Financièrement gratuit dans 5 ans grâce à l'investissement immobilier

Ceci est une émission de podcast BiggerPockets 324.

«Michael: En gros, vous prenez votre zone de confort, quelle est votre zone de confort? Ensuite, vous voulez essayer de l’étendre à travers différentes méthodes et ensuite le faire comme votre première transaction. À la fin de la journée, Brandon importe peu. C’est juste important que vous en fassiez un.

Vous écoutez une radio BiggerPockets. Simplifier l'immobilier pour les petits et grands investisseurs. Si vous êtes ici pour en savoir plus sur l'investissement immobilier sans tout le battage publicitaire, vous êtes au bon endroit. Restez à l'écoute et assurez-vous de rejoindre les millions d'autres personnes qui ont bénéficié de BiggerPockets.com, votre site d'investissements immobiliers en ligne.

Brandon: Qu'est-ce qui se passe tout le monde? Ceci est Brandon, hôtes du podcast BiggerPockets. Ici avec mon co-animateur, encore une fois, David Greene. J'allais partir avec un prénom mais je ne m'en souvenais pas.

David: C'est bien parce que je ne veux pas que vous connaissiez mon deuxième prénom. C'est super.

Brandon: David Leonardo Greene.

David: Greene.

Brandon: Ce qui se passe? Comment avez-vous été?

David: Quoi de neuf, Brandon? J'ai été vraiment bon. Plongez dans le monde de l'immobilier, apprenez-en autant que je peux. Et vous?

Brandon: Oui, à peu près pareil. J'ai mentionné dans l'émission plus tard, j'ai lu ce très bon livre récemment appelé Vivid Vision. C'était court, facile, ça ne fait pas une heure. Comme si j'avais littéralement volé de Denver à Salt Lake City pendant une heure et que j'avais lu le livre en entier pendant cette heure. Ensuite, de Salt Lake City à Maui, le vol de retour était de sept heures.. J'ai passé tout le temps à construire la vision de mon entreprise, une vision vivante. C'était l'un des vols les plus agréables et je viens d'avoir une idée très claire de mon avenir. En tout cas, je pense avoir mentionné que c'était dans la série, je pense l'avoir mentionné il y a quelques semaines, je suis comme excité à propos de cette chose mais oui, je grandis, mille unités en trois ans.

David: Sensationnel.

Brandon: Dirigé, oui, 10X, non? Très bien, en parlant de cela, voyons le truc rapide d’aujourd’hui.

David: Conseil rapide.

Brandon: Bon, le petit conseil d’aujourd’hui vient de l’émission d’aujourd’hui. Le spectacle d’aujourd’hui est incroyablement bon. C'est fantastique, très très amusant. Michael Blank, qui est notre invité d’aujourd’hui, a de très bons conseils, mais l’un des sujets dont nous avons parlé et l’un des conseils qu’il donne, je vais faire le petit conseil, c’est comme faire c'est facile pour les gens. Si vous voulez quelque chose de quelqu'un, rendez-le si incroyablement facile pour eux. Dans le spectacle, je donne l'exemple de ma propre vie d'agent qui m'a fait quelque chose de vraiment facile et qui a fini par acheter un accord avec eux. Ils ont gagné beaucoup d'argent grâce à cet accord et j'ai même donné un coup de gueule podcast parce qu'ils ont rendu les choses faciles. Cela vous aidera dans tous les domaines de la vie mais écoutez pour cela. Mais au fond, c’est la clé, rendez la tâche facile. C'est tout ce que j'ai à propos du Quick Tip.

David: Mais c'est gros. Je veux dire, je vous le dis, s'il y a une chose que vous faites bien dans la vie, si c'est ça, vous réussirez. Brandon et moi avons tellement de gens qui cherchent à apprendre de nous, qui veulent être autour de nous, qui veulent faire l'expérience de ce que nous faisons ou qui sont exposés à cela, mais ils ne nous facilitent pas la tâche. notre monde, donc nous n'avons aucune idée de comment le faire et ils en manquent.

Brandon: Oui, très très vrai. Quoi qu'il en soit, bonnes bonnes choses. Sans plus tarder, voyons le sponsor du spectacle d’aujourd’hui.

Bon, le soutien d’aujourd’hui vient de FundRise. Écoutez, si vous écoutez le podcast, vous savez probablement déjà à quel point il est difficile de trouver des projets immobiliers vraiment exceptionnels. Vous avez probablement aussi ressenti la peine de trouver l'un de ces projets mais de ne pas avoir suffisamment de capital pour conclure l'accord. C’est là que les fonds augmentent. FundRise vous permet d’investir dans des projets immobiliers de grande qualité et à fort potentiel sur les marchés privés. Comme si je parlais de tout, des immeubles en hauteur à Washington DC aux immeubles multifamiliaux à Los Angeles, des établissements de qualité institutionnelle. Chaque projet est soigneusement contrôlé et géré activement par l’équipe de professionnels de l’immobilier de FundRise. Ce sont des plates-formes en ligne à la pointe de la technologie et à faible coût, qui vous permettent de suivre l’avancement de chaque projet et de conserver une plus grande part de vos gains.

À propos, vous n’avez pas besoin d’être accrédité non plus. Je vous dis que FundRise a vraiment l’impact sur l’avenir de l’investissement immobilier. Rendez-vous sur FundRise.com/BiggerPockets pour que vos trois premiers mois de frais soient supprimés. C'est FundRise.com/BiggerPockets.

Brandon: Bon, et c'est tout. Maintenant, passons au spectacle d’aujourd’hui. L’émission d’aujourd’hui est avec Michael Blank, le Michael Blank. Il était dans la série dans l'épisode 66. Voici la chose: cette série est à la fois incroyablement haut niveau et incroyablement, gardons les cookies sur l'étagère inférieure. En d'autres termes, c'est un peu comme si je me souvenais du jour où j'ai lu le livre L'ABC de l'investissement immobilier de Ken McElroy. C’était comme si c’était tout ce que vous devez savoir sur la multifamilialité et c’était vraiment ce qui a suscité mon intérêt, c’est pourquoi j’ai fini par acheter mon premier complexe d’appartements.

Cet épisode va être comme ça pour vous. J'espère vraiment de toute façon. Il est dit comme ici tout ce que vous avez toujours voulu savoir sur l’achat de complexes d’appartements. Comme littéralement, c'est comme 30 questions. Nous aimons juste boom, boom, boom, boom. David, je vais juste en arrière parce que nous sommes tellement intéressés par cela nous-mêmes et que cette émission est donc une émission sur laquelle vous allez vouloir prendre des notes. Certainement quand vous voudrez peut-être écouter une, deux ou trois fois. Bien sûr, Michael Blank a aussi un livre. Ce truc devient accablant. Il a un livre intitulé Financial Freedom with Real Estates, il s'agit d'un investissement immobilier. C'est vraiment très bien. Si vous souhaitez approfondir vos connaissances pour obtenir ce livre ou acquérir l’ABC de l’investissement immobilier.

Il y a beaucoup de livres, mais apprenez ces choses-là, non? Ce n'est pas si compliqué, mais la première fois que vous l'entendez, vous pourriez être un peu dépassé si vous n'aviez jamais entendu parler de cela auparavant, mais restez avec nous. Vous allez aimer ce spectacle. Tout sur la façon de se lancer dans l’investissement immobilier à travers des complexes d’appartements, passons à l’émission d’aujourd’hui. Très bien, Michael Blank., Bienvenue à nouveau dans le podcast BiggerPockets. Comment ça va, mec?

Michael: Je fais génial, mec. C'est bien de vous reparler.

Brandon: Oui oui. Cela fait longtemps que vous n'étiez pas dans la série. Je veux dire que c'était comme si c'était dans les années 60, n'est-ce pas? Je ne sais pas.

Michael: Il y a 30 ans, c'est sûr.

Brandon: Oui oui. Cela fait 400 ans. Je suis impatient de voir où vous en êtes devenu votre situation actuelle et je connais en quelque sorte le sujet de la direction que nous suivons aujourd’hui, à savoir la syndication d’immeubles d'appartements, une chose dans laquelle je veux vraiment m'impliquer davantage. David, I savoir veut s'impliquer davantage. Aujourd'hui, nous allons simplement prétendre que l'audience n'est pas là et nous allons simplement vous aider à déterminer exactement comment nous allons commencer avec une syndication plus importante. Je pense que ça va être amusant. Mais avant d’y arriver, revenons un peu en arrière, et pour ceux qui n’ont pas écouté votre premier épisode, je suppose qui vous êtes, d’où venez-vous? Comment êtes-vous entré dans l'immobilier et avez-vous abordé votre tout premier type d'entrée dans l'immobilier?

Michael: Oui. Je veux dire que j'ai des antécédents comme beaucoup d'autres. On m'a appris à avoir de bonnes notes, un bon travail, et c'est ce que j'ai fait. Je suis entré dans l'informatique. J'étais en fait un programmeur, croyez-le ou non. Je n'étais pas un très bon programmeur, j'étais au bon endroit, au bon moment. Rejoignez le démarrage du logiciel tard dans les années 90, appelé Web Methods. Nous nous sommes introduits en bourse en mars 2000 et avons mis beaucoup d’argent dans ma poche et c’était moi. Puis en 2004, j'ai lu Rich Pad Poor Door, qui a ruiné ma vie, car lorsque je l'ai lu, j'étais comme un homme, je suis un idiot. Peu importe combien d’argent je possède à la banque, cela dépend du revenu passif que j’ai et que je n’avais pratiquement pas. Après plusieurs mois d'un homme vraiment semblable, j'ai décidé de tout gâcher, j'ai juste quitté mon travail et tout fait.

J'ai appris à négocier des actions et des options. J'ai retourné une maison, j'ai pris un bootcamp d'immeuble, mais ma grande idée était les restaurants. Avant que vous ne me jugiez, ce que vous devriez, avant que vous ne me jugiez, j’étais entouré par un franchisé Frank Burger et c’est comme, oh, nous allons embaucher un gars qui va tout diriger. Nous allons simplement le financer et il s’agit essentiellement d’un investissement passif. J'étais comme, eh bien, c'est génial, c'est mon affaire de trésorerie. Je suis allé tous dans, Brandon. Je viens de prendre mes jetons et je me suis lancé dans les affaires de trésorerie, car je veux la liberté financière.

Maintenant, faites une histoire courte. J'ai par la suite perdu mon entrée en bourse de millions de dollars dans le secteur de la restauration et j'ai ajouté quelques centaines de milliers de dollars de dette. Je me suis retrouvé avec des biens immobiliers et avec tant de gens qui pensent que nous avons l'immobilier en tête, une maison unifamiliale investir. Dans mon cas, je retournais des maisons. Je n'avais plus de mon argent alors j'ai appris à amasser des fonds. Je suis entré dans un immeuble et après plusieurs années, je me suis dit que je gagnais beaucoup d’argent, mais c’est un travail pareil. Comme si je ne pouvais pas partir 30 jours comme je le fais maintenant ou 60 quand je veux.

Brandon: Oui.

Michael: J'étais comme, mec, j'ai quelque chose qui ne va pas. J'ai déterminé que je devais faire un peu moins de ceci et beaucoup plus de cela, c'est-à-dire que les immeubles d'appartements venaient de m'envoyer de l'argent à la boîte aux lettres. C'est un peu comme lorsque les gens me demandaient, comment collecter des fonds? Comment faites-vous des immeubles d'habitation? C’est à ce moment-là que j’ai commencé à bloguer pour vous en 2014, et j’en suis venu à l’inclusion de toutes les manigances que j’ai faites, le meilleur moyen d’atteindre la liberté financière est d’investir dans plusieurs familles. Après tout ce que j'ai fait, c'est pourquoi j'étais si enthousiaste à l'idée de bloguer à ce sujet. Ensuite, à partir de ce moment-là, nous avons simplement déplacé. Nous avons eu des ententes, de nouvelles connexions ont été établies, des ententes ont été conclues, de l'argent est entré. C'est un peu comme… Maintenant, nous ne faisons que des syndications multifamiliales.

Brandon: Cool, c'est génial. Bon, maintenant ils sont gentils avec votre histoire et c'est exactement ce que je voulais entendre. Un peu comme tu as commencé à… Tu as fait la transition dans des appartements. Comme je l'ai dit, aujourd'hui, qui sera un peu différent. Je veux vraiment me plonger dans l'actualité, comment avez-vous investi dans des appartements? Je veux simplement passer à travers, je veux dire, j'ai littéralement énuméré comme je ne sais pas, 30 questions ici. Je ne sais même pas si nous avons le temps pour tout le monde, mais je pensais que nous devions commencer par cela, pour appeler ce coaching sur un, et bien, un coaching à deux avec Michael et David.

Laissez-nous juste en quelque sorte parcourir ce genre de choses. Je suis d'abord curieux, quelle est selon vous une bonne taille pour commencer? Quand vous vouliez le faire entrer dans des appartements, par exemple, le jeune homme de 21 ans qui n'a ni argent ni rien doit-il aller acheter une unité de 200? Est-ce faisable? Quelle est votre recommandation générale pour savoir par où commencer en termes de taille et où vous en êtes dans la vie?

Michael: Il est plus important de commencer par quelque chose. J'avais l'habitude de penser aller gros ou rentrer à la maison et je ne le pense plus. La raison en est que j'ai cette chose appelée la loi de la première transaction qui dit que si vous faites une multi-famille de n'importe quelle taille, vous serez financièrement libre dans trois à cinq ans. Je le sais parce que je parle avec mon podcast et que je discute longuement avec des gens, et que le phénomène est si universel et si puissant, même pour les personnes qui utilisent un duplex, n'est-ce pas? Car ce qui se passe, c’est qu’ils vont faire un duplex qui… Ensuite, leur deuxième transaction intervient en succession rapide et quasi automatique et ce n’est jamais un duplex. Encore une fois, il est normalement autour de 10 unités. Le troisième contrat porte alors toujours autour de 20 à 30 unités et est normalement supérieur à 50 unités.

Pour répondre à votre question, peu importe sa taille. Cela dit, cela dépend beaucoup de vous. Si vous avez… Si vous gagnez un revenu élevé et que vous essayez de remplacer 10 000 $ de revenu, vous souhaitez trouver un accord à la fois significatif et réalisable. Dans votre cas, un duplex sera très réalisable, mais peut-être moins significatif, alors ne choisissez pas un duplex, choisissez plutôt quelque chose comme 20 unités. C'est fondamentalement vous prenez le bord, vous votre zone de confort, quelle est votre zone de confort? Ensuite, vous voulez essayer de l’étendre à travers différentes méthodes et ensuite le faire comme votre première transaction. À la fin de la journée, Brandon, peu importe sa taille. Il importe juste que vous en fassiez un.

Brandon: J'aime ça. D'accord, je tiens à bien distinguer certaines des choses que vous venez de dire ici. Comme parce que j'ai l'impression de me parler à moi-même ici. Je veux dire, je dis la même chose tout le temps, non? Peu importe la nature de ce premier contrat, à condition que vous obteniez ce premier contrat. Là où beaucoup de gens luttent, c'est qu'ils veulent juste ce marché. C'est comme si ils avaient entendu dire que lors de la transaction, le podcast était comme une course à pied que vous avez accomplie après 10 ans d'expérience, n'est-ce pas? Ils veulent cet accord et ils pensent que s’ils ne peuvent pas l’obtenir, ils ne devraient probablement rien faire. J'aime que tu dises comme commencer avec quelque chose.

Dans le même ordre d'idées, vous parlez également de ce que j'appelle la pile. Je l'ai mis dans cette phrase appelée la pile et c'est ce cadre de réflexion sur l'immobilier, non? Où, si vous commencez, que feront beaucoup de gens, c'est ce que vous et moi avons fait lorsque nous avons commencé, n'est-ce pas? Comme une maison unifamiliale, peut-être renverser une maison unifamiliale. Ce que nous faisons, c'est que nous sommes coincés dans ce mode pendant longtemps parce que nous sommes à l'aise. J'aime que vous disiez les deux, à peut-être 10, peut-être 30, c'est la pile, non? Il dit que je vais repousser les limites de ce que je me sens à l'aise à chaque fois. Je grandis de façon exponentielle. Je ne reste pas simplement dans mon petit cocon de ce que je me sentais bien. C’est quelque chose avec lequel j’ai beaucoup lutté au cours de la dernière décennie, c’est que je veux toujours retourner dans les endroits où je me sens le plus à l’aise. Je veux revenir à cette maison unifamiliale ou duplex. Rien de mal à partir de là-bas, mais je pense qu'il est intelligent de penser comment puis-je grandir?

Michael: La grandeur est juste en dehors de votre zone. Vous avez également dit quelque chose à propos du premier accord, de ce coup de circuit, et cela retient beaucoup de monde. Voici la chose à propos du premier accord, la valeur du premier accord dépasse de loin tout type d’argent que vous pouvez en tirer. D'accord, je veux être très très clair à ce sujet. En raison de la loi du premier accord, parce que ce deuxième accord viendra et dans une succession rapide et presque automatique. Il faudrait dépenser plus d’énergie pour ne pas conclure le deuxième marché que pour le faire, c’est tout simplement à cause de ce premier marché. Il y a plusieurs raisons pour lesquelles, nous pouvons y aller si vous le souhaitez, mais la valeur de cela est beaucoup plus élevée. Même si quelqu'un devait faire une affaire médiocre, même si vous ne deviez pas vous payer des frais d'acquisition ou si vous deviez céder 90% du capital, ce qui est fou, mais disons que vous l'avez fait, la valeur de cette première transaction dépasse de loin toute valeur monétaire que vous obtiendriez de celle-ci.

Brandon: Oui j'adore ça. Cela s’applique aux gens qui achètent… je veux dire faire quelque chose. Si vous dites que je n'ai pas d'argent pour investir dans l'immobilier, je veux acheter le premier duplex mais je veux dire que je n'ai rien, comme je plaisante souvent avec les gens, donner 99% de la transaction alors. On s'en fout? Comme si personne n'était riche lors de son premier accord. Personne n'est riche sur son premier contrat, mais ils le sont grâce à leur premier contrat, non? Parce que le premier au deuxième, le second mène au troisième et ainsi de suite. Comme si tu devais faire quelque chose. Maintenant, cela ne signifie pas aller acheter une mauvaise porte, non?

Michael: Non, vous ne devriez pas faire une mauvaise porte. C'est absolument juste. Vous n'avez jamais… Nous pourrions toujours nous occuper des investisseurs, quels qu'ils soient, en premier, et vous devez utiliser une souscription conservatrice. Mais si vous devez vous payer moins ou peut-être rien du tout, vous devez en tenir compte.

David: Tu est quoi drôle? Les gens iront choisir le gourou, 10 000 $, 20 000 $, 30 000 $, 40 000 $, 50 000 $. Honnêtement, nous n'exagérons pas. Il y a… je pense que quelqu'un venait de me dire qu'ils avaient presque 50 000 $ et que vous payiez vous-même votre billet d'avion pour le Texas et qu'il vous guiderait comme son entreprise flip, n'est-ce pas? Mais ils vont faire un marché où ils pensent qu’ils vont céder la plus grande partie de l’équité.

Brandon: J'ai entendu parler de l'un des gars l'autre jour, l'un des gars de la télévision, je ne dirai pas son nom, mais il se vantait, c'est le mot juste. Mais il était sur scène lors d'une conférence, son nouveau plan, son nouveau programme d'entraînement, quel que soit le niveau de Platine, est de 250 000 $. 250 000 $ pour pouvoir apprendre à faire cela, je viens toujours, ça me choque toujours. Mais de toute façon, encore une fois, je n'ai pas de problème à payer pour l'éducation. Je veux dire, par exemple, si cela va vous aider, si vous allez y arriver, bien. Mais si vous avez un quart de million de dollars ou 50 000 dollars, le premier duplex ou tout ce que vous avez à faire pour commencer peut être très utile.

Passons à la syndication versus non syndication. Comme vous n’avez pas à vous syndiquer, nous devrions peut-être prendre encore plus de recul. Pouvez-vous définir ce qu'est la syndication avant que nous ne commencions à nous demander si quelqu'un… Vous pouvez le lier si quelqu'un devrait le faire ou simplement le faire tout seul? Quel est le genre d'avantages et d'inconvénients de chacun et qu'est-ce que la syndication?

Michael: Oui. La syndication est vraiment au cœur de ce que font tous les entrepreneurs. Les entrepreneurs font quelque chose du hasard et c'est vraiment ce que la syndication est. Un syndicateur trouve essentiellement une transaction, qu’il s’agisse d’une non-transaction, met en place un gestionnaire, puis invite différents investisseurs à investir la transaction. Sans cet entrepreneur, il n'y aura pas d'accord, non? L'investisseur n'aurait rien dans lequel investir.

Brandon: Oui.

Michael: La beauté d'une syndication est que, en tant qu'entrepreneur, je peux faire exactement cela. Que quelque chose se passe à l'air libre, que j'ai de l'argent ou pas. Une question de savoir si vous devriez syndiquer ou non est l’une de vos ressources personnelles. Si vous avez un million de dollars à déployer et que vous pouvez financer votre propre transaction, il n’est vraiment pas nécessaire de syndiquer. Cependant, vous faites une ou deux transactions et devinez quoi? Vous allez être à court d'argent. Si vous voulez continuer à le faire, vous allez finir par récolter des fonds. La vraie chose avec la syndication est que cela vous permet vraiment d’évoluer.

Brandon: Définitivement, définitivement. Ok, mise à l'échelle. Je veux dire, je sais que, comme la première fois que Grant Cardone était dans notre émission, il n'avait jamais été syndiqué jusqu'à présent. Il a juste construit tout son argent en 30 ou 40 ans et peu importe et je pense qu'il avait je pense qu'il était 300 millions au début quand il était sur notre émission et je pense qu'il espère être à un milliard d'ici la fin. de cette année et c'était comme il y a deux ans, non? Il est vraiment comme si je voulais dire qu'il avait gagné beaucoup d'argent pour pouvoir personnellement atteindre 300 millions de dollars. Mais maintenant, comme il se syndique, il a gagné 300% à 400% au cours des deux dernières années. Je sais vraiment ce que vous disiez là-bas et c'est pourquoi je m'intéresse à la syndication parce que mon argent n'ira que très loin, non?

Michael: Cela vous permet, quand je vous dis que c'est le général, cela vous permet de vous lancer sans argent. Si vous avez zéro dans votre poche, vous entrez tout à coup dans l'immeuble d'une entreprise et cela répond à l'objection majeure que les gens ont à l'esprit: 'Oh, j'ai besoin de beaucoup d'argent, n'est-ce pas?' , mais cela ne doit pas nécessairement être le vôtre.

Brandon: Oui.

David: Si vous allez investir l’argent d’autres personnes, vous devez savoir ce que vous faites. Vous en conviendrez, j'en suis sûr, Michael. Passons en revue certains termes qu’un investisseur multifamilial doit comprendre pour que, si vous voulez emprunter l’argent de quelqu'un d’autre, vous pouvez lui proposer ou lui expliquer un marché et il se sentira à l’aise avec ce dernier. vous. La première est ce dont nous voulons parler, c'est comme de l'argent en retour, pouvez-vous nous dire ce que cela signifie?

Michael: Oui, en espèces en espèces. Supposons qu'un investisseur investisse 100 000 $. L’argent en espèces est, et c’est l’atout majeur de l’immobilier multifamilial, c’est qu’il ya distribution de flux de trésorerie. Contrairement au marché boursier, vous investissez beaucoup d'argent et vous gagnez de l'argent lorsque vous vendez pour un gain, mais avec l'immobilier multifamilial, c'était en fait un revenu locatif qui crée un revenu qui vous permet d'avoir des distributions. Le cash on cash mesure en quoi ma base de distribution de cash flow annuelle est divisée par mon investissement. Si je distribue 10 000 dollars à cet investisseur, le rendement en espèces est de 10 000 dollars divisé par 100 000 dollars, ce qui correspond à 10% en espèces.

David: Ok, c’est le rendement que vous obtenez sur votre argent qui ressemble beaucoup à un retour sur investissement, comme un retour sur investissement, non?

Michael: Cela en fait partie.

David: Parlons maintenant de la situation dans son ensemble. Merci d'avoir soulevé cela. Entrons dans le taux de rendement interne, qu'est-ce que cela signifie?

Michael: Taux de rendement interne, je vais répondre à la question de manière légèrement détournée, le taux de rendement interne ou TRI est un concept très avancé. Si vous collectez des fonds auprès d'amis et de membres de la famille, je vous conseillerais de ne pas parler du TRI, car il s'agit d'une avancée. Ce que je conseillerais, c'est que vous parlez du rendement annuel moyen, qui est très similaire mais pas mathématiquement identique. Mais la vraie question est: quel est mon rendement global?

C'est vraiment ce que mesure le terme annuel moyen. Si je mets 100 000 $ et que l'investissement est de cinq ans, je veux savoir combien d'argent je vais gagner au cours de son cycle de vie et disons que je double mon argent en cinq ans, je récupère 100 000 $ et j'aurai gagné 100 000 $ et ce «bénéfice» de 100 000 $ est constitué des distributions de flux de trésorerie ainsi que d'un profit lorsque nous vendons à la fin.

Maintenant, j'ai ce rendement de 100%, disons, où j'ai doublé mon argent et je le divise par le nombre d'années, disons cinq, et le rendement annuel moyen est de 20%. Maintenant, le composé sera légèrement inférieur à cela, mais en moyenne, c'est ce que les investisseurs demandent vraiment. Je resterais loin de l'IRR parce que l'IRR est une formule mathématique. Il mesure la valeur actuelle nette du temps et de l’argent et il est confus de ne pas pouvoir dire à tout le monde et un esprit confus dit quoi? Non.

Brandon: Non.

Michael: Ne confondez pas vos investisseurs. Lorsque vous analysez les offres, oui. Nous parlons du TRI, car il nous permet de comparer différents véhicules de placement, même en tenant compte de choses comme un refinancement en espèces qui gâche votre rendement annuel moyen. Mais encore une fois, je complique les choses, mais les gens se demandent quel est le rendement global, quel est mon rendement annuel moyen et quel est mon encaissement?

David: Vous prenez essentiellement toutes les variables qui pourraient jouer dans cet investissement et vous les ajoutez toutes dans une projection. Cela ressemble plus à un algorithme qui prend plusieurs variables différentes et les met ensemble. Vous regardez, quand je vends, combien je vendrais si les choses se passaient comme prévu? Si nous obtenions ce cash-flow, combien cela coûterait-il? Si nous refinançons à mi-parcours et que nous récupérons notre argent, cela aura évidemment une incidence sur le retour sur investissement car le capital est remboursé. Les investisseurs ont moins d’argent là-dedans. C’est probablement le moyen le plus précis de comparer plusieurs investissements ensemble, mais c’est là le plus déroutant. Je pense que ce que vous dites, c’est la raison pour laquelle vous devriez rester à l’écart car cela effraiera les nouveaux venus.

David: D'accord. La prochaine étape est une mesure beaucoup plus simple et facile à comprendre, à savoir la capitalisation ou le taux de capitalisation. Qu'est-ce que c'est?

Michael: En fait, il est en fait un peu plus difficile à expliquer et à comprendre car cela implique des mathématiques simples, ce qui est terrible, je le sais. Mais le taux de capitalisation, c'est très simple. Le taux de capitalisation est utilisé pour évaluer l'immobilier commercial. Dans l'immobilier commercial, plus la case produit un revenu, plus elle en vaut la peine, non? Je peux acheter une boîte pour 1 million de dollars et, de suite en haut, une boîte identique, mais elle vaut 1,5 million de dollars, car celle de droite génère tout simplement plus de revenus que celle de gauche. Ce multiplicateur, ce multiplicateur de revenu est essentiellement le taux de capitalisation. C'est vraiment le taux de capitalisation. Nous pouvons entrer dans les calculs, mais encore une fois, je ne veux pas confondre les gens.

Brandon: Oui bien sur.

Michael: Mais les gens au taux de capitalisation, la question suivante que les gens se posent est: d’où vient ce taux de capitalisation?

La réponse est que vous l'obtenez de votre courtier. Votre courtier dirait: "Oh, il s’agit d’une propriété de huit personnes." Le calcul simple de ceux qui ont besoin de savoir est essentiellement le NOI divisé par le taux de capitalisation qui vous donne la valeur et c'est tout, mais il est utilisé pour évaluer l'immobilier commercial.

Brandon: D'accord. Le taux plafond est généralement comme dans une région ou pour un certain type d'investissement, il ressemble à une moyenne, non? On pourrait dire qu’à Memphis, à l’heure actuelle, avec ces immeubles de taille moyenne, un plafond de six logements est plutôt normal, est-ce ce genre de droit? Donc, mathématiquement, c’est là encore quelque chose de plus facile à expliquer, comme si c’était un tableau blanc, mais comme si le revenu augmentait, comme si votre bénéfice sur cette propriété augmentait, si votre revenu net d’exploitation augmentait, la la propriété devrait valoir davantage si le taux de capitalisation reste inchangé.

Maintenant, si les taux de capitalisation changent, cela peut aussi changer les choses. Ensuite, tous les trois sont un peu liés entre eux. Il y a un million de vidéos sur YouTube si les gens sont comme, je veux dire, c'est un concept cool que nous devons absolument comprendre si vous allez dans l'immobilier multifamilial ou commercial, mais vous pouvez trouver sur YouTube un million de vidéos à ce sujet qui expliqueront et un million d’articles de blog sur BiggerPockets pour l’expliquer. Quoi qu'il en soit, je pense que c'est une très bonne explication. Le taux plafond est ce multiplicateur, il fait quelque chose qui vaut plus ou moins. Qu'en est-il des flux de trésorerie? Juste une belle facile. Comme quoi est le cash-flow?

Michael: Oui, les flux de trésorerie sont essentiellement les revenus locatifs qui restent après avoir couvert toutes les dépenses, ainsi que vos versements hypothécaires ou votre service de la dette, et qui sont distribués aux investisseurs et qui affectent les liquidités, n'est-ce pas? Le flux de trésorerie divisé par le placement initial est égal à votre rendement en espèces.

Brandon: Bien.

David: Bien. Que diriez-vous de ce qu'est une syndication?

Michael: Nous en avons parlé un peu plus tôt. Encore une fois, il s'agit essentiellement d'une variété, et d'argent, d'une variété d'investisseurs et de l'utiliser pour acheter une propriété multifamiliale. Il existe certaines lignes directrices de la SEC à ce sujet. Votre avocat de la SEC s'occupera de tous les détails.

Brandon: D'accord. Je veux entrer dans, j'ai quelques questions sur SEC un peu plus tard et évidemment pas un avocat mais nous y reviendrons dans un peu. Qu'en est-il du bénéfice net d'exploitation? Vous en avez parlé il y a une minute, mais définissons-le.

Michael: Oui, le revenu net d’exploitation, c’est-à-dire le nombre, c’est le chiffre utilisé pour calculer la valeur d’un immeuble et le revenu net d’exploitation correspond à votre revenu moins les dépenses, mais avant le service de la dette. C'est ce qu'on appelle le bénéfice net d'exploitation ou NOI. Vous avez le revenu moins les dépenses, le NOI, puis le service de la dette, c'est essentiellement votre trésorerie. Mais la valeur de l'immeuble provient du bénéfice net d'exploitation. Plus le NOI est élevé, plus la valeur du bâtiment est élevée.

David: Par service de la dette, nous entendons simplement comme votre hypothèque?

Michael: Hypothèque, oui.

David: Oui.

David: C'est comme le bénéfice de l'entreprise avant que vous ayez à rendre compte de tout ce que vous avez dépensé pour acheter le bâtiment en gros.

Michael: C'est vrai.

David: Ensuite, le nombre que vous obtenez après avoir contracté l'hypothèque serait le flux de trésorerie. Ce sont toutes… Je veux dire, ce n’est pas très compliqué, mais il ya quelque chose concernant l’investissement dans plusieurs familles, nous rendons les choses plus compliquées qu’elles ne le sont parce que cela nous rend plus intelligents. Vous entendez que les investisseurs multifamiliaux vont lancer beaucoup de termes fantaisistes et vous dites: oh, je ne sais pas de quoi ils parlent. Mais comme je sais que ceci est juste une voie de côté, mais comme une dette d'agence, vous entendrez oh oui. Je parle de dette d’agence et les gens se disent: «Je ne sais pas ce que cela signifie. C’est comme le FBI? C’est vraiment, c’est comme, non. C'est comme un Fannie Mac de Freddie Mac, Fannie Mae Loan, comme le type de chose le plus facile qui existe mais ils lui donnent un terme cool.

Brandon: Voilà.

David: D'accord. La prochaine étape serait ce que cela signifie quand on parle de valeur ajoutée?

Michael: La valeur ajoutée consiste essentiellement à faire apprécier un bâtiment. Qu'est-ce que ça veut dire? Forcer l’appréciation a été fait, cela signifie que je fais en sorte que la valeur augmente d’une certaine manière. Comment je fais ça? Je fais le NOI. Si je veux faire monter le bâtiment, je dois ensuite faire monter le NOI. Comment faire monter le NOI? Je peux le faire de différentes manières. Je peux augmenter le loyer ou si le bâtiment est… Si le taux de vacance est très élevé, par exemple, je peux résoudre ce problème. Ou si les dépenses sont élevées, cela peut les réduire. Toutes ces choses vont affecter le NOI. Si j'achète un bâtiment à un prix quelconque, et que j'applique ce taux de capitalisation, j'obtiens une certaine valeur.

Supposons qu’il s’agisse d’un million de dollars, ce qui nous ramène à notre exemple initial. Je fais tout cela et j’augmente le NOI et la variété de façons différentes. En un an, deux ou trois ans, le NOI est maintenant plus élevé dans le même bâtiment qui valait la peine. 1 million de dollars auparavant valent désormais un point 1,5 million de dollars sans que le marché ne fasse rien. C'est une valeur ajoutée. La valeur ajoutée signifie que je crée réellement de la valeur. Je fais un tas de choses pour ajouter de la valeur et donc j'ai forcé l'appréciation. C’est la beauté de cela, car lorsqu’au sein d’une entreprise de retournement de maison, j’ajoutais de la valeur de la même manière car je devais effectuer des rénovations de loyer. Mais la valeur de ce bâtiment était purement dictée par les concurrents et dépendait fortement du marché. Si le marché montait, mon immeuble ou ma maison monterait, tomberait comme en récession, peu importe ce que j'ai fait, c'est que ça s'est effondré. Avec plusieurs familles, je dois juste augmenter le NOI et obtenir la même chose.

David: Oui. That is why Brandon and I are so just like gang ho about people understanding real estate investing rather than just blindly following someone else’s model. Because when you understand what drives value, then you can understand what moves you need to make to increase value. Like for instance, you have got ROI. ROI Is dependent on two things, how much money you make and how much money you put into a deal. If you can put less money in a deal or you can make more money, you can increase your ROI. There is only two levers you have got to pull, right? Well, what you are talking about with value add with multifamily is very similar. There is a cap rate and there is an NOI.

You cannot really control a cap rate, just like you cannot really control how much money you make buying a single family house because rents are going to be what they are but you can control how much money you leave in a deal. That is why we like the BRRRR method because you can get more money out and increase your ROI. Well, with multifamily add ons, you can control the NOI. The better you run that business, the lower your expenses are or the higher your rents are, the more you can make that property worth money. It sounds complicated when we talk but it is actually really really simple when you boil it down. I think, Michael, like you have done a very good job explaining that.

Michael: Oui. It is simple in a sense that the favorite deals that we love or or deals that are self-managed. These are owners who are trying to maybe cut corners, saved money and they manage their own building. Maybe they have owned it for a long time, they do not have to squeeze every single dime out of their property and they are great with it. But if you take a building like that that is slightly mismanaged or grossly mismanaged and you put a professional manager in place, that manager now can actually do the value add for you. It is actually relatively simple to add value. You do not have to be a genius. Not only that, but a small increase in NOI will make a huge disproportionate different in value. I do not have to like have to like have a home run like you said earlier, Brandon. If I can tweak, if I can increase rents by $50, reduce expenses by $25, that is… If you divide that by the cap rate and you times it by the number of units, you can create a hundreds of thousands of dollars fairly, fairly easily.

David: Oui. They say that a small hinges swing big doors and that is your hinge.

Michael: That is the hinge.

David: It is a very good point. Okay, next thing we want to ask is what is the difference between an accredited investor versus sophisticated investor and why does that matter?

Michael: It matters because, depending on who you are, we will talk about that in a second, it depends on who can invest in a particular syndication. Accredited investors are high net worth individuals. There is around… There is people with lots of money, let us say. The SEC then says, well, if you have a lot of a lot of money you are kind of on your own. You should know what you are doing. If you lose the money, well you are probably okay. Then there is a non-accredited investor. Those are people who are not rich. Okay, let us, for those a lot of the SEC rules protect them to these non-accredited investors.

Over the non-accredited investors, there is something called a sophisticated investor who is basically is non-accredited, they are not rich, but they have some experience with investing and something probably outside the stock market. Maybe they took a class or a seminar or they have rental property and or something like that and those are considered sophisticated investors. The reason that matters is you as a syndicator, depending on what kind of SEC exemption you file, you can take up to 35 non–accredited investors and an unlimited amount of credit investors, which for most people, does not matter. If I have like 10 investors in the deal, that will be all I ever have right in the beginning. It is the only when you are doing larger deals where you have to pay attention to that.

The requirements around bringing those non-accredited investors on to have a preexisting relationship with people. In other words, they cannot be strangers. You have to know them, you have to meet them in person, have a phone call and an email or something where you can say it was a pre-existing relationship and you cannot give them a deal when you first see them. I mean accredited investors are quite a bit different, again, because the SEC does not really protect them as much as non-accredited. For the beginner syndicator, the only thing that really matters is how you solicit and bring on investors. You cannot bring it on strangers, you cannot put up a billboard, you cannot advertise. It has to be all pre-existing relationships.

David: D'accord.

Brandon: Yes, that is a tough line sometimes I feel like. I just went to a Joe Fairless’ conference and a lot of that conversation was on syndication and it is interesting like the gray that is in there. Like what is a pre-existing relationship is exactly? I mean like how many conversations, how close do you have to be? I mean somebody listens to you on a podcast and calls you up, does that count? A lot of that stuff is kind of left to the I guess the course that some they decide it seems like. Is that true? Do you have any insight on that?

Michael: Oui. There is a civil action letter, which again I am not an attorney nor pretending to be one, but there is a letter written by a syndicator to the SEC. They said that if I were to do these things, would I be okay when the within the SEC guidelines and they said yes. Everybody kind of hangs our hat on that, which is essentially it is a system of defining preexisting relationships. For example, let us say I have a website, someone fills out a form and I want to establish a preexisting relationship. Well, the more touch points I have with a person, the better I get to know that person the more I can say is a pre-existing relationship.

I want to have them fill out a questionnaire that asks them questions about their investing experience, what have they done? Are they accredited, non-accredited? Then I want to have a phone call with them. I want to have a series of emails. I might want to meet them in person. I might not want to do a zoom call and then some time should go by and at one point I can say, okay, I feel pretty good about having a pre-existing relationship and now show that person a deal but not before then. This letter then kind of describes that there is like seven points it goes through. We are kind of, we and a lot of other syndicators are just, as well as the Joe, I am sure are very aware of these of these letters. We have a routine of interactions with new investors before we show them a live deal.

David: When I was a police officer, we would have similar situations with like the fourth amendment, freedom from search and seizure of the government without due because. There is a lot of gray area with like, well, what becomes due cost, right? They would all determine it by case law. Some cop would search somebody and they would find drugs and some judge would look at it and say, ‘Was this search lawful or not?’ Right? It was like that with when you can use force, all kinds of things. Is there a place like people can go to to get case law on how judges have determined what was and what was not a pre-existing relationship?

Michael: I think that is a question for the SEC attorney for sure. The frustrating thing about that is every single SEC attorney will give you a slightly different response.

David: Oui.

Brandon: Oui. If you ask 10 SEC attorneys, you will get 11 responses. Like, yes, it is like they are…

David: Is not that just how life goes when you get into this space though? Like you can never get a solid answer from anyone. It is the same way I felt when I was a cop but like can I do this? They are like, ‘Well, it depends.’ Everything started with, ‘Well, it depends.’ Okay. Last question.

Brandon: C'était bien. Yes, go ahead.

David: The difference between a general partner and a limited partner?

Michael: In general, the general partners are the entrepreneurs. We call them the syndicators, the sponsors. These are the people who are putting the deal together, who are operating the deal on a day to day basis and then there is the limited partners who are the passive investors. In the context of an LLC, those are actually not the right words but we use them all the time, because it communicates the roles of a syndication to get the GPs who are calling the shots. They are putting the deal together. Then there is the LPs who invest the money and have limited voting rights but their liabilities is also limited to the amount of money they invested versus the general partners have essentially unlimited liability because they are responsible for the deal itself and they are signing on notes and they are doing these and then the old thing.

Brandon: Agréable. Cool. In a typical deal, you are going to be the general partner which is in real life, like you are generally a general partner. If I were to invest with you, I am a limited partner because I just put my money with you. Now I cannot lieu if I give you a $100,000, I am likely not going to lose more than my $100,000. I mean that is what I am limited to, right? It is not just a loss of the capitalists liability, imagine lawsuits, right? The LPs will not be part of any kind of lawsuits. The worst that can happen, which is bad enough as you lose your investment, but there should be nothing outside of that typically around lawsuits.

Brandon: D'accord. Yes, that is it great.

David: Is that where the phrase comes from? Limited partner, because their liability is limited?

Michael: Je le pense.

David: I have never heard it but Brandon said it so it probably is true.

Brandon: Oh, wow. Regarde moi. Bien.

Hey, it is Brandon. We are going to take a quick break from this podcast episode to invite you to this week’s upcoming webinar, How To Really Invest In Rental Properties The SMART Way. That is a acronym and you will find out what it stands for if you come to this Webinar. I mean basically going through the things like how to identify the best type of rental property to buy, the four step daily process that only top investors are using and that you can use as well even if you want to just one deal. I am going to show you how to run the numbers on a rental property in under five minutes. We will even do a real life deal analysis and it is going to be breaking it down using the acronym SMART. I hope you can attend. It is going to be awesome. Do not waste years of your life and tens of thousands of dollars trying to figure out how to do it. Just come to this online class and see exactly how to get started the SMART Way. Just go to BiggerPockets.com/smartwebinar. Again, BiggerPockets.com/smartwebinar. I will see you there.

Brandon: Let us talk about the different ways a syndicator makes money because I find this fascinating. Back in the day, I thought it was just like, hey, the syndicator gets some kind of percentage of the deal but it is actually multiple ways that you as a syndicator can make a revenue. Is that correct?

Michael: It is and that is why I love this business. There is at least three ways a syndicator can make money. One is when they purchased a property at closing through something called the acquisition fee and that acquisition fee is typically one to 3% of the purchase price is paid to the syndicator or syndicators at closing. Some people are like, ‘Wow, that is not. That does not sound right. Why are they getting a $100,000 on this deal?’ Well, if you divide the whatever acquisition fee they are getting by the amount of hours that syndicator has worked, to not only close that deal, but the other 10 that did not close, they are basically working for minimum wage. That is totally deserved number one. Number two, the second way to make money is through the equity that syndicators getting a deal.

For example, when normally the syndication is done and its equity splits, 70 – 30 split means that the alignment pardons LPs get 70% of the deal and the GPs get 30% of the deal even though the LPs played in all the money. It is this idea of what is called carried interest. The GPS get 30% of the deal for not putting any money. It is like sweat equity for putting the deal together. The GPs then get paid out of their percentage of the equity. They get their share of the cash flow of 30% cash flow and then the investors get the other remaining. That is another way to get paid while they own the property. There is also something called asset management fees. Not unlike property management fees, this is for essentially managing the asset. It is expressed in a variety of different ways. It could be a percentage of NOI, it could be percentage of income collected.

It could be a variety of all those things but the idea is the asset management fees are there to cover overhead on the of the syndicator while they are managing the asset. The third way is not frequently done but it could be at the end of the deal when all the principals returned either through a refinance or through a sale, through a capital transaction fee. A very few people do it but it is not a reasonable charge to say a point at the end. The idea as a syndicator is that you make money upfront during the investment and once it is disposed of.

Brandon: Oui. That is kind of the reward of a syndicator is that if they all this work of finding the deal, bringing together investors, they should get paid at various points in it because otherwise they could not. I mean most indicators would not be able to survive and put food on the table if they did not make a little bit of money at least some time in between. I mean it was limited to only like the super wealthy who have already succeeded in life which are not probably going to put all the work into syndicating a deal. There is definitely a value to the syndicator and there is also a huge value to the limited partners, right? Because now they do not have to go find the deal, they do not have to go find and do all that work, raise the money. They just give their money to somebody and they get 70% proportionally up to 70% of the deal potentially. Now, does that change? I do see sometimes 80 – 20, 70 – 30, 60 – 40. Like how do you decide how much the syndicator, the general partner gets of that and how do you decide how much to the limited partner gets?

Michael: That is typically answered by the return of the deal. Let us say you have a really real rich deal, well it could be a 60 – 40 split because their deal is so great. The bigger question to the investor is what are the returns? We talked about it earlier and typically what is my average annual return? In other words, how long does it take to double my money and what is my cash flow? More cash and cash return. If those are satisfactory, at the end of the day, the LP should not care what the split is now. Some still cared. Like, 60 – 40 split, what are greedy syndicator you are. You are paying yourself too much. I am like, okay, well you are getting a return. At the end of the day, what do you care how much we pay ourselves? But typically splits are between 60 – 40 and 80 – 20 sometimes. As a deal get a lot larger, you might see a 90 – 10 split but it is not very customary.

Brandon: D'accord. Would you personally like take a smaller… I mean let us say, this is something that I personally have thought about. Like when I am putting together like the ideas of syndication, I am running the numbers and sometimes the deal just does not pencil out for the investors, to the limited partners on a 70 – 30. In 80 – 20, it actually looks pretty good. Like would you take a smaller cut personally to get the deal done? And how low would you go?

Michael: Well, it depends. Like we talked about earlier, if this is your first or second deal? The answer is maybe, right? Peut être. If it is not, maybe it is a larger deal. Maybe it is a $10 million to $20 million deal. While I would rather do a 80 – 20 of a gigantic deal than a 70 – 30 of nothing. Ça dépend vraiment. Brandon: Okay, yes, that is a good answer. Again, yes, I can see how it ties into the thing we talked about earlier about if it is your first deal.

David: Oui. I am curious, Michael. In all practicality, how much does it matter? Like how much is it determined whether what your split is by who the people that you are borrowing money from are? I guess a better way to ask that is if you are a borrowing money from extremely sophisticated people that have a lot of options that will give them a high return, do you have to give them a smaller percentage? Whereas if you have got a bunch of people that are like, man I have zero idea what to do with my money, please do something with it, then you just offer a…

Michael: Yes, it is a lot driven by who your investor is, right? For example, your friends and family would be just unbelievably ecstatic. If you gave them a 10% return on their money, they are like I cannot get anywhere near that. Versus if you are going with a sophisticated investor who actually looks at deals or maybe has some done deals, like I will not get any, I will not get up for anything less than a 15% IRR because they will use the IRR term because they know it better. You have to structure your deals based on who your investors are.

David: Voilà. Dude, that makes a ton of sense to me. The offset for that is even if you have to give away a worst split for yourself and give away more to your limited partners, if they have a whole bunch of money, right, you are happy to do that because you are going to make more money. If they have got $5M instead of $50,000 and you get to keep 20% instead of 40%, you are probably have zero problem doing that because you could buy a bigger deal which has more meat on the bone. There is more to go around and the volume will make up for it.

Michael: Yes, that is right.

Brandon: Can I ask your opinion on family and friends? We mentioned it a few times, how do you feel about borrowing money from grandma or from Uncle John on your first or second syndication deal?

Michael: I mean, I would address that same question as taking money from anybody whether it is your friends, family or people you are networking with. first of all, you should not be taking money unless you know what the heck you are doing, first of all. You should not be taking money where it is the last money that someone has. This is why I advise the minimum investment really should be $50,000. Do not invest money at $10,000, $15,000, $20,000 at a time.

As I looked from my own experience, every time, especially when you do it early on, you just want to take people’s money and you are taking $25,000 and it is the non-sophisticated investor whose last $25,000 you took that are constantly calling you every single week, ‘Hey, how is my money doing? Et maintenant? Why is my check late? Where is my check?’ Like you do not want to deal with people like that. Take grandma’s check if just under those under those parameters.

Brandon: D'accord. Yes, that is really good. Yes, I have gone back and forth on that but it is true. Like the people who are the non-sophisticated ones are the ones calling you because the other ones like they just trust the process is going to work itself out in the end. One more question before we get into location on finding deals and all that. I am curious about I guess this idea of a… Shoot, where was I going with this? I had this really good question. Dang it, now I do not remember it at all. Alright, well whatever, I am going to remember it later, I am going to come back to it.

David: Brandon just had that moment where he walked into the kitchen and he is like, why did I come in here again? What was I looking for?

Brandon: That is exactly what I did. Oh my gosh, even as I was saying it. Peu importe. Okay, let us go to location. It will come back to it a little bit. Oh, I got it, I got it, I got it.

David: Le voilà.

Brandon: I know what I want it in the fridge. I knew what I wanted. I came for, I do not know, whatever, Lacroix. Alright, I am wondering like, oh no. Okay, wait, let me… I got it. Good deal. Okay, syndicators have two things. I got it, I got it. The syndicators have two, well, there is a lot of options, but let us say there is two if we divide them into two categories. There are the value add deals where all the profit generally in the deal is made at the very end. I mean like the cash flow is almost nothing because the property is disgusting. It is going to need years of rehab or run through all of these units and they are like probably is not going to be any cash flow for the next three years.

However, at the end of the day it is going to be a really, really good deal. Then there is a deal, it is like this is mostly a cash flow play. We are hoping to get a little bit bumpy at the end. Maybe add $1 million in value, but it is going to be give you a 10% cash on cash returns. I guess what I am asking is where do you personally lie in there of like a 15% IRR but 0% cash flow versus a 15% cash on cash return and a 15% IRR at the end. Tu sais ce que je veux dire?

Michael: The answer is somewhere in the middle as I do not love the first and the second is really hard to find. The reason I do not like the first because it smells a lot like a development deal, right? There is no money, no money and this giant pop at the end. I do not love that. The reason I am in this business I want cash flow as close to possible in day one.

The ideal scenario, Brandon, is where you have a stable cash flowing value add deal. Meaning that it is already making money but it is not making as much money as it should. I can go in there with a 10 year agency loan, like David said, Fannie or Freddie Mac, a low cost government loan. Because it is already 90% or more occupied but the rents are low because it has not been renovated. That is the ideal scenario because the risk is a lot lower.

Now, if you are going to do a heavier value add like you are talking about, you are still, you are still looking for a stabilization somewhere in year two so your business plan has to be really concrete saying the rents are low and the vacancy are high because they have not made any repairs whatsoever over the last 10 years and a place is a dump but the property next door is gorgeous and the rent is $150 higher. Which I would go in there and hire a general contractor and they are just going to clean everything up and renovate the units and they get a strong property manager lease up the units. By the time year two stars I should have or before I should already start having cash flow. It is not ideal to not have cash flow for more than, I do not know, six to 12 months.

Brandon: Then one more follow up question on that. I know we are getting real deep in this and I hope people do not mind, but like this is something else I have been dealing with both of my own personal investments and in what I plan to do in the future. Let us just say you raise money for a deal and it needs a lot of cap backs. A lot of like that fixed up in the beginning. Do you have a separate pot for that money that does not affect the cash flow? Because I mean if you think about it, let us say your property cash flow a $100,000 this month but you also had a $100,000 in cap x that you already knew was going to be there and you already raised money for, it is in like it is separate, right? Do you distribute that $100,000 in cash flow to your investors or do you just say, hey, it is basically a wash, we made no money this month. Tu sais ce que je veux dire? Does that make sense where I am going with that?

Michael: It depends, it depends what the $100,000 dollars is for, right? If the $100,000 is for improvements, renovations, you better use it for that purpose. Otherwise, you cannot execute on your business plan, right? However, the general rule of thumb is to always raise more money than you think you need. In this case, let us say I raise $100,000 more just for good measure, let us say, because for emergencies and it is a good thing to do. But let us say you have gotten your… You wrap your head around then you stabilize a property after 12 months. You still have the $100,000, you have already done on your renovations, you do not really foresee anything major. Well, then you might want to just return that hundred thousand dollars, maybe not as a return, but as capital and your operating agreement can allow for that. Now, what you are doing is not a return but you are reducing the principal that was invested in the deal. You have so many different options, you can do really whatever you want.

Brandon: Ok, cool. Let us move on. Location, how do you find a good place to invest? There is a lot of markets, places, you should invest. With local, long distance, how do you research it? What can you tell us about location?

Michael: Yes, never almost always long distance, right? No one is buying in Hawaii or the bay area, no offense to you guys, right? 85% of people are buying outside of their own area. Where we want to go is we want to go to areas that are growing. They were growing but we can still get some kind of yield. San Francisco might be growing like a weed but I cannot get any yield there at all. I do not have that combination of two things I am looking for versus for example Jacksonville, Florida, crazy demographic growth and the cap rates are still reasonable. I want to find areas like that and then within the area, sub market is very important, right? You want to go into areas that even within an area is going to be growing so I want to buy in that area. It is essentially under the guise of a rising tide lifts all boats. If I buy in that way, I could theoretically still screw up the purchase and then within two years it will fix my mistake if I do that.

Brandon: Alright, good answer. Où investissez-vous?

Michael: We are going to be in the Sun Belt too. We are in Jacksonville. Orlando, Florida is a great market. Alabama, Huntsville, Birmingham. We are in Memphis not because it is a growth market but it is a high high cash flow market. We love Memphis for that reason, I know you do as well. Texas is very great. Austin, Houston, Dallas, very competitive. Atlanta, great market, also competitive, but that is kind of where the demographic is moving to is those as those areas.

Brandon: Bien.

David: Yes, basically the southeast, that is kind of where. Southeast, south, anything that is warm basically. Wherever the sunshine is people want to be. No, it is the same thing I would sell people. It actually it sounds really simple but it is true. Any people are moving into those areas. If you look at like the population of the United States, it looks like someone took the whole thing and tilted it and everything sliding down into the right and then the fact I like investing in warmer areas because I do not like the problems that snow brings. Snow wears out roofs, it burst pipes. You have to worry about shoveling it out of people’s driveways. Like there is just a lot of problems. Like water causes problems in houses and anywhere it is really cold and it snows, you are going to get water. Even though that sounds really simple, most people doing what Michael is doing are investing in those same markets.

Brandon: Voilà. Well, let me ask you this. Let me just go back to the good location and that will lead us into this. Do you pick a market first and say I am only looking in these nine MSAs or whatever or do you just like start meeting brokers and looking at deals or whatever in the entire Southeast and then evaluate the market after you find the deal?

Michael: No, you should probably evaluate the markets first because there is only so many hours in a day. You study this markets and you pick maybe your top markets, your top two market. You want to pick a market or markets that are big enough for you to generate the deal flow you need. Let us say if you want to analyze two deals a week, well that means that whatever market or markets you pick should produce that level of volume. If it does not, you should pick a larger market or maybe pick a second or possibly a third market.

Brandon: D'accord. I like that. That is really really good advice. Okay, what you got in market then? How do we find them? I mean what are you typically doing? Are you doing DirectMail, anything creative like that? Or is it just brokers? Like, yes, what is your process?

Michael: I love the creative stuff, but in this particular case, it is not a house flipping business. The number one way to find these deals through brokers and it is all about the relationship with those brokers. The good brokers, it is like the 80 – 20 rule, right? 20% of the brokers control 80% of the volume in the business. You want to get to know those brokers and you want to build a relationship with them. What you are looking for the point where they call you a week before they put a listing out. They will say, ‘Hey, Brandon. I got this thing coming out. I am still working on the marketing package. But if you come in at this point, I do not have to do a bunch of work and I could sell it without doing a listing of some sort,’ That is really the magic. That is something that someone starting from scratch can get into within 90 days. To educate themselves, use the write language, build their team.

As they approached the brokers, they seemed very credible. They meet with them in person, maybe to tour some properties. Getting to that level does not take years, it takes weeks and maybe a few months but that is where the magic happens. It is reaching out to more and more brokers and generating that deal flow and building that rapport with them.

Brandon: How do I find the 80 – 20, that 20% of brokers I mean? Because I cannot imagine going and asking other syndicators, ‘Hey, who is your broker in that market?’ Right? Because you are basically saying, ‘Hey, I am going to compete directly with you with your same broker, right?’ How do I find that 80 – 20 broker?

Michael: Yes, the best source is LoopNet, LoopNet.com. It is a free website. Typically, we say that is where deals go to die and that is partially true, okay? Partially, but the biggest benefit of LoopNet is that is where all the listings are, whether they are dying or not, it does not matter. But the point is you can see the listing brokers behind them. You can look at all that you search in an area, the size you want, and then you create a spreadsheet of all the brokers in there. To me, I make note how many listings that broker have. You see all the listings on LoopNet. While someone has got one listing, eh, it could be less interesting. I will still call them. But if someone has a half a dozen listings, now it is a clue that this guy might be or gal might be a good broker. Then you always check the big broker’s house, Marcus Millichap, CVRE, there is always the big ones and you can always go through their website directly. That is how you find them.

David: Brandon and I always say that, and by Brandon and I, I mean me and Brandon agrees, that rock stars know rock stars, right? If you want to deal with the top 20% of brokers, which you do, you need to be the top 20% of investors because they are like the rock stars could sniff out if you are a pretender, if you are legit. Can you give us some practical advice for someone who is newer, who wants to desperately be in that top 20%? What they need to know and how they need to communicate?

Michael: Oui. It is actually much easier than people think. People just over complicate this thing. But I talk about education a lot. You need to have education. We threw out a lot of terms here today but you need to know what those are. You need to use the right language and you need to build your team. As you approach a broker, you are talking, when they say, ‘Hey, tell me about yourself.’ You are not actually really talking about yourself, you are talking about your team. You are talking about the property manager that manages the 5,000 units in Atlanta that the broker probably already knows, right? You are doing that kind of stuff.

Brandon: Oui.

Michael: Elevate yourself quickly in the top 20% of broker. All you got to do when you got a deal from them is get back to them 24 hours with feedback on that deal. We have something called the 10 minute offer. Allows you to make an offer within 10 minutes of getting a marketing package, fairly simple. If you do that, and I pulled some of our brokers about this, I said how many of people on your list actually get back to you in a deal? 25% will respond. If you are one of those 25%, you will be automatically in the 25%.

Brandon: That is so good. This is true for everything in life. Like people like want their job to be easier. If you just understand this thing and all like human civilization, right? If people want their job easier, if you can make someone’s job easier for them, they will instantly like you, insulate and want to do business with you, right? That applies for anything. Contractors would make their life better, make their job easier. Boom. If you are trying to raise money, make it easy on your investors, right? Present the deal in a way that is easy. Do not complicate it with IRR when it is your grandma, right? People want easy, whether or not they say it or not.

Everybody wants their life to be easier. I know, I bought an apartment in Ohio and the way that it happened, I mean, I was at a conference. ma (inaudible)(53:18) who was the agent, (inaudible)(53:20), check him out if you are in Cincinnati market. Like he was smart, right? He knew that I use the BiggerPockets calculators. He deliberately signed up for a BiggerPockets pro membership that day. Ran the numbers through that, knowing that that is how I would want to read it. Sent me over the PDF, I pulled it up on my phone, looked at all the numbers, made it so easy for me to call him and be like, yes, let us put an offer in right now. Droite? Like knew exactly and because of that I ended up buying the deal, right? Like he made my job easy.

When you can do that, I love that tip about just get back to the broker right away with feedback. I think that right there is going to get a lot of people listen to this like more deals this year. Again, small deal, single family, duplex, whatever, your agent, your real estate agent, your broker, whatever, any level, right?

David: Yes, love that stuff.

Brandon: Bien. When you find a deal then, what is the process? You find something good, you run the numbers and I wish we could spend four hours just on running the numbers here, but I know you have a really good deal analyzer people can check out, but like after that point you have got this price, you know how much you think you can pay for it. Que faire? You do not have a real estate agent in this case, it is not like residential. What is the process look like?

Michael: Well, it is a little bit different than on the house side. The house side, you, you make an offer by essentially sending over a typical MLS kind of contract with commercial real estate, it starts easier than that. I mean, typically, the offer is made verbally or via email and then you are invited to quote, make an offer, and what that means is you submit a letter of intent which is a legally meaningless piece of plain English document that says I am buying it for this price. I want 30 days to look at it and I am going to close and so and so and people sign it. The reason for that as a conversation piece number one, then you hand that to the attorney because that costs real money.

Once people sign the LOI, again which is not legally binding, the next state phase is then actually create a what is called a purchase and sales agreement and the attorney drafts that up and that is bounced back and forth, red line here and there and then when you sign that you are officially under contract which is a major milestone but now the real work begins because now you have to kind of see what you put under contract. You have to unwrap the box and crack it open and see what you got.

Brandon: There you go, I like that.

David: I think that is really good advice because a lot of people are afraid to take that first step because they think they do not know everything there is to know so they do not take a step at all. But the way that this works for people that are really good at it is this as a series of like a hundred small steps and you do not need to know step two before you take step one. In fact, you cannot know step two until you take step one and you do it enough times. You start to recognize patterns that come up over and over and over so you get more efficient with your time. But literally, the only way to learn this is to put something under contract, start looking into it and then realize oh I cannot buy it because of that. Then the next time you come across a similar situation, you are like, no, no, no, I know that did not work out. I will do it different.

Brandon: That is really good. Bien. What about like earnest money? What does that do? Does it work the same way as residential? I mean you have got to pay some money when you make an offer, right? Or when do you owe that and how much is it usually?

Michael: Yes, it is similar. Typically, it is due within certain number of days after the signing of the contract, not the letter of intent, after signing the contract. It is typically it is somewhere around 1% of the purchase. Some brokers are looking or seller is looking for that is quote hard on day one meeting that is nonrefundable. It is happening a little bit, it is starting to back off a little bit just because we have been in a seller’s market. We do not prefer to do that but sometimes that happens.

David: D'accord. Once you are into it, tell me about funding. What kind of options that people have to fund deals?

Michael: Funding as in the debt side or the equity side?

David: Probably both. The funding side is through loans, right? The best way to do it is to have our previous relationship with a mortgage broker who can bring a variety of loan products to the table. This depends a lot on your deal. Is it a stable deal meaning that is it occupied at 90% or above or is it more of a non–stabilized deal if it is occupied below that? That affects a loan product. Say if you have a building that is 90% occupied, the loan amount is at least a million dollars, you qualify for Fannie or Freddie, a small loan balance of loans which are the cheapest and best you can. You can get their non-recourse, meaning you do not have to personally guarantee them and that is the way to go if you can.

If you do not qualify, if the deal does not qualify for that, then there is something called bridge loans. Bridge loans are short term loans between one and three years, that many of them are also non-recourse. Some are personally guaranteed. If the deal is smaller, you are going to have to go with a regional local bank and get those loans and those are almost always personally guaranteed.

David: Is the purpose of a bridge loan to get you from a non–stable asset into a stable assets so that you can then refinance it with the best debt?

Michael: C'est vrai.

David: Yes, that is very similar to what Brian and I talked about with single family homes where you use a hard money loan to get the house. You get it fixed up, you get it rented out, that would be the equivalent of it being stabilized then you go refinance it into a lower interest rate?

Michael: Oui.

Brandon: It is funny actually when we talk about BRRRR investing on BiggerPockets all the time. BRRRR investing which is Buy, Rehab, Rent, Refinance, Repeat. Like that was stolen directly from how syndicators operate most of their apartment buildings. Like they buy big apartments, they then rehab those apartments and they add the value and they are renting them out now for cash flow and they got this remodel thing. Then they go and refinance it, pay their investors off, maybe get cashed out, whatever and then repeat the process. Go do it again. Oh, we are talking BRRRR, we are talking to doing a smaller version of what syndicators are doing all the time. I always thought that was fascinating. What about this, deal first or loan first? I mean like do you need to go get pre-approved in the same way on a residential? Should I go talk to a loan broker right now and get pre-approved?

Michael: No and yes. You do not get pre-approved with commercial loans but you should talk to a loan broker before. The reason is, number one, relationships are important. When you need to leverage those relationships is normally in a time where you have a deal, where time is of the essence. Number two is you have to know the terms of the loan and their underwriting requirements.

For example, if you do not know the interest rate or the amortization or the requirements around how many reserves require or what is the liquidity requirements of the sponsor because you have to have a certain net worth and liquidity. If you do not know those things, it could really ruin your deal. If you underwrite it, when you analyze the numbers using false assumptions or you try to do a deal and when the lender tries to quote underwrite you, they determined that your net worth is not high enough and then you have to go find someone that is and bring them in the deal. All that can can ruin your deal. It is very important that you understand the loan products that the loan broker has and some of the parameters around them.

Brandon: Bien. That actually leads to a good point about if your net worth is not high enough. Now, I have heard a rule of, and maybe this is a rule of thumb, may this is an actual rule, maybe it is completely not, but I have heard people say you need to have a net worth higher than the loan amount. Is that true or is that just a rule of thumb or how does that work?

Michael: Yes, that is about right. You also need to have liquidity, meaning cash in the bank, that is equal to 10% of the loan balance.

Brandon: D'accord. That has got to be somebody in the general partnership, correct?

Michael: C'est vrai.

Brandon: The key is that if you do not have that, you sit on the couch and you watched dancing with the stars every night until you are retired, right? No, you bring in somebody, right?

Michael: That is right, you bring in someone. This is the beauty of syndication. Remember we talked about the entrepreneur making something happen out of nothing. Well, if you do not have that net worth, then go find someone who does. This could be one of your potential investors, but it does not have to be investors. It could be someone that likes you, wants to support you, but has no interest in investing in a deal but they would be willing to co-sponsor or co-sign the note. Now, if they are co-signing on a non-personally guaranteed note, the risk is very very low even for the co-signer, right?

The only time that there was a be re-course for them if there is fraud and fraud was committed and proven, hopefully that will not happen. Someone is co-guaranteeing a non-recourse loan, in return they will get equity in the deal. The question is how much do you give them? Again, it depends on where you are in life, what you give them. Give them equity, give them some acquisition fees or whatever the case may be. Do whatever it takes to get that person on board.

Brandon: Alright, that sounds like a really good position to be at in life is to be somebody who is just rich enough to just like…

Michael: It is a strategy. Brandon, it is a strategy. People, all they do all day says, ‘Hey, I am rich. Let me go sign and I will get 10% for every single deal.’ You have 10 of them and essentially own 100% of deals across 10 different deals. It literally is a strategy and they are never investing any of their money. All they are doing is co-sponsoring stuff and the risk, in the scheme of things, extremely low.

Brandon: That is fascinating.

David: That is what I want to be. I have decided. I mean we are going to call it a rich hacking and I am just going to make myself available. I will just pour myself out. If you guys need somebody to go into your deal with a high net worth and some liquidity. What is funny is that the money that I make from the deals will then go back into my like savings account so I have even more net worth and more liquidity which makes me able to do more deals and you are just in this awesome spiral upwards.

Brandon: Robert Kiyosaki would proud.

Michael: Yes, that is a good point.

David: Okay, this is awesome. Now that I know I want to do this and I obviously have to start moving forward, I need to build a team. Tell me where should I start with building my team and who are the team members I am going to need?

Michael: We talked about the mortgage broker, that is the second most important team member. The first one by far is the property manager. It is not for the reasons you think. Yes, they are going to manage my property which you think is sequentially after you close a deal. No, the property manager will help you buy the property. If your business plan calls for $5,000 a unit to get a $100 rent bump, my first question is how do you know? Are you making this up? Did you go to rentometer.com? The answer better be no because I talked to three property managers and this is what they told me. They all told me the same thing. I am like, okay, now we got something.

Brandon: That is great, great. What about negotiation tricks? Like when they come back. Do you know… Not any tricks, just tips or advice on that negotiation process?

Michael: I do not really mind about tips or tricks but there are some things that are very very important. That there is at least two major mistakes that people make. One is the point at which due diligence begins. Most contracts read from ‘Hey, you have 30 days from the signing of this contract to complete your due diligence,’ which sounds great. But the problem is what if it takes to seller two weeks to give you all the documents that you requested? Quoi? All of a sudden that you have two weeks to do due diligence? That does not sound right. Make sure due diligence starts at the point where you receive all the documents.

They can take a year for all you care, do not matter. Clock does not start ticking until you have all the documents. That is number one. Number two, always always get a contract extensions because here is what happens, okay? It is hardly ever your fault. The bank almost always takes longer for reasons you cannot control. Again, it just all over the board the reason why, sometimes we never know. But if you do not have contract extensions, if the bank or the lender takes longer than the 45 or 60 days that they promised, you are essentially in default. Now, the seller may give you an extension because they want to, otherwise they would have to start over again. But sometimes they do not.

We have had sellers where they felt that they should have gotten more and so they actually are looking for a way to get out so that is a problem. What we do is we always have at least one, if not more, extensions in return for additional deposit, right? Pick your favorite deposit but I could say for an extra quarter point, I am buying myself a 30 day extension. We propose unlimited extensions and then there might be a back and forth on it and maybe end up on two or three or maybe one. But that is by far, those two tips, you got to insist on those too.

Brandon: Parfait. I love that, it is great. Alright, what about like management? Now you close the deal, you get through the whole process or actually before we get their title companies, are they the same ones who had closed this or is it attorneys or both?

Michael: Yes, it is normally attorney with a title company. Unlike with residential where you are not really working with an attorney. You are always working with an attorney and you are always working with your own attorney. You are not sharing one with the seller. You have your own attorney and they are going to be helping you with purchase and sales contract. They are also going to help you with the closing.

Brandon: Ok, cool. Now you buy this thing and now you are going to manage it. Now, you are not out there swinging a hammer, you are not showing up at the office every day at the apartment building and managing correctly. Like how does the management part work on a syndication deal?

Michael: Oui. While you are doing due diligence and before you have closed the contract, you should have interviewed and vetted and selected your ideal property management company and once you have selected them, you sign a management agreement that becomes effective, pending the closing of the deal. The morning after or the day after, the hour after you close, here is a plan in place with a property manager walks in, they put letters on everybody’s door. Here is the new address to send your rents to, they take the keys and they move into the office and we start managing the asset.

Brandon: Alright, that makes sense, cool. Then how much work do you spend managing your manager? I mean like that actually ties into the next question. I will just ask both right here and then we can go back to the management part. What are the things I have held back from the syndication models because I feel like I am just getting into another job? Like it is a lot of work. I mean like there is a lot of steps here. Does it get easier over time once you buy it? Does it really reduce your hours down to something that is more manageable and then how is the property manager play into that

Michael: La reponse courte est oui. However, a lot of it hinges on the quality of your property manager. You can have a property manager who is not good and all you are doing is chasing him, micromanaging them, pulling your hair, or in your case, beard out. Okay, that is the other extreme and you are spending way more on managing property than you should. On the other hand, you have a property manager who is just high quality stable, just getting the job done and the extent of our management is a 30 minute call with them where we talk through any issues. They are already putting out reports so I already got my dashboards. I am just talking about action items and things that we want to do, very very simple.

On the investors side, depending on what stage you are in, you might have 10 investors for the first deal let us say, that is not a lot of extra work. Once a month you are putting out a report, once a quarter you are sending out checks. As you get a little larger, there are websites and systems out there that help you automate that. You load your investors into a deal, it is like a CRM system allows you to email them, upload reports, and it just eases all that stuff. Really all you are doing is you are uploading a report, which you should be doing anyway for your own benefit, communicating it out. Really, this is one of the things I love with this.

There is no such thing as passive income, I truly believe that. I used to think there was but there is not. This is not completely passive. The only path of thing. No, I was going to say something that is not true either, but it is a highly highly leveraged activity. I mean in 30 minutes I can quote or manage our 321 unit building. That is insane, that is insane. Versus I can spend 10 hours chasing the guy on a 12 unit building, right? Size at this, it does not matter. It is all on the quality of the property manager.

David: What about limited partners? Would you consider that to be passive income?

Michael: Yes, largely.

Brandon: But they still have to go to the bank, right? They have just to wire… I mean I have been a limited partner a couple of times now and like it is still…

David: I love this. Only Brandon considers it work to have to go to the bank to wire money. This is ridiculous. I have to wait in line.

Michael: It is funny. The limited partners after like three or four months or six months, when it stopped becoming exciting to you anymore, they do not even open emails anymore. I was going to say stocks is the closest passive but actually I was going to say that is not true but you are right. LPs is even closer to passive because you should spend a lot of time upfront, vetting your operator. That is a lot of work. Lot of work, vetting, vetting, vetting, vetting, vetting. But once you found that person and you have made the investment, there is not much you can do. I mean you are tying up for like five years.

David: That is me. That is our buddy, Andrew. I just ride that race horse. I do not even pay attention to where it is going. I just wanted it to take me. That is funny.

Brandon: D'accord. How does somebody vet a syndicator? I mean why should I invest with you, Michael, or any of the other syndicator on the show? Like what makes me feel comfortable about that?

Michael: There is a variety of things but the operator is everything. Because a strong operator is going to find the right deal and the right market and finding the right property manager, right? It is really about the operator that has track record and consistency, right? You want to look and see who the partner or partners are and what is their track record? What are their systems behind their operation? Like how are they managing these things? Do you like them? Do you trust them, right?

That is really all it is. That takes some time, right? You want to get to know certain people and then once you found them, you may want to never invest all your money in one deal, you may want to do that with a second operator, but you do not need a lot of operators. Like you need two or three strong operators that you invest with over and over again and people do very very very well just by doing that. It is a lot of work upfront and then you just keep doing it over and you see how they perform. Let us wait a couple of distribution checks, see how they communicate, see how they are executing towards a business plan, how are they behaving? I see that a couple times and now I can re-invest and tell my friends about it.

Brandon: Alright, really really good stuff. Really good stuff. Now, I want to tie all this together in the next segment of the show which we call our Deal Deep Dive.

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Brandon: Alright, let us get to the Deal Deep Dive. This is the part of the show where we dive deep into one particular deal that you have done, something that you want to talk about. It can be a good deal, it could be a bad deal. It could be something but we are going to ask you just a bunch of specific questions. Actually, very much related to what we just went through for the last 20 minutes. In theory. Now, we are going to go into practical. Do you have something in mind, a recent deal? Something, Michael, we can dig into?

Michael: Sûr. 321 units in Memphis.

Brandon: Bien. My first question is what was it and where was it? Alright, next one, I go how did you find it?

Michael: We found it back through making something happen out of nothing. We found it through a deal finder, through by joint venturing with someone who had a deal. A young guy, did not have any money but had hustle, found this deal, brought it to us and we partnered with him, raised the money on it. That is how we found it.

Brandon: D'accord.

David: How much did you pay for it?

Michael: We paid about $7M for it. We had a $4M renovation budget.

Brandon: Wow, that is a pretty big rental. D'accord. Any negotiation stories, tricks, things that you worked in there, did not work in there, what was the negotiation?

Michael: No, no, not really. We just paid attention to some of the two things that we talked about earlier and those are really really important because sometimes it does take 10 to 14 days to get all the documents, especially on a property like that.

Brandon: Oui.

Michael: I cannot remember offhand whether we needed to have that extension but the probability is pretty high that we exercise at least one.

Brandon: Okay, alright.

David: How did you funded this bad boy?

Michael: We funded it again joint venturing. We raised money from direct investors as well but we also had a joint venture partner, actually we had two in the deal. Again, the joint venturing is kind of the key idea with multifamily, as you can tell. We joined venture a lot. Joe Fairless joint ventures a lot. It is just a really cool exciting thing where we joined venture with deal finders and also capital raisers. We had a couple of capital raisers in the deal and the capital raiser possibly starts off as a passive investor, really likes it, tells their friends about it and then brings to capital into a syndication.

In return, they become a general partner. What I love about is that the result is exactly the same. They get equity in deal, they get passive income and they get long term wealth. We partnered with a couple of capital raisers in addition to raising similar own capital and it allowed us to raise a lot more. This is a very common model which then increases your capacity to raise money.

Brandon: That is cool. I had not even known about this and I feel silly saying this because it is like I have been in the industry for so long but I did not know this was how it was done until just fairly recently. That like things as you as a syndicator can bring in other general partners who have the other strengths that maybe you do not have or you do not have time for, right? You bring in the capital raisers and they become part of the deal but they are out there raising money from their family and friends, colleagues, whatever, because they are in those circles and they liked doing that. Then there is you bring in a partner who is really good at working with brokers and negotiating and finding deals and they were in a good market, maybe they can go check things out or whatever.

You are all part of the general partnership together in a way because like it is what we always talking about the show is like focus on your strengths, figure out what you are good at, what do you like doing? I mean like, yes.

Michael: Yes, that is right.

Brandon: It makes me so happy.

Michael: It should, right? If someone is a relationship person and the idea of an excel spreadsheet is as much as making slit their wrists, right? There is literally a career path. It is a career path where all to do is raise money and then we see partnerships forming between two different kinds of people, the relationship people and the analytical people, right? If you are an analytical person, detail oriented, the relationship guy is not, right? Like the relationship people. We see a lot of partnerships forming a in that regard. One of them raises the money and has a relationship with a broker and the other guy does the analysis, the chief underwriter and the due diligence and those partnerships work fabulous.

Brandon: Oui. Anyway, it makes me happy because like as I said before, like there is some things I am just not good at, I know that. Like I am not real great at raising money. I mean I have a big platform and I reached out to people but like talking to people and raising money is not one of my strengths. But I love all day long like digging through numbers and going through spreadsheets and figuring out what I can pay. I will do that all day long. Actually, recently, just a couple of weeks ago. I sat down and worked out with a… There is a book called The Vivid Vision. It is like basically like you write down and document exactly what you want your company to look like in a few years.

I specked it out, like I want like within like hopefully by the end this year I want to have two or three people that work with me directly. Whether or not it is an employee or a JV, but like I want somebody who just raises money because they are so good at that and I want somebody else who is just really good at building relationships with brokers. Like that is what I am building right now in my own real estate business because for that same reason, the JV thing, anyway it just makes me happy to know that even though I have got weaknesses in life, there is ways to compensate. You do not have to just sit on the couch and watch Dancing with the Stars, you can go out there and invest anyway.

David: Bien. Michael, you mentioned having a big rental budget which was actually, I mean if it was a $7M deal and $4M was for the renovation, that is huge. Tell me like what did you do with this deal once you had it fixed up?

Michael: This was a compounded value add deal, meaning there were multiple problems with it which is one reason we loved it so much. The vacancy was high, it was about 30%. The question is why, right? Is the market bad or is it something else? This is an important question to answer. The answer to that question is they just did not turn units over. The comps were all 96% occupied. Now, of course was why were not they turning units over? You got to understand these things. It was a an older partnership.

One of the senior partners had passed away and there was a younger partner that came on and he wanted to take the company into senior living, which is highly profitable. They built this thing in the 70s and 80s. It was probably paid off making a gobs money for them. They do not need to, like I said, get the last dime out of that one. Then because of that, the rents are under market. Just as the units where there were probably about $75 under market compared to the comps in the consisting condition, but then there were other comps that were improved considerably so. There was another $75 rent bump. You go in there with a $4 million renovation budget, meaning you are going to replace the roof parking lot, new lights, camera system, playground, fire pit. You are putting $5,000 per unit and you are painting the exterior, you are removing the 70 style mansards on the side, you do all that and it is going to look just like the property down the road, that is getting $150 more in rent. That is how we used that renovation money.

Brandon: Cool. Bien. What was the outcome at the end? I mean you bought for seven, you put in four, what was the outcome you would end up doing?

Michael: This is a case study in your BRRRR method because we just re-financed out literally last week at evaluation of something like $13M for that. We were into it for seven plus eight and we added about $5M or $6M in value return 90% of the investor’s capital back and now we are just going to hold it.

Brandon: Sensationnel. Let me go back because I am a must have… Did you buy it for $7M and put in $4M or the $7M including the $4M?

Michael: Actually, we bought it for $7M and we did not actually put it in the $4M. We had $4M but we only deployed about, we only… The crazy thing is we only deployed about a million of the $4M. Just because it was so compound, that there was so many multiple problems, coupled with a very strong property manager. I mean within… We bought it at like 68% occupied, within three months he hit the 90% mark. It was just flawless execution. We could never have done that without a strong property manager.

Brandon: Very very cool.

David: That is incredible. D'accord. What did you learn from this deal?

Michael: Well, a lot of things. Now, typically you do not nearly as much as successful deals that you do with unsuccessful deals which we could spend another episode on. Having said that, I learned relatively little, I am just kidding. You learn a lot of things. Number one, it is really about your team is really important. I mean, the property manager and we have had other not so mixed results where the property manager was more than mixed, unable to execute on our business plan, replaced the property manager, got back on track, but lost six months in the process, right? That is not ideal. But the property manager we talked about before is so critical, so critical. Number two, joint venturing is very very powerful for the reasons we talked about.

Brandon: Very good, very very good. Alright, cool deal. I like hearing that. Let us move on to the next segment, the Fire Round.

It is time for the Fire Round.

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Brandon: Alright, it is time for the world famous Fire Round. These questions come direct out of the BiggerPockets Forums, which you can visit at BiggerPockets.com/forums. Let us see what you got to say. Number one, let us see. This is from AJ, I think this is. ‘I am new to investing. I want to be a house hacker. I want to buy like a duplex, triplex, fourplex, and live in one unit in Baton Rouge, LA. Oh no, not in LA. Baton Louise in Louisiana. So I can live free and learn how to be a landlord on a small scale first. When finding a potential small multifamily deal, what are some of the things I need to request from the listing agent or seller to completely analyze this deal?

Michael: I would not, first of all, I would not rely on a listing agent at all, right? With anything less than five units, you can look at the rental you have, look at the rental income, but it is not going to be valued. It is going to look on the comps. You want to look at the comps from your listing agent. Obviously, you want to understand what the rents are so you can kind of figure out can I cover my expenses, my mortgage? But it is all going to be comps driven.

House hacking, by the way, is a fabulous way to get started. I have talked to several people, that is exactly how they got started. They got an FHA loan, 3% down. It is crazy insane. You have got to live in it for a year but it is fantastic. My counsel is trying to get something that is undervalued, meaning that it is maybe vacant or partial vacant or kind of needs repair and do the same thing we talked about here. While it is not going to be income driven, comps are also driven by condition as everybody knows, right? The income is not so important but the way it looks it is very very important. Mais j'aime ça. A great great way to get started in the business.

Brandon: Cool.

David: Bien. Next question is from Zack. He says, ‘I am new to real estate investing and I just spoke to an investor whose niche is section eight housing. It seems to be an interesting niche market. Do you have any experience with section eight and if so, how has it gone?

Michael: Yes, I do have experience with section eight and it went well but it was very painful. This was a property in Washington DC. Section eight is definitely a specialty. I am not saying you should not do it. DC is difficult because not so much because of section eight, but because of the landlord. Tenant laws are highly favorable to tenants, makes it very difficult to manage in that. Similar, I suspect, from I heard in New York and California. But section eight is in fact a strategy, kind of like student housing. The property manager is key. When we first did that deal, I had the wrong property manager in place, did not know what they were doing, constantly struggling and then we replaced him with someone who specialized in section eight, knows all the organization and knows all the inspectors and it was like, wow. It is was like night and day. If that is what you want to do, I think especially if you want to help out lower income, it is definitely strategies. Just make sure your property manager is in line with that asset.

Brandon: Voilà. Alright, next one. Okay, kind of touched on this already but it is a good one so I will ask real quick. ‘I have settled on what I think is a great market for my first multifamily purchase. Who should I form a relationship with first? A broker, a lender, a property manager or a contractor?’ David Greene here talks a lot about the core four which are like those four people, right? Broker or lender, property manager and contractor and one will hopefully lead to the other because rock stars know rock stars. The question for you Michael here is like who should you form relationships with first? Who would you recommend?

Michael: I am going to agree with what David says. I would leave out the contractor because typically the property manager will bring those in. But you really want to have the property manager and the broker kind of simultaneously. Ideally, if you have the property manager on board first, you can reference them when you talked to the broker.

Brandon: Bien.

David: Bien.

Brandon: Cool.

David: Okay, last question of the fire round. ‘When you are negotiating the price of a single family home, there is a lot of psychology and emotion involved. How is it negotiating a multifamily deal different from that? I assume someone who is selling an apartment building is more sophisticated and data focused. How do you get them to move on price?’

Michael: Yes, you might think that. It really depends on the size of the building that you are working with, right? If you are dealing with 12, 25, even 50 unit buildings, there is a lot of mom and pop owners out there and they are not sophisticated at all. This could be a good thing or a bad thing. It could be a good thing if they are completely mispricing the asset, we bought one just like it and just did not really know what they had and it was great, but sometimes they have unrealistic expectation because someone down the road said they sold it for gazillion dollars.

Firstly, because they do not know how to value that. But in general that is true. It is much more numbers driven which makes it a lot easier. A lot easier because I am dealing with three levers, price, NOI and cap rate. C'est ça. Price, NOI and cap rate, right? I can have a very objective conversation with someone if I adjust someone’s net operating income because obviously way too low and their expenses are under reported. If I apply some rules of thumb to that, I can then adjust my NOI normally down, which then reduces the price down. If the NOI lower, the prices lower. Would you not agree Mr. Broker? Yes, because that is how it works.

David: I love that you boiled it down into those three levers, right? Like when you understand what generates value in an asset class, it becomes very simple to understand what to do and you just do a very good job, Michael, of explaining that so it seems a lot less daunting than it might from an unsophisticated perspective.

Brandon: Very good, very good. Alright, well that is pretty much the end of our famous Fire Round.

David: Let us head into the Famous Four.

Brandon: Let us head into the Famous Four. Wait, we did not do the sound effect. Cue here. Famous Four.

Brandon: The Famous Four is the part of the show where we ask guests every week the same four questions. We have asked you this, Michael, what 500 years ago when you were on the show last time but we are going to ask you again. Michael, other than your own, which you have a fantastic book, but other than your own what is your favorite real estate related book? What is a real estate book you could recommend?

Michael: I did enjoy yours that you put out a couple of years ago. The How We Bought The 24-Unit. That was awesome because it makes a lot of my points. You got started, you got it done, you were creative, I love that.

Brandon: Je vous remercie.

Michael: Matt Faircloth’s recent book on Raising Money is is fabulous because I interviewed him a little while ago. Praising private cap of building in your real estate empire, really good job on that. I would say my recent favorite non real estate book, though I apply it to real estate, is probably The One Thing by Gary Keller. It just clarified so many things for me and then gave me the tools to actually just work on that one thing.

Brandon: Cool.

David: That is awesome since you answered question number two with question number. You are an efficient man, clearly a multifamily investor.

Brandon: Maybe he has another recommendation. Maybe, I do not know.

David: Do you have a second non real estate book that you really like?

Michael: One that made a lot of difference to me about two and a half years ago was The Miracle Morning by Hal Elrod. In fact, he is speaking at our event later in the summer so I am really excited to have him on board, so awesome. I know, Brandon, you know you will. But that made a pretty big difference because I have always been struggling kind of with a morning routine. Like how do I structure it, what do I do and he really makes it very actionable. That has made a pretty big difference to me.

Brandon: Do you know, actually, the reason we are all here right now, the reason me and David Greene here like besties is because of Hal Elrod actually. Hal Elrod was the whatever you want to call that. The hinge between David and I. He introduced us all together and this is why we are here today. Thank you, Hal.

David: Hal was the matchmaker that made this magic happen?

Brandon: Matchmaker, matchmaker, make me a match. Alright, next one, number three.

David: What are some of your hobbies?

Michael: I love to travel. It is my number one thing. I love to travel with my family. Normally, we travel at least 30 days out of the year. If we can do it longer than that, then that is ideal.

Brandon: Like in one shot or you do a lot of separate little trips?

Michael: Ideally in one shot. As you know, we can do this business anywhere in the world so why not do it? Why look at the same four walls every time when you could be in Prague or in Mexico or wherever the case may be? Our entire team is virtual as well for that same reason. Other than that, play competitive tennis, probably less than I used to and less than I should but those are some of my hobbies.

Brandon: Agréable.

David: Brandon likes to travel too. He travels to Starbucks in all kinds of different places. Starbucks in Rome, Starbucks in Prague, Starbucks all the way.

Brandon: Actually, no, this is a true story. We went to Paris a few years ago and I mean this is like eight years ago now. My wife and I like literally like walked for like hours and hours trying to find a Starbucks. Like how could there not be a Starbucks in Paris? We finally found one, it made our life… It made the whole trip worth it. There was also like the Eiffel Tower crap, but like really it was Starbucks. Bien.

David: You had to walk past all those horrible French coffee shops to try to find the good Starbucks in Paris.

Brandon: Exactement. Yes, we are not going to go with that. Hey, Michael, because I did not ask this earlier and I should have and I want to now and I am going to totally break apart the Famous Four here, but you mentioned your team is remote. What does your team look like? I mean employee versus like people used to work with partners or whatever. Like what is the overall structure of your business look like?

Michael: It depends a little bit on which side you are looking at but on the syndication side, it is all essentially partners, right? There is no salary, no by the hour, everyone is working for equity. On the other side, it is paid as a contractor. They are either paid as almost like a partner or they are… They are all entrepreneurs at the heart of it. That is kind of why we love working in this environment.

Brandon: Yes, do you have people who just like underwrite? Again, I know we are breaking the Four, like you just have underwrite deals left and right because like as a first pass before you get to them?

Michael: Yes, we do actually. A lot of other people do as well. They use whatever analyzer tool you just tell them to use and by the time it gets to your desk, there is a certain amount of pre-qualification that they have done to the deal. If you are doing volume or you are busy guy or gal or you do not love the underwriting process, it is a great way. You might pay them $20 an hour and give him a sliver equity once you close a deal and there are people out there a lot and we, like I said, we see a lot of partnership forming in that way.

Brandon: Yes, I know both David and I are beginning to look into having those people on our team. To those people listening to this right now, you have made it through an whole hour and a half long show on this stuff and you are interested, reach out to one of us. Maybe Michael too, like if you like analyzing deals, you are good at it, maybe you are a High C, right? Like you like crunching numbers. Yes, reach out to any of the three of us. I bet we could chat. Alright, going back to the Famous Four, what do you believe sets apart successful syndicators from those who give up, they fail or they never get started?

Michael: Yes, I thought some time about this thing and I think it is really really fundamental. There is various tactics and mindset things but really fundamentally it comes down to deciding. Here is what I mean by that, okay? One of my favorite quotes is a quote by Tony Robbins, it is in my wall here, ‘It is in your moments of decision that your destiny is shaped.’ But what I have found is I studied people who are successful and you never get out of the gate. It comes down to them deciding that enough is enough. Deciding that being in the same place this time next year is no longer acceptable to them. Typically, there is some kind of trigger event. It could be a health event or it could be an experience with their daughter about missing their recital the next day and something just clicks in their mind going, hey, I have been working for 20 years.

If I keep this up, I am going to work another 20 years and I am going to miss my kids grow up or whatever the case may be and something happens inside then where they decided that this can no longer go on. If they have truly decided that, what happens is there can be no other results but that which they have already decided. On the other hand, there is all the people who have not decided, here is what this looks like, oh yes I am ready to get started in multifamily investing. Alright, great, well you have got to make time for that. Oh yes, I will make time for that. Two months later, they take a promotion at work which requires them to travel nonstop. Well wait, let me get this straight. You just told me that you were trying to find time to get started. Now, you accepted a promotion. You just lie to yourself and me in the process. That is a difference what I mean by people who have truly decided and then make decisions and set priorities accordingly.

David: Wow, you sound like Brandon Turned during a Webinar, right? The chills.

Brandon: Speaking of webinars, BiggerPockets.com/webinar, you can sign up for one. Alright, that is really great.

David: It is free real estate, you got to be there. It is free real estate. Brandon’s webinars are incredible. Okay, Michael, this has been probably one of my favorite episodes, mostly because we just feel like we got to rip free knowledge out of you to help our own businesses and it is 250,000 other people are listening, well that is cool, but really Brandon and I had benefited. Can you tell me for people that are fascinated by what you do, what you know and what you can do for them, how can they find out more about you?

Michael: I mean, the first thing is just to check out my book which is called Financial Freedom with Real Estate Investing and it is on Amazon. It is a bright yellow cover. Financial Freedom with a Real Estate Investing, it really embodies a lot of what we talked about here. It is really what the mission that I am passionate about. If people want to quit their jobs with real estate and they got real estate in their mind, I strongly consider multifamily even if they have no prior experience for cash. That is probably a great entry point into that world. The website is theMichaelBlank.com, that is how people can find me.

Brandon: Perfect dude. Well thank you very very much. This has been like just really really really fantastic. Thank you and we will see you around if you get back on the show again someday in the future and kind of see when you get to that billion dollar level, I do not know, is not a goal of yours?

Michael: Sure, absolutely.

Brandon: Alright, I like it. Bien. Well, thank you, Michael, and we will see you around. Merci. Alright, that was our show with the Michael Blank. Fantastique. Love that, love that guy. Like I just feel like I learned like my brain grew three sizes, kind of like the Grinch’s heart grew three sizes. Yes, my brain just went do do do, just like that.

David: I do not know if your head has the capacity to get bigger.

Brandon: I have a pretty big head but it can get bigger though. It has got room.

David: Yes, that was an awesome show. I mean that was just so much actionable meat and potatoes type stuff. Like, normally you got to pay a lot of money to get information like that. Michael did a great job.

Brandon: Yes, it was really really good. Cool. Well, everybody take one thing from today’s show and go apply to your life, right? Maybe that means you are going to listen to it again and go try to pull out a couple of things but like this stuff, knowledge alone is not enough, right? It is going to be knowledge plus action. Take some action. If you are driving to work right now, you are driving home from work, like that is great. Learning this stuff is important. You continue to do so. But it does not matter if you do not put it into action. Go to your calendar, put it in there.

Hey, at this time I am going to contact this broker. At this time I am going to go and go on LoopNet and go find some brokers, alright? This time I am going to go and run the numbers on my first multifamily and see what it looks like. That is so important to get that on your calendar. It will increase the chance of you actually doing it. That is all I got off my soap box. Let us get out of here.

David: Bien. This was an awesome time. This is David Greene for Brandon ‘Big Old Head’ Turner, signing off.

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