What kind of edge do joint ventures have over syndications? It has to do with being in a strategic partnership where everyone is an active participant. When Jerome Myers first went to real estate as a corporate America dropout, the first thing he did was to fix and flip houses. Right from the onset, he quickly realized that there is nothing passive about a fix-and-flip. Then he found the world of commercial real estate through joint ventures, which became everything that he ever does since that. In this interview with Lisa Hylton, he discusses the various advantages of being in a joint venture and how you can do it right.

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Joint Ventures: Why Should You Go For Them? With Jerome Myers

I have on the show another amazing guest, but before I get into introducing my guest, I want to encourage you to head over to my website, LisaHylton.com, to learn more about passively investing in apartment opportunities. Without further ado, my guest is Jerome Myers. He leads The Myers Development Group, LLC, which focuses on buying broken apartment building businesses and using innovative thinking and solid execution strategies to optimize the operational efficiency of the business.

Mr. Myers is an asset manager of approximately 90 units and 90,000 square feet of workforce housing across Virginia and North Carolina on a mission to hold 1,000 doors by the end of 2028. When not actively working on his personal portfolio, he coaches other real estate investors on the Myers Method of Multifamily Investing. Outside of real estate, Jerome hosts the Dreamcatchers and Myers Methods Presents Multifamily Missteps podcasts. He volunteers on STEM, which is Science, Technology, Engineering and Math boards and enjoys traveling internationally. Welcome to the show.

Lisa, great to be with you. Thanks for having me.

I’m happy to have you on. I discovered Jerome on social media, LinkedIn, and then further discovered him. You were a guest speaker at a virtual event. I was like, “Who’s this guy, let me check him out” to learn more information. I was like, “I want to bring him on my show to share how he got started in real estate investing and to get into how he plays in real estate these days.” Can you talk to us about how you got started investing in real estate?

It went back to college. I was sitting on the stoop with my buddy, Durand. We were doing the math as all good engineering students do when we’re outside of class. I was paying $395 and had two roommates paying $395 and his apartment was doing the same. We then multiply that out across the complex, then multiply by twelve to get the year. The guy was making $700,000 a year. We never talked to him. We never seen him. We didn’t know where all this money was going, but we knew somebody who was getting it on the other end of the pipeline. I was like, “We want to do that. We don’t want to go get jobs. We want to have people pay us for living in our apartments.”

I’m the son of a soldier and a stay-at-home mom. We didn’t have wealthy folks coming over. My dad would go off to work and do the Carolina Half-day. He’d leave before 6:00 and get back after 6:00 every day. Some days that would get frustrating for me because I was hungry and we had to wait for him to come home to eat dinner. The fact of the matter was I learned about working a lot and working hard in order to get income. I’ll never forget standing in the yard with my mom and telling her I wanted to be a trash man because Rodney, a guy that lived at the other end of our street was a trash man. He was home at about 3:00 every day. He got the hang off the back of the truck. He got to pull the lever and make everything crushed down. I was like, “That’s a nice lifestyle.”

My mom looked at me, she said, “Baby, you don’t want that job because it’s not going to buy you things that you want.” My mom was smart. She gave me good advice. There’s just one word that needed to change in that advice and it was income. I needed an income stream and not a job. When I put all that together, I built a pretty large business in Corporate America. I was working for a Fortune 550. I was employee number two. In the first year, we built that business to $20 million in revenue with about a 30% profit.

My reward for that was laying people off. It was the first time I had to do that. I was torn up about it. I remember the phone call on Christmas Eve that ended with, “Jerome, you’re either going to pick the people you want on your team going forward or somebody else is going to pick them for you.” That was a hard lesson or a hard pill for me to swallow. I promised myself, I would never do it again. Fast forward to Thanksgiving of the next year we were doing it again. At that point, I decided to be a Corporate America dropout. I didn’t want to have to lay people off anymore. I wanted to be in a space where I could make a difference and make a real impact.

When you pile all that up, I went back to that conversation I had in college with my buddy, Durand. It’s like, “What am I going to do now because this Corporate America thing isn’t all that it’s cracked up to be?” I thought I was going to go buy an apartment building. I started listening to podcasts, started reading. I’m going to make this transition at the end of the year and everything’s going to be great. I started knocking on doors at banks to try to line up my finance and I had great credit scores, some money in the bank. They said, “Yeah, but you don’t have any experience.” I said, “I got an MBA and I built this huge business. I got an engineering license.” “Yeah, so what? I’m a project management professional. I kept going down all the credentials that Corporate America cared about.”

The bank didn’t care. I hadn’t done what I was trying to do. They don’t invest in dreams. They invest in proven business operators that have a great business plan. They have some assets that are tied to it where they’re not going to lose their money. I went from there and I realized that I wasn’t going to get a building or a loan for a building. I started fixing and flipping houses. Back to the stoop, I was sitting on the stoop at one of my fix and flip houses. A guy pulled up and he’s like, “We’re getting ready to do one down the street. Let me check out your finishes.” We were walking and talking through the house and pointing out what we did and why we did it and he said, “Do you know anything about that building in Churchill?” I was like, “I tried to buy that 4 or 5 months ago.”

Adjust your lifestyle until you can build the portfolio that allows you to make the money that you need to live the life that you want. Click To Tweet

This is a 23-unit apartment building across the street from a grocery store. It was a diamond in the rough. The community had gentrified aggressively houses that used to sell for $150,000. They were now selling for $450,000. This was the last ISO in the community. He said, “I’m getting ready to make an offer on it.” I said, “Please, don’t leave me out. You’re the guy I’ve been looking for. They said I needed somebody with experience to partner with.” He went and made the offer anyway. He didn’t need me. He’s wanting to know how much money he’s going to bring to the deal.

We went around and around and that offer got rejected and he wanted to talk to somebody else who was a contractor that had a track record in the neighborhood said, “I want you to do this deal with me.” He said, “That’s the one Jerome talk to me about a few months ago. I’m only doing that deal if Jerome joins.” It was the three of us. We added in the broker who brought the deal and then added a property manager. The five of us sat down this 23-unit building and it was a heavy value-add. We did the roof, siding, added a bathroom and laundry room on the first floor. We took out the wall, paint throughout and granite. We took it from something that was renting for $695 on average to now we get $1,195 on it. We’ve been through the wringer on that one, but that’s a long way to tell you how I got into this space.

Let’s break down some of this real quick. You talk about being a Corporate America dropout. When you decided to leave Corporate America, what was it like? Where you like, “I have enough cash. I can head out?” I know you have a family. I’m curious because some of my readers that are reading now thinking, “He just peace out.” Can you walk us through the how on that guy?

Part of the other rewards that I got from building this business was a bonus. I got a $30,000 bonus. I never spent my bonuses. I always put them in the bank. I was saving aggressively because I knew at that point that I was going to leave. I accelerated that it’s ended up being December instead of April, the next year. I planned on leaving in April of the next year, anyway. It just so happened that I moved before when I realized that I had to go through another round of layoffs, I was like, “I don’t want to do this anymore ever again.”

We had about a year’s worth of savings for my expenses. I felt like that would give me enough runway to get off the ground and get things going. I picked up a few houses where I was able to make some decent money through flipping and going through that, you had to reinvest and spend money on the business but I had that thought process of, “I got a year to make this work.” That’s what I did. For those folks, who’ve looked at it if you’re going to be an active operator and you’re going to get an acquisition fee, those are pretty sizable. You can replace your expenses.

A lot of people get confused. Your expenses and your income shouldn’t be equal. Your expenses should be less than your income able to go back down to survival. From your expense standpoint, you can get more juice out of the orange by not spending your money, creating a bigger and bigger gap. You then realize quickly that you don’t need all of that money that you were making. When you add in the fact that you’re paying a lot in taxes when you’re high-income earner like you are and like I was, then you see, “I don’t have to have all of that. I maybe only have to have half of what I was making.”

You adjust your lifestyle temporarily until you can build up the portfolio to a place where you’re making the money that you need to make in order to live the life that you want to live. The one thing I can tell your readers is we spend a lot of money on things that we don’t need in order to soothe the pain that we have from spending so much of our time doing things that we don’t enjoy. When you wake up every morning and you get to live in that space where you love what you’re doing. You’re working in your genius zone, the need to buy that new pair of shoes, that car, this huge house or whatever it is diminishes, because you’re getting fulfillment from your actual work in your life.

Can we talk a little bit about flipping? You decided to go down the road of flipping when you decided to leave etc. For someone who hasn’t flipped before, what advice would you give to someone trying to get into the flipping market?

Don’t do it. There’s little upside the flip and there’s a ton of risk. It’s a full-time job. There is nothing passive about it. I remember how much I hated going to Lowe’s. I was going to Lowe’s 3, 4 or 5 times a day between Lowe’s and Home Depot trying to save here or there or the guys will forget something, I need some other supplies. You don’t want to pay the guys to go to Lowe’s or Home Depot because you’re not getting work done or they’re going to upcharge you for their time and fuel to go get it. My contribution is I’m supervising the work. I’m going to go get the stuff I’m going to go value shop and do all this other stuff. Now, you have another job. For me, that wasn’t the point, it was the location and time freedom.

I wanted to be able to be wherever I wanted to be and do the things that I wanted to do in the meetings that happen. They were scheduled based on my schedule, not what somebody else told me they could do. That was a direct opposite to what I was trying to accomplish. I’ve got this thing where I have at the end of the year, I do more of and less of. These are the things that I enjoy I want to do more of these. These are the things that I don’t like I want to do less of these. Every year going to Lowe’s and Home Depot is at the top of the list of things I wanted to do less of. This 2020, I don’t think I’ve been to Lowe’s or Home Depot more than twice and we’re halfway through 2020. I don’t have to do that anymore. I’ve created systems and processes where other people are doing that in my world for the apartments. That makes a whole lot more sense.

LUR Jerome | Joint Ventures

Joint Ventures: Fixing and flipping is a full-time job.

 

The other thing I would say about fix and flip is this a dead asset. Your money is going out, it’s all going the wrong way and you might get a big payday at the end, but it’s likely that you won’t. A perfect example of that is a house that I bought for where I thought I was going to make $100,000 to $120,000 in profit. I ended up making $20,000 in that house. I got to the closing day. I had it. It was two days before closing and the valve that connected to the toilet came off on upstairs and flooded the whole house. I had to do the whole flip over again. All of my profits went with all of that. In addition to the money, I was paying the hard money lender and the insurance and all of these things and the lender made more money than I did in that deal. It’s super frustrating.

I spent time and effort on it and only to make a little bit of money on the backend. Some people going to say, “$20,000 is a lot of money.” It’s not a lot when you thought you were going to make $120,000. You get disappointed and ungrateful for the little bit of money you did make. At the end of the day, I think there are other solutions and we’re going into an unsettled market. I don’t know where single-family home valuations are going to be. That would terrify me going especially if you’re doing some type of heavy value add on the single-family flip. I wouldn’t venture into those waters for sure.

That moves me then onto where you play now, which you talked a little bit about how you got started on your first deal with that. The first deal, was that a JV partnership?

Yeah, it was. All of the deals that I’ve done so far have been JVs.

Can you talk about the difference between joint ventures and syndications?

I’ll do syndications first because they’re not my favorite. Getting to a jumbo jet, you’re going through the airport, you’re going through security. You get to the gate and you walk on the plane, you got the gate attendant who checks your ticket. You got the pilot, the co-pilot, all the stewards and stewardess and the people handling the baggage. All of those folks are what I call the general partnership. They work for the entity that is responsible for getting the plane from where it is to where it’s going safely.

You have all the people who have tickets, they get on the plane. Those are limited partners. Those are the people who put their money in, and they’re going along for the ride. They don’t have an active role at all. That’s how I characterize syndication. It is where people pay to get on into an investment and then go along for the ride. They don’t have a voice they’re not involved in anything. They just sit back and wait for the check to come in. There’s the joint venture where everybody has an active role. I characterize that as a fighter jet. Everybody’s there and got a job.

They’re either looking for bad guys or whatever the case is in that particular engagement, but everybody has a responsibility for delivering that return. I like that, partially because I grew up playing team sports. I want somebody on my team that I can call if something goes wrong or if something’s going well and know that they care about it. It’s one thing when you pick up the phone and call somebody and say, “Lisa, I got this thing going on. Lisa is a great person, but if she’s worried about her accounting work, she’s not interested in taking time away from that to help me solve my apartment problem.” If Lisa’s, money’s in the deal and she’s a joint venture partner, then it’s a different conversation. She becomes concerned all of a sudden because we’ve got aligned values and align interests. For me, it’s about getting smart people who understand apartment investing to put their money into deals with me. We go off and we turn them around. We make a positive impact in the community and we do well for our pockets as well.

I want to ask a couple more questions on JV, but I want to dive into the types of deals that you like to buy. When I started with your bio, you focus on buying broken apartment building businesses. For my readers, can you talk about what do you characterize as a broken apartment building business?

I appreciate you dealing with that mouthful. It’s like, “Why are all those words there? Everywhere matters.” Particularly the business part of it, a lot of people think real estate is just buying a piece of property. The reason why apartment buildings are such amazing asset classes because you have a business attached to the real estate. The business is the actual operations, the leasing and the operating of people living in your community. The real estate is what’s bankable. It’s what the bank is lending against. Here’s the value of the property. We’ll give you money. If you were saying, “Give me $1 million loans so that I can run this business, the rate and about every other term of the loan would be different than it is when you’re buying an apartment.” What I’m looking for is an issue in the profit and loss statement.

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The revenue is too low because they’re not full, they’re not charging market rent, some other reasons or the expenses are too high. They’re paying for things they shouldn’t pay for. Maybe they’re paying for utilities and the residents should be paying for utilities. Maybe they have these things that are broken that need to be fixed. Maybe it’s not enough and it’s not an attractive asset for people to come live in. We looked through the P&L and identify things that aren’t in the appropriate bandwidth from our perspective. We then go out and make a determination on whether or not we think we can fix them. If we can fix them, then we’ve got a value-add a component to it. We try to buy it at an appropriate price so that we have the money in place so that we can make those changes.

For everybody who’s out there, that’s thinking about flipping, here’s your opportunity to flip, but have somebody else to make the mortgage payment for you. When you’re doing an apartment building and you say, “We’re going to go renovate the units and increase the rent.” If you’ve proven that you can increase the rents by renovating units, meaning, “These are dilapidated, or they’re not as nice as they should be to garner full market rent.” You then go in and let’s say, you got a twenty-unit building and you go renovate one of those units.

In the best-case scenario, there are nineteen other people paying that rent that month and that is being applied against your mortgage payment and all the other expenses it takes to operate the building. You then bring that new unit online, somebody else moves out and you continue to do the same. You keep running through that, which is our preferred method of renovations, where we renovate or turn units as the leases expire and we’re then able to move in. For instance, we’ve got one property that we bought where rents were at $525. Those renovated units are now getting $685 and we’re going to $695 or $700. The fact of the matter is, each time that we renovate a unit, we’re able to bump those rents aggressively.

The next question naturally is, “Why would you spend $5,000 in order to get $200 a month in rent? It seems like that’s not a good use of money.” It’s because of the way that apartments are valued, that $200 in rent difference we’d have to break it down a little bit and get into some more weeds, but you’re able to increase the value of the property by $20 for every dollar that you put in. That’s why people go in and make those renovations and spend more money on the property. They’re going to get back and rent short-term because it’s the ability to change the Net Operating Income or NOI. That will in turn change the valuation of the property.

Something else I wanted to dive into based on what you’re saying here is raising rents in this environment. I think it’s a debate, but maybe it’s not, to value-add or not to value-add. What are your thoughts given that your business is heavily into value add?

We’re not going to buy anything where we’re not able to drive up rents. Anything else where you don’t have a clear plan on being able to increase your net operating income is speculation. You’re waiting for the property’s value to go up based on market conditions instead of something that you can control, which is how much money the building makes. We’re doing value-add and the question is, are rents going to stay the same? Are they going to go down or are they going to go up? We’re still renewing leases and we’re raising the rent. When we renewed leases, we are renovating units and we’re still getting market rent.

The fact of the matter is that foundationally there wasn’t an issue with the real estate market. Some people have lost jobs and a lot of people say, “Can people afford to pay the rent?” They’re going to have to pay somewhere but much doubling up and consolidations that people are going to do long-range. If you’re in a market where you had an oversupply, then you still have an oversupply. If you had a market you were undersupplied, you’re still undersupplied, regardless of whether people consolidate or not. It’s not like we’re going to see 50% of the household’s banish. I don’t even think we’re going to see 10% of them vanish.

The matter of getting through this tough spot in the economy is funny, but when we get through this, on the backside, there are still more people in the marketplace who are going to be renting. The question becomes, what asset class are they going to rent? Are they going to do super value, like high value, Class A plus-plus with all types of amenities or are they going to need something simple? There’s a big spectrum and in between each one of those. I do believe that people are going to need an affordable place to live in. The fact of the matter is we cater to the working class. We want to do nurses, firefighters, police officers, teachers, and those folks who are making America go around. I don’t think they’re going anywhere. They may be impacted temporarily, but they’re not going anywhere. We haven’t had a huge decrease in population. I feel good about it. Is it going to go progressively? Maybe not, but is it still going to go up? Absolutely.

Going back to JVs, how are your JVs usually structured? I know you talked about everyone has a role, but what does that mean for someone who’s thinking about getting into the JV space?

It’s dependent on what the person has a skillset at doing. There are four challenges that I think every investor is dealing with. The first one is knowledge. The second one is the deal flow or lead flow. The third one is experience. The fourth one is the capital. A lot of people say “I don’t have money, so I can’t do a deal.” I think it’s the last thing you need to worry about. You need to have the other three in place before you start talking about money because money follows experience and experience is looking for deals.

LUR Jerome | Joint Ventures

Joint Ventures: In syndication, people pay to get into an investment and then just go along for the ride. In a joint venture, everybody has an active role.

 

For the people out there who say, “If you got a great deal, the money will come.” The smart money is only going to come if you have an experienced operator because you have to execute a business plan. If we go back to flipping, if you can’t get through the construction on a flip, you’re not going to make any money and people aren’t going to lend to you. Anybody who wants to get into flipping, go talk to a hard money lender and see if you’ve never done a flip before if they’ll lend you money. They’re not. They want you to do 2, 3, or 4 with your own money. I call it the credit card round because that’s what a lot of people end up doing.

Once you do that and you come back and show that you’ve done this successfully, then people will lend to you. The banks are similar. I’m grateful that the bank didn’t lend to me on that first deal because I’d be bankrupt now. We went over budget and there were many things that went wrong in that project that I wasn’t prepared to do that. With all that said, the knowledge piece is foundational. Can people underwrite the deals? Can they go through the due diligence? Can they ask the right questions when you get into the business plan creation? Are you vetting the property manager? Are you meeting with the property manager? All these things need to be done.

You can split it up however you want to, you can do a group thing. You can say one person in the JV, go do these things. It’s all depends on how you want to accomplish that. There’s the accounting and financial reporting that has to happen. The property manager does a lot of it, but there are still things that you will need to do on your side outside of the property management report. There are people that can do that piece of it. Bringing cash to the deal, everybody isn’t equally financed. Everybody doesn’t have the same amount of capital at their disposal. There may be some people who bring more money than other people. That’s a big part of the deal too because you don’t have the limited partners paying to get into the deal. You have to have that conversation. There’s reporting to the bank that has to happen.

Somebody is responsible for that. When you get ready to refinance, there’s a whole process associated with refinancing if you’re going to sell the process with that. There’s a bunch of different pieces and parts that go into it. The one that’s the most important for me is because we do some altruistic investing we want to be impact investors. There are conversations about, “Here’s what happened at the property. What’s the best way to handle it?” COVID is a great example. There have been a lot of people who come out and say, “We’ve given people gift cards who were impacted by COVID so that it could go buy groceries.” If you’re in syndication, you might not be able to make that decision because your goal and role are to return as much as you can back to the people that have invested in the deal.

If Lisa, James, Duran and I are in a deal together and we have a call and we say, what should we do to help our residents for whatever they may be impacted from COVID. We can make that decision right there with us and move on to the next thing and tell the property manager, “Here’s what we want to do. Go execute.” For us, we like that autonomy. We don’t have to go ask anybody else’s permission to feel like we’re sliding anybody by making a decision to do something that might not make the most financial sense right now. You’ll end up residents for life. For those who don’t know, one of the biggest expenses you have is having to turn units. The longer you get somebody to stay, the more money you can make on the property. That’s why we like to have that piece of control for our business.

What would you say is the ideal amount of people for a JV? Is there an ideal amount?

It depends. The smaller the number, the better. They talk about too many cooks in the kitchen. Once you get over about 5 or 7, it gets difficult for everybody to have a meaningful role in the deal other than bringing money. You have to be careful with that. To be honest with you, part of the reason why we like joint ventures is that because you get to own more of the deal. It’s always interesting when you see people put money to syndications and they own 0.1% or 1% of the deal that doesn’t feel meaningful for us. The more people you put into the deal by virtue of that, the less you own the deal. The goal is to keep it as small as possible, only bringing the necessary people. If you can do that, I think you can end up in a great spot.

Can you talk about, a little bit about voting and money? For instance, someone brings in a certain amount because you were like, “Not everyone in the JV might be in the same financial situation.” Is it possible that there could be a JV structure that you’ve maybe been a part of or you’ve known of were not all of the partners have brought money to the table and does that affect voting?

We reward people for bringing the deal. You’ll get a piece of the deal for being the person that found the deal. You’ll get rewarded for signing the loan, especially if it’s a recourse loan because you’re putting your personal balance sheet at risk and there’s an opportunity cost associated with that. We want you to be compensated for that. Your voting rights are tied to your ownership. Lisa, if we’re raising $100,000 to do this deal and you bring $50,000, you’re going to control 50% of the vote with your money.

The fact to the matter is the people who have the most equity in the deal, they have the most money to lose. Is their money more valuable than the person’s time who’s put in the sweat? Probably not, but they feel that way and they should have a say. Honestly, when people have money, unless they inherited it, they were smart, they figured out how to do something. Getting them to have that conversation and be vested in the deal and bring their thoughts to the deal is valuable to the group. At least that’s the way we think about it.

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The goal is to reward the folks who bring the money and then reward the folks that do the intangibles that allow the deal to move forward. We break it down in a way where you can get rewarded for not having any money in the deal or bringing any money. In addition to the people that bring money, making sure they have their voice heard. There are some people who won’t own 20% of the deal and they won’t even have the option to be on the bank loan unless they want it for the sake of saying that they’ve had it to get the bank experience. For us, we want to keep it tight so people own more of the deal.

Could there be situations where JV structures could be considered syndication if they’re partners in the deal that are giving money and maybe not doing anything else? Could for some reason those structures fall under syndication and then get caught underneath the syndication rules, SEC rules or no?

Absolutely. If somebody is just putting money in, it is a syndication because they’re relying on somebody else to deliver the result. You have to be clear when you’re going into the deal that we expect you to be active. Now, being able to massage that and everybody being uncomfortable with the level of contribution from the people in the syndication or in the joint venture, you have to work through that and it’s gray. There’s the moody test and the first three questions in that test are always answers, yes.

When you’re doing a real estate deal, the last one, is the result based on the sole effort of the promoter is the question that differentiates the joint venture in the syndication. If it’s not based on the sole efforts of the promoter, then you can run it as a joint venture. If not, then it’s syndication and you need to go that route. It’s all good unless something bad happens. Nobody’s going to unless you lose the money. You have to work through that because people forget what they agree to when things go bad because they didn’t get back what they want.

Moving from there, what are the returns on a JV deal? Are there typical returns maybe they’re not? On a lot of syndications, you have that 8% pref and then they get into these 15% IRRs and 2X double your money in 3 to 5 years on JVs.

We’re looking for all the same things, but there’s no pref. A pref is for limited partners. We’re looking for the biggest returns. It’s our perspective that we can get higher cash-on-cash return into joint ventures than we can in the syndications. There’s a smaller amount of money and we can make a bigger impact on the net operating income and by doing that, I think we end up creating a bigger valuation bonus.

What would you say are the pros and the cons versus doing a JV versus doing a syndication deal?

I just did a long talk on this. Let’s say the joint venture, if you have an interest in being an operator and not being passive, this is the way that you get experience. Being a limited partner doesn’t get you any experience. You can’t take that to the bank and say, “I bought this.” They don’t care. They want you to sign a loan to operate. There’s a bigger opportunity on a percent basis to get a bigger return on the money that’s invested. The last thing is being able to have a voice. If you’re a limited partner in syndication versus being an active partner in a joint venture, you don’t have much say. You’re just going along for the ride.

With the syndication upside, you don’t have to do anything. You just put your money in and you wait for the return to come. You’re going to work with more sophisticated investors and property managers. They’re usually doing bigger deals. They’ve done this more often than not because of that, they’ve got more experience. You’re able to diversify your risk a little bit more. When we make these plays in the joint venture, we’re making heavy bets. We’re putting in big chunks of money in and when that money goes in, if we don’t execute our business plan, we’re not going to get that back out.

Would you say that some of the syndication deals connected to diversifying your risk are that those properties are usually larger or not necessarily because it depends on your JV partnership?

LUR Jerome | Joint Ventures

Joint Ventures: Reward the folks who bring the money and then reward the folks that do the intangibles that actually allow the deal to move forward.

 

It depends on the capacity of your partnership. For instance, I would listen to a talk with David Lindahl. He doesn’t do syndicates. He did start out with his own money. He started doing joint ventures. He then started doing syndications. Now he’s back to doing joint ventures, but he’s doing it with wealthy people who have big balance sheets. They can do the deal with 1, 2, 3 people. They’re doing 100-plus unit deals. There are people who are starting on a smaller side and cutting their teeth and getting the experience and exposure in these smaller properties say 30 or less. You have to figure out what your appetite is and where you want to be.

One of the things that are super misleading is when the educators tell people, “Come in and let’s go catch Moby Dick. We’re going to go get a $10 million building and you’re going to bring them in the boat.” You got this little dinky boat because all that you’ve ever bought is a single-family home. “I want you to go do something that’s $500,000 to $1.5 million for your first deal, execute that successfully and then go do a little bit bigger deal or add to the portfolio to get that exposure and experience.”

When you go talk to those brokers about those deals and they say, “What are you doing? What have you done in the past?” You say, “I got this twenty-unit over here. I did this ten-unit here and I’m looking to grow my portfolio.” “What are you looking for?” “Based on the track record that I’ve established with these smaller properties, I want to go buy something at 75 to 125 doors. I’m looking for X, Y, and Z.” “What about renovations? Are you okay with renovations?” “Absolutely. I know this market well.” You can start having a conversation with some credibility versus, “I’ll connect it to a group of investors from across the country who are looking for these buyers.”

The script that you get, they’ve heard it before and it’s not giving you any personal credibility. You’re completely relying on other folks. The other thing I’ll say about that is most people who spend time with educators, don’t get the experience piece of it. They don’t have anybody that’s committed to doing a deal with them. There’s nobody looking over their shoulder and helping them get to the place they need to get to in order to successfully close the deal. That part is become a challenge for me, as I’ve spent more time in this space and learned what other people are doing. I get challenged by it because I hate to see people spend $25,000 to $50,000 and not get a deal out of it. It feels like they’re making an investment to create generational wealth for their family but what they’re finding out is they get an empty bag of goods and they’re in debt. That’s a real struggle for me.

Connected to that, advice and lessons learned for people who want to get into this space. It sounds like perhaps for some people may be even buying that 10 and 20-unit is a stretch for them. What advice would you give to someone who’s reading now who’s thinking, “I would like to buy larger properties, but may have only bought single-family, duplexes, triplexes, and quadruplexes?”

I will tell them that bigger is better, but bigger and measured steps are better. I believe that you can do those bigger deals and get bigger returns. You can start wherever you want to, but I will tell you that you don’t have to do residential before you get multifamily from a commercial aspect. You don’t get any credit at the bank for doing that smaller portfolio stuff. In fact, you’re starting over already. We just want to find somebody with experience. Make sure you go back up to the triangle. It starts with knowledge. Make sure you have the knowledge. You understand how to model and perform this stuff out so that you know what you’re getting into.

After knowledge, work on your deal flow. From there you want to partner with people that have experienced to make sure that you don’t get in trouble. This is why most people are scared. With bigger numbers, it can wipe you out if you’re not careful. For the first few, you want to make sure that somebody is looking over your shoulder that you don’t get in a bad situation. With that experience, the money will come because money is looking for great deals. That’s what the process and I struggled with that. I knew that I was trying to solve those four things, but I didn’t know what order to solve them.

The last item that I want to touch on before we go to my level up questions. As we’re in the middle of COVID and the uncertainty in the marketplace advice you would give to people, as you put yourself continue to look for more deals to invest in, how are you navigating the current marketplace? What advice you’d give to someone who’s thinking about stepping into the real estate market?

If you haven’t bought a deal before the thought that you’re going to get a great deal in COVID because somebody is in trouble and they’re selling it in a fire sale is misguided. If you don’t have experience in turning around a multifamily property, you’re not going to be able to get bank financing to do the deal. You’ve got to bring private capital or you have to bring all your own cash to do the deal. Most people don’t have the capacity to do that. What we like to do is we want to get a bank finance loan and we want to bring 20% to 30% down in order to do that deal.

For us, the market hasn’t changed. There’s a ton of assets that are performing well in COVID. If somebody decides to sell that asset is not because they’re in trouble, they’re selling it because they want to go do something else. For us, we’re still buying the same type of assets. We’re looking for bankable projects because we think we get the most variable answer of choice there. There’s still some meat on the bone with a lot of those so we can go in and make the adjustment. Be more conservative if that’s your strategy on forced appreciation, on your rent bumps and be careful with your occupancy. I see a lot of people trying to model 95% and 97% occupancy.

Consistency is what makes the difference. Click To Tweet

You probably want to make that a little more aggressive to give you some more flexibility in your income number. Because if your income number is wrong, your top line is wrong when you get down to the bottom, you could be in trouble. Focus deeply on operations. A lot of people have been sloppy operators. They haven’t done things in a rigorous manner to make sure that they’re getting the most out of the property. If you aren’t comfortable with operating, then you might not want to get into the marketplace now. You want to wait until things get a little frothier and you can be less intense on the way that you’re running your building. It does take some considerable management to make sure that you get things and the way they’re supposed to go.

Lastly, for someone who’s interested in getting into the JV space, what’s the best way to do it?

You got to align yourself with people who have similar values as you, and that’ll take care of the experience piece. Before you do that, you want to get educated so you need to gather all your knowledge. We are the only group that beat our chest on this thought of doing joint ventures instead of syndication. We’re counter culturing. MyersMethods.com is the way that you can learn our four-step process which is to find it, fund it, fix and flip it. In that, we walk you through it in eleven weeks and you can learn all you want to learn about joint ventures and how we’ve done it, the successes and a lot of the failures that we’ve had in the past.

I don’t believe in the school of hard knocks. That’s how I learned how to do this and this why I’m not on the syndication boat. I didn’t come from a place where there was a ton of wealthy people in my network and I wasn’t going to be able to just go get accredited investors to go do syndication. I started where I was and my networks changed drastically. I can call a few people that are worth over $100 million now but I’m not looking to do those deals with them. I still want to do it with my daily ones, the people that I went to college in high school with. I want to create generational wealth for them and their families so that we changed the cycle in the face of wealth.

How do you balance family life and building a business?

I call it work-life integration. There’s going to be times where your family impacts your business and there’s going to be times where business impacts your family and you have to decide what’s most important and then prioritize against it. If there’s something that you shouldn’t be doing in your business, you need to delegate that. We spent a bunch of time trying to be busy. I want to be in profit-producing activities, not busy.

Now, we move on to my level up questions that I ask all my guests. The first one is, what are you grateful for in your life right now?

Breath. I’ve seen and been through a lot. I was in a head-on accident with a dump truck. I’m grateful to be able to walk and breathe, but just like breath, it allows me to feel.

What has attributed to your success and continuous growth?

I grow because I consume a ton of content. I listen to 40 hours of content a week related to real estate and development. The game is always to make sure I’m ahead of whatever’s going on from my success, I’m going to work harder than anybody else. If I know somebody is working harder than me, I’m going to step up my game a little bit because I want them to know that they can’t keep up with me. People do a lot of stuff in fits and starts, but the consistency is the difference-maker, super consistent.

LUR Jerome | Joint Ventures

Joint Ventures: If there’s something that you shouldn’t be doing in your business, you need to delegate that.

 

What do you know now that you wish you knew at the beginning of your journey?

I wish I knew not to try to figure it all out on my own. I’m a graduate of Podcast University and it’s an extreme misuse of my time. I’m listening to 40 hours of content each week and it’s like, “Only about 10% of that is new content or a different perspective. The rest of it is confusing me.” I spent a bunch of time listening to all the different educators saying this, that and the third. What do I believe? I’ve got this ball that I’m playing with and the ball doesn’t line up with either one of them. What do I do with the ball that I have? The part of the reason why we started Myers Methods was to consolidate all of that different stuff in addition to what our experience was and point people in the direction of doing these joint ventures instead of trying to be the next syndicator.

I appreciate you coming onto my show and sharing many excellent nuggets about joint ventures and the whole process. It’s a whole other world that quite frankly, many of us haven’t given too much thought about it. It’s good to have another perspective and to share that. If my readers want to learn more about you, what’s the best place they can go to learn more?

MyersMethods.com is a place they can go and get some more on why we like joint ventures over syndications. If they want to connect on LinkedIn, it’s Jerome Myers. I’m in Greensboro, North Carolina.

Thank you, Jerome, for coming onto the show.

This is great, Lisa. Thanks for having me.

That’s it. Thank you again, Jerome, for coming on the show, such an amazing show. Here were my key takeaways. Number one, fixing flipping is a full-time job. For him, he noted that he wanted location and time freedom. It was his ultimate goal. He realized that fix and flipping was the direct opposite of that particular goal. Moving into JVs, he noted that in general, for real estate people need the following four things, knowledge, so knowledge for underwriting, knowledge of how to do due diligence. They need a deal flow, finding deals. They need experience either they have the experience or they’re with a team that has the experience and then capital to buy the deals, finance them and fix them up.

Continuing on, he noted that, “Bigger is better, but bigger in measured steps is better.” Lastly, when we talked about getting into steps for someone getting into JVs, he noted getting educated was the number one step, first, in terms of getting educated about the process, the asset class, your market, the whole nine yards, what it is that you’re doing? You know what you’re doing. Number two, aligning yourself with people that have similar values and connected to that will bring the experience. From there you can start building to get an experience of your own.

A closing point that I will say is when he talked about JVs, being able to provide you with those hands-on experience, I attest to the fact that it’s based on having that conversation and learning more about general joint ventures. It will have the potential to give you more hands-on experience, which you can ultimately take to do your next deal yourself. It’s something to think about. I hope you got a lot of value from the show, learning from Jerome and his experiences. Until next time, keep leveling up. Take care.

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About Jerome Myers

LUR Jerome | Joint Ventures𝗜’𝗺 𝗮 𝗰𝗼𝗿𝗽𝗼𝗿𝗮𝘁𝗲 𝗔𝗺𝗲𝗿𝗶𝗰𝗮 𝗱𝗿𝗼𝗽𝗼𝘂𝘁 𝘄𝗵𝗼 𝗵𝗲𝗹𝗽𝘀 𝗼𝘁𝗵𝗲𝗿𝘀 𝗲𝘅𝗶𝘁 𝘁𝗵𝗲 𝗺𝗮𝘁𝗿𝗶𝘅.
From the outside looking in, everything in my world was going to plan. My career was attached to a rocket. I was already making over 100 k, and I just finished my MBA at night. I’d married my college sweetheart a few years earlier, and our first daughter was happy and healthy. I had money in the bank, a huge house, my dream car, and the ability to travel out of the country regularly, but I was empty on the inside. I think most of us are like that.

We are silently asking ourselves, is this all there is to life?

Finally, I started asking my friends this same question and realized they were asking it too.

I decided we have to fix this.

After building a 20 MM division at a construction company and having to layoff my teammates two years in a row, I’d had enough and decided to become a full-time real estate entrepreneur.

My approach to (YOU):

In my approach to coaching we use trust, openness, compassion and direct communication to guide our clients on a range of professional and personal issues. By harnessing the power of counseling, consulting and mentoring we help them find their inspiration and use it as fuel to build the life they desire.

Our process is simple, we gain clarity around the current situation, perform a gap assessment to see what resources are missing, then create a customized strategy that delivers RESULTS.

Service offered:

► 1 on 1 transformational coaching
► Leadership training
► Small group coaching
► Corporate exit plans
► Multifamily real estate coaching

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