Ben Suttles and Feras Moussa walks us through the full lifecycle of a deal that they recently sold, learn about how to identify and determine if a deal is attractive, what it takes to implement the business plan, and what the sale process looks like!
About our Speakers:
Ben Suttles has been an entrepreneur for 15 years, first starting his career in IT sales and business development then onto management. His background in management and sales has helped him propel into commercial real estate, first starting in 2013. Over the last 7 years he has been involved in the acquisition & asset management of ten multifamily properties, through partnerships and Disrupt Equity, totaling over $100MM in AUM and the purchase and sale of over 1650+ units.
Feras Moussa is an entrepreneur at heart with a tech background. Feras graduated from the University of Texas with a Computer Science degree, and worked at Microsoft straight from college. Feras later resigned from Microsoft to ‘bring tech to industries that lack it’, where he later found his passion for real estate. Feras quickly built a portfolio of rentals, completing 9 closings in his first 12 months. After having seen the results of rentals, Feras later decided to scale up into apartment complexes, where he met Ben and started Disrupt Equity, a company focused on multi-family acquisition and investments for investors.
More about our Speakers: https://www.disruptequity.com/about-us/
VIDEO TRANSCRIPTION
00:00
we are multi-family masters
00:03
this is multi-family masters live we do
00:06
this once a month
00:08
we get on here and we add as much value
00:11
as possible free content
00:14
feel free to ask all the questions you
00:16
want type them in the chat below type in
00:19
the chat below where you’re from
00:21
and if you find value in tonight’s
00:23
broadcast
00:25
i would love it if you would share this
00:27
we do this free we do this every month
00:29
our goal is simply to add as much value
00:31
to you as possible we want everybody
00:33
closing deals we want everybody involved
00:36
in real estate because plain and simple
00:38
mr palchi mr ferris musa mr ben settles
00:41
and myself plain and simple we want to
00:42
partner with you and tonight we have
00:44
special guests
00:46
uh disrupt equity which is my business
00:49
partners mr
00:51
ferris musa mr ben settles they’re going
00:53
to go over the complete life cycle of a
00:55
recent deal that they did in atlanta
00:57
georgia
00:58
um
01:00
go ahead and take it away fellas uh
01:03
powell you want to go ahead and
01:03
introduce yourself yeah sure i think you
01:06
appreciate that thanks garrison so um my
01:08
name is powell tree i am a real estate
01:10
investor i live in los angeles
01:12
um
01:13
do all my real estate investing outside
01:15
of la so outside of california in
01:17
general
01:19
and i would say that
01:21
primarily i’ve been a multi-family
01:23
investor but i’ve also recently uh i’ve
01:25
been uh having a lot of success in the
01:28
self storage industry so i have a lot of
01:30
self storage as well um but
01:33
super happy to have this panel here
01:35
today i guess this panel of two uh
01:36
comparison person ben guys that i’ve
01:39
known for a while um watched them for a
01:41
while um partner with them on a couple
01:43
deals as well and um and definitely
01:46
people that you should be listening to
01:48
and and great people in the industry not
01:49
only is just uh investors as but just as
01:52
people so super happy that they’re here
01:55
um
01:56
yeah do you guys want to introduce
01:57
yourselves
01:58
all right thanks guys
02:00
um so for those of you who know me
02:02
ferris moosa disrupt equity also
02:04
involved closely with garrison and
02:05
powell on kind of continuing to really
02:07
build up multi-family masters
02:10
my background software worked at
02:11
microsoft and after that had a software
02:14
company then
02:15
really kind of stumbled into real estate
02:17
fell in love with its people’s numbers
02:19
systems you know three things that i
02:20
love and started disrupt equity and
02:22
we’ve been rock and roll and so we
02:24
currently buy properties throughout
02:25
texas and georgia a lot of deals have
02:27
gone full cycle i think we’re selling
02:28
six deals this year going five or six
02:31
and uh
02:32
you know and obviously one of the deals
02:34
that we sold earlier this year is one of
02:35
the deals we’re going to talk about so
02:37
you know for those that don’t know ben
02:38
and i we’re both very candid guys blunt
02:40
guys happy to kind of
02:42
share behind the scenes as to what it
02:44
all takes and what kind of goes on and
02:46
maybe last thing i’ll add is i’m the
02:47
more handsome half of this of equity so
02:49
i’ll let ben uh kind of introduce
02:51
himself you had to throw that one in i
02:53
had to throw that in there i thought
02:54
you’re gonna throw a ball joke in there
02:56
too all right so no anyway everybody ben
02:58
suttles uh as ferris mentioned we are
03:00
disrupt equity uh we buy multi-family we
03:04
also do other commercial real estate
03:05
projects like ground-up development and
03:07
redevelopment
03:08
both here in texas as well as in georgia
03:11
we bought and sold almost 3 000 units at
03:14
this point
03:15
have close to 2000 right now we also
03:17
have a property management company that
03:19
manages here in texas it’s called
03:21
disrupt management it not only manages
03:23
our assets uh but we’ve also opened it
03:25
up to our friends and colleagues in the
03:27
in the industry we do do a little bit of
03:28
third party so if you guys ever have an
03:30
asset in texas looking for um you know a
03:34
property management company to run some
03:35
run some comps put a budget together for
03:37
you want us just to kind of take a look
03:39
at it you know we’re always happy to do
03:41
that we run that with a guy named jackie
03:43
jackson who’s the president of the
03:44
property management company so you know
03:46
we’re excited to kind of talk about
03:48
marketplace square tonight guys so this
03:51
was 152 unit property that we bought
03:53
back in 2019
03:55
in atlanta it’s close to the airport uh
03:58
everybody told us that we were crazy and
04:00
that we overpaid and all this stuff
04:03
right you know but we ultimately knew
04:05
that this was a good business model a
04:07
good business plan we knew that we could
04:08
ultimately execute it with the team that
04:10
we put in place so i’m going to go ahead
04:12
and share the screen if i can yeah
04:15
can you make us go host please
04:18
yeah sure hold on one second here i’m on
04:20
my phone so i wasn’t prepared to
04:22
do all this stuff but yeah let me get
04:24
this going here
04:29
co-host
04:31
all right
04:33
all right
04:34
can everybody see the
04:36
screen there
04:38
good to go
04:39
yep all right all right so let me see if
04:41
i can get this into
04:43
the good old presentation mode here
04:49
okay all right so we are here
04:51
multifamilymasters.com people we are
04:53
excited so i’m gonna go ahead and we
04:56
don’t need to really go through an
04:57
agenda i think uh pal garris did a great
04:59
job there you know we’re pretty candid
05:02
next virtual meetup looks like it’s
05:03
gonna be september 20th so stay tuned
05:06
i’m sure we’re gonna have some good
05:07
content at that one as well
05:09
so disclaimer
05:11
we are not lawyers we are not cpas we
05:14
are not financial advisors all of this
05:16
information ultimately it’s true and it
05:19
happened with us but you know what you
05:20
learn here is for entertainment purposes
05:21
only you need to obviously consult with
05:24
your legal and financial professionals
05:25
for your specific situation got to get
05:28
that out of the way here absolutely um
05:30
so
05:31
like we talked about and i’m going to
05:32
let ferris do most of this i’ll chime in
05:34
as possible yeah and it may be one thing
05:36
to add right we love q a so if you have
05:38
questions comments you know definitely
05:40
start asking them we will
05:42
i’ll moderate the q a as we progress but
05:44
really like we said this is a deal that
05:46
we bought in april of 2019
05:48
and we sold it in
05:51
may of 2021 right then correct me i
05:53
think so about two three months ago and
05:55
close on it
05:57
and hey really quickly first first
05:58
really quickly you’re earnings out of
06:00
the presentation mode where we can see
06:02
like half the
06:03
the next slide coming up
06:05
see yes
06:06
so all right i’m glad you uh what do you
06:08
want me to do here can you
06:10
just listen one of these
06:12
where’s this one
06:16
just start clicking buttons what’s the
06:18
worst that can do all right hey i was
06:20
just there selling it all right he was
06:22
the actual smart one all right so
06:25
bear with me here while my it guy fixes
06:26
this
06:27
sorry i was just trying to get you guys
06:28
some insight into my next slide
06:31
get a little previews
06:35
hang tight guys bear with me here
06:38
and while they’re setting this up we are
06:39
multi-family masters and we have a
06:42
mastermind if you’re interested in
06:44
learning sharing networking growing this
06:45
business if you’re interested in
06:47
surrounding yourself with like-minded
06:48
people
06:49
if you are interested in having someone
06:51
with experience looking over your
06:52
shoulder and holding you accountable
06:53
feel free to email gigi at
06:56
multifamilymasters.com for more
06:58
information on
07:00
ferris powell ben and my mastermind
07:04
multifamilymasters.com
07:06
rock and roll fellas
07:07
all right so
07:09
as we’re saying so this property we sold
07:11
this past may right and really we’re
07:13
just going to kind of talk through kind
07:15
of what we told our investors right what
07:17
the pitch was how we found the deal and
07:19
then from that really just kind of talk
07:22
a little bit more about just what it
07:23
took to get it performing and then
07:25
ultimately how we sold you know what the
07:27
cell looked like right so and one thing
07:29
i wanted to add so the condition was a
07:32
little bit rough right you know i think
07:34
we had 30 down units as we mentioned
07:36
here and a ton of other capex um the
07:39
compa the company that we bought it from
07:41
had actually bought it and i think it
07:42
was 13 occupied whenever they bought it
07:45
and i think we bought it and it was
07:47
maybe high 70s low 80s in terms of
07:50
occupancy so um you know it was it was a
07:53
heavy lift that they had done we are
07:55
also prepared to do a heavy lift as well
07:57
so just wanted to preface them yeah and
07:59
we all show kind of
08:01
the summary and the math that we did and
08:03
why we knew this deal was just going to
08:04
be kind of a grand slam
08:06
and so i would say with that said right
08:08
this is really what the kind of what we
08:10
like to call the executive summary to
08:11
our investors right this kind of talks
08:13
about the key things we saw what we
08:14
liked about it so essentially we
08:16
projected 17 average annualized returns
08:18
to our investors right we were expecting
08:20
about a little over a double in six
08:22
years we’re spending about a million
08:24
dollars in capex
08:26
right and really there’s kind of three
08:27
big things that we really liked about
08:29
the steel
08:30
first and foremost was the location
08:32
right it’s not an a area of atlanta but
08:35
it’s absolutely in a growing kind of we
08:38
would have called what would you call it
08:39
better c plus area b minor no i’d say b
08:41
minus yes b minus area but the big thing
08:44
is there was a huge new development that
08:46
went in caddy corner right
08:48
that development you know brings with it
08:50
jobs and it brings with a lot of
08:52
research right there was a starbucks
08:54
that we only knew this area because
08:55
there was a starbucks that area it’s
08:57
pretty much the only starbucks in west
08:59
and south atlanta
09:00
right so again starbucks doesn’t just
09:02
put up starbucks as willy-nilly right
09:03
there’s a lot of research that goes into
09:05
it so again we knew that they had done
09:07
had done a lot of kind of the studies
09:08
around population growth job growth and
09:11
so
09:12
that was really kind of the big thing we
09:14
saw on location right and with that
09:16
employment again a lot of jobs this deal
09:18
is literally you can throw a football
09:20
field across the highway sorry throw a
09:21
football across the highway and you’re
09:23
already at this big development right a
09:25
lot going on there let alone it’s really
09:27
close to the airport and there’s after
09:29
buying this deal we found out kind of a
09:30
lot of announcements around just big
09:32
projects going in close to the airport
09:34
right
09:35
and last but not least i think this is
09:36
the big money piece literally and
09:38
figuratively right was the upgrades that
09:41
had been done and we have a slide coming
09:42
up that’ll show the breakdown
09:44
but really the current owners had
09:45
already done two and 2.7 million dollars
09:47
in upgrades right they had upgraded 88
09:50
unit interiors to get really a high rent
09:53
and ultimately you know ben and i we’re
09:55
not really trailblazers we don’t want to
09:57
be the ones that are on the bleeding
09:59
edge of rents and trying to say hey we
10:01
can push the rents to the extreme we
10:03
like deals and as a buyer right you all
10:06
should too
10:07
buy deals with proven value-add right
10:09
not just one or two deals where someone
10:11
some you know maybe some sucker paid too
10:13
much for it but in this case they had
10:15
already done 88 units right
10:17
they showed the the pathway of what
10:18
needs to be done all we needed to do is
10:21
continue doing that exact same thing
10:23
and last but not least right
10:25
we found out that the faa which is the
10:28
aviation kind of division of the
10:29
government
10:30
right they had the property had already
10:32
got approved for doing what’s called the
10:34
noise reduction program so as part of
10:36
atlanta
10:37
atlanta’s expansion of the airport right
10:40
there was a lot of money set aside for
10:42
airport for properties in the flight
10:44
paths of the airport to essentially get
10:46
noise reduction done for them and what
10:48
that really means is
10:50
you know brand new windows brand new
10:52
sliding glass doors brand new front
10:54
doors right really to the tune of about
10:56
two million dollars on this specific
10:58
asset
10:59
so if we go to the next slide right
11:02
kind of the summary we talked about a
11:03
little bit and again decently sized
11:05
units you can see what those upgrades
11:06
look like right nice interiors
11:08
um you know
11:10
nothing super crazy right people really
11:13
just like nice clean quality and
11:15
affordable living yeah i mean i would i
11:18
would just add that you know on an
11:19
average unit size that is actually
11:21
probably bigger than normal but what
11:23
people may might not know about atlanta
11:25
is i think they’re either top two or top
11:26
three
11:27
in the country in major metros as far as
11:29
unit size so take that into
11:31
consideration that’s what’s also
11:33
somewhat slightly driving asset prices
11:36
too right because the more square
11:37
footage that you can rent the more rent
11:39
you can get so therefore that affects
11:40
asset prices so um you know typically
11:44
just to give you guys some perspective
11:45
right here in texas you’re typically
11:47
going to see probably closer to 850 900
11:50
and that’s in texas where everything’s
11:51
supposed to be bigger right so just some
11:54
metrics on the on the property itself
11:56
you know but let’s do some math man what
11:58
do you say
11:58
yeah so really this is the slide i want
12:01
everyone to pay attention to right
12:02
because it makes this deal a no-brainer
12:05
if i could go back i’d buy this deal
12:06
again and really i’d go back and buy any
12:08
deal i’d never bought but that’s a
12:09
different problem right
12:11
so again do the math on this deal 2.7
12:14
million dollars had gone into the
12:15
property from the current owners so 90
12:17
of the hvac was brand new 90 of the
12:20
water heaters is brand new
12:22
all new siding new railing and balconies
12:24
and 50 of the units were already
12:26
upgraded nicely right
12:27
in addition to that
12:29
the airport was gonna put in another two
12:31
million dollars to replace those windows
12:33
front doors and balconies like we talked
12:35
about
12:36
and so
12:37
you know with that we were also going to
12:40
put in about a million dollars and so on
12:43
this property right
12:44
pretty much in three years there had
12:46
been about six million dollars in
12:47
improvements on a deal that we were
12:49
buying for nine million dollars
12:51
right so
12:52
it’s you know that kind of really in my
12:54
mind speaks for itself right and really
12:56
we liked this deal because it boiled
12:59
down to two things bringing 30 units
13:01
online right essentially you’re making
13:04
money out of nothing right it was zero
13:07
cash producing units that are now
13:08
producing real cash
13:10
and ultimately doing the upgrades that
13:12
are already proven right
13:14
what’s nice about this deal is that all
13:16
it really was was sweat equity would you
13:18
agree ben like it was really if we can
13:19
just execute the business plan we don’t
13:22
have to bet on the market or cash for
13:23
any of that other stuff all of that’s
13:24
already been figured out and we like
13:26
those kinds of deals absolutely and one
13:28
thing i wanted to mention you know first
13:30
because i always get this question about
13:32
this faa noise reduction program it’s
13:34
not necessarily tied to atlanta there’s
13:36
actually similar programs throughout the
13:38
country and essentially what it is is if
13:40
you’re within the flight path like
13:42
within i think a five mile radius of a
13:44
major airport you know you can apply for
13:46
this program on behalf of your property
13:48
now there’s a lot of hoops that you’ve
13:50
got to go through there’s a lot of
13:51
paperwork and that’s why it was almost a
13:53
benefit that the the former owner had
13:55
actually gone through and done all the
13:57
the heavy lifting and then just assigned
13:58
the contract to us but not only did they
14:01
provide these materials right but there
14:03
was a crew in a legit crew right you
14:07
know for almost 10 months
14:09
these guys were out on site every
14:11
weekday and on top of that they rented
14:14
eight units from us at market rents
14:17
to be act to act as a swing unit now
14:19
what is a swing unit right it’s
14:21
essentially for somebody that’s on the
14:22
third shift say they get home right well
14:25
that’s the during the day we’re trying
14:26
to get into their units to you know
14:28
obviously install the soundproof windows
14:30
front doors and sliding doors they can’t
14:31
be there they can’t be in the unit this
14:33
was even pre-copied right so we asked
14:35
them to go to one of the swing units and
14:37
we decked them out we had beds and we
14:38
had tvs and we had toiletries and all
14:40
that other stuff you know or think of
14:42
the the single mom that’s home with
14:44
their kids right you know so
14:46
at for eight or excuse me ten months
14:49
they also rented eight units at market
14:51
rent which is pretty nice as well so
14:53
that all equates to about two million
14:55
dollars in value that they added to the
14:57
property
14:58
so you know i mean just kind of going
15:00
through this pretty quickly as you can
15:01
see that star there down towards the
15:03
bottom right that’s where the property
15:05
is and like farrah said somebody that
15:07
that’s got a pretty good football arm
15:08
you know uh could probably get that uh
15:11
get it across the highway maybe
15:12
potentially who knows or maybe it’s a
15:13
couple golf swings not ben but you know
15:15
get a pro football player well i could
15:16
probably hit it with a golf ball but
15:18
yeah you can see the target with the big
15:19
old target on that i love that this this
15:21
uh this picture but as you can see
15:24
there’s not only a ton of places for our
15:25
residents to potentially shop and eat at
15:28
right but those are also potential
15:29
places where they could they they could
15:31
work right now if you go if you see that
15:34
camp creek parkway along the bottom
15:35
right if you kept following that
15:38
probably another two or three miles is
15:40
when you get to the airport right in
15:41
atlanta hearts field for people that
15:43
don’t know
15:44
is the biggest airport in the world not
15:46
in just in the u.s in the world and so
15:49
it directly and indirectly employs i
15:51
think close to half a million people in
15:54
and around the south atlanta area so
15:56
it’s a big driver for uh for not only
15:58
this property but for all properties in
16:00
this area
16:01
so let’s go through the rehab budget
16:03
right so interior upgrades obviously
16:06
we’re gonna put about 455 000 we’re
16:08
going to do a little bit to the office
16:10
clubhouse we need to do some roofs
16:11
parking lot landscaping you know update
16:14
and add in some amenities we did some
16:16
signage solar screens and for people
16:17
that don’t know what this is because
16:19
once we got out of texas we realized
16:20
that most people didn’t realize what
16:22
this was um they’re the black screens
16:24
that you can add to the outside of the
16:26
windows and people ask well why would
16:27
you do that right well it also it gives
16:29
a uniform look to the property and it
16:32
also hides those broken blinds that
16:34
everybody hates to look at right it’s
16:36
just an eyesore so it kind of
16:38
aesthetically is pleasing but it’s also
16:40
good for the property and for the tenant
16:42
because it reduces the electricity spent
16:44
right we had to do some fencing it had
16:47
some foundational plumbing issues which
16:48
was probably when i was looking at the
16:50
capex that was probably the biggest
16:52
you know a mystery of the whole property
16:54
but we had more than enough baked in
16:56
there with 100k and then on top of that
16:58
we always have a buffer or contingency
17:01
in our in our
17:02
rehab budget because
17:04
as people know that maybe bought
17:05
properties or if you haven’t bought them
17:07
just realize that there’s always going
17:09
to be things that you’re not going to
17:10
realize are going to pop up so yeah
17:12
let’s have a contingency and i would add
17:14
as we’ve grown in our career we’ve also
17:16
learned to just
17:18
kind of really scale the buffer based on
17:20
the capex that you’re doing yes right
17:23
they’re just more things that can go
17:24
wrong and you know and again this still
17:26
you know it wasn’t perfect right there’s
17:28
a lot of things that kind of have to be
17:29
worked through it so really we’ve just
17:31
learned in our career to really just be
17:33
smart about that buffer absolutely and
17:35
this is separate than
17:36
just reserves that we had right this is
17:37
just capex buffer yep yep yep so what
17:41
were some of the pain points yeah so
17:42
first thing you know 30 down units right
17:44
that’s a lot of units to work through
17:46
get online and each of them had various
17:48
degrees of down right some were down to
17:50
the stud from flooding problems right
17:53
some were a little bit just kind of
17:55
rough turns and so again needing to get
17:57
out there right we bought in atlanta
17:59
because it’s easy to get to atlanta like
18:01
ben said it’s the biggest airport in the
18:03
world
18:04
pre-kova there was eight flights a day
18:07
to atlanta for thornton southwest twelve
18:09
flights
18:10
on southwest alone yes right so we were
18:13
able to get it out there any time we
18:15
need to get out there um
18:17
you know and for 30 days to do to work
18:19
through i mean that that’s important
18:21
right uh addition to that it just didn’t
18:23
really have many amenities right so
18:25
that’s one place to kind of spruce up um
18:28
lawsuit waiting to happen on the
18:29
playground right had a crappy playground
18:31
it had kind of some concrete
18:33
slab that was formulated building it
18:35
just wasn’t really that attractive nor
18:37
was it that safe and so again we worked
18:39
through that replaced that playground
18:41
and again for those that know us we we
18:43
tend to like to make ben’s shaking his
18:45
head what was wrong no just keep going
18:47
all right
18:48
uh you know
18:49
for those that know us we tend to like
18:51
to make our properties family-friendly
18:53
right implementing things like a
18:55
playground really you know we love our
18:57
two three bedroom units right because of
18:59
that reason because guess what families
19:02
tend to stay right if you take care of
19:03
them they’ll take care of the property
19:05
so it’s a win-win situation um
19:08
continuing on right the roof caved in on
19:09
a laundromat and you know just it was a
19:11
crappy laundry mat right i mean barely
19:13
qualified that so again you know really
19:15
spending the capex the time in after to
19:17
fix that uh the airport project as much
19:19
as much as
19:20
as nice as it was for the airport to
19:22
spend two million dollars on a property
19:24
right you know you have to work around
19:25
that i mean like ben said there was a
19:27
crew of 20 30 people that
19:29
i’m never going to complain having 20 30
19:31
people working on a property of ours for
19:33
free for you know a year almost right
19:36
but you have to work around them and on
19:37
top of that you know there’s a certain
19:40
code level that they had to make sure
19:41
each unit met before they did the work
19:44
right because again they’re putting in
19:45
really high-end
19:47
front doors sliding glass doors and
19:49
windows and with that means you know
19:51
they they’re heavy right they can’t just
19:53
be put into a regular window frame so
19:55
there might be some subfloor issues so
19:57
things like that they’d identify that
19:58
we’d have to work through let alone you
20:00
know we’d have to play around just which
20:02
units became available which means we
20:03
gave them so that’s the thing and then
20:05
also just staffing right it took a
20:07
little bit to get the right manager and
20:08
i know how to kind of work with that
20:09
tenant base and deal with the airport
20:10
project once again that was a big burden
20:13
i remember that first manager really
20:14
struggled to kind of handle you know
20:16
tenants
20:17
getting units online and then also the
20:19
airport project because you got to
20:20
realize folks what was actually
20:21
happening at this point right
20:23
so new owner new management company we
20:26
had the faa that was out there we had
20:28
our crews doing their capex at the same
20:30
time yes
20:32
you know so and ultimately we were
20:33
trying to manage the property all
20:35
within that same time frame and so uh it
20:38
would have been a challenge for some
20:39
even some seasoned managers but going
20:42
back to the airport um themselves
20:43
obviously the airport is is government
20:46
you know or pseudo government related
20:48
and anybody that’s done business with
20:49
the government knows how painful that is
20:51
so there’s a ton of bureaucracy there
20:54
was a ton of meetings a ton of phone
20:55
calls a ton of documentation and
20:57
ultimately they made us jump through a
20:59
significant amount of hoops including
21:01
doing additional work in order for you
21:04
know because they would kind of come
21:05
ahead they’d have a crew that went ahead
21:07
to the next building and then they’d
21:09
come through and they they pretty much
21:11
line item out all the things that we had
21:12
to do to that building before their crew
21:14
would step foot in that building and
21:16
sometimes it was minimal sometimes it
21:18
was significant um you know ferris
21:20
alluded to sub-floor issues and you know
21:23
because of the the
21:25
heaviness of this equipment or this
21:26
materials you know we had to spend i’d
21:28
say almost six figures on subfloor
21:30
repairs uh throughout the property and
21:33
then ultimately once covet hit they
21:35
stopped work immediately and it was a
21:38
big challenge
21:39
to get them to come back out they
21:40
finally did
21:42
um you know do a few more at the very
21:44
end and then ultimately at the end they
21:45
just ended up giving us the materials uh
21:48
for the last i think five units um
21:50
because they had already moved on in
21:52
their minds and it was real hard for
21:53
them to kind of stop what they were
21:54
doing but uh so anyway that’s the joy of
21:57
working with the government but uh
21:59
ultimately added a ton of value to the
22:01
next buyer and you know it was an
22:02
interesting project to say the least
22:05
so property financials you want to go
22:06
through the fun stuff yeah so it’s just
22:08
kind of this is an older version but you
22:09
can really see
22:10
the asset from when we bought it versus
22:13
you know kind of through right before
22:15
covet actually right
22:17
and so you can see the difference right
22:18
the income significantly growing from 80
22:21
to 120 that’s a 50
22:23
increase in collections alone right
22:26
that’s just kind of a
22:27
for those that ask what does value add
22:29
mean i mean that that’s value ad right
22:30
those numbers speak for themselves
22:33
you can see the growth of the income and
22:35
that really would boil down to a
22:38
getting down units online right and then
22:40
b upgrading certain units as well
22:43
right and so that’s really key guys
22:45
right that’s how you drive value if you
22:48
look at that what is 40 000 of increased
22:50
noi on a six cap
22:52
all right i’m gonna do that math right
22:53
now forty thousand dollars divide that
22:55
over a six cap that’s an increase of
22:58
six hundred thousand dollars no you
23:00
gotta do that times twelve oh sorry yes
23:02
that’s why it sounded wrong
23:03
so there’s a little how does it say that
23:05
didn’t sound high enough there we go
23:07
that’s eight million dollars of
23:08
increased value arguably right yeah now
23:11
again we paid a premium right we didn’t
23:13
buy it at market cap because
23:15
you know a unit that’s offline is not
23:17
worth zero dollars right but it’s just
23:19
kind of a representation of what can be
23:22
done yeah
23:23
so i mean ultimately a lot of value
23:25
driven by not only operational but it
23:27
was just that’s that’s what i talked
23:28
about earlier folks is that we we knew
23:31
what we were getting ourselves into and
23:32
it was just a matter of executing that
23:34
business plan and bringing those units
23:35
online you could literally
23:37
you you could determine what the value
23:39
was going to be just in six months as
23:40
long as you stuck to the plan right
23:42
whereas some of the stuff where it’s uh
23:44
you know it’s mismanaged not putting
23:46
that quotations or there’s there’s some
23:48
other kind of you know to be determined
23:50
value-add play there that’s kind of
23:52
risky in my mind right whereas this yes
23:54
it was a lot more work but it was it was
23:57
in my mind it was a proven path that we
23:59
could take to increase revenue and
24:01
therefore obviously increase the value
24:03
so you know not without a lot of work
24:05
though let’s push put it that way
24:07
so the finish line so what’s all this
24:09
equate to yeah so i mean you know you
24:11
grind it out guys right you implement a
24:12
business plan you execute the business
24:14
plan and
24:15
you know if you
24:16
do your job right right that results in
24:19
a performing property that you can then
24:21
sell so on this property right like i
24:23
said we sold it this past may and these
24:25
are the final numbers right so kind of
24:27
net net net of everything investors made
24:30
pretty much 25 irr
24:33
on this deal right and about 50 return
24:35
in two years right now yes we could have
24:37
held on and continued on and maybe done
24:39
a refi but ultimately we’re just sending
24:41
on a tremendous amount of equity and no
24:43
investors are going to complain about
24:45
that little one i think it ended up
24:46
we’re nearing the finish line but i
24:47
think it ends up being about 55 right we
24:49
were doing the math the other day yeah
24:51
so it’s actually came in higher than
24:52
this even right yeah but again you over
24:55
under deliver under promise over deliver
24:56
guys you know so i mean it was a matter
24:58
of obviously bringing those down units
25:00
online you know finishing up the airport
25:03
program you know and ultimately spending
25:06
you know the the capex budget that we
25:07
had and improving it but we left some
25:09
meat on the bone for the next buyers
25:11
group and that’s ultimately what they
25:12
bought uh bought it on and you know we
25:15
just knew that asset prices were kind of
25:17
going through the roof already in
25:18
atlanta and they’ve continued to go up
25:20
right you know but you know this guy
25:22
still has a little bit of work ahead of
25:24
him and you know but he was excited
25:25
because he felt like he got it at a good
25:27
basis and that’s ultimately what you
25:28
want to do as a seller you want to leave
25:30
a little bit of meat on the phone don’t
25:31
be that person that’s going to you know
25:34
try to sell some turnkey property
25:35
because believe it or not there’s less
25:37
buyers of turnkey than there are a value
25:39
add right you think oh don’t people just
25:42
like a clean deal that they can just
25:43
step into yeah but you can’t push the
25:45
value as much there right you’re buying
25:47
it at a premium at that point unless
25:49
you’re gonna buy it yourself and sit on
25:51
it for 10 or 20 years you’re just not
25:53
gonna make the money that you need or
25:55
that you want to make on these types of
25:57
assets right so you want that value add
25:59
component so really and that’s really
26:01
what the brokers are they have they’ll
26:03
even tell you themselves right trying to
26:05
sell a turnkey deal versus selling a
26:06
value add deal is a lot more challenging
26:08
and so we left a little bit of meat on
26:10
the bone and that was the story and
26:12
ultimately we had a gentleman that was
26:13
out of new jersey and you know he saw
26:15
the value and he ultimately was able to
26:17
close on in may and so we’re excited
26:19
so
26:20
boom we blew through that man i think we
26:22
need to do a little bit of q and a when
26:23
you say we went to the q a so
26:25
with that said like i said we’re q a
26:28
guys
26:29
so paul garcia do one of you guys want
26:30
to moderate the q a for us
26:33
yeah sure
26:34
let me do that for a second here people
26:36
have questions comments go ahead and
26:38
drop it we’ll answer just about it yeah
26:40
it doesn’t have to necessarily be um
26:42
about this
26:43
deal we can just talk real estate in
26:45
general um so you know feel free to drop
26:47
some drop some questions we can talk
26:49
about the market as well
26:50
yeah so if you do have any any other
26:52
questions definitely put them in there
26:54
we’re going to start off with a few that
26:56
that were put in the chat but uh if you
26:58
have any more then put them inside the
26:59
chat and we’ll go get to them as well so
27:01
uh bernadette uh asks oh no actually she
27:04
just uh
27:05
sorry i’m going to start with david
27:07
david uh david cosita
27:09
that’s uh what went wrong with the deal
27:11
and how did you course correct
27:14
there are several things that were wrong
27:16
with this deal um i would say that the
27:20
first and foremost you know pre-coveted
27:24
having a property kneel near atlanta
27:26
hartsfield was almost a no-brainer
27:28
because it was the biggest driver of the
27:30
economy in that that part of south
27:32
atlanta and there’s a ton of jobs in and
27:34
around the airport once covet hit um of
27:38
course everybody knows what happened to
27:39
air travel right for six months people
27:41
were either furloughed or laid off and
27:44
it still hasn’t gotten back to
27:45
pre-coveted levels so i would say that
27:47
was probably the first challenge
27:49
and you know that led to a high amount
27:51
of delinquency in fact on a percentage
27:53
basis this was probably the highest
27:55
delinquency property that we had and you
27:58
know i we have a great property
28:00
management company um in atlanta that we
28:02
work with province realty and they did a
28:04
great job managing it but at the end of
28:06
the day you know people were employed by
28:09
you know an industry that had gotten
28:11
shuttered or slowed down during coping
28:13
so i’d say that was the biggest thing so
28:15
you had to really work with the tenants
28:17
some of them were cool about it some of
28:18
them were downright belligerent about it
28:20
you know i mean there’s there’s some
28:22
times when when art who’s the the
28:23
president of
28:24
providence said hey look you know i kind
28:26
of fear for the safety of our of our
28:29
staff when they’re going and knocking on
28:30
some of these doors we might have to
28:31
back off a little bit right so we then
28:33
we took a different approach
28:35
you know um and try to really put the
28:37
the rental relief applications on a
28:40
silver platter and do a majority of the
28:42
heavy lifting for them and in that case
28:44
a lot of them were a little bit more apt
28:46
to work with us so i’d say the biggest
28:48
challenge was obviously having a
28:49
property that was close to atlanta
28:50
hartsfield having to deal with that
28:52
delinquency portion on top of obviously
28:55
you’re you’re in the process of doing a
28:56
lease up right we had down units so we
28:59
were we were trying to deal with
29:00
delinquency and then you were trying to
29:01
lease it up at the same time while
29:03
covered was happening while covent was
29:04
happening um and ultimately it made it
29:06
more challenging for me and ferris to
29:08
get out to the property
29:09
because those 12 flights a day that used
29:11
to go from houston went down to like two
29:13
or three and we could no longer do
29:14
dangerous we used to day trip at atlanta
29:16
guys maybe we didn’t make that clear
29:18
literally morning flight out there night
29:20
flight back wake up and sleep in our own
29:22
bed and that’s important right getting
29:24
out to a property easily is important
29:26
buying a property in new york
29:28
maine
29:29
you know oregon besides the fact those
29:31
aren’t landlord-friendly places right
29:33
those are hard places to get to i mean
29:34
there are from
29:35
us yeah from here
29:37
you’re near one of those places by all
29:39
means right and so really pick an
29:41
investment place so you can get out the
29:42
easier especially if you’re doing you
29:44
know a deeper value out this property is
29:46
not a cookie cutter it’s a deeper value
29:48
ad there’s a lot to do the first year
29:50
was very hands-on
29:52
yeah
29:53
yeah so i’d say that’s the biggest
29:54
challenge i mean there’s there’s
29:55
certainly others but i don’t want to
29:56
bore everybody with every little
29:58
up and down
30:00
on all of these properties
30:02
but i would say really that was those
30:04
were the major challenges is the shut
30:06
the shuttering of atlanta hearts field
30:07
and then the delinquency that led to
30:09
from from that right
30:12
okay good good um great so how about uh
30:15
bernadette brooks has asked how do you
30:18
calculate your buffer
30:20
you guys talked about that earlier but
30:21
yeah let’s talk about the buffer you
30:22
know there’s a simplistic way to do it
30:25
you know you take five to ten percent of
30:27
your overall budget right you know
30:28
that’s kind of the rule of thumb but i
30:30
think ferris brought up a good point
30:32
right i’d say that you need to have more
30:33
buffer for bigger deeper value at you
30:36
know uh projects right would you say
30:38
it’s a sliding scale guys it depends on
30:40
what you’re doing
30:41
if i just need to replace kitchen
30:43
countertops in every unit
30:44
there’s very small room for error on
30:47
something like that
30:49
and normal rule like ben said 10 by all
30:51
means that could be done
30:53
but
30:54
if i have foundation issues i have
30:56
landscaping problems drainage problems i
30:59
have siding i have roof prop all these
31:01
other things
31:02
those are much more risk prone things
31:05
all right and so
31:06
on you know we’re at the point i guess
31:08
in our career where
31:10
raising another two three four hundred
31:11
thousand dollars of buffer right while
31:14
that waters the returns a little bit it
31:16
makes it a much safer deal for all
31:18
investors and so really
31:21
people should think about that right i
31:22
think everyone really tries to squeeze
31:24
the most juice from a deal right but
31:26
you’re doing it at the cost of risk and
31:27
headache potential room for headache and
31:30
we’ve just learned that it’s just you
31:31
know it’s safer better to play it safe
31:34
but you know that deal
31:36
i’m trying to think like what buffer
31:37
would you say we should have had you
31:38
know we said 120 we really should have
31:40
had 300. 300 would have probably been
31:42
about ideal of that deal in hindsight
31:44
right so double what we initially did
31:46
yeah there was just there was a lot more
31:47
work to do on the down units than i mean
31:50
we inspected them folks it wasn’t like
31:52
we we didn’t but
31:54
what you have to realize about down
31:55
units and maybe this is just something
31:57
that everybody should should hear this
31:58
advice right you know whatever your gc
32:01
thinks it’s gonna be
32:03
add something to that right they think
32:04
it’s gonna be twenty thousand a door
32:06
it’s probably twenty five thousand a
32:07
door because at the end of the day you
32:09
don’t know how long they’ve been you
32:11
know um
32:12
you know not not taken care of there’s
32:14
going to be electrical work there’s
32:16
going to be plumbing work there’s going
32:17
to be permits and permitting throughout
32:19
the process you’re essentially having to
32:21
redo everything if the unit’s been
32:22
offline for more than a year
32:24
and so you know that that adds cost and
32:27
then on top of that you’re doing
32:28
everything from flooring to appliances
32:30
to cabinets which cabinets alone are
32:32
going to cost you i’d say three to five
32:34
grand depending on the configuration and
32:36
you know and just just to add i mean
32:38
right this is coming from us and we’ve
32:39
done pretty much hundreds of units
32:41
online right from a property that 100
32:43
percent like half the units flooded so
32:46
we’ve done a lot of down units right and
32:47
it just they come with headache you need
32:49
to kind of plan for them accordingly so
32:51
keep that in mind
32:54
awesome awesome it’s good info on there
32:56
so um
32:57
how about this emmanuel russo uh
33:00
emmanuel asks why did you guys sell it
33:03
so you know i want to answer so this
33:05
deal like you guys saw right we planned
33:07
for a six year hold
33:08
but ultimately at this rebecca we are
33:10
firm believers and and being
33:12
opportunistic right yeah we don’t
33:14
believe in holding investor money just
33:16
to hold the money right there’s a strong
33:18
exit someone else can take it to another
33:20
level then we’re going to make that exit
33:22
because guess what the next guy that
33:24
bought it he paid a little bit of a
33:25
premium for because he sees meat on the
33:28
boat right so people will pay up a
33:30
little bit for that to give you guys
33:31
even another example ben and i were
33:33
talking about another deal that we
33:34
looked at here in houston
33:36
the property’s already updated there’s
33:38
no meat on the phone we you know we’re
33:40
like we’re even they’re asking it feels
33:42
good as a price per pound but there’s
33:44
not really much upside to juice it so
33:46
we’re not even willing to pay
33:48
a fair market price on that deal versus
33:50
a different deal they’re asking a
33:52
premium but it’s got runway to push
33:54
friends and so
33:55
you know if you really tie that school
33:57
of thought back to investors
33:59
right we can maximize their dollar
34:01
by essentially making an exit when
34:03
someone will pay us that premium and so
34:06
we will always try to do that and again
34:07
we’re selling five deals this year right
34:10
they’re all varying degrees of someone
34:11
is willing to pay a premium we’ve
34:13
already you know over performed what we
34:15
presented and rock and roll yeah i mean
34:17
i think it’s it’s you have to realize
34:18
what have you projected to your
34:20
investors and where are you at in the
34:21
market right i think that yeah could we
34:24
have held on to it yeah could we have
34:25
refined the instant we looked at all
34:27
those options
34:28
right but ultimately in order to
34:30
monetize the deal and get the highest
34:32
yield to our investors it was to sell at
34:35
that point and a lot of that was driven
34:37
by the atlanta market i mean it’s just
34:38
been on fire we got in atlanta three or
34:40
four years ago and within a year it’s
34:42
just it just started taking off and it’s
34:44
it’s gone up yeah we have only 30 just
34:46
this year alone we have
34:48
actually we have two more deals in
34:49
atlanta are selling one closes tomorrow
34:51
and another one is closing later that
34:53
pal you’re a part of and that deal we
34:55
were not attending we didn’t think we’d
34:56
sell that anytime soon
34:58
right i mean the deal’s done well we’ve
35:00
we’ve gotten 400 rent premiums like
35:02
really the rents compared to what we
35:04
bought it at two years ago are 400
35:06
higher and we’re not talking about from
35:07
1600 to 2000 we’re talking from 800 to
35:11
1200 right 50 increase and we you know
35:15
we did we we did that deal low leverage
35:17
we were just ready to hold that deal for
35:19
a while right but again strong return i
35:22
mean home run to investors even with
35:24
paying a prepay penalty on the deal
35:26
right we still made the decision that
35:28
it’s best to make that exit for
35:29
investors
35:30
yeah and and ultimately everybody was
35:32
excited about it you know i think that
35:34
you know most people they want to keep
35:36
their money working for them right you
35:38
know and so if they can take that 25 irr
35:41
return and then they can roll it into
35:43
the next deal or into somebody else’s
35:44
deal and keep churning their money every
35:47
two three four years that’s how you’re
35:49
gonna get wealthy you know i mean you
35:51
know if you’ve got your 50k wrapped up
35:53
for 10 years right you know maybe you
35:55
make 100k at the end of the day right
35:57
but i would say from an irr basis it’s
35:59
not a great play right so it’s always
36:01
good to pull take your money off and
36:03
keep rolling it and i think if you
36:05
really crunch the numbers you’ll see
36:07
that i’m that that’s a correct statement
36:09
right you’re gonna you’re gonna make
36:10
more return overall if you continue to
36:12
put your money to work
36:14
yeah there’s good points good points
36:16
um let me see moving on uh chris
36:19
oxendine asked on the financials and i
36:22
saw this too there it says other on
36:25
other income what did you change over
36:26
the course of the year to boost that
36:29
your other income
36:30
a lot of that other income was just you
36:32
have more units online right so it’s
36:34
going to go up
36:35
so more people are paying you know for
36:37
example rubs right so electricity water
36:40
some of the buildbacks that we have
36:42
right again
36:43
30 units is a significant portion of the
36:45
property so you just have more people
36:47
paying fees that fee right let alone you
36:51
know more application fees because
36:52
you’re leasing more units you’re doing a
36:54
lot and more
36:55
of kind of that upfront and really
36:57
continue to push that so it’s just a
36:59
combination of all of those things
37:01
yeah so it’s a lot of your fees and your
37:03
rubs and things like that you just had
37:04
more of that is application fees uh late
37:08
fees robs uh what else benefits i mean
37:12
sometimes not on this property
37:14
yeah and all you know your your
37:16
laundromat income i mean anything that’s
37:19
not rent folks is other income so you
37:21
know and sometimes you can break up
37:23
other income into fees
37:25
and then utility reimbursements which we
37:27
call rubs
37:28
so sometimes you’ll see a distinction
37:30
there but just assume and keep in
37:33
your mind here that anything is not rent
37:35
is other income and this one was just an
37:37
easy you’re just going to stair step it
37:39
because at the end of the day you were
37:41
increasing the occupancy of the property
37:43
and so more people therefore more fees
37:46
yeah awesome
37:48
um cool
37:49
i like this question here it says how
37:51
did you all meet um and become partners
37:53
you guys have a good rapport they must
37:55
recognize your chemistry
37:58
yeah i know yeah a lot of people a lot
38:00
of people say that but ultimately we
38:02
became friends first you know i mean
38:03
ferris was you know coming out i was
38:05
running a networking event uh similar to
38:07
this one right now and now it is the mf
38:09
yeah we haven’t met at the current
38:12
you know houston mfm chapter yeah right
38:14
so again that networking is key right
38:16
you know i saw i met ben got to know him
38:19
right talked a little shop you know
38:21
found a dude working together and kind
38:22
of clicked and you know rocked and
38:24
rolled so
38:26
yeah i mean i was trying to work in a
38:27
joke there but i couldn’t quite think of
38:28
it on the spot while i was talking i’ll
38:30
let you i’ll
38:36
anyway so the the
38:38
partnership is a lot like a marriage
38:40
folks right you need to court a little
38:41
bit so ultimately me and ferris you know
38:43
we had known each other for probably i
38:44
think nine months or so before really
38:46
disrupt equity kicked off and you know
38:48
we’re getting to know each other we
38:50
looked at some deals we underwrote some
38:51
stuff
38:52
you know ultimately that’s the most
38:53
important thing right you gotta like
38:55
know and trust the person that you’re
38:56
that you’re gonna be doing business with
38:57
and this is not like a deal partner
38:59
right this is an actual partnership so
39:01
it’s a little bit more permanent and uh
39:04
you know we we we took it seriously and
39:06
you know ultimately i think our
39:07
personalities drive pretty well but yeah
39:09
i mean networking works
39:11
and so you just have to get out there
39:13
and make those connections and
39:15
ultimately if you’re looking for a
39:16
partner
39:17
these types of you know webinars or just
39:19
even in the first the in-person events
39:21
are where you’re going to find your next
39:22
partner
39:24
awesome awesome
39:26
yeah i mean i know that for me
39:27
personally i found my business partner
39:28
through through my meetup as well just
39:30
like you know coming to my meetup and i
39:32
know that
39:33
i was going to calculate i was
39:35
wanting to calculate how many
39:36
partnerships mfm has created but there’s
39:38
no way i can calculate that but there’s
39:40
been a lot just through you know just
39:43
through mfm a lot of business
39:44
partnerships have come through it so
39:46
um
39:47
good so let’s see uh jason lewis
39:49
appreciate your question says when you
39:50
bought it did you assume the existing
39:52
financing if so what were the terms
39:56
that was all cash we went with a bridge
39:58
loan from a company called bancorp
40:01
and uh you know they gave us an 8
40:03
million dollar loan that included uh you
40:05
know a fair amount of our our repair
40:07
budget as well
40:09
and so yeah no this was not going to be
40:10
an assumption
40:12
so
40:12
and typically
40:14
not that we wouldn’t do an assumption we
40:15
absolutely would if the deal made sense
40:17
but you know with this low
40:19
you know interest rate environment that
40:21
we find ourselves in debt is cheap folks
40:23
you know so don’t go in and try to
40:25
assume a five percent interest rate when
40:27
you can get a three
40:28
in today’s environment that’s you know
40:30
the deal they have to be have to be you
40:32
know giving you a pretty good deal on
40:33
the purchase price for you to assume
40:35
that loans unless you’re buying one of
40:36
our deals definitely uh
40:40
yeah i was gonna say you guys uh it
40:42
might it must have worked out with your
40:44
your strategy to have like this bridge
40:45
loan because it’s probably uh what a two
40:47
or three year loan and probably
40:49
it was a three year
40:50
it’s a three so we typically if we’re
40:52
gonna do a bridge we do a three year
40:54
with one one what people always ask
40:56
what’s the one one it’s
40:57
two one year extensions and there’s some
40:59
tests that you have to go through to get
41:01
the extension
41:02
right but ultimately we sold it before
41:04
the the initial term was even up
41:06
but you know the reason that you go with
41:08
bridge in a lot of cases especially back
41:11
prior to when interest rates are now as
41:14
low as they are is when you’re going to
41:15
be increasing the value of the property
41:17
significantly right you know because you
41:20
want to you want to realize that that
41:22
that increase in the value right and you
41:24
want to you want to realize that through
41:26
either a refinance or a sale right and
41:29
if you’re in long-term permanent debt
41:31
you have prepayment penalties and it’s
41:33
harder for you to exit that property at
41:34
a profitable you know um you know return
41:37
to your investors so something to think
41:39
about right you know um and i think you
41:42
know which is a little bit different of
41:43
a case right now with why people are
41:45
using bridge as a tool it’s not
41:48
necessarily because they’re going to see
41:49
significant value increases and i think
41:51
in some areas they might still see that
41:53
it’s just because fannie and freddie are
41:54
getting their you know their teeth
41:56
kicked in because you know their
41:57
leverage is so low and people have
42:00
gotten into these fanny jails where they
42:02
can’t sell the property because the
42:03
pre-payment film is too high so they’re
42:05
saying hey screw that i’ll go with
42:06
bridge
42:08
execute my business plan and then flip
42:09
out of it yeah and i mean in this year
42:11
alone we’re gonna pay seven million
42:12
dollars in prepaid penalties yeah which
42:14
is significant you know that would have
42:16
been fantastic to keep that we’re still
42:18
professors are still stoked but imagine
42:20
had we gotten to keep that right so you
42:21
know you start to get smarter around
42:24
giving yourself more options on the exit
42:26
right if the market stays hot and you
42:27
would make the exit sooner get smarter
42:29
so and one thing that i’ve mentioned
42:31
right just because we we seem to have a
42:33
phd on financing because we’ve made
42:34
every freaking mistake in the book but
42:36
you know one one product that we do like
42:38
if you want something that’s more
42:39
permanent look into a freddy or a fanny
42:41
floater freddie’s got a little bit
42:43
better product
42:44
um you know but that’s going to give you
42:46
the tight cap with the tight caps off
42:48
yeah here in a minute but because i
42:50
don’t want to
42:51
confuse everybody but the floater is
42:53
essentially it’s a variable rate right
42:55
but you can buy an interest rate cap
42:57
right which is essentially insurance so
42:59
if your rate spikes the insurance kicks
43:01
in and pays off the delta right so just
43:03
think of that that’s what an interest
43:04
rate cap is
43:05
right but it gives you the flexibility
43:07
there’s a one-year lockout on it and
43:08
then it’s one percent of the loan amount
43:11
for the rest of the term and you can get
43:13
it for 10 12 years if you want it as
43:15
well so it gives you it gives you that
43:18
flexibility of and typically the
43:20
interest rate because it’s based off a
43:21
sofa
43:22
is i mean we’ve got an interest rate
43:23
right now on a deal that we just bought
43:25
here in houston it’s 2.85
43:28
you know on a 10-year note with five
43:30
years interest only so you really can’t
43:32
beat that so if you want to have a
43:34
permanent loan but you don’t because you
43:36
don’t really want to go with bridge
43:38
you know but you want to have the
43:39
benefit of having some flexibility on
43:40
the prepayment penalty
43:42
check out the floater
43:46
i think that’s a
43:47
huge gold nugget that you just gave to
43:49
everybody because i’ve never really
43:50
heard anybody here really talking about
43:52
freddy’s floaters and doing a uh you
43:55
know insurance cap or a cap with it as
43:57
well so that’s a huge gold nugget for
44:00
everybody here um again a lot of times
44:02
we don’t really get into like prepayment
44:04
penalties and how they affect people but
44:05
you know going into this where you’re
44:07
talking about the whole life cycle of a
44:09
deal
44:10
i mean that’s where we can get into like
44:12
you know
44:13
prepayment penalties and how
44:16
you know they could hurt you in this
44:18
sort of near term and and something that
44:20
people don’t look at you know when
44:21
they’re when they’re really kind of
44:22
putting the deals together so yeah and
44:24
one thing just to add to pal is you know
44:26
i mean on any bridge deal not just a
44:29
freddie floater but on any bridge deal
44:31
you have to buy an interest rate cap the
44:34
reason that they they force you to buy
44:36
that is because they don’t want to see
44:38
interest rates spike and then you go
44:39
back to them say well
44:41
crap guys i can’t pay my note my
44:43
interest is 10 now right now nobody
44:46
nobody that’s in the know thinks that
44:47
interest rates are going anywhere but
44:49
probably staying where they’re at for
44:50
quite some time they’re not going to 10
44:51
i’ll tell you that
44:53
but there’s always that risk that
44:54
something can happen and it spikes right
44:56
so the lender doesn’t want to see you
44:57
not be able to pay their note either so
44:59
they force you to buy the cap
45:01
right so you know but on a bridge loan
45:04
typically it’s maybe a half a point to a
45:06
point as far as uh you know um a prepaid
45:09
ability which is
45:11
significantly cheaper than yield
45:13
maintenance or diffusion no deal we’re
45:15
selling tomorrow literally i saw the
45:16
thing it’s a 3.6 million dollar note and
45:18
we’re paying a million and sixty
45:20
thousand dollar penalty so almost thirty
45:22
percent of the loan amount and its
45:24
penalty and that’s three years after we
45:25
bought it yeah three years after we
45:26
bought that deal so you can imagine that
45:29
that’s a 30 is a lot more than one
45:31
percent guys so yeah yeah so just take
45:33
that into consideration i’m not i’m not
45:35
advocating go bridge or do anything
45:37
ultimately you need to talk with your
45:38
mortgage broker your lender about your
45:39
options
45:40
but you know the reason that people are
45:43
now knee-jerking back to bridge is
45:45
because they got hosed you know that was
45:47
the that was the kool-aid that we were
45:49
we were told to to go with for so long
45:52
right and uh you know then then when
45:54
asset prices started taking off people
45:56
were getting jammed up they couldn’t
45:57
sell their deals
45:58
so you know something to take into
46:00
consideration
46:01
mm-hmm yeah
46:03
so uh
46:04
uh barry uh barry griffiths i appreciate
46:06
your question i think most of it was
46:07
answered really is about bridge you know
46:09
type of loan and everything so and
46:11
lessons learned so i think that that
46:12
question was answered if it wasn’t barry
46:14
just just write back uh right back into
46:17
the uh into the chat okay
46:19
and so
46:20
joanne ling you asked uh how many years
46:22
have you had the property uh is this the
46:24
syndication company
46:26
i think ben you got you can your affairs
46:28
can answer that pretty quickly we had it
46:30
in the in the
46:31
uh presentation we bought it in in 2019
46:34
we sold it in may of this year um
46:38
yes we syndicated the equity disrupt
46:40
equity as a whole syndicates equity with
46:42
investors right yep there you go perfect
46:45
perfect
46:46
uh
46:47
listen that
46:49
lizonette uh belize he asked um
46:52
have any of the aspects of the asset
46:55
selection criteria changed during covid
46:57
and if so how and do you plan to go back
47:00
to your previous criteria or keep the
47:02
current approach moving forward so kind
47:04
of like how has cobit affected your uh
47:06
you know your asset selection criteria
47:08
and what are the changes and or
47:11
uh how are you approaching that now
47:12
moving forward absolutely yeah i mean
47:15
certainly we’ve you know i think it’s
47:17
it’s it’s it’s not only necessarily
47:19
common but as you kind of
47:21
you know progress in your career as as
47:24
we are in syndication right your ability
47:27
to raise more equity
47:29
just goes up right so therefore you tend
47:32
to chase bigger deals maybe nicer deals
47:34
where there’s more equity that you have
47:35
to bring to the table so um that plus
47:39
you know just looking for nicer deals
47:41
because of cobit and what we’ve learned
47:43
from kobit would be would be how i’d
47:45
answer that but i would also say that if
47:47
we came across this deal where once
47:49
again we could literally line out what
47:51
the value increase was going to be and
47:53
there was there was a defined business
47:54
plan we’d absolutely do this deal again
47:56
and now one more thing right you know
47:58
with kovit unfortunately just cap rates
48:01
have compressed so much
48:03
that
48:04
the difference between a c class and a b
48:06
class it’s really gotten pretty small we
48:08
were literally talking about that
48:09
earlier today right the caps between
48:12
them is so minuscule that ultimately you
48:14
know why would i pay
48:16
that price point for a 25 year older
48:19
property first i’ll pay a little bit
48:21
more and i get a 25 year newer property
48:24
right so that’s that’s really i would
48:26
say the biggest driver of what’s kind of
48:28
led us to focus more
48:29
on kind of b
48:31
even a class properties right it’s that
48:33
spread between the c and the b has
48:35
gotten so small and even the c and the a
48:37
right that people are right now i mean
48:39
you’re seeing guys that split each
48:40
other’s throats for that aggressive c
48:43
value-add play and i’m ultimately like
48:45
man i’ll just i’ll buy a little bit more
48:47
but get a much better quality asset in
48:49
the long run and and speaking of atlanta
48:51
right we were talking with uh one of the
48:53
brokers out there and it was funny
48:54
there’s there’s been a convergence right
48:56
of cap rates right where cap a class cap
48:59
rates are actually
49:00
higher
49:01
than c-class uh cap rates and this was
49:04
as of two months ago and people are like
49:06
wait why is that it’s because people are
49:08
chasing
49:10
that value-add so aggressively it’s
49:12
pushing caps down
49:13
right so just take that into
49:15
consideration folks you got a minute
49:16
this is a 1970s product you know how
49:18
long that was 50 years ago some of this
49:20
stuff’s coming up on it’s on its useful
49:22
life now i’m not saying don’t buy a
49:23
1970s or even a 1960s deal there’s still
49:26
plays out there but just realize that
49:28
you know if you could pay up a little
49:30
bit and get something that was built in
49:31
the 90s
49:33
you’re going to have a lot less deferred
49:34
maintenance a lot less maintenance
49:36
issues in general and and i think we’ve
49:38
learned that too so it’s not not only
49:40
just cobit it’s just we’ve as we’ve
49:42
matured in this business we’ve just
49:43
learned a lot of lessons
49:45
and one of them is you know that some of
49:47
these properties you know plumbings and
49:49
electrical and hvacs are just rotten and
49:51
they’ll chew you up and they’ll spit you
49:53
out and so if i can buy something that’s
49:55
20 30 40 years newer
49:57
and the cap rate’s essentially about the
49:59
same in most cases
50:01
why wouldn’t you do it that’s how i’d
50:02
answer that question now you might say
50:04
well hey i’m gonna have challenge
50:05
raising
50:06
5 10 20 million dollars i get it
50:09
right but you know once you get to that
50:11
point you’re going to probably have that
50:12
same revelation that we’ve had
50:18
good
50:19
um
50:20
yeah let me see how about uh jenny uh
50:22
gian
50:24
gian sorry gian allen uh do you have did
50:27
you have low cash cash on cash um until
50:30
the down units were back up um if so how
50:33
did your
50:34
investors react
50:36
yeah i mean i don’t think we even
50:37
projected anything for year one you know
50:39
yeah it was it was it was gonna be it
50:41
was so minuscule maybe it was like
50:43
right you know just to put something
50:45
down on the board but you know at the
50:46
end of the day we were under knowing the
50:48
expectation that there was gonna be
50:49
anything paid out here one right because
50:51
of that right you’re just it takes time
50:54
to ramp up cash flow
50:56
um you know and ultimately on these
50:58
value-add plays you just need to be
51:00
upfront with people and and let them
51:02
know what the deal is
51:04
and most of the time they’re going to
51:05
let you go out there and execute the
51:06
business plan now kobe threw a little
51:08
bit of a monkey wrench in our business
51:09
plan as well too right so that one year
51:11
turned into about 18 months
51:13
uh but you know ultimately if we would
51:15
have held on
51:17
and and fully gotten everything going i
51:19
think we could have refinanced this or
51:20
even started cash flowing you know
51:22
probably as of right now
51:24
but
51:24
you know ultimately from the beginning
51:26
we were never expecting any cash flow
51:28
year one and you always just have to be
51:30
upfront with your investors right you
51:31
know as long as you disclose that then
51:33
they’re fine with
51:35
yeah it
51:35
mean i i think that that’s the most
51:37
important thing is you just got to be
51:38
upfront with your investors right not
51:40
everybody’s looking for cash on cash
51:42
year one right those type of different
51:43
type of property that they might want to
51:46
invest in uh whereas some people are
51:48
looking for a you know a bigger value
51:50
add right
51:53
i agree
51:54
[Music]
51:55
okay uh let me see uh gina gina allen
51:58
also asked could you recap what made
52:00
your asset management strong did you
52:02
hire somebody to do it or did you do it
52:04
yourself so specifically the asset
52:06
management i guess what you’re talking
52:08
about we’ve hired we’ve we’ve had an
52:10
asset manager in that role for several
52:12
years you know i also help oversee that
52:15
so it wasn’t just me and ferris you know
52:18
ultimately we we drive different parts
52:20
of our business and so i can’t do the
52:22
day-to-day so that’s something that we
52:23
had delegated out to somebody else for i
52:26
think since 2018
52:28
so it’s it’s been quite some time that
52:30
we’ve we haven’t necessarily been doing
52:32
the day-to-day but we certainly oversee
52:33
that
52:34
and ultimately one part of me and
52:36
ferris’s you know job description is the
52:39
acquisition right determining what the
52:41
business plan is and how the numbers are
52:42
going to work
52:43
and ultimately you know it’s the asset
52:45
manager’s job to make sure that the
52:47
business plan is getting implemented
52:48
properly and then on top of that i would
52:50
say that a lot of the success of this
52:52
deal was really based on the
52:54
construction and we had another partner
52:55
his name’s oliver fernandez some of you
52:57
might know him he’s a great guy he owns
52:59
his own construction company and he
53:01
helped manage the construction on this
53:02
too
53:03
so because that’s just as important on
53:05
this deal as asset management is because
53:08
if you’re not doing the construction
53:09
you’re not bringing those down units
53:10
online you’re not going to realize the
53:12
revenue
53:13
that you need on the deal
53:14
so those asset management construction
53:17
management working hand in hand is
53:19
important and ultimately we had a whole
53:21
team
53:21
that was helping us
53:23
you know ultimately hit our business
53:25
plan
53:27
awesome
53:28
okay
53:29
um
53:30
let’s see angel williams uh asked uh
53:32
does does the floater uh cover capex the
53:35
way uh bridge
53:37
so typically freddie doesn’t include
53:40
um rehab as part of their loan
53:43
it’s typically going to be loan to value
53:45
versus loan to cost that’s going to be
53:47
more of a fanny product
53:49
um you know unless it’s just a required
53:51
repair then they’ll then
53:53
your bridge loans are also floaters too
53:55
so it’s kind of a weird wordly worded
53:57
sentence because bridge loans do cover
53:59
cap ads yes yes
54:01
right really maybe the question was does
54:03
the freddie floater cover ben’s point no
54:05
usually not yeah fannie one does yeah
54:07
whereas sometimes you can get a fanny
54:09
loan and it’ll size the loan to cost and
54:11
then in that case they’ll they’ll lump
54:13
in some of the rehab into the loan
54:16
right and so what people just give
54:18
everybody a heads up so loan to value is
54:19
that the property is 10 million they’re
54:21
going to give you 70 they’re going to
54:22
give you 7 million where in some cases
54:25
right they’ll do a loan to cost if it’s
54:26
ten million you got a seven million
54:28
dollar purchase price plus a million
54:29
dollars in capex they’ll give you up to
54:31
eighty percent right you know so that’s
54:33
kind of how that is your loan’s actually
54:35
eight million in that case
54:37
so something to take into consideration
54:39
right and once again i’d say
54:41
ultimately you know uh work with a
54:43
mortgage broker or work with your lender
54:45
uh we use anton matli for peak financing
54:47
he’s a great guy
54:49
you need to ultimately ask those
54:50
questions to him because he’s going to
54:51
be in a lot better position than us
54:56
awesome awesome okay
54:58
um i guess the last question here and
55:00
this is um that joanne asked is just
55:03
about any open investment you know and
55:05
can you talk about it and i would just
55:07
say that you know i mean i’ll let them
55:08
talk for what they want to say but for
55:11
open investments joanne you you gotta
55:13
you really need to contact them directly
55:15
so if you’re interested in
55:16
ben ferris and partnering with them you
55:18
really need to contact them directly not
55:20
really do it over sort of a public forum
55:22
where they would
55:24
yeah
55:24
they’re open investments that’s the
55:26
folks anyway but yeah i mean you know
55:28
drop us a line
55:29
bennettdisruptequity.com or ferris at
55:31
disruptequity.com and we’re always happy
55:33
to set up a call
55:34
yeah
55:35
okay you got that joanne so you just
55:38
send them a send them an email and they
55:39
will
55:40
they’ll contact and you can reject them
55:43
okay so
55:45
let’s see are we going to go ahead and
55:46
do some breakout rooms yeah let’s do it
55:50
okay so
55:51
thank you all very much on that
55:53
so can you need a
55:54
okay so i need one of you guys to take
55:56
over as the host since i can’t really do
55:59
this from here so
56:01
you want to take this over then first
56:03
you want to go ahead and make me uh host
56:05
yeah okay
56:07
hey great job pal garrison we appreciate
56:09
it guys hopefully everybody we added
56:11
some value
56:12
uh we like the top shop so we’ll be
56:14
around for at least one or two breakouts
56:16
yeah i know i definitely really
56:18
appreciate you guys uh doing this you
56:19
know it’s like i think it’s great to
56:21
hear like the full life cycle of a deal
56:23
and you know you get to see some things
56:24
that you don’t really get to see or hear
56:26
about
56:27
especially on the sales side and then
56:29
what what are the decisions that go into
56:31
it so i definitely want to thank you and
56:33
bears for uh
56:34
uh giving us some insight into you know
56:36
one of your deals and since you’ve got
56:38
five more so i guess we can do this five
56:40
more times throughout the year
56:45
yeah so sounds good so um why don’t you
56:47
uh go ahead and uh send us into some
56:49
breakout rooms so we’ll go into breakout
56:51
rooms for how long do you think maybe um
56:53
10 minutes so what that said
56:56
networking is a critical part of
56:57
multi-family right you learn you meet
56:59
other people that turns into
57:00
partnerships that turns into friends
57:02
right you do business together et cetera
57:04
so that’s why we do breakout rooms so
57:06
breaker rooms for those that have never
57:07
attended one before right essentially
57:08
we’ll break up the audience into you
57:10
know a smaller environment right think
57:12
groups of five to seven people right get
57:14
to know the other people talk to them
57:16
and maybe something you know happens
57:18
right so we’ll do that for 10 minutes
57:20
and then we’ll bring everyone back and
57:21
then we’ll leave it open so with that
57:23
said right just to recap next nfm live
57:25
will be september 20th and we look
57:26
forward to seeing you all there
