Todd Dexheimer is a multifamily investor and syndicator and has been investing in multi-family units since 2012. A former high school industrial tech teacher, he began investing in real estate as well during the recession of 2008-2009. Due to the hardship to acquire loans, he began to flip homes – acquiring a solid rental portfolio before becoming involved in real estate syndications.
In this episode of Multifamily Real Estate Investments with Don and Eden, Todd will discuss his first deal to transitioning from a single-family to multifamily investor. He also will outline his perceptions of the state of the market due to the talk of a looming recession. Todd also discusses what exactly he looks for in markets when investing in real estate and the types of real estate he chooses to invest in depending on what the current market outlook is.
Highlights:
- Todd’s Beginnings in Real Estate
- Transitioning from One Career to Real Estate -Making the Jump Full time
- Are We Headed for a Recession?
- Where to Invest
- Current Projects and Future Outlook
How to Connect with Todd
Coaching & Mastermind: coachwithdex.com
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Transcription
Hey guys. Today I’m hosting Todd Dexheimer. Todd is a multifamily investor and syndicator and he had been investing in multi-family since 2012. Today we’re going to talk about Todd’s first deal to transition from a single-family to multifamily investor and the state of the market due to chatter of a looming recession.
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 Todd, welcome to the show. How are you doing today?
I’m doing well. Thanks for having me.
Of course. Yes, so tell us a little bit about your day what are your plans for the near future.
Well for the day or the future that’s a big difference.
Right. How about we start from there and then we take it to the future I know you say you’re going to be traveling to Europe right.
Yeah. So, today I’ve got a couple of things I’ve got – I’m in the third round of a property we’re looking at purchasing. And so I’ve got the call with the seller. So we’ll see how that goes. I’m very hopeful to be getting this property and then I’m also redlining a contract that I’ve got an office building under contract. So we’re doing the redlining which redlining means you’re just going back and forth with the seller and making changes and trying to get the contract.
So it’s good for both parties so very busy before I go to Europe, but then tomorrow we fly to Germany and spend two weeks with the wife and kids traveling around Europe.
That’s nice. I’ve been to Germany and I’m going to go to Germany in September for personal reasons. So that’s nice that you can travel and work and stay busy when you travel. I guess that’s the kind of lifestyle that you get when you work in real estate and you work for yourself. Is that right?
Well yeah I mean the benefit of owning your own business and doing real estate as I do, is that I’ve got time flexibility right? I can do this trip and it’s not extremely disruptive and I probably on this trip will have to do some work just because of these properties and hopefully, I get this other property and so hopefully I’ll be having two properties that were redlining but can be done from everywhere, I’ve got a computer. So that’s a benefit. And again it’s time flexibility. We can go when we want to go.
Yes. That’s nice. So, tell us a little bit about your real estate business. I know that you have been doing real estate for quite a while now and you’ve done residential and commercial. You’ve gone back to commercial, you’ve gone back to residential, which is kind of different most people they either do this or they do that once they do to transition from residential to commercial then they stay there. I know you had a different story so tell us a little bit about your background and career.
Yeah. So real quick I was a high school industrial tech teacher and started doing real estate while I was teaching full time. I was buying single-family homes and duplexes keeping those as rentals and then kind of ran out of money and availability because at that time at the time in 2008-2009 at the time it was really hard to get loans and especially get them in your personal name you can only get a few and so I could only qualify for about four loans including my house and so I ran out of credit availability I ran out of money and so I started flipping houses. And that allowed me to then buy more rentals and continue on that journey doing flips as well. I finally was able to quit my job and do it full time and just continue doing the flipping and buying – so I was always buying rentals. I was always wanting to build that rental portfolio. The goal from day one when I first started was to get a thousand units thousand multi-family units and of course find one to four-family units would have taken an eternity but I had a business partner at the time and we really focused on these flips and I think definitely over-focused on the flip side and I think he kind of let us towards that which is fine, but that transition just took a little bit longer.
When you say it started with multi-family and went back to single-family and then went back to multi-family we bought a 15 unit building that was a good opportunity that purchased and renovated and capped and the deal went okay. But it wasn’t great. And so I think it kind of made us go well let’s just keep on doing these smaller deals that are simple and we’re comfortable with them. So, we transition back to kind of doing those smaller deals and quite frankly we do the smaller deals while we’re doing the multifamily still. And then finally in 2015 my business partner I split up and I took a step back and decided what I want to do and where do I want to take this business, what makes the most amount of sense.
The multifamily made the most sense of building my rental portfolio made a lot of sense. I looked at the numbers quite frankly I looked at the returns on the flips versus the returns on the rentals and the returns on the rentals especially when you take into consideration the principal pay down and the equity that you’re building those returns made as much or more. Sounds financially as the returns on the flips and there are a heck of a lot less work way less head damage and way more control. So, the rentals just made way more sense to continue down so that that’s that was the transition that was a reason for it. Now again that was in 2015 when I decided all right, this is actually what I’m going to focus on and stop doing the flips.
Yeah, I mean, I hear a lot of people say that when they’re doing anything transactional or flipping properties or wholesaling properties then that’s good for paying the bills. It’s good for saving some capital, but it doesn’t make you rich. What makes you rich is equity and that you only get when you are getting into the bigger deals and you buy and hold.
So that’s yeah that’s my perception. Yeah, flipping can be a good business. I don’t want a discount and say it was a bad business and I regret doing it because I don’t I mean it was good business and I enjoyed doing it and made a lot of good money doing it was able to get me to where I’m at today.
I wish I would’ve transitioned out of it may be a little sooner, but it’s just a hard business to scale and repeat and you’re always counting on needing another deal to make money and if that’s what you’re counting on all of that, a lot more challenging business. Not that it can’t be done and you can’t do well and it’s just very transactional.
Yeah definitely. So, I want to talk a little bit about everything that you’ve been doing so you’ve been focusing on multi-family ever since. So you said 2015 and I can’t ignore hearing about all the talk and chatter on recession and the coming recession and so we’ve been we’ve been living in the perfect environment so far in 2019 where unemployment is very low, historically low and people can pay rent and people can live in A-class buildings and everything’s good and there are no vacancies, but now everybody keeps talking about a recession. And so how does it affect the multifamily investor especially somebody like you that you’ve been in the business for quite a while and so how does it affect your acquisitions you’re still doing deals you still getting in. I do count on that recession to consider it when you underwrite them.
It is pretty funny. You brought this topic up because I just wrote an article about this and the recession is coming. I don’t know well I promise you the recession will have some sort of downturn within the next 20 to 30 years I promise you that, we don’t know when the recession is coming. Here are the things everybody since, I got and I got into real estate in 2008 and in 2008 the economy, I mean just crashed right? In 2006, everything was beautiful. In 2008, the stock had fallen and it was still falling. And look in 2008-2009 people said it’s going to keep on getting worse we’re going into this deep deep recession we’re never going to dig out of it. I remember being in, I got my real estate license in 2009 and I remember people saying we will never recover our prices for housing we’ll never get back up to where they were in 2006 which is just crazy, ignorant if you think about it. But at the same time, people thought I was going to get worse. Once it started getting better and let’s call 2011-2012 things started picking out. It was we’re going to see a double-dip recession. The recession is coming we’re seeing a double-dip that never happened. In 2015, people said we’re going to see a recession in the next 18 months. I remember sitting in a conference in 2015 and that kind of question was brought up when are we going to see a recession time which had been good for a long time. Once a recession coming. Well, the recession is coming within the next 18 months we’re in the ninth inning maybe even extra innings right now. Well, I got news for 2019, halfway through it more than halfway through it and we don’t have a recession yet. But guess what? Everybody’s saying the recession is going to happen in 12 to 18 months. So, we still got the same thing happening it’s always going to be and eventually somebody is going to be right and they’re going to say they’re super smart and they predicted it. But here’s the thing. Trees don’t grow to the sky, right? Eventually, we’re going to have a recession. So, what do I do? I prepare for a recession. In 2008, I plan for a recession in 2010. I plan for a recession in 2015. I planned for a recession. Today I still plan for a recession. I always plan on a recession. I’m not being negative. I’m being realistic. So that’s I think the key is anytime I buy a property I’m just being very intentional and understanding look times are good. There could be a recession even when times are bad. But we could see it get even worse. So, we always have to plan for things to be not as good as they are today and if you can plan and still buy then it’s worth it.
Yes. So how exactly do you do that? So you mean to go out on a different cap rate on what you’re buying today? So give us an example like a numeric example.
So a numeric example haha to give you an exact numeric example because every situation is different I look at kind of the overall what’s going on in the market and all that kind of stuff. And I look at historicals as well so a couple of things that I do. First of all, when I when I’m underwriting, I’m underwriting an exit and typically that exit let’s call it five to eight years from now and I’m going to underwrite that I’m going to exit at a lower. Sorry, a higher cap rate than it is today. That cap rate isn’t necessarily formula based it’s more based on my research. So if historically that area holds that a 7 cap and today it’s trading at a five and a half cap I’m going to underwrite an exit closer to that 7 caps. I’m not going to just go up by 10 basis points a year as most people do. That doesn’t make any sense. That doesn’t bring me back to anything to reality so I try to be realistic about it and base it on what’s going on. Now maybe that market has totally shifted and it was a C class market and now it’s trending towards it sn A-class, that’s different that I have to look at. OK. What’s going on in the area but if it’s an apple to apples then yeah it’s more based on historic. So, I look back at what it was.
The other thing that I do as I look at again historically and I go what happened during the last recession what did rents do? Did rents go down? Likely they did. And by how much? Where did concession go? Concessions will likely end up by how much. And then what happened to my overall vacancy and my economic vacancy? They can see where did those go. And I stress test my properties based on those numbers and we can find those numbers fairly easily Most brokers have those numbers co-star has those numbers. So, we can get those numbers and we can figure out OK where can this property go? If a downturn happens how negative can it get. And can I stress test my building and still be OK. Still, tread water is above water or is it a sinking ship if just a little tiny thing starts to go wrong. And so a lot of people right now in my opinion are buying to where if just a little thing goes wrong, they’re screwed. Right they’ve got nothing. They’re planning on everything going right. So, make sure that you just plan on reality. Buy for cash flow you’ll have good cash reserves, have a good budget and do know the solid expense and income projecting meaning your expenses are going up every single year to 3 percent. Your income shouldn’t be going up more than 2 percent or so a year as well.
Yeah, that makes total sense. I think a lot of people are underwriting the way you said it. So that if everything goes right and everything is good then they make money, but they don’t consider what would happen if things go wrong.
And I think the reason for that is because it’s a little bit more difficult to find a good deal. So, you have to underwrite so many deals to find the right one so maybe people get a little bit frustrated. And that’s why they just jump on to a deal that they see as the best. I’m going to get it. So, I think that’s one reason. And speaking about that I know you live in Minneapolis which I’ve lived before I lived in Minnesota for three years. And it’s a beautiful place. But I know you’re investing in Tennessee, in Kentucky, and Ohio. So, I want to ask you about how did you pick these markets? What exactly in these markets was attractive to you that you decided to invest in these markets?
Yeah. So what I’m looking at markets, I look for a couple of things I look for good job growth, population growth, the type of job growth, I want good diversity in the industries, I want to make sure that is still trending upwards I want to make sure that the city, the counties, the Chamber of Commerce, and so on are doing things that are actually driving businesses to want to come in and the types of businesses I want. So that’s all-important. I look for trends too of what’s happening with the multifamily and ending in a single-family because they’re very well tied together, what the building permits are, what the occupancy is, where the rents are, and where they’ve been.
So I’m looking at a lot again back at historically and then at current data training projections to find the markets than a couple of the things I look at. One of the bigger things actually that I was looking at when I was choosing the markets were rent affordability and the reason being is in today’s market. One of the probably the biggest things that you’re hearing about that’s stressing people out is the fact that there is no affordable housing. So if you’re in a market that has a very big lack of affordable housing and the economy takes a dive what’s going to happen to your housing the prices are going to go down, the occupancy is going to go down, and you’re going to be hurting, but if you’re in a market that has good affordability and has. Again not overbuilding and so on. You’re going to be able to withstand in my opinion a recession a lot better. So, I looked at markets that have just really good solid rental affordability and the last thing is the opportunity. I want to make sure there’s some opportunity. I don’t want to go on the market and have zero opportunity to be looking at, some market sells a lot of properties and others just don’t sell properties. Minneapolis, for instance, we don’t sell properties here. We keep them. Eighty-seven percent of all properties are owned by local owners.
And I don’t know the statistics on how long they’re held but my guess is the average property held well over 20 years. Where markets like Dallas, Texas for instance which I don’t invest in but those properties are turning every three to five years. People don’t hold onto those properties and my guess is less than 50 percent are owned by local people.
That’s great. So, I know your first deal was up 50 units in multifamily in Minneapolis. Was that right? Yes.
Yeah. And that was back in 2012. And I know a lot of time had passed and that deal did not go as expected. And I know right now you’re doing two hundred and twenty-four units so that’s a bigger deal and things I hope you are going to go better for you. So, could you tell us about that first deal back in 2012? What went wrong? What could you have done better with the knowledge you have today? And so how does how do the lessons that you’ve learned affect the deal that you are doing right now? The two hundred and twenty-four units.
What would I have done differently is not bought the property or bought the property for a lot less or to be able to change the things that needed to be changed. The biggest problem with the property is because it was built in 1880 and it had old cast iron piping, galvanized piping, it had an old steam boiler, that had all the electric knob and tube all brick it was just an old tired building.
And the biggest thing was mechanical, so mechanicals were always things were always going wrong and by mechanicals I mean the plumbing electric and stuff was always going wrong there and so we always had problems with that we could never cashflow because on just maintaining that building. So what I’ve done definitely if I could have bought that building again and I could have got it for the price that I would’ve needed I would’ve ripped out all the plumbing systems and redone it from ground up and I would have taken out the steam boiler and redone that I would’ve taken a lot of capital but if I could do it again and could buy the bill for the right price that would’ve been what to do. Awesome. That’s great. Overall that investment worked out. I mean overall we didn’t cash full during the whole period but I sold it and made some pretty good chunk of money so the market definitely appreciated nicely for it and probably still made a 25 percent return on investment on an annualized basis but I had zero cash flow. So it was a pain to deal with.
That’s nice. So, what are your plans for the future as far as your career and your business? Where do you plan to be in the far future?
Yeah. So, it’s just to continue to purchase multi-family properties. In the far future, I’d like to have over 10000 multifamily units to create a business impact.
My goal is to create a business that creates impact. I want to create a positive impact. So, if I can create a business that has a lot of positive impacts then at the end of the day I’m happy. And so right now I’m working on building more multifamily or buying options and building because I’m not constructing them but buying more multifamily units and growing.
And like I said I’ve got an office building so I’m looking at some diversification as well. I just continue to move my company along the needle there. I’m also doing some mentoring some different coaching stuff, some mastermind groups so I am enjoying that and doing that aspect of the business and enjoying the impact the positive impact that makes as well. So, for me right now it’s what can I do to kind of make sure I’m following my vision, following my goals and part of that is creating a lot of positive impacts.
My core message, my core belief is being able to give back and be able to leave this world a better place than what I came in. So, everything I do is built around that.
So, what are the best ways to connect with you in case anybody wants to get in touch maybe invest with you on one to one of your future deals or get some mentoring?
Yeah. So, if anybody wants to invest with me they can reach out to me. It’s VentureDProperties.com so it’s a venture, D as in dog, properties dot com my email is Todd@venturedproperies.com. For coaching, they can go on venturedproperties.com or coachwithdex.com as well and reach out to me on coaching or mastermind stuff.
Awesome. Ok so Todd, thank you very much for participating in the show today. We appreciate you coming and putting your time to make an impact, as you mentioned and I want to wish you the best of luck and also have fun in Europe.
Appreciate that. Thank you very much. Thanks for having me on. And hopefully, your listeners took something from it and feel free to reach out to me.
All right. You have a great day. Thanks.
Thanks for listening to the real estate investing podcast with Don and Eden. Stay tuned for more episodes. Till next time.
