Ep 491:Tax Breaks and Wealth-Navigating the Lucrative World of Commercial Multi Family Real

Transcript

hey welcome to the high with us podcast I'm your host Danel Martinez today I have special guest Craig mcgruther and I

I did not check his name if I was gonna say it correctly or not did I say it wrong that was pretty good honestly everyone says it wrong so it's all good

it's MCR but that was such a good first rip guest that I'm I'm very impressed so

we we'll rock with [Music]

that yeah most time if I don't know I just say this first name so it's Craig yeah yes

exactly what part of the country are you from yes so I actually live in Phoenix Arizona I'm actually today in Houston

Texas looking at our deals we've got about $400 million in our portfolio out here in Houston so I'm out here right

now looking at some of our assets and we're making a very big push to meet as many people as we can in person

investors Capital Partners you name it we're looking to do it so we're meeting with a lot of our investors and and set

partners out here today at one of our properties uh tonight in a few hours so okay okay so when you say $400 million

everyone's going to be like I'm gonna end the episode like he's he's so crazy like that sounds crazy numbers how do

you how do you deal with crazy math when it comes like that because anything over like 10 million everybody just like

zones out yeah I mean it's one of those things where it's just going to take

time and I think people overestimate what they can do in one year but under

estimate what they can do in five years or 10 years right so we've been going at this for you know six years now this is

really just a culmination and accumulation process of stacking property after property after property

after property growing slowly and then at certain point you can kind of get critical mass and everything can kind of

scale accordingly so we've been able to do that just deal to deal at a time and hopefully you know we have all these

deals right now and in five years or four years when the market turns we'll be unleashing it and selling them all

off and kind of trading through the portfolio and uh going from deal to deal to deal but it just takes time and

building the right teams and systems and growing slow and putting a point of an emphasis relationships growing those and

making sure that we uh take care of everyone and uh take it a day at a time all right so let's jump into a few

things let's talk about like business model are you guys like buying and holding to the market terms kind of what

it sounds like are you buying re holding financing refinancing like what's what's

the process of like yeah great question question so we're a little bit all over the board in a good sense uh not from a

direction sense but we've got some deals that we're accumulating right now buying more we actually refinanced six

properties at the time last year where we had about 14 properties in our portfolio into longer term tax payment

structures which is unique and allowed us to you know really stabilize some of these deals that were on different and

less than optimal financing terms there were short rate a short-term notes whether it be Bridge or floating rate

deals that had some maturities coming up so we unfortunately are able to transition the property last year into

longer term deals uh we're looking to accumulate deals typically speaking we like to whole deal somewhere between you

know projecting right now five years but somewhere between call it four to six years would be the sweet spot for uh

acquiring and holding properties and we're looking to do on the financing side you know agency fixed rat at is the

the name of the game currently so what does long rate long long range uh

commercial debt look like I know the bridge debts usually like 24 to 48 uh like 12 to 24 months because it's a

bridge loan you have to refinance and buy down points and all this stuff what does like traditional like long-term

financing look like for commercial yeah so you know as you just mentioned unlike residential real estate which is kind of

where most investors start where most people come from is the single family World whether it be your primary house

where you put a 30-year mortgage on it typically speaking you're doing an FHA a VA loan something of that nature you're

looking at a 30-year note typically speaking commercial World slightly different right as you know as I'm sure

a lot of your audience knows just the way it works typically speaking you're not getting debt terms that are longer than 10 years which creates a lot more

financing and maturity options that kind of come up which kind of creates stress or unique opportunities for you know

buyers to come in into place and you know for financing just always be occurring so long term on the long end

of things is probably a 10-year financing and debt rate on the short end it would be a bridge deal that might be

somewhere between you know 24 4 months what we like to do is actually just right in that middle Sweet Spot which is

a fiveyear uh debt term right now based off a 5year treasury plus A lender spread in there and what we're looking

to solve for and do is fix rate debt do they do like do they do 30-year AMS with like a 10 year balloon or is it like

what's the I've never I've never done commercial I'm like generally curious yeah absolutely so the way typically

works there's not much of a balloon payment system in these deals how it typically works is is you've got a

maturity now and there's just typically speaking an exit prepayment penalty if someone wanted to leave out of the deal

so in the commercial space it's called yield maintenance where you've got yield maintenance where you know for the deals

that we're doing right now we're doing as I said fiveyear debt terms and that four and a half year point that four and a half year mark is where we could sell

the deal at no penalty to us now if we sell it before that there is a balloon payment whether it be a percentage Point

based upon the property value of the loan note something of that nature you have to you know cough it off because

these are not the cheapest deals as as you can imagine on the debt side but if it makes sense and if it's beneficial

for all parties we will kind of eat that uh bullet if you will and kind of exit the property at that point that's a

that's a with 10e am with with 10 year AMS and 10 year loans the cash flow

absorbs your cash flow yes so sorry I I made a little mistake there so typically

speaking the amateurz point is 30 or 35 years so just like that like a

residential to year 30y year imization but but you do 10year debt notes which is a little bit counterintuitive so you

can pay it down over time but typically speaking people like to lever up commercial real estate as much as possible and maximize their LTV or LTC

on these deals to juice up their returns um obviously for a equity multiple purpose um as opposed to you know a lot

of the residential world or other kind of real estate profiles are you know longer term but you know make no mistake

the best financing terms in the world are single family you know residential sub4 unit deals for that exact nature

you can lock in incredible debt I mean how much of this country right now has interest rates and debt terms that are

sub 4% or are fully free and clear this is why in my opinion there's not going to be any sort of housing crisis or

crunch there because this debt is so sweet now on the other end the commercial real estate world is definitely going to experience some

turbulence and some issues because of these maturities a lot of people bought deals and Bridge debt or floating r debt

terms and they've got maturities coming up where where they're going in cap rate is and the value of the property is now

less than what they bought it for creating a very unfortunate situation where either a couple things can happen

they can you know put in equity into the deal to essentially you know balance that out and pay off where the lender at

so they don't owe money they can get foreclosed on or they can try to extend the property and you know do a year or

two extra on that note to kind of live for a better Capital Market so anyway SCE the shorter the debt term is the

riskier the deal is this is why when I look at residential real estate specifically for my own use or just for investment purposes you know you really

can't beat the the note and the amation because we both know you know typically speaking over a 10-year process you know

assuming a normal Market condition you're probably almost going to double the property value almost right or get darn near close to it where you know if

you put basically sub 10% down well the the equity you know lift that you're

going to get for the cash you put down is going to be super attractive you know imagine you for instance buy a place for 500k you put 50 Grand down and you know

10 years from now the place is worth 800,000 well your 50k just made you $300,000 of appreciation over that you

know term so can't really beat that how are you guys uh and I've seen a lot of

like Capital calls lately um and I've seen a lot of like Equity being destroyed through cap rate at cap rates

going up which expansion yeah decreases the value of the asset how are you guys

like fighting that because this might be your it might be your Market or your underwriting or your buying power I

don't know this is I've seen a lot of capital calls lately and I've seen a lot of like expansion of cap rates which is

absorbing all these uh LPS Equity um into non-existence yeah well you know to that

point the where people have really you know are taking some pain in medicine right now is due to the nature of the

debt so the deal is only as risky as the debt profile on that so fortunately

we've got basically no deals in our portfolio that have shorter term debt profiling so if anyone's looking to do

commercial real estate deals or anything of that nature you could probably get away with doing a bridge loan right now

today in the market because obviously we know things are turning through the discounts are kind of happening right

now you put a shorter term debt note and it's a riskier profile but you could likely you know make it make sense

floating rate debt similarly you know you could probably put a floating rate debt deal on a deal right now and Float the rates as a go down as opposed to if

you had floating rate up before you were here and then the evaluation goes up there next thing you know you have a Delta and you can't make your monthly

payments or you know you got negative cash flow or an alligator property we you're feeding it so fortunately we're

in a situation right now where our portfolio is incredibly stabilized and I think this is a great lesson where we

actually did have a lot of deals of ours that were not in that profile uh but fortunately we had a unique program that

were're able to take advantage of that you know increase the property's noi value because we limited the property

taxes and then We additionally put in really great long-term debt five seven year 10 years on some of these deals to

make it more stable for the long term so although you know you know we didn't buy every single deal perfectly in the cycle

or the right structure we're fortunate that we're not going to lose any investors dollars which is the most important thing and then now we can also

most happily play offense where a lot of people are playing defense where we can buy deals where we can raise new equity

on our opportunities as opposed to you know a lot of people who are raising money to you know meet their Capital

calls not expand their portfolio so you know a lot of people are Contracting and we're extracting right now we're we're

growing at the moment um how would you advise an LP

looking to invest in multif family um to make sure they're investing in the right uh

operator when they're looking to invest that's a great question so it comes down to a couple of things number one is the

operator so we're the operator we're the sponsor we're the general partner the lead sole operator sponsor so you want

look at you know their track record so first off track record see how many deals they have in their portfolio see

how many exits they've had and then you know there could be a lot of people that may have done really well they took a riskier plan and you got to also ask the

next most important question is what's going on in your portfolio today because maybe they're they haven't made a

capital call yet but they've got six to seven they've got to make it coming up in their entire portfolio where you know they're kind of skewing or hiding the

numbers or massaging it for their benefit and maybe there's so much turbulence in their entire portfolio

that they can't really manage the new investment very well today because their heads somewhere else which is very understandable so check out that check

out what the structure of the deal is you know audit their underwriting um make sure that their assumptions and

their inputs are you know reasonable you know is there a value at play well you know is there loss to lease meaning is

there you know a lot of delta in what rental income is on their property as opposed to what Market rent is is their

value out enhancement plan to get to the certain number numbers that they're projecting um and then the most important thing right now is just making

sure that you are putting the right debt and Equity profile on a deal and you're buying well because you can still even

though the Market's churning through deals right now and a lot it's coming up and we have to think that we're close to hitting the bottom from a market

perspective you know we're just covering that right now you can still lose money in this market and also you know I think

the biggest thing is you know really just do make sure that the rent assumptions and projections are reasonable because if someone's

projecting 5 to 10% rent growth that's really probably not going to be realistic if we're in the middle of a recession so you know I think the name

of the game is to invest in more conservative in nature deals right now you know you're never going to catch the bottom perfectly but try to figure out a

way to create a really solid tax advantage returns in that regard and you know just figure out you know what the

trust level is the sponsor is you know make sure that you do develop a relationship with them to a certain extent where you can feel comfortable to

to work with them and toh put your hard-earned Equity with them uh on their newest

opportunity no I I think I think one of the things you really point I really want to point out too is the is the

their acquisition debt that is huge huge huge even for what I do it's one of

those things where like if you got really good debt it makes it makes or breaks every

deal we are in the debt business believe it or not right yeah if we were buying everything cash then we'd probably be

only looking to solve for what the cash on cash return is what the profile is there but when you're at the debt

business you're taking you know risks so the deals risk is directly associ associated with a debt profile attached

to the deal so understand what that is learn what that is and figure out what the best profile for that said deal may

or may not be and also it's got to be an alignment you as an investor one who is listening to the show might think to

themselves okay well you know what I'm super conservative with all my other Investments you know I'm you know an S&P

500 person I'm you know putting my money in stocks and bonds and due to the safe

nature of that profile maybe you want to get super uber AGG aggressive on your

you know commercial Investments to get outsized returns so that might be fine that might be actually in your

investment thesis but just realize what you are taking on and ACR um and what's associated with you as an investor in a

spe a specific deal no 100% 100% I love it I love it I'm I'm in the land space

and I have to deal with that all the time too so it's one of those it's it's a it's a big buying power that if you

can get the right debt you can really get creative and buy whatever you want so let's talk about uh Capital raising 6

$400 million and I think you said you're looking to buy another 200 million what's the best place to find in Source

Capital to your Niche yeah that's a great question so Capital raising and this is just general

PSA to anyone who's doing it or in the space the best time to raise capital is not when you need it you know you dig

the well before you're thirsty not when you're you know parched and dehydrated in the middle of the desert so the best

way I think to do it if you have no bearing starting from Ground Zero is to join groups to join masterminds and to

go to conferences I think going to conferences especially now that Co is over could not be a better place to go

and a place to start and a place to be in you know going to conferences where you're meeting people like myself like my business partner Rob uh the principle

and founder of the firm and various other people who are you know raising equity for deals that's where you want

to be where you can meet a lot of people so if you're looking to raise money for the lead sponsor you're going to meet a lot of people who are kind of Boutique

Capital raising people who can bring somewhere between a couple hundred thousand to a couple million dollars per deal you can meet them there um some

conferences are more LP focused you you just want to fish where the fish are so and then i' would also say you know it

starts always first with your friends and family network but go to meetups go to groups this is where people are looking to meet looking to to to look

what you're doing like yeah you know think about this imagine if you could go to a place where you do something and

then you've got other people that are an Slayer to your job well what a great place to actually go and invest the time to be there right so I would recommend

you know meetups n masterminds and then of course the best is not the cheapest but the best is go to

conferences are you guys uh what type of of fundraising structure are you as far as like syndication or the fund model on

the back yeah so we Syndicate deals so and that there's several ways you can skin the cat with regards to Capital

raising and kind of the world that we play in which is for Ticket size you know you know multiple million dollar

you know deals the way we like to do it is there's a CP route which is becoming less and less known uh it's a Co General

partner they B basically raise a couple million dollars for your Deals they have some responsibilities that check the SEC requirements associated with the E cogp

and then there is the fund of fund structure which is now becoming very very popular and what the fun of fund

structure essentially is is creating a this is going to sound a little bit complex so I don't know if the audience

will fully get this but there's basically a double waterfall structure in there where you know we basically look to solve for the fund manager to

come in and let's say if they rais a million dollars we want them to make somewhere between 10 to 14% of the the

money raised there for the deal so if you raise a million dollars on a deal we're looking to have that fund manager make somewhere between1 to $140,000 over

the five life five you know year process long cycle hold period right so you know

effectively there's a fun to fun model there um that we are really utilizing a lot more and what you do is create an

SPV which is a special placement vehicle we partnered with a group called tribe best who's a back office partner with us

but anyone who's looking to create an SPV or fun of fun can work with anyone they want they're just someone we find to be very cost effective as creating a

fund as I'm sure you know Daniel is not the cheapest uh Endeavor it can be very very eff or cost effective and create

what's known as a big drag which are recurring costs and upfront costs associated with the deal uh so we like to try to mitigate that as best as

possible and at least provide a lot of our partners with options there so there's you know the CP and the fund and fund model there's the lp investor which

is a limited limited partner where you're very passive in the deal and then the's a couple other structures but the

final one I'll mention is a joint venture Equity Group partner so you could or two two notes so there's a

joint venture Equity Group who you know may come together as a you know an Institutional Investor like a black rock

think of something like that Blackstone will they'll come in and they'll write a check somewhere between five to maybe

even $50 million on the right opportunity if it's a big portfolio they'll come in and write that deal there and you're basically you know

running the property as the GP the lead sponsor you're managing the asset and whatnot and they're coming in and

helping with some decision rights but the good thing about working with the group like that is they also are incredibly sophisticated and Savvy and

they've got analysts crunching numbers and stuff so they provide some guidance and help along the way there and then the final one forgot to mention this but

is uh 1031 exchanges so one come in through our uh our structure via the

tendency and common tick structure for 1030 1031 exchanges no I'm really going to mention

the 10 31s because a lot of people I think don't know about that about get 1031 Capital because I think a lot of

there's a lot of 1031 Capital out there but nobody knows nobody knows how to utilize it and they're always looking

for a place to go that provides a safe R IR yeah a safe safe ir and Roi without a

doubt and to your point the recapture costs is so great for some of these

people when you factor in the incredible and lucrative creative tax advantages associated with investing in real estate

if you're depreciating property and whatnot and you're kind of you know at the fifth hour or the the you know the

11th hour or whatever you call it needing to place that Equity into to a deal it's really really challenging to

to have a good opportunity but we do provide an option uh and a shelter for one to come into our opportunities of

course we need to know early enough on in the process to make sure that our lender can underwrite them and go through the process and that the debt

and Equity is sized up and matched accordingly but 1031 exchanges is something that's not 100% Universal

across the board that people do allow into their Capital stacks and structures when we do Buy deals but that is something that we certainly certainly do

accommodate and our biggest investor we've actually ever landed is a massive family office out of Long Island who has

given us ample dollars via the 1031 exchange route and in the event that they didn't vent or we didn't have that

opportunity there and we weren't compliant to that structure we probably wouldn't have earned or laned their business so it really does give us a

nice you know competitive angle that not everyone does in fact have do and I

don't know this and this is what I'm asking do they still have that 1031 structure after the exit as well

whenever they exit out of your out of your out of your investment because I don't this is new yeah that's a really great

question and I'm happy you asked so essentially the way it works is if you're an LP so I'll break this down twofold if you are an LP investor like

you want to come in you see one of our deals you're excited you want to make you know let's say A50 to $100,000

investment as a first- Time investor incredible the way that would theoretically work is you would come into the deal you basically be buying a

security as opposed to directly into the real estate but it's it's it's effectively structures and works as the

same thing right so you have the option full cycle of the deal if the deal doesn't fact do well you can 1030

exchange deal to deal so from deal a loan star to deal B loan star but you can't go deal a with Lone Star to a

different deal 1031 exchanging that into a different syndicator deal or your own deal so you could either cash out or

roll the deal in the equity if there's a gain to our next opportunity if you come through as a tendency in common take

investor let's say you have your own deal you're tired of a manage it you're a landlord who's just over the process

collect rents deal with everything you want to sit on the beach sip your my thae and not worry about anything other

than what am I eating for dinner and you know what color is my rental car right great not a problem you can go from your

deal into a lone star Capital deal be there next thing you know you know you had a nice irr a nice Roi on the

investment now at that point you have two op or multiple options you can obviously cash out which is probably not

what you want to do because you want to keep the money rolling and you keep cash and cash going you can 10301 exchange so

that's option b is go 1031 exchange from a loan star deal so outside of Loan Star deal

into a loan star deal into a new loan star deal or option three is you could

1031 exchange out of our deal into one of our next deal or as I just mentioned

or into a different syndicator deal or to your own deal at that point if your exchanger can accommodate the debt and

Equity structure so there's three routes you have when you're going in as a current take investor to the next part

you can sell it trade into our next deal or trade into someone else's deal how are you managing the debt side of it

because usually that has to be attached to or carried with an eler value to the next property how are you allocating the

debt side is that they become the lender on that property essentially and they get paid off Roi or how does that work

yeah so effectively to your point there what we try to do is be early enough in the process to make sure that the debt

and Equity is set up at also to your point that the lender underwrites them because sometimes they are sometimes

miners on the property so the lender we need to be in there early enough it can't be like hey you know we're closing

a property let's say next week hey guess what we've got $5 million or a million dollars or a half a million dollars we

want to exchange do you have room the answer is no not for you as a 1031 exchange investor because our lender and

and our processes have to line up so typically speaking we have consultation calls throughout the entire process with

people who are just thinking about selling today or know there's going to be maturity coming up in a year that

they want to exit out of they want to kind of you know spar with us to make sure there's a philosophical alignment

and a meeting of the minds to make sure that they think that they're good fit for our next opportunity if that makes sense so essentially uh it varies

through the process uh sometimes we get deals that are sprung upon us uh and then sometimes there are people that talk with us well in advance that are

queuing up an opportunity to make sure that we are able to be in receipt of their Equity when the maturity and

timetable comes up yeah man managing managing the debt side of the 1031 makes it cumbersome some in some cases so I

think uh uh communication is Paramount you are so spot on there you you really

are hit the hammer on the nail there like you you cannot be more accurate there's so much that goes on to this

process it's really not as easy one would think you know unfortunately and rightfully so this is millions of

dollars that we're talking about here from time to time this is delayed and deferred taxes for sometimes multiple

decades going on so there's a lot to account for and it's very stressful and

for a lot of these 1031 people I do not envy their situation when these opportunities come up because it can be

scary it's a tumultuous process it's you know nerve-wracking you know and you know what was really crazy is actually

this is kind of an interesting story in 2020 when debt started kind of go up when rates started to actually increase

as we remember right roughly around May or so a lot of bridge lenders were getting out of deals and were backing

out and whatnot we had an investor that was looking this big person from along Island as I was alluding to our lender a

week before closing said hey sorry we're not going to do the deal anymore and like whoa well the recapture and that

process of had that knock on through would be really really detrimental they

would have what's called Phantom income and for those who don't know what Phantom income is that's when you have a tax liability that's from years ago that

all of a sudden pops up now so and for some of these people that could be the tune of oh wait I have to pay what now

so the value of real estate there's many of them and I think you know real estate is an asset class is so Superior when

you're factoring you know the the ability to tra trade in trade out trade in trade out and improve because you

can't 1031 exchange Apple stock into Google stock but you can 1031 exchange a property from let's say you know I don't

know Seattle Washington into Dallas Texas to you know Manhattan to XYZ so

you can kind of play with those you know you can maneuver so much better and so much differently in the real estate world as opposed to the traditional

stock and bond world that's a mouthful no it's good what's the target

target IR that you're giving to your investors because well you mentioned earlier that somebody had like a million

dollar allocation they're trying to get 13 to 12 to 15% on their capital and over a 5e span is that across annualized

across all five years or is that across annually 140,000 per per anom yeah

that's a really great question so typically what we look to solve for is something with you know a 14 to 19%

return projected numbers so of course it's just projections we don't know exactly what that looks like or not no

guarantees no guarantees the GW does not exists in my repertoire or the real estate business I don't even want to

even say the GW I call it the GW for a reason because it doesn't exist to me okay that's the only swear word that I don't use but with that said we

typically like to shoot for something between a four to a 9% cash on cash

return over the hold period and then a lift at the back end so somewhere between a total return of 14 to 20 20%

over that hold period so we've done two deals that have gone full cycle with the average IR of 30% I would like to say

that we're like Jesus and we walk on water but we like many other sponsors got fortunate that Co had some very

fortunate Tailwinds for the business with rats getting crazy we had two exits there but right now we're raising on deals that are somewhere between you

know a 16 to 18% uh with the current market in distress I don't think I asked

this but I didn't ask type of asset class we've been talking about capital and capital structure for the last yeah

minutes we do yeah multif family acquisition so multif family housing what we like to buy is you know

Workforce housing which is deemed renter by necessity you know so many people forget that you know most people in this

country don't live in beautiful big houses like what Instagram or MTV Cribs would show you most people live in a

world where you know we're in apartment complexes and you know are working multiple jobs right now so we cater towards that and a lot of tenants are

wanting you know upgraded stuff and the biggest thing you have to think about is you can't remake or replace economically

speaking we we can't do that at at a clip that is Affordable or economically viable so we're in this space where it's

not able to replace but there's a nice value there because there's a discrepancy between renar what you know

the units look like and for us to come in maybe spend $8,000 per unit to get a $200 $300 rent bump is obviously very

creative on top of you know organic rent growth so that's how value is created in our space and you know the one of the

big tickets and items we look for is the word replacement cost so if you're buying newer assets you know how much

lower is this to replace it you know now depending upon where you're at it might cost $200,000 to build you know new

inventory so what what is the what type of like size units are you buying as far

and they are they b andc class that was my first question are they B andc Class Type units and what type of like Max

structure because I think people at your level are probably looking for like 50 units and up you're not looking at anything under that we're we're looking

at really really actually bigger bigger units than that our minimum mandate now is about 150 units for it to make sense

for us and we're looking kind of in a various range uh with regards to assets

we're pretty as what we call in the space opportunistic meaning we're looking just for the best return profile

possible so that's kind of how we View and see the world it's looking for that there looking for you know a b and c

wherever the value lies typically speaking we look to buy I would say probably closer to that b range but

ironically enough we're looking to buy a deal right now that's an a probably property in Houston and then we're

actually just closed on a deal that was a c property in San Antonio so you know a pretty big spectrum and we're talking

about a $700 rent Dela between the San Antonio property that we just bought as well as the Houston property that we're

acquiring right now so it's definitely a pretty big range there but we feel comfortable we've taken on you know

nicer deals and some deals that need a little more love and TLC and cleaning up with the tenant profile depending upon

if there's you know frankly sometimes gangs associated with being there so you just never know what's the number what's

your number one go-to to create a higher noi well right now with tenets being

stretched and max out right now what we're not really trying to do as much is

you know pushing a brance a bunch or maybe the value i' play doesn't make sense with where we're at right now yeah but one thing that we're doing right now

which is super interesting unique is a bulk Wi-Fi program so effectively we're wholesaling back Wi-Fi to tenants think

about this every tenant probably has Wi-Fi or needs wi-fi for the most part I would say you know 95% of the time a

tenant needs wi-fi right so what is really nice about this is we're able to

charge you know a discounted Wi-Fi rate if one like you or me were gonna apply

for an apartment you know we can give you a competitive advantage on the Wi-Fi pricing then we can also make about $35

per unit on that as well so things like that are giving a nice little pop so think about this if you're buying a 300

property 300 unit property and you're doing bulk Wi-Fi now and you're creating $35 of income a month well let's just do

some math there right that's you know 30X you know 300 it's 9 $900 $9,000 a

month exactly have eight cap rate it's like 720 Grand it's it's not a nominal

amount of money and value that you're adding to the property so that's a small little ANC item but the biggest play and

way we're actually making big noi pops is doing what's known as a tax abatement deal so in Texas there's obviously crazy

rent growth and you know migration here and unfortunately there's a lot of affordability issues and crisis that's

not just subject to Texas but what we like to do is tax payment deals will re eliminate either partially or all the

taxes Associated to the property so naturally in a state like Texas with no income tax as we all know they're going

to get you one way or another right same as Florida it's property taxes sales tax things of that nature right so when you

go and buy a deal in Texas that's a very big variable that's going on so we look

to eliminate them if possible entirely so we've been able to navigate that we've got about 11 deals in our

portfolio now that are utilizing some form of tax mement profile that's very attractive and compelling that doesn't

really change you know the upside of the deal but certainly affects the downside and gives us a very nice competitive

Advantage where we're kind of coasting into a really nice premium return while not AC crewing that much risk after kind

of getting the property closed and the structure in place how are you Institute how are you instituting the tax

abatement is that through an attorney is what's the process for that yeah we' got yeah we we've got several attorneys as

well as advisers that we work with directly that are you know utilizing that program that have relationships

with the housing authorities whether it be the Saha which is San Antonio Housing Authority uh the Dallas you know Housing

Authority or the HHA the Houston Housing Authority so those are the kind of Na angles that we're looking to navigate

and play in to give us you know a competitive advantage and a unique kind of profile no it's definitely I've never

heard of that one it's very unique very very unique I'm I just I'm taking notes right now yeah absolutely and if you

want to any information on that I'd be more than happy to send you some of the flavor that we're looking at for

everybody here that's the power podcasting you learn it is you learn you learn new lessons and you make new

connections and you never know what you're gonna learn I'm just I'm got him ask some good questions this time this is

good I'm sure this is not your regular podcast for sure well I'm happy that's uh you know I got to you know educate

and kind of I guess give a new twist and hopefully open the minds of some people with you know kind of some unique angles

and you know it's kind of interesting is a lot of people invest in Texas to not be in rent controlled properties believe

it or not but these deals are in fact rent controlled to a certain extent on about half the units typically speaking

but when you know at the end of the day all these Investments are Excel spreadsheets which lies math and when

you factor in the math Associated to this opportunity it's very creative and beneficial for those who are looking to

you know solve for you know bigger than stock market like returns while also receiving tax benefits and also

advantages with regards to just investing in general with real estate so so you're I want to ask a question about

your internet packaging I've seen recently what is this um it was a cable TV packaging cable TV internet packaging

is that a new phenomenon I've SE I've only seen it recently in one other transaction but I don't know how new

this is because I haven't seen it and like I've been in real estate for a couple years and I'm not this before yeah no we're really unveiling this

throughout the entire portfolio right now so for us as well it is also kind of a newer advantage that we're taking that

we're we're kind of entering and it really starts to make sense you know with economies is a scale and that's

kind of the benefit to multif family real estate is that economies is a scale benefit with management and such and and

the cash flow there you know it's tough to manage just one door at a time if you're a single family owner and operator it's where most of us start

obviously I used to sell homes so I know the pain points of all that you know I was a realtor for about seven eight

years prior to getting into this world but interestingly enough it is a newer program and profile that at least we're

doing and I do think it'll be more common practice throughout the uh program so hopefully not every

competitor of RC is they'll Implement these strategies but you never know eventually it'll be kind of standard practice for you know the sophisticated

folks Who coming in and kind of doing their their homework no I I think I I see a wave coming and like I said I just

I seen it recently like probably a month ago and then you mentioned to here I'm like okay if it's the trigger words it's

it's the if people are people are figuring it out information is getting out there and the the utility companies

not necessarily like the water electric but the the Electronic Services where there's TV cable and internet they're

now reaching out probably packaging because to them they can do Book pricing

yeah makes sense for them too so it's definitely a unique strategy for everybody out there so you never know go

ask around I think this has been an amazing episode I think like I said I I this has been very interesting to me

because like I said I'm not in the space I'm always intrigued whenever somebody comes on then we we can talk we can talk

commercial because I don't I don't get the opportunity very often I'm a land guy at heart so I don't get the

opportunity to talk commercial very often but I hope hope I ask good questions you asked very good questions

and you kept a very good Cadence of flow which doesn't surprise me at all of course but it was a very fun conversation I'm happy that I could

provide you some value because obviously you know the more you know the more conversations that you have in fact

you're going to get you know different frames of points and references so it's always so great to to add to the network

and that is the beauty of podcasting and the other beauty of podcasting is how accessible people are in the space right

I can't tell you how many people that I've had reach out to me or that I've had conversations with because of the

podcast Forum you know we're just normal people reach out to us if you have any questions about the space we're here to

help and here to serve you you know and be a good konian of of your Equity you know we all work so hard to make money

and then also so hard to save it and then we want our money to work harder for us so we can get that return we can

get some of time back we can enjoy our life so to be able to provide that and hopefully a unique angle into that is

something I'm super passionate about and want to enrich everyone's life with as much as possible given the opportunity

one thing I think I think you're probably doing and I don't know if 100% true but if you're if a new LP comes into your structure and wants to learn

about multif family and why you invest the way you do do you provide some type of front-end education to kind of

educate them in the space because I think it's very Paramount for LP investors to know what they're doing and

know what they inves in that way even if they don't invest in your structure your fund or fun to funds or syndication they

at least can tell and learn how to do this at least from the lp side yeah we've got hundreds of hours of YouTube

information whether it be Rob who legitimately wrote the book in underwriting the principal and founder of the company Rob Beardsley we've got

books out there we've got YouTube information Galore and then when we do talk to people I like to ask qualifying

questions such as you know what's your experience level what's your background so on and so forth and then really explain to them you know find out what

their needs are and what their wants are you know what we can solve for them because at the end of the day the last thing we want to do is just take money

to take money we got to make sure that it's a good fit where they like us of course it starts with that and then we

like you know the lp investor and that it's a good fit there and then you actually know what kind of what you're putting into your body if you know

you're on a diet or something like that you got to know what's you know the ingredients you're eating similarly well if you're making an investment what makes up that investment so we certainly

do help people understand what's going on and kind of the associations regarding the deal how we you know

arrive at to conclusion of the projected numbers and things of that nature certainly and you know it's all about asking like you've done here on the show

good questions qualifying questions things of that nature to make sure that you know everyone understands what's going on not all money is good

money that's true and not every client to good client unfortunately absolutely

uh work can people find you online we're gonna end it here I think this has been a great episode so I appreciate you coming on and sharing some information yeah no I I really appreciate you giving

me an opportunity to speak to to your people and be on your platform here it's always an honor to just talk real state

I'm obviously very passionate about it but if you want to find me I'm on YouTube We're on you know craigman growther is my YouTube channel and then

also Rob Beardsley and myself we've got the Lone Star Capital Lo uh YouTube channel there where you can find all of

our information then of course I'm all over LinkedIn so there my first and last name on LinkedIn uh feel free to go

there we've got our clips and things of that nature so we're very accessible then of course finally my email is Craig

lc.com so it's just my first name lc.com that is Lone Star Capital there you go

for everybody here go like share subscribe we'll see you in the next episode thanks for tuning in guys thanks Craig bye guys thank

[Music]

you

Ep 491:Tax Breaks and Wealth-Navigating the Lucrative World of Commercial Multi Family Real

Daniel Esteban Martinez

Craig McGrouther