Ep #233 – Ivan Barratt – From 1 Duplex to a $100M Multifamily Portfolio

What you will learn:

Here’s some of what you will learn:

The journey to 10,000 units starts with one
When on-site management makes sense
Understanding HUD Financing
Understanding Bips
Importance of a HUD Originator
How to get started with HUD Financing
HUD & ADA Compliance
Exit Strategies
Understanding how to Finance Improvments
The Importance of Mastermind Groups
The Value of Coaches

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Full Transcript Below:

Ep # 233 – Ivan Barratt – From 1 Duplex to a $100M Multifamily Portfolio

Rod Khleif: I know you’re gonna get tremendous value from the gentleman we’re interviewing today. His name is Ivan Barratt, and he’s a multifamily owner. He’s raised over $24 million in equity, has acquired over 1800 units, and manages over $100 million portfolio.

We’re gonna dig into how he got from where he was to where he is now. Excited to have you on the show, buddy.

Ivan Barratt: Rod, it’s great to be here. It’s finally… So honored to be on your show specifically. Love listening to the show. Love the way that you go about adding value to your audience. I just can’t be more excited to be here.

Rod Khleif: That’s very kind of you buddy. Very, very kind of you. Thank you.

You started to mention to me before we started recording that you started with a duplex. I wanna go there, ‘cause that’s gonna really inspire my listeners; those that haven’t bought anything yet, as you to how you got started.

I know you’re in Indianapolis, which I think is a fantastic market but let’s… and you started in 2010, good timing. Alright, let’s dig in, give us your history.

Ivan Barratt: Sure. I’ll go back a little farther, I grew up, my dad’s an attorney. He owned a bunch of rental properties, growing up. The running joke was, between my brother and I, we couldn’t report him to Child Services in those days for making us do manual labor all summer long.

Rod Khleif: [chuckles]

Ivan Barratt: His grand plan was achieved. First, we got a disdain for manual labor, and motivation it to get higher education. And also, it planted a real estate bug in me and I thought, “Gosh, Rod, why would you want a real job?” Right? Why wouldn’t you just wanna own a bunch of real estate, sit back and watch the rent checks come in?

Well, fast forward. Spoiler alert, it is a real job. But I do enjoy it… Got out of college in 2001, bought a rental property, house hacked on an FHA loan, and got my foot in the door with a real estate developer here in Indianapolis.

Basically said, “I’ll work for free, I just want to learn from you. Pay me if I sell something.” And that worked out really well, except that the only thing that I bought for the next eight years was an expensive condo that I couldn’t afford…

Got really neck deep in the development game, and then as you know, everything fell off a cliff, and it’s 2010, I am $200,000 in debt. I fondly refer to it now as my grad school tuition, but it was just me being a young real estate cowboy, not knowing…

Rod Khleif: You don’t wanna compare notes on that conversation.

[laughter]

Rod Khleif: Anyway…

Ivan Barratt: Through the soul-searching, I said, “I’ve always wanted to be a big apartment owner.” I’ve been talking about it for long enough, I said, “I’ve got this two-unit deal, the journey to 10,000 units or more, starts with one more deal. I’m not gonna worry about how I get my first big deal, I’m just gonna go out and do a deal.

My next several units were small multifamily projects that I figured out to creatively finance with hard money. I was going out…

Rod Khleif: So you bought them with hard money, and then you refinanced out of the hard money…

Ivan Barratt: Yeah. It wasn’t the BRRRR method yet, but that’s basically what I did. Buying the worst property I could find in a great location, and doing a top-down renovation, renting those to young professionals, and then refinancing out of that hard money.

Rod Khleif: Okay. And these were all in Indie?

Ivan Barratt: All in Indianapolis, in a little developing neighborhood as the city was starting to gentrify and…

Rod Khleif: Oh, fantastic opportunities when there’s gentrification.

Ivan Barratt: Yeah.

Rod Khleif: So you got on the front end of some of that. Awesome. Okay.

Ivan Barratt: Back then, a lot of people asked me if I was just crazy.

Rod Khleif: Right. Oh yeah, they will. When there’s crack addicts walking down the street, but you got to go over a couple of blocks to see what’s happening, and that it’s coming your direction.

Yeah, I tell the story sometimes, I had a property in Denver; pre-gentrification. I bought for 80 grand, a four-plex that right now, today, each one of those units is probably in the 800,000 range.

Ivan Barratt: Wow.

Rod Khleif: Definitely six to 800,000 so yeah, I mean anytime you can get ahead of a gentrification is always a win… So you bought duplexes? Is that what you… What types of… did you buy houses? Plexes?

Ivan Barratt: I did. I got a couple of duplexes, then I got a triplex. The only single-family I ever bought was that silly condo I overpaid for, and then the homes that my wife, and my family, and I have lived in.

Rod Khleif: Right.

Ivan Barratt: I started off, no deal was too small, as long as it was two or more units. My first big apartment deal was a bank owned six-unit… [overlap talk]

Rod Khleif: And when was this? When was this bank owned deal?

Ivan Barratt: That was late 10, early 11. Roughly.

Rod Khleif: Yeah. It was still something… an after… What’s the… A result of the crash, that’s why it was bank owned.

Ivan Barratt: Oh, yeah.

Rod Khleif: Did they finance it for you?

Ivan Barratt: No. No. The only financing that a little guy like me, that was way in over his head in debt could get was hard money.

Rod Khleif: Okay.

Ivan Barratt: I found a great hard moneylender, had a business plan, convinced them that I was a good vet, and that’s how I really got started.

In addition to that, I was managing anything I could get my hands on, as a third party manager, that I didn’t have to carry a gun. So there, I was managing single-family homes that couldn’t be sold, condos that couldn’t be sold, and slowly started growing a management company all by myself, in my spare bedroom.

My only employee was a part-time bookkeeper that came in once a month.

Rod Khleif: Wow. That is a thankless job.

Ivan Barratt: [chuckles]

Rod Khleif: Ask me how I know… Property management, especially when you’re dealing with small owners like that, the only time the phone rings is when someone’s unhappy, either the owner or the tenant.

So this was just a way for you to generate revenue while you were continuing to build your real estate portfolio?

Ivan Barratt: Yeah. I thought, “Okay, I can get revenue coming in every month. I can scale from that somehow, some way. I didn’t know how I was gonna do it yet, but that was a way to get recurring cash flow in.

I was doing some brokerage on the side, as a real estate broker. Basically just trying to get funds in the door until I was able to take the brokerage and put it aside, and do management full time. Got up to 70 units, most of which were not mine.

And then, started having to figure out how to hire and fire, hire and fire, fire and fire…

Rod Khleif: Yeah, which is still going on, I’m sure. Yeah, no, it’s a tough business. But I mean, look at you, $100 million in assets now. I assume you focused more on larger properties now.

Ivan Barratt: We do. We’ve got a 100 million in assets that we have some sort of ownership in. Another few hundred units… Actually, gosh, getting closer to 600 units that we manage as a third-party.

Rod Khleif: Okay.

Ivan Barratt: We really started paring down our one to four family clients.

Rod Khleif: Okay.

Ivan Barratt: Especially the ones that don’t see eye to eye on our standards for how we want to maintain those resident relationships, and maintain our brand. Now, we’ve got two teams that focus on what we call scattered-site multifamily here in the city, which is anything that’s technically an apartment building, five units or more, up to about 60 units.

Then everything else we own is site managed where you’ve got two to eight, right now, staff on site, five to six days a week.

Rod Khleif: 60 is the break point, typically.

Ivan Barratt: Yeah.

Rod Khleif: Anything over 60 units, you can have on-site staff. Under 60 units… It really depends on the class of the property, and the level of income that’s coming in as to what you could have on location.

Ivan Barratt: Yeah. We’ve got a great scattered-site team, and they perform office hours at various properties, depending on what the owner goals are, and aligning what the owner wants.

Rod Khleif: I like that terminology, scattered-site. I had not heard of that before. That’s, basically, you’ve got people effectively managing more than one property, and they spend time at each property.

Just as a side… I don’t wanna go too far down this road, do you have your own maintenance staff or do you use subs for the maintenance?

Ivan Barratt: One of the toughest things that…

Rod Khleif: For the scattered-site. I’m sorry, forgive me. Just for the scattered-site. I know on the 60 plus units you can typically have an onsite person but…

Ivan Barratt: Of course. All out maintenance is in-house now. One of the toughest hills to climb was getting that maintenance team running on all cylinders.

Rod Khleif: Yeah.

Ivan Barratt: I was able to recruit a guy from another big company, and he is just the right guy for the job. He’s our director of maintenance and construction.

He’s got a great right-hand man under him, and they run scattered-site maintenance. Nine out of every 10 work orders, we’re handling in-house.

Rod Khleif: Okay.

Ivan Barratt: Treat those guys like gold, Rod.

Rod Khleif: Oh yeah, I know. That’s why I asked the question. I’ve had guys with me for literally 30 years.

Ivan Barratt: Wow.

Rod Khleif: Built a crib for my daughter, when she was born… and yeah, yeah… So no… You value those particular relationships very, very highly because they’re so difficult to find…

Ivan Barratt: Agreed.

Rod Khleif: Let’s talk about… let’s shift gears for a minute. Because I know that you are an expert in HUD Financing…

[00:10:01]

Rod Khleif: You’ve done HUD deals, which I haven’t really talked about much on this show. I would love to dig in to that to educate my listeners about the advantages of aspiring to do deals, and bring in that financing. I’d love to dig in on that.

Ivan Barratt: Yeah.

Rod Khleif: And talk about your experience with it and then have you speak to why you love that financing. I’d like to hear you articulate that, so please let’s go down there.

Ivan Barratt: Absolutely. With HUD, it is a love-hate relationship, but mostly love.

Rod Khleif: Right.

Ivan Barratt: My DNA is greatly impacted by what happened in the Great Recession. Coming out of that, I started looking at all the large multifamily players in my space, and quickly realized that they were using agency in some of the largest one, in many cases, were using this HUD debt because you get extremely high leverage, 85%.

Rod Khleif: Right.

Ivan Barratt: You can get 30 to 40 year amortization,

Rod Khleif: Fixed.

Ivan Barratt: And it’s fixed.

Rod Khleif: Right. I mean it’s fantastic debt.

Ivan Barratt: Yeah, and right now, it’s about 75 to sometimes 100 BPS below even agency debt.

Rod Khleif: Right.

Ivan Barratt: A lot of brain damage comes with that.

Rod Khleif: Right. By the way, guys, BPS is a percentage of a percentage. Okay. Could you explain BPS to my listeners so they understand what you mean? Some of them are…

Ivan Barratt: Absolutely. So 100 BPS or 100 bases points is 1%. Usually, when we’re talking to financiers on the debt side, we’re talking… Everybody runs in BPS now, so “Hey, today, the rate might be 465”, or it might be, “A hundred BPS over a given index.”

Rod Khleif: Right.

Ivan Barratt: That sort of thing. It’s just shorthand in the…

Rod Khleif: Right, so at 465, that would be 4.65% there’d be 65 BPS above four. Just try to help my listeners understand what that means because that is a very common nomenclature.

Basically, HUD financing is almost a full percentage below agency debt sometimes, which is just extraordinary. Guys, when we’re talking about millions of dollars, that’s a big number in savings. Alright, keep going.

Ivan Barratt: Oh, yeah. Now, here’s the kicker, Rod. If you can put together the right business plan, on a value add opportunity, they will finance 85% loan to value on purchase price, reserves, and your renovation budget.

Rod Khleif: Wow.

Ivan Barratt: All in.

Rod Khleif: Wow. That’s on a purchase.

Ivan Barratt: On a purchase, or if you’re re-capitalizing an existing deal. Absolutely.

Rod Khleif: Okay. Let’s do this one at a time. Now, on a purchase, I know that HUD financing takes a lot longer than agency debt. What’s the typical timeline?

Ivan Barratt: Typically, you’re gonna be looking at six to nine months. We’ve got a couple done maybe a little bit faster than that.

Rod Khleif: Right.

Ivan Barratt: But typically, you can expect six to nine months.

Rod Khleif: Six to nine months, so on a purchase, you’re not gonna get a seller to stand still that long.

Ivan Barratt: We’re pretty lucky, and there’s plenty of guys that do this, or platforms that do this. We’ve got a local HUD originator, and servicer, which when you get into HUD… I’m a big fan of having a servicer that you know you can pick up the phone.

Rod Khleif: Mm-hmm.

Ivan Barratt: They also own a bank, and will provide me bridge financing. So they’ll underwrite me to HUD standards, which they’ve been doing for 25 years.

Rod Khleif: Wow.

[overlap talk]

Rod Khleif: Initially, right out of the gate, they’ll underwrite you to the HUD standards.

Ivan Barratt: Right.

Rod Khleif: And provide you with bridge financing in advance for the HUD financing.

Ivan Barratt: Exactly… Yeah, otherwise, we’d never get the deal done.

Rod Khleif: Right. You’d never get a deal done. I mean, geez, you’re hard pressed to get 30 days due diligence today. Alright, so that’s a purchase.

What are the details of a refinance, as it relates to loan to value, and these other things?

Ivan Barratt: Well, I really wanna drive home on purchase…

Rod Khleif: Okay.

Ivan Barratt: You can show them your business plan, and if they buy into your value, say, “Rod, I’m gonna put in five grand a door, and gonna raise rents 75 bucks a door the next two years.”

Rod Khleif: Same thing you do for agency debt.

Ivan Barratt: Right.

Rod Khleif: I mean, you paint that same picture. It’s no different. Okay.

Ivan Barratt: Exactly. But HUD will loan me the money to execute that.

Rod Khleif: Wow. Wow. Wow. I’m amazed more people aren’t doing it.

Ivan Barratt: Well, let’s talk about the hate side of the love-hate relationship.

Rod Khleif: Well, yeah, I guess it’s the upfront fees, for one thing. I’m sure.

Ivan Barratt: Well, it’s expensive so you definitely want to be north of 150, preferably two to 300-unit deal.

Rod Khleif: Okay.

Ivan Barratt: There’s just a lot of brain damage. You’ll never gonna know everything going on, and you just got to have a great team. A great originator, and just trust in the process…

Rod Khleif: Okay.

Ivan Barratt: But HUD, there’s just a lot more compliance that they kill more trees. There’s more paperwork than any other lender out there.

Rod Khleif: Right.

Ivan Barratt: And they don’t just give you the money and say, “Good luck Rod, have a great 35 years.”

Rod Khleif: Oh, yeah. They stay involved. Right.

Ivan Barratt: They stay highly involved. We’re turning in financials sometimes, on a monthly basis. Every HUD property gets an outside audit every year.

Rod Khleif: Oh, wow. Okay.

Ivan Barratt: And they also audit the buildings physically, every three years. If you don’t get a high enough score, they come back every year until you improve.

Rod Khleif: Wow.

Ivan Barratt: The bottom line though is, and what really made sense for us is we said, “Hey, we wanna be the best operators we can be.” Right? We don’t wanna screw this up. HUD prevents you from screwing up a deal.

Rod Khleif: Right.

Ivan Barratt: You have to have the core cash on hand. You can only distribute it twice a year, instead of four times or monthly.

Rod Khleif: Oh, to investors.

Ivan Barratt: Correct. Yep.

Rod Khleif: Okay. Interesting.

Ivan Barratt: Once in January, and once in July. Bi-annual, that’s all they allow.

Rod Khleif: Okay. Interesting. Okay.

Ivan Barratt: Yeah. And you’re really in it for the long haul.

Rod Khleif: What are the fees, as oppose to agency debt? Speak to the differences there.

Ivan Barratt: Yeah, I’d say on average, you’re gonna be paying one and a half to two times in fees. Probably, when it’s all said and done, when you add up legal, and everything else.

Rod Khleif: Okay. I have a lot of listeners that are in the hundred-unit range, if someone were thinking, “Hey, I’d love to give HUD a try, what suggestions would you give them?

I mean, obviously, find a great originator. Align with someone who has done it before, maybe? I don’t know.

Ivan Barratt: Yes. That’s a great question, and a great point. I get a lot of calls…

Rod Khleif: We’ve got some stuff in the background. Let’s wait just a sec…

Ivan Barratt: Pardon the background noise. I’m in the city here in Indianapolis.

Rod Khleif: No worries… Okay. The question was, for someone that hasn’t done a HUD deal yet, what advice would you give them?

Ivan Barratt: I get calls all the time from people that say they can do HUD debt, and really, they’re just a mortgage broker.

Rod Khleif: Right.

Ivan Barratt: I think there’s some out there that are probably good, but for me, I need to go directly to an originator servicer that’s been doing it a long time. Because the last thing you want to happen is you get halfway down the aisle and you realize it’s a bad marriage.

.

Rod Khleif: Right. Okay. So you got to find that person, and then again…

Ivan Barratt: Then you got to eat your humble pie, and say, “Hey, who’s the attorney you want me to use? Who’s the accounting firm that you want me to use? How can I be a great borrower client, an easy borrower client to you?”

Rod Khleif: That’s a good way to position it. Absolutely. Okay. Alright. So six to nine months, you can go bridge to HUD if you’ve got the right relationships. It’s just realizing that it doesn’t end after the closing. You’re joined at the hip and I’m sure that there are frustrating things that happen, ‘cause you’re dealing with people, and some things are subjective as it relates to their perception of what you’re doing. I’m sure you’ve got plenty of stories like that.

But to me, 30 to 40 year fixed debt… Doesn’t get any… And at better interest rates you can get on agency, non-recourse, of course…

Ivan Barratt: Yeah.

Rod Khleif: It’s non-recourse, so I mean…

Ivan Barratt: You can still recap; you can still refinance depending on the interest rate you want to go to. You can pay, typically, 25 BPS more and have a prepayment go to zero after five.

Rod Khleif: Wow.

Ivan Barratt: Or, typically, it’s a 10 year deal more similar to an agency term on the bridge debt.

Rod Khleif: 10 years of defeasance, and prepayment penalties.

Ivan Barratt: It’s typically a step down of points, no defeasance.

Rod Khleif: Step down of points. Okay. Right. What he means by that, guys, is like it might be three points the first two years, or two, and then one… It’s probably higher than that actually, initially.

Ivan Barratt: It’s higher.

Rod Khleif: Yeah. It’s steps five-four-three-two- one things, something like that but… Oh, I just have a thought and I lost it.

Ivan Barratt: What I do wanna speak to the management side of it too.

Rod Khleif: Okay.

Ivan Barratt: You definitely need an experience management company on HUD deals. I wouldn’t recommend… [overlap talk]

Rod Khleif: One that’s done HUD deals because of the reporting involved. I would take it.

Ivan Barratt: The reporting, and also, you got these repairs between the bridge loans and actually closing on the HUD loan. You typically have anywhere from two to $500,000 of what HUD calls, critical repairs that you have to fix before they finance you.

[00:20:03]

Ivan Barratt: Sidewalk repair, sometimes, some ADA compliance, switching out doorknobs from… [overlap talk]

Rod Khleif: What sorts of things would you do ADA compliance? That’s disability, guys, if you don’t recognize that term. What sorts? Like handrails, and ramps and things like that?

Ivan Barratt: Handrails. They’ll make you upgrade to the new handicapped standard curb ramp instead of just piling up some asphalt next to the curb. You’ve got to do the new curbs with the knobs on them.

Rod Khleif: Okay.

Ivan Barratt: All ground floor units have to be handicapped accessible, wheelchair… [overlap talk]

Rod Khleif: Oh, wow! That’s huge.

Ivan Barratt: Yeah.

Rod Khleif: That’s huge.

Ivan Barratt: You can work around some of that if that project is built prior to 91-92, so if you’re taking an older C asset, you can avoid a lot of that.

Rod Khleif: They will do C assets then, ‘cause I thought they were pickier than that.

Ivan Barratt: Oh, no. I’m glad you asked. We love using HUD financing on older buildings.

Rod Khleif: Okay.

Ivan Barratt: Again, one trick that we had, can’t take credit for it, it was having a good originator, good servicer, is we front-loaded our reserve on a late 60s vintage property, and by putting more money than HUD requires, into my reserves, I can finance that again on 85%. So if I want to put 500 grand away, we’re talking an extra 150,000 of equity.

Rod Khleif: Wow. And they’ll finance it. That’s unbelievable.

Ivan Barratt: 50 to 75,000 of equity, 150 would be on a million.

Rod Khleif: Right. That’s fantastic. Let me ask you this, what’s the exit strategy? Let’s say that you’ve got an asset that you really feel like the need to sell, and you’re past your prepayment phase. What are some exit strategies? Can you get supplemental loans behind them or do you have to sell?

Ivan Barratt: HUD does not allow for supplementals.

Rod Khleif: Okay.

Ivan Barratt: The exits that we like, that we aim for… We’re long-term holders of real estate. My goal is to be a 20,000-unit firm. So our goal is to refinance those and continue to hold.

Rod Khleif: Okay.

Ivan Barratt: That’s another reason why I like HUD, you don’t have that maturity risk so if we’re in the middle of the next Great Recession, or a correction, and we don’t want to refi or sell, we can just continue to cash flow.

Rod Khleif: Right.

Ivan Barratt: Those HUD debt, those HUD loans are also assumable. We’ve done it ourselves. We’ve assumed loans from other shorter term… [overlap talk]

Rod Khleif: What’s that process like?

Ivan Barratt: Brutal.

Rod Khleif: You say you’ve assumed… Yeah, I’m sure it’s brutal. That’s why I asked. So you’ve assumed somebody else’s HUD loan, okay.

Ivan Barratt: I would say, assuming a HUD loan is about three times harder than a new HUD loan.

Rod Khleif: Wow.

Ivan Barratt: But if you could get the process down, there’s some intrinsic value there. And one day, if you wanna sell, there might be some intrinsic value for the next guy, to assume that debt low leverage.

Rod Khleif: Okay.

Ivan Barratt: We as, I’m sure you do too Rod, we like multiple exit strategies. But again, after that year five, which is typically what we’re doing, were gonna pay those basis points upfront, and get a five year burn. That way, five years from now, if the sale is the right thing to do from a sale-hold-refinance analysis, we are poised…

Rod Khleif: Yeah. There’s no more prepayment penalty and you’re good to roll. Okay.

Ivan Barratt: Exactly.

Rod Khleif: Okay. That’s been very, very illuminating on the whole HUD front because, like I’ve said, we’ve never really talked about in on the show. I’m really glad that we had you on, if nothing else, just for that… [overlap talk]

Ivan Barratt: I’m getting too much credit for it. My team, it really gets the brunt of it. They’re the ones that make this thing work. I would have been found dead along the side of the road if it wasn’t for them…

Rod Khleif: You can tell you’re a good leader by what you’re saying right there.

Ivan Barratt: Thank you. I worked hard to be the dumbest guy in the room.

Rod Khleif: Yeah, that’s leadership. Really, really pleased that you’re adding value there as well. Let me ask you this, knowing what you know… How old are you? May I ask that?

Ivan Barratt: Sure. I am still technically in my 30s, until next month, I turn 40.

Rod Khleif: Alright, so 39. Alright. So what would you tell your 20-year old self, knowing what you know now about this business? What would you do differently?

Ivan Barratt: Oh, man, gosh… I talked to young entrepreneurs on a regular basis. I love at least setting a few meetings a month for young real estate investors, trying to educate them and add some value. Maybe so they don’t pay as much tuition as I did.

The one thing that I would stress to anyone out there that’s ready to take the leap is after you do it, you’re always gonna kick yourself for not doing it sooner. [overlap talk]

Rod Khleif: Yeah. I hear that every time.

Ivan Barratt: I would like to go back to that young man. He probably wouldn’t have gone through development. He probably would have started buying real properties using the BRRRR method, right out of college.

Rod Khleif: Right.

Ivan Barratt: And in those eight years of getting distracted by sexy speculation, might have been avoided.

Rod Khleif: Right… What do you think is the most common reason that people fail in this business?

Ivan Barratt: Oh, gosh… I’ve had some pretty good failures myself…

Rod Khleif: Let’s talk about some of your seminars.

Ivan Barratt: Yeah.

Rod Khleif: I call them seminars. My 08 was a $50 million seminar for me. I’ve had plenty of other ones as well… Yeah. Yeah.

Ivan Barratt: Thanks for making me feel better. [overlap talk]

Rod Khleif: I told you, you wouldn’t wanna compare memos with me.

Ivan Barratt: [chuckles]

Rod Khleif: On your experience with that measly little condo. [chuckles]

Ivan Barratt: Yeah. I paid a lot of tuition. I think I could trace every mistake back to my own arrogance…

Rod Khleif: Yeah. Same here, actually.

Ivan Barratt: An eagerness to do something… A 30-unit deal after that six-unit project I told you about almost sank me.

Rod Khleif: Why? Specifically, what happened?

Ivan Barratt: Yeah. I seem to be talking a lot about that lately, but basically, I just paid too much for a project, I got too far out ahead of the path of development. I learned the hard way that being too early is pretty much like being wrong. Thought, another mortal sin in multifamily, as you know, is thinking that you’re going to make improvements out of cash flow versus…

Rod Khleif: Oh, yeah. In fact, let me just hammer that one home.

Ivan Barratt: Please do.

Rod Khleif: Guys, do not think that you’re gonna buy a property and make the improvements from the cash flow. Do not go there. You raise the money in advance. Otherwise, don’t do the deal.

I hear that time and time again. Okay. Thank you.

Ivan Barratt: Yeah, mortal sin. I learned that one the hard way, and I hope that I can educate others.

Rod Khleif: Yeah.

Ivan Barratt: Not having enough reserves on hand, as you know, turnover costs…

Rod Khleif: It’s the highest cost you have.

Ivan Barratt: If you don’t have your turnover costs right, you’re screwed.

Rod Khleif: Yeah.

Ivan Barratt: Yeah.

Rod Khleif: No question.

Ivan Barratt: And now we’re in this market where everybody wants to jump into real estate, there’s still great opportunities to find, I think the best lesson is discipline. Right now, we’re probably looking at 200 deals just to get one done.

Rod Khleif: Right. Yeah. I had Albert Berriz on the show, I think at one time he had 30,000 units, I think he’s down to 17,000 now, but they’re all his. They’re not even syndicated.

Ivan Barratt: Wow.

Rod Khleif: He’s told me, his team is carefully dissecting at least a hundred deals right now to get one. You just doubled the number.

Ivan Barratt: Yeah.

Rod Khleif: It is what it is. And it’s not gonna stay that way

Ivan Barratt: No.

Rod Khleif: Those of you that are brand new, it’s a great time to learn the business. Great time to study deals, great time to make relationships, and immerse yourself in this thing, but lots of mistakes are being made right now.

I see on Facebook, smiling faces in front of apartment complexes that probably shouldn’t have been taken down. Those will be the ones that end up with the banks here in a few years.

Ivan Barratt: Yeah. You and I will be buying those next.

Rod Khleif: Yes, sir. I’d like to talk for a second about mentorship and coaching, because we touched on it before we started recording. You’re in the Entrepreneur Organization, EO, which I’ve heard great things about.

Ivan Barratt: Yeah.

Rod Khleif: It’s an incredible mastermind. I’ve got a great friend in Atlanta… In fact, my little niece is in one as well, in an EO group. Speak to your opinion of masterminds.

Ivan Barratt: Going back to that arrogance, the other side of the spectrum, probably the most transformational piece for growing my real estate business, has been forcing myself to be with a group of peers on a regular basis, that hold me accountable, and get me out of the weeds and get me back up to looking at the big picture.

In one of my masterminds, I’m the only real estate guy. I’ve got so much value from learning from other entrepreneurs in other industries… It’s getting out of my own box.

Rod Khleif: That’s a fantastic way to learn. Yeah, a fantastic way to learn because you’re… I’m sorry I interrupted that was…

Ivan Barratt: No, not at all.

Rod Khleif: I’m notorious for it. That’s all the hate mail I get. It’s interrupting.

Ivan Barratt: [chuckles] You do.

Rod Khleif: But I get excited, and I have to talk… That dynamic is one of my favorite dynamics, because what’s fascinating about it is you could get insights about marketing methodologies, or…

[00:30:00]

Ivan Barratt: Communication.

Rod Khleif: Operations, communications. Yeah. That you’re never gonna hear in your own sector. Even in your own…

Ivan Barratt: Hey, if you keep this one to yourself, I’ll give you one of my biggest game changers on the operating side.

Rod Khleif: Well, you are being recorded right now so…

[laughter]

Ivan Barratt: Oh, just between you and me and your audience.

Rod Khleif: Alright. Alright… A few million. Okay, go ahead.

Ivan Barratt: For all the entrepreneurs out there, one of the biggest game changers for us a few years ago was we virtually eliminated internal email by migrating over to Slack, which is an internal communication platform.

Rod Khleif: Yeah. We use Asana, very similar. Yeah, Slack is awesome.

Ivan Barratt: Yeah.

Rod Khleif: Heard great things about it. Okay, so that’s a good one.

Ivan Barratt: And to tie a bow on to the EO, sort of, way of thinking, I’ve now got a coach in every aspect of my life. It’s been such a valuable transformation in my business. By having a business coach in addition to a couple of masterminds that I’m in.

Rod Khleif: Yeah.

Ivan Barratt: That I get various value out of. I’ve got a coach, physically, so that I train hard, which gives me more energy. My wife and I have a marriage coach that can help us deal with, how do we win at marriage, and parenthood as well.

I would really stress though that it only works if you bring value to others, especially in the mastermind group. If you’re just coming to… [overlap talk]

Rod Khleif: You have to go to give, not just to get. Yeah, no question… I have a mastermind myself, and like you, I’m a member of three of them. I pay 65 grand a year right now for the three that I’m in. Two of them, have made me three or four million a piece, just from those connections.

Ivan Barratt: Oh, easy. Easy.

Rod Khleif: One of our mantras in my mastermind, in fact, I’m having the first real formal event, August 2nd and 3rd at the Bellagio in Vegas. They’ll be a couple of billion in assets there or more. And that’s what I tell every person that’s coming, “Don’t come just to get, you come to give.”

Napoleon Hill in “Think and Grow Rich” talks about the power of the mastermind. When any two minds get together, they create a third, almost intangible mind that is greater than the sum of the parts. So when you get a group of motivated, empowering, passionate people in a room and compare notes, I mean it’s extraordinary what you can accomplish.

Yeah, I’m really glad you that you brought it up before we started recording because I wanted to touch on this. Guys, if you don’t have mentor or coach on this business, get one. It doesn’t have to be me. Get somebody to help you, locally, even in your own marketplace, that you can look over their shoulder… But you wanna…

Again, even in that relationship, you wanna add value to them, not just be a taker, be a giver. Like you said, you worked for some guy in the development business. I’m sure that that contributed to your knowledge base, and your success.

Ivan Barratt: Immensely.

Rod Khleif: Right.

Ivan Barratt: I never would have gotten my foot in the door if I hadn’t agreed to work for free first.

Rod Khleif: Right. There you go. There you go, and a lot of guys start that way; men and women start that way. It’s a fantastic way to start, yeah.

Guys, get a coach, get a mentor. Immerse yourself in this business, and by the way, let me do a little plug. I’ve got my August three day boot camp in Chicago, August 24th, 25th and 26th. Tickets are as low as 200 bucks for three days. It’s a no-brainer.

If you can make it, come see me. No outside speaker trying to sell you stuff. It’s just me. Go to MultifamilyBootCamp.com and come see me. I’ll see if I can talk Ivan into coming in and being a panelist maybe, ‘cause you’re not that far from Chicago. We’ll see.

Ivan Barratt: True.

Rod Khleif: So see what your schedule looks like… Well, listen my friend, it’s been very eye-opening. You’ve added a tremendous amount of value, very grateful for you being on the show.

Leave my listeners, the ones that wanna do this business, the ones that know they want more out of life, that deserve more out of life, that wanna create that financial freedom for their family, leave them one last little bit of wisdom, please.

Ivan Barratt: Don’t give up. Be persistent.

Rod Khleif: That’s it.

Ivan Barratt: I guess if I can give two nuggets, I would say, I’m a huge fan of sticking with one model. Focus on it intently. Shoot with that rifle not with that shotgun, and do one…

Rod Khleif: Be a specialist. Yeah.

Ivan Barratt: Do one model very, very well.

Rod Khleif: I love it… I’d never give up. Look at this, I’m holding up my sign on my desk. Winston Churchill, “Never, never, never give up.”

Ivan Barratt: I love it. This has been so much fun hanging out with you, Rod.

Rod Khleif: Yeah. Right… And Napoleon Hill in “Think and Grow Rich” says that exact same thing that you just said. “Be a specialist, not a generalist.” You need to specialize. It’s the exact same thing you just said, “Shoot with a rifle instead of a shotgun.”

Ivan Barratt: Absolutely.

Rod Khleif: Thanks my friend. You really added a ton of value. I’m excited to stay in touch with you.

Ivan Barratt: Likewise, Rod. Thank you for having me. It’s been an honor.

Rod Khleif: Awesome. Take care.

Ivan Barratt: You too.

[music]

Thank you for listening to the Lifetime Cash Flow Through Real Estate Investing Podcast. If you’ve enjoyed the show, please take a minute to visit iTunes and leave your comments. For more resources or to connect with us further, please visit our website at rodkhleif.com. Tune in next week for our next show.

[music]

Any investment opportunities mentioned on this podcast are limited to accredited investors. Any investments will only be made with proper disclosure and subscription documentation, and subject to all applicable laws.

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