Ep #391 – Zach Haptonstall – 28 yo with $35M portfolio
Here is some of what you will learn:
- Understanding Tenant In Common (TIC) structures
- Key components to a successful team
- Understanding the broker dynamic
- The need for liquidity
- Going all in
- Mitigating risk
- The value of a support network
- “Confidence is earned”
- Book recommendation – Can’t Hurt Me by Goggins
- Going aggressive with hard money
To find out more about our guest: click here To find out more about partnering or investing in a multifamily deal: Text Partner to 41411 or email Partner@RodKhleif.com Join us at a Multifamily Bootcamp, visit: MultifamilyBootcamp.com
Watch on YouTube!
Full Transcript Below:
Ep #391 – Zach Haptonstall – 28 year old with $35M portfolio
Hi! I’m Rod Khleif. Each and every week I record an interview with a thought leader that I know you’re gonna get a ton of value from. Now here on YouTube are the video versions of my podcast, Lifetime Cash Flow through Real Estate Investing. Now to make sure you get the latest information please subscribe and hit the notification bell. Let’s get started.
Rod: Welcome to another edition of How to Build Lifetime Cash Flow through Real Estate Investing. I’m Rod Khleif and I am thrilled that you’re here. And I know you’re gonna get tons of value from the young gentleman we’re interviewing today. His name is Zach Haptonstall, and Zack, he’s only 28 years old and he has done a lot in those 28 years. So, he’s gonna motivate a lot of people today. Super excited to have you on the show, brother. Welcome.
Zach: Hey, thanks, Rod. I really appreciate the opportunity on the show, man. Thank you very much.
Rod: Absolutely. So, Zach, you’ve got over 35 million dollars with the multifamily. Talk about, you know, just briefly your foray into this business. You know, how it came about and a little bit of your background.
Zach: Yeah, sure. So, yes. I was born and raised here in Phoenix, Arizona. Pretty much lived here my entire life. I lived in Colorado for a bit, on a football scholarship, realized I wasn’t gonna make the NFL so I came back to Phoenix. I wanted to be a sports reporter so I got a journalism degree from Arizona State here and I was actually a live news anchor and sports reporter on Arizona PBS for about five six months. I hosted a show on Fox Sports Network Arizona which was cool at first and then, I quickly realized you don’t make any money doing that. You work crazy hours. It’s very political. I don’t do this so, I actually got a job in health care sales. So hospice, marketing of all things. I don’t know if you’re familiar with hospice care.
Rod: Well, of course. So, yeah. I mean, it’s not a word I hope I have to experience for another30 years, but …
Zach: Right. Yeah, exactly. Yes. So, basically, mobile nursing care even people end-of-life illnesses. So, my job was wake up in the morning drive all around Phoenix and just cold call, walking into hospitals, doctors offices, assisted living etc. Build relationships with physicians, social workers and I had so many hospice they call me. I’m the first person to meet with that patient family. So anyways, long story short, it sounds kind of weird but Hospice is a extremely competitive and lucrative private business industry. So I was very blessed to do in this industry, in Phoenix, and I quickly became the director of marketing and then, a co-owner in the company. So, by the time I was 23, I was making over 200k a year. I was, I bought a house, was making more money than both my parents combined. Got my MBA paid off all my school. So, I was blessed to be doing well but I did that for a little over four years and I just got burnt out. I was working crazy hours. I had achieved all the goals and I was getting taxed heavily on commissions and so, I was like, “man, I don’t want to do this”, and so, I didn’t know what I wanted to do though but I didn’t have any time to figure it out. So, last year, January of 2018, I just said, “screw it”. I said, “I gotta figure something out”. So, I resigned and I sold my equity in the company with no plan at all. I just knew that I wanted to create passive income somehow and I don’t have like a rich uncle. I didn’t know anybody in real estate or anything like that so I literally just, “okay, I’m gonna live off savings for the next 12 months, cut all my personal expenses down and figure this out. And so, I just started to absorb as many books, podcasts, like yours, Rod, all the content I could, and I started cold calling people. I was originally looking at mobile home parks cuz I like the cash flow vehicle of that. I cold called over 90 mobile home park owners here in Phoenix. I tried to buy or sell or carry, it didn’t work out. I kept learning, learning. I learned about multifamily and syndication and that was very appealing to me just because I had a network of physicians and healthcare business owners who also hated their lives, like I did, but they couldn’t get out of it because they have families. And so, anyways, long story short, 10 months go by, I’m just burning through money, making no money, lost all my confidence, my sense of direction, my identity. I was like, “What am I doing?” Like waking up every morning trying to figure out how can I move the needle and fortunately in October we found a deal. It’s a 36-unit deal. 3.4 million here in Phoenix, and I had met a guy named Robert who I partnered with this time and he’s high net worth, high liquidity, also trying to get into the multifamily game. So he’s high net worth and high liquidity. I had a couple 100K at the time, and so, I found this deal, I said, “Okay. This deal pencils with me. We got to go for it.” So we put it on offer. The offer gets accepted and when I go crap, “ Wat do we do now?” And so, we’re both 25k hard, under contract, long story short, I put all the money I had in there, 160k, and we figured it out. We brought some people in and we actually had a tenant in common. A tick structure, not a syndicate. So, he close ….
Rod: Right, right. I wanna stop you for a minute.
Rod: Okay? Because you’re getting into stuff that I wanna drill down on a little bit and I wanna circle back to a couple things you said.
Rod: Now, you’ve got, your licensed real estate agent as well, correct? You got your license.
Zach: Correct. Yeah.
Rod: it was, had you done that already? Or was that after what you just ….
Zach: Yeah. I got my real estate license in 2016 while ….
Zach: I was still in the thick of hospice as a back-up plan. I had never used it, Rod.
Zach: So, I even up, I’ve only sold a couple homes for family. That’s it.
Rod: Right, right, right. So, you know, you’ve said a lot of things and I and I wanna chat about a couple of them real fast. So, your background really is sales. I mean, you’re good at sales. That’s what you did with the hospice. That’s, so that’s your, you know, that’s the superpower for you. Now, how’s your analytical ability? Would, you know, would you say your analytical as well?
Zach: I can understand things. I got, I’m nobody. I have an MBA. I understand the accounting and the underwriting but I hate doing it, Rod.
Rod: Right, right, right.
Zach: And so, I still under wrote it, I don’t like to sit in front of spreadsheets for hours. I can do it but it’s not my strength and it’s not my passion. And so, that was my biggest challenge is I needed to find a complementary partner ….
Zach: Good at that.
Rod: That’s why I asked the question. And so, so that’s what you found in this gentleman you mentioned a moment ago?
Zach: No. Not necessarily. So, that was not his strength. So, I did all the underwriting, initially, on that deal but afterwards, right, basically, in that deal is a scary deal. We got our proceeds cut 227 K, 3 days before closing. I brought in another guy. His name is Vic Ron at the last minute. He invested a bunch of money. He’s a CPA. Lives in Orange County. After that, we partnered up and I found my superpower CPA and he is our underwriting guy.
Rod: Perfect, perfect. that’s exactly what I’ve done as well, you know. I have a Robert. Robert’s a CPA. Done gosh, I think he’s been involved in over a billion dollars in deals. And he’s the analytical side. So, fantastic. And the reason I bring that up is, this is such a, that’s such a common dynamic and, frankly, recipe for success. When you combine the outgoing personality, like you, with the more analytical personality, you know, watch out. That success is inevitable in that scenario. The other thing I wanna mention is, you know, you’re willing to do what other people aren’t willing to do. You’re out there cold calling mobile home park owners. So, talk about, you know, in fact, I wanna circle back to that. I wanna circle back to how you found these deals that you’ve done right now. But the other thing I wanna mention is, so you were selling doctors and you’re selling you know, you’re in the healthcare professionals, people have money, and so, guys, those are you listening, don’t underestimate the power of your network and your ability to raise equity, not now. Obviously, doctors are the belle of the ball in that regard but there are lots of, you know, other trades where people have money and they’ll surprise you. So, you realize that the benefits of that network, obviously.
Rod: And you’re capitalizing on that. I’m sure we’re gonna hear about that. But, all right, so, please continue. So, you found that deal and the lending institution lower the loan amounts. So, they lowered your proceeds and the 11th hour, how’d you fit? What happened?
Zach: Yeah. So, yeah. I was pretty scared. We had our proceeds cut, 227K,three days before closing. So, it was, and that was on a Friday afternoon. So, like, I spent Saturday morning just pounding the phone to call all the people I had met throughout the last year, asking them. And so, I found, I found Vic Ron, putting 150 K, and then, my other partner, Robert brought another guy in for, I think, 77K and so, we were able to, fortunately, we closed that gap and we were good to go. And since then, it’s been a good property. So, that was a scary closing. So, and that was a on-market deal, Rod. Now, you said you wanted to ask how you found, that was on market.
Zach: Jumped on it, okay? And then, so, we kept pounding the pavement, pound the pavement. We got second place on another deal shortly after that. And then, ….
Rod: How you find that deal?
Zach: The ….
Rod: Second one.
Zach: The second deal was also on-market.
Zach: By a broker. This is a good point, Rod, is that, so, what I realized is that, you need to, when you’re trying to find a deal and create this broker relationships, I was first intimidated by the brokers. And I was scared of them because I feel like, “okay, I don’t belong in this industry and they’re gonna think I’m an idiot or I don’t belong.” And so, but you have to get out there because what you have to realize, these brokers, they wanna set up tours so it shows their seller that they’re marketing the property. So, they are actually motivated to crank tours. And so, when we’re looking for a deal, I’m trying to, or at least, three to five deals a week. And a lot of these deals, Rod, I don’t even like them. We know that they don’t pencil but I’ll go in there act like I’m taking pictures, I’ll read the OM and sound educated about the deal so that I can ask the broker hypothetical questions and then, wait a day or two say, “hey mister broker, we don’t like the deal for this reason”. So, it’s funny because this was a perfect example, there was like a 300-unit deal that we knew, at this point we couldn’t raise the equity for. We toured the deal with the broker and we told the broker like, “yeah, this area is kinda crappy. We don’t really like it.” He’s like, “well, I got a couple other, I have a portfolio, two deals, that are, just hit the market”, we like, “we didn’t get your email.” So, we drove straight to the two deals. It was a 59-unit deal in Scottsdale and a 76-unit deal in Phoenix, and we walked them, “these are really nice.” We underwrite the deals and sure, enough, they pencil. And we thought, maybe, we made a mistake because, like, it’s so hard to find a deal that pencils first fast. Anyways, we put her an offer. We had a really aggressive terms and we can talk other if you want, but we get that under contract and we were, we were kind of creative. The guy wanted to sell both properties in 1031 exchange, into one property and the way we made it pencil is we syndicated the76-unit with the 506 B syndication. We did another tick tenant in common structure on the 59-unit deal in Scottsdale. We gave the guy, whose combined price of thirteen and a half million, and we won that too.
Rod: Right. So, let’s dissect that for a minute. Okay. So, you did 506 B, so, guys, those of you that don’t know that there’s a 506 B and a 506 C. The 506 B requires you to have a substantial relationship with the investors that you bring into that deal and there are a lot of people abusing that entire dynamic in the 506 B world. But what I’m even confused about here is the, is why the tick was relevant on the other property. So, please explain that. Did, you use your own money. You did a tick because you brought your own money in? Is that what you did?
Zach: Yeah. So, what we did is, it was a smaller deal and it was like a seven million dollar deal. I’m sorry, it was 6.1. The other one the other one was 6.9. So this one was 6.1 and, basically, this was one escrow, Rod. So both deals were went under one purchase contract and the economics of the underwriting worked out better for us to do a tick, okay? And by the way, I’ll do a disclaimer. I’m not an attorney but we’ve passed through all this with their attorney for tick.
Rod: Alright. So, explain the structure.
Zach: So, basically, with a tick structure …
Rod: By the way, tick means tenants and common, guys. Okay?
Zach: Its tenants in common. So, let’s say Rod and Zach buy a deal, okay? You have 900k, Rod, and I have 100k. We’ll gonna create an LLC and you’re gonna be 110 in common. So, you have a tick LLC. I’m gonna create an LLC and I have a tenant common. So, ….
Rod: I got you. So, you didn’t syndicate the second deal. You do it effectively as a joint venture. It’s really ….
Zach: It’s basically a joint venture. We brought guys in at 500 K minimum. So, we had a handful of people and this is an A location, Rod. It’s hard to find deals in Scottsdale. The plan is to hold it for 20 years and we keep refining it. Whereas, as you know, a syndication, they’re, basically, flips, right? Like, two to five years.
Rod: Well, not all of them. I mean, our syndications, we plan to refine and build legacy assets on some of them as well. But I got it now. So, there was such a sweetheart deal you were able to effectively joint-venture it, and the structure, you did it under a tenants in common so that when you sell it, if somebody wants to roll that money into a 1031 or whatever, they’re not limited. Okay. Got it.
Zach: A hundred percent. Yep. A hundred percent.
Rod: Got it. Okay. Now, I understand. Okay. So, that is a fairly complex deal to put together where you’ve got half of the deals is syndication, the other half, you know, joint venture like that. So, got it. Okay. Awesome. A great job on that man. And when did, when did you take those down?
Zach: So, we got them under contract in April and because the guy, the seller, wanna sell them both in 1031 exchange, he had put in to the contract 230 extensions and he ended up exercising everything. So, this was 120 day escrow for months. We closed on them both August 9th of 2019.
Zach: And so, we had ….
Rod: Congratulations man. That’s fresh. That’s newlyweds. Awesome.
Zach: No. Yeah. Thanks, Rod. I appreciate it. So, yes. We had pretty much finished our raise in 50 to 60 days. We were done just waiting. So then, we run a contract on those two deals at portfolio, we found another deal, 137-unit deal. It was a seventeen and a half million dollar deal here in Phoenix, and we underwrote that and it was on market again, and it penciled. And like, “Wow. Is this a mistake?” It wasn’t. We doubted the numbers and we were very aggressive with hard money day one and we can go into that if you want to.
Rod: Yeah. I do. I do actually. But well, let’s go there now. So, you said, you mention that on these other deals as well. You were very aggressive. So, you went hard right out of the gate.
Zach: So, on the portfolio, the two deals we just discussed, there was fourteen different buyer groups putting in offers, okay? And some were trying to buy one or the other asset. The seller I really wanna sell both and so, I’m in the brokers ear trying to get some type of guidance. So, the way we structured it, we got an, we did a 10-day access agreement upon accepted LOI. So, we get an accepted LOI and then, we’re not under contract, we get a 10-day access agreement. We do our full due diligence, okay? So, we do a full …
Rod: Every unit?
Zach: Every single unit. Yep.
Zach: Robert and I personally each walked half the units. So, we split the two teams and we split each property in two. So, we go, it’s a full due diligence, not under contract, you’re under access agreement. The reason sellers and some brokers do this, Rod, as you know, is so that you don’t get retreated. They don’t get retreated, because the deals not under contract. So, basically, we go in there, both properties were pretty clean. They had new roofs. We had, we asked for a sixty five thousand dollar credit which they gave us. So, after that access agreement, we sign the PSA, okay? After one day after signing PSA, we went 400K hard, okay?
Zach: That money’s gone. And it seems crazy but Phoenix is just a very overheated market and these assets are hard to find.
Rod: You already did your due diligence for the most part so , you know, the only risk there is the financing, you know.
Rod: Or the raise. Your ability to raise. So, you know, and I’m not gonna suggest. There are a lot of things that Zach has done here that I’m not gonna suggest those of you listening do. For example, quit your job and live on savings.
Zach: Yeah. it’s not necessary. Yeah. It’s an extreme example. It sounds kind of cool but it’s not absolutely necessary. I kind of burn my ships and was ready for a new thing, and I was I was blessed to have money that I could actually live off.
Rod: Right, right.
Rod: But see, even that could have ran out and guys, when you do that then, fear creeps up and fear is paralyzing. And so, if you’ve got, if you’re worried about how you’re gonna, you know, survive over a period of time, it’s gonna slow you down. And so, I never recommend that. But you made it work, man. My kudos, kudos …
Zach: To that point, Rod, I think that’s what people don’t realize is that like, you do have to have the liquidity some point to do these deals because, so, there was a few of us and I had to put up a hundred K hard for that money. Well, I had put all my money into last deal, right? Well, I had bought a house in 2015 and I was thinking about it now. I told Grace, my fiancée, say, “we have to unload this house.” Like, “we’re sitting on over a hundred K of equity.” So, I actually sold the house and I go a 120 K money come from it and next week I wired a hundred K hard with that portfolio deal.
Zach: So, it really was all-in and we were fortunate but we had a full inspection like you said.
Rod: Right. Well, let me say this, buddy. You know, you can bring in people to put up the at risk capital. So, yes. You say you need liquidity, you need access to liquidity, okay? You don’t necessarily, it doesn’t have to be out of your pocket. There are people that will take a piece of a deal to put up the at risk capital. Piece of the deal to, you know, and then, at risk capital being the earnest money, the inspection costs, the third party reports you’re gonna pay for with the lender, things of that nature. You know, all of which they’ll get back from the deal but it is, you know, the operative word is risk. At risk capital but there are people that’ll do that. If they have faith in you. So, circle back to a couple other things here real quick. One is, you know, the fact that you were aggressive. I mean, you, again, on the money hard day one, guys, if it’s your first deal please don’t do that, okay? I’m just, I wanna I cushion that. You know, I know you had quality people around you. You had, you know, you, you know, and you’re an anomaly in that regard.
Zach: Yeah. We didn’t do it on the first deal, Rod, to your point. We didn’t hit too hard day one of the first deal.
Zach: It’s stretch 21 day due diligence. On it all.
Rod: So, you understood the business, you know, a little bit more and all that, okay. Fantastic. The other thing I wanna draw attention to, that I think we’ve glossed over is, unlike most people, you went straight to multifamily. You didn’t waste time with houses. I mean, you told me, the only house you owned was the one you, that you just mentioned that you sold to raise some equity.
Rod: That you lived in. Why? Why did you go straight to multi?
Zach: Yeah. That’s a good question, Rod. And I’m not like, I’m not like Superman or crazy anything like that. Like, this was a scary thing and this was a whole evolution of my mind and my emotions from January until like October of 2018 because I didn’t keep my, I didn’t know anything about multifamily or even investing really. I literally wake up every day and say, “how can I move the needle today”. So, I was absorbing as much and the more podcasts I listened to and the more books I read and the more people I spoke to, I just realized that there’s so many people who are saying, “oh, there’s guys who were syndicated thousands of units”, and people asked him, “well if you go back, would you do differently?” They would all say, “I wish I would have started bigger earlier”, and so, for me, I kinda got to the point where I was like, like I said, like, I didn’t have a lot of confidence man. I was like, “what the hell am i doing each day?” So, I got to the point where I was like, “screw it.” I’m just gonna go all-in. I don’t wanna start with the duplex or 4-plex. I had tried to buy an 8-plex, a couple months earlier. It didn’t work out. So, when we found the 36-unit I was like, “let’s just, let’s go all in”, and this a scary process but if you have the proper education the team around you, then, you can mitigate a lot of that risk. So, I don’t want people to do crazy things. I’m not ….
Rod: Sure. No, no, no, no. And that was all, you know, really well articulated. And by the way guys, those of you listening, I’ve now got a, what I call a multifamily property tool kit, tool book, on my website 66 or 67 pages long. Every possible question you would wanna ask that I can think of if you’re looking at a property. And I spent a lot of time on this and it’s free on my website. So, for God’s sakes, go download it. We use it to make sure we don’t miss any questions because that’s a beautiful thing about this business. If the deal pencils out, it’s primarily, the bottom line is, this business is primarily empirical. It’s primarily numbers. So, if it pencils out and you ask all the right questions, it’s pretty hard to screw up. So, I mean, you really have, you know, so, you know, get, definitely download this tool book. It’s worth, it’s absolutely worth it. You’ll really appreciate that as a resource. But that said, you know, the other thing I, so you went straight to multifamily, you know, this, let me ask you a question because you are, you know, you’re a fire ready aim guy, like I am. It’s a, lot of what you’re saying is resonating with me as well. What drives you? What’s the motivation here?
Zach: Yeah. That’s a good question. I don’t, I’m really not motivated by, like, money or real estate. Like, real estate is cooler. I don’t love like buildings. You know I mean, I’ve never been into that. I like that, it’s a good vehicle. For me, I haven’t really, I feel like it is like an all you know, yeah, I feel like it’s my destiny or fate to have a major impact and I think it’s gonna be a combination of like socially, media and business. And so, my whole goal is to basically create the financial freedoms as a vehicle to do other things. So, I have time. Just time. Because when I was making over 200k a year, at first, I thought I was a baller because it’s my early 20s and then, you realize that’s like empty. You know I mean, and I hit a ceiling. It’s, you’re getting taxed heavily and so, I mean, my goal is to just create, create passive income to free up my time so I can pursue other things. And I know that’s a very abstract answer.
Rod: No, no, no. Actually, I think I know where you’re going. I mean, I see you as a thought leader man. I totally see you, I totally see you up in front of rooms of hundreds of thousands of people adding value and helping other people. I solely see that for you if that’s kind of what you’re insinuating because …
Zach: No, yeah. No, yeah. Thanks, Rod. It is. It is. I like to bring a, I like to bring value to people.
Zach: And I like to possibly influence them and I don’t want to be about me, and I think we talked before the show, like I’m not begging to the gurus and stuff like that. And this is one point, I don’t want to get off track here but this is one point I wanna tell people, Rod. If you’ll let me, is that, I think you have to be careful to your point about multifamily right now because a lot of it is like attention seeking behavior. I personally hate social media because it’s like, it’s like fear missing out attention seeking behavior and with multifamily you have a fiduciary responsibility to your investors. Like to do a good job at asset management. And right now, there’s so much, if you acquire a deal, you’re an expert. You gotta have some podcasts, you’re expert. And so, I tell them I’m not an expert. We haven’t even gone full circle on a deal yet. So, yeah. You have to just ….
Rod: Well, and, you know, right now, we are also in irrational exuberance and I’ve saw it in two thousand six and seven and we’re there. And so, you know, there’s gonna be, there’s gonna be some pull back. I don’t know how significant, who knows. If I did, I’d already be on my yacht. I was looking at yachts yesterday at the Fort Lauderdale Boat Show. So that’s on top of mind for me, but, you know, so let’s also talk about something else. You know, you’re a real estate agent, and I get to ask this question all the time, you know. Should I get my real estate license? And my answer is always the same, only if you’re gonna do that as your business. You’re gonna help people buy property for a commission. Otherwise, it’s actually a hindrance. It’s actually, and the reason it’s a hindrance is you’re held to a higher standard. So, you’re not held to the same standard that someone that’s not licensed is held to as to how you operate in the real estate realm. And it’s just unnecessary. It’s not gonna make you any money unless, again, you’re gonna sell and cuz, I mean, you know, me, personally, I’ve actually owned a, I still own a real estate company. Actually, right now, I own a real estate company. I have a broker on my payroll so I’ve access to anything I need. I, you know, any commission on any deal that that I own goes into the company which I own so, you know, it’s mine anyway. So, it’s unnecessary. But let me see what else, oh, I know what I want to ask you about. So, you and your, you and your fiancé, Grace, or a team, yes?
Zach: Yeah. We’re a team and so Grace is like our director of marketing and investor relation. She’s a machine with all that stuff. So, like I said, I sound kind of hypocritical here if people seem, like, we do have a decent presence on social media and it’s all Grace. Like I’m not good with that stuff. I hate social media. Honestly, I just don’t really like it, but she’s, it’s a necessary evil if you wanna be ….
Zach: Insured because you have to gain, you have to gain exposure, you have to gain perceived credibility to raise money and so, yeah. Grace is constantly setting up calls with people like on a calendar. So, I try to have calls every night if I can or during the day. She’s constantly putting out content, doing videos, things like that. So, I don’t have to worry about that because I think, if you wanna get into the business so, this kinda ties in to your point about being a real estate agent. It’s like, you can’t do a thousand different things. Like, multifamily is hard, so you need to focus on that one thing, make that your one thing. And so, if you’re too consume, if you’re too caught up with like doing marketing on Facebook and this and that, it just distracts you. I wanna focus on doing the deals and even for our meetup, we host the multifamily meetup here in Phoenix, all the credit for that goes to Grace as well. She does all the logistics as far as setting up the venue, lining up the sponsors, catering the food, doing all the online registration. All I do is try to find speakers and I usually procrastinate, Rod. Or I wait till like the day off to write the questions and then, it’s just like a content-based things. So, yeah, so Grace, I couldn’t have done this without Grace and just more so, I think it’s just important for anybody trying to do this to have that supportive partner whether that’s your spouse, your significant other, or it’s a family member because when you’re trying to do this. Like for me, I had people telling me, oh, you can’t do this”, “you’re crazy, what are you thinking you left 200K job a year to do this, making no money”, but Grace was always there to have my back.
Rod: Well, let me say something to what you just said. All those people that told you that, we’re speaking out of fear, okay? That was fear-based concerns and guys, that’s why we talk about this when I talk about how important, you know, your peer group is. Because who you hang out with us who you become and as you elevate yourself and you take risks and you do things that other people aren’t willing to do, your peers, very often out of fear of losing you, will tell you you’re making a mistake, and it’s because they love you. But with their love, they can hold you back. So, be very, very careful of that. I’m really glad you brought that up. And as it relates to you working with Grace, it’s awesome that you’ve you complement each other and you’ve each found your little niche and guys, you know, I will tell you the wealthiest people on the planet are usually the ones that are in relationship. That aren’t out there hunting trying to find love and whatnot. They’ve got a great foundation at home and the fact that you work with Grace, you know, which is very not uncommon. A lot of real estate investors, you know, have husband-and-wife teams are very successful but you each have to find your, you know, your superpower and play to your strengths like it sounds like you guys are each doing. And, you know, that’s a recipe for success right there. So, ….
Zach: A hundred percent.
Rod: Awesome, awesome. So, let’s see, what else I wanna ask you. You know, I love the, you know, how successful you are at your age. That’s just fantastic. Let me, you know, what did you have to give up? What did you have to give up? What you have to sacrifice to get where you are already?
Zach: Yeah. So, that’s a good question. I mean, it was a whole mindset shift because just in January 2018 when I realized I was gonna quit my job. I went from getting fat checks every two weeks to burning through money and so, we like, canceled our TV, I canceled my Spotify membership, I stopped getting haircuts, like, I just spaced my haircuts out more, Grace’s mom doing my hair. So, little things like that and, yeah, it’s just making certain sacrifices and being dedicated to that thing, and that the biggest thing that I had to, this is kind of a different answer to your question, but the biggest thing that I had to adopt in order to be successful was to be more consistent and discipline with my habits. And so, last year, I read a book called The Morning Miracle for Millionaires and …
Rod: Hal Elrod’s, Hal Elrod’s Miracle Morning for Millionaires. Yep.
Zach: A hundred percent. Yeah. So you’re familiar with like the SAVERS and I do that almost every single morning where I wake up, I go into my office and I’ll just do deep breathing, I’ll pray and then, I’m Christian, so I believe Jesus Christ, my Lord, and Savior. So, my faith is the biggest thing for me and I think growing in my faith during this process helped me significantly. I’ll journal and then, I work out and things like that. I meal prep my breakfast for the whole week, every Saturday. Just so I don’t have to worry about that. So, it’s these little things, Rod, which sounds kind of funny but it gets my mind right so that I have endurance; mental and physical endurance to overcome adversity. And like during the summer, we were on a contract for three deals and we raised over 12 million dollars and it was really stressful like this is
Zach: And so, but sticking to these habits, it’s kind of like giving yourself a mental vacation because it’s like, “okay, I had a rough day but if I wake up tomorrow and I do my, I get my eight hours of sleep and I hydrate and I do this discipline habits that, I’m ready to rock again.”
Rod: You know, it’s funny. We had a tough time for me to get going on this interview this morning because normally I do it as well. And I had a rough night last night and so, and then, I realized that my trainer is coming this afternoon and we’re gonna do circuit, high-intensity circuit so, I’m like, “you know what, I’m not gonna run this morning”. And I just couldn’t freaking get going. I had to make my move and hit my chest and wake up just to have some energy for this interview with you and because, you know, that is so powerful and, you know, my love language is gifts and my coaching students of all, they all get the Miracle Morning and, you know, I’ve had a Hal Elrod on the show here as well. Super, super human being but it’s so powerful to start your day off that way and I didn’t eat my own cooking this morning. It’s my point. You know, because I usually do that as well. I usually exercise and, you know, I do little gratitude, meditation and it’s so freaking powerful and the journaling is real.
Zach: It’s the key. Yeah. That’s the key. It’s huge.
Rod: Right, right. So, do you have a favorite quote?
Zach: None really, honestly.
Rod: Alright. Fair enough.
Zach: I’ll say this. This, I learned this quote in high school and maybe it’s tarnished now because of what happened to the guy but it’s a quote from Lance Armstrong. I read book of him and it was, it’s very simple. It basically said that confidence is earned. So, you look at these confident people like Rod Khleif or some of these ….
Rod: That’s a great, great quote. Great quote.
Zach: And I think about that, like, confidence is earned like you don’t just wake and be confident like you, it’s scary. You have to push through the fear and push your comfort zone and then, that will give you confidence to take on the next challenge. So, that’s …
Rod: It’s counterintuitive. It’s counterintuitive. You have to push through fear to build your confidence and so, you have to, almost have to fake it till you make it.
Rod: As it were, and now, absolutely, great, great quote and I don’t think it’s tarnished at all, frankly, but a great quote great.
Rod: So, are what, you know, are there any books that you gift more than others or any books that you really enjoy that have helped you on this journey? You mentioned the one thing. I must, I don’t know if that ….
Zach: Yeah, I read that. Yeah, yeah, yeah.
Rod: Yeah, yeah. Okay.
Zach: I read the one thing sometime. And the thing with me is like I don’t actually read books, Rod, because I’m just too anxious but I do audiobooks.
Zach: Every morning when I’m working out I have audible, I do audiobooks and so, yeah, I mean, there’s a bunch of them, Think and Grow Rich 31.12 which is obviously classic. I listened to that several times last year when I was trying to cultivate like the faith and imagining it. It’s all ties into the law of attraction, things like that. And one book that I listened to almost every morning and I have it bookmarked different chapters the book called, I mean, it’s pretty mainstream now, it’s called Can’t Hurt Me by David Goggins ….
Rod: Yeah, yeah, yeah. He’s the SEAL, guy. Yeah, yeah. Awesome. I have not read that or listened to it and I need to because I’ve heard great things about it. Think and Grow Rich, I’ve given away, I’m not exaggerating, probably over 3,000 copies. I’m, literally, three thousand copies. Yeah. So, tell me about a mistake or a failure. A big one. A big one and the lesson if there was one. There usually, there always is one but …
Zach: Yeah. I hear you. I mean, I guess, I mean, there’s, I guess on the very first deal. One example would be, we just, you just don’t know what you don’t know and so, it was a really rocky scary thing because we had a seller, who there was a storm right before we went on under contract. We had heard there was some damage to the roofs. We were told by the broker that there was a claim, an insurance claim that would be assigned to us. We got it in writing. It was assigned. We just didn’t do a good job managing our due diligence with the roof inspections because we find out later after our money is hard that there was no claim and the guy completely made it up. You know what I mean?
Zach: And then, right after that a couple days later, we realized that there’s stabbed block, electrical panels which are basically like electrical panels that are built in 60s, 70s.
Rod: Oh yeah. You gotta take change them out.
Zach: You have to change them out. We didn’t know, we had no clue about that and I mean, and so, we annoyed …
Rod: When you did your due diligence you didn’t bring a building inspector through? You didn’t pay for that?
Zach: We did but we didn’t, we just didn’t manage it very well. Like I had partner with another guy who had the subcontractors and we should have been more on top of it because it was our money. It was our money at risk and ….
Rod: So, he brought in, you brought in subs to do the inspections or you brought in an actual building inspector?
Zach: So, I guess he did, we didn’t have like a centralized got cuz PM. Yeah, smaller PM, Rod. So, this PM does like fitty units and below, they didn’t, like we didn’t know we didn’t know so, now, we know like our PM needs to manage all that stuff like they have on our last three acquisitions but on this one we’re like, “okay, we’ll call these, we’ll call, we call an individual plumber. We call the roofer”,
Zach: We call a sewer scope.” You mean, so it’s like …
Rod: But you didn’t say electrician.
Zach: Electrician. Yeah, yeah.
Rod: Let me say.
Zach: We didn’t know about the panels and then, the insurance ….
Rod: Electrician might not even said anything it’s, guys, critical, critical, critical, freaking critical. You always have a building inspection. I do. I mean, I’ve been around this for longer and I wanted to admit and you always have a building inspection. That’s a great, that’s a great one, buddy. Thank you for sharing that.
Zach: Yeah. I know of course.
Rod: So, what else do I wanna ask you.
Zach: I know you had asked so, I told you about, I don’t wanna get out track here, Rod. I know earlier, you had asked about the terms for the second deal and the third deal.
Zach: That’s 137-unit deal. Seventeen and a half million and so, that one is extremely competitive because now when you’re in Phoenix …
Zach: Like with the big boy when we’re at …
Zach: So, on that deal, we did not do an access agreement. We went truly hard day one with no look. We went for hundred and fifty thousand dollars hard gone. They wanted to sign the PSA with no access agreement and no inspection which people going to say that’s crazy which it kind of is but here’s why we ….
Rod: It’s not kind of is. It is.
Zach: But here’s always feel comfortable about. Because we gained Intel two weeks prior with our property management company use the exact same roofing subcontractor that the seller had and they had a full roof inspection done like a month or two prior to us going in under contract so we had a full roof inspection, line-item expenses complete with pictures and called around and our owner of our property manager company which is a very credible company said, “yeah we trust this roofer’, and so, we, basically, under wrote contingency in there to recoat these roofs and retile the issues based on this inspection and the deal still pencil, okay?
Rod: I understand that. I understand that, but here’s, there’s so many other ways that could have gone wrong, okay? I mean, it could have had the electrical situation that you hadn’t, didn’t had on your first deal. Could have had, you know, I mean, maybe it was built in newer or maybe it was new, that was a possibility.
Zach: This was an 80, this was an 80s build so it was all copper plumbing, copper wiring. We checked all the panels during our inspection. I mean, in 80s …
Rod: You did get an inspection. You did get an inspection.
Zach: No, I’m sorry. During our tour, we checked the but they weren’t started working and everybody we had asked there was no stab locked panels in the 80s, okay? And then, we asked our PM, I asked the regional I said, “let’s assume the plumbing and the sewers are totally shot, like destroyed,
Rod: Well, as that was it. That was going there next. What if they’re collapsed or whatever.
Zach: Exactly. What is that cost and they’re like, we’ll, actually, we have a deal that we’re managing this happened last year was a disaster it cost X amount, we underwrote that as contingency …
Zach: Feels still pencil. So, we have working capital to absorb all those costs so we felt confident and to that point to, Rod because you’re right, it is kind of crazy but we also requested the phase one environmental report that the seller had done …
Rod: Yeah. So, you know there’s no environmental issues. That’s a lot.
Zach: And they gladly gave it to us and then, this is an institutional broker, so, they’re very, it’s IP as Marcus and Millichap they’re very professional. This is a small deal for them, honestly. They’ve gladly gave us a phase one. We also asked for a clean title report before ever going under contract. They gave that to us. We knew title was clean, we a new environmental was clean, we knew were covered on the roofs, the plumbing, and it was an 80s builds so, we didn’t have to worry about …
Rod: And you had good financials. You had it, you had a, you know, a credible financials, credible rent roll so you knew you were 90 for 90. I’m assuming you did, you get down recourse debt?
Zach: We did. Yeah. This, yeah, this was a ten year fixed, non-recourse Freddie Mac conventional loan with five years bio.
Rod: Wow. Nice.
Zach: And we got lucky this was, this was a 3.8% interest rate because right after the Fed had announced they were cutting rates which isn’t necessarily direct correlation to the Treasuries but it helped us. We locked in like two days after that. We got a release loan product so …
Rod: That’s good.
Zach: Comfortable. But that’s, that, we weren’t the highest price throughout but we had the most aggressive hard money day one and then, we had really just, we killed it on the interview with the seller because we done our due diligence ….
Rod: Talk about that. Talk about talk about that. Tell us how you killed it.
Zach: Sure. So, how this works? Like I said, it’s extremely competitive deal. You go through your first round of offers or two. Then, they had a best in final, which was five final groups. I had been trying to cultivate this relationship with the broker throughout the process and I just asked him, I said, “hey mister broker, where are we on purchase price hard money terms?” And he said, “you’re actually one here, your two here, your three here, okay?” So, we pushed it where we could. We got into the final three and then, you do interviews with the seller. This is the best and final round and so, they did three interview calls and so, basically, I had personally secret shopped all the comps. So, we had five comps and our top three comps were all owned by the same seller, believe it or not. Because they’re just a big institutional company, and two of those three, they were using the same property management company that was currently managing the subject property that we were trying to buy, okay? So, we basically, just told them and went through all the rents. Like, this is our business plan, this is our working capital based on your other deals that you own, you’ve already completed these finishes and achieve this rent. So, all we’re gonna do is copy what you’re doing and we’ve already modeled it out and because we gave that explanation and we told them that we demonstrated our knowledge of the sub market, they felt confident that we would perform. And I made, we made it very clear too. We are the decision makers. Like we don’t have to get permission from our equity. We, personally have our own money at risk. There was five of us total. We each put 50k in on the front end so, basically, we went hard, we went hard day one 250 no look and then, we went ten day due diligence, okay? Which we didn’t really need because, well, we needed it, but it was clean. We went hard for another two hundred, okay? So, we were 450 after ten days. And so, we, basically, this is our money and so, they felt comfortable and the broker told us that’s why we won the deal.
Rod: Okay. Well, again, those are you listening, high risk, high risk. I mean, without, you know, solid microscopic building inspection could be structural you don’t see could be. You know, just things so just, and I don’t want people to think that they should be out there doing this.
Zach: No, yeah. You don’t have to do crazy stuff like this but this, this is what we did and we felt comfortable.
Rod: It worked. It worked. It worked. It works, yeah. It worked. So, well, listen, you have added tremendous value brother. It’s absolutely a pleasure to meet you and, you know, I know you’re gonna inspire a lot of young people listening on the show and even people that aren’t young because, you know, it’s massive freaking action. Massive, massive freaking action. I love it. So listen, I really appreciate you being on the show and guys, I may come speak at his meet-up in Phoenix where he think he may have roped me into it we’re gonna see if we can get dates aligned. If so, I’ll come down and do that. So, we’ll keep you posted on that. Anyways, it’s pleasure to meet you, buddy. We’ll talk to you soon.
Zach: Okay. Thanks Rod. I appreciate it.
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