Ep #289 – Phil Capron – Multifamily Student Goes From 2 to 200 doors in One Year
Here is some of what you will learn:
Creative problem solving
Power of networking
Creative improvements on a D+ property
Understanding where the seller is in their loan cycle
Bringing in key players to shore up weaknesses
Full Transcript Below:
David Osborn – Author of Wealth Can’t Wait on Best Asset Class To Own (Ep281)
Rod: Welcome to another edition of “How to Build Lifetime Cash Flow through Real Estate Investing”. I’m Rod Khleif and I’m thrilled you’re here. And we got a treat today we’re interviewing a gentleman named Phil Capron and Phil is a podcast listener has been since day one and he has been to my one of my boot camps and has gone from two units to once he closes on what he has under contract right now 200 units in a year. So Phil started out in in the Navy in the Special Warfare unit. He was a combatant in the Special Warfare unit and actually practice with Seals and I’m sure he’s got a lot of stories that wish we had time to go into there but got his real estate license while he was in the Navy, started flipping houses and then just you know got excited about multifamily and here we are. Phil, welcome to show brother!
Phil: Hey Rod so happy to be here. Thank you so much for the invitation. It’s an honor sir
Rod: oh thank you buddy that kind of you to say that. So you know let’s go back and talk about your progression in this business and maybe embellish on some of that, that it was kind of a pathetic attempt at your bio because it’s a very important thank you for your service man that’s really very very cool but you know let’s talk about how you got rolling and how you got to where you’re at
Phil: Excellent and it was an honor. So you know I’m very privileged to have been able to do what I did within the Navy which was a really cool job jumping out of planes, shooting big guns, you know going on fast boats and being sneaky generally you know. So it was an honor and I got to serve a long side of some real-life heroes I’m not but I definitely know a few one of you one of which is uh is in your group Erik Upchurch you served with 160th Special Operations Aviation Regiment who you know got a lot more north notoriety to the public eye when they inserted members of SEAL Team six to kill Osama bin Laden.
Rod: Right all right yeah Erik’s a great guy. We just we just helped him get his book on to teach vets how to House hack so that’s yeah definitely I don’t usually endorse stuff but that was a no-brainer for me and I actually wrote the foreword for the book
Phil: I know and it’s on order I can’t wait I can’t wait to read it and definitely got a soft spot for the same stuff that Eric does and super cool for you to help him out with that and like I said it was an honor you know but it sort of served as a springboard to get into real estate because you know I always academically understood where real estate was a good thing to get into and through the VA loan which offers service members and eligible spouses to obtain a primary residence at zero down when I arrived at my duty station here in Virginia. I said you know I’m gonna I’m gonna buy a house that has more space than I need that I can rent to my less entrepreneurial you know brothers and pay for my mortgage. So you know when I bought that house a four bedroom three and a half baths a block from the beach I had rules I mean no shoes in the house you know do your dishes everything was to be just so. But one night after a couple cocktails as Navy gentlemen sometimes do when that uh that a cup of Papa John’s garlic sauce you know the kind when wishing across my dining room and exploded on the wall I said all hope here is lost and that’s taught me an important lesson about real estate. It’s just property let your home be your home but if you’re looking at something as an investment you have to take a little bit of the emotion out of it and you know it’s one small step that you know led me into investing it’s realizing that it’s just a vehicle here you know everything’s replaceable that’s what insurance is for those sorts of things
Rod: Right no question. And just about anything can be fixed with a check there’s no reason to get emotional or upset or. So you got your real estate license while you’re in the Navy, you did some flipping, you started getting excited about multifamily
Phil; Yeah and actually kind of fell into it by accident you know done about forty flips. So I certainly know enough to be dangerous but like you tell everyone every week and every guest says you know like a broken record here things just a job you can make some good income but as soon as you stop it stops and you know as an agent I took a friend of mine to a 14 unit complex. It was let’s see four duplexes a triplex and three single families on two and a half acres and you know he my friend owns about thirty units so I figured you know he could buy this and I could make 27 or 30 grand on the commission and that would be a pretty good result for me. So the list price was 925 he offered 825 they’re hovering around 850 couldn’t make a deal the agent calls and says hey he’ll do owner financing. So I relay that to my guy he says I’ve my own money I don’t care as a man. He doesn’t care he said well do you know anyone that would buy it with owner financing said I’ve been studying this multifamily thing academically for years would he sell it to me he said bring a hundred grand and yeah he’ll sell to you. So I called one of my Navy buddies who partner with me on all my early flips and said hey can I can I get a hundred grand we’ll split this thing 50/50 he said absolutely. So we do our due diligence I do a poor job of it so anyone that is about to buy something definitely listen to rods stories about due diligence because I did about everything wrong you know so we’re two weeks from closing I get a call from California. Hey man I’m not comfortable doing something so long-term I’m out. That’s not good ten days out for a hundred grand. So I go meet with the seller who’s 80 years old on his dock bring him a cup of coffee said sir I apologize but I’m not able to make good on my contract I don’t want you to be damaged. So the earnest money is yours put it back on the market I’m gonna go you know get the money but if you find someone else in the meantime that can give you identical terms I don’t want you to be damaged and I feel horrible. He says well what can you do young fella and I have 20 grand in the bank so I’m supposed to say something below 20 but I got nervous so I said I could do 40 he sticks out his paw he said okay well close next week as planned. Thank good what did I just do so I get on the horn to you know a bunch of guys and I’m essentially asking for a signature loan because I can’t attach it to the property and friends called me back and all of a sudden I have thirty five thousand. So I said well if I’m raising money oh I left out an important part. So the owner financing is eight hundred and ten thousand at six percent on a 30-year am without so much as a credit check how can you beat that? and then he’s going to give me an owner second four sixty thousand at 0% for a year
Phil: Picks up if I don’t pay it off and then I need to bring the forty right. So my buddies are willing to give me thirty five so I end up closing on a nine hundred and ten thousand dollar fourteen unit piece of property for five thousand seventy four dollars and one cent of my own money
Rod: Look at the that, you guys all heard that. That’s what’s possible if you you know you bonded with the seller, you were honorable, you were you know you you took the time to lay it out, you solved a problem, the owner didn’t, he didn’t need the cash, he didn’t want to pay the taxes, he’s able to forestall taxes only pay taxes on what he receives every year and you solved the problem that’s a beautiful story love that one awesome
Phil: I left out an important part too
Phil: So you know before my original partner backed out I said what if the tenants all move out in mutiny? what if something happens with the pipes? I need some money in an account like you have. So what do you want? I said how about the first six months no interest so the first seven months I brought in over forty five thousand dollars in cash flow. I paid off my buddies and then some in my little $5000 investment that’s like a 900% ROI
Rod: Fantastic fantastic, so you had no interest the first six months, you were able to literally make everybody whole, get your people paid back and you’re in this deal for nothing and wow what a sweetheart deal fantastic. So was what was next? I mean I know you were what event did you come to?
Rod: You went to the Chicago event.
Phil: It was so much fun
Rod: I’m really glad to hear it. Talk about your experience of it cuz you know I’ve got another one coming up in Tampa January 18th, 19th, and 20th, and just tell people what you thought of it the event
Phil: Well I will see you in Tampa then
Rod: You will?
Phil: Yeah so a couple of my buddies from a mastermind group that I’m a part of said hey Phil you know we know you’re in a multi-family you know we should go to this thing. I said I’ve been listening to Rod for years yeah absolutely I’m in. So the three of us go. Its my buddy Rory who you may remember in my buddy Bret. So the three of us are sitting there in the front row and you know I just went through the course book. I actually have it right here you know like I go through it from time to time because if nothing else, the goal setting that you let us through, you know I’m going through some of the things that are in there and I said hey you know in the next year I’m gonna go from 125 units which is what I had when I walked in Chicago to 325 units and you know you encouraged me to expand my backyard. I was looking hyperlocal just in Virginia Beach and Norfolk where I live you said you know anything within two or three hours is your backyard know it, love it, establish relationships, go forth and prosper kind of thing and so I got back. And then I started searching in Richmond Virginia the state capital big MSA and uh you know ended up contracting 82 units less than a month later and so when that closes by the end of the year I’ll be a little over 200 units yeah well on my way to my 325 unit goal that I set with you and there’s a few other things in there that uh you know are also coming to fruition the power of goal setting and I know, you know I’m not the only one that that you know got out of there and did things my buddy Rory is doing a KP roll with this indication through folks that he met at your event. Gregg is doing an LP roll with a couple of different people as far as I know and some great folks that I met there that are part of your warriors program, Trina and Wesley are most likely going to come in and shore up my team on Richmond, you know it’s about who you know your network is your net worth, if you’re sitting there on the couch and you’re like well I don’t know people. Get to an event, get to a REIA, you know find a mentor, find a coach, and do something you know because if you don’t do anything how can you expect any kind of results
Rod: You’re going to be the same place you are now a year from now, five years from now, ten years from now, and how does that look yeah guys if you can make it to my event, it’s a no-brainer it’s me teaching for three days, a lot of high energy would you agree?
Phil: Super high energy I mean there were long days but even afterwards you know people still had had time to hold quarter on the bar and it’s just uh it’s just like one big happy family. I can’t you know name everybody that I’ve met there that we’re now like friends. We talk every weekend even if they’re you know in San Diego or Houston or
Rod: Yeah one of the biggest advantages of this thing is is the networking which I you know which we which we promote and actually have people do whether they want to or not and you know and what you think of the training in the panels?
Phil: It was top-notch. I’ve been to I’ve been to several events you know real estate centric and then you know with different masterminds and in groups I’m a part of more unlike the self development side or the whole person side you know real estate specific and I mean like look at look at the book
Rod: We’re you know in iTunes so people cant see yah
Phil: Oh yeah most people aren’t watching sorry I forgot about that but I mean it’s it’s more comprehensive than a lot of college textbooks and you know if you know nothing you could just go through the PlayBook that you’ve written and do something
Rod: Right right. Well a lot of people do, you know and you know that I push the psychology of success in my events because really 80 to 90 percent is actually taking action on what you learn, it’s the you know the people listen, people tune in to this to the interviews for the technical side of things but candidly that’s 20% of it. You have to have to go out and do it which you’ve done and but a lot of people you know get caught in analysis paralysis or there they have limiting beliefs or they’re fearful and we hit that as well. I’m super excited that you’re doing as well as you’re doing so you know what this uh let’s drill down on one of these units let’s talk about the one you have under contract. So it’s, was it eighty two units?
Phil: Eighty-two unites. It’s a split site so it’s a eighteen in one place and a sixty-four okay
Rod: How far away from each other?
Phil: Running about five miles so okay you know my you know speaking about taking action it’s kind of funny we talked about this before we start rolling you know the guest that you have on this podcast or like out of this world you know
Rod: Thank you
Phil: Elrod , I’m going to his event next weekend in San Diego.
Phil: Rock Thomas is a good mentor of mine. David Osborne as a big mentor of mine. Those guys were the things that they’ve done are you know they’re way way way way ahead of me. They’ve had a little longer but something that I’m doing and that I hope even if one person listens to me and said well that freakin guy can do it surely I can. Something right
Rod: Just do it like Nike says just do it you just got to take action. By the way guys if you’re interested in Tampa it’s rodsbootcamp.com I would love to see you there. So that eighty-two unit it’s under contract and how do you plan to finance it?
Phil: So that’s something that I do a little bit different than a lot of a lot of your students is I’m looking for the really ugly ducklings because I’m a recovering flipper it’s just where I feel comfortable I can academically understand looking at a three hundred unit where you’re taking you know a cap rate from six percent down to five and a half and you’re gonna create all this value by essentially doing nothing and maybe some management efficiency is and obviously I’m grossly oversimplifying right but we know that we’re towards the top of the market. I want to get into something that is been terribly managed the tenants, have been mistreated, the physical candy is deplorable, because no matter what happens with the market I know that I’m forcing
Rod: So what’s that what’s the vacancy on this on this on this ugly duckling?
Phil: Currently it’s 92 percent physically occupied okay and economically about 85 percent
Phil: Its C- or even if we want to call it a D unit it could be
Rod: Area or the building or both?
Phil: I’d say that the area is probably a D. There’s a 500 unit government housing down the street and it’s notorious, it’s bad
Phil: you know during my due diligence the first stop I made and this is the tip I got from you from the show the first up I made when I went up to do my physical due diligence was with the police. Hey guys you know who owns this is? it the Bloods? the Crips? like a mess like who owns it right and you know it’s a double-edged sword here because there’s no institutional gangs that own it so that’s great because if they want you out they can probably pull some strings but who is there is a bunch of juvenile no-name flash-in-the-pan gangs and sometimes they like to shoot at each other
Rod: okay that’s this is in your property ?
Phil: No, in the project down
Rod: The project got it okay
Phil: So I went through the crime report with a fine-tooth comb and you have targets of opportunity within my complex, your vehicle, break-ins, your petty thefts, occasionally an assault, occasionally concealed weapon, or a drug that you find on my block, and then when you go down a couple hundred yards the project you have profound issues. So I told the you know the guys at the precinct well I’m gonna go by tonight and see what I see like don’t do that don’t do that they they might shoot at you I was like I’ll shoot back.
Rod: Okay so what’s your plan? I mean what’s your plan to you know to turn this thing around and have a safe environment for tenants
Phil: So it’s tips that I got from you and a couple of episodes with Maureen we’re also very very helpful with some creative uh some ideas
Rod: Maureen Miles yeah she was a she was she’s a good friend and she’s in my mastermind and a couple thousand units. She’s a real success story so what were tips ?
Phil: And Steve Firestone. I was deeply third like five times to get you know see focuses on that so when I went back there at night, of course there’s crime, there’s only lights on two of the buildings, there’s eight eight flexes across the city block there’s only lights on too and guess what they’re not working the trees are all overgrown it’s scary. I mean I can’t imagine being you know a single woman arriving at night and having to go into that place. There’s nothing. So the trees are getting trimmed back every eight Plex is getting an owner controlled electrical panel which doesn’t currently exist and there’s going to be two-way spotlights at every corner and above every doorway because it’s like a pod entrance to a four-plex to two entrances for building and then we’re gonna do real and fake security cameras so that the whole property is covered and signs that say more or less hey Richmond PD has our login information take it down the street you know if you’re doing something you know you’re not supposed to do and more than that the specific tip I got from you was there’s been no on-site management years and years and years. I’m down in one of the unit’s to be on-site management during the day and at night there’s gonna be a couch a TV a coffeepot and a fridge full of food and the guys that are on the beat the local police I’ve talked to them and they’re like yeah we absolutely will stop by and watch TV from your place rather than sitting in a parking lot somewhere and to eat all of your food and when we get a call, we’ll roll out. So you know it’s
Rod: Yeah I set up a little yeah I did that once myself so you listen to what I said I set up a little substation basically in your complex that causes the bad element to be like cucarachas man they like scatter, they’re gone
Phil: Criminals are dumb but they’re really dumb but they’re not that dumb they’re gonna go to some place that’s an easier target. So you know once we just do those couple of things it’s going to dramatically reposition it but we’ve got about a 400,000 we’re looking at cap X over 64 units so 6,000 a door give or take and you know
Rod: That’s a nice remodel, so you’re gonna do some nice things, appliance packages, and the like countertops, the flooring plank flooring, things of that nature
Phil: We’re making it safe and habitable and clean you know I mean poor people do not equal bad people. I was really encouraged when I went through them in every unit and I found you know uniforms for fast-food or kitchens or the reflective vests for road workers when I come in and there’s ten people there and they’re wearing the newest Nikes and diamond earrings that’s wrong you got on my list as were. I’ve asked that the current owner served them 21 day notice of non-compliance that I can file on lawful detainer as soon as we take over because if they’re dumps of that stuff you know you go through a lease and there’s something you’re not complying whether its occupants, whether it’s the pit bulls, whether it’s cleanliness
Rod: Well let me ask you this you know as you know I try to steer people away from D-class properties now you have a lot more experience with your flipping and you know your military background you’re not really afraid of things as much as some people might be and you know and you understand that this is a much more intensive management play, that said what’s the exit strategy for that property, you’re just gonna hold it for cash flow? or what’s the plan?
Phil: I wish I could show this on the map so let me just start try to describe it. Anything I’m buying I’m buying for legacy so something I’m doing different than a lot of other operators is I’m going into recourse bridge type financing. So I got
Rod: You have to you have to with what you just described so you’re gonna have to be on the hook for it I’m you’re gonna have to do bridge financing until it’s stabilized but please continue
Phil: So you know all in we’re around two-million. I’m not going to be specific as it hasn’t closed yet in the low 2 millions between our purchase in our Capex right. The current NOI is you know is abysmal if we by taking rents to market by instituting a small rubs, we believe that we can achieve an NOI around two hundred thousand which should give us evaluation in twenty four thirty six months of around three million and at that point the building will be in a condition that we can either go to through agency or through the Virginia Housing Development Authority that will actually do up to ninety five percent financing which
Rod: Wow , on a cash out refine ?
Phil: uh okay maybe, maybe not gonna cash out refine on Reno because the red tape is so insane. So I got to get with my broker and see what the best play is but whether we at a valuation of three million give or take sell it and take a million dollars that’s okay if we decide the management’s not worth the risk or we retire all our debt that’s more my model is to get into something that I can essentially flip as a building recapture all of our equity and then sort of like the little fourteen unit, we’re playing with house money right you know the advantages of commercial real estate are so fast you know when you go ahead and you start adding zeros you know talking about millions you know your tax depreciation becomes extremely significant to the members of the partnership, your appreciation which we don’t count on but over a ten or fifteen year hold is it’s very significant and your debt pay down you know it’s just people wonder why you go to multifamily from single that’s why sure the numbers become really really exciting and uh everything I’m buying I’m buying for legacy but we want to have a sale plan if for some reason that makes sense
Rod: Sure know if you’re buying it those kind of numbers you’ll likely be fine and maybe you’ll get lucky in the aerial turn a little bit but you know with you know with D assets you got to be careful because typically the exit plan is cash flow it really is you know the biggest play with with D is it’s a cash flow play more management intensive, but definitely a cash flow play. So let me ask you this you know throughout the last couple of years you’ve been playing around with this multifamily, any aha moments or experiences come to mind?
Phil: Sure yeah an aha moment it was something that you know you say all the time is that you have to add value. When I first approached this 109 unit split sight portfolio you know the broker was frustrated because they’ve been on the market for a while the seller is frustrated because they had deals fall through and you know there was a lot of deferred maintenance the sellers were the heirs of the gentleman who built all the properties back in the 70s and 80s and then you know they didn’t really have an appetite to own multifamily they’d sort of taken what they could take out of it in the way of refined cash flow and they’re just ready to be done and that happens. So the broker and the seller want surety of closing, we obviously want a low price, so when I submitted my LOI I said, hey if you accept this LOI there will be no negotiation on price, we’re going we understand the condition of the property and less something’s falling into a sinkhole that I couldn’t have known about we’re you sign with us we’re going to close and I painted the picture to the broker of you know the flips that we’ve done in the area, who my partners were, and they were able to sell to the seller that you know an offer local with somebody who’s experienced in construction, has the local management infrastructure, and the money to do the deal is a lot safer than a higher offer from a fund or a syndicator or somebody who understand and facing a refi and this is possibly a nugget. If you can figure out where a seller is in the lifecycle of their loan that could be leveraged for you as a buyer. I’m not saying to use it maliciously but when you know that they’ve got to refi coming in six months or a year you might be their last chance where they have to incur all that aggravation and cost and put it on for another three, five, seven years, well just something to think about it’s good. But even within my own partnership I had resistance to this deal. My one partner is you know residential broker and that’s a property management company and he said I don’t want to do it. So well didn’t you want to increase your property management holdings sign here and you get to you know add 50% of your holdings he said okay and then my contractor said ah you know I own 30 units I’m not comfortable with a hundred I don’t know that you know you guys are flippers I don’t think you have the required experience here. So then I looked in a commercial broker with 30 years experience and the contractor said if the smart money says this is awesome, I meant he can navigate us through the lender stuff, the title stuff, you know in a repositioning with the property management. So every you know person the partnership brought something unique that the others couldn’t and so you know
Rod: Basically what you did is you shored up your weaknesses which you know you know we talk about which is you know play to your strengths and partner or hire or delegate your you know where you need help even weaknesses are perceived weaknesses and sometimes they’re just perceived in your case they were with that contractor because you could definitely have handled that property on your own without the bringing in the broker with the you know with the 30 years experience but you know that’s what it took to get the deal done. So let me ask you this what words of wisdom would you share with you know listeners that want to do this business, maybe you’re scared,, haven’t taken action yet, know they want more, know they deserve more, know they you know they want the life of their dreams, they want to replace their income, their job income, w2 income with passive income in real estate, what would you tell those people?
Phil: To take action because it beats inaction every time and that could be as simple as listening to this podcast every week, to reading one blog post every week, to you know going and touring one property every week analyzing one deal every day because until you’re doing those activities how do you know what you have you don’t you know I looked at hundreds of flips before I ever did my first one. I looked at dozens and multi-families before I kind of lucked into that 14 unit mm-hmm but instead of asking or making a statement like I can’t I can’t do something or it can’t be done, change it to how can it be done? My life motto is where there’s a field, there’s a way. Wait I know everyone this is the key part where there’s a field there’s a way or something
Rod: or something okay
Phil: I didn’t know how to buy a 14 unit apartment building and make sure the tenants paid their rent and fix things and through turns and you know manage issues until I did it. I didn’t know how to make an LOI on a hundred unit building until I did it. You know when people tell me I can’t do something and this was this was a change that has occurred in me since I’m up leveled my peer group now that statement means to me that they can’t do something it doesn’t mean anything about me and I’m telling you guys if you’re listening to this podcast if you’re out there seeking more you’re already in the top 1% you know we’re in America so we’re already in the richest 1% of humans that have ever lived. So you have to go and do it look at yourself in the mirror and wherever you are realize that you did it and if you want something different then you can do that too
Rod: Yeah love it love it. Now if you could go back and tell your 20 year old self something what might you do differently what might you say to that 20 year old self?
Phil: You know I knew this question was coming and so we’re gonna add live it. I don’t think I don’t think I’d do anything different I regret nothing you know I .. in life for seven years, I played professional poker, I toured the country playing drums for a punk rock band, I played poker for a living, and then joined the Navy and went out for the special ops. Everything that I’ve wanted to do in life maybe I haven’t succeeded in everything but it wasn’t because I didn’t try you know the number-one regret of the dying is to look back and say I wish you know I wish I had followed my passion, I wish I’d asked that girl to dance just do it what’s the worst that can happen and you know in a hundred years nobody’s gonna care that you’re here anyway. So do what you want to do. Try give back to some people along the way. Honor the people that are most important to you and be true to yourself because other than those core people who else really matters you don’t have to impress them
Rod: Love it love it love it what’s your favorite quote?
Phil: I think I’m gonna go with the one that’s behind me on the wall and I know most people aren’t gonna see that but I remember cat who is hanging on by a thread read and write faces is priceless and it it says success is largely a matter of hanging on after others have let go. So when I was getting ready to go into the Navy I took one more year as an ocean lifeguard because I wanted to be a beach boy and it’s awesome coolest job ever
Rod: Right yeah you and the Baywatch girls right
Phil: It was exactly like that yeah. So you know ask my best friend who took a different path after high school he went to the Naval Academy became an officer in the SEAL Teams and you know is a real life you know American Hero. I said you know how do you make it your training you know you must be the best at being cold now said no doesn’t get any easier you just know you’re not going to die as well how do I make it through training? Don’t quit. I said what a cop-out that’s like the worst advice ever but when I was standing there you know getting my pin as a naval workers Naval Special Warfare combat and craft crewman or Swift the guys that take the seals to and fro on the fast boats I look to my left and I look to my right and I realized the only difference between me and the guys the 75% of the people I started with that were no longer there is that I didn’t quit you know I was bloody. I was cold. I was crying you know chafed there was god stronger than me faster than me smarter than me but if you want to effect change in your life and you want to do anything it’s about what’s inside. So go get it whatever it is that you want we’re all running different races whatever yours is, go and attack it with passion. That’s the advice I give to the 20 year old
Rod: Nice nice nice nice awesome stuff brother. Well listen I really appreciate you being on the show you did a great job, guys he’s at philcapron.com and I’d love to see you in Tampa my friend.
Phil: I will see you there and I’m looking forward to meeting some new friends there and doing some deals together cuz that’s what happened that’s what we do
Rod: That’s what we do that’s what we do alright brother thanks for being on the show buddy and I’ll see you soon
Phil: Thanks Rod
Rod: Take care
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