January 23, 2022
Joe Fairless

JF2700: 4 Signs You’re Being Misled on a Multifamily Deal with K. Trevor Thompson


 

When K. Trevor Thompson joined as a Limited Partner on a 170-unit deal, it turned out that he’d been misled about the property and the investment plan. Between mislabeling the class of the property to poor financial decisions, Trevor quickly realized it was inevitable that the deal would go south. In this episode, Trevor reviews his recent deals, how he transitioned from passive to active investing, and the lessons he’s learned on how to vet multifamily deals.

Trevor Thompson | Real Estate Background

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TRANSCRIPTION

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 we have Trevor Thompson with us. How are you doing, Trevor?

Trevor Thompson: I’m doing awesome. Thanks for having me.

Slocomb Reed: Trevor is the founder of Niagara Investments LLC, which focuses on apartment syndications. As a GP, he has 240 doors, he’s an LP on 17 syndicated deals. He’s based in Austin, Texas. Trevor, tell us more about your real estate investing.

Trevor Thompson: Yeah, so I started passively investing a little more than four years ago, and started doing different types of investments as well. I’m mostly focused on multifamily, but I’ve been a little more diverse, so retail, medical center, single-family home fund… So quite a bit of different asset classes, just trying to continue to learn.

Slocomb Reed: You started passively. When did you start?

Trevor Thompson: About four and a half years ago, I invested in several deals.

Slocomb Reed: What were you doing before that?

Trevor Thompson: I worked for iFLY Indoor Skydiving. I had the coolest job in the world. I worked for them for 20 years. If you can imagine, at our first team meeting, we were all given a copy of Rich Dad Poor Dad.

Slocomb Reed: That’s awesome.

Trevor Thompson: Fortunately, I did what a lot of people do, I put it on my shelf and went on living my life, forgetting about real estate. Big mistake, start early.

Slocomb Reed: Part of my Rich Dad Poor Dad story is that I read it right before I got married. I ended up giving a copy of Rich Dad Poor Dad to each of my groomsmen and saying, “Hey, you’re getting a tie, but this is a real groomsmen gift. I’m going to do this. I don’t know how yet, but I’m going to do this and I want you to come with me.”

Trevor Thompson: That’s awesome.

Slocomb Reed: Yeah. Fast-forward several years later, here I am, one of the hosts of this awesome podcast.

Trevor Thompson: That’s amazing.

Slocomb Reed: When did you decide to become a GP?

Trevor Thompson: It was always sort of in the cards. I wanted to start passively investing, learn a little bit more, try to figure out what was the right thing to do, and the wrong things to do… Then I decided I was going to become active. Then, of course, this lovely thing called COVID came along, and I got furloughed and eventually let go, and I said, “Well, the world just made the decision for me. I’m going to go do this full-time now.” So I dove in full-time and started looking for properties.

Slocomb Reed: So it was early 2020 then that you–

Trevor Thompson: Yeah. 2020 I started doing it full-time. Then I started looking for properties and trying to find a deal. I finally now got on one, we’re just closing this month actually, and I’m very excited about that.

Slocomb Reed: Is this your first deal as a general partner?

Trevor Thompson: That’s correct. Yes.

Slocomb Reed: Got you. So this is 240 doors?

Trevor Thompson: It is, yes. A nice place to start. I did get some experience before. One of the passive investments I was in, which was 176 doors – they were in trouble and they were stretched a bit. So while I was furloughed, I volunteered as an asset manager to help their asset manager. Then they fired the asset manager, fired the property manager, so here I am, self-managing at deep value-add, 176 doors in the middle of a pandemic.

Slocomb Reed: Oh man, we’ve got to start there, Trevor. We’ve got to start there. So you say that they were in a bit of trouble. First of all, 170 doors. Where is this?

Trevor Thompson: That was in San Antonio.

Slocomb Reed: In San Antonio. That was a deal that you went into as a limited partner. What was being pitched to you when you decided to invest? What was the trouble and then how did you get out of it?

Trevor Thompson: What had happened was, I’ll be honest, they underfunded their capital expenditure. They thought they would be able to get out of a particular loan product and into another loan product, and when those two things happened and didn’t happen… And then of course, during the pandemic, we had some skips and some other things that happened, and we ended up having to renovate more units than we thought we were to try to stabilize… So it was a very challenging time, but at the end of the day, I couldn’t have paid for education like that I got. I was on the property pretty much every other day, and I was a property manager, so I learned a ton. It was very exciting.

Slocomb Reed: Oh, so you were actively involved in property management as well?

Trevor Thompson: Yeah, because they fired the property manager, so we self-managed. So here I am, a passive investor who volunteered to help, and now I’m running a property, with five team members on the staff…

Slocomb Reed: How is it performing now?

Trevor Thompson: It’s sold now. Unfortunately, it’s sold; but we didn’t make any money, but we didn’t lose any money. Again, it was a rough deal; regular phone calls to the police, and we had actually armed security for three weeks… You can learn a lot of lessons when you have a property like that. But I loved turning it around. Without the pandemic, I think we would have been successful.

Break: [00:06:03][00:07:42]

Slocomb Reed: Trevor, it sounds like you were able to swoop in and take a deal that was going into the red, and bring it back to breakeven by getting involved as an asset manager, and then as a property manager for a deal that was tanking, in part due to COVID. You were looking to transition into becoming a GP, so this could have been a great experience for you. It seems like the most limited partner’s absolute worst nightmare. They want to invest passively. So the idea of getting called into something like this – they wouldn’t do it. But based on your experience on the limited partner side in this deal, is there anything about this deal that, in hindsight, you realize it wasn’t going to go well when you got in?

Trevor Thompson: When we first got in, it looked like everything was going well. We got a couple of distributions at the beginning, and it was chugging along, and they were giving positive reports. But once I got there and started digging into exactly what was happening, it became apparent that we were being misinformed, which is part of the reason why the asset manager was no longer there, and then eventually the property management company – they were showing skips and still occupied, and just a few different things that you don’t normally think of as a passive investor. But of course, now that I became active, that’s all I thought about.

Slocomb Reed: So did the GPs hire a third-party asset manager, or was it someone among them?

Trevor Thompson: It was someone who worked for them in an employee-type position. They had about 11 properties spread across Texas, so they had someone on their payroll as part of their structure to take care of it.

Slocomb Reed: Gotcha. So was any of this foreseeable, now that we’re looking back at it in hindsight?

Trevor Thompson: Definitely. From what I know now, they should have had more money in their CapEx budget to continue the lift. It was a heavy lift, and they just didn’t have some money. And I think they spent some money at the wrong place. They bought a really bad property and tried to make the back entrance the main entrance, so they spent a bunch of money fixing up the back entrance, but nobody ever came in the back entrance. So it really didn’t change… They weren’t fooling anybody that this was a different property. So that was part of it. But the rest of it was, I think they underestimated just how big of a lift it was going to be.

Slocomb Reed: Got you. Is there anything now that you realize you could have seen in their prospectus?

Trevor Thompson: Definitely questioned that it was a C-class property. I believe it was a D; they clearly said it was a C. And again, that’s a fine line. There’s no magic formula to that fine line. Now when I look at new PPMs and I look at new deals that I’ve been on, I know a lot more. When I first invested in this and somebody said, “We’re going to spend $4,000 a door,” I thought, “Oh, that’s a lot of money.” But I found out that on a deep value-add, $4,000 is not a lot money…

Slocomb Reed: That’s nothing.

Trevor Thompson: …almost a light turn.

Slocomb Reed: That’s barely a labor bid with no materials.

Trevor Thompson: Yeah. It was interesting because I had another reaction, actually. The next investment I made was an A-plus property, because I thought, “Okay, I’m not going to do this again.” That one I actually got to do some volunteer work… And remember, I asked for all of this, I volunteered, I begged; I really wanted to learn, and I had this opportunity with a schedule that was fluid, and then being furloughed… So I really wanted to take advantage of it. Even on the A-class property – they bought it and it wasn’t a smart community, so I spent my own time and energy researching to convert it to a smart community with the locks, thermostats, and access points.

My theory always was as a passive investor that I wanted to earn and learn. It’s part of the reason why I’m invested in several different types of asset classes. Here in Austin, we’re converting apartments to condominiums and selling them. The same story – go buy an underperforming apartment complex, start your plan, it’s going great until there’s an eviction moratorium, and now you can evict. But thank goodness, the real estate market in Austin’s insane, and that saved that project. They’re getting almost 40% more per unit when they’re turning the apartments down into condos than they were pre-pandemic.

Slocomb Reed: When did you get actively involved in the San Antonio deal, the 170-unit?

Trevor Thompson: January 15, 2020.

Slocomb Reed: That’s when you went active, so that was pre-COVID.

Trevor Thompson: Yeah. I was in the deal for about 13 months before that. The deal has been going along for about 13 months, and we’d received a couple of dividend payments. They weren’t substantial, but there was some cash flow coming there. Again, then I wanted to become more active, so I started that in January. Shortly thereafter, I was full property manager, I had a flexible schedule, and then all of sudden I got furloughed, so I had a very flexible schedule and was able to do more.

Slocomb Reed: Trevor, thinking about you more actively as an asset manager and a property manager, the boots on the ground – how did your team react to all of the changing variables that came with COVID? I’m thinking specifically mid-March, you have the stock market pick up, and then it’s labeled a pandemic by the World Health Organization… I know in Ohio our shelter in place started on March 27. So right there in that mid to late March and moving forward, how did you guys react and adapt to the challenges posed by COVID?

Trevor Thompson: It was very interesting. In the beginning, just like everybody, we froze, “Okay, we’ll kind of freeze for a month, close the office, forward the telephones, have a mailbox for rents, and it’s going to all end.” Once we realized that wasn’t going to end and we started running other things, I would stop on the drive from Austin to San Antonio at every Target or Walmart to see if I could buy disinfectants. Then we put the glass shields up in the office right away, we did a lot of things, we started —

Slocomb Reed: Trevor, I know as an owner-operator, my thought at this time… Especially when the idea of an eviction moratorium came looming… I had some C-class properties at the time, I still do. And I remember thinking to myself that a bunch of my tenants are getting laid off, and they’re all learning from the news that if they don’t pay rent, they won’t get evicted. Plus, the stimulus payments and things like that had not yet come into effect; they were just being spoken about by politicians, but no people were getting any of that money yet. Particular to that circumstance, how did you guys adapt?

Trevor Thompson: What we tried to do was work with the people that were trying to pay. We would really work with the people that were trying to pay. A couple of people maybe were three months behind, so we would say this, “If you could pay this much, we would forgive this much.” So we started out with $100 discount, and then a $200 discount. For people that were trying, we started accepting 50, 60, 75 cents on the dollar, depending on what we thought we could get, just to keep the cash flow coming in. And then of course, once rent relief came, it fixed that problem a lot. It’s an interesting story though, because the mindset of these tenants is completely different. So when the big relief checks came, I actually counted 28 big screen TV boxes at the dumpster. 28 people that probably weren’t paying their rent went and bought a big 60-inch TV. It was mind-boggling.

Break: [00:15:38][00:18:34]

Slocomb Reed: I’ve been a landlord for coming on eight years now. At every point that I have been a landlord and the owner of my tenant’s apartments, I’ve had at least one tenant with a nicer car and more than half of my tenants have a nicer TV than I do, to your point. The vast majority of Best Ever listeners, Trevor, are not actively involved in the day-to-day property management in their deals, because they’re either LPs or their GPs operating on finding deals, formulating business plans, and then hiring a PM to do those things. That’s a perspective that a lot of our listeners don’t have, is having to be the boots on the ground in a moment like that. Not that anything like that is coming soon and no one’s projecting another new pandemic in 2022 or anything like that, but it’s still a helpful thing for people to hear. Let’s hear more about the deal. You said you’re about to close on the 240 doors. Where’s that?

Trevor Thompson: That’s also in San Antonio, a much better location within the city, and a much better asset. It’s a strong B asset. With a little bit more love and care, it can be a really solid property in the area. I’m very excited to be able to be part of that deal. I think it’s going to be a little more fun, because we’re well funded, we’ve got a good CapEx budget, we’ve got a realistic plan, and the property – we want to take to the next level. It’s stuck in the ’80s and it needs just that freshen up. So I’m very excited to be able to do another property like this, that I can see in my mind the success happening, because it’s pretty easy to turn little funny yellow buildings into a really nice place to stay. They don’t have a dog park, they don’t have a barbecue, and they have in-apartment washers and dryers, but with much nicer ones., we can provide a really good experience for the tenants, a nice place to live.

Slocomb Reed: That’s awesome. You said this was going to be a fun deal. You definitely sound like someone who’s having fun, Trevor.

Trevor Thompson: Yeah. I love what I do. It’s very interesting. My whole life I’ve been able to be, what I’m going to refer to as passion projects. I worked for Ripley’s Believe It or Not, Guinness World Records, and iFLY Indoor Skydiving. How many people have that kind of an exotic, bizarre upbringing? And I’m so passionate about it now. I’m really excited to be able to go to a place and make it a better place to live for people. It just oddly excites me so much that I just can’t wait to have it happen.

Slocomb Reed: Yeah. Apartment investing feels a lot like my job, but real estate’s also my hobby. I have a big project I’m working on, but I also end up having a couple of little projects that will be lucrative but are also for fun. I totally get where you’re coming from. So let me ask, you already have experience as an asset and property manager in San Antonio, are you going to do it yourself this time?

Trevor Thompson: I won’t do it all. I’m the asset manager, I’m the one partner that is in Texas. And that was a role I sought out, that’s what I want to do. I’m a strange guy, that loves running businesses and I love incremental improvements. That’s all an asset manager is. My whole life I opened new businesses or took over businesses, improved them, and made them a better place for customers to be, for people to work at… And the end result, of course, is great returns for investors when you do the first few right.

Slocomb Reed: That’s awesome. Trevor, what do you particularly excel at? What do you thrive at doing?

Trevor Thompson: I’m a networker and a connector. I love networking and connecting with people. As I said, the strange thing is that I love incremental improvements. I’m okay with half a percent that week, a quarter percent a week. Because if you keep up that pressure… Someone once told me if you could be 1% better every day, at the end of the year you’re 365% better. Again, what is property asset management other than that? It’s just every day making something a little bit better, and being happy with those small wins, because they compound like crazy.

Slocomb Reed: Totally. I know. I’ve had some shifting within my own management company, so I’m doing all of my own showings now, temporarily. And it’s hard to remember when you’re getting no-showed at a C-class apartment that your occupancy rate is actually improving, on a deal that you bought that was a value-add… It is really powerful to see that incremental growth, for sure. Trevor, are you ready for our Best Ever lightning round?

Trevor Thompson: Okay, I’m ready.

Slocomb Reed: Awesome. What is the best of a book you’ve recently read?

Trevor Thompson: The Best Ever Apartment Syndication Book. In fact, I got it on Audible about four years ago and I listen to it twice a year, because it’s that good.

Slocomb Reed: Yeah. There’s so much in it.

Trevor Thompson: There’s so much in it. I’ve been doing a lot, and learning a lot. Every time I listened to it, I learn something, every time.

Slocomb Reed: Totally. What’s your Best Ever way to give back?

Trevor Thompson: I like to find people that are new in the space and just started in real estate. I look for those kinds of people, and then try to connect them to other people. I love connecting and helping people that are also passionate about learning about real estate.

Slocomb Reed: What is your Best Ever advice?

Trevor Thompson: My Best Ever advice is when you meet people, do not think about what can they do for me, but what can you do for them. Do things for other people. There’s a book called The Giver, and it’s an amazing book. It just talks about paying everything forward.

Slocomb Reed: Trevor, where can people get in touch with you?

Trevor Thompson: The best thing is that my email address, ktt@niagara-investments.com. The Niagara is because I’m originally from Niagara Falls, Canada. Canadian originally. I guess I’m still a Canadian.

Slocomb Reed: Right. Well, Best Ever listeners, thanks for tuning in. If you enjoyed this episode, please subscribe to the show, leave us a five-star review, and share this with someone who you believe needs the best real estate investing advice ever. Thank you and have a Best Ever day.

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