Best Ever Tweet:
Steeve Breton Real Estate Background:
- Founder of Velocity Capital, focus on large multifamily syndications
- Partner in over 14 apartment syndications totaling over 1,700 units – 1,100 as LP, 608 as GP
- Based in Boston, MA
- Say hi to him at https://velocitycap.com/
- Best Ever Book: The One Thing by Gary Keller
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TRANSCRIPTION
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.
With us today, Steeve Breton. How are you doing, Steeve?
Steeve Breton: I’m doing great, thanks for having me.
Joe Fairless: My pleasure, nice to have you on the show. A little bit about Steeve – he is the founder of Velocity Capital (velocitycap.com), which focuses on large multifamily syndications. He’s a partner in 14 apartment syndications totaling 1,700 units, and we’ll break that down for you from an LP/GP side – 1,100 as a limited partner, and 608 as a general partner. Based in Boston, Massachusetts. With that being said, Steeve, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Steeve Breton: Sure. I started in 2012 in real estate investing, after watching my portfolio go down with the financial crisis of 2008… I saw it coming back slowly, but it just wasn’t coming back as quickly as I’d like, and I had always done the “Hold on to your portfolio, it’s all gonna come back. You have to listen to everyone’s financial advice there.” Then I finally got tired of it after reading Rich Dad, Poor Dad; that was a good clue as to what other people are doing.
I went out and bought a triplex, and then a duplex, and then another triplex, and I just kept going. Then I slowly was realizing that this is like having another job, because I was self-managing, and that’s when I got into the passive investment space, buying into projects or apartment buildings that were sponsored by other folks. They were doing all of the heavy lifting, and I was just simply a limited partner, making a great return.
Joe Fairless: Before we get into the second half of the story, I imagine, which is you on the GP side, pros and cons of investing in a triplex, versus a passive investor in a syndication?
Steeve Breton: I’ll go with the pros – I think in the end if you’re self-managing, you can probably make a bit better of a return, because you are gonna get all the tax benefits, the mortgage paydown, the appreciation etc. plus your cashflow. So all in all it’s probably a little bit better, depending on your market, but it also comes with a lot of headaches. It’s a fair amount of work.
I still do own some of those apartments. I just sold off some just to make it a bit more manageable for me. So that’s the pros of ownership.
On the syndication side, or being a passive investor, I literally do the analysis upfront, so I do have to vet the project sponsor and the project itself, the apartment complex. Once I have written that check and I’ve decided to invest, I’m pretty much hands-off for 3, 4, 5 years or whatever it is, and the mailbox money just comes in.
Joe Fairless: And you mentioned perhaps better returns on the triplex… I was just looking at my single-family home portfolio – I have three single-family homes; I’ve had them since 7-9 years… And this year, year-to-date, I’ve made $951 in total across all three of them, because when someone moves out there’s an expense, and mortgage, and property management etc. So from a better returns standpoint, are your deals value-add deals, or what allows your triplexes to get slightly better returns?
Steeve Breton: I also have a single-family, but on most of these I did buy them where there was at least a little distress. One of them in particular I did a gut rehab on a triplex… So there was a lot of construction management upfront, and now they’re cash-flowing about 10%-12% for each of them. It’s in the Boston area, so all-in we were in at 300k-400k.
Joe Fairless: So you invested in 1,100 units as a limited partner… Is that still your focus, or since you are in 608 as a GP, now you’re focused on the GP side?
Steeve Breton: I’m still doing a bit of both, actually. I literally just signed up as a passive investor again, limited partner, in a syndication out of Texas. It’s a great operator there. We’re between buying and selling a house, so we’ve got a bit of money to invest on the sale of our old house… So I jumped on that one as a passive investor, because I wanna put my money to work.
I also invest, I would say, as a limited partner in my own syndicated deals, because I wanna have skin in the game as well… So I’m very much still active in the passive side of it, but then what happened was after investing in a dozen of these things over the course of 5-6 years, I got to know some of the syndicator pretty well, I got a bit under the covers… One of them is here in Boston, so we’re very friendly; and I started realizing how much there is to gain as the syndicator.
I also had a lot of friends and family who wanted to be involved, and I was steering them toward these other passive deals that I was getting into, but in the end they wanted to invest with me on my properties, which was a bit of the nudge that I needed to start looking at what other possibilities there were where I could be the lead, I can get the greater returns and I could also help friends and family.
Joe Fairless: You’ve got 608 as a general partner… How many apartment communities is that?
Steeve Breton: The 608 is three communities. My first deal was 130 units in Texas. Then we did another 90 units, and then 388.
Joe Fairless: Where in Texas is the 130?
Steeve Breton: The 130 is in San Antonio.
Joe Fairless: Okay, and then the 90?
Steeve Breton: Tyler, Texas, and then back in San Antonio again.
Joe Fairless: Got it, alright.
Steeve Breton: I’m under contract at the moment for 152 units down in Georgia.
Joe Fairless: Okay. You said 152?
Steeve Breton: 152.
Joe Fairless: Okay. Where in Georgia?
Steeve Breton: That’s Thomasville. It’s down in the South-West corner, by Tallahassee.
Joe Fairless: Okay. So you live in Boston, Massachusetts, your first GP deal was in San Antonio, and then you go way out in East Texas in Tyler, Texas (San Antonio is not East Texas), and then you go back to San Antonio and now you’re in Georgia. The main question is how are you finding these deals all over the U.S. so we’ll go with that.
Steeve Breton: Okay. Primarily, when investing in these investments, for me as a passive investor I’ve always considered the general partner first – who is the operator? Who am I putting my trust in to ensure that the deal is gonna go well, ensure that they’ve picked a good market etc.? There’s so much that goes into that. So now that I’ve become more active – I went and got a ton of training, worked my tail off trying to understand this business, I realized it’s going to be difficult to operate these from Boston. So I reached out to a lot of operators, people that I’ve invested with in the past, as well as others that I’ve met through a couple of different masterminds that I’m in, and what I’m looking for there are operators with high integrity, a long track record of success, folks that I know are gonna do what they set out to do. With that trust, I’m able to then partner with them, and what I have here in Boston is the ability to raise capital. That’s what I’m bringing to that partnership.
Joe Fairless: Got it, okay. So you found the operators through relationships, and they find the deals, and then your primary role in the partnership is to bring money to the transaction, so that they can close on the deals and they can operate it successfully.
Steeve Breton: Correct, yeah. And over time that has also evolved a bit, so I’m getting more involved in the underwriting of the deal, to right upfront looking at the numbers, helping with assumptions, talking to property management companies that are in the market, also getting involved in the actual due diligence, physical on-site due diligence, and signing on the loans to be a co-sponsor as well… So it does continue to evolve, and eventually I would like to be the sponsor myself at some point… But all of this that I’m telling you is all being done as I’m still working a full-time job.
Joe Fairless: Hah! I didn’t know that… What’s your full-time job, what industry?
Steeve Breton: I am in a biotech company, and I manage the IT systems for the commercial aspects of the business.
Joe Fairless: How much have you invested in your training? …for multifamily, not IT stuff.
Steeve Breton: I’ve gone to several weekend courses. Those were not a lot of money, but you’re gone for the weekend, you’ve gotta pay for your travel, and all that. That seems to be the first step most people take, these weekend bootcamps, and there’s a lot of value there initially.
Then I got into coaching, so I signed up as a coaching student. A lot of folks know where I’m doing that, so I don’t wanna throw numbers out there… But let’s say coaching in general, across the bunch that I’ve looked at, can range from 5k to 15k.
Then I’ve also jumped into a couple of masterminds, and again, those can be anywhere from 10k-20k. I think there’s probably some that are far higher than that.
Joe Fairless: And you’re in multiple masterminds where you’ve invested at minimum 10k to be in?
Steeve Breton: Correct.
Joe Fairless: And you said you’re a coaching student – who are you a coaching student of?
Steeve Breton: I signed up with Rod Khleif.
Joe Fairless: Got it. Cool. And when you take a look at the investment that you’ve made for all the training – for the weekend bootcamps, the one-on-one stuff, the masterminds – approximately how much have you invested in total?
Steeve Breton: That’s funny, I should have calculated this well in advance of this interview, but I would say 25k is the minimum. It’s probably closer to 35k-40k.
Joe Fairless: Okay. So let’s go on the high end, let’s just say 40k. You’ve invested 40k… With just the GP side of things, approximately how much money have you made as a result of being a GP, to date, on 608 units?
Steeve Breton: I would say about 125k — I’m sorry, it will be 125k when I close this new property here in December.
Joe Fairless: And that’s over what period of time since you’ve started the training?
Steeve Breton: That is almost a year to date, since I started coaching. The training – probably another six months prior to that.
Joe Fairless: Got it. The reason why I ask – and I believe we’ve just met on this call, right? Okay, yeah — I meet a lot of people… So the reason why I ask is I didn’t know where the conversation was going, and it’s just interesting to hear the thought process of people who choose to do training, and go into weekend bootcamps, and travel all over, and how they think about the investment of their dollars into that, versus people who think “Oh, this is too expensive. I’m not gonna do it.” Ultimately, that’s why I was asking about the return on your investment for this, and it’s three times.
Steeve Breton: Yeah. Let me also clarify a couple points there… So that’s the money that I made just this year. Going into the deal, you get various parts of that general partnership. One of the things that I’m also gaining there is equity in the deal, and all of these deals are heavy value-add, so in the end we’re making a lot of money on the back-end. If the project goes well, the sponsors are then going to be compensated for bringing together a complex project at the end of that project when it sells; so I’m probably sitting on half a million dollars in equity that, again, if all goes well, and we have every intention of meeting our goals, I’ll have that payout in five years from now.
Joe Fairless: The 130 units in San Antonio, the first one that you were on the GP side, how was that structured on the GP side where you brought the equity?
Steeve Breton: So in that case, generally on these deals the equity or bringing in the money to get the deal closed is about 30% of the general partnership. So if the deal requires two million dollars in capital raise for your down payment, because the bank loan’s gonna finance 80% or 75%, and it’s also the capital – we try to raise the money for the cap ex upfront, so we’re never strained for capital… So when we bring in that money – say it’s a two million dollar raise and I do half of that, I bring in a million, then I would get 15% of the general partnership just for the capital raise piece. And of course, again, you can earn additional general partnership by being involved in the due diligence, the underwriting, and some of the other aspects.
Joe Fairless: The 152 units – this will be the fourth deal that you’re GP on… Has that structure evolved, and if so, how? …from the first one.
Steeve Breton: It’s only evolved in that I am trying to get more and more involved from the beginning, so when they’re first looking at the property and they think they have a winner, “Let’s talk about that underwriting and how might we make it a better return for investors” or “How may we de-risk it with (perhaps) the way that we’re going to finance the property?”, and many of the assumptions that we can make around raising rents etc, so that in the end we end up under-promising and over-delivering.
Joe Fairless: You’re in 1,700 units as an LP and a GP… What’s something that’s gone wrong?
Steeve Breton: A couple of those deals I jumped in probably a little too quickly… Mostly on the development side, and we all know it’s a bit more–
Joe Fairless: Oh, development…
Steeve Breton: Right… Some of those were amazing, so I made 30%, 35% in a couple of those deals. The one that went a bit sideways, it took a lot longer than we expected, there was an insurance claim… I won’t get into too many details there, but in the end we got all of our money back; I think I got maybe a 5% return over 18 months… So I didn’t lose any money, I certainly didn’t gain, but it did teach me a bit of a lesson. That’s one of the ones that I got in early on.
Another lesson was my very first commercial multifamily. It was a six-unit property, and I went into that one knowing it was in a bit of a rough neighborhood… And I thought “I’m gonna be able to help people by providing a nicer place to live, and I’ll clean up the neighborhood a bit by starting with my properties.” It was basically three duplexes all on one larger lot… And I did achieve those things – they did have a much better place to live, I’m providing this wonderful service for the people that live there, but in the end I think about that and I say “Well, at what cost? What could I be doing instead of all the hassles and the annoyance and the work that I had to do in that place, and continue to do?” I think I now have a really good property manager there, who’s now kind of running the show, so I’m a bit more hands-off… But I like to give back, and do other things, and I think my energy is much better served or spent there.
Joe Fairless: Yeah, opportunity cost, that’s for sure. I’ve been there as well. In terms of the 5% return over 18 months, what’s something that the general partner could have done differently, in your opinion, to have a better outcome with the deal?
Steeve Breton: In that case it was mainly — there was an insurance policy that wasn’t fully vetted; it didn’t quite cover what they thought it covered, and there’s a debate whether it was the agent or the insurance broker or whatever… But in the end, we could have gotten better insurance, we could have been certain that they were getting enough insurance, and then I think more importantly is when the deal started to go sideways, the partner went a little silent on us. It took a little bit of prodding, and then there was more communication, but at that time when it was no communication, everyone was thinking the worst. In the end, it wasn’t the worst. It’s not horrible to only make 5% on your money; I can live with that. But it’s not communicating enough, or often enough, and with enough detail.
Again, out of all these things you take from the various partners that you work with, or the many partnerships that you join – you understand what it is that you wanna do or not wanna do when it’s your turn to have that risk come to fruition, which, again, we all try to mitigate, but eventually something happens… So what are you gonna do about it? How are you going to communicate?
Also, even in your due diligence, in your underwriting upfront, how are you going to ensure that you avoid these things?
Joe Fairless: Very helpful, both of those points. From an insurance policy standpoint, what’s something that you do with your deals now to mitigate that risk from happening on your deals?
Steeve Breton: To me – I wanna actually read the insurance policy, and just make sure that it’s in line with the area. If we’re in a high flood area, or hail area, you wanna make sure they’ve got proper coverage for roofs; flood area – what sort of flooding are we covered for and not covered for? There’s a lot of nuances there. Not that I’m an expert by any means, but I’ll just read it and then ask questions.
Joe Fairless: Based on your experience as a real estate investor, both on the LP and GP side, what’s your best real estate investing advice ever?
Steeve Breton: I would go with checking your mindset. There’s a story that I have in particular where I went and defined my goals – I’m gonna own X number of units, and I’m gonna be able to retire early, and all these things that I had thought of… And I spoke about those with my family; I have three boys – one of them is now in college. The oldest son kept asking me “When are you gonna go big?” This was when I had those 16 units still; I had sold one at the time, but I hadn’t really bought anything large yet. And he kept asking and I kept putting him off; “I have a responsibility, I have a family to feed” etc, all those stories I told myself.
Then one day at dinner time he just says “When are you gonna stop being such a…” — and I’ll say wimp, but that’s not the word he used.
Joe Fairless: [laughs] God…
Steeve Breton: This is when he was a senior in high school.
Joe Fairless: [laughs] Oh, man…
Steeve Breton: So I had to take a good, hard look at myself in that moment, and he was 100% right. I had already researched, I had done training, I knew everything about this business — not everything, but everything I needed to know in order to go and succeed at it. What I didn’t have is the right mindset. I didn’t realize the things that were holding me back.
Sure enough, I went ahead and signed up with Rod Khleif at the moment; I had looked at a bunch of coaching, and what I really liked about Rod or the Lifetime CashFlow coaching is he has a lot of mindset built into there. It also reminded me of — I think Tim Ferriss had something called “Fear setting.”
Joe Fairless: Yeah, that’s Tim.
Steeve Breton: Goal setting is super important, but at the same time you need to understand what are your fears. On the goal side, if you have absolute certainty that you can’t fail, what is it that you’re going to do? What would you wanna accomplish? And then you have to look at the opposite side of that, which is “What are the things that you’re afraid of? What are your fears that might prevent you from going and doing that thing, and actually accomplishing it?” That’s super-important.
Of course, once you list it out, then you can start looking at ways to prevent it or to fix whatever it is that might go wrong; it brings things to a better light.
All that said, I would say that I was on the precipice, I was almost ready, which is why I think he said that to me, so that when I did sign up for coaching, it was just like putting gasoline on the fire.
Joe Fairless: Yup.
Steeve Breton: I know a lot of people sign up for coaching and maybe they don’t have their head on straight yet or they’re not ready yet, and they may not do well, but trust me, it’s not the coaching. That’s more about your mindset.
Joe Fairless: And Tim Ferriss has a TED talk on that. Everyone listening, if you wanna watch that or listen to it, just google “tim ferriss ted talk.” There might have been two by now, but you’ll figure it out, one of those two talks about fear-setting.
Steeve Breton: Yeah, TED talks in general… I did a stint a couple years back where I just listened to a ton of those; I’m sure Tim was in there, but… There’s a lot of really good ones on mindset.
Joe Fairless: Oh, absolutely. Tony Robbins’ TED talk is another really good one. We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?
Steeve Breton: Sure.
Joe Fairless: Alright. First, a quick word from our Best Ever partners.
Break: [00:21:44].08] to [00:23:00].25]
Joe Fairless: What’s the best ever book you’ve recently read?
Steeve Breton: I’ve just recently re-read The One Thing by Gary Keller.
Joe Fairless: Best ever deal you’ve done that we haven’t talked about in detail yet?
Steeve Breton: Other than the three-family that I gut-renovated (but that’s not as interesting), the first deal in San Antonio – we added value to the point that when we sell this property, it’ll be about a two million dollar profit. Our plan on that was to do it within about 24 months of renovations, and it’s looking like about a year. That goes back to partnerships – the partner I have there is outstanding. He’s on point on every point, and really driving that project… And again, to be able to over-deliver in such a short period of time for us – it’s like a home run.
Joe Fairless: Best ever way you like to give back?
Steeve Breton: I used to coach — I have three boys, so coaching their soccer teams, hockey teams as they were growing up; now they’re in high school and college, and it’s like “Well, what do I do now?” I got involved in a local service organization, helping there… I also am thinking “How can I be a force multiplier?”, so it’s not just my activity that helps people of the world, but what I wanna do is help people by mentoring them.
I have a lot of friends in this business that I’ve met over the past year and a half or so, and I’m always open for a phone call, always wanted to mentor and help people along in this business, because I think at some point they’ll be just like me; I sit here and think at some point I’m gonna cash in on some of these deals and I’ll have half a million dollars in my pocket. How much of that is enough? How much do I need, and at what point am I able to, let’s just say, I can write a check and fix a lot of other people’s problems? If I can do that, I hope the people that I surround myself with and that I mentor will also have that same mindset and do the same thing.
Joe Fairless: What’s a mistake you’ve made on a transaction?
Steeve Breton: On the passive side it was that deal that I didn’t fully vet on, on a development deal.
Joe Fairless: That’s the 5% return over 18 months?
Steeve Breton: Yes.
Joe Fairless: What could you have done there on the passive side? Because it sounds like it was an insurance policy… Or was it something else?
Steeve Breton: It was a policy, but also the sponsor wasn’t really that experience as far as his own ability to manage these things. He had some experience, and I took a chance; I knew it going in. But then on my own side, as far as having my own property that I worked on and made a mistake – again, I go back to the headache of that sixplex I bought, and just not thinking that you can just change the world. If it’s in a bad neighborhood, it’s probably gonna stay that way… Or even if it’s up-and-coming, it could be years, and you have to live with the potential brain damage that comes with that.
Joe Fairless: How can the Best Ever listeners learn more about what you’ve got going on?
Steeve Breton: Through my website. My company name is Velocity Capital, but the website is velocitycap.com.
Joe Fairless: Steeve, thank you so much for being on the show, talking about how you’re on the GP side and still have a full-time job. You started out buying the duplexes and triplexes, and then went to the LP side, and then went to the GP side on deals… How it’s structured from a compensation standpoint, and then the importance of mindset. If everyone doesn’t have an 18-year-old full of testosterone calling him out at the dinner table, then at least we can go watch Tim Ferriss and learn about fear-setting, and go about it consciously, so that we do continually evolve our mindset. You mentioned TED talks is something you watched a lot; I did, too, when I was starting out, and that’s another great resource.
Congrats on what you’ve been doing, thanks for being on the show; I hope you have a best ever day, and we’ll talk to you soon.
Steeve Breton: Thank you. Take care.
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