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Real Estate Investing School Podcast
189. $1.4 Billion (with a B!) Worth of Real Estate Insights with Russell Franchi
00:44:06
Welcome to the Real Estate Investing School Podcast! In this episode, host Joe Jensen welcomes Russell Franchi, a seasoned real estate investor and managing partner at Village Capital Partners. Russell, who has overseen over $1.4 billion (with a b) in...
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- [00:00]
A
You will get choked off in this business if you don't have access to more funds. Learn about capital raising early. Don't do it when you have the deal under contract because that's too late. You're never going to get a raise.
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B
Welcome to the Real Estate Investing School podcast. I'm your host, Joe Jensen. Today's guest is Russell Franchi. Russell is a managing partner at Village Capital Partners and is a full time real estate investor, broker and syndicator specializing in multi family and commercial properties. Over the past 25 years, Russell has overseen over 1.4 billion with a B in real estate transactions. He now serves as GP for over 700 units including multi family, class A office and luxury vacation rentals with offices in Port Sanilac, Michigan and Santa Rosa Beach, Florida. Welcome to the show, Russell.
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A
Thank you, Joe. Thank you for having me.
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B
It sounds like you're not afraid to play big.
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A
No, not afraid to play big, but pretty conservative by nature, I'm sure with who you've talked to and who you interviewed before, you know, it's a little bit of a journey and a path to get to points like this. And I'm fortunate enough to have a great partner. Her name is Julie Fagan. That kind of help I guess bring us to another level of deal size. But it took a lot of little building blocks along the way to get where we're at.
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B
Yeah, so sometimes when I read a bio like that I feel like a listener's like, oh, a billion dollars in this and hundred, seven hundred, like it's just like ethereal stuff in the sky. How does someone get to that point? I mean you didn't start that big. It sounds like. No, no, you're not a big risk taker.
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A
Yeah, sure, I'll back up a little bit. So. And of course don't forget, it's been a long, it's been many years of work and deal flow that's created that big of a number. So it doesn't, just doesn't happen. But going back to where I got started was I wasn't really supposed to be a real estate person, although I always had interest in real estate as much as back as far as when I was a kid, I was probably 9 or 10. I was born in Nashville. My dad worked for Ford Motor Company. He got transferred to Michigan and the development that we, that my dad and my mom bought in was a new construction development. So not kidding, every day on the way home from school there was always four or five or six homes being built around our home. So Every day I'd be like, I wonder what they did. And I, me and my friends would go over there and get two by fours, just kind of walk around those empty houses when they were just roughed, roughed in. So that was kind of sparked a little like, wow, that's kind of cool. It's interesting. And then fast forward through college. University of Michigan is where I went to for undergrad. I was a math guy, science guy. When I was in graduate school, I took a real estate fundamentals class in the business school. And the guy that taught it was a great guy. He was what's called an adjunct professor. So he was a local developer, but he taught at the Michigan's business school. And during that term he said, hey, you seem to really like this stuff. Why don't you be my TA next term? So I said, okay. So I was his TA the next term. And then he said, you know, afterwards, if you're interested, I'd love for my partner to meet you and maybe, maybe, you know, you could work with us. So that's kind of how I got started. I was not educated to be in anything business or real estate related. I was all math. But working for those two guys really set the course for where I was going to go. I only worked there for about a year and a half to two years. But I learned a lot about a small boutique commercial real estate firm and all the different aspects you have to kind of learn and understand while still dealing on the broker side because they did a lot of broker deals. So anyway, that's where I got my start and they put me in charge of doing a couple land deals. So my first experience in real estate, I was in my 20s. I was kind of the middle guy between a developer who had some lots. One deal I remember in particular, if you want to get in the weeds, was there was a developer that just needed, I think the number was around 2.6 million. And I'll just kind of make it easy to understand, but he needed 2.6 million. He wasn't going to take a penny less. We talked to three or four builders. The one builder that was really interested said, hey, I really like this development, but I can't handle, let's just say it was a hundred thousand a lot because I have to build a model and I have to do this, I have to do that. So we went back and forth for really a couple months. We couldn't get this deal done. And then it hit me. I was getting on a plane to Atlanta and it hit me Just to kind of feather it out and say to him, hey, could you bring. Come in at maybe 70,000 a unit a lot for the first third of the lots, and then 100,000 a lot in the middle third, and then 130,000 a lot for the last third. I'm just kind of generalizing here to get the point. So the point is, I was able to get the developer to bite off on that because he was going to get his final number. Was able to get the buyer, the builder, happy enough paying 70 down in the first few because he could then put his model up and sell out the project.
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B
Right.
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A
Anyway, so that was how that deal got done. And I was kind of. It was my first deal that I ever did, actually, and I was.
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B
They put you in charge of that? That's. That's pretty true.
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A
Well, it was kind of being kicked around the office. So I said, see if you can make any sense out of this. So I went and met with the seller, the developer. I had lunch with him. Super nice guy, taught me a couple things, talk with a builder several times. And it just was kind of sitting there and we couldn't get it. Really couldn't get it done. So that was one way that kind of opened up my mind into, okay, this is kind of an interesting area. So from there. So I did a couple years with those gentlemen. They were great. I learned a lot. And in that time, was the second thing that was a key thing for me, which was some of the clients in that office were multifamily owners and they own student rentals around the University of Michigan. And I was in some of those meetings. And what I learned from that was you have to have some equity and quite a bit of money to get into those larger deals. But what was interesting was. Was very formulaic. It was like a formula for those deals. So they would come to the office, they say, well, we bought this one four years ago. We're getting ready to refinance it. We want to pull some cash out and improve the property. Our rents are going up because the student population is this. So again, this is in my 20s. I started. I kind of got the bug for multifamily, but I didn't have the money. I didn't have the capital really, to do those deals. So the way I was able to get that many, over a billion in deals is a combination of everything. So commercial deals that I did. Then after that, I started a mortgage lending company in Michigan, Florida. That's where probably most of my volume was. Was it Was in the lending and the paper side, mostly a paper and had a small office, had my own, had our own underwriter in house that would underwrite all of our deals. It was up to me to okay and sign off on deals. And we did a lot of, lot of volume there. And then, you know, along the way built houses, did some fix and flips, did a bunch of beach rentals, beachfront rentals for short term rentals. And so if you look at the aggregate of all those things, that's really how over 25 to 27 years is how I was able to hit those, those, those numbers.
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B
Yeah, it sounds like you had your hand in a lot of different stuff like you said, from the lending side as well as the syndication side as well as just, you know, flips and just. It sounds like you've experienced it all, which is cool. A couple things I want to pick out from what you said. Sure. I like how you were like, you're just a math guy, a numbers guy. You're like, I'm not a real estate guy, I'm just good with numbers. You understand that world. And it's funny because that is so much of like how it really is. Like when it comes down to real estate, like if the. I think that's a strength definitely, like the more you can just make it about the numbers. Makes for me at least it's like it adds clarity to it and simplifies it, which, which is super important.
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A
I would agree. And for people that are listening, you know, you don't want to be afraid of the numbers. You really want to be able to dig in and understand the numbers. And again, the mortgage lending was just a good place for me because I liked real estate. I didn't really know exactly what I wanted to do in it. I loved the math side of it. So I figured, well, that would be a good area to kind of get started. And also, frankly, I really wanted to know the intricacies, the inner workings of how to borrow money. Because I knew if I ever really wanted to build a portfolio, I had to know how to, how to borrow. And that was really the other reason I thought I would just get on the inside track and learn what, what are underwriters looking for and what's the most important to frame your file when you send it in again. I've probably done over a thousand or overseen or done myself over a thousand lending deals. And you learn how to push back on underwriters when they're asking for certain things. You learn how to say, well, you really don't need this. We've already provided that. And you only want to show them what's necessary for the loan. So little things like that you pick up along the way. So now as we're doing large deals, we're in right now for a 6.1 million dollar assumption. And just having that experience has helped, you know, push back when some underwriters are asking for extra things they really don't need. And I feel very comfortable just saying, you know what, we've already provided this, you really don't need that. And they're usually pretty good about backing off. I would say if I'm, if I have a good response, man, I, I.
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B
Think that's so valuable. Yeah. For anybody listening that's like, still needs a job but wants to get into real estate, but doesn't know where to start. You know, I always recommend, you know, we'll just go get a job in real estate. You know, you could go work at a property management company, you could go be an agent, you know. But yeah, working on the lending side is, is probably the best of all of them. Because when I was first starting to do real estate full time as like a real investor, I felt like, well, when I was learning how to, I couldn't believe how much of my time was just trying to figure out the lending world. I was like, because, you know, if that's the capital you're using, it's like, what do they need?
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A
What's possible?
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B
And it opens all the doors. If you don't think money's available, you know, it's very limited options, but as soon as there's money available, you just need to figure out how to access. And so understanding what lenders need is huge. And man, I wish I had the knowledge that you do to be able to push back. I don't feel like I can confidently say, hey, you don't need this underwriter. I just feel like I have to bend over and give them everything they ask for because I always feel like it's too much, but I'm like, oh, okay, whatever they need, don't get upset, keep handing in.
- [10:37]
A
Yeah, a lot of times it is, it's really the job of your broker to push back when it's not necessary. It's just that don't forget they're looking at 30 files, you know what I mean? If they already look at your file, they may be asking for stuff. And I'm telling you, this is where deals go bad because someone's not minding the shop. And so if they ask for another bank statement. Sometimes that bank statement had a large deposit and they're going to say, well what's this large deposit? And if it was from, you know, something that you can't paper trail, all of a sudden you have another problem. And the more problems you have, the more the underwriter starts to tip to the side of. I'm not sure I feel confident in this deal now. Even though they have, you know, they have boxes they have to fit these loan programs and products, the reality is you have to come in hard and strong with your credit score, assets, the asset itself, what you're buying, so that you know, you can get through the process and come to a good soft landing and close.
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B
Yeah, I love it. Yeah. I don't think we could say enough the importance of understand the lending world. And if you don't want to learn it, you know, get a good guy on your side that knows his shit and you can just follow him for sure, for sure.
- [11:44]
A
That, that's, that's critical. And of course the other thing I'll tell you now that we're on the topic, it's always, it's also good to have, you know, have your go to lender, that's really important but always have a backup or make sure your go to lender has other options for you. Because as you know in this space, especially when people getting started, if they're going to go out and buy their first floorplex and they don't have experience, you know, that's one of the questions they ask for, do you have experience? And people need to get experience. So back to what you were saying about before. When people are getting started in this industry, just get started, work for somebody part time, get your feet wet, do a deal. Like don't be afraid to do a deal, do your homework, do your due diligence, make sure it's going to cash flow, but get involved sooner than later. Don't wait for the perfect deal. In other words, 100%.
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B
Another thing I want to pick out just from what you mentioned earlier is the creativity. Like I think that's something that I, I like about real estate investing is, is you can, it's like a puzzle, it's like a game. You can get creative with it. There's not, you know, we talk about the math. The numbers are numbers and they get, give this kind of, this peace and solidity to everything. But math is math, you know, but you can't really get creative on two plus two is four, you know, but, but with how you structure These deals, it can be so like you said, like, oh well, we'll do 70 here, then 100 and then 130. So you have time to make the capital be safe because you knew what they really needed. And if you can figure out what people really need, not what they say they need, then you can make sure to deliver on that. But you can just get so creative, which is so cool. Whether it's a tiny little flip or a huge land development or whatever, like there's always going to be opportunities to be creative and that's so valuable.
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A
Yeah. Another thing is with people that are listening, like the first duplex I did, it was kind of, it was kind of beat up. It was in a great part of town. This was in Michigan. I live in Florida now. But the broker, the real estate guy on it was a nice guy. And I'm like, you think he would take turns? Would he just do a whether do seller financing? Oh, no, no, he's not interested in that. He only wants a blah, blah, blah. And I'm like, well, here's my purchase agreement. I went up, it was like 250,000. Loosely I said, I'll put down 50,000, I'll pay him off within a year, just see if he'll go for this. So again, the guy kind of butted me because he didn't want to deal with.
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B
This is the broker, the real estate agent pushing back.
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A
Right, right. He just wanted a cash deal. Right. So I'm like, well look, you know, I'm going to give him full price. So ultimately he came back and said, you know what, he will do it. So I said, great. So I was able to sign that deal, 50,000 down. I put maybe 30, 40,000 into it, rented it with high rents and then kept it for about, oh, I don't know, six months or so. And then I sold it for about 425,000. And again, there's always an argument of how long do you keep stuff. I'd love to build a long term portfolio and that's kind of what I'm doing now. But at that time I needed to kind of cycle through to be able to save up 4 or 5, $600,000. So I was ready to go on some larger deals. So everyone has to go through their own kind of path to get there. That was one way to, you know, make a chunk. And I knew that the market was there because everything around there duplex wise was selling for, you know, high threes, low fours. But again, ask the question I think is the other Key thing is, even though the, even though the real estate agent is steering you one way, still put the, put it on paper, put it on the purchase agreement and hand it to them. And then sometimes they don't have any choice. They have to go present that now.
- [15:15]
B
Yeah, no, I like that. You know, it's funny, unfortunately, a lot of times the gatekeeper is the real estate agent and you kind of have to fight them, especially if you're doing anything creative. One, one good thing about the interesting environment we've had in the marketplace recently is not all, definitely not all, but a lot more agents have opened up to being creative to, to try to make these things work. And so I think we're seeing more of it. I still think it's. The large minority of real estate agents are open to creativity. They just want something quick, they want something simple. You know, they want it to be a sure thing, they want to be a home run. And they don't want to look stupid to their client or lead them astray at doing things they don't understand. You know, and so you really got to like, win them over, educate them on it, help, you know, hold their hand through it so that they feel confident in it because they shouldn't be doing things they don't understand for their client and so that you need to, you know, kind of help them through it. But like you said, if you present an actual offer, not just chatting on a phone, but a actual offer, they legally have to give that to the client and they can't just push you away.
- [16:24]
A
Right, right. So. So yeah, so that's one of the other things that I learned along the way. And then it really wasn't until about 2018 that, you know, because I went through 2008 just like anyone else that was in this business and built up a pretty good portfolio in 2005-2006. Had a bunch of short term rental, long term rental, some, some, you know, fix and flips, and also had some land and again, getting in the weeds.
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B
How hard did you get hit in 2008 then?
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A
Pretty bad. I mean, it was bad. It was hard. It was hard to get through that time. I thought I was doing everything right. I thought I was diversifying within real estate because of all those different things. I just told you. I had some fix and flips, some short term rentals on the, on the, on the water, in the golf, in Florida, some long term rentals in south Florida and in Michigan and in Arizona. And then I had some land with some partners and everything to get through in 2008. 9, 10, 11. When I look back at really what, what killed me was the land.
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B
Yeah.
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A
Because the land didn't have any rent coming in. The land still had note and debt service on it.
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B
How'd your flip, did you get left upside down on your flips too?
- [17:32]
A
Well, the flips we were able to catch, actually the flips in the middle of those, we were able to get those closed out. But the long term and short term rentals, they, you know, the market drops so fast that we are underwater on several of them. So Jody, to work out with banks, and again, a lot of these had partners. Some of them that were on my own is probably in the, you know, six to $9 million value at the time. But it was just a hard time to go through. But what I learned from that experience was, you know, sometimes land is a little bit. Land is great if things are good, meaning banks are lending money and people are buying. But if not, you can say out of yourself. And that's kind of what happened to me and some other investor partners of mine. We just got stuck. The land kind of killed us. So if you look back on it when I, when I was redoing things in through 2013 and 14, that's when I revisited multifamily again to see the hit that Multifamily took in 2008. 9 and 10 was nowhere near what single family took, what rental took, you know, what any, what everything else took. Even, even, even industrial. So. So single family. I'm sorry. So multifamily and I would say self storage were two of the buckets of real estate that really survived pretty well. Why? Because they're all rent based. Those two buckets have rent coming in every month no matter what. It's not like land and it's not like some other speculative deal. So anyway, so that kind of, that kind of brings us up to 2018. And that's when I did my first deal as a limited partner. I was. A buddy of mine called me as a client. He's a good friend. He's like, hey, my friend's doing a multifamily. Are you interested in. And I said, sure. So I put up maybe a hundred thousand into that deal that did pretty well. It probably doubled my money in about two and a half years at the time. And that's when I said, okay, now I'm ready to really take on multifamily. And that's around the same time as when I met my partner Julie. And Julie's great. We Have a really good complimentary partnership, I would say, because I met, I met her on a deal we were doing. I was representing a buyer, she was representing the seller, which was herself and her husband. We made the deal and while I was talking to her, I said, why are you selling this beautiful property on, on the lake? And she said, well, we're trying to go into more multifamily direction. And I'm like, really? I said, I just came out of a multifamily. I have a 1031 I'm waiting to do. Do you have anything? And she says, actually I do. So that's when we got in our first deal together.
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B
Cool.
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A
The compliment, the compliment is critical because I'm probably more the paper money, capital raising, you know, kind of deal structure, the paper side. And she's great on the finding the deal, kicking the tires. Her husband's a contractor. They look at the roof, they look at all the things that could go wrong for us. And then we both work on the purchase agreement together. I usually take it with the underwriter to go through the loan part and we raise the money and we get it to closing. That's how we were able to build up this portfolio we have now is really by teaming up and using both of our strengths.
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B
Yeah, I love that. And you know, I get asked about partnerships a lot and, and I think that's, that's the best answer I think too is like find someone who has strengths that you don't have. Because if you're both bringing the same thing to the table, it's just kind of pointless, you know. But if you can have things that they don't and they have things that you don't, then like that, that's the sweet spot. And that can be arranged a million different ways. You know what I mean? But just make sure that there's value there.
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A
Yes. So that's really where we got, you know, we did our first deal and we just got, you know, we used again back to lending a little bit. We, we use a local kind of credit union for that deal. That was a small million, million, one million, two dollar deal. But even in that one was, it was a nice deal because that was the first one that we did. Then we did other ones sequentially after that. But then we went back to that one and refinanced it and that was the first one we did with agency debt. That was the first deal we did with, with Freddie Mac was their call it their small loan balance product. And the reason I'm bringing that up is because we instituted our business plan, fixed up the units, cleaned out the bad credit tenants. Yeah. Fixed up the grounds and our rents went up. Well then when Freddie came back to say hey, let's refinance this, they said well we're going to appraise it. And I'm like I said okay, great. I thought we would appraise for around 2 million thinking we could refinance and pull a little bit out. Like the money we put in for the capex. Yeah. And they came back to us with a value of about 2.65 I think it was. They agreed to give us a new loan at a million five. So not only do we get our down payment back, but we got our capex back. So now moving forward, her and I and we have a partner in that deal, have no money in the deal anymore and it still cash flows a little bit, but not perfect. But what we learned from that was infinite returns and we were able to crack the egg of doing our first agency deal with Freddie Mac which that's a key thing for anyone listening to get to because being able to get into the agency debt on bigger deals, it's almost like an old boys club because once you're in they've already kind of unwritten you as a person and her as a person. Now they just start looking at the assets. As long as your credit scores are still there and you still have your, your assets, liquid assets, then they kind of rubber stamp you and then they really look at the building, you know, is this apartment complex going to service the debt? Yes or no?
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B
Yeah. You know and I would for the listeners, any type of like investment or commercial or portfolio or whatever you want to call these, these investment loans, you know, as opposed they're going to be once you've got one, like I said, the next one's a lot easier as opposed to when you're qualifying for a PR residents like it doesn't matter. They're digging in deep and it could be two months later and they want all the pay stubs again. And like you know, if it's a year later it makes no difference. Like you're still at the mercy of them just as much as you were day one as you are day 100. But with investment loans it's different. Like you said, once they feel good about you, they're a lot more chill on everything going forward.
- [23:39]
A
They really are. And what you're saying Joe, is so true. Like people, I mean again, doing as many deals as I've done, I've done A ton. Hundreds and hundreds of primary resident steel. It's probably one of the tightest boxes out there. Maybe trying to do a duplex triplex. That's pretty tight too. But when you get into this format, a lot of it, a lot of the, the focus is on the assets. Yeah. So all of a sudden now it's not really you, it's can this asset perform? So what does that mean? It's kind of a good thing because sometimes with the lender comes back with these multifamily deals and they're like, well, you know, we did our stress test and we did our DC dcr and you know, we can only loan you X because it's not really performing at what you guys told us. Well, now the first thing I'm going to do is take that difference back to the seller and say, hey, guys, you know, you guys told us the rents were here. They're not. We're only getting this. We need to lower the price to commensurate with what we're borrowing. So they're still going to give you the loan, they're just not going to give you as much. Whereas in the primary, primary housing, if, you know, if you don't have the pay stub or you don't have the verification of deposit or whatever, they kill the deal. You're kind of done. Versus this space is a little more, a little more flexible because they still want to make these loans, but they just can't make them as high as what you went in for.
- [24:53]
B
Well, and vice versa. They're also protecting you. Right. Because you can go buy a horrible deal as a primary, but if you qualify for the money, here you go, they'll sign over the money and you're buying trucks, trash, that you're going to be underwater. Really. Like just a horrible investment.
- [25:09]
A
But another good point. Yeah.
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B
On these investment ones, though, they're, they're, they're an additional underwriter. They're literally underwriting it, which is good for you. If they don't think it's solid, you shouldn't think it's solid. And so it's, it's really. You're on the same team, you know.
- [25:25]
A
Yeah. And, and that's also because again with other deals that I've done as a broker, as a broker, when I, when I've advised clients, when they're doing this, sometimes they're like, oh, we got land contract with the guy. And I'm like, okay, great. So we help with, I help with the, with the purchase. But sometimes, because it's not being underwritten. They don't remember to do the insurance and have the insurance bound the day that they close or they don't, they didn't really do the right due diligence or they didn't get copies of the leases to make sure that they were legit. So yeah, you're right. There's a kind of a double edged sword I would say for an underwriter. They are protecting you. They kind of help make sure all those things, all those ducks have to be in a row before they will fund it. That makes you make sure everything's legit seller. At the same time they're going to kind of push you and drive you nuts a little bit asking for documentation. But I think once you get into it, you'll see again if you can ever get to the point to do an agency deal. It just really helps with deal size, with being confident with the seller that hey, we're already approved by Fannie or Freddie. That helps the seller understand that we're already part of that process and they feel confident we're going to close is another big piece.
- [26:32]
B
I love that man. That's cool. So, so what, what's the, the future looking for, like for you guys? You know, obviously you've done a lot of stuff. You're managing, you know, hundreds of units. You know, what's kind of the focus right now and what do you see the next, you know, few years? Like what's, what excites you?
- [26:52]
A
Sure. Well again Julie and I, we, we both love real estate. We're both real estate people. In other words, we've both been in real estate for 25 years and when we look out into the future, you know, we just want to continue to build this portfolio and we're looking for deals. We have almost like a buy box I guess we call it and you know, our buy box. But we really like our multifamily deals that are around 100 units maybe, maybe a little higher or lower. We're looking at markets like, like Texas. We have, we have a deal in Texas. We're going to be closing another deal in Texas here soon. We have several in Michigan. We're almost, we almost had our first deal in Florida. We don't have it yet but we're just looking to grow our portfolio but just with really good deals. We said no to a lot of deals in 2022. Yeah, don't forget 2020 and 21 into 22. It was, it was the go go days. I mean people were buying, lending was, lending was smooth. Rates were low, sellers were getting out. Well then once you go into 2022, you know, rates started going up. Sellers still wanted the number that they thought in their head was their property was worth back in 2021, and it just wasn't. And so we were very careful and we still bought a couple things in 2022 into 2023. But we've been careful to get just really, really good deals. And it takes, you know, we're looking at 30, 40, 50 deals to put Lois out on maybe five and then close on one. So our goal is really to build this up. I mean, our goal is to get to maybe 5,000 to 10,000 units over the next five to seven years.
- [28:25]
B
And you want to long hold those. These aren't like five year exits.
- [28:28]
A
Well, actually a lot of these are five year exits. That's a good point because, because we're syndicating most of these. Julie and I own a few on our own and those will probably keep long term like you said, because they're just good long term holds. But when we have investors to, along the way and we have investors that we want to provide our services to when we're raising the money, part of what we talk about is we're looking at about a four or five year hold so that they're aware they're going to put their money up for about five years. And when you look at a spreadsheet, when you own a property, especially if you're doing value add, which is what we specialize in, I would say we really like to find the, the C, C plus B minus property, bring it up to a BB plus. We have, we have one A property, I would call it, and that's, that's has its own kind of light value add. But the value add stuff is really what we found is a good area to be in because we know that we can kind of force equity and we can force value by improving it. So we focused on, on about 100 units. We love the ones that are from mom and pops because we know that there's, you know that the rents are probably under market. We know that there's a lot of deferred maintenance. So we can get the price right and we can work on that property, get the, get the units turned and rehab, get the rents up higher and you know, things that are off market. We love off market deals as well because we're not competing with a bunch of other groups out there.
- [30:01]
B
Yeah.
- [30:02]
A
So you know, we're just trying to, to, you know, kind of grow our Portfolio in these areas that we are, we feel like we're really well versed in. In other words, we have a, we have an integrated team, we have a vertically integrated company. So we have an asset manager on our team that's on the phone every week with every one of our locations, with the on site manager making sure that the rents are commensurate with our performa and making sure that we're on track to make sure our capex is being deployed appropriately. Julia and I oversee all this too. So we, her and I both know what's going on, but without us on the phone, she's constantly driving the onsite managers to, to the rents that we need to be at so that we can hit those numbers in our targets by year four and five. And that's usually where it peaks for an investor. So if you ever look at a performer, you can see how the, the peak for the investor is really around year three, four or five, maybe six. As it goes on past that and all the work's been done, their return slowly kind of diminishes. So you know, our targets are a 2x multiple in four years or five years and our IRR is usually in the 17 to, I'd say 19, 20% range. We've been able to deliver on those.
- [31:14]
B
What's your life look like now, Russell? How many hours a week would you say you put into running the, your real estate business?
- [31:23]
A
That's a great question. So, well, what my life looks like. You know, we lived in Michigan most of my life. My wife and I moved down here to the north part of Florida. Florida. Were in the panhandle on the Golf about three years ago. We love it down here. We have two daughters that are 8 and 13. They're active, they, they like it down here. So you know, being a dad is obviously really important. Real estate wise. I'd say for this particular entity I'm probably at, you know, 30 hours a week, I would say. And then I still have my own brokerage and my own entities that I maintain, as does Julie. So we kind of over, we're overlap for, for this entity, but we can both see how it's starting to really take shape or I would tell you, probably in a year from now we're both going to be almost full time in this only.
- [32:11]
B
That's awesome. Is there, is there a point where you'd want to step back and kind of enjoy the wealth that you've built? You know, I mean there's always more, there's always more. You've probably done more than you ever thought you would. I don't know, maybe you always had big visions.
- [32:25]
A
Yeah. I think we both have a big appetite for building something. I mean, we think that the wealth will come and we think that the cash flow is there, but I think we both have a passion for building something for the future. So. Yeah, I mean, maybe in a certain amount of years, once we reach a certain threshold, I'm sure I or she or both of us may dial it back a little bit. But for the meantime, it takes being on top of, as you know, if you do this for a living, you have to be on top of this stuff. Investors, you're constantly talking to investors, you're constantly looking at deals, you're constantly solving problems. I mean, with prop, it's not like you just buy these and set them up and they just go. You still have to make good decisions when there's problems, which, again, I feel really good about the way Julie and I have handled problems. We had one property that had a fire about three years ago. So we had two buildings in that property. One of them burned down. Then we had to deal with the insurance company. It took a couple of years to get our money, so, and so, so forth. Now that property is under, under contract, we're going to sell the other building and we're still going to deliver a good return to our investors. But my point is, you know, you get, you get things thrown to you as like curveballs in this industry. So you have to kind of be on it every day, daily. Otherwise you'll get, you can get, you know, you can get sideswiped easy.
- [33:43]
B
I think it's great that you and your partner on the same page. It sounds like you're very aligned in what you're trying to accomplish. And, and, and it's cool. Like, it sounds like you, the building and, and the growing is exciting for you. You know, the, the retirement or, you know, not working or the freedom that, that seems like you're like, yeah, whatever, but like, I want to build something and that's cool. Everybody has their different motivations for why they do this. And I can see that excites you.
- [34:10]
A
Yeah. And I think that in these days, I don't think I'll ever quote, unquote, retire. Like, like the, the, like the connotation is because I just think that no matter what, I'll always have something to work on that I want to work on. So I guess the biggest thing, back to your question is if I can get to the point where I can be free to decide on what I want to work on, which is most likely the multifamily portfolio. That would be great for me. And then I would love. I feel like I had the freedom to really work on stuff that I'm passionate about versus, you know, to get here, you got to grind. You have to have a lot of grit. You got to get through tough situations and deals that don't happen and deals that do happen, but they're crappy deals. You know, these are all things you have to get through as a. As a real. Real estate investor to get to the. To the. To the, you know, to the end of building a successful portfolio that. That performs absolutely well.
- [34:59]
B
That's sweet, man. I want to. If people want to, like, follow you or, you know, maybe invest with you, it sounds like you're giving awesome returns. You know, what you're doing. You've been in the game a long time. A lot of these places are five years old, maybe 10 at most. You know, you guys been doing 25 years, you know, just you. So that's awesome. What's the best way for people to. To follow you and keep in touch?
- [35:20]
A
Sure. So the best way is our website isvillage capital partners.com and then my. They can. They can find me on LinkedIn or email. My email is just Russell villagecapitalpartners.com and we'd be happy to talk with anyone and help them with any questions they got.
- [35:39]
B
Awesome. I want to go through a couple questions I'd like to ask every guest that I have on the show. I'd love to get your answers. So the first question is if you had to start over, you're starting all over, Russell. But it's 2024 August. But what would you do first and second, maybe third move. What would your beginning moves be? Starting over today with nothing, except for the knowledge that you've gained.
- [36:08]
A
Okay, so you're saying with nothing. So I guess if that's the question, which is kind of where I was when I started, I would definitely start working for or with someone out of the gate and learn from someone that's like, I'm almost like a mentor that needs you and you have to make a living. So find a way to maybe get some kind of a small something or work on the side, but still get in, get into an office with someone who's already doing what you want to do. The second thing is I think I would try. I would have tried to pivot to the multifamily space sooner. If you remember I said, in my 20s, I found it really fascinating that these older gentlemen had these unique apartment complexes. And it was very. It was like a formula where they would just buy it, fix it up, you know, rinse and repeat. They refinance it, pull the money out, and they go buy another one. So I wish I would have learned more about that space instead of. I took it on myself that I have to go. I have to go make and save a million dollars before I could go start to do those types of deals. So what I should have done was pivot to multifamily a little sooner and maybe do more quads, maybe do an 8, 8 complex, 12 unit and just kind of get your feet under yourself. I would have done that sooner than waiting, you know, almost 18 years to really do the first deal in that space. And then third, I would be aware of capital raising. I mean, you will get choked off in this business if you don't have access to more funds. So that's kind of what mostly I do now is capital raise. And luckily, we have a great. We have a great network of investors that have invested with us, and they refer people to us and just. You have to understand that. That you can't sell people this stuff. You have to be more of a consultant and explain what's the opportunity, what's the return, what's our track record? And the capital piece is. The other key thing is, I would say the third step is learn about capital raising early. Don't do it when you have the deal under contract, because that's too late. You're never gonna get. You're never gonna get a race.
- [38:05]
B
Yeah.
- [38:05]
A
Yeah.
- [38:06]
B
I mean, it's so powerful, right? Like having, like, we kind of. What we touched on at the beginning, understanding the lending world. Like, you need to know where your capital is coming from or it's hard to make moves. Even. Even, you know, I've coached the, you know, students buying their first, you know, investment property. And one of the. The most basic advice I give everybody, at least it helped me, was like, I need to know exactly how much capital I can deploy. Like, right now, do I have 20 grand or do I have 60 grand? Like, that limitation will help me find my deal and I'll be able to actually pull the trigger. But if it's this vague, like, I always. I'll be. I'll have students like, oh, yeah, I've got, like, you know, I probably. I can do like a hundred grand. Maybe it's like, no, you can't. You, like, you might have 100 grand in your bank account. But we both know you're not going to spend every penny of that because your gut knows you need cash reserves for your private life. You know, that you're. You want to have some, you know, leeway, like, you know, what are you actually comfortable spending? You know, and, and that, you know, that's just obviously on a very low level, you know, but that goes all the way up to, like, you're saying, where's your capital coming from? How much do you have access to? Because that's really going to determine if you can move forward, you know.
- [39:14]
A
Yeah, and make sure we keep the investor. We're investor centric, so almost every decision we make is for our investors. Meaning you got to have a good deal, you got to have some meat on it. If the deal is kind of thin, you're just doing it to do a deal, to kind of pay the bills. You can't do that in this business because once you have a bad deal, and luckily to date, we haven't missed any distributions, all of our deals are performing pretty well, but we know other groups that are not. And once you have a bad deal, those investors somehow talk and they kind of know each other. So it's important to deliver and do what you say.
- [39:50]
B
I love that. Okay, question number two, Russell. What's a book or podcast recommendation the listeners could check out?
- [39:56]
A
Well, if your listeners are interested in multifamily or anything involving, you know, growing a portfolio in that space or self storage or whatever, I would say that it's the best ever real estate investing advice ever show that Joe Fairless started. It's a great job. They have really good guests, similar to what you're doing, like from different, different, different lines of real estate. But it's, it's usually very informative and you learn a little bit more about what's going on today in the marketplace. Like, you know, for example, what's changed in the marketplace? Why are deals so hard to get done right now? There's all sorts of reasons why. So I'd say that's probably the best podcast. And now that I. Now that I know you now yours, yours too.
- [40:38]
B
Okay. Yeah, yeah.
- [40:40]
A
I listened to a few years before our call day, and they're really, really, really well done.
- [40:44]
B
We appreciate that. Yeah, Joe Fairless has done some really awesome stuff. So, yeah, I definitely recommend everybody check out his show. Yeah, I appreciate the kind words, though. Awesome. All right, so question number three. What is one of the most expensive or interesting mistakes? I put air quotes because mistakes are just Lessons. Right. But what's, what's one of the most interesting or expensive mistakes you've made in real estate investing?
- [41:11]
A
Great question. So I'm going to go back to what we were talking about earlier, if you guys remember. Well, maybe you don't. A lot of listeners may not either. But between 2001 and 2006, it was the go go days. I mean, lending was plentiful. People were buying and selling real estate. It was like you couldn't lose. And during that time is when I built up that portfolio. And not really being a land guy, I got pulled into some land deals. And so my mistake was thinking I was diversifying within real estate by having, I don't even know how many we had, maybe 18 lots or something. That was my mistake because lots are speculative and you have to look at that as lot and construction. New construction is not all new construction, but lots certainly can be speculative. So again, if the music gets shut off and there's no one lending money, you can't really even do anything with that lot. And it's hard to, it's hard to raise money when things are bad. Like in 07, 08, 09 or 10, our whole country is on the verge of economic collapse. Yeah, that was my mistake, was kind of getting too much into areas that I really didn't watch over as closely as the short term rentals and long term rentals and flips. So that's what I would say was my mistake was kind of getting into something because it looked like it was a pretty good deal as partners I was already involved with that said, hey, we got these great lots over here, but I should have just stuck to my guns and just stuck with what I know best. So that's why I would say my mistake was getting too far into areas that I shouldn't have been in and ended up biting me.
- [42:37]
B
Nice. Appreciate you sharing that. All right, last thing, we'll let you go. What's a one word or short phrase to encapsulate why you personally love real estate investing?
- [42:48]
A
Another good question. So I guess I would say, let's see, I would say, I would say my passion and drive to build wealth for the future. My passion and drive to build wealth for the future. And it's not just to go buy a Lamborghini. I mean, this is to build like wealth that would be. Give security for my family and more options and more freedom, I guess, is really what, what it's there for. But yeah, I just have this passion for real estate. I love it. I never get tired of it. It's challenging, and to build up a portfolio is challenging, but if you really, really love it, you don't really feel like it's. It's hard work and you'll deal with whatever comes at you.
- [43:25]
B
Yeah. Well. And, like, say the challenges are what makes it engaging and exciting. You feel like you get to be creative and you get to run the numbers and you get. You know, if it was too simple, it'd be boring, so.
- [43:35]
A
Yes.
- [43:36]
B
Yeah. I love it, man.
- [43:37]
A
Well.
- [43:37]
B
Well, this has been great. Thank you so much for taking the time and sharing your stuff with us and giving people access to. To you and what you're doing. You know, obviously, you've done so much in this space. There's so much to learn from you, so we appreciate it.
- [43:50]
A
Of course. Thanks, Joe. Thanks for having me.
- [43:52]
B
Absolutely. This is Joe Jensen signing off for the Real Estate Investing School podcast, reminding you it takes time, so get going.