7 Core Questions to Guide Your Due Diligence

by | Oct 11, 2018 | Blog, Due Diligence

7 Core Questions to Guide Your Due Diligence

Due diligence is one of the most critical aspects of any real estate deal.

read more

I don’t care how confident you are in a deal; shoddy, incomplete due diligence will invite disaster into your real estate portfolio. If you’re lucky, you’ll only leave a few thousand dollars on the table. If you’re not, you’ll saddle yourself to losing investment.

 

Subscribe to the Podcast on iTunes!

Due diligence takes time, focus, and scrupulous attention to detail. It’s easy to get bogged down in the weeds of document review. To help keep you from losing the forest for the trees, here are 7 questions to guide you through your own due diligence process.

Where’s the paper?

  • 3 years of operating statements (including year-to-date)
  • 6 months of bank statements
  • Utility deposit register
  • Utility bills for the last 2 years.
  • Property tax bills for the last 2 years
  • IRS Tax returns and addenda for the last 2 years

Tenant Information

  • Rent roll for the property for the last 2 years
  • Security deposit register
  • Payroll records
  • All current lease agreements (including ad hoc concessions)
  • Written property policies (pets, parking)

Management Information

  • Commission agreements
  • Current management contract
  • List of outstanding maintenance requests
  • Maintenance/capital improvement history for past 3 years
  • Litigation history on the property for the past 5 years

Property Information

  • Service contracts (pool, trash, laundry, extermination, etc.)
  • HVAC repair history
  • Elevator maintenance report
  • Insurance policy and claims history for the past 2 years
  • Operation manuals
  • Business license
  • Deed and Title policy
  • Site plan, property survey, and architectural plans
  • Inspection and Environmental Repo

That includes:

Financial Records

When you drop in, chat with a few tenants and neighbors. Try to get their read on the neighborhood. These are the kinds of insights you’ll never get from a seller or his broker.

If you find the reality on the ground fails to live up to the picture you’ve painted in your head, then either adjust your analysis and projections accordingly or walk away.

Do you want to learn more about Multifamily Real Estate Investing? Work with Rod in the Lifetime CashFlow Academy's Multifamily Course & Coaching Program

Apply for Mentorship

Who can I talk to?

The seller’s not the only one you’ll want to talk to about a property. Here are a few more people you’ll want to reach out to:

  • Contractors – Take a look at current service contracts and past repair receipts. Call those contractors and ask for their sense of the property. Some will have no idea what you’re talking about. Others will open up and give you a dissertation on everything you need to know about the physical condition of the property.
  • Chamber of Commerce — It’s always a good idea to figure out what’s happening in the market. Contact the local Chamber to learn if there’s any new economic activity on the horizon, how demographics are shifting, and whether there are any financial incentives for investing in the area.
  • City Planning Officials/Assessors – Head down to City Hall and do a little digging on the physical and economic history of the property. Does the property density confirm to zoning requirements? Have there been any code violations? What permits have been pulled? How has the assessed value changed over time? Have the owners contested the assessed value recently? What was the outcome?
  • Tenants/Neighbors – Visit the property at least twice: once during the day and a second time at night. What do the vehicles look like? Do you feel safe? Talk to a few tenants about their experience. Do they enjoy living there? What would they change? Do they plan to stick around after their lease runs out?

What shape is the property in?

This question begins with the obvious details: property age, curb appeal, deferred maintenance, etc., but it doesn’t end there. Whether you do it yourself or hire a property inspector (recommended), the property’s going to need to be torn apart—inch by inch.

This part of the process is critical. Take your time and look at every single unit—not just a handful of them. Snap pictures. Record videos. Take careful notes.

Don’t be afraid to call in additional help. If the foundation looks sketchy, get a structural engineer out. If the HVAC looks old, get a qualified professional to assess it.

This might take a while, but you can’t afford to rush this part of the process.

What do I know about the neighborhood?

If you haven’t already, due diligence is a great time to get intimately acquainted with the neighborhood. Here are some essential questions to ask:

  • What are the crime statistics for the area?
  • How walkable is the neighborhood?
  • Who are the major employers in the area?
  • What sort of retail stores are nearby?
  • Where is the closest grocery and pharmacy?
  • How far are schools and parks from the property?
  • How far away are the police and fire stations?
  • Is there nearby access to public transportation?

Don’t forget to zoom out and look at the rental market data. Take this opportunity to re-run your analysis and check your projections against what the market is actually doing.

How has this property been run?

Dig through your paperwork (see #1) and talk to management about the current state of the property. This is where you can learn whether the property is underperforming or overperforming, as well as what you can do to improve its performance after closing.

  • What is the current tenant mix?
  • What has vacancy looked like (physical and economic) over the past 3 years?
  • Is overall occupancy dropping or improving?
  • How do the property’s occupancy rates compare with the neighborhood?
  • Is the current management offering improvements, concessions, or incentives to get people in the property?
  • Are any of the utilities included in the rent?
  • How many leases will expire within the next 90 days?
  • When was the last time rents were raised and by how much?
  • How do rents compare with the market rates?
  • Has the income been consistent every month?
  • Do you see any inconsistencies in the income data?
  • Does the P&L match the bank statements and tax returns?
  • Do the maintenance expenses look realistic or are they low?
  • How does the expense ratio compare to other multifamily properties in the area?
  • How consistent have the expenses been over the past 3 years?
  • What is the current NOI? Has it been trending up or down?
  • What percentage of the gross income does the NOI represent?

What do the numbers say?

Speaking of projections, it’s vital that you check and re-check your numbers at the end of the due diligence process. Now that you’ve been able to flesh out current operating income and expenses as well as market rates, vacancy, growth, etc., you’re armed with much better information to draw an accurate picture of the property’s viability.

On top of that, your inspection will have given you a more comprehensive picture of repair and improvement costs. Taking those numbers into consideration, you’ll be in a better position to assess whether the terms of your current deal justify moving forward.

Often, they will not. But that’s not the end of the story.

What’s it going to take for this deal to make sense?

At the end of the due diligence process, you’re going to have the opportunity to either walk away or renegotiate. As you make that decision, ask yourself if there’s a number at which the deal would make sense to you. If so, what is that number?

This is why careful due diligence is so necessary. We’re not talking about guesswork here; we’re talking about a precise evaluation of the property as it is and the terms you’ll need to justify moving forward.

If you’ve done your homework, you’ll know how to come up with that number. More than that, you’ll have a bulletproof case to make to your reluctant seller.

Wrapping Up

It takes time to develop a consistent due diligence process that you can run through every time. But once you dial in the particulars and get absolutely methodical, you’ll have a reliable program to run through on every deal. That’s the kind of systems-building that leads to a successful long-term career in multifamily real estate.

For more on due diligence, check out my free book, How to Create Lifetime Cashflow Through Multifamily Properties. As always, if you have questions, come on over to our Facebook community. You’ll find 20,000 members there eager to share their wisdom.

Join Us for #MultifamilyBootcamp
MultifamilyBootcamp.com
If You’re Ready to Take Your Multifamily Real Estate Investing to the Next Level…
Check out Rod’s Extensive Multifamily Course & Coaching Program!

Ep #195 – Tamar Mar Recently Closed on 15 Multifamily Units and Has a Background as a Real Estate Broker and in Business Startups

Ep #195 – Tamar Mar Recently Closed on 15 Multifamily Units and Has a Background as a Real Estate Broker and in Business Startups

by | Jan 15, 2018 | Due Diligence, Podcasts

Ep #195 – Tamar Mar Recently Closed on 15 Multifamily Units and Has a Background as a Real Estate Broker and in Business Startups

In this episode you will learn

  • Tips on how to properly make the switch from a day job into the business.
  • What details to evaluate on a property before putting an offer in.
  • The benefits of syndication and how you can use it to close deals.
  • The possibility of closing on a deal without a sponsor or prior closing experience.
  • The benefits of purchasing a value-add property and rehab after purchase.
  • Ideas on what to renovate on older or run-down properties.
  • Types of exit strategies and ways to manage properties for long-term cashflow.
  • The benefits of wholesaling or buying wholesale properties when it makes sense.
  • Reasons why you may back out of a deal, especially if the deal doesn’t make sense.
  • RUBS, the Ratio Utility billing system used to charge tenants for utilities.
  • Making offers and why making an offer above asking price may be necessary.
  • Potential problems and deficiencies you may find in value-add properties.
  • The value of calculating cap-x, cost for renovating, before you buy a property.
  • The importance of having a team, networking, and where to network.
  • The importance of finding your motivation to keep you focused.
  • The benefits of having a morning ritual or routine to get you going.
  • The importance of writing down goals and magic moments to avoid forgetting.
  • The importance of having a good work ethic and valuing hard work.

About our Guest:

Tamar Mar can be reached at:

www.marotagroup.com

Watch on YouTube!

Do you want to learn more about Multifamily Real Estate Investing? Work with Rod in the Lifetime CashFlow Academy's Multifamily Course & Coaching Program

Apply for Mentorship

Ep #193 – Bruce Petersen has Syndicated 900+ Multifamily Units

Ep #193 – Bruce Petersen has Syndicated 900+ Multifamily Units

by | Jan 8, 2018 | Due Diligence, Podcasts

Ep #193 – Bruce Petersen has Syndicated 900+ Multifamily Units

Here’s some of what you will learn

  • The importance of using resources such as LoopNet for finding deals.
  • The benefits of syndication to close deals.
  • The benefits of having leadership skills for success in the business.
  • The importance of networking and benefits to meet up groups.
  • The importance of being trust worthy to secure partners for deals.
  • The reasons why you may choose multi family over single family.
  • The ways to make money on a property through cashflow and returns from a sale.
  • The importance of being transparency and empathy in developing relationships.
  • Some important reading material that can help with your mindset.
  • The importance of selecting the proper location for deals.
  • The potential benefits of going with larger properties if you’re able.
  • The importance of using your “seminars” as learning experiences.
  • The key to knowing what you want and why you want it.
  • The advantage of having multiple investors commit to a deal.
  • The fundamentals to look for when evaluating deals.
  • The importance of taking the first step and just getting started.
  • The role of risk-taking in the business.
  • The importance of finding your motivation to be successful.
  • The importance of having the right mindset and remove mental blocks.
  • The importance of getting past “analysis paralysis” and taking action.

Our Guest

Bruce Petersen can be reached at:

www.Apt-Guy.com


Want to build Lifetime Cash Flow from Multifamily Properties?

If you’re committed to creating the life you deserve, we’ve created the best multifamily training and coaching program on the market. I personally coach you on your path to create the life of your dreams. I will help you CRUSH it in this business!  – if you’d like to receive information about our program, text CRUSH to 41411 now.

Watch on YouTube!

Do you want to learn more about Multifamily Real Estate Investing? Work with Rod in the Lifetime CashFlow Academy's Multifamily Course & Coaching Program

Apply for Mentorship

Full Transcript Below:

Ep #193 – Bruce Petersen has Syndicated 900+ Multifamily Units

Rod Khleif: Welcome to another edition of How to Build Lifetime CashFlow Through Real Estate Investing. I’m Rod Khleif and I am thrilled you’re here. I know you are gonna get a tremendous amount of value from the dynamic gentleman we’re interviewing today.

His name is Bruce Petersen, and in the last few years he’s created a $70 million portfolio in the Texas area. He’s from Austin, Texas. We’re gonna dig in to how he made that happen. Bruce, welcome to the show buddy.

Bruce Petersen: Hey man, thanks for having me.

Rod Khleif: Absolutely. If you wouldn’t mind start with your, the beginning of the story. Nobody goes from zero to 70 million overnight. Tell us how you got started in the real estate business and how you got to where you are.

Bruce Petersen: Alright. I’m an old retail guy, and an old stockbroker from the 90s, and I realized that it was time to move on. I was tired of working for somebody else.

I lived way below my means for 15 to 20 years of my life. I just socked away all my money, made good investment decisions in the stock market so I made a lot of money there. I was able to walk away from corporate America, which was… It was eating me alive. It really was. It was stealing my soul.

Rod Khleif: Wow.

Bruce Petersen: I got out of retail, and had to kinda think about, “Okay, now that I’m a grown-up, what do I wanna do with my life?”

Rod Khleif: Sure.

Bruce Petersen: “Let me figure this thing out.” So I dug in to real estate, educated myself and… It’s the best thing I’ve ever done, but with my background I had the skill set that I needed to convey into this because I’ve led people my whole life. I’ve been a supervisor, a manager, a leader of people, so it was a very easy fit for me.

I did have my self-educated, that’s fine. But what I did is I found a group of people that we developed a really strong bond with each other through a meet-up that I started, really, is what happened.

From that meet up, it started… Let me see. October, I believe it was, of 2011, and to this day, that thing is still going. The email list has grown to about four or 500 people.

Rod Khleif: No kidding. And this is in the Austin area?

Bruce Petersen: It is. It’s in the North Austin.

Rod Khleif: Wow.

Bruce Petersen: We meet every other Wednesday. We get about 30 to 50 of those people together any one week but that’s where my guys came from.

People ask me all the time, how do I do what I did? How do I raise money? You just got to figure put a way to inject yourself into the system, in to this real estate local system and provide value to people.

I did, I was sharing information. They were sharing information. They got to where they liked and trusted me, and they were willing to partner with me on my first deal with no fears.

Rod Khleif: So that’s how you found the equity. That’s fantastic. Yeah, in fact, those of you listening, I just started a Facebook group… Multi-family… What is it?… Multi-family investing… in like eight weeks, the social media is fantastic. I’ve got 4500 people on there already.

The reason I bring that up ‘cause you mentioned a meet-up group. There are meet-up groups forming inside of that Facebook group all over the country. I was in LA looking for a venue for my life event I’ve got coming up in April, and I met five guys there, they’d met though this group that’s only been around for eight weeks.

By the way guys, if you’re listening, it’s MultifamilyCommunity.com. Definitely go check it out. Like I said, there’s already 4500 people there. And people are connecting all over the country.

Back to your story, you formed this meet-up group, and that’s where you found a lot of equity investors for your deals? Now, correct me if I’m wrong, you went right… You didn’t do the traditional path from single-family to duplexes, to fourplexes. You jumped right in, right?

Bruce Petersen: Correct. I had the money that I needed. I had all the time in the world. I’m now, kinda quasi retired at the point. So yeah, I realized early on that single-family was gonna be a lot more work than I wanted to put into it. And multi-family was a better way to scale, and give myself the life that I truly, truly wanted; deserve, as cheesy as that might sound, and knew, it was there, for me.

Rod Khleif: Okay. Okay. That’s very unusual. I will say, most people take that natural progression, and so you just went for it. What was the size of your first deal?

Bruce Petersen: First deal was 48 units in Austin, and it was 2012 when I closed. And we purchased it for about 1.625 million.

Rod Khleif: Nice. Nice. Tell us about that deal. How did it end up? Do you still own it? What happen with that property?

Bruce Petersen: No, we did sell it, after two years and four months.

Rod Khleif: Okay.

Bruce Petersen: We figured that going in the front door was a five to seven year hold. And then the Austin market happened; it got really, really hot, really quickly. So we took this property that we thought was a fully stabilized asset with returns 10 to 12% a year in cash flow. We would hold it for the five to seven years, sell it, make a little bit of money on the back end, but it was more about the cash flow.

Two years into this deal, I saw what was going on around us and I thought, “Well, you know what, it might keep going for another two, four, five, six years, it might not. So why get greedy, we can sell, and make a really large profit on this stabilize asset, if we sell right now.

So when we did sell after two years and four months, I gave a total return to my partners of 300%…

Rod Khleif: Wow.

Bruce Petersen: I gave them about an eight and half to nine-year chunk of cash flow, all at once.

Rod Khleif: That’s fantastic.

Bruce Petersen: We sold it, and moved on to bigger and better things.

Rod Khleif: That’s fantastic. You mentioned that you had leadership experience in your past life, in the retail world. In this real estate business what do you think, a leader in this business … What do you think are the most important qualities that a leader should have?

Bruce Petersen: It’s transparency. It is empathy, and just being able to understand what the other person’s going through. That goes for tenants too. Put yourself in their shoes.

Rod Khleif: Right.

Bruce Petersen: What would you want if you worked for somebody else? What would you want if you lived in somebody else’s place? I think that’s a big part of it. It’s being open minded, listening to the smarter people in room, and having a lot of empathy.

Rod Khleif: I love it. I love it. Now, you mentioned… Let’s talk about your superpower, your skill sets. I know you were a stockbroker one time, which obviously has an incredible sales component. Do you think… and of course, you led people in the retail world, tell me what traits that you learned in those two environments that you think helped translate into the real estate business, into the multi-family investing business rather.

Bruce Petersen: Right. Right. Right. Again, being a Big Box store manager for retail is what I was doing.

Rod Khleif: Okay.

Bruce Petersen: I have to address the troops, constantly. I’m always talking in front of a big group of people, 100 to 150 people. I know everything that comes out of my mouth, people are gonna, you know, they’re gonna live and die by that to some degree.

I learned very quickly how to conduct myself, how to address the troops. I did a lot of studying on that too; how to lead people effectively.

Rod Khleif: Okay.

Bruce Petersen: So that was probably the biggest thing I got, and learning how to co-exist other people, knowing that they were looking to me for leadership and guidance.

Rod Khleif: Love it. Love it. Are there any tools or books that you could share with my listeners that have really helped you on your journey?

Bruce Petersen: Well, I’ll probably forget some of the names up here, but The Seven Habits of Highly Effective People.

Rod Khleif: Awesome book by Stephen Covey.

Bruce Petersen: Absolutely. Who Moved My Cheese? For basic stuff.

Rod Khleif: Oh, that’s awesome too.

Bruce Petersen: Yeah. Very, very basic stuff, one of the best things that I read though was… I think it was A Thousand And One Ways to Incentivize Your Employees. I learned from that. It’s not about money. People what to be recognized and praised for a job well done. That believe it or not was a huge book for me.

Rod Khleif: Yeah, I have that book as well, and you’re absolutely right. It’s not money. If you’ve got a team and you just take the time to sincerely praise them, you watch for the silliest little thing you can congratulate them for. In fact, I used to write it in my planner, “Praise one person a day”; my team.

I had a pretty large litigation support company at one… I still have it but we’re at 60 people. We’re down to 40 now. I would literally make it a point to speak to one of them everyday, and congratulate them, or praise them about something. Find a reason, talk to their manager, their direct manager, and praise them. Love it.

What markets do you love now? Are you still… I mean Texas is so freaking hot. Austin, I think is the epicenter of the hotness. Where are you looking now?

Bruce Petersen: Well, right here in my backyard, still, Austin, San Antonio.[overlap talk]

Rod Khleif: You are. Okay.

Bruce Petersen: I just closed a 484-unit, two-property portfolio, and one was in San Antonio, one was in Austin. I’m still finding deals that I can source at seven to 9% cash on cash returns. We haven’t found a need to branch out of Central Texas, for now.

Rod Khleif: Okay. Okay. So tell me, if you could go back to the beginning of your start, syndicating properties and going after these larger properties, what advice you might give yourself? What might you do differently?

Bruce Petersen: Go as quickly, and as large as you can, reasonably. Don’t be reckless you’re dealing with other people’s money…

Rod Khleif: Right.

Bruce Petersen: They will make or lose money based on your efforts, so don’t be reckless in any way. But go big. I was listening to Grant Cardone the other day and he was talking about that too. Go as big, as fast, as you can ‘cause it’s easier. It is honest-to-God easier. It’s more profitable. It’s more rewarding. And you get to help more people. You get to provide more income for more people. I would definitely go bigger and faster.

Rod Khleif: Huh. Wow. Okay. Okay. Everybody listening probably thinks, “Oh, this is so easy. There’s no speed bumps; there’s no hiccups. Tell us about some seminars. I don’t call them failures. I call them seminars. Tell about some seminars you’ve had. Maybe a real doozy, in this journey for the last five years?

[00:10:04]

Bruce Petersen: Well, I got two big ones.

Rod Khleif: Okay.

Bruce Petersen: A lot of people know what I do, when they find… “Oh, Bruce, I got to do that.” They see the dollar signs. Right?

Rod Khleif: Right.

Bruce Petersen: They’re chasing dollars. Then I share a couple of stories with them. I was closing on a property in San Antonio, about a year and a half ago as we were… The day of close, we wire 5.2 million bucks to close the deal. Well, the entire day passes, they still didn’t receive the wire. Everybody’s flipping out, and losing their mind like, “Look, I did it! I sent it. Here’s all the documentation for it.”

Nobody knew where my wire was. My wire is gone. And it’s not my money.

Rod Khleif: Right.

Bruce Petersen: It’s my money and my investors’ money, I can’t account for it. I don’t know where it is. It’s gone. Nobody could tell me where it is. So now, I don’t own a property, because I didn’t close. I don’t have 5.2 million dollars of somebody else’s money.

Finally, the president of the title company finally figured it out, a division of Homeland Security called, OFAC. They look at all wires that come through and when that goes to the FED, OFAC, comes in and looks, and compares all the names of this transaction and compares it to a database of known bad actors.

Rod Khleif: Wow.

Bruce Petersen: The name of the property was the same name as a known drug cartel in Colombia.

Rod Khleif: [chuckles]

Bruce Petersen: So they took my 5.2 million bucks, and they don’t have a nice little customer service department to say, “Dear Mr Petersen, this is where your money is and this is why.” Nobody knows what’s going on so that caused a little bit of stress.

Then the other one was about…

Rod Khleif: How long… I’m sorry I got to stop you… How long did it take you to clear that up?

Bruce Petersen: [chuckles] Well, it took…

Rod Khleif: I’m sure it felt like months, but I mean…

Bruce Petersen: Although, actually, it did feel like months, but it was only a few hours… [overlap talk]

Rod Khleif: Right. Okay.

Bruce Petersen: The wire was issued at 9:00 o’clock in the morning. We found out about 5:30 in the evening but by this time we’re already gone. The day is done. It’s a Friday so we had to close that following Monday. But yeah, it…

Rod Khleif: Okay.

Bruce Petersen: A little consternation… [overlap talk]

Rod Khleif: Oh hell… Good god, yeah. Alright.

Bruce Petersen: Now I got to come home, that day, sit in my home office and type up a letter saying, “Hey, guess what, we don’t own anything, and I don’t know where the hell your money is.”

Rod Khleif: Wow.

Bruce Petersen: Yeah. That was a lot.

Rod Khleif: That’s scary. That’s scary. Well at least it ended up okay. What’s the next one?

Bruce Petersen: The next one, it’s bad for a different reason, but I got a phone call and a text one morning, about three to six months ago, and my lead maintenance guy on a to a 200-unit property sends me an email while the text comes across with a picture.

Rod Khleif: Okay.

Bruce Petersen: There’s a gentleman that lived on the property that had decided to go swimming in the pool at 4:00 o’clock in the morning, intoxicated. Blasted out of mind. He didn’t make it back out of the pool.

Rod Khleif: Oh, no.

Bruce Petersen: He’s on the bottom of the pool, looking straight up; rigor mortis the whole thing, with his eyes wide open.

Rod Khleif: Wow.

Bruce Petersen: Yeah. It’s not always rainbows and lollipops. It’s still the best thing I’ve ever done, the most profitable thing, the most rewarding thing. There are things that are going to happen no matter how well you prepare, how much you study, you get out there, you’re gonna get your mouth bloodied a few times and you just got to make it through it. Just keep your head down and keep going. It’s gonna work itself out. It’s just challenging some times.

Rod Khleif: Yeah. You’ve got to know what you want and why you want it because if you don’t, you’re gonna get knocked out instead instead of knocked down.

Bruce Petersen: Right.

Rod Khleif: When you get knocked down, you can get back up but yeah, I know. I get it… May I ask you this, comes first, finding the deal, or finding the money?

Bruce Petersen: Well, finding the deal, ‘cause I’ve got money on the sidelines. I’ve got pinned-up demand, basically.

Rod Khleif: Okay.

Bruce Petersen: The capital is usually pretty easy because we’ve got a track record now. Right?

Rod Khleif: Right.

Bruce Petersen: It wasn’t like that at the beginning.

Rod Khleif: Sure.

Bruce Petersen: We’ve proven ourselves over many years, many deals, so for the most part, I’ll go find the deal. Then once I get an accepted LOI, we will then draw up all the financial all the legal docs; get that out to the people that have expressed interest.

Usually, 50% of the people that initially express interest will still stick with us through the close… [overlap talk]

Rod Khleif: 50%. Wow. That’s good know. Guys, remember that. You have to always over commit.

Bruce Petersen: Yes.

Rod Khleif: I mean, basically, you just lost 50% of… What fundamentals do you look for when you look at a deal?

Bruce Petersen: I’m looking for a good, robust market. That’s really easy where I am right now. I don’t have to…

Rod Khleif: Sure. Sure.

Bruce Petersen: I’m not testing myself there much anymore but I’m looking for a net inflow of people. I’m looking for hopefully a changing dynamic in the workforce; if it’s an older workforce.

San Antonio is going through a big tech boom right now. They’re drawing in a lot of tech, a lot of young people are moving to this city. We’re looking for that. For the most part, I’m buying stabilized assets right now. I’m looking for a seven to 9% return to my investors.

Primarily looking at B, B plus properties now, because I can source the same return from a B plus property that I can from a C minus property. Why do I wanna screw with the C minus property if this much nicer property with less risk is gonna pay out the same?

Rod Khleif: Right. Right. What would you say is the best piece of advice you’ve ever received?

Bruce Petersen: Just do it.

Rod Khleif: Just do it.

Bruce Petersen: When I first started doing this… To steal the cheesy Michael Jordan, Nike line… When I first started doing this, I thought I was gonna go in, and buy single-family homes, buy four of them, pay them all off, and live off that cash flow for the rest of my life.

Then I got around people that were bigger brained than me, right at the level my thinking up, and I learned that, “No, no, I’m thinking way, way, way too small. I got to go bigger, and I just got to get out there and do it.”

I told a guy that was kind of giving me some advice that, “Look, I don’t know how to do this.” “You know what, it’s easier than single-family. You have the skill set in your prior life. Get out there and do it.” That’s the big thing; get out there and do it.

Rod Khleif: What did you have to give up, or sacrifice to get where you are today?

Bruce Petersen: That’s hard to say because the career I had before this in retail, I was working 90 to 110-hour weeks for somebody else. So the thing I had to give up, I guess, is a little bit of security. I had to… A lot of my friends, “What are you doing, quitting? What about insurance?” Holy crap, I can get my own insurance.

Rod Khleif: So you quit before you took down the first one?

Bruce Petersen: Oh, yeah.

Rod Khleif: Wow.

Bruce Petersen: Yeah, I just…

Rod Khleif: About how long of a period in between that, “Take this job and shove it”, and you got your first property?

Bruce Petersen: About two and a half years.

Rod Khleif: No kidding? Wow. Okay.

Bruce Petersen: Again, I did well for myself, so I had… [overlap talk]

Rod Khleif: You had a cushion. Right.

Bruce Petersen: Yeah, I did. I gave up some of the certainty, but what the certainty was doing was killing me. ‘Cause the certainty meant I worked for somebody else. I was physically nauseated everyday I went to work.

Rod Khleif: Wow.

Bruce Petersen: And I just realized, it’s not worth this. It’s not worth it. So I like the responsibility of everybody’s return riding on my shoulders and knowing that there might be another dead guy. I’m okay with that. I know how to deal with it; handle it.

The one thing, I guess, I did sacrifice was the safety of getting a paycheck from somebody else.

Rod Khleif: Sure. Now, those of you listening, please do not quit your jobs…

Bruce Petersen: [chuckles]

Rod Khleif: And then go buy properties. Okay? This gentleman is an anomaly and he saved money for 18 years, okay. So unless you’ve got that kind of a nest egg, don’t do it. You can do this on the side. I’ve interviewed enough people that have built multi-million dollar portfolios on the side. So please take that advice.

Many people ask me, “Should I quit my job?” I always say, “No. Not until you’ve got… unless you’ve got the cushion. If you’ve got a big enough cushion, and it should be a damn big one.”

What inspires you buddy?

Bruce Petersen: Giving back. Honestly.

Rod Khleif: Yeah.

Bruce Petersen: We won the 2016 Independent Rental Owner of the Year for the entire nation…

Rod Khleif: Wow.

Bruce Petersen: With the Apartment Association. But what got us that, for the most part, is we like to create community everywhere we buy.

We have a property that, 120 units, very working class neighborhood in Austin. These people have a hard time providing for themselves day-to-day, so what we did on that 120-unit property, we had 83 students; middle school and below.

We went out to each and every school that these kids were gonna go to by grade, and got the list of school supplies needed. What we did then is we went and got a backpack, 83 different backpacks, boy and girl. They got to come through, pick up their backpack, and then they went from the room that they were getting the backpack from, to the other room where my 21-year old autistic daughter is standing there… I’ll cry if I’m not careful…

She asked what grade they’re in and she hands them the bag for that grade. They get this and they load up their backpack, they walk out, and the biggest smile you’d ever seen on these children’s faces, they now have school supplies that they otherwise wouldn’t have had.

Rod Khleif: Oh, brother…

Bruce Petersen: That’s the good stuff. We make money but it’s that’s stuff that gets you going.

Rod Khleif: Oh, man, I got to tell you, and I don’t wanna steal your thunder… That is unbelievable, and it’s fantastic. It’s dear to my heart because we do the exact same thing. I’ve done thousands of backpacks with school supplies with my foundation… So my hat’s off to you my friend. I don’t meet people that do things at that level very often and so my hat’s off to you.

In fact, this Saturday, we’re doing a I think about 1500 baskets filled with food to the local children here. We’ve done… I’ve fed now, 55,000 children over he last 18 years. But we’ve done backpacks just like that. It’s just so amazing when they come and you can hand a child a backpack that wouldn’t have one filled with school supplies. I mean, we’ve…

Then we also do teddy bears that we give to the local police departments for the officers to keep in their cars when they encounter a child.

Bruce Petersen: How awesome.

Rod Khleif: Yeah, we’ve done thousands of those. But my hat’s off to you my friend that is absolutely beautiful.

[00:20:03]

Bruce Petersen: Appreciate that.

Rod Khleif: Yeah… Now, you stumped me there because that really moved me. That’s so awesome what you did, and congratulations on national award, I mean that’s huge, that was the National Apartment Association?

Bruce Petersen: Yep. It was. Yeah.

Rod Khleif: Wow. That’s fantastic. What last bit of advice would you give… Actually, you know what, I don’t wanna go there yet. Let’s talk about due diligence for a minute. Tell us how you go about your due diligence. Do you use third-party management? I think you mentioned you have your own management now. You’re managing yourself?

Bruce Petersen: Right. So there’s no due diligence on that part ‘cause we do have our own management company. We have our own asset manager, management company, construction company. So due diligence on the deal, I underwrite everything.  I get with my mortgage brokers, my DUS lenders but as far as like the on-site, that physical asset, what I like to do and it’s really rewarding for our investors; we open it up to the investors. “Who wants to come look at the property with us and help us inspect units?” Unit by unit, by unit.

Rod Khleif: Love it. What a great idea.

Bruce Petersen: You have the subsystems, the major systems, the roofing, the pest control, the foundation. Of course, we have professionals come in for that, camera all the lines, make sure that we’re looking good there. But yeah, we like to have as many of our investors as will participate with us and come out, and share in this process with us. It’s a way for them to learn and they’re more likely to follow us.

Rod Khleif: Sure. No question. That’s a great idea. Those of you who are listening, that is a fantastic idea.

Alright, let’s go to the last question. What bit of advice would you give an aspiring investor, that hasn’t taken action yet, that knows they want this, knows they want more, knows they want out of the rat race, what words of wisdom would you share with them?

Bruce Petersen: The first thing I would say, “Get out of your own head. Get out of your own way. People sabotage themselves all the time. You are usually your worst enemy. Get out of your own way.”

You got to get yourself educated but then education without action is worthless. Level yourself up. Don’t get rid of friends, keep them as friends but when you’re talking about your professional life now, you have to love yourself up. Surround yourself with people that have what you’re trying to accomplish, and just emulate them.

You are what? The sum average of the five people you spend the most time with. If you walk into a room on a professional endeavor, if you walk into a room and you’re the smartest guy in the room, get the hell out of the room.

Find a room where you’re the stupid guy. Learn from others. But then, once you learn and surround yourself with like-minded people, when you find a deal that makes sense, you got to go. There’s never gonna be a perfect deal. Don’t over contingency everything, if you are an engineer type. If you are, you got to figure a way past that. Don’t get into the analysis paralysis thing. You have to assess it, trust your abilities, and just go.

Rod Khleif: Fantastic advice. In fact, I’m doing a live event that’s sold out in Tampa, here in January. I’m spending a good amount of time on taking action, on pushing past limiting beliefs, on peer group, and addressing the analytical guys in the crowd to either get past that and get uncomfortable, or align themselves with an outgoing personality like yours. It’s one or the other.

And there’s been some fantastic matchups between the analytical personality and the outgoing personality. Those are sometimes matches made in heaven. You’re supplementing each other’s deficiencies. But otherwise, at the very least, you got to get uncomfortable, and push yourself and take action. Get out of your head. Fantastic advice, my friend.

Well you’ve added a ton of value today. How do people get a hold of you?

Bruce Petersen: My website, A-P-T dash guy so it’s apt-guy.com.

Rod Khleif: Okay. Fantastic.

Bruce Petersen: I’m… I just drew a blank there. You can get me at  HYPERLINK “mailto:Bruce@apt-guy.com” Bruce@apt-guy.com also.

Rod Khleif: Okay.

Bruce Petersen: So yeah, I’m pretty easy to find.

Rod Khleif: Okay. Well thanks for adding value, my friend. I’m really excited to see where you’re at a year from now, at the trajectory that you’ve already accomplished in the short amount of time. Appreciate having you on the show my friend.

Bruce Petersen: Alright, man. Thank you so much for having me.

Rod Khleif: Alright. You bet. Take care

[music]

Thank you for listening to the Lifetime Cash Flow Through Real Estate Investing Podcast. If you’ve enjoyed the show, please subscribe, and then take a moment to visit iTunes and leave a five star rating and review. For more resources to connect with us further, please visit our website at lifetimecashflowpodcast.com. Tune in next week for our next show.

[music]

Ep #191 – Joseph Gozlan Owns 150+ Multifamily Units Discusses Acquisition, Increasing Property Value and Rents

Ep #191 – Joseph Gozlan Owns 150+ Multifamily Units Discusses Acquisition, Increasing Property Value and Rents

by | Jan 1, 2018 | Due Diligence, Podcasts

Ep #191 – Joseph Gozlan Owns 150+ Multifamily Units Discusses Acquisition, Increasing Property Value and Rents

Here’s Some Of What You Will Learn

  • The benefits of building relationships with brokers.
  • The benefits of multi-family over single-family.
  • The importance of focusing on relationships with sellers, especially if they are older.
  • The benefits of seller financing and how building a relationship can help.
  • The importance of making your property a great place to live to attract tenants.
  • Ways of increasing value of your property through increased rents and increased Net operating income.
  • Ways to get started in order to be taken seriously and land more deals.
  • The benefits of using property managers as a deal source.
  • The benefits of self-managing and when it may be a good idea to do so.
  • The difference between a 506b and 506c capital raising and the benefits of each.
  • The importance of educating yourself and others that may be involved in your deals.
  • The benefits of using a property management company as the experienced party to secure financing.
  • The benefits of growing with smaller brokers over time.
  • The importance of proper due diligence and how property managers can be useful in the process.
  • Creative ways to document your property inspection to be able to carefully examine the property.
  • How to overcome issues and problems that may arise on the property.
  • The benefits of treating your residents right to maintain occupancy and promote your property.
  • The importance of not allowing fear to prevent you from taking action.
  • The importance of exit strategies and contingency plans for potential problems.
  • About some books that may help you get started and focused on your goals.

Our Guest

You can learn more about Joseph Gozlan here.

 

Watch on YouTube!

Do you want to learn more about Multifamily Real Estate Investing? Work with Rod in the Lifetime CashFlow Academy's Multifamily Course & Coaching Program

Apply for Mentorship

Full Transcript Below:

Ep #191 – Joseph Gozlan Owns 150+ Multifamily Units…

Rod Khleif: 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. I know you are gonna enjoy the gentleman we’re interviewing today. His name is Joseph Gozlan and Joseph has… I can’t even count these. I don’t know how may units it is, but quite a few.

He’s taking action. He and I actually spoke… Gosh, it seems like a lifetime ago but it’s only probably been about a year and a half ago when he was just getting rolling and he’s already into the hundreds of units. Really making things happen, and we’re lucky to have him on the show. Joe, welcome. Welcome.

Joseph Gozlan: Thank you, Rod. It’s an honor to be on your podcast.

Rod Khleif: Oh, thank you.

Joseph Gozlan: I’ve been a time listener.

Rod Khleif: Oh, thank you. That’s awesome… Yeah, so let’s do the traditional, “Tell us how you got started story.” I know you’ve started in single family, so start there and then let’s talk about, let’s move in to that first unit, and your mindset about getting into this space.

Joseph Gozlan: Yeah. I was born and raised in Israel. When my then fiancé and I got married, we decided to buy an apartment and we bought one but it was kinda too large for us. We were just renting a one-bedroom kinda apartment on our own and that fell in line with the same timeline that we read, Rich Dad, Poor Dad.

We said, “Okay, maybe just for a couple of years before we move in, we’ll rent it out. So we became accidental landlords. And well then, you’ll start seeing the income stream, and it all falls in line. So we said, “Okay, then we list it.” Then it has real merit behind it.

Life happened and we kinda moved to the United States in 2007, recognized that the 07-08, the big crash, was probably the best opportunity market we were ever gonna see in our lifetime. So we sold the apartment back home and we started buying single-families in the States. That’s how we got started.

Rod Khleif: Where were you located at that time?

Joseph Gozlan: Plano, Texas.

Rod Khleif: Okay.

Joseph Gozlan: That’s where we came over.

Rod Khleif: Okay. Okay.

Joseph Gozlan: That was really a fantastic time to buy here in Plano.

Rod Khleif: Oh, yeah. For sure, it was pretty much a fantastic time to buy anywhere. Of course, I was licking my wounds and hiding under a rock ‘cause I was getting my butt kicked in that time frame. But there were incredible opportunities.

In fact, some of the most successful syndicators that I’ve interviewed on the show started in 09 and 10, so fantastic. When did you buy that first 22-unit? I know that was number one, right? That was the first one?

Joseph Gozlan: That is correct. I started my journey back in 2015, getting into multi-family. The trigger was realizing that single-single family was just not scalable enough for me. Right?

That year, I had to write about $45,000 worth of expenses, on a property. I was lucky I had reserves. I was prepared for that. But I realized, that if every one of my singles is gonna have that much expenses, I’m gonna be in big trouble.

Rod Khleif: Right.

Joseph Gozlan: So I researched what’s better? What’s more scalable? And what is safer?

Rod Khleif: Safer.

Joseph Gozlan: And multi-family is really where I landed because it’s… You get to spread your risk across a lot more units. That’s where I started my journey. It’s not an easy industry to get your self into. It’s hard to get your foot through the door so there was a lot of building relationships with brokers, and reaching out.

At my frustration point, I said, “You know what, the hell with it. I’m gonna source the deal myself.” So I started doing marketing, and postcards, and cold calls until I found, in 2016, a good seller that was willing to come in at a reasonable price and worked a good deal with us.

Rod Khleif: Awesome.

Joseph Gozlan: That 2016 was our first one.

Rod Khleif: No kidding. Well, let’s dissect that deal, do you mind?… So you found that by direct to seller. Awesome. That was a fantastic way to do it.

Tell us about the deal itself. Unit-mix? Pricing? How you put it together? How you put together the capital stack? Let’s just dissect that one.

Joseph Gozlan: Sure. So we agreed on a sale price of 1.6.

Rod Khleif: Okay.

Joseph Gozlan: The 22-unit, I didn’t look for a Class A building but I kinda happen to land on one. This is a 2007 built, granite countertops, really, really nice property.

The gentleman that was selling it was an 80 year old. He built the property by himself. He used to be a custom homebuilder for decades. So everything is really built at a very high spec, and very nicely done.

He was kinda self-managing it, fixing stuff on his own, having a realtor help him lease up. Very lenient with the way that he operated things with the residents. But at 80, he was kinda ready to move on from that.

I remember, I had a conversation with you, before I went to the meeting face to face with him.

Rod Khleif: Right. I do remember [chuckle]

Joseph Gozlan: You kinda helped me, basically, tweak my message, just the right things to say, the right way to build rapport with that person, because it’s a relationship business. If you don’t build a relationship, nothing is gonna work.

For that I am grateful to you…

Rod Khleif: Oh, my pleasure, buddy. And let me interject something. Guys, whenever you are dealing with an elderly seller, 80 or above, focus more on the relationship than the actual, than the deal. Build rapport, develop a relationship because seller bonding is so important and so valuable.

People, as they’re growing older, they value relationship more. They realize that life is about relationship and they’re a little more evolved just because of their age and you wanna take advantage of that. Not to take advantage of them but to create a win-win deal.

That’s likely. I don’t remember the specifics of how I added value to you back then but that’s likely what I said, was to focus on the relationship because it really does make a huge difference.

Please continue. So 1.6 million, that’s a good price. I mean, that’s a high price for a 22 but that’s because it’s an A building. I mean, granite countertop.

Joseph Gozlan: Exactly.

Rod Khleif: Holy cow. How did you finance it?

Joseph Gozlan: Seller financing. The down payment…

Rod Khleif: Oh, that’s right! I do remember. I do remember you talking to me about that. That’s right. Okay. Fantastic. That’s awesome. Seller financing…[chuckles]

Joseph Gozlan: Yeah.

Rod Khleif: Can’t get better than that, guys. Seller financing is the belle of the ball, whenever you can do it. Awesome.

Joseph Gozlan: Absolutely. Actually, we’ve done another one of those since then.

Rod Khleif: No kidding.

Joseph Gozlan: On this one, because of the relationship, because I didn’t wanna bring another partner, I had some money that I’ve gotten from refinancing the properties I bought back in 09. I’d said 2006 was a great year… 2016 was a great year to refinance it.

Rod Khleif: Sure.

Joseph Gozlan: And then we pulled the equity out, we used that one as the down payment with the seller. And all we had to do, coming in, is really shine as operators. Because the property did not need rehab, there is no major capex expenses; very small things. But when you come in and you turn this into a community.

We are big believers in karma. We wanna build a great place for our residents to live in. we wanna make sure that they wanna bring in their friends. They wanna bring in their family, to live in the property with them. So we’ve actually built a waiting list.

We were able to bump rents way beyond what he was getting. We always like to use carrot over a stick when we try to encourage our residents to do things. He would let them pay on the 15th, on the 20th. When we came in, we want things done, get paid as soon as possible. Instead of coming in as the new sheriff in town, “If you don’t pay me on time you’re gonna get evicted.”

We said, “Okay, anyone that pays on time for the first month is gonna get in the raffle for a big TV.” We raffled an LED TV. It was like, I don’t know, $200 for us but 80% of the property paid on the first.

Rod Khleif: No kidding. That’s brilliant.

Joseph Gozlan: Yeah. So what we love about this property is the location was awesome and then a year later, refinanced, and we got appraised at 2.1.

Rod Khleif: No kidding. Look at that, 500 grand, just like that, just by increasing the rents and improving the NOI. Improving the net operating income, you got a $500,000 increase in value. Fantastic. Fantastic, buddy.

What was property number two? How many units?

Joseph Gozlan: So property number two, was 102. That was our first syndication.

Rod Khleif: Okay.

Joseph Gozlan: That one was definitely an experience.

Rod Khleif: Yeah.

Joseph Gozlan: It’s a lot different buying for yourself.

Rod Khleif: Just as long as it wasn’t a seminar. Hopefully it wasn’t too many… I’m sure there were some little mini seminars in there, but hopefully no big ones.

Joseph Gozlan: No, there was no big ones.

Rod Khleif: How’d you find it and … tell us about it.

Joseph Gozlan: Like I said earlier, it’s an industry that’s hard to get into. It’s a catch-22 because until you start buying, nobody wants to give you anything to buy. But once we closed on our first one, then brokers started to realize, “Okay, you’re a closer. You’re not just a tire kicker.”

I started getting some deals a little bit earlier into the process, before they go into the market. Then our property management actually, a third party partner that we have, saw a broker walk around a property nearby the property they were managing, and they knew that broker so they kinda reached out. Said, “Hey, what’s going on?”

He said, “Well, the sellers are thinking of selling”. They told him, “You know what, we’ve got the perfect buyer for you.”

[00:10:01]

Joseph Gozlan: And they got us connected with them.

Rod Khleif: Fantastic. Fantastic. Guys, property managers can be a great source of deals. It happens all the time. I hear it time in and time out. So those relationships are valuable. And let me publicly say it once again; I have so many of you that I talk to, on strategy calls. You think that I’m a big proponent for self-management, which I am with a caveat.

That caveat is after you’ve stopped buying; when you’re out of acquisition mode, then get third-party management. I mean, I’m sorry, then consider managing yourself, when you have enough of an infrastructure where you can pay somebody the same amount of money you’re paying a third-party manager then you consider taking it in-house, ‘cause chances are, you can do as good or better job than they do.

But when you’re in acquisition mode, absolutely, don’t manage. And if you’re brand new, don’t manage. You need to learn the business, learn the nuances. Frankly, and this is a great example of another reason why you don’t self-manage, you got this deal because of your property manager, that you wouldn’t have gotten otherwise. Right?

Joseph Gozlan: True. Absolutely. And I look at out property management company as Olympic athletes. All these Olympic athletes have a coach. Can that coach be faster, throw higher and faster, longer. Right? No, but what a coach brings in is accountability, is big picture view. It’s those little tweaks here and there that helps that athlete go three to 5% more. That’s how they get the goal. Right?

Rod Khleif: That’s a great analogy.

Joseph Gozlan: So that’s what we do with our property management. We work with them. We catch the balls that they might drop, because they’re human. We hold accountability. We keep track of things and we give them the 50,000-foot view that they might lack from where they are.

Rod Khleif: Okay.

Joseph Gozlan: That’s how we get that operation excellency.

Rod Khleif: So this 102-unit was your first syndication, tell us how that came together? What did you do to go find investors? How did you position yourself? How did you put yourself out there with authority? Give us a little bit of background there.

Joseph Gozlan: Yeah. For me, doing the first one, I did it all by myself. I didn’t have any partners I went and had it… Sometimes, ignorance is bliss. I figured, I can do everything.

The underwriting and finding the deal, and all these went well. We had got to the equity raise and stuff. I’ve built an offering memorandum that I’ve evolved a lot during this process. When we went to investors, we went to friends and family.

Rod Khleif: Okay.

Joseph Gozlan: There is the… I know you talked about that in the show before. There’s 506 B and there’s 506 C.

Rod Khleif: Correct.

Joseph Gozlan: It’s always hard for me to remember what it is…

Rod Khleif: 506 C is accredited only.

Joseph Gozlan: Yes.

Rod Khleif: So which did you do?

Joseph Gozlan: We did a 506 B for our first one?

Rod Khleif: B. No, you took anybody really. It’s pretty much anybody’s but I mean, you wanna do sophisticated. You don’t really wanna do people that have never done anything before because they require so much hand-holding. But you can in a 506 B.

You went to friends and family. How did that go?

Joseph Gozlan: A lot harder than I thought it would be.

Rod Khleif: Tell us why.

Joseph Gozlan: First of all, there’s a lot of education that has to happen. Even when a person is an accredited investor or a sophisticated investor, they might be doing great in stocks, or in options, or in any other things but multi-family is a different thing that they have never seen.

Even people that invest in single-family properties, has a challenge transitioning and understanding the structures of multi-family.

Rod Khleif: Sure.

Joseph Gozlan: There was a lot of educating and sometimes, multiple conversations with the same people to just get them used to the idea of what is multi-family. How we structure a deal? Why me that I only have a 22, can handle a 102-unit. This is where I leaned heavily on my property management experience and their reputation and how they are a huge advantage for us.

Rod Khleif: That’s smart. You just supplemented that lack of experience with the other member of your team, which is your property management company in this case. Guys, you can do that with a management company, you can do that obviously with a sponsor that owns units. But let me ask you this, so I don’t forget, did you go Freddie Mac on this deal and utilize the property manager as the experience piece? Or were you able to go some other way?

Joseph Gozlan: We did Fannie Mae…

Rod Khleif: You did Fannie Mae…

Joseph Gozlan:And yes we used our property management.

Rod Khleif: Okay. So they allowed… Fannie Mae, it’s usually easier with Freddie Mac if you’re using a third-party manager as the ‘experienced component’ but it’s great you were able to pull it off with Fannie Mae. Fantastic.

Joseph Gozlan: Well, I wasn’t the only KP. We actually got the owner of the property management to come in as a KP with us. She was actually an investor in the deal. It was that good of a transaction. So that’s how we… [overlap talk]

Rod Khleif: Okay. Well there you go. There you go. That explains it. I was a little puzzled how you were able to pull that off. But that explains it; you brought the property manager, and brilliant. I mean, brilliant. Give them a piece and the deal is done. It’s just as if we’re bringing a sponsor in. It’s the same thing, really. Fantastic.

Joseph Gozlan: Plus, we get them with even higher stakes in the game, making sure the property’s operated to the best efficiency.

Rod Khleif: Sure. They have a dog in the hunt. Yeah. They have a dog in the hunt. They’ve got to make sure its well taken care of. Yeah, absolutely. No. It’s a great strategy and it’s very effective. And it’s not an uncommon strategy. Well, good for you. Awesome. Awesome. Awesome.

So you raised that money from friends and family, and I know your next deal was a 28-unit, is that correct?

Joseph Gozlan: Yes, that’s correct.

Rod Khleif: Another syndication?

Joseph Gozlan: No. That one, again, I took all by myself.

Rod Khleif: Okay.

Joseph Gozlan: But only because we got the seller to agree to seller financing again, and he let is in at a very low down payment.

Rod Khleif: How did you find those deals? Did you do outbound calls? Did you do mailing? Did you send postcards, letters? Tell us some strategies that you used.

Joseph Gozlan: That one was actually through a broker relationship.

Rod Khleif: Oh, it was. Okay, so that was a broker deal. Okay. Okay. I don’t know, sometimes it’s hard to do seller financed deals with brokers because obviously they’ve got to get a commission and whatnot. A lot of times, there’s some resistance with the broker arena when you’re trying to propose a seller-financed deal.

They look at you like sometimes that… They may have a preconceived idea that you’re a novice because you propose seller financing or maybe you can’t get regular financing or whatever. I know that as a broker, you’ll sometimes get that resistance but obviously you didn’t, so fantastic. You were able to do it via a broker deal.

Joseph Gozlan: Yeah. We like building relationships with brokers that are smaller boutique shop and not like the big monsters like A.R.N., Newmarket, Marcus & Millichap, and all these guys. Because the smaller boutique shop will work with you a lot more, and they will build that relationship with you, and they’ll be able to testify on your behalf when they are talking to a seller, for versus another guy from Marcus & Millichap, for you, you’re one of his 300,000 people on the mailing list.

Rod Khleif: A very, very good tip guys. Those of you that are listening, that is a great tip. Especially in this hot market, as you’re getting going, align yourself with the small boutique like that and grow together. Grow with somebody like that.

These are lifelong relationships you’re building. You’re not gonna get into this multi-family business for a quick hit and get rich quick. It’s not a get-rich-quick business. It’s a become-extremely-wealthy-over-time business. It happens through deep, frankly lifelong relationships with brokers like you’re describing here. They become your advocates. Awesome.

Joseph Gozlan: Yeah. I couldn’t agree more.

Rod Khleif: Awesome. Awesome. Alright, so the latest was a 97-unit, tell us about that one.

Joseph Gozlan: That one, we haven’t closed yet.

Rod Khleif: Okay.

Joseph Gozlan: We just got around the contract a couple of weeks ago. We finished inspection last week. It’s a fantastic property. We jumped on it, as soon as we could. I think the broker reached out to me with, “I heard they’re gonna put on the market”, and two hours later, we had it under LOI.

Rod Khleif: No kidding.

Joseph Gozlan: Yeah. We move fast.

Rod Khleif: Fantastic. How fast… I mean, did your money go hard quickly? Did you do anything to set yourself apart? Was there anything you did, as a strategy, to make sure you didn’t get usurped out of that deal?

Joseph Gozlan: Yeah. The real strong value that we brought into this deal is that, it was right across the street from the 102 units we bought.

Rod Khleif: Perfect. Okay.

Joseph Gozlan: We’re in the corner, we know all the numbers, we know everything we need to know so that’s why we were able to pull the trigger so fast because underwriting it was easy.

Rod Khleif: Sure.

Joseph Gozlan: We were there. We know exactly what’s possible.

Rod Khleif: Yeah. You didn’t have to do any market analysis for rents and beat yourself to death calling other properties, and trying to make sure you’re comparing apples to apples. I mean, you knew. You’re right there. That’s fantastic.

Joseph Gozlan: Exactly.

Rod Khleif: That’s a homerun.

Joseph Gozlan: Yeah.

Rod Khleif: That’s a homerun on a whole bunch of different levels because you could actually put those two together if you wanted too at some point, if they’re literally across the street from you.

Joseph Gozlan: Yeah. We have multiple strategies around that. What’s the really good part is that it brings us economy of scale…

[00:20:00]

Joseph Gozlan: To the point where we can save money on better operation efficiency.

Rod Khleif: No question.

Joseph Gozlan: Right.

Rod Khleif: Same maintenance staff. Same leasing staff. Same everything. I mean, it’s fantastic, that it’s almost like you acquired a company in this regard. You pool and you have economies. That’s fantastic.

Tell my listeners how you go about your due diligence. What are you gonna do on the due diligence on this new acquisition? Tell us your process for that. How that’s come about?

Joseph Gozlan: Yeah. This is, again, where partnering with a property management company really pays off.

Rod Khleif: Okay.

Joseph Gozlan: When we go into due diligence, we bring multiple people from the property management company. We bring some outside contractors. For example, we will always bring a plumber that will run cameras underneath the building into the sewer lines.

This is not part of my property management company, it’s a third-party vendor but we will always do that because when you deal with C class properties there’s always problems with the plumbing. You just need to know what you’re getting into.

Rod Khleif: Absolutely.

Joseph Gozlan: So that’s something we do. We walk on every roof, we put ourselves into every door, every shop, every nook and cranny in the property. We usually take two or three teams of our other managers or regional managers or maintenance people from the other properties, bring them in for a couple of days and we walk every unit. No matter what the size of the property is, we walk every unit.

What I did is, I went on Amazon and I bought three or four small point-and-shoot cameras but I bought 10 extra batteries, about 10 extra memory cards and I just hand it over to the teams and I told them I want as many pictures as you can get…

Rod Khleif: Of every unit and catalogued, so when you wanna know what unit 302 looks like. All you have to do is go in your Dropbox and pull the pictures and you know exactly what the interior of that unit looks like.

Joseph Gozlan: Yes.

Rod Khleif: Love it. That’s a brilliant strategy.

Joseph Gozlan: The first picture is of the unit number and then we walk in and then [overlap talk]

Rod Khleif: The address. That’s the way to do it. Yep, that’s the way to do it. That’s the way we do it as well. Take a picture of the address, of the unit number, and then the rest of the pictures you know are for that unit. Love it.

Joseph Gozlan: Yeah. We have a very thorough form that they fill. That at the end of the inspection we aggregate all that and I can tell you at the level of the light switch, how many those we need to repair and how many of those we need to fix, and what’s the grade of every piece of appliances we have out there, whether they have leaks or not. Everything is on that form, and I use my virtual assistant to kinda take all those scanned form and put them into Excel.

Rod Khleif: Right.

Joseph Gozlan: We know exactly where we’re going into when we’re done with the inspection period.

Rod Khleif: Now, I love it. Love it. That’s the level of detail you need guys, because you may not get into that unit again for years. I mean, this is an opportunity you must take advantage of, at least to that level of detail. You’ve got a big team there, and obviously, you’re gonna inspect units as you can, and as regularly as you can, but that level of detail, typically, the best time to do that is when you’re going through due diligence and you’ve got big teams there, doing it.

Have you had any early failures that have contributed to your success?

Joseph Gozlan: I don’t know if I would call it failures, but definitely red flag moments.

Rod Khleif: Okay.

Joseph Gozlan: I mentioned earlier, paying $45,000 on a single property, in about a period of I don’t know, four months or something like that. And that really was a red flag for me to say, “Okay, go multi-family.”

In the multi-family world, I haven’t had the chance to experience any failures yet.

Rod Khleif: Good.

Joseph Gozlan: Snags, yeah, definitely. Surprises, we had a small fire on one of the properties, three or four units down.

Rod Khleif: Wow.

Joseph Gozlan: But because we have an experienced property management company, we know how to handle this. We knew how to work with the insurance company. We took care of the residents, first thing, right? We gave them new apartments wherever we could and we work with them because at the end of the day, I am a big believer in karma.

Rod Khleif: Me too.

Joseph Gozlan: Karma. Now, I keep saying karma is good for business as well. You take care of your residents, and it’s in our organizational culture, to the point of, you haven’t heard me say, tenants. We address them as residents. You don’t hear me say…

Rod Khleif: No, that’s a critical distinction. That’s a critical distinction.

Joseph Gozlan: We don’t say complexes, we say communities.

Rod Khleif: I love it.

Joseph Gozlan: Because that’s what we wanna do. The 102 units we bought, it was pitch-black at night because all the exterior lights were out. We’re doing due diligence, it’s in the middle of the day and I see a nurse go out. You know a nurse going out at noon that means she’s coming back around midnight or 1:00 am. How do you think she feels coming into a pitch-black property?

Rod Khleif: Right.

Joseph Gozlan: Right. It’s not they don’t feel safe, they can fall and all that.

Rod Khleif: Sure. No question. You should be looking at your sight lines in the property. Can you see through? Can the police see through? And the lighting, yeah, so did you correct that? I’m assuming you did.

Joseph Gozlan: The first day, when we took over, there was already an electrician on-site, putting brand new LED lights all over.

Rod Khleif: Love it. Love it.

Joseph Gozlan: Going back to why karma is good for business, do you think a nurse that leaves like that and comes back into a pitch-black property is walking around the hospital saying, “Hey, look, come live in my community”? No, she says to her friends, “Stay away from here.”

Rod Khleif: Right.

Joseph Gozlan: Now, when we do community events, and we take care of our residents, they can walk around proudly to say, “Hey, they’re awesome over here. Come live with us.”

Rod Khleif: Right. Right. Right. Love it. No, listen, anytime you, you can call it karma, karma is a great way to call it. I call it adding value. Anytime you add value, it always comes back to you. Anytime you give it always comes back to you. In any way, shape or form, of yourself, of money, of adding value to somebody’s life, it comes back tenfold. It’s the way of the universe, or God, or whatever it is you believe in. It’s just the way the universe works.

What do you think is your super power as it relates to multi-family investing? What are you best at?

Joseph Gozlan: Yeah. My mind is wired 80,000 miles an hour of what could go wrong. My superpower is not letting this stop me from taking action. It’s that I use that mindset to build plan B, and C, and D, and E, and F, and so on. To the point where I know that when I pull the trigger on a property, I am ready.

I am prepared. I have contingency plans. And I know how we’re gonna handle whatever life throws at us, because life with throw things at you. That’s just life.

Rod Khleif: That’s just how it works. If you don’t have problems, you’re typically six feet under ground. Everybody has issues and things that come up… No, I love that, and that should resonate with those of you that are super analytical that get caught up in analysis.

Taking action, you have to push past it. You have to push past fearing what could go wrong and try to focus on what could go right. Look at the positives and try to think of what could go right and not just what could go wrong and take action.

But of course, like you said, Joseph, you’re gonna look at every possible contingency and look for ways and come up with different scenarios, and exit plans, and strategies to handle anything that might pop-up. Because of that, that helps ensure your success, because no matter what happens, you’ve thought about it, prepared for it, planned for it, and likely trained your team to handle it.

Joseph Gozlan: Yep.

Rod Khleif: That’s what makes a successful business owner and anybody in this multi-family space, that’s what you become as a business owner.

What books do you like to gift to people in this business, the most? Are there any books that you gift to others?

Joseph Gozlan: Yeah. It really depends on where they are in their journey. If they are at the beginning, I like to give, The One Thing by Gary Keller.

Rod Khleif: Gary Keller. Awesome book.

Joseph Gozlan: That really helps people focus on how to get to their goals. If they have already gotten into the point where they’re looking at properties and things like that, I always send them your book to look at…

Rod Khleif: [chuckles] I was not expecting that. Thank you, brother. Thank you.

Joseph Gozlan: It’s more about, they have questions in this and that, and it’s all in your book. There’s no fluff, there’s a ton of good content that helps people understand a lot of the aspects of what we do, if not all of it. So I send them to your book.

Rod Khleif: Thank you, brother. I appreciate that.

Joseph Gozlan: Yeah, and when they’re a little bit further down the road, then I have two books. One is The 80/20 Rule by Perry Marshall, which really goes back to the conversation about property management. It’s where is the best use of my time. And you said it; if you’re in acquisition mode, focus on acquisition ‘cause it’s a better use of your time than managing a property.

Rod Khleif: Right.

Joseph Gozlan: So The 80/20 Rule really helps focus…

Rod Khleif: That the Pareto Principle. And I mean, there’s always 20% that will get you 80% of the traction. It’s typically the 20% that you don’t wanna do but that’s the 20% that’ll… In fact, I jus had a conversation with my coaching clients, last night, about this very topic.

[00:30:04]

Rod Khleif: The exact same conversation, and it was about productivity. I do a high performance coaching and it was about productivity. If you wanna be productive, do the hard stuff first. Do that 20% first. Then the rest of the day, you’re coasting and you’re much, much more productive.

So, anyway, was there another book that you were gonna mention?

Joseph Gozlan: Yeah, there is one more book. And it’s kinda like it’s not very famous, it’s called, Profit First by Mike Michalowicz. It’s good for any business owner out there, not just multi-family.

It’s about, how do you think of your business in the way of income streams and how do you put aside money for taxes first, and then you take care of your profit, and in our case our investors’ profits, and then you drill down to the operations. So that’s a really good book to help understand things like that.

Rod Khleif: Is the basic premise pay yourself before you let it get sucked in to the business? That’s a great premise. You have to make sure that you take care of yourself. Otherwise, you’re just working and churning.

Joseph Gozlan: Yeah. Well in our case, it’s also make sure you take care of your investors. [overlap talk]

Rod Khleif: Oh, sure. Of course. Of course.

Joseph Gozlan: And actually, well, it kinda transitions well to what we do.

Rod Khleif: Okay. I’m gonna definitely get it. I’ve never heard about that one before. Awesome… Well guys, those of you listening, if you are not part of our Facebook group, you need to get on there. There’s 4700 people on there as of today, I think. That’s after, I think, less than three months. And there are groups forming all over the country.

When I was in LA, scouting out the location for my live event, I met with five guys that met on that group and they now have a meet-up with 45 people. This is happening all over the country. You really need to get on there. All you have to do is go to MultifamilyCommunity.com, it’s a direct link to that Facebook group.

There are a lot of hitters on there as well.  Are you on there Joseph?

Joseph Gozlan: Absolutely.

Rod Khleif: Okay. Well there you go. There you go guys. Joseph’s on here himself, so there you go… Well, listen, my friend, it’s been a real treat and thank you for being on my show. You’ve added a ton of value and we’re just gonna…

I’m really excited to see where you are 24 months from now. We’ll probably have you back on and I imagine that inventory will be double what it is now. Thanks again for being on the show, Joseph.

Joseph Gozlan: Thank you for having me. It’s been a pleasure.

Rod Khleif: Absolutely.

[music]

Thank you for listening to the Lifetime Cash Flow Through Real Estate Investing Podcast. If you’ve enjoyed the show, please subscribe, and then take a moment to visit iTunes and leave a five star rating and review. For more resources to connect with us further, please visit our website at lifetimecashflowpodcast.com. Tune in next week for our next show.

[music]

Ep #189 – Mark Kenney Has a Portfolio of 2,000+ Multifamily Units valued at $135 Million

Ep #189 – Mark Kenney Has a Portfolio of 2,000+ Multifamily Units valued at $135 Million

by | Dec 26, 2017 | Due Diligence, Podcasts

Ep #189 – Mark Kenney Has a Portfolio of 2,000+ Multifamily Units valued at $135 Million

Here’s Some Of What You Will Learn

  • Different options to get started in the business.
  • The benefits of purchasing larger units for bigger profits.
  • The importance of having enough cap-x money to improve the property and raise rents.
  • The difference between a Freddie mac loan versus a Fannie Mae loan.
  • The importance of building a team and who to have on your team.
  • The importance of having a good property management company.
  • The importance of having a mentor or sponsor to get started with someone experienced.
  • The benefits of having partners during deals to be able to take down larger deals.
  • The importance of being able to learn from mistakes.
  • The importance of having good communication with your team.
  • Tips for finding a good management company.
  • The importance of calculating all funds needed before buying a deal.
  • Tips on where to spend cap-x money to add value and increase rents.
  • The importance of due diligence and taking vacant units into account.
  • The importance of making sure the property has little to no violations with the city before purchase.
  • The importance of having a proper exit strategy and buy/sell agreement with partnerships.
  • The importance of making sure you get educated and purchase in the right area.
  • The benefits of having a good due diligence inspection report with estimates.
  • The benefits of focusing on cashflow instead of appreciation of property value.
  • The importance of having a motivator to get started.
  • The option of loan assumption to acquire a property.
  • The factors to look at when evaluating properties that may be a great deal.
  • The importance of being committed to success in the business.
  • The benefits of incorporating your spouse into the business.

Our Guest

You can learn more about Mark Kenney at:

http://thinkmultifamily.com/

Watch on YouTube!

Do you want to learn more about Multifamily Real Estate Investing? Work with Rod in the Lifetime CashFlow Academy's Multifamily Course & Coaching Program

Apply for Mentorship

Full Transcript Below:

Ep #189 – Mark Kenney Has a Portfolio of 2,000+ Multifamily Units valued at $135 Million

Rod Khleif: Welcome to another edition of How to Build Lifetime CashFlow Through Real Estate Investing. I’m Rod Khleif and I am thrilled you’re here. I know you’re gonna get a tremendous amount of value from the gentleman we’re interviewing today.

His name is Mark Kenney and he’s involved in over 2,000 units, over $135 million worth of properties, and we are gonna dig in to how he got there. Mark, thanks for being on the show, brother.

Mark Kenney: Thanks for having me Rod. I appreciate it.

Rod Khleif: Absolutely… Let’s expand on who you are. Maybe take us back to how you got started. You’ve written books. You’re an entrepreneur. You syndicate deals. Tell us about how you got started. If you went to single-family or if you did the normal thing, or went right into multi?

Mark Kenney: Yeah. Sure. I grew up in a pretty small town and we didn’t have a lot growing up. That was always a driver for me. I had a lot of embarrassing times in my childhood just not having things. People are a lot worse than I am, for sure, but I just had a lot of problems with growing up with not having things I thought I should have.

So I always had a good work ethic, from my parents. Worked my butt off, and thought that’s what you needed to do. I went to school, and… I’m one of seven kids, by the way so we had a pretty big family.

Rod Khleif: Wow.

Mark Kenney: Yeah. I’ve identical twin brothers as well, which is cool.

Rod Khleif: Oh, cool.

Mark Kenney: But I went to school, graduated in Accounting. Growing up, my entire life, I would always say, “Hey, I don’t want my kids to have to go through some of the financial struggles we went through.

Right out of college, I started buying smaller properties. I actually had my first accepted offer, when I was 21 years old, still in college. Just kinda a duplex, and lo and behold, my dad talked me out of it.

I remember exactly where I was sitting, I remember the time of day. I used to take him on property tours with us and every…  There was no property on the planet good enough, in his opinion, to buy. So I ended up not inviting him on the property tour. I made an offer on a deal, got it under contract and told my dad I bought it. [chuckles]

That’s how I got my first feel…

Rod Khleif: Was it fear? Or what was it that caused him to talk you out of it?

Mark Kenney: I think, you know, he’s 80 now. He just turned 80 this past March and he’s never bought anything of real estate himself other than his personal residence. I think he just thinks you can wait around until you get the 50% off type deal, which is pretty difficult to do and you’ll never do it.

Rod Khleif: Okay.

Mark Kenney: That’s kind of the way he was with everything, really. I mean, I love him to death but…

Rod Khleif: Of course.

Mark Kenney: It didn’t matter what it was… cars… houses, and so he talked me on that one. Then I did get the one…

Rod Khleif: And what was that? A plex as well?

Mark Kenney: It was you a duplex. Then we started buying some three or four units…

Rod Khleif: Good for you, you went into multi-family. When was… So this was when you were 21 still or 22 thereabout?

Mark Kenney: Right, 22, I guess so.

Rod Khleif: Okay.

Mark Kenney: 24 years ago, it happens fast.

Rod Khleif: Yeah.

Mark Kenney: Then I went corporate world. I started working as a CPA for a while and did IT consulting, but continued to buy properties. Smaller properties.

Rod Khleif: You’re on Dallas. Right?

Mark Kenney: We’re in Dallas, yes.

Rod Khleif: Okay. Alright. You’ve been there the whole time? You didn’t like move there from somewhere else where you started?

Mark Kenney: I’m from Michigan.

Rod Khleif: Okay.

Mark Kenney: I grew up in Michigan.

Rod Khleif: So you bought the plexes in Michigan?

Mark Kenney: I did, yes.

Rod Khleif: Okay. Okay.

Mark Kenney: Then I came down to Dallas and said, “Well, let’s start buying a few properties here.”  Started my own IT company in 2008 which did really well. I had a lot of like Marathon Oil and T-Mobile, some big customers.

Rod Khleif: Nice.

Mark Kenney: But it has a big impact on my family, really. I was working… Sleeping about three hours a night, literally, people all over the world, working on projects. The business was good but family life was horrible. It caused a lot of problems.

Rod Khleif: Were you able to hold it together?

Mark Kenney: Barely. [chuckles] Truthfully, barely.

Rod Khleif: Yeah. I lost mine. It’s funny that you talk about that because that was painful for me because of the same thing. It was all, “Make money. Make money. Make money.”

Mark Kenney: Right.

Rod Khleif: And forget about what’s most important.

Mark Kenney: Yeah.

Rod Khleif: Well good, I’m glad to hear you were able to keep it together.

Mark Kenney: It was close. And then about four years ago, I decided to quit doing IT, almost completely. I don’t do anything with IT any more but… We built some apps but basically, I said, “ Okay, I’m gonna start buying larger properties.” That’s when we started buying larger properties.

Rod Khleif: Wow. That was in Dallas?

Mark Kenney: It was.

Rod Khleif: Tell us about your first larger deal. Let’s dig right into that one. How many units? Where you found it? When you bought it? What you paid? How you put it together? All of that.

Mark Kenney: Right. So large, it means relatively wasn’t really large. It was 64 units.

Rod Khleif: That’s pretty large.

Mark Kenney: Yeah. It’s two 32 units right next to each other in Mesquite, Texas. One of them was listed, it was the same seller; we talked about the one deal. He said, well he’d be maybe interested in selling the second one, which was a 32-unit right next door to each other.

Rod Khleif: Perfect.

Mark Kenney: So we said, “We’ll look at that one”, and we ended up getting in the contact pretty quickly. It wasn’t the one that was listed with the broker, locally here. And then we…

Rod Khleif: What year was this, if I may ask?

Mark Kenney: What was it?… Two and a half years ago, three years ago? I guess.

Rod Khleif: Not long ago at all.

Mark Kenney: Yeah.

Rod Khleif: Okay.

Mark Kenney: Yeah, we were buying some smaller ones before that too but in about two and half years, we’ve got them up 2,000 units. But that one, it was more a Class B maybe minus, mid 80s, built as condos, so they were kinda nicer property. Didn’t require a lot of work but looking back on it, I think we should have probably raised an extra…

We raised about a million dollars, to answer one question. $1 million was what it was bought at. A little… just shy of $4 million combined. We had Freddie Mac loan on it with some interest only.

Looking back on it, we probably should have raised about another 40, 50,000 just so we can now… We’re like at the point now they’re a couple of things we wanted to do and we don’t really have the capital to do it. The property is still nice overall but looking back, that was one lesson learned. We should have raised more than we did.

Rod Khleif: A little more money for capex, so you could make some improvements to get your rents up.

Mark Kenney: That’s right. We had some but not that…

Rod Khleif: And you got Freddie Mac… You went Freddie Mac instead of Fannie Mae. Why’d you go Freddie Mac on that first one?

Mark Kenney: I read them both. Just, we didn’t have as much rehab required. So Freddie typically doesn’t like giving the rehab and Fannie does. The terms were better.

Rod Khleif: Got it.

Mark Kenney: We have three years interest only on this as well.

Rod Khleif: That’s pretty hard to beat.

Mark Kenney: Right. In really, with the rehab being low, it was… Financially, it worked out better to do with Freddie.

Rod Khleif: Awesome. Awesome. So you raised a million bucks, you did syndication? That was your first syndication?

Mark Kenney: Yes.

Rod Khleif: Okay.

Mark Kenney: For that. We did smaller ones but that was more just family but as far as external people, that was the first syndication.

Rod Khleif: So tell me, I know that you’re a big believer in your team. Let’s tell your… My listeners are people that haven’t, maybe bought their first property, maybe done some plexes like how you started, wanna break into the larger deals, what advice would you give them relating to team?

Mark Kenney: One, I would say is start building your team immediately even if you don’t need them yet, or don’t think you need them.

Rod Khleif: And what are the components? What are the pieces?

Mark Kenney: Yeah, even brokers, selling brokers, for sure.

Rod Khleif: Of course.

Mark Kenney: Insurance CPAs, cost segregation, SEC attorney, a regular attorney for operating agreements, things like that. Property management…

Rod Khleif: Do you self manage or do you use third-party managers?

Mark Kenney: No. We use third-party management. I really have zero desire to self-manage.

Rod Khleif: Right. No, I get it. I get it.

Mark Kenney: But I would say, in general, with the team, I don’t wanna say one person’s more important than the other but let’s be real about it. Some are easier to replace than others.

I’m a CPA, I have a background in the CPA but I would say a CPA’s probably easier to replace then let’s say, a broker. Right? You end up taking off a broker whatever happens. You wanna build your team and then also leverage other people’s experiences. If you come in brand new, and when you call a broker and say, “Hey, I’m brand new to multi-family.”

Rod Khleif: [chuckles]

Mark Kenney: That’s one conversation to say, “Hey, I’m brand new to multi-family, and I’m working with Rod Khleif.” That’s a different discussion.

Rod Khleif: Right.

Mark Kenney: People are gonna get the attention from the brokers if you can associate yourself with somebody else doing that.

Rod Khleif: Did you bring a sponsor in on your first deal? Or did you take it down on your own?

Mark Kenney: We did. We had one other sponsor on the deal.

Rod Khleif: You had a sponsor. Okay.

Mark Kenney: We did. Yes.

Rod Khleif: Alright… And that’s the way most people get started. They have to get started that way. You need the experience…

Mark Kenney: Right.

Rod Khleif: A lot of times, you’ll need the net worth or the income as well.

Mark Kenney: Right.

Rod Khleif: Okay.

Mark Kenney: We still use a partner, typically, in all our deals. Not because we have to, just because it seemed like it works out better that way for us.

Rod Khleif: Okay. You bring in another KP and somebody that’s got… Do you use it for net worth? Or what’s your rationale?

Mark Kenney: More for responsibilities.

Rod Khleif: Okay.

Mark Kenney: We think we can go faster that way and I wont say, that’s one thing I tell people first getting started is, number one question you need to ask yourself is, are you willing to partner with somebody?

If the answer is no, it’s pretty simple. You’re limited to your own net worth and liquidity. If the answer is yes, it’s endless. But with that and make sure you’ve been through it before, probably unfortunately, like we have. Things happen in partnerships.

Rod Khleif: Sure. It’s like a marriage. It’s like a marriage. You better date a little first. [chuckles]

Mark Kenney: I think a marriage is… [chuckles]

Rod Khleif: Maybe a kiss a couple of times. [chuckles]

Mark Kenney: Marriage is even easier in my mind because you can get out of a marriage easier than you can in some partnerships.

Rod Khleif: Right.

Mark Kenney: Not that you wanna do that. But I think getting everything down on paper, don’t assume everything is gonna go hunky dory, and assume everything that can go wrong will go wrong. And put it on paper and hopefully it doesn’t go wrong.

Rod Khleif: So have you had any seminars in this partnership arena?

Mark Kenney: Unfortunately, we have had some lessons learned.

Rod Khleif: Okay.

Mark Kenney: I’m actually in the middle of one right now.

Rod Khleif: Oh. You are. Wow.

Mark Kenney: Yes. Fortunately, we’ve structured that deal with a board…

[00:10:00]

Mark Kenney: There’s five board members on that structure over the deal.

Rod Khleif: Okay.

Mark Kenney: SEC attorney from Harvard, and a Marcus & Millichap guy, and a CFO from a publicly traded company, so we had that in place to be able to make a change in partnership. We got it done but I can tell you, a lot of stress. You also become friends…

Rod Khleif: It hijacks your brain when that happens. It really does.

Mark Kenney: It does. Yes.

Rod Khleif: And it’s just no fun. Was there… I’ve had them happen myself, very frequently, it’s from a lack of communication, either initially or ongoing. Is that the case with yours?

Mark Kenney: 100%

Rod Khleif: Yeah.

Mark Kenney: Communication one, but also producing things that we asked for. Like, “Hey, where are we on certain things?” He was a property management company as well, made it tougher but communication’s number one. No question about it. Unfortunately.

Rod Khleif: Guys, those of you who are listening, even if you don’t want to have the conversation, have it anyway.

Mark Kenney: Definitely.

Rod Khleif: Have all the hard conversations upfront, and then if something pops up, do not kinda hope it’ll resolve itself. Hit it full on. But, yeah, every time I’ve had litigation, and upsets, and angst with partners, it’s always been because communication is broken down, or it wasn’t firmly delineated initially. Okay.

Mark Kenney: Exactly right.

Rod Khleif: Okay. Back to property management just for a minute because everybody that listens to my podcast knows I’m big in self-management. But I wanna clear something up because I take these coaching calls from students. And they’re all like, “Well I know you want me to self-manage.”

Let me be really, really clear guys, do not self-manage when you’re in acquisition mode. When you’re out there looking for properties, do not deal with toilets.

Now, I will say this. I’ve interviewed people on this show that have tens of thousands of units, and or thousands eclipsing your incredible portfolio here, Mark, and many of them self-manage. But my caveat is, get to a place where you have enough of an infrastructure where you could bring somebody in-house to do what you’re paying the managers to do, which is manage your managers.

Mark Kenney: Right.

Rod Khleif: If, that’s where you wanna go. Now, I like control. I’m a bit of a control freak but definitely not when you’re in acquisition mode, guys. That’s my position. I don’t know if you’re gonna always use third-party, I don’t know what your thoughts there are.

Have you brought in managers as partners? Is that… you were kinda saying you just did…

Mark Kenney: We did.

Rod Khleif: Right. So we’re kinda lock there.

Mark Kenney: Yeah. Well that’s the one. Fortunately, through our board, we were able to remove.

Rod Khleif: Okay.

Mark Kenney: Remove him. But we used other third-party here, more in Dallas for our properties and it worked out really well. We had one before that didn’t work out very well. We got rid of them.

I think the key is, unfortunately, don’t give them as much, I guess, room to prove themselves as you might think that they’d try to convince you to. There’s a finite period of time that you give enough chances, and it’s like you pulled the trigger and say, “I need to replace you because…” Make sure you have someone to replace them with first.

Rod Khleif: Right. Right. Right.

Mark Kenney: They’ll talk a game and they’ll say, “Oh, we’re gonna improve and here’s all these things”, but at the end of the day, it’s a business and you have investor’s money involved. You need to make actions.

Rod Khleif: Oh, absolutely. No, you gotta be on it.

Mark Kenney: That’s right.

Rod Khleif: So any tips for finding a good management company?

Mark Kenney: I think for finding one, in particular, if you’re not familiar with the area, one is talk to bankers, lenders.

Rod Khleif: Hmm… Good. Good one.

Mark Kenney: I think lenders. They have more at stake than anyone else in the deal.

Rod Khleif: I would have said brokers, and you said lenders. That’s even better. Guys, definitely lenders, that’s a great tip. Great tip, lenders.

Mark Kenney: And brokers as well.

Rod Khleif: Yeah, sure.

Mark Kenney: Brokers aren’t as well… They’re not actually in the deal but lender to me is the best place to start.

Rod Khleif: Yeah. No, that makes sense. They’re gonna know who they’re comfortable with. That’s a great tip… Tell us about your largest deal. What was your biggest deal?

Mark Kenney: A 454-unit deal.

Rod Khleif: Wow.

Mark Kenney: In Atlanta. Two portfolios, a 346 and a 108.

Rod Khleif: And you like Atlanta? A lot of people are real hot on Atlanta right now.

Mark Kenney: I do. Atlanta, you know Dallas is getting very, very tight, in my opinion.

Rod Khleif: Right.

Mark Kenney: Too tight. We haven’t bought anything here for 13 months, but I’d like Atlanta, it was… I guess it was in January we closed on it, and a good deal. Occupancy is pretty good on there already. That’s a pretty big rehab budget we’re putting into it. A lot of it is…

Rod Khleif: So this is a combination of the two deals or was it one of the two? Are they combined?

Mark Kenney: They’re separate but the same seller.

Rod Khleif: Okay.

Mark Kenney: We closed at the same time.

Rod Khleif: Oh, you did.

Mark Kenney: One loan. Yeah, one loan form as well.

Rod Khleif: So tells about the, what was the overall price between the two of them?

Mark Kenney: 17.8… so 30 a door…

Rod Khleif: Okay. So you had to raise about… How much did you raise?

Mark Kenney: 6.2

Rod Khleif: Wow. So a lot of capex there, okay.

Mark Kenney: Yeah, and we had to do it… We sent the PPM out the Monday, after Thanksgiving.

Rod Khleif: Wow.

Mark Kenney: So not a great time. We didn’t close… [chuckles]

Rod Khleif: No. No, people aren’t thinking money then.

Mark Kenney: Don’t do that, guys. But that was our doing. That was really the attorney and there’s some other things that held things up for about three weeks. So the Monday after Thanksgiving, and we had it closed in January. I was in a cruise mid December, which was not a vacation. I was raising money, so…

Rod Khleif: Wow. Okay. So 6.2, how much per door are you calculating for rehab there?

Mark Kenney: Would be, I think maybe about $3 million worth of rehab.

Rod Khleif: Wow.

Mark Kenney: So it’s… That’s the thing too, when you think of rehab… some of the things we put in rehab we’re not gonna get anymore rent for. That’s why I tell people, ”Be careful where you’re spending your money.” Some are required, but we have to replace like $400,000 of plumbing.

Well tenants typically are gonna pay more for that… Unless it’s leaking all over.

Rod Khleif: Yeah.

Mark Kenney: When people start saying I’m gonna jack rents up, you’re not gonna get more rent for new plumbing typically or maybe need a new roof but it’s things that people see.

Rod Khleif: Tell us what happened when the plumbing there. Was it water or drain line? I mean sewer lines.

Mark Kenney: No, it’s under. It’s actually not drain lines… They’re he polyurethane type plumbing, needs to be replaced, just ‘cause the lender wants them replaced.

Rod Khleif: Really.

Mark Kenney: They’re pretty common in the south, and they think it cracks more..

Rod Khleif: Okay.

Mark Kenney: More prone for leaks.

Rod Khleif: So they literally made you tear off floors to put new lines in.

Mark Kenney: It has crawl space.

Rod Khleif: Oh, okay.  Good.

Mark Kenney: It’s pretty good.

Rod Khleif: Okay. Good.

Mark Kenney: Yeah.

Rod Khleif: Okay, good. Wow. That’s a major deal, and the lender required it. That’s interesting.

Mark Kenney: They do.

Rod Khleif: Okay. Alright.

Mark Kenney: I’m not the one…

Rod Khleif: And what other repairs? Are they exterior or all over?

Mark Kenney: New roofs.

Rod Khleif: New roofs.

Mark Kenney: New roofs are 500 or so. So you’re talking about there, almost a million, we’re out the bat without getting any improvement. We knew that.

And then the interiors, here is a 1989 construction, both buildings. We’re gonna redo the interiors. We’re gonna start doing that and bump the rents because of that.

Rod Khleif: Okay. Okay. Nice… Well so, many people that listen think that this is all easy, and success comes easy and, there’s no issues. We’ve already talked about a couple of seminars but are there any other dark times in your journey that you’d be willing to share with my listeners, any other seminars, or learning experiences that might help my listeners?

Mark Kenney: The one I’m going through right now, probably is the toughest. Truthfully.

Rod Khleif: Yeah. The team thing, okay.

Mark Kenney: The team thing. But we’ve had some other kind of softer type things. Not quite as bad, like walking units. We didn’t walk the vacant units before we closed our first property. There were five vacancies when there were only… four additional vacancies essentially.

So now, our contract has stipulations in there, we ask a $1500 for every vacant unit that’s not made ready. We usually get about a thousand for it because we kinda haggle back and forth. One of out last deals in Dallas, we got $18,000 back for that, so good for that.

Rod Khleif: Oh, that’s a great clause to have. That paid off. Wow. Awesome.

Mark Kenney: Yeah, that clauses around the city inspection which saved us, literally, $200,000 in a deal.

Rod Khleif: Could you please elaborate?

Mark Kenney: More… Basically, that all city inspections have to be repaired by the current seller, and we go and get the inspection report and things like that.

There were over 700 city violations on a 255-unit .

Rod Khleif: Holy cow! So the tenant knew the drill. “We’ll call the city and use them as leverage to not pay rent, and eviction court or something.”

Mark Kenney: Yeah. [chuckles]

Rod Khleif: By the way, this is not uncommon, guys.

Mark Kenney: Yeah.

Rod Khleif: The tenants will call the city in hopes that they can utilize that to milk the eviction process.

Mark Kenney: Right.

Rod Khleif: Is that a C class property then?

Mark Kenney: It is.

Rod Khleif: Yeah.

Mark Kenney: And it’s by far our best deal.

Rod Okay.

Mark Kenney: We closed down on it at 13 months ago. Paid 15.44 and it’s worth about 23 million right now.

Rod Khleif: No kidding. Fantastic.

Mark Kenney: In 13 months.

Rod Khleif: No kidding. Well that… the level of building inspection complaints led me to believe that it’s probably a C property.

Mark Kenney: Yes.

Rod Khleif: ‘Cause that’s what you get, that kind of stuff.

Mark Kenney: For sure.

Rod Khleif: Okay, but that was smart. You required the seller to correct them. Guys, any time you buy a property, you always check with the building department or whatever legislative office handles inspections and complaints of that nature. Look for recurring issues.

Mark Kenney: Right.

Rod Khleif: Maybe you’ll discover something.  Something onerous like recurring sewer line issues, or things that may not be evident by your inspections, so you absolutely wanna make sure you do that. But I love the fact that you threw that back on the seller. That’s awesome.

Mark Kenney: Oh, yeah. We have several things embedded to our contracts that helped us. Then on the partnership side, I would say, I mentioned previously, about having things in writing. I had a deal with a guy, just a small deal. Eight-unit we had together.

He really doesn’t… didn’t really wanna sell, but in our partnership agreement, didn’t have anything around tag along clauses, and…

[00:20:00]

Mark Kenney: Forced sale, and things like that. So I would say, we’ve learned a lot of lessons around how to get out of deals.

Rod Khleif: Have your exit strategies. Have your exit strategies very clearly outlined.

Mark Kenney: Yes.

Rod Khleif: A buy-sell agreement for example, where somebody wants to sell, there’s a framework for you to dissolve.

Mark Kenney: That’s right.

Rod Khleif: And I will tell you guys those of you listening, those are the tough conversations to have upfront. But a really good contracts attorney will walk you through a menu of all the questions that need to be asked and answered, to make sure that you don’t have these marital issues. [chuckles]

Mark Kenney: That’s right. That’s exactly right. If you do this business long enough, you’re gonna run across it. It’s inevitable.

Rod Khleif: Every time. It’s not a matter of if, it’s just a matter of when because we’re human beings. One person can say one thing and another person can hear something completely different or sometimes they’re nefarious. You run into somebody that’s nefarious that you didn’t really pick up on.

Another thing guys always trust your intuition. Always trust your gut. If your got says it doesn’t feel right, you trust it, because it’s [overlap talk]

Mark Kenney: That’s right.

Rod Khleif: Would you agree with that?

Mark Kenney: Absolutely.

Rod Khleif: Yeah.

Mark Kenney: Without a doubt. Yeah.

Rod Khleif: Did you have any early failures that contributed to your present-day success?

Mark Kenney: The property we bought in Michigan. We bought in our hometown. It was small, and they weren’t really failures. We probably broke even. I mean, all those deals where we should have made money but it was really a couple of reasons.

One, location, it’s just a small town, which is not the right place to be buying in Michigan. And then we really weren’t as educated then. We learned a lot through that process. We self-managed those even though they were small. But I think, getting the experience from somebody else that’s been there, and done that, is invaluable.

Rod Khleif: Sure.

Mark Kenney: People think that, “Oh well, you know…” They’re smart and they have money. That doesn’t work. There’s way more too it than being smart and having money. You need to have the experience, how you go through it. We’ve had a lot of issues come up about lessons learned that I don’t want other people would have to go through. They’re tough lessons.

Rod Khleif: Yeah. Right. Right. Right. Right. So what are the… You mentioned clauses in your agreement. Anything else popped to mind? ‘Cause you really added a ton of value with that one about… Well both with the city thing and with vacant units that aren’t made ready at closing. Any other any other clauses that you’d throw in there?

Mark Kenney: Yeah, a couple of other ones. I think one would be like around the due diligence period not starting, until we have all the materials from the…

Rod Khleif: Until you have all the docs, yeah guys, due diligence should never start until you got everything from the seller.

Mark Kenney: Right.

Rod Khleif: Yeah. That’s a good one.

Mark Kenney: And then, not so much in contract, but due diligence itself, physical due diligence. I see a lot of people that will… They either try to do it themselves or they hire somebody. I tell everyone, “If you’re gonna have physical due diligence done, get a sample report from the company doing it and it has to have estimates on there. A 700 paged report is useless, I mean, unless you can estimate everything yourself. So make sure.

Rod Khleif: Right.

Mark Kenney: I see that all time. People send a report and there’s no estimate whatsoever to fix anything in.

Rod Khleif: That’s a great tip. That’s a great tip. Yeah, so the building inspector that you use, make sure that they tell you what it’s gonna cost or at least give you their opinion of what it’s gonna cost.

Mark Kenney: And get a sample report from them. A lot of them will say, “Well, hey, I’ll only do it if it’s above $2,000”. But you still would want them to rate. If you’re gonna walk 200 units, whatever it might be, you can’t walk them all by yourself.  You’re not going to, you’re gonna have somebody else. You go through a quarter of them.

Rod Khleif: Right.

Mark Kenney: So you want them to rank each unit, like A, B, C, as far as how much, minor rehab, middle rehab, major rehab, and classified. You know, whatever, a thousand, 3,000, 5,000… Whatever it might be. Some might be even more if they’re down to studs. We spent 20 plus thousand on some properties. But you need that, because if you’re not an expert in estimating, it’s not… You don’t know what you’re getting into and [overlap talk].

Rod Khleif: Right… Or it’s gonna completely delay anything you’re doing if you need to get contractors in there. Obviously, you’re gonna get contractors in there anyway, but my point is to give you estimates. It’s gonna be very difficult to do that after you’ve initially walked them and asking the seller to do it again to get your stuff together.

Mark Kenney: That’s right.

Rod Khleif: That’s very difficult to do, if not, impossible.

Mark Kenney: Right.

Rod Khleif: So let me ask you this, what’s the best piece of advice you’ve gotten, associated with this business?

Mark Kenney: Get somebody, who has done it before, to help you.

Rod Khleif: Yeah.

Mark Kenney: If I would have done that earlier, it would have saved me a lot of headaches.

Rod Khleif: Yeah. What markets are you focused on right now? Bet still Atlanta?

Mark Kenney: Atlanta. Dallas, we’re not looking too much anymore, although I love Dallas. It’s just too expensive. Boston and Memphis, [overlap talk]

Rod Khleif: Memphis?

Mark Kenney: Yeah. More cash flow, for the cash flow.

Rod Khleif: Right.

Mark Kenney: A lot of good cash flow. But in general, the Southeast US is where we’re looking at mostly, right now. I’m focusing personally, right or wrong, less on the appreciation. Because I think that’s a misnomer.

Rod Khleif: I couldn’t agree more.

Mark Kenney: And start looking more at the cash flow.

Rod Khleif: Yeah. If any of you listening, are interested in the southeast, I’ve got my live event coming in Tampa, January 19th, 20th. and 21st. I’d love to see you there. In fact, it’s 2/3 sold out already so…

Mark Kenney: Really. It’s a three-day event, right?

Rod Khleif: Three-day event.

Mark Kenney: Perfect.

Rod Khleif: Yeah. It’s gonna be a lot of fun. I’m really excited about it. Let me ask you this, a lot of the people that listen, guys and gals both, that listen to this show haven’t taken action yet, what would your advice be to them? The people that haven’t done this yet.

Mark Kenney: I think you need to have a reason that’s big enough to do it. If you don’t have a reason big enough to do it, you’re not gonna do it.

For me, I had a reason. It was costing my family. So I had a choice, I could continue doing, and probably lose my marriage or make it take action. But if you just think it’s a good idea to get involved in it, I would say, “That’s great.” But you need… It’s tough business. It’s not as easy. It’s great, I love it, I wouldn’t do anything else, but I don’t just think you’re in a [overlap talk]

Rod Khleif: Don’t dabble.

Mark Kenney: Don’t dabble.

Rod Khleif: Don’t dabble.

Mark Kenney: Don’t dabble.

Rod Khleif: No. If you… Listen, there’s two things you gotta know, what it is you want, and more importantly, why you want it. That’s number one, like you just said. I’m just paraphrasing what you just said. And I completely agree. You have to have strong enough wise.

Frankly, if you don’t enjoy it you need to learn to love it. Okay.

Mark Kenney: Right. [chuckles]

Rod Khleif: Because if you don’t love it, don’t do it, for god sakes. Go do an internet business, or do something else.

Mark Kenney: Right.

Rod Khleif: Don’t do multi-family because if you don’t love it, life’s too short not to love what you’re doing. And the people that are successful are the ones that are passionate about it. The only way to be passionate about it is to be inspired by it, and the only way to be inspired about it is to enjoy it. Make sure that you associate pleasure with it as you get started. Even the stuff you don’t necessarily like.

If you’re the analytical guy, you’re gonna have the time with the relationships. If you’re the outgoing person, you’re gonna have a tough time with the analysis and the evaluations. But whatever it is, get uncomfortable, and associate pleasure with it, because your magnificent life is on the other side of comfort.

Mark Kenney: That’s right. Exactly right, couldn’t agree more.

Rod Khleif: You’ve told us your war stories, and you just told us an incredible upside on that property. What were those numbers again? From…?

Mark Kenney: It’s 255-unit deal. We paid 15.44 for it and it’s worth about 23 million, after 13 months.

Rod Khleif: That’s beautiful.

Mark Kenney: It had every… so we’d look at it… I mean, look at a deal so people say, “What do you like?” “Well I like more than one angle to it.” If all I can do is raise rents I don’t like that as much.

Rod Khleif: Right.

Mark Kenney: It’s weird.

Rod Khleif: Tell us what you mean.

Mark Kenney: Yeah. This one had low rents, from where it should be. It was completely mismanaged. It was about 24% economic vacancy when the submarket’s 10.

Rod Khleif: Wow.

Mark Kenney: It’s on a road that has probably 200,000 cars a day that go by, around the corner so there’s no excuse for that. And then, just the exit strategy from a financing perspective too, this one actually happens to be a… It was a loan assumption. I don’t like as much.

Rod Khleif: Oh, wow. I was just gonna ask you that. How did you take it down, ‘cause that’s absolutely not stabilized? You’re not gonna be able to do typical agency debt. So you assumed it.

Mark Kenney: Yes.

Rod Khleif: How much to equity did you have to raise to do that?

Mark Kenney: 4.8

Rod Khleif: Oh, that’s not bad.

Mark Kenney: Yeah. Not bad at all.

Rod Khleif: No. Okay.

Mark Kenney: It was 4.8 in standing, along with eight years left on it. But I think when you look at it, people will say… They get… Like you mentioned about analyzing deals. If you don’t know how to analyze deals you need to at least understand how a deal is analyzed. You don’t have to be the expert in numbers but you need to understand the numbers.

Rod Khleif: Sure.

Mark Kenney: And I think with this one, looking at things like what’s the break-even occupancy that could still make it work. What’s the break-even rent amount if I rented it at certain amount? Looking at those factors, and this one had a lot of things going for it. With the rent and the mismanagement, and the rehab that we’re gonna do. We bumped rents, four times already.

Rod Khleif: Wow.

Mark Kenney: Just now, literally, [overlap talk]

Rod Khleif: In 13 months?

Mark Kenney: Yeah. They’re not so… They’ve been brought up about 65, 70 bucks, so they’re not a lot so they’ll ease in…

Rod Khleif: Still. Wow.

Mark Kenney: But actually now, we just rehabbed six units for the first… six units were rehabbed because we’re doing some exterior and now we’re bumping rent $150 additional, on those.

Rod Khleif: Holy Toledo.

Mark Kenney: So $5,000 rehab, then bump the rents for another $150 a month.

Rod Khleif: This is the Atlanta deal.

Mark Kenney: No. It’s North Dallas.

Rod Khleif: North Dallas. Wow.

Mark Kenney: Yeah.

Rod Khleif: Wow. That’s a sweetheart deal right there. Okay. So what books do you gift the most to people, aspiring investors?

Mark Kenney: I think Rich Dad, Poor Dad.

Rod Khleif: Of course.

Mark Kenney: For me, that’s really… And I’m more of a researcher and less of … So I’ll like do piecemeal, a bunch of different books…

[00:30:02]

Mark Kenney: And piecemeal internet stuff, and piecemeal podcasts. It’s just… I don’t know why, it’s kinda the way I am.

Rod Khleif: Okay.

Mark Kenney: But I think… I never thought it was a big of a deal before ‘cause I thought I could just do things. But your whole mindset shift, has to be there. If you don’t shift your mind first, you’re never gonna make it work.

Rod Khleif: That’s why I spend… I do one session a week on mindset. I literally. I do these little driving force tips about mindset, because is 80 to 90% of your success in anything.

Mark Kenney: Yeah.

Rod Khleif: If you’re not gonna take action… You can have all the technical knowledge you want, but you’ve got to take that first step, number one, and then you got to get back up when you get your butt kicked ‘cause you’re inevitably gonna get your butt kicked.

Mark Kenney: You will.

Rod Khleif: So even if you don’t know what it is you want, and why you want it, forget it. If you’re just dabbling, or you’re just “interested”, forget it.

Mark Kenney: Right.

Rod Khleif: You have to be committed.

Mark Kenney: That’s right.

Rod I don’t take clients. That’s one of the questions we ask. If you’re just interested versus committed, because if you’re just interested, you’re really not gonna do it. I’m not gonna work with anybody that doesn’t do it.

Mark Kenney: Right.

Rod Khleif: Yeah.

Mark Kenney: That’s right.

Rod Khleif: Yeah. Tell us about your core nucleus team. Is it just you and a couple of people, or do you have partners like at your level or… Like in your office…

Mark Kenney: Deals. Yeah.

Rod Khleif: I’m not talking about the outside people like the brokers, and the lenders and the insurance people. I’m talking, in your core nucleus.

Mark Kenney: To my wife Tammy or Tamille, her official name’s Tamille, that was the other thing that was… We were able to work together full-time, 100% where…

Rod Khleif: Oh, cool.

Mark Kenney: I did IT. We have a lot more problems when I was doing IT. Now, we work together everyday.

Rod Khleif: That’s cool.

Mark Kenney: Then we have a couple of marketing guys, little web guy, and that’s about it. We have… mostly part-time.

Rod Khleif: Okay. Okay.

Mark Kenney: We have three part-time people helping us, doing different things, and then my wife Tammy, myself and then we have the web guy, so we’re small.

Rod Khleif: That’s amazing that you can work with your wife. My wife would take me out if we worked together. But that’s awesome that you can.

Mark Kenney: Yeah, strange enough, we get along better doing this. It has helped my wife become a lot more secure about her self. She’s done an amazing job. She understands the business inside out. She’s doing a lot of branding and marketing and all the things like that.

Rod Khleif: How very cool.

Mark Kenney: It’s really helped her become who she is today because of that.

Rod Khleif: People need validation, and if you’re a housewife at home, you need a source of power.

Mark Kenney: That’s right.

Rod Khleif: Guys, those of you that are listening, if you can incorporate your spouse in some fashion, maybe not to the level that you’ve done full-time but just to add value they need to contribute.

Everybody in the relationship needs to feel like they’re contributing. They need to be validated. That’s fantastic that it has worked for you.

Mark Kenney: That’s right.

Rod Khleif: Yeah. Well, people can get a hold of you through thinkmultifamily.com. Correct?

Mark Kenney: They can. Yes.

Rod Khleif: Alright. Awesome. Listen, you’ve added a ton of value today, Mark, I really appreciate you being on the show, buddy. Is there a question I didn’t ask you that you wish I had?

Mark Kenney: I don’t think so. I think you covered everything, Rod.

Rod Khleif: Okay… Well you did a great job and I really appreciate all the value you added and I’m excited to stay in touch with you, brother.

Mark Kenney: Thank you, Rod.

Rod Khleif: Alright, thanks, bud.

Mark Kenney: Take care.

Rod Khleif: You too.

Mark Kenney: We’ll see you. Bye.

[music]

Thank you for listening to the Lifetime Cash Flow Through Real Estate Investing Podcast. If you’ve enjoyed the show, please subscribe, and then take a moment to visit iTunes and leave a five star rating and review. For more resources to connect with us further, please visit our website at lifetimecashflowpodcast.com. Tune in next week for our next show.

[music]

Ep #187 – David Sweeney a Seattle Police Lieutenant, Recently Purchased 24 Multifamily Units

Ep #187 – David Sweeney a Seattle Police Lieutenant, Recently Purchased 24 Multifamily Units

by | Dec 18, 2017 | Due Diligence, Podcasts

Ep #187 – David Sweeney a Seattle Police Lieutenant, Recently Purchased 24 Multifamily Units

Here’s some of what you will learn

  • How to get out of the regular job and into the business for long term cash flow.
  • Tips on how to stop analyzing deals and actually take action.
  • Tips on analyzing properties to make sure you’re getting a deal.
  • The benefits of purchasing from a seller who lacks information and records on a property.
  • The benefits of getting an inspection prior to purchase.
  • The benefits of having a motivated seller in order to secure a good deal.
  • Reasons for re negotiating due to property issues.
  • How to evaluate cash flow amounts and percentages.
  • Tips on how to change your mindset to finally take action.
  • The importance of goal setting before beginning.
  • The distance from your home that is considered a good area to look for deals.
  • Factors to weigh when determining increases in rent prices on your properties.
  • Tips on choosing a property management company and using them as a resource.
  • The benefits of buying smaller unit count properties.
  • The importance of motivation in order to stay focused and be successful.

Our Guest

David Sweeney can be reached at:
www.DavidSweeney.com

Watch on YouTube!

Do you want to learn more about Multifamily Real Estate Investing? Work with Rod in the Lifetime CashFlow Academy's Multifamily Course & Coaching Program

Apply for Mentorship

Full Transcript Below:

Ep #187 – David Sweeney a Seattle Police Lieutenant, Recently Purchased 24 Multifamily Units

Rod Khleif: 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. I know you are going to enjoy the gentleman we’re interviewing today.

Salt-of-the-Earth, down-to-Earth guy, his name is David Sweeney. He’s been in the Seattle Police Department for 30 years. He’s a lieutenant now. And I’m gonna let him tell his story, I’m not gonna steal his thunder. But it’s a very compelling story that I think is gonna resonate with a lot of you guys, so listen up. David, welcome to the show, buddy.

David Sweeney: Thanks so much for having me Rod, I appreciate your time.

Rod: Absolutely. Talk about 30 years with the police department. Great job. You’re a lieutenant. You’re ready to retire. Why are we having a conversation?

David Sweeney: Well when I turned 53 last December, as you said, I’d done 30 years with the police department, in a variety of different assignments. When I turned 53, that’s the minimum retirement age for the state of Washington.

As I looked at my life and I thought about that, I could retire but I really couldn’t retire. I had an 11, a 13 and a 15 year old and a wife who may or may not want to work. So how can I really pull the pin at that place and just go on with my life and kick back and do nothing? It couldn’t happen.

I think you might equate me more to the Poor Dad, in Kiyosaki’s book. I had a government job. My home was my greatest investment. I had some savings but I wasn’t really ready to provide for my family in the way that I wanted to.

As I took stock of my life, and my finances, and where I wanted to be in life, and how I wanted to provide any college they wanted to go to. How I wanted to travel the world with my wife. How I wanted to live in a nicer house. I realized, “Hey, this is great life of 30 years of public service.” But I wasn’t really ready to move on to that next phase.

I started to evaluate what I need to do in order to be where I wanted to be. I looked at syndication of owning Subway Sandwich shops, and things like that.

Rod: Franchises. Okay.

David Sweeney: Yeah, franchises, I looked at direct marketing, and things like that. Sales of health products, and I said, “No. Real estate is where I wanna be.”

When I get into a topic, I become a voracious learner. I read all the books. I read all of the articles. I read the blogs. I listen to all the podcasts and that, in fact, you’re very easy to find on the web. That’s how I found your podcast and I became an avid listener of the Lifetime Cash Flow podcast.

Rod: Oh, thank you. I appreciate that, buddy.

David Sweeney: Absolutely. And as I got into this…

Rod: I’ll slip you your check later…

David Sweeney: Okay. Thank you.

[laughter]

David Sweeney: As I got into this… I determined that this is what I wanted to do. And my wife was very supportive. I said, “Here’s what I’m gonna do… What I you found, there seemed to be a lack of real estate agents out there that really knew how to find multi-family deals for their clients.

I said, “Okay, if this is difficult for them, why don’t I become my own real estate agent?” So last December I started studying for the real estate exam, and I got my license in April.

It was like the door opened up for me. I got to peek behind the curtain as they say. When I had access to the MLS then I could start evaluating properties. And of course, like most first time investors I started looking at duplexes and triplex, and fourplexes, but the numbers weren’t exactly where I want to be.

I knew I did not have enough cash to make a really large purchase. I could have bought a duplex, or triplex, or something…

Rod: And this is in the Seattle area?

David Sweeney: Here in the Seattle area or Western Washington. It’s so hard to buy in Seattle.

Rod: It’s an insane market up there.

David Sweeney: It’s crazy. So I was looking for cash flow and some appreciation but most products in Seattle are not gonna pay for your mortgage.

Rod: Right.

David Sweeney: As I continued to listen to podcasts and get more information, it seemed that apartment building is where I wanted to go. I took a refinance out of my house, and I took $380,000 out, and it just sat there in the bank. And it just sat there, and it just sat there because I knew had to be smart.

This is my first purchase. It’s my only purchase. I had to do it right.

Rod: Sure.

David Sweeney: I took some time, and this was a good news and bad news story. The bad new was, in July of this year, I tore my patellar tendon and I went off the diving board. I was at the swimming pool with my kids. It pretty much laid me up for the whole summer. That’s the bad news.

The good news is I was laid up for the whole summer, what could I do but evaluate day after day after day. I probably evaluated about 400 different properties.

So finally, in august, I finally found my deal and it really excited me. I was so jazzed to find this property. Do you want me to tell you about it?

Rod: Absolutely. But I wanna flag a couple of things.

David Sweeney: Sure.

Rod: Guys, he’s already given you a couple of great tips. The first one is evaluate deals like crazy. Now, he was forced to ‘cause he was laid up, but you’ve got to force yourselves too. Okay, repetition is the mother of skill. You need to evaluate as many deals as you possibly can because, correct me if I’m wrong, David, it got to a point where it was pretty probably much quicker, much easier for you to discard ones that didn’t make any sense and hone in on the ones that had a chance.

David Sweeney: Absolutely.

Rod: I’m sure you speeded up.  Okay.

David Sweeney: Absolutely.

Rod: That’s what this business takes, is repetition and you need to be evaluating tons of deals. Okay. Go ahead. Let’s talk about your deal.

David Sweeney: Okay, so I found in a little a little town in Western Washington, it’s along i-5. It’s called Centralia. It lives up to its name, it’s centrally located between Portland and Seattle.

This is not the hottest market in Washington. It’s definitely not Seattle, Tacoma, Everett area but it’s about 120 miles south of Seattle and it was a great community. So I liked… It reminded me of where I grew up.

As I went and visited the property, and looked at it, and evaluated it, I thought, “Do I wanna live here? Would I wanna live here in this area?” That was really important me, to find a property that would be similar to something that I might live in if I were an apartment renter.

Rod: Okay.

David Sweeney: The deal was listed. It’s an interesting deal. It was listed for 1.325 million.

Rod: Hey, can I stop you again?

David Sweeney: Sure.

Rod: And I apologize but I wanna flag things as you say them because I think they’ll add value to the listeners. The first one is, as you said, it’s a 120 miles south of you. So a couple of hour drive. Maybe an hour 40 or an hour 30-minute drive. Correct?

David Sweeney: Right.

Rod: Okay. Guys, your backyard is two-hours in a circle around you. So this is absolutely a good distance yet because you can go there in the morning, you could do what you need to do, and still make it back in time for dinner, or as little after dinner.

Guys, when I say the four areas that you should consider first, and the first is your backyard. I’m talking about the two-hours circle around you. And then the other three areas to consider let me throw them in there while I’m on it.

David Sweeney: Sure.

Rod: Is somewhere you grew up, or you know very well. The third choice would be somewhere you have boots on the ground or your family that can help you with the property. And the fourth choice would be somewhere you want to retire, or you really enjoy visiting.

David Sweeney: Right.

Rod: Okay. That was point number one, 120 miles away. Point number two, you mentioned, “Would I like to live there?” Which is a high bar. I wanna tell you that. And so I wanna tell my listeners, that is a great way to go, and you’re going to find a very nice property when you when you set the bar that high.

My framework and I don’t wanna take anything away from your framework, my framework is it’s gotta be clean, safe and comfortable.

David Sweeney: Yes.

Rod: And would I wanna live there? Maybe. Maybe not. So let me just interject my opinion on top of yours if you don’t mind.

David Sweeney: No, that’s fine. Because as a police officer, I’m not gonna live in a warzone.

Rod: Right.

David Sweeney: I need to have a nice, safe community.

Rod: Right.

David Sweeney: There needs to be nice streets, nice houses, a nice apartment building like this. It’s a grand old apartment building. It’s building. It’s build in 1920.

Rod: Wow. Wow, that’s an old one. Okay.

David Sweeney: It is an old one but it’s brick, and it’s solid and it was a great buy. Here’s why. It came with three tax parcels all in one deal. So there’s 24-unit apartment building, a 15-unit storage building, a single family residence and a parking lot. So kind of on three tax parcels.

I kinda like that idea. It was listed at 1.325 million and that’s what’s kind of fun being my own real estate agent because I can do my own negotiations. And that’s something I specialize in, I’m a professional mediator is well. I do work… [overlap talk]

Rod: Oh, I saw that on your resume. That’s awesome… [overlap talk]

David Sweeney: Yeah. I could use some of those skills in negotiating my deals.

Rod: Sure.

David Sweeney: I offered 1.1 million and I asked them to pay 1% of the closing cost and I’d also get my real estate commission on top of that.

They countered at 1.14 and apparently there was another bidder but I wrote them a nice little love letter, and I explained how I was a Seattle police officer. I’ve been on for 30 years, and I love their community. All the things I told you, Rod. I love the community, the neighborhood, the building. And even though the other offer was more, they trusted me more. They wanted to do…

Rod: I want you to stop there, again. You’re giving us such fantastic nuggets, here. Guys, in this highly competitive marketplace, doing what he did, will set you apart. Writing a letter, telling them why you like the property, why you like the area, who you are.

[00:10:02]

Rod: For example, I’ve got a little website when I do a mailer, you guys could check it out, thekhleif.com. On that website, that’s got a picture my wife and I, and we wanna buy property… Or is it the Khleif family… Might be thekhleiffamily.com. Actually, I think it’s both of them. Actually, one’s for apartments and ones for mobile home parks.

But again the sets you apart, let them see who you are.

David Sweeney: Right.

Rod: Tell them about your family, and it worked for you, obviously… You’re in service for 30 years, good Lord. That’s huge. So if you’ve been in the military or you have something like that to share, make sure you let people know.

Alright, I apologize…

David Sweeney: No, it’s okay.

Rod: I’m gonna get some hate mail for interrupting again but I just wanna hammer these points home.

David Sweeney: No. I like how you do that. I’ve listened to you enough, Rod, that I knew it’s coming…

Rod: [chuckles]

David Sweeney: I just wait and smile ‘cause I know you… Because you take things… I just tell a story, and you pick it, and you hit the points that you know that your listeners are gonna get some value from.

Rod: I try.

David Sweeney: So I appreciate that experience. And I know what you’re doing and I don’t mind that at all.

Rod: Alright. Alright, so please continue, so 1920s building, 24 units…

David Sweeney: Right.

Rod: I mean, in Washington State, for one million, plus the storage, plus the parking lot, plus a single-family house, that’s a screaming deal.

David Sweeney: I thought it was.

Rod: Yeah, I know. I mean, just based on what little I know…

David Sweeney: I was really happy.

Rod: Yeah. That’s a screaming deal. Now, what condition was it in?

David Sweeney: So I took my inspector through, and I was really happy with my inspector. He had looked at some other properties for me, that I didn’t end up buying, some smaller properties. I said, “Hey, I got an apartment building, let’s do the inspection.

It’s really important, obviously, to go with your inspector.  We delved in every nook and cranny. We went underneath. We went on top. We went inside and we inspected ever unit. So once you have that accept offer then I let the other agent know, “Hey, here’s my date of inspection. Let the tenants know.”

We obviously have to give them notice because you can’t buy an apartment building without looking in every unit. I feel that’s really important.

Rod: No question. Let me hammer a little thing there too. Guys, I use a building inspector, and I’ve owned thousands of units. I built homes. And I did major remodels. I’ve very, very versed on construction and I still bring a building inspector.

David Sweeney: Absolutely.

Rod: Guys, always use an inspector, because they’ll see things that you can utilize to potentially re-trade or they’ll identify things that could cause you not to buy the property.

David Sweeney: Right.

Rod: When you’ve got a property under contract you put the hat on that says, “Why do I not want to do this deal?” And it’s a mindset shift, and an inspector will help with that mandatory mindset shift so you don’t make a mistake. Alright, please continue.

David Sweeney: Right. Absolutely.

Rod: Okay.

David Sweeney: We went through every unit and they told me, this is a really solid place. It’s had regular maintenance. It had some roof issues but they replaced the roof, a year and a half ago, so I got a new roof out of the deal.

The apartments, they’re not super fancy. But they were well painted and well maintained, and taken care of. The counters, they’re not super fancy, but in this market, it’s not gonna pay off for me to put a $3,000 into each unit and bring it up to some fancy standard that I know I’m not gonna get the returns on the rents for. That didn’t make sense.

Rod: Fantastic.

David Sweeney: The pro forma numbers, what was listed by the agent was that it would gross 133,000 a year. And the NOI, they estimated to be 91,000 a year. So as I got into that, it seemed to me that market trends for underneath.

I hired a property manager. I did probably three interviews before I finally found one that I was comfortable with. The property manager looked at it, and that’s the great thing about using a property manager because number one, they know the market and what the rent should be because they got thousands of doors that they’re running out people.

Number two, I love that they know the contractors to use when there’s work to be done and places to hire at. If it were me, I’d be calling all these different people, and getting all these different bids, and stuff like that. But they said, “Dave, if you need new carpets in these units, here’s the carpet guy you go to.” “Great. Fantastic.” “Here’s the plumber we use.” “Fantastic. I like that.”

I wanna be semi passive in this investment, but I also wanna know what’s going on. So they call me any time they spend over a couple hundred dollars…

Rod: That’s the way it should be. Let me interject something here as well.

David Sweeney: Sure.

Rod: As it relates to property management companies. Now… and this is something I tell people, I tell my coaching students, and that is, there are two things that I always look for with the property management company. In fact, I did a Facebook Live episode on this if you guys really wanna dig in. Just search it and you’ll find it.

I mentioned these two things. When you’re evaluating a property management company, there are two things that I target. One is, how they handle maintenance because maintenance can be a profit center for property management company, specially if you’re dealing with units under say, 50 units. If you’re 50, 60, 70 units, you typically have your own on-site guy or one guy that’s full time with the property.

But under 50 units, you’re gonna rely on their maintenance infrastructure, so you really wanna dig in. ‘Cause sometimes, they’ll hire somebody at 20 bucks an hour and bill them out at 75. So you wanna find out, do they have their own maintenance staff or do they use contractors? Do they up charge the contractors?

So just dig in so you’re not taken advantage of. That’s number one.

David Sweeney: Sure.

Rod: Number two point while were on property managers, is always check out their online presence, make sure they’re not a digital dinosaur. See what they look like on a mobile website because if they don’t have a presence, they’re gonna eliminate 50% of the population. Millennials and numerous other people as well that will pull up in front of your property, and look on their phone and… they should be able to see an inside layout of a unit, the tour of the unit. Ideally, they should be able to apply for the unit, right there on their phone, things of that nature.

Those are a couple of things I didn’t put in my book. I don’t believe. So be sure that you double check that.

David Sweeney: Yeah. Those are excellent tips. Excellent tips. Where are we going next?

Rod: So you got a good property management company, they call you if it’s over $200. You should always set a limit. That’s where you were.

David Sweeney: Right. Yeah, exactly. So he said, “Yes, the market there is low. The rent there is low. Let’s have a plan to raise it. So I love that he spent plenty of time with me. I did an analysis of every apartment in there, when did the contracts start, when did it end, are they on a month-to-month, etcetera, etcetera. Were there any Section 8 tenants? It turned out I had two.

Then we evaluated that and I said, “Okay, here’s where I want the rent to be.” Generally, they were renting for 475 for studio, and 575 for one-bedroom. He said, “Your market should be 525 for studio and 625 for a one-bedroom.”

Rod: Fantastic.

David Sweeney: I said, “Great. How do we get there?” He spent some time with me, and we plotted it out and worked out how we can get those rent raise because that has really improved, I think, the value of the property because if I can improve my net operating income… That’s what I love about multi-family, like a larger apartment building, a $25 or a $50 raise, and then you multiply it times the number of units, man, you just raised your NOI quite a bit, which raises the value of the property.

Rod: If you raise your rents on your 24-unit apartment building, $50 you just increased the value $250,000.

David Sweeney: I know. Isn’t it great! I love that.

Rod: That’s a beautiful thing. That’s why I’m here. [chuckles]

David Sweeney: Yes. I love that. That’s why… I’ve bought plenty of stocks and bonds before in companies that I believe in, but I have no control over whether the products they produce, or the service they provide, is something that people are gonna want to pay for.

This I have some control over. I have the ability to make changes. I have the ability to make investments, and to control my business. I love that about real estate. I feel like I got some control out of it.

Rod: No question. Let’s talk about the fact that you’re licensed, for a minute.

David Sweeney: Sure.

Rod: Which I… I got a license when I was 18 years old and I believe in it. One thing that I’m gonna suggest to you guys listening, there are a lot of commercial multi-family properties that actually show up on the MLS, because a residential realtor list them. And a residential realtor is not that familiar with or utilizes LoopNet. They’ll just put it on there, their local MLS system.

Guys wherever you are targeting, make sure you align yourself with a residential real estate agent or broker, and let them know you’re interested in multi-family, and have them put alerts on, so when one of those pops up they contact you, because, again, that’s kind of a little secret; because some of these commercial properties can sit on a local MLS because the commercial investors aren’t looking there.

David Sweeney: That’s right.

Rod: So there’s a little tip for you.

David Sweeney: Yeah. This property was listed in April, and I found it in August. So it’s still there.

Rod: There you go.

David Sweeney: It’s a fantastic deal. In fact, I presented it at my local real estate meet-up. I did a PowerPoint show and everything, and some of the experienced investors there said, “Man, this is the best deal I’ve seen in 10 years.”

Rod: That’s my point. And it probably sat there and nobody saw it.

David Sweeney: Right.

Rod: So guys, please pay attention to what I just said.  Align yourself with the local “residential”, in quotation marks, agent or broker, in the market that you’re interested in.

[00:20:00]

Rod: Then have them look for commercial multi-family that… A residential agent or broker listed didn’t know that they should put it in LoopNet. It happens all the time because this is a relationship business. Maybe they got a relationship with the seller, seller wanted to use them, didn’t realize that they really weren’t versed in commercial marketing and so they sit there and they languish. Those listings languish in a residential system, and they’re ripe for the plucking.

David Sweeney: Yeah. They do. There’s about 75 multi-family, meaning five or more units, commercial properties in Western Washington right now. I think deals get done there, but I like that look behind the scenes.

There’s a variety of ways that many people can find properties. Some do direct mail, some drive for dollars. So I’ve been able to use the MLS to help me find my deal, and I’d love to help other people who are watching, find that deal.

Rod: Yeah, sure… If you guys are interested in properties in his area in Western Washington, his website is DavidSweeney.com, S-W-E-E-N-E-Y.com. Reach out to him. He’s licensed and he has access to the MLS. And if you’re not in that area, just align yourself with the residential agent or broker in your area because they’ll look on the MLS for you and if they see you’re serious and you nurture that relationship, and you’re consistently communicating with them. They know, “Hey,” you’re calling them, “Have you got anything? I’m still very anxious to find something”, and you’re rightfully communicating, you’re gonna get those deals.

David Sweeney: Yeah.

Rod: Okay. Fantastic.

David Sweeney: Absolutely.

Rod: Let’s talk about your psychology.

David Sweeney: Sure.

Rod: What’s motivating you right now? Tell me about that.

David Sweeney: I think, what really motivates me is I want a few things. One, I want my kids, again, they’re 11,13, and 15. I want them to be able to go to college anywhere they can get into. Anywhere in the United States… Well, frankly, the world. But most likely the United States.

I want them to be able to go to college wherever they want, and come out with zero college loans. I want them to get started right. And I’ve listened to enough people out there in the marketplace. When they become of age when they’re old enough, I wanna help them get started real estate.

Rod: That’s nice. That’s great. I love where you’re heart’s at.

David Sweeney: Yeah. If they wanna house hack and kinda get them started in the business that way, I can help buy them their first duplex or triplex or something like that. They can rent it out to maybe another college student so they get a… Again, to get them out of the mindset that… Not that I did do it wrong, I didn’t do anything wrong, by having a 30 year career but I look at…

Could I have done something different earlier in my life? Would it make a difference now?

Rod: Could have started earlier. Yeah.

David Sweeney: And then my wife, she’s got a great job. She’s an attorney, and, but does she wanna work? I’m not sure. There’s she’s really has a heart of service. She really likes to help others. Maybe there’s something that would provide her more value in her life. And maybe it becomes optional as to whether she wants to work or not.

Then again as the kids move in to college years… They’re 11, 13, and 15 as they move on, she and I’d love to travel. I wanna live in different places in the world.

Rod: Same here.

David Sweeney: I wanna go to a place and I just wanna live there for a year and experience that culture, France or Spain, or South America, or maybe even different parts of the United States, who knows? But I do wanna see more of the world.

As I looked at these things, I said, “Okay, here’s what I want, how do I get there?” That’s my motivation. I really wanna help my family. I wanna help my kids get started right in life. I don’t wanna be behind the 8-ball. I wanna give them every advantage that I can give them. I love them so much and that’s what I owe to them.

My dear sweet wife, who’s been so supportive of this, she was looking at that money just sitting there in the bank, and it just sat there, and just sat there. I said, “Sweetie, don’t worry, I will find the right property. And when I know it, I’m gonna buy it. It’s gonna be great.”

Rod: So she was just looking at the money in the bank instead of the fact that you borrowed that money that went in the bank.

David Sweeney: Yeah.

[laughter]

David Sweeney: It raised our payment a little bit, but not so much that it became unwieldy.

Rod: Okay. Okay.

David Sweeney: That’s one way I know that not all your listeners can do that. But that worked for me. Having a house in Seattle, and using that appreciation, the market’s gone so crazy the lately, that I thought, “Wow, if my house is really valued at this much, why don’t I take 400,000 or 380 out and use it for this purchase.”

That’s part of my motivation. Use that, what I’ve been blessed with, in order to give back to my family. And then my wife and I have plans of giving back to our church and some of the things that we believe in, as far as charity work and things too.

Rod: That’s awesome.

David Sweeney: I said, “If we do so this, we can make a big difference of some of the things that we believe in.”

Rod: I love it. Yeah. That’s dear to my heart. We’re actually giving, I think… We’re feeding 1200 families this Saturday, that’s before Christmas…

David Sweeney: That’s fantastic. That’s great, Rod.

Rod: Yeah. I’m not sure when this interview will air but yeah, it’s this Saturday, the 17th.

David Sweeney: Right. Right.

Rod: Okay. So any speed bumps on this first purchase?

David Sweeney: Yeah. I had a couple of speed bumps.

Rod: Yeah. Talk about that.

David Sweeney: The first one was, finding a commercial lender who will lend to a first time investor. I found that that was more of a challenge than I thought it would be. I’ve never done a commercial loan before. I’ve done several residential loans and re-fis and things like that. That’s just a different marketplace. It’s a much different market so you…

Rod: Yeah. You were right at that limit with 25 units, where you know, where they’re gonna start scratching their head and say, “Hey”. So how did you over come that?

David Sweeney: Well, it just became a matter of getting on the phone, and calling everyone I could until I found a bank that said, “Yes. We will move with you on this.” That was kinda nice.

Well let me go back to the challenge and then I’ll… The value I got out of that as well. The challenge in finding those banks, I had to get through a lot of ‘Nos’.

I had five years as a property manager in college. I managed an apartment building for…

Rod: Oh, yeah. That’s great help. Okay. Sure.

David Sweeney: Yeah. So I added that. I added that I had my real estate license, of course, I couldn’t claim years and years of experience but when I put those two things together I finally found a regional bank that said, “Okay, yes. We will work with you on a deal.” The blessing of that was that I had a second set of eyes looking at this deal. They’re not gonna finance something that’s not a money maker. And they’re not gonna finance for a poorly maintained property. They’re not gonna finance a warzone.

Rod: Right.

David Sweeney: So when I bring them a nice clean property… It’s older, yes. But when I bring them a nice clean property that has a good profit margin in it and I evaluate that with them. They said, “Yes, this looks great.” They provide me with a letter of financing, “We intend to finance Mr Sweeney at this amount…” My loan amount turned out to be…

Rod: It’s called a loan commitment letter.

David Sweeney: Yeah. Exactly. Turned out to be about 800 grand on the loan, and that helped with the negotiation as well, so they could say yes. We looked at…

Rod: Oh, so you got that in advance of the offer.

David Sweeney: Yes.

Rod: Good for you that’s a smart way to do it ‘cause you’ve been looking at this place for a while.

David Sweeney: That’s right.

Rod: Sometimes you don’t have that time luxury, but that’s fantastic.

David Sweeney: That’s right. So that was one challenge…

Rod: By the way, guys…

David Sweeney: Again, I’ve heard from a few people…

Rod: Hold on one second. Let me interject something on that…

David Sweeney: Go ahead, Rod.

Rod: Particular challenge. Guys, sometimes you can supplement that challenge with a property management company. You can bring in a property management company, say, here they are, this is what they do, they are going to manage this property for at least the first year. I’m gonna commit to that and you can make it a loan requirement and sometimes that’s enough to push it over the edge.

Okay, so keep that in mind as an alternative. Please continue.

David Sweeney: Great idea. In fact, that became a little bit of a factor later. They liked that I had a professional management company lined up to help manage this.

Rod: Right.

David Sweeney: In other words, I wasn’t getting in over my head or something I’d never done before. I had people there alongside with me. The numbers made sense. The professional management company made sense and there was still enough profit built in that I could give them their property management commission, and still have a profitable business out of it.

That was a challenge. It just took a lot of time to find the right lender and one that would say, “Yes, we’ll commit to you David on this project.”  Now, I like this because as I move to my next deal, it’ll be great to have this experience under my belt, and I’ll say, “Well, yes, I have these properties under my belt that I’ve successfully owned for, let’s say a year whatever the case might be. That was one challenge.

The second challenge, I did not get my insurance lined up in time.

Rod: Hmm.

David Sweeney: So what happened was, I talked to the owner, and I said, “ Do you mind if I get the name of your insurance agent?” I figured they’re already… they had a policy covering the property and that would be nice easy transition. They said, “Sure”.  They gave me the woman’s name and phone number, and I call her up, we had a great conversation. She said, “Yes, I’m sure that we can just set up a similar policy for you.” Gave me the limits etcetera, etcetera.

I kinda took it for granted that that policy would be…[overlap talk]

Rod: You took it at face value.

David Sweeney: I did. I did.

Rod: Right.

David Sweeney: And as we got closer to closing date, now I’m about a week out, and I thought… and my bank says, “Okay, well we need your insurance binder”. “Oh, great.” So I call her up and wouldn’t you know it, of course, she’s off of work that week. They can’t find her. No one knows what’s going on, and it was really frustrating for me.

In fact, I had to delay closing by two days. I still went with their company, but I had to get new people involved, that had never seen the building before…

[00: 30:01]

David Sweeney: That didn’t know anything about my prior. Again, it was just a verbal phone commitment.

Rod: Sure.

David Sweeney: They didn’t know anything about that. Now, I’m having to call… I was dialing for anyone else that would insure this property. So now I’m getting bids all across the board and that pretty much took up my last week of closing.

Rod: Sure.

David Sweeney: Is just trying to get this insurance ready and so that would be my value add for your listeners.

Rod: Now, that’s really good. It’s really important that you have a closing checklist and a due diligence checklist.

By the way, I’ve got a live event coming up in LA, April 5th, 6th, and 7th. We’ll be announcing it… Well, I’m just announced it. This is the first time I mentioned it in LA.

And that’s one of the things that we provide, is a closing checklist and of course, probably the most comprehensive due diligence checklist on the market. Another thing that I wanna mention, if you wanna connect with David I’m gonna suggest David that you get on the community on our Facebook group. We’ve got like 4600 people on there. It’s only been around for two months.

Those of you listening, go to multifamilycommunity.com and it’s a direct link to the Facebook group. There are groups connecting all over the country. In fact, I was in LA picking the hotel for this live event and I met with five guys that met on that site. They’ve already started a meet-up group, and I think they just had their first real meeting a couple days ago.

It’s a great resource for all of you listening around the country to connect with other investors and like-minded people and share notes, and learn from each other, and make connections, and meet great guys like David here. So I highly recommend that you do that. I know that Dave is gonna go there ‘cause he said he would earlier.

David Sweeney: I absolutely will and I’m glad you brought that up because I was not aware of that. so I’m gonna check that out immediately.

Rod: It’s a great resource and we don’t allow any promotion. We get them that they try to promote, we delete them right away and block them.

David Sweeney: Right.

Rod: It’s mostly just people connecting, and asking questions, and really, really developing their own groups around the country. There’s so much strength and power in having a few people you can bounce things off. Because this is a scary thing for some people to spend half a million dollars, or a million dollars, or even more, and it really is a team sport. Commercial real estate is a team sport.

David Sweeney: Absolutely.

Rod: Sometimes you have to find the experience, like you almost needed with your deal. Sometimes you have to find the net worth income, liquidity and it’s just a great way to connect with other people. So highly recommend you guys do that.

Any last little bit of advice do you wanna share with my listeners?

David Sweeney: I would say…

Rod: Yeah. What would you tell them? Somebody that hasn’t taken any action yet…

David Sweeney: Right.

Rod: That’s always a question I’d love to hear the answer to.

David Sweeney: Sure. I’ve listened to enough people that were in the case like I am. That when you get your mind set on something, don’t take no for an answer. Always push ahead. There is someone who will say yes to you.

Now, it doesn’t mean that you can buy 180 units with no money in the bank, and no experience. That’s not gonna happen.

Rod: Right.

David Sweeney: But everyone’s career has to start somewhere. Now, for some people, maybe a duplex or a triplex investment is the great way to get started for them. And then they move up to apartment buildings.

Me, I want to skip that step, and go right to apartment building. It was lucky that I had some money that I could refinance out of my house. But, hey, if my monthly payment went up a little bit on my house payment, that’s okay. The monthly rent checks are more than covering that.

They cover the mortgage on the apartment. I’m letting someone else pay for that.

Rod: Right.

David Sweeney: I love that.

Rod: Right. Right.

David Sweeney: And it still covers the increase in mortgage on my house, so it’s just a fantastic deal. I think, if, for your listeners, someone that wants to get started on this, they really have to just set their mind and say, “This is what I’m gonna do, and I’m not gonna take no for an answer.”

Rod: They have to commit. They have to commit.

David Sweeney: Absolutely. You need to… [overlap talk]

Rod: In fact, that’s funny. I’m doing a Driving Force episode on the power of total commitment.

David Sweeney: Right.

Rod: And you know what, I wanna make sure it goes hand-in-hand with your episode so that…

David Sweeney: I love your Driving Force episodes.

Rod: Thank you.

David Sweeney: Because things like that get people motivated. That’s sometimes what they need to do. If they’re listening to podcasts, and their not evaluating deals, nothing’s gonna happen. Take a first step. If the first step is listening to a podcast, great, then you need to take action. Whether you’re calling friends and neighbors, “Hey, anyone know any properties for sale?” Whether you’re driving for dollars. Whether you’re getting on the MLS. Whether you’re contracting a real estate broker. Whether you’re evaluating your own properties. Whether you’re going to LoopNet, or Windermere, or Zillow, or any other website. Whatever you’re doing…

Rod: Take action. Take action.

David Sweeney: Yeah. You’re doing something. You’re doing something.

Rod: Take action. Yes, sir.

David Sweeney: Absolutely.

Rod: That’s it. Great advice my friend.

David Sweeney: If you’re doing a little bit more today, than you were yesterday, you’ve made progress. Now, some people take giant steps, and some people take small steps, but whatever you do…

Rod: Again, progress equals happiness.

David Sweeney: Yes.

Rod: Now, I’m really gonna get hate mail for interrupting you on that one.

David Sweeney: [chuckles]

Rod: But progress equals happiness, guys. Make progress. Little steps are all it takes. If you celebrate that progress, look back on the past week, where did you go, where did you get done?

David Sweeney: Right.

Rod: If the goal itself feels good for a little while, but it goes away.

David Sweeney: Yes.

Rod: The sustained happiness comes from progress, so take action…

David Sweeney: And maybe keep a log. Keep a log. If you’ve done something, what did you do today? What did you do tomorrow? What are you gonna do next week, and next month?

Rod: Love it.

David Sweeney: Make those goals out, write them down, and follow that plan. If you’re just listening to podcasts, and just reading books, that’s great but at some point, education never stops, but some point action needs to start. So that I would encourage your listeners, to do whatever they need to do to take action.

I’ve heard from enough people on podcast that say, “Hey, yeah, I volunteer with maybe an organization in order to get next to people that have money and eventually tell them about deals.” If you haven’t done a deal, grab a deal that might work, and say, “Hey, this is the type of product that I’m going to do. Here’s something that might make money, and this might be profitable for you. Would you be interested in something like this in the future?”… [overlap talk]

Rod: That’s how you do it. That’s how you do it. That’s how you do it. Love it. Great advice in taking action, fantastic advice, celebrating your progress and making some progress, and not beating yourself up if you don’t get to the home run in your first week, and evaluating deals. You just keep plugging away. Eventually, it’s gonna come together, like it did for you.

How long, by the way, my last question. How long were you studying and looking for deals before you pulled the trigger on that? You said you looked at 400 of them. How long were you actually looking?

David Sweeney: Well I got my license in April. And I’ll bet from April through August, I evaluated 400 deals.

Rod: Wow. Four months. Wow.

David Sweeney: Yeah.

Rod: So it was full-time then, okay.

David Sweeney: Yeah. I took a long time. And I found plenty that would make money.

Rod: Right.

David Sweeney: And plenty that wouldn’t but finally I found the deal that excited me, that had the profits that I was looking for, and the ability to increase the value by making sure that expenses are low, and rents are raised. That’s how I’ve increased value in this property.

It’ll be exciting, at some point, my bank has a, if I pay off my loan this year, it’s a 5% penalty. Next year, it a 4%, 3% etcetera, etcetera through five years, so it’ll be interesting what happens in five years. The mortgage stays the same, but the rents keep going up. Whether I do a … [overlap talk]

Rod: What was your term? What was your amortization?

David Sweeney: 4.25

Rod: Now, that’s the rate. What was the length or the loan? The amortization… [overlap talk]

David Sweeney: It’s a 10-year balloon.

Rod: Okay. 10-year, good. I recommend, people, do not do five-year balloons right now ‘cause you could be in the depth of the contraction.

David Sweeney: Exactly.

Rod: So okay. Fantastic.

David Sweeney: Yep.

Rod: Thanks for being on the show my friend. [overlap talk]

David Sweeney: Absolutely, Rod. I enjoyed it.

Rod: You know, it was a lot of fun. And I know you’re really add a lot of value to people today. So I really appreciate you. Thank you. Thank you for your service.

David Sweeney: I’ll be seeing you in April then.

Rod: Awesome.

David Sweeney: April 5, 6, and 7. Right?

Rod: Yes, sir, 5th, 6th and 7th, Hyatt by LAX. Yeah, we just signed the contract. Thank you for your service for the people of Seattle, my friend.

David Sweeney: Oh, sure.

Rod: They’re lucky to have you. Alright, brother, well listen, thank you, take care and we will talk again.

David Sweeney: Sounds great, Rod. Thanks for everything.

Rod: Alright. Bye-bye.

David Sweeney: Bye.

[music]

Thank you for listening to the Lifetime Cash Flow Through Real Estate Investing Podcast. If you’ve enjoyed the show, please subscribe, and then take a moment to visit iTunes and leave a five star rating and review. For more resources to connect with us further, please visit our website at lifetimecashflowpodcast.com. Tune in next week for our next show.

[music]