September 27, 2017

JF1121: How To Invest In A Tough State Like California with Anthony Walker

Anthony has about 110 multifamily units in the Los Angeles area, and has learned a lot since 2011 when he only had about 5 units. It’s refreshing to hear about someone who can find deals in California, a lot of natives in California will look in other states. Hear how he is able to find deals in his backyard. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

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Anthony Walker Real Estate Background:
-CEO and managing broker of Buckingham Investments, an investment property brokerage firm
-Helps clients learn, plan, and invest in multi-family properties since 1963, teaches seminars on investing
-Owns a portfolio of multi-family properties in the LA area of about 110 units
-Based in Los Angeles, California
-Say hi to him at
-Best Ever Book: Think and Grow Rich

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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, Anthony Walker. How are you doing, Anthony?

Anthony Walker: I’m great. Thanks for having me, Joe.

Joe Fairless: My pleasure, nice to have you on the show. A little bit about Anthony – he owns a portfolio of multifamily properties in the Los Angeles area of around 110 units. He helps clients learn, plan and invest in multifamily properties since 1963. He is the CEO and managing broker of Buckingham Investments. With that being said, Anthony, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Anthony Walker: Absolutely. Just to clarify real quick – I haven’t been doing it since 1963, the company has.

Joe Fairless: Oh, got it.

Anthony Walker: My background is I was actually in the corporate world for almost ten years, got up into middle management, and realized pretty early on that that wasn’t really gonna deliver on what I wanted to get out of my life financially, as well as just the time that I have for myself, so I decided to go back to school. I went and got my MBA at night, with the specific purpose of trying to figure out what I wanted to do, what kind of business I wanted to start.

I took a real estate investment class there, and it just struck me that there’s no need to invent some crazy new business model and code an app, or something like that; I would be a real estate investor.
My professor actually recommended that I look into getting into brokerage as a way to help me get acquainted with the market, as well as grow my portfolio. At that time – this was about 2010 – I was introduced to Buckingham Investments, which is a local apartment building investment brokerage here in LA. I started the relationship with them first as a client; I bought my first duplex in 2011, and I really loved their model, so I decided to double down, become a salesperson and get aggressive with building my brokerage business, as well as my apartment building portfolio. So I became a broker, I opened up an office here in Torrance… And we’ve actually just restructured the company, so now I am the CEO, and we’re growing and looking to open new offices in the area.

Joe Fairless: Well, congrats on the new appointment and congrats on the growth with the company. You were introduced to Buckingham in 2010, in 2011 you bought a duplex, and now you’ve got around 110 units, is that correct?

Anthony Walker: Yeah, so all of that isn’t owned 100% by myself; I was fortunate to be introduced to some people that were already in the business and was able to partner up with them and kind of learn as I went along. So a lot of the investments that I have, I’m partnered with a group of seven other guys that are actually professionals in the industry as well, in different functions. That was a huge benefit to me to get started, but now seven years down the line we still own a lot of the buildings we purchase, but I rolled a lot of that into buildings that I own myself at least 50% of, so I’m doing more of it on my own.

Joe Fairless: Okay. When you partnered with seven other guys on deals, how do you structure that?

Anthony Walker: Great question. We’re all friends, but we definitely need to have the right documentation and structure together. Our investments are just in an LLC, and we divide up the equity on a pro rata basis for each person’s investment and the operating agreement kind of spells everything out. We’re fortunate in that everybody in our partnership has a different professional expertise within the industry, so we kind of each do our professional expertise, we charge the group a market rate for what we do, and that seems to work really well for everybody.

Joe Fairless: Wow, that’s incredible. What are some of the other areas of expertise that the other people are bringing?

Anthony Walker: We have a great team. There’s another real estate agent in the group, there’s a general contractor, there is a professional property manager who I use for all of my other properties as well, and he’s a fantastic partner to have… There’s sort of our money guy, who leads the group and has a lot of the relationships with the banks and the financing, and then we have a developer as well…

Joe Fairless: Have you got a lawyer or an accountant in there?

Anthony Walker: We don’t have a lawyer or an accountant actually, unfortunately. But a pretty good team.

Joe Fairless: Yeah. So I get what you said, where everyone charges a market rate for what they’re doing. I would think though that I just feel like some of them are doing a lot more work than others, but I guess if they’re just charging whatever the market rate is, then they’re getting compensated for it, so… Maybe I’m answering my own question.

Anthony Walker: Yeah, and you know, we have to figure things out as we go along. It’s pretty easy with the property manager – he charges a percentage on the collected rent, like he would with any other client. The agents that list the properties or represent us get their commission… People with the more detailed roles, that have to do with putting the deal together – that’s something we handle on a deal-by-deal basis and it’s worked out for us also because some of those guys have a higher percentage ownership in some of these deals, so it makes more sense for them.

Joe Fairless: How did you meet them?

Anthony Walker: I was introduced through my network at business school… Great testament to the power of being in the right place in education.

Joe Fairless: Someone who is also getting their MBA at night is in this group, and then he introduced you to the rest of the people, or…?

Anthony Walker: Yeah, one of my friends was in the program with me at the same time and we had discussed my desire to get into the business, and he happened to know another student that was in the program, so we were introduced. He had existing relationships with some of these other people because he had been doing real estate deals for a few years already, so they kind of brought me in and we started doing stuff together.

Joe Fairless: What are some lessons learned or what would be your advice for a Best Ever listener who has an opportunity to partner with five, six other people in a similar way?

Anthony Walker: My advice would be it’s a great opportunity as long as you’re able to get involved and have some sort of responsibility in the group, and as long as the roles are clearly defined… It was a huge benefit to me, because I got to learn how these deals are done, how they’re underwritten, how to get through an escrow, how to manage the property and all these things. But I don’t think it would have been a great opportunity for me had I just come on as a limited investor and just put up some money – like you see with the syndications – and kind of just read the updates as they come along. What was really beneficial for me was being involved in the management of the whole process and the buildings as we acquired them.

Joe Fairless: What was your latest acquisition?

Anthony Walker: My latest acquisition was a ten-unit property. On this one it was just myself and one other partner, so we have a 50/50 stake in it. We had refinanced out of another project that was successful for us last year in 2016, and we netted about $400,000 from that refi. We really liked the area that we were investing in, which is sort of a transition area in the city of Long Beach, which is in Southern LA county. We’re only a few blocks away from the ocean. Long Beaches really changes a lot as you go in from the beach… So we had an opportunity to buy a 10-unit apartment building built in the 1920 – almost 100 years old at this point – that needed a lot of work; every major system needed updating, so we had to do seismic retrofitting to the foundation, which is an issue here in California. New roof, new electrical, we replaced a significant portion of the plumbing.

What made the deal really attractive is the building has 40% [unintelligible [00:08:52].26] at the time we bought. We bought this in December 2016, and we’ve brought rents about halfway up to markets so far. We’ve done our major capital expenditures on those systems, so now we’re kind of getting into the units, upgrading them as we get vacancies, and we expect to be done with the project and refinanced probably by the end of 2017 and hope to rinse and repeat.

Joe Fairless: Are you doing 1031, or are you just refinancing out and then–

Anthony Walker: Yeah, we’ll probably just refinance out and buy another. We were able to do a bridge to perm loan, as they call it, on this one. We had a lender that gave us pretty good terms on a 24-month bridge loan that allows some renovation budget and capital draws to get the work done during the term of the loan, and also some ability for them to pay some of the debt service for us while we stabilize the building. Then they will take us into our permanent financing, which we expect to be a Freddie Mac loan on the takeout.

Joe Fairless: Will you elaborate for anyone – myself included – who has not done seismic retrofitting, what that is and what are the cost implications and timing?

Anthony Walker: Yeah. It’s obviously an issue here in California and anywhere else where you have earthquakes. These older buildings in general have got [unintelligible [00:10:17].16] foundation, so there’s a perimeter with posts… And most of them – at least in our area – are now what we call “anchor-bolted.” So the structure is not bolted to the foundation. In the event of an earthquake, it’s possible that they entire building could just slide off the foundation, which would obviously be extremely expensive to–

Joe Fairless: That’s a problem, yeah.

Anthony Walker: It’d be a big problem. So you see a lot of lenders out there especially, when we identify that in the building, that will require that as either a post-closing condition, or something which you need to do in your renovation plan. In this case, that’s what was going on with this building. The foundation itself wasn’t damaged, it was fine, but it was not retrofitted; it wasn’t anchor-bolted. So we had to do some additional shoring up in there. I think our total cost for this was about $18,000 with our seismic engineering company.

They basically go under the building and they put these huge clips to bolt the structure to the foundation. This building has two different structures – kind of an old 1920s row house with a courtyard in the middle, so there’s basically two foundations that we had to work on. So it’s pretty expensive, but once it’s done, you can get better pricing on insurance, and of course, you don’t have to worry about the big one when it hits, hopefully.

Joe Fairless: You’ve grown from a duplex in 2011 to partnering on — what’s the largest deal that you’ve done, from a unit standpoint?

Anthony Walker: Yeah, the largest deal I’ve been a part of was a 40-unit building, locally, here in our market. We actually had a larger equity partner on this, so that was a really interesting experience to kind of get exposed to this, from some people that do this at a very high level. In our market, real estate is really expensive, so 40 units may not sound like a huge building somewhere else in the country… Here we purchased for around four million dollars, put about $600,000 worth of work into the building, and sold for – I believe it was about 6,5; this was about a couple years ago now. So it was a large project, multiple structures… It was a big plot.

Joe Fairless: Yeah, you’re buying at $100,000 a door, and then you’re putting in $600,000 more on top of that… And you said you sold for six-something?

Anthony Walker: Yeah, we sold for 6,5.

Joe Fairless: And then why sell versus just continuing to hold on to it and do the refi? It was the large equity partner?

Anthony Walker: If it were up to me and I was buying a building like that, I would probably hold on to it and do the refi. The deal structure of that deal was such that our large equity partner had limited investors that were expecting to get distributions and get their money out, so that’s their strategy, and that’s what everybody’s expecting out of them. So that was the plan from the beginning on that deal. But if I were to buy a deal like that myself, I’d probably try to hold on to it and refinance.

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

Anthony Walker: I have to say specialize. That’s what’s been most effective for me. We’re here in a pretty small local market, one city of many cities in the L.A. area, and just knowing it block by block, knowing what market rents are gonna be in our units, what renovation costs are in our market, what going cap rates are – that’s been a huge point of differentiation for us. I would have years’ worth of work to catch up on if I were to enter another market that I’m not as familiar with as I am here.

We know it at a level of detail where being one side of one street or one block over can make a huge difference and really help us with our decision-making. Being able to collect that data over time and track how the market goes has really set apart the success that we’ve had.

Joe Fairless: Are you specializing in Los Angeles, or is there a particular submarket of Los Angeles?

Anthony Walker: Los Angeles is a huge area. I do almost all of my deals in Long Beach, which is really its own metro area; it’s got a dense downtown with a really diverse economy. It’s a dense area, so it’s near impossible for builders to add a significant amount of additional supply, and it’s so expensive to build here that they’re building high-end luxury apartments only, which is what I know we’re seeing in a lot of the rest of the countries.

So for people like us that buy existing stock, it’s a great place to be involved. And limiting it to just one city – just the city of Long Beach – really helps. It’s not as large of an area to digest. At the same time, we have neighborhoods in this city that range from 2,5 cap rate up to 5,5 or 6. So you’ve got the whole range of A neighborhoods to C neighborhoods, which makes it nice for investors too, because you can kind of decide what kind of projects you wanna take on.

Joe Fairless: I’m gonna pretend I’m a California investor and I heard what you’ve just said. I tell you “Anthony, the returns are much better in Oklahoma and Texas and in the Midwest… I can’t find any deals in Los Angeles in my backyard, so we can’t make it work” – what do you say to that?

Anthony Walker: I hear that all the time.

Joe Fairless: I know you do. You must.

Anthony Walker: Yeah, of course. [laughs]

Joe Fairless: I do, too. I hear that all the time too from people I know in California.

Anthony Walker: Right, and they are interested in investing elsewhere in the country. Lots of people here do, and I get that. There’s multiple sides to every deal and multiple ways to make money on a real estate deal. There’s a direct tradeoff between the cap rate or really the yield that you’re gonna get on an investment which is gonna be way higher anywhere in the middle of the country or in lots of these popular markets that people are going to than it will be here. There’s a direct tradeoff between that cap rate and usually the rate of appreciation or the rate of value that you’re able to add to the property.

We’re definitely not making our money from cashflow out here. Cashflow is good if we buy properties with under market rents and we’re able to raise them, and then we’re cash-flowing on a purchase price that was a lot less after we’ve increased the rents… But when you can buy at a 10-cap somewhere else, that’s not the way you’re gonna make your money.

On the flipside, because rents are so high and because cap rates are so low, for every dollar we increase the income, we make a lot of money in increased value on equity in the property, which allows us to do this kind of purchase, add value, refinance, keep buying, keep adding units, and it’s allowed me to go from having one small property at the beginning in 2011 to what I consider quite a few units now, just by trading, refinancing, adding value.

We definitely had good timing as well, but to elaborate a little bit there, but to elaborate a little bit there, a concrete example – I bought an eight-unit building in January 2016. The units were rented at that time let’s say around $1,300 each for a two-bedroom unit; they have about a $400/month upside in the rents that we were able to capture, and that neighborhood is about a 15-times gross neighborhood; so it’s a low cap rate neighborhood, and at 15-times gross, for every dollar that you increase the rent, you earn $15 in value on the property. At $400/month times 12 months of the year times 15 times gross, I make $72,000 in increased value just by bringing that one unit up to market rent, and we had eight of them that were averaging about $1,300 or so and we were able to raise them to $1,700 by the time the project was finished.

We spent probably around $100,000 total to do that, and we made a fantastic return on our money because we’re in an expensive low cap rate neighborhood.

Joe Fairless: Are you speculating at all? So if a downturn happens, then everything goes away?

Anthony Walker: I don’t consider what we do speculation. We’ll buy at a competitive cap rate or gross rent multiplier on actual rents, and I’m not gonna assume that rents are gonna go higher during the times that I’m stabilizing this project and refinancing out of it. I’m only doing my math assuming that I can get today’s market rents after completing the renovation on these buildings.

The good thing about the way that I’ve structured a lot of our deals is when you do that – assuming you can get a refi, of course, and we don’t have some catastrophic crash during the stabilization period, which for me has been 6-12 months on these buildings – the advantage is I’ve got now much higher rents and the building has no problem operating on an ongoing basis, and my cash-on-cash return from my initial investment plus my rehab costs looks more like it might in some of these other markets in the middle of the country. So I feel that I’m pretty well insulated against a market downturn if it were to happen. If it did, I would probably just sit back, let these buildings do their thing, try and get some cash together and hopefully use it as an opportunity to buy some more.

Joe Fairless: What’s the best type of financing that helps you be as conservative as possible, but still do that business plan?

Anthony Walker: Well, with the commercial loans on these apartment buildings for five units and up, the lender is actually gonna force you in most cases to be as conservative as they’re comfortable with, which is really in most cases more conservative than I’m even wanting to go… Because they do that debt coverage ratio underwriting, so they require that you have a pad on top of your net operating income necessary to pay all of the debt service. It’s hard to make a mistake when the lender is being so careful with you. At the same time, the valuation on these buildings are based off of the rents that they are producing, so I think it allows you to get a real valuation the appraisers use, the income approach to valuation, so you have great control over the value of the building, by either raising rents or knowing what you’re purchasing at, so that you can stay grounded, conservative, you can know where it’s gonna be.

We have done some of these bridge loans, like I’ve just mentioned, in this last project. They’re a little more risky, they’re designed to be short-term, so I wouldn’t wanna have too many of those going at one time. I’m pretty confident we can refinance out of those into a commercial loan and still have enough of a pad in the equity we’ve created to get long-term financing going. But I view that financing on these deals has a huge benefit to playing in the space that I’ve been playing.

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

Anthony Walker: I sure am!

Joe Fairless: Okay. First, a quick word from our Best Ever partners.

Break: [00:20:57].15] to [00:21:57].09]

Joe Fairless: Best ever book you’ve read?

Anthony Walker: I’ve gotta say Think And Grow Rich, Napoleon Hill. It’s a common choice, I’m sure.

Joe Fairless: Best ever deal you’ve done that you haven’t mentioned?

Anthony Walker: I bought a six-unit building – this was about a year ago now – for 900k, five blocks to the beach, and was able to add probably $500,000 in value by only replacing some sighting, raising rents, upgrading one unit and a roof. So my total cost there was $40,000 or $50,000.

Joe Fairless: How much of that $500,000 of value was the market rising – what you did was great, but was it necessarily your craftsmanship?

Anthony Walker: That’s a great question. I think it was some of each. I got a great deal on the building to begin with. It was priced extremely well… I think as it sat it could have gone for probably $1,050,000 easily, and the rents were just way below market. So you could argue that on one hand, with the rents where they were, it was a fair price and it was a good deal, but they were so low that by the time I had raised them it was really easy to capture that upside. It was just such a popular area really none of the tenants left when I raised the rents. So I have some luck involved there certainly, and of course we had a good year; we had about probably 7% appreciation during the last year in this market, so at least that much of it I could attribute to the market alone and some luck.

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

Anthony Walker: Not doing enough due diligence. Actually, that first duplex I bought turned into a mess. I’m kind of surprised that I continued with this, but it was a duplex that had a bootleg, non-conforming unit in the bag… And I just kind of thought “Oh, it will be fine, no big deal.” I didn’t really know much about the industry or what I should be doing as far as due diligence or figuring out what the ramifications of that bootleg unit were gonna be for me as an owner.

After I bought that building, the city somehow was tipped off to the existence of the bootleg units and I had to deal with a code violation not just to convert that back to storage space, which was what it was supposed to be, but the city sharpened their pencil and then threw the book at me because I was operating that unit, and they told me that the duplex should only be permanent as a single-family residence, never mind that it had been a legal duplex going back to the 1950s. So I had to convert the whole property back to a single-family residence and lease it out that way.

The tenant, of course, leased it out like a duplex and made some money off of their lease, which hats off to them… [laughs] At the end of the day it worked out just fine because the timing was fantastic on that deal and I was able to improve the property a little bit. I still did very well on the deal, but it would have been a lot better had I been able to continue at least operating it as a duplex with a storage space. So I learned my lesson on due diligence on that one.

Joe Fairless: And when presented a similar opportunity again, what specifically would you do?

Anthony Walker: I would probably go to the city and talk to them in person. That’s always a tricky one, because you have to be careful… If you don’t end up buying the property, you don’t wanna open a whole can of worms on the current owner, and you have to try and get a reasonable expectation of what’s gonna happen.

I think at the end of the day it’s impossible to get a true sense of exactly how it’s gonna go. But I didn’t even go and talk to the city about how they handle those sorts of situations, even without saying address or something like that; I think that would have been a prudent move. Turn up all the records that you can on any property and understand the worst-case scenario. It came out of left field that I had to convert this property back to a single-family. I kind of knew that at some point it maybe was just gonna be a duplex, which was okay with me, but I learned all about the zoning, and density, and dwelling units per acre in that process, which is a lesson I would have rather learned in the due diligence…

Joe Fairless: Yeah, or just in your textbooks during your MBA at night program.

Anthony Walker: Yeah, exactly.

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

Anthony Walker: I love to help people learn how to do this stuff. Every day I’m meeting new investors that are just getting started, and I love sharing the lessons that I have learned – like the one we’ve just talked about – with people, so that they can start investing and getting financial independence for themselves.

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

Anthony Walker: They can check out our website at You’ve got my contact information on there, and of course, we’re on Facebook as well.

Joe Fairless: Anthony, thanks for sharing your story. This is an episode especially for everyone living in California, because there’s a way you can make money investing in your backyard. You’re a living, breathing proof of it, and you talked about the approach… You purchased, you add value, you refinance and you keep buying additional units. You’re intelligent about the financing you use during that period, there is some risk there certainly… Well, there’s risk in everything, but there’s additional risk there during the add value stage when you’re doing your thing. But ultimately, when you are in a market that is as strong as the one that you’re in, then you’ve got some mitigated risks.
Thanks for talking about your business model, how you partner with six other guys on deals, and how that’s structured and who does what. I hope you have a best ever day, Anthony, and we’ll talk to you soon.

Anthony Walker: Absolutely. Thanks for having me.


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