by | 14, Jun 2022

Step By Step: Acquiring A Building

We are currently acquiring some properties, and it’s a very exciting time! In that spirit, we are going to give a very detailed, step-by-step breakdown of the property acquisition process.

Dan and Anthony are going to give away their exact workflow, their secret process of property acquisitions. So if you’re an operator, get your notepad out! And if you’re a limited partner, we hope this gives you a good peek at what all is going down behind the scenes.

So… what is the best process for acquiring a building?

Find out on this week’s episode of Multifamily Investing Made Simple.

Tweetable Quotes:

“Cash is that trashy person who wears like leopard skin prints everywhere and then like leotards, or like a onesie.” – Anthony Vicino

“Big daddy issue is due diligence. Get that done as soon as possible” – Dan Krueger

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** Transcripts

How To Acquire A Building

[00:00:00] Dan: Everybody, everybody

[00:00:20] Anthony: welcome to multi-family investing made simple. This is the podcast where we take the complexity out of real estate investing for that. You can take action today. I’m your host, Anthony Pacino of Invictus capital joined as always by Dan Minneapolis. Krueger.

[00:00:33] Dan: I’ll take that. That’s

[00:00:35] Anthony: yeah, that’s good.

I want you to be known as Mr. Mini.

[00:00:40] Dan: Mr. Mini

[00:00:41] Anthony: appy, masker mini MP. For those that aren’t from Minneapolis, that they probably don’t know this, but we refer to our city, our beloved city as many happy. I like to call San Francisco is San Fran, um, or the big apple or, uh, When

[00:00:58] Dan: you say Minneapolis, well, [00:01:00] you do. Mm, Nope.

I’m pretty sure

[00:01:02] Anthony: that’s what everybody says. I hear it. I hear it. I hear

[00:01:04] Dan: it very often. Or in Minneapolis. I’ve not heard many happy. They you’re about to. I just did. Isn’t it fun? It’s fun to say many happy. I like it. I don’t like it with my name attached. I don’t want to be Dan mini API. That sound, you don’t want to be Dan Mini-App Krueger.

It sounds weird. What about Minneapolis? I like that better, actually. I don’t know why it just rolls off the tongue. It does. All right. So,

[00:01:25] Anthony: Hey, just full disclosure. Don’t come a minute. Don’t come to Minnesota or Minneapolis and say, Hey, I’m in Minneapolis. Nobody. No, one’s gonna know what you’re talking about because we can all lies.

I made this all up. Yeah. So, all right. Not banter. Let’s get to it. We got to, we got it. Killer episode today, we’re going to walk through because we’re in the middle of a bunch of acquisitions. It’s timely. We’re going to walk through section by section set by step-by-step. What is the exact workflow that we follow when acquiring a new building?

So if you’re an operator out there, get your notepad out because you’re going to pretty much walk away. With a built system, like a process for [00:02:00] you. So you’re welcome if you’re not an operator. Hey, that’s cool too. Um, as LPs, I think it’s really interesting sometimes to know what your operators are doing and the timeline and like how a deal actually comes together.

So stay tuned for that before we do get to that meat and bone meat and bone.

[00:02:16] Dan: Yeah,

[00:02:16] Anthony: potatoes till we get to that really good stuff that you want to hear. Um, let’s first do some bit that you don’t want to hear about, which is some bad investing advice. It’s probably not what you came for, but now that you’re here, you can’t get out.

It’s not like you can just turn us off. So if you’re driving, you should already be bubbled up. If you’re not driving, go find a seat belt, buckle up and

[00:02:39] Dan: Dan, take it away. Boom, uh, Cassius tracks. Ernest just trash in the street. You don’t want it. If you’ve been listening to us for years now, you’ve been hearing us talk about why cash is such a horrible thing to have, and inflation is going crazy and it’s going even crazier than it has been for a long time, which should imply the cash is even [00:03:00] trashier.

Today

[00:03:02] Anthony: cash cash. Is that, that trashy person who wears like leopard skin prints everywhere and then like leotards, like a onesy in like how I

[00:03:12] Dan: dress what’s smart.

Oh

[00:03:13] Anthony: yeah, me too, actually. Okay. CA cashier. You’re actually kind of a class

[00:03:18] Dan: last. Alrighty. So Cassius trash, uh, I think this got really popular when Dahlia was set maybe like two years ago or something at a Davos or something.

Um, Passed around because everyone used to say cash is king, right. That was the big thing. If you had cash, you had power. You had the ability to go and do things because your cash, right. Um, Daniel said cash is trash, basically because of inflation. If you are holding cash, you’re losing. X amount of percent each year to inflation right now.

I think the number just came out today. It was like 8.5, 8.6, filming this in early June, 2022. But anyway, I’m going to take today is yeah, there’s a lot of inflation. However, uh, we are going to be running into some Rocky economic times. All we need is [00:04:00] one more quarter of reduced GDP and we’re officially in a recession and that number comes out.

I want to say on the 15th. So in about a week or so here, we’re probably going to get the official recession thing coming out. A U S government’s are going to say it, um, cause it doesn’t help the story with midterms, but if we get to, uh, successive quarters of, uh, reduced GDP, then that’s, that’s where we’re at.

So with that said, What you can expect to happen in those types of situations is, uh, things are gonna get a little bit tighter. And even though cash is technically trash, according to Dahlia, when you’re, yes, you’re losing money to inflation. Having the access to liquidity is going to be incredibly powerful.

Uh, when times get Rocky, because what’s going to happen is there’s going to be some good opportunities to take advantage of things at discount prices. Rocky. It might be real estate. It might be stocks, whatever it is, whatever your thing is, having access to capital and liquidity is going to be incredibly powerful.

So I’m not saying just throw a bunch of cash into a checking account, but start to prioritize liquidity, whether that’s cash or [00:05:00] just a line of credit. Keep in mind that banks can just turn those off anytime and can’t really turn off your cash. But in any case, the point is, yeah, cash is losing value to inflation.

At the same time when we get into a recession or if it’s even worse than that, having access to liquid capital is going to be a very powerful resource.

[00:05:20] Anthony: Liquidity is power, liquid liquidity is a great thing. Um, and that’s coming from real estate investors who. Yeah. One of the big knocks against real estate investments are that they are pretty illiquid is, um, I always think of that as a feature, not a bug, but it’s also not to be overlooked, like having liquid cash and being able to get to it quickly is, is great for a lot of reasons.

Yeah. So

[00:05:43] Dan: beef up the rainy day fund, I mean, real estate gives you cash flow, so it’ll send you cash on regular basis, but just keep it in mind, keeping in mind. And

[00:05:51] Anthony: there might be some really good buying opportunities here in the future, which you can’t take advantage of. If you don’t got cash. I have that dry powder.

Ready to go? Oh, here you go. Boom, boom, boom. [00:06:00] All right, so let’s let’s um, alright, acquisition, let’s get into the acquisition process. Let’s talk through this.

[00:06:05] Dan: I mean, it’s extensive. It’s, there’s a lot that happens more than five things for YouTube. Got some version of a list kind of printed out here. This is a lot of steps.

This is our

[00:06:16] Anthony: checklist and we’ve checked none of these off. Oh my goodness. We have a lot to do then. Um, oh

[00:06:22] Dan: anyways, so we’re going to break down all what all this is because you guys are probably a little bit

[00:06:27] Anthony: curious. Yeah. So, so the way to think about this is a, you can break into these macro, uh, categories first.

We have pre-contract. So before we actually go under contract, then we have day one under.

[00:06:38] Dan: Uh, real quick for the listeners here under contract means that we have a signed purchase agreement.

[00:06:45] Anthony: Yep. It’s not an LOI letter of intent. It’s we officially have this deal locked in. Our due diligence period has begun.

Time is ticking tick, tick tock. We got to go. So we’re gonna break this into pre-contract. We’re going to talk about day one. What needs to happen that day? [00:07:00] Everything gets signed. And then what needs to happen in that first week? What happens in that second week? What happens in that third week? And then what happens to.

And then we’re gonna talk about post-closing task. Now this condenses everything into a four week period, generally our acquisitions take about eight weeks. So take this with a grain of salt, right? So it takes about two months, 60 days from the moment we go into contract things, finally closing. Um, so you’re gonna tweak these weeks, uh, accordingly, but generally this will be exactly the process we follow.

So first thing is. We get some kind of information from a broker or a seller, or somebody approached us to say, Hey, we’ve got this thing. So we’re going to be collecting the T 12 rent rolls as much information as we can to do a back of the napkin analysis. And a lot of times that can be as simple as, Hey, let me know how old the building is.

The state of the building, how many units it is, what kind of rent you’re getting. And if we get the address, we can kind of infer the rest with our own expenses. Do the back of the napkin and decide is this worth actually going in touring? [00:08:00] We’ll go to her. If we liked the tour, then it’s time to come back and do deep dive underwriting.

Right. This is where we’re now like, okay, we’re a little bit off on some of these assumptions. We see some opportunity here showed

[00:08:10] Dan: up and it was just

[00:08:11] Anthony: junk. It was garbage, but we still want it. We still want this building. So let’s, uh, let’s under, let’s adjust our underwriting

[00:08:17] Dan: accordingly. Yeah. And sometimes if you’re getting something off market, which we do a lot, you’re not getting the T 12.

Yeah. Usually you’re lucky to get a rent roll and a. If you’ve done this enough and you’re operating in the same place with the same types of assets, like we are, we don’t necessarily need to see all that stuff. We don’t, I don’t need to see the expenses for anybody

[00:08:37] Anthony: these days. Honestly, I don’t care how you run your building.

I’m going to run it different.

[00:08:40] Dan: Exactly. It’s like, we’ve got enough assets to, uh, to pull data from where we don’t need to see what you claim your expenses are. Now these days we’re pretty much operating with guys. We really know, like, and trust. And so we don’t have to worry about this, but if it’s just an anonymous seller, I mean, they’re going to try to, they’re going to paint the most rosy picture ever.

So even if we do get all this information, I’m still going to take it with a grain [00:09:00] of salt and put in what I think things are going to run at and not what they told us. They’re doing

[00:09:04] Anthony: roses, my least favorite color. So don’t, don’t call her anything with rose. Um, all right. So what, once we’ve done our underwriting.

Now it’s going to, you know, talking to the investment board, which is just Dan and I like sit down and we’d decide. Yeah, you can do

[00:09:19] Dan: it. I’m gonna do it here a little bit more thought.

[00:09:23] Anthony: Yeah. There’s a little bit of back and forth, but then we get to the submission of the LOI, which is just painting out the broad strokes of the deal.

It’s about this time, like if we’re submitting an LOI, we feel reasonably certain, the salary is going to we’re about to enter into a negotiation. We don’t usually just blindly send out LOI. Yeah, we’ll see if this we’ll see what happens. Usually we have a pretty good sense once we get to this LOI phase that it’s going to go to a PSA.

Um, so during that same fi same time period, we’re starting to talk to mortgage brokers, starting to talk to our bank and trying to get some term sheets so we can start figuring out. What kind of debt can we get on this bad boy? What’s that going to look [00:10:00] like? Because the debt is going to massively impact a deal.

Especially these days with rising interest rates you want to get as far ahead of that as possible and understand like, what’s the picture? Is it Rosie? Oh God. No. Is it. Okay, better. I like gray.

[00:10:14] Dan: Gray is a good color. Um, I mean, as far as forecasts in the future, I’d love bright green, whatever, like the most positive color is, but for t-shirts, I’m a big fan of gray.

Um, and this is, this is going to vary a lot per operator. Now with us, we deal with the same types of assets in the same place, a lot of the same banks over and over again. So maybe we’re not rushing to get the term sheet right away from them, but we’re starting the conversation. We’re going to send them the initial underwriting to kind of get the conversation started.

As we’re moving towards moving under contract. Cause we don’t want to waste too much of their time. If the seller comes back and says, no, you guys are way off. This LOI is nowhere close to what I would want to sell this. And this has happened before where we come to a number that works for us. And it’s a mile apart from where the seller wants to be.

At that point, and that’s why we’re doing an LOI instead of a full purchase and sale agreement, because we don’t want [00:11:00] to spend a lot of time and legal dollars on drafting up a contract if we’re a mile apart on the terms. So we use a simple, you know, two page letter of intent to paint the broad strokes to see, Hey, are we on the same page?

And if we are, we get that signed back then, all right, now let’s go. And actually have some, some lawyers get involved and put together the full contract and that’s where things get serious.

[00:11:19] Anthony: And that’s, that’s where we enter into the PSA negotiation and signing phase. And for this, we usually have our real estate attorney draft up the.

The PSA, make sure it’s good to go. There’s just a little bit of back and forth with the seller. Once that gets signed, it’s it’s time to hit the pavement, like literally kind of get going. Um, we, at this point, this is, um, day one of signing. So what we do like contact the STC attorney immediately, if this is a syndication, cause they’re usually the slowest bit in terms of getting the PPM and S subscription documents ready to go.

Um, we. Uh, as quickly as possible hop into physical DD, you can’t do that [00:12:00] day one. So we’re scheduling that, getting, uh, getting our inspector ready to go, getting the team, the operations manager onto the schedule so everybody can get out there and look at these units as quickly as possible, because the way if we have to update something, we’re going to want to know that.

[00:12:14] Dan: Yeah, the first phone call, honestly, before the attorney for me is the inspector, because I want to know as soon as possible. There’s bodies in the closet or what am I saying? What am I, yeah, I mean, that’s the big thing is because we can look at these buildings, uh, after two and a couple of units and get our heads wrapped around what we see from an aesthetic perspective.

But until you get a really good engineer in there, uh, to inspect the roof and some of these major components, you don’t you’re. Uh, CapEx budget could see wild swings. And so you want to find that out as quick as possible. So if you need to talk to the seller about renegotiating something, because something wasn’t disclosed, you wanted to do that well within your, uh, period to do that.

Uh, it’s called the due diligence period where we’ve got, depending on. The deal anywhere from a couple of days up to maybe two weeks [00:13:00] to make any claims against, uh, the contract that you guys, uh, put together. So if you put together a contract at a certain price, assuming, you know, all the things, all the information you got from the seller, and then you go in and do due diligence with your inspector and you find that the roof is actually caving.

So it didn’t tell you about that. You come back and say, Hey, this is going to need $150,000 roof. Uh, we got to adjust this price. You want to have that conversation well before your due diligence period ends so that you are nowhere near past that point. Otherwise things are locked in. And if you want to back out, you’ll lose, uh, earnest money, which is substantial.

And that’s also something on on day one. We usually have a couple of days anywhere from three to five days to get that earnest money deposit. In escrow at the title company, because that’s the money, that’s a given the solar comfort that you’re not wasting their time.

[00:13:47] Anthony: Yep. Um, on that day, one is pretty much, as soon as we get into the contract, we’re going to send out if we’re syndicating this, we’re going to send out an investor teaser email, just to let him know, Hey, we got to think coming, but we’re not gonna give too much details at this point.

Cause we don’t wanna get anybody’s [00:14:00] hopes up because we still have to go through due diligence and we might discover some things that, um, we. My Mike nuke the deal, right? So we’re, we’re going to keep it high level and just vague because investors need time. And if they’re on the fence of another investment opportunity, what we’d like to do is just let them know, like, Hey, there’s a thing coming up in the next couple of weeks and they might go, oh, okay.

Maybe I’ll pump the brakes on this and just wait to see. So it’s good to stay ahead of that. And that first week, uh, the biggest thing that we’re trying to get done is physical doodle D due diligence and financial due diligence due diligence. Um, one of the interesting things about physical DD is. And underwriting process.

It’s usually just based off of us going and walking some, a couple of units and maybe poking our head into the common areas and seeing some, um, some of the foundational, um, uh, mechanicals. And that’s not a lot of information to go off of. Right. And so we’re underwriting to the best of our ability with limited knowledge.

But now once we’re doing the physical DD, we’re going into unit by unit, by unit with our inspector and [00:15:00] our team to really tune in that, that. And on the last day, I think this is really interesting. Super cool. Is that your underwriting, your projections on the last deal versus Garrett? Who’s our operations manager manager who goes through unit by unit by unit and says like, this is what each one is going to cost.

Those two budgets were within $400.

[00:15:22] Dan: Yeah, it was a $220,000 budget for that one building. And his was 400 bucks less than mine, which is really impressive because I didn’t give him any guidance on what he was shooting for. He had no idea what the macro budget was or how much per unit or anything like that.

I was just like, go through every unit, write down everything that needs to happen, budget, uh, per our usual philosophy, which is whatever we think it’s going to be. Plus 20%, you know, y’all was building some fluff with real estate because you’re going to open up a wall or two and find something. Knew about.

Um, and so he had that core philosophy and he came up with something almost exactly. So I like to say that either we are both, uh, [00:16:00] very consistently horrible at this or.

[00:16:03] Anthony: Either way we’re, we’re in the same boat, it’s either a good boat or a terrible

[00:16:07] Dan: boat. And honestly, with this one, we had already bought several buildings from the seller.

I really knew this guy is really consistent. Like I’ve seen a few of his properties. I’ve pretty much seen them all. So yeah, it was, it was kind of a. It makes it easier.

[00:16:19] Anthony: Yeah. All right. So in conjunction, the other big due diligence thing is financial, which is going in and we’re doing lease audits, making sure that, you know, we work with sellers that we know like and trust.

Um, but that hasn’t always been the case and I’m sure we’ll buy stuff from a stranger in the future. And you want to be really certain that they didn’t just stuff, uh, bodies into the building just to make it look good. And that the lease that they. That they tell you that they’re getting on rents and like what they’re actually getting, uh, actually line up.

So you want to be doing that lease audit as quickly as possible because I’ve heard some real horror stories on that front. Yeah.

[00:16:52] Dan: I mean, honestly, we’ve been transacting with the same kind of group. Uh, players in our market for a long time. [00:17:00] This piece is, is, is really easy, um, for us. But if we were going to be transacted on the side of the we’ve never worked with before, which is really common, most of the time you’re dealing with people that, uh, you know, you might not even have visibility to, you might just be going through a broker and there’s some anonymous seller you’re dealing with.

We want to do is, Hey, figure out, does the rental, they provided match up with the leases, do the lease rents and deposits and all that information match, which what was on the rent roll. If you’ve got a a hundred unit building, you’re looking at a hundred units of, uh, worth of leases compared to the rent roll.

And you’re also gonna want to take a look at, um, the criteria that they’ve been using, right? You should be able to see in the tenant files that you received. Uh, the background checks and how are they qualifying these individuals? So you should be able to see, yes, they might have somebody in here paying this rent, but, um, are they qualified?

Did they just cramp, like Anthony said, did they just cram a bunch of people in there and preparation to sell the property and you look in there and see, oh, this person’s only making one times the rent. I don’t know. [00:18:00] Uh, this is literally. To work. If you see a bunch of that, that’s not good are

[00:18:05] Anthony: going to be able to keep up on that.

[00:18:06] Dan: And you want to dig into the collections and, uh, aged delinquencies and things like that. And really just make sure that is the rent. Will they provide an accurate that’s the goal?

[00:18:15] Anthony: Yeah. This, this first week is so important for just verifying the assumptions we’ve made during underwriting and up to this point, so that if we need to get out of the deal, we can still get our earnest money back.

And usually that. 14 day windows. So it’s, it’s tight and you gotta, you gotta move quickly, but happening concurrently during this period of time, we’re gonna, if we can start opening up our bank accounts, getting an operating account, set up, getting the asset level LLCs, assuming everything’s starting to check out and getting the, our real estate lawyer working on operating agreements, depending on how we’re going to structure this deal.

If we’re just gonna buy it ourselves, probably don’t need that. But if we have a, a JV or syndication like this, there’s gonna be a lot of paperwork. And.

[00:18:56] Dan: Yeah, I think just to kind of sum up. Big [00:19:00] daddy issue is due diligence. Getting that done as soon as possible. Get your DD second. Most important is getting the bank, everything they need because they are one of the slowest pieces.

You want to get that appraisal order. Do you want to get the bank? All the info they need? Because if it’s not the syndication attorneys that are holding up the show, it’s going to be the bank. And so you want to get all those guys working as soon as humanly possible because they’re, they’re the bottlenecks.

And then a third is going to be the underwriting, getting that trued up as soon as possible. And, um, Then prepping investors and saying, Hey, we got a thing more. Information’s coming. As soon as we get through DD, we’re going to start to share numbers and all those juicy details, which kind of leads us into,

[00:19:37] Anthony: we can week two, assuming DD has checked out and we’re like, we’re looking good.

We’re moving forward with this thing. Now we’re going to be sending out to the investors, our marketing package. We’re going to record a webinar where Dan and I go through the details of the deal. We’re going to schedule. We’re going to create a, um, an investor Q1. That we host live and start getting people primed and ready for that.

And then we’re going to [00:20:00] blast it out to everybody and

[00:20:01] Dan: capital raising week two, I

[00:20:03] Anthony: think yeah. Week two is largely getting the investor pool primed and ready. Now the docs from the sec attorney are probably not ready yet, but we, we don’t want necessarily the way that we do it is we want to be able to give our investors some time to think about it before the documents get there so that they don’t.

I have to do all of it simultaneously. It gives a little bit of breathing room. So in that second week after DD, um, now they’re, they’re getting the information, we’re hosting all the live events, getting all the questions and starting to get soft commitments, which is a lot of fun because it’s when the, you know, the rubber really meets

[00:20:39] Dan: the road.

Yeah. Yeah. Um, so I think that’s really, um, a lot of what’s going on week two. We might have some carry over. Of the DD process, like we’re working on a larger deal now where that, that process actually went for more like two and a half weeks in multiple buildings and a lot of units to walk. And so that one stretched out.

But this example is primarily speaking [00:21:00] more towards a single assets indication. One building that DD process is usually done in either the physical DDS, usually one day or maybe two. Um, but yeah, by the time we get to the second week, assuming a normal deal, it’s largely around getting info in front of investors.

Um, getting them ready for when those docs are going to be, uh, coming out, which is, uh, hopefully in, in week three, assuming our, uh, our, our attorneys have been moving. I mean, I think that’s probably about as quick as we’ve ever seen anything is within three to three weeks. Yeah. I’ve never seen him quicker than this.

So, um, so as long or two.

[00:21:33] Anthony: And so that means, and again, like when we’re using the terms weeks here, Take it with a grain of salt. Like sometimes week one actually becomes 2, 2, 2 total weeks, which means week two actually becomes in reality week three. And so as we’re creating this acquisition timeline, we go in there and actually fill out the date.

So we understand like what that looks like. Um, but the next phase, the next week, or the next chunk of time is largely all around raising capital. If we’ve done our DD and we’ve you have everything locked in [00:22:00] on that side now it’s about getting the money ready and that’s going to come to. You know, getting the investors who made soft commitments, getting them to the PPM, getting the subscription agreements and making sure everything’s signed and locked in and funds are transferred and they’ve arrived where they need to.

And, and that sounds way easier than it actually is not easy. It’s actually one of the, the most cumbersome parts of the whole equation. And there’s not a really good solution to it. Um, because PBMs are really big. There’s a lot doc, a lot of pages, a lot of things to check and you gotta be very.

[00:22:34] Dan: Yeah, anyone who’s invested in one of these deals before knows that it’s not just a quick, you know, buy now button on Amazon here.

You’re going to be investing a decent amount of money and the documents are reviewing, are comprehensive and robust to put it in. Positive. I mean, it’s a lot of legal and accounting jargons. We always recommend that people have their attorney review it. That takes time. You’re going to have questions.

There’s going to be back and forth with us. The [00:23:00] signing process. Isn’t the most intuitive. We do everything we can to make it as simple as possible. And then there’s the funding piece. And, you know, you multiply that process by however many investors you have in a deal. And you’re corralling, you know, many people through this process who are at different points in the process at different times, over the course of one to two weeks.

And so it’s the number of things that we’re doing that week. Uh, this might be a shorter section. On paper, but it’s probably the bulk of the logistical work that goes into this. The D D piece is big. Um, and then this piece, getting everybody corralled into the deal, making sure we do that in as smoothly and easily as possible for everybody is a heck of a lot of work.

So it’s a busy week as for sure.

[00:23:42] Anthony: Yeah, this is, it doesn’t sound like much, but it really is. I, I don’t know what else to say there. Um, A lot of moving parts have to move in. S not, they’re not moving in sync, but they all have to hit the same line at the same moment. [00:24:00] Hard.

[00:24:00] Dan: Yeah. I mean, it’s almost like a, I’m picturing almost like a little kid’s soccer game.

Like you’re just trying to keep everybody on the field, get them moving kind of the right direction. And then just hope that nobody gets hurt.

[00:24:12] Anthony: Um, pray for the best. Yeah. That’s capital raising. In a nutshell,

[00:24:16] Dan: I don’t mean to call our investors toddlers with a soccer ball, but it’s, you got to corral a lot of people around and make sure they’re all kind of getting to the right place and.

Yeah, so it’s, it’s hectic, but I think we’re getting pretty good at it. Yeah.

[00:24:29] Anthony: We’ve, we’ve figured out our system, so, okay. So now we’re going into the week of closing and this is where we’re now starting to prepare the property management team for takeover. So now they’re printing off signs, they’re getting the resident letter ready to go.

They’re updating app folio with all the leases, linking the operating accounts so that once we take over day of, they can go in there and like the Navy seal team. You too, they attack

[00:24:54] Dan: the execute. No, we don’t attack or execute anybody. So this is a friendly [00:25:00] coming together, veteran

[00:25:01] Anthony: analogy. Okay. So walk that back.

I dunno. Okay. So they’re not executing, um,

[00:25:06] Dan: we’re executing systems and processes. Um, we’d hit the ground. Oh,

[00:25:11] Anthony: there you go. They hit the ground running. You just sound. I felt like we’re at war for a second. Did okay. Um, well, because the reason it sounds aggressive is because it’s the takeover plan we’re taking over.

It sounds very like it is military.

[00:25:26] Dan: It is. But, uh, yeah, I think the big thing, uh, on that week of closing that is usually pretty time-consuming as you know, obviously. Getting all the communications prep for delivery. And there’s something that lop you might not be aware of that, um, when you’re purchasing an apartment building from somebody.

99% of the time, the owner of that building, who’s selling it. Hasn’t told anybody that transactions happening. So yeah, they always do. And that’s

[00:25:53] Anthony: just the way it works. Whenever we go to our units on like, before, like at any point we’re always in bank or [00:26:00] insurance appraisers, like

[00:26:01] Dan: always. Yeah. Uh, but that’s just the way it is.

Right. The seller doesn’t want to tell everybody they’re selling because anytime. Um, you’re in whether it’s a building or an organization and you hear that the ownership is changing everybody’s mind goes to the. Uh, every time. So that’s why they do that. And so it’s really important that we get those communications out to the residents as soon as we close.

And so we’ve got to get those ready ahead of time so that we can get those, uh, that information blanketed. We can get that property blanketed and information. We’re sending letters in the mail. We’re putting letters under the doors. We’re sending. And email so that everybody gets a message that, Hey, uh, there is a new owner, um, the person who you’re paying your rent to is actually going to change, um, the person you’re calling with your work orders is not going to be the same person anymore.

So that’s a lot of info we need to get communicated. So that gets prepped. Um, but the really big thing is we need to get all of the data of that property into our property management system. And Anthony mentioned there briefly said updating AppFolio, what that means is importing a lot of [00:27:00] data. And when I say import, unfortunately, AppFolio, doesn’t let you import, you have to.

Um, input this data. And so that’s a multi-day process, um, because you’ve got to manually create these buildings and AppFolio may call the units and then upload all of the tenant data so that it’s in there. So that on day one, when we take over those residents can log in, submit a work order, pay their rent, whatever it’s gotta be ready to rock.

So that’s usually a couple of days right there of just getting all that data in there. A lot of fun, a lot of fun.

[00:27:28] Anthony: Also a week of closing or rather this is, I guess the day of closing is that we close, we signed paperwork and then we let all of our investors know, Hey, we closed. And we get, and we notify residents and say, Hey, we take it over.

That’s fine. Then we’re done. And we get usually an awkward number of keys and files and you’re like, well, how did you ever manage this

[00:27:46] Dan: with this necessary numbers? All this Hydra of key. What are you doing now that if you’re dealing with, uh, a good operator, you’ll, you’ll probably get a, really a good organized set of keys if you’re doing kind of the mom and pop stuff, which [00:28:00] I’ve done my fair share of.

I mean, I got a S I think the biggest batch of keys I ever got was on that first building I got, which was a six 16. Way more than six keys here. What

[00:28:10] Anthony: is happening here? Okay. So now we’re in the post-closing phase, which is say like the first week, maybe two weeks after closing, where we’re going through and we’re doing post-close investor relations.

So for us, that’s like making sure that everything is updated in the investor portal. That’s do we have everybody’s ACH distribution information to the tax entity so that when those things come up, when we start distributing cash, Try to do K ones at the end of the year that that’s all lined up and buttoned up.

And then we’re also sending out usually, you know, an investor gift box and saying, Hey, thanks for joining us on this ride, planning an event. Um, so a lot of, a lot of things happening on the investor side, probably the most important thing though is the, the property management team X, it starts initiating the takeover plan.

It’s a lot. If you really break it down, there’s, you know, switching over the utilities, it’s contacting [00:29:00] vendors, it’s delivering all the letters and letting everybody know where to go to pay the, like, it there’s a lot,

[00:29:07] Dan: there, there

[00:29:08] Anthony: is. Like, if you don’t have in-house management, you don’t have to worry about that.

[00:29:11] Dan: That’s true. That’s true. Uh, but in any case, if you’re investing in one of these deals, somebody is doing. Somebody’s got to do it because there’s a new owner that needs to be the new person that receives all the bills and all that stuff. So a decent amount of stuff needs to get switched over. There could be residents in there that have some sort of agency paying them.

Right. You need to get that agency, the new info so they can pay the right person. Um, so there’s a lot of work that needs to be done on the property management side. Um, and then assuming there aren’t any vacancies. Kind of forgot to mention that everything we’ve been getting lately has been so occupy occupied that, um, sometimes you might be getting a bill and it’s got a decent one of vacancies.

You’re probably gonna want to jump into those AP, get those bad boys leased up. But, um, yeah. Or if you get a building and a hundred percent occupied, you just, uh, make sure everybody knows how to pay you. [00:30:00] Sit back. Yeah. But no, this is really when a lot of the work begins. We just went through a pretty comprehensive list of acquisitions steps here.

Um, really just. Glazed

[00:30:11] Anthony: over and we didn’t really teach. One could be broken down way deeper

[00:30:14] Dan: and they are it’s after this, that the, a lot of the work really happens. Like getting it to the closing table. It sounds like a decent amount of work, but then actually executing every day for five, seven, however many years you’re gonna own this thing.

That’s really where a lot of the

[00:30:28] Anthony: work is. And, and that is the operations checklists. Maybe we’ll do an episode on that.

[00:30:33] Dan: We got to switch up the title because that does not sound

[00:30:36] Anthony: exciting. Uh, well, there’s some nerd out there like myself, it’d be like, yes,

[00:30:41] Dan: please. I would enjoy that thoroughly, but all right.

So

[00:30:45] Anthony: that is, that’s the acquisition process that we follow over here at Invictus capital. Again, we could go deeper into each one of these things, but I think that serves as a good high level understanding of what actually happens from the moment we see a potential deal to the week after closing. There’s a lot

[00:30:59] Dan: that [00:31:00] happens.

I think what we should say is. Uh, templates of how a generic acquisition should go down. I will tell you that every single deal we’ve done has always had little twists and turns and variations. So if everything just happened like this over four weeks, that would be amazing. Never has never it’s it’s always changed.

That’s real estate that’s.

[00:31:20] Anthony: Yep. So you get your template, get your plan, and then be prepared to pivot and adapt because that is going to be. There you go. All right. So let’s uh, so real quickly book recommendation. I think that’s on me this week, right? Yep. All right. So here’s a good book. Recommendation has nothing to do with real estate, but I think it’s really good mindset book.

It’s quick read it’s it’s like a hundred pages, maybe less. And it’s a tiny book it’s called. I hope I have not recommended this one before, but it’s called the four agreements by Miguel Ruiz.

[00:31:49] Dan: No sound familiar.

[00:31:50] Anthony: Okay. So the four agreements, it’s a about told techie in. Philosophy at Toltec it’s, uh, like [00:32:00] I, I don’t want to, I don’t want to even like, guess it’s it’s, it’s a flaw.

The last week, that’s broken down into these four agreements that you make with yourself. Um, it’s really a framework for how you approach life. Um, one of them is one of the agreements is be impeccable with your word. And it’s not just saying like, let your word be your bond, but also understanding that like the, the words that you use when you speak to yourself that are cycling through your head matter matter immensely.

So that’s one of the four agreements, but I think these four agreements serve as like a really cool, simple. To say, let’s work on these four things. And if you do that, you’re going to hopefully slowly step-by-step move towards your best self. Which why, why else would you be listening to this podcast? If not to become a better version of yourself?

Surely it’s not for the real estate knowledge. Surely it’s not for our humor, please. God, tell me if not.

[00:32:56] Dan: I there’s no chance. No, they’re here despite that. [00:33:00] No,

[00:33:00] Anthony: we are human. We are

[00:33:01] Dan: humorless or get, I will get better. The jokes will go away.

[00:33:06] Anthony: We’ve been doing this for two years, Dan and I was just getting what I thought we were going to stop sucking at some point, but I just think we just kind of leaned into it.

Yeah.

[00:33:14] Dan: It keeps getting worse. All right, let’s do it. Let’s just be bad.

[00:33:20] Anthony: We have no say in the matter, like it is what it is. All right. People we’re out of here. We’re done we’re over it. But before we do make sure you go leave a review, go subscribe, go like this thing over on iTunes. It really, really seriously does make a big difference.

It helps us a ton. It means a lot to us to get the feedback going and reading it. It’s really rad. Um, so we appreciate that. Good. Go do that. Do it right now. Um, and that’s it. That’s all I got. So I’ll see you next week. Come on. Whenever the next episode comes out,[00:34:00] .

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