Avoiding The Fatal Mistakes In Multifamily Real Estate

Intro
Hi. My name is Rod Khleif, and I’m the host of “The Lifetime Cash Flow Through Real Estate Investing” podcast. And every week, I interview Multifamily Rock Stars and we talk about how they built incredible wealth for themselves and their families through multifamily properties. So hit the “Like” and “Subscribe” buttons to get notified every Monday when a new episode comes out. Let’s get to it.

Rod
Welcome to another edition of How to Build Lifetime Cash Flow Through Real Estate Investing. I’m Rod Khleif, and I’m thrilled that you’re here. And I know you’re going to get tremendous value from the gentleman I’m interviewing today. His name is Taylor Loht, and I’ve been on Taylor’s podcast, which is an awesome show. You guys should check it out. It’s called “The Passive Wealth Strategy” show. So, Taylor is a real estate investor. He’s in multifamily, he’s in self-storage. He’s in, you know, over 500 doors actively as a GP in the multifamily space. He’s in a ton of doors in self-storage. And he’s also a Limited Partner in a bunch of deals. And I think he’s going to bring tremendous value to you guys today. So welcome to the show, brother.

Taylor
Thank you so much for having me.

Rod
Yeah, absolutely. So why don’t you take a few minutes and just give us a little background on why real estate? I don’t know if you started somewhere else and then got into it and, you know, just give us a little– tell us a little more about who you are.

Taylor
Absolutely. So my shift into real estate investing started back around 2015. Your listeners out there who invest in the market might recall, at that time there was a big crash in the price of oil, and that took much of the stock market with it. And prior to that, I had been investing heavily in the stock market because you know, I read all these books about stock market investing and I had done well through that time. But the crash and all the prices kind of gave me some misgivings about the long-term trend. Like, where is this really going to take me? Is it going to take me to a place that I want to be in my 40s, 50s, and so on? And it kind of turned out that that wasn’t going to be the case. Right around that time, I happened to pick up one of the books that is over my shoulder here, “Rich Dad Poor Dad”, although it’s a different copy than I have on display. Read that book. And Robert Kiyosaki, as you and your listeners will all know, got me just fired up about real estate investing. And so I decided I’m going to set myself on the trajectory of escaping Wall Street and investing in Main Street. And it took a few years of investing in deals as a Limited Partner to get onto the General Partnership side and get a more active role in the deals and begin to add value to, you know, business partners, things like that. But I really credit that drop all those years ago in the market for what got me started looking for ways that I could actually kind of actively add to my portfolio rather than just ride the market along. So that’s really what got me started in real estate.

Rod
One of the questions I like to ask is, you know, in your career, did you have any aha moments or any like, epiphanies? And it sounds like that was one, you know, you shifted. And what’s your background? I mean, obviously, you know, you weren’t born with money to invest. Did you work some other business? I’m just curious just for my own edification. I’m just curious what you did prior.

Taylor
Sure. So I got a degree in chemical engineering and graduated from school solidly over a decade ago now, and the time flies, but as I say, you know, I got a big boy job and started making some big boy money, had a few nickels to rub together and I was looking for ways to turn that into more. So that got me started investing in general, really investing in the stock market. And I started with a strategy from another book that’s over my shoulder here, “The Intelligent Investor” by Benjamin Graham. That was the first investing book that I read about anything. That really teaches you about value investing specifically in the stock market. It’s a strategy that Warren Buffett uses. Benjamin Graham was one of Warren Buffett’s mentors. That’s what you know, got my kind of foot in the door as an investor in general.

Rod
Got it.

Taylor
Yeah.

Taylor
My brother went to the Colorado School of Mines. He’s got an engineering degree as well. I don’t know if it’s chemical or it’s geological or what it is, but no, it was actually oil related. So, you know, you brought up Kiyosaki. You know he’s been talking about a major crash and now, you know, eventually, he’s going to be right, but I mean, he’s talking about doomsday kind of stuff and he’s a very credible guy as it relates to his strategies. And I’ve read every one of his books and think they’re fantastic. What are your thoughts on the current economic conditions where we are right now? And, you know, I’m just curious what your take on, on that is.

Taylor
Sure. So that’s an interesting question and it’s a really big topic.

Rod
Right.

Taylor
When I first started investing in real estate, one of the first events that I went to, a real estate syndication event was The Real Estate Guys Secrets of Successful Syndication.

Rod
He was there, right? He was there. I went to that syndication event by The Real Estate Guys as well. This is ten years ago, but sorry I interrupted, but anyway.

Taylor
No, it’s okay.

Rod
But Kiyosaki was actually there because they’re good buds.

Taylor
Oh, yes. They’re good buds and there was someone else there whose name I’m not going to say, but another prominent real estate investor got up and spoke and talked about how the crash is right around the corner and this was in 2016. Well, if I had taken that advice, and man, I’m not going to get into real estate in 2016, then I would just be so much further behind.

Rod
Right.

Taylor
I think, really, it’s a question to me of time frames. I’m 33. I’ve got a long time, I have a pretty long time horizon compared to, say, Robert Kiyosaki, who is, I believe, in his 70s. Right? And, you know, I think in a way, you know, another guy that I like is Peter Schiff. And The Real Estate Guys are also friends with Peter Schiff.

Rod
And he’s a doom and gloomier along with Harry Dent. Yeah, sure.

Taylor
And one of the things they like to say about Peter Schiff is he’s predicted 19 out of the last two recessions. And if you keep ringing that bell, you’re going to be right eventually. I mean, these guys, they bring up good points, right? There are always risks in the economy, but to me, if we own real assets with, you know, real tenants in there, paying the rent with responsible leverage and responsible reserves, then I feel good about our long-term prospects, you know.

Rod
I agree completely with the last part of what you said. Completely. And we’re actively investing. I’m gearing up. I actually do believe the soup is about to hit the fan. I absolutely do believe we’re going to have some pain in this country and it’s going to be bigger than people think. But I wanted to get your perspective, but what you said about you know, prudent investing, reasonable leverage, definitely have operating reserves and so on and so forth, absolutely is dead on. So, you know, you sent over a list of some topics you enjoy talking about and one of them is mistakes that you see in the business. And it’s one I love as well because we see them all. And so talk about some of the stuff you see, you know, some of the top mistakes you see multifamily investors making.

Taylor
Absolutely. So these are going to mainly focus around value add multifamily investing.

Rod
Which is what we do.

Taylor
Yes.

Rod
And just to clarify, guys, if you’re brand new and don’t understand that term, you know, the beautiful thing about commercial real estate is you’re able to increase the value through your efforts. You can’t do that with residential multifamily, which is two to four units, but anything five units or above is based on a multiple of the net income and, you know, the cap rate associated with the net income. And so you’re able to massively increase value and force appreciation. So that’s value add. That’s what we do. So please continue.

Taylor
Yeah, absolutely. So they’re going to focus around that particular strategy. And I think mistakes that folks make in implementing value add strategies and, you know, not an exhaustive list, but these are the top ones that I’ve either made myself or observed other people make. A big one is thinking that you can move the line. So what do I mean by that? In value add multifamily investing, we typically will look to buy a property, fix it up, raise the rents and sell it for more, a few years down the line and cash flow the whole way through. That’s the goal. Sometimes that means we’re going to buy a property that is “over the line”. It’s in a slightly less nice area, but it has potential. We think we can fix it up and raise the area around it, essentially. And it’s just slightly over the line. But I’ve seen so many real estate investors make this mistake in thinking that they can move that line more than they really can.

Rod
So you’re talking about the railroad tracks, basically.

Taylor
Exactly.

Rod
You’re talking about the wrong side of the tracks. Well, let me speak to that. I’ve not seen that, but I could certainly see that happening. But I will tell you, and it’s a much longer-term play, and it would not be a value add play. So it definitely ties into what you just said. But I can tell you, there are areas when they gentrify where you can make a fortune, but it’s long term. I remember I tell the story of a property, a house I bought in Denver that I flipped, I paid 56,000, I sold it for 76, and I made a nice hit. The market crashed. This is the late 80s. So I sold it for 76, I bought it back for 18. Same house. Sold it for 160 and the area gentrified and it’s worth a million now. So, you know, there are areas– I mean, there were areas in Denver where I could buy whole blocks for about 20 grand a house, and those are a million apiece now. They’re antebellum properties, but as it relates to value add, which we pre-framed this with, you’re absolutely right. If you’re in there, you’ve got to have– the areas got to support the asset. So totally agree with that one. So what’s another one? Oh, by the way, guys, I have a list of mistakes, too, that I give away. If you text “29 mistakes” to “72345”, it’s a book that you can get, and it’s got a bunch of the ones– and we’ll see if some of those are in there. But that’s an asset– I’m sorry, a resource for you, but please continue.

Taylor
I think the next big one is not understanding your financing. And that has hit a lot of people as these interest rates [inaudible]

Rod
Especially right now. Yeah.

Taylor
Absolutely. And that goes both ways, too. That goes in a falling interest rate environment. Certain prepayment penalties can get much more expensive as interest rates fall. And that happens in rising interest rate environments as well if you plan on having to refinance, you know, whatever, 4%, but you can only get financing at six, seven, 8%, then that’s obviously a very big problem. And I do see people making those mistakes. It’s kind of some of these things you either only hear about behind closed doors. You have to you know, have conversations–

Rod
Not with me. I actually think that a lot of these new operators that purchase properties that didn’t do their proformas properly and didn’t plan on higher interest rates for their liquidation event are going to be in trouble, you know, whether it’s a refinance or a sale because you know, the rates have really gone up and they’re anticipated to continue to go up through next year. The Fed has said that. So, you know, and I’ll tell you, it’s not just the interest rate you get when you purchase, it’s the interest rate you proforma to get the returns that you want five years from now and or three years from now or whenever you sell or refinance. And that’s where a lot of people are going to get their clocks cleaned, you know. And I’ll tell you and I think there’s going to be some real pain in the bridge debt environment as well, these people that got you know, adjustable rate bridge debt. So I think there’s going to be some opportunity is my point, to the degree, I mean, I think it’s going to be bigger than people think. But even if it’s mild, there will be an opportunity in that environment. I’ll give you an example. We were looking at an asset in San Antonio and the guy had bridge debt and his reserve to the bridge lender went from 8,000 a month to 80,000 a month.

Taylor
Whoa.

Rod
Do you think that hurts? Yeah. And I was talking to another operator that was trying to kind of funnel me a deal where the interest rate for this particular group had gone from like three and change to six and change. Okay? In a multi-million dollar deal that is a big issue. Anyway, what other mistakes you got, brother?

Taylor
The way I put this next one is insufficient asset management, meaning not sufficiently managing your property manager. Giving them too much rope or trusting them too much with the execution of your long-term strategy and not keeping a really close eye on what they’re doing, whether it’s with renovations or lease renewals or anything along those lines. We can’t lean on our property managers too, too much to know how to implement our long-term strategy. It’s our responsibility to be looking over their shoulders and making sure that they’re doing that because you know, we have investor capital in these deals. We’re receiving you know– in the syndication space, you’re probably receiving an asset management fee. You need to have somebody who’s responsible for that asset management and looking over the shoulder of your property manager. I see a lot of folks– especially newer syndicators, thinking that it’s a little easier to do asset management than it really is. It’s something that you have to kind of actively take care of and make sure that your vision is being executed as you expected and on budget and on time.

Rod
Yeah. And so, you know, just for you, total noobs, you know, there’s a property management and there’s asset management. And if you think you’re going to buy an asset like this, hand it over to a property management company and raise your hands like you just did a rodeo rope on a cow? No, you’re going to stay involved, okay? And, you know, you’re going to have KPIs, Key Performance Indicators. Metrics that you’re measuring every, frankly, typically, weekly for our assets. And, you know, forgetting the CapEx projects that you’re going to have to be measuring and managing and paying attention to. But, you know, even on an ongoing basis, once you’re stabilized, you’re looking at renewals, you’re looking at, you know, how long a maintenance order stays out there, you know, late pays, and so on and so forth. There’s a whole myriad of KPIs that you have to pay attention to. And you’re absolutely right. You know, and I will tell you something. If the market really does start hurting, you know, it’s the unseasoned, unengaged operators, they’re going to have problems with asset management. And I see it coming, you know, where they’re really not keeping their eye on the ball and watching their vacancy and their turnover and so on and really tenant experience and all of these things that are so important moving forward. Awesome. What else?

Taylor
So the next one is I think– so basically, it’s focusing too much on the final return projection and not enough on the underlying assumptions. And a lot of the time that comes down to the timeline to actually execute your value add strategy and the way in which an IRR calculation works. So a lot of folks focus on the IRR projection on a multifamily deal and they’ll look at that number only. But the calculation of IRR is heavily driven by the time frame that it takes in it and the way in which those cash flows occur. So if you assume that I’m going to get this value add done, raise the rents in one year, but in reality, it’s going to take me three years to do it, well, the actual returns that are generated in those two scenarios are incredibly different. And we need to bear in mind the reasonableness of our time frames and not just focus on trying to maximize those return projections on paper because the paper doesn’t really mean anything in reality. We can’t trick ourselves with our calculations.

Rod
Oh, and I’ve seen so many, you know, pie-in-the-sky proformas or, you know, deal sheets from prospective operators, you know they don’t have their vacancy go up when they’re doing their reposition. Oh yeah, they’re going to turn over 300 doors in one year you know, or reposition 300 doors in one year and things of that nature. And I’m like, come on, really? Do you know how many that is a month? And so on and so forth. So you’re absolutely dead on. And for those of you who don’t know what IRR is, it’s the Internal Rate of Return. And it’s basically the return that’s calculated over a period of time from all sources. It includes cash flow, appreciation, principal reduction, and so on and so forth. And it’s one of the you know, return metrics that an investor will look at. They’re also going to look at cash on cash return. It’s just the amount of return if somebody gets on their cash in a deal on an annual basis, and those are the two typically that are most important that an operator will project. Okay, agreed. Agreed. What else have you got?

Taylor
So I’ll say this is probably my last favorite one that is more unique from the others is not doing sufficient physical due diligence. Just kind of looking at a handful of units. And again, this is more of a newbie mistake. I think the more experienced folks will know to walk every single unit, look and catalog the physical conditions, and also bear in mind the age of the property. I think newer investors are more willing to go for the more 1960s build, C-class property that’s ultimately got a lot more skeletons in the closet. It’s going to need a lot more CapEx as you own the property and the CapEx that doesn’t add to your NOI, it’s just kind of dollars down the drain. Whereas more experienced investors will know to do the very thorough physical due diligence so that they can either back out if something’s not as advertised or they can properly budget for their renovations and plan moving forward.

Rod
That’s really good and dead on and it’s just you know what I teach at my boot camps is literally you have to go look at every single unit. You know, you should have somebody videoing, somebody taking pictures. You take a picture of the unit number or video the unit number. Everything behind that is the unit. You look under the cabinets, you run the water, you look at the floor, ceilings, walls, in every nook and cranny, and just see what’s going on. And if anything is questionable, you bring in experts in that particular genre, whether it’s there are potential structural issues, cracking, whether it’s plumbing, electrical, you know scoping the drain lines. You know you do all of that. And I will tell you, you should always have an inspector or a contractor there when you’re doing your due diligence. Every single time. I have bought thousands and thousands of units, and I always have one there. And, like, for example, we bought an asset in San Antonio, and, I mean, I could probably pass my GC license. I’ve been in the business that long, but I brought a GC, and I missed something that he saw. You had to stand just right to see that this brick wall, it was a full brick wall, but it was bulging at the top, and you had to be right in the perfect spot to see it. And he saw it, and I didn’t. And when we saw that, we said, hey, slow down. We were out of due diligence– we were almost out of due diligence time and said, hey, told the seller, we need a couple more weeks. We got an engineer in there. We found that there was some structural stuff that had to be dealt with. I mean, that property was 40 years old. That’s going to happen. It was built in the 80s, but we got a significant concession because of what we discovered. And had I not had an expert there that wouldn’t have happened and so definitely never short circuit the due diligence process. Okay. So those were awesome by the way. Great value in those.

Taylor
Thank you.

Rod
Now, you had flagged, mentioned something about a mistake that you made with a property management company that allowed them to basically steal from you. Can you elaborate on that?

Taylor
And the key factor is almost get away with it.

Rod
Okay. Almost. Okay.

Taylor
Ultimately they didn’t get away with it but it was close. And I see others make this mistake as well. And really what happened in this deal is that there was kind of a quasi-third-party relationship with the property manager. And what I mean by that is a lot of times when we get into this business we want to use a third-party property manager because they’re going to get the deal done. We have the scale to pay them and if they underperform then we can hopefully terminate them and find someone new. In this particular case, the owner of the property management company as an incentive to perform, at least the theory was as an incentive to perform. He received General Partnership ownership in the business that owned these properties. And I’ve seen others make this mistake too and I’ve always seen it backfire. But granted I don’t know all the cases out there but instead of that being a reason to outperform, really what that did was you know psychoanalyzing him but it helped him feel that he couldn’t be fired and that led to malfeasance and miss spending of funds and ultimately that was discovered and he was terminated. But then there’s this question of these General Partnership shares and it turns into a legal battle, arbitration, and all those kinds of things on the back end. That kind of process can take years and be very expensive. Ultimately, it ended up working out sort of but we were saved in that deal by frankly the market. That situation should have sunk us. The market itself was growing in such a way that we still made money on the deal nowhere near as much as we had hoped to. And I’ve seen others make this mistake as well thinking that giving a third-party property manager, giving them some kind of ownership will be seen as an incentive to perform. But in practice, it just helps them feel as though they can’t be terminated and they either underperform or, you know, in our case do some kind of malfeasance or theft or however you want to define it and it just leads to problems. We should either have–

Rod
I would hope to think that they’re not all like that. But I will tell you, I agree you know giving them something like that could be a cause for problems. I’d say it would be every time.

Taylor
Not every time.

Rod
But it could be. But allowing them to invest is not necessarily a bad thing.

Taylor
No, not a problem.

Rod
And we’ve had property management companies who want to invest in our assets. And, you know, that’s not a bad thing. That’s actually you know kind of a stamp of approval, as it were because they’re so familiar with the market and so on and so forth. Okay, so why do you feel like new real estate investors you know fail to really scale their businesses? Talk about that a little bit. What do you see with newer real estate investors that kind of locks them in where they don’t really scale?

Taylor
Sure. So I’ll narrow it down to three of the top things that I see happen, most common, and so many of these you’re going to find, or your listeners will find really start in your mind. It has nothing to do with the market so much as it has to do with the way we approach it and the way we think about it. And to me, number one is the lack of commitment to the grind. There’s so much content out there, folks saying that this business is easy. It just kind of happens. If you get a good deal, the money will follow. In my experience, that’s not true. This is work. Like we have to put the work in to find the deals, to find our investors, to manage the deals, you know, whatever. It’s a grind and to get things built, especially at the beginning when you don’t have traction, you don’t quite know what to do. Maybe you haven’t hired a coach yet or gotten into a program, you’re not sure what next step to take. You’re maybe not committed to making and taking that daily action to make things happen.

Rod
No, that’s a really valid point, and I have to tell you, you know, and I think that’s one of the reasons my students have been so incredibly successful. I mean, they’re pushing 130 and 140 thousand units that I know of, and I’ve been teaching about five years and it’s because I spend so much time on the mindset component where they actually take action with what they learn. It’s not just the technical side of it. It’s pushing through fear, pushing through limiting beliefs, getting uncomfortable, grinding for a few years like most people won’t, so they can live the rest of their life like most people can’t. But you’re absolutely right, it’s not you know a get-rich-quick thing. It’s become a super freaking wealthy over time thing. But you got to work it. Okay? That’s it. You know, there’s no free lunch here. You got to work it. But yeah, no, agreed. If you’re listening to this thinking it’s not going to take much of your time or much work or, you know, you’re not going to have to grind it all, you know, you need to go find something else because this is not it. Now there is an incredible opportunity and a lot of people become very wealthy and I really believe an incredible opportunity is coming. But you don’t have to work it. Okay? It’s not going to be handed to you. Agree completely. What’s another one?

Taylor
All right, so the next one is lack of focus. And I really define that as shiny object syndrome. Okay, so this week I’m interested in value add multifamily investing. Maybe I’m interested for a month or so, but then I hit that wall. It gets tougher. Maybe I go to a real estate networking event, a general real estate networking event. I hear about folks who are doing great things in self-storage. Now, I invest in self-storage, but okay, now I’m moving from value add multifamily, I’m going to focus on self-storage, and I work on that for a few weeks to a month. And then I go to another investing event. I hear about how folks are doing really well with land. Oh, man, now, I’m going to be a land investor. Forget self-storage. I’m going to be a land investor. And just bouncing between those things. Again, you’re not making traction. You’re not taking steps to move forward. You’re just hitting a wall and moving to the next thing. And I think shiny object syndrome– and this frankly, this is one that applies to me as well, early on.

Rod
Me, too. Me, too. I’m going to tell you right now. It’s painful to hear you say this because this is Rod. Okay? Oh, my God. Shiny Penny. And I’m having my hands next to my head, turning my head. You know, I’ve built 27 businesses in my lifetime. I was shocked when I found out the number, and several have been worth you know, tens of millions of dollars. But, you know I don’t call them failures when they fail. I call them seminars. Like, I lost $50 million in 2008 and ’09. That was a $50 million. That was a big seminar. But, you know, most of my businesses have been flaming seminars. You know, we fail our way to success. But what you said about focus is so freaking important. And I remember in Denver, at one point, I had frozen yogurt shops, two frozen yogurt shops. I had vending carts selling ice cream carts– ice cream bars. Downtown, I had a carpet cleaning business. I was doing real estate. Everything suffered, okay? And, you know, then when I got rid of everything you just did real estate. I bought 500 houses in that run. You know, focus is power. And where your focus goes, you know, your energy is going to flow. And when you’ve got incredible focus, you’re going to have incredible success. And here’s what’s really important. In what’s coming, your focus is even more important because if you’re focused on the crap on the news, which is mostly crap, you know that’s going to get bigger. Whatever you focus on gets bigger, positive or negative. And if you’re focused on that, you’re going to get more and more negative. And again, I’m looking in the mirror because I’ve done that a little bit in the past as well. Got caught up in the election crap and all that stuff. But, you know, it’s super, super important that you manage your focus. And you wouldn’t be listening to me if you weren’t a leader. And as a leader, right now the world needs leaders more than ever. And as a leader, you really have to pay attention to your focus. And, you know like I’ll get people call me and say, I’m trying to get out of student loan debt and I’m like, wrong statement. You need to make so much money that debt is irrelevant, you know. And they asked Mother Teresa if she was anti-war. She said no, I’m pro-peace. Right? That’s focus, right? It’s what you focus on is super important. And, you know, it’s funny, I get excited about my podcast at 15 million downloads, but I listen to two shows. One of them is Joe Rogan and the other one is Tim Ferriss. So I get both sides of the aisle.

Taylor
Nice.

Rod
I try to be as balanced as I can. And, you know, Tim Ferriss probably gets 15 million a week. But one thing I noticed about him– I’m sorry, I’m belaboring this because focus is a big topic in my training. And I want to mention this. You know, one thing I noticed, so he interviews the best of the best in the world. So the best athletes, Michael Phelps, NFL NBA players, best actors, Jamie Fox, Ed Norton, Hugh Jackman, Arnold. Billionaires like Ray Dalio, CEOs, the biggest companies in the world, Zuckerberg, and so on and so forth. And I started to hear a pattern. They all meditate. What does meditation enhance? Focus, right? Anyway, so I’m really glad you brought focus up because that is such a critical, critical really superpower as it relates to– and again, the more that’s diluted, the more shiny penny syndrome I have, the more you’re diluted, the less successful you’re going to be. So, you know, pick your vehicle. And right now, if I’m right, and you know, I may not be, but if I’m right and everything’s going on sale, I believe it is, you know, pick your vehicle. If it’s you know going to be buying businesses, if it’s going to be buying single-family, if it’s going to be buying multifamily, get up to speed immediately, okay, because opportunity– it’s going to be trading stocks like you were doing. Whatever it is, get educated immediately. Obviously, if it’s multifamily, get your butt to my boot camp. I’ve got one coming up in January. But whatever it is, get up to speed as fast as you can. Anyway, sorry about the long response.

Taylor
No. Can I even comment on that?

Rod
Please.

Taylor
And on the negativity. So and this kind of ties into what we were talking about Kiyosaki and these other negative– guys who have negative projections. I think a lot of times newbies, in particular, will hear such and such prominent real estate investors says the crash is right around the corner, and newbies who are thinking about it, take that as a reason to sit on the sidelines and wait for a crash. And if you think a crash is coming, okay, I’m not going to disabuse you of that notion, anybody out there but the best real estate investors are the people who will perform in that crash if it happens, are the people who aren’t sitting back and waiting for it. It’s the people who are looking at deals, building their network, building their business, getting ready rather than just sitting back.

Rod
Oh, and maybe even buying– you know, listen, if you’re looking at deals, stuff will come across. This business is empirical, it’s numbers. If you’re evaluating deals, you’re going to stumble across the deal even if the bottom hasn’t fallen out yet. So there are deals all the way through this at any point in the cycle that makes sense. I mean, we just closed on one a few months ago. And so the point is, you’re absolutely right. And I get that, should I wait? No, don’t wait. Get your butt in there and mix it up. Look at deals, make relationships, get as educated as you possibly can. Because if you’re trying to learn this in the thick of it if it does happen, it’s going to be too late. And so, yeah, really glad you said that. Really glad you said that. Was that all three or was that just–

Taylor
I’ll give you number three. That was just two.

Rod
Okay.

Taylor
So number three is trying to go it alone or general fear of partnering. And I see this one most often with people who have bought a couple of rentals with their own money, which is awesome, I’m very happy for them. And they’re thinking about scaling, but they’re afraid of bringing somebody on or maybe bringing in investors or just expanding their team. It’s a fear. And granted that it’s a thing to be concerned about. Right? Because I think if you’re in this business long enough, you’re going to be burned by a partner somewhere along the line, unfortunately.

Rod
Yeah.

Taylor
But if you want to dive into real estate syndication, you know I’m sure again, at your events, you’re really encouraging people to get to know one another and form partnerships. And you probably have a lot of students that have built their portfolios together and they may not have been able to do that if they hadn’t partnered with one.

Rod
Correct. But I have a resource to help them with that because partnerships are like a marriage, easy to get into but hard to get out of. You know you need to ask all the hard questions upfront. I’ve got a resource of the questions you should ask before you get in a partnership. And if you want that, text the word “partnership” to “72345”. I’m sorry I stole your thunder, but please continue. I’ve got something to add on this before we’re finished with this topic.

Taylor
No, that’s really the whole point I’m trying to make is multifamily syndication is business. It’s a big business. There are a lot of moving parts, there are a lot of hats that need to be worn. One person can’t do all of it. In any syndication business.

Rod
Nope.

Taylor
So get partners, you know, make smart partnering decisions, of course.

Rod
Right. It’s a team sport.

Taylor
Yes.

Rod
And, you know, that’s how you know, out of those 130, 140, whatever it is, thousand doors that my students have, it’s all between Warriors. It’s all between those students because it is a team sport. But the beautiful thing about the fact that it’s a team sport is you can pick your hat that you’re going to wear. If it’s finding deals, building relationships with brokers or investors, if it’s doing the analysis, if you like underwriting, or if it’s the asset management. If you’re good with project management or construction experience or management experience, whatever it is, there’s a place for you. And so you can play to your strength. And when you play to your strength and you hire a line or partner for your weaknesses, success is inevitable. And so, you know, absolutely glad you brought that up. And like I said, before you get in a partnership, make sure you ask all the right questions. Get that book that I have it’s. It’s got every question you can think of. You know, the hard ones. What happens if somebody dies, what happens if you don’t hold your weight, you know, and all these things you need to check. And so text “partnership” to “72345” for that book. But here’s the one really important thing, and it may not sound important, but it’s usually important. Trust your freaking gut. Your brain is so powerful that it can see these micro nuances when you meet somebody that you’re not consciously aware of but something doesn’t feel right, trust it. You know there’s a great book about this called “Blink” where you know, art experts, like the best in the world can look at a painting and they know it’s fake, but they don’t know why they know it’s fake. It’s the same thing with when you meet somebody. And just trust it. Women are better at this than men. You know, it’s, yeah, that sexist. But it’s the truth. They have better intuition, but you can hone it. Even as a guy, you can hone your intuition and trust it. That’s the key I want to make there is when something doesn’t feel right, it usually isn’t, but you’re not consciously aware of it. Do you agree with me, Taylor?

Taylor
100%. It’s funny that you bring up “Blink”. This is somewhat unrelated, but this fall I did a personal discipline challenge called “75 Hard”. Maybe your listeners have heard of that before. It’s a 75-day challenge put out by a guy named Andy Frisella. There are a number of things you have to do on a daily basis [inaudible]

Rod
Oh, he’s that killer guy, the big buff guy, right?

Taylor
Yeah, huge guy.

Rod
Yeah, okay. Right.

Taylor
And a few things you have to do, you have to work out twice a day. One of them has to be outside. You have to follow a diet. You have to read ten pages of nonfiction a day. And one of the books that I read was “Blink” by Malcolm Gladwell. So, yeah [inaudible]

Rod
No kidding. It’s a good book. All of his books are great.

Taylor
Oh, yeah.

Rod
Awesome. Well, you know, I know you like many of the people on the show, are actively pursuing passive investors for their deals. I am as well. And, you know, finding that debt and equity for deals is going to be probably the biggest challenge. I don’t think it’s going to be as big problem as finding the deals themselves. So, you know, as a passive investor, what are some red flags that you know, you’ve seen that you could alert passive investors to?

Taylor
Sure, yeah, absolutely. And like the top mistakes in value add multifamily investing, not an exhaustive list, but these are kind of top things that I see on a recurring basis that have come up many times. I mean, number one, the track record of the sponsor. Have they done a deal before? Is this their first rodeo?

Rod
Right.

Taylor
To me, that’s a red flag, I’m not interested, but other investors may decide otherwise.

Rod
No, no, no. That’s really smart. I hate to keep bringing up all these resources, but you’re bringing up strategies that I actually have books, there’s “The Questions To Ask When Forming a Partnership”. But I actually– well, please continue. Give us some more and I’ll show you something else.

Taylor
You’re well prepared.

Rod
Another great resource about being– investing in a GP, but go ahead, please continue.

Taylor
So number two is if your sponsor and your property manager are entering a brand new market, that is not a good setup. It’s one thing if your sponsors stepping into a new market, but they have a relationship with a property manager who’s already in that market. You already have some market knowledge. But if both are getting into the market for the first time, it’s something of a blind leading to a blind scenario. You don’t have that boots-on-the-ground experience in the particular market that’s being discussed. That’s a concern. I’ve seen that backfire you know, for a lot of folks before.

Rod
Yeah. That can. You know I can tell you that we typically don’t go into a market unless we have a presence or one of the GPs lives there or we’ve got– or there’s got to be some component there. But you know, obviously, we’re very seasoned, so it’s a little different. But you’re absolutely right. But anyway, I found my resource about passive investing, which is “Questions To Ask a General Partner in a Syndication Before Investing”. And the two you just mentioned are in here. What else have you got?

Taylor
Absolutely. So number three, unresponsive investor relations. So syndicators should have someone who’s responsible for working with investors and investor relations. If they don’t respond to your emails proactively before you invest, what are the odds after they have your money that they’re going to be proactive?

Rod
Super important. Super important. The communication is critical. By the way, if you want these questions, if you’re thinking of investing passively text “GP questions” to “72345”. I’m dumping a lot of stuff on you guys, but “GP questions” to “72345”. But what else?

Taylor
So next one, unrealistic time frames. And that goes back into what we talked before about common mistakes in value add multifamily investing. But if they have again, a renovation plan that in reality is probably going to take three years to complete the entire thing but they are saying we can get it done in one year, well, you know, do they really know what they’re talking about? That’s a big red flag.

Rod
No, that’s huge. By the way, guys, you know, if you are thinking of just investing passively, I’d highly encourage you to come to my freaking boot camp. You can still come for $97. It’s two days. I don’t sell anything there. It’s kind of a no-brainer. And why would you give your hard-earned money to someone without having some basic understanding of what it is they’re doing, right? And is it worth two days of your life to make sure you don’t make a huge mistake? I mean, even if you’re going to invest in the stock market, get some freaking education before you just hand your money off. So many people just hand their hard– I mean, they work their butts off for this money and they hand it off and it gets squandered. And so, you know, I don’t know if you agree with me, Taylor, but I think you should do some basic education before you invest.

Taylor
Oh, yeah, absolutely. I’m sure you’ll have a lot of fun at the event, too. That’s the other thing is, you know, a lot of these events are a lot of fun to attend [inaudible]

Rod
Mine is fun.

Taylor
I’m sure.

Rod
Mine is definitely fun. The super successful people in this business that invest passively and actively go to a lot of events, honestly, the ones that are the biggest ones that I’ve seen. So, one more.

Taylor
One more. So I’ll say unrealistically high return projections. What I mean by that is in the time that I’ve been in this multifamily business, the average band that folks are projecting this type of a deal is going to generate has actually gone down just what the market is thinking we’re going to be able to do in a multifamily value add deal, that’s ticked down over the years as the market has matured and all these other things have happened. Well, if somebody is telling me that they’re targeting a return that would have been a stretch projection maybe five or six years ago, and today it’s completely out of line. Well, are they really being realistic? Are they being conservative in their underwriting? Or are they being just a little pie in the sky, aggressive? That’s a big concern.

Rod
Yes. Agreed. Well, listen, brother, you’ve added a lot of value today. I’m really glad I brought you on the show. And guys, check out his podcast, “The Passive Wealth Strategy” show. And Taylor, listen, happy New Year, my friend. And let’s make sure we stay in touch.

Taylor
Absolutely. Thank you.

Rod
All right, brother. Take care.

Outro
Rod, I know a lot of our listeners are wanting to take their multifamily investing business to the next level. Now, I know you’ve been hard at work helping our Warrior students do just that using our “ACT” methodology which is Awareness, Close, and Transform. Can you explain to the listeners how they can get our help?

Rod
You bet. Guys, we’ve been going non-stop for three years building an amazing community of like-minded people, and our coaching students which we call our Warriors have had extraordinary results. They’ve purchased thousands and thousands of units and last year we did over 1,000 units with our students. And we’re looking to grow this group and take it to the next level. We’re looking for people who want to follow a proven framework that’s really step by step and then leverage our systems and network to raise equity, to find and close deals, and to build partnerships nationwide. Now, our Warrior community is finding success in any market cycle. So if you’re interested in finding out more about how you can become more of our incredible network and take advantage of the incredible opportunities that are coming very soon, apply to work with us at “MentorWithRod.com” or text “CRUSH” to “72345” and we’ll set up a call so you can check us out and we can check you out. That’s “MentorWithRod.com” or text “CRUSH” to “72345”.