Can you comprehend a 40 or 97 unit portfolio coming across your desk? What would it look like for your business to take up an opportunity like this and execute it well? Or if you are newer to the game, like Ryan, find a 2-property opportunity ending up with a duplex and a seller-financed 8-unit.
2:18: This area is a good spot for somebody who has some experience, who has some resources, who's had some success to really ramp it up because there aren't a lot of investors in that middle area where you can buy a portfolio of five to even five to 50 properties.
5:22: There are two ways to value portfolios. There's, I'd say, the institutional way in the entrepreneurial way. Institutional meaning going to conventions with large hedge funds being the buyers and entrepreneurial where you’re running the BRRRR model at large and analyzing your equity position.
7:26: It blows my (Ryan) mind as somebody who specializes in direct to seller marketing, how few investors will get a deal done and then ask the seller, what other properties do you have, or what are you going to do with this money. You've already paid to get the lead, ask more questions when you’re in front of the seller.
97 Property Purchase Deep Dive:
12:07: This all came about through a commercial broker connection who referred an ad to us and by our general rule of making sure everyone knows what we do.
13:42: We weren’t in a great position to purchase it, but we were persistent in getting in front of the seller to talk about the deal several times discussing our history and why we could manage an acquisition of this size.
15:00: He ultimately cut off negotiations with everyone else and we were able to identify that the most important thing to him in this sale was that he didn’t want to spend the time showing 97 units. This is critical - know what’s important to your seller.
16:15: In Ryan’s case, the 8-unit add on just wanted to be done with the property, money wasn’t a concern and why they ended up financing with nothing down carried out over 20 years. As you build rapport, ask open ended questions like, “What are you going to do when you sell this?”
18:02: On the 97, the terms were good despite having to find 25% down. But Stewardship Properties knew of a family group looking to 1031 exchange their money and tax liability from some investment properties they sold. This led to a tenancy in common agreement, which is essentially each LLC owns 50% of the title.
20:47: Always talk with an attorney when your looking into something to this extent, Stewardship Properties worked out a deal to eliminate the family groups biggest pain point by keeping their tax advantage.
23:04: Remember though that in these deals, you’re inheriting residents that you didn’t place on your terms. In Stewardship’s case, they didn’t retain as many tenants as they anticipated, which led to the mini-rehabs where paint and fixture updates were made to their standard.
41 Unit Portfolio Purchase:
25:07 5 months after the 97 unit, the 40 unit portfolio opportunity came at a time where we had recently paid back a lot of private lenders. We were able to pull 25% together and group private investors into 3 separate closings of 10-15 properties.
27:11: One way to increase a sellers confidence in you coming through on multiple closings, increase or go hard with your earnest money. But don’t allow any earnest money to go hard until you’ve completed due diligence and have walked each unit.
Earnest Money / Cloud Title:
29:00: Your earnest money staying at title clouds the title to the property and the seller can’t sell the property without coming back to you. But say if you’re a seller and the buyer walks and refuses to sign an earnest money deposit release, your title is now clouded and you can't sell it until you figure it out with them. We recommend capping earnest money under the maximum for small claims if necessary.
24:29: Master your properties with a master key, it will make your life so much more manageable.
31:40: Verify rent rolls with bank deposits. Or bank statements or tax terms if you can’t get the deposit slips.
33:14: Always plan for the worst and hope for the best.
34:36: With partnerships involved in these situations or outside, you have to have an honest relationship.
Connect with the Good Stewards:
Ryan: I think, um, my kind of caveat that I see with a lot of investors that are considering these is they still have to be good deals individually.
[00:00:11] Intro: Welcome to The Good Stewards podcast, the only podcast dedicated to seasoned real estate investors who want to maximize the cashflow potential in their business. We are buy and hold investors with a thousand plus properties and markets across the U.S. who bring an insiders view into the nitty gritty details of real estate investing. If you're looking to develop the mindset, teams and systems that can dramatically build your real estate business and net worth, you're in the right place.
[00:00:45] Ryan: Welcome to this episode of the good stewards podcast. I'm Ryan Dossey.
[00:00:48] Amanda: I'm Amanda Perkins.
[00:00:50] Bill: I'm Bill Syrios
[00:00:51] Andrew: and I'm Andrew Syrios.
[00:00:53] Hey everyone. Today we're going to be diving into portfolios, buying portfolios of properties. They could be portfolios or anything, but generally speaking, at least our experience is portfolios of houses or maybe a duplex here or there.
[00:01:06] And of course that could be anything from a portfolio of two houses or a portfolio of a hundred or 97 which is actually the largest purchase we've ever made. And so. There are of course differences when buying a small portfolio and a large one. But this is a model of purchasing properties in greater volume. And a, it's something that we've found a lot of success with it. And something that I think, uh, is, is a very good Avenue for many investors, particularly mid to larger size investors to pursue, especially since there is sort of into a Goldilocks zone. Uh, there's.
[00:01:44] These big portfolio investors that, that, uh, look to buy a hundred plus houses or more often apartments, commercial buildings. But when they do buy portfolios, they buy portfolios of large numbers of houses in pretty good areas, uh, and they gotta be performing and all the rest. And so they're not going to look at, you know, C or B, or even B areas they want, they want B plus and above, and they want fully performing. And then small investors or new investors or even, you know, even a lot of mid sized investors are not in the position to buy multiple properties at once or more than two or three.
[00:02:18] And so this area is a good spot for somebody who has some experience, who has some resources, who's had some success to really ramp it up because there aren't a lot of investors in that middle area where you can buy a portfolio of five to even five to 50 properties in an okay to decent area or maybe even a not a great area if that's your specialty. And also ones that maybe are, it needs some repairs, some improvements. And so. And we can, we can dive into, uh, into those, those specifics particularly, but I guess I would, I would open it up for general thoughts on, on purchasing portfolios. Um, anyone want to jump in here and,
[00:02:59] Ryan: and glad you mentioned the baby ones. Cause that's more where I fit in. I haven't done, I haven't done 97 houses. I mean, we've, uh, we've bought some multis where, um, you know, we had one where the seller had a duplex and an eight unit. And we bought the duplex, and then because we did so well on that one, he actually ended up fully seller financing the eight unit to us, like fully amortized out over something like 20 years.
[00:03:23]Um, so I'm definitely a big fan of them when they make sense. I think, um, my kind of caveat that I see with a lot of investors that are considering these. Is they still have to be good deals individually. Like just because it's 38 units doesn't just mean like, well, it cashflows, it doesn't matter that they're asking, you know, 140% of ARV.
[00:03:47]Um, Bill and I looked at a, I want to say it was 50 or 60 single families that this broker had. And this guy was out of his mind on, on asking prices. He was like, Oh, well, you just don't understand what's going on in the market, and that's why people are going to pay me more than retail for these. Just like, you know, dumpy sheds. I haven't maintained for 30 years.
[00:04:08] Andrew: We'll best of luck my friend, go get that money.
[00:04:10] Ryan: I mean, that was pretty much the extent of our meeting. It was kind of like, you know, the guy was like, you're low balling and Bill and I were like. No, you're just, optimistic. Well, he'll call it
[00:04:21] Bill: the opposite should be true. If you're buying, buying in volume, you should be getting a discount, not the reverse. So, I mean,
[00:04:29] Ryan: I think a good, uh. A good deal on these are, a good example is, I know Andrew was recently looking at, I think it was 20-24 houses, and when you actually looked at the portfolio as a whole. the cashflow was, you know, decent. It was like a nine cap. But when you analyze the deals on a basis of per property, it was an incredible deal. I mean, they were pretty much asking like 65% of ARV on these things, whereas if you just kind of looked at it. As the portfolio option, um, you may not have noticed just how much equity you are walking into.
[00:05:09] The perk for guys like us on something like that is we can throw individual private lenders on those. We can BRRRR them out individually. We can even cash out, refinance them. Um, separately, you don't have to do the entire thing all in one chunk.
[00:05:22] Andrew: I think. I think that's a really good point. There are two ways to value portfolios. There's, I'd say, the institutional way in the entrepreneurial way, the institutional way. Like if you go to these large conventions with these, with these major hedge funds that have thousands of houses, I think, I think, uh, um. Invitation homes of like a merger of several of these has just shy of 100,000 houses right now. They, they, they have the buy box, they're looking for a gross yield, which is just a different way of saying rent a cost, and they're looking at what, you know, what is their yield on these properties? I, that's important, but it's secondary to me. I want to have, I want, we are buying the, where this is the BRRRR strategy writ large.
[00:06:01] It's just a bigger version of it. And that's the way I think you should look at it. You're buying a portfolio. It's not like buying an apartment complex where you're, where you're looking at the cap rate of it. No, I think you do want to do that as a secondary evaluation. You want it to cash flow.
[00:06:13]Uh, but you want to look at are you getting, do you have an equity position? That can be annoying. You're valuing, like when we bought 97 houses, I valued 97 different properties. It's a long process now. When I was making my offer, I did a quick analysis. I didn't do a detailed one, but before signing the dotted line, I went through and comped every single one of them.
[00:06:32] With those 21 I mean, it was, I mean, we went over asking on them and it just got blown up by another investor. I think we came in second and that, you know, that's that. That the, but even coming in second on a group, a portfolio of properties like that with a large number, with a large amount of equity kind of shows that there aren't as many players in this market.
[00:06:53] Now, I would never say only look for portfolios because they just don't come about often enough. But it is something to keep your eye on and look at and kind of try to make a specialty to a degree because there aren't as many competitors and you can get those really good deals. And. You should expect them to offer a discount. Not always. The one that Ryan you were dealing with apparently was out to lunch, but you could just let them go, have their lunch that they're out to and then, uh, and focus on, on the ones that are reasonable about it, which usually understand that there will be a discount. There has to be in order to sell.
[00:07:26] Ryan: I'm just upset we paid for the guy's meal. No but, but in all seriousness, um, it blows my mind as somebody who specializes in direct to seller marketing, how few investors will get a deal done and then ask the seller, what other properties do you have. Or what are you going to do with this money you've already paid to get the lead? You'd like this guy with the the eight unit we didn't know he had an eight unit he wanted to sell till we said, Hey, what else do you have that you want to sell? And he was like, Oh, I've. I've got this eight unit. Um, in the same way, another incredible question you have to ask on every single deal is, who else do you know that has properties like this that they want to sell? People hang out in circles with people that are like them. So chances are, if you're dealing with.
[00:08:12] You know, even just a totally trashed absentee owned rental. They probably know other people that have mismanaged assets. If you're talking to somebody who has, you know, 25 units and they're looking to retire, chances are they may run in some other circles of people who own some doors and are looking to make an exit.
[00:08:30] Bill: Yeah. I think that's a really an excellent, excellent point where, you know, when I go furniture shopping, which I do occasionally for used furniture. Um, I'm always asking...
[00:08:40] Amanda: Daily...
[00:08:42] Ryan: Can, can we point out used furniture for anyone who doesn't know? If you ever get an invite to stay the night at Bill's house, you will sleep on a Craigslist mattress, which I found out after the fact.
[00:08:53] Bill: Oh, well, we do have that clean sleeping bag. So that's another alternative for you. But when I always ask, do you have anything else you're selling? I mean, I always ask that. And oftentimes. That's when I get the better D. Oh, yeah. Well, we got this, uh, you know, the, this, uh, rarely used a bed, a queen bed in the back. Oh, I just need one of those. So, you know, you always need to ask that. As a matter of fact, about three weeks ago, we purchased a property in Eugene from a guy named Greg. And, uh, I said, Greg, you know, uh, I knew he had owned a few other properties. Uh, if you're interested in selling us anything else, we'd really like to look at it.
[00:09:30] And as it turned out, he wasn't. But he was in, uh, Washington. Uh, and he called me a couple of days ago and said, I have a friend who is underwater on their property. Do you think you could do anything to help. And so we talked through short sales. Now, I'm not positive his friend is going to pull the trigger on a short sale, but they, now we have a connection with them and we don't really, it's, it's a few hundred miles away, but we're hoping to do it if it's a good enough deal on a short sale, uh, to, to pull the trigger on that. So you never know when those. Uh, kind of almost referral, uh, buying referrals might come from, and you should always ask.
[00:10:06]Ryan: Those are the easiest deals. Like, uh, anytime we get a call and it's like, Oh yeah, you bought so-and-so's house and they sent me your way. It's like, Oh, this is a lay down.
[00:10:15] Like, this is easy. Um, I'm, I'm even happier when they actually never, they, like, one of our competitors bought a house and they just contact their own company and they're like, Oh yeah, you bought so and so's house. And it's like. Sure, sure.
[00:10:29] Andrew: Yeah. I mean, asking that question is, this is sort of tangential? But it's all, it's something you should always do. I mean, one of our friends who buys it focuses on apartments, got perhaps their best deal doing a market survey where you, when you're buying apartments, you call the near in the neighboring apartments and ask, you know, what is their red, what, how, what's their occupancy, etc. And just by doing that and asking like if the property was for sale, uh. Found like got one of their best deals, the neighboring property that they're already buying. So that wasn't the same owner, but that can Cassie, that, I mean, that's, that's sort of a different way to find portfolios.
[00:11:01] Sometimes you get them from, uh, people, individuals selling an entire portfolio they have. Some supposedly they're already listed it. Sometimes it's just, you know. Kind of packaging. They're selling one, but they have three others. They might be interested in selling it. You bring it up, you bring them and they they like, okay, well those in there as well. Or, or you can ask to kind of do a line on it that, well, I'm not interested in that one, but I'm interested in these three or something along those lines, which can allow you to have a little bit more flexibility in finding the kind of the cream of the crop or the ones that you're the most interested in.
[00:11:31] Bill: Now I wonder if we ought to talk about where, where we've sourced some of these, uh, other than direct to seller kind of leads.
[00:11:38] Amanda: Well, like for instance, in the 97 properties, let's focus that, that's sort of our biggest acquisition. Do you want to kind of talk us through,
[00:11:46] Bill: why don't you go for it, Amanda, why don't you, why don't you describe that one?
[00:11:48] Amanda: I, uh, I can talk about the specifics of the deal, but I don't know. I don't remember exactly. I know there was a real estate agent that we were working with, or a broker. That had a client that had it some 1031 um, it was that how that happened, Andrew? I don't remember exactly the specifics, it's been a few years.
[00:12:07] Andrew: Yeah. So basically there was a commercial broker actually who was calling about a house that we owned, asking if we were willing to sell it cause he was trying to buy it for quick trips so they could expand their parking lot. And my brother Philip was being a bit of a brat and saying, yeah, I mean you can make us an offer but we're not really interested. And that went back and forth and he eventually asked, so what do you guys do? And we, my brother explained our business model and then he, he just saw. This ad posted for these 97 properties on, on, uh, Facebook, and then got back in touch with us, which kind of leads to a general rule of thumb that everyone should know what you're doing. Your business should be loud. You don't need to be bragging or anything like that, but you should always be explaining like, I invest in real estate. I borrow money, I buy houses, I fix them up, et cetera. So once you know, everyone's sort of starts sourcing leads for you, like, Oh yeah, I wait, this person's got a property for sale, this looks like a good deal. Let's shoot it off to the person I know who does real estate. So you, that's a general thing to keep in mind.
[00:13:08] The PR, the portfolio. When we, uh, when we looked at it, it, I mean, I've seen a lot before that I'd seen mostly portfolios with like bank owned properties or investors who'd had a bunch of stuff and really bad areas, just, just trash. And like my, my rule of thumb with, and I just actually seen a portfolio of like 93 houses, which was just the absolute bottom of the barrel garbage being sold for. Uh, well PR, I guess. Anything, any sales price on trash is a premium, so it was being sold for a premium and a
[00:13:37] Ryan: We're not slumlords if you're getting that vibe. We don't really manage in that asset class.
[00:13:42] Andrew: So my brother comes over and we were like, Hey, have you seen this portfolio of 97 I'm like, yeah, I just saw a portfolio where he's like, it was a, it's a, I mean like garbage, but it's like, no, it looks pretty good. You want to check it out? I was like, Oh wow. This is actually very interesting. And the seller knew he was selling it at a discount. Um, and one of the key things, we weren't in a great position to purchase it, uh, at that time. But what we did do, and this was on the recommendation of my father, just get in front of him several times discussing the deal at length, discussing what we can do just cause they are our history of why we would manage it.
[00:14:12] Bill: Build rapport.
[00:14:12] Andrew: Yeah. Building a rapport. Why would we be good managers? Why we would like, he's built this portfolio up over a lifetime. We're going to continue to maintain it. You know, there is some connection there. Selling it to some hedge fund is going to chop it into pieces and whatevers is, I'm not exactly an ideal, uh, resolution to much of your work.
[00:14:30] Bill: And our intention was to see how much he would seller finance. Like we were hoping he would do a 90%.
[00:14:35] Andrew: Well first it was just getting him to seller finance. That was the first thing.
[00:14:40] Bill: And the second thing was the more the merrier because if we could get them at 90% all we'd have to do is come up with 10%. And yet he even as much rapport building as you did, which was considerable, he still wouldn't, uh, unlock himself from the need to get 25% down.
[00:14:56] Andrew: But the one thing is he did cut off negotiations with everyone else other than us, which was nice. So I mean, I think a lot of it is figuring out what is important to a seller and, and with any seller that's not institutional. Um, there are advantages like they're there. They have their peculiarities, their quirks. One of the major things to him was that he didn't want to show 97 units. I didn't want to do a walkthrough on 97. Now, generally speaking, if you're buying a portfolio, you same with apartments. You gotta walk every unit due diligence on every unit. But if it's the key point. The only thing that, like this is, this is like the key thing that he's not willing to do. Okay. That's the negotiation point. And you've got to be like, okay, well we've got, assume they're going to be in a worse condition, then we would like, it was pretty, you know, like take the, the spectrum of potential conditions based on drive-bys and assume it's the worst of those.
[00:15:49] So we did a drive by of each property, and then we assume that, that, uh, the rehab was, or is actually, we still probably should've bargain for a little bit more in rehab. That's a general mistake, but um, that's the way we took it. But that was the key thing to him. And that is something that always really with any seller, what is the thing that's important to them? Is it price? Is it terms? Is how quickly you can close, or in this case, is it not being a giant hassle for guys liquidating his portfolio?
[00:16:15] Ryan: Yeah, I think I'll highlight that point real quick of just what is their pain point? What is it that they want? As investors, we tend to always just assume. That it's more money that it's the most cash they can get. When like this guy who's seller financed us this performing eight unit with nothing down, carried out over 20 years. Obviously he wasn't concerned about cash, right? He just didn't want to have to deal with it anymore. And if you try to negotiate from the standpoint of it's all price based, everything is about the money and you're gonna, you're gonna miss things. We had a, uh, we had a deal. Earlier this year where we, uh, we're wholesaling it and our buyer came in at like the 11th hour and was like, Hey, I need an extension.
[00:16:57] And we called the seller and we were like, Hey, can we get another two weeks? And they were like, Oh my gosh, no. And we were like, we'll give you more money. And that was not what they wanted. They literally would not take more money. They just wanted us to sit there and acknowledge over and over and over again how inconvenient it was for them. We were even like, we get it, but do you want more money? Like as like an apology? And they were like, no, we just want you to understand the principle of this. I was like, okay, cool. So like we even offered them more money. They didn't take it, deal got done and everything, but. I think just really making sure as you're talking to people, as you're building rapport, asking open ended questions like. What are you going to do when you sell this? Are you moving South? Are you looking to still have consistent monthly income? You know, kind of pushing that seller finance angle. Um, don't just focus on the cash.
[00:17:50] Bill: Yeah. And then you need to figure out how you're going to do it yourself, particularly if it's a larger purchase like this. And maybe that goes to you, Amanda. How we did actually pull off purchasing these 97 houses, which is kind of an interesting story.
[00:18:02] Amanda: Well you had mentioned that we. We talked the seller into, um, seller financing, and I mean, the terms were good. Um, there was amortization with it, but we still had to, it was a 75% that he was willing. So that meant we had to come up with the 25%. We had a lot going on at the time, and that 25% looked like $1.5 million that we would be leaving into a property for considerable time because it was going to be a while before we'd be refinancing out. And so we we're connected with a family group that had just sold some investment property and they, uh, you know, they were looking to 1031 exchange their money and defer their tax liability. So, um, we, we went into title as an tennancy in common, so we didn't form a partnership with these people. We are tenants in common on. Oh, the title of 97 properties with them, and then we manage it. Can
[00:18:58] Ryan: you explain what that means, Amanda? For anybody who's not familiar with it?
[00:19:01] Andrew: Also, if you're going to be doing something like this, talk to an attorney.
[00:19:08] Amanda: We talked to many attorneys. So, um, so what the difference is. So like if you're forming a partnership, you're gonna be partners on, and you know, you'll probably own an LLC or some sort of a term together, and you come into the, you come into the properties. As partners, and there's one title. For instance, you know, if we're stewardship investments, LLC has a couple of partners, but we go into title a stewardship investments.
[00:19:31] With the tenants in common, stewardship portfolio, which is who were formed our tenants in common with our partners. And what that means is we each own a portion of each of these properties. In this case, our port, our LLC owns 50% of the title of each property, and our partners group owns 50% in title.
[00:19:51] Andrew: The way I've always thought about it that I think is helpful in this is a partnership is a bowl of soup and each of you own half of the soup. And the a, a tenant in common is a loaf of bread and you each own one half of the loaf of bread. So it's like, there is like partnership. It's just all big mass together, tenant in common. It's like if it's a duplex, you own this half, they own that half. Um, and the advantage there is, and again, talk to an attorney. I'm not an attorney, talk to an attorney, blah, blah. Yeah. Um, if somebody is 1031-ing. Is doing it is selling a property they own as them as the theirselves. They just own a property and they're selling it. They can not 1031 into a partnership, talk to an attorney, but they can 1031 into a tenant in common agreement is they're just buying a property. This property themselves. It's not a partnership. It's got to be liked to like partnership is not like, but a tenant in common because they're just owning this property is like, so, uh, talked to an attorney.
[00:20:44] Ryan: So it was a pretty genius loophole you guys executed.
[00:20:47] Andrew: Yes.
[00:20:47] Bill: That was the critical piece to make this work for them because otherwise they would have lost their tax advantage if we wouldn't have been able to do this. And so that was their pain point of not losing that tax advantage. And actually, Andrew, you had a connection with somebody who had done this before. That allowed us to say, Hey, uh, this, this might work out. Alright, we need to get an attorney and knows what they're doing. But yeah,
[00:21:12] Andrew: attorney, attorney, attorney, lawyer, attorney, um, it was actually not even a connection. I mean, it was just a phone call from a friend of mine who, because basically we were told, like this guy, he was brought to us by the same agent and brought us the deal. So it was very helpful. Um, and we thought. And then he said they can't do it because it's a 1031 and they can't 1031 into a partnership. But I had heard two years, three years earlier from a friend of mine and he called me up and was like, Hey, I got, I got some people who are looking to 1031 some of their money and I was just curious if you knew any properties for sale. And I was like, I just think of myself, like, why would he ask me that? Because he does syndications. Why would he ask me that if, uh, if you can't do it? So I called him up and he's like, Oh, yeah, what you do is attempt. There's a tenant in common, talk to an attorney, and then, um, I'll stop saying that I apologize, but, um, yeah. So it's, it's, it's, and I, I mean, I guess it's never, don't take no.
[00:22:00] Just no is not necessarily no. There are always, there's, you know, we have a complicated legal code. There's a lot of different possibilities. Follow up, investigate these things because there's, there's always a way. I mean,
[00:22:12] Ryan: Always loop holes.
[00:22:14] Andrew: Yeah, that sounds kind of sketchy. But there's always things like that.
[00:22:17]Um, which we, I'll, I'll, I'll let Amanda finish this, but like, we've had other deals that we. Close in a different way that allowed us to keep the whole deal because we followed up on a different direction.
[00:22:25] Bill: Amanda, maybe at a talk about how we financed the 41 houses that we bought at one time that was coming in an interesting financial arrangement.
[00:22:33] Amanda: You know what, one thing that I want to talk about is, you know, especially with this portfolio, uh, acquisition part, um, you know. Sometimes these come across your desk and you really, you want to close it. But timing is critical here because like for instance, in the case of these 97 properties, these were individual houses, and while this was the sellers, you know, life's work to acquire, basically you acquire these 97 properties. He owned them free and clear. Um,
[00:23:00] Andrew: He had actually bought some other stuff and was kind of a boss, but go ahead. I'm sorry.
[00:23:04] Amanda: But I mean, so we inherit, or we took over 97 properties of people that we did not place residents, we did not place in these units. And we were limited in our availability to see inside. We did see inside some of the units. And what that means is, um, while every, you know, we had done due diligence and residents were paying the seller their rents. He worked out a lot of deals and he spent a lot of his time just managing his resident base in a way that we weren't set up to do. Um, you know, he made a lot of side deals as far as like what rents would allow, and that sort of thing just didn't fit great in our system.
[00:23:44] And so we actually, we didn't retain as many of those residents as we anticipated, but at that moment we were geared up. To handle significant turnover. And it wasn't just turnover, it was many rehabs. He was not a slumlord. He had taken care of his properties. But with us, we, um, you know, we use a certain paint color and we use certain light fixtures and that sort of thing. So if you think about a turnover, you're going to have to be planning to come in and paint the interior because we don't have the paint colors to match for touch up paint. And you know, we think about it like if we do it right this first time, then. It all worked better for us going forward. So we had to, you know, these turnovers, every single one of them was more like a mini rehab.
[00:24:29] Bill: Which reminds me about mastering locks. This is a diversion, I'll go right back to you and Amanda. But boy, if you haven't mastered your properties with a master key, you need to get on that because that is gonna make your life, uh, so much more manageable. Even if it's 97 properties, you need to master them. Cause over time. That's going to allow your key subs and other people to get in there quickly and not have it come by and get a key from you or have a lock box everywhere, you know? So anyway, back to you Amanda.
[00:25:00] Andrew: Just be very careful who you give a masters key to and make sure to track that and even have a master key agreement.
[00:25:07] Amanda: So we were working through our kinks of the 97 properties and this 41 property deal came across our desks probably five months the following spring. And what had coincided with that is we had just refinanced out of a signal. We've refinanced and paid off a significant amount of private lenders on some of our existing portfolio. And this 40 we had an opportunity to purchase 41 properties, and we were talking about. Okay. Are we going to go, are we going to go to a bank and finance them upfront? Okay. What that means is we probably aren't going to be able to access the rehab, uh, funds. We're going to have to come up with 25% is this something we want to do? And for us, timing wise, it worked out amazing because we had just paid off a lot of private lenders and we were able to group, our 41 property purchase closing over three closings, I believe, with two weeks apart between each one. And we did those kind of the same way. We would do a one off purchase by aligning up one private lender to one property and closing them in 10 to 15 houses at a time, over a month and a half, I want to say. And so timing wise, for us, we were, we were just in the right timing of our business to have access to lenders that could place 41 individual loans.
[00:26:32]Andrew: If you're buying a portfolio of two, three, four, five houses, this is a very doable strategy. Even for an investor who has an, you know, has some track record, but not a huge amount of track record. Um. It's a way that you can keep all the equity, keep all the properties instead of sharing them or creating a partnership. Or you know, a syndication is too complicated and too expensive to do for five properties, but this is by closing them each as you would. A regular house just all together, kind of, you know, separated, like you've got a portfolio of houses separating them and closing them individually instead of, it allows you to buy a bigger port, a bigger chunk of property, uh, in a, uh, in a way that you couldn't do with an apartment or an office building or something like that.
[00:27:11] Bill: And if the seller is wary that you're not going to perform on those last two or three, which I think our seller was a little wary on those 41. But, uh, if you could increase your earnest money or go hard with your earnest money on the, on the second or third group that you're, let's say you're doing six and you want to do two at a time, um, you know, so you just increase your earnest money or something to give them a little more comfort level that you're going to come through and, and, uh, keep, keep making those purchases that you've committed yourself to.
[00:27:39] Andrew: Just make sure you've done all your due diligence before you, but you can put more earnest money down, hard to convince, or more earnest money down to convince them to, uh, to allow you to split the per the closings up. But don't, uh, don't allow any of it to go hard until you've completed your due diligence and walked through each unit and gotten any inspections you think are necessary and listen to the due diligence podcasts that we've had and followed our instructions to a T. um, don't let your earnest money go hard until that point.
[00:28:06] Ryan: In my experience, they already kind of think it's hard the minute it's deposited, they're kind of like, Oh, if they don't close, I get this. And we had one recently that, like during due diligence, it was like, yeah, this is, this is not going to work. And the seller was like, well, you know, I want my, I want the earnest money. And we're like, I mean, the co, the contract clearly states it's not yours. It comes back to us. And, uh, Bill's quoted this a number of times, but he was like, Oh. So you just wrote this contract where it was in your favor. Uh, well, whoever writes the contracts always writes them where it's in their favor. Like it's kind of a given. And the guy was like, you guys are weasels. All right, have a nice day.
[00:28:44] Andrew: I would probably use the angle like that is standard. This is not at all unusual to have a, to have an inspection period.
[00:28:52] Bill: But I will share that, each state might be different about this, but in Oregon, if the buyer and seller cannot agree about the earnest money, the escrow company is not going to step in the middle of it and make any decision. Actually, it becomes a legal matter. You have to go to court
[00:29:08] Ryan: and cloud title too
[00:29:09] Bill: it's not worth it to go to court over a thousand dollars or $2,000 and you just have to work it out. Even though you know as a buyer, you are totally in the right to get that earnest money back. It's not. A lay down necessarily to do so. I had to go so far to with one seller, I was totally 100% in the right, but I said, okay, how about if we give this money to charity? And they agreed to give it to charity. They wouldn't give it back to me, and I would had gone in some kind of legal process to get it, but they would agree to give it to charity. So I guess we both felt good about that.
[00:29:43] Ryan: I would say the note there though. Is if you're the buyer and like, let's say your seller just like, you know, falls off the bandwagon, um, your earnest money staying at title clouds the title to that property. They can't sell it without coming back to you.
[00:30:00] Andrew: You can also sue to enforce the sale.
[00:30:02] Bill: You can sue, but that's the question, how much does it take?
[00:30:05] Ryan: But as a seller, if you have a buyer walk and they refuse to sign an earnest money deposit release, they've now clouded your title and you can't sell till you get it figured out with them. So just be kind of cognizant of that.
[00:30:21] Andrew: It also might be a good idea to cap, but not necessarily cap your earnest money, but try to keep it under the maximum for small claims. Like in Kansas city, that's 5,000 so we generally try not to go above 5,000 unless it's substantially above 5,000 it needs to be. That way we can deal with it in small claims if necessary. Uh, which is much easier to go above that.
[00:30:42] Ryan: Superior court gets pricey.
[00:30:43] Andrew: Yeah, yeah it does.
[00:30:43] Bill: But I would say that earnest money is, is a great negotiating tool because. If you know you've got a slam dunk deal, it is, and you had, there was other people hovering around other investors or whatever, you know it's, you're going to have to put twenty five thousand thirty thousand down to make this happen at $20,000 hard earnest money speaks volumes to sellers. And at times it's appropriate to pull the trigger and, and, and do it. If you want it bad enough, it makes total sense. And there's other people who are going to step into your place if you don't act quickly, that that can be a, the difference maker,
[00:31:22] Ryan: I would say. If you want it bad enough and the deal makes sense.
[00:31:25] Bill: I think I did say that.
[00:31:28] Andrew: I think we should probably bring things to a close here. Uh, is there any, any other final parting thoughts that anyone would have on buying portfolios of houses and small multis
[00:31:40] Ryan: I'll hop in on one thing just because it kicked my teeth in this year. Um, especially when it comes to apartments. Make sure you're verifying rent rolls with bank deposits. Um, we bought a 12 unit that was fully performing. The seller introduced us to the banker who funded the deal, and then like we closed, and it's like everyone picked up a heroin addiction that week. Like the building, just like literally like started to fall apart with the residents, and I forget the exact number of evictions we had, but I think in a 12 unit building we had to get rid of eight people. So what went from like, wow, this is awesome. We bought a 12 unit, turned into, gosh, I don't know that I ever want to buy a 12 unit again. So it's one of those things that's not that hard to verify, but especially on portfolios like this, a lot of the times you have mom and pop lenders that like.
[00:32:34] Oh, they pay in cash and like, Oh they, you want to actually know what the property is doing before you buy it, not buy it and have what we had happened, which we knew we were going to have to turn these units. We call it fair future, anticipated repair expenses. We knew these units are going to need to be redone at some point. We just didn't think it was going to need to be redone in the first 45 days.
[00:32:55] Andrew: And you can get bank statements or tax terms, but the best deposit slips, copies of the deposit slips.
[00:33:00]Bill: That said, the sad thing too is it didn't allow us to negotiate more, more aggressively. If we would have had that knowledge,
[00:33:07] Ryan: I think we still, like we still ended up, it'll be a good deal, but it went from like a great deal to like, this is decent.
[00:33:14] Amanda: Well that would really be my point. When you are evaluating and considering your offer, plan for the worst case scenario, hope for the best, but. You really need to plan for that worst case scenario and manage your expectations accordingly because you can get really down in the dumps about, Oh, I thought this was just going to be so easy. We had, you know, for instance, in the 97 it's like we didn't, I think maybe there were eight to 10 vacants at the time that we closed. And you know, we've never had to go to ourselves or our partners, our tenants in common in this and ask for more money. We've always been able to do all of the rehab with the cashflow from the property, but it definitely hasn't, uh.
[00:33:58]It's grown, um, about $4 million in equity since we purchased, we had some, um, inherent equity just by getting the good deal. So it's, it's grown a lot in value and we've, we have great residents in there and we have good cash flow. Um, but it's just, you know, we had to work on managing the expectations of ourselves and our tenants in common in there because they were expecting probably higher returns as it goes along. They got a good deal and we got a good deal and we're happy to have it, but we just, you just have to be realistic in what your expectations are.
[00:34:32] Andrew: I underestimated the rehab. I think.
[00:34:35] Amanda: Oh, I'm not blaiming you!
[00:34:36] Ryan: I also, on Amanda's point, especially with partnerships, you have to have that kind of an honest relationship of, Hey, we messed this up. We need more money. Um. Bill and I had a partner who I won't name, um, that just didn't communicate with us. So when things weren't going well, he would get quiet. It's kind of like, you know, if you're married, if stuff's not going well, you should be communicating more, not talking to each other less. And, uh, when you have a partnership, you have to, uh. Bill loves the Jim Collins quote, but it's, you've got to face the ugly, the brutal truth. You have to face the facts before you can move forward. Um, you know, I think there's people that, had they been in your guys's position back then with that deal, that portfolio would have imploded cause they wouldn't have asked for help. They would've tried to Rob Peter to pay Paul and it would have just gone up.
[00:35:31] Amanda: It was. still, like I said, it was still a really good purchase because we never had to, we never had to go to them and say, okay. Oh, we need money to pay for this. I mean it worked out.
[00:35:41] Bill: I think you'd have to manage though, what, what? Uh, we had to manage their expectations after the fact some.
[00:35:47] Andrew: We had some zero cashflow months. And I think one of the things you have to be clear to your partners going in or tenants in common that that might happen. There might be capital calls. You don't want to, don't oversell things because it will come back to bite you.
[00:36:03] Amanda: Well and we've been so transparent with them and they appreciate that they can see every single thing that's ever happened in the bank account or the financials.
[00:36:10] Bill: And we've had, and really good accounting. The accounting has been critical. Anytime you have a partner out syndication, outside partner, boy, be spot on with your accounting. That is so critical.
[00:36:23] Andrew: Absolutely. Well, I think we're going, we went over a little bit, but that's okay. It's a just a free, it's bonus, bonus content. Uh. I guess these podcasts are free to access anyways, but regardless, we'll call it free, more free, even more free than the free that you normally get, and we will call that we will call that an episode. Thank you very much for joining us. Please code our website at thegoodstewards.com please subscribe to our feed for more real estate information, business information, and thank you again.