July 10, 2022

JF2868: How to Add Value through Construction ft. Oliver Fernandez

Oliver Fernandez got his start in real estate as a realtor, but quickly realized there was more money to be made as a landlord. After learning all that he could about real estate investing, he purchased his first single-family home, which eventually led him to become a general partner in the multifamily asset class. 

In this episode, Oliver shares how his construction background helped him scale to more than 1,200 units, why the pandemic was an eye-opening experience for him, and his Best Ever advice for managing construction from a distance.


1. Scaling to 1,200 Units through Construction

Oliver’s first multifamily joint venture deal was a 152-unit property with foundation issues, water damage, and 30 down units. While other potential buyers passed on the deal due to the level of renovation required, Oliver was able to apply his construction expertise to complete the heavy lift. “I added so much value that we just continued to do more and more deals together,” Oliver says. “And now we’re at 1,200 units.” 


2. Lessons Learned from the Pandemic

At the time that Covid hit, Oliver was experiencing success with construction and real estate and began to consider branching out to different asset classes. However, once everyone was quarantined, he saw that multifamily housing is a basic survival need that remains essential. “Everything has to go wrong for this to really touch or affect multifamily real estate,” he says. The experience reinforced, to him, the importance of buying right and creating value. 


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3. How to Manage Construction from a Distance

Oliver learned how to manage at a distance the hard way when he developed arthritis in his foot at the age of 26. After undergoing surgery, he was forced to stay off of his foot for three months. During that time, he was able to slow down his actions and speed up his thinking. “You have to be able to slow down and listen to what your team is telling you,” he says. “Listen to the details. Get pictures. Whatever you need to be able to add value to them when they’re executing on the plan the correct way.”


Oliver Fernandez | Real Estate Background

  • President of McKenzie Construction, a construction company that invests in multifamily real estate.
  • Portfolio:
    • GP of 1,270 units across seven properties
    • LP of 1,261 units across four properties
      • Every deal that he is a GP in, he also invests as an LP.
  • Based in: Washington, D.C.
  • Say hi to him at:
  • Best Ever Book: Rich Dad Poor Dad by Robert Kiyosaki
  • Greatest lesson: Opportunities are everywhere, you just need to get clear on what you are looking for.


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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 Oliver Fernandez. Oliver is joining us from Washington, D.C. He's the president of McKenzie Construction, a construction company that invests in multifamily real estate. He's a GP of over 1,200 units across seven properties and an LP of over 1,200 units across four properties. Oliver, can you start us off with a little more about your background and what you're currently focused on?

Oliver Fernandez: Yeah. So I know you're going to ask this at the end of the show, but my best book that I've read was the Rich Dad Poor Dad book. And I kind of had a Rich Dad Poor Dad situation growing up, too. My dad, who I wouldn't say had a poor mindset, but he had an overly risky mindset that put a lot of challenges in the family, that actually broke up my family, where my mom and I moved to Maine and then my dad stayed in Boston... And I lived in Maine with my mom and three sisters. But my rich dad was my uncle, and my uncle had a really interesting story. He invested in multifamily real estate, he invested in single-family real estate, and he had a tragic thing happen to him in 2000 and he ended up passing away. But something that really stayed with me my entire life was that real estate paid for his son the rest of his son's life. So I've been watching my cousin grow up, and all his resource had been taken care of from that real estate that he bought.

Slocomb Reed: Wow.

Oliver Fernandez: So that was like one of my first imprints on me about real estate. And then I graduated from high school, went to college... My dad never went to college. My mom did. I was actually considering going to the military, but my mom talked me into going to college. I went to college, got an engineering degree. I graduated and started putting that engineering degree to work, but I really didn't like the work that I was doing, and I was having a tough time moving up in that career.

So my next step in real estate was actually becoming an agent. And I was living in New York city at the time. In New York City apartments are in so much demand that they pay brokers a month's rent to go and rent those apartments for them. So I would go in, I was showing people apartments and taking a month's rent. And that was my first real dive into how powerful real estate was. Because I realized that I was working so hard every time to get somebody into one of their units, but these landlords would have these tenants for one, two, three, four, five years. And I was like, "Wow, I've got to get on the other side of that."

Slocomb Reed: Yeah.

Oliver Fernandez: So that's when I really dove deep into "How can I start buying these properties?" And then we bought our first single-family property, and then it was a duplex, and then a triplex, and then another duplex, and then we went to multifamily... And that's where I'm at today, is now we're over 1,200 units, and just totally growing and expanding personally, professionally and financially with multifamily real estate.

Slocomb Reed: That's awesome. Mackenzie Construction. So you're investing in and syndicating multifamily. Well, first, you're in the D.C. area. Where are you investing?

Oliver Fernandez: We originally cut our teeth buying real estate here in Washington, D.C. And we were buying the single family homes and we would convert them into duplex and triplex units. And it was a great experience to get into buying these apartments and understanding how to get them rented, and doing all this stuff, but it was really small. We were self-managing everything, we were like in the weeds with everything. And I wanted to continue to grow and scale it, because I just saw the power in it. We were refinancing, we were taking out $500,000, $600,000 of non-taxable money to then buy the next property. So I saw the power in all that stuff. But we were just dealing with so much aggravation with them being so small units and having to do all the property management ourself, that we were looking to do a bigger property, like a 20 or a 30-unit property. That's when I came across the podcast, and they were talking about multifamily real estate, and you cash-flow from day one. I still had the construction bug where I could go in and renovate the units as my tenants moved out and be able to add value.

So I just loved the aspects of multifamily real estate. And then that's when we started trading out of-- not trading out of, but refinancing the properties here in D.C., which were like $500,000 a unit, and started to buy in Atlanta, and started to buy in the Texas markets, where we could buy things for a $100,000 a unit. So we would trade one unit in D.C. for five units in Atlanta and Texas. And now, all of a sudden, we had five families paying us, versus just one family paying us. So it was almost a diversification play, too.

Slocomb Reed: And how did you get from those kinds of deals to 1,200 units and seven properties?

Oliver Fernandez: I have a construction background and we've, to date, completed over $80 million worth of construction. So I have a really strong construction mind and background and team members that help me with the organization. So our first deal that we got into with multifamily was 152 units in Atlanta, Georgia. And this property, we joint ventured--

Slocomb Reed: When was that?

Oliver Fernandez: That was in 2019.

Slocomb Reed: Gotcha.

Oliver Fernandez: And we joint-ventured with Disrupt Equity on that deal, and that deal had 30 down units. And we got the award on purchasing that property, but there was three or four groups that looked at that property and backed out. And the reason they backed out is because there was a ton of foundation issues, there was a ton of water issues, and there was a ton of down units that they didn't understand how to execute on. So with that partnership with Disrupt Equity, I brought my construction expertise, and then they brought their expertise of buying and running these properties to me.

So we came in and we did the renovation of that property, and all of the things that I learned while renovating these duplex properties here in Washington, D.C. - the tenant moves in, and then the next day I get water in the basement. So all of a sudden I'm doing all of this waterproofing in the basement. I used those exact same learnings on this 152 unit property. But now the return were exponential in comparison to the duplex property we had here in D.C.

So I got into multifamily investing through joint ventures, and then my partners helped bring me up to speed extremely quickly. And now I performed so well on those deals, they wanted to do more deals with me. It's very similar to how a lot of people get into real estate. They add so much value that it doesn't make sense to break apart the relationship. So I added so much value and we just continued to do more and more deals together, and now we're at over 1,200 units together. And we're actually in the process of buying another [unintelligible 00:09:03.10] across Atlanta, Austin, Texas, and Daytona Beach, Florida.

Slocomb Reed: That's exciting. Within these partnerships, you focus on the construction component.

Oliver Fernandez: Yeah.

Slocomb Reed: So you guys are buying properties that require some sort of major lift, that-- well, what's the best way to say this? You guys are buying properties with a higher barrier to entry, because of the construction required on the front end to get them performing. Is that correct?

Oliver Fernandez: Not every property is like that. In the beginning, there was a lot more properties like that a couple years ago. But we buy value add properties where they have kitchens to be updated. There are some down units, but maybe there's not 30 of them. Maybe there's one or two of them. So not every property is as damaged as that one, but that was my connection to joint venture with my partners, and really developed that relationship.

Oliver Fernandez: Gotcha. So you guys are doing deals that are a little more conventional now - the value add, buy it, do some renovating, raise rents, generate some forced appreciation, sufficient to sell in a few years, and deliver an IRR?

Oliver Fernandez: Yes, sir.

Slocomb Reed: Gotcha. Well, let's talk about the more fun ones, the ones in the beginning. I have not bought any 152-unit properties yet. All my stuff is smaller. Generally speaking, distress comes with a discount when you're the buyer, or when you're the seller. When you have serious foundation issues, 30 down units, water intrusion, I imagine, in part because there was much less competition interested in those properties, but also because of the situations that you were going to have to inherit and navigate and deliver on, that you guys were able to get a pretty good deal when buying it, all things considered. Do you have a way to quantify what that discount looked like for getting that property in such condition?

Oliver Fernandez: This was actually a smaller seller. So they had only really been in the single-family game, and they weren't that sophisticated, so the actual transaction of closing this deal was really difficult. And maybe that's one of the reasons why the previous three people that had it under contract backed out. There's not really a "discount" on paper to say that we got, but I know that we bought 152 units at $60,000 a door. And at that time, things were trading at $80,000 a door. And we were able to bring those down units online within one year. So all of a sudden, cash flow jumped up significantly, and we were able to create a massive amount of value very quickly.

Slocomb Reed: Gotcha. Do you remember what your construction costs looked like? Likw, what your all-in per door was?

Oliver Fernandez: So on those down units, we were spending anywhere between 20,000 on the not-so-bad ones and 30,000 on the ones that really needed a lot of attention. We had to go back and do electrical, all mechanical, all drywall, make sure we got all the mold remediation complete, waterproof it, do all of the underground piping to bring all the water outside of the building. So there was a lot of stuff going on there. And then there were some units that didn't need all of that attention, that we spent $7,500 per unit on. But the real ones that had a lot of water damage, had a lot of mold, had a lot of destruction to them, we were spending about $30,000 a unit on them.

Slocomb Reed: Gotcha. And you bought it around three years ago... Are you guys planning to sell here soon, or continue to hold the property? What I'm really asking is, do you have an idea of what the value per door is now? ...that you bought it for 60 a door, added 20 to 30 to about 20% of those doors. So spread that out, you're spending around 5, 6 grand a door, given that it was really heavy on just 20% of it... So it sounds like you were all in in the high 60s, maybe 70, and you saw those properties trading at the time for 80?

Oliver Fernandez: Correct.

Slocomb Reed: Gotcha. Well, I like to simplify things. Sometimes I oversimplify, but that sounds like a discount of 10 grand a door.

Oliver Fernandez: Yeah. You did some great maths there. I like the numbers you're using.

Slocomb Reed: Yeah. And 10 grand a door over 150 doors is 1.5 million. It's a pretty sweet forced appreciation for you and for your investors, looking at it that way. Awesome.

Oliver Fernandez: Yeah. And you know, another property that I bought - and this was probably the dumbest deal that I did buy, was I bought this condo building. And the reason why it was a dumb deal is because it was already perfectly renovated, and there was no way for me to add value. So when there was a correction, I bought it at the top, and then there was no value to be created... So obviously, when that correction happened, I had to take a haircut on the value at that point in time. So I learned that lesson then that I always want to be in a position of adding value, so that if something does happen with the marketplace, we're still in a good position, we still have multiple exit strategies. We're not forced to hold onto this thing because if we don't, we're going to take a big loss.

Break: [00:14:29] to [00:16:15]

Slocomb Reed: That's good, especially right now. We're recording this at the beginning of June 2022 and the possibility of a recession seems like it's on everyone's minds right now. So given the current economic climate and all the things happening in the world, global politics - this can be summarized in economic climate, but supply chain issues, inflation, increasing interest rates - are you guys changing the way you look at deals at all, or are you changing which deals you offer on?

Oliver Fernandez: That's a really good question. And honestly, I got a big eye-opening experience when COVID happened. I was in construction and I was in real estate. And a lot of times when you're doing really well, there can be a lot of shiny objects. So thinking about, "Oh, it'd be cool to own a casino" or "It'd be cool to own a hotel", but during that time, we saw that the rules were, "Go home, and the only reason you could leave your house was if you wanted to go to the grocery store to buy food and water." So I realized then that the things that I was involved in were essential. It was so tied to our survival that basically everything has to go wrong at least to really touch or affect multifamily real estate. So it gave me a lot of confidence in what we're looking at and what we're buying. And with that being said, it reinforced that yes, you have to buy things, right. Yes, I need to make sure that there's value to be created. But if that is the case, then there's still deals to be made out there, and to continue to buy through all seasons, because we're tied so closely to a basic survival need of housing. And when we're buying right and we're buying where there's value to be created, I like that deal nine times out of ten.

Slocomb Reed: That makes sense. You know, I first got into C-class apartments - by neighborhood and demographic, not necessarily by property age, but I got into C-class apartments in mid-2019. I'm an apartment owner-operator in Cincinnati, Ohio, Oliver. I had only managed A class until A locations, A demographics until several months before COVID. So I was very proactive in making sure that my tenants had the resources that they needed, including if they needed assistance, that they should come to me first, let me know in advance, that I had a plan for helping them.

And to your point about being essential, Oliver, this is another over-simplification, and I'm going to call it that upfront... But when there is a crisis large enough that it could make it difficult for my tenant base to pay their rent, a Republican administration cut them all checks, so that they had rent money. Talk about essential. And I don't mean to make this political, because the Democratic administration that followed the Republican administration increased the amount of money. They were both doing it; but that's absolutely my experience through COVID as well. So long as you bought right, are buying right, so long as you know how to deliver for, in your case, the people who are working for you in construction, your tenants, you're going to be able to wait whatever storm is coming, for sure.

Oliver Fernandez: Right. Yeah, operations is key. Totally agree with that. In those times where things get a little scary and there's a lot of uncertainty, it all boils down to operations. That's one thing that we pride ourself on, is operations and really digging into the details and making sure our investors are safe, our tenants are safe, and the communities that we are investing in are getting improved.

Slocomb Reed: We don't have a lot of time left, Oliver, but I want to ask, speaking of operations and thinking about your focus on the construction component of commercial real estate investing, you've done some pretty significant construction, at least on that Atlanta deal, but it sounds like on others, too. You've been managing that from a distance. Specific to managing construction from a distance, including foundation, water intrusion, bringing 20% of your units online from needing mold remediation, what is your best ever advice specific to managing that level of construction from a distance?

Oliver Fernandez: Yeah, that's a really good question. And the first thing that comes to mind was when I was 26 years old, I had developed this arthritis syndrome, and I had to get a surgery on my left foot because of this arthritis. And I know, I'm super young, it shouldn't be happening to me, right? But in that moment, I could have felt bad for myself, but that was the exact moment that helped me slow down in my actions, but speed up in my thinking and speed up in my communication and speed up the way my mind thought and pictured things.

So I now manage all of this stuff from afar, because I have the ability to communicate and get a clear picture of what is going on in the field, to be able to add value to my team in the field, to be able to make sure that they have the right resources to make sure that they're moving forward in the right direction. And that's the biggest thing, is communication and being able to help your team when they run into issues in the field and you're not there. And most people struggle with that. Most people - they get confused about, "Well, I have to see it, I have to see it. I have to see it." But that slows you down, because now you're focusing on one thing, where now as an organization, we're focused on ten things.

Slocomb Reed: Oliver, that's helpful. I don't want to have to get arthritis or go through leg surgery in order to get that sort of clarity. Give me some advice, Oliver. What are your top tips for getting to that point where I can thrive in that communication from a distance with all of the variables involved in those kinds of projects?

Oliver Fernandez: The one thing that happened when I went through that surgery was I was forced to not walk on my foot for three months. So the one thing that helped do is that it helped keep me in one spot. Because every time [unintelligible 00:22:30.04] So I had to stay in that one spot. So if you are healthy, it's so quick to just get up and just go handle it, but you have to build that muscle to stay in that one spot, and be able to hear the conversation and be able to add value to the conversation. Even though you can go, you shouldn't go.

So that's the number one thing, is you have to hold yourself back and be able to slow down and listen to what your team is telling you. Listen to the details that they're telling you. Get pictures, whatever you need to be able to add value to them, and then executing on the plan the correct way. And then, of course, if there's a big enough situation, you've got to go. But if this prevents you from going down for every little nitty-gritty thing that doesn't always need your attention--

Slocomb Reed: Oliver, I really resonate with your advice here. I've got to tell you, my wife and I are expecting our second child this fall, and long story short, I got into commercial real estate as an owner-operator, self-managing, the same month that my first daughter was born. And while I don't regret it, it was a lot of work and it was stressful and I just wasn't available to my family the way that I wanted to be, because I felt compelled to take advantage of that opportunity.

So my focus right now with a few months to go is how do I make sure I can be out of the day to day operations of my entire portfolio come this fall, when I really just want to be a husband and a dad, and only have to work 10, maybe 20 hours a week to make sure that my vacancies are being filled, my apartments are being turned, my rent's being collected, and I have something for acquisitions in the pipeline.

So I totally resonate and I'm doing that myself. I'm following that advice in forcing my myself not to just go do things myself and be on site and let other people handle them and make sure that there's a lot of communication and clear communication to get things done without me needing to be physically present. So I totally resonate with that advice and I hope our Best Ever listeners were paying attention when you share it. That being said, are you ready for the Best Ever Lightning Round?

Oliver Fernandez: Yeah, let's do it.

Slocomb Reed: Great. You already started us off with your best ever book, Rich Dad Poor Dad, by Robert Kiyosaki, which I just re-listened to myself. I'm in the middle of Rich Dad's Guide to Investing, Part 3 of that Kiyosaki trilogy. What is your best ever way to give back?

Oliver Fernandez: A second add-on to that book though, is How the Rich Are Getting Richer. Have you heard that one?

Slocomb Reed: No. Who's it by?

Oliver Fernandez: Robert Kiyosaki.

Slocomb Reed: Oh, okay.

Oliver Fernandez: No one's heard of it. It's all good though. You've got to read that. It's like the sequel of The Rich Dad Poor Dad, "Why the rich are getting richer." So that's my book--

Slocomb Reed: I have to add that to my list, for sure.

Oliver Fernandez: Yeah. For giving back, so every year during Thanksgiving, we actually go to a woman's shelter, and this woman's shelter obviously deals with abused women, all of that. And it's really near and dear to my heart, but we go there and we make breakfast for them for Thanksgiving, and it inspires me every day to continue to move forward and build and create something really big to be able to support these people. And then we donate resources to them as well. We've donate over $100,000 to them and inner-city kids here in Washington, D.C.

Slocomb Reed: Specific to your role in the deals that you've syndicated, focusing on construction, thus far, Oliver, what's the biggest mistake you've made and the best ever lesson that you've learned from it?

Oliver Fernandez: It would go back to the small deals. So many lessons that I learned on the small deals, I'm using on the big deals. So that one property that I bought at the top of the market, totally renovated was a massive mistake. And I forced myself to not sell that property at a loss, but not eat all of it, but stay in the game and manage that property at a loss for 10 years before it came back.

But that's what I love about real estate, is that if you have a tenant in there and they're paying the mortgage and they're paying the bills, it buys you time for it to come back. So the lesson that I learned there was don't buy things that you can't add value to, and that you can't force appreciation on. Because when things happen and there's no wiggle room, you get your back pushed up against the wall and it's no fun to be there.

Slocomb Reed: Absolutely. Give us a summary real quick. What's the lesson from that story?

Oliver Fernandez: So the lesson is don't buy things that you can't add value to. And the reason why you want to buy things you can add value to is because when the market does correct, all of a sudden, you're just still sitting up here at the top of the market and there's no way for you to add value to get back to where -- at least equal basis.

Slocomb Reed: Awesome. Oliver, there's some great advice here already - focus on your communication skills so that you can manage complex projects at a distance. Only buy properties that you can add value to, so that you're not stuck at the top of the market when the market turns. Is there any best ever advice you want to add to that?

Oliver Fernandez: Continue to move forward. When I was first getting into real estate, I was so scared to buy a single-family property. But I listened to this Les Brown tape and he was always talking about failing forward, failing forward. And I'm so glad I listened to that tape, because in the moment of not getting my plans fully approved and having to go back and update them and adjust them, I was happy. Why was I happy? Because I was checking the box of failing forward. I wasn't staying where I was at. I wasn't scared. I was moving forward. And then once I got into multifamily, I was scared too. But as you continue to move forward, you start to gain confidence in what you're doing. And as you gain confidence, then you start doing things much faster, and then all of a sudden, you can get to 1,200 units, and then the next target is 10,000 units.

So just staying in the game and moving forward, just not being afraid to fail. Fail, but fail forward. When I would get those plans back, I might have got a 50 out of 100. But now I knew that I had to get these 10 things right to get 100 out of 100. Be a person that's going to do what you say you're going to do... And I took care of it. I did what I said I was going to do. I took care of it, and then I got my permit, and then I continued to move forward. So don't get discouraged when things are not going your way. Continue to move forward and continue to take action.

Slocomb Reed: That's awesome. Oliver, for our Best Ever listeners, where can people get in touch with you?

Oliver Fernandez: You can reach out to me at www.investwitholiver.com.

Slocomb Reed: The link is included in the show notes. Oliver, thank you. Best Ever listeners, thank you as well. If you've gained value from this conversation about how to add value to both partnerships and apartments through construction, please do subscribe to our show, leave us a five-star review and share this episode with a friend that you know that we can add value to through this conversation. Thank you, and have a best ever day.


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