What We Learned After 100 Episodes Of Level Up REI Podcast

Level Up REI Podcast finally hits 100 episodes! To celebrate this milestone, Lisa Hylton looks back on valuable lessons she learned from her most beloved guests. She returns to her discussions with Michelle Bosch, Annie Dickerson, Jeremy Roll, and Charles Seaman. Lisa features in this special episode her conversation with these amazing people about the importance of focus, finding the right partnership in multifamily syndications, the power of passive investing, and the right approach to real estate purchases.

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What We Learned After 100 Episodes Of Level Up REI Podcast

I am excited to be celebrating 100 episodes of the show. If someone was to tell me when I got started in the Fall of 2019 that I would have 100 episodes in October of 2021, I would have been like, “Are you nuts?” This has been quite a journey. I’ve learned so much along the way. This episode is going to be a very special episode in the sense that I have taken a look back at some of the episodes that I have done in the past with all my different guests. I’ve picked out four of them, little snippets that I want to share on this particular episode. The first one is Michelle Bosch. This was recorded in May of 2020. This little snippet talks about the importance of focus.

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To get started, how did you and your husband get started investing in real estate?

Jack and I are originally from Germany and Honduras. I came here in 1995. Jack got here in 1997. We came here to study and with two suitcases to our name, by the hearts full of dreams and possibility. We got jobs because that’s what everyone tells you to do. You go to college and get a job. Jack was working for Fortune 500 in the software space.

I was in the finance space and we were deeply unfulfilled, no freedom, no fulfillment, no paychecks that matched our time and effort. We used to work 60 to 80-hour weeks for someone else. My paycheck definitely didn’t match that but we couldn’t let go of those jobs because our green cards depended on them. We started looking for other ways.

My family back home had a very good experience with a piece of commercial property. I told Jack, “We need to start looking into real estate. I think real estate is the way.” We’re like, “Let’s figure out how to flip a house,” because that’s the very first thing that comes to mind for anyone that wants to get into real estate. Since we were not from the US, we were at a big disadvantage. We put a junker under contract. We had no idea how to estimate repairs, rule, foundation, or go for credit. It’s not that we had bad credit, but we just had no credit.

There were many moving pieces having to negotiate in a language that was not our first with a seller. Figuring out the financing and all of these was all new and there were a lot of moving pieces. Even though we were very well-educated, it was over our heads. We build in Honduras for hurricanes and in Germany for harsh winters. We found ourselves in Phoenix with drywall. I’m like, “Is this going to cost me $20,000 or $700 to knock down a wall?” We didn’t know any of those things. It’s not out of being chicken littles. We just didn’t know any better.

We realized we were way over our heads and thank goodness we were able to pull out within the inspection period, but we were still excited about real estate. We knew that there was a way to do it. We came across the concept that being an immigrant was an advantage. It’s called tax liens and tax deeds. In the United States, you can lose your property over delinquent property taxes.

Depending on the state that you live in, you can either have a tax lien be filed against your property. Eventually, that tax lien investor that buys the taxes can foreclose on your property or if you’re in a tax deed state, the state will auction off your land or your property, any property for that matter, whether it’s land or not. That is unheard of.

There’s no way anyone will ever lose their private property in both Germany and Honduras. It was an opportunity for us and this is something that we definitely should be looking into. I go to my first auction up in Sonoma County. I take Monday and Tuesday off from work. I went there and I quickly realized that that was incredibly competitive. I didn’t think about the fact that Sonoma County is one country that has an expensive property. Everything that I wanted to bid on was way over what I had. We had about $3,500 to our name back then because we had payments on pretty much everything.

We had great jobs and we were living the American dream, but my car, bed, laundry machine, sofa and everything was on payments. It’s incredibly competitive. It was like being in a shark infested tank. The bidders there already knew each other. They knew the county officials. There’s no way they’re going to let a newcomer come in and win on a bid. What I did realized is that a lot of the property that was coming for auction were pieces of vacant land. We knew that in order for them to be auctioned in California, these people had to have had five years of delinquent taxes.

That means that at some point in these five years, the sellers had completely checked out emotionally from their pieces of land and are letting it go. It dawned to us like a light bulb moment, “Why don’t we go ahead and contact these sellers’ years ahead of time and send them a direct mail letter asking them if they’d be interested in selling their property to us.”

 

It took us about a three-year period to perfect that direct mail piece. We’ve been able since then to buy properties for anywhere between $0.05 to $0.25 on the dollar. For every 750 to 1,000 pieces of mail that we get, we have anywhere between 6 and 15 calls. People calling us in. No cold calling of any kind. People that have already received my letter and said, “I’m raising my hand. I’m interested in selling.”

You’re making them an offer, putting it under contract, and then marketing that piece of property. The beauty of it is that you don’t even have to use your own money. You can put it on their contract and then do double escrow or assign that contract to someone else. You get cashed in by whoever your ultimate buyer is. For us, that sounded fantastic. We put the pedal to the metal. We did 60 deals on our first year, 150 deals the next year and then we’re like, “We find ourselves with the same little bit of freedom that we had as jobs. Are we going to shrink back so that we have freedom of time?”

It’s not just freedom of money, relationships, and purpose. It was freedom of time, in the beginning, is what we were most after. We decided we were not going to shrink. We’re going to expand. We hired a team. We started doing land auctions and selling 200 pieces of property in one day, once a quarter. That’s how we’ve flipped over 4,000 pieces of land and build one of the largest land investing companies in the US.

It came with a lot of trial and error and a lot of failures at the beginning, like anything. If you’re willing to put in the hard work and do whatever it takes and, more than anything, stay focused. That’s the biggest risk in real estate. There are many ways to skin this cat in real estate that you can go after every shiny penny and know a little bit about everything but had no depth of knowledge in one thing.

When we decided to focus on land and that be our singular activity, that repetition created mastery, and that mastery has become for us, no matter what’s happening in the economy, it’s been like having a PhD in making money, being able to create our own economy, to have cash confidence no matter what’s happening, and being part of the solution, not the problem, specifically in the market conditions.

It started with pain pushing us and then eventually, a larger vision of something much bigger than ourselves that started pulling us. That requires doing the work and also talking to that vision, possibility, potential, and seeing potential in every single thing that we did, stepping up as leaders, serving our sellers and buyers. There’s no time to be projecting fears into sellers and buyers.

There are tons of sellers and buyers out there. It’s not just us, but our coaching clients and students are seeing the same success stories. We see it every day inside of our Facebook community. It’s being in this little bubble when you’re in this asset class and there’s no competition because everyone is chasing after houses. We have this blue ocean to us. That happened and then 2009 came around. We had built over eight figures worth of notes using land, $70,000 of passive cashflow per month.

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Next up is Annie Dickerson. This particular episode was recorded in April of 2020. What I love about this particular snippet that you’re going to read is she talks about the lessons she has learned investing as a syndicator in multifamily real estate syndications and advice on partnership.

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As you reflect back on your journey, what would you say are some of the lessons you guys have learned that would be helpful to investors?

We’ve been doing this for a few years and have done about 25 deals in that time, so we’ve gone very fast. That means we’ve been flying by the seat of our pants. We’ve had to build a lot of things along the way. We’ve learned a lot. One big thing that we’ve learned and we always tell our investors this too, it’s not about the deal that you’re investing in. It’s not even about the market you’re investing in. It’s about the team that you’re investing with.

Anybody can make a deal look good on paper. All it takes is a PowerPoint, some pretty pictures, and some numbers that you can change. When the rubber meets the road and unexpected circumstances come up, you want that team to make the right decisions on your behalf. We always take a lot of time to vet the teams that we’re going to work with. We make sure that they have a strong track record, that they are investing in great markets, and that they have had situations where unexpected things have come up before. We asked them how they dealt with it. How did they inform their investors about that?

If you're willing to put in the hard work and do whatever it takes more than anything, stay focused. That's the biggest risk in real estate. Click To Tweet

We take that time to look into their background, their integrity, and see how they’re communicating with us as we’re getting to know them. We try to read between the lines to make sure that it’s going to be a strong partnership. When you invest in a syndication, it’s not a 30-day thing. It’s 5 to 7, sometimes a 10-year investment. That’s a long-term partnership. You want to make sure that it’s upstanding team.

Connected to that, some readers are big-time stock market investors and are probably thinking, “This real estate syndication sounds interesting. How does it compare to the stock market?” What information would you share with someone who’s comparing between the stock market and real estate syndication?

Now is the perfect time to talk about this. As we’re recording this, we’re right in the middle of this COVID-19 pandemic. The stock market has been up and down and just a crazy rollercoaster, very turbulent and unpredictable. Over the long-term, it will level out and continue on its path. For those people who need the money now, those people who may be just retired, it’s an unfortunate situation.

It’s like the luck of the draw based on your timing. I don’t know about you but that is not how I want my money handled. Based on something that’s completely out of my control, I lose money, that’s not okay with me. To me, that’s what the stock market is. There are many external factors that I cannot control. The stock market doesn’t feel as safe as a physical asset like real estate.

With real estate, I can put my money and I know that at the very least, even if everybody moves out of the building, there’s still the building itself and that’s worth something. It’s not like all of my money will go up in smoke. There’s still the physical asset and the land. At the very least, there’s still that. With a real estate syndication, as a passive investor, you’re also called a limited liability partner or a limited partner, which means that your liability is limited just like it sounds.

That means that if I were to invest $50,000 into syndication, the worst that could happen is I would lose that $50,000. I wouldn’t lose more than that. Also, with syndication, you get the chance to choose the types of assets, the teams, and the markets that you’re investing in. For me, investing in this real estate syndication gives me a lot more control without having the responsibility of being a landlord.

A couple more questions here primarily on building your business. There might be some readers who are borderline thinking. In addition to investing passively, they might also be interested in investing in real estate, playing an active role. What advice would you give to someone who is interested in getting their feet wet, maybe buying single-family homes, and then the advice in getting into more active syndication or more active side similar to how you play?

In terms of getting started in rental properties, I can only speak from my personal experience. One of the best ways that I found to get started was through house hacking, so buying a small multifamily property, living in one unit, and renting out the others. What I love about the house hacking model is it’s a great introduction to being a landlord because you are living in the space with your tenants.

You don’t have to drive across town. You don’t have to call in to check with them. You’re sharing the property with them. You can see all the little things and you can practice how to communicate with them. You can deal with any maintenance issues that come up and build those connections with plumbers and electricians, which you will need as a landlord. It’s not easy being a landlord. There’s a lot of stuff that you need to learn and a lot of things that you will need to deal with.

Once you’ve learned and established that network and those connections, it can run smoothly. House hacking is a great way to get started. It makes your own personal living expenses more manageable and it also gets you into real estate investing. As far as getting into syndication, one of the best ways to get into syndication is to invest passively first.

It does require some capital. Most of our investments have a minimum of $50,000 to invest. It’s not like you can just throw $500 at it and be done. There is a high minimum investment, but what you get in exchange for that is you get to learn the ins and outs of what it means to invest in syndication. You get to step into the shoes of a passive investor. You get to ask all the questions and listen to the questions that other investors might have.

 

For me, when I was first starting out, this taught me so much. I had invested in a course to teach me how to syndicate. I learned a lot through that course, but when I invested passively for the first time, I really got it. I was able to step into the shoes of my passive investors. After that point, whenever I spoke with passive investors, I knew exactly what they were thinking because I had been there too.

What advice would you give to people who are interested in building a business with a partner? What advice would you give about how you’ve gone about building that relationship out?

Let me tell you about how Julie and I met. When I first set out to start a business, I thought, “I’m never going to find a partner.” It’s like finding a needle in a haystack. I’m so particular and I have such high standards. How will I ever find a partner? I knew what my strengths and weaknesses were, the things that I like doing and don’t like doing.

Julie and I met at a real estate conference a few years ago. We hit it off right away talking about our family, our kids, and our mutual love of real estate, but we didn’t talk about partnering up. She was running her own business. I had just launched mine, so we’re like, “Let’s keep in touch.” Over the ensuing months, we got together a few times.

At this one particular meeting, I remember sitting across the table from her and she said, “What do you like about this business?” At this point, I had been doing a lot of blogging. I said, “If I could create content all day, every day, I would be in heaven. I love it. I love teaching people about how all of this works. If I could take one thing off my calendar, it would be meeting up and talking with investors. It breaks up my day. I got to travel. I got to deal with tech issues. I got to answer all these random questions.” She’s like, “Are you kidding? I love meeting with investors.” She has a legal background. She’s like, “I love all their tough questions.”

On the flip side, I sit in front of a computer and I’ve got a blank screen. I’m supposed to blog about something but nothing comes out. When you’re looking for a partnership, it goes back to knowing your investing goals. It’s the same with starting a partnership. You have to know your personal goals, your personal strengths, and your weaknesses. When you find that person, you’ll know instantly. You’ll say, “Your strengths are my weaknesses and my strengths are your weaknesses. It’s perfect.” That’s exactly how it happened.

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Next up is Jeremy Roll. For those of you who do not know, he is a 100% passive investor. He has never owned directly real estate like single-family homes or that kind of stuff for rental purposes. He came onto the show in June of 2020. His episode is chock-full with so much information. This particular clip gives you a little bit of a sneak peek and his advice on doing due diligence on passive investments.

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Given your period of investing, what have you learned along the way in terms of pitfalls and things to red flags or things to look out for as people start entering the water of investing this way?

I’m going to try and keep it high level because we could talk about this for hours. What I’ve learned along the way is number one, in my opinion anyway, who you’re making a bet on when you’re passive is even more important than the actual asset, with the asset being a very close second. I say this because you give up control when you go passive.

I’d like to tell people, I give up control in exchange for diversification, and you get some other benefits. You get to leverage someone else’s expertise, time, money, credit, etc., but you trade control for diversification. When you give up control, you basically end up in a position where you’re increasing your risk because you could have fraud risk and mismanagement. There is a 1% risk that you can never get rid of and diversification can help.

The bottom line is who you’re making a bet on is extremely important because you have those potential risks but you also have execution risks, so you’re going to understand who you are making a bet on. That’s number one. Number two is the property. I would say number one is the person. That’s very important. That’s one very important tip.

When the rubber meets the road and unexpected circumstances come up, you want a team that makes the right decisions on your behalf. Click To Tweet

Number three, I would say if you work in the corporate world and you’re used to seeing buttoned-up PowerPoint presentations that look amazing that are polished. I used to work at Disney headquarters. That’s what I was used to. You see some presentations that look a little subpar. That can be the norm in this type of investing. I would tell you not to get turned off because presentations are adept. It doesn’t quite look as polished as you would expect it to be. That doesn’t mean that the operator won’t perform and over-perform.

I like to tell people that I’d rather invest with the best operator with the worst documents than the worst operator with the best documents. The documents are important but that’s something I had to get used to as well. You’re going to want to look way beyond that to understand who you’re making a bet on. The documents can tell you some important information. It can tell you how detailed somebody is. If it’s sloppy, that’s a huge red flag. That’s another very important tip. You want to take the documents, read between the lines and understand who you’re making a bet on.

You want to be able to look at the numbers, even the phrasing and understand, “Is this person conservative or are they aggressive? Are they using aggressive numbers to make the deal look good? Are they a hard marketer where they don’t care about building a long-term relationship with you but they’ll attract you because the numbers look good and they’ll move on to the next person for the next deal?”

“Are you trying to find somebody who’s conservative who tries to under-promise and over-deliver for investors to build long-term relationships with investors?” That’s who I look for. That’s a very important point for me. It also aligns with my personality but still, more importantly, you want to read between the lines and try to avoid the wrong people to make a bet on.

Another thing is if you’re new, I would strongly recommend learning one asset class and start with the one that you can relate to the best so that it’s the smallest learning curve. For example, I find it very common for people will start by trying to analyze apartment opportunities because perhaps they live in an apartment or have lived in an apartment in the past, they understand it’s a relatively simple business model and they understand it. They can understand the landlord, the tenant and what goes into it. They’ve been marketed to on the consumer side.

If you contrast that with, for example, a senior living facility that has many employees and all different levels of care, you may never have dealt with one before and you have no clue how to analyze or even think about it. If you’ve never used a self-storage facility before, that’s a business. You may have a hard time understanding how that needs to be analyzed from an investor perspective.

Start with something that you understand about the space is that a lot of what you learned is a good framework that can be copy and pasted or transported into another asset class. For example, an expense ratio. Looking at property tax on the line and what the assumptions are or rent inflation assumption, expense inflation assumptions, or cap rates. All these things can be translated across opportunities with some tweaks in the different asset classes.

I recommend starting with an asset class you’ll understand the best and then go from there or the ones that interest you the most but try to keep it simple when you first start. That’s definitely important. It would be very helpful for you to build that base first. Do not invest unless you’re 100% comfortable. What I mean by that is you’re going to want to get enough education to the point where you feel confident enough that you understand what you’re investing in and you think it’s the right deal for you to invest in.

You could be right or wrong but you’ve got to have enough understanding. Don’t invest with somebody because your friends are investing with them. You’ve got to be able to evaluate it on your own and make your own decision. That’s very important, especially because when you’re passive, you’re giving up control. As soon as you invest, your shares are illiquid.

Your ownership in the company is illiquid. I think it’s illegal for the SEC to resell your shares of purchase like an anti-flipping law. Even after that, it’s very hard to find a buyer. Nobody knows what the building’s worth. You may need to sell it at a discount. You’re going to get locked in, so you’ve got to put a lot of time up front to make sure it’s the right deal for you. Don’t underestimate that or don’t sell yourself short on that research.

Another thing I would say is that we’re recording this in June of 2020 and we started a recession. Let’s take COVID out of the picture because COVID complicates things in many different ways. People don’t know when jobs are coming back or not. Make it more simple. We’re in a recession. That’s a fact. It’s been officially declared. It’s not like, “Maybe we’re in a recession.”

 

What happens in a recession is that it takes a year or two for prices to typically adjust and potentially drop out as they bought them out. If you were looking at a deal in 2020, be very careful. We have an election year. That can definitely distort things. Depending on who gets elected, they may have different implications on investing in taxes and effects on property values going forward of different types.

Furthermore, if you want to be very careful and you’re very concerned, you’re going to wait for prices to adjust into 2021 and see how it goes. This is not investing in the stock market. Things don’t change every second and you cannot get price discovery in a day on what Apple or property is worth. It doesn’t work like that. It takes a long time for things to adjust. Be patient and be careful right now because, in my opinion, 2020 is a dangerous time to invest for many different reasons. 2021 may be a great time to invest in.

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Lastly, Charles Seaman. I recorded this episode in April of 2021. For those of you who do not know Charles, he runs an underwriting class every Saturday on Zoom. It’s virtual. People join and he underwrites large multifamilies every Saturday. In this little clip, he talks about his experience purchasing. We were talking about his experience on how that all went down.

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I want to pivot to talk about a deal that you and your team acquired. Can you share a little bit about where the deal was located and how many units to get us started?

It was two separate properties, but they were located right next to each other, so we purchased them as one portfolio, totaling 64 units. It’s right in Charlotte, North Carolina. It’s in a section of Charlotte that is on the upswing. It’s an area that’s in transition but it’s starting to transition for the better. One of the benefits being that it’s in Charlotte is it’s seven minutes away from where I live, so I can see that change happening.

Connected to that, would you say that your move to Charlotte has helped you in terms of understanding the city and probably even finding deals?

It’s both. In terms of understanding the city, my philosophy has always been, “How do you get to know any market better than by living and working in it every single day?” For me, I lived in New York. I had never been to Charlotte. I came here about three months before I moved and that was after I had already made the decision to move.

I leased an apartment sight unseen and had never even been in the city and said, “Let’s go for it and see what happens.” That being said, you get to understand the culture, people, and areas as you get into it. Could I have done that remotely? The answer is yes, but it would have taken me a lot longer and I probably never would’ve got the same level of understanding as if I had just immersed myself right in the center of it.

In terms of finding deals, it made it easier. One of the things I always tell people is that, “All of our deals come from broker relationships.” Could I have done that remotely? The answer is also yes. I could have made phone calls, sent emails, and be persistent, but it’s a lot easier when I can do it in person. Perhaps my approach is more old school than most, but I always take the approach of getting face time, not the app, but actual face time with brokers whenever I get the chance to.

What I do for my brokers that I have good relationships with is I take them out for lunch or drinks, usually on a 2 to 3-month rotation. I also find other ways to get in front of them. Some of those ways could be touring properties. I do that even for properties that I don’t necessarily have an interest in just to gain additional face time.

For anybody reading who is looking to potentially be an active investor, I wouldn’t do that if it’s on the opposite side of the state. If it’s something you can get to easily and it’s not causing you a significant amount of time. I think it’s worth investing in it because you’re investing in that relationship. Other things as well, pre-COVID, we had a Super Bowl party at a bar. I said, “Let’s invite all of our good broker contacts.” We had a reason to get everybody together. I said, “We’ll all hang out and get to know each other a bit.” It was a good bonding experience. Our last two deals have been worked out over lunch meetings. Those have been very beneficial to have.

Don't invest with somebody because your friends are investing with them. You've got to be able to evaluate it on your own and make your own decision. Click To Tweet

That brings me back to this deal. How were you able to find this one?

We initially got this deal through the broker that sold it to us in February of 2020. When we first looked at it, we knew that the area was starting to change. We could see some things happening and we felt that the seller’s number was a bit high and unrealistic. Keep in mind that we looked at it in February 2020 and they gave us financials from August 2018.

I threw an offer out there to see if we could engage the seller and get his attention with the intent of getting current financials but that never happened. He came back with a higher price, but we never got current financials. I said, “Give us current financials. I’ll see. Maybe we can come up to that.” Fast forward to late September 2020, they take it to market. I see it come out there and I contacted the broker, and I said, “I see you finally got the current financials. At least that’s good.” When you’re marketing it, they don’t want financials from a few years ago.

Being that we had a head start and I lived locally, it worked out that I already had a lunch booked with that broker for October 1, 2020 and this deal came to market in late September 2020. We decided to schedule a formal tour of the property for that same day, right before lunch. At lunch, I’ve been dealing with this broker for almost two years and he said, “When are we going to get a deal done?” I said, “How about this one?”

We worked at the details from a high level over there at lunch. I went home and submitted an LOI after. We also were able to preempt the marketing process, which is a significant advantage because as opposed to going to the end of it, where you’re competing against other groups, we’re able to circumvent that competition and prevent it from going through a further bidding war.

In terms of networking, was it something that you learned from when you were working in New York?

Yes. It was learning from a lot of different people. The gentleman that I worked for in New York was highly successful. He certainly didn’t get hit by accident. There was a lot of hard work and contacts. I was able to pick up on that quickly. Also, the different mentors and coaches that I’ve hired and worked with through the years always drill into the importance of networking. It’s often said that, “Your network is your net worth.” There is a lot of truth to that, especially in a business-like real estate that is heavily built on relationships.

Moving into this deal, you put in an LOI and then ultimately, you won the deal. Can you talk about the process of winning? Was it just a slam dunk or was there a point in time when you were like, “I don’t think this is going to go through?”

Precontract, I felt good about it going through. One thing I would say about the seller is, he is a good guy but he’s certainly a smart businessman and a good negotiator. Every time we put an offer in, initially, we started lower because my thing is it’s always easier to go up than to go down. I always prefer to start low and see if we can get it for a certain price and then work up. The seller was adamant about the number. He wanted $7.5 million.

I was high sixes. He then comes back and says, “No, I still want $7.5 million.” We then submitted another LOI. We go up to maybe $7 million or $7.1 million. He comes back again and says, “No. I still want $7.5 million.” We’re thinking it over myself and my two partners said, “We want to go closer on this.” I spoke to the broker that we had a good relationship. I said, “Where do you think his head is at? Do you think he’s stuck on $7.5 million? Is there any wiggle room?”

He said, “You might be able to get it for $7.3 million or $7.4 million.” We got it for $7.4 million. That’s where it came down to. We got him down ever slightly, but not too slightly. In all fairness, he did have the highest rents in the area for any similar asset. That was a good thing that helped the property underwrite well. Sellers were asking for similar prices on a per-unit basis and their properties do not underwrite nearly as favorably because they’re not getting anywhere near the rents this guy was.

 

Overall, it was right around the six-cap. For anybody reading, if you’ve attended one of the various guru trainings out there, you’ll probably say, “That’s a lot lower than where it should be.” For anybody that’s active in the market, especially in a place as competitive as Charlotte, a six-cap isn’t bad at this point. It is a seller’s market. There’s no question about that. We are at a point in time where the sellers can more or less name their pricing and they’ll probably find any number of groups that are willing to pay that. Similar to the housing market. Oftentimes, they go above that even.

That brings me to two questions. One that keeps us on this but I want to go off target. You have some other properties in the Charlotte area. Are you at a point where you have considered perhaps selling them?

No. The first property we purchased was in September of 2019. We were thinking about potentially selling that in 2021. The only caveat is that one has a CMBS loan. With that, we are more or less locked in for three years of interest either way. We’ll probably continue to hold it to minimize any unnecessary burden from that. We haven’t sold anything but we’re looking forward to the day where we can unload our first one and get a full turn on our track record.

Coming back to this property that you acquired, can you talk a little bit about the business plan because it sounded like the rents were ready to market?

The play with this one and for me personally, it’s something that I have been favorable on since the pandemic is subsidized housing. I was both nervous and excited in 2020 that the market was going to roll over. I was nervous about the property I own but excited saying, “Things could go on sale.” That being said, subsidized housing, to me, has been the beacon of stability in real estate.

Some people like subsidized and some don’t because there are arguments for and against like anything else. Sometimes, you may not get the most desirable tenant base. That’s true. You can screen tenants, and generally, through good screening and good management, you’re able to select the better ones of the bunch but there are always going to be some that get through that are less desirable. Some people don’t invest in properties with those types of demographics solely because of that.

For me, I may have said that pre-pandemic with post-pandemic are my favorite types of properties. This property had 73% of the tenant base that was subsidized. The way I looked at that was, we may assume a high return. We may have some more control issues that we need to manage but we also have a stable cashflow. That’s valuable because, at a time in history where we have a lot of delinquency, especially in C-assets, I was looking at it and saying, “We could go out there and buy your market rate property.” You may have a market-rate component but that could be worse.

It could be more risk because there is uncertainty. I said, “With the subsidized base, what happens is we’re getting certainty of income.” There are a few things that we liked about it. There is no value add in the traditional sense of this property. One is to manage it a little bit different than to self-manage it. We did have some staff that we hired directly. We wind up retaining some of them because they were doing a good job.

We’re also using a third-party property management company. The difference is that more oversight and experience are backing the property. By having third-party property management, we went through a lot of different management companies. We found one that specialized in the size and type of asset that we were purchasing. The group that we hired manages both single-family and multifamily. The multifamily that they manage ranges from 15 to 80 units.

For readers, if you’re looking at a 200-unit property, you’re going to want a different property manager than if you’re looking at a 60-unit property. It’s a big difference managing a property with on-site staff full-time versus no staff or part-time staff. Oftentimes, the company that does one will not be the company that does the other or at least not do it well. You want to find the company that fits your property’s needs.

So far, we have been able to do that. Good management helps. The only real physical value add that we had was that two units were offline. One of which they used as a leasing office, the other is for maintenance storage. One of the things we’re working on is getting those two units back online and relocating the leasing office and the maintenance storage unit to a central area in the property. We have two more income-producing units that will be online in the next few months.

You can negotiate a better real estate deal when you have a lot less competition. Click To Tweet

Also, being in an area that’s starting to turn. Being that myself and the other guys from Three Oaks are so close to it, we are able to see that change happening and feel good about it. It’s also an opportunity zone. The opportunity zone benefits won’t carry over to the passive investors, at least not in this particular case. Oftentimes, they’re designed for the ultra-wealthy but what will happen is that the ultra-wealthy will start investing in that area. They are going to start developing and improving.

As that happens, property values will start organically increasing, particularly with this property, where the 64 units are literally on the other side of the fence. I’m not even talking down the block in a different area. There is going to be a 148-unit townhome community built. It’s already approved and permitted. They’re going to be breaking ground. That is something that’s giving us a lot of encouragement because we could see all that change happening.

Can you talk about unit size in terms of what you and your team typically go after?

When we first started out, we would have told you 100 units and up. Ideally, that’s still the space that I like to play in because there are certain advantages. It’s easier managing a property with full-time on-site staff and there are benefits to it. What I would say and a lot of other groups may have found similar experiences is that, while we do want to play in that space, it is competitive at this point.

There is no shortage of groups that are willing to buy, overpay and do all crazy things that, in most cases, I’m not willing to. Because of that, we found that we’ve had more success in the 50 to the 100-unit range. We still look at larger deals. We still submit offers on them. I submitted an offer on a 350-unit deal. I don’t think we’ll get it. I still want to be active and plant that seed for the future. We’ve had a lot more success in the 50 to the 100-unit range because there is a lot less competition.

What happens is, most times, the competition we face are brand new operators. The good news is even having closed only a few deals, we have a significant track record advantage over them. We’re able to get good deals. Brokers have trouble moving deals in that size range because most buyers want the 100-plus units.

 

To put in comparison for everybody reading, if you’re looking at a deal that’s 100 units and up, a broker may get 30 offers from 30 different groups looking to buy it. That is typical here in the Carolinas. If you’re looking at a 50 to 100-unit property, you may get 5 to 10 offers. To put that in comparison for the readers. Keep in mind that you’re able to negotiate a better deal when you have a lot less competition.

—

That’s it, guys. There are so many more episodes. I might very well do this again on some of my other episodes that I’ve done because I kept thinking about more guests that I had on my show and more snippets that I’d want to put together. I realized that it would just make this episode super long. At the end of the day, I hope that from the four clips that you’ve experienced, you’ve seen one, the power of focusing, building partnerships, what it takes and how to come together to make that happen. The importance of doing your due diligence on sponsors and passive investments and then wrapping up with a process of being active in this space with Charles Seaman on the end.

Thank you so much for celebrating 100 episodes with me. I will be back with more amazing things coming very soon. For those of you who have been following me, I have most recently launched masterclasses. Look out for them. They typically come out air on Thursdays and I will be sending emails to the extent that you’re not on my email list as yet.

If you want to get onto my email list, the best way to do that is to just go to my website, LisaHylton.com/Invest, sign up to invest. By signing up to invest, you get onto my email list. You’ll be in the loop on everything that is going on like masterclasses, webinars, live podcasts viewing, and all that good stuff. I’m looking forward to getting to know you and enjoy the episode. Until next time. Keep leveling up.

Important Links:

• Michelle Bosch – Previous episode
• Annie Dickerson – Previous episode
• Jeremy Roll – Previous episode
• Charles Seaman – Previous episode
• LisaHylton.com/Invest

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