Closing deals isn’t always a quick process. Multifamily investor David Robinson spent a year working with a seller who originally backtracked on the deal before finally closing with him. In this episode, David reveals the follow-up strategy he used for 12 months that eventually led to making this deal happen, along with how he sourced the property and the details of his exit plan.
David Robinson | Real Estate Background
- Managing Partner at Canova Capital, a multifamily investment firm.
- Portfolio:
- GP of 162-unit (Kansas City, MO), 72-unit (Mentor, OH).
- JV of 14-unit (Orem, UT).
- LP of 94-unit syndication (Mesa, AZ).
- 18 years of experience as a broker.
- Based in: Salt Lake City, UT
- Say hi to him at:
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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, David Robinson. How are you doing, David?
David Robinson: I’m doing great, Joe.
Joe Fairless: Well, I’m glad to hear that. David’s the managing partner at Canovo Capital, that is a multifamily investment firm. The portfolio that his firm has, he’s a GP of a 162-unit in Kansas City, Missouri, and a 72-unit in Mentor, Ohio. I’ll have to look at Google Maps for that one. A JV of 14 units in Utah, and he’s an LP on a 94-unit in Mesa, Arizona. He’s also got 18 years of experience as a broker. He is based in Salt Lake City, Utah. With that being said, do you want to give the Best Ever listeners a little bit more about your background and your current focus?
David Robinson: Yeah, absolutely. So as you mentioned, my background is in real estate in general. The first part of my career was focused on traditional residential sales management, team management, and managing a national franchise brokerage here in Salt Lake City. I transitioned eventually to starting my own small boutique brokerage that focuses heavily on working with buy and hold investors who are looking to acquire small multifamily property for their own personal portfolios. By small, I’m generally referencing anything under $5 million in value, all the way down to roughly your duplex. So that’s what our brokerage does today. We recently, in the last 18 months or so, started to explore alternative options to help our investors participate in a little bit better cash flow opportunities than we have been able to find them here locally in a high-growth market like Utah.
So that got us involved in the syndication side of things. We started out by buying a small 14-unit here in Utah to test the waters with that; that was more of a joint venture. And then have partnered on two other acquisitions in the last six months. You mentioned Mentor, Ohio, Northeast suburb of Cleveland, and Kansas City, Missouri. Today, we still do both. I’m still an active broker here locally, helping our clients that are looking to buy small multifamily for their own personal portfolios, as well as getting more and more involved in larger commercial syndication deals.
Joe Fairless: Let’s talk about the 72-unit and 162-unit first, and then we might backtrack a little bit. Which one came first, the 72 or 162?
David Robinson: Kansas City. Yeah.
Joe Fairless: Okay. Let’s talk about that first. I believe I heard that you partnered with another group on that?
David Robinson: That’s correct. My plan in getting involved in larger syndications was I felt, based upon the conversations that I was having with my local investors, that they had an appetite to participate as passive investors in some deals in the Midwest. So I also started to host a podcast, so I’ve had an opportunity to network with a lot of different operators. I started to reach out to operators who were in the Midwest that I had a good connection with and had appreciated the relationship that we’d built over time. I felt like they had a good business model, so I reached out to some of them. I continued to foster those relationships, and ultimately expressed interest in being a part of a larger acquisition and bringing members of my investor network into those deals. So I partnered with a group that is local to the Kansas City market, [unintelligible [00:06:38].09] in commercial real estate there for the last decade. That’s how I got involved in that deal.
Joe Fairless: And what about the 72-unit?
David Robinson: The 72-unit, a similar story. I had interviewed a guest on my podcast over a year earlier, and had built a relationship with him. I came to understand sort of his investing philosophy and what he was focused on. We had just maintained contact. He had gotten the 72-unit deal under contract and was looking for a co-GP, so he and I and one other business partner took that one down.
Joe Fairless: And how long have you been in those two deals?
David Robinson: We closed out in Kansas City, both of those deals are roughly within the last six months.
Joe Fairless: Okay, so relatively new. I was going to ask what has gone wrong, but in six months, maybe some unexpected things, but probably not any war stories on that.
David Robinson: Well, one of the challenges that we faced on the Kansas City deal was on the debt side. We had a few debt options lined up for some unforeseen circumstances; really just some conflicts that one of the bridge lenders had ultimately pulled out on fairly short notice. We had to scramble to put together another bridge lender in a matter of about three weeks. Luckily, my partner there had a great connection with a bridge lender, he was able to move quickly and we got it done. But it wasn’t without a lot of stress and sweat, that’s for sure.
Joe Fairless: What were the consequences if you did not get it done within that period of time?
David Robinson: I think we would have been able to extend, but there wasn’t an extension in place at that point in time, so there was risk of losing the deal… Which – I think the seller saw that there was still some meat on the bone there, so there was a very legitimate risk that he may have pulled out and sort of repositioned the sale. That was the main risk, is losing our hard-earned money on that deal.
Joe Fairless: Or just made you put in a little bit more money, either on the purchase price or non-refundable.
David Robinson: Correct. Yeah, I would suspect that we would have potentially even a penalty; just a fee upfront, an additional extension.
Joe Fairless: The joint venture of the 14-unit that’s local – tell us about how that’s structured. It seems like that’s had more seasoning. Can you talk about that?
David Robinson: That was an interesting deal. As we started to explore getting more involved on the ownership side of things rather than just brokerage business, we really wanted to test the waters on small commercial in our local market. So that was a year-long process that originated through direct mail to the owner. The purchase price was 2.2 million, on 14 units, a 1970s construction, two bed one bath units, in a great location in my local market here. But I originally contacted the owner through direct mail, she reached out, I made an offer to her, and we had agreed verbally on terms, but she was looking to exchange into a triple net lease. She thought that she had a property that was going to be a good fit for her, that ultimately fell out, and she sort of back-tracked on our agreement. It was okay, I understood. I followed up with her, stayed in touch, and ultimately, about 12 months later, we ended up putting the contract back together, albeit about $200,000 more than what I had originally offered her.
Joe Fairless: What was her justification for the increased price?
David Robinson: She just knew she could get more. In fact, she hadn’t marketed it through a broker. She was actually a real estate agent herself, but hadn’t listed the property in any way, but had had conversations with other potential buyers, so she knew she could get more. Anyway, at that point in time, I went through all the due diligence myself and then brought in two partners that were really strategic partners, in the sense that they brought all the equity to the deal. So we brought about a million dollars in equity to the deal, that was coming out of another property that they had just sold. And they also had a local property management company, so they were the ideal partner for this property, because they own other assets that are very, very similar to this one in the general area, within about a two-mile to three-mile radius. So they were the perfect partner.
Joe Fairless: Those skillsets, if you could just ideally come up with a partner, money and experience managing similar properties, check those two boxes and those are your people.
David Robinson: Yeah, it was great. The numbers weren’t exciting, to be honest, for me. They weren’t exciting for me, but it was a great scenario for them. They were really excited to sort of exit a lower quality asset and move their equity into this property that has some upside potential, and another asset that they could add to their management company.
Joe Fairless: You said it was a year-long process and it originated through direct mail. What was written on the direct mail piece?
David Robinson: It was very generic, very simple. It was specific to that property. “Hi, Owner. You own a property on 123 Main Street. I’m a local investor and broker, and I’m interested in buying your building there. If you have any interest in potentially selling, please reach out. I can be flexible on time and terms and happy to pay a fair price.”
Joe Fairless: What took place over those 12 months, in terms of your follow-ups with the seller, that you’d like to share with us? I’d love to know how you stayed in touch, if at all, during those 12 months.
David Robinson: I absolutely stayed in touch; a lot of touchpoints. As a broker, you’ve got to have good follow-up systems in place, so that we did. We have a traditional CRM that had reminders and automated messaging. But ultimately, it was a combination of email, text, and phone calls over that period of time.
Break: [00:12:34] – [00:14:31]
Joe Fairless: Are you saying the same thing? And if so, that would be redundant and borderline annoying. “Hey, did you find that triple net yet? Did you find that triple net yet?”
David Robinson: Yeah. I think I probably was annoying at some point in time to her, but I tried to be very low pressure, and just “Hey, checking in. I wanted to see how things are coming along with your search.” I tried to be helpful to her too in her search. So I had referred her down to a couple of brokers that focused on triple net lease in the market that she was looking in, which was about four hours South of our market here in St. George, Utah. So I tried to be helpful to her, we even explored doing some seller financing options that would potentially be of benefit to her, and really just tried to maintain a good relationship, good communication, but never really just trying to push for a contract or anything like that.
Joe Fairless: What CRM system do you use?
David Robinson: It’s funny, you started advertising Follow Up Boss on your show, and I’ve used Follow Up Boss for quite a few years now.
Joe Fairless: Did you ever look for a triple net lease property for her, just to try and get it to the finish line?
David Robinson: It wasn’t my space. I didn’t really have a grip on that product type, so I didn’t feel like it was a good use of my time. But I did just try to connect her with brokers that did have deal flow in that space. And it ended up not being the issue in the long run. Some circumstances change between her and her family; she owned it with two other siblings, and I think the motivation just started to build up, and they all decided to say, “Alright, it’s time. Let’s go ahead and do it.”
Joe Fairless: Right, let’s get our cash and move on from this partnership. Okay. It’s been how long since you’ve owned that 14-unit?
David Robinson: We bought that one in July of 2021. This might be interesting to your listeners – I’m actually exiting that deal.
Joe Fairless: Exiting the joint venture partnership, but the deal is not being sold?
David Robinson: That’s correct.
Joe Fairless: Tell us about that.
David Robinson: The way that I structured it was – it was a joint venture structure, both of them were business partners in their management business and on other assets. So we structured it as a joint venture, but I took ownership as a tenant in common, because the return profile on it wasn’t super exciting for me.
Joe Fairless: What was it?
David Robinson: They were great, they were excited about it, because it fit their profile of an asset. They’re long-term buy-and-hold guys and they’re just planning on managing it very lean, which they’ve done. They weren’t going to do a value-add play on it or anything like that. So they’re just lean and mean managers of this C-class asset type, which was a great fit for them. But for me, the return profile was a 3% cash on cash.
Joe Fairless: You didn’t put any money into it?
David Robinson: Just initial risk capital, but I got that out when we closed.
Joe Fairless: Okay, so 3% on no money in is good, but…
David Robinson: 3% cash-on-cash for the whole deal.
Joe Fairless: For everyone, and you got it — what percent did you have of that cash?
David Robinson: I had a 10% stake in that deal.
Joe Fairless: Got it. What does that quarterly payout look like?
David Robinson: Zero.
Joe Fairless: Lunch money?
David Robinson: Yeah, yeah. And I thought that that would come about, and I knew that I was planning on getting involved in other deals…
Joe Fairless: Did you collect a fee as a broker on the front end?
David Robinson: I didn’t. I didn’t collect a fee as a broker.
Joe Fairless: Did you make any money on this deal?
David Robinson: [laughs] Well, it’ll equate to — so they’re buying me out, and it’ll be about $100,000 buyout roughly.
Joe Fairless: Okay. Got it. Cool. Well, that’s good. How do you value the amount of money that you get paid out? I know they’re in the contract, and there are some ways to do it technically, but I’m just curious how…
David Robinson: It was pretty simple. We basically just did a market evaluation of the asset, 10% equity in the deal minus the debt that they brought to the deal.
Joe Fairless: Got it. And as far as getting a value, do you get work with an appraiser or do you just see what the cap rates are?
David Robinson: They’re both brokers, although not active, but they’re very familiar, as am I, so we just came to an agreement on what a fair value was for the asset.
Joe Fairless: Okay, cool.
David Robinson: So it was pretty simple, and then we just are doing a loan modification. So we’re just modifying the loan, they’re buying me out, getting me off the title, and then I’ll roll that into another property. But I did structure it as a TIP, because I thought that I would potentially 1031-exchange that into another small asset. But it just so happens that I’m actually going to move that into a larger syndication deal that we’re working on.
Joe Fairless: And why not move that 100k tax-deferred into another asset of your own and build your own portfolio on the side, while doing the syndication stuff on the other side?
David Robinson: Well, for two reasons. I’m trying to avoid mixing my own investing interests with my brokerage clients. So I’m trying to avoid buying anything small, because that’s the space that I play in from a brokerage perspective.
Joe Fairless: I get that.
David Robinson: So it’s not to say that I wouldn’t do it, and I don’t think that there are really any ethical issues there. But I think it’s cleaner if I can maintain some distance between the two. So that’s the number one reason. And two, having some additional equity go into larger syndication deals is what I’m more excited about at this point.
Joe Fairless: Why?
David Robinson: I just see potential. I’ve enjoyed partnering with my partners on the previous two deals, and what I’ve realized is that my investor network here locally has a strong appetite to invest passively in deals in the Midwest and in other parts of the country. I was surprised at how well or how quickly we raised the equity that we needed on the two deals that we’ve purchased recently. So I have a high demand for that type of deal, and want to be able to provide that as an option to my investor network.
Joe Fairless: Taking a step back, what’s your best real estate investing advice ever?
David Robinson: I would probably say go bigger, faster. I played in the residential space for quite a long time, and didn’t make a lot of progress from a cash flow and wealth-building standpoint. As soon as I got around people that were thinking bigger and doing bigger deals, that had a significant impact on my own personal cash flow and wealth building. I think everybody takes the action that’s appropriate for them in that moment, but I think going bigger, faster would be my advice.
Joe Fairless: We’re going to do a lightning round. Are you ready for the Best Ever lightning round?
David Robinson: Let’s do it.
Joe Fairless: What deal have you lost the most amount of money on?
David Robinson: I actually have not lost any money on a deal that I’ve invested in, but I have lost money on a deal where I was brokering. This was many years ago, when we were doing short sales. We got to the closing table and I had made a mistake. Well, myself and the title company that I worked with… We had not realized that there was a second lien on the asset that needed to be addressed. Although it probably wasn’t my full responsibility, instead of making a commission on the sale, I ended up writing a check for $8,000 to get the deal closed for the seller.
Joe Fairless: [laughs] Oh, man. Lesson learned on that one, huh?
David Robinson: Yeah. That was that was a mistake, that’s for sure.
Joe Fairless: What about a deal you’ve made the most amount of my money on?
David Robinson: Well, from a return profile perspective, it was this 14-unit, because I had zero of my own money into the deal. I had some upfront costs, so I had earnest money — I only had $10,000 of earnest money in the deal. And maybe another — I think it was about four grand in due diligence. But my partners reimbursed me for those costs when we purchased the property. So I’m literally zero money in that deal, and a little more than $100,000 later in about eight months. Not a bad return.
Joe Fairless: Best Ever way you like to give back to the community?
David Robinson: Me and my wife are faith-based, and we have a local congregation church that we are heavily involved with, and youth programs. I’ve got young kids that are in those programs. That’s one way. And then I love to coach youth football. It’s one of my favorite things to do. I have an opportunity to coach my boys and some other youth in the community here, so between those two ways, that’s how we like to give back.
Joe Fairless: How can the Best Ever listeners learn more about what you’re doing?
David Robinson: They can connect with me at canovocapital.com, that’s probably the best way. Yeah, I would love to connect with anybody that has an interest in connecting, whether it be on opportunities from an investment standpoint, passive investing, or just to connect.
Joe Fairless: Thank you, David, for being on the show talking about the JV structure, how you’ve evolved from what you were doing. Well, you currently are still doing it, but in addition to that, or I guess how you supplemented what you’re currently doing in addition to what you’re doing now. Talking about the one-year process that it took for that 14-unit deal, regardless of how it was structured, just learning about that process was important for all of us to realize how much time it actually can take to get a deal done. But thanks for being on the show. I hope you have a Best Ever day and talk to you again soon.
David Robinson: Thanks, Joe.
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