WEBVTT
00:00:00.000 --> 00:00:04.000
Hey, welcome back everybody to the Self-Directed Edge Podcast.
00:00:04.320 --> 00:00:05.599
My name is Joel Landon.
00:00:05.679 --> 00:00:13.279
I'm from Heritage IRA, and every week we like to bring in a new guest in a specific industry.
00:00:13.439 --> 00:00:14.880
Some people call it asset class.
00:00:14.960 --> 00:00:16.960
And today we've got a great guest with us.
00:00:17.199 --> 00:00:19.920
I brought in Ben Suttles from Disrupt Equity.
00:00:20.000 --> 00:00:21.280
Ben, welcome to the show.
00:00:21.600 --> 00:00:22.320
Thanks, Joel.
00:00:22.480 --> 00:00:23.199
Happy to be here.
00:00:23.359 --> 00:00:25.600
Excited to kind of add some value to your listeners here, man.
00:00:25.839 --> 00:00:32.960
Yeah, yeah, I'm pretty confident you and I have had some dialogue already, and I know for sure that they're going to walk away with that value like you're talking about.
00:00:33.039 --> 00:00:41.039
So welcome to the Self-Directed Edge, the podcast for investors who want their retirement capital doing more than sitting in the market.
00:00:41.200 --> 00:00:44.159
I'm your host, Joel Landon, with Heritage IRA.
00:00:48.479 --> 00:00:50.719
Um let's just get right into it.
00:00:50.880 --> 00:00:53.920
I think, Ben, I do this with every one of our guests.
00:00:54.079 --> 00:01:08.079
I like to ask, um, you know, uh, for those who are new to Disrup Equity, why don't you tell a little bit about what the company does and how you and Ferris built uh Disrup Equity into what it is today?
00:01:08.400 --> 00:01:09.439
Yeah, no, thanks, Joel.
00:01:09.599 --> 00:01:14.640
Yeah, I mean, got into commercial real estate in 2012, kind of coming out of the GFC.
00:01:14.719 --> 00:01:16.719
You know, before that I was I was flipping houses.
00:01:16.879 --> 00:01:22.400
So um, you know, kind of that's that's a lot of people's journey is kind of going from single family to multifamily.
00:01:22.560 --> 00:01:25.439
Um, you know, and I was out on my own there for a little while.
00:01:25.599 --> 00:01:32.319
Um, you know, and then I met uh Ferris Musa, who's my business partner here at Disrupt Equity, back in probably 2016.
00:01:32.400 --> 00:01:37.120
Um, I was hosting networking events here in Houston where we're based and where I live.
00:01:37.359 --> 00:01:39.200
And uh we just came kind of became friends.
00:01:39.359 --> 00:01:43.120
I mean, I think you know, partnerships are in a lot of like a lot of ways are like a marriage, right?
00:01:43.200 --> 00:01:45.359
And you know, you got to date a little bit, you know.
00:01:45.519 --> 00:01:49.200
Sometimes if you're if the if you have to divorce, the divorce can be pretty messy too.
00:01:49.280 --> 00:01:57.760
But you know, you want to make sure you have a good match, you know, in terms of skill set, personality styles, work ethic are all important things, you know, when you're looking for partners.
00:01:57.840 --> 00:02:04.079
And so me and Ferris really have gelled pretty well over the last almost 11 years that we've known each other.
00:02:04.319 --> 00:02:08.319
So um, you know, but we decided to hey make it make it official in 2017.
00:02:08.400 --> 00:02:10.319
So we created Disrupt Equity.
00:02:10.400 --> 00:02:17.120
Um, you know, and bottom line, what we do is we we acquire, we develop, and we manage multifamily assets, right?
00:02:17.280 --> 00:02:19.199
And so people are like, what the heck is multifamily?
00:02:19.360 --> 00:02:21.360
It's just apartment complexes, right?
00:02:21.520 --> 00:02:30.240
You know, and so we currently have about 5,300 units spread across, I think, 20 properties that are here in Texas, Georgia, and Florida.
00:02:30.560 --> 00:02:46.960
And um, you know, I mean, ultimately, we spend our days looking for good investment opportunities, managing our current, you know, assets within our portfolio, you know, working with investors, you know, and educating them on investment opportunities, you know, and then, you know, ultimately managing our team.
00:02:47.199 --> 00:02:53.680
We've been able to be pretty lucky in terms of the people that we've recruited here, got a great executive leadership team.
00:02:53.840 --> 00:03:00.080
But I think currently we have about 180 employees spread across the four different companies that we own.
00:03:00.479 --> 00:03:12.080
And uh, you know, and it's it's been an exciting journey, the especially the last few years, where there's been a little, there's been some headwinds in the commercial real estate space with interest rates and inflation and all the things that kind of go along with it.
00:03:12.319 --> 00:03:14.400
But I think it's it's it's made us better.
00:03:14.639 --> 00:03:21.919
We've learned a lot of you know, tough lessons that have that have allowed us to kind of harness how we look at deals and how we look at structure.
00:03:22.159 --> 00:03:30.719
And um, you know, we're looking into that next part of the cycle where we think, you know, going into the end of this decade is going to be one of the best buying opportunities in multifamily.
00:03:30.960 --> 00:03:36.719
And so, you know, but uh yeah, excited to uh, you know, unpack that or go any direction you want.
00:03:36.800 --> 00:03:38.080
But yeah, that's a little bit about us.
00:03:38.319 --> 00:03:39.599
Sweet, Ben, I appreciate it.
00:03:39.680 --> 00:03:46.639
Yeah, I was just kind of taking some notes and um just as a recap, love that you've been in real estate for over a decade.
00:03:46.719 --> 00:03:48.400
Um, you've got that experience.
00:03:48.560 --> 00:03:50.960
Love to hear that you guys kind of do do it all.
00:03:51.039 --> 00:03:53.360
You acquire, you develop, and you manage the properties.
00:03:53.439 --> 00:03:56.159
You've got 20 properties, that's pretty impressive.
00:03:56.319 --> 00:04:05.120
Um, absolutely love that you guys are not just in the business of uh raising capital, managing that investment, but you like to educate your investors.
00:04:05.199 --> 00:04:09.520
And you talked about that with uh with the conversation you and I were having offline.
00:04:09.680 --> 00:04:10.479
Um so thank you.
00:04:10.639 --> 00:04:13.759
Yeah, and let's let's just start unpacking some of those details.
00:04:13.919 --> 00:04:18.319
I see this a lot, especially on the self-directed IRA side.
00:04:18.480 --> 00:04:23.199
Um, that multifamily real estate, uh, it's very attractive.
00:04:23.360 --> 00:04:31.040
It's a very attractive asset class, even and specifically um in an IRA for that long-term investment.
00:04:31.360 --> 00:04:38.800
Um, so just out of curiosity, you could have picked any type of asset class that you wanted, right?
00:04:39.040 --> 00:04:41.759
Um, you know, even the variety within real estate.
00:04:41.920 --> 00:04:44.959
Why did you choose multifamily specifically, you and Ferris?
00:04:45.360 --> 00:04:51.920
Yeah, I mean, I won't speak for him, but I mean, from my perspective, it was it was an easy kind of transition from single family.
00:04:52.000 --> 00:05:00.240
I mean, you know, it's all residential, it's housing, you know, and let's be honest, most of us have lived in an apartment complex at some point in our in our lives.
00:05:00.319 --> 00:05:02.639
And so we kind of understand the concept of it, right?
00:05:02.720 --> 00:05:08.480
Versus like, hey, how do I buy that industrial space or how do I buy that office building?
00:05:08.560 --> 00:05:20.800
Like some of those things were, at least in my mind, you know, and I was a C student, so you know, don't take this, you know, like everybody should struggle with these concepts, but for me, it was a very easy concept, right?
00:05:20.879 --> 00:05:24.639
It's like, hey, this is housing, you know, it's the hierarchy of needs, right?
00:05:24.720 --> 00:05:28.560
You need you need air, you need water, you need food, you need shelter, right?
00:05:28.800 --> 00:05:29.600
Period, right?
00:05:29.759 --> 00:05:32.879
Not everybody needs an office space, right?
00:05:32.959 --> 00:05:37.040
Not everybody is gonna need industrial, not everybody's gonna need to stay in a hotel.
00:05:37.120 --> 00:05:41.040
Those are luxury or you know, kind of more wants versus needs.
00:05:41.120 --> 00:05:51.439
And so that kind of that fundamental need for shelter kind of really spoke to me, you know, and then I love the economies of scales that you get on the on the size properties that we do, right?
00:05:51.519 --> 00:05:57.600
You know, I mean, you can get purchasing power, you can hire staff to manage the property on your behalf, right?
00:05:57.839 --> 00:06:05.839
You know, it's just it's a lot easier to manage a 300 unit property that's all in one place versus 300 single family homes.
00:06:05.920 --> 00:06:15.839
I mean, I remember when I was doing single family flips, I mean, it was I was running all around Houston doing that, and and I had a full-time job at the time and a daughter on the way, and you can imagine how stressed out I was, right?
00:06:16.160 --> 00:06:24.560
So this is a lot more of an efficient way of managing real estate and acquiring real estate, at least in my you know, um opinion.
00:06:24.720 --> 00:06:27.279
And you get really, really good debt on it too, right?
00:06:27.360 --> 00:06:42.879
You know, I mean, I think again, the federal government, through Fanny and Freddie, you know, are our biggest partners on these deals and they give us incredible, you know, financing because again, you're providing housing to people, and so they want to incentivize investors.
00:06:43.040 --> 00:06:46.079
So, you know, again, people are like, you know, what kind of debt do you get?
00:06:46.160 --> 00:06:49.600
And you know, I mean, I'm getting fixed rate stuff up to 10 to 15 years.
00:06:49.839 --> 00:06:52.079
I'm getting 30 years amortization, right?
00:06:52.160 --> 00:06:57.759
These are things that you don't get on other commercial real estate, you're getting 10 to 20 years on amortization, right?
00:06:57.839 --> 00:07:03.360
And what amortization just you know allows you to spread your payment over a longer period, therefore decreasing your payment.
00:07:03.439 --> 00:07:14.160
And so that's all to say that like the reason that the federal government will do that is because it's so crucial to our economy and to the way our way of life, right?
00:07:14.800 --> 00:07:15.519
Providing housing.
00:07:15.680 --> 00:07:23.360
And so that all spoke to me, and that was one of the reasons why I was like, okay, I get it and I want to get into it versus some other niche asset class.
00:07:23.439 --> 00:07:25.759
And then look, we you know, we've been pitched other stuff too, right?
00:07:25.839 --> 00:07:31.040
You know, and and some of it makes sense to me now that I'm in real estate and had 15 years of experience.
00:07:31.199 --> 00:07:49.920
But you know, I'm a big proponent of you know, kind of stay in your lane, be a specialist when it comes to that, you know, not to say you can't do other things down the road, but you want to make sure you have the team built out on the foundation of the thing that you're doing now, versus like we have sometimes as people we have a tendency to kind of go, oh, that's the next shiny object.
00:07:50.000 --> 00:07:51.040
Let's go do this, let's go do that.
00:07:51.120 --> 00:07:52.079
I'm gonna do a little bit of this.
00:07:52.160 --> 00:07:54.959
I'm sprinkling all of these things in, and then you're not doing anything very well.
00:07:55.120 --> 00:07:55.439
Right.
00:07:55.519 --> 00:07:57.920
And so we've kind of said, no, we're not gonna do that.
00:07:58.000 --> 00:08:01.759
We're gonna stay as specialists in the multifamily business, good or bad, right?
00:08:01.920 --> 00:08:05.759
You know, it doesn't matter wherever we're on the cycle, people still need housing.
00:08:05.920 --> 00:08:12.000
And so, you know, that's kind of where we're we're kind of that's the direction that we've taken, and and we've been successful in doing it.
00:08:12.319 --> 00:08:13.279
Right on, Ben.
00:08:13.439 --> 00:08:21.680
You know, the term syndication comes to mind uh whenever I think about commercial real estate, multifamily specifically.
00:08:21.839 --> 00:08:32.720
Uh, let's talk a little bit about that, and I think it'll help us uh lean into the um what the investor can experience as they jump into that asset class.
00:08:32.879 --> 00:08:39.600
So I think just breaking down fundamentally what is a syndication, they hear about it.
00:08:39.679 --> 00:08:42.240
I hear about it all the time with commercial real estate.
00:08:42.480 --> 00:08:47.519
Teach us, educate us, and enlighten us on what that means and how it functions for an investor.
00:08:47.840 --> 00:09:08.080
It's funny because it's it's become somewhat of a negative term over the last few years, just because obviously there's been challenges in the commercial real estate market, but everybody from the BlackRock to the world down to the smallest of shops, if you're raising equity on an investment project, you're syndicating that equity.
00:09:08.240 --> 00:09:08.559
Yeah.
00:09:08.799 --> 00:09:13.919
And you're doing that through a couple different legal vehicles that the SEC regulates, right?
00:09:14.000 --> 00:09:30.639
But in a nutshell, if I'm putting an investment opportunity in front of you, Joel, as an investor, right, there's gonna be a PPM, there's gonna be a subscription agreement, there's gonna be a company agreement that are all documents that you as an investor need to read, understand, and completely agree to, right?
00:09:30.799 --> 00:09:40.799
You know, and and they're they're especially with Claude these days and ChatGPT, you can do these things a lot more quickly, but I always encourage people to read it anyway and understand all the risks.
00:09:40.960 --> 00:09:46.639
But essentially, what you what I am selling is shares in that investment LLC, right?
00:09:46.720 --> 00:09:49.679
So that LLC is going to buy the investment, right?
00:09:49.759 --> 00:09:56.960
Let's say it's an apartment complex in this example, and of that, you as an investor are gonna buy shares in that LLC, right?
00:09:57.039 --> 00:10:00.960
And I am selling you those shares, and that's why it's regulated by the SEC, right?
00:10:01.279 --> 00:10:06.399
And so as a partner in an LLC, you're gonna get a K1, right?
00:10:06.559 --> 00:10:07.840
Because you're a partner, right?
00:10:08.000 --> 00:10:18.799
So each year you get a K1, that's gonna be something that you're gonna file through your own personal tax return, you know, and and you know, and you can do all of these things through a self-directed IRA, right?
00:10:18.879 --> 00:10:28.799
So if you have a self-directed IRA with heritage, right, you know, you can invest through that vehicle into one of our um syndications, right?
00:10:28.879 --> 00:10:29.759
You know, and we've done this.
00:10:29.840 --> 00:10:36.320
I mean, I was telling Joel this on, you know, but for your listeners, like 30% of our investors are self-directed IRAs.
00:10:36.399 --> 00:10:42.399
You know, there's a ton of capital, and you have the flexibility through those vehicles to invest in a lot of different things.
00:10:42.559 --> 00:10:45.600
And it's a purely passive thing as an investor, right?
00:10:45.679 --> 00:10:51.840
The only thing that I ask you to do is read the documents, understand the risks, and then sign the documents.
00:10:52.000 --> 00:10:55.200
And then again, you are just even from there, you don't have to do anything.
00:10:55.279 --> 00:10:59.600
In fact, there's investors that we haven't talked to in years, but we send out monthly financials.
00:11:00.320 --> 00:11:17.440
Once the properties start distributing, we're distributing monthly, all you got to do is just read the monthly updates, you know, wait for the K1s to be disseminated out each year, and then you're sitting back and you're collecting those distributions throughout the course of the hold period, which is typically anywhere from three to seven years.
00:11:17.600 --> 00:11:19.360
So it's not meant to be active.
00:11:19.440 --> 00:11:25.360
You are not plunging toilets, you're not making any decisions, there's not any additional risk, right?
00:11:25.440 --> 00:11:31.279
You know, and that's why it's a passive investment and you're in a limited partner versus a general partner, which is what we are.
00:11:31.519 --> 00:11:33.200
And so that's kind of what it is.
00:11:33.360 --> 00:11:35.279
You're buying shares of an LLC.
00:11:35.600 --> 00:11:40.879
And so, but you know, I mean, it's it's it's the same concept all the way up to the big guys.
00:11:40.960 --> 00:11:43.440
They're all raising capital, it's just who they're raising money from.
00:11:43.759 --> 00:11:44.159
Got it.
00:11:44.240 --> 00:11:44.559
Yeah.
00:11:44.799 --> 00:11:53.120
Ideal structure really uh for an investment like multifamily and even better for the self-directed IRA investor, right?
00:11:53.200 --> 00:12:01.600
That I mean, there's so many specifics tied to using an IRA to invest in alternative assets, one of which it's got to be a passive investment.
00:12:01.759 --> 00:12:09.519
So I love that you shin a little light on that and you mentioned, hey, this is uh you know a long-term, very passive investment.
00:12:09.600 --> 00:12:12.080
You don't have to get your your hands dirty.
00:12:12.320 --> 00:12:20.320
You've got clients that have invested probably five years ago and they haven't had to worry about the going-ons because that's what you guys manage.
00:12:20.399 --> 00:12:26.480
So it's again to button it up, perfect opportunity for for uh a self-directed IRA.
00:12:26.639 --> 00:12:30.639
So um okay, let's get into a little bit more specifics here.
00:12:30.799 --> 00:12:40.720
So tell us how DisruptEquity identifies a property worth acquiring and what makes you more interested in one asset specifically over another.
00:12:40.799 --> 00:12:44.080
I'm sure you look at dozens throughout time.
00:12:44.559 --> 00:12:46.639
What makes it worth it for you guys?
00:12:47.039 --> 00:12:48.720
Well, I mean, we've got a team, right?
00:12:48.879 --> 00:12:59.919
The team is comprised of acquisitions folks, um, analysts, you know, we do a lot of market research, you know, but to kind of get give a step back, year to date, we've looked at about 700 properties, right?
00:13:00.000 --> 00:13:11.120
And those properties are typically they're we we get a first look at those through our broker relationships in Texas, Georgia, and Florida, as well as our relationships with other owner operators, right?
00:13:11.200 --> 00:13:14.720
We know a lot of people in the business and they might say, hey, I'll I'll give you first look.
00:13:14.799 --> 00:13:17.039
I'm looking to sell this property.
00:13:17.200 --> 00:13:18.720
And we underwrite that deal.
00:13:18.799 --> 00:13:35.440
And when I say underwrite, we're looking at past financials and we're projecting out, hey, based on the purchase price and the debt that I can get in today's market and my projections of the financial performance of that asset over the next call it three to seven years, is the returns going to be there for us and our investors?
00:13:35.679 --> 00:13:36.000
Right.
00:13:36.159 --> 00:13:45.200
And if the answer is to uh to that to that question is yes, then we're gonna put in an LOI, which is a letter of intent or an offer to buy the property.
00:13:45.360 --> 00:13:57.360
And if it's accepted, then we go into the phase of negotiating a PSA, which is a purchase and sale agreement, and doing on-site and more intensive financial due diligence on that property, right?
00:13:57.440 --> 00:14:09.759
And if all those check out and we're able to raise all the equity and we're able to put the loan that we needed on the property, then typically 30 to 90, 90 days in the future, we're actually acquiring that property.
00:14:10.000 --> 00:14:12.720
And so, you know, it's a pretty exhaustive process.
00:14:12.879 --> 00:14:34.399
There's probably three to four people internally that touch, you know, the underwriting and the and the projections on these properties, you know, and it's all based on, you know, what we're seeing in the market through our property management company, what we're hearing from the lenders that we work with, what's happening in the insurance market, what kind of property taxes are we're gonna have to.
00:14:34.480 --> 00:14:42.960
So we're getting a lot of validation from outside sources, and then we're we're coalescing that with market research that we do to validate rent growth.
00:14:43.039 --> 00:14:45.120
You know, I mean, what are crime scores in the area?
00:14:45.200 --> 00:14:46.960
What are school districts looking like, right?
00:14:47.039 --> 00:14:58.879
And so we're really sensitive these days to where it's located at, because you know, I can dump$10 million in any property that I want and just make it the most beautiful Taj Mahal, right?
00:14:58.960 --> 00:15:01.840
But I can't do that to the subdivision that it's in, right?
00:15:02.000 --> 00:15:06.720
Ultimately, you know, I can only improve the asset so much, I cannot improve the submarket that it's in.
00:15:06.799 --> 00:15:12.080
And so we're very sensitive to submarket and and and really the where what we're buying it at, right?
00:15:12.159 --> 00:15:15.759
And then ultimately the third third leg of that stool is how do you structure the deal properly?
00:15:15.840 --> 00:15:17.919
Does it de-risk it for our investors?
00:15:18.159 --> 00:15:25.759
And so all of that goes into an investment, you know, um, process and thesis, and then it gets to an investment committee.
00:15:25.919 --> 00:15:36.480
And the investment committee is three of us, and we ultimately not get pitched, but we get educated on the deal, and then we ultimately make the decision are we gonna offer on it, are we not?
00:15:36.639 --> 00:15:38.879
Or and if we're gonna offer, what's the price gonna be?
00:15:39.039 --> 00:15:39.200
Right.
00:15:39.279 --> 00:15:41.919
And then from there it goes into kind of a negotiation process.
00:15:42.080 --> 00:15:44.879
And so it's there's a lot of checks and balances.
00:15:45.039 --> 00:15:50.480
There's not one person making call, it's not me putting my thumb in the air and hoping for the best, you know.
00:15:50.559 --> 00:15:57.759
Um, and and some of this is not necessarily quantitative, it's it's really a lot of it's based on experience and understanding of the market.
00:15:57.919 --> 00:16:02.399
What is what type of you know, rent growth can you expect in that submarket?
00:16:02.559 --> 00:16:05.759
You know, what kind of payroll would you expect on this size property?
00:16:05.919 --> 00:16:10.159
All of those are just really born out of decades of experience.
00:16:10.480 --> 00:16:18.000
And so, you know, we really rely on our teams to make sure that that's all getting validated throughout the process, and then we ultimately decide to pull the trigger or not, right?
00:16:18.240 --> 00:16:30.240
Love it, you know, and and and because we have so much experience in multifamily, that's why going back to my earlier statement in the podcast, you know, I mean, that's why we're just like, hey, I'm I don't have that level of experience and say industrial.
00:16:30.480 --> 00:16:35.679
Yeah, so I'm not going to just like if some industrial deal might be the best deal ever in industrial.
00:16:35.759 --> 00:16:37.200
I don't know if it is or not, right?
00:16:37.279 --> 00:16:43.360
Because I have I don't have the decades of experience underwriting and understanding and managing industrial.
00:16:43.600 --> 00:16:49.360
And so that's why we feel like hey, staying in our lane and really being the best that we can be at multifamily is the way to go.
00:16:49.679 --> 00:16:50.559
Love it, Ben.
00:16:50.799 --> 00:16:53.120
Tell me, what does value add mean?
00:16:53.440 --> 00:16:56.159
I'm sure so many investors you hear that.
00:16:56.240 --> 00:16:57.360
Yeah, it's a buzzword.
00:16:57.519 --> 00:16:58.960
You know, break it down.
00:16:59.279 --> 00:17:00.159
So value add.
00:17:00.399 --> 00:17:06.319
So ultimately, we're trying to add value or valuation to the property, right?
00:17:06.480 --> 00:17:08.559
So, how do you do that in multifamily?
00:17:08.640 --> 00:17:11.359
Typically, you're doing that through a couple different things, right?
00:17:11.440 --> 00:17:15.039
There's exterior renovations and curb appeal.
00:17:15.200 --> 00:17:20.880
I can just think paint, think landscaping, think you know, there's a broken fence, we're fixing the fence.
00:17:20.960 --> 00:17:27.039
We're really trying to drive more traffic and more qualified traffic to that property, right?
00:17:27.200 --> 00:17:33.279
You know, but the real value creation that you have in these deals is through your unit renovations, right?
00:17:33.359 --> 00:17:34.160
And so what does that mean?
00:17:34.319 --> 00:17:37.359
That means that, like, hey, you're taking taking something that's clearly dated.
00:17:37.519 --> 00:17:49.680
Maybe it was, you know, it's the the old brown wood cabinets and Formica countertops, stuff that you would have seen maybe early 2000s or even older than that, and we're updating it to 2026 standards, right?
00:17:49.759 --> 00:18:00.559
So you're putting your color scheme is going to be different, lighting and plumbing fixtures are gonna be updated, flooring is gonna be more contemporary, you know, you're gonna have hard surface countertops versus Formica.
00:18:00.720 --> 00:18:03.599
And so all of these things are what residents these days are looking for.
00:18:03.759 --> 00:18:04.880
And so, what does that mean?
00:18:05.039 --> 00:18:09.599
That means that they are willing to pay more money for that unit, right?
00:18:09.759 --> 00:18:19.599
And so each hundred dollars or two hundred dollars more and in a premium that I can get on the rent, you extrapolate that out over, say, 300 units, right?
00:18:19.680 --> 00:18:26.160
You're adding real value to the property because the way that commercial real estate is valued, it's an NOI divided by a cap rate, right?
00:18:26.240 --> 00:18:31.279
And so the more NOI that I can increase, the more the value is gonna go up, right?
00:18:31.440 --> 00:18:35.359
And so we can't control cap rates and just for people like, what is cap rates?
00:18:35.440 --> 00:18:36.480
What is he talking about?
00:18:36.640 --> 00:18:42.480
That's just uh that's a way for us to value commercial real estate because all commercial real estate's different, right?
00:18:42.559 --> 00:18:43.920
And single family, it's different.
00:18:44.000 --> 00:18:51.359
You're using a comps, you're saying, hey, this this this single family home down the street sold for this, and this one sold over here for that.
00:18:51.440 --> 00:18:56.079
And so therefore, I'm extrapolating out how much my single family home is worth.
00:18:56.319 --> 00:19:02.079
We we don't really do that the way that because this is really just a business that you're buying in the form of real estate.
00:19:02.160 --> 00:19:10.160
And so you have to you have to establish a cap rate, and typically cap rates are just again based on the market somewhat, you know, but it's also based on cost of capital.
00:19:10.240 --> 00:19:11.680
What are interest rates right now?
00:19:11.839 --> 00:19:15.599
You know, how much money is in the market and willing to invest into commercial real estate.
00:19:15.680 --> 00:19:17.680
All of those things drive cap rates down.
00:19:17.839 --> 00:19:20.400
So if they go down, your value goes up.
00:19:20.720 --> 00:19:22.880
If they go up, your value goes down, right?
00:19:22.960 --> 00:19:24.160
So it's an inverse effect.
00:19:24.319 --> 00:19:27.119
So just so people understand that's how we're deriving value.
00:19:27.279 --> 00:19:37.200
And so the one thing that I control is how much money I pump into the deal, how much renovation premium I'm gonna get, so therefore I can uh I can increase my NOI.
00:19:37.359 --> 00:19:40.640
And then the cap rate is again established by the market itself.
00:19:41.119 --> 00:19:50.160
Right on, you know, Ben, one of your earliest properties was the Huntington Park uh apartment complex down in, I think you said it was Beaumont, Texas.
00:19:50.480 --> 00:19:56.960
Would you mind breaking that property down a little bit in in terms of first what attracted you to that property?
00:19:57.119 --> 00:20:01.599
Um, and you know, what was the investment thesis and how did it end up?
00:20:01.680 --> 00:20:08.559
I think enough time has gone by where you can um, you know, you could essentially talk to the value, right?
00:20:08.640 --> 00:20:13.119
The the opportunity and and the success of the Huntington Park property.
00:20:13.440 --> 00:20:14.000
Yeah, yeah.
00:20:14.319 --> 00:20:19.119
First property that I ever bought on my own, uh, it was a 92-unit property in Beaumont, Texas.
00:20:19.200 --> 00:20:21.119
People are like, where the heck is Beaumont, Texas?
00:20:21.200 --> 00:20:26.799
It was it's 90 miles east off of I-10, in uh 90 miles east of Houston off of I-10.
00:20:27.039 --> 00:20:28.240
And it's a smaller town.
00:20:28.400 --> 00:20:32.720
I think there's in the the the general MSA, there's probably 400,000 people.
00:20:32.880 --> 00:20:37.200
It's it's very, you know, tied to oil and gas and refineries.
00:20:37.279 --> 00:20:39.119
Um, there's there's a ton of shipping down there.
00:20:39.200 --> 00:20:40.960
So call it more blue collar.
00:20:41.119 --> 00:20:46.559
Um, you know, and back then I was a little bit younger and had less, a lot less experience and didn't have a contact.
00:20:46.640 --> 00:20:49.279
So I was kind of getting priced out of Houston.
00:20:49.440 --> 00:20:54.960
And so I started looking at kind of these secondary and tertiary markets around Houston, and I found Beaumont.
00:20:55.119 --> 00:20:58.799
And Beaumont was a little sleepy town, but you know, had a lot of good things going for it.
00:20:58.880 --> 00:21:01.680
And so I was able to buy that at an incredible purchase price.
00:21:01.759 --> 00:21:03.440
I think it ended up being like a 10 cap.
00:21:03.839 --> 00:21:07.359
I think I bought it at around$32,000 a door per unit.
00:21:07.519 --> 00:21:11.920
Um, you know, had some partners, cobbled together the money with our investors.
00:21:12.079 --> 00:21:20.880
It was a lot of phone calls and, you know, a lot of no's to finally get$800,000 cobbled together to buy the property.
00:21:21.039 --> 00:21:26.000
Um, you know, and we went through a renovation, you know, just like I was talking about earlier, right?
00:21:26.079 --> 00:21:31.359
Where we improved the property both externally and as well as, you know, on the units themselves.
00:21:31.519 --> 00:21:33.279
And it was cash flowing quite a bit.
00:21:33.359 --> 00:21:38.400
I think back then, I mean, you could really pick up deals for an incredible basis in comparison to the rents.
00:21:38.480 --> 00:21:41.119
So I think year one we had 17% cash on cash.
00:21:41.200 --> 00:21:45.200
And people that are listening to this that are in syndications are like, I've never seen that.
00:21:45.279 --> 00:21:47.039
And and to be honest with you, neither have I.
00:21:47.440 --> 00:21:50.480
So, you know, it was just one of those kind of unicorn deals.
00:21:50.640 --> 00:21:53.599
And obviously, you know, that that was you know a one off.
00:21:53.680 --> 00:21:57.359
I'm not saying that that's an indication of where you should expect cash flows to be right now.
00:21:57.920 --> 00:22:00.400
Um, you know, but it it was it was kind of Cash phone.
00:22:00.559 --> 00:22:05.200
So we sat back on it and we were having a really good time um managing it for a couple of years.
00:22:05.279 --> 00:22:06.960
And then Hurricane Harvey hit.
00:22:07.440 --> 00:22:13.680
And Hurricane Harvey, for those that don't remember, was a big hurricane that came in kind of over Houston in the Beaumont area.
00:22:13.920 --> 00:22:15.839
And it kind of just sat there for a few days.
00:22:16.160 --> 00:22:21.359
It wasn't like what you expect from a hurricane where it just kind of blows through overnight and it's it's done by the morning.
00:22:21.599 --> 00:22:25.839
This one sat there and just rained on us for days.
00:22:26.240 --> 00:22:32.079
And it caused a tremendous amount of flooding in the Houston area and in the surrounding areas like Beaumont.
00:22:32.559 --> 00:22:34.960
And you know, we got feet of rain.
00:22:35.119 --> 00:22:35.599
Feet.
00:22:35.839 --> 00:22:36.160
Wow.
00:22:36.400 --> 00:22:39.920
And um, you know, and so Huntington Park flooded.
00:22:40.720 --> 00:22:46.240
Uh so I woke up the morning of Hurricane Harvey, and it was a very bad day for me.
00:22:46.400 --> 00:22:55.680
Uh Huntington Park had flooded, my parents has my parents' house had flooded, my best friend's house had flooded, and you know, my daughter and and her mother's house had flooded as well.
00:22:56.160 --> 00:22:56.559
Oh my gosh.
00:22:57.039 --> 00:22:59.519
I learned all of those things within a two-hour span.
00:22:59.759 --> 00:23:01.839
So you can imagine what kind of a day I was having.
00:23:02.319 --> 00:23:07.839
Um, you know, but luckily everybody's fine, nobody was hurt, everything is replaceable.
00:23:08.079 --> 00:23:14.319
But, you know, I mean, I had to deal with that stuff personally, but we were also at the same time trying to deal with professionally how do we take care of our residents, right?
00:23:14.400 --> 00:23:17.359
Because the first and foremost is like safety first, right?
00:23:17.440 --> 00:23:23.599
How do we make sure that all of our residents are are safe, that they are supported, and so we had to go down there, you know.
00:23:23.680 --> 00:23:26.799
We had to help, you know, um re-home a lot of folks.
00:23:26.880 --> 00:23:30.559
There were some older residents that we had, a lot of people had lost their car.
00:23:30.799 --> 00:23:38.480
And then the one thing that that that was just a double whammy in Beaumont, the actual water treatment facility had actually flooded itself.
00:23:38.960 --> 00:23:43.759
And so they didn't have water in Beaumont, clean water, for I think 10 days.
00:23:44.160 --> 00:23:53.839
I mean, Exxon had to fly in their engineers to actually fix this thing because Exxon has a big, big presence there in the Beaumont area, and so they they did that on the behalf of the of the community.
00:23:54.319 --> 00:23:56.559
Otherwise, it probably would have been at least another couple weeks.
00:23:56.799 --> 00:24:04.960
So it's hot, people's stuff is flooded, sometimes their cars might have been destroyed, and they didn't have any and they didn't have any clean drinking water.
00:24:05.119 --> 00:24:07.759
And so, you know, it was it was very challenging.
00:24:07.920 --> 00:24:15.599
But luckily, I had a FEMA insurance policy on the property, you know, and it cost me eight, eighty, six hundred bucks, right?
00:24:15.920 --> 00:24:19.200
This is one of the reasons why I think FEMA is probably struggling a little bit these days.
00:24:19.440 --> 00:24:26.319
It paid me out over 2.5 to to repair and and replace the things that needed to be done on the property.
00:24:26.400 --> 00:24:28.319
And so I spent the next eight months.
00:24:28.480 --> 00:24:32.480
Luckily, we had some good general contracting relationships because those guys were going gangbusters at that point.
00:24:32.640 --> 00:24:35.920
Yeah, those were business abundance, they're very busy.
00:24:36.240 --> 00:24:41.920
And you know, but we had a great relationship with a local general contractor, and he got us pretty much at the front of the line.
00:24:42.240 --> 00:24:43.680
And so we were back online.
00:24:44.000 --> 00:24:46.319
I mean, this happened, August was when Harvey happened.
00:24:46.400 --> 00:24:51.759
We were back online by about March or April with the majority of the units, and we were leak we leased back up very, very quickly.
00:24:51.920 --> 00:24:57.039
Well, at that point, all those units that had flooded, I think there's 32 of the 92 that flooded.
00:24:57.359 --> 00:25:00.720
You know, we we completely gutted them and and redid them.
00:25:00.799 --> 00:25:06.400
We did a lot of other things to kind of just, you know, um, and you know, bring it up to code or whatever.
00:25:06.960 --> 00:25:11.279
You know, bring it up to code and all the things that kind of have to happen when when you have to open up walls.
00:25:11.519 --> 00:25:17.680
Um, you know, but it was it was and then we ultimately leased it back up and and a lot of our residents came back to us.
00:25:17.920 --> 00:25:18.240
Great.
00:25:18.400 --> 00:25:25.839
And you know, we we we did the right thing and maintained their the the rent that they had before, even though these these units were completely different.
00:25:26.079 --> 00:25:31.279
And um, you know, so we've kind of turned a bad situation into somewhat of a positive one.
00:25:31.440 --> 00:25:31.759
Yeah.
00:25:32.160 --> 00:25:37.599
And then we sat on it for another year, you know, and then at that point you're saying, like, okay, we've increased the value quite a bit.
00:25:37.680 --> 00:25:39.599
We've put a lot of money into a small asset.
00:25:39.680 --> 00:25:43.359
I mean, I only bought it for three million and change, I think it was 3.5.
00:25:43.519 --> 00:25:46.319
I put by that point, I put almost three million dollars into it.
00:25:46.640 --> 00:25:51.119
So, you know, so you go back and you start saying, Okay, how much is this really worth, Mr.
00:25:51.200 --> 00:25:51.599
Broker?
00:25:51.839 --> 00:25:52.000
Right.
00:25:52.400 --> 00:26:00.240
And then, you know, I mean, we we started kind of getting um, you know, those broker opinions of value back, and we realized, oh wow, we're sitting on a on you know, on a lot of money.
00:26:00.400 --> 00:26:02.480
And so we decided to sell it, you know.
00:26:02.640 --> 00:26:07.680
So I remember, you know, if you guys remember, I bought it at 32, I sold it at 76 a door.
00:26:08.079 --> 00:26:11.440
And so, you know, did very, very well for our investors.
00:26:11.599 --> 00:26:17.519
You know, my parents on that deal, they were they they invited me back to Thanksgiving that next year they're very, very excited.
00:26:17.759 --> 00:26:22.079
You made some good friends, you know, and and and solidified some relationships.
00:26:22.160 --> 00:26:27.039
And so, um, you know, and a lot of those investors are investors to this day because of that one deal.
00:26:27.119 --> 00:26:30.880
Um incredible, you know, and so you know, they're not always like that, you know.
00:26:30.960 --> 00:26:32.799
I mean, I think in a lot of ways I got lucky.
00:26:32.880 --> 00:26:35.119
There there could have been a lot of things that could have gone wrong.
00:26:35.279 --> 00:26:41.920
In fact, July, which was the month before Hurricane Harvey hit, that was when um, you know, our FEMA flood policy was up.
00:26:42.079 --> 00:26:45.119
And we had a debate if we even wanted to renew it, right?
00:26:45.200 --> 00:26:47.839
Because it's like, oh, you know, I mean, we're not really in a flood zone.
00:26:48.000 --> 00:26:49.440
Do we even really need it?
00:26:49.680 --> 00:26:53.279
And we were right there that close from saying, hey, let's not do it.
00:26:53.519 --> 00:26:59.119
And I'm just I pray every night, I'm like, thank you, Lord, for giving me the guidance to make that decision the right way.
00:26:59.359 --> 00:27:04.960
Because I I would probably wouldn't be on this podcast if you know, if, if, if I hadn't, because I, you know, the property we wouldn't have had.
00:27:05.440 --> 00:27:09.599
You wouldn't had had Thanksgiving with family for No, no, no, no, probably not.
00:27:09.839 --> 00:27:20.480
And so, you know, so I, you know, sometimes it's better to be lucky than good, but you know, um, that's why insurance and and de-risking these deals for our investors is the is the most important thing that you can do on these investment opportunities.
00:27:20.559 --> 00:27:26.480
It's like, hey, you know, there's a lot of upside, great when things go well, but you should also protect your downside too.
00:27:26.640 --> 00:27:30.400
And having things properly insured is probably one of the most important things.
00:27:30.480 --> 00:27:36.960
And so anything in Houston or along the coast now, we're always putting flood insurance on it, even if it's not in a flood zone.
00:27:37.039 --> 00:27:41.279
Um, because it's not all that expensive as you sold, 8,600 bucks because it wasn't in a flood zone.
00:27:41.359 --> 00:27:43.119
Well, then turns around and then floods.
00:27:43.279 --> 00:27:43.519
Right.
00:27:43.680 --> 00:27:45.759
So, you know, you just got to be smart, right?
00:27:45.839 --> 00:27:49.200
You know, about how you insure these properties and that that protects your investors.
00:27:49.440 --> 00:27:51.200
So Ben, what a powerful story.
00:27:51.440 --> 00:27:51.920
Love it.
00:27:52.079 --> 00:28:04.480
Um, I think our listeners uh really appreciate you getting into the specifics uh so that they can have not just a good understanding of how you operate and your success, but what to anticipate.
00:28:04.640 --> 00:28:06.559
Like these types of things can happen.
00:28:06.799 --> 00:28:16.400
So, you know, the underwriting of a of a syndicator of a commercial multifamily uh shop like yours is essential, and and I appreciate that very much.
00:28:16.559 --> 00:28:18.240
Well, we're at time then.
00:28:18.319 --> 00:28:24.079
I think that um our listeners are definitely gonna walk away with some value add uh in their day.
00:28:24.160 --> 00:28:38.400
And um, so I appreciate you coming in, and I think for sure we're gonna have you come back and we'll talk a little bit more about um uh use case uh and just give give the listener more opportunity to to feel educated.
00:28:38.559 --> 00:28:40.400
So I appreciate you coming on, Ben.
00:28:40.480 --> 00:28:41.359
Thank you so much.
00:28:41.680 --> 00:28:42.319
Thanks, Joel.
00:28:42.480 --> 00:28:42.960
Appreciate it.
00:28:43.200 --> 00:28:49.039
Yeah, and thank you to everybody who took uh time out of their busy day to listen in, and we'll talk to you next week.
00:28:49.119 --> 00:28:50.640
Take care, bye bye.
00:00:00.000 --> 00:00:04.000
Hey, welcome back everybody to the Self-Directed Edge Podcast.
00:00:04.320 --> 00:00:05.599
My name is Joel Landon.
00:00:05.679 --> 00:00:13.279
I'm from Heritage IRA, and every week we like to bring in a new guest in a specific industry.
00:00:13.439 --> 00:00:14.880
Some people call it asset class.
00:00:14.960 --> 00:00:16.960
And today we've got a great guest with us.
00:00:17.199 --> 00:00:19.920
I brought in Ben Suttles from Disrupt Equity.
00:00:20.000 --> 00:00:21.280
Ben, welcome to the show.
00:00:21.600 --> 00:00:22.320
Thanks, Joel.
00:00:22.480 --> 00:00:23.199
Happy to be here.
00:00:23.359 --> 00:00:25.600
Excited to kind of add some value to your listeners here, man.
00:00:25.839 --> 00:00:32.960
Yeah, yeah, I'm pretty confident you and I have had some dialogue already, and I know for sure that they're going to walk away with that value like you're talking about.
00:00:33.039 --> 00:00:41.039
So welcome to the Self-Directed Edge, the podcast for investors who want their retirement capital doing more than sitting in the market.
00:00:41.200 --> 00:00:44.159
I'm your host, Joel Landon, with Heritage IRA.
00:00:48.479 --> 00:00:50.719
Um let's just get right into it.
00:00:50.880 --> 00:00:53.920
I think, Ben, I do this with every one of our guests.
00:00:54.079 --> 00:01:08.079
I like to ask, um, you know, uh, for those who are new to Disrup Equity, why don't you tell a little bit about what the company does and how you and Ferris built uh Disrup Equity into what it is today?
00:01:08.400 --> 00:01:09.439
Yeah, no, thanks, Joel.
00:01:09.599 --> 00:01:14.640
Yeah, I mean, got into commercial real estate in 2012, kind of coming out of the GFC.
00:01:14.719 --> 00:01:16.719
You know, before that I was I was flipping houses.
00:01:16.879 --> 00:01:22.400
So um, you know, kind of that's that's a lot of people's journey is kind of going from single family to multifamily.
00:01:22.560 --> 00:01:25.439
Um, you know, and I was out on my own there for a little while.
00:01:25.599 --> 00:01:32.319
Um, you know, and then I met uh Ferris Musa, who's my business partner here at Disrupt Equity, back in probably 2016.
00:01:32.400 --> 00:01:37.120
Um, I was hosting networking events here in Houston where we're based and where I live.
00:01:37.359 --> 00:01:39.200
And uh we just came kind of became friends.
00:01:39.359 --> 00:01:43.120
I mean, I think you know, partnerships are in a lot of like a lot of ways are like a marriage, right?
00:01:43.200 --> 00:01:45.359
And you know, you got to date a little bit, you know.
00:01:45.519 --> 00:01:49.200
Sometimes if you're if the if you have to divorce, the divorce can be pretty messy too.
00:01:49.280 --> 00:01:57.760
But you know, you want to make sure you have a good match, you know, in terms of skill set, personality styles, work ethic are all important things, you know, when you're looking for partners.
00:01:57.840 --> 00:02:04.079
And so me and Ferris really have gelled pretty well over the last almost 11 years that we've known each other.
00:02:04.319 --> 00:02:08.319
So um, you know, but we decided to hey make it make it official in 2017.
00:02:08.400 --> 00:02:10.319
So we created Disrupt Equity.
00:02:10.400 --> 00:02:17.120
Um, you know, and bottom line, what we do is we we acquire, we develop, and we manage multifamily assets, right?
00:02:17.280 --> 00:02:19.199
And so people are like, what the heck is multifamily?
00:02:19.360 --> 00:02:21.360
It's just apartment complexes, right?
00:02:21.520 --> 00:02:30.240
You know, and so we currently have about 5,300 units spread across, I think, 20 properties that are here in Texas, Georgia, and Florida.
00:02:30.560 --> 00:02:46.960
And um, you know, I mean, ultimately, we spend our days looking for good investment opportunities, managing our current, you know, assets within our portfolio, you know, working with investors, you know, and educating them on investment opportunities, you know, and then, you know, ultimately managing our team.
00:02:47.199 --> 00:02:53.680
We've been able to be pretty lucky in terms of the people that we've recruited here, got a great executive leadership team.
00:02:53.840 --> 00:03:00.080
But I think currently we have about 180 employees spread across the four different companies that we own.
00:03:00.479 --> 00:03:12.080
And uh, you know, and it's it's been an exciting journey, the especially the last few years, where there's been a little, there's been some headwinds in the commercial real estate space with interest rates and inflation and all the things that kind of go along with it.
00:03:12.319 --> 00:03:14.400
But I think it's it's it's made us better.
00:03:14.639 --> 00:03:21.919
We've learned a lot of you know, tough lessons that have that have allowed us to kind of harness how we look at deals and how we look at structure.
00:03:22.159 --> 00:03:30.719
And um, you know, we're looking into that next part of the cycle where we think, you know, going into the end of this decade is going to be one of the best buying opportunities in multifamily.
00:03:30.960 --> 00:03:36.719
And so, you know, but uh yeah, excited to uh, you know, unpack that or go any direction you want.
00:03:36.800 --> 00:03:38.080
But yeah, that's a little bit about us.
00:03:38.319 --> 00:03:39.599
Sweet, Ben, I appreciate it.
00:03:39.680 --> 00:03:46.639
Yeah, I was just kind of taking some notes and um just as a recap, love that you've been in real estate for over a decade.
00:03:46.719 --> 00:03:48.400
Um, you've got that experience.
00:03:48.560 --> 00:03:50.960
Love to hear that you guys kind of do do it all.
00:03:51.039 --> 00:03:53.360
You acquire, you develop, and you manage the properties.
00:03:53.439 --> 00:03:56.159
You've got 20 properties, that's pretty impressive.
00:03:56.319 --> 00:04:05.120
Um, absolutely love that you guys are not just in the business of uh raising capital, managing that investment, but you like to educate your investors.
00:04:05.199 --> 00:04:09.520
And you talked about that with uh with the conversation you and I were having offline.
00:04:09.680 --> 00:04:10.479
Um so thank you.
00:04:10.639 --> 00:04:13.759
Yeah, and let's let's just start unpacking some of those details.
00:04:13.919 --> 00:04:18.319
I see this a lot, especially on the self-directed IRA side.
00:04:18.480 --> 00:04:23.199
Um, that multifamily real estate, uh, it's very attractive.
00:04:23.360 --> 00:04:31.040
It's a very attractive asset class, even and specifically um in an IRA for that long-term investment.
00:04:31.360 --> 00:04:38.800
Um, so just out of curiosity, you could have picked any type of asset class that you wanted, right?
00:04:39.040 --> 00:04:41.759
Um, you know, even the variety within real estate.
00:04:41.920 --> 00:04:44.959
Why did you choose multifamily specifically, you and Ferris?
00:04:45.360 --> 00:04:51.920
Yeah, I mean, I won't speak for him, but I mean, from my perspective, it was it was an easy kind of transition from single family.
00:04:52.000 --> 00:05:00.240
I mean, you know, it's all residential, it's housing, you know, and let's be honest, most of us have lived in an apartment complex at some point in our in our lives.
00:05:00.319 --> 00:05:02.639
And so we kind of understand the concept of it, right?
00:05:02.720 --> 00:05:08.480
Versus like, hey, how do I buy that industrial space or how do I buy that office building?
00:05:08.560 --> 00:05:20.800
Like some of those things were, at least in my mind, you know, and I was a C student, so you know, don't take this, you know, like everybody should struggle with these concepts, but for me, it was a very easy concept, right?
00:05:20.879 --> 00:05:24.639
It's like, hey, this is housing, you know, it's the hierarchy of needs, right?
00:05:24.720 --> 00:05:28.560
You need you need air, you need water, you need food, you need shelter, right?
00:05:28.800 --> 00:05:29.600
Period, right?
00:05:29.759 --> 00:05:32.879
Not everybody needs an office space, right?
00:05:32.959 --> 00:05:37.040
Not everybody is gonna need industrial, not everybody's gonna need to stay in a hotel.
00:05:37.120 --> 00:05:41.040
Those are luxury or you know, kind of more wants versus needs.
00:05:41.120 --> 00:05:51.439
And so that kind of that fundamental need for shelter kind of really spoke to me, you know, and then I love the economies of scales that you get on the on the size properties that we do, right?
00:05:51.519 --> 00:05:57.600
You know, I mean, you can get purchasing power, you can hire staff to manage the property on your behalf, right?
00:05:57.839 --> 00:06:05.839
You know, it's just it's a lot easier to manage a 300 unit property that's all in one place versus 300 single family homes.
00:06:05.920 --> 00:06:15.839
I mean, I remember when I was doing single family flips, I mean, it was I was running all around Houston doing that, and and I had a full-time job at the time and a daughter on the way, and you can imagine how stressed out I was, right?
00:06:16.160 --> 00:06:24.560
So this is a lot more of an efficient way of managing real estate and acquiring real estate, at least in my you know, um opinion.
00:06:24.720 --> 00:06:27.279
And you get really, really good debt on it too, right?
00:06:27.360 --> 00:06:42.879
You know, I mean, I think again, the federal government, through Fanny and Freddie, you know, are our biggest partners on these deals and they give us incredible, you know, financing because again, you're providing housing to people, and so they want to incentivize investors.
00:06:43.040 --> 00:06:46.079
So, you know, again, people are like, you know, what kind of debt do you get?
00:06:46.160 --> 00:06:49.600
And you know, I mean, I'm getting fixed rate stuff up to 10 to 15 years.
00:06:49.839 --> 00:06:52.079
I'm getting 30 years amortization, right?
00:06:52.160 --> 00:06:57.759
These are things that you don't get on other commercial real estate, you're getting 10 to 20 years on amortization, right?
00:06:57.839 --> 00:07:03.360
And what amortization just you know allows you to spread your payment over a longer period, therefore decreasing your payment.
00:07:03.439 --> 00:07:14.160
And so that's all to say that like the reason that the federal government will do that is because it's so crucial to our economy and to the way our way of life, right?
00:07:14.800 --> 00:07:15.519
Providing housing.
00:07:15.680 --> 00:07:23.360
And so that all spoke to me, and that was one of the reasons why I was like, okay, I get it and I want to get into it versus some other niche asset class.
00:07:23.439 --> 00:07:25.759
And then look, we you know, we've been pitched other stuff too, right?
00:07:25.839 --> 00:07:31.040
You know, and and some of it makes sense to me now that I'm in real estate and had 15 years of experience.
00:07:31.199 --> 00:07:49.920
But you know, I'm a big proponent of you know, kind of stay in your lane, be a specialist when it comes to that, you know, not to say you can't do other things down the road, but you want to make sure you have the team built out on the foundation of the thing that you're doing now, versus like we have sometimes as people we have a tendency to kind of go, oh, that's the next shiny object.
00:07:50.000 --> 00:07:51.040
Let's go do this, let's go do that.
00:07:51.120 --> 00:07:52.079
I'm gonna do a little bit of this.
00:07:52.160 --> 00:07:54.959
I'm sprinkling all of these things in, and then you're not doing anything very well.
00:07:55.120 --> 00:07:55.439
Right.
00:07:55.519 --> 00:07:57.920
And so we've kind of said, no, we're not gonna do that.
00:07:58.000 --> 00:08:01.759
We're gonna stay as specialists in the multifamily business, good or bad, right?
00:08:01.920 --> 00:08:05.759
You know, it doesn't matter wherever we're on the cycle, people still need housing.
00:08:05.920 --> 00:08:12.000
And so, you know, that's kind of where we're we're kind of that's the direction that we've taken, and and we've been successful in doing it.
00:08:12.319 --> 00:08:13.279
Right on, Ben.
00:08:13.439 --> 00:08:21.680
You know, the term syndication comes to mind uh whenever I think about commercial real estate, multifamily specifically.
00:08:21.839 --> 00:08:32.720
Uh, let's talk a little bit about that, and I think it'll help us uh lean into the um what the investor can experience as they jump into that asset class.
00:08:32.879 --> 00:08:39.600
So I think just breaking down fundamentally what is a syndication, they hear about it.
00:08:39.679 --> 00:08:42.240
I hear about it all the time with commercial real estate.
00:08:42.480 --> 00:08:47.519
Teach us, educate us, and enlighten us on what that means and how it functions for an investor.
00:08:47.840 --> 00:09:08.080
It's funny because it's it's become somewhat of a negative term over the last few years, just because obviously there's been challenges in the commercial real estate market, but everybody from the BlackRock to the world down to the smallest of shops, if you're raising equity on an investment project, you're syndicating that equity.
00:09:08.240 --> 00:09:08.559
Yeah.
00:09:08.799 --> 00:09:13.919
And you're doing that through a couple different legal vehicles that the SEC regulates, right?
00:09:14.000 --> 00:09:30.639
But in a nutshell, if I'm putting an investment opportunity in front of you, Joel, as an investor, right, there's gonna be a PPM, there's gonna be a subscription agreement, there's gonna be a company agreement that are all documents that you as an investor need to read, understand, and completely agree to, right?
00:09:30.799 --> 00:09:40.799
You know, and and they're they're especially with Claude these days and ChatGPT, you can do these things a lot more quickly, but I always encourage people to read it anyway and understand all the risks.
00:09:40.960 --> 00:09:46.639
But essentially, what you what I am selling is shares in that investment LLC, right?
00:09:46.720 --> 00:09:49.679
So that LLC is going to buy the investment, right?
00:09:49.759 --> 00:09:56.960
Let's say it's an apartment complex in this example, and of that, you as an investor are gonna buy shares in that LLC, right?
00:09:57.039 --> 00:10:00.960
And I am selling you those shares, and that's why it's regulated by the SEC, right?
00:10:01.279 --> 00:10:06.399
And so as a partner in an LLC, you're gonna get a K1, right?
00:10:06.559 --> 00:10:07.840
Because you're a partner, right?
00:10:08.000 --> 00:10:18.799
So each year you get a K1, that's gonna be something that you're gonna file through your own personal tax return, you know, and and you know, and you can do all of these things through a self-directed IRA, right?
00:10:18.879 --> 00:10:28.799
So if you have a self-directed IRA with heritage, right, you know, you can invest through that vehicle into one of our um syndications, right?
00:10:28.879 --> 00:10:29.759
You know, and we've done this.
00:10:29.840 --> 00:10:36.320
I mean, I was telling Joel this on, you know, but for your listeners, like 30% of our investors are self-directed IRAs.
00:10:36.399 --> 00:10:42.399
You know, there's a ton of capital, and you have the flexibility through those vehicles to invest in a lot of different things.
00:10:42.559 --> 00:10:45.600
And it's a purely passive thing as an investor, right?
00:10:45.679 --> 00:10:51.840
The only thing that I ask you to do is read the documents, understand the risks, and then sign the documents.
00:10:52.000 --> 00:10:55.200
And then again, you are just even from there, you don't have to do anything.
00:10:55.279 --> 00:10:59.600
In fact, there's investors that we haven't talked to in years, but we send out monthly financials.
00:11:00.320 --> 00:11:17.440
Once the properties start distributing, we're distributing monthly, all you got to do is just read the monthly updates, you know, wait for the K1s to be disseminated out each year, and then you're sitting back and you're collecting those distributions throughout the course of the hold period, which is typically anywhere from three to seven years.
00:11:17.600 --> 00:11:19.360
So it's not meant to be active.
00:11:19.440 --> 00:11:25.360
You are not plunging toilets, you're not making any decisions, there's not any additional risk, right?
00:11:25.440 --> 00:11:31.279
You know, and that's why it's a passive investment and you're in a limited partner versus a general partner, which is what we are.
00:11:31.519 --> 00:11:33.200
And so that's kind of what it is.
00:11:33.360 --> 00:11:35.279
You're buying shares of an LLC.
00:11:35.600 --> 00:11:40.879
And so, but you know, I mean, it's it's it's the same concept all the way up to the big guys.
00:11:40.960 --> 00:11:43.440
They're all raising capital, it's just who they're raising money from.
00:11:43.759 --> 00:11:44.159
Got it.
00:11:44.240 --> 00:11:44.559
Yeah.
00:11:44.799 --> 00:11:53.120
Ideal structure really uh for an investment like multifamily and even better for the self-directed IRA investor, right?
00:11:53.200 --> 00:12:01.600
That I mean, there's so many specifics tied to using an IRA to invest in alternative assets, one of which it's got to be a passive investment.
00:12:01.759 --> 00:12:09.519
So I love that you shin a little light on that and you mentioned, hey, this is uh you know a long-term, very passive investment.
00:12:09.600 --> 00:12:12.080
You don't have to get your your hands dirty.
00:12:12.320 --> 00:12:20.320
You've got clients that have invested probably five years ago and they haven't had to worry about the going-ons because that's what you guys manage.
00:12:20.399 --> 00:12:26.480
So it's again to button it up, perfect opportunity for for uh a self-directed IRA.
00:12:26.639 --> 00:12:30.639
So um okay, let's get into a little bit more specifics here.
00:12:30.799 --> 00:12:40.720
So tell us how DisruptEquity identifies a property worth acquiring and what makes you more interested in one asset specifically over another.
00:12:40.799 --> 00:12:44.080
I'm sure you look at dozens throughout time.
00:12:44.559 --> 00:12:46.639
What makes it worth it for you guys?
00:12:47.039 --> 00:12:48.720
Well, I mean, we've got a team, right?
00:12:48.879 --> 00:12:59.919
The team is comprised of acquisitions folks, um, analysts, you know, we do a lot of market research, you know, but to kind of get give a step back, year to date, we've looked at about 700 properties, right?
00:13:00.000 --> 00:13:11.120
And those properties are typically they're we we get a first look at those through our broker relationships in Texas, Georgia, and Florida, as well as our relationships with other owner operators, right?
00:13:11.200 --> 00:13:14.720
We know a lot of people in the business and they might say, hey, I'll I'll give you first look.
00:13:14.799 --> 00:13:17.039
I'm looking to sell this property.
00:13:17.200 --> 00:13:18.720
And we underwrite that deal.
00:13:18.799 --> 00:13:35.440
And when I say underwrite, we're looking at past financials and we're projecting out, hey, based on the purchase price and the debt that I can get in today's market and my projections of the financial performance of that asset over the next call it three to seven years, is the returns going to be there for us and our investors?
00:13:35.679 --> 00:13:36.000
Right.
00:13:36.159 --> 00:13:45.200
And if the answer is to uh to that to that question is yes, then we're gonna put in an LOI, which is a letter of intent or an offer to buy the property.
00:13:45.360 --> 00:13:57.360
And if it's accepted, then we go into the phase of negotiating a PSA, which is a purchase and sale agreement, and doing on-site and more intensive financial due diligence on that property, right?
00:13:57.440 --> 00:14:09.759
And if all those check out and we're able to raise all the equity and we're able to put the loan that we needed on the property, then typically 30 to 90, 90 days in the future, we're actually acquiring that property.
00:14:10.000 --> 00:14:12.720
And so, you know, it's a pretty exhaustive process.
00:14:12.879 --> 00:14:34.399
There's probably three to four people internally that touch, you know, the underwriting and the and the projections on these properties, you know, and it's all based on, you know, what we're seeing in the market through our property management company, what we're hearing from the lenders that we work with, what's happening in the insurance market, what kind of property taxes are we're gonna have to.
00:14:34.480 --> 00:14:42.960
So we're getting a lot of validation from outside sources, and then we're we're coalescing that with market research that we do to validate rent growth.
00:14:43.039 --> 00:14:45.120
You know, I mean, what are crime scores in the area?
00:14:45.200 --> 00:14:46.960
What are school districts looking like, right?
00:14:47.039 --> 00:14:58.879
And so we're really sensitive these days to where it's located at, because you know, I can dump$10 million in any property that I want and just make it the most beautiful Taj Mahal, right?
00:14:58.960 --> 00:15:01.840
But I can't do that to the subdivision that it's in, right?
00:15:02.000 --> 00:15:06.720
Ultimately, you know, I can only improve the asset so much, I cannot improve the submarket that it's in.
00:15:06.799 --> 00:15:12.080
And so we're very sensitive to submarket and and and really the where what we're buying it at, right?
00:15:12.159 --> 00:15:15.759
And then ultimately the third third leg of that stool is how do you structure the deal properly?
00:15:15.840 --> 00:15:17.919
Does it de-risk it for our investors?
00:15:18.159 --> 00:15:25.759
And so all of that goes into an investment, you know, um, process and thesis, and then it gets to an investment committee.
00:15:25.919 --> 00:15:36.480
And the investment committee is three of us, and we ultimately not get pitched, but we get educated on the deal, and then we ultimately make the decision are we gonna offer on it, are we not?
00:15:36.639 --> 00:15:38.879
Or and if we're gonna offer, what's the price gonna be?
00:15:39.039 --> 00:15:39.200
Right.
00:15:39.279 --> 00:15:41.919
And then from there it goes into kind of a negotiation process.
00:15:42.080 --> 00:15:44.879
And so it's there's a lot of checks and balances.
00:15:45.039 --> 00:15:50.480
There's not one person making call, it's not me putting my thumb in the air and hoping for the best, you know.
00:15:50.559 --> 00:15:57.759
Um, and and some of this is not necessarily quantitative, it's it's really a lot of it's based on experience and understanding of the market.
00:15:57.919 --> 00:16:02.399
What is what type of you know, rent growth can you expect in that submarket?
00:16:02.559 --> 00:16:05.759
You know, what kind of payroll would you expect on this size property?
00:16:05.919 --> 00:16:10.159
All of those are just really born out of decades of experience.
00:16:10.480 --> 00:16:18.000
And so, you know, we really rely on our teams to make sure that that's all getting validated throughout the process, and then we ultimately decide to pull the trigger or not, right?
00:16:18.240 --> 00:16:30.240
Love it, you know, and and and because we have so much experience in multifamily, that's why going back to my earlier statement in the podcast, you know, I mean, that's why we're just like, hey, I'm I don't have that level of experience and say industrial.
00:16:30.480 --> 00:16:35.679
Yeah, so I'm not going to just like if some industrial deal might be the best deal ever in industrial.
00:16:35.759 --> 00:16:37.200
I don't know if it is or not, right?
00:16:37.279 --> 00:16:43.360
Because I have I don't have the decades of experience underwriting and understanding and managing industrial.
00:16:43.600 --> 00:16:49.360
And so that's why we feel like hey, staying in our lane and really being the best that we can be at multifamily is the way to go.
00:16:49.679 --> 00:16:50.559
Love it, Ben.
00:16:50.799 --> 00:16:53.120
Tell me, what does value add mean?
00:16:53.440 --> 00:16:56.159
I'm sure so many investors you hear that.
00:16:56.240 --> 00:16:57.360
Yeah, it's a buzzword.
00:16:57.519 --> 00:16:58.960
You know, break it down.
00:16:59.279 --> 00:17:00.159
So value add.
00:17:00.399 --> 00:17:06.319
So ultimately, we're trying to add value or valuation to the property, right?
00:17:06.480 --> 00:17:08.559
So, how do you do that in multifamily?
00:17:08.640 --> 00:17:11.359
Typically, you're doing that through a couple different things, right?
00:17:11.440 --> 00:17:15.039
There's exterior renovations and curb appeal.
00:17:15.200 --> 00:17:20.880
I can just think paint, think landscaping, think you know, there's a broken fence, we're fixing the fence.
00:17:20.960 --> 00:17:27.039
We're really trying to drive more traffic and more qualified traffic to that property, right?
00:17:27.200 --> 00:17:33.279
You know, but the real value creation that you have in these deals is through your unit renovations, right?
00:17:33.359 --> 00:17:34.160
And so what does that mean?
00:17:34.319 --> 00:17:37.359
That means that, like, hey, you're taking taking something that's clearly dated.
00:17:37.519 --> 00:17:49.680
Maybe it was, you know, it's the the old brown wood cabinets and Formica countertops, stuff that you would have seen maybe early 2000s or even older than that, and we're updating it to 2026 standards, right?
00:17:49.759 --> 00:18:00.559
So you're putting your color scheme is going to be different, lighting and plumbing fixtures are gonna be updated, flooring is gonna be more contemporary, you know, you're gonna have hard surface countertops versus Formica.
00:18:00.720 --> 00:18:03.599
And so all of these things are what residents these days are looking for.
00:18:03.759 --> 00:18:04.880
And so, what does that mean?
00:18:05.039 --> 00:18:09.599
That means that they are willing to pay more money for that unit, right?
00:18:09.759 --> 00:18:19.599
And so each hundred dollars or two hundred dollars more and in a premium that I can get on the rent, you extrapolate that out over, say, 300 units, right?
00:18:19.680 --> 00:18:26.160
You're adding real value to the property because the way that commercial real estate is valued, it's an NOI divided by a cap rate, right?
00:18:26.240 --> 00:18:31.279
And so the more NOI that I can increase, the more the value is gonna go up, right?
00:18:31.440 --> 00:18:35.359
And so we can't control cap rates and just for people like, what is cap rates?
00:18:35.440 --> 00:18:36.480
What is he talking about?
00:18:36.640 --> 00:18:42.480
That's just uh that's a way for us to value commercial real estate because all commercial real estate's different, right?
00:18:42.559 --> 00:18:43.920
And single family, it's different.
00:18:44.000 --> 00:18:51.359
You're using a comps, you're saying, hey, this this this single family home down the street sold for this, and this one sold over here for that.
00:18:51.440 --> 00:18:56.079
And so therefore, I'm extrapolating out how much my single family home is worth.
00:18:56.319 --> 00:19:02.079
We we don't really do that the way that because this is really just a business that you're buying in the form of real estate.
00:19:02.160 --> 00:19:10.160
And so you have to you have to establish a cap rate, and typically cap rates are just again based on the market somewhat, you know, but it's also based on cost of capital.
00:19:10.240 --> 00:19:11.680
What are interest rates right now?
00:19:11.839 --> 00:19:15.599
You know, how much money is in the market and willing to invest into commercial real estate.
00:19:15.680 --> 00:19:17.680
All of those things drive cap rates down.
00:19:17.839 --> 00:19:20.400
So if they go down, your value goes up.
00:19:20.720 --> 00:19:22.880
If they go up, your value goes down, right?
00:19:22.960 --> 00:19:24.160
So it's an inverse effect.
00:19:24.319 --> 00:19:27.119
So just so people understand that's how we're deriving value.
00:19:27.279 --> 00:19:37.200
And so the one thing that I control is how much money I pump into the deal, how much renovation premium I'm gonna get, so therefore I can uh I can increase my NOI.
00:19:37.359 --> 00:19:40.640
And then the cap rate is again established by the market itself.
00:19:41.119 --> 00:19:50.160
Right on, you know, Ben, one of your earliest properties was the Huntington Park uh apartment complex down in, I think you said it was Beaumont, Texas.
00:19:50.480 --> 00:19:56.960
Would you mind breaking that property down a little bit in in terms of first what attracted you to that property?
00:19:57.119 --> 00:20:01.599
Um, and you know, what was the investment thesis and how did it end up?
00:20:01.680 --> 00:20:08.559
I think enough time has gone by where you can um, you know, you could essentially talk to the value, right?
00:20:08.640 --> 00:20:13.119
The the opportunity and and the success of the Huntington Park property.
00:20:13.440 --> 00:20:14.000
Yeah, yeah.
00:20:14.319 --> 00:20:19.119
First property that I ever bought on my own, uh, it was a 92-unit property in Beaumont, Texas.
00:20:19.200 --> 00:20:21.119
People are like, where the heck is Beaumont, Texas?
00:20:21.200 --> 00:20:26.799
It was it's 90 miles east off of I-10, in uh 90 miles east of Houston off of I-10.
00:20:27.039 --> 00:20:28.240
And it's a smaller town.
00:20:28.400 --> 00:20:32.720
I think there's in the the the general MSA, there's probably 400,000 people.
00:20:32.880 --> 00:20:37.200
It's it's very, you know, tied to oil and gas and refineries.
00:20:37.279 --> 00:20:39.119
Um, there's there's a ton of shipping down there.
00:20:39.200 --> 00:20:40.960
So call it more blue collar.
00:20:41.119 --> 00:20:46.559
Um, you know, and back then I was a little bit younger and had less, a lot less experience and didn't have a contact.
00:20:46.640 --> 00:20:49.279
So I was kind of getting priced out of Houston.
00:20:49.440 --> 00:20:54.960
And so I started looking at kind of these secondary and tertiary markets around Houston, and I found Beaumont.
00:20:55.119 --> 00:20:58.799
And Beaumont was a little sleepy town, but you know, had a lot of good things going for it.
00:20:58.880 --> 00:21:01.680
And so I was able to buy that at an incredible purchase price.
00:21:01.759 --> 00:21:03.440
I think it ended up being like a 10 cap.
00:21:03.839 --> 00:21:07.359
I think I bought it at around$32,000 a door per unit.
00:21:07.519 --> 00:21:11.920
Um, you know, had some partners, cobbled together the money with our investors.
00:21:12.079 --> 00:21:20.880
It was a lot of phone calls and, you know, a lot of no's to finally get$800,000 cobbled together to buy the property.
00:21:21.039 --> 00:21:26.000
Um, you know, and we went through a renovation, you know, just like I was talking about earlier, right?
00:21:26.079 --> 00:21:31.359
Where we improved the property both externally and as well as, you know, on the units themselves.
00:21:31.519 --> 00:21:33.279
And it was cash flowing quite a bit.
00:21:33.359 --> 00:21:38.400
I think back then, I mean, you could really pick up deals for an incredible basis in comparison to the rents.
00:21:38.480 --> 00:21:41.119
So I think year one we had 17% cash on cash.
00:21:41.200 --> 00:21:45.200
And people that are listening to this that are in syndications are like, I've never seen that.
00:21:45.279 --> 00:21:47.039
And and to be honest with you, neither have I.
00:21:47.440 --> 00:21:50.480
So, you know, it was just one of those kind of unicorn deals.
00:21:50.640 --> 00:21:53.599
And obviously, you know, that that was you know a one off.
00:21:53.680 --> 00:21:57.359
I'm not saying that that's an indication of where you should expect cash flows to be right now.
00:21:57.920 --> 00:22:00.400
Um, you know, but it it was it was kind of Cash phone.
00:22:00.559 --> 00:22:05.200
So we sat back on it and we were having a really good time um managing it for a couple of years.
00:22:05.279 --> 00:22:06.960
And then Hurricane Harvey hit.
00:22:07.440 --> 00:22:13.680
And Hurricane Harvey, for those that don't remember, was a big hurricane that came in kind of over Houston in the Beaumont area.
00:22:13.920 --> 00:22:15.839
And it kind of just sat there for a few days.
00:22:16.160 --> 00:22:21.359
It wasn't like what you expect from a hurricane where it just kind of blows through overnight and it's it's done by the morning.
00:22:21.599 --> 00:22:25.839
This one sat there and just rained on us for days.
00:22:26.240 --> 00:22:32.079
And it caused a tremendous amount of flooding in the Houston area and in the surrounding areas like Beaumont.
00:22:32.559 --> 00:22:34.960
And you know, we got feet of rain.
00:22:35.119 --> 00:22:35.599
Feet.
00:22:35.839 --> 00:22:36.160
Wow.
00:22:36.400 --> 00:22:39.920
And um, you know, and so Huntington Park flooded.
00:22:40.720 --> 00:22:46.240
Uh so I woke up the morning of Hurricane Harvey, and it was a very bad day for me.
00:22:46.400 --> 00:22:55.680
Uh Huntington Park had flooded, my parents has my parents' house had flooded, my best friend's house had flooded, and you know, my daughter and and her mother's house had flooded as well.
00:22:56.160 --> 00:22:56.559
Oh my gosh.
00:22:57.039 --> 00:22:59.519
I learned all of those things within a two-hour span.
00:22:59.759 --> 00:23:01.839
So you can imagine what kind of a day I was having.
00:23:02.319 --> 00:23:07.839
Um, you know, but luckily everybody's fine, nobody was hurt, everything is replaceable.
00:23:08.079 --> 00:23:14.319
But, you know, I mean, I had to deal with that stuff personally, but we were also at the same time trying to deal with professionally how do we take care of our residents, right?
00:23:14.400 --> 00:23:17.359
Because the first and foremost is like safety first, right?
00:23:17.440 --> 00:23:23.599
How do we make sure that all of our residents are are safe, that they are supported, and so we had to go down there, you know.
00:23:23.680 --> 00:23:26.799
We had to help, you know, um re-home a lot of folks.
00:23:26.880 --> 00:23:30.559
There were some older residents that we had, a lot of people had lost their car.
00:23:30.799 --> 00:23:38.480
And then the one thing that that that was just a double whammy in Beaumont, the actual water treatment facility had actually flooded itself.
00:23:38.960 --> 00:23:43.759
And so they didn't have water in Beaumont, clean water, for I think 10 days.
00:23:44.160 --> 00:23:53.839
I mean, Exxon had to fly in their engineers to actually fix this thing because Exxon has a big, big presence there in the Beaumont area, and so they they did that on the behalf of the of the community.
00:23:54.319 --> 00:23:56.559
Otherwise, it probably would have been at least another couple weeks.
00:23:56.799 --> 00:24:04.960
So it's hot, people's stuff is flooded, sometimes their cars might have been destroyed, and they didn't have any and they didn't have any clean drinking water.
00:24:05.119 --> 00:24:07.759
And so, you know, it was it was very challenging.
00:24:07.920 --> 00:24:15.599
But luckily, I had a FEMA insurance policy on the property, you know, and it cost me eight, eighty, six hundred bucks, right?
00:24:15.920 --> 00:24:19.200
This is one of the reasons why I think FEMA is probably struggling a little bit these days.
00:24:19.440 --> 00:24:26.319
It paid me out over 2.5 to to repair and and replace the things that needed to be done on the property.
00:24:26.400 --> 00:24:28.319
And so I spent the next eight months.
00:24:28.480 --> 00:24:32.480
Luckily, we had some good general contracting relationships because those guys were going gangbusters at that point.
00:24:32.640 --> 00:24:35.920
Yeah, those were business abundance, they're very busy.
00:24:36.240 --> 00:24:41.920
And you know, but we had a great relationship with a local general contractor, and he got us pretty much at the front of the line.
00:24:42.240 --> 00:24:43.680
And so we were back online.
00:24:44.000 --> 00:24:46.319
I mean, this happened, August was when Harvey happened.
00:24:46.400 --> 00:24:51.759
We were back online by about March or April with the majority of the units, and we were leak we leased back up very, very quickly.
00:24:51.920 --> 00:24:57.039
Well, at that point, all those units that had flooded, I think there's 32 of the 92 that flooded.
00:24:57.359 --> 00:25:00.720
You know, we we completely gutted them and and redid them.
00:25:00.799 --> 00:25:06.400
We did a lot of other things to kind of just, you know, um, and you know, bring it up to code or whatever.
00:25:06.960 --> 00:25:11.279
You know, bring it up to code and all the things that kind of have to happen when when you have to open up walls.
00:25:11.519 --> 00:25:17.680
Um, you know, but it was it was and then we ultimately leased it back up and and a lot of our residents came back to us.
00:25:17.920 --> 00:25:18.240
Great.
00:25:18.400 --> 00:25:25.839
And you know, we we we did the right thing and maintained their the the rent that they had before, even though these these units were completely different.
00:25:26.079 --> 00:25:31.279
And um, you know, so we've kind of turned a bad situation into somewhat of a positive one.
00:25:31.440 --> 00:25:31.759
Yeah.
00:25:32.160 --> 00:25:37.599
And then we sat on it for another year, you know, and then at that point you're saying, like, okay, we've increased the value quite a bit.
00:25:37.680 --> 00:25:39.599
We've put a lot of money into a small asset.
00:25:39.680 --> 00:25:43.359
I mean, I only bought it for three million and change, I think it was 3.5.
00:25:43.519 --> 00:25:46.319
I put by that point, I put almost three million dollars into it.
00:25:46.640 --> 00:25:51.119
So, you know, so you go back and you start saying, Okay, how much is this really worth, Mr.
00:25:51.200 --> 00:25:51.599
Broker?
00:25:51.839 --> 00:25:52.000
Right.
00:25:52.400 --> 00:26:00.240
And then, you know, I mean, we we started kind of getting um, you know, those broker opinions of value back, and we realized, oh wow, we're sitting on a on you know, on a lot of money.
00:26:00.400 --> 00:26:02.480
And so we decided to sell it, you know.
00:26:02.640 --> 00:26:07.680
So I remember, you know, if you guys remember, I bought it at 32, I sold it at 76 a door.
00:26:08.079 --> 00:26:11.440
And so, you know, did very, very well for our investors.
00:26:11.599 --> 00:26:17.519
You know, my parents on that deal, they were they they invited me back to Thanksgiving that next year they're very, very excited.
00:26:17.759 --> 00:26:22.079
You made some good friends, you know, and and and solidified some relationships.
00:26:22.160 --> 00:26:27.039
And so, um, you know, and a lot of those investors are investors to this day because of that one deal.
00:26:27.119 --> 00:26:30.880
Um incredible, you know, and so you know, they're not always like that, you know.
00:26:30.960 --> 00:26:32.799
I mean, I think in a lot of ways I got lucky.
00:26:32.880 --> 00:26:35.119
There there could have been a lot of things that could have gone wrong.
00:26:35.279 --> 00:26:41.920
In fact, July, which was the month before Hurricane Harvey hit, that was when um, you know, our FEMA flood policy was up.
00:26:42.079 --> 00:26:45.119
And we had a debate if we even wanted to renew it, right?
00:26:45.200 --> 00:26:47.839
Because it's like, oh, you know, I mean, we're not really in a flood zone.
00:26:48.000 --> 00:26:49.440
Do we even really need it?
00:26:49.680 --> 00:26:53.279
And we were right there that close from saying, hey, let's not do it.
00:26:53.519 --> 00:26:59.119
And I'm just I pray every night, I'm like, thank you, Lord, for giving me the guidance to make that decision the right way.
00:26:59.359 --> 00:27:04.960
Because I I would probably wouldn't be on this podcast if you know, if, if, if I hadn't, because I, you know, the property we wouldn't have had.
00:27:05.440 --> 00:27:09.599
You wouldn't had had Thanksgiving with family for No, no, no, no, probably not.
00:27:09.839 --> 00:27:20.480
And so, you know, so I, you know, sometimes it's better to be lucky than good, but you know, um, that's why insurance and and de-risking these deals for our investors is the is the most important thing that you can do on these investment opportunities.
00:27:20.559 --> 00:27:26.480
It's like, hey, you know, there's a lot of upside, great when things go well, but you should also protect your downside too.
00:27:26.640 --> 00:27:30.400
And having things properly insured is probably one of the most important things.
00:27:30.480 --> 00:27:36.960
And so anything in Houston or along the coast now, we're always putting flood insurance on it, even if it's not in a flood zone.
00:27:37.039 --> 00:27:41.279
Um, because it's not all that expensive as you sold, 8,600 bucks because it wasn't in a flood zone.
00:27:41.359 --> 00:27:43.119
Well, then turns around and then floods.
00:27:43.279 --> 00:27:43.519
Right.
00:27:43.680 --> 00:27:45.759
So, you know, you just got to be smart, right?
00:27:45.839 --> 00:27:49.200
You know, about how you insure these properties and that that protects your investors.
00:27:49.440 --> 00:27:51.200
So Ben, what a powerful story.
00:27:51.440 --> 00:27:51.920
Love it.
00:27:52.079 --> 00:28:04.480
Um, I think our listeners uh really appreciate you getting into the specifics uh so that they can have not just a good understanding of how you operate and your success, but what to anticipate.
00:28:04.640 --> 00:28:06.559
Like these types of things can happen.
00:28:06.799 --> 00:28:16.400
So, you know, the underwriting of a of a syndicator of a commercial multifamily uh shop like yours is essential, and and I appreciate that very much.
00:28:16.559 --> 00:28:18.240
Well, we're at time then.
00:28:18.319 --> 00:28:24.079
I think that um our listeners are definitely gonna walk away with some value add uh in their day.
00:28:24.160 --> 00:28:38.400
And um, so I appreciate you coming in, and I think for sure we're gonna have you come back and we'll talk a little bit more about um uh use case uh and just give give the listener more opportunity to to feel educated.
00:28:38.559 --> 00:28:40.400
So I appreciate you coming on, Ben.
00:28:40.480 --> 00:28:41.359
Thank you so much.
00:28:41.680 --> 00:28:42.319
Thanks, Joel.
00:28:42.480 --> 00:28:42.960
Appreciate it.
00:28:43.200 --> 00:28:49.039
Yeah, and thank you to everybody who took uh time out of their busy day to listen in, and we'll talk to you next week.
00:28:49.119 --> 00:28:50.640
Take care, bye bye.
