\n<\/p>\n
Multifamily real estate investing<\/strong><\/a> was almost impossible to break into over the past few years. Even those that had been in the field for decades were finding it challenging to get offers accepted<\/strong> or deals underwritten. Investors were throwing in almost unbelievable amounts of non-refundable earnest money, going well over asking price and analyzing deals at lightning speed, which often led to mistakes, not more money. But the tables have turned<\/strong>, and now, thanks to high interest rates<\/strong>, the buyer is in the driving seat<\/strong>.<\/p>\n And how could it be a multifamily episode without Andrew Cushman<\/strong> and Matt Faircloth<\/strong>? These two expert multifamily investors have been buying apartments for decades<\/strong> and helping others do the same! In this episode, Andrew and Matt break down what has gone on in the multifamily markets<\/strong>, why cap rates<\/strong><\/a> haven\u2019t kept pace with interest rates, and what buyers can do now that sellers have lost most of their bargaining power<\/strong>. You\u2019ll also get to hear their multifamily predictions for 2023<\/strong>, how far they expect prices to fall<\/strong>, and what you can do to start or scale your multifamily investing this year!<\/p>\n Then, Andrew and Matt take questions from the BiggerPockets forums and live Q&As with new multifamily investors. These topics range from property classes explained<\/strong> to raising private capital<\/strong><\/a> from investors (who aren\u2019t your mom) and the risks and rewards of investing in smaller markets<\/strong>. Whether you\u2019re interested in duplexes, triplexes, or two-hundred-unit apartment complexes, Andrew and Matt have answers for you!<\/p>\n Matt: Andrew: Matt: Andrew: Matt: Andrew: Matt: Andrew: Matt: Andrew: Matt: Andrew: Matt: Andrew: Matt: Andrew: Matt: Andrew: Matt: Andrew: Matt: Andrew: Matt: Andrew: Matt: Andrew: Matt: Andrew: Matt: Andrew: Matt: Andrew: Matt: Andrew: Matt: Andrew: Matt: Andrew: Matt: Andrew: Matt: Andrew: Matt: Andrew: Matt: Andrew: Matt: Andrew: Matt: Andrew: Matt: Andrew: Matt: Andrew: Matt: Andrew: Philip: Andrew: Philip: Andrew: Philip: Andrew: Matt: Philip: Matt: Andrew: Philip: Andrew: Philip: Matt: Daniel: Matt: Daniel: Matt: Andrew: Matt: Andrew: Daniel: Andrew: Matt: Andrew: Matt: Andrew: Matt: Daniel: Matt: Daniel: Matt: Daniel: Andrew: Matt: Andrew: Matt: Andrew: Matt: \u00a0<\/p>\n<\/div>\n Help us reach new listeners on iTunes by leaving us a rating and review! It takes just 30 seconds and instructions can be found here<\/a>. Thanks! We really appreciate it!<\/p>\n Interested in learning more about today\u2019s sponsors or becoming a BiggerPockets partner yourself? Check out our\u00a0<\/em>sponsor page<\/em><\/a>!<\/em><\/p>\n Note By BiggerPockets:<\/b> These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.<\/p>\n
This is the Bigger Pockets podcast show number 711.<\/p>\n
I feel like we\u2019re going to see opportunities we haven\u2019t seen in 10 years. When I look back at 2012, 2013 and 2014, my only regret is I didn\u2019t buy more. I didn\u2019t have the capability. My mom wrote my first check as a syndicator and then it took a long time to get everybody else to join in. So I\u2019m looking at this now as this is coming up, probably starting mid 2023 is going to be the time to scoop up deals that otherwise were unobtainable for the last five, six, seven years. And for those listening who the last three years have been frustrating because you can\u2019t get in the market because there\u2019s no deals out there, the deals are coming. And then also, not to be morbid, but you\u2019re going to have a lot less competition.<\/p>\n
Welcome everybody to the Bigger Pockets podcast. My name is Matt Faircloth and I am the co-host of the Bigger Pockets podcast. And I want to bring in one of my besties, one of my friends, the host of the Bigger Pockets podcast today. Not really the host, but you and I stole the microphone didn\u2019t we Andrew? We stole the mic and we are now running the Bigger Pockets podcast. Who knows what\u2019s going to come out of our mouths today, right?<\/p>\n
Yeah. David went off to Mexico and left his link live and you and I are going to jump in and see what we can do.<\/p>\n
Oh, what could go wrong? It\u2019s great. But quick Andrew, tell me how you are today.<\/p>\n
I am good. I am staying positive and testing negative.<\/p>\n
Can I steal that?<\/p>\n
Yeah, give me credit the first time and the rest of the time it\u2019s yours.<\/p>\n
Okay, cool. If we\u2019re going to be stealing the microphone, do you promise me you\u2019ll have lots of awesome Andrew Kushman analogies and cool straight faced humors and David Greene analogies as well we can use throughout the show?<\/p>\n
Yeah, I\u2019ll do my best. I\u2019m a little nervous filling in for the Green and I forgot to put on my tank top so I\u2019ll channel him as best as I can.<\/p>\n
No way I\u2019m filling those shoes but I\u2019m happy to hold his microphone for him just for a second here.<\/p>\n
Sounds like a good plan.<\/p>\n
Andrew, before we get going, there is an awesome thing that happens at the beginning of every Bigger Pockets podcast. You and I know because you\u2019ve probably listened to 710 episodes of it, you and I both. So let us get going with the quick tip.<\/p>\n
Quick tip. I\u2019m actually going to go rogue on you and give you two, right? Since I\u2019m not wearing my tank top, I\u2019ll have to make up for it.<\/p>\n
Hey, it\u2019s our microphone today man. Give it.<\/p>\n
So first of all, we\u2019re going to reference an article that Paul Moore wrote for Bigger Pockets on the blog. If you\u2019re listening and you haven\u2019t read that article, go back to November 15th and read it. It\u2019s going to give a lot more background on what we\u2019re talking about and then lots of other important stuff for today\u2019s market. Second of all, some of the stuff we\u2019re going to talk about might sound a bit gloomy, but that\u2019s really not the case. That\u2019s the farthest thing from the truth. We\u2019re going to talk about risks and how the markets are shifting and is our pricing going down? That\u2019s all stuff that should be exciting for you if you\u2019re getting started in 2023 or looking to scale your business. So now is the time to be greedy when others are fearful. So don\u2019t let what we\u2019re talking about scare you off. Use it to get excited about diving into all the resources that Bigger Pockets has so that you can learn and scale and grow your business.<\/p>\n
Double the tip. There it is. Thank you so much Andrew. I appreciate that man. Let\u2019s get into the market man. Let\u2019s talk about the current market status. What do you think, you want to go?<\/p>\n
Yeah, let\u2019s do it. There\u2019s lots to talk about.<\/p>\n
I\u2019m in, following you.<\/p>\n
All right, Matt, welcome to 2023. We are in a rapidly changing market. It\u2019s funny, Paul Moore put out a great article back in November addressing some things that we\u2019re seeing now. What are your thoughts on what\u2019s going on out there?<\/p>\n
I didn\u2019t get a chance to read the article yet and you and I are both friends with Paul Moore and I\u2019ve heard a lot of great things about the article. I\u2019ve actually seen some people referencing it. And yes, absolutely things are changing it seems like daily as well. So what did you get out of the article? Tell me about it.<\/p>\n
There\u2019s a lot in there. We could spend a whole hour on it, but I\u2019d say the most important if I were to condense it into one sentence is that interest rates are higher than cap rates. And for those who are listening, it\u2019s like okay, well so what? That\u2019s a big problem, and that\u2019s a huge problem. We haven\u2019t seen that in the last 10 years and maybe even for multiple decades. The reason that\u2019s a problem is it creates negative leverage. So what it means is if you\u2019re buying, let\u2019s say a million dollar 10 unit property and it produces a net operating income of $50,000 a year, that\u2019s a 5% cap rate, a 5% yield, and you go borrow money at 6% in order to do that, you are losing money by borrowing to obtain that asset.
So let\u2019s pretend you bought it all cash and you\u2019re getting a 5% yield and then let\u2019s pretend, to make it simple, you get 100% financing instead at 6%. Your annual debt service is 60,000, but your yield is 50,000. You have a built-in operating loss just on your debt of $10,000 a year. That\u2019s a problem. If interest rates are higher than cap rates, it screws up the market big time. And just for the listeners who are like, whoa, hold on, slow down Andrew. NOI cap rates, you\u2019re tossing these terms around. Cap rate stands for capitalization rate. It is basically the unleveraged yield on a property. So I mentioned buying it all cash. A cap rate is you buy a million dollar property, it produces a $50,000 net operating income. 50,000 divided by a million is 5%, the cap rate is 5%. Net operating income is basically kind of just what it sounds like. It\u2019s your gross revenue minus your operating expenses. And then that is what is left over to pay the debt. And so when that NOI is less than the debt, that creates a huge problem.
So how does this resolve? There\u2019s a handful of things that can resolve it. Number one, interest rates would have to go back down. They peaked a couple of months ago at four and a quarter and then dropped 80 basis points. Who knows where they\u2019re going to go now? I left my crystal ball in my pocket and it went through the wash so it\u2019s permanently foggy. I\u2019m not going to pretend that I can predict where interest rates are going to go. So interest rates could go back down. NOI could go up. If you can increase rent and increase that NOI, then you can overcome to some degree the fact that the cost of debt is higher, or prices could come down. My personal thought, Matt, is that it\u2019s going to be a combination of all three of those things, but I would like to toss it to you and see where you think we\u2019re headed here in 2023.<\/p>\n
I also put my crystal ball in the shop and I can\u2019t seem to get it out. They won\u2019t give it back to me. So what the future will hold, I don\u2019t know, but I\u2019ll tell you what investors like you and I can control. We can control an OI. We can control pushing revenue on properties. That\u2019s one factor that\u2019s in our favor. Okay, what I know is going to happen, I don\u2019t know, but what I think is probably something different. So what I think is going to happen is something like\u2026 Rates have gone up drastically, a lot more than a lot of people thought. Are they going to go up at that rate of acceleration again? I don\u2019t think so. I think we maybe are getting towards the top of the ceiling. I don\u2019t think they\u2019re going to come back down. And so I think that if rates stay up like this Andrew, it\u2019s going to force cap rates to go up a little bit.
And so cap rates are going to come up, rates maybe creep down a little bit but it\u2019s still going to be in the five, six, seven range, somewhere in there to borrow money I think for the foreseeable future. I just think that is what it is. So that\u2019s what I predict is going to happen. And I think that on both sides, the buyers and sellers and investors, because you and I both work a lot with investors, limited partner investors, all three are going to have to get more realistic and everybody\u2019s going to have to take a deep breath and settle down and realize that this is no longer a seller puts a for sale sign on the front of their property and they get 10 bids.
This is likely not going to be the future of what we\u2019re going into. I think that sellers are going to have to get realistic, buyers are going to get a little more strength in their voice in what they can command from a seller, and thirdly Andrew, I think investors are going to learn to get more patient. I can tell you that the scenario you gave on cap rates and interest rates is all valid. But what the truth of the matter is people likely don\u2019t buy a property either free and clear or 100% financed. What they do is they buy it with some sort of an equity check that gets left in there. And if cap rates are lower than interest rates, as you said, there\u2019s no money left in the property and most importantly, there\u2019s no money left to go to the equity side, whether that\u2019s LP investors or folks writing a check out of their own pocket to go to the property.
So the property\u2019s either not going to cash flow very much, talking like low single digit rates of return either for investors or for the owner direct. And that means that the equity\u2019s going to need to be a little more patient if you\u2019re buying a big value add property that is going to cash for a little bit in the beginning and then make more money in the long term. I believe the world of producing a six to 7% guaranteed aka preferred rate of return for investors right under the gate when you buy a property may go away all completely or it may change drastically. Because if you\u2019re going to buy a property today, likely it\u2019s not going to produce any cash flow at all if a little bit, but certainly not enough to pay a six or 7% preferred return.<\/p>\n
Yeah, you\u2019re absolutely right. All these changes and shifts are affecting different market participants in different ways. So like sellers that I talked to, or I mean, Matt, you and I are both in different multi-family masterminds and we either know or have heard stories of sellers who they\u2019re having trouble making the mortgage payments because they had an adjustable rate loan that has gone from three and a half to seven and a half. And yes, some people have caps on it, meaning it hits a certain level and it doesn\u2019t go up anymore. But lots of others don\u2019t, and they have watched their mortgage payments double or even two and a half sometimes triple in the last six months, and that\u2019s creating financial stress for sellers. Also on the flip side, sellers who aren\u2019t having trouble paying the mortgage or have fixed rate debt, it\u2019s slowing volume down because they\u2019re just sitting back going, well, I\u2019m not going to sell in this market. I want to get the price I got in January of 2022 and no one\u2019s offering me that so I\u2019m not going to sell my property.
It\u2019s kind of like the kid at the playground who\u2019s just like, that\u2019s it, I\u2019m taking my toys and I\u2019m leaving. They\u2019re out of the game. They\u2019re going to sit there and wait and they\u2019re not motivated to sell because operations are still really good. That\u2019s another kind of weird aspect of this market is the distress out there is financial, it\u2019s not operations. Now some select sub-sectors in some markets could see operational distress going forward, especially if we get into a real recession with real job losses. But at the beginning of 2023, the distress is being caused by the financial markets, not operations. And as an investor evaluating potential acquisitions, that\u2019s a key thing to look into.
Why is the property distressed? Is it because the market here is terrible or is it because the owner made a mistake, put the wrong kind of debt on there and now they\u2019ve got to get out of this and it\u2019s an opportunity for you as a new investor to get started by picking up a killer property in a killer location that otherwise would not have traded if the debt markets hadn\u2019t shifted? So if you can\u2019t tell, this stuff is getting me excited because I feel like we\u2019re going to see opportunities we haven\u2019t seen in 10 years. When I look back at 2012, 2013 and 2014, my only regret is I didn\u2019t buy more. I didn\u2019t have the capability. My mom wrote my first check as a syndicator and then it took a long time to get everybody else to join in. So I\u2019m looking at this now as this is coming up, probably starting mid 2023 is going to be the time to scoop up deals that otherwise were unobtainable for the last five, six, seven years.
And for those listening who the last three years have been frustrating because you can\u2019t get in the market because there\u2019s no deals out there, the deals are coming. And then also, not to be morbid, but you\u2019re going to have a lot less competition. I already know of sponsors who are closing up shop because their deals have imploded and the equity is gone and they\u2019re out of the business. The beauty of starting out now is you don\u2019t have that baggage. You can come in at a fresh bottom, low point in the cycle, take advantage of these opportunities, not have 27 people bidding against you and build the foundation of a great business. Wealth is made in the downturns. In five to seven years from now, anyone who accumulates properties the next two or three years is probably going to be sitting pretty.<\/p>\n
Love it. It\u2019s a great time to get started. It\u2019s a great time to be a new investor in this market and it\u2019s a great time to be established as well if you made the right decisions coming into this place.<\/p>\n
So looking forward, Matt, I\u2019m curious as to what you\u2019re seeing this year. To me, I think the Feds, they\u2019re going to at least pause, right? And I think just doing that will open up the market a little bit because right now when the Fed\u2019s raising rates 75 basis points every other month, no one knows how to underwrite. What\u2019s my exit cap going to be? What\u2019s my interest rate going to be? So at least when it pauses, everyone can kind of take a breath and say, okay, what are the rules now? How do I underwrite? I think that\u2019s going to loosen up the market. Two, we already talked about. There\u2019s going to be motivated sellers, people who can\u2019t make their mortgage payments, unfortunately. So that\u2019s going to bring some deals to the table. And by the way, those deals aren\u2019t going to go to the highest bidder, they\u2019re going to go to the buyer or the investor who can offer the most surety of clothes.
So again, that\u2019s something else we\u2019re looking for is not paying the highest price but being the most savvy buyer, that\u2019s going to get deals going forward. And that\u2019s another thing that\u2019s been really tough lately. So we talked about competition\u2019s going to drop, there\u2019s going to be more motivated sellers because people can\u2019t make the payments. We\u2019re unfortunately already seeing that. And then my guess is going to be we will probably see pricing off anywhere from 15 to 30% from the peak, and I would call the peak maybe January of 2022.
So I\u2019ll give you a perfect example. We put in an offer on a property this week that when we first started talking to the seller at the beginning of 2022, they wanted 220 a unit and at the beginning of 2023, we\u2019re now talking 165 a unit. The property is still running really well and it\u2019s in a great market. However, the pricing expectations have come down and could they come down a little bit more? Yes they could. Can any of us perfectly time the bottom? No we can\u2019t. So the key is to go buy properties that are in great locations and cashflow well so that five to seven years from now we look like stinking geniuses. So that\u2019s kind of my thought and my plan for 2023. Matt, you disagree or what would you add to that?<\/p>\n
Well, I\u2019m not sure if I want to look like a stinking genius. I mean, that\u2019s just not-<\/p>\n
Maybe a regular genius.<\/p>\n
Yeah, just a regular. Can I be a good smelling genius? You can be the stinking genius. Is that okay? Your [inaudible 00:16:02].<\/p>\n
All right, fine.<\/p>\n
Yeah. Okay good. So I agree. I don\u2019t know if I agree with the 30% and that\u2019s only because I think that a lot of properties out there that are legacy holds that have been out there forever, a lot of multi-families been held for generations by people. So I think that those that bought properties in the last say three to five years are going to be in a position to need to sell because of debt that\u2019s graduating or debt that\u2019s gone up or because they just can\u2019t refinance anymore or whatever it may be. But I don\u2019t think that it\u2019s going to be blood in the streets like it was in 2007, 2008. I don\u2019t correlate the two things. I think what you\u2019re going to have is sellers are going to need to get more realistic with their numbers.
And I think that for the longest time, Andrew, it\u2019s been this seller\u2019s market. That\u2019s it. And when you go to buy a multifamily property, it\u2019s like you\u2019re going to prom. You\u2019ve got to get your best suit on, you got to do your hair and everything. You\u2019ve got to wave your hands in the air to get the attention and everything like that, and it\u2019s you and 17 of your best friends bidding on a multifamily property. Some buyers may get a little skittish and go away, but I think that the buyer conversation between buyer and seller is going to become more give and take. We\u2019re looking at a property right now. Believe it or not, we\u2019re actually looking to buy a multi-family property right now, Andrew. We\u2019re looking at a deal and for the first time that I\u2019ve ever seen it in the last five years anyway, there\u2019s no concept called money hard day one. I\u2019ll explain what that is.<\/p>\n
Oh, beautiful thing that\u2019s going away.<\/p>\n
It is, it\u2019s going away and that never should have been a thing. Again, you had said before, you get two things in real estate when you\u2019re making an offer, you get price or you get terms. Money hard day one is a term that gets negotiated in the purchase of real estate. What it means is if I\u2019m buying a property and it\u2019s a million dollar 10 unit multi-family property or something like that, I may lay down, say 50K is my earnest money deposit and they\u2019re going to go get a mortgage beyond that or whatever. So I\u2019m going to have to bring more to closing, but that earnest money deposit is something that goes along with a contract that shows I\u2019m serious and here\u2019s my money and if I do something wrong that\u2019s outside of this contract, the seller may have the right under certain terms to claim that money. Likely through a court action, but they may have the right to claim that money.
And this happens in small real estate transactions and buying a three bedroom, two bath, you might write a check for $5,000 as your earnest money deposit or something like that. Bigger multi-family properties have bigger numbers that go for earnest money deposit. What money hard day one means is that a certain percent of that money, and sometimes in more aggressive markets all of it, is nonrefundable the day you sign the contract. Here\u2019s the problem with that, Andrew. You don\u2019t know what you\u2019re getting yourself into. And that\u2019s why there\u2019s a concept called due diligence. Like Andrew\u2019s got a 10 unit apartment building or a 30 unit or a 300 unit for sale, the buyer needs to have time to get their head around this thing to make sure that what I\u2019m buying is what this seller told me it is, meaning seller says, yeah, my roofs are in good shape, all my sewer lines are in good shape, all my tenants are paying their rent and there\u2019s only this much vacancy or whatever it is.
All the factors that the seller states, the buyer should have a period of time to go and validate those things. It\u2019s called due diligence and the buyer should have the right to confirm. What money hard day one means is that, say it\u2019s a $50,000 deposit, 10k of that or more is, oh, you found that my sewer lines were crushed or that my roof was leaking or that my vacancies was higher than I said it was. So sorry, I get to keep that money hard. And it was there in more aggressive seller markets to hold that seller and buyer to closing and to make the transaction happen. But as we\u2019re normaling out the playing field, it was never a fair thing to begin with. Do you agree Andrew? It never should have been in the contract to begin with, but it\u2019s been the way the game was played so we had to do it begrudgingly. But now I believe it\u2019s going to go away personally.<\/p>\n
It\u2019s starting to, and for everybody listening, rejoice that the risk of hard money should hopefully not be something that you have to worry about anymore. And I love all of what you said, Matt. And something else I would add for those who are starting to evaluate properties, and this is again, not something we had to worry about as much in the previous 10 years, but look at your debt service coverage ratio. And Matt, I\u2019m going to push back on you just a little because I think this, unless rates change dramatically, I think this is one of the things that\u2019s going to lead to probably a temporary decline in prices is that when the cost of debt goes from let\u2019s say three and a half to six or six and a half percent, the income coming off that property is no longer there to make the mortgage payment.
And so the lender\u2019s going to say, well at 3%, at three and a half percent, I could have given you a million dollar loan, but at six and a half percent I can only give you 550,000. Sorry. It is what it is. And so then as a buyer, you go to the seller and say, well look, my lenders only going to give me 550. I\u2019m only going to offer you 700 instead of a million. So I think that is going to be a piece of what\u2019s going to lead to some decline in select properties in markets. Again, people who have had generational properties with low leverage, they\u2019re not going to accept that. They\u2019re just going to hold on. But there\u2019s going to be some motivated people that have to sell.
And speaking of generational properties, Matt, I want everyone listening, keep in mind, this is a long game. It\u2019s been a really, really popular business model, especially with syndicators for the last five years to do the whole two to three year buy it, do a quick fix up, flip it out and sell it in a short period of time, two to three years. That business model isn\u2019t dead, but I\u2019d say it\u2019s going into hibernation for the short term. That is not going to be anywhere near as easy as it was in a rapidly rising market. When we\u2019re looking at properties now, we\u2019re looking at five, seven, 10 year hold times. And I would add on top of that, if you\u2019re buying for your own portfolio and you\u2019re going to hold for 15 or 20 years, what\u2019s happening today, you\u2019re not even going to remember it when you get 15 to 20 years down the road.
That property is going to be worth a whole lot more than it is today and you\u2019re going to be glad that you bought it, especially if you buy the right property in the right location, good demographics, some of the things we\u2019ve talked about in previous episodes. And then Matt, just to clarify, you\u2019re talking about hard money. You\u2019re referring to the non-refundable deposits, right? So the minute you put that into escrow, even if you find out that the seller is lying to you, the roof\u2019s bad and half the place is vacant, they get to keep your deposit.<\/p>\n
They can try to, yeah. And remember, it\u2019s a court action. The check actually doesn\u2019t get written to them. It goes to a third party escrow and that escrow company can\u2019t release it without both parties permissions and if both parties don\u2019t get permission, then it\u2019s got to go through court action. So it\u2019s not as simple as it sounds, but yes, in the contract it will say that that money becomes the property of the seller if for any reason the buyer decides that they don\u2019t want to do the deal. But just I think that things sway back towards the middle and I think that that\u2019s what I believe the pendulum is going to swing towards. And you\u2019re right about properties being debt yield restricted where you used to be able to borrow 80% loan to value for a multifamily. You did, even 75, 80% loan to value if you wanted to.
Now the best you\u2019re going to get because rates are higher is 55, 60, 65% loan to value. That means you\u2019ve got to raise more equity to go into your deal and that means you can borrow less, which is maybe a little conservative way to look at it, but if your equity investors are looking for a six or 7% rate of return on a deal that\u2019s selling at a 4.5% capitalization rate, guess what? You can\u2019t give them that rate of return. It\u2019s just that the money, just the numbers aren\u2019t there to pay a rate of return on properties. We\u2019ve looked at deals that are producing like one to 2% cash on cash return for us and me and the investors have to split that, right? We have to carve that up from there. There\u2019s just not enough yield to pay investors a reasonable rate of return. So I think that, as I said before, that everybody\u2019s got to get more reasonable, buyers, sellers and our investors.<\/p>\n
All right. So Matt, you mentioned you\u2019re out making offers, you\u2019re in the thick of it, you\u2019re not on the sidelines. What are you doing that the rest of us and that everybody listening can duplicate or learn from or do to prepare to either start from scratch or start scaling in 2023?<\/p>\n
Well, the worst thing that somebody could do right now, Andrew, is sit on their hands and wait for things to change, right?<\/p>\n
Yeah, agreed.<\/p>\n
I have young kids as you do and I read them the Oh, the Places You\u2019ll Go! sometimes. And that book talks about a place called the waiting place where you\u2019re waiting on a phone to ring, waiting on a train to come, waiting on this, waiting on that. Life continues to pass you by if you wait. Those that want to make things happen are going to get ahead of the curve and get out there and maintain relationships with brokers. Don\u2019t just wait for prices to drop before you start calling brokers. What you can do now is to initiate, build or even just maintain broker relationships. Call brokers up. Hey, I\u2019m Joe, I\u2019m Jane, I\u2019m looking to buy and I\u2019m waiting on the right deal and this is what I\u2019m looking for. Whatever it is.
Obviously don\u2019t tell me you\u2019re waiting on the market to crash before you buy a deal. They\u2019re not going to want to hear that. But you can use the time now to build and deepen relationships with brokers and also with investors. Stay in communication with your investors. Your investors are going to forget about you if you don\u2019t communicate with them on a regular basis. Even if you don\u2019t have a deal, that\u2019s okay. Call them, check in, call them and wish them a happy holidays. Send them a holiday card, send them a newsletter as we do. Stay in regular communication with people so they know that you\u2019re there and that when a good deal comes up from that broker that you\u2019ve maintained or built a relationship with, you\u2019ve got an investor pool that\u2019s there to hop in. The last thing you want to do is to have to rebuild your business.
When the great deal that Andrew and I are talking about shows up in three or four months, you don\u2019t have to rebuild or restart your airplane engine to get it off the ground again. You want to be rip roaring and ready to go with investors lined up with debt that you\u2019ve been maintaining relationship with and position and with brokers that are willing to give you the first look at those great deals when they show up.<\/p>\n
Yeah. And I mean, that\u2019s a whole other episode that we could spend diving into that. And for everyone listening, I want to reiterate what Matt said about not sit around and waiting. Waiting and sitting on the fence does nothing for you but hurt your crotch. I mean, now is the time to streamline your systems, build your team, add investors, and that\u2019s what we are doing in our business. It\u2019s slow right now. So we\u2019re going back through, we\u2019re cleaning up simple things like cleaning up our file systems so our team spends less time going, wait, wait, where\u2019d that document go? We\u2019re getting ready to hire another person, add to the team. Like wait, you\u2019re hiring in a downturn? Yes, now is the time to find the best people and get them trained so when the deals come, you\u2019re ready to jump on them like Matt said. And we\u2019re still out there looking at a lot of deals and we\u2019re talking with new lenders, we\u2019re looking at new markets and we\u2019re evaluating new\u2026 Well, not new but creative or different ways to buy properties, right?
BRRRR is coming back. When I started this in 2012 or 2011, we\u2019d buy properties all cash, we\u2019d get them running great and then we\u2019d refinance it and give investors 100% of their money back. The last five years, we\u2019re lucky to give investors 25% of their money back at refinance because we had to pay so much in the beginning. In this market, one way to eliminate interest rate risk is to go find a 10 unit for 500,000, raise 700,000, buy it all cash, fix it up, and then two or three years from now when the debt markets are hopefully improved, refinance it, give your investors all their money back and now you\u2019ve got an asset that you can just sit there in cash flow with basically no risk. Those kind of opportunities are coming back.
We\u2019re also looking at seller financing. That\u2019s coming back. Assumptions are coming back, longer term holds. There\u2019s no such thing as a bad market, just bad strategies. So think beyond the quick three year I\u2019m going to buy this, fix it and sell it. Look at alternate ways to buy, alternate ways to finance and longer hold times and that can make for great deals to be found. And that\u2019s kind of the quick version of what we\u2019re doing in 2023.<\/p>\n
I love that. We\u2019re hiring too and we are cautiously making bids on deals that makes sense to us. And I\u2019m kind of having to straight face offer somebody 80% of what they\u2019re asking and it is what it is. And I find that properties are still in the market. There\u2019s one that the guy was asking 125,000 a unit on and he laughed at us when we offered them 115, and then they came back to us, they said, \u201cHey, is that 115 number still good?\u201d And we looked at it and guess what? Rates had gone up a little bit since then. So we\u2019re now talking to a manager at 105. And so there are still deals to be made, there are still conversations to be had in that. And one more thing that we\u2019re doing on top of everything Andrew said, we\u2019re doing a lot of that as well and I love the BRRRR is back stuff. That\u2019s awesome.
The one thing we\u2019re doing as well, and I know we\u2019re talking multi-family today Andrew, but guess what? There are actually other real estate properties you can buy. They\u2019re, believe it or not, Andrew, not multi-family apartment buildings.<\/p>\n
That\u2019s blasphemy.<\/p>\n
There are other kinds of real estate. So we\u2019re looking at diversification for us and our investors in other asset classes such as Flex Industrial. Believe it or not, we\u2019re looking at hotels. And not like swanky, boujee, boutique hotels. I\u2019m talking about a courtyard Marriott like I\u2019m standing in right now. Those kinds of things. We\u2019re looking at that. We\u2019re looking at unanchored retail. Not that we want to lead multi-family. Multi-family is where my heart and soul is, but I also want to be able to offer things to our investors that make fiscal sense. And while I\u2019m waiting a bit for multi-family to start making more fiscal sense, we\u2019re going to keep making bids, but we\u2019re also going to be looking at other asset classes to diversify a bit so that our investors can diversify so that we can diversify too.<\/p>\n
Yeah, that makes a lot of sense and I see a lot of operators doing that. And especially if you can kind of dovetail things together. A lot of times self storage right next to a multi-family, there\u2019s a lot of cross pollination there that can work really well. And we\u2019ve actually acquired apartment complexes that had some self-storage onsite and that\u2019s a whole other revenue stream. And so if you\u2019ve got that self-storage skill or tool in your tool belt, there\u2019s ways to bring those two things together and like you said Matt, diversify a bit.<\/p>\n
Absolutely. Absolutely. And not that multi-family is not the core in that, but it doesn\u2019t have to be the end, it doesn\u2019t have to be the everything.<\/p>\n
All right Matt, well that was a fun market discussion. I always love diving into that, especially with you. So I want to throw out a couple of my goals for 2023 and then I\u2019d love to hear what yours are and then maybe we can see if we can help out some listeners and talk about some of theirs. So I know what I\u2019m looking to do in 2023 is hopefully make four to eight significant acquisitions. That\u2019s market dependent, they have to be great deals. But assuming the market shifts like we talked about, we\u2019re looking to pick up hopefully four to eight.
We\u2019re also looking to add a team member or two because if we add that many deals, we\u2019re going to need more bandwidth to do a good job asset managing them. And then we\u2019re looking to actually expand markets. Right now we\u2019re in Georgia in North Florida and whenever people ask me where do you invest? I say Georgia, North Florida in the Carolinas, but we currently don\u2019t own anything in the Carolinas. We\u2019ve sold everything we had in Texas a couple years ago. We\u2019re going to refocus that energy on the Carolinas and try to expand into markets and put some of the principles that we talked about into play and execute on those. So curious, Matt, are you similar or what are you up to?<\/p>\n
Yeah. Well, just as you said, we\u2019re hiring. We\u2019re going to hire two key folks this year. We\u2019re going to be hiring a marketing director whose job is to get us eyeballs and get us attention and do super creative stuff and whatnot on online socials and things like that. Also, we are lucky enough to own a few multi-family properties in North Carolina so we want to expand there as you do as well. So come on and be my neighbor, it\u2019s great. The water\u2019s fine, come on in. We also want to hire an asset manager in North Carolina that can be regionally focused in the state that can go to the properties we have on a regular basis and make sure business plans being upheld in that. It\u2019s great to have acquisition and capital goals and marketing goals, but above all else we want to take what we have performing and keep it performing and tighten up.
And as the market changes and things like that, it becomes more important to make sure the boats you have are floating properly. And so we are installing KPI programs and performance metrics and things like that into what we own already, which is already thousands of units of multi-family. But we\u2019re going to keep that running well and it\u2019s important whether you own thousands of units of multi-family or you own one property, it is very important to keep what you have running well. Too many times people focus on acquisitions goals and you and I just talked about that too, so we\u2019re just in the same boat. But you should also talk about setting goals about performance of what you currently have. And so we\u2019re going to be setting performance metrics and goals for our current portfolio just to keep it running healthy because that\u2019s really what matters the most is what you already own, not what you\u2019re going to buy but what you own already.<\/p>\n
You know what? Man, that\u2019s my mantra. I actually forgot to mention that. So that\u2019s what we\u2019re doing while things are slow. We are getting better at implementing EOS, we\u2019re becoming better asset managers, we\u2019re putting those systems in place, we\u2019re doing additional training for everybody involved and as you said, making sure that the boats you already have are in really, really good shape.<\/p>\n
EOS, traction, quick plug. You and I are both raving fans of that book and it\u2019s important for small and large sized businesses as well. And we\u2019ll throw one more thing out about goals up by the way Andrew. If someone just happens to be listening to this episode and it\u2019s not January and it\u2019s like, oh okay, it\u2019s not New Years so I don\u2019t have to set goals, guess what? There\u2019s actually not a rule. There\u2019s not a law that says that you can only set goals on January 1st. You\u2019re actually allowed to set a goal anytime. You can set a goal on December 31st, December 1st, or on your birthday, whatever it is. Anytime is a good time to make a goal or to set a hurdle for yourself. Go pick up Brandon Turner\u2019s 90-day intention journal and use tools like that to help you meet that goal over a 90-day program whenever you decide you want to plant that flag and make it. You don\u2019t have to say, oh, I can\u2019t set a goal today because it\u2019s not New Years yet. You don\u2019t have to do that.<\/p>\n
I thought once you hit February 2nd and it was Groundhog Day, you were doomed to just repeat that year for the rest of the year and then you couldn\u2019t set any new goals.<\/p>\n
Right. If you haven\u2019t taken [inaudible 00:36:06] on your goals by February 2nd by Groundhog\u2019s Day, then you\u2019ve got to be like Bill Murray and live that day over and over again. That\u2019s the rule, right? So Andrew, listen, talking about mine and your goals, we need to help people achieve what they\u2019re looking to manifest for their goals as well. So lots of folks have pumped in tons of questions on multifamily on the awesome Bigger Pockets forum. Quick plug by the way, quick tip, put questions in the Bigger Pockets forum because you never know where those questions are going to go, including right here on the Bigger Pockets podcast. So there are awesome questions here on the Bigger Pockets forums that I\u2019d like to take a minute and go through with you. Are you down? Are you ready?<\/p>\n
Oh, I love answering questions. Let\u2019s do it.<\/p>\n
All right, let\u2019s speed round some of these. Ready? Let\u2019s go.<\/p>\n
I\u2019m going to pull a couple of questions and if you haven\u2019t gone in there and posted questions yourself, please go do that. Let\u2019s see, we\u2019re going to start with this one right here. Question is, how do I confidently assess property class from out of state and how do I align my business strategy to the property class? Quick definition, when somebody is talking about property class, they\u2019re often referring to A, B, C, and D. A is kind of the nice new shiny stuff. B is kind of more your working class people who can either rent or buy but are choosing to rent. C tends to be someone who might be a renter for life. They can\u2019t afford to do anything but rent. They\u2019re employed, they have good jobs, but they\u2019re kind of in that workforce housing. And then D is often kind of referred to as if you\u2019re going to be collecting rent in person, you might want to pack heat to do that. So it tends to be kind of the higher crime, much rougher, much older properties.
So that\u2019s what they\u2019re asking about when they talk about class. How do you assess that from out of state and how do you align your business strategy with it? Well, the first thing is go read David Greene\u2019s long distance real estate investing. It is geared towards single family investment businesses. However, the same principles apply to multi-family in terms of how to operate a long distance real estate business. Building teams, selecting markets, doing due diligence, all of those kind of things. Now, when I am looking at a new market or even a sub market that I haven\u2019t owned in, there\u2019s a long checklist of things that I go through to do this very thing, to figure out, well, what class property is it and what\u2019s the class of the neighborhood?
So one of the main things that I check is the median income, right? Higher median income is going to lend itself to more A and B class properties. Lower median income is going to be more C or possibly D. And you might ask, well Andrew, what\u2019s the cutoff? That\u2019s going to vary depending on what state you\u2019re in. Some parts of California, $120,000 a year is poverty level. In Georgia, that\u2019s an A class neighborhood. So you need to look at all the areas around your property, get a sense of what the spectrum is, and if you\u2019re on the high end of the spectrum, you\u2019re probably A, B. If you\u2019re on the low end of the spectrum, you\u2019re probably C and D. Also, look at year of construction. If it\u2019s built in 2000 or newer, it\u2019s probably B or A. If it\u2019s built 1980 to 2000, that\u2019s probably a solid B. If it\u2019s 1960 to 1980, you\u2019re probably looking at a C class property and if it\u2019s older than that, it could be C or D depending on the neighborhood.
Look at relative rent levels. We talked about earlier, if you\u2019re looking at a suburb of Atlanta, for example, and the median income ranges from 40,000 to 75,000, you\u2019re going to see a similar pattern with rent. If you look at all of the apartments in that market, you\u2019ll see, well, some two bedrooms are renting for 800 and other two bedrooms are renting for 1600 or 1800. Well, odds are the ones at the bottom of that spectrum that are renting for 800, that\u2019s probably your class C property. And then if you look the property up, oh, it\u2019s built in 1975, oh, okay, that\u2019s another data point, probably a C class property. Then you\u2019re going to look at the amenities. If it doesn\u2019t have a pool, if it doesn\u2019t have a playground, if it doesn\u2019t have a dog park, that\u2019s probably C or B because most A class properties are going to have fitness centers and grilling stations and pools and are going to be highly amenitized. So the more amenities, the more likely it\u2019s class A. The less amenities, you\u2019re getting down the spectrum, B, C, possibly D.
I would also evaluate the neighbors. So if you look at your property and then you jump into Google Street View and you take the yellow man and drive around and you see brand new retail or a nice new Sprouts or Whole Foods or Kroger, you\u2019re probably in a B or an A neighborhood. If you see old kind of rundown strip mall centers with a cigar shop and a tattoo parlor and eyebrow threading and all this fun stuff, that\u2019s probably class C. So again, that\u2019s another data point. When you\u2019re trying to figure out is this class A? Is this class B? Is this Class C? One of the frustrating things about it, especially as a new investor, is you can\u2019t turn to page 365 of a book and figure out, oh, here\u2019s what it is. It\u2019s a spectrum. It\u2019s a little bit vague. And so what I\u2019m trying to do is give you the data points that we use to figure that out.
And then finally talk to other property managers and lenders and other people who know that market and they can give you a tremendous amount of insight. The best thing of course is to hop on a plane or get in the car and go drive to that market yourself. It\u2019s amazing what you can gain with the internet in long distance these days. It is so different than it was 10 years ago, but nothing beats being there in person. So if you\u2019re going to invest in a market, make sure you at least get out there once so you have a real good feel of it. So that\u2019s kind of the short version of what I would do. Matt, have you got anything else that you would add on top of that?<\/p>\n
Andrew, every time that you answer a question before me, I find myself saying, I agree with Andrew because everything you said was so thorough, right? I really agree. I mean, honestly. And I love the end, I\u2019m like, do I have a cigar shop or a tattoo parlor near any of my properties? I may, but what I\u2019ll say on top of all that is that you the listener need to decide which angle of attack you want to get yourself into. There is more money to be made ever, but you\u2019re going to have thick skin to do it is to buy underperforming really, really poorly run D class property where Andrew said you might have to wear a sidearm to go collect rent and turn that into a C or a B class property. Not everyone has the skin for that. Not everyone wants to take the risk, enormous, enormous 10 pounds of risk that it would take to take down a property like that.
So if you do not have the chops and the business plan and the team to do a D to a B or a D to a C conversion, then that\u2019s not the right business plan for you. Everything Andrew said is correct in identifying property classes and determining neighborhoods, but you as the investor then need to figure out which business plan works for you. Do you want to set it and forget it? Maybe make a lot less cash flow, but that could be class A or class B for you. Maybe there\u2019s small little tweaks in the business plan you can do over the years to make the property make more and more money and hold it for a really long period of time. So maybe higher class properties are the right fit for you. It really just has to do with what risk factors you\u2019re willing to take on and the team that you can bring to the table.<\/p>\n
Philip Hernandez, welcome to the Bigger Pockets podcast. How are you doing, sir?<\/p>\n
I\u2019m doing well. I am super stoked to be here. Yeah, thank you so much, Andrew.<\/p>\n
You are part of the inaugural group of the Bigger Pockets mentee program.<\/p>\n
Yes, sir.<\/p>\n
And you\u2019re here with a few questions that hopefully we can help out with today. Is that correct?<\/p>\n
Yeah, that\u2019s right. Yeah, no, super stoked and thank you guys so much for your time. So as I\u2019ve been reaching out to brokers and developing relationships with different brokers in markets that I have a good sense of how things should look, I have had a couple times those same brokers send me deals in smaller cities in MSAs, like tertiary markets with less than 50,000 people. And I don\u2019t have any presence there. I don\u2019t have any connections, I don\u2019t really know anybody there. But when I run the numbers, it works. The deal works. But I\u2019m also like, okay, I have no idea what I don\u2019t know. So what would a deal have to look like for you to invest in a tertiary market where you don\u2019t necessarily have a presence and how would you mitigate the risk of taking an opportunity like that? And yeah, let\u2019s assume everything looks good about it, people are moving there, there\u2019s diverse jobs, the property\u2019s in decent condition. Yeah.<\/p>\n
First off, tell me about this market because I want to know where it is. So we could do a whole podcast on this. I\u2019ll try to just hit bullet point, real high level. Number one, I have passed on many opportunities like that because of the challenges of small markets. So keep that in mind. One good asset in property management is where the money is really made and that is one of the biggest challenges that you have in those small markets. Some of these challenges are why those properties look so good on paper because the prices are lower because of the challenges that are inherent with those types of properties in those markets. So not only are you going to have more trouble getting good management, you\u2019re also going to have trouble getting contractors and vendors and staff and all of those kind of things.
But your question wasn\u2019t hey Andrew, what are the problems I\u2019m going to have? It was, how do I fix that? Right? So number one, like I said, in many cases I just pass even if it looks great on paper because sometimes the juice just isn\u2019t worth the squeeze. Second of all, if I am considering doing it, I might say, well who can I partner with that solves these problems? Is there somebody else I can partner with that already has a presence in this market that knows the market, can just move this property into their current portfolio and manage it better than anybody else out there? If you can do that, that can turn a weakness into a tactical advantage. I have seen people do that very thing, go into markets that are fragmented and that they don\u2019t have a presence in, find someone who is just local and knows that market inside and out, partner with them and all of a sudden they\u2019ve got an advantage that just no one else has.
And then another question that I would ask is, how is the current owner managing it? And if they\u2019re doing it well try to copy what they\u2019re doing. If they\u2019re not doing it well go look at all the other properties in town, find the ones that are the most well run, and either try to hire those people, maybe it\u2019s the same management company, or contact the owners and say, hey, can I partner with you? Maybe there\u2019s an opportunity there. That would probably be the biggest thing I would recommend is find some local connection, partner or advantage to help mitigate those risks and then that return might actually have a higher chance of actually coming true.<\/p>\n
So yet again, everything that Andrew said I agree with. And to expand on that, when my company DeRosa invests in a market\u2026 And this is why I wouldn\u2019t do the deal you\u2019re talking about Philip. So the short answer is no, I wouldn\u2019t do that deal because we invest in markets first, and that\u2019s for everything Andrew said. Labor, access to\u2026 Everything from the contractor that\u2019s going to turn units over and upgrade them for me to the workforce that\u2019s going to live in the property, access to jobs, those kinds of things, to the property manager themselves. You don\u2019t want them commuting an hour to your property from where they personally live to your property. You want them to live in a reasonable sized metro, that there\u2019s middle income housing for them to live in, that they can come to your property to work for your property as well.
So for those reasons, I wouldn\u2019t do the deal. And above all else, when we invest in markets, it\u2019s market first. And the reason for that is so that I can buy not one, not two, three properties, three multi-families in a market that we can expand. I mean, our goal is to get to at least a thousand units in every market. And that doesn\u2019t have to be your goal, but you should never look at a deal and say, I want to do that one deal in this market. If you can\u2019t see yourself doing at least another 10 deals in that market, if there\u2019s just not the inventory to do 10 more deals, or if you\u2019re not sure if you believe in the market that much to invest 10 more times in the market, I wouldn\u2019t do the deal.
And what investing 10 times in that market does for you is it accesses everything that Andrew talked about. You get the best access to labor, you can really sway the market that way. You can really control the market a bit and direct what rents and amenities should look like, what really awesome housing should look like in that market if you\u2019re a large owner. If you\u2019re not willing to do that, then you\u2019re going to be on the peripheral and you\u2019re never going to be able to really control it or negotiate great labor contracts with folks to do the work for you or to really access full exposure to what that market can yield for you if you\u2019re only willing to go in a little bit.
So everything you said does not get me excited about the deal that you have. It\u2019s just, hey, this deal looks good on paper, it\u2019s a market I know nothing about. That\u2019s just what I heard. This deal looks good on paper, it\u2019s a market I know nothing about, I don\u2019t know anybody there, it\u2019s kind of out in the middle of nowhere kind of thing. I\u2019m saying that, you didn\u2019t say that. But if it\u2019s close to a big market, then maybe look at the big market and look at this tertiary as kind of part of a bigger picture you want to paint for yourself. So that\u2019s my short answer. Cold water on you is no, I probably would not do that deal.<\/p>\n
No, that\u2019s all good. Any shiny objects that I can take off of my radar will I think help my journey in the long run.<\/p>\n
It feels like a shiny object to me.<\/p>\n
And I\u2019d like to quickly reiterate two things. Number one like I said in being most of those I pass on. And then number two, I really like what Matt said for everybody listening, if you\u2019re going to do that, if it\u2019s a one-off deal, probably pass. But if you can do five, six, seven, 10 and grow it, you can turn that into an advantage. So Philip, we appreciate you coming on real quick and then also just asking questions in front of a quarter million people audience, takes some [inaudible 00:50:53] so we appreciate that. Other than storming your classroom, if people want to get in touch with you, how do they do that?<\/p>\n
So on Instagram, it\u2019s the_educated_investor, and then I have a website, www.educatedinvest.com. Thanks for that shout out Andrew. Appreciate that.<\/p>\n
I like it. Good stuff, man. Well, you\u2019re going to do well. I think we\u2019re going to be hearing a lot more from you here in the near future.<\/p>\n
Awesome. Thank you.<\/p>\n
Andrew. We\u2019ve got another question lined up here. I\u2019ve got Danny. Danny Zapata. Danny, welcome to the Bigger Pockets podcast man. How are you today?<\/p>\n
I\u2019m doing excellent. Thank you for having me on.<\/p>\n
You are quite welcome. What is on your mind? How can Andrew and I brighten your day a bit? What is your real estate question you want to bring for Andrew and I to answer and for the masses to hear our thoughts on?<\/p>\n
Yeah, I had a thought around raising money. So I\u2019ve had some success raising some friends and family private money. I wanted to get your thoughts on what are the pros and cons. I guess going to the next steps, I either go and I kind of tap out all of my friends and family or do I go and broaden into more less familiar folks. So I wanted to get your thoughts around how do you expand that.<\/p>\n
Danny\u2019s passing a hat around at Thanksgiving dinner, right? Okay, pass the Turkey and then also pass your checkbook.<\/p>\n
Go partner [inaudible 00:52:16] Philip.<\/p>\n
At the end of the day, Danny, most investors, I know I did and I believe Andrew, you\u2019d be able to say the same, started with friends and family as their investors. And the reason why you do that is because people that are friends and family like and trust you because you\u2019re you. You\u2019re Danny and you\u2019re awesome and they know that, not because you\u2019re Danny, the awesome real estate investor, but because you\u2019re their son and they love you or you\u2019re their brother or they trust you because you\u2019re you, not because you\u2019ve developed this phenomenal real estate track record, whether you have or not. So most real estate investors should and do start with friends and family as their investor base and I highly\u2026 And if it gives you the heebie-jeebies talking to friends and family, I\u2019m talking to listeners, not you Danny, but if it gives folks the heebie-jeebies talking to their family members\u2026 And in my book Raising Private Capital, I talk a bit about how to overcome personal objections you may have internally and objections that friends and family may have with you as well.
Bottom line, treat them like investors, whether they\u2019re your friends and family or not. Don\u2019t give them special treatment or oh, it\u2019s okay, we don\u2019t need to put this in writing. I\u2019ll just take your check. No, give them every rights and benefit, including full documentation that you would anybody else. Everyone needs to expand beyond friends and family. If you\u2019re going to grow Danny, you need to go beyond that. The way that I did it was to go to friends and family and then start asking them for referrals. Like, hey, who else do you know Uncle Charlie? Who else do you know person I went to high school with that may want to invest with me or may want to consider doing what I do as a passive investment vehicle? That\u2019s how I grew. And then once you\u2019ve done that, then you can expand to tier three, which is social media, picking up the big megaphone, talking into it about what you\u2019re up to and attracting more and more folks.
But it sounds like Danny, you\u2019ve achieved a certain level of success with friends and family capital. Awesome. I would go next level and start asking those folks that are happy for referrals to other folks that they think may be happy too working with you.<\/p>\n
Well, that was fantastic. I can\u2019t really add a whole lot to that. Matt, you should write a book about money raising or something and Danny, when he does, you should go order it and read it. Maybe another tip is raise money from pessimists because they don\u2019t expect it back. But beyond that, I did the same thing. My first check as a syndicator was from my mom, and so shout out to mom for believing in her son. And Matt laid it out beautifully. You do that first, maybe skip the uncle if he\u2019s going to bug the heck out of you at Thanksgiving or make life miserable if it doesn\u2019t go perfectly. But other than that, friends and family are the place to start, and then ask for referrals.
And then even beyond referrals, it\u2019s really tough for LP investors to jump in to be the first guy to jump into the pool with you. But if you\u2019ve already got eight or 10 people at your party, then you don\u2019t have to go tell everybody else that it\u2019s your family. You can just say, hey, I\u2019ve already got these eight investors, we\u2019re 70% of the way there. It\u2019s going to be much easier to get people you don\u2019t know or that don\u2019t know you as well to come in for that last 30%. So exactly what Matt said, start with friends and family, then go to referrals, then use that as a base to reach out to people that you don\u2019t already have that relationship with.<\/p>\n
I guess I shouldn\u2019t also tout that my mom\u2019s my biggest investor, right?<\/p>\n
Hey, you know what? That\u2019s a great thing.<\/p>\n
That\u2019s a good thing. You shouldn\u2019t discount that, man. I go telling people all the time, and by the way, my mama was one of my first investors as well, by the way. And I tell people that because it is a testament to your belief in your business, Danny. All joking aside, my mother has invested in my business. You should tell people that. I got my mama\u2019s money. Not just somebody else\u2019s mama\u2019s money, I got my own mother\u2019s money in my business and that\u2019s how much I believe in what I do, that I\u2019m willing to put my mother\u2019s livelihood, my mother\u2019s future wellbeing, her wealth goals into what I do. I tell people that all the time because it\u2019s something that I\u2026 Not to get emotional about it, but I\u2019m proud of that. I\u2019m proud that I can take a bit of ownership of my mother\u2019s financial future through what I do.<\/p>\n
Matt, that\u2019s beautiful. I tell our investors this. I tell them, I say, look, I can\u2019t screw this up because I would have to get a new family and new friends because they\u2019re all in this and I\u2019d have to go out\u2026 Yeah, I can\u2019t afford to do that.<\/p>\n
Yeah, I\u2019m control alt deleting at that point, right?<\/p>\n
Yeah.<\/p>\n
Danny, your thoughts, man. I hope this has been of value. Any final thoughts before we let you go?<\/p>\n
No, that was awesome. Thank you for your insights there and I\u2019m glad I was able to make you a little emotional during the podcast.<\/p>\n
Danny, been awesome having you here, man. Listen, you\u2019ve delivered a lot of value today in your questions and your thoughts. Please tell those listening how they can get ahold of you if they\u2019d like to hear more about what you\u2019re up to.<\/p>\n
Sure. I think the easiest way to get ahold of me is on Bigger Pockets. So Daniel Zapata is my legal name on Bigger Pockets. Also, I have somewhat of a Twitter presence, DZapata, my first initial and last name on Twitter.<\/p>\n
And that\u2019s Z-A-P-A-T-A. I will not ask what your illegal name is. That\u2019s your legal name only. So if you guys want to reach out to Danny and find out what his illegal name is, you can do that now. Good being with us today, Danny. Thank you.<\/p>\n
Thank you.<\/p>\n
All right. Take care, man.<\/p>\n
All right, Andrew. If people are living under a rock and they have no idea how to get ahold of the Andrew Kushman, how would they reach out to you to find out more about you as a person, a real estate investor, a visitor of Antarctica, all those kinds of things? How would they find out more about that?<\/p>\n
Best way, connect with me on Bigger Pockets. You can also connect on LinkedIn or just Google Vantage Point Acquisitions. Our website is VPACQ.com, and there\u2019s a contact us form on there that comes to my inbox.<\/p>\n
And folks can find me on our website from my company DeRosa Group, that is D-E-R-O-S-A group, derosagroup.com. They can get ahold of me and anybody on my team there to hear all kinds of cool stuff about what I\u2019m up to derosagroup.com or follow me on Instagram at theMattFaircloth.<\/p>\n
All right.<\/p>\n
All right, folks. This is Matt Faircloth here with my host Antarctica Andrew, and ask him more what that means. Signing off.<\/p>\n