Episode 025: When The Seller’s Family Drags Out The Deal

David Interviews Partners Vish, Matthew & Anna about their creative deal that took 8 months of negotiations due to difficult family dynamics with the seller. Listen to how their creativity and perseverance wound up adding $1.4 million in value BEFORE building additional units on the property!

Everybody welcome to multifamily deal lab. I’m your host, Dave Lindahl.

Speaker 3: And I’m excited about this podcast because we have got two partners on the line that have done a pretty good sized deal that they’re going to tell you all about. And we’re also going to go into lightning round at the end of this. Do you guys know what lightening round is by the way, this

Speaker 2: Matthew, I have a little idea, but I have no idea. What, what does that mean

Speaker 3: You have a little idea, but no idea. Okay. All right. So that’s a, that’s a little fun thing I like to do. And so, it’s kind of unusual. It’s a little bit quirky, but it’s fun. So let’s make life fun, right Let’s get right into it. Tell everybody who you are. You first tell everybody who you are and where you’re from.

Speaker 2: Well, for everybody listening, I go by Vish Muni. And I’m from India, born and raised in India, did all my schooling in India and came to the U.S. to the land of opportunities 20 years back. And we moved to Texas 10 years back, thanks to my Texas wife when she brought me. Yeah. And ever since I moved to Texas, I’ve been investing in single family homes and that is 10 years back. And prior to that, I’ve been no technology consultants all my life. And I’ve been a small business owner while I’ve been investing in single family homes. After 10 years, I realized, well, there’s something wrong with this. People talk about the fancy lifestyle and I’m retiring in two years or three years after investing of real estate, I should be doing something wrong. I’ve been doing it for 10 years. I should retire long back. And that is when I came across a book written by Dave Lindell and I ex president Donald Trump, commercial investing one Oh one. And that caught my curiosity. And then I started following Dave Lindell. I mean, not literally in the sense online I was following him. And then, and that is all I got involved with, joining. I ended up joining argument of in 2000 or 19

Speaker 4: November at that time. And, that’s when I discovered for the first time, what syndication is all about. And I got excited once I realized that, and I ended up joining the program thanks to Dave, Tyler, Ryan, and, Jermaine, and my coach, Don golf, and also Morris. What is familiar is my I’ve been talking to modus. Also

Speaker 3: Tell about who you are, where you’re from.

Speaker 4: my name is Matthew Petz. I’m originally born and raised in California, worked as a mechanic for many years and decided to move to Houston, Texas. And I get a little more vocational education in cylinder, head machining, and that’s, I stayed and decided to stay in Texas. And shortly thereafter, I came up on a little inheritance and started investing in single family homes. And I read, Robert Kiyosaki’s book. And from there, then I found Dave’s book, multifamily millions, which led me to the bootcamp. And the bootcamp quickly led me right into joining the program. And Rebecca was my coach from there. And after a year of looking at deals finally landed one

Speaker 3: I’ll send along for the ride. No, that’s it I’m basically, I went to school at CSU Stanislaus. So I have my bachelor’s degree in administration concentration in accounting. So I was able to come on and start with the single family homes and take care of the books that way. And it just went from there. Awesome. So then you guys decided you’re going to start investing together Yup. Yup. So how did the three of you all get together Wow. Partners.

Speaker 4: I kept in touch with Matthew. I love networking. So without a similar mindset, in terms of investing, where did you meet I met him at the bootcamp, multifamily millions in Houston. That was the first time. And then we kept in touch with, on the phone call or voicemails. And we ended up going to the same, emotion training organized by Jeff, Linda in Houston. And we had a good time.

Speaker 3: That’s what everybody always says. They had a good time with that event.

Speaker 4: So that is me and Matthew. And then we worked on it.

Speaker 3: So you guys decided to do a deal together and talk about the deal. How big was it Where was it Where was it First of all, where’s the deal that you did

Speaker 4: it’s in the bottom Texas. It’s about 45 minutes to an hour North, East of Dallas area. So it’s a small little area. It’s a up and coming. We got a lot of people that are pushing out of the McKinney area there because it’s just getting expensive in McKinney and that area just growing up along, they call it one 21 state highway along there. And we found this through our property manager who was actually involved in a deal that we’re general partners on in Denton, Texas. So she, she owned that deal before and her son was getting ready to sell it and she didn’t want to be out of it. So she was trying to find someone involved in the groups that she can partner up with to buy it. Oh wow. And there’s 65 units. The numbers looked right. there’s a lot of potential there and we have room to build another 60 units at least. So we’ll be able to double, double the unit size.

Speaker 3: Okay. So, th this is interesting because you had a property manager bring you the deal and she wants to be inside of the deal. And so you three together cut a deal with her. What type of a deal do, what type of an equity split deal did you cut with her

Speaker 4: usually since we’re new, she wanted, she’d be our sponsor and sign on the note. And usually she would take about 50% of the GP shares. And when we break it down, we were looking at about a 60, 40 split. So basically in, in her and her team, they ended up with a 20% equity stake in the whole deal.

Speaker 3: Do you did a money raise We raised

Speaker 4: The funds ourselves. we had cash and, from family, so the investors are a family.

Speaker 3: Okay. So let me understand this. So the deal between you guys, the ownership and the investors is a West split. And what was that Is that the 60 40 Yeah. So the, the investor gets 60, you guys get 40 and of the 40, the manager got 20 get 50% of the 40. Yes. Okay. I get it. And she,

Speaker 4: So we brought the funds to the deal for the most part. So we basically own that other 60%.

Speaker 3: Great. So, you three are the one team and she’s the other team and then you’ve got your partners. Is that how it works Yeah. So Vish, what did you think of the deal when it was brought to you,

Speaker 4: Create your deal In other words, it is not a straightforward deal because Matthew, Matthew, all the, no, not the property manager to another deal. And that way we are the existing relationship. And all Matthew had to do is listen to her and talk to her and go with her and see if it’s the right property, because it took us almost eight months to take down this deal because we were going back and forth. What was the purchase price Well, it was originally six and a quarter. Our final purchase price was 5.55.

Speaker 3: And how did you get that price down Was it simply the numbers didn’t work

Speaker 4: With the seller we, basically assumed his debt. So he reduced the purchase price by the non unvisited pre-payment penalty.

Speaker 3: Oh, okay. I get it. All right. So the cellar, so you assume the tissue, you went to an assumption process with the bank. Was that you went through the assumption process

Speaker 4: no, we didn’t go through that process, but we, we took on the debt. We, they assigned it to us.

Speaker 3: Yeah. So did you pay a point for them to do some due diligence on you guys

Speaker 4: no. Since Kathy was, our property managers at our assigned on the note a hundred percent. And she was staying in the deal. It was changed. Yeah.

Speaker 3: Okay. So there’s another unusual aspect in this particular deal, because you were able to assign it, just get added on, which would show the bank was happy about. but they didn’t have to, you didn’t have any bedding to do because one of the original borrowers was staying on. Yes. Yes. So we really just displacing borrowers and it didn’t cost you anything to do that. It must’ve been a local bank. Was it local

Speaker 4: no. It was through Arbor. Oh,

Speaker 3: All right. So they reduced the, so since there wasn’t a defeasance or yield maintenance or prepayment penalty, all three of the same, basically different variations. so they agreed to just reduce it by the amount of what they would have paid. So that’s pretty good. They’re looking for a particular profit and they got it. You get one way or the other

Speaker 4: For everybody. It was a win-win spending time talking with the seller.

Speaker 3: Yeah. Why did it take so long You said took eight months to negotiate,

Speaker 4: But we have to build up relationships and we have to make sure they were comfortable. I think it does though. The sellers. So it was his first property and he had a little emotional attachment to the property.

Speaker 3: Oh. But yeah. Do you want, wanted to

Speaker 4: Sell, right Yeah. He’s moved on to bigger deals now.

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Speaker 4: Wow.

Speaker 3: so what, what roles do you guys play Who’s the underwriter

Speaker 2: I did majority of the underwriting and she dealt with check my work.

Speaker 3: Okay. And then Vish. What, what’s your role in the partnership What do you guys do Strengths and weaknesses.

Speaker 2: My sense is networking and capital base, and this was, an investor relations. And I do underline, but I wouldn’t say that is my first, first trend. I would say that it missed again in this deal. I let Matthew do all the underwriting. And I took a look at the underwriting and he had his coach look at his underwriting also. And once the numbers worked and then we both agreed on it and we moved forward, but my strengths has mainly networking and investor relations.

Speaker 3: Excellent. And who’s the operator, anybody that’s a strength is asset management.

Speaker 4: You’re starting to, I’m going to be working with, classroom management. So I’m going to be seeing what they do. They use resume their software. I liked very much versus using QuickBooks. So I’m going to be the one to take on that role as time goes on.

Speaker 3: Just so other people can understand what you just said. You just said you’d rather use resident and QuickBooks for accounting software. Yes. All right. So it would make sense that somebody with the accounting background would take on the asset management role because of the fact that you’re looking at numbers for you looking at the KPIs first. And if there’s a problem with the KPIs, then you’re going to need to have some, you know, asset management education. So, you know, when the numbers aren’t right, what to do, you know what I mean, what to drill down on and then what actions need to be taken after that. So I think that’s where, and, and I mean, you’ve got a property manager that is also a partner, so yeah. And with her, that’s going to be good training right there for you.

Speaker 4: Yeah, exactly. Yeah. And with, with our property manager, her team, has other people that have 15, 20 years experience with asset management and operating apartment complexes.

Speaker 3: Have you been through the digital, asset management, bootcamp that we have inside of the learning center No. No, no. Yeah. So your mentorship students, so you’d have access to that. We start, obviously that has been the live events for the last year and a half, but even before then, we were what’s that,

Speaker 4: That’s what I missed is the live events you get cut off right. In the beginning of my training or all the live events stopped,

Speaker 3: We just started doing live events again, live three-day boot camps. Again, we’re having one this weekend in Dallas, actually. So those will start coming back and the more and more people get vaccinated, the more and more places will open up. We’ll have that. We’re still having ultimate partnering. We’re going to have ultimate partnering in a, I think it’s the first weekend of October in Dallas. We’re just securing the hotel right now. Yeah. Great. So if you are mentorship, but you definitely, and you want to go through, managing the manager because that will get you up to speed on that asset management. all right. So you raised the funds all through family members kind of risky. Did that make you nervous at all

Speaker 4: Yeah. Just, you know, making sure that we’re keeping up with everything and hoping that it cashflows, which right now our numbers are looking well, how long have you owned it What few weeks now Yeah. Three weeks just closed March 15th. Yeah. And the fun begins. Yeah, it’s a fresh start.

Speaker 2: But Dave, what gave us more confidence in the deal is we’ve been looking at this, the numbers and the property and talking to everyone and working so much on the deal for the last year, eight months. And that gave us a lot more confidence in terms of what is the value to add on the deal

Speaker 3: What is the value add on the deal

Speaker 2: Matt, Matt is as a business plan and which we’ll be talking about it tomorrow, but Matt, you can go ahead. And,

Speaker 4: For the current units, we’ll be renovating them. if we get new, the cabinets are just ugly in them, but they get new cabinets and we do the flooring just to kind of clean up the interior or looking at easy, 150 $200 rent bump right away. How much per unit The additional, a little bit.

Speaker 3: How many, how many units How many, I’m sorry, how much per door will you, will you be investing in per unit

Speaker 4: we’re about five to 6,000 a door.

Speaker 3: This is, did you do the numbers How much A five to six K doors. 65 doors is a five, 600,000.

Speaker 4: Yeah. It’s about budgeted for,

Speaker 3: For all right. So suddenly then you bump that’s the high end of per unit. Okay. And then you bumped the red spot, how much 150 to 200 a month. How much And then that equals so much per year. And then that equals how much increase in the value. Okay.

Speaker 4: I haven’t looked at it. I’ve been looking at all the numbers with increasing the value of the new units as well, but we’re, probably two to 3 million,

Speaker 3: Two or 3 million bumping value. Yeah. Cause if you did, let me see, I’m gonna do that. Read those numbers real quick. Let’s say you did one 50 times, 65 times 12. I’ve got an extra 117,000. Right We divide that by a point. let’s say six gap. All right. Point nine, almost two. So you going to put in 600,000 and get 2 million back and that 1.4 million smart investment.

Speaker 4: It’s just the renovation of the units. If we double the size of the renovation, that would be even better.

Speaker 3: What are you going to do Side the complex

Speaker 4: Build another 60 units. Is there.

Speaker 3: Oh yeah, that’s right. You’re going to tell you. Yeah. You have another value add, which is the building of the units. Yep. In the Lisa project. That’d be a lot of fun. Yeah. That’s pretty exciting. How far away from this is it from all you guys

Speaker 4: I live 40 minutes from the property

Speaker 2: For me. It’s 150 miles. How many minutes is that That’s about close to three hours, depending on the traffic.

Speaker 4: I have the longest commute I live in California.

Speaker 3: Oh, you do And you’re hanging out in Texas right now,

Speaker 4: Visiting our family, our parents. Oh, nice. Parents are here. Yeah.

Speaker 3: Excellent. Good. So what was the biggest challenge in this deal Other than taking eight months to close it What would you say is the biggest challenge And then I’m going to follow that question up was what was the most unusual thing about this deal

Speaker 4: The whole deal was pretty creative.

Speaker 2: I think what I, what I feel is it’s, so the property manager is managing the property and the son owns the property. So dealing with the family dynamics was a little challenging at times because that, that I would feel that was a, you never know where to cross the line or what not to do, to do or not to do things. So that was another thing that we had to, because both of them, mother and son fighting over a lot of things, they don’t agree upon because you, you communicate with the son thinking that he’s going to update his mom or the mom says you guys are not getting, keeping me in the loop. What is going on And that’s sort of slowed down the process at times. That is like Matt. Okay.

Speaker 3: Yeah. Family dynamics was difficult. Yeah. Yeah.

Speaker 4: Figure out when to, initiate, attorneys and lenders to start there.

Speaker 3: Cause you know, when you’re going to close. Right. All right. What about the takeover Were there any surprises at the takeover or during the inspection

Speaker 4: No. we’re just trying to work with, the management team and get things moving more streamlined, you know, versus trying to essentially hound for information or get things rolling at some point, you know, we’re still trying to find our happy medium of working with each other.

Speaker 3: Hmm. Excellent. What advice would you give somebody that was just starting out looking to get into their first deal

Speaker 4: Deep breath. You’re going to be going on a roller coaster.

Speaker 3: It’s a little emotional. Yeah. Get to know the seller. That’s really good advice

Speaker 2: And the whole deal. Well, for me, I would say it all comes down to the quality of relationships. Because if someone, even if you have all cash, if they don’t like your face, if you don’t like the way you treat them, they’re not going to sell it to you. But if you, if you have a good relationship, I mean, you’ll be, you got to be real with them. You can’t fake it. You can’t tell them I’ve done thousands of deals. And once they realize that you haven’t done and it’s of no use, you’re talking big, but you got to be real with them.

Speaker 3: Yeah. You can’t, you can’t let that BS meter start going up. Once that starts going up and your chance of getting a deal start going down because eventually you’re going to trip up and say something that just doesn’t make sense to the seller. And even though they may not say something to you, it’s going to sound alarms in their head. Right.

Speaker 2: You know, people, people talk about, Oh, you got to fake it till you make it. But I would call them a fake because you can’t fake it because in other words, rather than faking it, I would feel you need to partner with people who’ve have already done it. That would make everybody’s life easy.

Speaker 3: Yeah. I don’t believe in that. Fake it till you make it. But what I do believe, and I know from experience my own experience coming from nothing and buying deals is as long as I was honest, with the owners, when I was negotiating or with my investors, then you know, they, they understood, you know, at the beginning when I would get the questions, how many deals have you done It’s like, one, two small ones, three families. and then, but I would tell them about, you know, what I, what I was planning on doing who my team members were and, and all of that. So instead of, I was always honest and they could tell that I think I had more people do business with me because I was honest more than I had experienced at the beginning. But the thinking vacancy and make it, I think a better phrase for that is to, you know, is see it, see it and then, and feel it and vision it. And as you’re doing that and drive yourself towards that vision, then you’re going to get there. Right. You know Yeah. And there’s this expression acting. If you know, acting as if you were already there, that’s fine. Just as, not yet, as long as you’re not lying. Right. While you’re acting as if that works good, you control that dog. Give that dog a bone.

Speaker 3: Alright. We’re gonna play ’em lightning round. I’ve never played lightning round with three people. It usually, two of the most, but all right. but we’re gonna try it with three. See how it goes. I got about 10 questions here. Okay. I am going to go, Vish for, and then Matthew second then. And third. All right. And we’re going to go now, I’m going to go down the list. So I’m just going to ask you a question and then you answer it. Okay. And then the last question will be for everybody. All right. So first Bish, if you were super, if you were, if you had one superpower, what would it be

Speaker 2: I would probably be fine. My give everybody a better lifestyle. What they’re looking for.

Speaker 3: So you would be the grantor of wishes that you’d be the genie of the lamp. Yeah. Yes.

Speaker 2: And I would, I would grant them the lifestyle, what they’re looking for.

Speaker 3: Huh That’s nice. Actually. Matthew, what would your superpower be Some of these questions I’ll ask all three, my superpower,

Speaker 2: A super strength.

Speaker 3: All right, Anna, I hate to fly everywhere. Did you find your dreams That’s a very, that’s a very good omen, by the way. I used to, I have Socratic climate imaginary rope when I was a kid and start flying and my dreams. all right. So, all three. What’s your favorite car bitch

Speaker 2: I drive a Subaru. I like it.

Speaker 3: All right. Favorite car Matthew, my 71 Buick Schuyler and a few. Are you kidding me That was my grandmother’s car. And like, am I, I’m not saying that to make fun of you, but, but that’s what my grandmother had. My grandfather and my grandmother gave it to my father because my father was always working two jobs. You know, we didn’t have a lot of money when we were growing up. And, and so we, we, with the four, the six of us used to all get into that Skylark. Yeah.

Speaker 2: A lot of people in that car.

Speaker 3: Yeah. Wow. That’s a memory. Come back. Anna currently

Speaker 2: A XD six Cadillac.

Speaker 3: Awesome. All right. So, this is where all of you, do you know how to salsa dance And if you do, do you eat salsa chips while you dance

Speaker 2: It’s all for chips, but I also dance a little bit about what I would eat some chips, but I wouldn’t, I would stay away from the spicy and the habanero.

Speaker 3: All right. Let’s scale from one to 10. How good are you alive presentations. Vish. I’m really good. 10 live presentations. Very good. 10, six. All right. Matthew four. What are you Anna What’d you say you were five. All right. Do you believe in love at first sight

Speaker 2: No, that’s a tough one. Nope. Haven’t been there.

Speaker 3: Okay. how many cups of coffee do you drink per day Vish

Speaker 2: Six, three, one

Speaker 3: Favorite type of muffin, fish, blueberry muffins muffin, blueberry, blueberry, poppy seed, poppy seed. All right. And one final question for everybody. Why did kamikaze pilots wear helmets All right. That has been another edition of multi-family deal lab podcast. The podcast, that dissects deal

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