Cash Flow vs. Promises: Red Flags in Real Estate Investing
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So today we're going to chatting about real states indications when to invest went the path because I think a lot of people are wondering this right now, there's a lot of ptsd from the last four years or people know people that have had ptsd on losing money in apartments indication.

Yeah, it's a big topic. Know I think that. But first of all, let's talk about why I think it's gotten so popular.

I think people are generally afraid of inflation. They are generally they don't quite understand the stock market you why goes up and down like me, I don't understand bitcoin. So real state kind of one of those things that kind of slow and dumb, right? There's a lot to IT.

Now you could double buy IT incorrectly, but it's certainly, in my opinion, much easier than to figure out like, no, do you buy no apple stock? no. Like, and there are ways to mitigate that.

No, of course, just get educated on that. But reality is is is not valid. It's definitely can go down and definitely can go up, but it's not valid. But the other thing is also provides incredible tax savings.

And and so I think that if you just back up from the whole thing, you start to look at why would the wealthy invest in real state? I would say tax savings, tax deferred is number one. Cash flow is probably number two in that order.

Where are a lot of people think it's cash flow first, and I do believe you should buy real state to cash flows, but most people don't understand when you're first getting in there that they are really ultrawealthy are trying to buy real state to offset tacks. I am even the other night when we had dinner with those guys, I want to say who, but never. They're really wealthy, tedious.

I was silicon rally, and they have had couple acts and making a tonic cash. And so what are they concerned about? Is that the paint forty, fifty percent tax.

And they're like, how do I legally save some of that? Should I reinvest some real estate as a postage back in my industry? And a lot of people just do that. So that wrong with IT? But but I think that is what's going on with the rise of syndications.

Yeah, but with the rise of win, when you have a lot of demand like we've had a lot of demand for syndications the last few years because tear point, you know, we're having inflation. People are looking for places to invest, so people are going to create that supply, right? And then there's a lot of people that stepped into real and investing in the last few years that maybe didn't have the experience that they needed to have because last four years, even for those that were experience were rough.

Yeah, so but let let's talk about what what's going on because that phenomena right there is more demand. So there's more money point in real state. But here's the different if I pick up financial planner doesn't really matter whose names on the door and they're excited to have me the client and they dump my money into an apple stock IT doesn't really matter if there's a financial next door and I do the exact same thing, is still going into an apple stock as an example, real states different.

So I think the first thing is in the financial industry world, you know, call a financial planner, well, well, shit in that world, they're using a lot of the existing products, right? And their commissions might be a little different excel, but the products aren't much different and what's happening. So the the actual person that's making the trade for you is not really that important right .

at the stack level.

right? So now people that are used to that, they jump over the real state and they look at the people the same way. Oh, IT doesn't really matter, but IT doesn't matter.

This is when the actual person that's taking your money and investing IT is the most important, where they don't really have that stress. On the wall street side, let's call wall street street street. On the wall street side, everything is kind of prepackaged, pretty managed and pretty butter up, is heavily regulated, right? All good taxi tum, it's good.

But when you jump over and you ve got A A choice of, let's say, a half a dozen syndicators, there could be big differences with their experience, their fees, how long we've been doing IT, how deep their company is, what they're buying like there is so many other factors. And that's actually what happens is a lot even in my own business, i'm often surprised when people give us quite a bit of money. You know we in the hundreds of billions dollars we've we've raised for our real state investments, there's a large majority people that just trust us now we've done research, they just trust us and then we have to perform.

And so therefore, we've got their trust and we've been able to grow that. But they just got lucky in a lot cases because what I mean by that is they invested with the right horse, right? But what what people are saying in a load of cases, it's it's hoody a ban on, right?

What's how experience are there is what's the depth on their bench? What are they actually buying? What markets, what kind of that are they using? You know, all all those things are important. You don't you're not used to asking those questions when you're addressing a stock, right? And and that I mean, there's a whole another list questions that you should be asking a sync dictor one place .

you know ever since two thousand and you know ten let's call IT you know anything you but went up and value. So I mean, you also may have looked a syndicators track record from two thousand and two thousand and and they had done fairly well and you just didn't realize that you know they had never been through a dip before.

And then what we saw in twenty twenty was really or twenty twenty one was really on president, you know even for MC companies is where the rates one of that quickly. And then a lot of people had the floating dead because we were, you know, building or we were, you know value adding onto a property. So IT really hit everybody hard. But the question was, then we able, did you have the relationships and were able to handle that?

correct. right? That to decorate. And so I think what you just described is that would have been a market timing blessing like like one people would say invested in something in twenty eleven and twenty twelve, twenty thirteen and then they just had their money in there and then the market just rose IT doesn't necessarily mean that I was a good syndicators IT just meant that they timed IT right, right?

So you can you can buy completely wrong for relate deal acquisition, let's say, and the market will save you. You can also buy really right and the market will hurt you. And that's actually what just happened.

We have a lot of people believe in or not. If you go back and take a look, I know I believed that cash fls are getting tight, which is why we pull back. But the point is these people all have a plan.

They all had a plan to do value add and grow the thing, and they had a business plan, all stuff. And I believe that most people, we're pretty open up about. They have business plans at all documented what happened, why they didn't pay attention to the bigger picture, right?

They didn't anticipate interest rate rescue, you know why? Because they never experienced before. They didn't anticipate all this new supply of apartment hitting the market.

You know why? Because they had anticipated support before. They an anticipated expense is gone up like crazy, like insurance and property tax.

Chili, why? Because I had experience IT before. They had anticipated that og would be going down because you know why they know how to manage property managers. They don't know how to manage property. All they knew is how to raise money and put a deal together and buy IT and then hire third party.

But the reality is it's like it's like when you first go to the doctor and there no doctors can be intimidated, right? Know know, you know, like you've done your own research now you're self educated right about you go in there and you can have a full conversation with a doctor. okay?

There's a lot of people that would never go there. They go in there and they just trust in there like, yeah, i'm good. Well, it's the same thing. So as you start to go through the cycle, you start to learn all these different things.

Then, of course, now I can sit down with any real state investor at any time and have a conversation because i've lived IT breathe and have the wisdom. Our companies gone up and down. We've had good deals, really, really good deals, had some bad deals.

And you know, we've gone to multiple market cycles. That's precisely what you want to invest in. You want to invest in a company that been down that road. So you you know it's the same thing. It's a pure education. What happens is a lot of times people go to a new doctor, right? They don't know to ask, and the doctors do fresh out of medical, that's exactly the same assist real estate. So you got to decide, do you want to you want to go to someone that's been in the business very short period of time already? You want to go to somebody that spend in the business over twenty years and you you're going have two very different out cups.

absolutely. I just on the medical topic. I mean, no, you go to people that are more experienced a lot of times and they are have work wisdom, you know, that come from experience. And then sometimes no people have some good ideas too, but it's just IT does really make a difference .

so that just one piece and you took at another level, you actually got super educated before you went IT. So now you're going in with massive knowledge and actually discussing openly from being very transparent. With somebody with experience that's when it's perfect will write.

And that's why you know we always tell the audience that know you really need to get educated on on how to invest in real state in these deals. You know you can't just buy something or invest with somebody you know without really understanding what you're doing. I mean, even my brother is constantly to consider buying his first single family home is A N all.

But you know he doesn't know what he wants. He just has a Price point, mind, you know, but he doesn't really understand on the rest of the process. And I think a lot of people do that with syndications. They just say, yeah, you know, I have two underground, I want to invest but then they just put IT with someone.

They are lazy. Yeah, they are busy. They're lazy. They're busy. But who cares if they're busy? It's too on a grand like you know i'm busy too but i'm not going to just give me two underground somebody I don't know you know and your brother as much as I love your brother, you know he's right.

He start with the Price point but that might not be the right answer, right? And you know but this is a start, right? You have to know that why after bring .

of the fact you know, when you've invested in things, you know we have a role now that if you're going to invested anything outside a real city like we have to chat about IT because you've invest tech company, C V D companies and different things and you don't understand the business. So you are just then putting your trust in the person.

correct? You're exactly right. I'm god you brought that up because here's the reality is i'm no different than other people and so what I should have done these are friends of mine, right that i've known for a long time and and also no excuse but I gave her money that I I was okay with losing and I don't want to lose IT and I happened in every case but I haven't some and so that's another thing. But the reality is with with real state or whatever IT is, you just really to get educated.

You ask a tremendous amount of questions just like you do on the medical, right? So the next time around is one of I told the deal as as, okay, you need be my gatekeeper and so now when buddies say, hey, would you stop a hundred grand? And the stealer, when I rice, I going to ask my wife and then I sit down and then you pepper me with questions that usually I don't know the answer to and I go back and answer then.

So now i'm getting educated. We're both getting educated. And that actually is the dual logic that we should be done before we give the money that is missing in with a lot of real city investment.

Yeah, absolutely. And women do have this intuition. And you always say, you know me. Not that you should face IT on that, but always make sure to ask your, we trust me guys, trust me somebody like.

I don't trust guy like you've said that a .

lot and i've been a lot .

yeah I think you'd write most all the time even though IT pains me to see IT. But but I actually do ask you, I think I like he. I've thinking about investing in this.

What do you think? And you're like tubs up, dumps down. And most of the time, some of the time I get IT. My god is right. But I would say a lot of .

the time is not well well also because you know, you have personal relationships with people that can kind of skill, decision making processes and things like that.

Two hundred, right? Like a place thing about your family, right? Think of the abuse we all take with our family members, right? Like it's true, right? Yeah, like we were talking about this last night, we had my boys over their girlfriends and we are all joking about how this function all our families are, right? There's always, I said, you know, I go what I 呀 i said I don't think mine is .

and everyone liked to me and they are like that IT what's .

me you yeah because ah because of you。 If you don't think your family is defunct, that IT might be you that a sfc tion that they are talking about. No, but you know it's putty.

But IT is a way there's a lot you can do with that, right? mostly. But with we'll say investing you can with any kind of investing is harder money, man, like do your homework.

No, just you know, haphazard. My dad works in B2B mar keting. He came by my school for career day and said he was a big row as man. Then he told everyone how much he loved calculating his return on ad spend. My friends still laugh at me.

To this day, not everyone gets Better to be, but with linked in, you'll be able to reach people who do get a hundred dollar credit on your next ag campaign. Go to linton dom slash results to claim your credit, that com slash result terms and conditions apply linked in the place to be to be with the Price of just about everything going up during inflation. We thought we bring our Prices down. So to help us, we brought in reverse auction ee, which is apparently a thing.

fifty. Fifty one.

so give you a try at my mobile com ash .

switch dollars month new customers on three month only taxes to speeds of give IT to .

somebody without really, really understanding.

So what do you think that like? Because you there are some red flags the past four years that I know that you saw with these syndicators and you would say that to me sometimes like I know um one of the things when they were promising certain returns yeah that you didn't think we're realistic.

right? So but I I I I told the story for, but russia, I decided to sell a property that we owned in houston. IT was a small property, was like, I think there was a hundred thirty six unit, was really nice brand new in the nineties. And we tried to raise, we tried to renovate the units to raise.

And you know, before we actually listed IT, we spent a good six, eight months really trying to figure out, do we really want to sell? This is a room in IT, know? And you always look at that, the low hanging fruit inside of something, you are the one.

And we tried all these things and we decided, you know, we should just access this one and roll that money into something that else. So I did, and little than I know in one in this gross, somebody um was want to buy IT, which is great, but I haven't to be on the list of that person, the buyer. I haven't to be on their list, on their L P.

List because I invested in other things and so on. Here I am now I get this business plan on a property that I own, and I opened up, and guess what? IT says we can grow and eight to ten percent a year.

Value add expenses are high. Really managed socks, which is me, you know, all these things, right? And so now I don't know if they've fabricated that to try to raise capital.

They really believed that. And I could be I was wrong on some of those things that we tried, but we own the property. So I went to sold IT, but I think we could move the needle.

But the point is, you could put anything you want into a business plan, trust but verify. You can put you can put any kind of financial projections, any kind you can say, anything about any market. You can say we're going to be either tempt person appreciation next year in this market.

And then guess what, that really changes the financial picture. You can say we can cut expenses fifteen percent across the board. You can say that you can actually underwrite that, and you can do that.

You can say these insurance costs are too high. Instead of what they paid. I want to say that we can do IT for eighty percent.

You can actually input that number eighty percent without checking. You could do that. You could make the number how you want, period. So there's a lot of that what they went on and and I think that again, back to experience. And and so you'll just just a very basic things.

Did you also though the preferred return because the preferred return is that is a set amount, right?

yeah. So what depends? Yes, when I when I saw that the the the the real state mark was already a crash and really get into problems. So ross and I just declare ify, actually.

people are really looking at the market thing. It's not crashing, but the multifamily market, for those of you that aren't eat multiple family is in a very tough spot rate.

So let me explain. So if i'm if i'm going to get one hundred thousand north from somebody and I I have what's called the preferred return. And let's say the preferred return is six percent.

That means that i'm giving you six thousand dollars, six percent of one hundred thousand as a commitment to you. You will make that first before I participate. Anything that's what I prefer to return is. So the prefer return is an important thing for an investor, because if the money sitting up, say, up two or three percent interest rate, you know, savings account, and they give you to me, and i'm gonna trying to give them six percent, what people they realized is that the only thing that can pay that is the actual property, right? Cash ful.

That's IT. Does that come out of a head or anything on?

No, I just completely come from the property. If the property makes six percent, then IT goes gets float out to the investor that does IT, then IT does IT. Now there's what we call compounded or non compounded.

Other words, if i'm not able to pay IT, is that compounded or not? So there's all these nuances inside the prefer return. But the reality is the preferred return is something a way to hook investors, are a way to attract investors into a deal that will hopefully turns out really well .

from so interesting, you know, is I think when people, especially newbies, look at a prefer return.

you know, so what these people, that was the whole so, so when I started to all, was when I was speaking stage with people, which I won't mention, and there raising money at eight, nine, ten, 72 percent preferred return。 Now I know enough again from a real state standpoint, to know that there is no possible deal that carefully that much.

So it's very possible to find deals, that cash for five, six, seven percent hard defined, but you can find them. I don't know that i've seen anything over ten. And so in other words, some of my billboards are over ten, but it's hard to find.

So so when you're offering, let's say, ten or twelve, that means that the cash for does not cover. You prefer return. And the only way to get that money is to sell the property. That's the only way because you have to sell IT for more than you bought IT for in order to pay the twelve s okay.

let's interesting. So basically this, the only way you could pay like not most syndications like an even and twelve percent return is if you you're only strategy was an exit strategy where the property went up a lot.

you you got IT, that's right. That's the only way because IT certainly doesn't pay for cash for just say it's four percent, let's say it's ten and you're cash flowing five percent. You still all the investor five every .

year depending .

on every year crack, right? So you got five percent and five percent and five percent for every investor. That means the money that you all from a pref standpoint to the investor is growing each and every year because you're shorting them. Now there's nothing wrong with that strategy. You can raise money like that.

But when you to get up into those double digit preferred returns, you're putting yourself as a sponsor as the person is buying the project, you're you're a really, really bad shape because that means that the market has to go up a lot, a lot in order and you have to tie IT and you have to because again, they get paid first before return. This there's what's called a waterfall in every deal. The waterfall basically says the first thing that gets paid is a prefer return. Then after that, there's various kinds of splits that you know that the person not putting money in called the sweat equity the general partner would get. But the lp kit, whenever that first hurt, is in the form of a fur return.

So if somebody had to keep the like, say, the plan was to keep the property for three years and then salad, but right now, you know, the markets hit A A road bomb. You Price that they are actually going down, not up. So they have, let's say, they decide to hold and they have to hold this property for ten years. Well, then the the investors are not going to get their return because there is no way that this additional percentage amount, year, year every year for an additional seven years, there's no way it's going be worth that much.

right? Well, let's just use a scary, let's say you raise ten million dollars at ten percent, right? So you know you know that you are preferred return is which is an expense is a million. That means at the end of year one, what you are the investors, you are the horizontal ten a million, you know eleven and right, let's say another year go by ten percent of one point over eleven .

million is is .

one point one million. So now and the second year, u am twelve million, one hundred, right? So so that that works. And so after ten years you could measure what that is, right?

So now what you have is you have the don't forget, you're going to you're going to owe the investor over twenty million dollars, what you know closer to twenty five, even more right at the end of ten years, and they only invested ten. So you so now they prefer return is more than the original investment yet on a ten year hold, right? So as possible, believe IT or not that the property could actually appreciate more than that.

yeah. And if he does, then the investors make all their money plus up for return. The real question IT is, does the gp make anything right? yeah. So that's the problem with setting up a structure like that. So when I started seeing people raising money at these really high numbers and then the market turned, they're all in big trouble, but is a new investor.

I think that and we had this right because we went to conferences where we were presenting MC deals and we had other books that were presenting their deals. And you know, our press, if I remember right.

were around five.

Yeah, six, five and six. And I remember .

my dad works in B2B mar keting. He came by my school for career day and said he was a big row as man. Then he told everyone how much you loved calculating his return on ad. My friends still laugh at me. To this day, not everyone gets B2Be, but with linked in, you'll be able to reach people who do get a hundred dollar credit on your next add campaign. Go to link in com slash results to claim your credit that's linked flash results, terms and conditions apply linked in the place to be to be that can cause damage to from fire to hail Hardy citing stand tall through IT all helping trade professionals look their best when they recommend Hardy see the proof at James Hardy dot com.

People were not wanting to invest with us because they want to invest with the people giving .

that's so I what exactly what happened? And so and I get that I do get IT if i'm an lp, and i'm like, i'd rather invest with that person over there because give me ten, why would I invest with them? See if at their five, what they don't understand is the reason I picked five is because that's what the property cash flows .

already right now.

yeah. So I always try to matched I want I don't care if the investors get all the money. I just want to .

pay well because you can always give them more, be giving them more. The proof is really only the bare minimum that you can get paid. The what's above and beyond that, you'll still get .

your percentage correct. But when you're tracking capital, it's like it's like like if you have banks and ones giving you six percent on your savings and other ones giving you three, are you going to put your money right now? It's not a perfect example, but that when they're looking at syndicators, they're looking at that they're back to education, correct?

I was gonna that a new be uneducated person would be sitting with a sales guy from another company and be persuaded this is Better yeah because the press Better.

We're onna exit this building in three years and here's how we're going to cover that ten percent pref, right? And of course, they're hoping everything goes right and IT goes up. And I could where i'm like i'm not I don't i'd rather be a little more conservative and say the property producers, five percent. And I am little anxious and a little nervous to offer you ten on a property early, this only generating five. And I don't want to be behind five percent year .

because you don't want to not perform.

correct, right? And so as a company, one of the things we look at with MC is we don't want to be behind preferred returns, right? I want to be very aligned with L.

P. S. And here's the other thing that's interesting that nobody really discusses. If I owe A L P ten percent. And the only way that i'm going to make money is to sell a property. I am motivated to sell a property, right? If I would all be five percent and I still got, let's say, two or three years in market run, i'm i'm not motivated to sell.

right, because you're hitting already that five percent for the L P. They're happy because that's what they expected, but that you could to stay in the deal.

right? But i'm but i'm doing what's best for the real estate. I'm not doing what's best to pay off an L P, and that's the difference.

But it's best for the real state is also best for of the L P, as long as you're not behind on the prefer return.

right? What i'm saying is that you're not aligned, that the general partner and the L P. Are not aligned on the exit.

Let me ask you this, if I raise about your money, let's say the ten million doors, and I say we're going to sell in three years and i'm behind on that lp, and I just sell. Does that mean that I excited the right time in the market? Possibly right. Yeah, what if but what if it's not what if I am just trying to get out from behind that? L P.

well, that no, because now you are just trying .

to kind of turn ital.

maybe make a little money potentially.

That's exactly right now. Let's say I five percent and three years. I like the market not quite ready yet, you know.

So everybody forgets about the exit. The exit is really important. The exit pays everybody.

So it's like a home. Think about your home. What home Price is gonna be in three years one .

hano is that let you know is at the right time to buy. What if IT goes down? It's it's like, well, IT my but if you hold on long enough, well, I mean.

so yeah so the same thing though, like you could sell you could buy a property at home and and and project what you think they're going to be in three years and then exit, okay? Or you can project what this can be in three years and say, you know what? The markets harder than hot, i'm going to let run a more. But when you're raising capital and using other people of money, you don't have that luxury. You don't have the luxury of time.

right? right? Not when your whole plan depends on the exit. No, but you know an exit can be selling, but in exit, like for M, C, A lot of times is also like a cash out refinance ance. That's right. IT doesn't have to be a self because I know we do sell properties, but that's not really what we like to do.

Preferably, my dad works in B2B mar keting. He came by my school for career day and said he was a big roman. Then he told everyone how much you loved calculating his return on ad spend. My friend still laugh at me to this day.

Not everyone gets B2Be, but with linked in, you'll be able to reach people to do get one hundred dollar credit on your next ad campaign go linked in 点 com flash results to claim your credit that's link in that com slash results， terms and conditions apply linked in the place to be what's the easiest choice you can make window instead of middle seat picking a vender who sends a great gift basket outsourcing business tasks hate. What about selling wifi whether you're selling a little or a lot? Shop, I helps you do your thing however you touching.

Shop, if I is the global commerce platform that helps you sell at every stage of your business, from the launch your online shops stage to the first real life store stage, all the way to the did we just had a million order stage shop to help you grow, whether selling or offering outdoor sell wherever and whatever you're selling shop of ice got you covered sign up for a one dollar per month trial period at shop of I dot com lash try go to shop of I dot com slash try now to grow business no matter what stay during shop if I don't com slash try right? But let's talk about cash. A rifle with a high pref in that exact, scarier, I might have to do a cash arrive.

I just to pay prah, right? But then I still have the origin capital with a temple cent pref. So all i've done is paid the LPR prep, not a bad thing to pay the L, P, the press. But now I still have original capital. The real, the real idea of real estate is to be infinite return, is to actually pay back the origin capital.

I see, because people are doing the cash out. Ref, I only to pay the press that the initial deposit that they got from everybody are in.

Yes, no, I know .

i'm just trying to understand well, but then the the whole point of correctly done, if everything goes right, cash out refinance is to return everybody their money. So you no longer o prah, but then everyone still owns their percent of the deal and continues to make money without having .

any money to study. And that, yes, our model is to bring new fresh capital into a real state deal. Have an exit for the capital. I want to return the capital tax free. That's what I want.

How do I do that? I grow the value the asset, take IT to a bank, get a new loan, pay off the original loan plus the couple I raised, and keep the asset. That's a traditional cash, a refine really hard to do.

Not every deal does that, but it's hard to do. You have to buy IT, right? You have to manage IT, right? You have to have a value add force security plan and an interest strates. I'll have to work with you. So you know there's a lot of things that have to go correctly. And so with all those variables, that's when you've seen, you know the whales come off the bus with so many syndicators, you know because what they believe was next year is gonna Better than last year, right? And that when you have that pho sy, that next year can be Better than last year um that could be flawed.

Well, I think you know one of the issues that we touch join is a lot these syndicators only really had one exit plan. The exit plan was to sell in three years and three years or whatever there.

What happened during that time? Interest strates one up. Cap rates went up, their cat the round cash, the values went down. The properties aren't worth the loans.

So not only is the equity not there, the original investment for the L, P, S, but of course, the proof is gone. So there's no proof and the origin capital gone. So not every case, but in many cases, that's exactly what's going on right now.

So should I be a red flag if someone's looking to invest with this indicator that only has one exit strategy? Like should they question what if this sexy strategy doesn't work?

Of course but IT doesn't necessarily mean a red flag, but that's exactly right. That's the education peace and that just accusing know why you might ask that question yeah like do you have another exit strategy? What if this doesn't work? Well, it's gonna work.

That's a stupid answer. What is the answer? What if that doesn't work? Well, we can hold IT and we hold IT is still cash flows.

Well, if a cash flows is a cash for ten percent of my prev, know how much is a casual three percent? Okay, how I going to get to seven? Those are real questions.

And you had mentioned before, you know, people didn't know how to manage the property, and I wanted dive into that a little bit. Like what what didn't they know how to manage? Like these people .

think about IT property manager is a thousand moving parts every day. You know you've been in IT. I am in IT.

You manage your own properties. I have a whole company that does IT you to think about who you were when you first bought a property. No, first is now.

which is ago. No, like ever years. Can you see what i'm .

talking about? How important? perty?

yeah. I only managing, you know, single family. So when you have a whole building of multi family, i'm sure that there's is different there, right? okay.

So now insert somebody like you that goes to a how to raise money course somewhere and they go see in the room and they're like, i'm going to do this. Okay, right now there us, there are an engineer and they're like, i'm tired. This is ninety five w two job.

I'm going to go by apartment. I know much to rich people, right? Okay, do you think they are going to get aniela? Do they know how to hire a property man for company?

We know we do with us in our own company. When IT comes to there's a big difference between a market ter and manager, right? And so you know like some people can really market really well in its impressive, but IT typically doesn't transact late the other direction too, right? Like you can market, you can manage, you can sell, like who can do everything .

you know an engineer knows how to hire engineer. They know to ask right OK, but they don't know how to hire a property. There's just smart.

So they're like, okay, I I trust them. That's IT. That's the extension. That's the extent of their due deals, right? I'm drilling them.

You know you in its your own property course.

but you know back i've higher a zilia property manager res. I work for me. I've had third parties. I've done all the problem is that when you go rise capital and that's your strength that you came from some other industry, there's plenty of people like this and they sit down from a property mention company that wants their business.

Like do they know even what to ask, right? If if they say, what do you think of these numbers there, what you think they're to? And if they cave the deal, they don't the mention account, right? So yeah you know you there's no part you know there's no, there's no they are completely bias.

You know you you you you they don't know what to ask. So when he hits the fan and the property goes to ninety percent of cache, eighty five percent occupy, eighty percent oxy, seventy five percent occupy, which is a lot of them. And then they fly out there because they want to write a letter to their L, P, S, say, I flew up to the property and we change manager. Okay, to who?

Well, that is interesting because you know, I I had consulted for a company a couple years ago and you know, kind of same thing, and the guy was really smart, but he he bought a building right and was doing kind of ID tr rentals out of IT to nurses. And the issue was is that after covet the nurse, money dried up, so the nurses weren't getting their covet pay so they could not afford, you know, the rest that they had been paying before.

And a lot more supply him to the market. You know, people got in, there was a good business. But you know what what? This guy didn't understand what he bought was IT was in a really bad area.

So we had homeless people out on porches because he know he was at from the area. And he just bought a deal that he was gonna sell. I mean, he made a good tear point. He got ten investors together. He was like ten una building and he was gonna ll IT.

And you know we had homeless people we had so that we had to try to start getting long term tenants, but that was not covering the the rents on the and as the mid terms. What are. And you know, you keep me in a jury at a crime, and you always say that you really care because we have having crime issues, so we will get people in. And crime issues would make them leave or leave about review federal. And you know that's one of those things that you would have known that he didn't know.

right? So you know what in that deal? Who ever bought IT? Whoever sold IT.

we have that too. I don't know know about IT from him, but yes.

whoever said that both and he lost ten people's money, probably I don't know the deal, but I will take that point. I would never bot there make number one. Number two, he relied completely on the nurses as his only plan.

Just like people are there right now. There are being be. So if that really planned IT goes wrong, then you will have a backup. You need to have a multiple back.

We always say if you're going to buy a house, make sure cash falls with a twelve month long term renter, then go to L, B, N, B, then go to fractional, don't go go to whatever you want after that, but you can always scale back and you never want to lose the property. And and also, of course, rule number one, my rule is buy where you take your wife on a date. That's rule number one, if that doesn't work and don't buy there period unless .

you really have a good strategy .

for like lower, but you can manage your way, a bad neighborhood period, you're going to continually attract you, the undesirables of that area. You know the the area is that way for a reason. Crime is a real thing.

People don't want their kids there. They want to, I want to go to schools there. They they want to work there. They don't feel safe there. Typically who lives in crime areas, unfortunately, criminals, but also people that can't afford to live out elsewhere.

It's going to read the quote of the living crime .

areas who is crime areas typically criminal .

um so what else other than just you know crime like what other are kind of miss me management .

you're so many oh my got everything. There's tenets like they don't want to manage tenets you know that's another one that there's a whole spreading process. You know I would tell people the attraction of your tenants.

So how do you keep things occupied? There is a whole system we have in our company with with social media, with our rich marketing, with referrals, with website seo management. There's there's so much stuff that you we have a whole marketing time is .

this is the story of the one who is a maintenance specialist for a historic I rise knows that vintage charm, historical needs, constant attention, which is why when it's time to upgrade, turn of the century mechanicals, they turn to granger with easy access to a million plus products and the scale to deliver when and where you need them. The right tools and supplies are never far away.

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Investing in amErica directed to drug traffi C2Bring peo ple to the pro perty so tha t the y now can clo se tho se peo ple. We want people walk into the Doris entire there's entire industry y's dedicated to getting traffic to walk you you know the rent, that would be number one. And then what happens is they read to the wrong person.

So that's a huge problem. okay. So if you read the wrong people, then the people that were good credit risks move.

no. So there's there's just every single day what you pay for, for capital Peters who you hire to run your building. You know are you taking cash? Are you taking cash check? Are you doing A C H?

You know who who you know what? How are you managing your expenses? Um all of that like there's like you said, there's a thousand things that are really important and that's the thing that a typical sync tor can. I could sit down i'm walking in any apartments ly anywhere, even a ercles office building doesn't matter and just ask either ten questions that i'll just spend the whole thing sideways and i'll know exactly what's going on.

why you guys you know about of building this was years ago. But I remember red that you know you asked the owner, you know, how is that being managed or is being managed amazing will come to find out that the property manager is their son was dealing all of the like washer dryers and he was selling up unlike cris .

working that actually it's I will meet you who that was a friend of mine that said, hey, we're having a tough time. We're trying to self manage and I said up all all or do you favor by the way, I don't do any third party manager. So this was a very big favor. So I went over, turn off. His son was not only doing that.

the property manager son.

yeah the property manager son, um they were actually running. He was buying things from like a hardware and hopi pob. And he took a whole unit and he had the whole year four of compressors and, you know, equipment, stuff that was all three, four, five, six, seventy years old stuff. He was buying them over time, and you would never notice IT, right?

So he was really buying IT.

but stealing, basically using the property credit card to load up of a unit full of stuff invitation. And then he was selling on IT like swap meat and stuff I got on the site. So he's making cash. So he's using the company to buy these things and then selling on the site in addition to anything everybody's doing. The ad is doing everything.

but also occupying a unit on the body.

Well, that the unit just had stuff in IT. So he was occupied, you, yes, but then he was also occupying with his fence goods. So like, yes, those kinds of things happened.

You know, I I can even tell you many times I had manager still, you know not ours, but we found more manager red steel. So we've taken over buildings that the the owners we buy from an owner of some our income those way up. There's only one reason income goes way up the next mop like not so something yeah something like that like there are so many things.

And you know i've been in fifty conversations around theft. At least real ones sit apartments talking, you know maybe maybe people that are our friends with stories. okay.

So now if I educated on how people still do you think that's valuable to a cdc tor? yes. Okay, alright, that's my point. Like new doctor, wise doctor, like that's exactly my point.

Well and you know people tend to steal to when when they feel like they're not being right, don't right. So it's really easy to say, hey, this expense, you know, we have replaced x amount of this and y amount of that. And if you're not there to check or you have anybody to check, you're just literally .

trusting that the building right now, I the name, but we're going to drop out here in in the next thirty days. Out of state owner lives at florida. Twenty five year old, twenty five year old, twenty five is on the property for twenty five years, the tears have been touched.

It's twenty percent vacant. The property in a market is five percent vacant, right? But he's out of touch.

He's out state. I've tried to go over there three times each time the officers shut, lock, right? Got the website. No vaccine.

Cy, so that i've get the reverse where esco? Alright, that's like the perfect project, right? Because now who knows what's going on really?

The the manager might be pointing money, might not be there might be the most trustworthy people. I don't know. The reality is that the websites wrong. They are not a harper site occupy ed, we know that there's at least thirty bait plus we walked up, you know we've in every unit and so and it's close all the time and and that's the perfect project because guess what we're buying the property based on how it's Operating. No correct that you what and we're going to do is put yes, we have vacation is so simple and and you know obvious ly, we're going to prove the project and put good managment in there and and you know but this is the story .

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additional restriction supply the point.

So you know, let's talk about fees a little bit because that's definitely something that we were seeing the last four years and that people that are new to this, they're uneducated about this, wouldn't understand.

Well, I think the biggest thing around fees is you have to take a look at the company that you're investing with the call this indicator. So with with our business, we have ten thousand apartments. I got ten thousand units of property manager fees coming into my business.

So I don't need a fee with call, typically an acquisition for. I don't need IT. I don't have to buy something to pay my bills. My bills are being paid by the appropriate we are to manage and on right? So buying something is a luxury. So when you're targeting a syndicators and they have overhead, they have an office space, they have a reception, they have an account, they have people, they are paying and they have all that and they're living and breathing on acquisition fees, that's something you gotto look for.

When you said that some of those fees that you were looking at.

we're crazy. Well, so that's yeah the thing. Now we'll get into the fee Price. I've seen fees as highs four percent, industry status one.

So on a twenty million or deal, one percent is two hundred thousand hours, four percent or does, right? So you gotta a take a look at that. That's that industry standard, you know. And we've sold buildings to guys that have really big fees.

I sold the project that we had two son and we saw on the on the closely state the guy had was taken to almost nine hundred thousand doors and fees and I think IT was to eat a million on that property r fee would have been n about two fifty. And now what is that? Two fifty four that covers all people working on the project, including acquisitions and the analysts and all there a butch people to pay and voters the stuff for finding good deals. When europe in to that number, you know you're basically living on that money. So when you see high fees, let's say three, four percent and high press, that means they are running their business on fees and their cash flow from the properties as a paying the investor.

So do you think that um. For M, C companies, you guys run IT more or you're invested in your own deals. So you don't really need to make the money on the front end in the fee as much as you do on the back and in the cash flow.

right? I would rather on the real state, I could care less about the fee. The fee is important, don't get me wrong, but it's to pay my staff right. It's just flushes through my and it's gone.

Trust me, you will even see you hardly I don't even know where they mostly go when you're into that range, where you're up in the three four percent range, that's just wrong. And and that means that the L P, S. Are shopping around, right, right? So when we were talking about the where they are gone from booth to booth, what they should do that that question because .

they don't ask about the feet. That's kind of even like when we're doing a workout right now just on our own house, you notice that you know um the appraisal was charged three different times right to your account and you notice that on the invoice they had three appraisals I paid for.

one on a credit card, there was two on the closing statement and so no one caught .

about me well but but I think of this happens to people with fees too, right? They're investing example t of money, and they don't always read the invoice until maybe the very end when they look at the fee and see what if they are paying.

right? And so right there, mistakes do happen, but four percent is not a mistake, right? You know, I think so. There are red flags, a good syndicators going to a be one percent.

right? Because they're betting on the deal. They're investing in the deal because that's important to would you invest in with somebody that didn't invest in their deal?

No, no, I I like first of all, you know, ross, I are putting we put money in every deal so every i'm an lp just like everyone else so i'm putting my harder money right along side of ever one now let's .

talk about do diligence and underrating right? Um how do you know if the person you're investing with is doing adequate? Do you .

just know? I mean, again, there are questions, right? I i've done thirty thousand units of due to eligant. I've walked easily, thirty thousand apartments easily, maybe more in my life.

So what does that do for me that that means I know to look for that means i've been thirty thousand different scenario occupied vacant upstairs, downstairs after hurry canes before heroes like everything like. And so you start, you start to see a pattern of things are needed. And basically the point to do the diligences, to uncover everything physically and uncover everything financially.

So the leases you have to tie the leases back to the right roles. You have to look at the market to make sure that you get the rent and the and the vacancies are all where they are. You have to make sure the utilities and the and the the insurance Prices and the property tax and all that stuff for account for that.

The whole point of religions. But most the biggest thing is, once you step into that, are you going to need a roof in your one? Are you going need a parking lot? You're gona need to require, do you need air condition in units? Does IT need paint all that stuff? Those are real expenses.

You have to know all that. And that's another thing for some of you, doesn't earth. And you know um how to budget all that stuff? That's actually what can kill a deal is hi, you know after we the you know we buy some big properties where the roofs can be five hundred thousand dollars. Five hundred thousand dollars is a lot of money and and so whose who whose bill is that? Is that the seller or at the buyer, right?

And if you .

forgot that if you don't know about IT, it's the buyer. If you know about IT, you haven't discuss with the seller and the broker. And so that's the point of do diligence is to flush out all those things.

Is there any way that in a newer investor can check the do diligence on a property? Or is that really something you just have .

to mainly well depends on who they use. Um there are third party religious companies out there if they do with themselves um you know who who who is IT and what's the real information you know and and so there is a process and obviously there's nothing Better. Just think about like you are at home, it's the same you all at home like right now, you and I live in a fifteen year old home.

Okay, what have I done in the last two years? I play there. I put a new refund. I paid, paid all thing. I just read the irrigation, landscaping.

I put some new windows in, right? We're regrowing the inside, outside, right? Okay, i've done all that, plus I read the audio visual systems all that.

Now I just my home. But everyone has this kind of an experience, right? They know.

right? They know. Like, how old is the roof, right? They do.

Is their electrical panel up to code or not? Was there somebody? Did somebody add D A bedroom without getting a permit? It's the same except IT just not a big apartment, right? All that stuff goes on.

It's the same, but it's different in the way that you know, instead of having one unit, you now have no fifty units.

What is this fifty unit roof cost? How many years are left in IT?

So what you're same basically is somebody needs experience to be able to understand.

And that and all actually built into the beginning. It's like when I bought or chicken ian, the property that we own up sona the resort, I knew that I had a half a million dollars in capital improvements that were needed on day one. I just knew kay.

I've been to the whole project. I walk the whole thing extensively. Higher engineers hired different people for different things.

And I had a whole budget, had like forty things on IT. So were a thousand dollars. So were ten thousand dollars.

And the road coming in was ninety, right? As you know, that we redid that road. So those are the things that you actually have to know before you buy. Otherwise, you step into somebody else's shoes and you take on everything well.

And you know that people selling, sometimes being on the inexperience of spire.

yeah, sometimes the sellers don't know because .

they have done their own due deal for time.

Well, if they own some a long time, why would they just trying to sell? And then they start to realize where you where are the problems might be like dollar road.

So let's talk about overly aggressive underwriting because I think that's important and I that is something that the investor can double check.

Yeah, this is gona be mostly if anybody tells you that they could save on expenses, that is a portable can anybody this listening tell me that their expenses are less next year, that last year? The answers? No, IT just doesn't happen.

IT just doesn't happen. So that's a big red flag. We're gna cause expenses fifteen or twenty .

percent .

on anything guys right now. That's b yeah you know a poorly managed property a lot of times is actually underspending, not always. But then the other one, the obvious ones are vacant units that mean we have fabricated leases.

A market rents that are not achievable a value at is not real, real value at. Oh, macy, that's higher than market, all that stuff. But the thing is, again, I probably look at the thousands of deal. I can look at a financial statement from a seller.

I can tell you just by look at at the numbers where the problems IT shows up in bad debt IT shows up in and skips IT shows up in in vacancy IT shows up in late fees IT shows up in. Sporadic, ya know, IT shows up in and fluctuations of occupy IT shows up and ranges from how much is a too Better room, the exact same, too Better. And one building to another is IT fifty thousand, or is IT fifty dollars, twenty five dollars? Is that two hundred dollars? You can tell a lot from a red role. You can tell from a financial statement without you a step on the building just because i've seen so many.

So somebody is looking to invest and they are the new and they don't really have a lot of time to learn all this stuff. Like what would you tell that?

Just again, this goes back to that who's the wise doctor?

Be educated.

Answer right questions and don't just turn your money over anybody yeah you need to expect a thro questioning of really, really good questions. You know what's the market occupy? Are these rents really achievable? Do you have a survey that shows you know, where do you do you think did you account for d species going up? How about taxes? How about insurance? Or heard insurance is are high right now.

Is there any capital needed to fix a building once I going to be deployed? How long? You know how? All the same stuff.

You know that if you're buying a home that's twenty or thirty years old, those of the questions you probably should be asking yourself, right? right? I wanna renovate this house.

I was just gonna cost, right? okay? Doesn't need a roof like all of that stuff, but those those are perfectly acceptable questions. And that's real money. Don't forget if if a property, you know make an fifty grand a month and you have twenty thousand hours a month of capital expenses and make thirty thousand a month.

Now why do these M C companies only take a credit investors? Because we have a lot of people that asked that because they want to invest, they can.

I know there's is just a protection for ball parties, right? And that's that's IT. You know, we want, we want to.

We do everything under the, with the S. C. C rules, right? The five or six bees and the five or six sees.

So yeah, we're regulated when you're borrowing money from people in the form of an investment as that what that is they expect IT back with a return. You know we have compliance issues that we have to follow. And so it's just it's good for ball parties.

And if anyone in listings is interested in checking out empty s investment, you can go to invest with MC dot com for flash podcast things can. This is the story .

of the one who has a maintain specialist for historic highrises knows that vintage charm historically needs constant attention, which is why when it's time to upgrade turn of the century mechanicals, they turn to granger with easy access to a million plus products and the scale to deliver when and where you need them. The right tools and supplies are never far away. So the one can keep that vintage building running like new call class ranger up calm, or just stop by ranger for the ones who get IT done.