This week I'm joined in the studio by a good friend of mine, Terrance Doyle, and we're discussing the strategy of finding a niche in the multifamily space, doing things differently and taking business from the big players in a saturated market. Terrance is a full-time real estate investor and developer focused strictly on multi family, 50-100+ unit apartments in Des Moines, IA and the Denver metro and surrounding areas. He co-founded Value Add Real Estate (TheVAREco) in 2015 and has since directed the growth of its managed portfolio to 15-20 property acquisitions each year. He brings 10 years of experience in real estate investing in six states with over 700 transactions. So if you're wondering how you can think outside of the box and gain a competitive edge in a saturated market, then this episode is going to give you some big ideas. Hit subscribe to join the community and let us know in the comments below: what's YOUR way of doing things differently in a competitive real estate market?
This week I'm joined in the studio by a good friend of mine, Terrance Doyle, and we're discussing the strategy of finding a niche in the multifamily space, doing things differently and taking business from the big players in a saturated market.
KEY TAKEAWAYS
1. In this competitive market we need to find a way of being the best in class. This means asking ourselves: how can we do things differently to gain a competitive advantage?
2. The deal doesn't stop when construction is done... the most important aspect is the property lease-up which determines the value.
3. Learn property management for yourself. It can save you $$$.
4. When you start investing make sure you get first hand experience of working in deals. This will give you an amazing understanding of how the business works from top to bottom.
5. Make sure you work with a team that has a track record and experience of fixing problems in the past. They need to know how to swerve those proverbial potholes.
6. Look at where your competitive advantage is... and take a hold of it.
7. Renovate a project into a space where YOU would want to live.
8. There's a lot of risk in construction... if you're not good at managing construction.
9. At the start of a deal we should be asking: What is the best way to find the return that we're looking for and do it as quickly and safely as possible?
10. Don't think that you can't run a real estate business in a very competitive market, you can, you just need to find the niche that will bring you success.
11. Attention to detail in construction projects will bring you success. We're talking about analysing costs, making sure invoices match the quotes, checking contracts and pay scales. Manage the money like every dollar is your own.
LINKS
https://www.linkedin.com/in/tjdoylemathew633/
https://www.instagram.com/terrancedoyle/?hl=en
https://twitter.com/terrancedoyle?lang=en
BOOKS
The Passive Investing Playbook - https://theinvestormindset.com/passive
LINKS
Join the MultiFamilyMBA and get exclusive free training: https://theinvestormindset.com/mfmba
Learn more about investing with Steven at https://theinvestormindset.com/invest
Invest with Steven:
www.theinvestormindset.com/invest
Steven: [00:01] All right guys, welcome back to The Investor Mindset Podcast. I'm Steven Pesavento, your host and I'm very grateful I've got my friend in and real studio today. Terrance Doyle, how are you doing Terrance?
Terrance: [00:11]: Really live and in person. That's right, Steve, I'm fantastic. It's a beautiful day out. And we're excited to be here with you.
Steven: [00:16]: This is one of the first interviews we've ever done for the Investor Mindset in person. So let's get that right out of the way. Terrance Doyle, of course, is the founder of the VARCO. The value and real estate company specializing in redevelopment of multifamily across Denver and Des Moines Iowa. And for years, he's operated as a direct owner acquiring over $60 million of assets across 500 units that he's acquired and managed. And in 2020, they begin syndicating allowing over $10 million of LP investors equity to participate so far this year. The VARCO is a market leader in this mid-size, multifamily space. So I'm super grateful to have Terrance on and to dive into some of his specific strategies, how he thinks about doing multifamily that's very different from some of the other big players and why, in his opinion, it's the best way to do it. Are you ready to get into things?
Steven: [01:08]: Absolutely. Let's do it. Let's rock it.
INTRO: This is the Investor Mindset Podcasts. And I'm Steven Pesavento. For as long as I can remember, I've been obsessed with understanding how we can think better, how we can be better, and how we can do better. And each episode, we explore lessons on motivation and mindset from the most successful real estate investors and entrepreneurs in the nation.
Steven: [01:39]: All right. So, as always, why don't we start out by taking a look back at earlier in your life? What events or influences from your childhood shaped who you are today?
Terrance: [01:49] That's a great question. And something I've I think a lot about Steve, I think that the first thing that shaped who I was, was I spent a lot of time growing up in Bogota, Colombia, South America, and my mom was an immigrant. And she came here as an exchange student, my dad was an immigrant from Canada, actually, they met in college, I guess, sort of, say, in the middle, where they were geographically. And so I think growing up in a third world country did a lot to shape my mindset and who I am today, I think, right off the bat, just being bilingual, has ended up becoming a huge part of who I am, and use it every day in our business today. But not only that, but just seeing a different country at such a young age, especially a country that had so much more poverty and did not have the opportunity we have in this country. And I think that that's really shaped my mindset, and my perspective on life. I've just so much gratitude, just thankful for all the opportunity that we have just thankful for living in the country that we have, that we have so many things that most people don't even realize that we take for granted on a daily basis. So yeah, I'd say that's one of the big ones right there.
Steven: [02:53]: It's such a big thing that people who have been born and raised here forget about, you often hear about that immigrant edge the ability for somebody to do things at such a high level, because they've seen what it's like on the other side. And so I can definitely tell that you put that to practice in your life, on the use of Spanish. How are you using that as a multifamily investor and a syndicator?
Terrance: [03:19]: Yeah. So when I didn't really know that it would come back to be an advantage. When I was part of a partnership with a buddy from college in 2008. And we started flipping properties, and I was more on the capital side, I was the first investor and just really along for the ride, I didn't copy the properties and find any of them. I was just a passive investor. But in 2014, when I got engaged to my now wife, Julie, I just made the decision that I really wanted to go full time into real estate. And so I had to figure everything out from ground zero. So from meeting with realtors, wholesalers, door knocking, doing mailers, I was trying every strategy that you can find out there to figure out what my niche in the market was and I stumbled upon, okay, once I've acquired the property and funded it, now I have to figure out how to rehab and add the value. And that's really where I learned that Spanish, the majority of the workforce in Denver was Hispanic, and speaking Spanish was a massive competitive advantage. And not only that, but if you spoke Spanish and treated people well, just the fundamentals of building relationships, and if you paid on time and did all these other things, I would just call them basic social skills. And so that's kind of how I was able to create kind of a company we have now is just starting from flipping single family homes and really building a crew of Spanish speaking subs from cabinet installers to granted installers the tile, the flooring, the paint, roofing, every single trade and I was able to kind of build up a crew that has stuck with me till this day and have been able to scale with them and just using the same kind of materials and same scope of work. We've never really deviated. I've never done a pop top. I've never deviated from what we did well, and, and that's helped me to I think keep the same guys and have really good relationships with them.
Steven: [05:10]: Yeah. That's such a big thing, I definitely want to underline for all of your listeners there specifically, whether you're an operator yourself or you're looking to passively invest, you want to be thinking about well, what is how do you differentiate yourself in the market? What are you the best at? Because there's plenty of people who are doing this in a very competitive market, you have to be thinking about how can you find a way to be the best and niche down a couple layers deeper and for many people, including myself, my way of doing that was my ability to go build a team to go get deals, that's the reason why we were able to scale up to 200. But your ability to manage heavy value add construction has been huge. And so if you're a listener, make sure that you're figuring out well, how can I be different, go and look at how you can model other people and think how they think, but then figure out well, how can I do this better than anyone else in this specific area. So one thing that I think is different that you've done over a lot of the folks that many of our listeners follow on the syndication side is that you start out your career as a direct owner, you flipped over 700 houses before you got into multifamily. So that experience obviously is huge. But talk to me a little bit about some of the benefits of being a direct owner first, and how that experience and frankly, getting that experience on your own dime before risking investor capitals is actually really valuable to anybody who's going to invest with you moving forward.
Terrance: [06:35]: Yeah. That's a really good point. And something I've thought a lot about, just as I hear all these -- I've read a bunch of different books on syndication when I was researching it last year, and I've heard a bunch of different people speak on it. And I do think that's one of the things that is concerning to me, is that you hear a lot of people almost boast about the fact that you can have no money into a deal, you can bring in someone to put down the earnest money, bringing someone else to sign on the loan, bringing someone else to raise the money, and you're just kind of sitting there in the middle with almost beside your time, no skin in the game. And yeah, like you said, I've done the complete opposite from day one, and I think part of what helped me was that I've been in the weeds since 2014. Even though I was part of doing a bunch of flips from 2008 to 14, in 2014, I really got to know every piece of the business with my own money. And I think I started in 2014 with maybe $150,000 of my own capital, and then I was able to leverage using some hard money, some private money, and some other things to creatively build it to where we are now. And it's just been brick by brick. I had to learn how to flip a house, and then I lost money on probably my first three or four and then I would do one successfully, and then I'd try and tweak it and go back and Okay, what can we do better? What are ways we can save on material? What are ways we can save on labor? How can we do this better? What's the right price point? And so all along the way, even with flipping houses, I was just trying to perfect the model and trying to get the best return for my own capital. Right. It was my money. I didn't really have anyone else besides, the first position lender, so that I think, naturally in a multifamily, my mindset was the same way. I didn't even know anything about syndication when I started buying multifamily in 2015. And so it wasn't even an option for me, it was just like, okay, here's a duplex for 240,000 I got to go piece it together and figure it out and understand how to lease it up. What are rental great finishes versus a flip finish. So all these things I learned basically on my own dime. And I think the same thing for property management, the deal doesn't stop just when you finish it and constructions are done. The most important thing someone could argue is the lease up, that's what determines the value, right is the NOI derived by rents. And so that was a huge learning experience. And I've lost -- when we were in Des Moines and we were building I remember we had maybe like 100 and so doors, and same thing we had bought outdated, just stuck to our niche, outdated, undervalued properties in Des Moines, Iowa, my dad and I were managing I was flying back to the morning, every two weeks. And I remember we hired a property manager and after six months we were losing 10s of thousands of dollars a month in delinquency in vacancy in overpaying for materials and for maintenance. And so then again a light bulb went off and said I better figure out property management if I'm going to be in this game and again, it was my own money right so I basically pay that was my education into multifamily was understanding Okay, when construction is done, even if I hit the budget there, I'm a long way from the finish line, I still have to be able to lease this up with the right tenants run the right background checks, and then put it in the right processes for maintenance. Put in the right process for rent collection. So there's all these other things between me and my brother, my dad we learned firsthand and I think that's what's given me the confidence now in 2020, after owning 500 apartments and homes on my own with my partner have now be able to go out there and constantly sit in front of investors and say, Hey, you can trust me with your capital, because I've done it with my own. And I've learned along the way on how to do all these different pieces that put together the syndication, and I'm signing on the loans, I'm bringing the earnest money, we're finding the properties. So that's what's worked for me. And that's how I have the confidence to sit in front of someone, because that's the kind of person I would want to invest in. Basically, that's been my mindset, like, let me build the company that I would want to invest in. If I was an LP.
Steven: [10:29]: Yeah. That's huge because I think for many people who are just getting started, they think to themselves, well, hey, well, how do I get started if I don't have experience, so when they hear people talk about, oh, you can get it, you can get started with no money into it. And you can find a way to get into the deal. Hey, that's great. There's definitely some truth to that, but when you're looking at investing in somebody's deal, you want to be thinking, Well, hey, do they have the experience? And that's one of the reasons that we focus, VonFinch, my company, why we focus in the area that we do is because I was an operator, first and foremost, and I learned by doing and executing and realizing, oh, well, what part of the process do I like the most, I love that interaction with investors, I love being able to pitch a deal talking about a deal. `But most importantly, I really like getting to know operators who are really good at what they do. And I feel like that gives me a competitive advantage in the market that other people don't have. And so whenever I'm looking at an operator, whenever we're bringing a deal forward, we're always looking for operators who have lost money, maybe they didn't lose money for their investors, but they had losses, they had challenges, they had things they went through, and especially when they're risking their own capital in the deal, it's almost a guarantee that we're not going to participate if the general partner is not going to put money in. So I think it's so important for you guys as investors to be thinking to yourself, when I get started, how am I going to get this experience? How can I partner with other people who have it and be able to move that forward? And then I think it's important, when you're investing in deals to make sure that they have the kind of experience that you're talking about, it's one of the reasons we've decided to work with you as one of our operational partners, and bring capital to your deals, as well as partner on bringing things all the way across the finish lines, because you guys have been in the trenches, and you do things differently. But what I'm curious about, you obviously, were doing it yourself and with $60 million dollars of assets under management, some people go in, they'll look at that. And they'll compare that to other people who are syndicating, and someone who's syndicating may have been doing it the same number of years, and they might have a much higher number. But if you really think about it, with a GP putting in 15% of a deal, which is the typical kind of a minimum that general partners will put in, that would put you at about 300 million plus of assets under management if you'd been syndicating the whole time. So for somebody who is taking all the pie taking down all the profit, and therefore also taking all the risk, why did you decide to start syndicating and letting limited partners or passive investors start participating in your deals?
Terrance: [13:04]: Yeah. This is something I spent a lot of time thinking about. And you and I have had some great discussions on this
Steven: [00:13:07]: I think huge, for years.
Terrance: [00:13:10]: For years. Yeah. I think back to a couple of dinners we had in Cherry Creek. And I was like, Man, this is just the best model, this is the only way that the tax benefits having the control, not having to deal with LPs that are having a bad day or scared of the market or scared of an election or all these different things that come up with LPs when they're investing there's a lot of there's a there's definitely a lot of hurdles. The big thing for me was I wanted to build a team, coming from a sports background, I played sports my entire life. And for me, the light bulb went off and said, if you want to be the best at what you do in the two markets, where you're focused on which is Denver, and Des Moines, Iowa, I had to be able to build a team. And I think what happened and it kind of forced my hand was my business partner, after a five year run came to me and said, Hey, I want to spend more time with my family. We had a really good run, and he just wanted to spend time with his family and kind of take a step back and retire a little bit. And so that that kind of forced me. So when you have a company of three, he basically ran all the back office, and I handled more of the sourcing and the construction and the operations day to day on the job site. And then you replace someone that wears 20 hats, you have to replace them with three or four people, it wasn't just like I can go hire him out because he him and I did so many things and had worked so well together and so when I had to hire a CFO and then a project manager because then I was going to be in the office more overseeing the finances and helping with the back office and all these other things that were really critical to growing. It made sense to transition to using our business model and ability to execute on the strategy of value add real estate specifically in multifamily in Denver was to be able to raise money from LPs have them pay the company fees for us to execute the model and still deliver really, you know, great returns, which I had been doing, in both of these markets for the last five years and that was the best way I saw to be able to build a team and hire the right people, Because now I have the income every month, from the fees that we generate, to have in my opinion great construction manager to help introduce us to a project manager. A GAL that's in charge of client services, I have another GAL and all she does is kind of plays in between construction and property management. So when a unit is finished, she helps stage it, takes the pictures, make sure that it feels, and I think you probably saw it at the building you're staying at is, we want to make it feel like home, and that takes work, it's not really a property manager's job to do that. It's definitely not my construction manager. So it kind of falls in between. So a little higher, these positions that I learned through the last four or five years of just being in battle every day that this is what we need to have a great team. And syndication was the way to do that.
Steven: [15:58]: Yeah. It's one of the best ways to get economies of scale, because by doing many more deals, and frankly, sharing a big part of the pie with a passive investor, you're able to start getting consistent income, rather than just waiting for the very end at the sale. Because when you're essentially flipping multifamily apartments, when you're buying and selling something within a three to five-year period, the majority of the profit is coming at the end. So the majority of the time, you're having to wait until the end to start getting that profit. And the same is true when you're syndicating, but by being able to do it at scale, now you can start to afford to start paying for some of those high-level positions so that you can really set yourself up for success.
Terrance: [16:38]: Absolutely.
Steven: [16:38]: And so you've really focused on the Denver market, and specifically mid-size multifamily, which is counterintuitive to what you hear from a lot of the big syndicators and I say mid-size multifamily, I'm talking about between 30 to 50 unit building, sometimes smaller, but for the most part, they're in that range. And so they're not hitting that hundred unit size component that you're often hearing people say that, oh, it's a must, if you're going to be in apartments, you've got to be at this level, why are you doing it the way you do it? And is there an advantage there?
Steven: [17:09]: Yeah. So I fall, kind of to the same mindset sometimes, if bigger is better and I see every day almost everyone posting on LinkedIn or on YouTube, they bought 100 units, a 200 units 300 unit, a 400 unit. And sometimes in my mind, I'm like, man, maybe I need to focus on larger buildings and things like that. And so my mind can wander. Those vanity metrics are very attractive, so what I've tried to focus on is just to become the best at what I do, and where I have a competitive advantage. And I think in the Denver market, which would be, you put that in the same class as Seattle, LA, New York, Austin, Nashville, it's appreciated a ton, it's doubled or tripled, since 2010, rents have doubled or tripled since 2010. Migrations in the top five, I think you'd look at almost any chart put out there by a data company surrounding multifamily real estate in Denver is in the top five, especially in regards to the recovery from the pandemic. A lot of people are moving here, the metrics for Denver are really good. And so what that means, on the multifamily side is there's a lot of competition and competition not by people like you or I, but competition by people that are institutions that are backed by pension funds, or like large institutional organizations that get capital really cheap. And they can pay way more, because their metrics look much different. If I'm raising capital for a deal, I need to be at or above a 20 IRR, and a multiple on invested capital play around at two. And these companies were competing with, it's significantly less. I mean, I think if they're producing a six or 7% yield, they're happy, right? That more than surpasses the yield they're looking for, with the Treasury being so low. And so when you have that much competition for the larger deals, and so many people are chasing yield, what we're we found our niche in over the last four or five years of just buying under that where the returns can hit our profile. But the gross dollars are not high enough to get the interest of these institutional investors. So there's not a lot of competition. So where we mostly find ourselves is, we're the only offer we're dealing sometimes directly with a seller or with a broker, we've known for a long time that we've done a lot of deals, and we're not getting bid up. You and I were just talking about before we started recording how both of our single-family homes this summer had multiple offers way over asking, right. And so we don't want to be in that position, when I'm buying and representing investors and I have my own capital, I want to be in a place where there's as little competition as possible, and where we have and that magnifies our competitive advantage of being able to get construction done cheaper and faster and maximize leases and lease rates for that zip code. And so that's what we've been able to focus on is just where's our competitive advantage? It's kind of under, we actually took down a 95 unit earlier this year, that's a motel conversion. So I would say it's between 20 and 100 units. And its deep value adds, it's got normally, a lot of vacancy, it's a ton of deferred maintenance, a bunch of cap x, that hasn't been taken care of in the last couple years. So we're talking roofs, windows, sometimes foundations, boilers, all the major big ticket items, but with our relationships that we've developed in construction since the beginning, we've been able to do those things at scale, much cheaper and faster than our competition, which is where we've been able to create our niche.
Steven: [20:38]: Yeah. And that's the big difference is that you're looking where other people aren't, because they're from out of town, they don't have the ability to do the construction in the same way with the same cost efficiencies. And frankly, they're not local.
Terrance: [00:20:49]: That's right.
Steven: [00:20:50]: They're coming in from New York and LA with big pots of money, and they're happy to buy three or four caps. They're happy to give six or seven returns to investors, but they are looking to take the littlest amount of risk. And so they're looking for things that don't have quite as much value add. But by focusing on this area, it is able to end up adding way more value, and not be in that kind of competition. So I think it's really smart, but it's interesting, because you're going to hear I wouldn't necessarily recommend the same model in another market. It's specific to Denver, it's specific to some of these big cities and that's why if you're an operator, and you're listening to this, and you're thinking to yourself, well, that would never work where I'm in and in Columbus or Kansas City. Well it might, but the difference is that you've got to figure out where you are going to really slide in. So what I'm curious about is why institutional investors haven't slid in and started buying in that area, if they're able to get a 20% return, that seems very, very appealing.
Terrance: [21:59]: I think the big reason is, a lot of institutional investors in Denver specifically need to allocate a certain gross dollar amount, and most of those guys are playing in that, they won't even look at a deal under $20 million. So obviously, they would love a 20% return but they're not set up to manage construction and property management the way that we are, there's too many moving parts. And so it doesn't allow companies at that size to be able to scale. And it actually cost them way too much money to be able to do -- because of our size, we're able to do things that a larger company wouldn't be able to do. And so when they look at allocating 20, or 30 or $40 million in a market on a deal, they're not set up to have multiple full time construction managers on site, and to be able to handle leasing up 50 or 60% of that building. It's a much different game than turning one unit at a time and just managing a property when you have turnover.
Steven 22:55 So when you're buying these buildings, to be clear for listeners, you're typically rehoming all of the tenants, finding new homes for all the current tenants, and then you're renovating all of those units at once or in phases, where you're doing all of that work completely changing the profile of the tenant from what it was until something new is right.
Terrance: [23:14]: That's absolutely correct. But we've done both strategies, and we can do both strategies; it just depends on the property. If a property's in, think about it as you're looking for a place to live right now. If a property's in really poor condition, and has roaches and mold and leaking roofs, the people that are living there are going to be different than once you renovate it, and now you're going to release it and the person that's going to come in there and pay market rent or sometimes above market rent for a brand new building with amenities and everything completely brand new, they're going to expect the same kind of person as their neighbor, right? And so sometimes, in those really deep value-added projects, what we do is come in and work with the previous owner on helping to transition the current tenants, and most of them are not there by choice, they'd rather move to another place. But because Denver's appreciated so much, they don't have a lot of options. So what we do is create options for them of different places they can go, we pay for their moving, we help them transition, pay for their deposit to make sure that they're in a safe and comfortable place and allows us to with less risk execute on our strategy of completely turning the building over and making it a safe and comfortable place. My baseline of the buildings and the projects we do is I want to build a place that I would want to live in, I may not be able to live in there because I have a family now but it's a place that if I were in this stage of life single or newly married, this is the kind of place I would want to live with the kind of finishes I would want to see every day. And so we do that strategy, we also will turn units one by one, but it has to be in a building where the hallways, the roofs and it doesn't have as many cutbacks and it hasn't been as poorly deteriorated as the first example then. In Des Moines Iowa, we definitely have several properties over 100 units to where we've done kind of what you see a typical model, we just fail to buy it at such a low basis to where we've been able to turn them slowly, just like you see, in most, typical syndicators models. And so I've done all of the options so it happens that we're able to get better returns, and much wider margins, by taking properties that people don't want to deal with. Most people are scared of construction, most real estate investors would say that there's a lot of risk in construction, if you're not good at managing construction. And if you talk to an investor that's done flips or rentals, they would say, the times where they've lost money has been in construction, they trusted the wrong contractor, or X number of issues and examples of what's happened there. So I would just say that's where we can use our experience and our relationships to kind of magnify our competitive advantages going to places that people are concerned or scared of going.
Steven: [25:56]: So a perfect example is, for the listeners, I sold my house a few months ago to maximize the return on investment because of the timing. And so I left I went to Hawaii for a few months, I'm back and I'm actually staying in one of the properties that you've renovated in a neighborhood that is one of the top neighborhoods, I think, in Denver, in low high for all of you people know Denver, very well, just outside of downtown. And this is a property that's about 20 units and I used to run by this property all the time, it was a complete dump. And that is an understatement of how bad this property was. But this is one of those cases where you actually needed to rehome all those tenants, because the people living there are not the same person who's going to live there now after you renovated it, I moved in next to the tenants that were there. Now, I'd be happy to live in this place, because I'm just like, astonished at the kind of turnaround that's happened in a property like that.
Terrance: [26:53]: Yeah. Absolutely. It's sad what goes on, we actually bought that property from the owner who built it in the 60s, him and his dad, and he over leveled several times and made some bad investment decisions. And before you know it, he had no money to fix up any of the issues in the building. So there was leaks everywhere, mold everywhere, roaches, bedbugs everywhere, and you had prostitution everywhere, drugs, it was really sad. So in a situation like that, there's an end [00:27:20 Unintelligible] just surrounded by seven figure homes and multiple Class A apartment buildings, hundred million dollar projects. And the people living there half of them are not even paying. So you get in these situations sometimes where we're forced to start from scratch and help the people that are there find a better place to live that is safer, comfortable and better for their situation. And so we're flexible, it just depends on the property and then we can pick which tool to use for that specific project.
Steven: [27:51]: Yeah, makes a lot of sense. You want to be thinking about well, in which way can I best get the return that I'm looking for? And do it as quickly as possible in the safest way?
Terrance: [00:27:59]: That's right. Yeah.
Steven: [00:28:00]: Yeah. And so in some of those deals, people are going to look at and when they hear the word 20% IRR, they think oh, that's a huge return, but when people are used to getting a 10% IRR, 15% IRR. What's the difference here? Why are you able to achieve such a big swing in some of these deals, and we're not talking about future results. We're talking about the past year, we're not making any offerings to be very clear, but what's the difference here on the kind of deals that you're putting together that are able to end up leading to just frankly very sizable returns?
Terrance: [28:40]: Yeah. And in my world, like a 20 and this may strike people the wrong way. But that's like, just what I've done. That's all I've known, coming from Flipping, I started out flipping homes. So what do you do when you're flipping homes, you're trying to find distressed properties, you're trying to find motivated sellers that are in some kind of life event that need you to move quickly. And so that's been my mentality since I started in 2008. We used to show up at the county courthouse and buy homes in Denver for $50/60,000, that were just completely depleted. And so that's all that I've known. And so when I transitioned in multifamily, I kept that same mentality where, when I was meeting with brokers or with sellers, I had a very similar formula to when I was flipping homes, I wanted to buy at 20% under market and then subtract the construction. And that's what I've been able to do. And I think a lot of people would say the deals that we're doing, don't exist in Denver, and then I show them how we've been able to do it time after time. And I think one of the keys is we've built strong relationships; we have a track record. And I think the third and most important for people out there that are looking to do the same thing or to source more opportunities is we had a really clear buy box, we were very clear about; here's what the numbers need to look like. Here's where we need rents to be after construction. Here's where I need to be able to be after construction. The current cap rate is irrelevant to me, as long as once it's stabilized, I'm at this number, right. And that number is normally around an 8% yield after construction. And so by being very clear with what I need for a deal to work for our company, it's helped crystallize it for brokers and other people in the market. I've had people that aren't even brokers bring me deals. So it's not just brokers, but it's helped crystallize, here's the target that I need to hit. So then they can be successful. And it kind of goes back to empathy, the more clear I am and the more I can help someone set them up for success and success would look like bringing me a deal in this example, so that they can get paid and we can have a project, then the more deals I'm going to have, and that's just how it's worked. Even in a market, like Denver, it's just being very clear about, here's what we need. Everyone likes to throw around, oh, I just want a deal or I want this or I want a six cap or people throw around all these different terms in different markets. But most of the time, it's, hey, I want a really good deal. And that means nothing.
Steven: [31:03]: Yeah. What is a good deal?
It's like the worst thing whenever I'm talking to buyers, when I was wholesaling properties after we stopped flipping, it was like, Okay, will you buy anything? And then usually the answer is no, I'm not going to buy anything, but when you can have that kind of clarity in what you're looking for, it gives people the opportunity to be able to say, yes, I actually know someone who might be able to help you, I actually know somebody or a property specifically that's going to fit and your name comes to mind when they think of something that hits that buy box. So that's really huge. And the other thing I want to underline here is just breaking that mindset, that belief that, oh, it's not doable in Denver, you can't do investment, real estate in Denver, because you happen to live in a very competitive city. For all the people who are living in LA or New York or some of these markets that are growing absolutely insane even in the midst of the recession of COVID pandemic that we're dealing with right now, people are thinking to themselves, I could never do real estate in my own backyard. Well that's not true because people are doing it, you just got to figure out what is the thing that's going to be unique to you, that's going to allow you to do that.
Terrance: [32:05]: Yeah. I agree 100%. I'm living testimony of all through the last four or five years in multifamily. So Denver is one of the top markets, there are no deals, there are no value add deals, all those things just continually, and still, to this day, people like to say those kind of things and I just feel like, if you're going back to sports, and that analogy of just fundamentals, if you're focused on the fundamentals of building relationships, being very clear with your communication, and you know what you're looking for, and I'm continually crystallizing what we're looking for, every deal, we get better and better at communicating, okay, these locations, these zip codes, these are the things that we will do, these are the things we can't do, and you're continually refining that box, and the better you get at that I think the better, you'll see results as far as looking at more opportunities. And that's, that's been my experience
Steven: [32:58]: Huge. Well, we're going to have to have you back for a deeper dive on the construction side. So I think I could spend a whole episode with you on this. But talk to me a little bit about the differentiator that makes somebody very successful at construction on these multifamily projects versus the teams or the projects that have falling are falling through the cracks or failing.
Terrance: [33:21]: There are so many things that go into construction and construction is so difficult, I can't stress that enough. It's really hard. It's one of the harder things that we do every day, but I love it, I love being able to take something that's completely outdated, abandoned, misused, and bring it back to life just like we did at the building you're in. That's one of the things I enjoy most about this, besides the relationships that I'm able to build and working with my team is just seeing the before and after of the transformation once you come in there, execute the plan and seeing what a building can be like, especially these brick buildings around Denver, I love what the brick looks like, after it's painted after it's been restored. It's amazing. The number one thing, and this is cliché, and again, it's fundamentals, but it's attention to detail, if you go three or $400 over budget, every unit and you have 50 units, your $150,000 over budget or whatever that number, and so it's been in our project manager, he gets so annoyed with me on every pay period, but I go through every single paycheck. And I look at every single ICA independent contractor agreement, which is the contract we sign with our crews before we start a project just to make sure that what they're saying we owe them is exactly what we owe them. And I'm looking at how much was finished, versus how much we said need to be finished when they get their next paycheck. There's just so much room because the construction world is so antiquated and technology has not made construction faster and cheaper. It's actually been the opposite. One of the things that is really concerning is that even though technology has made our lives so much better and faster and more efficient constructions have gone the opposite way, the last 20 years. So this is one of the things that I'm constantly thinking about being an entrepreneur is what are things that I can do to help make our team more efficient, help our subs be more efficient, so that construction isn't more expensive every year for us. So materials aren't more expensive. But I just think it's attention to detail, we grind over every single dollar and I think going back to your initial questions of why direct ownership has been so good for me is, that's the only way I know how to think now even when I have LPs, I still treat it as if every dollar is mine because that's how it's been basically, my whole career of every single dollar if I'm over budget, or if a contractor, I overpay him by not checking the contract and checking the paycheck and seeing the pay schedule. It's on me, it's my money and I just think you have to have that mentality that every single dollar, we grind over literally 50 cents a square foot on tile, on floor and am paying. We're constantly just trying to figure out how we can get everything to its lowest common denominator and help our crew be more successful, more efficient, how can we help them make more money, in turn help us save money, with time and being under budget. And so it's very difficult, it's something that I think we have a labor shortage in our country, it's something I'm really passionate about helping kids in high school and college, see that you can do really well, without getting into debt going into college. Being in labor, electrician, plumbing, carpentry, there's so much opportunity in our country, if you're really skilled in labor. And you can make really good money and you can go to CU Boulder and be $200,000 in debt and come out with a marketing degree and be making $35/40,000, your first year living with your parents. And so starting a trade school just online course there's all these ideas that we've been floated around, that I really want to execute on, because it's really a passion of mine of just how many of the next generation is planning on going to a four year school and not even knowing what they want to do. If we change the story of hey you could be out, by the time you're 22. Four years after high school, you could be a fully licensed plumber, electrician, making $1200,000 in a city like Denver, and no debt, and own your own company, own a house, maybe even your office building. And I just think that we've fallen into this storyline of you have to go to college to be successful, you need a four-year degree to do whatever and there is some trade there. There are definitely some occupations like I want my doctor to have a degree. There are certain occupations we want to go to school, but I think that construction is one of those that's ripe for disruption. And I think that in the next couple years, that's probably one of my passion projects that I really want to spend more time and focus on, because I think it's something we need in our country.
Steven: [37:44]: Yeah, that's something we definitely have to talk more about. But that attention to detail, I think it's so important. It's something I always look for in operators that we work with. So this has been great. I feel like we could keep talking all day, we probably will after we get done with this. But in closing, where can people find out more about you or get in touch?
Terrance: [37:58]: Yeah. So I'm on LinkedIn at Terrance Doyle, Instagram go to our website @thevarco.com. I'd love to always chat with people there, I love looking at deals, love answering questions, and just love talking about real estate. It's one of my passions for sure.
Steven: [38:13]: Will include all that in the show notes. So thanks so much for being here with us. Super fun and we'll see you guys next time. If you're an accredited investor, and you're interested in learning more about our investment opportunities, the exact types of investments that I personally invest in, then head over to theinvestormindset.com/invest or send me an email at steven@vonfinch.com Thanks so much.
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