On this episode of the Best Ever Show, Joe Cornwell interviews Ryan Emrich. From an accounting background, he transitioned to real estate and focused on off-market multifamily properties by emphasizing the importance of formal partnerships and direct mail campaigns for finding deals.
Ryan Emrich | Real Estate Background
- Best Ever Book: Crushing It in Apartments and Commercial Real Estate - Brian Murray
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Transcript
Narrator:
Quick disclaimer, the views and opinions expressed in this podcast are provided for informational purposes only and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. For more information, go to bestevershow.com.
Ryan Emrich:
You're going to learn probably so much more from that first deal and actually pulling the trigger and making some small mistakes by having great resources around you from your networking and your mentors than just hesitating on every deal and trying to continue reading and trying to continue going to networking events. At some point, you do need to put the trigger.
Narrator:
Welcome to the Best Ever Show, the world's longest running daily commercial real estate podcast. Our hosts interview commercial real estate experts every day to get you the best advice ever with none of the fluffy stuff.
Joe Cornwell:
Best ever listeners, welcome to the best real estate investing advice ever show. I'm your host, Joe Cornwell, and today I'm joined by Ryan Emrich. He is a partner in the Blue Canyon Equity Partners Group. He has a real estate and contract finance background. He has a wholesaling and buy and hold real estate business, and they are based in Boston, Massachusetts area. Ryan, welcome and thank you for joining us.
Ryan Emrich:
Thanks to you and your listeners for your time today. I'm thrilled to share a bit about my real estate investing journey and what my team's been up to as of late.
Joe Cornwell:
And this is your first time on the show, is my understanding?
Ryan Emrich:
Correct, yep, first time on the show.
Joe Cornwell:
Awesome. So tell me a little bit about your background prior to real estate. Let's start with that.
Ryan Emrich:
I went to Suffolk University, which is a smaller school in Boston, Massachusetts, and I studied accounting. Real estate was not even on my radar when I was leaving high school, thinking about what majors I wanted to study and what things I wanted to pursue. So I kind of always thought I actually wanted to go into forensic accounting, something with the FBI. I was big into criminal justice, went to school, decided to graduate, pursue accounting, get my CPA license, got my CPA license, then started working in finance at a tech company.
Around 2018 or so I was talking with a friend and I was letting him know that I wanted to do something a bit more entrepreneurial. And one of the things I was thinking of at the time was food and beverage franchise, kind of like a firehouse subs or subway or something like that. And he and I were talking and he was just getting into the bigger pockets community. He was starting to read about investing in real estate. And that was also something that I guess during college I had heard about, but I was in front of mind. So there was a little bit of interest there for me, but something I hadn't pursued. So around 2018, we decided to start looking at some properties together.
And then in 2019, we pulled the trigger and we bought our first three family, which we call them triple deckers out here because the way they're stacked up. And we bought our first three family out in Worcester, Massachusetts, which is about 4050 minutes west of Boston.
Joe Cornwell:
Gotcha. Okay, so you started with a triplex and you still have that today?
Ryan Emrich:
That triplex I actually sold this year. We bought two triplexes together in 2019. And then that we sat on those 2020 happened, you know, it was obviously a little shaky and scary time, I think for everybody in the industry. And then toward the end of 2020, he and I, my original partner had a falling out. So what happened there was I decided to keep one of the properties. He decided to keep one of the properties. And then I kind of went out into the world looking, starting to network again and looking for some newer partners, taking what I had learned from the last partnership at that time, though, or later this year, actually, I had decided that it made sense to either. Trade up into something bigger or 1031 exchange, which is what the original plan was, or to just sell it, take the profits and then do with it as I see fit.
So I originally was actually going to 1031 exchange that property. I had found another property, a six unit in Gardner, Massachusetts, also about an hour outside of Boston. And I was going to buy that. I found that off market late last year, maintained a good relationship with the owners and I was going to close on that as my 1031 exchange property, but I found another client who was looking to buy some property and they were willing to pay a good chunk above what I was willing to pay for the property. So I decided to actually wholesale that deal. So I earned a little cash there.
But because of that, I didn't actually end up having a 1031 exchange property to go into. So working with my CPA this year to figure out some ways to mitigate the gain from that, but also good to have the wholesale revenue coming as well.
Joe Cornwell:
So let me go back to your partnership. And I know you said you had a falling out, so to speak, and you don't necessarily have to get into the specifics or details if you don't want to. But I think partnerships are extremely important, especially for investors who are looking to scale. So I do want to spend some time on that. If nothing else, tell me some of the lessons you learned from that initial partnership did not work out.
Ryan Emrich:
I think the big thing was we didn't have an official formal partnership agreement. So the duties, the expectations, what was the dissolution process going to be? Should we decide to dissolve the partnership? So when it came time to have conversations around that, we had nothing to look to for that. Of course, as I think everybody can imagine, there wasn't so much money on the line that it made sense to start hiring attorneys. But we were starting to think about that. And that obviously was going to be very expensive.
So big thing was if you're going to enter into a partnership, and that's what I've done with all my new partnership ventures is there's a partnership agreement. It's blessed by an attorney. I think it's actually drafted by attorney to begin with, but it's the one that we're using now as our template. And it sets forth what happens if a partnership wants to leave the partnership. What happens if a partner in the partnership passes away? So that's all spelled out there so that there's not any question marks, I guess, or big question marks.
The other thing is I think it's important, even if it's not spelled out in the partnership agreement, to have some type of expectation as what you and your partners are going to be doing in the partnership. And that prevents strife down the road. It also makes sure that everybody has something to work on and that there's not overlap or kind of competing. You don't want to get into debates I guess is really what it comes down to. You want to try and minimize those types of instances.
So in my particular partnership, we have me, which I focus on the acquisitions and then helping underwrite the properties. We have one of our partners that specializes in the operation side of things, managing the property management company. So he does asset management. And then the third partner, John, he's more focused on rehab and construction. He's got a huge background in that. So like when it's time to rehab or consider doing something like a redevelopment or flip, we bring him in and he really leverage his experience for that particular thing. So we kind of have our designated lanes.
Everybody's of course, welcome to offer their opinion whenever we're talking about stuff, but it helps with every single time there's a new deal, we're not like who should do what now. And so I think that has been a huge factor in the successful partnership since leaving the past one.
Joe Cornwell:
Okay. So to summarize what I took from that, make sure you have things in writing, make sure you're outlining the managing expectations of how you're going to operate a partnership responsibilities. And if, and when you decide to dissolve the partnership, what that looks like. And I don't know exactly what the quote is. I was trying to remember it as you were speaking, but I know there's some phrase where it's like prenups and partnership agreements are there for when things don't go well, not for when things go well, because obviously when you're married or in a partnership which are similar, when things are going well, you don't necessarily need those things, right? But when things stop going well, that's when you need to have specific direction and that's what those documents are for.
Ryan Emrich:
Exactly. And ultimately you want a synergy there. And that was what I think was missing from that first partnership. You really want the productivity of the partnership as a whole to far outweigh the sum of the inputs. So I think once you find a partnership where there's synergy, that's when you know you have a really good partnership.
Joe Cornwell:
Interesting. And I know you spoke briefly about your current role and structure you have with your new partnership. So how did that come about? Let's go back to leaving the first partnership. How did the second one come about and how did you go into that path?
Ryan Emrich:
I actually met these gentlemen at a local real estate networking event, I think it was in 2021. And then toward the end of 2021, we decided to start a mastermind together where we had no intent to actually partner together. It was just, we wanted to have some like-minded individuals, very small in that group, three people total. From there, I think we set a time limit on it.
So we have what our outline on the mastermind was, and that was set for eight weeks. At the end of the eight weeks though, I was starting to do direct mailer campaigns because I was looking for some properties to potentially buy on my own. Cause this was the point where I was transitioning out of the two to four unit realm and I was really looking to get into commercial multifamily because I thought there was a lot of awesome benefits there, especially with forced appreciation.
So I found some deals off market. I started looking into them on my own and then I brought them to the group, the mastermind. And then we kind of decided, I think we've got some good energy between us. I think we would all have something that we can contribute to a partnership. So at that time we said, let's try to tackle these buildings together. It was 11 units total also in a city of about one hour outside of Massachusetts. You'll see there's a pattern there with where I invest because it tends to be better cashflow. So we tackled those ones together.
Of course, the partnership tensions and me having come out of a partnership that wasn't a stellar partnership, that was front of mind for me. So, you know, I let them know about what had happened, but I also said, I think this is the recipe for how we have a successful partnership and we took that to our real estate attorney and he said, Oh, that's perfect. I've already got a partnership agreement drafted up that you guys can use. So we read through that. We just made sure that it made sense for what we were looking to do, which it was pretty much on par because he's got lots of experience with other partnerships for real estate investors. And we provided minimal feedback and we use that. So we signed the document and that's was the blue Canyon was born.
Joe Cornwell:
Okay. Is this like 33, 33% ownership? Is that kind of how you set it up or different?
Ryan Emrich:
Yeah. So we set up that partnership one third split equals ways, of course down the road. So what we generally do is anytime there's a new deal, we'll usually open up a new entity for that deal. So that will come with its own new partnership agreement. So if for some reason we want to change what the profit breakdown is or the breakdown of how returns are split, that's something we have the flexibility to do. Or if we want to bring on outside partners or JV or something with other people, that flexibility is there, but yeah, to start things off, everything's one third. So the expectation is that we're going to either bring one third of the money or raise one third of the money for the deals that we put together.
Joe Cornwell:
Okay. And that was going to be my next question. So are you guys self-funding these deals? And I think you mentioned you had approximately 90 doors today.
Ryan Emrich:
We started off self-funding the deals. Of course, as I'm sure many investors know the struggle.
At a certain point you become cash poor and you're like, well, I know how to find deals and how to underwrite these deals. I feel like there's value here, but I don't have the money to close the deals. And so that actually happened this year. I found a 65 unit portfolio. The seller was interested in selling it off market. This was again, about an hour south of Boston and it said he called new Bedford, Massachusetts, right on the water. And I didn't have the money. It was a five and a half to $6 million deal. I did not have a million to $2 million to close on this.
So we knew we had to raise money. So we did a five or six piece indication where we were able to raise money from friends, family, preexisting type of relationships. And that's how we raised those funds. So I actually was best ever apartment syndication book to do a, I guess, a shameless plug on the show, but it was Joe Fairless's book that started this off was at the beginning of this year. It was new years. I was flying home. I had gotten upgraded to first class. First time ever flying first class. I'm reading this book and I'm like, I want to do syndication this year. And fortunately I had a deal that I was able to find off market where it made sense to do this syndication.
So moving forward, what we're trying to do is we know that our growth is going to be stunted if we are trying to constantly use our own resources. It's got constantly have to be like a cash out refinance or us making more money. So instead of limiting our growth, what we decided to do is find the deals where it makes sense to raise money for those deals so we can bring on partners. We can do a syndication, something like that.
And then we can continue this momentum that we're getting. So rather than have to wait around for us each collectively, bringing the money to the table ourselves, we can continue to network and find people who are interested in partnering with us, if it makes sense.
Joe Cornwell:
And you've mentioned that you're sourcing, it sounds like all or most of these deals off market. Is that correct?
Ryan Emrich:
Yeah. The bulk of them have been off market. There's one, I guess technically it's off market deal as well. We found another wholesaler who had a good deal and it's technically an off market deal, but it was one that we found ourselves. Yeah, but correct. Most of these are coming off.
Joe Cornwell:
Okay. So how did you get into that? Take me back to the beginning of your off market journey and, and sounds like, I think you mentioned you were doing direct mail and what else came with that?
Ryan Emrich:
So at the end of 2020, I was thinking commercial multifamily real estate was something that I wanted to get into. And from watching a lot of YouTube videos and other investors in the space, I learned that a good way to find deals where there's value app potential is by finding them off market. There's a lot of ways to find deals off market. You can cold call, you can send direct mailers, you can network.
But to me, it made sense to maybe figure out a way to scrape addresses or something out of a database and then send those owners letters, particularly ones where I thought there was a high equity potential where they've owned them a little bit longer, maybe they're burnt out type of landlord. So that's the road I went. So going into 2021, I decided to start experimenting with direct mailers. At first I was printing them on my own and then stuffing them into envelopes. And my fingers were getting paper cuts and they were getting dry.
And I said, okay, well, this is kind of cool. I'm getting, I guess, a couple hundred, maybe a thousand or so a month, but it's taking a lot of time and I really want to be able to do 5,000 a month if I wish to do so. So I was able to find some services online that were still pretty competitive in pricing. It wasn't that much difference in price. It was maybe 55 cents for my total all in costs with what the materials were costing and what the postage was. And then I think it went to like 75 cents if I use this service. So I was like, okay, well, I can scale up 10 X the number of letters I'm sending, but for a minimal increase in price.
So, that's the way I decided to go. So 2020 into 2021 started using this service, started scaling up. That's how I actually came across the first 11 units that I found in air Massachusetts, which is about an hour north of Boston, and then I kept doing that. And that's how we found the 65 unit portfolio on New Bedford, Massachusetts. And that's how we're now finding what we're looking for right now is which my team is starting to expand the type of properties we're trying to invest in. So rather than just doing multifamily, we're starting to look at single family flips, luxury condo conversions, things in that realm, because one of my partners, John, he actually already has a redevelopment business where he does stuff like that. So we want to leverage his experience and to try to maximize the amount of cashflow that we can generate in our business to then roll into other deals.
So to us, we're trying to think of it as a multi approach to what are all the ways that we can generate revenue in the business? What are all the ways that we can take that revenue and put it into maybe some buy and holds or whatever makes sense for us. And sometimes that money is going to come from us. Sometimes we're going to generate the revenue on ourself from either wholesale or flip or we may raise that money. So there's a lot of different ways to get that money, but we're trying to be as creative as possible.
Joe Cornwell:
Yeah, so it sounds like the businesses find good deals and then find ways to monetize them, whether that means keeping them, flipping them, or wholesaling them to another investor. Now, today, are you still doing mostly direct mail? Are you doing direct marketing in other ways?
Ryan Emrich:
Right now I'm just doing direct mail. I did experiment with some cold calling, but again, that takes a little bit more time.
I'm also experimenting with direct email. So using the same database of addresses and names and stuff, I'll skip trace that. I'll pay to see if, if a service like prop stream can scrape seller info, emails, phone numbers, et cetera. And I'll try to use that to have another way that I can contact the person. So I guess the most points of contact you get the potential owner, the more likely you are to get in touch with them and initiated conversation.
So, been starting to experiment with that as well. But predominantly it's been through direct mailers or kind of going through Facebook groups and looking for other deals that other wholesalers may have. They themselves are also finding off market deals. So one of the goals admittedly into 2024 is to try to expand that deal funnel. So we have more coming in and then pulling the trigger and making offers and the ones that make sense for us.
Joe Cornwell:
Okay. Now for the listeners who may be thinking, are you looking at what's on market? I guess let's start with that.
Ryan Emrich:
Yeah, I will look what's on market.
Especially right now, my sister, she's trying to find a two family to four family to do her first FHA two or three K style house hack, and she wants to do something with his value add. So in that instance, we're not only, we're sending letters, but we're also looking on market just because we think it makes sense. I think deals can definitely be found on market, but when we start getting into the six to 30 unit range, which is kind of the multifamily size that we've been targeting, it's a little harder to find those on Redfin or Zillow. Sometimes they're on apartments.com.
I'm sure you've heard the old adage that loop net and such those types of websites are where deals go to die. Meaning that they're not really good deal to begin with. And then they end up on there because nobody wants them. I don't think that's true. Obviously good deals can pop up on there, but we've just had the most luck finding deals through direct mailers, through networking, through the Facebook group channels, but there certainly can be deals found, especially if you're a newer investor, especially if you want to do like a two to four unit, I think MLS and Redfin and Zillow, those types of sites are awesome places to look for deals like that.
Joe Cornwell:
Okay. So part two to that question would be for the people listening, who may be considering doing their own marketing, what would you say are the biggest advantages or differences between the leads you're generating from on or off market?
Ryan Emrich:
So the biggest differences are first off on MLS, you know, that the seller is already motivated to sell. That's why they're there. They've engaged with an agent. It's gotten posted on the MLS. So you know that seller is interested in selling.
For me, when I go through the off market channels, I know that there's a seller that has potential interest in selling, but we don't really know what their expectations are to begin with. They may be totally outrageous. So one of the things we'll do to start things off is try to get an idea of where they wanna sell and make sure that's in a reasonable range.
Second from there is figuring out, there's more work that has to be done. That's kind of what the real estate agent's probably doing to begin with. We've got to qualify that owner to make sure that they're legitimately wanna sell, that they're willing to actually sell if we come to terms that they agree with and that they're not going to kind of kick the can down the road, or this is not going to be a waste of anybody's time. So there is some risk there, of course, but once we do find deals, the great thing is, is we generally don't have as much competition.
So when it goes on the MLS or when it goes to a real estate agent, real estate agent's job is to try to find as many buyers as possible to drive up the price and everybody wins in that scenario. But in this particular instance, we're really looking for deals that maybe other investors are not going to want because there's more problems. Maybe there's problematic tenants. Maybe there's a lot more work that needs to be done. Maybe the rent's really low. And so it's not going to qualify for solid financing, and we're trying to use all the levers that we can pull to get that deal under contract and to close on it and to get the seller a number that they're happy with, but it's also a number that we're happy with because we know there's a lot of upside potential for us once we can get the property stabilized and we get income up there.
So there's pros and cons to both. I definitely think that a good investor should be looking in all channels because deals can be found in all channels. But I think for us in particular right now, we've had a lot of luck with the direct mailers. And I'm seeing less competition there. There's a lot of people that send direct mailers out, but when the seller is ready to sell, there's not usually as much competition there to bid up the price.
Joe Cornwell:
Okay. So it sounds like being one of the first options for a potential motivated seller is giving you the leverage to get better deals than having a seller that may get 10, 20 offers on something that could be listed. And I don't know if you follow the kind of retail real estate market in Massachusetts.
Can you speak to that a little bit because I'm based in Cincinnati. I have absolutely no idea what your expectations there in that real estate market are, but is it seen a slowdown like most of the country has? Has it continued to be pretty competitive on the retail side? How does that differ in contrast to maybe an off market lead?
Ryan Emrich:
So the deals that we're finding on market, they're still selling, but they're definitely, it seems like more days on market and there's certainly a smaller pool of buyers who can still get things financed. Either they have to put down large down payments or obviously their payments they're making are higher because it's higher interest rates. But we're also seeing a smaller pool of sellers to offset that. So it hasn't shifted the prices too much and sellers still have high expectations because they're still off the highs of 2022.
In early 2023, they're like, well, this is what things were going for back then. So that's where they're level setting. That's where they think they should be able to sell their properties at. So, a retail buyer, I think is of course going to have some issues, but there's less competition and they probably won't have to worry about things going much over asking. That doesn't seem to be happening as much in the Boston area, but things are still high priced.
Talking with friends who are looking to buy their first home, they're having issues. They think things are very highly priced, but at the same time, I don't think it makes a lot of sense to wait. It might make sense to wait to build up more reserves or money for a down payment or to try to increase your income over the next year so that you can qualify for a higher loan amount.
But I don't really see personally interest rates fluctuating a ton over the next year. And I don't think that anything is going to happen where prices are going to drop precipitously, absent a big economic or market correction, a recession or some type of large market correction. And I don't see the fundamentals being there for something like that to happen. So for me, we're saying, okay, well, we just got to find the deals that have a little bit more value out. That's kind of the way we're thinking about it. We can still make the numbers work. We just need to be really diligent about getting stabilization as quickly as possible.
So getting that cashflow up, finding creative ways to get cashflow or maybe even going to the bank and just being mindful of the entire offer profits, how you can maximize cashflow. That's really what we're doing. So we'll go to the bank whilst they're six to 12 months interest only. If the seller has decent amount of equity on a deal, we'll give them a seller finance offer. Admittedly, none have stuck so far, but we'll say we'll pay a little bit more money, but we know on our end that at least the cashflow would be better if they accept something like that. So we're trying to take every tool in the toolbox we can imagine and try to get as creative as possible.
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Joe Cornwell:
I just recently interviewed a friend of mine Dylan Koch on this and I don't know if you saw that episode. But he's similar business years based in Cincinnati and he used the phrase when they present their offer to sellers, you're either going to get your price or you're going to get the terms. So as a seller in today's market, you kind of got to give one or the other. But yeah, your point is very realistic in today's market where values have not receded a lot in most markets, certainly not in the Southwest Ohio market where sellers are expecting values that were the same in 22 and early 23.
So as a investor, if you can get that seller the full price, let's say, we're calling it market value, but you can get a 10 year note at 3% interest. Well, you could probably give them that full value if they're willing to sell or finance it. But if the seller is not able or willing to do that, then you're going to have to have a concession there at some point to make the deal make sense as a buyer. And then one other point I want to make on your general real estate market as a whole, I agree completely with your synopsis of it as an agent, it's frustrating when you talk to potential buyers and they're like, well, I'm going to wait for rates to go down or I'm going to wait for values to go down.
There's nothing in the data at this point that would suggest either of those things that's going to happen in the near term. And then I also hit them with the reality of if rates do recede quickly, let's say rates drop back to 4% in the next 12 months, which I don't think will happen, but let's say it did. Well, what is that going to do to the market? We're going to be right back to where we were in 2020 and 2021, where every property that's in decent condition is going to have 20, 30 offers and you're not going to be able to buy anyway.
So I don't really understand the logic there, but I agree. You made the point where, whether you're a retail buyer or an investor, you have to personally be in a position to buy. You have to have the comfort. You have to have the reserves. You have to have the ability to make this payment and weather the storm. If we do have adverse market forces on us. So that's important to make sure you're able to be a safe position as a buyer. But, if you're waiting for the market to tell you when to buy, yeah, I think that's a big mistake either way as an investor or as a retail buyer.
Ryan Emrich:
Yeah, absolutely. And I will say that I do believe that you can get good deals at almost any point in the market cycle. I think there's definitely more risk right now because prices are high and interest rates are high. And so if you buy something and there is a correction or things don't pan out, it might be a bit of a struggle to cover your debt service. But that's why I think it will make sense for somebody like us or for other investors to try to find something off market where maybe they can finagle even just not having the realtor fees, the agent commission built into it.
If you can save on that amount, that at least insulates you a little bit so that if there is some market correction or you can't get things stabilized as quickly as you want, or for whatever reason you need to offload the property, you at least have that buffer there. So now when you go to sell it, hopefully you won't be underwater.
And that's where the value out stuff comes in. The value out is you're buying something that's not going to be valued at top dollar because a slew of things that need to be addressed and you as the investor are willing to take that risk and take on those problems, but in the grand scheme of things, once you execute, you stabilize, you'll reap those rewards. So that's the way we've been thinking about it. And I think it's a great way to think about it right now, especially where things are high priced and maybe there is a little bit more uncertainty as to which way the market's going to go.
Joe Cornwell:
Yeah. So, looking at underwriting in the markets you're buying in, it sounds like you're buying in a lot of suburbs of Boston. I don't know Massachusetts very well, but I know it's a relatively small state when you compare it to the United States. And so looking at your markets that you're buying in, how are you underwriting deals specifically when you're projecting out the next 12 to 36 months, what are you expecting to happen in your underwriting?
Ryan Emrich:
I love that question because this is something that we've been thinking about as well, like what are the standards that we need, the criteria we need to be able to rule out a deal or think that it's a deal worth pursuing?
And so our general philosophy is if we're going to be offering returns to investors that are most likely going to be at least 8% annualized preferred returns, something like that, then for us, we want to be at a 10% cash on cash return within the first 12 to 18 months. So within the first year and a half, we want to be able to get cash flow sufficiently high that we can pay those investors their preferred returns, but also have some extra there for any bigger expenses that come up or to pay ourselves or something. So that's the first part.
And then longer than that, we will just want to make sure that we can offer competitive returns to our investors. Cause I'm sure most investors think that when they're going to invest in real estate, they want something stronger than just 8% or 10% annualized. So we're also looking for a building where we can force the appreciation so that when it's time to sell, whether it makes sense to sell in one or two years, or maybe five to seven years that we can get a strong payout from the disposition on the backend. So we're really looking for, I'd say, yeah, 10 to 12% cash on cash return within the first 12 to 18 months.
And then something around a 15 to 20% IRR internal rate of return. Or if you don't want to get as fancy with the calculation, you could even use average annual return, but something where you're healthily in those double digit returns. And so that's the criteria for us.
Joe Cornwell:
Specifically though, when you're looking at these markets, what is motivating you to buy in the neighborhoods you're buying in? What is driving your choices?
Ryan Emrich:
A big thing is we want to see that there is growth and a desire to be there. So one of the markets that we invested in this year in New Bedford, Massachusetts, this was historically back in the 1800s, a big whaling city. And it kind of since dropped off in the late 1900s and now in the 2020s, we're seeing some signs of economic growth and the commuter rail, the train going from Boston down to the city is being built right now, it's a cheaper market. There's better cash flow.
There's a lot of redevelopment going on along the coast. So there was a lot of economic indicators that this is where younger people want to be, there's coffee shops, there's bookstores, there's new restaurants and bars going in. There's growth there. And these aren't things that we're kind of guessing on. It's already kind of been proven the last couple of years and it's got the right trajectory in terms of the population and where we want to see demographics going. So that was kind of one of the big things for something like that.
And that's how we felt comfortable going to investors and saying, we think this is a very safe investment. Of course, there's risk, but we think that the market fundamentals are there to support what we're projecting for rental revenue over the next five years.
Other things we'll look for. We're kind of big on either wanting to be by a major highway or by being near a major mode of transportation, like an airport or what we're calling the commuter rail. So this is a commuter train that branches out from Boston and goes out into all these major cities, usually within a 50 mile radius of Boston. And so we want to invest in markets that are specifically near those.
We're also pretty much looking for markets where there's new development going in. So either single family homes or big apartment buildings, because other types of businesses, maybe like franchises, kind of like McDonald's, Burger Kings, Chick-fil-A's, these are, we're leveraging the experience and the investment. Funds and resources that these larger entities have, they're already doing a ton of research as to where to put these shops, businesses, apartment buildings.
And so we're leveraging that to say, okay, well, not only are the things that we're looking at a good sign, but also there's all this other existing development investment going on in the community. So these are the things that we like to look for.
Things that you should definitely be afraid of are if there's a lot of dilapidated buildings in an area, or there's not a lot of what we're kind of calling reinvestment in the housing supply, that's kind of a sign that there might be not a strong desire to live there because the prices that people are willing to pay for rents or for new homes just aren't there to justify an investor going in to purchase and rehab. So we stay away from areas like that. Of course, we tend to stay away from areas that have high crime because we don't want to be in those types of neighborhoods in order we want to invite those types of tenants. So those are kind of the fundamentals and the things that we look at to get a good feeling that in the long run, our investments will be secure.
Joe Cornwell:
Yeah. That makes a lot of sense. And something that I've noticed this year as I've continued scaling my portfolio is that, and my background was in heavy value add kind of BRRRR strategy, but doing very, very heavy value add that most people wouldn't do like structural stuff, completely rebuilding properties outside of like maybe the outside four walls. Again, it's stuff that a lot of investors wouldn't typically touch. And I have a construction background as well. I know you mentioned one of your partners is in the construction business. And so that allowed me to do some of those things.
But the point of my point was that I've noticed today in 2023 that the forced appreciation deals, the value add deals, there's not nearly as much upside as there was a few years ago. And on top of that, if you look at the BRRRR strategy as a whole, even if you can double your equity position, let's say in a property, well, it doesn't necessarily make sense to then go out and refinance and take on all that excess debt because now you're not cash flowing enough to really sustain the property.
So that has led me to shifting my underwriting to where I'm looking for deals that have a lot of operational inefficiency and going in and buying deals where they don't necessarily need a ton of value add, or maybe even value add won't move the needle a whole lot. But, just managing it well, buying properties from, no offense to older landlords, but a lot of the properties I bought off market were older landlords. And I know when you do a lot of off market marketing, direct to seller, a lot of the times you're gonna find motivated sellers that are elderly or older landlords.
And what I find is a lot of those are not ran well, and they don't use technology to manage operations. And just being able to find that operational efficiency, bring rents up to market, that is a way to increase the value of these properties without doing massive, massive heavy renovations. So I don't know if you're seeing that in your market, but that's something that has definitely shifted quite a bit in 2023 as opposed to the last six years that I've been investing.
Ryan Emrich:
I like that and being able to go in and do way less work, you're really taking on a lot less risk as well. So maybe the rewards aren't going to be as high, but you're still in a good situation where you can make money, you can stabilize, you can get good cash flow.
And maybe you do have investors, maybe sometimes you do, sometimes you don't, but if you bring on investors where you don't promise them at least a ridiculous return or the expectation they're going to get all their money back with a quick cash out refinance type of situation, then yeah, that makes perfect sense because as long as the investors are on board with the strategy, you can kind of hold that for a few years when hopefully rates do come down a little bit or, uh, you know, cap rates maybe compress a bit more so that we can get more value out of these when we do refinance.
Joe Cornwell:
Yeah. What I think it's obviously important whenever you're looking at any deal or of course, if you're partnering with a passive investor, you have to understand what their goals are and what your goals are as an investor and operator and looking at that specific deal. What is your business plan with that specific deal? Because there's deals where I know I can push the cash flow up really well with this deal, but it might be like a C minus D plus type of asset where it's, I'm not going to create a ton of equity and value in this, but this could cashflow really, really well. Some of those ugly properties and some of the lower income neighborhoods cashflow really well, but you know you're not gonna go in there and triple your equity position. It's just a different business plan.
And obviously it's important to partner with investors or other partners that are again sharing that mindset like you mentioned in the beginning. So I think we've covered a lot of the things you guys are doing and it's cool, it's a cool operation you guys are building. So I know you touched briefly on it, but what is your next three to five years look like? I mean, where are you guys trying to take your business?
Ryan Emrich:
We've got ambitious goals. So each year we're trying to double the number of units that we have under ownership and management. So going into 2024 that we've really set ourselves out for quite the ambitious goal, but we think we can do it. So we're continuing to look for more off market multifamily, ideally more doors under one roof. And then we're also branching into, as I said, additional revenue streams specifically on the shorter term hold stuff. So flips, redevelopments, condo conversions, things along that line, just to have another source of revenue. That's a little bit more short term. There's more risk, but there's also very high reward. And we'll use that to continue snowballing those funds into newer investments.
I do want to get to the point I'd say within the next five to 10 years, I want to be personally at a point where I'm a part of as a GP developing new apartment buildings, you know, something in the 50 to 200 unit range, but in order to do that, I know I need a little bit more development experience under my belt. So that's why we're start with the single family and the condo conversions. And then I'm sure within the next three years or so, hopefully toward the end of next year, but at least within the next two to three years, I think it's realistic to do a new development, maybe six to 10 unit type of apartment building, and then take it from there.
Joe Cornwell:
Yeah. It's interesting you say that. One of my goals for next year is also new construction, new development, and I'd love to develop new multifamily and at least in our market here in Cincinnati and Southwest Ohio. It's really challenging because you have to find markets that have very elevated rents because the cost of construction is so high.
So it's difficult to make that work. And I'm going to make the assumption that your markets rents on average are probably a little bit higher than ours. But even so I would also make the assumption that can cause the construction is probably higher in Massachusetts as well. And then I've heard some of the horror stories I've seen on social media, you know, some of the trades people in Boston specifically that, you know, dealing with the permitting departments can be a nightmare. Correct me if I'm wrong on any of that, but those would be my assumptions from afar.
Ryan Emrich:
That's all pretty accurate stuff. And that's why we try to stay away. We're not going to think we're experienced enough or have the ability and resources to jump into a market like Boston proper, there's a lot more going on there, but sticking to the more suburban areas and, or slightly less developed and zoning regulated areas is I think where we're going to start and kind of get our feet wet with the newer development on the smaller apartment buildings.
Joe Cornwell:
Awesome. Well, let's transition to the best ever lightning round. Are you ready?
Ryan Emrich:
I'm ready. Let's do it.
Joe Cornwell:
Best ever book recommendation.
Ryan Emrich:
Favorite, and this is the one that got me into the commercial real estate space, is Crushing It in Apartments of Commercial Real Estate by Brian Murray. I actually had the ability to meet him at a recent conference. So that's what got my ear in the commercial real estate space and the value of forced appreciation.
Joe Cornwell:
Also, give me one nugget from that book you wanna share.
Ryan Emrich:
He was able to close on a deal with nearly zero dollars out of pocket. He potentially got money back because one of the things he did is he negotiated that the escrow reserves the seller may have been required to escrow by the seller's lender get returned to the buyer at closing.
And this is something I didn't even know lenders required. And the seller at the time, I guess, was a bit of a bigger seller. And they weren't really aware of what that amount amounted to, or they didn't care. But Brian was able to get pretty much his entire down payment or funded to him at closing because the reserves were built up so much in that deal.
Joe Cornwell:
That's an interesting strategy. I have not heard of that either. Best way you like to give back.
Ryan Emrich:
Two ways, mainly the first is definitely a networking events. I try to have a lot of conversations with newer investors because that does literally just mean four or five years ago. So I try to have conversations with them. If they reach out to me on social media, I definitely try to put in the time to set up a phone call or zoom or something. And then the other way is we try to buy properties that we think once we do what we want to do to them will be a net improvement to the communities that they're in. So if it's taken to a lot of updated building or really strong value add tenants and not attracting the best tenants because of how they've been maintained. I think that's another way that we can give back to our communities in a way that also benefits us as investors.
Joe Cornwell:
On the deals you've done, give me your biggest mistake and a lesson learned.
Ryan Emrich:
Biggest mistake on a deal we've done. That's a great question. On one of the more recent deals we did, this is the one in New Bedford, we had negotiated a seller credit with the seller based off of some repair items that we wanted to get addressed, but we decided we were just going to construction loan component to that deal. So because of that, when the appraisers came through, we had probably given them a bit too much information. We were a little overzealous and excited about how we got this big seller credit. The bank decided that they wanted, instead of us getting that seller credit at closing, they wanted that to kind of be built into the whole construction loan process. So they took that on themselves and reduced the construction loan that we were originally eligible for it because they said, oh, well, you're getting a chunk of this from the seller credit construction loan that we had got. So we're still good. We still have plenty of cash to do what we want to do. But I think it was a lesson and maybe don't go preaching to the choir about all the great things that we've been able to negotiate.
Joe Cornwell:
Yeah. And I'll add to that. I do a lot of construction, draw loans, and I try to front load my cost on drawings, demo, framing, the things you're going to do on the first few phases, which helps you then pad out your operating budget as you go down the line. So that's another tip in a situation like that, where you're trying to get the bank to cover all or most of your construction costs.
Best ever advice for the listeners?
Ryan Emrich:
Best advice is don't waste too much time on your first deal and don't get analysis paralysis. I know it's scary. It's still scary sometimes for me and for probably every investor, no matter how experienced they are for some deals, it just gets scary. But trust your underwriting. If you need to get somebody else's opinion and you're going to learn probably so much more from that first deal and actually pulling the trigger and making some small mistakes, but having great resources around you from your networking and your mentors. Then just hesitating on every deal and trying to continue reading and try to continue going to networking events at some point you do need to pull the trigger.
So I think that once you've got 20 to 50 deals underwritten in a market that you're interested in investing in, that should be enough data points for you to figure out if you've got a decent deal or not. And that paired with finding an experienced investor in that market should be enough for you to pull that trigger. So I know it's scary, pull the trigger though. You won't regret it in the long run.
Joe Cornwell:
No doubt. And best way for people to connect with you?
Ryan Emrich:
That would be on social media at Ryan R. Emrich on Instagram and TikTok. Please give me a like and follow. And of course, if you ever want to touch base, you can shoot me a DM. You can also email me Ryan at blue Canyon EP like equity partners.com. And you shoot me an email there as well. If you ever want to get in touch, talk about what you're up to or talk about how we can collaborate in some capacity on a future deal.
Joe Cornwell:
And we'll be sure to link to those in our show notes, Ryan. Thank you so much for joining us today. I know I took a few nuggets away. I hope our audience did as well.
Listeners, if you did get value from today's episode, please leave us a five-star review on the app of your choice. Make sure you like and subscribe and follow us on social media. Ryan, thanks again so much for joining us.
Ryan Emrich:
Thank you, Joe, and thanks to your audience.
Narrator:
Hi, best ever listeners, Joe Fairless here again. And one last thing before you go, would you like to receive a short weekly email with proven tips from experienced investors, free tools and resources, and a roundup of the week's most relevant news and best ever content? Well, if so, join the community of nearly 15,000 commercial real estate passive and active investors who receive the Best Ever newsletter. Just go to bestevercre.com forward slash access and you'll get the very next one. I hope you enjoyed this episode and as always, thank you for listening and have a Best Ever day.
