1. Prioritize broker relations. Brokers are your gatekeepers to the commercial real estate world, Cody says. All of his deal flow comes through broker relations. He and his partners have a list of about 40 brokers across their markets, and they make an effort to engage with each of them regularly.
2. …But make sure you don’t waste brokers’ time. These are very busy individuals who are going to spend their time where it’s most efficient — on people who are closing deals. Cody focuses on building broker relationships by closing deals and getting transactions done rather than attempting a wine-and-dine approach.
3. Find ways to add value. Everything right now is coming down to price and risk capital, Cody says, so you have to find ways to be creative and add value when you’re acquiring properties.
4. Be prepared to pay full market price. You’re also going to have to put up some sizable risk capital to give the sellers confidence that you’re fully bought in and you’re going to make this transaction happen, Cody says.
5. Increase your due diligence and inspection periods. The faster a seller can get to close, the higher your chance of getting the deal awarded.
6. Leverage the experience of other operators when necessary. Due to the aggression in the marketplace and not having quite the track record as some of their competitors, Cody and his partners began cosponsoring with other operators with more experience and added value to those deals by raising equity.
7. Build a robust marketing funnel. You’ve got to go out there and build your network, and you do that through thought leadership platforms, Cody says. He and his partners started with a meetup and a podcast, then incorporated email marketing and social media to grow their network even more.
8. Establish trust and relationships to attract investors. Cody believes creating successful investor relationships comes down to focusing on their needs, finding an alignment of interest, and being authentic. That method has worked well for him and his partners.
9. Take action. Right now is still a phenomenal time to be in commercial real estate, Cody says. Although it is hyper-competitive, you can’t let that deter you or put you in a state of fear. Put yourself out there, take action, and go find opportunities.
Cody Laughlin | Real Estate Background
- Managing partner at Blue Oak Capital, a multifamily acquisition firm focused on existing Core/Core+ multifamily assets across Central Texas.
- Portfolio: GP of $105M across 787 units
- Works full-time as a registered nurse.
- Based in: Houston, TX
- Say hi to him at:
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Ash Patel: Hello Best Ever listeners, welcome to The Best Real Estate Investing Advice Ever Show. I'm Ash Patel and I'm with today's guest, Cody Laughlin. Cody is joining us from Houston, Texas. He is the managing partner of Blue Oak Capital, a multifamily acquisition firm focused on existing core multifamily assets across Texas. Cody's portfolio consists of being a GP on almost 850 units, and he also works part-time as a registered nurse. Cody, thank you so much for joining us, and how are you today?
Cody Laughlin: Ash, I'm doing great, man. I want to thank you so much for having me on. I've been a big fan of the Best Ever podcast for many years now. It's just an honor to be here, not only as a fan, but as a guest.
Ash Patel: Cody, the pleasure is ours. Before we get started, can you give the Best Ever listeners a little bit more about your background, and what you're focused on now?
Cody Laughlin: Absolutely. Again, as you mentioned, I'm a managing partner at our company Blue Oak Capital, and I'm also the director of acquisitions for our team. We focus on core, core plus assets across Central Texas, Houston, and San Antonio, primarily. I've been a real estate investor since 2010, spent many years in the single-family residential space, pursuing multiple different strategies in residential real estate... But realized after many years and after a lot of expensive lessons along the way that this is just really a hard model to scale.
For me, real estate was a path to financial independence, financial freedom, and entrepreneurship. So after many years of going through a lot of headaches, I decided to make a pivot and pursue multifamily syndication as faster scalability to reach my investment goals and theses. So here we are, met two great partners, we formed Blue Oak Capital in late 2019, early 2020, and we've been off to the races since.
Ash Patel: Before multifamily was it just single families?
Cody Laughlin: Yeah. Single-family, and I actually pursued some non-real estate-related business ventures, but that's another topic for another day.
Ash Patel: That's a whole different podcast subject. The two partners, how did they come into the mix?
Cody Laughlin: Networking. I was working with a different partnership group on another opportunity. In late 2019 I was introduced to my first partner John through a mutual connection, and we just really had a great synergy and great alignment of interests. We started finding opportunities to work together and really saw a long-term partnership developing, so we decided to formalize our partnership through that opportunity.
Midway through 2020, John met our third partner, Brian, through a virtual networking event, and connected with him offline, started building a little bit of rapport, and introduced him to me as well. Again, just great synergy, great alignment of interests, great complementary skill sets to our partnership. The stars aligned. We added Brian to our team and - just one more pivotal piece to the puzzle, so to speak,
Ash Patel: Is it one of your goals to do real estate full-time?
Cody Laughlin: Absolutely. This is definitely the long-term vision for us, and this is where we see our path to securing that financial independence that we're all trying to achieve.
Ash Patel: And your role is director of acquisitions. How do you find multifamily units?
Cody Laughlin: That's a great question. It's really challenging right now in this market cycle. But all of our deal flow comes through broker relations. Brokers are your gatekeepers to the commercial real estate world, especially in the size of properties that were looking at, the 100-plus unit apartment buildings. All of our deal flow comes through broker relations, just nurturing those, and trying to be involved in looking at any opportunity that comes across that fits our investing thesis.
Ash Patel: What is your investment thesis?
Cody Laughlin: Again, that core, core plus really for us right now is our primary strategy given where we're at in this market cycle and the execution risk that comes along with the value-add play, especially when you're paying a premium, like we are right now in today's market cycle. We really like the newer stabilized product, something that can be a long-term hold, with less deferred maintenance, less cap-ex needed to properly operate. We've made that pivot kind of halfway through last year and made that our core thesis moving forward.
Ash Patel: Cody, you've mentioned market cycle a few times. Give me your thoughts on that.
Cody Laughlin: Oh, man. It's an interesting one, for sure. We entered multifamily 2019; a very, very bullish cycle. I think a lot of people at that time thought we were maybe at the top of that expansion cycle. With COVID hitting, again, everybody thought, "Okay, here's the correction", and then what would we see after? The market just exploded even more, and just even more aggressively. So I definitely think that we are still in an expansion part of the cycle as of United States. If you look at the supply and demand imbalance, we are in a significant supply shortage for multifamily housing and residential housing. There's still a lot of tailwinds for supply and development. I think we still have a bright runway here for the next couple of years as far as commercial real estate goes.
Ash Patel: That's why you guys are buying mostly newer properties?
Cody Laughlin: Yeah. Again, I think, obviously everybody knows right now that we're entering a rising interest rate environment; how that will impact multifamily I guess it will be dependent on how aggressive the Fed will raise rates this year. But I think with that, if the market does slow down any at all, or even pull back some over the next couple of years - again, we want to be in a position to hold assets longer term, five, seven, even 10 years. When you're holding that '60, '70 product that constantly has deferred maintenance issues or you're constantly worried about what problems are going to need to be fixed tomorrow - that kind of rustles your feathers a little bit. We'd like to be able to sleep better at night, knowing that we have a quality product that doesn't have all those deferred maintenance headaches that come along with it.
Ash Patel: Does your business model have value-add, or do you buy fully renovated properties?
Cody Laughlin: We're typically finding properties, like I I said, that are in great shape and newer products. We are looking for a light value-add component. If you think about the market and how fast expectations are changing, how fast standards are changing, we're looking for a product, let's call it 2000-2015, that could use a light cosmetic upgrade. Maybe changing the color scheme, color palette, adding a few modern technologies like prop tech, things like that, that are becoming an expectation for today's renters and demographic. So we are looking for a light value-add component but we don't want to get into something that requires a $15,000-$20,000 per door renovation. Something just a few thousand dollars per unit that we can make a quick turn on, and capture upside on that.
Ash Patel: Cody, you mentioned broker relationships. Is it one broker, is it many, is it two or three that feed you most of your deals?
Cody Laughlin: Yeah, it's many. We have a long list of broker relations across our markets, and we try to engage with each of them. I spend probably more time with those who are capturing most of the market share in our markets. There are several that we probably engage with more often than with the other ones. But yeah, I think you've got to be careful with isolating yourself just one or a small list of brokers. We probably have 40 brokers between our two markets.
Ash Patel: When you sell a property, do you just spread the wealth amongst these brokers?
Cody Laughlin: Well, there hasn't been a circumstance where we've gone full cycle yet. But there is a kind of industry courtesy that's expected that -- most often you see when a seller sells an asset to you and you complete that transaction, when you're ready to bring the deal to market and go full cycle, it's a common courtesy that you go back to that same broker, barring a negative conflict. But we would expect to extend that same courtesy.
Ash Patel: That's a good point. How do you get in front of your competition with these brokers?
Cody Laughlin: Now, this is a great question. It's increasingly harder to stay competitive in this market cycle; even guys that are much more experienced than we are, that have much larger portfolios, are having challenges in today's marketplace. Everything right now is coming down to price and risk capital. Ultimately, those are the two biggest drivers in today's marketplace. I don't think there's really anything that's market rate and that's at a discount anymore. We get price guidance, and that's kind of your starting point now, it's no longer your target. So you have to find ways to be creative and find ways to add value when you're acquiring properties... But you have to go in knowing that you're going to pay the full market rate and you're going to have to be putting up some sizable risk capital to give the sellers that confidence that you're fully bought in, and you're going to make this transaction happen. And then also looking at ways to increase your due diligence periods, your inspection periods; looking at shorter timelines. The faster a seller can get to close, the higher chance that you have of getting the deal awarded. I think between those three factors, that's the most effective way to be competitive right now.
Ash Patel: Are there any soft sells? If you think back to like pharmaceutical or medical sales reps, they're wining and dining the Docs a lot. Do you guys do that with brokers?
Cody Laughlin: I was just speaking on this with another podcast... To me, I don't really find that to be very effective in the initial engagement. I think after you've transacted with a broker and you've kind of built that relationship and that trust of knowing that, hey, you can take a deal to close, then that's an opportunity to make it more personal. But ultimately, these are very busy professionals. Let's face it, there are a thousand new syndicators every single day that are calling all the same brokers. Their time is becoming more and more limited, which means that it's becoming more and more valuable. They're going to spend it where it's most efficient which is going to be on guys who are closing deals.
Our focus is, "Hey, let's close deals first, and let's build a relationship that way. And then I'd be happy to take you to dinner and stuff after that." But I don't want to waste the broker's time. I want to build that relationship by closing deals and getting transactions done.
Ash Patel: Good point. Cody, 850 units - how many properties is that across?
Cody Laughlin: That's across four properties.
Ash Patel: What markets are you in?
Cody Laughlin: Again, our primary acquisition pipeline is Houston, San Antonio, and Central Texas, but our portfolio as a whole - we have three assets here in Texas, and then one in Columbus, Ohio that we co-sponsored.
Ash Patel: Why Columbus?
Cody Laughlin: The relationship with their lead sponsor; we currently sponsor Chris Jackson of Sharpline Equity; I'll name drop for him. A great guy; we just wanted a way to build that relationship with them and work with those guys. They're present in that market, they have assets in that market, so we trusted not only their experience, but their presence in that area. Once we looked at Columbus, we saw that it had really good fundamentals, so it gave us a lot of confidence to participate in that. But it's just like anything else, it comes down to relationships and experience.
Break: [00:13:26] - [00:15:13]
Ash Patel: What value did you bring to the table?
Cody Laughlin: Our primary value proposition was being able to raise capital. We'd spent about a year and a half building a framework and infrastructure for our business, building out our database through our marketing funnels, so that way we can position ourselves to go and syndicate and raise capital. Ideally, that was going to be for our own deals. But again, with the aggression in the marketplace and not having quite the track record as some of our competitors, we knew that we had to leverage the experience of other operators to really break-in. So that's how we started; we started co-sponsoring with other operators that had much more experience and we added that value through raising equity. We also love to participate in the asset management side as well, to be involved in some of the decision making and give input where it's needed, and help direct the business plan.
Ash Patel: Cody, can you talk about the differences between multifamily in Columbus, Ohio, a typical Midwestern city, versus Texas?
Cody Laughlin: Different demographic. Obviously, the demographic there is a little bit different than it is here. Whether that be lower-income, working-class versus similar demographic here. Houston primarily where we're based out of, it's primarily a low-income working-class demographic. But on this core, core plus product, we're typically focusing on more of your white-collar, young working professionals. I think that's the biggest thing, is just working demographics. Both states have very similar laws and legislation around business owners that support business owners. We definitely liked that aspect; we want to be in business-friendly states for sure. But I would say the demographic is probably the biggest difference between the two.
Ash Patel: And rent growth, appreciation, cap rates?
Cody Laughlin: Cap rates are a little bit looser there. We're seeing cap rates at about, call it, maybe five, mid-five cap rate, whereas, versus Texas here, everything's kind of a sub four cap right now, which is kind of crazy to talk about; two years ago, we'd be gawking at that. But now it's that's our standard. It is more of a cash flow market, you're going to be able to find a little bit better yield in a market like Columbus, versus here in Texas. Again, it's very, very hyper-competitive; pricing is aggressive. It's kind of harder to find those yields here in Texas.
Columbus, if you look at it from a fundamental perspective, it's one of those Steady Eddy markets. It's not like robust growth, you're not having this massive net in migratory patterns like you're seeing here in Texas. But it's a great community for acquiring assets, operating efficiently, providing a good quality resident experience, and then just holding them for five, seven years for cash flow.
Ash Patel: Cody, you mentioned, you spent the better part of a year setting up your business before you started acquiring properties. One of the things you mentioned was your marketing funnels. Can you give us an example of some of those?
Cody Laughlin: Yeah. We built out a robust marketing funnel, and we started out with different thought leadership platforms, very similar to what we're doing now. Our podcast, our meetup... And really, I give a lot of credit to Joe because I read his book, the Best Real Estate Investing Advice Ever book. He laid that out in his book, you've got to go out there and build your network, and you do that through thought leadership platforms. So we started that, we started a meetup, and started the podcast... And as we started to build our network, then we started putting things like our newsletter in place, our email marketing, and then really leveraging social media. This is a big one - social media is the way that the world is connected today. If you're not visible on social media, then you're really missing out on a prime opportunity to grow your database.
So we leverage social media in addition to our thought leadership platforms. And especially through COVID, when everybody was secluded to their homes and not really getting out and doing face-to-face networking, I think we 4X'd our database that year just because of all the virtual networking we were able to do and the outreach that we had from all those different funnels. So thought leadership platforms, social media, and email marketing were the biggest funnels for us.
Ash Patel: You know, I just googled that not too long ago. Best Ever listeners, if you google "Joe Fairless thought leadership platform", he breaks down, I think it's a top 10 list of things that you can be doing to increase the size of your network. Awesome. Is there a particular niche that you're looking for in terms of size of units, purchase price, and cap rate?
Cody Laughlin: For us, we particularly look at value over count. We'd like to be above 100 units just from an operational efficiency perspective. As you go bigger, things get easier to operate, you can have larger teams, your property management teams can have more staff to operate your business plan... So we like to be typically above 100 units, but for us, we focus on value, and this is really from the debt side. Anything over 20 million, kind of the same thing, the debt gets a little bit easier, terms get to be a little bit more flexible; especially with the transactional volume of last year, the bridge, everything was executed on the bridge, so all the debt funds and bridge lenders really kind of exhausted their debt funds. Anything below 20 million, terms are a little bit more rigid, they were going to make you pay heavier spreads on some of those terms... Wo we like to really be above that $20 million thresholds. For us, our buy box is call it 30 to 50 million, 100 to 250 units I would say, and really focusing on that 1990s vintage or newer.
Ash Patel: Cody, what's your return to investors?
Cody Laughlin: It's going to be very deal-specific. For us, what we're seeing in the marketplace right now, especially in our markets in this core, core plus product, we're looking at a 4%-6% cash-on-cash, call it 12%-13% IRR or higher, and then we always look to achieve a 1.7X multiple. We're typically modeling all of our business plans on a five-year hold.
Ash Patel: How do you sway investors to your deals when the returns are fairly similar amongst a lot of multifamily syndicators? What separates you guys?
Cody Laughlin: Well, it comes down to trust and relationship. You're right, there are plenty of other operators out there that are probably equally or much more qualified than we are. But being able to leverage our relationships with investors, we find people that are attracted to us, for whatever reason... We like to think we're good guys, we're authentic, we're transparent, and we're relatable. We're everyday people, just like you and me Ash, and I think that's something that people can relate to. But aside from that, it's just again, offering something of value, offering people opportunities to get into this direct private real estate, like commercial real estate, and grow their portfolios in a way that suits their thesis. But I think it just comes down to again, focusing on the relationship, finding that alignment of interests, and being authentic is key. It's worked out very well for us.
Ash Patel: How often do you communicate with people in your database that are not investors?
Cody Laughlin: We send out monthly newsletters, that's our primary way of communicating. Then we have a weekly, what we call drip mail campaigning that goes out. That's to share the different content that we're curating or things that we find valuable, that we can share through our database. Even though somebody is not actively invested with us or maybe not in our database, our direct contact list so to speak, we still try to engage with people, and we look for opportunities to add value to other people. "Hey, you may not want to invest with me and that's completely fine. But maybe we know somebody that might be better suited for you. Or maybe we can make a referral to a connection, or a professional that may help you grow your business."
So we try to have as many of those touchpoints as we can. We're talking to potential investors or partners on a weekly basis. Brian is our second partner, third partner, and he's our investor relations director. Between his schedule and mine, we're connecting with 10 to 15 people a week on average, and just looking for ways to add value. It can't just be about us. We're not trying to be selfish in how we get value. It's about how we give value back to others as well.
Ash Patel: Cody, what is your best real estate investing advice ever?
Cody Laughlin: Oh, that's a good question. I would definitely say, take action. I think right now is still a phenomenal time to be in commercial real estate. It is hyper-competitive, but you can't let that deter you or can't let that put you in a state of fear. Put yourself out there, take action, and go find an opportunity.
Ash Patel: Cody, are you ready for the Best Ever lightning round?
Cody Laughlin: Let's go.
Ash Patel: Let's do it. Cody, what's the Best Ever book you recently read?
Cody Laughlin: Think and Grow Rich. I read that book many years ago and I've been reading it again. Success is a mindset, so I really love just revisiting that book and its core principle. I highly recommend that one.
Ash Patel: Cody, what's the Best Ever way you'd like to give back. So
Cody Laughlin: We leverage our platforms to try to give back to our community, for example, in our live in-person meetup events that we host every month. This past Christmas, we actually hosted a toy drive. For attendance, everybody, their admission to attendance was donating a toy to a local toy drive, which we ended up donating, I think over 100 toys to a local charity. That was really special. So we like to leverage our platforms to try to give back to our communities.
Ash Patel: Cody, how can the Best Ever listeners reach out to you?
Cody Laughlin: Well, we're not hard to find. I like to say we're all over social media. You can find us on LinkedIn, @codylaughlin. If you want to check us out, you can visit our website at www.blueoakinvestment.com. If you want to reach out to me directly, feel free to email me at email@example.com.
Ash Patel: Cody, I've got to thank you for your time today and for sharing your advice. You started in 2010, single-families, 2019, going to the multifamilies, assembled a great team, and you've got a great niche. Thank you again for sharing your story.
Cody Laughlin: Thank you so much for having me, Ash, I appreciate it.
Ash Patel: Best Ever listeners, thank you for joining us. If you enjoyed this podcast, please leave us a five-star review and share this episode with anyone who you think can benefit from it. Also, follow, subscribe, and have a Best Ever day.
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