Scaling To Financial Freedom

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Intro
Hi. My name is Rod Khleif, and I’m the host of “The Lifetime Cash Flow Through Real Estate Investing” podcast. And every week, I interview Multifamily Rock Stars and we talk about how they built incredible wealth for themselves and their families through multifamily properties. So hit the “Like” and “Subscribe” buttons to get notified every Monday when a new episode comes out. Let’s get to it.

Rod
Welcome to another edition of How to Build Lifetime Cash Flow Through Real Estate Investing. I’m Rod Khleif, and I am thrilled you’re here. And I know you’re going to get tremendous value from the gentleman I’m interviewing today. His name is Jonathan Way and Jonathan is a CPA. He’s in over 1500 doors and he’s got his own podcast as well. It’s called “Building Wealth Through Commercial Real Estate”. And I’ve been on it, enjoyed being on it, and he’s got assets in quite a few different markets. So we’re going to have a lot of fun today. Welcome to the show, Jonathan.

Jonathan
Well, thank you very much, Rod. We appreciate coming to your show.

Rod
Yeah, absolutely. Absolutely. So why don’t you do a much better job of giving us a little background of who you are, how you got into the business, and, you know, maybe bring us current?

Jonathan
Sure. I originally started as– in residential, like probably most people did, and I grew up in New Jersey, close to New York City. And I just worked hard as I went to school and I got an accounting degree and I got my CPA and my Master’s in taxation. I’ve been a tax professional. I worked for 25 years in the industry in New York City and New Jersey, North, New Jersey. So, New York City, metro area. And I saw that being a part-time you know, landlord, I used to buying condos. And my brother said once you buy this condo and I’ll help you fix it because I wasn’t really handy. I said, I’m not really sure how to fix this toilet, but if you can help me, brother, then we can do it together. You help me. Help each other. And then he told me to go by in Central Jersey and I bought some condos there in the Princeton area, and then I bought one near my house in North New Jersey. And then I got a collection of condos and I realized that I could not have financial freedom through working on W-2, and I have three condos, it’s not going to work, especially in New Jersey, and prop tax is very high. So I realized– I saw a mentor because I didn’t know how to, you know, scale to apartment buildings because, you know, I was afraid like just anyone in the beginning. How do I buy 100 units, yeah, let alone a 50-unit apartment building because, you know, I’m the only one person, and I don’t have the kind of power or credibility to buy that. So I hired a mentor and then that’s how I got to learning this apartment building investing.

Rod
Yeah. So what was your first larger asset? How big was it? Where was it? Just talk about that for a moment.

Jonathan
Sure. I was lucky enough to partner with students, and I helped them raise some money in Atlanta, Georgia. This was in Douglasville, it was a 34-unit townhome, kind of a Class-C value add. And then we sold one and a half years and did well in that one in Atlanta when the market is really hot. And also, then after that, surely, I got my first lead syndication as GP with a 56-unit plus an office in Moore, Oklahoma, which is Oklahoma City.

Rod
Okay. And you just kept going from there. So, I mean, I think I know the answer to this question, but I don’t want to assume anything. You’ve put a team together now. You’ve got a team, yes?

Jonathan
Yes, I do.

Rod
With these other students in the mentorship program?

Jonathan
Yes.

Rod
Okay. Yeah, it is very common.

Jonathan
Yes, we work together like that and my coach is my KP.

Rod
Yeah, and that’s very common. I mean, like in my Warrior program, my students now own somewhere in excess of 90,000 units that we know of, and most of those were done between Warriors and between students. And so, it’s a very common dynamic and that’s really their strength in numbers. This is a team sport. But so my question to you is what role do you play on the team and what do some of the other people do on the team?

Jonathan
Yeah, so normally in my deals, I find them, I lead them, I put the vision together, and then the other team helped me to raise money, do some marketing.

Rod
Okay.

Jonathan
Or help me do some asset management. So we kind of share that responsibility and that’s what my team does.

Rod
Okay. I was sure you were going to say underwriting because you’re a CPA, so I was sure you were going to go there with your role there, but you actually find the deals as well. So you’re out there beating the bushes with brokers and so on and so forth. Now, have most of your deals been from broker relationships, or have you done any direct-to-seller marketing of any kind?

Jonathan
I’ve mainly spoken to many, many brokers to explain my story and explain my why and said that listen, you know, I’m serious, I’m going to grow to, you know, a few thousand units, [inaudible] a repeat business, and they took me seriously and they’ll believe me. And then I close on the deal and that’s how we got more business. And then I’m also networking. You know, I may go to your event, I might go to [inaudible] events. I’m always networking with other potential partnerships or brokers. And that’s how I got kind of, you know, that’s how I gained the deals, basically. And I do a lot of underwriting too, as you know.

Rod
Sure, of course. Yeah, that’s what I assumed from your background. So you’ve got assets in Charlotte, North Carolina, Midland, Texas, Austin, Texas, Oklahoma City, Atlanta, Midway, and then in Birmingham, Alabama. And those are all great markets. So, fantastic. Yeah, in fact, we’ve got assets in several of those markets as well. So, you know, you talked about networking, and guys, that’s such a critical piece of this whole thing. You know, my most successful students, for example, are the ones that go to every one of my boot camps and they go to other industry events, and, you know, I see them at every single event that I go in keynote or speak at. And they’re the most successful because they’re out there making those relationships. You know, what suggestions, Jonathan, would you have for someone that, you know, has maybe bought a house or a duplex? They know they want to get into this multifamily space. What suggestions would you have for someone? Because, you know, I have a lot of those aspiring multifamily investors that listen to my show. What would you tell them?

Jonathan
Yeah. So, Rod, there are three avenues I normally tell them. Number one, you can hire a mentor like your coaching program, you want to go to Rod Khleif’s program, it’s a wonderful program, a great, great leader.

Rod
Thank you.

Jonathan
So he’s a good, good mentor. And you can also partner with your family and friends and buy a small little one, like a time unit, and then go that route and go bigger to learn this from small up. And the other ones, you can be a passive investor first and kind of shadow– if the GP is nice and let you, you know, give you the tips here and there, he might offer you to do that. And then sometimes if you build a relationship where you go active, which is very common in this industry.

Rod
Yeah.

Jonathan
First, a passive, and then later on they want you active, and then the GP likes them because the opportunity comes, you know, raising money or something like that.

Rod
Yeah, that is actually a very common pathway. And it’s a great pathway because you know, like we bring passive investors into our deals and, you know, we show them behind the scenes, they can come help with the due diligence, the initial due diligence, once we actually take possession of the property, they can come out and meet us again to do the plan of attack. And then you know and I don’t know about you, but we’ll do regular webinars showing behind the scenes. We just did one on an asset in San Antonio and all the progress and things that we did with a slide deck and just you know, spend some time educating. But the beautiful thing about starting– you know, so if you’re thinking about starting passively is, you know, once you’ve got– you know you passively invest in an asset, you know sometimes you have to fake it till you make it. And let’s say you invest in a 100-unit, 200-unit, 300-unit, when you go out there and you want to go active and you want to be an operator, you can say, I’m invested in 100 units, 200 units. And yeah, you’re being a little bit deceptive because you’re an LP in those units, but, you know, you got to fake it till you make it sometimes, and that’s a way to do that, you know. And it actually does look good on your resume when you go to go active, you know, even if you’re passively invested in somebody else’s deal. So, it absolutely helps with that. So, that’s a great tip, Jonathan. So, let me ask you this. You know, I call them seminars, but you know, the setbacks, the bloody noses, and so on and so forth. Tell us about one of those and, you know, where you might have gotten your butt kicked on something, and ideally, there was a lesson in it, you know. I’m sure we’ve all got them. So does anything come to mind when I ask that question?

Jonathan
Yes. A very valuable tip for your listeners is that what I learned being a rookie in the first you know, one, two deals was that you cannot hire a due diligence firm, a manager, that the seller is related to, because I had one deal where he’s managing a property but he said, I’ll assure you that I’ll take it over and do the job for you, but I’ll do this for free once you use us. So I was kind of trusting them that I could use it for free as long as they do the due deligence then they know the property very well.

Rod
Right.

Jonathan
They do a lease audit, they can make sure of that as well. But in reality, in hindsight, it was a bad idea because it’s a conflict of interest.

Rod
Sure. Big one. Yeah.

Jonathan
Yeah. And then they kind of hit a lot of things from me.

Rod
Oh, no kidding. Wow.

Jonathan
And that’s why– it was a bump in the rows in the beginning, but eventually, we ironed those out. But that’s kind of like a tip for your listeners or newer listeners to have your own independent, you know, due diligence firm.

Rod
Sure. Or, you know, a third-party property management company typically is what you’ll have come in and help you with that. You know, I think we paid $35 a door on the last one that we did. And of course, they want the management, you know, but you don’t even have to promise it. But, you know, a good third-party property management company will bring teams in to help with you know, those inspections, and they’ll do the lease audits, you know, and contract auditing and so on and so forth. So, yeah. No, that’s a good one. So let me ask you this. As starting out in your career in this business, Jonathan, were there any epiphanies, any aha moments where you’re like, okay, now I get it. You know, and I know I didn’t prepare you for any of these questions, so, you know, I apologize for that. But did anything come to mind when I asked that question?

Jonathan
Yeah. I think what you really learn and I don’t know, Rod if you teach this in your coaching class, but what is really critical here, which I think in many coaching class is they miss– they talk about the sexy part about the acquisition, raising money and in closing the deal but I think what they really don’t emphasize is the asset management and operational excellence. I think that has to be hammered home very carefully because the hard part is holding it for five years and running it well. That’s the hard part. Right? I mean, that’s the hard part.

Rod
Oh, that’s everything. That’s the whole business. In fact, you know, when we split up our GP part of a deal, that’s the largest part of the deal because that goes on for years. And, you know, I just wrote a book on asset management that I’ll give you guys for free if you’re listening here. Let me just see what you have to text to get it. Give me a second to find it here. But yeah, just text the word “asset” to “72345” and it’s a big one. Hang on, I’ll show it to you real quick here. Maybe I don’t have it. Yeah, here it is. Okay, here it is. So here it is. It’s, you know, “Everything You Need To Know About Asset Management”, and I’m going to tell you, as Jonathan just outlined, you know, especially in what’s coming. You know, we’re headed for some shake-up in this country and the operators that don’t handle their asset management properly are going to be in trouble. And there’s a lot of new operators that got into this business that have not been through a downturn, you know, that don’t run a tight ship, that don’t really pay attention to their KPIs, you know their metrics, you know, their weekly calls with their property management companies, and really stay on top of that stuff. And you really have to, especially in what’s coming. So if you want this asset management book, just text the word “asset” to “72345”. I’m really proud of it. It’s very comprehensive and you’ll get value from it. So, when you’re out there networking, you’re obviously looking to raise money. Everybody’s looking to raise money, so that’s one of the components. But you’re looking for potential partners, you’re networking with brokers, would you agree that your network is your net worth in this business?

Jonathan
Yeah, this is a very critical part of it, which you have to really tell, listen, to hammer home is that the key thing is you have to network like crazy.

Rod
Yeah.

Jonathan
And people have to know you. That your active in the space. You’re serious. Then you go from passive to active or you try to be active and you say, I’m a student of Rod Khleif’s program, I’m trying to acquire a thousand units and something like that.

Rod
Right.

Jonathan
And they got to take you seriously and you have to show that you’re serious and that’s how you make good results, you know.

Rod
Right. And I don’t know about you. Did you partner with a seasoned operator to take down your first deal or two? I mean, did you align with somebody that had a resume that you could lean on?

Jonathan
Yeah, my coach.

Rod
Yeah, your coach.

Jonathan
A key principal.

Rod
Right.

Jonathan
And then he signed up for Freddie Mac because they did require KP.

Rod
Right.

Jonathan
And then, you know, I gave him quality updates and he was satisfied with what I was doing. He knew that I was doing it well. And, you know, that’s how it went.

Rod
Right. And see, that’s a very common trajectory as well, guys, and that’s why– you know, I don’t care if you join my group. But the point is you align with somebody that’s already done it. And then when you approach brokers, if you’ve got a good enough relationship with an operator, you can say, you know, we’ve got 1000 units on our team, and you use the we word, you know, with whoever you’re aligning with for your first deal or two and you use their resume for credibility. But you know, you’ve got to build a relationship to be able to do that. They have to see, you know, that you really take this seriously because you know, they’re next on the line if you screw up, if they’re going to help you sponsor as a KP. Key principal, it’s called. So, you know, what’s some of the best advice you’ve ever gotten, Jonathan? Just in life, it doesn’t have to necessarily be multifamily, but, you know, does anything come to mind when I ask that question?

Jonathan
I think what’s very important– and I think I learned this from Hal Elrod and then some of you that have on stage was that it’s called “Miracle Morning”.

Rod
Yeah.

Jonathan
And I have my own miracle morning where there’s some kind of ritual you do in the morning where either you meditate, you pray, you work out. So, I normally work out, have breakfast, and then I go meditate for like 20, 30 minutes.

Rod
Nice.

Jonathan
I’m trying to do it every single day when I’m at home. And that helps me mentally, your mindset to grow and visualize success. Like 10x my portfolio, right?

Rod
Yes.

Jonathan
Go from hundreds to a thousands, like that. So this is what I do. I try it every morning. And that’s very, very important because a lot of it is mindset driven. A lot of that is mindset driven, right? And then I try to give back [inaudible] what do I need, you know, some money, donation or whatever it is, try to give back to to the community, to the church, or whatever you need to do. And that’s very critical. That’s a very cool thing. I think it’s very important for your listener to understand, and add value. And the other thing is just make sure you network, make sure you work hard, make sure you post on social media, kind of like Tony Bourdain, how you tell stories about food and travel. I’d like you to talk about your real estate journey, how I started in the beginning, post a YouTube video or something and talk about what you do. So, eventually, they follow you and you have a nice following and they want to invest with you and do deals with you. So you build a solid following, you know, a credibility in that sense. So that’s very important.

Rod
Yeah, great stuff. In fact, you said a lot in the last two minutes. And I want to unpack a couple of things. I’ve been blessed to have Hal Elrod on the show. You know, on my podcast. And he’s a great guy. And I’ve given away, literally, over 1000 copies of his book. And I will tell you, pretty much every successful person I know has a morning ritual like that. You know, the one thing you left out was journaling as well. You know, so you exercise, you meditate, or pray, you journal, you read a good book. That’s another thing. You read a good book maybe for 30 minutes. That’s kind of his miracle morning framework. And it’s super powerful. I’ve got students that have done it literally for years on end. Very, very successful students. So, no, that’s a great tip. And then you mentioned giving back. You know, I had a boot camp in Denver, 850 people, two months ago, and we did a Hall of Fame for my Warriors, my coaching students, and I’ve got 1200 students, and we picked the top ten, and we did a little slide for each one of them. And I was astounded to see that every single one of them does something charitable. Okay, these are the most successful students that I have, that I was drawing attention. It’s the first time we had ever done this, Hall of Fame. And every single one of them, build schools in India, you know, raised 200,000 for veterans, and on and on and, you know, sexual trafficking. And I was just blown away that every single one of them gives back. So, guys, I hope you’re getting the memo here, you know, you don’t wait to give back. You give back immediately. And, you know, I tell the story about you know, having an epiphany around that and, you know, giving back and just how transformational it was in my life. And then the last thing you mentioned, you unpacked a lot in two minutes, is creating reach. And you guys, we live in the greatest time on earth. In fact, I just did a course on creating reach of all the different social channels and I just did a course on it. I haven’t even priced it or anything like that, I’ll probably just give it away. But, you know, you live in the greatest time on earth to create reach. And so, I’ll tell you the two critical pieces for that, and you can do it on Facebook, LinkedIn, Christ, I’ve blown up on TikTok like crazy, and I’m blown up now on Instagram, and like 10,000 people in the last two weeks. But here’s the key. You add value, right?

Jonathan
Yes.

Rod
And you’re consistent.

Jonathan
Yes.

Rod
Those are the two pieces. So pick your vehicle. You know, my podcast, 14 million freaking downloads, blows my mind. You know, the largest Facebook group. But all we do is add value and we’re consistent. So pick a vehicle and you don’t have to have millions or thousands of people. But if you’re adding value, when you’re ready to do a deal, you know, you just mentioned the deal and, you know, you’ve heard people feel like they know you, they want to do business with you. Would you agree with that, Jonathan?

Jonathan
Yes. That’s why it’s important to add value consistently, Facebook or whatever you have. And they like you, they follow you and say, you know what, Rod, I trust Rod. I like him.

Rod
Right.

Jonathan
I heard him in his podcast, and I want to put money in his deal, you know.

Rod
So what are some other important lessons that you’ve learned if anything comes to mind? You just said three big ones right there, so maybe I’m stacking that question, but, you know, anything else comes to mind with that? I mean, you just gave three great ones, so maybe that’s enough.

Jonathan
I’ll just say that always– you should partner with someone who is more experienced than you. That’s very important because why? Because it wasn’t taught, it’s like, listen, you teach me and I know what you went through, your pain, so it minimizes that issue, and then that’s how you grow stronger. You go always to the top. Right? So you always need that kind of mentorship, like a big brother sort of feeling, big sister kind of feeling. You always need that. That’s very critical in your pathway to go to the top.

Rod
And it will enhance the speed at which you reach your success, for sure.

Jonathan
Yes.

Rod
You know you want to be around people that think what you think is hard is easy. You know, I started my multifamily boardroom mastermind, you know, here at my house, in my compound here. I had 16 people come, about a billion in assets represented, and now there’s about, I don’t know, close to 16 billion in assets in there because I wanted to be around people that thought what I thought was hard was easy. And so get around a peer group that wants more. You know, align with people that are doing this to partner on your first deal or two and, you know, maybe long-term even. But, you know, I would say on the partnering, date before you get married. Do one deal together, see how everybody works out, see if you get along well, see if everybody’s you know, stepping up to the plate to do what they said they were going to do before you go long-term. But yeah, no, I love it. Now, knowing what you know now, Jonathan, I always love to ask this question of successful operators, and you probably know the question, but, you know, would you do anything differently? Would you go back and tell your younger self anything differently with what you know now?

Jonathan
I do. I would take these steps backward. I would network more than I did before, but I was a little shy before. I was kind of introverted, in a way.

Rod
Yeah. Sure.

Jonathan
I didn’t want to talk to people. You know, I was awkward to say hello.

Rod
Sure.

Jonathan
I would network more and I will find more capital raisers because why? Because you rather do bigger than smaller. Over 100 units. Go big because you make more money and less time.

Rod
And they’re actually easier, honestly. They really are. To asset managed down the road because you can have a full onsite staff and everything else. Yeah.

Rod
Yeah. Because the payroll supports the numbers.

Rod
Right.

Jonathan
So if I was in my younger self, a couple of years back, I would have had more than 100 units, I would have had more, you know, networking, capital raising, having power, and I would have bought like 100, 200 units and I would have bought a little more nicer asset class than what I have bought. Because you want a little better tenant base, basically.

Rod
Yeah. I will tell you and what I think is coming with, you know, the downturn, I mean, I will tell you, the asset class that’s going to suffer is the CC minus stuff because these people can’t afford to live anymore. I mean, you know, with the price of food and gas. You know, I just saw a statistic that there are– and this will blow your mind if you didn’t hear this, Jonathan. There are 22 million families in the country that are behind on their utility bills.

Jonathan
Wow.

Rod
22 million families. Like, mind-blowing. So, you know, I think we’re going to have a reckoning here soon. And, you know, those lower-tier assets, I think, are going to struggle more than the A and B assets in what’s coming. So, let me ask you this. What do you think is your unique skill set? You talked about you know, pushing through being introverted. By the way, how did you do that? You know, what prompted you to push through that fear– that’s really what it is. Achievers call it stress, but it’s fear. What prompted you to push through that, to take action and build those relationships?

Jonathan
I saw people on social media like my friend K. Trevor, and so, you know, he was just going out there, and so doing it. I’m like, you put your face out there and it’s great. And I saw, you know, my other friend George is doing it, and I’m like, you know what? I need to put my face out there, kind of like yourself and Michael and whoever it is. And I said I need to go out there so I can show my face and know who I am because they don’t know who I am. I can be the best operator in the world, but they don’t know who I am. You don’t want to have to deal with me because you don’t know what I can do, my strengths.

Rod
And now you do a podcast, which is really out there.

Jonathan
Yes.

Rod
Good for you. Good for you. Good for you.

Jonathan
So I had to create what Joe Fairless calls the thought leadership platform. So I created my social platform through podcasting, through giving some advice on LinkedIn and some Facebook groups, and just adding value that way. Say, hey, today I did due diligence, and this is what I learned. I closed on this is what I’ve done. So I kind of share my story through my audience that way.

Rod
Yeah.

Jonathan
So they follow me and they appreciate that.

Rod
Yeah. And then when you’ve got a deal, it’s like, hey, I’ve got this deal. Do you want to look at it? And they know you. You know, they feel like they know you at that point. No, I love it. I love it. That’s very powerful. Yeah, and you really are effectively doing a thought leadership platform when you’re adding value like that. I mean, that’s what I call myself, a thought leader. And that’s you know, certainly people like Joe Fairless, Michael, and they’re all in that space you know, and they focus on adding value. That’s the bottom line. And that’s why they’re all successful. So, you know, let me ask you this. Is there anything you’re doing differently right now with where we are economically as you’re, you know, evaluating deals, underwriting deals? Let’s speak to that for a second, you know. What’s your underwriting looking like? What shifts have you made based on the current economic environment?

Jonathan
Yes, So, I work pretty conservatively and I’ve been doing a lot of seller financing deals for lower interest rates.

Rod
Oh, wow.

Jonathan
I’ve been looking at loan assumptions for lower like 3%, 8% interest rates. That’s a long agency, a long ten-year term, and has a lot of meat left on the bones, not just quick ones.

Rod
Right.

Jonathan
I’m going to do a lot of owner financing and those kinds of deals like that with surfacing up–

Rod
Even with broker deals, you’re approaching with seller financing?

Jonathan
Yes. They do come to me and I do seller financing. I also do a different after class, like storage where I also do [inaudible]

Rod
Oh, you’re in storage now? Okay.

Jonathan
Yeah, I’m in storage now, too. So, I do owner financing and stuff like that because the industry is rising. So now I got a low rate for like 4.7%, 5% recently.

Rod
Nice. Yeah, we just locked up 5.2, which kills me because we’re at 3.2 on a deal a year ago. We’re at 5.2 now for this asset in Nashville that we’re raising money for. Yeah. By the way, if you’re accredited, you know, we may have some slots left. Text the word “partner” to “72345”. It’s a screaming deal. We have 60% loan-to-value debt, ten-year fixed, you know, and even with that, we’re at 8% to 10% cash on cash, 16 to 19 IRR, and I think 22% AAR projected. And so, really great returns, even with, you know, that low loan-to-value. So again, if you’re accredited, text the word “partner” to “72345” and take a look at that deal, if it’s still available. So let me ask you this. What’s your driver? What’s your why, Jonathan? You know, what gets you to jump out of bed in the morning to go out there and do this?

Jonathan
My why is this is my passion. I love real estate. And also, I have a young daughter and a family, she’s nine years old. And I want to create generational wealth and a legacy for them so they don’t have to worry about money. Because when I was young, I was worried about money. Every single week I was like do I have enough money to pay the bills or my groceries? Can I pay my car loan? And I don’t want to be in that kind of poor situation, so I needed to have a sustainable cash flow that can take us through, generationally. So that’s why, that’s my why, basically.

Rod
Nice. Nice. Nice. Well, listen, brother, I appreciate you coming on my show. It was a treat to be on yours and, you know, we’ll definitely need to stay in touch. And thanks for bringing some wisdom to my show, my friend.

Jonathan
Thank you. Thank you very much, Rod. I appreciate it. Thank you.

Rod
Yeah, absolutely.

Outro
Rod, I know a lot of our listeners are wanting to take their multifamily investing business to the next level. Now, I know you’ve been hard at work helping our Warrior students do just that using our “ACT” methodology, which is Awareness, Close, and Transform. Can you explain to the listeners how they can get our help?

Rod
You bet. Guys, we’ve been going non-stop for three years building an amazing community of like-minded people, and our coaching students which we call our Warriors have had extraordinary results. They’ve purchased thousands and thousands of units and last year we did over 1,000 units with our students. And we’re looking to grow this group and take it to the next level. We’re looking for people who want to follow a proven framework that’s really step by step and then leverage our systems and network to raise equity, to find and close deals, and to build partnerships nationwide. Now, our Warrior community is finding success in any market cycle. So if you’re interested in finding out more about how you can become more of our incredible network and take advantage of the incredible opportunities that are coming very soon, apply to work with us at “MentorWithRod.com” or text “CRUSH” to “72345”, and we’ll set up a call so you can check us out and we can check you out. That’s “MentorWithRod.com” or text “CRUSH” to “72345”.