ITF 58 | Multifamily Syndication

 

Tyler Giering first learned about FI and real estate investing while he was in college, but circumstances led him down the path of finance. Because he wanted to invest in real estate, he leveraged house hacking and went from residential to large multifamily syndication. He now has over 2,200 units.

In this episode, Tyler explains what asset managers do, breaks down his “for real” deal, and highlights the importance of value-add. He then dives into his first syndication deal, presenting the advantages of becoming a passive investor.

Listen to the podcast here

 

Leaping From House Hacking To Multifamily Syndication With Tyler Giering

Z, how are you doing?

I’m pretty excited because it is the end of a marathon of furnishing Airbnbs. I am here in St. Louis. I have finished the second one with my friend, Sarah Weaver. She has been on our show. She’s a design queen. We were here upgrading my spaces but it is twelve-hour days. I’m exhausted.

You are hustling. I know you and Sarah are having a lot of fun doing it.

That’s the one time I’ll say maybe furnishing Airbnb is worth it. It’s when you got a good friend with you, you can laugh and have fun too. I hope you’re paying her with some free pizza or something at least.

There’s not enough free pizza in the world.

If you’ve got free pizza, send it to Sarah and Z there. They are in desperate need of free pizza. This episode has nothing to do with pizza and I don’t know how to transition it but we’ve got one of my good friends Tyler Giering coming on the show. I like his story because he made a big jump from residential to multifamily. It’s a little bit different of a show. We do talk about a house hack but we talk about how he leveraged his house hack to get into multifamily syndication relatively quickly.

It’s good and interesting for me, so I was a happy girl. I do love his story because he’s so ballsy. He went from starting something small to something pretty big and then something gigantic. I’m impressed with people that can take risks like that. It’s great.

Years ago, he had one house hack and then he has over 2,000 units. Mind you, it’s just a little piece of 2,000 units.

Is it 2,000 or 20,000? It’s 20,000. Bring him on the show.

Let him tell his own story. Tyler, get your ass in here.

Tyler Giering, welcome to the show. How are you doing?

I’m doing fantastic. Thanks for having me.

Thanks so much for coming on. It’s been a long time coming. We’ve been trying to get you on the show now for months and the day is finally here. Why don’t we kick it off like we always do? Tell us where did you first hear about financial independence.

I first learned about the concept of financial independence back in 2014 in my senior year of college when I read Rich Dad Poor Dad but I didn’t know about the term Financial Independence or FI, then you started to brand yourself as TheFiGuy and The FI Team so I started asking questions like, “What is this FI nonsense and why does Craig have a sick mustache?”

Why don’t you tell people what financial independence is? Was there a connection between Rich Dad Poor Dad and financial independence that you’ve found?

It’s a similar concept but financial independence is when you can cover all of your expenses with passive income.

You discovered that concept back in 2014 reading Rich Dad Poor Dad at college. What did you do? Did you do anything in college to get you closer to that goal? Did you know you wanted to hit that goal? Where were you at back in 2014?

At a hunch, I was going to get into the real estate side of things. I went to school for real estate. The year I got into the school of business in my college, they stopped doing the real estate course so I ended up going down the finance avenue.

I’m curious. What do they teach you in school for real estate? Is it what we’re all learning out here in the world on BiggerPockets and reading books or is it some basic stuff?

I wish I would have found out but I imagine it’s more of the larger-scale things like leads, large syndication and valuing a business.

You tried to go to school for real estate but that didn’t work out too well, so you went to the finance route. You learned a bunch of finance things. You read Rich Dad Poor Dad, so you understood the concept of financial independence upon graduation. What did you do upon graduation? Did you get your first house hack? Where were you at?

No, I didn’t have the funds but I was excited to get there. I knew I wanted to go to the real estate avenue and I decided to work for a large apartment syndicator. That’s what I wanted to do. I wanted to learn that industry, so right out of college, I went and started working for a shop as an asset manager. I started learning the ins and outs of multifamily. Especially getting paid to learn multifamily, it was a great experience.

You went from newbie-knows-nothing to this multifamily guy and asset manager but you didn’t even go to school for real estate. A) How did you land that job if you didn’t go to school for real estate? B) What does an asset manager do?

A lot of real estate jobs are an and/or finance background. They’re pretty similar. That one’s just a little bit more generalized, so I was able to get my foot in the door from just the finance background. On my first job, I was known as the refi guy. The company I worked for had about 20,000 units and it was my job to scrub through that portfolio and take the low-hanging fruit, the highest rate interest as far as outstanding balance and find a way to refinance that.

I was doing the BRRRR, which originated in multifamily. I was doing that as fast as I could for these four partners that I was working for. That was what opened my eyes to the power of multifamily and economies of scale. I remember one day I was refinancing a property. I cashed out refinance and I went and handed one of the partners to share the refinance proceeds.

It was over $1 million. He looked at me and was like, “I didn’t even remember that I own this property. We’ve done these 2 or 3 times in the past.” He called it the gift that keeps on giving and I was like, “Wow.” If you can be that hands-off and not remember that you have a property, there’s something there. That’s the economies of scale aspect of it. That was eye-opening for sure.

This was the guy that you worked for. He owned this property but your company or whoever you were working for was the one managing it.

Financial independence is when you can cover all of your expenses with passive income. Click To Tweet

The strange thing is you stop wanting to deal with tenants and contractors. The solution can be to get a lot more of them and then hire someone as the asset manager to take over that role of managing your contractors in your properties.

That was your role. Your role for these big guys was you would help raise the rent, manage the properties or do the maintenance. Over time, the way multifamily works are the more profitable it is, the more it’s worth. You would make it more profitable, which is why these guys could keep taking out $1 million at a time. Is that fair?

That’s exactly right. We were always looking for ways to boost profitability, raise the income and decrease expenses. There are several different strategies. We can go down that rabbit hole if you want. There are a lot of different ways to do it in the multifamily industry and I got to learn a lot of the tricks while working for that company.

While you were doing that were you like, “This sounds like something I need to get into.” How did you parlay that into owning real estate? I assume you did.

I thought I had to start with single-family, so I went there that down that avenue first. I got my first house in 2015 or 2016. It was a single-family house in Arvada, Colorado. It was completely distressed. It was built in the ‘70s and I don’t think it has ever been updated. The carpets were old. They had multiple pets. It was disgusting. I bought that for $300,000. They had 3 bedrooms upstairs, 2 baths and an unfinished basement. Before I even closed, I had cabinets and all sorts of different things ordered, so I closed, fixed up the upstairs, rented out the rooms and then right away moved downstairs and started to renovate that.

Craig, he beat you to house hacking.

This is the for real deal and a precursor, Tyler is the person who got me into rent by the room. I saw what he was doing with rent by the room and I was like, “This works.” Tyler could have been the person to write the book on house hacking but he’s a little shyer than me. Why don’t we go into that property? Take the deep bags. This is a typical first deal for a lot of people. What did you buy that house for? Granted this was back in 2015 or 16, so the prices may be different but the concepts are still the same.

It was $300,000. He already said that but he didn’t dive into the mortgage and all those things, so tell us about that.

The prices were different. You can’t find anything for $300,000 in Denver at this point. After I’ve renovated it, I added extra two bedrooms in the basement and then a bathroom, so it was a 5-3, all said and done and then I rented out the four bedrooms and lived in the master bath. I was clearing $1,000 a month. After my mortgage, insurance and taxes, the four bedrooms were rented and cleared for $1,000. It’s not a bad first deal.

What was your mortgage payment? To be clear, what were you getting for the rent?

The rent was $650 at that time and my mortgage was around $1,500.

You’re getting $2,600 in rent on a $1,500 mortgage plus living in it for free, so your net gain there is closer to probably $1,700 if you include that you were living rent-free. You said you turned this 3-2 in a 5-3. Did you do this work yourself or did you hire that out?

I wanted to do all the work myself, which was costing me a lot of blood, sweat and hours on YouTube. I knew that on every deal that I was going to do, it’s more than likely there was going to be a value-add portion of it. That’s why I learned about the multifamily industry at least. I want to be able to sharpen up my construction skills and know what general labor and skilled labor was. I didn’t want to skip out on things like that. I didn’t want to get taken advantage of by contractors. I was avoiding that so I decided to do all the work myself.

How much money did that cost you? What do you think it would’ve cost you if you didn’t hire it out yourself? How much time did it take to do that entire rehab?

It cost me between $35,000 to $40,000 and that’s pretty cheap for a 2,500 square foot house. It probably took six months and that was nights and weekends. I was working full-time at that point so I had to flip the switch and go to 80 hours a week.

ITF 58 | Multifamily Syndication
Rich Dad Poor Dad: What the Rich Teach Their Kids About Money That the Poor and Middle Class Do Not!

I love that hustle. It’s good on your first one to not outsource as many things as you can and do a lot of that stuff yourself so you can learn it. However, I do always tell people that it’s better to get something turnkey, get it rented, get the cash flow coming in and don’t spend an extra $40,000 on a rehab. I’m curious. Would you disagree with that? Are you happy that you did all that rehab or would you rather have found a 5-3 that was turnkey and maybe you paid $364,000?

I’m very happy that I did it but I will never do it again. It was a struggle. It’s not for everyone. Not everyone needs to do that. There are so many different ways to make money in real estate as you know. You don’t need to do the value-add aspect of these deals and deal with the construction aspect.

I want to highlight that you’re saying that because everybody thinks that’s something that has to be done. People are highlighting the BRRRR. I don’t do the renovation. I’m here schlepping furniture and Craig’s like, “You need to stop doing that. You need to hire that out,” but aside from furnishing Airbnbs, it’s the only thing that I will do myself. There is still lots of money to be made depending on how creative you can be with your rental strategy.

There are one million different ways to do it and I imagine this thing was fruitful for you. What did you put down for that house?

Five percent.

You probably put about $60,000 total into it, including down payment plus rehab and closing costs. You’re clearing $30,000 or $35,000 a year, so you’re easily making a 50% plus on your investment with that first house hack and that does not include all your appreciation that you’ve got. That’s just cash-on-cash. When you were finished with that renovation, what was your property worth? Do you know that number?

I know what I sold it for about a year and a half after it was finished.

What did you sell it for a year and a half after?

I sold it for $440,000.

You added $40,000 to your rehab. You were all in at $340,000 and your appreciation there is $100,000.

That’s right and I was paying down principles all the time as well. How much did you net from that sale? Do you know?

I don’t know. It was probably north of $150,000 after everything. I had my real estate license, so I waived the commission and then I lived in the house as my primary for two years, so there were no taxes on the sale.

Did you intentionally hold it for two years or did it just so happen to be that way?

That was intentional. That was my plan going in.

Everything you do is intentional. What did you spend this $150,000 on? Did you go out to Vegas and put it all on red and that’s why you’re living in the bathroom still or are you out of the bathroom?

It went to a combination of things. I’m finally out of the bathroom, which is fantastic. I also did a fix and flip and some of that money I rolled into the fix and flip, then I jumped into my first syndication as a passive investor.

I want to talk about the syndication but if you want to go into the fix and flip, you do that. What do you need, Craig?

Why don’t you give us the 3 to 5-minute down low on this fix and flip? What did you see in it? How did you get it? What were the numbers on it? What did you do? Then, we’ll get into the syndication stuff.

I decided to hire out almost everything on the fix and flip. Craig helped me out a little bit there but I bought the fix and flip for $400,000, I believe and I put about $175,000 into it for a full gut rehab. It was all new plumbing, all new electrical, opened up the kitchen and living room, combined two of the bedrooms and then a huge master suite. It looked amazing. I didn’t want to sell it when it was done. I wanted to live there. Putting $175,000 into a 2,500 square foot house looks pretty sweet, so we ended up flipping that. It took about six months. We sold it for $650,000.

$400,000 with $175,000 in, so you got a $75,000 profit or probably closer to a $50,000 profit after you consider holding costs and all that stuff, which is pretty good. Did you fund that strictly from your sale on that first house?

Yeah, part of it. We had a hard money loan on it and then part of the rehab was funded by that sale.

How did you get the hard money loan? What did that look like? Why was that worth it to you? Usually, hard money loans are a little bit more expensive.

This was a hoarder house, so it was an off-market deal. The owner was not letting anyone into the house. We had to buy it sight unseen. You weren’t going to be able to get a conventional mortgage on that, so we had to go hard money on that.

What did you end up paying for its points and interest rate-wise?

We paid 12% interest at one point.

That works because you’re not paying that for the long-term. It’s just for six months while you’re getting the rehab done and once the rehab is done, you pay the hard money lender back and you get it. There were two options there. You could have held it and rented it. That would be the first strategy but you sold it, paid your hard money guy back and then you flipped it and got the profits.

We refinanced it. We renovated the house. We did it up, so it was not the best rental opportunity at that point. We fixed it intending to sell it. We found a buyer before we even came to market.

Passive deals allow you to yield incredible returns while completely hands-off from actual work. Click To Tweet

Did you do a 1031 exchange? You never had it as a rental, so you can’t do that, can you?

No. I did a two-year homeowner exemption, so I didn’t have a gain on my primary.

On the gain there, they had a gain on the flip. You can’t do it on a flip.

We ended up paying full tax on that.

What do you walk away with at the end of that? Paying $50,000 and then tax on top feels tight.

I didn’t retire off it.

What I like is you were getting a good real estate education. You had all this experience of seeing what multifamily could do from behind the scenes and then you were like, “I’m going to try single-family and then try this flip thing.” It is cool that you were going for it because this is not that cheap of a property or that light of a rehab. It’s ballsy.

It was a big undertaking. It was a lot of lessons learned along the way. We didn’t plan on spending $175,000 but like a lot of deals, that’s what you do.

You talked about your lessons learned and what if they’re not going to be able to get past that. Why don’t you say maybe your top 2 or 3 lessons learned on both properties? Renting it out as a house hack and also maybe doing it as a flip.

The number one lesson I learned, I was burned out by that point because I was doing nights and weekends. I decided to focus on multifamily because I wanted to get those economies of scale. The partner who had forgotten the property, I also worked for him on another company that had 70,000 units. He bought them all within two large transactions. I don’t think he had ever visited any of these properties. These people were buying 70,000 doors and never seeing any of them and over 10 years. The owner of this company had made over $500 million, so it was a light bulb moment of how scalable multifamily truly is.

Is this the guy that didn’t like his neighbor, so he bought his house and then destroyed his house so he could have more land?

It’s the same guy.

Your biggest lesson learned was that flipping and doing everything yourself isn’t scalable. Even house hacking as much as we tout it is not that scalable if you want to reach that $500 million mark. House hacking is a great way to get you to a base level of financial independence but if you want to get over-rich, the commercial and multifamily space is a route that you can take.

I’m curious, Tyler. Why syndication? I would think that the next step would be like, “I’m going to go buy multifamily and maybe start with a quad or a small apartment complex,” but you went right into saying like, “Maybe all of this stuff is too much work and I want something truly passive.”

I also have the perspective of managing these properties so I would oversee management as the asset manager. I realized that the problem properties were the properties that I couldn’t afford to pay a full-time property manager who lived on-site and cared for the property. You don’t get that until you hit 70 or more doors, so that was the appeal. I burned myself out in a couple of years and I didn’t want to deal with any more contractors or tenants. The way out for me was large multifamily.

I’m super excited about syndication, so I can’t wait to hear all the things you’re going to teach us.

I was going to transition into the syndication piece. Let’s do a quick recap. You figured out about financial independence in 2014. You bought your first place in 2016. You fixed it up and sold it in 2018. You do your flip in 2018 or 2019, maybe and then in 2019 is when you started going all-in on syndication. Why don’t you tell us your first syndication deal? How did you find that? How do you even get in? How do you cross that boundary? If someone wanted to invest in syndication, how would they go about doing that?

My first deal was a passive deal. I had been doing a lot of networking. Denver and Dallas seem to be the epicenter for multifamily syndication, so I was flying out there a lot and going to a lot of different events there. I was networking with people. There were a couple of different programs or coaching and mentorship groups that I ran into.

At first, I was like, “These are expensive. That’s not something I’m going to pay for.” The more I started talking to people in the industry that are doing these big deals, almost every single one of them had signed up for different coaching or mentorship group and that’s how they got in. In multifamily, if you’re trying to get a loan on a property, you have to have a net worth of the loan amount. If you’re looking at a $20 million deal, you need to have a very high net worth to get in there. It’s an unfair game from that perspective, so you need to partner with people with a high net worth and typically, experience if you’re going to go with an agency lender.

You mentioned these groups. If you want to go into multifamily, you want to get in front of the people so you join one of these groups. What does it cost to simply join one of these groups? Tell us the value in it, because you can’t learn a lot of this stuff just on the internet.

What I did, I would refer to it as cutting the check for speed. Multifamily is generally a team sport, so we’ll have anywhere from 5 to 15 general partners on a deal putting all the pieces in place. I could have gone out and tried to find someone with net worth someone with liquidity and someone that knows the underwriting who was a deal hunter and they could find the deal and build my team that way but within this group, I was able to find people that had paid a good amount of money to be in this group and you’d know that they’re not a tire kicker at that point. They’re serious and very focused on multifamily.

That’s the one big advantage in joining a network and joining a group of people and I love that you cut the check for speed but also to become more legit, you’re not asking for a small amount of money. If you’re going to buy a $20 million building, you’re probably at least asking for $500,000 to $1 million per person. Maybe the minimum is $100,000. It’s big dollars. Anyone willing to give you those big dollars needs to make sure that you’re legit and not some scrappy twenty-something year old trying to scrape together syndication. This is real stuff.

ITF 58 | Multifamily Syndication
Multifamily Syndication: There are so many different ways to make money in real estate. You don’t need to do the value, add an aspect of these deals, and work on construction.

 

Especially from the deal sourcing aspect, brokers will not take you seriously if you say, “I flipped a house last year. I want to buy this 400-unit building.” Piggybacking on the credibility of others allowed me to find deals and build relationships with brokers.

I want to understand your position here because I’ve been looking at syndications as an investor but it sounds like you were putting together the deal and you were getting the people in place. That is quite an undertaking. I’m learning something about you and that is you take on these big-ass projects that I’m like, “No, thanks.”

Your first one was passive. It sounds like you gave the money, so why do you have to join a group to be a passive investor? Can’t you just find someone that’s trying to raise money?

You don’t have to join a group. All my favorite deals are my passive deals.

Why is that? Is it because you didn’t have to do anything?

Yeah. It’s amazing. You can get incredible returns and be completely hands-off. I have 4 deals where I’m active as the general partner and then s5 deals where I’m purely passive. I’m leaning towards the passive side.

Can you describe the difference between a general partner and a limited partner?

A limited partner has no responsibility for the day-to-day operations of the property. They’re there as a capital partner, so they put forth the money and have minimal say or sometimes no say depending on the operating agreement in the day-to-day operation. It’s truly hands-off. You can’t change the operations of the property if you want it to.

How about the general partner?

That’s the deal team. They put the deal together and then also manage the deal after. They find the deal, find the funding and then manage the operations.

I need to get this general partner and limited partner thing straight. The general partners are the ones doing all the work to get the deal done. They have the say and all that. The limited partners provide the money but general partners are getting paid some fees but don’t necessarily need to add their own money. They’re adding the work. Can a general partner also be a limited partner? Can they fund the money?

Most of the time, they are bot because the lender will require the general partnership. A lot of times, the lender will require that the general partnership puts in 10% of the capital so you can be both. A lot of times, you see that they hit that 10% requirement but the general partners’ main compensation is equity. They get equity in the deal for putting the deal together, finding the investors and then operating the deal throughout the life of the deal.

That’s the good part about being a GP. You can come in with limited funds and still get a massive portion of the deal. That’s where the leverage comes from that you’re getting paid for your work.

Limited funds are all relative because if you’re looking at a $20 million project, you still need to bring in $2 million between the general partner, so it’s still a lot of money. I wanted to ask how do you analyze deals. I would say maybe more from the passive side because I imagine people that are reading this are more interested in something like that. I know from experience of shopping them around that sometimes, you can find ones that are even $50,000 entry, so they don’t all have to be $100,000 or $150. What would be some tips that you would give for people looking to analyze syndications?

There are a lot of good resources out there of ways to analyze passive investments and there’s a lot of rules of thumb. One thing I typically pay a lot of attention to is the operating ratio. You want to see that. Typically, on big multifamily, you’re around that 50% ratio, so your expenses are 50% of your income. It’s a rule of thumb but maybe ask some questions around why the expenses are lighter. When it comes to income, if you see huge growth in income from year 1 to year 2 in the projections, understand why. Look up the comps and see if they’re comps. Those are easy, low-hanging fruits that you could check.

How would you approach comps? Can you go check it on Zillow apartments or is there a secret database?

I use CoStar but it’s the same thing as Apartments.com. You can check Apartments.com or whatever is frequently used in the market you’re searching around. When I’m analyzing a deal, I’m checking Apartments.com. Typically, that’s the starting place.

How long will it take to underwrite a deal? I feel like when people are underwriting me when I go for a loan, it takes a month. I get a deal and I’m like, “I’m going to check the rents and make sure the expenses make sense.” It feels like it should be an hour or two types of thing. I’ve got little to no experience in analyzing multifamily so enlighten us.

I know some of the rules of thumb. I can usually get a T12 and a rent-roll. The T12 is the trailing twelve-month profit and loss statement. That’s your income and expenses over twelve months. Essentially, you’re evaluating a business. You’re looking at the business like, “Here’s what the income is. Where can I take it based on comparables and the renovation that I’m probably going to put into this property? Where’s the room on the expense side to clean up things.?” If the water bill is $800 per unit, there might be a good opportunity there to put water conservation in there. I know from a per-unit after looking at so many deals what’s an outlier and what’s not, so I can usually filter through pretty quick.

I have a question about the way that these are taxed because I’ve been hearing that people are looking for syndications for the tax advantages but it can depend. I was looking at one and they were talking about 100% depreciation. Sometimes, I’ve seen 90%. Can you talk about that a little bit?

Every syndicator is using a cost segregation study so they’re writing off anywhere right around 30% to 50% of the property in year one. That write-off gives investors a huge loss from a tax perspective in year one. When you come into a property, let’s say you invested $100,000, you should expect probably at a minimum of $50,000 in year one in losses. You can offset those losses and deal the deal. It’s a timing thing, so if you sell a property in that same year, you’re going to want to acquire another property and take that huge bonus depreciation in year one. That’s how you can get away without paying taxes.

With cost segregation, you’re going to depreciate a building like that size over 39 years so it’s taking a big portion of that and squeezing it out in year one. You’re losing that depreciation in later years, which is the downside but that’s why you need to acquire one each year to sustain your losses.

That’s right, so if you sell a property in a year and you had already taken that depreciation, you’re going to have to pay that back that same year of the sale, so you’re going to want to offset that by acquiring another property but typically if you roll that into another property, you’re going to at least clear that gain on the sale.

You were a general partner in 4 and a limited partner in 5. What is your role as the general partner in those four that you’re in? Is it different or do you stick to what you’re good at?

I’ve done a variety of different things. My background was in underwriting and asset management. I’ve been able to join deal teams for those aspects for underwriting the deals and then providing asset management. That’s how I started and then I’ve also provided short-term liquidity. Let’s say you’re looking at a $20 million deal. If it’s in a competitive market, you need 2% down earnest money. You’re going to put $400,000 down and if you’re doing a couple of these deals at a time, that’s a lot of money. I’ve been able to provide short-term liquidity and fill that gap for earnest money and several different things.

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You put down $400,000 earnest money for somebody.

It was cut into the deal for that. That’s part of it.

You get the earnest money back when the financing goes through.

I didn’t put down a full $400,000 but I’ve done that on a couple of different deals where I was very comfortable with the deal sponsor. I had asked to manage their deals for several years, so I knew them very well and I knew how they operated. I was going to operate the property after it closed, so I had a save from that aspect. That’s why I was very comfortable.

That makes you a general partner. All you’re doing is providing earnest money and then you’re a general partner. That gives you equity versus being a limited partner of funding the deal.

That’s one of the several different ways you can do it. I’ve also raised money. There’s a lot of different pieces of the pie. There are a lot of different partners. It’s a team sport on these deals.

The multifamily syndication thing is cool. A quick recap, you went from house hack to flip and then you’re doing the big multifamily stuff. You’re taking these big leaps, which is cool. What is giving you the confidence to take these big leaps? Is it because you had a job in the multifamily space?

When I ultimately decided to transition out of a single-family, part of it was because I realized that I was more comfortable with multifamily than I was with single-family. I had maybe five years of experience of underwriting deals and managing deals for some of these big operators. I was more comfortable with the multifamily industry in general. In the 2008 collapse, there was 1% foreclosure and probably a lot of that was risky or bridge loans. I doubt that there were a lot of agencies, so it made me comfortable with the industry in general.

How many units do you have? That’s a big thing. You must have multifamily folks that you’d like to talk about.

I don’t care about counting units because I have one property that I own a sliver in and it’s a 564-unit property, so you can get the unit count up pretty high. I’m in a little over 2,200 units.

That’s a sliver of each unit but I always think it’s funny how multifamily people always talk about their units.

I’m curious. Those people that you were doing asset management for, were they all owning syndications or were they owning the building themselves and having managers?

They were all done through syndication.

That could be you. Somebody is going to hand you a $1 million check soon.

That’s why I’m taking it.

We’re recording this in 2021. Tyler heard about financial independence years ago. He has sold his house hack and he’s already up to 2,000 plus units, so you can make this jump and make it quick. You have to make sure that you’re getting around the right people. I don’t think it’s a requirement that you work for an asset manager. I’m sure it helps in your analysis but if you get in these groups, start learning from people and that’s the route you want to go, go sooner rather than later so you can get your mistakes out of the way and get learning.

I want to ask a question before we transition. I’m curious about cashflow versus wealth growth because in general, syndications are not cashflow. I have heard of some where instead of getting that big payout at the end, you can take a general 10% a year but that’s not usually as good as the big payout at the end. How do you deal with cashflow? Do you continue to work?

I’ve never done a deal that was below 8% per year in cashflow, which might not be a lot compared to a house hack but from a completely passive perspective. Usually, I see it from 8% to 12%. I honestly don’t pay attention to cashflow. I do it from a fundamental perspective of valuing a building and what I’m going to be able to pay out to my limited partners.

I look at cashflow as my unemployment rate, so if I have a lot of cash flow coming in, my unemployment rate is going up. I need to reallocate that somewhere else, so I have money that is ready to go out and invest. Those are my temp workers and then, all my money that’s invested, that’s my employment rate. That’s how I do things. I don’t generally like to sit heavy on cash and my expenses are not that high day-to-day, so it’s not my main concern. I’m focused more on net worth and equity.

They’re all little workers. One of those dollar bills is a worker and if they’re sitting idle, they are not working.

If you got to put them aside, they’re temp workers and if they’re working, they’re working.

Let me ask my last question. I am curious. What is your goal? You’re in about nine of these. I imagine that’s a lot of cashflow and maybe even huge payouts coming. Syndications sometimes are only 3 to 5 years, so then you have to re-find deals and put your stuff out. Do you have some goals you’re working towards?

Not so much from a financial perspective. I’d love to clear $1 million on a deal. That’d be cool but not so much. I’m just going to continue doing what I’m doing. I’m pretty comfortable from a financial perspective. I don’t have a lofty target of $10 million or 50,000 units. My goal next year is to source a deal because that’s something I haven’t done. I haven’t been able to source a deal. I’ve been involved in deals for several different reasons but I’m going to hammer that in the next year.

I lied. I have one more question. I want to know, did any of these go south? Real estate people always talk about it like, “It’s amazing. I’m so intelligent. Everything works out for me.” What does it look like when the syndication goes bad? Has that ever happened to you?

They vary. One of the cool things about meeting so many of these different syndicators is I have a handful of syndicators or operators that are solid and I have a good place to invest my money in. Generally, the lender is going to want a debt service cover ratio of 1.2% or higher, so the property has a built-in buffer and then on all these larger deals, there’s also replacement reserves, so you have to reserve a certain amount of money per month for repairs and things like that. I’ve never seen a deal go south, so to speak but I’ve seen them not hit projections. I’ve had deals hit returns of 30% to 400%, so there’s a range certainly and you want to partner with these good syndicators and sponsors for sure.

That’s also what you paid for. I don’t know if it was $10,000, $20,000 or $30,000 to be part of that group but whatever large sum of money that is, it’s probably getting you in front of reputable people so that the deals that you participate in have a lower likelihood of failing and have a lower likelihood of you losing money. You could also say that $30,000 or whatever the heck it was is like an investment so that you don’t lose hundreds of thousands of dollars by a deal going south. Would you say that’s accurate or not?

Yeah.

I want to get people clear that there are tons of gurus out there that are going to try to steal your money. Those are more, not to mention any names but Rich Dad Poor Dad seminars.

Do your homework. They’re not all equal. Some of them are a scam.

You readers, when you’re first starting, you are the easiest people to fall for scams. I almost fell for one. I know someone that has fallen for one who hadn’t been able to get their money back. It was a pain in the butt, so be super careful and make sure that whatever you are joining is very reputable and maybe you know somebody in it that can refer you to that group.

That’s the best way I would say. It’s by getting referrals. If you’re looking at a deal from a passive perspective, get their track record and see what their deals have returned.

We are about to move into our Final Four but before we do, do you have any last words of wisdom for our audience?

No. Let’s dive in.

Z, kick us off.

I’m going to change this one a little bit. Normally, we ask you what you are reading but I want to know what you’re reading and if there’s a book on syndications that you recommend.

I’m reading a one-off book. It’s a philosophy book by Anthony de Mello called Awareness. It’s a curveball. It was a recommendation for someone but a book I would recommend that I’ve read this 2021 would probably be Mindset by Carol Dweck. That’s a pretty powerful book. In terms of syndication, I can’t think of the name. I have read a book starting. I’ll have to follow up on it.

You can get that to us. It’s more for me. Forget everybody else.

What is the best piece of advice you’ve ever received?

ITF 58 | Multifamily Syndication
Mindset: The New Psychology of Success

I feel like those changes monthly. I don’t have the best piece of advice but I’ll give you a formula that I love and that’s education times action equals results. That can be applied to most things. You start by getting educated. Anything multiplied by zero equals zero, so if you’re not taking any action, you’re not getting results. The cool thing about it is once you start to take action, you become educated at the same time, so your results start to multiply. A lot of times, when I get stuck, I’ll ask myself, “Do I need more education or do I need more action?”

What is your why for doing all this crazy real estate stuff?

I grew up in the lower-middle-class. When I was 13 or 14, my mom got sick and lost her ability to walk. My dad, shortly after that, got a disease and lost some of his cognitive ability, so they both were knocked out of the workforce at that point. It was traumatic. I found and learned about the pains and struggles of poverty, so my why is to avoid those pains that I dealt with growing up and also, why not? Is there a reason not to be financially independent? I can’t think of a reason why not. It’s front-loaded, so it’s a delayed gratification type of thing. It gets easier.

One last question, what would be the absolute worst name you could give your child?

What did Elon Musk name his daughter? That’s out there. Wasn’t it just a bunch of numbers and symbols?

It won’t surprise me if it’s an algorithm.

I thought it was pretty out there.

Do you think Elon Musk maxes out his 401(k)?

There’s no chance.

Thanks so much for coming on. Where can people find out more about you?

The best way to get ahold of me is by email. It’s Tyler@SilverCreekMulti.com.

Give Tyler an email if you’re interested in multifamily investing. That is enough for this episode. We’ve had plenty of blunders. Thanks so much for coming on. Maybe some people will reach out to you. Thanks for shedding some light on some syndication stuff. A lot of us are interested in it and if they’re not there now, at least interested in the next few years of getting there. Thanks so much. We’ll talk soon.

Thanks. This was fun.

That was Tyler Giering. Z, what did you think about Tyler?

I thought it was an interesting show. It’s cool to talk to people who get all the numbers. When he’s talking about looking at portfolios with 20,000 units or 70,000 units, it sounds so overwhelming to me. It’s cool to hear how different people have different strengths. I’m interested in syndications. I love hearing how people are being successful and hands-off with it. It’s exciting.

I love that he always goes for the passive things because he knows what he likes to do and does not want to have any long-term commitments and he saw that. He said himself he was doing all this work on his house hack, doing a bunch of work on his foot and then he saw one of his partners or one of his coworkers or his boss makes $1 million and not even realizing he made $1 million. That’s probably a pretty cool feeling. That’s what he’s aspiring to get to. I love how he took action on it and saw it. He’s 100% in doing it.

Craig, before we go, what’s new with you? I feel like we don’t talk about you. You just talk about me.

You always ask about me at the end of the show when everyone’s dropped off. No one cares. My girlfriend, Grace, is looking for her next house hack, so that is fun and exciting. It’s in the greater Denver area. We are also looking may be to purchase a secondary home in Idaho, so that should be exciting. We’ll have to invite you up if we end up getting the place.

That’s awesome. Good luck.

Thank you. With that being said, I have one more thing I need to ask you. If people want to leave a review for our show, where should they go?

Go to iTunes. That’s the best place but it can be any place where you stream a show. Spotify and Podbean are probably good. You can leave a comment or a review. We appreciate it. It helps other people find us and helps us get cooler guests, so do it.

Yes, please. Thank you so much. Otherwise, we will see you in the next episode.

 

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