Ep #207 – Glenn Gonzales – From Maintenance Man to 4,000 Unit Owner

Here’s some of what you will learn:

  • The secret to multifamily investments.
  • Importance of finding a mentor.
  • Financing with friends.
  • Tips on surviving through a downturn – get granular with the stats.
  • Understanding the numbers in tenant acquisition and retention.
  • Importance of building your team.
  • Tips on interpersonal relationships
  • People are more important than things. Treat people well and they will treat you well.
  • Never burn a bridge – everyone talks to everyone.
  • Managers and maintenance together on the vision.
  • Creative foreclosure financing.
  • Understanding the Three Keys banks look for – Net worth, liquidity, experience.
  • Importance of having realistic rent expectations
    How to find deals – One deal out of 100, Crowdfunding a deal.
  • Importance of relationships in real estate. It’s a relationship driven business – keep up your relationships.
  • Tips on packaging a great deal.
  • Importance of having both brains – Analytical & Outgoing (need both sides in the mix).
  • Importance of knowing when to say no to the money.
  • Importance of creating a system.
  • Management – In-house vs third party. Understanding when to use each.
  • How to set yourself apart in the bidding.
  • Tips on protecting your earnest money.
  • Questions to ask on your first deal.

About our Guest:

To reach Glenn Gonzales please visit:

http://www.napa-ventures.com/

Join us at a Multifamily Bootcamp, visit MultifamilyBootcamp.com

For more information on my Multifamily Training and Coaching Program, Text CRUSH to 41411.

Join us online at MultifamilyCommunity.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

Full Transcript Below:

Ep #207 Glenn Gonzales – From Maintenance Man to 4,000 Unit Owner

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’re gonna get a tremendous amount of value from the gentleman we’re interviewing today.

He’s a real rock star. I’m not gonna take any of his thunder by stealing his story. I will tell you that he owns over 4,000 units now. He’s primarily in Texas, and his name is Glenn Gonzales with Napa Ventures. Glenn, welcome to the show, buddy.

Glenn Gonzales: Thanks, Rod. Good to be here. Big deal.

Rod Khleif: Yeah, I really appreciate you being here. You started to tell me a little bit about your story; how you got started in this business. Like I said, I didn’t wanna steal any of your thunder ‘cause it’s an incredible story. So please, tell my listeners how you got into real estate.

Glenn Gonzales: Well thanks, Rod. Sometimes, I wake up in the morning I just have to pinch myself [chuckles] ‘cause I love where I’m at, I love what I’m doing but it’s been a journey for sure.

Back when I was going to college I started off, my wife at the time was a leasing consultant, and I was I asked if I would come and help do maintenance at the apartments, so I did that. I was going to college it was a good job, painting apartments, fixing toilets; all that stuff, and it was really cold outside.

When I had to pick up the trash outside, I started thinking to myself, “I’d sure rather be inside leasing apartments, or answering the phone than picking this darn trash, and fixing broken stoves. So I kind of talked to the regional manager back then. And I said, “Hey, I think I’d rather be a manager.” She kinda looked at me and said, “You’re kidding, right?” I said, “No. I think I could do that.” She’s like, “Well, I’ll keep that in mind.”

A few months went by, and sure enough she called me one time, she’s like, “I don’t know if you’re gonna like this but I’ve got a small 60-unit apartment complex where we can use you to manage part time, and do maintenance part-time.” I’m like, “Dude, I’ll take it. I’ll take it.”

Rod Khleif: Sure, two for the price of one, right?

Glenn Gonzales: Yeah. And they couldn’t afford a full-time maintenance guy, and they couldn’t really afford a full-time manager ‘cause it was only 60 units. So I’m like, “You know what, I’ll do it. I’ll do it for the experience.

I was good at leasing. I would lease apartments, and it… myself and, our residents quickly figured out, I was not very good at maintenance. I’ll tell you why. I’d leased an apartment one time, and they were townhouses. I’ll never forget it, Shadow Mountain Townhomes. I rent out an apartment, the people that went to move into the new townhouse, and of course, I gave the checklist. You know, when you move into an apartment the renters…

Rod Khleif: The owner’s checklist. Right. Right.

Glenn Gonzales: Exactly. They started filling that out, and they came back later in the day and like, “Man, I don’t know who fixed this apartment, but everything seems to be broken.”

Rod Khleif: [chuckles]

Glenn Gonzales: I was so embarrassed. I didn’t wanna say anything. So I said, “Alright, I’ll take care of it.” They didn’t know I was dual role, so I grabbed my toolbox, and I go back over there, and sure enough, I didn’t check the dishwasher, one of the burners wasn’t getting hot on the stove, and they…

So I started fixing, and they’re like, “Hey, what are you doing here?” And I’m like, “Well, I’m the manager but I also am the maintenance guy.” It was very awkward for the resident, and very awkward for me ‘cause we both realized…

Rod Khleif: [laughter]

Glenn Gonzales: And I realized, I really suck at maintenance and I’m better at renting out apartment. So anyway, life lesson for me, I think I chose a career path that got me outside, and inside, and it was great. And I remember that.

In my career now, I sure have a lot of respect for our maintenance guys because I realized you’ll never have a successful manager without a successful manager maintenance guy.

Rod Khleif: No, absolutely if the tenants aren’t happy, nobody’s happy.

Glenn Gonzales: Right.

Rod Khleif: That’s the maintenance man is a critical component. So from maintenance man to in excess of owning 4,000 units, managing 5,500 units. Holy cow. So when did you buy your first multifamily. Tell us about that.

Glenn Gonzales: Yeah. It was in a little town called Puyallup, Washington.

Rod Khleif: Wow.

Glenn Gonzales: And I had been in the industry as a property manager. At this time, I had worked for Equity Residential. I had worked for Pacific Property Company, and some of the bigger players in the industry, in the property management side.

I realized, I’m managing these properties for these owners, and I’m really, really getting good at it. I’ve created a lot of value for these guys, but you know what, at the end of the day the owners are the ones that are getting rich, not me. I’m just doing a very good job. It’s been a good career.

So I went to a mentor. I donate some time to the Apartment Association. I’m sitting in a board meeting for the Apartment Association, and there’s a guy sitting across from me, his name is John. I say, “Hey John, I’m looking at a couple of deals in Tacoma, Washington.” They were smaller. It was my first one.

He looked at me and says, “Those are okay deals. But I’ve got a better deal for you. I said, “What’s that?” Because I got this 44-unit apartment complex that I don’t ever go to. Frankly, I don’t ever want it.” ‘Cause he’s moved on and he’s got hundreds of apartment complexes, and he said, “You could buy it from me, and I’ll sell it to you for X dollars.”

I said, “Okay, let me go look at it.” Sure enough, it was a little place that it was being run kind of as a motel but it was kind of built as apartments. They had these short-term stays, lots of overhead and it just wasn’t cash flowing.

Rod Khleif: That’s a lot of work.

Glenn Gonzales: Yeah, a lot of work. So I did away with… well let me get to how I bought it… So I told the guy I want to buy this deal and he says, “I’m gonna help you, Glenn. I’m gonna carry a note back for you, ‘cause I know you know what your doing. But you have to come up with $150,000.“ I didn’t have an extra $150,000.

Rod Khleif: When was this? Do you recall approximately when? I’m just trying to get a feel for how long ago.

Glenn Gonzales: Uh, see what year is it now? It’s probably…

Rod Khleif: 2018.

Glenn Gonzales: Yeah, it was probably 2005, 2006.

Rod Khleif: Wow. Okay, you started in five. Wow. Okay.

Glenn Gonzales: Yeah. That was my first one. I didn’t really start, start buying a lot of apartment complexes until three and a half years ago.

Rod Khleif: Right. Right.

Glenn Gonzales: So this was my very first experience kind of as an investor, and owner. I found the deal; 44 units. I found somebody who would carry a note back. So I had the financing in line, and he said, I had to come up with $150,000. And I’m like, “Crap”, because my wife and I had five kids at the time. I don’t have $150,000.

I went to two friends that I knew in the industry. One was my old boss. [chuckles] and one was the vendor that I did a lot of work with in Washington. I said, “Do you guys wanna go in on this with me?” They said, “Sure, what’s the deal?”

“So we buy the whole thing, all we have to just come up with $150,000. We could be a third, a third, a third. Let’s all be partners.” And they said, “Okay.” They said, “How much are you putting in, Glenn?”

Rod Khleif: [chuckles]

Glenn Gonzales: “I don’t have any money. I found the deal, I got the financing, I’ll do all the work but you each have to put on 75 each. And they said, “We’re in. The numbers look good. If we could do this, it would be great.”

So sure enough, I gave the guy $150,000. Then he said this to me. He said, “No. I don’t want the money. I want you to put that $150,000 in the apartment complex, and fix it…”

Rod Khleif: Wow. I like this guy.

Glenn Gonzales: “’Cause it’s broken.”… I’ll introduce you to him.

Rod Khleif: [chuckles]

Glenn Gonzales: And I did that. I took the $150,000, and he was right. I needed to fix a bunch of broken stuff. So I fixed the broken stuff, we got to 99, eventually got to 100% on these little 44 units. I sold it a year and a half later, and I’ll tell you, for about a million dollars more than I paid for it and all that.

I returned the money to my partners, and we split all the profits… A third, a third, a third. Everybody was happy. The only problem is we took half of the profits, and we carried a note back to the sellers. So really, we only put $500,000 on out pocket. And here’s the sad story…

Rod Khleif: Hmm. It means a debt to the buyers, you carried a half a million in…

Glenn Gonzales: I carried a note back. Yup. Yup.

Rod Khleif: And this is 05, 06 or 07, and we all know what happened shortly after that.

Glenn Gonzales: You nailed it. Yep.

Rod Khleif: Yeah.

Glenn Gonzales: So the guy defaulted on the note that I had carried, I was getting ready to foreclose on the deal and…

Rod Khleif: You were on a second position…

Glenn Gonzales: I was in the second position to his lien holder. Right.

Rod Khleif: So we know what happened to yours.

Glenn Gonzales: Yeah. You nailed it.

Rod Khleif: You lost your half a million cause he was probably behind the first as well and they foreclosed?

Glenn Gonzales: Yeah. Yeah.

Rod Khleif: Yeah.

Glenn Gonzales: Yeah. Actually, the story kinda continues. I didn’t… I lost some money that I could have made. I don’t know if I would do that again.

Rod Khleif: Right.

Glenn Gonzales: So lessons learned… But we did make money. We made some good money. So my investors, my friends, were happy, and it all went well.

Rod Khleif: Sure.

Glenn Gonzales: But I called the guy that I knew, and I said, “Hey, Ed, do you want to buy this note? It’s about to be in default. Lender’s out in New York.” He called New York, he said, “I’ll buy that note”. He paid… Gosh, what? 60 cents on the dollar to buy the note…

Rod Khleif: So you did good? You didn’t lose the whole 500. You were able to sell it for 60 cents on the dollar. It’s sad for the guy that bought it, probably, but…

Glenn Gonzales: Yeah.

Rod Khleif: Yeah. Oh good.

Glenn Gonzales: Yeah. My very first deal was probably the highest tuition I had to pay for experience in anything. Putting that deal together…[overlap talk]

Rod Khleif: That’s quite a story, man. I got to tell you. To buy it and have that experience with a receptive seller like that that helped you, wanted to give you a leg up. That was really cool. I really liked hearing that, and then allow you to put the money back into the property, which is really smart in his case if he’s carrying it.

Then you carry, and all that stuff happens. Wow. That’s quite a story.

Glenn Gonzales: Yeah.

Rod Khleif: Here you are now, at 4,000 units. You obviously have your own management infrastructure…

[00:10:00]

Rod Khleif: Let’s start with team. Can you tell us how that evolved? The group of people that you surround yourself with, and maybe as you got started; you say you really bought a lot in the last three years. Tell us how that all came together, and the components, the different pieces in your core group.

Glenn Gonzales: Sure. So after that small deal, I did not buy another apartment complex ‘cause we went to through that downturn. I lived in Seattle, and it really crashed and burned. I had some rental homes, and lost all the rental homes.

Rod Khleif: Yeah, you don’t wanna compare notes with me on that.

Glenn Gonzales: Yeah… Yeah.

Rod Khleif: [chuckles]

Glenn Gonzales: My primary house got foreclosed on, I mean, really… It was a really bad time.

Rod Khleif: Oh, yeah.

Glenn Gonzales: I moved to Texas to run and be the president of a management company.

Rod Khleif: Oh, wow.

Glenn Gonzales: You can imagine managing through this tough time…

Rod Khleif: Oh, yeah. That’s a great education though, ‘cause you really had to roll up your sleeves, and work with tenants, everything else. In fact, I’d like to ask you about that.

Glenn Gonzales: Yeah.

Rod Khleif: What did you have to do to keep things going back then?

Glenn Gonzales: A lot of it is you really had to be in front of the problems as best as you can. You had to communicate with the lenders because they were upset, and you weren’t meeting your debt coverage ratio, you weren’t able to pay into reserves. I mean, it was a tough time for everybody.

Rod Khleif: How did you deal with your tenants? Because you know, we’re coming in to another one here before too long. Anybody that thinks otherwise is kidding themselves.

Glenn Gonzales: You bet.

Rod Khleif: So let’s… Actually, I’m sorry to derail the direction we were going. I wanna go back there but can we take a few minutes, and just talk about some other things you did…

Glenn Gonzales: Yeah. Yeah.

Rod Khleif: That helped your properties get through it.

Glenn Gonzales: Yeah. Part of it is you have to look at the shadow market. You got to figure out, where all these tenants are going? Why your vacancies are going down, and why the rents are dropping into all the competitors?

You can narrow it down to the floor plan, people were moving out of our one bedrooms, and those are dropping. I was like, “Why are they moving out of that particular unit type? Well that’s because they were going into the two bedrooms, or three bedrooms, as roommates. Some were moving back with mom and dad.

So I realized, if that’s what people want, then I can probably raise my rents a little bit on the two bedrooms but I’m gonna have to give it up on the one bedrooms… You really have to get pretty analytical.

Rod Khleif: Okay.

Glenn Gonzales: You really have to be in front of your competitors. If they’re offering concessions, and let’s call it, two weeks free rent, honestly, you better be offering three weeks free rent.

Rod Khleif: Right.

Glenn Gonzales: I know that’s painful to hear but if the renters are out there shopping your property, and your neighbor’s property, and the one across the street, yours better look better than theirs.

At the end of the day, you have to outperform your competitors on all levels. The product…

Rod Khleif: It’s that granular…

Glenn Gonzales: Yes, sir.

Rod Khleif: It’s got to look better. It’s got to be priced better. Did you do anything to aid tenant retention through this? Were there any strategies there?

Glenn Gonzales: There were, but at the end of the day, we’d be doing the basics. We would do the carpet cleans, or renewal concessions… Come in and renew, and we won’t raise your rent. We’ll even give you an extra month, if you just renew.

Rod Khleif: Okay.

Glenn Gonzales: We had to get pretty creative in the new move-ins we were asking, sometimes it was two months free rent. People are like, “How do you do that?”

Rod Khleif: Wow.

Glenn Gonzales: Well, gosh, we give them one upfront, and give the other one…

Rod Khleif: And then on the last one…

Glenn Gonzales: On the last…

Rod Khleif: Yeah.

Glenn Gonzales: Month 12.

Rod Khleif: Yeah.

Glenn Gonzales: So they had to stick around for it. You get really creative, but it really comes down to your people, and your product, and your pricing. You’ve got to be in front of it if you’re reactive, I guarantee, your neighbor already got that lease.

If you’re slow, and if you’re not in front of it, you’re gonna get your butt kicked at the end of the day.

Rod Khleif: Yeah. You really added a ton of value with all that. Because this, it’s gonna happen. Who knows how big it’s gonna be. If it’s gonna… Let’s hope it’s not as bad as 08 or 09.

Glenn Gonzales: Yeah.

Rod Khleif: But there’s gonna be a pullback there.

Glenn Gonzales: And you know what, it’s gonna be something that we’re not expecting.

Rod Khleif: Yeah. Right.

Glenn Gonzales: You think about our history, we’ve gone through cycles with occupancies in multifamily and commercial, but really they’re all different. The dot-com kinda of blew up, and people were losing jobs. Then we got over built at one point.

Rod Khleif: Sure.

Glenn Gonzales: That really affected us. We’ve had some, the Savings and Loan Era.

Rod Khleif: Sure.

Glenn Gonzales: Where all of that kind of changed.

Rod Khleif: I remember it well, yeah.

Glenn Gonzales: Yeah, then the last one that we had where it was the mortgage industry.

Rod Khleif: Right.

Glenn Gonzales: The homes, they just started trickling, and the bank, and the investors, and then everything just tightened up and people were getting laid off.

Rod Khleif: Right.

Glenn Gonzales: But I don’t know what the next one’s gonna be.

Rod Khleif: Yeah.

Glenn Gonzales: It’s not gonna be the same one that we’ve experienced before.

Rod Khleif: I’ll tell you. I’ll tell you, without going too far down the rabbit hole. I will tell you, my biggest fear is the national debt situation. If that happens, it’s gonna be a big one.

Glenn Gonzales: Yeah.

Rod Khleif: Maybe it’ll just be a mild correction. Let’s just knock on wood, and hope for that.

Glenn Gonzales: Yeah. But Rod, I’m in agreement with you. It’s gonna be the banking industry, in my opinion. People’s savings accounts, 401s… I don’t know. I’m not gonna go down that rabbit hole… [overlap talk]

Rod Khleif: Yeah. Yeah. Yeah.

Glenn Gonzales: But it’s gonna be something…

Rod Khleif: I’m glad you added some value, because listen, if you buy right, and you’ve got enough of a debt… a decent enough debt service coverage ratio that you can handle some contraction, and you’re proactive, I think that’s the piece I want my listeners to get.

Be proactive when it happens, so that you’re in front of your competition. That added a lot of value. Let’s go back to team…

Glenn Gonzales: Sure.

Rod Khleif: We were talking about team and how’d you make this happen? What are the pieces you had in your core nucleus, because obviously, you’ve got some good players with you; I’m sure.

Glenn Gonzales: You know what, that’s a great question. I’m gonna kinda answer it over a 30-year span.

Rod Khleif: Okay.

Glenn Gonzales: That’s how long I’ve been doing this now.

Rod Khleif: Okay.

Glenn Gonzales: For my maintenance guy experience to today. That is people are more important than things. People are more important than money. When you treat people well, people will treat you well. That has proven to be very fruitful for me in my life, because I remember, giving broker’s referral fees for giving me some business.

I’ve called lenders on the phone and said, “Hey, we’re struggling, I want to get in front of this.” They said, “You know, Glenn, I’m glad you called because most people call when it’s too late.” I never got defensive, if things weren’t going well, I didn’t blame other people. I just dealt with it. And I realized that you don’t ever burn a bridge in this industry, ever, ever, ever.

Rod Khleif: Oh, no. It’s a small industry. Much smaller than what people think.

Glenn Gonzales: Our vendors talk to each other. Our lenders talk to each other. Investors, and family offices that are on opposite ends of the United States, they all go to the same conferences.

Rod Khleif: Right.

Glenn Gonzales: A lot of them, it’s our competitors, they sit at the bar at the end of the night, and they chat. You don’t want them to chat negatively about you. You want them to say, “This guy made us money”, or, “This guy found us a great deal”, or, “He was easy to work with”.

If you’re gonna be successful in this industry, you be good to people, and they’ll be good to you… Anyway…

Rod Khleif: Listen, that applies to every industry. That applies to life in general. And I couldn’t agree more. You really are the sum total of the team you have with you, and the people that you surround yourself with. How you treat those people is indicative of how successful you’re gonna be.

Now, let me ask, if you don’t mind, I’d like to get a little more granular. Do you do all your own analysis? Do you have people that help you? Do you have… Is there like some… your core nucleus? Are there some other people involved? Or is it primarily just you?

Glenn Gonzales: No. Let me… It’s a team, for sure. But let me back up a little bit.

Rod Khleif: Okay.

Glenn Gonzales: Back to that, the team that you asked earlier because I have a thought I wanna share with that.

Rod Khleif: Okay.

Glenn Gonzales: I talked to you a little bit about me being a maintenance man. Having a strong manager and a strong maintenance guy, that team… I spent a lot of time bringing the managers together for managers’ meeting, but I also invited the maintenance supervisors, to attend the same training as my managers.

I got down to the nitty-gritty with these managers. I was teaching them how to calculate value, based on NOI and cap rates.

Rod Khleif: Wow.

Glenn Gonzales: My managers… [overlap talk]

Rod Khleif: That’s adding value to them. That’s great.

Glenn Gonzales: I taught them how to read and analyze a financial statement because I figured, if they knew what I was looking at to determine value, and they understood it, and their maintenance guy understood it, I’ve got stronger people.

The other thing is I would also make sure that I compensated them well, and they had 401 Ks and health benefits. I really wanted the site people… I mean, you think about, they’re all mini CEOs.

Rod Khleif: Sure.

Glenn Gonzales: You hand the keys to a manager and maintenance guy on a $30 million deal. They’re running the company.

Rod Khleif: Yeah.

Glenn Gonzales: I spent a lot of time building this team. So my team got really good at property management. We were really good. So I started getting calls from people, “Hey, can you fix my apartment complex?… Can you do this? Can you do that?” And it was kinda fun. It was great.

I realized I’ve got this cool team, well… There was my second apartment complex was a lender that was getting ready to foreclose on a property in 2009, 2010… No… No, it was past that, it was 2013, excuse me.

Rod Khleif: Okay.

Glenn Gonzales: They weren’t doing so well. Over the course of a year, this lender says, “Glenn, what’s it gonna do? What will it take to fix it?” So I went out there at the end of 2014ish I think, somewhere there. I might have the dates a little wrong.

Rod Khleif: Okay. That’s alright.

Glenn Gonzales: But the lender asked, and I told him, “It would take about a million bucks to fix this problem.” And he said, “I don’t wanna put any more money in this. We’re losing money. And I said, “Well, I’ll put a million dollars in it if you sell it to me.”

[00:20:00]

Glenn Gonzales: He’s says, “What are you talking about?” I said, ”If you’re gonna foreclose, what are you gonna do with it?” He’s like, “We don’t wanna be in the business of owning apartments or lenders.” I said, ”Why don’t you foreclose, I’ll go to the steps with you.”

Rod Khleif: Right.

Glenn Gonzales: “You foreclose. Carry a note back and put that thing in my name, and I’ll give you a million bucks to hold in escrow, and I’ll fix all the problems.” He’s like, “That would be perfect. Then it doesn’t have to hit our balance sheet. You know what you’re doing, we don’t. Do you have a million bucks?” Guess what my answer was…

Rod Khleif: Well you said…

Glenn Gonzales: “No, I don’t have a million bucks.”

Rod Khleif: Oh, you said no. [chuckles]

Glenn Gonzales: No, I don’t have a million bucks.

Rod Khleif: I figured you’d say yes and you’d go find it [chuckles]

Glenn Gonzales: No. Well, I’m a little more transparent than that.

Rod Khleif: [chuckles]

Glenn Gonzales: I said, “No, but I could find it”, ‘cause it’s a good deal. And we did exactly that, Rod. We bought that deal. We owned it for a year. We gave the lender a million bucks. We put it in escrow account. We fixed all the problems. As we were fixing them, he was releasing money to us.

Rod Khleif: Okay. Okay. So he was holding it for you to fix. Got it.

Glenn Gonzales: He was holding my renovation money.

Rod Khleif: Okay.

Glenn Gonzales: That was part of the deal here. “If you’re gonna do all these, I better make sure I’m turning the note back.”

Rod Khleif: It get’s done. Right.

Glenn Gonzales: I’m gonna hold your money, you’re gonna do the work and I’ll pay for it.

Rod Khleif: Right.

Glenn Gonzales: So I give him the money. They put it in escrow. We did it. We sold that deal in one year and one day. I gave the investors back, a 48% return.

Rod Khleif: Wow.

Glenn Gonzales: On their money. That was deal number two, I did.

Rod Khleif: Yeah. It’s nice. That’s nice.

Glenn Gonzales: Yeah. Yeah. That was what launched me three and a half years ago.

Rod Khleif: Sure. That would do it.

Glenn Gonzales: Yeah.

Rod Khleif: When word of that kind of return gets out there, they’re clamoring to throw money at you.

Glenn Gonzales: Yeah.

Rod Khleif: That’s a screaming deal. That’s obviously not the everyday deal. But that’s fantastic.

Glenn Gonzales: Sure.

Rod Khleif: I wanna ask…

Glenn Gonzales: Going back to the team…

Rod Khleif: Okay.

Glenn Gonzales: I had a partner… Sorry. To interrupt…

Rod Khleif: No.

Glenn Gonzales: I had a partner that I… We were 50/50 partners. I had 30 years experience, I knew multifamily. He had credit, and liquidity, which I didn’t have.

If you gonna go big on this, you got to have good credit, and you got to have some liquidity. So he and I got together, my experience and his liquidity. He and I raised money, and from that point, there was three and a half years to go. We did that one deal in San Antonio. It was a 200-unit deal. We now own 4,000. We came up with a system.

So go ahead and ask away and I’ll tell you…[overlap talk]

Rod Khleif: No. No, that’s great. I wanna go back to this system but I wanna just hammer something home that you talked about, just because my listeners need to hear it. That is, those are the three pieces guys, you need… Actually it’s not even credit so much. It’s really net worth, liquidity, and experience to go out and get agency debt. Those are the three big things they look at.

They’re gonna look at credit, as well, but it’s really the liquidity, the net worth, and the experience are the three things that are the big hot buttons to go out, and get debt. Basically you brought the experience, and your partner brought the other two components. Was that accurate?

Glenn Gonzales: Right. That is accurate.

Rod Khleif: Perfect. That’s a match made in heaven, guys. Anytime you can match up like that, that’s the way to do it.

Glenn Gonzales: Yeah. Yep. And it’s worked very, very well for he and I. The other component there is you need to find a good deal.

Rod Khleif: Well, sure.

Glenn Gonzales: I mean, if there’s a deal, your experience will tell you whether it’s a good deal or bad deal.

Rod Khleif: Sure.

Glenn Gonzales: Unfortunately, a lot of people get into deals, and they think, “Oh, it’s a great deal. We’re gonna renovate some units, and it’ll cost us $4,000 and we’re gonna raise the rent two or 300 bucks a unit. Only to find out that it’ll actually cost you 6,000 or 7,000 to renovate that unit, and in all actuality, you can only get a $100, $150 rent increase.

Rod Khleif: Right.

Glenn Gonzales: That hurts, right? That’s lack of experience, and that’s not really doing your homework.

Rod Khleif: Not doing the homework, right.

Glenn Gonzales: Yeah. A lot of sponsors and developers, they’re gonna kid themselves. They start drinking the Kool-Aid, and they start realizing that…

Rod Khleif: Especially today.

Glenn Gonzales: Yeah.

Rod Khleif: Especially right now in this hot market. Yeah.

Glenn Gonzales: Yeah. You can’t kid yourself. If you can’t really get that rent bump, you either do less of the renovation, or you underwrite your deal, and it’s got to have the debt coverage ratio on realistic rent expectations.

Rod Khleif: What’s your minimum debt service coverage ratio that you’ll even consider on a deal at day one? I mean obviously…

Glenn Gonzales: 1.25…

Rod Khleif: Yeah, the bank wants 1.25. So yours is the same.

Glenn Gonzales: Yeah. Yeah.

Rod Khleif: Okay, fair enough. Fair enough. Yeah, it’s funny. I was just talking… I just interviewed Albert Berriz again. He was my first interview on this show. He was gracious enough to let me interview him again. He owns McKinley Corporation. They, I don’t know 20,000 plus apartments; just a super, super guy.

He said today they’re reviewing 100 deals to find one. Right now. It’s that…[overlap talk]

Glenn Gonzales: Yeah. I would agree with that. Yeah.

Rod Khleif: Yeah. Okay.

Glenn Gonzales: Let me share with you one other experience though…

Rod Khleif: Okay. Sure.

Glenn Gonzales: I bought eight apartment complexes from one guy, his name was Ed, and he was getting ready to retire. Because of my relationship that I had with Ed, he kept my number for years.

One day, I called him, “If you ever want to sell your company, you call me.” And he’s like, “I will never retire… da-da-da-da…” The guy turned 80 years old, and guess who he called?

Rod Khleif: No kidding.

Glenn Gonzales: Me. And he’s like, “I got eight apartment complexes, 1500 units in Dallas.” I said, “I’ll take them. I’ll take them.” And we did. We started crowd funding, and we started… I didn’t start crowd funding. I started using Crowdfunder.

Rod Khleif: Sure. Sure. So you did 506(c) syndications and you were able to advertise, or you actually crowd funded? I mean you actually did small investors.

Glenn Gonzales: No, I went to Crowdfunders, who did the crowdfunding. No, I didn’t do it. Yeah.

Rod Khleif: Okay.

Glenn Gonzales: They were a single entity investor.

Rod Khleif: Got it. Got it.

Glenn Gonzales: They went and raised the money, but it’s the way to go these days. Anyway… That was a relationship that took years to develop, and I finally got the call, and he worked with me. We spread the eight apartment complexes out over every… We did it over six months.

Rod Khleif: No kidding.

Glenn Gonzales: He was in no hurry. He was a good seller. We were a good buyer. We closed them one at a time, boom, boom, boom, and created value on all of them.

Rod Khleif: Yeah, that’s the way to do it.

Glenn Gonzales: Relationships…

Rod Khleif: How did you start that relationship? How did you find that guy to start that? Was it in an Apartment Association meeting? What sorts of…

Glenn Gonzales: Honestly?

Rod Khleif: Yeah.

Glenn Gonzales: Go backwards in time. Remember the story I told you about the guy that bought that note?

Rod Khleif: Right.

Glenn Gonzales: For 60 cents on the dollar? That was the guy.

Rod Khleif: No kidding. Wow.

Glenn Gonzales: So from whatever year that was…

Rod Khleif: Wow.

Glenn Gonzales: What did I say it was? 2007?… 2008?

Rod Khleif: Yeah. It was right before the crash. Start of the crash…

Glenn Gonzales: To 2013.

Rod Khleif: No kidding.

Glenn Gonzales: Yeah.

Rod Khleif: And so you just maintained contact with him.

Glenn Gonzales: Sure.

Rod Khleif: Reached out to him occasionally. Guys, this is a big clue. This is what you call a clue. This is a relationship business. Hands down, every aspect of this business is relationships, between investors, partners, brokers, lenders, property managers, and certainly other owners; as evidenced by this.

In fact, my friend Maureen Miles who’s got a couple of thousand units in Atlanta, same thing. She connected with an elderly seller that had multiple apartment complexes, and was able to take down a bunch of them. That’s just totally relationship driven. Awesome.

Glenn Gonzales: Yeah.

Rod Khleif: Let me ask you this, you started to chat about system. Where were you going with that?

Glenn Gonzales: I built a little team. We got really good at what we are doing, and I was using the relationships that I’d built over the years to find good deals. We hired asset managers to work with us. We hired underwriters to work with us because just like your friend, in the McKinley group, they’re underwriting 100 deals. I can’t do that by myself.

Rod Khleif: Right.

Glenn Gonzales: Nor do I will kid myself and say that I’m really good at that.

Rod Khleif: Right.

Glenn Gonzales: But there are some really smart people that are very, very analytical. They might not have the best social skills ‘cause some of them have tremendous social skills, you’ll never know. But there’s really smart people out there that understand underwriting and numbers, far better than I do.

I understand the concept but when you get packaged up a good deal, and it looks good on paper, and it’s presented well, and it makes sense, investors will invest with you.

Rod Khleif: So done. Yeah. You can sell it.

Glenn Gonzales: Yeah.

Rod Khleif: You can sell it to investors all day long. And guys, you’ve heard, and it’s funny that you allude to this, because they hear me on the show here all the time. If you’re the analytical person, align yourself with an outgoing person. If you’re the outgoing person make sure you get some analytical help because you need both to succeed in this business.

You’ve got to have somebody that’s okay to do the relationships, and you’ve got to study the deals. You’ve got to evaluate them so you don’t make a mistake. Sometimes one person is both, and that’s a home run but I can’t tell you how many times I’ve met teams of, for example, two people where one is one, and one is the other. It’s the fantastic match for this business. Would you agree?

Glenn Gonzales: I would totally agree with that. When you partner with people, you just got to… I’ve had successful partnerships, and unsuccessful partnerships with individuals.

Rod Khleif: Same here.

Glenn Gonzales: Yeah. You probably have too. You kinda have to make sure that your interests are aligned. As we got bigger and bigger, it was probably very obvious to my business partner what my weaknesses are. ‘Cause when we started with one or two deals, everybody’s happy, but when you have 20 deals, boy, my weaknesses probably really came out, running a business, and so did my partner’s.

Rod Khleif: Sure.

Glenn Gonzales: And that was very rough. We got in bed with some investor’s family offices that were very, very, very demanding, and made it very difficult for us to even focus on asset management because they were paper heavy, and unorganized, and made it very cumbersome to work with.

Rod Khleif: Interesting.

Glenn Gonzales: We’ve even had investors where we’re sure we liked their money but we also made a business decision like, “Dude, they’re too much work.” We can… [overlap talk]

Rod Khleif: And that happens. I will tell you, no question. I’m glad you brought that up. Guys, sometimes, you need to say no. If you’re out there looking for investors and…

[00:30:00]

Rod Khleif: They’re beating you up on the fact that you take an acquisition fee, or they’re nitpicking you to death, sometimes it’s best to just say, “I don’t think it’s a good fit.” And keep moving.

Glenn Gonzales: Yeah. You mentioned having components of putting a good deal together in our industry, multifamily. You got brokers that are gonna send you deals. Some of those brokers are really, really good. They could sell ice to an Eskimo. Right?

Rod Khleif: Right.

Glenn Gonzales: So you got to be very careful. We also have lenders they’re like, “I’ll lend you some money.” But those lenders may be hard moneylenders, and they may over lend. They may be what we call, a loan to own. They know there’s no way you’re gonna beat your debt service, and they’re gonna get your deal when you’re not looking.

Then you have equity. That equity to come in, and either they’re good equity partners, or they’re not. You ask around and get referrals.

Rod Khleif: Sure. This is a referral business, guys. You ask everybody about everybody. And that’s the best way to find the best. If you’re going to a new city, you talk to the property managers, “Who are the great brokers?” You talk to the brokers, “Who are the great property managers?” “Who are great loan brokers? Local lending institutions that are doing deals, and you get referrals. Great tip there.

Back to system, were you going somewhere with that?

Glenn Gonzales: Yeah. I was just gonna say that putting these really smart people that are really good at underwriting, and our asset managers…

Rod Khleif: Yeah. Yeah. Yeah…

Glenn Gonzales: Altogether, I’ve got a team right now where when we got large enough… I was using a third-party property management for a while. We have our own now but we were farming that out because it didn’t make sense, to manage I ourselves.

Rod Khleif: Sure.

Glenn Gonzales: Because we were too small, and I remember we…

Rod Khleif: Can I stop… Let me stop you there. I’m sorry…

Glenn Gonzales: Yeah.

Rod Khleif: Guys, I’ve talked to many of you on the phone, and you think that I’m a huge proponent for self-management, and I am. But in the scenario that Glenn is talking about right here, you do not want to be dealing with toilets when you’re in acquisition mode, and you’re too small a deal with it.

You deal with it when you have enough infrastructure, enough revenue, where you can manage, afford to pay somebody what you’re paying a manager to… I’m sorry, a property management company to manage your managers. When you can bring it in-house, then obviously, you’re gonna do the best job possible but only in that situation.

I don’t recommend you manage right out of the gate. I recommend that while you’re in acquisition mode, or still small and growing, that you don’t, and just like Glenn did here. I wanted to clear that up publicly.

Glenn Gonzales: That’s a great thing. I’d like to add on to that.

Rod Khleif: Please.

Glenn Gonzales: We used two fee management companies, when we were smaller. We bought one deal; we gave it to one management company. Bought another deal, gave it to another. That was my strategy. We wanted to see which one…

Rod Khleif: Sure, to see who’s best, sure.

Glenn Gonzales: Yeah, who’s best. But you learn a lot about the best practices. All management companies do some things very, very well, and then some things not so well. But when you have… You can learn what’s good and bad for multiple properties. Then we made the decision that when we hit 30, or 3,000, or 3500 units, we were gonna pull the trigger. And we did.

That’s when we jumped from farming out the fee management to slowly bring it in-house. We brought them on in a very systematic way…

Rod Khleif: That’s brilliant. Thank you for interjecting that. That’s the other reason you shouldn’t manage yourself, because you need to learn the business. And that’s how you learn it. Watching someone else do it properly.

I love the fact that you pick two of them. That’s exactly how I would do it as well if I was starting over; to get different perspectives. Because you’re right, they do it differently. Some are good at some things, and some are better at other things, so awesome. Awesome tip.

When you target a property, now, let’s say you’ve identified a property. I’m sure you’ve got so many great broker relationships at this point that you see a lot of off-market deals because of your inventory, and the fact that you can pull the trigger.

When your in under contract, and you’re gonna do due diligence… Well actually, before you get under contract, are there any tricks you’re using, because it’s such a competitive landscape right now, are there any tricks you’re using to set yourself apart from other people bidding?

Glenn Gonzales: Yeah. That’s a great question.

Rod Khleif: Thank you.

Glenn Gonzales: Every sponsor, probably has their own strategy. My strategy was if I go look at a deal, and I could tell what it needs, ‘cause I’ve been doing it for so long. I could look around, I’d basically understand what it’s gonna take to fix that property, or I can envision where we’re going. Because I’ve done it for so many years, I’d bid it out. I kinda have an idea of the dollar figure.

Rod Khleif: Sure.

Glenn Gonzales: So I’ll go into it kinda with my eyes wide open. Including, if I see foundation, I can notice a building that needs foundation work. Or I can look at roofs and realize they’re halfway… Or I’m not an expert at roofing but I could sure tell if

Rod Khleif: You could see about how much life they’ve got.

Glenn Gonzales: Yes, roughly.

Rod Khleif: Parking lots, and everything. Right.

Glenn Gonzales: Yeah. All that kind of stuff.

Rod Khleif: Right.

Glenn Gonzales: My strategy is this, if I put it under contract, I’m not gonna re-trade the seller. I’m not gonna not close. For the longest, longest time, until Harvey hit, all the deals that we had put under contract, we closed on time, and we didn’t re-trade the sellers. Because of that, the whole broker world…

Rod Khleif: Knew that.

Glenn Gonzales: Knew that. Right. So they wanted me to buy their deal. Why? Because I didn’t re-trade their seller, even if something came up. I told the broker that, “Hey if it’s not major, major, I’m not gonna sweat the small stuff.”

But I’m telling you, there’s a lot of sponsors that will come in there and like, “ I want you to eat 50 grand here, 30 grand here… When you’re getting ready to close the deal.” Sellers hate that stuff.

Rod Khleif: Right.

Glenn Gonzales: I’m a seller. I’ve sold a bunch of deals. I hate it when people do it to me. So I’m figuring, what comes around goes around. I wanna be a good buyer. I want to close on time, and I don’t wanna re-trade a seller. That’s my strategy.

Rod Khleif: So you’ve got that reputation already. What would you tell somebody that hasn’t had your track record? Not necessary…I don’t mean… Let me rephrase that. Maybe he doesn’t have… Hasn’t taken down more than a property. Maybe hasn’t even done their first property. What would you suggest to somebody like that to try to be competitive? Is there a way to be competitive?

Glenn Gonzales: Yeah. Go find somebody that is that good.

Rod Khleif: There you go.

Glenn Gonzales: Go and ask his opinion.

Rod Khleif: That is the answer, guys.

Glenn Gonzales: Yeah. Go ask somebody.

Rod Khleif: That is the answer. Go connect with somebody that’s done it, that’s got the reputation that can sponsor you. That is great. I hear things like, “Let your money go hard immediately, or let your money go hard very fast to be competitive.” What are your thoughts on that?

Glenn Gonzales: Yeah, in today’s environment, in my market where I’m buying in Texas, and the surrounding areas, yes, I have to put up a non-refundable earnest money. Often times…

Rod Khleif: Right out of the gate.

Glenn Gonzales: Right out on day one.

Rod Khleif: Okay.

Glenn Gonzales: Now, your attorneys that draft your purchase & sale agreements hopefully were protecting that non-refundable earnest money. For example, if a storm hits that apartment complex, and that’s out of your control, and the seller’s control, and it does a lot of damage, and the seller can’t perform, the question you’re gonna ask your attorney is, is that money really non-refundable?

Rod Khleif: Right.

Glenn Gonzales: Because if it’s non-refundable, depends on the language of the contract, it could be non-refundable subject to da-da-da-dah.

Rod Khleif: Right. And it probably needs to be, almost specially, when you’re thinking of like Houston and you know…

Glenn Gonzales: Yeah. Yeah.

Rod Khleif: You’re right at ground zero for the…[overlap talk]

Glenn Gonzales: A named storm.

Rod Khleif: You’re right.

Glenn Gonzales: If a named storm hits that property and that… These owner, myself included, sometimes we don’t have enough insurance for named storms.

Rod Khleif: Right.

Glenn Gonzales: We’ve good insurance on non-named storms, but if one who’s named, and it hit your property, your deductable could be 2% of the value of the property.

Rod Khleif: Right. It’s a big deal.

Glenn Gonzales: Hundreds and hundreds of thousands of dollars, right?

Rod Khleif: Right.

Glenn Gonzales: So I learned that lesson the hard way. [chuckles]

Rod Khleif: Wow. Wow.

Glenn Gonzales: Along the same lines, when you’re buying a deal, if there’s no language in there that protects you that if the seller doesn’t maintain his occupancy, or continue to get units made ready along the way, you’re gonna close on that deal and you’re gonna walk on. They’re gonna give you the keys, “Congratulations, you just bought an apartment complex.“ You got 40 vacant units, and none of them are ready.”

Do you know how expensive that is?

Rod Khleif: Yeah. That could be… If it’s your first deal, it could be you’re last deal.

Glenn Gonzales: Yeah, ‘cause the seller may have checked out along the way.

Rod Khleif: Right.

Glenn Gonzales: Or the management company may say, “We’re selling. We’re out of here.”

Rod Khleif: Right.

Glenn Gonzales: You just don’t know.

Rod Khleif: Did you ever get referrals from your management companies?

Glenn Gonzales: All the time.

Rod Khleif: Yeah. See. See.

Glenn Gonzales: Yeah. Yeah.

Rod Khleif: See, guys, do you hear that? I talk about this, and people don’t believe it. It’s a way to get deals. It’s a fantastic way to get deals.

Glenn Gonzales: Yeah.

Rod Khleif: To get started… Let me ask you this, if you were gonna tell that 20 year old Glenn, what you know now, what might you tell him that you’d do differently.

Glenn Gonzales: Be very… I would ask more questions about who I partner with. Who is gonna invest with me? Because that’s been a struggle for me. It’s caused me to lose sleep.

I would probably not carry a note back to an inexperienced borrower.

[chuckles]

Glenn Gonzales: ‘Cause I lost a lot of money in that. But part of that was the economy, and part of it was just lack of experience.

Rod Khleif: Sure.

Glenn Gonzales: But at the end of the day, I think back about the hard jobs that I’ve had, and been laid off from certain companies, and all of that stuff. All that was very painful education. But I don’t think I would trade it, Rod.

Rod Khleif: No. No. I wouldn’t either. And I’ve gone through… People know my story. I lost $50million in a week. I wouldn’t trade that either, frankly, because it was such an incredible learning experience.

Let’s say, you were coaching somebody about this business. What would you make sure they learned in the first 90 days?

Glenn Gonzales: I would probably say, “Let me look over your shoulder, and let me see if what you’re looking at is really a good deal.” I would ask questions. How much is it going to cost? Are you gonna raise your rents? Who’s gonna manage it? What’s their reputation?

[00:40:00]

Glenn Gonzales: Who’s gonna invest? What’s your debt coverage? Which lender are you going to?

All the basics, and all, and I would just, as a coach, I’d say, “Call me, and just ask…” I mean, I give free coaching all the time. You know why? Because that guy that sold me the 44 units, John, he sat across from me at a board meeting for the Apartment Association, where we’re all dedicating our time.

I went to him. Smart enough, when I was younger, I did my first deal. I ask questions to somebody been down that before.

Rod Khleif: Right.

Glenn Gonzales: He told me like, “Those two deals you asked me to look at weren’t the best deals.” He’s like, “Let me help you, and here’s a deal that you’ll probably be more successful.” That’s why.

Rod Khleif: Yeah. That’s really cool. That warms my heart, man. I love hearing that.

Glenn Gonzales: I’ll tell you his name, John Gibson. [chuckles]

Rod Khleif: John Gidson. Okay. Well the whole world knows who he is now.

Glenn Gonzales: In Tacoma, Washington.

Rod Khleif: Alright. So Glenn, people can reach you at Napa-Ventures.com… Let me ask you, one last question. You’re obviously very driven. You’re very motivated, look where you started and where you are now. Where do you attribute that to? Where does the drive come from? What’s pushing you?

Glenn Gonzales: That’s a great question… One, I think, my wife and kids, my wife one time, after I was managing for all these years she said, “You’re really making a lot of people a lot of money. Why don’t you do for yourself?”

That’s a great question, other than I feel like, “Well, gosh honey, you got to have money to make money.” But that’s not necessarily true. You got to know what you’re doing, and you got to have… [overlap talk]

Rod Khleif: You got to know what you’re doing and be willing to go out and ask people.

Glenn Gonzales: Yeah.

Rod Khleif: If you do that, I mean, like you, I did my first deal—sweat… Well, I did tens of millions of dollars worth of deals when I was in my 20s. Similar to your first deal, where you had the guys put up the money. You got a third a third of the deal. I did 50/50, a big way in Denver… Same, same, same, I did…

Glenn Gonzales: Yeah.

Rod Khleif: You do the work, you bring them the deal, you split the profits, everybody’s happy.

Glenn Gonzales: Yeah.

Rod Khleif: You’ve got to have the knowledge base. You got to study this business. You can’t dabble in it. Right?

Glenn Gonzales: Yup. But I think the answer to your question is, right now it doesn’t feel like work to me, Rod.

Rod Khleif: Yeah.

Glenn Gonzales: I wake up, and I really… If I can find a cool deal, or if I can step back and look at a whole property that we renovated. It’s got cool colors on the outside, the parking lot’s clean, the tenant base is better… I look back at that, and I’m like, “That’s awesome to behold. That’s fantastic.”

Rod Khleif: Yeah. You got to love it, guys. If you don’t love it, learn to love it, or go do something else.

Glenn Gonzales: Yeah.

Rod Khleif: If you’re thinking about this business, associate pleasure with it. Like I tell people, equate it to hunting for buried treasure ‘cause that’s really what it is, but you’ve got to love it, because if you love it, you be passionate, you’ll inspire people to invest with you, and you’ll enjoy life. And that’s what life’s about. Again if that’s not the case for multifamily investing, go find something else because that’s the secret to success.

Thanks for being on the show my friend. You’ve really added a ton of value. It’s a real pleasure to get to know you.

Glenn Gonzales: Rod, I thoroughly loved it.

Rod Khleif: Awesome.

Glenn Gonzales: I wanna be like your last friend. I wanna call you in another 10 years, when I’m at 20,000 units. And you’re like I remember… [overlap talk] [chuckles]

Rod Khleif: And you will be brother. You will be. Alright. Well, thanks again for being on the show.

Glenn Gonzales: Alright. You have a great day.

Rod Khleif: Alright. You too bud, take care.

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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.

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