Our guest for today is a team, Cody Laughlin and Brian Alfaro. They are managing partners in Blue Oak Capital, real estate entrepreneurs, and both have years of experience to leverage on.
Let’s dive right in and learn from Cody and Brian on how we can get insight into what long-term wealth really is about.
[00:01 – 06:18] Opening Segment
- We introduce our guest, Cody Laughlin & Brian Alfaro
- Cody talks about his background
- Brian talks about his background
[06:19 – 13:28] The Focus on Flight to Quality Assets
- Coming to the table with enough reserves or CAPEX
- Buying right and doing due diligence
- What’s their worst investing advice?
[13:29 – 24:28] Real Estate Is Always Appreciating, Right?
- They talk about the topic of options when purchasing in a upcycle
- Discovering deals that may be better as long term debt
- Fundamentals in underwriting
[24:29 – 34:03] How have you shifted, or have you shifted?
- Around the US, Brokers holding the keys
- Being the goto and becoming the 1st call for a deal
- Get that track record without overpaying
[34:04 – 44:19] Perspective Of Passive Investor and Closing Segment
- Looking at the track record of the sponsorship team
- Looking at the professional team
- Being the ultimate skeptic
Cody’s and Brian’s book recommendations:
Connect with Cody and Brian! See the links below.
Final thoughts
Tweetable Quotes:
“It’s a long-term game. You have to build these relationships. It starts with one piece at a time and it’s not going to just happen with a phone call.” – Cody Laughlin
“I would say, you know, if you’re a passive investor, be the ultimate skeptic. I mean, question everything“ – Brian Alfaro
Resources Mentioned:
Go to their LinkedIn, Facebook, and Instagram pages to connect. Visit their Website, YouTube, and Podcast.
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The Value of Partnerships with Cody Laughlin and Brian Alfaro
Anthony Vicino: [00:00:15] Hello and welcome to Multifamily Investing Made Simple, the podcast, it’s all about taking the complexity out of real estate investing so that you can start taking action today on your host Anthony Ticino of Invictus Capital, joined, as always by Dan.
Anthony Vicino: [00:00:28] I no longer have a blurry camera trigger. I don’t own it.
Dan Kreuger: [00:00:32] I’m good. I’m good. We got to focus as weird, but we got through it.
Anthony Vicino: [00:00:37] You know, for a moment there, I thought you were part yeti.
Anthony Vicino: [00:00:42] And I tell that joke and nobody ever gets it, I swear, because Yeti are there just always never mind anyway. I guess that was too intelligent for me. You got to dumb down. Just I can do, like, bad jokes. That’s it. Well, that was kind of a bad joke. I was trying to set you up. But, you know, dear listeners, if you’re wondering already if this is like any indication of what’s to come, it’s not. Today’s show is going to be excellent because we have a first-ever for you today. Now, usually, when we bring guests on, it’s me and Dan ganging up on the two on one. And we like it because of its strength in numbers. But today we actually have a duo, a partnership just like Dan and myself. So they’re fighting on equal, equal terms with us. We’re not going to have the strength in numbers. We have the one only Cody Loflin and Brian Alfaro of Blue Oak Capital. These guys are based out of Houston and they are multifamily specialists focused on Texas, Tennessee, and Kansas.
Anthony Vicino: [00:01:40] And I’m really excited. I’ve been on their podcast before, had a fantastic conversation. These guys know what they’re doing. I think they’re going bring a ton of value.
Anthony Vicino: [00:01:46] So without further ado, Cody Bryant, how are you guys doing?
Cody Laughlin: [00:01:52] Then you’re looking at our third partner isn’t here. Then you’d really be outnumbered?
Anthony Vicino: [00:01:56] Nope, can’t allow that. See, Dan just had a baby.
Anthony Vicino: [00:01:59] And the thing that you have to know about kids and just in life is like, never let them outnumber you and so never let the guests outnumber you. That’s the key.
Anthony Vicino: [00:02:08] That is true. Take that for granted. As I say, I’ve got three kids, so I know Cody. Bad mistake. My wife reminds me that all the time for the third promise to give some guys give us a little intro, give us a give us the bio.
Anthony Vicino: [00:02:25] Who are you guys and what the heck are you doing.
Cody Laughlin: [00:02:29] Well, I’ll kick it off. You know, again, Cody Loughlin managing partner, blook Capital, and been a real estate entrepreneur for about ten years now. And like most everybody else, had a very traditional upbringing, working-class parents who instilled the value of high-quality education. So I went to school, made good grades, went to college, made good grades, graduated, started a good way to a career, and realized very quickly what you looking at. What long-term wealth really was. I wasn’t sure that I was going to find that with the two coincidentally, around the same time I ended up finding myself because I’m a real estate entrepreneur, be an accidental landlord, and the rest is history.
Cody Laughlin: [00:03:19] Read the Bible as I like to refer to the rich that for dead and started on the path of becoming a real estate entrepreneur made our transition to multifamily back in two thousand nineteen. My partner John and I started working together. We launched Capital fortunate enough to meet Brian midway through twenty. And here we are today. So.
Brian Alfaro: [00:03:42] Very good, Brian. Yeah, for sure, very fortunate. Thanks, Cody, appreciate it.
Brian Alfaro: [00:03:48] And thanks again, Anthony, for having us on the show to be here. As Kind mentioned, I met him last year, but my story started in twenty-eighteen. That’s really when I started looking at real estate in general, just like he had very blue-collar parents, humble background went to it was the first person in my family to go to college and graduate with a business degree. It’s been a long time working at another business partner of mine and the restaurant concept. I was there for over 15 years and eventually spun off something totally different to the coffee shop concept that which is still due to this day. But all along that journey, my partner had always been picking up some small assets for a single-family house or small commercial real estate. And I didn’t have a real estate background. Nobody in my family ever owned any real estate. Nobody ever talked about real estate. I had no idea how to even buy real estate. When I when it was time to finally buy my first house. After I got married, I had to read like two or three books to kind of make sure I knew what I was getting into before I did that. But because of that, every book that I read about buying my own house always had a chapter about investing. And it might have been just a small little paragraph. But eventually, I caught the bug and found platforms like Bigger Pockets and started listening to podcasts like YouTube videos. And the second in as much information as I can is really loved everything about real estate.
Brian Alfaro: [00:05:06] Not only, of course, people want to be able to make money, build a financial electorate, but all the other benefits that come along with it as well. The time for giving it the ability ultimately to give back to the communities that you’re owning or that you’re in, but also just hear whether it’s a church and your schools or your local neighborhood. But you had a lot of limiting beliefs. And I got started. I uncirculated like you became an accidental landlord and started a single-family. And one of those big limiting beliefs is just didn’t have enough money, didn’t have the right people, just couldn’t do anything bigger than a single-family house and started their realtor’s license and stuff in the single-family space and quickly realized after about 18 months of doing that and grinding, which was what I thought it was, a top of the market. Seems like we’re still at the top of the market, but that it wasn’t really aligned with my personality. I wanted to go bigger and not necessarily move fast at a responsible level, but just wanted to have that economy of scale that you get plenty of business. And I found that I could do reaching my goals of a single-family space at twenty nineteen, twenty twenty-five in the multi-family, joined a mentorship group, met John, our third partner, Necati. I guess you could say the rest is history. Here we are here in Houston looking to do some deals.
Anthony Vicino: [00:06:19] Very cool, so how real quickly, because I don’t know when this episode will go live, but it is timely right now. How are you guys doing on there in Texas? I know you guys are struggling. They’re hanging in.
Cody Laughlin: [00:06:30] It’s been an interesting week, to say the least. You know, a lot of the northerners make fun of us because we just experienced this winter blast and they’re like, man, come on, we’re living that every day. What are you guys complaining about? But the reality is we just don’t have the infrastructure to endure what we just went through and some of these frigid temperatures for so long. So I think for Brian and me, we were fortunate that we you know, we were out without utilities for some time. We had a little bit of some plumbing issues. But aside from that, we’re very much fortunate as compared to some of the other people we know in our network.
Brian Alfaro: [00:07:05] So, yeah, and the thing is, Texans are resilient.
Brian Alfaro: [00:07:10] We know, especially Houstonians like to say, you know, Hurricane Harvey and the tropical storms and now we have a winter storm on the list. Who would have ever thought I was 12 degrees there again? I never thought I’d say that. But, yeah, we’re here, we’re kicking and we’re doing OK.
Cody Laughlin: [00:07:27] The crazier thing is it was 12 degrees a week ago. And then here it is. We’re 70 degrees right now and shorts on today, back to back to our normal winter.
Anthony Vicino: [00:07:35] So, hey, it was like thirty-five degrees here today and I was in shorts, too. It’s a good day. So heatwave now for us. Yeah.
Anthony Vicino: [00:07:43] What is one of the interesting things I think that we can take away from from this episode of what’s happened in Texas for, you know, it’s a really hot market for a lot of people looking to invest in Texas? But one of the things that I think some new operators will do or operators that are flying a little bit too close to the sun to try to make deals work is that they’re not coming to the table with enough reserves or CAPEX. And so they’re taking it out of cash flow. And so this is I’m already getting really deep into the weeds here, but it’s really timely because I think a lot of people that are getting burned, they didn’t have the reserves, they don’t have the CapEx budget to be able to weather what’s happening.
Cody Laughlin: [00:08:23] You are absolutely correct, and that’s been a conversation that we’ve been having as far as our focus on flight to quality assets, right.
Cody Laughlin: [00:08:31] Your your your newer vintage assets and whatnot and what we’ve seen and listen, we don’t want to highlight anybody’s struggle or distress, but you’ve seen these older buildings, especially here in use in the 60s, 70s product that have a lot of plumbing issues right now, a lot of busted waterlines, a lot of water damage from those issues.
Cody Laughlin: [00:08:49] And to your point, Anthony, if you look at where we’ve been at in this market cycle over the past couple of years, where there’s really not a spread and cap rates across the different asset classes. Right. So you’re A, B, and C you can buy for the same cap rate essentially. So and people you’re exactly right. People are coming in undercapitalized and they’re going to be feeling a lot of pain with these recent experiences. So, again, we don’t want to highlight that, that we don’t. Yeah, absolutely right. So, yeah, it just goes to show you the important stuff you have to buy. Right. Right. You have to do your due diligence. You have to be well-capitalized. And we haven’t been seeing a lot of that over the past couple of years. So we’ve talked about it a little further.
Anthony Vicino: [00:09:34] But no, I totally I absolutely agree right now. It’s funny. The timing is just very interesting because I’m reading The Black Swan right now by Nassim Taleb. And it’s all about these, you know, big events that we can’t predict. But they have really large macro consequences.
Anthony Vicino: [00:09:49] And one of the ways that you can hedge against that is just by being well-prepared and capitalized. I think that’s something that all operators can keep in mind. Dani, any thoughts on that?
Dan Kreuger: [00:10:00] Yeah, I mean, that speaks to one of our core philosophies as a group is to basically plan for the worst whenever we’re underwriting a deal and whatever, operating a deal, we’ve got some animosity, maybe crap. But we’ve had some people in the past that have kind of looked at our underwriting strategies with a raised eyebrow and said, well, how is the deal ever going to work for you? And it’s like, well, that’s the point. Like maybe we’re at a point. It doesn’t. The good deals are farther and fewer and farther between. And, you know, so that’s been our philosophy. And, you know, with covid, we whether that’s better than a lot of people. But I was going to ask about your guy’s portfolio. I assume that the bulk of your portfolio is in Texas. Is that correct?
Cody Laughlin: [00:10:45] So we we’re more when it comes to our portfolio, is a passive side of zippy investors, right. And our collectively our deals that we’re past invested across multiple different markets, across multiple different. And so, listen, we love Texas. It’s a phenomenal market. It’s very attractive. I think everybody pretty much knows that. But I’m sure. Oh, man. When it comes to acquisitions, you’re one of 30, 40 offers. If you’re here in the primary markets and asked me how I know it is, it’s becoming increasingly, increasingly harder to be competitive in this space. So it’s a falling, falling knife for me. You want it to be in a market that is in high demand. But at the same time, it’s very hard to make sense of some of these valuations that we’re seeing right now.
Dan Kreuger: [00:11:31] So, yeah, let’s I mean, that’s good. I mean, sounds like then you’re from a portfolio perspective, you’re diversified. You’re really exposed to weather issues. Texas just said. So when you guys are talking about your experience as it was primarily your personal experiences, not necessarily the portfolio that you’re invested in out.
Anthony Vicino: [00:11:50] So I want to tie this into the weekly bad investing advice because we talked a little bit before the show and I have an idea of what you guys are going to drop on us for this bad advice, bad advice. And I think it ties in nicely to what we’re discussing right now. So why don’t you kind of drop that on us? Because I know the people at home, they’ve been waiting for this. This is the only bit that they care about. They don’t actually listen beyond this point. So just be aware. Guys are listenership just drops off a cliff after they get there. Their tidbit?
Cody Laughlin: [00:12:20] Well, I would definitely say that you know, avoid getting the deal fever right now.
Cody Laughlin: [00:12:26] And if you’ve been in the space for any time now, again, my journeys are going on for almost two years. You’re putting in the time. You’re putting in the effort. You’re putting in all the work. You’re doing everything that everybody’s coached you to do. And if you’re you’re having a hard time coming across deals, listen, the experienced operators are having a hard time coming across deals. But what you’re seeing is, is you’re seeing some very hyper-inflated valuations in the marketplace. We’re seeing a deviation from traditional fundamentals, I would say. And going back to the point of being undercapitalized when you’re getting into some of these older assets, just as an example. So I would definitely say you have to be patient and you have to understand that it’s it’s an interesting spot we’re at in this market cycle. But you just can’t get caught up in the hype. You still have to mind your fundamentals and With that one and understand it, no deal is better than a bad deal.
Dan Kreuger: [00:13:24] Absolutely right.
Brian Alfaro: [00:13:25] Bad advise,buy everything!
Dan Kreuger: [00:13:28] I love it.
Anthony Vicino: [00:13:33] I mean, real estate’s always appreciating, right? We got a long enough time frame. It always goes up and we’ve got to live for a couple of hundred years and it’ll prove out.
Dan Kreuger: [00:13:44] The caveat to that point that you made as well as the timeline does matter. Right. You know, for people who are looking for things to hold for the next 30 years, some of these deals that don’t make sense to the guys like us who are looking at maybe like a five to seven or maybe 10-year timeline, you know, some of it kind of depends on what the particular investor’s parameters are and what they’re looking to accomplish. So I’d say the shorter your time frame, the less likely it is that you’re going to find a decent deal right now. But if you’re looking for stuff too if you’re in your 20s, early 30s and you’re looking for stuff to hold until your retirement, I mean, as long as you’re not losing on cash flow and you’re in a good market, I mean, there’s a thesis to, you know, tie at the top of the market, theoretically,
Brian Alfaro: [00:14:24] And I think Anthony said this offline, but we’re talking about some size doesn’t matter right now. If at that point might be a good opportunity to find some JV deals and align with partners that have a 15-year timeline or 20-year timeline. And if you’re in a great market like Houston, for example, and you’re buying with some partners that have that same business strategy, I hate to say the price doesn’t matter. But if you’re in an appreciating market and your client. Right, in 10 or 15 years, you’re going to look back on idealizing operated will pay more. It felt like we overpaid at the time. But where you would imagine that it’s worth significantly more as you’ve done a good job.
Dan Kreuger: [00:15:07] And then if you add in the interest rates component there, even if there is little to no organic appreciation in a market if you’re able to borrow at three percent a day and lock that in just the debt, pay down alone, even if the market stays flat, you’re going to have that equity that you can that that will work in your favor. So there’s something to be said about taking advantage of low-interest rates because, with inflation, where it’s at with interest rates, where they’re at effectively, inflation’s washed away the cost of debt to a large degree. So for some people, it might make sense, you know, to buy a long-term hold, get some nice long-term fixed debt on it, and you don’t look to catch a big swing in the market, but just kind of let the debt do its thing.
Anthony Vicino: [00:15:51] And, you know, but for you for me, this comes down to really understanding what’s your outcome and what’s the strategy for getting there. If you’re playing by the same playbook that we were utilizing pre covid, well, things have changed. The environments change. And the playbook’s not necessarily going to work as effectively. And if we’re in this, really, if we’re at the top of the market and interest rates are really low, then the strategy that we’ve been employing over the last couple of years, that might not be as effective moving forward. But that doesn’t mean that there are not really good strategies still out there to be utilized. It’s about recognizing which play is going to work the best given the environment. So I want to get back to something that Cody mentioned, which was, you know, not deviating from fundamental principles of underwriting.
Anthony Vicino: [00:16:40] And I’m curious for you guys, as you’re going out there and looking at deals right now, what are those fundamentals that you’re holding, you know, close to the chest and saying, nope, not going to deviate off of that one.
Cody Laughlin: [00:16:51] Well, I think the focus on historical performance is key for us, right, and I think what you’ve been seeing and a lot of underwriting now is, is this assumption that, OK, you’re still going to be able to go in and force rents, for example, by X amount with a capital improvement project?
Cody Laughlin: [00:17:07] Well, if you’re in a market that historically hasn’t been able to achieve the type of rents that you’re projecting. You’re going to find yourself in a hard spot, so that’s just one example, but things like that we’re looking at again, debt structure. And this goes back to those then you mentioned about understanding your strategy, making sure that you’re not only buying. Right, but you’re financing right. Trimline their right debt to the right strategy. And so those are just two examples off the top of my head that I would definitely highlight. But I think you’re seeing a lot of people with some very aggressive assumptions right now in their underwriting. And for us, I think it’s it’s OK to be somewhat aggressive, but you still have to make sure that. Again, all of those other key components are in place if you buy at the wrong valuation, if you don’t apply the right debt, you’re going to be in a lot of trouble.
Dan Kreuger: [00:18:05] So, yeah, I think you’re getting you kind of mentioned there with these assumptions that, you know, you put X amount of dollars and you’re going to get rents up to X. And, you know, that hasn’t been achieved yet. I think at that point you’re getting away from investing in your more so speculating, which is fine. People could speculate, but I think it’s important that people realize that they are speculating and, you know, and they’re aware of it and they don’t try to put it in this box and say it’s investing when really it’s just a speculative play that’s more get more of a gamble. There’s a place for that in the portfolio. But I think that it’s important for people to be aware that if they start having these assumptions, that things are going to be so great and it hasn’t been proven out. That’s a very speculative play.
Cody Laughlin: [00:18:47] And sure. Well, and I think it goes back to, again, the conversation we were just mentioning about market cycles. Right.
Cody Laughlin: [00:18:52] And if you were back in 2010, 2011, right out of the Great Recession, you could speculate and you could make some pretty terrible assumptions and still make some tremendous amount of money. Right. You’re just coming out of arguably one of the worst economic crises is that we’ve seen and we’ve seen that right over the past decade. Look how many people have just made a ton a ton of money in real estate because of just that or appreciation that we’ve seen. We’re at a point in this market cycle where I believe we’re entering more of the age of operational management than we are. You know, that organic growth on the income side. Right. And I could be completely wrong in that. But I think that’s we’re going to be the true value add. It’s going to be more on the operational management side than it is going to be on that. Really relying on those, again, four or five, six, eight percent rate bumps that you’re a Ringrose Scuse me that you’re seeing in some of these markets.
Dan Kreuger: [00:19:50] So I’m curious what you mean by that is that is, are those operational improvements something along the lines of more robust customer service or a property management perspective and being more competitive in the market by offering a better service and better product? Or is it more so going in and trying to aggressively control your operating expenses, renegotiating contracts? I’m kind of curious what angle you guys are taking on that operation side.
Cody Laughlin: [00:20:18] Definitely both. Definitely both. Number one, you have to make sure that you care for your residents, right? You want your residents to stay. And when you take care of your community, the community is going to take care of the asset, you know. And but when it comes from the business perspective, from a business operational side, absolutely. It’s really just making sure that you’re refining those expense assumptions, making sure that you’re managing those following your KPIs, and staying on top of that. So that way you can steer the ship in the right direction, say.
Brian Alfaro: [00:20:53] I think the thing is what I like to say is the best product, best price, so you don’t necessarily need to be at the top of the market, but you definitely want to have the best product in the market, whether that means having amenities that other communities don’t have, where the physical amenities don’t, parks, playgrounds, things like that. There’s also the other stuff that some intangible stuff, having really top-notch property managers. And when we underwrite the market rent for a thousand bucks, we go hire them to pay for Matalan’s perspective. And then also just leveraging things in the industry that is somewhat new but could be highly impactful, like technology, for example, finding ways to utilize technology to potentially limit your amount of expenses or overhead in your offices, especially if you’re running a smaller asset that can maybe afford full-time property manager between locks and cameras and just some little electronic things that you have nowadays that rents and documents and ideally you could go through an entire leasing process and never meet anybody in person, which is crazy when you think about five years ago. So so you’re always looking for those types of opportunities, whether you’re managing a larger asset or even if you’ve got a 12, 15, 20, whatever it is, those principles can still be applied.
Dan Kreuger: [00:22:09] Yeah, we were just chatting with let’s just say we have not Sravanthi was on the call, I can’t remember but associated with someone here locally about this potential project we’re looking at. And a topic came up of this new build that went up across the street. We’re talking about how the property manager, at least that up during covid, I think they started leasing early twenty. And this guy pretty much beat the pre covid pro forma expectations of the lease-up. And he did it one hundred percent, virtually 100 percent. And that was I think it was a 40 some unit property that they got all the way leased up during covid. One hundred percent virtually. So that kind of makes you wonder, you know, what else can you look at? Virtualizing, that’s even a word, but going virtual to reduce your overhead, because obviously, if you’re doing all that virtual, you don’t need multiple leasing agents spending their time running around physically. Probably have one guy at a laptop managing all the communication, maybe spend some money for someone to go through with a drone and shoot some video. But I’d imagine it’s a heck of a lot cheaper to do a hundred percent virtual lease-up than to have physical staff running around all day long.
Brian Alfaro: [00:23:19] Absolutely. I mean, you just see it, keep it simple, keep it stupid, simple, whatever. Even if you’re managing a 10 unit, you’re still managing. It’s like, why can’t somebody who is interested in your picture ID and give them sign something that your attorney drives up? You give them a temporary code through an app on a phone that’s on your smart lock. They get access to the thirty pm to the unit. They let themselves in. They look around because the door behind them at one time and three, they send you a message. They like the unit, you send in the app online, they apply and then there you leave the keys in the unit, but you give them that one-time code to get in. There’s no reason they even see them at that point. That’s when gets you. So why can’t you get out on the mark on the scale? It’s very possible.
Anthony Vicino: [00:24:07] And I’ll be honest, I don’t like seeing people in general, like when I go out for food, I would like to just deal with a machine. I don’t want people. So if I can leave, then I have to see a single human. I’m really happy.
Cody Laughlin: [00:24:20] I think most people would agree that until something goes wrong and then they want somebody to look at. But it’s very interesting.
Dan Kreuger: [00:24:29] So I’m curious, in addition to focusing on maybe I guys haven’t even started this yet. And it’s just something that you’re kind of looking at in the future. But in addition to focusing on more of the operational improvements as opposed to the heavier value, add, you know, capital expenditures to force appreciation with, you know, 20, 20 having happened and now this. You know, whether in Texas, all these things happening, they’re kind of making people rethink their strategies. What are you guys doing now? I think especially if you’ve been in the business for about 10 years, how have you shifted recently with everything over the past 18 months as far as your investment strategy, or have you shifted?
Cody Laughlin: [00:25:14] I haven’t really shifted. I mean, the focus and philosophy and the investing thesis have remained the same. I would say as long as we keep going through this cycle and understanding that it is getting harder and harder to be competitive.
Cody Laughlin: [00:25:30] I have been looking at more creative ways with Brian and John, how do we collaborate, how do we look at the underwriting and see what areas can we be more creative in now, again, sticking to fundamentals, not trying to get, you know, so far off or deviated from what we’ve been doing already, but what are some other opportunities that we can to make our offer more appealing, for example? And I think I use the reference of things that we can offer by way of maybe putting more earnest money down, maybe shortening our diligence period. Maybe we consider hard money on our offer versus adjusting the offer price, but without getting too far off the question, again, I think the thesis has remained the same.
Cody Laughlin: [00:26:10] The focus has always been more on that flight to quality than that quality asset, understanding that. You know, we want a good, predictable cash flow that we can rely on on without the heavy capital expenditure. And that’s what we’ve tried to build our business.
Brian Alfaro: [00:26:29] Yeah, and I think also to piggyback on that, then the strategy overall on how you get deals and when times are tough, the broker is calling you. That’s nice. That’s easy. Right. But right now, what we’ve seen in our market and probably around the US is brokers are holding all the keys. They have so much leverage. It’s a seller’s market. Prices are at an all-time high. Cap rates of interest rates are low. You know, a lot of these big companies have announced that they’re holding all the keys for doing the deal. And it’s just making it really competitive for people that are looking to pay their prices for assets. So now we look at other creative ways besides, of course, we value our broker relationships tremendously. We want to continue to do that. But looking to partner with people who have access with different brokers and shortlist or going off-market as well, just networking with other investors who are getting access to be over other people don’t have and see if there’s an opportunity to add value versus just trying to do everything on our own.
Dan Kreuger: [00:27:32] Yeah, that’s you can kind of double down on that. We’ve had a similar approach here. We’ve in recent months, really the good deals that we’ve been finding have been deals that have been off-market, quote-unquote, where relationships have developed with either brokers or sellers over the years, where we’ve built up this reputation, where we close and they are willing to go to us to get a deal done, they might not get it as high of dollar price tag as they could if they went and marketed it publicly. But if you can manage to be one of the first calls before things get marketed to the masses, I think that’s where the real opportunities are, because as soon as someone, you know, papers the city and offering memorandums for a property and you’ve got people coming in from out of state to walk in and they’re doing their call for offers and you’re trying to get the best if like that whole thing is just a big bit of process. But if you can have a good relationship and someone’s willing to transact with you based on the fact that they know you’re going to close and you’re not going to dick them around in the process, I think that’s where the deals are found these days, as far as I can tell.
Cody Laughlin: [00:28:45] Neverson and to piggyback off that because you’re absolutely right, what we’re seeing right now is most of the deals that are occurring or transacting are off-market deals.
Cody Laughlin: [00:28:54] And you’re right, there are with the people that these brokers know that they have those relationships with. Right. Well, you know, I hope that people are listening, understand that those are not things that happen overnight. You’re not just going to be able to call up a broker tomorrow and say, hey, send me all of your pocket listings that are also market. It does not happen that way.
Cody Laughlin: [00:29:12] You know, you have to really build on that relationship and you have to instill that trust, as you mentioned, for them to give you those opportunities. So I just want I want to encourage people just to know that, you know, this goes back to what we’re saying earlier. It’s a long-term game. You have to build these relationships. It starts with one piece at a time. But it’s not going to just happen with a phone call. And you think that you’re a rock star.
Dan Kreuger: [00:29:37] Yeah. And even to go a little deeper on that, too, for people who are are newer and trying to get into this, it doesn’t even take brokers out to lunch every day for a year won’t get the job done. You’ve actually got to close deals, multiple deals for a long period of time, and ideally have a track record where you close every deal and you don’t retrade. And so you’ve got a robust track record and it kind of gets tough for people who are newer because it’s one of those situations where you need it’s like when you’re going and trying to get a job the first time out of college, you need the experience to be able to get an entry-level job that needs ten years of experience.
Dan Kreuger: [00:30:10] Exactly. Exactly.
Dan Kreuger: [00:30:11] So that’s kind of the catch is like how do you get that track record in this type of market where every publicly marketed deal is getting bid way the heck up? So, you know, you can’t obviously go out and do these bad deals to get a track record. But, you know, I would I kind of nowhere like what my suggestion would be. But I’m kind of curious what you guys would have for maybe newer people out there trying to get in, get that track record, but not go out and overpay for these overly marketed deals.
[00:30:38] Yeah, well, this goes exactly into Brian’s point he was making earlier, where you have to surround your people. I mean, you have to surround yourself with the right people, right? I mean, again, in a relationship-driven business, you’ve got to get in the inner circle with those who have that track record in that experience. And, you know, you’ve got to find a way to add value to them and find that alignment of interest in working with them. But, you know, partnering with other people that have that successful track record to lean on is a great way for people to get started. And we had we’ve had a mutual friend on our show. You guys know him very well, Mr. Bill. Have and Bill has talked about this with us for about a year now.
Cody Laughlin: [00:31:13] Listen, it’s going to get harder and harder for newer investors. Coming into the space to find a way in, you know, which personally I like the fact that there’s a very high barrier to entry because if you do get through the crack and you do make it, guess what? Everybody that comes behind you is going to have to go through that same barrier of entry that you just went through. So it’s going to take some time, but nonetheless, it is going to get harder for those who don’t have that track record, especially in today’s time. And again, I reference the comment I made earlier where even experienced operators are having trouble finding deals right now. So it’s really, really important that you rely on those relationships, get in these inner circles with some of these experienced guys and start finding a way to add value to them and partner with them.
Dan Kreuger: [00:31:59] Yeah, that’s what I was going to say as well as, you know, partner up. If you’re new, you need to get in and find some way to add value to somebody and leverage their track record for a couple of deals. And then all of a sudden you’ve got a track record with them.
Anthony Vicino: [00:32:13] That’s amazing, actually, because I’m going to be the contrarian. I had completely different advice. I was going to say take whatever deal came across. Doesn’t matter how bad it is because it’s the law. The first deal, once you get it, you’re going to have momentum.
Anthony Vicino: [00:32:24] Don’t go, Michael, block on this. No, I’m sorry, love. The first deal is that trademark terminology. Sorry, Michael. Now don’t go. Don’t go do bad deals.
Anthony Vicino: [00:32:37] That’s just tongue in cheek. But some people do actually suggest that idea where it’s like, hey, maybe go take a marginal first deal that you can get that check. I could get that momentum. And a marginal deal is only a razor blade away from being a very bad deal. So you got to be really careful.
Dan Kreuger: [00:32:54] Yeah, I could agree with that. And maybe instead of saying do a marginal deal, maybe just do a small deal because the deal’s a deal. Right. So maybe you’re out there looking for a 30 or 50 unit property, can’t find anything good, you know, pick up a decent six or seven. Right. Because that’s still a track record that you can look back and put on your resume.
Anthony Vicino: [00:33:14] And the qualifier I might make there is don’t look for home runs, a grand slam. So it’s OK to hit a base hit. You can if you only ever hit base hits and never strike out and never get out. I do really well. You’re going to do good stacking up singles. I love it.
Dan Kreuger: [00:33:29] Now, that sounds like one hundred percent agreement that listens, there’s nothing wrong.
Cody Laughlin: [00:33:35] You know, Anthony, you’re absolutely right. There’s nothing wrong with going just for the singles. Right. Singles and doubles. And again, if you’re coming out of the gate thinking that you’re going to go find the unicorn or go hit that home run, I mean, you’re going to be out of the business really quick. You’re going to get really frustrated very, very quick. And, you know, again, in an effort to build that track record, man, just again, stick to your fundamentals, stick to your discipline. Just go find a good, solid deal to get your track record going. And then, as you said, is that all the first build momentum kind of falls after that.
Anthony Vicino: [00:34:04] So, yeah, I agree. I wanted to pivot a little bit of the conversation because I think we’ve been talking a little bit from the perspective of perspective, active investors. So I want to shift to the perspective of a passive investor and thinking what should they be looking at right now as they’re evaluating different deals from different operators? I saw a deal come across my table the other day that had it was projecting like a 40 percent IRR on a three-year old.
Dan Kreuger: [00:34:31] And I was like just kind of blew my mind and saying that to me, I will send it to you.
Anthony Vicino: [00:34:37] It blew my mind that somebody would even suggest those numbers were a bitcoin. Yes. Yes. No, it was it was a multi-family property. And so but, you know, we know by looking at that, we go that seems really a skeptic.
Anthony Vicino: [00:34:51] I’m really skeptical. And I’m curious from your guys, A, what things would you look for as a passive investor to make you think like, OK, these operators have been diligent in their underwriting. They’ve been conservative, I believe this deal is actually doable.
Cody Laughlin: [00:35:07] I would say you’ve heard this over and over, and I definitely think it’s it rings true even more so today, is you have to look at the track record of the sponsorship team, look at the performance of the sponsorship team, and ideally, you would want to see at least one or two members on that sponsorship team that has even gone through the last economic downturn in the Great Recession. And how did they handle that? I would say that’s number one. What what professional team do they have in place, who they’re working with as far as their property management teams, construction teams, things like that? I would want to see what kind of team they’ve built around them, though. Those two things that we would focus on more than anything right now because I agree with you, Anthony, I think you’re seeing a lot of that right now. You’re seeing a lot of people coming in with these crazy assumptions and not really having the experience in a particular market or with that particular strategy to validate that assumption.
Brian Alfaro: [00:35:58] So, yeah, I would say, you know, if you’re a passive investor, be the ultimate skeptic. I mean, question everything if the sponsors are not willing to answer your questions. That’s also a problem because if they’re not willing to answer your questions before they take your money, imagine what’s going to happen after they take your money. Probably not going to be good. So I would say question everything. You know, if you have zero experience investing in multifamily real estate, commercial real estate, or just passive investing in real estate in general, I would encourage you to follow the advice we gave earlier and talked to other people who do. There are tons, tons of passive investors out there that are looking at deals that have 10, 20, 30 percent opportunities going on at any given time. They’re living off the cash flow. They can very you want to get in their social circle and see if they can help put eyes on some of the stuff you’re looking at. If you get a deal with an email on a sponsor, you talk to and it’s got a 40 percent IRR. You know, most of the time that experience sponsor can very quickly look at the fundamentals of that deal and tell you, like, now this is there’s no way this is, you know, in a collapse, in a stable, it’s stabilized. Like where’s the value add? You know, maybe if it’s a declasse, I have zero percent occupancy maybe. And they can give you that perspective, too. But then even still, you know, so I guess it’s about your risk tolerance, but surround yourself with people who have been there asking questions and that’ll help you gain a little bit more confidence on top of he said, finding making sure you’re working with people who have been there and done that before.
Dan Kreuger: [00:37:28] And I think that’s such good advice right there. We say that to a lot of investors that kind of come into our circle and we’re talking about the business model and showing them potential deals. We always say you know, go and have someone else look at this for you on your behalf. Would there be a lawyer, CPA and advisor have like a nonobjective third party that is nonobjective or WebSocket objective, a third party that’s most importantly not emotionally attached to the deal because we get as operators can appreciate this when you find it an opportunity that you want and you work it through the underwriting, sometimes you start to go down that slippery slope of trying to make the deal work. And I think investors can do that on their end as well. If they see an opportunity that looks really pretty in the pictures. Right. They really want to get into it. Maybe it’s like an ego thing. It’s like a landmark property to be really cool to brag about. Say they only want to find a way to make it work. You can almost start to sell stuff to yourself. So having a third party that’s emotionally not involved whatsoever to look at it and see if they could break it is hugely valuable, I think, for passive investors and even active guys like us having someone take a look at the underwriting that you’re doing to make sure you’re not trying to force the deal to work, that when there’s really not much there.
Cody Laughlin: [00:38:44] Yeah, I know. In our in I love it when somebody can take a look at a deal we’re looking at and punch every hole in it they can. I want somebody to destroy the deal for me because you’re absolutely right. It’s very, very easy to fall into that trap right now. You get that emotional attachment, you get that excitement. And again, right now, deal fever is very contagious. I mean, everybody you see all these people still conducting deals and you want to be a part of that. So it does get very easy to fall into that trap. So I love it when people could come in and just start ripping holes and stuff because, you know, you learn a lot about things that you can easily overlook.
Anthony Vicino: [00:39:21] Yeah, that’s absolutely perfect advice, guys, the last thing I’ll add there is just something that we already mentioned earlier is keeping in mind where we are in the market cycle, understanding that a deal that comes across your table right now that’s on a three-year old and has some pretty optimistic projections within the next year while we’re still in the middle of a pandemic that hasn’t gone away. We’re still living in this world where who really knows what the next year or two is going to bring. So being overly optimistic and then tying debt terms to that. So these are just things to keep in mind as a passive investor, just keeping the full picture in view. But let’s pivot, guys. Let’s get your book recommendation. I’m going to ask for two books, one from each of you, and you can not recommend the purple Bible.
Cody Laughlin: [00:40:05] Go ahead, Brian.
Brian Alfaro: [00:40:07] Let’s say the first one, I will say it’s sort of real estate related.
Brian Alfaro: [00:40:11] Somebody probably mentioned before, but I’m a big fan of the one thing scary, Keller. And I think the book’s basically about making sure you focus on one thing at a time and be really good at that. Don’t over-leverage yourself. Don’t be the ultimate multitasker because you probably aren’t doing a high-quality job on any of the stuff you’re multitasking on and focus on one thing at a time in your day out, according to the Block, which is a big part of the book as well. Make sure you’re getting your test done and staying within your boundaries and not stay focused. So that’s my first book.
Cody Laughlin: [00:40:46] I love it. I would definitely say, is it one for each, one for each, one for as many as you want?
Anthony Vicino: [00:40:55] Honestly, like, we’ll take them all out.
Cody Laughlin: [00:40:58] I wish I had a long laundry list like you do, Anthony, but I would definitely say right now, and I’m a little embarrassed to say this, but I’ve been trying to chip away at how Arad’s morning, morning, morning.
Cody Laughlin: [00:41:10] And I definitely think and encourage everybody to take a look at that book. And this is something I’m working on to get back on my good morning routine. But when you have a well structured morning routine where you’re getting up early and you’re you have those consistent habits that you’re doing every morning, it really just sets the tone for your day and for your week.
Cody Laughlin: [00:41:30] So I definitely encourage anybody that’s either a beginner entrepreneur or trying to figure out a way that they can improve their efficiency. Definitely encourage everybody to check out that book.
Anthony Vicino: [00:41:41] Absolutely. If you win the morning, you can win the day. So start it off with both of those books are fantastic. So before we let you guys out of the cage, let everybody know where they can go and find you out there the world.
Cody Laughlin: [00:41:53] Yeah. Thank you. So you can check us out. If you want to learn a little bit more about us, visit blue dot com forward slashy real estate. You’ll get a free investor guide for busy professionals and you can subscribe to our newsletter. That way you can check us out at our South Texas multi-family and more Facebook group where we have our virtual and soon coming soon live networking events that we cannot wait to get to hear.
Cody Laughlin: [00:42:22] Yes, I’m unlike you, Anthony. I can’t wait to meet people face to face. I like how people are equally excited to get off a zoom, cause I know that really well. I think we could all relate to that at this point. If I never have to look at a camera again, I’ll be OK. Yeah. I mean, it’s I think there’s definitely digital fatigue right now for sure.
Cody Laughlin: [00:42:45] But and then lastly, I’d definitely encourage everybody to check out our podcast, The Prosperity through Multifamily Real Estate Investing podcast. We’ve had a phenomenal show series so far. I think we’re what this fifty-seven episodes in right now and we’ve had some phenomenal guests. If you’re interested in learning anything about apartment syndication, check us out, which we’re streaming on Spotify, Apple podcast, Google podcast, and Stitchers. So awesome.
Anthony Vicino: [00:43:10] Well, guys, I really appreciate you coming on to the show. And I think that was a pretty good inaugural duo episode. Why do you think tended that?
Dan Kreuger: [00:43:17] We did pretty well. It was good. I mean, they did beat us up, didn’t get too aggressive. So I feel like we came out pretty good. I’m not emotionally bruised.
Anthony Vicino: [00:43:27] We’re nice guys, man, and we are nice. Yeah. Yeah. You guys made this very nice and pleasant. So for you guys at home that are listening to this, make sure that you go out there, you find these guys that blew capital and connect with them because they just have a lot of information, a lot of knowledge that they drop it on the world.
Anthony Vicino: [00:43:43] And so you can never know too much, never learn too much, go connect with them. And we look forward to seeing you guys next week. Goodbye.
