Brody Garcia is a general contractor and real estate syndicator with KGI Capital, which invests in distressed multifamily properties in the southeast and midwest. In this episode, Brody shares the details of KGI’s latest acquisition - a 72-unit multifamily property built in the early 1970s. He also discusses the differences in value-add projects between states like California and Oklahoma and the biggest struggles he’s encountered as a remote construction manager.
Brody Garcia | Real Estate Background
- General contractor and real estate syndicator with KGI Capital
- Portfolio:
- 80 multifamily units
- Say hi to him at:
- Best Ever Book: The 10X Rule by Grant Cardone
- Greatest Lesson: Trust but verify.
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TRANSCRIPT
Slocomb Reed: Best Ever listeners, welcome to the best real estate investing advice ever show. I'm Slocomb Reed, and today I'm here with Brody Garcia. Brody is joining us from Gilroy, California. His company is KGI Capital. He's a general contractor and a real estate syndicator who invests in distressed and heavy value-add multifamily properties in the Southeast and Midwest. Currently in the portfolio is 80 multifamily units. Brody, can you tell us a little bit more about your background and what you're currently focused on?
Brody Garcia: Yeah, so the biggest things I have been focused on is really doing more of the multifamily space. We're primarily focusing on the Midwest right now; that's where we closed our last deal.
Slocomb Reed: What market?
Brody Garcia: It was the Oklahoma City market.
Slocomb Reed: Gotcha. Tell us about the deal.
Brody Garcia: That was our first larger multifamily that we closed, and we went through with that one; it's a very heavy lift, a very distressed property, 1970s build, never been updated... So we're going through and redoing all the exteriors, redoing all the interiors, and it's been a fun project. We closed that in about September last year.
Slocomb Reed: Nice. How many units is it?
Brody Garcia: 72 units.
Slocomb Reed: Gotcha. So the bulk of the 80 units in the portfolio. Well, let's talk about it. Let me start here... "It's a heavy lift, hasn't been updated in roughly 50 years." Is it built pre or post 1978?
Brody Garcia: Pre 1978.
Slocomb Reed: That's a pretty important year for building codes. There's a huge difference. I'm in Cincinnati, Ohio; Midwest's an older market than Oklahoma City, but you can tell there's a huge difference between pre and post 1978 based on building codes and federal regulations. So that is a heavy lift. You're a general contractor. Is that your work in the Bay Area and California, or is that part of what you're doing with this property in Oklahoma?
Brody Garcia: We have other contractors do the work on site, but I like being able to have that construction management skills to help out managing that construction project, because it is such a large lift.
Slocomb Reed: Gotcha. Tell us about the numbers on this project. You bought it September of '22. I imagine it was an interest rate that looks decent now, but was not exciting at the time. What was your acquisition cost, what is the CapEx or the renovation budget, and what are you expecting it to be worth when you're done?
Brody Garcia: Our purchase price was right about 4 million, and we ended up getting a three-year bridge on it, with a two-year extension, at a fixed rate. So it was a little bit higher than we wanted, of course... [laughs]
Slocomb Reed: What was that rate?
Brody Garcia: I believe it's right about seven, seven and a half-ish, or about there.
Slocomb Reed: And is that where your extension would come in as well, or is it variable?
Brody Garcia: That's where it would come in as well.
Slocomb Reed: Gotcha. So you acquired 72 units from the early '70s for 4 million, and then what's the budget for getting all the work done?
Brody Garcia: We're at about $30,000 a unit. 15k for interiors is what we budgeted, which I believe we are a little high on that, so I think we'll do pretty well there. And then our exteriors about one and a half.
Slocomb Reed: Nice. So let's make an assumption that seems fairly absurd at the moment, but let's assume that cap rates stay the same. What are you expecting to happen to the NOI and to the valuation of the property when you're done?
Brody Garcia: Basically, where we're at on this, we're looking at putting about another 2 to 3 million into it, so it'd be on about seven, and we exit somewhere around eight or nine.
Slocomb Reed: How long is the hold period?
Brody Garcia: We're planning a five-year hold on this project, with a two-year stabilization.
Slocomb Reed: Nice. Before we dive too far into the weeds, KGI Capital. I get the feeling that G stands for Garcia, and you have a couple of partners, and you share responsibilities. Within your general partnership, what do you focus on? What's your specialty, Brody?
Brody Garcia: I focus on obviously construction management, because I have a contractor background, and then as well asset management and underwriting. So lately, I've been kind of outsourcing underwriting with other partners, just because my time has been very busy lately... But primarily that construction management and asset management is what my strongest attributes are.
Slocomb Reed: You budgeted 15,000 per unit for interior renovations... Are you touching every apartment over the next two years? Is it a proper 15 grand per door?
Brody Garcia: Yes.
Slocomb Reed: Awesome. So with your construction management background, I'm very curious for my own experience, but also for our listeners, what do you get for 15,000 a unit? What is the rehab that you're actually doing here?
Brody Garcia: I'd say about for $5000 to $15,000 is going to be A/C for those units, because they are old units, so we're replacing a lot of that...
Slocomb Reed: Is that central?
Brody Garcia: No, it's not central..
Slocomb Reed: Gotcha. What else are you getting for 15k?
Brody Garcia: So for that we're redoing all the flooring, all the kitchens, redoing all the drywall, redoing all the windows, all the exteriors... Inside we're redoing all bathrooms, for the most part; we're just going through and just making the unit look completely different.
Slocomb Reed: New cabinets, counters, light fixtures... Gotcha. Not getting inside any of the walls, but touching everything outside of the walls, basically?
Brody Garcia: Yes. Anything that needs to be repaired or fixed along the way, we're of course gonna take care of, but for the most part, the bones are going to stay where they're at, and for the most part they're okay.
Slocomb Reed: How large are these apartments?
Brody Garcia: We're looking at about three different floor plans, about 600 square foot to 900 square foot.
Slocomb Reed: Gotcha. And then what kind of shower, [unintelligible 00:07:41.03] and countertop are the things that people immediately go towards, but even tubs that are being swapped out, the cabinets themselves, how nice is the flooring...? Are you guys going high-end here?
Brody Garcia: No, this one's not really high end. We're not doing quartz and granite countertops. We're keeping it with a nice clean laminate, more of a nicer economy, basically. So we've got nice LVP flooring, white cabinets, white countertops, stainless steel sinks, new appliances in every unit, with fiberglass surrounds, new toilets, new sinks...
Slocomb Reed: Brody, that makes a lot of sense. One of the things I've been thinking about personally, within my own experience as a general contractor and as an apartment operator in the Midwest, I've been thinking a lot about how the increase in rehab costs, more so labor than materials, frankly, the last few years - how that should affect, frankly, my buying decisions and the locations that I'm buying properties in, and the kinds of properties that I should be buying, and what kind of rent bump is required to merit a $15,000 interior renovation budget, frankly. What do your rent bump numbers look like here?
Brody Garcia: On average, I'd say we're bumping about $200 a door to $250 a door, from what our proforma numbers are at. I would say with a lot of work that we're doing on these projects, it's definitely gonna be some of the nicer units in that area, in particular.
Slocomb Reed: Remind me, do you have a construction management background from your work in California?
Brody Garcia: Yes. So especially when you talked about labor, that's the first thing I thought about, is comparing labor in California to Oklahoma. It's a huge difference.
Slocomb Reed: Can you put some numbers behind that? Can you give us some specifics on the differences between what it looks like to pull off a project like this, where you are in the South of San Francisco and California, and what it looks like to do it in Oklahoma City? The reason why I ask, Brody, is that I'm sure everyone listening to this has some sort of gut reaction to the idea of renovating in California, and how expensive it must be, and the notion that it must be cheaper to do it in Oklahoma. What does that actually look like on paper?
Brody Garcia: So I would say, first off, just getting that apartment, you'd probably be more in than we spent on probably double, at least for purchasing. And then as for construction-wise, I do primarily a lot of single families with my construction company. I do a lot of remodels, and things like that... But typically, you can't even touch a kitchen remodel for less than $15,000, especially on a little bit nicer end.
Slocomb Reed: Can you say that number again?
Brody Garcia: [unintelligible 00:10:31.09] the kitchen you're looking at $15,000.
Slocomb Reed: $15,000? Not five zero. I thought I heard five zero. That makes a lot of sense. And is that primarily because of the labor involved?
Brody Garcia: Yes, the labor is significant; especially the closer you get to San Francisco, the more people are expecting to get paid, and the more that people do pay. I worked for a long time in the electrical trade up in the Bay Area. And even down here where I live at, which is about an hour and a half south of San Francisco, if you're paying an electrician, you're looking at $150 an hour out of pocket. Go up to San Francisco, they only work seven hours a day, you've got to pay them for eight... So it really adds to a lot of costs.
Break: [00:11:14.22]
Slocomb Reed: Thinking about your construction management experience and your background in the trades in California, what advice do you have for apartment investors countrywide, whether they're choosing the market they want to invest in, or they already have a market, and they're looking at a heavier value-add, the Oklahoma version of $15,000 per interior renovation? What advice do you have to people who are looking to do their own construction management on that kind of project, find their own contractors who are actually doing the work instead of hiring just a GC to handle it for them? What advice do you have?
Brody Garcia: I'd say the biggest thing, especially in construction, as I've learned, even from small to big, is always trust, but verify. That's one thing I've definitely learned in construction. I can trust people and give them the length of the leash, but always verify; always have the extra check. Even with my personal contracting company, I always am checking on my guys. I know that you do a good job, but it's always that consistency of that, checks and balances.
Slocomb Reed: What are the biggest mistakes that you've seen construction managers make? Are they along those same lines?
Brody Garcia: Yeah, the biggest issue I've seen -- so even on this particular project, we're running into a little bit into an issue with our management that are helping keep the books on our rehabs. Basically, things got a little bit out of hand, and we had to tighten the leash on them. So with that, I would recommend watching the financials. Where are we at on our budget? Where are we at on our draws? Where is that money actually at? Where are the invoices at? Because we just had things that popped up, that we didn't know about, and it became a little bit of an issue.
Slocomb Reed: Managing a heavy value-add remotely, Brody... You've had this property for seven or eight months. What is the biggest struggle you've faced?
Brody Garcia: I'd say the biggest thing, at least for myself, was communication; is working with a large group of people to coordinate everything, and just get that communication down. Just making sure you have those weekly meetings and that things are clear, things are written out... So just that next level of you really need to be a lot more on your construction management, compared to when I can go walk down the street and go stop in their office and go talk to them.
Slocomb Reed: Can you tell us what challenges that has created?
Brody Garcia: Yeah, without diving in too much into it, I'd say the biggest challenge - as we've kind of spoke about before - was the left hand wasn't aware what the right hand was doing a little bit. So we were finding about things a month after they happened, or late... Things like that. I'd say that's the biggest headache we've had so far with this project.
Slocomb Reed: What would you say is the biggest advantage to managing your own rehabs from a distance, instead of hiring a local general contractor?
Brody Garcia: I'd say the biggest advantage is the control, personally. I like control. That's why I do what I do, is because I like to be able to have control and responsibility for it.
Slocomb Reed: Yeah, I was wondering before I asked the question what you were going to answer, and I thought it would be one of two things; either cost savings or control. Thinking about the control factor - I tend to be a very trusting person, but it takes a while to earn my trust. I say that, everyone who touches my apartments either reports to me directly or reports to someone that I hired to coordinate them. So a general contractor adds another layer of trust that you have to have; it's another degree of separation between you and what's actually happening at your property, how your money is being spent, that you don't have to have. So it's not just about control, but also about trust, and how many layers of communication there have to be in order to get a job done. So that makes a lot of sense.
I spent a lot of time getting pictures from my guys. I can drive to my projects right now in 15 minutes, but also getting the pictures to actually look right, make it a lot easier. Did you all shop for general contractors for this project when you had it in due diligence? Or did you know going in the hallway that you were going to manage the rehab yourself?
Brody Garcia: We did kind of play with the general contractors when we were going into it. We were up in there with a little bit [unintelligible 00:17:35.25] how it would lay out. I'd say we went through that issue a little bit with, like I said, the issues that we dealt with. Luckily, we're all squared away now. Everything's going great. But yeah, I'd say we didn't plan on it initially, but now we're just doing it.
Slocomb Reed: Do you have an idea of the cost savings for you and your investors, having the construction management in-house?
Brody Garcia: Yeah, typically you'd be looking at 6% savings on that rehab budget of I think about 3 million. So whatever that comes out to.
Slocomb Reed: 6% is pretty significant. Yeah, it's 180 grand.
Brody Garcia: Yeah, that's a pretty good amount.
Slocomb Reed: Yeah, absolutely. Well, Bernie, are you ready for the Best Ever Lightning Round?
Brody Garcia: Yes, sir.
Slocomb Reed: Awesome. What is the Best Ever book you recently read?
Brody Garcia: 10x. That book just gets my blood flowing.
Slocomb Reed: The 10x Rule by Grant Cardone?
Brody Garcia: Yes, sir.
Slocomb Reed: Nice. What is your Best Ever way to give back?
Brody Garcia: My Best Ever way to give back would be - when I was younger, I struggled; we kind of made a lot of bad choices and was in that -- not doing so great. So I'd like to give back to other young kids in high school age, and let them know that they have potential, basically.
Slocomb Reed: Brody, I'm going to ask for specifics on this one. With your Oklahoma City 72-unit heavy value-add, what is the biggest mistake you and your team have made, and the Best Ever lesson that has resulted from it?
Brody Garcia: So the biggest mistake is we went with a management company that my team had used before, but they were going on their way out, and the management just slowly started falling out. They started losing team members. And we since then have switched to a new management company. But I'd say that was definitely the biggest thing we've learned on that, and really just seeing how much better management company --
Slocomb Reed: Try to make this actionable for our listeners, Brody... Were there red flags, during your due diligence when you were deciding on the property management company to go with, that you ignored about the current company?
Brody Garcia: I think the biggest thing is that "Trust, but verify." We trusted a little too much and didn't verify enough. So I'd say that is definitely "Trust, but verify."
Slocomb Reed: That makes a lot of sense. On that note, Brody, what is your Best Ever advice?
Brody Garcia: That's a tough one. My best ever advice, really - I'm just trying to think what I would tell my daughter, if I had one thing to say to her... It's really do what you love. I really love that I'm able to do this. I love construction. I love that I can be a whole part of this. I might do it a little too much sometimes, but I love every minute of it.
Slocomb Reed: That's awesome. Where can people get in touch with you?
Brody Garcia: I have not been too great on social media, but I do have my website, which is investwithkgi.com. And then my partner Alex Kingman does a lot of social media, the newsletters and all that. So you'll find her on LinkedIn and Instagram.
Slocomb Reed: Those links are in the show notes. Brody, thank you. Best Ever listeners, thank you as well for tuning in. If you've gained value from this conversation, please do subscribe to our show. Leave us a five star review and share this episode with a friend you know we can add value to through our conversation about remote construction management today. Thank you, and have a blast every day.
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