FCP 123: Generating Wealth With Multi-Family Investment – Featuring Tim Bratz

Jack: Hello everyone and welcome to another episode of “The Forever Cash Life Real Estate Podcast” where we talk about all things cash flow. Today, we’re going to talk about multifamily, about how to find them, how to raise money for them, how to structure them, what criteria you’re looking for, and our expert has over 3,400 units so stay tuned and we’ll get going in just a second.

Man: Welcome to “The Forever Cash Life Real Estate Investing Podcast” with your hosts Jack and Michelle Bosch. Together, let’s uncover the secrets to building true wealth through real estate and living a purpose-driven life.

Jack: All right, so here we are. I’m super excited to have my good buddy Tim Bratz here on the show with us. Tim, how are you doing?

Tim: Doing awesome, Jack, appreciate you having me buddy.

Jack: Wonderful.

Tim: Thanks for all the content and the value you provided, man, I’m excited to be on the show.

Jack: Wonderful. Thank you for being here. So, first of all, to everyone watching. Tim and I, we know each other for a few years, I think, right?

Tim: Yeah.

Jack: And, Tim really came out of the gates once you figured out this real estate stuff, like, really, really strong. And, in how many years have you built 3,400 units?

Tim: I mean, I built my current portfolio over the past four and a half years…

Jack: Four and a half years.

Tim: But, I will say that, you know, I’ve been in real estate for investing for about 12 years, 11, 12 years. And, I was doing some commercial or not commercial, but like brokering some stuff, and work for a big home builder and stuff before. So, I’ve been in real estate a long time, built up a small portfolio about 150 units, had to liquidate it through some business partners about four and a half years ago. Built my current portfolio, over the past four and a half years.

Jack: All right. Let’s jump right into that. So, perhaps you can give us a little bit of your history, but then leading up to the point where you said, “Okay, I’m going to just go big now.” What triggered that point?

Tim: You know, I think we all get in real estate for that allure of residual income and passive income, right? And, that was me too. When I was going through school, everybody was making money in real estate. And, that was, ’03 to ’07. I graduate from college, I got a job in real estate and market tanks. Everybody was like, “Run from real estate.” I was like, “Hey, I just showed up to the party.” You know, like, “Where’s everybody going?” And so, I always loved the idea of having assets that kicked off residual income, that mailbox money that we all talk about, right?” The issue for me is, I didn’t know that there was private money out there, I didn’t know how you could structure these, I didn’t know that you could, you know, partner up with the loan sponsor and do all these different things. So, I did it the slow way, right? I got involved in real estate and I started doing the transactional stuff, flipping houses, and wholesaling houses, and doing the turnkey, then I built up a management company. I was doing all those different things because I thought I had to stockpile my own cash in order to go out and get involved in these deals. Eventually, I met some people with some money, and some private lenders, and we structured some deals and projects and started, you know, developing a little bit of a portfolio.

And, I created an exclusive relationship with two guys specifically, and that partnership just didn’t end up panning out the way we wanted to, we had to liquidate everything. And, I went back, I had a couple of bucks, but, you know, I went back to the transactional stuff, right? And, I started flipping houses again, doing all of these things. And, I remember about two and a half years ago, I was investing in some apartment buildings, and raising some money, and joint venturing with some people who are great operators on the apartment side and started buying some my own stuff again. But I only had maybe a couple hundred units at the time about two and a half years ago. And, 300 units, let’s say 350. And at the time, I remember going on vacation, I sat back.

You know. when you’re on vacation, just kind of reflecting on life and you’re thinking about different things. And, I remember, like, waking up early in the morning, I was overlooking this lake, upstate New York, and looking at my goals and looking at my net worth and just, kind of, adding some of these things up and realized that 90% of my net worth came from my apartments, but it was only 10% of my time. I thought, man, “What if I dedicated all my resources, my team and everything to just focusing only on apartments and building wealth instead of just building an income, right?” And, I realized that middle income and low income people focus on income and how much you’re making on an annual basis. And the elite, the highest, the most wealthiest people in the country focus on net worth, right? And what their balance sheet looks like. And so, I thought, “What if I just focused on balance sheet? What if I just focused on building my net worth and buying apartment buildings?” And, that’s what I ended up doing. I came back from that vacation, and just, kind of, burned the ships. And, I said, “Hey, guys, we’re not buying houses, we’re only buying apartments.”

And, it’s pretty amazing what happens when you draw a line in the sand, and you make that declaration to the universe, right? And, how the universe then responds, because then we started seeing apartment buildings, an 11 unit, an 18 unit, a 20 unit. You know, and all over a sudden, we started buying up these apartment buildings. Some of them we flipped because it just didn’t meet our buying criteria, was too much of a C-class kind of an area. We kept the better stuff, the bigger stuff, wholesaled off some of the smaller things or the things that needed too much work. And then, really just, kind of, put it out there, started educating people and telling people all the time that we’re only buying apartments, “We’re buying apartments, we’re buying apartments.” And, just by putting it out there, I’m not the biggest owner of apartment buildings in Ohio, right? But I’m probably the best known because I tell so many people, and everybody knows me as the apartment guy. So, I get deal flow that nobody else gets. And, that has allowed me to really create this machine where we’re looking at 400 apartment buildings a month in order to buy one or two of those.

Jack: So, wait, wait, wait. So, 400, I know a lot of people, I know we look at a lot of deals a month in order to get one, and we are closing on one right now. But, you talk about looking at 400. When you say 400, you mean 400 times, you get financials, you plug them into your system, you’re planning to think you’re on them, or you just look at them, it’s like you discard half of them right away? How’s your process on that work?

Tim: Yeah, so my process. I know what my metrics are, right? And I know what kind of properties I want. And so, every deal I know what my metrics are, right, and I know what kind of properties I want, and so every deal we end up…

Jack: Which ones are you looking for? What are your metrics?

Tim: So, my buying criteria, you know, everybody is like, “Oh, real estate is my niche,” right? No, real estate is an industry, it’s not a niche. Like, my niche is A and B class area apartment buildings that are value add, meaning they’re physically distressed or managerially distressed, in landlord friendly states that are 100 units or bigger. That’s my pocket, that’s what I buy. And so, we come across a lot of other things and we make offers on everything.

Now, making offers, are we actually, you know, writing out a 20-page offer? no. Are we even doing an LOI? No. But, we’re sending an email, or at least having a conversation saying, “You know, you’re asking 8 million bucks, we’d be closer to 5 million, 5 million and a half. Is it even worth continuing in the conversation?” And, that to me is still, kind of, at least swinging the bat to make an offer, right? Let’s at least feel it out because they’re like, “Hey, I know the seller is motivated. You know, well, this has been on the market for 12 months, and we’ll look at anything. We’ll take a deeper look at it.” And then, we start looking at the metrics.

So then, you know, we care about what the stabilized value is, right? I mean, to an extent, I’m not going to pay a seller for the value I’m going to bring to that property, right, the value I’m going to add. So, I do care about the current value, but I care more about what the after repair value is. I come from the residential realm, where it’s not about what the house is worth today, it’s about what it’s going to be worth once it’s fixed up and renovated and you put it back on the market, right?

So, my entire model is to buy a distressed asset, force appreciation. I don’t speculate on appreciation, I force it by doing the value add improvements, and my model is very similar to when I flip houses, I have to be all in for 65 cents of the after repair value. So, on a $10 million building, I’m all in for $6.5 million at most, purchase price, renovation costs, holding costs. That allows me to then go back to the bank once we’ve forced the appreciation. That can all happen within 12 to 18 months. Once we’ve forced the appreciation, we go back to the bank and we refinance out with a 70% loan to value loan. So, that allows us to then pay off our investors, pay off our short term loan, and put long term agency debt which is, you know, non-recourse interest rate, long amortization schedules. And, that’s our business model.

So, when we’re looking at all these different deals, we know what our numbers need to look like pretty quickly, and we can run numbers, kind of, in our head. I can analyze a deal in two minutes, you know, in a snapshot. And, that allows us to comb through 20 deals a day for the most part.

Jack: Okay. All right, that makes perfect sense. So, and then, do you have a little formula for that for running them in two minutes? Yeah, can you share this formula?

Tim: That’s the secret sauce, right?

Jack: That’s the secret sauce.

Tim: Yeah, because, I mean, how many people do you see out there with these extravagant calculators and they’re selling them for $400. And, they’re like, “You need this in order to underwrite the deal.” It’s not the case. You know, like, I have a commercial mortgage broker that brokers all my loans that’s going to be taking these deals to the banks to go and get an 80% loan on it, you know it’s $5 million, $6 million bucks. That bank is going to underwrite it, the mortgage broker is going to underwrite it, so I lean heavily on them. I use a pretty quick formula to see if it’s even worth pursuing. And essentially, I just take whatever the stabilized rents are, you know, and I multiply it out by the unit mix, right? So, if the one bedrooms are $600 bucks a month or will rent for $600 a month once stabilized, the two bedroom rent for $800 bucks a month, there’s 50 of each, then I know it’s $70,000 a month in gross rents, you know, $840,000 a year in gross potential rental income, and then I know what my expense ratio is. So, that’s going to change and vary depending on wherever people are investing, but most of my areas, it’s about 40% expense ratio on most of my apartment buildings. So, I use 50%, because it’s easy. So, I just take whatever the gross potential rents are, I divide by two, that puts me at $420,000 in net income, just snapshot, right? You know, and I want to be all in for a 10% cap rate, is essentially my number. And so, I can pay $4.2 million all in on that deal.

Jack: All right, so you’re buying at 10 caps of actual space… Oh, no, you’re buying at… So, I followed you all the way to the 10 cap. Is the 10 cap basically, you calculate what the state is going to be worth…

Tim: It’s the stabilized cap rate.

Jack: … stabilized?

Tim: Yep.

Jack: So, you’re basically saying, once I have this thing running, I want it to produce a 10% cap, basically 10% return [crosstalk 00:11:21]…

Tim: Yeah, at my cost basis, correct.

Jack: …10 cap. So, therefore, I’m willing to pay today $4.2 million for that property because I’ll know, if I pay this today, that should include the cap- ex then already?

Tim: Yes. So, then I deduct all the capital expenses.

Jack: So, $4.2 million is all in?

Tim: Correct.

Jack: So, all in, meaning, including closing costs, including everything, inclucing cap-ex and so on, and that’s what you’re paying for this thing?

Tim: Correct.

Jack: So, therefore, you’re basically saying, like, let’s say, if I need to put in $500,000 in this property and have $200,000 in closing costs, let’s say, then I basically can offer $3.5 million on this property?

Tim: Exactly.

Jack: Okay, very cool. And, that’s how you go and approach them, and if they’re saying like, “You’re crazy, we have offers for $6 million.” Then you’re like, “Okay.” Then you move on to the next deal?

Tim: Moving on.

Jack: All right.

Tim: I will not force a deal. I try to kill every single deal. If I can’t kill it, then I know it’s good deal.

Jack: All right. So, very sure it makes perfect sense. Very nice, very nice. So, which, actually, if I’m thinking about the deal that we’re doing right now, I went about it the more complicated way with a big analyze and stuff like that. But, we’re just closing on a deal right now that we were estimating that the NOI, once it’s stabilized is going to be about $620,000. So basically, you would pay $6.2 million for it. Well, the good news is we’re buying it for…

Tim: All in.

Jack: …$5.3 million, and putting about $800,000 in cap-ex plus closing costs, we’re right there. So yay, but our deal would qualify for you.

Tim: There you go. And, you did it in 30 seconds versus three hours, right? [inaudible 00:13:05]

Jack:: Right, right, right. Totally, totally makes sense. So, good. So, this is gold, guys. So, if you listened to this, take that down, rewind, watch it, listen to it again, watch it again if you watch it on YouTube. Very cool. So, A and B-class areas. And, but, so are you buying C-class properties in A and B-class areas?

Tim: Yes. Yes. So, I’m buying or building, right? So, we developed down in South Carolina, in Georgia. So, we’re doing some building and stuff down there. But, we’re buying C and D-class, and some B-class kind of properties in A and B areas, right? A lot of people just grade it and they put this blanket grade on the property. Is that the property or is that the area? We want good areas, good school system, safe locations, good economic anchors. But, I don’t care what the building looks like, I want the ugliest house on the best block, right? I want the ugliest building, the worst building in the best area. That’s what I’m looking for because that’s where you can create the most appreciation.

Jack: The most appreciation. So, it’s fascinating, you’re really taking the single-family model of the fix and flippers, and translating it to the multifamily, and it’s working quite well. Because, you bought over, I think, was it $260 million worth of real estate in the last five, six years, or four and a half, five years? So, let’s jump into that part. So, $260 million worth of the real estate. Of course, that’s the after repair value right now, the stabilized value. Perhaps, when you purchased it, you probably paid less for that. But…

Tim: Oh, yeah. I have about today. I just closed on another deal so I’m at about $270 million of portfolio value, and my total cost basis on that is, I think, it’s like, with debt and equity, it’s about $160 million, $165 million, somewhere there.

Jack: Okay. So, you create $100 million worth of extra equity on those deals?

Tim: Yes.

Jack: So now, when you go into these deals, how do you structure them with your investors, typically?

Tim: Yeah. So, there’s a broad spectrum, right? There’s traditional syndication where a lot of people are going out and this is what most people do. They go out and they give their investors 75% ownership in the LLC. So, that means they have 75% of the cash flow that comes in and all these other things, right? And the operators only have 25%. I don’t do it that way. I don’t think…to me, it’s just not congruent, you’re not in the same boat rowing in the same direction. And, Jack, I’ve never been to a course, I’ve never been to a class, I never read a book on this stuff, I just, kind of, took it and took what made common sense to me, and, kind of, broke it down. And, it made a lot of sense to my investors too, and that’s, you know, how I teach people how I do it now, right?

So, for me, I just like the idea of, you know, I mean, you take a look at any given deal. Like right now, it’s way harder to find deals and to operate those deals because they’re usually more distressed deals. So, the work is usually worth more than money today, right? It’s very easy to find money. But, remember five, six, seven years ago when money, like, was nowhere for real estate, but deals were everywhere? So, if you said, “Over the course of time, right, that the deals worth 50% the work, and then the money is worth 50%.” That’s kind of how I aligned it in my…

Jack: We’re doing the same way.

Tim: So, I took the money. So, what parts are included in the money? It’s, who’s sponsoring the loan, essentially, they’re getting 80% of the money, right? Who’s putting up the actual cash, that’s real risk on the cash, right? Who’s raising the money? Who’s doing the capital management and all the securities kind of stuff? That’s all on the money side for me. And then, there’s the operation side. Who found the deal and did the due diligence? Who’s going ot be the project manager? Who’s doing the asset management? Who’s doing property management? Who’s doing…like all those different things? Who is going to be boots on the ground over the course of, not only while the property is being stabilized… Excuse me, not only while the properties being stabilized, but for the next 10 years that we own it, right, 15 years, 30 years that we own it? Like, somebody has to be.

And, it’s very difficult to say, “Hey, finding the deals is worth this much,” because that’s a 90-day thing versus somebody who’s going to be boots on the ground for the next 15 years, right? So, trying to balance all that stuff out. But, yeah, typically what we do is, our equity investors get a preferred rate of return on the money regardless of the properties performance. So, we’re paying them out of like an interest reserve if it’s not performing. But, it’s very predictable for us because we know when the property is going to turn around, right? We know that we can turn this thing around in 6 months, or 9 months, or 12 months. So we can project out what kind of interest reserve we need, and then, we know we can stabilize it and refinance it within that 12 to 18 month timeframe, let’s say.

So, it’s very predictable for us, it’s not like we’re forecasting out. And, because we can turn over the investors money in a shorter amount of time, it allows us to give more velocity on their money. So, now I can give them 25%, let’s say, in one of my deals, 20-25% equity. They get a fixed return that’s very predictable for them, so they made a good double-digit return while the money was invested. Then, they get all their money back, then they keep 20% ownership in perpetuity.

Now, why would you ever invest in that deal when you can go over here and get 75% ownership in a traditional syndication? Well, one, in a traditional syndication, your money’s out there for five years, right? In one of my deals, there’s velocity on it. I can roll it over three, maybe even four times in that same five year period, they can have a predictable return on their investment, have all their money back, and still own four assets, right? In a traditional syndication, their money’s invested for five years, they’re only being paid if the properties cash flowing. So, if not cash flowing for three years, they’re making zero return. And, a lot of times, the exit strategy on traditional syndication is selling the asset, so they’re just stuck with a high paying job, you know?

Jack: Right. And, a lot of times, people get hung up on the equity part of it. But it’s really, the equity that they own doesn’t really mean anything because what’s defined is all defined in the operating agreement anyway in the PPM. So, it doesn’t matter if they own 10% or 90% of the property, if at the end of the day, the way the money is being distributed is in a certain way, then they might not get 90% of the profits at the end of the day, they might only get a certain percentage of the profits. So, it’s important that you read those PPMs…

Tim: Yeah, because there’s waterfalls, there’s all sorts of fees, there’s all sorts of other stuff that are done in traditional syndication. We don’t do asset management fees, we don’t do capital events fees, we don’t do fundraising fees. We don’t do any of that stuff. Very rarely do I even take an acquisition fee. It just depends on what’s going on with my team and the overhead and stuff that we have on our company, right?

Jack: Yeah. So, it’s very similar to us. When we basically…it’s like we do a 50/50 with the investors but then it’s like the [inaudible 00:20:04], we don’t an acquisition fee and things like that. Because, I agree, we do charge an acquisition fee, but we don’t charge an asset management fee. But, that’s the only fee we charge, the acquisition fee…

Tim: The same with us.

Jack: …because, now, it’s a shitload of work to find them. Sorry, my language here. It’s a lot of work finding [crosstalk 00:20:20]…

Tim: A lot. There’s money, there’s time, there’s salaries, there’s all these different things that we’re spending that they’re not seeing, right? They’re just seeing the deal, and they think it just came out of thin air. And, the other thing, Jack, is like, you guys are buying at a wholesale price, right? Like, that building that you’re all into for $6.2 million is going to be worth $ 10 million bucks, right, when it’s all stabilized. So, coming in and getting 20% or 30% of equity in that deal is worth more than buying a $10 million building for $10 million and owning 75% of it, it doesn’t mean anything, right? Like, that’s not worth anything. You have to wait and speculate for appreciation, and I just don’t believe in that. I believe in creating appreciation as a true real estate investor.

Jack: Right. Wonderful. Awesome. So, now, let’s talk about finding the money. Now, I know you accelerated quite a bit. Like, you went from doing a couple of deals in the beginning to like, you’re like shooting on all on all cylinders and running all cylinders. Where do you find investors? Because, somebody is looking at that saying like, “Well, this is great, Jack. I make my money land flipping or whatever it is, but I want to get into this part at some point of time.” Where do people find the money?

Tim: Everywhere. There is $2.1 trillion sitting on the sidelines right now waiting to be invested into alternative assets and fixed assets like real estate.

Jack: So, I expected, kind of, that answer, but I want to dig a little deeper.

Tim: I know.

Jack: But, my question is, like there’s, kind of, there’s this two worlds out there. One, and I think a lot of beginning investors, in my audience there’s a lot of people that are just like working into real estate trying to figure things out or they’re doing or land flipping already. If they want to get into this, there’s like this perception that, you either go and you have to syndicate, and you have to ask, like, chase down, like, almost like multi-level, marketing level, kind of, like, knock on doors and ask people to invest with you and things like that. Or there’s the perception that, you have to go with his big family offices that are hard to get into, but then they want like 80% of the money or 80% of the deal. What has your experience been, like, do you work with institutional investors or do you work with just friends and family in a sense or people that come to you, people that you find, the people that just refer each other and come more like on a groundswell, which, of course, nothing to do with network marketing?

Tim: Yeah. I’ve never used institutional money for anything on the equity side, right? I think they’re greedy pigs and I’m disgusted by them, right? So, they come to me, somebody with experience, right, and they want 85% ownership in the deal. And, I’m like, “Are you out of your mind? Do you have any idea how hard it is to find, and operate, and manage, and like dedicate years of my life to a single deal? Like, no chance.” So, it’s just not congruent and doesn’t sit well with me.

Jack: And, I agree 100% with you on that. We haven’t done that either, neither do we have any intentions to do it.

Tim: But, I work with entrepreneurs. Entrepreneurs are the best people to work with to raise money from. So, you know, there’s two schools of thought on anything, really, you know? There’s the hunting, and then there’s the fishing technique, right? You hunt, what happens to the prey? Usually, they run away from you, right? So, when you go out there, and you’re banging on people doors. And you’re like, “No, you need to lend me money.” First of all, nobody likes to lend money. It’s not a good feeling. The sound of it just sounds like, “I’m going to get screwed, right? I’m not going to get paid back.” But, everybody loves to partner up or joint venture. So, I always take that approach, right.

And, you know, raising money is one of those things where, like, it’s a big deal on our heads, so then we make it a big deal when we’re talking to investors, and then it’s a big deal to the investor too. If you make it not a big deal, then all of a sudden, it’s like, “You want in on this, you want to partner up? You want a JV, you want to throw in some money and I’ll do the work, and we’ll figure out a way to make it work?” And, you make it not a big deal, and it ends up not being a big deal. And, it makes it a lot easier for people to then invest with you.

So, for me, I’m always educating people on what I’m doing. I think education is the best sales process out there. Exactly what you do, right? You’re telling people how to go out and flip land, how to go out and buy apartments, how to go out and buy commercial. And, from that, naturally, people are going to say, “Jack, man, I love what you’re doing. I want to buy deals, and I want to flip deals, and I want to do some of that stuff, too.” Right, “Well, you bring money to my deals,” right? And then, there’s going to be other people who say, “Jack, I love what you’re doing. I don’t want to do any of the work. I want nothing to do with that. You go out and do it. You go be the workhorse, but I have money or I have access to money. Let me go and invest in one of your projects.” And, that’s the kind of people that I like to work with.

I like finding entrepreneurs who are out there, like, just banging it out on their own business, and crushing it, and launching products, and selling their company, and building a new company, and doing all. They’re too busy to come in and bitch, and complain, and ask me too many questions about what’s going on. Like, let me go do what I’m good at, you go do what you’re good at, and you’re going to get your money every quarter that we make distributions, right? And they love it. So, entrepreneurs who are not in real estate are the best people to raise money from. I also love people who buy turnkey single-family, because they think it’s this predictable return on investment. It’s absolutely not, right? We all know that.

Jack: No, it’s not. Yes.

Tim: We’ve been it. And then they learn that after they buy their first one, and they’re like, “I’m going to make $700 a month. $700, $700, $700, and then all of a sudden, they make $200. And then, all of a sudden, the tenant moves out and they’ve got to spend $5 grand or $10 grand, and it’s like, “I want the equity upside, but I also want a predictable return.”

Jack: Yeah. Turnkey makes sense if you own like, 20 plus stores, because then it starts averaging itself out. But, if you spend 20 plus stores, you’ve invested $400 grand, right? And, you might as well invest the $400 grand into something where you are passive, then you get an almost guaranteed return. And, we do the same thing, our investors, they get paid whether the property makes money or not. And, so you get that, plus you get a piece enough you get cash out or a piece of the backend, and it just makes it makes no sense. So, sometimes, you hear that, and a lot of [crosstalk 00:26:23]…

Tim: There’s a lot of money out there that…

Jack: …that. And, I want to make the point that, you don’t have to know the people that have, like, the billions of dollars. You can partner up with somebody beginning, perhaps, that has already those relationships, you bring the deal, they bring the money. And, now, you give them a piece of the deal because you’re going to earn your way in to. So, like, the very first deal that we bought is a deal that we knew we’d probably paid a little bit more than we should have. It was still a good deal, but we knew that we’re not going to make money on that deal for the first year, year and a half, because the investors are going to get all the money. Because, but we did that because it enabled us to get in with Freddie Mac, right?

So, it was worth more to get a Freddie Mac loan than it was to make money for the first year. So, we’re paying our dues too. So, we’ve been working on this deal for a year and a half for free, basically, not making any money on it, but now, we’re starting now finally, it is where it needs to be stabilized, everything is done, everything is turned around, all those things are done. Now, we’re starting to make money on, but, we’re willing to do that. And so, when you find deals in real estate, you want to do that too, right? If you don’t have the relationships, year, you had already some lender relationships, and a private money relationships through your fix and flips, but if somebody comes and hasn’t done that yet, then go find the deal. And, if the deal is good that follows those pieces, the money is going to be everywhere. And, even if you have to give half of the deal or percentage of the deal to somebody with the experience and the access to the money. Because, after that deal, you have the access to the money, you have the experience, and everyone takes you serious, and that’s the thing. Now after having two deals in Oklahoma City, we get every deal in Oklahoma City that comes to the market comes to us, right? Because we now are players in the market, right? And, it’s the same for you in Ohio, everyone knows you that you’re the apartment guy. So, I love that.

Tim: And, to your point, I gave away 70% of the first 250 deals that I did, because I knew exactly what you said, Jack, I needed to build the résumé, right? You needed to get the experience under your belt, because then you can go out and then you can own 70% yourself of all these other deals, you know, when you get into bigger stuff. But, you’ve got to pay your dues. Everybody wants 100% of the equity and everybody wants, you know, the moon and everything with it, and they’re not, like, they have zero experience, right? It’s like you get compensated for the value you add not for the value you are, right? So, you’ve got to go out and find the deal, and if you don’t have money, go out and find a deal that’s a massive value that you’re bringing to the table for anybody like Jack, or me, or anybody else in your local market that you can bring that project to. Then, you joint venture, be willing to do the work, be willing to shovel dogshit if you have to, right? If you’re willing to do that kind of stuff, then people want to work with you.

Jack: Absolutely. With that said, I have two points. And, that is like, you mentioned that you could talk about off-market deals. How do you find off-market deals? That’s like the Holy Grail, everyone wants to find them, so how do you do it?

Tim: The same way. This is not an exciting answer, but, the way that I find them is the same way that I found deals in the single-family side. You know, just like single-family owners of property have phone numbers, and email addresses, and mailing addresses, so do owners of multifamily apartments and commercial real estate, right? So, you can do direct mail, you can do outbound phone calls. Instead of calling for sale by owners, you call for rent by owners, “I’m not interested in renting, I’m interested buying your whole apartment building. Do you have any interest in selling?” Right? You can do drive for dollars.

Just like there’s houses with tall grass and boarded up windows, there’s buildings with tall grass and boarded up windows, right? Go down to the building department, like, they’ll tell you who has violations on their properties. And, if the city is on their tail about it, guess what? You can reach out to them and say, “Hey, I notice there’s a bunch of violations on your property, I don’t know if you have the money or not, I’d be willing to come in and take it off your hands, take the problem off your hands, blah, blah, blah.” You know, see how that conversation goes. Build relationships with people who are in the commercial real estate realm. You know, real estate attorneys, property management companies, vendors, like contractors, landscapers, exterminators, coin-operated laundry service providers. Like, there’s a lot of people in that whole industry that are coming across, and they know all the different owners. And so, if you just go out there, and you start building those relationships. social media, like, one of the big ways that I get a lot of deal flows, through social media.

Every time I post something about an apartment building, people hit me up on private messenger, and they say, “Hey, I want to buy a deal from you, sell a deal to you, joint venture with you, lend you money.” Or, “Will you coach me? Will you mentor me?” You know, it happens all the time. Podcasts, local meetup groups, local entrepreneurial groups, real estate investors associations, landlords associations, are you plugging into all those different things? And, eventually, you do a little bit of all those things or you figure out which ones work the best for you, and you gain a little bit of momentum. And then all of a sudden you start buying properties in a certain town like you are, Jack, or like I am down in South Carolina and Georgia. And then, you become one of the top 10, 20 people in town who buy deals there and you get all those off-market deals from the brokers, then. But, you’ve got to build up a reputation, right? You got to find some stuff off market first. You’re not going to get good deals from brokers if you’ve never worked with them before.

Jack: Absolutely, yeah. I just had a conversation with a broker last week because we want to finally buy in a home market in Phoenix because the Phoenix prices are off the charts. So it was like…it was a funny conversation with a broker, because I basically told him, “Listen, I understand, just because you have a call like this probably five times a week with a new investor wanting to come to town and wanting to do something, I don’t expect you to be like jubileeing and sending me your best deals like tomorrow, and drop off all your experienced customers that buy every deal that you have here. So, all I want is to just, basically, for you to pick up my call when I call you over the next few weeks, once a week.” And he’s like, “Okay.” So, all I’m going to do is, I’m going to call the guy once a week for the next three months if I have to. And, I bet you, by month two, he’s like, “Okay, this guy is not going to leave me alone until I send him a good deal, or he might be real,” right? And, at that point, he then sends you some deals.

Tim: Love it.

Jack: There’s all these people that just call once and then they’re like expect to get the best deals which is just not going to happen. So, you just, we had a good laugh about him understanding that I understand his position, which goes a long way to make sure to separate yourself from the crowds, right?

Tim: And, understand this. Like, understand the psychology of a broker. Does a broker wants to co-broker property, right? No. So, they already know who the top 10 buyers are in town, and when they get a listing, they’re going to take it and market it off-market and just directly phone call those top 10 buyers. If those top 10 buyers, if they like the deal, one is going to buy it, right?

Jack: Right.

Tim: If all of them say no, that’s when it hits LoopNet, that’s when it hits the MLS, that’s when they’re going to send it to some newbie investor to see if you’re enough of a putz to come in and buy this thing that everybody else said no to, right? So, if you see a deal that actually hits the market, chances are it’s not a good deal, right? Because the top buyers in town already all said no to it. So, that’s why you’ve got to be off-market, that’s why you’ve got to… but you know, it’s hard to build those relationships like you’re saying until you actually have some reputation for buying apartment buildings in the area.

Jack: Right, exactly right. So, it’s kind of like the cat…it’s like this vicious cycle that unless you have the experience, you don’t get it. But, that’s where the other methods come in. Okay, so then, how do you see the market right now? I mean, obviously, we have been on a 10-year expansionary period right now. Every year, the industry is like, “Well, they can’t continue on [inaudible 00:34:27].” What do you say to that? What what do you say to that, and where do you see the market going?

Tim: Like we said earlier, there’s $2.1 trillion on the sideline waiting to go into alternative assets. What that tells me is that people don’t want to invest in the stock market, so I think the stock market could waiver. I think the stock market waivering actually makes it stronger for us who are in fixed assets like apartment buildings and commercial real estate, right? So, I think more money is going to come out of the stock market and be on the sidelines waiting to be put into apartment buildings and commercial real estate. And, even if the market shifts, though, a little bit, let’s say prices come down by 10%, a bunch of that money is going to come off the sidelines and start investing because they think they’ll be buying at a discount now. So, what does that do when a bunch of money then gets infused back into an industry? The prices go back up. So, I really don’t see housing prices, at least in apartment buildings fluctuating too much in the next 12, 18, 24 months.

Now, you’re talking about other commercial asset classes like self-storage. Self-storage is being so overdeveloped, and I own some self-storage, but a lot of it is being overdeveloped and it’s cannibalizing its own industry, right? So, now, all of a sudden, occupancy is dropping across all self-storage in several markets. I mean, you take a look at retail space, Amazon, the largest business in the entire world made their business by taking business out of retail, right? And, like, and taking it online. So, what is that going to do to retail space? Now, there’ll always be restaurants, and barbershops, and stuff like that, but, I mean, brick and mortar retail people selling widgets. I mean, what’s that going to do? I think a lot of retail space is going to go vacant.

What’s that then going to do to office? Maybe office moves out of office and then they move into retail because they can get the same price per square foot but maybe have some foot traffic or have a little bit more vision, you know, people seeing their business.

Jack: [crosstalk 00:36:25] locations. Retail is not stuffed off in an office park, but it’s right next to some restaurants.

Tim: Exactly. And, even warehouse. Like, warehouses is cheap, and a lot of, I think, retail is going to be going off and going into warehouse space. They’re going to still need some place to store their stuff even though they’re doing online sales. But, if all this office then goes vacant, and all this retail goes vacant, then we’re does…? I don’t know, I think it’s going to be a weird, crazy cycle. I don’t know enough about it. But, just thinking about the different dynamics, if it’s a homerun deal, I can buy it for less than 50 cents on the dollar, then I’ll buy in some of those asset classes, because I know I’ll be at a low enough basis where I can make it make sense. But, otherwise, I just like apartments.

A lot of my stuff is in South Carolina, Georgia, Florida, Texas, Oklahoma, Alabama, and North Carolina. So, I like the South, the Southeast a lot, and that’s where a lot of the population is moving to. And, I think, as long as the population keeps growing, there’s going to be a need for housing. And, I think a lot of the houses are too expensive out there, a lot of people don’t want to be committed to a house, I think they’re going to keep on renting apartments.

Jack: Wonderful. I couldn’t have agreed with you any more. I see the world exactly the same way that’s why the only asset class we invest in is, other than land, of course, is apartments. So, we have one other commercial job which is a car repair facility, but it’s in a gentrifying area where everything around has already been rebuilt and we have the only ugly duckling place in there. But, it’s paying me a 24% return every year, in cash and cash return, so I’m not complaining, it’s a great tenant in there. If and when he ever moves out, let’s say 5, 10 years down the road, this is an A-area that has a C-class car repair shop in it. At that point in time, that thing is ready to be rebuilt and put something completely different on. But, in the meantime, it’s producing a tremendous cash flow. But, other than that, we don’t invest in anything else like that. Wonderful. Great. So, a couple of questions I have left and that is, number one is, are you a reader?

Tim: Yeah.

Jack: If you are, what kind of books have you recently, one or two books that you recently read that made a bigger impact on you?
.
Tim: Man. I mean, I love all the classical personal development stuff, and I think a lot of the current things are a lot of that information, kind of, reiterated, regurgitated, recycled. But, there’s some really, really good books out there right now. Like, one of the them, it’s actually not new book, but a book that I’m reading right now, I read every year right around the holidays is called “Twelve Pillars” by Jim Rohn, R-O-H-N, one of the foremost thought leaders personal development. It’s where Tony Robbins got all his stuff and all these guys. And so, Jim Rohn has been a massive influence on me. I didn’t even learn about him until about a month or two after he passed away. But his books, and his readings, and his philosophies have been extremely impactful for me. And, “Twelve Pillars” is a very easy read, it’s like 100-page book, very small, and you can knock it out in one or two sittings. And, it’s packed with these profound principles on how to build a good life. So, it’s not just about making money, or building wealth, or buying apartments, it’s not really about that at all. It’s about just building a good life, and the things that you should be spending some time on, and really reflecting on. So, “Twelve Pillars,” really, really good book.

Jack: Awesome. And then, I do want you to mention one of your principles of time management that you do that I actually adopted from you that when you shared it, I was like, right there when you shared it, I was like, I went to my calendar, and I blocked off a whole bunch of time. And, you know what I’m talking about, right?

Tim: Mm-hmm.

Jack: Can you share that one with us, and the reasoning behind it?

Tim: Yeah. So, I’ll tell you the whole story. So, about two years ago, my daughter was about two and a half years old, I come home from work. And, we’re entrepreneurs, right, we’re burning the candle at both ends. We’re always grinding and trying to move the needle forward on business and all these things. And, especially with technology, like on our hip with our phones and all this stuff, we’re always checking emails, and voicemails, and text messages, and all these things. And so, one night I came home from work at the office. We had our family dinner, and we’re sitting there and finish up dinner. And, all of a sudden, I look over into my office and I see the phone, like, the little light blinking on my phone, right? And, it’s like, I need to go get my fix.

So, I go over to the office and I’m looking at my phone, and it’s a text message from, I don’t know, one of the guys, I don’t even remember who it was, I think was one of the guys on my team. And, I’m responding to the text message. My daughter comes over, this is after dinner, right? So, it’s about 6:30 right before she goes to bed, and she says, “Daddy, Daddy,” and she’s tugging on my shirt. She says, “Daddy, can we go play in the playroom?” I said, “Yeah, yeah, baby.” And, meanwhile, I’m looking at my phone, like, “Yeah, hang on one second.” And, “Daddy, Daddy,” you know how toddlers are, they don’t stop, right? And so, she just keeps on tugging on me. I’m like, “Baby, hang on one second, let me finish this up. And, why don’t you go play, and I’ll come and play with you in just a minute as soon as I’m done sending this, okay?” She goes, “Oh, okay, Daddy.” And, she goes and plays in the playroom, and I finished sending the text message.

And, I looked down at text message, and I look at my daughter playing by herself in the playroom, and I look back at the text message and realize that it was not important, and it was not urgent. And, I’m thinking, like, ‘What kind of dad am I? Like, my daughter came over here to play with me right before she goes to bed. I haven’t seen her all day. And, she’s coming to me as the man in her life being the guy that she comes to for support, and love, and encouragement, and positivity, and all these good things, right?

And, whether I know it or not, or whether she knows it or not, she’s coming to me, and I keep on say, “Go away. Go away. Go away.” How many times do you say that until you start imprinting, “Daddy is associated with disappointment, and sadness, and being ignored,” right? And so, it was a massive punch in the gut. And, I’m sitting there in my office looking at my daughter, and I just like, “Man.” Like, ” I need to get my shit together,” right? And, I’m thinking, like, “What could this compound into, all of a sudden, she associated me with those things?” She starts dating guys who ignore her because she thinks that’s what love is, right? Who, not that I would ever verbally abuse her or anything like that, but, like, she deals with the other stuff that comes with being ignored, and comes with not being cared for, because that’s what she thinks love is, coming from the number one man in her life.

Jack: Yeah, absolutely.

Tim: So, at that time, I was like, I need to do something different. And, I remember looking at my calendar after she went to bed that night and thinking, like, “I need to set some time aside for my family and for my daughter.” And, I’m like, “All right, let me just…” And, I’m, like, looking at my calendar and all this time is blocked off on my calendar for meetings, and appointments, and phone calls, and coffee, and all these different things for business. And, I’m like, “Why do I do that for business but there’s nothing time blocked on my calendar for my family?” Right? Like, “What if I just started time blocking for my wife, for my kids?”

And, that’s what I ended up doing, I ended up time blocking every evening from 4:30 on to just be with family, and then I time blocked the weekends, and then I started scaling back and I started time blocking on Fridays also. And so, we do Friday Family Fun day every Friday. And so, I don’t answer emails, I don’t answer text messages, I don’t take phone calls, that’s time blocked for my family. I don’t do podcasts on those days, I don’t do speaking engagements, I don’t show up at REA events, I don’t do anything if it’s in the evening or if it’s on those weekends. And, what it’s done, because you’re like, “Oh, man, I’m going to give up on business.” And, that was enough of a punch in the gut where I was like, “Hey, I’m willing to do that because my family is more important.” But, what it’s actually done, Jack, is made me more efficient in the four days a week in that, whatever, seven, eight-hour period four days a week that I’m actually in the office.

So, in 30 hours a week, I’m actually accomplishing more than when I was working 60-hours a week because I don’t do coffee anymore, and if you want to hop on a phone call and pick my brain, let’s hop on a 15-minute phone call, you know, and make sure it makes sense. I’ve been so refined in my business that I’ve figured out what are all the questions that everybody asks me, and what are the biggest needs, and I funnel it to different A players on my team to make sure that they can handle it. I’ve figured out what the highest and best return on my time is and that’s all I spend my time on in those 25, 30 hours a week that I work now.

And, listen, man, you know, when I go home and my wife is at the grocery store with my daughter and my son’s napping, do I hop on my phone, or take a phone call, or answer emails? Absolutely I do, right? But, if we’re at the zoo, the phone stays in the car, right? Or, if we’re doing Friday family fun day, and going to lunch or having dinner, and as soon as I get home, the phone goes upstairs so I’m not even, you know, tempted to go and answer it. And, it’s made a big impact with my family, it’s made a big impact in my business as well. So, time blocking is key, man.

Jack: It’s a beautiful thing. And, I have adopted that, at 4:30 every day, it’s off. And, am I perfect at it, no? I’m not perfect at it, but it’s helped tremendously. It’s helped my staff know it’s on there, our team knows it’s on there, they’re not booking anything in there. Do I go over it sometimes? Yes, of course I do, but not always. And less than always, of course, much less than always. And also, what we just integrated started at that we were still fighting a little bit over the time or fine-tuning the time, not fighting is that at a certain time during the day, right now at 7:00 pm, but we’re going to do it more probably even facing that a little earlier. All electronics are being put in on a central charging station and nobody touches electronics anymore. We’re then, for the rest of the evening, we’re together as a family. There’s still plenty of times…my daughter works in school on an iPad all day long. She has electronics, plenty, between 3:30 and when she comes home, or 3:00, and 6:00, or 7:00, there’s plenty of time for electronics. Just after that time, it’s family time, right?

Tim: Mm-hmm.

Jack: It’s family time. She’s 12, she’s still going to be awake another three hours or so from that time on. So, it’s three hours that we just can hang out together, watch a movie, or play something, go something, talk about something. And it’s just for the little time we just implemented that because of she’s hitting like the pre-period, the area of, like, social media starts becoming really like a kind of a peer pressure kind of tool, it’s even more important to, kind of, face back and channel it in the right way. So, love it. Thank you very much.

Now, last question, of course, how can people find out more about what you do? I know you teach this now, you have seminars and things like, you have, obviously, investment opportunities. So, tell us how people can find out more about you.

Tim: Yeah, I appreciate that. I mean, I’m active on social media, find me on Facebook. I’m very active on Facebook, Instagram, LinkedIn, YouTube, all that kind of stuff. And, yeah, I do a little bit of coaching, nothing crazy, but I do four events a year called Commercial Empire. And so, it takes the complicated world of investing in apartments and commercial real estate, and that, you know, “Hey, I didn’t come from money and my great-grandpa didn’t own a bunch of commercial real estate. I didn’t go to Wharton School of Business and I don’t have these initials behind my name, because I’m not a commercial real estate agent, right?” And, we put these limitations on ourselves about, you know, what it takes to get into apartments. And the reality is, it’s all bogus, right? And, all you’ve got to do is, you could simplify it to a third-grade level, and go out and start buying apartment buildings right away. So, that’s what we do.

You know, I truly believe that wealth, it’s like sunshine, right? Like, there’s enough sunshine, where you can have as much sunshine as you want, Jack, it doesn’t take anything away from me, right?. And, I truly believe that wealth is the same way and there’s a ubiquitous amount of it. And, that’s why we teach. And then all of a sudden, it creates collaboration efforts, and I can bring money to students deals, students can bring money to my deals. And, we’re able to just do more deals together and, you know, 1 plus 1 equals 10, right? So, it’s a pretty cool model and pretty cool business, and very fulfilling feeds the soul kind of a thing too.

So yeah, if you want to check that out commercialempire.com, and then just, you know, friend me up on Facebook and say hello.

Jack: Wonderful. Well, with that, thank you very much, it was a very good session. Thanks a lot for being on the show. Loved your little secret sauce pieces of how to quickly analyze a deal and many of the things that you said. So, with that said, thank you very much for being on the show.

Tim: All right. I appreciate you having me, Jack. It’s awesome. And, I love seeing you on all the different Masterminds that we’re part of, and I appreciate, again, all the value that you put out there, man. So, thank you.

Jack: Looking forward to seeing you in the next few weeks again in one of the Masterminds. I think we belong to two that we’re together, often sit next to each other and having a good time. All right, thank you very much with that, that concludes our latest show of “The Forever Cash Life Real Estate Podcast.” Thank you very much for tuning in, and I’ll talked to you in the next episode. Bye-bye.

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