Serial entrepreneur Gary Lipsky started his entrepreneurial journey in college with a meal delivery service. Now, he has $41M of multifamily assets under management. Today, Gary is talking with us about the KPIs he uses for assets and employees, how to effectively manage your staff, and his favorite accountability tools to keep his team on track.
Gary Lipsky Real Estate Background:
- Full-time active syndicator in multifamily for 19 years
- GP on four properties, and an LP on another seven properties
- $41MM AUM in multifamily, as well as some single-family flips ($7MM)
- Based in Manhattan Beach, CA
- Say hi to him at: www.breakofdaycapital.com
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Ash Patel: Hello, Best Ever listeners. Welcome to the Best Real Estate Investing Advice Ever Show. I’m Ash Patel, and I’m with today’s guest, Gary Lipsky. Gary is joining us from Manhattan Beach, California. He was a previous guest on our podcast. So if you google Joe Fairless and Gary Lipsky, the episodes will show up.
Gary, we’re glad to have you back. Thank you for joining us, and how are you today?
Gary Lipsky: Yeah, thanks for having me back. I love the podcast.
Ash Patel: Awesome. So today is Sunday. Best Ever listeners, we’re going to do a Skill Set Sunday, where we talk about a particular skill that our guest has. Gary is a full-time syndicator and has 19 years of investing experience. He has over $41 million of assets under management.
Gary, before we get into your particular skill set, can you tell us a little bit more about your background and what you’re focused on now?
Gary Lipsky: Yeah, I’ve been an entrepreneur even growing up as a kid. I started a restaurant delivery service while I was in college, kind of like a DoorDash and Postmates. Certainly didn’t have that vision then. I co-produced three independent films in my 20’s. I also had an OutdoorEd Leadership Development, an outdoor education company. I sold that at the end of 2016, and I had been investing in real estate. This allowed me to get into real estate full-time and learn as much as I could before I started doing my own deals.
Ash Patel: So you don’t sit still.
Gary Lipsky: No, I get accused of that a lot from family, and whatnot. Yeah, I like to keep busy.
Ash Patel: So Gary, you said you’ve been investing in real estate a long time. Was it the typical route, starting out with single families, progressing to multifamily?
Gary Lipsky: My very first investment was a house I was going to live in, and I looked at that as an investment, not like I was going to live in it for 40 years like my parents. So we bought the house, no money down. We were in debt. We opened up the kitchen, we converted the garage to my office space… And that was quite honestly, how I was able to afford the house. I was charging my business on rent money too, and then having people — we were working out of the garage. We had like four or five people working on the garage at one point, going in the house for the bathroom. Eventually, I bought another house and converted another one into a single-family rental, and was looking for four units and six units, but eventually, I learned from others about really going bigger, and that it’s much easier to do, let’s say a 40-unit or an 80-unit, versus buy myself a four- or eight-unit. And I’m glad I went that route; it really opened the doors to really rocket fueling my business.
Ash Patel: What was your first large multifamily investment?
Gary Lipsky: It was a 42-unit deal in Tucson. We paid $1.6 5 million for that, and then our second deal, we went to a $15.3 million deal in Phoenix. We’ve since sold both of them.
Ash Patel: And you said “we.” Did you raise money for both deals?
Gary Lipsky: Yeah, I was a GP on both deals, and I had a couple other partners as well. If I didn’t partner up, I wouldn’t have been able to take down those deals myself. Obviously, everyone knows real estate is a team sport, and it was great to be able to partner with others and have their input and their expertise and share our resources, and that really helped get my real estate career going.
Ash Patel: Gary, did your partners have syndication experience?
Gary Lipsky: On the first deal, one of them did and one of them didn’t. So it was good to be able to share — gaining that confidence, because when we’re looking at deals, particularly your first one, you’re nervous, you’re typically way over-conservative in your underwriting, and it’s great to have someone that’s done it before and kind of give some insight and participate in all the meetings, and whatnot. They give you confidence. So you can go after those bigger deals.
Ash Patel: Gary, your particular skill set is effectively managing larger properties. Why is it easier to manage larger properties?
Gary Lipsky: Economies of scale. Having full-time people that are working on your property and you can hold them more accountable. You have a lot more turnover on these smaller properties when they’re not full-time. So you get a much more quality person to manage, and it certainly makes that easier.
Ash Patel: You hear a lot, “go bigger, faster”, but a lot of people take that with a grain of salt. They’re naturally conservative, or fearful rather. What advice would you give to people when they don’t necessarily buy into the “go bigger, faster” philosophy?
Gary Lipsky: I get it, everyone is different. But when you can partner up with someone, then maybe you’re more willing to go bigger and partner with people that — they can help raise some more money. Maybe their skill set is managing the manager and your skill set is finding the deal. So pooling resources is so important, and you could take down these bigger properties, you could get better at loans, you can get better staff… You’ll get lower property management fees. Your property management company will also pay more attention to you too, the bigger the deal as well. So there are a lot of advantages for going bigger.
Ash Patel: A lot of advantages. What are some of the pain points in growing?
Gary Lipsky: Certainly, stepping out of your league on these bigger properties – it takes a while to implement a business plan. On our first property, it was a 42-unit, we implemented our business plan really quickly, quite honestly. When we got to 128-unit, it’s moving a ship. It’s a big ship. It’s not a little robot that you’re turning. It takes more time. There’s more problems. But thankfully, you’re paying someone to do that job on a daily basis. Now, again, you’ve got to hold them accountable. You’ve got to set really good expectations. You’ve got to stay consistently on your checklist, because at times it’s like herding cats… But if you have a good attention to detail, then you’re way ahead of the game.
Ash Patel: Key Performance Indicators. Can we dive into the KPIs that you use both for assets and people?
Gary Lipsky: Yeah, very important. So your property management software, which you will have access to, will provide some KPIs. But we use RealPage, and it connects to the RD-software, and we get over 100 KPIs. But certainly, there’s ones that we want to focus on, and NOI is a big one. There are all these different things that feed into it. So we’re going to look at that as a whole, and then break down all the different things.
So one of the things we like to look at for leasing is where are our leads coming from, and where are we getting conversions from? Because just because let’s say, ApartmentGuide is bringing me 200 leads in a month, I might only get one conversion from that. So I want to carefully track where I’m getting the most conversions, and how I’m spending my money… Because if I’m cognizant of cost per conversion, that’s going to save me a lot of money for this property and for other properties. It’s going to be different from city to city, and maybe some submarket to submarket, so you’ve really got to pay attention and break it down, and that’s what KPIs allow you to do, really break everything down. So you analyze it, figure out where there’s bottlenecks or whether there’s issues. But if you’re looking at anything as a whole, you really can’t figure out where any problem lies.
Ash Patel: I would imagine the hardest part of all of this is still managing your staff. How do you effectively do that?
Gary Lipsky: On our weekly property calls, we have a Google sheet that we have, and each week, we have a different tab for our property report. And we also have a tab for tasks, and on those tasks, someone’s name is assigned there, what needs to happen, by and when, and when it’s completed. And Google Drive is free to use, there’s no cost factor, so there should be no excuse not to use it, and it really holds people accountable. You don’t want to show up the next week, if you had something to do and it wasn’t done. It’s there for everyone to see. So we’re not trying to gotcha anyone, because that’s not what we’re trying to do, but people write notes down little pieces of paper, like me, or forget, that happens. Everyone’s got a bunch of different things that they’re working on. So it’s just having that up there for everyone to see. We have our meeting Monday, and Wednesday you’re like, “Did I have something to do this week?” And you can go and see it, and if your name is there, then you can get it done. And having that accountability tool is really key.
Ash Patel: I’m a fan of Google Sheets, and we’ve tried a lot of different task managers and collaboration software. Is that what you solely use to manage people’s tasks?
Gary Lipsky: Not solely. We’ll use a Trello board as well, and again, you can get that for free. So we’ll use that on unit renovations. So our renovation team will see when we have a unit that’s going to become available, and they’ll be notified as well. We know what lead time they need to make sure they have all the appliances, everything they need in advance. They could move it along the Trello board. “Okay, we’ve now demo-ed it, we’ve now done this.” So we can see where we stand on all the unit renovations, our leasing team can see it, so they’d make sure that, “Hey, we’re going to get this thing leased up” and someone moved in as soon as it’s ready. We don’t want to have any dead time, in a perfect world. But that’s another collaborative tool we use. We’ve also been using monday.com, which I like as well, and again, that’s another free tool that we have a lot of data on there.
Ash Patel: And was the first one Trello, T-R-E-L-L-O?
Gary Lipsky: Yep.
Ash Patel: Okay. Well, Gary, you’ve got a well-oiled machine right now, but I want you to go back to when you had the growing pains. What are some hard lessons that you learned?
Gary Lipsky: Building systems from day one. We didn’t know what we didn’t know. Excel is a really good tool, but putting together systems or holding people accountable, tracking everything… Because if you’re not tracking it, it most likely isn’t going to get done, or you’re going to forget. I can’t recall any times where we really screwed up, quite honestly, because I’ve had that business experience, but building those systems is really important as we continue to grow, and that’s helped a lot. In the beginning, you’re chasing deal after deal after deal, and not necessarily building those systems. And [unintelligible [00:12:03].01] you stop and build those systems, you’re really setting yourself up for success for the long haul.
Ash Patel: And in terms of attracting and communicating with investors, what do you use?
Gary Lipsky: We use Mailchimp. We went to ActiveCampaign for a while. We’ve kind of switched back to MailChimp. ActiveCampaign was kind of doing weird things when you’re emailing things out. Some people swear by it. Whatever you use, you just need to be consistent. Tell people what you’re working on.
I think my mistake in the beginning was, if I didn’t have a deal, I wasn’t reaching out and building my investor database, and you’ve got to forget all that, even if you haven’t done any kind of deal. Talk about what you’re learning. You need to prime your investors, and I was very slow on doing that in the beginning. So that was one of my mistakes.
Ash Patel: So how should people starting out do that? Is it just a monthly email, a newsletter? What would you recommend?
Gary Lipsky: A monthly newsletter talking about different markets that they’re looking in, sharing some data, priming potential investors for a potential deal. And that won’t be your only form of communication, but when you see that person, you may talk about things that you’re doing, and refer back to that newsletter, but you’re preparing people to invest in real estate. And quite honestly, there’s a lot of people who don’t know this amazing opportunity to invest in real estate. All they know is they’ve got this financial advisor, and it’s stocks or a mutual fund. So it takes some time for people to get comfortable.
I’ve got some good friends that jumped on board with me right away, and some other friends that are just very, quote unquote “risk averse” to this, even though this is the best risk-adjusted returns out there. They’re very slow to come on board, because it’s just something different and new to them.
Ash Patel: And what do you do to educate those people that are hesitant to come on board?
Gary Lipsky: I never force it down their throat. They’re going to come around when they come around. And when they hear that we sell a deal in under two years for 2x, their ears perk up. We talk about all the different things that we’re doing, and deals filling up right away, and they want to be a part of that. So one of my one, they get involved or they’ve heard of their friends getting involved, and they come around. But it’s really got to be on their timeline. You can’t force anyone into it. You want to make sure they really understand what they’re getting into. And it’s cool, when they finally do come around and they get excited about the deals, and oftentimes, they start bringing their friends too. So once you get a few deals under your belt and you’ve got some exits, it really makes it a lot easier to raise money.
Ash Patel: Is there a way you can encourage existing investors to get their friends involved?
Gary Lipsky: Referrals are important. A buddy of mine set up a dinner the other day, it was like five couples and friends that people were asking him about it. So he did that on his own [unintelligibl [00:14:51].10] but we wrote a book, Best in Class. And so what we are doing is asking all of our investors if they want us to send it to any of their friends that are interested in investing in real estate, and send it as a gift from them for the holidays. So that’s one of the things we’re doing. We’re always asking for referrals. Some people are really good about it, some people aren’t, but you have to make that ask, and you have to give them something for that as well. So the book is a useful tool; taking people out to dinner is another one, just to get to know someone, a friend of a friend. So those are things that you could be doing, and just constantly cultivating those relationships.
Ash Patel: How do you reward somebody for getting referrals to you?
Gary Lipsky: I take them out to dinner, buying them a nice gift, and saying thank you… And even if that person doesn’t invest, sending them a thank you, buying them a nice gift. A small gift is just a fraction of a cost of finding a new investor that may be coming back deal after deal or bringing someone else [unintelligible [00:15:50].17] So the cost is so minimal, and that’s I think in life anyway. Any kind of referral to an insurance agent, a broker, whatever it is, I’ve always been one to cultivate my network, and I do a lot of favors for other people, and conversely, people know that I do that and do favors for me and introduce me to other people, because I’ve been good to them. So it’s really important to cultivate that network, not just from a real estate investing perspective, but life in general; it’ll come back in spades.
Ash Patel: And what do you think about outsourcing that investor relations? Is that something that you have team members do, or do you and the other principals handle that yourself?
Gary Lipsky: I do have an operations manager that helps set up emails and sets up calls and stuff, but I still like that one-on-one communication with the investor, and maybe down the road I just can’t do it as I continue to grow, but I do like to get to know my investors. I want to make sure they understand what they’re getting into. It’s all about relationships. I’d rather do less deals and have smaller amount of investors that I’m friendly with, that I have good communication with, than be this kind of business where I don’t have those personal relationships… Because at the end of the day, that’s the most important thing.
Ash Patel: Yeah, you’re not looking to just turn and burn.
Gary Lipsky: Yeah.
Ash Patel: Gary, if you look at a typical day for you, what is the one thing you wish you could change, add or subtract from your day?
Gary Lipsky: I guess, the social media piece. It’s a necessary evil, and I’m getting my team to do more of that for me. But I don’t want to be all over social media. But what I do like is, like I said, that relationship building with brokers, with investors, with peers. So you do need a little bit of that, and social media. And I love going to conferences, like the Best Ever Conference, or meetups, and get out there, talk real estate. You’re always learning something new from someone else, and that’s the beauty of this industry. You could be doing this for many, many years, but someone else might have a new idea. So that’s what’s great about going to these events to see what other people are doing.
Ash Patel: Alright, you’re an outgoing guy. Why do you dislike putting yourself out there on social media?
Gary Lipsky: [laughs] You know, it’s funny. I’m a bit of an introvert, but it’s just time-consuming, quite honestly. Posting, and whatnot, and responding to others… It does suck up a lot of time, when here I am, trying to do more deals and manage my business. But I also don’t want to have someone responding as me too, because I’ve built relationships with these people, and I just don’t want a quote unquote robot responding. So it’s tricky.
Ash Patel: I’m going to give you unsolicited advice. I think you should be the one posting and responding, and do it less frequently. If you want it to be authentic, I would rather interact with you than a member of your staff pretending to be you, right? I want to know what you have going on, I want to hear about your day, when you have a tough morning, a tough deal… I think that’s what builds relationships. So I’m going to challenge you to do more of that, and I’m going to follow you.
Gary Lipsky: Alright, Ash. You’re on.
Ash Patel: Awesome. So going forward, what are your current pain points and/or bottlenecks?
Gary Lipsky: Yeah, we need to grow our team. We’ve been talking about adding an asset manager/ acquisitions person. We’re just getting all the benefits together, but that’s coming out, and I’ll probably hire someone by the time this podcast comes out, but that’s a pain point, growing my team. And finding good deals. With the cap rate compression, it’s hard to find good deals that work. We just got an off-market recently, but just finding good deals…. But things have been going very well.
Ash Patel: Alright. Gary, I’ve known you now for about 20 minutes, and I feel like you’re going to systemize the hiring process. What is it that you would do? Would you create the job description, would you create the KPIs, how the person is going to be bonused, all before looking for the hire? And then, what attributes and where are you going to look to hire that person?
Gary Lipsky: Absolutely. So my assistant [unintelligible [00:22:39].19] some other job posts before, so she kind of built it out, and we’ve talked about the expectations and what we want out of this person, and then we’re posting out to our networks, and on Indeed. We’re looking for a real go-getter, a real problem solver, someone that’s going to fit within our culture, and be with us for the long haul.
Ash Patel: And how do you weed people out in an interview?
Gary Lipsky: Yeah, that’s a really good question. I’ve done hundreds of interviews in my lifetime, and sometimes I nail it, and sometimes I don’t. You know, it’s frustrating. But sometimes, you need to hire someone, you might fail, and hire the wrong person, fire quickly, but then after you’ve had that person, you might have learned things that you should have asked or looked for that you didn’t necessarily at that first time. So you check their references, you try to get a good feel… It’s funny, my last hire – I just had a feeling like she interviewed pretty good, she really wanted a job, but her resume wasn’t a perfect fit for this, but we took a hunch and a gut feeling and she’s been fantastic. So sometimes you’ve got to go with a gut.
Ash Patel: Yeah, I thought the story was going to end bad. I’m glad that that worked out for you. That’s great. So what’s next for you guys?
Gary Lipsky: Continue to build the company, do four or five deals a year… I’m focused on Phoenix and Tucson, but we’re looking at some other markets as well. I’m partnering with some other people, building our team out, and we’re big proponents of asset management. We’re not going to take on more deals if we can’t asset-manage our properties correctly. So that’s first and foremost, taking care of the properties that we currently own and keep doing good work.
Ash Patel: What markets are you looking in?
Gary Lipsky: So Phoenix and Tucson is us, but I do have some partners looking in Texas markets. I’ve invested as an LP in a number of different deals, and Joe as well. There’s a lot of markets I love, but I can’t be an expert in all of them. Some of the partners that I’m working with are experts in those markets, and we’ll potentially partner up and do some more deals.
Ash Patel: I love that philosophy. Just like you partnered up on your first syndications. Even though you’ve achieved all the success, you’re still looking to partner up and grow your business. So thanks for sharing that. I love that. So a typical investor in one of your deals – what’s the hold period, and what’s their return look like?
Gary Lipsky: Typically, it’s a 2x return, we say in five years; we’ve been doing that in 2-3 years. Deals have been moving pretty quick as you know, so it could be a three-year hold time… But we’d rather underpromise and overdeliver, because then investors will keep coming back for more. So we’ll typically say, 3-5 year hold time, 2x their money, 15% to 18% IRR, but cash-on-cash is getting tighter and tighter these days too, so investors need to understand that. Potentially, there could be zero cash flow in the first 6-12 months these days, because there’s so much loss to lease.
Ash Patel: And is that your metric on when you sell, if you can 2x your investor capital?
Gary Lipsky: Yeah, for the most part; we want to hit our projected return… And someone brings us an amazing offer, and we also want to understand — if it’s a newer asset, maybe we refi and hold longer; if it’s an older asset, then we want to get out a little quicker, because you’re going to have more deferred maintenance. So each asset, each market is a little bit different, and we’ll have those constant conversations with the broker on a yearly basis, to see where the market is going, what kind of deal we can get, where we stand on our business plan, is there a ton more room to go… Or we also like to take advantage of time value of money. If we’ve maxed out our business plan and it doesn’t make sense to refi, then maybe we look to sell. If we can refi, and we still see more gains down the road, then we’ll hold longer. So you’ve got to evaluate each property on its own.
Ash Patel: Is there a sweet spot that you’ve found in terms of how long to hold a deal from an investor’s perspective?
Gary Lipsky: It’s interesting… So some of the older-time veteran investors – they’re not in any hurry to sell. If you want to hold it 10 years, they’re fine with that. Some of the newer investors – they want to see more turnover. They want to get their cash out and invest in another deal. So I would say that sweet spot is, let’s say, four or five years, depending upon your investor base.
Ash Patel: Yeah, I think that was well said. I’m an LP on a number of investments, and when they go five years, it’s almost like they’re getting stale. They’re still returning capital, but it’s like they’re getting stale. It’s like, “Hey, let’s do something else.” Like, “Give me my money back, and let’s find another deal.” So that’s great. I think for our Best Ever listeners, if you have older investors, they’re really looking to park money. They just want to grow it. They may not want as much turnover. But anybody under 50, I would say – I mean, they kind of want to turn and burn. They want the excitement of new deals, right? Interesting.
Gary Lipsky: Yeah, absolutely.
Ash Patel: Awesome. Well, Gary, thank you so much for being on the show, sharing a lot of your knowledge, building systems, and partnering with other people. You’ve given us a ton of advice.
How can the Best Ever listeners reach out to you?
Gary Lipsky: You can go to my website, breakofdaycapital.com, and I’m on Instagram, Facebook, LinkedIn. So connect, let’s talk real estate.
Ash Patel: Awesome. And I’m going to follow you as soon as we hang up here, and I want to start seeing some posts. [laughs]
Gary Lipsky: Alright, sounds good.
Ash Patel: Awesome. Thank you again. Best Ever listeners, thank you so much for joining us. Have a best ever day.
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