JF2156: Institutions vs Entrepreneurial With William Walker

William has experience from both the institutional side of real estate investing and his personal experience of the entrepreneurial side. This unique perspective allowed William to dive into the differences between the two and some of the lessons he has learned from each to help him be more successful.

William Walker Real Estate Background:

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“Sometimes knowing what not to do is very beneficial” – William Walker

TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless. This is the world’s longest-running daily real estate investing podcast where we only talk about the best advice ever; we don’t get into any of that fluffy stuff. With us today, William Walker. How are you doing, William?

William Walker: Doing well, Joe. Thanks for having me.

Joe Fairless: Well, I’m glad to hear that; it’s my pleasure. A little bit about William – he’s the co-owner 4M Capital Real Estate Investments, his portfolio consists of 1,650 units, he’s built and sold approximately 10 single-family homes, he’s got five years of real estate investing experience. So how did he get to this point within five years? That’s one question I want to ask. He’s based in Nashville, Tennessee. So with that being said, William, do you want to give the Best Ever listeners a little bit more about your background and your current focus?

William Walker: Sure. I’m originally from Nashville, didn’t come from any real estate family or multi-generational company type deal, but started getting into real estate in 2014, really studying the business and trying to learn as much as I could. Through college, I studied accounting and finance and continued to learn real estate just whenever I could, educating myself, getting involved, going into meetings, that sort of thing.

In about 2016, I had acquired two rental properties, single-family and I positioned myself to get into a group within the organization I was working for at the time, Ernst and Young. I started out as an auditor, CPA route, but moved into their transaction real estate practice in 2017 in Atlanta, Georgia. Got a lot of great experience there and worked on some larger multifamily acquisitions from a consulting standpoint, doing things like commercial appraisal, quality of earnings analysis and due diligence. When Mid-America purchased Post Properties in 2017 – it was about 20,000 units – we were very involved in that acquisition, and that was a great learning experience for me.

Another big part of my background was getting involved in a coaching and networking mastermind for multifamily and just getting around operators that weren’t in the institutional level that I was used to seeing from my corporate days, but more boots on the ground, putting deals together. So that was a great experience as well. It was key to some of the relationships that I made in those groups to where I am today.

Joe Fairless: A lot unpacked. First, what coaching group are you referring to?

William Walker: It’s ARI Mentor. It is ARI Mentor.

Joe Fairless: ARI Mentor. Okay, is that Dave Lindell?

William Walker: Yes, that’s correct.

Joe Fairless: Cool, and you mentioned that it was interesting to see the difference between non-institutional, more boots on the ground investors compared to your EY experience where it’s very institutional and working on an acquisition of 20,000 units. I’d like to learn more about some things that you have learned from more boots on the ground that perhaps, institutional players could either implement or it’s just interesting to from your institutional experience.

William Walker: Yeah. The best way I can describe it or how I’ve described in the past, with the institutional side, it’s more of a top-down approach and very future-oriented and projection-based. As you know, there’s all kinds of assumptions that go into a multifamily model, and when you’re dealing with that larger portfolios, I think a lot of the underwriting and decisions are made on data you have and just fine-tuning those models for maybe 100 to 200 basis point yield difference. But in more the boots on the ground, the entrepreneur level, I would say it’s more of a bottom-up approach, and you’re really looking at more of an operational side of things, and what’s this property going to take to run today. If I took over today, where would I deploy troops? Where would I deploy capital? Construction’s a big thing that a lot of people, I think, in the finance world don’t necessarily know well. Maybe they have national averages that they can plug into the model, but I think really getting on-site and understanding construction and understanding where you can save money and where you can be taken advantage of is critical, and that typically, from my experience, wasn’t learned at the institution side. More on the entrepreneurial, boots on the ground side. I’d say more so managing the asset.

Joe Fairless: Thank you for that. It was a poorly worded question and you answered it very well. So I appreciate that.

William Walker: Oh, thank you.

Joe Fairless: So let’s talk about what you just said – knowing construction well, where you can lose money or save money, and you tend to see the entrepreneurs, local owners, just non-institutional groups and guys and gals do that better. What are some specific examples that you can talk about?

William Walker: Specific examples that I could talk about is cap ex. That’s a big thing that– it’s one of the largest assumptions going into an acquisition and I think it’s very rarely talked about. So coming up with a number that you know is going to enable you to execute your value add plan and knowing that you can get those renovations done for that cost and breaking that down on a painful detail is very important. Again, if you’re not really plugged into construction, you’re not communicating with GCs regularly, you’re not involved in projects like roofing or replacing 200 windows or any of the things that go into these value add renovation plans, then it’s difficult to know– okay, can I really execute my plan with this cap ex amount of money, have reserves left over? And I think those are things that are really learned from getting experience on job sites or talking with GCs constantly… And maybe some of the more private equity guys side of the business were doing that, but I just didn’t see that a lot on the institutional side. So not that you can’t still execute a successful acquisition and plan, but I think when you break out and you’re putting together money and raising deals on your own and doing it more on an entrepreneurial scale, and you don’t have quite the budgets that Mid-America has or Cortland has, then it’s very important to one, be able to know your cost, know that you’re not being taken advantage of and they’re doing a lot more work than really needs to be done because contractors want to do more work. Sometimes knowing what not to do is really beneficial.

And then, just working with GCs, it’s difficult to find good general contractors that you can trust. You can give them enough lease to work and not get into trouble or have change orders all over the place. So it’s a dance with the construction side of the business and that’s in the 60s, 70s, 80s built space. That’s one of the biggest components, I would say, to running a successful plan, is executing that construction in a cost-effective way and with minimal overspend.

Joe Fairless: It’s interesting when you mentioned knowing what not to do is as important as knowing what you need to do. Do you have an example of that, that you could just drill down a little bit?

William Walker: Yeah, real specifically, I can think of when we were pricing window replacement on – I think it was 150 units, 160 units – and we were walking the property with the window contractor that we were going to have install on the property, and he was telling us all of these different things, that we got to replace the window seal and redo this and redo that, and my partner at the time was just giving an example of “What if we just did this, as far as not replace the window seal and pop it in from the back?” and it was a dumbfounded look, and I’m not sure if he just didn’t think of that or he wasn’t expecting someone to know… But basically, it cut the work in half on replacing a window, and you extrapolate that over 150 units, call it four windows a unit, it’s a big cost saving. So that’s what I mean when knowing what not to do… Because sometimes a GC will look at a job and they might do more than what’s absolutely necessary.

Another recent example I could provide was we were doing a simple turn at a property we own, and our maintenance supervisor was thinking that we needed to replace the subfloor based on one little area, and instead of ripping up the toilet, ripping up the flooring and the sub-flooring, we cut out a piece of the flooring and replaced that subflooring, and then laid over our floor and it wasn’t brand new, but it probably cut our costs in half, if not more… And just did daily decisions like that, that are hard to catch from afar. Within big projects, there’s decisions made on the ground a lot that are difficult to come up with if-then scenarios to anticipate every time, and just having that construction knowledge to be able to make that right call and say, “No, we don’t need to do this. We can do it a different way and save a lot of money,” is very important… And coming back to that capex budget and maintaining that budget and getting the work you need done.

Joe Fairless: You studied accounting and finance in college and then you were an auditor shortly thereafter, it sounds like, and then you moved into transactions with real estate. How did you get this background in construction and knowing it well? You seem to really go back to hey, this is a part of the business that you’ve got to be an expert on. So how did you get that expertise?

William Walker: That was really developed through my partner who’s stronger in that areas than myself and learning through some of the acquisitions we’ve done over the past several years. Growing up, I started working from an early age for my dad at different types of work like that, doing some work with your hands… So I think it was instilled in me, and something that I wasn’t scared to get involved in and doing it; I was e comfortable doing it, from a labor standpoint, but really just getting involved in some of these transactions… I was also involved with a couple of partners doing some single-family builds, as you mentioned, in Nashville, and on one of those projects, I inserted myself as a project manager. I wasn’t swinging hammers or executing on the labor side, but what I was doing is scheduling and coordinating all of the different trades to come in and build that house, and that gave me a really accelerated understanding of once you start tearing down drywall, okay, what are the components of the house or the apartment unit. Once you start breaking down behind the drywall, it really opens people’s eyes and it becomes a lot easier to visualize “Okay, how is this built?” and take that moving forward. But there’s a gradual stepping stone type deal, just one project after another, getting involved in construction, not necessarily executing, but getting involved, getting on-site, understanding what’s going on, that sort of thing.

Joe Fairless: Five years, almost 1,700 units, and approximately 10 single-family homes being built. How’d you do that in such a short period of time?

William Walker: Well, I definitely didn’t do it by myself. I had some good partners. I had some people that I was lucky not to partner with along the way as well. Going back to– sometimes it’s things you don’t do or knowing what not to do. So surround yourself with the right people being relentless, and I think educating myself when I finally did get opportunities to get deals done and put them together and be a part of that, knowing what I’m talking about and being able to add value in any way that I could.

Joe Fairless: So let’s talk specifics. What’s the largest deal, unit-wise, that you own?

William Walker: That would be the 208 units that we acquired in December. It was 80% occupied, got it from a longtime owner who had built the property, fully paid it off, fully depreciated it and it needed some real good TLC.

Joe Fairless: Where at?

William Walker: That’s in South Georgia. Columbus, Georgia.

Joe Fairless: Okay, and you are not there, you’re based in Nashville. So first off, you said you have a business partner who’s stronger at construction than you are. Who’s on the team and what are their primary roles?

William Walker: Morin Miles is my partner who’s leading the charge, but we have a property management company that manages our internal properties; we don’t do any third party. There’s approximately 49 people working operationally across the properties in management, maintenance, sales, regional managers. We also have a construction company that’s headed up by an individual who is a construction expert, supervisor. He manages all the cap ex projects across our portfolio, and we’re working with two virtual assistants that help us as well, but we’re pretty lean and mean. We work virtually as well, to a certain degree. We have a controller that sits in Nashville and helps us with our financial reporting and tax preparation, and we’re trying to build more of an office in Nashville, but with our current economic and health situation, that put a little bit of a kink in the chain on building a presence in Nashville from an executive standpoint and building out that back-office support, but we’re still communicating and working virtually and able to carry on.

Joe Fairless: The largest is 208. If you can just quickly go through some other large deals that you’ve got. I just want to learn more about your portfolio.

William Walker: Yeah. Starting July 2018, we bought a 160-unit property in Georgia, and then we went on to buy close to a little over 1,400– 1,490, I think, was the final number, by that next year. So I had a really big year in 2019, but I ran through those acquisitions of the 160 units, bought a 58-unit that was at auction, all-cash transaction. The next one was a 108-unit in Atlanta, Georgia. After that, we bought a portfolio with an 88-unit and a 107-unit property that were real close together; 70s built. Closely after that, we closed a four pack of deals. That one was 165 units in Georgia. Another was 172 units in Indiana. Another 88-unit complex, a 50-unit complex that was all purchased together. I’d say we’re opportunistic. We’re not so big that we’re going to scoff at something under 100 units. But in order for us to buy a smaller property, it’s really gonna have to make sense and be a juicy one as we say, and probably have somewhat of a presence in that market already where it’s not a huge burden on management, it can be absorbed in our current management infrastructure in that market. The largest deal that the company has done in the years past has to be 270 units.

Joe Fairless: Okay.

William Walker: 272, I think it was.

Joe Fairless: When did you exit that one?

William Walker: 2019, we sold 1,100 units and picked up about 1,490.

Joe Fairless: So I’d love to learn more about what you’ve learned from buying units between 50 to 100 size properties. Some people stay away from those; you and your business partner do not. So what are some things to keep in mind that we should be aware of when we’re purchasing that size of property?

William Walker: The stereotype, I guess, that the smaller ones can be more difficult than the larger ones; that’s definitely true. In the 50 unit that we purchased – that’s the smallest one we’ve done – there was some HUD issues that we had to jump through all kinds of hoops. It was a mom and pop owner, their records were poor, they weren’t in compliance with HUD, HUD hadn’t been doing inspection… So we had to coach the seller through getting all of this information; we had to deal with HUD. This was back during the government closed down of last year as well. So that’s the latest.

But I would say the smaller properties can be more difficult to run because you don’t have revenue to cover a full-time staff or cover that overhead. So a lot of time is spent on those units. If you don’t have that larger management presence, if you have a couple hundred units in the market, and you have a property a mile down the street, that’s a completely different conversation than saying, “Hey, I want to move into a new market and buy this 50 unit property. By the way, I’m five states away.” That might not be a winning solution. I’m not saying it can’t work, but that would be my best advice.

Joe Fairless: How does it work? If you don’t have that three miles away… You just said, “It’s not a winning solution, but I’m not saying it can’t work.” So how could it work?

William Walker: It would work if you bought it off-market in a distressed situation at a very good price per door, and it didn’t really matter because you had enough room in that deal to execute the plan, hire somebody to manage it and still make money on the back end.

Joe Fairless: Got it. What are some ways that you found effective to find those 50 to 100 unit deals?

William Walker: Working with brokers that aren’t necessarily on the national platform. The guys that are not new to the business necessarily, but maybe have a smaller brokerage shop and aren’t doing the national marketing blast with the CBRE’s and the Cushman & Wakefield to the world. Typically, they’re attacking some of those smaller type units in secondary and tertiary markets.

Joe Fairless: How do you find those local brokers since they’re not on the national stage?

William Walker: It’s a combination, I think, of networking, trying to get our name out there, tracking deals that have been closed and seeing who the brokers were on those deals, and getting in touch with them that way. But I think it’s getting out there. Being in this business is very much to me a long term game, and it takes a little while to build a reputation. I think a lot of people get in it and within six to 12 months, you never hear from them again. So in my eyes, there’s almost a testing period where you’re not really taken serious by any of the brokers until they know you’ve either closed the deal or they’ve seen you come around for more than 6 to 12 months kind of thing… And also with brokers, they go in and out of the business as well. But I just go back to just network as much as you can. I’m more involved in operations and acquisition to the business nowadays, but in the beginning, when I was first getting going and cutting my teeth, I would talk to anybody I could find, go to any event I could find and build those relationships. And over time, when you’re able to look back and say, “They remember meeting you a year to a year and a half ago,” and you can call back on those same people and refer to deals that you’ve done and ask them what they’ve been doing and what have they got coming up kind of thing, it completely changes the conversation from cold calling a broker that you have no prior relationship with, you’ve never met before, and telling them that you want to buy an eight-cap deal in this market and you’ve got the money to do it, kind of thing. So I think it just takes time and diligence and persistence and networking.

Joe Fairless: What software program, if any, do you use to track the deals that have closed and see what brokers were representing the seller?

William Walker: We use ActiveCampaign for CRM management tool; it’s one of the tools we use. And then good old fashioned Excel spreadsheets. I definitely have many spreadsheets and lists tracking different deals that we’re interested in, and try and be selective and instead of taking a shotgun approach; maybe more of a rifle approach and really being targeted about who we’re speaking with, who we’re building relationships, which deals we’re targeting that maximize our game plan, and what we believe is we’re best suited for in our competitive advantage, if you will.

Joe Fairless: So ActiveCampaign, to the best of my knowledge, is a CRM that reminds you to follow up with people and sends out messages. What I was referring to is, how are you getting that information to put into ActiveCampaign? So tracking deals that have closed and seeing the brokers that represent them. Is it just speaking to other people and talking to them, or do you have some software subscription, or what?

William Walker: Yeah. We’ll call brokers that we’re talking to. We see closing announcements that are passed out and going to the Secretary of State website, obviously, where all real property information is saved and stored in public record. A lot of research is done there.

Joe Fairless: Based on your experience, what’s your best real estate investing advice ever?

William Walker: Hang in there. Sometimes when you’re on the bull, you get the horns, but get back up and time heals all wounds in real estate if you can hold on long enough.

Joe Fairless: Spoken like a person from Nashville. Thank you for that analogy. We’re gonna do a lightning round.

William Walker: Be conservative in your underwriting [unintelligible [00:23:10].23]

Joe Fairless: I want to ask you a follow-up question regarding your bull by the horns thing, but I’m gonna ask it in the lightning round. So first, you ready for the Best Ever lightning round?

William Walker: Yes.

Joe Fairless: Alright.

Break [00:23:24].03] to [00:24:22].13]

Joe Fairless: Alright, William. So on that note, what deal have you lost the most amount of money on?

William Walker: Knock on wood, haven’t lost any money on any deals yet. Looking for some wood to knock on right now.

Joe Fairless: What’s a mistake you’ve made on a transaction?

William Walker: I would say, maybe not doing the deal. I was a little conservative on one that I should have pulled the trigger on. I got hung up on a delinquency charge that I thought I might have to pay to an HOA board. But looking back, I should have done that deal.

Joe Fairless: You can’t think of a mistake you’ve made on a deal?

William Walker: Maybe not requesting an updated survey from the attorney when I should have. So we had to do a rush charge on the new survey, [unintelligible [00:25:03].11]; that’s something I can think of.

Joe Fairless: What’s the best way you like to give back to the community?

William Walker: Anonymously. I typically look for opportunities that pass me by and do what feels right. An organization that I’ve donated to lately that I think is a great cause is Operation Underground Railroad.

Joe Fairless: How can the Best Ever listeners learn more about you and your company?

William Walker: Through your typical social media platforms. Instagram is my one of choice. And through our website, at 4mrei.com.

Joe Fairless: That will also be in the show notes link, the website URL. William, thank you for being on the show, talking about the importance of knowing construction and capex projections and giving some specific examples; one of them being replacing the subfloor– No, no, no, just a piece of the flooring, and cutting costs in half at least just through that, and you mentioned other examples as well. And then talking about the importance of partnerships, as well as talking a little bit about the 50 to 100 unit transactions and what to look for from a team, and if you don’t have the other properties in those areas, then here’s what you do need in order to make the numbers work off-market, good price per door, and then you’re going in a good basis. So, thanks for being on the show, really appreciate it; I enjoyed our conversation. I hope you have best ever day, and talk to you again soon.

William Walker: Thanks, Joe.

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