March 11, 2022
Joe Fairless

JF2747: How to Find Private Investors for Buy-and-Hold Deals ft. Sam Primm

 

What’s the best way to find equity partners for long-term hold deals? Sam Primm—owner of FasterFreedom, FasterHouse, and Midwest Property Group—shares how he finds private investors for his deals and his strategy for refinancing and turning around these properties.

Sam Primm | 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 and I’m here with Sam Primm. Sam is joining us from St. Louis, Missouri. He’s a GP of 109 residential units and 50,000 square feet of covered storage. Sam, can you start us off with a little more about your background and what you’re currently focused on?

Sam Primm: Yeah, for sure. I appreciate being on. What I’m focused on now is growing this education brand. Where it all kind of started was just wanting to not work for somebody else my entire life and not do the whole nine-to-five until you’re 65, get social security, retire, enjoy retirement, and then you’re too old to really enjoy it. I started that journey about seven years ago and as you kind of said, it’s been pretty good so far; I’ve been getting some good traction and creating some multifamily and some self-storage. Now I’m just focused on growing that and then growing my brand to teach other people how to do the same thing.

Slocomb Reed: Nice. I know you are a general partner… These 109 units and 50,000 square feet – how many deals is that?

Sam Primm: That’s five apartment complexes. It’s a 12-unit, a nine-unit, a 32, 27, and 29. Those are five, me, and one partner, Lucas, on all that together. Then the self-storage facilities – there’s two of those.

Slocomb Reed: Gotcha. Did you say that you and your one partner – are you 100% owners of the apartments, or are those syndicated deals?

Sam Primm: Nope, we’re 100% owners of those. We also have about 90 houses in our rental portfolio asl well.

Slocomb Reed: Nice. And the covered storage as well – that’s just you and one partner?

Sam Primm: Yup.

Slocomb Reed: That’s awesome. So these are not deals then where you were bringing in limited partners or raising capital?

Sam Primm: Not really, no. We have a little bit of a hybrid of what we do. What we do is we bring in private investors through our network, sometimes we give them part ownership of the facility or the building for a couple of years, and then with increased equity, we buy their ownership out. Sometimes we just give them straight interest-only based on their investment. So each deal is a little bit different. We’ve done a hybrid model, whatever makes sense for the investor, because they’re family or friends, or usually acquaintances kind of thing, people that we have a relationship with. They’re definitely not that syndication route of people we don’t know, accredited investors kind of deal where you give up a lot of the equity.

Our goal is to always own 100% of the asset, whether it be right off the bat, or we give up a small percentage of ownership to get the money. Then with equity increase, with increasing income and decreasing expenses, and just running it more efficiently with our team, we’re able to create equity that we can cash out and buy out the limited partner, usually within two to three years.

Slocomb Reed: Sam, do you consider yourself a long-term buy-and-hold investor then?

Sam Primm: Yes, for sure. Everything we bought, our $26 million worth of real estate so far, we’ve probably only sold three or four houses, and those were for tax purposes. The goal is not to sell, it’s to hold for a long time.

Slocomb Reed: You’re speaking my language, man. I’m a buy and hold guy too, and very familiar with that 20-ish unit space, I have a couple of those. I’m wrapping up the value-add on one of them right now that I just acquired four months ago. Very familiar. I’m also personally interested – I know some of our Best Ever listeners are as well, Sam… I’m personally interested in finding ways to bring in private investors for buy-and-hold deals. Let me tell you what it is that I’m thinking about doing myself. Because similar to you, I, or a partner and I, are 100% owners of everything that we’ve got. We’re not reaching out to strangers, looking to raise capital, underwriting to a five-year hold, working on delivering on an IRR; we’re in it for the long haul.

What I’m considering doing is finding ways to either bring in debt partners or equity partners that I have the ability to refinance out of ownership in the property in a relatively short period of time, call it one, two, maybe three years. Is that what you’re doing with your private investors, you’re bringing them in and giving them a small equity piece, and then as you’re able to force appreciation, you’re refinancing your debt in order to buy them out?

Sam Primm: Exactly what we’re doing. Our play has been more of that two to three-year timetable on pretty much everything. We haven’t quite done it in one year to be able to, especially in today’s market, get a deal that you can just get so much equity and so quickly. So it’s usually been a two to three-year play, it’s been exactly that. We give them a little bit of cash flow in the meantime that the building’s producing, to just kind of keep them going. They like that and they have to pay ordinary income on that, but we buy them back out and give them a little bit of a kicker on the back end after two to three years. That makes their actual entire return appetizing to them, and they get taxed at that at cap gains, so that they like that as a way to get around that and not have to pay a lot of taxes, or as much as they might have to.

Slocomb Reed: Yeah, that’s awesome. You said you started investing in commercial real estate seven years ago?

Sam Primm: I started investing in single-family real estate, so I have a single-family realm, the multi realm, and then the self-storage. The single-family started in 2014 to ’15 timeframe, the multifamily started in 2018, so that’s a little bit newer. I started with the singles and then kind of graduated up to the multis. And then the self-storage has been about a year and a half to two years, so that’s even newer.

Slocomb Reed: Starting with apartments in 2018, I get what you’re saying about not finding a lot of big forced appreciation opportunities. Assuming, Sam, that you’re familiar with the way a lot of apartment investors talk about stable versus value-add versus distressed opportunities, most people who are underwriting to the five-year hold are looking to be in that value-add space, where they have the opportunity to improve the property, raise rents, increase NOI a bit, and provide three to seven years from now a solid, annualized return or IRR equity multiple for limited partners.

What I don’t often hear about interviewing people on this podcast is investors who have succeeded in bringing in equity partners, and then refinancing those equity partners out of ownership in the property, so they can own it outright. The question I want to ask – I can’t think of a more sophisticated way to put this, but how distressed of a property do you have to buy in order to be able to set it up this way, where you’re bringing on equity partners that you can refinance out in two to three years?

Sam Primm: That’s a great question. Our very first one that was pretty distressed, it was a 32-unit. We jumped in, and that’s relatively a pretty small building compared to a lot of the apartments out there. But for us, going from single-family, it was a big jump doing it this way. And that was a little bit more of a mess. In the first six months, we’ve evicted 18 of the 32 people in there. We did our best, but just trying to figure that out, because it was a pretty distressed property. So that one we were able to actually create more equity faster; that was the two-year play. Our investors ended up taking some equity and we were able to increase equity so much that they ended up getting a 29% return on their money when we bought them out.

But what we’ve done recently is we’ve been able to find properties through some connections we’ve made in brokers that are turnkey. They’re in great shape, they’re B class, B-plus in nice areas where they’re just more mom-and-pop owned, not owned by huge companies, and they’re 30% low on their rent. Recently, there’s a couple that we’re still in the process of that they’re just so low on their rent that with tenant turnover, we’re getting things up to market rent with minimal repairs. When tenants renew, we’re usually not bumping them all the way up to market. We don’t want that many vacancies and we don’t want to just come in and be like, “You’ve got to pay market.” We’ll try to meet him in the middle.

You know probably better than I do, doing all this in the space a little bit longer, that a 27-unit if you’re able to over two years, three years, raise rents from let’s say 900 a door to 1,150 or 1,250 a door, that’s really going to increase the overall value of the building by increasing that income, and managing in-house allows us to limit that side of the expense. So expenses go down, income goes up, it takes two to three years, and just with the relationships we’ve had with the banks and the people we use, it has worked out so far that we were able to give people their money back and we usually give them an overall return of maybe 12% to 18% by the time everything’s said and done.

Slocomb Reed: That’s awesome. To your point, Sam, we recently went through a $50 a month rent increase on a 24-unit that a partner and I own 50/50. At an eight-cap, estimating conservatively, that $50 rent increase across 24 units increases the value of the property by $150,000, based on an eight cap. First of all, you can’t buy an eight cap that’s actually cash-flowing and performing right now. But for the people who are listening who are still buying and renting single-families and duplexes, I hope you hear what Sam and I are saying about getting into larger apartments, and the ability to force appreciation and increase cash flow. An incremental rent increase on a single-family incrementally increases one rent. An incremental increase on a 27-unit increases 27 rents, which does a lot more for you financially. Tell me, Sam, so far in your investing, what is the biggest challenge you’ve had to face?

Sam Primm: The biggest challenge for a while was finding deals. We’ve always wanted to be aggressive, we’ve done pretty well, as you said, the 109 units earlier – that’s great, that’s nothing to get too excited about, but we’re pretty excited about it. But we’ve been doing it for four years, and we bought a couple our first year of multifamily investing in 2018. Then we went about a year and a half, two years without buying anything. We were focused on other businesses and doing other things a little bit. But we were trying to buy multifamily, and we probably underwrote maybe 75-80 apartments over those two years, and we probably offered on maybe 20 or 30, and we just couldn’t get anything.

So over this past year, year and a half, we focused on relationships. We developed relationships with brokers, we’ve created packets about us and our companies and sent them out to brokerages that deal in the commercial space, and just really started to develop deals. We got a really great brokerage relationship now who’s brought us three deals in the past eight months, and we bought all three of them. A $2.7 million deal, a $3.65 million deal, and then a $5 million deal, all of them he’s brought us; we’ve got first look at them, we were able to get them without any competition because of the relationship we developed.

So that was a lesson learned for us and hopefully for the listeners, it was one of our biggest struggles, was just finding properties. We’ll figure out how to take care of the tenants, we’ll figure out how to rehab if we need to rehab, we figured that out. But you can’t even do any of that if you don’t find a deal or you don’t have access to deals.

Break: [00:14:50][00:16:46]

Slocomb Reed: Sam, in my experience, when someone goes a couple of years underwriting deals, sending LOIs, and not buying anything, it’s one of two things that gets them out of that slump. One of them is exactly what I think you’re mentioning here, that you networked your way out of this slump by developing better relationships with brokers who could bring you deals. The other thing that I see that helps people get out of a slump is they change the way that they’re analyzing opportunities, or they finally recognize how they can capitalize on a shift in the marketplace. You were just saying recently that there are some more stable turnkey buildings that you’ve been able to buy, because they were owned by mom-and-pop landlords who aren’t really professional landlords or property managers, whose rent just hadn’t kept pace with the times.

Every MSA in the United States has seen rampant rent growth, if we can be frank, and that’s putting a lot of people who aren’t paying attention behind the wheel when it comes to keeping their rents up with what’s going on in the market. Is this a part of your success in taking down deals recently, after that – not a two-year hiatus, but two-year period where you weren’t buying anything? Is it about changing the way that you analyze the deals as well, or is it strictly the relationships that you formed?

Sam Primm: I think it’s a couple of things. I think it’s mainly the relationships we’ve formed, and I also think there were a lot of talks, and still is talk, of caps gains going up for people. There was talk that it was going to double, and all this stuff. A lot of these people that have had these for a long time are thinking “my taxes might double”, so they’re at least exploring selling, and they’re exploring taking these to some of these professional brokers. And these professional brokers are telling them, “Hey, you can get this for your property”, when they’re like, “No way. No way I can get 3 million for this property. I thought was worth 2.5, or 2.3 million.” They’re like, “No. With today’s rates, with the low-interest rates, I know they’re excitedly going up… With low-interest rates affecting the cap rate, your cap rates are going to go down as the interest rates go down, so you’re going to be able to get this much.” I think that’s how the last three we’ve gotten have been people that did not believe that they could even sell at the price we bought it at, and we’re happy with the price we bought it at.

So these people maybe aren’t as in tune to the rental rates, as well as the cap rates, and what these things are trading for, so they’re just trying to get ahead of this potential cap gains tax rate going up, and then they’re shocked at what they can get, because they’re just not in the space as much. I think that’s mainly it, honestly. I don’t think we’re underwriting them a ton differently.

We do look at future appreciation and rent growth a little bit, probably sometimes more than we should, [unintelligible [00:19:36].23] buying these things that what they’re operating for currently. I’m not really hedging too much on what they’re going to be operating for, but we do do a little bit of that. Maybe we have grown some confidence and underwrote them a little bit differently, but overall, I think it’s just the relationships, and then the market talking with the cap rates… And these people – they don’t understand that it can trade at a seven cap, they’re thinking it’s different.

Slocomb Reed: Sam, how many metro areas is your portfolio in right now?

Sam Primm: Everything’s in St. Louis, from the self-storage, to the multis, and singles. All in St. Louis, where I live.

Slocomb Reed: In your backyard. Do you guys self-manage?

Sam Primm: We do.

Slocomb Reed: I imagine that that level of experience and expertise in your home market is one of the things that allows you to hedge, as you said, on rent growth. You’ve got a lot of experience right there in St. Louis, and you’re not relying on a third-party manager to increase those rents for you. I know some of my real estate clients as an agent here in Cincinnati – sometimes they end up with a third-party manager that they have to push to be able to achieve market rents, because some property managers are behind the times as well on what’s happening with rent growth.

Sam, one last question, before we transition this conversation… Do you have a target metric for how much NOI, how much cash flow, or how much you need to increase a property’s value in order to be able to bring on equity partners that you are refinancing out of within two to three years?

Sam Primm: We do, yes. It’s kind of different for every deal. The goal is to be able to create enough equity – we kind of back into it – to be able to buy them out in that three or four-year time frame. If it’s going to take us five, six, seven, eight years, we probably won’t do it. So we need to be able to increase those rents quickly enough to get them their money back, plus a healthy kicker on top, is what I call it, on the back end, in that two to four-year timeframe, to be conservative. We look at that and we do look at the fact that we know the backyard really well. You kind of alluded to it, but it’s almost like insider trading, because I know the market so much better.

We flipped 250 houses a year here, we grew up here, we have a rental portfolio here, so we know it’s so well that I do feel like I am ahead of some of the curves of some of these hedge funds or these other people that aren’t in the space, where I can maybe avoid a deal that I think won’t be good in a few years, and maybe take a chance or do something that someone else won’t. So yeah, it’s kind of a roundabout answer to your question – definitely, we just make sure we can get their money back in three years. If we can’t, that’s our metric of – if it’s going to take five to six years to do it, we just don’t feel comfortable with where the market will be, where interest rates will be on the refinance at that time to take that deal down… So it just needs to happen sooner than that.

Slocomb Reed: It’s also a lot easier to be aggressive with your projections when you’re not using other people’s money, or you’re not using other people’s money long-term. Do you have a specific number with regards to how much you need to be able to increase rent or NOI in order to successfully cash-out refi your equity partners?

Sam Primm: I don’t know that there’s a specific number. Like I mentioned earlier, Lucas, my business partner, he is the engineering, background, underwriting guru. We look at them together and we have a sheet that we’ve made that we’ve improved over the years. And I don’t know that there’s an exact number; he kind of says, “Here’s where we need to be. Go get it,” and I go negotiate and get the deal. Not to sidestep the question by any means, but he’s definitely the one that has the exact numbers and knows that. His strength is underwriting, that deal-forming background, and my strength is networking, negotiating, buying, finding the money, all that kind of stuff. So we kind of yin and yang kind of thing to be able to do a lot more by offsetting each other’s strengths and weaknesses.

Slocomb Reed: So the metrics required to pull off one of these deals are fairly subjective. It’s on a deal-by-deal basis, it sounds like.

Sam Primm: Correct, yes. I don’t think that we’re talking about getting into the funds and all that stuff. In the future, we’ll probably need to be able to have that and have a little more, “This is this, this is this,” as we go after accredited investors and all that stuff. But for now, it’s been more relationship-based and deal-by-deal basis. I think it goes to show that it can be done in a few different types of ways.

Slocomb Reed: Sam, thank you for indulging my curiosities, and Best Ever listeners, I hope you’re getting some value from this as well. Sam, you said at the beginning of this episode that you’ve been focused primarily on your education brand. Tell us more about that.

Sam Primm: My education brand is something that I’ve done over the past year or year and a half. I started to post a little bit about the things we were doing with all of our companies and started to just get some traction on Instagram and Facebook, just from my local friends. Then I started to just take that onto a broader scale and created the Faster Freedom brand. That’s a brand where I give away more free information than pretty much everybody on TikTok, YouTube, and Instagram. I just give a bunch of free information, and then teach people how to buy real estate using other people’s money, whether it be single families, multis, or storage. I show them what I do that works, and what doesn’t work, and then we have a mentorship for those who want more. But it’s just more about getting my story out there, growing the brand, and giving back. Eventually, I think it’ll be pretty monetizable. But right now, in order to grow your brand, you’ve got to give away free information, that’s the phase that I’m in.

Slocomb Reed: Awesome. And the goal here is to create mentorship opportunities for people in the future. You’re in the phase now of reaching out with free information, connecting, building relationships, demonstrating the value that you have, so that you can build on that brand in the future. Yes?

Sam Primm: Yeah. We do have a mentorship already. We have 230 students right now, so we do have a mentorship. Now, I’m not going to do a heavy sales pitch on it here, or in anything I do. It’s just, “If you’re interested, hit me up, here’s the free training, check it out. Schedule a call with my team; we’ll make sure it’s a good fit. Great. If not, just enjoy the free stuff,” kind of mindset. It always will be that. We’re to the point where we are starting to monetize. We had 19 signups last week so we are getting traction and students are crushing it, but it’s more about just helping them. If the mentorship’s what you want, then we have that kind of mindset.

Slocomb Reed: Well, Sam, are you ready for our Best Ever lightning round?

Sam Primm: Let’s do it.

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

Sam Primm: I recently started a nonprofit, it’s called Greater Giving. It’s focused on mental health awareness in the St. Louis community. That’s something that I’m an owner of, and on the board of. We’ve raised $140,000 last year; the goal is 200,000 this year. We give back to families that are in need, we give to charities that need money or support. That’s the way we give back, and it’s been awesome.

Slocomb Reed: What is the Best Ever book you’ve recently read?

Sam Primm: Think and Grow Rich is a great book. I’ve heard about it a ton, I’ve read the Rich Dad Poor Dad stuff, but Think and Grow Rich really opened my mind. It was written 80-90 years ago, it was written like it could have been written yesterday. But just replacing that word rich with happy, successful, whatever you want; it doesn’t have to just be about money. Think and Grow Rich has been great.

Slocomb Reed: Yeah, looking back on it now, Napoleon Hill has a very antiquated writing style. It’s a book that’s definitely about joy and happiness much more than it’s about money. He was limited in his vocabulary of talking about joy, for sure.

Sam Primm: 100%.

Slocomb Reed: What is the Best Ever skill you’ve developed through commercial real estate investing?

Sam Primm: The best skill I’ve developed through this is just being able to relate to people. It’s helped in growing relationships with private lenders, it’s helped in growing relationships with brokers, and talking to banks… The banks we deal with – we have some Fannie money out, but we also have some small local banks out. So just being able to connect and develop and be authentic with people, they feel your authenticity, and then it just makes it so much easier to raise money to find deals, to fund sourcing, just being authentic and real and connecting with people.

Slocomb Reed: Sam, what is your Best Ever advice?

Sam Primm: Best Ever advice would be to just know that you have the ability to do what you want. You don’t have to take the blue pill for the matrix analogy, you don’t have to do what society says, you don’t have to work every single day for somebody else, making somebody else wealthy while you’re getting by, and retire, and give $800,000 to your three kids. You can create your own path and you can take control. You’ve just got to know how, and you’ve got to be willing to do it. Every single person listening to this podcast right now can go out and create their own future if they want. They just have to believe that they can.

Slocomb Reed: Where can people get in touch with you?

Sam Primm: As I mentioned earlier, mainly TikTok, YouTube, and Instagram are my three platforms. So message me on Instagram, I’d be glad the message back. And then fasterfreedom.com, they can find out a little bit more about what we do as well.

Slocomb Reed: Well, Best Ever listeners, thank you for tuning in. Sam and I are kindred spirits, and being buy-and-hold investors, we’re willing to take on more distressed assets for opportunities to cash-out refi. If you’ve gotten value from this episode, please subscribe to our podcast, leave us a five-star review, and if you know someone who would get value from listening to this conversation with Sam, please share this episode with them. Thank you and have a Best Ever day.

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