BiggerPockets Real Estate Podcast - 383: Finding Your Perfect Partner and the Top 6 Factors When Choosing a Market with Ben Leybovich & Sam Grooms

Episode Date: May 21, 2020

Interested in someday making the leap to bigger investments? Don't miss this one! Ben Leybovich and Sam Grooms join us for a high-level conversation about how they transitioned from flips and smaller assets to 100-plus-unit, value-add multifamily deals. Since the first part of this show was recorded pre-coronavirus, we brought the guys back on to hear their thoughts on today's market and get an update on how their business is doing amid the volatility (spoiler: pretty well!). In This Episode We Cover: Finding the perfect partner for you The 6 factors they look at when analyzing a market Why Sam & Ben keep such a large reserve fund Why investors sometimes overvalue cash flow Why they like the Phoenix market How to establish a competitive edge in real estate investing How they look at multifamily syndication as "a long flip" Why equity protects you Buying insurance against interest rate increases Hiring their own construction team How they're adjusting to COVID-19 And SO much more! Links from the Show BiggerPockets Forums BiggerPockets Bookstore BiggerPockets Podcast BiggerPockets Calculators BiggerPockets Podcast 382: No Money Down BRRRR Investing with Josiah Smelser (Part 1, Recorded Pre-Coronavirus) BiggerPockets Podcast 382.5: Surviving When the BRRRR Hits the Fan with Josiah Smelser (Part 2, Post-Coronavirus) Deloitte BiggerPockets Conference 2020 BiggerPockets Podcast 356: 30+ Rentals (in a Pricy Market) Through BRRRR and Section 8 with Joe Asamoah Open Door Capital BiggerPockets Podcast 313: How to Be Happy AND Grow a Massive Business with Entrepreneur Jesse Itzler (and Josh!) Check the full show notes here: http://biggerpockets.com/show383 Learn more about your ad choices. Visit megaphone.fm/adchoices

This is the Bigger Pockets podcast show 383. Warren Buffett says diversification is protection against ignorance. I say growth and equity is protection against ignorance in income producing assets because income comes in, income goes out. But if you have an exit and you can make money by exiting, then at least you are not losing money. 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? It's Brandon Turner, host of the Bigger Pockets podcast here with a very cool, different type of show and a very long show here with my good friend and co-host, Mr. David Green. David Green. How's it going, man? It's going great. We just had Mother's Day yesterday. Got to go see my mom and have dinner with her. Did you guys celebrate with Heather?

No, we don't celebrate Mother's Day. I think it's a card hallmark factory holiday and we don't believe in supporting big business. Frankly, I think mothers get way too much credit as it is in society. We are way, we just cater to them so much and we're way too appreciative. I know. So, so much. I mean, what did they really do? I mean, really. That's exactly what I'm saying. Do we really need moms at all? I think we'd be fine if we didn't have them. Yeah, I agree. There's like 12 people who just like are so angry right now because they don't read sarcasm. Yes, mom, I love you. I love everybody who's a mom. You guys are awesome. You guys are the real MVP's for sure. The real MVP's. But of course,

that happened like a week and a half ago after this episode came out because last week, we released an episode we wanted to put out right away with Josiah Smelser. So Josiah was a good buddy of mine who walked through his journey of the difficulties he went through and how he overcame them on his I would say small because of what we're about to talk to about. But on it's like single family deals, right? It's single family houses. Today we're going to do the exact kind of same concept as how is COVID affecting the world. But we're doing a two-part podcast episode with Sam Grooms and Ben Labovich.

So Ben's on the show a number of times before. And Sam, this is this first time. So they actually, we recorded the first half of this just before the whole social distancing thing came down. And we did it like here in my shed here out in Maui when Sam and Ben were visiting. So we talked about what they're doing. We talked about a lot of really, really great topics, things like how to look at equity versus cash flow, some stuff about partnerships, choosing a market, how they manage risk for their big syndication deals, things like that. So we had a great topic. But then, of course, the world's changed in the past couple months

since we recorded that. So here's the deal. Rather than a whole separate episode, we are going to tag on an extra 45 minutes at the end of today's episode. That is a follow-up that we just recorded just a few minutes ago here, the day after Mother's Day. and we put them all together. So you can listen to the first half here all about their story, their journey, and then you can listen to the second what they've done since then,

what's gone right, what's gone wrong, what's changed in the world of real estate. Really good stuff. We talked about some really high level stuff. You guys might, if you're new to real estate, you might understand every word

we talk about today, both in the first and the second because they're very smart dudes. But just, it's very high level. If you have any questions, you can always go to bigger pockets as I come slash glossary

or jump into the show notes and ask questions there of Ben, of Sam, of us. at biggerpockets.com. So show 383. But now, before we get to the show,

the super long episode today, let's get to today's Wait Tip. Did you know that Bigger Pockets has an official Facebook group? Now, there's been a number of unofficial ones and people like fan groups over the years on Facebook,

but we have officially started an official Facebook group officially. How's that for being official? And you can get to it by just going to your Facebook page and search for, You know, Bigger Pockets official. And you should find it there.

There's also a group for the Rookie Show. I think there's a group for the Money Show as well. And so, but there's official real estate Facebook group now for Bigger Pockets. So just make sure type of word official in there and you'll find it. And we'd love to have you in the group. It's just a great place to connect and talk and chat and ask questions and celebrate your victories. So check it out. Again, go to Facebook.

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and support our show by saying you heard about Indeed on this podcast. That's Indeed. dot com slash rookie terms and conditions apply hiring indeed is all you need i think we're pretty much ready to get to today's show anything you want to uh say before we're going to do it one of my favorite parts of this whole before and after or maybe before and during thing that we're doing is that you get to actually hear all the fears and the speculation people had and then fast forward in your time machine two months and see how much of that came true and i love that because we forget about all of the declarations that people made that were really dramatic in one direction or another, like six months later, we don't always look back and see, you know, I guarantee victory and

then they get smashed. And so this is a pretty cool way of seeing all the fears everyone had, all the concerns, all the speculation, and then zip forward and see what actually happened and seeing how much of that came true. And the more of that you sort of experience as an investor going through this journey, the better of a detector that you'll start to develop for when you should be worried when you shouldn't be. And more importantly, what you should do to mitigate that risk rather than letting it freeze you into not taking action. So good. So good. Let's bring them in. With that, let's do it. All right, welcome to the Bigger Pockets podcast, gentlemen. Good to have you here. Sam, Ben. What's up, guys? Not much. Beautiful view out here. It's not too bad. I get to

stare at Ryan this whole time. Thanks for having us. That's what you meant, right? Right. which I thought. All right. Well, we want to go through your eyes a story today, each of you. Ben, you've been on the show before. Ben's been on the show many times before. Sam, this is your first time. And so why don't we start with Ben, get your 30-second story.

Ben has an ability to make 30 seconds into 30 minutes, but we're going to get your story. And we're going to go to Sam. Ben, go. I got diagnosed with MS when I was in college. I needed to figure something else. out to make money. I didn't have a lot of cash, so I couldn't invest in dividend stocks. I wasn't smart enough to build a business. So just like any dumber, I went into real estate and they have it. All right. Wow. And you bought a lot in Ohio. Well, not a lot, but yeah, I've been doing it

since 2006. Yeah. So you bought stuff. And if you buy them to listen to Ben's episodes, of course, we'll link to them in the show notes and there's links to all Ben's shows. But you've kind of made a a large change and that you started with the smaller stuff, and now you don't even touch the smaller stuff. Correct. And so we'll talk about that today again a little bit more. But Sam, your story. So how did you get into this thing?

We want a shorter long version. Let's go a minute long version. So I was a CPA. I worked at Deloitte. I did, they're one of the largest financial services companies in the country, or actually in the world. In 2014, I bought a house with my wife. We started renovating the house.

I did everything from electrical, the plans, got the permits, and refinanced, pulled out a bunch of money, got rid of my PMI, and decided I loved real estate. So started doing that on that side, started flipping, started investing into multifamily syndications, and then that's when I met Ben and decided I wanted to sponsor multifamily syndications and the rest of history. That's what we're at today. All right.

So I want to start a little bit with the transition from your full-time job in that hustle that you had. So Sam, tell us about like, when did you know it was time to leave your job? Why did you leave the job? And kind of walk, because a lot of our listeners right now are at that point where they're like, I hate my job or I don't like my job. Maybe they like the job, they just want something different. And they want to transition out. So how did you make that transition? Interesting question.

So I, right when I started, I got recruited by a new company right after about my house. And I figured out in the first month that I could automate a lot of the tasks I was doing. And so I started in the next first six months, I spent with IT. every day. I don't even know if I've told Ben this story. I worked with IT every day to automate a lot of my tasks and actually half of my day freed up. And so they gave me a few more tasks, but I don't think fully caught on that I automated like most of my day. So I actually just started analyzing deals all day every day. And that's what I love doing. I spent most of my time doing that. And that got let me, allow me to really learn the market and local market in a Phoenix.

And then I would just to spend it. I realized that I loved looking forward to that time of my day that I can spend doing that. And I wanted to do something I was more passionate about. And yes, I was making great money, climbing the corporate ladder. But I wanted to do something I loved. And we had just gotten married. And my wife and I knew that if we didn't take the leave of faith then, that we wouldn't do it once we had kids. So it was the perfect time for us. And we both quit our jobs at this pretty much the same time, about a month apart and started flipping.

And, yeah, never looked back. Like, I believe most people, not everybody, but a lot of people could probably jump in in flipping houses. David, I'd love to know your thoughts on this, too, because you flip houses. You're especially getting more into flipping houses. But like flipping houses is not a impossible skill to learn. Doing large multifamily syndication is a pretty difficult skill to learn. Not impossible. Again, I think if people really want it, they'll find a way.

And if not, they'll find an excuse, right? To steal a Jim Rohn quote. See, David, I gave credit to Jim Rohn there. And, but like what- The trademark lawyers have targeted Brandon now. And they're circling like hot straight and stupid. No, I've never stole a quote. Geez, this guy.

All right, no, this, I'm curious. Yeah, okay, I'm going to go David first. curious of what like what skill set do you need to quit your job to flip houses i want to go there first and then we'll talk about what skillsets you need to do other so i'll start with you david and i know we're not like interviewing you but i'm controlling the conversation so if you want to flip houses it's it's it's basically running a pretty simplistic business now when i say simplistic i don't mean it's easy i mean compared to if you were to buy a brick and mortar institution where you have you know like 20 employees that you have to manage accounts payable and accounts receivable

that you have to be looking at accountants. You have to understand the margins of every single thing you're selling. That's what most businesses are like, and that's very difficult. Like if you wanted to open a shoe store or sold clothing or something, house flipping, there's a lot less variables to go into this thing. There's what am I buying it for? What do I have to do to fix it up? What are my holding costs? And what am I selling it for? When there's less inputs, it becomes more simple. But that doesn't mean it's easy. It means anyone can do it. And with a business like that, the most important thing is you have to be able to find leads. If you can find deals and you can fill a bucket up with a bunch of water, which is your equity, then you can make money flipping

houses. You'll make less money than the next guy, right? Like someone like Jay Scott's going to be super systemized. He's going to do better than you. But you can still make money if you could get enough equity in that deal. So you have to have the ability to find leads. And often with that comes to the ability to negotiate. You have to be able to talk to people and be able to get something under contract and have some skills when it comes to that. Everything else can be hired out. You can hire a contractor to work on your rehabs. You can hire a bookkeeper to, keep the books. You can have somebody who actually analyzes it for you. There's Sam's out there who like Sam just said, I would look forward to that part of the day all the time. I loved it. We all

have that one part of what we do that makes us come alive and we love to get in there. You find people that are good at those things and you can run a house-lipping business pretty simplistically compared to what most businesses are like, but you've got to be able to find leads. If you're that kind of person that doesn't like to talk to people, doesn't like to put yourself out there, you're afraid of being told no or you're afraid of having to make, you know, 99 swings before you make contact on that 100th one, you're going to hate house flipping. But when you realize that when you do one good one, how much money you can make, it makes sense when you average it all out. That makes sense. And you guys want to end to that? For me, it was just from the analyzing so many

deals. So you're going to get a ton of deals. If you reach out to every wholesaler in your area and just get on all of their list, you're going to get more deals than most people can look at. So you need to be able to look out really quickly and know if it's a deal or not. So when you get that address and the price that they're asking and the ARV and really quickly know, I know that area. I know what it's going to cost to take to rehab it. I know what I'm going to be able to sell it for. Is this a good deal?

You need to be able to do that in less than a minute. And so just the more you can analyze deals, the faster that will go. Yeah. Yeah. Huge. All right. So let's talk about how you guys mess. You're doing your own thing.

Sam, you're doing your own thing. Ben, you're doing your own thing. I know, Ben, last time you were on the show. You were talking a lot about multifamily syndication and you kind of started, you know, entering the space. but now you're like, you're like a syndicator, right? So I want to go through that transition of how that happened. But first, let's start with how you guys met each other. Because, I mean, you really took off once you found each other, right?

Right. So how did that happen? How did you guys? So I'm letting Sam talk. Because he yells at me every time because I talk all the time, right? Prima Donna, the professor. Let's hear it. So as I'm flipping, I started investing in multifamily syndications.

All of them were local to Phoenix, all local sponsors. And actually, I'm listening. to a webinar that you were putting on, Brandon, and you mentioned a syndication that you're investing in in Arizona. And I thought, oh, that's perfect. I'd love to find out more about that. So I emailed you, and you connected Ben and I. And I should go back and look at that email. I don't remember that, but I must have. That's good. Okay. And for me, it was a very personal decision. You know, you're sitting in Ohio. You know, I'm, you know, and one day you wake up, you look at stuff in the mirror, and you say, you know what?

I bought a duplex. I bought a triplex. I bought a fourplex. I bought a 10. You know, I just, that cup is overfilled, like on a very personal level, right? It was just like, I can't buy another small multifamily. It's just not me anymore. And I didn't know what me was at that point, just like he outgrew his cubicle. I outgrew my, well, okay, I have 30 doors. I have 40 doors, you know, Hupa. It's just, it would, it was done. I was done. Like, the guy I was like looking in the mirror was not a guy that could tolerate buying another fourplex. Let me ask you a question on the note. How much of that was that transition? Because again, a lot of people listen to the show right now are investors who have 10, 20, 30, 40 units. How much of that transition was because you just

wanted something more or did you need something more in terms of like financial? Like, like, because I'm assuming you would have been fine just no, you don't need more financially. You want more. financially. What you need is your manhood, your impact on society, your capacity to deliver a lifestyle to your kids. Those are the things we need. Money is a byproduct of growth. And I was just simply in a place personally where I was done, dude. And that happens in growth every time. Like, it's a hockey stick. You go up and then you hit a plateau. And then that right there, you're spinning around looking who am I now? Like what's next? Who is this guy now? Right? And that's the place I was in. And so it's very personal. It's really all about growth. It's none of it is about money.

Money is nice, but it's growth. Yeah. What about you, Sam? Why did you make that jump? Like, why not just be satisfied with the flipping or the smaller stuff you were doing? So I started learning a lot about multifamily, just going to conferences, reading books, listening to a podcast. And I noticed that my skill set related a lot more to multifamily. The financial side that's really involved with multifamily. And I love the real estate side and flipping and taking something and improving it. And now I just do that on a larger scale with multifamily. That's cool.

Very cool. You know, I think something about your guys' story that I really want to highlight for the listeners is the most successful people that Brandon and I talked to had a career growth trajectory very similar to yours. The newbies always say, okay, tell me every. single step I'm supposed to take all 150 of them. Let me line out my dominoes as perfectly as I can, so I never make a mistake. And they spend 17 years trying to do that. And then they realize that real estate has tripled in value and they haven't done anything. And they're in the same place they were. The people who are successful say, I can see the first step, let me go take it. And then like Ben, they go build up a portfolio of small multifamily properties. They learn the

fundamentals of real estate. They learn how to manage money coming in and out. They learn how to books. They learned tenant laws. They just learn the basics. And so there's some confidence. And then they say, yeah, I don't really think I really like doing this anymore. What would I rather do? Then they find something else. And then they go do that. And it ultimately accumulates in you ending up where you should have been because being like, this is going to sound cheesy, but your heart kind guides you, right? I don't like doing this. Sam knows his heart says, I want to be analyzing stuff. When you put an Excel spreadsheet in my hand, I feel like John Wick with the Glock. This is how I like to feel. And he knows that's where he's supposed to be. You don't know,

know that before you start. You don't know what you're going to like, like how you should be doing it. You have to get out there and start doing stuff. And it's okay that you change course. Like the stuff then learn doing small multifamily is the same fundamentals he's using doing large multifamily. It's just kind of on steroids now. But that's okay because you have to learn how to do addition before you can learn how to do multiplication. If you wait until I want to learn algebra as a very first form of math that I ever learn, most people will never actually end up learning anything. And so this path of real estate of charging forward, hitting a ceiling, and then picking a new path to go is what your path really should look like. Absolutely. And it

doesn't have anything to do with real estate. Like people come to bigger pockets thinking that real estate is the answer. Real estate is the tool. It's just a tool. The answer is in your head. And if it's not there, I can't put it there. Brandon can't put it there. David can't put it there. I mean, it's, it's, you got to see the bigger picture. So once, once you guys got to the point where you realized the bigger picture is multifamily syndication, tell me how you made the switch, what pieces you had to put in place, and then how you chose which market you wanted to invest in. So Ben and I actually, when we first connected and we knew we wanted to partner up,

we spent, what, probably six months daily, 12 hours a day, underwriting and coming up with our model. Literally. Yeah, looking at markets. We looked, we looked at other markets. We went and put offers in other markets, got invest in final. You guys both lived in Phoenix at this point, right? Yes, yeah, we both live in Phoenix.

All this underwriting was on the phone. We were just on the phone. Our wives probably thought we were crazy 12 hours a day, so 8 o'clock at night. Sounds like eight years ago, Josh Dorkin and I, it was the same thing every day. Totally. Because the passion behind it. Yeah, exactly. It didn't have to do with apartments.

It didn't have to do with real estate. It was a tool. You were growing. But we weren't passionate about the tool. We were passionate about the growth. getting from point A to point B to the next plateau. But I think that's where our partnership came into play a whole lot. I mean, you're talking six months of we're submitting offers and not getting deals.

If you're on your own, you think a lot of people would just be burnt out and give up at that point. When you have someone every day that you're on the phone with, tweaking the model, let's look at this a little bit differently. Let's go to a different market. So just having someone push you and hold you accountable, that got us through, I think, that first six months. So maybe before we go into the market discussion about how you picked your market, Let's talk about the partnership thing for a minute. David, I know you do partnerships.

I do partnerships. You guys obviously have a partnership. For those listening, what makes a good partnership? What do you think made you guys work so well together? And how can other people find a potential partner? I mean, other than just emailing me and asking for an introduction. I was just telling him the other day, the amount of value he added to my life, that was that. I mean, I never considered partnering with anybody before.

But the amount of value added to my life, that was. was it. Like the yin and the ying. Yeah. To that point, complementary skill sets. I mean, we're the opposite in a lot of respects.

Even though we have the same views on real estate, our skill sets are completely separate. And I think that helps us a lot. And we balance each other out. I'm the eternal optimist. He's an eternal pessimist. Yeah, didn't you give him a book?

Tell us about the book you got after your first deal. So after every deal, I get Ben a gift because we go out to dinner. And the very first day, I got him chicken little. His bent sky is always falling. But what's great about that, you're 100% right though, like the eternal, like the pessimist and the optimist, I think that actually makes for a really good partnership.

Because if you're too far one way, you start making stupid decisions. You got to have somebody that's always like pulling you back raining in the in a little bit. I'm curious, David, real quick, you and Mario, which one of you is the pessimist? Which one's the optimist? Or do you feel like you both are one way? He's the optimist. I'm the pessimist in that relationship. Yeah, I've talked to Brandon about this, and I didn't use the optimist pessimist thing.

I use the driver and the filter. So Brandon is a driver. If you put something in front of him, he will find all the ways that he can make that work. He believes he can make anything work. That's part of why Brandon is successful. He just really doesn't think that there's anything he can't do. Not because he's arrogant, but because he will just throw, like the guy's been going to do Jitsu is zero idea what he's doing.

He's getting, it's Ronald. And he just keeps going back. He's not even asking, what do I do? He's like, if I just keep going, I'll just learn it, right? He is the personification of the attitude we tell people you should have, okay? But Brandon needs people in his life like Sam's and Ben's that are what I call the filter. So he fills up a funnel with every single opportunity he can possibly find. And he says, I want to go to all of them.

The filter picks which one is actually worth pursuing and says, you are allowed to go in that direction in this way. So he's just like the police dog that just wants to go and bite at anything that it can. He's just all the time. Go, go, go, go, go. Well, it needs a handler that can control it and say, all right, you are allowed to go by that. person, don't bite David who's right next to us, even though his leg looks really good. You've got to find that in a partnership. I'm a firm believer. I think it's Brian that probably plays that role for Open Door Capital. He's going to say, right, Brandon, I know you love that deal.

Here's why it's terrible. I'm not going to let you chase it. Let's go chase this one instead. But if all you have are filters, they never get anywhere. They sit in a circle talking about doom and gloom and why nothing will ever work and successfully avoiding ever making a mistake, but never making any money at all. I think I'm just got to have both sides. I'm just such an optimist. when it comes to open to our capital, that like, it takes an entire team of people to tell me no. I'm like,

Ryan, Ryan's laughing off camera right now, nodding. It's like Ryan and Brian. Like that they gang up me. I'm like, no, we're not building houses in Maui,

Brandon. That's a terrible idea. I'm like, but we can make so much money doing it. Yeah, it takes a lot of them. All right. So that,

that's one huge part of the partnerships. How does somebody find that partner? What would you guys recommend? If somebody's looking right now saying, I need that other person, or maybe they're asking, do I need that person? Do you need a partner?

I kind of cover both those things maybe we can talk about. Well, first, I think absolutely you need a partner. I think everybody is going to go further with a partner. But how to find them, I think that's difficult.

I think neither one of us were actually. I get show, guys. It's hard. Neither one of us were actually looking for a partner. We just stumbled upon a partner. So I would just put yourself out there. I mean, start going to conferences, networking with people, going to meetups.

Unless you're interacting with people, you're never going to find that person. This is like BPCon 2020 in New Orleans. In October. In October. Anyway. Yeah, exactly. Probably sold out by this time.

But anyway. I think you need to know your own strengths first. Step one. Because then you will understand what you are lacking and what you are ultimately looking for. How do you do that? How do you know your own strengths? You don't be stupid. You be pretty sharp about what you do.

You have to know your strengths. If you don't know your strengths, get the hell out. out of here. What are you doing here? I think just asking the question, like, what are my strengths? It's like the way you figure out your strengths. If you just don't even think about it, then you're just going to be... If you have to ask yourself a question, what are my strengths? You are a dumb ass.

What I mean is by focusing. But listen, let me give you an example. So we talked about it in liberal arts terms, right? David did and you didn't wait. Let's talk about the underwriting process because with that, we're kind of like boiling things down to like real actual that we do. I look at things and the more, I'm a violin player. So I see

the imagery, I see the pictures. I've been doing real estate since 2006. I know how people act. I know what they do where their alternator brakes in their car. I know what that call sounds like. I know what the call sounds like when their kids sticks a toy in the flapper

in the toilet and that leaks from down to the I know what that sounds like. I know how that interaction impacts property. I know how, because I can look at the trailing financials, I know how it impacts the building. I know how that works. Okay. Sam didn't because as smart as he was, he wasn't wise. Because wise happens from experience, from being in the trenches. So, do you agree? Perspective on stuff, right? So that's a good marriage because I never reported to SEC and I never helped another company, you know, set up

thing with the SEC. So I have no idea, classically speaking, accounting-wise, or anything else, what that's supposed to look like. All I know is this is what's economic loss. This is why it happens. People are people. And I've experienced it for 15 years. And because of that, here's the number we're going to put in the underwriting because it's going to represent that. So I start with that picture and then I boil it down to numbers. He goes straight. trade to numbers. So every time we underwrite a deal, we're doing it together. Like, if it's remotely interesting to me, I send it to him and he starts underwriting, vice versa. We underwrite every deal together, and we start from the opposite points of view. Like, I'm more liberal

arts. He's more just straight to the numbers. And what happens is we massage those two things together to arrive at what I think is our competitive advantage because we're able to dial it in more so than either I could by myself or he could by himself. But he is very liberal arts. I'm very liberal arts. He's very like stiff. Just numbers. So when he says we start from two different places, we actually have separate underwriting. So I have one underwriting and he has another. Now we come up with the exact same. If we use the same rent, same unit mix, same cap, We come up with the exact same returns, but they're built completely different. And if we don't, then we go to the underwriting and I say, Sam, fix my shit.

So what you're saying here is like, Ben, you're taking more of a qualitative approach to the real estate side and saying you start from more of a quantitative and you guys meet in the middle and then you convince either four or against to each other. Exactly. And that back and forth is hugely helpful because I'm too much of a person. pessimist to capitalize on the opportunity. And he's too much the other way to recognize the risk. But having those two perspective married together works for us. A really, really good point. I like that a lot. I think it's similar to what Brandon and I do with ideas. So we'll each have an idea. And I'll typically look at it from the perspective of how much knowledge are we sharing with people if we do this? How does it fit into the rest of the world that we have. Can I make it efficient? Can it be synergistic? I'm looking at it from that. And then Brandon would

just be like, yeah, but would anybody care? And I often never even think to ask the question of like, would anybody want this when I'm looking at it? Probably more like from Sam's perspective. And Brandon's looking at it from like, is there a demand for this? Would anybody do any of the stuff that we told them? Would they even have fun or would they like it? Do people want this? And we're both looking at it, like you guys said the same thing, same ideas from different angles. And it's only when both of those, it passes both of our little internal underwriting systems that we say, yes, this is an idea we should implement for the podcast or whatever we're doing. You know, Sam goes straight to the price per square foot, right?

We're looking at an apartment, and I'm asking myself, who's going to be interested in it, and why? And so he goes straight to the price per square foot. Where's that land in the market? I walk into that apartment, and I see an extra piece of countertop, which is almost like a desk in the corner, and I'm going, who wouldn't love this? I don't even care what price per square foot is. So now we have to marry that and figure out the price for square foot because there's,

there's an emotional value in why this apartment is going to be preferable to another apartment in the marketplace. So this actually brings up a point for a lot of new investors. It may people who aren't at this level at all buying apartments. But I think like, I bought a house one time for $45,000. I approached it from the numbers standpoint, the Sam standpoint, we'll call it. And I said, $45,000, it'll rent for $800 a month. that is a hot deal.

And all the numbers, I could run the analysis all day long, it worked out perfect. That property cost me on average, $200 and lost rent every single month I owned it for eight years. And then I sold it at basically a loss or maybe a break even of what I had into it. Why?

Because I didn't look at the more qualitative of, this is a freaking weird house. And weird houses attract weird people. So like, it was a weird house, a strange layout. It was been remodeled by some guy who was just a tinker. And so he just got like weird things.

things everywhere. Are we talking about a Waldo here? Or a pig? Yeah, it was basically a pig with a lipstick on it. And I should have approached it from both sides, but I didn't. I got caught up in just one angle. Now, other people could have done the opposite. And like, that house is like, did you see the kitchen?

It was beautiful and blah, blah, blah. And then they don't actually run the numbers. They're like, oh, yeah, that deal sucks. So no matter what type of real estate you're going into, whether it's your first single family deal or you're trying to buy this 400 unit apartment, you got it. You're selling a product. somebody is going to want to buy that product in order for you to succeed. I don't care what the numbers are.

Who is going to be buying that product and why would they choose this product as opposed to the other? And with that, we can get into location. We can get into the scope of renovation and all of that is on the list if we want to talk about it. But it's a huge, like a huge topic with, it's like a bottomless pit. We can talk about that. And when you've got millions of investor capital, you have to think about all of it. Yeah. Yeah, and I think a good principle to pull out of this is pick a partner that sees your blind spots.

They look at the world from a different angle as you. You have the same goal. You have the same values. You have the same ethics. You want to get to the same place. You're going the same direction. But they're looking at things from the way you miss and you often look at things from the way that they miss.

Yeah, it makes all the sense. And it's natural. like what makes a good partnership like we don't have to do what David just said like we don't have to sit down there and check the it's just natural that's the way it happens and that's why the partnership works so well

yeah that makes a lot of sense I think I mean we've talked about on numerous other shows but this is why Ryan and I've worked so well together I think he just kind of became a natural like well he's also so good looking I mean he's a good looking gentleman

looking at him all day long no brainer let's go back to picking a market We talked a little bit about that, but you guys ultimately decided on Phoenix. Now, this show is not about investing in Phoenix, but I want to know, like, what drew you to Phoenix? And how do you decide on a market? How does somebody listen to this right now decide where to go and focus there and investing in? Especially a lot of people listening in L.A. and New York and Seattle, and they're just like,

I got to invest somewhere else. Well, they're all coming to Fien. They are coming down. But that's beside the point. I mean, that's why the cap rates are four and a half. So how do you decide on a market? But can I start us off? Yeah.

Because it's the same continuation of the same. Here's the liberal arts. And here's the numbers. I moved to Phoenix three years ago. All I have to do is ask myself, why? I want the weather. I want the blue skies. I want the low property taxes.

I want the low insurance cost, property insurance. I want to never see snow as long as I live. You know, I want opportunity for my kids. I have those things in Phoenix. If I like something, and that's really like a good entrepreneurial way of looking at things. Like, how do you get your ideas? Well, if I want something, other people probably want something. If I want to be here, other people probably want to be here for probably the same reason.

If I want to figure out how to do something better or faster, more efficient, other people probably do. You know, that kind of perspective on life. like if it's good for me, it's probably going to be good for other people. So that's my kind of very liberal arts of looking at what's a good market. Well, it's good for me for reasons X, Y, Z. Therefore, I imagine it would also be good for other people for the same reasons because we all humans and we all basically want the same thing. But this is where the whole idea, like you start from the qualitative side, the liberalist side.

That's right. But if you just made a choice based on that, you might make a horrible decision. So that's why you have to back it up with data. That's right. Sam comes in, right. That's right. Yeah, so then you come in. So we actually have six factors that we use when considering when it's

on the market. First one, competitive advantage. For most people, this is proximity. But it could be I'm getting deal flow in a certain area. Or I know where a new path of progress is headed in this area. Can you think about some other competitive advantage? Yeah. I know somebody on the city board and I know regulation is coming

that's going to create opportunity. probably not on a large scale like for multifamily, but like if you're going to run a better breakfast, and you know that there's regulation coming that's going to limit that or help that, then, you know, you buy an eight bedroom house and you subdivide and put locks on everything,

you know, that kind of thing. So being local is just an advantage. It is huge, right? And I tell people a lot that if I was going to invest in another market, like I'm just going to build a small multifamily portfolio again, let's say in another market,

I'd probably choose Minnesota. And they're like, well, I'm Minnesota. I'm like, because that's where my family lives. So my competitive advantage is I have like, you know, 10 people I could call at any moment. And be like, hey, can you go check this out? And I grew up there.

So I kind of understand the market. Yeah, except I know your family. Every 10 of them is going to be like, who's this? Yeah. Oh, now he wants to talk to it. Mr. Maui. That's classic. Who are you?

Yeah. You want me to do what? All right. So besides, but that's the competitive advantage is that you either know something about the market, you have something in there. And being local is like the best competitive advantage. Well, I'll give you a. example. So we're in Phoenix. And I think IPA just came out with like their study of 2019

rents. And I think Phoenix grew rents by 8.3%. That's one of our numbers. Well, we'll talk about that later. But the whole point is if you are looking at data, like if you're approaching this institutionally and you're looking at some kind of market data, you know, by the time it's collected, organized and put before your eyes, that's, you know, six months of common gone. And you're about 4% off on trying to figure out where your rents are needing to be in order to underwrite. So it makes it very inefficient, very difficult to be competitive in a good market. So being local and knowing exactly, hey, here's my competition. I'm just going to hold Sam's hand.

We're going to pretend like we're a couple. We're going to go in there and look and see if they have a washer and dryer. For those of you that you can't see this video, Sam is a remarkably handsome. man. I don't know what it is when I look at you stand. Thanks, David. This is what I'm saying. Something about your life. He's my Ryan.

Okay. For those who can't see this video, David, Green, and Sam look identical. You could be confused for the same person. All right. So you look to number one is that competitive advantage. What else you look for? Number two, diversified economy. Okay.

If you go back to 2006, one in six jobs in Phoenix was construction related, but only one in 14 are now related to construction. So Phoenix is really diversified. We're now in tech, health services, education. That's smart. So you want a diversified economy. You don't want something that's related on a Navy base or only. So that Navy base loses funding.

I mean, and that doesn't mean like an area that is dependent on the auto industry as the only source of employment for everybody that lives there. Right, right. And it doesn't mean that you can't buy a fourplex and do very well in an area that's not diversified. But you're not taking $20 million of investor capital and buying $50 million of multifamily. in a market that doesn't have good fundamentals. I think that's a great point to make here as we go through these six things. This doesn't mean that you can't invest in those markets.

There are plenty of ways they do. I mean, I live in Grace Harbor, Washington, like the armpit of Washington state. Like, that's where I built most of my portfolio wealth. And so it's doable everywhere.

But I had the competitive advantage in that market. Because I knew ever. And people, I love when people come into that market from Seattle and be like, I'm going to start buying some of these properties. I'm like, good luck. Like,

you're competing with me. And I live here. And I know everything. about this market. And like, so competitive advantage, diversified economy. We like,

so again, going back to we're doing large multifamily, we want to buy hundreds of millions of dollars of property. We want a population of at least a million people.

Okay. It's a population, yeah. So that's huge. We look at that as well for the mobile home park stuff. You got to have to jump in real quick as far as something

you guys mentioned that you said you want to be in the path of progress and you want to, that is an absolute, yes, you want to be in the path of progress. We typically look at that from, give me a,

formula for how I can find the path of progress. Our brains really like that. But the better way to look at it is to understand the principle of a path of progress. Because Phoenix itself is in a path of progress. If you consider where I live in California with a massive exodus of everybody who is tired of how expensive everything is. So just you choosing a market that is where people that are sick of California want to go, you're already in a path of progress, right? Like think about like all the water that's like overflowing out of California, and it's spilling. And if you look at the states that around us, Idaho, Nevada, Arizona, Colorado, all of those markets have done. Oregon, they're all doing really good because people are leaving California for what appears to be super cheap prices. Now, you guys

understand where you live. That doesn't seem cheap, but to other people, it does. And I just wanted to kind of highlight, I know that's part of what you guys considered when you chose Phoenix is you looked at, okay, all the people from the cold places want to go somewhere warm, and all the people from the crazy, expensive places or maybe politically kind of weird places, want to go somewhere that to them feels normal and is cheap, and they're all going to end up in Phoenix. So you don't have our list, but that's actually number four. Sorry. No, it was perfect.

Perfect intro. So number four, population growth. So Phoenix is number one in the country in population growth. Wow. That's cool. All right. So we got because of all those things you said, David. Yeah.

It's number one because people from cold places want to come where it's, people from crazy high taxes places want to come where it's lower. People from California, which is just crazy, want to come to some place that's not California. And it's not crazy. So it's just an ultimate melting pot, a confluence of all of the things that, all of the reasons like Ben moved from Ohio to Phoenix. Well, he had his reasons. What other kind of reasons would people have to move to a place like Phoenix? Well, that's it right there.

Yeah. All right. So population, yeah. We were looking at a mobile home park collection, a bunch of them out in Illinois, like kind of in rural Illinois. And we decided like when we looked at everything was good. Everything was great. Like the numbers all felt great except for population trends was like negative like, you know, 8% per year. And it was like, oh, like people are fleeing this area.

We don't want to get caught with something in an area where population declining. And so we decided not to. So, yeah, population growth, huge. That's right. So next job. growth. Our jobs coming. Phoenix is number two in the country in job growth. So you need jobs to be able to support that population, obviously. Yeah. And I'm not going. You know, population growth and job growth. It's like if people are coming, they're not coming because there's no jobs. So obviously the companies are

relocating the jobs, and that's part of the reason people are coming. Yeah. And then so those two lead in to the last one, which is rent growth, number six. And that's the one that's really important, especially as multifamily. How much can I grow rents? every year because if I'm holding this for 10 years. And Phoenix is number one in rent growth, obviously because if you're number one in population growth, number two, in job growth, it's pushing up rents. And like last year, Phoenix has been about 9%. The year before that 8%.

So we're actually still having job growth, whereas a lot of the countries have been flat or negative in rent growth. And so, I mean, obviously you don't want to underwrite that projected to continue. Sure. But just to have the extra appreciation in your back pocket. Yeah, that's great. All right. So let's review that list real quick. Just read them off all six again, just so people can, if they're taking notes, they can get that and we'll move on. So number one, competitive advantage. Why are you going to be better than someone else in that market? Number two, diversified economy, not relying on one industry. Number three, minimum population of a million. Four, population growth, five, job growth, and six, rent growth. Perfect. And what I want to point out, we mentioned this before, and I want to retouch on it is it doesn't mean you can't invest in an area without a million people, right?

This worked exactly for your guys as business plan, your strategy. So let's talk about that for a minute. Like, what is your plan? What is your strategy? And then I want to go into what have you done in the last few years since partnering? What kind of deals have you got? So it's interesting because most people see multifamily real estate as a cash flow asset. You know, you buy it, you get the rents, you pay the expenses, you get the money in the pocket, and that's that.

You know, we talked about flipping houses. And what I invite people to do, is conceive, and I learned this from Brian Berg, conceive of multifamily as a long-term flip. Because if you are talking about flipping, what you are necessarily talking about is equity. And when you talk about equity, that's safety. Because if you have equity, you can refinance,

you can sell, you can get out of a deal. You know, you can, you have options. So I think, you know, part of that growth that happened, Ben going from small multifamily portfolio to syndication is, hey, if Ben is going to take $10 million of people's money, Ben wants to know how the hell he's going to get it back out and what the safety margins are going to be. And all of that comes down to equity. But Ben doesn't want to trust the market growing. It helps. You certainly want it to help you. But I don't want to trust the market to do it for me, which means I do extreme value ads. I improve this property,

and this is where in an environment where rents are scaling up, if you're going to come in and do your renovation and hike the rent, that's the environment in which you can do it. If population is leaving, who is going to be willing to pay you even for a very nice apartment, right? So we look at multi-family as a flip. We may come out of it in two years. We may come out of it in three years, in five years, and seven years and ten years. But ultimately, after a paired value is where it starts, minus the cost of getting there, minus the profit margin, minus the holding cost that are in multifamily built into the NOI, of course. And that's how much we're going to afford to pay. But basically, it's a flip. We think of it as a flip that's

We moved several years apart. So you're coming in today. You're going to exit five years, seven years, 10 years from now. But it's a flip. And you are thinking exit. So you're thinking you're buying value ad stuff, which is like a fixer up or you're trying to buy it? Exactly.

How bad are these properties you're looking at me? You're talking like completely dilapidated 100% empty or are you talking? No. So Phoenix has what, 4% vacancy? And that's across the board. So we're buying places completely full. And in fact, I have to discount that because I can't underwrite four. vacancy for the next 10 years. So I'm actually hurting myself in my underwriting. And I have to

actually do extra value add to make up for that in market like Phoenix, which is where our business plan comes in. So we're spending $12,000 per unit on the interior of each unit to completely renovate that unit, new flooring, new cabinets, granite countertops, stainless steel appliances, new lighting fixtures, plumbing fixtures. Yep. So everything new in that apartment. But we're getting $400 dollar rent bumps, so, and when you're starting at from 600 and going to 1,000, and that's a huge percentage increase. That's huge.

And because the value of a property is based upon how much profit it makes, essentially, when you can bump rents from 600 to 1,000, that dramatically increases the value of the property. So, and that long flip, like you said. Well, and it actually does two things, two separate things, equally important things, maybe one more important than the other. Yes, right now we're getting the rent bump. But tomorrow, when there's,

a down cycle. There's always a flight to quality in down cycle. I don't want to be holding resurfaced countertops and refaced drawers like everyone else. I want to have quality because that's hopefully going to give us staying power if we're caught in a down cycle in this property. And reduces our expenses. CapEx because everything is new, right? All the faucets are new, these shower heads are new. So there's a couple of different angles on why we do what we do. do, but like as an entrepreneur, this is what I want. I want safety. This is what I have to do for safety. What market is going to allow me to do that? I think Phoenix is going to be allowed me to do that. So I will do this in Phoenix. Can I do this in Ohio? No. On many different levels, no. The business

plan is sound. It still makes sense. But the market won't let you. Yeah, so the thing you do has to match with the market you choose has to match with the business plan, which is why if you live in San Diego, like, maybe, maybe house hacking will work really well for you. House hacking kind of works everywhere, but maybe like, you know, burn investing isn't going to be a great option there, but, you know, house hacking is or maybe multifamily is not a small multi isn't going to work there because you just can't get cash for or single family houses, right? Most markets, like competitive markets, single family houses, it's hard to get any cash flow. So you have a choice. You can either change your business plan or you can change your market to accommodate

your business plan. the two have to go together. Again, whether you're trying to buy your very first deal or the other, because too many times, Spelor are trying to fight for a business plan that just does not work in their market. Or they're trying to fight for a market that just, you know, they have to go together. It doesn't.

It doesn't, yeah. So, like, you can make an apartment very nice and spend $12,000 interior and 10 more on the exterior. But if you're in Ohio and nobody makes any money, who's going to let you raise or rent $400? Yeah. Okay? I mean, that's, that's been being in.

Sure, but you make a good point there. And so, yeah, a good example of that. We interviewed a guy named Joe Asamoa on the podcast recently. He's in Washington, D.C., very expensive market. Hard to make single family houses work there, but he's doing it. And if you guys want to learn how, go back and check out his episode. It was really good. I can't remember it was like maybe in the 360s.

Joe Asamoa, but he changed his strategy to work in that market. Now, his strategy might not work in Ohio or in Florida or in Phoenix, but it works really well in D.C. because of some things like how much Section 8 will rent for there. And he does like a certain level of rehab. And so speaking of rehab, I want to go back to that. So rehabbing these properties is a tremendous amount of work. Now, I have, you know, some mobile home parks and some apartment complexes, especially when I deal with a property manager,

I'm like, hey, property manager, you just go and handle this rehab. Like, it's always a disaster. How do you guys overcoming that? Well, originally, we weren't relying on our property managers. So they have 20,000 plus units under management. We had them doing their renovations. But our renovations are really intensive. Not many value ad investors in Phoenix are doing what we're doing with everything new inside.

They're resurfacing the countertops, painting the cabinets. So now you're going to go find a bunch of contractors, and that's hell as well. And so we actually took that over three or four months ago just because the process was a little bit too much for them, especially with how much we're buying last year. We haven't talked about it, but about almost 400 units last year. So you had put on tool belts and started doing the work yourself. Exactly. So we hired a career.

We started our own construction company. hired our own crew, coordinator, and now we run the whole thing from beginning to end. Like an employee. So you actually started at construction. That's awesome. So we have five full-time employees renovating across our properties right now. Wow. Yep.

But we're now turning them in like one third of the time that they were prior. Quality is better and our prices are better. Yeah. Worked out really well. That's smart. It's difficult. Yeah. It's not easy to go start a brand new business.

And there's a critical mass. Yeah. You're not doing this for 100 units. You can't afford to. There's just not enough money. Same as, you know, we always talk about PM, right? How much PM do you underwrite? Well, let's just take 10%.

But if your building is too small and your income on the building is too small, you could end up paying a lot more than 10%. It's all about dollars. So with, there's a critical mass. There's a number of units. There's a number of magnitude of number of apartments. you know, it's, you can't hire one guy because then there's no redundancy. Like if you have 100 units and you hire one guy, like you start a, start a construction

company, hire one guy. A, you can't hire a coordinator, which means now you've bought yourself a job of coordinating this one guy that you hired. And B, if he happens to be sick, nothing gets done. Yeah. So you can't have one guy. You got to have two guys, but you can't have two guys for 30 units because you can't afford them.

So now you have more units, right? So it's all like we grew into it very naturally. And then it was like no brainer. Yeah, that makes a lot of sense. Yeah, taking it in-house is interesting. I've done both, you know, on the smaller scale, right? Like, I hired it once a gentleman just to run the rehab because I had like five rehabs going at once.

I hired one guy, brought him in house, employee everything, and it was fine. But then like the jobs ran out and then I didn't have a use from anymore. So like that kind of fell apart. And so that's the danger of going, you know, in-house. And maybe it's not a big deal. I've hired temp workers. That was a disaster. So that's another thing.

We hired really good workers. We got people who had specialties in what they were doing, but they can do everything else as well. But we also paid more than what the market. The prior team, they were paying $13 an hour. You had high turnover. People just not showing up. Well, we're paying $20 an hour plus health insurance. And we're guaranteeing them 40 hours a week.

Even if there's some downtime because it fluctuates. So we get, say you get 10 units on the first of the month and then you would stall cabinets and then the countertop vendor needs to come in. They're in there for a little bit. And so what are their guys doing? Your guys might have some downtime, but we guarantee you're going to work 40 hours a week. So you get quality people when you can do that. Yeah, health insurance.

Yeah. Yeah, that's helpful because, yeah, you get way better people. And even though you're paying them more dollar per hour, you're paying actually less money because before there were so many people in the overhead of those contractors taking a piece. Well, and not only that, I mean, they were taking sometimes 90 days to renovate a unit. That's a lot of vacancy. So sure, I'll pay someone more. But if I can estimate that I know I'm going to be done in 30 days and that cuts

me out a couple thousand dollars of vacancy yeah that's smart very smart all right so let's go to where you're at today i mean so what have you guys done now since being partners what have you guys bought and what have you done um so in the last what has it been 18 months now since we bought almost 18 months 17 17 months we bought 500 units wow 50 million of acquisitions we raised about 20 million wow yeah and that's spread across just a walk in the park yeah easy stuff walk in the park kuzianski yeah and how do you how do you find these deals They're just falling out. I was going to say you can drive them for dollars for these things.

Yeah, driving for dollars. It's a mix. It's a mix. So sometimes you're going on market, you're finding you're going through like what's called the best and final for multifamily, getting through a bidding process. Some of them completely unsolicited offers go off market. But now actually I pushed Ben at the very beginning and he hated me for this. But I pushed him to close in like 30 to 40 days where contractually I had 60 days.

But I just wanted to be able to close really early and have that. Because when you go through a best and final, you get a called a questionnaire. And they ask you your last few closings or transaction history. So when I can say that I've closed 30 to 40 days on average, even though the contract gives me 60, they love hearing that. So actually, we had our last property. It was already being sold. It was under contract.

And it fell out of contracts. And we got a call because they knew we could close quickly. Hey, can you guys come in and get this? And so you don't get opportunities like that if you don't close early. So it's a bit of a mix. Actually, all four properties, I think were a different acquisition like that. But actually, funny enough, they're all from the same broker so far. Oh, funny.

So one guy is like your... Well, one firm. One firm. Yeah. Rocks. Okay, so that's cool. So you are getting these, these are not, you're not like direct mail marketing or anything like that at this level. Like at the large apartments, you're not doing...

Well, especially in a place like Phoenix, you know, you can't find an owner who's unaware that he's sitting on a pile of gold. Yeah. Period. Yeah. You know, like everything's trading it under five cap and condition doesn't matter. You can't, you know, you can't. And to think that we can compete with brokers whose job it is to communicate with each and every owner in town and who know everybody. In most big markets like Phoenix, there's four big, very large brokerages.

And they handle all of the volume. I mean, nothing really gets traded at this level outside of those brokerages. And they're very protective. Yeah. And they spend decades building relationships with all. of these owners. So you're really not going to go around them through direct mail marketing. Yeah. Okay. So yeah, because again, this goes to the strategy. Some things work better in different markets for different types of properties, for different levels. And so you guys are just,

you're doing what's working there. You're working with the brokers. And I really, really love that tip. I just want to emphasize that because, you know, I want to gloss over it. That idea of, like, closing quick so you can tell people in the future what you've done. You know, something we do in Open Door Capital is we're always trying to like, define, like, what's that one thing? When you're competing, like, what's that competitive advantage you have? So we, we fly in, no matter what. Like, we'll, we'll jump on a plane and go anywhere, anytime, immediately. Even if it's just like, and, like, well, this one might be coming on the market is doing. Like, we want to be like, to show them that we are willing to jump on a plane and go look at the property. I'm like,

what's you talk about open door? Didn't he, didn't he mean to say White Haven? Is it confused? You got to do the same. Yeah, you guys. So actually, I mean, we don't have to fly, but actually, we go to our property. We show up with our entire team. We're not even under, under contract yet or not somebody in LOI, but we show up with our property manager, the VPs of construction. Again, goes to that location that we talked about

one of the kind of competitive advantage. Number one, being local, yep, right. Our HVAC, our electrical, our everything,

got people on the roof. Yeah. With permission, of course. But yeah, we're inspecting the entire property when we're just doing an average tour and they're not used to that.

But that's also that, that brings up an interesting point because, you know, everybody wants to go through every apartment. If I'm going to rip everything out of every apartment, do I really care what the kitchen looked like? No.

All I need to know is foundation solid. Am I having to replace the roof within a year or within seven years? Is the electrical good? How are we doing an HVAC? That's it. Because I'm going in there with a business plan that says $10,000 to $12,000 a unit on the interior. plus we're going to redo the, you know, the paint the building, build this, build this, build that.

And, you know, it's easy to work with us. But it works for us because that's part of the business plan. Yeah. We're not being inconvenienced by having to make these grandiose plans. That's part of the chosen business plan. And another way we stand out is we never retrade, which you don't want to have their reputation, especially in a small market. You already need that.

So you get it under contract. Yeah, you're not talking to it. So you get under contract. You have your inspection period. I go in and I say, oh, I didn't know that the roof was in such bad condition. I'm going to need $100,000 discount to replace the roof. And that's called retrading. And when I get that questionnaire that we talked about earlier in Best and Final,

they ask you, have you retraded ever? And they want to know all the details. And they're going to talk to your broker and the lender on what the circumstances were on that retrad. So we never retrade. We go in almost always. I'm going to replace the entire roof. Last summer, we bought 164 unit. They put on a brand new roof while we're in escrow.

We still had it in our budget. I'm going to replace the roof. We just automatically, I'm just going to assume that I have to replace it so that I never have to retrade later on. And then the reserves for capital expense and for other things, they're just, there are sales and the underwriting that never. change. They just are. They're there and we don't touch them. What does somebody look for like in multifamily? What do you guys typically look at for capex? In terms of like, you know, if you had a hundred

units. Well, so, so we're kind of nuts about care. Like we want to be really well capitalized, right? So we go over. So of course, we're going to have the roof. We're obviously going to have the paint. We're going to have whatever project specific we're going to do. Are we remodeling this office or are we building a new office and we do both, okay? Or same for the gym. Are we doing that? Aside for that, are we taking 35% of the HVAC just to replace 35% of the HVAC to have the money in the bank?

It's supposed to come out of the cash flow, but we want to have the first 35% of the units, replacements. Same for the water heater. Same for plumbing contingency. Same for electrical contingency. say, you know, like, then you have these unnamed items. You know, okay, this is 100 units. We're going to take X number of dollars per unit.

Then on top of it, we want X number of dollars. We basically have like nine months, what we call working capital, nine months of debt service, the building. So if something happened catastrophic, I could pay for nine months of the property and before we run out of working capital. I guess, so we don't afford a $4 to $5 million equity raise, about a million to a million and a half of that is what we call our margin of safety.

So it's made between working capital, contingencies on the construction, reserves. Floats. Yeah, construction floats. So the lender pays for our construction. So we actually have to pay for it up front and then get reimbursed. And so you need a pretty large construction float to manage that. So about a million dollars of that is just going to those extra reserves and our margin of safety. That makes a lot of sense.

And by the way, people aren't familiar with them talking about when I say, like, we're talking with CAP-X, what we mean is capital expenditures. So anything that I'm spending to improve the property beyond just your- And anything that's frankly going to, that's a depreciatable item, so it's going to last more than, you know, 30 seconds. You're replacing a pipe that goes from the street to the building. You're going to put it in the ground and it's going to last for 25 years.

That's capex. Okay, yeah. You know, that kind of thing. So tenant punches the hole in the wall. That's a repair. That's a repair. Okay. And that's why on the bigger pockets calculators,

is, which I wouldn't recommend doing for a 200 unit apartment complex. But if you're, if you're buying like a, I mean, because like there's a level of sophistication when you're getting to the large, large multifamily that you really got to underwrite a lot of stuff. But like that's why even on the one on a simple calculation, like you're kind of a duplex. Like cap X is a real number. This time actually I learned a lot from Ben here years ago is you went through this blog post where you said, look, like, capex is a real thing. You took the price of a roof, the price of like windows, the price of everything. And you said, look, here's all this stuff. this is the life that it lasts and here's how much it costs. So if you run all those numbers on the

basic like 20 items in your property, it's like a couple hundred dollars like a month on a house that you're just losing in potential cap X. But you should be setting aside so you have the money to deploy. And that goes back to like depreciation that we get, right, on our taxes. Well, everybody thinks that's just a gift. It's not gift. It's the IRS saying to us, don't be stupid. We know you'll have to spend some money later so we'll make it less painful for you and we'll you some savings today, don't be stupid, set it aside. So tomorrow or day after tomorrow, five days after tomorrow, you have the money to spend on this stuff. It's not an if you're going to spend it. It's a when you're going to spend it. Well, and the lender, they want to protect

themselves. So they actually calculate the same thing for you. And they give you that number. It's like usually around $250 per unit per year. And they just want to hold that aside in case. By the way, I would not do $250 per unit for like a duplex. You're going to be way higher for a small Absolutely. Because like you have the efficiency. And I would only do 250 per unit per year. If I have 35% of the HVax, yeah, replace my CAPX.

And everything interior is getting replayed. And the interior is all brand new and, and, you know, all that stuff. Because it's really more than... Yeah, CapEx can completely kill it. Like, here's an example I get people a lot.

Let's say you bought a single family house and you're making $100 a month in cash flow. Good for you. Like, you've really feel good about that. And the whole first year, you made $1,200 in cash flow and you feel great. 10 years later now, you've made now $12,000 in cash flow.

And then you have to put a new roof on. And the new roof got $15,000. Where you thought you were making money for 10 years, you actually lost, you know, three grand over that time period. And then that, then five years later you put a new fridge in. And then that's another, you know, $2,000.

And we're not even talking about tenants, trashing the place. Yeah, we're just talking about just like the fact that things wear out. If you don't account for those things, you will have to pay that Piper eventually. And so that's why I always put, in like, yeah, typically I on like a single family, I'm like a hundred to $200 a month, a lot based on what numbers you came and just what I've seen in my own life.

And then on the larger multifamily like that, you know, again, the 250 for years. Yeah, it depends. If you have a boiler, you're going to set aside more if you're not stupid. Yeah. And if you have a lot of HVAC stuff because you're in Phoenix or if you're in Minnesota, you're going to have a lot more expensive than if you're in, right, right. And if you're in Minnesota, you got to replace the windows. Yes.

Yeah, things like that. You know, because it gets uncomfortably cold. Yeah. So CapEx changes per area quite a bit. Absolutely it does. So here's one of the hardest questions on real estate. And there's not a really good answer for it. How do you know Capx?

If you're just getting started, you're trying to buy that fourplex. Like, what do you even assume for CapEx? I've got an answer for you. You don't buy Forte, Ohio. No, no, you don't assume. You think of it as a flip. Okay. I'll give you this example.

If you buy a fourplex for $140,000 and you go through ownership of that fourplex and in four years you say the fourplex is worth 200,000. Even if you have to spend money on cap X, you feel okay about it. Because why? Because you can get it back. Because the thing is worth $200,000 now. So you have an exit. You can refinance and recapitalize yourself. You can sell and recapitalize yourself. However, if you bought a fourplex for $140,000, you're still going to have cap-x, but it's only worth $140,000 still five years from now. Guess what you've done with the cap-ex? You've thrown good money after bad. This is why I advise people, and I've learned this myself, it's all about the equity. Cash flow allows you to stay in the game long enough to execute the

business plan, which is about the equity. Can you explain that a little bit more? I think it's a really good point. But a lot of people think they're just going to get rich off cash flow and cash flow is not really. And you can in a specific window of opportunity during a cycle. If you are buying rents of $900 today, but you manage to buy them in 2011 for $30,000 a door, you're going to be making a lot of cash flow. And that applies. However, 2009, 2010, 2011 was in an honor. There was a very wide discrepancy between what the price of that unit was versus what the rent on that unit is and will be. That was an anomaly. It's never going to happen again.

So going forward, you just have to be careful to understand that Warren Buffett says diversification is protection against ignorance. I say growth and equity is protection against ignorance in income producing assets because income comes in, income goes out. But if you have an exit and you can make money by exiting, then at least you are not losing money. Yeah. You know, income is a fickle thing. Yeah. So to put that in my own language, like if I buy a property, I want it to cash flow because if it doesn't

cash flow. I lose money every month. Now I might just lose the property because I can't afford to keep it. But if I can make some good cash flow every single month, ideally, then even when I get hit with the CAPEX and stuff, even if I held it for 10 years, what if I didn't make a ton of, I didn't make a ton of money in cash flow, but I own a property for 10 years. That's hopefully worth way more than what I paid for it. The loan's gotten paid down a bunch. I've gotten a bunch of tax benefits. And that's where that equity, the difference between what now it's worth, which is now worth, let's say, 500 grand and now I only owe 200 grand. That 300 grand now, that's a true. chunk of money. I sell the property and I can dump it. Now, some people just want to buy properties,

a few of them, pay them all off to zero and just live on that cash flow. That's fine too, because then you still have equity because you just paid out the property. So, but the point is, the wealth is built from equity. The cash flow just helps us maintain. That's exactly it. It helps us pay some bills in the meantime. And you discover that when it happens to you. And it happened to us. It's like, it's nice that the same's cash flow on $500 a month. But this $80,000 in my pocket from selling it. is a whole lot nicer. Not to mention that now I can reinvest it and, you know, double, triple quadruple it.

Right? So, and that actually happens. And then you go like cash flow. Yeah. Like, it's almost heresy, right, to talk bad about cash flow where you and I came from. I mean, like back in the day, you and I. Well, it's because we came out of the recession where everyone, like in 0607, they didn't care. anything. They're like, yeah, lose $500 a month. Who cares? I'm a double next year.

Like, because everyone was only focused on appreciation. Right. And then everybody lost their job. Yep. And then we were like, oh, dude, I don't want to work for the man because I don't want it to happen to me. I need the cash flow because that cash flow means I don't have to punch the clock. So we swung completely the other way. And the truth is always somewhere in the middle. You need both. You need cash flow or you can't stay in the game. You need equity. or you can get rich. And that's just all there's to it.

Yeah. Smart. Any way add up before we move on? So we actually, we underwrite so a lot of flexibility. So cash flow gives you that flexibility to exit whenever you want. That's what I think Ben's main point was,

so if I want to sell in three years, if I want to hold it for 10 years, cash flow is something that allows me to hold onto it for that long and I'm being forced to sell. So we actually, we underwrite like three, five, 10-year exits. We structure our debt

that allows us to exit when we want. So you have to know that from the beginning when you're doing a, deal and underwriting, what is that going to look like and what are my different points and options and what's going to allow me to get to each one of those points. And flexibility to choose. Like we have two deals going on right now and one of them we're going to exit. Another one is basically a fancy burr because we're going to refinance it because of what it is,

where it is and how it's doing. We're going to do better for ourselves because we can pull basically all our money out, all our investor capital out and still sit in a deal and cash flow it. Yeah, Burr investing in apartments is a phenomenal strategy as well because, yeah, you can get your investors their money back that you raised. For those are not sure what I'm talking about, Burr is you buy a property, you rehab that property, you rent that property out. Now, usually we do it on small deals, but it works on big stuff.

And then you, once it's all fixed up and nice, whatever, instead of selling it, like a flip, you just go and refinance it. Go to a bank, get a whole new loan, pay back all the money you put into it. Now you have a lot less money, maybe no money, but maybe just less money. That's after you left the deal. Right. You have no money into a deal, and you're still making. making cash flow, that means your return is just through the roof.

Right. And, you know, ideally. And so that's where you can get stupid good, like, even infinite returns by doing that. Right. And you're derisking. Yes. There's no risk. Yeah.

I mean, you're risking the equity that you've built, but you're not risking your money. You're playing with a bank money. Yes. Because you already pulled your cash. You got your money back out. Yeah. All right. So let's move on to the next segment of the show where we learn more about specifics about one of

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Because Ben mentioned that we're doing a flip and then a burr basically on two recent deals. So I think it would be nice to talk about both. We've never done a double deal deep dive, but today we're doing the double deal deep dive. Well, there's two of us. There's two of you. So it's totally fair. All right, let's do it. So we'll go through one through eight questions on the first one and then go one through eight on the next one.

All right. All right. Number one. Let's go first. And what kind of property is this? Well, if you've listened to the last hour, you probably know that it's 100 unit plus multifamily. This one's actually 98 units. Oh, lame.

Yeah. Wait a. Yeah. Do you remember just Dorkins response? When he found out it's not over 100 unit, Benjamin. Yeah. How did you find this property? This one was actually our first property.

Got it from the broker on market. They were actually going to go to call for offers and then best in final. While we're on our tour, we asked the broker, will he be willing to sell and skip all of that if we give him the price he wants? And we had that number and we get an offer. So we got to bypass the best and final. So that way I'm not competing against big. companies that I'm not going to look great against when it's our first property. Yeah, that makes sense.

I like it. I would have looked great because I always look great. Yeah, I didn't mean physically on paper. Number three, how much was the property? We bought it for $8.2 million. 8.2 million. How did you negotiate this property? Well, like you said, Phoenix is a really hot market, seller's market.

They kind of just say this is my price. And actually, we were able to underwrite even higher than that. So we went with the worth they asked for. You feel like you got actually good enough deal. All right. Next one. How did you fund this property? I don't know if we've talked about this, but we're actually syndicators.

Oh, okay, good. You raise money. And then we get a loan for the rest. All right. And you guys usually do 506. 5.06 B. Yep. So we have a sophisticated and accredited.

But we get, and then for the financing, we do a bridge loan, three plus one, plus one. What does that mean? So three year. initial bridge loan, but we have two one-year extension options. Okay. We need to talk about that because, you know, we need to talk about that. That's right?

So that's actually one of our safety triggers. Now, why is it safe, Ben? You have to refinance in three years because it's only a three plus one. What's safe about that? Well, and then everybody else, you know, you go on Facebook and there's nothing but syndicators there in 2020. and everybody gets these 10-year fixed interest rate deals. What people don't understand oftentimes is that ability to exit

is probably the greatest safety trigger that you can have with any real estate. You just need to be able to exit your position. That ability is very limited by your prepayment penalty. And the privilege of a low fixed interest rate for a very long period of time is you pay for that privilege. Both Freddie Mac and Fannie Mae, in exchange for the benefit of that fixed interest rate,

you potentially could look at millions of dollars of prepayment penalty, which, of course, very significantly hampers your exit. Yeah. Because it could completely destroy your returns on that exit. So that's kind of fixed rate. But what you could do is variable rates and they're a little bit higher interest rates,

but I don't have that huge prepayment penalty. It's 1% usually, or they have sometimes a step down. When I think variable, I think of 2007 where my rate went from 2% to 29% overnight, and now I'm bankrupt. Right, and so that's why most people don't do it. So what we do is we buy an interest rate cap.

And so we actually cap it at... Which is an insurance product. Interesting. So we hedge the interest rate. So basically say if the rate goes above today's rate, third-party insurance company pays that increase, not us. Oh, fascinating.

I didn't even know that. So we just factor that into our closing costs every time. And we just calculate what that interest rate cap is going to be to calculate that. I mean, that's a whole other conversation. Because if you look at the market today and you see what the Fed is doing, what are the chances the interest rates are going up anytime soon. But with that aside, once you contractually cap your rate, you know, you have three years now to figure out how to refinance or how to exit if you want to plan.

plus one, plus one. So you got five years, really, to figure out what to do. So if the rest of your business plan and your underwriting is intact, then there's a lot more risk with having to pay defeasins than risk of not being able to roll the debt. Defeasance meaning like prepayment. Yeah, it's just one type of pre-phing. Yeah.

Okay, so I'm curious, just on the last thing on the funding thing, Do you remember how many people like like to raise money for that that deal, $8 million, you would have. I think it was about 60 investors on the first. About 60 investors. How much did you raise then versus how much was a loan? Do you remember? The loan, the loan includes 75% of the purchase and 100% of the cap X. It was about $7.3 million.

We raised $3.571 million. Okay. I think I'm in that one. Yes, you are. All right. Good. All right. You're in everything.

There's like one. All right. So what did you do? What did you do with it? So like we talked about, we completely renovate it. We do a lot of common area amenities too. So we add a fitness center. We redo the clubhouse, the office.

So actually, we just finished all of that. We're about halfway done with the unit renovations. And we're actually pretty going to sell for almost our full exit price, only halfway renovated. So actually on the market right now, we don't have a sales price. Probably going to go between $13 to $14 million. Wow. That's great. Yeah.

So that'll be a nice flip. It's about 30% IRA where we underwrote 14, 15%. Yeah, that's crazy. Congratulations, guys. That's very cool. All right. Sounds to me like you'll be making some money. Sounds like I might be making some money.

What lessons did you learn from this deal? We've gotten even more conservative with our underwriting. We've got more liquidity and we've discounted our cash flows even more. That's cool. With every deal we did. Very cool. And on the syndication, it was a 7030. Is that how that work?

Do you syndications work usually? Yes. Yep. Yeah, our is the 8% for 7030 split. Yeah. Very cool. Very cool. So at the end of the day, and we don't have to necessarily talk about this, but like the way, what I mean by 7030 is that the investors, so like people like myself and others who invests from the money, they get 70% of the deal.

And you guys as the sponsors get 30% even though you're not putting up all the money for this thing. I mean, the investors are putting the money in. You're managing the deal. So at the end of the day, you'll get a big paycheck at the end of the day for making this work. And that's after you got the first. Correct. Yeah. Yeah.

Yeah. Yeah. So I got the 8% and then we split things 70, 30. everything after that. Yeah, this was so cool about syndications is that it basically, you guys have obviously make some fees in the meantime, you get property management fees and asset management fees and stuff. But like at the end of the day,

like you do a good job. I'm happy because I make a good return on my money. I'm a limited partners who are happy. But then you guys make a good chunk of money at the end. Again, equity. Now you can dump that into future deals of your own and like, yeah, syndication is a cool,

a cool business model, but it's not an easy process. I mean, you guys have been working this for years, learning how to perfect these models and stuff. So very cool. All right. Let's move on to the next deal deep dive because we wanted to do two.

What was another property? What was this one? So this one was just a few months later, 117 units. Okay. Different part of town, still in Phoenix. All right. How did you find it? So this one was actually completely off market.

We submitted an offer. We had our broker, help us look for properties. Someone he had a relationship with submitted an offer. And they countered, but it was still well under below what we had. I think we paid, well, I guess we can talk about price, but it was like 91 a door or something, which was really awesome. Yeah, that was the next question. How much was it?

It's 10.8 million, 10.75 million. Okay. And any negotiation tactics in there? Anything you learned from? We submitted a really low, lowball offer. So they came up a little bit, but not too much. But it was well underneath what we underwitted we could pay for the property. That's cool.

But, you know, this was a very big seller. This was an institutional seller. So I don't want to hear comments about, you know, hey, you found mom and pop and you took advantage of them and a lot of lot. These guys have been around for years. They're huge, like really, really a big, one of the biggest owners in Phoenix, which is a five million population place. It's not really a small place to say that you're one of the biggest owners there is something. So this was very legit, arms length, transaction, but they had a circumstance which had nothing to do with performance of this property.

They just had a reason to get out. And they had a reason to do it quickly and quietly. And we just happened to come along and we were an own commodity somewhat by then. And so they did it. And I'm convinced, so they had billions in assets, or half billion assets. And I'm convinced that they didn't realize what was happening around this property. A lot of new construction development going around this property where a few months after we closed, So we bought it low 90s a door.

A few months have to reclose. Stuff's in the high 130s per door. And very similar properties. I just think that they had bought in the bottom of the market. They had such appreciation. It didn't make sense to keep tabs on it. They weren't really raising rents too much. They just didn't know what they had.

Well, they didn't need to. That was a different cycle, different business plan. But this property, because of where it is, it's like, you know, two months after we bought, there were things selling for 135. A month and a half ago, something sold for almost $200,000 a dollar. door. Wow. So that's what makes this a burr because all in renovation, escrows, deposits,

capex, everything, we're into this 115 a door. So knowing the things that are already trading at almost double, it's like, why don't we refinance and hold on? Because with what's going on in this location, nothing but good things can happen. So that's what makes. the nice. So that was my next two questions. Yeah, what did you do with it? And what was the outcome? So you're going to refinance or you're going to refinance?

Going to refinance. So we're about halfway done renovating all of the units. We just finished as of, I think, tomorrow our new signage goes in. We're rebranding the property or maybe today. And so, yeah, so we're done with all of that. And later this year in about six months. Yeah, because we have people. We can be out here talking to you.

And we have signage going in. See, we got people. We're big. You're not. We're very good looking and very big. And so later this year, yeah, we'll hit the numbers that we need to to be able to pull out all, or most of if not all, of the equity. That's cool. And so just to confirm, so when you guys, when you pull out, like, let's see you're doing a burr on a large multifamily, when you pull out the equity, and unless you pay back all your limited partners, like they get their money back.

They remain their standing in a deal. Okay, they're still in the deal. So it's not your pain. I mean, they're like, all right, you guys are off now. Yeah, they're still owners. So now they're owners of a deal getting cashful from a deal with no money. They have little money in the deal. Which is awesome from an investor.

Which is ridiculous. Yeah, we've been talking about the exact same thing with Opener Capital. And if we don't sell it, then there's no capital gains. They don't have to worry about. Very, very cool. Yeah, you're right. That's awesome. Last question.

What lessons did you learn from this deal? Submit a lot of unsolicited offers, I guess. It's our best deal. I actually listen to your broker. You know, he brought this deal to us a couple of months prior. And we kind of looked at this location. and I think we kind of felt about it the same as the seller felt about it. Just like, you know, nothing there, you know.

And we didn't really take a closer look. Well, the broker went and looked at the property. And I get this call from him. And I'm on my way in the car coming back from another property. Sam and I looked at it. And he said, you guys are nuts. You need to come down here and take a look at this. There's like 24-hour fitness across the street.

There's like all these offices that, the bill says, I didn't remember any of this being here. There's gated community with hope selling for $400 to $600,000. And this all came up in the last three, four, five years. And this, you know, so I went and I was like, say, I'm holy shit. We should make an offer. That's how it happened.

All right. That's good. Those are a good double deal deep dive today. Now we're going to skip the fire round today because this has been a long show and move right into the world famous. Famous for. All right, time for the famous four. This is a part of the show where we ask the same four questions that we ask every guest every

week. I know we've asked Ben before. And you have not had a chance Sam to answer this one. So we'll go before both you though. Question number one, each of you, what is a current or a previous or somehow in your life important, most important favorite, however you want to call it, real estate related book other than your own? I don't know, Ben, you wrote some.

one of the first ones I read when learning about multifamily was the complete I'm sure everybody said it but the complete guide to buying and selling apartment buildings it's Steve Burgess yeah great book Ben how I turned a thousand into what a million or five million there was like one and then three then five he just kept getting richer it's I don't think it's in print anymore yeah but it is the formula like at the time I was like well dude I don't want to flip houses he was actually discussing burr. Yeah. Basically. Because he was renting most of them. But it's like what we do with apartments. Yeah. I didn't have the intellectual worth to compartmentalize it that way.

But that book tells you everything you need to know about real estate. Yeah, that's true. All right. Number two. Business book. One I'm reading right now is the checklist manifesto. Ah, great book. Yeah.

I can see you like in that book. Yeah. Well, actually, coming from the CPA world, They live on checklist. There's checklist everywhere. So, yeah, just getting back into that habit with real estate. There you go. So the last one I listened to.

I can't remember the name of it, but the dude hired a Navy SEAL. Oh, Jesse Isler. Yeah, Jesse Isler. Yeah, that's a funny book. Yeah, that was a great book. Just like every morning I get in the shower and wash myself. Of course, I wouldn't do any push-ups or anything because that's too much work. But, you know, I do get in the shower and I turn the thing on.

and his wife is so successful. That's the most... Spandex. What's her name? Spanx, yeah. She was... She's a shark tank. She's fantastic.

Yeah, I don't remember her name. Anyway. Like, Sarah Blakely. Blakely, yeah. Especially the chapters you talked about her. Because talk about nothing to blow up. Yeah, she's pretty awesome. Yeah, she is a...

Jesse was a podcast guest of ours on the bigger podcast. podcast episode 313 if you guys want to listen to the author of that book. Jesse, he tells us the story about living with a seal. It was a great book, yeah, phenomenal book. Number three, hobbies. What do you guys do for fun? We travel to Maui and visit Brandon. That's true.

That's exactly what you do for fun. And we hang out in the pool. And you guys, have you been to the beach yet? No. Should we go right after this? Should we just end this interview right now and go to the beach? Yeah, you got to get to the beach in Maui. Maybe Ryan will take you to go through some hammerhead sharks or something.

I like traveling. Canineering is one thing. I don't know if you've heard of that. Canyon nearing. Yeah. So you actually start at the top of a canyon and you traverse your way down where it's repelling, climbing. I always wanted to do that. I didn't know what it's called, but yeah. Pretty awesome. Actually, we've not done it in southern Utah and Italian national park. But you've not done it at the Grand Canyon. Have you done it in Arizona and Southern Utah? Didn't your wife tell me she's never been to the Grand Canyon and you live in Phoenix? That's correct. Yeah. You got a vacation to take. Yeah. So have you been to the Grand Canyon? I'm old and rich. So I pay people to do Canyon near it for me.

And to play with Shark, I pay them for that. And tell me all about it. Yeah, there you go. Maybe make some movies. Take some pictures. There you go. You know, I'm spending a fortune on my children. Yeah.

And my girl is always gone doing auditions and this and that with her mom. So I'm home with my son. That was them calling and saying, honey, you've been gone for too long. That's pretty much what that was. what separates successful real estate investors from those who give up fail or never get started. Let's start with Ben. First of all, I don't think real estate investing is right for everyone. Can we just acknowledge that?

All right. Sam, what do you think? Because it's not right for everyone. I think in life you have to have an unfair competitive advantage. Unfair being the key to competitive advantage. And if you don't have an unfair competitive advantage to be in real estate, don't do estate, find something that you will have an unfair competitive advantage in and do that. Life is too short to play somebody else's game. You got to play your own game. So what separates, and that's God's honest truth as far as I'm concerned, is that in some way, shape, or form, we have an unfair

competitive advantage. Mine was that I had MS. I didn't have any other options. So my advantage was it was either this or fail at life. His is that his relationship with numbers at sites that just flat out gives him a compare, unfair compared to that. So in my estimation, you have to know yourself and you have to not try to shove a square peg in a round hole. And if this is the right thing for you to do, you'll know it. You don't need me to tell you.

You don't need Brandon to tell you. You'll know it. You just, it has to be the right thing for you to do. Very good. What do you think? Consistency for me. Going back to when we first started, that six months that we spent looking for deals, putting offers on deals, and just never, just not giving up and not getting swayed

and doing something else, just doing consistent and underwriting every day, putting offers on deals. And eventually you're going to break through. Yeah. So true. All right. last question, where can people find out more about you guys? Whitehavencapital.com.

Whitehavencapital.com. And just ask ben why. com. All right. Very good. All right, guys, we got to get out of here. But it's been fantastic. Thank you guys for joining me in the seashed today out here in Maui.

Now get to the beach. All right. That was our show with Ben and Sam. Two wicked smart guys. But remember, as I said in the introduction, We are actually going to tack on an extra like 45 minute show, give or take a little bit, here at the end. So right now we're going to it.

And this was recorded after, or at least it was recorded the day after Mother's Day, 2020. And so you're going to hear the first thing we just talked about for the last couple hours was really all about before the COVID thing really came down, social distancing came down. Now we're going to talk about a little bit about after. And again, just like before, there's some high level stuff here. But this stuff is super important. I want you guys to pull out the stuff, just the gold nuggets from this episode.

And we'll kind of summarize at the end in case you get lost throughout it because again, we are covering a lot and it's very high level. We'll summarize at the end a little bit all these important points that are going to change your real estate investing life forever. So without further ado, let's jump over to our second interview post crazy social distancing, or at least during, with Ben and Sam. All right, Ben and Sam. It's been a whole like six seconds since we left you on the podcast. and we're coming back in for kind of a, I don't know, an outro, a secondary outro. We got to have a better name for this. It's a, it's a reprisal.

A reprise? Is that a name? Your kids in theater, Ben, is that what it's called when they come back on? It's encore. It's called a reprise. Among us, intelligentsia. It's called a reprise. Now, you wouldn't know about intelligentsia.

Okay. I just go to my reprising and we're going to talk about real estate right now. fellas So we had you on the show Just like a few minutes ago But in reality we recorded this Obviously a couple months ago Right before right before

As COVID social distancing was being enacted In fact you guys were like Staying next door to me Here in Maui and you came over You trekked through the woods You got to my C shed We recorded the episode And then you went home

And you were like the last person To stay in that house before they shut down All Vacation Rintals and the entire world went nuts. So we thought, let's talk to you guys about what's changed in the past couple months since this happened. I mean, we had a lot of conversation about what if and what could happen in the world. And then now we've seen what happened. So let's go through a little bit of, obviously, we don't need to like recap much because we just talked about it. But I'm curious, what have you guys, what have you guys seen in the past couple months in terms, in regards to

your real estate properties? Yeah. So we've actually seen pretty good collect. So if you look at National Multi-Housing Council, every week they've been publishing rent trackers and showing what percentage of the country is paying their rent on time. And they're comparing that to last to this is starting in April. So they're comparing it to March and then as well as last year. And we tracked pretty well ahead of that the entire time. I think a couple of our properties were at 99% end of the month at 99%, 98% collections. The lowest we had was 96% collections.

at one of our properties. And it was the most recent one we purchased. And we can talk about why that is. But we've seen pretty good collections. And actually May is doing a lot better than April. Interesting. I think we're 15% ahead of where we were in April. Yeah, that's cool.

So here's what I find funny. I've seen a number of articles come out over the past couple months of like, you know, all the tenants are not paying rent and this problem and this problem. And in reality, everybody I've talked to has been fine. Like, I don't think I've got anybody who's like, nobody's paying rent. it's not happening. So I do wonder a little bit about this whole,

I wonder a bit about where these studies are coming from. Does that mean most of the landlords we associate with just know what they're doing? And it's like they're being weighted down by people just have no idea you and I taught them. They ought to know what they're doing, right? I mean, we've been after this for a decade. I'm crying out of out.

Yeah, I guess. Yeah, we'll pat ourselves in the back. Clearly that's why this is going well. Yeah, I find it funny. Like, if we're all above average, that means there are a lot of people that are below average and I don't know where those people are, but they must be out there somewhere.

or I don't know. There's, there's, you know, we're stuck in today, right? So let's get people credit because there's a lot of pessimistic people and a lot of people are saying, oh, there's trouble coming down, the pike and all that. So we need to separate those two conversations. The Fed has pumped, what is it, David, five trillion into the economy. And counting. A couple trillion, right?

All in, you know, between the stimulus and the, the, their operations, you know. A lot of money. It's not surprising that collections are doing fine. The real question macroeconomically, as it relates to real estate, is going to be, how are those collections priced? In other words, what's going to happen to the market is a function of how investors value these collections. So your N.O.I stays the same or even does better. You know, at Canyon 35, we now know that we collected $82,000. in revenue in March, which was the highest March to date. It looks like about 85. We don't, we don't have those numbers yet, but somewhere between 84 and 85 in April. We're supposed to be

down in April. April just set a new high at Canyon. That's a 98 unit property. It had two residents that didn't pay. We have South Mountain. We talked about South Mountain, 117 unit property. there was one resident that didn't pay. Now, this is fantastic. We can tap ourselves on the shoulder. Now, the people that have been around for a long time, though, understand that valuations are a function of how you premium the revenues. What are these revenues worth adjusted to risk?

Because that's really the question and the conversation. When you buy an asset that is an income-producing asset, whether it be a multifamily or a storage facility or what you do, what's the revenue worth? How much am I willing to pay for that revenue? You know, a lot of the voices that you hear right now are people being very pessimistic in that investors are going to want to discount the validity of this revenue because why? Because Fed pumped in $5 trillion, because, you know, the stimulus, because the unemployment, people are making more money in unemployment than when they work.

And clearly we don't have visibility in that. But interestingly, if you're going to be logical about this, you as an investor who needs to deploy capital, you have choices to make. So it's not like real estate exists in like vacuum without anything else. What are you going to do? Bonds for your income? Are you going to go buy a business? Are you going to buy? What is it that you're going to buy?

And so the very interesting conversation to me right now, the most interesting, because we already know what the operations look like. Operations are fine. We're fine. Okay. Now, I don't know what happens six months from now. Personally, I think Class A is going to take it on the chin because right now they're fine. But four months down the road when those cupcakes, their parents are telling them they're not going to pay for their fancy apartment in downtown while they play guitar in the bar around the corner. you know, in Denver.

When that happens, maybe the situation changes in Class A, but Class C already took it on the chin. But conversation around operations, we kind of already have it priced in. Like you said, you talk to everybody, everybody knows, and nationally they track it. The real question is, does that bring us to a standstill? Like, will Sam and I buy a property right now?

Do we know how to underwrite a property going forward? Or do we need to sit and wait and see what the risk premium really is? and price that in and understand how that will. So when you say risk premium, I think just to summarize a little bit, but what we're talking about here is essentially, and you can correct me if I'm summarizing wrong, but essentially we're talking cap rates, right? So a cap rate is essentially a way of looking at how the market values income, right?

That property makes a lot of income. That's more risky. That's less risky. I'm going to pay a higher cap or lower cap. My question then is like, what do you think? I mean, do you think cap rates are then going up across the industry? I don't think they're going up. And even if they are going to,

up. If you got 10 years, you can stay in the deal. You can, you know, you don't have to sell when the cap rates go up. You can wait it out. You can cash flow the property and sell when the cap rates come to the down to where you come down. There's a clear disconnect right now. Buyers all think for some reason, but they deserve a huge discount. None of the sellers who are cash flowing just fine, such as us, are even remotely willing to consider that type of a discount. So, Ben, can I, can I, can I jump? We need to clarify a couple concepts. And when we talk about cap rate, it's basically an evaluation that's the metric that's used to determine how much a property is worth. And for

purposes of this conversation, the lower the cap rate, the more a property's worth. So if cap rates are rising, in a sense, that means there is less demand for this product. And so the property itself becomes worth less. And when you're, when you're using a metric like that, Ben's argument is it's more or less a kind of a newbie way of looking at what a property is worth, because there's so many more metrics to go into it. But you do need to consider that when you're thinking about selling because the person who's buying your property might look at that. So cap rate is really, it measures demand. It really isn't a good investment return metric.

It's just a demand metric. So generally speaking, people will be willing to deploy capital at higher price points if they feel safer in that marketplace. Maybe there's job growth. Maybe there's population growth. Maybe there's whatever. Maybe there is a supply demand issue that suggests that long term, you know, price is going to stay. Whatever the reason is, that's why you have a market over here with a low cap rate, which means people are paying high dollars. And you have a market over there with a very high cap rate, which means people are paying lower amount for the same revenue

Street. And what you were saying, part of the point that you're making is that buyers are expecting cap rates to go up so properties should be worth less and they should get a deal. But sellers are saying, no, it's still worth the same to me because the cash flow hasn't actually stopped. I don't know what you're smoking. And we're in this weird dynamic right now where the market's sort of stalling because each size expectations aren't being met. Right. Right. And so now you have these two camps of people who are buyers like, well, we're going to just wait and see until you guys run into trouble. And us as sellers, I'm like, why should we run into trouble? We had April collections higher than March.

And now May collections are on track to be just fine. And yeah, it's because of the Fed. And yeah, it may be artificial. But guess what? Fed's on my side. Do you really think in an election year there's not going to be another stimulus if my tenants can't pay rent? Do you really think that's going to happen?

So, you know, that enters into this whole and other political conversation and everything else. So you have this environment where potentially buyers sit over here and sellers sit over there. And that goes on for nine months for all I know through November, the election and everything else. Yeah. So the question is, and I guess I like the way of looking at it this way. Because David, you brought this exact point up a few weeks ago on the podcast about single family houses and small deals. The same thing applies here. Like, David, I think you said it was like prices won't drop.

like super fast because sellers are going to hang on to it because they still remember the good old days. And the buyers are all thinking immediately, this is 2008, let's get a 20% discount. And so what happens is there's this lag that happened. There's another layer of this that I just realized maybe yesterday as I was going back and forth in my head with a lot of what Ben is talking about. And it has to do with a lot of the really successful wealthy people that I know and that Brandon knows. I'm sure you guys know some of them too that have been telling people preserve capital, sit on the sidelines, wait for a good deal. And then the newbie, the amateur, the less successful person hears that and goes, oh, if Warren Buffett's doing that, then I'm going to do that too because I want to follow Warren

Buffett. And I was kind of trying to reconcile all this in my mind because I'm not waiting for this huge crash before I would actually take action. But I also don't think that that's stupid. And I kind of think that the guys who were saying, wait, would agree with me if they looked at the deal. And what I realized is a lot of those people giving that advice are not in the same position as the guy who doesn't own a property or owns one or two, who is actually looking to work and manage and learn the business

and make money on a deal, they are running companies and they want a completely passive investment. They don't need to invest in anything. They have plenty of income coming in. They are in no rush. They're happy to wait for the bottom. And if it takes 12 years, well, then they'll wait 12 years because if they go buy a property that's work they necessarily don't want to do.

The people listening to this podcast, they're looking for work. They want a property. They want a deal. They want something that counts. They want to learn the business. They want to plant a seed that will grow into a tree over the next four years. That's going to be huge. And when you're listening to the guy who's worth $150 million and has other people managing

his assets, he doesn't even do it himself. And he doesn't know or she doesn't know what's happening with that deal they buy. Their advice is going to be much different. They can pass up on 80 great or good deals to get one great one because they don't want to be bothered from the other stuff they're doing. I can't pass up on 80 good deals at this stage in my career. If I see 80 good deals, I want to buy him.

And that's an important thing to keep in mind when you hear that Twitter quote from Mark Cuban or somebody telling you, no, no, no, wait, it could crash more. I'm waiting, right? That doesn't mean that he's in the same position with his capital that people like us are that are actively looking to build our portfolios. Agreed. Yeah. Completely.

That's a good point. Okay, so here's a question then. So in the way you're analyzing deals now, especially, you know, like in what you're looking at, are you estimating, I guess, rents going up the same amount that you were before? Do you think Reds are going to say, or have you stopped Sam, like your your rent growth or your predictions there? Where are you out with that? So in our underwriting, we are not projecting rent growth for the next two years.

I think that's very conservative. I think we will have rent growth. Phoenix is still supposed to have top population growth in the country for this year, likely going to continue next year. And construction is slow down. So we're going to probably even see higher rent growth than what we were seen before. But just to be safe, you're... But to be safe, yeah.

And investors, it's hard to have that in-depth conversation and justify it. Be conservative. Yeah, we've stopped for the first two years, no rent growth. But there's two different types of rent growth for us. We're still renovating properties and we're still seeing $400 increase in rents on the ones that we're renovating. Or a lot of people there stop renovations, Ben and I don't believe in that. We're actually delivering a different product through our renovations.

And there's someone willing to pay for a completely different products. We get a different tenant in there that's willing to pay. that whereas a lot of other type of renovations where you're just putting lipstick in there, white remodel, and you're just trying to squeeze more dollars out of the existing tenant, that would be probably stopping right now. You're not going to get squeeze more dollars out of that existing tenant. But if I'm completely moving up a class of product and getting a different type of tenant in there, I'm still going to get that rent premium. There's still a difference between a B and a C class. Right. And that's become such a cliche, you know, we're going to

buy Class C property and we're going to put some lipstick on that pig. And we're going to make it into a Class B property. Guys, like property class is not exact science. So they look at the age of property. They look at the vintage. They also look at the amenity package. They also look at the unit layout. So a Class A property would be something that's not only new, but it's trendy. Okay. You can build Class A that's not really Class A, believe it or not. You can build low-income housing in a Class A. Thank you. Brand new. It doesn't mean it's nice. And then, you know, unless you are on the coast in New York or in San Francisco, where if you are overlooking the water, it doesn't matter if you're 150 years old, you're still Class A.

In the majority of the country, Class A is newer construction. So can you take a 1985 building, no matter what you do with it, you put gold-plated toilets in it, Can you really intellectually, honestly, call it Class B? When Class B could be 1998, which looks different. The layouts are different. The amenity packaging is very different. And you may not be able to replicate it or compete with it. So I see a lot of disingenuousness in all of this.

What Sam and I do is, at best, we create a subclass. So we take a Class C property. and we go into this location and we're saying to people basically, hey, we know it's not for all of you, but are there 90 of you, 160 of you, in this two-mile radius, that have pulled yourself by the bootstrap and make that $50,000 a year? And you're willing to spend a few extra bucks to live nice. You would have done it already, but nobody came in to give you that product.

Well, now we're coming in to give you that. product. But that's been our business plan is because we're from the get-go. We're saying, hey, we're going to spend more than anybody else on improvements. We're going to create a subclass of product that tenants literally don't have any other choice. If they make enough money and they want something a little nicer, we are it. Everybody else is resurfacing the countertops and refacing the drawers. We're putting in brand new stuff with great. ran it and stainless. Nobody else is doing it. We're in it. So, you know, just to make a point, this applies, by the way, just for people listening, not just through the big apartment complexes,

but I found this in my single families, my duplexes. Like, I like to say that you guys heard me say it before probably is C and D class tenants still watch Chip and Joanna Gaines. They still want that beautiful look. They just, nobody's giving it to them in a lot of markets, like, especially like B minus C class, even D class. Like, you just, those tenants can't find that thing. But But they, like, you go to Starbucks and you pay $5 for a cup of coffee. Why? Because of the experience and because of the ambiance and because the coffee is maybe good and it feels good in your hand, people are willing to pay a premium, even people who don't

have a lot of money for a premium. They're willing to pay a premium for a premium product. It's a class A within that ecosystem, right? So it's not real class A, class A, but it's class A of that kind of that location. Yeah, I have this, I have this fourplex. It's Rose's fourplex. We got this thing. It had, I mean, the average rents were like $4.25, $450, $450.50.

And I mean, they were all vacant except for one garbage hoarder. But like that's what they are getting their worth around $450,000, maybe. Like nice, $6.50 maybe I could push it to. I'm getting like $800 a month for each of the four. So even though it's in a pretty bad location. Like I would not. It's the worst location of any property I own. Yet I'm getting like, yeah, upwards of $800 for it.

Why? Because it's just a better product than anything else in that market. And there are people. I don't need all of them. This is the point you just made, Ben. I just need $90. Or for me, I needed five. I needed four or five people in that market who are willing to pay a premium to go to Starbucks

instead of going to 7-Eleven for the coffee. And it's silly of us to assume that everybody wants to live like everybody else. If you grew up here and your grandparents live here and your kids go to school here, you know, you want to stay here. You don't want to drive to that other part of town no matter how nice it is and then drive 57 minutes to get to work and pick your kids up at school. and all of that, you just want something a little nicer. Now, you got to be careful.

You have to have the right product, the right unit mix, the right unit layout, the right amenity package, the location. It's not as simple as you go buy a piece of shit in a piece of shit location and you can put granite in it and it's fantastic. That's the fastest way to lose money. So the strategy, Ben, in this case, is going to be look at your market and try to be the best option compared to what you have next to you. Don't just take this random blanket strategy of if I put in granite countertops,

if I build it, they will come, right? Which ties into your earlier point that not all revenue streams are the same. Because it's a very good point that you made when you're buying investment property. What you're really doing at its base is buying a revenue stream. You don't really care how pretty it is or what it looks like, other than how those things will affect your N-O-I at the end of the day. Correct.

And some revenue streams, for instance, hypothetically, a complex in Beverly Hills where 95% of your tenants are doctors who are never home versus Detroit at the peak of its misery. Those revenue streams are completely different. They require complete different amounts of work to maintain them. It's a completely different experience. So that's why, in theory, some cap rates are lower than others because the money comes easier in some places. Right. In last week's episode, we interviewed Josiah Smelzer. And he went over how he had like 10 Burr properties going on at one time. The bottom dropped out on financing, and he had a heck of a time and had to get really

creative with how he's going to refinance him. Can you share, I think, your 108 unit building, how you guys are currently planning on refinancing that thing with, you're still getting rents coming in, but a lot of lenders at this time have sort of halted giving out loans. Is that been your experience? So, no, we're refinancing into agency debt, so you're Fannie and Freddie products. While their terms of change, they're still lending. and you can still get mid-70, 75% LTV.

They're making you come in with the extra reserves. So now between nine and 12 months of mortgage payments, you have to have on hand at closing that they hold in escrow basically for you. And so we already had that. So that doesn't really affect us too much. That's how we underwrite. I think we talked about that two months ago when we were recording. So it didn't affect us too much.

But in the refinance, so you just have to have a little bit extra reserves on the refinance. but you can still get great product. I think rates are still all-time lows on Fannie Freddie. So it's a great time to refinance, even with that extra reserves. Well, if I got to add a couple of points, you know, that's not a small thing. If you are used to going into a closing with two months of interest reserves, and now of a sudden you have to have nine or 12, it's not a small thing. on a $4 million, $6 million raise for an acquisition,

you could be $700,000 off, which will drastically change your projections on returns, which is why deals fell out of escrow, fell out of escrow. Now, it doesn't have an impact on us because I am a neurotic Jew, afraid of everything, and I want reserves, and we've always had nine months of reserves.

And that's just how it is, and I won't close a deal without it. So nothing has had to change in our underwriting to accommodate this. So for the deal you guys currently have on the market, what's the plan with that? Sam, you want to take it? Yep. So it's still on the market, but we are moving forward with the refinance on that one. I'm going to put long-term debt on it.

And actually our debt service will go down quite a bit. We'll have an extra $10,000 a month in cash flow, it looks like, from refinancing. That's cool. So either way, it's a win-win-in-in-in-it. So it's a, which actually brings us to a very interesting conversation about exit plans, like how in every deal, the way you need to underwrite. And so you have option A, option B, option C, option D. So typically, we would wait, we would either sell it as a proven value ad,

which is what we tried to do. We put it on the market to show them, listen, we started, it with $58,000 of revenue, now we're at $85,000 of revenue with half of the units renovated. Do you want to buy this thing and finish the project? We've proven it to you. All you got to do is finish it. Take it and finish it. So we're going to sell it to you for less than we would if it was fully complete because we

didn't complete it. So we're going to split the profits with you. So that was the business kind of plan to try to exit early. but if you don't exit early, you finish it and you sell it as a turnkey. And we didn't underwrite that early exit. That was very opportunistic. Correct. The market was hot.

People really wanted a product. And we said, sure, if you're willing to pay still under a four and a half cap for our revenue, take it. Yeah. So how is that changed Sam since COVID? I mean, what do you expect? I should have put on your crystal ball. Well, like we talked about earlier, everybody's just so far apart, right? Yeah.

Do you think it's probably shot at this point? or so I think when so people are just waiting for the good news right to a little bit less uncertainty out there yeah so I think what may numbers a lot of people are waiting on main numbers and we just started getting them right before the weekend I think a couple weeks from now you could if if this keeps continuing and you still get good news on the pandemic side I think you could still see an exit so so we still might have a chance of selling before we do the refinance but once we have April numbers here in about a week we're going to move forward with the refinance if it if we sell it before then that's fun, but the kind of debt we're putting on to it, there's no big large prepayment penalty.

So I can still sell it a year from now and get the exit. It's not like I need to hold on to it for a long time now, even though we're refinancing it. So literally, it's just option A, option B, option C. Right now, this money is, might as well be free. I mean, it's 3.2%. Last quote I saw was 3.2% from Freddie Mac. I mean, it might as well be zero. Yeah.

All right. I want to summarize everything we just talked about in the last 45 minutes and a couple of quick points. And then I'm going to ask you guys your final advice for people right now that are listening. But first thing, number one, rents seem to be fine. That's good. I mean, I'm seeing the same thing. David's seen the same thing. Rent's seem to be fine. Second point is when you have, and this is kind of like summarize everything else we said. When you buy a good deal and when you have adequate reserves, you can do what you guys are doing, which is weather storms. Because you have the reserves, you had a good deal. You had a good deal. You have adequate reserves. You had a good. You have. You have. You have. You have. You have. You have. You have. You good deal going into it. You had a plan and you're still working the plan. And so like this applies to anybody whether you're buying a first house, a hundred unit or anything in between is underwrite deals well, be conservative and have reserves and you're going to be fine. Like a summary of that of why you guys are doing okay through all this. Exactly. That's exactly. We can throw in cap rates can be misleading. They're a metric. You can't necessarily lean on. I like to look at them like the 40 yard dash time of a player that you're looking to bring into the NFL. It's a good, starting point, oh, that person's fast. Let's look at this one. But you would never draft a player just

because they have the best 40-yard dash time. It's a good analogy. Right. Thank you for that. That's good. And there's a hack that can be found if you use Class A principles in Class C and B properties. That might be a good way to sum it up. It doesn't have to be Class A money that you're throwing at it. But if you can make your property the Class A of its area, you may attract the cream of the crop people, give yourself an easier revenue stream to manufacture as well as a higher revenue stream when everybody else is kind of marching to the same drum. That's another thing that we talked about. And the whole, well, what if this happens?

What if there's a black swan event? I don't want to own real estate like you mentioned, Brandon, then you just keep collecting rent and you refinance and you make money that way or you run your property better. And at a certain point, you can get out of it. And so there's a lot of similarities between this story and Josiahs that we did last week where the worst case scenario in some cases happened, or at least, least we were prepared for it. And it wasn't that bad. Rents actually didn't stop coming in. Now, if we had a shelter in place for another seven months in a row, I'm sure this would be a

different story. But as Ben pointed out, the government, while, you know, they like, they cut us open and we started to bleed. They then came in and gave us a blood transfusion more or less at the same time. So people were getting money. There's a stimulus package that was prevented. It's not as good as if we kept working, but it's certainly a lot better than we bled out in three months and the entire economy went into a depression because of it. That isn't what happened. And so for the people that were running around screaming, the sky is falling, keep this in mind the next time that there's a big problem. Don't let your fears get ahead of the facts. Okay, I think that this could happen. So I'm going to assume it's going to happen. And stick to the fundamentals. You have strong reserves.

You're in a really good market. You understand what you're doing. You don't have to get in and get out in five years where you have one way to hit the bull's eye. And if you miss it, you're going to lose money. and real estate is freaking awesome. You know, people who bought stocks can't really say the same thing as us talking on this podcast. Think about how much control we have. I mean, we've been talking about doing X, Y, and Z and being proactive. And that gives us control, so much control to respond to even a Black Swan event such as this. So, Sam, final point from you then.

What would you leave people with? I had two points. So reserves and cash flow, they allow you to exit when you want to exit. exit, not when the market tells you how to exit. I'd always go in with a lot of extra reserves, especially if you're global cash flow at the beginning. And then the second point, and it basically approves what you just said, the properties that we've had most renovations completed, so were over 50% of the property renovated, had the highest collections the last two months. And even if they were in a worse location, and we're not surprised by that at all. That's what we, that was our

assumption going in and it just was validated over the last two months. All right. Good deal, guys. Well, we don't need to do the famous four or five round or any of that because we already did it. People can listen back if for some reason they skip that part. But with that, we'll just get out of here. David Green, you want to close up shop? Yeah, thank you guys very much for coming on. Sam, I feel like you probably could have made your points a lot quicker and you just droned on and on and on the entire episode. Hopefully we can edit you down a little bit because you're, I mean, the ball hog of this podcast for sure.

But, you know, thank you for coming as it is. Hey, he's talking to me. you guys listening. This is like a very thinly veiled. And yet you still took the mic from him. And yes, that's the hilarious part of it. That's the hilarious part of it. You still right in my trap there, Ben.

All right, guys, thank you very much. It's not always fun coming on to talk about when things go wrong. And I appreciate you doing that. And we got a lot of very, very good and interesting stuff out of this. Yeah, thank you. Thanks. Thanks, guys. You're listening to Bigger Pockets Radio.

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