Multi-Family Deal Lab Episode 005
Speaker 2: And he didn’t know what particular deal I was going to ask them to analyze or what we’re going to dissect, but we’ll get into that in a minute. but before we do, I hope everybody’s doing well, staying safe. and hopefully this economy’s going to start, you know, turning around. I fortunately think it’s going to be awhile, but you know, to stay safe as people start to get back out in the world just to make the right decisions. And we’ll all be here in a year. So Bob, how goes it Well, it’s been really interesting trying to operate apartments during this period of time. yeah. Overall I’m kinda surprised it’s going as well as it is. Yeah. I think that from all the unemployment that occurred in the last 30 days or so there’s been a significant increase since, March 30th. So I think that as a result of all that, that right now is beginning to impact our, our businesses, all of them actually, whether it’s office or it’s apartments that we have.
Speaker 1: Welcome to the multifamily deal lab podcast, where we dissect a deal before your eyes and ears. So you can discover the strategies and tactics that got each deal to the finish line strategies and tactics that you can put in your own toolbox to get you to the closing table from sourcing the deal, raising due diligence to the property takeover, multifamily deal lab shows how you too can get the deal done. And now here’s your host. David Lindahl, everybody welcome to multifamily deal lab. I’m your host Dave Lindahl. This is Bob Bowman
Speaker 2: Oh yeah, absolutely. Yeah. We’ll see that. In fact for awhile, I think it’s going to be, you know, it’s going to be a while before everything just starts filling, getting back to normal, but anyways, tell everybody who you are, your background, how you got into real estate, and then the deal that I want to dissect with you is the Spartanburg deal. Okay. I started, with you Dave, back in 2007 in December, that was the very first private money boot camp that you had. 90 days later, I went to the apartment boot camp in 2008 and April. so that was my first really learning how to do apartments. I learned how to raise money pretty quickly. And by the time in 90 days, I had raised over a million dollar. So I ha of accredited investors, during the real estate crisis.
Speaker 2: So I was pretty excited about that. And then I went to your apartment class and that’s where I actually signed up for the coaching program. And, Don golf was my coach. And that was, that was a real turning point. So once I learned how to raise money and I, and I understood how to underwrite apartments, then it was, probably six months later. Not more than that, that I was actually under contract in my first apartment in Weatherford, Texas. It was 113 units. My very first one prior to that, you a single family investor prior to that, we were buying single family homes. So we were doing the whole lease option, for about three, four years. And you know, what was important, what we learned was the, the many different techniques on how to buy real estate. And of course, once you learn in a 10, you know, some of these classes where you learn the techniques that you can apply that to, apartments or offices, or it doesn’t really matter, but yes, we were doing single family calm. I quit my job. And then eventually my wife did, and we were added full time until the real estate crisis came. And then we had a paradigm switch and moved into apartments. Yeah.
Speaker 3: And you’ve been doing, quite a few deals since then. How many deals
Speaker 2: Have you done Oh, geez. well probably apartment deals. I think I’ve done close to either nine or 10 and we’ve done two office deals. And, Bob’s claim
Speaker 3: Fame is that he drank Billy beer
Speaker 2: with Billy Carter in Plains, Georgia.
Speaker 3: Tell that story with you. That’s a great story. This is a story by the way, Bob told me the first time when we were jogging before the events, I would always go jogging in the morning prior to teaching that day. And, I think I met up with you one morning jogging, or maybe we talked about it the night before and said, Hey, you know, I’m going jargon morning will join me, stuff like that. And we ended up doing jogging every time we were at different events.
Speaker 2: Yeah, exactly. You know, I remember the incident very well, Dave, cause we were actually in Phoenix, Arizona and Rob was with us and we went out at six in the morning and ran around the parking lot in a hotel. And so what happened when I was a young man, when I graduated from ball state university, there weren’t, I graduated, I wanted to be a teacher. I was a school teacher. And so I couldn’t find any jobs in Indiana, but I got hired in Southeast Georgia. And of course at the time, Jimmy Carter was the president of the United States and his brother, Billy was probably as famous as his brother. Yeah, absolutely. Billy came out and Billy had what was called Billy beer. Billy loved to drink beer. And so I was teaching probably about an hour away from Plains, Georgia, where the Carter’s live.
Speaker 2: And one, one day I just decided, Hey, I’m going to go in the Plains, Georgia. The president lives here and just kind of look around at the town. And I went over to the gas station. It was early in the morning. It was probably about eight 30, nine o’clock and Billy’s buddies here. He had two of them and they, both of them look like the guitar players and steezy top really, really gives you a visual. I used to see them on TV all the time. They look just likely like Billy Gibbons and ZZ top. So I walked into the gas station. It was a really, really small concrete two room building. And I happened to look in the back and there was these two big old white refrigerators and all along the walls there stack with Billy bear. And I walked in and I said, you know, I said, hi.
Speaker 2: And they said, hello to me. And first thing they asked me, is that, would you like to have a beer Of course I was only 23 years old at the time and had been drinking beer for 10 years. Yes. Anyway, make a long story short. I asked him a casually say, Hey, do you guys ever see Billy, you know, around town Or is he mostly in Washington with his brother He goes, no, actually bill is here a lot. You know, as a matter of fact, he usually comes in about this time and the other guy looked out the front window and said, Oh, here he comes. Now here comes Billy. So Billy walked in the door, the other guy went back to the refrigerator and he opened up the refrigerator, grabbed a Cole, Billy beer. And it was just like, it was so surreal.
Speaker 2: As soon as Billy opened the door, the beer went flying from one room to the next right across me. And Billy grabbed it out of the ER and just snatched it and he drank it right down. And then the guy brought another beer over to him and we sat there and talked and Billy had a cigarette in his beer. And then a little bit later, we all went outside. Billy put his arm around me. I put my arm around him and we took a picture and I still have it. That’s a great story. Hey, you know,
Speaker 3: It was a boxing on my DVR last night I was watching the stars. I was seeing what was Saturday night, live the previous. And they had a ninth of 19. They had a rerun for the 1977 and yeah, I grew up playing Jimmy Carter run there and that brought back a lot of memories.
Speaker 2: Oh yeah, yeah, yeah. You know, I saw that I had Jim Baluchi and Dan Akroyd and bill Murray and all the original cast. Yeah. Yeah. That was pretty cool. Yeah.
Speaker 3: All right. So let’s tell us that go real estate. So we don’t, so we don’t bore people. Alright. So the Spartanburg jail, the REA the reason I want to talk about the Spartanburg deal is because I remember being out there with you at that particular deal. I don’t know. I think I was teaching down there or something and you said, Hey, one of my properties is done down here. And, you know, I guess some challenges with it might come down and take a look at it. And I remember being on that porch, that porch from the leasing office overseeing the whole thing. And, why don’t you just describe that deal, describe your challenges and describe how you overcame them, because this deal is a really great lesson for people that are, that are out there doing deals and all of a sudden you get different surprises.
Speaker 2: Yeah, well that, you know, it’s a, it was a very interesting deal. So I actually got to the part of my business. I found a foreclosure in Spartanburg, South Carolina, and as a 384 units. And the largest that I had managed at the time was about 140 units. So when it came time for the financing, it was a little bit difficult, but the broker explained to the bank that this was actually, I’d been in the business long enough and had been operating successfully enough that this was really the next step in the evolution of my own career, my own business and apartments, and what this actually happened, ended up being was a complete tenant and an asset repositioning. It was actually the deal was in foreclosure. a couple of the things that were very unique about the property that I didn’t know, that was not on your due diligence checklist.
Speaker 2: Dave was the, property, no internet at all. there was only one company that supplied it. And, you know, I can’t imagine, you know, people, if you can imagine living in an apartment with no internet. So that was a really big negative. but the thing that was driving that besides just having one vendor that actually service that area was the fact that, but knowledge to me at the time when I bought the property, it was being run by a religious cult out of North Carolina. And the state of North Carolina was actually trying to shut the church down. and so, was it
Speaker 3: Filled with all the church members Yeah,
Speaker 2: So I had 11 employees and they were all from this one church out of North Carolina. Deborah Norville actually had some cameras inside the church it’s out on the internet. she did a spot on, on, on insight edition many years ago. but it was really, it was really challenging because, you know, you know, they have certain beliefs and, you know, they didn’t, you know, they didn’t even know that nine 11 actually occurred until over two weeks later. they were, you know, it was the, you know, these were people that were down on their luck and the church brought them in and, you know, tried to help him. And, you know, and, and so, you know, one of the people that work for me, his mission for the church was to bring in, you know, hardcore felons and he would work and try to re rehabilitate them in the state prison.
Speaker 2: And when they get out of prison, he would bring old bread, bring them into my apartment, you know, to help them with their rehabilitation when they got out. So as you know, you can’t let people go be because of their religious beliefs. So without any internet and, and being in that situation, a complete total tenant and an asset repositioning, I think we spent over a 3.2 million in terms of, capital improvements. And while we were unable to make distributions for over four years, but we ended up buying the property for 6.2 million, I believe. And we sold it for almost 16 and a half million. We had over a $10 million distribution. So, percentage wise, the investors ended up doing really well. But, you know, there was a lot of challenges operating a big property like that. so the way I got over the internet, situation, I had a really smart guy, from, at and T that was in my investment group and we actually built our own, internet, fiber optic internet on the property. and that was a really interesting project. And then, and then in terms of the folks that were actually operating the property, because they really weren’t,
Speaker 3: Let’s go back, let’s go back to the internet because I remember being on site and looking at all the, all the materials and what you were doing there, you know, it all be built, she’ll be operations area. And, but that was an opportunity actually for, you could just describe how much it costs and then how much it actually improved the value of the property to cash flow.
Speaker 2: Yeah. Well, that’s a, yeah, that’s a, that’s a good point, Dave, the actual cost of it to build it was 130,000. And so, the way I got the money, because again, this was earlier on in the investment and we really didn’t have cashflow. One of my investors put up the money. And so if they, after they put up the money, we started building and it took us about three months to put it all together. And I hired a company to do the trenching, you know, I called, I called at T and T we got them involved and once we got it up and operational, it had a, a gigabyte of up and down symmetrical transmission. So it was extremely fast. It was the, they said Windstream, who was our main suppliers, said it was the fastest internet that they’ve ever installed in the state of South Carolina.
Speaker 2: and it was, it was huge. And so we charge our tenants $40 to have it, and they could do gaming and the actual cost of the, the vendor in the area that supplied cable, TV, et cetera, and internet, was about $70 a month. So now our tenants were getting it for $40. the software that we bought, cost us a few thousand dollars, each month. And then we paid for the fiber optic line. And then when we got done, bill and our tenants, each of the tenants, $40, we had a, a cashflow of over $11,000 a month additional. So what it did, because of the additional revenue from the tenants increased the value by, you know, probably about 1.5, 1.6 million.
Speaker 3: Yeah. Foreign investment of 130,000 plus all of the monthly revenues coming from that. Exactly. How many units was that property That was 384 84 units. Yeah, yeah, yeah. So that was a, I mean, there’s an opportunity right there, and there’s always a, always looking for an opportunity and cable and laundry, or just any way to improve the cashflow. So you can improve the value of the property. There was a takeaway that I got from you in that property as well. And that was putting stickers on the cars. The, no, no, no. It was the, yeah, the stickers, but it came from the fact that every car that belonged on the lot was registered in the office. And if there’s a car that wasn’t registered, they got a sticker. You want to describe that one Because when I heard that one, I was like, I’m swiping that and using that out.
Speaker 2: Well, I learned this in my very first deal a few years before Dave, what we did because the property had a lot of, you know, bad characters and, it was considered the worst apartment in Spartanburg County actually, you know, cause I had, I had met with the sheriff many times about, you know, what was going on there. It was, you know, it was really pretty bad. and so one way to get rid of all the bad guys, is that what we did is that after we redid the parking, you know, we assign, the numbers on each parking space. And of course, you know, the key to this is that you don’t want the number on the space of course, to coincide with the apartment unit. And, you know, in case you have some, nutso, savory character follow somebody’s home and then they could match their parking space with their apartment unit.
Speaker 2: So we, we always number these things at random. And then, the tenants were required, to come in. We gave them about a month, month and a half to come in with their, with a driver’s license, a valid driver’s license and a registration on their car. And then we gave them a sticker and they had a certain date. And when the, after that date, anybody without a sticker had their cars towed away. And at the time I think it was like $250 or $300. It wasn’t cheap. And I hired a towing company and all they did cause it was a big apartment. It was on 32 acres. They just drove through the parking lot and looking for those cars without the stickers. So when the date came, you know, to identify cause you know, people that are criminals, they don’t want you to know and they don’t want the police or they don’t want others to know that they’re there.
Speaker 2: So they would not, you know, they’re not going to come in and identify themselves. And they probably don’t maybe the car they have may even have been stolen, who knows. Right. But what happened on the day we went live, I lost 30 something tenants say, cause they knew that if they had their car stolen, they couldn’t get it back because of the car didn’t belong to them. Or the police were looking for them, we’re going to get caught trying to get their car. So they just saw scattered. And after that, it was in about a year or so after that, we actually became a part of, one of the safest communities. God, sheriff came out and talked to me and he said, you know, he really appreciated everything we did, but it started with, with the cars and the parking stickers.
Speaker 3: Yeah. Good point. So, what was the big turnaround there Because I know you struggled for a couple of years and then was there any one particular thing and was it just building momentum
Speaker 2: Yeah. Well that’s a great question. What the turning point David was really identifying a really good property management company because the management company that we hired initially, you know, he was aware of who all of the people were that were working at the apartment and he knew what the tenant demographic was. And as many times, as we talked, he failed to tell us about this. We had to find out from a vendor. So we let that company go because they weren’t being honest to us. So, Diane and I, like we had done before, we decided that we were going to take over the operation and we were going to replace, one at a time as necessary. The people that were not doing their job and a part of group, but what happened over time, we realized that the job was bigger than we expected.
Speaker 2: So we ended up finding and hiring a property management company where we had onsite all the time, but we had a regional manager stopping in two or three days, checking on the people, checking on the property, because what happens is that the other lesson with all this, when you own a hundred unit apartment or 150, you know, you have an apartment, but when you have 300 units, 400 units and you have 10, 12 employees, you know, you’re not operating an apartment any longer, you’re operating a business and you have that many employees, so many things happen. and you know, just tracking inventory and appliances. It it’s, it’s a, it’s very, very different operating, a larger property than it does a smaller, but once we hired in a good management company, that was on site all the time. That’s when things changed.
Speaker 3: Yeah. We should probably put up a seminar. You know, it’s a very common occurrence, especially for people starting out is to hire the wrong management company, you know, and then you don’t recognize it until it’s almost too late. I mean, some of these management companies can take you down if you don’t recognize the fact that they’re not managing properly. I think in the managing, managing the management of the asset, that’s now a digital download. We have all the different numbers, but it’s so key to be on top of your management company, you gotta be reading the reports, you’re going to be asking the questions and if you’re not, you know, it’s not a good reputable company, even if they are, if you’re not reading the reports and asking the right questions, things just slip by. But if they’re not a reputable company and they’re not reading the reports and not asking the right questions, they’re going to be scamming you cause they know you not watching them.
Speaker 2: Yeah. You know, it’s interesting. We have one right now that I really like, but they’ve been around for many years in the area. They have a, a good reputation, but we’re learning that the way they operate is that the owners that they have these, they probably manage about 20 properties or so, you know, the owners just, they, they just take the owner’s checkbook and they think it’s like their own checkbook and they’ve been around enough. you know, we’re finding that they know how to make money besides off of your operating account, besides just the management fee that you would typically pay them following up on the details. Sometimes, you know, they have too much experience, but, you know, you have to, you know, like you said, you have to read your reports, you have to stay on top of everything. and, you know, make sure that you know, what they’re spending and why
Speaker 3: I think the three most important things is the Monday morning report, you know, watching, looking at all the different variables in the Monday morning report and one of them, one of them’s off you just go start drilling down. Right. Then the second thing is, is your, your profit and loss statement for the, and look for outliers, look for things just, just don’t seem right. dig into those. and then always, always, always calculate that committee, for the, the manager, because it shouldn’t be based off the, the collected revenues and nothing else. And you know, a lot of time, a lot of times that’s wrong and it’s usually wrong in their favor.
Speaker 2: Yeah. Then, you know, it’s funny that the same property management company that does exactly what just happened, recently, you know, we have a fairly new apartment we bought in November and all of a sudden, you know, we’re seeing, we’re calculating, you know, my wife, Diane, who does all the backend stuff for us, you know, she’s looking at the checkbook and she’s seeing that they’re writing checks and she’s looking at the rent money we took in and, you know, realizing that they’re overpaying themselves by quite a bit of money and over probably a period of about two and a half months. So all of a sudden they’re like seven or $8,000. So I can have what they probably should have been paid. So, she caught him up.
Speaker 2: It didn’t take real long, but she caught him up. All right. And, matter of fact, she took that responsibility away from them. She said, I’m doing all the calculations and I’m going to approve. And then you’re going to write your check to you when you pay our asset management fee, because it has to be the same number, but that pretty well solved it there. But you know, sometimes you have to do that and you know, the success of, for us, you know, for that I’ve learned over the years, you know, being in the business, whether it’s apartment or office, it all comes down to that manager and the people that are in there that are actually executing, you know, you’re in Boston, I’m in Orlando, but you know where our properties are located. You know, we have to depend upon the people there and the management company, to execute for us and our investors. So that’s where my focus remains. Dave, thank you so much. My call is coming in. Thank you so much.
Speaker 3: Thank you, Bob. So that’s it, you know, there’s opportunity here right now, as I said, a couple of times in this call, because there’s just not a lot of people looking at deals. People are scared. And I remember when I was looking for my single family flips, you know, so I could flip a property to buy more multifamily properties early in my career when I was broke. and I just was looking for ways to, to buy more deals. I always look for properties with problems because those are the ones that nobody else wanted to deal with. I knew I could figure out how to fix the problem. Then I could have this great deal and I can get more money to buy my multifamily properties. Well, right now we’re in this gray area where there’s this problem and that is people are being laid off and there’s an eviction moratorium.
Speaker 3: And it’s like, so how do we underwrite this deal And how do I get to the closing safely and be able to analyze the risk, you know, for the first six months of owning this property Well, we’ve talked about that here. We’ll talk about it on additional calls, but if you’re willing to go through that process, you can come to the other side, the other side, not risk free, but understanding the risk and doing best practices and actually getting some really, really good deals out here because of the fact that you’re one of the few people that are, that are chasing down these deals that are taking time. I shouldn’t say chasing them taking down because there are sellers out there that we will need to sell in, needs to sell. Right now there’s always sellers that need to sell. There’s always sellers in distress.
Speaker 3: You know, it’s just, why are they in distress before this whole pandemic happened There were sellers in distress for one reason or another. Now they’re in real distress because they got their distress before, and then they coupled it with a pandemic distress. So just know that opportunity favors those that are willing to do the work, to do some of the dirty deals that are out there or to just to figure things out that other people aren’t willing to figure out. So most importantly, between this week and next week when we were coming back on next week, I got, a couple of, students that are doctors and they’re going to come on and they’re going to talk about some of the things that they’ve seen. Both of them, both of them got pushed back onto the front lines. They had retired from being doctors.
Speaker 3: It became full time, real estate investors. They’ve done some really good deals. So not only are we going to talk about what they’re, what they’re seeing and how to stay safe, you know, they’re both in the, in, in my mastermind group and both of them have been sending us information on how to keep our immune systems, you know, strong and you know, and all the different risks and the stay safe through this, coronavirus, thing that we’re all going through. So he’ll go through, they’ll both go through some of that stuff. and then we’ll go and we’ll dissect some deals as well. So we’ll see you next Tuesday, right here on deal lab, take care.
Speaker 1: You’ve been listening to the multifamily deal lab podcast, where the deals get done. If you’d like to learn more visit Dave’s free book.com and don’t forget to leave a five star rating and review and hit that subscribe button. So you don’t miss an episode. Thanks for listening.