Andy Vaughan from an early age knew that he wanted to attain financial freedom as an adult. After working in the insurance industry for about 25 years, he knew he wanted to make some new changes in his life and decided to start investing in real estate. From his connections in the insurance industry, he noticed he had quite a few high net-worth clients that were interested in investing in real estate but had no desire to be a landlord. So he transitioned to helping those connections/clients to invest in multi-family units to generate passive income.
In this episode of Multifamily Real Estate Investments with Don and Eden, Andy discusses everything that happened since that decision to transition into real estate took place in 2016. Andy also shares his strategies behind the number of units he typically looks for to invest in. He will also go over his take on the Southeast real estate market, where he primarily invests and the outlook for the current market today.
Highlights:
- Andy’s Beginnings in Real Estate
- Southeast Current Market
- How He Helps Investors Create Passive Income
- Number Of Units He Typically Looks For In A Deal
- Current Projects and Future Outlook
How to Connect with Andy
Website: backnineinvestors.com
Email: Andy@backnineinvestors.com
Phone #: 318- 614-0681
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Transcription
Hey guys. Today I’m going to host real estate investor and syndicator Andy Vaughan. Andy was working in the insurance industry, but wanted to make a few changes in his life and decided to start investing in real estate. Today we’re going to discuss everything that has happened since that decision took place back in late 2016. What I like about this episode is that it is very inspirational in regards to the fact that Andy had no experience whatsoever in real estate, but his persistence and determination paid out. So stay tuned and let’s get started.
Welcome to the Real Estate Investing Podcast With Don And Eden, where we cover all aspects of real estate investing with special attention to multifamily apartment buildings and off-market strategies.
Hello Andy and welcome to the show. Thanks. Glad to be here. All right, tell us about your day. What are you up to?
Well, I’m in sunny Louisiana. Hot, humid Sunny Louisiana in August. So it’s very uncomfortable outside, but yes it’s at least clear here – you should see the weather in Florida. I mean we’ve had a lot of rain, but fortunately, there are no hurricanes at all. I’m not going to be surprised if there is one on the way. Yes, so tell us a little bit about your real estate background; how you got exposed to real estate in your story so the audience here can get to know you a little bit.
Well probably like many people I mean I just, through the years all going back to college were always interested in real estate interested in things that could produce. Some people call it passive income and some people call it residual income, but always intrigued with the business itself in general, and I can’t dunk a basketball or write a song or sing a song, so I figured I needed to find another way to produce that. Also, the two things that made sense to me in college was insurance, real estate, and background golf. I played on the golf team in high school and college and then worked at golf courses. I would see these grown men there in the middle of the day at the golf course and being inquisitive I would always ask them, what kind of career did they have that allowed them to do that? So the vast majority of those guys were either in insurance, real estate, or sales of some sort. So that’s what, being the deep soul that I am has wanted to play golf all day, when I’m in my 40s, so that’s what got me interested in it. So it started going down the road, I guess back in 1993, I graduated from college, got in the insurance business, and then insured business now for 26 years. However, as far as real estate, I was one of those that back and forth for years, I would get interested and wanted to do it but didn’t know how to do it. I looked at like vacation rentals, condos at the beach one year, get excited about that and didn’t do anything with that.
I thought I needed to get into long-term rental houses, and kind of felt that everybody had to start as a slumlord, and I didn’t want to do that. I liked to play golf, I can’t imagine getting a call; I was on the back nine, and ‘hey man air conditioner went out’ whatever, so I would always talk myself out of it. So I would say fast forward to 2016, so whatever that is. Twenty-three years after the insurance, having been in the insurance business, I was frustrated with the insurance business because in church companies changing rules, you get set up to where you’re pretty successful and they change the rules on you at another agency where we did a lot of group health insurance through the Affordable Care Act coming down in 2010, then finally getting implemented in 2014. All those rules changed in sizing the groups and all those sorts of things changed, which affects the income. So I was looking, I mean I was looking for something else; I didn’t know it would be real estate. However, started going down that road, I’ve been involved in several coachings, like just business coaching programs through the years and I was a part of one in 2015 in Atlanta. One of the guys in there was a syndicator, so it was the first time that he didn’t call it a syndicator. He just said that he bought apartments and flipped them. He said he did. But that’s the first time I looked at it. So then you start researching things and of course, I think everybody comes through a Bigger Pocket. I think to do things that everybody has in common, and this is either Bigger Pocket or ‘Rich Dad, Poor Dad’ right?
Yeah I read it years ago when it first came out I guess early 2000s and all that made sense, but still I didn’t know how to how to get involved, and through the years I had a number of clients that invested in real estate; several different forms from single-family housing to flips to commercial warehouse space and kind of everything in between. I had this one particular client that he had a single-family house that he had torn down, and he was going to build duplexes, he’s going to be late duplexes of 16 units had the plans all drawn up and everything ready to go. Then he decided to retire and move to the beach. So he was back in town one day and one of his grandkids ball games, who happens to play the same team as my daughter. We were just in the stands talking. I ask him where he was on it, and he said that he had decided not to do it; he’s like ‘you oughta do it, buy the lot from me, I’ve got everything ready to go, plans are drawn you need to look at doing it’. So that got me interested again. That was the fall of 2016. That’s what kind of started me down this road to use the general term real estate investing.
Still didn’t know which direction I wanted to do, but multifamily duplex, all that sort of thing made sense to me. The more units you have under one roof, it just, it made so much more sense. So by not having any experience in looking at all the cost and carrying costs of development. That scared me. So I spent four months evaluating that deal and come to the realization of how much it would cost, which was how long I have to carry that cost without having any tenants paying rent. Then I kind of got scared and didn’t want to do that. But, through that process, one of the guys that I reached out to help me evaluate that he was aware of Bigger Pockets. So, of course, get on there and start looking around and listen to podcasts. This led me to another month or so down the road, and I heard a gentleman on podcasts one day mention the term real estate syndication and they just closed some apartments. So they got me interested in going down that path doing some research with syndication, was how it worked and all those sorts of things.
So that’s what I landed on as far as a strategy. There are so many different strategies out there that you can focus on. No, I don’t think it is necessarily better than the other one; it’s just what’s better for you. What kind of fits your skillset what you’re looking to do. So for me, multifamily and in syndication the way I look at it is you have lots of different tools in the tool chest right? Syndication- I think, I’m not going to say it’s the end all be all, I think it’s one tool. So that’s where I chose to get started in learning the business of real estate, long term real estate investing.
Yeah, I mean I remember the first time that I heard about syndication I was like my eyes lit up and I was thinking to myself, Aha. That was like that moment that I realized that you could buy apartment buildings without actually having the money, right? Yeah. Which is not surprising because it looks like in America you can do whatever you want. You could buy anything if you don’t have anything. So I mean I think that’s amazing that you started in 2016 when you first got back into the real estate investing. Kind of gave it a second chance if I’m getting it right. So now we’re in the summer of 2019, and you’re already in control of how many units?
Well I mean I’m on the general partnership side of, I don’t even know. I would have to do the math honestly. Let’s see, give us a ballpark. Six hundred and twenty-six units. We got one deal that set to close the next couple of weeks. We’re supposed to close last week, but the seller had some issues with their current loan that they had in place or whatever, that we’ve got to get taken care of. So, after that closes, we’ll be at six hundred and twenty-six units.
Okay, so when you say when you’re saying we’ll be. Who exactly are you talking about?
I believe it’s a different partnership. I don’t I’m involved in four different deals. So full and all four of those deals have various partners, different partnership arrangements. So it’s different on every project. The first project I got in it was it’s myself and one other guy, that was a thirty-six unit. That’s kind of where I got started and then from there as you go to more significant projects, you’d have more people get involved.
So when you got into your first deal of the thirty-six units, obviously you’re not bringing any experience, just the desire, and motivation. So how did you how were you able to get on the GP side of that acquisition?
That particular one I’m trying to think back here. I had been to a couple of conferences and boot camps throughout 2017. In early 2018, I bought, probably three different tools to help kind of analyze the deal. Help with run all your numbers and things, you just shot, pretty much spent 2017 educating myself, through online courses boot camps things of that nature, reading books, obviously listening to podcasts. So coming out of a boot camp the first part of January last year, I decided that I needed to find a mentor or somebody that was actively pursuing deals and doing deals that I could learn from.
So that’s what I did. I spent probably next month and a half looking and deciding whom I wanted that to be. So I found a guy that I liked what we’re doing here. We had a Zoom call set up once every two weeks. It consisted of him, myself, two others, and we were just all learning the business. I mean how to analyze a deal how to know how to build relationships with brokers how to determine what markets you’re looking at I mean everything that you have to do in this business. One of the students when I got involved though, already had a deal under contract and just 36 units out in Greensboro North Carolina. I got involved in that at the end of February and so fast forward to the first part of April, he got on the call that day and he and some friends or family or whatever that last-minute maybe decided to back out or not invest. So he said he was going to be a couple hundred thousand dollars short. I liked the Greensboro area already I mean that was one of the markets I was interested in. I asked if you would send the information to me about the deal and ask him if I want to pursue it if he’d be willing to partner on it. So we spent the next week or two going through that deal and looking at everything suddenly jump on board with him. So that’s how the first deal with the 36 unit came about. It was the partner I mean that’s I guess, that’s the name of my story is, partnering. You don’t have to do everything so A to Z. I think if you find, for me anyway, you find good partners and learn from them as you go. I mean it just everybody wins right? So team together everybody.
So let me see if I’m getting this right. This guy that you were partnering up with, they got the deal, they did the underwriting. They found it through a broker relationship or whatever it is that they did over there in Greensboro, and then you partnered up by bringing the money on that specific first deal right?
Well, not all of the money. I mean he had already raised a good bit of the million together. We had raised, I mean what he thought was going to be a couple of thousand dollars short, he ended up being 400,000 dollars short altogether in that first deal he and I together raised right at eight hundred thousand.
Okay, so you helped him with raising the 400,000. He was short. So how did you go about that? Where did you have the connections?
Well, I had already I mean 26 years in the insurance business through the years. Number one I had lots of clients that were already quote-unquote real estate investors or landlords or whatever you want to call them. Then number two I had a lot of other clients, note high net worth and top income-producing clients, a lotta professional whether they be engineers, physicians, things of that nature; very interesting system in 26 years, you have lots of conversations and friendships. So yes, I knew that I had many people that were very interested in investing in real estate quote-unquote, but with no desire to be a landlord. So I knew that I could call you and talk and have conversations with them about, ‘hey guys I found a way that you could invest passively in real estate without having to deal with tenants and being a landlord’.
Yeah, also pretty safe. I would say it’s safe to invest in apartments when you’re on the LP side because you’re getting a preferred return and that’s going to come out anyway. So I mean you could always lose the money, whatever investment it is you’re making but I would say that if I had like five-six million dollars that I was looking to invest. I think I would put everything on real estate syndication or had the majority of it on real estate syndication. So I could see the benefit for a passive investor. So I think it’s beautiful that you seized the opportunity of everything you’ve gained so far in your life even though you were not in the real estate business, but you have realized that investors and people that have money and people that are interested in investing, so I love it. You seized the opportunity once again to an estate end, and you knew how you could use your experience and your skillset and tools to get what you want. Now you’re in a better place, and I think I truly find that amazing. That’s a beautiful story, so tell us more about that 36 unit, give us the details of that deal. So what was the value adds and what was the common?
This one is kind of you to know; it’s that story that I guess we all kind of look for that says, it’s an old tired property in a great area. It was in an area of Greensboro that you see as it sits next to a huge bank, it sits next to an assisted living facility. So then right down the road like maybe an eighth of a mile in, a Starbucks, a Chick-Fil-A, a Panera Bread, Harris Teeter grocery store, kind of a shopping center. It was a 1970 construction, so it was old in the interiors. Now next year the property looks great. I mean the owner that we bought from, I mean he’d redone all of the asphalt outside on the parking in the exteriors, it had two euro roofs, the exterior does look great. It’s the interiors that were just the 1970 construction. So there they’re compartmentalized apartments, real small, choppy kind of dark dingy and they just really haven’t been putting money into the interior renovations. Yeah. We analyzed the market as far as our competitors in that area, and the market rents even though we were smaller. I don’t know, a quarter of a mile down the road the other direction is an over 200 unit apartment complex. So we don’t have the same amenities as them. However, you get real comfortable as to what the market is, and what kind of rent they’re getting, and ripper square foot and all those sorts of things. Then see how far under market this property was. That was the plan, to go in there and spend money on interior renovations and increased rent.
What’s the premium you’ve got on the rent?
Well, it’s turned out to be a good chunk better than what we thought when we underwrote it. For instance, when we underwrote it, it consisted of twenty-four two bedrooms and twelve one-bedrooms. So at the time that we underwrote the property, we were planning on crossing the six hundred dollars a month for the one-bedrooms and seven hundred dollars a month for the two bedrooms in year three. It was kind of two bedrooms. Were they’re two-one or two-two? No, they’re all two-one and one-one. Yep. That being said, let’s say we closed at the end of June last year and started our renovations and leasing up the renovated units, and I mean we’re already, even the ones that we’re not renovating, like full-blown renovation, just going in there and freshening up we’re achieving seven-twenty-five on the two-bedroom, and six-twenty-five one-bedrooms. Wow. So yeah we’re already leasing up to above year three numbers on that. It is just a matter of our most significant learning curve is on a thirty-six-unit; you run into issues with property management. That’s big, with it being at home, we don’t live there, so you’re relying on third-party management and finding the right property manager to manage that. So yeah.
So let’s get back to the rent before we move on to the property management. I want to clarify the right. So you brought it to seven-twenty-five and six-twenty-five even though you forecast at six hundred and seven hundred, and that was after the renovations of a few units, or just the way it was?
Yeah, I think today we’ve rented renovated so far probably six-seven units something like the players’ thing.
You’re saying okay that the owner and I hear about that a lot, the owner of the property did not raise the rents because they just didn’t.
So sometimes they just don’t know that they could right? Or they get in touch and get close with the tenants, so they complain honestly about this particular deal; what the issue was I’m going to say the owner so much as it was the property manager that he had, he just didn’t believe that he could push the rents.
They were good at what I would say bringing a D class property up to a C class, but they were only used to dealing with C to C, C minus tenants if that makes sense. We planned to push it to with the location that it was in, we thought that we could renovate, at least some B tenants in there. Do it that way but so we had a difference of opinion on our demographic, our avatar if you will for our tenant.
So what was the rent when you guys got into the deal?
I mean we had, some of the one-bedrooms were renting for as little as four-fifty-five. Wow… And the two-bedroom, we had some two bedrooms that were five-twenty-five, five-fifty. The average rent across the thirty-six units we bought it about five-sixty. We’ve pushed the rents now. What we did was we know neither one of us having experience with Fannie or Freddie, which means we had no experience with a property manager. Then Fannie wanted to see that the property manager that was already in place, stay in place even though we had a difference of opinion on the business plan. So that was the big issue. We closed the end of June just call July 1, June 29th is what it was. So we finally got it, proof from Fannie to let them go, let the property manager go. And we changed property management firms in November. So from November to June of this year, we were with our second property management firm and there again to a small property management firm. It just, everything’s bottlenecked in there. Sort of like every decision had to go through one person and nobody was given, so if they’re out of the office or whatever nothing happens. So it just a lot of issues with, project management, issues on timing, budget, issues on the renovation. Just all sorts of issues with them. So long story short we changed to our third property manager June of this year and we just decided to bite the bullet with a larger firm, that I mean they manage over ten thousand units. Yeah obviously we’re paying more for them, but we know what we’re getting. This was the firm that we used during the due diligence as well it’s just that we’re probably the smallest apartment complex they manage. Yeah. So we’re actively trying to find other deals there in Greensboro to add units to scale.
Yeah. So what is the average of the rents right now? You said it was five-sixty, so what do you think about the average right now?
I’d have to pull that information and look.
I mean we’re probably the six-fifty range, six-seventy range, and the cap rate that you bought it for was when you bought it for what the corporate calculation based on it was like, six-point six caps, six-point six. So essentially, let’s say you sell it on or refinance that property on the same cap rate. I just want our audience to understand the value add and the amount of money that you guys added to the property’s value. So you think it’s safe to say that you’ve got ninety-nine dollars for each unit in value-add? Right. And that’s thirty-six units? Right.
The way that we’ve got cash out if you want to go through the math, but I mean the way that we are projecting it is for the number one, they didn’t have the prior management everybody was on a month to month. So there were no long term leases in place. So yeah that’s what the new firm is not only out there leasing up and getting twelve-month leases in place but getting rents, getting the rents up to the market to where they’re supposed to be. So, yeah I mean with all the value add and everything I mean we ran it probably a month or so ago and looked at it. We’re hoping we’ll get everything in place in another twelve months to eighteen months from now. We’ve got it projected that it should be worth two points three, so that would be about six hundred thousand dollar value.
Yeah. So from my calculation, I just got at five hundred and eighty-nine thousand and that’s before you even reduce the expenses which I’m sure you could. And what’s funny is that you’re saying all the things that are really like, the jams that you’re looking for when you’re after properties between the 10 units and 50 units. Which is, by the way, it’s what I’m after at the moment. What you’re saying is that all the tenants they had a month to month leases. And that’s already a flag that as an investor, somebody is trying to buy multi-families, and that if all the tenants are on a month to month basis then that property is not being managed correctly. So there’s always a value-add and that’s the key. That’s why you’re looking for and I think that is why I’m going over with you the deal and the numbers, because I know that when you’re first starting to look into multi-families and especially if you’re doing a transition from resident to residential real estate than it’s very difficult to comprehend what it is that you’re looking for. Right? Because when you’re looking for, if you’re looking for a property single family that you’re trying to renovate or flip, or fix then you’re looking for a distressed home, and then you just try to get a discount. When you’re looking for an apartment building than what you’re looking for is something that’s not managed correctly, and that is exactly what you’re talking about. I love that, we can see it as we break down the deal. I’m sure our audience would appreciate it, and that is why I’m doing this and you probably learned so much in your first deal right?
Yeah. And then actually, I mean to that point is what you’re looking for. I mean that’s the big thing right? I mean being where you can communicate with a broker exactly what you’re looking for, in the exact location, the size, the vintage, the unit mix the whole deal you want. You want to know what you’re looking for.
And to that point is, I think today you hear, you just talk to some different people, and you hear I’m staying away from the larger properties, the three to five hundred units. Because of your competition with institutional investors and things of that nature, conventional money and yeah everybody. Well, I’m going to focus between one hundred and a hundred fifty units or whatever, but then you got tons of people like us running around in that space, and there’s so much competition especially when you look at markets like Atlanta and Dallas. So it’s coming, what you just said I mean, so we’ve kind of changed our thought process with that, and hey, we’ve got thirty-six units there in Greensboro. So, instead of looking for that hundred and fifty to two hundred units, why don’t we find four more thirty-six units. Yeah. There’s a lot less competition for thirty-six units; it makes sense obviously because all these property management headaches you have at that level. But if you put four of those types of properties together, now you’re closer to one hundred and fifty of their units, and a lot more manageable. You get good property management and all that.
Definitely. And what else I think everybody is talking about in the podcast and on the shows. They’re talking about how they’ve done the big deals, the ones over a hundred, and how it’s the best thing to do. But sometimes you hear it like an episode on somebody’s podcast and that episode is from two years ago or one year ago and the money’s already changed. Now it’s more difficult to find these things. So right. Yeah. So right now when, as investors when we look at the market we can never see what it’s doing right now. We can only look back and see what it did, but we never know what it’s doing. So that is my perspective too. I share this perspective. I’m looking for, I know you, we’ve already discussed in yours, you said that you’re going after this. You have a deal that’s about to close, it’s more than a hundred units and I think that is great. But I’m very, I feel very confident about what you said before about finding properties that are in the range of the thirty units, forty units right now because there’s less competition. You could find things directly from the owner and not necessarily through a broker, which is what I’m going after and that’s my strategy for dealing with the situation. That there’s so much competition for multifamily right now.
Right. Yeah I mean I believe that there is no right or wrong way necessarily to do it and there are so many different tools. I mean we’re talking about syndication whatever but, I mean obviously, if somebody has them. Wherewith all or if you’re able to work out a deal with an owner where he’ll finance it for free. You mean there’s many different to rules? It doesn’t all have to be pigeonholed into this perfect hundred and twenty unit value, it adds to class C property and Class B area and we’re going to syndicate it.
Yeah, it was simple.
Yeah, that’s right. That’s right. So and that’s one of the things that I love about this business is as you expand and grow and partner in different deals, you get to meet people from all over the country and learn about different markets. You can even do some joint ventures rather than syndication. I mean obviously, syndication is expensive, you got all the attorney’s fees and all those extra reporting to investors and all these types of headaches and stuff that you don’t have to deal with. Yeah. If you have three or four guys that can take down forty units.
Yeah. But there’s more reward obviously when we talk about a hundred units.
Sure, but there again, that’s what I’m saying. I mean I just don’t think there’s a right or wrong, it’s just what is your strategy right now. It’s like you said we can always look back, and obviously, there’s been lots of people that the syndication strategy has done very well of less than five to eight years.
Yeah, I think you just need to focus on your strategy and just stick to it. You need to come up with your idea and the way that you see things and just to continue doing it until you find something. If it’s too hard or you find out that it’s not something you can do, then yeah maybe it’s a good idea to change the strategy but not to quit. Right. Right. But I do agree that you’ve got to have your way and do things the way that you see them. I’m not saying that it’s impossible to find a deal of a hundred units or more, I’m just saying that that’s not a strategy that I chose. I’m aware that there are deals out there that you could find, even two hundred units. I’ve heard about a person that bought two hundred units from a mom and pop. Believe it or not. You see it’s not even a sophisticated seller. So how did he do that? It’s a low chance but it happened. That’s what I like about real estate everything is possible. Everybody has their way, and I think your way is remarkable because you were looking for the knowledge and you just did actions and you took stuff into your own hands. You went there. You went to a coach and you partnered up with people and you involved your connections, and so you made it happen. I think that’s beautiful really. Well, thank you. Yeah. So what are the best ways to connect with you if anybody’s trying to partner up or do things or even learn something?
Well, my web site is back nine investors spelled out, so backnineinvestors.com. You can reach me there. Email address is Andi@backnineinvestors.com. I’m giving up my phone number I don’t care, my phone number 318- 614-0681. I’m on LinkedIn, Instagram and Facebook and all. I like that you give out your phone number so people talk to you because this is a business of people and networking. So if anybody listens to that and you guys want to connect with Andy it’s a great opportunity to talk to an investor that’s experienced and knows what they’re doing. Yes, that’s one of my favorite parts honestly. I was at a conference a couple of weeks ago in Dallas and we went out to dinner they were looking around the table, there was a guy from Oklahoma City, Columbus Ohio, Rochester New York, Boston and myself from west Louisiana. So now you get to meet all kinds of different neat people who build relationships and who knows, I mean help out in the very least, maybe partnering on some deals together with him, so yeah.
And sometimes your phone rings and you don’t know. But that bet could be one hundred thousand ringings right there and I missed it. It happens in real estate though. So yes Andy thank you very much for participating in the show. I want to wish you the best of luck in your future ventures, and thank you. That was an amazing insight.
Thanks for listening to the real estate investing podcast with Don and Eden, stay tuned for more episodes. Till next time.
