Brian Wagers is the owner/operator of Elevate Commercial Investment Group, which buys apartments across the U.S. with the intent to increase net operating income. In this episode, he tells us why he recommends starting a commercial real estate meetup in your area, what economic policies he looks for in new markets, and his group’s strategy for taking on newly developed multifamily properties.
Brian Wagers | Real Estate Background
- Owner/operator of Elevate Commercial Investment Group, which buys apartments across the U.S. with the intent to increase net operating income.
- GP of
- 5,800 doors
- LP of
- About 2,000 doors
- Based in: Rogers, AR
- Say hi to him at:
- Best Ever Book: How to Win Friends and Influence People by Dale Carnegie
- Greatest lesson: Stay focused and don’t get “shiny-penny syndrome.”
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Ash Patel: Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. I'm Ash Patel and I'm with today's guest, Brian Wagers. Brian is joining us from Rogers, Arkansas. He is the owner operator of Elevate Commercial Investment Group, which buys apartments across the US, with the intent of increasing net operating income. Brian's portfolio consists of being a GP on 5,800 doors, and an LP on 2,000 doors. Brian, thank you for joining us, and how are you today?
Brian Wagers: Good, Ash. Thanks for having me.
Ash Patel: It's our pleasure. Brian, before we get started, can you give the Best Ever listeners a little bit more about your background and what you're focused on now?
Brian Wagers: Yeah, so today, I'm a GP with Elevate Commercial Investment Group. So we own about 6,000 doors across the country. Before that, I got started in real estate about six years ago, with a single-family property... Quickly scaled up to a 12-unit that I bought 100% by myself, and then I built up a portfolio of about 70 units. A couple 12 units, one 20 unit that a seller did financing on, where I was the only partner on it. So 70 units, just small apartments, and then I brought on some family with me, and we started doing that on a much larger scale. I guess we were buying 50 units, 82 units, 79 units, building up this portfolio of small and medium-sized apartments in my backyard of Northwest Arkansas, to about an hour South of me in Fort Smith. So I built up a portfolio of about 500 units, where I was the only operator, and then my family was the equity. And some friends, a commercial broker, a property manager even partnered with me on it... So I was doing a lot of joint venture multifamily. And then about two years ago is when I went into the true syndication space, where now I'm with Elevate.
Ash Patel: Did you ever have a day job, or did you go right into real estate?
Brian Wagers: Yeah, I did. When I graduated college, I wanted to be a personal financial advisor, but no one would hire me, because they said -- all my friends were still in college, I didn't have a Rolodex of people to hire, so I went into sales. And I just put my head down in sales... I was doing really well there; I was maxing out my Roth 401-K contributions, I was a top producer... But that's what led me to real estate, because I was maxing out my Roth 401-K, and I put some money in the stock market, did terrible... I tried to pick some stocks.... And that's when I bought that first single-family house, was because I was maxing out my 401-K accounts and couldn't really pick stocks. So that led me to real estate after that.
Ash Patel: How many years into real estate did you quit your sales position?
Brian Wagers: Maybe five years ago was when I kind of stepped outside of it. I still have some employees working for me with the position, but I don't have to show up, or anything like that. So it's kind of more passive at this point. But it took me about five years of really building weekends, weeknights, I stopped drinking... I just kind of made a lot of sacrifices to really build that portfolio while I was still actively working 50-60 hours a week.
Ash Patel: Brian, all of the cash came from family and friends initially...
Brian Wagers: Well initially, it was my savings that I had got from sales. So that got me into that single family. I rolled that single family into a twelveplex. I refinanced that 12 unit into another 12 unit, into one loan, so I had 24 units under the same loan. And then the 20 unit I did seller financing on, and then the family started getting involved. Family, friends, neighbors... Just kind of word of mouth. I think I had like 300 units before I even had a business card or a website. Just kind of word of mouth.
Ash Patel: Self-managing everything?
Brian Wagers: Yeah. The single family I self-managed, but I went through a couple third party property managers. But I managed the property managers and I oversaw any kind of construction or CapEx on the projects, too. But I wasn't taking tenant calls, by any means.
Ash Patel: How did you structure the deals with the family? Was it 50/50?
Brian Wagers: Depending on the deal. It was 70/30 some deals, 80/20 on some, straight up, no fees or anything like that; just straight split.
Ash Patel: 70 to the investors?
Brian Wagers: Yes.
Ash Patel: Okay. Why do you want to syndicate now, versus just keep doing JV deals?
Brian Wagers: It was a great experience, built up a ton of equity... I'm cashed out in some of those, but I was starting to make offers on some of the same apartment complexes... So about two years ago, I started to see some of the same complexes that I was already looking at.... So for me, it was kind of an eye opener. I always had syndication in the back of my mind. When I was in Michale Blank's program, I've always been a listener of Joe's, reading his book... So syndication was always in the back of my mind. So I knew if I wanted to really scale, I had to go outside of my market. But there's only so many doors in Northwest Arkansas, so I knew that I had to go bigger. So that's what led me to syndication. If I wanted to stay local, I could have maybe looked at other commercial asset classes, but I really wanted to niche down on multifamily, so for me, syndication was the next step.
Ash Patel: What are you doing to find deals today?
Brian Wagers: Today, a lot of commercial broker relations... So I still stay in touch with some of the commercial brokers that found me some of the smaller deals, and some of them have moved on and are doing larger things now, too... So maintaining those relations. With my current firm, Elevate, we have a director of acquisitions. So his whole job is to maintain broker relations... He's done a little bit of cold texting to some select owners; we've worked with a group that does cold calling owners, too. We haven't had any luck there, but I know that you have to be pretty consistent with that. So the majority of our deals are through commercial brokers.
Ash Patel: Have you thought about how you're going to structure syndication deals with investors?
Brian Wagers: Yeah. Typically, it's a little different than the joint venture... Pretty easy, where I can go to the local lawyer and set up a $500 LLC. Now it's much more complicated, with the Securities Exchange... So we usually structure it with some sort of pref, and then a split, and then a hurdle. So for example, one of our more recent deals we did 6% pref, a true pref, so 100% to investors, and then 70/30. And then once we hit an 18% IRR, then it goes to a 50/50 split. And then no further hurdles after that.
Ash Patel: And what do you charge in terms of fees?
Brian Wagers: Usually, 1% to 2% on the acquisition fee, and then 2% on asset management, which - that goes to our asset manager.
Ash Patel: And then is there a dispo or refi fee?
Brian Wagers: Disposition fee is usually 1%. No refi fee.
Ash Patel: Awesome. What are you doing now to find investors? And what is your bottleneck today - is it deals or investors?
Brian Wagers: It's an ever-changing bottleneck, I think, depending on the type of market that we're in. To find investors -- I've had a lot of success with local networking. I think obviously social media is big right now, so I'm definitely keeping up with social media on LinkedIn, Facebook, and Instagram, as well as getting on podcasts, like the Best Ever. But a lot of in-person network is going a long way right now. Shaking hands with investors, going to the single-family meetups, and being the apartment guy, or... We recently actually started a commercial meetup here in town. So there was a bunch of single-family interest, but there was no actual official commercial meetup. So we just started that, and that's going pretty good, networking with other investors. Getting out to other events is really good.
And then as far as bottlenecking... I think a couple months ago, when the interest rates first really started jumping, investors were sitting on the sidelines. We had some investors kind of pull back and be cautious... So it was a lot more phone calls then to get deals funded. Then it started to be finding deals, because sellers' expectations were still really high, and the debt was still expensive... But we're starting to see right now that some deals are coming back around. We're offering a little bit below whisper price or strike price, and still hearing some good feedback. So now I think it's a little bit of both.
Ash Patel: Yeah, I love your idea about starting a commercial meetup. Great advice for a lot of people, because most places have the typical REIA, or they have a different residential meetup, but not many just for commercial. So great advice there. What's your criteria on looking for assets?
Brian Wagers: We're pretty flexible. Five years ago, you would ask me, "I'm only buying value add multifamily, C class properties." Now we're looking at A class properties and we can buy directly from the developer. But that doesn't mean we're not still looking at C class. The cap rates of compressed between the two of them... So we'll look at pretty much all asset classes.
As far as markets go, we like Texas a lot. We have one here in Northwest Arkansas. Oklahoma, Sunbelt states, Georgia, South Carolina, Florida... And then we've made some offers in Cincinnati and Columbus. I was originally born and raised in Cincinnati, and we like those Midwest markets. We haven't hit on any deals there, but we're looking at them, w like those markets. We're pretty much looking at areas that have not only high population growth, but good economic policies, that have good employer growth as well.
Ash Patel: What economic policies are important?
Brian Wagers: I think being a business-friendly state, an area, and also being landlord-friendly are pretty important. I guess to put it, we're looking at red states, red areas, which - not to get political, they've seen some of the most growth right now. So I think investors are more comfortable investing there, we're more comfortable... When you look at the past pandemic, they've performed a lot better than blue states... You can take a look at history, how they performed in any sort of recession, too; that's another factor there.
Ash Patel: Yeah, it's funny... I think Florida just had a $12 billion surplus on their budget, which is insane... When a lot of states are struggling. Is there a minimum number of units that you're looking for? Or number of doors rather.
Brian Wagers: Yeah, typically 100 units... Unless we have assets in the area, maybe we'll look at 90 or somewhere just under 100. But we like to see 100. It seems like the deals that we're looking at are bigger and bigger every time we look at a new deal, but we'll definitely look at around 100. And then as far as maximum, we've done an 850 unit deal. We looked at some 1000 unit deals; we didn't get any of them, but that's kind of the range there.
Ash Patel: And when you're penciling out your numbers, what's the metric that's determining whether you move forward or not on this deal?
Brian Wagers: The acquisitions guy on our team - we actually used to be a commercial loan underwriter for a bridge debt lender, so it's nice having him on the team, poke holes through deals in the beginning... I can obviously do that; I did that with the smaller deals, but it's not my favorite thing to do. I think for us, when we're looking at deals, we like to see high teen IRRs. 17%, 18%, 19% IRR is nice right now. And to be able to 2x our investors return in a five-year hold. We model out everything for five years on the hold time.
Break: [00:12:17.03] to [00:12:31.00]
Ash Patel: Well, there's a lot of competition out there looking for those same deals, in those same markets.
Brian Wagers: Exactly.
Ash Patel: How do you one-up yourself, whether it's with brokers, or when you're in front of a seller? What makes Elevate Capital different?
Brian Wagers: That's a good point. That's kind of why Elevate branched outside of Texas. Everyone likes Texas, and you mentioned Florida. Everyone likes Florida, too. So we send them a strong track record of the deals that we've closed recently, of the deals that we've got under contract... So that really helps go a long way. And I think for those listening that may not have the track record, I think partnering up with someone that does have a track record is super-important when you're going after a deal in this kind of competitive market that you alluded at.
Some people are putting earnest money hard day one. We won't do that. We like to be contingent on due diligence. We can up our earnest money, but we want it not going hard until after some due diligence. But some people are getting aggressive out there and putting that up.
Ash Patel: Yeah, that's insane. Unless you have everything done ahead of time, I don't really understand that. And I come from the commercial world, so that non-residential commercial, which you alluded to you looked at for a minute, and decided if you wanted to go that route or not, look at different asset classes. What are your thoughts today on maybe branching out to retail industrial office warehouse?
Brian Wagers: I think it's great. I think there's a lot of money to be made in real estate in almost any industry. I think you want to be with someone that's an expert on on it. But for me, I think something that -- I heard, I think, Brandon Turner say early on, it's not get the "shiny penny syndrome." So really focusing a niche down on multifamily. But I do have some self-storage units in my personal portfolio before I partnered up with Elevate, when I was doing some of the joint venture stuff. I almost got it brought to me by accident. I had these relationships with commercial brokers, they have relationships with owners, and got two self-storage unit portfolios off market, at a super-great basis, that just we kind of accidentally got, by no means without going after them. So we do hold those, and they are pretty much mailbox money on those.
But as far as going after that in the future, we're staying in multifamily, but within the multifamily space getting flexible with C Class, B Class, A class. Looking at developed, we recently got brought a development deal that seemed really intriguing; the numbers look good... But also, that's something we're kind of cautious about going into the current market. It was in Arizona too, which - I like Arizona, but there's parts of Arizona that may be over-developed or too hot to enter... So for now, I would say just multifamily.
Ash Patel: I would encourage you to look at other asset classes. I don't think it's shiny object syndrome. I think if you really study an area, study an asset class, know what retail is doing in suburban Atlanta, you can find great deals out there, with minimal risk, and there's so much less competition. We don't have to put hard, earnest money on day one; we can get 45 days of due diligence plus 30-day close thereafter... And the returns on our deals are significantly higher. For multifamily, what kind of cap rates are you looking at today?
Brian Wagers: Around 4% cap is what we're seeing; anywhere from 4% to 4.5% cap on the entry.
Ash Patel: So 4% cap in retail would be a brand new Starbucks with a 20-year lease. There's no chance of that investment ever going South. And it's true mailbox money, right? But if you have a strip mall that's got a few vacancies, you could be at an eight and a half cap, and you're cash-flowing tremendously.
So I encourage a lot of the Best Ever listeners, all of the Best Ever listeners, to just take the blinders off a little bit and start looking at different asset classes, especially when the competition is so high and the cap rates are so low in multifamily. I'll get off that horse... Brian, I want to dive into your 850 unit property. Do you remember the numbers on that?
Brian Wagers: So that was one that Elevate bought when I was still doing my joint venture; so that was in Oklahoma City. wouldn't be able to get in on the specifics on that one. So that was one that they purchased right before I came on.
Ash Patel: Okay, so how long ago did Elevate start?
Brian Wagers: Five years ago. So they were kind of doing the syndication while I was doing the joint venture, and then I became a partner earlier this year. We worked together on some co-GPs before I actually became a partner with Elevate; before we actually just kind of merged we wanted to work together on a few deals and see how we work together and see how everything transacted, and then officially came on, earlier this year. So before they started the syndication; they were in real estate for about 14 years and they were doing construction, and some single family stuff before they went into syndication.
Ash Patel: Got it. Okay. What was the last deal that you were involved in?
Brian Wagers: The last one we just closed was a 350 unit in Laporte, Texas.
Ash Patel: What was the purchase price on that?
Brian Wagers: Just over $73 million. So that was that a 2021 build, A Class property, straight from the developer. So Laporte is just a little South-East of Houston, a high income area.
Ash Patel: Did you end up buying that during the final phase of construction, or was it already tenanted?
Brian Wagers: It was already tenanted. It was 93% leased up when we got it under contract, but after our due diligence period, and something that we're doing too, is we started to have a little bit of a hand in operations; once our money was already hard, they let us to push rents a little bit. So we had some good momentum going towards close. But we are under contract right now on one here in Northwest Arkansas that's not fully tenanted; there's three phases. Phase one and two is fully occupied, but phase three won't even be completed until after we purchase it.
Ash Patel: Alright, Brian, you're scaring me... The developer built this in 2021, and it was 90% occupied... It sounds like you guys paid top dollar for this.
Brian Wagers: Yeah. 73 and a half million. Yeah, so we paid a pretty good price for it, for sure. We actually partnered with larger fund. We were actually going after it separately, and we realized that we were both going after it, so we ended up partnering with them instead of competing against each other on the asset. We thought they were going to tell us to kick rocks, but we ended up partnering with them and taking the lead on the project, where they came up with the majority of the equity through their fund, and then we partnered on the asset management.
Ash Patel: Rents were below market?
Brian Wagers: Yeah, rents below market. The developer - they're builders, they're not necessarily operators. They were just trying to get it leased up, and that's giving away [unintelligible 00:20:29.09] or whatever. They were just getting people in the door, spending a lot on marketing, having concessions... Their whole goal is just to cash out and go build the next project, so we can kind of come in, push market rents, stabilize expenses a little bit, and take over.
Ash Patel: That's a great strategy. Why not replicate that with other builders?
Brian Wagers: That's our focus right now, and especially -- so this one that we just got under contract here in Northwest Arkansas, there's an assumable loan on it, too. So that's something that's super-attractive right now. We're also buying it directly from the developer, but we'll be controlling lease-up on part of the new phase. So some risk/rewards there...
Ash Patel: On the Laporte, Texas deal - how much can you push rents on that property?
Brian Wagers: I think we had modeled anywhere from $200 to$ 400, depending on the unit size.
Ash Patel: Do you know what cap rate you purchased this at?
Brian Wagers: Four and a quarter...
Ash Patel: And what's your exit cap in your pro forma?
Brian Wagers: We have it at five. Usually, we're pushing at least 100 basis points higher cap rate than what we're purchasing it at right now. We definitely want to underwrite for that; depending on the asset class, and depending on the
Ash Patel: How soon would you want to sell this?
Brian Wagers: We model out everything for five years. If we can hit close to a 2x earlier than that, then we'll definitely take that opportunity. We have an A class in Weatherford, Texas, just outside of Dallas that's on the market now, that we've only held for 12 months. So if we see an opportunity to close to double our investors' equity, then we'll definitely take that. But five years is what we model out.
Ash Patel: Okay, so that's your baseline, is you want to 2x your investor equity.
Brian Wagers: Yeah, pretty close to 2x. That's pretty much what we're modeling now.
Ash Patel: Awesome. Brian, what is your best real estate investing advice ever?
Brian Wagers: I kind of mentioned it before; not to detract from that... You can definitely niche down in a certain area maybe, or your focus, but for me, it's -- I said shiny penny syndrome, but I think staying focused on your end goal is super-important, and your why is going to be super important to help you get there.
Ash Patel: Brian, are you ready for the Best Ever lightning round?
Brian Wagers: Yes.
Ash Patel: Alright, Brian, what's the Best Ever book you've recently read?
Brian Wagers: Who, Not How is the most recent one.
Ash Patel: Game Changer.
Brian Wagers: Yes.
Ash Patel: What's the Best Ever way you like to give back?
Brian Wagers: We give to the SPCA right now, and I'm also doing some stuff with some schools where I'm speaking to their entrepreneurship programs... So I'm getting more involved on that.
Ash Patel: Quick story... I was asked to speak to a group of seniors in high school, some entrepreneurial business program... The teacher wanted me to teach about the stock market. And I'm like, "I'm a real estate person, but listen, I've done a lot with the stock market", and I went in there and just talked about real estate, and their jaws dropped because they all thought playing with this fake stock account, and they all made millions of dollars, they thought that was the way to wealth... But funny, going back to your stock market story as well...
Brian Wagers: Yeah.
Ash Patel: Brian, how can the Best Ever listeners reach out to you?
Brian Wagers: You could email me, Brian [at] ElevateCIG.com. Or I'm also on social media, Brian Wagers, LinkedIn, Facebook, Instagram...
Ash Patel: Brian, I've gotta thank you for your time today. You started out with a single family house, moved up to 12 units, got some investment from family, and now you're on your way to syndicating deals. Tremendous story. Thank you for sharing your time with us today.
Brian Wagers: I appreciate it, Ash.
Ash Patel: Best Ever listeners, thank you for joining us. If you enjoyed this episode, please leave us a five-star review, share this episode with someone you think can benefit from it... Also, follow, subscribe and have a Best Ever day!
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