Zach Fugman is a Houston-based apartment syndicator who got his start in commercial real estate by joining a syndication education and coaching group called Lifestyles Unlimited. Today, he is the owner of A-Strategy Management, serving as a GP of 1,700+ units, key principal of 1,100+ units, and LP of 400+ units.
In this episode, Zach discusses the value of getting a mentor, how to find the right coaching group, and his advice for new syndicators looking for deals in the current market.
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TRANSCRIPT
Slocomb Reed: Best Ever listeners, welcome to the Best Real Estate Investing Advice Ever show. I'm Slocomb Reed, and I'm joined today by Zach Fugman. Zach is from Cincinnati like me, lives in Houston currently, but joining us from Cincinnati right now. He's the owner of A-Strategy Management, which syndicates apartment deals. He's a GP on over 750 units in the Cincinnati area, 950 units in Mississippi. He's a KP on over another 1100 units, and he is an LP on over 400 units in Texas and Atlanta.
Zach, can you tell us a little bit more about your background and what you're currently focused on?
Zach Fugman: Yeah. As Slocomb said, I'm originally from Cincinnati. I grew up here and went to university and went through oil field before getting into real estate. I joined education and mentoring group with Lifestyles Unlimited back in 2014, and I started learning about single-family, and then getting into multifamily syndication. I was LP first before becoming a GP, or what sometimes we call lead investor.
To back up a little bit, I was in the oil field. I moved a lot and ended up doing my first deal in Slidell, Louisiana, and I brokered that deal myself with a guy. I was working out of Keller Williams. As [inaudible 00:03:30] on the side, I was with oil field, ended up getting that deal done. At the day we closed, we moved to San Antonio, and I'm getting a third party and we ended up getting some stuff there, and it kind of progressed from there. But I realized I always wanted to kind of invest my way back home and tell a lot of people how great Cincinnati is. You are already a believer in Cincinnati, I know that.
Slocomb Reed: I am, yeah. Yes.
Zach Fugman: And we ended up doing 144 units in Maysville, Kentucky is our first one up here. And then that became essentially-- now it's almost like 800 units up here, and then my Slidell deal during the pandemic. We weren't finding many deals that made sense in Ohio and Kentucky at the time, and we ended up-- we started buying in Mississippi and was like, "Wow, this is actually pretty good market." We ended up moving on to do more. And I have a lot of friends who were looking to do deals too, and I was like-- I have a big abundance mentality and I was like, "The more people I help, the more I get." I like to meet more people, and with Best Ever I met you and some other great people, folks up there... And I continued to try to find quality assets that me, friends or somebody I know can do and make a better living situation and make some money for themselves and their family, kind of thing.
And I just keep doing it, and it gets methodical, but it's really fun when you help your friends. That's why I've been at KP on so many other deals, just to see their life get uplifted by being able to realize the dream of owning a business and making passive income and help others provide for their families too, by having secure passive investment through multifamily investing.
Slocomb Reed: Awesome. So you've said a lot there that's worth diving into. I've got a couple of nuggets I want to ask about. First though, you're from Cincinnati, it makes sense to invest there. You're living in Texas. Mississippi seems kind of random, but it's a huge chunk of your portfolio now that it sounds like you've acquired in just the last couple of years. Why Mississippi?
Zach Fugman: Well, like I said, during the pandemic a lot of people were scared to do deals during 2020. We actually closed the deal in Cincinnati right before the pandemic too, but we got through the brunt of the initial way of what was going on during that, and then we were ready to do another. I so happened to be hanging out at my deal in Slidell, and my wife's like, "Let's just try to find a deal down here in the South." So I just started flipping through all the websites, Colliers, Wakefield, just the usual suspects, and it just so happened Colliers had a deal over in Long Beach, Mississippi that had fallen out of contract because an equity had gotten nervous during that part of the pandemic. I was only 45 minutes from the Slidell deal, I went over and I was like, "Wow, this is a great deal. Makes sense, cash-flows. I do have to do a loan assumption, it's going to be more down than usual, but I think we can make it."
So we went ahead and I got a bunch of my contacts and we ended up raising about 4.2 million, took it down, and then we got hit by a hurricane five days after owning it... And honestly, half the partners were deathly scared, and the other half were over the moon excited, because they'd been through some insurance events. And we ended up redoing the whole place outside, with the siding, the roof, windows... And it went from just a good B to B plus, and plus our original rehab plan went into effect.
And there's such a demand in the Gulf Coast that people just didn't know about down there in the Gulfport-Biloxi MSA. It just kind of was like one of the last forgotten pockets, I guess, and we were buying deals that made sense all throughout 2021. And okay, it cashflowed. When people were doing bridge loans, we were doing Fannies, and stuff like that. So we were able to make a lot of deals work over the last year and a half.
And then now, all of a sudden [unintelligible 00:07:36.11] found out and they started chasing all the deals... Because we were getting 20%, 30% rent increases when we were doing our rehabs, and things of that sort. It was one of the last places to get the true value-add in place. And we found a good partner in [inaudible 00:07:53] property management down there to work with us as a property management, because I've been self-managing my stuff in Cincinnati for a couple of years now... And I was like, "Well, if you guys keep doing such a good job in Mississippi, we'll keep working together."
They've introduced us to a lot other brokers, said that we were good closers, me and some of the other members that are in Lifestyles Unlimited with me, and did some deals down there, and we just continued to close deals. Once those brokers get some meat, they want more meat. So they kept feeding it to us and kept getting their peace. And so now we're at almost like 1600-something units or something over there. So it's been fun. I would say each area has a different kind of attitude. Cincinnati is a little more business-like. Mississippi, just a bit more relaxed. But money's green everywhere, right? So if your money is working harder in Mississippi than it is in say, California, good on you; it just doesn't matter. If it's working, make it work.
I've told many people, I was like, "Look at the fundamentals. If the fundamentals make sense, go do it." We found a mom-and-pop market too, some of these smaller ones, they haven't raised rent in 20, 30 years. The population is stable, but their rents are 300 to 400 dollar under market, because they haven't raised rent in 20 years on some deals. That's a pretty good shot to go up in a year and a half, so...
Slocomb Reed: Yeah. Zach, there's just so many things that I want to ask you. One thing I want to say, actually, a piece of advice that I've heard a few different places, but that you gave me the last time that we met... I'm going to ask you to elaborate on it. It is that you're in a position now-- I read off some of your stats at the beginning of this interview... You're in a position now that at least in Cincinnati, the major players in apartment brokering, they know who you are, and some of them are calling you because they know you're a closer. And they know that if they get your LOI accepted - because let's remember that brokers are in the business of brokering deals. They get paid at the closing. They know that if they can get your LOI accepted, you're going to get to the closing table.
And a big piece of advice that you gave me and the other newer investor that we were at dinner with was when you get your LOI accepted, get to the closing table. Because getting to the closing table is how you garner the reputation with brokers that gets them to call you about deals, instead of you having to hunt them down, to see what it is that they're offering to the people that they don't call first.
Thinking about someone who is newer to apartment syndication, who is focused on acquisitions, underwriting, deal finding, negotiation, what advice beyond "get to the closing table if your LOI is accepted", what advice beyond that do you have for people right now, late June 2022, who are looking to do deals?
Zach Fugman: Get with people who've closed deals. I did my first deal on my own pretty much in 2017, and there was a lot room for air. It was pretty much I was buying at 40k a door. Right now, I would say--
Slocomb Reed: That was in Cincinnati?
Zach Fugman: No, that was in Slidell, Louisiana. And now in 2022, I would say you get with a mentor, you join a group like Lifestyles or some of these other ones, or some other mentorship... Get educated first, because you might have some wild-eyed expectations have been built up since 2009, for some people who heard all these great stories... And there's still a lot of opportunity out there, but just like some of these 4X, 5X returns are just not there. And just somebody to bounce off the deals that you're looking at, get a good, solid, experienced opinion from somebody who has few [unintelligible 00:11:34.25] of thing, because leverage right now is choppy. Well, you've talked to a lot of people; you got to make sure that the basis is right on the thing. So if you go into a deal right now, there might be a broker or seller, they did their BLV in January, February, and they might have some unrealistic expectations of when the 10-year was down below two, and the Fed was not shooting towards three. So I would say, yeah, get with some people who know the market that you're targeting. Somebody like you, or a me, in the Cincinnati area. I think there's some unrealistic expectations.
Slocomb Reed: Zach, is advice the only thing you're getting from a mentor in a situation like that?
Zach Fugman: Maybe not advice, but if it's a good deal, they may even back you. There might be a mentor that might end up like, yeah, they want to be a part of the deal if it's a great deal, too. So in your case, you, Slocomb, might find a deal and say, "Hey, I need a JV partner or something like that" if you've got a lot of deals, or something like that. Or somebody you know that's just like, "Hey, Slocomb, I want to be in this part of Cincinnati. Would you join up with me?" Or somebody came to me in Mississippi and was like, "Hey, what do you think of this deal?" I'd have property management [inaudible 00:12:49]. I have my own experience. I'd have brokers, and all the other people. I can triangulate... Is this deal worth it etc.
So I'm not going to say-- anyway, but there was a deal that was put in front of me yesterday. On paper, it looked great. But when I pulled up the location, I was like, "I'm out. Nope. No, thank you." I didn't want to be a part of it, even though I know it would've made pretty good money, but I just felt like the juice wasn't worth the squeeze. But also for somebody who's new, go bite something off you can chew. Don't shoot too high at first. I know that some people are like, "Well, you've got to go for the bigger ones", but don't put yourself in a position like, "Oh, I'm going to go raise $20 million on my first deal." That's probably not going to happen. Maybe if you win the lottery, that's a different story.
Break: [00:13:35] to [00:15:21]
Slocomb Reed: You talked a couple of times now about Lifestyles Unlimited. And you talked to me about them before. I didn't realize that was a group that you joined back in 2014. 2014, at least, feels to me like it's before the recent surge in popularity of apartment syndication or commercial real estate mentor and syndication in general... So not only is it early for apartment syndication, but it's also early for getting involved in mentorship and networking groups. I want to ask, how big of an impact has it had on your investing that you joined a mentorship group so early? And also, I am not currently in a mentorship group personally, but I'm considering something like it. What advice do you have for me and Best Ever listeners like me, Zach, when it comes to figuring out which group, or whether or not a group is right for us?
Zach Fugman: For me, it was tremendous. You kind of get what you paid for, I want to say that. You go in there and you meet people who've been through a lot. In Lifestyles I've met with some people who've been through a lot, who were able to mentor me and tell me, "This deal is a good idea. I would've done it this way." They're not going to endorse your deal left or right, but they're going to say, "You may want to look at it this way. Did you account for taxes?"
I would say getting in a mentorship group with somebody like Lifestyles or another group - the idea and the hope is that that person keeps you from falling into a pit. And they're not going to basically shoot you to the moon. That's on your effort, a lot of it, but they're going to try to keep you from falling into a trap. And I've found that extremely valuable by getting started.
And then today, I would say, go out and you can try Lifestyle, you can try one of the other groups, but I would try to get a feeling that is this the type of people I would want to be working with or I want to associate with? Do they have high standards, integrity? Are they willing to tell you that, "I think you're out of place" if you're doing the wrong things or something like that? You want to find somebody who's able to give you some honest truth, instead of fluff, like, "Oh, from the 506(b) to blue sky laws, they're there, because people [unintelligible 00:17:43.03] sky is the limit. Well, you want a mentor to say the sky is sometimes the ceiling.
So I would say it'd be very prudent for somebody to go out-- especially there's so many other people now who have the education, that if you try to go out and do it on your own, there might be somebody on the other side of that transaction who's way more savvy than you, and they might even have other people that are backing them up, and they might run circles around you if you don't have any person to back you up on the knowhow, kind of thing.
Slocomb Reed: One last thing on this before we transition - it seems like joining a mentorship group like that would also be a springboard for accelerating capital raising, because you have a group of hungry investors who are looking for deals. That could be an opportunity to find investors for your own deals. Has that been your experience, Zach?
Zach Fugman: I would say that yeah, because the network of people inside of that group is so strong, you go out and start building your rotation step by step, doing a deal. Buffet says never lose money. Well, always, number one thing, take care of other people's money, if you are the steward of their money.
My first deal I did as a syndication side of the group, I only returned 10% in about 18 months, but it was a struggle because of the municipality. But if you build yourself as a reputation of doing what you say, it can become a springboard to do, as you prove yourself up more, the people inside the group, they have faith in you and you're doing what you say, I believe that yes, it can be a way to accelerate your ability to do deals.
Slocomb Reed: Zach, one last thing before we head to the end of this interview... You have once during the pandemic transitioned markets in order to find better deals. Recording now, late June of 2022, what is it that you're doing to find deals that make sense right now?
Zach Fugman: Because we've built a reputation as closers, the people put deals in front of us, and we get to run more numbers, and we get to learn more about each state - Alabama we're looking into, we're looking into Tennessee and then other parts of the Southeast. I go to other conferences to hear what other people have been doing, to learn how they've attacked it. I try to network with people who are doing stuff in different markets, and just see what they're doing, and more or less, try to get a temperature, put my finger in the air, see where the wind's blowing for the whole market in general. I'll go underwrite it, I'll visit markets... A lot of my friends can attest, I'll drive anywhere. In the oil field, I used to drive 6-8 hours to go to a job. And that was kind of like why I was not afraid to transition markets during the pandemic, and why I stopped doing Texas and started doing Kentucky and Ohio, even though all the fanfare is around Texas and Florida or Atlanta.
So I'm able to go out there and just look. There's a lot of America out there. And part of it when I was in the oil field, I drove to so many locations that I'd seen a lot of America and stayed at a lot of apartments in the oil field. So there's going to be markets there Just kind of not talked about much, tertiary and secondary markets. And then growing up in Cincinnati, always being in a secondary type city, there's a lot of people out there, and some of these places are steady. And so you can always go visiting, deep diving into areas. And then one of our big things is that, is it a place where you'd want an apartment on top? Once you get to the apartment, is it a place you feel like you could take your kids out at night [laughs] Or it will be when you're done with it?
Slocomb Reed: Well, Zach, are you ready for the Best Ever Lightning Round?
Zach Fugman: Sure.
Slocomb Reed: Let's do it. What is the best ever book you've recently read?
Zach Fugman: Recently read, I guess Can't Hurt Me by Goggins. Every time I feel I'm sorry for myself, I'll even turn on the audio book of him talking about something excruciating, and I'm like, "Well, my life ain't so bad." So I ended up playing an audio chapter of that and listening to the trials and tribulations he had to go through. And my life's kind of peachy instead, so I better go out and work a little harder.
Slocomb Reed: What is your best ever way to give back?
Zach Fugman: I love to give back by helping other people who want to do deals. Like I said, I'm a KP on 1,100 units and a lot of those were brought to me first. And for whatever reason, I've always felt like life is better with friends. And if you're rich and you're lonely at the top, it's not really a fun existence. Yeah, you're rich, but it's a lot more fun bringing a lot of people with you on that party bus, versus that Ferrari. Not saying anything wrong with Ferrari, but a party bus is a lot more fun, passing around the High Noons and whatever else beverage you care to have.
Slocomb Reed: Zach, thus far in your commercial real estate investing career, what's the biggest mistake you've made and the best ever lesson that's resulted from it?
Zach Fugman: I mean, I alluded to this, my first deal I did in San Antonio - we thought we had covered all the bases and then [unintelligible 00:23:01.29] The city was pretty hard to deal with, and they changed certificate of occupancy at every [unintelligible 00:23:07.19] And I had other people who went through it. We did all the due diligence, thought it was great, and then they basically dropped all kinds of code on us to fix. So we ended up fixing it all and realizing it was just going to be a never-ending battle, and we were able to sell that property [unintelligible 00:23:27.12] If you're going to go into an area you don't know, know the code, know the city, be their friend. You, the police, and the code inspector need them to be first-name basis. So that's my best advice when you're going into somewhere--
Slocomb Reed: On that note, Zach, what is your best ever advice?
Zach Fugman: Try to do what you said you're going to do. And if for whatever reason you can't, show the way you're trying to make it happen by plan B, C, D, E, F, G. Don't give up. And obviously, preserve your investor's money.
Slocomb Reed: Awesome. And where can people get in touch with you?
Zach Fugman: Zach Fugman on LinkedIn. You can find me there. You can look me up on Facebook. If you search by A-Strategy Management on Google, you'll find our website too. So you can maybe find me hanging around in Cincinnati with you sometimes.
Slocomb Reed: Awesome. And those links will be included in the show notes. Zach, thank you. Best Ever listeners, thank you as well for tuning in. If you've gained value from this interview, please do subscribe to our show, leave us a five-star review and share this episode with a friend that you know we can add value to through this conversation. Thank you and have a best ever day.
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