In this episode, Ash Patel interviews Tim Little, a seasoned commercial real estate investor and founder of Zana Investments. Tim shares his journey from the military to real estate investing and offers valuable insights into the challenges and opportunities in the commercial multifamily space.
Key Takeaways:
- The Importance of Partner Selection: Tim emphasizes the significance of vetting potential partners when considering long-term commitments in real estate deals. He highlights the need for aligned values and the ability to work cohesively with partners over extended periods.
- Managing Investor Expectations Amid Rising Rates: Tim discusses the challenges of managing investor expectations when cash flow is impacted by rising interest rates. He stresses the importance of transparent communication with investors, explaining the reasons behind temporary suspension of distributions and the potential impact on long-term returns.
- Diversification and Exploring Other Asset Classes: Tim acknowledges the changing landscape of commercial real estate and the need for diversification. He shares his interest in exploring alternative asset classes like express car washes and self-storage. Tim highlights the importance of educating investors when diversifying into new asset types.
Tim Little | Real Estate Background
- Founder of ZANA Investments
- Portfolio:
- 693 co-owned units valued at over $90M
- Based in: Tampa, FL
- Say hi to him at:
- Best Ever Book: Atomic Habits by James Clear
- Greatest Lesson: Vet your partners sufficiently. These are 3 to 10 year commitments, so you not only need to get along with them, your values need to be aligned and you need to know that you can work with these people for the long haul.
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Transcript
Ash Patel (00:01.764)
Hello, best ever listeners. Welcome to the best real estate investing advice ever show. I'm Ash Patel and I'm with today's guest, Tim Little. Tim is joining us from Tampa, Florida. He is the founder and CEO of Zana Investments where they help investors passively invest in commercial multifamily deals. Tim's portfolio consists of almost 700 co-owned units valued at over $90 million. Tim, thank you for joining us and how are you today?
Tim Little (00:32.702)
Ash, thanks for having me. It's great to be here.
Ash Patel (00:34.924)
It's our pleasure. Tim, before we get started, can you give the best ever listeners a little bit more about your background and what you're focused on now?
Tim Little (00:43.458)
Sure, I'll do the quick version. So went into the Army straight out of high school, did that for a couple of years, decided it wasn't for me right then. And then went to college at Florida State University where I met an ROTC recruiter who convinced me it was for me. And so upon graduating from college, I wound up going back into the Army, this time as an officer. Did that for a little over five years.
During that time, you know, got a little interested in real estate, but never had the time or opportunity to really get into it. So after my second stint in the army, you know, went to grad school. And then after that got my first, you know, real job as a civilian. And that was the first time well, you know, one, I came out of grad school with about $130,000 in school loan debt. But I was determined to not let that uh... stop me from investing and i was determined to pay it down as quickly as possible and so after that point is when i bought my first duplex and that really started my journey into multifamily investing which is what i do today uh... you know work with a lot of fellow veterans and military folks to help them passively invest into commercial multifamily deals mostly class a and b uh... hundred plus unit
Ash Patel (02:13.112)
When you bought that duplex, was the goal to take the profits and pay down your student debt?
Tim Little (02:21.558)
No, that really wasn't my thought at the time. I mean, it's a good idea. But I, so I focused on one first and then the other and kind of looked at them as two separate things, even though obviously one is beneficial to the other, right? So with the loans, I was like, I do not wanna be paying these off for the next 20, 30 years. So I made it a point to aggressively pay them down.
There was a minimum that I had to pay which was say $1,000, maybe $1,100. I was paying $1,500 a month on my school loans, which was not far off what my mortgage was at the time. But again, I was trying to pay it down as aggressively as possible. And later into the story, you'll see how real estate helped me pay down that loan. So happy to get into that. But the duplex was really just... That was the long-term down the road, hey, I want to get another source of income coming in, get those different streams of income that I kept hearing about as I was listening to all these podcasts and reading books like Rich Dad Poor Dad.
Ash Patel (03:34.896)
How did you go from buying one duplex to helping others invest in multifamily?
Tim Little (03:43.39)
Yeah, so I think, you know, the how I help others do it is one from a point of wanting to help people make the steps that I made. Because a lot of this stuff, you know, people just don't know what the possibilities are. And so you start with the duplex and a lot of people, you know, they start with single family, right? You know, maybe it's their own residence that they had to rent out, whatever the case may be. But as I got further into the real estate rabbit hole, as it were.
I got that duplex, then I was like, okay, how many units do I need to hit my freedom number? That's something we talk about a lot early in real estate investing to say, hey, how much money do I want to make? What is my overall goal? And I was saying, okay, if I want to replace my W-2 income, then I need this many doors making $100 a month per door in these kind of formulas to just have a goal to move towards. And so that's really how it started. But I got to a point where I realized that goal was going to be really hard if I was only doing it with a single family or small multifamily. So that's when I really started to look into this whole syndication and commercial multifamily side of things to find a way to scale up.
And I honestly didn't know what it was, didn't understand it until I started hearing about it, you know, in some circles. And then I just kind of dove right into that syndication side of things and said, hey, this is something I need to learn more about because the path that I'm on right now isn't going to get me to where I want to go. So that's when I really started looking at syndication. I got into my first deal as a passive investor in 2017 and that's when I said hey the light bulb kind of went off right I said this makes sense I don't have to do anything on the passive side and my money is still getting a much better return than it would if I was you know in some other investment it's a lot less volatile than the stock market but I get all the upsides of investing in real estate
Tim Little (06:06.763)
So that's when I was kind of all in on that path and kind of how I got to where I am today.
Ash Patel (06:12.788)
You're investing passively in other people's deals. And I remember my first passive investment into multifamily. It's like a drug. It's like, oh my God, I'm getting, you know, a high rate of return and I don't have to do anything other than read these monthly updates. So was the mindset. Let's share this with other people.
Tim Little (06:34.794)
Yeah, so that was part of it, right? So once I understood what you know what this was because I got introduced to it You know, like I said, I think maybe through some podcasts and some videos and stuff like that, but I went to a multifamily Convention right and That was like drinking from the firehose. They were talking all these terms that I did not understand, you know cap rates syndication You know GPs all these things. I just had no clue about because all that I had studied was you know, the small and single-family Investing but at the end of the day it made sense So after having done my first Passive investment I was like I like this I think I could do more of it and I could lend some of my attributes which are you know in management and projects and stuff like that. Those skills that I built in the military to the active side of things so that I could get a slice of the equity and not just get the you know, the passive returns and then oh by the way at the same time having passively invested myself I have that level of empathy and understanding for the passive investors. I better understand the concerns that they have the questions that they might ask and I more appreciated the heavy responsibility of being responsible for other people's money, which I think is something that isn't talked about enough. You know, when you raise money for deals, being the steward of other people's money is a huge responsibility and not something to be taken lightly. And I think I appreciated that much more having been a passive investor myself.
Ash Patel (08:25.452)
How did you educate your investors in, here's a great opportunity, here's the risks, here's the rewards. What did you do to attract investors?
Tim Little (08:39.21)
Yeah, so it was slow at first, right? So on my first deal as a general partner, for example, I did not raise any money. I did not have any investors. And I think that too was intentional in the sense that I wanted to understand it from the inside, this time as a general partner on the deal, before I went to others and said, "'Trust me with your money. "'I know what I'm doing.'" Because I don't think I could have confidently said that. So...after I was a general partner on this first deal, that first deal was successful, and then I was on another deal as a general partner, which I would argue was less successful. I learned a lot of valuable lessons within those experiences. And so by the time we got to my third deal, where I was going to be on the general partner team, it was a much larger deal, 136 units with, you know, other GPs. I had that confidence to, you know, fall back on some of the experience that I had, but also explain some of the challenges that we might face. But we always have a business plan to address any of those challenges. So a lot of it is really just having conversations. I also put out a lot of content on LinkedIn and I have my own podcast as well where I'm educating the general audience. But when it comes to one-on-one with investors, I mean, nothing is going to be, you know, sitting down on a Zoom call where you can see someone or even better in person and walking through all the questions that they have and the concerns that they have.
Ash Patel (10:19.204)
Tim, how did you end up as a GP on that first deal?
Tim Little (10:25.614)
Yeah, so I like to say that I snuck my way into that one. So it was one of these multifamily conferences here in the Tampa area. And I wound up going to that. And it was one of these things where everybody comes out of those kind of hyped up, right? Like, all right, I'm pumped. I know what I'm doing. I'm excited. I want to do a deal. So everybody came out of that conference wanting to do their own deal. And I met some great folks there.
And we talked about it. We're like, hey, yeah, let me know if you have anything, that kind of thing. And they came to me a few weeks later and were like, hey, Tim, we got this great deal. It's in Tampa. Would you like to invest in it? They wanted me to come in as a passive investor. And I politely declined because I did have some capital but that I had saved up from a recent deployment, but I wanted to use that money for my own deal because I wanted to show investors that I had skin in the game and I wanted to be the prime sponsor on a deal. The person who found it is and is in charge. So a couple more weeks, months go by and they're getting to the point where they really need to close on this deal and they're not quite at the finish line yet. They call me up again and say, hey, Tim, do you still have that capital? Yes. Would you consider coming in as a general partner on this deal?
Now, of course, if I'm going to come in, I can't just bring my capital. I have to bring, you know, other skills and duties to the table. And that's exactly what I did. Right. I'm local to the deal. So that means I'm boots on the ground. I was able to do things like, you know, take, take pictures of the property whenever we needed it. I was working with the city to get, you know, lots combined and stuff like that. I was, you know, being a material participant in this deal.
And so that, in addition to the capital that I was able to bring, I also have a communications background, so I helped with a lot of the investor communications. That was the first deal that I got into, and it was a 59 unit portfolio deal. I'd say a class C asset. So, you know, you have some challenges with tenants and stuff like that. But we couldn't have asked for better timing because Covid hit, you know, a year and a half into ownership and that as you know just sent rents through the roof and so an asset that we were you know Going to hold for up to five years. We wound up going full cycle in less than three
Ash Patel (13:03.044)
Tim, thank you for sharing that material participation. It's important to point out that you cannot be awarded GP ownership just for bringing capital to the table. It's an SEC violation. So you were in fact part of the management team on this property. You mentioned the second GP deal that you did was not as successful. What was the deal with that?
Tim Little (13:28.194)
So it really came down to, and this is super important, so I wanna emphasize this, a difference in, I just say like values with other general partners in the deal, right? If you're not on the same sheet of music in terms of how you want to run assets, me and some of my partners really wanted to improve the asset and make it better for that entire community that was living there. Whereas I would just argue that other partners in it wanted to be as, you know, wanted to, I don't want to say squeeze as much money out of it as possible, but put as little money into it as possible and still get rents. And you know, that's just not how it works, right? It's called value add for a reason. You have to add value first, then you justify the increased rents and they just weren't willing to spend the money and follow through with the business plan that we thought we agreed to in order to make that happen. And then you had issues with COVID and stuff like that. But a lot of it really just came down to a difference in the partners visions.
Ash Patel (14:48.236)
Was that a deal that you brought other investor capital in with you or was it just your own capital?
Tim Little (14:56.37)
No, luckily it was my own capital. So I'm thankful for that. And again, I learned valuable lessons on truly vetting the people that you're going to be partnering with, their background, how they ran previous deals, because it's probably an indication of how they'll run future deals. And so that's something that's really important to me going forward, anyone that, any general partner that I might...partner with on a deal, we need to be aligned.
Ash Patel (15:31.94)
Did you lose money on that deal or was it just not as successful as you anticipated?
Tim Little (15:39.95)
We had partners, other GP partners who did lose some money because they put more in. I think I broke even. As far as losses go, that's not bad. You can lose on any investment and you should be prepared to lose on any investment. We don't expect that, especially in the real estate realm. We expect to see pretty robust returns.
And so when it doesn't happen, it's disappointing, but it certainly could have been a lot worse.
Ash Patel (16:15.068)
When you have investors today that want to invest in a deal, how do you approach GP with all of that capital and what would you like to see your role be?
Tim Little (16:29.406)
in terms of my role and what I'm doing on deals in the future.
Ash Patel (16:34.68)
So right now you do a lot of capital raising for other syndicators and multifamily, right?
Tim Little (16:43.974)
Yeah, but we are also operators. So we usually negotiate to be on the asset management team. And that's for a couple of reasons. One, it's a source of revenue. It's very small. But there is often an asset management fee that is paid to all the asset managers. But more importantly, it gives us a seat at the table. I'm able to be on all the property management calls.
And when there's an asset management call or an asset management issue that needs to be decided, we get a vote. Now, is that vote equal to someone who has a much larger stake of equity? Not necessarily, but having the awareness, you know, being at the table and truly understanding what's going on with that property because, you know, you're in those meetings at least on a weekly basis, it makes me much better prepared to respond to my investors to say, hey, this is what's going on. I know, because we just talked about it the other day. I can go directly to the property managers with questions. And that's just not something that you see if you're a little more in the background.
Ash Patel (17:53.996)
All right, so I love that business model where you're actively part of the deal. Excuse me. Because, you know, there's a number of people that are capital raisers and they want in on the deal just to satisfy the SEC requirement, but they're really not part of the calls, they're not adding any value, they just want to be rewarded for bringing investor capital to the table. You've seen that, right?
Tim Little (18:21.326)
Oh, absolutely. And you know, the other thing is, it's another set of eyes. And I think that's why it's valuable for the other GPs, because, you know, if you're the prime sponsor and you're the one who found the deal and, you know, owns the largest portion of it, you can't track everything. And there may be some things that you missed. But if you have the other teams, you know, like myself, who are going through the financials, who are going through the property management you know, metrics, you may catch something that they didn't catch and you're able to bring it to the surface and say, hey, we need to address this at the next property management meeting because you know, these expenses are much higher than they need to be or leasing isn't where it's supposed to be whatever the case may be so it's really a benefit for all sides to be involved and I just don't like that feeling of helplessness if
I don't have a seat at the table and I'm not getting all the information that I need because again it just makes it that much harder to respond to investors if you just don't have the information or can't influence it at all.
Ash Patel (19:29.244)
Tim, yeah, I think you are unique amongst the sea of capital raisers because very few people are doing what you're doing and really demanding that you be on the front line. So you're doing your investors a great service. Multi-family has had a significant amount of pressure applied to it since rates started rising. Have you had to have tough conversations with your investors?
Tim Little (19:55.902)
Yeah, I think I mean we're definitely having tough conversations just from the you know starting with you know Hey, there's not going to be distributions this month and there may not be distributions For the rest of the year now that doesn't mean that the deal is failing And it doesn't mean that they're going to make any less Money, you know in the long run Because appreciation still continues to go up etc. But from a cash flow perspective when those rates go up, even if you have a rate cap in place, and we can get into that, you're still likely paying a lot more on that mortgage than you were before, which reduces the amount of free cash flow that you have. And therefore, it makes it harder to make distributions to investors. So I mean, we've been very transparent. We just try to emphasize all the things that we're doing to resolve the current situation. And again, manage expectations to say, hey, we would have liked to get distributions out there, but that's just not going to be possible from this time to this time based on all these reasons. And I think at first it was a little rough, but I think investors nowadays are starting to understand it too, because this isn't just a this is just as much a problem on the single family side when people are paying 8% for their mortgage. So they're seeing it and we're just helping to explain the impact that it's having within the commercial real estate realm.
Ash Patel (21:36.58)
What's the pushback that you've gotten from investors? Have some of them asked for their money back?
Tim Little (21:45.746)
Not me personally, but I do have partners where that has been the case. And that's, I just want to say that's not how it works. There's an agreement made by all parties to say, hey, you're going to invest your money for this term, whether it's three to five years. It's just like a government bond. If it takes 10 years to mature, if you try to get it back in five, well, you're going to get penalized, you know, even if you do get it back. So I think investors just need to understand what they're getting into. And that starts with the transparency of the sponsor to say, I want you to understand and acknowledge that this money is going to be tied up for at least this amount of time, whatever that time is for their deal and getting it out while it may be possible is never easy for anyone. So it shouldn't be an expectation unless it's just some kind of catastrophic circumstances.
Ash Patel (22:55.856)
Tim, you mentioned cap rates. Will you, sorry, you mentioned rate caps. Will you explain that to the best ever listeners, how those work, and then when they expire, what the options are?
Tim Little (23:09.87)
Sure, so I mean, I think anyone can think of just like their mortgage on a house, right? If you have a adjustable rate mortgage, for example, and it's at 4%, now you never, at a certain time, we never expected the rates to go up and certainly not as fast as they did. But as a hedge against that risk you get a rate cap. And so say you buy a 2% rate cap. What that basically is, is insurance that's put on there. So that say if it went from 4% and the rates started rising, if you have a 2% rate cap, it doesn't matter how high it goes, that rate cap is going to insure you up to that 6%, that two points, right? So...anything above 6% that insurance will kick in and pay the difference, which is great, but you may not have even underwritten your returns and stuff like that at that 6% because when your rates were really low, people thought they were going to stay there for the time. Of course, what goes down has to go back up, but we just didn't know when. And so rate caps were put in place as a hedge against that risk of rates going up because if you didn't have that rate cap on there and rates continued to rise past six, seven, eight percent, you would have no protection against that and you would be quickly in a position where you couldn't afford to pay the mortgage on that property and you would be insolvent. So once those expire, say you have a two-year rate cap, then your options are to one, extend that rate cap, and the risk there is you don't know how much that rate cap is going to cost then, because as logic would dictate, the rate cap is more expensive, the higher the risk that it's going to continue rising. So it may cost a hundred thousand dollars for, you know, a one year rate cap. It may cost $500,000 for a one year rate cap. You, you don't know. And it's kind of like shopping for insurance. It has to be like a day by day thing to find out what it's going to cost you, but that can obviously have a huge impact on returns, whatever that cost is. So one of the ways that we look at that is say, okay, we're gonna keep additional money in reserves in case we need to do that break cap extension. And then another option, if you're not gonna go ahead and extend it, is obviously to sell the property. That's the other.
Now you can talk about refinancing, but refinancing doesn't make sense in a high-rate environment because you would likely have to bring money to the table, a cash in refi, if you will, versus what was happening two, three years ago, which was everybody was refi and getting money out, returning it to investors, and then having returns in perpetuity.
Ash Patel (26:23.184)
Have you looked at investing in other asset classes besides multifamily?
Tim Little (26:31.498)
I will say my eyes starting to wander as some of the, you know, as the multifamily asset class, you know, it's not as shiny as it used to be, right? And that's just simply because of the current rate environment and other pressures. So I'm certainly looking at other assets. I just haven't had the opportunity to get into it.
I have a podcast as well and I've interviewed people and some pretty unique assets. One I'm hearing a lot lately is express car washes. And I never really understood the business proposition for that. But once they started telling me that there's like no employees and it's just kind of set it and forget it, I'm starting to appreciate it. And similar with self storage, some of the benefits there. So those are some assets that I'm certainly keeping an eye on and I'm not opposed to diversifying into those assets into the future. I think the only challenge comes when you go to raise capital for those different assets and people are like, hey, wait, I thought you were the multifamily guy. What are you doing buying a car wash? And why should we believe that you know anything about car washes? So there's that investor education piece that will...have to take place if I diversify into those other assets. So that's something I'm thinking about.
Ash Patel (27:59.504)
Tim, what is your best real estate investing advice ever?
Tim Little (28:08.542)
I would say vet the people that you're going to be partnering with. These are, you know, at minimum three-year commitments. Sometimes as much as 10-year commitments in the case of like one of the joint venture deals that I have. So you not only need to get along with them, your values need to be aligned and you need to know that you can work with these people for the long haul.
Ash Patel (28:33.784)
If I may, I may add some, or I'd like to add something on top of that is not only vet the operators, but vet the deal because I've had operators that I've loved, thought the world of them, and invested money without really diving into the deal and ended up getting burned, right? So it's not enough to just vet the deal or the operators. You have to vet both, and it's very important to do that. Thank you for that. Tim, you ready for the best ever lightning round?
Tim Little (29:02.997)
Absolutely.
Let's do it.
Ash Patel (29:07.224)
Alright Tim, what's the best ever book you recently read?
Tim Little (29:12.982)
Alright, the most recent one was 10x is easier than 2x and that's Dan Sullivan and Ben Hardy. I think a lot of your listeners will probably recognize those names from Who Not How because they wrote that book as well.
Ash Patel (29:27.012)
Tim, what's the best ever way you like to give back?
Tim Little (29:33.966)
So really, I'd say mentoring fellow military members and veterans. I'm still in the Army Reserve. I just got out of command of a public affairs battalion. And I really love talking to soldiers and pressing upon them the importance of saving and investing early and just trying to pass on some of the lessons that I wish I had when I was 20-something years old. And then for those more senior members, it's passing on the opportunities that, you know, I didn't discover until I was in my thirties, like passive investing in real estate that can really like kind of jumpstart your retirement savings.
Ash Patel (30:17.58)
Tim, how can the best ever listeners reach out to you?
Tim Little (30:28.642)
sure they can always get a hold of me directly, Tim at ZanaInvestments.com. That's also the name of my website, ZanaInvestments.com. And otherwise I try to stay really active on LinkedIn as well as Facebook. So please go ahead and connect with me there. And if you're into real estate podcasts, which I'm assuming most of your listeners are, I recommend they check out The Journey to Multifamily Millions, which is where I host my podcast.
Ash Patel (30:55.64)
Will you create a different title if you start taking on different asset classes?
You've put so much into branding that, I'm sure.
Tim Little (31:04.231)
Yeah, that's the thing. I may have...
No, I know. Then I might have to either start a new one or just do a season two rebrand or something. I don't know.
Ash Patel (31:16.752)
There you go. Well, Tim, I got to thank you for your time today. I love your approach to helping others invest in multifamily and potentially other asset classes in the future. I love that you're on the front lines and you demand it. I think it separates you from a lot of your colleagues and it really does a service to your investors. So along with that, thank you for your service in the military and thank you for your time today.
Tim Little (31:46.999)
Thank you Ash.
Ash Patel (31:48.74)
Best ever listeners, thank you for joining us. If you enjoy this episode, please leave us a five star review. Share this podcast with someone you think can benefit from it. Also follow, subscribe and have a best ever day. Awesome, man, that's a wrap.
