DE 35: A, B, C, D and a Mobile Home Park with Andrew Cushman

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In today’s episode, our guest Andrew Cushman was a chemical engineer for more than seven years. In 2007, he and his wife decided to follow their entrepreneurial spirit and entered the world of real estate. Their journey began in flipping single-family homes, in which he completed 23 transactions- purchase, rehab & sell. A few years later, he made the transition into the acquisition and repositioning of multifamily properties. Today, he continues his success in the nation’s SE market. 

Andrew discusses how he went through the recession of 2008, his strategy for buying single families and multi-family properties, why he chose the Southeast market. Andrew also shares the pricing strategy he used as well as how he decided to get into the mobile home park asset.

Episode Highlights:

  • Learning the Business & Becoming an Entrepreneur
  • 2 Categories within Mobile Home Parks
  • Bad Market or Bad Strategy?
  • His insight on the Next Recession 

Connect with Andrew:

Website:  Vantage Point Acquisitions

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Intro: Hey guys, today I am interviewing Andrew Cushman. And I’m in a very good mood for various reasons. Number one is because I’m very happy to interview such an amazing individual. Andrew is really a professional and I had the chance to talk to him a little bit before the show and kind of understand how he thinks. It really brings me to the point of understanding again and again, that it’s all about the mindset, it’s about faith or fear. If you’re afraid, then you’re going to be paralyzed, and you’ll never succeed in accomplishing your goals. Cause with no risk, there’s no reward, it’s as simple as that. You’ll also hear during the interview, how Andrew is a thinker and he goes against the herd, which is something I personally believe in. 

I think it’s always important and smart to go against the herd and analyze your own life and environment with total faith in yourself and your abilities. I think really, Andrew is that kind of person, which is why I enjoyed the conversation with him so much. The second reason why I’m in a good mood is that me and Eden are getting close to this mobile home park deal that has 70 units. I had a great time underwriting the deal and learning more about the specific market, where it’s located. I guess I’m grateful. I’m just truly grateful for doing what I love, really being able to do something that is big and invest in real estate. 

Sometimes I think about it, and I can’t believe it, that I’m doing these things. And I really want to help others achieve the same goals and change their lives. So, I guess this is an opportunity for me to say that I’m grateful for you guys as well as our listeners, and I hope you are learning what you need here. And that in the future, when you are successful in real estate or in a future deal, then you think about us and the stuff you learned here. I think that’s about it. Without further ado, let’s get started.

Lady: Welcome to the commercial real estate investing podcast with Don and Eden where we cover all aspects of real estate investing with special attention to off-market strategies.

Don: Hey Andrew, welcome to the show.

Andrew: Hey, how are you doing? Glad to be here. 

Don: I’m doing just fine. Actually, we just had a conversation before the episode started. And I got to say, I had a lot of fun talking to you about what you do and your outlook. And also, I found out that we have a lot in common, right? 

Andrew: Yep. 

Don: Yeah. But before we get into that, how about you tell us a little bit about your background and how you got into real estate, to begin with?

Andrew: Yeah, I took the standard path into real estate and went and got a chemical engineering degree. But I always knew that was just a placeholder. It was just something that I could earn a decent income. So, I figured out what I would really want to do because I knew I wanted to be an entrepreneur. I worked as an engineer for seven and a half years, married a wonderful woman who had the same ideas I had about trying to be an entrepreneur. And so, we tried a variety of things. And they were fun and minorly successful, but they weren’t something that could really accomplish her financial goals. And then, I think in 2007, we found, we discovered home flipping and we started doing that here in Southern California. We did our first one and then I said, “You know what, this is our best shot.” So, went to quit my job. She did the same thing two years later.

Don: That’s in 2007. So that’s right before the crisis.

Andrew: We’re at one of the epicenters of it Southern California, there were condo complexes here that dropped 70% in value. It was a great time to get into real estate because everyone was terrified. We had no competition. We’d go buy stuff at 50 cents on the dollar, fix it up and sell it at 80 cents on the dollar. So, whoever’s buying it was getting the best deal around. And so even though the whole thing was collapsing, we were still making thick margins.

Don: Wait, wait, wait, let me figure this out. So, you were buying at 50 cents on the dollar 30 cents on the dollar you said in some cases, and you were selling it for 80 cents? How come? I mean, I know nobody was buying anything back in 2008. 

Andrew: There’s no such thing as a bad market only a bad strategy, right? And single-family houses, there are always some people who have to move for some reason. Their job gets relocated, family changes, whatever right? So, what we would do is let’s say a house is worth 400. We’d say we buy it for 300 or 325. We’ve renovated for 25,000-50,000 whatever required but instead of listing it for 400, we list it for like 375. So that we were the cheapest and nicest house on the block. So whatever rare buyer was out there, they’d always come pick our house. It never took us even in the worst of the crash, it never took us more than 30 days to sell a house once we listed it.

Don: That is just a terrific thing. And you know what, I’m interviewing a lot of investors and entrepreneurs here in the show, I haven’t yet found somebody that did that kind of strategy back in 2008. And that’s very interesting. And now that I’m thinking about it, it really makes sense to me because I spoke to you a little bit before the show. And I also see how you think right now as an entrepreneur, and I can see the similarity in how you were thinking back then, right? 

Andrew: We listed with a local realtor who was really really good. And I remember walking and deal with his office and another realtor sitting at a desk. He literally looked at us and said, “You’re flipping a house, are you crazy?” And I was like, everyone else is creating, this is like the biggest opportunity we’ve seen in forever. So, we did that for about four years and then after three-four years, everyone else started to figure it out. And then also there wasn’t that much equity left, it was still a good business, but it wasn’t nearly as good. And we kind of said, well, what’s the next big thing? 

Now all these people losing their house, they can’t buy another one for 7-10 years so they got to live somewhere. And the people who still could buy a house, they’re scared of it. They don’t want to buy a house. So, they still got to live somewhere. We’re in a big recession. So that means we’re eventually going to be coming into an expansion. So, if we add those three things together, apartments are probably going to do really well sometime soon. And so, we went and found a mentor, a guy who had done 800 units, we hired him to teach us the business.

Don: How much you paid him? 

Andrew: I don’t remember it wasn’t cheap, but it was worth it.

Don: I love it that you had like an itch of doing something bigger. I feel the same thing as an investor. Like no matter what I accomplished in real estate, there’s always room to grow as an investor, there’s always something bigger you can do. And that’s just amazing because you were doing single families, you’re doing great back in the recession. So, you were making money when everybody else was losing money, right? And then you’re starting to think about how I can make even more money? So how many single families have you flipped up until you made that decision to move up the ladder of commercial real estate? 

Andrew: We were being very careful to only buy deep margin deals so we didn’t do a ton. I think when we switched to multifamily, I think we had done like 25 flips in those couple of years. Nowadays, you hear guys are like does 70 a month right? But it’s also much, much, much smaller margin. So, we did that full time for four years. And then our first apartment complex was mostly vacant c minus property on the other side of the country out in Macon, Georgia. That was 92 units. We syndicated that which course means we pulled investors money.

Don: What year was it? 

Andrew: That was 2011.

Don: So back in 2011, you’re signed to thinking to get into multifamily and commercial real estate and you’re looking at Georgia when you’re living in Southern California. So basically four and a half hours flight. 

Andrew: Yep. 

Don: So why did you choose Georgia- Atlanta?

Andrew: Idaho and Utah are getting overrun from people fleeing California. And then in the southeast, it’s not just baby boomers because like Atlanta, for example, they’re becoming a tech hub. They’re also becoming an entertainment hub. Atlanta did or Georgia did more dollar business in the state of Georgia than it did in Hollywood last year. 

Don: No kidding. 

Andrew: Yeah. Well, for example, Stranger Things filmed in Georgia and a lot of the Marvel movies filmed in Georgia. There are tons of these huge sprawling film studios. Basically, what it boils down to is, is there are tons of people and jobs moving to the southeast. And to me, that’s Florida, Georgia, and the Carolinas. And those are the two things that drive long term apartment performance and rent growth in jobs and population growth. And we’re still not building enough apartments. We’re still not building enough houses. So, there’s the long term shortage. They’ll be dips along the way but the big picture is very strong for multifamily, even single-family rentals, I would say, for probably at least 2030.

Don: You and I have a few things in common. As I mentioned, we’re both started in single families, and we’ve ladder to doing some multifamily and commercial real estate. Also, we have another thing that we share, which is mobile home parks. So, I know that you just bought a mobile home park. I’m just looking at a seven-unit mobile home park deal right now that I’m probably about to close on. Let me ask you about your deal. You said you bought a mobile home park for the first time in the past year, right?

Andrew: Yeah, it was last December.

Don: I want to ask you why and where if you don’t mind.

Andrew: It’s up in a small market outside of Augusta, Georgia. And we didn’t buy it because we necessarily want to be mobile home park operators. Not that there’s anything necessarily wrong with that asset class. I know a handful of guys are doing tremendously well in the mobile home community space. But the reason we purchased it is it’s very much in the path of growth. We also already own 100 apartment units, literally a half-mile down the street so we know that market very well. Really, it’s a development opportunity. So, we purchased it to consider changing it into an apartment complex or developing new apartments there. But the beauty of it being a mobile home park is not just buying a piece of land…

Don: It cash flows.

Andrew: You buy a chunk of land, you gotta pay the taxes, you’ve got holding costs, you might even have financing and then it’s purely speculative. For this if for some reason the development doesn’t pencil out, we’ve got cash flowing bubble I think happened at this point, we could sell it for more than we bought it, it was almost as close to a no-lose situation.

Don: So, you can buy a mobile home park based on two categories. So, you can either buy it for the land value, because remember, mobile home parks are big. They sit on six acres, seven acres, eight acres, sometimes in the middle of the city, especially if it’s a growing city that had experienced significant population growth in the past decade. You’d still be able to find mobile home parks closer to downtown. And the beauty of it is that this is cash flowing opportunity to maybe develop something bigger like apartments and so we know right now apartments are basically sold for I would say low cap rates, so 5.5. So, when it’s that low, then it makes sense to develop, right? And that’s why I’m doing it. And that is why you’re looking into it. How many acres is that park, what are you going to develop on it? 

Andrew: Three acres, but as you said, part of the appeal of it is it’s very close to downtown, you can literally walk to the Main Street. Due to the topography and the zoning restrictions and like the code that they have, they’re probably only going to be able to put 20 to 30 units on it. As I said, it will be centrally located and actually the road that it’s on is going to be widened in the next 5 to 10 years because the city’s expecting that road basically becomes the new main road through town. We’ve got a set of drawings right now for 24 units. So, I’m probably going to look something like that.

Don: Nice. If you’re looking to buy a mobile home park in Miami, for instance, you’re not going to find anything based on income. Everybody’s going to ask for 20 million bucks for that piece of land. So, you bought it based on what approach, based on the value or based on the income approach?

Andrew: It was bought more on the income approach, knowing that we can improve the income on it and if we decide not to develop it, then we can just hold it or it’ll be worth a lot more than we paid for it just because we’ve increased the income. So that was part of the risk mitigation is we budgeted to do a little bit of cleanup improve the NOI on the mobile home park itself. Just that way, if for some reason we decided we want to get out or don’t want to do the development, and we can still make a profit on it. 

Don: You’ve syndicated over 1800 units. You’re very passionate about real estate. And that’s why I think it’s important to understand real estate and the income approach as a more of an idea, rather than always focusing on one thing and not even hearing about the rest. Because you are able to do that being creative because you are able to look at a different type of deal to get to where you want. And I love that, I think that’s something that is truly admirable.

Andrew: There’s no such thing as a bad market, just a bad strategy. In today’s market, we’re having to adjust our strategy a little bit. Much harder to buy stuff that makes sense. And I see a lot of deals getting done because people can do them not because they should do them. You’re going to pay $70 a square foot for C class property that you have to put another $10 A square foot into the end up at 80, or you can build something that’s brand new for 100 or 105. It’s like, “Well, wait for a second, why am I messing with this 40-year-old property when I get a brand new one for just a little bit more?”

Don: Yeah, definitely. You know what, I heard from one of my guests on the show, Bill Ham and he said something about the next crisis in multifamily being the properties that our C/ C Minus because these properties are old, they consist of galvanized plumbing. And then what really happens is that this entire plumbing system is about to collapse. And then people are buying these properties for very low cap rates because of supply and demand and everything has been going in the market. 

So, it’s very, very likely that these properties are the ones that are going to drive the next crisis in multifamily. And then they will be dropping in their price and people will default on their loans. I researched that strategy and I thought that it was genius, the way he thinks about it. And then I’m thinking by the time I get back to multifamily, it’s either going to be developing which I’m doing, I’m developing also a 30 unit or it’s going to be purchasing these properties are older but only after they drop.

Andrew: It’s funny. When you’re comparing an A-asset to a C-asset or B-asset to a C- asset, you have the C-asset will always look better on a spreadsheet. But they also never perform in the real world as they do on the spreadsheet. 

Don: Exactly. 

Andrew: The expenses are always higher, the economic vacancy is always higher, the headache factor is always higher. And then like you said, it’s funny, everyone just looks at the net operating income and all the CapX stuff is put below the line. Well, guess what, when you own a property, it doesn’t matter where on the p&l that CapX is, it’s still coming out of your bank account. And if you’ve got pipes breaking underground, and all kinds of capital expenses going on, it might not technically affect your NOI, but it will affect your ability to make investor distributions. 

What I like to say about those is if you’re comparing as an A to a C or B to a C, you say, well man, returns on the C looking a lot better, is you know, the grass is always greener over the septic tank. And I do agree that the risk with those going forward is greater than with A and B not only for the mechanical issues that you just mentioned but also whenever we do get a recession, the next recession is unlike the last one is not likely to be real estate driven. And whenever we get into a recession, typically the people that suffer the most are the lower-income hourly wage workers. They don’t have to lose their job, they get their hours cut back by 20%, they can’t make rent. And that’s typically your low C renter. And so those C properties will be the first to suffer and they’ll also suffer the hardest where B and A stuff based on our housing shortages will probably do just fine. In fact, if you even look back at past recessions, typically A and B class apartments as a whole rent kind of many cases hold steady. May come down a little but you’re typically not looking at a huge collapse.

Don: Interesting. Okay. So, in that case, I got to ask you, what do you think is going to drive the next crisis?

Andrew: Well, what’s going to drive the next crisis will be something out of the left field that no one’s expecting. That’s typically what drives the crisis right. Now long term big, big picture Robert Kiyosaki-ish type viewpoint, where we’ve got a huge problem with student loan debt and with federal debt. It’s what we’re currently doing as a country, both as individuals and as a whole. It’s just not sustainable. And there’s going to be a reckoning at some point. But we’re really good at kicking the can down the road. So, who knows when that’s going to be. In the short term, we could inflict damage on ourselves, right? If we take the whole trade war thing too far, poor legislation, for example, back in 1986, they changed the tax rules, and that created a big problem in real estate, right? 

So, they’re self-inflicted wounds, and then there’s external. So, if things are looking actually a little bit better right now, but I wouldn’t say good. If Europe goes into a recession, well, that affects us. Can’t say exactly what’s going to drive it. And keep in mind expansions don’t die of old age. Australia has been without a recession for something like 26 or 28 years, but it’s been almost three decades. Nothing that says, “Oh, we have to have a recession because it’s been too long.” It just doesn’t work that way. right? 

Don: It typically works this way. 

Andrew: It typically does. Yeah. But the thing is, is our economy does no longer look like what it did from about World War II, up until maybe the early 90s. Right, where we were kind of our own insulated standalone economy. Globalization and IT and tech have really changed everything. I know other apartment operators that have 20 employees and 15 of them are in the Philippines and they’re paying and $5 an hour. There are cycles that definitely can predict the future to some degree. We’re looking at the past, but the world is a very different place really just in the last 15 to 20 years. And it has been for I’d say battling a world war two up until the year 2000. So, I think it’s a little more difficult to say. We’re all a lot more interconnected than we used to be.

Don: Yeah. But you know, it’s kind of weird that you’re saying that the C/ C Minus properties are going to suffer the most because what I hear from other people, they’re saying just the opposite. They’re saying that once there’s a recession, then the rents are going to compress. And that’s going to come off from the top. Which means that A-class properties are the ones that people aren’t going to be able to afford any more. So what I’m thinking is that you’re putting the assumption and I understand where you’re coming from, but you putting the assumption from the premises, that it’s going to be the lower class population that’s going to suffer.

Andrew: I would say that is probably one of the most popular myths or half-truths in the multifamily world that is taught to everybody. It is not true. Reality is half of it is true. In a recession, yes, people leave the high priced luxury A plus apartments and they move down to an A-minus or B or something like that. And then where it starts to go wrong is then people say, oh, yeah, and then everyone from the Bs moves down to the Cs and then no one wants to go past the C and so the Cs do really well. 

The reality is the people in that C demographic, they are already at the limits of affordability and when their hours get or they lose a job or the car breaks down, they have no margin for error or recession or drops in income. If you go look back at previous recessions, those C properties have the highest vacancy, the highest delinquency and then the most amount of problems. So yes, it’s true that it comes off the top. The top-end suffers, but so does the very bottom in many cases, even more so.

Don: Yeah. And I’m thinking about a strategy. Maybe you should be looking for newer apartment buildings or maybe like if you’re an apartment operator, right now trying to buy a property, maybe it’s best for you to look for a new building that you could rent for not a whole lot of money. So that people could afford it no matter what happens with the economy and the numbers still work. And these deals are out there. You can definitely find them. It’s not easy, but it’s definitely there. Would you agree? 

Andrew: There’s always deals. It’s just like you said right now, not only is it harder to find them, but there are far more people looking for them. 

Don: Definitely. Yeah, I would say what I think happens is that a lot of people were very successful in the past few years with multifamily, because multifamily really performed well, especially during the crisis too. So, a lot of people made a lot of money. And when you make a lot of money from something, then it becomes something you’re very knowledgeable at. And so, then you go ahead and you try to teach it to other people. But you teach something that is not really accurate because you’re teaching a student to do something that you did, or you started doing five years ago. But then the market was different. 

So maybe you’re teaching them something that is not really up to date. You see a lot of students coming off from the streets and trying to make millions in an industry that it had changed, right? And so, I think like a real estate investor, you should always try to examine the current situation because real estate is not just about picking the right asset class, it is also about picking the right asset class at the right timing. People miss that point. And I see that a lot because I talked to a lot of people. It’s about timing. It’s about figuring out what the economy is doing, figuring out what you believe in as an investor, right? 

When you become a commercial real estate investor, then this is the point where you need to start-stop listening to other people and you need to start listening to what you think and what you believe in and make your decisions based on that. And I think that’s going to be a great way to conclude this episode. I want to ask you, Andrew, what would be the best way to connect with you who wants to invest with you or learn from you?

Andrew: Yeah, you can always connect on BiggerPockets or on LinkedIn. But if you actually want to really connect or possibly have a conversation, then there’s a Contact Us form on our website. So, you can just google Vantage Point Acquisitions. Or it’s just, the initials of that And, yeah, that’s an easy way to reach out and connect. 

Don: Wonderful. So, Andrew, I want to thank you for coming to the show. I really had a lot of fun and also talking to you before the show, and I wish you to be successful in whatever it is you’re going to do in the future and stay in touch.

Andrew: Alright, likewise, take care. 

Don: All right, thank you very much.

Lady: Thanks for listening to the real estate investing podcast with Don and Eden. Stay tuned for more episodes. Till next time.

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