Andrew Syrios has been in the real estate business for over 10 years. Born in a real estate investing family, he was mentored by his father, Bill Syrios, who is also a real estate investor. His father started investing in the early 80s. Andrew is based in Kansas City, MO. He joined the family business straight out of college. He is the owner of more than 500 units in Missouri and manages own portfolio. His real estate preference is to buy and hold for cash flow.
In this episode, both Andrew and Don discuss their experience in real estate investing. Andrew gives a lot of details about how, when and where to invest. Andrew discusses his thoughts on a possible recession along with possible factors to look for. Also the importance of standardizing certain tasks in order to streamline your business, get more done and have everyone on the same page.
Episode Highlights:
- When and How He Started Investing
- Tenant vs. the Landlord Friendly States
- His Criteria For Choosing a Property
- Importance of Having Systems & Policies in Place
Connect with Andrew:
Website: Andrewsyrios.com
Podcast: The Good Stewards Podcast
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TRANSCRIPTION
Intro: Hey guys. On today’s episode, we’re going to have Andrew Syrios. Andrew had been investing in real estate for the past 10 years. He does mostly single families and some small multi-families in Kansas City, Missouri. I like the fact that he’s scaling a business that most people say is unscalable, which proves time and time again that there are many ways to become a successful real estate investor. So stay tuned and enjoy the interview.
Lady: Welcome to the commercial real estate investing podcast with Don and Eden where we cover all aspects of real estate investing with special attention to off-market strategies.
Don: Hey, Andrew, welcome to the show.
Andrew: Hey, thank you for having me.
Don: Yes. You’re welcome. I know you’re based off Kansas City, Missouri?
Andrew: Yes. Good old Kansas City.
Don: Yeah. And we just had a lovely conversation about Kansas City is one of the only cities that are two cities divided into two states. So, we were talking about how it is to be a real estate investor in an area like that. So, I guess I would want to ask you that again so that you could clarify to our audience a little bit about that.
Andrew: Put it on the record. Yeah, I mean, it is interesting. I mean, we call it KC Mo and KC K, we’re based on the Missouri side. Every city’s got different pockets, good areas, bad areas, areas that are too expensive for buy and hold and rentals and whatnot. I’d say the biggest issue is kind of there are some hard breaks particularly like Kansas City, Missouri has the main part of downtown Kansas City is in KC Mo. And when you go across the river there and the KC K, it shifts pretty drastically. So, you have some pretty drastic changes in some parts. In some areas, you go across the state line, and it’s like nothing changed at all. That’s some of it but also there are some law changes. That’s also true. The county, they’re six counties in the Kansas City, Missouri metro area. The laws are a little bit different. For example, in Jackson County, Missouri, the evictions can take substantially longer than they take Johnson County or Wyandotte county is what has Kansas City, Kansas. But at the same time when you evict someone, you have to store their stuff for a little while on the Kansas side. Missouri said they just tell you to throw them on the lawn.
Don: Is it a tenant-friendly state?
Andrew: I would say both Kansas and Missouri are pretty in the middle. But I think Kansas is probably a little bit more so on the tenant-friendly side.
Don: I know a lot of investors that would steer away from tenant-friendly states, and it’s understandable. It’s difficult.
Andrew: Yeah, well, if they put in something like California, and I think Oregon just put in rent control, and New York has a long history of that. And that can make it very difficult to make margin especially in these expensive places where you know, it’s it takes so much money to buy a property and then you can’t rent it up to the market. There’s something in Kansas City they’re trying to push for like the Kansas City tenant Bill of Rights. This would only be for Kansas City, Missouri, won’t even be for other cities in Missouri, but it has some weird language. I’m not a lawyer, so I won’t try to parse it out. But stuff like trying to restrict your ability to do tenant screening, and that’s been sort of a thing throughout the country as well, which makes it particularly risky, especially if you either can’t do it or can’t do as many banks can do it stuff like that. I think it’s just something that a lot of buying hold investors need to take into account when they’re looking at an area. Generally, it’s going to be probably trickier than that. It’s not going to be impossible, but it’s going to be more difficult something you need to be more prepared for.
Don: Yeah, most definitely. I just had a very interesting conversation with somebody that I did some networking with. And he’s coming from New York, he’s a nice guy, made some fortunate in real estate. And now he’s telling me he’s got a situation with one of the buildings that he owns. The building, he’s trying to sell it and the building is worth around $2,000,000, but since it has tenants inside, it’s worth around $1,200,000. Because in New York, you can’t raise the rent unless you have renovated 75% of the building. And I’m sorry if I’m wrong about this, I’m not sure that’s what I heard from him. And this is a true story. He’s saying that the tenants hired attorneys, and they’re asking him for $100,000 each to leave.
Andrew: I’ve heard of stuff like that where they’re trying to do developments and there is that one guy like I’m not leaving no matter what.
Don: One tenant he said he’s asking for $200,000. That was a point where I figured out that I’m done with this and he took his stuff, his family, everything and he just moved to Florida. I’m based out of Florida, Florida is very, very friendly with the landlords. It’s very easy to do things here. And that’s why you got a lot of investors. So, I would not even be able to fathom the idea of investing in a tenant-friendly state. But I know a lot of people do that.
Andrew: Obviously, tenants do need some protection. I despise slumlords as much as the next guy. And I don’t think these things help that I think what they do is drive investment money out of the real estate, which is if you want to reduce the cost of housing and you want to make housing more affordable, the biggest thing you need to do is push investment into real estate. And so, it’s completely counterproductive. Although I think it is important to recognize that tenants do need some protections they absolutely You know, there are slumlords out there and we especially I think as real estate investors should do our part to try to shame those slumlords into basically changing their ways because although I think a lot of them either incompetence or they ran out of money. Real Estate Investors go bankrupt too. So that’s part of the equation. You can’t raise rents. You can’t do tenant screening. The biggest complaint we get from tenants like properties we’re looking at is don’t let anybody in here. That’s not pro-tenant that’s an extremely anti tenant. So…
Don: I want to talk a little bit about yourself and your career. So, I know that you’ve been investing in real estate in the past 10 years. I know that in Kansas City, Missouri alone, you own over 500 units. You’re also managing your own portfolio, which is very, very interesting. Also, there’s another interesting fact about you, Andrew, and that is the fact that you had your father as a figure, as a real estate investor in your life, and you’re kind of stepping into his shoes. So, I want to ask you about that in particular, and how that affected your real estate career.
Andrew: My father got started real estate in Oregon back in the late 80s. And I was kind of when I was growing up and he bought a lot of student housing at the University of Oregon, which turned out to be a very good investment at that time. When I graduated from college, we were flipping houses. And eventually got kind of sick of that because basically, student housing got too expensive to buy and hold with anymore. Eventually variety reasons we came out to the Midwest, whereas housing prices are less expensive. It’s easier to cash flow and my brother into joining me out here but my father is still in real estate.
We have a podcast that we do the ‘Good Stewards Podcast’, it’s a weekly thing on real estate, we just go over real estate topics and he’s still very involved in the company focuses on Oregon. The way we like real estate is to buy and hold for cash flow. I like that Midwest markets that peaks and valleys aren’t as high low in the Midwest, the South kind of those cash flow areas. And we want properties that can cash flow well. Some people are a little bit more into the vine, an area that’s improving in one of these coastal markets that have a lot of upward potentials. There’s upward potential here, but I just personally stress if the property cash flows with the appreciations are great, that’s kind of the cherry on top.
Don: We can buy for appreciation. We always have to buy for cash flow. You can do whatever you like, right? But I guess when you buy for cash flow, then it’s kind of mitigating the risk. You know that you’re going to make money on this, you know that you’re going to be able to pay your annual debt service, which is I think the biggest fear for an investor is not being able to pay their debt service. Right?
Andrew: Yeah, I think the way I’ve always looked at it is Warren Buffett’s first and second rule of investing, ‘don’t lose your principal’ and ‘don’t lose your investment’. And the security you have one is your equity in the property, which is why extremely important to buy properties under market, buy properties of the value add that you can have that built-in equity, that’s your cushion. You even if you finance it fully, or almost fully, you still have that equity cushion. That’s your first level is the same as if it brings in positive cash flow each month, then that’s extremely important. There is a difference. It’s not just speculation to buy in a market where you’re not cash flow. That’s not speculation myself if you have a good reason to think that markets going up the path of progress in that city, you know, have some major developments coming, okay.
But I would only do that with a very small percentage of your portfolio. You know, it’s like if you’re going to buy in an area that you know, it is like the cash flow, you think got a lot of potentials that should be a small percentage. Little bit your small piece that you can take a bigger risk with, I think it’s a much bigger risk to invest in if you don’t believe we’re going to have any cash flow, or if it’s going to have a slightly negative cash flow until you’re investing predominantly for appreciation.
Don: I agree with everything you said. So, let’s talk a little bit about your criteria. So, when you’re looking into a property, what are the things that you’re looking for? What is the value add that you’re looking for? You said buying under the market, which I couldn’t agree more because I’ve been doing that pretty much all my real estate career. So how would you recognize these properties?
Andrew: Most of what we buy our single-family and the main thing I’m looking for is the value of basically doing a comparative market analysis. And we’re aiming for 75% because we’re trying to refinance all of our investment. And so that’s the main thing I’m looking at. I’m comparing it to the properties nearby. Secondly, I’m looking at is what cash flow and it’s a little trickier with houses or even small multis because if the property is rented for the full year, you better cash flow but if you have one bad turnover than maybe it won’t. One house is all or nothing, then apartment complex. But we’re looking like on average if I’m taking these taxes insurance, it’s average what I expected to rehab or its maintenance to be and it is the turnover cost to be on average and does it cash flow.
If it doesn’t cash flow, it doesn’t mean you shouldn’t buy it but that probably a flip property that’s probably that you should buy and turn around and sell and make a profit on if you can get it low enough. And you know, there’s ways kind of shorthand for that like rent to cost. I am looking for how well cash flows are certainly looking for that with regards to apartments because basically cap rates are how you compare apartments and cap rates are a way of telling how well the property will cash flow more or less.
I go in like three levels. The first one I’m always looking what is its value today or if I can do something to make its value like if it’s a house going to add a bathroom or something like that or bathroom and a bedroom or convert this garage or something like that to make this house worth x and is that hit my 75% criteria. The second one is cash flow but doesn’t cash flow it all then usually it will be like okay, that’s when we should flip. And then the third one is just kind of what’s the area. We generally invest and kind of working-class and middle-class areas. I recommend any new investors kind of stay out of the tough areas because those are good places to lose your shirt if you don’t know what you’re doing. You can make money, they’re good tenants there. You just got to be a specialist and you got to be very careful, because it’s very easy to buy cheap property, and then rehab all your equity. And that happens all the time.
Then you turn over costs are too much to maintain it and you end up losing the house, I’ve seen that multiple times. And then if you go into the two high ends, there’s no cash flow there. And so, we’re kind of in the middle and I want to have kind of a spread of that and also see, you know, like where the jobs coming in, and I want to invest in this particular area. So, I’m taking that into account. But that’s kind of like when I’m looking, are we going to do a marketing campaign? I’m going to send out letters or something like that, or I’m going to try to focus on a particular area of town. Okay, well, let’s focus like, for example, in Kansas City, there’s this area where they’re putting this new office complexes adding like 10,000 jobs and that process mostly complete now. So, buying around that area, that’s a major target point. In that area, we would be more interested in the other. So, it’s kind of a stacked with houses and small multies, you know, what’s the value? What’s the cash flow? Is this an area we want to invest in? Is it we think it’s growing or is it stagnant? That sort of points our marketing and our interest, but also kind of make tip the scales in certain instances. And of course, you’re getting into multifamily or commercial, then you’re looking more at the net operating income, the cap rate and comparing that and sort of the value and the cash will be kind of becoming the same thing.
Don: Definitely. So out of the 500 units that you have, how many of them are single families and how many of them are apartments?
Andrew: Little over 60% are houses and about 40% are apartments or small multies.
Don: You’re saying small multies, that would be 1 to 4?
Andrew: Yeah, duplex or above. Was funny, we originally came to Kansas City think we’d focus predominantly on large apartment complexes trying to get up 200 units stuff. We went the opposite direction, just kind of the way our financing worked, getting the private lenders we develop relationships with. It made more sense to do these houses and there was just a ton of inventory. I mean, this was right after the crash and there were just a lot of bank-owned properties and that’s what we mostly start with buying dilapidated bank on properties and fixing them up.
Don: It’s a great idea.
Andrew: There’s not much of that around anymore. But there’s always a new angle.
Don: You got to know how to adjust, especially in real estate, you have to understand that it’s also about timing. So, you can do what everybody else is doing. You also got to stop, think and recalculate and make some changes and adjustments. It’s the nature of the beast. It’s just the way that real estate is. But I do want to ask you. You got 60% houses out of 500, that’s 300 houses give or take. How do you manage that?
Andrew: It takes some energy. We have a centralized office, and we do prefer properties that are closer to our office. We don’t have time to go into all the systems and stuff but I will say the more systems and policies you can put in place, the better, the less time you have to reinvent the wheel, the better. That’s something we’ve been very, very big on. We use property management software called ‘rent manager’ and we’re very much sticklers in our policies. If it’s not in the rent manager, it didn’t happen. We want everything to be recorded. We have a maintenance staff, we have a management staff, we started using Trello, Mojo, lease lockboxes that for leasing for showings more. We still have leasing agents we also use those lockboxes as well which makes it a little bit easier on some of the properties especially ones that are further away we get showings in. A lot of just standardize as much as possible, standardized the lease don’t offer a thousand, one lease and we have one payment policy plan. If somebody’s late on the rent, we don’t make an individualized plan with them, this is our plan we set a date with you and if you don’t have it then we have to pick a time to move out or something like that. We don’t have like okay well if you will give two chances to in this particular way.
Don: There are no cutting corners.
Andrew: Had the same paint colors. We’ve added one exterior one because our website started to look the same, every house was having the same exterior color, so we added a second one. But we standardize paint colors. We standardized our carpet. We standardize our materials, standardize our policies standardize as much as possible. That way you don’t have to reinvent the wheel and you can do this.
Don: How many things work under you?
Andrew: We have 15 employees right now.
Don: 15 employees. So, I guess one of them has to be a GC right?
Andrew: We have a guy who oversees our construction. We mostly hire subcontractors and contractors and stuff like that.
Don: And then two or three property deal with management, because that’s a lot of work.
Andrew: Yeah, we have a handful, man, a couple of accounting, and then its maintenance guys. We’re going around and doing that kind of stuff. It’s a decent-sized operation.
Don: Yeah, pretty decent. So, I can also tell you that you’re young…
Andrew: I like to think so.
Don: Maybe 30’s -What is that?
Andrew: Mid 30s yeah.
Don: Mid 30s. Okay, so I was going on the safe one.
Andrew: I appreciate that.
Don: So, what’s the plan for the future for you? Because you’re already investing in real estate at that age. I’m 30 years old too. So, what are you planning? What’s the goal? You’re going to retire early or you’re going to move up and do some bigger things in the future? What are you thinking?
Andrew: I think I’d get bored if I retired or tried to. And yeah, probably moving towards larger properties. We’ve had some interest in moving towards more commercial real estate regardless, it’s been harder for us because the market is hot and it feels like especially given where prices were not too long ago like things are mostly overpriced or there might be a recession coming up in the next year or something. There’s a temptation like okay, as soon as that happens, we’ll jump in right now we’ll stick with houses and small multies unless we find a great one. But I do think regardless of the timeline, I’ve kind of gone back and forth that I don’t want to give any advice. I don’t want to tell people like to sit on the sidelines and wait for a recession.
It’s just like, yeah, we’re probably nearing one the next two years. I was thinking that in 2016. So, you know, who knows, but I would say regardless, make sure you get good deals, make sure you bought well enough that if there is a recession, you’re insulated from it. So, if you bought a 25% margin and there’s a recession, real estate goes down 20% you still 5% equity. Whereas real estate continues to go up, you just do all that better. So, the only thing that stresses to me is that the importance of getting good deals is all the more so since farmers have a recession coming.
Don: So, what I think about this is when you’re trying to make the move from residential real estate into the commercial space, then you’re going to find that the people that you’re competing against are sophisticated. They are the biggest fish in that tank. Think about it. And we’re talking about properties that are cash flowing and producing. I know is in the hundreds of thousands a year. So, these properties are worth millions. And who buys properties that are worth that much? It’s very, very sophisticated investors.
So, I think to look at it from the sideline thinking there might be a recession, so I might not get in, is not necessarily a good idea. I think a good idea would be to start underwriting, to start looking at the performance of properties to start understanding them and understanding how they operate and then when the recession is going to hit, you’re going to be ready for basically pulling the trigger, right? Because you don’t want to get started when the recession is here, but now you got to go through the learning curve of understanding commercial real estate because it’s a different animal. It’s very different.
I’ve done the move and it takes a while for you to understand exactly what it is that you’re going after. For you, you’re listening to somebody talking to you about a deal over the phone, and you could just pick up the number, what’s the ARV? You know, what’s the square footage, and you already know how much you have to do any repairs, right? I never had to think about what I got to do and repair it. So, I was like, what’s the square footage on this house? And where is it at, okay, that’s $30,000, $40,000 right there. It was built back then. I could already do the math. In commercial real estate, it’s kind of different. I would think that there is a learning curve. So, I would say to anybody that’s listening to that, there’s no better time to get into real estate than now or yesterday.
Andrew: I think I would agree with that. Yeah, I think that’s a good way to put it. I’ve heard of people who in 2015 were convinced that there was going to be a recession coming up in the next little bit and they sat on the sidelines because of that. I think that mindset is sort of the someday maybe kind of mindset of someday maybe I’ll try to do what I want to get you got it. But at the same time, even if I thought the market was going to be taking off, I still tell people you got to be diligent, you gotta get good deals, you can’t just buy stuff and wait unless you’re just loaded and in which case you don’t need to be listening to a podcast just by whatever. I think it’s sitting on the sidelines and waiting is not a good approach but being cognizant that you need to be more diligent and be demanding to get those good deals is central.
Don: Wonderful. Andrew, what would be the best way to connect with you in case anybody wants to learn anything from you or get in touch?
Andrew: I blog at BiggerPockets on a weekly basis, more or less, so if you go to BiggerPockets, my articles are there. You can also see my own personal blog Andrewsyrios.com. S Y R I O S. Just post whatever comes to mind on basically. And then we have a podcast, my father and I, along with colleagues Ryan Dossie, and Amanda Perkins. Go to the ‘The Good Stewards Podcast’ you can find that. Those are the best places is to keep in touch with me.
Don: Awesome, Andrew. So, thank you very much for dedicating the time to come on the show today and wish you’d have a beautiful day.
Andrew: Absolutely. Thank you for having me. Appreciate it.
Don: All right. Thank you.
Lady: Thanks for listening to the real estate investing podcast with Don and Eden. Stay tuned for more episodes. Till next time.
