam Wilson (00:18:32) - So that's very, very cool. Thanks for taking the time to share that. If somebody wanted to follow in your footsteps, what would be some of the things that you would tell them to do now?

Farhan Abbasi (00:18:41) - Yeah, totally. You know, so it I remember having two pieces of similar advice like this where one was, uh, one was someone. It was from someone that I admired but didn't like the advice. And then then the opposite is somebody who didn't like and didn't admire. But looking back, man, I love, love the advice. And and so the so, so here we go. The good advice was to invest in yourself. You know, you have 30,000 in savings. Invest in yourself. You have 40 hours a time, invest in yourself. You have a cucumber in the fridge, eat it, and then invest in yourself. You know, launch a business, you know, stay with me. Invest in yourself. Right. Um, but and then the worst advice, by the way, was to, you know, don't take risks in your 20s, be heads down, make moves in your 30s.

Farhan Abbasi (00:19:32) - But, you know, as an entrepreneur, you know, I have to disagree with that advice. Right? So so I would say long winded, Sam. Like my my advice is to don't listen to advice and just fucking do it right and question who you admire and try everything you desire. And if you have the time to make it right.

Sam Wilson (00:19:51) - Got it, man. Absolutely love it. Foreign. This has been absolutely enlightening. I love the way you guys are tackling this. It's a it's a unique, a unique approach, I think, to the space. You know, we've had lots of people come on and talk about short term rentals and they get pretty kind of streamlined into doing just that. But you found a way to scale your management company, to scale the types of assets that you're turning into short term rentals. I think that's that's one of the coolest parts about this conversation is that it's not just the single family home with six bedrooms in the Smoky Mountains. And this is what we do not there's anything wrong with that.

Sam Wilson (00:20:25) - But, you know, you've got a unique product to think that you're bringing to the market and a unique way of tackling some other people's issues. And I think that's one of the things that some people maybe if you're listening to this, like find a way to tackle somebody else's problem. I think you've done that here for the developers and made it a real win win. So that's very, very cool. If our listeners want to get in touch with you or learn more about you, what is the best way to do that?

Farhan Abbasi (00:20:50) - Yeah, well, you know. Well, first off, appreciate all those thoughts. Man, that was amazing, Sam, to to join our effort. You know, first of all, like, as a property owner or developer, you know. Ah, my email is Farhan FA at Newcomb. And, and, and if you're interested in any, you know, kind of we're looking for salespeople as well. If you're interested in joining our growing global workforce email talent at new holdings and holdings.

Farhan Abbasi (00:21:24) - Com and yeah like you know if you have any questions at all any clarifications to the audience I'd love to be of service You know if you're looking to start your own business keep in touch and look out for us because we're looking to find, you know, deliver ways to help as well.

Sam Wilson (00:21:39) - That's awesome. Farhan, thank you for coming on the show today. I certainly appreciate it.

Farhan Abbasi (00:21:43) - Awesome. Thank you, Sam. Cheers.

Sam Wilson (00:21:46) - 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 Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.

Today's guest is Graham Sowden.

Graham is the Chief Investment Officer at RREAF Holdings. He has been directly involved in the sourcing, underwriting, and acquisition of over $1 billion in asset value including over 11,000 multifamily units. Join Sam and Graham in today's episode.

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Growth of Reef Holdings [00:00:26]

Investing in secondary and tertiary markets [00:03:42]

Challenges in the multifamily market [00:09:14]

The Risks of Short-Term Investing [00:12:27]

Reef Holdings' Portfolio [00:14:20]

Advice for Starting in Real Estate [00:19:06]

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Connect with Graham:

Linkedin: https://www.linkedin.com/in/graham-sowden-186192138/

Web: https://rreaf.com/

Connect with Sam:

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

Facebook: https://www.facebook.com/HowtoscaleCRE/

LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/

Email me → [email protected]

SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson

Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234

Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f

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

Graham Sowden(00:00:00) - And, you know, they've got no profit participation, so they've got a fixed kind of rate of return and eight current and eight accrue. And then we brought $30 million of common equity that has all of the upside, um, on a $580 million transaction and the weighted cost of capital on that deal was five and a quarter. So you've got basically 97% leverage at 5.25%. Welcome to the How.

Sam Wilson (00:00:26) - 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. Graham Soden is the chief investment officer at Reef Holdings. Graham, welcome to the show.

Graham Sowden(00:00:44) - Thank you. How are you doing, Sam?

Sam Wilson (00:00:46) - I'm great, sir. Cannot complain. Graham. There are three questions I ask every guest who comes on the show in 90s or less. Can you tell me where did you start? Where are you now and how did you get there?

Graham Sowden(00:00:55) - Oh, gosh. 90s. Um, so started my career and the commercial real estate space at Reiff back in 2016.

Graham Sowden(00:01:07) - Um, I was kind of in a, you know, floating analyst role at the time. I was probably the eighth or ninth employee. Um, we were, you know, a much different, much smaller shop at the time. I pretty quickly transitioned into the director of acquisitions role and ran our multifamily acquisitions platform for about six years. And then towards the end of 2022, um, took on a new role within the organization as chief investment Officer.

Sam Wilson (00:01:45) - That is fantastic. So you said you were employee. Let me get this right. 8 or 9.

Graham Sowden(00:01:51) - Yeah. Okay.

Sam Wilson (00:01:53) - So I'm looking right now at your company website and just a random stab would put it at 40 or 50 people at this point.

Graham Sowden(00:02:01) - So we are somewhere between 400 and 500 employees nationwide now. And so that's, you know, inclusive of our property management company and all of the on site, you know, the leasing agents and maintenance folks. Um, but we've got about 120 here in our corporate offices in Dallas. Um, and then the rest kind of spanned throughout the South and southeast.

Graham Sowden(00:02:28) - So we've, we've, we've come a long way since, since 2016.

Sam Wilson (00:02:33) - Yeah, that's, that's pretty explosive growth. What do you attribute that to?

Graham Sowden(00:02:39) - Um, you know, I think that we have always been, you know, kind of at the forefront of different investment theses and strategies. Um, and, you know, it was a lot of being in the right place at the right time. We back in, you know, 15, 16 kind of identified multifamily, um, in the south and southeast, particularly in secondary tertiary markets as being, um, you know, desirable, you know, investment kind of strategy for us. We were buying, you know, mostly B kind of B-minus type product in the early years. Um, that all had, you know, a light kind of value add component to them. Um, and we found that we were able to buy it 200, 250 basis points, kind of wider cap rates than you would if that exact same asset was located in one of the primaries or cause.

Graham Sowden(00:03:42) - And so, you know, we were chasing yield and our investors were chasing yield before any of the institutional groups had really, you know, transitioned, think, um, into those markets. And so, you know, we were, we were buying it seven and a half, eight caps. And you know, ultimately in 2020, 2021, we were able to exit a lot of those deals that, you know, three, three and a half caps. So tons of thread, um, built up a really, really good reputation in the marketplace with owners and, and, and brokers and built up a really strong track record for our investors. And you know, it was just kind of natural evolution and growth.

Sam Wilson (00:04:29) - Do you feel like it was just right time, right place situation and you guys seize that opportunity or was there something else you guys did to really create such incredible value?

Graham Sowden(00:04:41) - Um, mean that would be an an easy way of looking at it. But it was, it was definitely more strategic and more defined than that.

Graham Sowden(00:04:52) - Mean we did have kind of the foresight at the time to go in and aggregate, you know, a big a bunch of scale and all of these kind of overlooked markets and. Had the conscious thought that, you know, if we scale in all of these markets that the institutional groups aren't really looking at but create, you know, enough valuable and prove out this as a viable strategy, you know, then these bigger institutional groups will be able to come in and write the bigger checks that they historically hadn't been able to write in these markets. Right. You know, as we built out, you know, a larger portfolio and that's kind of exactly what we saw happen.

Sam Wilson (00:05:39) - Wow. That's that's that's really great foresight. And that's that's a tough one. Um.

Graham Sowden(00:05:45) - We had a lot of people tell us that, you know, we were, we were wrong. So it feels good sitting here today.

Sam Wilson (00:05:53) - Right? And not just because you get to say I told you so, but because you were right and you got to reap the rewards of being right.

Sam Wilson (00:06:00) - So that's absolutely fantastic. How does how does your role or how has your role changed in the company from acquisitions director to now the CIO?

Graham Sowden(00:06:12) - Um, you know, it's it's stayed the same in some regards. I think, you know, as the director of acquisitions, I was more specifically focused on the direction, overall direction and strategic growth of just the multifamily platform. We have six other verticals internally, other investment strategies, um, that we take advantage of as well. But you know, that was kind of my main focus was growing out the multifamily portfolio. Um, and I'm still doing that, but it is kind of evolved into that role a little bit more management now of, you know, my team members and personnel and overseeing the growth strategy for all of the seven verticals at Reif, not just, you know, multifamily.

Sam Wilson (00:07:09) - Got it. Is there is there a part of your previous role that you miss or is is it I guess as you think about that, there's always transition and change for anybody as they grow and move into the next step or the next part of their career or business.

Sam Wilson (00:07:25) - So any part of that that you say, Man, I wish I could just still go do that.

Graham Sowden(00:07:30) - Uh, yeah, absolutely. And there's a lot that I missed just about the last 6 or 7 years. You know, it was, it was a really good time to be in the space. And that's not to say that today isn't it's just changed and we have to adapt and, you know, evolve some. Um, you know, it became kind of second nature, you know, tying up deals and running them through our process and getting them closed. Um, you know, so today things have like changed such that we have to be. A little bit more careful, I guess, in the opportunities that we're going after and pursuing. So I think it's a really good time to focus like internally, you know, operations and the organization like on a holistic level, looking at management, looking at, you know, asset management, property management, all of the things that kind of make us kind of run and fine tune everything, you know, at the holding company level.

Sam Wilson (00:08:44) - Yeah, I can. I can certainly see that. And how how for you guys, I mean, you saw it in the front end in 2016. You said, okay, hey, you know, we're going to buy all this stuff, we're going to aggregate it, we're going to operate it professionally such that institutional capital and other sources will want to come in and then buy it from us. You've seen kind of that whole cycle occur. And I think on the multifamily side, what are we down like 75% this year? I think on transaction volume, I mean, it's.

Graham Sowden(00:09:14) - Yeah, I was actually quoted in a Wall Street Journal article 2 or 3 weeks ago, and the title of the article was Apartment sales are down 74% year to date. Yeah, So you're right on.

Sam Wilson (00:09:27) - Yeah. I mean, that's that's an astounding number or a stunning decline, I guess I should say, in transaction volume. Does that create any opportunity for you guys? Maybe that wasn't there a year ago.

Graham Sowden(00:09:43) - Uh, short answer is yes.

Graham Sowden(00:09:47) - And I'm sure you've talked to a lot of other multifamily owners and operators and think everybody kind of shares the same sentiment that, you know, there was a lot of irresponsible investing between 2020 and 2023. Um, you know, you saw syndication groups kind of popping up everywhere and, you know, chasing what was at the time, you know, the most popular investment asset class and commercial real estate, multifamily. And I think people kind of. Forgot about the fundamentals. And, you know, we're buying to buy. There are a lot of shops that were set up, as you know, fee driven shops that would go out and overpay for an asset which kind of ultimately contributed to that, you know, bubble that we may have been in. Um, you know, people were borrowing money irresponsibly, I think extremely high leverage, floating rate debt, short term, you know, going in to a lot of these deals with negative leverage whereby you have to underwrite, you know, ten, 15, 20% rent growth, you know, just to meet your debt service, you know, just just to basically break even.

Graham Sowden(00:11:06) - And and that's assuming interest rates don't rise. And, you know, as interest rates rose, you also it was kind of just this confluence of of of issues insurance kind of, you know, insurance rates just skyrocketed, um, due to all, you know, the losses that the insurance companies had sustained through natural disasters and the like. And, you know, taxes have been an issue in a lot of areas and then interest rates being so high all kind of contributed to like, you know, values kind of plummeting in the last, you know, call it six months. But, you know, we, again, don't know if it's luck or foresight. I mean, this was kind of a constant internal debate that we had over here whether to, you know, fix or float our agency debt. And, you know, we always opted to fix everything. And, you know, a large majority of our portfolio has long term fixed rate agency debt. And so, you know, we're kind of prepared to weather any storm, any, you know, rise in interest rates mean some of our biggest portfolios, you know, are locked in with sub 3% interest rates for ten years with six years of interest only at 80% leverage.

Graham Sowden(00:12:27) - So and there are a lot of groups that were very successful in the short term, buying a property, fixing it up and flipping out of it and, you know, having the ability to flip out of it in such a short period because most of those floating rate, you know, debt instruments have maybe a 12 month lockout and then there's a 1% prepayment penalty versus having to pay yield maintenance or deficits, which, um, you know, can devalue one's exit. So a lot of groups were able to get into these deals quick, turn them around 18, 24 months later exit and they hit a home run. But you know, it's not sustainable. And as soon as you find yourself in a market with, you know, varying or distinct attributes from what I just described, um, you're going to have, I think, some pain and suffering amongst those groups that, you know, took out those risky loans and weren't able to see the 15, 20% rent growth that they they had underwritten. And they're going to be upside down in a lot of their deals.

Graham Sowden(00:13:33) - And so that's where the opportunity lies.

Sam Wilson (00:13:35) - Yeah, it's the that's the unfortunate gambler's curse where you you go gambling and you make and fallacy. What's that now?

Graham Sowden(00:13:44) - The hot hand fallacy, right?

Sam Wilson (00:13:46) - Yeah. You're like, Hey man, I win. We made a bunch of money real quick and easy and we can just keep doing that. It's like, Well, maybe. Maybe you got lucky and you ought to just go home. So. Yeah, yeah.

Graham Sowden(00:13:59) - Think it was. I think it was Warren Buffett that said that, uh, you know, as soon as the tide comes out, you're going to start seeing who's swimming naked. Right?

Sam Wilson (00:14:09) - Right. Yeah, there's that. And I think on the flip side of that, though, you know, you guys having everything is fixed rate. I mean you say sub 3%.

Graham Sowden(00:14:20) - Mean Yeah we did at the end of 2021 we did a portfolio dubbed TC 21. It was the Trans coastal 21. It was made up of three different sellers that we had kind of, you know, pieced together 21 properties all throughout the south and southeast.

Graham Sowden(00:14:39) - Um, I think we bought it at probably five and a half blended cap rate. Um, we locked in ten year fixed rate money with Freddie Mac through Cadia out of Dallas at 271 with six years of interest only. And so it was a $580 million total capitalization. We had $406 million of first lien debt at that 271 rate. We brought in a very good partner of ours, 3650 right there out of New York and LA and Miami. It's CalSTRS money and New York purs but they came into a pref position that. Took us up to probably 90% leverage with a weighted cost. You know, they were about 10%, 10.5% money at the time. And then we brought in another group called in a priority equity position that took us up to about 97%. And, you know, they've got no profit participation, so they've got a fixed kind of rate of return and eight current and eight accrue. And then we brought $30 million of common equity that has all of the upside, um, on a $580 million transaction and the weighted cost of capital on that deal was five and a quarter.

Graham Sowden(00:15:55) - So you've got basically 97% leverage at 5.25% money, right?

Sam Wilson (00:16:03) - Right. That's astounding. I mean, what you just described is beyond advanced for many, probably of our listeners.

Graham Sowden(00:16:13) - I apologize. So.

Sam Wilson (00:16:14) - No, no, you don't have to break it down. But by no means. I'm just saying that what I understood everything you said and I think our listeners will too, but yet it's a strategy that many of us, myself probably included. I go, gosh, that's that's a lot of moving parts to assemble.

Graham Sowden(00:16:28) - It is. And that was it's kind of what has always like separated us from a lot of groups. I mean, we've got, you know, a lot of 30 plus year vets over here, um, a ton of experience through out, you know, all sectors of commercial real estate. And, you know, we have found that we can put together some of the more creative structures to maximize our returns to our investors while mitigating as much risk as possible. And, you know, our track record kind of shows that it's not always the cleanest deal.

Graham Sowden(00:17:05) - A lot of times mean any new groups that we're working with. It's it's a learning curve. Even the agency lenders a lot of times, you know, have to come to terms with what we're trying to structure. But it's it's it's panned out really well for us. So we kind of created some of those different tranches of capital and and we got Freddie Mac to sign off and become comfortable with them.

Sam Wilson (00:17:30) - So wow. Yeah, I can only imagine that was a tough hill to climb because those agencies, they're not exactly ones that, you know, color outside the lines.

Graham Sowden(00:17:40) - No, they're not. So but we are we have so we have the benefit of being select sponsors. And so, you know, there's maybe. 40 or 50 select sponsors every every year. And it goes like the biggest borrowers for, you know, Fannie or Freddie. And, you know, what you get is you kind of have a direct line of communication with the agencies. And, you know, you you can kind of create or give feedback to some of the programs and, you know, tell them what what you, the borrower wants.

Graham Sowden(00:18:16) - Um, and, you know, they can hopefully help accommodate, you know, you also get preferred pricing and queue times and things like that.

Sam Wilson (00:18:24) - But man, this is fantastic. You have given us so many things here to think about. I love just hearing the journey. Would you say you came on as person number eight, 8 or 9? Yeah, there at the company and then you're talking about a deal 5 or 6 years later where you guys are assembling a $580 million portfolio By I mean that's, that's a lot of a lot of progress in a very short period of time. As you look back over the past call it now seven years. What what is one piece of advice or one what's one piece of advice you'd give to somebody or maybe even to yourself if you were starting back over right here in 2016?

Graham Sowden(00:19:06) - Oh, gosh. Mean could take this in a lot of directions. I think one is just. Go do it. Like all of us can sit around with our buddies and talk about the greatest ideas or the greatest investment strategies in the world.

Graham Sowden(00:19:22) - But none of it means anything unless you get out there and go do it, you know, that's kind of like. This company, you know, Reef is has become like this big, well-oiled machine. But it wasn't always that. It didn't start out that way. I mean, we were cowboys, you know, we were gunslingers. We had, you know, all of the tools we had, all the experience we had, you know, the right guys. Um. But, you know, we had a good idea and we went out and we got it done. I mean, you learn a lot just by doing it. You're not going to know all the answers. You know, there's such a thing as analysis paralysis where, you know, you think of all of these what ifs and hypotheticals and it just bogs you down into, um, you know, not getting out and actually doing the work that needs to be done. So, I mean, there's a lot to just like is what always say feet on the floor, you know, in the morning, put your feet on the floor, get out of bed and just start the day.

Graham Sowden(00:20:26) - You know, like you never know where it's going to go. It's always going to be a good day if you just put your feet on the floor.

Sam Wilson (00:20:33) - Get your feet on the floor, Graham. Love it. Thank you for taking the time here to come on the show today. It's a bummer. I've got lots more questions here for you, but we are unfortunately out of time. If our listeners want to get in touch with you or learn more about you, what is the best way to do that?

Graham Sowden(00:20:48) - Um, well, you can go on to our website reef.com if you're interested in investing. We have an investor portal. We've kind of created a digital marketplace for all of our offerings. We typically have, you know, 5 to 6 different investment offerings at any one time. Um, you've got to be accredited to actually invest. But we do the accreditations here internally through our legal department. Um, you know, otherwise all of my contact information is on our website. You can find me on LinkedIn and I'm always happy to get on the phone and talk with anybody about anything.

Graham Sowden(00:21:33) - So if you find my cell phone, I'm not going to give it to you on your podcast. But if you are able to find my cell phone, you can give me a call anytime and I will take it.

Sam Wilson (00:21:42) - That sounds great. Graham, very generous of you. Certainly appreciate your time here today. And we'll make sure we include that there in the show notes. For those of you who are listening, that's Reef spelled RCAF Reef. Graham, thank you again for your time. Have a great rest of your day.

Graham Sowden(00:21:58) - Absolutely. Thank you, Sam. And you have an incredible podcast voice.

Sam Wilson (00:22:03) - Thank you, sir. Appreciate it. Talk soon. Bye bye now. 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 Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show.

Sam Wilson (00:22:22) - 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.