Lee is a seasoned real estate investor with a focus on multifamily properties in the Midwest and Southeast. With nearly a decade of experience, Lee and his team at Green Forest Capital have closed multiple successful syndication deals totaling 588 doors. Lee’s focus is on value-add opportunities, and he is committed to providing value to everyone he works with. With an eye for even larger deals and a strong track record of success, Lee is a force to be reckoned with in the multifamily real estate space.
Here’s some of the topics we covered:
- Lee’s Grind Into The Real Estate Business
- Bigger is Better In Multifamily Real Estate
- Multifamily Mistakes That Were Made
- Advice For People For People Who Are Doing Real Estate Alone
- The Hard Lessons of Single Family Real Estate
- The Opportunities Coming From Bridge Debt
- The Importance of Broker Relationships
- Areas To Avoid In Multifamily
To Apply for The Warrior Program: Text CRUSH to 72345 and we’ll help you crush it in this business.
Full Transcript Below
Intro
Hi, my name is Rod Khleif, and I’m the host of “The Lifetime Cashflow Through Real Estate Investing” podcast. And every week, I interview Multifamily Rock Stars and we talk about how they build 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 back to Multifamily Rock Stars. So as you guys know, this is where we interview people that are just crushing it in this business and show you the inside scoop as to how multifamily investors are creating massive success in their businesses and, of course, in their lives. As always, I’ve got my co-host, who’s also the director of our Massive Action Team for my Warrior community, Mark Nagy.
Mark
Hey, Rod, what’s up?
Rod
You, bud.
Mark
Just a quick reminder– yeah, I know, right? Just a quick reminder. I don’t know if you realize this. I know it’s only April, but this is the last week to get a ticket for our virtual boot camp, which, correct me if I’m wrong, will be the last virtual camp in 2023. So if you watch, learn, two days from the comfort of your own couch at home, this is the last opportunity for the end of 2023.
Rod
That’s correct. That’s correct. Yeah. So today we’ve got Lee Fjord on and Lee is a Warrior, kick-ass Warrior. You know, I’m just going to leave it at that and let you tell your story, brother. So, welcome to the show, my friend.
Lee
Hey, Rod, Mark, thank you so much. I can’t tell you how excited I am to be able to be on the show and be able to add some value to the audience. I started listening to your show when I didn’t own a single apartment complex at all. I want to say was right when you– when did it start? ’15? ’16?
Rod
My show? Oh, my podcast.
Lee
Yeah, this podcast.
Rod
God, I don’t even know. I think ’17.
Mark
’17. I think.
Rod
’17, yeah.
Lee
Then I was probably one of the first listeners because, in 2017, I was listening to this podcast– still do, obviously, every single week, all the time while I’m doing my exercising and things but–
Rod
Oh, thanks bud.
Lee
Was an avid listener and so grateful that I am now a member of the Warrior program.
Rod
So I know right now you’re at 576 doors. You got another 138. You’re about to close on in– I don’t know if I got that number right, but I think I’m close, 130 plus in Arkansas. And you got a deal we wanted in Arkansas. And that’s a funny story that we will get into. Really nice asset in hot springs. Yeah, tell us a little of your story. What did you do prior to real estate and just kind of bring us into the whole real estate fold?
Lee
I remember when I was graduating, well, close to graduating college. I went on spring break with my mom and her husband, soon-to-be husband at the time, and I was out in the water on Hilton Head Island, you know, swimming in the ocean with my mom’s new boyfriend, right? And he’s like, what do you want to be when you grow up? And my answer was, I want to be a landlord. I want to own apartment complexes.
Rod
Really? How old were you again?
Lee
I must have been 21, 20 years old.
Rod
Okay.
Lee
Family had houses and mom, basically, a large portion of her retirement came from owning some rental property. So I was so inspired by that. But I didn’t become a landlord. I didn’t go in the direction of my dreams and my hopes like you would have guided me to. Instead, I ended up selling insurance. So I was an aviation insurance guy. I sold insurance to people that own private airplanes and got inspired by them. And there was a long transition, but long story short, I ended up getting my real estate license in 2012. I thought I was going to be a millionaire real estate agent. Needless to say, 2012 wasn’t the best time to try and get a real estate license. So I didn’t make a nickel for six months. My broker comes to me and she says, hey, do you want to take over these 20 properties to manage? I said that smells like money, so I’ll take it. So I took 20 houses over. I built that to 220 houses in four years and did it with other– learned how to do it with other people’s money.
Rod
That is a thankless freaking job, I’m going to tell you. As you know, you know, because nobody calls when they’re happy. The tenants don’t call when they’re happy and the owners don’t call when they’re happy. So, wow. Yeah. There’s a burnout factor, especially with single-family. I mean, that’s just a– there’s a burnout– I’m sorry, I interrupted. Please continue. So you did the property management–
Lee
And then got inspired by my clients. The owners were the guys and the investors were the guys and gals making you know, the life-changing income and money. So I decided I was going to go start buying property in the Midwest because I thought to myself, oh, linear market, but huge cash flow. That sounds great. So I moved to the Midwest, moved to St. Louis to be closer to my sister as well, and started with a duplex. Did it all the wrong way. Did it again with some four families and single-family houses. It took me 18 months of listening to your podcast while covered in dust and grime and breathing in probably all of the lead–
Rod
Asbestos and everything else.
Lee
All of it. Yeah, like literally.
Rod
This is all in St. Louis, by the way?
Lee
All in St. Louis and transitional neighborhoods. Thank God I didn’t kill myself. One time I fell off the ladder.
Rod
Or get killed.
Lee
Oh, yes.
Rod
Tiffy is from Belleville. And so she took me to East St. Louis and took me to this Chinese place that she wanted to go to. And I’m not a small, unintimidating guy, but I told her, babe, I’m not getting out of the car because I think we’ll have a problem and– where she wanted this Chinese food, I still remember it. And, I mean, I’ve had houses where people you know, drugs and killed, but this was a whole another level. And I’m like, babe, I’m not getting out of the freaking car. Not that I’m afraid. I’m afraid that it’ll create a problem. You know, hot black woman, you know, long of tooth, white guy. But anyway, yeah, it’s funny. But yeah, so St. Louis. So you were listening– you were suffering through my podcast, doing drywall or whatever the hell you had to do for these places, doing all the work yourself, I guess, huh?
Lee
Or you better believe it. I bought a van and I filled it with tools. And I was driving around town collecting rent and sweaty $20 bills. It smelled like cigarettes. Oh, it was all the wrong way. Then realize the power of podcasts.
Rod
Working in that aviation thing with private planes, that must have been kind of exciting, right?
Lee
Oh, absolutely. I was inspired by people who had reached the heights and levels of success where they could afford to own golf streams.
Rod
Right.
Lee
And so I saw and I knew what the end of the rainbow looked like. I know what that looks like for me. I still do to this day and it’s my North Star. I will have a plane one day of my very own. I’m also a licensed pilot [inaudible]
Rod
I got a picture on the wall behind me, brother. I feel you. I totally feel the same way. Yeah.
Lee
What kind of plane do you want?
Rod
I want a Citation X(10).
Lee
Yeah.
Rod
Just because they’re faster and they fly above everything else and they’re like the fastest almost you can get. And, yeah. So that’s the ultimate right there for me. Yeah.
Lee
Absolutely. Yeah.
Mark
So quick stats, by the way. I don’t think Rod mentioned 570 plus doors that you’re in. And one thing that stood out to me of those doors is from what I’m seeing, you’ve done everything from a seven-unit all the way up to 270 plus units, all kinds of different sizes of deals. What have you seen as the kind of differences between, you know, pros and cons, JV, smaller stuff, syndication, big stuff? That’s a question I get a lot is like, what’s the difference? Where would you go? And what even might you recommend for someone brand new? Where should they start?
Lee
I have done it all. Everything from a single-family house to a 272-unit, you know, $16 million 506(c) syndication. And what I would say, the thing that I enjoy doing the most now in the direction we’re taking our business is to 100 plus syndications, 100 plus units. For good reason, you have to be able– in order for the property to function more efficiently and better, you have to have 100 plus units. This is all things that Rod speaks to every single day. I’ve done it all the wrong way several times. I’m currently selling almost anything that’s smaller than 100 units right now, including a 70-unit that I bought and a 76-unit. They’re all going on the auction block.
Mark
And why?
Lee
Because it’s got to be bigger. It really does. Bigger is better for efficiencies and having a full-time onsite dedicated property manager. And if I could go back to the very first duplex that I did, I would have taken the $150,000 in cash that I had at the time. If I go back, I would say, Lee, don’t buy a duplex for cash in a transitional neighborhood. Go find somebody that inspires me. Go find someone who I want to be five or ten years from now and invest passively in their deal. Ask how can I add value to this deal and to your organization as much as humanly possible. Go move into you know, Rod’s garage and do whatever it would take to learn from that person how to go from zero to 10,000 feet as opposed to try to go from zero to 5,000 to 1,000. You know, go from like up the hill hard. You’re pushing a rock up a hill, you can literally–
Rod
So how has the Warrior program helped you with what you just described?
Lee
It gave me the opportunity to find those people and work with them. Now, because I had done all of the time and the effort and everything, I was also a broker with Marcus & Millichap, I never had the opportunity to be a Limited Partner in somebody else’s deals. I was already doing my own by the time I figured it out. So now I bring in others and I allow them to put their foot in the water or whatever and learn just like everybody else should. Learn by being passive first. Learn from someone that you want to be because they are already there and you’ll skip a whole bunch of steps as opposed to wasting my time at Home Depot, nights and weekends, buying tools and buying a four-unit or even an eight-unit or even a 38-unit, which was a great deal. But if I go back, I would have gone passively first with somebody that I’m inspired by.
Rod
A lot of people go passively first, and it is a good way to start and get behind the scenes while you know, someone is learning the business because you learn things that, you know, even I can’t teach from stage sometimes. And, you know, just some behind-the-scenes stuff. And most good operators, myself included, will allow our investors to come on due diligence, walks with us to– you know, and we make part of our investor relations training and education and webinars and updating people on some of, you know, the behind-the-scenes stuff that’s going on. So no question that that is the way a lot of people– they do kind of both in conjunction with each other. And yeah, so a question for you. On this road to larger properties, talk about any– I mean, you spoke about a couple like epiphanies that you had, but any other– you know, we had a situation where like, okay, now I get it. Speak to that a little bit like any other profound moments, you know, that popped up in your life.
Lee
It was when I did my very first syndication. It was right after I joined the Warrior program. Before that, I had only done JV deals. It was when I partnered with two other Warriors and the two of us went out and raised, you know, over a million, or the three of us went out and raised well over, right about a million dollars to close my first syndication with them. And it was, wait, we can take it to the absolute next level by being able to– and provide value to passive investors to let them come along for the ride without having to give up their time and effort or take the risk of signing on debt, that was an epiphany. And then it literally was, okay, how can I do this better? How can I do it bigger? And who do I need in order to be able to go in that direction? And that’s when I went out and I found a partner who has you know, been in the business for 25 years. Rod, you know him, and he and I have done my last five deals together.
Rod
Oh, you’ve done that many with Charlie?
Lee
Four now. This will be our fifth.
Rod
Four deals. Yeah. So, you know, we were joking around about a deal– my team was looking at a deal in Hot Springs, Arkansas, a really nice asset, great area, up and coming. And my team talked me out of it because, well, a couple of reasons. One, you couldn’t get non-conforming, non-recourse debt on it. And so that was a big deal. Non-recourse, meaning if they foreclose, they can’t come after you personally. You had to get recourse debt. And so, did I present it to you or– who did I present it to? And you guys snapped it up. Was it you or–
Lee
So we heard about it on the Grapevine that you were going to relinquish the deal back to the seller.
Rod
That’s right.
Lee
And Charlie mentioned to me that he had seen the numbers behind that deal once before.
Rod
The numbers were great.
Lee
We were actually at the Colorado boot camp sitting side by side. And he leans over and he says, I know that deal and I like that deal. We should talk to Rod.
Rod
Well, he was actually now that I think about it, it’s all coming full circle. He was actually in on that previous version of it. That’s right. I’m sorry, I’d forgotten all the mechanics of it. But yeah. And it turned out to be a super home run for you guys, and I’m really pleased for you. But I know you had to do recourse debt. You had to go to the local bank and do recourse debt.
Lee
Yeah.
Rod
So, you know, that’s okay. It’s going to pan out. So it doesn’t matter. But love it.
Mark
So on the flip side, Lee, what do you think– for the listeners that are stubborn, that are doing everything on their own, that think they can do it, everything on their own, what do you think your journey would have looked like if you had just done everything on your own, continued that path instead of partnering and teaming with others?
Lee
I would probably have 45 to maybe 65 wholly-owned single-family houses and four families and not-so-good of areas. And I would still be driving a van around town with a weed wacker in the back, collecting rent, half the time in cash and money orders. Now [inaudible]
Mark
What’s so bad about that?
Rod
And I will tell you, you probably learned the hard way like I did, that single-family doesn’t cash flow that well. They just don’t. And there are a lot of reasons for it, but they just don’t. You know, you’ve got multiple single-family houses for– you know, and I’m not even sure what the answer is, why they don’t cash flow as well, but they just don’t.
Mark
I’ll give you one. I just had this morning on one of my single families that I still have. It’s a brand new house, two years old, and the piece went out in the air conditioning, cost me $1300. And that wipes out cash flow for two, three months almost. And so it’s hard to come back from that. Expenses.
Rod
That’s definitely probably the biggest thing.
Mark
Yeah.
Rod
Turnover is what kills you because–
Mark
That too.
Rod
If you’ve got turnover and you’ve got to spend you know, four or five grand to recarpet and paint and everything else, that could wipe out the cash flow for the whole year. So that’s right. That’s probably the biggest reason. Would you agree with that, Lee?
Lee
Oh, I have one even better for you than even that.
Rod
Okay.
Lee
I’ve owned this house for the last three years. It’s been wonderful, fully occupied with the tenants and everything. The tenants moved out. You know, I’m an investor, so I’ve been using the cash flow to live off of, much of it, like many investors do. When they move out, the interior, like Rod said, needed five grand worth of work to bring it back up to the condition that we needed it, and I needed a new roof. So that roof cost me another 12 grand. So I spent $17,000 getting that house back up to a place where I could throw another tenant in and guess how much I made–
Rod
And you lost X amount of lost rent for the place being empty.
Lee
Oh, yeah.
Rod
Right?
Lee
And I probably made– I did the math, and that was 18 months worth of my profit, my cash flow for the three years that I owned the house. So half of my profit just got put right back into it, into things that did not increase the value of the house at all.
Rod
Right.
Lee
But literally, it didn’t cash flow. I just was waiting around for the bill to come due.
Rod
And you said something operative about it didn’t increase your cash flow, and that’s the thing. You can make improvements to houses, but you’re locked in to a value based on comparable sales. Where if you make improvements to a multifamily asset like you were talking that 138-unit, let’s just use it as an example. You got $100 more rent bumps than you thought you were going to get, right?
Lee
Yeah.
Rod
Let’s just assume it was all two-bedroom units. That was in your two bedrooms. Let me use that as an example. So you could take 138 times 100 times 12. That’s a $165,000 increase in net income for the year, right? Now, here’s what makes this freaking business so damn exciting. If you divide that by, let’s even say, just a five cap, that’s a 3.3 million dollar increase in value for your hundred dollars rent bumps on that asset. That’s why we love this business. By the way, guys, as you know, Lee’s a Warrior, and we only have Warriors on the Rockstar episodes that we do here. And if you have an interest in applying to our Warrior program, text the word “crush” to “72345”. And again, the word “crush” to “72345”. And, you know, we’ll check you out. You’ll check us out. If it’s a fit, it’ll be incredible. If it’s not, you’ll still leave that call better than when you started it. That I can promise you because we help you get aligned. But anyway, again, that’s the word “crush” to “72345”. And if you haven’t been to one of the boot camps, you know, you really should. I think there’s an incredible opportunity coming economically in this country. There’s a lot of pain coming as well. But with crisis comes opportunity. Do you want to speak to that? Your thoughts on that, Lee? What are your thoughts on where we are economically and what could be coming?
Lee
I’m excited.
Rod
Yeah.
Intro
I think there’s a lot of great opportunity for people who have not made large mistakes and are going to be falling into the pit of darkness that they deserve to be in, quite honestly. Those who over-leveraged or took out– or didn’t realize what bridge debt really was, those people who are going to fall into pain, they are going to be the opportunities. Those people are going to be the opportunities [inaudible] take advantage of.
Rod
At the very least, they’re going to be the opportunities. I think it’s going to be more than that, but definitely the bridge debt. So what he’s talking about, guys, is bridge debt is the hard money lender in the commercial space. That’s really the– and it’s adjustable rate debt. It’s short-term, typically three years, sometimes three years with two one-year extensions. But each extension requires you to buy a rate cap to cap the rate, interest rate increases. And those rate caps are insane right now. I remember we looked at a $44 million dollars deal here in Sarasota, and this is when it wasn’t even so bad. And to do a bridge loan on it, the rate cap was a million dollars just to keep the rate from going up over 2%.
Mark
Wow.
Rod
And that’s what’s going to kill a lot of guys is they’ve got loans– there is $450 billion worth of multifamily debt coming due this year or next. And here’s the problem, there’s also a 74% year-over-year decrease in multifamily sales in this first quarter. And so it’s hard to sell, number one. Number two is, you know what’s happening with the rates. And so the rates are much higher. And so that’s going to create a real crunch for anybody that’s got you know, debt coming due. In the whole commercial real estate space, about 1.6 trillion. But in the multifamily alone, it’s 450 billion. I just did a Facebook Live on this. That’s why it’s fresh in my head, these stats. So there’s going to be an opportunity. And, you know, that’s just loans that are coming due. There are people that have to sell. Right now, we’re dealing with the people that want to sell, but there are going to be people that have to sell.
Mark
Well, that’s a question I wanted to ask right, because we’re not at the point of the people that have to sell, right? That’s going to be coming. Lee, I know you’re obviously closing on a deal right now. If you were to pick one or two ways right now, and I don’t know if you’re in deal-finding or maybe it’s someone else on your team, but what are maybe the top two ways that you’re seeing in terms of finding good deals, at least for the right now?
Lee
All goes back to the normal things. It’s broker relationships, especially for the asset class types that we’re looking at, which are larger than, you know, 100 units. Those owners don’t just pick up the phone and agree to sell their 100-unit property to anybody except for maybe their neighbor. Maybe if they know the guy at the country club who is their neighbor and they know they’re good and they know they’re qualified. In any other case, except for that, they are using a broker. So I’m focusing my attention on broker relationships, letting them know that I have the capability to close, making sure that we have all of our financial numbers and requirements ready to go for a lender so we can do loan assumptions. We’re doing loan assumptions right now, which is [inaudible]
Rod
Talk about why that’s attractive.
Lee
Because we’re taking advantage of yesterday’s interest rates.
Rod
Right.
Lee
We’re able to acquire an asset that has yesterday’s interest rates in place for the next six years because maybe it was a 10-year loan 40 years ago.
Rod
Right. Let me give an example of this, guys. So we bought an asset in San Antonio, I don’t know, it’s probably been 18 months ago, and our interest rate is 3.2%. We have our Nashville asset and our interest rate is 5.4%. That is a significant difference. Okay? So yeah, there you go.
Mark
And it’s based on the loan. What specific types of loans are assumable, at least at this point?
Rod
Well, most of them are. I mean, bank loans, Fannie and Freddie loans, they’re all assumable. I mean, you have to qualify. And typically, if you’re going to assume a loan, then you have to raise more equity. You have to raise more you know, money from investors. But those loans are very valuable. And there are quite a few of them out there. Again, it’s got to make sense on the return side of things. The returns have to make sense because the more money you put into a deal, the lower the returns. And so, you know, sometimes you have to do higher splits, you know, 70/30, 80/20 splits to have the numbers make sense on the returns for the investors, but, you know, to get that great debt. So you’ve got what you’re working some deals right now. You’re looking at assumptions and the market you like– you’re in Arkansas, right? You’re liking the Arkansas market.
Lee
I love Arkansas. I think that it’s got nothing but upside coming its way. I like almost the entire state, every major MSA. So Little Rock, which is where Hot Springs is, essentially. I love Northwest Arkansas. Those areas are wonderful. I love the new governoress who just took over. She ran with one of her major ticket items that she ran on was to have the state of Arkansas become a tax-free state.
Rod
Wow.
Lee
If that happens, you live in Florida, what happens when now it’s an income tax-free state?
Rod
People love that. The only thing is, I mean, that’s some hyperbole to that because they’ve got to make it up somewhere else. So property taxes do go up. You know, other taxes have to go up to offset the personal income taxes. But no, I mean, I love it here in Florida. Where do you live, Lee?
Lee
St. Louis.
Rod
St. Louis. Oh, you’re still in St. Louis. Okay, where’s Charlie?
Lee
Charlie is down in Tallahassee.
Rod
Tallahassee. That’s right. That’s right. Forgive me.
Lee
One of these days I’ll be down there with you and somewhere on the West Coast.
Rod
Love it. Listen, I could be a poster child for the Florida Chamber of Commerce. My only comment about Arkansas, I don’t want to pee on your parade, but I would be very careful with West Memphis because you know how I feel about Memphis.
Lee
I just killed the deal in West Memphis.
Rod
If you live in Memphis, then you know what I’m talking about. Okay? There are some real sketchy areas. There are some parts of Memphis that are beautiful, but I had a bad experience there. I always talk about it at my boot camp. But anyway, well, listen, brother, I appreciate you coming on the show. This is a lot of fun. You’re kicking ass and can’t wait to have you back on in a year or so and see what you’re up to at that point. But, you know, let me ask you this, buddy, what’s the why that’s driving you? Are there any, you know, quotes that you’d live by? What’s the motivator? Is it a family? What is it that’s driving this? Because you’re an ass-kicker. You’re making shit happen.
Lee
I am. I even have it in my email that I’m Mr. Make It Happen. Like literally, that’s my tagline on my email.
Rod
Love it.
Lee
But I’m going to murder this, but it is a Zig Ziglar quote. It is, “If you help enough people get what they want, you will get what you want”.
Rod
Yeah, that’s a great one.
Lee
And those are the words I live by. I try to help others in every way opportunity I possibly can. And I know the universe will provide it back to me. You know, I believe in the law of attraction, so I focus my time and effort on attracting things to me that I desire and need in my life. Good health, my wonderful wife, you know, our beautiful dogs, and I just attract abundance.
Rod
Nice. Well said. All right, brother. Well, I appreciate you coming on and we’ll see you soon, man.
Lee
Thanks, Rod.
Mark
Thanks, Lee.
Mark
So one other quick thing. We encounter so many people that are frankly frustrated. They’re looking in the mirror and they’re frustrated that they haven’t been able to escape the rat race. They haven’t been able to build cash flow to the point where they’re able to have financial and time freedom with their families. And maybe they see other people buying real estate and creating incredible cash flow and they think, well, it’s just scary. You know, buying apartments is intimidating. And I get it. See, that’s why we created our Warrior Mentorship program. They’re our coaching students, and they’ve had extraordinary results. My students, I’ve been teaching about five years and they own upwards of 140,000 units now that we know of, right? And we feel like it’s just getting going. Now, we’re looking to grow this group and really take it to the next level and honestly believe that the greatest transfer of wealth could be upon us right now with this current economic environment. Everything’s going on sale. So we’re looking for people who want to follow a proven framework, really like a blueprint or a map, literally step by step. And then they’re able to leverage our systems and our incredible network to raise money and equity to find deals and close those deals and build partnerships, really nationwide. So if you’re interested in finding out more about how you can become more in our incredible network and take advantage of the unbelievable opportunities that are upon us. You can apply to my Warrior Mentorship Program by texting the word “CRUSH” to “72345” or you can go to “MentorWithRod.com” and what we’ll do is we’ll go to set up a call so you can check us out and we can check you out and see if it’s a fit. Now, again, you can go to “MentorWithRod.com” or text the word “CRUSH” to 72345 to apply, and we will speak soon.
