Phil Capron went from running special ops missions with the Navy to purchasing his first property in 2010. His new book shows veterans and active duty personnel how, with a few strategic decisions early on in their career, they can acquire and manage enough real estate to separate from the military after a full career as a net-worth millionaire and, ideally, have a cash flow that would replace their active duty income. In this episode, Phil discusses how he conducts his multifamily missions with host Theo Hicks.
Phil Capron Real Estate Background:
- Purchased first property in 2010 while in Navy in Norfolk, VA
- Got real estate license, flipped homes, bought and held SFRs, got into MF a few years ago
- 244 MF units
- Senior Mentor with Michael Blank
- Book: Your VA Loan and How it Can Make You a Millionaire
- Based out of: NYC
- Say hi www.philcapron.com
Best Ever Tweet:
“I’m not concerned about why something isn’t going to work, I’m concerned with how can we make it happen? How can we overcome this obstacle? And if you approach this business with that mindset, I believe you’re a lot more likely to succeed.” – Phil Capron
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Theo Hicks: Hello, Best Ever listeners, and welcome to the best real estate investing advice ever show. I’m Theo Hicks, and today we’ll be speaking with Phil Capron. Phil, how are you doing today?
Phil Capron: Theo, I’m doing amazing. Thank you so much for having me.
Theo Hicks: Absolutely, thanks for joining us. Looking forward to our conversation. Phil’s background is that he purchased his first property back in 2010, while in the Navy. At that point he also got his real estate license, and then flipped some homes and bought and held some single-family homes. Then a few years ago he transitioned into multifamily.
He currently has a portfolio of 244 multifamily units. He’s also a senior mentor with the Michael Blank program. He has a book coming out, or it might be out once this episode airs, and that is “Your VA Loan and How It Can Make You a Millionaire.” Phil is based out of New York City, and you can say hi to him at PhilCapron.com.
Phil, before we get started, can you tell us a little bit more about your background and what you’re focused on now?
Phil Capron: Yeah, for sure, Theo. Thanks. So that’s pretty much; I’ve just gotten out of special ops selection to become a Naval Special Warfare Combatant-Craft Crewman. It’s a lot of words basically for the guys that take Navy SEALs to and from their maritime missions on small, fast boats. We jump out of planes, shoot big guns, do some other pretty cool stuff.
I’ve just moved from Coronado, California to Virginia Beach, Virginia, and rented an apartment with a couple of my buddies from my class… And I’d always instinctively known that there was something to this real estate thing. In 2010, looking back, obviously that was a pretty good time to buy… So I had to decide whether I got the two-bedroom/one-bath on the beach or close to, for what was my budget (about a quarter million), or whether I went into the city of Norfolk, which is slightly less desirable schools, and it just doesn’t have that Virginia Beach zip code, and get a four-bedroom/3,5-bath for the same price. So I chose that route, I moved my couple of roommates from my apartment in, as well as one other guy… They paid my entire mortgage while I lived there, and all my utilities… So of course, I reinvested all the money I saved into real estate. Just kidding. No, I didn’t. I wasted it on really dumb stuff.
The book that just came out, “Your VA Loan and How It Can Make You a Millionaire” shows veterans and active-duty personnel how with a few strategic decisions early on in their career they can acquire and manage enough real estate just with that program to separate from the military after a full career as a net worth millionaire, and ideally have a cashflow that would replace their active-duty income. So when they get out, they’re not forced to take a job that maybe doesn’t agree with them. They’ve spent a lot of time away from friends and family serving a country, and I believe that they have more to give; I want them to be financially free, so they can do things like coach little league, volunteer in their church, run for office, or even just chase a little white ball around or take their significant other on a cruise around the Mediterranean. I believe they’ve given enough, and via the VA loan I think that financial freedom truly is possible for these American heroes… And that’s what the book is about.
From there, as soon as I separated from the military, I started selling my buddies homes, and also listing them when it was time for them to transfer. I saw a lot of really bad advice was being dispensed. The saying that I have is “All men are created equal. All real estate agents are not.” So buying your first home is your largest financial decision to that point in your life; you’ve gotta make sure that you’re doing it right. It’s not like buying a car, or buying a jet ski, or something. There’s real consequences associated with it. And as many folks as I can get to understand how powerful of a vehicle it is, the better. So that’s my mission.
I sold a lot of homes, I got into flipping, did a few dozen flips over a handful of years, and actually locked in my first multifamily purchase. It was a 13-unit. I took one of my buddies who’s also a veteran and had about 30 units at the time; I took him to this property, listed around 900k, thinking this would be great, I’d get a 27k commission if I could get him to buy it.
They couldn’t make a deal, but then the other broker approached me and said “Well, if it was seller-financed, would you buy it? I said, “Well, I guess I’ve never considered that.” Long story short, I ended up buying it for 900k, 100k down, and negotiated seller financing for 30 years; a 30-year amortization and 30-year term, at 6%, without so much as a credit check, which is a pretty good result, in my opinion. Also, the first six months no principal payment. So the full mortgage payment is just under $5,000; my payment the first six months was just over $800. So that enabled me to cash-flow just under $45,000 the first seven months.
It’s been some important lessons learned with that little property. It’s actually pretty difficult to manage, and I might consider selling it soon… But without it, I wouldn’t have acquired a little over 200 additional units in the last few years, so I’m very thankful for it. That kind of brings me to present day, where I’m helping people get into multifamily, with Michael Blank and his program… And raising money and doing deals. I’ve been talking for a really long time, Theo… I’m gonna be quiet now. That’s everything.
Theo Hicks: [laughs] Thanks for sharing that. So for that 13-unit, with 100k down, how did you fund that? Was that your own money, or did you raise that capital?
Phil Capron: That’s a fun story in itself. I had a buddy who — we did a lot of flips together. He’s a military guy from the special ops. We went to class together… And I said “Hey buddy, here’s how this is gonna work – 50/50.” Two weeks before closing he said “You know what, I’m not comfortable with this, because my money is gonna be tied up for too long. I’m out.” So I now have to approach the seller and say “Hey, I actually don’t have the money anymore.” So he said “What CAN you do, young fella?” Because this guy was basically looking at the seller financing as retirement, and generational wealth for his kids. I had about 25k in the bank, or something like that, and I’m supposed to say something less than that, obviously; just simple math. But I got nervous, and I said “I could do 40k.” And he stuck out his hand and he said “Okay, let’s close in ten days, as planned.” I go, “Oh, no… Now I need at minimum 15k.” So I went on the hunt to other friends that we’d done real estate deals with in the past, ended up raising 35k, and I figured “Well, if I’m raising money, I might as well raise money.”
I closed on that transaction with $5,074 and one cent of my own money, which was pretty cool, being that we brought in 45k the first seven months. The ROI on that is solid. I don’t know how to compute it exactly, but it’s pretty good. So he gave me a second for 60k and a year to pay it back. So I did that at the end of year one, and now it’s not a killer-killer deal – it cash-flows about $1,500/month – but it’s extremely highly leveraged. And like I said, the law of the first deal, as Michael Blank likes to say; it got me into all these other deals because it’s a proof of concept.
Theo Hicks: Exactly.
Phil Capron: The rents start rolling in and I’m like “They were right! It just keeps coming. This is great!”
Theo Hicks: What about your second deal? Let’s talk about that.
Phil Capron: Okay. My second deal, a 108-unit portfolio, North of Virginia, six buildings. I’d learned a little bit on the first one, but still largely didn’t know what I was doing… But I was fortunate to surround myself with really strong partners. A commercial real estate broker with 30 years experience, one of the biggest residential brokers around, who owns a property management company… And then a classic contractor, the gentleman who I took to the original 13-plex to try to sell it to him to manage the construction. So we all put in an even amount of money, and took that down for what ended up being one of the lowest price-per-door sales of a stabilized transaction in the MSA’s recent history since maybe 2009, or something.
The great thing about it was that when the appraisal came in, it came in 1,55 million dollars higher than our purchase price, and the as-completed appraisal -because we did do about 500k in cap ex – was about 3 million dollars higher. So you could say that was kind of a grand slam.
From there I went on and picked up an 82-unit with a bunch of partners, and then I’ve picked up a couple 20-plexes since.
Theo Hicks: So it sounds like your ability to scale from a 13 to a 108-unit was because of your team, because you said you still really didn’t know what you were doing… But you found a really solid broker, a management company, and a contractor. Do you mind walking us through how you were able to find them, but more importantly, how you were able to convince them to come on your team with only having done one deal before?
Phil Capron: For sure. I like to bring things back to military analogies, because they make sense to me, and because I believe there’s a lot of value in there. When you’re conducting a mission, you need to understand what assets you need to execute the mission, and a multifamily deal is no different. In your Syndication School – guys, if you haven’t checked that out, definitely check that out. Fantastic information. You need obviously some cash to close, right? We needed about 1.3 million dollars. That’s one box we definitely needed to check.
Then the next box is with the loan, the first mortgage, we need a net worth that’s greater than what we’re seeking as a loan. That’s another box. We need somebody to manage, we need somebody to swing the hammer, because some of these units legitimately did need work.
And then, we needed somebody with the experience to keep the project on track and to anticipate problems before they happen, and to help us find the best solutions when they inevitably do happen. So my first priority was money and net worth. I achieved that with one partner.
Then the next partner was the construction piece. Then the next partner had the property management arm, instead of just a third-party, which – obviously, when you have a great property manager that’s a third-party and you manage them, it can work out. But I’d much rather create that alignment of interest that they wanna see my project succeed as much as I do.
So once I had all those boxes checked and we negotiated terms within the partnership, away we went. I make it sound simple there; it wasn’t, to actually put it all together… But if you’re considering your first or next deal, I invite you to write it out – what do I need? Who do I need? What do I need them to do? Where do I fit in? What value am I bringing and what’s that worth to the marketplace? That’s the key to this whole business.
Theo Hicks: Okay, thanks for breaking that down. That’s really good analogy. I’m sure a lot of your skillset acquired from the military make you a fantastic investor, just by listening to you break that down like that.
So you said that the first piece was the money and the net worth, and that was one person. Who was that? Was it somebody you knew? Was it somebody you had to find?
Phil Capron: It was somebody I knew, and we were actually flipping houses at the time, so that was pretty easy, so to speak… And then I approached actually the contractor next, and he told me no. He’s like, “Phil, I love you, but do you really think that we have it to do this?” I said “Yeah, I do. This is a screaming deal. Deal of the century. Let’s do this.” He’s like “Well, I don’t know. The way you frame it looks pretty good, but I just don’t know.”
So then when I brought in the commercial broker, who also was gonna provide some net worth and that experience piece that we really needed, a little bit of guidance, I had my contractor come and walk him through our plan and improve my (at the time) planned improvements. It went really well, and afterwards I said “Hey guys, let’s go to lunch. I’ll treat you the lunch. I appreciate your time.” And the commercial broker said “Phil, I hope I’m not speaking out of turn here… This is a great deal, you’ve got a great deal, but the only way I’d be comfortable with it is if this gentleman (your contractor) is on the team, doing the work as an owner, not as an employee. And I said “Well, no offence, I invited him first and he told me no.” Then the contractor said, “Well, Phil, if he’s in, I’m in if you’ll have me.” And I said, “Alright, cool. We’ve got a deal. Let’s do it.”
Theo Hicks: So it sounds like you knew the first guy, the money/net worth, you knew the construction person… Did you know this commercial broker as well?
Phil Capron: It was a referral from my accountant. So I knew of him, and we got to know one another, and then I invited him down… Just actually more for counsel than necessarily as a partner, but it ended up unfolding perfectly. So did I get a little lucky? Sure. But luck happens a lot more often when you’re doing the kind of problem-solving that I described and you’re finding solutions.
Theo Hicks: Exactly.
Phil Capron: So many people, even students of mine, they’re like “Oh, I can’t buy this. The cap rate’s wrong.” Okay, why is the cap rate wrong? When we were going through the financials in-depth on another deal, the 82-unit, I found a discrepancy in the water. Two years prior it was 50k a year, then it jumped to 75k. So I asked the person, “What’s up with this?” This is pre-LOI even. “Can you figure out what the deal is?” And he said “Oh, they just sent the water company out and the meter was broken on the city side and just spinning, to the tune of $25,000/year.” At an 8 cap, what is that? It’s a lot more. So everyone else is lazy underwriting, didn’t catch that. We caught it, got to the bottom of the problem, had it fixed, and it enabled me to save several hundred thousand dollars on that particular transaction.
So I’m not concerned about why something isn’t gonna work, or why we can’t do it, I’m concerned with how can we make something happen? How can we overcome this obstacle or this problem? And if you approach this business with that mindset, I believe you’re a lot more likely to succeed. If you’re looking for obstacles, or even if you’re not, they’re gonna occur… But if you tackle them head-on with “How do we overcome this? I’m not accepting defeat.”
There’s actually another story on that point, with the 82-unit, if we have time… It’s kind of funny, but… Sorry, I’ll let you get back to it there, as I think I’ve tangented a bit.
Theo Hicks: I was gonna jump into the money question, which we maybe might have just been over, but… What is your best real estate investing advice ever?
Phil Capron: My best real estate investing advice ever is on that same kind of thread, or in that same vein… You have to not be willing to accept what is, you have to be able to think of what can be, and work to make it so. A lot of folks these days – again, if you’re playing in the big multifamily space, deals are really hard to come by, guys. Kind of like the special ops, we do missions that other units are incapable of doing, they don’t have the tactics, the training, the equipment, whatever… The personnel, most importantly. I look at a lot of the big operators and whatever their criteria is, mine is gonna be about the opposite, because I’m willing to do work that others in the marketplace aren’t willing to do, so I have access to deals that they don’t have access to.
So my advice would be if you are observing that it’s tough out there right now, what can you do different to basically create a little niche for yourself?
Theo Hicks: Alright, Phil, are you ready for the Best Ever Lightning Round?
Phil Capron: Absolutely.
Theo Hicks: Alright. First, a quick word from our sponsor.
Theo Hicks: Okay, what is the best ever book you’ve recently read?
Phil Capron: Best ever book I’ve recently read was a re-read, and it was The Millionaire Real Estate Investor, by Gary Keller. If you’re just getting started, it’s a fantastic overview of what it is to invest in real estate.
Theo Hicks: What deal did you lose the most money on?
Phil Capron: It was a combination of deals. I had five flips going at the same time, everything was going great, with a new contractor… So I was out in California, surfing with buddies, in Vegas, hanging out… They asked for money, I sent it; more money, we sent it, sent it… Eventually, I got back home and found out that really no work was done on any projects, and that cost me tens of thousands of dollars, by taking my eyes off the prize and not verifying. I certainly trusted, but I did not verify that everything was continuing to go well, even though the past projects had.
Theo Hicks: What is the Best Ever way you like to give back?
Phil Capron: The best ever way I like to give back – I actually have a charity called See Them Soar. I’m embarrassed to admit that we haven’t done an event in over a year, but our mission is to enrich the lives of cancer patients and their families by providing an opportunity to go indoor/outdoor skydiving at no cost to them. After the military [unintelligible [00:19:20].29] indoor skydiving center. As an instructor – I’m still an avid skydiver – I had the opportunity to take some cancer patients flying… And it’s a total transformation. It’s a vacation from everything they’re dealing with – their friends, their families are there… It’s an amazing experience. So I need to get back engaged and get some more events booked, because it’s very fulfilling to do those types of things.
Theo Hicks: And then lastly, what’s the best ever place to reach you?
Phil Capron: The best ever place to reach me – probably Facebook, embarrassingly enough. Phil Capron is my name. You can also go to PhilCapron.com. Hopefully, by the time this is out, your VA Loan and How It Can Make You a Millionaire is out, and doing stuff with that… So yeah, Facebook or the website. Just be patient with me. I’m kind of a one-man-band at this point. But I will get back to you if you reach out though.
Theo Hicks: Perfect. Well, Phil, I really appreciate you coming on the show today and sharing your experience, your advice… Just a few things that stood out to me – you talked about how you lucked into your first multifamily purchase. You were actually visiting a friend who couldn’t bring it on deal, and the broker offered seller financing. As you mentioned, your mindset is to not be willing to accept what is, and you took advantage of an opportunity to get into multifamily.
You mentioned you had some issues along the way, someone pulling out the funding last-second, but you were able to close on that deal. You might consider selling it, but as you mentioned, it’s the key that opened the door to multifamily for you.
We also talked about your second deal, the deal of the century, as you said, or at least the deal of the decade, because of the lowest price per door in the MSA’s recent history, and how it appraised for over a million dollars above the purchase price and three million dollars above the all-in price.
We talked about how you built your team, and you succinctly broke down exactly how you need to approach any type of project in life, which is to figure out exactly what needs to be done, and then where you fit into that, and then write out a list of all the people you need, and then prioritize them based on what you need most, and then work your way down that list, and we went over that. The cash to close, you needed the net worth for the loan, you needed a management company, a contractor, someone with experience, so we broke down exactly how you did that.
And then lastly, your Best Ever advice, which I’ve kind of hit on already, which was you have to not be willing to accept what is, and think about what can be, and work to make it so. Then you kind of gave an example of you were looking at a deal where the water was really high, and you found out it was because it was a broken meter, which saved you a ton of money on the acquisition, as well as ongoing expenses.
Then you also mentioned that another way to approach this is to have criteria that’s the complete opposite of what everyone else is doing, and pursue opportunities that people are ignoring.
Again, really solid advice, very applicable, especially in today’s hot market. Best Ever listeners, thank you for stopping by. Have a best ever day, and we’ll talk to you soon.