Joe and Theo are back to give another update on their apartment syndication businesses. First, Theo provided three lessons he learned when visiting apartment rental comparables last weekend, and he talks about a report he discovered that offers the market rates for multifamily income and operating expenses. Next, Joe outlines his new vision for personal development and how he is striving to be better today than he was yesterday. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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TRANSCRIPTION
Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best ever 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.
It’s Follow Along Friday, and with Follow Along Friday, as you probably already know, because you’re a loyal Best Ever listener, we talk about what we’ve got going on so that we can apply those lessons we’ve learned to help you out; that’s the whole name of the game, helping you out in whatever you’re doing as a real estate entrepreneur.
We’ve got with us Theo Hicks, like we always do on Fridays… How are you doing, my friend?
Theo Hicks: I’m doing good, Joe. How are you doing?
Joe Fairless: I’m doing well, and looking forward to our talk, our catch-up, and ultimately helping out the listeners… Do you wanna give some updates?
Theo Hicks: Yup. Last week I underwrote my first apartment syndication deal…
Joe Fairless: Really? Your first? I thought you’ve been underwriting deals…
Theo Hicks: For my particular business… I’ve underwritten other deals before–
Joe Fairless: What about that one you were talking about before, when you’ve visited it, and it was local, it was uglier than you thought it was…
Theo Hicks: Yeah, you’re right. This is the second one then.
Joe Fairless: So you officially just lied to everyone.
Theo Hicks: I officially misremembered everyone, yeah.
Joe Fairless: [laughs] Okay.
Theo Hicks: So this is the second deal I fully underwrote… And what I mean by fully underwrite, I mean I actually do the financial model and then I actually visit the properties in person, and I visit all of the comps, too. So it was a property — it wasn’t actually in Tampa, technically; it was in St. Petersburg, which is an island off of Tampa… And I just wanted to go over a couple takeaways that I had when I visited the comps, because again, I was really excited about this property, because the pictures looked great, and the property looked really nice, the numbers made sense based off of the comps that they’ve used, but I actually had to confirm that they were actually comps… In my opinion I don’t think they were, and I’ll go over why I think that, and you can let me know if you think otherwise, but… I’m pretty sure you’ll be in agreement.
The three categories that I broke it down to was the surrounding area – that was number one. Number two would be the actual demographic on site, walking within and around the community, because I went on a Saturday, so everyone’s home, everyone’s walking around, and the streets surrounding the property are busy… Then also the property type — I’ll go over all of those in a second.
The areas were different. We drove to all the comps first, just because that’s kind of how our trip took us…
Joe Fairless: Who’s “we”?
Theo Hicks: Me and my wife.
Joe Fairless: Okay, got it.
Theo Hicks: And we drove to the first comp; it’s got this really nice, brand new office building surrounding it, and multiple low-rise apartment communities that are a similar level to this comp. Then we drive into it and it really looked like a resort. I felt like I was at Disney. And that’s kind of the similar experience I’ve had for all of the — I think we went to four or five comps in total, and they all had that same feel to it. They were all 5-6 stories tall, built in the 2000’s, the surrounding area had a lot of new retail… So not even just the existence of retail, but newer buildings with retail in it, so an area that was developed… Actually, two of them had a dog racing track in front of it, so Marcella didn’t really like that that much.
Then we go to the subject property, and it’s right off the highway, which is good, but then we drove in the back and you can literally see the highway from the back of the property, and it was really, really loud… So that kind of needed to be addressed. But it was surrounded by hotels, and the only retail I could find within a mile radius was a Cracker Barrel. So that was a little different than I expected.
In my opinion, the areas were not similar enough for those comps that we looked at to be comps. The area was too dissimilar. There wasn’t enough retail and businesses in place for the residents to go surrounding the area.
Joe Fairless: How close were they to the subject property?
Theo Hicks: 4-5 miles.
Joe Fairless: Okay.
Theo Hicks: There were no apartments of this size. It was between [unintelligible [00:06:35].19] There was no apartment of that size within a four-mile radius of this property, which is why we went out that far.
So the area was like “Okay, these areas are a little bit different.” The demographics, similarly; the people that were walking around the comp properties looked more like young professionals that just graduated college… Not really any families. It looked like people our age. It was maybe white-collar, whereas at the other property the demographic was blue-collar… Which I’m sure if you actually update the units you could attract that, but I was just concerned about the actual demographic of the area, and are there enough of the white collar workers for that property to attract? So that’s something I needed to look into.
The third category is why I disqualified them, because all the comps were low-rise, five or six-story apartment buildings, and then they subject property was a garden style, so it was just a regular two-story apartment building. So the expenses are gonna be different, the type of tenant you attract is gonna be different… They’re just two completely different property types.
So I guess the lessons that I learned was number one, those were some things to look out for when you’re driving to the comps… Just to reiterate, don’t just trust the broker’s comps; actually go to the properties, or at least as Joe mentioned in last week’s episode, look at them on Google Maps just to at least give you an idea… But then also they need to be the same property type, which is something I could have noticed when I was actually looking at the comp pictures, but I didn’t really investigate it that much because I wanted to drive the market anyways… So I realized that if you’re looking at a garden style apartment, which is the one, two, or three-story buildings, you should probably be comping other garden-style apartments, and not the low-rise or high-rise buildings.
Joe Fairless: And when you’re looking at comps, you’re looking at it from a rent standpoint, how much rent you can command relative to other comps, is that correct?
Theo Hicks: Yeah.
Joe Fairless: So why does it matter if it’s garden-style versus low-rise or mid-rise buildings?
Theo Hicks: Well, the reason why I even discovered that distinction is because I was trying to figure out a way to have a better understanding of what the expenses would be for the Tampa area… And I was kind of doing some investigations, and they actually have this report – this is another update I was gonna give, but I’ll go over it now; it’s called IRET, and they basically survey apartment owners, property management companies and all the major MSAs (they do like 140 MSAs), and they ask them essentially what their income and expenses are, line item by line item – what’s your rental income? What’s the vacancy loss to lease concessions? All those line items. Then for operating expenses, what’s your maintenance and repairs taxes, insurance, contract services, things like that… And then at the end of that, they break it apart by the low rise, and the garden style, and then I think the other one was high rise.
All the numbers were different for those three, so that’s why I was thinking, maybe that’s because there’s a different demand for the low-rise versus garden style… I understand the expenses part, but I was confused or taken aback by the rental income, because I assumed the same thing as you, but when I was comparing the incomes on that report, they were different, which made me assume that the rents were different; [unintelligible [00:09:51].10] dollar per square foot basis, and then all the other things were a percentage of the gross potential income… But aside from my comp thing, that was the update I wanted to give – if you’re looking to figure out what the market rates are for the high and the low and the median range for your market, that’s a good report to download. It’s not free, it’s like $500, but I think it’s gonna be very helpful.
Joe Fairless: What do you google for that?
Theo Hicks: I googled “IRET income and expense reports”, but the website is IREM.org.
Joe Fairless: Cool.
Theo Hicks: So it’s actually IREM, not IRET. So IREM.org, and you’ll find those income and expense for all the different commercial types – office, retail, everything. That’s why I figured there’d be a difference, but I wanted to bring it up on Follow Along Friday to see if you had a different opinion, and if you thought what does it matter if it’s a low-rise, high-rise… It just matters what amenities are offered and what the [unintelligible [00:10:44].03] look like… In the area, of course.
Joe Fairless: Yeah, I haven’t bought anything other than garden style, so I don’t know, so I’m glad that you talked about this… As Ashcroft Capital continues to evolve, we might start buying some low-rise, mid-rise buildings.
I think it depends on the area, too. Dallas-Fort Worth there’s not a whole lot of those, relative to garden style… But I feel like in the coastal cities there are. So if we expand to more coastal cities, then we might come across more of those.
Theo Hicks: Yeah. So those are a few of the things I looked at. I’m gonna do the same thing this week. I’m actually underwriting three deals right now. I need to pick two to visit, one of Saturday, one on Sunday. Maybe we’ll hit two on Saturday, I’m not sure… One of the, again, is in St. Petersburg, and then another one is in Northern Tampa; another is by that property I talked about last week, that I misremembered… So that’ll be good, because I’ll get to double-hit that area again.
One of the main things I’m trying to do is get a better feel for the markets… Just driving around, and on the way there, while you’re kind of driving around the area, you get a really good understanding of the vibe and the feel of it that you can’t get otherwise… And it’s kind of just good to [unintelligible [00:11:56].02]
Joe Fairless: And you already have a head start with one of the properties, because it’s near the property that you already looked at, so you’ve got a sense of that area. Cool.
Theo Hicks: One other thing too that I just learned yesterday… As I mentioned maybe a couple episodes ago, me and my business partner kind of separated our duties a lot more. I’m focusing on finding the deals, underwriting the deals and I’ll be doing the asset management, whereas he’s focusing fully on raising capital, so building a brand, talking to investors… His goal is to talk to a handful of investors every day.
Yesterday he talked to an investor who had a net worth above 50 million dollars, and the ability to raise five million dollars in capital for deals… I did a follow up and said “Did he say that he’s willing to do that, or is that what he’s able to do?” Because those are two different things… But regardless, that was some good news, because the types of properties we’re looking at are the 100 units or more, so it’s gonna be a five million dollars or more equity raise… So that was really good news.
Now it feels a lot different underwriting these deals, because now it’s real, whereas before I’m just like “Well, I’m practicing on these bigger ones until we either get the capital, so that in the future when we have the capital, I can be prepared.” But now it’s looking like we’re gonna be able to take down a deal over 100 units, so that’s really exciting.
Joe Fairless: You’re growing into your vision, that’s the key. You had the vision, and you were taking action on it, and lo and behold, now you all are speaking to people who can help you realize that vision. But if you didn’t have that vision to begin with, then you likely wouldn’t have put yourself in that position to have those relationships and conversations about what you’re doing.
It brings up an interesting point, because I know some people who have a very small portfolio, but they talk about partnering with hedge funds and family offices, and people with 500 million dollars net worth, on 50 million dollar deals… And I believe sometimes the vision, if it’s (quite frankly) unrealistic, or not likely, it can be a hindrance to your progression, because people can be so focused on getting the one big deal, and fast-forwarding from a very small portfolio to a 50-60 million-dollar project… There’s usually a couple steps in between at minimum, and sometimes having that big, big vision, with that big, big vision, if you just focus on that, you’re missing out on the steps in between, that can get you there, and then you don’t end up doing anything.
So I believe with your vision it is a very realistic vision. Hey, we’ve got a small portfolio – or large portfolio, depending on how you think about it… How many units you’ve got? 12, 13?
Theo Hicks: I’ve got 13, yeah.
Joe Fairless: 13, okay. So you have a 13-unit portfolio, I’ll just call it that, and now I want to get into larger stuff, and I will get into larger stuff, with a 250-unit property, one property. That’s doable, and that’s a good segue from a 13-unit portfolio, versus if you said “Hey, I wanna go find a 50-60 million dollar property”, which by the way, a 250-unit could be a 60 million dollar property, but that’s not what you’re looking for.
It’s a good way to think about things, and I do know people who have the grander vision… It’s good to have the grander vision, but at the same time, it can make you miss out on opportunities that can actually get you there faster if you did take those smaller opportunities.
Theo Hicks: Yeah, actually I was talking about this — I recorded the Syndication School episodes airing next week, so if you’re listening to this now, they’re not out yet; they’ll be coming out next week. But if was kind of about that – it was about having that grand vision, but you can’t just have that. At the same time, you just can’t have a one-year goal and that’s it. You need to bring those together, have your grand vision and be like, “Alright, what can I do this year to get me one step closer to that grand vision?” Not “What can I do this year to get that grand vision?” it’s “What can I do to get myself closer to that grand vision?”, to put it really succinctly.
Of course, I’ve got a vision of owning a ton of apartments, but I realize that I’m not gonna have 2,000 units within six months; it starts with one deal first, so I’m focusing on that one deal, but at the same time making sure that I’m also creating skills and learning things that will help me get to that grand vision, so making sure that I’m covering both at once… But I totally agree – if I was focusing on buying only a 50-60 million dollar 400-unit property, then I’d probably be underwriting deals for a while… Whereas now, if I find a 100-unit property that meets my criteria, I’ll take it down for sure.
Joe Fairless: Yeah. Also, one way that it manifests itself with having a much larger vision than that where it becomes actually a hindrance is thinking about that 12-month goal that you mentioned – how much you wanna make within those 12 months. A lot of times when I talk to people, they list out an amount that they wanna make within 12 months when they’re getting started in syndication as the same amount or greater than what they’re making currently in their full-time job… And it’s a little unfair to apartment syndication to have that goal. It’s possible, by the way, but it’s also a little unfair to apartment syndication to have the goal that in one year you’re gonna replace the income of your full-time job, because how many years in your life have you spent honing skills to earn the salary that you’re currently making in the full-time job? Probably longer than a year is my guess; probably five years, ten years, maybe even longer. And when we have goals that “Okay, I wanna replace the income in 12 months” – I love the ambition, but perhaps that ambition will be a negative, or perhaps the grand vision will be a negative, because if you don’t achieve the replacement of the income, then perhaps you won’t have the motivation and inspiration to continue… And I can tell you, if you do continue, you do consistent action, you do things, like you talk about in Syndication School and on this podcast, and in our book, and all that other stuff, you’re gonna replace your income in multiples.
About five, five and a half years ago I was leaving my full-time job in advertising… And I don’t know how many times, I haven’t even done the math, but a whole lot more in multiples than what I was making at my full-time job, but it didn’t happen in 12 months. And it usually doesn’t happen when you want it to happen, in the timeframe you want it to happen… So it’s just important — the take away is have a vision, but know that it needs to be as realistic as possible so that you don’t get discouraged when you don’t achieve it and you don’t miss out on opportunities that can incrementally get you there actually faster if you take those opportunities than if you pass on those opportunities, waiting for the golden goose.
Theo Hicks: And I think using the example of quitting the job is perfect, because I bet the most common post on Bigger Pockets is someone who’s just starting out in real estate and they wanna replace their income at their full-time job, and [unintelligible [00:19:28].09] it’s totally possible, and if you put your mind to it it’s gonna happen, but it’s not gonna happen as fast as you want it to happen. And if you’re already discontent in your full-time job, understand that you’re gonna be there for at least 12 months before you’re even able to entertain the idea of leaving… So just kind of understand that.
I don’t say that to sap people’s motivation, but to hopefully inspire them and have them think longer-term, and think in terms of decades, as we say, instead of a couple of a months. So yeah, those are all great points, Joe.
Joe Fairless: It is possible to do it within 12 months, but if that’s what you’re banking, then it can be a letdown… And that goes back to 50/50 goals that we’ve talked about before – 50% of the goal is achieving the goal, and then 50% is actually understanding the skills that you acquired during that period of time where you’ve been attempting to achieve the goal, and regardless if you did or didn’t, at least you have those new skills that you’ve honed and/or acquired, so you can apply that to future stuff.
Theo Hicks: Yeah, exactly. Alright, so those are my updates… What about you, Joe?
Joe Fairless: I’ve been focused on personal development, and some specific tings I’m doing, real quick… One, Colleen (my wife) and I went to a CPR class, so if you start choking, I can do the Heimlich, and if you have some sort of cardiac arrest, I can do CPR… So that’s important, especially since we’re gonna have a kid in about — I don’t know, between today and 2-3 weeks from now… So I know baby CPR, too; basically, the same thing, but you use two little fingers instead of your whole hand… Plus, you cover their nose and mouth with your mouth whenever you’re giving the two breaths. Certainly, if you’re interested in CPR, go Google it, don’t just do exactly what I’ve just said.
So one, we did CPR, learned that. And this was all this past week, by the way. Two, I finally solved the riddle that is waking up with inspirational speeches. I couldn’t figure out how to do it through Sons until I looked at Spotify, which is connected to my Sono speakers, and Spotify has Jim Rohn tracks… So now I simply set the alarm to wake up to Jim Rohn, and there’s probably others, too… But one cool thing about what I’ve found on Spotify when I searched Jim Rohn is that some people have mixed his speeches with music, so it’s waking up to like a jazzy Jim Rohn speech, which is pretty interesting… And Colleen approves, which is important, too. So we can wake up to that, and did this morning. That’s two.
Three – to date, I’ve completed 12 books for the year, which is kind of weak sauce, so I’m gonna put a more concerted effort into reading. I completed a book this past week; it was a fun book, “Leverage in Death” by J.D. Robb. It’s like a spy thriller, so not necessarily work-related… But Tim Ferriss would say it is actually more beneficial to read fiction books than non-fiction from a business standpoint, because it expands your mind, helps you think about different things, gets your creative juices flowing, that sort of stuff. So nonetheless, I finished that book.
Now I’m reading a book that I won’t tell you about yet, because I’m going to actually apply the principles in the book for at least a month – I’ve already started – and then we’ll talk in a month or two about the results of that book.
Theo Hicks: Before we move on, what part of the day do you read? I’m just curious.
Joe Fairless: It varies. If I wish I wanted something, I would just schedule it and I’d figure it out, so I guess I shouldn’t say “I wish I did it…”, but it would be more ideal if I did it in the morning every time… But sometimes in the morning, and usually at night I read something before going to bed. That’s a pretty good solution or thing for helping me fall immediately asleep if I open up a book, so… Reading at night.
And then lastly, I took that Playstation 3 Civilization and put it in the trash, and instead of actually doing that in some of my spare time, I am committed to being more connected with Colleen and just being more present. It wasn’t a problem, I wasn’t playing too much, but the time I was playing there was no interaction with anyone… So instead, last night we played a board game. I love board games, I love games, and she does, too. We played a board game called Qwixx, and it’s just a fun game. And lastly, I’m working out more.
I mentioned last week that I was doing the cash value insurance. I don’t have a specific update on that, because I’m still doing the paperwork and things, but I did take a physical for it earlier this week, and I don’t remember what my blood pressure was, but it was very good, and my pulse was 54, so it all checked out good… I bring that up just because I’ve been working out more, been mixing in weights and running… Yesterday I ran a mile, and then did sprints, and then did another mile after that.
One suggestion I have is if you have a lot of calls, then find a way where you can exercise during the calls. It’s kind of unusual to do at first, but what I do mostly now is when I have a call, I’ll do it on my treadmill, and I’ll have just a piece of wood that I put over my treadmill, and then I can prop my laptop on top of that, so I can walk while I’m doing my calls. I did that yesterday… I had six, seven hours’ worth of calls on different things yesterday, back to back to back, and I would be afterwards very upset and just cranky if I was sitting down doing all the calls, because I’m not getting exercise… But from that, I actually have more energy on the calls and afterwards. It was pretty good. So finding a way to incorporate exercise into the day-to-day stuff is helpful.
I mentioned all this, again, not to say “Hey, this is all the cool stuff I’m doing”, it’s just little changes that I’m making that will make incremental differences initially, and then over time will make larger differences. Some of these are forever skills, like CPR, so I acquired a forever skill, and some of these are more temporary, and you’d better keep it up, buddy, and that’s working out and other things.
Theo Hicks: A couple things to add… If you want a good board game recommendation, I recommend Settlers of Catan.
Joe Fairless: I don’t think she’d dig that, but I would.
Theo Hicks: [laughs] Me and Marcella play Settlers of Catan all the time. And then yeah, incorporating the working out into your daily work life… It’s simple – whenever I’m on the phone, I just put on my headphones and just kind of pace around the house, and that’s how I’d get my walking in. I actually got so bad at working out that I just put a gym in my garage. I’ve got no excuse. Because we were getting up so early in the morning to go to the gym; I think we were going at 5 AM, and that was just too intense for me. Now I just go in my garage and pump some iron whenever I want. So it’s kind of figuring out your weak points and then finding a solution to them.
Joe Fairless: Awesome. Yeah, that’s a way to do it. We all have weak points or areas that we can hone, so it’s just identifying where they are and keeping on improving. That’s the key incremental improvement. Alright, let’s wrap it up.
Theo Hicks: Alright, so we’ve got the Best Ever Conference 2019 – it’s officially live.
Joe Fairless: Oh, that’s right.
Theo Hicks: You guys can buy your ticket at besteverconference.com.
Joe Fairless: It has been live for quite some time, but we are starting to put in the guests who are speaking at the conference, and at besteverconference.com the tickets today will be a lot cheaper than they are at the end of the year. I think they’re $799 now, but at the end of the year they’re gonna go to $1,000/ticket. So if you’re planning on going to Denver, and hanging out and attending the two-day conference late February, then I suggest you get your tickets between now and the end of the year.
Theo Hicks: Exactly. That’s besteverconference.com. And lastly, we’re going to do the book review of the week. If you’ve purchased the Best Ever Apartment Syndication Book, make sure you leave a review on Amazon, take a screenshot and send it to info@JoeFairless.com, and we will send you a whole bunch of free apartment syndication goodies.
This week’s review is from DallasInvestor. They said:
“Admittedly, I have not finished the book. I am through with chapter three. However, it is more than enough sample size to draw conclusions. First of all, I can’t wait to finish it. That is the most powerful endorsement that I can provide. It is very well written. Fairless and Hicks pack a tremendous amount of knowledge into each chapter and page, and present it in a very simple, intuitive and easy to digest format. If you are a beginning investor, it is not only highly recommended, but it should be considered a must-read.”
Joe Fairless: Thank you so much for that feedback and taking the time to do the review. I really appreciate it. Best Ever listeners, thanks for hanging out with us. I hope you got a lot of value from today’s conversation. I hope you have a best ever day, and we’ll talk to you tomorrow.