Multifamily Real Estate: Why 2026 Will Be a HUGE Year for Buyers | Ep. 1,207

How Vertical Integration Drives Multifamily Success

In this episode of Lifetime Cash Flow, Mark Shuler and Josh Welch break down how multifamily vertical integration investing creates stronger control, higher returns, and reduced risk. They explain how owning key parts of the investment process, including acquisitions, construction, and property management, allows operators to execute business plans more efficiently. This approach helps eliminate costly handoffs and misaligned incentives that often occur when multiple third parties are involved. For investors seeking predictable performance, vertical integration provides a competitive advantage in both stable and volatile markets.

Engineering Discipline in Real Estate Investing

Mark and Josh emphasize how their engineering backgrounds shape their underwriting and execution strategies. They discuss the importance of systems, process optimization, and data-driven decision-making in scaling multifamily portfolios. Rather than relying on intuition alone, they stress the value of building repeatable frameworks for evaluating deals, managing renovations, and monitoring performance. This disciplined approach leads to more consistent outcomes and stronger downside protection.

Reducing Risk Through Operational Control

A major benefit of multifamily vertical integration investing is risk mitigation. The guests explain how controlling construction and property management reduces cost overruns, timeline delays, and execution errors. By keeping these functions in-house, operators can quickly adapt to market shifts and operational challenges. This level of control also improves communication across teams and ensures accountability throughout the investment lifecycle.

Scaling Through Systems and Partnerships

Mark and Josh share how they’ve scaled their portfolio by building strong internal teams and strategic partnerships. They highlight the importance of leadership, culture, and long-term alignment when growing a vertically integrated platform. Investors learn how building infrastructure first allows for sustainable expansion rather than reactive growth. This foundation enables operators to pursue larger and more complex deals with confidence.

Guest Bio

Mark Shuler is a licensed architect and real estate investor with decades of experience in design, development, and multifamily operations. Josh Welch is a multifamily operator and capital markets expert with a background in finance and large-scale acquisitions. Together, they lead vertically integrated multifamily platforms focused on long-term value creation and operational excellence.

If you want to hear the full conversation and detailed insights, watch the podcast video or read the complete transcript below.

Multifamily Vertical Integration FAQ

What is multifamily vertical integration investing?
Multifamily vertical integration investing is a strategy where a real estate firm controls multiple parts of the investment process, such as acquisitions, construction, asset management, and property management. This structure allows operators to execute business plans more efficiently and reduce reliance on third-party vendors. It creates stronger alignment, better accountability, and more consistent results.

Why is multifamily vertical integration investing attractive to investors?
This approach is attractive because it increases control over costs, timelines, and operational performance. Investors benefit from improved execution, fewer surprises, and stronger downside protection. Vertical integration often leads to higher returns and more predictable cash flow across market cycles.

How does multifamily vertical integration reduce investment risk?
By keeping key functions in-house, investors reduce the risk of miscommunication, cost overruns, and delayed projects. Operators can quickly adjust strategies when market conditions change. This level of control improves underwriting accuracy and protects investor capital.

How does multifamily vertical integration improve deal execution?
Vertical integration allows for faster decision-making, streamlined processes, and tighter coordination across teams. Construction, management, and operations work together toward shared performance goals. This leads to smoother renovations, faster lease-ups, and stronger net operating income growth.

What parts of the investment process are typically vertically integrated?
Most vertically integrated platforms control acquisitions, underwriting, construction or renovation management, asset management, and property management. Some also manage capital raising and investor relations internally. This end-to-end control supports consistent execution and performance standards.

Who benefits most from multifamily vertical integration investing?
High-net-worth individuals, business owners, and real estate investors seeking stable income and long-term appreciation benefit the most. Passive investors also benefit by partnering with vertically integrated sponsors who manage risk and execution effectively. This model is especially appealing to investors prioritizing reliability over speculation.

How does multifamily vertical integration impact cash flow and returns?
Stronger operational efficiency leads to better expense control, faster revenue growth, and improved net operating income. These improvements increase cash flow during ownership and enhance exit value. Over time, this creates stronger total returns and capital preservation.

Is multifamily vertical integration suitable for passive investors?
Yes, passive investors can benefit by investing with vertically integrated operators through syndications. This allows investors to access institutional-quality execution without managing properties themselves. Proper sponsor vetting remains essential to ensure alignment and performance.

How does multifamily vertical integration compare to traditional third-party management models?
Traditional models rely on outside vendors for construction and management, which can introduce delays, misalignment, and cost uncertainty. Vertical integration reduces these risks by centralizing control and accountability. This often results in smoother operations and stronger investor outcomes.

How can investors evaluate a vertically integrated multifamily operator?
Investors should review the operator’s track record, internal team structure, construction experience, and management systems. Understanding how each function is handled in-house provides insight into execution capability. Transparency, reporting quality, and past performance are key indicators of success.

Disclaimer: This summary was written with the help of AI and reviewed by Rod’s Team.

01:20:07:26 – 01:20:27:01
Rod Khleif
Okay. Welcome back to another edition of Life Time Cash Flow to Real estate investing. I’m Rod Khleif, and I’m thrilled you’re here. And I know you’re going to get tremendous value from the two gentlemen I’m interviewing today. Their names are Josh Welsch and Mark Schuler, and they’re both architects. And they are both, but they’re vertically integrated in the multifamily space.

01:20:27:04 – 01:20:38:24
Rod Khleif
And, so we’re going to, because they’re engineers, we’re going to go deep on some stuff today. So buckle in, guys. Maybe get a pen and paper so you can take some notes. Welcome to the show, guys.

01:20:38:26 – 01:20:40:05
Mark Schuler
Thanks for having us there.

01:20:40:05 – 01:20:53:10
Rod Khleif
Absolutely. So why don’t you, take a minute? Each of you or one of you, for the two of you or whoever you want to do it, just talk a little bit about your background. You know, I didn’t give you much of a bio there. I pretty much prefer to let you say it.

01:20:53:12 – 01:20:55:15
Mark Schuler
But did you take point? Josh?

01:20:55:18 – 01:21:23:17
Josh Welch
Yeah. Hi, I’m Josh Walsh. I run and, manage three pillars capital group for a, multifamily real estate group out of Houston, Texas. You know, got my my started real estate. I’m an engineer by trade. So, you know, I kind of have been a real estate owner or a single family. It was kind of my start over ten years ago, kind of acquired a small portfolio and realized that transitioning to multifamily was really kind of the next evolution of my trading career, my training for my investment career.

01:21:23:19 – 01:21:48:04
Josh Welch
And, I decided that, you know, trading up and getting more doors under a single roof was a much better scenario than having 100 doors in under 100 roofs. Right? So transitioned into that, kind of that mantra that the philosophy that started this company, in Houston, Texas today, we’re about 4200 units, and we’re mostly in the class, B and C multifamily space.

01:21:48:07 – 01:21:50:13
Rod Khleif
In Houston specifically or where else?

01:21:50:16 – 01:21:54:00
Josh Welch
Yeah, we’re in Houston and we have, two locations in Oklahoma.

01:21:54:02 – 01:22:06:08
Rod Khleif
Gotcha. Okay, okay. Well, you got the memo after 100 houses took me 2000 to get that memo that it made more sense to go multifamily. But you’re smarter than you know. What about you, Mark?

01:22:06:11 – 01:22:34:09
Mark Schuler
Yeah. I’m Mark Schuler, and I am, part, practicing architect in Seattle, Washington. Like Josh, I, and I started small and real estate, along the way in my architectural career, which is now at 40 years and had a lot of developer clients, just kind of was looking over their shoulder seeing what they were doing, got really interested in the dealmaking side of the business.

01:22:34:11 – 01:23:00:15
Mark Schuler
I, and I always been a hired gun and was designing big multifamily projects here in Seattle and a lot of housing. I’ve always been a housing guy, but, you know, in the early aughts, I decided to go back to business school and get an advanced degree in real estate development from University of Washington. And then, you know, that, early teens started doing deals.

01:23:00:17 – 01:23:16:01
Mark Schuler
I’ve, had, three deals here in Seattle, that I’ve owned and I’ve sold two of them still own one. And along the way, I decided to look for a less blue state and so settle in, in, Texas and specifically, I didn’t.

01:23:16:01 – 01:23:18:03
Rod Khleif
Want to go there. I’m glad you did. First. Thank you.

01:23:18:03 – 01:23:38:21
Mark Schuler
Okay. Yeah. Got a lot to say about that, but, Oh, yeah. You know, found that Houston really fit my investment profile. I like workforce housing. Houston is just full of that. And, you know, I did a few reconnaissance trips down there, met Josh and, one of those. And, along the way, we started doing deals together.

01:23:38:23 – 01:23:51:22
Rod Khleif
Well, okay, so that’s how you guys met. You were down there looking at stuff. And Houston’s unique in the fact that there’s no zoning laws. Right? So you could effectively have a strip club next to a daycare. I’m exaggerating a little bit, but I’m not.

01:23:51:22 – 01:24:17:14
Mark Schuler
I didn’t actually know. Yeah. You know, the funny thing. Yes. It does not have any, zoning. It is kind of the Wild West. But then after, you know, dozen trips down there, it seems to evolve organically and, sort of a logical pattern. You have to look really hard at it, to figure it out, but, there is some logic to it.

01:24:17:17 – 01:24:23:14
Mark Schuler
And, you know, the the cliche is you’ll see a $3 million mansion next to a gas station or something like that.

01:24:23:14 – 01:24:25:19
Rod Khleif
Yeah, yeah, yeah, I’ve heard that.

01:24:25:22 – 01:24:28:10
Mark Schuler
That’s not as prevalent as you would think. So.

01:24:28:10 – 01:24:49:00
Rod Khleif
No, no, I know no, I’ve, I’ve been there many times. We had an asset there. That’s a painful story we won’t get into today, but, so, so, so back to you, Josh, for a minute. So you’re vertically integrated now. You’ve got your own management company, construction company, acquisition team. All of that 4200 doors is really respectful.

01:24:49:03 – 01:24:58:29
Rod Khleif
What what size were you before you vertically integrated? On the management side, I assume you started with some third party, or unless you live there and you started right out of the gate managing to talk about that for a moment.

01:24:58:29 – 01:25:19:22
Josh Welch
Yeah, it was it was actually a very quick transition to that model. So we did start out third party. We our first property was under 20 units is 14 unit property. And we realized within about a month that we were much better at doing ourselves than hiring these people. You know, talk about, you know, a 100 hour plumber to go unclog a toilet times five or whatever in a given month.

01:25:19:22 – 01:25:31:06
Josh Welch
It was like, wait a minute, we’re blowing our all room budget within like two weeks. So and what’s happening here? And we kind of realize that, you know, it’s not hard for me to pick up the phone, call a plumber or whatever, right? We’re talking that very, very early days.

01:25:31:07 – 01:25:37:02
Rod Khleif
Yeah. Right. Right, right. But but doing a large management company is a whole different animal. You know, obviously.

01:25:37:05 – 01:25:56:27
Josh Welch
Wouldn’t start out that way. Right. A started we’ve we’ve grown to fit our size over the years. Right. So in the beginning, you know a lot of it was just kind of rough and tough and at yourself. Right. And then at least departments before I’ve helped. What make do we make credit right. So as we’ve grown we’ve added people and we’ve added systems and processes and all that to handle what we have today.

01:25:56:27 – 01:26:04:16
Josh Welch
But it’s not like I just, you know, went out and bought something, say, hey, let me go build this management company. It was a very like, slow bro kind of thing over time.

01:26:04:18 – 01:26:33:15
Rod Khleif
Gotcha. Well, I’ve had a horrible, horrible, experience with third party property management companies. You know, I did it wrong. We actually bought in seven states. And I won’t get into all the detail of the nefarious partner that I’ve got, but, you know, realized very quickly when I stepped in to do the asset management of these seven assets after this debacle that happened, that I recognize that the most successful operators were geographically specific and they were vertically integrated.

01:26:33:21 – 01:26:53:20
Rod Khleif
And I learned that through, you know, dealing with this nightmare I had to deal with. But, but anyway, so, yeah, in fact, I’m actually suing a Houston based property management company right now. We can talk about that offline, but, yeah, because of the horrible freaking job they did. I mean, just really nefarious stuff.

01:26:53:27 – 01:27:15:19
Rod Khleif
But, so back to your let’s talk about operations because, you know, I, I’d really like to drill down on that a little bit. What are some of the, you know, what are some of the, good decisions you made as it relates to the management company? Maybe some of the bad decisions? You know, I call them seminars when they’re, you know, when they’re a learning experience, sometimes a failure learning experience.

01:27:15:19 – 01:27:20:22
Rod Khleif
But, you know, talk about some of that a little bit. And I’ll just let you just go for a bit here.

01:27:20:24 – 01:27:39:07
Josh Welch
Yeah. Well I’ll say the good decision was first of all doing it in the first place. I can’t tell you how much money I’ve probably saved and efficiencies I’ve gained. I think just doing it as hard as it has been was probably the best decision for the company. I mean, it’s so much faster to pivot if something’s not working or a manager’s not working or a process isn’t working right.

01:27:39:07 – 01:27:52:01
Josh Welch
You can you can go in there and for the most part overnight and a little bit of training the following day, just change something, right? You don’t have that flexibility with a third party manager company. This is the way they’re doing it. This is how they’re always going to do it. This I do it for all their other clients.

01:27:52:03 – 01:28:12:21
Josh Welch
It is what it is, right? So when markets change fast like they have recently and you have to pivot, it’s very difficult to do that with somebody in place with processes. That’s been the way that has been for years. Right. So I would say that’s a good thing. I will give you an example of some, something that we’ve done that’s not good, hasn’t worked out, is holding on to probably underperformers for too long.

01:28:12:22 – 01:28:14:10
Josh Welch
I’m talking right.

01:28:14:12 – 01:28:17:01
Rod Khleif
Manager people, you failed a fire that cost you the most, right?

01:28:17:07 – 01:28:36:01
Josh Welch
Oh, yeah. Big time. I mean, to quantify that would probably be daunting, but, you know, the idea of like, oh, well, this person, they seem good on paper and they’ve done a good job before, but now they’re not performing. Least, you know, leases are happening. It’s got to be something else. Maybe it’s just the market, right? You can make up all these excuses for why you want to hold on to somebody.

01:28:36:01 – 01:28:49:27
Josh Welch
Not for me. Right. And at the end of the day, you know, for the most part, if you’re doing it long enough deep down that this person is not the right fit you, they got to go right. So I would say holding on to people that are underperforming for too long. When you’ve known for a while like so.

01:28:50:00 – 01:29:00:12
Rod Khleif
Yeah. Now no question. You know, every business is nothing but people in systems. If you get those two things right, your success is inevitable. But but those are big things. So, you know.

01:29:00:14 – 01:29:06:20
Mark Schuler
They always evolve, right? I mean, I don’t think there’s a day that doesn’t go by where, you know. Oh, shit. Now we got to change this, you know?

01:29:06:22 – 01:29:27:01
Rod Khleif
Right. No, but that’s the beautiful thing about being vertically integrated, like you guys are, because you’re absolutely right. You know, I’m dealing with some third party property management in San Antonio. That took over for the company I’m suing. And, you know, even then, you know, making making a personnel change seems to take forever. It’s not happening as fast as you’d like, you know?

01:29:27:01 – 01:29:44:10
Rod Khleif
And and, you know, and I do surprise visits, I think, just to watch the blood drain from the on site staff’s face when I show up. But, you know, it’s it’s, you know, it’s frustrating, it’s frustrating. And what else is frustrating when you’re asset managing one of these property management companies and you’re basically telling them what to do.

01:29:44:10 – 01:29:53:02
Rod Khleif
And this and these are big 20,000 unit management companies. And I want to ask you a question, Josh, do you manage for other outside owners as well or just your own inventory?

01:29:53:04 – 01:29:56:17
Josh Welch
No, just for now. We’ve talked about over the past, but I think we’re much more effective just.

01:29:56:17 – 01:30:14:20
Rod Khleif
Manager oh God. Yeah. Let me tell you. Don’t you know you know, that’s the I’ve owned a management company for decades. Small you know, for the houses that I owned, everyone 2000 houses, like I said. And and people don’t call you when they’re happy, you know, owners or tenants and, you know, and you get burnout. And so, yeah, I think it’s very smart just to do your own account.

01:30:14:22 – 01:30:37:26
Rod Khleif
But but yeah, the inefficiencies and the and having to tell and, you know, a property management company, you know, why aren’t you reviewing the knock report? And for those of you who don’t know what that is, it’s, it’s it shows it’s an it’s a platform where you can see how fast people are responding to tenant calls. You know, how quick they’re picking up, how quickly they’re getting back to them and so on and so forth.

01:30:37:26 – 01:30:55:02
Rod Khleif
And, you know, it’s just stupid stuff like that, you know, monitoring how long the maintenance is taking, you know, having to tell them, hey, you need to be three months out on the renewals, you need to be hitting renewals. And in March right now, and even April, you know, not waiting. It just, you know, one thing after another, you know?

01:30:55:02 – 01:31:17:05
Rod Khleif
So, guys, and then I’ll get off my soapbox here. But, guys, you know, in every business you’ve got KPIs, you’ve got key performance indicators. And these are some of those key performance indicators. When you’re asset managing a property management company, you know, delinquency rents, you know, the transition from, a lead coming in to, it turns into a showing, it turns into an application, it turns into a lease.

01:31:17:05 – 01:31:40:09
Rod Khleif
And every and breakdowns and every step of that process. But, so, you know, what are some things, that you’ve learned? Improvements you’ve made, possibly that maybe other management companies aren’t doing or you’ve learned through hard knocks? If you can think of any.

01:31:40:11 – 01:31:53:17
Josh Welch
I think, you know, one thing that we have really kind of realized quickly, especially now with, you know, there’s there’s been some rent softening and it’s all across the country. It’s not just huge rents rented or flat to down in a lot of places. Right?

01:31:53:19 – 01:32:06:27
Rod Khleif
Sure. But that’s going to come back. I mean, there’s a shortage of housing units, not to mention, you know, the open border situation, but, but they’ll come back. But there was so much stuff built in the fervor. Right. So rent come down. Sorry to interrupt. Please continue.

01:32:06:29 – 01:32:25:19
Josh Welch
So, and, you know, like, we also have a workforce housing, you know, demographic. Right. So inflation, like, make no mistake, it has hit our demographic pretty hard, right? A lot of people are, you know, they’re downsizing from two bedrooms to one bedrooms. Or maybe they’re gone from one bedroom and are moving in with sisters, cousins, uncles, aunts, you name it.

01:32:25:19 – 01:32:31:09
Josh Welch
Right. So we’ve seen a bit of an uptick on the outflow. I don’t think as a as much to do with maybe the operations are probably.

01:32:31:09 – 01:32:33:03
Rod Khleif
More in your C-Class inventory. Yeah.

01:32:33:05 – 01:32:50:01
Josh Welch
Yeah, yeah. So we’ve we’ve really had to kind of reinvent the wheel, so to speak of like how do we get traffic, how do we get traffic back end. And so again, it comes back to what we discovered, the same thing. It’s just a function of effort. Right. The more follow ups you do with the prospects, right?

01:32:50:01 – 01:33:03:23
Josh Welch
You call that person 3 or 4 or 5 or 6 times, and then the and the next, next day or two, there’s a good chance they’re going to come back, at least with you, because it’s still the other day. It’s just an especially with multifamily leasing. It’s basically who gets in first. Right? A lot of the time. Oh yeah.

01:33:03:25 – 01:33:33:18
Josh Welch
And so we’ve had to really kind of set higher benchmarks and higher expectations. Other people like you go the callback ratio used to be called back three times. Now it’s like six times, 6 or 7 times and a 24 to 40 hour period. So to get that to get what we used to get right. So I think that’s something that we’ve kind of realized, like it’s just and we had a property where we were or this happened within a month, we were able to go from kind of the mid 80s to like the mid 90s because we, we saw a drop from what I’m describing and we’re like, okay, we have to just let’s

01:33:33:18 – 01:33:48:24
Josh Welch
keep going. We’re doing let’s do more of it. And so we just doubled up on the on the marketing, but also on the follow ups and tracking leasing agents and how they were following up. And we saw that if you double it up, we’ll get it back to where it needs to be. But that was something that was kind of we just saw it out.

01:33:48:26 – 01:34:04:03
Rod Khleif
What are some of the primary marketing channels that you like in Houston, for example? You know, is it apartments.com. Is it Zillow? Is it you know, what is it. What are you market Google Facebook marketplace. What do you what does your team seem to get the best results from? Just curious.

01:34:04:06 – 01:34:11:21
Josh Welch
Yeah, honestly, it’s very interesting. A lot of it depends on the submarket and the property type. But we get a lot of 6000. Facebook is way more Facebook.

01:34:11:21 – 01:34:15:20
Rod Khleif
Yeah, Facebook is just it’s astounding. Yeah. Okay.

01:34:15:22 – 01:34:19:06
Mark Schuler
And a lot of traction. We have those sandwich boards out on the sidewalk.

01:34:19:06 – 01:34:39:25
Rod Khleif
Dude. No kidding. Okay, if you’ve got visibility. Sure. Now, now, on Facebook, do you have do you have, asset specific sites, or does the personnel on site use their personal. Because because we found it. If they use the personal, it’s a little more effective. I’m just Facebook pages. I’m just curious where you get the most traction or if you know that that level of micro on that.

01:34:40:01 – 01:34:50:15
Josh Welch
Sure. It’s a combination of both. Yeah. We have seen more success with I’m doing it on their personal Facebook. Right? Right. Believe it or not, because of the connections they have with their friends and the network. And. All right, it just it doesn’t look better. You’ve seen.

01:34:50:16 – 01:35:09:07
Rod Khleif
Okay. Okay. And so, you know, you’re doing your weekly property management calls property asset management. Since you’re handling both pieces. Do you, do you have asset managers as well. We do just or just regional property managers that do the asset management as well as the property manager? I’m just curious if you’ve got both both pieces.

01:35:09:10 – 01:35:14:27
Josh Welch
Yeah, they kind of sometimes they haven’t flown to each other. But no, but we do have asset managers. We have regional managers.

01:35:14:29 – 01:35:38:16
Rod Khleif
Okay. Okay. So guys just, you know, you know, every property that’s of a decent size is going to have an onsite property manager, maybe, the assistant manager handles, handles, collections and things like that and leasing and a leasing staff. But they’ll have a, a regional manager every management company will typically have a regional manager that hires the on site manager, who in turn hires the rest of the staff on site is typically the way it’s done.

01:35:38:19 – 01:35:57:28
Rod Khleif
And, you know, if you’re going to use a third party property management company, make sure they’ve got a regional that either lives in that city or their office is located in that city, and you want to see how many assets they’re actually managing. And make sure that they’re not overwhelmed. We’ve had that happen as well. What are, you know, on the so what what tools do you use?

01:35:58:05 – 01:36:05:14
Rod Khleif
Digital and or electronic systems. Do you use, in your management side of things? Mark I’m letting Josh do all the talking here.

01:36:05:14 – 01:36:07:26
Mark Schuler
But I know that’s okay. I’m listening carefully. Okay.

01:36:08:03 – 01:36:17:11
Rod Khleif
All right. So. So what what, you know, do you, what what what software to use for the for the property management or or what do you use?

01:36:17:11 – 01:36:19:08
Josh Welch
So we use Raspbian resident.

01:36:19:08 – 01:36:23:08
Rod Khleif
Oh, no kidding. That’s funny. That’s what my, that’s that’s what we used to use was resident. Yeah.

01:36:23:09 – 01:36:36:25
Josh Welch
Okay. Yeah. We found that to be, pretty effective. It’s not. It doesn’t have some of the bells and whistles that, like a yard or one site might have, but it has a very, easy learning curve. So you can take somebody who’s not used to it and again, trained up in a couple of weeks. Right. Okay.

01:36:36:28 – 01:36:43:09
Josh Welch
Very kind of very intuitive, very user friendly. That’s why we try. Okay. But yeah, that’s that’s one of them.

01:36:43:12 – 01:36:53:05
Rod Khleif
All right. And, and, do you use knock or do you use, some of these other things to track response times or how do you track your response times.

01:36:53:08 – 01:37:04:14
Josh Welch
Yeah. So we have a, a software called I mean, it’s our CRM, so it doesn’t pump out whether it’s coming in through fire or somebody calling in the phone. It’ll track the lead where they come from. How long does it take for the agent coming back?

01:37:04:21 – 01:37:19:26
Rod Khleif
Okay, good. Yeah. Same. Same. Similar to knock. Then what are you doing? On a screen on the screening side of things. Because there’s a lot of fraudulent pay stubs and and histories going in. What? What do you know what software you use for that? I’m just curious.

01:37:19:29 – 01:37:21:07
Josh Welch
Sure. We use very fast.

01:37:21:15 – 01:37:45:16
Rod Khleif
Very fast. Good. Okay. All right. Snap as it snapper. What’s the other one that we use anyway? Okay. So, you know, what suggestions would you. You know, I get a lot of listeners on my show that that know they want to get into this business. They, you know, they, they sit on the sidelines and they listen to this podcast for 2 or 3.

01:37:45:16 – 01:37:58:20
Rod Khleif
I mean, hell, where I, I don’t know, 12, 1300 episodes at this point. They know they need to take action. What would of what advice would you have for someone that’s thinking about getting into this business and just hasn’t pulled the trigger yet? I’d love to get your opinion.

01:37:58:22 – 01:37:59:26
Josh Welch

01:37:59:28 – 01:38:25:04
Mark Schuler
All right, take point on that one job. Because I was that guy for the longest time, and, first of all, this is, a big boys game, no question about it. You have to have a lot of tools under your belt to be able to execute, but more importantly, manage effectively. I think, the first part of this conversation has been all about management.

01:38:25:04 – 01:38:38:18
Mark Schuler
And the one thing I’m impressed with, in your questioning, right, is are you going to be proactive or are you going to be reactive in your, management style? If you’re going to be reactive, you’re you’re already behind the curve.

01:38:38:21 – 01:38:40:23
Rod Khleif
Yeah. Especially especially today.

01:38:40:28 – 01:38:42:06
Mark Schuler
Right now, we’re we’re.

01:38:42:07 – 01:38:46:05
Rod Khleif
Saying, you know, we’re seeing the water’s going out. We’re seeing who’s naked at this point. Right?

01:38:46:05 – 01:39:15:00
Mark Schuler
That is absolutely correct. Right. We are in a market reset. And, the only thing, only the strongest operators are really going to get through this. And so you’ve got to be able to, kind of build a business that’s very proactive. And unfortunately, this is a very complicated business to learn. There’s a lot of macro forces that you have to know a lot of dots you need to connect.

01:39:15:02 – 01:39:35:22
Rod Khleif
Yeah. And I teach it. I don’t know if you guys knew that. I do boot camps and I teach this stuff my students now own, I believe, about 300,000 units under my 200. Some something I’m very proud of. Yeah. And, and, and there’s a lot to it. And and it’s a team sport. You know, you are. And and what’s interesting is you guys are both engineers, which typically means introverted.

01:39:35:22 – 01:39:51:12
Rod Khleif
Not although you’re obviously great communicators, but but, very often, you know, like I’m the mouthpiece in my, in my thing and I would, I would partner with someone like you or a CPA or someone that’s, you know, loves numbers. Throw it, throw, throw them in a room with a spreadsheet, throw raw meat in once in a while.

01:39:51:12 – 01:40:00:16
Rod Khleif
You know that. That’s the kind of person I would I would partner with. But you guys are very alike. Or are there? But is there some yin and yang in your partnership.

01:40:00:18 – 01:40:02:16
Mark Schuler
And say we’re pretty light?

01:40:02:18 – 01:40:19:19
Rod Khleif
Yeah, yeah. Which which typically is not always the best idea because, you know, you can you know. Yeah. I suggest people have what’s the complementing skill sets? You know, they compliment each other, but, you that’s what I wanted to ask that earlier, and I forgot to ask, but let me ask you this. And, Josh, I know you got it.

01:40:19:21 – 01:40:29:09
Rod Khleif
You got to cut loose here a bit, but, do you see opportunity in this, in this particular cycle that we’re in? Are you are you are you gearing up for the opportunity? Let me ask that.

01:40:29:11 – 01:40:53:14
Mark Schuler
Yeah. You know, I’ve written extensively about that. The market is correcting, there’s no question we were on a sugar buzz for ten years. Low interest rate environment, a lot of demand for fixed assets. A lot of people got in the business that, if you can watch, you gum and raise money, you can own an asset, right?

01:40:53:14 – 01:41:10:02
Mark Schuler
Well, right now, it’s a big boys game. Strongest will survive the strongest operators you are going to see a lot of, people wash out of the business. And, Yeah, I think there’s going to be a tremendous buying opportunity at a discount.

01:41:10:05 – 01:41:31:22
Rod Khleif
That’s what I’m asking. Yeah. You know, I talked to my SEC attorney, who’s based in Dallas last week, and he said the day before he got six clients that had foreclosures going on on multifamily assets, large multifamily assets. That was just the day before. So, you know, I, you know, we’ve got an asset in San Antonio, 200 units, next door’s about a 300 unit that sold for 43 million.

01:41:31:25 – 01:41:48:19
Rod Khleif
What, three years ago? It’s down to 28 with the lender now. We’ll look at it if it gets down to 24. So, you know, 43 to 24, you know, we’re seeing some big reductions. So I’m kind of excited. You know, I, I got my ass handed to me in the 0809 crash. Lost actually lost $50 million back then.

01:41:48:22 – 01:42:00:24
Rod Khleif
Because I was in my at 800 single family houses that imploded. But, but, you know, I, I got crushed by that wave. I want to surf this one. So, you know, I, I really see opportunity this time, but.

01:42:00:28 – 01:42:17:20
Mark Schuler
I don’t know if it’s quite here yet, but, you know, 2630. What do you think? Definitely the year. Right. Unique thing about Houston is, we have absorbed all the product down there that came online, all the new product. So Houston is now starting to see.

01:42:17:21 – 01:42:18:07
Rod Khleif
Ways to.

01:42:18:07 – 01:42:18:29
Mark Schuler
Beginning.

01:42:19:02 – 01:42:20:01
Rod Khleif
Occupancy go up.

01:42:20:05 – 01:42:31:21
Mark Schuler
I can see tightening up. So right a little bump in rents got a ways to go. But I can’t you know, you can’t say that about a lot of other, locations around the country.

01:42:31:21 – 01:42:48:01
Rod Khleif
No, no. You know, we’ve got we’re still having some challenges in Nashville, still some absorption coming online. Luckily, you know, that got pretty much cut off at the knees the last couple of years. So we’re going to you know, it’s going to turn around pretty much in every market. But but you so sure that’s great for Houston.

01:42:48:01 – 01:42:48:25
Rod Khleif
No that’s awesome.

01:42:48:25 – 01:43:01:13
Mark Schuler
Yeah I know it’s. And look you know, your listeners are thinking about getting in the game. That’s what you really need to be aware of is where are you in the cycle and in any particular market. Like you don’t want to go to Phoenix right now. I can tell you that.

01:43:01:16 – 01:43:17:07
Rod Khleif
Right? Right, right. Josh, before you cut loose, I want to ask you a question. Did you have any mentors in this process or did you just self learn? I mean, you did some single family like I did. Like I said, it took me a lot longer to get the memo, but but did you have any mentors that helped you along the way?

01:43:17:10 – 01:43:27:13
Josh Welch
You know, not really. I think a lot of it was just kind of school of hard knocks. We started out small, and so I was able to learn on a smaller scale. You know, Mark can attest to this, right? It’s a lot easier. It’s a lot better to make a mistake when it’s small.

01:43:27:14 – 01:43:27:23
Rod Khleif
Oh yeah.

01:43:27:24 – 01:43:42:06
Josh Welch
Let’s zero in in that way, you know what I mean. And so I look and I’m not perfect. We still make mistakes, right? But I can say you know, history is the best teacher. And learning from mistakes is the best teacher. So. Yeah, glad glad I took the track that I did.

01:43:42:09 – 01:43:57:23
Rod Khleif
Yeah. I’ll tell you as you go. You’re going to have problems no matter what. You just want higher quality problem. So, you know, like like in your case, you know, you have staffing issues, but the fact that you have staff is a higher quality problem. You know, that’s that’s, I’ve got that from Tony Robbins. You want higher quality problems.

01:43:58:00 – 01:44:04:15
Rod Khleif
So, how about you, Mark, did you have any, mentors along the way here?

01:44:04:15 – 01:44:22:12
Mark Schuler
Did you have, you know, like I said, I went to business school, and I learned a lot there, but then, along the way, I’ve had really savvy partners. And then, I’ve been a member of a number of masterminds and coaching programs and just constant.

01:44:22:14 – 01:44:23:05
Rod Khleif
Fantastic.

01:44:23:11 – 01:44:35:17
Mark Schuler
You know, to a junkie of the industry forever. Plus everybody in my families and commercial real estate one way or another. Oh, wow. Yeah. Wow. That’s helpful. I’ve family members that were commercial brokers.

01:44:35:20 – 01:44:52:06
Rod Khleif
Well, I tell you, let me just say this because you’re an engineer and so, pick on you. Just our architect. I’m sorry. You’re an architect, and I’m going to pick on you for a second, because I have I have students that are architects, doctors, dentists, engineers, and they are super analytical, and they have to check off every single box before they make a move.

01:44:52:08 – 01:44:56:28
Rod Khleif
And I and and and would you can you resonate with that. And you know I can.

01:44:57:00 – 01:45:00:03
Mark Schuler
I can I’ve kind of loosened up a little bit.

01:45:00:05 – 01:45:01:06
Rod Khleif
Yeah. Yeah.

01:45:01:09 – 01:45:07:28
Mark Schuler
You know, it’s, you know, it’s a challenge. I mean, this industry is a number again.

01:45:08:00 – 01:45:13:13
Rod Khleif
You know, it is it’s primarily empirical. You get the numbers, right. You ask all the right questions. Right?

01:45:13:15 – 01:45:40:27
Mark Schuler
The challenges, the macro forces that come into play. Right. And they have they can wildly swing the numbers. And so, you know what? What’s really interesting about this particular cycle in its wash washout is at the time the deals were underwritten, they made sense right. And what has happened is, you know, taxes went up. Insurance.

01:45:40:29 – 01:45:48:08
Rod Khleif
Payroll, good guys. You know, I used to I used to teach a 50% expense ratio. I don’t anymore. I teach a 60% expense ratio.

01:45:48:08 – 01:45:49:15
Mark Schuler
That exact can’t be.

01:45:49:15 – 01:45:53:21
Rod Khleif
You can’t be less than that right now. Maybe an asset, but even then.

01:45:53:23 – 01:46:10:25
Mark Schuler
Yeah. So, you know, and then don’t even get me go on about the current political environment and the oh, no impact it has on Bam rates, you know, and so, you know, we, you know, the cost of capital has gone way up. And, you know, it’s just deals at work three years ago do not work now.

01:46:11:02 – 01:46:25:12
Rod Khleif
Well and and you know we had so many operators get adjustable rate debt. Yeah. You know and and they got higher loan to value so they could show better returns on their properties. And and they’re they’re getting killed I mean you know and they can 3% to nine forget it. Game over.

01:46:25:19 – 01:46:30:13
Mark Schuler
You know when they haven’t driven value so they can’t refi out of the property.

01:46:30:15 – 01:46:46:04
Rod Khleif
You know a lot of sales are down 80, 90%. So, I mean, it’s it’s the perfect storm. And I, I guess there’s about $1 trillion debt wall that we’re facing by the end of 26. And that’s correct. Yeah. Those those operators either have to sell or they have to refi. And neither one is very palatable, right or possible right now.

01:46:46:04 – 01:47:01:12
Mark Schuler
That’s their cash and and revise or they hand the keys back. But here’s what’s really interesting about all this rod is what, it’s not just the operators that are in trouble, you know, who’s causing most of these deals in the last 15 years? Noncommercial lending. It’s private equity.

01:47:01:15 – 01:47:05:20
Rod Khleif
Or private equity. Oh I was going to say commercial banks too. They don’t know.

01:47:05:23 – 01:47:09:04
Mark Schuler
That these bigger deals have been done primarily by private equity.

01:47:09:07 – 01:47:10:01
Rod Khleif
Okay.

01:47:10:03 – 01:47:12:07
Mark Schuler
So how many of those guys are in trouble.

01:47:12:09 – 01:47:26:17
Rod Khleif
Well a lot of them. Yeah but but but banks are as well I mean, you know, I mean a lot of, a lot of the office debt is held by small and regional banks and that’s correct. You know, I don’t know about you, but I put my money in a bank that spreads it out. Over 80 banks doesn’t put more than 215 any bank.

01:47:26:17 – 01:47:40:03
Rod Khleif
So it’s covered by the FDIC. But I think we’re headed for some some reckoning here. I mean, unless there’s a quick drop in the interest rates, which hasn’t happened. You know, Powell and, you know.

01:47:40:03 – 01:48:03:21
Mark Schuler
Unfortunately, 208 with, Venezuela and Greenland, like, focus on the fact that this country is highly leveraged. Right? And if we don’t sell our bonds, we’re screwed. And, I just, I wonder how the bond rates are, you know, whether they’re going to hang in there or they’re going to come down, you know, for the last last April, we were trading at the five year was trading around 4.6 today.

01:48:03:21 – 01:48:16:21
Mark Schuler
You you look at it, it’s just under 3.70. It’s, you know, gone in the right direction. But you know, you add two and a half points to that. And it’s still not a deal that gets done for a lot of these operators.

01:48:16:23 – 01:48:18:00
Rod Khleif
Right, right.

01:48:18:02 – 01:48:24:12
Mark Schuler
Right. You know the there’s just a lot of assets are going to go back to the they’re going to hand the keys back.

01:48:24:15 – 01:48:29:21
Rod Khleif
Right. And then once again, again, the only positive there is is going to be opportunity for for.

01:48:29:21 – 01:48:30:24
Mark Schuler
Them to be out.

01:48:30:26 – 01:48:47:16
Rod Khleif
There’s going to have people have cash and have the ability to take these things down. I’m actually, you know, I’ve, I’ve, I’ve backed away from multifamily a little bit. I’m, I’m still eyeing these deals. They haven’t they haven’t hit hard yet, but I’m doing senior housing as well. Now, I don’t know if you’ve ever considered other asset classes, but that one’s kind of exciting for me.

01:48:47:16 – 01:48:54:16
Rod Khleif
And I was 10,000 people a day turning 65 in this country. So, you know, it’s, it’s an asset class. That’s that’s very interesting. We bought our.

01:48:54:16 – 01:49:00:29
Mark Schuler
First. Interesting. Yeah, yeah. We too are kind of sitting on the sidelines just eyeing the situation.

01:49:01:01 – 01:49:17:23
Rod Khleif
Yeah. Yeah. I’m not doing the operations. I’m not going to take care of grandma. But we’ll do the real estate piece in the line with a competent, you know, seasoned operator. But, yeah, that’s something else I’m looking at. But, you know, I think there’s a lot of opportunity. Come in. Mark. And and, and like you said, it’s it’s the it’s the big boy game.

01:49:17:26 – 01:49:35:24
Rod Khleif
You want it. You want it. Yeah. Because, especially for the people that got into it. And over the last 3 or 4 years, that are struggling. I remember we were looking at a small asset in San Antonio and the, the reserve payment to the lender for this guy went from 8000 to 80,000 a month. I mean, you know, forget it.

01:49:35:24 – 01:49:41:25
Rod Khleif
I mean, you know, and and so, Yeah, but, so,

01:49:41:28 – 01:50:05:04
Mark Schuler
You know, if I could offer one piece of advice to your listenership, please, You know, if you if you want to get in the business, and you don’t want to, like, take that on yourself. I mean, the classic way of doing it is just investing with a solid operator. Sure. And, the piece of advice I would give them is to do your due diligence on that.

01:50:05:04 – 01:50:06:23
Mark Schuler
Operator. Yeah, and.

01:50:06:23 – 01:50:23:22
Rod Khleif
I say the same thing, in fact. In fact, I tell them, get your ass to my boot camp, okay? Because, you know, you shouldn’t invest in anything passively or actively unless you know what it is. You know, so many people throw their money in the stock market and they get sold by a broker that really has no clue what’s really going to happen with that particular stock.

01:50:23:29 – 01:50:39:13
Rod Khleif
And it’s the same thing with real estate, you know, you get it, you get the the nice looking pro forma and you can make numbers look any way you want on one of those things. And and if you don’t know what you’re looking at, you know, you’re going to invest in a deal that that, you know, you shouldn’t be investing in.

01:50:39:15 – 01:50:49:07
Rod Khleif
And so and I tell people, you know, at least get a basic understanding, even if you’re just going to invest passively. But, yeah, for sure.

01:50:49:10 – 01:51:16:17
Mark Schuler
Even with the current challenges in the industry, more millionaires have been made for real estate than any other investment vehicle. The long term prospects, especially around housing, because of our massive housing shortage in this country. Right. And, the regulatory environment around housing, there’s a reason why I don’t invest in Seattle anymore. This is strictly because of the regulatory.

01:51:16:20 – 01:51:18:07
Rod Khleif
Oh, it’s ridiculous. It’s ridiculous.

01:51:18:10 – 01:51:19:06
Mark Schuler
It is.

01:51:19:08 – 01:51:23:20
Rod Khleif
There’s some of these some of these rules and regs are frickin ridiculous. The tax is ridiculous.

01:51:23:20 – 01:51:41:22
Mark Schuler
I have a hard eviction moratorium. Nine out of 12 months of the year. Champ cannot evict people. I cannot do a criminal background check on any of my tenants, which means I can put a level three sex offender next to a family of four, and there’s not a damn thing I can do about.

01:51:41:24 – 01:51:47:05
Rod Khleif
That’s just ludicrous. I mean, it’s just astounding that the some of the shit they pass in the state now.

01:51:47:08 – 01:51:52:10
Mark Schuler
So, you know, check out the markets that you invest.

01:51:52:11 – 01:51:55:22
Rod Khleif
Yeah, exactly. Exactly. Do some homework.

01:51:55:24 – 01:52:03:27
Mark Schuler
You know, with all that said, the long term prognosis for housing in particular is, you know, people got to have a place to live.

01:52:04:00 – 01:52:23:07
Rod Khleif
It’s it. Bottom line, when Covid hit, you know, we got we got, we got relief from the government’s, strip centers didn’t office didn’t, you know, you know, we we because people have to have a frickin place to live. You know, there’s a reason 90% of the world’s millionaires either made it in real estate or invest in real estate.

01:52:23:07 – 01:52:26:28
Rod Khleif
That’s that’s what we call a clue, right? Yeah. Well, listen, here’s an.

01:52:26:28 – 01:52:39:19
Mark Schuler
Interesting factoid for you. That was that thesis is, you know, ten years ago, everybody was predicting the death of Rita. And whereas retail now it’s bouncing back. It’s very different.

01:52:39:24 – 01:52:42:13
Rod Khleif
Different different tenant different tenant models.

01:52:42:16 – 01:53:01:20
Mark Schuler
Yeah. Yeah. So you know from that. So yeah, I mean it’s very cyclical. And so you have to understand kind of where you are in the cycle in order to invest in it. So yeah. Think we’re hitting the trough right now and the next five years probably going to be a good swing.

01:53:01:22 – 01:53:08:15
Rod Khleif
Oh it’s going to it’s going to be great. You know, I think, you know, Trump will likely have an impact on the interest rate. Let’s hope so.

01:53:08:17 – 01:53:10:25
Mark Schuler
I hope I mean, something can go our way.

01:53:10:26 – 01:53:27:20
Rod Khleif
Yeah, yeah. Well, listen, brother, I appreciate you coming on the show. And, your partner is Josh as well, and, and it’s been, very, very educational. And, I just want to wish you the best of luck and, and, and, let’s stay in touch. Thank you so.

01:53:27:24 – 01:53:28:11
Mark Schuler
Much. Good.

01:53:28:13 – 01:53:29:07
Rod Khleif
All right. Take care.