David: Alright guys, we are back! This is David Dodge your host of the Discount Property Investor podcast. My co-host Mike Slane is out in the field today buying us some properties. I think he actually got two under contract this weekend, so he is out doing due diligence on those this morning. However, I am joined by Mark Kenney this morning, and Mark is going to talk to us about multi-family. So Mark, welcome to the show.

Mark: Thanks for having me, David, I am glad to be on.

David: Absolutely, Mark, I am happy to have you. So Mark is from Fink Multi-family, and he is the expert, one of the experts in the field on multi-family investing. So Mark tell us, and tell our audience if you could, why real estate? Why you decided to go into real estate? And how long ago you did? And for what reasons?

Mark: Yeah, no, thanks, good questions. I started about 26 years ago actually. So a senior in college, probably the main reason was because-- I kind of saw it growing up, we didn't have a lot. We had food and a place to live which is a lot more than a lot of people in the world for sure, but we didn't have any extras. Anything I wanted I had to buy. At ten years old I was buying my own bike, shoes and clothes. I was like, this kind of stinks as a ten year old to be buying everything yourself. But, we just didn't have the money. A lot of kids to feed. My twin brother and I kind of always a little but entrepreneur mindset, didn't come from parents or uncles or anything, just more we didn't have to go through what my dad went through, like working every weekend fixing TV's, cars, toasters and I'm like, that kind of stinks. We don't want to do that.

We were in college, we both went for accounting. When we were there we were like-- man we like real estate a lot, we always have since we were little, I don't know why because of the way we were born. We said, well everyone needs a place to live. Whether than investing all our money in stock markets and things like that, let's go ahead and invest our money in multi-family. It was smaller multi-family at the time, we got our first deal, all excited. My dad met up with us and talked me out of the deal. That was my first negative experience with real estate.

David: Your dad talked you out of the first deal you were going to do?

Mark: He did, we were under contract actually.

David: Okay.

Mark: He was trying to protect us, but in reality he has never bought a multi-family-- he's 82 years old today, be has never bought anything frankly, so probably not the best person to, but I was 22 at the time or whatever. Continued to buy small multi-family, and then I did CPA for a while then did IT. Somehow switched over to IT consulting, started my own IT business in 2008 and was doing well with it; had a number of Fortune 100 customers. I was working minimum 80 hours a week, I would sleep pretty regularly three hours a night, and had a wife and two kids. For some reason my wife didn't like that, the hours I was working, traveling all over the world and things like that. Making good money, but reality is that home life was not doing well, to the point where my wife is like, okay I am thinking about leaving. I was like, what? So she is like, could you do something different? I was like, okay. We buy a multi-family, let's start buying larger multi-family, but I can't quit my job doing it every two or three years finding a property, so let's look at syndication. I had a friend that had just started syndication, so that's the first I heard of it was in 2013. Started looking at larger multi-family. Since then we bought about 5500 units, 4500 units right now in five different States. Then we have an educational platform and events and things like that as well we provide.

David: Wow so you have-- let me recap; you have been investing for 26 years, is that correct?

Mark: Yes.

David: And you have purchased 5500 units in that time, however today you own 4500 units, is that correct?

Mark: That is correct.

David: And you use syndication to buy those?

Mark: Yeah we raise money from other people with investors along side us, that's correct.

David: I love that strategy. That is something I've been really wanting to start doing-- because it doesn't limit you to-- a smaller type of deal. My audience, my listeners and viewers, they know quite a bit about me, and that I have 50 rental properties at this point. My company wholesales 6-10 deals a month depending on the month. We always have anywhere from 3-5 fix and flips going at any given time. We know quite a bit about the multi-- about the single family space. However, we don't know that much about the multi family space, nor the syndication space. So I am honored to have you on the show today, and to talk with your a little bit more about-- this topic, and about this strategy of investing. So let's start with this; you had 5500 units purchased, you own 4500 today, so what happened to the thousand units that essentially you don't own any more?

Mark: We sold last year a thousand units, three properties.

David: Okay, and why?

Mark: Reality is we had a bad partner. We wanted to get out, had three properties with this particular person, and wanted to get out the deals we were in with him so we sold those properties.

David: And that makes sense, understood. So the properties that you guys are looking for now, or should I said the properties that you own now, both-- what are you looking for in terms a property? What's the criteria that you look for? Most importantly, why?

Mark: Yeah we typically look for 100 plus unit properties, main reason is because we were buying small properties, I was actively involved in the management and evictions and things like that, fixing toilets, I got an 8 hour toilet story. There is a little bit behind that story, but crack in it several times, things like that. I would come home literally 9 or 10 at night, I lived in Michigan at the time, we're in Dallas now. We would shovel snow, ten at night because we didn't have the money to pay people, we were 23/24 years old at the time. So then I said, okay with larger multi-family, for us if we get a hundred units or more, we can get the professional management, you can at that point. Do you use a management company right now at all?

David: Yeah we do. We had our management in-house. We are aggressively buying singles, we are trying to buy one a week right now. The fact that we are aggressively buying also wholesaling, and also doing some fix and flip on the side; we were spread too thin to also manage those properties and do it efficiently. So we have recently outsourced. I say recently, something like five or six months ago we outsourced it to a property manager. We will probably bring it back in-house down the road, but I have two partners here at my company. We have a goal of getting to 150 single families, we are at 50 now, so we are a third of the way there. We think we can get there, we are hoping to get there within the next 24 months if we keep up what we're doing now, basically buying one a week. Yeah we are looking forward to getting there. That is kind of where we are at, but we don't do any of the management at this point in time, just because we have so much other stuff going on.

Mark: We use third party managers, and what we have found is that typically when you start getting above-- probably around the 80 unit or so, then the professional management companies, they are typically more professional in nature, meaning they manage thousands of units. They have their own accountants, sometimes their own attorneys, everything is in house. So it kind of gives you that-- in terms of looking at multi-family-- two units multi-family, but from a commercial stand point, the lender will say five units and above would be a commercial type-- even though it's a residential property.

David: Sure.

Mark: The biggest thing is-- I am sure you talked about this before too, but anything four units and below is worth what the property next door, down the street things like that is worth. Whereas with multi-family, say five units and above, we can increase the value though either increasing revenue, or decreasing expenses. Literally for every dollar we increase our revenue, or decrease our expenses it doesn't matter which one, it is going to be [00:10:03.03 - inaudible] income, every dollar we do that is $16 of value. So literally I can turn around, and let's say I start getting an extra $50 a month, of $75 a month. That's $16 of value for every single dollar. You just can't do that in small properties. It's not saying you can't do well with small properties. We did do smaller properties, but that's how you start significantly increasing value on your properties and doing finances, and [00:10:39.02 - inaudible], or selling it and pulling out huge cash amounts that way.

David: Yeah I love that. You are absolutely right; I totally agree, forcing depreciation on a single family is much more difficult than it is in the multi's. We use the BRRRR strategy here at my company to acquire our single families. I know there are lots of ways to use the BRRRR strategy to get into multi's. One of my favorite things about multi-family investing is that you can pull money out, and it is not necessarily considered income because it is debt, it is tax free. So that is really one of the main things that intrigues me to want to move into this space. So that is really really cool, Mark. I love that.

Mark: -- you get it on different properties, but for us as syndicators, we buy properties, we own maybe 32 properties right now. So to put it in perspective, even if I as a syndicator-- we invest along side, but even if I invested zero dollars in a property-- for 2017, 2018, we paid zero federal income tax, zip. Depreciation, what's called cost segregation, and bonus depreciation, and all these ways to accelerate depreciation. In one property alone that we bought in 2018, had $430,000 of depreciation allocated just to me as a syndicator, not even including money I invested in the deal. Start adding that up-- $200,000, $300,000. You are not going to pay any taxes most likely.

David: Yeah, so you are on a whole different level to me, but I get a lot of tax benefits of course from my singles, not quite that much. I do pay some federal tax, it is very low compared to my friends. But wow, that's cool. Well, Mark, let's do this; my audience consists of a lot of people that are looking to get into real estate, they are looking to learn what they can do to become involved. When you say syndication, I understand what that means, but I don't think a lot of my listeners and viewers know exactly what that means. If it's okay with you, I would like to take a couple of minutes and have you explain to me and the entire audience here what is syndication? How does it work? Then why? Most importantly, why is this strategy so awesome?

Mark: Right. So syndication is just a fancy word really for-- typically it is related to money, so raising money from other people. Let's say for example we are doing a deal and we need to bring three million dollars to the deal in addition to the loan and things like that. We will invest money in the deal ourselves, about three million, then we will bring other investors along side us which are called partners or members sometimes, same thing. They are not investing in the deal with us. We are the managers, the syndicators in this case, we kind of control a lot of things. The limited partner is pretty much investing and hopefully receiving checks, without making a lot of the day to day decisions or anything like that. So they are a very limited partner, we are considered the general partner or the managers of that. But just a fancy word for really raising money from other people. Why would you do it? Well I am probably a pretty good example of it, because I was making really good money in IT. I had my own business, own products, [00:14:15.10 - inaudible] some large companies, doing pretty well, but I had a personal issue where the money didn't really matter because it was having a big impact on my life, because health wise and family wise--. So for me, if I was going to try and quit my IT job and start buying properties on my own, I am limited to a couple of things; one I am limited to the amount of money I can put in by myself if I don't syndicate. I am also limited on a loan perspective to my own net worth, and my own liquidity. Both of which at that time would not have gotten me a lot frankly. So with syndication, we kind of have a concept called family syndication, and it really just means each person can play a different role. So maybe you find a deal, David, and I analyze a deal and somebody else sends a loan, and other people raise capital and do other things like that. But the reason we did it, is because you can significantly increase your cash flow, your net worth, income, so we will take a 2% acquisition fee based on the purchase price. Which is a lot different buying a 25 million dollar building versus buying a $300,000 building.

David: Sure.

Mark: That can be a good source of income as well. Also usually we will have--.

David: You call that an acquisition fee then? A 2% acquisition fee.

Mark: Based on the purchase price.

David: Okay.

Mark: When you close the deal [00:15:44.21 - inaudible] how big the deal is, then the general partners or syndicators will split up those funds depending on who did what essentially.

David: Uh huh.

Mark: You start doing a few deals a year, you are doing five, ten million dollars or even bigger than that, it can add up pretty quickly. So your net worth, cash flow, income, tax benefits are just at a whole new level than when we were doing smaller properties.

David: Yeah I concur. So let me ask you this, Mark. I have got a couple of questions. So the why was limited to the amount of money you could put in by yourself, but also limited on the loans that are based on your own net worth. So how does it change whenever you walk into a bank and you say, hey I am bringing in a bunch of limited partners. Why would that change the opinion of lending to you from the bank's point of view if you can raise two or three million to put down, versus not being able to do that?

Mark: Right, so the lender first one thing, our loans are non recourse, so we don't have personal liability which is a big difference when I had four units and below, I had recourse loans. With multi-families starting at five units and above, I have the option to get non-recourse. I say no personal liability, but if you do something fraudulent or non-ethical or things like that it can come after to you, and they should come after you, you did something wrong.

David: Right.

Mark: That's one big thing, then-- we get to re-use my net worth. Say for example say your net worth is a million dollars. You say-- the loan is five million, what do I do? You bring other people in with you, they are called KP's or KP principles, and all their networths together along with yours get added together and say, oh David plus another three people, we have six million dollars net worth there, so we get to combine it there, but you also get to re-use it. Meaning, we have over 30 loans right now. My net worth isn't three hundred million dollars, but [00:17:52.28 - inaudible] loan.

David: Wow that's awesome.

Mark: You don't get capped out.

David: Wow, Mark, that's powerful, that's really cool. We work with five or six banks locally here in St Louis where we invest and where I'm from. We do not get that advantage that's for sure. They look at all the loans that we have, and they look at our income, they look at our debt to income, and they look at our credit. We don't get to necessarily re-use that. It can tap out, and there have been situations where we have had to essentially slow down or take a break, pay down some debt before banks would want to lend to us again. Wow that is--.

Mark: Yeah they will end up looking at the property itself. They are more concerned with the property itself than you as an individual. I mean they can still look and underwrite you.

David: Of course. But they are looking at the property just as much if not more. They look at it as business.

Mark: -- look into lender take over that property and make a profit off of it.

David: Right. So when you said you have been investing for 26 years, how long have you been investing in these bigger hundred plus unit buildings? Has that been the whole time? Or is that something you kind of transitioned to?

Mark: Yeah transitioned in 2013.

David: Okay.

Mark: I was a passive investor. A friend of mine was doing a syndication, I had never heard of syndication until that point in time, I never knew what it was. He was doing a syndication, I invested some money with him, I was like, this makes a lot of sense to me. Then we started looking around that time ourselves, took us a while to get a deal because I really was just crazy busy. We looked a lot at other areas as well before we decided 100% on multi-family.

David: Uh huh.

Mark: We started-- meeting with brokers, got our first deal-- 64 doors. I wish it was a little bit bigger but it was a good first deal for sure. Once you started getting deals-- now we have more deal flow, we literally have five deals under contract right now, and five more accepted with intent. We are still finding really good deals.

David: Wow that's cool. So speaking of finding good deals, Mark, what's some of the strategies you all use in order to locate these deals. So me, before I even ask that question, me, whenever I am searching for the singles, I am really looking for something in my own market. So I would imagine you would be a little different than that. That's okay, right? I am looking for something that is within a 30 minute drive of my office, and my office is only a five minute drive from my home. So it is basically within my own market. I am looking for motivated sellers, okay? I am on the single family side, we are building our portfolio of rentals, we are doing it kind of slow compared to most that are buying a hundred at once, right? We market for motivated sellers, so we get properties occasionally that are listed on the MLS, or the traditional real estate brokerage type of scenario. But those are few and far between. The majority of our deals come from our marketing direct to the seller. So we do Google ad words, we do lots of mail, we do a lot of skip tracing which then leads to cold calling or cold texting. We do driving for dollars. I even have an ad on the radio which is great because it reaches a broad area around town. But essentially I am looking for a motivated seller that is motivated for one of two reasons. Either they themselves are distressed, or two the property is distressed. In the home run and I am talking boom! The home run for me, is when I find a motivated seller that is distressed themselves, and the property is distressed so both, right? But I am really looking for one or the other at a minimum. So when you're going out and finding deals, is it similar? Is it different? How and why?

Mark: Very similar. We are in five States, multiple markets in each State right now, but we do have a third party management company that will manage thousands of units. So we kind of rely on them a lot in that sub market. It gives us a little bit more of a comfort level. If we own 2000 units in Atlanta, it gives us kind of the clout to work with them.

Similar things though; job growth, population growth, landlord friendly. You know, no rent control, low supply of new entry coming into market, those type of things. We originally started just buying in our own back yard in Dallas Fort Worth and just expanded out-- done pretty well with that. We have a permit to go in any market just through relationships. But it has given us the ability-- first one you do out of State is a little unnerving, it really is. We have gone through management companies before, unfortunately we had to replace them and things like that, it's going to happen. That is kind of our criteria as far as-- job growth, population and things like that.

David: Right okay, very cool. Well that's good. So five different States, and you said you were in multiple markets within those five States. How many markets total?

Mark: Probably-- 13. [00:23:29.02 - inaudible] which is way north east, and we own Savannah, we own another one which is going to be south of Savannah, and we own in Atlanta, so five markets just in Atlanta, Georgia itself.

David: Okay very interesting. So whenever you guys go out and you find these deals, you put these deals under contract. Then that in my opinion, that's the easy part; finding the deals, getting them under contract. Then you have to go raise the money, that's where the syndication comes in.

Mark: Right.

David: So what are some of your strategies in order to go raise that money? Earlier you had used an example of needed to get three million dollars on top of the loan. So let's stick to that particular example just for ease of use if that's okay with you. But let's say you go out and find a property, you get it under contract. You need to then raise three million. So you mentioned earlier that the loan you would be acquiring would be a non-recourse loan. The three million that you're borrowing, is that also non-recourse or -- I shouldn't say borrowing I should say raising? Is that also non-recourse? How does that work?

Mark: Yeah it is, they are all investors in there, they are buying units, but it's really more of a share of the deal. We do pay a preferred return which means the investors get the first returns if it's available, but if it's not available they don't get it.

David: Okay.

Mark: Let's say you had three million to raise. First of all, if you have never raised money before, you don't really know what you can raise and that's fine, nobody knows what they can do. We still get nervous raising money because we are taking money from other people, got a lot of deals going on and things like that, so there is nothing wrong with getting nervous about raising money, you probably should.

David: Sure.

Mark: But you can't wait till you have a deal to start raising money. You really need to do things like what you're doing, podcasts. You need to go to events, you need get on social media. Some people might say, well I don't want to be on a podcast. That's fine, you don't have to do what you're doing, David. But there are certain things you are going to have to do, you have to get-- typically off your butt and go out and meet people face to face. Meet ups are free, events are pretty much-- every weekend [00:25:41.04 - inaudible] across the country if you want to.

David: Okay, yep.

Mark: You are going to build that-- follow up with people once you meet with them. Hey [00:25:52.22 - inaudible], e-mail, phone call. Try and meet them face to face again if you can, if person if they are local and things like that. Then you basically want to qualify them and see if they are really a candidate for investing with you or not. They might be a great person, but they don't have any money to invest-- they are probably not a good candidate for investing with you. The other thing you can do is-- you want [00:26:17.26 - inaudible] legit, so you should have you own domain, it's cheap to get your own domain, your own website, could be one page it doesn't matter. Then start putting some sort of content out there. It can be very basic, ten lessons learned in multi family investing, whatever you want. The idea is you really need to capture peoples e-mail addresses.

We know a guy for example who had a million followers on YouTube, YouTube cut him off forever, he is done with YouTube. Well he doesn't have access to a million people anymore. So you want to be able to provide some sort of value out there, get people to give you their e-mail address ideally. Don't ask them 50 questions, they won't fill it out, get a name and maybe an e-mail address and start communicating with them. Hey can I get a call with you? Maybe do a monthly or quarterly newsletter? It's all about people knowing who you are. At the end of the day, partner with other people that have-- been able to raise capital, [00:27:09.24 - inaudible]. Partner with other people that raise capital, nothing wrong with-- too much money, it's okay, better than not having enough and not closing the deal.

David: Oh absolutely. So whenever you are-- so those are some really great pointers there, Mark. Thank you so much. You had mentioned-- meet ups are free, there are tons of meetups out there, go find those meetups, get in front of people, follow up with those people after you meet them. Of course you want to qualify them, see if they have money, if they do and if they are interested in investing it. Of course you want to look legit, get your domain, get your website going, start putting out some content. Totally agree with everything you just said, that was very, very good. That's awesome. Then last but not least you mentioned, you need to capture those e-mail addresses. I am familiar with the fact that social socials like YouTube, Facebook, Instagram, whatever; they are in control, they can cut you off at any time. So it's not necessarily a bad thing to invest in those channels for the most part. However, you don't want to put all your eggs in those baskets, they can cut you off. So by having an e-mail capture, then be able to communicate with those people directly outside of those channels is extremely important. I just really want to emphasize that, and say I agree, and that is very, very powerful, so that's awesome, Mark.

Mark: It really is and it takes time, you know? It's not going to happen over night. We have a coaching group, [00:28:45.01 - inaudible] it's harder to raise than I thought it was going to be, right? But you learn-- we have a guy that-- [00:28:52.09 - inaudible] different deals with us, it was three years, no joke before he invested in the first deal. It was about three or four months ago he invested in a deal with us, after three years.

David: Wow.

Mark: Timing wise, life events. You get people that say, hey I'm interested. You need to know that a lot of people say they are interested that won't follow through because of the timing of things going on. So don't count every single person that say, hey I'm in, because they are not going to be in unfortunately.

David: Yeah that's really good advice. Mark, let me ask you this, so when you are out, you are doing all these things you just mentioned; you are going to meet ups, you are getting in front of people, building relationships. Let's say you come across somebody like me that says, hey I don't have a ton of cash, let's say I have 150 grand, or 200 grand, and I want to invest it. I know this may be a hard question to answer because each deal may have a little bit of a different scenario going on. But what's a good standard for somebody to expect in like interest on their money? When can they expect to get it back? Then also, with them being a limited partner, let's say that I'm the investor and you are trying to pitch me, right? What would I expect other than just an interest rate or return? Do I get equity in the deal? I guess that it might be a little bit different. Just to keep it really simple for all of our listeners and viewers. What can they expect I guess is my question?

Mark: No, it's a great question for sure. We typically shoot for 10% cash on cash return. So let's say someone invested $100,000 they would be getting $10,000 a year on an annual basis.

David: You typically try and pay quarterly? I guess again that varies.

Mark: It is typically for us.

David: Right.

Mark: At some point in time we want to have a capital event, could be a refinance or a supplementary loan, a second loan on the property, kind of acts as a [00:30:37.06 - inaudible] in a way. There are differences but it's similar, or a sale. At the end of five years we want to be able to get you your $100,000 back, plus another $100,000 through cash flow and capture though equity from refi or sale or whatever it might be.

David: Okay so let me interrupt you for one second, Mark. On average, and again every one that is listening just know that every deal is going to be a little different. So this is not end or sale. We are just trying to go with with averages here. So Mark, again thank you so much for this information. 10% cash on cash is what you shoot for, it might be a little different, try to pay our quarterly. At the end of the five years you want to give them $100,000 back plus another $100,000? That doesn't necessarily be in cash but in equity or something else. That's not including the quarterly payments that have already been made?

Mark: It does include it.

David: It does include it, okay, got it.

Mark: -- it would be cash, that is either through re-finance-- we have done about six refinances over the last 12 months. The equity piece the way we structure it is similar for a lot of people. We typically will pay an 8% preferred return, which just means the investors, the limited partners will get the first 8% before we receive a dime, okay? But they are not capped at 8%, they can make more. They get the first 8%, anything about that we do a 70:30 split. 70% to the investor 30% to the managers anything above that.  If we have equity in our deals, the way we structure it, they are getting the first cash flow before we get it, and if we can't pay a preferred return for whatever reason, meaning we owe it to them still. If we were to try and sell a property, we have to pay them back first, and say anything left over? Yes there is, we paid them back, and now we are going to do a 70:30 split.

David: Okay, oh that's awesome, man. So essentially you are making profits on all of their capital, then you are getting leverage on that as well. Wow this is really, really powerful, that's awesome. So when you sell a property, the investors get paid back first, and you are typically going to split the profit or the difference of that at a 70:30 split, wow, that's cool. So you said you had sold a couple because of a bad business partner, it happens, totally understand that. What's the long term goals for you or your team with these units?

Mark: Well it probably changes a little bit. I prefer to hold properties longer now because a lot of properties we bought we put a lot of money into, we know the property, we know the area, and we are able to do kind of-- I would say quicker refinances or supplemental loan or things like that. I look at it this way, [00:33:44.20 - inaudible] cash flow year after year for let's say five years, and we can't get you a big pop like refinance and things like that, I think it probably makes sense to sell the property, because we tell people we usually have about a five year horizon on it.

Now if we can do things like-- let's say we pay you 80% of your equity back after 18-24 months through refinance, well you only have 20% of your money left in the deal. If we can do that, I would rather hold the property longer providing we can still cash flow, and we like the characteristics of the property, but if we do hold it a little bit longer, and just keep paying cash flow, maybe do another re-finance, another supplemental loan, having these kind of big equity events, capital events where the investor gets a big chunk of money. But if you can't do that, my personal opinion is, you owe it to the investors to try and sell the property.

David: Yeah, that makes sense, I totally follow on that, that makes perfect sense. So five years is typically what you're shooting for in terms of the minimum, five years and above i really where you would like to be, but again that kind of depends on some of the situations that are happening with the property itself.

Mark: And the market.

David: And the market too, yeah that's a good point too, didn't think about that, the market too, okay. That's awesome. In terms of the financing that you're getting. So you have two different pools of capital essentially, you have the money that's being raised, that you guys are paying in return to those investors as you mentioned the horizon of five years. But then you are going to the bank and you are getting loans on top of that. What do those loans typically look like? You mentioned they are non recourse loans, what's the rate, what's the term? What are some of the details of that loan? Can anybody just walk into any bank and get these type of loans? Or are these FHA loans? Are they portfolio loans? Are they sold off in the secondary market? Just a couple of quick questions about that, I know that's a lot.

Mark: No, it's a good question. The loan terms are very different that single family or smaller multi-family. Pretty much all of the above, some loans-- [00:36:02.18 - inaudible], and we also do a number of what is called bridge loans, do that on a regular basis as well, more than a third of the deals we do have bridge loans.

David: Okay.

Mark: Term wise [00:36:16.18 - inaudible], generally speaking Fanny will give you $5000 of rehab, and Freddy [00:36:23.15 - inaudible] will give you zero rehab. Term, typically going to be-- we try to do about 10-12 year term on it.

David: Okay.

Mark: It's going to have a balloon payment at the end of that. So it is advertised over 30 years, but it usually a 10-12 year loan in general statement.

David: Okay.

Mark: Rates are going to be around four-ish right now, which is still pretty attractive.

David: Yeah that's a great rate.

Mark: Yeah we will get interest on a regular basis, we have gotten up to five years of interest only.

David: Okay.

Mark: Trying to think what else; as far as walking in there, it's a lot more challenging. Even if you have money, you have net-worth, you have liquidity. There is a good chance-- [00:37:08.29 - inaudible] in particular you will not get a loan, you are going to have somebody else sign with you that has experience, I have done that before. Freddy still very difficult, maybe could get it, if you have a real strong business and things like that you might get it, maybe not. So you will probably have to go into it assuming that you are going to have some other person sign which would be a KP or a key principle along with you as experience. Then we have other loans, right? Bridge loans are very-- they are complicated if you're not familiar with them, so don't try to do that you first one unless you really know what you're doing, because they are very different. They are typically going to be three to five years in duration, interest only. The fees are higher and you have to think of things like-- the rate caps and things like interest reserves which is a lot more a complicated way of doing it. But that's kind of some of the differences between single family and multi-family.

David: Yeah, those are some big differences. So what we shoot for in my business, we shoot for 20 year [00:38:10.15 - inaudible]. Again, we have done some 15's, we have done some 25's, we have done some 30's. I like the 20's because I just want to pay these properties off. However, none of the loans that I am interested in balloon, they just renew. As you know, the benefit of that is, you are not restarting on your [00:38:30.13 - inaudible] table every time you are refinancing or getting a new loan. So typically if I walk into a local bank and they say, oh yeah this loan balloons, no thank you, not interested. But it sounds like that is more common in the multi-family space.

Mark: It is. Multi-family too will have-- some cases high prepayment penalty to be aware of. Bridge loans usually after about a year we are done with that. Let's say for example Fanny or Freddy, you might have what is called step down, prepayment penalty. It might be 5%. So you will see 5, 5, which is the first two years 5%, then 4, 4, for the next two years, then 3, 3 then 2, 2, then 1, 1. Or you have something just as a term without having to go into the details called [00:39:20.19 - inaudible] maintenance. Pretty much means your prepayment penalty is the same-- if it's a ten year loan, it is almost the same first 9.5 years.

David: Oh wow.

Mark: It does not go down much at all. So that's something-- to put it in perspective, we have a property, a loan we assumed from somebody else, it was a 12.3 million dollar loan we assumed. It had at the time we bought it a 9 million dollar prepayment penalty.

David: Man, that's so crazy. So it's pretty common then? To have a prepayment penalty in these type of loans?

Mark: It's common. There are other ways around it, there are, but it's going to be-- more times than not you will have a pre payment penalty. You can assume loans, you can assume loans from somebody else, which means you don't have to worry about the prepayment penalty and things like that.

David: Now, when you assume a loan, are you being underwritten by that bank? You're not buying it subject-to this loan, you are actually assuming it. So you become the borrower essentially, right?

Mark: You are. General statement, the lender wants you to be equal or better than the current owner. Let's say for example our net worth had to be three million dollars. Well, that's true. But if you're assuming a loan, and let's say somebody had a net worth of 50 million dollars, you are assuming the loan from that person, that bank that had the loan for the 50 million dollar net worth person, they kind of want you to be equal or greater than that person.

David: Yeah, they want to reduce their risk if anything. They are not trying to increase it. That makes sense, I totally get that. I can see how that could be challenging in some scenarios in the event that somebody does have a net worth of 50 million, that is going to be tough to be equal to or better than.

Mark: Right.

David: So I totally get that, that makes a lot of sense. Wow, you have given us a ton of information, Mark. I want to again thank you for coming on. So loans, let's do a quick recap. You work with Fanny, you work with Freddy, and you also do some bridge loans. You are usually looking for a 10-12 year term that balloons, and your [00:41:29.11 - inaudible] I would imagine is 30 years. Do you have any 40's?

Mark: No. 40 you can get more [00:41:34.08 - inaudible] and things like that, [00:41:37.03 - inaudible] 35-40 years depending if you are a new developer or not, but all of ours are 30.

David: All 30, okay. Rates are around four, interest only in some scenarios, then most, not all but most have the pre payment penalty. Wow that's pretty cool. So you guys go out and you raise-- in that scenario we talked about earlier, you raised the three million, and you used that three million as your skin in the game to then get the loan. In a scenario like this, what kind of loan could you get off of having three million dollars pooled together by some investors you got syndicated from?

Mark: You could get 75-80% loan.

David: Okay.

Mark: In bridge loans we have got up to 87%, because they give us 80% of the purchase price plus 100% of the rehab dollars in this example, rehab was almost as much as the property.

David: Oh wow.

Mark: Yeah 75, some markets call pre review, which the default means 65% leverage from the lender. It doesn't mean it can't get more but that is kind of the default.

David: Sure.

Mark: I would say 75% is really common for us and still getting 80% for some loans.

David: Wow, that's awesome, very cool. So Mark, before we jump into talking about how people can reach out to you, and some of the things that you're doing to help people learn more about this, and coaching and all types of good stuff. Tell me about the first deal or the first couple of deals that you did that really sparked your interest to keep doing this. Essentially whenever I hear that you have 4500 units, it's like boom! Mind is blown, right? You had to start somewhere. You had started out I guess doing singles first, but then you kind of switched over into the multi space. Those first couple of deals you were doing, were they hundred plus units? And were you syndicating at that time? Or did you kind of level yourself up step by step?

Mark: The first bigger deal we did was 64 units. The second one was 208. So we went from 64 to 208. So you know-- I felt good about it in a lot of aspects, but the money raising part is where I had the most fear frankly, because it was the first time raising money. I had a million dollar raised in the first deal, which at that point in time was a lot, and it was scary. But I had a partner--.

David: That was the 64 unit?

Mark: Yes.

David: Okay. So you had raise a million.

Mark: Yeah.

David: Okay.

Mark: I had a partner though that had more experience than I did at the time, gave me some comfort level that helped me get my start. Typically if you are going to try and do a little bit of a larger property, you need somebody there to partner with as a [00:44:29.09 - inaudible]. It's really hard-- a hundred plus unit deal is really hard for you to get a deal, because brokers don't want to sell to you, and sellers don't want to sell to you. They have no confidence in your ability to close a deal.

David: When they know you are syndicating you're saying?

Mark: Right. Even if you're not syndicating believe it or not, if you say you're going to buy the property, we have never bought a hundred unit property before. They are going to say, well I don't really have confidence in your ability to close. It is a lot more complicated, it's not hard, but it's much more complicated to close a hundred plus unit deal. You assume a lot of things, everything is more magnified, right?

David: Right,

Mark: So a lot of sellers don't want to sell to someone new. I wouldn't. We sold three properties last year, I wouldn't sell to someone new even if they had the cash frankly, I don't believe they are going to close the deal.

David: Interesting. So that's kind of a barrier to entry then?

Mark: That's a big barrier to entry.

David: A big barrier to entry. It's like you have to have experience to get the job, but then again the job wants you to have experience.

Mark: Like when you graduate from college.

David: Yeah, like how do I get the experience? Okay so that is just something you have to work through, and that's okay. Everything that is challenging and has a good reward at the end is going to be a struggle, or it is going to be a challenge in the beginning. But, I am sure like everything it's going to get easier.

Mark: That's right, exactly right.

David: Very cool. Well Mark, tell-- if you don't mind sharing a little bit about how my audience can reach out to you if they have questions. Do you offer any coaching or courses on the topic? So on and so forth. I am very interested to learn more about that.

Mark: My e-mail is [email protected], that's our website, ThinkMultiFamily. We hold events-- some are very tehcnical in nature, we have a deal analysis workshop you can do, you bring your computer and we go through deals together. I tell people, not the most fun class to take.

David: I like that you're transparent about it but that's okay.

Mark: It's intense--.

David: Yeah.

Mark: A little bit of head damage, brain damage going through it. Two full days. We do other events called the Fire Summit where we go over the different aspects-- the 14 steps of buying apartments and stuff like that, syndication. Then we do have some online training material as well that we provide, we have one on one coaching. So we have been doing it about two year, it's gone well. A lot of really good success stories. It is just the way our community is structured frankly. Everyone is helping each other get deals, helping each other if someone doesn't have an area of expertise, someone else jumps in to help them and things like that. I do all the one to one coaching myself. We don't have any sub coaches or anything like that.

David: It's all you, I love it. So guys, listen here. If you want to connect with Mark, okay? You can e-mail him at [email protected]. I would imagine if they go to ThinkMultiFamily.com that the URL, the website, they can find more information about your two days events that you host. What are those events called? The two day events.

Mark: Fire summit.

David: Fire summit, okay, very cool. How often are you having those events, Mark?

Mark: Twice a year for that Fire, then the deal analysis workshop is typically once a year.

David: Okay got it. Do you guys have those in your market in Dallas? Do you have them moving around? How does that work?

Mark: Mostly in Dallas now. We had one in Atlanta as well, it went really good too, so we are looking at maybe expanding out others. But, most of what we do is in Dallas.

David: Okay very cool. Mark offers online training as well as coaching. Can they also go to ThinkMultiFamily.com to learn more about that?

Mark: They can, yes.

David: Sweet. Guys that is it, one-stop-shop, ThinkMultiFamily.com, or just connect directly with Mark via e-mail at [email protected]. Mark, I am utterly impressed, 4500 units, I am trying to get to 150 singles, you are buying buildings that have 150 units in them in one swoop. Very impressive, very cool, I know I am going to look into more information on your website, and I would love to attend one of your events. So I am super excited, I hope that the audience, the viewers, the listeners found a ton of value in this podcast today, I know I did. Real estate investing is unique in the sense that there are so many different ways to go about investing in real estate. When you are dealing with multi-family, you have so many advantages to pooling resources, buying these bigger units, tax advantages, cash flow, you name it. Very cool, Mark thank you so much for coming on the show today. Again, I know I learned a ton, and I am grateful for your time.

Mark: No, thanks David I appreciate it, I enjoyed it.

David: Absolutely. Guys don't forget; ThinkMultiFamily.com, I am going to say it one more time, Mark has got two-day events that he does twice a year. He also offers training, he offers online coaching. You can reach out to him directly at [email protected]. There is no like dashes or anything in there, right?

Mark: No.

David: Very simple, very cool. Alright, guys, that's another episode of the Discount Property Investor podcast. I want to personally thank Mark for coming on. If you are new to real estate investing, check out the free courses on wholesaling. It is the easiest way to get involved in real estate investing and to start finding those deals. You can check out our course at FreeWholesaleCourse.com. We are signing off, until next time, thanks guys