Sarah joins Theo on the show today to discuss her real estate businesses. Most of the conversation will focus on Sarah’s passive investing with multifamily, how she vets sponsors and deals, as well as other things for all of us to look out for. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
Best Ever Tweet:
“So many people right now are trying to do flips and force the numbers to work” – Sarah Lyons
Sarah Lyons Real Estate Background:
- Nationally Recognized Residential real estate agent
- Passive investor in a 120 unit deal
- Based in Dallas-Fort Worth, TX
- Say hi to her at www.sarahlyonsrealestate.com
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Theo Hicks: Hi, Best Ever listeners. Welcome to the best real estate investing advice ever show. I’m Theo Hicks, and today we will be speaking with Sarah Lyons. Sarah, how are you doing today?
Sarah Lyons: Fantastic.
Theo Hicks: I am doing fantastic as well, I appreciate you coming on the show today and I’m looking forward to having a conversation and learning more about what you’re got going on.
A little bit about Sarah before we begin – she is a nationally-recognized residential real estate agent, as well as a passive investor in a 120-unit deal. She’s based out of Dallas-Fort Worth, Texas, and you can say hi to her at sarahlyonsrealestate.com.
Sarah, can you tell us a little bit more about your background and what you’re focused on now?
Sarah Lyons: Absolutely. I have been a licensed real estate agent for about five and a half years. I had a quick transition into the business after being a stay-at-home mom. My husband was in medical school, decided that was not his passion, decided to quit med school, and we needed to figure out a way to support our family. Real estate was that solution for us, and luckily, I’m good at it; so he has been a full-time stay-at-home dad for over 4,5 years with our two sons, and home-schools them full-time.
Theo Hicks: And then when did you decide to transition into passively investing in apartment deals?
Sarah Lyons: So after him quitting medical school we had a significant amount of debt, so we focused the first few years on eliminating all of our debt, and now we are working on the growth phase of our retirement plan. We’ve recently (a couple months ago) invested in our first passive deal, which was a 120-unit in Phoenix, and we actually are actively — most likely we’ll go ahead and be pulling the trigger on a second passive deal, actually based out of Fort Worth, Texas, which is where I’m based out of, and which is a 152-unit.
Theo Hicks: So out of all the general retirement strategies and out of all the real estate investing strategies, what was the decision-making process and why did you land on passively investing in multifamily?
Sarah Lyons: The concept of the individual rental house, or even the duplex, really didn’t personally resonate with me… But I knew that real estate needed to be a major part of our portfolio, since after all that is what I know, and I know that there is a lot of long-term growth in that.
The idea of multifamily really resonated with me because there is such a big margin between your occupancy rate and your profitability; with single-family I have some investors of my own that I help with rental properties, and they’re looking at a couple hundred dollars a month in positive cashflow. The problem is they’re focusing on those long-term gains based on the whole market increasing, and they can’t force the value to be increased. So the idea that there’s a whole third way to evaluate multifamily housing based on the profitability of the units is really exciting to me… And then also because I am a full-time real estate agent and I close almost 60 homes a year, I don’t necessarily have the time to maintain properties on my own… So I like the idea of passively having it handled, and I’m just getting the money from it on the back-end.
Theo Hicks: So once you made that decision to passively invest, walk us through the process of the point of when you made that decision, to when you invested in the deal. How did you find the sponsor to invest with, and what was your thought process for analyzing them? Then we’ll go from there.
Sarah Lyons: Absolutely. Nationally, I am part of a very small group, a club of realtors that have earned this award called 30 Under 30 Award. The National Association of Realtors give that to the top 30 realtors across the country under the age of 30. I was [unintelligible [00:05:56].23] of 2017 – a couple years ago; I’ve just recently turned 30 a couple months ago… And through that group we have real estate agents from across the country, in all different types of real estate. We have commercial agents, we have broker-owners of large firms… And one of them is an active passive investor, and he was actually one of the principals on the deal I ended up investing in.
Theo Hicks: So did you do any extra screening of that group, or did you assume that since he’s received this award, that right there is enough to show that he’s a credible, trustworthy individual?
Sarah Lyons: He’s an individual that I’ve known for the past three years; through this award we do annual conferences of only past winners, and we also do monthly calls… So I was well-aware of what he was focused on with the multifamily; we had done some calls before that, and he had kind of done some underlying recommendations – this podcast for example is one of the ones he recommended; Old Capital was another one, Bigger Pockets… So I felt comfortable that he had a good understanding of the market, and then the fact that he’s a principal on it just made it even better for me.
Theo Hicks: Nice. That’s a unique way; I haven’t heard of anyone who has found a sponsor that way, but that’s definitely a way to find someone you trust. So it was very convenient that you were able to find him that way.
Sarah Lyons: Mm-hm.
Theo Hicks: So after you had decided to invest with him, did you just invest in the first deal that he had available, or did you have to wait through a few deals before you found one that met your return goals?
Sarah Lyons: Honestly, he did a couple of mock ones, of ones that had already closed, that he had invested in previously, so we kind of went over what numbers were acceptable, what ones are customary, what things are big red flags… So whenever he actually did the presentation on one that was available and that he was actually syndicating, I was very excited about it, because it just looked good from there. And he’s not even on the one that I’m looking at investing in now, but he’s connected me with the principles on it, so that way I could get on the list as well.
Theo Hicks: Where is the 120-unit located? Is it in Dallas-Fort Worth?
Sarah Lyons: Phoenix.
Theo Hicks: Oh, Phoenix. Yeah, you said that I guess. And what are the numbers on that deal for the passive investors?
Sarah Lyons: We literally just got our first update last night… We were looking at a little bit over a 100% return, a 3-5 year plan, but it has a 12-year fixed, three-year interest-only. We haven’t actually received our first dividends yet, because we only closed on it less than six weeks ago. But the numbers were, if I recall — I would be lying if I told you I remembered, honestly, at this point… I believe it was like a 9 million purchase price.
Theo Hicks: Oh, I’m sorry, I meant what sorts of returns are you getting as a passive investor on the deal, percentage-wise?
Sarah Lyons: Oh, okay. Got it. I believe it was 8% the first year, cash-on-cash, and then it’s supposed to increase to 10%-11% cash-on-cash after that, and then of course with a decrease after the interest-only ends at the end of year three. So right now they’re just finishing the business plan, getting it through, adding [unintelligible [00:08:53].27] and doing capital improvements right now.
Theo Hicks: Were there any specific challenges that you faced, that you weren’t really expecting, during this entire process of this first deal?
Sarah Lyons: No… Pretty much we had gone through a full mock-up of how the process went, what the presentation looks like, what the paperwork looks like, what the presentation looks like… I had already been reviewing books and listening to podcasts about the process. My husband is extremely active in all of this decision-making. He is the analytical one of us, so pretty much if he gives his stamp of approval, then we’re good to go.
Theo Hicks: There you go. And then what about this next deal? You mentioned that you got the referral from the individual who is a principal on that 120-unit deal. Did you do any sort of additional due diligence on that person, or again trusted the referral and moved forward from there?
Sarah Lyons: I actually went and visited the property today. I did a drive-through and walked around the community; I walked around some of the other comparable neighborhoods. It’s literally two minutes from my office, which is really exciting to me, because a part of this area has not been very good; it’s been high in crime. However, I’m very involved with the YMCA and I happen to know that there’s some major capital improvements that the YMCA and the city of Fort Worth has been putting into that area. A four million dollar QT project, which is a large gas station in our area, just opened last month, and the city is working really hard to revitalize it… So that part is extremely exciting to me because of the submarket that I personally know, and I know that it’s been transitioning over the last ten years.
Regarding the principals on this, they actually own another property only three doors down, so the idea that they’re already implementing their business plan on another community right there… They’re also gonna be able to share the same management company, so when it comes to maintenance and upkeep and overflow on occupancy, they can use that as an advantage when they own two properties in such close proximity.
Theo Hicks: Oh yeah, the good old economies of scale. That’s definitely helpful for deals.
Sarah Lyons: Yeah, absolutely.
Theo Hicks: That was interesting, when you were mentioning how you’re obviously a part of the YMCA, and something we talk about on this podcast is the power of volunteering… Obviously, primarily to give back to the community, but secondarily, from an apartment syndicator’s perspective, it’s a good way if you are able to get on the board, to meet other high net worth individuals… But you just mentioned another secondary benefit, which is being in the know of what’s going on in that community. You knew “Okay, historically this area has been a little rough, there’s been crime”, but through your involvement in the YMCA you’ve learned about “Okay, they are revitalizing the area; there are a lot of cap-ex projects that are in the pipeline that are going to have a positive impact on that community, which will also obviously have a positive impact on the deal.”
Sarah Lyons: Absolutely. And it was just kind of a secondary benefit. I sold one of the directors of a local YMCA branch a home when they relocated in the area, and I was actually at our annual volunteer banquet this afternoon for lunch, and realized I sold eight homes to YMCA staff, and many of which are not just [unintelligible [00:12:01].06] physical trainers, that kind of thing; these are actually vice-presidents of development, these are HR directors, these are high up within the organization… So a lot of times I’ll have a heads up on some of these developments before they’re public knowledge. Or “Hey, we’re acquiring this piece of land for a new one” or “We’re gonna be upgrading this facility.”
So it’s been a great opportunity with my investing, but also for my clients too, because I get more business, but then also too I can let them know about these things that are gonna be in their community.
Theo Hicks: Yeah, it definitely gives you a competitive edge.
Sarah Lyons: Mm-hm.
Theo Hicks: So before we get into the money question, it is interesting, because I saw that you won that 30 Under 30 Award, and you won a lot of other rewards for being a realtor, but you mentioned that you didn’t necessarily start off by being a realtor agent; you started off as a stay-at-home mom, and then were kind of forced into transitioning into being a real estate agent, and you’ve done so well… What do you think are some of the keys to why you were able to make such an amazing transition into being a real estate agent?
Sarah Lyons: I feel like one of the main attributes is treating it as a true business. It seems like everybody and their cousin are becoming real estate agents right now. It’s the new multi-level marketing, it’s the way to make it big on the side… And really, if you wanna earn money like a real job, you’ve gotta treat it like a real job. So being dedicated to the business, the craft, always working on improving yourself, learning new techniques… But then also past that, for me at least, it is not a transaction, it’s not a quick sale. These are lasting relationships that I’m making with clients. Personally, I host client appreciation parties for my clients twice a year, so I had over 100 people out basically just saying thank you to my past clients at a local venue. We have a drive-in movie theater, so I partnered with him so I could bring out my clients over the summer for a party.
Doing things like that, where you’re showing clients that I’m not just trying to make some money off of you, I truly want to help you and be part of your community, have a relationship with you… When you can show people that you care, it expands your business exponentially. So my job isn’t really work, it’s fun most of the time. I’m working with people that have used me in the past, or they’re referring me to their co-workers, or their family members, or their friends… So it’s really great to get those calls, and “Hey, my neighbor wants to sell their house. Can you go ahead and help them?”
Personally, I don’t enjoy cold calling or door knocking. I focus on the clients, the relationships, so I’m able to do what I love and make really good money at it.
Theo Hicks: There you go. So besides that, which is fantastic advice, what’s your best real estate investing advice ever?
Sarah Lyons: Don’t just buy because you think that you need to. Right now I am feeling torn on this second passive deal between keeping this money and waiting for something else, or the FOMO (fear of missing out). So many people right now are trying to do flips and they’re just trying to force the numbers to work, and ultimately the risk is too high, in my opinion… So just trying to be against the curve – sometimes it’s better to wait, than to jump in too late.
Theo Hicks: I like that. Better to wait, that to jump in late. That should be like a bumper sticker.
Sarah Lyons: I know, I’ve just totally made that up.
Theo Hicks: It’s a great saying, and it rhymes, and everything. Good for you.
Sarah Lyons: [laughs]
Theo Hicks: Alright, Sarah, are you ready for the Best Ever Lightning Round?
Sarah Lyons: Sure.
Theo Hicks: Alright. First, a quick word from our sponsor.
Break: [00:15:24].27] to [00:16:25].02]
Theo Hicks: Alright, what’s the best ever book you’ve recently read?
Sarah Lyons: It’s actually a theory, that would be the Freakonomics series. They have three books: Freakonomics, Think like a Freak, and SuperFreakonomics. They also have an absolutely incredible podcast. The reason why is because it makes you think outside the box, and rethink about things that we just take for granted on a daily basis.
Theo Hicks: If your business were to collapse today, what would you do next?
Sarah Lyons: I think probably motivational speaking maybe, or interior design. I enjoy doing design [unintelligible [00:16:54].01] with clients and helping them with the space.
Theo Hicks: If you had to start over and you had little or no capital – I guess this applies more to passive investing that being a real estate agent – how would you do that?
Sarah Lyons: I would work on showing value in non-monetary ways, so those connections, building those relationships, and being able to provide other people with money into the transaction.
Theo Hicks: What is the worst deal you’ve done? I guess this would apply to you being a real estate agent, since you’ve only done that one passive investing deal.
Sarah Lyons: Honestly, the deals that are bad are the ones that you give up too soon. I’ve had a couple where they’ve pulled out right at the very end, which is kind of a shame… But I’m very stubborn and I don’t like to hear no, so typically I’m working on a yes, or finding a common ground and a solution. I’ve really thought about that question beforehand and I had a hard time answering it.
Theo Hicks: That’s a good answer. Lastly, what’s the best ever place our listeners can reach you?
Sarah Lyons: That would be my website, SarahLyonsRealEstate.com. On Facebook, which is also Sarah Lyons Real Estate, or my cell phone, 817-675-60-06. I service the West DFW Metroplex. I actually use the hashtag #lifestooshorttogotodallas. Typically I stay on the West side.
Theo Hicks: Alright, Sarah, I really appreciate you coming on the show and speaking with us today and providing your powerful advice. Just to summarize quickly what we discussed – we talked about why you decided to invest in multifamily specifically, and that was because you knew that real estate needed to be a part of your portfolio, just because of the diversification, as well as you work full-time in real estate… And the smaller rental properties didn’t really resonate with you, whereas multifamily did, because of the ability to force appreciation through adding value… As well as what you mentioned about the fact that one vacancy at a duplex or a single-family home has a much larger negative impact on the bottom line than it does at a large multifamily property… And the fact that you chose to passively invest because you do work full-time, so you don’t have time to maintain a property on your own at the moment.
We’ve talked about how you were able to find the sponsor you invested with, and that you met them through your 30 Under 30 Award organization; you met someone there who was actually an active passive investor who was also a principal on the deal you invested in. Then you also found another sponsor through that person.
You mentioned how you screened the deal and how you screened that sponsor – one, through your relationship with them, but two, they went over a few mock deals with you and explained what you need to look for when analyzing a deal, and red flags to look out for.
We kind of went into specifics on the deal you invested in, the fact that it’s between 8% and 11% cash-on-cash return each year. You also mentioned how you did your due diligence on that second deal – you drove the property, you drove the market, you drove the comps, and being a part of that YMCA organization, you kind of had some inside knowledge about some major capital expenditure projects that were coming down the pipeline, and you knew that that area was going to improve… As well as the economies of scale – the fact that those principles owned another property a few doors down.
Then we also talked about your ability to transition from being a stay-at-home mom to a very successful real estate agent, and it really came down to treating it as a business, making sure you’re always improving and learning those new techniques. One thing in particular that you said was that you always focus on creating lasting relationships and showing your clients that you care, rather than the fact that you’re gonna use them for a quick sale and then never really talk to them again… And you do that by hosting those client appreciation parties each year.
And then lastly, a part of your best ever advice was essentially don’t just buy a property because you think you need to or you’re afraid of missing out on some great opportunity, don’t force the numbers work, and then your new slogan, which is “Better to wait, than to jump in late.”
Sarah Lyons: I’m gonna have to use that in the future.
Theo Hicks: You really do. It should be a tagline on your website, or something. But anyway Sarah, I appreciate you coming on the show today. Powerful information. Thanks to everyone who listened. Have a best ever day, and we’ll talk to you soon.
Sarah Lyons: Thank you so much, Theo.