Ep #431 – Billion Dollar Round Table

Here is some of what you will learn:

  • Best place to start with multifamily
  • Once in a lifetime opportunities
  • How to help tenants who are struggling
  • Watch for firesales
  • The most important skill set
  • The value of virtual tours
  • What is forbearance
  • How to pre-frame your investors
  • The value of reserves
  • How to lead in a crisis
  • EOS process
  • Underwriting changes

To find out more about our guests:

Ivan Barratt – Barratt Asset Management click here

Glenn Gonzales – Obsidian Capital click here

Maureen Miles – 4M Capital click here

Feras Moussa – Disrupt Equity click here

Robert Ritzenthauler – REM Capital 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!

Do you want to learn more about Multifamily Real Estate Investing? Work with Rod in the Lifetime CashFlow Academy’s Multifamily Course & Coaching Program

Full Transcript Below:

Ep #431 – Billion Dollar Round Table

Hi, my name is Rod Khleif and I’m the host of “Lifetime Cashflow through Real Estate Investing” Podcast and every week I interview multifamily rockstars. We talk about how they built incredible wealth for themselves and their families through multifamily properties. So hit the like and subscribe button to get notified every Monday when a new episode comes out. Let’s get to it

Rod:       Guys, we have an incredible, okay we’re great he said, alright good. So we have an incredible lineup tonight. I’ve got five very good friends that have become friends over the years that I first interviewed them all on the podcast. They are all freaking rock stars. So we’ve got, in no particular order just the way I wrote them down, Ivan Barrett is with Barrett Asset Management. He’s got 2,800 doors. We’ve got Glenn Gonzalez with Obsidian Capital with over 4,000 doors. We’ve got Maureen Miles with 4M Capital with over 3,000 doors. We’ve got Feras Musa with Disrupt Equity with over 1,700 doors and we’ve got my partner Robert with REM Capital. He’s done over a billion dollars in commercial deals. So we’ve got an incredible rockstar freaking lineup tonight guys. We are going to have a lot of fun and so what we’re gonna do is kind of have a free-for-all. These guys are all friends they’re all in my multifamily boardroom and but before we get started, we’re gonna give each one of them just a few minutes to talk about how they got started so you guys can hear it.

Maureen: So yeah, we started with some small duplexes and triplexes in Connecticut. Started buying them renovating on them ourselves, renting them out, built up that portfolio till about 30 units. I eventually left my job as network engineer, started buying the hundred plus units via syndication, didn’t even realize that was possible when I started. So I think I started where a lot of you are now and yeah I just love it it’s life changing. So learned I was good at it I enjoyed it and just kind of just kept rinsing and repeating and crushing it. So it’s a great business to learn. I think there’s no other place nothing more valuable you could learn

Rod:       No question. Awesome thank you. Thank you and you kept it nice and brief. She could have done that in 30 minutes by the way guys. So let’s, again in no particular order, Ivan why don’t you go next my friend?

Ivan:      Sure. Hey Rod thanks for having me it’s great to be here man. Ivan Barrett, Barrett Asset Management, my dad is an attorney and he had rental properties growing up sort of very young age. I thought why would you want a real job? Why would you not just own a lot of real estate and watch the rent checks come in? Of course it turns out it is a real job. I started house hacking and duplex out of college and started my own management company in 2010, started primarily managing for other people and their assets learned some hard lessons, grew a business that way and then started syndicating my own projects. And as Maureen so eloquently put it, rinse and repeat.

Rod:       That’s it. That’s it. Love it. Glenn, welcome my friend

Glenn:  Rod, thanks for having us all. This is a great group that you assembled and it’s a lot of fun like you said we’re all friends so we always wanted to get together and chitchat. Glenn Gonzalez with Obsidian Capital. I’ve got a business partner David Toopan which many of you met and Mike. I started off as a maintenance man. I guess that’s my claim to fame. I was fixing apartments and fixing toilets and painting and picking up trash and like you said earlier Rod, build my portfolio over time to 4,500 units and have owned my own property management company but sold it not too long ago. So I use fee management now. So in a nutshell, that’s my story based in Austin, Texas

Rod:       Yeah just and by the way, wrote an awesome book called “From Maintenance Man to Millionaire”, you should go out and get it. It’s a great book

Glenn:  I have it right there

Rod:       All right awesome yeah Feras.

Feras:    All right so thanks again Rod for having. Appreciate it. Definitely a good group of people and always a goof around probably more than we should but for me you know it’s I guess my backgrounds more like Marines right. So I came from a tech place. I used to work at Microsoft, moved back to Houston and kinda as part of that I knew I wanted to get into real estate on a bunch of rentals because that’s what everyone here is about right and quickly realize it doesn’t scale very well. I got to 12 and realize it just becomes a headache, twelve loan,s twelve insurance policies, twelve of everything, and knew I wanted to get into multifamily. I started learning a lot more about it and just kind of hopped right in started this trabeculae with my partner Ben Settles and rinse and repeat

Rod:       I love it. love it. Robert,

Robert: How did I get started? Well I got paid ten cents an hour to sweep floors for my dad at I think I was like seven years old and I thought I hit the jackpot he was a home builder in North Dallas so you know kind of grew up doing everything construction related. He said, don’t ever get into this business and so I went off to engineering school and realized that I wasn’t very good at it and then went to Wall Street and finally saw the light and worked for a couple of really cool guys in New York City doing office space and multifamily and the rest is kind of history. We’ve done you know billion dollars and deals all over the eastern half the US and it’s a great great industry to be in as everybody knows

Rod:       Yep all right thank you. Okay so we had a quick question you guys want to ask questions absolutely fine. The first question is, you know what’s the best number of units to start and price per unit. So Maureen, why don’t you answer that question.

Maureen: I used to start so for a, for a brand new person, I always recommend you start somewhere between like the 80 and maybe 125. It seems like the brokers are a little bit kinder to you at that point. They know it’s not going to be you know you’re not competing against institutions and sophisticated players basically. So that’s a great place to start. You still get the scale of economies of scale where you can have you know one person inside, one person outside. So that works out as well. So that’s what I recommend as far as price per unit, totally depends on the market and where you’re located. So that’s a hard thing to put in to answer because it totally depends on location.

Rod:       Sure and I’ll say this to you as well Sereth is, it’s really it’s whatever your stress muscle will allow you to do as well. So I want to say something before we get into the next section and that is, right now there’s a tremendous amount of fear out there. And you know the beautiful thing and the thing to remember here obviously also is that the news isn’t there to inform us. It’s there to startle and scare us and a lot of people are getting sucked into it and you know forgetting that real estate is not nearly as volatile as the stock market like for example right now you know there’s no bailout for the stock market. There’s bailouts happening in the real estate arena and so you know I want to talk about you know the elephant in the room right now which is Covid19 but before we do, I just want to say something to everybody listening and that is right now, during these times the average people you know they’re getting caught up in fear and distraction. They’re you know they’re watching Netflix, they’re watching entertainment, whereby successful people are using this as an opportunity to become more, to grow, to lead to lead by example and become a better person and they’re you know there are once-in-a-lifetime opportunities coming in this space why? because over the last few years they’ve been a lot of skinny deals done and they’re gonna end up being fires sold and you know regardless of how quick this turns around, there are people that had deals right on the edge that are gonna go south. And so right now is an incredible time to learn this business you know I’m doing a Facebook, I’m sorry a livestream of my boot camp that was scheduled to have 700 people in Orlando. And the tickets right now are only $97 so for God’s sakes if you can do that, come see me there it’s multifamilyvirtualbootcamp.com or text rodlive to 41411. It’s two full days of training and everybody that’s here right now is gonna be there answering questions like they’re doing right now as panelists. So it’s gonna be you know me training but then we’re gonna do a lot of Q&A like we do at my live event. So it’s going to be amazing. So what I’d like to do is go through with you guys and just have you talk about how, what’s happening right now has impacted your portfolio and some of the measures that you’re taking. So again I’m just gonna start no particular order Ivan, why don’t you go first, talk about what you’re doing at Barrett Asset Management and to – you know – to deal with what’s happening right now

Ivan:      Yeah Thank You Rod. It is interesting times because we’re coming off the better of our portfolio today and then tomorrow April 1st is going to be the first big test. We’re cautiously optimistic. There’s certainly properties we’re a little bit more worried about than others but just a few of things we’re doing on the front lines. We have the ability to take credit cards at every property and we’re waiving credit card fees. We’re beating up our resident resources information so they’ve gotten links to file for unemployment and to go after unprecedented government stimulus to name a couple things. And we’re really just taking it day by day and we’ve got our models, or our financial setup to where we can track collections on a daily basis versus in benchmarked against what we’ve done the last 24 months in collections. And in our world, not sure most the others on the alcohol tonight collections occur throughout the entire month. So we are cautiously optimistic so far taking it day-by-day Rod

Rod:       Okay okay how about you Glenn, what are you up to right now as it relates to what we’re dealing with?

Glenn:  You know it’s very interesting times. I’ve got two opinions because two things are happening right now. One on the residents side them paying in rent, we’re getting you know weekly reports and we get on the phone call with the actual property manager and the regional manager just to test what’s going on just like Ivan did there, the management’s been very proactive inviting people to come and pay their rent and they even said come in and pay well you know if you pay in advance will you know give you some discounts and you know we’re gonna wave late fees and all those little you know just common sense thing the tenants and incentive to come in and pay. But this week alone leading up to today you know I’ve got a one property it probably ten percent of the communities already prepaid April’s rent and on another one of my properties the same thing occurred and then one of the managers leased four apartments this week. So to some degree it’s a very odd time because I’m reading the articles and like you said Rod, we’re watching the news and there’s a lot of doom and gloom but at the same time it seems like there’s a lot of normal business still occurring. The stimulus package is encouraged people to still get a paycheck. So that’s helping people. The businesses that hire the employees they’ve got the business owners have an incentive to keep covering payroll during that time and possibly even get some forgiveness. So you know I really feel like the government’s doing a fairly good job trying to get out in front of this yeah and right now it’s just too early to tell. Now the other thing I said we’re working on is like you mentioned earlier opportunities, we’ve been sitting on the sidelines waiting for opportunities to come about and one did. Somebody just add a pure fear didn’t wanted a fire sell their apartment community and we found you know up in DFW over 150 units to purchase. So cool right? you know and and we’re ready for that.

Rod:       Fantastic fantastic yeah and I’m really glad you’ve got that outlook because I have been a little doom and gloom you know just because I’ve gone through this, I went through this you know and on the wrong side of this in 2008. So, it’s, but you’re absolutely right the government has done a lot and you know this those SBA loans are fantastic and you know as long as they come through like they’re saying you know very exciting. Maureen, how about you, what are you up to right now with your portfolio?

Maureen: Yes and what we did initially for residents is we did offer them a raffle of half off rent with one of the tenants that paid before the first of the month. So anyone that pays today by 5:00 p.m. they go on a raffle some you’ll get 50% rent for the month of April. And we’ve also, we’ve encouraged people to pay online and surprisingly enough like Glenn had said it it’s more business than usual. I think when all this first started maybe two or three weeks ago a lot of us were we were very concerned because we don’t know the fallout of it. And we really don’t know until it happened so but like we had actually calls just before this with my entire team each region. We got on a zoom call like this just to check in see what they were experiencing, see if there’s anything we do to help. I gave my managers each one about $250 to just go do something to help residents in the community. So like some of the older people some people went shopping for them or like whatever you want to do you know what your team needs or your residents needs. So they just went ahead just to kind of spread a little bit of like you buy toilet paper buy whatever you want right it doesn’t matter. So we’re doing that but we when we like Glenn said to there is opportunity now, we passed up on a lot of deals over the last few years I call it the hot potato game right. There’s been these deals that they keep trading and there we know their trash deals and they were too much at 50k a door then they trade you in for 65k a door and there’s still too much at 75K a door and nobody ever put money in these deals so we’ve been watching this happen but I think you know I know the other people on this team, on this call, we take the conservative approach so that’s why I think we’re in a good spot. We buy good deals, we make sure our reserves are there that’s what they’re there for is there anything like this. So our properties have the reserves in place so we’re not too concerned. If this one on beyond the end of the year or something we would have issues but we’re okay we’re doing okay spirits are high. We do have certain things in place. We’ve also been leasing units like crazy Glenn so you’re right

Glenn:  Yes right cuz it just is so opposite of what the news is saying. So I’m optimistically, what the word

Rod:       You’re optimistic yeah

Feras:    … think the people we are able to lease more easily because a lot of apartments aren’t open. So the ones that are open, that is your competitive advantage right people are you know people need at lease for whatever reasons going on with their life… you’re an option and we’ve seen a lot of activity actually I’m leasing side too surprisingly

Maureen: Yeah we’ve seen people stay that we’re supposed to move they had to notice the vacate and they’re staying longer so we’re extending those so it’s making up for it a little bit. I think that when all this is over you know we had to talk to get all the apartments ready no matter what because the maintenance guys could be in there working. We could turn them. Vendors are still showing up and then when this kind of blows over I think there will be a rush of activity

Rod:       Yeah agreed agreed. So we’ve, again guys forgive me those are you watching because I’ve not done this before, trying to figure out the question piece of this and we’ve had some questions come in. Let me,

Ivan:      Hey Rod, I just want to I want to commend you because I’ve never heard you allow any of us to go on so long with an answer and I chose your growth.

Rod:       I have no idea what you’re talking about but okay thank you. So yeah so let’s talk about there was a question and when you guys first got started, was there a particular skill set that reached out to you know that you embodied that you think, what skill set do you think is important for people to learn in this business, its kind of the question.

Maureen: I mean if we get a jump in I’d say networking because you’re either meeting investors you have to get along with brokers to have them you know give you deals. You have to have good people to – especially in the beginning you have to be able to ask questions to fellow peers and colleagues that are doing this. So I think networking and being able to you know connect with people is a huge that was a huge thing for me

Rod:       Yeah that is HUGE. Anybody have a different answer. Feras?

Feras:    I mean I love real estate. I tell us all the time. I love real estate cuz it’s a people’s game and it’s a numbers game. And so if we can you know the people and just you know whether its tenants, whether its employees and staff, broker, whether it’s investors right there’s a big people aspect to it you know I had a talk you know relate and build those relationships and then it’s a numbers and systems game as well right. Do you know how to be methodical with really the people aspect? You know how to be methodical with your operations and how do you continue to innovate and really kind of push them? So

Rod:       Glenn or Ivan do you have a different answer?

Glenn:  Well you know Rod much like you I was I went through this in 2008 and 2009 where it all kind of hit the fan it was very scary back then. So I think the two attributes I would recommend people really hone in on is to be very patient right now and self-discipline right. Be patient enough to not jump into deals too soon and self-discipline comes in where you’ve really got to pay attention to what the markets doing but also going back to that patient, if you’re really self disciplined in that practice, pausing for a moment will enlighten you and you won’t make a mistake. But a lot of people are just you know peddle to you know to the metal like full-on and you got to just pause

Rod:       Yeah now is definitely the time for a pause. Ivan?

Ivan:      I agree a lot of what sort of it said Maureen, Glenn, you guys always have great answers. What I had to do in the beginning was I had to learn to do what I hated first in order to get to do what I loved later. I had to make some sacrifices I didn’t get into property management because I like property management. I got into dealing with tenants and toilets because I knew if I could figure out how to get through that I can use that to scale a larger business down the road and have more time to do what I love

Rod:       Love it so I’m trying to get to these comments guys and they’re blowing through pretty fast so bear with me for some reason again I haven’t totally figured this out but so the next question I want to ask everybody is you know I asked you how you got started. Are you working with lenders differently right now? has that come up to you you know I don’t know which of you have deals under contract right now and what you’re hearing from lenders in this environment. So I’ll start with you Ivan. What are you hearing?

Ivan:      Yeah so on the agency side. It’s gonna get a lot more conservative. We anticipate for at least a year perhaps less though but we’re hearing higher rate spreads meaning higher interest rates on the debt, in some cases 12 to 18 months of mortgage payment escrowed and this is an invitation for only the people on this phone because I can’t give out this guy to anybody. So I apologize to the audience for doing this now but if you’re a best-in-class operator, our group here in Indiana, they own a publicly traded Bank. They have the best bridge financing I’ve ever seen you can lock in rates, all kinds of terms for operators with integrated management seems like everybody on this phone and they do have a bridge to agency program. But we’ll be using that heavily over the next 12 to 18 months so that we can acquire assets, put proper leverage on them and then wait for the agencies to get back to being competitive before we go to permanent debt

Rod:       Okay. Hey Robert I forgot I passed over you on that last question which was you know how we’re managing through this crisis and can you speak to that for just a moment? Sorry

Robert: Yeah yeah no worries well and I was gonna respond to what Ivan said too because I think that’s exactly the strategy but the spreads come back in on the agencies and don’t go out there and lock in 10-year debt when you’re paying a point over what you ought to be doing. So yeah hundred percent agree with that but yeah I mean as far as what we’re doing, one of the things you know I don’t know how successful it’ll be long term but we instituted a virtual tour. So somebody can go through see a unit they don’t have to show up if they feel that’s just not their thing. We’ve had a lot of positive response from that and of course being able to you know allow them pay online. We did same thing you guys doing you know wave the credit card fees get people to pay early. I think the biggest thing for us is just trying to get out in front of it talk to the residents same as you guys really get you know just build that relationship so they come to us and say, hey listen I lost my job here’s my situation. I think I’m gonna get it back so can you work with me. Sure let’s talk about it. I think for the most part we’re fortunate in the sense that we’ve got a pretty good connection to the residents and it’s about relationships at the end of the day, granted if somebody legitimately can’t pay obviously we want to help them but you know I think that’s the key to it

Rod:       Okay Glenn. What about you on the whole lending front and what have you noticed anything different anything –

Glenn:  You know I may be an LI Rod I will tell you that right now we have two deals under contract one in Michigan and one in Dallas and we’re very concerned that the bridge lenders are not going to lend or that they will just really pull back. We’re actually underwriting our deal on one of the deals that 50% leveraged.

Rod:       Wow

Glenn:  I don’t think lenders gonna say no to that if we put 50% down and borrow 50% and then move to what the others are saying. I do believe that Fannie and Freddie are gonna come back to the table with probably okay rates you know I think the Feds have really tried to dump a bunch of liquidity into the market and they’ve kind of freed up some money on that side. So I think that I’m optimistic on but the other I’m very pessimistic on one deal. We’re actually going to raise cash from investors to fund the entire thing and that really dilutes if you know the numbers well enough that’s really gonna look terrible on paper right, the cash on cash or IRR because there’s no leverage but we closed the deal and it’s such a fantastic deal. We don’t want to miss on it but we will later go and put debt on it after the dust settles and find you know the best loan. I don’t say that I recommend that to everybody but that’s our strategy there plus we don’t have to deal with any lenders during this time. I will say this for those that do have Fannie and Freddie loans on their properties, they’re gonna offer some forbearance. That forbearance has to be paid back twelve months you know at the end of your forbearance period. So it’s not like it’s forgiving and at some point you’re gonna have to double up your payment as a landlord if you do take that because you have 12 months to do it you got to make those other payments

Feras:    You’re not allowed to evict too – and I think the catch, the real catch is not only do you have to pay it back over the next 12 months the thing that’s unclear is that if you can’t evict for that 12 months either which is kind of a catch-22 and so it sets the weird part of the whole thing it doesn’t quite make sense I’m not sure and I’m not something forbearance yet. I think it

Glenn:  Neither am I. So I agree with Feras

Rod:       Maureen, what do you have to add on the lending front?

Rod:       Yes so we do have a couple deals in our contract right now. One of them is a new deal that we’re doing that we decided to wait to close we push that closing out. We did it initially 60 days but we’ll see from there because I don’t want to get started on a deal and it’s an awesome, we’re getting in at a great price and we could build them really keep it and there’s a huge upside on it. So I’m not too worried about the market right now with a new build like this because it’s a great deal. But as far as closing on the loan, I’m afraid that the government’s are kind of shut down so I don’t want to get started on a project like that and not have the inspectors able to come through. We do have a construction loan for a bridge loan right now. We’re doing a pretty big renovation project that’s really halted because we’re waiting for some inspections and everything shut down. So I’m not worried about that we’re in a good spot but you know that is a something that’s come up during this. Another one of our other deals we’re supposed to be doing a physical due diligence about two weeks ago and you know we spoke with the seller and he’s like yeah I don’t know and I didn’t really want to send my people through all his units either. So we agreed to push that out 30 days with it you know we’ll probably do it another 30 days until everything’s safe again. So just like the going live you know like that messes up Rod, all we can do is like duck and leave right

Rod:       Duck and leave yeah we came back three times we’re back yeah. So we’ve got some questions in and one of them is you know did you guys pencil in this kind of a pullback and I’ll speak for Robert and I like right now we’ve got an asset under contract and Cincinnati. Super deal and that that asset will actually break even at what is it 32% economically vacant Robert is that right or 33 so? like 33

Robert: yeah 33

Rod:       yeah 33 percent vacant and we’re raising a million dollars in operating reserve or we’ve raised it and so you know that’s our mortgage payment for that’s less than our mortgage payment is not even that much over the year so you know super stress test and super conservative on our you know on a deal like that but I’d like to hear what you guys are doing or have done or plan to do as we you know get into this thing so I guess Ivan why don’t you talk about what you’re doing stress test related on deals

Ivan:      Sure sure we, like you look to be debt cover typically north of 150 in some cases maybe 140 and then we want to see that minimum break-even occupancy somewhere in the low the low 30% range. I’ve got a few deals that are in the 60s that we’ve had for a while so they’ve already got some some built up reserves. One of the things we like about having some HUD deals in the mix. You’ve got really really large reserves on hand so yeah I mean I think the answer that I would give to your audience Rod is that did we pencil in a pandemic now, good operators pencil in a storm right. Some sort of economic consequences that are unforeseen but we all know winter is always coming at some point. It’s not just a game of Thrones thing

Rod:       As were saying that’s exactly right yeah awesome answer let me look let me look at the next question here okay what kind of rates would you consider during these times to be good and I don’t know if it’s interest rates or cap rates. Now certainly we’re gonna see the cap rates expand here at least in the short term but Glenn what are your thoughts on

Glenn:  On the interest rates, if you can lock up something in the force, low force, you’re doing okay you know there’s it’s tough to say because you’re gonna compare apples and oranges right you know your Fannie and Freddie product is gonna be at a much different rate than your bridge loans. So it all depends on your underwriting but you know short answer is somewhere in the low fours right now

Rod:       Right okay fantastic

Maureen: We were just getting quotes in the high threes too for deals and just I just want to let people know to just like Ivan had said, you might not want to be – froggy – like anything in right now. If you could wait a little bit, they always look for any reason to increase their spread right. I stole it sneezed and it’s Friday so we’re increasing our spread

Feras:    It’s usually on the Fridays

Maureen: Yeah exactly. So I would say just wait any reason like yeah we can increase our spread so just like I would say hold off a little bit if you can

Rod:       Yeah that’s good and by the way guys if you didn’t hear me say this you know we were on track to have a sold out live event Orlando. It was 700 people and of course we all know what happened to that. So we’re doing a livestream of that event May 2nd and 3rd and everybody that’s here right now will be on a panel you know panels at that event and I’ll be teaching for two full days straight. They’ll be answering questions and in the tickets 97 freaking dollars. So for God’s sakes if you’re interested in this business come to that live event, a live stream and it’s text rodlive to 41411 or go to multifamilyvirtualbootcamp.com and sign up. We can only take I believe 500 people so make sure you do that. Okay so we talked about lenders, we had a question what’s a forbearance? Feras, I’ll let you answer it

Feras:    Forbearance is basically you agreeing with your lender – you know where the lender is gonna give you some leeway right and usually it means that they’re gonna let you go right right now with all the Covid stuff to talk is basically about letting you go three months without paying your note right youself to pay your escrow your taxes but essentially not paying the milk portion and then paying it on the back end right and to kind of at the same point I made earlier right. Most and again I say most because agency is different between them and then you have kind of the bridge that are doing their own thing but in general that’s you’re paying it back over the next 12 months right and so it’s a way where with all of our properties we expect to link would seem to go up right. We’ve been doing a lot I think some of us talked about them whether it’s raffles and other things to try to get ahead of that but you know in property if delinquencies going up that means your income is going down or your expenses are probably staying where they are and so to help properties kind of get past the next three months and not go to default

Rod:       Yeah good

Glenn:   Yeah and a little bit that you know the lenders that will give you forbearance you know that doesn’t mean you have to take a full month of the mortgage payment and not pay it. If you’ve collected 70% of the rent maybe you make 70% of your mortgage you know I mean you don’t have to really take all that you’ll need to talk to your dust lender or your or your servicer and get their permission and work something out but trust me if you don’t have to take 100% of what’s being offered

Feras:    To add to that too actually Glenn it’s also yep but it’s not just anybody gets it right they want you to show a documented hardship which is kind of weird because like – what Ivan said we had our best month of March and probably on every property. March was really good we collected a ton of money in March right. April’s are never expected to hit and so how can you show today is that you know March 31st. There’s not really a way to document a hardship yet yes we’ve had some tenants come in and say okay I don’t have a job what can I do and try to figure out an arrangement but you know it’s been kind of weird because all of the hype and the news makes it sound like forbearance is available today to go get approved for today that I can start tomorrow but it’s really not that trivial

Rod:       It’s not that it’s not that simple no I agree. So I had a question one second here, when should someone self manage or a higher third-party property management, Maureen?

Maureen: Well I decided to self manage after firing four property management companies – just the control thing for us I just had it and rather than being in constant conflict with somebody butting heads trying to get them to give me the right reports and do things the way I wanted, I just decided to you know we create the rules with my operations manager. We pushed down what we need we get the people that we like. So I did it I think we’re at about I want to say it was probably about 1,500 units which might be a little early but I really just I needed to I just I needed to just take control over it and not kind of go through the different preparation. But there are some great management companies over the out there I always had an issue with like the regional level seemed to be where I had conflict and I’m I like to keep my own people. I hated when they used to send them off and I had no control over that so I like to invest in my people and really have a great team. And so that’s why I did it and I’d say like mid thousand you can do it

Feras:    Can I add to that?

Rod:       yeah please

Feras:    Coz I love the question because I think it’s an important one. I used to think marinas crazy all the times on the stage where she was just super micromanaging. We never find a company that she liked and I used to believe I could build a system on top of third party property management where management was just that cog beneath it and we have our layer of knowing what’s going on and having that instability and track and all of that. I’ve since realized that yes I could build a system but the problem was that I could not force the management company backed us quickly as I wonder and still the things that I wanted us but I wanted it. And so I do agree bringing management in-house is a breath of fresh air. I mean we were each month of their mom things are you know we’re getting so many different tools and systems in place and like it’s awesome right. Even the simplest thing like getting a BI dashboard with one side it’s amazing what the data that’s there and so I think it is important if you can get to it we just took the bullet and get it out of thousand, thirteen hundred units right and you know you don’t really breakeven right it’s not really meant to be a Profit Center but in terms of control and just getting everything streamlined and coded the way we wanted it to everything is easier. It’s been it’s a lot of work and I think a lot of people really we brought on a rock star that had done it twice. So we cheated in that center just starting from scratch. I think there’s a lot of pitfalls people will make this takes on but if you have the right people the right approach. I think I mean it’s big it’s a really good way to get into this business but again it’s not easy so you know raising money, finding deals is a lot easier than operating all your

Rod:       Alright good good. I just also got a question which is, with the current environment are your investors becoming more worried? So I want to talk a little bit about investor management right now because and I’m telling my students to pre frame their investors to again not get caught up in the fear right now because if this does go further south, again I believe they’re gonna be opportunities anyway I know they’re gonna be opportunities anyway Glenn already took one down he said and there’s gonna be more and more of that. So what are you doing to pre frame your investors. I can tell you what we’re doing we’re telling them you know get ready and and don’t get caught up you know because the media will make everything worse than it is and when there’s a effectively blood running in the streets you know that’s when we’re gonna really get excited about deals. So I’d like to hear what the rest of you are doing Robert, I actually I spoke for us already sorry buddy

Robert: But I was to add something to that

Rod:       Okay good

Robert: From an investor psychology standpoint, I think you’re gonna see the same thing on the upside and the downside you know three months ago it was well the markets too hot so I’m gonna wait okay. Now it’s well the markets crashing so I’m gonna wait. So you’re always gonna have those people out there that it’s just never the right time. They’re always looking for something different and so I always like to try to educate them and say hey guys listen, market timing nobody wins. Go to the casino have some fun but don’t try to time the market. So if you’re serious about investing you got to be in the business you got to know what you’re doing. So that doesn’t mean you try to catch a folding knife so to speak but right I think you know we’re always dealing with that sort of psychological thing where people are thinking yeah the markets crashing we shouldn’t do anything. Well yeah you didn’t want to do anything on the way up either so what the heck?

Rod:       Okay all right Ivan, what’s your take on this?

Glenn:  because I’ve definitely raise 20 million dollars in the next sixty days we’ll see how that goes. I’ll let you know

Rod:       Alright well yeah yeah I mean we you know we’ve we’ve had a lot of a lot of them hide in fear right now and again we haven’t really had to change our underwriting because we’re very very conservative anyway. But I want to get a couple of the other ones take on this. Ivan, what’s your take on that?

Ivan:      I am definitely seeing you know it’s funny you’ve got two sides of the spectrum and a lot of people love to say when everybody’s afraid, be greedy right. They love that Warren Buffett quote but I’ve seen most of the smaller what I would call retail investors are getting pretty skittish and then on the other side my higher net worth, ultra high-net-worth families are piling in. They’re using this as an impetus to get more monies more capital away from their financial advisors and equities and transfer to more alternative assets, private equity, real estate obviously and some of the big real big fish I’m talking to and mentors and different CEO networks you know are very encouraging and historically, these types of stock market corrections only drive more capital to real estate. But what I’m also seeing is there’s a lot of folks that think that this is going to be 2008 again and we’re going to see you know these major price reductions in apartments. Now if you’re hunting for hotels or retail, office buildings, you’re probably right. If you’re hunting for industrial and multifamily, it’s like Robert said you’re going to be sitting on the sidelines for a price that very likely will never come. There’s just too much capital that’s smarter than a short-term pandemic and wants to be in deals of a certain structure similar to what everybody on this call puts together.

Rod:       Okay good all right

Feras:    Ivan’s point actually think multifamily cap rates are going to compress after all said and done

Rod:       Well certainly after I agree

Feras:    because you know right now you have these like Chili’s Pat sites that trade at the same cap as an apartment guess what Chili’s doesn’t have to be in business you know but you know

Ivan:      What’s gonna happen when we get through this and everybody realizes that apartments are coming out of this thing okay and interest rates are below 1%? Cap rates are going down baby. I’m trying to get my hands on as much stuff as I can right now

Rod:       Yeah I agree

Feras:    You hit something on the head that I totally was seeing and I really liked how you said it it’s that the retail investors are the ones getting skittish, the people with the real big capital they’re ones that are asking a lot more questions and that you know like what they’re calling us, hey what’s going on what’s coming up what’s coming up. And so I’ve been interesting to see that dynamic for that shift in in the audience because a lot of our retail investors have been getting skittish some of them got wiped out in the stock market gonna sell stock to go into real estate or whatever. I think that’s a good point

Maureen: We’ve let our investors know we have those deals coming up and they pulled the money out but we kind of shut the rates down, I’m like no no hang on to it because we’re gonna push things out 60 days or so. And so they actually got several calls not only for the deals we did last year because they took their money out of the market towards the end of last year those investors that invested and then these also so they says the you know they were Graham like go use your money try to regain you know some of your other losses but they had taken some money off the table in order you know to invest in real estate for just for diversity. And that’s what we have been you know preaching the last couple years. I’m sure you guys have too and so it’s nice to speak to

Glenn:  I also like to speak to our current investors that are already in the deals that are just sitting there waiting for a check right. Their stocks are doing well we actually sent an email out to all of our investors and our deals just informing them that hey we’re in a healthy situation but we’re going to temporarily suspend distributions until we fully understand the impact it’s going to be. So you know I don’t know if that was one of your questions how are you

Rod:       No, actually I’m glad you said that because I think it was one of the first segments before we cut off and you know I tried Facebook’s new platform, it didn’t work so we’re on the actually the initial one and we talked about we talked about that so you know where some people are holding back distributions and others aren’t and we’re you know we’ve told our investors that we are going to do distributions but we’re keeping an eye on at every single day. I mean that may be a different conversation you know in two weeks if you know there’s a rent collection issue with you know so many people homebound right now. But let me see what else I’ve got for questions here my team has been texting them to me because they’re not coming through. So let’s talk about reserves, how much do you guys, I had a question around reserves a specific question about a specific instance but let’s talk about it in general. How much in reserves do lies like to have on an asset from a stress test standpoint, well this is really not stress testing but from a reserve standpoint what do you like to have in the bank just in case? Glenn

Glenn:  So we raised a rainy day fund and we raised one hundred and fifty thousand dollars to stick into just a checking account that we control not the property management and that was on a hundred and thirty unit deal, reserves we also have a half a million dollars sitting in a checking account that was allocated for interior renovations. It’s not held the lender, it’s held with us. So in the event that we stop the interiors which we did, in my mind that’s a reserve, it wasn’t planned that way but it’s just has become that way. But to answer your original question about one hundred and fifty thousand dollars because that covers in that aspect you know several months of managed, of mortgage payments

Rod:       Okay okay fair enough. How about how about you Maureen?

Maureen: Yes so we typically we like to have 250 it depends on the size of the deal, the age of the deal you know what kind of things might be able to trip us up. Somebody ask about the, we never saw the coronavirus coming I don’t think anybody had any clue that this is happening. And that’s what those reserves are for. So your most expensive money in a deal is just like Glenn said and it’s not the leveraged amount. It’s the part you’re raising with individual investors and so it does cost us a little bit but with our team as if I call it it’s my reign, it’s my morning sleep good at night money. So I know we can cover any little bumps we have anything unexpected and most times we actually will sell the property and exit the property and never have touched that money. So it’s just literally a little bit of insurance to sleep good at night. But typically 250 unless the deals really small or it’ll be more maybe if it’s really big

Rod:       Feras

Feras:    Thanks for me it’s still specific. We do all sorts of different deals different sizes. So it’s not just a number it’s anywhere from 100 to 500 thousand. I guess is maybe my you know we have the full spectrum depending on the deal, what’s going on about a deal in the market. And I think there’s another important aspect to it that I think we kind of glossed over which is like the loan structuring right like these are the times and I think really good knowing like whatever we have a deal it’s like 65% leverage and not 80%-85% right and so we know the past year you see all these people going as high leverage as possible and yes they’re getting a little bit better returns but they’re not mitigating the downside right and you kind of you know you’re almost sitting there on the sideline a little envious. But now I feel much better and I’m sleeping great because… just as important as having your reserves right because it helps reduce the reserves that you need I guess

Rod:       Sure sure no question agreed. So let’s talk for a minute about leading in times of crisis because you guys are all leaders. You all have teams you know some larger than others. Some of you have your own management entities which are very fairly large teams. What are you doing as a leader to step up as a leader right now you know in in that regard? So Ivan start with you

Ivan:      Thanks. These days you know we’re all social distancing, corporate we’re running a skeleton crew right or the management team inside the clubhouse so the door says call us on our mobile. Right now what I’ve been doing is sending out videos weekly to our investors and then our employees just thanking them for their for their service. And then from there you know I got to give more credit to my executive team, my partner who now runs the operation on the daily making sure the trains are running on time and then our executive team under him. I’m just so proud of these guys out there. They’re there checking in in real-time they’re working together to set policy like you guys have said everything is changing day by day and it all starts with leading from the front and setting that example which is not easy to do right now. But I give so much of that credit to the people that I get to work with every day versus myself personally

Rod:       Nice nice Glenn what about you?

Glenn:  You know that’s a great question Rod you know I think I’m leaning tremendously on my experiences that I went through being in the industry for 30 years. So people are looking and saying Glenn, what was it like when you went through this you know back in 2008-2009? or how did you handle this then and honestly I could just speak from experience which is kind of helped me with my team members. Say here’s how we handled it here’s how we navigated through it and then it just because I survived that you know Rod much like you we you know I talked about in my book how I lost everything. But it also I’m able to tell people this too shall pass you know and I think some people just need to hear that and I could speak from the heart and really tell people this too shall pass and we’ll be okay and that’s what I’m going to do with my team and all the people around me that I work with

Rod:       No I love it I love it. Maureen?

Maureen: So I’ve been having a call every morning at 8 a.m. with my VP of Operations and she’s been awesome she’s the one that’s relaying all the information down to the regionals and ultimately to the property managers and just having that call just for 15 minutes every morning just to see if anything changed kind of the vibe that she’s getting from the managers of like just you know how concerned are they and we just you know we’re so, we have good reserves like everybody’s job is safe just be careful you know social distancing make sure you follow that correctly. And then just like I said just before this call, we had a team call and we’ll do that weekly with the team. I did send an email out to them to to say look in your communities every day your leaders but in times like this or look that even more so just be really careful about the tone you set, how you answer questions, because like say we want to keep everybody calm and just you know be reasonable and I think they appreciated that and like I said I gave them a little bit just to be able to help out the community something extra that they think they needed somewhat. A lot of people are shopping for their older residents and things like that so just empowering them to you know take control of a situation where they see somebody might need something and just looking for ways to help and give instead you know looking outside ourselves to try to ease somebody else’s concern

Rod:       Love it yeah that’s actually one of my next questions. Feras, what about you?

Feras:    For us I think even more transparency right. I mean having, I guess having the downtime right has given us the time to put in some things that we’ve been wanting to do and just having you know more people on slack including the maintenance people having you know communication across the board in terms of the properties and then in there in the office team I mean just being candid here’s where at here’s what we’re going you know you don’t have to worry about this, you don’t have to worry about that or even to the point empowering this staff on-site at like hey you know here’s that box of how we want to look at tenants we do want to help the tenants, we want to help them get their jobs, things like that. And so I think this staff of the properties see that and they appreciate that right they know that you know our best interests and people best interest right. Obviously, we all you know we’re it’s an investment right that’s an important part of it but it’s not just that right now how do you structure it to where you’re creating more win-win scenarios

Rod:       That’s nice. So we’ve had a little back and forth on the opportunity conversation. Some of you think there’s not going to be much of an opportunity and we’ll have to argue, debate that one because I actually think there’s going to be quite a bit of opportunity. But I’ve been getting questions how do you find those opportunities? So you know I’ll answer, for me and that is it’s the same way you’d find them now it’s through broker relationships, it’s through seller relationships, it’s through building your team, and having people out there pounding the pavement and looking for deals and you know I mentioned that the podcast episode that went live this week it was kind of interesting. In fact I want to talk about team let’s talk about team next I kind of got the sequence here a little bit off. But I want you guys to talk about your teams because it was kind of interesting I interviewed three kids in their 20s for this week’s podcast episode they’ve got 66 million dollars in assets which is a super impressive and each one of them was a team of two people an outgoing person with an analytical person just similar to what Robert and I have and I’m just curious I know a couple you wear both those hats. But let’s talk about teams. Start with you Maureen. Talk about your team that you put together and then we’ll go through the rest of the people

Maureen:  Yes so you know William. So William and I think our skills complements each other very well. He’s been great he’s, he was newer coming into the business as I was exiting kind of a different partnership in the business. And it was great to keep me motivated and to you know have someone so interested and I didn’t want to let him down either. So it kind of create fire within me to kind of keep me going more and we kind of fed off each other and he’s very analytical. I’m good with numbers but you know it’s just a good share either one of us could do any part of this business. I believe but it’s you get that somebody very detail-oriented. He’s great at delegating and he has VAs doing all kinds of stuff which I love. I’m a bad delegator very controlling. I like to like get my hands and everything which I’m trying to fix but it’s just you get someone that complements you as opposed to if you get somebody just like you there’ll be certain things that won’t be done. So definitely when you find that person but you have to be able to get along too right. You have to be able to go hang a little bit travel go to conferences together you have to make sure you like them and get along but also that your skills are complement

Rod:       Complementary skills are hugely important. Robert you know we’re in the midst of put we’ve put together a pretty kick-ass team right now. Robert did you want to speak to team at all?

Robert:                 Yeah I think you know the exciting part for me is just putting a team together where the focus is more servant leadership. I think it’s pretty cool when you set that tone in any organization to see how it starts to trickle down and to see people take really that level of personal responsibility that you know you always try to you want in an organization but it’s hard to do that. But it has to start at the top and so that’s the thing that I think it’s cool for me about building a team is just seeing that slowly roll out across the company and you know finding people that have that similar culture about them and feel the same way. It’s not easy to find. I know all you guys would agree with that it’s hard to find people with that that’s sort of in their soul. But anyway

Rod:       We’re real blessed we’ve got some we’ve got some killer killer team members now. Ivan what about you buddy?

Ivan:      Oh blessed and grateful for my team as you’ve know Rod I’m a huge fan of traction and rocket fuel. My partner is definitely the peanut butter to my jelly sandwich. We’re complete opposites. Adam I hope you’re listening right now because although I don’t like you very much from time to time. I definitely love you and I’m glad we’re teammates you are ten times smarter than I am and very good at operating a company and allowing me to do my thing in other ways. And then below him it’s just it’s been a great year and a half now under the Traction model. I’ve seen our

Rod:       Let me interrupt you for one second buddy. So, guys, what he’s talking about this Traction is a book about a system called EOS it’s a business implementation system. If you’re not tracking this and it’s an awesome system for business owners. So please continue buddy sorry I interrupted but I want to clarify

Ivan:      Oh no I’m used to you interrupting me this feels more now.

Rod:       I have really been biting my tongue but you know yeah

Ivan:      It’s been great it’s been a wonderful system for growing that next leg of leadership down and having and seeing them grow and growing leaders underneath them because without that there’s no way to scale from where we’re at now. There’s just no way to continue to grow without growing leaders underneath you and helping give them the room to make mistakes learn and develop and evolve in their own roles

Rod:       Nice nice. I think Feras, I don’t think we asked you this question but then I’ve got some other great questions that we’re gonna talk about how underwriting has changed a couple other things can you guys hang for a little longer? Anybody if you have to cut off just cut off. But yeah… all right we had nowhere to go that’s funny. All right so Feras, team

Feras:    Yeah team I guess you know for me I have an immediate partner, Ben, everyone on here knows him I had different businesses different partners and I’ve kind of learned over the years what makes a good partnership what doesn’t right. Having the same skill sets doesn’t really work very well but being different enough and you know and really the biggest thing is just about that end goal right like we’re not in it for a quick buck now right I mean that’s a whole different type of business, all different mentality right we’re the same kind of long-term goals and you know we’re both full in a roll up our sleeves and just get there early anytime we need to any part of the business right and then just being able to trust you know you kind of dividing trust that person to run with this you run with that. And then the other big thing too Ben and I have been kind of really mentally getting to just wanting to hire more you know more A’s than B’s right pay up for that alpha then you know kind of pay down for that B person and I don’t mean that in a bad way right. It’s more the person has the sending culture, the same drive, the same work ethic right that is worth their weight in gold. And you know helps push things along so then we’re not having to babysit or micromanage or any of that stuff because that’s a lot of our time right and so you know I think that’s where we’re heading and starting to really be a lot more selective right. And I see what we do the management side I mean that’s been a blessing

Rod:       I couldn’t agree more and you know I’ll take passion and work ethic over skill set any day because you can teach the skills. So absolutely agree. So we had a question around underwriting and curious how underwriting standards for lenders may change in this new risk environment. And so let’s see, Ivan, do you want, or Glenn, Glenn, how do you see underwriting changing right now? What have you seen?

Glenn:  I’m gonna answer your other question too about partners

Rod:       Oh the team team

Glenn:  One of my partners is he’s like the master underwriting of the universe right. Dave Toopan, he’s probably out there giving thumbs up right now to this live.

Feras:    He’s the underwriting Jedi

Ivan:      you got to use the word Jedi, come on Glenn

Glenn:  So yes, underwriting is gonna change you know and then our other partner that’s coming into the company is a master operator got a CPM designation and that. So the teams are important but what we’re gonna do is contribute all of the all of the experience that we have and what’s going on in today’s market and we will change our underwriting. We already have just like I mentioned earlier we raised a rainy day fund. I’m glad we didn’t call it Covid19 you know year ago but that would have been cool if we did you know. But our underwriting and how we’re approaching deals has completely changed. And just like Maureen and some of the other said, we’ve walked away from countless deals because the numbers didn’t make sense. So you know if you want to get in particular probably give us a call myself for David but we’ll share with you how we’re underwriting differently but the financing is changing, the leverage is changing, the rent growth is changing, taxes and insurance is changing.

Rod:       So the question was around lender underwriting and I’ll tell you the one thing we’re seeing is that you know the agency debt is you know requiring reserves now. If P and I and we’re seeing anywhere from six to eighteen months principal and interest reserves that you know that are being required for agency debt Fannie and Freddie debt. But I don’t you know certainly they’re gonna be more picky and choosey is what we’re hearing

Glenn:  And the reserves that they’re setting aside for you know capex you know in the old days was 250 a door then it moved to 350 a door but I would see them pushing that you know even more in the capex reserves too so I

Feras:    It’s hard with the current and all the uncertainty right now. I’m kind of like the let’s wait another 20 days and let the dust settle a little bit just so we know where to underwrite because though all those points that you make Glenn really change a deal

Rod:       Okay yeah right right right

Robert: I think another thing that’s gonna be challenging is they’re gonna really underwrite borrowers in much more detail. And that’s gonna be a challenge for a lot of folks. So I mean I would say assess your team and if you need to bulk it up from a financial perspective when you’re doing an agency loan probably a good idea cuz there are some things that they’ve let slide. I think we would all agree and they’re probably not going to. They’re gonna verify every bank balance every you know property that’s owned check your NOI, all that kind of good stuff. So it’s gonna be it’s gonna be a little more challenging in that respect.

Maureen: I think the stories will change too as far as the deals being sold that you’re not able to bank on rent growth that was always the broker story right. Oh it’s a hundred dollars below, right it’s 200 like whatever it is below the market but I think now you just really have to make sure that the day you’re walking in that your numbers can be met or there’s some really good opportunity that you know that you can you know force appreciation as opposed. I think there’s going to be less organic appreciation

Rod:       oh yeah these yield play deals are gonna get their butts kicked right now where they’re just banking on that rent increase so that’s a very good point. Well I am out of questions. Let me see if I’ve got any here that that I think will serve the Group

Feras:    Can I ask Rod?

Rod:       Yeah please

Feras:    For everyone else on here what are the unique things you all have done in the past 30 days that you would not have done prior?

Rod:       I’ll answer that one I’ll answer that one

Feras:    Because you know we’ve done things, I’m curious to see what it the other

Rod:       Oh six weeks ago I’m in Miami in a $700 a night room for Valentine’s Day. I went and bought a boat, bought jet skis, bought this freakin $50,000 watch like knucklehead and I would love to have that 200 grand back right now to invest in deals as they come through. So there’s my humility

Feras:    So Rod, next time you load up let me know like a couple weeks prior just so I kind of downsize and prep

Rod:       Right right right oh just kicking myself right now. There’s a different world now

Glenn:  … for the kids the grandkids, built a free house

Rod:       Nice love it love it how about you Maureen anything?

Maureen: Well actually it’s funny I signed up with a group of Tony Robbins stuff right

Rod:       Oh you did the platinum partnership

Maureen: I did that so because I’ve been wanting to travel and just take a little bit more time off and I was actually supposed to go to Africa, a little Mauritius, I forget the name of the island there how you pronounce it. Amsterdam I was scheduled for in June there was a another event out in the UK something in Australia and I had everything I booked. Oh Fiji, Fiji trip and I’m like, I’m just not meant to travel. I just got to keep working. I’m here just keep doing deals

Rod:       Yeah it’s funny you know I was in that platinum partnership in ‘08 when it all crashed and burned. I just got interviewed on one of his top people’s podcast right before this one and we were reminiscing about meeting in Fiji. I met her in Fiji a lady named Lauren which is just hilarious but how about you Ivan?

Ivan:      Let’s see, 30 days ago, I never would have thought in a million years. I would cancel a weekend at Rod’s compound to get on that boat and those jet skis

Rod:       Right

Ivan:      And I’ve spent five or seven of the last ten weekdays in PJs

Maureen: Yeah you go from day pajamas to night pajamas and I want to thank you for having this contest. I’ve been doing a few podcasts cause it forces me to get up, get dressed,

Rod:       You look great Maureen you don’t look like you’re house bound. I’m like the newscaster I got the shorts underneath the frame here

Ivan:      That’s okay Rod. Feras isn’t wearing pants at all.

Rod:       Well listen I want to thank you guys for take you’re extremely valuable time to be on this show and we had a lot of fun even with the technical difficulties. And I miss each one of you and super excited to have you you know at this live stream we’re going to be doing here and you know in a few weeks and anyway it’s been a lot of fun. And I will try to go through the questions guys and answer as many as I can but absolutely a pleasure to have each of you. And I’m sure we’ll have to do this again soon

Glenn:  Anytime Rod. You did a fantastic job. I have to say thank you very much.

Maureen: Yeah thanks for having us Rod. And I miss you guys too.

Feras: Maureen doesn’t text me anymore

Maureen: I’ll text you tonight.

Rod:       Alright guys well you take care. love you guys and we’ll see you soon.