June 18, 2023

JF3209: How This Aussie Built a $685 Million U.S. Portfolio in Less Than 10 Years ft. Reed Goossens



Reed Goossens is a multifamily syndicator, podcast host, and owner/founder of RSN Property Group, a full-service multifamily investment company that buys assets across select MSAs in the U.S. In this episode, Reed shares his strategy for acquiring $100 million in assets over the past 12 months and how he is solving for affordability in high real estate tax states.

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Reed Goossens | Real Estate Background

  • Multifamily syndicator, podcast host, and owner/founder of RSN Property Group
  • Portfolio:
    • $685M in AUM
  • Based in: Los Angeles, CA
  • Say hi to him at: 
  • Best Ever Book: Traction by Gino Wickman
  • Greatest Lesson: A fool and their money are easily parted. Continue to be a student and learn. The day you think you’ve arrived is the day you’ll lose a lot of money.

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Slocomb Reed: Best Ever listeners, welcome to the best real estate investing advice ever show. I'm Slocomb Reed, and today I'm here with Reed Goossens. Reed is joining us for the first time since 2020. He is a repeat guest on the podcast. He's based in Los Angeles. He's a multifamily syndicator, a host of his own podcast, and the owner and founder of RSN Property Group, a full-service multifamily investment company that buys assets across MSAs in the United States. Current portfolio, approximately 685 million in assets under management. Reed, can you tell us a bit more about your background and what you've been focused on the last few years?

Reed Goossens: Yeah, sure thing. And apologies, I have a dog barking in the background. But that's what podcasting is all about. What I've been focusing on in the last few years - so since I've been on the show, I've founded another company, Wildhorn Capital; that partnership came to an end. And I've been good friends with Joe for many, many years, since 2014. He was originally the OG back in the day for mentors, and I think I was his first, second or third student, back when it was extremely cheap. So it's great to see Joe fly to new heights with Ashcroft, and I know Frank very well.

But yeah, in terms of personally, we came out of the partnership, picked myself up again and started RSN again, and in the last 12 months we've done over 110 million of acquisitions, in a pretty tough time, given the height of the rising interest rates. So just really trying to navigate what's in front of us, trying to still raise equity, really trying to put a lot of fuel on the fire, so to speak, in terms of bringing more capital-raising abilities in-house. And if anyone's actually listening out there, we're actually actively hiring for head of equity sales. So if you reach out to me -- I'll give my contact details at the end of the show. But that's really been it, just head down, bums up, trying to get deals done, raise more equity; I've expanded the team and added seven full-time staff, and it's been awesome to watch it grow. And also, it's been awesome to sit in the cockpit and steer the ship, rather than having to just row, which we typically do as a solo entrepreneur, building a business from scratch. So it's been nice to be able to bring folks on board, and not take a seat back, but just focus more on where the ship's going rather, than working on getting the ship to move forward, is what I'd say.

Slocomb Reed: Yeah, that makes a lot of sense. Did I hear you say 100 million acquisitions just in the past 12 months?

Reed Goossens: Correct. Yes.

Slocomb Reed: That's in the increasing interest rate environment, where underwriting standards have fluctuated, to put it mildly. What's the business plan that you see yourself being able to execute on with your 2023 acquisitions?

Reed Goossens: The focus is still on value-add multifamily, but we're definitely trying to solve a little bit more for affordability in and around tax abatements in certain high real estate tax states. I've done a handful of acquisitions in Central Texas around - to keep your rents below a certain AMI, you get your real estate taxes wiped off. I've then expanded into South Carolina, where we're doing exactly the same thing, and that has helped me buy stuff at more moderate cap rates. But also, the other day I just got the Department of Revenue from South Carolina sent me a really nice email and letter saying "Guess what, Mr. Goossens? Your property now has a big fat zero on real estate taxes", because we keep our rents below a certain level.

So back to what we're buying - we're buying more affordability type of stuff in and around the value-added space, but being a little bit more creative in how we get rid of real estate taxes on our P&L, because as I'm sure a lot of your listeners are aware of, real estate taxes can be upwards of 25% or 30%, depending on the state you're investing in. So we are really trying to solve for that. We actually just launched a build for rent community in Central Texas, 66 build for rent; my background's in structural engineering, so I'm really excited to be bringing sort of a little bit of a different type of flavor to the platform to offer our investors.

So it's been a challenging environment to say the least, but continuing to get deals done, continuing to turn over rocks. And I think that's the biggest takeaway for all your listeners out there, is do not sit on your hands and suck your thumb in the corner. You've got to be out there, actively looking at deals, actively turning over rocks, talking to brokers, because there will be deals. And I've seen it - I just closed on a deal the last month, and we bought that at a five and a half cap, where 12 months earlier, that would have been at a four cap. So things are happening in real time. Keep up to date with it, and that's what we're trying to do with RSM.

Slocomb Reed: I heard two strategies that come out of that, Reed, looking at low-income housing for tax advantages, and build to rent. Let's talk about the low-income housing piece first. If you can help me understand the numbers here... In order to qualify for reduced property expenses in the form of not paying the property taxes, you have to keep rents low, meaning you're reducing your revenue in order to reduce your expenses. Where is it that you're seeing this work, and you have any guidelines for us on when it does and does not make sense to intentionally reduce revenue in order to reduce expenses?

Reed Goossens: Yup. So look, everyone's been talking in headlines. Rent has been increasing across the country post COVID, and we are investing in certain cities across the United States, where the AMI, the average median income is rising rapidly. HUD releases data every year on every county on where one bedrooms, two bedrooms, three bedrooms rent for. And we noticed that you can still have your cake and eat it, too. You can still come in and say you've got to keep a restriction on, say, 50% of your tenants need to have rents at 80% of AMI or less. Well, we've figured out that some vintage properties, particularly in South Carolina, our 80% mark is actually market rent for a two bedroom property in a 1970s vintage asset. So we're not actually really losing any revenue, we're just looking at it a different way and cutting up the pie a little differently. And we still get to have our cake and eat it, too.

So on one of our particular properties, we have to keep 40% of the property at 60% of AMI or less, we have to keep 40% of the property at 80% of AMI or less, and keep 20% at market. Now, remember what I just said - 80% AMI in that particular market is market for a 1970s vintage asset. So really, 60% of the property is at market value, and already the in-place rents are already so low that we can still increase them, still be below the threshold, still be qualified as affordable, which we are, and we still get to have our real estate taxes wiped off. So it's a win/win. It's obviously a very unique thing to look at; we're gonna look at a lot of deals to find that sweet spot. But in a rapidly-increasing rent environment across the United States, there are ways out there to thread that needle so to speak.

Slocomb Reed: Effectively, you're finding the opportunities where the AMI requirements are not necessarily reducing the income potential of the property, or were those requirements reduce it by significantly less than the gains involved in the property tax advantages of those deals. Is that fair?

Reed Goossens: That's fair.

Slocomb Reed: Nice. Bill build to rent. Are these single family homes? You said this is in Texas?

Reed Goossens: Yeah. No, not single family homes. These are just really a collection of duplexes on a five-acre lot. That's all it is. So they feel like a townhome, but we're very efficient with the floor plate, and the floor plans. So we're over-building, and you really just share a wall with a neighbor. You don't have a neighbor above you or below you, like you would have in your traditional multifamily. We're seeing a lot of people wanting to live or feel like they're living in a house, but maybe they don't necessarily have the financial means or the cost of homeownership is just out of reach... So we've seen build for rent being a really, really popular space that we want to partake in it. Not changing focus; for every five deals we do existing multifamily, we'll sprinkle in maybe one or two build for rent communities.

Slocomb Reed: During your intro you framed that as bringing a diversity o investment opportunities to your investors. What do those built to rent opportunities look like when it comes to global returns? Is there a targeted hold period, or is it indefinite? What do the returns look like?

Reed Goossens: Over a five-year basis, you're looking at probably mid to low 20% IRRs on your money. So with relatively -- based on my experience, obviously; risk needs to be quantified. But this particular piece of dirt that we're talking about, I've had it under contract for over nine months, I've had a seller carryback finance on that, and it enabled me to go and talk to the local city and reduce the risk of this deal in terms of the execution risk, to then - we're now at a stage to bring investors on board, at the correct stage, so they don't have to take on that associated risk. I've already taken that on, and really put it to bed.

So overall, the returns are a lot better than, say, a traditional value-add multifamily. There are more associated risks with execution, but that's how, based on my experience, structural engineering and ground-up construction, I've been able to mitigate those risks by doing a few different things, like taking a seller carryback finance, figuring out a path to quick execution with the local municipality, and been doing that over the last six to seven months. So right now is a perfect opportunity to start capitalizing on these gems we're finding across certain target markets.

Slocomb Reed: You know, I was already planning to ask a question that you just led me into fairly beautifully, Red... We're firmly in the second quarter of 2023, and it really does feel like you have to find a gem, a diamond in the rough in order to find a deal worth acquiring at the prices that sellers are still at least attempting to command right now. I want to ask broadly how your acquisitions strategy has changed. I'm not necessarily asking how has your underwriting changed, as much as have you changed the way that you are approaching deal-finding right now? Are there different indicators, different factors, are there different things that you're more focused on now than you were when everything was bullish for multifamily?

Reed Goossens: First thing we're doing is we started to direct-to-owner marketing, trying to find off market leads.

Slocomb Reed: On what size asset?

Reed Goossens: Over 100 units. And we've actually found - not necessarily willing sellers, but actually willing investors who want to invest now in our deals. So it's sort of been a double-edged sword. We've got people like, "Hey, we'd like your asset." They're like, "Great, we don't want to sell. We're long-term owners, but we would like to invest. We've got 1031 exchange money that I want to now put in. Let's put it into your deal." So some fruits are starting to bear, but it hasn't been the exact thing we wanted, but it's better than a poke in the eye.

Slocomb Reed: Reed, the conventional wisdom among people who are scaling up, especially people scaling up from single family residential, or from residential multifamily one to four units, is that when you're trying to go direct to seller, eventually you will hit the size property, and it's usually significantly smaller than 100 units, where loads of brokers already have those relationships with sellers. What you're saying is that you guys haven't acquired anything coming from that, but you have found solid operators who are planning to hold long-term, but who want to invest in your deals.

Reed Goossens: Correct. And let's not also skip over the next part. Brokers hold the keys of the kingdom. They are kingmakers across most MSAs, and we are still pounding and talking to them weekly. And that's really important for people who are out there listening to this, because they do hold the keys to the kingdom, and it is a rite of passage that you have to go through the brokers in order to get some certain deals. That is not stopping; we're just adding a layering in o potential other source that's really automated to maybe find a diamond in the rough, or get a potential investor. But that's not our main focus; off market deal sourcing is not our main focus. Our main focus is still going to [unintelligible 00:13:44.13] talking to brokers, going and playing around some golf on the golf course, that sort of stuff to get those whisper listings.

But I think right now, at least in the last six months, the first couple of quarters, I've seen a lot of brokers, with the lack of sales volume 74% year over year, we've seen the biggest drop in multifamily sales volume drop off, and that's been the most since 2008-2009. If you've got good relationships with your brokers, which we do, we're starting to see people call back out to us. And that hasn't happened in a long period of time. And this goes back to one of the fundamentals that I will always tell people when they're starting to underwrite deals, is you have to go and underwrite 50 deals in a market, and get to know brokers really, really well, and it will take you maybe 12 months before you get your first deal. Maybe even longer. 18 months in a certain market, and that's okay. But you're building that rapport with those brokers, so then you can keep coming back to the well again and again when they start having more and more deals.
In times where sales volume is low, that is when you need to go and foster those relationships, in order to make sure you are the first call when a deal starts to hit the market again, or when deals start to come back around to hitting the market. So really, really important, and I'm glad we've gone on a tangent on that, because I'm completely like you're saying - over 100 units, you've gotta go through the brokers, you've got to go kiss the ring, no matter what market you're in, and we're still actively doing that today.

Break: [00:15:12.23]

Slocomb Reed: Reed, talking about the deals, the listings, the opportunities after they've hit your inbox, what is different about the way that you are analyzing them, or looking for opportunity in those deals now than you were two three years ago?

Reed Goossens: I think the big thing is I'm not stretching like I probably was doing back in 2020. And stretching meaning like trying to get things to pencil, when you jam a square peg through a round hole to win a deal. Or putting in six, seven figures of hard money to win deals. So today that's not like that, and it's around the really the debt market, because we're a little bit uncertain of where debt is going.

So looking really at that [unintelligible 00:16:49.16] cap rate, I know a lot of people sort of say "No deal will ever work." Well, you've got to understand the story behind the deal, first and foremost, but that arbitrage of going in with a negative arbitrage of a cap rate versus going in interest rate is something that we are very much steering away from, and we want to have that positive arbitrage, or at least a neutral arbitrage going in on any value-add multifamily today. That is really the number one guiding principle that we're looking at deals with that lens moving forward here in 2023.

Slocomb Reed: Reed, you fell into a trap that I was trying really hard to not set... And that is that everyone in 2023 wants to say "How has your analysis changed?" "Our underwriting is more conservative." You didn't say it in such words, but that's the answer I was trying to avoid, because of course it's the answer that you're giving. It's a very prudent 2023 answer to give. What I'm looking for is - you've given us a couple of them already, frankly... There are a couple of different tools it seems like you're adding to your toolbelt right now: build to rent, the low-income property tax play... Are there any other things that you're looking for in a deal that make it a better opportunity now, as opposed to the way that you could just erase the numbers that you penciled to make them work in a market where that actually was viable?

Reed Goossens: I think it's all about for me using market data in markets where we're actively in. So Phoenix, Central Texas, the Carolinas... And then knowing that what we're renting for already in certain markets, what renovated product is going for is really, really driving home what we're confident on. We've just closed on an 88-unit. It was a smaller-sized deal in a really nice area of Tempe, Arizona. Now, Phoenix is [unintelligible 00:18:42.07] the headlines in terms of softening rent, but when we pulled the curtain back, we will have bought that asset at a nearly a five and a half cap in a very, very trendy area of Tempe... And the rents in place were so significantly lower than what the comps are. Now, everyone says look at the rent roll and understand it. But when you're operating in a market, and when you have real-time data from your own portfolio to say, "I know what a two bedroom/two bath will go for 1,000 square feet", and I've got an asset down the street that's in a lesser location, and I can justify my underwriting, that is what makes it more powerful to then have more conviction... And not only to the brokers, but to the sellers. It's like, "I know where this value is, and we're going to come in and execute on it."

So back to your question - it's a little bit more of a surgical knife when it comes to underwriting, but also when it comes to operating. So when we do get our deals under contract and we close on them, we're really, really, really looking at what is the existing rent, what's that lease trade at, and going and making sure we're getting [unintelligible 00:19:44.01] today, before we actually go and spend that value-add money. And that helps us continue to push the needle along, combined with that positive arbitrage that we're talking about, conservative underwriting, yada yada yada. But that is where you have to be in terms of confidence in taking down a deal in today's environment.

Slocomb Reed: This is really interesting, and I think really helpful as well, Reed. I may have just been asking the wrong question. Let me summarize what I'm hearing, just to make sure I'm on the right page, but also for our listeners. I'm going to use some Tim Ferriss language here when it comes to making business decisions, particularly with acquisitions... What I was asking you for was what is your analytical advantage. And what I heard you say was, it's not as much an analytical advantage as it is an informational advantage and a behavioral advantage.

Reed Goossens: Correct.

Slocomb Reed: Because of your experience in the market, you have a deeper understanding of the products that are coming to market, and what you're able to do with them, because you're already across the street, doing it in several MSAs.

Reed Goossens: That's right.

Slocomb Reed: And the behavioral advantages that you already have some, at least operational excellence, so you know how to meet timelines and make sure that the numbers that you put on your spreadsheet actually come to fruition in the execution of the business plan with the hard asset. Is that fair?

Reed Goossens: That's fair. Great summary. I really loved it.

Slocomb Reed: Awesome. Well, it's been a few years... Are you ready for the Best Ever Lightning Round?

Reed Goossens: Let's do it.

Slocomb Reed: What is the Best Ever book you've recently read?

Reed Goossens: Recently read. Traction. EOS. It's got dog ears all over it. Actually, we're meeting up with all the team in New York for I think our fifth or sixth EOS meeting... So looking forward to that. So Traction by Gene Wickman, I think it is.

Slocomb Reed: Gino Wickman, yes.

Reed Goossens: Yes. That's a recent one, practically helping the business move forward in leaps and bounds.

Slocomb Reed: Before we move on, for those not watching on YouTube, you have your book behind you, "Investing in the US." Tell us about that.

Reed Goossens: What can I tell - it's a collection of stories from my podcast, cultivated into a very step by step guide for investing here in the United States. It's not just for international investors, it's for everyone. And it's really documenting my journey of how I came, started with literally nothing, and been able to grow a real estate empire, and done it within the space of less than 10 years. And the old saying goes "If an Aussie can move halfway across the world and achieve financial freedom, why can't the average American?" So that's really what the book is, a cultivation of my stories and others to help people go off and be their best selves.

Slocomb Reed: On that note, Reed, what's your Best Ever way to give back?

Reed Goossens: Probably through the podcasts. I do weekly podcasts. Obviously, we're investing in the US, and it's been going since 2014, so it's been a great way to give back to folks who want to learn and continue to listen to other people share stories about how they've grown their businesses here in the US.

Slocomb Reed: Reed, thinking about your acquisitions since the last time you were on the show, the properties you actually acquired, what's the biggest mistake you've made and the best of our lesson that resulted from it?

Reed Goossens: I think the piece mistake, looking back on it, would be floating rate debt, right? [laughs] That's unprecedented. And we had rate caps, but still, the last 12 months, I think everyone's learned a bit of a lesson. I think the lesson is that no one can implement their business plan as quickly as what the Fed can increase interest rates. So I think that's probably the lesson.

Slocomb Reed: Yeah, that's well put - no one can implement a business plan as fast as the Fed can raise interest rates. I think there are a lot of banks that needed to hear that a few years ago, too. On that note, what is your Best Ever advice?

Reed Goossens: I think I've said this before, but I'm gonna give it to my dad; I always give it to my dad - a fool and their money are easily parted. Don't be that fool. Continue listening to podcasts like this great one, continue educating yourself, and always continue to be curious about being a student and learning. There's never a time where I'm not trying to learn about something, because I don't know everything. And the day you think you have arrived and you know everything is the day you're going to lose a lot of money and a lot of investors' money. So continue to be curious, continue to learn and continue to be a student.

Slocomb Reed: Last question, where can people get in touch with you?

Reed Goossens: The easiest way, reedgoossens.com. If you're ever coming through Los Angeles, hit me up. info@reedgoossens.com I'd love to go out for a beer, for a coffee, talk some real estate. Just hit me up.

Slocomb Reed: That link is in the show notes. Reed, thank you. Best Ever listeners, thank you as well for tuning in. If you've gained value from this episode, please do subscribe to our show. Leave us a five star review and share this episode with a friend you know we can add value to through our episode today. Thank you, and have a Best Ever day.

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