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192: What’s Happening with Real Estate in 2020?

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Buck: Welcome back to the show everyone. Today my guest on Wealth Formula Podcast is Dante Andrade. Dante is a man of many multifamily real estate hats. He is a buyer’s broker in Dallas, meaning that he is dedicated to the buyer side of acquisition of large multifamily real estate. He’s been involved in just under a billion dollars worth of transactions, focusing again specifically in the the Dallas/Fort Worth market. He’s also a real estate coach and mentor and finally, and probably most importantly, he is my partner in our group called Touro Asset Management Group as we acquire a cash flowing multifamily real estate in Dallas. Dante people know you left and right already on the show but welcome to the program.

Dante: Thank you Buck. Excited to be here. Thanks for the opportunity to talk multifamily. It’s exciting.

Buck: You know it’s great you know to talk to you about multifamily because you know you approach it as and from many different ways that I think uniquely add to the investor experience you know having the constant underwriting and the evaluation of these kinds of properties and on top of that coaching others so it’s been it’s been a really great experience. You know Dante I want to talk to you a little bit about multifamily real estate. It’s obviously such a core focus of what we do particularly in the the Wealth Formula investor group and there are of course lots and lots of things to invest in out there right? I mean we get we get we get out we get bombarded with things, and it’s not just and it’s not just real estate either right it’s outside of real estate. But you know the funny thing is that you and I, we met in Dallas recently and I just looked at you, I was like you know I don’t see the point. You know I was talking I was out there in Dallas meeting with the family office about some things and it sounded exciting and I was doing the numbers and I’m like still doesn’t look like the kind of the numbers that we can get and in something like real estate. Now in your opinion, why multifamily, why now? I mean listen people talk about you know maybe it’s the market is too hot etc, you know why multifamily in particular? So give me your perspective on that give me a specific you know your approach in terms of identifying you know the right kind of multifamily and why do we continue to do this as we go into 2020 here?

Dante: Sure a great question. You know I call it you know what are you talking about we’re looking at this different options it’s kind of the the shiny object syndrome. We have people offering different things all the time and you know as entrepreneurs you know you will always have a tendency to say what else is out there you know, what else can I look at, what else to get my hands on. And I have forced myself to be disciplined and not be you know distracted by the shiny objects of different things just because what we’re doing is working really well and I’m speaking from my own experience and the deals that we’ve worked together Buck, but also with all my clients that I represent and I’ve been doing that for several years and seen their progress and the transitory that everybody goes through in the results all around. So in there are different very few assets out there that you’re looking at. You are able to have cashflow appreciation, tax advantages, inflation you know protection against inflation, there are so many factors to multifamily that really makes it hard to you know in my own view to compare to anything else. We’re able to you know with the cash flow you’re able to diversify the risk right, because if you just fixing on the appreciation if you fixing a new development for example you know you’re gonna put in all this money upfront and then three years from now you may or may not get a payout if there is a turn in the market if there is a turn in the landing conditions that payment is not guaranteed. And the way I look at a cash flow is really insurance because from day one the kind of properties that we’ll buy we’re looking at cash flowing from day one you’re already getting a return on your investment and if that big payout comes at the end in a couple of years, three, five years with for sale or for refinance oh that’s great, but if for some reason the market turns the lending turns there are different factors and that does not happen you already got your cash flow right, you’ll get it got most of your money back in you know in depending on how long you pulled it you got profits also so it’s really hard to find something that’s gonna do an inflation hedge, cash flowing, appreciation in tax advantages which are huge right now also you know with the bonus depreciation the laws that President Trump put in place, you know they’re gonna run into 2021 and I think you know truly believe that that’s gonna be extended and I hope so but we’re taking full advantage of it you know until 2021 and we’ll see what happens at that point.

Buck: Yeah I mean I think there’s a you’ve hit on a number of things that you know we talk about frequently. I mean you know it’s interesting is when you talk about what when you talk about cash flow, it’s a little bit different from what I think the you know traditional idea of cash flow is, I mean certainly there is that element of you know residual income. But one of the other things that you mentioned is effectively what cash flow does is every time you get paid some sort of dividend, it effectively derisks your investment right your capital. You’re getting a piece of it back. So that’s a different way to look at it, cash flow is a way to de-risk.

Dante: It’s also an insurance policy you know I guess an investment. You still own this asset same percentage but you already getting some of you money back right away.

Buck: And to a certain extent, that also helps you understand that okay you know even if there’s a slowdown in the economy, as long as there’s still some demand with demographics and with population growth, which we know there is, regardless of what’s going on with the economy population demographics that sort of thing you know in a market particularly like Dallas where you know the the effects of recessionary dynamics, certainly even in 2008–2009 we’re not nearly as dramatic as they were in other markets. It helps you just kind of have a little bit of peace of mind. And also obviously the tax benefits specifically in 2021 we know the million tax benefits that come from multifamily real estate. Now let’s talk about certainly you know the we talked about multifamily real estate there’s this element of you know having a roof over your head so that’s always helpful too, right? I mean people are gonna give up businesses go out of business you know in commercial real estate retail does poorly, but ultimately people need a place to live and does that influence when you look at multifamily investments whether you do an A class or B class or C class type property, maybe you could just describe what those things are for people and kind of give me a sense for kind of your perspective in terms of, especially right now where the best place might be and why.

Dante: Yes so that is very true. We’re looking at like you mentioned huge population growth. We have you know I was looking at some statistics and we’ve had a huge drop on the population under 35 year olds that actually their own homes so it’s down to a low of 37 percent of the 35 and under owning their home and also at the same time, and that’s you know created by different factors. We’re not building as many homes as we did back you know everybody that’s carried from oh six or seven or eight and at the same time the prices have moved up a lot. We’ve had huge appreciation across the country on the price upon home ownership also a lot of the counties putting a lot of pressure on property taxes so in people are just more mobile you know the Millennials are not into only the big home and moving to this works they’re gonna stay in the city they’re on a trail but they’re gonna be mobile people changing jobs very quickly and they want the flexibility to just say I can break my lease you know if I pay a two months fine which I’d see many employers doing that you know they’ll pay the fine has happened to us there are properties that the employer who will pay the fine for the tenant to move you know and if you have a house it’s much complicated process. So there is a whole demographic shift that it’s all of it is pointing to apartments and that’s why it’s being so hot and it’s being performing soil you know for so many years, if you pick in the right markets. We have like breaking down the classes you know we have Class A Class B Class C interest Class D, even though Class D all exists depending who you ask right if you’re talking to a listing broker there is never a Class D, it’s always a Class C property even though you know if it’s all beat up and boarded up windows and you know and homeless people living in the property or it’s a Class C in that upcoming neighborhood. But if you’re talking to her on my side of the business yeah well there are some D properties we do not buy those you know those are not properties are gonna cash flow right away if there are riskier also in the same way a few about the Class A. So Class A is your brand-new construction the stuff that you see a lot of the high-rises a lot of the which you have a lot of them in built in dollars right now but it’s the high end of our partner complexes there are B build up the latest features, larger units, most of them on urban core areas. And in Class B you have the properties they have been built in the 80s and the 90s, some of them on the 2000s you know they’re now they’re like a minus so they’re actually a B-plus because we’ve had a lot of new construction show up. And then you have Class C which we call a workforce housing which is a property built between the 50s, 60s all the way to the eighties and a lot of them have gone through different times of rehab renovations and improvements and some of them are untouched. I just had a client purchase a property about a month ago a complex of about 220 doors that the developer the family of the developer was selling it and this was something that was built in the 60s. So they’ve only appropriate a very unbelievable low basis and it was completely untouched I saw huge play they’re gonna do really well with their property so and that’s we’re looking at. And you can have properties on each one of those classes mostly on the B and C, there are you play meaning you’re gonna buy the property to collect you to collect the cash flow or you can have some direct value-add which you’re coming in to infuse a lot of money rehab the units make improvements change the management and be able to raise rents. The ones that I like to buy is a hybrid you know it’s not always perfectly 50/50 but something that’s yielding already a return that’s cash flowing that’s stable they got occupancy 90% and higher but at the same time we have opportunities too, it feels fresh capital change things on the property rehab the units maybe change the curb appeal make changes to increase the value force the appreciation of the property. So finding a hybrid between those two is you know it’s the perfect setting in applies to both the C and the B class and people keep asking how about all this new construction happening on the A-class isn’t that gonna affect the rates we have the such a huge disparity between are being charged to the a class against what you have on B and C class that is just has not affected even here in Dallas we’ve had delivery of about twenty three thousand units this year so far brand-new A class you know that supply has been you know picked up by all the people they’re moving in and it’s a completely different demographic group that we’re talking about the people they’re on the workforce housing comparing to the one that’s being built right now.

Buck: Yeah it’s interesting too because if you look at it from the standpoint of first of all you know A class I mean type properties they’re difficult, if you’re buying A class property it’s probably you know purely it’s almost like buying gold right, you’re just buying you’re not gonna expect much of a cash flow type situation at all. Sometimes you know I have been exposed to that and I asked by some people to look at opportunities in the development space and in Dallas and in other markets and you know those look like they’re opportunities for perhaps a little bit more yield, but when I look at the annualized return projections they always end up being you know somewhere between fifteen and twenty percent. To me when I think about that I’m like well what would you rather have zero cash flow zero nothing until this thing is built and have all of the variables for three four years however long it takes to build this thing and then get people into there and then hope for a bump that gives you a projected twenty percent annualized return or something that literally day one we can say we’re gonna get nine ten percent cash on cash year after year from the projection and we’re projecting a twenty percent annualized return. Inherently which one sounds like a safer bet? Which one has less variables to it? Which one has more certainty to it? And then it becomes to me it becomes like a no-brainer right I mean you know I know people like to invest in developments and that sort of thing but I think it’s it to me it just doesn’t sound as safe it doesn’t sound as you know it’s predictable.

Dante: I agree with you in my opinion may be biased because you know this is what I do day in and day out, but in the people say oh but you got to diversify you have to diversify and I have my own way of diversifying which is investing in different markets in different areas right. So I personally buy in DFW by that the Texas market but I’m sometimes if I’m wanting to diversify I’m looking at other syndicators that are doing deals in other areas of the market investing within it that’s how I’m diversifying, not putting all my eggs in one property but at the same time even within Dallas looking at different pockets and just spreading the money around the different multifamily assets just because if it feels it feels the safest you know out of all the the options that are out there.

Buck: Right I mean certainly you know I get the diversification argument all the time, but again when you look at what anything with remotely similar yield projections out there the risk goes way up right, the risk risk goes way up I mean it’s like operating business as a class properties commercial properties etc might provide potentially similar yield but then now you’re talking about something in my view that has substantially higher risk profile. So talk about the ideal size of a property. In your opinion you know from the standpoint of skill and stability, what do you like you know what sides do you like why?

Dante: I like so which makes sense financially on the cash flow you want to look at properties there are 100 doors and more right, a hundred doors you can handle with one full-time staff on the maintenance one full-time staff in the office. If you buy something that 70 doors are still gonna take one full-time in the office from full-time in the outside right so you get 30% more if you instead of buying seven you buying one hundred, but you have the same expenses for payroll and I like buying between 200 and 300 that’s the sweet spot for me personally. I think when you get to much bigger than that when you get a mean up to 350 doors when you get higher than that you start you know having some descaling which means everything that you’re gonna do is that a really really huge volume, becomes a little harder to operate, still doable if the the operator has they has the infrastructure to do it it can be done but it’s just harder because them oh no people are gonna have moving you’re gonna be rehabbing you know 40 units you know I’m a instead of doing you know 5 to 10 when you walk in with a property that’s 170 200 250 unit. So that’s the size that I think it’s it’s very manageable it’s easy to forecast what’s gonna happen and it’s easy to look at the rent roll and look at the financial to see alright this is the trend that’s going in it’s really about moving you know a cruise ship or moving in on my smaller yachts that you can have more flexibility but not at the same time dealing with something too small which you’re gonna be more diverse to vacancies and things like that.

Buck: And that’s one of the things I think is important to understand too is that what we’re really talking about here because you know some people might be listening saying well gosh what about if I just want to go out there and you know buy a 10 unit building or 20 unit building or whatever. The reality is that’s completely different business right, it’s a different business altogether. One is being a landlord right, you’re a landlord if you own 10 15 20 units whatever or a single-family house you are landlord. That is a completely different model than owning a larger property because the larger property when you own something that’s a hundred fifty two hundred units, is owning a small business. And so then a lot of these things that Dante is talking about like expenses etc become things that you can not better and vacancies become a lot more predictable. And you know if you have four units and one person moves out all of a sudden that’s a difference between a hundred percent and 75 percent occupancy. So this is a completely different model in one in one sense you know people talk about having to control etc of the smaller units but it is a lot more volatile and so for me personally I mean I used to do that stuff but I’ve sort of realized that it doesn’t make sense. The increased scale ultimately helps you know to mitigate a lot of these things like the impact of capital expenditures too, right? If you have single family homes yeah you got a one furnace in each one you got one roof in each one I mean it’s just these things become very very expensive.

Dante: And time consuming also to manage. The time that you’re gonna invest on them it’s it takes a lot and being able to have someone full-time at the property or team at the larger property is handling all those issues it’s like you said the difference between being a landlord and being a business owner so even though we are in the rental business we are not landlords and we have we have a business, asset managers you know the business is the management company is being the landlord it’s you know fulfilling that function you know, I do not get you know the tenants you know I do not know I mean I look at reports I look at the rent roll I understand the demographics but I do not know tenants one by one. I sometimes I like to sit in the office and they have no idea that I’m actually the owner you know and I sit in the office my computer just so sometimes when I see what’s happening in the office and they’re coming if it’s a complaint just to kind of get a vibe of how the staff is handling you know the tenants but I like that this connection that the tenants have no idea that I’m actually the owner of the property.

Buck: Let’s talk a little bit shift a little bit you know obviously when we do stuff we’re just sticking in DFW because that is you know that’s your place and that we’re leveraging off the fact that you know you know the ins and outs that market extraordinarily well, I mean the nuance is that you know just walking and driving these you know these buildings with you it’s unfair advantage right I mean you look at these people who are buying from all sorts of different markets they have no clue of the level of detail they that you know. What other markets in general I mean were you even thinking about it and why is it passive, because I know isn’t a you know as somebody who’s an operator somebody who’s you know doing syndication on the general partner said you’re not, but what other markets do you like?

Dante: I really like here in Texas I really like Houston. And I think he still has a little bit of a stigma because of you know the floods and the hurricanes that we’ve had before but it’s a market that’s doing really well it used to be economy there was very oil centralized or around oil, that has changed, you have a big percentage on that but that has changed in Houston has become a way more diversified economy and the city is doing really well and it has scared a lot of operators because of the floods, which you know what happened a few years ago is you know like they say one in a 500 years kind of flood and everybody that had their properly insured fared really low I had clients with properties in Houston and it did just fine if anything even better because they were fully insured and that took care of the assets. Houston has been challenged a little bit because of the storms on the insurance standpoint. Insurances are really high at the moment and this has happened with the Texas market several times where you have a flood and you have a few hurricanes back-to-back unfortunately we had a tornado go through this you know middle of the city of dollars which had happen in a long time so a lot of the care is all move away price of insurance goes up and then as soon as we have one or two years that nothing happens one by one they scared to start coming back and insurance price becomes more competitive. So has happened many times I’ve watched it happen in and out here in Texas and we’re in the middle of paying a little higher premium for insurance right now especially in Houston which has scared a lot of operators but some people they’re getting on the ground right now with the high insurance cost, probably gonna take advantage if we do not have another storm over this several next few years that the insurance price will be coming back down and we have a lot of employment a lot of growth in Houston so that’s a market that I like that I personally invest in and I’m working with clients in that area and a couple of other markets is really in Florida. We got Orlando which is just like Houston Orlando you should be Disney World and that’s where everybody thought about but it has the city has rebuilt itself over the past decade and really becoming a center for entrepreneurship and becoming a center for a lot of corporation they want to be based there because it’s easy of access a lot of conference right I mean you have a lot of huge hotel infrastructure there is a lot of job growth in the city over land and it’s doing really well. The price for door is a little on the higher side but there is another area in Florida not too far from there which is the Tampa and St. Pete’s area. So that’s another market that you can still get proper ease eighty ninety thousand a door a hundred thousand ad or for you know C Class multifamily apartments and it is an area that’s have a huge growth of employment population migration also just like we have been in Dallas and you know I think St. Pete’s people you should think of it or just you know I personally think has one of the most beautiful sunsets people thought it was a vacation place like a place in Florida but it’s not. It’s a happening City Tampa is well served with you know International Airport and that area is booming and there is a lot of great growth happening right now and it’s funny to see some of those properties I still rent it for some of them I had a client that they purchased one for you know they’re the rates were 85 and 90 cents per square feet. So that’s a lot of opportunity I don’t think that’s gonna stay like that for very long.

Buck: Yeah and that’s great opportunity you mentioned Houston for example I mean the just you know some of the one of the obviously another partner which I Western Wealth Capital they we do some things in Houston and what’s remarkable about a market like Houston is is that there is so much space for a bump right arguably there’s more volatility in those markets right, but the opportunity for a bump is is significant whereas if you take a market like Dallas I think of it as a highly stable market and highly generally you know a lot more predictable and that’s of course one of the reasons we you know you and I have decided to focus there obviously you live there it’s the advantage of you you know talk about the advantages I mean you’re obviously you looked at these markets and you invest in them you you know you might help you know people work through some of the underwriting there but what is the you know what is your what do you see is your you know single market advantage being a guy who just really buys in one market, like what kinds of things can you do? What kind of things can you know, what kind of advantages can you have from having that kind of intimate knowledge with one market you know people talk about how all real estate is local right and so you can be for local give us some examples of some of the things that you know that you knew about that others didn’t know about and that kind of thing.

Dante: Yeah and I feel like I’ve been very lucky. I’ve been living in Dallas for almost 20 years now and know the area have lived in different areas of the Metroplex I went to school here so feel very lucky that I happen to be in this booming space for real estate and having the local knowledge of the different areas number one a safe sign at the beginning of the underwriting process right just knowing where they where the the properties are but getting to the numbers whenever you know what the location is what kind of tenants are you gonna have in that area also getting to know is in it it’s funny how it happens should be a very small group of people they are investing in or managing this property so the property that will buy right now Tierra Del Sol in the City of Irving which will close in here in about a week, I happen to know the guy that owns the property next door to me then I’m very close friends of a guy that wants another large property a mile down the road and also the guy that owns a cross from there. So you end up getting to know all the players right and we all work together to help each other and to be successful as I got so I was competing on this property with some people from New York in New Jersey big players that were trying to get into the market but they do not have the local knowledge, they do not have you know access to the information on these neighboring properties that I had just for have local knowledge of the people they are doing business in the area. Same time just walking the properties and going through the diligence and getting to know the tenants getting to know what do those tenants as you’re going through and asking questions I love just going you know as we inspect in the proper you just walk around and you know many of them just think it’s expectation that we’re doing I’m asking hey is that anything that I you know that would that you need in your properties that anything that we can improve is that any issues with security with safety with you know plumbing in the tenets wall we start talking right away especially know many of them they’re spanish-speaking if you know usually like to start speak Spanish with them and they open up and they they just share you know things that are going on with the property with the neighborhood so that helps a lot just being hands-on in that area. One example we were going through Tierra del Sol and we looked at some of the there was a big demand for three bedrooms, we didn’t have many of them and then we decided to convert some of the larger bedrooms to three bedrooms and we’re like okay we think it’s gonna work you know we’re looking at some business owners but then as I’m walking through the properties I saw a lot of the tenants putting a curtain on this wall that we’re planning to build a real wall and they were already doing that so just being there and touching and seeing what was happening it was reaffirmation that you know our plan was working that the tenants already you want it and I’m asking them what do you think about me always don’t be great you know so little details like this. Knowing the county is that’s a big deal here do we have different counties around each one of them run a very different process with the property tax evaluations. So if you buy something in Tarrant County and you buy something in Dallas County completely different approach it has to do with taxes. So getting to know the people they are doing the tax appraisals getting to know some of them had a conversation right before we bought Tierra del Sol with a guy that worked for the Dallas County appraisal district for several years and he kind of walked me through exactly what would be paying property taxes over the next few years so but if someone comes from the outside and they look at Tarrant County in the same way that they look at Dallas they’re gonna be in for a surprise and that’s probably gonna hurt their cash flow, just not having the local knowledge. There is a city that decided the other day to add a 50 dollar charge per year on every unit just on the water bill. So if you’re looking at the water bill as you know a rule of thumb oh this is too high we can reduce to this well if you don’t know that detail about the city that’s implementing I mean this is happening we have a city of Dallas itself now forcing all the operators to have recycling so you kind of your trash expense it’s gonna double. So if you don’t know that looking from the outside you know those little details makes a big difference. I like to say to my clients that are the deals are being made on the details. The deals you know if you look at her whim if you look if you’re looking just at the big picture, you’re not gonna see a deal right you’re gonna see very low returns but when you dive in and you look at the numbers at the details what can you do with this unit what kind of tenants do you have here are you gonna try to change the tenant base what kind of companies are moving to the area if you are able to look at those details with the knowledge of the local market that it’s a big makes a big difference and allow you to be a little more competitive and just do better with those properties.

Buck: You know just listening to you talk I mean I know how granular you get you know walking units literally pretending to be people get comps all the time but you know Dante’s going in there pretending to be a tenant and walking around it’s a different level of getting comps right but you know when when people get into this real estate world, you know some people are still trying to figure out if they should you know potentially buy apartments on their own, should they you know take the leap into syndication or should they invest passively, and I don’t have advice for anybody on that other than to say that there are very very different things. And one thing that I can tell you from watching Dante is if you go the syndication route as an operator the OP the operations even the underwriting this incredible amount of work if it’s done right. Talk a little bit about that just so that people who are sort of on the fence and thinking about it they can get an idea of what kind of time commitment what kind of you know work that goes into being a successful operator in multifamily in real estate.

Dante: Sure yeah great question Buck you know our address the three types and I’ve you know I happen to play in two of them and work with clients and all three of the types of owners that you can be with multifamily. Number one is by an appropriate outright by yourself without investors right and so it’s your own money plus a lender. The advantage on that you get the biggest tax advantage while doing that now there are several disadvantages, which is you’re gonna have to have a massive amount of money to do that right to be able to buy a property that’s on the larger size which you can have full time employees handling the day-to-day for you so you don’t become a landlord you’re gonna be talking about several million dollars that you’re gonna have to put in to be able to acquire the property. If you’re able to do that the same time you were putting all your money in just one asset right so you like you get the tax advantage but then you put in everything and just one as a risk standpoint you wanna spread you know the amount of money that you’re looking to invest you know throughout different properties throughout different you know some markets.

Buck: You know just add that if you’re taking down a big property on your own, you’re bringing all the equity in yourself this goes for even if people are talking about small or you know 20 units 30 units whatever. Then even if you’re bringing in four or five hundred thousand instead of you know four or five million or whatever that risk is all on you right so you have to have confidence that you can operate this thing that’s a big part of it.

Dante: Yeah I may be able to operate or be able to select the right management company and I think it plays a big part too you know this is not something that you buy and you hand it to the management company then you walk away. And we see those type of properties all the time we buy from those kinds of operators all the time because we have you know the east coast or the west coast person that just buys you know does a 1031 out of California and I’m just gonna buy a 200 unit in Dallas and it’s just gonna run on its own and it does not work that way not have even if you have a reputable management company I think it plays a big part of being there and making sure that they staff you know that the management comes know there is an owner right this is not an out of state REITs that owns this that no one is accountable for it even though I mean large operators here that I’m you know very familiar with if the the owner of the company himself is not doing that anymore they have asset managers they are visiting the property are getting to know the staff so that’s what it takes to be successful on the syndicating model or on your own ownership. So just buy and letting the property run by itself it’s most likely not going to account and will we know we’ll be making an offer for your property.

Buck: But the bottom line is it’s a lot of work and and tell people about what the work is because they think as you mentioned I think very appropriately I mean one of the lessons that I had early on when I got into buying real estate was that you know it’s not as easy as the math. Math is really easy and to look at and you can get fooled by math very easily too because you know those numbers are given to you by somebody and if you don’t know the details of what you’re plugging in where you’re going to get it wrong and it doesn’t take much to get wrong from going in to something that looks like it’s gonna cashflow positively significantly too you know breaking on the other end. So what you know what do you think in terms of you know talk about some of the specific elements that go into being a day-to-day you know real-estate operator as opposed to somebody who’s doing this kind of as a side gig.

Dante: Okay yeah so on the day to day kind of I’m gonna use ou the example of a syndicator you are looking to parts of the business one you’re looking for properties to buy, right? And that’s a very sometimes discouraging process because you’re gonna make several offers right and then you’re gonna get a feel that you’re gonna get close then you’re gonna have even fewer that you’re gonna be second place and then hopefully gonna get one. So it’s competitive especially on the markets that are hot the markets that we have a lot of money moving in so you’re gonna put in I would say about thirty to forty hours, if you get in all the way it’s your best and final to really be competitive you know because anybody can send an offer alright anybody can write an otherwise it’s non-binding it’s very simple say oh yeah look at the appropriate order I like I’m gonna say that offer well do you really know what the property’s gonna trade at, right? I mean the brokers giving you that number is that really gonna trader that number you have a lot of brokers actually under price in the progress to create competition and then the price is actually trading much higher. So getting down to the numbers and understanding okay what what is the debt that we can get on this property so several land of discussions talking to different lenders and trying to understand also from the lander is underwriting right because the lander at the same time can put a term sheet in front of you I say oh this is what we gonna get but also you got your Fannie Mae and it doesn’t happen now you have hard money tied up and you already promised you invest or something. So getting to understand what goes in underwriting the do what Fannie Mae is actually one should see right this lender is competing mortgage brokers competing to get the business they are gonna be really aggressive but really Fannie Mae Freddie Mac are the ones making the decision and so there’s a lot of time involved into that, insurance discussions, property tax you know understand as I mentioned before, going through the round of offers and many times we have you know property are competitive. So we’re gonna have one two three rounds of offers then you’re gonna have seller interviews in each one of these you’re preparing you know four and at the same time due diligence that you’re trying to do up front. So in dollars anymore most major markets now you have hard money I mean non-refundable money from day one. So you do not get to do the full inspection that you do at the property before you actually commit your money and we’re talking about hundreds of thousands of dollars all the risk is on this indicator all right so you’re taking on that risk up front so you have to cover your bases you have to do the due diligence and understand really what is your rehab plan in working with contractors to say how much is this gonna cost. So putting the whole plan together getting to that final offer before you actually sign the contract you’re looking at you know at least forty or forty hours of work and if you have a big team you’re spreading those around if you buy yourself that’s 40 hour and a week right there that you just put in and if you get second place you know you get the experience and you go do that again on another property. So all of that it’s included on the amount of work like I said the deals are being made on the details so more and more we have to digging deeper we have to look at the fine print satisfy line by line on the financial sunderson what’s going on understand who is the management company right all right what kind of how do they operate like a look at the other properties that the management company operates and see why are they performing that way. So having an understanding of all those things and looking you know and really every single one of them with detail because my my philosophy is you’re only as good as your last deal right, so if you put a deal together and you do not believe it you investors why are you promising that’s what people are gonna remember you for no matter how many deals you did the most likely are not gonna be partnering a few anymore so it doesn’t matter all the successes that I’ve had in other properties it’s the one that I’m looking at it now is the one that I’m putting all my energy and stress on it underwriting.

Buck: All this ultimately that it’s not to discourage anybody from getting into the syndication business, but one thing that I think it’s important to understand is that it’s not as easy as you might think right, it’s like it again is it’s a small business and like for anybody who’s ever run a small business who started a small business in any sort of way you have to understand that you know that there are nuances that it’s not as simply as buy and hold. It may have been the case you know 20 years ago or maybe right after the crash where you could have bought something and did very little and make money. Right now you can’t do that and you know Dante and I right now we’re using as you mentioned a hybrid model which is is is paying respect to the fact that it’s hard to predict exactly what’s gonna happen in the economy so we’re running these things that you know ninety eight ninety percent occupancy so we can cash flow you know hopefully close to nine ten percent plus for investors and then also create value add and just the number of properties that you can do with that is so limited right now as opposed to where maybe it would have been a lot easier to do you know in 2012. But anyway the point is not to discourage you but rather just say okay if you’re gonna get into this game understand it’s a job, it’s not a side gig when it’s done well.

Dante: And peop;le gurus and coaches they’re saying oh it’s passive income communicators you syndicated view and this is passive income being a syndicator it’s not passive income right, you run in a business and you’re running multiple areas of the business you managing the asset you looking at acquisitions and especially if you are one-person operation to three people operation there is a lot of work involved there is best real passive income and that’s if you’re doing the passive investment so if you have the time you know being a syndicator can be lucrative can be but it’s a drug right it’s only not business right and you have to approach the way and I’ve seen many syndicators that will put the deal together and they’ll do a great job they’ll spend you know the 40–50 hours underwriting and once they get to deal they handed to them company and then you know they walk away and those properties are also not gonna perform.

Buck: Yeah because a pro-forma tells a story about not only the acquisition but what needs to be done and that what needs to be done is the part that’s often skipped because that’s what actually takes a lot of effort on an ongoing basis and so when you’re looking to show endeavor that’s one thing to consider but also as you’re looking for you know people to potentially invest with as a limited partner one of the things that is a rule for me is I do not invest with people as a limited partner I don’t invest with any group or person for which this is not their full-time gig. It has to be a full-time gig. It’s not I’m a software engineer by the way I’m raising capital for you know 300 doors and I need you know ten million dollars do you want to join me? No. come back to me ten years after you’ve learned a few things and lost some money a few places or something. Anyway let’s move on one last question I want to ask you how you know we talked about our hybrid model right, running these things workforce you know high-growth markets but riding them at really high occupancy with sort of maybe slightly less ambitious turnover than some of the big you know some of the other groups out there. How do you think that prepares how does that fare what other models would fare well in you know a potential downturn in the real estate market which you know as we’ve talked about there probably will be some level decompression at some point we don’t know when we have no idea when and we don’t know for how long but what are the elements of success you know to get through something like that?

Dante: I think it’s approaching the operation of your property. So I like to say that dollars has been dollars in in Florida in Phoenix and Atlanta they all have been very forgiving over the past you know eight nine years. Any syndicator any operator that made mistakes your mistakes got cover-up just by the tremendous growth that we’ve had right. So I I count on that’s even though I believe that’s gonna especially in dollars I believe that’s gonna continue not at the same level maybe that we’ve had it but it’s still gonna continue just because of the net migration and the economic development that we have here but running those properties like if you’re preparing for something bad to happen right, so we have lots of these properties that have there are being run without focusing marketing without a focus on looking at the numbers and looking all right how can I maximize my rehab dollars, I’ve see a lot of money being spent just frivolous on rehab on things they’re actually not gonna bring you more rents it’s not gonna help you you know increase your income or people coming into this property is not well capitalized also. In the competitiveness of trying to get the deal many people try to start squeezing the rehab budget. So if you’re gonna be holding specially if you put in a long term dance on these properties you’re gonna hold it for a long time right it’s a twelve year 10-year note with Fannie Mae most likely you own it for several years if you not well capitalized upfront that’s gonna hurt the cash-on-cash and those are the properties are gonna get in trouble if we have a cool-off of occupancy on rent growth. Because now you’re gonna be hurting and you’re gonna be having to take some of the money that you should that it was supposed to be cash flow to do rehab is because you did not plan ahead of time and I see and I try to advise clients against doing that all the time it’s like have a cushion have extra money on your rehab budget because yeah right now everything is beautiful but what if it changes right what if we have a cool-off what if King John moon that’s something crazy over there and you know we have a cool off on the the economy. So you have to be prepared I like you know and I push my management company to be running this properly it’s like if we are like something’s coming in 2020 which I personally don’t think it will but I’m running them it that way right, I mean with the marketing efforts with the utilization of our rehab shopping around not just pay any price that vendor does but shopping around comparing coats and maximising the rehab numbers in really also saving some of the rehab numbers if we need to hold the property a little longer, what are the things that I need to address now if instead of holding for five for five years I need to hold it for eight or nine years should there come you know a downturn on the economy. So I think that’s one big item. Also location. You know when the market is hot and everything is going well within even a strong economy and a market like a Dallas Fort Worth you have pockets they are very challenging you have pockets that the city has not being able to make improvements and invest on the infrastructure and invest on these schools. When the economy is booming and everybody is you know needs a place to live and everybody’s moving here you don’t not gonna feel that as much but as soon as there is a cool-off, those are the areas are gonna be the hardest affected right areas that have very low income areas that you know the the population are depending all on government assistance those are the areas are gonna be hit the hardest first. So I focus on buying on areas that I know there is good working class tenants and there is high traffic right so which will save my costs on marketing and where people just they want to they want to be in that area not going for the very cheap low end of the spectrum of the demographic. I think that’s gonna play a big part those areas are gonna be affected first, the most having something that’s highly occupied and then you have a good traffic it’s gonna help you fare well and you know the way I look at it I think a downturn or cool off or whatever you want to call it it may be positive it may be some really good buy opportunities, you know it many may shake kind of some of the the operator some of the people they’re not performing well right now even if we have a cool off they’re gonna have to sell the property so we may see some really good buying opportunities if there is a cool off so I’m not scared of it, I personally don’t believe it’s coming to Dallas any anytime soon but we are prepared if it comes you know we’re setting our properties just because it’s been such a long time that we’ve been on a standing trend with these properties we’re preparing like if it’s coming.

Buck: Yeah and just to add to that I think that goes along with the theme that I’ve talked about before which is it’s impossible to predict you know what’s gonna happen with the economy I mean if you look at the people who even in four or five years ago have been talking about the sky falling and in the meantime people have made money hand-over-fist during that period of time. I think that you know you can have a pretty good sense of what may happen and you know do your best to mitigate the risks as you see them coming but if you stop investing all day that’s a risk of losing out on on on investments performance as well. So you know looking at things and saying there’s an upside here but the worst situation is I have capital preservation and then if I waited out a couple more years we’re gonna have a nice return and in the meantime with the down market we lean in, that’s kind of the approach that you know I’ve been advocating for certainly what kind of what Dante is getting at. And also I think the idea of you know again focusing on high quality assets in high quality areas. All right and that’s what we’re doing high quality assets. In our cases basically you know working class you know solid build you know larger apartment buildings 150 to 200 units in good areas good markets like Dallas and then not on the fringe right not moving out and areas that you know chasing yield because if you chase yield right now you’re going to be very very sorry right, if you’re gonna if you’re gonna you know shoot for those D markets you’re gonna you know look I think people buying in markets like Oklahoma City right now I think it’s a bad idea. I’ve been saying that for a couple years now. Tertiary markets markets that do not have inherent strength in them and sub markets that do not have sort of historical strength. These are all things you’ve got to think about. Dante anything else to add?

Dante: No just you know I believe that things are at least here for the DFW marketing a few of the other markets that i mentioned, things are looking very very positive you know and there is we had 60,000 new households formed in the DFW area this past year. We have occupancy vacancies you know very low so i it’s gonna be interesting in you know already looking at 2020 and it’s gonna be you know everything is continuing the same thing that we had in 2019 I already have several properties on the contract view for clients and that doesn’t seem like anything that’s changing so I have a very positive outlook of you know at least as far as we can see here for the next next couple of years that things are gonna continue to grow and you know and just a piece of advice for people that invest passively yeah talk to other people to help invest with that operator you know find out how how are things doing I mean everybody can put a really good presentation everybody can learn some marketing and get in front of you know an audience it sells something but are they delivering I think that’s the biggest question it’s the question you have to be asking before you commit your money you hard-earned money to be that’s the work somebody else.

Buck: Dante, thank you so much for being on the show today. I do want to point out that if you’d like to learn more about certainly what Dante is doing he and I we have our own group and the only way you’re gonna get access to that is if you’re an accredited investor within Investor Club. So if you’d like to join Investor Club, do so at wealthformula.com. Dante thanks again so much for being on.

Dante: It is an absolute pleasure being partners with you I learn a lot and I’m just you know I really admire your you know level of meticulous underwriting and you know just the the level of detail that you put into all of these properties.

Dante: Well thank you Buck. I appreciate your kind words and it’s a pleasure and an honor and should be partnered with you and a lot of your ambassadors and I’m looking forward this 2020 is gonna be another great year and we’re gonna you know find more hard to find assets here and deliver great results I’m looking forward to that thank you for your partnership.

Buck: We’ll be right back.