November 19, 2021
Joe Fairless

JF2635: Syndicating After Bankruptcy with Tracy Hubbard


 

When Tracy Hubbard went bankrupt in 1998 after a business went south, he started learning how to get into hard assets instead. That’s when real estate came into the picture. Today, Tracy is sharing how bankruptcy made him a better businessman, why he looked into multifamily first, and his number-one piece of advice for closing off-market deals. 

 

Tracy Hubbard Real Estate Background:

 

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TRANSCRIPTION

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, Tracy Hubbard. How are you doing, Tracy?

Tracy Hubbard: Good. Great, Joe. Thanks.

Joe Fairless: Well, I’m glad to hear that. A little bit about Tracy—he’s a full-time multifamily syndicator and asset manager, along with agricultural syndications and ranching. His current portfolio consists of three properties of 400-plus units and he is based in Lubbock, Texas, and you can learn more about his company, hubbardcapitalgroup.com, and it’s also in the show notes.

So, with that being said, Tracy, do you want to give the Best Ever listeners a little bit more about your background and your current focus?

Tracy Hubbard: Sure, I’ll be glad to. Thanks. Earlier in my business career, I was an entrepreneur. I’ve owned several different companies, different types of businesses. One of them had a lot to do with industrial real estate. I was in the logistics warehousing, so I became familiar with real estate and the benefits of it back in the late ’80s, early ’90s, and did some real estate deals back then. But then, one of my companies gave me the opportunity — when I say “my companies”, it was one of my corporations that I had. I went bankrupt. I got to start over in life in 1998; I was 42 years old, had four young children, trying to figure out what am I going to do in my life. I ended up basically going and learning how to trade the markets, the financial markets, because I was pretty much, at that point, done with messing with businesses and just the problems with them.

So I went into the financial market, started learning how to trade, and I know it sounds like an infomercial when you hear about that kind of stuff, but it’s such a long process. It’s taken me about seven years to really figure out what I was doing, and from that standpoint, I formed a couple of small hedge funds, and did very well back in 2000, all the way up to around 2015, trading the markets, the financial markets. But I could see the markets changing, especially after 2008 and 2009, what we went through there. And the markets just didn’t perform like they used to, and they still don’t. It’s a bunch of smoke and mirrors, in my opinion right now.

So I was trying to figure out how do I get into hard assets, and I’m talking about assets that can’t go to zero like a stock can. Real estate’s one of those hard assets, and so I started going over into that realm, and specifically settled in on multifamily; that was back in around 2015 and 2016 is when I started looking at multifamily. I need to pause, otherwise, I’ll go on forever. I hope I answered the question, Joe.

Joe Fairless: Thank you, because I do have a couple follow-up questions. 1998, you went bankrupt, you were 42 years old, and you had young kids. What caused the business to go bankrupt?

Tracy Hubbard: It was a manufacturing company, and I made a bad business decision. I grew that company real quick, and one of my customers was probably 80% of my business. We got into an issue on some products and stuff like that, and they had the willpower and the money to wait me out, and that’s pretty much what they did. And we lost everything.

Joe Fairless: For someone who might go through something similar to that, who’s listening, what are some things that you’d tell them, from a psychological standpoint?

Tracy Hubbard: Wow, there’s a lot to cover there. I will tell you that my wife helped me through a lot of that stuff, because you feel like a failure when something like that happens to you. I did everything I could to keep it from happening. I actually made some bad business decisions, trying to save the business by just putting a bunch of cash into it, trying to save it, and it was just throwing good money after bad at that point. I should have let the thing go down, but I didn’t want to have a failure on my record. Because up to that point, I’d been pretty much golden; everything I’d touched, all the businesses I’d owned and sold, we did real well. So, I didn’t really want to give up on that. So I held on too long. That would be one thing I did.

The next thing is you’ve got to have someone for emotional support, because it can be a real downer thing to go through. So you know, having emotional support was critical during that time, and my wife had faith in me to know that I would be able to get back on my feet. But it’s nonetheless, it can be a little tough. So the emotional part is probably more critical than the financial side of it to be actual [Inaudible [04:32].

Joe Fairless: From that experience, what are you better at as a result of having gone through that?

Tracy Hubbard: Well, my background before that – I’m a former Marine, which I just celebrated this birthday yesterday, on November 10th, Marine Corps… But it taught me a lot of not quitting, not giving up. Now, some of that “not quitting” is also probably what led me to put more money into the deal.

Joe Fairless: Right. I heard you say you held on too long.

Tracy Hubbard: Yeah, so that was a little bit part of it. What I would say now going into the future is to hold back a little bit more cash, keep some cash there, a little bit more cash. I just took it a little bit little too aggressive in my risk going forward, especially that one customer, because I was looking to really grow the business big. So I was not diversified enough. And that goes across all different investment assets, is being diversified in your portfolio. So, I learned that the hard way.

Joe Fairless: Now, let’s talk about 2015 when you focused on hard assets, specifically apartment communities. What was your first purchase?

Tracy Hubbard: Well, it’s sort of funny… I’ll take you through the process. I originally looked at single-family rentals, then realized pretty quick I couldn’t scale that. So then, I started looking at other multifamily stuff, but I was still looking too small. I was looking at the 10-20 unit complexes. I was thinking of doing it all by myself. So that was what I started doing. The first thing I did was a 7-unit brownstone in Chicago. That was my first attempt at something like that.

Joe Fairless: How did you end up in Chicago? Aren’t you in Texas?

Tracy Hubbard: I’m sorry?

Joe Fairless: How did you end up with a property in Chicago if you’re in Texas?

Tracy Hubbard: Just contacts with people I know up there, and that kind of stuff. So that’s how I ended up. Actually, I remembered Chicago, because I’d done business up there in several my other businesses but [Inaudible [06:14] with the city, but not from real estate perspective. So it presented what I thought was the opportunity to try to do it. It didn’t work out the way we wanted to, but what it did, it sort of got me figuring out, “Okay, I cannot do a bunch of these by myself. So I’ve got to figure out how to do it.”

I didn’t really know anything about the syndication world. So then I started educating myself on the syndication side, and saying, “Okay, I need to partner with other people if I’m going to get this thing big.” Now, keep in mind, all my other businesses in the past, it’s just been me, myself and I. I didn’t have a partner. So this was a new idea, new area going into having general partnership with a bunch of other partners and putting together something, but I also realized that a little bit of a big deal is it can be just as good as all of the small deals.

So that’s when I started looking to this, saying “If I’m going to do this, I got to learn how to do syndication.” So, then I started looking into syndication world as far as education, to get educated on it.

Break: [07:07] to [08:40]

Joe Fairless: The 7-unit, you said it didn’t work out. That doesn’t surprise me, because you’re in Texas, property’s in Chicago, and it’s your first foray into this. But will you elaborate on what didn’t work out and more details on that?

Tracy Hubbard: Well, the reason I don’t think it worked out is because my money partner on the deal didn’t follow through. So we didn’t have the money to do the rehabs on the deal. We were basically going to do some condo conversions on it, because it was in a nice little neighborhood, gated community. We bought it right, and basically wanted to go through and gut it because there was lots of comps in the area. We could have probably doubled our money on the thing. This was back, you know, I’d say, several years ago.

As far as selling the units and doing our own little Homeowner’s Association with that building. But that’s pretty much why it didn’t happen is because the money got into some trouble with some other stuff and couldn’t come up with the cash to do the deal.

Joe Fairless: You did buy the property, correct?

Tracy Hubbard: Yes.

Joe Fairless: So, you just sold it as is?

Tracy Hubbard: Yes.

Joe Fairless: Did you make any money, lose any money, breakeven?

Tracy Hubbard: I lost about 10 grand, so I figured that was a cheap experience.

Joe Fairless: Okay. So what was the first syndication then when you started bringing in people?

Tracy Hubbard: I was looking at some property in Amarillo, and a broker calls, said, “Hey, I’ve got a property in Lubbock that just came on the market. Would you be interested in that?” So I drove down there and took a look at it, said, “Sure.” We looked at it, ended up putting in a contract. It was actually two years ago, November of 2019. It was a portfolio property of two complexes, 115 doors and another one 68 doors. So I put in the offer, it was in and out of contract. It took quite a while to get the deal done, but we got it closed in November of 2019. So we’re in the midst of finishing up our rehab and trying to get those two refinanced right now.

Joe Fairless: Why in and out of contract? What happened?

Tracy Hubbard: Some things happened with the seller, trying to decide if they wanted to sell, getting financing lined up on a bridge loan, one of the lenders fell out, so we had to get another lender… So it was a couple of those things during the negotiation process to try and get it bought correctly—

Joe Fairless: And when it—

Tracy Hubbard: —but we were patient with it, you know, and was there waiting for it when the sellers got realistic, and so we get it done.

Joe Fairless: Did you have it under contract, and then the sellers somehow were able to break that contract?

Tracy Hubbard: No, I misspoke there; that was all during the letter of intent phase—

Joe Fairless: Got it.

Tracy Hubbard: —and that kind of stuff. Someone else came in and put a contract in on it… But theirs fell out and they totally lost the deal, and so it came back to us and saying, “Hey, are you still interested?” kind of thing.

Joe Fairless: Okay, I’m with you.

Tracy Hubbard: It was running around like that for a bit. Once we got to contract phase, it went through.

Joe Fairless: Got it. I’m with you. How much equity was needed for that transaction?

Tracy Hubbard: We raised $3 million on that one.

Joe Fairless: Okay. It was a bridge loan? It is a bridge loan.

Tracy Hubbard: Yes, it’s a bridge loan. We actually just had it reappraised again, and it’s gone up in value tremendously. We bought it for about 47k a door, and right now we’re sitting at one of them’s probably in the 80s as far as the appraisal goes, and the other one is in the 70s.

Joe Fairless: You bought it for about $8.6 million, and help me with that math for what it’s collectively worth now, about?

Tracy Hubbard: Right now, it’s a little over $13 million.

Joe Fairless: Nice, and what have you done business plan-wise to get it there?

Tracy Hubbard: It’s basically a value-add deal. Both properties received plus properties went in there and get a facelift on him and rehabbed an interior of the units, those kinds of things… And just cleaning up the property. They were mismanaged and owned by out-of-state owners, so they weren’t there very often. So we got very heavily involved in the rehab side of it and the asset management side of it. So just turning them around, rent bumps and stuff from the increase, from what we’re doing the rehabs, improving the property. The market’s going up.

Joe Fairless: The market’s helpful also.

Tracy Hubbard: This is what I said, that appreciation covers a lot of sin, as I say. So you can screw some things up, as long as the appreciation keeps rolling, you’re probably okay. But it’s also one of the things where when it stops, you better hope you underwrote it correctly.

Joe Fairless: What is your level of involvement with the business plan once you purchase the property?

Tracy Hubbard: On the ones I’ve done, I’ve always been the asset manager on them, and I say on-site… I live in Fort Worth right now. So it’s about a four-hour drive from me, but I go up there about every two weeks because we’re pretty heavily into the rehab phase, to meet with contractors and be a presence on there. So I’m the asset manager on the property.

Joe Fairless: So, those are two deals. What about the other ones that you’ve done?

Tracy Hubbard: I had another deal there in Lubbock. It’s 236 doors. We closed on that one in March of this year. That’s a property that was really truly off-market, that I’ve been looking at it just because I’d driven by with my broker. We were going to lunch one day, and he was going by there because he knew the seller and dropping something off, and he came back to the car and I said, “Is this property for sale?” he goes, “No.” I said, “Well, has he ever thought about selling?” He said, “Well, he might.”

So we messaged around the same for six months and we ended up going through a lot of detail. He was ready to sell by the end because I think he was trying to get out that market and move back to where he’s from. So the timing on it ended up being okay. It took me a year to get that thing to contract, just to get the contract, going back and forth.

Joe Fairless: Wow. So, six months until he said, “Yeah, I’m interested”, and then another six months to actually get it under contract?

Tracy Hubbard: Yeah, getting it done.

Joe Fairless: What are some things that happened and how you approached it to help get it to the finish line? Just a couple things during that 12-month period.

Tracy Hubbard: Over communicating. It was sort of interesting too. The broker, the last time they want to get the buyer and seller together, but we had conversations and what my goals are, what we’re trying to do and how to work together to make this thing happen. If he really truly wants to sell, we can make a deal. So just being our communicative on everything; it’s how we do everything in our business model. Investors, everybody. So we just try to communicate as best we can.

Joe Fairless: What’s an example of over communication in that scenario?

Tracy Hubbard: Well, when there’s a problem that crops up—and negotiating by email is pretty tough, in my opinion. I like the phone. In fact, I’m not real big on text messaging. I’m sitting and going, “We have all this technology, so we don’t have to write everything down, and now everybody texts each other instead of calls.” And I understand that because some people get long-winded and you can’t just get on the phone and get off the phone real quick. But if you have a situation come up that could blow the deal apart, whether it’s insurance, a problem with a unit, as far as down units, those kinds of things, just pick up the phone call and say, “Hey, here’s the deal – how can I work this out to make it viable for everybody? Is there a solution here?”

And that’s pretty much what I did on this property, as far as going through it, because of some of the issues that were coming up is… And especially when you get to the due diligence stuff, and you’ve got things come up that you may not have planned for, but you maybe got to go back and underwrite it a little bit differently. As far as buying, I changed the underwriting because of this issue, whether it’s a plumbing issue, electrical, whatever it is… And then you’ve got to go back and say, “Okay, well, I can’t really give you this,” but you just be upfront, say, “Here’s the math on it and this is the way it will work for me. I can’t make it work any other way.”

And also, I would say, you really need to know your buyer and why they’re selling. He really wanted to sell and I knew he wanted out of it, and I knew, “Okay, this is not like somebody’s just out there floating the numbers to see if you can get something for his property. He really wants out of that market, and to go back to Dallas.” So there was a motivation there. So I just had to keep that in mind just to see where you could and could not push it to get the deal done.

Break: [16:06] to [19:00]

Joe Fairless: Now, when I introduced you, I also said, because it’s in your bio, you do agricultural syndications and ranching. High level, what does that consist of?

Tracy Hubbard: Well, ranching is in my family heritage. We’ve been doing it for generations and so I’m sort of getting back into it a little bit, I do a little bit of ranching, but the agricultural syndication part of it is sort of interesting because when I was looking at buying one of my ranches, we were looking at putting a vineyard on there because one my son-in-law’s actually worked for a ranch that had a vineyard, and I saw the money that the rancher made off of it. He didn’t have a lot of acreage. He had like 10 acres of it, which is about all you can handle as a small operator. So I thought, “Well, there’s money there. I’m always looking for ways to offset expenses on a ranch and what else kind of revenue drivers can you have?” It was like I said, being diversified. Others were cattle, we were looking at the other stuff. So, we were looking at the vineyard also.

So I looked at it and it was a viable business model, but through another podcast I’d done, I’d mentioned that and then I found a guy that actually was doing a little bit of real estate syndication but not on a bigger scale as I was, but he knew a lot about vineyards, and they had a vineyard, and they were trying to learn how to scale the business model. So we got together and that’s pretty much what we’ve done is we’re syndicating a vineyard now up there in the high plains of Texas, which is the best grape-growing country in the state and produces 75% of the grapes in Texas wine.

Joe Fairless: For someone who has not invested in that type of business, what are the main risks associated to it?

Tracy Hubbard: Well, the risk are not—it’s really great. I don’t think, as far as what you have in multifamily, mainly because you have crop insurance and stuff like that. Here’s the biggest difference between vineyard, which is the agricultural part I’m in. Is it’s a long time process. You don’t get your first harvest until fifth year, and then it’s sort of more of a 10-year play instead of a five-year play, but the difference being is this is also like an annuity that keeps paying out because vineyards will produce revenue for 30-40 years.

So it’s not a fix-and-flip thing. It’s more of a development project, and it’s a legacy thing that you can build long-term wealth on and long-term income because it will cashflow double digits, [Inaudible [21:11], fifth year, and we’re doing the same thing you do on a multifamily. We’re also doing a refinance in year seven to get all the cash back out and you still keep it and it’s still cash flows great numbers.

The thing about this that’s different than multifamily is you can find a lot of property management companies and asset managers to manage your multifamily, but on the grape side of growing grapes, it’s a very small world out there. If you don’t know the operational side, you will lose your shirt. So I’m bringing more of the syndication money side of the deal. I’ve got a partner who’s the operator, they’ve been doing it and know how to do it. So it’s back to what I said, you’ve got to have good partners too when you’re doing this kind of thing.

Joe Fairless: Taking a step back, what’s your best real estate investing advice ever?

Tracy Hubbard: Good partner, and I’m saying the team, and I say, not just your financial partners, but I’m talking about attorneys, accountants, cost seg people, financial mortgage brokers, all those. I’m telling you, every deal I’ve been involved in, if you didn’t have a great team there, lots of times, they just won’t happen because of that. That’d be my advice, assemble a great team.

Joe Fairless: We’ll do the lightning round. Are you ready for the Best Ever lightning round?

Tracy Hubbard: Sure.

Joe Fairless: What is the best ever book you’ve recently read?

Tracy Hubbard: Recently read it’d probably be Texas Wine Pioneers, just the people that started growing wine in Texas.

Joe Fairless: Very topical for this conversation. What real estate deal have you lost the most amount of money on?

Tracy Hubbard: Well, believe it or not, I guess the loss would be that first one, and I spent some money, and I’ve spent a lot of money on education that probably didn’t pan out, but as far as just a real estate deal, that must have been the only one I really lost money on, that Chicago one.

Joe Fairless: What’s one piece of real estate education that you spent money on that that didn’t pan out?

Tracy Hubbard: It was a mentorship program.

Joe Fairless: Which one?

Tracy Hubbard: I don’t want to say that on here.

Joe Fairless: Why didn’t it pan out?

Tracy Hubbard: Probably because I didn’t get some mentorship that I was told I was going to get.

Joe Fairless: So, knowing what you know now, if you were going to join another program, what would you ask?

Tracy Hubbard: Who’s going to be doing the mentoring? Is it going to be one of the underlings or is going to be the guru?

Joe Fairless: Best ever way you like to give back to the community?

Tracy Hubbard: I’m trying to give back to people who don’t have—right now, I’m for mentoring my GC, my contractor up in Lubbock. He’s a young guy and he wants to get into real estate investing and he’s trying to understand the syndication side of it. So I’m mentoring him, just to give back up, educating him on it.

Joe Fairless: How can the Best Ever listeners learn more about what you’re doing?

Tracy Hubbard: I would say, go to the website, hubbardcapitalgroup.com. and there’s stuff in there, talks about our multifamily side and the vineyard side also.

Joe Fairless: Tracy, thank you for sharing your experiences going back to 1998 when bankruptcy happened and then psychologically, how to handle something like that should any of us, who are participating in this conversation, listening or otherwise, go through something like that. And also, I appreciate you sharing advice on your acquisitions and how you transitioned into multifamily as well as the wine syndication that you were mentioning before.

So thanks for being on the show, hope you have a best ever day, and talk to you again soon.

Tracy Hubbard: Thanks, Joe. I appreciate it.

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