November 23, 2018

JF1543: Five Step Apartment Syndication Underwriting Training #FollowAlongFriday with Joe and Theo

Joe and Theo are back with updates on their apartment syndication businesses. Learn the five step process Theo is putting interested underwriters through in order to train them to become expert apartment underwriters. Joe closed on a deal and has one (and maybe two) new deal under contract. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

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Joe Fairless: Best Ever listeners, how are you doing? 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.

I hope you’re having a wonderful week. Because today is Friday, we’ve got a special segment called Follow Along Friday. Theo Hicks and I talk about our real estate endeavors and what we’ve learned as a result of doing what we’re doing… And ultimately, this is to try and help you improve whatever you’re doing from a real estate standpoint, or enhance it, or maybe pick up some new skillsets. With that being said, how do we wanna kick it off today?

Theo Hicks: Last week I was talking about one of the first team members I wanted to bring on would be the underwriter, and I wasn’t necessarily hiring at the time, but I was just kind of going through my thought process of how I plan on approaching it, and sure enough, the Best Ever listeners are proactive and really enjoyed adding value – what we talked about on this show for really good ways to break into this sort of industry… And I had four people reach out to me, offering to help me with underwriting for free, basically. Everyone who reached out – I really appreciate that.

What I wanted to talk about is a strategy for bringing on an underwriter, or at least the approach that I’m using. This is a process that I created through how I got trained, so it’s a hybrid approach from all the different educational tools and people who trained me and that I used… I just wanted to quickly go over that, just in case anyone who’s interested in bringing on an underwriter in the future can have some ideas of how to actually do that, because especially for apartments, underwriting is pretty complicated; it’s not as simple as someone just being interested, and then you sending them deals and them underwriting them. It takes time to train them, and the question is what’s the best approach to train a person.

Joe Fairless: By the way, this is gonna be really helpful. I know a lot of apartment investors who struggle with this part… And when I say this part, I mean the underwriting process or the amount of underwriting that needs to be done… Either because it’s not something they enjoy, or not something that comes naturally to them, so they want to kind of speed through it, or they just hate the whole process of doing it, or they want to build their business, and ultimately be able to work on their business, not in their business, and they’re looking to scale and they need help scaling. I know many people who have this challenge, so I’m looking forward to having this conversation with you.

Theo Hicks: Absolutely. I would say that this approach is best for someone that already knows how to underwrite, and they just want to actually kind of scale, so they underwrite more deals per week. This approach wouldn’t work for someone who doesn’t know how to underwrite, so maybe we can have a conversation on that later. Well, we talked about underwriting before; this is for someone who knows how to underwrite and has been underwriting deals themselves, maybe one or two deals a week, and their pipeline of deals is so high that they need to bring people on… So here’s the  approach that I used.

I’m not necessarily gonna talk about how to find these people either, because that’s gonna be a whole other topic. I guess I’m lucky that I’m on this podcast; I just mentioned that I’m interested in having someone underwrite for me, and then four people reached out. So here’s the process.

The first thing that I do is I have them convert a rent roll from a PDF to Excel. It seems very simple, but if you’ve seen an apartment rent roll before, it is not in the proper form (usually) when you receive it from the broker. So usually, the broker will get the rent roll from the current property management company, whatever reporting software they use, and then that’s the document they provide. Sometimes they’ll convert it for you; I’ll say it’s probably 50/50. But the reason why you need to convert the rent roll is because you need to have essentially a table with all the unit types, the number of units for that unit type, the market rent and the current rent at the very least, and that’s not the form that the rent roll is in when you get it.

So the exercise is two-fold – number one is for them to get familiar with what a rent roll is, what it looks like, and number two is to gauge their Excel skills. So what I do is I send them a middle of the road rent roll that takes some If statements, some text-to-columns functions and a few other Excel functions that they’re gonna need to know how to use in order to be an underwriter… And I essentially just send it to them and say “Hey, here’s the PDF, here’s what it should look like. Let me know if you have any questions”, and I just wanna see what they do.

For example, one person sent it back to me exactly how I wanted it, another person went above and beyond and created this super-intense spreadsheet that they believe they could just plug in an originally-converted PDF and it’ll just automatically get it to the form that I want, and get it to a form that I’ve never even seen before… So that was quite impressive.

Joe Fairless: The second person sounds like something you would do if you had a project like that.

Theo Hicks: [laughs] Seriously. That guy used to work for NASA, so these are very smart people. I just wanted to see what they would do. I’ve had three people — actually, I’ve sent it to all four of them; one person had an interesting response, but three of them performed the exercise. So that’s step one, a rent roll conversion.

A T-12 conversion isn’t that big of a deal. It’s pretty simple. So if they can convert the rent roll, they can definitely convert the T-12. So the next step is to have them watch my video on how to underwrite a deal. I’ve got a cashflow calculator, and then just a video of me going through the entire process, for them to learn how the underwriting process actually works for an apartment. I’m assuming that they don’t know how to do an apartment deal at all starting out. So that’s step two.

And step three – this is something that I thought of while having a conversation with my business partner… What I’m gonna do is I’m gonna send them five deals to fully underwrite, and ask them to do one deal a week. These are gonna be deals that I’ve already underwritten, so I already know what the final product should look like… And all I’m gonna send them is the T-12, the rent roll, the OM, the cashflow calculator and a how-to guide, and tell them to see what they can do, and we’ll set up a 10 to 15-minute call to discuss the deal each week, to kind of see what questions they had, where they struggled, things of that nature. Again, just to see where they’re at, to get a baseline of where they’re at.

From there, it’s gonna depend on how well they do on those five deals, what the next steps would be, but… Based off of the rent roll conversion and my conversation with them, I expect them to catch on pretty quickly, just because they have strong Excel skills… And really at first all I’m gonna have them do is just input the historical data. So they already know how to convert the rent roll, which means they’ll convert the T-12 as well, so we’ll have them input that data into our financial model, and that will cut my time in half, at least, just on the underwriting model… And I think just that alone will be super-helpful to my business right now, especially when the new year kicks off and deals start flowing in.

So those are the five steps that I’m for sure going to do. The next two things are kind of a maybe; I’m not sure-sure. We’ll see how things progress and how things evolve, but… When I have them do those live deals, I’m gonna do them as well. I’m not just gonna trust that they’re doing it properly. So I’m actually gonna do it myself, and just let them do it as practice and then send me the results and have conversations about it. After that, if they are able to do it successfully every single time, by ten times in a row, then I’ll let them do it without me having to actually do it myself. That’s when I’ll start having the time savings, because I’ll know, “Okay, if they know how to input the data, all I need to do is just kind of quickly do a quick check, rather than actually doing all of it myself and then doing a quick check.”

So five of the ten deals – it might be sooner, it might be later… I’m not 100% sure, we’ll have to see how it goes. And obviously, my longer-term goal is to have these people be able to fully underwrite the deal. That means input the financials, the rents and the expense assumptions, all the income assumptions, input the debt information… The only thing they probably won’t be able to do is the rehab assumptions, but I have an idea for how to potentially get around that… Because I was thinking, how can someone who’s not very familiar with apartments at all understand how to make rehab assumptions.

The idea that I have – because all these people are actually out of market… Because the idea has to be “How can I educate them and train them to at least identify what needs to be done?”, so what I was thinking – and there’s kind of two benefits to this – is to have them subscribe to the broker lists in their submarket and fully underwrite those deals. Underwrite them, visit them in person, visit the comp, perform the rental comp analysis… And the benefits of that is 1) obviously, they’ll have a much better understanding of underwriting, but 2) they’re already forming relationships in that market, that if we want to expand in the future, we already have a foot in the door, because we have someone who’s been actively underwriting deals in that market, boots on the ground, knows the areas, knows the people… And it won’t be easy, but it’ll be an easier transition to that market than a brand new market entirely.

Joe Fairless: I like that. Yeah, it won’t be an apples to apples renovation comparison, or it might not be, but it’s still a great way to (as you said) get them experience, and then also start building a market simultaneously.

Theo Hicks: Exactly. Because obviously, if they’re looking at deals in a different market, with a completely different property type, the renovations there aren’t gonna be the same here. The idea was to have them be able to identify, look at a property and be like “Okay, this is what needs to be done at this property.”

Joe Fairless: Real quick, how to get an underwriter up and running and train them properly, five-step process – what is it?

Theo Hicks: One, have them perform a rent roll conversion exercise; PDF to Excel. Number two is you wanna create a video of you fully underwriting a deal (it’s probably gonna be a video longer than an hour) and have them watch that video. Number three is to send them five deals to underwrite, so one deal per week, and obviously provide them with all the documentation they need to do that. Number four is to start having them underwrite live deals, but only inputting historical data, which you’ll also do. Number five is, after a few successful deals, you can have them input the data without you doing it, so you just check it instead. That’s the five-step process.

Then, obviously, the goal is to have them be able to fully underwrite a deal, and then obviously eventually become the underwriting managers. If you’ve got one stellar underwriter, he can be the person who is the manager, and then have the other underwriters underneath him, so that there’s kind of a barrier between you and the analysts, and he just is the one that sends you off the information.

Joe Fairless: Great stuff.

Theo Hicks: And then another thing that I’ve got going on is we’re looking at a deal right now – another deal in Tampa – a very promising deal… That’s all I’ve got right now. We’re actually touring it next week, so when I come back for Follow Along Friday next week or the following week, I will talk about that and give you an update on that.

Joe Fairless: Cool. With our stuff – let’s see… We closed on a deal in Fort Worth last week, about 400 units, and we already got awarded one deal, and we’re likely getting awarded another deal. It’s coming up, so we’ll know soon. Looking forward to those deals, as well as continuing to execute on our current portfolio, which is the number one priority. I definitely will be going down to DFW for a short trip to go visit the properties, in the next week or so.

And the reason why we didn’t have Follow Along Friday the last week is I had a baby girl, so thanks everyone for all the well wishes. Everyone is healthy – mom and baby, they’re both healthy, and that’s what’s most important. Loving life, and business is going well.

In terms of some  questions that we’ve received from the book, for everyone who’s read the book – we’re compiling questions; we’ve got about six or seven questions that we’ve received, so we’ll be answering those questions next week. I’m referring to the Best Ever Apartment Syndication Book. So if you have any questions that you would like to ask us, that are follow-up from the book, then we’ll be answering them next week, so feel free to e-mail those questions to, and we’ll address those apartment syndication questions on next week’s episode.

Theo Hicks: Perfect. Joe, obviously, congratulations on the baby. You look very well-rested.

Joe Fairless: I disagree on that, but thank you, I’ll take it.

Theo Hicks: You look… [unintelligible [00:15:48].09]

Joe Fairless: Well, I’m getting much more rest than Colleen my wife is, that’s for sure, so… Props to her. It’s certainly a learning experience for everyone involved.

Theo Hicks: I’m hoping maybe in like a month or two we’ll have the top ten Best Ever baby tips on Follow Along Friday. [laughs]

Joe Fairless: I will not be the expert for that.

Theo Hicks: Alright, so there’s a couple other things we wanted to discuss today. I’m not sure what it was, but I know that I was definitely sitting in that room with you when we made the prediction of where we thought the Amazon headquarters would go…

Joe Fairless: Yes.

Theo Hicks: I said Atlanta, and I think you said Dallas-Fort Worth.

Joe Fairless: Yeah, I think I said DFW or Chicago, and I think you said Atlanta or something else, but either way, we were both wrong.

Theo Hicks: And we had two opportunities, too. They picked two places, and we’re still wrong.

Joe Fairless: Yeah, yeah…

Theo Hicks: So it ended up being in New York, and Crystal City, Virginia. Those were the two places.

Joe Fairless: Yeah, Long Island City, which is in Queens, just right across the river… One of my good friends, he had an apartment there whenever I was living in New York City. Nice area, really convenient area to Manhattan. And then Crystal City, a city I’ve never heard of before, Virginia, but a stone’s throw away from DC, apparently.

So DC was where it was looking after we had made our prediction, so that doesn’t surprise me. New York City does surprise me. I mean, logically, it makes sense. You’ve got a bunch of talented professionals, there is no work-life balance there… It checks the boxes for what they said they wanted in terms of easily commutable city, deep talent pool, large city, that kind of thing. So it makes sense for both of them.

I thought that Amazon was going to have some more diversification from a geography standpoint… Well, East Coast makes sense, but if they were gonna pick two – which we didn’t know that they would pick two – I thought for sure they would branch out somewhere in the South, South-East; Atlanta, Dallas, something like that. But they didn’t.

One thing I’ve seen is  some reporters writing that the process was a sham, and they shouldn’t have pitted cities against each other, and they should have been more transparent with the process… I mean, I disagree. They can do whatever they want to do, and cities can act however they want to act. It just seems like it’s a sore loser mentality. If your city gets picked, or the New York officials complaining about the process, or the Dallas officials complaining about the process, probably — or excuse me, DC officials and constituents complaining… Probably not, because they got picked the winner.

I think when you don’t get something and you put a lot of effort towards it, then 50/50 goals, right? You don’t achieve the goal, but what did you acquire in the process that will help you moving forward for other things? I’ve read some articles about DFW that they actually approach it that way. “Okay, yeah, we didn’t get Amazon, but what about this process brought to light certain things that we can improve on, like the easily commutable city, where there’s more public transportation?” Dallas isn’t good at that. They don’t have that set up as well as New York City, and not a lot of cities in the U.S. have that as well as New York City.

So it’s an opportunity for improvement, and it’s just a weak, weak mindset when you complain about something that you don’t get, and you start pointing fingers at the group or at the company or at the person who didn’t pick you. I mean, shut up, improve, and use that as a learning experience and quit complaining about that stuff.

Theo Hicks: I agree. So the next item on the agenda is the trivia question of the week. We had a first question last week… Joe, what is the answer? I guessed Denver, of course; I’m for two-for-two – I was wrong with Amazon, and now I’m wrong about this trivia question, too.

Joe Fairless: [laughs] Well, this was apparently a hard one for everyone. It took a lot of guesses, a lot of people submitting answers before the answer was revealed.

The Best Ever question last time was the top five markets with million-dollar homes, which one is not California? And it is Honolulu. Honolulu was the city we were looking for, so congrats to the Best Ever listener who picked Honolulu. You’re getting a signed copy of — I believe we said the…

Theo Hicks: The first book.

Joe Fairless: Yeah, the first book. I’ll be signing that sometime shortly, and will be sending it out to you. This week’s question – what is it, Theo?

Theo Hicks: This week’s question is going to be “What is the top city to live for a career-focused single woman?” The top city to live for career-focused single women – what is it?

Joe Fairless: And it is a surprising answer. Basically, here’s a hint for you. It was none of the top 20 finalists for Amazon’s HQ 2. If you want to think about other cities besides those top 20 finalists, then you’ve got a leg up on what the answer is. So it’s not a city you think, and I came across this — I don’t know how, but I came across this study. Maybe because I have a daughter now, so I’m looking to have her set up for success in a city. It’s an interesting question, and when you have the answer, e-mail or reply underneath this video if you’re watching the video… Whatever is the easiest for you, as long as someone on our team sees it…. And put in the city name, and if you get it, then we’ll send you a signed copy of the first book, Best Ever Real Estate Investing Advice Ever vol. 1.

Theo Hicks:  I would have never gotten this right, ever. [laughs] Next, the Best Ever Conference 2019, in February, in Denver. Make sure you go to, take a look at the list of speakers. Each week we’re gonna have a quick discussion on one of the speakers and what they plan on talking about.

This week we’re gonna be talking about Sterling White of Holdfolio. He is a multifamily investor and he said that he’s gonna talk about creative methods that can be used when following up to acquire off-market deals. Not necessarily the first point of contact, but what to do to follow up with these people… And somehow, a Rubik’s Cube is involved in this strategy. It’s all I know. He’s gonna give us more information about this Rubik’s Cube strategy at the conference, so you will definitely wanna check that out.

I know that Sterling is very good at generating apartment leads without using the traditional real estate broker route… So I’m really looking forward to hearing about that strategy and other strategies he has to discuss, at the Best Ever Conference in Denver.

Joe Fairless: And then on the conference note, we’ve got a Black Friday sale, and it’s valid up through Sunday at [11:59] PM. That’s gonna be Sunday November 25th. If you’re trying to put this in after Sunday November 25th, it’s not gonna work. The code is “blackfriday”, so go to put in the code “blackfriday”, no space in between, and you get 5% off, plus you get a market evaluation template or spreadsheet and a how-to guide for evaluating an investment market.

Theo Hicks: I’m looking forward to the conference. I know we only talk about one person, but we did confirm that Brian Turner will be speaking at the conference… That’s a cool addition. I’m looking forward to seeing him in person.

Joe Fairless: Yeah, looking forward to that, too. I’ve seen him in person, I’ve had lunch with him, but looking forward to hanging out with him and having him at the conference.

Theo Hicks: And then lastly, and we’ve talked about it a few times – Best Ever Apartment Syndication Book. Pick up a copy on Amazon, leave a review, and you will have the opportunity to have your review read alive on the podcast, but also receive a bunch of apartment syndication free goodies as well. We’re almost at 100 reviews now.

This week’s review comes from JRG, and they said:

“Having been to many workshops and read many books on the multifamily arena, I can say that Joe’s book on syndication is right on the money. There is no fluff here, and no sales pitch for some other program. He gets right into the meat of apartment syndication, each chapter laid out and addresses what you need to know logically and practically. I recommend this book.”

Joe Fairless: Thank you so much for spending time writing that review, I appreciate it, and thank you everyone for hanging out with us today. I hope you got a lot of value from this conversation. Theo, good hanging out with you as always. I hope everyone has a best ever day, and we’ll talk to you tomorrow.

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