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Real Estate Investing School Podcast
127. Find More Deals Faster with Zachary Gray
00:54:25
Welcome back to the Real Estate Investing School Podcast. In this episode, Zachary shares his real estate philosphies and practices as well as how he started from his early interest in the field to scaling his portfolio to 134 units in just two...
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- [00:00]
A
It doesn't matter whether prices go down or prices go up. What matters is you can endure as long as it takes because your. Your property makes money.
- [00:15]
B
Welcome to the Real Estate Investing School podcast. I'm your host, Joe Jensen. Today our guest is Zach Gray. Now, Zach is an ex military member entrepreneur and owns a successful strength and conditioning facility in Needham, Massachusetts. In building out and managing a commercial business, Zach has formed several valuable relationships. From legal counsel to coordinating renovations with contractors, to creating an investor network through his clientele. He uses the capital from his business to continually build out his real estate investment portfolio. Zach has managed to grow his portfolio to 134 units across Massachusetts and in South Carolina in just two years and has experience operating as a general partner on syndication teams. Zach specializes in asset management, project management, tenant relations, and investor relations. Well, sweet, man. That is quite the resume. Love to have you on here. I'm excited to hear how you got so much done in such a short amount of time and how you even kind of got into this world.
- [01:24]
A
Yeah, yeah. 100. Thank you, Joe, for having me on today. Really looking forward to hopefully providing some value to some of your listeners and, you know, whether, whether you are, you know, really experienced and, you know, own a bunch of property, I hope that there's some nuggets that I can provide that, you know, ultimately change maybe the way you think, but also if you're, if you're new and, and looking to get started, I, I think that, you know, hopefully I can provide some inspiration or at least some actionable steps that can help kind of move you along in your, in your journey to getting started in real estate. Because one of the things that, you know, I believe after having gotten started is it is one of the only avenues in the world that, you know, in the, in particularly in this country, that every person has an equal chance at and that every person has an ability to utilize as a tool to achieve the life that they want for themselves.
- [02:18]
B
Yeah, it's such an approachable investment type, you know what I mean? Because I think one, because it's so flexible, right? Like, there's so many ways to do it that regardless of your situation, you can find something that works for you. And a lot of times you can piggyback that and leverage it over to the next type. And the next type. And the next type.
- [02:37]
A
Yeah, 100%.
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B
So how did you even get into the world of real estate as an investment? When you're looking, you know, you're, you're doing military, you're starting businesses, you're being entrepreneur. What? When did it, like, come on your radar? That, like, wait, this is something I want to pour into?
- [02:52]
A
Yeah. So what I will say is, like, I think real estate has always been something that I was interested in. I think the first time where I became interested in real estate, I was like, 10 or 11 years old. We rented an apartment. I grew up pretty poor. My family, like, wasn't affluent. My dad was sole provider. My mom was stay at home mom. And I remember that my mom was like, be on your best behavior. Landlord's coming over to pick up the rent check. And I was like. I was like, what's that about? I'm like, this is our house, right? And she's like, yeah. It's like, not really how it works. And then she, like, kind of gave me the lowdown. She's like, yeah, like, we live here. We pay to live here, but the other guy owns it. And, like, he collects the money and then he pays a little bit to the bank, but he keeps some for himself. And I was like, so why don't we do that? She was like, well, it's not that easy. Da, da da da. And then I was like. And I was like. I was like, man, I was like, what if. What if you own a lot of those? I'd be like, that'd be pretty cool, huh? I think from like, a young age, I was like that. Like, I was like, it just seems like free money now. Like, adult. Like, it's not free money. Like, you know, I totally. I totally see now, like, the complexities of it, but I think that I was very intrigued from a young age. I took. I had the liberty of being able to in high school, take a. So in high school, we had the opportunity of taking elective courses. I. You know, and if you didn't like the elective courses that were offered by the school, they gave you the option of being able to use, like, an online platform that they provided, and you could pick categories that were offered in the online platform. And one of them that I opted for was actually real estate investing. So I actually took a high school class.
- [04:36]
B
No way.
- [04:37]
A
Not credits to do real estate investing.
- [04:40]
B
That's really cool.
- [04:41]
A
And then when I went on to college, I also took it. I was a business major. We had the option of taking a real estate investing course as part of our business major. So I ended up doing that. So I think it was sort of always in the background. I don't think it was something that I was like, man, I'm jumping out of My shoes to do this. And I think a big part of that was, like, me feeling sort of like I don't have the maturity level to be able to do it. Like, you know, if I show up at 18 years old and I'm like, yeah, I own this property, and you're like, you're gonna pay me rent? It's like, the guy's gonna be like, yeah, pound sand.
- [05:13]
B
Yeah, it's like, hired a property manager at that point.
- [05:16]
A
Yeah, Yeah. I think that, like, there was this element of, like, you know, I might not be ready for this at 18 years old. So anyway, what I was getting at, though, is that, you know, fast forward. What really happened, Sonic, kind of the shift is that during COVID I was working a W2 job, actually, as a personal trainer at a luxury fitness facility. I had built out a pretty substantial network of people that I had pretty close relationships with during my time at the gym and during the time in which I separated from them. My number one prerogative is I was like, I'm going to scale my. I'm going to scale my business not only to make a lot of money training by myself, but also to generate passive streams. And in order to do that, my number one concern was I have to mitigate my own financial liabilities. And so that was the time in which I said my biggest expense per month was my townhouse that I lived in with my fiance at the time. And so I said, I gotta sell the townhouse. I gotta buy a duplex, mitigate my financial responsibility, live for free, and then use the. Use the. Use the funds that I have to be able to scale my business. And then if I'm making more money in my business, then I could scale. Use the funds to scale my real estate portfolio. And so that. That was actually done through. I was listening to a financial literacy podcast during that time that was just like, making your. Making yourself really mindful of your expenses, making yourself really mindful of your spending habits, your saving habits. And I was trying to focus on things like putting money in a Roth ira, saving for retirement, like, how much money should I spend on a car payment? How much money should I spend on, you know, housing?
- [06:51]
B
And.
- [06:51]
A
And then it kind of flipped the script into, like, yeah, real estate's, like, not. You know, real estate can be a really powerful tool, and it should be, like, part of what you do, too. And then I. Then I got sucked in the rabbit hole of, like, the whole bigger pockets thing. And this was during the time in which it was like, you know, the Best it's ever been, which was Brandon Turner, David Green, you know, throwbacks. So, you know, I was blown through those episodes at a rapid clip. I was driving around house to house to house to training all my clients during COVID and all I was doing was just every free second I had, if I was walking the dog, bigger pockets, if I was cooking dinner, bigger pockets, if I was in my car driving around, bigger pockets. Like that was just all I did for a year and a half or so. And then I basically was able to sell my townhouse, buy a multi family property. My first property, it was a duplex. Kind of happy to dive into that just a tad. So I bought that property for $510,000. I, because I was self employed, I had to put 20 down through a portfolio lender. That was the only way I could get into owning a property, being self employed with less than two years of business tax returns. So, okay, I actually leveraged a connection off of a bigger pockets forum to connect me with their preferred portfolio lender to then pursue a property. At the time, you know, via that avenue, I wasn't for me, you know, now if I was, if it was now, I would do things differently. I probably just would have went hard money, put, you know, 10 or 15 down or something of that like, of the like. And I obviously, I know a lot of those things now, having done a lot of transactions. But at the time, trying to find a way to coerce a lender into giving me access to buying, you know, buying property despite the fact I didn't have two years of business returns was challenging. And I was able to do that through leveraging somebody who had a great relationship. And I ended up buying that duplex. I was forced to sell my townhouse. I rolled the money from my townhouse into the duplex and then I had to come out of pocket with an additional 40k of my own money.
- [09:11]
B
When you say you're forced to sell the townhome with that to help you qualify, that was part of the qualifying process.
- [09:16]
A
Part of the qualification process was they forced me to sell the townhouse and.
- [09:20]
B
I wanted to pick apart that a little bit. So you're saying it's cool because a lot of times people go to a conventional lender, get turned down, oh, you don't have two years of 1099. And they're like, oh dang it, I'll wait a year or two. You're like, well, I'm not going to wait a year or two. You found an investment lender who would Lend on it, which is, I love the creativity on that alone. I did want to ask you, you said you would do it differently today. You would have used hard money potentially maybe go into that a little more detail because how that would work because obviously hard money is not long term debt. So what would be the next step? Like how would you use hard money to buy a primary and what would be the, you know, the multi step process there to get long term debt on it?
- [09:59]
A
Yeah, so I think that like the process. So I think that one of the things that I realized during COVID and one of my biggest factors was so like as I mentioned, I have a, I have my undergrad degrees in business and I, and I very much so understand sort of like economic levers and like how variables dictate future outcomes. And, and so one of the things that I saw during COVID is I said nobody's working. There's going to be a big period here where there's uncertainty of like, how are people going to work, what are people going to do for work, how is that going to happen? You know, and, and I think there's a lot of people that were sucked into financial obligations and they didn't have means to make money. And I'm not talking about people, I'm talking, I mean, yes, people, but also companies. So one of the things that you saw is that there was no way around the fact that in order to keep everything at bay, the government was gonna have to bail out everything. And in order for that to happen, the government had to just print money.
- [11:05]
B
And so like they start printing money.
- [11:07]
A
And so then that means anything that is an asset that is valued in a certain fashion is going to rapidly appreciate in short order. And so I said to myself, I don't have time to wait around. I don't have the ability to just wait around for two years because I'm going to get left behind. And so I was saying I need to take this money and buy property as fast as possible because there is no other way here.
- [11:32]
B
Like you're so crazy. You saw the writing on the wall like that, that you connect all those dots. I mean so many people are all like, man, who would have known? If I had known, who would have thought, you know, and it's cool that you saw the writing on the wall. For me it was a little similar, but it was just like I just saw how low interest rates were and, and I knew they were going up. And I was like, oh, I gotta just leverage everything I can right now. I get big Cash refinance, start buying everything I could just because I knew like interest rates were kind of my motivator. But that's so cool how you connected so many of those dots for any of the listeners, like rewind that, listen that again. Because that, that pattern is something you will see again in your lifetime. But that was, that's super cool.
- [12:13]
A
You know, to that same point, this is where I looked at. I was like, I need to get as much property as I can in a shorter period of possible. And whatever it takes for me to do that, that's what I'm going to do. Because that is what is going to change my life over the next two or three years. Because you're not going to be able to re. There's no, there's no redo. There's no redo button. So during that time frame I said, all right, to kind of unpack your question about the hard money thing. You know what I would. What you could have done is you could have opted for the option of putting 10% down on the property. You could have given what I felt like I would been able to obtain from a rent standpoint for that property versus what the note would have been at. You know, hard money. Hard money at the time, like interest rates were at three and a half percent. Hard money was like 8%, 9%. And so, you know, at 8 or 9%, even at that point the loan still would have made sense and I still would have been able to, you know, my rents would have covered the note, would have covered some expenses. I don't know that it would have cash flowed nicely. But I think that you probably would have at a minimum been able to break even or make a little bit of money had you rented out both units. Now what I was advocating for is again, I was not. I wouldn't have been concerned about, again, I wouldn't have been concerned about how to. There's plenty of avenues in terms of long term financing in the event that you hold that property for a certain period of time. I would have probably went with a hard money option that would have given me a two or three year Runway, tried to negotiate for like more of like a bridge option for that period of time or have like some sort of extension process. But I think that, you know, I don't want to confuse people or get too deep into the weeds on that. I think that ultimately my main prerogative is that if you were buying stuff, if, if you were a business owner during that time frame and you had the same mindset as me and you were aware of what hard money was and if you were able to use that as a tool rather than be, you know, denied by banks, I think that could have been a differentiating factor in terms of you being able to gain appreciation based off of market circumstances.
- [14:22]
B
And I love that. Like, like you said, I didn't mean to interrupt you. Sorry. It's just like, like there's options, right? You, you got to turn down on the conventional, so you found own. But even if that hadn't worked out, you could have done the harmony. It's like there's ways to make it happen. And I love that you're like thinking out of the box and finding these different ways.
- [14:39]
A
And I feel, and I feel the total same way right now. If I was a business owner with less than two years tax returns and right now I would be doing everything in my power to go hard money to acquire a piece of property right now. Because I think right now one of the biggest advantages that every single person has is, is you have an avenue to make, to bake into future gains for yourself. Because I think interest rates right now are roughly in like the, you know, about a month ago they were in the mid sevens to eights and now you're looking at mid sixes to, you know, low sevens. And it's gone down about a point or a point and a half. Just off of the Fed coming out saying they're going to in the, in the next year have multiple rate reductions. They haven't even reduced the rates. They've just said we will reduce rates over the next year. And rates have gone down a point to a point and a half. So if they're going to, and they said multiple rate reductions, so multiple rate reductions. Getting back to how economic levers affect pricing, if the rates are going to be reduced on a multitude of occasions over the next calendar year, that is going to make debt more affordable. If debt is more affordable, then that means you can pay more for that, for that asset and you can take on more debt for that asset. So that means pricing over the next calendar year will go up. And I think that with that being said, if you are able to get into anything right now, you know, whatever it takes. If you had to put 3.5% down a house hack, you gotta, you gotta get that buttoned up. Now if you own a business and you don't have two years tax returns, I would try and figure it out because I think you're looking at an opportunity that doesn't, that we haven't faced really since, you know, the 1980s. And I think it's hilarious that there's all these memes going around about people who are 60 years old, who are boomers, who bought houses for cents on the dollar, you know, back in the 80s, and now are sitting on fat amounts of equity in their houses. And the fact of the matter is every, every single Gen Z, every single millennial is staring down the barrel of the exact same situation right now. This is the cheapest things will be forever right now.
- [17:05]
B
Yeah, I love that concept. That's the way I looked at too. You know, I've been waiting, you know, a decade for prices to drop, for the 2008 to happen again, for the beat. And I'm like, wait, it's not going to happen. And even if it does, I'd rather own a dozen or two dozen or 100 properties when it does happen, then, then own zero or, you know what I mean, like, what am I waiting around for? And because like you said, eventually, even if, you know there's a blip, we're not foreseeing. It's like when you look back over 10 years, 20 years, 30 years, everybody is going to wish they had bought more. Like that's what has always ever happened. And I think that will always happen. You know, if you had bought a ton in 2008, maybe 2011, you were frustrated, you know what I mean? But like if they had held on it for five or 10 years, you'd be fine, you know, and that's what I love about the kind of buying, like the cash flow, you know, self sufficient assets because they'll withstand the storm as opposed to, you know, if you're a developer or a flipper, those are the guys that got burned. It wasn't everybody in real estate, you know, the long hold guys were, were fine and, and they held on and then they, they were really fine after that.
- [18:13]
A
You know, you're, you're singing my song to the highest degree. You know, when we underwrite, we underwrite properties with conservative rent estimates. We account for, you know, long term capex, long term maintenance, we account for management, we count for vacancy. We're writing in all these variables that are going to help protect us and insulate us against potential concerns. And then we still make sure the property will produce somewhere around a 9% cash on cash return. And if we're, if we got a 9% margin plus all these variables where we're, you know, we're, we're purposefully inflating expenses and purposefully sandbagging our rent totals and then being able to buy the property still at a 9% return, what effectively is happening is if it takes 10 offers to get one property, if it takes 20 offers to get one property, the fact of the matter is every property you acquire is an absolute phenomenal property. And, and we're talking about those properties working at interest rates that are in the sixes or the sevens. So what's going to happen? So, you know, to, to Joe's point here, what's going to happen when you, that property now, the rates come down to four and a half or five, and you get to drop your interest rate two points on that same property. You're going to be cash flowing like a bandit. And the fact of the matter is, on that is that in the event, you know, if you're buying something that has a 9% margin with all those variables, you're so insulated. So even if you're on variable rate debt for five years or seven years or 10 years, if economic conditions change, it doesn't matter whether prices go down or prices go up. What matters is you can endure as long as it takes because your, your property makes money.
- [19:59]
B
Yeah. And I, I love it like that. That's the way to do it. Like I say, you're, you're so insulated if you buy it. Right. I was watching this thing and love to make fun of Dave Ramsey or whatever, but he was talking about like, oh, real estate. It's, you can't live off of real estate because there's going to be all these, there's going to be repairs, there's going to be issues, there's going to be headaches. I'm like, well, yeah, but we bake all that in. Like, we calculate all that in up front, aggressively, like you said. So when they come, it's not like, oh, my gosh, I can't cover this. It's like you, you're, you knew that was going to happen and you planned for it and you're not blindsided by these major repairs and issues and these problems. It's like, yeah, you, you calculate that all in. But, Zach, I want to ask you, okay, everybody's wondering from your bio, how did you get to 134 units in two years? Like, what does that look like? And again, everybody's story will look different. There's no right or wrong way, and doesn't have to be duplicable. But, like, what was Zach's story?
- [21:00]
A
All right, so I bought the first duplex. I had to sell the Townhouse. I put the money down into the property. I bought it for 510,000 total. I was all in on that property for 104 or $102,000. So out of the $102,000 that I was in that property for, I. Immediately after I closed on the property, I went to the bank and I said, I want a home equity line of credit. I went, I went to one. So I started going to real estate meetups and I said, hey, I, I asked everybody, where can I get the most money for home equity line of credit? Who will give me the most money? And I asked around and asked around and asked around. I made tons of phone calls. I found a bank that would loan me up to 95% LTV. So up to 95% of the money on the house. The value of the house was this.
- [21:55]
B
A local credit union or something?
- [21:57]
A
Got it.
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B
There we go, people.
- [21:59]
A
Credit union. I was there. So now I bought that property. The portfolio lender told me I need to put $102,000 in to own this house. I went to a local credit union after the fact and they gave me a check for $93,000. So now I'm in the property for $9,000.
- [22:16]
B
Love it.
- [22:17]
A
Now I got $9,000 in the house. I got $93,000 in a loan that's sitting in my pocket. Now the big variable here is that to the bank, that loan doesn't show up on my debt schedule until I spend it. So what I did is then I waited nine months. At the nine month marker, I said, hey, I'm gonna go use my FHA loan, by the way, now that I have two years business tax returns.
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B
Right.
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A
So then I went and gave my tax returns to the, to the, to the bank. I went and got a FHA loan. And I'm blessed with having been in the military, so I actually was able to use a VA loan. So.
- [23:01]
B
Yeah, yeah.
- [23:02]
A
But I actually had to put no money down. I bought and you know, normally you have to put 3% down, but it's not that big of a difference, you know, in the grand scheme of things. I put no money down. I had to pay like between rate locks and closing costs, I think I paid like 20, 25k or so, 30k. Okay. I bought, I bought a three family property. I said, I'm gonna buy the most expensive property that the bank will allow me to buy.
- [23:30]
B
Yep.
- [23:31]
A
So I went and bought a three family property for 865,000. That was roughly about 15 minutes from where I work. So it made my life more convenient, gave me more time, and I bought a really high value asset and I, I basically now I maxed out my debt to income ratio. So now I had, you know, the bank wouldn't lend me any more money, but I also had $93,000 that I hadn't used over here that the bank had already given me.
- [24:02]
B
Yeah.
- [24:03]
A
So now I took that and I started going to meetups. Every person that I felt like was a real, a real go getter people, I, I would basically vibe check everybody. I'd go meet up with people, talk with people, get to know them, get to know what they were trying to do. And if people were trying, if, if I asked somebody, you know, what's next? What are you trying to do? You know, what's, what's your game plan? If they didn't have an answer or if there was pause, it's not the right person. I wanted somebody who was trying to go full tilt. So I started going to those meetups. The, literally the first meetup I went to, there's two people that I talked to out of the tube. And the entire time the two people that I talked to, one of them this past year brought me a 32 unit deal that we partnered on.
- [24:57]
B
Heck yeah.
- [24:58]
A
The other person is now my immediate business partner that I do every single transaction with. And he was also in on that partner dealing at 32 units. So point being, I met my, I met two of my partners, but my most immediate business partner that I do all my transactions with, the first meetup I ever went to. And with that being said, I was able to take that 93K. And he was in a similar situation where he was looking to do something similar. And what we did is. So I remember vividly it was a Friday night, it was about 6 or 6:30pm he calls me up on a Friday night, I'm walking my dog. It's like kind of like a spring. I mean, I'm sorry, fall afternoon, I'm walking my dog and he calls me up and he's like, hey, there's a five unit that went on the market 13 minutes ago. This is the price. This is the price per unit. This is why it's good. This is how much money it'll make. And he's rambling like a hundred miles an hour trying to convince me. And I was like, are you done? And he was like, I mean, no, I have more stuff. I have. And I was like, I'm in. And he was like, what do you mean you're in he's like, you haven't even looked at it. I said, set up a showing on Tuesday. I'm in.
- [26:18]
B
He's like, yes.
- [26:20]
A
And he's hyped. So we set up the showing. We're the first people to walk the property. We literally submitted an offer and docu sign the offer on the curb, gave it to the listing agent and said, we'll pay ask, no contingencies. You know, send it, send it, call, call your seller right now. And there was like five or six other people lined up to, to walk the property that were like literally showing up in a matter of a half hour. Guy calls the seller, seller says, yeah, take it. So we scored a property. Fast forward, we're about a year in now. We just refied that property. We were in it. Combined between the two of us, we were in that property for roughly about 106k each. And we just got, we just got 78k each out. We were able to refi almost all of our money out of that property. That those three deals, those first three deals that I did, I executed and got them to stabilization within the, within, you know, the first, you know, nine, six to nine months of ownership for every property. I took those deals, I put them on paper and I mapped out the performances in terms of returns on every single one of them. I specifically went and got appraisals done on the property afterwards to determine what the value was of the property. I simp, I went and wasted money, just threw 750 in the wind for appraisals so that I could show what the property was worth now based off what I bought it for a year ago. And then I took those performance metrics and I went to my entire network of individuals who, who were in, you know, who were clients of mine that were high net worth earners that were in the Boston metro area. And I went and showed my performance on my first three deals and I said, here's examples of three deals that we've done and here's how they've turned out. With that being said, I now said, this is now the time in which the rate was, sorry, the Fed was starting to jack rates up, you know, at a rapid pace. And obviously everyone's aware of what hap, what that meant for the stock market. So the stock market's in the toilet. Every one of my clients is saying, I'm not going to earn money anywhere. And so what I did is I went to them and I said, here's the deal. I found, anytime I find a deal I'm going to bring it up to everybody, and I'm going to talk about it, and I'm going to have. What I'm going to do is I'm going to say I will pay any of you guys a 9% or a 10% preferred return. So I'll pay you 9 or 10% on your money, and I'll personally guarantee the return regardless of whether the property performs. So regardless of whether the property performs, you're going to get your 9 or 10%, and you're going to get it in the mail. Literally, you're going to start getting checks in the mail 30 days after you sign the docs for the property. So when we execute the transaction, you get your first check in the mail 30 days later, 9 or 10%, regardless.
- [29:42]
B
Of what's going on with the asset or the purchase or the performance.
- [29:45]
A
You got it? I mean, you can ask them on, right? What's that?
- [29:49]
B
Yeah. So who can ask for more than that as the investor side? Those. I mean, it's like, okay, like, where's the downside? You know?
- [29:55]
A
And then. And then what I said is, I said, then additionally, I said, also, I will also give you 50 of the upside. So we split the upside. 50, 50. I'm buying value add stuff. I will control the performance. The performance is the only way in which I'm going to get paid. But I'm going to give you your money either way. And the fact of the matter is, nobody's concerned about my ability to come true and pay because of two things. One, I don't even pay to live where I live, so I don't have any living expenses.
- [30:29]
B
Mm.
- [30:29]
A
Number two, I'm gonna see them once or twice a week. So the fact of the matter is, it's not like I'm gonna be able to dodge them left and right. So, you know, it's like you're gonna get your money one way or the other. And if not, then it's like, I'm gonna stop paying you for training me. So it's like I'm gonna lose. I'm gonna lose more than that. So this is where I looked at it. And so they had. It was like. That was. That was sort of the path to. To getting involved. Then what I did is on the first deal that I did, I executed to the highest degree. And conveniently, shortly thereafter, my wife and I had our wedding.
- [31:15]
B
Okay.
- [31:16]
A
So at my wedding, I took all my clients and I sat them all at the same table with the dude that I did the deal with. And I said, they're gonna discuss one of two things. They're gonna discuss training with me, or they're gonna discuss Zach trying to get them to do real estate deals. Yeah. And so to that point, I'm gonna have one guy who's gonna be singing my praises from the hilltops, and it's gonna result in seven to 10 other people being like, huh, that's interesting. Sure enough, I go back after my wedding. Three or four people are like, so what's up with that real estate thing? And I'm like, all right, here we go. So then we started doing a couple deals, and again, we're executing on deals. We start pump. Now. What we started doing is we started taking every deal, mapping out performance, and then. And then putting it out to our network and showing them the returns. And at that time, it was. It became clear that, you know, through our immediate network of individuals who were interested in real estate, that we were moving at a pace that was not tied to just our own money. It was very clear we were starting to raise money and doing well at it.
- [32:34]
B
Yeah.
- [32:35]
A
So one of the people in our network at that time scored an off market portfolio that was an inheritance. So it was effectively an estate. A guy died, his family inherited it. They didn't know what they were doing. They knew nothing about real estate. And we. They. They weren't marketing it. And so we ended up walking all the properties. And I remember that my partner called me up and was like, hey, this Guy's got this 69 unit portfolio. And it was in like a C to D class area. And I was like, dude, I was like, we have no business doing that.
- [33:19]
B
Yeah, that sounds like a project. Like a headache.
- [33:22]
A
Sounds like a project. It sounds like, I don't even want to go there. It sounds like. And I'm like, dude, we got a. It's like, it's a ridiculous amount of money. And he's like, let's go check it out. And I'm like, okay. So I slept myself down there on a Saturday. Spend eight hours walking every building, looking at every set of mechanicals, every unit. And I get done, I'm like, dude, I'm exhausted. I don't know how these people do this stuff. And we map it out. Price per unit. Price per unit for the area that we were interested in buying was 120k a unit, and the seller was willing to sell us the property at 83k a unit. And I was like, all right, we got something here because there's some skin.
- [34:14]
B
The meat on the bones. Right there.
- [34:16]
A
Well, and what I wanted was, I wanted to go down there and be like, oh, the property's in bad condition. It's not worth it. We walked in. Majority of the units were good. And there was like, there was like, you know, cosmetic work that need to be done. Majority of the mechanicals weren't that bad. I was like, there. This is not. This is not, you know, there's a lot of juice here.
- [34:40]
B
Yeah.
- [34:41]
A
And so he effectively said to us, will pull you in and we'll partner with you on this and we'll syndicate it, and you guys got to raise the money. And I was like, I'm down. I said, I don't. I don't know that we can raise. I don't know that I personally can raise the full amount by myself, but I said, you know, I can put up a pretty significant chunk of this. And my partner was kind of singing the same. And we ended up being able to execute that transaction. We're kind of probably about a third of the way into that project right now. It's going very well. And that was a big hurdle because at the time, we probably went from 30ish units each to over 100 units each with just that one transaction. And that is a situation that starts to put you on the map. It puts you on the map because you can raise for it. It puts you on the map because you found it. It puts you on the map because you executed it. And now people. And also, like, you know, when you start to have triple digits to your name in terms of units, people start to look at you a little differently. Yeah, Well, I think that my biggest, you know, my biggest play on this was how fast can we get money back to investors? And also how much is this going to raise my credentials to be able to do deals moving forward? And so my main concern was my number one prerogative on this was return of capital and boost my credibility to be able to do future deals. My takeaway from having done that starting and executing this deal is that I do not like doing syndications. I don't enjoy doing syndications. My. My outlook on things moving forward is that I will. I think it was a great tool. I think it has been a great tool to gain credibility. And I think that now that we have the credibility, our aim is to try to do JV deals with. With one or two investors per deal. And to. It's a much more simplistic model. Yeah, I think that my partner and I, Andrew, our biggest strength is in operations, and I think that when we. I think that when you do a syndication, you are dependent upon a lot of other people. I think you're dependent upon a pm, you're dependent upon other partners. It's not as easy as doing it all by yourself or doing it, you know, tag team, the two of us.
- [37:37]
B
Yeah.
- [37:38]
A
Particularly because you need, you know, you need people with relationships to raise. There's. You need different roles. You know, you need to bring in the PM who's going to manage it while you're not around. There's a lot of variables. And my take on this is that if we do JV deals with a little bit of a smaller structure, I think that Andrew and I can effectively hop in and really crush the operation side in a really rapid period of time. And we can execute deals in a matter of two or three months and we can have multiple going at a time. And I think that plays to our strengths to be able to do more deals to mitigate risk because we're not relying on other people who don't want to move as fast as usual. And we're able to maximize returns for investors. And I think we're really being held accountable because we're the ones doing the work.
- [38:26]
B
Yeah. Which is so cool. And that's such a strength, that's such a needed part is like, who's gonna not only find and make sure it's a good deal, but like, do the stabilizing and do the hard work of actually getting it where it's supposed to be. You know, that's a lot of times the intimidating part. And it's cool that you guys solve that problem. So if people did want to partner with you, you know, what does that look like for the investor coming in to work with you and Andrew? Like, how's that, how's that structured?
- [38:54]
A
So we're always. We've, we've. We've changed structure, you know, and we've adjusted structure multiple times throughout having done partnerships to this point. And we're always trying to create an outcome that is, our incentives are mutually aligned between us as operators and to our investors. And where we stand presently is we try to find a property that is value add in which the cash flow upon stabilization is somewhere in the 9 + range. Ideally, we're trying to target 9, 10, 11, and we're habitually paying an 8 pref or a 9 pref. So we're paying a guaranteed return to our investors of 8 or 9%. What we've done is we've continued to do what we talked about, which is paying an 8 or 9% preferred return and paying it immediately upon acquisition. What we find is that this creates a relationship with our investors where there's no check in period of, hey, like, so when do I start getting paid?
- [40:10]
B
Right?
- [40:10]
A
There's none of that. It's, hey, you want to do this deal, we're gonna pay you. And I think that, that we. I think that that has resulted in a really we. We acquire more investors because they look at it as less risk, you know, intensive, because they're saying, I'm going to get paid, you know, next month if I do this. So I think it's a big sentiment thing for them. And we've had a lot of people really commend us on that.
- [40:44]
B
I love it, man.
- [40:47]
A
So we do the 8 to 9% pref. And then what we do is all. All cash flow and all equity upside in the property. We split down the middle 5050. 50.
- [41:00]
B
Equity and cash flow.
- [41:01]
A
Equity and cash flow. So cash flow north of the pref. So if the property makes 12%, we pay our investor an 8% pref. There's a 4% delta. The delta gets split 2% to them. 2% us.
- [41:17]
B
That's awesome.
- [41:19]
A
Then the equity upside is 50. 50. So we're 50. We're 50% owners as operators and 50% owner as an investor. In regards to the operating team. If Andrew and myself are doing the deal and we are the sole operators, we each get 25%. If we are the operators and somebody else brings us a deal, if somebody else brings us that deal and we do it, we cut them in and we split it a third. A third, A third. So just for bringing a deal, we give people 16% of the property just for bringing a deal. And we raise and we operate. And so that's a testament to encouraging people to bring us deals.
- [42:05]
B
Yeah.
- [42:06]
A
Now our deal flow is really high since we started doing that, I bet.
- [42:11]
B
Because you're saying people could literally bring you a deal, they put no money into it. They don't do any of the work, they don't stabilize it. And. And they still get, you know, 16% of the equity just for. For finding it.
- [42:25]
A
You got it.
- [42:26]
B
Like, listen, guys, like we always talk about, you know, oh, you know, if you find the deal, you know, there you don't have to have money. The money will be found. Like, like what, what an opportunity for people to just bring it and own some. A real piece of. A real piece of equity on a bigger asset. You know, these aren't single family homes. You know, that that's pretty cool. You know, I don't hear a lot of people structuring their, their syndications or their partnerships that way. And I think that that could be super beneficial for a lot of people.
- [42:56]
A
Well, and I think that our whole thing is we want. It's when you have more people. So the way I look at it is imagine, imagine I, I use the analogy rowing crew. You could be Dwayne the Rock Johnson. You could be Arnold Schwarzenegger. You could be the best athlete that ever lived on the planet. I put you in a crew boat and say, row down the road, down the river as fast as you can. You could take, you could take 30 fat dads and they'll beat him.
- [43:29]
B
Yeah.
- [43:30]
A
And so the fact of the matter is on that if you have 30 people who are moving in the same direction as you, all taking actionable steps to accomplish that goal, you will, you will win. And so my whole angle on this is that it's operating from an abundance mindset. I have abundant amounts. I have access to capital to my. From investors because I'm personally guaranteeing returns. I don't have to do that, but I do. And the reason that I do and the reason that I pay them up front is because I'm trying to make them want to do more. The same reason why I'm giving somebody 16 of a deal for bringing me a deal is because I want everybody to funnel me deals. So now the next part of the structure, which is when we get the property to stabilization, which is, you know, is sort of Andrew and I's job. We feel really strongly about our ability to perform. So once we get the property stabilization and we go to the bank and we refinance. Now what we do is we refinance the property, but we do not split the funds based off of 50, 50 stake. We take the refi funds and every single dollar goes to the investor.
- [44:50]
B
No way.
- [44:51]
A
So now what happens is we refi the money and we give it all to them. And now that juices their return. So now they come back and they're like, I gave you a hundred grand a year ago. We refund the property. You gave me 100 grand a year later. And they're like, let's do that again, right? So now every time we give the money back to the investor, they're like, no, no, no, no, no, no, you keep it. You keep it. They're like, no, keep making me more money. And they're like, no, no, I want the prep return. I want the prep Return, go find another deal and make me some more money. And so this is what ends up happening. And then, by the way, when you give someone 100 grand and you make 8 or 9% and then a year later they give you back the 100 grand to go buy another one, guess what's going to happen when you go hang out with your friends and guess what you're going to talk about? Yeah, exactly that. So now what ends up happening is now you have him and you got all his friends, and that's going to happen on a 10x multiple. So now what happens is we have unlimited access to capital of people who want to invest with us because of the way that we handle refis. And if we take that refi money and we go buy another deal and we buy a value add deal, we're going to force appreciate the property and gain equity. And for every property that we force appreciate, we get half. The half sits in the property, but it's still there.
- [46:24]
B
Yeah.
- [46:25]
A
So the fact of the matter is, the faster I can stabilize the property, the faster I can get the money back to the investor, the faster we can go get another deal and the faster I can grow my net worth. So my objective is how fast can you stabilize and how fast can you find the next deal? And if I'm incentivizing my investors to bring me deals and I'm giving my money back to my investors to bring me. Sorry. To want to funnel money into future deals, guess what's going to happen that's going to happen.
- [46:53]
B
That's awesome, man. You can see how you're able to scale and do what you've done. You know what I mean? When I, you know, how do you get to 134 units? You know, it's, it's, it's cool to see how you've broken it down, how you've developed that and earned that right. To be able to have people come and want to invest with you and, and everything like that. It's. It's super cool. And it's like for those listings, like, you know, maybe not all of this will apply to every single person, but there's so many pieces that you're like, oh, I could do this or I could do that, I could do that like he did, I could do this like he did, or I could go be on this side of it, or I could be on that side of it. Like, there's, everybody's in different boats and it's like there's something for everybody in that, which I love. Man, and we could talk about this stuff forever. I. I want to shortly here go into our final four questions, and. And then we'll let you go. But any kind of final thoughts on just kind of your, you know, formula or guiding principles or just kind of like, you know, the way you look at real estate in general?
- [47:55]
A
Yeah, my guiding principle or principles are I use a specific book called Go Giver, which is the mindset is you're operating from an abundance mindset, and you're looking to take every other person that exists in your life that you rely on, and you're looking to hook them up. I hook up my person who brings me my ideals. I hook up my investor who invests money with me. I hook up my attorney who closes our transactions. I hook up people who bring me deals who aren't even realtors, and I'll give them finder's fee. I will hook up our contractors, and I'll say, hey, here's the deal you quoted me. At this price, if you get this project done in a shorter time frame, I will give you more money. Yeah. So you always hook other people up and you give them more than what you probably have to. And when you do that, you create a network of people that love you, that will go to bat for you, and that want to help you out. And this comes back to the Roku model. If you have more people that will go to bat for you that. That respect your integrity and that are willing to help you out, you're going to make your life a whole lot easier. And ultimately, real estate is a partner game. And so the. The phrase that we use is people at the top collaborate and people at the bottom compete.
- [49:33]
B
I love that. I love that. Put it on a T shirt. Zach. This has been awesome. We're gonna dive into our final four questions that this. There's been so many takeaways. I'm excited to re. Listen to this one. I love so many of the concepts that you've shared. Yeah, we'll dive into it, man. So. So final four questions here. What is a dream deal or a deal that you would hope to be able to tackle someday?
- [50:05]
A
You know, I don't. I don't know that for me, I think my answer is not going to be as sexiest, probably what you want. But for me, I don't really. I don't get my socks off thinking, like, man, I want to go develop buildings. I want to go take down a 200 unit. I want to buy something, you know, in. In downtown Manhattan. Like, none of that makes a difference for me. What it comes down to is like, I'm moving at the pace that I'm moving because I want to create a lifestyle for me and my family in the shortest period, amount of time possible that will allow for me to relax a little bit, to live a stress free life. And if, and obviously I'll never stop, you know, loving to do real estate deals. But ultimately, real estate is an appeal to me because I want it to make my life easier. And so I don't look at this and say, you know what, I can't wait to, you know, do do something that's unthinkable. That, that, that's not my narrative and that's not why I got into this.
- [51:16]
B
I love that. That's a great answer. I feel that. All right, question number two, Zach, what's been one of the most pivotal books you've ever read? I guess the Go Giver, right, is definitely a big one for you. Love it. All right, question number three. What's one of the most expensive or interesting mistakes you've made in real estate investing?
- [51:41]
A
Expensive mistakes or interesting? I think an expensive mistake that I made in the beginning is I, I went and I went and deleted a unit on one of my first properties for ten grand. That was terrible.
- [52:06]
B
You did what you said D let it ID leaded.
- [52:09]
A
So we have, you know, lead based.
- [52:10]
B
Oh, I took the lead out.
- [52:12]
A
Yeah. So I, I went and did like a formal D lead of the unit because it was a four bedroom unit and I thought I was going to only be able to rent it to a family. So I paid ten grand to rent to de lead the unit and then I ended up renting it to four adults. So that was, that was not the best use of funds.
- [52:31]
B
That's awesome. All right, last question. Zach, what's the. What's the purpose of life?
- [52:40]
A
Purpose of life is to wake up every single day and work really hard at challenging yourself to be better.
- [52:57]
B
To.
- [52:57]
A
Be self reflective and to be honest with yourself about areas in which you feel like you can improve while being mindful of taking the time to participate in the things that bring you happiness.
- [53:24]
B
Sounds like a good approach to life to me. Well, Zach, this has been awesome. We really appreciate your time. If people want to reach out to you, to pick your brain, to learn from you, to follow you, to partner with you, what's the best way for them to get a hold of you?
- [53:36]
A
Yeah, reach out to me. Reach out to me on Instagram @the 1099 mindset. So my Instagram is @the 1099 mindset. Feel free to reach out to me with questions if you're interested in getting started. If you're an investor looking to partner or you're somebody who's looking to, you know, invest, invest capital in a deal but, you know, not be involved in the operation side, we're happy to do that, too.
- [54:03]
B
I love it, man. Well, thank you so much for your time. I really appreciate you being on the show and sharing what you have with us.
- [54:09]
A
Yeah. 100. Thank you so much for having me.
- [54:12]
B
This is Joe Jensen signing off for the Real Estate Investing School podcast. Podcast reminding you to take action early and often.