October 26, 2019

JF1880: Lifetime Entrepreneur & Real Estate Investor Syndicates

Gary had multiple businesses before getting into real estate investing. Once he started with real estate investing he knew that he wanted to syndicate apartment communities and found a way to start doing that. Now, 1500 units later he’s on the show to tell us how he’s scaled to the level that he has. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

Best Ever Tweet:

“We had closed two deals with that broker before, so that helped” – Gary Lipsky

Gary Lipsky Real Estate Background:

  • Founder/President of Break of Day Capital
  • Syndicates B & C Class value add apartment opportunities in high growth population areas
  • Owns over 1500 units both passively and actively
  • Based in LA, CA
  • Say hi to him at qccapitalgroup
  • Best Ever Book: Millionaire Fastlane


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Theo Hicks: Hi, Best Ever listeners. Welcome to the best real estate investing advice ever show. I’m your host today, Theo Hicks, and today we’ll be speaking with Gary Lipsky. Gary, how are you doing today?

Gary Lipsky: Very good, thanks for having me.

Theo Hicks: Thanks for joining us. I’m looking for the conversation and talking about what you’ve got going on in your real estate business. A little bit about Gary’s background – he is the founder and president of Break of Day Capital, syndicates B and C class value-add apartment opportunities in high population growth areas. I’m looking forward to learning more about that investment strategy.

He is both a passive and active investor, owning over 1,500 units. Based out of Los Angeles, and you can say hi to him at BreakOfDayCapital.com. Gary, before we dive into the meat of the conversation, can you tell us a little bit more about your background and what you’re focused on now?

Gary Lipsky: Yeah, I’ve always been an entrepreneur my whole life. I was shoveling driveways, and [unintelligible [00:02:19].20] growing up in New Jersey. I owned a restaurant delivery service in college, and co-produced three independent films in my twenties. I started an after-school business in Los Angeles and we served over 9,000 students daily… But I always knew real estate was going to get me to where I wanted to be. When I looked around, the wealthy people either had their own businesses, or owned real estate, and usually both.

So when I even bought my first residence, I always was looking for value-add opportunities, and I kept finding houses that I can add value to, and upgrading and moving into a nicer community for my kids. And I took advantage of the tax benefits, and then was able to leverage that and turn it into some single-family rentals, and passively investing into real estate. Now, like you said, I own over 1,500 units, and now I’ve gotten into real estate full-time a little over 2,5 years ago.

Theo Hicks: Of those over 1,500 units, what percentage are you a passive investor and what percentage have you syndicated yourself?

Gary Lipsky: Passively I would say about 90%. I have a 76-unit deal that I was a key principal on in Crowley, Texas, and a 42-unit in Tucson, and I most recently signed an LOI for a 128-unit in Phoenix that I’m working on.

Theo Hicks: So the 76, 42 and 128 – those are your active deals.

Gary Lipsky: Yeah.

Theo Hicks: Okay. Let’s now talk about passive investing first, and then we can dive into the active investing. A pretty common question that I see a lot is how do you — not find a syndicator, because it’s pretty easy to find a syndicator to invest with these days, but what’s your process for vetting a syndicator? What would your advice be to someone who is doing their first deal? There’s hundreds and hundreds of syndicators out there these days, so what are some things they should be looking at?

Gary Lipsky: It does get overwhelming in the beginning, because you just don’t know what to look for. I would look at a lot of deals, and learn from the different perspectives to see how are people underwriting, get to know the sponsor… I have some friends that even go out – they’ve driven across country to meet with all the different sponsors to vet them before investing… Which I love. I did not do that, but that’s one strategy.

So once you start looking at a few different properties in the same area, you can start seeing the differences, and seeing what reversion cap rate they’re using, how they’re doing the value-add, does it make sense, do the comps support it…? So you start getting a feel; the more deals you see, the better acclimated you get.

Theo Hicks: So those are some things to actually look for that they’re doing, in order to pick them; so make sure they’re doing things properly. Are there any red flags you can think of, where if you’re talking to a syndicator and they say something, or you see something, and you’re automatically like “Whoa, whoa, whoa… Something is amiss here. I’m definitely not investing with this person.”

Gary Lipsky: Yeah, it’s surprising how many sponsors are wary of answering questions, or don’t answer it in a way that — it’s okay if you don’t know the answer; just get back to me and give me the right response… Versus just saying something where you don’t know the right answer, or if they start backing away from the question… When you converse with a sponsor, you start getting a feel “Do I trust them or not?” That could be a red flag, if you don’t feel like they’re being completely honest.

Theo Hicks: Yeah, I actually talked to a passive investor, and he would purposefully ask questions that he knew the answers to, but he just wanted to see how they would reply to it, just to see if they would say “Hey, I don’t know the answer to this, but I’ll get back to you”, or they’ll start BS-ing a response… So that’s definitely a red flag.

And again, I’m not sure if you’ve ever invested with someone where it’s their first deal, but I guess the question is would you ever invest with someone who has not raised capital before, or would you only invest with someone who’s done 10, 20 syndicated deals already? So I guess the question is if I’m a syndicator, I’ve maybe done a few multifamily deals on my own, what would be something I would have to do in order to have you invest in my first syndication deal? Or is there nothing I could do?

Gary Lipsky: Well, that’s the exact experience that I had to go through as a first-time syndicator. So what I’m looking for with a syndicator who might not have done any deals before is had they run businesses before? Because if they have, then they can use that experience to translate into real estate, particularly multifamily. The way you’re running a business, you’re building teams, how you communicate with people, how you follow up and hold people accountable – those are all experiences that you can take from previous businesses, and that’s what I used when I started out.

Theo Hicks: Okay, let’s transition into talking about your first syndication deal – a 76-unit, a 42-unit… Do you wanna tell us a little bit about some of the steps you had to take before you started finding those deals? Any team members you had to find? Did you find the capital first, verbal commitment-wise? Did you have financing lined up from a bank? What are some of the things you did before you actually went out and found your first deal? Or did you just find your first deal and then figure all that stuff out later?

Gary Lipsky: I was looking at smaller deals in the beginning, and realized I needed to go bigger, and with a team. So the 76-unit I was a key principal on… So I signed on the loan, I invested some money, and I was able to learn from sponsors. They kind of walked me through everything, and be a part of the process. So that was a really good education for me.

Then on the 42-unit – that’s when I’m raising money, my business partner found the deal, we constantly underwrote it, checked the comps, kept evaluating it, and felt strongly enough by having had that other person to bounce back the ideas… It was really important to have that level of confidence. Doing it on your own, particularly in the beginning – you think it’s a good deal, but being able to run it by someone and going through the process really helps have that confidence level up, and… Hey, you’re not crazy, you’re not doing anything foolish.

Theo Hicks: Yeah, exactly. So with that 76-unit you were on the GP because you were the loan guarantor, you invested some capital, and I’m sure you learned a ton from that process.

Gary Lipsky: Yeah.

Theo Hicks: A lot of people might not have the net worth liquidity in order to do that… But on the second deal you were able to raise capital. You mentioned you had a business partner, so I’ll ask you about that in a second, but how much money did you have to raise for that deal, and how did you raise that capital? Who was it from, how did you position the deal to them, it being your first time raising capital?

Gary Lipsky: Yeah, we raised just over a million dollars, and it was friends and family, people that I had done business with previously and trusted me, knowing that I had been successful before… but yeah, it’s not an easy process your first time. But what you’re doing is sharing an opportunity and something that you really believe in, and people buy into that opportunity. When they look at other places where they’re gonna put their money and they see that this is a great opportunity, with amazing tax benefits, they were excited to be a part of it.

Theo Hicks: And you mentioned the benefit of a partner… Obviously, it is possible to do a syndication deal by yourself, but you need to make sure you know how to do everything, and most people don’t know how to do everything… From what I’ve seen, you’ve got kind of like the numbers guy, and then the networking guy. So someone focused on the relationships, raising capital, and the other person is at their computer, crunching numbers and underwriting the deals, and maybe asset-managing it… What advice do you have a) on finding a partner, and b) on vetting that partner?

Gary Lipsky: It’s spending time with them and seeing if they have the same values as you. Do you trust them, how they look at deals? It’s a process that you build over time. The guy I’m partnering with – we kept running into each other at meetups, so… Developing a rapport over time, and we were both interested in a property together, so we went out there together and looked at it… And over time, it was clicking.

I appreciated how hard he worked, and I can rely on him, and that was really important to me… And obviously, he felt the same way about me.

Theo Hicks: How did you find the 42-unit deal and how did you find the deal you’re currently working on, that 128-unit deal?

Gary Lipsky: The 42-unit deal – my business partner was already out there in Tucson, and — it hadn’t even come on the market yet. He was the first one to see it, so that’s how we actually got it. It’s certainly not the sexiest-looking building, but tremendous value-add opportunity… And it’s in that 42 range, which is maybe a little bit bigger than some of the small players, and smaller than some of the bigger players. So it’s that middle ground, which was nice.

But the 128-unit… One of the guys that came in on our 42-unit deal  – he works full-time, but he got this deal because he had done business with the broker previously. He sent it to my business partner, and I got a text at like [12:30] in the day, he’s like “We’re going to Phoenix tomorrow, 3 AM. I’ll talk to you later.”

So this deal was going to market, and we wanted to be the first ones to see this. So we drove out from L.A, 3 AM, and checked out the comps, walked every inch of this property… I was underwriting the deal on the computer the whole way back, and five hours back to L.A, and just going through every single scenario. We thought this was a great opportunity, so… We got it by outhustling others, and being one of the first to see it. We didn’t get into a bidding war. We aggressively went after this property, trying to avoid best and final… Because I’ve been in best and final a number of times and have lost, and I thought this was a really good opportunity, and if we could take it down right from the beginning, then let’s try to do that.

Theo Hicks: So both those deals were off market. The second, that 128-unit, was — you said it was someone who invested in the first deal knew the broker, and then sent you that opportunity, and then you were able to get it before it went to market, right?

Gary Lipsky: Yeah, he had actually closed two deals with that broker before, so he had a relationship with him. That’s important. Even after doing one deal, we’re just getting a lot more attention from brokers… So that’s how — it starts snowballing really fast, so it’s been really nice.

Theo Hicks: Yeah. And that 42-unit – that was off market through your business partner; was that also through a broker relationship?

Gary Lipsky: No. Certainly, he’s looked at properties with the broker before, but he really didn’t have that strong of a relationship. It was right time, right place, so we were able to grab it.

Theo Hicks: Alright, Gary, what is your best real estate investing advice ever?

Gary Lipsky: I would say outhustle and be creative on solutions. It’s worked for me in all of my businesses in the past, and it’s worked in real estate as well.

Theo Hicks: Do you wanna give us an example of a creative solution? Maybe not real estate-related, but on one of your businesses? If you can think of anything — you said you made some films; that’s pretty interesting… What are some creative solutions you had for that? I’m sure that was–

Gary Lipsky: Sorry, for what?

Theo Hicks: You said you created films when you were in college, is that right?

Gary Lipsky: Oh yeah, in my twenties. Well, the company that was handling one of my foreign distribution sales – they were going under. We had a deal with Germany for 50k for the rights for the film, and I said “Give me the number of the person and I’ll get the money myself.” And I would wake up, 4 AM, and just call every single morning for like two months, and I got fully paid. And most people were like “Germany never pays, or they give you a discount…”, and I got the full amount after two months, just calling myself.

Theo Hicks: Yeah, that’s definitely hustling right there.

Gary Lipsky: Yeah.

Theo Hicks: Alright, Gary, are you ready for the best ever lightning round?

Gary Lipsky: Yeah, let’s do it.

Theo Hicks: Alright. First, a quick word from our Best Ever sponsor.

Break: [00:13:31].16] to [00:14:09].24]

Theo Hicks: Alright, what’s the best ever book you’ve recently read?

Gary Lipsky: Millionaire Fastlane, by M. J. DeMarco.

Theo Hicks: If your business were to collapse today, what would you do next?

Gary Lipsky: Well, I would reflect and learn from what went wrong, and get back right at it again.

Theo Hicks: Besides your first deal and your most recent deal, what’s the best ever deal you’ve done?

Gary Lipsky: I’d have to say my personal residence right now. I bought it, and I knew it was a great value-add opportunity, and fixed it up, and within a couple of months the value went up a quarter million dollars.

Theo Hicks: What about your worst deal?

Gary Lipsky: It had to be a student housing. We bought this as a passive investor, and they just built up too much student housing in that area, so now we’re struggling over there.

Theo Hicks: What is the best ever way you like to give back?

Gary Lipsky: I’ve founded CORE Educational Services. It was in 2006… So we service under-served youth in L.A. We’ve had a tremendous impact over the last 13+ years.

Theo Hicks: And then lastly, what’s the best ever place to reach you?

Gary Lipsky: You can reach me at Gary@breakofdaycapital.com, or visit my website as well.

Theo Hicks: Alright, Gary. I really appreciate it. Very insightful conversation we had today. Just to summarize what we talked about so far – we talked about first your passive investing, and we discussed some of the things to look for when you’re vetting a syndicator, or just how to become a passive investor in general. You talked about how you just looked at a ton of deals, underwrote them, just to see the different ways different sponsors underwrite deals, look at deals, revenue cap rates, how they’re adding value, how they’re finding their comps, if their comps make sense… You mentioned that you had a buddy who literally drove across the country to meet all these people, so that’s definitely one strategy that will definitely work.

Then some of the red flags – we talked about [unintelligible [00:15:55].05] So if you ask them a question and they either refuse to answer it, or they do answer it and you can obviously tell they’re making up an answer on the fly, what you wanna see is obviously that they’re knowing the answer, but if they don’t, at least saying “You know what, I’m not sure about the answer to that question, but I’m gonna go look it up and I’ll get back to you within a few hours”, or something like that… And just kind of trust your gut. And if you feel like someone is not trustworthy, that’s definitely a red flag.

Then we transitioned into talking about active investing, and you provided some solid advice about how someone who has never syndicated a deal before can attract  capital from friends and family… And you mentioned you need to focus on what you have done in the past. So if you’ve done real estate deals, focus on that. If you’ve started businesses before, focus on that, and in particular focus on the skills that you’ve learned from those experiences and how that will help you conserve and obviously make them money.

We also talked about how you’ve found your business partner, and some tips on forming syndication partnerships on the GP side, so finding a GP to work with. It really comes down to spending time with them, [unintelligible [00:16:56].24] and making sure that your values and your core missions are aligned, and again, going back to that trust factor.

Then you mentioned that you actually met your business partner at a meetup group, which is pretty cool. Then you mentioned, lastly, about finding deals. Your first 42-unit was kind of a right time/right place deal, but you talked about on the 128-unit how you’ve found it through hustling. So your business partner said “Hey, we’re going here tomorrow. I’ll see you at 3 AM”, you drove there at 3 AM, you visited the comps, you drove the property, and on the way back, that five-hour drive, you underwrote the entire time, and you were able to get your offer in before you had to go to that best and final seller round.

And something else interesting that you mentioned was most people want to find those off-market deals from brokers, and most brokers are gonna wanna see some sort of track record… And it seems, at least for you, one deal was enough to start getting a lot more attention from brokers, and seeing more off market deals. I’m sure a lot of people who are listening – that’s something they’d like to hear; just do one deal, and then you can have the chance of getting those off-market opportunities.

Then lastly, your best ever advice, which kind of summarizes everything you’ve talked about, which is hustle and be creative about your solutions, and there were plenty of examples of that throughout the conversation.

I appreciate it, Gary. Again, you guys can say hi to him at BreakOfDayCapital.com, and he also provided his email address. Thanks for joining us today. Have a best ever day, and we’ll talk to you soon.

Gary Lipsky: Thanks, Theo.

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