Nashville has been and still is a thriving city, especially for real estate investors. Josh has a background in investment banking which serves himself and his clients well when helping them find a property. We’ll hear some Nashville market details as well as getting a look inside of Josh’s business and investing portfolio. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
Best Ever Tweet:
“I bought three apartment complexes since 2018” – Josh Anderson
Josh Anderson Real Estate Background:
- Owner of the Anderson Group, a Nashville based real estate brokerage
- Combines his 8 years of U.S. Army experience with his education and experience to deliver the most to his clients
- Based in Nashville, TN
- Say hi to him at http://joshandersonrealestate.com
- Best Ever Book: The One Thing
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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, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today we’ve got Josh Anderson. How are you doing, Josh?
Josh Anderson: I’m doing well, thanks for having me.
Joe Fairless: It’s my pleasure, and I’m looking forward to our conversation. A little bit about Josh – he is the owner of the Anderson Group, which is a Nashville-based real estate brokerage. He combines his eight years of U.S. Army experience (thank you for your service, sir) with his education and experience to deliver the most to his clients. As I mentioned, based in Nashville, Tennessee. With that being said, Josh, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Josh Anderson: Absolutely. I’ve been in the business since April of 2006. I’m in the residential side, but do quite a bit of multifamily as well. So I’ve been in the business for a little over 13 years. Originally from Nashville, I grew up in Louisiana, I went to LSU, and then came back in 2004 and worked at an investment bank for a couple years, and then decided to get my real estate license.
Joe Fairless: Okay. And you have a brokerage… As you mentioned, your focus is on the residential side, but you do multifamily… What’s a typical transaction for you?
Josh Anderson: Most of our business is single-family homes. With that being said, we’re kind of building out our investor division. We’ve had it there for quite a while, but with Nashville being as popular of a city as it is, and with as much growth and as much building that’s going on, there’s a lot of people in other markets where numbers don’t really make sense in their market… So we’ve got a lot of people moving or at least buying here, for the idea of buying duplexes, triplexes, quadplexes, and even small to medium-sized apartments.
A lot of them are doing 1031s, a lot of them are paying cash, or just putting 20%, 25% down… So there’s a pretty active market as far as the multifamily side of things.
Joe Fairless: What are some reasonable expectations, if I were to call your brokerage and say “I’d like to buy a fourplex and I wanna make sure it cash-flows”? How would you set my expectations.
Josh Anderson: It’s really digging on a lot more questions as far as what somebody is used to. It’s not out of the realm to get the 1% rule. So if somebody’s buying a million-dollar property, they’re getting $10,000 of gross income; in cap rate terms you can pretty easily get a 6%, 7%, 8%… And it used to be a little bit better than that. With the amount of people that are coming here and buying properties, it’s gone down a little bit. But it’s not unrealistic to get a 6%, 7% or 8% in the Middle Tennessee area.
Joe Fairless: What are the areas of growth that you’ve seen so far in Nashville?
Josh Anderson: With regard to areas?
Joe Fairless: Yeah, like what submarkets have growth?
Josh Anderson: Residentially speaking, the suburbs Brentwood, Franklyn, Hendersonville, Mount Juliet – these areas are growing probably a lot faster than Nashville proper… But people still want their investment properties, and there’s a lot of people that wanna be near kind of the trunk of the tree, with regard to being close to downtown Nashville. So you’re seeing a lot of these areas that historically have not been great areas, that have transitioned pretty dramatically, that are close proximity to downtown… So German Town and East Nashville – they’re all areas that are very walkable.
People love the charm and character of the old houses. We just listed a property – it’s actually going live tomorrow – in 12 South, which is right by Vanderbilt and Belmont Universities, and it’s a 130-year-old Victorian… That property will probably get a lot of activity and a lot of traction.
So you’re seeing a lot of areas that historically just weren’t really great, that are really being cleaned up, and investors are coming in and flipping houses or renovating… Multifamily is also in those areas that are really getting cleaned up. Old mid-sized apartment complexes, anywhere from 15 to 50-60 units, that are kind of the sweet spot, that are getting cleaned up quite a bit…
Joe Fairless: You used to work at an investment bank, and then you got your real estate license… What did you learn while working for an investment bank that you apply toward your business today?
Josh Anderson: I think there’s a lot of realtors — it takes about two weeks to a month to get your real estate license, which is kind of a joke, in my opinion… And I say that with regard to how big of an investment — it’s not like people are going to Walmart every day and buying a house… But it’s one of those things — I think that the investment background, graduating in finance and economics really helps me on the numbers side of things, and being an investor myself really allows me to talk at a different level with savvy investors. A lot of realtors don’t really understand cap rates, or they don’t understand the 1% rule… I mean, these aren’t hard things to understand or learn, but I think that there’s a lot of people that just don’t really get it, and don’t know how to talk in terms of investments, if that makes sense.
Joe Fairless: It does. You said you’re an investor yourself… What are you buying?
Josh Anderson: Everything I own, outside of a couple of commercial lots that I own in downtown Nashville, I own all multifamily. I kind of started out buying duplexes and triplexes, and I’ve got several duplex, triplex, a couple of quadplexes… And starting in 2018 I got really intentional and purposeful about buying apartments, and kind of digging in and finding the sweet spot. I think there’s too much competition in that 150+ units. It’s a different buyer, and I think they’re hard to find. A lot of out-of-town investors are building those…
I’m focused on about 10-12 units, up to about 50-60 units. I bought three apartment complexes since 2018, and I just got really purposeful about buying those.
I guess it was about 2014-2015 when I started buying investment properties, which in hindsight I wish I’d been buying them all along… So my motto to myself now is I’m always a buyer first, I’m a listing agent second. That’s kind of how my mind works.
Joe Fairless: Did I hear you correctly you’ve bought three apartment complexes since 2018?
Josh Anderson: Correct.
Joe Fairless: Let’s talk about those three transactions… Let’s talk about each one of them. What was the first one?
Josh Anderson: So the first one was a 22-unit apartment complex, and it was fully-rented. We paid, I believe, a million seven for that. It was about 60k, 65k a door. I bought that with a business partner. Then the second one I also bought with a business partner and it was 30 units. The second one is about seven minutes from downtown Nashville, and the area is predominantly industrial, and it’s transitioning, because industrial just doesn’t make sense to be that close in to downtown Nashville… So a lot of those industrial properties are being sold and transitioned into residential and/or apartment type properties.
Joe Fairless: Sounds like a really good long-term hold…
Josh Anderson: Yeah, I think they are. And then the third one – I actually haven’t bought this one yet; I’m under contract. It’s 17 units, in the Donelson area, which is near the airport. So I think that I was very purposeful in buying them, and I’ve since gotten really purposeful about finding them. Really going into tax records and reverse-engineering, and really digging into properties that fit my parameters and criteria, and really starting to market to those a lot more… And I think it’s just getting started. A lot of people don’t have the money to do it, and I always tell people “Find the deal. The money is easy to find right now.” The money is just too easy to find. So find the deal, lock it up, and then go find the investors… And if you wanna syndicate it, or however you wanna do it, depending on the size… Or go find a business partner. I think finding the deal is the hard part right now.
Joe Fairless: You mentioned going into the tax records and then doing reverse engineering… Will you elaborate on that?
Josh Anderson: Yes. Before you even do that, I think that you really have to get dialed in on what your criteria is, and I think there’s a lot of investors – maybe novice, starting out – and they don’t really know what their parameters or criteria is or should be… And then I think that they also waiver off of those parameters once they figure out what they are, because they’re so hungry to find a deal that they’re willing to just do something that doesn’t fit what formula makes sense for them. I think that’s where they mess up.
So for me, reverse-engineering, just really digging into areas, really digging into “How do I wanna go about finding these properties?” There’s different software out there that you can use… For example, one of the guys in my office uses Reonomy… It doesn’t have any different of information, it’s just the way that it pulls the information that gets to you. You can find information based on the last time it sold, when it was built, how many units, what MSA you’re in, what city within that MSA, what zip code… So you can really dig down deep into what you’re looking for.
For me, it’s more about — when I’m looking at investment properties and finding them I’m not as worried about the area within Nashville, just because I know the areas so well. For me it’s more about “Do the numbers make sense, and does it cash-flow?” I think things will appreciate, but I don’t think that there’s any guarantee of appreciation.
Joe Fairless: When you are looking for properties, what’s your criteria?
Josh Anderson: I try to keep it really simple. My criteria is I kind of look at the 1% rule and I just go “Does it hit the 1% rule?” If I paid two million dollars for it, is it bringing it at least $20,000 a month? And then from there, I dig in a little bit more… I’m obviously looking at the leases and the rent rolls and all the maintenance and the costs. On some of these properties the property taxes are really high, so it’s kind of digging into all of that. But as a general overview, I look at the 1% rule because it’s easy. It’s what works for me, and I know everybody’s got different parameters, but that’s just what I’ve looked at as my initial…
And then I really drive the area and determine how well I know it, and whether I like it or not. So that would be my one parameter that I look at the most, to see if I even like it or I send it on to investors.
Joe Fairless: Okay, so the 22-unit, 1.7 was what you paid. You did it with a business partner… How did you structure that with the business partner?
Josh Anderson: On that one we’re just 50/50 business partners. On that particular deal we did a Freddie Mac loan. I’m sure you’re familiar with it. It’s a really great program. It’s gotta be a one million dollar balance, and it goes up to (I think) 7.5 million… But it’s a two-year interest-only, non-recourse, it’s assumable… It’s a really good loan program. You’re putting 20% down. I’ve used that on two of the three deals that we’ve done, just because it takes a little bit more time; there’s some more hoops, I guess, to jump through… But it’s been a really good loan program; if people that are listening to this aren’t familiar with it, it’s a great program.
Joe Fairless: You’re doing 50/50 with your business partner… Did each of you bring 50% of the equity?
Josh Anderson: Yeah, we did. 50% equity and we’re 50% owners.
Joe Fairless: I imagine you found the property, yes?
Josh Anderson: I did.
Joe Fairless: Okay, so you brought half the equity plus you found the property, so what else is your business partner doing, if anything?
Josh Anderson: He’s just a really great business partner.
Joe Fairless: Okay
Josh Anderson: On those particular deals, for myself, I’m not taking anything as far as me finding the deal, just because we’ve done other deals together. If there was a different scenario, I would definitely do some kind of finder’s fee or management fee, or if I was syndicating it and it was a bigger deal, I would definitely set it up differently. He’s been a business partner of mine for a long time on several deals, so we just haven’t structured it differently.
Joe Fairless: Now let’s talk about the 30-unit. Same business partner?
Josh Anderson: Different business partner.
Joe Fairless: Different business partner. How much did you two pay for it?
Josh Anderson: We paid 1.9. Right now it brings in 23/month. It’s in pretty good condition overall, actually. We’re doing some updates on it. Per-door we’re spending about $5,000, to update it, and we’re gonna bring up the rents about $150 to $200 over the next 6-12 months on each one. So it’ll probably be bringing on more like 25, 26 this time next year.
Joe Fairless: And when you say 25, 26, you’re saying 2,500-2,600, right?
Josh Anderson: No, 26k.
Joe Fairless: 26k.
Josh Anderson: Yes.
Joe Fairless: Got it. The management of these deals, the 22-unit and 30-unit – how does that happen?
Josh Anderson: We have property managers on all of them. The same property manager, but they’re managing it for us at 8%. I think once we get to the tipping point of being at a certain number of doors, then I’ll probably bring the property management piece of it in-house. But right now they’ve just done a great job. They take care of everything, and we literally “Yes” or “No” on certain things, and they do everything.
Joe Fairless: What’s something that hasn’t gone right on either one of those properties so far?
Josh Anderson: I’ll be honest – I’m gonna knock on wood real quick – they’ve been amazing. We haven’t had to do anything. There’s nothing that hasn’t gone right so far that we’ve anticipated. So maybe it’s beginner’s luck on apartments, but I’m certain that something will not go right.
Joe Fairless: Agency loan on the 30-unit? Fannie Mae or Freddie Mac loan?
Josh Anderson: Yes.
Joe Fairless: Okay. And with the 17-unit, my guess is it’s not gonna hit that million-dollar threshold… So you’re gonna have to do a small balance loan, or what are you doing there?
Josh Anderson: Yeah, the guy that did the Freddie Mac loans – his bank is doing an in-house portfolio loan, and they’re gonna do a very similar structure. They’re gonna do an 18-month interest-only, non-recourse. So it’s gonna be a similar setup, and we’re putting 15% down.
Joe Fairless: How did you meet your business partner who you’re partnering up with on the 30 units?
Josh Anderson: I met him in college, actually. He’s from New Orleans, and he wants to move to Nashville and he wants to get into apartment syndication, and he actually bought your Best Ever Apartment Syndication Book. I’ve been sending him deals, and we just said “Let’s jump on this one. Let’s do it.”
He comes up to Nashville 5-6 times a year, and still lives in New Orleans, but we’ve known each other since our freshman year of college.
Joe Fairless: How did you structure it with him?
Josh Anderson: It’s structured really the exact same. It’s 50/50; we both did 50/50 on the down payment equity… So it’s all the same.
Joe Fairless: Taking a step back, based on your experience, what’s your best real estate investing advice ever?
Josh Anderson: I think the best advice ever is your first deal you don’t have to hit a home run. Just get started. Just do it. I think so many people are in analysis paralysis, and they never really get started. I’ve got a guy who used to work with me; he’s been talking about buying an investment property for five years, and he still hasn’t bought. I was talking to him a couple days ago, and I said “Man, just buy one. Even if it’s making $200 a month, who cares?” Get the first one under your belt, and you can go from there. You can always sell it, you can always fix it up and get a little bit more rents, you can always upgrade and get better properties.
And that’s not to say go buy a terrible investment, but if you’re gonna do it, do it; if you’re not, then sit on the sidelines… But you’re gonna look back in hindsight and go “Damn, I wish I had bought X, Y and Z properties.”
Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?
Josh Anderson: Let’s do it.
Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.
Break: [00:17:07].28] to [00:17:43].13]
Joe Fairless: Best ever book you’ve recently read?
Josh Anderson: Best ever book I’ve recently read… I’d have to default and say The One Thing, because it’s such an easy book. Gary Keller.
Joe Fairless: What’s the best ever deal you’ve done?
Josh Anderson: Best ever deal I’ve done… The 30-unit.
Joe Fairless: What’s a mistake you’ve made on a transaction so far?
Josh Anderson: I lost earnest money one time. That wasn’t good.
Joe Fairless: Will you elaborate?
Josh Anderson: I actually didn’t lose it, it just got lodged underneath my seat in my car. But I had to tell my client that I lost the earnest money, so they had to cancel it, and send a new earnest money check. [unintelligible [00:18:13].25]
Joe Fairless: That’s not a big deal.
Josh Anderson: Well, it didn’t affect the deal. It was just one of those things I had to tuck my tail between my legs [unintelligible [00:18:23].01]
Joe Fairless: What’s the best ever way you like to give back to the community?
Josh Anderson: I have a nonprofit where every deal that I do, a certain portion of our commission checks goes toward, and we go into the community and help fix up houses. On a small scale, similar to Habitat for Humanity.
Joe Fairless: How can the Best Ever listeners learn more about what you’re doing?
Josh Anderson: They can visit my website at JoshAndersonRealEstate.com. That’s the best way.
Joe Fairless: Well, Josh, thank you for being on the show and talking about the renewed focus with the apartment complexes. You said since 2018 you’ve been focused on it… 22-units, 30-units… Good luck on the closing; I hope it goes well on the 17 units. Thank you for talking about the structure that you have, why you picked those properties (with the 1% rule), how you think about it, and how you’ve used your background in financing economics to further and really build your real estate business, as well as being a successful investor.
Thanks for being on the show. I hope you have a best ever day, and we’ll talk to you again soon.
Josh Anderson: Thanks, Joe.
