BiggerPockets Real Estate Podcast - 324: Financially Free in Less Than 5 Years Through Apartment Investing With Michael Blank

Episode Date: April 4, 2019

Do you want to invest in multifamily apartments but feel intimidated by the process? If so, today’s episode is for you! Brandon and David interview Michael Blank, an experienced multifamily investor/educator, who breaks down the seemingly daunting process into super simple steps. Don’t miss Michael’s advice on how to get started in the space, how “the law of the first deal” will increase your odds of success, and how multifamily investing can lead to financial independence in five years. You’ll also love learning common multifamily vocabulary, what an ideal property looks like, and how to develop relationships with potential investors. Michael also shares incredible insight into how he built his empire, as well as his top two negotiating tactics and “three levers” to successfully negotiate a multifamily deal! This is one of THE most informative shows we’ve ever done. Download it now! In This Episode We Cover: How he got started and why he recommends multifamily investing Scaling his business despite running out of of time What is “the law of the first deal”  The multiple ways syndicators make money in a deal Common multifamily terms and what they mean How to improve the value of a multifamily property What an ideal deal looks like Developing pre-existing relationships with potential investors Why cash flow is so important in multifamily His top two negotiating tactics How he bought a 321-unit building, how he BRRRR-ed a multifamily building, and returned 96 percent of their investors’ capital in the process His “three levers” to negotiate in a multi family deal And SO much more! Links from the Show BiggerPockets Forums BiggerPockets Webinar BiggerPockets Podcast 066: Flips, Apartments, & Protecting Yourself From Professional Tenants with Michael Blank BiggerPockets Podcast 108: Building a $350 Million Real Estate Empire Using the 10X Rule with Grant Cardone LoopNet BiggerPockets Bookstore Books Mentioned in this Show Vivid Vision by Cameron Herold The ABCs of Real Estate Investing by Ken McElroy Rich Dad Poor Dad by Robert Kiyosaki How We Bought a 24-Unit Apartment Building for (Almost) No Money Down by Brandon Turner Raising Private Capital by Matt Faircloth The ONE Thing by Gary Keller The Miracle Morning by Hal Elrod Financial Freedom with Real Estate Investing by Michael Blank Tweetable Topics: “The value of the first deal far outweighs any kind of money you can make from it.” (Tweet This!) “Nobody is rich on their first deal, but they’re rich because of their first deal.” (Tweet This!) “I’d rather do an 80/20 gigantic deal than 70/30 of nothing.” (Tweet This!) “Structure your deals based on who your investors are.” (Tweet This!) “Never take money unless you know what the heck you are doing.” (Tweet This!) “Always raise more money than you think you need.” (Tweet This!) Connect with Michael Michael’s BiggerPockets Profile Michael’s Personal Website Learn more about your ad choices. Visit megaphone.fm/adchoices

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. You've upgraded how to buy properties, but did your insurance get the memo? When investors start scaling, insurance can't be an afterthought. Most policies were designed for a single property, not multiple rentals, LLC ownership, short-term stays, or properties mid-rehab. That's where blind spots can creep in. Enreg works exclusively with real estate investors. They understand portfolios, how risk compounds as you grow, and why insurance should protect your upside, not just a checkbox. One uncovered claim can undo years of progress. Before your next acquisition, review your insurance.

Talk to NREG and get investor-specific coverage from specialists who actually understand real estate at NRE.com slash BPPod. That's N-R-E-I-G.com slash BP pod. A lot of property managers think their job is answering tenant emails and coordinating repairs. That's not the job. The job of a property manager is protecting and growing your operating income and earning your trust while they do it. And that comes down to three numbers, occupancy, delinquency, and net promoter score. If those numbers slip, your income slips, and your trust slips too. And most PMs don't hold themselves to performance standards.

They focus on activity, not outcomes. Mind is different. They obsess over the metrics that actually grow your cash flow. Go to mind.com slash show me to see how mine performs and get a month of management for free. because if you're going to hire a property manager, hire one that manages your investment like an investment. This is the Bigger Pockets podcast show 324. Basically, you take your comfort zone, what is your comfort zone? And then you want to try to expand it through various different methods and then do that as your first deal.

At the end of the day, though, Brandon, it doesn't matter what size. It just matters that you do one. 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 everyone? This is Brandon, host of the Bigger Pockets podcast here with my co-host.

Once again, David Green. I was going to go with a middle name, but I couldn't remember it. That's fine because I don't want you knowing my middle name. David, Leonardo. What's up? How you been? I've been really good. Just diving deep into this whole real estate world.

Learn as much as I can. How about you? Yeah, about the same. I mentioned in the show later. I read this really good book lately called, recently called Vivid Vision. It was a short, easy rate. It took like an hour.

Like, I literally, because I flew from Denver to Salt Lake City for an hour, and I read the entire book in that hour. Then from Salt Lake City to Maui, flying back home was a seven-hour flight. I spent the entire thing building my company's vision, vivid vision. And it was one of the most enjoyable flights. And I just have a really clear picture of where I'm headed. So anyway, I think I mentioned it in the show. I think I mentioned a couple weeks ago. So I'm just like fired up about this thing. But yeah, I'm growing. Thousand units within

three years. Wow. Yeah, 10x, right? All right. So speaking of that, let's get to today's quick tip. All right, so today's quick tip comes from today's show. Today's show is unbelievably good. It's fantastic, very, very fun. And Michael Blanc, who's a our guest today shows a lot of really good advice. But one of the things we talk about and one of the pieces of what I see gives, I'm gonna make the quick tip. And that is like make it easy on people.

If you want something from somebody, make it so incredibly easy for them. And in the show, I give an example of my own life of an agent who made something really easy on me and ended up buying a deal with them and they made a bunch of money off this deal and I even get them a couple shoutouts on the podcast because they made it easy.

So this will help you in every area of your life, but listen for that, but basically that's the key. Make it easy. And that's all I got about the quick tip. But that's big. I mean, I'm telling you guys, if there's one thing you do well in life, if it's that, you'll be successful. Yeah.

Just Brandon and I have so many people that are reaching out that want to learn from us, that want to be around us, that want to experience or exposure to what we're doing. But they don't make it easy for us to bring them into our world, so we have no idea how to do it. They miss out. Yeah. Yeah, very, very true. So, anyway, good, good stuff.

And without further ado, now let's get to today's show. today's show is with Michael Blanc, the Michael Blanc. He's been on the show back in episode number 66. Here's the thing. This show is both incredibly high level and incredibly, let's keep the cookies on the lower shelf. In other words, it's kind of like, I remember back in the day, when I read the book, The ABCs of Real Estate Investing by Ken McElroy, it was like, this is everything about multifamily you need to know. And it was really like, it sparked my interest in it, which is why I ended up by my first apartment complex. This episode is going to be like that for you. I really hope so anyway. It says like, here's everything you ever

wanted to know about getting started with buying apartment complexes. And like literally, it's like 30 questions. We just like, boom, boom, boom, boom, David, I just go back and forth because we're so interested in this ourselves. And so this show is definitely one you're going to want to take some notes on. Definitely one you might want to listen one, two, three times. And of course, Michael Blanc, you know, he has a book as well. If this stuff gets overwhelming, he's got a book called Financial Freedom with real estate. It's a real estate investing. It's really, really good. And so if you want to get dive deeper to it. Get that book or get the ABCs of real estate investing. There's a lot of books out there. But learn this stuff, right? This is not that complicated, but the first time hearing it,

you might be a little overwhelmed if you've never heard this stuff before. But stick with us. You're going to love this show all about how to get started with real estate investing through apartment complexes. And with that, let's get to today's show. All right, Michael Blanc. Welcome to the Bigger Pockets podcast. Again, how you doing, man? I'm doing awesome, man. It's good to talk to you. Yeah, yeah, it's been a while since you were on the show. I don't know, it was like, what was it back in the 60s, wasn't it? I don't know. It's been like 30 years ago, for sure.

Yeah, it's been in like 400 years. So I'm excited to kind of see where you transitioned to where you're at today. And I kind of know the topic of where we're headed today. And that's apartment complex syndication, something that I really want to get more involved in. David, I know wants to get more involved in. So today we're just going to pretend that the audience is not here. And we're just going to pick your brain on exactly how we're going to get started with larger syndication. and I think that'll be fun.

But before we get there, let's just kind of go back. And for those who did not listen to your first episode, I guess, who are you? Where did you come from? How'd you get into real estate and kind of walk through your very first kind of entrance into real estate? Yeah, so, I mean, I have a background like many other people. I was taught to get good grades, get a good job. And that's what I did.

I got into computer science. I was actually a programmer, believe it or not. That wasn't a very good programmer. But I was in right place, right time. Join the software startup late in the 90s called Web Methods. we IPOed in March 2000 and put a bunch of money in my pocket and I was the man. Then in 2004, I read the Rich Dad Poor Dad, which ruined my life. Because when I read it, I was like, man, I'm such an idiot.

It doesn't matter how much money I have in the bank. It depends on how much passive income I have, which I had basically none. So after several months of really like, man, I decided to throw it all the way and I just quit my job and just did everything. I learned how to trade stocks and options. I flipped a house. I took an apartment building boot camp, but my big idea was restaurants. And before you judge me, which you're, you should.

Yeah, judgment right there. Before you judge me, I was surrounded by a burger franchisees and they're like, oh, we're going to hire a guy. He's going to run everything. We're just going to, you know, we're going to fund it. And it's essentially a passive investment. I was like, well, that's great. That's my cash flow business.

So I went all in, Brandon. I just took my chips and went boop, cash flow business. I'm in because I want financial freedom. I make a long story short. I subsequently lost my IPO millions in the. restaurant experience. And I had a couple hundred grand of dead on top of that and clawed my way out with real estate and with so many people who are thinking who have real estate undermind, a single family house investing in my case. I was flipping houses. I didn't have any money anymore.

So I learned how to raise money. And I got into an apartment building. And then after like several years, I was like, man, I'm making great money, but this is such a job. Like I couldn't leave 30 days like I do nigh or 60 whenever I want. And I was like, man, I got this. Some on something's not right. And I've, I determined that, that, uh, I need to do a little bit less of this and a lot more of that, which is the apartment buildings, which is the apartment buildings, you know, and that's kind of when people were asking me, how do you raise money? How do you do apartment buildings? That's when I started blogging for you guys back in 2014. And, uh, and then doing so, I, I, I've come to the conclusion that all the shenanigans I've done, the single best way to achieve financial freedom is with multifamily

investing. After all the things I've done, that's why I was so, you know, so enthusiastic about blogging about it. And then, you know, from that point, we just shifted. We got deals, you know, new connections were made. Deals came in. Money came in. And that's kind of, so now all we're doing is, is multifamily syndications. Cool. Cool. That's great. All right. So now that's kind of your story and that's exactly what I wanted to hear, kind of like, how you got started into why you transitioned to apartments. And so like I said, today's show's going to be a little bit different. I want to really just dive into topical how to invest in apartment. So I wanted to just kind of go through. I mean, I literally listed out like,

I don't know, 30 questions here. So we don't even have time for everyone, but I thought we just go through this. We're just going to call this one-on-one coaching with, well, two-on-one coaching with Michael and David. So let's just kind of run through this stuff. I'm first curious, what do you think is a good size to start with? When you want to get into apartments, like can the 21-year-old who's got no money and no nothing, should he go and buy a 200 unit? Is that feasible. What's your general recommendation on where to start with size-wise and where you're at in life? So it's more important that you start with something. I used to think, go big or go home, and I no longer think that. And the reason is because I have this thing called the law

of the first deal, which says that if you do a multifamily of any size, you will be financial free in three to five years. And I know that because of talking with my podcast and talking to people and studying this a great length. And the phenomenon is so universal and so strong, even for people that do a duplex, right? Because what happens is to do a duplex, which, you know, and then the second deal they do comes in rapid, almost automatic succession, and it's never a duplex again. It's normally around 10 units. The third deal then is always almost around 20 to 30 units, and the deal after that is normally 50 plus. So the answer to your question, it doesn't matter what size it is. However, having said that, it depends a lot on you. If you have, you know, if you're a high income earner

and you're trying to replace $10,000 of income, well, you want to find a, you want to find a a deal that's both meaningful and achievable. So a duplex in your case would be highly achievable, but maybe not so meaningful. So don't pick a duplex. Pick something more like a 20 unit. So basically you take the edge of you take your comfort zone. What is your comfort zone? And then you want to try to expand it through various different methods and then do that

as your first deal. At the end of the day, though, Brandon, it doesn't matter what size. It just matters that you do one. I love that. Okay. So I want to pick apart a couple things you just said here in a good way. Because I feel like I'm talking to myself here. I mean, I say the same stuff all the time, right?

It doesn't really matter what that first deal is, as long as you get that first deal. Where a lot of people struggle is they just like want, they want that home run deal. That's like the thing they heard that, you know, during the deal deep dive on the podcast, that was like a home run that you did after 10 years of doing this, right? They want that deal.

And they think that if they can't get that deal, then they probably shouldn't do anything. I love that you just say, like, start with something. On the same token, what you're all talking about is like, what I call the stack. I put into this phrase called the stack. And it's this framework of thinking about real estate, right? Where if you start, what a lot of people do is what you and I both did when we got started, right?

Like a single family house, maybe flipping a single family house. And what we do is we get stuck in that mode for a long time because we're comfortable. So I love that you said the two to maybe 10 to maybe 30. That's the stack, right? It's saying I'm going to push the bounds of what I feel comfortable every single time. So I'm growing exponentially. I'm not just staying nice in my little cocoon of whatever it is that I feel good about. And this is something that I've struggled with a lot over the past decade is I always want to go back to where I feel comfortable.

I want to go back to that single family house to that duplex. Nothing wrong with starting there. But I think it's smart to think how do I grow? Well, greatest is right outside your comfort zone, always. There's also something you said about the first deal that home run. And that does hold a lot of people back. Here's the thing about the first deal. The value of the first deal far outweighs any kind of money you can ever make from it.

Okay. I want to be very, very clear about that. that because of the law of the first deal, because that second deal will come along in rapid almost automatic succession. You'd have to expend more energy not to do the second deal than to simply do it. And it's all because of that first deal. And there's several reasons why we can go into it if you want. But really, the value of that is much, much higher. So even if someone were to do a mediocre deal, even if you weren't to pay yourself an acquisition fee, or if you were to give up 90% of the equity to investors, which is insane. But let's see you did that. The value of that first deal

far, far, far outweighs any kind of monetary value would get from it. Yeah, I love that. And that applies to people by, I mean, doing anything. If you're out there saying, I got no money to invest in real estate, I want to buy that first duplex, but I mean, I have nothing. Like, I oftentimes joke with people, give away 99% of the deal then. Who cares? Like, nobody's rich on their first deal. Nobody is rich on their first deal. But they're rich because of their first deal, right? Because the first leads to the second, second leads to the third, and so on. So like, you got to get something done. Now that doesn't mean you go by. bad deal, right? No, you shouldn't do a bad, bad door. Absolutely right. And you never, you never,

always could take care of investors, whoever that may be first, and you have to use conservative underwriting. But if you have to pay yourself less or possibly nothing at all, that's something to consider. You know what's funny is people will go pay a guru 10, 20, 30, 40, 50,000. Like, honestly, we're not exaggerating. There's, I think someone was just telling me that they almost signed up $50,000 and you pay your own ticket to fly to Texas and he'll walk you through like his flip business, right? But they won't do a deal where they think that they're going to give away most of the equity. You know, I heard of one of the guys the other day, one of the TV guys, I won't say his name, but he was, I don't know, bragging is the right word, but he was on stage at a conference.

His new plan, his new like platinum level, whatever coaching program is $250,000, $250,000 to be able to learn how to do this. I just, it always, it always shocks me. But anyway, again, I don't have a problem with paying for education. I mean, like, if it's going to help you if it's going to get there, fine. But if you got a quarter million dollars or 50 grand, that could go a long way to getting that first duplex or whatever you got to do to get started. Let's go to the syndication versus not syndication. Like you don't have to syndicate. Maybe we should step back in further. Can you define what syndication is before we start talking about whether or not somebody, you can tie that into should somebody do that or just go ahead and just do it

all on their own? What are the kind of the pros and cons of each and what is syndication? Syndication is really at the heart of what all entrepreneurs do. entrepreneurs make something happen out of thin air. And that's really what syndication is. A syndicator basically finds a deal, whether it was none, puts a manager in place, and then gets investors, a variety of different investors to invest a deal. Without that entrepreneur, there would be no deal, right? The investor wouldn't have anything to invest in.

And so the beauty of a syndication is that I as an entrepreneur can do exactly that, make something happen out of thin air, whether I have money or not. A question of whether you should syndicate or not is one of your personal situation and resources. If you have a million dollars to deploy and you can fund your own deal, well, there's really no need to syndicate. However, you do one or two deals. And guess what? You're going to be out of money. So if you want to continue doing that, you're going to end up raising money. So the real thing with syndication is it really allows you to scale. Definitely, definitely. Okay. So scaling up. I mean, I know like, the first time Grant Cardone was on our show,

up until that point, he had never syndicated. Up until that point, he just built all his money He was over the course of 30, 40 years or whatever. And I think he had, I think it was 300 million the first when he was on her show. And I think he's hoping to be at a billion by the end of this year. And that was like two years ago, right? So he's definitely like, I mean, he made a lot of money to be able to personally go up to $300 million. But now because he's syndicating, he's now shot that up, you know, three, 400 percent in the last couple of years. So I definitely know what you're saying there.

And that's why I'm interested in syndications because, you know, my money will only go so far. Right. And it allows you, when I say you, the general way, it allows you to get started without any money. If you have zero in your pocket, all of a sudden you get into the apartment building business, and this addresses the major objection of people have in their minds, oh, I need lots of cash, don't I? Well, you do, but it doesn't have to be your own. Yeah. So if you're going to be investing other people's money, you better know what you're doing.

You'd agree, I'm sure, Michael. So let's go through some of the terms that multifamily investors have to understand so that if you get to the point where you want to borrow someone else's money, you can pitch them or you can explain to them a deal and they'll feel comfortable with you. The first is what we want to talk about is like the cash on cash return. Can you tell us what that means? Yeah, so cash on cash return, let's say the investor, a investor invests $100,000. So cash and this is a beauty about multifamily real estate is that there's actually cash flow distributions. Unlike the stock market, you invest a bunch of money and you make your money when you sell for a gain, presumably, but with multifamily real estate is actually rental income, which creates income,

which allows you to do have distributions. So the cash on cash measures, what is my annual cashful distribution based divided by my investment? So if I'm distributing $10,000 to that investor, then the cash and cash return is $10,000 divided by $100,000. So it's a 10% cash and cash. Okay, so that's the return that you're getting on your money, which is very so much like a return on investment, like an ROI, right?

It's part of it. Now let's talk about the full picture. Thank you for bringing that up. Let's get into the internal rate of return and what that means. So internal rate and return, I'm going to answer this question in a slightly roundabout way. The internal rate return or IRAs are very advanced concepts. If you're raising money from friends and family,

I would advise that you don't speak about the IRS because it's an advanced thing. What I would advise is that you talk about the average annual return, which is very similar but not mathematically exactly the same. But really the question is, what is my overall return? And that's really what the average annual return measures. So if I put in $100,000 and the investment period is five years, I want to know how much money am I going to make

overall, over the entire life cycle of that. And let's say I'm doubling my money in five years. So I'm getting $100,000 back and I will have made $100,000. And that $100,000, quote, profit is made up of the cashful distributions as well as a profit when we sell at the end. And so now I have, I had that 100% return, let's say, where I doubled my money and I divide that by the number of years, say five. And the average annual return is 20%. Now compounded is going to be slightly less than that. But on average, that's what the investor is really asking. Now, so I would stay away from IR because the IR is a mathematical formula that measures the net present value of time and money and it just confuses the hayout everybody. And it confused mind says what?

No. So don't confuse your investors. Though when you're analyzing deals, yes, you know, we're talking about the IRA because it allows us to compare different investment vehicles, even accommodating things like a cash out refinance, which messes up your. average annual return. But again, I'm complicating things, but people are thinking, what is the overall return? What's my average annual return? What's my cash on cash? You're basically taking every variable that could play into this investment and adding it all into a projection. So it's more like an algorithm that takes several different variables and puts it all together. You're looking at when I sell, how much would I sell for if things went according to plan? If we get this cash flow,

how much would it be? If we refinance halfway through and we get our money back, that obviously affects the ROI because capital is being returned. So investors have less money in there. It's probably the most accurate way to compare several investments together, but that makes it the most confusing. And I think what you're saying is that's why you should stay away from it because it will scare people that are new. Okay. Next up is a metric that's much more simple and easy to understand. And that's going to be the capitalization or the cap rate. What's that? Well, it's actually a little more, I think, more difficult to explain and understand because it involves simple math, which is terrible. I know. But the cap rate, it's very simple. Cap rate is used to value commercial real estate.

So in commercial real estate, the more the box produces an income, the more it's worth, right? So I can buy a box for a million dollars. And then right to next is an identical looking box, but it's worth $1.5 million because the one on the right is producing more income than one on the left. And that multiplier, that multiplier of income is essentially the cap rate. So that's really what that's really the cap rate. And we can get into math, but again, I don't want to confuse people. Sure. But the cap rate, people, the next question people ask is, where's the cap rate come from?

And the answer is you get it from your broker. Your broker would say, oh, just this on an eight cap property. Right. And so the simple math for those that need to know is it's basically the NOI divided by the cap rate gets you the value. And that's essentially, but it's used to value commercial real estate. Okay. So cap rate is usually like a, like in an area or for a certain type of investment, there's like an average, right? So you could say that in Memphis right now with these midsides apartment buildings, a six cap is pretty normal.

Is that kind of right? And then therefore, math, This is really something like it's a lot easier to explain like a whiteboard, but like if the income goes up, like if your profit on this property goes up, if your net operating income goes up, the property should be worth more if the cap rate stays the same. Now if cap rates change, then I can change things as well. And so it's a, they're all the three are kind of related together. And there's a million videos on YouTube. If people are like, I mean, it's a cool concept that we definitely have to understand if you're getting into multifamily or commercial real estate. But you can find on YouTube a million videos about this that'll explain it. And a million blog posts on bigger pockets explain it. But anyway, I think that's a pretty good explanation. Yeah, cap rate is that multiplier. It makes something worth more or less. So what about cash flow?

A nice easy one. Like, what is cash flow? Yeah, cash flow is essentially the rental income that's left over after covering all your expenses as well as your mortgage payments or your debt service. And that's distributed to the investors. And that affects the cash on cash, right? So the cash flow divided by the original investment equals your cash on cash return. All right. All right. How about what is a syndication? We talked about a little bit earlier again. It's

basically taking a variety of money from a variety of investors and using that to purchase a multifamily property. And there's some SEC guidelines around that. Your SEC attorney will take care of all the details. Okay. And I want to get in a, I have some questions about SEC a little bit later. And obviously, you're not on an attorney, but we'll get to that in a little bit. What about net operating income? You mentioned that a minute ago, but let's define that. Yeah, the net operating income, that's the number that, the figure that is used to derive the value of a building. And the net operating income is your income minus expenses, but before debt service. That's called the net operating income or NOI.

So you have income minus expenses is the NOI and then minus debt service is essentially your cash flow. But the value of the building is derived from the net operating income. So the higher the NOI is, the higher the value of the building. And by debt service, we just mean like your mortgage. Mortgage. Yeah. So it's like the profit of the company. before you have to account for whatever you spent to buy the building, basically.

That's right. And then the number you get after you take out the mortgage would be cash flow. So these are all, I mean, it's not very complicated stuff, but something about multifamily investing, we make it sound more complicated than it is because it makes us smarter. You hear multifamily investors will throw around a lot of fancy terms that you're like, oh, I don't know what they're talking about. But like, I know this is just a sidetrack, but like agency debt, you'll hear, oh, yeah, talking about agency debt.

And people like, I don't know what that means. Is it like the FBI? And really it's just like, no, it's like a, Fannie Mac Fannie Mae Lone. Like the easiest type of thing that there is, but they give it a cool term. Okay. There you go. Next up would be, what does it mean when we talk about value ad?

Value ad is essentially forcing the appreciation of a building. What does that mean? Forcing appreciation was done. It implies that I'm making the value go up in some way. How am I doing that? So I'm making the NOI. Don't want to make the building go up. I have to then make the NOI go up.

Well, how do I make the NOI go up? I can do it in a variety of ways. I can raise rents or, if the building is, the vacancy, for example, is very high, I can fix that problem, or if the expenses are high, it can reduce the expenses. All those things will affect the NOI. So if I buy a building, whatever NOI it is, and I apply the going cap rate, I get a certain value. Let's say it's a million dollars. Back to our initial example. And I do all these things, and I increase NOI in a variety of different ways. And within a year, two or three, the NOI is now higher. And that

same building that was worth a million dollars before is now worth $1.5 million. Without the market, anything. And that's a value add. Value add means that I'm actually adding value. I'm doing a much of stuff to add value and therefore I forced appreciation. And that is the beauty of this because in the house flipping business, I added value in a similar way because I had to make renovations. But the value of that building was purely driven by comps. And that was highly market dependent. If the market went up, my building would go up or my house would go up, the market went down like in the recession. Regardless of what I did, it still was, it was, it was, it was, it was, it was, went down. And with multifamily, I just have to increase the NOI and get the same thing.

Yeah, and that's why Brandon and I are so just like gung-ho about people understanding real estate investing rather than just blindly following someone else's model. Because when you understand what drives value, then you can understand what moves you need to make to increase value. So like, for instance, you've got ROI. R-O-I is dependent on two things, how much money you make and how much money you put into a deal. If you can put less money in a deal or you can make more money, you can increase your ROI. There's only two levers you got to pull, right? Well, what you're talking about with value add with multifamily is very similar. There's a cap rate and there's an NOI. You can't really control a cap rate, just like you can't really control how much money you make, buying a single family house because rents are going to be what they are. But you can control how much money you leave in a deal. That's why we like the Burr method, because you can get more money out and increase your ROI. Well, with multifamily add-ons, you can control the NOI. So the better you run that business, the lower your expenses are or the higher your rents are, the more you can make that property. worth money. And it sounds complicated we talked about it, but it's actually really, really simple when you boil it down. And I think, Michael, like, you've done a very good job explaining that.

Yeah, it's, it is simple in the sense that the favorite deals that we love are deals that are self-managed. These are owners who are trying to maybe cut corners, save money, and they manage their own building. Maybe they've owned it for a long time. They don't have to squeeze every single dime out of the property. And they're great with it. But if you take a building like that, that's slightly mismanaged or grossly mismanaged, and you put a professional manager in place, that manager now can actually do the value add for you. And so it's actually relatively simple to add value. You don't have to be a genius.

And not only that, but a small increase in NOI will make a huge disproportionate different in value. So I don't have to like have to like have a home run like you said earlier, Brandon. If I can tweak, if I can increase rents by 50 bucks, reduce expenses by 25 bucks, that is a, if you divide that by the cap rate and you times it by the number of units, You can create hundreds of thousands of dollars fairly, fairly easily. Yeah, they say that small hinges swing big doors. And that's your hinge. That's the hinge.

Okay. Next thing we want to ask is what is the difference between an accredited investor versus sophisticated investor? And why does that matter? It matters because depending on who you are, we'll talk about a second. It depends on who can invest in a particular syndication. So accredited investors are high net worth individuals. there's around that. There's people with lots of money, let's say. And the SEC then says, well,

if you have a lot of money, you're kind of on your own. You should know what you're doing. And if you lose the money, well, you're probably okay. And then there's a non-accredited investor. Those are people who aren't rich, let's say. And for those, a lot of the SEC rules protect them, those non-accredited investors. All of the non-incredited investors, there's something called a sophisticated investor who's basically non-acredited, they're not rich, but they have some experience, with investing in something probably outside the stock market. So maybe they took a class or a seven-ar or they have rental property or something like that. And those are considered sophisticated investors.

So the reason that matters is you as a syndicator, depending on what kind of SEC exemption you file, you can take up to 35 non-accredited investors and then unlimited now to credit investors, which for most people doesn't matter. If I have like 10 investors in a deal, that'll be all I ever have right in the beginning. it's only when you're doing larger deals where you have to pay attention to that. And the requirements around bringing those non-accredit investors on if they have a pre-existing relationship with people. In other words, they can't be strangers.

You have to know them. You have to meet them in person, have a phone call, an email, or something where you can say it is a pre-existing relationship, and you can't give them a deal when you first see them. I mean, accredited investors are quite a bit different, again, because the SEC doesn't really protect them as much as non-accredited. So for the beginner syndicator, the only thing that really matters is how you solicit and bring on investors. So you can't bring on strangers. You can't put up a billboard.

You can't advertise. It has to be all preexisting relationships. Okay. Yeah. And that's a tough line sometimes I feel like. And I just went to a Joe Ferrell's conference. And a lot of that conversation was on syndication. And it's interesting like the gray that's in there.

Like what is a preexisting relationship exactly? I mean, like how many conversations? How close do you have to be? I mean, somebody listens to you on a podcast and calls you up. Does that count? And a lot of that stuff is kind of left to the, I guess, the courts to someday decide, it seems like. Is that true? Do you have any insight on that?

There's a civil action letter, which, again, I'm not an attorney nor I pretend to be able with it. But there's a letter written by a syndicator to the SEC. And they said that if I were to do these things, would I be okay within the SEC guidelines? And they said yes. And so everybody kind of hangs our hat on that, which is essentially a, it's a, It's a system of defining pre-existing relationship. So, for example, let's say I have a website, someone fills out a form, and I want to establish a pre-existing relationship.

Well, the more touch points I have with that person, the better I get to know that person, the more I can say there's a pre-existing relationship. So I want to have them fill out a questionnaire that ask them questions about their investing experience, what have they done? Are they accredited, non-accredit? Then I want to have a phone call with them. I want to have a series of emails. I might want to meet them in person.

I might want to do a Zoom call. And then some time should go by. And at one point, I can say, okay, I feel pretty good about having a preexisting relationship. I can now show that person a deal, but not before then. And so this civil, this letter then kind of describes the, there's like seven points it goes through. And so we're kind of, we and a lot of other syndicators are just, as well as Joe, I'm sure, are very aware of these letters. And so we have a routine of interactions with new investors before we show them a live deal. When I was a police officer, we would have similar situations with like the Fourth Amendment

freedom from search and seizure of the government without due cause. And there's a lot of gray area with like, well, what becomes due cause, right? And they would all determine it by case law. Some cop would search somebody and they'd find drugs and some judge would look at it and say, was this search lawful or not, right? And it was like that with when you can use force, all kinds of things. is there a place like people can go to to get case law on how judges have determined what was and what was in a pre-existing relationship? I think that's a question for the SEC attorney for sure.

And the thing that the frustrating thing about that, every single SEC attorney will give you a slightly different response. Yep. Yeah. Yeah, I like to. If you ask 10 SEC attorneys, you'll get 11 responses. Yeah, it's like there. Isn't that just how life goes when you get into this space, though? Like, you can never get a solid answer from anyone.

It's the same way I felt when I was a cop. They're like, well, can I do this? And they're like, well, it depends. Everything started with, well, it depends. Okay. Okay. Last question. That was good.

Yeah, go ahead. The difference between a general partner and a limited partner. Yeah, so in general, the general partners are the entrepreneurs. We call them the syndicators, the sponsors. These are the people who are doing, putting the deal together, who are operating the deal on a day-to-day basis. And then there's the limited partners who are the passive investors. And in a context of an LLC, those are actually not the right words, but we use them all the time because it communicates the roles of a syndication. You get the GPs who are calling the shots, they're putting the deal together.

And there's the LPs who invest the money and have limited voting rights. But their liability is also limited to the amount of money they invested versus the general partners have essentially unlimited liability because they're responsible for the deal itself. And they're signing on notes and they're doing these and then the other thing. All right. It's cool. So in a typical deal, you're going to be the general partner. Let's just in real life. You're generally a general partner. If I were to invest money with you, I am a limited partner because I just put my money with you. Now, I can't lose. If I give you 100 grand, I'm likely not going to lose more than my 100 grand. I mean, that's what I'm limited to. And it's not just a loss of the capital. It's liability. Imagine lawsuits, right? And so the LPs

will not be part of any kind of lawsuits. The worst that can happen, which is bad. enough is that you lose your investment, but there should be nothing outside of that, typically around lawsuits. Okay. Yeah, that's great. And is that where the phrase comes from, limited partner, because their liability is limited? I think so. I've never heard it, but Brandon said it, so it probably is true.

Oh, wow. Look at me. All right. 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 $10.10. 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 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.

There are two kinds of real estate investors, those who have reviewed their insurance, and those who think that they have. Most don't realize their coverage wasn't built for how they actually invest. Vacancy periods, rehabs, rehabs, short-term rentals, or LLC-held properties. These gaps surface only when filing claims.

That's why investors work with NREG. They specialize exclusively in real estate investors, understanding portfolios, risk at scale, and cash flow protection. One claim can erase years of returns. If you own a rental property, don't assume you're covered. Have NREG review your insurance with someone who gets investing at NRE.com slash BP pod. That's N-R-E-I-G.com slash B-Pod.

Managing properties can feel like a full-on circus. You're juggling vendors, tracking payments, chasing approvals across multiple properties, and maybe a few HOAs, all while trying to keep tenants happy and owners confident. One delay can throw everything off, and suddenly your day is all clean up, no progress. That's why hundreds of property managers rely on bill to streamline their finances. Bill for property management lets you add all your properties, assign permissions, pay bills, and receive payments quickly and efficiently without the usual bottlenecks.

It syncs with platforms like QuickBooks, Zero, NetSuite, and Sage intact, so your accounting stays aligned. You can automate bulk payments across properties and HOAs. Choose flexible payment methods like Same Day ACH, international wires, card or check, and set custom roles in approval policies. There's even a dedicated bill inbox for each property

to keep everything organized. Ready to simplify your workflow? Book your free demo at bill.com slash bigger pockets and get a $100 Amazon gift card. That's bill.com slash bigger pockets. Let's talk about the different ways a syndicator makes money because I find this fascinating. Back in the day, I thought it was just like, hey, the syndicator gets some kind of percentage of the deal. But it's actually multiple ways that you as a syndicator can make revenue. Is that correct?

It is. And that's why I love this business. There's at least three ways a syndicator can make money. one is when they purchased the property at closing through something called the acquisition fee. And that acquisition fee is typically 1 to 3% of the purchase price is paid to the syndicator or syndicators at closing. And some people are like, wow, that's not, that doesn't sound right. Why are they getting 100 grand on this deal? Well, if you divide whatever acquisition fee they're getting by the amount of hours that syndicator has worked to not only close that deal, but the other 10 that didn't close, they're basically working for minimum wage.

So that is totally deserved, number one. Number two, the second way to make money is through the equity that syndicators get in a deal. So, for example, normally the syndication is done in equity splits. So 70-30 split means that the Lindent partners, LPs get 70% of the deal, and the GPs get 30% of the deal, even though the LPs put in all the money. So it's this idea of what's called carried interest. So the GPs get 30% of the deal for not putting any money in all. It's like sweat equity for putting the deal together.

So the GPs then get paid out of their percentage of the equity. They get their share of the cash flow, 30% cash flow, and then the investors get the other remaining. So that's another way to get paid while they own the property. There's also something called asset management fees, not unlike property management fees, and this is for essentially managing the asset. And it's expressed in a variety of different ways. It could be a percentage of, I know why.

It could be a percentage of income collected. It could be a variety of those things. But the idea is the asset. Asset management fees are there to cover overhead on the syndicator while they're managing the asset. And the third way is it's not frequently done, but it could be at the end of the deal when all the principles returned, either through a refinance or through a sale through a capital transaction fee. And very few people do it, but it's not a reasonable charge, say, a point at the end. So the idea as a syndicator is that you make money up front during the investment and once it's dispositive.

Yeah, and that's kind of the reward of a syndicator is that if they do, you know, if they do all this work of finding the deal, bringing together investors, they should get paid at various points in it because otherwise they couldn't, I mean, most syndicators wouldn't be able to survive and put food on the table if they didn't make a little bit of money at least sometime in between. I mean, it was limited to only like the super wealthy who have already succeeded in life, which aren't probably going to put all the work into syndicating a deal. So there's definitely a value to the syndicator. And there's also a huge value to the to the limited partners, right? Because now they don't have to go find the deal. They don't have to

go find, do all that work, raise the money. They just give their money to somebody and they get 70 percent, you know, proportionally, you know, up to 70 percent of the deal potentially. Now, does that change? Like, do you see sometimes 80, 20, you know, 80, 20, 70, 30, 60, 40. Like, how do you decide how much the syndicator, the general partner gets of that? And how do you decide how much the limited partner gets? So that's typically answered by the return of the deal. So if let's say you have a really, real rich deal, well, it could be a 60-40 split because their deal is so great. The bigger question to the investor is, what are the returns? And we talked about the earlier, and typically, what is my average annual return?

In other words, how long is it take to double my money? And what is my cash flow, my cash and cash return? And if those are satisfactory, at the end of the day, the LP should not care what the split is. Now, some still care. They're like, oh, 60-40 split. What a greedy syndicator you are. You're paying yourself too much. And I'm like, okay, well, you're getting your return.

So at the end of the day, what do you care how much we pay ourselves? But typically, splits are between 60, 40 and 80, 20 sometimes. As a deal get a lot larger, you might see a 90-10 split, but it's not very customary. Okay. Would you personally, like, take a smaller, I mean, let's say, this is something that I personally have thought about. Like, when I'm putting together, like, ideas of syndication, I'm running the numbers. And sometimes the deal just doesn't pencil out for the investors.

So the limited partners on a 70-30. In 80-20, it actually looks pretty good. Like, would you take a smaller cut personally just to get the deal done? And how low would you go? Well, it depends, like we talked about earlier, is if this is your first or separate deal, then the answer is maybe, right? Maybe. Or if it's not, maybe it's a larger deal.

Maybe it's a $10, $20 million deal. Well, I'd rather do an 80-20 of a gigantic deal than a 70-30 of nothing. So it really, it really depends. Okay. Okay. Yeah, that's a good answer. And again, yeah, I can see how it ties into the thing we talked about earlier about if it's your first deal. Yeah, you know, I'm curious, Michael, in all practicality, how much does it matter?

Like, how much is it determined what your split is by who the person, the people that you are borrowing money from are? I guess a better way to ask that is if you're borrowing money from extremely sophisticated people that have a lot of options that will give them a high return, do you have to give them a smaller percentage? Whereas if you've got a bunch of people that are like, man, I have zero idea what to do with my money. Please do something with it. Then you just offer a lower. Yeah, it's a lot driven by who. who your investor is, right? So, for example, your friends and family would be just unbelievably ecstatic if you gave them a 10%

return of their money. They're like, I can't get anywhere near that versus if you're going with a sophisticated investor who actually looks at deals or maybe has some done deal. Like, I won't get up for anything less than a 15% IRA because they'll use the IRA term because they know better. And so you have to structure your deals based on who your investors are. There you go. See, that makes a ton of sense to me.

And the offset for that is even if you have to give away a worse split for yourself and give away more to your limited partners, if they have a whole bunch of money, right? You're happy to do that because you're going to make more money. If they've got $5 million instead of $50,000 and you get to keep 20% instead of 40%, you're probably have zero problem in doing that because you could buy a bigger deal, which has more meat on the bone. There's more to go around and the volume will make up for it. Yeah, that's right. Can I ask your opinion on family and friends? You know, we mentioned it a few times. How do you feel about borrowing money from grandma or from, you know, Uncle John on your first or second syndication deal.

I mean, I would address that the same question as taking money from anybody, whether it's your friend's family or people you're networking with. First of all, you shouldn't be taking money unless you know what the heck you're doing, first of all. And you shouldn't be taking money where it's the last, you know, it's the last money that someone has. This is why I advise, you know, the minimum investment really should be $50,000. Don't invest money at 10, $15,000, at a time. And I just look for my own experience, every time, you know, especially when you do it early on, you just, you just want to take people's money and you're taking $25,000. And it's the non-sophisticated investor who's last, you know, last $25,000 you took that are constantly calling you every single week. Hey,

how's my money doing? How about now? Why is my check late? Where is my check? And you don't want to deal with people like that. So, you know, take grandma's check if they, if, just under those, under those parameters. Okay. Yeah, that's really, that's really good. Because, yeah, I mean, I've gone back and forth on that, but it's true, like the people who are the non-sophisticated ones are the ones calling you because the other ones, like, they just trust the process is going to work itself all in the end. All right. One more question before we get into location on, you know, finding deals and all that.

I'm curious about, I guess this idea of, shoot, where was I going with this? I had this really good question. Dang it. Now I don't remember it at all. All right. Well, whatever. I'm going to remember it later. I'm going to come back to it.

Brandon just said that moment where he walked into the kitchen and he's like, why did I come in here again? What was I looking for? That's exactly what I did. Oh, gosh, I had even as I was saying it. Whatever. Okay, let's go to location. I'll come back to it in a little bit. Oh, I got it.

I got it. There it is. I know what I wanted in the fridge. Yeah, I knew what I wanted. I came for, for, I don't know, whatever, LaCroy. All right. I'm wondering like, oh, no, no. Okay, wait, let me, let me train that.

I got it. Good deal. Okay. syndicators have two things. I got it. I got it. The syndicators have two, well, there's a lot of options, but let's say there's two, if we divide them into two categories. There are the value ad deals where all the profit generally in the deal is made at the very end. I mean, like the cash flow is almost nothing because the property is disgusting. It's going to need years of rehab or going through all these units. And they're like, probably isn't going to be any cash flow for the next

three years. However, at the end of the day, it's going to be a really, really good deal. Then there's a deal that's like, this is mostly a cash flow play. We're hoping to get a little bit bump at the end, maybe add a million dollars in value, but it's going to give you a 10% return, cash and cash returns. I guess what I'm asking is, where do you personally lie in there of like a 15% IRA but 0% cash flow versus a 15% cash on cash return and a, you know, a 15% IRA at the end? You know what I mean? The answer is somewhere in the middle.

I don't love the first and the second is really hard to find. So the reason I don't like the first because it smells a lot like a development deal, right? There's no money, no money, money, and there's a giant pop at the end. I don't love that. The reason I'm in this business is I want cash flow as close to possible the day one is. So the ideal scenario, Brandon, is where you have a stable cash flowing value ad deal, meaning that it's already making money, but it's not making as much money as it should. So I can go in there with a 10-year agency loan, like David said, Fannie or Freddie Mac, low-cost government loan. And because it's already 90% are more occupied, but the rents are low,

because it hasn't been renovated. That's the ideal scenario because the risk is a lot lower. Now, if you're going to do a heavier value ad like you're talking about, you're still looking for stabilization somewhere in year two. So your business plan has to be really concrete saying the rents are low and the vacancy are high because they haven't made any repairs whatsoever in the last 10 years and the place is a dump, but the property next door is gorgeous and the rents $150 higher. I go in there and a hire a general contractor and they're just going to,

just going to clean everything up and renovate the units and they get a strong property manager lease up the units. By the time year two starts, I should have, or before, I should already start having cash flow. So it's not ideal to not have cash flow for more than, I don't know, six to 12 months. And then one more follow-up question on that. I know we're getting real deep in this and I hope people don't mind. But like, this is something else I've been dealing with both of my own personal investments and in what I plan to do in the future. Let's just say you raise money for a deal and it needs a lot of capex, a lot of like that fixed up in the beginning. Do you have a separate pot for that money that doesn't affect the cash flow?

Because I mean, if you think about it, let's say your property cash flowed $100,000 this month, but you also had $100,000 in capx that you already knew was going to be there. You already raised money for it's in like, it's separate, right? Do you distribute that $100,000 in cash flow to your investors? Or do you just say, hey, it's basically, a wash, we made no money this month. Does that make sense where I'm going with that? It depends. It depends what the $100,000 is for, right?

If the $100,000 is for improvements or innovations, you better use it for that purpose, otherwise you can't execute in your business plan, right? However, a general rule of thumb is to always raise more money than you think you need. So in this case, let's say I raise $100,000 more just for good measure, let's say for emergencies and, you know, it's a good thing to do. But let's say you've gotten your, you're wrapped your head around that you stabilize a property after 12 months, you still have the 100 grand. You've already done all your renovations. You don't really foresee anything major. Well, then you might want to just return that $100,000, maybe not as a return,

but as capital. And your operating agreement can allow for that. So now what you're doing is it's not a return, but you're reducing the principle that was invested in a deal. So you have so many different options. You can do really whatever you want. Okay. Cool. Let's move on. Location. How do you find a good place to invest? There's a lot of markets that should invest. with local long distance how do you research it what can you tell us about location yeah never almost almost long distance right so no one's buying in Hawaii or the area no offense to you guys right so 85% of people are buying outside of their own area and so where we want to go is we want to go to areas that are growing that we're growing but we can still get some kind of yield so san francisco

might be growing like like a weed but i can't get any yield there at all so i don't have that the combination of two things i'm looking for versus for example Jacksonville, Florida, crazy demographic growth and the cap rates are still reasonable. So I want to find areas like that. And then within the area, the submarket is very important, right? So, you know, you want to go into areas that even within an area is going to be growing. And so I want to buy in that area. So it's essentially under the guise of a rising tide lifts all boats. So if I buy in that way, I could theoretically still screw up the purchase and within two years it'll fix my my mistake if I do that.

All right. Good answer. Where are you investing? So we're going to be in the Sunbelt. So we're in, you know, in Jacksonville, Orlando. Florida is a great market. Alabama, Huntsville, Birmingham. We're in Memphis, not because it's a growth market,

but it's a high, high cash flow market. So we love Memphis for that reason. I know you do as well. Texas is very great. You know, Austin, Houston, Dallas, very competitive. Atlanta, great market, also competitive. But that's kind of where the demographic is, moving to is those areas. All right. Yeah, basically the southeast. That's kind of what.

Southeast, South. Yeah. Anything that's warm, basically, wherever the sunshine is, people want to be. It's the same thing I tell people. It's actually, it sounds really simple, but it's true is A, people are moving into those areas. If you look at like the population of the United States, it looks like someone took the whole thing and tilted it and everything's sliding down into the right. And then the fact, I like investing in warmer areas because I don't like the problems that snow brings. Snow wears out roofs. It burst pipes. You have to worry about. shoveling it out of people's driveways. There's just a lot of problems. Water causes problems in houses.

And anywhere it's really cold and it snows, you're going to get water. So even though that sounds really simple, most people doing what Michael's doing are investing in those same markets. There you go. No, let me ask you this. Let me ask you go back to the location and that will lead us into this. Do you pick a market first and say, I'm only looking in these nine MSAs or whatever?

Or do you just start meeting brokers and looking at deals or whatever in the entire southeast and then evaluate the market after you find the deal. No, you should probably evaluate the markets first because there's only so many hours in the day. So you know, you study these markets and you pick maybe your top market or your top two market. You want to pick a market or markets that are big enough for you to generate the deal flow you need. So let's say if you want to analyze two deals a week, well, that means that whatever market or markets you pick should produce that level of volume. And if it doesn't, you should pick a larger market or maybe pick a second or possibly a third market. Okay.

I like that. That's a really, really good advice. So, okay, once you got out your market, then, how do we find them? I mean, what are you typically doing? Are you doing direct mail? Anything creative like that? Or is it just brokers? Like, yeah, what's your process?

I love the creative stuff. But in this particular case, it's not a house flipping business. The number one way to find these deals is through brokers. And it's all about the relationship with those brokers. The good brokers, it's like the 80-20 rule, right? So 20% of the brokers control 80% of the volume in a, in a number. business. So you want to get to know those brokers and you want to build a relationship with them. And so what you're looking for is, is the point where they call you a week before they put a

listing out. They'll say, hey, Brandon, I got the thing coming out. I'm still working on the marketing package. But if you come in at this so point, you know, I don't have to do a bunch of work. And I could sell it without doing a listing of some sort. And that's really the magic. And that's something that someone starting from scratch can get to get into within 90 days, you know, to educate themselves, use the right language, build their team. As they approach to brokers, they seem very credible. They meet with them in person, maybe the two or some properties. And so getting to that level doesn't take years. It takes weeks and maybe a few months. But that's where the magic happens is reaching out to more and more brokers and generating

that deal flow and building that rapport with them. How do I find that 80, 20, that 20% of brokers? I mean, because I can't imagine going and asking other syndicators, hey, who's your broker in that market, right? Because like you're basically saying, hey, I'm going to compete directly with you with your same broker, right? So how do I find that 80-20 broker? Yeah, the best source is LoopNet. Loopnet.com. It's a free website. And typically we say that that's where the deals go to die. Yeah. And that's partially true. Okay, parts of true. But the biggest benefit of LoopNet is that's where all the listings are, whether they're dying or not, it doesn't matter. But the point is you can see the listing brokers behind them. So you can look at all,

you search in the area, the size you want, and then you create a spreadsheet of all the brokers in there. And to me, I make note how many listings does that broker have? Because you see all the listings on LoopNet. Well, if someone's got one listing, it could be less interesting. I'll still call them. But if someone has a half a dozen listings,

now it's a clue that this guy might be, or gal might be a good broker. And then you always check the big brokerage house. Marcus Milichap, CBRE, you know, there's always the big ones. And you can always go to their website directly. That's how you find them. So Brandon and I always say that,

and by Brandon and I, I mean me and Brandon agrees, that rock stars no rock stars, right? So if you want to deal with the top 20% of brokers, which you do, you need to be the top 20% of investors because the rock stars can sniff out if you're a pretender, if you're legit. Can you give us some practical advice for someone who's newer who wants to desperately be in that top 20% what they need to know and how they need to communicate? Yeah, it's actually much easier than people think. People just overcomplicate this thing. But I talk about education a lot. You need to have education.

We threw out a lot of terms here today, but you need to know what those are. You need to use the right language. and you need to build your team. So as you approach a broker, you're talking, when they say, hey, tell me about yourself, you're not actually really talking about yourself. You're talking about your team. You're talking about the property manager

that manages of 5,000 units in Atlanta that the broker property already knows, right? You're doing that kind of stuff. And to elevate yourself quickly in the top 20% of a broker, all you get to do is when you get a deal from them is get back to within 24 hours with feedback on that deal.

So we have something called a 10-minute offer allows you to make an offer within 10 minutes of getting a marketing package, fairly simple. And if you do that, and I polled some of our brokers about this, you know, I said, well, how many of people on your list actually get back to you in a deal? 25% will respond. So if you're one of those 25%, you'll be automatically in the 25%. That's so good.

And this is true for everything in life. Like people, like, want their job to be easier. If you just understand this thing in all like human civilization, right? If people want their job easier, if you can make someone's job easier for them, they will instantly like you, instantly. want to do business with you, right? That applies for anything. Contractors, you make their life better, make their job easier. Boom, if you're trying to raise money, make it easier on your investors, right? Present the deal in a way that's easy. Don't complicate it with IRA when it's your grandma, right? Like, people want easy whether or not they say it or not. Everybody wants their life to be

easier. So, like, I know, I bought an apartment in Ohio, and the way that it happened, I mean, I was at a conference, and my Slocum, who is the agent that, Slokham Reed, so check them out if year in Cincinnati market. But he, like, he was smart, right? So he knew that I used the Bigger Pockets Calculators. He deliberately signed up for a Bigger Pockets Pro membership that day, ran the numbers through that, knowing that that's how I would want to read it. Sent me over the PDF. I pulled it up on my phone, looked at all the numbers, made it so easy for me to call him and be like, yeah, let's put an offer in right now. Right? Like he just, he knew, and because of that, I ended up buying the deal, right? Like, he made my job easy.

And when you can do that, I love that tip about just get back to the time. I love that tip about just get back to the broker right away with feedback. I think that that right there is going to get a lot of people listen to this, like more deals this year. And that's, again, small deal, single family, duplex, whatever, your agent, your real estate agent, your broker, whatever, any level, right? Yeah, love that stuff. All right. When you find a deal then, what's the process? You find something good. You run the numbers. And I wish we could spend four hours just on running the numbers here. But I know you have a really good deal analyzer. People can check out. But like after that point, you got this price. You know how much you think you can pay for it. What do you do?

You don't have a real estate agent in this case. It's not like residential. So what's the process look like? Yeah, that's a little bit different than on the house side. In the house side, you make an offer by essentially sending over typically an MLS kind of contract. With commercial real estate, it starts easier than that. I mean, typically the offer is made verbally or via email. And then you are invited to, quote, make an offer.

And what that means is you submit a letter of intent, which is a legally meaningless piece of plain English document that says, I'm buying it for this price. I want 30 days to look at it. I'm going to close and so and so, and people sign it. And the reason for that is a conversation piece, number one, then you hand that to the attorney because that costs real money. So once people sign the LOI, again, which is not legally binding, the next phase is then actually create what's called a purchase and sales agreement,

and the attorney drafts that up. And that's bounced back and forth, red line here and there. And then when you sign that, you're officially under contract, which is a major milestone, but now the real work begins, because now you have to kind of see what you put under contract. You have to unwrap the buy. and crack it open and see what you got. There you go.

I like that. I think that's really good advice because a lot of people are afraid to take that first step because they think they don't know everything there is to know. So they don't take a step at all. But the way that this works for people that are really good at it is this is a series of like 100 small steps and you don't need to know step two before you take step one. In fact, you cannot know step two until you take step one. And you do it enough times.

You start to recognize patterns that come up over and over and over. And so you get more efficient with your time. But literally the only way to learn this is to put something under contract, start looking into it, realize, oh, I can't buy it because of that. And then the next time you come across the similar situation, you're like, no, no, no, I know that didn't work out. I'll do it different. That's really good. All right. So what about like earnest money?

When's that due? Does it work the same way as residential? I mean, you got to pay some money when you make an offer, right? Or when do you owe that? And how much is it usually? Yeah, it's similar. Typically, it's due within certain number of days after the signing of the contract, not the letter of intent. after signing the contract.

And it's typically somewhere around 1% of the purchase price. Some brokers are looking or sales are looking for that that's quote hard on day one, meaning that's non-refundable. It's happening a little bit. It's starting to back off a little bit just because we're in a bit, have been in a seller's market. We don't prefer to do that, but sometimes that happens. Okay.

So once you're into it, tell me about funding. What kind of options of people have to fund deals? Funding as in the debt side or the equity side? Probably both. So the funding side is through loans, right? So the best way to do it is to have a previous relationship with a mortgage broker who can bring a variety of loan products to the table. So this depends a lot on your deal. Is it a stable deal, meaning that is it occupied at 90% or above?

Or is it more of a non-stabilized deal if it's occupied below that? That affects the loan product. So if you have a building that's 90% occupied, you qualify, and the loan amount is at least a million dollars, you qualify for, for Fannie or Freddie small loan balance loans, which are the cheapest and best you can get. They're non-recourse meaning. You don't have to personally guarantee them. And that's the way to go if you can. If you don't qualify, if the deal doesn't qualify for that, then there's something called bridge loans.

Bridge loans are short-term loans between one and three years. Many of them are also non-recourse. Some are personally guaranteed. If the deal is smaller, you're going to have to go with a regional or local bank and get those loans. And those are almost always personally guaranteed. So is the purpose of a bridge loan to get you from a non-stable asset into a stable asset so that you can then refinance it with the best debt? That's right. Yeah.

So that's very similar to what Brian and I talked about with single family homes where you use a hard money loan to get the house. You get it fixed up. You get it rented out. That would be the equivalent of it being stabilized. Then you go refinance it into a lower interest. Yeah. It's funny. Actually, when we talk about Burr investing on bigger pockets all the time, Burr investing, which is buy rehab, rent, refinance, repeat.

Like, that was stolen directly from house. Indicators operate most of their apartment buildings. Like they buy big apartments, they then rehab those apartments and they add the value and they're renting them out now for cash flow and they got this remodel thing. Then they go and refinance it, pay their investors off, maybe get cashed out, whatever, and then repeat the process. Go do it again. It's like all we're talking, Burr, all we're talking is doing a smaller version of what syndicators are doing all the time. So I always thought that was fascinating. So what about this?

Deal first or loan first? I mean, like, you know, do you need to go get pre-approved in the same way on a residential? Should I go talk to a loan broker right now and get pre-approved? Or no? No and yes. So you don't get pre-approved with commercial loans, but you should talk to a loan broker before. And the reason is, number one, relationships are important. And when you need to leverage those relationships is normally in a time where you have a deal where time is of the essence.

And number two is you have to know the terms of the loan and their underwriting requirements. For example, you know, if you don't know the interest rate or the amortization or the requirements around how many reserves they require or what is the liquidity requirements of the sponsor because you have to have a certain net worth and liquidity, if you don't know those things, it could really ruin your deal. If you underwrite it when you analyze the numbers using false assumptions or you try to do a deal and when the lender tries to quote underwrite you, they determine that your net worth is not high enough. and then you have to go find someone that is and bring them in the deal. All that can ruin your deal. So it's very important that you understand the loan products that the loan broker has and some of the parameters around them. All right.

That actually leads to a good point about if your net worth is not high enough. Now, I've heard a rule of, maybe this is a rule of thumb. Maybe this is an actual rule. Maybe it's completely not. But I've heard people say, you need to have a net worth higher than the loan amount. Is that true or is that just a rule of thumb or how that work? Yeah, that's about right. And you also need to have liquidity, meaning cash or in the,

bank that's equal to 10% of loan balance. Okay. And that's got to be somebody in the general partnership, correct? That's right. So the key is then you, if you don't have that, you sit on the couch and you watch Dancing with the Stars every night until you're retired, right? No, you bring in somebody, right? That's right. You bring in someone. This is the beauty of syndication. Remember, we talked about the entrepreneur making something happening out of nothing. Well, if you have, don't have that net worth thing, go find someone who does. This could be one of your potential investors, but it doesn't have to be your investors. It could be someone that likes you and support you,

but has no interest in investing in a deal, but they would be willing to co-sponsor or co-sign the note. Now, if they're co-signing on a non-personally guaranteed note, the risk is very, very low, even for the co-signer, right? The only time there was a recourse for them if there's fraud, and fraud was committed and proven, hopefully that won't happen. So someone is co-guaranteeing a non-recourse loan.

In return, they will get equity in the deal. The question is, how much do you give them? Again, it depends on where you are in life, but you give them, you know, give them equity, give them some acquisition fees or whatever the case may be, do whatever it takes to get that person on board. All right. That sounds like a really good position to be at in life

is to be somebody who's rich enough to just like... It's a strategy. Brandi, it's a strategy. There's people, all they do all day says, hey, I'm rich. Let me go sign and I'll get 10% for every single deal. You 10 of them and essentially you own 100% of deals across 10 different deals.

It literally has a strategy. And they're never investing in any of their own money. All they're doing is co-sponsoring stuff. And the risk is in the scheme of things extremely low. That's fascinating. That's what I want to be. I've decided. We're going to call it rich hacking.

And I'm just going to make myself available. I'll just pour myself out. If you guys need somebody to go into your deal with a high net worth and some liquidity. And what's funny is that the money that I make from the deals will then go back into my like savings account. So I have even more net worth and more liquidity, which makes me able to do more deals. And you're just in this awesome spiral upwards. Thank you, Michael. Yeah.

That's a good point. Okay, this is awesome. So now that I know I want to do this, and I obviously have to start moving forward, I need to build a team. So tell me, where should I start with building my team and who are the team members I'm going to need? So we talked about the mortgage broker. That's the second most important team member.

The first one by far is the property manager. And it's not for the reasons you think, yes, they're going to manage my property, which you think is sequentially after you close the deal. No, the property manager will help you buy the property. So if your business plan calls for $5,000 a unit to get $100 rent bump, My first question was, how do you know? Are you making this up? Did you go to rentometer.com?

And the answer better be no, because I talked to three property managers. And this is what they told me. They all told me the same thing. I'm like, okay, now we got something. That's great. Great. So what about negotiation tricks? You know, like when they come back, you know what?

You have not any tricks or just tips or advice on the negotiation process. So I don't know what about tips or tricks, but there are some. things that are very, very important. There's at least two major mistakes that people make. One is the point at which due diligence begins. So most contracts read, hey, from, you know, you have 30 days from the signing of this contract to complete your due diligence, which sounds great. But the problem is, what if it takes a seller two weeks to give you all the documents that you requested? So all of a sudden that you have two weeks to do diligence? That doesn't sound, right? So make sure due diligence starts at the point where you receive all the documents. They can take a year

for all you care. Don't matter. Clock doesn't start ticking. until you have all the documents. So that's number one. Number two, always, always get law contract extensions. Because here's what happens, okay? And it's hardly ever your fault. The bank almost always takes longer for reasons you can't control. Again, it's all over the board, the reason why sometimes we never know.

But if you don't have contract extensions, if the bank or the lender takes longer than the 45 or 60 days that they promised, you're essentially in default. Now, the seller may give you an extension because they want to, otherwise it has to have to start over again, but sometimes they don't. We've had, we've had sellers where they felt that they, you know, they should have gotten more. And so they actually are looking for a way to get out. So that's a problem. So what we do is we always have at least one, if not more, extensions in return for additional deposit, right? So pick your, pick your favorite deposit, but I could say for an extra quarter point, I'm buying myself a 30-day extension. And we propose unlimited extensions.

And then there might be a back-and-forth on it, maybe you end up on two or three or maybe one. But that is by far those two tips, if you got to insist on those two. Perfect. I love that. That's great. All right. So what about like management? Now you close a deal.

You get through the whole process. Oh, actually, before we did, title companies, are they the same ones who close this or the attorneys or both? Yeah. It's normally an attorney with a title company. So you're all in this, unlike with residential, where you don't, not really working with an attorney, you are always working with an attorney. And you're always working with your own attorney.

You're not sharing one with a seller. You have your own attorney, and they're going to be helping you with a purchase and sales contract. They're also going to help you with a closing. Okay. Cool. So now you buy the thing, and now you are going to manage it. Now, you're not out there swaying a hammer.

You're not showing up at the office every day at the apartment building managing, correct? Like, how does the management part work on a litigation deal? Yeah. So while you're doing due diligence and before you've closed a contract, you should have interviewed and vetted and selected your ideal property management company. And once you've selected them, you sign a management agreement that becomes effective pending the closing of the deal. And so the morning after or the day after or the hour after you close, there's a plan in place where the property manager walks in.

They put letters on everybody's door. Here's the new address to send your rents to. They take the keys and they move into the office. And we start managing the asset. All right. That makes sense. Cool. And then I'm wondering, how much work do you spend managing?

your manager. I mean, like, and that actually ties into the next question. I'll just ask both right here and then we can go back, you know, go back to the management part. One of the things I've, that I've held back from the syndication model is because I feel like I'm just getting into another job. Like, it's a lot of work. I mean, like, there's a lot of steps here. Does it get easier over time once you buy it? Does it really reduce your hours down to something that's more manageable or like, and then how does the plot property manager play into that? So the short answer is yes. However, a lot of it hinges on the question. quality of your property manager. You can have a property manager who's who's who's who's not good and all

you're doing is chasing them, micromanaging them, pulling your hair or in your case beard out. Okay. So that's that's that's the other extreme and you're spending way more on a on managing property than you should. On the other hand, you have a property manager who's just high quality, stable, just getting the job done. And the extent of our management is a 30 minute call with them where we talk through any issues. They're already putting out reports. So I already get my dashboards. So just talk about action items and things that we want to do. Very, very simple. On the investor side, depending on what stage you're in, you might have 10 investors or so for the first deal, let's say, that's not a lot of extra work. So once a month you're putting out a report,

once a quarter you're sending out checks. As you get a little larger, there are websites and systems out there that help you automate that. So you load your investors into a deal. It's like a CRM system. It allows you to email them, upload reports, and it just eases all that stuff. So really all you're doing is you're uploading a report, which you should be doing anyway for your own benefit, communicating it out. So really, this is one of the things I love this. It's not, there's not something as passive income. I truly believe that. I used to think there was, but there isn't.

And this is not completely passive. The only passive thing, no, I was going to say something that's not true either, is, you know, but it's a highly, highly leveraged activity. I mean, for in 30 minutes, I can, quote, manage a 321 unit building. That's insane. that's insane versus I can spend 10 hours chasing the guy on a 12 unit building right that's so size of distance doesn't matter so it's all on the quality of the proper manager what about limited partners would you consider that to be passive income uh yes largely but they still have to go to the bank right they stuff to wire i mean i've been a limited partner a couple times now like it's

still oh i love this only brandon considers at work to have to go to the bank to wire buddy this is ridiculous i have to wait in line it's funny the limited partner's So after like three or four months or six months, you know, when it stopped becoming exciting or new anymore, they don't even open emails anymore. So I was going to say stocks is the closest passive, but actually, that was going to say that's not true. But you're right. LPs is even closer to passive because you should spend a lot of time up front, you know, vetting your operator. People, that's a lot of work. A lot of work. Veting, vetting, vetting, vetting, vetting, vetting. But once you've found that person and you've made the investment, there's not much

you can do. I mean, you're tied up for like five years. That's me. That's our. buddy, Andrew, I just ride that racehorse. I don't even pay attention to where it's going. I just let it take me. That's funny. Okay, so how does somebody vet a syndicator? I mean, why should I invest with you, Michael, or any of the other syndicators on the show? Like, what makes me feel comfortable about that?

There's a variety of things. But the operator is everything because a strong operator is going to find the right deal in the right market and finding the right proper manager, right? So it's really about the operator that has track record and consistency. So you want to look and see who the partner or partners are and what is their track record. What are their systems behind their operation? Like how are they managing these things? And do you like them? Do you trust them?

Right? That's really all it is. And that takes some time, right? You want to get to know certain people. And then once you found them, you may want to never invest all your money in one deal. You may want to do that with a second operator, but you don't need a lot of operators. Like you need two or three strong operators that you invest with over and over again. And people do very, very, very well just by doing that.

So it's a lot of work up front. And then you just keep doing it over. You see how they perform. You know, let's wait a couple of distribution checks. See how they communicate. See how they're executing towards a business plan. How are they behaving? And I see that a couple times.

And now I can reinvest and tell all my friends about it. All right. Really, really good stuff. Really good stuff. Now, I want to tie all this together in the next segment of the show. which we call our deal. Deal deep dive. All right, rental property investors,

listen up. Our friends at Dominion Financial already have some of the best DSCR rates in the industry. Now they're the fastest, too. They just launched 10-day DSCR closing. That's right, 10 days. And they're still the only lender

with a DSCR price-beat guarantee. That means faster closing. The best terms. Zero guesswork. That's Dominion Financial. Check them out at Bigger Podcast. com slash dominion. Again, that's biggerpockets.com slash dominion. You just realized your business needed to hire someone yesterday. How can you find amazing

candidates fast, easy? Just use Indeed. When it comes to hiring, Indeed is all you need. That means you can stop struggling to get your job notice on other job sites. Indeed, sponsored job posts help you stand out and hire the right people quickly. Your job post jumps straight to the top of the page where your ideal candidates are looking. And it works. Sponsored jobs on Indeed get 45% more applications than non-sponsored post. The best part, no monthly subscriptions or long-term contracts. You only pay for results. And speaking of results, in the minute I've been talking to you,

23 people just got hired through Indeed worldwide. There's no need to wait any longer. Speed up your hiring right now with Indeed. And listeners of the show will get a $75 sponsored job credit to get your jobs more visibility at Indeed.com slash rookie. Just go to Indeed.com slash rookie right now and support our show by saying you heard about Indeed on this podcast. That's Indeed.com slash rookie. Terms and conditions apply. Hiring Indeed is all you need. All right. Let's get to the deal deep dive. This is the part of the show where we dive deep into one particular deal that you've done something that you want to talk about.

It could be a good deal. Could be a bad deal. It could be something. We're going to ask you just a bunch of specific questions. Actually very much related to what we just went through for the last 20 minutes in theory. Now we're going to go into. practical. So do you have something in mind, a recent deal, something Michael we can dig into? Sure. So 321 unit in Memphis. All right. That was my first question is what was it and where was it? So all right. Next one. I'll go, how did you find it? So we found it back through making something happen out of nothing. We found it through a deal finder through by joint venturing with someone who had a deal, young guy, didn't have any money but had hustle. Found this deal brought it to us. And we partnered with him, uh, raised the money on it.

that's how we found it and how much did you pay for it so we are we paid about seven million for it we had a four million dollar renovation budget wow wow that's a that's a pretty big renno okay uh how did you any negotiation stories tricks things that you worked in there didn't work in there was a negotiation no not not really we just pay attention to some of the two things that we talked about earlier and uh those are really really important because sometimes it does take 10 14 days to get all the documents, especially on a property like that. And I can't remember offhand whether we needed to have that extension, but the probability is pretty high that we exercise at least one. Okay. All right. And how did you fund this bad boy? So we funded it again, again, joint venturing.

We raised money from direct investors as well, but we also had a joint venture partner. Actually, we had two in the deal. And again, the joint venturing is kind of the key idea with multifamily, as you can tell we joint venture a lot. Joe Fairless joint ventures a lot. It's just a really cool, exciting thing where we joint venture with deal finders and also capital raisers. So we had a couple capital raisers in the deal. And the capital razor is possibly starts off as a passive investor, really likes it, tells her friends about it, and then brings the capital into syndication and in return to become a general partner. And what I love about it is that the result is exactly the same. They get equating a deal. They get passive income and they get long-term wealth. So we

partner with a couple of capital raisers in addition to raising some of their own capital, and it allowed us to raise a lot more. And this is a very common model, which then increases your capacity to raise money. That's cool. So I had not even known about this, and I feel silly saying this because I've been in the industry for so long, but I didn't know this was how it was done until just fairly recently that, like, you as a syndicator can bring in other general partners who have the other strengths that maybe you don't have or you don't have time for, right? So you bring in the capital raisers. and they become part of the deal,

but they're out there raising money from their family, you know, family, friends, colleagues, whatever, because they're in those circles and they like doing that. And then there's the,

you know, you bring in a partner who is really good at working with brokers and negotiating and finding deals and they're in a good market. Maybe they can go check things out, whatever. And you're all part of the general partnership together in a way because like, it's what we always talking about the show is like, focus on your strengths,

figure out what you're good at. What do you like doing? I mean, like, yeah. Yeah, that makes me so happy. Yeah.

And it should, right? So if someone's a relationship person and the idea of an Excel spreadsheet does most to make them slit their wrists, right? Well, then they're going to, there's literally a career path. It's a career path where all they do is raise money. And we see partnerships forming between two different kinds of people, the relationship people and the, you know, the analytical people, right?

So if you're an analytical person, detail-oriented, the relationship guy is not, right? That's they like the relationship people. So we see a lot of partnerships forming in that regard. One of them raises the money. and has a relationship with a broker. The other guy does the analysis, the chief underwriter, and the due diligence. And those partnerships work fabulous.

Yeah. You know, anyway, it makes me happy because, like, as I said before, like, there's some things I'm just not good at. I know that. Like, I'm not real great at raising money. I mean, I have a big platform and I reach all the people, but, like, talking to people who raise the money is not one of my strengths. But I love all day long, like digging through numbers and going through spreadsheets and

figuring out what I can pay. I'll do that all day long. So I actually recently just a couple weeks ago, I sat down and I worked out what a, There's a book called A Vivid Vision. It's like basically like you write down a document exactly what you want your company to look like in a few years. And I spec it out. Like I want like within like hopefully by the end of this year, I want to have two or three

people that work with me directly, whether or not it's an employee or a JV. But like I want somebody who just raises money because they're so good at that. And I want somebody else who just really going to build a relationship with brokers. And like that's what I'm building right now in my own real estate business because for that same reason, the JV thing. Anyway, it just makes me happy to know that even though I've got weaknesses. is in life, you know, there's ways to compensate. You don't have to just sit on the couch and watch dancing with the stars. You can go out there and invest anyway. All right, Michael, you mentioned

having a big reno budget, which was actually, I mean, if it was a $7 million deal and $4 million was for the renovation, that's huge. Tell me, like, what did you do with this deal once you had it fixed up? So it was, this was a compounded value ad deal. I mean, there were multiple problems with it, which is one reason we loved it so much. So the vacancy was high. It was about 30%. The question is why, right? Is it the market bad or is this something else? So this is an important question to answer. The answer to that question is they just didn't turn units over. You know, the comps were all 96% occupied. Now, the question is why weren't they turning units over? You've got to understand these things. It was an older partnership. One of the senior partners had passed

away and there was a younger partner that came on and they, he wanted to take the company into senior living, which is highly profitable. They built this thing in the 70s and 80s. It was probably paid off, making a gobs of money for them. They don't need to, like I said, get the last dime out of that one. Then, because of that, the rents were undermarket. So just as the units were, there were probably about $75 undermarket compared to the comps in the existing condition. But then there were other comps that were improved, considerably so.

And so there was another $75 rent bump. So you go in there with a $4 million renovation budget, meaning you're going to replace the roof, parking lot, new lights, camera system, playground, fire, you know, pit. You're putting $5,000 per year. you're painting the exterior, you're removing the 70 style mansurge on the side. You do all that. It's going to look just like the property down the road that's getting $150 more in rent. And so that's how we used that renovation money. Cool. All right. So what was the outcome at the end? I mean, you put in, you bought for seven,

you put in four. What was the outcome? What ended up doing? So this is a case study in your Burr method because what we just, we just refinanced out literally last week out of, valuation of something like 13 million for that. So we were into it for seven plus eight and we added about five, six, six million dollars in value, returned 90% of the investors capital back. And now we're just going to hold it. Wow. That's all. Okay. So let me let me go back because I must have so you bought it. Did you buy it for seven and put in four more or the seven including the four? So actually we bought it for seven and we didn't actually put in the four. We had four, but we only deployed about we only, the crazy thing is we only, the crazy thing is we only,

employed about a million of the four. And it's just because it was so compounded, there was so many multiple problems, coupled with a very strong property manager. I mean, within, so we bought it at like 68% occupied. Within three months, he was at, he hit the 90% mark. And it's just, it's just flawless execution. We never have done that without a strong property manager. Very, very cool.

That's incredible. Okay. So what did you learn from this deal? Well, a lot of things. Now, typically you don't, you don't learn nearly as much on successful deals that you do with unsuccessful deals, which we could spend another episode on. So having said that, I learned relatively little. I'm just kidding.

So, but it's, it's, it's, you learn a lot of things. Number one, it's, it's really about your team is, is really important. I mean, a proper manager, and we've had other not so mixed results where the property manager was more than mixed, unable to execute an business plan. replaced the property manager, got back on track, but lost six months in the process. Right. So that's not ideal. But the proper manager we talked about before is so critical.

So critical. Number two, joint venturing is very, very powerful for the reasons we talked about. Very good. Very, very good. All right. Cool deal. I like hearing that. Let's move on to the next segment, The Fire Round.

It's time for the Fire Round. All right. It's time for the World Famous. fire around. These questions come direct out of the BiggerPockets forums, which you can visit at BiggerPockets.com slash forums. And let's see what you've got to say. So number one, let's see. I'm, this is from AJ. I think that's this. AJ, I'm new to investing and I want to be a house hacker. So I want to buy like a duplex, triplex, fourplex, live in one unit in Baton Rouge, L.A. Oh, no, not L.A., Baton Louise, Louisiana. So I can live free and learn how to be a

landlord on a small scale first. When finding a potential small multifamily me deal. What are some of the things I need to request from the listing agent or seller to completely analyze this deal? So I wouldn't, first of all, I wouldn't rely on the listing agent at all, right? So with anything less than five units, you can look at the rental, you have to look at the rental income, but it's not going to be valued. It's going to be comp. So you want to look at the comps from your listing agent. Obviously, you want to understand what the rent source, so you can kind of figure out, can I cover my expenses, my mortgage, but it's all going to be comps driven. How is hacking, by the way, a fabulous way to get started. And I've talked to several people. That's exactly how they got started.

They got an FHA loan, 3% down. It's crazy. Insane. You've got to live in it for a year, but it's fantastic. So my counsel is try to get something that's undervalued, meaning that it's maybe vacant or partially vacant or kind of needs repair and do the same thing we talked about here. While it's not going to be income driven, comms are also driven by condition, as everybody knows, right? So the income is not so important, but the way it looks is very, very important. But I love that. It's a great, great way to get started in the business. Cool.

All right. Next question is from Zach. He says, I'm new to real estate investing, and I just spoke to an investor whose niche is Section 8 housing. This seems to be an interesting niche market. Do you have any experience with Section 8, and if so, how is it gone? Yes, I do have experience with Section 8. It went well, but it was very painful.

This was a property in Washington, D.C. and Section 8 is definitely a specialty. I'm not saying you shouldn't do it. D.C. is difficult because, not so much because of Section 8, but because of the landlord-tenant laws are highly favorable to tenants. It makes it very difficult to manage in that. And similar, I suspect, from our herd as in New York and California. But Section 8 is, in fact, a strategy, kind of like student housing.

The property manager is key. So when we first did that deal, I had the wrong property manager in place. This didn't know what they were doing, constantly struggling, and then we replace them with someone who specialized in Section 8, knows all the organization and knows all the inspectors. And it was like, wow, it was like, it was like night and day. So if that's what you want to do, I think it's a, especially if you want to help out lower income,

it's definitely strategists to make sure your property manager is in line with, with that asset. There you go. All right. Next one. We can kind of touch on this already, but it's a good one, so we'll ask it quick. I've settled on what I think is a great market for my first multifamily purchase. who should I form a relationship with first, broker, a lender, a property manager, or a contractor.

So it's like David Green here talks a lot about the core four, which are like those four people, broker, lender, property manager and contractor. And one will hopefully lead to the other because rock stars and rock stars, rock stars. Rock stars. So the question for you, Michael, here is like, who should you form relationship with first? Who would you recommend? I mean, I agree with what David says. I would leave out the contractor because typically the proper manager will bring those in.

but you really want to have the property manager and the broker kind of simultaneously. Ideally, if you have the property manager on board first, you can reference them when you talk to the broker. All right. Good. Cool. Okay. Last question of the fire round. When you're negotiating the price of a single family home, there's a lot of psychology and emotion involved.

How is negotiating a multifamily deal different from that? I assume someone who's selling an apartment building is more sophisticated and data-focused. So how do you get them to move on price? Yeah, you might think that. It really depends on the size of the building that you're working with. If you're dealing with 12, 25, even 50 unit buildings, there's a lot of mom and pop owners out there, and they're not sophisticated at all. And this could be a good thing or a bad thing. It could be a good thing if they're completely mispricing the asset. We bought one just like it. And they just didn't really know what they had. And it was great. But sometimes they have unrealistic expectation because someone down the road said they sold it for a gazillion dollars. So thusly, because they don't know how to value that.

But in general, that is true. It's much more numbers driven, which makes it a lot easier. A lot easier because I'm dealing with three levers. Price, NOI, and cap rate. That's it. Price, N.O. and cap rate, right? So I can have a very objective conversation with someone. If I adjust someone's net operating income because they're obviously way too low and their

expenses are underreported, if I apply some rules of thumb to that, I can then adjust my NOI normally down, which then reduces the price down. And if the NOI is lower, the price is lower. Wouldn't you agree, Mr. Broker? Uh, yes. Because that's how it works. I love that you boiled it down into those three levers, right? Like, when you understand what generates value in an asset class, it becomes very simple to understand what to do. And you just do a very good job, Michael, of explaining that. So it seems a lot less daunting than it might from an unsophisticated perspective. Very good. Very good.

All right. Well, that's pretty much the end of our famous fire round. Let's head into the famous four. Let's head into the famous four. Wait, we didn't do the sound effect. Cue it here. Famous for. The Famous Four is the part of the show where we ask guests every week the same four questions. And we've asked you this, Michael now, what, 500 years ago when you were on the show last time, but we're going to ask you again. Michael, other than your own, which you have a fantastic book, but other than your own, what's your favorite real estate,

related book? What's a real estate book you can recommend? Well, I did enjoy yours that you put out a couple of years ago. How we bought 24 unit. That was awesome because it makes a lot of my points. It's just, hey, you got started, you got it done. You were creative. I love that. Matt Faircloth's recent book on raising money is fabulous because I interviewed him a little while ago, raising private cap of building a real estate empire. Really good job on that. I'd say my recent favorite non-real estate book, though I apply it to real estate is probably the one thing by Gary Keller. It just clarified so many things for me and then gave me the tools to actually just work on that one thing. Cool. That's awesome. Since you answered question number two

with question number one, you're an efficient man, clearly a multifamily investor. Maybe he has another recommendation. Maybe, I don't know. Oh, do you have a second non-real estate book that you really like? One that made a lot of difference to me about two and a half years ago was the Miracle Morning by Hal Elrod. In fact, he's speaking on our event later in the summer, so I'm really excited to have him on board. So awesome. I know, Brandon, you know you'll hell. But that made a pretty big difference. I've always been struggling kind of with a morning routine. Like, how do I structure it? What do I do? And he really makes that very actionable. So that's made a pretty big difference to me. Do you know, actually, the reason we're all here right now, the reason

me and David Green here are like besties is because of Hal Elrod, actually. Howl Elrod was the, whatever you want to call that, the hinge between David and I. He introduced us all together. And this is, this is why we're here today. So thank you, Hal. Yeah. How was the matchmaker that made this magic happen? Matchmaker, matchmaker, make me a match. All right. Next one, number three. What are some of your hobbies? So I love to travel. That's my number one thing. And I love to travel with my family. So we normally, we travel at least 30 days out of the year. If we can do it longer than that, then, you know, that's ideal. Like in one shot or do you a lot of separate little trips? Ideally in one shot. And, you know, as you know, we can do this business anywhere in the world. And so why not do it? Why, you know, why look at the same four walls every time when you could be in Prague or in, you know, in Mexico, wherever the case may be?

So, and our entire team is virtual as well for that for that same reason. Other than that, uh, play competitive tennis, probably less than I used to and less than I should, but those are some of my hobbies. Nice. Brandon likes to travel too. He travels to Starbucks at all kinds of different places. Starbucks and Rome, Starbucks and Prague. Starbucks in Hawaii. No, this is true story.

We went to Paris a few years ago. And I mean, this is like eight years ago now. And my wife and I like literally like walked for like hours and hours trying to find a Starbucks. Like how could there not be a Starbucks in Paris? We finally found one. It made our life. It made the whole trip worth it. There was also like the Eiffel Tower crap.

But like really it was Starbucks. All right. You had to walk past all those horrible French coffee shops to try to find the good Starbucks in the city of Paris. Exactly. Yeah. We're not going to go with that. Hey, Michael, because I didn't ask you this earlier and I should have and I want to now. and I'm going to totally break apart the famous four here.

You mentioned your team is remote. What does your team look like? I mean, employee versus like out, you know, like people use work with, partners, whatever, like what does the overall structure your business look like? Yeah, it depends a little bit on which side you're looking at. But on the, on the syndication side, it's all essentially partners, right? So there's no salary, no by the hour. Everyone is working for equity.

That's really it is. And on the other side, it's, they're paid as a contractor. They're either paid as almost like a partner or, they're all entrepreneurs at the heart of the heart of it. So that's kind of why we love working this environment. Yeah. Do you have people who just like underwrite, again, I know we're breaking the fore. Like who just like you just have underwrite deals left and right because like, you know, as a first pass before you get to them? Yes. Well, we do actually. And a lot of all the people do as well. And they, they use whatever analyzer tool you just tell them to use it. And so by the time it gets to

your desk, there's a certain amount of prequalification that they've done to the deal. So if you're doing volume or you're busy guy or gal or you don't love the underwriting process. It's a great way. You might pay them, you know, 20 bucks an hour and give them a sliver of equity once you close a deal. And there are people out there a lot. And we, like I said, we see a lot of partnerships forming in that, in that way. Yeah. Well, I know both David and I are beginning to look into having those people on our team. So if there's people listen to this right now, you've made it through an whole hour and a half long show on this stuff and you're interested. Reach out to one of us. And maybe Michael too, you know, like, if you like analyzing deals, you're good at it. Maybe you're a, what, a,

the high, what is it, high C? Yeah, high C, right? Like, you like crunching numbers? Yeah, reach out to any of the three of us. I bet we could, you know, we could chat. So, all right, going back to the famous four, what do you believe sets apart successful syndicators from those who give up, they fail or they never get started?

Yeah, so I thought some time about this thing. And I think it's really, really fundamental. There's various tactics and mindset things, but really fundamentally it comes down to deciding. Here's what I mean by that. Okay, so one of my favorite quotes is a quote by Tony Robbins, which is on my wall here, it is in your moments of decision that your destiny is shaped. What I found is I study people who are successful and you never get out of the gate. It comes down to them deciding that enough is enough, deciding that being in the same place

this time next year is no longer acceptable to them. And typically there's some kind of trigger event. It could be a health event or it could be an experience with their daughter about missing their recital the next day. and something just clicks in their mind going, hey, I've been working for 20 years. If I keep this up, I'm going to work another 20 years and I'm going to miss my kids grow up

or whatever the case may be. And something happens inside then where they've decided that this can no longer go on. And if they've truly decided that, what happens is there can be no other result but that which they've already decided. On the other hand, there's other people who have not decided.

Here's what this looks like. Oh, yeah. So I'm ready to get started in multifamily investing. All right, great. Well, you've got to make time for that. Oh, yeah. I will make time for that. Two months later, they take a promotion at work, which requires them to travel nonstop. Well, wait, let me get this straight. You just told me that you were trying to find time to get started. Now you accept it a promotion. So you just lie to yourself and me in the process. And that's a difference what I mean by people who have truly decided and then make decisions and set priorities accordingly.

Wow. You sound like Brandon Turner during a webinar right now. Speaking of webinars, bigger pockets.com slash webinar. You can sign up for one. All right. That's really great. It's free real estate. You got to be there. It's free real estate. Brendan's webinars are incredible. Okay. Michael, this has been probably one of my favorite episodes, mostly because we just feel like we got to rip free knowledge out of you to help our own businesses. And if 250,000 other people are listening, well, that's cool. But it really, Brandon and I benefited. Can you tell me, for people that are fascinated by what you do, what you know and what you can do for them, how can they find out more about you? I mean, the first thing is just to check out my book, which is called Financial Freedom with Real Estate Investing. And it's on Amazon. It's a bright yellow cover, financial freedom with real estate investing.

It really embodies a lot of what we talked about here. It's really the mission that I'm passionate about. If people want to quit their jobs with real estate and they got real estate in their mind, strongly consider multifamily, even if they have no prior experience for cash, that's probably a great entry point into that world. The website is the michaelblanc.com. That's how people can find me. Perfect, dude. Well, thank you very, very much. This has been like just really, really, really fantastic. So thank you. And we'll see you around. I'll have to get you back on the show again someday in the future and kind of see when you get to that billion dollar level. I don't know. Is that a goal of yours? Sure. Absolutely. All right. I like it. All right. Well, thank you, Michael. And we'll see you around. Thanks.

All right. That was our show with the Michael Blanc. Fantastic. Love that. Love that guy. Like, I just feel like I learned like my brain grew through. sizes. Kind of like the Grinch's heart grew three sizes. Yeah, my brain just went do, do, do, do, just like that. I don't know if your head has the capacity to get bigger. I don't know if that's I have a pretty big head. It can get bigger though. It's got room. Yeah, that was an awesome show. I mean, that was just so much actionable meat and potatoes type stuff. Like, normally you got to pay a lot of money to get information like that. So Michael did a great job. Yeah, that's really good. So cool. Well, everybody, take one thing from today's show and go apply to your life, right? Maybe that

means you're going to listen to it again and go try to pull out a couple things, but like this stuff, you know, knowledge alone isn't, isn't enough, right? It's got to be knowledge plus action. So take some action. If you're driving to work right now, you're driving home from work, like that's great. Learning this stuff is important and you should continue to do so, but it doesn't matter if you don't put it into action. So go to your calendar, put it in there. Hey, at this time, I'm going to contact this broker. At this time, I'm going to go and go on loop net and go find some brokers. Or at this time, I'm going to go and run the numbers on my first multifamily and see what it looks like. that's so important is to get that on your calendar. It'll increase a chance of you actually doing it.

That's all I got. Off my soapbox. Let's get out of here. All right. This was an awesome time. This is David Green for Brandon. Big O'Head Turner. Signing off. 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. Be sure to join the millions of others who have benefited from biggerpockets.com. Your home for real estate investing online. Thank you all for listening to the Bigger Pockets Real Estate podcast. Make sure you get all our new episodes by subscribing on YouTube, Apple, Spotify, or any other podcast platform.

Our new episodes come out Monday, Wednesday, and Friday. I'm the host and executive producer of the show, Dave Meyer. The show is produced by Ian K, copywriting is by Calico content, and editing is by Exodus. media. If you'd like to learn more about real estate investing or to sign up for our free newsletter, please visit www.biggerpockets.com. The content of this podcast is for informational purposes only. All host and participant opinions are their own. Investment in any asset, real estate included, involves risk. So use your best judgment and consult with qualified advisors before investing. You should only risk capital you can afford to lose. And remember, past performance is not

indicative of future results. Bigger Pocket's LLC disclaims all liability for direct, indirect, consequential, or other damages arising from a reliance on information presented in this podcast.