April 15, 2022
Joe Fairless

JF2782: 5 Lessons Learned After Landing 368 Units in His First Year ft. Eric Chadderdon


After excelling in direct sales for 12 years, Eric Chadderdon recently made the shift to multifamily real estate. One year into the business, Eric is co-founder and managing partner of Gibby’s Capital Investments with 368 doors. He says he’s learned many things in his first 14 months and has made many mistakes, but what he’s learned has helped propel him to where he is now.

 

Lesson #1: Surround yourself with the people who are doing what you want to do.

Eric credits his success to the mentors and coaches who have taken the time to teach him what they’ve done to achieve their own success. He recommends joining a mastermind group to make connections with others in this space. “This is not an easy industry,” he says. “[Do] whatever you need to do to put yourself at the table so you can learn from people actually doing this.” 

 

Lesson #2: Relationships are everything.

“This is a relationship business,” Eric says. He has dedicated lots of time to building strong relationships with potential sponsors, partners, and brokers. His first two deals wouldn’t have happened without some of these relationships he’s built. Eric recommends approaching each new relationship by asking yourself how you can provide value to others. 

 

Lesson #3: Remain updated on the current state of your markets.

When Texas experienced a big freeze last year, Eric’s team had to retract an offer they’d submitted to update the cost of insurance in the underwriting. He learned firsthand the importance of constantly conducting market research. “That was humbling to learn,” he says. “Definitely stay on top of your market and what’s going on. Make sure your numbers are accurate when you’re underwriting these deals.” 

 

Lesson #4: Brokers are people, too.

The majority of Eric’s deals come from brokers with whom he has spent the last year building strong relationships. Taking them out to lunch and following up with them has been key, he says. While it’s important to give brokers a sense of confidence that your team is capable, Eric also stresses that humanizing yourself by asking about brokers’ families and remembering personal details goes a long way.

 

Lesson #5: Communication is key with both your investors and teammates.

Miscommunication with an investor about when earnest money was due nearly cost Eric his second deal. It’s a mistake he doesn’t plan on making twice. He recommends if a major deadline is approaching to check in with all involved parties several times leading up to the date to ensure everyone is on the same page. 

 

Eric Chadderdon | Real Estate Background

  • Co-founder and managing partner of Gibby’s Capital Investments, a multifamily investment firm that focuses on large-scale value-add properties (100–350 units).
  • Portfolio: GP of 368 units
  • He went from 0 to 368 doors as GP within his first year.
  • Based in: Houston, TX
  • Say hi to him at:

 

 

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TRANSCRIPT

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, Eric Chadderdon. Eric is joining us from Houston, Texas. He is the co-founder and managing partner for Gibby’s Capital Investments, a multifamily investment firm that focuses on large-scale value-add properties. He went from zero to 368 doors within his first year. Eric, thank you for joining us and how are you today?

Eric Chadderdon: I'm doing great. Happy to be here. I’ve been a listener for quite some time, so I'm excited to be here and be able to add some value.

Ash Patel: We're happy to have you as well. Eric, 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?

Eric Chadderdon: Sure. As far as my background, in my previous life, I was in direct sales, I used to run a solar dealer as well. I was in the direct sales space for 12 years and was doing phenomenal. Had a great career in that, but made the shift into multi-family and into real estate just over a year ago, about 14-15 months ago. Part of the reason why I jumped in was my family. Actually, I grew up in and around real estate, in single-family and both multi-family as well. The way that I saw it,-- we all probably have it, but my family was killing themselves. My parents were killing themselves, working 12, 13, and 14-hour days. I wanted something better for them. They'd been working really hard my entire life, and I knew there was a better way to do it; they were self-managing all of their single families and two small multi-family buildings as well. That's when I sought out multi-family and syndication and tried to help my family get into larger properties, so they can be more passive, instead of being as active as they were.

Ash Patel: And because you saw your parents working so hard, did that fear cause you to put systems in place from the get-go?

Eric Chadderdon: It did. It actually also helped me to cherish the time that I have with family and vacations, whatever I might love to do quite a bit more. So yeah, there are definitely systems in place, and part of it is just looking at larger properties, 100+ unit buildings, and that can justify having a property management company to take over.

Ash Patel: Eric, zero to 368 units within your first year. How did that happen?

Eric Chadderdon: Man, it wouldn't happen without a lot of people helping out, I'll tell you that. But there are a lot of speed bumps and hurdles and failures along the way, so I don't paint this picture to be sunshine and rainbows by any means... But if you surround yourself with people that are doing what you want to do and people that are experts in their craft, then eventually you'll become that. How it happened is, I have 368 units that are closed now, and I also have two more new buildings under contract within recent weeks; another 128-unit, another 168-unit, both here in Houston, Texas. So that'll be totaling 664 units, I believe, which is great.

But how it started was I jumped into a mastermind group. I knew I wasn't going to be able to do this alone, and I wanted to surround myself with people that were actively doing this, and actively doing it at the level that I wanted to do it at. So I jumped into this group called Multifamily Mindset, shout out to them, Tyler Deveraux and Ryan Woolley. Those guys put together a phenomenal program that really just laid the foundation for me to be able to propel my career in this space.

Ash Patel: What were some of those missing pieces that you’ve learned from both surrounding yourself with the right people and the mastermind?

Eric Chadderdon: Well, first, I had no real estate experience. The only exposure I had growing up as a kid, because my family had a multifamily and single-family - all that I really did was mowed the lawn and shovel snow. As far as the business side of it, I wasn't exposed to much. I knew that jumping into a group where people had that knowledge and had that training was going to be key for me. In previous things I had done in life I've seen quite a bit of success, but this was something completely foreign. I was humble enough to realize if I didn't get some help then it would be a tough road.

Ash Patel: Specifically, what were those things that helped you get to where you are today?

Eric Chadderdon: A couple of things that I would say are the most important is, one, relationship. This is a relationship business; the multifamily space is very big on personal relationships. I spent a lot of time building strong relationships with potential sponsors, potential partners, brokers, and the list goes on. So I just spent a lot of time focusing and making sure that I was able to add value to other people. But those relationships are how I got in on my first two deals. My first two deals wouldn't have happened without some of the relationships I had built. So coming from a value-add mindset I think is key.

Ash Patel: Eric, you've achieved a lot of success in a very short amount of time. What are some mistakes that you can share with us, so that other people don't repeat those same mistakes?

Eric Chadderdon: Man, there's a lot. A couple of things - always staying up to date with what's going on in your markets that you're focusing on, always constantly doing market research, and figuring out different insurance quotes. For example, last year there was a big freeze in Texas. I'm not sure if you remember that. Do you remember that?

Ash Patel: Oh, yeah. I had a lot of investments down there.

Eric Chadderdon: Before that freeze happened, we were underwriting our deals at $450 a door for insurance. We actually submitted an offer after the freeze at that same amount, when in reality we had to underwrite at $1,000 a door at that point. So we changed our numbers, submitted the offer, and had to retract it. That was humbling to learn. But also, we wouldn't have caught it if we didn't have some of the mentors and guidance that we did. So that was a mistake. Definitely, staying on top of your market and what's going on so make sure your numbers are accurate when you're underwriting these deals.

Ash Patel: How are you finding deals?

Eric Chadderdon: Right now, the majority, it's just coming from brokers. We spent about a year building strong broker relationships. We were going out of our way to take brokers to lunch and follow up with the brokers, it was very key for us. A lot of local ones in both Dallas-Fort Worth and Houston. A lot of that has come back to help us. A lot of time we're focusing on them, their families, their lives, putting ourselves in their shoes of how they would want to be approached. And that helped a lot, because now we've maintained those relationships and we get a lot of off-market deals brought to us. Right now, deal flow is the least of our worries.

Ash Patel: How do brokers like to be approached?

Eric Chadderdon: I think it's more of a sense of giving them confidence that your team is capable, for one. But two, not just jumping to business right away. I know they're busy and they have the things that they got to do, but also, they're human beings and they like to be treated as such. Ask them about their families, their kid's baseball game if they mentioned it on the last call, or something like that. Humanizing yourself and being a real person, and remembering things that you talk about, and just having normal human interaction can really go a long way with them, and it shows them that you care. After you get a cut on a deal, two deals, they remember those things, and they'll start remembering you when they have another off-market good opportunity that comes across their desk.

Ash Patel: Eric, can you take us through your first deal, how you've found it, how you assembled your team, and what the numbers were on that deal? And how did you raise capital?

Eric Chadderdon: Sure. This is kind of a two-part question. The first deal that I actually got brought into wasn't even my deal. It was my mentors, Tyler and Ryan's deal. They had a big investor, a $2.5 million investor pull out last minute and it was going to affect them. I think they use their extensions. Anyway, I came in and I had already raised $2.5 million from my investors from both family and friends. And simply, what we did was we just placed my capital into their deal. Also, Tyler lives in Maui, and Ryan lives in Orlando, and I was also local. The deal was in Dallas Fort Worth; so I lived in the market, so I also helped with asset management on that deal a little bit as well.

That's how I got into the first one. Through that deal, I met my sponsors on the second deal because they were partners with Tyler and Ryan on that deal. Her name was Lisa Parrish, and she's got over 3000 doors... So I took it upon myself to build a relationship with her and kind of get in her corner. She and her husband came to me after we did due diligence on that property and said, "Hey, we think you're going places and we'd like to sponsor your next deal and kind of take you under our wing." That was a huge turning point for me in the space.

Ash Patel: Eric, on your first deal, you said that you had the money all ready to go.

Eric Chadderdon: Yes, this was about seven months into my journey. The first seven months were several challenges, speed bumps, and failures. But I always encourage people, there's a great book called Failing Forward, that teaches you to shift your mindset and actually seek out failure because that's when you grow the most; it's a great book. That was kind of what we did. I mean, we submitted 27 offers before we got our first one accepted. We made the best and final I think six or seven different times, that can definitely take a toll on you. Full transparency, that can take a toll on your confidence, that can take a toll on your momentum.

So we found it upon ourselves to keep pushing and keep going... We did that and then this opportunity came up. Yeah, I had raised money, my family was selling some of their assets in Oregon, so I had a big chunk of change coming from them and some other friends as well. So definitely, the stars aligned on that one. It got my foot in the door and I was able to place their money into Tyler and Ryan's deal and just add as much value to them as I possibly could, and built a strong relationship with them. Now we've partnered on a couple of deals with them now.

Ash Patel: Eric, what's the hardest lesson you've learned in the last year?

Eric Chadderdon: Man, that's a good question. The hardest lesson is communication. I think communication is key, both with investors and your teammates. I had a situation on our second deal - this was the first deal A to Z that we did on our own. But I had a situation where we were supposed to turn in our earnest money on a certain day, on a Wednesday. I remember we had an investor that was going to place the earnest money and wire the funds on that Wednesday, and I spoke to him the previous Wednesday, so it was a week before that.

This is a huge lesson. I hope some of the listeners can take something out of this, because I learned a very hard lesson that day, and things worked out anyway. I talked to the investor a week before the earnest money is due. He says, "Yup, everything's good." I say, "Funds are due next Wednesday." Anyway, I waited the entire week, didn't bug him, and called him on Wednesday and said, "Hey, we're ready to go." The first thing he says is, "Well, what do you mean? I need a day or two to move funds around. I'm not ready." But funds were due that day or we were going to lose the deal.

It was tough realizing that I could have just lost this thing for everybody involved, our investors, our partners, sponsors, and from one simple mistake of lack of communication. So if I was to go back and do anything different, this is what I'd do. I would have shot him a simple message on Monday and said, "Hey, just a quick reminder that funds are due on Wednesday, so make sure to make whatever arrangements you need to so we can be prepared for that." Then I would have shot him another message or a phone call on Tuesday, reminding him one more time, giving him a heads up that funds are due tomorrow.

So that's what I would have done. Big lesson. Anyway, we got it squared away. Sponsors came in and saved the day, ended up making that wire, and the investor ended up reimbursing them for that. Big lesson learned there, so hopefully, people can take something from that.

Ash Patel: That could have gone the other way.

Eric Chadderdon: Very quickly, yes.

Break: [00:14:11] – [00:15:58]

Ash Patel: What is your best real estate investing advice ever?

Eric Chadderdon: I would say to surround yourself with people that are just doing what you want to do. I mentioned it previously before, but there's no way in heck that would be where I am today without having certain mentors and coaches around me to teach me what they've done, and at a high level. So I would say just put yourself in the room, find a way, join a mastermind, whatever you need to do to put yourself at the table and get a seat at the table, so you can learn from people actually doing that. This is not an easy industry, this isn't an easy space to be in. So the more exposure you can get, the more you can keep your mouth open about what you're doing, the better positions, and the more doors are going to open for you.

Ash Patel: Eric, let's go back and dive into some of these numbers. On that first deal that you raised capital for, what was the return to the investors, your family, essentially?

Eric Chadderdon: It was actually pretty good. Call my family - total investment, 2.5. It was great because they had a capital gains tax of over $900,000 from the sale of their properties so there's a big tax burden there. I'm glad you asked that; it was a huge turning point for me in my capital raising efforts for this industry. But at the beginning, I once thought, "Man, I don't want to bug people for money or feel like I'm asking people for money." That was a common thought from what I had heard from other people as well.

Once I realized what this had done for my family, it shifted my mindset completely, and it made capital raising even easier. What we did is we did a cost segregation study with bonus depreciation, and we were able to 100% eliminate their tax burden with the IRS there. Then on top of that, just from the cash flow on top of the taxes, the cash flow alone, they're making right around $200,000 a year just from the first investment. They also invested in my second deal as well. So between the two, they're making about $230,000 passively, as passive investors, without having to be active like they once were; without working 12 13, 14-hour days.

Now they're retired and their assets are sold. It's the first time that I've gotten to live next to my family in 13 years. They sold their assets and moved down to Texas with me, which is huge. It's great for us, for me; I'm about to start a family, and it's great. I definitely want them both around.

Ash Patel: Very cool, man. What a win. On your second deal, what were the numbers?

Eric Chadderdon: The numbers - it was a $13.3 million property. The total raise on it was 7.3 million. It's a big lift, a heavy lift. We had some help on it, for sure, but returns were pretty good. It was exciting, because I had just gotten done raising capital and seeing what it had done for my family, so I had a lot of momentum moving into this next deal. We closed on the first one, and 10 days afterward, we got our LOI accepted on another deal, the 144-unit deal in Houston, which we closed on in November.

Ash Patel: Hold on, we've gotta back up. $13.3 million purchase and a $7 million raise. You raised almost 50% of the value. Tell me how big of a lift this was.

Eric Chadderdon: It was a heavy lift, and it was not easy. That's why we ended up bringing in some help, and I'm grateful for my partners on that one. We hit a wall raising capital and that's why we needed some reinforcements if you will. But that's the beauty of this sport; it's a team sport, man. It is not a one-man show, by any means. The good thing is with these large deals, there's enough good to go around. We had closing costs, we had the down payment for the loan, we had our entire CapEx budget, closing costs, acquisition fees, all of the above. That's what made it up to 7.3.

Ash Patel: How many units?

Eric Chadderdon: This is a 144-unit building. Three of my properties are in Houston and one's in Dallas Fort Worth.

Ash Patel: Was this just a gut renovation?

Eric Chadderdon: No, it wasn't too bad. The exteriors were actually in really good shape. The previous owners had put about three-quarters of a million dollars into the exteriors, but what did need a lot of work were the interiors; a lot of the interiors, there were a lot of long-term residents that have lived there, and some of them over 20 years, so there were lot of the units that needed some help on the interiors, for sure. That's where a lot of our budget went to.

Ash Patel: What percentage did you have to put down on this deal?

Eric Chadderdon: It was 31%.

Ash Patel: And all of the CapEx you guys raised initially?

Eric Chadderdon: Yeah. As I said, we had some help from some good partners on that one, because it's not an easy thing. That was a very, very heavy lift. You go in confident, and sometimes you get beat down a little bit. But when you have a good, strong mastermind behind you, or network behind you, and a team behind you, you can really accomplish quite a bit more. So I attribute a lot of my success to the people that I've surrounded myself with.

Ash Patel: And what's the anticipated return to your investors?

Eric Chadderdon: It was a combination of two things; both a 7% or 8% preferred return, and then how that property looked, our annualized rate of return came to 19.7%. So a pretty good little property over there and we're excited about that.

And also, just an update on it, just to let you know where we're at... We've only owned the property now since the beginning of November, four or five short months, and we're already accomplishing our five-year projections on our efficiency units. Not our one and two-bedrooms, but on our efficiency units, were already accomplishing our five-year goals of what our rent projections are going to be on a lot of the units.

Things are trending in a very cool direction. It was honestly just a really great property. The previous owners were just kind of a little bit lazy as far as bumping rents up, because they had some relationships with the tenants. We came in and we're just able to start executing our business plan.

Ash Patel: Eric, are you ready for the Best Ever lightning round?

Eric Chadderdon: Sure, let's see it!

Ash Patel: Alright, Eric, what's the Best Ever book you recently read?

Eric Chadderdon: I would say it's Atomic Habits, for sure. That one is powerful. It's great for resetting, and reestablishing your identity and just determining which of your daily habits are in line with that identity. It's just a super good book, I highly recommend it.

Ash Patel: Eric, what's the Best Ever way you like to give back?

Eric Chadderdon: I think for me, I realize how much other people have impacted my business and what the multifamily space has done for me. I would say, as far as giving back, it's actually industry-related. As I said, I've seen how multifamily has changed my life. Before I got into this space, I was in a bunch of debt. I was able to help other investors make passive income and at the same time, alleviate my debt as well. It's helped my life and my business a lot. Part of the way that I like to give back is by helping other new investors along their journey, helping them get past those humps that they have, those bumps in the road that they have in their business. That's where I get a lot of my fulfillment, helping new investors come through and pass that barrier that they might be running into. Because it is possible people can do this as long as you just stick to it. I truly believe that the only time you lose in the multifamily space is if you quit.

Ash Patel: Eric, I wanted to ask you, do you guys self-manage all of these properties?

Eric Chadderdon: We don't. We have a property management company that comes in and does a phenomenal job.

Ash Patel: Is it the same PM company for all of the properties or are they different?

Eric Chadderdon: It's the same one. We've built a good relationship with them, they've adapted to our business model, they're phenomenal at due diligence, and we're grateful to have them.

Ash Patel: What percentage do they take off the top or is it not as easy?

Eric Chadderdon: No, that's a good question. You have to ask my asset manager, Megan. She's the one in constant communication with them.

Ash Patel: Got it. Thank you. Eric, how can the Best Ever listeners reach out to you?

Eric Chadderdon: I'm on all the social media platforms, Facebook, LinkedIn, and Instagram. But really, if someone's wanting to connect with me, you can go to our website, www.gibbyscapital.com. You can see all of our contact information from there for myself and my teammates as well.

Ash Patel: Awesome. Eric, thank you so much for your time today and for sharing your story. Coming from a sales career, joining a mastermind, learning the value of having the right people around you, and achieving an incredible feat of having your parents live next to you. That is very cool, and thank you for sharing all of that.

Eric Chadderdon: You're welcome. Had a great time. Thanks for having me.

Ash Patel: Best Ever listeners, thank you so much for joining us. If you enjoyed this episode, please leave us a five-star review and share the podcast with someone you think can benefit from it. Also, follow, subscribe, and have a Best Ever day.

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