January 18, 2023

JF3058: How Capital Raisers Vet & Select Operators ft. Taylor Loht

Taylor Loht is the founder of NT Capital Group and host of The Passive Wealth Strategy Show podcast. In this episode, he tells us why he switched his investment strategy from the stock market to real estate, how he vets potential operators before placing capital in their deals, and his Best Ever advice for new syndicators that are looking to scale.

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Taylor Loht | Real Estate Background

  • Founder of NT Capital Group, which deals with apartment syndication and self-storage, and host of The Passive Wealth Strategy Show podcast.
  • Based in: Richmond, VA
  • Say hi to him at: 
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Slocomb Reed: Best Ever listeners, welcome to the best real estate investing advice ever show. I'm Slocomb Reed, and I'm here with Taylor Loht. Taylor is joining us from Richmond, Virginia. He works in sales, and he's a principal at NT Capital, and The Passive Wealth Strategy Show. They deal with apartment syndication and self storage. Currently, they are LPs in over 150 million in assets under management across several Sunbelt properties, including Phoenix, Houston, South Carolina, Georgia and Florida. Taylor, can you tell us a little bit more about your background and what you're currently focused on?

Taylor Loht: Absolutely, and thank you for having me on the show.

Slocomb Reed: Of course.

Taylor Loht: I talk about on my show helping folks escape the Wall Street casino and build wealth on Main Street by investing in real estate, because that's what I originally set out to do. That's what I wanted to accomplish. And that started for me, back in 2015. Your listeners might remember there happened to be a big crash in the price of oil, and that took the stock market with it, and maybe some echoes of what's going on today in the stock market as well. But that really got me questioning my investment strategy at the time, which was investing in the stock market and banking on that long-term growth. Right around the same time I also happen to read one of the books that's right over my shoulder, Rich Dad, Poor Dad, that got me thinking about cashflow, all these other things. I know your listeners have read the book as well. And that got me starting to want to build passive cash flow, build wealth on Main Street, with real assets and just really drive my passive income, my net worth through real estate investing. And that's really what got me started, and it took a few years to get the wheels turning and get deals going, but I think persistence really pays off, and we've grown over time.

Slocomb Reed: How long have you been involved with NT Capital?

Taylor Loht: The first deal that I did as a general partner was back around 2018. I started this journey, like I said, in 2015, but I think like others out there, it took me time to figure out the path that I wanted to take as a real estate investor; what really made sense to me with my personality, what I wanted to pursue, and frankly, what excited me in real estate investing. And what I mean by that is flips don't excite me; I'm sorry. there's nothing wrong with flipping properties. I know a lot of flippers, I know a lot of very successful flippers, but becoming a flipper didn't appeal to me. Same with investing in numerous single family properties. That can be immensely profitable, but again, it didn't excite me back in the day, and I started learning about doing large apartment complex deals through syndication, partly through this show, actually, all those years ago, and through many other podcasts and books and all those things, again, which you can see behind me. I finally had the first opportunity to go on the active side of things back in 2018, after doing some passive investing myself. And we just got rolling and kept going.

Slocomb Reed: Nice. So you and I were talking before the interview, Taylor about how at least your business model currently is that you are primarily a capital raiser for syndication deals. Is that correct? I'm not doing a very good job of summarizing, am I?

Taylor Loht: No, I think that is the right way to look at it. Our role is is a little different from how some others might pursue this particular type of investing in multifamily syndications. But I think at a high level, that is a good way to put it.

Slocomb Reed: Are you a capital raiser who has a select few operators that you will invest with? Or are you currently looking at a more broad group of operators? Are you bringing on new operators right now, given the current economic and real estate climate?

Taylor Loht: I think it's very important to have a select few operators that any capital raising type of person works with, whether you're doing it through a fund model, or through being a registered representative with securities licenses, or various ways to raise capital for real estate syndications. And in my opinion, being selective about who you work with is critical, it's very important. For folks out there who are involved with Facebook groups about real estate syndication, and getting started in real estate syndication, you'll see that there are people out there looking for others to raise capital for their deals, and just kind of get started and jump into a deal... And in my opinion, that's not a wise decision, really on both ends; you really need to know who you're in business with, and that takes time to build those relationships, to vet those people, to get to know investors that have invested with them in the past, partners that they've worked with, I had to do background checks on those people, which is definitely part of our process...

So in my opinion, the more selective you can be about that, the better. It's about eliminating all the bad actors out there, all the potential bad deals, because once you get one of those marks on your record, it doesn't go away. So we just need to be more selective, in my opinion, about who we work with in the real estate syndication space. And unfortunately, there are bad actors out there, and in my opinion, taking time to build those relationships, to vet those people, to meet others that they've worked with, and like I've mentioned, do background checks, all those types of legal checks on the backend can help mitigate a lot of those risks of doing business with either a bad actor, or somebody who's inexperienced, or getting in over their head in the syndication space.

Slocomb Reed: So the majority of our Best Ever listeners are currently engaged in commercial apartment investing to some degree, as passive investors, or as GPs, or aspiring GPs. I am an apartment owner-operator; I am not looking to partner with a capital raiser right now, and I'm not looking to structure a syndication deal with acquisition fees and things like that. So I'm not saying that I am someone who is interested in working with someone like you, Taylor, but if I were, and I reached out to you as an active operator, who is bringing on value-add apartment deals, tell me what questions you'd be asking me, vetting me with regards to placing capital in my deals?

Taylor Loht: Great question. So first off, I would start with track record. I want to know whether you've done this before, completed these types of deals. And you give me specific property names. I like to pull up property records and see "Okay, did they really own that property?" It was probably in an entity - can I track that entity back and kind of tie it to this person to make sure it's legitimate?

I might want to look at any kind of legal agreements that you had on past deals, to make sure that they were properly structured. Did you actually have an attorney put these things together with your past partners, or did you do it willy-nilly? And I'm not saying that about you, but we all know that there are folks out there doing things along those lines.

Of course, like I mentioned about background checks - they are critical. And that goes both ways. Right? You can do a background check on somebody - and this has happened in our case, and with others out there, I know for sure... But sometimes people have the same name. And somebody else who has your name now - maybe not Slocomb Reed, right? There's probably only one of you. But John Smith out there; there are a lot of John Smiths, and there's probably a few John Smiths who have done bad things in real estate or the securities industry; we want to really verify that the John Smith that we're talking to is the one that we're pulling up the record for, and not someone else who might have black mark on their record, if you will. So you want to dig into that.

If they have worked with passive investors before - maybe they haven't, but if they have, I'm going to ask for references. And of course, you're going to pick the best references that you can, right? That's what anybody would do. You're going to give positive references. But still, you want to get started with that, make sure those folks are legitimate. But then if you do have a footprint in the space, I can go the other direction and crowdsource and look for "Has anybody out there done business with Slocomb Reed in the past?" I can post that on Bigger Pockets, or again, Facebook groups, or put it out there and just try to crowdsource that information and experience. And you'll get people that reach out to you with responses, if they have, and again, sometimes those are negative, [unintelligible 00:10:14.01] But in general, you can get, I think, the best feedback by putting it out there, and instead of the references route, you want to go the other direction, and go find those people who have maybe had positive or negative experiences.

So those are a few things that I would look for. I think then digging into past deals more deeply; I think you can also ask around in the person's local network. And this one's a little bit harder, but say, here in the Richmond, Virginia area, we're not a big city. Especially in the real estate investing community, we're really not very big. And you can go around to folks who are more prominent in this area and ask, "Have you done business with this person before?" And they might say no, but I know that so and so has, and you can go and ask how has that gone.

We have folks in this area who have -- well, one gentleman in particular recently was convicted of some things, and will be going to jail for a little while... But if you would have gone and asked about him to folks in the area, they would have been able to give you some of that scuttlebutt. So I think going to the local networks and asking about someone's reputation and experience can really teach you quite a bit.

Slocomb Reed: Taylor, let's paint a picture of a hypothetical operator who is looking to partner with capital raisers or raise private capital for the first time. I am one of many in this category, and I've watched a few of my peers get into syndication, because that's the direction that they saw their business heading in. So let me paint a general picture, and my question will be "What else do you need to see, or what would you need to see next before you decided this is a partner you would want moving forward, placing your investors' capital?"

So let's make the assumption, all of your criminal stuff comes back completely clean. Let's make the assumption that when you reach out into the big names you know in this operator's local market, they say things like, "I've never worked with him or her personally, but I know they've done some good deals, they're good people, they come to the networking meetups. I know him or her socially. Seems like a good guy, and it seems like his deals have gone well, but we've never done anything together personally."

This operator tells you that their experience is under 100 doors, and they made the kind of traditional progression from maybe accidental landlord or house hacker to buying a rental property, doing a BRRRR deal on a three or four-family, getting into larger apartments, [unintelligible 00:13:02.11] 6 to 10 units, and then maybe a 20-unit. They figured out how much work was involved and they realizez they could substantially increase the portfolio without substantially increasing the work, while using other people's capital if they got into a syndication type model. They can show you some deals where in the last few years they've gone full cycle. Let's be honest, anyone who was selling in 2021 did great. Anyone who bought anything in 2017 and sold it in 2021 has a victory lap that they can run in a story with you. They've executed on some cash out refis. They either have a portfolio under 100 doors, maybe 50 to 60 doors, or they have recently sold significant portions of their portfolio so that they can focus on getting into syndications. All of that said, Taylor, picture now painted, what's next for you?

Taylor Loht: For me personally - and again, this is just my opinion - if they haven't done a syndication before and haven't raised investor capital, then it's a pass for me... Because this is my reputation, too; if I'm presenting a deal to investors, I'm in a way putting my own stamp on that in a certain sense. So I'm going to need to wait for them to do a deal like this before I'm going to get involved; a deal with passive investor capital, personally.

Another key factor here, I think, is the size of the team. From my interpretation of the question, you've described what I would call a one-man band... Which is fine, but again, in my experience, my opinion, in these 150-200 unit plus type of deals you really need a few people on the general partnership part of the team to bring these deals to you completion. Because you're gonna have somebody finding the deal, you're gonna have somebody underwriting it, sourcing the debt... And this is another area where moving forward, I think newer teams are going to struggle - asset management. Once the deal is acquired - well, the job's not done, and in the last few years, as we've had this great market, folks have been able to let the asset management part of these things slide. But again, in my opinion, the people who performed the best over the next few years are gonna get their financing right, and they're gonna get their asset management right. So I'd like to see the team get a little bit bigger; they're gonna have somebody handle the asset management, or whatever. I just want to see more than one person on that team; maybe two, three people.

I would also like to know their experience in the particular market that they're targeting. If they're targeting the market where they've been an investor historically, and they've purchased those previous - under 100 doors, I think you said it was, then that's a good sign. They understand the market. I would take that as a general positive. I would not want to get involved if they're just now getting their foot into a brand new market, because they think it's a good place to expand. That's another area where new and experienced multifamily syndicators make mistakes, because they think they understand the neighborhood where they're buying, but they don't really understand it down to the minute details when you're talking block by block, street by street. And I've seen this firsthand, both in terms of deals that folks have asked me to be involved with, that I passed on. And then - let's face it, this is really a small world; you hear a lot of things when you record several podcasts a week and have non-recorded conversations with people; you learn about who has a deal that's going sideways, and a common underlying theme there is getting into a new city and not understanding the block by block dynamics, thinking they can buy just over the line, and move the line, so to speak. It's something that a lot of folks try to do. Well, that's easier said than done, and it's a very different experience or a very different situation when you're looking at a Google Maps, top-down, or even a Street View, and seeing "Okay, I think we can move this", but then you go drive, look at the property, look at the local neighborhood, and you'll see that, "Okay, our comps are in a much, much nicer, newer, more revitalizing neighborhood than the property that we're looking at... Whereas the property that we're looking at - it's dated, it's not growing, the houses nearby are in not the best shape... Are we really be able to improve the neighborhood? Well, no, we can't do that when we're buying a property."

So we want to be honest about those areas. So be thinking about the market where they're investing, if they've already invested there, that's a positive sign; if they're not, along with the lack of experience in real estate syndication specifically, for me it would be a pass, but that's not to say it should be a pass for everybody. That person might be better suited to partnering with somebody who has syndicated a few deals, and can really look over their shoulder... Because it's a different situation when you're working with investor capital, as opposed to your own capital and maybe a partner or two on a deal.

Break: [00:18:18.27]

Slocomb Reed: You just touched on a question I was wanting to ask, Taylor... Let's make the assumption that this investor who has reached out to you has local market expertise and that they do understand the street and the block that they want to acquire a property on. Let's say that while this investor has not syndicated, they've not structured a security, brought on limited partners, but they have done joint venture deals where they were bringing on other people's capital and getting it deployed, and in joint ventures your partners are not technically passive... This is still someone who has taken on the responsibility of making someone else's capital perform. Does that move the needle for you at all?

Taylor Loht: I would say that probably does start to move the needle for me in terms of their experience. But what's the plan moving forward? ...to go back to that "How many folks are going to be on this team?" Are these folks who were involved with those previous deals going to continue working together on the future deals? Are they continuing to grow their partnership? Or are they splitting up and going their separate ways? Because if they're growing, they're forming a team, they're coming together to do more deals, I think that's a positive sign. But if they're splitting apart, people break up partnerships, break up - that's okay. But if they break up, we're still left with a one-man band, and we need more than a one-man band to make these deals successful.

Slocomb Reed: Following this line of hypotheticals, let's say that this operator gives you JVs as references, you call them, and the JVs say "It's been a solid experience. There were bumps in the road along the way. Will we continue to partner on deals? No, but I will continue to invest in that operator's deals passively when I have the opportunity." Moving forward, before I asked you to answer specifically that, I want to ask, have you seen evidence of one-man band operators failing after acquiring 150 to 200-unit property? And I'll say the reason why I ask is that the general notion among operators, like myself and the people within my spheres, is that a 200-unit is actually easier to manage than a 20-unit, because the scale gives you the ability to put a team on site for management.

Taylor Loht: So have I seen a one-man band, quote, unquote, folks fail in this business? Yes, I have. And the other thing to bear in mind is there are teams out there, syndication teams, that kind of look like one man bands; maybe they'll have one person out there - let's face it, usually, it's a man. I hate to go with one man here, but one-person bands...

Slocomb Reed: Yes. Statistically speaking likely to be male, but not exclusive to men. Yeah, of course.

Taylor Loht: I'm not saying that's a good thing, it's just the statistics, right? But one person, one figurehead out in front - the reality is on the backend, managing the deals, finding deals, underwriting them, working with lenders, investor relations, all that kind of thing, the successful teams that have one figurehead type of person really have a lot of people on the backend, handling the actual operations of the deal.

So personally, I want to know that my money, my investors' money is in the best, most competent hands. And again, for me there are enough opportunities out there to invest with highly experienced teams that have experts in these positions to handle asset management, and financing all these other things to make sure that we get the debt right, accounting, all of that. There's enough opportunity out there with those teams that for me I'm not pressed to do business with a single operator. But that's just for me; that's not to say that this person doesn't deserve to grow. Of course, I really hope that they do. I think the way that would make me the most comfortable doing business with that person is if they're, in my opinion, honest about some of the risks, the unknown unknown things in this business... Because there are a lot of moving parts in these deals, and especially -- okay, they're gonna buy this single 200-unit property... But what's next? They're probably going to go want to buy another one, but are they going to be out looking for the next deal and handling this other deal, and its asset management, and making sure that K-1s are issued on time every year, and all those other things? Well, that just ends up being too much work for one person, honestly, and just, to me, in my opinion, not the best way to design a business to favor your investors.

So that's why I would personally hold off on doing that type of a deal. There's too much opportunity with established teams to justify a little bit of a roll of a dice on a new team for me. And the other thing is that I think it's best to be honest that we all only have 24 hours in a day, and the best entrepreneurs - Elon out there, he's not out in the factory, building the cars. He's not even at the factory anymore. There's all these other people running the business, and he's guiding the long-term strategy... And I think that's what real estate syndication entrepreneurs need to focus on, is building a business, not just stacking up tasks to handle. You need to get roles, and you need to get people in those seats to handle those things, so that you can focus on the next thing that's going to help you grow, whether it's the next acquisition, or managing your financing, or what have you.

Slocomb Reed: This is excellent advice for those operators out there who are looking to scale their unit count into syndication. Taylor, thank you. Are you ready for the Best Ever lightning round?

Taylor Loht: I'm so ready.

Slocomb Reed: What is the best ever book you've recently read?

Taylor Loht: So I've actually got it sitting right here, "Never split the difference" by Chris Voss. And I'm actually on my second read-through. I originally read it not long after it came out; and two reasons it's the best ever book I've read. One, it's a great book on negotiation, and I need a refresher on some of these skills... And two, the first time I read it, I had been using a ticket that I got to tour Machu Picchu, and it has my stamps on it and everything, and I just happened to find it stuck in the book when I picked it back up to reread it. So two reasons: personal experience, and just there's great information in the book.

Slocomb Reed: Awesome. What is your best ever way to give back?

Taylor Loht: I donate to local animal shelters. I've been a vegetarian since 2015, and my fiance's vegan. I love helping animals and really taking care of them, so I've found a few local shelters that I've been donating money to help to scale that.

Slocomb Reed: As a capital raiser, what is the biggest mistake you've made, and the best ever lesson that resulted from it?

Taylor Loht: To me, I think the biggest mistake that I've made is not implementing things quickly enough. And I watched a lot of folks who are really good at implementing things quickly scale their businesses, again, very quickly. Whitney Sewell is a guy who I've known for a long time now. He's excellent at implementing things, hiring people and delegating. I've watched his example be, again, very successful, and I just try to continue to repeat that in my mind; the faster you can implement and execute, the faster you're going to learn, iterate, maybe eliminate the thing that you were thinking about implementing. So in real estate, entrepreneurship, just doing deals, the faster you can implement, the better, and learn along the way.

Slocomb Reed: On that note, Taylor, what is your best ever advice?

Taylor Loht: We all only have 24 hours in the day. Build a team, hire people to handle things, hire virtual assistants to handle tasks for you... That's another huge part. Something that's helped me really move forward is hiring virtual assistants to help me run my business. And I struggled with that for a long time; I would hire them and then it wouldn't work out, and I didn't understand... And it's because I wasn't thinking about it correctly. I started with my thoughts, and what I mean by that is I was going down the same path that I see a lot of other people go down mentally, where they say, "How can I use virtual assistants in my business?" Well, you've already made a mistake; you're not using virtual assistants, you're hiring virtual assistants. They're people who live in other countries, who have their own goals, their own families, their own priorities, and I think the second that, we start to remember that, when we start to implement that into our strategy of hiring virtual assistants for our businesses, giving them tasks to do, telling them how to do them, setting priorities, and goals, and all those other things, for me, changing the way I think about that helped me go from really struggling, constantly losing them, not feeling like they understood what they were supposed to do, to now my virtual assistants, they get things done, they show up on time, they get paid on time - all these other things. They know what they're supposed to do. When they have a question about what they should do, they should ask. They come up with new ideas, and innovate, and we implement some of those... It's just fantastic, and it's started with changing the way I think about hiring virtual assistants for my business. So remember, you have 24 hours in the day, and build a team to help you run the tasks in your business.

Slocomb Reed: Taylor, where can our listeners get in touch with you?

Taylor Loht: You can listen to my podcast by going to PassiveWealthStrategy.com. We help our listeners escape the Wall Street casino and build wealth on Main Street by investing in real estate. We have a free seven-day video course on red flags in passive real estate investing. The thing about eBooks is nobody ever reads eBooks, so we made this a very easily digestible seven-day video course on seven red flags in passive real estate investing. Again, just go to passivewealthstrategy.com, free course right at the top. Click that button. It's really easy to get to.

Slocomb Reed: That link is in the show notes. Taylor, thank you. Best Ever listeners, thank you as well for tuning in. If you've gained value from this conversation on the partnership between capital raisers and operators, and what makes that partnership work, please do subscribe to our show. Leave us a five-star review and share this episode with a friend who you know will gain value from this as well. Thank you, and have a best ever day.

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