The Opportunity Coming In Multifamily

Full Transcript Below

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

Rod
Welcome to The Lifetime Cashflow Through Real Estate Investing. I’m Rod Khleif, and I am thrilled that you’re here. And I know you’re going to get tremendous value from the gentleman I’m interviewing today. His name is Drew Breneman. He actually has his own podcast, by the way. You should check it out. It’s called the “Breneman Blueprint”. Now, his name is spelled Breneman. Of course, that’ll be in the show notes. But let’s see, Drew started his real estate career when he was 19. He has– you know, now, he’s got $200 million in assets in, and I think two or three primary markets. We’ll dig into all of that. But we’re going to have a lot of fun today. It can be a real wide, ranging conversation. Drew, welcome to the show, brother.

Drew
Yeah, appreciate you having me on. Thanks, Rod.

Rod
Absolutely, for sure. And I know I’m getting interviewed on your show in short order as well, so that’ll be a lot of fun. I’m looking forward to that. But why don’t we start as we always do and just have you talk about, you know, your story, your journey, and kind of bring us from where you started, why real estate, maybe what you did before real estate, to present day?

Drew
Yeah. Well, I started really young in terms of getting into real estate where I was fortunate and then I started an internet business in high school. Some of my friends were selling items in these video games they were playing on the computer. I saw what they were doing and I thought well, I don’t really care about playing this game, but I see you guys are all making money selling your stuff when you’re done. So I saw stuff on eBay selling for armor sets and whatnot and swords and shields for this game. Sometimes they would sell for $10, sometimes to sell for $20, you know, all over the board. So I started thinking, hey, why don’t I throw in some money on this, see if I can buy low, sell high with the items. It worked out. And just from sophomore year of high school called to freshman year of college, I did thousands of transactions. Just every day I’d come home from school, I’d have 20 or 30 purchases on eBay or on my website. I’d make the deliveries and then I’d do my homework, I’d go to bed, it’s a rinse and repeat. And, you know, in about a four-year period, I made between $80,000 and $100,000 of money. And I wanted to start you know, figuring out what should I do with this. My parents, they’re both teachers, so they weren’t like big spenders. So saving money and investing was something that they taught me, as well as a lot of other really good lessons. But that was something I just observed from them. So I didn’t start spending the money. I didn’t buy a better car. I just saved it all. And as what I said I was fortunate was, you know, I started reading the books and most people read probably when they’re 40, like “Rich Dad Poor Dad”, “Intelligent Investor”. I did a book report on “Think and Grow Rich”. And the light bulb for real estate really went off for me. I was reading “Investing in Real Estate” by Gary Eldred, and he had this really simple example, you know, I’m brand new to hearing about real estate. He’s talking about cash flow, paying your loan down, tax breaks, things that were, you know, I could understand, but, you know, it’s hard to tell what would the returns be. And he had an example where this is like in 2002, I’m probably reading this book, and you put 10% down on this house in his example, every year homes have gone up 3% or more, you know, the last 50 years at that point. And if your duplex, your house, whatever your rental property is, goes up 3% and you put 10% down, that’s a 30% return in a year. And the light bulb really went off for me reading that. I still remember I was outside on this deck we had with one of those wooden swings reading this book. I’m like, shoot, this makes a lot of sense. I’m going to dig into this.

Rod
And one of my questions is, do you have any epiphany? So that was definitely an epiphany for you. That’s a very interesting way to describe what you just described as far as return based on appreciation, organic appreciation. So please continue. Sorry, I interrupted.

Drew
Yeah. And of course, you know, as you do this more, you realize most deals, you’re not putting down 10% and, you know, 3% return isn’t just like clockwork, like in this super simple example. But got the real estate bug going in me. And I had also tried to invest in the stock market, mutual funds, other things, but I was just too young, honestly, for those. I was, you know, 17 years old. I’d buy a stock for literally a day, and then it would go down and I’d be like, I think I need to sell it. This isn’t working out, you know. So obviously now being older, I learned you’re way better off thinking long-term, investing long-term than something like that. But yeah, so then I’m from the Milwaukee area and I was going to go to UW of Madison and Madison, Wisconsin for College, regardless of real estate or not. So I decided once I was, you know, I’m going to go to Madison and I’m going to buy a deal when I’m a freshman. So you have to live in the dorms. It’s required there. And then my plan was I’ll buy a rental property that I’ll live in my sophomore year, and then I’ll rent out the other units if there are other units. And this was in 2004, so it was really competitive, the housing market. You know, the first property I went to, there was literally a line out the door for this for a deal to get in it. They priced it below market value, you know, to get a bidding war going and the strategy worked, and that one I didn’t get. But eventually, I was able to buy a duplex for $220,000. I put 15% down on that and then was able to qualify for the loan because I had this business income on my tax return from high school. And in school, I did three more deals. So bought four properties total, had sort of invested all my money, and then thought, what should I do next? And, you know, I could see the housing market, everything was slowing. I graduated in December 2007. So I thought this would be a really good time to learn. So I got an internship at an office developer, a full-time job at a multifamily developer, and then switched to a different full-time job at a retail company. So I got a lot of exposure quickly to a bunch of different product types. And while I was working at the apartment developer, I met my first real investor partner. So it’s a father and his son. The son was an intern where I was working. You know, I told him what I was doing, and he was like, why didn’t you go talk to my dad? And we meet with him. I think we met literally the next day. I don’t like to waste time. So I was like, let’s go, let’s go meet with him for lunch. I printed out a bunch of deals, and I had no idea what they would be interested in investing because, again, with parents as teachers, you know, maybe I’m thinking they probably want to buy a duplex or something. I’m not thinking I’m meeting with somebody who could buy a three-million-dollar deal, and they could. So I met with them and they really liked it. They had a $3 million shopping center that I had printed off in that meeting. And we ended up buying that deal. So that was in 2009. And from 2009 to 2012, the three of us, we bought commercial deals. This was up in Minnesota. We were buying– you know, really a lesson there was, you know, how strong multifamily is because we were trying to find multifamily deals, but no one was really selling. They were saying, these deals are still operating well. I have, you know, probably a loan from Fannie or Freddie. I don’t need to sell it, and they kept it. Whereas all these commercial deals, we were buying from developers who maybe had, you know, ten or 20 deals, and they were all screwed up, every one of them, except for maybe one that was [inaudible]

Rod
When you say commercial– sorry to interrupt when you say commercial was it all retail at that point or what was it? I assume it was retail.

Drew
Retail, industrial, and office. So out of those first six deals, four were retail, one was industrial, one was office. Really, what we were targeting at that point is we were trying to be like, we knew the Twin Cities, we knew what the good areas were, and then we knew how all these product types worked. But I wouldn’t say we were an expert in any one of them. And that’s something that I–

Rod
I’m sorry. Let me ask you–well, let me just make one comment. I mean, your timing was impeccable because you know at 2009 to 2012, good God, if I hadn’t been hiding under a rock, I’d be on the back of a yacht. So good for you. But anyway, please continue.

Drew
Yeah. And it’s interesting at the time, it did not feel like that.

Rod
Really?

Drew
Everyone thought we were crazy to be purchasing a property. It’s not too dissimilar from today in a way where you know prices have pulled back, rents have stopped growing on a lot of assets. And it’s hard to make sense of deals right now where you’re buying at a five-something cap, probably on multifamily or borrowing the five– so you’re not getting a spread.

Rod
Right.

Drew
Back then, it was a little different. It was like, we were buying our second deal we bought as a shopping center. And we were literally watching CNBC wondering if Wells Fargo was going to go out of business because they were on our end cap and they were like the next bank up to maybe go on.

Rod
For sure.

Drew
And Wells Fargo [inaudible]

Rod
That’s a timely comment as well. Right? I mean, I don’t know if you just saw the Jamie Dimon’s comment about bank failures. What is today? Was it April 5th today? April 4th?

Drew
Yeah. 5th.

Rod
5th. Yeah. April 5th. And Jamie Dimon just literally in Fox News today talking about, you know, that these bank failures are going to continue. And I saw someone else regionally that there could be a lot of regional banks in trouble because of this commercial debt, you know, especially in the office environment. I mean, they’re getting killed in the office environment. Do you still have office buildings?

Drew
We don’t. We still have the one industrial deal and then a lot of the retail deals where that’s actually been a good product type still, the small shop retail, where we’re not buying the big box stuff that’s closing. But, you know, small shop retail where our tenants are like Verizon Wireless, Panda Express, [inaudible], we got to those.

Rod
How did you fair through Covid? Because I know I have friends in retail that really got their asses handed to them when Covid hit because they’re dealing [inaudible]

Drew
Yeah, we had to work out a lot of deals, but just deferrals. So meaning you can’t pay your April and May rent, supposedly that’s fine. We’ll wait and pay that in November and December. And then– but we didn’t forgive any rent. And most of the tenants, and what I kept telling them was, you guys are all a way bigger company than us. Most of these companies are– your public.

Rod
International? Yeah. Okay.

Drew
Yeah. I mean, this is you know, sleep number and just big companies where you guys are nationwide and public. You know, we tried to play the little guy in that conversation. We’re just two or three guys here you know, with a couple of properties. We’re impacted, too, by this. No one’s letting us defer our mortgage payment or property taxes or anything. So we’re in the same position as you guys, so we can’t really do that much for you.

Rod
That was a great strategy. And I’ll tell you, I want to circle back to something you said, which is real timely as well. And really, I felt it in the crash of ’08 and ’09. You know, I lost my ass because of single-family. You know, I had 800 houses, and those are what pulled me under. But my apartment complexes did just fine. And I do believe we’re going to see an opportunity in the multifamily space, and I’d love to talk to you about that, particularly in the bridge debt environment. You know, a lot of people did bridge debt but–

Drew
Yeah, I agree with that. I mean, if you just want to go there now.

Rod
Yeah. Let’s do it.

Drew
Yeah. I agree with you where there’s been a bunch of– you know, in a lot of these markets, especially in the Sun Belt, we buy in Phoenix, and it feels like every deal in Phoenix has sold in the last three years, at least once. And a lot of those buyers, right, in order to get the leverage they needed to hit returns, they were doing these debt fund loans, which were variable rate loans, you know, floating rate. The lender makes you buy an interest rate cap.

Rod
Short-term.

Drew
Yeah, right. It’s a three-year loan and then they make you buy a two or three-year interest rate cap. Well, yeah, everyone who bought in 2020, let’s say, they’re okay because prices went up a lot so did rents. But as you get further into the end of 2021, 2022, rents and prices haven’t moved up that much since then. And if you bought a two-year rate cap, that’s coming up maybe towards the end of this year where you’re going to have to own up a lot of money to buy another rate cap. And if you want a refi, you’re doing a cash-in refi because your rate with where your cap was, you were sized at a 4% rate probably, and rates are you know, 5% plus now. It’s a big difference on these apartment deals.

Rod
I just read they’re going to bump you know– the Fed is going to bump another quarter percent as anticipated in May, although it doesn’t directly correlate to commercial debt but it’s still onerous.

Drew
Yeah, it is. And the Fed funds rate is correlated pretty much one-to-one with the SOFR rate, which is what all these floating rate loans are based on. But yeah, it’s not like you’re saying–

Rod
No, you’re right. In that particular environment, you’re absolutely right.

Drew
But what you’re talking about wasn’t that. It was, you know, like a five-year, 10-year fix. Those are priced on the five and 10-year treasuries, plus the spread. And those aren’t that correlated with the Fed funds, more correlated with where the economy is at and other investments.

Rod
Right. And, you know, let’s talk economically. I mean, let’s just go there right now because you’re very knowledgeable as well. So I don’t know about you, but I’m pretty bearish right now. I mean, like McDonald’s just talked about layoffs. You know, Jamie Dimon is pretty aggressively– you know this is the head of Chase guys, if you don’t know who that is. He was quoted four months ago saying that this thing was going to be severe. You know, what are your thoughts just in general economically?

Drew
I think that just in terms of the economy, I think the pain hasn’t really hit the main street. You know, for us, we feel like it has. But that’s because we’re in an industry where it’s capital intensive and we’re all borrowing a lot of money. So you increase interest rates, that has a big difference. But for us– but your average person– I mean, that’s really only impacted them if they needed to buy a car or something and borrow money. So it hasn’t really trickled, I don’t think, these Fed funds hike through the whole economy yet. And when inflation actually does slow for real, and that’s felt on the main street, that’s just going to make more people pull back, spend less, and it’s going to keep happening and slow down the whole economy. So I still think there’s more pain to go. You know, a lot of people who are in these apartment deals that are very sophisticated, their first question is, give me a rent roll that shows the delinquencies because you’re starting to see that trickle up now you know, especially in the Class-C and B properties where–

Rod
Yeah. That’s why we don’t do C-Class anymore. At least through this period of time, it’s a flight to quality because that demographic is getting killed.

Drew
That’s the same thing I’ve been saying. I think you’re spot on where you– right now is the time if you’re going to buy a deal, you want to trade up in quality. That’s absolutely what I want to do. Also, you got to push your hold period out. Now is a bad time to try to do a three-year hold on a deal.

Rod
No way. Ten-year debt, man. That’s all I’m doing.

Drew
Yeah.

Rod
Guys, in the commercial real estate world, it’s not like residential where you can get a 30-year loan. Yes, you can get a 30-year loan or amortization, but you’re going to have a term. It’s really what you might know as a balloon if you’re in the single-family space. And, you know, a lot of these guys, these last couple of years, like Drew was just saying, to get the returns they needed, they got bridged debt, this very onerous debt, and they’re going to have some problems. In fact, I’ll give you an example of this, Drew. We were looking at a deal in San Antonio, and the reserve payment to get this guy ready for his loan income and do went from 8,000 a month to 80,000 a month. This is real small guys.

Drew
To buy a cap, an interest rate cap or why was it jumping up?

Rod
I don’t know the detail.

Drew
Okay.

Rod
I just know that it was killing this guy. And the deal didn’t make any sense. It was too small for us. But even one of my ex-partners has some bridge debt and there’s been some talk that he’s going to have to throw two million in to satisfy– actually, no, that’s right. When I spoke to him recently, it’s been dropped to a million. But it’s still significant to weather the storm. And a lot of people don’t have pockets like that, you know, that can do it. So I think there’s going to be some opportunity there. I hope there is because I’m kind of excited. It’s been kind of brutal finding you know, super deals these last couple of years. But yeah, so we’ll see. And the other thing, while we’re talking about it is if the office environment– and literally, I was just reading this today in the news, if the pullback– because even the government employees, that’s right, the article I was reading today was about government employees, they’re the largest office renter in the country.

Drew
Yeah, I believe it.

Rod
A lot of the government employees don’t want to go back to work. They want to work from home. You know, I mean, don’t get me started on that group. But the experience I’ve had there. But, you know, if they’re going to reduce their office footprint, that’s huge. And a lot of that debt is with regional banks. And so, you know it’s kind of scary, honestly, because if that implodes– you know how does that– there are so many potential catalysts, you know, the Ukraine thing, the inflation, the bank failures if that expands or gets worse. So it’s a little tenuous. My Mastermind, I host a Mastermind, some of the largest multifamily operators really on the planet. There are about 16 billion in assets in there. We’re actually meeting in two weeks in Dallas. And I think that’s going to be a huge topic of conversation is how we weather the storm. And, you know, we’re going to focus on asset management, property management. These are some of the topics we’re going to really drill down on because that’s what’s critical in an environment like this. Right? Do you agree?

Drew
Yeah, it is. You know, prices aren’t going up on their own anymore and neither are rents, really. It’s kind of back to the fundamentals who were actually operating this property as well is going to matter.

Rod
Yeah. A lot of new operators that, you know, entered into the marketplace in the last three or four years or five years, six years, never been through a downturn. And I think that’s going to play out as well in vacancies and challenges. Well, anyway, why did you shift over into multifamily from your small duplexes and things like that? Why did you start doing larger deals?

Drew
Yeah. Well, really, you know, so I had invested what money I could, and then I was able to sort of make my own luck and form this partnership if you will, where I got into bigger deals. And we started as we were doing the commercial deals, we saw some things we liked about them. So this is, you know, retail, office, and industrial. But then a lot of things we didn’t. You know, you lose a tenant and it takes a long time to re-rent it. It’s very expensive where it’s shocking when I explained if you would say per foot, what is it in retail with your vacancy and everything to re-rent the space? Because we still do look at mixed-use properties. And some of the guys who work for me, they’ve really only bought apartments. And it’s like, what should I plug in here on like an assumption if they leave? And you could be at $100 a foot pretty fast on what you would spend in terms of missing out on a year of gross rent, you know, that could be 30, 40 bucks fast. Then you got to pay your broker, the other broker, give them a tenant allowance, you know, 20, 25 bucks of free rent. It added up fast. And so, meanwhile, I had these apartment deals on my own still. And every year, you know, the rents were going up. It’s consistent. And I have, I guess, an interesting story on long-term, too, with apartments where the last deal I bought in Madison, I bought in 2007, just at the total peak for prices. And I was thinking about selling in 2009, and it wouldn’t be too different than the story you’re saying where if my loan came due, I would have had to add money or just sell it and walk away with nothing. I was thinking about selling it because, at this point, I was living in Illinois managing it from three hours away. But what happened was I kept it. It was a 30-year advertising loan like you’re talking about, but it had a 10-year term and it went floating rate after the first five years. I remember thinking like, Jesus, this rate is going to explode up. I’m going to be screwed here. Anyways, long story short, I stick in the deal. I paid $700,000 when I bought it in 2007, and in 2017, I sold it for $1.22 million. So staying in it was a big thing. So I think a big part just as you were talking about the opportunities, if you’re in any of these deals, you really are going to want to not give them up, do anything you can to stay in them. You know, like that friend of yours, he’s going to need to just add the million dollars. Think of it as if I’m just paying my loan down. It’s not like I’m losing the money. It’s I’m just de-leveraging. And he’s got to stay in that deal. If he sells now, he’s selling at arguably the worst time to be a seller in terms of pricing.

Rod
No question. This is the worst time to sell for sure. And we’re going to be waiting for, not for the owners that want to sell, we’re going to be waiting for the ones that have to sell, you know that deal to sell.

Drew
Yeah.

Rod
Well, you had sent over some thoughts that we could talk about before we met here. And one of the things you mentioned was tech. So maybe you could expand on how you’ve utilized technology to maximize either your research, your operations, your effectiveness, whatever. So if you’d expand on that would be–

Drew
Yeah. So one thing, too, just to kind of bring it to the current day. So from when I started to about 2019, it’s just me and my partner buying deals and just doing our thing, doing every piece of it. And actually, in 2019, he passed away just unexpectedly. So then I had to make a total pivot where then, you know, now it’s just me and the dad and those deals where we still have him, but he’s not really that interested in a bunch of new stuff.

Rod
Right.

Drew
So what I wanted to do is kind of expand into– you know, we all made a lot of money together, the three of us, but I see people doing syndications and you know, kind of spreading this around. I wanted to do the same thing because I’d have people come up to me where they would want to invest you know, $100,000 or something, and that comes up to me people I knew. And we weren’t really set up to do that. It’s like, we’re just set up for one investor and that’s it. And so what I wanted to do is I have a– you know, be able to pull a bunch of investors together. And the first change we had to make with that was you need a lot more infrastructure to have a bunch of investors versus just one. You know, we needed no infrastructure almost because it was like our investor’s daughter did the accounting, his son’s in the deals, and then it was me, where now, you know if you’re going to have a bunch of investors, you need a platform to manage them. So we signed up for Juniper Square, which is an investor portal.

Rod
Wow. That’s super expensive. I’m surprised you went right to the top. That’s probably the most expensive portal out there, I think. And let me expand on what you just said. If you don’t mind, just clarify for those that don’t know what you’re talking about. So guys, when you do syndications and you start taking money from investors, you absolutely need a portal. And there are lots of them out there. We use Cash Flow Portal, love them. We’ve used actually three so far in our evolution. And what that does is it allows you to effectively manage their money. It comes in, it’s allocated properly. You know, it helps you distribute K-1s and communicate with your investors, and present deals to your investors properly and on and on and on. Okay, so back to your story. And so the one he’s describing, Juniper Square, like I believe, if it’s not the most, it’s really close to the most.

Drew
Yeah. I went all-in on setting this up. I mean, right now, in total, we’re spending 50,000 a month between the four or five employees I have and all the different software and tech we have.

Rod
Wow.

Drew
But the idea is–

Rod
I’m kind of surprised by that. I have to tell you that– I was going to interrupt you earlier when you said that you needed a team to start raising money. And I was going to push back on you a little bit because I think with the tech, you can minimize the–

Drew
Agreed with that.

Rod
Okay.

Drew
But we’re trying to do it at a bigger scale where in our first– from when we really started spinning up at the end of 2021 to then May 2022, and then with the market change, we stopped. I mean, we bought you know, 50, 60 million dollars of deals pretty easily in terms of the effort that was involved. And so we were really sort of scaling that up. We had another deal for 30 million under contract. And all these deals require a lot of work because what we were buying at that point was usually a Class-B deal in Phoenix that needed a pretty big renovation.

Rod
Right.

Drew
So you start stringing together a few of these and you look at it, you’re like, wow, we’re doing you know, each deal is like three million of renovations, basically. So three, six– you end up needing a lot of– there are a lot of things to work on. And then, you know–

Rod
You’ve got to raise– did you raise that money or did you come out of pocket for the CapEx? I mean, did you raise the CapEx? I’m assuming– yeah.

Drew
Yeah, we raised it. But just in terms of implementing it, we’re responsible to, you know, oversee the renovation and, you know, stick to the business plan.

Rod
Sure.

Drew
And then that’s a full-time job, you know, run in one or two of those just from the asset management level.

Rod
Did you have a third-party property management company involved? Were you using their structure?

Drew
Yeah, we are.

Rod
Okay.

Drew
I think that’s the best way to enter a new market is with a third-party manager, you know, see what they’re doing, learn the laws, see what vendors are using. But if you can bring it in-house, I think that’s better.

Rod
Sure. No question. But back to what you just said. You know, if you’re doing a big renovation, yes, you’ve got to have eyes on it. But for example, you know, we’ve got someone supervising an asset that we’re renovating, and it’s a huge– actually, it’s about 4 million in Nashville. And, you know, basically, we have weekly calls. And again, we’re paying for some supervision there through the management company’s construction division. It’s going really well. They’re on a budget and everything else. I mean, it’s not like consuming. So, you know, I don’t know if you do it differently or if you’re actually there on-site for the entire thing or [inaudible]

Drew
I know what you’re saying. And they’re also pitching in on the other. I mean, I think, 28 or 29 deals to get to that 200-some million where we’re– and so there’s work that comes up on those, obviously, and then they’re pitching in where one of them does asset management, and then we’re doing 30 tax returns and quarterly reporting, monthly distribution, where there’s just a lot of work that comes up. I agree with you–

Rod
Talk about your team. What pieces do you have? What roles do you have in your team now?

Drew
Yeah. I have two asset managers and two acquisition people.

Rod
Okay.

Drew
And I think it’s most important, I think when you’re starting out hiring this sort of– making sure you can take care of the, I’ll call it the day to day. So I think if you’re building this from scratch, I think asset manager is the first hire, assuming you have your accounting taken care of. And we have a third-party CPA, a woman that we pay hourly to do all of our accounting, who’s amazing. So we have our accounting already handled outside. But then, so yeah, two asset managers. And then one of them is, you know, he’s the person who’s the best with Juniper Square and handling all the tax returns and everything with investors, getting all the dock signed. And then the other asset manager is really more driving the business deal. So when you’re talking about the Nashville deal, I mean, someone, in my opinion, on a deal like that, they need to be pushing the business plan along where the third-party manager, they’re very reactive and we want to be proactive in pushing them along.

Rod
For sure.

Drew
I’m sure there’s someone in your partnership who’s doing that. And so then that’s like a cost that, you know, we bear. We charge a construction management fee and an asset management fee. So those fees then come in to pay for these people. So it makes sense in terms of the economics for everybody. But you need someone to drive the business plan along. I think that’s a common, let’s say, beginning investor mistake. Just to mention that where when I went from self-managing all my deals and then I had relocated to Minnesota, I hired a third-party manager in Madison. I thought I’d be doing nothing. I’d be there to just handle it. And I felt like I did the same amount of work because you need to really drive them. Who’s setting the rent? Who’s arguing about this $700 repair bill that you thought should have been 300? You’re doing just as much work. It’s just different work where you’re not getting called at 11 o’clock at night on a Saturday anymore, but, you know, you’re kind of [inaudible]

Rod
You’re still heavily involved. When I do my boot camps, you know, I do boot camps, two and three-day boot camps. In fact, I’ve got one coming up, May 6th, and 7th, a virtual one. But when I do those– you know, one of the things I tell people is once you hire third-party property management, it’s not like you raise your hands like you just last sued the calf and you’re off. You know, you’ve got to manage that asset. You got to manage the managers. It’s like you described.

Drew
Right.

Rod
And your work’s just starting. In fact, you know, when we carve up a partnership, a general partnership in a syndication, the asset management chunk is the biggest chunk because it goes for years, you know.

Drew
I can see that.

Rod
Yeah, for sure.

Drew
I can keep going on the tech if you want.

Rod
No, that’s where I was going to ask– I was going next. Yeah. Please do.

Drew
So I ended up hiring someone who used to work at a $50 billion private equity place. And during Covid, he saw the model they were using to underwrite their deals. And he was like, you know what? I could make a better one. And he did. And he ended up interviewing for me. I hired him. And now that’s our model as well. And we’ve improved it a lot. So we have this insane underwriting model where we pull in all the information, we clean it. It’s an online, I guess we’ll call it program or software called redIQ, where you can reorganize all the rent and roles, T12s. And then it flows freely through the model. You input it and then it basically fills out the rest of the model. You just change the couple– you know the most important key assumptions, really. So we have an insane model. And then the same guy is into sports analytics. So he made a predictive market model for multifamily price appreciation.

Rod
Let me stop you just for a second because you know it’s funny. That parallels exactly what we just did in my company. I had somebody who was 20 years with Intel and he did an analysis model for us, which is insane. It’s so good. And we give it to my students, my Warriors, and it does everything you just described. And it’s so important because– and it’s got two levels. It’s got kind of a preliminary level so you can do really quick reviews, although it’s very detailed. But then there’s a real advanced level which goes to a whole another level. But I want to hear about the predictive. That’s fascinating. Please continue on that thought. Yeah.

Drew
Yeah. Because one thing that I had realized when I was sort of re-assessing what I was doing in 2020 with my partner passing away is just we were doing really good deals in Chicago. You know, I think our average return was like a 25% IRR in the stuff we sold. But there are a lot of headwinds in Chicago. Like where you see people in Florida and Phoenix–

Rod
Let’s not go down that rabbit hole where I could absolutely comment on that. But you guys just had a new mayor elected yesterday, I think, or the day before.

Drew
Yeah. And everybody in the business and community and people who care about public safety are really disappointed with that outcome. But there are so many headwinds here. And so when he started working for me, one of the things we wanted to figure out is what– actually, one thing Barry Sternlicht always says, who’s Starwood Capital, that’s someone that I– if you people listening, haven’t ever heard of him, he’s got so many really good interviews on YouTube. He doesn’t have any sort of media that he puts out. He goes on Bloomberg and just starts dropping really great advice or does an interview for a college. Anyways, one thing he always says is you want to get in front of the freight trains in your life and follow trends, get in front of the trends is what he always says. And I’m investing in the Midwest and, you know, the trends are not in our favor. And so we want to figure out what is the best thing moving forward. And for a hobby, what he does is the guy who works for me, Evan, he does sports analytics. So he made a predictive, we’ll call it NCAA bracket optimization model for fun for the NCAA tournament. And so he applied all that to go, I’ll get all, I’ll pull in all the data, we’ll look at the top 37 markets in the country, and we’ll find out what’s actually predictive and drives the price appreciation of multifamily. And if people want to know number one, in terms of what was predictive and correlated with appreciation, was population growth as a percentage. So not just raw numbers. Because one thing that drives me crazy is people will be like, how many people a day move into, let’s say, Florida? And it’s like, that doesn’t tell me anything without the percentage or what’s the net number, too?

Rod
Sure.

Drew
It’s not like, what do people are moving out, you know. And then job growth as a percentage, and then rent growth as a percentage. Then we figured out what it wasn’t correlated. And then that told us what are the top markets. And in our model, the number one market in the country is Tampa. This is just for price appreciation.

Rod
Yeah. That’s my backyard, man. I could totally agree with that one. We saw 34% rent growth last year. It was insane. So, yeah.

Drew
Yeah, love it. And then number two was Phoenix. So we saw that, and then we went all in on Phoenix because Phoenix has the best property tax laws in the country. They have this thing there called Rule A or Rule B, where what they do is they don’t change your assessment by more than a 5% increase per year, even if the property is sold. So you have really a lot of tax certainty, which then you have really high rent growth as well, but your expenses are not growing as fast as the other top markets, like in Florida, like in Texas.

Rod
Sure. Taxes are your biggest expense, guys, just so you know. So that’s huge for sure.

Drew
Yeah. And then in all the other top markets, too. So then, you know, the next ones up were I think Orlando was number three, then four was Dallas, five was Austin. We also then looked at how the markets were correlated too. That was something he knew how to do with how the prices moved. And Tampa and Phoenix are really correlated. And so was I think Orlando with [inaudible]

Rod
When you say correlated, expand on what you mean by that.

Drew
Yeah. So let’s say a correlation of 1.0, so like one to one means they would move exactly the same in the same direction.

Rod
Oh, got you. Okay. So you’re correlating the growth and the metrics that you’re comparing in each location. Got you. Okay.

Drew
Yeah. If you put a chart of Tampa next to Phoenix, it would look very similar in terms of what they do.

Rod
Got it.

Drew
Whereas you put a chart up of Dallas, and it would look very different than those ones. So then we wanted to start picking markets based on how they also interact. One thing then why we wanted– we’re starting to get going in Dallas and because of the reason is, like in the last downturn, 2009, 2010, for the entire Sun Belt and all these growth markets, it was the most resilient. The prices barely went down in my apartment. And in single-family, they went down less than 10%. And if you compare that to Phoenix or what happened you know, in Vegas or Florida, these places where they went down 30 plus percent.

Rod
Oh, more than that, brother. More than that, buddy. 50% in my portfolio, even more than 50%.

Drew
I was trying to be nice in Florida.

Rod
It’s okay. I love Florida. I could be a poster child for the Florida Chamber of Commerce. Don’t worry, you’re not going to hurt my feelings. I freaking love [inaudible]

Drew
Yeah, I see you on the beach on social media.

Rod
That’s right. Yeah. But we’ve got, I don’t know, probably close to 2,000 doors in Dallas. I love the Dallas market. And we’ve got assets in San Antonio and Houston as well. I love Texas in general. Austin, haven’t gone there. Just been too expensive. I’m not sure I love the politics there either, the local politics, but we won’t go down that rabbit hole either. But, anyway, let me add a couple of things. On our end, on the tech side, we use Microsoft Teams now. We were using Slack, which is a painful migration, but we’re totally going over to Teams now. We use Asana for our project management and HubSpot for our CRM. And for those of you, if you’re interested, HubSpot has a free version, highly recommended. We spend you know, several thousand a month on it.

Drew
And do you use HubSpot for all your businesses, for all the email stuff, too, as well, or you’re tracking down the CRM?

Rod
Yes. Both for my thought leadership platform and for my acquisition business, we use HubSpot. Yeah. And it’s going really well. And, you know, we’ve got a really nice deal process flow in Asana in the different stages of a deal, from LOI, Whisper Price all the way through to, you know, closing asset management.

Drew
Nice.

Rod
Well, listen, we’re bumping up against the time here. Was there anything that you’d like to add that we haven’t discussed? I think we could probably keep going but–

Drew
Yeah. I mean, I think we covered a lot, but I think if people too, we just kind of talked a lot about what I’m doing. I think probably less than people could pull out from this. A lot of this stuff, it sounds maybe easy now in retrospect that we did all this, but a lot of it was just we thought long-term, we weren’t doing short holds. And also just creating your own luck. So I met this co-worker of mine, but he also went to UW Madison. There are thousands of students there, and we worked at a pretty big apartment company. But I was doing something, they saw that and then they liked it. So I think one thing where I know you have your Warriors program and all the events. And I think one thing I like to hear you talk about is you’re really pushing people to actually do something where they take action, where it’s not like there’s not this 50 courses to sign up for. Well, they got another thing and another thing and another thing. You should learn for, you know, call it, three months or six months or something, and then you got to take action. So we didn’t really get into that.

Rod
Massive freaking action, bottom line. And, you know, of course, my whole platform is centered around mindset. I mean, there’s a reason my students own upwards of 150,000 doors that I know of. I think it’s more than that. And, you know, I’ve only been teaching for five years, you know, something I’m super proud of. And it’s because they take action with what they learn because I’m pushing them. I’m in their ear every day, you know. Go make it happen. I think action is the biggest piece. I’m really glad you brought that up. Action mitigates fear. And I tell my students, you know, get out there and just keep taking action. You’re going to make mistakes and that’s okay. But, you know, that’s what it takes. It’s not the knowledge. And of course, it’s the connections as well. My most successful students are the ones that are most connected inside of our environment because it is a team sport and they get together, they do deals together and it’s just extraordinary. Well, I really appreciate you coming on the show, brother. I think we’ll need to have you back on in, say, a year or so, and see where you’re at at that point because you added a tremendous amount of value and I appreciate it.

Drew
Yeah, happy to do it. Thanks, Rod.

Rod
All right, buddy. Talk soon. See you.

Outro
So one other quick thing. We encounter so many people that are frankly frustrated. They’re looking in the mirror and they’re frustrated that they haven’t been able to escape the rat race. They haven’t been able to build cash flow to the point where they’re able to have financial and time freedom with their families. And maybe they see other people buying real estate and creating incredible cash flow and they think, well, it’s just scary. You know, buying apartments is intimidating. And I get it. See, that’s why we created our Warrior Mentorship Program. They’re our coaching students, and they’ve had extraordinary results. My students, I’ve been teaching about five years, and they own upwards of 140,000 units now that we know of, right? And we feel like it’s just getting going. Now, we’re looking to grow this group and really take it to the next level and honestly believe that the greatest transfer of wealth could be upon us right now with this current economic environment. Everything’s going on sale. So we’re looking for people who want to follow a proven framework, really like a blueprint or a map, literally step by step. And then they’re able to leverage our systems and our incredible network to raise money and equity to find deals and close those deals and build partnerships, really nationwide. So if you’re interested in finding out more about how you can become more in our incredible network and take advantage of the unbelievable opportunities that are upon us, you can apply to my Warrior Mentorship Program by texting the word “CRUSH” to “72345” or you can go to “MentorWithRod.com” and what we’ll do is we’ll set up a call so you can check us out and we can check you out and see if it’s a fit. Now, again, you can go to “MentorWithRod.com” or text the word “CRUSH” to “72345” to apply, and we will speak soon.