January 17, 2022

JF2694: How to Select Your Multifamily Market with Julie Holly

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Multifamily investor Julie Holly’s properties are 1,000 miles away, and there’s a reason for that. In this episode, Julie reveals why she went outside of her backyard to find deals, how she selected her market location, and how she sourced her recent deals.

Julie Holly | Real Estate Background

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Slocomb Reed: Best Ever listeners, welcome to The Best Real Estate Investing Advice Ever Show. I’m Slocomb Reed. This is the world’s longest-running daily real estate investing podcast today. Today, we have Julie Holly with us. How are you doing, Julie?

Julie Holly: I am doing fantastic. Even better because I’m hanging out with you this afternoon.

Slocomb Reed: Great. Julie is the founder of Three Key Investments, which focuses on multifamily. In her portfolio, she’s the GP of 69 units in the Atlanta MSA, LP on nearly 300 units in Huntsville, Alabama, and she manages these properties while 1000 miles away, based in Bonners Ferry, Idaho. Julie, what got you into real estate investing?

Julie Holly: Well, it seems like a really great way to help people, quite frankly. That was where it originated from; it’s like, “You know what? Everybody needs a place to live, I can help people.” It came from a hard point in my life. I needed a place to live when I was just trying to figure some things out in life… And I realized that sometimes when people are going through difficulties, housing can be really challenging to find, so my husband and I decided, “Hey, let’s create housing situations where we can fill in those gaps for people.” That’s how we got into single-family investing. Then we exited from that, because quite frankly, one unit, one door, a vacancy, I just couldn’t handle the stress on that once we had children. I’m like, “I want security and safety.” He said, “Find another investment vehicle, find something that you like.” I said, “Okay,” and I found multifamily syndication.

Slocomb Reed: Awesome. Did you start out as an LP in multifamily syndication, or did you start out as the general partner?

Julie Holly: I began as an LP. It was very strategic. I knew that I wanted to serve and support investors. I have a background in residential real estate, as well as public school education, so I’m just putting both of my careers and passions together. Now it’s like, “How do I support and educate investors so that they can find this vehicle, and that they can thrive financially?” Understanding that I want to work with investors in that capacity – that led me to… It’s responsible to begin as a passive investor, I want to feel what they feel, I want to feel what it’s like to wire money to people I don’t really know, for a deal that looks good, but – all those question marks, and all those feelings. So that’s why I began as a passive investor, also a great way just to learn at the very get-go.

Slocomb Reed: Gotcha. So you started investing passively for the sake of getting your bearings and understanding what it is that your LPs would be going through when they were investing in your deals, right?

Julie Holly: Yeah. And quite frankly, I think it’s been an invaluable resource, because I do bring on a lot of first-time sophisticated investors, which is one of my passions. It’s a matter of “I get it.” I just sent a message, I have a new investor wiring funds, and he happens to be accredited, but first time in this investment class, and a little bit nervous. And I can simply say, “I totally get it, because I have not forgotten those feelings.” It’s that level of empathy, it just runs deep.

Slocomb Reed: That still happens to me. We bank with USAA personally, so whenever I’m on the phone with them to wire funds, I click refresh and the number goes way down… Yeah, I get it. I can definitely empathize and sympathize with those feelings. From Idaho, what took you to Atlanta for your own deals?

Julie Holly: Honestly, it’s a matter of where does it make sense. Some people invest only in certain states. I happen to have a large network, and a lot of really great opportunities, and Atlanta is a strong market, and I had a really great opportunity. So I followed the numbers and I followed the power people as well.

Slocomb Reed: Got you. 69 units in Atlanta – is that one deal?

Julie Holly: That is one deal. Yes.

Slocomb Reed: Gotcha. Tell me about it.

Julie Holly: That deal is really, really cool. I’m really super big on integrity. I’m actually a strategic partner in that deal, which is a little different than a full-on GP. And I just want to be transparent with that, because I just believe in never letting anybody be misled in any way. But however, that deal is amazing. The original partners on this, they were going in — they were turning this office building into Class A luxury dwellings, but they were undercapitalized. Obviously, they ran out of money, they didn’t know what to do, our team came in there, we bought out one of the partners, we finished it up, and the returns are through the roof for our investors. It was an extraordinary opportunity. Most of the work was already finished. It’s like out of 12 floors, seven of the floors were already finished; there were just five floors left to finish. It was just lots of upside.

Slocomb Reed: Julie, this is great. You’re giving me so many questions. Tell us more about the conversion and what’s involved in it.

Julie Holly: In that conversion, everything was involved. We’re talking all the wiring was redone, all the plumbing, all the wiring… Even the elevator shafts were redone. So it wasn’t just as simple “Just go in there, slap some new flooring, and some new countertops in.” This is like “Okay, let’s get this. Let’s completely go down to the studs and repurpose this entire building.” And then there’s some other strategy involved in that building as well, because by nature of where it’s positioned, we are able to have also some commercial retail space in there… So that creates some other opportunity on the upside. It allows us to sell advertising space, so there’s another source of income that you might not factor into your underwriting, but it’s a nice upside… And then we were able to add in a coffee bar and put a whole rooftop patio lounge up there. That’s run by a third party, so it’s another income stream that’s coming in. So a fantastic opportunities to walk into altogether.

Break: [00:07:09][00:08:48]

Slocomb Reed: Now, you said before your team was involved in this deal, it was undercapitalized and then you bought out one partner to be able to finish the deal. How did the dynamics of that partnership work if you are bringing the capital to finish the deal, but you’re only buying out one partner instead of buying the property as a whole?

Julie Holly: Yeah, it’s an interesting dynamic for sure. You’re bringing in the equity to finish out the project, and that’s really what it is. It’s very similar to a typical purchase, except instead of purchasing maybe from off the market from the whole thing, you’re just buying out one of the partners, and bringing in everything else through your capital, your equity; you’re just bringing in the rest of the equity to finish out that project.

Slocomb Reed: I can’t think of a nice, politically correct way to put this, Julie… But if you’re just buying out one of the partners and bringing the equity to finish the project, are the other partners whose stake you are not buying, do they just get to be the dead weight that floats along with the success that you bring, or did the partnership have to be restructured to account for the value that you are bringing and the equity to finished the project?

Julie Holly: Yeah, it was a complete restructure in that regard.

Slocomb Reed: Julie, tell me about the deals you’re currently working on. Before we hit record, you said this is a great week, you’re coming out of a deal and getting into another one. What deal are you, “getting out of” right now?

Julie Holly: Yeah. We have a deal in Des Moines, Iowa that is wrapping up. It’s exciting to take a deal across the finish line. For me, it’s always knowing that my investors are in something that is solid. Especially right now with inflation, understanding that component and that they’re in a really good, strong asset, with a strong team… It’s exciting.

Slocomb Reed: Got you. Wrapping up, you’re selling this property in Iowa now?

Julie Holly: Actually, we’re purchasing. We’re acquiring this property.

Slocomb Reed: Okay. Got you. What’s the game plan here?

Julie Holly: Well, it’s a 120 Class B multifamily. It’s beautiful. It’s six years old, so it’s relatively new. But when you’re looking at the cost to build and everything right now, it’s so exorbitant. So just being able to go into a market where they already have a super-strong occupancy rate, but our rents are well below the market value – it just gives us an opportunity to move in and provide super-quality housing to the residents in Des Moines, and write it up.

A lot of people in the MSAs are really looking for that forced appreciation. Quite frankly, I’m looking at just some of the dynamics in our economy right now, and I’m liking the Midwest quite a bit. I’m liking the stability; it’s just nice and solid. It’s not going to have that same forced appreciation as Atlanta or the Texas markets, but the value is there, the returns are strong, and should something happen, I have more confidence in what’s going to happen in that local economy.

Slocomb Reed: Nice. You said 120 B class units in Des Moines, and it’s rented under market. Are you underwriting to a five-year hold?

Julie Holly: We are. Yes, we will be holding five years. We’re going to test some different elements. On the CapEx budget we have factored in “Let’s go in there — even though it’s relatively new, some of the finishes aren’t. If we can upgrade some of those finishes, we can definitely increase our rents.” So we’re going to do some tests with the local market to make sure that that’s not just in our heads, but we’re looking at the competition. We’re not jumping in there to just quickly go and redo all the units; it can just be this process as the units are turning. We’re going in and adding some new flooring, dropping in some nicer countertops, the kitchen and vanities, and just some lighting; some of those finishing touches. Sometimes people forget that poles on cabinets – they look great, they add that finishing touch, and they actually make cabinets last a little bit longer.

Slocomb Reed: They’re affordable and they’re easy to install. Yeah. And they make a big difference when you’re showing places.

Julie Holly: They really do, they make things pop. It’s like the cherry on top. So just adding some of those to be able to raise the rents ever so slightly, and just testing the market on that first. But there are also opportunities like the hidden values… “Okay, well, do we add covered parking? Do we add private patios?” I like there’s some of that upside that’s not factored into the underwriting, that’s not baked in. I really appreciate that approach, to say, “Okay, well, what else can we do? Or what meat on the bones can we leave for someone else who’s going to come and purchase it from us?”

Slocomb Reed: Nice. This sounds very stable; not too aggressive of a business plan. You’re underwriting to the five-year hold, buying it with below market rents, the opportunity to increase rents to market, maybe needing some cosmetic updates in the units, but probably nothing major if it’s only six years old… When you were sharing this opportunity with investors, what kind of a return were you projecting?

Julie Holly: Conservatively, 17% AAR, 14% IRR, and the equity multiple is 1.87. What’s interesting is that this is the first time our team has tried different types of shares. We have three different share classes, which is really interesting. This is a test basically, we’re testing to see how are the investors going to respond to these different share classes. That’s been interesting. We have a straight 10% return, and you can just walk in and get shares, but they don’t have any equity. We have a share where you can walk in and have a seven pref, but you’re going to have that equity inside of it; that’s the share class that has that 1.87 hold. And then you have a blend of the two.

So it’s an interesting concept, quite frankly. I’ve had a couple of investors that were interested in that “Just gave me the straight 10%”, which was interesting to me. And it kind of goes perhaps with some demographics, and where people are at in life, the level of risk they want to take, and what kind of upside they’re really looking for at the end.

Slocomb Reed: Julie, I’m not a syndicator. I guess an owner-operator is the best term to use. I have some very basic questions when it comes to these kinds of things — I’m less familiar than a lot of our audience. When you said you had different share tiers, if tiers is the word that you used, were you making a specific amount of each share type available? Or were you letting your investors basically just pick the way that they wanted to get a return on their investment?

Julie Holly: Yeah. We actually did have specific amounts allotted to each share class. We also let the flexibility in for movement. Say we have nobody that wants the blended shares, everybody just wants to choose something that’s solid the way it is; they’re all solid, but just like clear, “This is what I’m getting.” Then we would be able to adjust for that if we would like; that was kind of built-in.

Break: [00:16:24][00:19:20]

Slocomb Reed: You said before we started recording that you just got an LOI accepted as well. What is that deal?

Julie Holly: Yeah. That’s an exciting opportunity. We’ve worked for a year to break into the Columbus, Ohio market. That market is fierce. We’ve unfortunately been first-place loser too many times over the last year… And honestly, we chose an asset that is not our target asset, but we want to get into this market, and we just simply need to close something. It’s sometimes just having something in the market that makes sense. It’s a great asset and it’s just different, it’s smaller than what we typically look for. It’s only 22 one-bedroom one loft, luxury lofts in an area that is in the path of progress. But it also has two retail spaces below, so mixed-use, which is nice. But what’s happening in that area, the appreciation that is happening in that area – as I spoke about earlier, some of these larger cities that are just growing by leaps and bounds, there is more appreciation.

So it’s an interesting opportunity. But even just through that, within my network, one of my friends, as soon as I said I had this accepted LOI, she turns around says, “I know someone that has 340 units that they’re looking to–” It’s like, okay, again, this is why. I’m like, it’s 22 mixed-use, but if it starts all those other conversations, I will buy that 22 mixed-use every day of the week.

Slocomb Reed: Yeah. Columbus is an exciting place to get into. What part of Columbus is this in?

Julie Holly: It’s on the east side of Columbus, downtown.

Slocomb Reed: Nice.

Julie Holly: I am going to be intentionally vague. It’s in a very nice location around a lot of hospitals.

Slocomb Reed: Yes. LOI accepted, but not necessarily contract, totally. I get that. I used to visit my brother. He lived in that, generically speaking, that part of Columbus for a while, and he loved it. A lot of cool things to be able to walk to.

Julie Holly: Yeah. The walkability. And I’m going to add this – when your PM is jogging by that asset and you call them up and say, “Hey, this is what we have an accepted LOI on.” I jog by that a couple of times a week. Fantastic.

Slocomb Reed: Yeah. That’s exciting. Awesome. Well, Julie, are you ready for our Best Ever lightning round?

Julie Holly: I am absolutely ready for the lightning round.

Slocomb Reed: Awesome. What is your Best Ever way to give back?

Julie Holly: I do a lot of coaching. Just taking those phone calls, I’ve helped people launch their own podcasts, I’ve helped people zero in and find clarity on their brand… Just through conversation, being able to share my experiences to help those people around me to level up… It seems very easy to me but, so often, I just see the light bulb moments. I’ve had people come back, thank me, and tell me “I named my company because of what you said.” So that’s really exciting to know that I’ve been able to support people and give back in that way.

Slocomb Reed: Totally. What’s the Best Ever book you recently read?

Julie Holly: It’s always a book that I’m reading at the moment, because I think the best are the ones I’m reading… And that is currently — and seriously, it is my best book right now… Stillness Is The Key by Ryan Holiday. I’m a huge Ryan Holiday fan. Also, I’ve got to add The Alchemist. The Alchemist is foundational for everybody.

Slocomb Reed: What’s the most money you’ve ever lost on a deal?

Julie Holly: …and counting, maybe. Let’s see. At least 35,000. It was not the worst decision, but maybe one of the worst decisions. So I went into a different asset class, and I invested in something that I did not fully know. I was looking for another passive income stream, and you know E-com, it looks like a really great option, having somebody else own and manage and operate. So this makes me very sympathetic to my passive investors, and understanding their level of “can I trust this?”, because I really got schooled in 2021 in the E-commerce world. And it’s still getting wrapped up; I’ve not just lost money, but more importantly, I lost time, I lost momentum in some of my other pursuits… And I also learned “I’m going to stick to my asset class.” I love multifamily, the benefits are through the roof, and I don’t need to go anywhere else. I should have just put that money as an LP position somewhere, right? Lesson learned. I was trying to diversify though.

Slocomb Reed: What’s the most money you’ve made on a deal?

Julie Holly: Over six figures, beautifully. Do you want exact numbers?

Slocomb Reed: It doesn’t have to be exact. If you’ve got a ballpark, what you bought it for, what you sold it for.

Julie Holly: Okay. So I bought a condo in Denver, Colorado. And this is just a fun play; I’m still looking to exit this year, one of my deals is going full cycle in the multifamily space. But in that regard, I think I picked it up for 137k, and we made six figures and a little on that.

Slocomb Reed: Nice. Almost doubled your money then, it sounds like. Best Ever listeners, Julie has her own podcast. It’s called The Conscious Investor. Julie, tell us about it.

Julie Holly: Yeah. The Conscious Investor used to be known as Ask Me How I Know, Multifamily Stories, The Struggle To Success, which is a mouthful. And I noticed that I was evolving, but the podcast is nearly three years old, so I allowed the podcast to be rebranded and grow into The Conscious Investor, which is just a complete blend of what I believe, between mindset and wise investing…

I release a mindset episode each Monday to launch your week with intention, and then every Thursday we release an episode, and it’s always with an industry professional of some sort. I’m now taking that beyond the multifamily space — it’s largely multifamily investors, but I’m including a lot of other people as well, just to balance it out and cross pollinate everybody’s worlds.

Slocomb Reed: Awesome. Well, Julie, thank you. Best Ever listeners, thank you as well. If you enjoyed this episode, please be sure to leave us a five-star review and share this episode with someone you think could benefit from the best real estate investing advice ever. Don’t forget to follow and subscribe to our podcast, so you don’t miss anything. Thank you and have a Best Ever day.

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