David started investing when he was 19 during his junior year because he didn’t want to go the corp route. Broke, no money, no ability to get a loan, and put a 12-unit under contract. He had about 120-units syndicated before he graduated college. This is a must listen to episode If you want to learn how to overcome the objection “You have no experience.”
David Toupin Real Estate Background:
- Real estate investor and entrepreneur, Co-Founder of Obsidian Capital, a real estate investment firm
- By the age of 24 he has acquired nearly 600 apartments valued at over $50M, and has a $10M new development projects working on now
- Based in Austin, TX
- Say hi to him at https://www.obsidiancapitalco.com/
Best Ever Tweet:
“The answer to the question “You don’t have any experience, why should I invest with you?” The answer to this question was the numbers. Showing them proof that it is a good project” – David Toupin
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, David Toupin. How are you doing?
David Toupin: I am doing fantastic, man. How are you?
Joe Fairless: I’m glad to hear that, I’m doing fantastic as well. A little bit about David – he’s a real estate investor and entrepreneur, co-founder of Obsidian Capital, which is a real estate investment firm. By the age of 24 he has acquired nearly 600 apartments, valued at over 50 million dollars, and has ten million dollars’ worth of new development projects that they’re working on right now. Based in Austin, Texas. With that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
David Toupin: Absolutely. Thanks for having me, man. I started investing – to give you the short version – when I was about 19, turning 20, in college. It was my junior year. [unintelligible [00:01:38].27] internships, didn’t wanna go the corporate route, so I started looking at buying multifamily properties. I was broke, had no money, had no ability to get a loan, and I put a 12-unit under contract in Michigan, near where I grew up… And that was like “Oh, crap. How do I buy this now?”
Joe Fairless: Where in Michigan?
David Toupin: It was in Metro Detroit, a city called Garden City, so a C area. Nothing sexy about this property at all, but it was something I ran some numbers on and it worked. I made an offer, and at that point syndication wasn’t really — I don’t know, were you doing your podcast in 2016?
Joe Fairless: Yes.
David Toupin: Okay. There weren’t as many podcasts and sources out there at that time as there are now for syndication… So I just kind of stumbled across a little bit of stuff and figured out I could put a PPM together, raise some money. Long story short, I raised a couple hundred thousand dollars, found somebody to sign on the loan, I bought that… Then I did it a couple more times. I had about 120 units syndicated before I graduated college.
Joe Fairless: How many units?
David Toupin: 120.
Joe Fairless: Wow. Before you graduated college… [laughs]
David Toupin: Before I graduated college.
Joe Fairless: Where were you going to college?
David Toupin: University of Detroit Mercy, studying finance. I didn’t really go all that often. I skipped most of my classes. My conversations with every teacher in the beginning of the semester went mostly with me telling them that I work a lot, and that real estate is my focus, so I’ll come when I can. [laughs]
Joe Fairless: Did you get a degree?
David Toupin: I did, yeah. I got a finance degree.
Joe Fairless: Nice.
David Toupin: And I just kind of kept doing that. I partnered up with a guy out of Texas after I bought about a little over 200 units. He had owned about 4,500 apartments throughout Texas, sold most of them; he was twice my age, extremely smart guy, very humble. We saw eye to eye morally and ethically, and had some bad experiences in the past, so we thought that it would be a good idea to partner up… So we did that. We bought a deal together in Houston, it went fantastic. 160 units. So we started Obsidian Capital together a little over a year ago, and we’re approaching the 600 unit mark together. We own some land and are doing some new development now.
Joe Fairless: Boy… We have a lot to talk about. Okay, let’s just go from a chronological standpoint… You were in college, you got the 12-unit under contract, you didn’t have any money, you raised a couple hundred thousand dollars and you got a co-signer. Was the co-signer also someone who brought in some money?
David Toupin: Yeah, I think maybe 25k.
Joe Fairless: How did you meet the co-signer?
David Toupin: Just through networking. It was another local fix and flipper. I started doing some wholesaling and flipping, so that was someone I’d met and we partnered on that deal.
Joe Fairless: So you were doing wholesaling, and through the wholesaling business you met this fix and flipper, and then this fix and flipper co-signed. What was the liquidity and net worth required that you needed help with at the time?
David Toupin: So the purchase price was 560k; 45k/unit was the purchase price. So probably half a million in net worth, and a couple hundred in liquidity.
Joe Fairless: Okay. And the couple hundred thousand that you raised – who participated in that deal? Not names obviously, but just how you met them.
David Toupin: Yeah, we would call from friends and family category. Not really family, just more friends and people I had networked with. I think we had 6-7 people in at anywhere from 20k to 50k. The total amount was about 200k.
The majority of those were other local entrepreneurs, somebody who has owned an insurance agency, somebody who flipped houses… So just a couple of people who wanted to invest in something passively, and we were able to get them in on that.
Joe Fairless: What’s the answer to the question, when it was asked to you, “You don’t have experience. You haven’t done this yet. Why should I invest with you?”
David Toupin: The answer to that question was the numbers… And I think that was a big thing for me, as I’m a big analytical/numbers person. The easiest way to overcome that objection was showing people proof that it was a good project. Showing them the price compared to other comparable sales, showing them the rents compared to where properties on that street were getting, so that I can increase them, and showing them the proforma… It really helped me to overcome the “Hey, you’re only 20 years old and you’ve never done a deal before” objection. I got that a lot, although [unintelligible [00:06:09].05] I don’t get it as much now, but through my third deal, where I had to raise 1.7 million on a 96-unit – and that was extremely difficult, overcoming the age and track record.
Joe Fairless: Say it’s a cynical investor and the numbers and the market data speaks for itself, and then they say “That’s great, David. The numbers do look favorable, but you’ve never executed on the business plan. Anyone can be a spreadsheet millionaire. Why should I believe you can execute the business plan?” What was your response to that?
David Toupin: My response is I’ve toured all of the comparable properties in the market, I’ve met with management companies, discussed the business plan, and the fact that it’s only a 12-unit project doesn’t leave a ton of room on the table for failure when it’s a high-occupancy market. And the property is already fully occupied. From there, it’s really me walking them step-by-step what the plan was gonna be. Getting tenants out one by one, as their lease is renewed, and offering them to stay at the new renovated rent mark. If they didn’t wanna stay, their lease would end, they would move out, and we would renovate it and bring in somebody else at that higher rent mark.
So just kind of walking them through that process made them more comfortable… But to your point, there were a lot of people that heart that and said “No, I’ll pass”, and they weren’t comfortable with it. So it really came down to having a lot of people look at the project, to say “I’m interested. Yes, I’ll invest with you. I’ll take a chance.”
Joe Fairless: And how did you get to that number of people for your first deal? What were your avenues?
David Toupin: A lot of them were people through meetups, local groups… I would ask for referrals. The guy that signed on the loan – he brought in his network… So I think the key is networking.
Joe Fairless: That’s helpful, when you have a relationship with an influencer who’s signing on the loan… So in this case he believes in the project, clearly, otherwise he wouldn’t be signing on it. And then he’s already got connections with others. So what percentage of investors came through that investor’s connections?
David Toupin: I would say half and half.
Joe Fairless: Cool. That’s a great way of doing it. How did you structure it with that investor, in terms of general partnership fees and ownership?
David Toupin: We split it all evenly. So we did an 8% preferred return to investor, with 80/20 split over that. Then 3% acquisition fee on the purchase price, and then myself and him split all that down the middle.
Joe Fairless: Cool. Do you still have it?
David Toupin: We do not, no. It sold out a little over a year, and actually another 12-unit we bought just down the street from that – same thing, same structure, same partnership, and we sold that one as well.
Joe Fairless: Okay. That was deal number one. And then deal number two was — what did you say, a 20-unit?
David Toupin: Deal number two was another 12-unit, on the same street.
Joe Fairless: Oh, that one. Okay. We’ll skip that one. How about your third deal that you mentioned? I think you said it was a 1.6 million raise?
David Toupin: Yeah, so it was a 1.7 million raise…
Joe Fairless: Okay, 1.7…
David Toupin: And it was 96 units. We got it from a mailer… It’s a really interesting story. The guy owns over a billion dollars in real estate. He’s a local Michigan, old-school (71-72 years old now) investor, and he’s really heavily invested into senior living developments, and hotels, and stuff like that; class A apartments. This was a ’79 build, 96-unit, in a B minus area, that he had built 40 years prior, and owned free and clear, so he held it the whole time
We got a call from him, and he was open to selling, from a mailer. That was just a really simple “Hey, I see you on this property. Interested in making you an offer? Give us a call if you’d like to sell.” Timing worked out. We ended up building a good relationship with the guy, negotiated a good price, and we bought that one off-market for 43k/unit; we renovated it, we’re all-in for about 50k/door, and about six months ago sold it for 70k-71k a unit.
Joe Fairless: Bravo.
David Toupin: That one did very well. Thank you.
Joe Fairless: This was your third deal at the time; you’ve bought two 12-units up to this point. You’re sending out mailers, and the owner who owns over a billion dollars of real estate calls you up. Were you a little nervous?
David Toupin: I had no clue, to be honest with you. My first conversation with the guy, I had no clue. He said he owned a lot of real estate. He was like “I own a couple thousand units free and clear, and I own this and that”, and I was like “Alright, maybe… Is this guy the real deal?”
Joe Fairless: That could go one of two extreme directions.
David Toupin: Exactly.
Joe Fairless: “Hold your wallet and hide your kids” or “Okay, this could be a long-term partnership thing.”
David Toupin: Exactly. And it was super-interesting. I ended up building a good relationship with the guy. And coming from those first two 12-units, I ended up partnering with the same game on this one as I did the first two 12-units. He sponsored the loan again, and we raised equity together… So I actually built a really good relationship with the seller, and I think that’s what really helped to get the deal done.
And Joe, I ended up living in this deal, and kind of house-hacked it. It was one of my greatest learning experiences. I was 21. We bought it in 2017, and I got in, oversaw about a half a million dollar renovation, which I had never done before… Self-managed the deal. Freddie Mac small balance loan. I’m not sure why they let us self-manage it, but they did… And I had an on-site manager and maintenance person. I took a two-bedroom, I kind of tricked it out, I lived in it, and it went really well.
Joe Fairless: What do you mean, you tricked it out?
David Toupin: I renovated it, did kind of a cool renovation on it, and then I also paid the highest rent on the property.
Joe Fairless: [laughs] Got it. So you ended up buying this property and living there… What were some challenges overseeing that type of renovation project, having never had done that before?
David Toupin: I don’t even know where to start. It is a big process, managing that kind of a renovation. I will say, I got it done under budget, but it took probably six months longer than it should have.
Joe Fairless: Okay.
David Toupin: The biggest thing is — if I were to do it all over again, I would have vetted three general contractors to oversee the unit renovations, and I would have tried to put one group in place that could tackle all of the unit renovations from start to finish. When a unit moves out… They’d do 2-3 units a month, and when somebody moves out, they’d go in there and knock it out.
We tried out three different small-time contractors. One was a group of 3-4 brothers… We call them van contractors, that work out of a van. A couple guys. So it was just a hodge-podge of renovations. We ended up hitting the rents, but the unit turns took longer than they should have, it wasn’t the same quality level across the board… And if I were to do it all over again, I would have just hired one group to tackle all the unit renovations, to keep it consistent and to keep it easy.
Joe Fairless: You said you had bad experiences in the past, you and your new partner. So what was your bad experience?
David Toupin: The business partner I’ve had on some of these deals did not see eye to eye in a lot of areas… I’m very by the book, I would say, and reputation is important to me, and making ethical decisions is also really important to me. That’s kind of how I was raised, and I think that’s how you should act in business… And I didn’t see that from this partner, so I just decided “Let’s sell everything off, we’re gonna do well, and let’s part ways on a good note.”
Joe Fairless: Yup.
David Toupin: That’s kind of what happened… And it led me to find my current business partner, who sees eye to eye with me exactly, and it’s a really good situation. So no regrets. You have to go through that kind of stuff, to learn and figure out what works, what doesn’t work. And I guess if I have any advice or suggestions on that to other people – I know a lot of people getting into this business, syndicating or partnering, and starting groups and stuff… Just try it out. Do a deal separately, before you go and start a business with somebody; just test run it, and see how you operate together before going down that road.
Joe Fairless: Yeah. And you ended on a high note, and everyone made money, and then they brought you to the current partnership. What are some examples of the ethical dilemmas that you came across?
David Toupin: Situations where — let’s say, for example, we were to have the ability in an operating agreement… So this is the structure of that deal; the goal was to go in, renovate it, bring the value up within a couple years, refinance, get all the capital back to investors… Our equity would then go up to 50/50. Then we were gonna hold long-term, that’s what we told them.
So what was brought up was “Hey, why don’t we refinance, our equity goes up to 50/50, and then we sell the property?” I was like “Well, that doesn’t make a lot of sense and that doesn’t look too good on us. I don’t think that’s something that we should do.” It was pretty obvious that the goal was to refinance, our equity goes up, and then we sell it and WE make a lot more money. But that was not ethical in my mind. That wasn’t the plan we discussed. And if we’re gonna sell the property now or in the short-term, we should just sell it and give them the profits that they should get.
Joe Fairless: That would burn some bridges… [laughs]
David Toupin: It was a pretty clear [unintelligible [00:15:42].20] So things like that…
Joe Fairless: It was tactically sound, but come on… If you wanna do another deal, and just wanna look yourself in the mirror…
David Toupin: Yeah, good luck doing another deal with those investors.
Joe Fairless: Right. And there is a ripple effect with that too, word of mouth.
David Toupin: Absolutely, there is. It’s a small world, and you’ve gotta be really careful who you’re working with. Not to get too deep into all that, but it’s something where — that kind of stuff is really important to me, to act in our investors’ best interest and by the book.
Joe Fairless: What was the challenge that your current business partner had in the past?
David Toupin: He had a business partner that — they owned about 300 million dollars in real estate together, and after a couple years he wasn’t really pulling his weight, and stopped showing up to the office a lot… And once they started making a lot of money, he was–
Joe Fairless: Jetsky-ing, and gallivanting around…
David Toupin: Exactly. He was going out and buying Ferraris instead of being in the office, putting together deals. So for him it just wasn’t working out anymore, and… Glenn’s a lot like me, he’s a very ethical guy, and there were just things that he was seeing that he didn’t like anymore… So they decided to do the same thing, “Let’s sell everything off.” So because Glenn and I went through a similar experience, we told our stories and we’re like “Man, we might as well try partnering, because we really went through the same thing and see the same way, and see eye to eye, so let’s try this out.”
Joe Fairless: Alright. You went to development – why are you doing development?
David Toupin: So I moved to Austin, Texas in the past year, so I’m down here now where he lives… And we’ve found a piece of land, it had a good price, it was already entitled, ready to build… We’ve been wanting to get into development for a while. It’s a really, really good market down here for development. Absorption is great, solid rental rates here in Austin, and it’s just growing like crazy. Right in the path of progress where this project is, and it made a lot of sense.
To do this size, sub-100 units, to us was a great way to start getting into development. We didn’t wanna start doing a 200-unit project. The 50 to 100-unit range is a great starting place for that, because you can still do a HUD loan, and it’s easier to get in without having prior development experience.
Joe Fairless: How was it easier — I think that it’s just more units, but it’s the same process.
David Toupin: I just noticed after talking to a lot of lenders and other people who have developed before, they just suggested starting at that level is gonna be a lot easier to get into, and to qualify for a loan, and just to really cut your teeth on, as opposed to going into that 100-200 range to start.
Joe Fairless: On the project level, what are the projected returns for this development deal?
David Toupin: We’re in the high teen IRRs on a five-year. This is kind of our projection. But we plan to hold this long-term.
Joe Fairless: And that’s on a project level ?
David Toupin: No, investor level.
Joe Fairless: Oh, okay. Yeah, on a project level.
David Toupin: At project level it’s gonna be low to mid twenties – 22, 23 internal rate of return.
Joe Fairless: And I’m assuming based on how resourceful you were in college and leading up to this point you’ve also been looking at other opportunities, existing product. First off, is that a correct assumption?
David Toupin: Yes, that’s mainly what we do, is existing.
Joe Fairless: So I imagine that you could find existing product with a value-add business plan that would be a similar project-level IRR projections… And if that is the case, then why go through the risk of ground-up development?
David Toupin: A couple of reasons. One is we have several investors that are really interested in new development, so that sparks our interest right off the bat, because we know that we have the equity behind us.
Second of all, it’s something that we’ve been really interested in, and we want to have as kind of a branch for our company going forward, the new development side of things. And then lastly, it’s not something that we’ll do anywhere; it really depends on the location. And for what we’re doing and what we’re building, in Austin, for example, a B class product, if you’re buying an ’80s or ’90s product, it’s selling for anywhere from 120k to 150k per unit right now.
We’re building this for 108k a door, and it’s gonna be brand new. And with land, we’re closed to 130k. So we’re all-in in that mid-range of where a ’90s product is selling. So to us, that just clicked. It just makes sense. Why would we buy in Austin an ’80s product for 130k a door, when we can go and build brand new, higher-quality for around the same price?
Joe Fairless: Based on your experience, what’s your best real estate investing advice ever?
David Toupin: Oh, man… My best advice ever in real estate is know the numbers. If you know the numbers, you will make smart decisions, as long as you’re conservative, and you will really be able to talk to anyone about it, from investors, to lenders, bankers, partners… Knowing the numbers is your greatest tool.
Joe Fairless: We’re gonna do a lighting round. Are you ready for the best ever lightning round?
David Toupin: Let’s do it, man.
Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.
Break: [00:20:55].09] to [00:21:39].10]
Joe Fairless: Best ever resource you use to stay up to date with what you need to stay up to date with, business-wise?
David Toupin: CoStar News.
Joe Fairless: What’s a mistake you’ve made on a transaction that we haven’t talked about already?
David Toupin: A mistake I made on a transaction… Not going to the right lender from the start.
Joe Fairless: And what do you do now, what questions do you ask to determine what the right lender is, or which one is not the right one?
David Toupin: Well, I’ve learned which — project-specific… In the beginning I didn’t know about agency loans, so I went with regional bank loans, when we should have done agency, just because we didn’t know about it. So I guess that was a mistake that would have been solved by knowing the right lender to work with.
Joe Fairless: Best ever way you like to give back to the community?
David Toupin: Educating other young people that are in their twenties, and in college, and that want to get into real estate.
Joe Fairless: And how can the best ever listeners learn more about what you’re doing?
David Toupin: You can follow me at Instagram @realestatejedi, Facebook – look me up, David Toupin, or website ObsidianCapitalCo.com.
Joe Fairless: Well, thank you so much for being on the show and talking to us about the early deals, the 120 units you had syndicated before you graduated college; fist bump to you, I’m raising my fist right now to you… And congratulations on what projects you have upcoming, as well as finding a business partner that aligns with the way you think and the way you wanna approach business.
I enjoyed our conversation, I learned, and most importantly, Best Ever listeners, I hope it was valuable to you. Thanks so much for being on the show; I hope you have a best ever day, and we’ll talk to you again soon.
David Toupin: Thanks. I appreciate it.
