Running a Multifamily Real Estate Brokerage with Beau Beery

Mario (00:00:01) - Hey, guys. Welcome back. We got Beau Berry here with me with Beau Berry Multifamily advisory. I'm super excited to have him here because he's in the thick of things when it comes to multifamily and apartments. And so we're going to we're going to be talking about apartments. We're going to be talking about the brokerage business, we're going to be talking about the market and all kinds of good stuff. So, Beau, thanks for being on, man. Appreciate you being here.

Beau (00:00:24) - Uh, me too. And we had a hiccup on the first one. We got this thing down.

Mario (00:00:27) - Now you got to push through, right? Lesson number one, push through. All right, So, Beau, you've got a pretty interesting business that you're growing right now. You're in Gainesville, Florida. I'm in south Florida. So we're kind of playing in the same world here, but we're in different property types. How did you get into apartments and what took you the direction of the brokerage world?

Beau (00:00:49) - Yeah, sure.

Beau (00:00:50) - Good question. So I did my undergrad degree in marketing and then I went back and did a degree, a master's degree in real estate. And when I was doing the real estate program, I'd also gotten I got my real estate license actually a little bit before that. And when I graduated, I had, you know, I had married actually I'd married my wife during the graduate real estate program, and she was wanting to stay in Gainesville. She was born and raised here. And so I was like, shoot, you know, all my on my classmates are getting, you know, they're getting these big ass salary jobs all over the country. And I'm a little Gainesville. And so I interview with a bunch of different companies developers, investors, brokers, appraisers, mortgage guys, everybody, both Gainesville and Ocala, which is kind of the nearby market. And, you know, I just I wasn't I wasn't getting a bunch of a bunch of leads. And actually during the during the my my college years, I worked in leasing and management on site for Tremmel Crow Residential, which is a huge apartment developer.

Beau (00:02:01) - And so I had a little a little bit of a taste of real estate in there. There was a developer when I graduated from the real estate program and in Gainesville that I that I got hired on with at a time my thought, my brain was I want to do development, right? Like, that's what everybody, young guy wants to do at a college. I want to do development. That's where the big money is. And he was by far the biggest investor and developer of office retail. He had industrial, you had multifamily. And he said, I'll tell you what, I said, I'll teach you development, but I need help in brokerage right now. Like I need help leasing up my offices, my retail spaces. You know, I need help in managing those things as well. And so I came in there and he had a huge portfolio, hundreds of thousands of square feet, and I took him from 67 occupancy, 67% occupancy to 97 and two years. And I was like, man, like, this is pretty good, right? Yeah.

Beau (00:03:01) - And he and I became close and I was with him for nine years, did a lot of these acquisitions as well on, on, on all kinds of commercial real estate stuff, including apartment deals. But you know, about about year 8 or 9, I started thinking to myself, well, gosh, if I did if I did this well for one guy, what if I did this for five guys? Yeah. What if I did this for ten guys, Right? Or ten gals and simultaneous? I started getting friends with a guy who owned a Coldwell Banker commercial franchise, and I was making good money where I was. Um, and this was 2009, and we worked out a deal where I acquired a banker and a Coldwell Banker commercial with him. I went all in. We did a bunch of general commercial real estate deals, but did a lot of apartment deals. I went all in exclusively on multifamily, probably about 2011. I'd done a bunch of deals before that. But 2011, I just want to exclusive.

Beau (00:04:02) - And the reason I did that was I had hired a coach who had helped me make that decision. The coach basically audited my entire business, my market, my the surrounding markets, my education. We've read up on a ton of different stuff on what's the future asset to concentrate on because we knew we had to niche. Yeah, being a generalist commercial practitioner brokerage, you're going to die. I mean because there's just too many absolute Seal team member murderers that when they specialize, you can't compete with them, right? And so multifamily and industrial were the two that came up. And based on being in Florida, having the kind of markets I have surrounded around me, multifamily was the way we went and year one murdered it. And it's been great ever since we hit it on the we hit on the jackpot.

Mario (00:04:52) - I love it. So there's a lot of things to unpack there. But one thing that I want to talk about that is very specific to real estate. In general, but also especially when it comes to brokerages.

Mario (00:05:04) - Niching down. I agree with you whenever you um. I agree with you that brokers who go general or even investors who go general typically don't do nearly as well as the guy who's going full time, 100% focused on a niche and can build a book of business. Can you maybe dig a little bit deeper on the differences and kind of how that makes a huge difference?

Beau (00:05:28) - Yeah. And you know, listen, there are there are certainly examples of generalist brokers and general investors that have done well. But I think to your point, if you were to take sort of if you were able to, you're not able to but take a consensus of every investor on the ones who have made it the biggest, they usually were super niched on a on a type of asset class or they may own other office and retail, but the bulk of their portfolio, their M.A. is in multifamily or some other asset class. And I think it's I think it's just kind of that thing of, you know, you take a 10,000 hour rule that everyone talks about and all you do is that one thing right from the time you wake up to the time you get bed and you're constant study studying it, you get pretty damn good at that thing.

Beau (00:06:15) - And then what happens is, is you become known for that thing. And then if you get if you get good at marketing yourself as that guy who does that one thing, then that just sort of multiplies it as well. And it just opens up opportunities. When you think of apartments, conventional or student, and it's over ten units and you're in North Florida, you're going to think of Bow and you're going to think of that guy Joe, who's a broker, and that guy Aaron, who's a broker. You know, like there's there's going to be 3 or 4 brokers that pop in your head immediately that have such an amazing, um, you know, sort of grasp of what's going on in those specific markets for that specific asset type and that specific sub asset type that those are the guys you're going to call on. But if I also did this and this and this and this, you know, nobody wants a part timer. When a guy owns a $20 million apartment complex, he ain't hiring the guy that did six office transactions and three retail leases and a couple land deals and he sold his cousin's house.

Beau (00:07:16) - And every couple of years he sells an apartment complex. He's choosing the guy who's a fricking murderer, the guy who just eat sleep, breeze and shit's multifamily. I want that guy to sell my apartment complex.

Mario (00:07:29) - Agreed. That's actually happened a lot in my career as well. I started out single family, but then moved into mobile home parks, Kind of built a name there. And yes, I own some self-storage and a small portfolio of self storage, but my focus and my niche has been mobile home parks and I've been able to build a brand around it and really target my my target market. Exactly what you're talking about there. Yeah.

Beau (00:07:54) - It spreads, man.

Mario (00:07:55) - It does, yeah. And so can we talk a little bit about the brokerage business in general? Okay. So your focus is and my understanding is, is that you are you're a sole practitioner at this point. You may have some assistance and help, but generally speaking, you are the main broker in the business and you're the one building the relationships, correct? That's correct.

Mario (00:08:19) - Okay. Awesome. So let's talk about that a little bit. Can you talk a little bit about how going from working in a brokerage, potentially working in on a team within somebody else's brokerage is different from going out on your own, both good and bad?

Beau (00:08:34) - Yeah. So when I when I was working for the developer for a long time, I was building myself a name as well, right? So I was still I was still brokering all of his assets. I was doing acquisitions, so I built up a name. So when I acquired the Coldwell Banker commercial and the Coldwell Banker, we had 100 agents. We had about 85 residential agents. And my partner ran that side of the company. We had about 15 commercial agents. I ran that side of the company and then I had my own team of folks who, you know, who we did our transactions together. Right. And, you know, I will say that, you know, if you were it just depends on who you are.

Beau (00:09:14) - Right. And I'm going to speak in generalizations, not for individual people who may be successful doing something opposite to what I'm about to say. But I think in general, if you were someone starting off and you wanted to go in a multifamily brokerage or office brokerage or whatever it is, I would choose probably a good size brokerage that just does that thing, right, whether it be a national or a regional. That's where I would start off with, because having finding someone like me who's an independent brand is pretty rare. Like because the guy who has an independent brand didn't just start as an independent brand, he probably built a book of business. Being with a bigger company became known, became good. Enough to break off and have his own deal where he doesn't have to pay franchise fees and cuts to the house and all that stuff. And that guy usually isn't someone who can then bring on juniors and train them up and spend time with them. Right? Whereas the Nationals, they're going to put you, they're going to bring you in, they're going to have some of them will have training programs.

Beau (00:10:19) - They're going to put you on a team that's already been successful at that, and you're going to start from the ground floor there. And they're going to have a in general, a better training program. Now, I just brought on a junior, right, because I saw a niche for taking on smaller some of the smaller assets, duplexes, quadruple X's. And I'm training him up on that so I can build a little income stream for me on those. But this is a time suck. It's I know why not A whole lot of independents can do that. It's taken some of my business away because I'm just the only guy, right? I don't have a bunch of other folks working for me. I have I have a personal assistant, and then I farm out everything else. I farm out website stuff, social media, marketing. Sometimes I farm out underwriting. I use a bunch of different folks from different places in order to operate. But I would say starting off, if you can get with a solo practitioner that that's all they do and they're a good size, you know, learn the game and you can always break off and do your own thing later on.

Mario (00:11:23) - That's super good. All right. So, you know, I think that's really common in the brokerage business, too, is where someone goes, they learn the skills, they build the team, they build the book of business, they build their name, and then they say, you know what? I think I'm going to go out on my own. And they start building their own business, and that's totally fine. Where is the challenge when it comes to outsourcing things? I mean, you talked about outsourcing things and utilizing different vendors. Can you maybe talk about some different examples of how you found good vendors or good contract help to leverage your time and so that you're not having to bring in full time employees and take on all that extra payroll.

Beau (00:12:06) - Just like we talked about, you know, being someone who's niche at something and good at something, you know, the word kind of spreads of who you are, right? And so when you start asking around who's a great web developer so they can build and maintain a killer real estate brokerage website dedicated to multifamily, a guy comes up when you get four potential listings in one week and you're the only one who does the underwriting.

Beau (00:12:32) - You don't want to take too long, right, to get back on a BoF. So sometimes I'll outsource that to like despot analytics. Despard Despot Analytics. They're a company that is very niche. I don't know anyone else that does what they do, but it's a bunch of guys who used to work for acquisition companies that broke off, started their own company. They do underwriting for you, so when I'm in a pinch, I'll send off, you know, they have a model that I like and they know how I like to underwrite and I'll give them my assumptions and they'll build the model. Now I'll still have to interject and and do some tweaks, but they'll build the initial model for me when I'm in a pinch sometimes on several listings in one week. Um, you know, on social media, my assistant, sometimes she'll, she'll do some posts for me, but she's also the main person who handles all of my stats. You know, we do a tremendous amount of tracking of sales, sales, comps, rent comps, data owners, contact information, all that stuff.

Beau (00:13:31) - Right. I have another source who gets me contact information when I when I need it more in depth stuff beyond just phone numbers and email addresses. I want to know, you know, who they're married to, who their kids are, where they went to school, who we know together. I want pictures of them, their education, whether they had a bankruptcy, whether they were ever arrested. Like I want to know lots of stuff about them. I have a whole separate source for that. So the things that you need that are out there, I mean, once you start asking around, if it's not already known who they are, usually you can find them specialists on high degree stuff like that. I actually think they're kind of easy to find. It's when you own an apartment complex and you're trying to find good maintenance people and good leasing people and sort of the those are the ones that are really hard to find.

Mario (00:14:17) - Agreed. Yeah. And I think there's like you said, if you can find a specialist for each thing that you need help with, then you get really high skilled people handling all the little details of your business.

Mario (00:14:29) - So you can go out and you can focus on building relationships with the with the property owners and negotiating and working contracts and doing all the high level skills that you need as a professional to do so. I love that. Just real quick for systems, people who are have brokerages, property management companies or investment companies that really want to implement a lot of the systems that it takes to scale a business. Check out crops.biz, that's ops.biz. It's a company that I partnered with to create with one of the top consultants, real estate consultants in the country. And it can actually help you take your business to the next level. Build teams, implement tools and systems like what Beau is talking about here as well. All right. So, Beau, you bought a brokerage business. That's pretty cool. Can you talk about how you guys bought a brokerage and how you how you evaluate and determine? Number one, what's a good deal? And number two, the actual value of that brokerage.

Beau (00:15:34) - Yeah. Brokerages trade on equity multiples.

Beau (00:15:38) - Right? So it's you know, I don't even know what it is because it's been so many years now since we've, you know, since we did that deal and then I sold it back to them. But basically, whatever your EBITDA is, there's a multiple on that. And then usually it's earned out over several years. Nobody just pays you a big lump sum cash up front because then all the agents could leave in the first couple of years, right? So it's usually earned over a five year period. And in terms of what the Ebit is, it depends on a whole bunch of stuff, right? How many agents you have, how solid that EBITDA has been over the last several years. You know, are we in an upmarket or a down market? What's the cash reserves? All that stuff kind of goes into it. I came in. What's that?

Mario (00:16:21) - Keep gone. Yeah. No, go ahead.

Beau (00:16:22) - I was gonna say I came in I think around 2009 or 2010 to acquire this.

Beau (00:16:28) - Right. Which is in the pits of hell. The brokerage was, you know, was teetering on not existing as were tons of other brokerages. I mean, almost every brokerage in my town was like that at that time. So, you know, the, I guess the the deal that we struck would have would have been totally different than it was today, right? Yeah, but it worked out well. And, you know, one of the important things for me was I didn't want to I didn't want to have to run the business. Right. So my my partners, they ran the business I wanted to be able to produce. That was the the best thing I could do for the brokerage was produce and create a name for the brokerage.

Mario (00:17:06) - Love it. And so what were some things when looking at buying a brokerage that you considered other than just value?

Beau (00:17:16) - Um, mean reputation was probably the number one thing, right? Like I, you know, the Coldwell Banker and the coal banker commercial here in this town has been around now for almost 110 years.

Beau (00:17:28) - It was around for about 100 years at the time that that I acquired it. Um, tremendous, tremendous, you know, family stock, the Parrish family has, you know, has been doing this literally for 100 years. They've had all kinds of different businesses, huge name in the business. They've been a market leader in terms of gross sales for a very long time. All of their agents had good reputations, their commercial department, while it was smaller than other commercial departments locally until I came on, the people that were there were solid and they were good producers and they had good names. So for me, reputation was super important. If I had a good reputation, I knew I could grow it with my partners.

Mario (00:18:10) - Nice. Now have you noticed? Well, let me let me ask you this. Franchise versus independent. You've worked in both worlds, right? So you bought a franchise, now you've become independent. Can you talk a little bit about the differences, benefits, positives, negatives, both for the owner but also for the client?

Beau (00:18:32) - Yeah.

Beau (00:18:33) - Okay. So there's in brokerage, there's a few different levels, right? There's let's call it the Independent and then there's sort of the franchise types. So in my world, Coldwell Banker, Nai Sperry, Van Ness, right. And then there's sort of the Nationals slash publicly traded companies, Marcus and Millichap. CB Richard Ellis Colliers is a big one, right? And so those are kind of, in my mind, the three tiers, if you will, right? In the franchise world for niche brokers. I don't find them to be as strong, right? So a Coldwell Banker commercial is not known as a multifamily specialist, right? In fact, in many minds they're more of a residential type of company. And I knew that. And that was part of the reason it was time for me to go ahead and expand my brand and make it more niche and call it Bobby Multifamily advisors, the larger nationals, that is, you know, for for a certain type of customer, a certain type of seller, that name is important.

Beau (00:19:45) - If you own institutional type assets and you're in a boardroom with six other board members and you have thousands of investors that make up your fund and you're deciding on who to choose to sell your 125 million portfolio in Orlando, Florida. You ain't hiring Bobby, right? I'll get one of those every few years. Maybe, maybe every five years. But I'm not going to be a first choice. Neither is the guy at you know, I normally. Right. It's going to be one of the publicly traded companies because the guy who makes the decision on the board of directors to choose that person needs to be able to tell the board of directors and the investors we chose X because if he doesn't and something goes wrong, he just lost his job. Right? That's an important sale. So it really depends on on what your what your niche is, what you know, how you can market yourself on where you start. I think the franchises are great for generalists or generalists who can who specialize in that one thing, but they still do other things.

Beau (00:20:55) - In terms of from the customer standpoint, again, I think I think the franchises are I think the franchises are really good at leasing. I think they're I think they're very good at sort of localized sales, you know, a localized office building, strip centers, not necessarily big publicly traded shopping centers. So more of the localized product, I think the franchises are good. And then as you get into more institutional assets, some of the bigger brokerages are good. The independents, you know, those are typically there's not a whole lot again, there's not a whole lot of independents that are niche, right? So I'm rare in that regard. Usually the independents have built a good name at either a national or a franchise. They've gotten good enough where they can break off and they start their own brokerage and they'll be a generalist again. Most of the time. Not many folks just do office or just do leasing or just do multifamily.

Mario (00:21:54) - So that's interesting. All right. So somebody who's getting started maybe get started at one of the bigger names, builds their name, builds their book of business, and then either goes niche and goes and basically starts their own.

Mario (00:22:05) - Or maybe they go into one of those secondary tiers. And I think that's really important. What you pointed out about how the biggest owners of real estate may not go to Beaubier because they're looking for that branding, but it's a very competitive level up at that level. It's very competitive when you're right, you know, so so you found kind of a niche of your own both in the multifamily space, but then also deal size, it sounds like. So I know you do more, you do ten units and up, but it sounds like you're kind of covering some of that space between what the big guys and the little guys are covering. Can you talk a little bit about that?

Beau (00:22:46) - Yeah, I mean, my, my, my property sale avatar is between 10 and 150 units. It's usually 1970s to 1990s build it is it is mostly in secondary and tertiary markets and my avatar owner is typically someone I can speak with directly. They in other words, they're not a national they're not a publicly traded REIT.

Beau (00:23:17) - It's usually from the call it the wealthy mom and pop. There's not a whole lot of those left that own these assets up to a large syndication. As long as I am able to speak directly with the actual principal and the principal makes the decisions and and we do and we can talk directly with each other, There's no disposition team, no acquisition team. That's usually my customer, Right? Whereas some of the Nationals, yes, they'll do some of those as well, right? Those are definitely some of my bigger competitors, but they also have access to some of the bigger types of assets as well. And don't get me wrong, there are you know, there are publicly traded REITs that have used independence. Like there's a there's an independent in sort of the central Florida area who is an anomaly that is just phenomenal at what he does. Been doing it his whole life. It's all he does is institutional sales built a tremendous independent brand, done billions in sales, which is which is really, really amazing.

Beau (00:24:23) - And so he's done a phenomenal job of building his brand that all I do is institutional sales, right? I could have done that, but I just, I, I like this. I like this niche that I'm in. There's not a whole lot of folks in it.

Mario (00:24:37) - Yeah. And I think that's really important. Any sort of business that you're getting into, you should really know your avatar, both your product or what you're brokering or what you're selling as well as your client and who that is. Because then you can target your marketing, you can target everything that you do around that box and you can get very, very good at it. And a lot of times people go for the big shiny objects, right? They want the biggest and most beautiful assets. But what they don't realize is that they don't have the marketing budget that their competitors do. And the little guys, there's so many people brokering the really small stuff. So if you can kind of find your area, find your box in between those two, you can often clean up because there's not a lot of people in the middle.

Mario (00:25:22) - And I love that you found that niche and that you've that you know it really well.

Beau (00:25:27) - Well, that's important to listen to. It's important to listen to how the market perceives you, right? Like, you know, I saw that every one of my transactions over the years was in that avatar that I described. Now, you could be someone who's 23 years old and think that, you know, I want to go after the big dog stuff. And you could spend years and maybe do a couple transactions a year and do those right. But if consistently the market is telling you, I see you, Bobby, as this guy who does this number of transactions and that's how I hire you, pay attention to it. Go ahead and clean up on that. Why spend your whole life, you know, trying to do a transaction that the market doesn't perceive that you do?

Mario (00:26:10) - Yeah. Go with the market mean it's bringing you the deals. It's bringing you the money. Take those deals and maximize them.

Mario (00:26:17) - Love that. That's right. So let's talk a little bit about apartments in general, because we've talked a lot about the brokerage business. We talked about kind of how all that works. Let's talk about apartments as a whole. You've mentioned a couple of things. First, I want to talk about consolidation. You had mentioned that there's not a lot of really wealthy individual people that just own apartments anymore. A lot of that is consolidated into institutional or at least at least professional operators or syndicators. Can you tell me a little bit about how that has, um, how you've been able to still find some of those? People that you're talking about, where you're actually sitting down with the owner that makes decisions if there's not a lot of them left.

Beau (00:27:00) - I would say the smaller the asset, the bigger the chance is that it's still a mom and pop. And what I call a mom pop is it's literally the, you know, an individual. They may have one partner and they own the asset they're not made up of of other investors.

Beau (00:27:15) - They're not made up of other companies who have, you know, funded them or funded a fund just like regular mom and pops. The smaller the asset, that's usually who it is. But even those assets are being bought up by syndications. And I think the reason that's happening is, you know, number one, the with the Internet and social media, it is bred the ability for companies to to market for syndications. I mean, there there are groups now who teach others how to build their own syndications and there's hundreds of them now. Right. So you can sign up for 4 or $5000 and take coursework to learn how to start a syndication, right, to build, to build a fund with other investors in it. And so these are happening left and right. And the ones who are getting good at it, the reason they're there, they're sort of beating out the mom and pops is as a syndicator, you know, you get paid lots of fees at closing on the purchase. I mean, you get paid to find the asset.

Beau (00:28:16) - I mean, these syndicators, many of them are charging and rightfully so. This I mean, this this is a skill charging their investor pool to find the deal, almost acting like a broker, like a finder's fee. They're getting paid to find the debt. They're getting paid to to asset manage it. Even though there's a property manager, you know, they're getting paid for handling the construction. Right. And then, of course, they get the windfall when it goes to sell. So there's a lot of extra ways to make money for a syndicator versus a mom and pop. In addition, they're buying powers a hell of a lot bigger. Right? A mom and pop, you can usually handle 1 or 2 deals a year. A good syndication usually has more equity than they can actually even place in a year. Right?

Mario (00:29:03) - And so with that mean you're you're obviously targeting the owners that are not necessarily syndicating or a fund model. And so how are you how are you targeting those individuals and targeting.

Mario (00:29:19) - You know what I mean? Basically finding those individuals and establishing those relationships because sometimes those are the hardest people to connect with. It's easy to find a syndicator. They're marketing themselves like crazy. It's much harder to find mom and pop who own that property for 20 years and don't have an email address. You know, they're not marketing themselves. They're they're pretty hidden.

Beau (00:29:45) - Yeah. I mean, you know, to clarify, most of my most of my deals are with syndicators. They're just not they're not, you know, sort of the national publicly traded groups. Got it. But to answer. See they're easy to find because they're usually advertising for genders all over social media. They're reaching out to brokers. They understand the game, right? Because they've either been in the game a while or they've been trained on how things work. The mom and pops. It's very simple, really. What I did was, well, I say it's simple and concept carrying out is very hard. When I started off many years ago, I exported every asset that exists in all the markets.

Beau (00:30:23) - I cover every single apartment complex. You export them from tax assessor websites into spreadsheets, usually tax assessors. They'll provide you the address. Some of them provide number of units, parcel number acreage when it's sold for what it's sold for, right. And they'll give you an entity name that owns it, but they don't know the principles. So I spent months and months then adding on number of units, number of bedrooms, type of construction, how much value add is left, what kind of roof it is, You know, I rank them a and B and C, all kinds of other essentially Excel columns. I then import it into a CRM. I then I use a couple of sources to find contact information. While you think it may be hard to find contact information if you just know how to find that stuff, there are sources out there. I can get phone numbers. I can get email addresses again, I can. I know what they're who their spouse is. I know their kids names.

Beau (00:31:25) - I know everyone's ages, bankruptcies, you know, arrests, speeding tickets. And then once I have sort of that base of information, I then research them on Facebook, LinkedIn, Instagram, TikTok. I look at their pictures, their profile pictures. I look at their background pictures to see what their hobbies are. I look at all their posts. I build a profile for every single human being that owns every single one of these assets before I call them.

Mario (00:31:54) - Right.

Beau (00:31:55) - So I know enough about them. When I go to call them that. If they knew what I knew, they would be freaked the hell out. Yeah. Now don't call up Mario and say, Hey, Mario, this is Bobby. Or I'm a multi-family broker. By the way, I know that your wife name is this. I know your kids. I know where they go to school. I know who your best friend is. I know where you went last weekend, you know, for vacation and, you know, don't do all that stuff.

Beau (00:32:16) - Right. But I want to I do all this research because I want to paint a picture of the human being before I call them because I see each of them as someone who is going to be a customer with me for life. Like I'm trying to create a business relationship and a friendship that we can do deals with for a for a long, long time. And so if I know what they look like and their background, their schooling, right, I sort of have a I have a much meatier conversation in that initial talk. Right? And so then when I reach out to them, I usually try to help them out on purchases. I know that every broker is trying to call them and sell their asset. I try to help them buy something, earn their trust, show them that all I'm trying to do is add value in their life. I never call them and ask them to sell. I'm always just telling them about what what rents are going for, what sales have happened, amenities that are doing well, You know, what people are doing to cure bad debt, all kinds of different things.

Beau (00:33:13) - I'm just trying to add value in their life so that when that time comes to them to sell, they think of me.

Mario (00:33:19) - Dang. All right. So let's break that down a little bit. So if you want to build a really solid book of business, you need to do three things. Number one, you need to have a really good idea what your avatar is, understand who your client is, what your product is, and hone in on that and focus on that market to that. Secondly, know who your actual clients are, who the people are that you're targeting, and do a ton of research on them. Don't be lazy, don't slack off. Basically know who that person is before you ever talk to them. So when you do talk to them, you can make sure that the relationship is established and you have a lot of common ground to talk to them about. And then third, add a ton of value. Don't call them up pitching them, don't call up trying to sell things and get them to, you know, work with you off the bat, add value, become valuable to them, and that will build trust and a solid relationship to where you can then build business together.

Mario (00:34:17) - You can build your business together with them for the long haul. Nailed it. Super good. All right. So just just taking everything you just said and bundling it up. So let's talk let's talk a little bit about the market itself. Okay. So apartments obviously have been consolidating for many, many years. You now have kind of a change in debt structure. And I should say you have a change in the debt world right now. What does that look like for number one, the current owners? Where's the risk? Where is the what should they be looking for around corners? And then secondly, for the people who are hungry and have cash sitting on the sidelines, where's the opportunity in this?

Beau (00:35:04) - Yeah, good questions. Well, I would say, first of all, the three most important things, the three biggest things affecting value right now for owners of these assets and for buyers are the following. The first two are obvious, right? The debt has totally changed, right? Agency debt for most deals now is 50 to 55% loan to value.

Beau (00:35:29) - You know you're you're, you know high fives, low sixes on the interest rate you can still get some interest only period. You know it's non-recourse. Right. And obviously that's a lot different than what it used to be. The second component is insurance. Insurance is absolutely horrible. It's gotten really, really bad and it's going to get worse. And it's even worse in Florida. I remember I mean, not even two years ago, insurance was 3 to $500 per unit per year, and now it's 1500 to $2000 per unit per year all day long. Right. It's crazy. Huge difference on a 100 unit complex. Every $500 increased on insurance, you need about $42 a month in rent to compensate. Just that across the board, across the entire rent roll. Right. And the third component, which is by far the the biggest impact on values today, that no one, not a whole lot of people are talking about is what buyers are plugging in for market rents versus what brokers are inputting. And let me let me go let me dive into that because it's a big deal a year ago as a broker.

Beau (00:36:44) - If you had 100 unit complex and your average in place rent was $1,000 a month, I as a broker would probably go for 13. I would probably plug in $1,300 as the market rent, Right. And I would find 8 or 9 complexes in the submarkets that would justify that 1300. And the reason I chose 1300 is because 1300 justifies within a two year period of renovating equaling the price I'm asking for today. Right. And you'd put that out there. And even though not a damn one of those 100 units is at 1300, I could sell that idea. Right. And people would achieve it. Like that's I mean, it was largely achieved then about six months ago after a few interest rate increases, but not all the ones we've had. Then nobody fell for that story. You had to have proven in the rent roll at least some number of units that you had gotten 1300. So at 100 units, if I got if I had 15, 20 units that I've shown have gotten to the 1300, I could usually put that out there, right.

Beau (00:37:52) - And get that pass through. Um. But nowadays you try that. That ain't happened. Okay. You try to come out and even if you've got 15, 20 units that have hit that 1300, the buyers are saying, I don't give a crap. Like, I mean, that's great, but I'm looking at 1050, $1,100 to achieve in the next 12 months. And if I can get to 1300 somewhere down the road, great. But I'm not banking on that.

Mario (00:38:22) - No more blue sky.

Beau (00:38:23) - Yeah. And so that a delta of even just $100 or $50 on the market rents that the broker is inputting to justify the price versus what a buyer is inputting because they're being probably more conservative than they need to. But I understand it that has a much greater effect than interest rates going from threes to fives or sixes or insurance going from 500 to 1500. And then when you combine them all, holy shit, right? Like you just just nothing. Which is why in the entire northern half of Florida, not including Orlando or Tampa, there were five deals done in the month of January.

Beau (00:39:07) - Five over 100 units. There was only one closing that was conventional, over 100 units in the northern half of Florida.

Mario (00:39:16) - Wow. Yeah. I mean, really, what that sounds like is a stalemate. You've got sellers wanting one thing, buyers wanting another, and they're both looking at it very differently. And, well, the brokers are trying to pair them up and make it work. But it's there. There. There's a disconnect.

Beau (00:39:31) - Let me clarify. The sellers. The sellers understand they're not they're not clueless. They're not like, oh, really? Like you're not going to they mean the sellers are also buyers themselves. They get it, though. What they're saying to the broker is, Hey, listen, I get it. That price probably won't get met. See what you can do. If not, no big deal. They're earning the highest rents they've ever heard in their life. They're still killing it on NOI, right? As long as they didn't buy at the absolute peak. Right.

Beau (00:40:01) - And leveraged way out of the hell and didn't do the renovation program correctly. Those few folks may have some problems coming up, but everyone else, the sellers aren't. There's not there's not a disconnect between buyer and seller. The seller gets it. He's just saying pay it or don't pay it. Don't give a crap. Yeah, I'm fine.

Mario (00:40:21) - I always I always tell my acquisition managers, you can't convince rich people to sell their assets when they're getting paid to own them.

Beau (00:40:28) - Yeah, they're just going to wait. And I think I think this will go, you know, my crystal ball is late fourth quarter this year or sometime early 2024. I think we'll see our first sort of spike in number of transactions. I think we may even have our first more significant interest rate decrease. I find that during election years, you know, both sides of the aisle tend to like want to have something to, you know, to tip their hat to. Yeah.

Mario (00:41:00) - So let's talk a little bit more about interest rates, too.

Mario (00:41:03) - And I'm not going to have you predict where interest rates necessarily are going, but is there do you see risk with a lot of those aggressive investors who have bought over the last several years with very aggressive business plans and a lot of blue sky in their pro forma potentially getting in a position where even if they hit their performer because the interest rates have went up so much, cap rates have have obviously went up as well, they may not be able to refinance and have to bring cash to the table. And if they can't bring cash to the table because they can't either put it put it on the table themselves or get their partners to contribute, Is there a potential default opportunities for other investors with liquidity to go in and buy those up even if it was a well-performing asset?

Beau (00:41:48) - Um, I think there will be some of those. I don't think it'll be anywhere near to the level that social media tries to put out there. Right. Um, and, and of those that do happen, in my opinion, you still have to think about, you know, how bad you would have had to have screwed up as an operator to even with, let's just say 20% equity, right? Or 15% equity.

Beau (00:42:15) - And not have done the renovations correctly and not have raised rents right in this market where rents continue to raise and we still continue to be way behind on on on what's actually needed for renters to then be in a position where you don't have enough equity to refi. But even then, that person who may be in trouble, who can't cover the spread, is still going to hire a broker who's going to expose it to the market and get a dozen offers, and it's going to sell for what it's worth, which I don't believe will be some tremendous decrease from, you know, from whatever it sold for a year ago or two years ago. It may be less, but I don't think it's going to be like 2008. Okay. Or you're just getting these tremendous deals. Just don't.

Mario (00:43:05) - What kind of cap rate adjustments have you seen? What were things trading for, call it a year and a half ago and today cap rate wise on stabilized assets.

Beau (00:43:14) - Yeah. I mean, I, I don't ever value things on cap rates because most buyers are buying on IRR cash on cash equity multiples and debt coverage ratios.

Beau (00:43:26) - Right? I mean, they're creating a full pro forma. But, you know, in terms of let's just use a simplistic cap rate, you know, today, you know, you know, if you can get if you can find a cap rate that's at the interest rate level, which by the way, is negative leverage, that's probably about where they're trading, right. For for B class or better C class. It's going to be a little bit above that. But most folks have a little bit of negative leverage usually going into it. But most folks buy with the thought that they're going to be able to improve the rents and get to a spot where they want to.

Mario (00:44:01) - Sure. So let's say if it's a 7% interest rate or let's just say six and a half, 6.5% interest rate, 6.5% cap rate. Cap rates were pretty aggressive in apartments for quite some time. I mean, in every asset class, really. I mean, I saw a lot of apartments, even non-institutional stuff selling in the fours and high threes depending on the markets.

Mario (00:44:26) - So so you go from a four cap to a six and a half, that pushes cap rates up with it because like you said, even if you go in with a par or a slight negative leverage, that just created a bunch of potential delta in the value. Yeah.

Beau (00:44:48) - Yeah. I will say though, that, you know what I have found? You know, people like the soundbites of saying it went for a four cap or a three cap. The reality is, is that the reason I don't like cap rates is they're just they're just a bullshit number. You don't know what the seller or the broker use for the vacancy rate, whether they increase the property taxes or not, whether it was insurance adjusted, you know, whether whether the rents were where they should have been. Were they were they fully optimized or not? The reality is, is that the rents probably weren't where they were supposed to. And so you're just you're taking you're basically taking an NOI for the current owner divided by a purchase price for the current buyer.

Beau (00:45:33) - And that current buyer will never experience even for an hour. That same income minus expenses. It totally changes the next day. And so, you know, the I can tell you, you know, last year I sold a 2.7 cap. Okay.

Speaker 3 (00:45:50) - Oh, my gosh. I mean.

Beau (00:45:51) - It's not amazing. The rents were $350 a month on average below market rent. That's why they were buying it. You can say it was a three and a half cap, but I mean, the buyer didn't even look at a cap rate. It wasn't make any sense at all. They created a forward looking pro forma that was realistic with supporting rent comps that then equaled over the course of a 3 to 5 year hold, an IRR that they wanted a cash on cash that made sense for their investors. It met their 2.0 or higher equity multiple. They covered their 1.2 or 1.3 debt coverage ratio. That's how the deals are done. So I just for me, the cap rate is it's a it's sort of a lazy appraisers way of, you know, kind of, you know, kind of getting a glimpse of what something went for or what the market's doing.

Mario (00:46:37) - Agreed. Whenever somebody asked me what kind of cap rates are you paying for properties, I have a very hard time answering it for the same reason because I'm really looking at an IRR and a cash on cash return a lot more than I am, a cap rate, especially going in. All right. So we've had a lot of good rates.

Beau (00:46:52) - Assume you're going to do nothing different and that the numbers are never going to change. And that's impossible to impossible.

Mario (00:46:59) - All right. So one last question about the debt side. Are you seeing more long term fixed debt? You seeing a lot of bridge debt? What kind of debt are you seeing these offers come in with right now or what are your buyers? Yeah, it's.

Beau (00:47:13) - Either first of all, seller financing is back to being sexy when you can get it, then that's that's backed by a financing, right? But typically values have increased so much even during these times where the loan you would assume is still so low that it doesn't make sense. So oftentimes that can't happen.

Beau (00:47:36) - And then it comes down to depending on the size of the deal, banks are now more competitive with agency debt, but agency debt is still usually the preferred route. And it's what I was talking about, which is usually 50 to 60% loan to value. You know, I've most of that I've seen is between 5 and 3 quarter and six and a quarter on the rate. You're usually getting 3 to 5 years of interest only it's non-recourse ten year terms. And then on the bank side, I'm typically seeing, you know, banks don't like 30 year amortization. So most of these guys, they'll do 20 and 25 years on on apartments unless it's a newer deal. You're seeing I've seen as low as six and three quarter with like credit unions up to, you know, seven and a half, 8% Sometimes the banks and they'll typically do as aggressive as a 75% loan to value, but most of them are around 70.

Mario (00:48:34) - Sure. Yeah, it's definitely there's a difference between the institutional lenders versus the banks, credit unions and everything and agree mean seller financing is definitely come back even in the mobile home park space I think in every property type just to get deals done sellers are going, you know what, this is actually going to work for me.

Mario (00:48:53) - I'm getting out. What need to get out? Let me move on. Especially the ones who are looking to retire and just don't want to operationally deal with things anymore. So super good information. So how can people get a hold of you and who should get a hold of you?

Beau (00:49:06) - Yeah, sure. So three ways. Number one, I wrote a book called Multifamily Investors Who Dominate. It's a great it's an insider's look on how apartment investors can really grow their game. This is how how the most elite investors in the world actually have built their portfolio that I've been able to witness over the last 20 plus years. It's on Amazon as a hardcover, it's on Audible, it's on Kindle. The second way is I have a YouTube channel called Bono's Multifamily, and I have a ton of stuff for beginners for advanced level, investors have lots of analytics. Sometimes I put new listings out there. I'm a big car guy and sometimes I have a lot of car stuff on there. And then the third way is my website, which is BeauBeery.com.

Beau (00:49:51) - That's B you b e ROI. Com. And whether you buy in Florida or not, the reason you want to go to my site is if you click on resources at the top, there's a section, there have lots of templates like letter of intent templates and other templates. I have a list of all the markets I cover and whether you buy in those markets or not, you want to click on those because I want you to see the kind of stats and information I have about each of those markets, because if you can master those kinds of stats in your markets, you can respond to opportunities quicker. The last thing you want to do is have a broker bring you a deal and you've got your thumb in your ear for two weeks trying to figure out whether or not that market even makes sense for you, because the killers in this world, they can tell you off, right? Rip in one second what rents should be going for, how much the renovations are going to cost, what the rents will be after they get done with renovations, what property managers are going to use, what contractor they're going to hire.

Beau (00:50:50) - This is all done. They can tell you what complexes are on certain streets, how many units it was. They can probably tell you who bought it three years ago and what they paid for it. You have to have that kind of level in order to be an elite guy like we talk about in these books.

Mario (00:51:05) - Love it, man. Thank you for adding value giving, giving some tools to everybody. We do have a lot of apartment investors that listen to this show. So no, they're going to get a lot out of that. So, Beau, thanks for being on, guys. I'll catch you on the next one. Thanks for listening. I hope you got out of this as much as I did. I'd really appreciate it if you could leave a five star review so we can reach more people. Jump over to MarioDattilo.net and find out what else I got going on. Be sure to connect with me on all the socials and I'll see you on next week's show.