Lee Yoder is the founder and CEO of Threefold Real Estate Investing, a company dedicated to providing outstanding multifamily investment opportunities to both novice and seasoned investors to help them build lasting wealth. In this episode, Lee shares his recent experiences in apartment syndication and also offers insights on how to effectively assemble a team for commercial real estate ventures.
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TRANSCRIPT
Slocomb Reed: Best Ever listeners, we are coming to you live from the T-Rock Contracting podcasting stage at the Best Ever Conference in Salt Lake City, 2023. I am Slocomb Reed, and I am here with Lee Yoder. Lee, how're you doing?
Lee Yoder: I'm doing great, man. So excited to be at the Best Ever Conference, and excited to be on the podcast with you.
Slocomb Reed: Awesome. Yeah, I have a particular conversation I want to have with you for our Best Ever listeners. You've been on the podcast a couple of times before, so our listeners should be aware of your background... But tell us a little bit about what you've had going on in the last year.
Lee Yoder: Okay. Yeah, last year. So we got into apartment syndication a couple years ago, so the last year we've been trying to find 40 to 100-unit apartment buildings in Cincinnati and Dayton, Ohio, where you and I are located. So we've been trying to do that; it's been really tough the past year, because while prices have come down a little bit, interest rates are really high, so we were just able to buy one in the last year... But we were trying to do that a lot, and we just got one last year.
Slocomb Reed: Gotcha. So I've said this to a few people, not from Cincinnati, who are at this conference right now, but I feel like whenever I come to this conference, go to Denver, go to Salt Lake City, the best conversations I have are with other people in Cincinnati.
Lee Yoder: We're the salt of the earth people. It's not a surprise. [laughs]
Slocomb Reed: Yeah. Also, we're all in the same market, and so we're dealing with a lot of the same things. You and I had a conversation; the name in the DeRosa Group that people will likely know is Matt Faircloth; they gave a presentation here at the Best Ever conference, and then they ran an event called Partner Hunting, where they broke down commercial real estate teams into the particular strengths and weaknesses that individuals on that team will have... And recognizing, based on your more inherent strengths and weaknesses, what roles you will likely thrive in right within a partnership, and which things you really need to be delegating because it's not you. So to give an example - I don't want to try to give the entire DeRosa Group spiel right now, but I know that in many things in life, I am an optimist, and not a pessimist. And one of the reasons that works for me as an optimist is that when things go sideways, I'm just going to figure it out and fix it.
Lee Yoder: Yeah. Because you think you can; you think there is a good outcome.
Slocomb Reed: Yeah, because I think I can, because there's a good outcome, and because I know what I'm willing to do to make sure we get that good outcome. I don't naturally focus on all of the what ifs, and tweaking the spreadsheet for what could happen in a recession, how many points do you need to add to your interest rate, or to your cap rate five years out. I don't want to think about five years out, I want to think about right now, and I want to think about what I can do and what I can control.
So of course, someone on a team needs to be doing conservative underwriting, and projecting out into the future, and what if bad things happen, and turning those amalgamous bad things into actual metrics and how a property will perform in those circumstances... I can spreadsheet, I can math; it's not what I thrive on, though. And so that's something that I look for in a partner. You and I were having a similar conversation... Tell us a little bit more about your strengths and where it is that you thrive when it comes to commercial real estate investing.
Lee Yoder: Yeah, they said in every team there's four pieces. So you need four different guys or girls with different strengths. And one of them is the hunter. And that's definitely the one I gravitate toward. I think that's the one God most created me to do, and gave me the passion and maybe some skills, but most have the passion to do it. So I like to be out in front of the business, and finding the next deal. In any business, somebody has to bring in the business. Somebody has to be out in front, doing the sales... That's what I like doing. And then you do a lot of this, Slocomb, and you do it way better than I do; someone then has to operate the business, someone has to fulfill the sales that you bring in. And so that's what's not me. But what I really enjoy doing is being out in front.
I'm definitely an optimist as well, but I really do like looking five years out. I'm almost always looking out in the future. I'm actually much less interested in what's out happening today; as opposed to you, I love looking five years out. And I'm not a pessimist about it, but I do acknowledge the risk, and I love working through those scenarios. So kind of both of those things would be me, that I enjoy doing.
Slocomb Reed: Since you got into syndication, Lee, and what I really mean is acquiring assets of a scale where you're raising capital from passive investors to be limited partners in your investments, you've had for acquisitions, correct?
Lee Yoder: Correct.
Slocomb Reed: Recognizing that this is a conversation about strengths and weaknesses, not talking about outcomes within the portfolio, because I know you have a team, you have managers who are working for you... Where have you found yourself thriving as you've gotten into larger assets, and where is it that you've found yourself struggling?
Lee Yoder: Yeah, I think where I have always thrived, even with the smaller stuff, is I just am extremely passionate about real estate. I think everybody should be investing in real estate. I don't think everyone should do it actively, but I think everybody should be invested passively, or do it actively... Because I think it's the greatest investment. So talking to people about real estate and about investing in it is a big part of what I do, because like you just said with syndications, we bring in passive investors... So I need to go get other people excited about it, and confident in it as an investment, and then confident in us to do it. So that's something I've always felt like I've excelled at. And I think if I excelled at it, it's only because I just love doing it; I'm passionate about it.
So that's very easy to me; to some people it might be draining to jump on a phone call with a potential investor... And I love doing that. I'll give him them an hour, and the hour flies by, because I just can't stop talking about real estate. So that's definitely something... And then along with that, I think meeting with brokers. But for the most part, the bigger you go, the more the brokers control the deals. So talking with them - again, I love talking about real estate. So when a deal comes across my desk, or comes in my email, I'm jumping right into it. And so to call the brokers, or to go on a site visit with them, you've got to make them believe in you, too; just the way I have to get the investors to believe in me and my team and my vision for the property to invest with us, you've got to get the brokers to believe in you, because they need to know that you've got a good enough plan to take it down. So talking with them, and they see your passion, and they see your hunger, and they're like, "My goodness, this guy is going to do this, because he's so passionate about it, and he's got the experience and that stuff, too." So I think those two things for me have been something that I feel like I've excelled at, just because I really enjoyed doing it.
Slocomb Reed: Yeah, when you meet someone like Lee, learning their passions is not optional.
Lee Yoder: [laughs]
Slocomb Reed: They just come out naturally. Thinking about a place like the Best Ever Conference, this year I believe just over 1,200 attendees from all over the country, investing all over the country; several people here coming in internationally. Lee, being in the syndication space for the last couple of years, what is it that you're coming to a conference like this looking for, looking to do, or who is it you're looking to meet?
Lee Yoder: Multiple reasons, a conference like this. And I would say especially this one has so much to offer. But one thing I think about is a lot of the guys and girls on the stage are 5, 10, 20 steps beyond me. So I certainly have so much to learn from them. And what's neat is they're on a stage, they might talk about one topic, but then they get off the stage and you get a chance to talk to them over a meal, or out in the hallway... And you can really ask specific questions. And what I really am interested in learning is "Can you go back five steps, or 10 steps, and remember back to when you were where I am? What was the thing that got you to the next step or two?" And that's incredibly invaluable, because if you want to know what to do and how to take next step, go talk to somebody that's done it. And maybe you won't do it exactly like them, but we're at a point now where it's like, "Do we hire this position? Do I hire somebody to do this?" We want to start scaling, and so it's definitely a thing that I've just never done anything like that before. But there's a bunch of people here that have. So asking them, "What was that first critical hire that allowed you to free up and just do the things that you're good at?" Or "How did you make that transition?" So that's awesome.
And then, like you were talking about, Slocomb, that event last night - you and I were both there; they split us up into different regions, and actually it ended up being a lot of guys from Cincinnati... And so acknowledging and understanding my weaknesses. And if you really want to scale, you want to build a business, you need to bring somebody else in. So there's an opportunity to meet people like that.
I think the newer you are, you're maybe looking for partners more. I mean, there's a lot of guys here that [unintelligible 00:09:17.05] but I'm still relatively getting started. I still think of my company as a startup; there's an opportunity here to find people that might fill some of those gaps and partner. So yeah, those would be the two main things. Beyond that, it's just a lot of fun. I love talking real estate, so you get to do that the whole time you're here.
Slocomb Reed: I want to try to summarize what I heard you say just now; please correct me when I'm wrong... You gave two answers to the question "What are you looking for from a conference like this?", but they were both networking. They're different networking answers. The second answer you gave was along the lines of "Who's on my level? Who can I learn from, but also who is it in this space that we may be able to work together, where there's some sort of--" I don't know if "cohesion" is the right word, but there's some sort of synchronicity that you worked off of... Whether they're in the same market or not, people you can treat as your peers, who you can work on growing together.
The other part of networking, the first thing that you said I think is access to really high-level operators. I just don't know how many places you can go where Ben Lapidus, Matt Faircloth, Neal Bawa, Joe Fairless are just walking the halls, looking to connect with people for the sake of adding value.
Lee Yoder: Yep.
Slocomb Reed: And of course, there are hundreds of really high-level operators right here. A lot of names that ought to be said in that list, that I can't remember off the top of my head, and that I won't have time for... But those kinds of people, those kinds of connections that you can make.
And then - I said this already, but I come to Salt Lake City and I connect with a whole bunch of people from Cincinnati.
Lee Yoder: Oh, I know... [laughs]
Slocomb Reed: Because even with us not living that far apart, the conference is a mental opportunity to focus in on networking and connecting with people in a way that you and I don't do in our backyard. I'm not just calling us out, but people in general; how many Cincinnati people that are that are here that I talk to more in Salt Lake City than I do in Cincinnati?
Lee Yoder: Yeah. Slocomb, we're so busy working in our business... And even if you're kind of working on your business, you're probably doing that yourself. It's hard to step back far enough to think of that, but this conference forces you to do that, and allows you to do that. So I totally agree with you.
Slocomb Reed: I don't want to call this conference an out of body experience, but if you could combine the sentiment of an out of body experience with an out of business experience, and having to step away from your day to day grind... And in our cases, our wives and our children, all of the time that we love to spend with our families; you and I both, we've talked about that. But the amount of intentionality that has to go into that, and being able to step away from it for a while.
I know I tend to come here with questions, and then I end up leaving with questions, but also leaving with some answers... What were your questions coming into this conference, and what are some of the answers you feel like you're getting now that we're coming towards the end of the conference?
Lee Yoder: Yeah, you know, I'm definitely a macroeconomics type guy. Like I said, I love looking out in the future. I think it's super-fascinating. So the podcasts I listen to are all about that. Because real estate is very local, and you and I are both big on operations; we've got to operate well. And there's been a lot of guys that say it, and I think we both believe it - if you operate well, you can get through any market cycle, and you can make money in any markets, and all that. But at the same time, it's very important to know - Kathy Fettke was saying there's a time when the tide is lifting all boats, and there's a time when the tide goes out. And we may be in a time when the tide goes out.
And I've had some questions on how should we think about this next year? And then, the more important question is then how do we prepare for that? So that was one of my questions. It's been very helpful to hear people that have teams that study this stuff, and had been doing it for a lot longer, and seen more market cycles. So that was one question, is how do we think about what's coming, with a potential recession, and how high interest rates... Those things, but then like, how do we prepare for that? So there's been a lot of talk about that, and I've really appreciated that.
And then the other thing I think that's just for me personally in my business - it goes back to what I was talking about before... We've been able to syndicate a handful of apartment buildings, and we've been blessed to have a fair amount of success, but it really feels like we're at a transition point where to take that next step with our business, it's going to require some different things. And so I have a lot of questions around that, like "What should my next steps be? And when do I start hiring some people? And how do I do that?" Because we haven't exited any of our syndications, and a lot of times that's that inflow that you need in your business to then go reinvest. And so how do you make that transition? A lot of my questions are around that. Like I said, there's a lot of guys and girls here that have made that transition, made that next step, and then the next, and the next... So I'm getting some answers; it leads to more questions, and you've got to go back and actually implement it... But getting some really good answers around that.
Break: [00:13:47.06]
Slocomb Reed: Follow up on that and how we started this conversation, Lee, using Matt Faircloth, the DeRosa Group's language, you call yourself a hunter; someone who thrives on frankly being on the prowl for the next acquisition, looking into the future, making those forecasts specific to that, and specific to thinking about acquisitions, and thinking about future forecasting. You mentioned what Kathy Fettke has to say about where we're going. That's a very different mindset from where I am, and so I wonder how that is influencing what you're getting from the conference and what you're looking at getting from it. Are you primarily focused on learning about the growth of your business, of course, from people who have progressed from where you are, but also is it really about being here to see what's coming next?
Lee Yoder: Yeah, I think that's part of it. The way I would try to think about it is "How do you plan for the different scenarios?" Because even as smart as the people are that are here, they don't know either. They've been very humble, and I really appreciate that, to say like "Hey, remember last year, when we said this was going to happen?" or "We had a debate, and the team that won the debate said interest rates weren't gonna go up that much", something like that, and they have... So I try not to put too much into that. And like you, Slocomb, at some point you've got to say "I can't focus too much on what's gonna happen five years from now, because I don't know. I need to focus on today." But the way I try to think about it is, let's think about what are some probable outcomes, what's the Fed saying they're going to do, and then what's the probability that they actually do that. Just if they do do that, if they continue raising rates and hold them high for the rest of the year, then what does that mean? Does that mean we shouldn't buy anything? No; it means if we buy things, this is how we should prepare for it. This is how we should go in. If we do go into a bad recession, does that mean right now you shouldn't buy anything, and you should wait for the recession? No, not necessarily. It just means you shouldn't project out the kind of rent growth anywhere close to the kind of rent growth we've been seeing, and therefore we've been projecting in our deals, or we were projecting a year or two ago.
So that's how I think about it, is more "If this happens, because we think these are some probable outcomes for this year and into next year, then what are you doing when you're purchasing?" Because again, I'm kind of with "You should always be buying", and we haven't, for a long time...
Slocomb Reed: Spoken like a true hunter? Spoken like a true acquisitions guy.
Lee Yoder: Yeah, absolutely. Always be buying. But I think really, that means you're always hunting, but you're not necessarily killing something,; you're not necessarily taking the deal down... Because if you do think that the Fed might keep interest rates high, if you do think we might be heading for a recession, then again, your underwriting looks a little bit differently. So I'm getting that from these speakers, all the smart people I'm talking to, "Let's talk about this - should we really be projecting the same kind of rent growth?" "No." "Well, then put that in your underwriting, and then you can't offer as much." So that affects whether or not you're buying something. So that's how I think about it.
Slocomb Reed: There's a question underlying a lot of sentiment at this conference that I want to ask you, and then answer on your behalf, and we'll see if I'm right... But then I want you to explain, if I'm right, A question that's on a lot of people's minds that isn't necessarily being asked, I feel, is "Should I be investing now, or should I be waiting for whatever time in the future that the other shoe drops in the economy?" And we're not asking if it's a recession anymore, because it is happening and has happened. "Should we invest now? Should we wait for whatever time in the future the other shoe drops?" I'm guessing your answer is you should be investing now. And then you have an explanation for that. What would your explanation be?
Lee Yoder: The first thing I would say is it's so easy to say "When things are at their bottom, that's when I'm gonna buy." How many people are buying Bitcoin right now? If you believed in Bitcoin two years ago, you should be buying it like crazy right now. Because nothing's changed for Bitcoin. There's no new regulation... Some things have blown up, sure, but that's not Bitcoin that's blown up. It's some other stuff. So if you liked it at 60 grand, why wouldn't you like it at 20 grand? But the price would be going up if people were buying it, and it's not. I mean, I think it's gonna go down more, along with the rest of the economy... And that's Bitcoin. It's not real estate; real estate is much more stable. But the same thing applies. It's easy to say that, but it's not so easy to carry it out. That would be the first thing I'd say.
Second thing is some things changed. I look at certain deals, and I say, "You know what? They're selling for 75 grand a unit. Maybe at the end of the year, they would sell for 60." Well, they're going to sell it now. Because if I don't buy it for 75, maybe somebody else will. So your chance to buy it is now, it's not later this year. Now, will there be another deal? Yeah, maybe. But you've got to think, that buyer, for example, if he doesn't sell now, and he could sell for 60 later this year, does he sell it, or does he hang on to it? If he can, he probably hangs on to it, because he realized "Shoot, I missed the boat." And that's what's happening right now. I mean, people were talking about the lack of inventory... Well, that's why, because the people could have sold for more, they're gonna hold now, unless you have to sell.
So the other thing is lending. I've heard a lot of people -- I was not in the market then, but you hear a lot of these experienced investors and they say, "Man, I wish we were around in '09 and '10. We could have bought everything." And they say "No, you wouldn't have, because you couldn't get lending back then." Banks tighten up, and I've seen that just in the past year. In the last year all of a sudden the banks just tightened up, they took a lot of our proceeds, they raised their interest rate, and you're seeing that now, where banks are not only raising the interest rate, but they don't lend you as much. We were always getting 80% of our purchase price, now it's 75, maybe even 70.
So now you need to raise more money, you need more investors; the banks don't want to buy as much. And the banks are the ones that are mostly responsible for buying the property with you. That's your biggest money partner. So imagine what that's going to look like at the end of the year if we are in a recession; it's going to be even more that case. If banks are hurting, and they're scared, they're not going to be as willing to lend. You had this bridge debt that they would lend 90%, and they would go down to DSCR 0.9 instead of the 1.25, and now they want 1.25, 1.3... And so things change; it's not as easy. There's markets where there's lots of money, and it's really hard to get a deal. That's [unintelligible 00:20:44.04] And then there's markets where there's lots of deals, so there might be people selling at a discount, and there's no money; not only from the banks, but your investors. Suddenly your investors don't want invest, because they're scared.
So that was a long answer. But that's why I think if you get a good opportunity, I would say jump on that opportunity. You need to make sure there's a lot of margin, you need to make sure you have good debt, all those things put in place... But I think if there's a good opportunity, you always buy that opportunity. Because you never know. And guess what, Slocomb? We might not go into a recession. Who knows what's gonna happen? It's election year next year, maybe the government decides to just pump in money to kick the can down the road, just enough past election... Who knows? So you just never know; if you've got a good opportunity, jump on it.
Slocomb Reed: There are a lot of people who have been predicting this recession for at least seven years now...
Lee Yoder: I've been one of them. I think Kathy Fettke might have said it, too. And we might have had a recession; if not for COVID, I think we were heading into a recession. But they gave the government a reason to print all this money... The craziest thing any of us has ever seen; so you just literally have no idea.
Slocomb Reed: Another attempt at putting your thoughts in my words, Lee. Correct me where I'm wrong - coming from the guy who thrives on seeking out the next opportunity, you should absolutely be considering investment opportunities now, as long as you're doing your due diligence, as long as you know that you can future-forecast possible recession-type outcomes, and that those deals still work. You find that opportunity now, you pounce on it... Does your underwriting need to be more conservative, or do you need to create more worst-case scenarios? Absolutely. But if the opportunity is present, you should still be ready to pounce on it.
Lee Yoder: Yup.
Slocomb Reed: Well, Lee, you've been on the bestseller podcast a couple of times here recently, including about a year ago, so we're not going to do an entire lightning round... But I do have a couple of questions for you.
Lee Yoder: Sure.
Slocomb Reed: What is the Best Ever book you recently read?
Lee Yoder: Recently... I read "Good to great." Jim Collins. I love that one.
Slocomb Reed: That was old school.
Lee Yoder: Yeah. It's old-school.
Slocomb Reed: At least for people our age it's old-school.
Lee Yoder: Yeah. And I hadn't read it yet, and it's one of those "Why have I not read this yet? Everybody talks about this. I've gotta read it." That was an awesome book.
Slocomb Reed: A mistake that I made is that I started reading books like Good to Great before I was actually building a business and hiring employees, and now I'm in the position where nothing stuck, because it didn't matter, and now I need to go listen to those. And Good to Great is one of those that's in my Audible profile; I need to go back to it.
Lee Yoder: For sure.
Slocomb Reed: My favorite question to ask, within your commercial real estate investing the last couple of years, Lee, what is the biggest mistake you've made, and the best of her lesson that resulted from it?
Lee Yoder: A hard lesson we learned on a mistake we made was not having enough reserves. We have put a lot of money in our properties; we do value-add, so we brought a lot of money in and we put a lot of money in the property. And then we had good reserves, we had -- I think a lot of people would say that's a lot of reserves. And it still wasn't enough, because we had some just totally unique expenses; big expenses, pay right now. And I wish we had more reserves. The thing you can see with our properties - the further we've gone, we've had more and more reserves. So we had a few properties that had that same experience, and the ones we bought later, we weathered the storm much better.
So you can see in my track record that we've learned that lesson, we're doing better and better, but it's all about bringing in more reserves to the table. It's such an easy time to talk about that. Who knew interest rates were gonna go up like that? We have fixed-rate debt, so it didn't affect us, but so many people did. And the people with ample reserves - and ample reserves means a lot of reserves - then you can weather the storm. So that's something we've learned. And if you look at our deals, we have more and more and more reserves as we go along. And we plan to continue that.
Slocomb Reed: At a time when the economic forecast is cloudy and uncertain, reserves are what keep you in a position to continue succeeding.
Lee Yoder: For sure.
Slocomb Reed: Last question, where can our listeners get in touch with you?
Lee Yoder: Yeah, jump on our website, threefoldrei.com. You'll find everything on there. I'm pretty active on LinkedIn as well, so if you look up my name...
Slocomb Reed: Those links are in the show notes. Lee, thank you. Best Ever listeners, thank you as well for tuning in. If you've gained value from this episode, please do subscribe to our show. Leave us a five star review and share this episode with a friend you know we can add value to through our conversation today. Thank you, and have a best ever day.
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