Ep #149 – Tim and Tom Black – Own nearly $50 million in multifamily real estate in TX, OK, and WI.

Full Transcript Below:

Ep #149 – Own nearly $50 million in multifamily real estate – Rod Khleif & Tim and Tom Black

Welcome. This is the Lifetime Cash Flow Through Real Estate Investing Podcast. This is where you’ll learn strategies to help you achieve lifetime financial freedom through real estate investment. Your host, Rod Khleif, has owned over 2,000 homes and apartments. And he brings experts in all aspects of real estate investment and management on to the show. Now, here’s your host, Rod Khleif.

Rod Khleif:            Welcome to another edition of How to Build Lifetime Cash Flow Through Real Estate Investing, I’m Rod Khleif, and I am thrilled you’re here. You guys are gonna get a ton of value from the gentlemen we’re interviewing today.

Their names are Thomas Black, he’s an MD, and Tim Black. They’re with Napali Capital. Tom is an author and they have a $70 million portfolio, almost 2,000 doors. And we are gonna dig in, and find out how they accomplished that. Guys, welcome on the show.

Tom Black:            Thank you very much, Rod, happy to be here.

Rod Khleif:            Absolutely.

Tim Black:             Yeah, it’s good to be here. We’re streaming from two different locations, Madison, Wisconsin and Dallas, Texas.

Rod Khleif:            Yeah, those of you listening on my podcast, we’re doing these in a video format now as well. You can check that out on YouTube, or on my website actually, rodkhleif.com. So you can actually watch it if you don’t wanna just have us in your ear.

Anyway, so let’s go back. I always like to kinda get a little bit of history. So one or both of you talk about your background in this business. How you got into real estate? And then maybe we’ll talk about your first deal…

Tom Black:            Gotcha.

Rod Khleif:            Go back-ways, if that’s okay.

Tom Black:            Sure, and absolutely. I’ll go first, ‘cause I think, let’s see… It all kinda goes back to… Right around 2007, 2008 time frame. I was finishing up a residency in emergency medicine.

The economy wasn’t doing so hot, but I wouldn’t have known it because I was working about 110, 120 hours a week. Not knowingly bought my house at the peak of the market up in Indianapolis.

When I left there, I knew we were gonna be losing a lot of money if we choose to sell. So I decided to rent it out to another medicine resident who was coming in for a three year stint.

It worked out well, and that was really… I just got bitten by this bug of rentals. We moved to Texas, I started buying up a lot of foreclosure homes around the Houston area. It just got absolutely into my blood stream.

From there, started looking at the tax implications in medicine. I was a junior partner in a democratic practice of physicians. Again, working a lot. When you get 20 doctors in a room trying to make a business decision about the practice, it just became really, really tenuous and I really enjoy the entrepreneurial spirit of going out and doing other things.

I actually went in the city there and bought about three acres of land. And decided to build a small apartment community from ground up on my own. Fortunately, it worked out really, really well. [chuckles] I partnered…

Rod Khleif:            Now, where was this? And how big was it?

Tom Black:            It was in Longview, Texas so about three hours east of Dallas.

Rod Khleif:            Okay.

Tom Black:            And we had originally built for 20 units but for many other reasons with the city, etcetera, and fire code, we ended up going down to 16.

Rod Khleif:            Okay.

Tom Black:            Those 16 units felt like about 1600 units, when I was going through it.

Rod Khleif:            [chuckles]

Tom Black:            Took us about eight months to complete it. Designed, built, ground up, stabilized, did all the leasing, everything myself, and my business partner. And was fortunate at that time, this is about 2011, I guess. We 1031 sold that.

At the time, the oil was doing really, really well, we sold right at the peak, oil crashed. Longview is a very, very strong oil market. It didn’t do so well. So we made out pretty well. We bought some triple net lease in industrial buildings, which we still hold today.

After that happened, I couldn’t stand working nights in the hospital, and seeing patient after patients, and getting dictated to by large private equity firms and hospital groups, that were squeezing compensations from physicians and at the same time working more. It’s that same old private equity story.

Less you wanna drive labor, you reduce labor cost, you decrease expenses and you derive revenue. Well, it just became apparent to me that I’m just another cog in the wheel.

I resigned my partnership and moved to Dallas to really start going after real estate pretty aggressively. And that’s when I started writing the book too.

Rod Khleif:            Okay. Yeah, you mentioned you got a book titled Passive Income… I’m mutilating the title. Please, please…

Tom Black:            [bad audio] may be looking…

[chuckles]

Rod Khleif:            Ah, there it is, The Passive Income Physician. Alright. Surviving a Career Crisis. I know you work with a lot of physicians, which is fantastic, ‘cause talk about a great source of investors for this business, there’s really no better.

Tom Black:            Absolutely.

Rod Khleif:            You’re perfectly positioned. It sounds like you’ve capitalized on that, which is fantastic.

Tom Black:            Yeah. When you show them the tax benefits…

Rod Khleif:            Oh, sure.

Tom Black:            The ability to leverage the non-recourse debt, I mean, as physicians, you’re not taught financial literacy. Really not.

Rod Khleif:            Right.

Tom Black:            You tend to go to a wealth adviser. You pay somebody else. You don’t know what your mutual funds are doing. You have no clue.

Rod Khleif:            Oh, I’ve heard tons of horror stories about physicians that have tried to get into this business. They did it themselves. They tried to dabble…

Tom Black:            You cannot dabble… For sure.

Rod Khleif:            And they get crushed. They get crushed, as you know. You guys are obviously are sophisticated operators, so that’s a real appeal. And of course your network is fantastic to capitalize on for this business.

So your first deal was actually a ground up deal. That’s brave. Good for you.

Tom Black:            Yeah, it was, and Tim will share you a little bit about that experience. When in East Texas, I bought a big red truck, jacked up with 38-inch tires. He came out to visit me and I’ll let him tell the story, but he thought I was absolutely nuts.

But one thing I do, whenever I get involved with things, I go… jump in to the deep end, head first.

Rod Khleif:            All in.

Tom Black:            Yeah. I will not, not let anything define me on that regard. And looking back, apparently, I wasn’t supposed to ever be in medicine. I mean, I look at it, I laugh. It’s been a great transition, but yeah, pretty funny. Tim you can kinda go in that [chuckles]

Tim Black:             Yeah. Yeah. My path is uniquely very different. Where Tom had his hands inside people’s bodies in emergency situations, I actually spent a 32-year career in entertainments and hospitality; strictly in operations. The last 12 years of my career, I was the Chief Operating Officer for a large resort company in North America.

I’ve built operational organization structures most of my career. And that’s what really excites me about this business. It’s that we’re building a brand, and putting some really strong foundational pieces and building blocks behind it to make the experience for the investor different, interesting, and unique.

I spent 12 years in real estate development, developing hotels and resorts, not exactly multi-family and commercial, but there’s a lot of similarities there.

To Tom’s point, I visited him, probably in 2010, and I needed a crane to get me up in his track. They have these giant vehicles out in East Texas. I finally got up there, and he took me out to this piece of property and said, “I’m gonna build an apartment complex here.” Tom has four kids, so he’s a very busy guy. I mean, I looked at him and I said, “Do you need your head examined?” He kinda looked at me and said, “No, no, I’m gonna build it.” I’m like, “Yeah. Okay, whatever.” So it’s been an interesting story.

Needless to say, our career paths are very different. But what’s been unique is that his experience and mine, blended. I think if you talk to our investors, they’re gonna say that we’re very different, unique, and we’re pretty excited about some of the things we’re doing.

Rod Khleif:            In this business, the most successful partnerships that I see are a combination of you Tim, the analytical operations person versus the outgoing face of the organization that’s out there doing the relationship building. That’s a match made in heaven.

Guys, those of you listening or watching, if you’re the analytical person and you’re the introvert, and you love the numbers… And I’m not saying you’re an introvert Tim but this is typical in an analytical person…

Tim Black:             Sure.

Rod Khleif:            Is they’re not more outgoing ones. There’s typically the outgoing person, and then there’s the analytical person. Tom, you might be an anomaly because to be a physician requires a lot of analysis and a lot of study.

Tom Black:            Right.

Rod Khleif:            But typically, that match up, those two personalities are just fantastic in this business because both are required. You have to be out there…

Tom Black:            Exactly.

Rod Khleif:            Developing relationships with brokers, with lenders, with investors, with partners. And somebody has to be checking off all the boxes, and doing the financial analysis. I’ve interviewed quite a few groups like you guys that have been very, very successful because of that dyna-… and I think a big piece is that dynamic, is that synergy. Would you agree?

Tom Black:            Absolutely.

Tim Black:             [overlapping talk]

Rod Khleif:            Okay.

Tim Black:             We talk about this a lot. And that Tom is The Passive Income Physician. He is the face of Napali Capital. There’s no question about it. We joke a little bit that he’s Dorothy, and I’m The Wizard of Oz kind of behind the curtain.

Rod Khleif:            There you go.

Tim Black:             He’s definitely the good-looking face of the company.

Rod Khleif:            [chuckles]

Tim Black:             But it works really well. I think you nailed it.

Rod Khleif:            Well, let’s talk about how you guys got started. Were you both in on that first ground-up deal or was that just you, Tom?

Tom Black:            No, no, not at all. That was just me.

Rod Khleif:            Okay.

Tom Black:            I took it on with one business partner who is a custom homebuilder for 20 years or so, he had a…

Rod Khleif:            Great partnership. So he built it. Perfect. Yeah, alright.

Tom Black:            He built it. He said, “You go do this.” He didn’t like the numbers; he didn’t like any sort of that. He didn’t like dealing with it so he was fixated on that, and then I drive the numbers. That’s where really where my foundation came.

[00:10:01]

Tom Black:            And then it wasn’t until I left the practice, and I moved to Dallas. I started getting more into that what syndication was, and what private placement was, and things like that. I had done two or three pretty large deals. I think at my first big deal I had found a couple of guys, I was partnered with…

Rod Khleif:            Yeah. Let’s talk about that first deal, a little bit of detail, if you don’t mind.

Tom Black:            Sure. It was in Arlington, Texas, bought right around seven and a half, fortunately, maybe an eight cap or so.

Rod Khleif:            Okay. When was this?

Tom Black:            This was December of 2015.

Rod Khleif:            Okay.

Tom Black:            We are lucky. Off market deal, out of state owner… and yeah, it scared the heck out of me. Having 305 units, a little less than $13 million deal. It was bigger than anything, obviously, that I had done before.

Rod Khleif:            That was the first deal after the 20-unit ground up?

Tom Black:            First deal.

Rod Khleif:            305 units?

Tom Black:            Yep, I told you.

Rod Khleif:            Okay.

Tom Black:            I don’t know. I go big time. [chuckles]

Rod Khleif:            No, those are some stones there alright. Good job.

[laughter]

Rod Khleif:            Alright. Alright, so 13 and a half million in Arlington Texas. Wow.

Tom Black:            It took us, it was a $3.2 million raise, and never forget. We put the documents out on October at Halloween, October 31^st, 2015…

Rod Khleif:            So 3.2 million equity raise, okay.

Tom Black:            In 96 hours.

Rod Khleif:            Wow.

Tom Black:            Yeah.

Rod Khleif:            Because you had a portfolio of physicians that wanted more than the grind in the emergency room.

Tom Black:            Right. They had seen progress, and this was a number of years, obviously, about four years. And still buying single-family homes, doing little things in the side but when I decided, “Hey, we’re moving Dallas. We’ve got to make a run at this.”

I’m still engaged clinically. I run a hospital system of eight hospitals.

Rod Khleif:            Still? Today?

Tom Black:            Yeah. I run the practice which is, it’s more so your business administration. I still work clinically about one day a week. Somewhere in there; just keep my foot in the door and kinda get that sense of legitimacy. [chuckles]

Rod Khleif:            Wow.

Tom Black:            But…

Rod Khleif:            But also it’s very helpful from an income standpoint, when you’re out there initially trying to borrow money.

Tom Black:            Yes, I agree… Never give up your day…

Rod Khleif:            To have an income stream.

Tom Black:            Never give up your day job till that…[overlap talk]

Rod Khleif:            Thank you. Guys, I hope you all heard that. Don’t give up… And I get this question all the time, should I quit and jump into this full-time. And the answer is always, “Hell, no.”

Tom Black:            Heck, no.

Rod Khleif:            It’s keep your day job and do this on the side.

Tom Black:            Yep.

Rod Khleif:            Now, let me ask you this, 305 units, obviously, you didn’t have the experience level that you needed to satisfy that initial lender. How did you overcome that hurdle?

Tom Black:            We had one account, maybe 28 to 30 different KPs on the deal.

Rod Khleif:            Okay.

Tom Black:            My net worth obviously wasn’t something that was gonna get that done nor my liquidity. Even for the… And this is how crazy this goes. Even for the hard money that we had in going through the process, even for the application fees, I was pretty strapped.

I mean, I was out there, a good amount of money. So it’s a lot of sleepless nights, that I convinced somebody that I put my personal guarantee and had them write a loan and I gave them an interest based on the amount that they gave me. I borrow like 60 grand from two other individuals that have known me for years. They were partners of mine, and they said, “Heck yeah, if we can get in this deal.” I gave them a good amount and after we closed I paid them all back at 10%.

Rod Khleif:            So you had how many partners in this deal?

Tom Black:            We had about 34 investors or so.

Rod Khleif:            Okay.

Tom Black:            A good amount of those ended up being… Well, some people that wanted to get involved from the KP standpoint just to get that on their resume, ‘cause it’s a Fannie Mae loan.

Rod Khleif:            Okay.

Tom Black:            I want to say, probably10 of those just to really…

Rod Khleif:            Now, KP? Key… Basically, key…  Key principal? Okay. Alright.

Tom Black:            Yeah. To satisfy the net worth on the note.

Rod Khleif:            Okay. Guys, when you’re dealing with Fannie Mae and Freddie Mac there are net worth requirements. If you take down a 13 and a half million-dollar property, what does that work out to? What is the net worth requirement?

Tom Black:            Right at 13 and a half, you got to have enough to satisfy the loan, but then your post closing liquidity is usually three months of working capital.

Rod Khleif:            Okay.

Tom Black:            So you’re looking at anywhere from 150 probably to $250,000 liquid.

Rod Khleif:            Right.

Tom Black:            Now, once it’s close, that all goes away. So that’s ___ [bad audio]. And of course it’s non-recourse. Not a big deal but it’s definitely a hoop to jump through.

Rod Khleif:            Right.

Tom Black:            For sure.

Rod Khleif:            Okay. Okay. Wow. Wow. So was it stabilized? When you bought it?

Tom Black:            It was, and actually, what’s funny is, it was 94, 95% occupied. It’s one of those deals where the manager may have been stealing some money on the side, doing this and that. We actually took over the property, our collections were right at 170 a month, 170K a month. Last month, I wanna say, we hit just shy of 230…

Rod Khleif:            Wow. Good for you… What a home run.

Tom Black:            It’s actually on the market right now.

Rod Khleif:            You’re selling it? Wow.

Tom Black:            Yes… Well, bird in the hand, right? [chuckles]

Rod Khleif:            I don’t… Not me. I’m not a seller. I’m a buyer. I like to hold.

Tom Black:            Well, my issue is, we bought it at seven and a half cap, around there. We’re probably looking at a high five, really low six.

Rod Khleif:            Yeah, that’s a lot of bird-in-hand. [chuckles]

Tom Black:            It is. It’s about 11 million, it will have… by anywhere from 150 to 180% returns just on the investors in less than two years. When you look at that kind of thing, I look at it and say, “Well, what are the economic prevailing conditions right now?” The only place I can see a C-Class asset going up at some sevens in Arlington, Texas… In Arlington, Texas, that cap rate going up.

They’re so compressed in Dallas, right now, that I just don’t know. It’s a great cash flowing asset, but when you’re sitting on a extreme amount of liquidity or of equity like that, it’s kind of hard not to give your investors back.

Rod Khleif:            No, I understand. To have that liquidity back to capitalize on this upcoming contraction as well is…

Tom Black:            Exactly.

Rod Khleif:            Is not necessary a stupid move either. Okay, so fair enough. Fair enough.

Tom Black:            Yeah.

Rod Khleif:            Awesome. Now, that was one… You guys didn’t do that together, you and Tim?

Tom Black:            Right.

Rod Khleif:            What was the first deal the two of you did together?

Tom Black:            Tim came on board, maybe September of last year. Actually, summer of last year, he flew out and we had an investor function. Tim kinda saw this organic movement over the years and he had just retired from Great Wolf as a Chief Operations Officer. So timing was really right for him. I’ll let Tim dive in here in a second, but he came out and it was at that investor function, and I’ll let him take it from here.

Rod Khleif:            Okay. Before… Tim, let me just interject one thing. ‘Cause… Please describe this investor function. Because I want my listeners to hear how you go about pulling your investors, and keeping them happy. Describe the event.

Tom Black:            First thing is communication. We are extremely averse to not communicating with our investors. Good, bad and different, we put it out there.

Rod Khleif:            Right.

Tom Black:            Twice a year, we have investor functions where we rent at this… First place was at a hotel, had heavy appetizers, and cocktails. It was basically just a meet-and-greet to say, “Hey”, we weren’t soliciting anything. We didn’t even have anything under contract. It was more about getting in touch with those people.

Just as you’ve said earlier, it’s making those relationships. Because, you won’t invest in the deal, let’s be honest, you invest on the person. I mean, that’s really what it is.

Rod Khleif:            It’s all about the relationship.

Tom Black:            Yeah. So we had that function then, and Tim came out and fortunately… And we got one next month, we rented a house on Lake Travis in Austin.

Rod Khleif:            Nice.

Tom Black:            Trying to get around a little bit to where the bulk of our investors are, and just do it, because we enjoy doing that. Education is a huge keystone in what we do and not only for physicians…

Rod Khleif:            Do you do a presentation at these things?

Tom Black:            We haven’t…

Rod Khleif:            Okay.

Tom Black:            Usually, I just get up and say a few words, just hello to everybody… Some people are now, that we’ve got investors East to West Coast, are saying, “Hey, is there a PowerPoint presentation?” I’m like, I guess what we’re gonna do now is what we looked at it saying, “Here’s what our fiscal year 18 goals are. We’re putting some software platforms, in place. We’ve started looking at limited service hotels,” things like that where we can draw from Tim’s strengths also in operation.

Rod Khleif:            Okay, so you’re considering other sectors, okay.

Tom Black:            Absolutely. Absolutely. With his contacts in the space, there’s just a lot of opportunity and we’ll go at it slowly but we may try something in the future to see.

Rod Khleif:            Interesting. Alright. Anyway, Tim, please tell us about your initial experience here.

Tim Black:             Yeah, Tom is right. It was exactly 13 months ago now. I went down, sat through the investor conference seminar, and quickly figured out, I really, Rod, was gonna retire. I’ve had an extremely fortunate career. I was in the right place, at the right time. And thought that I was gonna spend time on the golf course but my wife saw me around the house, and said “You got to go do something.”

Rod Khleif:            [chuckle] That was the end of that.

Tim Black:             Yeah. That didn’t last very long. I’ve always been interested in real estate, and have been following Tom, listening to Tom, and investing with Tom. So I went down, and I quickly figured out that they needed, Tom needed organizational help.

He needed somebody behind the curtains to help build structure and blocks in the foundation. We quickly said, “You know what, I think we’ve got something really unique here.” And started to build the foundation.

Tom’s right, we’re doing a lot of interesting things at the Austin meeting. We will have a presentation. I think it’s important that we talk to them about our 2018 top plan business goals, and also what are key metrics… How many deals does it take to look at, to actually get one in contract? I mean, we figured that we get, have about a 2% success rate out of every deal that comes across our desks.

Rod Khleif:            I think that sounds about right.

Tim Black:             Yeah, we’re keeping track of all our stats, which are very interesting. One of the big initiatives that we’re doing is putting an investor management platform in place, so that our investors will be able to go to napalicap.com, log in, and be able to track the performance of their investments, have all their documents electronically saved and filed, etcetera.

We’re pretty excited about some of the pieces that we’re putting in place.

Rod Khleif:            Now, that’s great. Use technology to help with your communications with your investors and their comfort level.

[00:20:04]

Rod Khleif:            Love it.

Tim Black:             Yeah. That’s exactly right. I think small to grow big, and that’s a little bit in contrast with Tom who always thinks very big. That’s why we work really well together. He has the big ideas, and I think of the small pieces to grow big. And it works really well together.

Rod Khleif:            That’s awesome. My acquisitions team is very similar, I’ve got James that’s out there with blood dripping from his teeth looking for deals, and then I’ve got… Then he brings the deals, he’s all excited, then Amanda’s over here with a bucket of cold water that she regularly throws on James, when she’s performing due diligence, looking at the deal.

[laughter]

Rod Khleif:            It’s a great balance.

Tim Black:             It is.

Rod Khleif:            There’s no question. Let me ask you guys this, what advice, a lot of my listeners are aspiring real estate investors. They may have some single-family, they may have a duplex or triplex, but they wanna do what you’re doing. What advice would you give them?

Tom Black:            I get asked this a lot. It’s always the same answer I give, Rod.

Rod Khleif:            Oh, good.

Tom Black:            Don’t stay on the sidelines. I know it’s hard to think duplex, four-plex to think beyond that, but really the work is no different. It really isn’t.

Rod Khleif:            Right.

Tom Black:            And the rewards are potentially much, much more with what I perceive, is a lower risk too. My risk tolerance for an apartment complex is much, much, much better than for buying a duplex or anything else.

I mean, you talk about management fees, you talk about economic vacancy that’s sitting there, it’s just, you have to get off the sidelines and whether that’s investing with somebody passively, becoming a key principal or doing whatever you wanna do in that realm, just take some money and go do it. It will force you to get an education. It really will.

Rod Khleif:            Right.

Tom Black:            Gets you in the game. You buy a lot in Longview, Texas for $30, 000, yeah, there’d be a lot of sleepless nights but you’ll force yourself to make something happen if you’ve got that perseverance and that drive anyway.

Rod Khleif:            Just do it. Like Nike says. Just do it.

Tom Black:            Exactly. Yeah.

Rod Khleif:            I just saw another quote by Nike. It said “Just do it and then do it again.” I do these driving force clips about the psychology of success ‘cause 80% of your success in anything really is your psychology.

Tom Black:            Right.

Rod Khleif:            I just did one on practice, and I found this quote is “Just do it, then just do it again.” Anyway, I went off the rails there for a second…

[chuckles]

Rod Khleif:            Do you guys have any mentors? Any people that you can look back on and thank for your success in this business? Or is it all self-taught?

Tom Black:            For me, of course, those pivotal books that everybody reads.

Rod Khleif:            Sure.

Tom Black:            Robert Kiyosaki, I’m sure that’s everyone’s go to book. There’s a couple of lenders that I’ve had here in the DFW area when I was first coming on to the area, that were really instrumental and holding my hand. And not so much as holding my hand but showing me the ropes saying, “Bad thing to do. Good thing to do.”

Rod Khleif:            [chuckles]

Tom Black:            You know, “You should never buy in the hood.”

Rod Khleif:            No.

Tom Black:            It’s those top 10 commandments really help shape. It was good. Having somebody that could back you off and say, “You might not want to go there.”… [overlap talk]

Rod Khleif:            Right. Right. Right. Awesome. Awesome. What’s next for you guys? What markets are you targeting? Is there particular size? Style? What’s your target area and target size?

Tom Black:            We’ve stopped looking at Dallas about beginning of the year. It just wasn’t happening. I mean, there’s just… When you look at a C or a B true value add, we just can’t, the risk is too high because you know where the interest rates are going. It’s very predictable. They’re not gonna keep going down forever. The cap rates are gonna fall out eventually.

We earmarked two places this year and those were Indianapolis and Atlanta.

Rod Khleif:            Okay. Yeah, great markets. Both great markets…

Tom Black:            We took a fair amount of time. I think we made six trips to Atlanta this year. We’ve closed on one 284 units deal in North Atlanta. We actually have one under contract now that we’ll be closing on the end of next month. Then we have a B asset that we’re looking pretty hard at right now also, that’s down in that area.

Atlanta’s been great. We’d like to see 1,000 or 2,000 doors there and then maybe move. We’re at Indianapolis last week, just kind of sniffing around. Definitely a very different market for many different reasons but more probably your style of a very long hold, long runway…

Rod Khleif:            That’s my thing right there. I hate selling.

Tom Black:            Yeah.

Rod Khleif:            My first interview was with Al Berriz, he’s in the Detroit area. They’ve got 45,000 doors and he had a quote. His quote was, and I just stole it earlier in this interview. That is, “I’m a real estate buyer not a seller“. I’m sorry but I hung on to that one.

[laughter]

Rod Khleif:            Now, of course, in 08 that mentality got me crushed because I had 800 houses and it was a painful seminar for me but I still believe in it. But I will say this back to the fact that you’re selling that property this is a great time to be in cash. No question.

Tom Black:            Oh, yeah.

Rod Khleif:            This is a great time. There’re gonna be exponential opportunities when the market contracts. There’s no question. There’s a contraction coming. Real estate comes in cycles. Doesn’t mean it’s scary. Means there’s gonna be opportunity.

Tom Black:            Yeah

Rod Khleif:            You can buy at the top of the market, as long as you’re focused on cash flow, and you’ve got both eyes wide open. Agreed guys?

Tom Black:            Absolutely. It’s all about the…[bad audio]

Tim Black:             Oh, yeah.

Tom Black:            I mean it’s all about underwriting. Whenever we underwrite a deal… We’ve got actually, I forgot to mention earlier, we’ve get another junior partner that we brought on that is, he’s our analyst, who’s a CPA. He’s the kind of guy that spent a lot of time in private-equity.

But the way we look at things is a very moderate one to 2% growth in any market. It doesn’t matter. I’m never gonna underwrite for 6%, six to 10%, and our economic vacancies probably be at least be 15%.

Rod Khleif:            Good. Good. Now, that’s conservative in that… But when the market contracts, that could very well happen, so yeah. Let me ask you this; tell me about your team. You just brought on an analyst. Fantastic. Great idea. What other members are on your team?

Tom Black:            We’ve got Tim’s… She’s probably sitting there helping him in the background right now.

Tim Black:             No, she’s actually across the hall here. Mackenzie is our Executive Assistant. She was actually my former EA in my real job. She’s the magic behind the curtain.

Rod Khleif:            I know all about that I’ve got Ron. If I didn’t have Ron, I’d be dead in the water. Good.

Tim Black:             Exactly. Exactly. So Mackenzie is your Ron. And then as Tom said, Abel’s saying… We love about Abel’s is he came from KPMG, in private-equity.

Rod Khleif:            Oh, yeah. They drink through a fire hose there. So he’s seen everything.

Tim Black:             Oh, the good view.

Rod Khleif:            Great find, you guys.

Tim Black:             He was in transactional services. He and I speak the same language. Especially, since my former company was owned by several private equity firms. He’s been unbelievable for our team. He’s a young guy growing his career so they’ve been good.

Then we’ve got a couple of other people that were using that are on our team, great securities counsel which is very, very important, as you know.

Rod Khleif:            Critical. Absolutely.

Tim Black:             Very, very critical.

Rod Khleif:            Guys, for syndication, you need a great securities attorney. Then I’m sure you got a great transactional attorney as well, for your contracts and whatnots.

Tim Black:             Absolutely. Yep. Those two guys that are on our team, they’re very, very important. We’re growing, and that a good thing.

Rod Khleif:            Now, you’re not self-managing. Correct? You hire, local property management.

Tim Black:             Correct. We do. We hire off third-party. We don’t manage… We manage the management companies.

Rod Khleif:            Yeah. Well, yeah. And that’s a great way to do it if you’re in acquisition mode.

Tim Black:             That’s right.

Rod Khleif:            I’m a big proponent for self-management because you have to manage the management company anyway.

Tim Black:             You’re right.

Rod Khleif:            But in your case, when you’re busy, small team, you’re lean and mean… I’m a proponent for hiring outside management.

Tim Black:             I’d be kidding you if it wasn’t part of our longer-term strategy in the next five years.

Rod Khleif:            You’d be crazy not to. I mean you bring somebody in-house… Frankly, it just makes sense.

Tim Black:             Pay yourself.

Rod Khleif:            You’ll have better quality and more control.

Tim Black:             That’s right.

Rod Khleif:            But again, and I’ve kind of relaxed my stance a little bit. I was pretty militaristic about self-management in the first early interviews on my podcast. But then, I remembered, when I go back, and think about heavy acquisition time, you don’t wanna be side tracked with toilets and stuff.

Tom Black:            Yeah.

Rod Khleif:            Management issues.

Tim Black:             Right.

Rod Khleif:            You wanna be focused on finding deals. Okay. Now, let me ask you this, let’s final this thing out with a war story, and I think I typically say victory story. But I’d say, that first deal was definitely a victory story…

[chuckles]

Rod Khleif:            That have $50,000 a month increase in net operating income.

Tom Black:            Right.

Rod Khleif:            Holy Toledo. Tell me about a war story. When did you guys get your butt kicked, one or both of you?

Tom Black:            I’ve got a couple of them and I’ll tell you the first one. The first one being, I tried to reinvest, I tried to do it in Longview. I bought… There’s another little town called Kilgore. It’s a little ways away, and I bought some more acreage over there.

Rod Khleif:            Okay.

Tom Black:            I’ll learn my lesson to never underestimate an HOA when you’re trying to rezone a property.

Rod Khleif:            Ahh.

Tim Black:             [chuckles]

Tom Black:            Bad, bad underestimation…

Rod Khleif:            Well, it’s the same thing like your group of physicians. An HOA is our group of homeowners…

Tom Black:            Oh, it’s worse. They are mean.

Rod Khleif:            That have no life, they got nothing better to do but make your life miserable.

Tom Black:            Right.

Rod Khleif:            Okay.

Tom Black:            And the funny thing was, we were gonna build something very nice. We went from a condo type situation, then we even got all the way down to a single-family homes, which were gonna be nicer too, than the homes they lived in. It came… you wouldn’t believe it. I was in the newspaper; I mean I was in the town hall meetings.

Rod Khleif:            Nice:

Tom Black:            It’s not… You just can’t even logically describe to a mob, once they get their minds up, so never again will I re-zone development, unless there was a bolt on arm to the company, never again will I do that.

Rod Khleif:            [laughs]

Tom Black:            Then I would say the second big lesson I learned with double and triple nets commercial holdings…

[00:30:00]

Tom Black:            Always know who your partner is on the other side. Know the company, vet the company, look at their financials.

Rod Khleif:            You’re talking about the tenant.

Tom Black:            Correct.

Rod Khleif:            Okay. Guys, those of you listening, when he’s talking about triple net, a great example of that would be a built like a Walgreens or a CVS where you own the building, and you’ve got a tenant that pays everything. That’s a triple net lease.

The most important due diligence function you do in one of those deals, is you vet that tenant, because the whole deal is the tenant. Is that what you’re talking about here? Was that the seminar?

Tom Black:            It is. It is. It is. In East Texas, a lot of things get done on a handshake, unlike Dallas.

Rod Khleif:            Okay.

Tom Black:            I’ll say, it doesn’t matter who they are, what their presence is, always, you wanna look at the financials…

Rod Khleif:            Right.

Tom Black:            Who they’re backing is? So I’m involved currently with just… It’s kind of a funny story. I mean, there’s some politicians and a senator involved and I’m just like…

Rod Khleif:            Oh, boy.

Tom Black:            Never again. No politicians for the rest of my life. [chuckles]

Rod Khleif:            Alright.

Tom Black:            That’s all I’ll say about that.

Rod Khleif:            Alright.

[laughter]

Rod Khleif:            Well, listen I really appreciate you guys taking your valuable time to talk to my listeners today. You’ve definitely added value. Let me ask you one last question. What quotes do you have on your wall? What quotes do you live by that push you to drive for success?

Tom Black:            Oh, man, that’s a good one. Great mentor in East Texas, in his best East Texas slang would say, “If it’s not a good deal for everyone, it’s not a good deal for anyone.”

Rod Khleif:            I like it.

Tom Black:            I live by that.

Rod Khleif:            I like it.

Tom Black:            Relationships are the cornerstone of this business, in any business in a sense. And doing the wrong thing not only is it gonna get you in trouble, it’s gonna ruin a relationship. You have to be realistic about what you are giving people or not, and not getting bogged down. Don’t be overzealous about the money you’re making because if you got a great product out there and you’re giving people and educating, and you’re getting great returns, then that should speak for itself.

Rod Khleif:            Sure. Sure. And it’s all about integrity.

Tom Black:            Exactly.

Rod Khleif:            No question about integrity. How can people get a hold of you guys?

Tom Black:            I would say, the easiest thing is probably our website, which is napalicap.com, n-a-p-a-l-i-c-a-p.com.

Rod Khleif:            Okay. We’ll have that in the show notes for you guys.

Tom Black:            Perfect.

Rod Khleif:            Okay. Fantastic. Well, guys, thank you so much for your valuable time, I appreciate it.

Tim Black:             You bet.

Rod Khleif:            And let’s stay in touch.

Tom Black:            Alright, Rod, thank you.

Tim Black:             Thank you. Appreciate you having us…

[overlap talk]

Rod Khleif:            Take care you guys. You bet. Alright, see you.

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Thank you for listening to the Lifetime Cash Flow Through Real Estate Investing Podcast. If you’ve enjoyed the show, please subscribe, and then take a moment to visit iTunes and leave a five star rating and review. For more resources to connect with us further, please visit our website at lifetimecashflowpodcast.com. Tune in next week for our next show.

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