As an immigrant in 2004, Anna began her real estate career. She was investing in single family, then invested passively in other peoples’ deals. Fast forward to today and she is sponsoring her own syndications in the DFW market. Anna gives very actionable tips for scaling your business and moving from smaller deals to much, much larger deals. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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Anna Simpson Real Estate Background:
- Multifamily Investor & Deal Sponsor
- Started investing with rental homes, then moved to multifamily
- Invested in 1,300 multifamily units passively/as KP, then became a deal sponsor
- For first deal raised 1.4M via syndication
- Came from Russia in 2004 and is a licensed realtor in DFW
- Based in Dallas, Texas
- Say hi to her at www.simpsonmultifamily.com
- Best Ever Book: Rich Dad, Poor Dad
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TRANSCRIPTION
Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Anna Simpson. How are you doing, Anna?
Anna Simpson: Hey, Joe. I’m glad to be here.
Joe Fairless: Nice to have you on the show. A little bit about Anna – she is a multifamily investor and a deal sponsor. She has passively invested in over 1,300 multifamily units, and she has also put together her own syndication. She has also been involved in a tenants in common deal, otherwise known as a TIC deal, and she’s based in Dallas, Texas. She came from Russia in 2004, and is a licensed real estate agent in Dallas-Fort Worth. For her first syndication she raised 1.4 million dollars.
With that being said, Anna, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Anna Simpson: Sure. At this point I’m a multifamily investor and a deal sponsor or syndicator, as you mentioned. I started my investing career in rental houses; I was buying homes, I was rehabbing them, renting them out… And I also worked as a realtor at Keller Williams in South Lake, Texas.
In 2015 I decided to make the move to multifamily. I first invested in 1,300 multifamily doors passively, or as a key principal. Then I switched and became a deal sponsor. As you mentioned, for my first deal I raised 1.4 million, and I had 23 equity investors for this deal. For the second deal I also had the same equity raise, 1.4 million, but this was done in a tenants in common (TIC) structure, and I only had two other people with whom I did it. In this deal I’m a TIC manager and I’m also an asset manager.
At this point I’m in acquisition mode. My focus is in DFW, because that’s one of the best markets in the country, so I’m lucky to live here.
Joe Fairless: Lots of things to talk about, let’s see… First, let’s talk about 1,300 doors passively that you did previously, and I assume you’re still involved with some of those or most of those deals as a passive investor. And you said “or as a KP.” Can you elaborate on what KP is, and also what the difference between investing passively versus being a KP is, with those 1,300 units?
Anna Simpson: Sure. When I first started, I basically just started to kind of learn about this business, so I figured the easy way would be just become an equity investor, and I did have the money, so that’s where I started. I basically learned how other deal sponsors communicate with their investors, what they do, and I figured out what are good things to do, what are bad things to do, and then I decided to take the next step, which is to become a KP. The reason for doing that – you sign on the loan; that’s the difference. If you become a key principal, you are signing on the loan, you’re becoming a guarantor, to help someone else to secure an agency loan. This is basically good for your own resume, whenever you’re ready to start becoming a deal sponsor, because the bank is going to be looking at you as an experienced borrower… So that’s an important step.
Joe Fairless: What do you risk and what do you receive for signing on the loan?
Anna Simpson: These being non-recourse loans, you really don’t risk too much, except if your deal sponsor decides to not perform well – potentially might turn into recourse. So that’s your risk. Basically, you have to choose your deal sponsor very carefully, and what you gain is basically this little plus on your resume, so the next time when you’re ready to syndicate your own deal and you apply for agency loan, basically they’ll see that you already did it in the past, so it’s not your first deal.
Joe Fairless: And do you get additional equity, or some sort of fee for signing on the loan?
Anna Simpson: That depends. If this really benefits you — in my case it was benefitting me, and it was not really bringing that much of a difference to the deal sponsor with whom I signed on the loan, so I did not get anything… But let’s say if I was a deal sponsor in five deals and I was bringing my experience, that would have been a different case. Right now, I potentially can do it for other people for their equity piece, because now I’m bringing not only network and liquidity, but also experience… So that would be more valuable. Back at my first time, I just brought the net worth liquidity, and that was it.
Joe Fairless: Makes sense. What type of equity ownership would someone negotiate in order to have a key principal bring their balance sheet and experience to sign on the loan?
Anna Simpson: Let’s say if the deal sponsor gets the sponsor overwrite – let’s say it is 10%, 15%, 20%, potentially the key principal might get 1% or something like this, because essentially they are not doing anything, they’re just signing on the loan… So maybe like 1% or 2% out of it they can get.
Joe Fairless: Of the general partnership.
Anna Simpson: Correct.
Joe Fairless: Got it, okay. And you mentioned as a limited partner, a passive investor, you learned some good things and the bad things of how people operated. Can you tell us about some of the good and bad things you discovered?
Anna Simpson: Just basically communication that some of the deal sponsor provides. It’s essential to communicate with your passive investors, because they want to know, once they send the money to you, what is exactly happening with the deal. They kind of want to know if you’re doing well. So it’s not just sending the reports on a monthly basis, but maybe sending pictures, maybe sending updates…
Some of these things, some investors do it very nicely. They just really update everybody, they explain what’s happening, and some people just don’t kind of do it very well… So I’ve just kind of learned about this, and of course, making meetings with your investors – that’s a good thing to do.
Joe Fairless: You said you have 23 equity investors on the deal that you’ve put together, a 1.4 million dollar raise… Did I write that down correctly?
Anna Simpson: Yes.
Joe Fairless: How did you find that deal, and what can you tell us about it?
Anna Simpson: This deal was originally off-market, so I made an offer, and they didn’t like it originally, but then they took my second offer. So I found it kind of through relationships. My lender introduced me to this broker; they knew each other, and we kept relationship… And once he got this deal listed, he kind of had me in his mind as his potential buyer. That’s kind of how I found it.
Joe Fairless: Who introduced you to the broker?
Anna Simpson: My lender.
Joe Fairless: Your lender introduced you to the owner, did I hear that correctly? Or to your broker?
Anna Simpson: To the listing broker.
Joe Fairless: To the listing broker… But I thought you said it was off-market.
Anna Simpson: Yes, even off-market deals, they’re still listed, but they may not be just kind of widely marketed… But it went on market later on, so I didn’t get it the first time, but I got it the second time.
Joe Fairless: So initially he didn’t like your offer, but then it went to the market, and you were awarded the deal through that process. How much did you offer, and were they similar terms, off-market, before they shopped it around, versus when it got shopped around and you got awarded the deal?
Anna Simpson: It wasn’t too much of a difference, but just in between these two offers the new financing came through; it was a new program that Freddie Mac had for certain submarkets… So basically, my financing became better, so I was able to get better leverage, so that way I was able to offer a little bit more. And it wasn’t much of a difference, but basically it all came to financing, really… Because once you get better financing as a buyer, of course you can offer a better price.
Joe Fairless: What specifically was better between the financing from the first go around to the second?
Anna Simpson: Basically, this was a new program by Freddie Mac, and this was something about a certain zip code that they considered as affordable, and [unintelligible [00:10:40].08] I don’t even remember exactly. So this is not like a cheap zip code, or anything. This is in Arlington, in a very nice location, but it just fit this bracket for Freddie Mac at the time. So basically, I just got a better leverage. It was lower before, and it was better on the second time around.
Joe Fairless: Okay. The price for the first go-around versus when you actually bought it – what was the price for each of those?
Anna Simpson: Oh, it wasn’t much of a difference. They were asking 4,15 million originally, so eventually I got it for 4 million. So it’s not too much of a difference.
Joe Fairless: Okay.
Anna Simpson: And I was offering before four.
Joe Fairless: You were offering what?
Anna Simpson: Before I was offering lower than four million, and then I was able to come up and offer four million. So that’s what they ultimately wanted.
Joe Fairless: Got it, cool. And that’s in Arlington, you found it through your lender… How did you find your lender?
Anna Simpson: He is very known in the industry, and actually it would be my advice for everybody, to create good relationships. He is well-connected here, so pretty much everybody knows him.
Joe Fairless: What’s the best way to get connected to the people who are connected to everyone else?
Anna Simpson: Basically, when you start in this business it’s just very important to kind of go and find out who is who, and make it a priority to make significant relationships with the right people. When I first went into multifamily, I literally went and asked people “Who is good here?” and I started to kind of meet all the movers and shakers in my market, and I started to create kind of a team around myself… Because this is very much of a team sport, much more than single-family. So here you really have to surround yourself with the right people and create your team – a lender, a mentor, a property manager, due diligence professional, insurance… You just have to find all these people and identify who is going to be on your team. That was an important thing for me.
Joe Fairless: The TIC structure (tenants in common) – can you elaborate on what that is and then why you chose to structure it that way, versus the traditional way?
Anna Simpson: Sure. In this particular case I knew a couple of people that basically had more money than normally people willing to invest, because in a syndicated deal usually people invest 50k or 75k, 100k… These people, between just the two of them, they brought way more. One of them was a 1031 exchanger, so basically he sold his property in another state and he was ready to deploy this money here in Texas. So we knew each other and he kind of came to me and said “Look, we have this money and we would like to find something here in DFW. We know you, we trust you…” I was working on two off-market deals, so it kind of worked this way that we had enough equity to go ahead and purchase this deal.
The reason we chose the tenants in common structure for this partnership or syndication is because this person was doing a 1031 exchange, so he could not be in a partnership. This has to be a tenants in common for him to not be disqualified for his tax-deferred exchange.
Joe Fairless: Because the information from his previous property needed to be on the title for the current property, and that’s how you were able to do it, with the tenants in common.
Anna Simpson: Correct. To be able to not be disqualified, you basically cannot kill the taxpayer… So to say if your relinquished property — when you sell the property, it becomes a relinquished property; you sell it under your social security or under a certain EIN number, and you buy the next under the same EIN, or same social security number. You cannot change it, otherwise it’s not gonna be qualified for exchange. So he had to be in a tenants in common structure, because in our case, the three of us, we owned the property and we each have a deed for the property… But it’s not a single LLC, it’s three LLC’s that own this property. So that’s kind of how it works.
Joe Fairless: Let’s talk a little bit more about that four-million dollar deal. How many units is it, first off?
Anna Simpson: The second deal, the tenants in common deal is 76 units in Fort Worth.
Joe Fairless: Okay, sorry, I switched gears on you. I went back to the four-million dollar deal… Because that was four million, right? The purchase.
Anna Simpson: Yes, yes. So the first deal it was 70 units, in Arlington.
Joe Fairless: Okay, 70 units in Arlington… And then we’ll come back to the TIC, but 70 units in Arlington – what’s the business plan for that?
Anna Simpson: Basically, this deal is in a very good submarket of Arlington. It rents for very much below market for pretty much no reason, so what we’re doing right now – we’re aggressively raising rents to be at the market level, and we’re also doing certain upgrades on the exterior and on the interior. So my goal is basically just raise the rents, raise the NOI, and once I’m able to, let’s say, double the money of my investors, I will be able to sell the deal.
Joe Fairless: What type of structure do you have with your investors?
Anna Simpson: This is just a normal syndication. This is the LLC where I’m a general partner and I have 23 limited partners. I’m an asset manager over there, and I’m taking care of the day-to-day business, but we do have the third-party property management… So I’m basically managing the management company.
Joe Fairless: And with 70 units, some people might think that you need to be at 100 units in order to really have the property pay for that management team… Can you elaborate more on that thought?
Anna Simpson: I wanna say 60 units and up you can definitely use the property management company. We are still paying a very reasonable fee, so it totally makes sense. I would never want to be on the management size, like be there day to day; that’s just not what I do. I believe you have to do what you really like. I like to acquire deals, analyze the deals and meet the brokers and the equity investors… Management is not my stuff, so I’ve never even thought about this.
We have a very good management fee, and I don’t see it as a problem. You don’t have to be 100 units, or anything. 60 and up should be fine.
Joe Fairless: With the interior and exterior upgrades, anything in particular you want to mention that you’re doing that might be a little bit different, or if not different, then just very high ROI?
Anna Simpson: Whenever you’re on the buying side, you really wanna be looking for the deals that maybe have interiors that have not been upgraded, because let’s say if you put a new boiler or a new roof, that is not going to increase your rents. Basically, you need to find a deal that has good bones, so you don’t have to be putting too much of cap-ex, but maybe something that has not been upgraded inside. Because once you do this type of upgrades, you can definitely raise rents.
We are raising rents $200/unit in this particular property. That’s because the units were not really upgraded to the level that we are doing right now, so tenants are willing to pay this price for their better-looking units. And we do things like backsplash, [unintelligible [00:18:01].24] that kind of things.
Joe Fairless: And approximately how much are you spending per unit to get those $200/unit upgrades?
Anna Simpson: So let’s say if the flooring is already there, because we have some units with a very nice flooring, then it’s $3,000, maybe even $2,000. It really depends. The units are kind of 800 square foot average size.
Joe Fairless: Wow, $3,000… That’s quite a return. That’s 80% return.
Anna Simpson: Yes, we are doing well on this one, that’s for sure.
Joe Fairless: Cool. How many of the 70 have you upgraded?
Anna Simpson: At this point it was maybe around ten… We are kind of in the middle of doing three of them right now. I don’t want to upgrade too many, because once you’re ready to sell the property, you always want to have a good story for your next buyer… So the good story would be that I’m leaving some meat on the bone. You don’t want to essentially over-improve your property, because it just doesn’t make any sense.
Joe Fairless: And of those ten that have been upgraded, how many have rented for that $200 premium?
Anna Simpson: All of them.
Joe Fairless: Outstanding.
Anna Simpson: It’s Arlington, we have no problem with that.
Joe Fairless: Based on your experience, what is your best real estate investing advice ever?
Anna Simpson: I want to kind of say that multifamily real estate is a very competitive industry, so it’s very essential to position yourself correctly. Single-family – there are a lot of houses that you can find pretty much anywhere; multifamily assets – they are mostly controlled by brokers. Even if they’re off-market, they still kind of come from the brokers, most of the time. So it’s important to position yourself in the market and keep a very good reputation among listing brokers and among owners’ communities.
So kind of three things that I thought I would give away as advice. Those three things really helped me to succeed. The first one, as I mentioned, is relationships. You really have to leverage good relationships in this business to be successful. For me, early on I made it a priority to build very good relationships with the right people. When you start, I recommend that you concentrate on that… Because as a multifamily buyer, you’re basically doing two things – you find deals, and you find money; to be able to find deals, you have to have relationships with brokers. And to find money, you have to have relationships with the equity investors. So that’s basically one thing.
The second one, for me it was very important to create the momentum. Basically, what it means is once you’re in the game, it’s important to keep it active. What I mean by that is you always want to be staying on top of the mind of the brokers. You always have to call them, remind about yourself, so once they have a deal, whether it’s off-market or on-market, they think about you as a potential buyer.
And the same goes for equity investors – you don’t want to disappear on them; even if let’s say if you don’t have a deal right now to offer to them, you always want to keep the connection with them, so they know that you are actively involved in the business. So that’s another thing.
And the third one – it’s important to treat multifamily investing as a business, not as a hobby. I see a lot of people that come here and they think it’s easy, and they’re kind of like dabblers. It’s important to just really keep on track, set your goals and have a plan how to reach these goals, and follow through. And once you reach the goal, basically set a bigger goal, and go for the bigger goal. Push your limits; always, always push your limits.
It’s important to be very intentional. Say if you have a goal – say you wanna buy your first apartment complex… So just kind of assess the actions as you take actions. Figure out, whatever you’re doing, is it taking you closer to your goal, or is it taking you further away from the goal? I’m kind of identifying the priority of what I have to be doing, and kind of acting on that.
Joe Fairless: A couple follow-up questions… Let’s talk about relationships. You are from Russia and you came to Dallas in 2004 – is that correct?
Anna Simpson: I first came to Plano, I was there for like a year and a half, and then I’m based in [unintelligible [00:22:24].29]
Joe Fairless: Got it, alright. DFW. But you came from Russia in 2004, yes?
Anna Simpson: Correct.
Joe Fairless: Alright. How many people did you know when you came to Dallas-Fort Worth?
Anna Simpson: Not so many.
Joe Fairless: Okay, that’s the root of why I’m asking this. So you came in 2004, didn’t know very many people, from a different country… For someone who is in a situation similar to yours and they’re listening to this show, how do they build the right relationships? Tactically, how do they do that?
Anna Simpson: Okay, so basically I usually say “Fish in a pond where there’s fish.” Essentially, if you know that you want to be successful in a certain industry – let’s make it multifamily – figure out if you have any multifamily groups in your market, and go join them. Because there will be some groups; unless you’re in some kind of rural setting, it’s gonna be something. In DFW we have a lot of real estate-related groups, multifamily-related… Basically, you go there and you start meeting the right people, and you start building your relationships.
You don’t want to go on the street and start teaching this business to people who don’t know anything about it. Same goes for equity investors. It’s easier to find equity investors in real estate groups, because they’re already kind of sold on real estate investing; you don’t have to explain why. So what I did, I basically started joining these groups. That’s how I started.
Joe Fairless: Okay. As far as number two, you said momentum, and really staying top of mind with brokers and equity investors… How do you stay top of mind with brokers and equity investors?
Anna Simpson: Sure. So as far as brokers go, I have a list of let’s say ten brokers that I would really like to keep on top of them all the time, because they have deals [unintelligible [00:24:21].16], sometimes they have off-market deals… So what I personally do, I either e-mail them or call them pretty much every week.
It’s kind of like when I started first buying houses, my agent told me “Be [unintelligible [00:24:36].19] So basically, you just always kind of remind about yourself, to the point that they just wanna give you something… Just “Okay, let’s give her a deal, so she gets busy with it.” So yes, every week, I have a list of brokers that I contact, and basically I ask “Do you have something? You know what I want”, and very often, especially now that I have a couple of deals under my belt, they just call me themselves and say “Look, I have a deal. I think this is what you want.”
Joe Fairless: Let’s say you have now e-mailed this broker for four weeks straight… What does the fourth week e-mail — what is in that e-mail?
Anna Simpson: Basically, I try to have a very personal relationship with all of them, with the brokers that I personally know. So this is not just kind of like go on DotLoop, find ten names and start e-mailing them. No, you have to really know them. I know them personally, I know their family, I know what they do, I meet them at different events… So all of these guys I have a very good chance to have something from them. This is not a cold call, essentially; this is a very warm call. All of these people I already created relationships.
The fourth e-mail, or tenth e-mail, that basically can be different, like “How are you doing? How was your Christmas? How was your multifamily conference? And by the way, do you have something for me?” That’s kind of how it is.
Joe Fairless: Got it. So it’s getting to know them personally, and also knowing what else they’re working on or experiencing, or maybe it’s just seasonal, based on if there’s a holiday or something, talking to them about that, genuinely caring about the answer, and then also reminding them about what you’re looking for.
Anna Simpson: Absolutely, so you don’t sound like a machine, like every week it’s the same “Hey, how are you? Do you have something?” It’s really very personal, because I genuinely care about what they have to say about this conference that they’ve just had in January. I care about what their experience was, what did they come there from…? I care, and it’s interesting for me to hear this, so we have a relationship. That’s kind of how it goes.
Joe Fairless: If you were investing in Chicago – since you don’t live in Chicago, what would your approach be for following up with them and getting to know brokers, since you’re not in the market?
Anna Simpson: I’d say I would travel there first, and personally meet them. Because nothing can beat the personal relationships. When I first started, as far as meeting the brokers, I actually went and scheduled meetings for them. Several brokers, literally – I went to their offices, or maybe took them out for coffee or something like this, because you’ve gotta do it. Until they meet you and look you in the eye, just really understand that you are a real person… And also very important to show them that you actually already invested in multifamily, so you’re not a single-family guy with a couple of houses and now you want to try multifamily.
So it was important for me that I was already invested in 1,300 doors, and they knew the sponsors with whom I invested, so that was a big deal.
Joe Fairless: Great stuff. We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?
Anna Simpson: Absolutely.
Joe Fairless: Alright, then absolutely let’s do it. First though, a quick word from our Best Ever partners.
Break: [00:27:51].15] to [00:28:24].29]
Joe Fairless: Best ever book you’ve read?
Anna Simpson: Rich Dad, Poor Dad. Hands down.
Joe Fairless: Best ever deal you’ve done that’s not the first one and not the last one?
Anna Simpson: I was gonna say my first one… Well, I think that it’s so difficult to go from zero to one, so my first deal was really my best one, really. The reason is this is how you get in the game, and once you get in the game, this is like a new life start… So I should say my first one, sorry.
Joe Fairless: What’s your second best-ever deal?
Anna Simpson: Maybe one of my houses… I put $15,000 in it, and I pulled out like 70k, and I was cash-flowing during three years. That just was one of the best ones also.
Joe Fairless: What’s a mistake you’ve made on a transaction?
Anna Simpson: My biggest mistake was when I was still doing the rental houses. For one of these houses I paid more than I should have, and I basically ended up doing a lot of projects myself, literally. I hated it, and I vowed to myself to never do it again, and never work IN my business, but actually work ON my business. It’s kind of important to remember, when you buy something, you make money on the purchase. If you overpay, it’s gonna take you a long time to recover, and probably you’re not gonna make as much money as you wanted to make… That was in my case.
I didn’t lose money, because it was several years ago and as you know, the market is very good… So the market was very forgiving and I didn’t lose any; actually, I made money, but I didn’t make as much as I could. So do not overpay, for sure.
Joe Fairless: Best ever way you like to give back?
Anna Simpson: I like to volunteer at real estate events, and specifically with the people originally helped me succeed in this business. I always volunteer my time, to just go there and do whatever they want me to do. Just volunteering.
Joe Fairless: And how can the Best Ever listeners get in touch with you?
Anna Simpson: The best way would be to go to my website, SimpsonMultifamily.co.
Joe Fairless: However did you come up with that name?
Anna Simpson: Hey, that was easy… [laughter] My last name and “multifamily.”
Joe Fairless: Well, Anna, thank you so much for being on the show. I love the lessons learned – very helpful for everyone, not only people putting the deals together, not only people passively investing in deals, to get a glimpse of the evolution of things, but also just real estate investors in general, because there are some tried and true principles that you discussed. One is for how to position yourself in a market, especially with multifamily, but really anything… One, focus on relationships; focus on relationships with the right people, and as you say, fish in the pond where there are fish – very simple, and it really helps us hone in on where should we focus our efforts, at least initially.
You came from a different country about ten or so years ago, and you’ve built this up, and it’s interesting to hear how you approach it, because anyone starting out certainly can approach it a similar way and have some success.
Two is maintain momentum with your brokers, as well as equity investors. Actually, I meant to ask this question, so I wanna ask it… I asked you about how you stay top of mind with the brokers; how do you stay top of mind with your equity investors?
Anna Simpson: I have a meetup that I have, and I also go to other people’s meetups. We have like maybe 50 people always coming, so you constantly network with these people… And just go to all the other local REIA, just basically meet all these people over and over again, so they know where you are and what you’re doing.
Joe Fairless: And then the third thing is treat the business as a business, not as a hobby, and assess results as you continue to go. So 1) focus on relationships and build the relationships with the right people, 2) stay top of mind with brokers and equity investors, and 3) treat it as a business, not as a hobby.
Thank you so much for being on the show. I hope you have a best ever day, and we’ll talk to you soon.
Anna Simpson: Thank you, Joe. I appreciate it.
