Dr. Alex Tam is the founder and owner of Zephyr Equity Group, which specializes in value-add multifamily. In this episode, Alex tells us about his value-add asset management strategies, how to know when it’s time to find a new property manager, and what that transition looked like for his business.
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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 here with Dr. Alex Tam. Alex is joining us from Zephyr Cove, Nevada. He's a full-time investor and chiropractor. He's the founder-owner of Zephyr Equity Group, also the Streamline Team Absolute Integrative Physical Medicine, and Team Sky Marketing. Zephyr Equity Group specializes in value-add multifamily, focusing on stable markets across the country, where they partner with local experienced team members to maximize value.
His current portfolio consists of 188 units in Texas and Nebraska, and he has LP positions with both Ashcroft Capital and Grant Cardone. Alex, can you tell us a little bit more about your background and what you're currently focused on?
Dr. Alex Tam: Yeah, absolutely. Slocomb, thank you so much for having me.
Slocomb Reed: Of course.
Dr. Alex Tam: First off, you know, I started off as a chiropractor owning my own medical clinic back in 2009. And in 2018, we really wanted to grow the practice and take it to the next level, so I did what a lot of business owners do, is a 10 a 10x growth conference. While I was there, I found out something called syndication. I say "I discovered syndication, or the syndication discovered me." And at the time, I had no idea what syndication was. I almost thought he was the only one that did it, because I've never heard of it before. And soon after investing with Grant Cardone, I heard great things about Ashcroft Capital, and started investing with Ashcroft, and in 2021 October we joined a mentorship group and a mastermind to really learn how to operate the multifamily real estate space, and get other investors involved in what we do. So that's how I fell into real estate.
Slocomb Reed: Gotcha. And what is it that brought you into being an active investor, a member of general partnerships and syndications?
Dr. Alex Tam: Because one thing that we wanted to do is - being an LP limited partner is as easy as just writing a check and putting your trust in someone. What we really wanted to do is actually be active, and just be on the active side ourselves, so that we're able to not only try to find a deal, but asset-manage in the deal, help other investors and help other doctors. That is really my main cause. Me as a doctor, I know that we work hard as a doctor. And working hard is only part of the puzzle. You make the money, but then how do you get your money to work hard for you? And I believe I've found the answer to that, and my goal is to share that with all the other doctors now.
Slocomb Reed: Gotcha. So I believe you told me before the interview started that your medical practice is based in California. You're Zephyr Cove, Nevada.
Dr. Alex Tam: Correct.
Slocomb Reed: As a GP, you're invested in Texas and Nebraska; you partner with local team members. So within the general partnerships for those deals, what is it within the responsibilities of the sponsor, of the operating partners that you focus on?
Dr. Alex Tam: The main thing that we focus on is key principle. We are asset management, and of course capital raising at the same time; those are the three things that we really focus on.
Slocomb Reed: Gotcha. So tell us about your asset management practices.
Dr. Alex Tam: Yeah. Ultimately, part of the asset management in the value-add because addition is we're going in. And it's not as easy as just under-rented, or the fees of the rents are undervalued. Most people will say, "Oh yeah, we just go in and raise rents." Well, there's the rent side of asset management that you could raise to increase the NOI. But there's also efficiencies in the operations to make sure that "Are we really reinstating RUBS? Are there specific storage opportunities, car parking opportunities? Operations? Do we have enough people operating the property? Do we have too little people? Are the appliances up to date? Do they need to be swapped out?" So efficiencies is really the key, and working with great property managers. And sometimes we have to change property managers. It's not like you go in and this current property management is doing everything right. Once in a while, you have to switch people out. And it's like switching players on a team to make sure you have the right team on board to execute the business plan, and therefore allow our investors to get the best returns possible.
Slocomb Reed: With your value-add business model, it makes sense, Alex, that your focus is on increasing the NOI, regardless of whether that means adding an income stream, improving an income stream, or improving or even changing the active boots on the ground property management. When was your first acquisition as a GP?
Dr. Alex Tam: The first acquisition was actually the beginning of this year, in January. So we're in December now, and at the beginning, it was in January of 2022.
Slocomb Reed: Gotcha. In some ways, that feels like yesterday, but in other ways it feels like forever ago. I wish I could get January 2022 debt right now. I think we all do. Specific to your asset management, where is that first deal and how big is it?
Dr. Alex Tam: The first deal is 56 units in Waco, Texas.
Slocomb Reed: 56 units in Waco. Gotcha. Let's talk about that. Now that you guys have had it for a year, what has gone wrong for you this year, and what's gone right?
Dr. Alex Tam: What's gone right initially was how we were able to get the marketing dialed in. Initially, we were looking at a six-month period before we were at least 95% occupied. And because going in in January we didn't think that a lot of people renewed leases, it's not the hottest time to lease out apartments, but we were able to, through Facebook marketing, Google marketing, and get our marketing really dialed in social media, we were able to get 100% occupancy by March; it only took three months. Three months ahead of schedule, actually. And that's what went right.
What went wrong - where sometimes the property management had to be changed, due to certain fees that were there, where we initially agreed on "If you spend more than, say, $500 or $1000, you've gotta let us know." Well, sometimes they didn't let us know, and we went over budget a couple of times. One time - okay, that's a mistake. Three strikes - you're out.
So we have to look at that as "Okay, we need to change people. Let's get some better people on here." Communication - we always have to learn about the communication and how we want to make sure they like to be communicated, and they have to learn how we like to communicate. And if the communication is not in sync, that's when we will have problems. But of course, our investors never solved those problems. These are always problems on the backend that you have to deal with.
And sometimes our appliances will go missing. It's like, "Hey, what happened to this one, this one and this one? Where did it go?" I don't know is never the answer as an asset manager you want to hear? You want to hear "This is where it went." So a few things happened that were there, but we were able to eventually find it, handle it, and eventually changing property managers.
Slocomb Reed: Obviously, disappearing appliances is an issue. Alex, can you give me an example of some of the times when your property manager went over budget on a repair or a renovation without having advised you in advance, before breaking that $500 or $1,000 threshold?
Dr. Alex Tam: Yeah, there was a few times where the roads were slick, and there was a gate. Okay, the gate opens and closes. So someone ran right into the gate. And okay, they did it the first time, they told us what the repair was going to be. And open communication, no problem. But it happened two to three more times, and every time you fix that gate, it's a few thousand dollars. So before it even got to that point, we asked the property management, we said, "Why is it that during the really slick winter months and whatnot, why don't we not leave the gate open during the busy times? Why are we letting people slide into the freaking gate all the time, time and time again?" And they're like, "Well, we didn't think of that." How do you not think of that by the second or third it's happened?" It's crazy. So that was just -- I don't know what happened there. That should have been taken care of.
Slocomb Reed: In my experience, Alex, I have recognized a big difference between property managers who are investors themselves and think like investors, and property managers who do not. It's such a basic ROI type question. Fool me once, shame on you; fool me twice, leave the gate open. Come on.
The first question that comes to mind for me is is it a neighborhood that requires a gate? Or is it a community where having that gate closed adds value to the community, where people are paying more rent because it's gated? Let me ask you, but my assumption is the answer is no.
Dr. Alex Tam: I don't think so. I think chances are because it's right across from a school, we don't want everyone to be parking inside who's not from there... So it could be a parking issue. But it's only an issue; people run into that gate only when the roads are slick. So maybe during the rainy days, keep the gate open.
Slocomb Reed: I am, Alex, and for our newer listeners, I'm an apartment owner-operator in Cincinnati, Ohio. And I know we're in the micros here and not the macros, but even if it's not just the slick days, I'm sure you could find a way to program the computer controlling the gate to leave it open at certain times of day and leave it closed at certain times of day.
Dr. Alex Tam: Absolutely.
Slocomb Reed: But yeah, when you're talking about thousands of dollars, that makes a lot of sense. I thought I might end up giving you some pushback here, Alex, because as a property manager, there are times when if the health and safety of my tenants is in question, I go ahead and perform whatever needs to be performed, and then report to the landlords after. But the gates - not even close to that. What other struggles have you all faced thus far [unintelligible 00:12:34.09] in the last year?
Dr. Alex Tam: Ultimately, property management-wise, that's one of the bigger things that we've dealt with - issues with property management, making sure things are done... And that's what being a good asset manager really helps, is the communication. And with our new property management, they've been definitely communicating better, which we like. They are sticking to the rules of the book, and making sure that everything is handled in a timely manner. We're not getting as many complaints from everyone, so it's good. People are happier now, definitely.
Break: [00:13:13.08]
Slocomb Reed: Alex, the majority of our Best Ever listeners are involved, primarily passively, but also some actively, in commercial apartment investing. How long ago did you make that property management switch?
Dr. Alex Tam: We made that switch about four or five months ago.
Slocomb Reed: Okay, so you've had four or five months since the transition happened. Tell us how that went. First of all, let's break this down into component parts. What was the last straw? What did it take for you to realize or to decide that it was time for a new management company? And then what was the transition of management companies like? Was it bumpy, did it take forever? Was it seamless? July 31st it was one company, and August 1st it was the other, and everything flowed freely?
Dr. Alex Tam: We wish that was it.
Slocomb Reed: Tell us the stories, Alex.
Dr. Alex Tam: Yeah, it was definitely a little bumpy ride. We didn't know what to expect. And the last straw for the other company was really the fact that there was a lack of communication, spending would pop up out of nowhere, where we asked them what that was and they were like, "Oh, we forgot to tell you. Here's this, here's that." Appliances going missing, not sure where those went... So for us, we have to look out for our passive investors. So when there's an opportunity, and recommendations that came up for a better property management company, we interview them, to make sure that they were a good fit, that they have presence in the area... And we made the switch.
When we made this switch, the new property management came in and looked at what the old property management was doing, and realized a lot of the information that was not entered in correctly; there was digitally problems, issues, some rents were posted, some were not, and we're like, "What in the world? How do we ever overlooked this, and what was the other property management doing?" So it's very possible, from what we believe, is the lack of experience in property managers really shows when a more experienced property management comes in, looks over what they have done, and start pointing out, "Hey, this could be a problem, this could be a problem. The record keeping, that could be a problem; you guys didn't know about this, what happened here."
So it took - gosh, a month or two, for the transition to happen. And what's worse is the prior property management - because they knew they were on their way out. It took them forever to give information to the new property management. So we live and learn, and with the new one, we're definitely doing all learning.
Slocomb Reed: There is a difficult dynamic there with the property management company that's being replaced, where effectively you're asking them to continue working, even though they're not going to get paid... That's a difficult dynamic to navigate for everyone, for sure, getting someone to keep doing their job, when they know that the paychecks are going to stop.
Alex, let me preface this by saying that I've never been in your shoes as an asset manager. What I mean by that is that I've always been the property manager, meaning that I've never had to navigate a relationship with the property manager to get results. Everyone involved in the operations works for me directly, or it's me.
Some of the assets that I have acquired myself and with partners, and that I have taken over management for with some third party clients, are in the condition that Joe Fairless in his book about syndication would qualify as distressed; well below 85% occupancy, or above 85% physical occupancy, but 50% economic occupancy. Difficult situations.
Dr. Alex Tam: Right.
Slocomb Reed: And one of the things that that has helped me understand about property management is that longevity in property management comes down to momentum. Building it when you inherit a difficult situation, which it sounds like your new property manager may have - not necessarily that the property wasn't performing, but that they had a lot of puzzle pieces taken out of the puzzle, that they had to figure out a way to put back together to build and then sustain momentum, and then sustaining momentum.
I'll get off my soapbox in a moment, Alex, but I was asked at a coffee with another investor recently which of my properties was my favorite, and I just hadn't even fathomed that question before. The answer I came up with, which is still true today, is the apartment building where it was my first major commercial deal I brought on a JV partner, we started - out of 24 units, 15 were occupied, but only nine of them had any interest in paying rent. The reason it was my favorite is because all of the work was done. We had it turned, we had 23 or 24 out of 24 apartments occupied at all times, happy tenants, paying rent, and it was just smooth sailing. My job had transitioned from building momentum to sustaining momentum.
That being the case, especially with a C asset, in a C, maybe C minus area, keeping the pendulum going and maintaining that momentum, keeping a property performing - that's really what you're hiring a property manager to do. Yes, there's blocking and tackling, and obviously you need to have good records, especially when you're managing someone else's assets, and there's significant amounts of money involved... But at the end of the day, what you're doing is maintaining the momentum of the property, keeping it leased, keeping it maintained, keeping people, your tenants, your client, the landlord happy.
Dr. Alex Tam: Absolutely. I agree.
Slocomb Reed: Alex, are you ready for the Best Ever lightning round?
Dr. Alex Tam: Let's do it.
Slocomb Reed: Awesome. What is the best ever book you recently read?
Dr. Alex Tam: The best ever book - that's going to be "Why CEOs fail."
Slocomb Reed: Who's that by?
Dr. Alex Tam: I forgot.
Slocomb Reed: Well, tell us a little bit about it.
Dr. Alex Tam: The book is about the traits that CEOs have that can cause them to fail overall, like the arrogance, the lack of listening when the CEOs feel like they know everything, that they're not paying attention to the people. And one of the most important things in running any business with the four businesses that we have is making sure your people feel heard. And learning how to delegate. A lot of times when we are deep in the weeds as business owners, we started off doing the business, because that's why we started it, and we believe that we can do it better than anyone else in the business. And then hiring the right people, training them, trusting that they're able to do the work - that is a true responsibility of any CEO, to ensure that it's going to run the right way, even though you're not there, and then trusting the people. That's what I've learned - the most important thing is the people.
Slocomb Reed: What is your best ever ways to give back?
Dr. Alex Tam: The best ever way to give back is reaching out to other newer real estate investors, and the people who want to get into real estate, and explaining to them, and educating them, doing videos about what I've done, and telling them my story. Because at the beginning of any journey, they feel nervous, it's a little nerve-wracking to do your first deal, or to even do your first investment. And by me sharing my experience, I felt like it's able to give back to people who are just starting out, because I was in the same shoe, in the same place, years ago.
Slocomb Reed: Thus far, Alex, in the past year, as a general partner/investor, what is the biggest mistake you've made, and the best ever lesson that resulted from it?
Dr. Alex Tam: I would say the biggest mistake that we've made is trusting in that the property manager will do it the right way, and initially not inspecting what we are expecting. So you always want to inspect what you expect. I do that with every other business. But somehow, because real estate has been new, at the beginning we didn't catch it early enough. And I would say that to other real estate investors [unintelligible 00:22:56.10] you're running your business, always inspect what you're expecting. That way you catch problems a lot earlier on, instead of waiting a lot later to wonder "What the hell happened here?"
Slocomb Reed: On that note, Alex, what is your best ever advice?
Dr. Alex Tam: My best ever advice is to focus on relationships and people. How we've excelled into one year doing three GP deals and five JVs in all of 2022 is that we have honed in on building relationships. I'm not going to be your boots on the ground; we can help KP, capital raise, asset management... But because I'm not boots on the ground, I have to build relationships with really good owner-operators. One of our JVs is actually in Cincinnati, a few blocks away from that really nice mall; I can't remember what that mall is called. It has all the nice stores, and everything. But we met great people at wonderful conferences that we've been to, and that's I think the number one thing people need to focus on. I initially got into real estate thinking that it was going to be something that my wife and I can do on our own, and not realizing that it's a team aspect, and that relationships is key.
Slocomb Reed: Where can people get in touch with you?
Dr. Alex Tam: They can get in touch with me on LinkedIn, they can give us a call at 7757170090, we're on Facebook Messenger, Skype, email, however they like to get in a call with us. We always reply within about a few hours. And I'll send you a Calendly link, and and let's connect.
Slocomb Reed: Great. And those links are in the show notes. Alex, thank you. Best Ever listeners, thank you as well for tuning in. If you've gained value from this episode, please do subscribe to our show, leave us a five-star review and share this episode with a friend who you know we can add value to through this conversation. Thank you, and have a best ever day.
Dr. Alex Tam: Thank you so much, Slocomb.
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