Boroughs & Burbs, the National Real Estate Conversation

Boroughs & Burbs 185 || Apartment Complex Investing

• Season 5 • Episode 185

Share episode

Send us a text

In this episode, we dive into the world of apartment complex investing with real estate expert Dave Seymour of Legacy Alliance. With years of experience in multifamily properties, Dave shares his insights on how to navigate the complexities of investing in apartment complexes, from finding the right opportunities to managing and growing your portfolio. We discuss the key factors that contribute to successful apartment complex investments, the challenges and risks involved, and how the current market dynamics are shaping opportunities for both new and experienced investors.

Don't miss this expert breakdown of one of the most lucrative sectors in real estate today.

SPEAKER_00:

The Burroughs are New York City. The Burbs are everywhere else. Real estate is the ultimate game of risk and reward. It's the biggest investment most people ever make. Fortunes are made over a lifetime and lost in a day. And we're not playing with monopoly money. How do you stay ahead? Who's buying? Who's selling? And why? What do they know? We want the truth. You need an edge. Burroughs& Burbs is your secret weapon, giving you the insider knowledge and strategies you need to succeed in the high Welcome, everybody. Burrows and

SPEAKER_06:

Burbs. Episode 185, Apartment Complex Investing. And we have our special guest, Dave Seymour of Legacy Alliance. Say hello.

SPEAKER_02:

Hey, gentlemen. How are you? Pleasure. Thanks for having me on. That's a great intro, by the way. Running through the city in the suit, then swimming with the pink flamingo. I mean, I want to watch an episode. I'm in. We try to

SPEAKER_06:

pump up the crowd, you know, before with the opening act. Great.

SPEAKER_03:

Good stuff.

SPEAKER_06:

All right. So let me hit a few bits of housekeeping. Burrowsandburbs.com. That's where you'll find us. Roberto, is this your monthly newsletter at RobertoCabrera.com?

SPEAKER_01:

It is. It's the old one. I don't know why it shows up like that. What would

SPEAKER_06:

I learn if I went to the new one that came out this week? What would you learn? A lot. All right. I'll go there. RobertoCabrera.com. Is it now seize the moment or have I missed the moment?

SPEAKER_01:

uh you still you can seize the moment

SPEAKER_06:

okay i can still seize the moment

SPEAKER_01:

moment is for another 18 months

SPEAKER_06:

i'm john engel you'll find me at theengleteam.com and dave seymour you'll find his uh you'll find him all over the place really but you'll find his investment arm at freedomventure.com and um You'll also find him on Flipping Boston for four seasons. He was on Flipping Boston found on the A&E channel in Boston on Flipping Houses. And Dave, is

SPEAKER_02:

that where you

SPEAKER_06:

are,

SPEAKER_02:

Boston? Yeah, just north of Boston, Roberto. Yeah, Danvers, Massachusetts, just north about 15, 20 minutes. So still got the Boston twang when I get going. Still there.

SPEAKER_06:

And one more thing, Grace Farms. I want to thank our sponsor. I went to the Grace Farms event this past week. I talked to Adam, who runs the Grace Farms teas and coffees, Grace Farms food. And he talked to me, and it's fascinating, about their relationship with J.P. Morgan. You should look for it. You're going to find Roberto in New York City, in the J.P. Morgan store. headquarters going up right now on Park Avenue, you're going to see a kiosk with Grace Farms Foods in it. So look for it. I think that's pretty outstanding, pretty world-beating when you can get into the J.P. Morgan headquarters with Grace Farms Foods. That's pretty cool.

SPEAKER_02:

I was looking at some of that product line there. My wife's a buyer already. Green tea, chamomile. Awesome. I'm a

SPEAKER_06:

cocky guy. My wife, she's a teak gal. And yet, we still get along. Yeah, still get along. So Dave, you've built a successful career in apartment complex investing. What initially drew you to this sector of the business?

SPEAKER_02:

Yeah. Look, multifamily apartment houses, whether they're in New York City, as I'm sure you could testify, whether they're in the Florida market where we invest, they do truly offer a passive income component, if done correctly. There's a lot of noise in a marketplace when it comes to multifamily investing from the slum landlord thought process and the famous line about the three T's, tenants, toilets, and trash. Who wants to be a landlord? You've heard these stories of horror over and over and over again. If you institutionalize multifamily investing and you bring that kind of mindset to the investment, then it becomes pretty exciting. A good GP or an operator like our own firm identifies that asset, knows how to maximize the net operating income on that asset, therefore maximizing its value in the market depending on the trading cap rates. And you start looking at the data sets for these things, It becomes real nice real quick. It's not crypto. It's not sexy investments. It's not the up and down volatility of the stock market. I call it the Clydesdale of investing. Slow and steady, nice and consistent, you know, good tenant base, good cash flow, good repairs, good management. And, you know, the passive investor, the LP, the limited partner comes in and they have an expectation of, you know, doubling their money every three to five years if the deal runs as it's pro forma to do. And that's where the magic comes in. So, look, if we really look at statistics and I'm sure you guys can testify to this also. You know, the market is pretty bizarre right now in the single family space. You know, I'm the father of a 30 year old son who has a really great income and a good living and still cannot afford a single family home. So tenants by choice and rather than tenants by, you know, financial need separate quite quite dramatically in the. the tenant base is increasing, its income base is increasing, and the demand is still really, really high. So you start looking at those. How long

SPEAKER_06:

have

SPEAKER_02:

you

SPEAKER_06:

been doing this? How long

SPEAKER_02:

have you been here? So in the real estate game itself, 15 years. Along the way, it's funny. I talk about tenants, toilets, and trash. Like I carry my own scars and stories because I learned the business from the ground up. So, you know, multifamily investing from the first duplex I ever bought probably 12 years ago up until today. I

SPEAKER_06:

would think that the market's tremendously different in 12 years because there's been a lot of talk about institutions like black rock big huge institutions buying up apartment complexes as fast as they can and that contributing and maybe, maybe not contributing to the run up in prices. So we've all heard about house flippers. I mean, you've been on those TV shows and it's been the great get rich quick scheme for most of our lives. Like, hey, all you need to do is get into real estate and flip some homes and you too could make your first million dollars. And it seems to have moved over that sexiness that like, hey, you too can make money in your spare time to apartment complex investing. And then we see J.P. Morgan and BlackRock and everybody else getting into it. It's changing.

SPEAKER_02:

Yeah, look, the big boys are looking for Delta. They've got some responsibilities. You know, they've got shareholders who want to see they want to see return profiles. So how does a

SPEAKER_06:

little guy like you or me get into the business against?

SPEAKER_02:

See, look, I I can find and I'm going to use some phraseology that we use in our own business. Right. Some phrases, semi-institutional investments. So BlackRock isn't interested in a, you know, a 75 or a 50 unit distressed asset with a mom and pop owner who's got really bad bookkeeping, has kept the same tenant base at the same income rate, at the same rental rate for the past five years because, you know, Earl says that's the easiest way to do it. BlackRock's not interested in that. But, you know, when we identify an asset like that, you know, we can go in there, we can give them, you know, a decent price for the valuation as it stands. and then reposition an asset.

SPEAKER_01:

They're not interested in it because of the size, the scale of it, or because of what it needs?

SPEAKER_02:

Yeah, it's a combination. They'll take down a 500 or 1,000-unit portfolio that's a repositioning, but they need that many units for the economies of scale for them to make sense. Whereas I can go in there. I'll give you a perfect example. COVID hit, we all thought it was going to be, you know, raining opportunities in the multifamily arena due to, you know, the policies that came down and, you know, you didn't have to pay your rents and we had moratoriums and all kinds of crazy, crazy going on. And, you know, we're all licking our lips in the wings going, this is it, baby, you know, showtime. You know, and then certain administrations made some certain rules and regulations and, you know, we saw that massive massive influx of capital into the marketplace. And what happened was, was the institutional buyers, the insurance companies and the big boys, they were coming in and they were looking at the 200, you know, the 150 to 200 unit assets. And I give you an example. We were looking at one down in Miami. We're walking the property. We're about to put some an LOI together on it. And as we were walking this asset, one of the insurance guys was there and we're like, well, you know, what's your whisper price? And they were compressing down to two and a half, three cap on a buy side in a market that was trading at a five cap, for example. So when they're coming in with that much buying power and that much muscle, a guy like me in the middle market, I've got to set some really good marketing strategies in place. I've got to pull on those broker relationships in the market that have been built over decades and say, where are these pockets? Because there's always a deal to be found. It's just a case of how many deals do you go through to buy one to execute on one. And we're probably looking at anywhere between 75 and 100 deals to do one or two. So there's a lot of work that's going in. And the institutional guys, they've got They've got armies of people that are looking through this deal flow, but they're not fishing in the same ponds as us. That's my point. Kind of long winded, but we fish in a different pond compared to those guys. I'm not shopping on Crexie. I'm not shopping on LoopNet. I'm not shopping with the biggest broker in the market. I'm not their guy. I'm not their

SPEAKER_01:

Huckleberry. Are there that many opportunities though? You're talking about seeing 175. Yeah.

SPEAKER_06:

And where do they come from? Because it occurs to me, if I'm watching this show and I know of a mom and pop opportunity with bad bookkeeping that wants to exit, I should call you. with this opportunity, right?

SPEAKER_02:

Well, that's what Legacy Alliance is about. We've built Legacy Alliance over the past 18 months with a marketing team that I've known for 15 years. And what we decided to do was is everybody thinks capital is the challenge in a real estate transaction. And I think we all know that if you find a good deal, there's always money that wants to go to work on it, right? So for us at Legacy Alliance, and you kind of teed it up perfectly, John, is the fact that if I train you in what it is that I want to buy as a company, and I put you in a position where you can deal source, deal flow, we can execute, underwrite, let's tick the boxes together so that you learn along the way. Now, if you want to go do that deal and we say it's a deal that we would do, great, you go do it. But if you want to bring that deal home, if you want to partner on it, JV on it, if you want to, you know, a preferred return position in that deal because you found the deal, then we can negotiate those things. So yeah, you can call us. You could go to YouTube University, I guess, right? Like many people do in this day and age. They go to YouTube University and they think they get a qualified education there and they make offers. They may succeed. They may make some pretty serious mistakes as well. But The opportunities are always there. I'm not the guy who says, not forget it. There's nothing to do. There's no work to be done.

SPEAKER_01:

What are the opportunities that you're looking for? Like, for example, you do have some experience with flipping, but are you now holding...

SPEAKER_02:

Yeah, so primarily for us, we're in Southwest Florida market and we're in that market, Roberto, because the data supports it. Supply and demand, basic economics, you know, increase in population. Florida is still the number one destination for our retirees. Every retiree brings four service positions to support it, whether it's in, you know, the restaurant world or the medical field. So we've got this growth that continues in market, continues in the market. It also supports us as entrepreneurs and business owners and real estate guys because we're not fighting with the agencies down there. They're in alliance with us. Without politics aside, your red and blue states are what they are. So when we go into that marketplace and we start looking at that, the opportunities that we look for are, as I described, a mom and pop, maybe a mismanaged asset, maybe an asset that's had some tenant challenges. We look at those and we say, can we base them on their T12, on their past 12 months rent and expenses? And what can we determine we would do as an operator to that asset to increase its net operating income? And we'll underwrite those, man. And those are coming through broker relationships. My business partner, Walter Novicki, has been down in that market for about 30 years. So after 30 years, I always describe it, and I'm sure it's the same in any market. There's that one diner somewhere, right? And there's probably four or five individuals that meet there once or twice a week. And Vinny knows Joe, he knows Paul, he knows Peter, or Jose knows, you know, this guy, that guy. Like they know what's going on. That's the market where the conversations are. So we're blessed in the sense that Walter's in there. He's in that group.

SPEAKER_01:

How did you connect with Walter?

SPEAKER_02:

I met Walter in the education, in the real estate education space. You know, my story is I don't, I don't come from Yale, but I don't come from jail either. You know, I'm a, I'm a, I'm a working class. I'm a working class guy. I spent 16 years as a firefighter and a paramedic working in the city of Lynn, Mass working construction on my days off. So, you know, I've done this thing from the ground up when I talk about tenants, toilets, and trash and construction.

SPEAKER_06:

Always ex firefighters own the apartment complexes. I don't, I don't, they must sit around going through the want ads in between shifts or something finding opportunity

SPEAKER_02:

that's great i did a podcast yesterday with a with an ex baltimore fire department guy good guy you know just crusty like crusty guy i think his we'll go down this road soon as the door opened i think there's an element that i find parallels real estate investing okay and i think the parallels are this is that when I went to work as a firefighter, there were obviously certain evolutions that needed to be made prior to entry of a structure on fire. There were evolutions and things that needed to be accomplished prior to throwing a medic bag over your shoulder, going in and finding the right drug to give grandpa before he circles the drain and goes upstairs, right? So those evolutions were repetition. They were practice. They were education. They were commitment. They were deployment. It was every day there was something that was leading towards a goal. And then when the actual job itself would arrive, engine one, ladder one, medic one, report a smoke show in 1027 Main Street. Engine one, take the hydrant. Ladder one, take the delta side of the building. C4 come in. You're going to take control. Like those repetitive... directions and systems is how a firefighter lives his or her life. Well, when you take that and you then put it into the world of real estate, if I can't look to my left and I got a kick-ass GC standing right next to me who says, I'll work these numbers as hard as I can for you. I'm committed to this job as you are. If I can't look to my other side, to my financial partners and say, you've got to pony up. Here's the deal. Here's the exposure. Here's the potential upside. With a sense of

SPEAKER_06:

urgency. With a sense of urgency that I do not see from many homeowners who are selling or even buyers until they lose a few. Buyers in the market need a sense of urgency. Sellers also need a sense of urgency. And neither one translates to the competitive world of deal flow and analysis and decision-making. So Dave,

SPEAKER_01:

applying that approach, you see a project, what are your first five tests? What are the first handful of things you're looking for? Start

SPEAKER_02:

with cap rate, please. Cap with capitalization. Look, the cap rate is such an interesting number, right? In the single family business, we can do square feet, beds, baths, quality, neighborhoods, zip code schools, all of that BS. But with a cash flowing asset, it's determined on the more money it brings in, the more valuable it is. Therefore, what can it trade out in a marketplace? So a capitalization rate in simplicity is an expected return on investment for the capital deployed into that deal. That's the simplest way to look at it. So when I said cap rates were crushing down to 2.5%, and a half and three during COVID when we expected them to be six and a half, seven, eight. What I'm saying is, is We expected the market to trade at a seven percent return. But the market said, kiss my ass, we're trading at a three and a half percent. Right. Because of the influx of money into the into the marketplace. So the five things we look at today is what's what's the trading cap rate in the market. So right now we're probably around five and a half, six in southwest Florida, depending on deal specifics. So if that's the trading cap rate, then I got to buy better than that or be in a position to reposition the asset to know that I can make a spread for my investors at the time of exit. So I want to see what the cap rate is and what it's trading at. I want to see what the vacancy rates look like on this asset. because if it's 70% occupied, for me, I'm buying 30% of free real estate because that other 30% isn't producing any income to me. So it can't go on the T12 and it can't go on the net operating income, no matter what the broker does with the numbers to tell me what it could be, right? I buy as is. I buy on today's numbers because my job as an investor is to then work that asset to create the valuation to pay the LPs and put profits into the company. So what's the motivation of that seller. Why do they want to sell? Are they in the market just for top dollar? One would say everybody who's selling wants top dollar. But there are motivations behind there, which kind of tie back to the single family business of, you know, maybe it's a family owned business that's got some contention in there. Maybe it's an illness. Maybe it's a divorce, whatever it is that's going. Maybe it's a business partner who decided to reallocate some assets. Ask me how I know that one. Right. So there's this this stuff going on. What's the story? I mean, we all like a good story in real estate. So when we start looking at those things, we can begin to build a picture of whether it's worth us investigating, putting in time, putting in the underwriting, and start moving from there. So, you know, there's a number of different factors. And you can do all that before even seeing the asset. Absolutely, you can. Yeah, absolutely, you can. As long as the seller gives me good data. As long as the seller gives me good data, truthful data, as long as the seller is somebody that, you know, to do business with. I mean, we've all met some crackpots in our careers.

SPEAKER_01:

How often are you getting bad

SPEAKER_02:

information? I would say 50% of the time. 50? Yeah, man. Yeah. Yeah. See, and this is what's interesting again. It's the difference between the institutional environment and the world that I live in, right?

UNKNOWN:

Yeah.

SPEAKER_02:

The world that I live in draws in the unprepared, I guess is the best way to describe it. They're not professionals. So do you know how to deal with an amateur? BlackRock is not going to spend the amount of time that we spend. I'm sorry. Oh, that's really. Right. They're not going to do that. They're not going to feel the

SPEAKER_01:

situation. They don't have a department that does that. They send over a group. The emotional department? The

SPEAKER_02:

emotional support arm of BlackRock Investment. I don't think they got there. Larry never put that in his profile. So, you know, it's different. I am not in the business to aspire to be, you know, a BlackRock. Part of what we've said at the company level is You know, we want to be big enough to find institutional quality deals, but small enough to still stay on a personable level with buyers and sellers. Yes, go ahead, young man. You're up.

SPEAKER_06:

All right. I want Scott Hobbs to unmute his mic. I want to introduce you to Scott Hobbs, good friend of mine, regular on the show. And he runs the Housing Authority in New Canaan. And recently, the town of New Canaan, where I am, said we have a housing need and we need to acquire in this housing development. across town is coming on the market, Scott, go buy it. And he did. And I want him to tell you this case study. I want to talk about it as a case study for cap rates. But one of the things I want him to talk about was how many bids came in. How big is the complex? How many bids came in? How close were those bids? And who won and why? Go ahead, Scott.

SPEAKER_05:

Well, first, very nice to meet you, Dave. You too, Scott. So it was a unique situation where a property owner was getting out of the state. And so they had just recently, they were in the process of selling a development in a neighboring town that was very comparable. They got in 20 bids ranging from a five to a five and a half cap, depending on, you know, as with everything in real estate, you know, what does it cost? It depends on how you figure it. So a five to five and a half cap. And what was good for this deal for us was the fact that we asked to go ahead and sort of jump the line if they'd sell to the town. And because there was an exact comp right there, and the buyer of that property was, let's call it a 5.25 cap, that set the price for ours. So it was 5. And by the way, they offered to go ahead and purchase this property at 5.25 also. And the seller actually gave us a priority on it. And then we were able to go ahead and get certain financing that was preferred, but we had to jump through so many hoops. It was- But you also

SPEAKER_06:

went to local investors. It wasn't just the town wrote a check. You went to investors and you said, I have this opportunity. You could buy a hundred unit complex and it's cash flowing positively and it's a good idea. Are you in? What was the response? So, I mean,

SPEAKER_05:

it's not quite fair to call under true investors. So we actually offered up a six, a triple tax-free six return. And we ended up getting commitments for around 18 million bucks in order to put into the deal. That was actually much more of a, you know, it was attractive enough to the investors that they were interested on it, but it was actually more philanthropic under the thought of allowing the town to go ahead and grab affordable housing assets that allow us to control our destiny as the state tries to force us to do other things. But that around that six to 7% rate at triple tax-free was of interest to guys. Too much below that, the rates would have had to be, or sorry, if it was not philanthropic-ish, it would have had to be much higher. And that was even a triple tax, tax-free. Admittedly, they were subordinate debt, not the principal financers.

SPEAKER_06:

Are you seeing you're competing, Dave, with 20 other bidders in South Florida for that 100-unit complex?

SPEAKER_02:

No. And again, it's because of where I'm fishing. It's because of where I'm fishing. The imagery that I gave of the five or six guys having breakfast at the diner, I don't think any one of us on this call or anybody listening who has experience in this business can say that's not true. you know, from whether it was the single family stuff back in the day to where we are today. You know, my partner, Walter, always says, you know, the best deals are done on the diner and on the turn, right? On the turn of the ninth hole. That's where they're done. Until the rules change, that's where we need to be to find those, you know, those assets that we will underwrite and put an LOI on. I don't want it to sound like it's easy because it isn't. You know, we wouldn't have created Legacy Alliance and the ability to partner with as many people who are educated in the space if it was easy for us to find the deal flow to pull the trigger on. But, you know, listening to you, Scott, why wouldn't I want to partner with the city or the town, right? The government money is always preferred, shall we say. Maybe not so much today today. depending on where you're at. There's some challenges. I've seen some of the capital supply get reappropriated, not for us personally, but I've heard stories of folks I know in the business. One minute they're going down one road and suddenly there's a change in capital supply. But to be in that arena is always good. But again, look, for the investor, the passive investor, they just wanna sit in a position like you said, you know, three years tax-free, you know, the tax credit world is a great world. I'm very, very under-versed and uneducated around it. I've got partners who know the tax credit world, low-income housing, tax credits, et cetera, et cetera. There's so many ways to bake, you know, the multifamily cake, but the investors are pretty much always in a position where, You know, the money's in the dirt. The money's in the sticks and bricks. It's in the assets. So even if it underperforms, you know, it's still somewhat protected. Yeah, you know, something can blow the whole building away or something can happen that, you know, you come across an exposure. But, you know, 90% of the time, it's such a strong, safer environment for capital to work. Again, full circle, especially in the, you know, the unprecedented times that we face right now. Nobody knows what's going to happen next.

UNKNOWN:

Cool.

SPEAKER_06:

Cap rates, what have they been doing lately? Only asking because 10-year treasuries are now paying in the fours. And I got to think that that's got to be affecting your world. It is. If I can get big money with the US government at four and a half, I want seven and a half from you if you're fishing in parts of Florida that are not obvious to BlackRock and institutional investors.

SPEAKER_02:

Yeah, great point. Look, finances is an education all in of itself, right? I confess quite clearly to everybody who ever listens to me, I'm not a finance major. I'm not an economics major. I'm a simple guy, but I understand value, right? I understand how to create some value. I know that if I put a nice kitchen in a single family home, mama's gonna walk in the door and go, oh my God, Bob, I wanna buy this house. And they're gonna overpay for it, all right? I know that. So how do I create that in an environment where, as you say, I can stick it in a bond for a 4% return or what else is out there? What we tend to do is educate our investors. Again, Legacy Alliance puts us in that position where somebody says, I can leave it in a savings account, or I can put it in this at 4%. And then I just give them a quick education on inflation. And I say to them, OK, why don't we talk about the inflationary environment, the reality of it, not what the Fed gives us, but the reality of the inflationary environment. And if we can come to an agreement that inflation is probably ticking around five. Wait a minute, wait a

SPEAKER_06:

minute. You're buying this tired asset in Florida and you're going to your investors and you're saying, you know, it's going to pay a six cap. And they're like, that's not good enough in this environment. I need a higher return. And then you say, and I'm going to fix it up. And then you go to the contractors and you find that the renovation costs for that kitchen that's going to make the wife want it are a lot higher than you thought. So your renovation costs are up Your cost of capital is way up. You're getting squeezed. Sounds like a bad time for me to be getting into this market, Dave. I'm not, you haven't

SPEAKER_02:

convinced me yet. Then this isn't for you, John.

SPEAKER_06:

Oh.

SPEAKER_02:

But so going back- Hold on, hold on, hold on, hold on, hold on, hold on. You're not

SPEAKER_06:

letting

SPEAKER_02:

me off the hook that easily. See, I love that. I love that. So there's a couple of things, first of all. That takeaway- in that sense, you ended the sentence with, you haven't convinced me yet. You know what, John, I'm not, hold on. I'm not in the convince anybody business. Here's what I can do for you though, John. I can show you that a 4%, you know, in some kind of savings environment could very well be good for you and your family and your financial future. And if it is, God bless you. Good luck. Good luck. I hope it works out for you. Or what I could show you is with an AIA contract, which is a fixed contract with a GC, and I've already done the work and run the numbers, barring anything that's absurd out of the ordinary, my costs are pretty much fixed on the construction side. I know what it costs to manage an asset, usually 10% of collected rents. I know what it costs to reposition it. I know what my downtime looks like for each and every unit as I get it leased back up again. So my exit cap rate might be a six, but what we haven't talked about, John, is the cash flow that we've generated along our four to five, seven year hold period. And then also on that exit at a six cap, if we bought it, whatever cap rate we buy it on the front end, but we increase the valuation through net operating income over time. That's what really builds in the valuation for us and our investors. So they might be picking up six, seven, 8%. We'll say return on their money in cash flow, but then they participate on the equity distribution at time of refinance a sale. And that's where they say, like I said, on average, you've got a hundred grand going in maybe. And our investors have an expectation of coming out with their a hundred grand that they put in and then maybe another 90 or another a hundred for a two X, a two equity multiple on there. And it's documented through how we do that kind of work. So it's an education, too. Sorry,

SPEAKER_01:

Roberto. I couldn't leave him alone. No, no, no. Of course. But you're revolving. There's an exit on each one of these. There's nothing that you're holding in perpetuity. Correct. Correct. Correct.

SPEAKER_02:

So the model is, first of all, a 506c Reg D model working with accredited investors. We're looking at business owners, high net worth individuals who can watch this, can lose that money and still be okay, right? This isn't FDIC insured. This is an investment. You can lose every single dime that you put into it. But they then look at us and they say, well, you know, can you do what you say you're going to do? And you show the track record. You show that you have the capabilities. Then they make that decision of whether they want to align themselves with you. Do they want a four-year exit? Do they want a one-year exit? Do they just want monthly cash flow? We do a lot of construction. So if I'm doing ground-up construction and you ain't seen any cash flow for a while, right? I got to build it first. But on a new construction build, depending on when they come in on that timeline, they could be looking at a three equity multiple or a four equity multiple, but they got to understand the business first. An educated investor is always a better partner. So if I've got a four year exit and then they read in my PPM, my PPM or my business plan will tell them clearly, we the operator owners, at our own discretion, we can keep the asset for another two years. We could sell it at two years early if we think we can make, you know, our projected returns and get out of this deal. So a guy wrote me a check one time. He was in the... t-shirt business, but not like just printing t-shirts. This guy made the uniforms for the state police, you know, and he had contracts with government. I had a really nice business. He wrote me a six-figure check for an investment one time, and it was pertinent. I'll never forget it. We were at a diner, and he says, I'm going to write you this check. He says, and his language was very concise. He said to me, Dave, I understand 90% of the deal. Like we have this conversation and I'm assuming we all know cap rates and yields and deltas and all the language we use. And this guy said to me, he said, I understand 90% of the deal. But at the end of the day, Dave, he says, I'm betting on you, the jockey and not the horse. And then he looked at me and he said, don't fall off the horse. That's not my goal, Jack. It's not my goal. Because at the end of the day, I'm a steward. I'm a steward of other people's capital. People first, profit second, and that way we get to be,

SPEAKER_01:

you

SPEAKER_02:

know, we get to be in business

SPEAKER_01:

a

SPEAKER_02:

little

SPEAKER_01:

longer. What have you learned the most since you started this? Like what's changed and surprised you? And what did, for example, what are like two things that you're like, if I knew this then, or, you know, these are things I really have learned that no one, that people should know?

UNKNOWN:

Yeah.

SPEAKER_01:

I mean, that's incredible.

SPEAKER_02:

I get questions like that, and I have an internal filter, and I usually don't pay attention to it. I'm going to be frank with you. I don't. I don't pay attention to the filter. I'm not a political... It's a family show. This is a family show. Yeah, I know. I know. But you know what? At the end of the day, you know, the dollar bill... you know, it has its own conscience. You know what I'm saying? So, you know, you asked me what I've learned, a couple of things that have been impactful. If you get an email from me, my email tag says a yes or a no is more valuable than a maybe. So that's one of the first things I learned. I learned to, and it's kind of sad, I learned to not trust anybody. Really, it's a horrible statement that I have to make, but it's based in pain. It's based in, yeah, I'm there for you, dude. And then they're not. Overfund and overcommit to the point of 66%. It's interesting. We've talked a lot about, Roberto, there's this asset class being attractive to your black rocks and your institutions and then on my side the same quality of asset being attractive to retail investors as we call them you know when when the institutions get a pledge or a commitment that's pretty much done money that's money in the bank right in my world i've got to over commit verbally even signed commitments, I've got to do probably 60, 66% because I know that only 30% of that commitment is actually going to fund and come through.

SPEAKER_06:

How many people into a deal? You have to find 100 investors or 20?

SPEAKER_02:

It depends on the raise and it depends obviously on the size of the deal. I think that the biggest number of individual investors in one deal is probably around 35 or 40. You know, when you've got investors who can, you know, commit 250 up to a million. And what's the

SPEAKER_06:

timeline? You've approached those 50, you need 35 and they really have a week to decide. And then they, and then we got to move on to the next, you know,

SPEAKER_02:

cut. Yeah. So that's, that's a great point too, right? That goes back to our urgency. I, as the salesman, let's be honest, I'm selling. You sell a piece of real estate, I'm selling an investment or an opportunity. Sorry, SEC is listening. I don't sell investments. I just share opportunities. But, you know, you've got to create that sense of urgency. And that's just education. Truthful education. So if I do like we did a webinar, we're buying a retail piece in in the Naples market and it's a seven million dollar raise. We already had maybe three million of it in the door when we did our first webinar to add to our database. And, you know, we'll wrap that up within 10 days. after that webinar. You know, go through a couple of commitments, a few more questions, you know, people spending time in the data room, making sure they fully understand what it is that they're investing in, you know, wire funds, and then we'll close. So we'll bring that capital into the accounts probably 10 to 14 days prior to close to make sure that we're there. We don't want to be at the closing table short of, you know,$300,000 or$3 million, whatever it is, and then close on the assets. So Getting people to stay engaged is critical in the retail investor world. And that's obviously the big difference from the institutional guys.

SPEAKER_01:

Wow. So what are the markets besides Southern Florida? And you didn't say Southern Florida, you said Florida. But what other markets do you find as appealing as that or as a potential alternative?

SPEAKER_02:

Yeah, it's not a secret. I mean, the... The Sun Belt in and of itself is still a great market for us in the multifamily. We like the Carolinas. We like Texas. We like some of the Texas markets. We're not in the primary markets. I mean, we do our best business in the tertiary, secondary slash tertiary markets. And we're just picking and choosing and looking through those. For me, personally, if I don't have... enough of a quality relationship with an operator in that market. I'm probably not going to put you know, an excessive amount of effort into that because of the TV show, because of my years, you know, on stages and teaching and traveling, et cetera, et cetera. I've been a blessed guy in the sense of I can go into a lot of different markets in the in the US. And Dave, yeah, I remember we met. Right. And I can pick up where I left off. If I get some deal flow in San Antonio, there's three guys I can call in San Antonio, you know, just say, hey, Paul, will you go take a take a peek at this, take a peekaboo. It's a 75 unit, blah, blah, blah, blah, blah. And he'll either say, yeah, no, I know that asset. Or no, I didn't know that asset. Yeah. And then, hey, you want to partner on it? So, you know, we can open up those lines of communication as well. So that's a benefit for us. What do you say

SPEAKER_06:

to those people who say that Florida has been picked over? All the good deals are gone. Same with the Carolinas. Same with Texas. Those have been three of the boom towns for the last 10 years. And we're starting to see Austin suffer. Austin prices are going down. A lot of people are saying, show me the next opportunity, Dave. Yeah,

SPEAKER_02:

you're absolutely right. Memphis? How are we liking Nashville? All those markets are picked over. It's not for you, John. It's okay.

SPEAKER_06:

How are we liking Memphis and Nashville? I've been hearing a lot of good stuff about Tennessee.

SPEAKER_02:

I heard there's some potential there. Who knows? Let me call my

SPEAKER_06:

guy. Okay, you're still a fan of Florida, huh? Because we did a show last week where the price per foot on the three new developments was$1,500 a foot. And we got the sense that everybody's focused on South Florida right now. Raquel, Lauderdale, Boca, to Palm Beach. And the traffic is crazy. The prices have gone through the roof. Yeah. Yeah,

SPEAKER_02:

yes, absolutely right.

SPEAKER_06:

And you're still finding deals.

SPEAKER_01:

Yes. But there's a lot of deals that are coming to you. You're like kind of getting a first look in some ways. Is that because of what happened with the show and the people you are a known entity?

SPEAKER_02:

Yes, it's reputation and it's known entity, right? You know, the broker is going to go to their top five, right? You guys know the game. Everybody talks turkey. Who's going to write the check? The broker only gets paid at the closing table. The investors only make money after the deal's closed. Let's weed through all of the conversations and really get down and dirty. The deals that people say they're going to do that they can't do, they come around to us. We get first look at a lot of stuff as well. We are expanding into some of the northern markets of Florida up to the Pan and handle up the top side. I've got guys reaching out to me or doing co-GP funds now. And they're looking at some opportunities in the Carolinas still. Yes, I like Memphis. I got a guy in Memphis who's been busting my ears for about six months now. We see that that whole Memphis vibe is beginning to get some traction. I try not to get sucked into the sexiness of a market. You know, we all know that an emotional buy is a bad buy, right? We know that. So if I can find a data set inside a market that really makes sense for us, then I get excited, right? There's nothing

SPEAKER_01:

more exciting. Is the sexiness kind of like what happened to Austin?

SPEAKER_02:

Yeah, I mean, you know, you've got this whole, this imagery. You know, Vegas had it back in, you know, the early 2000s. We've, you know, we see this, this re-gentrification of these areas over and over and over again. I'll use Boston

SPEAKER_01:

for an example. Is that an opportunity to get in and get

SPEAKER_02:

out quickly? It is, to some extent. To some extent, yeah. Look, in and out quickly for me, Roberto is always four units and below. I want a buyer. I want to get out. I want to make my money and move on. The bigger buys, the development work, the multifamilies, there is, for me, there may be some guys who do, but for me, that's not an in and out. It's a three to five year hold is what I prefer to look at.

SPEAKER_06:

Let's talk about New York market because a lot of our viewers are into the New York market. Roberto has been talking to us and you give us some detail, Roberto, but Rents in Manhattan are at record levels and have been for the last year or so. Not so the price of a condo in Manhattan. And so when you evaluate a market like that, if that were true in Florida or in Memphis, you'd say, okay, these... Are you looking at these rents can continue? Are you saying, oh, this is an opportunity where rents are high and for sale is low? This is a good opportunity. Rivera has been saying that for the past year. We're at a low point on the 10-year cycle to buy a one-bedroom apartment in New York. It's as cheap as it's ever going to be. We're flat. We're flat. We've been flat. So is that what you're looking at in Florida or are you starting to see an inversion of those two things?

SPEAKER_02:

It's flat in Florida. Rents or for sale? What's flat? For sale, it's still low inventory, high prices. Rents have stabilized. Rents have stabilized. Three years ago, we were pricing out maybe three bed, two bath, 1,000 square feet, depending on the market or the specifics or the quality. It was anywhere between$1,800 to$2,500. You got to remember, I'm not in the high-end market. I'm in the workforce housing market. I want to find housing for cops and firefighters and teachers and restaurant workers. So we had that, but we've seen a stabilization in that. It's probably stabilized around 2000 now for that same rental income. But still the cost of a home ownership and the cost of capital for home ownership is out of reach for so, so many. You know, look, man, I would suggest and I'm OK to be wrong. You know, New York is an anomaly in and of itself. It's kind of a special place. You know what I'm saying? You can't you can't like I wouldn't invest in New York. I wouldn't spend the time. I wouldn't spend it. I don't need to. I don't need to. I don't want to work that hard. I, you know, I'm I'm doing OK. So, you know, if I was starting from ground zero all over again, I mean. If you think about it, you think about the burbs of New York, right? 1970 to 1985, 86, 87. Nobody wanted to be there. It was bad, man. And we go through that re-gentrification and influx of yuppies and all of that stuff. It's in every market that you begin to see that. We saw it in Boston, in South Boston, East Boston, Chelsea, Massachusetts. Chelsea was known as the armpit of Massachusetts. Now you go into Chelsea and it's, you know, two point seven to three million dollars for a three family property that's converted into condos that could sell for two million on their own. Right. So you see these changes over time. What is that doing? That's driving home ownership away from the average middle-class American. It's so hard. So where are they going? Well, they got to get something decent, clean, and affordable. So my point is you've got a macro market, right? And I would say, you know, the five bars of New York is a macro market. Well, in that macro, micro pockets, right? And that's where the money I feel is made, John, whether it's in New York or in Southwest Florida, whether it's in Memphis or Austin or Dallas or wherever it is, you've got these micro pockets within these macro environments. And if you can dig your way in there and find these diamonds in the rough, for want of a better term, that's where we see the opportunity. I'm not going to argue the data set of the average rents. I'm not going to argue the data set of supply and demand. But if I can use some common sense and go in there and say, okay, there's not enough here to support what's going on here. How quickly can I build it or how quickly can I buy it? And if I can build or buy it quick enough to support the need in that market, then I'm going to execute. I'm going to do my very best to raise the capital and get the project done.

SPEAKER_06:

What I hear you saying is that you can find opportunities in New York or Florida as long as you really know your market and you really know your market and you can find

SPEAKER_04:

diamonds.

SPEAKER_06:

And Rivera really knows New York and the difference between two buildings across the street from each other. So you

SPEAKER_02:

can- You know what's interesting is, you know, with the single family business. So I raised the money up here in the Boston market and deploy that capital with my partners in Southwest Florida. But I know the Boston market, man. I know it from Falmouth on the South Coast up to the New Hampshire line. And even today, a wholesaler will give me a quick buzz on a single family home, and within 45 seconds to a minute, I can look at 10 pitches, look at a market, quickly pull a comp set from MLS, and I'm like, I'll do that deal. Do you need me to close tomorrow? What do you want to do? You want a little taste? You want to check? You want to stay in it? You want me to do it? What do you want to do? And that's repetition. It goes back to the firefighter concept. Those are the evolutions. Well, number one rule is know your market. and learn how to sign a check. That's what my ex-partner used to say. Know your market and know how to sign your name. And if you can do those two things, you can make money in real estate. Because you talked about

SPEAKER_06:

the five things up front, cap rates and vacancy rates and all that. Yeah. But it's all predicated on the fact that you know that market first. Yes.

SPEAKER_02:

Yes. Those are the components that support You know, your philosophies in single, multi, I don't care what it is. We're looking at light industrial right now. You know, you talk about the rents stabilizing in residential. I'm on this show as a multifamily investor. I really should be on this show as a real estate investor in the commercial arena because I'm taking down a retail piece. I'm in the middle of finalizing my numbers on a piece of dirt that we own, where we're going to put in, I think we're up to 16 light industrial units. They call it flex spaces in Florida and flex is beautiful. I mean, I'm getting all excited about this stuff. Flex is designed to perfect example. Here's a 2000 square foot condo in flex space. And what we can do is, is we put the, the kitchen cabinet showroom in the front and the guys are building the cabinets in the back. It could be a restaurant. It could be an accountant's office. So it's not technically just a retail space. It's a flex space. We need to bring you back for that. That's a whole show. That's a different show altogether. Yeah, yeah, yeah. But it's cool, man. There's some great stuff if your ears are

SPEAKER_01:

open. Dave, in this space of multifamily investment, what keeps you up at night regarding... your portfolio? What are you concerned about over the next year, two years?

SPEAKER_06:

Like insurance companies dropping you from all your properties,

SPEAKER_02:

maybe? Yeah, insurance. Look, man, we got the insurance challenge. We got the hurricane challenges. Mother Nature beats the crap out of Florida every year. Looks like she's going to continue to do so. So we've had to get creative on the insurance side. I'm just going to give it to you high level because I'm not in the weeds on it. My team is. But we're beginning to find some insurers will split the exposure on one asset. So instead of just one insurer on one asset, you might have two or three insurers on one asset because we're going to build them. We have to insure them. We have to underwrite them. So we see some creativity there. Look, on a more...

SPEAKER_01:

And they know about that themselves, that they're hedging each other.

SPEAKER_02:

Oh, yeah. Oh, yeah. They're coming in together. Yeah. Yeah. It's especially after the past few hurricane runs that came through there. You know, I'm in Fort Myers and Cape Coral and we've taken a beating. We've just taken a beating in the past few years down there. But yeah, that keeps me up at night. What really keeps me up at night is property management. They'll make or break my deal. You know, are you using a good management team? Do you have good relationships with them? Are their systems integrated with yours? It's funny, today I watch the bank accounts, man. I watch money in, money out. Again, because not only is it company accounts, but John and Roberto and Scott all wrote me a check for 500 grand apiece, and I told them I was going to double their money in three to five years. Well, I better pay attention, right? I better pay attention. So, you know, expenses, change orders, you know, all of the... Day-to-day operation, you know? But if I know how to get in and out of a burning structure and be blessed enough to bring somebody out with me, this is just sticks and bricks, brother. This is just real estate. This ain't nothing.

SPEAKER_01:

Management though, debt management, do you third party that out to a partner or

SPEAKER_02:

do you do that? Third party. We're not vertically integrated. We've looked at it. We run a lean ship, right? So we can systematize control and oversight of property management, construction, the pieces of the puzzle that you need to put together. We can do that from our side of the equation without bringing on the additional employees and companies, et cetera, et cetera, to do it. So up until this point, that's what we've chosen to do. Does that mean we wouldn't go vertical on some of that stuff later on? Maybe. It's economics, again, that the numbers make sense. And if the numbers make sense, then we'll Wow. It's been a great show.

SPEAKER_06:

It's amazing.

SPEAKER_02:

Yes, it has.

UNKNOWN:

Yes.

SPEAKER_06:

I think, you know, I think this is really interesting because a lot of people think, okay, I want to do house flipping. I want, but you know, it'd be so much better if I could buy a multifamily, you know, and how do I get started? And I think the things I've learned in the past hour is number one, you really have to know your market. I can't just be, I can't start with, oh, look at that. A seven cap. Ooh, a nine cap in Memphis. If I don't know Memphis, there's a reason. So I got to start with a market I understand or have a partner like you who knows that market inside and out. And I think it starts there. The second thing is understanding the cap rate, the vacancy rates, you know, the story, the motivation of the sellers. And then this last piece where you said, well, what keeps you up at night is the management. I mean, these things don't manage themselves. And so it's not enough to say, I know the market and I bought well. And I, you know, oh, oh, I, I, I thought I had the right management team in there or I did, but the circumstances changed and it became too much for my management company to adapt, adjust. A lot of pitfalls. And so I can see why in that last question, okay, if you go up at night, if it was easy, mom and pop wouldn't be selling. If there were no hurricanes and insurance companies all said, fine, then mom and pop wouldn't be selling. But some of that pain is why there's opportunities for you in the market.

SPEAKER_02:

Early in my career, I purchased a nine unit in the south side of Chicago. It was a South Jeffrey. It's a nine unit property. One could argue that it wasn't the best part of Chicago. I'm just going to say that. What could

SPEAKER_06:

possibly go

SPEAKER_02:

wrong?

UNKNOWN:

Right.

SPEAKER_06:

But it was a nine cap, guys.

SPEAKER_02:

It was better than that. It was a 15 on the buy. And it was right after the crash or the adjustment. And we're walking this property, me and my partner, with the property manager. Big dude. I mean, I'm 6'3", 220. This guy made me feel like I was 5'2", 180, right? He was a big dude. And I've got the concern. You know, I'm in Boston and I want to buy a nine unit property in the south side of Chicago. And I just looked at the guy and I said to him, you know, what is your system? And this is a true story. What is your system for collecting rent? I said, do you have any challenges? He just opened up the inside of his jacket and showed me something that he had in there. And he said to me, he goes, what did he call me? Mr. David. He goes, Mr. David. He said, I've never had a problem collecting the rent. He said, and we won't have a problem collecting rent for you. And I ended up, I made an offer on this property. The bank denied it. It went to short sale and I ended up buying it for less money than I had offered on it, you know, six months earlier. Did you keep him? Oh, of course. Of course. I invited him up to Boston. We sat down, we ate dinner. He became a member of the family. Did it have a happy

SPEAKER_04:

ending?

SPEAKER_02:

It did. It did have a happy ending. We went in for a tax abatement. We got a beautiful chunk of change back from the city of Chicago. We held on to that for about three and a half, four years. The market went crazy, even though it was Southside. You know, you can make money. I've made money in, you know, C slash D neighborhoods. But again, to our point of our conversation, property management is a lot more intensive in the south side of Chicago, you know, than in Cape Coral, Florida. So, you know, again, the guys are betting on the jockey, not the horse. And this jockey has run a few races, right? So you carry that experience.

SPEAKER_01:

Just stay on, Dave. Just stay on. Don't

SPEAKER_02:

fall

SPEAKER_06:

off the jockey. Stay on that horse. Don't fall

SPEAKER_04:

off that horse,

SPEAKER_06:

man. Yeah. All right. This has been an awesome show. I want to thank again, sharegracefarms.com, their teas and coffees. Go visit Grace Farms if you're in the neighborhood. This has been Dave Seymour of Legacy Alliance, but you can go check out his Flipping Boston TV show. And you can check out Freedom Venture if you actually want to get involved in investing with Dave. I'm John Engel. That's my friend Roberto Cabrera. We love you, Roberto. Love you too, brother. And that's Hobbs Inc. Scott Hobbs. That's just some of the modest construction that Scott Hobbs builds. You know. You have anything like that in South Florida,

SPEAKER_02:

Dave? We do, but we don't own it. We don't own that, Scott. You build it. I'm still not going to buy it. You can

SPEAKER_05:

get great

SPEAKER_02:

discounts

SPEAKER_05:

on these. I'm telling you.

UNKNOWN:

Yeah.

SPEAKER_06:

And you'll find this show up on burrowsandburbs.com. So if anybody asks, hey, where do I find that show? Burrowsandburbs.com. You'll find it there in, I don't know, 15 minutes. Thank you, Dave.

SPEAKER_02:

This has been great. Gentlemen, God bless. I appreciate the conversation. Thank you. Thanks so much.

SPEAKER_06:

Thank

SPEAKER_02:

you,

SPEAKER_06:

Scott and Roberto. Till

SPEAKER_02:

next week. Good.

People on this episode

Head Shot

John Engel

Host
Head Shot

Roberto Cabrera

Host