BiggerPockets Real Estate Podcast - 115: Getting Started with Apartment Complex Investing with Jeff Greenberg

Episode Date: March 26, 2015

Have you ever wanted to invest in apartment complexes, but were unsure how to start? That’s the topic of today’s BiggerPockets Podcast episode, where we sit down with apartment complex investor Jeff Greenberg. Jeff shares a ton of actionable advice on how to analyze, find, and finance larger multifamily investment properties! If you want to benefit from the big potential profits this kind of real estate investing can offer, don’t miss out on this informative episode. In This Episode We Cover: The details of Jeff’s first deal How best to fund a commercial property What exactly portfolio lending is How to start out with no experience Why professionalism works in real estate What you need to know about LOIs Why building relationships matters to your success The importance of having a mentor How to evaluate a commercial property Tips on forming the team you need to start investing Jeff’s methods for finding great deals Mistakes he made during the course of his career And SO much more! Links from the Show: Trivia Email BiggerPocket’s News LoopNet BiggerPockets Ultimate Beginner’s Guide to Real Estate Investing 99Designs BiggerPockets Forums Books Mentioned in this Show The E-Myth Revisited by Michael E. Gerber Rich Dad Poor Dad by Robert T. Kiyosaki Rich Dad’s CASHFLOW Quadrant by Robert T. Kiyosaki Connect with Jeff Jeff’s Website Jeff’s BiggerPockets Profile Learn more about your ad choices. Visit megaphone.fm/adchoices

This is the Bigger Pockets podcast, show 115. You're listening to Bigger Pockets Radio, simplifying real estate for investors large and small. If you're here looking to learn about real estate investing, without all the hype, you're in the right place. Stay tuned and be sure to join the millions of others who have benefited from BiggerPockets.com. Your home for real estate investing online. What's going on, everybody? This is Josh Dorkin. host at the Bigger Pockets podcast here with my wonderful co-host, Mr. Brandon Turner. What's up, Brandon? How are you? You got to get some more descriptive words. Awesome, wonderful, fabulous occasionally.

I've said fabulous once in a lot. I know, I know, but we got to get some more. Like, we need a list. Stupendous. My stupendous co-host. Or just do something. All right. So, cool. I'm doing well. I'm doing well. Nothing really new is happening because we are recording these podcast like quickly. So we just recorded one the other day. But, you know, life's good. Yeah. Yeah. And all as well. All's well here. You know. It was. And you met a waiter who knew who you were. I met you're a celebrity. Who is a listener to the Bigger Pockets podcast. In fact, he's like, aren't you the guy who's the co-host of that show with Brandon Turner? And I was like, yeah, actually, no, that's not me. That's you. Well, good job. Glad you could be my co-host.

Yeah, that's funny. You got recognized. I've never been recognized. So, somebody recognized me. Come on. There's like nine people listen to this show. At least one of you got to leave your little circle of podunk. Oh, I guess that would help. You are in a tenant market. I ran into a friend one time when a guy from BP ran into me at Starbucks, so that kind of counts, right? Yeah, that's awesome. But I like live there. So, of course, the odds are in my favor. All right, moving on. Let's do today's today's quick tip. Tip tip. Quick, quick, quick. I can't say. I don't know what you just said. Today's quick tip is today's tip tip is check out the real estate news and headlines section on Bigger Pockets

where you can get there you can get there from the navigation bar on BP or by going to BiggerPockets.com slash news and you can see the latest news in the world of real estate because as a real estate investor, of course, it's a pretty good idea to stand top of the news that could affect how your investments turn out. Wouldn't you agree? Cool. Absolutely. Biggerpockets.com slash news is the direct URL as Brandon said. There we go. All right, well, let's move on to the trivia question. On last week's show, we sat down with Scott Sutherland, and he shared with us about the wonderful world of owning vacation rentals. He mentioned on the show that he uses three different websites to market his properties.

So what three websites does he use? If you think you know, send an email to trivia at biggerpockets.com for your chance to win the digital version of my book, The Book Uninvest in Real Estate with no and low money down. That is today's trivia. I have an uncomfortable question for you. If your rent collection drop to 80% next month, how long would your cash flow hold up? What about 70% for the next three months?

Would your cash reserves cover it? I talk all the time about scenario planning. Smart investors don't just model the upside. They also pressure test the downside. This is even more important in a down market. And that's why I like Stessa's stress test report. It lets you model different rent collection scenarios, adjust expenses.

assumptions and instantly compare the results to your real bank balances. It's one of 12 professional grade reports inside Stessa Pro. Try it for yourself. Visit stessa.com slash mkTG slash bigger pockets and get six months of Stessa Pro for free because it's better to discover your risk in a report than in a recession. Do you ever notice how every passive investment somehow turns into a very active lifestyle, active spreadsheets, active phone calls, active stress? Here's a better question. What if you could buy brand new construction homes, 10% below market value, and the best markets across the country, without making real estate your second job. That's exactly what rent to retirement does. They're a full-service, turnkey investment company handling everything for you. In some cases,

investors get 50 to 75% of our down payment back at closing, plus interest rates as low as 3.75%. They've partnered with Bigger Pockets for over a decade, helping thousands invest smarter. If you want to do the same, visit biggerpockets.com slash retirement to learn more. For decades, real estate has been a cornerstone of the world's largest portfolios. But it's also historically been sort of complex, time-consuming, and expensive. But imagine if real estate investing was suddenly easy, all the benefits of owning real, tangible assets without the complexity and expense. That's the power of the Fundrise flagship fund.

Now you can invest in a $1.1 billion portfolio of real estate, starting with as little as $10, The portfolio features 4,700 single-family rental homes spread across the booming sunbelt. They also have 3.3 million square feet of highly sought-after industrial facilities, thanks to the e-commerce wave. The flagship fund is one of the largest of its kind. It's well diversified, and it's managed by a team of professionals. And it's now available to you. Visit fundrise.com slash BP Market to explore the fund's full portfolio, check out historical returns, and start investing in just minutes.

Carefully consider the investment objectives, risks, charges, and expenses of the Fundrise flagship fund before investing. This and other information can be found in the fund's prospectus at Fundrise.com slash flagship. This is a paid advertisement. All right, guys, so let's bring in our guest, Jeff Greenberg from Southern California. Jeff, welcome to the show. It's good to have you, man. Well, it's good to be here. Great, great. Today we're going to talk about your journey a little bit and apartment complexes, because I think that's what you kind of specialized in. Correct me if I'm wrong. But that's kind of where we're going to head today. So maybe we'll start at the beginning. First of all, where are you located at? I'm in Southern California.

Okay. And do you invest in Southern California? No. Okay. Why not? Let's start there. Why not? For most people, I think it's fairly obvious. We just can't get the returns. And because we bring in other investors, we can't get a return that we can offer them that they're going to be interested in. There's too little there. Okay. Got it. Yeah, I had a wholesaler reach out to me the other day and said, hey, I'm down Southern California and I'm a wholesaler and I'm looking to send deals. Are you interested? I said, sure, I'm looking at multi-families, but I doubt I can buy anything in your area. And he's like, oh, I'll send you some great deals. So he sent me a list. And they were just, I mean, like, 0.2% rule or, you know, like, I mean, it was just 10 times worse than what I would find up here. And I'm like, that won't even.

That's not a deal. That's not even close. Yeah. So anyway, I fear for those people that are down there. I feel bad for you guys. But you're making a work because you're investing out of the area, which we'll probably touch on later. But maybe we can talk about your first deal.

I mean, when you got started, let's talk about your very first. investment. What was that? Well, as far as in multifamily? We can go either. Period. I dabbled a little bit in single family, but it was at a horrible time. It was when everything was dropping in

2005 and tried foreclosures, REOs, and it just wasn't happening because the banks weren't working fast enough, and it just didn't work out. So that's when I started looking other areas, other avenues.

and started looking into the multifamily arena. Okay. And maybe that's an obvious question. Maybe you kind of answered it there. But you said, I guess what I'm trying to get at is like, spit it out, boy, spit it out. Why did you decide multifamily when single? I mean, lots of people are succeeding with single family. So why did that pop into your head of, you know what?

I'd rather just go multifamily instead of the single. Most people sit in single for 20, 30 years before going multifamily. So why are you different? I was at a real estate event. And I met somebody that was. pushing his seminars on commercial, and for some reason, that clicked with me. The extra zeros at the end of the numbers clicked with me, and it just sparked my interest. It was a lot more interesting than dealing with the single families.

Gotcha. That was basically, yeah. So how did that journey go? I mean, we'll forget the journey, but let's talk about the first deal. So, you know, you decide you're going to go multi. What was the first property that you looked at? well, that you ended up purchasing, how'd you purchase it, and any more information about the deal would be great. Yeah, that one, it ended up coming from a broker relationship. It was one of these deals where I went on LoopNet to find properties, found some properties,

talked to the broker about those properties, which of course weren't good deals. But I started up a relationship with the broker who was a displaced Californian and were living in Texas. and we ended up getting a fairly good friendship. And so when he finally took a little while, but when he got a deal that actually the bank came to him, that the bank had some developers that ended up stuck with their properties. This was like in 2010, they were stuck with some foreplexes. And the bank came to him. And so I was the first one that he called because of our relationship.

And he said, here, this is perfect for me. So basically what it was was five fourplexes on the same cul-de-sac and with two different developers. They were built in 2007, 2008, and they ended up getting stuck with those, and they were lousy property managers. They may have been fair developers, but they were not good property managers. So the bank was desperate to get somebody in there that could run the properties properly, and to pay their bills, they were a couple years behind on their taxes. and the bank wanted us. They met us and they wanted us in there. We did not even fill out any loan documents.

Basically, we got the loans on all five of those properties by handing them there our financial statement and they wrote up the contracts and we signed them, but we never applied for loans. It was a fabulous process. Interesting. We hardly paid anything in closing costs. I think we figured it out that we paid about. 0.75% in closing costs.

Basically third party reports is all we paid for. Wow. The bank didn't charge us anything. That's cool. And that is one of the fun things about, from what I've seen so far in my, you know, career with commercial or multifamily investing, is that when you're dealing with the commercial side of things,

like things are different. Things are like, I don't know, like there's no set and standard. I mean, try saying you go get a Fannie Mae Freddie Mac, you know, house loan and try to, tell that same story, it'll never happen. I mean, they have to have every, you know, I dotted and T-crossed, and you have to do exactly their form application, and everything has to be the same. But with the multifamilies, you get a little bit more variety or options. I think that's kind of a cool story of how you did that. Yeah, I agree. Well, it kind of, it was,

I mean, it was, I mean, we call it a commercial loan and they called it a commercial loan, but essentially it was a residential. Basically, they're five fourplexes, and we have five loans on them, but they still put it all together. And because it was a portfolio loan where they're keeping it in house, they didn't have to go through all that. That was what made it good. For those people who don't know what that means, maybe you can kind of expand on that portfolio lender. What does that actually mean? Well, basically where the bank keeps it in house, they don't go and sell it off or package it off to somebody else. And what's the advantage of that to an investor who's looking for a loan? Well, the banks have a lot more flexibility on what they can do.

They don't have to follow all of the rules. As Brandon said, you know, fill out all the other forms and make everything up to all the regulations or all the rules that are in place. They have a little more flexibility in those. In the past four years, I think every single loan I've done in four years now has been a portfolio loan. Because once I hit that max number where I couldn't get any more, I think, you know, I have whatever number of properties. But I can't get any more loans under that. So then they go to the portfolio lender and they're much more willing to work with me. Now, that's not to say, and again, people oftentimes think that portfolio lender means it's going to be really easy to get the loan.

I can walk in with no credit, no money, and no experience, and they're just going to throw money at me, and that's not what it is. But definitely more flexibility. That's great. Hey, Jeff, so you had said that they wanted you. Up into this point, what was your experience? And then why did they want you? What did you offer that was of interest to them? Not that I'm not saying, you suck.

I'm just saying, you're like, hey, Jeff. What did you bring to the table? We brought to the table a professionalism. We did not have experience, even though my business partner, she had done some singles and stuff, but we did not really have multifamily experience. Now, we were at the time invested as a passive investor in a large portfolio of 700 units, a $20 million property, and the bank was impressed with that. they thought that

they thought that was great and that added to our credibility the other thing is we came in very professionally we wanted to be there where the developers basically wanted out and we just came on as a

professional group what does that mean I mean you know professional you're talking to Brandon and Josh I mean we don't know professional from you know whatever clearly no I mean it's a good question It's just that we came in there and we knew how to evaluate multifamily properties.

We knew how to manage the properties, mainly from learning from different sources because we really weren't experienced in that area, except for the investment that we were in where we were able to learn from the other group. So we did learn by being invested in another portfolio. What did you show up with? I mean, you know, you're coming to the bank with this professional loan package. you talked about financial statement. What else besides, you know, obviously, you know, being an intelligent individual and talking about your background, but you came with a bunch of paperwork.

What did you bring? What came with you into the door there? As far as the paperwork, essentially it was, as I said, our financials. We did come with a resume, and I believe we had a business plan. Okay. So we did make up a business plan telling where we wanted to go and where we were, and it just made us look very professional by, handing them that. Was the business plan for that particular package, or was it for your business as a

whole in real estate? It was for our business as a whole. It had nothing to do with that particular property, no. Gotcha. Okay. That's great. So this is something that I harp on people all the time to do in emails and when I do webinars and everything else is that professionalism angle is so important. Just to illustrate that real quick, last year I was trying to get a refinance on a fiveplex that I have. And so I went to one bank who was known to be a good portfolio lender. And I even had a recommendation from a friend who introduced us that, you know, everything right, right? So I go to meet with the guy.

And I just, like, I was in a, you know, it was a busy time. I think I was in the middle of writing the last book or whatever. And so I just like, like, brought him this stack of papers. And I was like, here, you know, the property is great. It's worth about, you know, 40% more than what I have into it, maybe even double, you know, or 140% more than what I have into it, whatever. It's, you know, it's got a lot of equity in it. I'm fine.

Can we just make this happen? And a month went by and he didn't do anything. thing. And then another couple weeks went by and I got a phone call. And then the end, he rejected me. And I'm like, this is a, I'm a perfect bowler at this time for this for this thing. And everything was perfect about the property. But I was so unprofessional on how I presented it. So then a few months went by and I was like, okay, I'm going to do this again. Went to a different bank. And this time, like I went and I did, I mean, me and my wife spent a whole weekend just making the most like detailed perfect analysis like packet and a resume and a business plan and all this

fancy stuff. I brought it to that bank. And within like three days, I had an approval. then we closed a month and a half later. So, I mean, there's just such a difference in being professional versus not. And I think people should definitely take key to that. But going back to my original thing before, Josh, and maybe, did you want to say something on that? I saw you open your mouth. Well, I was just going to say that I absolutely agree with you that you're, what you're handing them as far as documents is showing them your professionalism. And that means a lot more than just those documents.

It tells them about you. Yes. And especially, I think with, well, either with the small banks, you need to be professional. And when you're working with the bigger lenders as well, you're coming across, you know, they don't know you. So the only way they know you is buy your documents. Yep. Absolutely. And a commercial lender doesn't invest in property.

They're not investing in a deal. They're investing in you as a customer. And so they want to know that you're a professional. That's why, like you said you didn't even bring anything about the deal. You brought it about you and your business. And I think that's huge. But now what you just said on that, though, I mean, on the commercial lender, I think, they do. They want both.

Oh, yeah, yeah, for sure. Yeah, they want, it used to be, it used to be that they didn't look at the person as much. And I remember when I was first learning about commercial, they said, oh, yeah, you can get commercial. You know, they look at the property. They don't even care about you. Well, that's long gone. Yeah. They still look at you and they weigh it as well as the property. Both are very important. Yeah, I agree. I'm thinking more, they're never going to land on a bad deal, but if they don't like you, they don't think you're a professional. It doesn't matter how good the deal is. They probably won't lend down you today. But then just to touch on real quick, what you said earlier, and then we'll move on. You said you invested in that 700 unit property. And we don't need to dive too deep into that or anything. But the fact that you did that added to your resume. And I just think that's kind of cool. And maybe people who are trying to get started today and struggling to kind of build that resume for themselves. That might not be a bad way to do it is find somebody else who's investing and just invest with them, you know, just latch on to their experience and that level. Do you think that's a good idea? I mean, are you glad you did that deal for that reason? Anything you want to say on that?

Absolutely. And I was, I was very surprised when it had pressed them as much as it did. Well, that was, you know, I did it for the experience because I felt that the person I was investing with was going to give us a lot of information when we had our conference calls. And I would learn a lot from them. But what I didn't expect, I didn't expect the lender to be as impressed as he was. So I learned, I got quite a bit out of that. Hey, Jeff. So at the end of the day, I mean, you were just private money in that deal. Is that correct? Yes.

Okay. Yeah. So that's really interesting. The bank, you know, looked at you and said, hey, this guy's got experience. You had nothing. You literally gave your money to somebody else who had the experience and it just attached itself to you. So that is really fascinating.

And frankly, if any of our listeners have similar experience, we'd love to hear about it. And, you know, you can share your story. on the show notes at biggerpockets.com slash show 115. So great. Yeah, thanks so much for sharing that little tidbit there. Yeah. Cool. All right.

Hey, let's move on. So today, well, first of all, how many deals have you done now, like apartment-wise? Well, that was, we've done two. Basically, we've got, that one was a 20 unit and we've got a 60 unit, a 62 unit out in Houston. Awesome. And I think, and I think I'm under contract now for some property out in Ohio. You think you're in contract?

I'm not just saying. They called me up and said they liked my LOI and they were, I mean, we're not under contract, but they've got the LOI. What is an LOI, Jeff, really quick? Letter of intent. Thank you. Good. Just on the letter of intent, rather than going to contract and spending money on a lawyer to look over a contract, we just do the LOI. and if we can agree on the major terms

and then we go to contract after that. That's great. Cool. So what you're saying, and just to kind of rehash for everybody listening, you go, you find a deal, you kind of go back and forth on terms,

you write a letter of intent with those terms. If you guys agree to all the terms in the letter of intent, then you go and you spend the money with the lawyers and you kind of get the real contract drafted up. Is that correct? That's correct. Okay, good. Nice, nice. All right, so tell us about that property. I mean, that's, you know, Houston, why Houston, how'd you find the property? Was that also a loop net situation or how'd that come about? No, it was not a loop net thing, but the funny thing is it was also a broker relationship.

Okay. And it happened to be the same broker. Nice. There you go. There you go. Who was moving. The original one was out in the Rio Grande Valley over there by McCallon, Brownsville area. But he's expanded his office to Houston. And basically he found the property on a cold call where he went to one property. The owner was there, said they didn't want to sell that property, but that they had another property that they were interested in selling.

And again, I was the first one he called. He called me up. And so we purchased that property down in Houston. But I had been looking in Houston and I was interested in Houston. I just hadn't gotten something yet. Okay. Hey, why were you the first person he called? I'm sure he's got other clients that are looking for deals.

What did you do to put yourself at the top of his list? Well, we've had a relationship for quite a few years now that we talked back and forth. And as I said, he was a displaced Californian. So we just had a lot of things in common. And I guess he likes me. He feels that we could close on the deal. and he's got other people. He upset a couple other people

that could have come in with all cash, but he preferred to come in with me because of our relationship. There you go. And that says it. I mean, for those people listening, I mean, this is a relationship business. And by fostering those relationships,

you can put yourself to the head of the back. I mean, it's as simple as that. And I hope all you guys out there, you know, are thinking about this, not just from the purpose of like being out on our site networking, which is extremely important, but in person, you know, syncing up with the brokers, if you're looking at commercial or residential, just going to know the other investors in your area who's doing deals. Because at the end of the day, if it's you versus somebody else,

they know you, they like you, then they know you can close. You're going to win out. So that's great. Well, so today we want to focus on the topic of getting started with apartment complexes. And so I guess, you know, ultimately, you know, the question that begs itself here, I think, should people consider starting with large apartment complexes? Is that something that you would suggest? You know, the dilemma with getting into the large apartment complexes is there's a lot of moving parts. I think it's a great way to go, and I don't feel that people have to start with single family to do it. The main thing is I think that you have to find somebody that is doing what you want to do,

and that's with any subject, that's in any area of real estate, is find someone that's doing it and find a way of being a service to them and learn from them. And I love, you know, I love the apartments. I love that concept and it's kind of where I went to. I don't know if it's for everybody. Yeah. But the idea of finding a mentor and working with them to learn. So if, you know, a lot of our listeners have never done this and see it is just so far above

and beyond where they are. I don't necessarily think that's the case. But there are lots of moving parts. You know, if you'd be willing to, you know, I'd love to hear kind of some of the things that go above and beyond what we're looking at on a, you know, say a two or three family or even a single family. You know, what are the differences? You know, obviously financing, but beyond that, what else? Yeah, the financing is a big one, making sure that you qualify for the financing. And just a little bit on the financing, though, is you're not talking about income. They don't really care much if you have a W2 income. You could have no W2 income as far as that's concerned.

But they're looking at net worth and liquidity. And a lot of the things we look at is if, okay, if we don't have the net worth of liquidity, we've got to find somebody to bring in there to join with us. And commercial is so much more of a team sport. I mean, single family is too, but commercial is so much more. besides the financing and having to deal with having the liquidity and the net worth and experience, you also have insurance issues. Dealing with insurance on commercial properties is a whole other thing.

Then you've got, if you're going to be raising funds, you've got the securities and exchange stuff. So you've got to go and get your private placement set up. You also have to know enough people where you can get the investors in to raise the money. You've got a lot more money to bring it in. And those pieces, a lot of times are moving all at the same time. Yeah. Is that how you financed your two properties that you've got so far as private placement? Or did you come with cash?

Or how did you buy your properties? All of those, both of those properties are with private funds. Okay. Okay. Now, for me, that just feels kind of overwhelming, right? Like that entire idea of like, because I don't know anything about that. Other than we've talked to people in the podcast, I don't know hardly anything about the idea of raising money. And I know you're not an attorney and all that and people should talk to him.

But how do I even start that process? Who do I talk to? I mean, do I just call it my, you know, divorce lawyer? Not that I have a divorce lawyer, but, you know, like, a guy who does. Oh, Heather Turner. Yeah, she'll listen to the show. No, but, you know, like my attorney does like everything from divorces to, you know, bankruptcies to evictions.

Do I call him up? Do you got a special guy that does your stuff? I mean, how do I get started with the securities thing? And the securities things, definitely you want to have somebody that specializes in the securities, not somebody that just does it as a side job. You want somebody that knows it that's current on it and to learn from there. There's a couple books out that give you some information. But, I mean, I've gone to several seminars, quite a few seminars on doing syndications.

And there are some people that do it. In fact, Joel, I'll mention Joel is one of those people that do some syndication workshops and stuff. You know, you've got to talk to people and learn what's going on because there's, there's a lot of things that you can trip up on. And you can, you can end up with, you know, with an orange jumpsuit in a six by eight in a six by eight room. So you do have to be careful with it. Yeah, yeah, it makes sense. You got to be careful. People love to call real estate passive income, which is interesting because most of the investors I know are very busy. Busy finding deals, busy managing teams, busy worrying they picked the wrong market. Rent to retirement flips that model.

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real, tangible assets without the complexity and expense. That's the power of the Fundrise flagship fund. Now you can invest in a $1.1 billion portfolio of real estate, starting with as little as $10. The portfolio features 4,700 a single-family rental homes spread across the booming sunbelt. They also have 3.3 million square feet of highly sought-after industrial facilities, thanks to the e-commerce wave. The flagship fund is one of the largest of its kind. It's well-diversified, and it's managed by a team of professionals. And it's now available to you. Visit fundrise.com slash BP Market to explore the fund's full portfolio, check out historical returns, and start investing in just minutes. Carefully consider the investment objectives, risks, charges, and expenses of the

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All right, cool. So, all right, so that's kind of your first, you know, you talked to an attorney. Is that the first step or is there another step? Like, what's the first step in wanting to get into apartment complex? It's like, I want to get into apartment. Do you find the build? My question is, and I think you might be trying to get there is, you know,

do you find the property and then take a first step? Or do you go and say, hey, I want to buy, you know, big apartment complex. Let me talk to the lawyer. Is it a chicken egg? Find the property, then talk to the lawyer, or talk to the lawyer, then the property? The first thing that you're going to want to do is, and I'm going to, I guess Brandon was more alluding to this one, is the first step is to learn how to evaluate a commercial property. That's the first thing. You've got to learn how to value it before you could find it.

Because, I mean, the first property that I put an offer on was up in Fresno. and I learn from a home study guide. And fortunately, I mean, I put in a low ball offer and then fortunately, later on I learned that my offer wasn't even low enough. Fortunately, they didn't take it. Fortunately, I didn't get into contract with it because I would have been in some big trouble in the first place. But so evaluating the property is the key first. and learning, you know, including the economy of the area, the, you know, the market, all the stuff about the property that you typically have to learn.

That stuff is critical first. While you're learning that, you're meeting people, you're talking to people, getting people to know you, you really do need to build up a credibility. When you do a syndication, people are trusting you with their money. And that's a big, big responsibility. and they're not going to do it lightly. And so you have to come on as a knowledgeable, credible, honest person in order for them to be interested in doing it with you.

So to answer your question, which one's done first? The main thing is learning how to evaluate the properties. Then it goes to looking for the properties and meeting people at the same time because you need to get the investors. Why would you do that instead of going to the bank and just getting a commercial loan? I mean, you know, say I've got, you know, I don't know, a couple hundred thousand or a million bucks in the bank, why would I go and, you know, go through the rigmarole of setting up a syndication and doing that, then just going at it alone?

Okay, if I had the money to buy the property outright, is that what you're saying? Sure. Well, I mean, if that was the case, the main reason is leverage. You're going to get a much better profit off of using the leverage. Yeah. That's the main thing. Not only that, that money could be used for the next property or, you know, you always have to make sure you have enough in reserve.

So you, yeah. And I've seen people on the podcast, they go and say, oh, okay, I have, you know, $100,000, what can I buy? And someone says, oh, you can buy, you know, a $400,000 house. You come in with $100,000 down, you know, and then what? Yeah. And they have no money for closing. They have no money for repairs.

So it's not only do you need the money for the down, and the closing and the insurance first year and operating costs and all these other list of things that you need when you walk in the door, you know, you need to have quite a bit of money around as in reserve. Yeah. Yeah. Right on. That makes sense. And, you know, a piece of, a smaller piece of a big deal is better than no piece of no deal, right? Yes, absolutely.

Right on. Well, you mentioned earlier team. Like, you know, building you, it's a team sport, I think is what you said. So do you mind sharing a little bit like, who should a person start developing to put on their team, so to speak, when getting started with apartment complexes? Well, you need, obviously you need the real estate brokers. And you need a broker that understands what you're looking for. Many times I've had brokers bring me a property that, you know, there's, oh, it's a wonderful property. It's beautiful.

It's, you know, 100% occupy, you know, blah, blah, blah, blah. But there's no value add. There's no room for me to move on it. And then they'll go and say it's a five cap, which for those people that don't understand cap rates, if you paid all cash for the property, you would be getting a 5% return on that property without any leverage. So that would basically be a five cap. Okay. I was chewed up and down by a broker in Austin when I told them I only will look at properties that are at least at an eight,

an eight and a half cap and he chewed me up and down telling me that I wasn't going to ever see any of those in Austin and he said if I'm lucky I'll see a six a six cap or something and you've got to get a broker that understands what you need and what you're looking for so that's probably the first team member you need that's great advice great nice who else you need to get a lawyer in that state the transaction lawyer that's going to be able to look over the contract look over your your loan contract, look over title documents, and that stuff. So that would be that. You're going to, a lender, you need to get relationship with lenders,

and that can be a national lender on the smaller properties. You may want to go with, you know, your smaller banks, some of your local lenders. But you do want to get for the, if it's a big enough property, you want to get with your national lenders. You'll get much better terms on your national lenders. No, good to know. Yeah. I mean, people come to me and say, oh, yeah, you know, I've had, I had somebody said,

Well, first of all, when I've been working with smaller properties, say a 20 unit or something, it's usually mom and pop owner. And they give you their financials that are crap. You know, you have to sit there and pick and choose and figure out what the heck's going on. And I would always say, well, look, I can't take this to my lender. And my lender needs, you know, appropriate financial documents. And they said, well, you can go to my lender. I said, okay, I'll go to your lender and see what they have to say. And they would send me off to their local bank.

And back when we were getting 3% loans, this lender was going to give me an 8% loan with maybe a 15-year amortization or something. I said, yeah, I could really go to your lender. That just doesn't work. So if I need to go to a decent lender, I need decent documents. Yep. Yeah. And that's a good point about, you know, we talked earlier about portfolio lenders. And that is something that I deal with.

And we all, I mean, like my small little local portfolio lender that I went to, it's great. right, but I'm paying five and a half percent on that money, where had I gone to maybe a larger bank, I may have gotten less. I may have gotten four and a half percent or maybe even lower than that. I don't know. I am paying higher for the convenience of that portfolio, at least in my experience. Have you found the same? Your smaller banks are going to give you higher interest rates and shorter amortizations. It's hard to get a 30-year amortization from a local bank. They're going to go 20, 25 years. And like I said, I was even offered 15. Yeah.

And that can really hurt. Those people who don't understand what that means. I mean, the shorter that your amortization is, the higher your payment is because it means that your loan is actually due. And, you know, it's spread out over 30 years or 25 or 20 or 15. So you can imagine because it's spread out so much shorter, it's going to be a lot higher payment. So, yeah. Well, that kills your cash flow. Yep.

But in the end, that may not be so bad because you're paying it down faster. Sure. If you can afford, if you could survive with that cash flow. then you could be okay. But, you know, yeah, your payments are much iron. One of my properties I'm doing a 15-year loan on for the very reason of I want to pay it off in 15 years. I'm not going to take any cash flow. And in 15 years, it'll be paid off.

And, you know, that's what me and my partners on that property decided would be our path, because that's what they wanted to do. They retiring in 15 years. They felt comfortable with it. So, yeah, like you said, it kind of comes down to what you want and kind of what your goals are. So I love that. Nice. Cool.

All right, moving on. Let's talk about finding them. We talked a little bit about LoopNet. You mentioned that earlier in broker relationships. I mean, is that kind of really the gist of it is find a good broker and have them find something for you? For the most part, the other thing that I have been doing more of lately is as I meet more people in my different real estate events or on bigger pockets or wherever I happen to meet people, I let them know what I'm doing. And I say, look, if you find something, a lot of times I'll find people. that are doing small multis.

And I said, look, you find something in your area that's too big for you, let me know. And maybe we can team up on it. And so I do a lot of that where if somebody has a good deal in a location that I have a reason to be there, I may team up with them and do a deal with them. So that's another way that I'm reaching out. That's great.

That makes sense. That's how you find them. So let's talk about what do you do once you find it? Do you write up and off, is this the same as single family? have your broker write up an offer and do it. You mentioned the letter of intent earlier. Is that always the first step? I mean, what are your thoughts on that? Usually it is because we want to put out as little money and a little time spent on something

before we know if we are in the ballpark. We'll make an offer. And in the letter of intent, we've got basically how much we're going to pay for the property, the timeline, how much time we need for due diligence, for the financial contingency, closing. We'll put a few other items in there, just, you know, the major things, just so we see if we have that going. If that is good with them, then we can go to the contract. Great. Nice. Great.

Cool. Hey, Jeff, so what are you looking for? I mean, you know, you talked about kind of, I guess, a little bit on the numbers, but what else do you want when you're looking for a multifamily? You know, is there markets you're looking at? Is there job growth? what exactly are you analyzing when you look at the big picture before you go ahead and make an offer on a property? Well, the market is extremely important. And I have an intern that's working for me and he'll go and analyze.

I'll throw everything at him to analyze. And he'll come back with a property and he'll say, make sure I want to know why I want to be in that market. So the numbers have to work on the property, but I also have to want to be in that market. If it's a new market for me, tell me why. What's the going on in the economy? What industries are in there? What's bringing people in? The population.

What's the age population? Are they renter age? You know, just different things about the market, the economy. I'm open to new markets and I'm open to smaller markets. The main thing is there has to be a reason that I'm interested in that market. That makes sense. That makes sense. Perfect.

Cool. All right. Well, before we move on to the fire around, I have one more question for you. And what kind of mistakes have you made in your investing career? Anything that you can, that stands out as, you know, stuff that you would probably do differently or do do over you wouldn't want to do again? He hasn't made any mistakes. Would you stop? Just go to the fire round.

Come on. There's been, there's been so many. I couldn't get on. Let's see, which one would be? You know, it's really funny. So I had somebody, somebody was like ripping on us for some reason. I don't remember what the deal was, but he's literally like, you know, on every show, you guys talk about. about mistakes. I've never made any mistakes. It was literally what he was saying. He's like,

why do you tell people that they should be making mistakes? Like, we don't tell people they should be making mistakes. We're not saying go make mistakes, but like by virtue of doing what you do as a real estate investor, you're going to make mistakes. And if you claim that you haven't, you probably haven't done enough deal. You've probably done a deal or two, if you're lucky. You probably haven't left the house if you haven't made a mistake. There you go. I made a mistake when I put on this shirt this morning. It looked like Brandon. Yeah, I almost mistake.

Anyway, okay, so go ahead. Well, there's been many, many mistakes. Fortunately, a lot of the mistakes we were able to pull out of the deal before we completed a deal. Okay. Like you mentioned earlier, that same thing about how you offered too much. Yeah, exactly. Yeah. Exactly.

And there was another one I remember that I did that I made an offer. on a property and the right thing I did was I contacted a property manager to go by there and look at the property for me and this was in a college town and when she came back and told me about it, she says, well, you know, this really isn't a student housing because that was kind of their niche. And I said, well, what do you think? And I said, it's just really not our kind of thing. And it ended up, I did not get that property that I was outbid. But I did go to that town. It was in San Marcos. And we looked at the property, and the property was next door to a vacant house that looked like someone had torched.

Across the street was an adult bookstore, and the next door to that was a tattoo parlor. Oh, come on. Sounds like my kind of neighborhood. You know, yeah, baby. Come on now. Party time. Yeah, so I was, you know, so I guess I really didn't make any mistakes on that one because it, fortunately, we didn't get it. Yeah.

But the one mistake that I can think of is we had a broker. We were buying, I think it was a hundred unit property we were looking at. And the broker told us what we should be able to get for rents. And so we based our, I mean, we don't base our offer on what we could get, but that's the value add. You know, we figured we were going to get that. But what we failed to ask the broker is what do we have to do to those units in order to get those. And so we learned that and that's something we make sure of all the time is we say, yeah,

we could get those rents as long as we put at least $3,000 in each unit. And then we could get those rents. But that was something we didn't realize until we had gotten there and we always shop other properties. We go and see what other properties look like and to see what their rents are to compare what we expect to get. And our units would have needed a lot of work in order to get those rents. That was just one of the mistakes. Terrific advice. Cool.

Awesome. All right, moving on. Why don't we move this over to the world famous Fire Round, which today is sponsored by 99 Designs? 99designs is the world's largest graphic design marketplace that makes it easy to get a design like a company logo, a website, a t-shirt that you'll love and you'll get your brand out to your community. So just go to the website.

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All right, the fire round. These questions come directly out of the Bigger Pockets forums. And I know you've probably even seen these because some of these when I was pulling them, you would actually answered in these threads. So these might sound familiar to you from a while ago. But number one, this comes from a guy named Tony from Orlando, Florida, wrote in the forums, I'm having trouble finding a large 20 to 30 unit apartment building.

Should I instead just look into buying multiple smaller buildings, like maybe three or four unit properties and getting a bunch of them? Well, the thing I like about the larger properties is the management. But it depends. It depends on what you find. I like the bigger ones. For me, the 20s are a little too small. But for somebody just starting out, that may be a great way to go.

You just need to find proper management as the main thing. Unless it's in an area where you're going to do the management yourself, if it's close enough. Yep, makes sense. Good, good, good. All right, this is from D.L. from Cincinnati, Ohio. And his question is, I hope it's a his, because I did not write DL. So DL, if you are a her, I apologize in advance.

So the question, the question is, I've read that I should strip all the garbage disposals from my apartment complexes because they cost so much to replace. What do you think? I would not. I probably would. I probably would because it's going to cause you more maintenance problems. And if we had any, we would probably take them out as they broke. They're just more of a hassle.

And for some reason, people that live in apartments, I guess I don't want to, I don't want to stare at. stereotype. Stuff crap in the garbage disposal. Delete that. It just seems that people that have not used garbage disposal before don't know how to use them. Yes. And you're going to end up with more issues. Yeah.

Why is my hand bleeding? I don't understand. What I get with the garbage disposal is they burn out. Like the engines burn out or something. I don't know what they're doing. Or the blades just disappear in size. I think they're like shoving like metal like, I don't know, skis down there or something. Chicken bones, maybe.

Yeah. Yeah, it happens all the time. Anyway, we remove them as they go. So, all right, next question. Josh from, how do I say this name? Encinitas. California is wondering, I'm thinking of buying an 18-unit apartment building that is in the same complex as 70 to 80 other units.

So it's like a, I think they call like a condos eyes or something. Anyway, it's like it's only a portion of the 70 to 80 units. Is this a bad idea knowing that I have a lot less control over the rental price and the HOA fees and such? I would say it's a very bad idea. If you don't have a control over the majority of the units, I would stay away from it. If you had control, we were looking at a property where we were going to have control of the HOA because we would have a majority of the properties, that I might consider doing. But I certainly wouldn't consider coming in as a minority owner and being at the control of the HOA.

Okay. Makes sense. Yeah. Makes sense. Right on. All right. last question. I'm looking to get into my first apartment acquisition, hopefully five to 10 units to start. What's the best route for financing a small down payment, 10 to 15K? But I've got a very

high credit score, and that is from Doug from Pittsburgh, Pennsylvania. I would go and look for private money. So you'd check out, find, talk to your relatives, your family, friends. That's the best way to start. Have them look at what they're, what they're earning on their, their funds. And if this property will bring them in more, maybe they'll be interested. There you go. Good stuff. All right.

Let's move on to the world famous. Famous for. All right. These questions we ask everyone, so we're going to fire them at you here. Number one, what is your favorite real estate book? Well, I have lots of real estate book that I have either listened to or read. but I will go with the most influential. The ones that had the most influence on me are books that have been mentioned many times here,

which is the E-Myth, a rich dad, poor dad, and the cash flow quadrant. Those probably had more influence on my thinking than anything else. Right on. And you kind of covered the next question, which is your favorite business book, E-Mith. Yeah, I guess those really aren't real estate books as such. But yeah, with those three, it covers it as far as business books. And I will say that as far as real estate books, what I find more rewarding, and you guys didn't pay me anything to do this.

But the podcast that you guys do and Bigger Pockets, I think that's better than any other book that's out there. And as well as the beginner's guide and the lower No Money Down book, those all have some great, great information in them. Wow. He's my new favorite guest. Look at that. Yeah.

Right on. See, it doesn't take that much work to become my favorite guest. Come on, Ben Labovich. You don't have to make fun of me the whole time. Just send the cat. Just send the cat. Yeah, there you go. There you go.

There you go. Nice. What about hobbies? What do you do for fun, Jeff? I like to cycle for exercise. I also like to ski when I can do that. But I guess the biggest one is spending time with my grandkids. Right on.

Cool. How well do your grandkids? I have 13, 13, 7, 6, 5, and 6. I don't want you to work that hard, man. That would you caught me off guard on that. Sorry, sorry. There's five of them, so. That's cool.

That's great. That's awesome. That's really great. That's really great. Cool. All right, my final question. Jeff, what do you think sets apart successful real estate investors from those who fail? They give up. They never get started.

You know, I think a lot about this one, and people ask me a lot about, about, you know, what makes someone successful. And I think the main thing is, is a big why, you know, a strong why they're in this that keeps them going. It's a lot of pulling it out of your gut and continuing when everything seems to be falling down around you. There's a lot of money to be made in real estate. Nobody's going to claim it's easy.

But I think it's just the drive that there's a lot of people that I've seen have fallen to the wayside because they didn't have either a strong. enough why or they just, I don't know, just couldn't pull it out of their gut to continue. That's great. Yeah. That's great. And I think I agree with you. Yeah. Weird. There you have it. All right, before, weird. All right. So before we go, where can people find out more about you? Jeff? Do you have a website or, you know, where can they get in touch? We do have a website, www. www. Synergetic.ig.com. And synergetic is S-Y-N-E-R-G-G-E-T-E-E-E-T. t-I-c-ig-ig-com.

Nice. Well done. Well, listen, thank you so much for coming on the show. We definitely appreciate it. We also appreciate having you as a member of the community on the forums. And,

you know, thank you so much for sharing your knowledge with us. Well, thank you very much for having me. Thanks, Jeff. Thank you. It's been fun. Bye.

All right, guys, that's show 115 of the Bigger Pockets podcast. Definitely make sure to check out the show now. at biggerpockets.com slash show 115, and you'll get all the information about today's show, links and all sorts of goodies. So definitely check it out. And we like to thank Jeff again for all his help on these questions for you in the field of apartment investing. Really an interesting topic that I know you and I talk about a fair amount, Brandon. So, you know, always fun learning more, right? It's always fun. Sure. Yeah, great. Way to be enthusiastic, man. Way to be with it.

My phone started ringing right when you said that. I'm like, who's calling me? I think it's my lender actually that I talk about in this show, which is funny. Oh, that's awesome. I'll call them back. Call them back. All right. We're recording.

All right. So, that was great. Good show, good show. And, you know, as you heard, Jeff is a member of bigger pockets. You know, even guys of Jeff's stature are out there on the site giving answers, helping people out because in the end, it actually pays itself off. The time you put in does rip the, reward of building your network, giving you trust, and as a result, you become attractive to other

investors and other people who might want to work with you. So we definitely encourage you guys to jump in on the community at biggerpockets.com. Hang out on our forums at biggerpockets.com slash forums. And of course, you can check us out on Facebook, Twitter, Gplus, LinkedIn, and YouTube. And that's it. So if you like the show, please keep leaving us ratings and reviews on iTunes, and you can get a link to that via the show notes again at biggerpockets.com slash show 115 or show 115. And with that, we'll see next week on the show. And I'm out of here. So Josh Dorkin, sign on off. You're listening to Bigger Pockets Radio, simplifying real estate for investors large and small.

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