After filing Chapter 7 bankruptcy at 35 years old, Nate Barger decided it was time to get more creative with his investments, so he shifted gears to hotels. Now, he’s working on an $80M Hilton build in Sarasota, FL. Nate talks about hotel scalability potential, possible risks of hotel investing, and why he would choose hotels over multifamily any day.
Nate Barger Real Estate Background:
- Full-time real estate investor
- 16 years experience
- Actively involved as syndicator, syndication, apartment owner, hotel owner, warehouse, office
- 1500+ current doors
- Owns over $100 million dollars assets under management
- 4 hotels including a Hyatt, Hilton, and Marriott
- Based in Cincinnati, OH
- Say hi to him at: www.NateBarger.com
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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the Best Real Estate Investing Advice Ever Show. I’m Joe Fairless. 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 the fluffy stuff. With us today, Nate Barger.
How are you doing, Nate?
Nate Barger: Man, I’m doing awesome, Joe. How are you doing today, brother?
Joe Fairless: I’m glad to hear that. And I’m doing awesome too, thanks for asking. A little bit about Nate—he is a full-time real estate investor, he has got 16 years experience. He’s actively involved in multifamily and hotel investing, although he’s also got experience doing lease options on warehouses and buying office buildings. So he runs the gamut from a commercial real estate experience, but current focus is multifamily and hotel, so we’re going to talk about that. He’s based in Cincinnati, Ohio.
So with that being said, Nate, do you want to tell the Best Ever listeners a little bit more about your background and your current focus?
Nate Barger: Absolutely. Hey, Joe. Thank you guys for tuning in. And thank you for having me on, Joe. So my background really is, I started off — I grew up in a poor family, like a lot of millionaires. 88% of millionaires are self-made. 90% have made their money in real estate, which hits me to a tee.
So I grew up in a normal blue-collar alcoholic family, and by the time I was 14, I was sent away to military school. By the time I was 22, I had been in and out of prison twice for selling drugs and had four felonies, so McDonald’s wouldn’t even give me a job. So I had to figure something out. So I went on, and I continued to sell drugs, and I was lost and didn’t have any guidance at all, till I was 29 years old. And I just was honestly sad. I was really kind of depressed. And that’s weird, because if you look at my life now outside looking in, it seemed that I had everything. I had money, I had a nightclub, I had cars, women, everything that you think would make you happy in the world.
But I knew I was going to go to prison if I didn’t stop doing what I was doing, so I cried out to God and he showed me real estate. And I met Mike Healy, who is my partner, and continue to do partnerships with, and that wasn’t the end though; you’ve got to keep pushing, man. I probably had 20-25 businesses where I just continued to fail in life.
Joe Fairless: Wow.
Nate Barger: You just keep getting up and—
Joe Fairless: That’s a lot of businesses.
Nate Barger: It was, but I was funding it with drug money. So it wasn’t like—I didn’t want to sell drugs, it was all I knew. I never had a job in my life, except I think I worked at Rally’s for two weeks, and they said I wasn’t a very good worker.
Joe Fairless: Would you agree with that, looking back on it?
Nate Barger: Well, yes, I wasn’t passionate about flipping burgers, you know. I was passionate about eating burgers, but now flipping burgers – that wasn’t me. So—
Joe Fairless: You and I share the same passion in that regard.
Nate Barger: So I got into real estate investing at the best time, it was 2005/2006. And I got overextended pretty quickly; I had a couple big warehouses with single asset tenants, and Mike had kind of went his own way, I kind of went my own way… That was about 2006. But then about four years, I got up to 250 units and I had two large industrial buildings and I was bankrupt. So I had to learn really quick how to negotiate with banks, how to do short sales, how to buy mortgage notes, how to syndicate capital, because everything that I had — two options, either go back to selling drugs, which I wasn’t going to do, or I figured this thing out. And I had a family by that time, I had a wonderful wife who’s still with me today, and Caden had to be four years old. So I had no choice but to succeed, I saw no other choice. You give up or you keep pushing. So—
Joe Fairless: So this was around 2010 whenever you were bankrupt, and you had the 250 units and two large industrial buildings?
Nate Barger: Yep. Correct.
Joe Fairless: How old were you?
Nate Barger: I would have been 35.
Joe Fairless: 35, alright.
Nate Barger: Mm-hmm.
Joe Fairless: 35 years old, this is six years after you had the epiphany where like “I’m depressed, even though I’ve got (as you said) the nightclub, the money, the women, but drugs is the common thing among all of them, so I know my days are numbered in what I’m doing, because eventually it’s going to catch up to me again.” So six years after that, you have acquired 250 units, two large industrial buildings, but you’re bankrupt.
Nate Barger: Chapter seven bankrupt too, not just bankrupt.
Joe Fairless: Okay, do you mind me, what’s chapter seven bankrupt? What’s the significance?
Nate Barger: It means that your net worth is negative, pretty much.
Joe Fairless: Okay, got it.
Nate Barger: It doesn’t mean, “Hey, you can restructure, maybe you’ve got some hope.” It’s like, “Hey, man, we’ve got to start over.”
Joe Fairless: Yes.
Nate Barger: So, it was there.
Joe Fairless: Okay. And before we go into you negotiating with the banks and learning that — the 250 units, how many buildings was that approximately?
Nate Barger: There were a lot of single-family homes, I probably had 50 or 60 single-family homes, I probably have 15 or 20 four-units. I had a couple larger buildings; the largest I had was a 41, and a 25, and then everything else was kind of in between, so…
Joe Fairless: Okay.
Nate Barger: It was scattered sites, 20 different locations, probably.
Joe Fairless: Okay. And then—
Nate Barger: No, it was more than that, because I had 50 plus, probably I had 70 different sites; it was a lot.
Joe Fairless: All around Cincinnati?
Nate Barger: Well, I had some in Northern Kentucky and I had some up in Dayton as well. So—
Joe Fairless: Okay.
Nate Barger: And then I had some out in Clermont County, so I didn’t have a clear direction, a clear path to what I was doing. I was just kind of buying, I didn’t have any direction.
Joe Fairless: Right. Okay, so a little north of Cincinnati, a little south of Cincinnati, and a little east of Cincinnati, and then also Cincinnati.
Nate Barger: Correct.
Joe Fairless: And the two industrial buildings – will you just describe each of those?
Nate Barger: Yes, so those were larger warehouses, and I had triple net leases on them. But what I didn’t understand back then was that your building is only as good as the leaseholder. And even though these guys had paid and consistently paid, they were small business owners, so they didn’t have the capacity to make it through the cycle. When they’re 30 and 60 and 90-day net accounts stop paying them, they essentially didn’t have any more money, and they turned over the keys, but couldn’t go after them and say, “Hey, I’m going to come after you,” and, “Well, come on, there’s nothing there to get.”
Joe Fairless: Mm-hmm.
Nate Barger: And then there was also – I personally guaranteed all of them, because I didn’t know at the time that there was any other option. I also renovated one and got it re-leased. And that tenant immediately defaulted, after I put almost $200,000 in it to renovate it. So there was nobody really back then to rent to. In Cincinnati, it was that bad in the warehouse space.
Joe Fairless: Mm-hmm. Okay. And the 250 units – I get what happened with the two large industrial, those businesses couldn’t support the rent, and you personally guaranteed those. What happened with approximately the 250 units? What went wrong?
Nate Barger: Well, some of that was cross-collateralized with one of the warehouses. And then I had what’s called a cognovit note, which you guys got to be real careful signing one of them. And I didn’t know, I was so young at the time. And like I said, I didn’t go to school, I just was kind of learning by taking knocks on the head. And we didn’t have Joe Fairless to listen to back then and get any advice. So it was really hard—
Joe Fairless: Well—
Nate Barger: —to get information back then.
Joe Fairless: You’re about to teach me something. Say it again, what note is it?
Nate Barger: Cognovit, C-O-G-N-O-V-I-T. The way I found out that I no longer had control of my properties was tenants called and said, “Hey, Nate, there’s some old white guy here saying these are his properties.” I said, “I could assure you they’re not his properties,” because I didn’t go to court. I didn’t get served any notice. The bank just put a receiver in place and took them right out from underneath me. They’re only legal in several states, and Ohio was one of them.
Joe Fairless: Hmm. Okay. So why were they in distress to begin with?
Nate Barger: Because they were cross-collateralized with the commercial.
Joe Fairless: Oh, okay, got it. What percent of the 250 would you estimate was cross-collateralized?
Nate Barger: Maybe 10% or 12%.
Joe Fairless: Oh, so not a lot.
Nate Barger: Not alot.
Joe Fairless: So what happened to the other 88% to 90% of the units?
Nate Barger: Well, the values dropped significantly. So I became overleveraged overnight. So I said, “Man, going through bankruptcy, these things aren’t worth hanging on to.”
Joe Fairless: They weren’t cash flowing?
Nate Barger: They were cash flowing, but it was to the point to where I could go out and buy cheaper than what the amount of debt that I had on a lot of them.
Joe Fairless: Okay.
Nate Barger: So we used that to come in and negotiate, and Mike helped me negotiate a lot of those. We came in and we did short sales with a bunch of them. And I still own a lot of them to this day, because some of them I was able to get from the banks, get back for free, because when they were sending [unintelligible [00:08:48].20] I think Bank of America sent me one… Who else…? Maybe Chase. All the big guys that were taking over. And I went through the whole process, I learned about MERS, the mortgage electronic registration system… And they were coming in saying, “Hey, Nate, you owe us XYZ money. And this is our house.” And I said, “Prove it.”
So what happens is when they serve you, you have the opportunity to answer the complaint. And one of the things in the complaint that we answered really heavily was “prove the transfer of title” and they couldn’t prove it. So they couldn’t prove the transfer title, they couldn’t take these properties from me. Some of those properties, I ended up getting back free and clear, and the mortgages wiped off of them, I think four or five of them.
Joe Fairless: Wow. Single families or what?
Nate Barger: Yes, those were just single families.
Joe Fairless: Okay.
Nate Barger: When you give up, you lose, right? When you continue to fight, you may get knocked down again, but if you keep getting up and you keep moving forward, eventually you will succeed, as long as you learn from your mistakes. So my multifamily did really well. My single family hurt me though, because there weren’t a lot of people that had money back then, and looking back on it, it’s like, “Wow, how could that have been?” But a lot of my properties were in low-income areas. They were in Avondale. They were in Evanston. They were in the areas that you want to buy now, but they were in areas back then that we were just buying because they were cheap and you had great cash flow. We didn’t understand appreciation, we didn’t understand basic jobs… So we didn’t understand any of that stuff.
So we were just buying strictly cash flow. But what happened when them old houses went vacant, they weren’t $2,000 to $3,000 turnovers, they were $5,000 to $6,000 turnovers. And even when you turned them over, there was little demand for anybody to rent them. So that’s what made me really understand that multifamily was much better, much more scalable, easier to keep full, and a much easier to maintain and do turnovers on.
Joe Fairless: When you’re in a low-income area and you have lower rent, but then you have a turnover, that turnover could be a similar cost compared to if you’re in a higher-income area. A similar cost; not the same. But you don’t have the rents to support that turnover costs, so you could be in trouble there.
Nate Barger: Rents back then for 2,000 square foot three bedrooms were $800 bucks, maybe $850. So you’re 50 cents a foot, 40 cents a foot.
Joe Fairless: What are those homes worth now, that you own, that you got back because the banks couldn’t prove the transfer of title?
Nate Barger: One of them’s probably worth a buck fifty…
Joe Fairless: What did you buy for, do you remember?
Nate Barger: I do; it was one of my first houses ever, I paid $4000 for it. I put $34,000 in it. So I had $38,000 in it, it took me 38 days. And I learned hands-on in that house, Joe, because I was out there with the framers and I was nailing and figuring out how you do framing and measuring and everything. That’s how I learned so much about construction. So when I got done with that house, I had $38,000 in it, I went and did what’s called the BRRR, it appraised at $95,000. And the bank even back then when we were doing NINJA loans, which is—you guys know what NINJA loans are, right?
Joe Fairless: Refresh memory.
Nate Barger: No income, no job, no assets.
Joe Fairless: Oh, yes.
Nate Barger: They were just giving everybody loans out. So it appraised at $95,000. The bank said, “Hey, we just saw that you just bought this thing a month and a half, two months ago, whatever.” They said, “We want to get a second opinion to appraise one, and you’re going to have to pay for it again.” So I said, “Well, do we really have any options?” And Coldstream Mortgage, my buddy owned that, and they were doing a lot of mortgages at the time. So we got one and it appraised at 105, $10,000 higher, two weeks later. So I said, “Can I use that one?” So they said, “Maybe pay for it?” And I said, “Well, yes.” So they gave me $90,000 cash out. I think after fees, I walked out with about 86 grand, so I had the original $38,000 back plus another $50,000. I went on to buy more, and buy more, and buy more and buy more. And like I said, if you look at long-term trends on rents, rents have not really went down; housing values may fluctuate, move a little bit, but rents typically do not move. So that’s where I started to understand where I messed up, was getting them single asset buildings with them investors that didn’t have any credit [unintelligible [00:14:54].19].
Joe Fairless: So that was one of the homes where the bank couldn’t prove the transfer title, correct?
Nate Barger: Correct.
Joe Fairless: Why is that?
Nate Barger: Back in the early ’90s, the banks, what they would do is they would take and they would bundle all these mortgages together, and they would sell them. And so you’d would have a pool of $50 million, and then they would sell to a pool to be in $150 million, and a half a billion; it would transfer four or five times in a week.
Joe Fairless: Well, they still do that, don’t they?
Nate Barger: I’m sure they probably do, but they probably had their paperwork in order now.
Joe Fairless: Okay.
Nate Barger: So what they were doing is they were jumping and they weren’t transferring it from this buyer to this buyer to this buyer to this buyer…
Joe Fairless: Oh.
Nate Barger: So there was no paperwork to show the proper transfer. Then – let’s just use Countrywide. Countrywide was a big bank back then, you guys remember them?
Joe Fairless: Oh, yes.
Nate Barger: Countrywide died. So they came back to Countrywide, and they said, “Hey, Countrywide, look, we need you to sign this paper. You never signed it over.” “And since they did not record it at the recorder’s office like they were supposed to, because it would it took forever, because the government takes 2-3 weeks to do something, they created what was called MERS, which is Mortgage Electronic Registration system, and they just kind of internally kept track of everything. But that system was good for them. But when you go to court, you say, “Hey, I want to see the transfer of title.” So Countrywide, what they started doing was forging this stuff. They were doing what’s called Robo signing; they were hiring people for $10 an hour to sign it, and they got busted, it all got torn apart, and there were big lawsuits because they were forging documents and taking and presenting these documents in front of court, basically lying and saying that, “Hey, here’s the transfer.” The transfer date was after the day that Countrywide died. So how?
Joe Fairless: Right.
Nate Barger: Like, they died—they died in 2010 and this was signed in 2012. Like, “Wait a minute, what’s going on here?” And so it was—it got torn apart, and there was so much pressure on them. I remember one time I went in front of the magistrate or the judge, and the attorneys, when we asked him for proof, he said, “Well, Your Honor, this is the way that we’ve been doing it for years.” And the magistrate said “Just because you’ve been doing it that way for years and getting away with, it doesn’t mean it’s legal.” That was their defense. They had no defense to say, “Hey, here’s how we know we own the property.”
Joe Fairless: Yes, “I’ve been doing it for years” wouldn’t have flied when you were talking to the judge about drug stuff, right? Like, “I’ve been dealing for years and no one said anything.”
Nate Barger: Oh, wait, wait. Hey, Joe, I got something for your viewers, man. What was that the guy told me, man? You guys all have problems with contractors, if you’ve done any amount of renovation… And I come in, and I was telling them, “Hey, that’s not the proper way to do it.” And you said, “Well, I’ve been doing it this way for 20 years.” I said, “Well, look, man, before you retire, we’re going to make sure you do it at least one time right”, and this guy wanted to fight me, man.” But I’m kind of—I’m a big guy, I’m like 6’3, 6’4, 300 pounds. So when he stood up, he was like, right here. And he’s like—
Joe Fairless: “Nah, I’m good.”
Nate Barger: Yes, I was laughing because I thought it was funny, but he didn’t think it was a good joke.
Joe Fairless: Let’s segue to hotels right now. So you all currently control, not just hotels, but you all currently control over $100 million worth of assets under management, and that includes apartments and hotels. Is that accurate?
Nate Barger: Correct.
Joe Fairless: Okay, four hotels; a Hilton, a Marriott and what else?
Nate Barger: Two Hyatts, and then we got another Hilton; we’re building a Hilton down in Sarasota, which that’s about $70 million to $80 million project right there. And oh, we have an IHG we’re buying, which is a Staybridge.
Joe Fairless: Let’s just talk about the one in Sarasota. I’m just picking it out of the air.
Nate Barger: Mm-hmm.
Joe Fairless: You said it’s about a $70 million to $80 million project, right?
Nate Barger: Correct.
Joe Fairless: And so you said and you’re building a hotel, right?
Nate Barger: It’s going to be some retail on the bottom, three floors of parking. It’s going to have a 128-room hotel and 51 condos.
Joe Fairless: Okay. What is your specific role in this project?
Nate Barger: Mike’s partner. So Mike’s putting the deal together, we got it under contract, we already got the land on a contract; it’s about 20,000 square feet, $6.4 million, so expensive… Less than a half an acre for $6.4 million, but we can go up 180 feet. So my role will be to help with the construction management, GC, oversee cost, oversee dates, deadlines, make sure the processes and procedures are being followed, syndicate capital, find debt; kind of the backend and on the normal operations. I’ll be actually overseeing the construction managers and the general contractors.
Joe Fairless: Do you guys have a local partner who’s doing the actual development?
Nate Barger: So we’ve got crews that we partnering with, they come out of Bolivia, to keep our labor costs way down. We’re partnering with a guy that’s built 2040s, he’s went vertical, so we’re going vertical about 180 feet. We’re going to use him, with a local GC out of Florida to get the job done. And then some of the stuff that we need to bring in, one of our friends out of Atlanta that has their own millwork, and then we’ll go over to China and purchase a bunch of the stuff as well in bulk, and get the containers over there to save on material costs.
Joe Fairless: So on the general partnership side, are any of those groups general partners with you, or are they vendors and contractors?
Nate Barger: So me and Mike will be the general partners, and then we’ll decide as we go along. We’ve got another partner, Paul, that we know is in, which he is part of our hospitality hotel group, him and his partner, Brian; and our partner, Dan, out in California. So me and Mike will be putting most of it together and we’ll bring in strategically, and put together the GP team together.
Joe Fairless: And—
Nate Barger: And an LP team.
Joe Fairless: So have you purchased the land?
Nate Barger: We’re under contract on the land. And we’ve been under a contract for about four months. We’re [unintelligible [00:20:28].03] on the drawings.
Joe Fairless: Okay.
Nate Barger: So we’re pretty far along in the process. Mike is actually flying down there next Wednesday to meet with Hilton.
Joe Fairless: I imagine the upfront costs could be expensive if you don’t structure the contract the right way. So it’s a $6.4 million purchase on about a half acre, right?
Nate Barger: Correct.
Joe Fairless: Are you closing on the 6.4 anytime soon or?
Nate Barger: What we’ll do is we’ll bring that into the construction, the perm loan, and then I think we got to bring $18 million for this project.
Joe Fairless: Okay, that’s a lot of money.
Nate Barger: It is, but it’s Sarasota.
Joe Fairless: Okay. So do you—
Nate Barger: Yeah, $18 million is a lot. I come from a blue-collar family, so $18 million is a lot of money.
Joe Fairless: Yes. Has your dad made $18 million?
Nate Barger: Pesos?
Joe Fairless: Okay. I thought you were about say—
Nate Barger: No, he’s a railroader. He was a railroader, man.
Joe Fairless: Okay. No, I thought you were about to say—
Nate Barger: I was going to say a million. I don’t know if he has made a million, but [unintelligible [00:21:21].26] a million, so.
Joe Fairless: Oh, yes. Well, okay. So you said it’s $18 million, but it’s Sarasota, which – that leads me to believe that you’re getting investors from Sarasota? Is that why you said that?
Nate Barger: Everybody wants to invest in Florida and Sarasota—
Joe Fairless: Okay.
Nate Barger: It’s one of the hottest markets right now.
Joe Fairless: Okay.
Nate Barger: But the way that we will probably do that deal, to be honest with you – we always look for a strategic way to do things. So we’ve got 51 condos, and what we’ll probably do is pre-sale a nice portion of them to get part of the down payment. And then we can accelerate our returns to our investors based off the amount of capital that we’ve got to bring.
Joe Fairless: So they’re going to be condominiums, not a hotel?
Nate Barger: We’ve got 128 room hotel and 51 condos, some retail and parking.
Joe Fairless: Got it. Okay.
Nate Barger: So it’s going up 18 floors.
Joe Fairless: Okay.
Nate Barger: So I think the hotel is going to take four or maybe five floors.
Joe Fairless: What’s the thought process behind the ratio of how many condos versus hotel rooms when you construct something?
Nate Barger: So down there, you’ve got to go to the local authorities and you’ve got to figure out how many rooms they’re going to let you have based off your density. Because it would be better to do them all in condos.
Joe Fairless: Yes.
Nate Barger: That’s the highest and best use.
Joe Fairless: Right.
Nate Barger: The problem is, then you have to do all this parking. So if you don’t mix the building up, then you’ve got to do the bottom four floors in parking. So you’re losing already four or five of your 18 floors.
Joe Fairless: Got it. What an algorithm that must be, when you’re trying to figure out the highest and best use while factoring in the loss of units if you increase parking…
Nate Barger: Mm-hmm.
Joe Fairless: That seems like that would be the role of a spreadsheet—
Nate Barger: Well, Mike did that.
Joe Fairless: —to figure that out. Yes.
Nate Barger: I’m very good with math, too. But to be honest with you, this is Mike’s project. He said, “Nate, I want to do this down here.” And anything that we do, we both got to agree on. So I was a little hesitant, outside my comfort zone. We never went vertical. We’ve done everything else that we said we were going to do. And this was the last thing that Mike said he wanted to do, when he developed a—he has this cartoonish looking thing he drew out in 2001 and it’s called the blueprint. After hotels, you go vertical, you’re doing highrises. And so this is the last part of that. So I had to get comfortable with it. And I had to fly down there and I’d say, “Man, $6 million for half an acre, are you nuts?”
Then I got down and I saw it, and one of my neighbors lives over there on Bird Key. And they’re paying $2 million to $3 million for a residential lot and tearing the house down and building the house back and I was like, “Whoa, we’ve got a deal.” That’s cheap because we’re talking quarter-acre lots over there. They’re paying $2 million or $3 million and tearing them down, just residential. This one we can go up 180 feet.
Joe Fairless: What are the risks to you as a general partner with this project?
Nate Barger: Well, not getting the construction done. Looking at the market, I don’t think we too much have to worry about Sarasota’s market tanking; we’re going to be in it’s so cheap, I think resale, we can resell conservatively 600 a foot… We’re going to be all in under $300 a foot.
So I think construction is the biggest piece, because we haven’t done anything like this before. So we’ve got to bring some really good experts around and make sure that we have the right people that have built tons of these and know how to do them in and out. But like the biggest problem in any project is that when you come into a problem, it’s not coming up with the solution very quick. You have to come up with solutions, because there will be a lot of problems on this project. But we will solve them swiftly and we will keep the project moving forward.
Joe Fairless: How comfortable are you solving those problems swiftly being in Cincinnati, given that this isn’t Florida?
Nate Barger: Well, I can jump on a plane and be down there any day. And I probably will, we’re looking to move to Florida too, me and my wife and kids. So we’ll keep our house up here, but we’re looking to go down to Florida as well. So we’ll evaluate and we’ll look at every last little thing. And we say, “Okay, this one here I’m not comfortable with. How do we shift the liability on this? Can we get a bond? Can we get insurance to cover this?” So those are the type of decisions that you got to make when you’re the GP.
Joe Fairless: I’m going to transition slightly here, but still talk about hotels. Okay, hypothetical scenario – you have an opportunity to buy a 100 unit multifamily building or 100 room hotel, same desirable area. Which one do you choose and why?
Nate Barger: Well, okay, so desirable area, but then you have to look at your competitive set, you have to look at inventory that’s going to be coming online, with new building permits; you’ve got to look at your basic jobs, what’s driving the hotels versus what’s driving the apartments? You’ve got to look at how much appreciation you think you’re going to have. Are the hotels oversaturated? Are there a bunch of old-dated hotels? How old is a hotel? How long of a flag are we going to get? There’s a lot of analysis you’ve got to do before you can come up with a solidified answer for that. But ultimately, a 100 room hotel is going to probably bring in four times as much revenue and be much more easier to manage and much more scalable.
Joe Fairless: Why?
Nate Barger: Because you can go hire a GM to run it for $80,000 a year; you can’t go hire $80,000 year property manager to run your 100 room apartments, and your apartments take up more square footage than your hotel. So you’re managing actually a bigger footprint, you’ve got more maintenance problems, it’s more dated most of the time. If you’re talking about a newer one, then both being comparable,
newer, I’d have to run the numbers to see which one’s more profitable, which one gives us a better internal rate of return, which one has less risk for our investors.
Joe Fairless: So you say four times more revenue, so four times more income generated is the hotel, all things being equal. But what about expenses? Are the expenses four times greater than apartments? Or how do we think about that?
Nate Barger: So average multifamily – let’s just say you’ve got $1,000 in rent; you’ve got a 100-unit, you’ve got $100,000 coming in, that’s $1.2 million a year. On that, you’re probably going to have $5000 to $6000 per unit in expenses before your debt service. So you’re going to bring in about $500,000 to $600,000 NOI, right?
Joe Fairless: Yep.
Nate Barger: So on a hotel, you’re going to bring in about 30% to 37% bottom line; so the expenses are a little bit higher, but the revenue is much higher. And that 30-37, you can even go as high as 45 on extended stay, because you have some efficiencies in the extended-stay model that you don’t have as much housekeeping; the people were more living there, so you don’t have as much marketing. There’s a lot of stuff that you can save on. But let’s say it’s a Courtyard Marriott – you should be bringing 32% to the bottom line, a 100-room hotel… Let me just do some quick math here.
So let’s say that your average daily rate is, let’s say, $105 – that’s probably a little low; that’s 10,500 times 365. That’s going to give you 3.83, versus your 1.2. And we didn’t do any vacancy on that one. But let’s just say this one here, let’s say we’re running a 70% occupancy. So that’s going to give you 2.68 times, let’s say, 0.32, 32% to the bottom line… That’s an $858,480 NOI.
That thing is a lot easier to run than that apartment complex, for the most part, and a lot more scalable. Honestly, our plan is to probably buy — I know it sounds ambitious, but a billion dollars worth of hotels over the next 3-5 years. I was talking to one of my partners last night, he was with Ken McIlroy and George Gammon and Robert Kiyosaki over the weekend, and he was talking about building all these multifamily. I said, “Man, I just don’t really know if I want to do that.” So we’ve got to further that discussion, because I’m really—right now, hotels are half price.
Joe Fairless: I was going to ask you about that.
Nate Barger: Yeah, they’re half price. If you want to hear, you want to hear one—
Joe Fairless: Yes, I do.
Nate Barger: —we picked up right now?
Joe Fairless: Yes.
Nate Barger: So we’ve got two right now. 145 rooms, it’s a Staybridge, which is really nice, really nice. It’s in a really nice part of Indianapolis. And then we’ve got another one, it’s in a tertiary market on the outskirts of Louisville. It’s a Hampton Inn. Thaose are worth about $30 million to $32 million. The guy owes $13.7 million on them. He was going to give them back. He’s 80 something years old, very wealthy guy. COVID, he defaulted on the payments, because it was non-recourse debt. We stepped in and we said, “Hey, man, instead of you handing these back”, because we got his information from the servicer. We have a relationship with the CMBS servicer.
Joe Fairless: I was going to ask you how you heard about it…
Nate Barger: And said, ”Hey—.” Yep, so they called us and we’ve got some other hotels off of them… And they said, “Hey, why don’t you call this guy and see if he wants to work something out? We really don’t want the loan to go bad.” So we called him up and we said, “Hey, we’ll come in, we’ll catch up the back payments, we’ll bring another $600,000 for the renovation on the one”, the other one had a full renovation with another 15-year franchise agreement. So there was no major PIP. Now if we would have bought the thing, there would have been some PIPs. What that is, is a Property Improvement Program that is initiated by all your major brands. So the way we got around that was by coming in and saying, “Hey, we’re not really buying it, we’re coming in as a partner, we’re bringing in capital.”
And the brands – they’re getting beat down. Marriott and Hilton, they’re all smart. They don’t want the hotels to go down. They want just good operations. And so they know our operational partners, which they have about $2 billion worth of hotel, they’ve been in the business forever… So partner with the right people; we didn’t have to do hotels for 40 years to get those connections, because we partnered with the right people.
Joe Fairless: And when you say operational partners, that’s basically property management?
Nate Barger: Well, what we did was we went to the property management company, and we talked with the president and vice president and we formed (me, Mike and them) what’s called the Hospitality Group. That’s our group now. So they’re on a GP with us.
Joe Fairless: Okay.
Nate Barger: So we took it a little step further than just saying, “Would you be the property managers?” “Hey, would you come in and partner with us? We want to grow this thing and grow it big.” So on that deal right there, $13 million in debt, there were $30 million to $35 million once the market recovers, and we have to raise I think about $4 million for that. And that’s a strategic way, because typically a $30 million project, you’re going to have to raise 30% to 35% on a deal like that. So you’re able to get in for way less and you’re able to enhance the returns.
Now, is there a little bit more risk associated with that? Maybe, maybe not. I feel like you can underwrite risk and we brought plenty of money moving forward to deal with the burn, but I think we’ve got a plan to bring that thing pretty close to break-even, maybe even making money as soon as we close.
Joe Fairless: That’s fascinating. I could ask you questions for a very long time. And—
Nate Barger: Let’s do it, Joe.
Joe Fairless: Well, I can’t though. We’ve got to go.
Nate Barger: I know. I know.
Joe Fairless: But I really I enjoyed learning from you in this conversation. So thank you so much.
Nate Barger: I really enjoyed being on your show, Joe.
Joe Fairless: Yes. I’m going to ask you the money question I always ask everyone on this show format – what’s your best real estate investing advice ever?
Nate Barger: I think your passion – do what you’re passionate about, do what you enjoy. But if what you enjoy and what you’re passionate about doesn’t bring in any money, then buy some real estate and get some money, get some passive income, learn how to be vertically integrated, understand what the BBBR process is… Because through the BRRR — we BRRR hotels now; we’re doing the same thing that we started off in low-income areas. Learn the BRRR process and learn where you need to be vertically integrated at. Learn where your strong at, where your strengths are, where your weaknesses are, and don’t just buy cash flow. Cash flow is good, but if that property is not going up in value, it’s going to call you one day, and it’s going to say, “I need $10,000 or $15,000.” You’re going to say, “Hey, man, you ain’t giving me that much cash flow.” It’s going to say, “I don’t care. It’s been 10 years, you haven’t done anything to me. Look at me, I’m neglected. I need some money.” So if you buy in an area that went down in value, you’re going to have a hard time becoming wealthy in real estate. Follow the basic jobs.
Joe Fairless: Right. We’re going to do a Lightning Round. Are you ready for the Best Ever Lightning Round?
Nate Barger: Let’s go!
Joe Fairless: Alright. What deal have you lost the most amount of money on?
Nate Barger: I don’t think I’ve ever lost money on a deal. The banks have, but I haven’t, my investors haven’t.
Joe Fairless: What about the two industrial buildings?
Nate Barger: Did a cash-out REFI, had all my cash back plus 400 or 500 grand.
Joe Fairless: Really? So even those chapter seven bankruptcy – you didn’t actually lose money on a deal?
Nate Barger: The values went down. So let’s say you had a value, it was $150,000, and you owed 110k on it. Now next thing you know, the value is 70k or 80k; it was probably a wiser decision to let them go. Now, I’ve lost time on deals before, but not money.
Joe Fairless: What deal has made you the most money?
Nate Barger: Percentage-wise?
Joe Fairless: Total dollars.
Nate Barger: Total dollars? I haven’t cashed out on one; we’ve got to 346 units that we bought.
Joe Fairless: Let’s count to date, not anything that could happen. Today, total dollars, what deal has made you the most money?
Nate Barger: To date, I want to say $3 million off of a 97 unit that I bought back in 2013, the year I came out of bankruptcy; we sold that one and made about $3 million off of that.
Joe Fairless: Best ever way you like to give back to the community?
Nate Barger: It’s called BRRR Invest. It’s my Facebook site, we’ve got over 80,000 members; I like to go in there and show people that your circumstances do not determine your outcome. And I’m living proof of that. So that’s kind of how I like to give back. I’ve got some local churches and organizations that I like to give back to too, but it’s really more high level, how can you impact a great amount of people?
Joe Fairless: And how can the Best Ever listeners learn more about what you’re doing? You mentioned the Facebook group, do you have a website also?
Nate Barger: Yes, http://www.natebarger.com/. And I’ve got YouTube channels. I just started doing this in like February. So we’re growing pretty quick. But man, if you guys could subscribe to my YouTube channel if you want, join our Facebook group, it’s BRRR Invest. By the time this podcast come out, it’d probably be over 100,000 people in there. And just lots of great information in there. We’ve got pretty much all the stuff that you think you have to deal with. We’ve already vetted lenders, we have all that stuff already in there for you guys, so you don’t have to do a lot of the hard work like what I had to learn, like what Joe had to learn, what we all had to learn to do throughout the years.
Joe Fairless: Well, as I mentioned earlier, I’ve learned a lot from this conversation. Thank you, Nate, for being on the show. There’s probably going to be a lot more hotel investors coming out of this conversation than there were previous to this conversation. You made a very strong argument for hotels over apartments when we did that comparison. So thanks for being on the show; I hope you have a best ever day and talk to you again soon.
Nate Barger: Hey, thank you so much, Joe. I look forward to catching up with you sometime when you’re in Cincinnati. And thank you guys for viewing in.
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