January 29, 2022

JF2706: 5 Ways to Find Off-Market Multifamily Deals ft. Chad King


 
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Chad King believes there is always a way to find deals, even in competitive markets. With the right tools and mindset, Chad has sourced the majority of his deals off-market. In this episode, Chad shares his direct-to-seller deals he’s closed, how he’s scaled his portfolio, and the best ways to source multifamily properties.

Chad King | 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 fluffy stuff. With us today, Chad King. How are you doing, Chad?

Chad King: I’m doing great, Joe. Really looking forward to the conversation.

Joe Fairless: Well, I’m glad to hear it, and as am I. Chad is the principal and owner of Titan Capital Group, which purchases and repositions commercial real estate. He’s got 303 units as a GP and 328 as an LP, based in Nashville, Tennessee. Titancapitalgroupllc.com is the website. With that being said, Chad, do you want to get the Best Ever listeners a little bit more about your background and your current focus?

Chad King: Sure, absolutely. I started humble beginnings in the wholesale fix and flip space, I kind of scaled my way up, so I did that path. I’m sure some of your listeners are familiar with that trajectory. Then ultimately, I got into apartment complexes. I was buying my own for the first couple and then realize that through syndications I can ultimately do larger deals. Then I got into doing some 506(b) and 506(c) syndications. That’s where I focus all of my time now, is apartment acquisitions; that’s what I’m just mainly focused on now.

Joe Fairless: What have you purchased so far?

Chad King: I started with a little 14-unit. Me and two buddies put a down payment together and bought a little 14-unit, we’ve refinanced that thing twice. Then a 21-unit was the next deal, built some confidence, got to a 49-unit, then a 65-unit, then a 93-unit, and kind of just been scaling my way up. It seemed like every deal that I did, I just got a little bit more confidence that “Oh, man. If I can do a 50-unit, I can do 100-unit. It’s just an extra zero.”

So I’ve been acquiring a lot of stuff between 20 and 100 units. We’ve exited multiple properties, we refinanced properties; that’s what the portfolio looks like. The 303 on the GP is a mixture of a lot of 50 to 100 unit properties.

Joe Fairless: Let’s talk about those. I’d love to go through as many as we can, just to hear the progression and what transpired. We’ll fast forward to when you started doing larger deals. I heard you on the wholesale and fix and flip, and I might ask a follow-up question about that in a little bit. But let’s go to when you started doing the larger deals. What was the first one?

Chad King: The first, let’s call it syndication, of the 50-unit in Chattanooga, Tennessee…

Joe Fairless: So you went from wholesale and fix and flips to a 50-unit syndication?

Chad King: Yeah. There was a 14-unit and a 21-unit in between them, but that was just bought with active income that was from wholesaling and flipping.

Joe Fairless: Wow. Okay, good to know.

Chad King: Ultimately, I also had to get a guarantor. I didn’t have much of a balance sheet other than making money, because I was just an entrepreneur, and banks don’t really love entrepreneurs when they get underwritten… Because our job is to show losses, right? It’s funny how that works. So I had to get a guarantor for the first couple to get them done. Now, obviously, when the balance sheet increases, you can do your own deals. Anyway, I’m digressing a little bit.

Joe Fairless: Who was your guarantor? You don’t have to name the person, but how did you know that person?

Chad King: Just networking. We’ve done a tremendous amount of wholesale fix and flip deals and he was my partner in the wholesale business. So it’s all about networking, getting people to know, like, and trust you. It’s the same thing with raising capital, Joe, and you know that. People want to put their capital with somebody they know, like, and trust. A lot of times, it’s not even about the deal, it’s about the operator. When you network and you tell people what you’re doing, those relationships just sort of open themselves up, especially the ones that you need at the time.

Joe Fairless: Okay. So you did a 14-unit, a 20-unit, and you got a guarantor for those, because you needed to. But besides your guarantor, it was just you, correct?

Chad King: That’s correct. I was the one running the whole deal. Even on the 21-unit that we’re talking about right now, I learned a lot of lessons on that. We fired three property managers in the first two quarters of ownership,  [unintelligible [04:34] off the job. It was a heavy value-add deal; six units were occupied when we bought it. We could go down a rabbit hole like the lessons learned on some of these apartment complexes.

Joe Fairless: What were the top two lessons learned from that… You said 21-unit or 20-unit?

Chad King: 21-unit. Yeah.

Joe Fairless: What were the top two lessons learned from that 21-unit?

Chad King: That’s a great question. I’d say the top two lessons – number one, when selecting a property manager, you need to ask a lot of questions. I think I was a little bit still green in the apartment space and I wasn’t fully vetting the property managers the right way. But we use third-party property managers for all of our apartment complexes; I don’t want to take the phone calls, I want to scale. So getting those team members on the ground is mission-critical.

The first one that we hired, I didn’t vet them properly from an accounting, software, and systems perspective, and it was just a complete nightmare on the financials. They had a contractor that was able to get out there and everything, but the work orders and all the financials were all messed up, and I was spending all my time trying to dig through the accounting, the bills, and the credit card receipts, and it was a nightmare on the accounting side. They didn’t have a software in place, the woman’s son was running the books… I didn’t ask these questions, and it was a nightmare.

The second lesson I learned was making sure that if you’re going to go with a third-party property manager, that they have the relationships in place that can knock out work orders quickly and get things done in-house. What’s their relationship with contractors? Locally? Because the second property manager that we ended up letting go, it was taking them two weeks to get to just a minor work order, like fixing a toilet. It’s because they didn’t have any contractors in-house to knock out little things. I get you to need to serve out the big stuff, the electrical, maybe the HVAC stuff, but you need to vet your property managers… Can they knock out work orders quickly and do they have contractors in place to get things done? Those were the two lessons that I learned moving forward. Now we have just the best of the best property managers, because I think I learned those lessons the hard way on that building.

Break: [00:06:40][00:08:19]

Joe Fairless: From those two lessons, both property management-related, and you said to ask a lot of questions, and then make sure they have the right team in place from an in-house standpoint. What are a couple of questions that you would ask? I heard what you said, but if you asked, “Hey, do you have people in place that can do work orders quickly?” They’re going to say yes, it doesn’t matter who they are. Knowing what you know now, how would you ask those questions, both about the reporting and bookkeeping, and also the in-house question? How would you ask those to make sure you’re getting the answer that you need in order to make a good decision?

Chad King: Great question. I always take just a couple of notes, so I don’t forget and get off track, because I can go down some tangents… This is basic sales 101. You don’t ask a yes or no question, because you’re going to pigeonhole yourself into getting a yes or no answer. So if I could go back to that conversation and the way that I have them now, is you ask it very open-ended and see where they take the conversation. It sounds something like this. “Hey, just curious, how do you guys currently handle work orders?” Leave it open-ended and see where they take the conversation. But what you’re going to do is sort of guide that conversation to “Okay, what about in-house work orders? What do you guys serve out currently?” Letting them elaborate on their process and their product is I think the biggest thing, rather than asking them yes or no questions.

The same thing with the financials. I should have asked her, “Can you walk me through a little bit about how your accounting system works right now and how you guys handle the bookkeeping?” If I had asked that question and she told me “Well, my son handles the bookkeeping and we do it on an Excel sheet,” I would have freaking run for the hills.

Joe Fairless: I love your approach, the open-ended questions and let them talk, and you just ask a follow-up question. That’s awesome.

Chad King: That’s it, 101, you should listen twice as much as you’re talking.

Joe Fairless: Yeah. But it’s also the open-ended questions, versus people who would be inclined to have a checklist of, “Hey, do you have this? Do you have this?” And then they’re checking off their checklist of questions I ask. Whereas yours is more, “Here’s the outcome that we want.” Then it’s going to take probably multiple follow-up questions on the fly in order to get to that outcome; I’m just going to let them talk.

Chad King: 100%. I think the other lesson too, Joe, is that you have to know what your desired outcome is or what those questions are geared toward the responses that you’re trying to get and uncover. That’s kind of the lessons that I was just telling you about earlier. That’s what’s really important, is where are those questions actually leading to?

Joe Fairless: Well, okay. Thank you for that. Now, let’s go to the 50-unit. How much was it? And by the way, where are these properties? You’re in Nashville.

Chad King: Nashville, Tennessee. I started wholesaling in South Florida, and it wasn’t really conducive to where I wanted to build an apartment portfolio, so my wife and I packed up and left. We didn’t know anybody when we moved here, just came to Nashville, and I loved it where it was located. Obviously, the South-East is a landlord-friendly state. Then I was able to put a pin in Nashville, draw a two-hour radius around Nashville, and I was able to grab Chattanooga, Huntsville, Louisville… We have some stuff in Florida, but most of our assets are in Kentucky, Tennessee, Georgia, and Alabama. Most of our stuff is in Louisville, Chattanooga, and here in Nashville. We’ve entered and exited in Huntsville and have some stuff in Florida, too. But I’m right here in Southeast Tennessee, Kentucky, Alabama, to answer your question.

Joe Fairless: This 50-unit, where is it? Is that Louisville?

Chad King: Chattanooga, Tennessee.

Joe Fairless: Chattanooga. Okay. How did you find it?

Chad King: Off-market, direct-to-seller. It came from a text message, believe it or not.

Joe Fairless: How’d you get their number to text them?

Chad King: Skip tracing the. Pulled the list from Reonomy which is the…

Joe Fairless: You got the list from Reonomy, and then what did do you do?

Chad King: Got the list from Reonomy, we skip-traced it, and we put it into our marketing sequence. I love buying direct-to-seller. Most of the stuff that I have in my portfolio we bought directly from the sellers. So we put it in our marketing cadence and they responded to a text message. I sat down with the owner at a McDonald’s, and he pulled out his rent roll, it was on the back of a napkin. He was collecting the rent, mowing the grass, kind of a mom-and-pop, just your traditional perfect avatar cellar for apartments for forced appreciation value-add stuff. I ultimately ended up getting a Fannie Mae loan on it, because I put together all the financials manually based on his napkin roll.

Joe Fairless: So you bought the list from Reonomy, and you skip traced it. What service do you use to skip trace?

Chad King: There’s a lot of VAs and stuff, like on Fiverr, that’ll do skip tracing for you. We use a private guy; I don’t mind plugging him, his name is Ryan Smith.

Joe Fairless: Fair enough.

Chad King: He’s got a company called Lead Smith.

Joe Fairless: Just google him.

Chad King: Yeah. Google.

Joe Fairless: Sorry, he’s got a company called what?

Chad King: Lead Smith.

Joe Fairless: Lead Smith. Okay, fair enough. Once you said the company name, then it’s an easy Google. I was just laughing at the Ryan Smith part.

Chad King: I haven’t negotiated any kickback yet. So just wait until…

Joe Fairless: [laughs] Fair enough. You got maybe a week or so before this episode airs.

Chad King: Cool.

Joe Fairless: Alright. So then the marketing sequence – how many text messages did this owner receive before they agreed to meet?

Chad King: It was on the first text message, but he had received some other marketing from us, so it wasn’t a foreign text message, because he had gotten a couple of letters from us, and he had gotten… I don’t know if he had received the email, but he was on an email sequence as well prior to the text message. So he had gotten two letters, two emails, and then this was the first text that he responded to, to set up a meeting.

Joe Fairless: Got it. So he received two letters, he did not respond. He received two emails, he did not respond. He received a text message, he responded.

Chad King: Got to hit him on all communication mediums.

Joe Fairless: That’s right. What did the text message say?

Chad King: I’d have to go back to the language, that was a while ago… But just something generic, “Hey, I’ve sent you a couple letters. I’m not sure if you’re interested in selling the property. We’d love to have a quick conversation with you whether now’s the right time or not.” With apartment owners, Joe, all the messaging is geared towards building a relationship. It’s not like single-family, where you’re kind of looking for distress and motivation. You really won’t find too much of that in multifamily. I mean, these people do want to sell, but not a lot of these are going to be distressed sales. I mean, very rarely are you going to find that. It’s all geared towards relationship building, and I think I said like, “I’d love to sit down with you and talk about your portfolio, see if it might be the right time to sell.” This guy wasn’t in a lot of pain, but he was just tired of mowing the grass, collecting the rent, and doing all that stuff.

Joe Fairless: And educate me on Reonomy. I’m not too familiar with it. Are you sending the marketing sequence, the two letters, two emails, text messages, via Reonomy?

Chad King: Yeah. You can, it does have that service. However, we pulled the list out, skip-traced it externally, and then we sent that list to a mail house,

Joe Fairless:  A mail house and they send the letters out.

Chad King: Correct.

Joe Fairless: But what about the emails and the text message?

Chad King: We use MailChimp for the emails, and we were using Sendy for the text messages, which is where he actually got his text messages from. Ultimately, Sendy I think shut down, so now we use a service called Launch Control.

Joe Fairless: So how do you coordinate — if at the time (or sounds like still) you have at least three different companies that are sending out stuff on your behalf to the same person, how do you track that internally to make all those systems speak to each other so it’s easy for you to see the response or lack thereof?

Chad King: Yeah. So I have a CEO for that, that tracks all that; he’s the integrator, he tracks all the data. But with the apartments, you’re not going to get a ton of leads. It’s not like single-family, where you can shoot postcards out to 50,000 people. In any sort of metro, secondary or tertiary, there are only probably three or 400 apartment owners that might be in your target; so it’s not a ton. You don’t need some robust CRM, I think; that’s a limiting belief that people have like, “I don’t have a CRM setup like Podio.” You can get it done with an Excel sheet. I’ll be honest, I’ve acquired all my assets with an Excel sheet to keep track of who calls in. I have it ring directly to me, because I want to be the one that has the conversation. If a seller is calling in, have someone on the phone who can actually talk the talk. I think if you end up putting somebody in that position to answer calls, you may end up doing yourself a disservice. But I track them in an Excel sheet, to be honest with you, Joe. I mean, I’m not going to overcomplicate it.

Break: [00:16:39][00:19:36]

Joe Fairless: Yes, simplicity is very helpful in order for us to execute regularly, so I’m glad to hear that. Alright, I think I’ve uncovered the way we can add a whole lot of value to a lot of people on this show, and that is that you’ve purchased a majority, or I think you might have said all, of your large apartments off-market, direct-to-seller. Let’s talk about that, because clearly, right now it’s a challenge to find deals and a lot of people have excuses. Most of them are just BS excuses, because they’re not putting in the effort to do things like you’re doing, and/or hiring people, or bringing on people who have those skill sets to do this stuff. So that’s the 50-unit… What about the next deal? How did you find it?

Chad King: I have bought a couple of deals from brokers, so not all my stuff is…

Joe Fairless: Yeah. Fair enough.

Chad King: But the next deal was a 93-unit that was right here in Nashville. That one was negotiated directly with the seller as well. $8.3 million dollar purchase price. He actually owner financed it, held a $6.1 million note for us, so we didn’t have to go to the bank to get a loan, didn’t have to get approved for anything, no appraisal, nothing. I sat down with him and figured out what he wanted. He had owned it for over 20 years; just a lot of operational efficiencies that we were able to come in day one, increase the NOI by 110,000 by cutting salaries on day one, which increased our value over a couple of million bucks overnight. We can dig into that but that was the next deal. We did a syndication raise of 2.8 million on a 506C(c) which is open to the public. That was our first 506(c) syndication.

Joe Fairless: That was the 93-unit?

Chad King: Correct? Yeah. Right here in Nashville.

Joe Fairless: Yeah. I heard that you said direct-to-owner letter. Got it. Okay. Before, it was sent two letters, two emails, and a text message. The two letters – do they go out first before the emails?

Chad King: We do letter, email, letter, email text, letter, email text, and then they get off that cadence and give them a break, and then they go back on it later on.

Joe Fairless: How soon after they receive a letter do they get the email?

Chad King: Two weeks.

Joe Fairless: Every action is two weeks?

Chad King: Give or take.

Joe Fairless: Give or take. You said it was the first letter?

Chad King: The second letter he got from us.

Joe Fairless: So he had already received a letter and an email.

Chad King: Again, you can’t tell if they get the emails, you just have to assume that they’re seeing your name and your logo. I just know that we mailed them twice. I don’t know if he called me from the first letter that he held on to, or it was the second one that got him. That’s what you never know, Joe. People will pull a list and do a campaign and get no phone calls, and they’re like, “This doesn’t work.” Well, you’ve got to kind of put some activity in. These people need to see you a few times before they reach out to even set a meeting to see if you’re serious.

The other thing that I had going for me on this one in full transparency is we had a broker that had a relationship that was also able to speak to our credibility, that knew the seller very well, too. So it was off-market, it had never even touched the market, and nobody else even got a phone call to even bid on it. But I also build a lot of relationships with brokers in addition to direct-to-seller marketing. So on this one, I actually got a letter and we kind of tag-teamed it with a broker relationship that was able to help out, [unintelligible [00:22:49].19] in there for credibility.

Joe Fairless: What was that broker compensated?

Chad King: The seller compensated him on the sale. [unintelligible [00:22:56].19]

Joe Fairless: When you send the letters, are they the same exact letter? Same question for the emails.

Chad King: No.

Joe Fairless: Different, so you switch it up some. Got it. Alright. That’s awesome. What would you say to someone who says, “I’m having a hard time finding multifamily deals.”

Chad King: So is everybody else. [laughter] It’s a lot of activity. I think people say that and they probably haven’t even begun to look at enough deals to even come out and say something like that. Because I don’t think enough people getting into this understand how much activity you have to load into the top of the funnel, as far as deal flow goes and underwriting goes. I’m looking at 60 to 70 deals before we buy one, and underwriting 20 to 25 deals before we’re actually closing on one. There are 10 to 12 LOIs going out right now to get a deal closed. There’s a lot that goes into the top of the funnel, and people are looking at four or five deals and saying “Oh, there’s nothing out there.” They’re going on LoopNet, looking at the three four deals on LoopNet, and “There are no deals out there.”

You’ve just got to increase your deal flow, look at enough properties, and start underwriting enough deals to actually get one closed. Because it’s a numbers game; it’s a race to 60 or 70 deals is what it is. If you change the way you think about it – not that there are no deals out there, but “Hey, 70 deals need to come across my desk,” you’re going to raise your standards for your activity level and the rest is going to take care of itself. Kind of a long-winded answer, but I hope that was helpful.

Joe Fairless: That’s helpful. All on point. I’m not going to go through your other deals, because I think we’ve found the main focus for this conversation. I’m glad that we talked about it. So I’m going to ask you the question we ask everyone, what’s your best real estate investing advice ever?

Chad King: Best real estate investing advice ever… Trust the numbers. Fall in love with the numbers, don’t fall in love with the deal. Too many people fall in love with the actual property or the piece of real estate. They try and fit a square peg in a round hole and actually try and force the numbers to work. When I get a deal, Joe, I try and kill it on the underwriting; I kill the deal on the numbers, and then if it fights to stay alive and still stays in the green, then I trust it and I do the deal. So fall in love with the numbers and get good at trusting the numbers, because they don’t lie. They tell a story; when you’re looking at these properties, the numbers will tell you a story. You have to trust the story and be able to change the narrative, and trust the numbers moving forward, and they’ll take care of you.

Joe Fairless: You’ve got 328 units as an LP; so how many deals are you in as an LP?

Chad King: That’s five.

Joe Fairless: How many different sponsors?

Chad King: Two.

Joe Fairless: How did you pick those two sponsors?

Chad King: Track record. I vetted them hard. You’ve got to vet your GPs. A bad GP can screw up a great deal if they don’t know how to run it.

Joe Fairless: And when you say vetted them hard, will you qualify that a little bit?

Chad King: Yeah. Look at how many properties have they purchased, what are their current assets under management, how many have they successfully exited, is this their first deal? That’s not to say I wouldn’t invest in somebody if it was their first deal, but I just got to feel very comfortable with them in their game plan, their reposition plan for the property. I’m looking a lot at their numbers and how they’re projecting out. Are they a little overzealous on the rent increases? A lot of people think you can both increase rents and decrease expenses all at the same time, and it’s going to be hunky-dory. So what’s their narrative change going to be? How are they going to force appreciation?

So not only what the narrative is for the deal, but also, what is the narrative for those sponsors? Do they have other jobs that they’re doing? Am I just talking to a money raiser or am I actually talking to someone who’s going to be actually hands-on with the property? Those are the kinds of things that I’m asking when vetting a sponsor. How are they getting a debt? Like who’s sponsoring the debt? All that kind of stuff is important when you’re looking at investing in an LP.

Joe Fairless: We’re going to do a lightning round. Are you ready for the Best Ever lightning round?

Chad King: Let’s do it.

Joe Fairless: Alright. What deal have you lost the most amount of money on?

Chad King: Believe it or not, I have never lost money in a real estate deal. I did a lot of wholesale deals, but we’ve flipped a lot of properties…

Joe Fairless: Even the fix and flips?

Chad King: Yeah, we kept a very tight box on what we would actually take down and flip and we would wholesale everything else that was outside of our box. So we really got super specific on — and this is probably a good tip, but we didn’t do any renovation over 40,000. We kept it cookie-cutter on the renovations, things that just needed basic cosmetics. We stayed within that box and then wholesaled everything that was outside of that box. It ended up treating us pretty well, so we never lost money on a real estate deal.

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

Chad King: For-purpose apartment community. We put a line item below the line. We’re working this into our new acquisitions as well, but we’d like to give back with for-purpose apartment communities. Each apartment complex that we buy has an initiative. Some of them are child sex trafficking, some might be disaster recovery, and they all have an initiative below the line expense item that can fund an initiative. So both the residents and the investors now feel like they’re a part of a greater purpose, and we feel like we’re giving back to a greater purpose as well, to the things that matter to us.

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

Chad King: I had our marketing team put a link together just for your listeners. I did this first-offer challenge where I went into a brand-new market… I know this is the lightning round, but this is pretty cool for your listeners. So I went into a brand-new market from scratch, with no relationships and I just cold-called… I went from going to a brand-new market to making and submitting an LOI in five days, with one hour a day of work. I recorded the whole thing and kind of put it into this little package, to kind of eliminate everybody’s limiting beliefs that you just can’t get started and get an LOI out.

We cold-called brokers, I cold-called sellers, and I was doing it live. They can get a hold of that if they want to opt into our world at 7figuremultifamily.com/chad, and they can get access to that challenge. But if they want to come to see me, I’m Chad King on Facebook. We have 7 Figure Multifamily as our mastermind group. We’re doing an event in Nashville in June, or this year in June, we’re doing an event. If you guys want to come over and check us out at 7figuremultifamily.com, that’s our mastermind where we teach people how to do what we’re doing.

Joe Fairless: Got it. And you don’t spell out seven…

Chad King: No, the number 7.

Joe Fairless: Yeah. The number 7. Yeah, I just tried typing in seven, but that didn’t work. So you have 7figuremultifamily.com/chad. I see that.

Chad King: I don’t know if that link is live. I actually told them to set it up this morning.

Joe Fairless: It is live. They are on point. Yeah, it’s there. Well, Chad, thank you for being on the show. Thank you for sharing with us in detail how to get off-market deals. And hey, if you’re having a hard time finding deals and you’re not doing this, then here is a solution for how to find deals. I love that comment you gave regarding, well, you just got to keep doing it and have a system. The results are here in your story. Thank you for that, Chad, inspirational and very, very helpful and timely for a lot of investors. I hope you have a Best Ever day and I will see you at the Best Ever Conference here in about a month or so. I’m looking forward to shaking your hand.

Chad King: I can’t wait Joe. Thanks for having me on. I think we’re [unintelligible [30:11]. I can’t wait to see you. Thank you very much. I appreciate it. Always a great value on this.

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