JF2300: Flipping To Multifamily With Terrance Doyle

Terrance Doyle Real Estate Background:

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“With perseverance and discipline you can do anything” – Terrance Doyle

TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners, and welcome to the Best Real Estate Investing Advice Ever Show. I’m Theo Hicks and today we’ll be speaking with Terrance Doyle.

Terrance, how are you doing today?

Terrance Doyle: I’m doing super-well, Theo. I’m excited to be on. This is one of the podcasts I listen to on a regular basis, so I’m really excited to be here.

Theo Hicks: We appreciate you listening and thank you for joining us and looking forward to our conversation. We’ll talk about raising money as we were just talking about before we started the show. But before we get into that, let’s go over Terrance’s background—he is a full-time real estate investor and founder of “The Value Add Real Estate Company” aka VareCo. He started investing in 2008 with two college friends. He did 600 single-family flips from 2008 to 2014, and then transitioned into multifamily, where he now has approximately 500 apartment units. He is based in Denver, Colorado, and his website is www.thevareco.com.

So Terrance, do you mind telling us some more about your background and what you’re focused on today?

Terrance Doyle: Absolutely. So I grew up in Des Moines, Lowa, so just really solid Midwest town, kind of good old America. My mom is an immigrant from Bogota, Colombia. She came to the United States as an exchange student. My dad was a hockey player from Canada, so I like to say they basically met in the middle of the continent from where they both were from. And my dad didn’t end up graduating college, and my mom, English was our second language; even though she did graduate, she was just a full-time mom.

So I just came from a really solid, where we were a middle-class family. But what I feel like I got from growing up was just really great core values of just work ethic, integrity, and just being really self-aware of what was going on around me, and just the amount of gratitude I had for having two really loving parents. I spent a lot of time growing up in Bogota, so I speak fluent Spanish, which has really helped me in real estate. I basically went to school half the year in Bogota from 1st Grade to 8th Grade. I had a really good childhood, was fortunate enough to play college basketball; I like to say that I got paid to sit on the bench and keep the team GPA up to par. So I played college basketball.

And then in college, I started my first company with a couple buddies. It was a franchise, we franchised it and we had some pretty good success. We grew pretty well in the first couple years, so I made a couple bucks. And then in 2008, during the Great Recession, basically, of our lifetime, we started buying foreclosures. I had another college teammate come to me – and this is just an early 2008 – and he was like, “Hey, there’s this opportunity to buy foreclosures.” At the time, I was renting with my two best friends and had no idea what a foreclosure was, I had no idea what real estate was. and I was basically their first investor. We bought a house for $60,000 that I invested, and we sold the house for $96,000, roughly 9 weeks later.

And we were making pretty good money at the time, but I was like, “Wow, that was amazing.” That was like my first taste of real estate. I couldn’t believe how quickly and pretty much easy it was to buy and sell a house and make $30,000+.

So from there, I helped to raise some money, but I was just a third partner. The two guys that brought me in were full-time, they were doing it inside and out, and knew everything. I just really understood the money, so I helped raise the money, helped connect some other operators.

I really had a passion for sports, so in 2009, I became an NBA sports agent and I ended up representing 5 or 6 guys in the NBA, and then 20 to 25 guys overseas, that played in Europe and Asia, and I did that till 2014. And basically, one of the stories I like to share is that my top client that played on several big championship teams and was a really good player, we had made a bunch of money together, and he had a rough season in 2013, and in the summer — I remember waking up in June of 2013 and he had sent me an email basically saying he was going a different direction with his representation, and it broke my heart. This is someone that I had spent so much time with, talked to every day for 5 or 6 years, traveled with… Just as close as you can be to someone.

So that was a really hard time for me, and it really opened my eyes. I was dating my now-wife, we were about to get engaged, and it just rocked my world. And I was basically committed to myself — I didn’t want my income to be dependent on any other person. And that was through a series of events, I ended up deciding to focus on real estate from there. So I branched off from my other two partners. And we had a really great relationship, we still do, but we just kind of wanted to do different things… And that’s kind of where my jump into multifamily started, and just started building it brick by brick.

Then I started investing in Des Moines with my brother and my dad in 2015, and that’s where we have our largest holdings. We have about 400 apartments in Des Moines that we just own ourselves, we don’t have any outside investors there. And then in Denver, we currently have about 200 apartments, and we have started to syndicate in Denver as of 2020. So up to 2020, before this year, I had just funded everything myself and with another partner kind of inside of our company. So we didn’t have LPs, we just had some lenders that lent us money, and a bank, and we funded all the equity. So that’s kind of been my story to real estate. It’s been, I think, the best decision I’ve ever made, and learned a bunch along the way.

Theo Hicks: Fascinating background, by the way. But before I ask you about what you’re doing now with the money-raising, I’m just curious – when you were doing that sports agent stuff, were you also still flipping homes at that time? Were you doing those two things at the same time? Or did you stop flipping and then go into being a sport agent?

Terrance Doyle: I helped to raise money for the flipping, and I was the third partner, I was the minority partner. That’s kind of what funded the sports agency. So anyone that understands sports knows it takes a lot of money to get started. We probably invested close to a million dollars over the course of 3-4 years, from having an office and recruiting… You just spent a lot of time traveling… Basically, recruiting is very similar to raising money, so I think that’s the skill that has kind of translated into what I do now, with meeting with potential investors… But just a lot of time and money on traveling, meeting with families, going to watch their college games, and all that.

So I was still flipping houses. We were doing about 100 a year, and that’s kind of what funded the sports agency. But I was just a minority partner and I didn’t understand it. I didn’t know how to comp a property. I didn’t know how to do construction. I understood basically zero. All I understood was that our returns were phenomenal and you can make a lot of money, but my passion was really in sports and that’s kind of what I focused on. So I spent very little time on the real estate side. But that is what basically made us the most money.

Theo Hicks: Got it. So once you stopped doing this sports agent and you got back into real estate, why did you pick multifamily instead of fix and flipping?

Terrance Doyle: So I did a couple flips on my own… I started from the ground zero, Theo. I even remember calling some of our hard money lenders that we had used during flips, and these are lenders that had lent to us on 300 or 400 properties in Denver, some close friends. I actually introduced them to my partners in 2010, maybe. So these are close friends, and we had done a bunch of deals… And I remember one of the most awkward phone calls was calling them and asking them what their criteria was to lend, and that I was going up on my own… I was basically asking them every entry-level question you can ask. And it was very humbling. And it was kind of ironic and awkward, all at the same time. So I started ground zero, I was meeting with brokers, I was meeting with wholesalers, I had some door knocking going on, and I did about eight to 10 flips on my own, kind of got my feet wet.

I started to learn construction and see that Spanish really helped me on the construction side, so I was able to assemble a team of Hispanic contractors to do the plumbing, the electrical, the framing, the drywall, countertops, the tile… Every single trade. And I was able to build a pretty good crew pretty quickly, and learn — just kind of built an assembly line of doing the same paint, same tile, same materials on every project.

Then it was a buddy of mine actually had a family that wanted to sell four duplexes and a fourplex, and I looked at it just as like 16 small little flips; I was doing 16 bathrooms, 16 kitchens. I was like, “Yeah, let’s do it.” And then I quickly learned that — when we bought it, I think the rents were $600, and when we re-leased it ourselves, we were getting $1,250. So I quickly learned the power of cash flow and the correlation between rents and cap rate, and basically had the equation that every $100 of raised rent in Denver equal $20,000 on the backend of value. So if I was able to raise rents $600, I actually increased the value of that one unit by $120,000. And if I was able to do that four times, I actually made $480,000. So really quickly, I just put it all together and was like, “Multifamily is the best place for me to spend my time and money.” So I still did a couple flips here and there, but by 2015 and 2016, my focus was virtually 100% on multifamily.

Theo Hicks: So you said you started from ground zero – what types of things did you do to kind of educate yourself on this process? You said you were using your own money to do these deals. I know a lot of things that we talked about on this show is brokers aren’t going to necessarily give someone deals unless they know they’re going to close. I know the first deal you got from a friend, but I’m just curious, what were you doing to educate yourself on the process, to kind of build that credibility in the eyes of these brokers and the lenders, and understanding the lending lingo, and things like that?

Terrance Doyle: It’s hard. It took a lot of time and patience. I think one of the things that helped is that I started getting very aggressive in multifamily in Des Moines, Iowa, in 2015. Once I stumbled upon multifamily in Denver, I bought those duplexes for an average of $250,000 and sold them for around $450,000 in the same year, and then we bought that fourplex for $400,000 and sold it for $800,000 eight months later. So I was like, “Man, that was amazing.” But it was kind of a fluke, because it was just a friend of a friend from church, and it was like a family trust estate, and they were selling, liquidating everything, and they just happened to trust us… So that was more of a fluke.

In Des Moines, I started building relationships with a couple of brokers that I knew, that I’d grown up with, and I just said, “Hey, send me every duplex and fourplex”, because that’s what I was used to. ”Send me every duplex and fourplex, I want to look at them.” And I bought my first fourplex in Des Moines for $40,000, and it was a complete dump. I think we had to hire a company that wore hazmat suits to demo it and clean out the sewer line. It was really, really bad. I actually just sold that deal for, I think, $300,000 this year. So we had stabilized it, collected cash flow, we had done the whole thing for 5 years.

So I just started out doing those smaller deals and just really trying to buy very distressed, very heavy value-add, just for the sake of very low risk. Just buying it, what the renovation cost was going to be, what the rents were going to look like…

So I started out like that, with just local real estate brokers just on the MLS. They were friends that knew I had the capital close on $40,000, $50,000 or $60,000 properties… And then actually, the first broker from CBRE that I spoke with was in 2016, and he saw me post a project I’d done on LinkedIn… And he was a new broker. I think at the time, he might have been 23 or 24. Now he’s one of the top guys in the Des Moines. And we just built a relationship from there, and he brought me my first 42-unit in Des Moines. We ended up buying that for $20,000 a door. It was pretty distressed, it was actually a hybrid. It was an extended stay, and it came with some vacant land and a restaurant… It kind of operated like an apartment, and they just paid weekly and bi-weekly, so I just knew that I could figure it out. And then from there, we worked on a couple other deals, we ended up closing a 50-unit a year later, because he saw me close on the 42 unit…

And then from a banking standpoint, what I’ve found is that local lenders are actually very willing to help educate you, and I think that’s one of the tips – if you’re ever in doubt, local lenders can really help you with underwriting, they can help you with connecting with other brokers… So I just basically found a couple of local banks in Des Moines and said, “Hey, this is what I’m trying to do. What would it look like? What kind of loan would you give me for this kind of property? How much cash would you need? What would you want to see?” And they were very helpful in educating me kind of along the way… And I just think it’s one of those things where you’re crawling, then you’re walking and stumbling, and then you’re stumbling less, and then you get to a nice little jog, and then you just run. You’re constantly growing and evolving.

Even now, when I’m speaking with agency lenders, I’m still learning; it’s just a different conversation, there’s different terms with non-recourse loans versus recourse when you’re dealing with local banks… And there’s constantly a learning process, but I think that local banks are really friendly. It’s just a very easy place, I think, to learn, is dealing with local banks. I found that to be a safe place, I guess, in the industry to get help and to learn and to really grow your acumen.

Theo Hicks:  So kind of transitioning into now… I think you said you met the CBRE broker in 2015,  you said?

Terrance Doyle: Yeah, 2015, he reached out to me. Yeah.

Theo Hicks:  Okay. So that’s when you started doing kind of your bigger deals for the past five years, that you were funding all of your own money. And then now you’re transitioning into raising money. So why did you make that decision, unless it was just to get more money? And then maybe walk us through how you’re raising money, where you’re finding people, what types of things you’re saying to them to get them to invest, maybe how much money you’ve raised so far, things like that.

Terrance Doyle: So one of the things I’ve learned this year, Theo, is that I think I was afraid to raise money on deals in the past, and on larger multifamily… Because I wasn’t really sure how it was going to turn out. I still thought things could go bad, and I don’t really want to lose anyone’s money. I’d rather risk my own. So from 2016, 2017, 2018 and 2019, I bought and sold hundreds of apartments in Denver and Des Moines just with my own capital and my partner, and we did well, and I think I got more confidence.

And then as I was posting, I’ve really enjoyed connecting with people on social media. I’ve been able to do some things with Bigger Pockets here in Denver, and I’ve been on numerous podcasts here locally in Denver. So I think just, you know, being able to post and to document the story and the process of, “Here’s what it looked like when I bought it, here’s what I put into it, here’s what the rents are…” I’m really passionate just about — coming from where I come from, with immigrants and a low-income family, and being been able to create really massive amounts of cash flow and equity and net worth, that I want to help other people do the same thing, because I think that’s one of the beautiful things about real estate, is that anybody can do it, if you have the amount of determination and discipline, anybody can do it. It’s one of the incredible things about our country and real estate in general, is that there’s unlimited opportunity for everybody. So I’m really passionate about that. So I’ve just been documenting basically my journey since 2016.

Throughout that journey, there’s a bunch of people that have contacted me and said, “Hey, if you ever have a deal, we’d love to invest.” I never had the structure, I never knew how to structure it, I didn’t have legal documents, I didn’t really want to deal with attorneys… And honestly, in my own world, I just was moving so fast. I didn’t really have the time to sit there and underwrite a deal as if I was having to sell it to other people, and bring on investors, and the subscription docs, and all the things that are needed when you’re going to do it the right way as a syndication.

So I had a mentor that saw me grow with doing these projects, and he had wanted to invest… I think the first time I met him was in 2017, he was an Ex-Morgan Stanley guy. And he, as a friend, just came alongside me and said, “If you ever want to grow and take this to the next level, outside of this mom-and-pop thing, and you want to build a real company that’s sustainable and that outlives you, and that has real income and you can hire a team, you’re going to want to be more of an asset manager, as opposed to just an operator.” And I didn’t really understand what that meant at the time, and slowly but surely over this past year my eyes have really been open to what that looks like as far as looking at myself as more as an asset manager now, as opposed to just purely a multifamily operator.

So he really helped me open my eyes to what that looks like…. And I would say that the first deal that I syndicated was an $845,000 deal in Denver. It was a six-unit. It was an off-market that ended up going to-market. We tied it up maybe like a week before it went to market. And it was $845,000, it had washers and dryers in the units… I had just sold a 22-unit down the street. I’d bought it for $2.4 million and sold it for $3.7 million within 16 months, with my own money.

So I knew the area, I knew the tenants and I knew what the rents were going to look like, I understood the construction of the building, it was the same builder, same kind of building, garden-style, two-level, brick… This one actually had larger units and had washers and dryers in the unit, so I even felt more confident about the rents. So we underwrote it really conservatively, basically the same rents as the building I had just sold, even though these were larger units and had washers and dryers… And we put together a deal memo, and I sent it out to about 20 people and didn’t get any responses. So I was like, “Whoa, what’s going on here? This is a killer deal.” So then I actually had to pick up the phone and I called six people and five out of those six invested.

So when I walked them through the deal, I told him what was going on… The average investment was $50,000, so I raised it and I invested as well. So I think the total raise was $250,000. And we’re actually under contract — so this will be the first indication I’ve purchased and sold… And I was just doing something that I knew I could sell quickly to get confidence of investors to perform, to get some audited financials out there that I could show… Because over the last 5 years, even though I have numbers of properties that I’ve purchased and sold, it hasn’t been audited. We haven’t had really strong bookkeeping, because it’s been our capital. So I wanted to have something I could perform in a short amount of time, get some financials that were verified, and to get confidence of people and to be able to document that process. So we’re under contract at 1.23, so it’ll be roughly a 35% IRR, and it’ll be a really good deal for people.

So that was the first deal that I did. And then since then, I’ve done a $10 million 95-unit in Denver, we’ve closed on a 25 unit, we are closing on a 17 unit, and then we’re working on a 400 unit deal right now that’ll be $25 million; that’ll be the largest raise.

So to date, we’ve raised roughly $12 million of LP capital and we’ll probably raise another 10 by the end of the year.

And it’s been hard. It’s not sexy. It’s very humbling. Actually, two or three weekends ago I had one of our largest investors call me and tell me he was going to pull out of a deal that we were set to close two weeks later, and he had committed $500,000. He called me and just basically said he was really nervous about the pandemic, he was unsure about the market moving forward… He really believed in me, and he’s invested several million dollars in other deals with me, so we have a really healthy relationship… But he basically just said, “Look, I’m really worried. At my age, I don’t want to take unnecessary risk. I don’t think this thing’s getting any better, and I’m going to pull out and I want to give you enough time to go and raise the money and fill my spot.”

So there’s been a lot of hard things that come up, especially during a pandemic, raising money when people feel like the world is crashing, and there’s all these negative headlines that only makes it even more difficult. But I think net-net, it’s been a great learning experience to really force me to sharpen my pencil, get better at underwriting, get better at managing people…

Now we have a staff, we have a full-time CFO, we have a full-time bookkeeper, I have a full-time project manager, construction manager that’s on-site all day, we have a girl that’s in the office every day, she’s kind of the office manager. And so it’s allowed me to hire quality A-players that are really talented and build a team so that we can execute better and do more deals.

I think it was a really great transition, but I don’t think I could’ve done it without the experience from the last 5 years of doing it with my own capital and having that confidence that I can get through virtually anything, with tenants or the city or seller. There’s just so many little wins along the way that give you that confidence to sit in front of someone and just say, “Hey, look, I can execute on this. You can trust me with your capital.”

Theo Hicks: Alright, Terrance, what is your best real estate investing advice ever?

Terrance Doyle: The best advice I think is perseverance. With perseverance and discipline, I think you can do anything. And that’s kind of have been my story.

Theo Hicks: Alrighty. Are you ready for the best ever lightning round?

Terrance Doyle: Let’s do it.

Theo Hicks: Alright.

Break:  [00:23:11] to [00:23:55]

Theo Hicks: Okay, Terrance, what is the best ever book you’ve recently read?

Terrance Doyle: Disclaimer, you guys didn’t pay me to say this, but a year ago, I read The Best Ever Syndication Book, and I’ve probably given that to 6 or 7 people. And I think anyone that wants to get into multifamily, that’s the best syndication book out there. I think, from an entrepreneurial standpoint, my favorite book is Shoe Dog by Phil Knight. It’s his autobiography on Nike. So I’d say those are two of the books that have, in the last year or two, really made an impact on my life.

Theo Hicks: Well, we appreciate that, thank you very much. If your business were to collapse today, what would you do next?

Terrance Doyle: I think I would still do something in real estate, but I think parallel to real estate. I’m very passionate about education, and my brother and sister graduated college with six figures in debt and they’re still paying that off, and they actually work for me full-time now. So I’ve just seen the damage that having debt does to being able to have financial freedom and invest in real estate, so I’m really passionate about education. I think I would want to do or build some kind of trade school where we train people on real estate, or even plumbing, electrical, HVAC, and allow people to create a really strong income without having so much debt getting out of college.

Theo Hicks: What is the best deal you’ve done?

Terrance Doyle: I don’t know best deal… I’ve done some really good deals. I think my favorite deal is one that I spent three years sourcing in Des Moines. It was in an area that I grew up in, pretty close to downtown. It was a 52 unit deal. I actually had it under contract in 2016, and then I just didn’t understand a deal that complex at that time, so I terminated it. And then afterwards, I was like, “Dang it, that was a killer deal.”

So we ended up purchasing it in 2018, and I basically bought it for $1,2 million. It just appraised for 2.6. I will be able to pull all the capital out; it net cashflows after debt and management, everything, about $12,000 a month. So not only was it a great financial deal, but it was also just a great story of perseverance and staying with the seller and really trying to convince them that we are the right buyer. And it’s an area that I really believe in, in Des Moines. So that’s a deal that sticks out.

Theo Hicks: What is the best ever way you like to give back?

Terrance Doyle: My wife and I are very involved in our local church. We’re really passionate about our faith and we specifically work with an organization called The Denver Dream Center. We try and help kids that are at risk or come from unhealthy homes, and those are things we’re really passionate about.

Theo Hicks: And then lastly, what is the best ever place to reach you?

Terrance Doyle: I’m pretty active on social media, and I have a show on YouTube with Bigger Pockets that basically highlights a lot of our deals. So you can find me on YouTube, you can find me on LinkedIn or Instagram, and it’s just @TerrenceDoyle, my name.

Theo Hicks: Awesome. Terrance, thank you so much for joining us today and walking us through your journey. I think the biggest takeaway people are going to get – because you went into so much detail on how you started, how you got to where you are today – that is really just a grind.

You said your best advice was perseverance and discipline, and you can do anything. And you kind of showed us there really is no shortcut; you have to take it one step at a time, from doing deals with your own money yourself, to educating yourself, to eventually getting to the point where you’re confident enough to raise money from people.

More specifically, you talked about a great way to get education is from local lenders. You can ask them questions about what they’re able to do for you funding-wise, types of financing they have, what they need from you. You said the brokers are a good source for learning how to do things like underwriting, or ask them to send you every deal, so you can learn how to underwrite, and at the same time building that credibility with them.

You talked about the importance of a thought leadership platform, documenting and posting what you’re doing. You met the first broker contact that way, from a LinkedIn post that you did. And you talked about how you generated a lot of interest from investors from your YouTube documentation of your journey.

And then lastly, when you talked about how you were fearful of raising money at first, but doing deals yourself with your own money and doing deals successfully gave you a lot more confidence to be a lot more comfortable raising money from people and using their cash… In addition to the conversation you had with your mentor about if you really want to grow and get big, you have to focus less on being the operator and more of the asset manager and working on the business, instead of in the business.

So I really appreciate our conversation. Thanks for joining us, and Best Ever listeners, as always, thank you for listening, have a best ever day and we’ll talk to you tomorrow.

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