It’s no secret that Tim Bratz is a real estate workhorse. Starting out as a commercial real estate broker in NYC, Tim first immersed himself in the business, quickly learning the ins and outs of real estate. Over the past decade, he went from flipping homes and wholesaling to transitioning his business primarily into the multi-family realm and has never looked back. Managing a team that has over 2,500 units currently under control, Tim has managed to, in a short period of time master multi-family commercial real estate investing. As a mentor and active investor, Tim’s “Keep it Simple” approach is one that he puts into play with his very own business transactions every time proving that his methodologies work.
On this episode of Multifamily Real Estate Investments with Don and Eden, Tim dives into his unique approach to investing and the lessons he learned along the way perfecting his business strategies. He also discusses what his typical deal size is, how he finds motivated sellers, and what his number one strategy is for conducting business in commercial real estate is, “Keep It Simple.”
Highlights:
- Tim’s Beginnings in Real Estate
- Average Deal Size for Tim
- Why he Choose to Move into Commercial Real Estate
- How Tim Finds Motivated Sellers
- Current Projects
How to Connect with Tim
CommercialEmpire.com – For Training
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TRANSCRIPTION
Hey guys. This is your host Eden today. Me and Don are going to interview one of the biggest investors on the show to date. Tim Bratz team has over twenty-five hundred units under control and he’s about to purchase four other projects in the next month.
Welcome to the real estate investing podcast with Don and Eden where we cover all aspects of real estate investing with special attention to multi-family apartment buildings and off-market strategies.
Hey Tim, welcome to the show. Don and Eden excited to be here. Thanks for having me guys. Thank you. Thank you. Tell us a little about your day. How’s it going so far.
It’s going, man. Been in meetings all morning working on opening up an investment fund and launching that in the next 30 days here so we’re really really excited. And I got a bunch of deals closing next week actually 648 units amongst four different properties. So we’re pretty busy.
Yeah I know you’re a busy man and I’m so happy and grateful that you actually got on the show on a Monday morning.
Yeah I know typically because Mondays are always so crazy in the office we all have that. I actually do my team meetings on Tuesdays now just to give everybody a day to catch up over the weekend get updates on all the projects all the properties and that way they can come prepared on Tuesday morning.
So Mondays worked for me bud. Yes, that’s great. So Tim for our audience tells us just a little bit about your real estate background how you got into real estate and what are you currently doing. Yeah yeah sure.
So I mean high level I started paying attention to real estate when the market was going gangbusters last time remember 03 to 07. If you had a pulse you could make money in real estate and I was going through college then and realized I wanted to be involved in real estate so I was money motivated guy back then and had like a painting company in the summer where I employed a bunch of my buddies, we’d go around paint houses and then I worked for- interned for one of the largest homebuilders in the entire country. And my brother was living in New York City at the time. I’m from Cleveland Ohio.
And my brother said Hey come on out live with me and get a job out here in New York after you graduate. So moved to New York City became a commercial real estate agent and I brokered a deal that was 400 square feet in Greenwich Village of Manhattan and I signed a lease with a tenant for the landlord front for square feet was ten thousand dollars per month on a 12-year lease term with 4 percent annual escalations. I realized quickly after doing the math that this landlord was going to make almost two million dollars off of doing something at one point in time over the next 12 years. I quickly learned about residual income right passive income and the opportunity and lifestyle that can create. And so I ended up moving down to Charleston South Carolina. Just wanted some better lifestyle whether that kind of thing this is 08-09 now when the market crashed and I’m a punk Twenty-three-year-old kid at the time with no money. The worst real estate market history and deciding that I want to go and start a real estate investment company. And so nobody would lend me money. I remember going to a seminar and somebody is like oh yeah you could just call up your credit card company they’ll increase your limit. So that’s what I did,
I got my limit increased. I bought a dumpy little duplex in the hood for about fourteen thousand dollars put another five grand into it and then I just went and knocked on doors and pass out flyers held an open house I sold it to one of the neighbors who is going to run it as a rental property for thirty-three thousand dollars so after closing costs made about 13 grand on that deal. And it was like seventy-five total days and I was like oh my goodness I don’t even know what I’m doing I’m making money on this. So let me go do it again.
I think we got this natural progression as investors and we get into wholesaling we any money or at least I didn’t at the time low risk. You don’t need any credit you don’t need money so I got heavy into wholesaling single-family, got into flipping houses. People came to me and said ‘Hey listen man and you obviously know what a deal looks like. But I have money but I don’t have the time I don’t have the bandwidth or the knowledge or the expertise. Why don’t we split deals?’ And so I end up partnering with people that way. And then nice in partnering with people on buying some and holding some single-family rentals and then got into some bigger stuff retail flips and buying some small multi-family and then eventually got into apartments and I remember just kind of reflecting a few years back and looking at where was I spending my time where was I getting the highest return of my on my time highest return on my investment and what met my long term goals the best and I realized that apartments checked every single one of those boxes. And so I decided to double down on apartments I’d burn the ships on everything we had going on and residential we saw all the deals we had in the pipeline- we saw those to the finish line at that time we were flipping probably 80 to 100 houses a year and I’m back in Cleveland at that time right.
I got married to a girl from Cleveland so I moved back to Cleveland about six years ago and I’ve just been looking at all that stuff. We’ve got some big management company and just realize we need to dedicate all of our resources to buying apartment buildings. So had a few hundred units a couple of years ago and over the past, about thirty-six little over thirty-six months almost 48 months just been doubling down on apartment buildings. And I’m currently at a little over twenty-five hundred units with that package of well not a package but four other closings this month put me a little over thirty-two hundred units in my current portfolio. Ninety-five percent of that is apartment buildings. The other 5 percent is some vacation rentals and some office buildings. So that’s what we’re at now. So I just dedicate all my time to apartment buildings. That’s our niche. That’s what we’re really really good at. That’s what we know inside and out. My team’s comfortable with it. Every time I go outside that box. I get kicked in the crotch either from a financial perspective or wasting of time perspective. And so now we just focus on apartment buildings what we know is what we’re good at and it’s what’s making us a lot of money right now. So everything’s going great.
Yeah. So first off that’s amazing that you’re doing so many deals and you’re so active and you’ve grown so much and I know you’ve only just turned 34 right? That’s it last week. Thank you. Well so happy birthday.
So yeah we have been in that position to where we were making a lot of money in residential real estate whether wholesale or flipping homes and I gotta tell you making the move to commercial real estate was difficult because it requires to put the focus there and you have so much going on in residential. And so I want to ask you about making that move. When was that point that you decided to do it and how did you take the risk of shifting your entire business which was successful at the time, especially when you’re still young and have your whole life ahead of you?
Yes, so that’s a really really good question right. It’s one that I actually get quite often for people who are scaling into apartments. I think again all of us go through this natural progression of wholesaling, flipping and we get out of flipping as fast as we get into it because we’re like there’s no money in that. Right? Then we get into like some turnkey type stuff or buying and holding some single-family rentals and small mall ties and then bigger apartments and commercial real estate. And it’s a natural progression that a lot of investors go through. And how do you make it happen sooner than later? So to answer that, I got to tell you- for me, when we were flipping houses there were five of us. So it was me, a CEO, kind of a visionary, going out raising money; that’s what I spent my time on. I had a COO, Chief Operating Officer that ran the day to day operations and just met with the team and making sure that all the daily minutia stuff is taken care of, fires are put out, all those kinds of things. And there were three other guys on my team. One was an Acquisitions Director, two a Project Manager and three was a Dispositions Manager.
So from a tactical standpoint, it was very easy to pivot everybody on my team and move from single-family into apartments. So I took my acquisitions guy and I said ‘Hey man, you’re not looking at single-family houses anymore you’re only looking at apartment buildings;’ ‘Hey project managers that are renovating houses you’re going to renovate apartments;’ ‘Hey, dispositions guy sort of selling houses you’re going to manage the management company and you could be an asset manager.’ And so is this very small pivot from a functional operational standpoint it was a very big mindset shift right. You’ve got several deals a month five six eight deals a month closing and now you’re like, ‘What do I do with my overhead right?’ I have all these expenses I have all this payroll I have all these other things that have to pay for. How do I do that? So we didn’t just like take deals that were in the pipeline and throw those away we still saw all those through. So we still had a pipeline of another three-four months worth of deals. Right. So at the time that we pivoted, we knew that we could still cover our overhead for the next three or four months. And it’s amazing when you make three-four a declaration to the universe how the universe responds. I’ll give you an example when I was wholesaling houses I was a total prostitute I would take any kind of deal any kind of wholesale commission that came across my desk if it was five hundred bucks I remember doing one for two hundred dollars and I was like it was such I’m banging my head against a wall and like what the hell am I doing for two hundred dollars. But it didn’t matter I would just do that. So it got to a point where I told my team feels like we’re not doing any wholesale deals that we can’t make a minimum five grand happened. We didn’t see any deals that were less than five grand anymore we only saw deals that were eighty-five hundred and eleven thousand dollar wholesale and a fifteen thousand dollar wholesale on a seventy-five hundred wholesale. And those are the kinds of deals when you focus on those opportunities they expand. And the same thing happened when I got into apartments when I said to burn the ships. We’re not doing any more single-family. We’ll see these ones through that are already in our pipeline and we’re only working on apartment buildings moving forward.
Do you know the next deal that came across our plate was? An 11 unit apartment building that had a big renovation that we didn’t want to spend the next 12 months renovating this thing with four or five hundred thousand dollar renovation on only eleven units. That’s a massive rehab but we said Hey I bet we can wholesale this thing pick up the phone I call up six or seven people. One of them says yeah dude I’ll take that. We made a wholesale fee of ninety-five thousand dollars had a double close on it pay some fees. We walked away with eighty-seven thousand dollars wholesale fee from our next deal that came across our desk. So the universe whatever you want to call it responded to us making that decision and it gave us then enough overhead enough cash to cover our overhead for another three months. Right. So it got us to the point where now I got six months in reserves. I’m good to go. And now we start buying apartment buildings renovating apartment buildings have the cash flow coming in and have these things performing and that’s what we end up doing.
We flipped a couple of apartment buildings made some big chunks that way. So it’s an 18 unit couple months later made about one hundred twenty-five thousand dollars on that. And then we were sort of buying and holding a 74 unit portfolio a 48 unit building a 20 unit building and some of them were stabilized some of were not stabilized and you just kind of you kind of roll with it man when you solve problem by problem. And you understand what the long term vision is and then as long as you can get past each issue that presents itself on a daily basis and move the needle forward. That’s just kind of what we did. We know what our long term goal was. We know what our long term benefits of reaching that goal would be. And we just we didn’t let the daily issues get in our way. We knew that there would be hurdles we’d let the hurdles keep on coming and we just kept on rocking and rolling. We roll with the punches knowing that eventually one day it would be OK. Right. Eventually one day we’d get to where we want to be.
Yeah.
So if I’m getting you’re right you’re recommending to the residential real estate investor to if they want to make the move to commercial real estate that they’re just better off stopping all the transactions or just finish everything they have in the pipeline? But not taking any new acquisitions in residential if they ever want to make the move because I’m in the same position where I used to be in the same position where me and my partner Eden- where we would buy properties and we would have more deals coming on daily or weekly and then we would get so busy with the deals that we wouldn’t really be able to make that move because there’s no time with real estate wholesale or flipping homes. It takes it’s a full-time job. So if I’m taking your advice and you’re saying stop doing this and just start focusing on whatever it is that you want to do?
Here’s the thing that I know what I’m capable of right. Like if there’s somebody listening to this I don’t know what their capabilities are and what their background is like I’m a workhorse like I’m willing to get my hands dirty, I’m not too good to do any any role of responsibility, I’ll pick up the phone and do acquisitions, I’ll go and meet the contractors and kick the table, I’ll go and pick up the phone and try to sell the property or meet with a broker in order refinance or whatever that looks like. And so I can speak from my own experience that that’s what worked for me was always easy. Absolutely not. There was a lot of very skinny days a lot more money going out that’s come in over the past several years because I don’t make an acquisition fee. I don’t take an asset management fee. I don’t take a fund management fee. I only get paid when my investors get their principal returned. So we buy value add properties apartment buildings that are distressed in some capacity. We go in we fix them all up. We renovate them. We rent them all out. We put better management in place and then we refinance in 12 to 18 months and then we’re able to cash out our investors. They get all their money back and then we have all these refinance proceeds and then cash flow in perpetuity from then on and then we help hold onto the asset long term. So that’s my business model it’s the Byrd method for apartment buildings. I buy an apartment building I’m all into it for 65 percent of the after repair value and then I go and refinance it at a 70 or 75 percent LTV loan.
So if I’m all in for six and a half million bucks and the banks willing to give me a 75 percent loan and on a 10 million dollar valuation I’m able to then put a seven and a half million dollar loan on the property pay off the six and a half million dollars to investors in the acquisition loan and then I have a million dollars a refile proceeds that then I carve up amongst me my partners and the equity investors. So that’s my entire business model and it was very difficult early on because I didn’t take acquisition fees. I had those again a lot more money going out than money coming in. So what I do it exactly the same way. I don’t know probably because it got me to where I am so I can’t I don’t have any regrets in that regard. But what I’ve taken an acquisition fee or maybe wholesale a few more properties or flipped a few more apartment buildings maybe just to help soften a little bit of the financial stress and cash flow management of it. But at the same time on our model’s awesome our investors love our model our partners love our model and it is it’s worth really really well for us. So for somebody else to come in and say ‘hey Tim should I burn the ships? Dude. I don’t know what your work ethic is right? I don’t know what your unique ability is. I don’t know what your team’s capabilities are. I was able to go and just focus on raising more money and finding more deals and doing a bunch of marketing stuff because I knew that my day to day operations was handled by my business partner my COO and my team. So it depends on what your resources are. But if you are resourceful enough you will be able to make this work and you can make the transition no problem. I will tell you this, I wish I would have made the transition weight way sooner than I did as far ahead as I am. Can you imagine buying apartment buildings I could buy in for 50 cents on the dollar if I would’ve gotten involved this heavily a year or two in advance- 50 percent of what they’re going for today? So there’s no better time to get rolling and then to do it right now today is the best day kind of a thing. Don’t put off what your long term goals are. Whatever you’re doing does not meet your long term goals. Burn the ships.
I actually think that it motivates you more when you do burn the ships to go out and get your head out of your ass kind of thing and figure this stuff out because now it’s a little bit of a wakeup call knowing that if you either have to succeed or you’ve to die – that’s the way the whole ships comes from.
Yes, I see what you’re saying and I couldn’t agree more. So tell us, Tim, what other types of sellers do you usually buy from and how many units you like to work with?
Yes, so I’d say now my average deal size is around 100 to 150 units per building of the four properties and closing on next week. Have a 40 unit which is right next to some bigger buildings that I have I have 116 units. I have a two hundred fifty two-unit and a two hundred forty unit. I’m buying all those buildings next week. So it ranges and depends on I’ll buy stuff under one hundred units. If if there’s paired up with one of my buddies usually 100 units are bigger. The reason for that is you can provide on-site property management and onsite meet its personnel it can withstand having that payroll there you’d see a lot of people getting into like 30 unit, 40 unit, 50 unit buildings. That’s it’s almost like it’s a hell zone. It’s a goldilocks zone in a bad way because you don’t have the scalability of having on-site property managers or personnel or anything like that. At the same time, you don’t have the scale of property management companies willing to give you a big discount or know it’s just there’s a lot of stuff going on in that realm once a little bit tougher.
So we try to say it usually over 80 units is the minimum that we’ll go to and hope in four hundred two hundred units. I like two hundred units and bigger is my ideal clientele. But then you get the hedge funds and stuff that come in there and they’re buying up everything that stabilizes. So my niche is really the value add stuff. It’s stuff that’s physically distressed or managerial or distressed and that comes from one of two sellers typically. One is mom and pops own the building great grandpa bought the building a while back or a couple bought the building 20 30 years ago and they’ve lived off of the cash flow for the past 20 years and so they’ve sucked every drip every drop of cash flow out of the property and never reinvested anything into it. And when you do that for 20 years guess what happens. Eventually, the roof goes. Eventually, the parking lot goes eventually the windows go. Eventually, the mechanicals goes and they don’t have any money set aside in reserves and then reinvest it into the building. So now they’re in a tight spot. They’re not financeable, they don’t have any cash. Their only option is to sell the property. So Mom and Pop owners who have owned the property for 10, 15, 20 years or longer -typically that’s one of the people I buying from. And then the other people I buy from are smart wealthy entrepreneurs who are not full-time real estate investors are not full-time apartment investors. How is that possible? Because they make money in their traditional business and they need to park it somewhere and they think real estate is a safe investment. And it is if what you’re doing right? So they go and they park it into real estate into an apartment building and then they don’t have a joint venture partner. They don’t have any equitable partner, boots on the ground who gets paid based on the performance of the property. They don’t know how to manage a management company. They don’t want to review the profit loss. They don’t know what the expectations are and what happens is the management company ends up ripping them off. They don’t hire the right management company or they hire one that just rips them off.
Eventually what happens is they’re bleeding so much money on this property that they take their eye off the ball and the primary business is still going through the learning curve on the apartment building side and they end up losing one or both of their businesses because of it. I just bought seven-hundred units last year from a couple of stockbrokers out in New York. These guys make millions. Each of them makes millions of dollars every year. Brokerage stocks on Wall Street to buy a few hundred units down at Georgia. They think they’re all set. They don’t have a partner down there that interview the management company that knows what with the right questions are to ask. And because of that, the management company rip them off they’re bleeding all sorts of cash flow from these properties because they’re bleeding cash. They don’t want to reinvest anything else into these properties because they’re not sure if they’re getting ripped off or not. So now they don’t have enough cash flow to reinvest into the property to turn units. And then it’s just a downward spiral that happens from there.
So we come in and we bought 700 units for 10 million bucks. That’s fifteen thousand dollars per unit at a peak of a market right in the middle of the summer of 2018. How is that possible. Because we found motivated sellers. Now we had to put a bunch of money in I put another 15 almost 20 grand into every single unit. But now I’m all in for thirty-five thousand a unit. One of the buildings just appraised for sixty-eight thousand dollars per year. Wow. So I’m all in for almost 50 cents. Just over 50 cents on the dollar in that portfolio and it’s going to be I’m all in for 25 million bucks let’s say it’ll appraise for just shy of 50 million dollars. So there are deals out there. I don’t sixty-eight care who you are. Whether you think you can or you think you can’t you’re right. I know that deal finding is a mindset. And I know that there’s a motivated seller in every single market in the United States right now. I just need to find it there aren’t before a broker finds them. And so I try to find direct to seller off-market relationships the same way that you do in wholesaling. And I’ve just taken a lot of the same strategies and wholesaling residential real estate and I’ve moved that into acquiring apartment buildings so directly. Oh great. You can. You can do direct mail for apartment buildings to driving for dollars. Great. There are houses with tall grass and boarded up windows. Guess what. There’s an apartment building with tall grass and boarded up windows. Dialing for dollars instead of calling for sale by owner residential. I call for rent by owner apartment buildings. So we say hey I’m not interested in renting your place I’m interested in buying the whole thing. Do you have any interest in selling? Just get the conversations out there. Start planting the seeds and eventually they will sprout. I don’t know if it’s going to be 60 days later, six months later, six years later but eventually, the seeds will sprout. You’ve got to keep on planting seeds. It’s a much longer-term mindset than wholesaling real estate. This is for long term wealth. This is not a get rich quick. So you’ve got to have a long term vision and a long term mentality and realize you’re building wealth for generations to come. Don’t expect that you’re going to get all these apartment buildings in the first two weeks.
Yes, I totally agree with you. Because you can make good money or even great money in residential. But I guess it’s safe to say you truly start to get wealthy when you think bigger and understand that it’s a longer play.
So tell us a little bit about your underwriting. A lot of people look at they got these fancy calculators. They’re paying hundreds of dollars for it. See if Facebook ads for it. I think it’s all B.S. I don’t use any fancy calculators. What I do is I do some back of the napkin math on what the stabilized rents can be. So I don’t care if it rents for five hundred bucks a month right now. I go and look up what market-rate rent is for a two-bedroom unit and if it’s 750 a month then I’m going to take one hundred units or however many units are at the complex times 750 gives me seventy-five thousand dollars a month in gross potential rental income. I know what my expense ratios are. Most of my buildings are 40 to 45 percent expense ratio, so I can five thousand a month. That’s nine hundred grand a year. And then multiply it by let’s say point six because of a 40 percent expense ratio. And that gives me was five hundred forty thousand dollars of net income of NOI. If I want to buy it a 10 percent cap rate that means the most I’ve got to be all into that thing four is five point four million dollars. Then I back out my construction budget. It’s gonna cost on average ten thousand dollars in unit times one hundred units that’s a million bucks so my maximum allowable offer on that is four-point four million bucks. We’ll go in somewhere around four million dollars and hopefully close the deal somewhere between four and four-point four million. And then from there, I get all the due diligence from a seller. Rent rolls, Profit Loss Statements, trailing twelves, tax returns, and Utility bills. All that stuff I handed over my commercial mortgage broker who then packages it all up and pulls all the data from co-star and all the different commercial data aggregators and puts together his entire package that the banks are going to underwrite as well. It’s not like he’s making up any numbers these are actual numbers. They’ve all come from somewhere. The real financials I let him underwrite the deal. If a bank’s going to underwrite it and put up the first mortgage of 80 percent of the purchase price and cost of this thing guess what you do they’re gonna do their due diligence. Absolutely. So I let them do their due diligence. Why do I need to go through all the brain damage in under in order to underwrite this thing? I just do back the napkin type math. Make sure it works submit the letter of intent and then I hand everything over to my commercial mortgage broker. He underwrites everything then tells me that it makes a lot of sense to go ahead and do it. And usually, my math is much less than what we can actually pay for it. When he does his math he might say hey we can actually pay five million bucks for this thing is that a four-point four million. And guess what. That’s just extra juice and a squeeze for us because we went in the right number. So that’s it then that’s all I do.
So you think what makes you such a good investor is the fact that first of all, you came from residential and you had some residential techniques as far as I’m doing direct mail and marketing to get to the sellers? And so the other thing that I want to ask you about that is also I mean how do you get to these people? Like what else do you do besides just sending them letters and getting in touch with these millionaires that have a lot of money that they’re looking to park somewhere because it’s not really easy to get to these people. They’re rich people they’re busy.
So how do you get in touch with them for private money? I know I’m talking about when you’re finding motivated sellers for properties from the properties that you were talking about.
Motivated sellers everywhere. What are the 4Ds? Death, Disease, Divorce, Disaster. Right? You go to Pensacola and like Panama City, Florida and that hurricane that went through last fall decimated Panama City. Guess what? That’s a disaster. There’s a lot of people motivated sellers in that area going take their insurance proceeds and let the property go. There are some deals there. So that’s disaster death. I just bought four hundred units earlier this year and in Georgia from a guy who inherited 400 units from his parents who passed away a few years ago he’s been living off the cash flow. He lives in a little bungalow on the beach on the Gulf Coast of Florida. And he just doesn’t care. And so does he want to do the work in order to try to get 16 million out of this apartment building or is he willing just like let it goes and for 13 million dollars and he let it go for 13 million dollars and we came in bought it and got a good deal on it and stabilized it and now it’s worth north of 25 – 30 million dollars.
So like there are deals out there death disease divorce disaster in every market going. You can do probate leads and apartment buildings the same way you do probate leads in. It’s just reaching out to these people just because like I’m a millionaire. Right? So I get mail the same way that everybody else gets mail. I have a cell phone that rings the same way that everybody else’s cell phone rings. So if you can get a hold of me, I am selling properties I am buying properties and I’m a passive investor in different properties as well. So if you build any one of those funnels you’re building all three of those funnels because in commercial real estate a buyer is a seller is a private money lender. It just depends on timing. I’m right now a net buyer, I’m buying more than I’m selling but I am selling some of my smaller buildings right now. So if you if I’m on your list and you see me that buying properties you can wholesale property to me you can buy a property from me, you can joint venture on a deal with me because I’ll passively invest in other people’s deals and bring the equity I’ll maybe sometimes even co-sign on the loan sponsor their loan and get involved in different capacities that way.
So if you feel any one of those funnels you’re looking for private money or you’re looking for buyers of multifamily real estate or you’ll more sellers of multifamily real estate find a marketing funnel that works for each one of those. And by building one of those funnels it builds all three of those funnels and then you can drip the same marketing content. I had everybody into a simple email drip campaign and I sent him an email once a week said hey I’m looking to buy properties. You got anything you’re looking to sell? And I let people send me deals and ninety-nine percent of them are crap but there’s a needle in the haystack. Every once in ninety-nine while the other thing that I do is I give content they look at I’m joint venturing with this person and here’s how I under underwrote the deal and here’s how I structured the deal. They have 30 percent equity but there’s in the project. I have a percentage of equity, our investors have a percentage of equity and guess what everybody gets paid. This guy couldn’t get involved in this apartment building deal unless I came in and partnered up with him. Now he’s able to start building generational legacy wealth for his family. How does that sound? Great. If you want to bring me deals bring it to me. I’ll fund your deals. So now I have people who want to partner with me on projects I people want to wholesale deals and the people who want it so I’m just I’m telling people all the time on social media through my email campaigns of what I’m doing of how I’m doing it and I’m not the biggest investor in the country but I’m one of the best known because I’m just consistent with my marketing across the board.
I see well these are amazing techniques and I really think you’re doing things differently from all the guest we had on the show. Nobody is doing things the way you’re doing.
One of the things I do is I just keep it simple. I think commercial real estate is such an antiquated, old school method, methodology and how everybody does it they all do broker relationships. You don’t have a broker relationship and how are you gonna get a deal. And so you’ve got to be willing to do just kind of off the cuff different kinds of things that other people aren’t willing to do. You’ll find deals that other people can’t find. So one of the things that I do is again all these different strategies on the residential side that I implemented and I do the same thing on commercial real estate. And none of the other old school investors in town are doing that. They’re not doing direct mail they’re not doing it like that. The only people I’m competing with on direct mail is brokers. Do you think somebody calls back a broker or a callback actual buyer rather callback a buyer? Of course, so and then I develop relationships with residential wholesalers, residential investors and I let everybody know that I buy apartment buildings so they come across apartment buildings too? They just don’t know how to underwrite them or don’t know what to do with them can’t raise the money. And so then they sent him to me because I’m top of mind all the time and we get a lot of deals that way. But during my deals actually, come from that. I don’t spend much money on advertising.
Yeah. So once you purchase the property what kind of value strategies do you usually apply?
Yeah. So a good question. Apartment buildings are 100 percent based on the income approach. That’s how they’re valued that they’re valued based on how much income does this property achieve right? On an annualized basis they don’t care what the building on the down the street sold on a per-unit basis because that size could be different. It could be tenant-paid utilities versus landlord paid utilities it’s a lot of differences and variations. It will depend on a building down the street is the cap rate that it’s sold at. That’s the only thing that’s based on a comparable per-unit is the cap rates in the area. So if you can increase the income or the net income of your apartment building then you can increase the value and it’s very predictable how you can do that how you increase the net operating income you could do two things. One is you can increase the gross income but you can also to decrease the expenses of the property. So we do both of those so we increase the rents. How do you increase the rents? It’s by renovating units know by attracting better tenants who are willing to pay more by having nicer cleaner safer more functional more aesthetically pleasing type units. You do that. You could also add amenities dog parks, workout rooms, pools, clubhouses, laundry, covered parking, storage like there are a thousand different things you could do to increase the income and add additional revenue streams to the property. Like when I was in New York everybody to have cell phone towers on top of the buildings they got rent from that- there’d be billboards on the side of buildings they make rent from that. There’s a lot of different avenues to generate income on these things. So once you generate all the income that you possibly can. Now you’re looking at how do I decrease all the expenses. So you could do all the energy-efficient, plumbing fixtures, light fixtures all that stuff’s going to reduce your utility bills. We harden our units and what I mean by that is we don’t put carpet in because carpet wears off replaced every few years holds bugs and holds dirt. It’s hard to turn when a tenant moves out. You gotta wash it and then not walk on it for a day. Time is there. So what we do is we do luxury vinyl tile in every single one of my units and you can sweep it in mop it and be done with it in 30 minutes. It doesn’t wear the same way. Carpet does it doesn’t hold bugs, it doesn’t hold dirt, people can’t put their cigarettes that burn cigarette marks out on it and it just looks nicer it attracts better tenants. So we do things like that to harden the property and minimize ongoing maintenance as well. The reason we do larger apartment buildings is that the whole management thing. So now I can have onsite property managers and onsite maintenance staff to reduce my ongoing maintenance, to reduce my ongoing management, attracting better tenants and more qualified tenants. Screening them better and having nicer units than down the street and still just charging market-rate rent. Not trying to get a premium out of it. We’re able to attract the best tenants and they stay longer. Your biggest expense and only rental property are going to be turnover. So if you can minimize your turnover you’re going to be able to increase your income increases your returns pretty significantly long term on that apartment building. So you do all those different kinds of things. You increase the income, you decrease the expenses, and the end of the day your NOI is much greater and then the cap rate that it appraises at is a multiple of that and now you’re able now you’re in the ballgame. It’s very predictable what the stabilized value is going to be on our properties. I know what I know it’s going to praise for before I ever even buy it. So we know what numbers we just back into the numbers that way.
Yeah. So it sounds like here you’re doing things differently. Also in and renovating the property so I’m curious to know about how you raised money because I bet you have some secrets over there as well.
Yeah, that’s one of my unique abilities I’d say I’m pretty decent because I’ve done everything else so it’s easy for me to talk from an operational basis, from an investment basis to my investors. And like on these deals that are closing next week we just raise six point eight million dollars over the course the past probably three weeks. It took us to raise almost seven million bucks and it was not as I wouldn’t say it wasn’t difficult but it wasn’t as hard and it wasn’t as much work as I thought it would be it was actually a lot simpler and smoother of a process than I thought. It’s the most I’ve ever had a raise in a single deal before I’ve ever raised 3-4 million bucks in a single deal before but this is the most I had to raise. I’ve not got a single deal but in closings, all occurring in one day know how it lined up but all four of these properties are all closed on the same day. So how do you raise money? You tell people what you got man, you gotta tell everybody what you do and how you do it. And I think you need to have an offer that cannot be beaten. That’s just it’s so good that everybody has to listen or at least entertain the idea of investing with you and so what we do is we pay a 10 percent preferred rate of return regardless of the property’s performance we’re paying a 10 percent fixed pref. So you invest a hundred thousand dollars with us you’re making ten thousand dollars a year regardless of the property’s performance. And then when we refinance it’s a pretty quick turnaround usually 12 to 18 months. Our investors get all their money back and then they keep equity in perpetuity so they get a little bit of equity in the deal forever. So they get a percentage of those refinanced proceeds that come off the table. They get a percentage of the cash flow they get a percentage of the depreciation and they get a percentage of any future sales proceeds. So now it’s an infinite return because they made a solid return double-digit return respectable return on their money while it was in play. They get all their money back and now they have an infinite return on their investment because they have five proceeds. Cash flow forever and equity in the deal and they don’t have anything invested anymore. And the next question is ‘hey Tim let’s go do another deal. Do you have anything else? I don’t want my money back. Let’s roll it and do another deal.’
Then I roll it into another one and another one and another one in ten years down the road. I’m in seven or eight different deals that I’m partnered up with this person and they have these little almost annuities right here in their bank account on a monthly basis of the cash flow from all seven or eight different properties. They made a phenomenal return while their money was in play. They have all their money back and they have equity in seven or eight different deals that will pay off these big pops of re proceeds and sales proceeds whenever the property sells. And then every month their equity increases that we pay down the mortgage balance on these properties and every year that we bump rents and the property appreciates their equity increases over time. And now they’re building real wealth. Right. So not only that making a good return on their investment but they’re actually building wealth for them and their families. And it’s a win-win all around. Now I don’t have to work as hard because they want to do more deals. It breeds a lot of loyalty with my investors and it just makes sense that way. But I tell everybody that I invest in real estate. I tell them how I structure deals you cannot pitch people. There are S.E.C. violations to pitching people that you don’t know or posting something on social media like I don’t do anything like that. I post about deals that I have going on and post about case studies that I did and from that people inquire and they say ‘Hey man I’m sitting on some coin. Do you have anything that I can roll into?’ Well, let’s develop a relationship first. Tell me a little bit more about your background. Tell me a little bit more about what you have going on right now. It’s about a little bit about your experience in real estate investing. Tell me what your long term and short term goals are. Once I develop the relationship then I can tell them, oh this deal just came up. It fits and meets your needs. You’re a good match for this. You’re accredited. You’re not accredited. Whatever that looks like. And then you can move to the right project.
That’s amazing so yeah you’re the first person that ever told me that they’re paying 10 percent to prefer return but somehow it makes so much sense to me, to be honest. I mean that’s amazing that you do things so differently than anybody else.
And it’s a dude. It all boils down to finding good deals one and being an awesome Operator. You gotta be able to oversee the value add project management you’ve got to be able to oversee. I mean on that 700 unit deal I bought last summer we put 10 million dollars of renovations into this thing. So you think about that in a year and three months. We invested 10 million dollars. What is that That’s six and a half or six under fifty thousand dollars a month. We’re doing renovations it takes a hell of an operator to be able to do that right. So what’s not all of our deals. Some of them are less but I mean on on our projects they’re gonna be able to find really good deals and or do really good project management in order to force the appreciation by putting in that sweat equity and that’s why we can pay the returns that we pay because we take on a lot of that responsibility on our side as the operators. Yeah but again I told you at the beginning man I’m cool with it. We’re cool getting our hands dirty work, we’re cool with doing the work that nobody else is willing to do because then we get the deals that nobody else is willing to- they can find and or they’re willing to work on.
Yeah and I bet there are bigger rewards for these kinds of deals.
Massive. I mean I’d rather buy a building that’s worth 10 million. Like the hedge funds go in and buy 10 million dollar building for 10 million dollars and hope that it appreciates by 3 percent every year for the next 10 years. I don’t come from that world. I’m an investor. I gotta find a wholesale deal right. So I’d rather buy and renovate something that I could be all into for six and a half million dollars. That then it for 10 million and still and still appreciates by 3 percent every single year. So that’s more, my business model. And by doing it that way I’m also very safe for any market corrections or any anything that happens in the marketplace. I’m at a low enough basis in my properties. If and when shit hits the fan I have options right. I could sell. I can refinance. I can hold. I can do whatever the heck I want because I bought at a low enough cost basis and I’ve created appreciation versus speculating for appreciation.
Yeah and that’s amazing. I think if I if I’d be investing in multifamily apartments as a passive investor I’d definitely be interested in talking to you. So what are the best ways to connect with you?
I’m active on social media Facebook. I’m really active. I have a podcast my own called LegacyWealthShow.com – I got a lot of free content there and I do a little bit of mentoring not a lot. I’m not a guru. I was approached by some guys who have an education business and they said ‘hey man you keep on doing what you’re doing as an active Operator we’ll do the education side’ but it’s a good way that I’m able to train people on how to go out and find apartment buildings and be great operators and at the same time sometimes they have needs that they can’t fill and I can invest in their projects. I can raise money I can sponsor loans for them. They can be boots on the ground they can find the deals do the project management and I can fill any voids that they might have. And there are other people who can come out to my events and I came out of it sitting on money I want to get involved in commercial real estate. I don’t have the time or the bandwidth to do it myself but can I marry up with a great operator? There’s a lot of passive investors that come out to my events that then we pair up with awesome operators or they invest in one of my projects or whatever and we’re able to do deals together. So it’s one of those things where one plus one equals three and a rising tide floats all boats. I give all the content that you could ever want to go out do deal on your own and if you want me involved and want to partner up some way knowing that you have somebody with my expertise my experience my team’s experience in your corner is a big deal for a lot of my students. So I throw events three-four times a year as well and that’s pretty cool it’s kind of a way that I can kind of give back and help people build some of that wealth for the family too. So that’s called Commercial Empire and if anybody wants information on that they go to commercialempire.com. That’s more formal training.
Ok, wonderful. So Tim thank you very much for coming to our show today and I really hope we are going to have a beautiful rest of your day.
I appreciate you guys. Thank you for all the value that you guys give and all that you’re doing for the real estate community and obviously if there’s anything I can do to help you guys out as you guys transition into commercial real estate let me know.
I’m here for you. All right thank you very much.
Thanks for listening to the real estate investing podcast with Don and Eden. Stay tuned for more episodes. Till next time.
