BiggerPockets Real Estate Podcast - 634: Why 2023 Will Be One of The Best Years Ever to Invest in Multifamily w/Matt Faircloth and Andrew Cushman

Episode Date: July 12, 2022

Investing in apartment buildings may seem like a big jump to everyday real estate investors. Mom and pop landlords—used to buying single-family houses or duplexes—may see apartment buildings as far outside their reach. And this, for the most part, has been true over the past two years. With high competition, equally high prices, and syndication deals popping off every other second, regular investors haven’t been able to invest in large multifamily real estate—until now. Andrew Cushman and Matt Faircloth started as solo-investors like most of us. But, over the past decade, they’ve both grown large multifamily portfolios, and know exactly how hard it's been over the past two years. They’re finally starting to see some cracks in the institutional armor of multifamily, allowing small-time investors to get deals while everyone else is fleeing from high interest rates and an oncoming economic downturn. If you’ve been waiting to level up your investment portfolio, make big equity gains, and bring in massive passive income, then this is the episode for you. And, if you feel like you’re too new to invest, the BiggerPockets Multifamily Bootcamp, hosted by Matt Faircloth, will give you everything you need to go from onlooker to investor! In This Episode We Cover: Multifamily “tailwinds” that are making apartment investing easier in 2022 and 2023 The hidden opportunity of multifamily that most investors don’t pay attention to How creativity became crucial in the real estate industry and using it to score better deals Which multifamily properties are safe from an economic downturn and inflation  The seven ways that you can mitigate multifamily risk when investing How to start building your multifamily strategy today so deals flow to you as competition thins And So Much More! Links from the Show BiggerPockets Youtube Channel BiggerPockets Forums BiggerPockets Pro Membership BiggerPockets Bookstore BiggerPockets Bootcamps BiggerPockets Podcast Get Your Ticket for BPCon 2022 Listen to All Your Favorite BiggerPockets Podcasts in One Place Learn About Real Estate, The Housing Market, and Money Management with The BiggerPockets Podcasts David's BiggerPockets Profile David's Instagram Sign Up For the BiggerPockets Multifamily Bootcamp BiggerPockets Podcast 88 BiggerPockets Podcast 203 BiggerPockets Podcast 289 BiggerPockets Podcast 170 BiggerPockets Podcast 279 BiggerPockets Podcast 586 Vantage Point Acquisitions DeRosa Group Invest with David Greene Book Mentioned in the Show Raising Private Capital by Matt Faircloth Connect with Matt and Andrew: Andrew's BiggerPockets Profile Matt's BiggerPockets Profile Click here to check the full show notes: https://www.biggerpockets.com/blog/real-estate-634 Interested in learning more about today’s sponsors or becoming a BiggerPockets partner yourself? Check out our sponsor page! Learn more about your ad choices. Visit megaphone.fm/adchoices

This is the Bigger Pongas podcast show 634. So that that's a silver lining. If you've had, if it's, if it's been too competitive for you to get into this business the last five years, that is about to ease off. And this could be your window. And then one last thing I'd say is that, uh, the interest rates have been low for a while, right? Um, yeah, we were able to borrow monies on multifamily at, you know, three, three and a half, sometimes maybe even the two percent.

Those rates are, uh, you know, it's hard to sell those properties. Now, if I've got a property that I've borrowed at 3% interest on. What's going on, everyone? My name is David Green, and I'm your host of the Bigger Pockets Real Estate podcast here today with a fire episode that if you like multifamily investing, you are guaranteed to love. Today I bring back former guests, Andrew Cushman and Matt Faircloth, both Gobundance members and multifamily experts that I sort of rub elbows with and talk shop about the multifamily market. Many of you know Andrew is the person that I partner with when I do multifamily deals.

and Matt wrote the book for Bigger Pockets, raising private capital. Andrew's been on shows 172, 271, 571, 586, and 607. Matt's been on shows 88, 203, and 289. I know I said those quick, but if you really want to listen, come back to this at the end of the episode, write down those show numbers and hear more about their story. In today's show, we get into what's going on in the state of the market with multifamily,

including strategies that are working with this new interest rate hike, what to watch out for, what asset classes to go after, what a whisper price is and more that if you like multifamily investing, you should love because you're finally getting an opportunity to not get outbid by the big guys that raised a whole bunch more capital than you did and just went in with a bigger number than you could. Before we bring them in, today's quick tip is simple and it's brought to you by my good friend, the Batman. Here's something you have to understand about Batman. When he was a young boy, he was overcome with fear. And rather than becoming overcome with fear for his whole life. He learned how to make his enemies feel fear.

See, this relationship with fear is a very important ingredient in your own journey as a superhero. So rather than being afraid of the changes that are happening in the market, what I would encourage you to do is to go find sellers who are feeling that same fear. Find a seller that is overreacting and is going to sell their asset at a price much lower than it should be or with better terms than they actually had to take because you're capitalizing on their fear instead of. of filling your own. This is working for me. I've got about 12 properties in contract all in the last 30 days. I got them at significantly better prices than I should have, at least most of them, because the sellers are in a panic and are selling off. These are all going to cash flow very strong,

are often in grade A areas and are something that I would love to hold long term because I'm out there getting my Batman on and you should do the same. And be sure to listen all the way to the end of episode because these guys share what they would do if they were starting over from scratch, starting at zero in today's market. You don't want to miss that. And if you like it, let me drop a little hint for you. We may have them back to do an entire episode on just that topic. Multifamily's been almost untouchable for the average investor for a very long time.

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If you want to do the same, visit BiggerPockets.com slash retirement to learn more. Andrew Cushman and Matt Fairclough, welcome back to the Bigger Pockets podcast. How are you two today? I'm doing really well. I woke up this morning, which means I'm one less day from Diane Young, so that's a good start. You went there. I'm well, David. Thank you for asking.

Thank you for that. Thanks you. Thanks for having Steve. Andrew is going to have like a book of these. He's so good at coming up with these little quips just like that. Like you literally might have a book in your desk that you open up every time right before I put you on the podcast. Like which one do I want to use today?

I'm not quite that organized yet. I ain't dead yet. Gentlemen, today we are going to be discussing multifamily real estate. Lately we've been doing some deep dives into multifamily. So Andrew and I have done a couple shows on the process. we use when we're buying apartment properties together, particularly the underwriting process and the due diligence. Matt, you've been doing a lot of work for Bigger Pockets, particularly in the boot camp

space. Can you tell us briefly, Matt, about your Bigger Pockets boot camps and how people can sign up for those? Sure. And I'm just grateful to have that opportunity to teach people that either want to raise their game or get going in multifamily through the Bigger Pockets boot camp. You got a pro membership to sign up for it. But once you have that, it's go to BiggerPockets.com for slash bootcamps. And it's a, I believe, a 10-week program, David, where it teaches you everything from getting straight and revisiting your goals around multifamily and then choosing a market for multifamily and underwriting deals, making offers on deals, you know, and then managing

that deal to profitability and then also liquidating the deal when you're done. So the entire multifamily process is documented there. It's myself and a few of my DeRosa group team members teach. it, including Justin Fraser, Irvay Francois, and a few other folks. And it's been well attended. Lots of great feedback so far. We're in the middle of our second one right now and launching our third cohort, I believe, starts in September.

And enrollment starts in just a few weeks in August. Did we mention how people can sign up if they want to take the course? Yeah, it's BiggerPockets.com forward slash boot camps. There we go. In today's show, we kind of want to get into the state of the multifamily market. Basically, we want to share what we're seeing in today's market, because in, in the you've been living under a rock and you haven't heard. Things are changing pretty quickly and now is as good of a time as ever to start paying attention

to what's going on in real estate. So, Andrew, I'm going to start with you. What are you seeing as far as tailwinds to the multifamily space? Yeah, tailwinds are still significant and it's funny. Tailwind sounds like a negative, but that means, you know, when we talk about tailwinds, think about you're in a plane and the tailwind is pushing you forward so you actually get somewhere that you're headed faster, right? So a tailwind's a good thing. One is the fundamentals are still really strong.

The fundamentals of multifamily and rental real estate really comes down to supply and demand. Nationwide occupancy is still extremely high. And we have a housing shortage. We are still, depending on who you're getting your data from, we're either two or five million units short. But it's always millions of units short, right? I've yet to see anything that says, oh, we have oversupply. There might be a market or two where someone built too much. but overall we have way too few housing units.

Also, cost of new construction has gone through the roof and it's getting really expensive to buy. I'm sorry, not to buy, but to build. And so it's making it so builders either can't build or they have to target only luxury. And that ends up with getting fewer units built in the first place, but second of all, the ones that do get delivered have to target really high-income renters.

They're not delivering Class B or A-minus or even C properties, and that just increases the shortage of that kind of workforce, affordable housing. And so there's an even greater supply demand imbalance there. You know, interest rates rising. It's really easy for us to focus on some of the negatives of that and just say, oh, my gosh, it makes it harder to buy multifamily, the cost of debt goes up. The flip side of that is it makes it harder for everyone to buy a house. The most recent figures I've seen that are in most U.S. major cities, it is 30% more expensive

to try to buy a house now than to rent, which means with all those people who were going to buy a house when rates were at 3%, now they can't because rates are at 6, they just became really good high-quality renters. And they're going to go find a Class B or Class A apartment, and they're going to rent for the next couple of years. And then I know Matt will have to be. have a few things to add. The one other thing, you know, that's always a, you know, tailwind for rental housing is that people have to have a place to live, right? You can buy or speculate on all the real estate in the metaverse that you want, but it's not going to keep your head dry when it's raining, right? So it's one thing that is never going to be outsourced to the internet or to the

digital world. I'm going to tell your twin brother, Mark Zuckerberg, that you said that the Metaverse is not going to keep your head dry, and I'll see what he says about. I am not related to Mark in any former fashion. I know. I'm just teasing because you kind of, you look like maybe a distant cousin. But, but anyway, I agree. And it's, I think that as the economy changes, David, and I think a good tailwind is that investment and folks are going to be looking more towards tangible things, right? And so sticks and bricks, housing roofs over people's heads are going to be good, solid, sound investments.

They're going to perform well, I think, because as much as in multifamily, a good tailwind, and again, this is a good thing for a changing economy. It is the real estate housing, multifamily housing, is the bottom of Maslow's hierarchy of needs, right? What do we need? I've got to eat three squares a day, maybe. I got to have shelter. I've got to have those things. The other ancillary benefits that people need are that are higher up Maslow's hierarchy of needs

tend to get shaved off if there is a obsession. So I think that multifamily housing is because it's a core need for people, it is something that's way more stable and down the food chain for things that are getting axed if times get a little tougher, right? You know, with these, tailwinds, keep that in mind as you're looking at real estate. And I don't want to jump ahead too much and get into the headwinds, which are against you.

But one of the headwinds is if you hold really still and listen carefully, you can almost hear the collective sphincters of investors tightening across the country right now. As everyone gets scared of real estate and crypto goes down and the stock market's down, right? and you know that that that that that that that's a headwind but what you want to do is look at these tailwinds many of which are structural they are not going to go away and so look and say all right well what is this real estate going to be five years seven years 10 years down the road if i buy a duplex now that is in a you know if my first investment is a duplex and i'm going to house hack it and it's in the florida panhandle where people are moving and and that's going to continue right

even if we get into a recession, that area is going to grow. I get my duplex. I house hack it. A few years down the road, I can leverage that into a five unit and then a 10 unit. Look long term. And that's how you can, as a new investor or an investor with 10,000 units, look long term and take these tailwinds and use them to develop your investing strategy and build your portfolio.

Let me get your guys' take on a concept that might apply here. So whenever there's a challenge. change that appears negative, such as interest rates going up or maybe before what it was was there was too many buyers in the market. So houses were selling for over-asking price. I noticed that people tend to see the immediate negative effect and just focus on that and they don't look one step further. So for instance, interest rate going up does make mortgages more expensive so less people can qualify for a house. However, that removes a lot of the competition of buyers, and it knocks out a lot of people that maybe could have bought a house. Now they have to

stay renting. So that could force rents to go up in the multifamily space because they can't buy a home. Same thing when you knock buyers out of competition. Yeah, your mortgage might be higher, but prices will usually have to adjust, especially in the investment space. And now you've got less competition from other buyers. So there's always a silver lining whenever there's an adjustment. I wanted to get your two opinion on. So in today's market, what? silver linings are you two seeing behind the doom and gloom that's kind of coming through the news and social media? Well, we haven't gotten this far yet, Andrew, and that's talking about inflation. And I'm not saying that I don't, I see the humans out of real estates. I don't think,

I don't take it for granted that a cost a gallon of gas has gone up for everybody, including my tenants. And so I feel for them. But I also know that there is wage growth as well. And that that is a real thing. And wage growth is happening in the cost, and the cost of living, cost of goods have gone up as well. But I just think that the cost of everything in America is going to continue to increase. And that is a tailwind, that that is a good thing that's happening for us. That that's why interest rates are going up, by the way, is because they're trying to curb inflation, which actually benefits us as real estate investors because it ups our rent. So there's some markets we're invested in that rents have gone up 15 to 20 percent. And tenants are still

qualifying for those new rents because they're they're getting raises. Burger King that was paying $11 an hour is now paying $18 the $19 an hour. Amazon is starting at $25 an hour in that. So wages, I think, are going to put more money in people's pockets. And unfortunately, that's the way things go is that that money is going to get sucked out for a different cost of living items, including their rents. Hopefully they get to keep a little bit more of it themselves too. But that's going to drive our top line. as well as landlords. Yeah, and I say some additional silver linings.

You know, we already touched on this, but a lot of where it is rising interest rates are adding quality renters to the pool because they're not buying houses. These are generally people with high incomes, high credit scores. We already talked about that. Another one is, you know, existing properties become more, become more valuable and in a sense more scarce because it gets harder and more expensive to deliver new units. we touched on that. And then another one, and this really applies, if you're getting started or thinking about getting

started in this business, now is your time because the competition from other buyers, other owners, other syndicators is going to drop. I know lots of other sponsors that are already just moving on to other asset classes. And part of the reason is, is they can't get the deals to underwrite. They aren't confident they can still raise the equity. their investors expect returns that were based on what was happening five years ago. And now that you have to buy a property at 65% LTV instead of 85% LTV, they're having difficulty with those conversations.

So if you talk to guys who've been around for decades, they will tell you the biggest money is made in the downturns. And one of many reasons for that is your competition goes away. And that's starting to happen. And people are starting to like just, yeah, I'm going to sit on the sidelines, right? And that doesn't mean that just go buy everything right now and throw caution to the win. We can talk more about that later. But what it means is, I said, if you haven't started yet, now is the time to build your systems, build your team, be ready for opportunities that I think are coming in 23 and 24.

So that that's a silver lining. If you've had, if it's been too competitive for you to get into this business the last five years, that is about to ease off. and this could be your window. And one last thing I'd say is that the interest rates have been low for a while, right? We were able to borrow monies on multifamily at, you know, three, three and a half, sometimes maybe even in the two percents. Those rates are, you know, it's hard to sell those properties. But now if I've got a property that I've borrowed at three percent interest on, I can now

liquidate that property and offer the assumption of that debt to do to people. And that didn't happen as often because, like, well, I don't want to assume your 3 percent loan because I can go get another 3% loan or I can get at 3.4, why do I want your 3% mortgage? So I think that for existing owners and for new buyers as well, there's an opportunity to get creative on financing,

which multifamily has not required creative financing ever. Not for a while, but it will now. And so for a buyer and seller looking to put their heads together, find a way to make the deal work. And they could, seller financing could come back, Andrew. Meaning like, if you're going to assume, my 3% mortgage, that versus going and get your own 6% mortgage. You can be very inclined to assume my 3%.

And maybe as a seller, I'm willing to hold a second behind that, which people haven't had to do up until now. But maybe that allows for more creativity to come into the space, which that creativity is really what makes the juices flow in real estate investing, and it hasn't been required. In multifamily buying has been best and final, best and final, final, final, final, final, best in final, final, final, final, final, final, final, the last couple of years. But maybe that goes away. And it's now like, okay, who's really wants to get this deal done?

The brokers lose a little bit more. They lose a little bit of control. And the buyers and sellers are able to really put deals together. And here's another one. And you're absolutely right. The assumptions are going to come back into vogue, creative financing. But, you know, rising interest rates like we have right now, another factor that that has is your quote unquote, liability, your mortgage,

right, if you've got a low interest rate, you know, 3% fixed mortgage, all of a sudden that mortgage is starting to become an asset, right? Because if inflation's at 8%, number one, you're making 5% on it. And then number two, your property is more valuable if someone can come in and assume your mortgage at 3% instead of getting their own at 6. Yeah, but pay more for that. They'll pay you, like, you're going to get a premium for that 3% mortgage you have. And incidentally, that is going to contribute to, low inventory because many owners are locked out of selling their properties because they can't can't or don't want to give up their low mortgage. And that is, I think, a source of contention

for a lot of people that want the market to crash. So what we're being told by the Fed is, hey, we're going to stop inflation by raising interest rates. It's this simple. When rates go up, the economy does worse. When rates go down, it does better. So we're putting the brakes on. We got it all under control. The reality, when you look at the big picture is that's not. not the case. This actually could create a more of a shortage in supply. Because in the single family space and the multifamily space, if you've got a great interest rate at 3%, and you're thinking, hey, I got all this equity in my house, I could sell it and buy another house, but I got to get a 7% rate, I don't want to do that. I don't put my house on the market. Same thing goes with the multifamily

space that you guys are seeing. It was easy to raise money to buy deals and pay top dollar for them when rates were low. I guess what I'm getting at is rates alone is not enough to create the correction that we need. You got to actually build more units. And as you two have both said, that is becoming more expensive to do. Supply chain issues that we're having where it's harder to get supplies, people that have not had to work, frankly, for quite a few years now that the labor pool has sort of been diminished in these like difficult jobs that we need to make America work, working out in the hot sun doing physical labor are not very popular right now. And then you throw on top of it with wage increases, you have to pay these people more to do the same work than before.

It doesn't look like we're going to be building a ton of multifamily stuff anytime soon. So I like that you guys are highlighting. Don't assume there's going to be a market crash just because rates are going up. But I love the introduction of creativity back into the market like what you said, Matt. I was just telling my agents on the David Green team, I have not been this excited since I got my real estate license because this is the first time there was any ability to use like skills and strategies that didn't just start and end with highest and best. If you got parrot on your shoulder, they just said, highest and best, highest the best, you can be a listing agent.

That's what it was like. Now we've got all this like flexibility here. We're like, hey, his mortgage is at 4%. Mine would be at 7 and a half. I'll pay him more if I can assume the mortgage 100%. That becomes an asset. And it opens up windows of creativity for those that are actually skilled that have been listening to this podcast that are like you two that understand investing and have been putting tools in your tool belt as opposed to I'm a 27 year old entrepreneur. Instagram who calls myself a syndicator, send me your money and I'll go overpay for a property and just wait for cap rates to compress and rates to go down and I can make it work. You know, David, you just reminded me of another silver lining that I'm hoping will show up. And that is, and this has been a big hurdle for new investors the last five or six years. And it used to not be this way. But now the last five, six years in multifamily, one of the questions the parrot repeats is how much is your hard money deposit, right?

You got to put down $100,000 non-refundable day one and you can't get that back no matter what. As the market shifts to more of a neutral position between buyers and sellers, there's a good chance that will hopefully go away and de-risk the buy side of the equation. Because again, it used to not be that way. That is a result of the tight competitive market of the last five, six years. And so if that's been a hurdle for you as a new investor, that might hopefully go away or at least back off a little bit. agree. I think all that's fantastic. I'd love it if like all this hard money stuff, whatever went away. And it's also just, it's pushing the market up. Like you said, it's whoever's willing to pay the most for the property wins. That's it. That's your winner. But the problem with that is a rising

tide raises all boats. And so if this property in Atlanta sold for well over what it should have because the broker pushed and had his little parrot on his shoulder going best than final, best the final and highest and best, highest and best. And then they use that number to pull up the property down the block that sell or whatever. And just it all kind of pushes the market well beyond reality and well beyond where they're real-able cash flow. So my hope is that it pulls that a lot of things settle down. And maybe I'm not talking about a 50% crash or anything like that. I'd love to see like a 10 to 15% settle down. And by the way, those that are sitting around, I see people on Instagram rooting for this thing, you know, like real estate's next, crypto, then

the stock market, now crypto, now real estate. Guys, the three of us were around during their last crash. I can tell you, anybody that's rooting for the real estate market to crash was not around when it did it the last time. It is not fun. It is not money getting printed in the streets. It sucked. Okay.

And eventually, it worked its way out and deals were made. But for those that were that owned anything during that time, it was a scary time to be investing in real estate. So I can tell you, you do not. wish the market to do that. It'd be great if it's softened up a little bit and allowed for creativity and buyer and seller to have equal footing again. That would be great. But a crash, guys, do not hope and pray for that. I promise you don't want it. That's a great point overall. What we ideally want is some form of equilibrium between supply and demand, buyers and sellers.

It's okay if it's tilted in one direction or the other at times. But these wild spikes, just like a diabetic's blood sugar, is not healthy. You don't want it going to where it's, sellers have all of the power. And then it's like, now investors with money have all of the power in either direction, your average Joe loses. They can't compete with the people that have a ton of money in a seller's market and they can't get loans to buy houses in the buyer's market. So if you're listening to this podcast, that's a great point, Matt.

We would like to find some form of equilibrium. I'm going to move on to the next question I have for each of you. We've discussed tail wins. Now let's talk head wins. Matt, I'm going to throw it to you first. This is where is this becoming more difficult for multifamily investment? Well, a lot of equity just got sucked out of the market, David. And up until recently, it was like, you know, you do one Instagram, one Facebook post.

It felt like that. Like, hey, I got a deal. And all of a sudden, boom, I'm fully funded, you know. So it became overly easy, I think. And like you said, there were some knuckleheads out there, just put in a social media post, you know, brand into the real estate market and all of a sudden raising $10 million or whatever. Hey, God bless. I'm glad they did. But it's going to become harder to raise equity.

harder, I think, to get equity into your deals, A, because this is the most questionable, unstable feeling place. A lot of investors that have talked to are like, oh, I'm not sure, interest rates or whatever. And up until, you know, even during COVID, people like, I got to put my money somewhere. I'm really liquid. I got to invest. Folks are not saying that anymore. They're kind of looking for shelter, looking for just in case and looking for what ifs, right? So the biggest heaven that I've seen is that equity, the access to equity is changing very quickly. I mean, faster than a lot of us as syndicators thought that it would. And that's because, you know, folks, net worth, a lot of it changed.

Those that have a lot of money in real estate or crypto, wherever you choose, you know, whatever floats your boat, wherever you're keeping your cash has changed a lot recently. And it's going to continue to change as those markets remain volatile. Well, to add on to what Matt was saying, yeah, I think. I think I've met you before, right? No, okay. You look like a mark, I don't know. But to add on to what Matt Faircloth, yeah, okay, what's saying is as that equity gets harder to raise,

that means the sponsorship groups that require that equity are going to be dropping out of the market, which means they either might be going away altogether, or lowering what they offer because they're like, well, I'm not sure if I can, you know, I'm going to make an $8 million offer instead of a 10 because I don't know if I can raise the equity to get to 10. So, you know, that's one of those things we talked about before that's good from a new investor standpoint standpoint because, hey, it reduces competition. But if you already own something that could lean to, again, a softening of the market and potential decline in prices, I do not see a crash. I'll flat out say that. I do not see a crash. However, in select asset classes and select markets, could we see softening or some price decreases?

Absolutely, yes. That's just like more but more of a normal real estate cycle. You know, the crash last time, real estate caused that. Yes. And was not the victim of it. It was the other way around. Real estate just, you know, went off the roller coaster first and took the economy with it. We're in a very different situation this time around.

So that that is, that's a double headwin. Matt, you wanted to. you want to add something? Well, I wanted to throw in that, that, to go off what you had said about, like, debt, uh, debt maybe getting softer as well. We were just quoted on a, um, on a, I thought to be a fairly good deal. Uh, it was 65% loaned value was a quote that I got, uh, from a, from a broker. Um, and I, I was surprised because it was, you know, good deal that made good money and just, it seems like debt is the, the debt markets are getting a little softer, not just on interest rates. And the reason why it was 65% LTV is because

the debt service coverage ratio has gotten more compressed because debt's gotten more expensive. So if my deal is... Can you briefly describe what you mean by that? Sure. So if you've got a piece of real estate that's producing $100,000 in rent and $50,000 in expenses, your NOI is 50K, right? So that's one side of the DSCR equation. The other side of it is, what is my debt service?

And so if my entire monthly payment that I pay, to service my debt, including principal and interest if I'm paying principal as well, let's just say it's $35,000. Well, okay, I'm profitable at $15K. Yay me. The bank is going to divide that $50K, the $35K into the $50K to determine what ratio that is. And they would typically want to see what Andrews somewhere in the 1.2 to 1.3 range, meaning that I can make that monthly payment 1.2 times, right?

or 1.3 times in a given month. And that means that I've got that, what they like is that 0.2.3 part, right? They certainly want to see you can at least make the month of payment, but then you have some extra. A 1.2 ratio would mean you have about an extra 20% coming in every month more than what you need to make your payments, right? Yes.

And that number is how apartment buildings or commercial real estate determines how much a bank is going to let you lend versus residential, where they say, well, how much money do you make at your job? Then they look at your personal debts. income ratio versus the profits. Because a major factor. That's why you're mentioning that. But what's interesting, David, is because rates, you know, were three, three and a half on

multifamily up until recently, now they're, you know, five, five and a half or could be in that range, the debt service, aka the amount, my monthly payment has gone up quite a bit. And certainly, my deal maybe has become more profitable because of rent increases or whatever. But in some cases, one has exceeded the other, meaning the interest has pushed the debt service higher on a deal. And so the banks are saying, okay, well, I have to, I have to pull a lever here. So if your interest rates have gone up, I can't lend you as much money on that deal. So I have to drop your LTV down to a point where it makes sense. This is, this is what they call where your deal is DSCR restricted, meaning I'm only going to lend you, but so much, I'm going to lend you

enough money to where your DSCR ratio is whatever their, whatever their guideline is, typically 1.2, 1.3, somewhere in there. Right. So if I can make sure we understand this correctly, if you were trying to get approved to buy a house and your residential property and your debt to income ratio only allowed you to buy something up to 600,000, but you wanted to buy something that was a million, they'd say, yeah, you can buy it, but we're only going to fund 60% of it. You got to come up with the other 40% yourself. In this case, it's the asset is only producing this much income so you can borrow this much, but anything above that, you've got to bring in the extra capital. Yeah, yeah. Which obviously makes the price

of the asset lower because now the person buying it has to bring more capital into the deal that makes it less attractive. So look at the, because again, there's multiple factors in the storm, right? And so you've got this happening, right? So interest rates have caused the DSCR to compress a bit, meaning, you know, rates have gone up and that means my cost to service, my debt is increased. Put that in there. And if I'm now able to get, I can't get 75% loaned of value. And if I'm buying a million dollar property, I used to be able to get $750,000 at a 75% LTV. Now I can only get $650,000. That means I have to do what? I got to go out and raise the other $100K. But as Andrew and I had said before, equity has become softer because equity investors have become a

little more skinnish, not concerned where the world's going. And so those two things, that means that debt is the enormous headwind, when you combine the two, is that debt has gotten, you know, a little bit lower on what they're going to be willing to do for a deal, and equity's also gotten softer. Those two things together are going to make a, are going to make us as syndicators, I think, way more just real, let's say, on what we're able to offer on a property and we can't just go in there and shoot the lights out anymore as we could before because, you know, equity was easy to get and a bank was going to give us a lot of money for the property because rates were low, right? And that enabled us to, you know, get, get loony

to invest in final, final, final, final, final final, final on a property. Now I can't do that because I know my equity is a little bit softer, and my bank's not going to just give me whatever I want to borrow on the property. Yeah, and if you guys would like to learn more about how you too can raise money, well, Matt Faircloth wrote a book on it called Raising Private Capital. We also have another podcast, a couple of episodes coming out with Amy Majury, episode 636 and 637, where she breaks down her actual process, like a framework that you can follow for raising capital.

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Indeed.com slash rookie. Just go to Indeed.com slash rookie right now and support our show by saying you heard about Indeed on this podcast. That's indeed.com slash rookie. Terms and conditions apply. Hiring, indeed, is all you need. Okay, so we've talked about some tailwinds. We've talked about some headwinds. Andrew, tell me how you think this is all going to balance itself out. What can we expect with these different factors that have changed? Yeah, there's quite a few, and I'm going to add one more headwind that'll lead into that.

And one of the biggest headwinds with all of this is, you know, as gas prices just about double, and food goes up 25, 50%, and utility. go up and all these expenses living expenses day-to-day living expenses get higher it makes it that much harder for the average person and especially the average renter to make ends meet at the end of the day especially the further down the the chain that you go right so um you know what's happening is one of the things that's happening is as you go into like c class we're starting to see delinquency creep up, right? Because a lot of these folks, they're, you know, they're, unfortunately, they're in the position where they're, they're lucky to make it to the end of the

month and still have a positive balance. And so it's hard for them to absorb gas doubling or food going up, you know, there's not many things that people pay for before rent, but food is one of them. And so is gas because they've got to get to their job so they at least have an income, right? So, so that, that's another important headwind that I think that we'll probably touch on a little bit later. But what all of this is leading to when you combine the tailwinds and the headwinds, number one, we are seeing, despite all the doom and gloom, the best operational results ever still in Class B and A-minus. Class C, like I mentioned, starting to see some deterioration there. But we just got our June results on our portfolio, and almost every property had record

performance in June, better than it's ever been over the last five years that we've owned them. So those fundamental tailwinds are still driving performance. Again, class C, it's not bad yet, but we are starting to see the delinquency rise there. And, you know, Matt, Matt and I can maybe box a little bit on our opinion of class C. I knew he was going to come out to class C. Where's my boxing glove? So we can get into that later. Another result is the whisper targets aren't being hit, right?

So how the multifamily bidding world has worked for the last five years is, you know, owner B looks down the street and says, hey, owner A sold his property just like mine last month for, you know, 100,000 a door. Cool, my whisper is going to be 110. Like, that was how it worked. Like, all right, just add 10%. And that's my whisper target. Andrew, can you mention what a whisper target is? Yeah, actually, I was just about to do that. So another thing that will hopefully start going away, another silver lining, you know,

David, I'm so glad you brought that up. I keep thinking of more and more silver linings to all this. It used to be that when an apartment complex came up for sale, they actually told you the expected price. Well, five or six. They actually put up price. Yeah. Imagine that.

What are you looking to get for this thing? So about five, six years ago, someone decided, you know what? Let's just see what happens and get everyone all whipped up into a frenzy. We're going to stop telling them the price, right? And what they're doing is they're looking for excitement and someone who doesn't know how to underwrite and they'll pay a million more than everybody else. So what replaced that is the whisper number. So the broker sends it to you and they're like, oh, here's this great property.

And you've got to call the broker and be like, what's the whisper? What's the target? Because the selling price is now a secret. And that has been the case. It's a worth name for it ever. Can you whisper it in my ear now, please? It's kind of like pocket listing the same type of idea. It's not public information, but I'll tell you.

about it. Yeah, exactly. Yeah. Anyone who calls and ask, I'll tell us as well. And when I find these guys, because I've gotten them to admit to it, Andrew. Sometimes after you get a cocktail in them or whatever, they don't whisper the same number to

everybody. And that's what the danger of this, of the way these brokers are putting these properties in the market. In that like, hey, here's the offering and you call the broker, what's whisper price? I'm like, well, okay, is this guy a Patsy? Can I, can I, you know, get them to offer a lot on the property

to pull all my bids up or whatever. Well, I'll tell them that the whisper is a little bit higher because I think that they might actually bite on that fish hook. You know, that's just my, that's what I believe is happening. Maybe I've only had one or two brokers admit to it. But that's what's possible. Think about that, David, as a broker, if you didn't have to put a price on a property

and you just could tell people verbally with the price every time they came to look at it, the more unscrupulous brokers would say, well, you look like you actually would qualify for a higher purchase price or you got some money to spend. So I'm going to tell you it's a million and a half. So the people that looked at it earlier,

I don't know if they were going to be able to get there, but they look serious. So I'm going to tell them 1.1, right? This is whispered thing is looney tunes to me. Yeah, it's funny, Matt, you mentioned about the different numbers, the different buyers. That definitely happens. It certainly does.

Well, that's also a byproduct of unbalanced supply and demand. When there's too much demand and not enough supply, because if you're the sell of that apartment, you may approve of the broker doing something like that, because if you think it's going to get you more money and that's your fiduciary, then that's what you want to see. All that stuff gets balanced.

and stout when we have some form of normalcy. And that's why as like a weirdo, I just get so jazzed up. Like, finally it's getting worse. Finally it's getting harder. I've been waiting so long and the grill estate's fun again. Yeah. Matt, what's your opinion on what you think we're going to see between the headwinds and the tailwinds that we've discussed and what kind of environment it's going to create? I think that what's funny about real estate, right, is it's not like the stock market where like, oh, there was bad news 30 minutes ago. and now this price of the stock market will change. Real estate's a hand grenade market, you know?

And so a thing happens, and then it affects, it shows up in real estate, you know, 90 to 120 days later, right? And so the hand grenade has not exploded yet in real estate. And that's because that, you know, deals that Andrew and I, you know, in our different companies bid, like have not fallen out of contract yet. And they're going to, but they have not fallen out yet because the debt market's gone way up or because you guys can't raise their equity or because whatever it is. So I believe I'm waiting for the other shoe to drop and for things to start to make a little bit more sense and these brokers to like have deals fall out and realize, oh, geez, I actually wasn't able to push this deal two or three million above what the seller told me they wanted to get for the property. So I might have to get a little more

real and find somebody who can actually close and come up with a collaborative number that makes sense for both parties. So the answer to your question, David, is I think that we need that to happen. We need the hand grenade to explode and to let things, let a 10%, you know, realization happen. And I think that'll happen in the next, say, 30 to 60 days. And it's not going to take long because rates are what they are. And equity is getting softer. It's a fact. So I think that those things will play out, probably by the middle of the fall. I think that we'll see a different angle of attack for those looking to sell here. I'm going to ask you each about strategies that you think would work in this market. Before I do, I want to point something out for people that are listening

to this if there is maybe more inexperienced with real estate in general or if they just haven't got into multifamily. The way that stocks, crypto, other investment vehicles, I like to call them button pushing investments because you just click a button on your computer. There's a lot less elbow grease that goes into investing in some of these equities versus real estate investing, which is frankly what makes them attractive, right? You're working at your job, you're in tech, you pay attention to stuff. Stock creating can be fun. The problem is there is an instant response in the market to something that happens. Okay.

Some company says we've got a new product. Everyone's like, oh, what's going to happen? Well, we're going to need more silicon chips to build this thing. So I'm going to go invest in a silicon ship place or the mine that makes it, the company that owns that. Like, everything happens really quick. So when you watch the news, you see an instantaneous response. The markets are affected very quickly. Like Bitcoin did not tick down.

okay it was like over a couple days it just plummeted okay that's normal in these button pushing investment vehicles real estate is different sellers don't watch the news and hear jerome pal say hey you guys should stop buying houses and see interest rates go up and then say oh my god slash the price from a million to 600 000 right now they just people don't think that way they think with their emotions so what happens is properties have to sit for a long time and it is a grueling process of being tortured before sellers will finally adjust their price. Like the market has to speak to them. So there's this natural delay in real estate between when their rates go up, when the

tailwinds or the headwinds occur, and when you actually see the adjustment. So I wanted to get your take first off on how you see that playing out in the multifamily space. Like you guys mentioned in a month or two, we're going to see this. Is that what you're referring to? Yeah, you know, this is the time, you know, Matt, you're talking about deals, you know, getting retraded or blowing up or falling apart. This is the time to apply, you know, the old adage, the early bird gets the worm, but the second mouse gets the cheese.

Like, you want to be second mouse right now because a lot of these deals are going to fall out. You want to be patient. They're, and I'm not saying sit on the sidelines, and we can go into that, you know, why in a little bit. But, you know, like when we talk about these tailwinds and these headwinds and in the risks, you know, I would say there's like seven things that you can do to mitigate. this and maybe I'll just hit them real quick and then whatever you know whatever we want to jump into number one if you've got good team members either like as part of your internal core team or

working at your properties make sure you compensate them very well solid team members especially at the property level will make or break your business I mean you buy a 10 million dollar asset you do not want to get the cheapest person you can find to run that for you right you want to find someone who's good and overcompensate them. Second, and Matt, I don't know, you might jump on on this later, I'm sticking to class B and class A because, again, when you get into economic distress, class C tends to feel that the first and the hardest. Another way that you can mitigate this as you're looking at deals is going with lower leverage

debt. Now, Matt, again, something you said, a lot of lenders are going to force you to do that right now anyways. But when you're underwriting, everything we look at, we look at 55 to 65% LTV. And there's a lot of reasons for that. One of them is, is that gives you a better chance of being able to refinance if you need to. And, you know, if rates are higher down the road, you're not going to be stuck because you don't have a, you know, you went in at 85% and there's too much your debt coverage ratio that you talked about. It's not there. So you go in with lower leverage debt. Another thing to do is you pay attention to loan compliance, right? And like, okay, what the heck does that

mean well we all happily sign we get excited it's closing day we're signing these loan docs and the loan docs are 85 pages well you didn't read on page 76 that it says you know that they're going to check every quarter and by the way if your debt coverage ratio goes down or your personal net worth goes down or any other thing in there oh you're going to be in technical default on this loan and your interest rate goes from four to 15 percent right and i'm not that is i've literally seen that stuff in loan documents. My favorite one that I have seen in loan documents, and we spent two weeks arguing to get this taken out, is that the bank could declare default if for any reason the bank felt uneasy. That was the actual wording. Right. So if the bank president is getting a divorce and his

crypto just cut in half, he can look at my loan and be like, I don't like this loan anymore. You're in default. Even though the property's performing great, right? I'm not exactly. I'm not exactly. This is actual stuff in loan docs. So make sure you read your loan docs. It's boring as heck, but make sure you do it. Or hire a really good attorney that can do it for you. I would still review it yourself, though. Also, be prepared to hold longer.

The days of buying an apartment complex, doing a quick value ad and selling it two to three years later to deliver a super high IRA, those days are over for now, right? Look to buy great assets and great locations that will be worth more, or five to seven to ten years down the road, even if they decline a little bit in the short term. Also, know your lender. Some lenders are good for certain business plans, and some aren't, right?

You don't, you don't, if you're looking at a 50% vacant value ad, don't go talk to Fannie Mae or Freddie Mac, right? They're, that's not their product. And then kind of adding on to that, make sure that you structure your debt to fit your business plan and be as adaptable as possible, right?

So what does, and we could do a whole podcast on that, but you know, like, what does that mean? Well, you know, if you're buying a property today, let's say you're doing your first property, it's 10 units, and you're getting a bridge loan, don't get a bridge loan that has a balloon payment due in two years, and you have to refinance or sell, right? Because that means you've only got one option to get out,

and if the market's not in a good place in two years, you're up against the wall, right? So something better is maybe get a loan that, I'll give an example. We're doing a deal now where we're getting a bank loan that has a short prepayment penalty, just only for the first couple of years. And we can refinance it if things are good in two to three years. But if things are not good in two to three years, it's a 28-year loan. We can hold for 28 years if we have to, right?

Now, obviously, we don't intend to do that. But no matter where the market is, we have good options. And our plan is to hold that for five to seven years. So that debt matches well with our business plan. We can refinance early, we can sell early, or we can hold forever if we have to. And that is, that's an example of how you mitigate these risks we're talking about by matching your debt to your business model. Man, he said a lot there, David, which one even to respond to you first? Because he came after Class C, so I part, I went and got my boxing glove.

I warned you ahead of time. I knew it. I knew that was coming. And I'm ready for you. And a lot of things you said outside of Class C, I agree with. So where you want to go, David? Well, here's, let me give you guys this my take. And then I want to see how you two each feel this applies to multifamily, which will

absolutely set you up to go at it right now. I'm going to be like the Dawn King and promote this fight. What I've always preached is that when the market is hot like it's been the last several years, it feels safer to buy a cheaper price property. Okay. It's stupid. That doesn't make any sense. but you actually understand real estate investing,

but to the ignorant who are just new to this, they're like, ah, the market's really hot. I need to go buy in the worst city and the worst neighborhood because that's where the lowest price point is. But when the market corrects, those are the first ones. It's like you bought in the flood zone, basically. That's what's flooding first. The stuff at the top of the mountain on the top of the hill,

though it's the most expensive, the floodwaters rarely ever get that high and those properties don't crash. So what I tell people is the hotter the market is, the nicer of a property you have to be. So I bought a handful of properties in the last four or five years, but they were all in like a or a plus neighborhoods or units that I felt super good about. I kept buying, but I bought less.

I'm okay with people buying in not like never a war zone or a D minus type neighborhood, but the stuff that's kind of on the border, if the market has crashed, okay, and it's got nowhere to go but up, you just don't know when, and it's going to cash flow, and it's an asset that you can manage. It's just maybe more of a headache than what you would like. I'm okay with people buying those type of assets after a crash because then you write it on the way up. And when it's appropriate, you sell you 1031 and the one you actually want to own. It's like supercharging it.

Don't do that at the peak. That's the worst time ever. Those are the properties that are going to get hammered. So when that same principle applies to multifamily, give me some strategies of where you see this applying in your guys' space. I will talk about how it applies to Class C, right? So what I've seen in the past in Class C is that although Class C does get affected by swings in market price, Andrew's right in that. Class C does feel changes in markets.

And one of my Class C markets that I everybody knows and love that I do a lot of investing in is Trenton, New Jersey. Trenton had high prices, market crash. Trenton went way down and it's gone way up again. So Class C sees swings in pricing. But what Class C also has, which is good for a market that's maybe going to, you see a recession or whatever it is, that Class C C is a good cash flow market in recessions. Because I've seen Class C tenants, first hands, Class C tenants are able to figure out a way to pay their rent. They're able to, like the tenant making Class C income in a blue collar job can very easily find another blue collar job. The Class A tenant that's, you know, making $150,000.

year and he's got the bougie iPad and the wall that he's got that turns his lights on and off, if his spouse loses their job, they will pull back to Class B. And the Class B tenant will pull back to lower, it's going to domino fall. We've seen that happen in before the crash where markets like Las Vegas, Miami, those markets saw huge topples and built themselves back up as the market came back up. But Class A real estate and Class B real estate are going to see tenants in my experience are going to see tenants migrate away from those in recessions as other sources as their income gets affected. One thing they're going to have to do is they have to still keep a roof over their head, but maybe don't have to live in the bougie apartment complex with two

pools and two gyms and a car servicing center and a dog spa, right? They can pull back to live just to keep a roof over their head and live somewhere else where my class T tenant is not going to pull back and move to class D. If my Class C tenant loses their job, they'll very easily find another one. And they have in the past. So that's my two cents on Class C. I think Class C is a good market for something that kind of fell out of fashion the last couple of years.

And that is cash flow, right? Cash flow is what got me through 2008, 2009, and it will get investors through the next couple of years. Appreciation and holding properties for a year to 18 months has become the craze these days. but it is no longer going to be the craze and the way to make money in real estate over the next three to four years. What will make you money in the next three to four years

is weathering the storm on properties that make money the day you buy them and cash flowing them through the storm and then selling them on the back end. So let me add on to that. So I want to add the disclaimer I want to add the disclaimer here that just like most people,

I started in Class C too, right? I mean, it's not like, well, I'm too good for these properties. So after a few thousand units, I looked back and said, wow, okay, what made me the greatest returns with the least amount of headache? And it was Class B and A minus. But I think, David, you laid out the true differentiating factor. It's not that Class C is bad.

Lots of money has been made in Class C over the last 10 years. Timing is more important in Class C. When I was doing this after the last crash, the properties that were picking up super distressed for $7,500 a unit or $10,000. thousand a unit and we're 50% vacant it was all the class C stuff it got absolutely obliterated and now that class stuff class C stuff that we bought back then for 10 a door we're selling for 50 60 and 70 a door right so now we say well okay that was really cool but so what did that class C look like before the crash that's where and then that's again we're not we're not looking at a crash now but we're definitely i think at the top And so the potential additional risk with Class C at this point is number one and the like two remaining ones that we own.

We're already seeing the delinquency go up because people are having trouble making ends meet. But also one of the hallmarks of the last five or six years was not just cap rate compression, but the compression of the spread in cap rates between Class A, Class B, and Class C. Anyone who's tried to buy an apartment complex the last five years knows that everything was a four cap. You could buy an A class property in Atlanta or a C class property next to the airport, and you're going to pay a four cap no matter what. Historically, that's not how it works. There is greater risk with Class C.

And what we're already starting to see is as we go into a potential to this likely cap rate expansion environment, Class A and Class B will stay more anchored to where they are, and Class C will migrate back to the mean. right so what that means is you're going to see more cap rate expansion in class C than you will in class B in class A we're already seeing that in the market because what happens is you know class again class C that delinquency is going up so when buyers and lenders are looking at a class C property and they're saying oh hey you know there's five 10 15 percent delinquency evictions have tripled in the last three months all that they're going to underwrite to higher vacancy they're going to give you

a lower LTV loan and all those things that we kind of already talked about already that leads to lower pricing, right? That's why, you know, historically, you know, A property might be a four cap and C might be six, seven or eight, a mobile home park used to be a 10 or 12. They're all, they've all been four lately. So we're starting to see that expansion. So there's a, you know, that's one of the reasons why there's a greater risk in C right now is because if we see cap rate expansion, it's most likely to happen, you know, right there. And so if you're getting ready to get started, just remember that when you're underwriting deals, whether it's a fourplex or a 10 unit or whatever, B class is, you know, less likely to get hit with that cap rate expansion.

Then also, whether you are looking at C, B, or A, if you buy for today's cash flow and give yourself enough hold time, you should be okay. At the end of the day, if you're buying real estate with the goal of selling soon or you want to have that out to be able to sell it soon, then what cap rates are going to be matters, right? If you're buying a C class asset that you're going to value add, you're going to squeeze the lemon, you're going to do what I call workforce luxury, where you do like luxury adons that are workforce. Yeah, I know. I'm going to best to trademark that. But you're going to do things that work that are perceived to be luxury items in workforce housing, right? like, you know, washer dryers in the apartment.

A garbage disposal? Yeah. No, garbage disposal is the worst. That's going to, all that is is you, you're rooting out your sewer line at some point. That's a mess waiting to happen. Don't ever give your tenants garbage disposal. We've taken them out. We bought buildings that had them in.

Like, no, no, take that out. That's going to be a mess. But you know what I've learned, Matt, is if on the monument side of the apartment complex, it actually has the words luxury, that means it's not. Yes, right? Because it's perceived, right? It's what the market wants, right? But my point is, is that if you're buying,

C-class expect to hold it for a while. There are folks these days that have made a lot of money flipping C-class and holding it for a year or two. But C-class, I think, is an investment strategy should have never been designed to be a short-term hold type of real estate investment. C-class real estate, the way I've seen it, those that make money with it are those that are willing to hold it for five to 10 years. And if you're willing to hold C-class for the next five to 10 years, great. If you want to have that nimble being able to get in and get out and if your equity investors want to get in, get out of your deal after a couple of years, then Andrew's right. A and B class should be where you should go. But if you're okay, long-term holds. And if you put your

brand out that way, that a long-term hold cash flow asset is what you can provide your investors, then C-Class, I think, is better. But it really goes back to your investment strategy. And not everybody likes the same flavor of ice cream, but I still love you, Andrew. And that's what Matt, and that's what makes a market, right? If everybody wanted the same thing, the same way we wouldn't have a market. As much as I've loved watching you to go at it, I actually had a thought in the middle of this that might bring you together. If you're investing in a tech heavy city where the majority of the workers are tech people, like let's say Austin, Texas, C class is sort of like there's not a whole lot of jobs there

if you're not in maybe the higher end range of tech or the medical field or something. So your C class tenants there are a completely different avatar than the working class wake up put their boots on in Trenton, New Jersey, right? Which is where Matt's investing. So when you're saying C class, the C class tenants there may have much more stable incomes. They can bounce from blue collar job to blue collar job. Whereas if you're in maybe San Francisco or Austin or Seattle, there aren't blue collar jobs. You work in these expensive things or you don't have a job.

And so that's something to keep in mind because real estate is very market specific, that what Matt has in mind when he says C class, it could be completely different than what Andrew is thinking when he says C class because they invest in different markets. So in addition to what we just said, where timing the market, like how. long you hold. So let's say you're a syndicator who has to raise money and sell in five years. That might be bad. Let's say you're a person who's 1030 wanting a couple million dollars in an apartment. C class might make a ton of sense because you don't have other people. These are all things to take into consideration. This is definitely not like a rubber stamp

that works every market the same. Yeah, that is very well said. You should, you should like host this or something. Yeah. You're pretty good at say it summarizing things. Well, thank you guys. I've had a blast. I did a deep agree metaphor right now. You did one? You said I'm very good. I've not had enough David Green metaphors on this show, David. I love your metaphors. I listened to the show for your metaphors. I had to share that.

But I thought you were going to go there. With the A and C class debate, I was waiting. No, you guys did great. So if you as a listener like this show, comment in the YouTube comments and let us know. If we get enough positive comments that you like this type of conversation, because frankly, I think this is amazing. This is a master class in multifamily investing. You typically don't hear conversations.

like this unless you belong to a group like abundance or something else where you are sort of surrounded by and rubbing elbows with people that do this at a very high level. These are the types of conversations that we all have together when we're not on the podcast. So if you enjoyed this, let us know and we will do another show where we will have

Andrew and Matt back and they will say what they would do if they were starting over right now from scratch. So we've toyed with this idea, but we don't want to do it unless it's something you want. So if you enjoyed this, let us know in the comments and we will have them back and they will say, hey, if I was starting from zero, if I was getting in the game right now, this is what I would do.

Okay, looking back at the beginning of your careers, Andrew, what would you do differently starting today? Well, instead of buying Class C myself, I just invest in Matt's Class C's because he's got them all figured out. No, I would, one of the things, I was a solopreneur for way too long. I would have, I would add team members much more quickly than I did. that's number one and then you know I would have added more bigger nicer class properties to my portfolio earlier on that that's two quick things that come to mind that I would have done differently do you feel if you had a stronger friendship with David Green that you might have built that team a little earlier so maybe that's what we're really getting out here yeah I mean

that that's really the root cause of it and you know that's what I mean it only only took 10 years for me to finally start absorbing his wisdom and and you know start building a big team. Friends don't let friends work solo. I'm glad that I could be a part of that journey. Matt Faircloth, same question to you. What would you do differently? I would certainly invest in Class A and Class B real estate because I'll have Cushman

in my ear about that. And I want to, I want appreciation, right? No, I, in all seriousness, if I were to do it over again or whatnot, I would have focused. If you listen to me on the Bigger Pockets show number 88 that I did with Liz and 203, you'll hear me talk about like nine different things that I'm involved in, right? Like, you know, we're doing some wholesales and doing some fix and flips and, and you know, we're, you know, in an office building and whatever.

But our success really didn't skyrocket. You know, when Andrews started bringing in lots of team members that was able to be the rocket fuel that he needed for me, by just focusing on initiatives and protocol and, you know, the one thing, that's when things really, really took off for us. And so I would have done that a lot sooner. Okay. Andrew, what tips do you have for new investors today? Even if you aren't ready to jump in and buy something today, it doesn't mean today is not the time to start. Start laying the groundwork so that when even more opportunities come available in 23 or 24, whenever that is, you are ready to go.

Right. And there's a lot of different things that go into that. It's deciding what kind of properties do you want to buy? Who are you going to buy them with? Are you going to have a partner? Are you going to do it on your own? Start laying the groundwork. And also, don't wait until you see opportunities to start building relationships. You have to nurture relationships. You want to start talking to brokers now so that when great deals come up, you've got a relationship with them.

You can't just say, oh, I'm not going to buy this year, so I'm not going to call anybody for a year, right? If you don't nurture relationships, those people will drift away from you like ducks from a breadless man. Matt, how about you? What advice do you have for new investors today? So what I would say, too many investors are on the sideline. And I've got a great David Green analogy here, a metaphor, right? If I live in Pennsylvania and David Green lives out in California. And if I told you that I was going to drive the David Green's house from my home, but I was not going to leave my home until all the stoplights between my home and his home turned green all at the same time, right? Then I would be sitting at my house for the rest of my life. And those that

are sitting on the sidelines waiting for the market to change or wait. for things to crash or waiting for whatever, right? Like they're in the waiting place from other places you'll go to the book, right? So don't live in the waiting place. Get going. There are still deals out there. There are still things you can find and you've got to have faith that if you find the right deal, you'll figure it out and the right teams will be there.

So first and foremost, to new investors, do not live in the waiting place. Number two, you really ought to market your tail off because the successful investor is going to be the one that gets noticed in this new economy because, as I said, equity is getting soft. We talked about that a lot. So getting equity is going to get competitive again. It hasn't been competitive in the last couple of years. It's going to get competitive again. So you need to get noticed and scream and yell and wave your hands in the air. So if you're brand new, that's okay. Don't fake it until you make it. Put yourself out there and market what you do have and what you're able to teach people and what you're able to provide is resources. And the last thing I would say,

David, is I would, as a new investor, pick a market and focus on it and become the market expert. be that Albuquerque New Mexico be the investor that knows all the brokers there that knows where the good deals are knows the good blacks bad blocks knows where the good neighborhoods are knows where things are being built

knows where things are getting a little tired knows where the bad neighborhoods are about Albuquerque and drill in and I think that that's going to be the successful investor as well and you're going to get that phone call from the broker that has the deal that fell out

that we just talked about you're going to get that call if you're the market expert If you're shopping 25 markets across the continental United States, you're not going to get that phone call. Andrew, Matt, it's been a pleasure having both of you. Would you each like a chance to have a last word? Thank you for having me here. And you're asking for folks to hear more about me.

They can go to my website, derisorgroup.com, and they can check me out at biggerpockets.com forward slash boot camps to join my multifamily boot camp. And it's been an honor, as always, to be chatting with you two today. Matt, you're a scholar and a gentleman, sir. Yeah, likewise, this has been fun, always is. And it is an honor to be here and get to share with anybody and talk with anybody. And yeah, if you want to connect, I'm on bigger pockets. I have a probe membership, so just connect with me there. Or just Google Andrew Cushman and our vantage point acquisitions is vpacu.com.

Matt, did you get a chance to give out where people can connect with you? They'll say again, derosa group.com, D-E-R-O-S-A group. and I'm right up there with Andrew on Bigger Pockets. You can hit me up there as well. Love talking to people about this kind of stuff. And if you'd like to invest with Andrew and I and our next deal, go to invest with Davidgreen.com. Don't forget the E and fill out the application there and we will get in touch with you.

Guys, this has been awesome. I hope we get a lot of comments in YouTube that say that they liked it. Let us know what you all think. This is David the Silver Linings Playbook for Multifamily Investing Green. Signing on. Thank you all for listening to the Bigger Pockets Real Estate podcast. Make sure you get all our new episodes by subscribing on YouTube, Apple, Spotify, or any other podcast platform. Our new episodes come out Monday, Wednesday, and Friday.

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