Jenny Gou and Steve Louie | Real Estate Background
- Both Managing Partners at Vertical Street Ventures, which was established to help individuals achieve their financial goals through passive investing in real estate.
- Jenny’s Portfolio: 1,650+ units across AZ, TX, and GA.
- Steven’s Portfolio: 3,200+ units across AZ, CA, FL, and TX.
- Based in: Brea, California
- Say hi to them at: www.verticalstreetventures.com
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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 fluffy stuff. With us today, Jenny Gou and Steven Louie. How are you two doing?
Jenny Gou: Great. Thanks for having us.
Joe Fairless: My pleasure and glad to hear that. A little bit about Jenny and Steven – both are managing partners at Vertical Street Ventures. Vertical Street was established to help individuals achieve their financial goals through passive investing in real estate. Vertical Street Ventures – they have over 1000 units as general partners, and then they each have passively invested in deals as well. They’re based in California. With that being said, do you two want to give us a little bit about your background and your current focus? Maybe, Jenny, do you want to go first?
Jenny Gou: Absolutely. A little bit about me. I’m currently a full-time real estate investor and syndicator. I’ve been doing this full-time for the last two years. Prior to that, my former life, I was in corporate America for 13 years, working as a Sales Director at P&G. I started with single-family investments just to diversify our retirement, all in Cincinnati,10 homes. They did well, but i wanted to scale quickly, so learned about multifamily, and then here we are. We started Vertical Street Ventures this year along with my partner, Steve, to help others get passive income, but then also share the wealth of knowledge that we have, so that others can achieve financial freedom.
Steven Louie: For myself, Joe, I’ve been a corporate America guy most of my entire life. W2 wage earner, I call it cubicle-to-corner-office; a successful career on the insurance and consulting side. Everything from sales leadership to underwriting, to running the entire office, my last role as a partner at a consulting firm. Halfway through my career, I started investing in real estate, started just like Jenny in single-family homes. That led, most recently, for the last five years, all into multifamily. That’s where Jenny’s husband and I met at a meetup, and the rest is history. We started Vertical Street Ventures and it’s all focused around multifamily investing.
Joe Fairless: I heard you, Jenny, you said you’ve been doing this full time for two years. You had 10 homes in Cincinnati and Steven… Do you go by Steve or Steven?
Steven Louie: Steve is fine.
Joe Fairless: Okay. Because I heard her say, Steve. Fair enough. Let’s call you how you want to be called, Steve. Steve, how long have you been investing in real estate? And then the same question for you, Jenny.
Steven Louie: I’ve been investing for over 10 years. Again, I started in single-family homes, and then most recently shifted over into multifamily exclusively. I built a pretty strong portfolio across the board from a passive investment standpoint. I started with passive investing, I have a portfolio of probably 25 passive investments, and then we’re general partners on over 10 to 12 general partnerships out there.
Joe Fairless: Okay. Jenny, same question. When did you buy your first house in Cincinnati as an investment?
Jenny Gou: Yes. Back in 2017, almost five years ago. I started with one, and then within a year and a half, caught up to 10. In fact, I closed on four on the same day, believe it or not, in the middle of the workday. But then since started multifamily two years ago.
Joe Fairless: Okay. Why did you leave single-family homes?
Jenny Gou: The same reason everybody else does. I think you quickly realize that it’s not scalable. It’s more efficient to jump into multifamily, it’s more beneficial from an income appreciation, tax benefits. And it’s actually the same, if not less work, depending on how you approach it. So it just made sense for us to make the switch.
Joe Fairless: Steve met your husband at a meetup, then dots were connected, you two formed Vertical Street Ventures. What was your first project together?
Jenny Gou: It took about 10 months for us to find a deal, because all of last year COVID was happening and things weren’t very open. So it took us about 10 months to find our first deal, and then one quickly joined afterward. We actually closed on two deals on the same day in December 23 of last year. One was a 28-unit in Glendale, Arizona, the other one was 176-unit in Tucson, Arizona.
Joe Fairless: Okay. Those are your first deals as general partners, correct?
Jenny Gou: Correct.
Joe Fairless: Wow. Congratulations on those. Did you have any paid guidance to help you get to that point?
Jenny Gou: Absolutely. That’s probably one of the Best Ever tips that I’ve received, advice, in this career… Specifically, to find a coach, a mentor. Whether it’s informal, or it’s paid and more formal, whichever you prefer, but it’s absolutely critical for you to educate yourself quickly, and then accelerate.
Joe Fairless: Who did you pay?
Jenny Gou: So I did the informal route. My mentor was actually Steve Louie.
Joe Fairless: I think I know that guy. I used to call Steven, but now I call him Steve.
Jenny Gou: Exactly. [laughter]
Steven Louie: We got closer.
Jenny Gou: Yeah. So when Ronnie met him, actually, Steve was speaking at a meetup. Right around the same time, I had just decided to leave my corporate job. I actually met Steve a few weeks later, we connected instantly, got talking, and at the same time, just in conversation, I said, “Hey, just to get real quick in this business, I want to go find a mentor. I’m willing to work for free, I’ll be someone’s intern.” Steve looked at me and said, “Well, I have properties in Arizona. Why don’t you come work with me for the next couple of months and help me manage my workload there?” as he was still working full-time. That’s how we came to be. We spent the better part of last year interviewing each other, him teaching me, we were underwriting deals – all of that stuff, before we actually decided to partner together on a project.
Joe Fairless: Who does what in the business?
Jenny Gou: Steve is excellent with building relationships. He’s got such a great network in the Arizona marketplace already. So his strength is very heavy in the acquisitions side of the business, building relationships with investors, all of that as well. And then I focus a lot more on asset management and the execution of the business strategy, as well as raise funds and capital for our projects, too.
Joe Fairless: Okay. And I heard in my mind, it was crystal clear – acquisitions, Steve, Jenny, asset management, execution. But then I heard you say that you both work on the investor angle, because you mentioned he is good with investors and that’s also something you do. How do you two divide and conquer that, if that is the case, Steven?
Steven Louie: From a capital raise perspective, I think the great thing is both Jenny and me have very complementary skill sets. At the same time, we have some skill sets that are very similar, too. Just both being in a sales-oriented role most of our careers allowed us to have a pretty strong network of folks that actually tapped into us from an investment standpoint.
Sometimes some of my investors I’ll give over to her, she might be a little bit better fit, and vice versa. We both have the ability to connect the dots with individuals to help move them along the multifamily investment timeline accordingly. So I would say everybody on the team, in some aspect, does some type of capital investment. When they get to a point where they need somebody else, either I or Jenny can come in and take over from that standpoint.
Break: [00:08:09] – [00:09:48]
Joe Fairless: 28 units and 176 units, first two deals closed, and it took 10 months to find them. Steve, will you just talk us through how you found those deals? I assume it was you because I heard Jenny say you were focused on acquisitions. How you found those deals, how much equity was raised, and where that came from.
Steven Louie: Absolutely. Just real quick from a background perspective. I joined a paid training program, and that was through [unintelligible [00:10:16].16] I joined that program probably about four years ago and learned all the different aspects of multifamily, and then even took down a couple of them myself, just personally, just smaller ones. From that standpoint, that’s how I developed strong relationships with the brokers in the marketplace. That’s one of the keys in order to achieve success in this area, it’s building those relationships with those brokers. By doing that they have funneled over different opportunities to us. The first one, the 28-unit one was because of a relationship, that was probably the fourth opportunity that we’ve done with that one particular broker, in some aspects in terms of relationships. That took off` — it actually came about when somebody fell out of a contract. They gave us a call and that call said “Hey, we’ve got this. You could take it down at this purchase price. Would you like it?” Boom, we did it, got a Freddie small balance loan on it in quick order, due to some of the relationships we had [unintelligible [00:11:18].19] and was able to close that one.
Then the second one was a larger opportunity in Tucson. I had a great partnership with another group out there. Kyle Mitchell was one of the individuals that I’ve been working very closely with. That one we worked very closely together and closed that one in Tucson as well. They coincided on the same exact day, and perfect timing for the end of the year, to achieve some bonus depreciation for all of the investors as well as the general partnership.
Joe Fairless: On the 28-unit when the broker said it fell out of contract, how long did it take you to say yes?
Steven Louie: Probably a couple of hours. We just came back as a team, do we want to do this? Then we had to make the decision – do we do it on our own? That was one of the things. Or do we do it as a syndication? And since this was the first syndication that we did together, we said, “Let’s do a syndication on that.” Obviously, the market has been great in that market, and the opportunity and the actual asset itself was a great asset, too.
Joe Fairless: How do you make a decision to purchase a property within a couple of hours?
Jenny Gou: A little more context to that… We actually toured the property back in July of 2020, and we were ready to buy. So the second we toured it, we underwrote it, we were going to put an offer, and the broker said, “I’m sorry, you’re too late. An offer was accepted.” So we walked away tail between our legs. Then come September, I get a phone call from that broker saying, “It’s about to fall out of escrow. Do you want it?” I had to quickly hop on the phone with Steve and some other folks and say, “Guys, it’s about ready to come back on. We need to take this.” The quick decision was kind of a no-brainer, phone call, and we called them back. Were we the first one he called back? Maybe, maybe not. But because we were able to respond so quickly, it was ours. That was really important.
Joe Fairless: Thank you for that. So you had seen it before, you were familiar with it, and you acted quickly. How much did you raise on that one, Jenny?
Jenny Gou: For the 28-unit, that was 1.6 million dollars. So a relatively smaller sized one.
Joe Fairless: But it was the first deal that you all did, and it’s impressive to raise that amount of money on your first syndication. How many people, if you remember, did that come from?
Jenny Gou: That was our first raise. Transparently, we raised it in 24 hours. It was our first friends and family deal. We had about 12 people, all in, come into that deal.
Joe Fairless: And you said it was friends and family for that one?
Jenny Gou: Correct.
Joe Fairless: As far as friends go, where are some of the places that those friends came from, that ended up having the trust in you to execute the business plan, take care of their money, and then grow it?
Jenny Gou: I think it’s the same for — I think it’s the same for both Steve and me. A lot of these closer friends are part of the deal. These folks have seen us and heard us talk about investing over the last couple of years, both our single-family and then our journey into multifamily. So it wasn’t a surprise; a lot of them had been waiting on the sidelines just to see what we would do. When this great opportunity came up, they were not hesitant at all to jump in with us into the deal.
Joe Fairless: So there’s a benefit to having two deals at once… But then there’s also, from the equity raise standpoint, there could be a disadvantage, and that is which deal do I invest in Steve? Which one’s better? Tell me which one’s going to make more money? How did you navigate that conversation with investors?
Steven Louie: That’s an excellent question. The great thing is multifamily is really a team sport. Jenny and I were partners on this one, and we also had a couple of other partners on our other deal too, which enabled us to raise some of those dollars. I think the initial focus as we were going through the process was let’s focus on ours right here, the smaller one, because that was the first one we kind of collectively did together. I’ve had multiple other opportunities with Kyle in the past. Some of that naturally took place with some of his networks as well. So that was the beauty of being able to close both of the deals at the exact same time as a general partner. So I’d say on the other deal, though, we were actually using a lot more for our net worth and liquidity requirements at that point in time.
Joe Fairless: Steve, I imagine that since you’ve taken down some deals on your own, multifamily deals — first off, what was the largest, in terms of unit size, deal that you purchased on your own?
Steven Louie: So we got a 176-unit, but I think–
Joe Fairless: I’m talking about personally, not syndicating. Because I heard you say earlier…
Steven Louie: So not syndicating – yeah, my largest one would be 35 units.
Joe Fairless: And that is large enough for lots of drama to take place, I imagine… So on your personal portfolio, what’s something that came up that you would do differently if presented a similar opportunity, and perhaps have used those lessons to apply towards your venture now?
Steven Louie: One of the key things is to choose your property management firm extremely well. So do a lot more due diligence on property management. In that particular case we did have to shift the property manager, actually a couple of times, just because we had some heavy lift. The construction was over $25,000 a door on that, and you need to have somebody managing that process.
Especially when I was working full time as a corporate executive, there’s not a lot of extra time during the day to spend on that, so you do have to rely heavily on your property manager. Fortunately, we were able to secure one that knew how to do everything and had their construction arm all built-in. We had weekly meetings to manage all of that. So in between my regular job, we were taking care of all of those details.
Break: [00:17:01] – [00:19:57]
Joe Fairless: You said you switched managed companies twice.
Steven Louie: Yes, we did.
Joe Fairless: What was the breaking point for switching the management company the second time? Because the first time, I imagined, it was tough. But the second time, it’s just got to be downright excruciating to do.
Steven Louie: First off, I didn’t know anything really about the property managers in town, outside of just spending a couple of days with them and having a bunch of phone calls. So I think you just have to get references out there to make sure that things are moving in the right direction.
The first move was a little bit more challenging, to be honest with you… And then the second one, they just weren’t following through from an asset management standpoint in the way that I’m used to from a corporate America standpoint. We have a lot of project deadlines and things like that that need to happen. So we found somebody that was a little bit more institutional-based. We were able to take advantage that they had some larger properties around the area, literally right around the corner, that we were able to tap into, that enabled us to use one maintenance person in addition to sharing it with another property owner. So making that decision the second time was pretty easy after knowing that they were already managing 120 units right around the corner.
Joe Fairless: Taking a step back – this question is for either one of you, whoever wants to answer… What’s your best real estate investing advice ever?
Jenny Gou: I would say, find the right partner. I’ve seen this multiple times with different sets of partnerships in teams, a lot of folks will jump too quickly into a partnership or a company and realize very quickly after that they’re not the right fit for each other. That’s true in any industry, but very specifically for real estate, because it is a team sport. It is not something you should be doing yourself, unless you don’t want any sleep at all. So finding the right partner… That’s why Steve and I didn’t do a project together for about 10 months, because we wanted to feel each other out and make sure we have the right values, we met each other’s families, we did background checks on each other… So it’s a very thorough process, and that’s one thing I don’t think people are doing enough of in this industry.
Joe Fairless: Was it awkward having a conversation, whoever brought it up, about “This sounds great. But I’d like to do a background check”?
Jenny Gou: Not at al. Again, I think it’s because of our corporate experience maybe. At P&G I had a background [unintelligible [00:22:13].29] all of that, same with Steve. So it wasn’t a surprise, at least for me. But I think it’s a necessity.
Joe Fairless: Who brought it up?
Steven Louie: I used to be — prior to getting into syndication, I was a licensed securities principal as well. So open book on me completely, and I said “I need to find out a little bit more about you. Can we run a background check?” There was no hesitation on her side, we ran it, everything came out clean, and we decided to build this company together, which is thriving. It’s super-fun when you have great partners moving in that same direction.
Joe Fairless: I hear you. Partnerships are critical, and what a great point that you brought up about doing a background check on your partner. And vice versa, having one on you too, for your partner, so that everything’s out in the open, nothing sneaks up after you two have put in a lot of time and effort together to do stuff, because you don’t want any surprises. Thank you for that. Now let’s do the lightning round. Are you two ready for the Best Ever lightning round.
Jenny Gou: Yes.
Joe Fairless: Alright. Sounds good. Steve, [unintelligible [00:23:10].24] lightning round, right?
Steven Louie: Sure.
Joe Fairless: Alright. What deal have you lost the most amount of money on?
Steven Louie: The most amount of money was a passive investment that I had with somebody. The whole project lasted about four years and it was breakeven, with no cash flow throughout the entire project.
Joe Fairless: What went wrong, high level?
Steven Louie: Leadership. I signed on the loan as a key principle, but I signed on with individuals that I really didn’t know very well. That kind of goes back to your other question, fear of missing out – sometimes you’re jumping onto deals that potentially aren’t the best ones because they’re fairly new syndicators.
So if you’re getting into the business, you probably have to go with somebody, if you’re going to be signing on the loan or even as a limited partner, somebody that has done this before and has a track record they can support some of the numbers. This happened to be their first syndication, as well as mine, that I signed on as a key principal.
Joe Fairless: What deal have you made the most amount of money on?
Steven Louie: Most recently, we just sold one in 23 months. That was over two multiples, in the Phoenix marketplace, for the investors. That was a great win most recently.
Joe Fairless: Nice.
Steven Louie: In addition, the cash-out refinances, too. Sorry, I know you said one, but we did a cash-out refinance, 100% going back all into the pockets of the investors.
Joe Fairless: That first deal was a 2X multiple to investors you said?
Steven Louie: No. That was probably my fourth deal.
Joe Fairless: I’m sorry, the first one that you just mentioned. You just gave me two.
Steven Louie: My bad. Yes. That one was back to the investors. Yes.
Joe Fairless: And how much did you make on that?
Steven Louie: How much money did I make on that? We did fairly well. It was a good amount, about three times that amount or so.
Joe Fairless: Like a million bucks…?
Steven Louie: Yeah. I would say just shy of that.
Joe Fairless: Just shy of that. And the reason why I asked is a lot of listeners are general partners, so they hear these numbers, and it’s nice to dig into how much general partners actually make on deals.
Steven Louie: I would say, yes, it was shy of a million dollars there, but it’s a great opportunity… That’s the nice thing about being a syndicator – you can make three, four, five, six times, depending on how the deal is actually structured.
Joe Fairless: Best Ever way you like to give back to the community?
Steven Louie: Giving back to the community… One of the great things is I give back to my local church here. I’m very active in that. I am a leader of the trustees now, so I’m kind of the president of that board, just responsible for all of the activities that go around that, specifically for myself.
Joe Fairless: How can the Best Ever listeners learn more about what you two are doing?
Steven Louie: You can always connect with us on our website. We’re at verticalstreetventures.com. You can always schedule a call with us. We have that right there on our website. We’d be happy to have a discussion with anybody.
Joe Fairless: Partnerships, background checks, finding deals, profitability and property management challenges, and how to navigate them – all topics that are incredibly important to talk about, and I’m grateful that we did on this show. Thank you both of you for being on the show and sharing how you got to this point, and lessons learned along the way with specific examples. I hope you both have a Best Ever day and talk to you again soon.
Jenny Gou: Joe, take care.
Steven Louie: Thank you, Joe.
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