JF1093: Raising Over $40,000,000 for Syndications in 7 Years! with Dave Zook

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Dave Zook Real Estate Background:
-Founder & CEO at The Real Asset Investors & Owner at Horizon Structures
-The Real Asset Investors Active Multi Family Real Estate Investor and Resort Community
-Development Closed on over 2,800 units since 2010 and raised over $40,000,000
-Based in Lancaster, Pennsylvania
-Say hi to him at http://therealassetinvestor.com/
-Best Ever Book: Rich Dad, Poor Dad

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Joe Fairless: Best Ever listeners, welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Dave Zook. How are you doing, Dave?

Dave Zook: Good, Joe. Thanks for having me on your show.

Joe Fairless: My pleasure, nice to have you on the show. A little bit about Dave – he is the founder and CEO at The Real Asset Investors and owner at Horizon Structures. He is an active multifamily real estate investor and resort community developer. He serves on the board of the local REIA and teaches and mentors locally, and he’s based in Philadelphia, Pennsylvania. With that being said, Dave, do you wanna give the Best Ever listeners a little bit more about your background and your focus?

Dave Zook: I’m actually in Lancaster, Pennsylvania, which is not far outside of Philadelphia. Background – I grew up out in the country and I grew up in our family business; my dad still has a manufacturing business where we build modular buildings, and he was a real estate investor… A little different than I am. He basically parked his money in real estate, because he really didn’t know what to do with his excess cash. It actually turned out to work really well for him. Just in the last probably 3-4 years ago I was able to help him transition some of the farms that he bought and 1031 them into multifamily real estate… But I watched him do real estate throughout my teenage years, and I sort of made a note to self that I was never gonna be a real estate investor. He self-managed some of his own real estate, and that just didn’t look too attractive to me.

In my late teens I started investing in some of my own businesses, and it wasn’t really long until I got into the situation where I was [unintelligible [00:04:05].28] a year, so I got exposed to some Robert Kiyosaki and I went down that path; I kept hearing him talk about how he could make millions of dollars a year without paying tax. That was really intriguing to me, because I was always taught that to make a lot of money you’ve gotta pay a lot of tax.

By doing a lot of studying and going to live events and joining webinars — I was just really hungry and searching. By doing that I ran into the right people, and ran into a lot of good folks that helped point me in the right direction after I learned that I needed real estate as a tax protection vehicle. And all of a sudden, I went from not wanting to do real estate at all to I wanted a whole bunch of it. I couldn’t hardly make it happen fast enough, but it was kind of a paradigm shift, and that kind of brings me to where we’re at today.

Joe Fairless: So just to give the Best Ever listeners who aren’t familiar with your background – and me, quite frankly, because we just met – some more perspective on your track record or your experience… How can we quantify the total transactions you’ve done, or total amount of properties you currently own, or something along those lines?

Dave Zook: Since about 2010 we’ve closed on 2,700 or 2,800 apartment units. We’re also the lead investor at the resort at Mahogany Bay Village in Belize. That’s what we’ve been up to in the last couple of years.

I got into this space because I had a serious tax problem and I was looking to shield myself, but it turned out that there were a lot of other benefits besides that and I sort of got hooked, so… I’ve been real busy since 2010; I did a lot of multifamily units. 2,700 – 2,800 units as of about last week. We typically don’t sell, we buy and hold.

Joe Fairless: So do you currently have around 2,700 or 2,800, or have you sold just one or two of them so you have that now?

Dave Zook: Yes.

Joe Fairless: When you say “we”, does that mean that you bring in accredited investors and partner with them on these deals?

Dave Zook: That is correct, I’m a syndicator. So I put the deal together. My partner and I, we do a lot of business in Memphis in the multifamily space, and my partner, who’s also my property manager, him and his team live in Memphis. They are boots on the ground guys, he’s partnered with me, and typically the way our structure works – my partner and our broker will find a deal, my partner will take his team out and they’ll really look at the deal and do all the due diligence on it, and then they’ll bring it to me. At that point, I’ve got a bunch of questions, obviously, and we’ll look at it together and decide “Yeah, we wanna do it.” Then it gets rolled over in my plate, it’s my job to go out and find the money.

I’m the guy that takes care of the investors, going out and telling the story about the property, will go to closing, will do the deal, and then it rolls back over into my partner’s plate and he manages it for us. So it’s kind of a three-pronged approach between our broker, who’s the best broker in the city and has been doing this for over 30 years – him and his three-men team are involved in almost half the transactions in the city of Memphis in multifamily 20 units or larger. So a really good guy on that side, very good at managing C and B class multifamily apartments. Then, of course, I’m on the other side of the transaction, bringing the money.

Joe Fairless: Who’s your partner in Memphis, the management company?

Dave Zook: Gary. It’s called WI Memphis. He doesn’t do any third-party management, but he manages all of our properties.

Joe Fairless: Did you say “WI”, as in Will, Igloo Memphis?

Dave Zook: Yeah.

Joe Fairless: And you’re based in Lancaster, Pennsylvania… Not Philadelphia – Lancaster, Pennsylvania, so clearly you’re not a short drive to Memphis, so you’ve got to have a lot of trust in Gary and his team… But obviously, you go visit the property before you speak to investors about it, right?

Dave Zook: Not every time. I usually get down into the market about twice a year. Last Friday I ran down just to meet a group of investors that had expressed interest and wanted to go down and see what we were doing… So I’ll make a quick trip like that down there, but I do trust my team, of course. I see a lot of pictures, I get videos… I rely heavily on my team down there, so I don’t necessarily have to go down and see every deal we do before we do it, but usually I’m able to get the whole story on it and really I’m able to kind of get my arms around it before I go out to investors and tell them about it.

Joe Fairless: Do you invest in every one of the deals, you personally?

Dave Zook: Absolutely. I am typically in every deal at six figures. Sometimes I’m in the deal for a couple hundred thousand… It really depends. Sometimes I get pushed all the way down to 100k if there’s so much demand that I can only get 100k. But typically I try to get in for the end of the six figures.

Joe Fairless: How much would you say in equity you have raised since you’ve been doing this? You’ve been doing this since 2010, so for the last seven years.

Dave Zook: Total in the multifamily, in our project in Belize, in ATM machines, you’re probably looking at 30-40 million.

Joe Fairless: Let’s just go with 40 million. Of that 40 million, how much is from one person or group?

Dave Zook: There are several investors who are invested with me, well into the seven figures. That’s a good question, I could do the research for you if you give me more time. There’s probably eight or ten investors that are in my group that I can pretty much count on that they’ll be involved in every deal that I do.

Then there’s some that are not quite as liquid, not able to move quite that fast, and add 200k-300k a year. But there’s several that are in… There’s quite a few that are involved in the seven figures.

Joe Fairless: Of the 8-10 that are involved in the seven figures, tracing back all the way to your points of origin when you met them, how did you meet them?

Dave Zook: There are some that I walked up and just introduced myself, [unintelligible [00:10:29].17] to their house, told them what I was doing, showed them the numbers… And what really helped was I was able to show them what I was doing. I started in this business investing in multifamily on my own, for myself. I had a tax problem, I needed some tax shelter, we got creative on that side, so I was able to approach some of the people that I knew that had some investable income, and I just told them my story.

But probably for the most part, if I would pinpoint and go back to each one of those guys, a lot of the guys were from referrals – people that had invested with me and then said “Hey, I’ve got a friend” and they’d give me a third-party endorsement, and we ended up doing a deal together. One thing lead to the next, and next thing you know they’re a really faithful investor.
To give you an example, we just closed a 373-unit building last month. We’ve raised 3,5 million, and about 85% of those investors had invested with me on other deals. So they were current investors, and just coming back for another round.

Joe Fairless: I love hearing that – first, because you’re delivering in — the strongest influencer of purchase or intent is word of mouth referrals… So that’s great, and I’ve noticed that in my business, too. But I wanna peel back a little bit, because if they are from referrals, then you had already done business with the person who is referring them. So you said that people who you knew who were wealthy, those were the people who you went to initially… But how did you know those people who were wealthy? I wanna trace back the origins, and the reason why I’m asking is for the Best Ever listeners who are listening and they want to start raising money – I want to uncover how you originally got your first investors and how specifically you met them.

Dave Zook: There’s a couple things that are very important, I think. One is your reputation. All my life I lived in the Lancaster area. In fact, I now live within two miles of where I was born and raised. Having a good reputation in your local market is a great start. We’re well-known in the community for the business we’ve done there. Also, I guess another area was a few years back I was invited to sit on the board of a local startup bank. It was actually, I think, the first bank that has received a charter license from FDIC since the 2008 meltdown.

I was listening to conversations that went something like this… These guys were talking back and forth, and I knew most of these guys around the table, about a dozen guys. They were talking about investing in this bank, and wanting to know if it was a good idea, a wise investment, and I heard conversations like, “Well, you may not see a return for 5-7 years, but it’s better than putting our money in a CD.” I was just blown away. I was amazed at that conversation, and I got to looking at what I was doing in the multifamily space and got thinking “Man, how can I add value to these guys?”

It was about the time I had bought a couple hundred units of my own, and I was sort of coming to a point where I was running out of cash, I had to slow down. Then I talked to another friend of mine who was on that board as well, and I ran the idea by him about syndicating and teaming up with these guys. He thought it was a great idea. For the next deal they came along.

I needed 850k to get the deal done, and I went to see some of these individuals, and some guys that I knew were able. It was about getting around the right people and about having a good relationship in the community, and being able to [unintelligible [00:14:01].04] that knew and trusted me.

Joe Fairless: The development in Belize – is that a ground-up development?

Dave Zook: It is. We started building that about little over three years ago. When I got involved, there was four homes there that were not occupied, and the rest of it was a bare piece of land, 67 acres, with some [unintelligible [00:14:23].05]. I got involved in that project… I was looking for a diversification investment, but I really got involved because I knew the people that were involved, and I knew the developers, and I had gotten to the point where I really had good relationship with the developer, I had done business with them before, I trusted them, so I really invested in a team on that one.

Joe Fairless: Did you bring in investors into that deal?

Dave Zook: I did. We’re the lead investor [unintelligible [00:14:51].27]

Joe Fairless: That’s right. I think you mentioned that. So the reason for those first two questions is how much more challenging, if at all, is it to raise equity for a ground-up development, compared to an established business i.e. a multifamily deal that currently exists?

Dave Zook: If you can raise money for a development off-shore, you can raise money for pretty much anything. It’s a lot harder. The first thing people think when they hear 1) about development – red flag, [unintelligible [00:15:32].21] about risk, the success rate isn’t that great; there’s the wait time, there’s the risk, and then when you throw in the official report, the international report, now all kinds of red flags pop up. So it’s a lot harder.

Joe Fairless: Well, let’s dig into that. The only other thing that I’ve come across as comparable – and I think you actually win on this one – but Dave Van Horn… He’s in your area, I believe – he raises money for upside down mortgages (distressed notes)… That would be a tough one, but I think with your international play you’ve taken the cake on this.

What are some typical objections and what is your response to those questions?

Dave Zook: Well, the questions have changed a lot since the project has matured. Somebody that says to me that it sounds really risky now — to me 95% of the risk has been taken out of the project. We’re now hoping in November all 205 homes in phase one of the resort are completed.

Joe Fairless: Early stage questions… When you were first getting started.

Dave Zook: Oh, early stage questions? There was a lot about the team, and who’s involved, and the government and the laws, and what if they change the laws and confiscate all your assets?

Joe Fairless: What’s your answer to that?

Dave Zook: The law is British Common Law, so it’s very similar to the United States. The property rights laws are very strong, much like the United States, and very unusual for that part of the country. In Central America, South America most of the laws are not British Common Law, and in a lot of those countries foreigners can’t even own real estate personally. There’s parts of Mexico – the foreigner can’t come in and own property within so many feet or so many miles of the beach. So the really desirable stuff is not available to you as a foreigner.

So that’s a big one – property rights’ laws [unintelligible [00:17:25].05] that was a big one for a lot of folks.

Joe Fairless: And then as far as investing your own money into a ground-up development, what are some things that you look for? You mentioned the team – is that the primary focus when you look at something, other than the numbers that are projected?

Dave Zook: That’s definitely the most important thing for me. My theory is a really good team can make something out of a bad situation. A mediocre team will screw up a really, really good situation. To me it’s always about the team first. Then, of course, you wanna look at the data and you wanna look at the market and you wanna look at all the drivers behind all the reasons why you’d wanna invest in that market… But to me it starts with the team. That’s international, domestic, or whatever business I do; in the ATM business… To me it’s always about the team first. That’s where I do the most due diligence.

Joe Fairless: What is your best real estate investing advice ever?

Dave Zook: Find a great team with a great track record of success, team up with them and just figure out how to add value to that team and figure out how to get involved and to do a lot of deals.

Joe Fairless: You said you do the most due diligence in the team. For a Best Ever listener who is — pretend they were listening to this interview when your Belize project was just starting, and there was a higher degree of risk in the project, and they needed to qualify the team. What would be ways that, if you were them, that you would qualify the team?

Dave Zook: There’s always a traditional way – you can get on Google and dig as far as you can dig there. But typically, when I get ready to invest my investors’ capital into the deal and I’m doing it with a new partner, I’ll do LexisNexis. For those of you listening who do not know what that is, it’s basically a real in-depth background check. It covers bankruptcy, fraud, phonies… Pretty much anything you can imagine shows up on that. So I do that.

I’m doing business with a guy now, we just closed an 88-unit deal last week, and it was the first thing we did. I knew the guy for three years, he was a good friend, we were in the same real estate mentoring club together, I watched him do a couple deals (actually quite a few deals) and just decided that he was a guy that I wanted to do business with.

Even with our background and with me knowing him for a good long time, watching him do deals and coming with some good third-party endorsements from some other folks that I knew and trusted, I still had a LexisNexis done on him. So it’s just another form of due diligence to make sure that you’re doing the best you can to protect your investors’ capital.

Joe Fairless: Are you ready for the Best Ever Lightning Round?

Dave Zook: Bring it!

Joe Fairless: Alright, we will bring it, but first, a quick word from our Best Ever partners.

Break: [00:20:19].28] to [00:21:17].29]

Joe Fairless: Best ever book you’ve read?

Dave Zook: I would have to say Rich Dad, Poor Dad.

Joe Fairless: Best ever deal you’ve done?

Dave Zook: In real estate?

Joe Fairless: Yes.

Dave Zook: Okay. Best ever deal I’ve done… We did a 286-unit multifamily building that we projected to our investors that we would return around a 10% cash-on-cash return… We’ve been delivering 12%. It’s on a 15-year [unintelligible [00:21:45].16] it’s a great property; 286 units, and it runs like a cash machine.

Joe Fairless: You’ve got me intrigued about when you had to clarify if it was real estate or not, so best ever investment you’ve done?

Dave Zook: Well, I would have to say my business. I have a sales and marketing company. It’s interesting coming here, because I’ve just had a valuation done on it, [unintelligible [00:22:08].14] because I am getting ready to sell a portion of it to my three brothers. It turns out the rate of return on that business, based on the amount of money that I invested in it 15 years ago – it’s crazy. So I would say my own business.

Joe Fairless: What’s a mistake you’ve made on a transaction?

Dave Zook: Teaming up with the wrong person; teaming up with a syndicator who I was hoping to learn the syndication space, and it was early in my real estate investing career… I was wanting to learn a lot from him; he talked a really good game, and I invested — I actually became the only syndicatee, I was the only investor in the deal, and I invested $750,000 cash of my own in the deal, and I lost most of it. So teaming up with the wrong person.

Joe Fairless: How did you lose it? Was it fraud, or was it just mismanagement and terrible oversight?

Dave Zook: Terrible oversight. It was a situation where it was a heavy rehab job, and it was just incompetence; the guy wasn’t able to get the job done. He wasn’t able to do what he said he would do, and it was ugly.

Joe Fairless: Yeah… How long ago was that?

Dave Zook: I got into the deal I think around 2011, 2012, something like that.

Joe Fairless: And when did the torture end?

Dave Zook: The last year. I lost half a million dollars.

Joe Fairless: What’s the best ever way you like to give back?

Dave Zook: Give back beyond giving money to organizations I believe in – I like to do that, but I also like to inspire, motivate and reach young entrepreneurs, young investors that are looking to make their mark in the world and make a difference. I love to sit down with those guys and help them in any way I can.

I look at it as a form of [unintelligible [00:24:00].17] in some time, where I feel I can invest in a young person’s life that is out there, is hungry, trying to learn, trying to get some ideas… And if I can motivate and inspire someone like that, I’ll do it.

Joe Fairless: How can the Best Ever listeners get in touch with you?

Dave Zook: Info@therealassetinvestor.com.

Joe Fairless: Dave, thank you for being on the show. You’ve raised over 30 million dollars in the last seven years, so clearly we’ve got many things we can learn from you, from initially when you met your first investors and that had a domino effect into larger investors, where you sat on the board of a local startup bank and you heard them talking about how if they could just beat a certificate of deposit, then it would be a good investment… And your reputation, too – just building your reputation over time, as well as how that (as I mentioned just a second ago) spirals into, or rather evolves into the referrals, where you fund the deal for three million bucks, 85% are returning investors.

And then your suggestion for Best Ever listeners who are doing due diligence on potential real estate partners, do a LexisNexis search; it looks at their debt, their background check, bankruptcies, frauds, felonies, all that good stuff. Then the cautionary tale of losing half a million dollars on a project where the team just fell flat on their face because they just didn’t do what they said they were gonna do on a heavy rehab job.

So thanks for being on the show, thanks for sharing your lessons learned, Dave. I hope you have a best ever day, and we’ll talk to you soon.

Dave Zook: Alright, thank you, Joe. If I can add value to your listeners, somebody is starting out, if they wanna shoot me an e-mail, I’d be happy to help. I also have a local write-up on the eight lessons from syndicators and their investors – if somebody’s interested and they want to get a copy of that, I’d be happy to send it out to them. All they have to do is send me an e-mail at info@therealassetinvestor.com, and I’ll send a copy to them. Thanks for having me on your show, it was fun.

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