BiggerPockets Podcast 115 with Jeff Greenberg Transcript

Link to show: BP Podcast 115: Getting Started with Apartment Complex Investing with Jeff Greenberg

Josh: This is the BiggerPockets Podcast, Show 115.

You’re listening to BiggerPockets Radio -- simplifying real estate for investors large and small. If you’re here looking to learn about real estate investing without all the hype, you’re in the right place.

Stay tuned and be sure to join the millions of others who have benefited from -- your home for real estate investing online.

Josh: What's going on, everybody? This is Josh Dorkin, host of the BiggerPockets Podcast here with my wonderful co-host, Mr. Brandon Turner. What's up, Brandon? How are you?

Brandon: You got to get some more descriptive words. Awesome, wonderful, fabulous occasionally.

Josh: I've said fabulous once in a while.

Brandon: I know. I know but we got to get some more like stupendous.

Josh: We need a list.

Brandon: My stupendous co-host.

Josh: Or just [Inaudible][00:50].

Brandon: All right. Cool. I'm doing well. I'm doing well. Nothing really new is happening because we are recording this podcast quickly. We just recorded one the other day. Life is good.

Josh: Yes, yes. All is well. All is well here.

Brandon: It was. You met a waiter who knew who you were. You're a celebrity.

Josh: I met a waiter who is a listener to the BiggerPockets Podcast. In fact, he's like, "Aren't you the guy who is the co-host of that show with Brandon Turner?" I was like, "Yes. Actually, no. That's not me."

Brandon: That's you. Good job. Glad you could be my co-host.

Josh: Yes. That's funny.

Brandon: You were recognized. I've never been recognized. Somebody recognize me. Come on.

Josh: Woo-hoo!

Brandon: There are nine people listening to this show. At least, one of you...

Josh: You got to lead your little circle of Podunk.

Brandon: Oh, I guess that would help.

Josh: You are a tenant market.

Brandon: I ran into a friend one time when I got in BP, ran into me at Starbucks. That kind of counts, right?

Josh: Yes. That's awesome.

Brandon: I live there so of course the odds are in my favor. All right. Moving on, let's do today's Quick Tip.

Josh: Quick Tip.

Brandon: I don't know what you just said. Today's Quick Tip is check out the Real Estate News and Headlines section of BiggerPockets where you can get there from the navigation bar on BP or by going to You could see the latest news in the world of real estate because as a real estate investor of course, it's a pretty good idea to stay on top of the news that could affect how your investments turn out. Wouldn't you agree? Cool.

Josh: Absolutely.

Brandon: Check it out.

Josh: is the direct URL as Brandon said.

Brandon: There you go. All right. Before we get to the Trivia Question, which I'm excited to talk about, we have a quick word from our sponsor today. Let's do that right about now.

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All right. All right. Thank you to them.

Josh: Right on. Yes, yes.

Brandon: Let's move on to the Trivia Question. On last week's show, we sat down with Scott Sutherland and he shared with us about the wonderful world of owning vacation rentals. He mentioned on the show that he uses three different websites to market his properties. What three websites does he use?

If you think you know, send an e-mail to [email protected] for your chance to win the digital version of my book "The Book on Investing in Real Estate with No (and Low) Money Down."

Josh: That is today's trivia. Guys, let's bring in our guest, Jeff Greenberg from Southern California. Jeff, welcome to the show. It's good to have you, man.

Jeff: It's good to be here.

Brandon: Great. Great. Today, we're going to talk about your journey a little bit and apartment complexes. I think that's what you kind of specialize in. Correct me if I'm wrong. That's kind of where we're going to head to. Maybe we'll start at the beginning. First of all, where are you located at?

Jeff: I'm in Southern California.

Brandon: Okay. Do you invest in Southern California?

Jeff: No.

Brandon: Okay.

Josh: Why not? Let's start there. Why not? Why not?

Jeff: For most people I think it's fairly obvious. We just can't get the returns and because we bring in other investors, we can't get a return that we can offer them that they're going to be interested in. There's too little there.

Josh: Okay. Got it.

Brandon: Yes. I had a wholesaler reach out to me the other day and said, "Hey, I'm down in Southern California and I'm a wholesaler and I'm looking to send deals. Are you interested?" I said, "Sure. I'm looking at multi-families but I doubt I can buy anything in your area." He's like, "Oh, I'll send you some great deals."

He sent me a list and they were just like 0.2% rule. They're just ten times worse than what I would find up here. That's not even close.

Josh: That's not a deal.

Brandon: Yes. Anyway, I fear for those people that are down there and I feel bad for you guys. You're making it work because you're investing out of the area, which we'll probably touch on later. Maybe we can talk about your first deal when you got started. Let's talk about your very first investment. What was that?

Jeff: As far as in multifamily?

Brandon: We can go either.

Jeff: I dabbled a little bit in single-family but it was at a horrible time. It was when everything was dropping in 2005 and tried foreclosures, REO's. It just wasn't happening because the banks weren't working fast enough and it just didn't work out. That's when I started looking other areas, other avenues and started looking in to the multifamily arena.

Josh: Got you.

Brandon: Maybe that's an obvious question. Maybe you kind of answered it there. What I'm trying to get at is...

Josh: Spit it out, boy. Spit it out.

Brandon: Why did you decide multifamily? Lots of people are succeeding with single-family. Why did that pop in to your head? "You know what? I'd rather just go multifamily instead of the single." Most people stay in single for 20, 30 years before going multifamilies. Why are you different?

Jeff: I was at a real estate event. I met somebody that was pushing his seminars on commercial. For some reason, that clicked with me. That extra zeros at the end of the numbers clicked with me and it just sparked my interest. It was a lot more interesting than dealing with the single-families.

Josh: Got you.

Jeff: That was basically it.

Josh: How did that journey go? Forget the journey. Let's talk about the first deal. You decide you're going to go multi. What was the first property that you looked at that you ended up purchasing? How did you purchase it? Any more information about the deal would be great.

Jeff: That one, it ended up coming from a broker relationship. It was one of these deals where I went on looking to find properties, found some properties, talked to the broker about those properties which of course weren't good deals but I started a relationship with the broker who was a displaced Californian and was living in Texas.

We ended up getting a fairly good friendship. When he finally, it took a little while but when he got a deal that actually the bank came to him that the bank had some developers that ended up stuck with their properties. This was in 2010. They were stuck with some four-plexes. The bank came to him. I was the first one he called because of our relationship. He said it's perfect for me.

Basically, it was five four-plexes on the same cul-de-sac with two different developers. They were built in 2007, 2008 and they ended up getting stuck with those and they were lousy property managers. They may have been fair developers but they were not good property managers.

The bank was desperate to get somebody in there that could run the properties properly and to pay their bills. They were a couple of years behind on their taxes. The bank wanted us. They met us and they wanted us in there. We did not even fill out any loan documents.

Basically, we got the loans on all five of those properties by handing them our financial statement. They wrote up the contracts and we signed them but we never applied for loans. It was a fabulous process.

Josh: Interesting.

Jeff: We hardly paid anything in closing costs. I think we figured it out that we paid about 0.75% in closing costs; basically, third-party reports was all we paid for. The bank didn't charge us anything.

Josh: No kidding.

Brandon: That is cool. That is one of the fun things about...from what I've seen so far in my career with commercial or multifamily investing is that when you're dealing with the commercial side of things, things are different. Things are like I don't know...there's no certain go get a Fannie Mae/Freddie Mac house loan and try to tell that same story, it will never happen.

They have to have every "i" dotted and "t" crossed and you have to do exactly their form application and everything has to be the same. With the multi-families, you get a little bit more variety or options. I think that's kind of a cool story of how you did that.

Josh: Yes, I agree.

Jeff: We called it a commercial loan and they called it a commercial loan but essentially it was a residential. Basically, they're five four-plexes and we have five loans on them but they still put it all together and because it was a portfolio loan where they're keeping it in-house, they didn't have to go through all that.

Josh: Yes, yes. Nice.

Jeff: That was what made it good.

Brandon: For those people who don't know what that means, maybe you can kind of expand on that portfolio lender. What does that actually mean?

Jeff: Basically where the bank keeps it in-house, they don't go and sell it off or package it off to somebody else.

Josh: What's the advantage of that to an investor who's looking for a loan?

Jeff: The banks have a lot more flexibility on what they can do. They don't have to follow all of the rules. As Brandon said, fill out all of the other forms and make everything up to all the regulations or all their rules that are in place. They have a little more flexibility on those.

Josh: Got you.

Brandon: In the past four years, I think every single loan I've done in four years now has been a portfolio loan because once I hit that max number where I couldn't get any more, I think I have whatever number properties but I can't get any more loans under that so then they go to portfolio lender and they're much more willing to work with me.

Now, that's not to say...people oftentimes think that portfolio lender means it's going to be really easy to get a loan. I can walk in with no credit, no money, and no experience and they're just going to throw money at me. That's not what it is but definitely more flexibility. That's great.

Josh: Hey, Jeff. You had said that they wanted you. Up until this point, what was your experience? Why did they want you? What did you offer that was of interest to them? I'm not saying you suck. I'm just saying, Jeff, what did you bring to the table?

Jeff: We brought to the table a professionalism. We did not have experience even though my business partner, she had done some singles and stuff but we did not really have multifamily experience. Now, we were at the time invested, as a passive investor in a large portfolio of 700 units, a $20 million-property and the bank was impressed with that. They thought that was great and that added to our credibility.

The other thing is we came in very professionally. We wanted to be there where the developers basically wanted out. We just came on as a professional group.

Josh: What does that mean? Professional? You're talking to Brandon and Josh. We don't know professional from whatever clearly.

Jeff: It's a good question. It's just that we came in there and we knew how to evaluate multifamily properties. We knew how to manage the properties mainly from learning from different sources because we really weren’t experienced in that area except for the investment that we were in where we were able to learn from the other group. We learned but being invested in another portfolio.

Josh: What did you show up with? You're coming to the bank with this professional loan package. You talked about financial statement. What else besides obviously being an intelligent individual and talking about your background, but you came with a bunch of paperwork; what did you bring? What came with you into the door there?

Jeff: As far as the paperwork, essentially, as I said, our financials. We did come with a resume. I believe we had a business plan. We did make up a business plan telling where we wanted to go and where we were and it just made us look very professional by handing them that.

Josh: Was the business plan for that particular package or was it for your business as a whole in real estate?

Jeff: It was for our business as a whole. It had nothing to do with that particular property. No.

Josh: Got you. Okay. That's great.

Brandon: Something I harp on people all the time to do in e-mails and when I do webinars and everything else is that professionalism angle is so important. Just to illustrate that real quickly: last year, I was trying to get a re-finance on a five-plex that I have.

I went to one bank that was known to be a good portfolio lender. I even had a recommendation from a friend who introduced us. Everything right. I go to meet with the guy. It was a busy time. I think I was in the middle of writing the last book or whatever. I just brought them a stack of papers.

I was like, "Here, the property is great. It's worth about 40% more than what I have them do, maybe even double or 140% more than what I have them do. I don't remember. It's got a lot of equity in it. I'm fine. Can we just make this happen?"

A month went by and they didn't do anything. Another couple of weeks went by and I got a phone call. There and then he rejected me. I'm like, "I'm a perfect borrower at this time for this thing." Everything was perfect about the property but I was so unprofessional I prevented it.

A few months went by and I was like, "Okay. I'm going to do this again." I went to a different bank. This time I went and I and my wife spent a whole weekend just making the most detailed, perfect analysis packet and a resume and a business plan and all this fancy stuff. I brought it to that bank and within three days I had an approval. We closed a month and a half later.

There is just such a difference in being professional versus not. People should definitely take heed of that.

Going back to my original thing before Josh or maybe do you want to say something on that? I saw you open your mouth.

Jeff: I was just going to say that I absolutely agree with you that what you're handing them as far as documents is showing them your professionalism. That means a lot more than just those documents. It tells them about you. Especially with the small banks you need to be professional and when you're working with the bigger lenders as well. You're coming across...they don't know you. The only way they know you is by your documents.

Brandon: Yes, yes.

Josh: Absolutely.

Brandon: A commercial lender doesn't invest in property. They're not investing in a deal. They're investing in you as a customer. They want to know that you're a professional. That's why like you said; you didn't even bring anything about the deal. You brought it about you and your business. I think that's huge.

Jeff: Now, what you just said on that though, on the commercial lender I think they do. They want both.

Brandon: Yes, yes, for sure.

Jeff: Yes. It used to be that they didn't look at the person as much. I remember when I was first learning about commercial, they said, "Oh, yes. You can get commercial." They look at the property. They don't even care about you. Well, that's long gone. They still look at you and they weight that as well as the property. Both are very important.

Josh: Yes.

Brandon: I agree. I was thinking more they are never going to lend on a bad deal but if they don't like you, they don't think you're professional, doesn't matter how good the deal is. They probably won't lend on you today.

Just to touch on real quick what you said earlier and then we'll move on, you said you invested in that 700-unit property. We don't need to dive too deep into that or anything. The fact that you did that added to your resume. I think that's just kind of cool.

Maybe people who are trying to get started today and struggling to kind of build that resume for themselves, that might not be a bad way to do it. Just find somebody else who is investing and just invest with them. Just latch on to their experience in that level. Do you think that's a good idea? Are you glad you did that deal for that reason? Anything you want to say on that?

Jeff: Absolutely. I was very surprised when it impressed them as much as it did. I did that for the experience because I felt that the person I was investing with was going to give us a lot of information when we had our conference calls and I would learn a lot from him. What I didn't expect, I didn't expect the lender to be as impressed as he was. I got quite a bit out of that.

Josh: Hey, Jeff at the end of the day, you were just private money on that deal. Is that correct?

Jeff: Yes.

Josh: Okay. Yes. That's really interesting. The bank looked at you and said, "Hey, this guy has got experience." You had nothing. You literally gave your money to somebody else who had the experience and it just attached itself to you. That is really fascinating.

Frankly, if any of our listeners have a similar experience, we'd love to hear about it. You can share your story on the show notes at Great. Thanks so much for sharing that little tidbit there.

Brandon: Cool. Hey, let's move on. First of all, how many deals have you done now apartment-wise?

Jeff: We've done two. That one was a 20-unit and we've got a 62-unit out in Houston.

Brandon: Awesome.

Jeff: I think I'm under contract now for some property out in Ohio.

Josh: You think you're in contract? I'm just saying.

Jeff: They called me up and said they liked my LOI. We're not under contract but they've got the LOI.

Josh: What is an LOI, Jeff? Really quick.

Jeff: Letter of intent.

Josh: Thank you.

Jeff: Just on the letter of intent, rather than go into contract and spending money on a lawyer to look over a contract, we just do the LOI. If we can agree on the major terms and then we go to contract after that.

Brandon: That's great. Cool

Josh: Got you. What you're saying and just to kind of rehash for everybody listening, you go and find a deal. You kind of go back and forth on terms. You write a letter of intent with those terms. If you guys agree to all the terms in the letter of intent then you go and spend the money with the lawyers and you kind of get the real contract drafted up. Is that correct?

Jeff: That's correct. Yes.

Josh: Okay, good. Nice. Nice.

Brandon: Cool.

Josh: Tell us about that property. That's Houston. Why Houston? How did you find the property? Was that also a LoopNet situation? How did that come about?

Jeff: No, it was not a LoopNet thing but the funny thing is it was also a broker relationship. It happened to be the same broker.

Brandon: Nice. Nice.

Josh: There you go. There you go.

Jeff: The original one was out in the Rio Grande Valley over there by McAllen, Brownsville area but he's expanded his office to Houston. Basically, he found the property on a cold call where he went to one property. The owner was there, said they didn't want to sell that property but that they had another property that they were interested in selling.

Again, I was the first one he called. He called me up and so we purchased that property down in Houston. I had been looking in Houston and I was interested in Houston. I just hadn't gotten something yet.

Brandon: Okay.

Josh: Hey, why were you the first person he called? I'm sure he's got other clients that are looking for deals. What did you do to put yourself at the top of his list?

Jeff: We've had a relationship for quite a few years now that we talk back and forth. As I said, he was a displaced Californian. We just had a lot of things in common. I guess he likes me. He feels that we could close on the deal. He's got other people. He upset a couple other people that could have come in with all cash but he preferred to come in with me because of our relationship.

Josh: There you go. That says it. For those people listening, this is a relationship business. By fostering those relationships, you can put yourself to the head of the pack. It's as simple as that. I hope all you guys out there are thinking about this and not just for the purpose of being out on our site networking which is extremely important but in person, synching up with the brokers.

If you're looking at commercial or residential, just get to know the other investors in your area who are doing deals because at the end of the day if it's you versus somebody else, they know you. They like you. They know you can close. You’re going to win out. That's great.

Brandon: Cool.

Josh: Today, we want to focus on the topic of getting started with apartment complexes. I guess ultimately, the question that begs itself here is I think is should people consider starting with large apartment complexes? Is that something that you would suggest?

Jeff: The dilemma with getting in to the large apartment complexes is there are a lot of moving parts. I think it's a great way to go. I don't feel that people have to start with single-family to do it. The main thing is I think you have to find somebody that is doing what you want to do and that's with any subject, any area of real estate is find someone that's doing it and find a way of being a service to them and learn from them.

I love the apartments. I love that concept and it's kind of where I went to. I don't know if it's for everybody but the idea of finding a mentor and working with him to learn.

Josh: A lot of our listeners have never done this and see it as just so far above and beyond where they are. I don't necessarily think that's the case. There are lots of moving parts. If you'd be willing to, I'd love to hear kind of some of the things that go above and beyond what we're looking at on a, say a two- or three-family or even a single-family. What are the differences? Obviously, financing but beyond that what else?

Jeff: The financing is a big one, making sure that you're qualified for the financing. Just a little bit on the financing though is you're not talking about income. They don't really care much if you have a W2 income. You could have no-W2 income as far as that's concerned.

They're looking at net worth and liquidity. A lot of the things we look at is if we don't have the net worth and liquidity, we've got to find somebody to bring in there to join with us. Commercial is so much more of a team sport. Single-family is, too but commercial is so much more.

Besides the financing and having to deal with having the liquidity and the net worth and experience, you also have insurance issues. Dealing with insurance on commercial properties is a whole another thing.

Then, if you're going to be raising funds, you've got the Securities and Exchange stuff. You've got to go and get your private placement set up. You also have to know enough people where you can get the investors in to raise the money. You've got a lot more money to be bringing in. Those pieces a lot of times are moving all at the same time.

Brandon: Is that how you financed the two properties that you've got so far, private placement or did you come with cash? How did you buy your properties?

Jeff: Both of those properties were private funds, no investors.

Brandon: For me, that just feels kind of overwhelming. The entire idea of...because I don't know anything about that other than what we've talked to people on the podcast. I don't know hardly anything about the idea of raising money. I know you're not an attorney and all that and people should talk to them. How do I even start that process? Who do I talk to? Do I just call up my divorce lawyer? Not that I have a divorce lawyer.

Josh: Whoa! Heather Turner. That's not good, man.

Brandon: She'll listen to this show. My attorney does everything from divorces to bankruptcies to evictions. Do I call him up? Do you have a special guy that does your stuff? How do I get started with the Securities thing?

Jeff: On the Securities thing, definitely you want to have somebody that specializes in the Securities, not somebody that just does it as a side job. You want somebody that knows it, that's current on it, and to learn from it. There are a couple of books out that give you some information.

I've gone to several seminars, quite a few seminars on doing syndications and there are some people that do in fact...I'll mention Joel is one of those people that do some syndication workshops and stuff. You've got to talk to people and learn what's going on because there are a lot of things that you can trip up on and you could end up with an orange jumpsuit in a 6X8 room. You do have to be careful with it.

Brandon: Yes, yes. Makes sense. You got to be careful. All right. Cool. All right. That's kind of your to an attorney. Is that the first step or is there another step? What's the first step in wanting to get in to apartment complexes? I want to get in to apartment.

Josh: My question is and I think you might be trying to get there is do you find the property and then take a first step or do you go and say, "Hey, I want to buy big apartment complexes. Let me talk to the lawyer?" What is it? A chicken-egg? Find the property then talk to the lawyer or talk to the lawyer then the property?

Jeff: The first thing that you're going to want to do and I guess Brandon was more alluding to this one is the first step is to learn how to evaluate a commercial property. That's the first thing. You've got to learn how to value it before you could find it.

The first property that I put an offer on was up in Fresno and I learned from a home study guide. I put in a lowball offer and then fortunately, later on I learned that my offer wasn't even low enough. Fortunately, they didn't take it or fortunately, I didn't get into contract with that because I would have been in some big trouble in the first place.

Evaluating the property is the key first including the economy of the area, the market, all those stuff about the property that you typically have to learn. That stuff is critical first. While you're learning that, you're needing people. You're talking to people, getting people to know you. You really do need to build up credibility.

When you do syndication, people are trusting you with their money and that's a big, big responsibility. They're not going to do it lightly. You have to come on as a knowledgeable, credible, honest person in order for them to be interested in doing it with you.

To answer your question, which one is done first, the main thing is learning how to evaluate the properties. Then, it goes to looking for the properties and meeting people at the same time because you need to get the investors.

Josh: Why would you do that instead of going to the bank and just getting a commercial loan? Say, I've got a couple hundred thousand, maybe a million bucks in the bank, why would I go and go through the rigmarole of setting up a syndication and doing that than just going out at a loan?

Jeff: If I have the money to buy the property outright, is that what you're saying?

Josh: Yes.

Jeff: If that was the case, the main reason is leverage. You're going to get a much better profit off of using the leverage. That's the main thing. Not only that, that money could be used for the next property. You always have to make sure you have enough in reserve.

I've seen people on the podcast that go and say, "Okay. I have $100,000. What can I buy?" Someone says, "Oh, you can buy a $400,000 house. You come in with $100,000 down." And then what? They have no money for closing. They have no money for repairs.

It's not only do you need the money for the down and the closing and the insurance first year and operating cost and all these other list of things that you need when you walk in the door, you need quite a bit of money around in reserve.

Brandon: Yes. Right on.

Josh: Yes. That makes sense. A smaller piece of a big deal is better than no piece of no deal, right?

Jeff: Yes, absolutely.

Josh: Right on. Right on.

Brandon: You mentioned earlier "team." "It's a team sport," I think is what you said. Do you mind sharing a little bit? Who should a person start developing to put on their team, so to speak when getting started with apartment complexes?

Jeff: Obviously, you need the real estate brokers. You need a broker that understands what you're looking for. Many times I’ve had brokers bring me a property that, "Oh, it's a wonderful property. It's beautiful. It's 100% occupied. Blah-blah-blah-blah," but there's no value add. There's no room for me to move on it.

Then, they'll go and say it's a five cap. For those people that don't understand cap rates, if you pay all cash for the property, you would be getting a 5% return on that property without any leverage. That would basically be a five cap.

I was chewed up and down by a broker in Austin when I told him I only will look at properties that are at least at an eight and a half cap. He chewed me up and down telling me that I wasn't going to ever see any of those in Austin. He said if I'm lucky I’d see a six cap or something. You got to get a broker that understands what you need and what you're looking for. That's probably the first team member you're going to need.

Brandon: That's great advice. Great.

Josh: Nice. Who else?

Jeff: You need to get a lawyer in that state, the transaction lawyer that's going to be able to look over the contract, look over your loan contract, look over title documents, and that stuff. That would be that.

A lender, you need to get relationship with lenders and that can be a national lender. On smaller properties, you might want to go with your smaller banks, some of your local lenders. You do want to get, if it's a big enough property, you want to get with your national lenders. You'll get much better terms on your national lenders.

Brandon: Oh, good to know.

Jeff: First of all, when I've been working with smaller properties, say a 20-unit or something, it's usually Mom and Pop owner. They give you their financials that are crap. You have to sit there and pick and choose and figure out what the heck is going on.

I would always say, "Look, I can't take this to my lender." My lender needs appropriate financial documents. They say, "Well, you could go to my lender." I said, "Okay. I'll go to your lender and see what they have to say." They would send me off to their local bank. Back when we were getting 3% loans, this lender was going to give me an 8% loan with a 15-year amortization. I said, "Yes, I could really go to your lender."

That just doesn't work. If I need to go to a decent lender, I need decent documents.

Josh: Yes. Yes.

Brandon: That's a good point. We talked earlier about portfolio lenders. That's something that I deal with. My small little local portfolio lender that I went to, it's great but I'm paying 5 ½ % on that money where had I gone to maybe a larger bank, I may have gotten less.

I may have gotten 4 ½ % or maybe even lower than that. I don't know. I am paying higher for the convenience of that portfolio, at least in my experience. Have you found the same?

Jeff: You're smaller banks are going to give you higher interest rates and shorter amortizations. It's hard to get a 30-year amortization from a local bank. They're going to go 20, 25 years. Like I said, I was even offered 15.

Josh: Yes, got you.

Brandon: That can really hurt. For those people who don't understand what that means, the shorter that your amortization is, the higher your payment is because it means that your loan is actually due. It's spread out over 30 years or 25 or 20 or 15. You can just imagine because it's spread out so much shorter, it's going to be a lot higher payments.

Jeff: That kills your cash flow but in the end that may not be so bad because you're paying it down faster. If you could afford, if you could survive with that cash flow then you could be okay but yes, you're payments are much higher.

Brandon: One of my properties, I'm doing a 15-year loan for the very reason that I want to pay it off in 15 years. I'm not going to take any cash flow and in 15 years it will be paid off. That's what me and my partners on the property decided would be our path because that's what they want to do. They retire in 15 years. They felt comfortable with it. Like you said, it kind of comes under what you want and kind of what your goals are. I love that.

Josh: Nice. Cool.

Brandon: All right. Moving on. Let's talk about finding them. We talked a little bit about LoopNet, you mentioned that earlier and broker relationships. Is that kind of really the gist of it is finding a good broker and have them find something for you?

Jeff: For the most part. The other thing that I have been doing more of lately is as I meet more people in my different real estate events or on BiggerPockets or wherever I happen to meet people, I let them know what I'm doing. A lot of times I'll find people that are doing small multis.

I say, "Look. You find something in your area that's too big for you, let me know and maybe we can team up on it." I do a lot of that where if somebody has a good deal in a location that I have reason to be there, I may team up with them and do a deal with them. That's another way that I'm reaching out.

Josh: That's great. It makes sense.

Brandon: That's how you find them. Let's talk about what do you do once you find it. Is this the same as single-family? You just have your broker write up an offer and do it? You mentioned letter of intent earlier. Is that always the first step? What are your thoughts on that?

Jeff: Usually it is because we want to put out as little money and little time spent on something before we know if we are in the ballpark. We'll make an offer.

In the letter of intent, we've got basically how much we're going to pay for the property, the timeline, how much time we need for due diligence for the financial contingency, closing. We'll put a few other items in there, just the major things just so we see if we have that going. If that is good with them then we can go to the contract.

Brandon: Great. Great.

Josh: Nice. Nice. Hey, Jeff what are you looking for? You talked about I guess a little bit about the numbers. What else do you want when you're looking for a multifamily? Are there markets you're looking at? Is there job growth? What exactly are you analyzing when you look at the big picture before you go ahead and make an offer on a property?

Jeff: The market is extremely important. I have an intern that's working for me. I'll throw everything at him to analyze and he'll come back with a property and make sure I want to know why I want to be in that market. The numbers have to work on the property but I also want to be in that market.

If it's a new market for me, tell me why. What's going on in the economy? What industries are in there? What's bringing people in and the population? What's the age population? Are they renter age? Just different things about the market, the economy.

I’m open to new markets and I'm open to smaller markets. The main thing is there has to be a reason that I'm interested in that market.

Josh: That makes sense. That makes sense.

Brandon: Perfect.

Josh: Cool.

Brandon: Before we move on to the Fire Round, I have one more question for you. What kind of mistakes have you made in your investing career? Is there anything that stands out as something that you would probably do differently or do over; you wouldn't want to do again?

Josh: He hasn't made any mistakes. Would you stop? Just go to the Fire Round. Come on.

Jeff: There have been so many I couldn't go on which one would be...

Josh: You know it's really funny. Somebody was ripping on us for some reason. I don't remember what the deal was. He was literally like, "On every show you guys talk about mistakes. I've never made any mistakes." It literally what he was saying. He was like, "Why do you tell people that they should be making mistakes?"

We don't tell people they should be making mistakes. We're not saying, "Go make mistakes." By virtue of doing what you do as a real estate investor, you're going to make mistakes. If you claim that you haven’t, you probably haven't done enough deals. You've probably done a deal or two if you're lucky.

Jeff: You probably haven't left the house if you haven't made a mistake.

Josh: There you go. I made a mistake when I put on this shirt this morning. I look like Brandon.

Brandon: You do. Okay. Go ahead.

Jeff: There have been many, many mistakes. Fortunately, a lot of the mistakes we were able to pull out of the deal before we completed the deal.

Brandon: You mentioned earlier that same thing about how you offered too much.

Jeff: Yes, that exactly. Exactly. There was another one I remember that I did that I'd made an offer on a property. The right thing I did was I contacted a property manager to go by there and look at the property for me. This was in a college town. When she came back and told me about it, she says, "This really isn't a student housing," because that was kind of their niche. I said, "What do you think? It's just really not our kind of thing."

It ended up I did not get that property that I was outbid. I did go to that town. It was in San Marcos. We looked at the property. The property was next door to a vacant house that looked like someone had torched. Across the street was an adult bookstore and the next door to that was a tattoo parlor.

Josh: Oh, come on, Jeff.

Brandon: My kind of neighborhood.

Josh: Yes, baby. Come on now. Party time!

Jeff: I guess I really didn't make any mistakes on that one. Fortunately, we didn't get it.

Josh: Yes.

Jeff: The one mistake that I can think of is we had a broker. We were buying I think it was 100-unit property we were looking at. The broker told us what we should be able to get for rents. We don't base our offer on what we could get but that's the value add. We figured we're going to get that.

What we failed to ask the broker is what do we have to do to those units in order to get those. We learned that and that's something we make sure of all the time. Yes, we could get those rents as long as we put at least 3,000 in each unit and then we could get those rents.

That was something we didn't realize until we had gotten there. We always shop other properties. We go and see what other properties look like to see what their rents are to compare what we expect to get. Our units would have needed a lot of work in order to get those rents. That was just one of the mistakes.

Brandon: Terrific advice. Cool.

Josh: Awesome.

Brandon: All right. Moving on. Why don't we move this over to the world-famous Fire Round, which today is sponsored by 99designs? 99designs is the world's largest design marketplace that makes it easy to get a design like a company logo, a website, a t-shirt that you'll love and you'll get your brand out to your community.

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It's time for the Fire Round.

Brandon: All right. The Fire Round, these questions come directly out of the BiggerPockets forums. I know you probably have even seen these because some of these when I was pulling them, you had actually answered in these threads. These might sound familiar to you from a while ago.

Number one, this comes from a Tony from Orland, Florida wrote in the forums. "I'm having trouble finding a large 20- to 30-unit apartment building. Should I instead just look into buying multiple smaller buildings like maybe three- or four-unit properties and getting a bunch of them?"

Jeff: The thing I like about the larger properties is the management. It depends on what you find. I like the bigger ones. For me the 20's are a little too small but for somebody just starting out, that may be a great way to go. You just need to find proper management. That's the main thing unless it's in an area where you're going to do the management yourself, if it's close enough.

Brandon: Yes, makes sense.

Josh: Good, good, good. All right. This is from DL from Cincinnati, Ohio. His question is...I hope it's a “his” because I did not write DL. DL, if you are a “her,” I apologize in advance. The question is, "I've read that I should strip all the garbage disposals from my apartment complexes because they cost so much to replace. What do you think?"

Jeff: I probably would. I probably would because it's going to cost you more maintenance problems. If we had any, we would probably take them out as they broke. They're just more of a hassle and for some reason people that live in apartments I guess...I don't want to stereotype.

Josh: Shove crap in the garbage disposal?

Jeff: Delete that. It just seems that people that have not used garbage disposal before don't know how to use them and you're going to end up with more issues.

Josh: Why is my hand bleeding? I don't understand.

Brandon: What I hear about the garbage disposals is they burn out. The engines burn out or something. I don't know what they're doing. The blades just disappear inside. I think they're shoving metal, I don't know, skis down there. It happens all the time. We removed them as they go.

All right. Next question: Josh from Encinitas, California is wondering, "I'm thinking of buying and 18-unit apartment building that is in the same complex as 70-80 other units." I think they call it condos or something. Anyway, "It's only a portion of the 70-80 units. Is this a bad idea knowing that I have a lot less control over the rental price and the HOA fees and such?"

Jeff: I would say it's a very bad idea. If you don't have control over the majority of the units, I would stay away from it. We were looking at a property where we were going to have control of the HOA because we would have a majority of the properties. That I might consider doing but I certainly wouldn't consider coming in as a minority owner and being at the control of the HOA.

Brandon: Okay.

Josh: Makes sense. Makes sense. Right on. All right. Last question: "I'm looking to get into my first apartment acquisition; hopefully, five to ten units to start. What's the best route for financing a small downpayment, $10,000-15,000 but I've got a very high credit score?" That is from Doug from Pittsburgh, Pennsylvania.

Jeff: I would go and look for private money. Check it. Talk to your relatives, your family, friends. That's the best way to start. Have them look at what they're earning on their funds and if this property will bring them in more, maybe they'll be interested.

Brandon: There you go.

Josh: Good stuff.

Brandon: All right. Let's move on to the world-famous...

Famous For

Brandon: All right. These questions we ask everyone. We're going to fire them at you here. Number one, what is your favorite real estate book?

Jeff: I have lots of real estate books that I have either listened to or read but I will go with the most influential. The ones that had the most influence on me are books that have been mentioned many times here which is "The E-Myth," "Rich Dad Poor Dad," and "The CASHFLOW Quadrant." Those probably had more influence on my thinking than anything else.

Josh: Right on. You kind of covered the next question, which is your favorite business book, "E-Myth."

Jeff: Yes. I guess those really aren't real estate books as such. With those three, they cover it as far as business books.

I will say that as far as real estate books, what I find more rewarding and you guys didn't pay me anything to do this but the podcast that you guys do and the BiggerPockets I think that's better than any other book that's out there as well as the "Beginner's Guide" and the "Low (or No) Money Down" book. Those all have some great, great information in them.

Brandon: Wow. You’re my new favorite guest. Look at that.

Josh: Yes. Right on. Right on.

Brandon: See? It doesn't take that much work to become my favorite guest. Come on, Ben Levovich. You don't have to make fun of me the whole time.

Jeff: Just send the cash. Just send the cash.

Brandon: There you go. There you go.

Josh: There you go. Nice. What about hobbies? What do you do for fun, Jeff?

Jeff: I like to cycle for exercise. I also like to ski when I can do that. I guess the biggest one is spending time with my grandkids.

Josh: Right on. Right on. How old are your grandkids?

Jeff: I have 13, seven, six, five, and six months.

Josh: I don't want you to work that hard, man.

Jeff: Yes. You caught me off guard on that one.

Josh: Sorry. Sorry.

Jeff: There are five of them.

Brandon: That's cool.

Josh: That's great.

Brandon: That's awesome.

Josh: That's really great. That's really great. Cool.

Brandon: All right. My final question: Jeff, what do you think sets apart successful real estate investors from those who fail, they give up; they never get started?

Jeff: I think a lot about this one and people ask me a lot about what makes someone successful. I think the main thing is a big "why." A strong "why they're in this" that keeps them going. It's a lot of "pulling it out of your gut" and continuing when everything seems to be falling down around you.

There's a lot of money to be made in real estate. Nobody's going to claim it's easy but I think it's just the drive. There are a lot of people that I've seen fall in to the wayside because they either didn't have a strong enough "why" or they just couldn't pull it out of their gut to continue.

Josh: That's great.

Brandon: Yes.

Josh: That's great. I think I agree with you.

Brandon: Yes. There you have it.

Josh: All right. Before we go, where can people find out more about you, Jeff? Do you have a website? Where can they get in touch?

Jeff: We do have a website,

Josh: Nice.

Brandon: Cool.

Josh: Well done. Well done. All right. Listen. Thank you so much for coming on the show. We definitely appreciate it. We also appreciate having you as a member of the community on the forums. Thank you. Thank you so much for sharing your knowledge with us.

Jeff: Thank you very much for having me.

Josh: Thanks, Jeff.

Brandon: Thank you. It’s been fun.

Jeff: Bye.

Josh: All right, guys. That's Show 115 of the BiggerPockets Podcast. Definitely make sure to check out the show notes at and you'll get all the information about today's show -- links and all sorts of goodies. Definitely check it out.

We'd like to thank Jeff again for all his help on these questions for you in the field of apartment investing, a really interesting topic that I know you and I talk about a fair amount, Brandon. It was fun learning more, right?

Brandon: It's always fun. Sure. Yes.

Josh: Great. Way to be enthusiastic, man. Way to do it.

Brandon: My phone started ringing right when you said that. Who's calling me? I think it's my lender that we actually talked about in the show. It's just funny.

Josh: Oh, that's awesome. Cool.

Brandon: I'll call him back.

Josh: Call him back. All right. We're recording. All right. That was great. Good show. Good show. As you heard, Jeff is a member of BiggerPockets. Even guys of Jeff's stature are out there on the site giving answers, helping people out because in the end it actually pays itself off.

The time you put in does reap the reward of building your network, giving you trust. As a result, you become attractive to other investors and other people who might want to work with you. We definitely encourage you guys to jump in on the community at Hang out on our forums at

Of course, you can check us out on Facebook, Twitter, G+, LinkedIn, and YouTube. That's it. If you like the show, please keep on leaving us ratings and reviews on iTunes. You can get a link to that via the show notes again at

With that, we'll see you next week on the show. I'm out of here. Josh Dorkin, signing off.

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