Episode_022: You Didn’t do WHAT?!!?

Even people with a lot of experience make mistakes. Listen to this episode of The Multi Family Deal Lab Podcast to learn from them and save your investment.

Speaker 1: Stay tuned for a special edition of the multifamily deal and podcast.

Speaker 2: Who are you concerned has been a lot of, you know, a lot of different things going on in that market. You know, there, there are, you’re absolutely right. It can be spotty. You can, you can easily get into the wrong pocket.

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,

Speaker 2: Welcome to multifamily deal lab. I’m your host Dave window. And on this edition, we have Eric Stewart. he recently purchased with partners, the Georgetown apartments, 96 units in granite city, Illinois bought it for 3.2, $5 million. Did a raise of $950,000. One of the key takeaways during this particular, podcast is the fact that a unique thing happened in his race. Somebody came in with a 10 31 exchange, and if you’ve been in his business for any length of time and had been raising money, you have had people in the middle of your raise, say, I got a half a million dollars, I’ve got a million dollars. It’s a 10 31 exchange. Can I put it into your deal Most people say no, because they assume that you have to, you know, with the 10 31 exchange, you have to go from the existing entity into a new entity, which will require, a name change on the deal.

Speaker 2: And there’s a lot of different things to it. But in reality, you can actually do a high bred deal with an investor with a 10 31 exchange. Eric explains how he did it in his particular deal. Also, what you’ll discover here is Eric did something very stupid in this deal. And, even though I don’t tell him it was stupid, you’re going to realize what it was as soon as he says it. I hope you realize what it was as soon as he says it, but we, we really pointed out, but he survived that, doing what he did and the deal worked out in the end anyways, after we talked about that deal and how they took it over and the process of raising the funds and how the underwriting went. We also go into lightning round and some of the answers that he gives to the questions and the round may disturb you. That’s all. I’m going to say it disturbed.

Speaker 2: All right, did you go to da today.com I have get a free book offer for you. And it is my iconic multifamily millions book. I wrote this as a SQL to emerging real estate markets, but this has been the start of many, many of our students, multifamily millions. So many people were inspired by this particular book and continue to be inspired by because it’s foundational information that gives you the awareness, the foresight, to know that you can become a multimillionaire and the step by step on how to go do it. Now, this book retails on Amazon for $23, you can have it for free. As I asked you to pay shipping and handling of $7 and 95 cents. And you can also get some free bonuses when you do, and also autograph it for you. Those bonuses are number one, the 27 ways to buy multifamily properties with no money down.

Speaker 2: It’s actually 104 ways in here. You hand it to your management company, they go out and do what it says. And then in doing that, you keep your property leased up and you keep that cashflow coming in. Another bonus I have is the deal flow playbook. This is a playbook of checklist for all the different things that you’re going to be doing. And your multifamily deals. Step-by-step you What I learned a long time ago, that if you do not follow a checklist and check things off you, miss things, and those are the things going to cost you money for. So everything that you do in sourcing deals, underwriting deals, raising funds for your deals, taking over the properties on your deals, to the nitty gritty of the lease, audit on your deals to preparing for the exit of your deals. Everything has a checklist. You get all those checklists as the bonus that’s free.

Speaker 2: And then I mentioned, I wrote the book emerging real estate markets. I also have a poster for you, and that is the emerging real estate markets poster. It gives you the four stages of the emerging markets. It gives you each particular phase, the key characteristics of those phase, and down below it tells you what your key strategies should be for that particular phase. So you can just simply put this on your wall. And with that, you can determine what your market is, where it is in a particular phase, or if you’re looking for emerging markets, which markets around the United States are actually emerging. And then from there, you can make the most amount of money in the least amount of time with the least on a risk. And as you know, Dessie in multifamily properties and becoming wealthy that wealth is created through appreciation. So that’s why we are giving you the emerging market cycles as well. So multi-family millions, all the bonuses, just pay shipping and handling and you get it.

Speaker 3: Wow. All right. So before we bring

Speaker 2: Eric on, what I want to do is I want to talk about little bit of mindset stuff today. And you know, I’ve been doing a lot of, you know, bigger than a mindset of constantly trying to improve my mind, constantly trying to be positive. And, one of the things I rewatched the secret, if you haven’t seen that movie first brought out, I think in 2009, and then I’m a big believer, Joe Dispenza, Dr. Joe dispenser in his book, super human and all of those things. And even the book thing, think and grow rich, of course, and the book, the magic of the science of getting rich, all of those things have one thing in common. And even Tony Robbins, I go to Tony Robbins events. He’s awesome. You know, I used to follow him on stage at the learning annex. That was, that was always a unique situation.

Speaker 2: He would have 10 or 20,000 people out there for three hours, fist pumping and yelling and screaming and all sweaty. And then I would go up there and there would be no, there would be a break. Cause I wanted to keep as many people in the room, but most people had to pee. So they were all headed for the exits. Anyways, the other half didn’t even know who I was. They didn’t care apartments who wants to deal with tenants, trash and toilets. So, it was very unique, but Tony staff is, is all about what I’m about to say as well. And that is where your thoughts go, your energy flows. Okay. So it’s life is all about what you think about. You can have a victim mentality or you can have a Victor mentality it’s up to you. Okay. There’s a thousand reasons why you can’t do something.

Speaker 2: There’s a thousand reasons why you can do something, but I’ll tell you what, if you focus on the things that you can do, if you focus on the positive, if you focus on, turning negative energy around, so it fits a positive mold and I’m not talking about being Pollyanna. All right. I’m just talking about being conscious of what you’re thinking about. Because when you start, when you start consciously thinking of redirecting your thoughts to positive things and positive outcomes and, and who you are going to be okay with where your thoughts go, your energy flows and it creates those things, your mind actually creates the things that you think about. So if you’re thinking about negative things, your mind is going to create those negative situations. If you’re thinking about positive things, your mind is going to think about positive situations. It’s as simple as that.

Speaker 2: And, you know, you can, you can rent, the secret for $2 and 99 cents on Amazon and give it a rewatch and do that. And if you’re having some trouble, we did thinking, do that. And trust me, you will be on the path of, of getting to where you want to be getting to the place that you deserve to be. That’s what it’s all about. We all deserve great things. We all have power within us, greatness within us as Muhammad Ali used to say, all right. So without further ado, I’m going to bring on Eric Stewart. So Eric tell everybody who you are and where you’re from.

Speaker 4: Yeah, thanks Dave. My company’s Atlantic business capital and, we’re in central Illinois looking at properties across the country. That’s the initial structure on a,

Speaker 2: On me actually, Eric and I go way back. Eric is a lending broker, who we’ve used on occasions to a number of occasions I should say. who’s very good at what he does, you know, as you know, if you’re new in this business, lending broker Baker. So he goes out and looks at the capital markets. It takes a look at your deal, finds out who would be the best suited for you. Deal brings you back anywhere from three to seven term sheets gives you, after, you know, terms turns into like 20 or 30 pages, after, after he’s read them, he gives you an idea of which ones would be most favorable, then allows you to read through them and make your own decision. And then he goes back in and he starts to negotiating because I’ll turn term sheets in negotiable.

Speaker 2: So, Eric has actually spoken at our events, used to mowed stage at the multifamily millions events, teach people how to put a loan package together because you want to look like as an experienced investor as possible, no matter what level you’re at. And you also want to give them as much information so they can make a quick decision on your behalf in your favor is what we hope for. And I always say, you want to handle the objection before it’s asked, you know, in the deal. So that’s always a, that’s always a good time at the boot camp and doing that. How long ago has it been Eric Since we first met each other, that’s the 2006 or something like that

Speaker 4: It actually was, it was Oh seven. Yeah,

Speaker 2: 2007. We were in Orlando and he came to the event. somebody introduced us and, and right after the event, I had to be at the airport to catch my flight. I hadn’t been home in a while. And Eric said he would give me a ride, but he didn’t tell me he was only going to do the speed limit. and that was tight from my flight. That was like crazy. I’m like, come on, man, can you go fast, go fast. I can’t miss this flooding. I haven’t been home like 10 days.

Speaker 4: Yeah. I thought I had it dialed in. I thought it was, I thought it was like the shortcut that was going to be all shortcuts. No, it was,

Speaker 2: It’s like, don’t worry about Dave. I know the back roads here. It isn’t going to be a problem. We’re going to get there on time. And I’m like, Oh man, just put the pedal to the metal. Then you try a second shortcut. And that was all jammed up. And I was like, Oh my God. But I did make it. I’ll never forget that

Speaker 4: You could have taken a pony express. You would’ve got there quicker.

Speaker 2: Yeah. So anyways, that’s that started a very long relationship, that goes on to this day. And then Eric actually, you know, he saw so many students, he was financing a lot of different students deals and he saw people doing deals. And then he see him on their exit and exiting deals and they’re making so much money. And he was like, damn it. I got to get involved in this. And, he did. So that’s why he’s on today. He’s going to talk about a 96 unit deal that they put together called Georgetown apartments in St. Louis, Missouri. So first of all, why don’t you come across that deal

Speaker 4: Another students actually brought it to me. And, a lot of it, a lot of times I would see loan requests. And if there was an opportunity to add value and help get the deal done, I would certainly do it. So this is a scenario where, one of the students names, Addy and, he sourced the deal from a broker there in St. Louis that he developed a relationship with. And we were talking about it and went through the different loan options and, you know, it was a great fit. I’m about two and a half hours away from St. Louis. So I jumped on board.

Speaker 2: Sweet. Okay, good. You put the deal under contract. Okay. And then the next step was, doing due diligence. What came up during the due diligence process Anything funky,

Speaker 4: You know, there wasn’t anything funky. There were some areas that I would have done different on this one. it, the property, well, it’s an early seventies built 1970 build or phased in through that time we ended up there. There were some things that I didn’t pick up on that I should have. One was a section of buildings that didn’t have the electrical updated. They were still on fuses, the old screw infuses. And, I missed a couple of those.

Speaker 2: Oh, screw infuses. Wow. Yeah, that’s really. Yeah,

Speaker 4: It was. So we had to, we had to do those, you know, but aside from that, yeah.

Speaker 2: But wait, how did the, did you miss that during your own personal inspection or did the property spectrum miss that

Speaker 4: W I didn’t hire a contractor to do my inspection, the lender inspection found it. So we had to remedy that post-closing, but, that was something that, that I would, I should have picked up on. And I did, and I didn’t hire, an inspector of my own to go in and look at it. We walked each of the units. So

Speaker 2: What was your rationale for not hiring a

Speaker 4: Property inspector That was one where, where I was close. I had the time and I just figured it out and I can knock this out myself. And, that was the lesson that I learned. Yeah.

Speaker 2: Wow. Even the structural stuff. Yeah.

Speaker 4: I mean the structural stuff, when I, when I looked at it and you could, you know, you’re looking at the walls and you’re seeing, you know, when you, when you look at the window sills and things like that, I didn’t see anything abnormal, anything out of the ordinary. And frankly, I had maybe a little spoiled because I had done so many lender inspections where I’ve walked with these guys that walk in and they basically looked for something unusual to trigger a deeper dive. Right. So if they don’t see anything unusual on the surface, they’re not going to go back and peel that, peel that onion back, or peel a layer back. Well, that’s what I went in doing was not seeing, I didn’t see anything unusual, so I didn’t feel the way or appealed. It’s still another layer back, you know, you get, you start looking at these, these, electrical boxes and you’re looking at one, you’re looking at 20, you’re looking at 30. I didn’t check. And that’s where I got bit. Well, you said the checklist. No. Well, I mean, one of my own, but not, not your checklist.

Speaker 2: Oh, no. Well obviously you’re using the checklist, so cool. Yeah,

Speaker 4: Yeah, yeah. But it wasn’t, it wasn’t professional like yours. So, you know, it’s, it’s, it’s a perfect example of, education not being cheap. Yeah.

Speaker 2: Yeah. You’re going to pay for education one of two ways, right. That’s exactly right. You’re either going to get educated or the world’s going to educate you. I certainly don’t recommend doing your own property inspection. And actually you’re the first person I’ve heard of doing that for the, for the larger properties, but that’s okay. It all turned out. Okay. But you just gotta be so careful. I mean, the biggest thing is, you know, it’s those hazardous waste, problems that you may not be you or anybody else that goes to inspect the property may not be aware of. You know, I tell the story, I haven’t told this story in a long time, but I started doing checklists on my inspections when I was buying the smaller units. It wasn’t, it wasn’t as big of a deal. You know, I always my own personal checklist.

Speaker 2: Oh, I still had a property inspector go window and on each one, but I would do my own when I do in the offer. So I knew what to negotiate. And I talk about the single family that I was planning on flipping because a, to like goodbye. So I can get a down payment for another month. I have family property and it was this old, big old farmhouse built in the 17 hundreds and had this big heart fireplace, you know, about six feet high. You could walk in it and, had the wide, pine plank floors. And this house was so beautiful, you know, rustic, new England house. and I just imagined, you know, all the, you know, the big plantation out there, but not, not a plantation big farm out there. And I imagine the workers, you know, the family members going out there and working all day and then coming back and cooking in that kitchen.

Speaker 2: And, and down below in the basement, there was one of those beehive ovens. And I thought, Oh, this is where they made the bread, you know And I was thinking, Oh, this must be beautiful. And my imagination was just running, you know, over and over, over. And you know, what I didn’t do is I didn’t, because of all of these things going on in my head, I didn’t do a really thorough inspection of the property. And this is like four or five years into my deal doing, and I’d done so many. And, what I missed was all of the seals were rotted. This, they were completely it. I had to raise that house, you know, up a few feet. So I could take all the seals out and replace them. That costs me a lot of money that, that taught me a lesson to always use checklists and check everything off just in case I get distracted with anything.

Speaker 4: Absolutely. Yeah, no doubt. I think ours, might’ve been a little cheaper than yours.

Speaker 2: Yeah. I think it may have been for, I certainly for the size of the deal. All right. So, you went in and you put the property on the contract, you did you property inspection and then the next step is the res. So you’re a lender. So where did, where did you get the funding for this deal Was it a Freddie Mac Feeney Bay CMBS

Speaker 4: This was a Freddie Mac loan, a small balance loan, 80% leverage, three years of interest, only payments and a 30 year ramp. It’s just the, you know, your standard SBL deal rates were a little different at that time, I think were around, I think around 5% on this one, but, for the time it was a good rate. Yep.

Speaker 2: 5% of sales, a great rate, you know, so as you can certainly get less now, but you may imagine, you know, a couple of years ago thinking, Oh, you know, damn 5%, that rates sucks. All right. So now you had to fund the deal. How’d you go out and hydro how’d you go out and get this deal funded through private money. Was it a syndication that you did

Speaker 4: Yeah, it was, it was interesting. It was, initially we went in with the intention of doing a five Oh six B or I’m sorry, five Oh six C and throughout the process of talking to potential investors. My now partner, who’s subsequently gone on to buy other deals with me as well. Rob Roselle, he’s a member of the program. I’ve been real successful. He actually had some 10 31 money that he was going to use to invest in the property. And so, you know, we had every intention to just doing a standard, raise, but we had to kind of change tracks a little bit and structure the tenant and common structure. The tick to, to accommodate is 10 31. So we ended up syndicating our tenant portion, and then he brought his, and, it’s worked out quite well, but it really made things easier. It was a little, a little extra work to do the tick, but, you know, for the value was there given his position in the deal.

Speaker 2: So that worked out really interesting that you say that because there’s a lot of times where you’re doing a raise for a property and somebody says, I’ve got some 10 31 money. Can you use it And you know, there’s, there’s specific rules with 10 31. So the fact that you can hybrid it with a syndication, if you do it properly, it’s something that everybody really needs to know that you can actually use that money. What was the purchase price in the deal

Speaker 4: The purchase price was 3 million, two 50. And so we had about a nine 50 raise.

Speaker 2: How much was the, how much did Rob bring in 600. Oh, nice. Yeah, yeah, yeah. Some 10 30 money out there. I remember Rob’s a, brother’s been with us for awhile for anybody that doesn’t know, Rob Rosell, he wrote a book. Do you remember, do you know what the name of this book is His

Speaker 4: Book is called addicted to light.

Speaker 2: Oh. Addicted to life. Yeah. Rob was actually a heroin addict. heroin addicts, either one of two things happened, unfortunately, well, one of three, very few of them actually get cleaned before they either go to prison or they die. Rob ended up in prison and then from there, found a new life and created his own life, and came out and, you know, is living a really good life. Now on several months, I, family properties owns five different auto repair shops giving back to his community on a regular basis to gray story. So I highly recommend that book.

Speaker 4: I can tell you, it goes partnering with him and his wife, Claudia, who is a driving force, in that relationship as well as been, I mean, I would have to say it’s priceless. There’s really, no, you can’t put a price on that type of relationship and the type of advice and mentorship and kindness that they’ve shown me over the years. They’re just, they’re just phenomenal people. So yeah. It’s well beyond money.

Speaker 2: All right. So let’s go to that’s the best, you know, that’s, what’s so great about, you know, networking and meeting people and doing this business is, you know, you get involved with the right people and, it works out well and it creates some really, really great relationships. so talk about the St. Louis market. I gotta ask you, have you been to climbing times, in St. Louis ice cream store No, I have not. Oh, it’s one of the few places in the United States that combines ice cream and alcohol.

Speaker 4: All right. It’s really,

Speaker 2: Really good. Yeah. I heard about it because I was a member of the Goldman Sachs 10,000 small business initiative where they actually came in and they, they did like a three month, program, so you could grow your business. And one of the, one of the people in my cohorts was the girl that actually owns clementines. They built it up and she brought us all an ice cream. Oh, the ice cream is awesome. I was a big alcohol fan. I don’t drink a lot of alcohol. I used to, when I was in the band days, I don’t like mixing alcohol with food. So I wasn’t really into the alcohol, ice cream, I think at one called crack. And it is as addicting as crack. And all right. So tell me about the, tell me about the St. Louis market, where you concerned. Has it been a lot of, you know, a lot of different things going on in that market

Speaker 4: You know, th there are, you’re absolutely right, and it can, it can be spotty. You can, you can easily get into the wrong pocket. This asset is actually East of the Mississippi river is kind of interesting because we’re still inside the St. Louis MSA. So it allows us to get all the benefits from Freddie Mac, because we get 80% leverage. We get the lower rate that, you know, for a standard market like that, but we’re sort of outside the fray where we still had a solid, we still get a solid cap rate. It’s in a town called granite city, which is just South of Edwardsville. It’s, it’s just East of the river, lot of blue collar work there. And it’s, it’s a solid renter population. So we ended up benefiting from that where we were able to get a little bit better yield and still get the nice desk structure

Speaker 2: When you’re doing the underwriting in that deal. did anything stand out Did you have to negotiate How does the negotiations go, excuse me, what was on the market for,

Speaker 4: If I remember right. It was on the market for probably three, five in that, in that range three, that’s what they would have priced it just under three five, if I’m not mistaken. And my partner Addie actually did the initial negotiations. I kind of jumped in a little bit later on, you know, he did a solid job of underwriting and know we ended up at the three to five.

Speaker 2: So, you know, as the, as the lending broker, you picked up that underwriting after he did it, was there anything odd in that underwriting

Speaker 4: There wasn’t really anything odd. It was kind of cookie cutter. He was an argument or students. So he kind of he’s cut from the same mold, definitely running three and three to three and a half percent red bumps. And, you know, the two, the 2% expense ratio, we pretty much just ran it. And at that time it was a solid cap rate. You know, we were jumping in just below a nine cap, which, you know, three years ago that they were, it wasn’t the four and a half to six cap. That everybody’s the mantra was, it was, it was a really solid structure. There was actually, they were putting their cap ex above the line as well. So they had at least $20,000 a cap X in their NOI. And it was kind of interesting because I called the management company that I knew in the area.

Speaker 4: And I’m like, Hey, I’m not going to do this unless you come in and, and, you know, manage this property. And he’s like, you’re in luck. I already managed it. So, Oh, wow. Yeah, it worked out great. So they already had the, the asset. I was starting to tell them a little bit about it. He’s like, of course I know it, you know, so it turns out that it was a super smooth transition. we didn’t have to do that. All the accounts switched easily, all the numbers, you know, just, it was a real smooth transition because we maintained the same management company and they actually jumped in, in the deal and took a small piece of the equity. So there, they have a vested interest in the game there. And I know that can go either way, but it, it really worked out well in this one,

Speaker 2: Part of the rays on the Blake, the deals that much. Well, I mean, that’s a good indication that you’re probably going into a good deal when the current management company wants to part of the action,

Speaker 4: That’s it And it’s, it’s worked out exceptionally well. So yeah, it’s, we haven’t seen expenses reduced all that much just because of taxes and the insurance, since we bought that, you know, insurance as a whole has gone up dramatically just industry-wide. So we haven’t seen a whole lot of expense reduction, but we were able to implement the rent increases. Like we want it to, and it’s been, it’s been real solid returns. What happened during COVID knock on wood We have had minimal minimal COVID impact. It’s it’s, you know, we we’re, we’re actually 99% occupied right now, delinquencies are minimal. And, you know, we’re kind of, we’re scoping up our next rent bond.

Speaker 2: So anything unusual happened during the takeover

Speaker 4: I will say this because of that management staying in place, it was a very smooth transit. It was real smooth for us. It’s always a bumpy ride when you’re switching management companies. But yeah, when it’s the management company is so smooth,

Speaker 2: How about lessons learned on this particular deal If you were going to say, you know, after this deal, you know, I realized that number one, I’m not going to do my own inspections unless it learner.

Speaker 4: Absolutely. Absolutely.

Speaker 2: What other lessons did you learn on this deal

Speaker 4: You know, I also learned about the city inspectors and, you know, when, as soon as you take over, they’re going to come and give you a nice welcome to the neighborhood letter. And, you know, it’s, it’s super important to understand who you’re working with there. And, and if there’s an existing relationship that can be, that can make your life so much better if you know, somebody or whoever you’re bringing in has an existing relationship with the, the, that, that local inspector, the inspector.

Speaker 2: Yeah. A good existing relationship.

Speaker 4: Yeah. Yes. Well said that could go either way.

Speaker 2: Yeah, absolutely. All right. Good. Yeah. Yeah. Sometimes some cities they have what they call the task force. When they find out that a property is changed hands, they show up in a van and they all jump out with the clipboards. I know the city of Brockton where I did my Mo my initial investigator. It’s just like that. It was awful. So that was a, the Georgetown apartments and, granite city, Illinois. Now we are going to go to the next round of this interview, which is what I call lightning round. All right. So in lightning round, I’m going to ask you questions and going to say the first thing that comes to your mind. Okay. Alright. You got it. You’re ready. What’s your favorite day of the week Wednesday. Favorite city in the U S besides the one you live in Miami nickname, your parents used to call you champ champ for what things to come. Okay. Go for it. That’s a good question. let me see. Last song you downloaded, Chris Stapleton. it had to be something Chris Stapleton, but I don’t know what what’s that strawberry wine probably Tennessee whiskey, Tennessee whiskey. All right. would you rather be able to speak every language in the world or be able to talk to animals So animals, what’s your favorite holiday Christmas. How long does it take you to get ready Each day 30 minutes. Scale is one to 10. How good a driver are you

Speaker 2: Hey, remember it’s me. You’re talking to me. Who has her skewed experience Being your passenger. All right. Fill in the blank. Taylor Swift is great. At what age do you want to retire 60 That’s the thing with entrepreneurs, right It’s like retirement. What are you talking about Retirement Yeah. Thought about retirement. Life is all about deal doing alright. If you had one, if you had one super strength, if you had one superpower, what would it be Mind reading. And the last question, is it wrong for vegetarians Eat animal crackers. I think that’s individual principle. Okay. That’s it. That’s Eric Stewart. Hey, Erica. Usually I end it right here, but I do want you to give a, have the opportunity to go out and contact information because you are an awesome source of lending. So this is Eric Stewart from Atlanta capital. Eric, how would somebody get ahold of you They wanted to, Oh, thanks, Dave. yes. My number is (800) 916-9005. No formal schedule. Call, anytime. Love to talk to you about getting your financing done and thank you so much for, for, you know, let me throw the number out there. Hey, 2006, we’ve had a great relationship all through the years, man. That’s what, that’s what life’s all about networking. All right. So those that’s Eric Stewart. This is Georgetown apartments.

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 Today.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.