← Action Academy | Millionaire Mentorship For Your Life & Business
Action Academy | Millionaire Mentorship For Your Life & Business
From College Dropout to $1B in Real Estate w/ Rob Beardsley
00:45:58
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- [00:00]
A
The biggest risk that you can take in your 20s is taking no risk at all.
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B
I'm going to get rich in experience, not necessarily in dollars.
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A
The first deal is never going to make you rich, ever.
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B
You raised $25 million to acquire a $65 million asset.
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A
Somebody somewhere has solved a problem that you are looking to solve.
- [00:17]
B
The more liberal the better, because the politics there, they'll never let you build. So you're the only game in town. You'll raise rents forever.
- [00:25]
A
I just view Mastermind as playing the game on easy mode.
- [00:28]
B
The best deal you ever do is the one you walk away from.
- [00:31]
A
All right, all right. Rob Beardsley. How are you, my friend? Welcome to the Action Academy podcast.
- [00:37]
B
I'm doing awesome. Can't wait to chat with you on this pod, man.
- [00:42]
A
I love having people on this podcast that are what I call like freaks of nature. Like, you got guys, guys and girls that are just like hurricanes, tornadoes that just come in and do really, really big impacts in a very, very short and condensed timeframe. And so it's just like you're like master time manipulators. And so I want you to share quickly for the audience how old you are and what you've accomplished in this last decade, man, because I'm so excited to learn from you today.
- [01:09]
B
Sure, yeah, looking forward to it. So I'm 29 and I started my company LSCRE back in 2018. So I was a college dropout just having turned 21 with a long term vision to build a institutional multifamily portfolio. So it started going back to. And also just for, for context, today we're at over a billion dollars in assets under management in the portfolio. We own 25 properties throughout Texas. We have over 200 employees. We're vertically integrated with property management, asset management and construction management in house. And we have no investor losses or capital calls.
- [01:48]
A
I think if you just let led with the last stat, that would put you in a rare era by itself. That's insane.
- [01:53]
B
You know, you said a hurricane and coming in and doing things in a short amount of time, which is awesome. But you know, really the value for me and the exciting thing for me is staying power and being in the game for the next, not 10 years, but, you know, 30, 40, 50 plus years and passing the business down to hopefully my kids one day.
- [02:12]
A
Absolutely. So let's go back to you at 21 really quickly before we get into what you've built today. Normal thing for a 21 year old to have a vision of being a large multifamily syndicator? Not really. So walk me through that. Like where, where was that kind of, where was the seed planted for that? Did you come from a background of this? Were you in an environment of this? What was your exposure?
- [02:31]
B
Yeah, I had a really amazing upbringing where I had a confluence of influences. One being growing up in Silicon Valley. So I grew up in just a very competitive, very high performing place, a really great place to grow up. Seeing successful entrepreneurs, seeing Stanford grads, seeing, you know, very, very competitive people, and particularly with the tech slant. So I had that tech entrepreneurial kind of culture growing up. But then I also had the influence of my parents growing up. They ran a residential brokerage firm in California, so they were buying and selling luxury homes for their clients, doing some construction projects on the side, some fix and flips, some smaller commercial things like that. And so I got exposure to real estate that way, but it wasn't really a great exposure because what I saw from my parents was a lot of stress, a lot of struggle. Kind of as like not really business owners, but more like solopreneurs, you know, self employed. Yeah, self employed, high, high income, high expenses, that kind of middle class lifestyle. And all that effort that they were putting into wasn't resulting really in building anything long term. Whether it be a long term business asset or even long term real estate assets, everything was like their own hands and feet and just commission checks. And so I got exposure and experience, but I was kind of scarred by that and thought, okay, I need to build something long term, I need to build equity. And so when I went to college for computer science, I got the real estate bug and I started kind of thinking the tech entrepreneur thing. But I also was thinking long term equity real estate thing. And that's kind of when I quote unquote discovered, not that multifamily is anything complicated, it's just going from single family to, you know, one to, to many. But I discovered multifamily as this perfect vehicle to realize my entrepreneurial dreams of building a business as well as building that long term equity and, and growing asset base.
- [04:28]
A
So with that being said in that environment in particular, I know obviously it could potentially be a different outcome if you had gone through in the last five years, especially with this new AI boom. But if you like, what do you think about that in context for people that are maybe listening? I think most of our listeners are probably 30 to 40 year old, you know, so maybe not as many in college, but for anybody, it's like if you could go back, would you maintain with multifamily, or would you have pursued AI as an opportunity?
- [04:59]
B
Yeah, AI is a rabbit hole. We could have a whole show just on that. Right. And then also your question is very interesting in the context of timing as well, because of the economic and the real estate cycle. Right. And I think timing is critical in that cycle as well. So for me, I think I was very fortunate starting in the business, like around 2016 and then 2017, and then really buying our first big deal in 2018 because the market wasn't too hot and it wasn't too cold at that time. So it was a good environment to get started. I think that getting started at the top would be very tricky for a few reasons. And then also at the bottom, and you never know exactly where you are. Right. But at the bottom, it'd be tricky also. And so today I feel like we're closer to the bottom. And if you just look around, like, getting started in raising capital, that'd be a very difficult thing to do right now. But if you're at the top of the market, like back in 2021, you could have gotten started and you could have just gotten wiped out and not had buildup, the staying power, the infrastructure to really ride out the storm. So I'm very blessed as far as that timing. And then as far as the AI timing, I really don't know what to make of it. I think that it's such an exciting time because I'm learning something new every single week about AI, about how to run the business. And I think that sometimes I think that AI is overblown. And then other times I'm like, okay, this is really sweet. This is really beneficial. Fundamentally, though, we're all just humans competing against other humans, right? Because business versus business in the marketplace. And we're just utilizing the tools of the day, right? So instead of sticks and stones or wheels or whatever, you know, now we're playing with Claude and Gemini and et cetera, et cetera. So I don't think that I would have fundamentally, you know, you never know. But I think I'm. I'm doing right what I'm supposed to be doing. And just because I'm in the old boring game of real estate doesn't mean we're not knee deep in AI right now.
- [06:52]
A
Yeah, sure. And I think that also plays to the. To the idea of, you know, market cycles are very important. But as we're all getting started, you know, there is. There is a degree of luck that comes with right time, right place, you know, And I Think anybody that is worth, you know, in the hundred millions, it's like they'll say there's a little bit of luck. But if you ask any billionaire, they're like, oh, I got, I'm the luckiest guy or girl in the world. You know, I was right time, right spot, and I was able to just capitalize on an opportunity. And so I think the macro skill that you're talking about here is just being able to spot patterns and being able to utilize patterns. So you, you spotted the pattern in multifamily. Of course, you know, I'm sure you did a little bit of your own, like market analysis, but you're not like, oh, this is the perfect time, but you were able to go from zero to within two years. You said you did your first deal, so what would you attribute that, that success delta to, to be able to within 24 months do a large deal and talk to us about that deal?
- [07:50]
B
Yeah, there's, there's definitely two keys that come to mind. One is mentorship and the other is baseless courage, if you want to call it that. And I'll start with that one because it's kind of funny, but it's really true. And baseless courage. What I mean by that is just basically I had the guts to do it and I really had no reason to have the guts, right. Like, it was just because I was naive and because I didn't know any better. So I was like, how hard could this be? Let's just dive in and go for it and let's learn along the way. There's, you know, there's nothing necessarily wrong with that, but I think a lot of people, especially as you get older, you get wiser and when you're wiser, you're perhaps more risk averse. And so I didn't have any of that benefit. I'm 21, I've got nothing to lose. Like, how hard could it be? So let's go. And so that's a great attitude to have, as long as you're really willing to back it up with the effort. Because just because we went for it and it worked out doesn't mean it wasn't very, very difficult. Right. Especially on those first few deals. When you're learning as you go, if you're gonna go down the route of learning as you go, you're going to make a ton of mistakes, which we did, and have to learn on the fly and make very, very tough calls and work really hard. So I would say that that's the trigger and Then the follow up is the hard work and then really the guide is the mentorship. Because you can work all out, you know, all you want. You could work the hard, you could be the hardest worker, but if you're working in the wrong direction, it's not going to get you anywhere. And so mentorship is great. I joined a few mentorship groups, you know, like masterminds and, and meetups and conferences and things like that right off the bat. And that couldn't have been a better decision. You know, I think that when I say those words, some people might have negative associations like, oh, masterminds are a scam or like course seller and like this, that sort of thing. And you know, for, for me, it just put me in the right rooms where, where I worked my butt off to network and learn everything I could and gain value. You know, wherever I was, I, I was gonna get the value that would benefit me and take me to the next step that I was trying to get to.
- [09:51]
A
Yeah, it's, it's funny. So two things to pull out from what you just said. The first is that one of my mentors gave me a quote where he was like, the biggest risk that you can take in your 20s is taking no risk at all because you have such limited downside. Like you have nothing to, you literally have nothing to lose. And so for people listening or watching, it's like it doesn't matter if you're 20, 30 or 40 years old. It's just like you have to, you have to take some risk. You have obviously your relationship with risk adjust over time. And that's why we talk about risk adjusted return. But you have to at some point draw a line in the sand and actually like execute and take the leap. And so kudos to you for doing that. And then with Mastermind as well, of course I'm biased because I run two of them. But with that being said, it's just, I just view Mastermind as playing the game on easy mode. It's. Somebody somewhere has solved a problem that you are looking to solve and now you are just paying to get the cheat code to that level of the game. And just so it's a no brainer to me. But it's funny how the general public kind of poo pooes on it. You're like, man, it's like all the answers that you want are right here. It's like it's in this room. He's sitting over there by the punch, you know, so walk me through that first deal. So, so you go Join these mastermind groups and you start learning commercial real estate. What was the first deal?
- [11:10]
B
Yeah, so the first deal that was really under our control because before that I had done some smaller deals where I was a minority partner and just kind of crunching numbers and pitching in and just learning, raising some capital, but not really being the lead sponsor, day to day operator and so on. But the first real deal that we did was a 261 class C multifamily property in Houston that we bought was 1980s vintage, your typical suburban box. Didn't have washer and dryers in the unit. So that deal we, you know, we really learned a ton from A to Z. Going from just negotiating the contract and dealing with a seller for the first time to raising capital, working with the lender takeover management, implementing a business plan, you know, putting in the washers and dryers, doing the interior renovations, dealing with crime. You know, I was on, on the property one day when, you know, there was like some crime happening, you know, something funky happening in the parking lot. Right. And just being a part of that and learning things like that. So that deal just gave me a world of experience even before we closed.
- [12:14]
A
And I think you said something there that's a multimillion dollar piece of advice that people try to skip over, which is you helped in a smaller capacity in a few deals prior. And I'm doing the exact same thing in hospitality right now where I had never done a hotel before. And so my business partners that I'm on, I'm on the gp, but I'm a small, smaller percentage so that I can learn and I can go full cycle with them. And then in the next couple of deals, then I would now have the track record and experience to be able to be a larger percentage of the gp. Can you share that experience with the audience here? Because I don't think that there's a way that you can shortcut that.
- [12:55]
B
Yeah. And I, I've thought about this in different ways and you can try to, let's say, right, it's kind of just an equation where you could say, okay, I want to do, let's say, my own deal, and that's fine, but let's say it takes you twice as long, maybe even longer, to pull that off because it's such a more difficult thing. Whereas like you're saying if you do a co GP on a hotel deal or whatever it is that you want to get exposure to, that could happen much faster. You could be talking months instead of years, and that could then build the Momentum. So momentum is really key. So whether it's. It sounds like in your position, in my position, where we're partnering to help work through the lender due diligence and raise capital and asset management, those sorts of things stack up to build your resume and track record, which help for future endeavors. Because it's a whole lot easier to raise capital when you've got that experience behind you and you can speak to it. It's important for lenders as well. Lenders, that counts. Lenders want to know what your experience is, Right. They don't want to lend to a first timer. So if you have that experience behind you, makes that easier as well. So it's not impossible. But it's kind of like you said about masterminds, right? It's on easy mode. It's a cheat code. It just builds your momentum to, to get to that next step. And that next step, for me, it certainly wasn't okay. Now I'm doing my own deal and I don't need help from anyone and life is good, right? It was still, yes, it was my own deal and I was the lead sponsor, but there was, I need, I still needed a huge team around me, I needed a bunch of partners, I needed a lot of help for raising capital, loan guarantor, property management and a bunch of other things that I'm forgetting about right now. Right. And then that's just the reality. So even though it was my deal, quote unquote, I was still a minority. Right. And that's perfectly fine. I was, I was much, I was very happy to get the deal done and not necessarily become rich off of it. Right. And just I'm going to get rich in experience, not necessarily in dollars. And that's perfectly fine because it's in alignment with my long term vision.
- [14:58]
A
I think that's a great general piece of advice for anybody doing their first commercial deal is just don't aim to get rich in dollars. Get rich in experience. You know, just come in and learn. Because the first deal is never going to make you rich, ever. It's like, how do you, how do you build the relationships, how do you build the partnerships and so forth and so on. And then later on is like when the money is going to actually compound and come back to you. So what happens next? So we get that first deal, you build a little bit of confidence. Walk us through the scale process. Because how you did this over the last 10 years to get to a billion assets under management is obviously different than how the majority of operators have done it. Because right now, I mean, to call a spade a spade, if you look at the multifamily market, it's carnage. It's a. It's a lot of blood. It's a lot of carnage. A lot of operators mismanaged funds. A lot of people that even were good operators came in and. And bought a bunch of deals, but they couldn't refinance the debt. And now, you know, they're stuck underwater and they can't raise any more capital. So how did you guys do this the proper way? And then the piggyback question to that will be advice to people that are getting started now in today's market.
- [16:09]
B
So going back to the start, like we were talking about the market cycle, luck is a part of it, right? Because starting in 2017, 2018, we could feel the market change heading into 2020. Obviously, 2020 was a weird year all on its own, but then 2021, 2022, you know, that's. The vibes are very different than 2019, 2018. And so we could feel that the market. And there was a lot going on. And we also were not immune to the greed, if you will, of the times, right? And we got swept up. And looking back on it, it's like, gosh, I can't believe we underwrote that. And I can't believe we used this much debt and whatnot. So we've learned from that cycle experience for sure. But the luck that we had, or I guess the foresight, was that we didn't lean into it quite, quite as hard as other people, right? We were more cautious. We didn't buy as many deals. We really were looking for the needle in the haystack for deals that we felt could withstand a market cycle. And we were much more careful about bridge debt. So today in our portfolio, we're only sitting on one bridge loan from that period. And that is a challenging deal for sure. I mean, there's, like you said, carnage. So there are definitely problems, and we're not immune to those. But the scale, scale is, is the thing that kills people in this time. Because if you've got 10 deals and all 10 of them are crying and you need to tend to them, that's very, very hard. If you only have, let's say, you know, one out of ten. So that's a really big difference. And I think the way that we went about building relationships with investors from the very beginning was also a little bit different because, you know, frankly, we. We called it hot money. It was the investors that showed up overnight and they were wowed by recent performance. So they saw a sponsor who delivered a 3x in a handful of years, which is incredible. I mean, that's, those are, that's amazing performance, but that's not really what real estate is supposed to do. So people were piling into the market and saying, oh, that's cool, let me get some of that.
- [18:19]
A
With unrealistic expectations.
- [18:21]
B
Yep, right, exactly. So sponsors were like, okay, cool, we can do that again. And so we're gonna pitch it as like, hey, we're gonna do that again. And so the money flooded in and so we didn't really do that. The way that we presented deals to our investors were more, you know, much more, I hate to use the word conservative, but you know, much more realistic expectations. And so that attracted more, I would say, of the sophisticated investors, not the quote, unquote, hot money, like, like we mentioned. And so because the hot money, it's here today, gone tomorrow. Right. So if you raised that hot money in 2021 and then you didn't deliver the 3X, you know, those investors could be the ones disappearing on you. They could be the ones filing lawsuits on you. And they are most certainly not the people who are reinvesting with you. And so that's, I think, very unique and really a blessing. About us is the investors that brought us here are the investors that are investing with us to this day into great opportunities as the mic, as the market has reset. Right. Because I think we can all agree that acquisitions in 24, 25, 26 are going to massively outperform the acquisitions of, you know, 2021, 2022.
- [19:32]
A
Absolutely. So can you talk a little bit? Because I watched a few of your videos and you, you describe yourself as a kind of a self proclaimed introvert, more of a numbers guy, spreadsheet guy. And now we're over here talking about, you know, the capital investors and the capital partners and obviously they play a crucial role to the infrastructure and the scale of the company. So how have you gone about this as the, as the founder of the company, as you've gone through this as a self proclaimed introvert? How do you view capital partner relationship management, communication, cadence? How do you, what's some advice that you can give to people? Because I feel like you guys have done this very, very well, like to a 0.000 top 1% degree. And I've seen a lot of people do it very poorly. So how did you guys do it? How do you think about it?
- [20:19]
B
I think because I'm an introvert And I would say that a lot of that type of stuff doesn't come naturally. I think that that is actually a good thing because it's caused me to work extra hard to overcome those issues. Kind of like the opposite challenge. It's kind of just a funny thought. I never thought about it before, but our director of business development, Craig, he's my best friend and he's also our number one sales guy and he's natural born salesman. He's just amazing, great with people and all that, but he was, he's dyslexic, right? So he's not great with numbers. And so he's worked so hard to become good with numbers that he's, he's there, right. And it, because it didn't come easy to him, right. It's kind of like how the good is the enemy of the great. Right? So he, he's made it a point to become great because of that deficiency. And kind of for me, on the flip side, I don't want to say I'm like bad socially, but you know, like, it doesn't come naturally to me to do sales and do marketing and all that sort of stuff. So it's caused me to come at it with extra energy, extra effort, extra, you know, being more methodical. So it all goes back to deal number one. And that's because at first it was what I didn't know. I didn't think, I had a bad belief system where I just thought, well, raising money is going to be easy. It's an afterthought. I don't have to put much work into this. Little did I know, it's literally half the business. And so today we put so much effort and resources into investor relations communication because we're delivering more than just financial returns for investors. We're delivering an experience, we're delivering comfort. My favorite thing is peace of mind and sleeping well at night. And so you can't deliver that by just providing monthly distributions, right? You've got to do the communication. And to get people in the door in the first place, you've got to do it as well. And so having that wake up call in the first deal and realizing, wow, this is a huge part of the business. That's what caused me to reframe my thinking and understand that I need to moving forward, dig the well before I'm thirsty. Right? You can't just spend all your time over here talking numbers and doing deals and the asset management. And then when you have a new deal, you say, hey guys, I have A new deal. You ready? Doesn't work like that. Right. You need to be constantly nurturing, constantly working at this. And over the last, you know, nearly 10, I guess, 10 years we've been building that nurture campaign and all the different ways that we go about it, which include three books that we've published, doing podcasts like this, having our own podcasts, newsletters, in person events. That's quick shout out to in person. Maybe it's cliche, maybe it's not, but I feel like you can get so much value from in person events over hiding behind your screen all the time, doing zooms and doing virtual summits and you know, email marketing and so on and so forth. So we really lean a ton into in person, whether it be investor dinners or mastermind events, you know, like retreats and things like that. So we started with kind of one thing and then layered on, you know, piece by piece by piece with, you know, like you tell someone, hey, you need to do marketing. It can be so overwhelming because they think, oh my gosh, I need to be posting on TikTok and Instagram and X and this and this and this. And that is the truth. But it starts with one, right? It starts with just for me, I liked writing and so for me it just started with writing a great high quality article that I sent out as a newsletter once a month and then from there, you know, layer on LinkedIn posts and videos and so on and so forth.
- [23:48]
A
Yeah, I, I think that's absolutely wonderful. What's, what's funny to me is I, I was kind of trained in the opposite approach where it was when you are in entrepreneurship, it's X your superpower and delegate, slash hire your weaknesses. And so that's interesting. Like, I mean there is no right way to do it. And so it's very interesting to me your perspective on that because normally you don't typically see that. Right. So it's like for me, I'm really not too wonderful of like an underwriter or a spreadsheet guy or a numbers guy. But to your point, it's like I have had to learn systems and processes that are required from scale. So I do understand a little bit of the well roundedness, you know, are there other areas? Do you kind of employ that same idea or methodology across all areas or are there some areas where you're like, no, I do have a zone of genius here. I'm absolutely going to just 10x the zone and just hire and delegate the rest.
- [24:44]
B
That's a really good point. I think for especially our business, it's very hard to delegate investor relations, especially when you're a small company and when everyone wants to talk to the founder and everyone's used to talking to the founder. And then if you're going to shove someone else in between you and tell them, now you're talking to this person, that's a transition that's not easy to do. So I think in terms of delegation, the way I think about delegation is you've got the quadrants, right? You've got the stuff that is easier to delegate, you've got the stuff that's harder to delegate, you've got the stuff that is high roi, delegation and stuff that's low roi. Right. And so the sweet spot, obviously, is stuff that's easy to delegate, and you get a high ROI off of it. Like, it takes up a lot of time and it's easy to get rid of. Boom, delegate. And so when you. I'm always looking at tasks, you know, where does it fall in that quadrant? And so investor relations, I would definitely say hard to delegate. You need to have great people who you can trust. Great. To be your mascot, to be your liaison, to talk to your investors on your behalf. That's a huge, huge deal. And. But we did it, right? It's possible. Anything's possible, right? So today my workflow looks very different than at the start, Right? At the start. Necessity is the mother of all invention. If I need to raise $5 million, I'm gonna wake up and do that until I fall asleep, right?
- [26:08]
A
Yep.
- [26:09]
B
But now we've built out the infrastructure to where I don't have to spend my whole day on that. So I think, the way I think about it, to kind of like your overall idea as far as, you know, focusing on your genius, I just go where the necessity is, and then I build that out to the best of my ability and then try to delegate. I have. I don't. I haven't really done too much delegation where I haven't first become an expert in it, because it's very hard to delegate when you don't know. Right. So I think I could do a better job. Right. It's not like I'm doing a perfect job, and someone who's better at business than me would have more confidence to scale faster, hire people who they can trust and who can kind of spin things up, different departments and growth and go faster. So I certainly am limited. Everyone's limited by our own abilities and belief systems and stuff like that. So I would say it's a Bit of humility there to, to say, like, hey, I'm going to grow at the pace that I can kind of learn the different bottlenecks of the business and then delegate from there.
- [27:11]
A
I think it's well said. It's, I just recently learned, I think it was two years ago, the difference between delegation and abdic. So for people that are listening, because you guys don't, I promise you guys, you don't know what abdication means, because I sure as hell didn't. So abdication is when you just dump something on someone's plate and say, here, go do it. And you're like, okay, congrats, I delegated. I did what the Instagram reel told me to do. And to your point, I think that you articulated it very well, which is unless you have a very deep understanding of a task and the workflows that are required to pull it off, how are you able to fully and accurately, like train somebody else to do it? And so delegation is the process of actually training somebody to do it, doing it with them together, watching them do it on themselves, giving feedback. And that comes with a huge body of knowledge. And so, yeah, no, I think very well said. So to that point in particular, you guys have how many, how many? What's your headcount today? You said over 200 at your company.
- [28:05]
B
Yeah, we're, we're about 225.
- [28:08]
A
So you know that obviously more than anybody that it's very difficult to scale from a cash flow perspective because a lot of the times you guys are very equity rich as you're scaling, but cash flow, it's very hard to keep the lights on as you're, as you're going because you're redeploying all the capital back into more deals and more deals and more deals. And so you said, I believe you said you are vertically integrated, right, with property management, with a few other companies. Walk me through that. Because my hypothesis is like that is how you're able to generate a lot of the cash flow. Is that correct? To kind of play defense?
- [28:41]
B
Yeah, I would say that is partially true. I mean, property management is not particularly known as a profitable business. It's, it's a very low margin business. Very just bottom line, very people intensive. But in my opinion, it's critical. It's a critical part of the business if you want to be a long term sponsor. Right, which is what we want to be. We want to be in business for a long time. We want to be owners and managers and that's just a very good marriage of that vertical integration. Because the flip side, if you're a sponsor and you have to hire third party management, you know, you, you take that counterparty risk, you're beholden to a third party. It's also negative from a fundraising perspective because you look and you are less differentiated for investors. You know, why would an investor invest with you when you hire out the management versus someone else who has the management in house? They're vertically integrated, they just have more control, they have more levers to pull. You know, we can put our team's focus where it needs to be. Whereas a third party, if you're relying on a big management company, they might have another owner that they're paying more mind to and so on and so forth. So that's kind of a separate conversation. But as far as like a degree
- [29:50]
A
of control, it's like within your locus of control.
- [29:52]
B
Yeah, I think control is a huge thing. Risk mitigation is a huge thing. And then secondarily, like, yes, eventually you get to the scale where it does bring you cash flow and profit. But that happens at a higher size than people think because you have to be quite big to generate the management fees that are, are really good. And that's just because of the way the management business and multifamily is structured. We make 3% of revenue. And when you crunch all the numbers, that's a very small percentage. And so you kind of need to get some scale. And so buy bigger deals, buy more of them, grow the portfolio. But that's not so easy to do if you're buying, you know, junky property and, you know, over leveraging it and so on and so forth because, you know, then you're spending all this time paying the properties rather than them paying you.
- [30:42]
A
Yeah, it's get rich guaranteed, not get rich fast and multifamily. And the frame that I asked that question in, in particular is ironically, multifamily. In kind of the bigger pockets days was sold. RIP by the way, was sold as this, like, get out of your job vehicle. You know, where it's just like, oh, you know, yeah, passive income. Invest in multifamily, you know, get out of your job. And obviously, as somebody that's running a community that invests in commercial real estate and business, we've very quickly learned that is not the case. And so that's why when everybody's like talking about all this cash flow, I'm like, well, the cash flow doesn't really exist in the very beginning. You know, the cash flow comes later. So can you Give some advice, you know, for somebody that is wanting to really like go ten toes deep into this, you know, like how do you kind of keep the lights on in the very beginning when you're getting started? Because it's a, it's a snowball rolling down a hill that obviously gains size and size and momentum over time. But in the beginning it's really, really hard to pay the bills when you're, when you're in scale mode. So how do you kind of go about that and what's the advice you can give to somebody that's a newer operator?
- [31:49]
B
So if someone's going, like you said, head first into being an operator, where you're desirous of being a lead sponsor, raising capital, doing the day to day management, eventually vertically integrating and bringing more facets in house so that you can become more profitable with the same amount of assets under management. It's a great journey. Super exciting. But yes, the early times are difficult, but what I would say is actually quite interesting. The very beginning is ideally maybe not actually the hardest and the, there's different reasons for that. One, if you are earlier in the journey, you know, perhaps you yourself, the founder, have less or lower personal expenses. That's helpful. And then the, the other thing that's helpful is when you're getting started, you don't have a bunch of deals, you don't have a bunch going on. Like you might be going from a portfolio of none to 1 or 1 to 2, 2 to 3. And at that scale, it's not fun, but you can really do everything yourself. And so you don't need to hire a, an acquisitions team, an asset management team, an HR team, accounting team and so on. Right. So you can keep payroll very lean. And, and that's actually a great thing. I mean you, you have to do that to cash flow. But it's also a great thing to do because you can learn all the facets of the business yourself by getting your hands dirty and wearing those multiple hats. The part that I think is actually really hard is that awkward middle phase. Kind of like when you're growing out your hair. Yeah, that messy middle where you're too big to do everything yourself.
- [33:26]
A
Can't afford it. Right.
- [33:28]
B
You can't afford to hire out all those people. So you're kind of stuck. And so you can accept a period of mediocre margins or you can pull your hair out because you and your team are overworked. I don't know what the answer is. I don't know what the right answer is. And I would say, to some extent, we're not even fully out of that phase, right? So that phase is kind of what you make it and how you choose to go through it. But yeah, that's a challenging phase. So I would just say, like, you gotta really try. My brass tacks advice is just try to keep that payroll down. Cause it's exciting to hire people. It's like, yeah, we're growing and we have more employees. And I just hired this person and they're so great. But you gotta fight that urge to some extent. And then the other thing is you need to, I think specifically to multifamily. This is the big one. You gotta pay respect to the assets. How do I say, like the return on brain damage or the cost of brain damage? Because on the spreadsheet, every deal takes up the same amount of your time. But in real life, deals have a radically different impact to your team's stress levels and time. For example, if you buy a deal that's in a great location, great tenants, everyone's got great jobs, the property's new, so it's not constantly falling apart, that deal is going to take up 10% of your team's time compared to the deal that is old bad part of town. Crime, evictions, everything's always breaking. You've got to constantly be, you know, replacing stuff. And there's just way more going on there. You can't have a portfolio of 10 of those old problem deals, but you could do 10 of the good deals. So that's the big insight. The big insight is you want the deal that is not a headache to run. And that sounds so obvious, right? Sounds sure. Why would anyone pick the rundown deal, the class C deal, the deal on the wrong side of the tracks, right? Why are we even talking about this? And the simple answer is it looks sexy on the spreadsheet. On the spreadsheet, that deal in the wrong part of town is going to show higher projected returns. You're going to get excited. It's going to be, wow, we can turn this thing around. We can make money. It's going to cash flow. It's a 6 cap, a 7 cap, or 8 cap, whatever cap. The reality is, when you actually own that deal, it's going to be a nothing cap. You're going to hate owning it. It's not going to cash flow to what you expected, and you're going to wish you bought the less of a headache deal that was projected to make you less on paper.
- [35:57]
A
So it's like going from Roe being return on equity to return on effort and energy.
- [36:03]
B
Totally. And that's the scalable thing, like very few. And this is just if you take, if you look at like the grand scheme of things, not just, you know, people on this podcast like us, little guys starting our own little businesses. Look at the biggest owners of real estate in the country. There's very few of them that have pulled it off by owning older. I just, you know, cherishingly or whatever call it junky property. Right, junk. Very few companies in the country have scaled that way. Eventually when companies grow, they buy more and more and more of these, they collapse under their own weight or they get smart enough and realize this doesn't work, we're going to start buying the nicer deals. So that's, that's just the truth.
- [36:44]
A
How often are you auditing your own portfolio to be able to determine what areas to cut off? Because I think I know a lot of people that are really good at addition. I don't know many that are great at subtraction.
- [36:58]
B
Yeah, well, that, the thing about real estate, which is a beauty, it's a beauty, but it's also a challenge, is that it is very illiquid. And this is, these are long term plays, or at least in my opinion they should be. Yeah. Of course there's fix and flips and there's development and there's many different strategies. But for me it's a long game. I want to buy property for, you know, five to 10 years, maybe even longer. And so when you have that longer term outlook, you know, you're not doing too much like waking up one day and going, this doesn't work for me anymore, I'm going to flip, I'm going to get out of it. Right. So you're much better off just making the right decision on the front end before you buy the deal. Right. As I think a lot of people say, the best deal you ever do is the one you walk away from. And, and that's just so true in our business. So I think that's really the best bet as far as auditing our portfolio. You know, we live and breathe with our portfolio every day. You know, every day we're in the numbers, we're on, on, on the phone with our, our on site teams, our, our tenants. And every month we're auditing the financials. So these are businesses that you're living with every day, Every month. And so which is going back to my original point, you're not buying a spreadsheet, you're not buying A stock, you know, you're buying a business that you're going to have to live with for five to 10 years. And so you want to do that due diligence upfront.
- [38:21]
A
Yeah, no, I think that, I think that's very well said. So in the closing bit here, you've mentioned a few times about, you know, not necessarily going class C, but rather class A. And in today's market it kind of makes more sense to just go class A. So let's kind of end this with a market update because it's no secret that multifamily has been very, very difficult in the last couple of years. And so, I mean, I think that we're seeing kind of a light at the end of the tunnel, so. And you guys just did one of your largest and best deals ever. So share a little bit about the deal and what you're seeing in the market right now and kind of what your, your market plan is for the next three years or so.
- [38:59]
B
Yeah, sure. I mean, last month, like you mentioned, we, we did our, our largest deal ever. We raised $25 million to acquire a $65 million asset in our favorite pocket of Houston. Houston. We own the majority of our assets there. And in a particular submarket we own a bunch called Copperfield. And this is a great area for a couple reasons. You've got the growth, like, you know, the typical stuff, Jobs coming in, Apple, Nvidia building, supercomputer factory and all that. But the key today is supply. And that's been the story that's dominated the headlines over the last couple years because we had a record breaking boom of apartment construction in the whole country. And so it doesn't matter how many new jobs your town has or, you know, whatever the population growth and migration trends are, because when developers flooded and continued to flood, you know, certain submarkets and markets around the country with new supply, that upsets the balance of supply and demand. So it's all about understanding those two sides of the equation. And this particular area has very little new supply. And so the property we just acquired has no new supply in a three mile radius. So that gets us very excited because we don't even really need that much growth in the area to start to see rent growth and great results for our investors. So, so that's kind of what we're focused on right now. We're focused on quality suburban submarkets with low supply. And some sort of supply moat is ideal because just because there's no supply now doesn't mean there won't be supply in the future. And so if it's more built out, if there's more political or zoning issues or whatever the case may be, those are actually beneficial things. So I love to say it because it's so contrarian, but owning a multifamily property, coastal in California, that's actually a dream because the more liberal the better, because the politics there, they'll never let you build. So you're the only game in town. You'll raise rents forever. So that's just a funny little aside, but supply is such a big deal that has dominated the headlines. And so quality product where there isn't supply is the recipe for success. The challenge now, of course, is finding it. Because developers like building in the places where investors like owning. Right. If you're looking to buy in a gray area, chances are there's a lot of development. So it's finding those sweet spots, those Goldilocks.
- [41:28]
A
Yeah, Austin. Austin's crazy with development. There's so much development here that I don't understand how there's supply to match it, especially in office space here. It's ridiculous. That's why rents are plummeting over here.
- [41:40]
B
Yeah. Austin's affordable all of a sudden.
- [41:43]
A
Yeah. I'm not complaining. So as I say is, we're about to forex our rent payment here upcoming. So. Yeah, man, this is, this has been absolutely wonderful. What's, what's next for you? So you're 29 years old right now. What's the next 10 years? Like what, what are you aiming for? Like, what drives you at this at this point?
- [41:59]
B
Yeah, right now I'm just super motivated about getting through this messy middle. Right. And so, you know, I could have said the messy middle was, you know, a few years ago or whatever the case is. And maybe I'll forever be in my messy middle. Right. There's always the future that's better. But I would just say that we're working on institutionalizing the company, you know, building out better recruiting processes, onboarding processes, training processes, and just really institutionalizing everything so that we can be a machine that has a bulletproof portfolio. So that goes, you need amazing people, you need amazing processes, and you need amazing properties. And so we'll be, over the next, you know, five, ten years, we're looking at growing our assets under management, but also thoughtfully, by adding better and better properties that we think are going to be long term performers. And it's, you know, not just because we want an easier life, like, oh, let's just buy the easy properties because it's easier. Yes, of course, that's important. But also it's, we want to buy the deals that are going to actually perform. Right. It's not enough that they just look better on the spreadsheet. We want to, we want the ones that actually perform better in real life, too.
- [43:09]
A
Yeah, I absolutely love that. And so closing, closing piece of advice for anybody that is getting started and they're looking to make their first larger multifamily investment, you know, in the upcoming years, in the next, you know, 36 months, let's say anywhere from, you know, a 20 to a 200 unit, what's your closing piece of advice to that person?
- [43:31]
B
Yeah, I mean, this is really practical because we're talking about right here, right now. If you're looking to get started, you need to be somewhere where there isn't an oversupply story. So you can't be looking at, this is just my opinion. You can't be looking at Phoenix. You can't be looking at Austin and wherever else there's, you know, 5% of existing stock under construction or delivering or has delivered, you know, because these problems have been here for a while and they're still, they're still not going away. It's just taking forever for this supply to absorb. And so if you're wanting to invest in Austin, for example, you know, you're going to be waiting around a very long time for that absorption to actually play out. And you don't want to wait, right? You want to start your business, you want to start your entrepreneurial journey. So you need to go where it's a bit more liquid, where there's a little bit more positive momentum, because you're going to be able to ride that wave. And so it's just a much easier game to play if you're talking to investors about, yeah, there's no new supply, there's, you know, positive rent growth around the corner, et cetera, et cetera. So that's just one of my very much, like right now, practical pieces of advice, because we've been wanting to break into the Phoenix market for a couple years now, and we just keep looking and looking and looking. And thank goodness we aren't only in Phoenix, because if that was our only market, you know, if that was our backyard, we would have been sitting on our hands this entire time. So if you're getting started, you're in the envious position where you can start wherever you want fresh. You know, you don't have baggage or, you know, you're not stuck to any particular market, dude.
- [45:05]
A
Absolutely full of game this entire episode. Like, there's just so much good from this man. Where can people code to find out more about you? Your books, your events, every single thing that you do, or even if they just want to invest with you.
- [45:19]
B
Yeah, absolutely. To find out everything about us at LSCRE, just head to our website, LSCRE.com on there. We've got ways to get in touch, obviously, but we also have great free downloads. You know, the spreadsheet that we use to analyze thousands of deals. We've got it there available for free download. We've got ebooks. So go ahead to lscre.com to get all that good stuff. And you can also connect with me on LinkedIn, Instagram, X, wherever you want to be beautiful.
- [45:46]
A
And guys, we will have all those links, as always, in the show description. Rob, thank you so much for coming on the podcast, man. It's been absolutely blessed. And guys, it's been Rob and Brian with the Action Academy podcast signing off.