Multi-Family Deal Lab Podcast Episode 014
Speaker 1: Stay tuned for a special edition of the multifamily deal and podcast.
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 multi-family deal lab. I’m your host, Dave Lindahl.
Speaker 2: I’m with Dave Anderson and Alan Schnur and, combine they’ve got a total of 1200 units right now, and they’re gonna tell us how they did that. So, first of all, we tell everybody who you are and where you’re from. Hi, my name’s Alan Schnur. We’re here in Houston, Texas right now, and I’ve been buying apartment buildings for the last three or four years and single family houses for the last, maybe 10 years. I’ve I’ve owned gay stuff for a while now. And over the last few years, I really started opening up those books and my partner and I here, where we’re going in contract on our 12th apartment complex. Right now we own 11. So like Dave said, it’s around 1200 units and combined, we have around 120 houses as well. And so we started doing single family business sort of independently in Houston, built up that single family portfolio.
Speaker 2: And I guess if you bought your first property on your own 76 units in July of 2009, September, sorry, December of 2009, we bought our first 52 unit together. And that’s where he’d been buying apartments since. So how did you guys meet and become partners we were at kind of in a, there’s an investment group in Houston and we were members of the investment group. And I had seen Alan a couple of times on road trips with that they do acquisition rotors and operational road tours. seen Allen a couple of times in 2009 was a really tough time as you might know, to buy property, you know, and frankly, I had been trying to buy something all year round and bought that, that one deal and, July, I guess it was, you know, and I was frustrated. I called Alan and said, Hey, you know, I wanna, I want to buy something.
Speaker 2: And I don’t know, you’ve got a lot of single families. You’ve got this apartment that you did by yourself. You have a pretty big W2 job that you, you know, that you’re thinking about leaving because of apartments. I’m really frustrated. I needed to have lunch with you and maybe you can give me some guidance. So we did that and I’m just trying to shorten the deal. But basically the rest is history at that lunch. Alan said, listen, I’m going to buy something. You know, really his quote was, I’m going to buy something in the next 30 days. If I buy my two, before you buy one, you should go get a job. And, but he said, you know, listen, I’ll give you $150,000 for the next deal you find, you know So about two weeks later, one of the deals I’ve been looking at since January, I guess, came through, called them out and said, Hey, you know that one 50, I need 300. So he said, all right, let’s do it. You know, if you in it, we closed it in one week, all hash. And that was the first one we did together.
Speaker 3: So, when you first started doing apartments, I’m going to ask you to take us from your very first apartment deal and how you discovered it, how you get into it. And then, you guys have done going on your 12 deals. So then I want to talk about how you turned this into a machine. Okay. So talking about your first.
Speaker 2: Okay. So the first one for me was I didn’t have a lot of liquid cash and I stumbled into a deal that was an owner finance deal in, Pasadena, Texas. It was a kind of odd cosmetic dentist that ADI didn’t want to be a dentist and fell in love being with being at that distract before he left his job and I just needed to get rid of his property. So I got to tell you, Dave, it was like a $2 million asset that I more or less got into for less than $50,000. Wow. So he left his financing there. I took control of the property and I did so well with the property that I refinanced him out within a half a year. How much equity
Speaker 3: Had you created How much did you take it over for
Speaker 2: I think I paid around 1.7 million was the sales price and he just wanted me to bring enough money to take it to the table where he wouldn’t have to come out of pocket for brokerage and closing fees. What a lot of people don’t realize is there’s a lot of credits left on the table when you’re closing. Right Yeah. Tax deposits and stuff like that. So I thought I needed around 60,000, but I think it turned out to be less than 30,000 or something like that. And once I figured that out and you know, whatever the cashflow was a few thousand or 5,000 a month, I realized that it’s really scalable. And just from there, I was just started buying more and more of our buildings. And now we’re up to 11. Do you want to talk about the second deal or you want to talk about the other stuff
Speaker 3: How many units was that first deal
Speaker 2: The first deal was a 76 unit building. You just sell it out No, I still have it. I haven’t sold anything. And I’m waiting.
Speaker 3: How much, how much is that one cash flowing for you right now It’s probably cashflow
Speaker 2: Anywhere between three and 5,000 a month. If you want to include the principal, it’s, it’s fast, you know, I’m netting three to 5,000 a month, but with the principal, it’s probably six or 7,000 a month.
Speaker 3: Sweet. and then the 30,000, I assume you took out of your pocket or did you bring somebody else in or what’d you get that money
Speaker 2: Actually, I had a choice and this is to all the people out there that think you need money to get involved. I had the money, but I didn’t have the money I can easily get up at, at my re my rich club, put my hand up and ask who was the partner on a deal and bring 30, $40,000 to the closing table or go on a $2 million asset. That’s got a cashflow around $5,000. It’s a no brainer.
Speaker 3: I assume you probably had that money from flipping your houses. Exactly. Yeah. All right. So, there’s some special about that second deal you want to talk about,
Speaker 2: just you, you were assessing the progression on that deal. That was a portfolio deal. There were three properties. there was a, it was basically the rate T is 52 deal. There were 18 units
Speaker 3: Along second day. Val, how did you find that from the, from that, dentist Did you let her campaign broker Oh, aluminum was he lifted and stuff
Speaker 2: Yeah. the broker listed, it I’ll move that. Oh, wow. So, you know, it was also in the right place at the right time because I deal it fall through and then they really want you to get rid of the deal. So you just, you never know when it’s your turn to find a great deal. And that’s exactly what happened. I mean, the broker had a box of due diligence. Everything was just ready to go. And I believe the first time it was on the contract, it wasn’t an owner finance deal, but by the time I got to it, it was with financing, which made a world of difference. Right. Absolutely. Especially on a cash on cash return, pretty much all the, all of the deals. I think of the deals that we’ve done. that was the, the one, you know, direct owner deal. It was a seller finance. We just didn’t December. We did a small deal at 39 unit deal. that was a private seller. but other than that, they’ve really been, you know, Fannie Mae, foreclosures banks, you know, just kind of REO deals or receiver deals. And they’ve really been brought to us by brokers.
Speaker 3: So the brokers are bringing you deals. So how did you get in with the brokers to the point where they’re bringing you these quote unquote pocket listings
Speaker 2: I think it’s, I think it’s really about credibility. We, we, we think we do a really good job about, of enforcing with the brokers that we’re going to protect them, that we’re going to make fast decisions. we’re going to give them a fast now, if it’s not a deal for us, they’ll know, as soon as, as soon as they call us and we make sure they know, we keep relationships up with them, we know what they’re, you know, they, they know what we’re looking for. but the biggest thing I think is that they know we’re going to close. So we know in, in, the only deal that we haven’t closed, that we had under contract at $150,000 strip copper script done to it the weekend before the close and the bank didn’t want to renegotiate that deal. but otherwise we closed everything.
Speaker 2: We put up some significant areas, money. And the brokers, like particularly we have a 160 unit deal that we did where the broker called us from the, from the parking lot with the receiver and said, Hey, I’m in the parking lot. You got to come right now. You know And so we did that. So we did that deal. He said, this is your guys’ kind of deal. And I know you want this and basically on that one and called Allen. So let’s go. I stopped by the bank on the way I had an, I printed the yellow lie before I left that the house stopped by the bank and had a cashier’s check. And we got to the property. I gave the receipt, the cat, the, the receiver, the LOI on the cashier’s check.
Speaker 3: Wow, that’s hustling.
Speaker 2: What can we do what we can And, you know, just the guy that thought, I mean, you can’t be shy around the brokers. So, you know, have lunch with them. You were talking about that last week. become friendly with them. I mean, we’re always in touch, there’s around six main shops here in Houston, and we have, we have good contacts with each shop and, you know, we try to get friendly with them. We try to have lunch with them and we call it even when we’re not doing deals, just stay in touch.
Speaker 3: Absolutely. All right. So you own six deals yourself. you have six deals that you partnered, with other, investors on. So how I assume that you’ve partnered with them to raise the funds to do those deals. Yes,
Speaker 2: Exactly. Yeah. Yeah. Dave and I, we don’t put any more money in our deals and more or less the last six deals that we partnered up with a little bit in the first couple, I think, and now lately we’ve, we’ve got a pretty standard program that we’re trying to.
Speaker 3: All right. And so when you say standard program, what do you mean
Speaker 2: Basically we have, we take a 3% acquisition fee. We do a 50 50 deal with our, with our partners. we do a 5% management fee. We take a little bit for running it running. So we take 5% property management fee. We take a little bit for running the asset out of the partnership and that’s kinda the, that’s kinda the deal. we’ve all of our debt right now is recourse. We’re looking to do non-recourse but so far. Yeah. So, so far we’ve got a fair amount of recourse on us. we’re very confident with where we bought the properties and the cashflow and the profile Now we’ve we’ve we bought pretty well.
Speaker 3: So
Speaker 2: That’s, that’s kind of what we’re doing. And so we may put our money on this, on the, whatever we call it, ACE side of the deal, the investor side of the deal, but the last couple of deals, we,
Speaker 3: We haven’t. So, all right. So how are you finding your investors for these deals How much money do you think you’ve raised in those six deals 3 million, three, $4 million. All right. So how are you finding your investors Where’s your favorite place
Speaker 2: definitely like going to our, our, our, investor clubs in town and you always get a moment to eat. You’re shaking hands with people. You’re meeting people. It’s not just, hi, how are you Oh, I’m good. It’s, you know, here’s what I’m working on. I’m great. But let me tell you about the deal. So we’re always having conversations. We’re always networking. Occasionally we get to get up on a stage for five minutes and, you know, talk about a business idea and, you know, just, just pair up with people that have the same kind of interests as us. We’ve, we’ve got some friends from our corporate days that, that, that are in a little bit, you know, just our professionals that we use sometimes see what we’re doing and are impressed by that. So we’ve got one of our attorneys, our, we have our sec in litigation attorneys. Isn’t aware
Speaker 3: People you used to know in your corporate lives or your past lives, people, the attorneys that are doing the deals, you’re looking at them, they looking pretty sweet. So they want a piece of it. Right Well, once you local real estate investment groups and getting in front of the many people as you can, what is the most unusual place Do you think you’ve found someone or an investor I don’t have a good answer for that. I don’t know.
Speaker 2: You know, what’s tough about that question. I wouldn’t partner with anyone that I didn’t like. So if I was in an unusual spot, maybe I’m not looking for it, but I can tell you what I’m paying the most. Not assuming people have the most money to invest. Yeah. That’s a good point. We don’t have a story. Like you’re a, I can’t remember the guy’s name in San Diego that, that you know, was going into surgery and signed up as his surgeon.
Speaker 3: Okay. Can a surgeon Yeah. I went to the bank, went to where to go and went to Papa. Dells, went to the bar, got a banker 200,000.
Speaker 2: Well, we do. I mean, we did just get back from lunch with a banker and the banker actually asked us, they said, well, why, why am I not in your last deal He says, you know, I made money moving from my last bank. Why, why didn’t you guys call me on your last deal So,
Speaker 3: So now you’re the go-to guys. Yeah, yeah, definitely. So if somebody who’s just starting out and they’re a little bit nervous, I actually, let me ask you, what was your, what do you think the biggest mistakes were that you’ve made,
Speaker 2: Showed up to a work site with the checkbook that I learned that from Alan don’t show up to your work site with a chocolatier to pay contractors, yeah. Do it, write it all through at least sit at that at a desk with QuickBooks or, or if you have someone working for you and mail out checks, you know, when you first do your first deal, you’re excited to get out there and you want to see everybody’s working and you want to see the progress, but at the same time, all those contractors want to get paid on the spot. Right. So slow it down, pass inspection, have a check sent to them. We, I would say I’m probably on our first deal together. the biggest mistake if you will, was, was, underestimating the repairs, the rehab on the deal. we fired, two roofers and two electricians.
Speaker 2: you know, we were trying to, we were trying to, frankly, we were trying to build up from our sin. We, we were able to leverage the experience that we had from our single families, but the people that we had in our single families, it was a little bit difficult to leverage. just because each unit you might say as like a single family, but it’s are different. There’s a larger skill set. So it’s, it, it really is project management. We take over one of these vacant 52 unit buildings, or a vacant hundred and 60 unit building. Sometimes you’re a single family guy. That’s really been your go-to single family guy has been great. isn’t the right project manager for that kind of, that kind of a deal. So one of the things that Allen’s done lately, that’s been that’s really helped us is, crank down the number of units at a time that we do.
Speaker 2: For example, we do them in a block, we’ll bring on two teams, have them compete, you get eight units, you get eight units when you’re done, we’ll sign off, we’ll pay for that eight units. And then the first guy done, you know, to our standard then gets to the next eight units. So the guy that gets the most business is the guy that’s the most aggressive, but at our quality standard and, you know, previously we kind of, it didn’t have as much control. And that, that probably hurt us a little bit in a real rehouse.
Speaker 3: So, what do you think the biggest thing you did right Was
Speaker 2: Partnered up Yeah, definitely partnered up and,
Speaker 3: You know, usually partnerships are strong because one person is strong at something and the other is weak at something, so, well, what do you guys get out and what is the, how does the other person conflict
Speaker 2: So I think I look at it. I can’t remember how you described it when we were in San Diego, but I kind of look at it like a Venn diagram. You know, everybody has their, you know, it’s kind of independent skill sets and you have a good overlap, I think so. So Alan can walk onto a property and understand that there’s a problem, right He can, he can feel that there was a problem operationally. So he’s probably stronger on that on the actual operations. he also has a much better decision velocity than I do. I like to think about stuff a little bit more. but I could, but, but if you send me the numbers, I can look at that and realize if there’s a problem or how things are going. So we’ve had situations where Alan’s been, for example, maybe I’m out of town and Alan’s on due diligence on the property.
Speaker 2: He calls me up and says, Hey, I feel that there’s something wrong. And maybe he reads me the numbers. And I say, Oh yeah, the manager is stealing from him from that property, you know, or something we know, you know, we’re just a good team that way. like I said, just sometimes fast decisions and operations, you know, he’ll do, and I’ll do a little bit more of the analytical. I, I think it’s Dave, it’s a little, the new Yorker. He meets the guy who Euston a hot. So it can feel like if you feel like you’re getting your hustle too quick. Well, Al Allen used to run an energy trading company. And the only thing I know about that company is that all of the contracts are settled every hour across the United States. So you’re running, you know, heads out, you know, zero to 59, 59, and then at 60, it starts over everything you did the prior hour doesn’t matter at all. And so that’s kind of the background that he’s he’s from. And I’m from a soft, you know, large systems, software development background. So where it takes a half a year to both one deal,
Speaker 4: We’ll see everybody next week and don’t touch any doorknobs out there, you know, be safe, take care, see you next week.
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.