Epic Real Estate Investing - Multifamily Investing, Raising Capital and Other Tricks of the Trade - Matt Owens | 888

Episode Date: January 5, 2020

Matt Owens is a successful real estate entrepreneur, who helped us enormously when we started our real estate journey! Today, he shares his wisdom and advises you on how to develop and manage a multifamily investing business! Stay tuned and find out more! Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terrio Media. Success in real estate has nothing to do with shiny objects. It has everything to do with mastering the basics. The three pillars of real estate investing. Attract, convert, exit. Matt Terrio has been helping real estate investors do just that for more than a decade now. If you want to make money in real estate, keep listening. If you want it faster, visit R-E-I-Aase.com.

Here's Matt. All righty, so please help me welcome to the show, Mr. Matt Owens. Matt, welcome to Epic Real Estate Investing. Thank you very much, Matt. It's very nice to be on again. Yeah, it is welcome back, isn't it? This is what I think of the third time, maybe? Hey, we get to talk about new topics every time and new strategies.

It's pretty cool. Absolutely. And I'm sure I've said it here before because I've said the story before, but just if you're all just meeting Matt for the very first time and you've heard my strategy about getting famous with property flyers and selling other people's properties. That's how I got started. I started with $0. I didn't even know direct mail works back then.

I didn't know what a PPC was. But I went out and I found Matt's properties before I even knew what turnkey was. And I started representing Matt's properties and that started this whole thing and went down this giant rabbit hole. And here we are today is epic real estate. So that's who Matt is to me. I'm eternally grateful. He had no idea the contribution he was making to me back then, but I'll never first. forget. So good to have you back, Matt.

Thanks, sir. Appreciate it. It's a fun game and we're all in all kinds of new stuff now. Right. So bring you up to speed. What's the latest going on over there at Owens Capital Group? Is that what the name? That's still the company name? OCG properties and but I do have I do have OCG capital now as well. And then we have, you know, numerous entities set up for you would, you would be sick by our legal structure. But that's because you've got different strategies going in different ways. That's why I have a fun now because I got rid of all the LLCs.

That's huge. And we're actually putting like a debt fund together just for our debt only, which will come out next year. But really right now we're focused on, we're flipping about five houses a month still out of state in Memphis, Tennessee. We also, you know, invest in and lend in different markets and stuff like that too. We have some lending going on in St. Louis and Little Rock in North Carolina and Florida and, you know, multiple markets around the country. and we also do a lot of value-ad multifamilies as well. And that has been really lucrative for us in the last couple of years of being able to reposition assets and focus on different value-ad strategies there

within the multifamily segment. We also raise capital for syndications and that type of thing for investors by investors, non-profit. So, you know, I'm trying to dabble in everything. But I'm really honestly focused on the retirement play now with the two little ones. I'm like, let's go to multifamily. I just want to hold these things long term and there's different strategies for different types of multi-famil. And I think that's the game plan, right?

That's the retirement vehicle right there long term. Just holding that stuff without having to flip, without having to land and do all kinds of the active stuff that we all love doing. But at the same time, I'd rather spend more time with my kids, you know? Absolutely. Absolutely. So, yeah, bring me up to speed. You've made this shift, right? the shift in focus where you're not doing as many single families.

They've got to put water over there. But she made the shift towards multifamily and you kind of touched on a little bit. Both have their pros and cons. You know, get a little bit more granular on what the reason for the shift was for you. So, you know, with a single family home, you're going to buy a house and start to build that portfolio from there. And then, you know, you get smaller chunks of cash flow. You know, you're looking at it.

You can get really good bank financing with it. Once you max out at your 10 loans, you know, you can go to the commercial route and get some commercial financing on single families, but the economy is a scale just, it's tough, you know, to build, but it's a great starting point to say, hey, let's go get, you know, 10 of these things or 15 of these things and start to build them and then trade up as the market goes. It's a great strategy. You can do the same thing on the multifamily side once you kind of have, you know, a ton of, you know, some good wealth and good foundation and good understanding of how to operate

these types of assets you can go through and start building it at the higher level. And you realize you just get a lot more bang for your buck on those when it comes to cash flow. If I was to do a joint venture on a single family home, my split might be 50 bucks a month or something like that versus a joint venture on a multi-family. You know, I could be making, you know, 10, 20, 30 grand a year, 40 grand a year off of that, depending on the size and complexity of that deal. And so, you know, looking at that, the capital sources are there after developing the relationships over that period of time. And so, you know, I'm starting to go that direction and seeing some big wins. For example, we just finished a 30-unit building that we bought renovated and refinement and repositioned and increased rents where we were into it for about $1.15 million.

We bought it for $7.80. We put a bunch of rehab into it to make sure that thing was up and running. And we sold it for $1.75. And we just did a 19 unit that we were into for $950,000. We bought it for $149,000. It was ridiculous. It was a shell. But redoing a property like that from start to finish, including doing like a 12 unit that

was built in 1915, you learn so many horrible lessons that like, you know, you're like, okay, foundation, plumbing, let's reframe every window and door from, you know, wood, wood, rot. And right now we're doing a 16 unit that we bought for $400,000 and we're putting about $600 into it. We'll be into it for about 1.1 when we're done. and we can sell it for 1.75, but we had to reframe the entire thing. Like, there was fire damage and wood rot, and, you know, luckily the brick exterior was good, you know?

So, but it was $75,000 worth of framing cost on that thing and gutting the whole thing. So it's a big project, and if you look at the numbers, if you break down the math on all those things, the power that it gives you to understand what things cost and what, you know, how much a kitchen costs and how much each individual aspect costs. It's very similar to single family home, but you just duplicate those numbers across the board to get to your total numbers. And it works really, really well.

There's some additional things you have to do on the due diligence side. But the 19 unit that I was just talking about, we sold that, we're into it for 950, and we sold it for 1.85. And so as soon as you have that kind of real estate crack, you're pretty much hooked. You know, when you get a win like that,

you're going, okay, I'm all into this. I got to keep going. And the only reason I really sold them was because of the size of the units. I want to hold 50 plus units at a time and greater. The lower ones, it kind of makes sense to reposition for different investors that need that asset, like a 1031 exchange investor or a international client that needs it for tax purposes or something like that. Because if I was to bring in investor money on something like that and be the operator, you know, I could bring in my own money and make a decent return.

but if I was to bring in and do it the right way, right, using other people's money, then giving them that return on investment leaves me with such a small amount of cash flow that it doesn't even really make sense to hold it long term on something small if I'm giving that piece up. Does that make sense? Yeah, yeah. Let's back up a little bit because there's all kinds of stuff and that we can talk about. I forget to prepare myself when I start talking to you because it goes on and on and on. I love talking to you because you're a wealth of information.

You can tell you're an actual practitioner. You're in the trenches. And then you get really excited about it too, which is always contagious. Let me ask you, what's the big difference between multifamily and single family when it comes to just finding the deal? So the single family, you have systems and process in place and a lot more supply of that, right? A lot more supply to go after so you can mass mail. You can do the pay-by-click marketing. You can do a lot of those different facets that you can do on the multifamily,

but you have some extra work involved, like doing a skip tracing and finding the owner through of an LLC or getting through the management company to get to that owner and making an offer for repositioning when the management company isn't going to let you talk to that owner because they want that business instead of you. You know, there's differences with that. Like you could find a lot of it could be. from different agents and commercial agents

in that market that you develop relationships with, just keep sending you off market deals as much as possible. But a lot of times when you get to the agent level, there are a lot of them are picked through. They got their buyers that they're gonna go through first already, especially if they're seasoned commercial agents. And you just wanna show value and be there and say, I got the proof of funds, let me go for this,

send me the next thing and I'll take care of it and be as professional as you can and show them that you're gonna perform as best you can and keep on them as much as you can. You can keep a database of commercial agents that you can go through. Also, the local RIAs and things like that, finding those different owners of these properties is key. But you can do searches and get lists of multifamily and all the owners as well. I know Richter's list has starting some of those, Chris Richter's starting some of those different opportunities where they're farming some of that data.

But they're trying to differentiate it between zip codes, which is very hard on multifamily. So your data can be very flawed on multifamily because you have one property that's fully renovated and, you know, well done that has all the systems done. And maybe another one that's fully renovated, but doesn't have plumbing and electrical and HVAC or does it has a couple weird things to it or the layout is off. And so you get lower rents. And so comparing your properties sometimes can be really difficult, you know, across the board because they vary so much. and it's really hard to get like an appraisal for a property because you have to know what those other properties cashed float at. So, you know, so some of those are some of the main differences, I think, between, you know,

the two and finding them is, it's more relationship driven versus data and mailer type driven, right? Got it. And so with those, the more bang for your buck also comes with more effort for your bang. Yes. Yes. Right. Right. And putting in that extra effort on the multifamily side with that extra labor that it takes to get that information is totally worth it to do that.

Because you're dealing with a much lower population. You don't have thousands and thousands you can mail on multifamily. You might have 200 in the market segment you want to be in because you're going to take out a bunch of zip codes that are just not in a great area or you don't want to deal with. Got it. Okay. And then you said something here. And I'm back up on this. Might be changing the subject just a little bit, but I want to ask it before I forget, is that frequently people will say, and I am one of them,

because it's how I built a big portion of my business right in the beginning, was going to RIA events and being able to leverage those relationships in that environment with a bunch of like-minded people. And, you know, I was able to create a lot of opportunity for myself out of those events. You essentially run a big RIA-type, club and it's almost a chain now, right?

You've got multiple branches of it. And you've been running for a while, and I know you, you wouldn't be running it if it wasn't worth it to you as well. I mean, you've got a big heart and you're a giver, but I bet you like your kids more than you like Rhea. Yeah, yeah. And there's other things you'd rather do with your time, but you do it because it's useful and there's a reason for it.

What would you say, if you could point out two or three things, like best practices for somebody going to a RIA group, what's the best thing for the them to do to create opportunity for themselves in those groups? The first thing is focus on the right people. So you're going to focus on connectors, property connectors. So it's not just the wholesalers in the room that you're looking for. You're looking for the people that have those relationships to those properties, which are CPAs and attorneys and private lenders and everybody that surrounds that industry,

the real estate agent might be one. you know, the wholesaler might be one, but you have a whole other plethora of different suppliers that see properties coming and going constantly from their clients. And you being a resource to them can get you in the door much greater than a wholesaler that already picked up a lot of those profits. And wholesalers can be great too, but that's a second, you know, they're already going to see that value and try to pick it up from you as much as possible. And so that is one second to go through and make sure you like write down the people,

and document and put them in a database, the people that you meet, so you can follow up with them. So many people don't follow up. I found when I was going to, I was actually in the beginning going to four a week, every single week, and it was the best way to raise money. It was like literally the best thing I could have ever done from a relationship standpoint for raising money and also finding opportunity and seeing what other people are doing to make money in different ways and coming up with ideas because you just, that's like the whole thing. Like you can stick and move.

And I found out about a seller financing class through the networking piece and went to a weekend course that changed the face of my business completely into a multiple different ways. But I think tracking and meeting with the right people, I think are the two biggest things and staying consistent. Like having a plan where you're going through and writing down every RIA club in that area and trying to actually hit those up and document the people where you met them from those clubs so that you can see which ones are turning into capital sources, which ones are turning

into, you know, a bunch of professional resources that are huge for you, you know, or property acquisition situations. So those are the things that I think are the biggest pieces to really be efficient at networking. So number one, being of value and being a resource to people, right? nothing new there. Basically, the whole idea of give before you ask. Number two is collect contacts and follow up with them. And then number three is basically be consistent and kind of systemize it, right?

And I would say all three of those work really well in how it worked for me is that I always went with a property. So I was always a value to somebody because I just promoted on what was in it for them. I always collected contacts and always followed up with them with opportunities. and yeah, I put every single rea club in the within a 60 mile radius on my calendar and made sure I was there with my property. That's the key right there. You had to have a calendar. Yeah.

So without us even comparing notes, you touched on all three of them. That is what worked for me. So cool. Thanks for allowing me to regress there a little bit. No problem. It's one of the biggest suppliers of your properties and your resources. Yes. That's what makes you powerful in this business is those resources.

Yep. And when we're talking about multifamily being more of a relationship game than it is a marketing game, then that's even more important, isn't it? Absolutely. Perfect. All right. So let's talk about, to me, is the big elephant in the room. And I kind of know the answer, but I want to hear what you say.

You know, you buy a house 60 cents on the dollar, 70 cents on the dollar. And that's a big hit for a lot of people in most markets. You're talking about, you're buying stuff 10 cents, 20 cents on the dollar. Right? So how are you able to create such huge spreads? What happens in that process? So, for example, the one that was a 19 unit was, you know, we're looking at looking at what the value is going to be at the back end after the value add component. And you get so much more bang for your buck when you go from, you know, $150,000 shell of a property completely and put $650,000 of rehab into it.

that's a big risk for that thing, right? And this was a bank, for example, that I developed relationships with really old school realtors that at every banking relationship you could find that is like, hey, get rid of this thing. You know, and someone overbid me, and they put in like $2.25 for the bid, and I was second, and they came back to me when they didn't perform, and I'm like, yeah, I got you. Don't worry about it. I'm taking it down. And I was nervous.

Like, I was like thinking, hey, this thing might be worth $900 afterwards. I'm not quite sure, you know, what's the rehab going to be? And, you know, and it turns out I was in it for $9.50. And the, and we sold it for $1.85. But at the same time, so, you know, that was like a 50% spread as far as like cost to value. So you're always looking at your cost to value, not really your purchase price. Because you could buy something that's a shell, it's a single family home and get it for 10 cents on the dollar if it needs $90,000 of rehab and it's worth $120, you know.

So you're not, you know, it's not going to, the purchase price isn't as important as the total cost of value on that, which really can add up a ton when you're talking about the, you know, you can do the rehab on the inside and be kind of consistent with what you think, you know, normally would be on the inside of a single family and kind of price that stuff out. But when you're talking about doing the exterior of a multifamily, you have a much, you have multiple building situation with multiple routes. You have big time landscaping costs, not something small. You have, you know, the submit driveways and parking lot and restriping and re-cementing and gated access points and environmental remediation issues if you, you know, getting that test done up front and everything. So there's big ticket items on the outside that can really add that cost so, you know, we can get things for cheap. But really the way the math works is you're just, all you're focused on. to get that market value is what is my rent going to be? I'm so many units minus my vacancy rate, minus all my expenses coming to my cash flow, and what's my cap rate?

So if I can build up, I know that I can sell at a seven or eight cap on average. Eight cap is usually a no problem. Seven cap is a little more difficult to sell at. You need the right buyer that needs the right tax benefits of the right situation for that. But this is, you build it so it's a perfect up and running property, fully renovated and like everything done to it and pretend like that's what your cost has got to be on that project. And then you go through and say, okay, what's my sale price? And minus vacancy factor. I usually factor in, you know, 10% and a couple percent for, you know, bad debts and that type of thing.

And then you're estimating your expenses from repairs and insurance and taxes and all those items just like you went on a single family. but then you also have utilities and, you know, commercial insurance and that type of stuff to consider and commercial financing, which is a total another ballgame. And so really, it's a math play. You're saying, what's it worth at my cap rate? And what am I going to be into it for? And has that spread big enough? So, and it's all a cap rate type mentality.

What kind of cash flow can you sell? And you have to know what cap rates usually go for in that market, which every single one of the broker's opinions you see on Loopme, loop net and everything else. They say, oh, yeah, it's eight cap or nine cap. It's just, you look at the insurance and you look at all the taxes, you look at everything else, and it's all just completely fake. So you have to be really careful with, you know, what they call a cap rate. Right.

With everything you just said there, 100%, I'm right there on board with you. And I think I'm a pretty smart person when it comes to evaluating these types of things. Because it is really just one giant math equation, right? It's just pluses and minuses, pluses and minuses and then multipliers and there you got your value. If you get all of that right, what can you warn people about? What can go wrong? I mean, so your biggest risks in this situation is the rehab in any of this. If you know your numbers up front and you can reasonably predict your rent comps

because you're seeing what's out there on the market, unless there's a rent drop, you know, you want to maybe be a little conservative up front. before and then target a higher rent after you're done but be more conservative on your underwriting up front for for rent volatility in the market because most of these jobs are longer right but the renovation piece and the and the contractors is the hardest piece to deal with like this 19 unit property that we did right in the middle of the contract job you know gigantic rehab I'm asking he's asking me questions about about the how do I go get audited financials so I can get

license and bonded for this big commercial project over here that I need to do versus we're having tight controls on the money. We're paying for all materials and we're bidding labor only for him and we only let them do labor. And then we also get lien waivers for every time he pays one of his main subs like a, you know, like a plumber, electrician or HVAC guy. Those lien waivers and this contract is key. And the funds control is how you protect yourself from that issue. have penalties in place for timing, which, you know, this guy hoot and had like crazy, and I conceded quite a bit, even though I shouldn't have, just because I didn't want to deal with a headache from him. But reality, he was trying to get this giant bond and asking me,

how do I get bonded? And I'm telling him, well, they're going to want audited financial statements. How do you know where you're at right now with your money? And he goes, oh, if I have money in the bank, then I'm doing okay. And I'm going, oh, crap. They're like, how much money do you have of mine right now, you know, so immediately in my head. And so I realized he had like 20,000. And I'm like, okay, great, can you do me a favor? You're going to be those receipts before I get you more funding and immediately take away all control over that situation. And you realize very quickly that, you know, you think 90% of business owners are bad with their financials and their money. Think about the contractors that are out there with their, you know, working with their hands that aren't focused

on money and financials or any kind of financial education, your biggest risk is always that team member and how well and what they're going to do because they can screw you just because of their own incompetence, let alone their ethics, which is already in question 90% of the time with most contractors. I see how they bid homeowners versus bidding investors already. So you know, it's a total different, you know, different bidding war. So you just see. what they need to do to survive and and I think that's the biggest risk is that construction risk having making sure they have workers comp general liability insurance and those contracts are in place and and funding all materials yourself and not letting them keep those extras

where you have another rehab manager in place that's outside the situation managing them and controlling the materials and communicating with you outside of even the general contractor because they will screw you. You have to have the checks and balances, and they've screwed us multiple times, and it's part of the business. You know, it sucks. It's just hopefully it's not too big, you know?

It's like, why is real estate investing education so expensive? Do you know what it cost us to get this information? Yeah. I look back at the new Areech stuff, and I look back and it was great education, but it's a base knowledge, and you realize what those guys went through now. you have a whole other level of respect for what they went through.

You know, it's like, wow. Yeah, I was about five years ago. I decided I was going to make this leap from single family to multifamily. And had the math down. Like, this is a home run. This is a can't lose deal and brought some friends into the deal. And crash and burned. All from everything you just went over right now.

It's not the real estate that's risky. It's the people that are risky, right? Yeah, yeah. And it's crazy because you can, it's real easy to have, I feel like a lot of these wins that I've had, you know, I've been in a good market, you know, if things repositioned right in the middle of a deal, there's a lot of things that can change. There's a major risk to, you know, doing this kind of renovation. You know, you can try to mitigate it as best you can, but at the same time, there's always risk involved. You can't get around it, but there's major rewards if you can get it. But there's major rewards if you can get it. it down pat i mean the the crash and burn that you had probably put you ahead of the game of every single real estate investor you probably know you know from from that standpoint as far as like how you know every time you take a loss you learn way more than when you had a win so yeah i just saw that meme from uh the thing is bill gates he said success is a terrible teacher yeah yeah you think you're invincible and you know and the last crash we were doing so well i

realized that my lack of ability to stick and move and maneuver came from the lack of taking those hits and thinking that I was great from doing well all of a sudden. You know, it was just the market, you know, so. But right. All right. So we got a good picture of the upside. A good thing, a good picture of what to manage to make sure that you get that upside. With all that in mind, what are you working on right now? What are you most excited about right now, Matt? So I'm working on a 64 unit project right now that's, it looks like it might be about a $2 million rehab and about a million dollar purchase. That's a full renovation. That thing's up and running right now and starting to, well, we're getting, we're getting bids on our construction on all that kind of stuff to make our offers on this, this project.

And that looks like a really, really interesting prospect of, I have a good relationship with the seller. And then we're working on, you know, a couple of giant single family home packages. our lending business and really we're starting to coach a lot of different flippers in different markets and things like that too and helping them sell properties and move move assets. So it's kind of it's really interesting the different income sources you can make in real estate if you have those right relationships and the right teams on the ground in multiple markets. But like you said, making sure those team members succeed is super important.

But you know, the 64 unit is really, um, probably going to be a home run for us if we get it for the right pricing and we can get the rehab bit down a little bit. I think we can probably, you know, make a million dollars on that project if we're able to reposition that thing into the right asset. But, you know, it's interesting when you're raising capital for real estate for multifamily, because that's something we haven't really discussed yet is the capital component of that. When you're dealing with smaller units like duplexes, fourplexes, up to 10, 20 units, that aren't super expensive, you know, maybe under a million dollars or a million, under $500,000 or something, it's a lot easier to raise private money for that as an equity component

for that or just raise debt on a property like that and reposition it yourself, almost like a hard money loan. When you're dealing with 50, 100 unit properties where you are raising giant chunks of equity, typically you're going into a syndication like that and you're having a private placement and you're raising equity from that standpoint. So having that experience on the syndication side of understanding how to do the private placement or how the process works.

So having a good syndication attorney to do all that kind of stuff, I think is key on the multifamily side to do larger projects. Because you kind of finance it differently because banks want to get more involved on the bigger stuff. It's a lot easier to find banking that will do million-dollar-plus loans

versus million-and-less loans or local lenders typically on the ground in those markets that are willing to do that and do the construction financing and stuff like that, which is a whole other learning experience doing construction draws from a bank. You know how I'm dealing with that fund, those hoops that you have to jump through to get the money out. You've got to put all the money in first, then go through and get it, then show them what you spent, and then they do an inspection to get your money out and usually takes, you got to front it every time.

So it hurts. It does. I had to do that with the city of Memphis once. they still have $10,000 of my money because we never that sounds like the city of Memphis it is yes I think that New York Mafia thing I think they missed it I think is really in the south

yeah right good old boys network out there so that's right well sweet Matt it's been a pleasure it's always a pleasure I would love talking to you and come back as often as you want if someone wanted to get in touch with you what would be the best way for them to do that they can email me at a invest at OCG Properties.com or go to our website, which is OCG Properties.com.

Correct. Dot com. Perfect. There you go. All right, buddy. Thank you, sir. Pleasure. Absolutely.

I'll see you soon. Cool. All right. Take care. Yeah, yeah, we got the cash flow. Yeah, yeah, we got the cash flow. Yeah, yeah, we got the cash flow. You didn't know home for us.

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