David:
This is the BiggerPockets podcast, show 634.

Andrew:
So, that’s a silver lining. If it has been too competitive for you to get into this business the last five years, that is about to ease off, and this could be your window.

Matt:
And then one last thing I’d say is that the interest rates have been low for a while. We were able to borrow monies on multi-family at three, three and a half, sometimes maybe even in the 2%s. It’s hard to sell those properties, but now if I’ve got a property that I borrowed at 3% interest on…

David:
What’s going on, everyone. My name is David Greene, and I’m your host of the BiggerPockets Real Estate Podcast, here today with a fire episode that if you like multi-family investing, you are guaranteed to love.
Today, I bring back former guests, Andrew Kushman, and Matt Faircloth, both GoBundance members and multi-family experts that I rub elbows with and talk shop about the multi-family market.
Many of you know Andrew is the person that I partner with when I do multi-family deals. And Matt wrote the book, For BiggerPockets: Raising Private Capital.
Andrew’s been on shows 172, 79, 571, 586, and 607. Matt’s been on shows 88, 203 and 289.
I know I said those quick, but if you really want to listen, come back to this at the end of the episode, write down those show numbers, and hear more about their story.
In today’s show, we get into what’s going on in the state of the market with multi-family, including strategies that are working with this new interest rate hike, what to watch out for, what asset classes to go after, what a whisper price is, and more that if you like multi-family investing, you should love because you’re finally getting an opportunity to not get outbid by the big guys that raised a whole bunch more capital than you did, and just went in with a bigger number than you could.
Before we bring them in, today’s quick tip is simple and it’s brought to you by my good friend, the Batman.
Here’s something you have to understand about Batman. When he was a young boy, he was overcome with fear and rather than becoming overcome with fear for his whole life, he learned how to make his enemies feel fear.
See, this relationship with fear is a very important ingredient in your own journey as a superhero, so rather than being afraid of the changes that are happening in the market, what I would encourage you to do is to go find sellers who are feeling that same fear. Find a seller that is overreacting and is going to sell their asset at a price much lower than it should be or with better terms than they actually had to take because you’re capitalizing on their fear, instead of filling your own.
This is working for me. I’ve got about 12 properties in contract all in the last 30 days. I got them at significantly better prices than I should have, at least most of them, because the sellers are in a panic and are selling off. These are all going to cash flow very strong, are often in grade A areas, and are something that I would love to hold long term because I’m out there getting my Batman on, and you should do the same.
And be sure to listen all the way to the end of the episode, because these guys share what they would do if they were starting over from scratch, starting at zero in today’s market. You don’t want to miss that.
And if you like it, let me drop a little hint for you, we may have them back to do an entire episode on just that topic.
Multi-family has been almost untouchable for the average investor for a very long time, and we’re finally seeing some openings in that space, so this is a very exciting time. I hope you love today’s show.
Andrew Kushman and Matt Faircloth welcome back to the BiggerPockets podcast. How are you two today?

Andrew:
I’m doing really well. I woke up this morning, which means I’m one less day from dying young, so that’s a good start.

Matt:
You went there. I’m well, David. Thank you for asking.

David:
Thank you for that.

Matt:
Thanks for having us too.

David:
Andrew is going to have a book of these. He’s so good at coming up with these little quips just like that. You literally might have a book in your desk that you open up every time right before I put you on the podcast. You’re like, “Which one do I want to use today?”

Andrew:
I’m not quite that organized yet.

Matt:
I ain’t dead yet. All right.

David:
Gentlemen, today, we are going to be discussing multi-family real estate.
Lately, we’ve been doing some deep dives into multi-family. So Andrew and I have done a couple shows on the process we use when we’re buying apartment properties together, particularly the underwriting process and the due diligence.
Matt, you’ve been doing a lot of work for BiggerPockets, particularly in the bootcamp space. Can you tell us briefly, Matt, about your BiggerPockets boot camps and how people can sign up for those?

Matt:
Sure. And I’m just grateful to have that opportunity to teach people that either want to raise their game or get going in multi-family through the BiggerPockets bootcamp. You got to have a pro membership to sign up for it, but once you have that, go to biggerpockets.com/bootcamps.
And it’s, I believe, a 10 week program, David, where it teaches you everything from getting straight in revisiting your goals to run multi-family and then choosing a market for multi-family and underwriting deals, making offers on deals, and then managing that deal to profitability, and then also liquidating the deal when you’re done. So the entire multi-family process is documented there.
It’s myself, and a few of my Derosa group team members teach it, including Justin Fraser, Everett Francois, and a few other folks.
And it’s been well attended. Lots of great feedback so far. We’re in the middle of our second one right now, and launching our third cohort, I believe it starts in September, and enrollment starts in just a few weeks in August.

David:
Did we mention how people can sign up if they want to take the course?

Matt:
Yeah. It’s biggerpockets.com/bootcamps.

David:
There we go.
In today’s show, we want to get into the state of the multi-family market. Basically, we want to share what we’re seeing in today’s market, because unless you’ve been living under a rock and you haven’t heard, things are changing pretty quickly and now is as good of a time as ever to start paying attention to what’s going on in real estate.
So Andrew, I’m going to start with you. What are you seeing as far as tailwinds to the multi-family space?

Andrew:
Yeah. Tailwinds are still significant. And it’s funny, tailwinds sounds like a negative, but when we talk about tailwinds, think about you’re in a plane and then tailwind is pushing you forward so you actually get somewhere that you’re headed faster, so tailwind’s a good thing.
One, is the fundamentals are still really strong. The fundamentals of multi-family and rental real estate really comes down to supply and demand.
Nationwide, occupancy is still extremely high, and we have a housing shortage. Depending on who you’re getting your data from, we’re either two or five million units short, but it’s always millions of units short. I’ve yet to see anything that says, “Oh, we have over supply.”
There might be a market or two where someone built too much, but overall, we have way too few housing units.
Also, new cost of new construction has gone through the roof and it’s getting really expensive to buy. I’m sorry, not to buy, but to build. And so it’s making it so builders either can’t build or they have to target only luxury. And that ends up with getting fewer units built in the first place, but second of all, the ones that do get delivered have to target really high-income renters.
They’re not delivering class B or A minus, or even C properties. And that just increases the shortage of that kind of workforce affordable housing. And so there’s an even greater supply demand imbalance there.
Interest rates rising, it’s really easy for us to focus on some of the negatives of that and just say, “Oh my gosh, it makes it harder to buy multi-family because the cost of debt goes up.”
Well, the flip side of that is it makes it harder for everyone to buy a house. The most recent figures I’ve seen that are in most US major cities, it is 30% more expensive to try to buy a house now than to rent, which means with all those people who were going to buy a house when rates were at 3%, now they can’t because rates are at six, they just became really good high quality renters. And they’re going to go find a class B or class A apartment, and they’re going to rent for the next couple of years.
And then, I know Matt will have a few things to add, the one other thing that’s always a tailwind for rental housing is that people have to have a place to live. You can buy or speculate on all the real estate in the metaverse that you want, but it’s not going to keep your head dry when it’s raining. So it’s one thing that is never going to be outsourced to the internet or to the digital world.

Matt:
I’m going to tell your twin brother, Mark Zuckerberg, that you said that the metaverse is not going to keep your head dry and I’ll see what he says about that, because he has… [inaudible 00:08:23].

Andrew:
I’m not related to Mark in any form or fashion.

Matt:
I know. I’m just teasing because you look like maybe a distant cousin.
But anyway, I agree and I think that as the economy changes, David, and I think a good tailwind is that in investment, folks are going to be looking more towards tangible things. And so sticks and bricks, housing, roofs over people’s heads are going to be good, solid sound investments.
They’re going to perform well, I think, because as much as in multi-family, a good tailwind… And again, this is a good thing for a changing economy.
Real estate housing, multi-family housing is the bottom of Maslow’s hierarchy of needs. What do we need? I got to eat three squares a day, maybe. I got to eat. I got to have shelter. I’ve got to have those things.
The other ancillary benefits that people need that are higher up Maslow’s hierarchy of needs tend to get shaved off if there is a recession, so I think that multi-family housing, because it’s a core need for people, it is something that’s way more stable and down the food chain for things that are getting axed if times get a little tougher.

Andrew:
With these tailwinds, keep that in mind as you’re looking at real estate. And I don’t want to jump ahead too much in and get into the headwinds which are against you, but one of the headwinds is if you hold really still and listen carefully, you can almost hear the collective sphincters of investors tightening across the country right now.
As everyone gets scared of real estate, and crypto goes down, the stock market’s down, that’s a headwind. But what you want to do is look at these tailwinds, many of which are structural. They are not going to go away. And so look and say, “All right. Well, what is this real estate going to be five years, seven years, 10 years down the road if I buy a duplex now that is in a… If my first investment is a duplex and I’m in a house, hack it, and it’s in the Florida panhandle where people are moving and that’s going to continue. Even if we get into a recession, that area’s going to grow. I get my duplex. I house hack it. A few years down the road, I can leverage that into a five unit and then a 10 unit.”
Look long term, and that’s how you can, as a new investor or an investor with 10,000 units, look long term and take these tailwinds and use them to develop your investing strategy and build your portfolio.

David:
Let me get your guys’ take on a concept that might apply here. So whenever there’s a change that appears negative such as interest rates going up, or maybe before, what it was, was there was too many buyers in the market, so houses were selling for over asking price, I noticed that people tend to see the immediate negative effect and just focus on that and they don’t look one step further.
So for instance, interest rate going up does make mortgages more expensive, so less people can qualify for a house. However, that removes a lot of the competition of buyers, and it knocks out a lot of people that maybe could have bought a house. Now they have to stay renting. So that could force rates to go up in the multi-family space because they can’t buy a home.
Same thing when you knock buyers out of competition. Your mortgage might be higher, but prices will usually have to adjust, especially in the investment space, and now you’ve got less competition from other buyers. So there’s always a silver lining whenever there’s an adjustment.
I wanted to get your two opinion on… So in today’s market, what silver linings are you two seeing behind the doom and gloom that’s coming through the news and social media.

Matt:
Well, we haven’t gotten this far yet, Andrew, and that’s talking about inflation.
I see the humans out of real estate so I don’t take it for granted that the cost of gallon of gas has gone up for everybody, including my tenants, and so I feel for them.
But I also know that there is wage growth as well. And that is a real thing, and wage growth is happening and the cost of living, cost of goods have gone up as well. But I just think that the cost of everything in America is going to continue to increase. And that is a tailwind. That is a good thing that’s happening for us.
That’s why interest rates are going up by the way, is because they’re trying to curb inflation, which actually benefits us as real estate investors, because it ups our rent.
So there’s some markets we’re invested in that rents have gone up 15 to 20%, and tenants are still qualifying for those new rents because they’re getting raises.
Burger King that was paying $11 an hour is now paying $18 or $19 an hour. Amazon is starting at $25 an hour, so wages, I think, are going to put more money in people’s pockets.
And unfortunately that’s the way things go, is that if that money’s going to get sucked out for different cost of living items, including their rents, hopefully they get to keep a little bit more of it themselves too. But that’s going to drive our top line, as well as landlords.

Andrew:
Yeah. And I say some additional silver linings, and we already touched on this, but it is rising interest rates are adding quality renters to the pool because they’re not buying houses. These are generally people with high incomes, high credit scores. We already talked about that.
Another one is existing properties become more valuable, and in a sense, more scarce because it gets harder and more expensive to deliver new units. We touched on that.
And then another one, and this really applies if you’re getting started or thinking about getting started in this business, now is your time because the competition other buyers, other owners, other syndicators is going to drop.
I know lots of other sponsors that are already just moving on to other asset classes, and part of the reason is this, they can’t get the deals to underwrite. They aren’t confident they can still raise the equity. Their investors expect returns that are based on what was happening five years ago. And now that you have to buy a property at 65% LTV instead of 85% LTV, they’re having difficulty with those conversations.
So if you talk to guys who’ve been around for decades, they will tell you the biggest money is made in the downturns. And one of many reasons for that is your competition goes away, and that’s starting to happen. People are starting to like just, “Eh, I’m going to sit on the sidelines.”
And that doesn’t mean that just go buy everything right now and throw caution to the wind. We can talk more about that later. But what it means is if you haven’t started yet, now’s the time to build your systems. Build your team. Be ready for opportunities that I think are coming in ’23 and ’24.
So that’s a silver lining. If it has been too competitive for you to get into this business the last five years, that is about to ease off, and this could be your window.

Matt:
And then one last thing I’d say is that the interest rates have been low for a while. We were able to borrow monies on multi-family at three, three and a half, sometimes maybe even in the 2%s. It’s hard to sell those properties, but now if I’ve got a property that I borrowed at 3% interest on, I can now liquidate that property and offer the assumption of that debt to people.
And that didn’t happen as often because I don’t want to assume you’re 3% loan because I can go get another 3% loan, or I can get at 3.4%. Why do I want your 3% mortgage?
So I think that for existing owners, and for new buyers as well, there’s an opportunity to get creative on financing, which multi-family has not required creative financing not for a while, but it will now.
And so for a buyer and seller looking to put their heads together, find a way to make the deal work, and seller financing could come back, Andrew, meaning if you’re going to assume my 3% mortgage, that versus going to get your own 6% mortgage, you’re going to be very inclined to assume my 3%, and maybe as a seller, I’m willing to hold a second behind that, which people haven’t had to do up until now. But maybe that allows for more creativity to come into the space, which that creativity is really what makes the juices flow in real estate investing, and it hasn’t been required.
And Multi-family buying has been best and final, best and final, final, best and final, final, final, final, final the last couple years. But maybe that goes away and it’s now like, “Okay, who’s really wants to get this deal done?”
The brokers lose a little bit of control and the buyers and sellers were able to really put deals together. What do you think?

Andrew:
Well, and here’s another one, and you’re absolutely right. Assumptions are going to come back into vogue, creative financing, but rising interest rates like we have right now, another factor that that has is your, quote unquote, liability, your mortgage, if you’ve got a low interest rate, 3% fixed mortgage, all of a sudden, that mortgage is starting to become an asset because if inflation is at 8%, number one, you’re making 5% on it. And then number two, your property’s more valuable if someone can come in and assume your mortgage at 3%, instead of getting their own at six.

Matt:
Yeah. They’ll pay them more for that. You’re going to get a premium for that 3% mortgage you have.

Andrew:
And incidentally, that is going to contribute to the low inventory because many owners are locked out of selling their properties because they can’t or don’t want to give up their low mortgage.

David:
And that is, I think, a source of contention for a lot of people that want the market to crash.
So what we’re being told by the fed is, “Hey, we’re going to stop inflation by raising interest rates. It’s this simple. When rates go up, the economy does worse. When rates go down, it does better, so we’re putting the brakes on. We got it all under control.”
The reality when you look at the big picture is that’s not the case. This actually could create a more of a shortage in supply because in the single family space and the multi-family space, if you’ve got a great interest rate at 3% and you’re thinking, “Hey, I got all this equity in my house I can sell it and buy another house, but I got to get a 7% rate. I don’t want to do that. I don’t put my house on the market.”
Same thing goes with the multi-family space that you guys are seeing where it was easy to raise money to buy deals and pay top dollar for them when rates were low.
I guess what I’m getting at is rates alone is not enough to create the correction that we need. You got to actually build more units.
And as you two have both said, that is becoming more expensive to do. Supply chain issues that we’re having, where it’s harder to get supplies. People that have not had to work, frankly, for quite a few years now the labor pool has been diminished, and these difficult jobs that we need to make America work, working out in the hot sun, doing physical labor are not very popular right now.
And then you throw on top of it with wage increases, you have to pay these people more to do the same work than before. It doesn’t look like we’re going to be building a ton of multi-family stuff anytime soon.
So I like that you guys are highlighting, “Don’t assume there’s going to be a market crash just because rates are going up,” but I love the introduction of creativity back into the market like what you said, Matt.
I was just telling my agents on the David Greene team, I have not been this excited since I got my real estate license, because this is the first time there was any ability to use skills and strategies that didn’t just start and end with highest and best.
If you’ve got a parrot on your shoulder that just said, “Highest and best, highest and best,” you could be a listing agent. That’s what it was like.
Now, we’ve got all this like flexibility here. We’re like, “Hey, his mortgage is at 4%. Mine would be at seven and a half. I’ll pay him more if I can assume the mortgage a 100%.”
That becomes an asset, and it opens up windows of creativity for those that are actually skilled, that have been listening to this podcast, that are like you two that understand investing and have been putting tools in your tool belt, as opposed to, “I’m a 27 year old entrepreneur on Instagram who calls myself a syndicator. Send me your money and I’ll go overpay for a property and just wait for cap rates to compress and rates to go down, and I can make it work.”

Andrew:
Well, David, you just reminded me of another silver lining that I’m hoping will show up. And this has been a big hurdle for new investors the last five or six years, and it used to not be this way, but now, the last five, six years in multi-family, one of the questions the parrot repeats is, “How much is your hard money deposit?”
You got to put down a $100,000 non-refundable, day one, and you can’t get that back no matter what.
As the market shifts to more of a neutral position between buyers and sellers, there’s a good chance that will hopefully go away, and de-risk the buy side of the equation, because again, it used to not be that way. That is a result of the tight competitive market of the last five, six years.
And so if that’s been a hurdle for you as a new investor, that might hopefully go away or at least back off a little bit.

Matt:
I agree. I think all that’s fantastic. I’d love it if all this hard money stuff went away, and it’s pushing the market up. Like you said, it’s whoever’s willing to pay the most for the property wins. That’s it. That’s that’s your winner. But the problem with that is a rising tide raises all boats. And so if this property in Atlanta sold for well over what it should have because the broker pushed and had his little parrot on his shoulder going, “Best and final, best and final,” and, “Highest and best, highest and best.” And then they use that number to pull up the property down the block to sell, and it all pushes the market well beyond reality and well beyond where the real will cash flow.
So my hope is that a lot of things settle down.
And I’m not talking about a 50% crash or anything like that. I’d love to see a 10 to 15% settle down.
And by the way, those that are sitting around, I see people on Instagram rooting for this thing like, “Real estate’s next. The stock market, now crypto, now real estate.”
Guys, the three of us were around during their last crash. I can tell you anybody that’s rooting for the real estate market to crash was not around when it did it the last time. It is not fun. It is not money getting printed in the streets. It sucked.
And eventually, it worked its way out and deals were made, but for those that owned anything during that time, it was a scary time to be investing in real estate.
So I can tell you, you do not wish the market to do that. It’d be great if it softened up a little bit and allowed for creativity, and buyer and seller to have equal footing again. That would be great. But a crash? Guys, do not hope and pray for that. I promise you don’t want it.

David:
That’s a great point, overall, is what we ideally want is some form of equilibrium between supply and demand, buyers and sellers.
It’s okay if it’s tilted in one direction or the other at times, but these wild spikes just like a diabetic’s blood sugar, is not healthy. You don’t want it going to where it’s sellers have all of the power and then it’s now investors with money have all of the power.
In either direction, your average Joe loses. They can’t compete with the people that have a ton of money in a seller’s market, and they can’t get loans to buy houses in the buyer’s market. So if you’re listening to this podcast, that’s a great point, Matt, we would like to find some form of equilibrium.
I’m going to move on to the next question I have for each of you. We’ve discussed tailwinds. Now let’s talk headwinds.
Matt, I’m going to throw it to you first. This is where is this becoming more difficult for multi-family investors?

Matt:
Well, a lot of equity just got sucked out of the market, David. And up until recently, it was you do go on Instagram, on Facebook posts, it felt like that, like, “Hey, I got a deal and all of a sudden, boom, I’m fully funded.”
So it became overly easy, I think. And like you said, there were some knuckleheads out there just putting a social media post, brand into the real estate market and all of a sudden raising $10 million or whatever.
Hey, God bless. I’m glad they did, but it’s going to become harder to raise equity, a lot harder I think to get equity into UDLs, A, because of this is the most questionable, unstable feeling place. A lot of investors that I’ve talked to are like, “Oh, I’m not sure. Interest rates or whatever.”
And even during COVID people are like, “I got to put my money somewhere. I’m really liquid. I got to invest.”
Folks are not saying that anymore. They’re looking for shelter, looking for just in case and looking for what ifs.
So the biggest headwind that I’m seeing is that the access to equity is changing very quickly, faster than a lot of us as syndicators thought that it would. And that’s because folks’ net worth, a lot of it changed. Those that had a lot of money in real estate or crypto, whatever floats your boat, wherever you’re keeping your cash, has changed a lot recently, and it’s going to continue to change as those markets remain volatile.

Andrew:
Well, and to add on what Matt was saying… Yeah, I think I’ve met you before, right?
No. Okay.

Matt:
Have we met?

Andrew:
You look like a Mark and… I don’t know. But to add on to what Matt Faircloth was saying is as that equity gets harder to raise, that means the sponsorship groups that require the equity are going to be dropping out of the market, which means they either might be going away altogether, or lowering what they offer because they’re like, “Well, I’m going to make an $8 million offer instead of a 10, because I don’t know if I can raise the equity to get to 10.”
So that’s one of those things we talked about before, that’s good from a new investor point standpoint because, hey, it really reduces competition. But if you already own something that could lean to, again, a softening of the market and potential decline in prices.
I do not see a crash. I’ll flat out say that. I do not see a crash.
However, in select asset classes and select markets, could we see softening or some price decreases? Absolutely, yes. But more of a normal real estate cycle.
The crash last time, real estate caused that, and was not the victim of it. It was the other way around. Real estate just went off the roller coaster first and took the economy with it.
We’re in a very different situation this time around, so that’s a double headwind.
Matt, did you want to add something?

Matt:
Well, to go off what you had said about debt, maybe getting softer as well, we were just quoted on what I thought to be a fairly good deal. It was 65% loan to value. It was a quote that I got from a broker. And I was surprised because it was good deal that made good money and just, it seems like the debt markets are getting a little softer, not just on interest rates. And the reason why it was 65% LTV is because the debt service coverage ratio has gotten more compressed because debt’s gotten more expensive, so if my deal is…

David:
Can you briefly describe what you mean by that?

Matt:
Sure. So if you’ve got a piece of real estate, that’s producing $100,000 in rent and $50,000 in expenses, your NOI is $50,000. So that’s one side of the DSCR equation.
The other side of it is what is my debt service? And so if my entire monthly payment that I pay to service my debt, including principal and interest, if I’m paying principal as well, let’s just say it’s $35,000. Well, okay. I’m profitable at $15,000. Yay me. The bank is going to divide that the $35,000 into the $50,000 to determine what ratio that is. And they would typically want to see what Andrew said, somewhere in the 1.2 to 1.3 range, meaning that I can make that monthly payment 1.2 times or 1.3 times in a given month. And that means that I’ve got that… What they like is that 0.2, 0.3 part. They certainly want to see you can least make the monthly with payment, but then you have some extra…

David:
A 1.2 ratio would mean you have about an extra 20% coming in every month, more than what your… [inaudible 00:28:16]

Matt:
Above your mortgage payments.

David:
Your payments, right?

Matt:
Yes.

David:
Okay.
And that number is how apartment buildings or commercial real estate determines how much a bank is going to let you lend versus residential where they say, “Well, how much money do you make at your job?” Then they look at your personal debts income ratio versus the profits.

Matt:
Yeah. It becomes a major factor.

David:
That’s why you’re mentioning that.

Matt:
Yeah.
But what’s interesting, David is because rates were three, three and a half on multi-family up until recently, now they’re five, five and a half or could be in that range, the debt service, AKA my monthly payment, has gone up quite a bit. And certainly, my deal maybe has become more profitable because of rent increases or whatever but in some cases, one has exceeded the other, meaning the interest has pushed the debt service higher on a deal. And so the banks are saying, “Okay. Well, I have to pull a lever here. So if your interest rates have gone up, I can’t lend you as much money on that deal. So I have to drop your LTV down to a point where it makes sense.”
This is what they call your deal is DSCR-restricted, meaning, “I’m only going to lend you, but so much. I’m going to lend you enough money to where your DSCR ratio is,” whatever their guideline is, typically 1.2, 1.3, somewhere in there.

David:
Right. So if I can make sure we understand this correctly, if you were trying to get approved to buy a house and a residential property, and your debt to income ratio only allowed you to buy something up to $600,000, but you wanted to buy something that was $1 million, they’d say, “Yeah, you can buy it, but we’re only going to fund 60% of it. You got to come up with the other 40% yourself.”
In this case, it’s the asset is only producing this much income so you can borrow this much, but anything above that, you got to bring in the extra capital, which obviously makes the price of the asset lower because now the person buying it has to bring more capital into the deal that makes it less attractive.

Matt:
So look at the… Because again, there’s multiple factors in the storm, and so you’ve got this happening. So interest rates have caused the DSCR to compress a bit, meaning rates have gone up and that means my cost to service my debt has increased. Put that in there.
I can’t get 75% loan to value, and if I’m buying a $1 million dollar property, I used to be able to get $750,000 at a 75% LTV. Now I can only get $650,000. That means I have to do what? I got to go out and raise the other $100,000.
But as Andrew and I had said before, equity has become softer because equity investors have become a little more skittish. They’re concerned where the world’s going. And so those two things, the enormous headwind, when you combine the two, is that debt has gotten a little bit lower on what they’re going to be willing to do for a deal, and equity’s also gotten softer. Those two things together are going to make us as syndicators, I think, just real, let’s say, on what we’re able to offer on a property. And we can’t just go in there and shoot the lights out anymore as we could before, because equity was easy to get and the bank was going to give us a lot of money for the property because rates were low, and that enabled us to get, get looney during best and final, final, final, final, final on a property. Now I can’t do that because I know my equity’s a little bit softer and my bank’s not going to just give whatever I want to borrow on the property.

David:
Yeah, and if you guys would like to learn more about how you too can raise money, well Matt Faircloth wrote a book on it called Raising Private Capital.
We also have a couple of episodes coming out with Amy Missouri, episode 636 and 637, where she breaks down her actual process like a framework that you can follow for raising capital. So make sure you check those out after this one airs.
Okay. So we’ve talked about some tailwinds, we’ve talked about some headwinds. Andrew, tell me how you think this is all going to balance itself out. What can we expect with these different factors that have changed?

Andrew:
Yeah, there’s quite a few and I’ll add one more headwind that I’ll lead into that.
And one of the biggest headwinds with all of this is, as gas prices just about double and food goes up 25, 50% and utilities go up and all these day-to-day living expenses get higher, it makes it that much harder for the average person and especially the average renter to make ends meet at the end of the day, especially the further down the chain that you go.
So one of the things that’s happening is as you go into C class, we’re starting to see delinquency creep up because a lot of these folks, unfortunately, they’re in the position where they’re lucky to make it to the end of the month and still have a positive balance, and so it’s hard for them to absorb gas doubling, or food going up.
There’s not many things that people pay for before rent, but food is one of them and so was gas because they got to get to their job so they at least have an income. So that’s another important headwind that I think that we’ll probably touch on a little bit later, but what all of this is leading to when you combine the tailwinds and the headwinds, number one, we are seeing, despite all the doom and gloom, the best operational results ever still in class B and A minus.
Class C, like I mentioned, starting to see some deterioration there, but we just got our June results on our portfolio and almost every property had record performance in June, better than it’s ever been over the last five years that we’ve owned them.
So those fundamental tailwinds are still driving performance.
Again, class C it’s not bad yet, but we are starting to see the delinquency rise there, and Matt and I can box a little bit on our opinion of class C.

Matt:
I knew it. I knew he was going to come after class C. Where’s my boxing gloves?

Andrew:
So we can get into that later.
And another result is the whisper targets aren’t being hit. So how the multi-family bidding world has worked for the last five years is owner B looks down the street and says, “Hey, owner A sold his property just like mine last month for $100,000 a door. Cool. My Whisper’s going to be %110,000.”
That was how it worked. Like, “All right, just add 10%. That’s my whisper target.”

David:
Andrew, can you mention what a whisper target is?

Andrew:
Yeah, actually I was just about to do that.
So another thing that will hopefully start going away, another silver lining. David, I’m so glad you brought that up. I keep thinking of more and more silver linings to all this, is it used to be that when an apartment complex came up for sale, they actually told you the expected price. Well, five, or…

Matt:
They actually put up the price on the place. Here’s the offering. [inaudible 00:35:02].

Andrew:
Imagine that. What are you looking to get for this thing?
So about five, six years ago, someone decided, “you know what? Let’s just see what happens and get everyone all whipped up into a frenzy. We’re going to stop telling them the price.”
What they’re doing is they’re looking for excitement and someone who doesn’t know how to underwrite and they’ll pay $1 million more than everybody else.
So what replaced that is the whisper number. So the broker sends it to you and they’re like, “Oh, here’s this great property,” and you got to call the broker and be like, “What’s the whisper? What’s the target?” Because the selling price is now a secret. And that has been the case…

Matt:
That’s the worst name for it ever. “Can you whisper it in my ear now, please?”

David:
It’s kind of like pocket listing the same type of [inaudible 00:35:41]. It’s not public information, but I’ll tell you about it.

Andrew:
Yeah, exactly.

David:
Bring it to everybody.

Andrew:
And anyone who calls and ask, I’ll tell as well.

Matt:
And when I find these guys, I’ve gotten them to admit to it, Andrew. Sometimes after you get a cocktail in him or whatever, they don’t whisper the same number to everybody. And that’s what the danger of this, of the way these brokers are putting these properties in the market, in that, “Hey, here’s the offering.” And you call the broker, “What’s whisper price?” Like, “Well, okay. Is this guy a Patsy? Can I get them to offer a lot on the property to pull all my bids up or whatever?”
“Well, I’ll tell them that the whisper’s a little bit higher, because I think that they might actually bite on that fish hook.”
That’s what I believe is happening. Maybe I’ve only had one or two brokers admit to it, but that’s what’s possible.
Think about that, David. As a broker, if you didn’t have to put a price on a property and you just could tell people verbally what the price was every time they came to look at it, the more unscrupulous brokers would say, “Well, you look like you actually would qualify for a higher purchase price or you got some money to spend, so I’m going to tell you it’s $1.5 million.”
So the people that looked at it earlier, I don’t know if they were going to be able to get there, but they looked serious so I’m going to tell them $1.1 million. This whispered thing is Looney Tunes to me.

Andrew:
Yeah. It’s funny, Matt, you mentioned about the different numbers to different buyers. That definitely happens.

Matt:
It certainly does.

David:
Well. That’s also a byproduct of unbalanced supply and demand, when there’s too much demand and not enough supply. Because if you’re the seller of that apartment, you may approve of the broker doing something like that because if you think it’s going to get you more money and that’s your fiduciary, then that’s what you want to see.
All that stuff gets balanced out when we have some form of normalcy and that’s why as a weirdo, I just get so jazzed up like, “Finally, it’s getting worse. Finally, it’s getting harder. I’ve been waiting so long and real estate’s fun again.”
Matt, what’s your opinion on what you think we’re going to see between the headwinds and the tailwinds that we’ve discussed and what kind of environment it’s going to create?

Matt:
I think that what’s funny about real estate is it’s not like the stock market where, “Oh, there was bad news 30 minutes ago and now this price of the stock market will change.”
Real estate’s a hand grenade market. And so a thing happens and then it shows up in real estate 90 to 120 days later. And so the hand grenade has not exploded yet in real estate. And that’s because deals that Andrew and I, in our different companies, bid have not fallen out of contract yet. And they’re going to, but they have not fallen out yet because the debt market’s gone way up, or because you guys can’t raise their equity, or because whatever it is.
So I believe I’m waiting for the other shoe to drop and for things to start to make a little bit more sense and these brokers to have deals fall out and realize, “Oh geez, I actually wasn’t able to push this deal two or $3 million above what the seller told me they wanted to get for the property, so I might have to get a little more real and find somebody who can actually close and come up with a collaborative number that makes sense for both parties.”
So to answer to your question, David, is I think that we need that to happen. We need the hand grenade to explode and to let a 10% real realization happen. And I think that’ll happen in the next, say, 30 to 60 days.
And it’s not going to take long because rates are what they are, and equity is getting softer. It’s a fact. So I think that those things will play out, probably by the middle of the fall. I think that we’ll see a different angle of attack for those looking to sell here.

David:
I’m going to ask you each about strategies that you think would work in this market.
Before I do, I want to point something out for people that are listening to this, if there is maybe more inexperience with real estate in general, or if they just haven’t got into multi-family. The way that stocks, crypto, other investment vehicles, I like to call them button pushing investments, because you just click a button on your computer. There’s a lot less elbow grease that goes into investing in some of these equities versus real estate investing, which is frankly, what makes them attractive. You’re working at your job. You’re in tech. You pay attention to stuff. Stock creating can be fun.
The problem is there is an instant response in the market to something that happens. Some company says we’ve got a new product, everyone’s like, “Oh, what’s going to happen? Well, we’re going to need more silicon chips to build this thing. So I’m going to go invest in a silicon chip place or the mine that makes it, the company that owns that.”
Everything happens really quick. So when you watch the news, you see an instantaneous response. The markets are affected very quickly. Bitcoin did not tick down. Over a couple days, it just plummeted. That’s normal in these button pushing investment vehicles.
Real estate is different. Sellers don’t watch the news and hear Jerome Powell say, “Hey, you guys should stop buying houses,” and see interest rates go up and then say, “Oh my God slash the price from $1 million to $600,000 right now.”
People don’t think that way. They think with their emotions.
So what happens is properties have to sit for a long time. And there’s a grueling process of being tortured before sellers will finally adjust their price. The market has to speak to them. So there’s this natural delay in real estate between when their rates go up, when the tailwinds or the headwinds occur, and when you actually see the adjustment.
So I wanted to get your take, first off, on how you see that playing out in the multi-family space? Like you guys mentioned, in a month or two, we’re going to see this. Is that what you’re referring to?

Andrew:
Yeah. Matt, you were talking about deals getting retraded, or blowing up, or following apart. This is the time to apply the old adage, the early bird gets the worm, but the second mouse gets the cheese. You want to be second mouse right now because a lot of these deals are going to fall out. You want to be patient.
And I’m not saying, sit on the sidelines, and we can go into that why in a little bit, but when we talk about these tailwinds, and these headwinds, and the risks, I would say there’s seven things that you can do to mitigate this, and maybe I’ll just hit them real quick, and then whatever we want to jump into.
Number one, if you’ve got good team members, either as part of your internal core team or working at your properties, make sure you compensate them very well. Solid team members, especially at the property level, will make or break your business.
You buy a $10 million asset. You do not want to get the cheapest person you can find to run that for you. You want to find someone who’s good and overcompensate them.
Second, and Matt, you might jump on this later. I’m sticking to class B in class A, because again, when you get into economic distress, class C tends to feel that the first and the hardest.
Another way that you can mitigate this as you’re looking at deals is go in with lower leverage debt.
Now, Matt, again, something you said, a lot of lenders are going to force you to do that right now, anyways. But when you’re underwriting, everything we look at, we look at 55 to 65% LTV. And there’s a lot of reasons for that. One of them is that gives you better chance of being able to refinance if you need to, and if rates are higher down the road, you’re not going to be stuck because you went in at 85% and your debt coverage ratio that you talked about is not there. So you go in with lower leverage debt.
Another thing to do is you pay attention to loan compliance. And you’re like, “Okay, what the heck does that mean?”
Well, we get excited it’s closing day. We’re signing these loan docs. And the loan docs are 85 pages. Well, you didn’t read on page 76 that it says that they’re going to check every quarter, and by the way, if your debt coverage ratio goes down or your personal net worth goes down, or any other thing in there, oh, you’re going to be in technical default on this loan and your interest rate goes from four to 15%.
And I have literally seen that stuff in loan documents. My favorite one that I have seen in loan documents, and we spent two weeks arguing to get this taken out, is that the bank could declare default if for any reason the bank felt uneasy. That was the actual wording.
So if the bank president is getting a divorce and his crypto just got cut in half, he can look at my loan and be like, “I don’t like this loan anymore. You’re in default,” even though the property’s performing great.
And I’m not exaggerating. This is actual stuff in loan docs, so make sure you read your loan docs. It’s boring as heck, but make sure you do it, or hire a really good attorney that can do it for you. I would still review it yourself though.
Also, be prepared to hold longer. The days of buying an apartment complex, doing a quick value add and selling it two to three years later to deliver a super high IRR, those days are over for now.
Look to buy great assets, in great locations that will be worth more five to seven, to 10 years down the road even if they decline a little bit in the short term.
Also, know your lender. Some lenders are good for certain business plans and some aren’t. If you’re looking at a 50% vacant value add, don’t go talk to Fannie Mae or Fred Mack. That’s not their product.
And then adding onto that, make sure that you structure your debt to fit your business plan and be as adaptable as possible. And we could do a whole podcast on that, but what does that mean?
Well, if you’re buying a property today, let’s say you’re doing your first property. It’s 10 units. And you’re getting a bridge loan. Don’t get a bridge loan that has a balloon payment due in two years and you have to refinance or sell because that means you’ve only got one option to get out and if the market’s not in a good place in two years, you’re up against the wall.
So something better is maybe get a loan that…Or I’ll give an example.
We’re doing a deal now where we’re getting a bank loan that has a short prepayment penalty just only for the first couple of years, and we can refinance it if things are good in two to three years. But if things are not good in two to three years, it’s a 28 year loan. We can hold for 28 years if we have to.
Now, obviously we don’t intend to do that. So no matter where the market is, we have good options. And our plan is to hold that for five to seven years. So that debt matches well with our business plan.
We can refinance early, we can sell early, or we can hold forever if we have to. And that’s an example of how you mitigate these risks we’re talking about by matching your debt to your business model.

Matt:
Man, he said a lot there, David. Which one are you going to respond to first because he came after class C so I went and got my boxing gloves… [crosstalk 00:46:26].

Andrew:
I warned you ahead of time.

Matt:
I knew it. I knew that was coming and I’m ready for you. And a lot of things you said outside of class C, I agree with so. Where you want to go, David?

David:
Well, let me give you guys is my take, and then I want to see how you two, each feel this applies to multi-family, which will absolutely set you up to go at it right now. I’m going to be like the Dawn King and promote this fight.
What I’ve always preached is that when the market is hot like it’s been the last several years, it feels safer to buy a cheaper priced property. It’s stupid. That doesn’t make any sense when you actually understand real estate investing, but to the ignorant who are just new to this, they’re like, “Ah, the market’s really hot. I need to go buy in the worst city, in the worst neighborhood, because that’s where the lowest price point is.”
But when the market corrects, those are the first ones. It’s like you bought in the flood zone, basically. That’s what’s flooding first. The stuff at the top of the mountain, on the top of the hill, though it’s the most expensive, the flood waters rarely ever get that high and those properties don’t crash.
So what I tell people is, “The hotter, the market is the nicer of a property you have to buy.” So I bought a handful of properties in the last four or five years, but they were all in A or A plus neighborhoods or units that I felt super good about. I kept buying, but I bought less.
I’m okay with people buying in, never a war zone or a D minus type neighborhood, but the stuff that’s on the boarder, if the market has crashed and it’s got nowhere to go but up, you just don’t know when, and it’s going to cash flow, and it’s an asset that you can manage. It’s just maybe more of a headache than what you would like. I’m okay with people buying those type of assets after a crash, because then you write it on the way up. And when it’s appropriate, you sell, you 1031 in the one you actually want to own. It’s like super charging it. Don’t do that at the peak. That’s the worst time ever. Those are the properties that are going to get hammered.
So when that same principle applies to multi-family give me some strategies of where you see this applying in your guys’ space.

Matt:
I will talk about how it applies to class C. So what I’ve seen in the past in class C is that although class C does get affected by swings in market price, and Andrew is right in that class does feel changes in markets.
And one of my class C markets that everybody knows and love that I do a lot of investing in is Trenton, New Jersey.
Trenton had high prices. Market crashed. Trenton went way down and it’s gone way up again. So class CC’s swings in pricing. But what class C also has, which is good for a market, that’s maybe going to see a recession or whatever it is that class CC is a good cash flow market in recessions, because I’ve seen class C tenants firsthand. Class C tenants are able to figure out a way to pay their rent.
A tenant making class C income in a blue collar job can very easily find another blue collar job.
The class A tenant that’s making $150,000 a year and he’s got the bougie iPad in the wall that he’s got that turns his lights on and off, if his spouse loses their job, they will pull back to class B, and the class B tenant will pull back to a lower… It’s going to domino fall. We’ve seen that happen before the crash where markets like Las Vegas, Miami, those markets saw huge topples and built themselves back up as the market came back up.
But class A real estate and class B real estate, in my experience, are going to see tenants migrate away from those in recessions. As their income gets affected. One thing they’re going to have to do is they have to still keep a roof over their head, but they maybe don’t have to live in the bougie apartment complex with two pools, and two gyms, and a car servicing center and a dog spa. They can pull back just to keep a roof over their head and live somewhere else, where my class C tenant is not going to pull back and move to class D. If my class C tenant loses their job, they’ll very easily find another one and they have in the past.
So that’s my two cents on class C and why I think class C is a good market for something that fell out of fashion the last couple years. And that is cash flow.
Cash flow is what got me through 2008, 2009, and it will get investors through the next couple of years.
Appreciation and holding properties for a year to 18 months has become the craze these days, but it is no longer going to be the craze and the way to make money in real estate over the next three to four years.
What’ll make you money in the next three to four years is weathering the storm on properties that make money the day you buy them and cash flowing them through the storm and then selling them on the back end.

Andrew:
Let me add on to that. And then I want to add the disclaimer here that just like most people, I started in class C too. It’s not it’s not like, “Well, I’m too good for these properties.”
So after a few thousand units, I looked back and said, “Wow, okay. What made be the greatest returns with the least amount of headache?” And it was class B and A minus.
But I think, David, you laid out the true differentiating factor. It’s not that class C is bad. Lots of money has been made in class C over the last 10 years. Timing is more important in class C. When I was doing this after the last crash, the properties that we were picking up super distressed for $7,500 a unit, or $10,000 a unit and were 50% vacant, it was all the class C stuff. It got absolutely obliterated.
And now, that class C stuff that we bought back then for $10,000 a door, we’re selling for %50,000, $60,000, and %70,000 a door. So now we say, “Okay, that was really cool, but so what did that class C look like before the crash?” And again, we’re not looking at a crash now, but we’re definitely, I think at the top. And so the potential additional risk with class C at this point is number one and the two remaining ones that we own, we’re already seeing the delinquency go up because people are having trouble making ends meet.
But also one of the hallmarks of the last five or six years was not just cap rate compression, but the compression of the spread in cap rates between class A, class B, and class C.
Anyone who’s tried to buy an apartment complex the last five years knows that everything was a fore cap. You could buy an A class property in Atlanta or a C class property next to the airport, and you’re going to pay a fore cap, no matter what.
Historically, that’s not how it works. There is greater risk with class C, and what we’re already starting to see as we go into a potential to likely cap rate expansion environment, class A and class B will stay more anchored to where they are, and class C will migrate back to the mean.
So what that means is you’re going to see more cap rate expansion in class C than you will in class B and class A.
We’re already seeing that in the market, because what happens is, again, class C, that delinquency is going up. So when buyers and lenders are looking at a class C property, and they say, “Oh, hey is five, 10, 15% delinquency, or evictions have tripled in the last three months, all that,” they’re going to underwrite to higher vacancy.
They’re going to give you a lower LTV loan and all those things that we already talked about, already, that leads to lower pricing. That’s why historically, A property might be a fore cap and C might be six, seven or eight, and a mobile home park used to be a 10 or a 12. They’ve all been four lately.
So we’re starting to see that expansion. So that’s one of the reasons why there’s greater risk in C right now, is because if we see cap rate expansion, it’s most likely to happen right there.
So if you’re getting ready to get started, just remember that when you’re underwriting deals, whether it’s a fourplex, or a 10 unit, or whatever, B class is less likely to get hit with that cap rate expansion.
Then also whether you are looking at C, B, or A, if you buy for today’s cash flow and give yourself enough hold time, you should be okay.

Matt:
And at the end of the day, if you’re buying real estate with the goal of selling soon, or you want to have that out to be able to sell it soon, then what cap rates are going to be matters.
If you’re buying a C class asset that you’re going to value add, you’re going to squeeze lemon, you’re going to do what I call workforce luxury, where you do luxury add-ons that are workforce specific… [inaudible 00:55:04].

Andrew:
Workforce luxury.

Matt:
Yeah. I believe the banks should trademark that, but you’re going to do things that work that are perceived to be luxury items in workforce housing like washer dryers in the apartment-

Andrew:
A garbage disposal.

Matt:
Yeah. No garbage disposals are the worst. All that is you rooting out your sewer line at some point. That’s a mess waiting to happen. Don’t ever give your tenants garbage disposals.
We’ve taken them out. We bought buildings that had them in like, “No, no. Take that out. That’s going to be a mess.”

Andrew:
You know what I’ve learned, Matt, is if on the monument side of the apartment complex it actually has the words luxury, that means it’s not.

Matt:
Yes. Right because it’s perceived. It’s what the market wants.
But my point is that if you’re buying C class, expect to hold it for a while. There are folks these days that have made a lot of money flipping C class and holding it for a year or two.
But C class, I think, as an investment strategy should have never been designed to be a short term hold type of real estate investment. C class real estate, the way I’ve seen it, those that make money with it are those that are willing to hold it for five to 10 years.
And if you’re willing to hold C class for the next five to 10 years, great. If you want to have that nimble, being able to get in and then get out, and if your equity investors want to get in and get out of your deal after a couple years, then Andrew’s right. A and B class should be where you should go.
But if you’re okay, long term holds, and if you’ve put your brand out that way, that a long term hold cash flow asset is what you can provide your investors, the C class, I think is better.
But it really goes back to your investment strategy, and not everybody likes the same flavor of ice cream, but I still love you, Andrew.

Andrew:
Matt and that’s what makes a market. If everybody wanted the same thing, the same way, we wouldn’t have a market.

David:
As much as I’ve loved watching you two go at it, I actually had a thought in the middle of this that might bring you together.
If you’re investing in a tech-heavy city where the majority of the workers are tech people, like Austin, Texas, C class is… There’s not a whole lot of jobs there if you’re not in maybe the higher end-range of tech or the medical field or something, so your C class tenants there are a completely different avatar than the working class, wake up, put their boots on in Trenton, New Jersey which is where Matt’s investing.
So when you’re saying C class, the C class tenants there may have much more stable incomes. They can bounce from blue collar job to blue collar job, whereas if you’re in maybe San Francisco, or Austin, or Seattle, there aren’t blue collar jobs. You work in these expensive things or you don’t have a job.
And so that’s something to keep in mind because real estate is very market specific. That what Matt has in mind when he says C class, it could be completely different than what Andrew is thinking when he says C class because they invest in different markets.
So in addition to what we just said, where timing the market, like how long you hold. So let’s say you’re a syndicator who has to raise money and sell in five years, that might be bad.
Let’s say you’re a person who’s 1031 wanting a couple million dollars in an apartment, C class might make a ton of sense because you don’t have other people.
These are all things to take into consideration. This is definitely not like a rubber stamp that works every market the same.

Andrew:
Yeah. That is very well said. You should host this or something.

Matt:
Yeah. You’re pretty good at summarizing things.

David:
Well, thank you guys. I’ve had a blast.

Matt:
I did a David Greene metaphor right now.

David:
You did one? You sent a very good… [inaudible 00:58:11]

Matt:
I’ve not had enough David Greene metaphors on this show, David. I love your metaphors. I listen to the show for your metaphors.

David:
I had to share that [inaudible 00:58:18] with you two.

Matt:
But I thought you were going to go there. With the A and C class debate, I was waiting.

David:
No, you guys did great.
So if you, as a listener like this show comment in the YouTube comments and let us know. If we get enough positive comments that you like this type of conversation, because frankly, I think this is amazing. This is a masterclass in multi-family investing. You typically don’t hear conversations like this unless you belong to a group like GoBundance or something else where you are surrounded by and rubbing elbows with people that do this at a very high level. These are the types of conversations that we all have together when we’re not on the podcast.
So if you enjoyed this, let us know, and we will do another show where we will have Andrew and Matt back, and they will say what they would do if they were starting over right now from scratch.
So we’ve toyed with this idea, but we don’t want to do it unless it’s something you want, so if you enjoyed this, let us know when the comments and we will have them back and they will say, “Hey, if I was starting from zero, if I was getting in the game right now, this is what I would do.”
Okay. Looking back at the beginning of your careers, Andrew, what would you do differently starting today?

Andrew:
Well, instead of buying class C myself, I’d just invest with Matt’s class Cs, because he’s got them all figured out.
No. I was a solo per solopreneur for way too long. I would add team members much more quickly than I did. That’s number one. And then I would have added more bigger, nicer class properties to my portfolio earlier on. That’s two quick things that come to mind that I would’ve done differently.

David:
Do you feel if you had a stronger friendship with David Greene, that you might’ve built that team a little earlier, so maybe that’s what we’re really getting at here?

Andrew:
Yeah. That’s really the root cause of it and it only took 10 years for me to finally start absorbing his wisdom and start building a bigger team.

David:
Friends don’t let friends work solo. I am glad that I could be a part of that journey. Matt Faircloth, same question to you. What would you do differently?

Matt:
I would certainly invest in class A and class B real estate, because I’ll have Kushman in my ear about that, and I want appreciation.
No, in all seriousness, if I were to do it over again or whatnot, I would’ve focused. If you listened to me on the BiggerPockets show number 88 that I did with Liz and 203, you’ll hear me talk about nine different things that I’m involved in. We’re doing some wholesales and doing some fix and flips and we own an office building and whatever, but our success really didn’t skyrocket. When Andrew started bringing in lots of team members that was able to be the rocket fuel that he needed for me, by just focusing on initiatives and protocol and the one thing, that’s when things really, really took off for us. And so would’ve done that a lot sooner.

David:
Okay. Andrew, what tips do you have for new investors today?

Andrew:
Even if you aren’t ready to jump in and buy something today, it doesn’t mean today is not the time to start. Start laying the groundwork so that when even more opportunities come available in ’23 or ’24, or whenever that is, you are ready to go.
And there’s a lot of different things that go into that. It’s deciding what kind of properties do you want to buy? Who are you going to buy them with? Are you going to have a partner? Are you going to do it on your own? Start laying the groundwork.
And also don’t wait until you see opportunities to start building relationships. You have to nurture relationships. You want to start talking to brokers now so that when great deals come up, you’ve got a relationship with them.
You can’t just say, “Oh, I’m not going to buy this year, so I’m not going to call anybody for a year.”
If you don’t nurture interrelationship people will drift away from you like ducks from a breathless man.

David:
Matt, how about you? What advice do you have for new investors today?

Matt:
So what I would say, too many investors are on the sideline, and I’ve got a great David Greene analogy here, or metaphor.
If I live in Pennsylvania and David Greene lives out in California, and if I told you that I was going to drive the David Greene’s house from my home, but I was not going to leave my home until all the stop lights between my home and his home turned green all at the same time, then I would be sitting at my house for the rest of my life.
And those that are sitting on the sidelines waiting for the market to change, or waiting for things to crash, or waiting for whatever, they’re in the waiting place from though the places you’ll go the book. So don’t live in the waiting place. Get going.
There are still deals out there. There are still things you can find. And you got to have faith that if you find the right deal, you’ll figure it out and the right teams will be there.
So first and foremost and new to new investors, do not live in the waiting place. Number two, you really ought to market your tail off because the successful investor is going to be the one that gets noticed in this new economy. Because as I said, equity’s getting soft. We talked about that a lot. So getting equity’s going to get competitive again. It hasn’t been competitive in the last couple years. It’s going to get competitive again, so you need to get noticed, and scream and yell, and wave your hands in the air.
So if you’re brand new, that’s okay. Don’t fake it till you make it. Put yourself out there and market what you do have and what you’re able to teach people and what you’re able to provide as resources.
And the last thing I would say, David, is I would, as a new investor, pick a market and focus on it and become the market expert, be that Albuquerque, New Mexico. Be the investor that knows all the brokers there, that knows where the good deals are, knows the good blocks, bad blocks, knows where the good neighborhoods are, knows where things are being built, knows where things are getting a little tired, knows where the bad neighborhoods are about Albuquerque, and drill in. And I think that’s going to be the successful investor as well. And you’re going to get that phone call from the broker that has the deal that fell out that we just talked about. You’re going to get that call if you’re the market expert. If you’re shopping 25 markets across the continental United States, you’re not going to get that phone call.

David:
Andrew, Matt, it’s been a pleasure having both of you. Would you each like a chance to have a last word?

Matt:
Thank you for having me here. And you’re asking for folks who want to hear more about me, they can go to my website, derosagroup.com, and they can check me out at biggerpockets.com/bootcamps to join my multi-family bootcamp.
And it’s been an honor, as always, to be chatting with you two today.

Andrew:
Oh, Matt, you’re a scholar and a gentleman, sir.
Likewise, this has been fun. Always is. And it’s an honor to be here and get to share with anybody and talk with anybody.
And if you want to connect, I’m on BiggerPockets. I have pro membership so just connect with me there or just Google Andrew Kushman and our Vantage Point Acquisitions is vpacq.com.

David:
Matt, did you get a chance to give out where people can connect with you?

Matt:
I’ll say it again. Derosagroup.com, D-E-R-O-S-A group.com, and I’m right up there with Andrew on BiggerPockets. You can hit me up there as well. I love talking to people about this kind of stuff.

David:
And if you’d like to invest with Andrew and I in our next deal, go to investwithdavidgreene.com, don’t forget the E, and fill out the application there, and we will get in touch with you.
Guys, this has been awesome. I hope we get a lot of comments in YouTube that say that they liked it. Let us know what you all think.
This is David, the silver linings playbook for multi-family investing, Greene. Signing off.