The 5 Fundamentals That Lead to $35M of Real Estate in 1 Year with Terrance Doyle

Brandon:
This is the BiggerPockets podcast, show 462.

Terrance:
I’ve heard that Denver is such a hot market since I started in 2014. In fact, when I started in 2014, people told me I would never be able to find off market deals that fit my criteria. I’ve heard that every single year. My line to everyone on our team is, if we just stick to the fundamentals, if we follow up with sellers, if we follow up with brokers, if we stay in touch and we deliver on what we say we’re going to do. I’m trying to apply the exact same principles, regardless of the asset class, or how much more institutional or competitive it gets.

Speaker 3:
You’re listening to BiggerPockets radio, simplifying real estate for investors, large and small. If you’re here looking to learn about real estate investing, without all the hype you’re in the right place, stay tuned and be sure to join the millions of others who have benefited from biggerpockets.com, your home for real estate investing online.

Brandon:
What’s going on everyone, it’s Brandon Turner, host of the BiggerPockets podcast, here with my other host of the BiggerPockets podcast, David, the value pick green. What’s up, David Green. How are you doing, man?

David:
I may not be the sexiest pick, but I’m probably the most valuable pick. Accurately said.

Brandon:
That will make much more sense later in today’s show. Because today we are interviewing a guest who is a former sports agent, is that what we call him? He was a basketball agent and he transitioned from that into real estate investing, started with smaller deals, flips, got into the medium size apartments, got into some larger deals and we dive into his entire journey today. It is a phenomenal show. Something you’re going to love. Terrance Doyle is our guest today. Very, very cool, bright guy. We just cover a ton of really good stuff today. Everything from, how to invest in an expensive market. What do you do when the market’s crazy? Should you just not invest? Should you expect lower returns?
Terrance says, no. And he tells you five or six things that you should do instead. That plus a whole lot more to come. But before we get to that, let’s get to today’s [crosstalk 00:02:00] quick tip. Today’s quick tip is exact same as a quick tip that we just released on the last episode, the one that came out on Sunday, is this coming Sunday, we’ve been announcing it now for a couple of weeks in a row. This coming Sunday, we are releasing a special episode of the BiggerPockets podcast. It’s all about the actionable process driven things you should be doing in your business to land a deal in the next 90 days. It is the 90 day challenge webinar that I normally do live.
We’re going to actually be doing it here on the podcast. I did this a number of years ago, I don’t know, four years ago, three, four years ago. And people, so many people went and made huge changes to their business and bought property and just went to a whole new level because of it. We’ve updated it, we’ve revamped it and we’re launching it here on Sunday. So pay attention for that coming up here in a few days. All right, that said, I think it’s time to get into today’s show. Anything you want to add before we bring in Terrance, David?

David:
No, I thought this was a fun show. I thought you and I and Terrance all had a pretty good rapport and got along. This is one of the funnier shows that we’ve done. What does come up, at this, what does come up during the show is that BiggerPockets has more resources than just this podcast. There is entire YouTube channel with tons of BiggerPockets, personalities, and people that are trying to teach you by sharing what they’re doing. So get on there, subscribe to BiggerPockets YouTube, find the people that you connect with the best, that you vibe the most with and start learning from more than just me and Brandon.

Brandon:
There you go. Good second quick tip. Terrance is actually one of the hosts of a new show on the BiggerPockets YouTube channel. So you’ll hear more about that later. With that said, let’s get into our interview with Terrance Doyle. Terrance, welcome to the BiggerPockets podcast, man. Good to have you here.

Terrance:
Thanks a lot for having me. I’ve been watching you guys since the start of my real estate career 2014, and I’m a big fan and super honored to be here with both of you guys. So thanks for having me.

Brandon:
Thanks, man. Well, let’s jump into it. The start of your real estate career, you mentioned it, so let’s go there. How did you first discover this idea of real estate investing? What were you doing before? Walk us through that beginning mental journey.

Terrance:
Early on, in college, like we were talking about earlier, I had the opportunity to play college basketball. I was the short white guy at the end of the bench that kept his GPA up so that the team was compliant with NCA regulation. That was my role. I played it pretty well. I played college basketball in college. Two of my teammates and I started a company, we franchised it in 2006. And so, we were single, 21, 22 making a couple bucks. In 2007, late 2007, one of my other college teammates came to me and said, hey, we’re going to start buying foreclosures at the public trustee sale. I was living with roommates, had no idea what a foreclosure was or a public trustee sale, but it sounded really interesting. And so I was the first investor.
We bought a house at the Denver public trustee sale for $58,000, two or three months later, we sold it for 98 and some change. I was like, oh my gosh, this is, this is phenomenal, let’s do more of these. So between 2008 and 14, I was able to connect some different things. We did about a hundred of those a year. We did roughly 600 flips between 2008 and 14. I still did not know anything about real estate. I just knew that if you went to the auction and you knew how to underwrite, you could make some good money. And so that was my first experience with that. I wouldn’t really call it real estate investing. It was more, if you had access to capital and had a beating heart, you were going to make money.

Brandon:
The good old days.

Terrance:
Yeah, exactly. Those were the days, much has changed as we all know. 2014 and we had had some good success, I was really wanting to get married, and just the partnership we had had a good run for six years and we wanted to do some different things. And so I really wanted to branch out and do larger deals and really just get to know real estate for myself. And so I branched out and really discovered that being able to speak fluent Spanish, my family, my mom is from Bogota, Colombia. I spent a lot of time there growing up and that turned out to be a really pivotal, competitive advantage for me. I was able to put together this group of Hispanic subcontractors. I was able to build a scalable solution where we would just do the same flooring, same paint, same cabinets, in every single property.
I was definitely not an artist. That was something that just came natural to me and I was able to see, hey, there’s a lot of value here. Let me lean into this. That was really the start. I was able to find properties and had this really amazing construction process that we built, and that was really the start of it on my own in 2014.

Brandon:
Okay. When you were getting in, in 08, 09, 10, going through the recession there, what was your role in that business at the time? Were you running things? Were you just a piece of it? Where did you fit in? Was that your full time job? Did you have another one? What was going on there?

Terrance:
It was not my full time job and I was basically just connecting. We had a pretty good capital source and we would move fast with cash, is what we like to say. I connected operators in Tampa, Indiana, Vegas, and LA, and we were the capital. We had other boots on the ground that they would go to their local auctions. They knew the market, they had their own construction team and we would just fund them. My full time job at that time was, I was an NBA sports agent. In college, I played college basketball like we talked about, I got a chance to intern for the president of Nuggets, when I was in college and really just got passionate about the business of sports and everything around that. I signed my first NBA client in 2009 and real estate was always supporting everything.
We made some money in sports, but we made our real money in real estate and I always knew that. Before, athletes, it was really popular for them to be in businesses and to be more entrepreneurs. That was kind of my thing. I had started a business in college, two of my really close friends played in the NBA. I was the guy around them that was helping them, negotiate their shoe deals or negotiate their finance agreement with their financial advisor. We did things like, we got into Facebook stock, pre IPO. We were just able to leverage, I really saw athletes as, with their platform and their influence in local markets as an opportunity to leverage them into other businesses and to real estate and the franchises.
I just really had an appetite and a desire to cultivate that. And so that was my full time job, 2008 to 2013. It was a very, very difficult, very competitive industry. One of the things that really separated me, because when I was 22, 23, 24, you’re recruiting these athletes and it’s like, I was going to Florida state. I was going to Illinois, all these big time schools and you’re competing against big time companies with grown man with massive resumes and really well spoken, it’s high, high sales. Some of the most talented salespeople in the world are either college coaches or sports agents. These guys are crazy, crazy, talented, unbelievable communicators, high energy, can really solve problems at a high level.
It was extremely challenging. But one of the things that I learned that has really helped me in real estate was the ability to add value. And so what would happen is, I would build relationships with these college coaches and I had to be able to separate myself from everyone else that was coming to meet them, to basically get an introduction to one of the players on their team, because that’s how it happens. Is, college coaches recruit players in high school, they get really close with them in the family, and then when the player is ready to go pro, the family normally, and the player comes to them and says, hey coach, who should I interview? Who should I sign with?
And so having deep relationships with college coaches is key, similar to having really good broker relationships, right? That is key, because they’re going to refer you to, they’re going to tell the seller, hey, this is the right buyer. I was able to, I really cut my teeth and I would say perfected the skill of being able to build relationships quickly, earn trust really quickly, and find ways to add value. And at that level, what’s interesting is that, they’re not going to come out and tell you what their problem is or how you can add value, you really have to read between the lines. But that was something that I was able to really develop that I think when I went off on my own in real estate, I was able to apply that same scale of, what is this broker’s problem and how can I add value, so the next time they have a deal, they’re going to send it to me?

Brandon:
That’s smart. That’s smart. I was going to ask, actually want one of the questions was, what skills did you pick up on during that time that made a difference today? That’s smart. What tactics or tips do you have for people who want to start building better relationships with brokers, agents, lenders, whoever, that you can teach them? What works well for you?

Terrance:
It’s something that I’m continually thinking about. I think, the number one thing is you have to ask questions. When you sit down with a new broker or lender, I think some of this comes from being from the Midwest and just the way people are, just very personalized, I want to ask them as many questions as I can to get them talking about themselves. Right? I want to get to know them genuinely, want to get to know someone, asking questions as you guys have talked about numerous times on the show, people love to talk about themselves. So get them talking. I’m asking questions and I’m just taking notes and observing, and I’m just following up and being consistent. I think if someone does those two things, is just ask questions and is genuinely interested and follows up in a consistent manner, I think you’re going to move to the top of the list there of someone they’re going to remember.
And then as you do those two things you’re noticing and documenting, making mental notes of, hey, this person said that they’re looking for a house or this person said, they’re looking for a contractor or this person said, they’re short $10,000, to close on this house or whatever the detail may be. But people are always going to have problems, no matter what industry you’re in. And so if you can document that, build a relationship and just look for ways to solve their problems, you’re going to separate yourself from everyone else that wants the same thing from them.
It just came, like I said, that’s one of the things that was amazing about sports, was being able to meet coaches, build a relationship, gain trust, and see what I could do to add value to them and solve a problem. And then naturally they were like, hey, I want you to meet this player and this family on my team, I think you’d be great for them. They even started to refer former players that were unhappy with their representation. And so I think that that has translated into real estate possibly better than anything else, that I learned in sports.

Brandon:
That’s smart. What are some examples of problems that some of the brokers that you could maybe solve, or ways that you could provide value to a real estate broker, for example, what have you done?

Terrance:
Early on, I was doing more single family, back in 2014, I was doing duplexes and triplexes and fourplexes, but really started to cut my teeth in single family. One of the first things that I just thought would, and now it’s common, but in 2014, I would basically go to an agent and say, hey, if you can find me a flip, you can list it for me at a really good commission. They were able to double end deals. Now that’s really common, but in 2014 in the markets I was in, it really wasn’t common. And so when I came to them and said, hey, look, help me find the deal, bring it to me, I’ll make it really easier for you because I’ll be able to close quickly and you’re going to get it back in 90 or 120 days. That was something that quickly got me a lot of deal flow.
Brokers knew that I could close, and obviously once I closed on one or two on time and they saw that everything I said came true, then they were even more motivated. And then as I transitioned into multi-family and small, I started out with 10, 20, 30 units, so mid-size multifamily, which was a different set of brokers. And so I had to reinvent myself again and try and figure out, okay, what are some of the problems and what are some things that I can do for them now that everyone can close quickly and all these things, it’s more of a level playing field. What I found was that, they wanted to buy houses off market, so then I was able to help them find, connect them with wholesalers, because Denver’s appreciated pretty rapidly.
A couple of guys were like, hey, can you help me find a house for my family? And then a couple of guys needed help on inspection items or needed help with a really good countertop guy or a really good flooring guy. And so I was able to use my strength in construction to add value to what they were trying to do, which was, find a really good deal on a home or get construction done cheaper. Some other examples that come to mind are, they wanted to travel to South America. And so because I was from Columbia, I was able to introduce them and get them discounts on their hotels, introduced them to people that I knew in that city. So just little things, I think it doesn’t have to be something big, even just referring them or getting them into a restaurant they couldn’t get into. I think one time I got a brokerage team here, courtside tickets to the Nuggets, because I had a relationship there.
I think anything along the lines of, if I knew someone was interested in basketball or football and to go to a Broncos game, I had a relationship there, I think it comes back to the fundamentals of asking questions, getting them to talk about themselves, being consistent. And then through those two things I was able to, this person likes basketball, this person needs help with this. You just put that together and you have to be careful, you want to make sure that you’re doing it in a really natural way. You’re not expecting something in return, and it’s a genuine. I think a lot of good things have come from that and I do think that that works.

David:
Something that you mentioned that I think doesn’t get mentioned enough, is that successful people solve problems. When Brandon and I have people come to us that are having a hard time getting started or getting their first property or just having success. They’re often asking questions that if you look deeper are indicative of the fact they’re trying to avoid having to solve a problem. They’re saying, give me a system, just give me a step, tell me what to go do, I don’t want to have to figure something out. But in any industry, what the best people do, is solve either tougher problems or more problems than everyone else does. That’s how you earn a higher income.
Terrance is representing professional athletes. They have a problem where they have a short window of their career. They’re in a highly competitive environment where other people want their job and they are trying to get as much money as they can during that window while the team is trying to pay them as little money as they can and keep as much flexibility as they can, to replace that person with somebody else if they want. And so there’s a struggle there with a lot at stake, if Terrance steps in and solves the problem, he’s going to get paid more. That’s really just everything in life that you look at. That’s the case. I’m curious Terrance, in your journey that you went, you said you went from single family to mid-sized, to big deals. Can you talk a little bit about the different problems that you had to learn to solve at each step of the way that allowed you to ascend into these bigger deals?

Terrance:
So many problems, it’s unreal, so many problems. It’s a fantastic topic. And just going back, I think the initial problem was, with single family, when you’re trying to scale and you really want to build something, and I know you guys have both been there, I had 10 or 12 projects going at the same time, I’m running around all over Denver, which is pretty big. I’m spending hours in the car, and just trying to manage all the details. When you’re selling single family homes in Denver and the average purchase price is four or five, $600,000. The details really matter. The last 10% is the hardest. And so that was a massive challenge. The capital obviously was not a challenge, I was very liquid finding private money lenders and the construction.
It wasn’t so much a capital thing, it was more of, how do you run that organization efficiently and manage the details? And so quickly that’s where multifamily, smaller multifamily became really attractive, because I could buy one 30 unit building and I was doing 30 bathrooms and 30 kitchens all at one address. So naturally is much more efficient. But the problem there became capital, right? In Denver and I was buying, I think the first larger deal that I bought in Denver was two and a half million dollars. At the time that was an insurmountable number. I didn’t have any capital, partners. I didn’t have LPs, I didn’t even know what syndication back then. It was 2015. I was like, oh my gosh, how am I going to come up? I think I had to come up with $500,000 for the down payment, and then the renovation was like 400, so $900,000.
I was used to doing flips where we would get private money fund 100% of the purchase and then we would bring the construction. If we have 10 projects going on, we were talking about $400,000, but you could time it differently. Right? You didn’t have to have that all at once. So the equity and the construction, when you get into smaller multifamily was definitely a challenge. And then the second challenge is lending. Lenders are much more difficult, right? I’m not W2, I’ve actually never had, I’ve never been employed as a W2. So bankers, it’s difficult, right? It’s very challenging trying to get that first loan. I actually had to go to Des Moines, Iowa. My first two multifamily projects that I did in Denver, I did with a local bank in Des Moines, that knew me and I knew what I had done. It was more of a personal relationship.
They flew out, saw the projects, knew that I could execute on it and they took a chance. And then once you do that, the lending gets easier. But that first two, first one or two are very, very difficult. I’d say the challenges going from single family to small multi, was getting comfortable with the money, the purchase price, the equity needed and the construction, and then the lending, much more difficult. A lot of hurdles there. Bankers are defensive by nature. I like to say they love the check boxes, which as an entrepreneur, I just want to do deals. I’m not looking to check all your boxes. That’s a challenge. And then as I got really comfortable with that, and I started to do 10 to 20 of those a year, I had the relationships with brokers and now brokers are calling me and now I have a full pipeline and now bankers all are calling me and they want to all lend to me.
And so now I’m in the same position where I’ve had to reinvent myself the last few years, I’m trying to do larger deals. Obviously everyone wants to do larger deals, so there’s a lot more competition. They’re much more institutional. It’s a different set of brokers. I had just built these relationship with these brokers that I’d solved problems for, built relationships, I’m at the top of their list, and now I’m having to do it again for this new set of brokers, because it’s different. It’s not the same guys that are selling those. The lending actually, I think gets easier, the larger the deals go, but the equity checks, they grow by multiple zeros.
And so that’s been something in the last two years that I’ve started doing, is syndicating, trying to aggregate capital. I’m having to have relationships with some privately wealthy individuals, maybe some family offices, having the pipeline to be able the fund these larger, we’re doing 20, 30, $40 million deals now, that you have to bring 10, $15 million of equity with the construction. Obviously that’s a much different person. And so I’ve had to learn how to navigate, even though lending got easier, raising the money got more challenging and getting the deal in my opinion. is actually the hardest thing right now, in these markets, especially Denver. Denver is so hot. There’s so much institutional, even international money chasing multifamily in Denver. There’s no yield anywhere.
Multifamily, I think somewhat a mobile home parks is the rising star in the commercial asset class. There’s yield, there’s a housing shortage. And so that’s made it even more difficult, that everyone’s moving to Denver, all the money’s chasing Denver. And now I’ve got all these other people from all these other parts of the country that are all trying to buy the same deals I’m buying. Trying to separate myself right now, I’m still in the process of doing that, trying to apply those same fundamentals to standing out and trying to add value to these brokers, so that I can move to the top of the line.

Brandon:
Well, so this is a thing we deal with all the time. It opened our Capitol in our businesses, as it gets more and more competitive, we face this question, do we diversify into other asset classes? We’re going to add multifamily on this year as well because of this, or do you lower your return expectations? Are we resetting? Do we need to as, not to say we’re leading the charge, but should we be lowering expectations for investors for LPs going forward? Because the good old days are gone or do we just do fewer deals? How do you feel on this whole? Because this is a problem with a lot of syndicators right now is, it’s just so darn competitive, is driving the ability to get deals.

Terrance:
So competitive in the supply, there’s such an under supply. Our business model is, we own the construction, we own the property management. Back in the day when we were doing flips, I was actually doing flips, because I had these relationships on the ground, so I was doing flips and Louisville and Dallas and Indiana. We were doing stuff in South Carolina and Denver and Iowa and all these different markets. There’s so many markets that I love, and if everything worked out in real life, the way it looks on paper, I would be doing deals all over. The problem was, I lost a lot of money, trusting other people with the operations and the details of construction and property management. And so we’ve really condensed to Denver and Des Moines because we know the market, we own the construction, we own the property management.
And so what we’ve done is just had to be patient, we just had Sterling White on our show, Tribe of Multifamily Mentors here, that we’ll get into later. We’ve had to get creative on sourcing deals. Our LPs, what’s interesting as you know this Brandon, dealing with privately, wealthy individuals in open door, they don’t want to hear, they think a pandemic or they think a recession and they’re like, I should be getting better returns. The idea that we could even bring that up is not something they want to entertain. They want better returns. They’re seeing all kinds of deals, family offices, institutional investors, they’re seeing incredible deal flow. They’re not even open to the topic of a lower return.
And so that’s not something that we’ve thought about. We’re just having to stick to the fundamentals, be very consistent, build relationships, repeat that and put ourselves in a position to win, just creating, just filling pipeline and putting ourselves in the right position. And hopefully the ball will go our way more than it won’t, but yeah, it’s difficult and we’re just being patient and sticking to the fundamentals.

Brandon:
Let’s talk about the fundamentals a bit. To go back to a basketball analogy, right? there are these, the fundamental drills that we’re going to be working on, that are going to improve our game. Knowing that our audience is people who are buying their first house. There’s some people trying to buy 20 units, some people trying to buy 100 unit, right? And everything in between. What are the fundamentals that can apply across the board to everyone, for investing in a crazy expensive market? A couple of them I’ll just pull that you already mentioned, one, you really focus down into a couple of markets, right? You got really specific on where you’re investing. You’re not just everywhere. So that’s a good one we can pull out.
I want to dive a little bit more into that. Another one you said is get creative finding deals, get creative in your pipeline. Maybe those are a couple points we can dig on. And maybe we can go through a few more, David, you as well. Why don’t we start with the focused in on a market, how broad are you looking right now? Why did you say you’re focusing on fewer? Logic should be the opposite, right? I’m having a harder time finding deals, go to more markets, expand bigger, but it doesn’t seem to be what you said. Why is that? What’s your views?

Terrance:
I’m going to answer that question. I want to tell a story. So fundamentals, this is one of my favorite topics and surfing. You’re a surfer. Now I heard-

Brandon:
That’s a stretch. That’s a stretch. That’s a stretch. I can-

Terrance:
Well, you posted about it on Instagram.

Brandon:
I stand with a surf board. I stand, I stand with a surf board.

Terrance:
Well, you stand next to it. Well you’re 6’5. You got the beard. You got that look. But what’s interesting is I heard Jerry Seinfeld talking about this a couple of months ago. He was saying, professional surfers are actually just professional paddlers, right. They’ve just perfected paddling and then they become a surfer. Basketball and sports, and I think life is the exact same way. A story that hopefully will resonate with a lot of viewers that like basketball, is that, I represented a client in 2012. We were in Orange County and he would work out with Kobe Bryant a few days a week. We get to the gym at 6:00 AM. I’m really tired. But hey, I’m really excited to watch Kobe workout, without trying to make it awkward.
Kobe worked out with his trainer for two hours on one side of the court and he never shot the basketball one time. I was there, never shot the basketball one time in two hours, he literally worked on one move on both sides of the court and that was it. He was drenched in sweat. Two hours, never shot the basketball one time. His focus there was, he had missed a shot, I think the year before, that could have won the finals for them. And he was working on this move. It was a pivot move with just real footwork. He’s only working on the basic fundamentals, things that kids in third grade would work on. That cemented idea in my mind, if the best basketball player in the world shows up at a gym and works on one thing for two hours, how much more should I, as someone that’s trying to become the best at something, really just focus on the most basic fundamentals and master the fundamentals.
And so the fundamentals in real estate and sourcing deals, I think are the same thing. It’s, you have to know the market. I think if you’re really spread out, going into your counterintuitive point is, when I was doing deals in eight different markets and were funding, it got so scattered and there was so many zip codes and so many neighborhoods. It would take a lifetime to know all of those markets, but because we’re doing deals in Denver and Des Moines, I grew up in Des Moines. My brother’s there, my dad’s there, my sister’s there and I live in Denver. I’ve been here for 16 years now. Now, if someone brings me a deal in Des Moines, either my brother, myself and my dad are going to know that area, or we already own a property there, or we did own a property.
So we’re going to know what the tenant is going to be like. If it’s historic, we’re going to know if the city has any special zoning there. We’re going to know the age of that building. We’re going to know the way it was built. We’re going to know if it has any quirky electrical, plumbing issues. Same thing in Denver, right? If someone sends me a zip code, I likely have done a deal or own a deal in that zip code, really close to that street. And so I’m going to know. And so having that local knowledge just accelerates the ability to underwrite really quickly and know who the players are in that area. Right? Every market has three or four people, that I think, control the deal flow. And so when you can go deeper and you really focus in, you’re going to get it to know those people.
And then from there just comes to, how do you stay through communication, asking questions, being transparent about that, and then being consistent and looking to solve problems for them. If you do those things in that market, you’re going to see deal flow regardless of how hot the market is. I’ve heard that Denver is such a hot market since I started in 2014. In fact, when I started in 2014, people told me I would never be able to find off market deals that fit my criteria. I’ve heard that every single year in both markets. My line to everyone on our team is, if we just stick to the fundamentals, if we follow up with sellers, if we follow up with brokers, if we stay in touch and we deliver on what we say we’re going to do. Sometimes we have to tighten up our terms, right?
I think right now what we’re doing is, we’re trying to go through due diligence the fastest. We’re trying to maybe get a little bit more aggressive on earnest money. We’re trying to have lender relationships already locked in, right? If I hear about a deal and I know that the seller is really motivated by convenience and speed and certainty, which you people are going to start to hear a lot more, certainty. They want to know that you can close. Naturally what we do is, we just reach out to banks ahead of time and say, hey, there’s this deal. Here are the numbers on it is, is it something that fits your box and how quickly can you move? They’re going to want us to close and under 35 days or 40 or whatever the facts are for that particular deal.
And so, again, fundamental, just reaching out, making sure that I have everything that I need in line. So that way, when the seller’s ready to transact, I’ve got my ducks in a row and I’m ready to move forward. I hope that that answered your question regarding fundamentals.I’m trying to apply the exact same principles regardless of the asset class or how much more institutional or competitive it gets.

Brandon:
That’s so good. Let me just summarize what you said. I scribbled some notes here while you’re talking. Number one, again, knowing your market, just knowing where you’re going. To bring up a point that I get all the time asked, they say, what’s the best real estate market to invest in? And the general answer is that, the best market to invest in is the one that you know, right? I was really good at Grays Harbor, Washington. It’s like this armpit of Washington state, terrible little location. I can make money there like no one else, because I knew that market better. If you were in Seattle and you just came to Grays Harbor to go buy real estate, yeah, you’d fail. If I went right now and buy in Detroit, I’d probably fail. I don’t know Detroit, but I know people in Detroit, that are just cleaning up there right now, because they know Detroit, and you and Denver.
I look at Denver, I’m like, there’s no way I would invest in Denver right now, because I don’t know Denver. It’s not because it’s not going to market, it’s because I don’t know it. Number one is that, knowing your market, you talked about being aggressive on your offer terms. I think that’s great. Being willing to do what the seller wants to make yourself stand out, that applies to everybody here. Faster speed, both with closing and with making offers. That’s huge. More certainty with your lending, which is huge and then getting all your ducks in a row, your paperwork, everything, making it easy on everyone. Those are points that everybody can apply, whether you’re trying to buy your first deal or your 100th deal, this stuff matters.
It’s just doing a good job at your job, of real estate. Anyway, thank you for sharing that stuff. David, anything you want to add on there? You’re the guy that wrote the long distance book on knowing your market. Anything in there?

David:
What I was thinking when I was reading this, is I bet I could create a basketball analogy for all five of these things, that Terrance just went over. Know your market and focus there, would be know your game as a player, know what your shots are, know where you’re confident and what you shouldn’t be doing. More aggressive on offer terms would be like, you’re always attacking the offense. The cool thing about basketball is that you always are aggressive, but you don’t have to make mistakes. If there’s nothing there, you pull it back and you move around. But you get in trouble when you get lazy and you wait for stuff to come to you. The game works best when you are attacking the defense and forcing them to be in a position that they don’t want to be in, which is similar to putting yourself in a position where you find a seller who needs to sell that house more than you need to buy one.
And you’re in a position of advantage. Faster speed to closing offers is obviously moving the ball, playing the game a whole lot faster. More certainty with lending would be taking high percentage shots and getting them through your offense. And then having your ducks in a row, would be having a team around you that knows how you guys play the game. It gets you the ball and the positions where you want it and you do the same for them. What I love about what Terrance gave us was, he basically said, I watched how Bryant played the game and he took what Kobe did and he’s now applied it to real estate. These are the moves that you should practice. I actually want to see if we can take a step backwards and talk about why Terrance has developed these specific moves for the market that we’re in, because the rules of the game dictate the way that we play it.
We’ve given people a playbook for what to do. I want to talk about the difference between the choices investors have. What a lot of people are seeing is this is obviously a hot market. Some cities are hotter than others. That typically is where the big wins come from. People have the decision to make, do I invest in what is a hot market is and possibly get my butt kicked, making a mistake, or do I go to the rough markets where I can play it safe and I can get more cashflow. But my upside is severely limited. You mentioned, you were doing flips in Louisville. You’re much more likely or less likely to get hurt in a market like that. You’re also much less likely to put points on the board.
I think Denver is the perfect place that we can start with, because that city really sums up what happens when tech money moves into somewhere and capital floods into a market and the wave that you see coming. Terrance, what’s your opinion on if people should be investing in a market like that or if they should avoid the craziness and they should go somewhere safer?

Terrance:
That’s an excellent question and pretty loaded. I hope that I can do it justice. Should people invest in Denver? Absolutely. But then they should pause and say, okay, what are my goals? Right? You guys have talked about it. Just the fundamentals of really just being self-aware of understanding your own personal situation. If you’re in San Francisco and someone has millions of dollars to deploy, then yeah, Denver is a great market. I think over the next 10 years, Denver will have more growth than probably a lot of cities in California and has better tax treatment, a lot of other advantages. So should someone with a lot of liquidity come to Denver? Absolutely. Should they do it on their own? Probably not. Because you’re going to face a lot of competition from people that have liquidity and have better market knowledge and have a competitive advantage, way more than you.
I think, if you’re looking to invest at a state in Denver, I think you have to have a local partner or you have to be investing in a syndication or doing something with someone that really knows Denver. Because even though Denver has grown, it’s just like where you guys are at, every market, regardless of how large it could feel or seem, it’s still is really small when it comes to the real estate community. Denver is big, but in the commercial multifamily space, there’s five or six companies or groups that really control who’s getting access to the deals, who’s looking at the deals, who’s lending on them. It’s very small at the top as you grow. And even on the single family side, it’s still run by maybe four or five brokerages.
If you’re with an agent in one of those four or five, you’re going to get access and really good service, and you’re going to see the right thing and you’re going to get the right advice. But if you’re working with someone that doesn’t do a lot of volume, you’re going to get crushed. I like the idea of investing in markets that you either… The competitive advantage comes down to, do someone on the ground that has a competitive advantage?, I’m not in Des Moines, but my brother is, so naturally I have a competitive advantage. And that’s why we have been able to place in capital in Des Moines and we’ve done extremely well. But without my brother there, or my father, or having grown up there, I’m at a massive disadvantage, right?
Because Des Moines is small. There’s very few people that run it. It has a thing called rental inspections with the city, which is extremely difficult. A lot of capital that’s come outside institutional capital has gotten completely crushed, because they did not understand the rules of the game. They did not understand and what the opponent, the city was going to throw at them. And so they went into that game unprepared. I think that you have to really, really analyze, what are my goals? If it’s someone looking for a house hack or looking for their first investment, I’m with Brandon, you’ve got to invest where you know, or with someone that has a competitive advantage somewhere else. Those are things that every investor has to decide for themselves. When we do the Q&A, on the Tribe of Multifamily Mentors, this question comes up a lot, should I go out of state?
My market’s appreciated, blah, blah, blah. It’s overpriced. I just think that you have to really look at all of the data. You can’t just look at price, right? People love to throw around, oh man, the price per door has gone through the roof, but they’re not really taking into account what the difference between the cap rate is and the debt. Because actually the spread is larger now than it’s ever been between you can buy and what you’re getting debt at. Back in 2014, 15, debt was at 5% and cap rates were at 5.5, 6%. Your spread was a lot lower. Now you can buy a five cap or maybe high fours and debts at three. So you actually have a bigger spread. I would say, actually the market’s even better now. But sometimes investors get caught up with one or two data points and they’re not looking at the full picture.
I think that just comes down to, which is why we named the show, Tribe of Multifamily Mentors, is have a mentor, have a coach, have a partner, have someone that is an expert, has more experience, has maybe some gray hair or has had enough experience to give them gray hair. That’s where you should start. I think if you’re just looking at price per door or the purchase price on a home, you’re not looking at the full picture and you’re not going to make the right decision if you’re not looking at the full picture or you have a really good coach.

David:
Terrance, can you break down why it’s relevant that there’s a spread between cap rate and interest rate?

Terrance:
Yeah, absolutely. The cap rate is, it’s a function of the expenses and the NOI, the net operating income. And so properties trade at a multiple of that, that is the cap rate. And so NOI, net operating income does not factor in debt. You have all the income after your expenses, and the lower the debt the more the distributable cashflow you have, that’s what you can live on, right? That’s what you can either send to your own bank account or send to your investors, which is a good thing. And so the cheaper debt gets and as cap rates stay pretty fixed close to that 5% or, somewhere in there, depending on the market, you have more distributable cash flow there, between what your NOI is, your income after expenses and what the debt is. And so the larger spread, that’s a great market.
Right now we have a pretty good spread because of how cheap debt is specially on multifamily. A single family I think has floated a little bit. I think depending on whether it’s a jumbo or what price point in which market, I think that is bumping, but actually multifamily, we’re getting quoted right now in the high two’s, on a 20, 30, $40 million purchase, being able to lock in a high 2% interest rate is unheard of. The punchline for me is, yes, prices have gone up. Yes, market is hot. Markets are hot. Yes there’s competition. But that doesn’t mean you shouldn’t still buy in your backyard just because of those things.

David:
I think part of the reason markets are hot right now is because debt is so cheap. You made a great point, when you just look at the price, it looks like this is ridiculous, but that’s an amateur way of looking at a real estate asset, is how much does it cost? What you really want to be looking at is how much does it bring me in a return. The reason the market is hot, is because debt is so cheap, which is good for you, right? If you’re able to buy something at a five cap, which means you would get a 5% return on your money with no debt, but you can borrow money on it at 2.5 or 2.9% interest rate, the cash flow you’re going to see after you take on that debt is still really high, which is exactly why everybody’s putting their money into real estate.
There’s also fears that we could be going into bubbles in different asset classes, and real estate is the safest one. It’s going to be valued at a premium. What I love about what you’re saying, is that, you can’t be simple enough as to just say, prices are high so I’m going to wait for them to come down. You got to understand the fundamentals of what’s going on that’s causing these high prices, because that might still, even though the prices are higher, it might still be the best and safest investment for a lot of people. Would you agree?

Terrance:
I got a really good analogy for you. You’re going to appreciate this since you had the five points related to basketball. It’d be the equivalent, so just looking at price point, is it equivalent of walking into a gym with your team and you look across and they’re warming up and they’re all tall. They’re all 6’5, like Brandon, they got beards, they look serious and you’re like, whoa, we’re 5’10.

Brandon:
They look like professionals surfers.

Terrance:
Yeah, yeah. Maybe a little bit bulkier. And you’re like, let’s get out of here. These guys are taller, we’re out. Without even watching them run or dribble, you don’t even know if they can tie their shoes, but you walk into the gym and you see a taller, more athletic looking team. And you’re like, these guys are tall. We’re out. Let’s go home. You haven’t even done any research. You’re just scratching the surface. You have to go deeper than just purchase price. You have to look at the full picture.

Brandon:
I can talk about the hell house that I bought back, I don’t know, 15 years ago now. One of the very first property I ever bought. I bought it because it was $45,000. And I was like, that’s a crazy cheap price for a house. That’s amazing. That deal was the worst deal I ever did. Because as an amateur, I was only looking at price. It works both ways, right? Like, that’s too expensive. I don’t want to buy that because it’s too much. Or that must be a good deal because it’s cheap. It’s got to be good. Rather than like you’ve said multiple times, look at the full picture. What does that look like? Anyway, super important point for everybody no matter what stage they’re at, is not to get overwhelmed by these, I don’t know, call them vanity metrics because they are important, but they’re not as important.
Now, one thing I do worry about, I’m curious of both of your thoughts on this. David, you said it a minute ago, that one of the reasons real estate seems to be doing so well right now and just continues to creep higher and higher in value, is because debt is so low. Right? I just got a commercial loan at, I think it was 2.89 or something like that. It’s crazy, right? Nuts. Because of that, it keeps the price of real estate high. What happens then if and when interest rates go up to four, five, six, seven? Again, are we going to see a drop in values because of that? Are cap rates going to start going up dramatically because of that? Or what do you guys expect there?

Terrance:
That’s an excellent question. I think from a macro economic standpoint, for the federal reserve to raise interest rates, we would have to be in a major economic boom. Right now, the entire world is getting crushed. The monetary situation around the world is, everyone’s printing money, everyone’s struggling. And so I think our Fed has come out and said, they’re not going to raise rates for a year, two years. They want to see inflation. They want to see the cost of things go up. They want to see unemployment get back down. They want to see wages growing. We need to see massive growth across the country, especially in cities like LA, New York, Seattle, Chicago, Minneapolis, that have just been decimated by the last 12 months.
I was just in Alabama with my college buddies on a golf trip and downtown Birmingham. I love Alabama, but downtown Birmingham was a ghost town. There was one restaurant open in the Birmingham airport, one, because everyone’s on unemployment and their minimum wage is so low that they’re making more money being at home. Now, it’s not a political discussion at all, but the simple fact is, there’s a lot of people not working right now. And so in order for interest rates to go up, there’s going to have to be a massive economic boom. And so then what’s going to happen when people are making more money, rents will go up, right? It wouldn’t be the worst thing. If interest rates start to creep back up, that means that the Federal Reserve is saying, hey, things are coming back.
People are starting to pay more for things. People are starting to make more money, earn more income, and we can now raise interest rates and rents are going to go up. Rents normally go up disproportionate to debt. And so cap rates actually could stay the same, because rents would jump more than the debt. And so I think if interest rates go up, it’s actually a good thing for us, because Denver has a massive under supply of workforce housing. If the middle-class and the working class can be making money, then they’re going to be paying more in rent, and naturally that’s going to be better. For me. If I have 10 year debt locked in at 3% and rents are going up, I don’t really need to sell. Right? But if rents go up enough and cap rates maybe expand a little bit, then I’m still going to get much more for the property because rents will have gone up disproportionate to debt. And so I think debt going up would signal a good thing.

Brandon:
That’s a great answer. I wasn’t even thinking about the rent issue, but yeah, if interest rates go up, I think most of us expect rents to go up, inflation just in general to go a little bit nuts the next decade. I think that’s a very good likelihood. David, anything you want to add on that?

David:
Great point. I had the same question when I first started investing and I had a wise person with some gray hairs that broke this down for me. They basically said, when interest rates go up, it’s to slow down inflation. If inflation has gone up, the last thing you need to worry about are interest rates, because you’re going to be making rent on, increases on all 50 units that you just bought, not just this percentage that you’re looking at. It’s very hard for interest rates to go up high enough, that it could ever catch up with the inflation that you’ve already seen. And then the next guy isn’t going to be able to buy the property, so banks aren’t going to be able to make loans on it and they’re not going to do that.

Terrance:
I think, it’s hard for me to envision a scenario. Not that it’s not possible because anything is possible. We’re living in wild times. It’s hard for me to envision a scenario where debt goes up, but rent doesn’t go up even more. We’d be in a really tough economic spot, because basically that just slows down the economy. And the last thing that anyone wants to do is slow down our economy. We need to fuel it. And the way to fuel it is to keep debt low, so people like us are willing to take more chances, do more projects and investors and institutions are wanting to do more to create more jobs, which then can fuel, people are spending more. I think as long as rents are going up and the economy is booming, debt going up is not a bad thing.
Now, if debt goes up and rents are not going up and the economy isn’t booming, then I think there’s going to be some challenges there. I think to avoid that the fundamental right now, and the smart thing to do would be either refinance, if you have more expensive debt, refinance, or when you’re buying just lock in longer term cheap debt. Because cycles normally last 24 to 36 months, so if you lock in 10 year debt, I think it’s going to be hard to get stuck in a bad spot. I think those would be two fundamental things you could do right now, either refinance or when you’re purchasing, lock in cheap debt, seven, minimum, 10 years.

David:
I think getting that longer term debt, the longer you can go right now, I think is a wise move.

Terrance:
What are you seeing Brandon on the mobile home space, what kind of debt are you seeing out there? Are you guys able to get 10 year fixed right now?

Brandon:
We are. I think the 2.9 we just locked in was a 10 year fixed. What we’re finding is the nicer parks, it’s super easy. The finance is just there. We get nicer properties. The struggle we had and we had to pivot, was the crappier properties, because that dried up very much, people that were willing to take these risks on the rough ones. Now those are still a lot more difficult. They’re all recourse. They’re a little more shorter term. We’ve really pivoted a lot to just buy nicer parks. Most of our stuff has a lot nicer, a lot larger, because we really want that non-recourse, Fannie, Freddie [crosstalk 00:47:39] institutional debt. It’s been interesting.
I’m curious, shifting a little bit, we don’t have a lot of time left in today’s show. 2020 through a lot of real estate investors into panic mode, and a lot of people just stopped investing. They just said, you know what, I’m going to wait for this thing to stop. What was 2020 like for you? Did you just sit on the sidelines and wait, did you grow at all? Did you shrink, what happened during that time?

Terrance:
2020 was wild man. It was wild. I had a baby boy in May, Noah. That was in the middle of the pandemic. The hospital kicked us out after 24 hours. We moved houses. My wife and I had bought a home the year before, we had renovated it. We were moving, having a baby and I was trying to grow a company and raise money. It was wild. I did the opposite. In 2008, I was 22, 23 years old. I had no idea what was going on in the world. I remember my dad called me one time, it was late 2007. He said, “Hey man, you need to be careful, a lot of people are losing their jobs, the economy is looking bad. You should start saving.” Blah, blah, blah. And I was like, “Dad, what are you talking about? We’re selling franchises, we’re killing it. Recession, I don’t even know what that means.”
Through the recession, I was single, had no risk, had no responsibility and we crushed it. I didn’t even feel it, right? We were buying houses at foreclosures. We were printing money. And then this last year was the first time that I was like, oh my gosh, this is what this looks like, to have a mortgage and have a family. Everyone is going into a bunker and super, there was fear everywhere, fear everywhere. It was not comfortable. I lost, within a seven day period, there was probably three or four deals we had under contract to sell, and we were probably going to make, I don’t know, multiple seven figures on those sales. And they all terminated, every single one. I was sitting there like, oh my gosh, what are we going to do?
It wasn’t comfortable. It was extremely difficult, challenging, all those things. And this sounds the right thing to do, but really I just went back to the fundamentals and I said, hey, look, if everyone else is afraid, I need to get aggressive. I’ve got the infrastructure in place. I’ve got the capital, I’ve got the construction, I’ve got the property management. I really believe in Denver. We’ve got the right relationships. If the right deal comes across, we’re going to buy it. And so we actually had the best year we’ve ever had. We bought $35 million worth of real estate in Denver. I was able to buy, some of the best deals I’ve ever done in the middle of the pandemic. Actually someone called me about a home and the lady had purchased it a year before for maybe 1.1 million in a really great part of Denver.
I bought it for 735, put 35,000 into it. The fear was jumbo loans, right? That was the fear. Everyone’s like, we don’t want to touch that home because no one will be able to buy it. I bought it in May. We sold it in July for 1.2, 1.3 million, put 35,000 into it. It was insane. We bought an apartment complex for a hundred a door and I sold it literally 90 days later for 125 a door, didn’t even do anything to it. And so, I think that, again, having, we had the pieces in place and I stuck to the fundamentals and I said, look, if a deal comes across my desk that meets this criteria, and I knew what my criteria was and I was really clear about it. And people were calling me, they said, hey, are you still buying? Great, because we think that this guy wants to sell this. Guy’s really scared. And there was fear everywhere.
Now, I didn’t go crazy. I definitely changed the underwriting. I made sure that we had bank debt. I made sure that I could execute and close on what I wanted to do. Once I checked those boxes and had those fundamentals in place, we did what I still think are some of the best deals that I’ve ever done. I wish that I would have had more capital. I wish I would have been able to do more last year. Everyone says that, right? Warren Buffet’s big thing is, when everyone’s buying, you should be selling, when everyone’s selling you should be buying. And that sounds good. And the book says that. Everyone knows that, but it’s so much more difficult in the moment when everyone is afraid and the news is bad and everyone’s freaking out and your wife, it’s chaos. It’s so much harder to actually execute on pulling the trigger.

Brandon:
This is why everyone’s like, I’m just waiting for the market to decline again, so I can jump in. I’m like, no, you’re not. You’re not, you’re going to be freaked out like everyone else is. You’re going to be like, you know what, I think real estate is a bad idea, and you’re not going to do it. You’re going to wait until it goes up again, and you’re like, I should’ve done it back in… Invest now, invest later, invest in good deals anytime and you’ll always be fine then.

David:
Terrance had a great example of a house you picked up for 735 and then you put 35 in, so you’re all in for 70, 70. And the reason it was available to you at that price was that other investors were thinking, they can’t get a jumbo loan, because when COVID first hit, that’s exactly what happened. All the jumbo lenders. In fact, everyone we worked with in my mortgage company literally said, no more loans. We’re going to wait and see what goes on. That does send a shockwave of fear through the market. But fear is always a temporary emotion. It does not stay there all the time. Terrance, you played sports, you know what it’s like to go from being heartbroken to thinking you’re going to lose, to one play, and you’re like, they can’t stop us. We’re on. Right?
That’s just how emotions work. And so the people that recognize that and operate out of faith, I know real estate is going to bounce back. This is how it works, that took action, made half a million dollars on one deal. I just did the same thing in Maui. COVID shut down the short term rental market in Hawaii. It was very hard to travel there. Hawaii made it very difficult for anyone to go. Everyone that had short term rentals was getting hammered. I walked into that market to go buy short term rentals when there was a bunch of owners that were thinking, I need to get rid of this thing. I’m losing money every month. I bought it and I had a long escrow, but each of them had appreciated by over six figures, just during the period of time we were in escrow, is the very same principle you’re describing.
Like Brandon said, the responsible, professional investors to use a Steven Pressfield phrase, recognize when everybody else is feeling afraid, and that’s when they go take action. You know the people that are not professionals, because when it switches and you have the 2010 when, oh my God, there’s deals everywhere, nobody’s buying them. Because they’re hearing everybody else say the same thing. It’s helpless. It’s going down even more, don’t catch a falling knife, and then those opportunities pass.

Terrance:
And it’s hard, because you have to go against your entire being saying, it’s screaming, no, no, no. It’s trying to talk you out of it. It’s like taking a cold shower in the morning my mind is always like, you don’t need to do that. You can do this. Why don’t you go stretch? Try to talk you out of doing the thing that is what you need to do the right thing. It’s the exact same thing, when buying when everyone else is selling, your entire being is screaming no, but you still have to be able to pull the trigger. I really think that that sounds good. Right? Everyone listens like, yeah, yeah, yeah, that’s the right thing, but it’s so hard to do.
I think in order to do it, you really have to dial in and have, we talked about mentors, a coach, the right people around you, that you can go back, get rid of all the noise and say, okay, what are the principles of this deal? Will it cashflow if this, and this happens? What is the debt I can get? And really, once you know your principles and you understand the downside, understand where the risks are. I knew that the jumbo loan was the risk there, but I had plans and had creative solutions of how we were going to get around it if we had the right buyer that just couldn’t get the jumbo loan. And so I think understanding the risk, clearly identifying that, knowing what the home would rent for, knowing I had backup options. Again, it just comes down to the fundamentals of the deal.
If you know your fundamentals and you understand and can identify the risk, I think that’s one of the best things you can do. Even today, and I’m interested to hear what Brandon says, but the way we’re able to separate ourselves is, we can buy deals that don’t fit other institutions box. Either the year it was built, the crime ratio, the unit size, sometimes maybe the unit size is too small for bigger institutions, but it’s perfect for us. And so being able to creatively find solutions for deals that other institutional, quote unquote, smart money won’t buy, that’s where I’ve made my living. And that’s where I love playing. It’s just where no one else is able to operate and understanding the risks there and creative solutions to those problems.

Brandon:
Well, I love that. Earlier we talked about the importance of knowing your market, really niching down on your market, but also that’s exactly how we operate as well, is like, what can we be really good at doing? I’ll give you an example. In the mobile home park space, there’s a thing called septic lagoons. You ever heard of a septic lagoon? It’s like a lake. This mobile home park will just have a lake, and that’s where all the crap goes to, literally. It’s a thing with tons of mobile home parks, just have a septic lagoon. Don’t go swimming in the lagoon.

Terrance:
How far away from mobile?

Brandon:
Right around the corner. It’s there, in the park. And these septic lagoons are very, very common. They scare me. Ryan Murdock, my partner, has this funny story where he had to go to this lagoon every week at one of the parks. He managed it years ago. He’d go there every week and do this test. The EPA gets involved. There’s all this drama, right? We at Open Door Capital have chosen not to touch septic lagoons. We just will not do them no matter what. But you know what, if you were right, now just thinking you wanted to get into a mobile home parks and you didn’t want to compete with me. You know what I would do? I’d go do septic lagoons. I don’t want to deal with them, neither does any of the other big operators I know, we don’t want to deal with them.
When you can get really good at a thing that nobody else wants to touch, that’s how you get in there. It’s not so risky then, because you get it. You’re like, septic lagoons, these are the five things to worry about. Here’s how we test about it. Here’s how we’re going to deal with it. Here’s how I want to transform it. Whatever. I won’t even go there. Like said, you find those little areas and this again works at every part of the market. It goes back to our entire theme of today’s show, is how do you invest in a crazy competitive market? Get really good at some niche that nobody else wants to touch and you’re going to be fine. Our niche is infill, we love the properties that are 30, 40% empty, because I know I can put 30, 40, 50 homes a year into these properties, because we’re really good at that.
It is incredibly difficult to do. We are really good at that. That’s what we chose as our niche. Everyone listening, what’s your niche? What’s your weird thing that you can be better than anyone else had? And then go, just crush it. I know David, you help a lot of investors with house hacking. It’s a weird little niche. Turning a single family home into something that can generate cashflow, but you guys crush it at that, and that’s why everyone goes to you, in the Bay area that wants to do house hacking.

David:
That’s exactly right.

Brandon:
I love that.

David:
It goes down to what Terrance said earlier, where you’re solving a problem.

Terrance:
How much does it help identify and clarify the bullseye for brokers, when you can tell them, hey, we will or won’t buy septic lagoons? That applies to David, you, everyone else listening. It’s like, when you clearly know what your box is and you can clarify that to brokers and get them motivated, hey, go find me every deal that has a lagoon, septic lagoons. Then they know, they bring it to you and there’s no surprises or anything like that. Hey, go find me every home with the carriage house. And David’s like, yeah, we can go do that. 100%, just being able to clearly identify here are the things that we do better than anyone and knowing that, I think that’s where the value is.
You just have to find niche. There’s a niche out there for everyone. You just have to discover and spend the time, getting to know your market, the players, and what is the one thing that you can do that separates you from everyone else.

David:
There’s only certain teams that JJ Reddit can play on. He can solve the problem of that team. But other teams-

Terrance:
This guy has got the best analogies. David needs to be a basketball coach.

David:
What Brandon has got me thinking is, I want to go open a septic lagoon company where all these mobile home parks are.

Terrance:
I think I want to go compete with Brandon.

David:
I solve the problem for people who don’t want to deal with septic lagoons, right? They’re obviously hard for a reason, if you can have the company that can solve it better and cheaper, you’ll be the only person getting all the business.

Brandon:
And it’s not, by the way, there there’s so many sub niches in all of these things. I think mobile home parks is the septic lagoon problem. There’s tenant owned home versus each one owns their own home versus I own the homes. There’s all the stuff. In a multifamily there’s old properties, there’s new properties, there’s location. There’s what you said, size. It’s-

Terrance:
Motel conversions.

Brandon:
Exactly. I don’t want [crosstalk 00:59:47]. How many times have you heard somebody say, I don’t want to deal with a property where the owner pays the electric. I know, personally I hate that. I would not want to deal, because then the tenants leave their windows open and the air conditioning running all winter long. Right? That sounds like an opportunity. If you want to get really good at that niche, to buy a property that are master meter for electric, because you know how to deal with that. You know how to manage tenants to make sure they don’t keep their window open. That sounds like a way to make money in a competitive market right there.

Terrance:
100%.

Brandon:
Really good stuff. All right. Well, we’ve got to get out of here pretty soon, but before we do, let’s get over to our deal deep dive. We don’t do this all the time, only with our favorite guests. We’re going to throw this out.

Terrance:
My heart is warmed.

Brandon:
We ask it when we have time lately, and we have a little bit of time right now. We want to tear apart a deal that you’ve done, and not in a bad way. Just we want to dig into the details on that. We’re going to ask you a series of seven or eight questions here about the property. Do you have a property in mind that we can dive into?

Terrance:
I purchased 135 unit in Des Moines, Iowa, late 2019.

Brandon:
Des Moines, Des Moines? Des Moines.

Terrance:
Yeah. Des Moines. Des Moines as if you don’t know Geography.

David:
I want to hear Brandon pronounced Louisville. [crosstalk 01:01:12]. I can’t wait till we get into that.

Terrance:
Louisville.

David:
Will be the new rural of the [crosstalk 01:01:15]. Remember those days?

Brandon:
I remember those days.

David:
Next question. How did you find this deal?

Terrance:
We found it, it was off market, a broker that, he had just sold a smaller portfolio for us in Des Moines called me and said, hey, there’s this deal, this guy has owned it. He’s really tired of it, had high crime, high turnover. It was in a part of town that we knew really well, totally outdated. Tons of CapEx. It was right down the middle of our wheelhouse. It was actually the first a hundred plus unit building that I had purchased. And I was really wanting to do a hundred unit deal. I think we were under contract in 48 hours from that phone call.

Brandon:
Actually, how much was it? I guess that’s the next question? What’d you pay for it? What were they asking originally and then what did you pay for it?

Terrance:
I believe they wanted 4.2 and I said, look, I will write a contract for 4 million today and we will close in, I think it was 40 days.

Brandon:
Nice.

Terrance:
He took it and we had it signed two days later.

Brandon:
I guess that’s how you negotiate. Next question DG.

David:
Yes. How did you fund it?

Terrance:
The bank, a local bank in Des Moines gave us 80% of purchase. We had to come with, I believe $650,000 of equity. My partner and I brought that and then we had construction of 600,000 that we funded over time.

David:
Okay. Then once it was purchased and you had some work done to it, what did you end up doing with it? Was just a flip, did you keep it?

Terrance:
De Moines, because our basis is so low, we’ve held the Des Moines. We turned units, when we purchased it, there was 35 units vacant. We quickly got to work on the exterior. We put a new sign, we did some landscaping, we did the hallways, we redid the office. A new leasing office. Redid the bathroom in the leasing office. I wanted to make the exterior and the curb appeal. And when people walked in to sign a lease, I wanted to make that very nice and make it feel they would want to live there. And so we put money into that first. And then once we got those 35 units done, we’ve had two or three a month that we’ve done. I think we’re at 90% occupancy right now. We’re still, I think we have 15 units left to turn and then the entire property will be turned and we hope to refinance it.

Brandon:
Nice. What do you think it is worth right now? Because the question is outcome, what outcome do you see now and where do you see it going?

Terrance:
We’ve had offers in the six and a half million dollar range. We think it’ll price for somewhere around seven, once it’s fully stabilized, which is still in Des Moines for 135 units, it’s like 50 a door or something. The basis is still relatively compared to rents. The average rents there right now are 700.

Brandon:
How long do you want to hold the for?

Terrance:
We talked about at the beginning, there’s a lot of liquidity, yield is at a premium. You can get nothing in your money market CDs. I believe our cash on cash is 11 or 12 or something like that. We have no desire. It’s one of those things, when you have an asset like that, you’ve done all the hard work for, and as debt’s getting cheaper. I believe our refinance quote was 2.7 maybe. And right now the debt is four. We feel really good about that property. We’re just going to refinance it, like we talked about earlier, put it on 10 year fixed debt and hold it. Maybe down the road we’ll do something else, but right now it’s printing cash, and there’s no reason to sell.

David:
When you say your investment basis in this is low, you’re referring to the amount of money that you and your crew have actually put into the deal. So you don’t have to get rid of it to pay investors back. Right?

Terrance:
That’s right. The beauty of this deal is we had no investors. It was just me and my brother and our partner. We bought it for, I believe 29 a door, something like that. And then we put in roughly 10. So our basis is under 40,000 a door. We feel really, really good about that basis because there’s not a lot of supply. I think the average purchase price in Des Moines right now is maybe closer to 60,000 a door. So well below market. We feel really good about it. There’s actually, Brandon, a mobile home park across the street that if you bought that would really help both properties.

Brandon:
Actually, I like the Des Moines market.

Terrance:
That’s a great market. I’ll send you the address. Seriously, it might be too small. It’s 130 maybe lots, but-

David:
100 units. Does it have a aseptic lagoon? And are there infill opportunities? That’s all he needs to know.

Terrance:
That’s it. We have some vacant land. We could probably figure out the lagoon and the and the infill opportunities. It’s actually a really big eyesore, and I think I’ve even offered them I’ll pay, let’s split the landscaping. Let’s put a cedar fence. Because you look across the street and you just have a butt trap. It’s sad. They just put a little bit into the property.

Brandon:
Well, what I can do with the mobile home parks too, is like, not that we want to fix up the whole thing, but we put special emphasis on the front. Right? Because you improve the front. We’ll put in brand new homes in the driveway when you drive in there. It just improves the entire park just by having one or two brand new houses and a brand new sign. It’s fun.

David:
Let me tell you, what Open Door Capital does, is they take trailer parks and they create mobile home communities.

Brandon:
Yes, that’s what we do.

Terrance:
David could be a salesman for Open Door, he could also be a basketball coach. You got a lot of upside, David. A lot of upside.

David:
Thank you for that, Terrance. I’m glad someone finally recognizes it.

Terrance:
I see it. I see it.

David:
I’m like Draymond Green in the second round of the draft-

Terrance:
That’s right. A lot of value. You’re the value pick. It’s not the sexiest pick, but it’s the value. David’s the value you pick.

David:
David, not the sexiest pick green.

Brandon:
I like it. Let me just point out what just happened there, live on this call. Let me just point out. This was cool. Right? Earlier I established too, while networking, it happened to be on a live podcast, but while networking, I established a real estate investor, Terrance, the criteria I was looking for, I don’t want a septic lagoon. I want larger parks, blah, blah, blah. He then triggered, there’s a park right across the street from a property that I own. And then he brought that to my attention. What I wanted to point out was, that’s how you should be doing every day, everyone you talk to. You don’t have to be weird about it and be like, hey, Terrance, I need you to go find me a property.
I had no idea that he might even have a possible lead, but that was just in the casual conversations of talking with real estate people, tell people what you’re looking for, tell them what you want, tell them what you don’t want. And then their mind’s going to start working, oh yeah, I got this property right here. Even if I never buy that property, it was still a worthwhile thing to do. Anyway, I thought it was a cool picture of how that should happen every day to you guys, if not, you’re probably not talking about real estate enough. That’s my thoughts. Thanks.

Terrance:
Well said.

Brandon:
All right. Well, final question.

David:
Last question. What lessons did you learn from this deal?

Terrance:
The lesson that I learned was just patience. I think there was times during that deal that there was some crime and we definitely had some frustrations with getting some tenants out that weren’t paying, drug use. It was a rough property. It hadn’t been touched in 25 years. There was people staying there that hadn’t paid rent in six months, tons of hair on it, even maybe more than we realized. But we stuck with it. We stuck to our principles and we just knew that if we kept tenants abiding by the lease, hey, I’m sorry, you’re late. This is the lease, we have to follow the lease. We’re turn the units, we stuck to our budget. You know what, the property is completely turned. I think it’s drug free, we’ve had much less crime activity.
The police have been really, I think, supportive of what we’ve done there and cleaned it up. But there was definitely times where like, man, what are we doing? This is insane. I can’t believe we’re dealing with this, this and this, but just patience, you just have to trust the process and play it all the way through. I think if we would have stopped at half time, we were down 20. We kept fighting and we stuck to our fundamentals and I think, the fourth quarter we’re up a lot and it looks good.

Brandon:
I love all the analogies today. This has been a great analogy show.

Terrance:
Sports, I think is the best analogy. You have to bring everything back to sports.

Brandon:
100% agreed. In fact, there’s a book, Mark Cuban, it’s called, the sport of business. There’s something like that. It’s really good. Anyway. All right. Last question before we get to the-

David:
You know why he loves that book, Terrance, before Brandon says this? Well, because you and I learned everything we did about life through sports. That’s the foundation. Well, Brandon didn’t ever play a sport. So what he’s done is, he’s good at business. He says, well, business is like a sport, which is his backdoor into the sports community, which is equal parts brilliant and lame. I’m not sure how I should understand it, but it’s why he loves book.

Brandon:
The truth is, you started with the foundation of sports, right? I started with business and then we just met in the middle and now we’re all-

David:
There you go.

Brandon:
… Sports business-

David:
Nicely done.

Brandon:
Great. Thank you. Last question. Before famous four, Terrance, what do you need from our audience? How can they provide value to you right now? Are you looking for deals, looking for, whatever, what do you need?

Terrance:
I don’t have a sexy proposition to bring me deals like Open Door does, but I would love for everyone to go and subscribe to the BiggerPockets YouTube channel, and love for them to tune in on Tuesdays and Thursdays, 2:00 PM, Mountain Standard time. We have the Multifamily Tribe of Mentors, Q&A. We have property managers, lenders, people that specialize in construction for apartments around the country. We have some of, in my opinion, the top young operators. We’ve had some guys out of college, 21, 22, 23 year olds that own thousands of doors all around the country that are just killing it. They’ve got a lot of valuable lessons to take away. And so we do a Q&A where they can ask them questions on raising capital, on property management, on sourcing deals, and all the things that we’ve talked about here.
These guys are high energy, even better sports metaphors than me and David. I think the audience will get a lot out of that. The full length interview is going to drop on the YouTube channel BiggerPockets in May. We’re going to start with 12 interviews, but they can tune into the Q&A every Tuesday and Thursday at 2:00 PM, Mountain Standard time. We’d love to get their feedback. We’d love for them to tune in, anyone that’s specifically interested in multifamily and growing their knowledge base or their relationships and network in that space.

David:
Awesome, man. Phenomenal show you guys have been putting out, I’ve been checking it out lately and it’s really good content, really good quality, really good interviews and discussion stuff.

Brandon:
Keep crushing that.

Terrance:
Thanks man.

Brandon:
But now let’s get to the last segment of the show. It’s time for our…

Speaker 5:
Famous four.

Brandon:
This is the part of the show we ask same four questions, every guest, every week for the past 437 episodes. Let’s fire them at you right now. Number one, do you have a current favorite real estate related book?

Terrance:
Yeah, the best book in multifamily is really the Joe Fairless, Best Ever book. I don’t even know Joe personally. He’s not paying me to say that, it is the best book, the most thorough book on multifamily, how to underwrite, how to raise money, how to put the team together to do it. That’s a fantastic book. I think I read it in 2016 and I’ve given it to every member of our team and I think it’s phenomenal.

Brandon:
That’s awesome, man. It is very, very well written. Next question. What’s your favorite business book?

Terrance:
By far, Shoe Dog by Phil Knight. Anyone that wants to be an entrepreneur or is an entrepreneur should read that book. It’s a phenomenal story. I’ve worn Nike, obviously playing basketball my entire life. And regardless of how you feel about the company, it’s an incredible story of entrepreneurship, perseverance. I just love it. It’s incredible.

Brandon:
Yeah. It’s fascinating story. Very well-written too. At first I was like, why would I want to read a book about a shoe guy?

Terrance:
It was incredible.

David:
Everybody says that, I got to check it out. People-

Terrance:
You got to check it out, man. It’s so good.

David:
Thanks Terrance. All right.

Terrance:
He’s one of the only guys just to give him another plug again, Phil Knight doesn’t pay me for this, but he talks about Tiger Woods, Michael Jordan, LeBron James, and maybe someone else. He’s one of the few guys that has had a personal relationship with some of the best athletes of our generation, our lifetime, knows them personally, was integrally involved with every single aspect of their careers. It’s incredible what that guy has been a part of and seen and experienced.

David:
But he doesn’t yet know Brandon Turner. He can’t say, he doesn’t have a Mount Rushmore yet, he needs another head to go up there. That’s a huge base underneath that for a long beard.

Terrance:
I do think real estate operators should be sponsored in the near future by a brand. I think that’s coming. Brandon, you’re probably at the top of the-

Brandon:
All right. Good. I’m going to try.

Terrance:
I could negotiate it for you.

Brandon:
Can you get Nike to come sponsor me? This is a good idea. Today’s podcast is sponsored by Nike. Just do it.

Terrance:
Nike real estate. That’s Right.

Brandon:
This is great.

Terrance:
Special material, different climates.

Brandon:
All right. Next Question.

David:
Next question. What are some of your hobbies?

Terrance:
I love to play golf, I love to travel with my family. My favorite place to travel is, where my mom is from South Bogota, Columbia. My favorite city, there is Cartagena. Anyone looking to go to Columbia should reach out. We’ve got great hotel suggestion, restaurants. Again, I’m not being endorsed by any of them, but it’s phenomenal. My favorite place to go. I think for the value, David, just like you, it’s the value play, for the price, the food, the weather, the climate, it’s the best.

David:
All right.

Terrance:
I love the travel. And then, we’re really involved with our faith. We try and be really involved in with our local church, with missions. We love giving back. We’re involved with several non for profits here locally. I think that’s probably the most fulfilling thing that we do.

Brandon:
A little known fact, Terrance and I actually have a mutual friend that we didn’t know. We figured it out at some point in the past couple of years. Ben Prangnell from Hope Chapel here. My pastor, my church has been your buddy for a long time, which was a crazy coincidence.

Terrance:
Shout out to Ben, 2008 basketball Maui.

Brandon:
There we go.

Terrance:
A lot of great memories with Ben.

Brandon:
Ben is an awesome dude. Last question from me. What do you think separates successful real estate investors from all those who give up, fail or never get started?

Terrance:
Shoe Dog, Phil Knight, just perseverance. You just have to keep going. You don’t lose if you never give up. I think that’s why I love that story so much, is just, he overcame incredible odds, never gave up. I think if you just stick with it, that’s the difference, perseverance.

Brandon:
So good. So good. Beautiful. All right, David, get us out of here.

David:
Tell us where people can find out more about you, Terrance.

Terrance:
Our website is www.thevareco.com. V-A-R-E-C-O.com. The Value Add Real Estate Company.com. You can go there. You can find me on Instagram at Terrance Doyle. We’ve been doing a lot of posting about the Tribe of Multifamily Mentors. I document a lot of the deals that I’m doing and challenges that I’m having, and just very transparent about the ups and downs, and also LinkedIn at Terrance Doyle. I’m pretty active. I try and respond to everything as quickly as I can. I have two kids in diapers, so sometimes it gets delayed, but yeah, our website, Instagram or LinkedIn.

Brandon:
Very Cool, man. Appreciate you a lot. Appreciate you coming on here, sharing your wisdom and knowledge. Like I said earlier, everyone check out the Tribe of Multifamily Mentors. I was going to say Multifamily Millionaires, mentors over on the BiggerPockets YouTube channel, youtube.com/BiggerPockets. Keep crushing it, man. We’ll talk you soon.

Terrance:
Thanks. And you’re going to be on the show, right? July.

Brandon:
I will publicly make that commitment now that I will be on the show, because we are going to be launching the Multifamily Millionaire book sometime this summer. I think July.

Terrance:
I love it.

Brandon:
We’ll do a little book launch, excitement, Q&A interview then.

Terrance:
We’re going to say that David’s an investor, so we need David on as well. Especially after his analogies, I really want the Q&A for us with you would be killer.

David:
I’ll be anywhere Brandon Turner wants me to be, that’s my point guard. [crosstalk 01:16:27]. When you play with Jason Kidd and Brandon pad your stats like Brandon does for mine, you don’t let him get brought onto another team.

Terrance:
That’s smart. You’re a smart man. The value pick, David Green, the value pick.

Brandon:
There you go.

David:
I love it. It makes me sound like the Sam’s club version of a podcast-

Terrance:
Sam’s club, they’ve made a lot of money, I don’t think that’s a bad thing.

David:
The top ramen dinner of real estate, David Green. All right, thank you, Terrance. This has been a blast. You’re an awesome guy and I look forward to-

Terrance:
That was awesome. You guys are the best. Keep it up.

Brandon:
This is David Greene for Brandon Sandal dog Turner signing off.

Speaker 3:
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