Real Estate Investing Meetup – Difference between Large and Small Multifamily

Real Estate Investing Meetup – Difference between Large and Small Multifamily

all right thanks everyone for coming and
bearing with us while we get set up returners you’re obviously probably
wondering a little bit what’s going on this is the first time we’re trying to
set up a real recording to put on line for people so everyone can watch it
afterwards people who aren’t here can watch it we can get some clips together
and throw it up on social media on email marketing stuff like that so we’re
trying it out if there’s some loud noises or stuff please just bear with us
this has been a steep learning curve for me especially we also wanted to bring in
two guests to kind of do a quasi conference panel Q&A type thing so we’re
gonna focus mostly on the difference between small and large multifamily
everyone here has either invested in personally sponsored run been involved
in you know as small as single-family to as large as two three four hundred unit
properties so we have a pretty good gamut of experience in different areas
so I think it’ll be pretty good experience for everybody when we just
start Chris you want to just give a little background there yourself make
sure you speak into the mic so picks it up sure Chris Jackson sharp line equity
I’ve been investing for about ten years have about 300 units now I’ve syndicated
deals I’ve wholesale single-family houses just sold an eighth unit we’ve
syndicated a big 174 unit raised four and a half million dollars and in a
month so I’ve seen it all and just recently with my sale of the 8 unit I’ve
been working towards this for a long time but I was a tech guy for a very
long time and been working towards this for a very long time a two-year
transition one foot one foot in one foot out with both companies and as of last
week I’m a full-time real estate investor so that’s pretty awesome thank
you Chris also has a meet-up that’s very good yes self promoting get multifamily
unveiled it’s the second Wednesday it’s actually right in Garden City second
Wednesday every month multifamily unveiled what we’ll do to just if
everybody if you’re on the meetup group we’ll send
an email out afterwards with the link of this their contact information their
stuff so if you want to get in touch with them if you don’t get it tonight
we’ll send that out afterwards but Josh wanna know Josh hadn’t gone DXE properties so we’re
real estate investment group similar to Chris’s our our focus is primarily
multifamily although we do have some experience on the retail and condo
development side right now we have about 300 multifamily units under management
we’ve done about 500 units total my background was in the software space and
on the acquisition side and about two years left that company to go full time
here with DXE and josh also has a you also have a good that you do I do I wish
I could say it was monthly it’s a little less frequent but we do a quarterly made
up just different topics Long Island Westchester New York so similar type of
thing thank you I mean most you guys know
Chris myself tour real estate partners I’m co-founder I started investment real
estate really right out of college I started a single-family mine a lot of
tax delinquent properties in Philadelphia that’s really where I
learned everything you know good and the bed the trend you know transition for me
I was working as a stock broker got a job Morgan Stanley quit that job started
on the real estate side to be a real estate investor realized that you don’t
really make money right out of the box so I just got my real estate license
started working in the city doing residential sales and rentals then I
worked at Marcus Miller chap doing investment sales multifamily investment
sales and that you know parlayed into the full-time owner operator of
multifamily properties you know in throughout the country Midwest southeast
and our largest properties 450 units our smallest properties and duplex so you
know we have a wide gamut in there yeah so yeah go ahead not sure he deserves it
but I’ll give it to him anyway like you said I’m Chris I work at Toro
underneath John I started there back in August 26th
before that I worked as a stockbroker I was a coach and just trying to find my
feet you know I’m 27 so I’m still relatively young especially looking out
in the crowd so a little bit of a different perspective and definitely
compared to these guys over here I definitely see some gray hairs as I’m
looking down the line so it makes me feel better you know we’ve you know I’ve
been working at Toro for almost three years now since then we’ve bought a
little over 2,500 units 2,700 units it’s evolved into a role where I kind of
handle all the Florida assets and then help out where I can and it started you
know involving a lot of the marketing stuff in the past called three to six
months so that’s why you saw me for the past 45 minutes putting all this stuff
together you know in that role we’re really trying to just reach out more
than what we’ve done you know we’ve been doing the meet up for almost two and a
half years and it’s gone pretty well and we always have a very similar crowd but
if we can put this out there and you know bring some more people we’re happy
to do so so just taking a larger role in that
very similar to John you know 400 units to a duplex you know I’ve been involved
on both kind of the the sponsorship side and you know working under a slightly
larger company side so I can give a little bit of a better indication on you
know two sides of the same coin kind of take yeah and just happy to answer any
questions at the end I’m gonna try to moderate this as best I can but really I
think the best use of our time is going to be to do a couple questions you know
get some stories the good the bad the ugly talked a little bit but then really
open it up for Q&A because often times you guys will pull out questions and get
better information than I will asking questions because it’s tough I don’t
even realize you guys want to have questions so we’ll see how long it goes
I would say probably 30 45 minutes keep it short open it up the QA maybe 20 30
minutes and then we’ll just do networking at the end so you know meet
amongst you guys come up introduce yourself if we haven’t met yet come say
hello you know if we know you’re really well just see how things are going but I
think the best way to start you know we started just kind of saying small and
large multifamily and I think that’s kind of a gray area right when does
you know when does small start when does large start so Chris I’m gonna put you
in the hot seat first for you and I know it’s probably a gray area but what is
that real transition from small to large and is it a dollar amount as a unit
amount is it market specific how do you see that I think I think small to large
monthly family starts it like I’m actually gonna call it three steps I
think that you go into 20 to 30 unit and that is about that’s gonna be very
different than I think 70 unit and then once you hit 70 unit I think over like
150 unit starts to get different but so I would say if you want to think about
small multifamily I think that when I think of small multifamily I think of
like 15 units large multifamily I think of it’s like I do think a 50 unit is a
large multifamily but I do think that that is different than a hundred plus
what is it about the difference from 15 to 50 that changes it in your mind
I think things get more well obviously more equity like the equity just starts
to go up and you just need to have your relationships more dialed in with the
your ability to raise money I think that you can pull it off with a couple people
on the smaller stuff but when you start getting it to the 50 units zone you
really have to have your capital raising dialed in so that it becomes more of a
skill set that you have to develop over time and then I think from the
operational perspective 50 units is more templatized you know you become thinking
about efficiencies a lot more you can’t even achieve efficiencies really in like
a 12 unit you get it right three times but then you can’t exercise it that many
more times you get into a 50 unit you can say hey we figured this out ten
times now let’s go do it forty more times gotcha
Josh how about you yeah I think I agree with a lot of that for me I think it’s
much its operations driven more than dollar amount I mean I know there’s a
lot of all of us on the panel here you use third-party property management in
some way shape or form some of the larger managers they won’t touch the
deal that’s less than 100 units because they want to be able to staff it with a
full-time maintenance person full-time office manager otherwise it’s just not
their time energy and effort so you know you get your investors that are looking
at those deals that are just a different profile than on a 30 unit deal where it
could be maybe a husband wife or an individual that’s buying that deal
managing themselves or buying that with a few others and have a local handyman
guy that’s jumping around so I think there’s that line and then there’s the
200 to 250 unit plus space which often puts the equity check more in the 510
million dollar-plus range where you do have some sort of larger private equity
or institutional equity type competition great John yeah I would say the only
thing that wasn’t obviously Market Market dictate dictate dictates it as
well because you could buy a six unit in New York that’s gonna cost just as much
as a you know 50 unit outside New York is that a bigger a small multifamily I
think it that’s relative but I agree a hundred percent you know that sub 50
units paid the first property I bought was 48 units on the multifamily side you
know when I sat down and I really looked at the business and what I wanted to
achieve I thought that was a big deal I’d I said okay you know it’s not it’s
not a 400 unit but it’s not ten which most people I think you know anyone
would say you how am I gonna go buy a 20 unit first but you know I picked a price
range and cuz I knew where I’d be able to raise money knew where I’d be able to
get it financed that so you know I would say just like them you know 50 and sub
50 units is probably on the smaller side I never thought we’d be buying 342
properties I don’t think going forward we would either for this simple fact
that it’s harder to have everything going on even your third-party manager
14400 a property of you know 40 leases roll in a month so there’s always
something going on I think the sweet spot for us and what we’ve done very
well and executed extremely well is in that 120 to 275 units base I just said
they’re their deals that run really smooth there’s less competition from
significantly larger investors that’ll take less so that’s a sweet spot I would
say that’s a mid to large-sized and then north of 250 like Josh I think that’s
really when you get into you know a different you know different space so
safe to say all you blend between operations
dollars and units kind of a market specific
depending upon where you are and very different from Brooklyn to middle of
Kentucky correct and I think also Josh you you touched upon it was like that
seventy eighty and it starts to get into a gray zone but like where you can
afford more staff like you that that we have a sixty unit and we have a
one-person on-site step but it happens to be a good handyman and a good leasing
person that always that doesn’t always work out so that’s why when you get into
the higher units like that ninety a hundred zone you start to be able to
have two people where it makes sense so I that’s where I’ve noticed the
difference also that’s a great point because the inefficiencies in like the
just unlike a hundred one seventy because you’re like a tweener between
two full-time four full-time and that’s where it gets you know an owner side I
want to lower the expenses and I don’t want that extra person there so we try
and I always push them back you know do we really need that person the answer is
yes those deals typically run a little bit more expensive if a broker selling
you that deal they’ll bill discount that completely but I agree it’s it’s those
tweeners where you’re just below what would really make sense for you know a
full-time in-house and a full-time you know full-time leasing agent full-time
maybe its person that that helps significantly on the operation side from
day to day operations and making sure everything’s running smoothly so just to
clarify something whoever wants to take this can you explain the different
payroll and management fees as you scale up because I think we might be losing a
couple people that may not understand it just kind of clarify that clarified this
staff how that works so they understand a little bit better definitely
definitely so I think a lot of people in this room probably various experience
levels or desires on the real estate side I would definitely suggest anyone
getting started in real estate if you’re not living in that property to use some
sort of professional management just in general but what you’re going to see on
the fee side is you’ll see a few different tiers so for a single family
to family even sub 20 or 30 units it could be as high as 10% that a property
managers charging as percentage yeah as a percentage of
Brent’s collected paid monthly so on in addition to that they may also charge a
lease up fee so if they lease a new unit from that from a property they’re gonna
charge maybe five hundred dollars for a unit or even up to a full month’s rent
so those are additional fees that you’re not gonna see when you do have full-time
staff so if you’re in the like you said eighty eighty unit space where you have
a full-time office manage or a full-time leasing person your leasing person is
going to be leasing those units and it’s going to be much more efficient for your
property management company so even for a smaller deal like you’re you said yeah
it’s snap woods is what 70 you know that’s 56 56 units okay and and I we had
a 70 unit deal so the 70 unit deal we paid 5% as a property management fee but
the salaries were passing through at the property level directly so we were
covering the salaries in entirety and then as the deal size scales up you’ll
typically see property management fees drop down into three and even sub three
percent like on your largest feel you’re probably sub three for nearly under
seventy fourteen it has three and a half percent and a próxima so one hundred
seventy four units three and a half percent and approximately two hundred
thousand dollars in salaries paid out by V by the property yeah so you we don’t
employ any of our on-site staff the third-party management company employs
them but what you pay out of the buildings operations all the you know
their salary their bonuses that you know all that stuff comes out of the property
so you collect a rent the manager gets their fee and their salaries get paid
directly there so it’s not a physical expense outside the deal it’s a deal
cost but on the bigger deals the deals pay it directly that person’s full-time
employed at that property on the on the larger properties I’m curious what you
guys are saying but we used to run calculation that was a thousand dollars
per unit per year approximately you have 150 units one hundred fifty thousand
dollars in salaries that number is going up I think we’re probably all is it
around 11 of 12 at this point 11 at 1200 per unit per year yeah market-driven for
sure but I mean we had some properties at 1,300 bucks you know
$1,300 a unit it’s and it goes both ways you always want you always want to
maximize your expenses by the cheapest way or the cheapest alternative at the
same time a property will make or break and I think everyone up here can speak
to it if you have poor on site you get the best third-party manager in the
world if you’re on sites horrible the deal is going to struggle you’re it’s
leasing is gonna be bad maintenance is gonna be bad so you know sometimes we’ll
look to do it in other areas because you want a great step yeah I mean I think
each deal is like its own little mini business where if I’m gonna overpay on
something I’d rather overpay on people I think any lot of small business owners
just here around here they it’s probably the same thing it’s just difficult to
find good people especially in this environment as well whether on the
maintenance side or office manager side there’s a lot of opportunities out there
so if you get something someone that’s good and you can keep them I think you
try to keep them so just I no problem with the question just when we start
doing questions I’m gonna repeat it just we have it in here so the question was
at what number of units do you start bringing in on-site staff versus just
third-party management fees paid out where there’s no dedicated on-site staff
I’ll give the bad answer of it depends if your average rent is twenty five
hundred bucks probably a significantly smaller unit count or those tenants may
be more sophisticated not to you know talk poorly about less let you know less
average rent but I think you know the safe answer is probably in the hundred
you know maybe eighty unit range you know we had an ad unit in Charleston
that we had full time aliens full time leasing agent it was expensive of super
expensive the biggest fight we had with our manager but did the deal support it
cuz you think you know what could possibly go on day to day that that
person has to work there full-time there’s just things that you probably
wouldn’t even think about you know my number I would say once you start
touching that 80 you know 80 90 definitely on we have a full time for if
it 256 area but and it’s a high salary it okay so it
hurts the property but it helps it we have great numbers because all the
tenants are taking care of leasing comes in but I mean if the person wasn’t that
great it would like or if we say we took away the salary made them part-time I do
think the numbers would suffer on the property yeah it’s an interesting space
that in between space because I I mean I think you could run very very
efficiently and distinguish yourself from another operator in a way that you
just might not be able to for other deals I mean we have 62 units where we
have two full-time employees and it and it’s probably one of the better deals
that we’ve done so I don’t think there’s a right answer I think a John’s point if
you have $2,000 a month type of rent you may just have a tenant base that expects
someone there full-time as receiving packages and all those things that
you’re not gonna have and you know a $600 unit type of rental yes
yeah for me it’s when you’re in that kind of tweener space you’ve got to look
at the actual dollar amounts that the property is bringing in if you’ve got 80
units with a 300 dollar rent it’s never happening if you’ve got eight units with
a 10,000 average rent it might work so you’ve really got to look at also when
you’re in that middle space what’s the dollars and what’s the salary somebody
needs to work there and then you can kind of back into the per unit if you
want somebody there just underwrite every deal with salary there and buy the
deals that support it if you’re ok with not having it then don’t have it so in
that tweener space it’s always a little bit different you know we talk about it
all the time you know we buy exclusively out of state I don’t know if that was
mentioned you know we’re in all different areas in the southeast and
Midwest between the four of us you know we get outbid on 50 60 70 unit
properties all the time because there’s a local professional makes two hundred
thousand dollars a year that is willing to manage it himself or to not take a
management fee and oversee one person at the property so we underwrite with an ad
unit having you know an on-site manager and a maintenance person and that’s
gonna cost us $80,000 $90,000 $100,000 that person may be able to do plus a
management fee so you’re at you know 120 130 thousand for
a management company and on-site staff they may be able to do it for 50,000
they’re gonna be able to pay more for that property ten times out of ten so
when you’re in that tweener space you just gotta underwrite with whatever
you want there and if the deal supports it great if it doesn’t you got to move
on I think where we should go next is let’s start with you know smaller
properties right you know single-family duplex ten 15 20 30 units whatever you
consider small and let’s just kind of talk you know a couple of deals you’ve
done you know highlight them you know how many units where it is while you
like that why you didn’t like it and let’s talk pros and cons about this ball
units yeah let’s start small and then we can talk pros and cons on the large
stuff so Chris when you kick it off again yeah I mean I have a bunch of
single-family homes have about 40 single-family homes in upstate New York
you know the cash flow is really good on a lot of them some of them are total
turds I mean and we are jettisoning some of those but I think that I kind of came
up through the multifamily space and then I was trying to apply a
multi-family lens to single-family investing and I just couldn’t scale it I
just could not scale it like I mean then we bought a sixty unit and that we went
up to one hundred and seventy four and I just I probably won’t go back to single
families again even though the cash flow is good on the ones that are fantastic
like I just I can’t spend the time when I know that the same energy can go get a
two hundred unit or 150 in it so it’s a little bit more specific things you do
like about it things you don’t like about it and if you can relate that back
to you know specific stuff in the you know the things I don’t like do you have
it there’s transactional you have to spend the same energy in the transaction
of purchase and that there is a lot of complexities that go on in big
multifamily but you have but you figure it out and you spend your energy there
and you saw the big problem on small on small single families or small duplexes
you’re surprised by this level of like brain power that you’re
on a duplex when you compare it to the brain power you put on a big unit I also
think you end up I mean with 30 single-family homes I would say that
I’ve seen it I can’t find like a templatized solution there’s a different
problem for every house why do you think the brainpower is the same or less for
larger because once you’ve once you figure it out you can like there are
different pieces of it that you have to figure it out but you pull it together
and you’ve just done a multiplier like 174 units yeah that was it the same as
one single family house no mm-hmm was it the same as 20 probably mm-hmm okay Josh
how about you yeah I mean I think depending on your desire just on on the
investing side I think everyone has to start somewhere so not everyone can jump
in and buy a ad unit heel because it’s going to operate more efficiently so I
think that on the pro side you could definitely separate yourself from local
buyers maybe you’re able to show proof of funds maybe right you have a really
good track record you know to secure financing or something to give you a leg
up from some of the local investors there to be able to buy at a more
attractive number I do think with a very strong property manager it there’s much
more operational issues that come about on the smaller deals so you could you’re
more likely to find opportunities from mismanagement from just just significant
issues that you’re not gonna you’re more often not gonna see at a much larger
scale but you know I I my first two smaller deals were in pretty rough areas
so if I learned anything on the smaller side it said I would definitely not do a
20 unit deal and like a predominantly section 8 type of location it’s just
you’re not getting the attention from full-time staff you’re getting scattered
site management meaning a property management this property then another
one bouncing around so you know if it’s gonna be a smaller deal to me it’s
location location location that’s the most important thing
okay yeah and I think that you know they touched on most of it we have some
smaller deals as well I think the quality of manager a lot of the times is
a little bit tougher there sessoms IP is good if you have a really good manager
it works if you do the the physical math what is their fee on a duplex it’s
hundreds of dollars so they need so many properties under management to pay the
bills so it’s it’s almost like a numbers game
so things can fall apart that’s probably the biggest negative from my standpoint
a pro though let you know Josh saying not everybody can go buy 200 unit
property because it’s more efficient it is more challenging you there’s
financing hurdles there’s equity raising there’s SEC stuff there’s a lot of
challenge there so I think it’s the first the first thing I do is look in
the mirror and see what you want to accomplish right there are plenty of
single-family houses that you can buy that can give you a little bit of money
that people are extremely happy with and it could be down the block and you can
do a lot of the work yourself you put a tenant in there that never
leaves but you know that those pros for us or for myself it didn’t weigh out it
was you know it’s a one-off deal that you know could be okay you know maybe
it’s something that you just want to do on the side that’s probably that the you
know the pro is it just you know maybe it’s your personality it works but the
negatives for us far outweigh it you’re just dealing with a totally different
everything so that that’s a biggest challenge for us on the smaller side
I mean it’s having said that I mean I just I had an 8 unit that I owned for 10
years I refined it just sold it it was a total pain in the butt and I just
totally crushed it so like I’m complaining about a small you know just
like time healed everything and it’s totally crushed it so I think it’s also
about sticking with it like I’m not gonna say that like don’t do small units
I just did small units and it worked out well so I think all three of you no
offense kind of straight towards the negative because we’ve all been there
had our troubles and have scaled up because we’ve had the ability to scale
up yeah on the small stuff so Chris because you’re just talking about that
eight unit yes I know you said time but what is some of the stuff that did go
well you know or let’s say it wasn’t out of state
right let’s say it’s closer what’s on what’s a pro that you could see from
smaller stuff I mean the multiplier it I’m gonna turn
it’s it’s a negative that imma turn into a positive the multiplier of things that
go wrong you can you can attack it like if you miss per unit something that’s
two thousand dollars on an eight unit come up with 16 grand $2,000 on a two
hundred unit is four hundred thousand dollars so there’s that piece you can
get it you can get control of it so you so your expenses get out of control a
lot quicker the multiplication of it is both the pro and a con in your opinion
in the large ones you have to be careful yes I think I think it’s also to his
point and I’m fortune about but it’s if you make a mistake on a four unit or
eight unit yeah it might the operations might suffer but you could catch up if
you make a mistake on a two hundred unit you may never catch up it may hurt
significantly more so that that’s definitely a pro of my eyes is you know
yes 16 grands a lot of money but it can be made up you know from your regular
job and saving a couple dollars and fixing it you know it’s very difficult
to make up four hundred thousand if you know whoops all the HVAC s are gone
right like what are you gonna do now like and I have a totally different
issue on your hands I think it’s easier to overcome a challenge just your own
money in your pocket and you may not overextend yourself on a small deal
because you know it may be nervous you might buy a smaller deal at a better
price and you save some more money and you know you save some more money that
you have a little bit of a reserve it’s tough to buy a 200 unit with a
ridiculous reserve you’re just you’re probably not going to be competitive if
you try and buy it and in at smaller units you don’t necessarily have to
partner as much and like we all like partnering so that’s not an issue but
like if that’s something that you don’t want to do you can go in that small unit
space and not have to partner but when you get into the larger you you are you
are partnering up which we all I think think is a positive yeah I mean I mean
here we all took sort of a business type approach to this so we are trying to
scale and we appreciate the efficiencies of size and all those things I will say
as an entry point into real estate for people that come up to me that’s a
hey how do I start what’s the best way to go to me it’s if you don’t own a home
by a two family three family house you get very attractive financing live there
it’s probably your safest starting multifamily real estate investment and
and yeah and and sort of rinse and repeat and sure it’s not going to build
you an empire overnight but I think it’s a it’s a great like get rich slow type
of a thought process so you know that you’re not going to get by buying a 80
in a deal and on the other side of the country correct I think and I think the
other thing I like I said if you can go buy a small deal three people in this
room could come together buy it and there’s examples in here when we network
talk to people but you know it’s go buy a couple deals with a couple friends and
you don’t need to raise a ton of money and you can do that that could be a pro
it’s a pro for me I mean we have you know we have 2500 units under management
and you know I I would definitely go buy a small deal with a friend where they
take over control and I could just you know throw my two cents in but it’s
three four guys come together and buy a smaller deal inning small dough comedian
it could be 30 inch it could be four units it doesn’t matter but that’s
definitely a problem you don’t have the reporting the investor relations the
headaches you know you send a distribution out no one’s happy when
they get the distribution and then no one’s happy when you don’t get a
distribution like that you don’t have to worry about if you go by what a buddy of
yours so that is definitely a pro for sure which could be done on the bigger
deals too if you have that ability to do so so there’s definitely definitely a
lot of pros I think you know we’ve all seen the negatives and and you always
hear the negative stories but there are you you know just as many pros as
negatives I think a couple of the other things that weren’t touched on pro for
me is the inventory right there’s a lot more inventory in single-family homes
small duplexes quad Plex is 10 units especially in New York you go to
Brooklyn Queens the Bronx yes you know the whole city you’ve got tons of
smaller buildings where you’re you know you could easily find a three family for
sub 2 million bucks or something like that or you can find a duplex for a
couple hundred thousand dollars you know you can go out and you know put less of
a downpayment on if you don’t have the capital as well as you have way more
deals to look at and I think also your buyer pool you’re competing against is
sniffing li less-educated the smaller you get down right we’re competing
against groups that have two billion dollars under management on you know 200
unit properties where they’re gonna have way more efficiencies than we do where
if we were to step down into that 20 unit 10 unit 5 unit space you know
you’re gonna have better knowledge and the person there you’re gonna make
smarter purchases in that regard you’re gonna waste less time on bad deals so I
think also the knowledge that you gain will help you have a competitive
advantage in the smaller space I think one of the cons that hasn’t been touched
on is the debt side you know when you get over five units you step into
commercial loans the broad differences commercial loans they kind of don’t
compound on top of each other so if anybody has a residential loan that the
income ratio comes into play where a commercial loan you really just have
liquidity and net worth requirements so if you can go out and get a two million
dollar loan you can basically go out and get ten separate two million dollar
loans where if you could only get a two million dollar loan for residential you
couldn’t go out and get ten two million because it adds up to 20 million dollars
of debt so it is easier to scale up when you get over five units because of that
so that’s kind of a con under five units when you’re still on the residential
side and then one I think we kind of all touched on but I want to put it together
just really the barriers to entry the smaller the properties whether it’s
dollars units whatever it’s just easier to get into you don’t need as much money
to kind of get into it do we want to leave a comment chrisser yeah I was
gonna say I think that mean you know I think you can find great deals that are
under 50 units right now that 20 to 50 units space if you really you know you
can find a good manager you’re willing to show up there and be present you’re
those properties are gonna be run by mom and pops you know and they may be
inefficiently run you can apply more of a business approach to them maybe
they’re the owners just kept rents low because they just wanted high occupancy
they don’t really care there’s no debt on the property so you can find more you
know motivated sellers if you will even though this is a hot market but like in
the hundred unit space that you run by a professional property
management company so you’re you’re not finding the mom-and-pop owners as much
so I think there’s an opportunity there if you wanted to hit the 20 to 50 unit
space brokers Direct Mail cold calling so just the the question was how to
source those deals yeah I mean there’s a I mean everybody here can talk about
each one of those but no broker’s is gonna be your main in the small unit
space I think you could actually see more success in the direct mail approach
yeah Direct Mail and cold call underutilized tools I think that you
know the reason why is there pain in the ass you know people don’t want to do it
so if you do it you have it you have success you need brokers I don’t care
what anyone says they’re gonna help you need them but direct mail cold call and
trying everything you know the one thing that is consistent across the board I’ve
stolen this from someone that told me you’re not gonna wake up with a deal at
your front door so you gotta go get it so whether it’s brokers cold calling you
know the tax the tax office you know there’s a million ways we just gotta try
it but the three big ones by far brokers direct mail Cole :
other property managers that that’s great too property managers you know
looking at property managers company and seeing which ones are the deals that
look poor so if you’re you know talking to managers and you’re interviewing
managers and they show you deals don’t look at the deal where the grass it’s
beautiful because that that whether that owners a really good owner and lets her
you know lets her him do their thing you know look at the deal that looks not
good and maybe you call the managers I hate what’s going on with this one you
know they think this guy who going to sell so property managers are a great
tool as well and I mean if I add onto those I would say industry professionals
I’ve seen at least a few deals through either accountants or attorneys that
deal with real estate that just know a story and I’ve worked with you before
and they may be inclined to at least show you that deal commercial plumbers
yeah electricians if not the people that are doing work at the properties and say
where are the constant eviction court right go to the places where you see the
same guy there every single month if it’s a market you love and ask him hey
there’s a lot of evictions what’s the problem
maybe it’s the deal maybe it’s the market but it also could be you know
poor manager or he doesn’t know what he’s doing but the professionals as well
plumbers that always go to the same property there’s a problem maybe the
owners tired of the problem all right I think we talked on it a little bit but
let’s switch to quote-unquote medium or larger whatever you want to call it
we’ll say fifty sixty seven units or more we’ll start down here this time
John pros and cons a couple the deals if you want to get specific
yeah that’s tried not to be too Pro yeah the I would say the pros of the bigger
deals are the efficiencies to run out that you know I’ll leave that as the pro
that that is the best part about it they run more efficiently they operate
themselves for the most part you know we buy a lot of deals that are that are
messed up you know vacant properties high delinquency high crime we fixed a
problem so we have to put a little bit more attention in but there are a lot of
deals you can go buy 1990s you know five and a half six and a half caps
plug-and-play you really won’t have a headache
the deal run itself you get a competent manager and you’ll probably do okay and
if that’s what your threshold is you know if you look at 30% return you know
good luck you find it bring it to me I’ll give you whatever you want for it
cuz it doesn’t exist but there a ton of those deals the efficiencies are great I
would say the negatives the big negatives are the financing is not the
easiest thing in the world sometimes you if you have a net worth of a million
dollars and you have a hundred grand in the bank
you cannot go buy a twenty five million dollar deal you’re going to need a
partner so the financing is not as easy as some
may seem it’s not just the building you know they do look at you as well I think
that you know sometimes the fear is a negative for people without getting into
a ten seven five twenty million dollar deal you know maybe a little scared I
think you know a negative could be the education you know you don’t know what
you’re doing I think that can be easily addressed there’s a million ways to
learn about doing this free resources everywhere some other negatives are you
know you’re gonna have to give up control a lot of people want 100 percent
control that you can’t do it all or you could try and do it all I shouldn’t say
that you could physically do it but you’re gonna have to let someone else
run the data maybe it’s the travel that you know that
could be another you know I hate getting on a plane I do I don’t I’m not scared
of a plane I just there’s nothing worse than getting on a plane connecting in
Atlanta and going to Mobile Alabama I assure you there’s nothing worse than
that you know a two-hour flight direct to Columbus or to Jacksonville no issue
I’ll do that all day two three times a month you have to connect and you miss a
flight and then you connect here and then the flight gets delayed and you
know there’s one drop of water that comes out of the air it’s brutal it’s
absolutely atrocious so that could be done that’s actually why some ii seven
secondary markets do really well because the new yorkers and the texans and the
california’s have to take connector flights yeah that for me I’ve done you
go to Jackson Mississippi you know four times you know in three months you’ll
you’ll you’ll preaching to the choir so that to me is a huge negative it’s you
know I can’t buy a two hundred unit you know in Brooklyn it’s just it’s very
expensive it’s a cap rate that we just don’t have the investors to go out and
do so I have to go do that it’s it’s a requirement so if you know we never buy
a property that we don’t tour so maybe that’s not a negative or something for
me and you know you got to get real comfortable within a market and
understand the market we offer on deals that we don’t tour but then once we get
close we get on a plane and you know it’s two three days away I just had it
you know I just had a you know a little baby girl three months ago so the last
thing I want to do is go to work and go tour the buildings right I want to stay
home so that that’s a negative for me so Chris your question was you were
specifically middle midsize deals right you want large as well yeah yeah 3,000
units you know I I mean I think I guess I’ll cover quickly the midsize and large
aside size touch on both I think the mid-size like the 50 60 range the
challenges is you know if it’s not lining up for Fannie or Freddie debt
small balance debt you’re likely going to be in a recourse space so you’re
borrowing at the end of the day if something goes terribly wrong you’re
personally responsible for it versus if it’s a non-recourse loan and you know
you were honest and everything was by the book you give back the keys and and
that’s basically it so you
there’s a comfort and I’ve signed on multiple of recourse loans and I feel
like if we’re gonna raise money for a deal you should be willing to sign in a
request loan at the end of the day so I think that’s the one challenge that
would stand up to me and that deal sighs and just the debt options in general
five million dollars plus you’re gonna get a much larger array of debt options
for wherever the deal is regardless of how stable it is and recourse a
non-recourse recourse debt IV if you mess up you’re liable for it so they’re
gonna come after you personally non-recourse you can mess it up as long
as you didn’t steal and you did everything by the books and dill just
didn’t work you give the keys back and you’re not to worry as Josh said the sub
five million dollar space it’s tougher you know there’s a lot less options for
non-recourse a million dollar space really then it gets then you’re
basically exclusively recourse that is a very rational you know I was going on a
different tangent but at that you know that alone the debt side of it you know
you get very good debt five million dollars or plus you get a very
attractive rate you get 12 year fixed you know you get 30 year fixed so it’s
that’s significantly the debt side as you get bigger is significantly better
so in the mid-size for me it was my stomping ground if you will to get my
confidence level to go big I had done like 12 unit 8 unit 5 unit single-family
homes syndicated a 60 in it got a cash flowing
did huge like big rehabs like new roofs everything and I knew and I felt like I
knew what I was doing after about six six months to a year I was like okay I’m
ready for the big time so for me it was it just gave me my confidence level to
go to 100 plus okay and I think for me the largest thing you see as you
continue to go up is one I think the the pro is obviously the on-site staff we
kind of talked about it already once you can can support that you get lower
management fee and you get dedicated people there which is huge but then just
your economy is a scale and everything else which I know we’ve kind of touched
on but it’s true going for 70 to 100 hundred to 200 200 to 500 you
know one of the bigger examples as if you have 10 HVAC s that go out you know
if you bring out an HVAC guy you might get a 10% discount where if you only had
one you’re gonna pay more per unit so the larger you scale up the more things
you can do at the same time your % per unit is gonna go down so yeah maybe the
dollar amount total is larger but a lot of that stuff is gonna go down to the
point where you know we just closed 550 units in Jacksonville we’ve had serious
discussions about getting all our materials from China and overseas and
Asia because the discount is 20 30 40 % it’s still a little bit long yeah yeah
not long why not yes so premium well it still will be it’s just gonna be 30%
higher here so you know so that’s that’s an extreme example when you you know get
really high you know that’s why you see you know 2 billion-dollar hedge funds
you know they’ve got shit you know stuff coming over all the time so on a smaller
scale though right if you go from 2 to 4 units or 2 to 10 units right if you’ve
got two units now maybe you can negotiate a slightly better price or you
get a slightly lower management fee if you go from 5,200 you know you can have
slightly less per unit on payroll but the same sort of staff the same thing
from you know 100 to 200 now you got four people working there so you got
more eyes on the property it’s not too much harder to do 100 to 200 it’s just a
little bit more work you couldn’t do it with two people so that’s the biggest
difference I see which is a pro as you kind of scale up yeah we are looking at
a deal in Jacksonville that just had all new appliances put in there all new
black appliances and there’s a market for stainless steel we have 750 units
and jaxa that we’re doing black appliances and so that’s a deal that we
can buy take the new appliances out of a department put it into the other
apartment save money there and put the stainless steel so we’ll get stainless
steel for the price of black and you get that deal to be like that’s something
that we can do because we own in that market so that’s that’s very beneficial
to us and it’s it’s on the it’s on the positive for bigger deals
you could take them you know they just did it now they’re the you know other
groups have that benefit too but you’re not gonna take appliance from
Jacksonville and ship them to Columbus right it’s gonna be expensive we can
just shuffle them down the block and take those appliances and get a very
good savings because it’s a 159 unit property and we own 700 units that are
getting black appliances now so that’s that’s another Pro that if you have
economies of scale in one market so maybe you could do that on duplexes and
you know for plug you know 20 units if you own in one area you can do that
where maybe one of your properties in a much nicer area and it just had new
appliances you can move it and maybe you get a premium there so that’s another
thing that works on the big side and the small side but obvious you have to
understand your market and know what’s going on the other thing too I think as
you start scaling up is amenities as well right it a a pool cost with a pool
costs you know obviously you get a slightly bigger one it cost slightly
more but a pool cost one hundred grand it costs you a lot less per unit for a
50 unit than it does a hundred unit tenants love their monies they love
pools fitness centers all that stuff so the more units you have at a property
the cheaper it is for the total number of units to put that in so you can
attract better tenants better paying tenants charge more whatever it may be
so when you kind of scale up as well you can kind of do this stuff you’re not
putting a pool and then an 8 unit property unless the rent is twenty-five
hundred bucks a month or something like that or something like that so the
amenity space is another thing that as you scale up you start to see more of
one because there’s more people but two the cost gets spread out more across
more units another thing that’s great great amenities no one uses them yeah
cost you cheaper to put them in and you could raise your rent I think that may
be the last thing we’ll touch on them will open up the qat
is I think a question we would probably get anyway is people that are starting
out that anew or maybe have a little bit of experience maybe no experience and
you know I think Chris you talked on it getting that confidence to go up how
valuable is it to start small should you start small can you jump in larger
assuming you have the capital the debt all that stuff in place just from a a
theoretical knowledge standpoint answered how you will how do you see
that playing for somebody moving into it I think it
depends on are you going to be an operator an active investor or a passive
investor if you’re going to be an active investor operator I don’t if you don’t
have never owned real estate I would not jump into a hundred unit right away I
think you should jump into a twenty or thirty get your feet wet and then figure
it out and then maybe you can get go bigger but I would get your feet wet as
an operator first to figure out this whole multifamily thing and reports and
managing a manager and dealing with contractors and
dealing with budget overrun and things like that you you I don’t know if I
would do that as an operator going right into a hundred I don’t think I would
have been ready for it as a passive investor though I do think that you can
roll right in whether it be a limited partner just passive investing or as an
active passive general partner that gets kind of nuanced but balance sheet
partner there are things like that that thing you can go big right away Josh so
yeah I mean I I agree with Chris’s answer which is somewhat self-serving to
all of us saying come invest with us we’ll teach you what you need to know
but I think more important than that yeah right now it’s very competitive
real estate in general I think that’s not that’s not a reach prices are
definitely more here than they are here so I think the most important part if
you’re just getting started is continue to focus on location just understand the
location I think in a downturn the areas that get hit the hardest are the rougher
areas and the ones that bounce back the quickest are the ones that are in good
school districts and have good retail shopping things like that around and you
know that would be my advice regardless of the size you know some people just
can’t get over the fact that it’s not their deal and they don’t have control
and I get that so if you’re gonna do that and you’re just starting I think
buy in a good area that you know give up 2% a year to be in the better part of
you know that town or that market so just to clarify if you’re an active
person you’re saying location being all thing the same you don’t think there’s a
huge difference between a 20 unit and 100
you think you could probably do both assuming you have the equity the dead
stuff like that in place I think if it’s your first deal to start raising money
is a bit of a leap I think that yeah anyone sitting across yeah not not
taking so taking out the complexity of securing the money just from a purely
able to do it let’s say that let’s say you had it’s all your money right
whether it’s a 20 unit or 100 unit and you’re active and let’s say you even own
a couple single-family homes or a duplex and stuff you have a little bit of
knowledge oh that’s tough yeah it’s a tough it’s tough I think to me it’s it’s
a knowledge it’s completely knowledge driven that you know if you do feel
comfortable frankly just from a underwriting perspective I mean it’s
it’s very very difficult to make little tweaks to a deal to make a bad one a
good one so if you’re not in this business and and each of us here have
been in real estate in some way shape or form for at least 10 years we’ve we’ve
seen it and can feel those changes probably better than many entry-level
investors can so I I think you know I I think if you’re comfortable and you have
that knowledge base I have no issue with it all if someone you know I went to
school for real estate and you know master’s degree and real estate and all
these things and I have no issue with them starting larger where they’re
probably able to jump in at that level but otherwise I would probably say
started up more digestible deal sighs the only thing that I would say differ
different from that my person I was a little bit different but true I mean
there is nothing wrong with going right about 250 units or more what I would say
is if you go on loop net tomorrow and buy that deal you overpaid but if you
take six months to educate yourself surround yourself come to groups like
this and practice and you and you feel confident enough then anyone in here can
go buy a 250 unit on their own that’s yeah look in the mirror and make that
decision yourself but do I think that you should start smaller and work your
way up yeah I mean why not or invest with something like recep get
you know pack you know be a co GP or something work that way but you can
definitely buy a big deal right out of the box but realize that if you offer on
that deal and it’s your first offer and you want it there’s a hundred people
that pass on that so you got to think about it so don’t go online tomorrow buy
a deal right you know offer today and practice today for a deal you may come
across a year from now and you know starting small or starting bigger it
doesn’t mean you have to buy it tomorrow right if you take you 12 months to buy
your first deal you can buy a big deal for sure it’s just your level can you go
to bed at night knowing that whether you raise money whether you bought it in
another state if you go to bed at night knowing you’re doing everything that
you’re possibly able to do and make it work you’re doing the right thing but
that’s a personal decision I don’t think there’s a wrong way or right way but I
agree with Josh on 2% on the location don’t go buy a class you know deep
property in you know just because it was cheap and it’s a 300 a deal and you
think it’s gonna work that I would never recommend but if you have the ability
and you could go buy a solid deal and it’s a bigger deal whether it’s 50 80
300 you can definitely do it out of the box is your first deal for sure just
make sure you’re educated and you know and you could surround yourself with
people that can help you if something goes a little sideways I just feel like
I just I just feel like I wasn’t ready for it exactly like I’ve been so that’s
like I knew myself like I was like I need I had I think do I think maybe I
could have learned and 100-unit yeah but I I felt super confident going
into my 174 unit after being in the 50 unit I mean I mean that and that and
that’s how I raised five million bucks what I’ve been able to raise five
million bucks by being like yeah this is my first hundred seventy four I got this we definitely disagree on that one a
little bit I do think there’s real barriers to entry just on it’s the debt
side that it’s not just net worth and liquidity they are looking for
experience I mean you’ve done just also I mean I’ve done deals where from a net
worth and liquidity perspective I personally would have never qualified
for that but at the same time the people that were guarantor isn’t alone with me
they wouldn’t have had the experience to be able to do it so you know they’re
there is look if you’re ultra high-net-worth you could probably get
any loan anywhere but I think there’s definitely some
truth to that where you may need the right partnership to be able to step up
and deal sighs we went out we have a lender a CBRE letter who’s fantastic he
does a lot of our small balanced loans and he told us you know the stories he
was telling us we went out to dinner and he was saying there are people that call
him that you know have a ton of money in the bank and they don’t know what a
financial statement is and they’re they’re like he can get them loans which
is scary it you know a little but they can get it done and he recommends he I
think you wanna you want to talk to someone else because they these people
are completely clueless and they have what’s a cap rate right those are
questions that people are asking a lender as they’re going to get a loan
like that’s scary I don’t think that guy should go buy or that woman should go
buy a 250 in the deal but if you know what you’re doing that that hurdle can
be overcome to it you might have to bring in a partner but you can you can
do it and I’m taking the other side of the coin I could easily argue the other
way but that’s not fun I think a large part of it is comfort I think part of it
though is getting over that comfort if you have a Class B a deal fifty to five
hundred units you’re basically doing the same thing day to day it’s just the
numbers are slightly different you got to take in a little bit more information
you got to do a little bit more legwork up front but you’re doing the same
processes just a little bit more and you know your management team is gonna be
doing a lot of the grunt work anyway you’re just kind of overseeing the stuff
but you know I think to play the other side you know you’ve got to be
comfortable with what you’re doing which I think was what Chris was talking about
a lot right if you’re in that comfort you know if you if you know yourself and
you’re not comfortable going out to buy a hundred unit whether it’s your own
money other people’s money the debt side whatever you know definitely start
smaller because if you’re not comfortable you’re gonna make mistakes
or you’re gonna doubt yourself and just hurt yourself in the long run whether
it’s taken too long to buy a deal or pass it on one you know you could have
taken down if it was a 50 unit or a 20 unit so your comfort level is a huge
thing because you can’t be doubting yourself while you’re putting in offers
and talking to brokers confidence is a big thing in winning deals so you know
it’s a little bit of a balancing act but from the pure deal side of it there’s
not a whole lot of a difference from you know a 70 unit plus and up you know
70 to 700 units it’s not a whole big difference I mean it’s a personality
thing like I’ve gone like that you went out and like really early on we’re like
looking at 300 units and I was like whoa this guy’s awesome
and it took like I just looked at 344 unit but I don’t think I would have been
able to look at that and have the confidence of how to take it down
without then getting to the 7th the 174 that’s what I needed it was my journey
and that’s that’s what I think you have to be self-aware
what’s your journey 100% all right anything else guys before we open it up
all right awesome questions yeah so was are you guys doing existing buildings
new development and how do they differ from one another so so we’ve built
ground up we built a ground up student housing deal and there’s the definition
of what not to do we did it I had a buddy who called me and said you know I
need someone to help sign a loan I have everything in place it’s non-recourse so
I looked at my partner I said hey you want to sign a loan and get 10% of the
deal he’s like yeah sure why not what do we have to lose it’s not a recourse that
turned into I only need five hundred thousand and you just got to sign the
loan into us raising two million dollars we already had an architect plans were
done we stepped into it because it was a really good story and it’s gonna turn
out to be a really good deal but we built that ground up that’s a ground up
student housing deal from here to the back wall that’s the front of the
college we’re the only where the first property you get to so a little
different we built ground up we’ve also bought completely down to the
studs vacant buildings and completely renovated and we bought it we just
bought a deal in Columbus Ohio 100% vagin then we toured it we walked
through there’s heroin needles all over the floor people in there like I walked
through it as I was gonna jump out here and like you know potentially hurt me
but we’ve done that we’ve also bought existing buildings and fixed them up and
we’ve also bought you know completely stable deals one of the best deals we
did it was a two hundred a property we didn’t do a thing
it was 200 units we put in about one hundred and thirty thousand dollars over
two and a half years and we the deal doubled in value but by just
sort of buying a really clean deal in a great market so we’ve done all three
they definitely differ you know I don’t recommend development for anyone that
has no idea what they’re doing cuz there’s so many things like we did it in
the gye Xia there’s an impact feeling what the hell is an impact for you right
know it’s 30 grand whoops like didn’t have that in the budget
it happens we’ve learned now we just we just put a deal on the contract that we
could develop it’s got enough land that we can probably all 280 to 200 units
it’s 64 there right now so we’ve looked at it as a potential development but
we’ve done it before and we also you know my partner is 50 55
plus he’s worked at Cushman Wakefield for 30 years and he’s built shopping
malls he’s built single-family house he’s had a little more experience
they’re fresh and you’ve never done anything I talked about like going to
build don’t build a 300 unit as your first deal with no experience that I
wouldn’t probably yeah I mean my my partner’s backgrounds also it’s on the
development side his first deal he did before we came together was a ground-up
development but I mean that’s what he did professionally i right now we have
one deal that it’s a retail deal that does have a development component but we
don’t look at anything that would just be land to build it’s just the timelines
make me nervous more than anything they you know we’re not but we wouldn’t be
buying it all cash and not have a debt to carry before we’re able to say go so
it’s just our approach yeah then the development side you’re not gonna buy it
in cash flow tomorrow it’s gonna take you 12 months best-case scenario
probably closer to 18 or plus depending on the market you get we built a student
housing in 12 months but it was its Clarksville Tennessee it’s totally
different so you just got it you got to understand
that I agree with Josh I’m not a big fan of betting on three years down the road
that’s not what we’d normally do but we’ve done we’ve done all three I’ve
only done existing I mean I’ve taken some single-family homes that were
vacant but mainly stabilized properties where you’re gonna do a big red push or
like there’s gonna be a large amount of evictions but I feel like I’m ready for
a half a can building I would do a two I would do a two hundred unit
one hundred units that are vacant at this point I don’t know if I’m ready for
it ground up I don’t think I’m there yet I think we could probably spend an hour
hour and a half answering your question so just high-level their development is
a totally different ballgame especially in that space it’s you know we don’t
even we get emails for land and we just delete them because it’s it’s totally
different totally different places to look at it totally different investors
said totally different debt so there’s a lot of different stuff so most of the
stuff we’re buying is existing even if the inside is vacant and you got to come
in and put appliances but you’re not you know you’re not putting in Slab you’re
not putting up foundation or framing or roofs or stuff like that so it’s just a
little bit more similar to you know buying a deal that is stable you know
one thing I’d say because I am sort of attracted to the the land land plays in
good areas you know some of the most successful development companies they’re
not buying and building right away they’re you know they’re buying taking
their time you could look at like Toll Brothers they own endless land where
they’re being very selective about when to develop but we’re so I I don’t know
year forecast yeah decades old and their land base is just so low that they could
build basically with with minimal risk at all yeah so I mean I don’t think any
of us have that type of timeframe at this point but I love the idea of sort
of buying a piece of land in a great location that I like if there’s some
sort of a story to get compelling value and holding it onto it for a very long
time one thing that we just started doing probably the end of 2017 we’ve
done a pretty large push into the mobile home space for that exact reason you can
cashflow while you wait if you like the piece of dirt because there’s people
paying rent so if it’s a great location yes a mobile home park on it I get that
but the but they’re dwindling the supply goes down every year because they’re
being developed so people are buying them as covered land plays you could
call it that or in the future so it’s an alternative that we’ve looked at it also
complements a lot of our multifamily stuff from a cash flow side so it’s a
little different than what Josh you’re talking about it’s a really interesting
space right development it’s the it’s the you know it’s the sexy you know boo
it’s awesome right I want to own that but buildings are we on you guys you
know I’m embarrassed sometimes driving through them they’re rougher properties
they’re not that brand new class a development but you know it’s intriguing
but it’s something that we you know we could there’s an alternative way around
it any other questions question was what do
you guys do on exit strategy talk a lot a lot of bodies but what a what do you
guys look at when you’re exiting properties what I was gonna give the it
depends answer you know it for us it’s driven by the equity you know who’s in
the deal if we do have a small group of equity will often let them dictate the
sale at the end of the day we have a deal that there’s no target sale day
we’re refinancing long-term debt we might hold on to it for fifteen twenty
years at the end of the day more commonly we’re setting the expectation
of five to seven years it seems to be a comfortable range of time where people
are willing to invest sort of know that it’s a liquid but they’re fairly okay
with not not having that cash available because it is at the end of the day any
liquid investment so the exit you know would Jack I’d say almost always be a
sale whether or not there’s a refinance beforehand would depend on the deal yeah
we’ve gone it early on we were you know as quick as possible get out and now the
market you know who knows where we are we’re probably closer to the top and the
bottom so we are definitely in you know telling people five to seven
we haven’t held the deal longer than three years so far it’s been by do we
got to do an opportunistically sell we’re selling the deal right now
Mississippi we bought March of last year we had a three-year hold through your
loan their money went hard so they’re supposed to close in 30 to 60 days now
and we just they hit the number that we needed today so we got an offer
it was opportunistic it’s a really good deal for the investors so we took it but
for the most now we’re going into deals with 7-year
debt a little bit longer term horizon just cuz you never know so that’s you
know that’s sort of a education of our own investors that’s where we’re pushing
them you know it’s gonna be a little bit longer than what it used to be well yeah
we have deals that were made to be seven-year holds and we’re gonna be
exiting at three years but get a silly offer price got to take it and we have a
deal that it’s meant to be a ten-year hold but you know three years from now
somebody wants to do a loan assumption and it’s that silly price again I can’t
say we were not going to sell so it’s it’s depend where we at the market what
kind of return you’re gonna go for the investors yep and you also gotta look at
it you know a lot of our investors will go into another deal with us though you
know whether they 1031 or they go on their own way you you also gotta weigh
it out is okay what are we gonna do if we sell this you know if there’s not as
good of opportunity maybe make sense of hold it but for the most part our
business plan going in is three to five years it used to be we’ve switched that
to a longer term outlook I think also to clarify to two points for us because
we’re raising money from investors people don’t want to invest their money
indefinitely so most the deals don’t have a we’re gonna cash flow this for
10-15 years most people don’t want to give up control and not know when
they’re gonna get their money back you know or a rough assumption of when
they’re gonna get it so we usually have a most the time sale sometimes a
refinance in a set amount of years anywhere from that three to seven year
timeframe is pretty typical the other thing too is you know from our side as a
business standpoint you know the business model for us is profit sharing
upon sale is the bulk of income for our businesses so it’s beneficial for us to
have a sale exit plan rather than a refinance or hold indefinitely because
we are raising anywhere from you know fifty to ninety percent of the equity
from other investors so there’s an interest for the investors and for us to
have either a sale or refinance exit that isn’t super long in the future so
it just works well for both parties in that regard yeah based on SEC regulations depend on
how much money you raise also who your investors are right if we don’t if we’ve
never met you we vet our investors just like we expect
our investors to vet us we want to know you know who they are can they support
it you know is this their last dollar in the bank so on and so forth but it’s
regular SEC stuff that you know we I would say every deal that we do that
we’ve done recently it’s all been 506 C you know whole nine yards its
personality you know I let me ask first before you guys stopped cutting in the
question was you see more aggressive than the other two that the other is it
something in your background do you come from instruction you know why is that or
is he wrong no I got nothing up here no I was empty space yeah no it’s that’s
part of the reason why no I would say that I I don’t actually have a
construction background like I just got in my house I had no idea what I was
doing her and I had a buddy that helped me out very much but no we I was a head
up probably an honest a more real estate experience but I started buying property
at 20 20 years old properties in Philadelphia that were taxi properties
online for 400 bucks a thousand dollars knocking on doors and you know where
there was a good shot someone would come out with a gun or there was no floor
there was no roof like you couldn’t go into them so I saw what the worst case
scenario could be so I looked at it a little bit differently and then I I
progressed up and the first property I bought was a very rough you know thirty
percent occupied disaster and I realized okay it’s gonna cost X dollars to do a
floor it’s gonna cost X dollars to do appliances so I put it together and I
use that and learned over time so I’m significantly better at not making
mistakes today and then I was when I started so I would say that I also
surrounded myself with some good people I like to thank I say that all time yeah
real estate works anyone can do it but you got to have a database of people to
call if you have a problem so if you can make a call and get something fixed it’s
a lot less scary than if you have no idea what you’re doing yeah the question
was when you guys are exiting or you guys leave meat on the bones do you guys
try to fully optimize the Noy it has that playing with your exit strategy
yeah I mean I I think definitely and then I’ll add a specific pieces so we’re
holding something for 10 years right now the 174 unit and the galvanized pipes
need to be replaced at PVC so we replacing the PVC not just for the nly
piece but because we also know that in 10 years we’re gonna be able to serve up
a product 1972 built to in the next buyer that’s going to be wondering how
old are the roofs and how old are these pipes underground so that is definitely
part of the strategy of what is the next clip I are going to ask 10 years from
now or two years from now or four years from now yeah I mean I think the
question about leaving meat on the bone like you know are you gonna upgrade 70%
of the units to do to leave the next 30 for the next guy or just prove it with
20 percent to leave 80% the next guy I could give another it depends answer but
what I would really say is I do which might be contrary to what you what you
guys might think I’m not a big believer in the you know don’t leaving meat on
the bone I think if you can drive Noi especially in this environment where
value-add is just so so attractive to be able to sell a fully renovated
optimizing deal at a pretty high cap rate I mean at a relatively high cap
rate in relation to value add deals I think it’s very very compelling and I
know there’s you that have been fully renovated that do
sell at a premium as as your no true turnkey product I think if you asked me
that three years ago the answer would be different but I just know that gap from
value add you know more Class A or turnkey it is just that much tighter now
so that’s my take yeah I think that that makes a good point we were just door and
we just were down in Jackson we toured about 15 15 different properties one of
them was a 100% renovated property that’s the deal that we looked at and
said oh we could take the black appliances and move them over to our
property but even that deal which them under the brokers own admission is 100%
done there’s nothing to do there selling a value-add story so i think josh is
right there is something to say for that our business strategy is different you
know that we’re buying we have 700 units in Jacksonville we’d like to get to
about 2000 and leaving some meat on the bone whether it’s 20% 80 percent you
know we’re renovating about 50% of the units but our plan is to sell that as a
portfolio maybe to a significantly larger company so we’re looking at it
from that standpoint our Mississippi deal the plan was to fix the deferred
maintenance we got through half of it or 90% of the renovation we didn’t even
touch the interiors we did plan to do 250 of the units which was 50% of the
property a guy came knock on our door way before we can get there so we went
in with that intention but Josh is 102 right there’s a broker we’ll sell a
story and there’s a lot of guys out there that’ll buy anything right now so
we go in with a plan but it’s not set in stone the first property that I bought
we sold for just under two million dollars it’s on the market right now
three and a half with under contract and there are two people here that invested
in that deal that then bolted him saw it they would never nobody would pay three
and a half million and it’s only two and a half years later that or three years
later that it is under contract and and you just you can’t guess you can go home
with a plan and we normally do but sometimes it you know sometimes it
deviates a little bit so I think I’m gonna kind of contradict Josh a little
bit because when we were touring the deal that was completely done they have
no buyers because their cap rate is so low where I where I think
he’s right is if you can increase Noi enough let’s say you bought at a five
cat for argument’s sake you got to be able to get a profit at a six and a half
seven cap on sale because nobody’s buying a six cap stable deal today
especially in the 70s and 80s vintage stuff so if you can buy something to
push Noi you know double it and sell for a seven cap then yes I think you’ll have
buyers there because it’s not Class A stuff where you’re gonna get
institutional money but I think because value-add is such the hot thing right
now and that’s what everybody wants you have to leave some sort of meat on the
bones whether it’s real or fake you know every deal you get is value add
I mean we get ones that are you know ninety percent renovated but they say oh
you can now do a premium upgrade and they have LED lights and you get exactly
50 or so put in smart locks and get actually 20 bucks nights it’s just I
mean we haven’t seen a marketed stable deal I don’t even know I don’t even know
if I’ve seen one since I’ve started works this is the first one and we went
there and the broker he almost looked depressed he was like I he’s like we
don’t really have buyers for this he admitted it and that so I think to
Chris’s point and Josh a point I think the market dictates yes that strategy
for sure because he did he walked through the property almost knowing that
he was he said he’s like we’re shooting for you know a hundred a door we’re not
gonna get there they told us right out of the box because he’s shooting for a
price that’s extremely aggressive for that specific fully stabilized deal but
we just did that as well or selling we sold 160 and at the exact same size
property you know the we went out at a hundred door at 16 million we accepted
14 5 because we knew that weren’t gonna get that but and that’s not unsimilar to
this deal it’s I would say significantly better renovated but there was nothing
left to do at our property it was a hundred percent renovated units
Clubhouse amenities whole nine yards and they went out at a crazy price and the
market dictated what it was worth so if there’s a real seller he’ll sell it out
what the price dictates but I think market dictates that because it’s you
know where that deals physically located you’re gonna have to buy into the future
to get to the price he wants and we are never gonna do that but what Josh
was talking about is I think that you know if it’s a much I think that people
will get a crazy aggressive price if it stays what was the cap rate on like the
14 and a half million dollar sale I don’t even know it was low but even even
still it was also trending we had we owned it for two years so the second
year you know really the last six months it was it was stable for the first year
and a half we get to Vic some people get to beef up but I would say it was a true
12-month financials it was probably somewhere in the five if you take the t6
it was somewhere close to six percent okay which I mean if you ask me that’s I
don’t think any of us are modeling out an exit for 70s 80s products of six
steps so if you’re doing that on a true Noi for for an optimized product nice
you know issues but that said I know that deal I don’t know that know but I
it’s a great question so I think that it really depends I think the market
dictates a lot of it so you know if we continue going in this bull run that
we’ve gone on for ten years I think that a fully optimized property is bullshit
right what’s a fully optimized property someone will come in and put a
backsplash and get one tenant to pay for it and
then they’ll try and sell it at a lower cap rate so the brand brokers will
always sell value it but be right before this I was on the phone with a very good
friend of mine he sold my first property he was a market ml a chat broker like
myself he’s on the buy side now I said I gotta ask you you know you put your pro
formas together you own deals now you can’t run deals for what you guys pitch
and he’s like you’re hundreds now right it just you it won’t work so it’s you
know it’s the brokers are always going to be there their job is to sell the
deal so they’re gonna do whatever they can to present that so you could leave
meat on the bones at the same time you know we sold another deal that I thought
was maxed out we never get a nickel the guys coming in putting in a pool blowing
out the units and he’s doing a fantastic job he emailed me today he’s like wow
I’m so happy you sold us this deal I was like what I thought it was at the top of
the market so I think there’s always room it’s just a matter of you know what
the markets gonna dictate so question was how do you guys
structured preferred return splits different stuff like that we do both we
have one deal where you didn’t have a preferred return but on the most recent
one we have splits and a percent preferred return
yeah we’re falling into a box now where there is some sort of a preferred return
after that it may be 80/20 or seventy thirty and then a hurdle based on
performance at fourteen or fifteen similar same thing the only thing I say
the deals that we don’t have a preferred on we bought a deal on an opportunity
zone and from a sponsor standpoint now we invest at least thirty percent every
deal has been at least thirty percent of her own equity to myself or my partner
so it’s a little different but we’ve on that deal we didn’t do a press because
they had to incentivize us to operate that deal for the next ten years to take
advantage of it so but for the most part we do an eight percent preferred but
some hurdle to twelve to fifteen with the hurdle over that and just to clarify
for anybody who doesn’t understand what that is we obviously have investors and
we have different agreements with them so preferred return is basically we
don’t take part in any of the profit sharing until an investor gets an eight
percent per year and then every dollar over that gets split in favor usually of
the investor so 70/30 would mean the next dollar goes seventy cents to the
investor thirty cents to us so that’s where I mentioned earlier you know we
make the bulk of our money profit sharing that’s how that works so we
don’t really make anything if there’s a preferred return you know except for a
couple small fees for operating the deal until we hit those certain hurdles so
that’s how deals are structured and there may be one hurdle there may be two
hurdles there may be no preferred return so there’s a couple different ways to do
it but I would say you know it’s really across the board everyone’s pretty in
and around an eight percent preferred return with an eighty twenty percent
split or seventy thirty percent split and then sometimes you may also see a
second hurdle at twelve percent where if it was 80/20 you know it may go down to
70/30 so the better we do you know on our side for operating the property you
know the more percentage share we get the better we do
so just for anybody who didn’t understand what that was you know is we
have actually one of our waterfalls is if it’s over an annualized 20% so
investor makes twenty percent annualized for five years over that it’s 50/50
I don’t think investors are going to complain that much if they’re making
five years twenty percent so question was specifically for John started in
Philly did you buy houses across the street from each other to kind of I
guess manufacturer having multiple units even though they’re across the street
right yeah yeah no I tried to get bigger so I bought a lot of properties at
auction so you had to buy what was on the auction but after I bought a
property I would go there to see assess it and see what what happened and then I
would knock on neighbors doors it’s very friendly community so you go there
you’re not gonna door and everyone starts to all you what are you doing
that prize in vacant you know so then I would try and make some offers or if I
looked online to see maybe there was four houses on that block owned by an
investor I would call hey you want to buy this one and add a fifth one so yes
I would try and buy it also trying to sell to people that own multiple
properties on that block so but yes I did try and buy them close together so I
can operate them as one so I’m gonna pitch it to you Chris cuz you had 40 in
Syracuse yeah totally very similar how did it go for you well yeah I was
looking for buns on the same block efficiencies of the management company
going there and making repairs and also with the intent on the sale to sell as a
portfolio correct so he’s asking if you guys see Detroit
hole rows of vacant building stuff like that is that something you would go into
to try to pick up scale in an area where maybe you could pick up multiple at the
same time I don’t know Detroit well enough to I haven’t researched it enough
to say I want to go there and so it’s intriguing but I think Josh will give
you the it’s intriguing it is it’s it’s could it work
yes but it hasn’t worked for quite some time so it’s a little scary
I would prefer probably not to be there just for the fact that there’s some you
know a there’s so much of that but once again if you know if you’re a young guy
or a young girl and you want to get up and move out there and do it yeah they
could work I mean you know they’re together you got to be there you got it
yeah you got to be there you can’t expect it’s gonna work without you so I
would say you know not for us but if you can put the business plan together and
you get real comfortable with it you know maybe not Detroit maybe somewhere
else but it’s intriguing we you know we’ve looked at it a couple times and we
just can’t you know pull the trigger and I don’t think we will so Josh I’m gonna
let you finish just a touch on that I think ideas are shit execution is key
right so could be a great idea unless you can go out and do it and execute it
doesn’t really matter right everybody’s looking at Detroit they’re all thinking
the same thing so yes of course you have their self why hasn’t somebody done it
yet yeah I mean I think John touched on the market piece I mean Detroit’s lost
so much population and I know now this a good story upswing I think it was just
hit really really hard so you can maybe make the argument that it’s closer to
here then here like some other cities but I mean there’s areas just based on
how much old housing stock there is and a lack of population that I don’t know
what they’re gonna do with those areas so you know I don’t know that one
investor of any of our size or even collectively can change that but that
said I think there could be some opportunity and in Detroit I mean we
invest in old homes in Syracuse and like the cost of repairs is going up so you’d
have to consider that on older housing stock so so that be all of us right yeah oh so
what the question was if you don’t really have a finance background or
let’s say even a real estate background what are some good ways to get you know
your feet wet underwriting some good resources or ways to different practice
or find out more I mean all of us actually got educated we had a
mentorship program that was pretty intense that taught us how to underwrite
there are some underwriting software out there who has a decent one michael blanc
and you know there’s there’s some hundred writing Excel spreadsheet
templates that you can but they’re not really going to teach you how to
underwrite that’s going to be shadowing somebody or taking some sort of coaching
situation yeah I don’t know the right answer but I think finding people that
are doing it at a level above you where you could provide some sort of
complementary value whatever it may be I think that’s your best way in and to
learn I think Chris you could speak to it as a part of Toro that you know you
were able to add really good value to – John and Dawn that we’re already doing
it at a much higher level so that I mean that’d be my my advice as you say if you
want the the timely answer practice where you go online and it could be a
deal in Brooklyn it could be a deal here underwrite it offer on it and track it
see what it sold for then try and find the buyer or the seller and see hey how
do you look at it that’s the the long drawn-out process right you have to
watch the market and pretend and then you can get a better idea whether you’re
doing it right or wrong you won’t know until three four five six years from now
but if you offered you know one nine and it sold for two six maybe you’re
conservative and you would have bought it better but if you offered one nine
it’s all for one two maybe you know something that someone doesn’t so it’s
not necessarily going to teach you the right or wrong way to do it but you can
practice and that’s what I would do whether you know you’re doing or not
also brokers as much as I said the one you know they said that they’re wrong
if you like a market and you get to meet
managers and brokers in a market you can speak to them you know how do your deals
normally run and why right just ask the question why seven times in a row and
and you’ll they’ll give you answers so you got a those are great ways and they
work but it’s only gonna be as good as the foundation you build so you can go
pay a mint or whatever you you know whatever but if you don’t take with you
for me if I gave you all the tools in the world and you don’t use them whose
fault is it so but you want to practice on your own too
you want to just get through it there’s a ton of books you know bigger pockets
is a great website accountants you know talk to them how they you know when they
do the accounting on deals how they typically expend stuff you know so
there’s other ways but you got to do a little of it all and see which one works
best for you um but josh is right and Chris can speak
to it add value to someone you know do something that no one wants to do yeah I
mean one more just small comment about I mean I think all right I know the math
behind real estate investing it doesn’t get that complicated you know you’re
it’s not like high calculus yeah but that said there’s a lot of nuances to it
so I think it goes back to something you said earlier about just the people side
of the business that being able to put together a team that’s proven where
you’re vetting more the people than the property that they’re gonna be the ones
that can guide you with any acquisition like especially on the smaller side a
good property manager is is worth everything because you’re gonna learn
from them they’re you’re gonna provide some level of safety so I think it comes
back around to that just when you get used to underwriting – you can actually
go to your property managers – and then start dialing in the pieces that need
the tweaking yeah the tweaking and we also do that
everybody love you where we’re not just relying on ourselves Oh trust me we’re
trying to tweak like we’re trying to make you like how can we get this there
what are we missing and it’s referrals if you love
Jacksonville talk to us I’ll give you a contractors managers brokers to talk to
and they will give you all the time in the world that’s their business so
utilize those tools if there’s a market you love ask one of us we’re in you know
from Indianapolis to Alabama to the coast we’re there and we know
people we could introduce you to so just because I think I’m a little bit
different than the three of them I think they all had some good points right an
underwriting tool is only as good as you make use of it so it’s really getting
the knowledge how to do it brokers manager stuff like that is key
but coming from you know a stock broker world into this I really didn’t know
anything and being next to John and Don all day I can say pretty confidently I
wouldn’t have gotten to where I was as quickly you know being underneath them
so I took a job but there’s also you know I took a pay cut to be there from
my other job so I paid for it to get the experience so it’s not easy but I think
a couple ways if you were convinced on doing it on your own is one there’s so
many free resources nowadays there’s tons of people making free videos and
free webinars and free online blog posts you know it’s really starting to trend
as much as you see I’ll buy my course and by this by that there’s a large
trend of people doing a lot more free resource stuff that I think you can find
and if you start talking to brokers and look at books and maybe you have a
relative that’s involved or you talk to manager and you can start putting these
little different pieces together you’re gonna narrow that field where
you’re gonna get significantly closer to the bull’s eye and just as they were
saying write as great as we think we are at underwriting we never nail the
expense for repairs and maintenance exactly on the dime we get very very
close and a lot of times line items will shift want to be a little high want to
be a little bit low and some stuff is easier than others and we’re always in
the ballpark but that’s really only gonna come with time and it’s something
we do every time right if we look into a new market you know we’re looking to get
into Indianapolis that markets can be slightly different you know because what
you pay an on-site manager in Indianapolis versus Los Angeles it’s two
very different things so you know we’re always constantly learning and you know
there’s a you know an uptick and knowledge that we have to gain as well
now we have a higher base than somebody completely brand new but we use those
same resources to go out and we rely a lot on people in the local areas
managers bro excuse me on sites stuff like that to
get the knowledge and then compile it all together a lot of what we do is
taking knowledge from different places and being the person that puts it all
together into one kind of package so it’s really just experience and
leveraging other people to get all that knowledge into one place and then over
time it just gets tighter and tighter and tighter yeah so hold on yeah the
question was are your investors financially savvy do they understand the
different terms how intricate do they understand you know all the stuff that
goes into it yeah the entire spectrum like we have some that don’t understand
it where you have to educate them on it which i think is great to educate people
on those terms and then you do have people that are in finance the investing
and they’re looking specifically on how you’re getting to those numbers we’ve
gotten the full gap we have mom and pop friend friends and family all the way up
to family offices and institutional quality investors all right when we
started in mom-and-pop like most then I made a big push to the other side and
I’m back the other side it’s just this UVA exactly so but but there we go both
ways I are are driven internal rate of return and or cash on cash I think an
important distinction too is a lot of people may think that having an
uneducated investor is beneficial because you may be able to get higher
fees or stuff like that but as soon as something doesn’t go quite exactly to
plan it is a thousand times worse and having somebody that’s educated and
understands what’s going on is just gonna make their relationships stronger
in the long term right first off don’t take advantage of people wrong than you
do I don’t think any of us do that I can say that with pretty good confidence
know everybody here pretty damn well but it’s having somebody educated is gonna
make the process easier because if you know you drop from 95 to 90 percent and
you have a valid reason or an unvalidated and ooh and it’s not the end
of the world it’s gonna go okay right time heals a lot of wounds if you’ve got
the person that doesn’t know anything you gave them numbers and they think
this is gospel and all of a sudden instead of being at ninety three percent
you’re at ninety for six months they’re gonna be up your ass phone calls night
and day trying to figure out why what you promised them was gonna happen isn’t
happening or something in between or you know they thought a fifteen irr was
they’re getting 15% a year if you can educate that’s a very simple one to
educate some of them stuff is harder if you can educate them upfront it’s gonna
be a better relationship throughout the process and going forward so I think
having an educated investor is always better and if you can spend the time to
educate that person one they’re gonna you know have gratitude towards you and
it’s just gonna be better in the long term yep I think all about expectations
and communication along the way yeah end of the day regardless of the level
setting expectation and communicate thank you in a question over here so question is if you’re looking at
tertiary markets maybe you don’t have a lot of contacts there if any at all how
do you go about that what do you look for what do you guys feel about tertiary
markets I’m also going to throw in there questions but it’s under the same common
theme that we’re just driving accountability and and growth with every
question that we’re asking basically exactly Lance so just because it’s
working and we didn’t lose it thank God question was on refinance for larger
properties what do they look at what are they looking for how much do they dive
into it how many did units didn’t need to go tour just give us a quick overview
of it Josh sure so we’re actually in the process of our second right now
refinance wise how big are those or how big is it so we had 62 we did and then
80 doing right now in unit size amounts were one and a half million dollars for
the first one and this is gonna be about three and a half we haven’t had any
appraisal issues so I can’t really speak to to that I do think you can make the
case I don’t know I can’t say I’ve been successful or have attempted that side
either way from an inspection perspective it’s quick they look for
really just a sample they’re coming out there and trying to get into a handful
of units whatever that may be 3 to 5 units what else was involved in that
question so you have to be careful about that yes
yes so just just freaking no it’s so on yes totally to that point to that point
I mean you’re trying to capitalize expenses so if you’re doing a renovation
on a unit and you’re replacing an appliance you’re putting that below the
line right yes so we’re doing it right now on a hundred and twenty two unit we
had a conversation with Ben who I introduced it to and he looked at him
and you know we did a ton of work we renovated about 70 units in the first
year so we had an extra maintenance guy at the property while we were doing that
that’s something we could capitalize cuz it’s it’s if we had a guy there doing
turns so we took that salaries of wages that we moved it as a capital item so
you can you can work with the right lenders you look at a local bank it’s
never gonna happen there they have their ways it is what it is
you work with a better group they will look at your financials that’s what your
mortgage broker or originator that’s what he’s there for
he’s there to help that loan get you know through you can’t scrap out half of
it that’s illegal but if there’s a capital H I’m saying if you’re doing
appliances and you’re in your you gotta capitalize in the wrong place
drop it below long cuz that’s not somebody’s gonna be reoccurring we have
a trash contract on a property that the trash bill is five thousand dollars a
month six thousand dollars a month so we dis terminated that contract we paid
twenty grand trash contracts now 1,100 so we show we
sent them the termination contract so they took it out of the financials
because it’s not gonna be reoccurring so you can work with them if an appraiser
comes out and nails you it’s over right your might have to get another appraisal
so you could but you could pay for another appraisal but that’s what we’ve
seen it goes both ways yeah and I mean the
appraisal you know you’re not getting like a $500 appraisal you’re gonna you
know they’re taking into account sales comps they’re valuing noy they’re
discounting to location so you know I typically a the appraisal appraiser that
we had most recently he asked me what my refinance amount was so I whether you’re
supposed to do that or not do that you know they are working within a margin of
error where I I don’t think most appraisers are trying to hurt you
they’re just trying to that’s on video we’re sending that today it’s a party I
don’t think there’s anything no josh is right it’s not like residential where
it’s you know they got they got a you know they’re gonna kill you on the
commercial side he’s right I mean that’s that’s a lot of times I’ll use a
mortgage broker it costs us money but they look at it first and they will
argue on your behalf wait a second you’re discounting this come so it is
cap rate driven but it’s also it’s everything driven it’s not just this is
a six cap market we’re gonna six cap your bullshit expenses they’re gonna
take into consideration market expenses market rent location property sale per
door they’re gonna take it all into consideration and they’ll come up with a
value if if you’re off 20 grand they’ll work with you if you’re off seven
million it ain’t gonna happen it’s a huge part of this it’s a huge part of it
but that appraisal takes into consideration cap rate it’s in
situational usually all term shoots are contingent upon a base appraisal value
which is usually what it’s based on so appraisal comes in at at least X to be
able to move forward yeah they’ll give you a term sheet they’ll say you know
we’ll give you a million and a half based on and you know based on an
appraisal if you want a million having the building appraised at eight hundred
it ain’t gonna happen Irie fide 13 units four years ago and
the properties were doing so well that they they couldn’t give me the cap rate
for the area that I would be like 20,000 per year
/ and they hit me because I would be leading the pack so they actually gave
me this super high cap rate so I had to argue with the bank and they actually
ended up giving me a business line of credit to equal out what I was looking
for based on the true cap rate of the area but that goes into like the
appraisal came back and the appraiser was just like I can’t give you this
amount we did that too we got it we got a building that we got a loan and then
we also got a line of credit from the bank because it was a way for them to
get around the value so that’s a try that to try and see if they’ll give you
a business line of credit for the difference or for the value well because
like basically at the time Syracuse was like a nine cap or something a nine or a
ten cap and they would had to have given me like another 200 grand so they gave
me it was dates pegged it at a 13 cap to give me what the appraiser thought the
comps were so they gave me a business line of credit to equal out what I was
going to get at a true market ten cap and they made it a second to themselves
all right I think we had two more questions and then we’re gonna we’re
gonna call it for that time I also had to argue with the bank on that one oh
dude Tom so question which I think again we could
probably do a whole hour on we will do a monthly event on raising money raising
money if you’ve never done it how do you get started how do you put a package
together how do you start that whole boat you know try to limit it a little
bit I’ll give you I’ll go quick okay I said me raising five million dollars is
going to be a different conversation than how I started okay like I started
with friends and family so I started there got my track record going and then
when you raise five million dollars it came from another group that gave a
large amount but that was from like ten years of experience that I could show
but I mean it was but mainly it’s about your network I’ve networked a lot create
relationships and tell people what you’re doing and tell them about your
track record totally great it’s been just growing slowly I mean my
largest investor to this point is someone that I met seven years ago never
invested in anything and then and last year broke invested a lot so I you know
I think that’s you know it’s very difficult to just get started in real
estate and raise enormous amounts of money I think that’s that’s out there
that bet concept but it’s not the reality you know it’s gonna start within
whatever your relative comfort zone is it certainly helps to have a rich uncle
that’s that’s got your back but if not I think you’re starting by pooling
together a handful of people that are like-minded that share the same vision
if that’s cool the first thing I would do obviously on
the legal side of it before you do anything just make sure you doing it the
right way so just speak to an attorney you know chalk it up as it’s gonna cost
you money but make sure you go about it the right way cuz you don’t want to
start blasting out emails and doing it illegally the next thing I would do you
know an exercise that I think works really well go through your phone a
twosie put a number next to someone’s name that you think they would invest
and then start calling right just get on the phone hey I want to take you ever
calls me don’t call much they have 150 grand say you know hey let’s get a cup
of coffee and you also have to educate your investor base but
angel investor base you know they know you as Tom I do this you got to start
today for money you want to raise in six months by educating them I am looking
for real estate I’ve toured these deals you know I own property and you want to
educate them so when the deal comes time for it they’re prepared and it’s not
just cold asking something for money offer them an opportunity don’t ask for
money well he had a question the molest one more all right so question was for
each person biggest ely sourced how did you source it and how long did it take
to close my biggest one was the most recent one eleven million dollars one
hundred seventy four units i found it from a broker off market but I called
the broker I was with another group that had it before us and I felt like it was
gonna fall out like that other group wasn’t gonna be able to take it down and
I called a broker every week for two months asking when it was falling apart I mean it was it was a ten point eight
million dollar deal it turned out to be something like sixty two thousand and
per doors and that it took three months to took approximately three months to
close the rent started out at 734 as average rents and we are hitting 1035
and 935 for two beds and three beds right now so there’s about a hundred
fifty per average rent per month Delta it was about thirty days
Josh about an eight million dollar deal a couple years ago in Charleston ninety
six units it it was and I just never went to market it was off market broker
I’ve known for a while worked with just in other capacities as
my previous role on the acquisition side and he knew I was in this space and I
was one of a handful of buyers that he called and gave the
look at for the deal and I was able to move quickly like Chris said and and
just act and we were awarded that deal it was it was probably 90 to 100 days or
so and 30 day diligence as well our biggest deal was the deal we just closed
it was three properties so as a portfolio is 39 million dollars it was –
it was three it was two different sellers one was sourced by a property
manager she brought it to us saying hey they’re looking to buy so she wanted to
retain management so she brought it to us and then the other deal was sourced
by a broker on market nothing exclusive about it they’d missed
their price and we sort of just stayed in there and gave them their you know we
were like the fourth or fifth highest offer so they missed and we were just
there and we really wanted to get active in Jacksonville so we offered on that to
like break you know shake the trees loose then that two other deals came the
two other deals closed in was it’s like 65 70 days from start about those are 30
day due diligence the other deal took like seven months because it was just
you name it they were in a 1031 we were in a 1031 it was an extension here there
was a title defect there was just a plethora of things that went wrong but
it took like six six months give or take seven something like that yeah last
question in the back and then we’re gonna call it okay okay all right
awesome we’re gonna call it there just for time I know other people have
questions I appreciate you sitting throughout the whole thing I appreciate
you putting up with some of the technical stuff as well we have the room
until 10:00 probably a little bit past if you want so coffee and water in the
back if you didn’t see it already thanks for coming and make sure you come
say hello before you leave you

3 thoughts on “Real Estate Investing Meetup – Difference between Large and Small Multifamily

  1. Great content!

    Thank you John, Chris, Chris and Josh!

    Definitely appreciate all the info you shared.

  2. thanks very much to all of you it was very inspiring thanks again will see @ next meetup

  3. Nice content and great meetup

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