Real Estate Investing School Podcast

Episode 189: $1.4 Billion (with a B!) Worth of Real Estate Insights with Russell Franchi

Date: September 2, 2024
Host: Joe Jensen
Guest: Russell Franchi, Managing Partner at Village Capital Partners

Episode Overview

In this episode, Joe Jensen interviews Russell Franchi—a real estate investor, broker, and syndicator who has overseen over $1.4 billion in real estate transactions across multifamily, commercial, and luxury rental properties. Russell shares his journey from humble beginnings, the importance of learning lending and capital raising, surviving the 2008 real estate crash, partnership dynamics, and lessons for new and seasoned investors alike. This episode is filled with candid advice on starting out, navigating partnerships, making creative deals, and the crucial need for capital and a strong network—delivered with Russell's analytical, passionate, and thoughtful approach.

Key Discussion Points & Insights

1. Russell’s Background and Getting Started in Real Estate

• Russell didn’t initially plan to enter the real estate world, coming from a math and science background. Early exposure to home construction as a child sparked his interest.
• His first real estate job came through being a TA for a local developer-professor at the University of Michigan (03:01).
• Russell’s initial deals included brokering land sales and managing complex negotiations, quickly learning creativity in deal structuring.
  • Quote:
    “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... So that was how that deal got done. And I was kind of... It was my first deal that I ever did.” (04:56, Russell)

2. Lending, Learning, and Lessons from the Numbers

• Russell’s math skills led him to mortgage lending, giving him deep insight into the borrowing process—a critical foundation for his later success.
• He emphasizes the importance for investors to understand what lenders look for and learn how to communicate and push back with underwriters.
  • Quote:
    “You learn how to push back on underwriters... And you only want to show them what's necessary for the loan. So little things like that you pick up along the way.” (08:13, Russell)
• Advice for Beginners:
  Get a real estate job to learn the business whether in property management, as an agent, or especially on the lending side (09:30).

3. Creativity and Problem-Solving in Deals

• Creativity is essential in structuring deals that work for all parties—e.g., using seller financing or staggered payment terms, even when brokers push back (13:31).
  • Quote:
    “Ask the question I think is the other key thing... Even though the real estate agent is steering you one way, still put it on paper... Sometimes they don't have any choice.” (14:06, Russell)
• The market has forced more agents to be creative recently, though many remain resistant to anything non-standard (15:15).

4. Lessons from the 2008 Crash

• Russell was hit hard in 2008, particularly by land deals, which are risky due to a lack of income if markets dry up and banking tightens.
  • Quote:
    “When I look back at really what killed me was the land. Because the land didn't have any rent coming in. The land still had note and debt service on it.” (17:23, Russell)
• Multifamily and self-storage proved most resilient due to steady rent-based income, guiding Russell’s future focus (18:10).

5. Partnership and Scaling Up

• Strategic partnership with Julie Fagan brought complementary skills: Russell focuses on paper, money, and capital; Julie handles property vetting and construction oversight.
• Vertical integration with clear role separation was key to scaling and managing 700+ units.
  • Quote:
    “The compliment is critical because I'm probably more the paper money, capital raising... And she's great on finding the deal, kicking the tires...” (19:54, Russell)

6. Agency Debt, Infinite Returns, and Scaling Portfolio

• Refinancing through agency debt (Freddie Mac) allowed for “infinite returns” by getting initial investment back plus cash, yet retaining cash flow and asset ownership.
  • Quote:
    “Not only do we get our down payment back, but we got our capex back. So now... have no money in the deal anymore and it still cash flows a little bit...” (21:45, Russell)
• Once “approved” by agencies, subsequent deals become much easier to finance.

7. Current Focus and Market Approach

• Focuses on 100-unit(ish) multifamily value-add deals, especially from mom-and-pop owners, in Texas and Michigan.
• Careful to avoid overpaying post-2022 as interest rates rose and seller expectations lagged.
  • Looking at dozens of deals to close just one, with a goal of 5,000-10,000 units in the next 5-7 years (28:24).
• Typical hold period is 4-5 years to align with investor expectations and maximize IRR (~17–20%).

8. Building a Business and Lifestyle

• Strong emphasis on being “investor-centric”—not doing thin deals just for the sake of it and prioritizing reputation and delivery (39:14).
• Russell devotes about 30 hours/week to the partnership, with room to scale to full time, balancing family and growth goals.
• Truly passionate about building wealth for security and freedom, not just for luxury or status.

Notable Quotes & Memorable Moments

• On Pivoting to Multifamily:
  “I wish I would have learned more about that space... I took it on myself that I have to go... save a million dollars before I could go start to do those types of deals.” (36:46, Russell)
• On Raising Capital:
  “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... Learn about capital raising early. Don't do it when you have the deal under contract because that's too late.” (38:04, Russell)
• On Learning Through Adversity:
  “That was my mistake because lots are speculative... If the music gets shut off and there's no one lending money, you can't really even do anything with that lot.” (41:11, Russell)
• On Partnerships:
  “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...” (20:27, Joe)
• On Passion for Real Estate:
  “My passion and drive to build wealth for the future... more options and more freedom, I guess, is really what it's there for. ...I just have this passion for real estate. I love it.” (42:47, Russell)

Timestamps for Key Segments

• [00:00] Capital raising: The earliest lesson
• [04:56] Russell's first creative deal
• [08:00] Learning the lending/mortgage business: Strategy and lessons
• [13:31] Seller financing, creativity in deals, pushing past resistant agents
• [16:54] Surviving and learning from the 2008 crash; pitfalls of land deals
• [19:54] Partnership dynamics with Julie Fagan; vertical integration
• [21:45] Infinite returns: Agency loans and refinancing
• [26:52] Market focus, buy box definition, disciplined deal selection
• [31:22] Time commitment and balancing life, building toward full time
• [36:08] Russell's steps if starting over in 2024
• [39:14] Raising and managing capital: Investor-centric approach
• [41:11] Most expensive mistake: Too much spec land
• [42:47] Real estate passion driver: Building wealth for future security

Recommendations & Takeaways

For Aspiring or Active Investors:

• Learn lending first: Understanding how loans are underwritten is invaluable.
• Prioritize partnerships with complementary skills.
• Creativity in deal-making is crucial—don’t be afraid to suggest offers that fit your goals, even in the face of skepticism.
• Beware of speculative asset classes—for beginners, assets with stable income (multifamily, self-storage) weather downturns best.
• Raise capital before you need it—your growth will be capped without it.
• Investor relations are everything: Protect your reputation, over-deliver, and be transparent with investors.
• Be willing to grind, adapt, and solve problems.

Russell’s Recommended Podcast:

• Best Ever Real Estate Investing Advice Ever Show by Joe Fairless (39:56)

Closing Reflection

This episode is packed with actionable wisdom on real estate investing at scale. Russell’s story from humble beginnings to overseeing $1.4 billion in real estate highlights not only the importance of technical knowledge (especially around lending and capital) but also the value of creativity, tenacity, and strategic partnerships. He champions a growth mindset, learning from mistakes, and maintaining investor trust as the keys to long-term success and fulfillment in real estate.