Gary Lipsky is a real estate entrepreneur who has a focus on Multifamily Syndication. He is the President of Break of Day Capital, whose mission is to positively impact the lives of their investors and the communities in which they invest through the highest level of transparency and fiduciary responsibility.
Gary is the host of the Real Estate Asset Management Podcast, where he speaks with various experts in the real estate industry to help educate asset managers.
- Don’t Buy a Forever Home, Buy An Investment
- Partnering WIth Others Takes Away The Fear
- Looking For Good Team Players
- The Coming Recession
To find out more about partnering or investing in a multifamily deal: Text Partner to 72345 or email Partner@RodKhleif.com
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Full Transcript Below
Intro
Hi. My name is Rod Khleif, and I’m the host of “The Lifetime Cash Flow Through Real Estate Investing” podcast. And every week, I interview Multifamily Rock Stars and we talk about how they built incredible wealth for themselves and their families through multifamily properties. So hit the “Like” and “Subscribe” buttons to get notified every Monday when a new episode comes out. Let’s get to it.
Rod
Welcome to another edition of How to Build a Lifetime Cash Flow Through 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 my friend that I’m interviewing today. His name is Gary Lipsky and Gary is the president of Break of Day Capital. And he’s in, well, in 30 days, he’ll be in almost 200 million in assets under management. And he hosts a podcast, which I was on recently. It’s called “Real Estate Asset Management”. And, yeah. So, let’s have some fun today, brother. Good to see you, man.
Gary
Absolutely. Appreciate it. I’ve been a long-time listener of this podcast, so it’s– I’m excited to be on.
Rod
Thank you, buddy. Thank you. So, you know, why don’t you give us a little background of you know you’ve done some cool stuff. You’ve built companies, you’ve coproduced independent films. So, you know, how did real estate happen? You know, let’s dig in.
Gary
Yeah, you know, always been an entrepreneur, and I wish my parents taught me about real estate, and they never did. You know, they bought their forever home, and they’ve been in that home for, jeez, almost 50 years now. But, you know, I knew that when I was looking at people that were very wealthy that they owned real estate. So, even the first home I bought was– I wasn’t looking at it as my forever home. It was looking to add build my net worth, you know, buying a neighborhood that was improving. I had that mindset of value add even to that home. I didn’t know that I’d be using it in the future, but, you know I looked at it and said, oh, we can open up the kitchen, we turn the garage into office space. And that was the start of my real estate investing journey in 2002.
Rod
Okay, and then did you start out like single-family, like most people, and transition–
Gary
Yeah, but very little.
Rod
Okay.
Gary
So, you know, I did very well in that house, bought another house, converted that into a rental, and sold that after two years because I wanted those $500,000 tax savings. And then I was starting to look at small properties, looking to build my own resume you know so like a 4-unit, a 12-unit. But then, you know, I started, you know, learning more and more about multifamily, this is in 2017. And realized that was a good fit for me because it’s like running a business and I had that experience, and learning to partner with others to go bigger. So, I didn’t go after those four units and not too many single-family homes. And we bought our first deal. It was a 42-unit for $1.65 million.
Rod
Well, I wish we had that pricing now, and who knows with what’s coming, anything’s possible. But yeah, love it. Where was that?
Gary
That was in Tucson, Arizona.
Rod
Tucson, okay. Yeah. Wow. So, let me ask you this. You know, I have a lot of listeners on my show that are aspiring multifamily investors. They know what they want to do it. They know they want to take action, you know, out of fear or whatever. They haven’t done it yet. What might you tell those people?
Gary
Partner with others because you could, you know, hey, this is what I’m seeing. Are you seeing the same thing? You might have different skill sets. You can leverage each other and feel more confident in that.
Rod
Yeah.
Gary
And I would have never taken down a 42-unit by myself in the beginning, but I had other people that I trusted and could go through this journey together and it really helps.
Rod
Yeah. That’s why, you know, my students almost, you know, I think they’re literally, I’m not exaggerating pushing 90,000 units and I’ve only been teaching about five years and– that we know of. I just keep running across new ones that tell me, hey, I’m at 1000 doors. I’m like, I didn’t even know. And so, and all of the reason I bring that up is almost all those were done between Warriors, between my students, you know, and there’s strength in numbers. So I’m really glad you brought that up. Let me ask you this, you know, as you were getting into this business, were there any epiphanies, you know, any aha, moments when you’re like, okay, now I get it. Does that ring a bell with you at all?
Gary
Yeah, you know, I guess the biggest epiphany is what I kind of alluded to before is working with others. Because when you’re an entrepreneur, you don’t want other partners.
Rod
Right.
Gary
So I had that mindset, you know, I’m going to do it by myself. And then once I realize– I changed that mindset, you know, that really helped fuel me, you know, and being a part of a group that also provided a ton of rocket fuel because I was energized. I was being around like-minded individuals, going to, you know, like one of your conferences or something else out there.
Rod
You’re in my mastermind. I mean, good lord, there’s a reason you joined that, I mean, you know, be around hitters, right?
Gary
Yeah.
Rod
So, yeah. I mean, you don’t just talk it, you’re doing it. So, love it. Love it. So, you know, what’s your driver? What drives you? What’s the why to get you to jump out of freaking bed and go conquer the world?
Gary
Yeah. That’s a great question because at this point I could retire if I really wanted to.
Rod
Sure.
Gary
But, I’ll be bored out of my mind, you know.
Rod
Right.
Gary
I’m a competitive guy. I’m a type A guy. I want to take care of my own money, my investments, and, you know, friends and family who I’m helping, you know, grow rich too.
Rod
Right.
Gary
So, you know, I like the action. I like to help build wealth for other people and that’s a tremendous responsibility and this is fun. I love the deal-making. I love the creative side and the business side. It helps me– keep me, you know, feel young and, you know, work my mind too. I need to be challenged on a consistent basis. I get bored easily and so, you know, I like the challenge of it.
Rod
So, I mean, I know you had partnered with Kyle, who I know really well as well in the past, and now you’re kind of off on your own. What role do you play or did you play in these teams that you’ve been involved in? Because like you said, I’m the same way. It was harder than hell for me to think I’m going to have to go do multifamily with other people. I started– I did some with my brother initially, which was okay, you know, 50-50, but to actually go and, you know, partner in a big way, that was really hard for me. But this business, it’s a team sport. I’ve come to realize that. I teach it now. And, so, you know, did you wear multiple hats in each situation, or did you kind of settle into one big role and maybe just help a little bit on others?
Gary
Yeah, I think in my last partnership there was a duplicity of skill sets, so it can only get us so far, but it allowed us to be, you know, confident and work off each other and to really grow our business from point A to point B. But to go to point C, we kind of needed a different formula and so we went our own ways. So now I’ve got a team of people that work for me, with me.
Rod
Okay. Nice.
Gary
And so I can rely on them for, you know, doing the analyst work, you know.
Rod
Okay, so describe the different pieces of your team that work for you, with you, whatever you want to coin it. So you’ve got someone that does the analysis, somebody that you can lock in a room with a spreadsheet and throw raw meat in from once in a while. That person.
Gary
Yeah. Exactly.
Rod
Okay.
Gary
And I do it a little differently than most people because he also is my asset manager on those properties.
Rod
Oh, interesting.
Gary
So he sees it from the very beginning to the very end versus handing it off and relying on someone else to do it. He’s got the same skills and he knows the numbers better than anyone. So I like that kind of continually–
Rod
Continuity.
Gary
From there. I also have an executive assistant/operations person, so she handles all the paperwork for the investors, any research, and social media. So, she’s kind of like a Swiss Army knife, but it handles a lot of the, you know, like the small tasks that I could pass on.
Rod
Okay.
Gary
And then a few months ago, I hired a CFO to help with the, you know, all the legal stuff and the accounting and also help find more like we’ve done some [inaudible] and some prep equity. So work with some of those more institutional people and–
Rod
And he helps with that?
Gary
Yeah.
Rod
Okay.
Gary
And he comes from a private equity background as well. So it was a very unique skill set and a very small company, so he can handle a lot of, you know, different things. You know, with a small company, you’ve got to have that entrepreneurial mindset, you’ve got to be able to do different tasks, and that’s really important for me. I’m looking for good team players because you know, we’re that much stronger working together versus individually.
Rod
Yeah, for sure. What do you think some of the– you know, and I know I didn’t prep you for any of these questions forgive me, brother, but, you know, what do you think some of the best advice you’ve ever gotten about life, business, relationship, doesn’t matter, anything? What’s some great advice you’ve gotten?
Gary
You know, this is cliche, but you know, obviously, your net worth is your network, you know.
Rod
Oh, for sure.
Gary
It’s so important. I wish I learned that lesson earlier in life. I was certainly a bit of an introvert, but that was the only way I closed on a $59 million deal the other day, and if I didn’t build that network, it would have been done. In our second deal, from 1.65, we went to a little over 15 million, and that was because we had been building relationships with other people, and that helped grow my business tremendously.
Rod
Nice. So, you know, what’s new? Are you planning to keep going bigger? You know, any thoughts there? And then the second part of the question, have you implemented any sort of a business-related operating strategy like on my acquisition team, we literally just implemented EOS from Traction. Have you implemented that yet in your infrastructure?
Gary
We’ve talked about it. We’ve just scratched the surface, to be honest. We’re having a retreat next week, actually, to kind of delve into more of that.
Rod
Brother, trust me. Just trust me. You need it. Trust me, man.
Gary
Yeah.
Rod
It will rock your world. I’ve done it in my thought leadership, and, you know, I had 850 people in Denver three weeks ago, you know, which in my space is pretty unusual right now, even with the Covid scares still kind of lingering and everything. And this is the reason. And so we just implemented my acquisitions team. We literally just had our leadership meeting yesterday and came up with our five-year goal, three-year goal, one-year, you know, look, and our 90-day goals, and it’s just like, oh, my God, we’ve got so much clarity now. So I’d highly encourage you to have your team read that and use it because it’ll blow your mind how effective it is. In fact, most of the people in the Mastermind use EOS. And you want to hear something funny? You know, my first interview was with a guy named Albert Berriz. He owns McKinley Corporation. Okay. And he’s a billionaire with a B and his company’s referenced in this book, which is really kind of cool. And I tell the story about him because you know, we invited him to one of the Sarasota Masterminds. We’ve got another one coming up in Sarasota. I’m going to have to invite him again because he didn’t make it that last time. But Camille, my assistant at the time, called his assistant and said, yeah, we’re going to fly him down, first class. We’ll put him up at the Ritz-Carlton, and she’s like, oh, no, no, no, he’ll take his own jet down, you know, which is like, oh, yeah, baby. Anyway, but it’s in that book. So, you know, do you have any favorite quotes or people that really inspire you, you know, that you lean on when you hit those inevitable speed bumps and get your nose bloodied or whatever? Does anything come to mind with that statement?
Gary
You know, there’s not one particular quote. There’s not one particular person. There are a lot of different things out there that have influenced me, friends, how they look at life, you know, the joy they have, and balance. And so, everyone within my circle brings something to the table, and I like to think that I bring something too.
Rod
Of course.
Gary
So, I learned something from everyone.
Rod
Nice. So how did you push through the fear? Because like you said you went from a $1.65 million deal to a $15 million deal, and you just closed a $59 million deal. And, you know, we call it stress. Achievers call it stress but it’s fear. Okay. How do you push through that stress/fear to go big like that, you know, and you’re worried about the equity raise and all that crap that comes into play. How do you push through that?
Gary
Yeah, there are many days when things go south and you think you’re finally over the hurdle, and boom, something else pops up. But, you know, my dad has always been super positive, and that’s the outlook you’ve got to take that.
Rod
Yeah.
Gary
We’re going to figure this out. The lender wants to lend. The seller wants to sell. We want to buy. Let’s all work together for that same thing. And also, you know, having partners that I know, like, and trust on these deals.
Rod
Yeah.
Gary
You know, to pick up the slack, where their focus is, you know, capital raising and investor relations, whatever it is that they’re bringing, I’m leaning on them, too. That gives me confidence, having a group like your Mastermind that I don’t know the answer to. And there are plenty of things I don’t know the answer to. I don’t know I can rely on other people that have encountered it or know someone that has gone through that issue and that they can be a good resource for me. So that’s invaluable.
Rod
Yeah. Love it. Love it. So, you know, I know you’re heavy into asset management, in fact, were you involved in that book that got written? Were you co-author with Kyle on that?
Gary
I was a co-writer and, yeah, Amazon bestseller.
Rod
Right. So let’s talk about asset management because I got to tell you, I think we’re headed– well, in fact, before we do that, tell me what your thoughts are on the condition of the economy right now and what we may see on the horizon, are you– you know, because you remember how bearish I was at the last Mastermind? I’m even more bearish now, just so you know. Just to give you a little framework, I just saw an article in Fox, like three or four days ago where they surveyed a lot of large companies, and half of them are laying people off over the next 30 to 60 days. So, you know, and don’t get me started on this freaking student loan debacle that’s going on. My daughter worked her ass off so she didn’t have student loans and now, you know, she gets to help pay for people that didn’t. Yeah, it makes me absolutely nuts and they’re saying that could be a trillion dollars needed for that 300 billion in student loans. Anyway, I digress, but the point is, you know, what are your thoughts? Do you think it’s going to be a blip? Do you think it’s going to be more than that? You know, what’s your crystal ball tell you?
Gary
So I’m more optimistic than you.
Rod
Okay.
Gary
It’s certainly not going to be a smooth ride.
Rod
Right.
Gary
But there are enough data points to show that things aren’t nearly as rocky as consumer sentiment.
Rod
Right.
Gary
You know, there’s still people that want to work, are finding jobs.
Rod
Right.
Gary
There’s not like a major thing where people over loan– there are I think most people have over 65% of the equity in their homes, which is tremendous.
Rod
Right.
Gary
Certainly, borrowing has gone up of late, but there’s still a tremendous amount of savings that people have. So there are plenty of data points that make me feel more confident. But, you know, the Fed is going to kind of, you know, overseer, you know, the interest rates and there are definitely other, you know, mechanisms that won’t go smoothly. But for multifamily, to me, this is a really good opportunity because the cost of capital is maybe 2% more. But I’m seeing 15% discounts out there right now and I think those discounts are going to go away within six months.
Rod
Yeah, that last piece I don’t agree with. I think they’re going to increase in six months. You know, I think– but everything else you said, I absolutely heard and those are all absolutely valid points and, you know, I think at the very least, we’re going to see some real pain in these operators that got bridge debt and or, if there really is a pullback and the layoffs are as extensive as this article indicated, and, you know, Trump was just quoted as saying it’s going to be a depression, not a recession. You know, love him or hate him, I mean, he’s not stupid. And so, you know, I just– of course, I’m looking at this opportunity. I mean, I think you know I was hiding under a rock in 2009 if you know my story, but I look at it as an opportunity. But, you know, I think there’s going to be some pain with these existing bridge loans that are out there that, you know, some of them took three-year-old debt, some of them got the 311, you know, with five-year debt. But even if they had a rate cap and their rate went up 2%, that is a big freaking deal on debt. And then, you know, if you look at a chart of cap rates back in 2008, ’09, and ’10, the hump mirrored the interest rate increases, okay, in cap rates. And so, you know, the definition of a bad day is having an asset that’s cash flowing and you can’t get the values you need to either sell or refinance. That’s a bad freaking day and I think that’s going to happen to some people. So we’ll see. You know, I’m wrong all the time, but we’ll see. So, now, pivot to asset management. You know, I think the proof is going to be in the pudding with some of these operators that I mean, literally, you know, you could fog a mirror and make money in multifamily the last three years. But that’s all going to shift. And, you know, a lot of these operators I think, did skinny deals. And I’ve, you know, seen OMs where they say the rents are going to go up 10% a year for the next five years. Yeah, no, and so, you know, I don’t know, man. But I think a lot is going to hinge on especially if it gets ugly, it’s going to hinge on asset management. Tight asset management, tight KPIs, you know, really having your eye on the ball and tenant retention and tenant happiness and tenant follow up and I mean, I’m just curious what you think.
Gary
Yeah, I totally agree on the pain that, you know, people didn’t pay attention to their loans and on asset management as well because most people don’t allocate enough time, money, and resources to asset management. And it’s great that you got a deal, but now you could make a good deal great. You can make a bad deal good. It’s a lot of work. You’ve got to have that consistency. You’ve got to you know like you said, measure those KPIs. It’s so important and most people haven’t paid attention to it. They focus on the sexy part, getting the deal, and putting it out on social media. But, you know, are they paying attention? It’s funny, our regional manager the other day said you’re the only owner that makes questions the financial statement and actually looked at it. We’re like, how is that possible, you know?
Rod
Right.
Gary
You know, I talked to other operators and, you know, they might visit their properties every three months, every six months. And I’m like, really? Like, I myself visited probably at least once a month. It helps that we’re in, you know, only two cities that are close to each other. So I can– when I’m looking at new properties and I could visit the ones that we have now and I could just drop in without letting them know.
Rod
Right.
Gary
But yeah, you’ve got a secret shop, that you’ve got to keep a close eye on your property. If you are showing that consistency and that interest in your property, your property manager and your team is going to put forth a lot more energy into it because you care, and they’re going to care more, you know.
Rod
Yeah. For sure.
Gary
So that’s leadership.
Rod
Yeah, for sure. Yeah, we’re actually doing a presentation to our investors in our San Antonio Asset tonight in a couple of hours and we’ll show them the KPIs we go through and all the work we’ve done and all the things we do for the residents and, you know, it’ll be really educational. But yeah, I think asset management is going to be a big piece of success in what’s coming. And there’s a lot of wet behind the ears operators that haven’t gone through a pullback, that, you know, it’s been gravy trained that I think, you know, could have some feedback. Just leave it at that. So, you know, did you have any early failures as you’re going through? And, I mean, we all have the setbacks and stuff, but any that come to mind, like any doozies that may have, you know, been really instrumental in positioning you for future success or really got some valuable lessons from. Does anything come to mind when I ask that question?
Gary
You know, knock on wood, not really.
Rod
Okay.
Gary
But, you know, as an early entrepreneur, certainly, I took my lumps you know, learning how to manage other people, not, you know, working in a silo. So, I started a restaurant delivery service.
Rod
Wow.
Gary
Kind of like a DoorDash that they have now and Postmates in college. And, you know, we did very well, and we looked to sell it, and, you know, I was just staying within my little box and not seeking help. And if I sought experts to kind of help guide me through that process, which I do now, I would have made off much, much better. And it was kind of run into the ground by other people, unfortunately, and I should have made a lot more money off of it.
Rod
Got it. Okay.
Gary
But learning how to lean on others, other experts, and it’s okay not to know something. That’s, to me, one of the biggest lessons.
Rod
Did you struggle like I did, thinking you’re the only one that could handle doing something and really had a tough time leveraging things for a while? I mean, really using other people. It took me a long time. I don’t know if it did you, but, man, it was hard for me to let go of stuff. And, I mean, now I come to the realization, hell, they can do a better job than I can, you know.
Gary
Yeah.
Rod
But that was tough. Did you have that same dynamic?
Gary
Yeah. And it wasn’t necessarily about ego. It just was probably more of a lack of common sense to reach out to these other people, just kind of living in my, you know, with blinders on, you know.
Rod
Yeah. No, for me, it wasn’t ego either. It was just control. I mean, I’m a control freak. That’s where it was for me. I had nothing to do with ego. It was just like, man, I don’t want to have it get screwed up. And again, it’s not ego. It’s just, like, wanting to make sure it’s right. Yeah. And it took me a long time to get that lesson, you know. So what are you not good at as it relates to our business? What do you just don’t love?
Gary
You know, I love that my asset management analyst is very like super detail-oriented as far as– you know, all the loan requirements that we have every month, every quarter, all that stuff. Like I don’t want to handle the small stuff. He’s great with that. You know, I’ll dig into the numbers, but then I want him to manage the day-to-day, and so I could be a big picture. That’s what I’m good at. And I’m not good at all the minutiae, you know. I want to pass that off because keeping track of all of it is a lot.
Rod
Yeah, no that’s good. That’s good. I like to ask this question. You know, if you could go back and tell 18-year-old Gary something about this business, what might you do differently?
Gary
Well, you know, dive in much earlier, first of all, and be a part of a group, because once I became a part of that group, you know, it was rocket fuel, you know.
Rod
Right.
Gary
It skyrocketed my business. So, instead of kind of– yeah, and there wasn’t you know when I was younger, it just wasn’t that much information like now every– there’s so much free information out there.
Rod
Yeah. Well, everybody’s a coach now, too. You know, I was like, that will all fall out in what’s coming here, I promise you. But, yeah, it’s kind of comical. Somebody buys one property, and they’re a coach now, but, you know, and there are some really good ones out there, for sure. But, yeah. So, you know, is there a particular book that you gift more than others? I mean yours, I’m sure. Of course. Your asset management book. By the way, his asset management book is really good. What’s it titled?
Gary
“Best in Class”.
Rod
“Best in Class”.
Gary
Right in front of you.
Rod
Yeah. Oh, there it is right there. Okay. “Best in Class”. There you go.
Gary
Yeah.
Rod
So I recommend you get that. And, yeah. So, what do you think is the superpower that you have that has served you the most in this business? You kind of danced around a little bit. Do you think it’s the entrepreneurial experience, or what do you think it is?
Gary
Yeah, I think that entrepreneurial skill set of being able to problem solve, figure out the highest level, what do I need to do? What other partners do I need? How do I push a deal for it? Because getting a deal done, particularly now, is harder than ever, and certainly, we’ve had plenty of obstacles, but we’ve still been able to close on those deals, whether we’re buying or selling because we’re solutions-oriented. You got to take the emotion out. You’ve got to work with other people. So I think that entrepreneurial skill set and that hunger play really well in this field because nothing goes smoothly. You’re going to have your ups, you’re going to have your downs, and be prepared for that, you know.
Rod
Yeah. Love it. Love it. Listen, brother, I appreciate you, man. It’s good to see you, buddy. And you absolutely gave me a couple of ideas, actually, that I hadn’t thought of. So, you know, that’s why it’s always such a treat to have someone like you on. But good to see you, my friend. Hopefully, we’ll see you in Sarasota for the next Mastermind Meeting here in my hometown, and, you know, let me know if I can ever help with anything, you know.
Gary
I appreciate it, and I will be there. Looking forward to it. I never want to miss one of those.
Rod
Sounds good. Sounds good. All right, bro. You take care, man. Talk to you later. See you.
Gary
Alright. Take care.
Outro
Rod, I know a lot of our listeners are wanting to take their multifamily investing business to the next level. Now, I know you’ve been hard at work helping our Warrior students do just that using our “ACT” methodology, which is Awareness, Close, and Transform. Can you explain to the listeners how they can get our help?
Rod
You bet. Guys, we’ve been going non-stop for three years building an amazing community of like-minded people, and our coaching students which we call our Warriors have had extraordinary results. They’ve purchased thousands and thousands of units and last year we did over 1000 units with our students. And we’re looking to grow this group and take it to the next level. We’re looking for people who want to follow a proven framework that’s really step by step and then leverage our systems and network to raise equity, to find and close deals, and to build partnerships nationwide. Now, our Warrior community is finding success in any market cycle. So if you’re interested in finding out more about how you can become more of our incredible network and take advantage of the incredible opportunities that are coming very soon, apply to work with us at “MentorWithRod.com” or text “CRUSH” to “72345” and we’ll set up a call so you can check us out and we can check you out. That’s “MentorWithRod.com” or text “CRUSH” to “72345”.
