For today’s episode, we will be discussing the deal that we just closed last week, which is a really cool deal. We’re really excited to share the story, the ins, and outs, the twists and turns, the drama, the elation of that deal.
We have a book coming out next month called Passive Investing Made Simple How to Create Wealth and Passive Income through Apartment Syndications.
[00:01 – 12:17] Opening Segment
- We introduce How to get a signed copy of the new book Passive Investing Made Simple
- Bad investing tips
[12:18 – 21:12] Charles Avenue, Midway Neighborhood
- Longest closing, 5 months worth of work
- 55 Unit
- 20% IRR of cash-out refi
[21:13 – 31:08] How Did We Work To Get This Deal Done?
- Being Transparent, the seller is a partner in the deal
- Finding Banks that are in the deply capital cycle
- The rug can be pulled at any moment
- Giving what is expected
- Showing 100% commitment
[31:09 – 43:06] Always Doing What Is Right
- 6 takeaways and lessons learned from this deal
- #1 – Always need to listen to those you respect
- #2 – Relationships is everything
- #3 – Communication is everything
- #4 – Communication is everything x2
- #5 – Always have a contingency plan
- #6 – Doing the right thing is always the right thing
“You can fail by growing too slowly and you can also fail by growing too quickly and so you want to find that Goldilocks zone” –Dan Kreuger
“Like that’s what really good investing is, sitting and waiting on your hands ready.” –Dan Kreuger
“Yeah, the key is recognizing which where your capacity is and not overextending. That’s one of the cardinal sins of scaling and growing a business is growing too fast.” – Anthony Vicino
“If you’re going to pivot, that’s fine but do it with a lot of intentionalities, not just because a new deal came across your table.” – Anthony Vicino
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Doing the Right Thing Is Always The Right Thing
Anthony Vicino: [00:00:15] Hello and welcome to Multifamily Investing Made Simple, this is the podcast where we take the complexity out of real estate investing so that you can take action today. I am your host, Anthony Oxenham of Invictus Capital, joined by Dan. I’ve got a brand new book coming out next month. Crigger Oh, hey. Oh, Mr. Mister. I’m an author. I got a book.
Dan Krueger: [00:00:37] Didn’t I don’t even realize you’re here? I’m just this is you guys,
Anthony Vicino: [00:00:43] If you’re listening to this podcast at home, just know that you always walk into the room and introduce yourself exactly how I just introduced the podcast that Dan uses, like impervious to it. Now he’s like, oh, Anthony’s here.
Dan Krueger: [00:00:57] He’s always just announcing book launches. Those kinds of people, though.
Anthony Vicino: [00:01:02] Yeah. I mean, we just publish a book like once every couple of years. So it’s not a big deal, but it’s a big deal for us. We’re really excited. This episode is not going to be all about the book. It’s not going to be just a hard pitch fest. But I will say this before we get into the meat and potatoes of today’s episode, which is all about the last deal that we just closed last week, which is a really cool deal. And we’re really excited to share the story, the ins, and outs, the twists and turns, the drama, the elation of that deal. But before we do that, I just know that we have a book coming out next month called Passive Investing Made Simple How to Create Wealth and Passive Income through Apartment Syndications. And it’s all about how to possibly invest in apartment syndication. So if you want to be a passive investor, this is the resource for you. If you want to get your hands on a free copy, I know a guy who can hook you up. Here’s what you do. You shoot me an email. Anthony at Invictus, multifamily dotcom, you say, Hey, Anthony, I would love to review your new book. And what I’m going to do is I’m going to send you a copy of the digital-book so you can read it and you can review it and have that review. Go live the day the book launches on August 11th. And then if you send me a copy of that review, Dan’s going to sign the book, a physical copy and send it to you. So if you want to get a free book, you might get free education and you want to do us a solid by leaving a review, which was would be incredibly helpful. We’d really appreciate it. Then we will send you a free copy of the book. And as a big thank you, big thank you
Dan Krueger: [00:02:28] For a huge, huge thank you
Anthony Vicino: [00:02:31] For you, for you, because we appreciate you and for listening to the podcast. So that is all the pitching that I’m going to do. I promise. I’m done. Got it out of my system. So, Dan, the man with the plan, tell me before we get into Charles Avenue. Hmm. What is your bad investing advice this week?
Dan Krueger: [00:02:51] Hmm. You always catch me off guard with this.
Anthony Vicino: [00:02:53] I always get you on the flatfoot.
Dan Krueger: [00:02:55] Well, we always have guests. And I mean, when we have guests, we make them do all the work and answer the tough questions, like what’s your best advice and what books do you like? It’s exhausting. So many, so many questions.
Anthony Vicino: [00:03:07] Just can’t I can’t be bothered. I have a piece of bad advice. I remember your advice from last week on an episode that never went live. I don’t know if you remember
Dan Krueger: [00:03:18] This is yeah. This is going to be a twofer. So why don’t you go ahead and give that? And I got a follow-up call for bad ideas.
Anthony Vicino: [00:03:24] We’ve got a lot of bad advice. OK, so Dann’s advice on the never before heard and will never be aired episode of this podcast, because sometimes we get lazy and silly. And it wasn’t a very good episode, but his advice was this never pass up on a good deal. Dan, do you still stand by,
Dan Krueger: [00:03:41] That sounds really good. That sounds like really good advice. Usually, these are like tongue-in-cheek pieces of advice where we just rip it apart. But how are you going to replace one part?
Anthony Vicino: [00:03:51] I mean, it’s a good deal. Why would you pass it up? So this is top of mind for us. It’s timely because last week we actually had to pass on a deal. It was fantastic. The numbers look great. It was off-market. Everything about it was great. But we had to make a decision to pull the plug and say, we can’t do this right now because we just closed on Charles Avenue, which is a deal that we’ve been working on for the last five months. We haven’t been able to talk about it, but today we’re going to talk about it now that it’s finally closed. And we have another deal that’s closing this Friday and we can’t talk about that one top secret, but we’ll talk about it once it’s close. So we have too much on the plate. Like realistically, we didn’t want to get into a situation where we said we can take this next deal and get it done and then not come through, because one of our pride and joy is one of the things that we hang our hat on is that we do what we say. And we didn’t feel confident that if we put it under the contract that we would actually be able to get it to the closing table. We were only ninety-one percent certain we could do it, and that wasn’t high enough for us.
Dan Krueger: [00:04:52] Yeah, and we’re going to talk about this concept a lot in this episode, I’m sure. But this business is all about relationships. And even if you live in a really big city, the multifamily community in that area, as far as brokers and sellers and all the people that that matter in these transactions, find out if you put somebody under contract and fail to perform that little badge that that tag, that that label is going to stick with you. And, you know, there’s a saying out there that Antheil correct me on this, but it takes a long time to build up a reputation and you can screw it up really quickly, really, really easily. And so we’re very cognizant of that. And we would much rather do really two really good deals than two really good deals and maybe a third time.
Anthony Vicino: [00:05:41] Yeah, the key is recognizing which where your capacity is and not overextending. That’s one of the cardinal sins of scaling and growing. A business is growing too fast. Like, yes, yes. It’s great. It’s fun to grow quickly. But if you get too far out over your skis, you’re going to get destroyed.
Dan Krueger: [00:06:00] And it’s a balancing act. You know this well, you’re a serial entrepreneur. For those of our listeners who have some small business experience, it’s a balancing act. You can fail by growing too slowly and you can also fail by growing too quickly. And so you want to find that Goldilocks zone where you’re failing or you’re feeling you’re growing as quickly as you want to, but you can still effectively service all your customers or investors or whatever your is. You know, if you grow too quickly, usually what happens is your customer reviews are going to reflect the shortcomings. And you just don’t you don’t want that’s not worth the risk. And another little quick bonus just for people on the note, the bad investing piece is. She’s only want to do is say the same thing because it’s very closely related, but I’m just going to piggyback on it and say never pass up a good deal. That’s still kind of the advice and the message I’m going to tie into it. Isn’t that the whole scaling too quickly thing is a risk and just we just talked about that.
Dan Krueger: [00:07:07] But in addition to that, part of being an astute investor is following your rules. And that needs to be the foundation of every decision, regardless of whether deals are good or bad. You need to do what you said you were going to do when you built out your business model and you plan for the year and you were sitting down with a cool mind, not unemotional, just saying, here’s what I’m going to do to do to grow my business over the next period. When this deal pops up, emotion kicks in, you see dollar signs, you see location, you see all the shiny things about this deal that are so fantastic. And that’s where emotion starts to influence you. And that emotion can drive you to do something that’s outside of the parameters you set on yourself and the very specific game plan that you put together. Right. So stick to the plan that you create when there’s no emotion because when things pop up like that, emotion kicks in and the emotion does not need to lead to good decisions. When you’re investing
Anthony Vicino: [00:08:02] The other side of this, too, that we see all the time is with investors who start in a certain asset class or in a certain market, in a certain area. And the deals just aren’t coming very quickly. And so they start looking at other asset classes. Suddenly they got in with the intention of being a multifamily investor, but now they’re looking at self-storage and mobile home parks and they’re jumping on deals because they’re desperate to do a deal and they’re abandoning their investment thesis. And that’s not to say that, like, one of these is right or wrong. I’m not saying multifamily is better than self-storage, but it is. I’m just saying that in your cooler moments when you’re setting up the plan and your objectives and understanding your investment thesis, that’s what you need to hold yourself to it. If you’re going to pivot, that’s fine. But do it with a lot of intentionalities, not just because a new deal came across your table. That looks really delicious. You need to do it before that deal ever comes and say, actually, you know what? I think I want to make a pivot over here and this is where I’m going to start looking. Now, as I see this all the time, it’s kind of like shiny object syndrome where you’re just so desperate to do a deal that you forget your objectives.
Dan Krueger: [00:09:14] Yeah. Yeah. And this is one last point on this because I’ve been doing a lot of reading on this kind of stuff, just the psychology of investing. And this applies to any asset class. And so when I’ve been reading about it’s more geared towards not real estate, more active investments like stocks and trading, things like that, but a lot of people, when they get into stuff, think about themselves as like the quarterback. All right. They’re looking for that next move. And I’m antedated by laughing because I’m starting to use a sports analogy and I’m with you, buddy. Let’s do this. But I’m going to have to see where this goes. That’s what’s like the what are the guys called who are like second string, who are kind of like the backup guys, like what are they called?
Anthony Vicino: [00:09:56] I like benchwarmers or you talk about like running back
Dan Krueger: [00:09:59] Or no, like the backup, like the backup quarterback, like OK, that’s the name for that guy.
Anthony Vicino: [00:10:04] Like this is something I think the backup, they call him the backup. Exactly.
Dan Krueger: [00:10:08] Investors need to think of themselves as the backup quarterback where you are fully ready to take advantage of the opportunity when it presents itself. But the likelihood of you doing nothing when you’re talking about investing in training or whatever is very high is a lot of sitting waiting for the right thing to pop up. And so you don’t always have to be in a transaction, in a deal in the market. It’s a lot of sitting and waiting like that’s really good investing. Is sitting and waiting on your hands ready? It’s extremely boring and people have a tough time with that because that they need to be transacting. They need to be doing things all the time. The more you do a lot of times these issues, you sit you wait for those like those asymmetric risk-reward opportunities where there’s just so much upside and so little downside. If you just sit around and wait for those, you’re good.
Anthony Vicino: [00:10:54] The position that I would. I know you don’t follow football, but there is a person on the team called the field goal kicker who only comes out three times in a game. Otherwise, you’re just sitting there and they’re out there for like 10 seconds each time. So less than 30 seconds over the course of the whole game. And all they do is that one thing. They get their one opportunity. They get one kick at the ball and then they go back to the bench. And that’s their life. And that’s really kind of what investing is like. You have a specialized skill set. You’re waiting for the opportunity to capitalize. Sometimes it’s a 40-yard field goal. Sometimes it’s much easier. But regardless, you you need to be ready to go and make that shot. And in the meantime, you’re just sitting around letting your investments do their thing.
Dan Krueger: [00:11:37] Yeah. There there is a really famous investor out there named Jim Robert, Jim Rogers. And if you if you’ve ever seen a kind of like a guy that looks like he’s out of the 20s wearing a seersucker suit, white hair, a little older guy, very happy kind of jelly. That’s what I’m talking about. You guys probably recognize if you see him, I don’t know his name, but one of his famous quotes is that he’s he says he just waits until there’s just a pile of money sitting in the corner and he goes over and picks it up, which is a funny way of saying effectively what we just said. You wait for those really, really good risk-reward opportunities where you almost can’t lose. You just go after those areas. We spent a lot of time on better, but that’s such bad data.
Anthony Vicino: [00:12:18] There is there’s a lot there to unpack. I think it’s time for us because these are the things that we think about. And being a disciplined investor actually looks like this morning we had our pulse meeting and it was one of the good news from last week was, hey, we stuck to our investment thesis. And despite, like really wanting this deal, we had the wherewithal to walk away and recognize it wasn’t in alignment with where we were going. And that’s a win. So, yeah, let’s talk about a deal that we didn’t walk away from, a deal that despite many things presenting themselves as obstacles and learning opportunities, will say we eventually finally got it done. We got it closed. We’re going to talk today about Charles Avenue. This is a portfolio of four buildings that we have been working on for the past five months. This is a lot of months. I know about you, but this is my longest closing time.
Dan Krueger: [00:13:14] Yeah. This one was a pretty long timeline from the get-go. When we put this under contract, it was probably the longest period until what I anticipated close as ever, which was great. And part of that was due to the fact that at the time we put it under contract, there was a rule in our area that owners of properties who are going to be selling had to let tenants know 90 days ahead of time. So part of that was due to that little thing. We have had that for a few months. It was really kind of annoying for sellers didn’t really impact us as buyers that much, other than the fact that sometimes when people find out a building is selling, they assume that the person coming in is just going to be a jerk and kick people out or raise the rent or something. And so there’s usually a couple of people that that see that and assume the worst, but otherwise don’t really impact us and just kind of build some more time in which we were fine with because this was a rather large one. But it’s what it is.
Anthony Vicino: [00:14:11] Yeah. Yeah. So this is just going to give the high-level details of it. And we’re looking at a fifty-five unit portfolio for buildings immaculately cared for. Really the interesting thing about this building is two things. One is the neighborhood that it was then. We love being in the most desirable neighborhoods, but it’s hard to buy right in the most desirable neighborhood. So the next best thing is to buy in the neighborhood that is going to become the next hot thing. Right. And then ride the wave with it. And that’s what these properties are. They’re right smack dab in what’s called the Midway neighborhood, just between St. Paul and Minneapolis. It is right along all the largest public transitways is two blocks away from the Orleans field, which is the new soccer stadium that went up a couple. Four years ago, it’s smack dab in the middle of all of these opportunity zones as the Twin Cities are investing heavily to make this area the next spot. And so when we came in and we had this opportunity to get this property at a really good basis, at a really good price point, we were just kind of frothing at the mouth is a great opportunity. Now, why didn’t did we actually get this thing on a pretty good basis? Like, why would our seller part ways with this thing?
Dan Krueger: [00:15:24] Yeah. Yeah. So, yeah, the story there. And just real quick, I’m just going to fly through a couple numbers just so you guys know, like what kind of returns this thing looks like. And then we kind of get into the details of the deal here. But and from a really high level our investors on this for looking at it through a very conservative lens, we’re looking at probably about a 20 percent IRR if we do a cash-out reify and about 16 percent IRR on a five-year-old with no cash on refinding. That’s assuming rising cap rates. That’s assuming high vacancy. That’s assuming a slow rollout of our business model, and that’s assuming very underwhelming organic market rent growth. So with all those really pessimistic assumptions, a 20 percent IRR with a refiner, 16 percent without a Reavie is really good. And for the record, we always want to do reifies. We just put in that no reify scenario just to kind of show the worst worst-case scenario. But that just kind of illustrates the upside. If we put in a realistic cap rate, realistic rent growth, and realistic vacancy assumptions, those returns shoot up quite a bit. So it’s a really exciting deal from a high level. So least that we were frothing at the mouth. And part of the reason it’s such a great deal is we got this for one hundred six thousand dollars per door. And if you know anything about the Minneapolis St Paul area and C and B minus assets in this area, we’re looking at one hundred twenty-five doors. Typically, that’s really where things are going to be trading.
Dan Krueger: [00:16:54] And we’re getting in at one of six a door and we got that because of relationships. All right. Remember the first part of this episode, we kind of mentioned that relationships are a big deal in this business. This is why when you do things right and you have a good reputation and people know you, the seller was friends with somebody that we transacted with multiple times before this. And so when the broker put our offer in front of them, this got, you know, positioned nicely because we have a good, good relationship with that broker. And he’s getting all these good reviews about us from his friend, who’s also been in the business in this area for like 30 years. They’ve been doing this together as partners, but they’ve been doing the side by side in the same area for like 30 years and so on. His buddy of 20 plus years comes in and says, yeah, these guys are legit. If they say they’re going to do something at a certain price, a certain time, they do it. And so that’s why we got set so far under market value, because the seller, like most older sellers who have been through a lot of transactions, care a lot more about getting things done when they want to get them done, the way they want to get them done, as opposed to trying to get top dollar. He doesn’t wanna take the risk of having somebody not perform on this deal. So he’s willing to get pulled under contract at a lower price because he’s looking for that certainty of clubs. And so that’s why we got this at such a good price.
Anthony Vicino: [00:18:17] Yeah, it’s a relationship thing. You just can’t you can’t undervalue that. And that came up at multiple points on this particular project because this was not the smoothest transaction that we’ve ever done. There are some things that occurred like and that’s just par for the course. With real estate and business in general, things are always going to come up that you don’t expect. You have to pivot, overcome, adapt. And we had plenty of opportunities to do that. So in the first instance, you know, we went into this deal. We put it under contract in March, if I remember correctly, with the end of March, with a June first closing date. And if you were to ask us at the beginning of May, we had the capital raise all wrapped up. Everybody, the bank was on board. The seller was on board. We were thinking about moving the closing up a couple of weeks and. I would say about mid-May, something changed with the bank’s appetite for multifamily, you know, some new inflationary data had come out in the spring. It’s kind of spooky. Like inflation was accelerating faster than people had expected this bank. We had a great relationship with them,
Dan Krueger: [00:19:24] Which is real quick, which is good for this investment. It’s just bad for the bank because they’re borrowing at short-term rates and lending at long-term rates. So when they see inflation rising, they’re not thinking, oh, that means rent prices are going to rise because they will. That’s good for us. But for them, they start to lose money as those interest rates start to go up and they’re locked in that three-point whatever percent.
Anthony Vicino: [00:19:48] Mm-hmm. So we got really deep in the closing process of this property with a bank that we’ve done a number of deals with. We have a great relationship with them. And they did signal early on in the transaction that on future deals, they were probably going to start losing a bit of their appetite on multifamily because they were a little bit not over-leveraged there, but they were heavy in the portfolio. And so we kind of knew that coming in they got spooked at the very end and they decided to change one of their key terms, which was they wanted just to get a sixty-five percent loan to value rather than the 75 that we had underwritten for. And that’s a big difference. It breaks down over a million. Yeah, the deal doesn’t work at that rate right now. Now we need to go and find another million dollars. The numbers just don’t work as great. And so this was the first opportunity for us to make a pivot. And this is where we leaned on the relationship. We went to the seller and said, first of all, here’s the situation very transparently. Like the last person that you want to hide this type of news from is the seller because they’re your partner in this deal. They want to get this deal done. And so it’s not an us versus them mentality. It’s how can we work together to get this deal done? So we went to him recognizing that he has tons of experience in this market and has great bank relationships and said, hey, what do you suggest that we do? And what did he say, Dan? What were his words exactly? Honestly, I remember
Dan Krueger: [00:21:13] I told you so. It’s kind of what he said was something we didn’t mention at the very start of this transaction. He suggested in a very casual way through the broker. He sent a message to the broker. The broker sent a message saying, hey, you know, the seller wants to give you this lender’s contact info. And I interpreted that as just one of those run-of-the-mill, you know, kind of vendor referrals like, hey, if you need someone to hit this person up, you get those all the time in this business. And so I was like, OK, that’s great. Don’t we have a good relationship? We did the previous two transactions that we’ve done with this other institution and things have been great. And the buddy of the seller who we mentioned before that kind of created this whole dynamic for us with the good reviews of us, is the one that hooked us up with that bank. And so we were feeling really good about this bank. And so there were two of the warning signs that we decided weren’t as big of a deal as they actually were. That’s a slight little suggestion from the seller early on the bank themselves, kind of letting us know, like, yeah, you know, that multifamily asset class, we’re going to start to kind of pull back a little bit on it, really, just because banks routinely go through periods where they’re emphasizing certain asset classes and deemphasizing others, just managing their portfolio. So it’s all of that just seemed like par for the course. And the terms they communicated on the term sheet were exactly what we expected. So, you know, things seemed like they’re going well.
Dan Krueger: [00:22:40] But, yeah, when we went to the seller with this situation after that LTV change, he said, you know, I knew it wasn’t a good deal, a good deal for X, Y, and Z back. And I was like, you know, I just didn’t pick up on that. It was kind of like a game of telephone and went through the broker. And I’m like, OK, which we were in your hands. You got thirty years of experience, you know, everybody would you want to do because we’re going to close this deal no matter what. And you’ve got a ten thirty-one lined up, so you’ve got a timeline, whatever you think is best, we’re going to go that direction. And you made a suggestion for another institution specifically because he was in the middle of a transaction with them and they were desperate to lend, quote-unquote, because like I mentioned before, sometimes banks appetites are going to kind of go through a cyclical phase. And these guys were in a very aggressive like we need to deploy capital phase. And that sounded good. However, they were a bit small. That was the only nuance where we’re all thinking that that could be a double-edged sword. On one hand, a small bank is quick. Fewer people need to sign off. Things usually move a little bit more efficiently when you just have two or three or four people involved in transactions at the bank as opposed to a whole board and all this stuff. But they were a little bit small. And that that turned into a little bit of an issue on this one as well.
Anthony Vicino: [00:23:57] Yeah. And so when you’re dealing with a small bank, there’s sometimes what they do is they go and they syndicate it in the same way that we syndicate a property and bring in other investors. These properties, they’ll go out the bank, then they’ll find another bank to joint venture on the loan. And so this little bank, they were going to lend like three million on and then bring in another bank to cover the remaining one point three or something like that. So they’re going to get participating banks to do this deal with. And everything was ticking along great. They are actually even better terms than we got from the first bank. And so we’re like, this is great. It pushed back closing. But hey, all things told the sellers, cool with it, we’re getting better terms. It’s a win-win. Everybody is very positive. And we get to the end of June about the day before our banker is going to the board to get it finally approved. And there is a hiccup. There’s a little wrench in the machinery.
Dan Krueger: [00:24:56] That other bank,
Anthony Vicino: [00:24:58] The other bank, whenever there is another name of we don’t even know who they are, so we don’t know who to avoid. But in the eleventh hour, effectively, what happened was they got uncomfortable or didn’t realize that we were syndicators and that was our business model. And so when you’re dealing with these little banks are not always familiar with more sophisticated investment vehicles. And from what we can gather, that participating bank at the very end pulled out the rug on us, pulled them out on the bank that we were working with. Everybody had the rug pulled out. We’re like, oh, this is very surprising. All that’s to say is this was about a week before our closing date, which we had pushed to July 1st. And so now we have to go back to the seller, explain the situation again. And now we have a little bit of a pickle on our hands because here’s what’s happened is we’ve raised over two million dollars from our investors and they were expecting us to close by June 1st. Now we’re at the end of June and we still have all their capital sitting in escrow. So that’s not good. Their money sitting dead. We don’t like that. Second, our seller had a ten thirty-one lined up and he has a seller of his own that he’s trying to transact with on the back end of this deal. And there’s the risk that that other seller is going to pull out and our seller is going to lose his deal because this keeps getting pushed back. So now we have a situation where our seller might get screwed and our investors are getting a little bit screwed because their money is just sitting there dead. So we had to make a decision and say
Dan Krueger: [00:26:21] The investors are getting screwed. It’s just not getting the money is what they signed up for actively earning when you think it’s going to be so,
Anthony Vicino: [00:26:29] I take it as screwed because it wasn’t doing what we had said it was going to do. And we like we’re the type of guys that like when we say we’re going to do something, we hold ourselves to that. And so when we’re not able to do that due to circumstances, it’s difficult. And so we found a way to rectify that for our investors and do right by them and then also show good faith with the seller to buy him some extra time and show him that we were willing to stick it through as we did another transition to a third bank, which was the original bank the seller had recommended months and months before and for Old Faithful, and they ended up getting the deal done in two weeks. So from that day on July 1st, closing got pushed back till the 13th. They ended up getting it done. So all told, that bank came through with better IO, better terms in general than what we had originally had from the two previous banks. So it’s like sometimes life hands you lemonade’s, but secretly it’s like if you just have the wherewithal, you can turn into lemonades. That’s kind of what was happening. But let’s talk about specifically what we did for our investors and then what we did with the seller on both accounts to, you know, not buy good faith, but to show them that we had their interests first and foremost in mind.
Dan Krueger: [00:27:44] Yeah, yeah. I think that’s an important nuance here. The order of operations for us is first and foremost, we are always doing what’s in the best interest of our investors because they gave us over two million dollars of their hard-earned capital. And so we need to do good, buy them at a very, very close second is the seller because first, we want to make sure investors are taken care of and very and if that means I don’t know if we’ve got twenty-some people who give us over two million dollars if it’s between them and the seller, I mean, you know if we get to pick somebody, we’re going with the investors. Right, every day. We’ve got to do that. But very close to that as we want to make sure that sellers are taking care of, too, because it’s a great relationship. And if we play this right, we’ve got a nice deal funnel for the next several years here. So the first thing we want to do is make sure we take care of our investors. And like we mentioned before, money just sitting in escrow, not earning is frustrating. People have probably liquidated some other assets in order to invest in this. And they’re looking at the opportunity cost. You know, I’m not earning over here so that I could put money in here. And actually, it’s not doing anything for this month when I thought we were going to be closed already.
Dan Krueger: [00:28:58] So the solution for us was very obvious and was a no-brainer on this deal. We had a seven percent preferred return. So what we need to do is just give them one month of that preferred return. And then it’s like we might as well close right there, getting the amount of money that they would have expected and that’s coming out of our pocket. It’s not coming out of the deal, but it’s one hundred percent worth it for us to drop a little money on making goodbye. Our investors make sure they’re happy, make sure that they know that, yeah, things are moving along. It’s taking a little bit longer. It’s annoying. But here’s the money. It’s going to be OK. And then with the seller, you know, that one was a little bit different, you know, because the investors might be irritated that there are 30 days where their money isn’t earning, but the seller has a potential earnest money deposit that he might lose. And since he was in a ten thirty-one, if that gets botched, he might have a really big tax bill. And we don’t want to be the cause of him losing out on 50 grand of earnest money. Plus whatever this tax. I have no idea what his basis is here. But if there’s a temporary one that gets screwed up, there could be a really big tax bill come in.
Dan Krueger: [00:30:10] So that’s substantial. So we also wanted to make sure that he knew that we were a hundred percent committed to this deal. And so first, we want to just give him more money to give to his other seller that he’s working with, but more earnest money and to keep him happy. And he’s like, you know what, that’s outside of the agreement. I don’t want you guys to have to do that. But if you want to increase your earnest money in this deal, have at it, which is a great deal for us, because it’s we would have given that money anyways. Earnest money is essentially just a little bit of an early-down payment. It’s not extra money. It’s just a little bit of money sooner than we would have given him at the closing table. So that it’s nothing for us. But it shows him that we are committed so that if we do drop the ball and we do screw this up, then we lose more money. And the fact that we are so it was such a no-brainer to do that really kind of proves the fact that we have no intention of backing out of this in our minds. There’s no way this deal isn’t getting done. It’s just a matter of time.
Anthony Vicino: [00:31:09] Yeah. And so the push there is if the deal falls through, we’re losing a lot of money. And that’s what we’re showing him by putting it up and saying we’re going to get this done and we’re putting our money where our mouth is. And so on both of those fronts, we were excited because our investors responded really well to get an extra month of preferred return, which is fantastic. Who doesn’t love that? And then the investor or the seller on the other side is like, hey, guys, that’s really cool. I think it’s a really honorable thing that you guys are offering. And so is solidified that relationship with the seller. So what I want to do now, Dan, another kind of like given the story is let’s go through and share three of our takeaways or three lessons learned from each of us for a grand total of six lessons learned. Do you got your first lesson
Dan Krueger: [00:31:57] With ping pong and back and forth?
Anthony Vicino: [00:31:59] Yeah, let’s ping pong it.
Dan Krueger: [00:32:02] So the first one I am Anthony is the writer here. I don’t know. I’m not as good with words. So if you can help me phrase this in a more eloquent way, I would very much appreciate it.
Anthony Vicino: [00:32:13] But hey, man, you helped write passive investing made simple, the new book coming out August 11th in bookstores near you.
Dan Krueger: [00:32:19] Oh, I’m sorry. What was the title
Anthony Vicino: [00:32:20] Of that again? Passive investing made simple words coming out. Amazon, Barnes Noble couple. You can find it.
Dan Krueger: [00:32:26] And if people want a free copy,
Anthony Vicino: [00:32:28] What do they do? Yeah, just shoot me an email. Anthony, I’d love to leave a review.
Dan Krueger: [00:32:32] And we like we’ve touched again, there
Anthony Vicino: [00:32:34] Is another sneaky
Dan Krueger: [00:32:36] No. But so my first takeaway my first lesson from this deal is that you always need to listen to those whom you respect. And that sounds kind of vague and high level. But really what I’m talking about here was the seller on this deal made a suggestion very early on. And we are very much focused. We had our blinders on. We’re like, this is the thing we’re doing. We had good luck with these guys in the past or we’re going to go this way. We didn’t take the time to follow up and just call the seller and be like, why is it, you know, why are you making a suggestion? Like we’re aware of who these guys are? Is there something we’re not privy to that we should be, you know, just taking that extra step to really listen to that suggestion would have paid dividends. It would have saved a lot of time, a lot of stress. So listen to those. Thirty years ahead of you. If they’re giving you some advice, even if you don’t want to listen, do it. Just listen to it just in case there’s something there.
Anthony Vicino: [00:33:34] And that’s the key there is you’re not having to take their advice. We’re not saying take the advice of people you respect. It’s so listening and try to understand their perspective and why they’re saying what they’re saying. If you can understand the other person’s perspective and you still disagree with it. Oh, great. That’s perfect. That’s fine. There’s nothing wrong with that. But if you go into it and you don’t even understand why they have that perspective, that’s it’s a lack of humility, first of all. And you’ve got to be careful when that happens. So because my number one lesson learned throughout this all and we’ve just said this so many times today on this podcast. It’s going to sound cliche at this point, but its relationships are everything, absolutely everything.
Dan Krueger: [00:34:19] Any follow-up or just
Anthony Vicino: [00:34:21] No, that was. Well, I mean, we hit it. I mean, we’ve been here. The whole story is really a relationship. So I don’t know if we can hit it any harder to have
Dan Krueger: [00:34:28] Relationships for 40 minutes.
Anthony Vicino: [00:34:31] All right. So let’s go to the number two
Dan Krueger: [00:34:34] List number three. Well, two from the number three.
Anthony Vicino: [00:34:37] Yeah, you’re second. Our total third.
Dan Krueger: [00:34:41] I’m confused. I’m going to give the third lesson here, but it’s number two on my list. Communication is everything, which is annoying because Anthony just said something else was everything. And two things can’t be everything but communication is super important. And it popped up a few times in the steel one, the nuance of the cell early on, it didn’t really communicate fully with them on that piece. Number two instance was the first bank not effectively communicating their true intent early on that is actually having some reverberations. Like I said before, small community, the seller on this deal is unhappy. He’s made it clear they’re not getting this business anymore. And that other seller who was friends with there is lots of units around here is also not going to be working with them anytime soon. So it is working itself out. And then, you know, those were some of the downsides where there wasn’t communication and then the second bank not communicating effectively the intent of their syndicate bank, those were all kind of negative outcomes of lack of communication. But then the positive on the positive side was good communication, helped a lot with the deal, was communicating with the investors. Although there were delays and it took longer than intended, people were happy that they got updated throughout the process instead of just radio silence. The seller was happy that we came to him with these issues as soon as they popped up because they gave us time to brainstorm and work together. So those are instances where proactive communication really paid off and things could have gone really poorly. If we’d stuck our head in the sand. We probably wouldn’t be talking about this deal right now because it would have completely fallen apart.
Anthony Vicino: [00:36:23] Yeah, you know, it’s funny, my second lesson learned is communication is everything as well. And so my first two lessons were relationships are everything. Communication is everything to like. They’re both everything and communication. It’s this business is hard. Entrepreneurship is hard. Being a real estate investor can be hard. Things change. But putting your head in the sand and pretending like it’s going to get better or hoping that you can sort it out before anybody notices, that’s a losing recipe. It’s funny because the first bank, when they backed out, Dan gave me a call on my way to an event in Nashville, and we had the conversation while I was driving. And the very next call a minute later was to the seller, like there was no pause. There is no waiting and seeing if we could sort this out before he felt the reverberations if maybe we could sneak it through and he wouldn’t notice. No, it was like we got to tell him right away. And then the same thing with the investors is like, let’s be as proactive as possible and communicating throughout the deal. And when you do that, people are not just forgiving, but they’re understanding and their support. If they start to say, hey, let’s brainstorm this together, here are some solutions, let’s find a way that works
Dan Krueger: [00:37:34] On a percent. Last but not least for myself, of the takeaways from this deal is always to have a contingency plan. I think you know why I’m saying that, but I’m the type of person who in any situation, anywhere in life, I was talking to my wife about babysitters and stuff like that because we just had a baby seven months ago. And, you know, she’s got like two or three friends who are willing to help out as needed. I’m like I need like. I was in multiple vendors for anything. OK, I’m used to liking having like five-floor guys, five carpet guys. She’s got, two potential friend babysitters. I’m like, we need a list. Go on here. We need contingency plans. So I approach everything like this, much to my wife’s dismay. But no matter what. Just have a backup plan because you don’t ever want to have something to fall apart and then realize that you have to start from square one in the heat of the moment while you’re panicking, while emotions are high, you want to build multiple contingency plans while you’re cool-headed, hopefully so you don’t have to use them. But then when they do pop up and need to be used, they’re ready. And you don’t have to try to make these kinds of decisions when you’re scared or angry or anxious. Like I said before, emotions are not going to help anything. So if you can get all your thinking done while you’re cool-headed, that’s always a good situation.
Anthony Vicino: [00:38:51] Yeah, it’s all about being solutions-oriented at the end of the day, finding the solution, and amidst the chaos. And so my last lesson before we let you guys out of here, I think it might be the most important one. It’s doing the right thing is always the right thing. I know. It kind of like contradicting everything.
Dan Krueger: [00:39:08] This is the most important one.
Anthony Vicino: [00:39:09] Now, this one for me is the most important. Doing the right things written. Yeah, doing the right thing is always the right thing. And what I mean by that specifically is there is a point in the conversation when we’re the second bank had just pulled out and Dan and I had a conversation because technically the way that our purchase sales agreement with the seller was written is we had a financing contingency written in there. So what that meant is if for whatever reason, the banks couldn’t get on board, we couldn’t arrange bank financing, we could terminate the relationship with that deal and get all our earnest money back. And so there was a very real conversation of if we pulled the plug on this, will we take our money out or will we forfeit that and give it to the seller anyways? And it wasn’t a very long conversation that we had. At the end of the day, Dan and I decided that no matter what, even if we were well within our technical rights of the contract, we were going to forfeit that earnest money and give it to the seller. If we couldn’t follow through and do it, we said then that was the price that we were going to pay to show him that we valued him in the relationship. And yes, we could look at it and say on the long in the long horizon, that fifty thousand dollars lost would be just a blip in the radar for us in the grand scheme of things with the relationship with that seller. But more importantly, at that moment, he put a lot of faith in us to get this deal done. And if we hadn’t been able to do it well, we didn’t want to punish him for his faith in us like that would have just been salt in a wound. So doing the right thing is always the right thing.
Dan Krueger: [00:40:41] Yeah, and that’s another example of, you know, and I have talked about these things before, like how we respond to certain things and like, you know, really we’ve had those discussions about like what is our moral and philosophical compass look like? And so we’ve already solidified these types of things. And so in the moments when emotions are high, I’m going to say it again, very rational. People do irrational things when they’re up against the wall and emotions are high. But because we’ve already made that kind of moral and philosophical decisions ahead of time, there’s no thinking that needs to be done at the moment. As Anthony said, it was very quick. We didn’t need to talk about it. It’s just like, well, what should we do? Well, we’ve already talked about this. We know what we should do. It doesn’t matter what we want to do or what we have the urge to do. It’s like we know what we should do. So there’s no thinking needed. Here’s the right thing to do at the moment. It might be a tougher decision because someone might be sitting there thinking I could either lose fifty thousand dollars or it could not lose 50000. Most people would go for the not lose fifty thousand because at the moment they’re like, I don’t want to lose fifty thousand, but they would forget about the long term thing. So, yeah, very important concept. And I think that doing the right thing is always the right thing. Should be its guiding principle. The subtitle of this episode.
Anthony Vicino: [00:42:02] There you go. Maybe it will be. So that’s going to do it for us to get today. Guys, I hope enjoyed the story of hearing about the Charles Avenue deal if you’re interested in learning about future opportunities, because, you know, we’ve got him coming down the pipeline more than we can handle. We have to turn them away. Then make sure that you go over to Invictus, multifamily dot com, and join our investor network investor club so that you can get information about these deals as they come out. Remember, you have to hop on a phone call with us before we ever let you into a deal. So come get to know us. Make sure that you go and pick up passive investing made simple when it drops on August 11th. And it’s always, guys, we appreciate the heck out of you. See you.
