Ross Metz is the co-founder of SIMCAP Holdings, which is a midwest asset management group with a focus on residential multifamily investing. In this episode, Ross shares how he built his portfolio up to 148 units in 15 months and how he structured a unique partnership with his property manager that ensures both of their paths to growth and profitability.
Ross Metz | Real Estate Background
- Co-Founder of SIMCAP Holdings and SIMCAP Management
- Portfolio:
- 148 multifamily units
- Personal portfolio of residential properties
- Based in: Cincinnati, OH
- Say hi to him at:
- Best Ever Book: Can't Hurt Me: Master Your Mind and Defy the Odds by David Goggins
- Greatest Lesson: Don’t be afraid to leverage your networks. Most people are willing and eager to help.
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TRANSCRIPT
Slocomb Reed: Best Ever listeners, welcome to the best real estate investing advice ever show. I'm Slocomb Reed, and today I'm joined by Ross Metz. Ross is a fellow Cincinnatian. His company is SimCap Holdings and SimCap Management, asset management and real estate investing through syndications, and a property management company. They acquire value-add multifamily properties through syndication partnerships, with in-house management. Their current portfolio consists of 148 units, all in Cincinnati. Ross also has a personal portfolio of residential properties. Ross, can you tell us a little bit more about your background and what you're currently focused on?
Ross Metz: Yeah, sure. Thanks, Slocomb, for having me on. It's a pleasure. So background - I actually started in the corporate world, working in public accounting. I'm a CPA as well. I got that a few years after college, and I worked in corporate accounting and finance for, I guess, a total of 10 years. Five of those years with GE. I always knew I wanted to do my own thing, so that's when we started SimCap Holdings, back in April of 2022.
As you mentioned, over the last 15 months we've acquired 148 units, traditional scaling method where we started smaller, quads, worked our way up to 10-12 unit buildings. Now we're focused more along the lines of 20 to 100-unit buildings. Currently working on some value-add projects. A 30-unit building we acquired a few months ago, and then actually we have a 32-unit coming down the pipe in two weeks.
Slocomb Reed: Nice. That will have closed before this episode airs. Ross, your entrepreneurial spirit, your background in accounting... There are some natural lines that can be drawn here. But what is it that drew you to this style of real estate investing?
Ross Metz: When I was working in the corporate world, my wife and I, we did a couple of our own personal house flips. We did our first one about five years ago, it went really well... And that segued into diversifying the investment portfolio a bit. I liked everything about the house flips that we did, I've always enjoyed real estate... So over the last four years of my corporate journey, we were acquiring some smaller multifamily stuff. That's kind of where I learned the whole property management aspect, underwriting different deals, different things that can be implemented to improve the model, if you will... And that all went pretty well. And like I mentioned before, I knew that I always wanted to start my own thing, and I didn't want to be in the corporate world for my entire adult life, so that was just kind of the natural progression. So like I said, we started smaller with the quads, and then worked our way up. At the beginning, my business partner and I, just the two of us, were buying everything with our own personal capital; naturally, that capital runs out, and that's where we moved into the syndication model, raising money on the last four deals.
Slocomb Reed: Those last four deals totaling 148 units in the last 15 months. So you are effectively, from a business plan perspective, executing the same thing that you were doing beforehand, just raising capital so that you can do it on a larger scale.
Ross Metz: That's exactly right. And then previously, we were kind of sourcing everything ourselves in terms of being the general contractor, and that's kind of what led us into the property management piece of things. We acquired a building, it was actually turnkey; a project managed by our current property manager. He is our business partner as well... Terry. You've met him. So that's how it led to that. He had more of the resources to do things on a larger scale. We obviously like him, thought he was doing a good job, liked what we saw from him, and was worth going into business with. So that's how -- we've moved away from that side of things, we let him handle that half of the business, while my business partner and I grow the asset management, capital raising, marketing side of things.
Slocomb Reed: Ross, we know each other outside of this conversation, so I'm going to fill in a couple of gaps in the relationship with your property manager that you just brought up... And I want you to correct my assumptions where I'm wrong, but also put a little more detail into this for our listeners. You're entering into a multifamily property size that is historically difficult to manage, because it's too small to put boots on the ground full-time, and it's larger than single-family, of course, with the typical mom and pop four-families in particular. So as you entered this space, you identified a quality property manager, and instead of just hiring them third-party to manage your stuff, you structured a partnership with this manager to give you a little closer access to the activity happening on your properties. Can you tell us a little bit more about the dynamic of that partnership? And in particular, I want to know how is your property manager incentivized as a business partner by the success of the portfolio and your ability to execute on your business plan?
Ross Metz: Yes, so the first half of that - really, it was just the timing of when we acquired a building that was a part of a larger portfolio from a group; they were selling all their properties, and our current property manager was the manager of that entire portfolio. Timing-wise, he was doing the exact same thing we were doing; he was in the infancy stages of starting his own company. So through the acquisition of that building, we got to talking with him, and he let us know what he was doing, that he would like to stay on as the manager of that particular building. At the time, it was one of the larger in our portfolio, so we said "Yeah, we'd love to give you a shot. The building is beautiful, you manage the entire renovation, we like what we see... Let's see what you can do from a management standpoint."
So through that relationship, again, we really liked what we saw, and we thought to ourselves, "We can grow together, as opposed to going out and recreating the wheel. Why not buy into the business, that way we can grow and do things together?" And then with that, we can pitch out the entire front to back asset acquisition, through management, through disposition, that's then all in-house, all under the same name, which makes us a bit more attractive when we go to raise money as well. And then the incentive piece for the management company, obviously, if they do a really good job, we hit our numbers, we maximize our return for investors, everybody makes more money, those investors are more likely to reinvest with us, we have more funds to invest to acquire more assets, which then enlarges the cycle. Then he is the manager on those buildings, it increases his portfolio size, he gets to grow as a business... So it's a nice alignment, it's working out really well, it's very untraditional... You typically just hear third-party management or in-house management. We're kind of a hybrid, if you will. We sit in the same office, and work on a day-to-day basis, which gives us tremendous advantage in terms of knowing everything that's going on. We know what owners are looking for, right? Because we are owners in terms of reporting. So we can guide him in doing that. I think we have a pretty good handle on the marketing and the appearance side of things, so we're helping develop that. He maintains the SimCap name, which is short for Simple Capital, for anyone that doesn't know. So he benefits from that as well, while we're getting the benefits of in-house management, if you will.
Slocomb Reed: I'd like to dive a little deeper in the alignment of interest in this relationship. My understanding is that you and your partner in apartment syndication are part owners of the property management company. Is your property manager also general partner in your syndications now?
Ross Metz: Not yet, but he's expressed interest, and we'd be happy to have him as a general partner when we get to that point, further incentivizing a quality service.
Slocomb Reed: Ross, making the assumption that everyone is operating with high levels of integrity... I'm making the assumption, of course, because I'm willing to assume that about you and your guys, but also because I am looking to have a more tactical conversation. Being that your property manager is your business partner in terms of return, how is that advantage in the property manager when you successfully execute on your business plan?
Let me take a step back. One of the biggest issues with third party management is the lack of alignment of interest, because the way that the property manager gets paid is not based on NOI, it's based on gross collections. So you often find a disincentive, or a disincentive spiral, where the property manager's goal is just revenue, because that's how they get paid. It's not NOI. So with this kind of hybrid third party, pseudo-third party, pseudo in-house path that you're taking the property management, on the spreadsheet when it comes to financial returns, where is the alignment of interests with your property manager?
Ross Metz: Yeah, so this is what I was kind of getting that, in terms of we can provide the perspective of an owner. Like you mentioned, we're more interested in the NOI. So we can work with him to drive certain pieces of a business, or provide certain services, or focus on certain areas to drive that NOI. And then when you have a happy owner, he's operating under our name. We're not going to do anything to allow that to be tarnished. So we have an interest in his performance, and the goal is that people know the SimCap name. We wouldn't want one side to be known as crap, if you will, and then the other side we're focused on.
So the incentive there is we can provide the owner perspective, help him drive certain aspects to increase that NOI. With that, you get happy owners, who then refer you to other owners, which increases business as well. So I think we get an inside look at what it takes to have successful property management without having it in-house. He gets an inside look at "Okay, here's actually what owners are focusing on. Here are some unique things that I can implement, that kind of separate myself from the rest of the property managers." So I think there's a lot of equal and mutual benefit with that; we're kind of driving towards the same thing.
Break: [00:12:38.08]
Slocomb Reed: Thinking about our active investor listeners who grapple with the question of property management - I've had this conversation several times on the podcast specific to construction management recently. Do you bring it in-house? Do you get a construction manager into your general partnership to add that expertise to your team, and compensate it with general partnership ownership percentage? Is there another way to bring it that or other management components in-house or onto the team in order to increase the amount of control that the GP has over the asset? And, of course to increase returns.
Thinking about doing it the way that you have, where you take an ownership stake in the property management company - I guess it's actually two questions - with your structure, what sort of decision making power does that give you in the big picture decisions made by the property management company? And are you in a position to profit off of property management as a business, as part owner of that company?
Ross Metz: So the first piece is when we made the decision to buy in, one of the decision-makers was that the resources that our property manager had were a bit more organized, and I think a little bit larger of a network when it comes to the construction side of things, so we liked that. With that - again, still early on, could be proven wrong, and like you said, we could find out that it's better worth our while to bring on a construction manager in the GP side of things... But that's the beauty - we can make that decision down the road; it's not something that we see a need for at the moment. But as we get more and more into heavier construction projects, there's going to be a decision that has to be made "Do we bring in a construction manager on the property management side, so working under the property management side of the company? Or do we bring them in to be a GP or work with SimCap Holdings, which is the capital raising and asset management side of things?" So TBD on what to be done there, but there will be a point where we have to make that decision. What was the second half of that question?
Slocomb Reed: The second half was are you in a position to profit off of property management now?
Ross Metz: Yeah, with part ownership in that company, we get a percentage of the net income.
Slocomb Reed: And is that specific to the management of your assets, or is that everything the company manages, including stuff outside of your portfolio?
Ross Metz: Everything that company manages. Going back to your question, what would drive us to make sure that the property management side of things is operating well, with integrity, and growing, aside from them - we have the same name, right? We want everyone to know SimCap in a positive light. There's also the revenue aspect, right? We're making money off of their growth as well.
Slocomb Reed: Last question before we transition this episode, Ross... In part, while we're having a conversation about property management and how to tackle property management in your portfolio, the underlying conversation is about the asset size, that 20 to 100, or really 20 to 50 or 60-unit property, that - I also invested in the Cincinnati area, so I get it. My answer was "Keep management in-house." I am the property management company. For the moment, it's appropriate this way, with my portfolio size being what it is. But the people who are showing apartments and fixing faucets and toilets, and handling the bookkeeping, and the rent collection, and all the tenant and prospective tenant communications, they all relatively speaking report directly to me. So that's been my solution.
Taking a step back to the larger question that maybe I should have started with, Ross, this 20 to 50 unit space that you're in now, 20 to 100 being the target for the moment - why is it that that's the space you're operating in right now? Is it simply to continue to scale until you get to larger projects, 100+, that have more of those efficiencies of scale? Or is there something else you're seeing in properties this size, or in the Greater Cincinnati area that attracts you to properties this size?
Ross Metz: A lot going on there... So first thing, 20 - too big for mom and pop. 100 - relatively speaking, too small for your institutions. In addition to that, starting in 20 to 100 is proof of concept, right? It's gonna be tough going to people and trying to raise $15 million if we haven't done anything before. And quite frankly, I wouldn't feel comfortable asking for capital to do that if I haven't developed the skill set on a smaller scale.
So it's really just building up that comfort, building up a proof of concept, not having to compete with large institutions... And then if we're speaking geographically, strictly about Cincinnati, there's really just not that many 100+ unit buildings anyways; they're really hard to find. Even your 50 to 100 is pretty tough to find; there's plenty of 10 to 30, but once you get outside of that 30 to 50, they're really tough to find unless they're brand new or newer builds. So yeah, multiple pieces to that answer... And then I guess you briefly mentioned it, the goal is to scale, right? So we can use these buildings to leverage up, make money off the sale, roll funds into bigger assets. It's a tale as old as time, the multifamily space.
Slocomb Reed: On that note, are you ready for the Best Ever Lightning Round?
Ross Metz: I think so. Let's do it.
Slocomb Reed: Awesome. What is the Best Ever book you recently read?
Ross Metz: David Goggins, "Can't hurt me." A huge believer in the unconquerable mindset, and I don't love the self-help life coaching books, so that one fit perfectly into what I enjoy.
Slocomb Reed: What is your Best Ever way to give back?
Ross Metz: My nephew actually has Down syndrome, so I'm involved a little bit in the Down Syndrome Association of Greater Cincinnati. I also like to get involved in community development, obviously; I'm heavily invested in the success of Cincinnati. I did sit on a board that focused on community development of lower income areas around the city... I'm no longer on that board, but looking for something similar going forward.
Slocomb Reed: Nice. On the properties that you have acquired, Ross, what is the biggest mistake you've made, and the Best Ever lesson that resulted from it?
Ross Metz: Don't underestimate the first year in terms of underwriting, the amount of time it can take, whether it's doing the actual construction, if it's tenant turnover, dealing with how long that can take... So, I guess learning from it is just better thought, preparation and analysis when going after a deal.
Slocomb Reed: What is your Best Ever advice?
Ross Metz: Don't be afraid to leverage your networks. Every entrepreneur or most entrepreneurs have all been in the same spot at one point or another, and most people are more than willing to help. With that comes networking. Don't be afraid to put yourself out there, which is also aligned with "Don't be afraid to leverage your network."
Slocomb Reed: Last question - where can people get in touch with you?
Ross Metz: You can find me on LinkedIn, also on Facebook, and then you can check out our website, SimCapHoldings.com.
Slocomb Reed: Those links are in the show notes. Ross, thank you. Best Ever listeners, thank you as well for tuning in. If you've gained value from this episode, please do subscribe to our show, leave us a five star review, and share this episode with a friend you know we can add value to through our episode today. Thank you, and have a Best Ever day.
Ross Metz: Thanks, Slocomb. Thanks for having me on. I appreciate it.
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