Scott has two decades of active real estate investing experience and knowledge, ranging from single-family homes and duplexes, to multi-family apartment buildings and a medical/professional office building. He is currently working on larger multi-family real estate syndication deals, and since 2016 has been a general or limited partner in over 4,000 apartment units throughout the Midwest and multiple industrial park complexes in the eastern US.
Here’s some of the topics we covered:
- Purchasing a Million Dollar Property
- Figuring Out How To Scale Up
- How To Find Your Skill That Helps The Team
- Jumping From Single Family To Multifamily
- Giving Back Is The Most Important Part
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Full Transcript Below
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’ve 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 back to Multifamily Rock Stars. So, as you guys know, this is where we interview people that are just flat-out crushing it in this business. And we show you the inside scoop into how multifamily investors are creating massive success not just in their businesses, but also in their lives. And as always, I’ve got my co-host, who’s also the director of my Massive Action team for our Warrior group. Mark Nagy, on the call.
Mark
Happy to be here, Rod. Excited to have another guest from just about one year ago, I think, coming on board the team. So that’s always exciting.
Rod
Yeah. So we’ve got Scott Jacobson today. And Scott– well, I’ll let you tell his story, but he’s, you know, into philanthropy, which I’m really excited to talk about because it’s such an important part of life. And so we’re going to talk about that. But, you know, since he’s been a Warrior, I think he’s a– let’s see here. Let me look at my notes. He joined a year ago. He’s in 90 units so far, two deals. He’s got another 66 that are scheduled to close in three weeks with Warriors, and so excited to talk shop and get into it. Welcome to the show, brother.
Scott
Rod, thank you. Mark, thank you for having me on. I’m looking forward to it.
Rod
Absolutely. So why don’t you take just a couple of minutes or whatever you need to give us a little bit of your trajectory? I started to ask you before we started recording but just talk about, you know, where you came from and why real estate, and yeah, let’s take it away.
Scott
Absolutely. So I live in Indianapolis, for what that’s worth, and my background is Accounting, CPA, CPA by trade. When I graduated college in 2000, to date myself a little bit, I went into– the first job was for the Big Four accounting firm. Was on the audit side and I was assigned a mentor at that time and when we got together, we didn’t talk about accounting, thankfully, we talked about real estate because my mentor, again, he was just assigned to me. He had like, 100 rentals that he was self-managing here in Indianapolis. So he did his best to get me to think about real estate as well. And before that, I literally had no idea what real estate meant or, you know, what it even– had no reason to think that I could ever get into real estate or should get into real estate. But I told him, all right, once I passed the CPA exam, I’ll look into this real estate thing. And of course, he told me to read “Rich Dad Poor Dad”. And that book, from a financial standpoint, literally changed my life. Taught me to look at things in a completely different way. I remember riding around with him in a car. He took me on a tour of Indy, and we were passing some houses. He’s like, I own that one. That one over there is mine. I got that one. And my mind was just blown. Like, as a, you know, 23, 24-year-old newly professional, I had no idea how someone could be so nonchalant about talking about things that he owns. And it just really expanded my mind to think, well, you know, if he can do it, maybe I can do it. So that was the impetus, I guess, or the catalyst to get me to think about what this real estate thing could mean for me.
Rod
Now, I know you’ve done it, you know, prior to joining the Warrior program, you did single families, duplexes, and you bought an office building. Why did you join our program? I’m just curious.
Scott
So, like I said, I joined the program about a year ago, so that would have been 2021, probably for the few years before that, three or four years before that, my brain was, you know, my thoughts were thinking about how to scale up. At that point, I purchased a couple of smaller multifamily and a couple of 14-unit apartment buildings.
Rod
Okay, you did that too. Wow.
Scott
I had an office building, but I really had no idea how to scale up beyond that, you know. Those buildings or those properties, I figured out a way to do them on my own, but I had no idea really, how to get bigger.
Rod
And how to raise equity, syndicate, you know, do larger stuff like you’re doing now.
Scott
Yes. I knew [inaudible]. And I had invested as an LP, so I knew it could be done. I just had no idea how it could be done. And honestly, Rod, it was your podcast that I had heard many times. You say, if you’re interested, text “crush” to whatever the number is, and driving down the road one day, I’m like, you know what? It’s time to kind of, you know, make an investment in myself, put my money where my brain has been for years.
Rod
So you texted “crush”, and it’s been all downhill since then, right?
Scott
It’s been fantastic.
Rod
Oh, thank you, buddy. Thank you. Awesome.
Mark
I know you mentioned, Scott, that you did a couple of deals earlier on, 14 units. I know one, you mentioned that you did it with $0 out of your pocket. I know I get asked that a lot. Hey, how do I do this with none of my own money, et cetera? Tell us about that deal. How did you do it? What was the structure? Give us kind of the backstory of that deal.
Scott
Sure. So at that point, I had a smaller– 14-unit prior to that, but it was smaller in dollar amount. But the same broker who introduced me to the first one introduced me to the second one, which is an apartment building in downtown Indianapolis here. And it was the first thing I looked at. That was a seven-figure deal. So they were asking about a million bucks. And again, my mind was kind of blown, like, how am I going to do this? Honestly, I didn’t have the money for the down payment, so I had to get kind of creative. And I found a third-party investor that will just call my dad. Because it was my dad. I had told him, hey, I found this really nice, neat apartment. I’m excited about it, except, you know, I don’t have the down payment money. So, you know, I got some dollars sitting in savings, earning nothing. And all he wanted is looking for a– was a good place to put it and to get some return on it. And I said, all right, well, how about I’ll pay you some– all he wanted was interest only, so he gave me a loan, interest-only loan for the down payment. And that’s what I used to buy that 14-unit.
Rod
How did you pay him back?
Scott
I still haven’t.
Rod
Oh, you haven’t.
Scott
That was five years ago, and I’m still paying a monthly interest only.
Rod
Paying the interest.
Scott
It’s basically an annuity for him. You know, that’s all he wants, kind of safe cash flow. And for me, you know, that particular building, yeah, I got it for $0, my own dollars, and owned it for about a year and a half. And then a broker called me up, wanted to purchase it, you know, just out of the blue. And I said, no. The first three or four times he asked, but I also– he would ask for a rent roll or a [inaudible]. And I said, all right, it’s not for sale, but here you go, here’s the rent roll and, you know, see what happens. And eventually, we came to terms, and I sold that to him, and he helped me buy the office building that you alluded to earlier. So the first 14 unit was a million dollar property. The office building was a $2.2 million property. And again, just rolled it together and $0 out of my own pocket. But it’s been cash flowing really nice for about five years now. So that one worked really well.
Rod
Fantastic. You know, let me kind of chat about a couple of things real quick before we ask the next question. So, guys, you know, you absolutely can do what he just described, where you bring somebody in with some money for a piece of the deal. In his case, he didn’t have to give a piece of the deal. It’s his dad. But, you know, one thing you can do, and I’ve seen done many, many times, is you bring somebody in as a joint venture partner or a couple of people even in some cases, and you bring them in and you can give them a piece of the deal. You can also give them an interest, you know, return on their money over and above that. So, like, you can have somebody put up all the money on a deal. They get the first 6, 7, 8%, or 3,4, 5, 6% of the return, and then after that, it’s split, however, you carve it up. And I did– you know, in my 20s, I bought millions of dollars worth of property, 50-50 with partners. They put up all the money, they signed on the debt, and they were joint ventures because they signed on the debt. And if I spent more than a certain amount of money, I had to get their permission. Now, please let me preface this. You cannot take money from someone and just give them a return. They have to be actively involved for it to be a joint venture. So, guys, there are so many creative ways you can put deals together that really don’t require any of your own money. And I should probably do an episode just on that. But anyway, that’s an awesome story with your deals there, Scott.
Mark
And I want to have a follow-up for you, Scott. What’s your play in that? Are you still collecting cash flow? Does that all go to your dad? Do you just get a huge chunk of the equity for putting the deals together? What’s your piece of the deal? Because I always get asked a lot, how do you make money when other people are bringing money to the deal?
Rod
Well, he already answered that. His dad’s an interest-only loan. He’s got the whole thing, right? It’s all yours. Right, Scott?
Scott
That’s correct.
Rod
Yeah.
Scott
My dad had to sign on the notes to the bank as well, so thankful he was willing to do that, and trust me enough to manage it. But yeah, I have a property manager and they handle everything and then they just once a month cut him, my dad, a check for his interest-only payment.
Rod
That’s fantastic. Now, see, you know, the fact that he’s signed on the debt even though he’s passive makes him active. Okay? So, you know, that is absolutely active. Okay? But, you know, guys, be careful with that. You know, you can’t take money from someone and give them a return unless they’re active. If you do, then that has to be a syndication and, you know, it’s a stroke and a check. It’s not something to be intimidated about, but, you know, there it is. So let me ask you this, Scott. I mean, you talked about the aha you had with “Rich Dad Poor Dad”, and it’s so awesome that you had a mentor that took you under his wing to really show you what real estate was about. That’s so cool. But, you know, are there any other aha or epiphany moments as it relates to this business– or really in general? It doesn’t have to just be this business, but does anything else come to mind from a– like any epiphanies that you had along your journey here?
Scott
You know, the first thing that comes to mind when you say that is after joining the Warrior program, honestly– previously, I’ve been in real estate for a little over 20 years now is when I, you know, first read “Rich Dad Poor Dad” and bought my first single-family home, some rentals around the college, university, where I went to school. But I had always done it myself. Everything was my time, my money, my property management, my everything. And one thing that I’ve really learned, the reason I had no idea how to scale up is because I had a me-only kind of mindset, I think. So that’s one thing that joining the Warrior program has really taught me or opened my eyes, opened my mind, is that having a team is not a bad thing. In fact, it’s a great thing because there are a lot of people out there that know a lot of things that I don’t or have experience in a lot of things that I don’t. So I’m still learning, but, you know, I’m able to leverage their knowledge and their expertise, and I think that’s been the biggest mind opener or, you know, benefit for me so far.
Rod
No, that’s awesome. And I will tell you, a lot of– you know people that start out this way themselves really struggle with that piece, myself included, or investing out of state? Man, I really struggled with that. And so, you know, that is a hurdle you have to overcome. But let’s talk about team for just a minute. So, you know, guys, if you hadn’t heard me talk about this, so there are a lot of different hats you can wear. Obviously, I’m guessing you do the underwriting. Yes?
Scott
Yes. [inaudible].
Rod
It’s okay. Right. That’s kind of a no-brainer for me. And you probably create the proforma and everything else that when you go out and raise money from your investors and all that. But, you know, there are lots of other hats you can wear. There can be somebody that handles investor relations and raises money. There could be somebody out there bird dogging deals, somebody that’s got management or project management experience helping with the asset or construction experience helping with the asset management. So there are just lots of different hats you can wear in this business, guys. And it is absolutely a team sport. Everybody does it as a team. And by the way, he mentioned the Warrior program. If you are interested in applying to our Warrior program, text the word “crush” to “72345” and we will interview you and you’ll interview us. And, you know, we don’t take everybody, but if it’s a fit, it’ll be the best call you ever made in your life. And if not, you’ll still leave the call with tons of great insights. So again, you text “crush” to “72345”.
Mark
So I know, Rod, you mentioned CPA, underwriting, you mentioned that briefly there. Now, Scott, did you come to that conclusion on your own that, you know, from your background that you wanted to get into numbers and do underwriting? Did a coach maybe help guide you towards that? How did you find your skillset to bring to a team here?
Scott
It’s a good question. So, probably a year, give or take before I joined the Warrior program, you know, I knew, obviously, my brain thinks in numbers, so I knew that that was maybe not easy, but kind of an obvious way for me to provide value to somebody at some point, right? So I got an underwriting software, and I spent a lot of time learning it, trying to figure out, you know, you change the number here, where else does it change the number? That kind of thing. So thankfully, then, when I joined the Warrior program, I was able to hit the ground running. I just made some posts in the Facebook group, and I said, hey, you know, I’m not an expert, but I’ve got some background here, got some experience, and I’d love to be a second set eye if anyone wants second set eyes on your underwriting or, you know, try to offer my services and yeah, so that’s [inaudible].
Rod
You’re a very humble guy, buddy. You’re a very humble guy. It’s really obvious, even though you’re a mutant that likes to play around in spreadsheets. I will leave that but– I’m teasing. When you’re talking about oh I played around–
Scott
[inaudible]
Rod
Yeah, I played around with deal-evaluated software and soft the numbers, went where I’m like, oh, good God, please, no. That would kill me.
Scott
That’s exciting.
Rod
And that’s why this is a team sport, guys, because, yeah, I know how to read a P&L. I know how to look for anomalies, I know how to get through it, but I don’t love it, okay? I love this. I love the communication. I love the education and so, you know, and you’ve heard me say– if you haven’t heard me say it, when you’re doing what you love and you’re adding value to a team, first of all, you know, you never work another day in your life because you love it, number one. Number two, you’re in the zone. Number three, you’re passionate, and to influence people, you need to be passionate. And so, you know, it’s just a home run when you’ve got a team that everybody’s playing to their strengths, I mean, success is a foregone conclusion. That’s just how it works in any business, and especially this business. So let me ask you this. You know, we’ve got a lot of people that listen, that know they need to do something. I mean, I believe there’s an incredible opportunity coming in this market that we’re in. Everything’s going on sale. They’re going to continue to raise the interest rates next year. And, you know, so 2023, there’s going to be a lot of opportunity in this business, you know, in small, large, you name it, multifamily. What advice would you give to someone that’s sitting on the sidelines that maybe through analysis, paralysis or fear or limiting beliefs hasn’t taken action? Speak to that person.
Scott
You know, I guess two things quickly come to mind. The first thing goes all the way back to what we talked about earlier with my mentor. You know, that was over 20 years ago that he told me to get into real estate, and I asked him if– I still keep in touch with him quite a lot, and I asked him a few years ago, you know, hey, well, at first, I think I said thanks for kind of turned me on to this real estate thing. But I asked him, you know, who else– you know, how many other people did you convince to look into real estate you know, as an investment? He said I think you’re actually the only one.
Rod
Wow.
Scott
So that makes me think, all right, well, you got to do something, right? You say it all the time, Rod, but you got to take action. Nothing changes if nothing changes.
Rod
Right.
Scott
And I think that’s super easy to say, not as easy to do. So that’s one thing. The other thing in terms of, you know–
Rod
So basically, to recap. Massive freaking action, just go do it.
Scott
Absolutely.
Rod
That’s it. Okay. All right. I just want to put a little exclamation mark on that. Okay.
Scott
And in my sense, you know, I did have a little bit of paralysis.
Rod
Sure.
Scott
I said for a few years I was– my brain, I knew I wanted to scale up, I just didn’t know how. And it took, honestly, joining the Warrior program for me to get over that hump or to get over that mental hurdle of, you know, how does this happen? So it was bringing in coaches and bringing in other people that have to learn from them, right?
Rod
Yeah.
Scott
The other thing, to answer the question, you know, 15, 20 years ago when I started, you know, interest rates did start with a six or a seven, and there were things that absolutely made sense to buy back then. So does it make sense should we be necessarily concerned right now? Interest rates are going too high, we can’t buy anything for five more years. I don’t think that’s true either. You know, it still comes down to the number. There are going to be good deals out there and maybe you know, things take more of a downturn, there’s going to be better deals out there. But, I don’t think we should stop looking just because interest rates are rising.
Rod
Oh, no. Listen, when I started the business, you know we’re talking 44 years ago, interest rates were 16, 17, 18%. Okay? You know, and I remember getting excited when they hit 7%. So you can make money in any market. It’s just the prices have to adjust and the returns have to adjust to make them, you know, reasonable. And, you know, now is not a time to be super aggressive. It’s a time to be super conservative. Make sure you know, you’re being conservative on your exit cap rate, your exit interest rate. You know, when you do a liquidation event in a few years, when you’re doing that proforma, you know, you don’t want to be aggressive there. You’re raising enough capital for some operating reserves. You’re looking at your breakeven occupancy economically. You know, just things that, you know, things that you were always doing. But you’re going to sharpen the pencil a little bit more right now, that’s all. So, yeah, here you go.
Mark
So I want to take a step back here a little bit. Obviously, you’ve done both, right? Single-family, multifamily, we’ve talked about team, etc. The question I get all the time, Scott, is like, okay, how much money can be made in multifamily compared to single-family? What are the differences? And how do you make money if you’re not using your own money, et cetera. I know you’ve done both, like a lot of our students that we talk to. Why did you decide to make that jump up to multifamily in terms of just your mindset around making money and scalability?
Scott
For me, the reason I wanted to make the jump, I guess, is because, honestly, I was tired of being the property manager and the one that was doing all the work on the single-family. I still definitely have some of them, but I may not for a while. See how, you know, the next few years in this multifamily world treat me. But my goal is definitely to do that so that I can kind of leverage, again, being on the team and taking a smaller slice of a bigger pie, I guess, and letting other people help me manage the whole process from start to finish. And I guess that was the reason I made the jump.
Rod
Got it, got it, got it. Well, you know, sometimes I’ll ask, you know, what’s your superpower or your skill set? But that’s a no-brainer. I mean, you’re a CPA, for God’s sakes. I mean, there’s no question where you can add the most value. That was like a foregone conclusion. But for some of you, you may not know what it is, and for some of you, it may just be your incredible personality to go out there and meet you know, people and bring deals in and bring money in and bring you know, investors and so on and so forth. So don’t second– everybody’s got a superpower. You know, when we have our Warrior meetings, you know, we’ll do a Warrior event. We just had one in Sarasota here, I don’t know, five or six weeks ago, and almost 300 people there. And I have everybody get up and network and I have them say, tell the group, get in a group of five, tell them what your superpower is. Because everybody’s got one. And so you just have to look in the mirror and think about how you could add value to a team and go make it happen, regardless. But I want to shift to something else for a minute. I want to end on this, actually, because I think it’s probably the most important thing we’re going to talk about. You know, when I had my Denver boot camp, we did a Hall of Fame for our Warriors where we picked what we thought were the– ten of the most exemplary Warriors that we have. For a whole lot of reasons. It wasn’t just their own personal you know, growth in the program and all the units they’d purchased and so on, but it was also their contribution to the group and how they wanted to help other Warriors and so on and so forth. And we did a PowerPoint slide for each one of them. And I noticed a pattern. Every single one of them did something philanthropically, from building schools in India to raising money for veterans, like hundreds and thousands of dollars for building homes for homeless veterans, to, you know, sexual trafficking. Every single thing you can think of. And every one of them did something like that. Tell us about your charity, Scott. I was so blown away when I saw that in your bio.
Scott
Sure. Yeah. It’s called the SON Foundation.
Rod
Like SON. Right?
Scott
SON. Yeah. And we turned it into an acronym for Serving Other’s Needs. But it came around in 2012 because at that point, my wife, she was teaching fourth grade, and she was job sharing. So kind of half-day every day with her best friend named Tiffany. And at that point, right toward the end of the school year, Tiffany was diagnosed with stage four breast cancer. And of course, that’s life-altering news. Tiffany took the rest of the year off, and my wife Denise finished the school year. But then as the summer went on, Denise spent all her time taking care of Tiffany, taking her to appointments, and just doing whatever she could for their family because life gets turned upside down pretty quickly, in that instance. And she decided she didn’t want to go back to teaching that next school year because she didn’t really want to go back without Tiffany. And the school corporation gave them both a year off, kind of a sabbatical.
Rod
Very cool.
Scott
Figuring out what to do. And my wife was volunteering in downtown Indianapolis. Here we have something called the Ronald McDonald House.
Rod
Of course.
Scott
Which quite of people are probably familiar with.
Rod
Of course. Yes.
Scott
And she just kind of made an off-hand comment you know, do you see any needs that aren’t being met here, you know, to some of the nurses there, and one of them said, you know, we feel bad, but we get adults calling here sometimes, ask if they can stay here. And they said, well, we feel bad because we have to tell them no because Ronald McDonald House is for kids who are the patients. You know, the parents can stay there but the child has to be the patient. So I still remember it was like it was yesterday, that night, Denise and I were on a family bike ride, and she was just kind of casually telling that story, and a light bulb just kind of went off in both of our heads, I think, at the same time, you know. At that point, we had eight to ten years of real estate experience. We had some rentals, and like, you know, we’re not going to buy a high-rise apartment like the Ronald McDonald House but maybe we can buy a house in Indianapolis, and we can open it up to let adults who are cancer patients stay there. You know, cancer was obviously high– heavy in our hearts and in our minds at that point from Tiffany. You know, we had no idea how we were going to do it. We had never been in the hospitality business before but the idea of buying a house didn’t scare us because we’d been doing it for ten years already.
Rod
Sure.
Scott
So I guess that was the first time we figured out how to partner–
Rod
And you bought a home near the hospital, I take it?
Scott
Near the hospital, yes.
Rod
Right.
Scott
Just five minutes away.
Rod
Yeah.
Scott
It’s a– fairly big. Six bedroom, four bath house.
Rod
Nice.
Scott
That was the first time we saw it online. We said, no, it’s too ugly, too big.
Rod
Right.
Scott
But within an hour after touring it, we said, you know, this is the perfect house. We got to put an offer down. And we didn’t know how we were going to do it, but we just pulled a group together from different people, from different walks of their life, and just the right person came into our life at the right time to figure out how to [inaudible] 501(c)(3).
Rod
It’s how it works.
Scott
And how to get the house renovated and opened to guests. And, you know, we’re having our 10th anniversary in 2023 and just over, I think, 6500 nights of free lodging have provided [inaudible]
Rod
6500 nights of free lodging to cancer patients, guys.
Scott
Yeah.
Mark
Wow.
Rod
You know, and I got to tell you, this is what we call a clue, my friends. Power moves to those who serve, and you serve in a big way, but that’s just the way God works, the universe works. And when you give back, you know, we’ve all been taught that we need to achieve, achieve, achieve to be happy. When you give back, you’re happily achieving and success comes so much faster and the money comes so much faster, and that’s not why you do it. But when I saw that on the ten Hall of Famers, I’m like, holy shit, the guys there– and I pointed it out to the 800 people there, I’m like, that’s what we call a clue, my friends. Okay? And, you know, I’m really impressed, brother. Really impressed, Scott. I got to tell you, what you’ve done here is just extraordinary. You know, my daughter, you know, had to spend eight months in Moffitt Cancer Center. You know, eight months in hospital for her bone marrow leukemia, and she’s now in remission, thank God. But, you know, it was really tough, and I had to rent a place for my ex-wife to be up there by the hospital because it’s quite a ways away from– you know, it’s over an hour’s drive. And so I rented a place. Luckily, I could afford it, you know, but a lot of people can’t afford to have you know, help like that. And so, you know, that’s an awesome thing you did, brother, and you know, I’m really, really impressed. But listen, I appreciate you coming on the show and, you know, really excited to see where you are a year from now, man. We got to get you back on here because I know you’re going to do great things and it’s a foregone conclusion, but great to see you, my friend.
Scott
I really appreciate it. It’s been an honor and privilege. Thanks for having me.
Rod
You bet.
Mark
Thanks, Scott.
Rod
Alright. 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 the word “CRUSH” to “72345” and we’ll set up a call so you can check us out and we can check you out. Again, to apply, text “CRUSH” to “72345”.
