July 30, 2020

JF2158: When Is The Best Time To Get Into Multifamily With Theo Hicks & Travis Watts

Travis was a previous guest on our show, in episode JF2064 . He is a full-time passive investor who is now going to be joining me, Theo Hicks, in future weekly episodes to help educate you on the dozens of topics in real estate investing. So be sure to subscribe and stay tuned in for future episodes from this new series.

We also have a Syndication School series about the “How To’s” of apartment syndications and be sure to download your FREE document by visiting SyndicationSchool.com. Thank you for listening and I will talk to you tomorrow.

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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 I’m speaking with Travis Watts. Travis, how you doing today?

Travis Watts: Hey, Theo. Happy to be here, doing great. How about you?

Theo Hicks: I’m doing great. So me and Travis are going to start doing weekly podcast episodes. So today, we’re gonna talk about a blog post that he wrote. We’re not sure exactly what we’re going to talk about every single week. It’ll be blog posts, it might be similar to what me and Joe used to do for Follow Along Friday, but overall, no matter what we talk about, it’s going to add value to you and your real estate business.

So a little bit about Travis. I’ll read his bio today, and maybe I’ll read it every single time; I’m not necessarily sure yet. But Travis is a full-time passive investor, he has been investing in real estate since 2009 in multifamily, single-family and vacation rentals. He’s also the director of Investor Relations at Ashcroft Capital, and he dedicates his time to educating others who are looking to be more hands-off in real estate i.e. be the passive investor. So Travis writes a lot of great blog posts for the blog. So if you just go to the blog and you– I’m sure you can just type in Travis Watts, you’ll see his blog posts. The one we’re gonna talk about today is his post about when is the best time to get into multifamily, and like the answer to most questions in real estate, it depends.

So in this blog post, Travis went over a few anecdotes of his where he got started in a new investing niche during a time when the market was not doing very well. So the excuse is, “Oh, well, the market’s not doing well, maybe I should wait,” and then on the other hand, when the market’s doing really well, we’ve also got an excuse that says, “Oh, well, maybe it’s too late. Maybe I need to wait for the market to stop doing as well so I can get in at the right time.” So clearly, no matter what position you’re in, you can always have a reason why you should invest, and you can always have a reason why you shouldn’t invest, no matter what state the market is. So that’s essentially what the blog post is about. So I wanted to bring Travis on to dive deeper into this, because the two examples he gave was one, in 2009, when obviously the entire economy collapsed, and he bought his first piece of real estate in 2009. So right at the end of the crash, when it just started to pcik back up – so perfect timing there – and then he transitioned from single families to multifamilies in 2015, when as he mentioned in his blog post, there was a lot of political uncertainties that people thought would result in the economy collapsing again, there being a massive meltdown… And then now, fast-forward four years later, we’ve got the Coronavirus. So I wanted to ask him — because he said in his blog post a common question he gets from investors is “Is this the right time to invest in multifamily apartments?” I’m sure right now that question comes with the baggage of, “Well, what about the Coronavirus?” So when you get this question, Travis, what do you say?

Travis Watts: You hit the nail on the head. There’s the whole post. So enjoy… [laughs] But no, it’s so true. For those that don’t know, I spend my weeks in these 15-minute phone calls, these Q&A phone calls. Folks reach out to me through LinkedIn, BiggerPockets, Best Ever, Facebook, Instagram, whatever… And I’m happy just to network with folks, but one of the most common things I get is whatever the current event is in the news, it is a distraction from them taking action a lot of times; for those getting started, I should say. But even those experienced, it is such a common question, phrased in different ways. Should I invest now? Is 2020 the right year? Are we at the top of the market? Back in March, is this the bottom when we had the stock market collapse? There’s all kinds of this stuff. So I guess to summarize all that, there’s a lot of noise out there. Of course, the news and the media is always there to distract people, to instill fear and uncertainty, and as a result of that, it makes you want to stand still, myself included. There’s plenty of times where again, back in March, when the market just collapsed 30%, I think, holy crap, is it going to go down 60%?Is this the big collapse we’ve all been waiting for? So it puts you in that freeze, but you have to learn to ignore the noise and to sink into the facts and to decide for yourself.

This is highly individualized investing in general. Nobody can make a decision for you. It just really comes down to you, your risk tolerance, your comfort, your knowledge, your network; there’s a lot of factors there. But yeah, that’s the big picture summary of what the post is all about, is finding out for yourself is it the right time for you?

Theo Hicks: Do you have a lot of people that you talk to who are more hesitant than usual, because of what we’re going through right now? And then you said to focus on the facts. So if someone talks to you and says, “Hey, I’m afraid to invest right now,” would you say what you just told me, or would you get more specific with them to figure out, identify, specifically what it is that is holding them back? The reason why I’m asking this is to zoom back a little bit, because again, this is a podcast, we want to add value. If you’re out there and you want to raise money from people, these are the questions you’re going to get. This is the resistance and obstacles you’re gonna have to overcome. So that’s why we’re bringing Travis on here, so he can let us know, “Hey, I’m involved in speaking with these passive investors. I know what they want. I know what they don’t want. I know what’s holding them back.” So you can use the information we talk about here to help you overcome those obstacles… But yeah, let’s take it from there.

Travis Watts: Yeah, this is why I love the Q&A format when I do these calls. I never know who’s calling for what type of conversation, but to your point, it’s a lot of Q&A to the person I’m speaking with. So you’re trying to uncover what is that belief system or how much education do they have in this particular niche or space, and I try to be as much as I can be a resource for people. So a lot of times what I’m doing, especially for those just getting started, is referring them to education sources.

You wrote an amazing book with Joe, The Best Ever Apartment Syndication Book, things like that. So here’s a 400-page book, very dense, packed with knowledge, and here’s what happens… Let me explain this from a higher level. So in order to make a decision, you need to feel a certain level of certainty. So how do you get a certain level of certainty? So if you reverse-engineer that, it’s usually through education. It’s through seeing it done. It’s through networking with people who are doing it. People ahead of yourself, mentors, coaches – I’m huge on this stuff – and then also self-educating through books.

I think Robert Kiyosaki coined this – when your education goes up, your risk comes down, and I think the more you understand about a niche or a sector or an asset class or just real estate as a whole, the more you build the case for why that may be a good asset class to be in, in general.

I went crazy in 2015 with self-education and reading books and finding mentors and all this stuff, and really the takeaway from that was that it built a case for me to feel very certain on what my next step was going to be. Because quite frankly, when I first heard the word syndication, I thought A, too good to be true; B, probably some scam, these kinds of things, because I didn’t have any certainty around it. How could I? I didn’t know anyone that’s invested like that before. I’d never even heard of this before. So as far as I knew, it was some Ponzi scheme or something. But the more I surrounded myself with people doing this, the more I read books on this, the more I joined real estate meetup groups and we discussed this, and I watched webinars and YouTubes and I went nuts, I started figuring out that, hey, this does actually make a lot of sense; this is a very real thing. And as I stepped in to take the first step in my first deal, I had to sit back about six months, and I had to see it for myself. I had to actually see distributions coming in, and reporting and make sure this was the real deal, and then I just fell in love with the concept. I continued my education in the space, but not to the extent I did in 2015. That’s what led me to a level of certainty and belief that this was the right thing for me at the time. But sometimes bridging that gap is a process. For many people who maybe don’t want to read or don’t like conferences or attending groups, that learning curve could possibly take a lot longer.

So that’s what I try to advocate to folks is just educate yourself in the space, and I think you’ll build your own case as to why it may be a wise thing to do and the timing is up to the individual.

Theo Hicks: Yeah, and one thing that we talked about a lot on the blog and we talked about this in the book you mentioned and on the podcast is the two things that you need in order to be ready to move into multifamily syndications, for example… And you focused a lot on the education piece, but you mentioned from your perspective in passive investing — you didn’t just say, “Okay, I’m ready,” and then you invested in 20 deals at once. You mentioned how you did that first deal, and then you waited in order to gain that experience and get that feedback to tell yourself, “Okay, well, I learned all the things; I learned the theory. Now let’s see in practice. Does the practice line up with the theory? Is this not a Ponzi scheme? Is this the real thing?”

So I think obviously, when you’re passively investing, the experiences that you gain is a little bit different than when you’re actively doing it. But I thought it was interesting that you still mentioned that you wanted to hit on both of those. First, the education piece, and then second on the experience piece. Now, something else you mentioned in this blog post– I guess this is transitioning a little bit into active investing, but you did the single-family first and then you went into multifamily. So do you think that you needed to start off in that single-family realm in order to get into multifamily? Or do you think that you would have been able to educate yourself on multifamily, skip that step of single-family homes and go straight into multifamily? Because again, the topic of this is the best time to get into multifamily. So do I need to have some real estate experience first, or can I just go from nothing to reading books about it, podcast, mentors for a while and then jump straight in multifamily, or should I start somewhere first?

Travis Watts: That’s a great question. Another common question, too; you’ve got people all over the place. So I guess, if you would ask me in 2009 when I got started in single-family, “Hey, what about apartment investing? What about being a partial owner of an apartment complex?” I probably would have had some belief of, “Well, I’m not a multi-millionaire. I’m not a billionaire. I don’t have 30 years of experience in real estate. How could I possibly do that?” I had all these limiting beliefs like that. Come to find out, as I invest now full-time in private placements and syndications, most of the investors, in my experience, are doctors and dentists and lawyers and attorneys, and they didn’t come from a single-family background. There’s certainly a sector of us that did, and I think that helped, again, build the case for why I would want to be in multifamily.

There was a lot of pros and cons. I made some great moves in single-family, did some great things, but I also burned myself out. I also realized I hate managing tenants. I also realized I’m not very handy. I also realized– there’s so many things I didn’t like about it. So I wanted to– by the way, for those listeners that may not know, I was working an oilfield job, which was 100-hour work weeks, 14-hour days, away from home. So I’m doing that on top of scaling or trying to scale a single-family portfolio. And every property that I acquire, it’s like the light at the end of the tunnel is closing in. That’s how I saw it mentally and I thought, “Oh my god, this is not sustainable, number one, and I’m gonna burn myself out,” and that’s exactly what happened. So that was my 2015. My 2014-2015 was my burnout in single-family, but it taught me some critical lessons in it. It was like a stepping stone; I’ll put it that way. I feel like personally, I needed that education, and those pros and cons to realize that “Okay, really what I should be is a passive investor, because I love real estate and I’m passionate about cash flow and the tax advantages, and just the concept is there and it’s such a great asset class to me, but I hate being in the business of real estate personally.” This is where it’s so personal. That’s not the right answer for a lot of people, but for me it was.

So this gave me an outlet to be hands off, to be passive, to still get the advantages of real estate, but not have to be in the business of it, and it provided me scalability. Whether I had one syndication investment or 100, it’s pretty hands-off, all in all. So again, that was personal, that was self-reflection, I went through those motions. But a lot of folks are career-focused. They’re just busy professionals who say, “Look, I’m a dentist. I’m not going to pivot my career and start being a fix and flipper. I’m not going to do that, but I would like to park some capital somewhere, and maybe the stock market isn’t my favorite choice, or I’m already heavily allocated there. Let me look for some alternatives.” So to my surprise, that’s a lot of people in this sector.

Theo Hicks: So it sounds like most people either start off in active and then say, “Well, this is a lot of work. I’d rather do something else,” and then transition into passive. and then the other one would be professionals like doctors, lawyers that you mentioned who just start and stay as a passive investor. Do you ever see someone who wants to be an active investor and starts off as a passive investor, and then transitions into active, or is that something that’s pretty rare?

Travis Watts: No. Between 2015 and 2020, this whole sector has exploded with education and conferences and resources and books and all this stuff. I didn’t have a lot of that in 2015 to go off of, and so now what I hear a lot is exactly to your point, is like, “Hey, one day, I’d like to be a syndicator myself, but quite frankly, I don’t know anything about this other than I went to a conference and heard about it. So I’ve got some capital right now, I’d like to put that to work in a syndication. I’d like to see how it works. I’d like to ask my questions. I’d like to see it firsthand. And then as I’m educating and growing and learning, end up doing my own deal down the road.” That’s huge. I don’t know percentage-wise, but yeah, there’s a lot of those conversations that I have as well.

Theo Hicks: Yeah. One of the ways that we say that you can break into the active syndication route is to start off as a passive investor, because again, the things you need are education and experience, and it’s like catch-22, because in order to raise money, you need to have experience, but in order to get experience, you need to already raise money. So a good way to get into syndication is just to passively invest.

Now, I’ve got another question. So again, this is for you personally. You started off with single-family, you’ve had your 100-hour week job, and I’m assuming from both of those things, you were able to become an accredited investor, because to get the multifamily on the passive side, you need to be accredited. So I know the answer’s going to be, “It depends per individual,” but maybe walk us through if you talked to someone who really wants to get into multifamily, they really liked the idea of passively investing, but they’re not accredited. What would you say to someone like that?

Travis Watts: That’s a very common question that I get all the time. So here’s the thing – I had this illusion when I first got started that everything out there is only for accredited investors. Because you hear that thrown out there so much – accredited investors, accredited investors. So you start tp think “Well, I’m not there yet, I guess I just can’t do this.” Well, false. The majority of people in the syndication space, as you know, are operating under a 506(b), and a lot of those groups, not all, but a lot, are able to accept 35 sophisticated investors that may not be accredited in each of their offerings. Now, again, not every group will do that, but it’s an option to them as legality, if they choose to do so. So point being, a lot of groups you can invest with when you’re not accredited.

Second, there’s another regulation, Regulation A. So again, unlimited amount of sophisticated. So there’s all these different things, and these crowdfunding platforms. Outside of the syndication space, you’ve got publicly-traded REITs, Real Estate Investment Trusts, and the stock market… So I always use that example to paint the picture. If you’re interested in passive income and hands-off investing, there’s a lot of different outlets for you, including, if you’ve got 10 bucks, you can buy a share of a REIT in the stock market that delivers X amount of percentage per year. So you can literally get started in this journey with 10 bucks. So don’t feel like, “Well, I don’t have 100,000 to invest. Oh, I’m not accredited yet.” There’s plenty of opportunities out there in the space. But let’s touch on the other part of that question that you asked.

So I was an extremist. When I got started in 2009, I didn’t have a whole lot of money. Quite frankly, I had been saving since I was 15 and working. I had some money set aside for college that my parents had saved, but I ended up getting a scholarship, so I didn’t actually use that money. So I coupled the two, and that was my downpayment for my first property. Now from there, I started doing house hacking. So I actually had a roommate that was paying my mortgage. So I’m living free there. So now I’m starting to save more and more; then I end up getting this oilfield job that pays way more than what I was making at my other job, but I never changed my lifestyle for many years. So it’s this FIRE movement mentality, Financial Independence, Retire Early, in that, I was making decent money, I was living off nothing like ramen noodles like college students do, and all of that savings in between, I was pushing it into real estate. So it’s just next property, next property, and fix and flips, and vacation rentals, and house hacking and save, save, save and work, work, work. So yeah, I built a nest egg to the point that I could participate in all of these types of offerings as an accredited investor. But that was extreme, and I did that in as short of a timeframe as I could, and thank god there were things that were luck, like the market.

No one knew, by the way, when you’d said 2009, great timing… In hindsight, yes, but at the time, there was so much negativity around me. It was, “What if this thing drops another 20%? This house could go even lower next year.” I mean, there was all that fear, because no one knew it was the bottom. No one ever knows when it’s the bottom, until we can look back ten years later and go, “Oh, well, clearly, that was the bottom.” So I just had to go to the facts, man. I just had to say, “Look, this house, three years ago, sold for $165,000. Today, it’s $95,000, and the government’s giving out an $8,000 tax credit for first-time homebuyers. Facts.” So I crunched the numbers, I ignored the noise. I thought, “Well, that makes sense,” and if I get a roommate, that’ll actually just pay my mortgage. So it just makes a lot of sense. So that’s what gave me that certainty to get started despite the news, the media and my peers, and even my own family was telling me to rent. I had to ignore it, It was tough, but that’s what you have to do sometimes.

Theo Hicks: When you talk to people – and again, this can be a specific number or you can give me an average or a range, but when you talk to someone who’s [unintelligible [00:21:56].12] I guess, and they say that, “I’m ready to get started in investing,” what would be the typical amount of time for getting from that point to actually investing in a deal?

Travis Watts: Good question. Well, you have to start building relationships; it’s a relationship business. So you’ve got to find groups that align with your philosophy, your interest, the types of deals you want to be in. With the example of the 506(b), usually there’s not a set timeframe to that regulation, but usually, it tends to be like a 30 day or whatever, 60 days… Because you’ve got to have the relationship first. They can’t just submit a deal to you same day that they meet you. So usually, that’s 30-60 days later. “Oh, now we have a deal. Oh, I remember speaking with you a couple of months ago”, and then that deal isn’t probably going to close for one, two or three months after that. So I mean, you’re looking at multi-months before you’re probably in a deal, and then another month or two after that until distribution starts. So yeah, there could be a six-month timeframe.

What I always advocate people do is even if they feel ready, even if they feel certain and they’re like, “I’m ready to do a deal today. I gotta hit the wire button”, just keep continuing your education, keep networking, keep reaching out to other groups, keep learning in this process. Because you may find, after say two, three, four months, you stumble across some self-storage, and you decide, “Hey, I like self-storage a lot more.” So you don’t want to jump into the very first thing you see in here, and then six months later, learn a thing or two and go, “Ah, I’m in a five-year commitment now. I wish I hadn’t done that investment.”

I made a couple of those mistakes with a couple of operators that I first invested with without track record, without experience, that were local to me, and it sucked. I don’t know how else to put it, but it was one of those realizations as I kept continuing my education that a year later, I’m thinking, “Wow, there’s so many better operators out there. There’s just better deals, but I’m stuck. These are illiquid investments.” So you want to take enough time to not only feel certain and ready to find the right partnership for you.

Theo Hicks: Last question. So if someone’s listening to this and they say, “I’m ready. I want to get into multifamily,” specifically right now in their in their car, what’s the first thing that they should do immediately right now in order to take action towards actually getting into that first deal?

Travis Watts: I would say, know your criteria. I always come back to that first. It always starts with you as we’ve been talking about on this show. So do you want to be in A Class, B Class, C Class, multifamily, self-storage, mobile home parks, first-lien notes… There’s so many things that you can invest in. So know what it is and know why that asset class.

So I did a ton of research before I got started in 2015 on B and C Class value=add, multifamily apartments. That was my niche. And then I wanted to find — for example, another piece of my criteria is monthly distributions when possible. It’s not a deal-breaker, because that’s not the industry norm. Most people do quarterly distributions. But to me, this was going to be my income. This was turning into my own salary that I had created, so I wanted to be paid monthly, not quarterly; it’s just a personal thing. But to some other folks, they may not care. They may be investing with a self-directed IRA that they’re not going to touch for 30 years. Who cares about quarterly versus monthly? But for me, it mattered.

Then what I would do from there is say, “I know my criteria, I know what I want”, I would go networking and seeking those groups,” and that’s where I’d partnered up eventually, thank God, with Joe Fairless, because all the deals aligned with my criteria. I thought, “Holy crap, that checks every single box I’m looking for,” and that’s the key. You want to find those types of partnerships.

Theo Hicks: Perfect, Travis. Well, thanks for coming on. I hope you enjoyed it. I’m sure Best Ever listeners’ got a lot of it. Just to quickly summarize what we talked about… Again, the main topic was the best time to get started in multifamily, and the answer is, well, it depends. If you have that certainty, as you mentioned, which comes from a combination of education and experience.

So we talked about really, there’s all different types of paths. You can start actively in single-family homes or fix and flipping, and then transition into multifamily actively, and then transition into passive investing. You can start as the passive investor, you just start with multifamily, but it really just depends on what your goals are and where you’re at. You mentioned that it is possible for people to go from passive investing into active investing, because that’s a great way to gain experience without having to do large multifamily deals by yourself. If you’re not accredited, that’s okay. There are still opportunities for you out there to work your way up to the point where you are accredited.

Something that I really liked that you said was when you are ready to invest, make sure you don’t just stop what you’re doing, and then wait six months or a year until a deal comes, but to keep educating yourself, because you might find that a different asset class or a different niche entirely is more conducive with whatever your goals are.

And then the first thing that you should do right now if you are interested is to define your criteria, and then define why that is your criteria. So you can write that down. Obviously, it may take a little bit of time educating yourself on what the criteria is, and this is definitely an evolving process, as you mentioned, which is to continue to investigate these things until you actually invest. I think we really hit on most of the things that people need to know to get into multifamily. Anything else you want to say before we conclude the episode, Travis?

Travis Watts: I guess, just in conclusion, I don’t know if I already said this or not, but the point is, everybody has an opinion, but the only opinion that matters is yours when it comes to choosing your future, where you want to go, what you want to do. So try blocking out the noise, essentially; go inside and just decide what’s right for you.

Theo Hicks: Alright, Travis. Well, thanks again for joining us. Looking forward to our talk next week. Best Ever listeners, as always, thank you for listening. Have a best every day and we’ll talk to you tomorrow.

Travis Watts: Thanks, Theo.

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