Ep #533 – MFRS – Crushing it in multifamily while still rocking a day job.
Lee Fjord started out as a single family home property manager. After listening to the podcast and changing locations, Lee is now following his multifamily dream in St Louis.
- Increase in NOI is an increase to the value
- Roles on a Team
- Deal timeline
- Understanding what the community needs
- Third party property management
- Sequencing a reposition
- Current government help
- Shifting your money mindset
- Creating reach
- 506(b) vs 506(c)
- How to ramp your business
- What to look for in a partner
To find out more about our guest:
Full Transcript Below
Rod: Welcome back to Multifamily Rock Stars. So as you know, this is where we interview people that are crushing it in this business and this is where we give you the inside scoop as to how multifamily investors are creating massive success in their businesses and in their lives. And as always, I got my co-host, the director of my massive action team from my Warrior group Mark Nagy on. Mark, what’s up brother?
Mark: Hey, not too much Rod. Really excited for today’s call. Man I got to tell you, literally every single week when we do this podcast, I’ve been picking up gold nuggets that I’ve been using in my own business here. So, just really excited week by week to just continue to compound that into what I’m learning myself and obviously for the listeners. So let’s get into it.
Rod: Love it, love it, love it. So, we’ve got a really cool guy on today. He’s a warrior, his name is Lee Fjord. And, you know, he’s I think 120 plus units right now. He’s just syndicated his first deal. He’s fired up and we’re lucky to have him. Lee, what’s up brother?
Lee: Hey Rod, thank you so much and Mark of course for having me on the show and to bring some value to your wonderful audience.
Rod: Love it, love it. So tell us, you know, take us back a little bit Lee and tell us a little more of your story because I know you’ve been around the real estate business for a little bit. I know– and then you could talk about maybe how we met after that but talk about your story first.
Lee: Absolutely. I started as a property manager in 2012 with about 20 houses under management, residential management. Grew that to 220 doors in four years. Became a long time listener of “The Lifetime Cash Flow for the Real Estate Investing Podcast” and, you know, learned as much as I possibly could without actually doing any work. Then, I moved to St. Louis and started investing in 2017. Put my money in my effort where my mouth was and now I’m following my dream.
Rod: Love it, love it. Now, you know, you showed me your book earlier. So, you know, I give away my books at my live events. What live event did we meet at?
Lee: So, we met at the Los Angeles live event. I believe it was in January right before Covid hit.
Rod: Right before Covid, yeah. That was a fun event. That was the last live one we did. You know, Tiffy, my wife has been bugging me. When are we doing another one? When are we doing another one? Of course, I get lots of dms and emails from people. Hey, you’re going to do a live event there loser. Let’s get– pick it up here man. But, you know, the problem is, you know, you’ve got to pay for the room block if people don’t show up, you’ve got to pay for the food and beverage minimum, and there’s a lot of expenses involved. And a lot of people are still scared so I’m hoping, I’m really hoping, for the third quarter, maybe fourth quarter, we’ll do another event. But anyway, so talk about, you know, I know that this latest deal, I think you– this. Yeah, let’s talk about that latest syndication deal you just did. I think you did it with a couple of other warriors. Just give us a little more detail.
Lee: I did. So, it’s in my backyard here in St. Louis. I found it off market. Seventy six, two-bedroom, one-bathroom, garden style apartments built in the mid-80s. Got it under contract for 47 and a half of a door. Went and found some great partners through the warrior program and then we put together syndication. Closed the deal in about 75 days. Used regional bank financing and closed on october 27th just right in the middle of Covid and right before the holidays hit. And it’s been going great ever since.
Rod: Fantastic. So, 47 a door. Wow, for garden style built in the 80s. That’s a hell of a deal honestly. I mean, wow, so what’s the business plan for that? I assume that, you know, I don’t know if you’re doing any CapEx, if you’re just gonna bump the rents without CapEx, what are you thinking you’re gonna do on that one?
Lee: It’s a heavy lift value add. Current rents are averaging $650 and we’re going in and doing a complete overhaul on the units. And those new units are leasing for $800 after we’ve put, you know, done the nines to it. You know, new kitchens, new paint flooring, you name it which is costing us about $7,000 a turn. And yeah, the $800 plus RUBS is what we’re getting for those new units.
Rod: So what he means by RUBS is he’s going to build back the utilities. It’s called “Ratio Utility Billing” (RUBS). And so, you know, of course guys any increase to the net operating income is an exponential increase of the value. So, certainly by decreasing expenses and billing back utilities that will go right to the bottom line and then of course those big rent increases will have an impact as well. Well, that’s fantastic man. So, let me ask you this because team is such an important piece of this. What role do you play in the team and what else have you got that other people are doing in the team?
Lee: So, I take on the role of the asset manager. Boots on the ground here in St. Louis. Anything that has to do with the physical asset, or the leasing, or the management. We do hire third-party management but I do– I’m very active and involved with that aspect of it. Bidding larger CapEx projects. And yeah, really at the end of the day, anything to do with the day-to-day aspect of the property, that’s myself. And then my other partner, Chris handles the accounting, the banking, the you know, top of the line, filing taxes, making sure our LLCs and companies are all completely legal and up to date. And then my other partner, Marvin handles our investor relations. So, keeping in contact, keeping us in touch with all of our Limited Partners, and keeping them apprised of what’s going on, leaving me the time and ability to focus on making sure that value at heavy lift goes on without a hitch.
Mark: Man, I love it. Well, I’d actually like to dive in a little bit more on the timeline of this deal if we could because I get asked a lot. So, did you go out and find the deals first and then put the team around you based on what you needed or did you build that team first and then go out and find the deal? What was your timeline on this one?
Lee: I found the deal. I had an idea about who I wanted to partner with. One of my partners’ Chris and he and I were friends but prior. And as soon as I found the deal, I thought, Hey, I want Chris on my team. So I reached out to him first once I had the deal. Then after we had the deal, we knew that we wanted to take it down. We went out and looked for an additional active partner to GP the team with us.
Mark: I love that answer especially because I’m sure you hear a lot of people. They’re so afraid to get out there and start looking for deals because they feel the need to put all these things in place before they even get out and take that first action, right? And so, I’m glad you answered it that way because you went out and you found the deal. It sounds like without even knowing really, Hey, who’s going to be my team to put this together? So, love that. Let’s talk about, you know, your core business here. Where do the best new ideas come from within your business Lee?
Lee: Collaborating with my partners and my property management team. That’s where they come from. You know, reaching out to the people who are in the field every day with the tenants which I’m there side by side with them a lot of time but not all the time and understanding what the tenant needs. You know, what we can do to make the property that much nicer, safer, cleaner, better place for them to live.
Rod: Nice. So, you got a third party outside property management.
Lee: We do.
Rod: Even though it’s in your backyard you said, You know what? I’m gonna lean on some professionals and partner up with a third-party property management company. How’s that going? That component.
Lee: It’s going very well. We’ve got a great local property management company that handles my entire portfolio. In addition to this property, I also have a 38 unit and several smaller properties as well. They handle all of my property management which gives me the ability to focus on the things that are most important. You know, raising capital, finding additional deals, and I’m also a commercial real estate broker as well. So I also still have a day job.
Rod: Gotcha. You have a family? Is it just you?
Lee: Just me. Yeah, well I have a girlfriend but, you know, it’s no kids, no wife. You know, no pets of my own but, you know, that’ll come one day. So I have lots of time to be able to be the asset manager.
Rod: All right. Well fantastic, fantastic. Well, you know, and you need to be, normally you wouldn’t have to be that involved but if you’re, you know, you’re doing a fairly heavy lift at 7k a door, that’s quite a bit of work. Kitchens, that’s a big deal. So you’re sourcing all that. You’re sequencing all that, you know. And guys just so you know when you’re doing a reposition like that, one of the big things that gets screwed up is the sequencing. You know, you’ll have people throw in the cabinets before the walls are painted for example or put in the flooring before the walls are painted or things of that nature so that sequencing is so important, you know, from a project management standpoint. And that, you know, that is a super power honestly as it relates to this business. It’s not just, you know, the analytics or the outgoing personalities. If someone’s got operational or project management experience, that’s a great skill set to bring to a team because honestly I think the asset manager is probably the hardest part. It’s the longest term part for sure because you’re going to own the asset for years. So, is your plan to hold on to that asset Lee or are you going to ultimately sell it? What are your thoughts there?
Lee: Game plan is a refined roll. Once we’ve added the value to the property, we will execute a refi put it on long-term non-recourse debt like a Freddie Mac small balance loan, extract the equity and use that to buy out our Limited Partners, and pay off the seller financing that we got on the purchase, and pay off the construction loan that we took out from the regional bank at the purchase.
Mark: Love it. So you plan on just holding it for lifetime cash flow. It sounds like.
Lee: Lifetime cash flow is the name of the game.
Mark: That’s right.
Rod: You know, I’ve heard that before. I don’t know why that’s familiar to me but it’s–
Mark: Awesome, awesome. Well, so glad things are– you’re taking that next step in your business and things are really going well. Tell us about a stressful situation, you know, that you faced in this business and how you got through it?
Lee: A stressful situation that I’m dealing with right now is the, you know, the executing of our applications with local and state governments that are divvying out the federal funds to tenants who are being affected by Covid. We’re in the process of submitting a little over a dozen applications for rent assistance for tenants that have been affected by Covid. Thank God, the federal government did distribute out $25 billion with this last stimulus package that went then to the states, to the local municipalities and local authorities, to be able to divvy out or approve the applications. So we’re working through that process. We have lots, you know, of the 124 doors, 10% of them are actively we are helping them apply for that and it’s a struggle. You know, not only getting the applications in and the information from the tenants but approved. It’s a process. Time consuming but I’m glad, thankful for the help that they gave us or are giving our tenants.
Rod: And their– I think they pretty much catch you up, don’t they? I don’t know if that program is like that there. Yeah, so they’ll pretty much catch you up on any back rent. So it’s definitely worth the effort.
Lee: All day.
Rod: Love it, love it. So let me ask you this, I know you know, it’s just a girlfriend and no furry kids or regular kids. What have you had to give up or sacrifice to get to where you are right now Lee? What, you know, what if anything did you have you had to give up?
Lee: My time. I have dedicated my, almost entirely, my entire spare time even evenings, weekends, business days. Right now, I take one full day a week. Fully dedicated to being on site at my properties. So, I took a day away from my day job to be able to dedicate 100% of my attention on one full day to my portfolio. So time and of course my money. I put my own money into my deals as well. So time, money, all day, and everything I have that I, you know, can I will put in.
Mark: Now, is that something that you like doing or did you just want to be kind of the boots on the ground guy because of where you lived?
Lee: No. I enjoy being in the field with the property management team overseeing the asset. It’s where I got my, you know, my start was in property management leasing and providing services to landlords and tenants alike. Hiring subcontractors for projects, for my owners. When I was doing the management company, I do get enjoyment out of it. Is my goal to be in the field all the time? No. Is it my and do I intend to expand other markets so that I can, you know, invest outside of just St. Louis? Of course. But I do get enjoyment out, I will say.
Mark: Nice, nice. Have you– any ideas of where you might want to go or not yet?
Lee: Absolutely. Exploring Charleston and Columbia, South Carolina. I boots on the ground there. I have boots on the ground in the Tampa, Orlando market and also Kansas City.
Mark: Love it, love it. Yeah, you know, let me just say something. I mean, when you’ve got a lift like that going on which is, you know, a little more than normal. An average is probably $4,000 and you’re above that because you’re putting kitchens in, I suppose. Are you putting all new cabinets in and all that or all new kitchens?
Lee: Repainting cabinets, new appliances, we’re doing counters, we’re doing vinyl flooring, we’re painting every square inch every– we’re replacing all the doors.
Lee: Oh, every fixture, every light fixture, every switch plug, everything in the apartment that isn’t part of the walls.
Rod: Yeah. I mean, if you’re the one managing that, you know, one day a week is really, I think a necessity, you know. And then, once you get that thing stabilized, you don’t have the rent, you know, assistance issue where you need to help your residents with that. It’s a weekly phone call with the management company to see what’s up and takes an hour and you’re done. So, love it. So, let me ask you this. Any “aha” moments in this journey of yours? Any defining moments? Any pivotal moments that come to mind when I asked that question?
Lee: The moment when I realized that raising capital from someone other than my own friends that are, you know, in my phone currently, or my own family. When I realized that I could lean on others for capital. It changed my whole mind frame when it came to real estate investing.
Mark: Well, let’s talk about that. Where did that come from, right? What was the mindset shift that made you realize, Wow, I can go out and raise other people’s money, because that’s obviously a big one of the biggest challenges I would say that people mentally face when they’re getting into this business or at least when I talk to them? How do I go about raising the money? Where am I going to go finding these people, right? I can’t tell you how many times I get that question. So, how did you shift?
Lee: One of my partners had a– originally the deal was the 76 unit was going to be a JV deal. And one of my partners said, Hey, I have some people, some friends, that would probably want to invest with us passively. And I said, Okay, let’s go ahead and call them. And we got on a phone call with this couple and they were willing to commit a large sum of money to the deal and became our largest investor. And then, when we realized that now we’re doing a syndication, we might as well see who else has some capital out there from our personal network. We all got on the phone and started making phone calls and managed to raise every nickel that we needed. Still putting in money ourselves of course to close the deal and it was amazing. The response was just so great like, I know you’ve been doing this for a while and I’m really glad you reached out to me. I’ll happily open my retirement fund to you Lee because I trust you and that was wonderful.
Rod: How did you build those relationships? Were they existing? Did you do anything you or any of the partners do anything to create reach or was it just organic from your current network?
Lee: We did a 506(b). So it was only from our current network of friends and family. The next one will ideally be a 506(c) so that we can do marketing and utilize that marketing to find new contacts with equity but of course, as you know, that limits us to accredited investors only.
Rod: Of course, right. Okay, so let’s talk to the people that haven’t taken action yet for a minute Lee. You know, the newbies that haven’t pulled the trigger. You know, what might you say to them? Number one and then what might you tell them to do to ramp this and avoid potential pitfalls? Any thoughts there?
Lee: I would say, look for a partner or a mentor. Look for that and don’t be afraid to ask for what you need in your life. I have realized that asking for something that you want or need, you’d be surprised how often you really get it. So, when I found my very first partner who went in with me on a 38 unit, we went in 50/50. He’s an ex-NFL guy and also a warrior. It was a game changer to do a big Joint Venture deal on a, you know, million-plus deal. That was a game-changing mindset and then to join up with two other warriors and do a syndication was, that just changed it even greater and now I can’t be more excited about what’s going to come because of the change in mindset. So look for a partner who’s got something that you don’t have to bring to the table whether it be money or experience or both.
Rod: Love it, love it, love it. By the way guys, if you’re interested in applying for the Warrior Program, text the word “crush” to “72345” and, you know, we’d love to see if it’s a fit. You can see if we’re a fit for you and you can see if you’re a fit for us and would love to talk to you. Again, that’s “crush” to “72345”. So, for the people that haven’t taken action yet, what would you tell them?
Lee: Go find a partner who’s got more money or smarter than you are.
Rod: Good. Fantastic. And, you know, let me ask you this. What’s your driver? What’s your “why”? What’s pushing you? Any quotes you like or any, you know, any– whatever comes to mind. I don’t want to put words in your mouth. What’s the drive?
Lee: The freedom of my time and my location. So, I want to be able to control my own time and where I am when I spend my time. My favorite hobbies are hiking 14,000 foot mountains, and skiing down them, and paddle boarding in the summertime, you know, and I love traveling the world, and I want to be able to earn and have an amazing lifestyle even if I spend a month in, you know, in Africa or a month in, you know, Spain or wherever else. I want to be able to be where I want to be and still have a successful income and a successful business.
Rod: Well, you win well on the way my friend. Well listen, I really appreciate you being on the show brother. You’ve definitely added value. It’s great to see you. I love that backdrop of the Amsterdam Canal which is just cool because, you know, I’m Dutch so I absolutely love seeing that but thanks for coming on man. I really appreciate you.
Lee: Thank you Rod. I really appreciate it. Thank you Mark.
Outro: Rod, I know a lot of our listeners are wanting to take their multifamily investing business to the next level. 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?