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SHOW NOTES FOR EPISODE 183: ENGINEERING A MULTIFAMILY STRATEGY THAT REALLY WORKS!
Buying his first real estate investment in Israel and, after reading Rich Dad Poor Dad by Robert Kiyosaki, Joseph Gozlan jumped into real estate investing with an unyielding determination and commitment. An engineer by trade, Joseph began testing and refining his real estate investing methodologies to develop a system that would work well for the long run. In this episode, Joseph shares the challenges he encountered starting out and how he overcame those challenges to create a multifamily investing machine.
What You Will Learn
- The book that changed his thinking about jobs and investments
- What he learned from the 2008 crash and how he used the market downturn to his advantage
- Why multifamily is the “hands-down best real estate investing strategy”
- A unique tenant targeting strategy that fills his properties with excellent long-term tenants
- How he learned the hard way how important thorough market analysis is critical to real estate investing success
- How you can still find great off-market deals even though brokers won’t send them too you because of your lack of experience
- How he builds “local” teams with a nationwide link
About Our Guest
Joseph Gozlan
Joseph Gozlan is a multifamily investments specialist with group acquisitions of over $11MM in real estate and providing asset management services to a portfolio of 156 units and growing.
Joseph has over 17 years in the software industry. In his most recent role as a Senior Software Development Manager, Joseph leads five software engineering teams and is responsible for the delivery of a variety of software products that contribute directly to the company’s multi-million dollar bottom line.
He has a B.S. in Information Systems Engineering and is also currently enrolled with Texas A&M’s MBA program.
Joseph began his real estate investing back in 2005, when he purchased with his wife Rita their first investment property in Israel. In 2007 Joseph & Rita relocated to Plano, Texas and in early 2008 started their US real estate investment journey with the purchase of a duplex in Plano. Since then they grew their portfolio and strengthened their equity positions in multiple properties. Joseph’s next steps are closing on a 96-unit apartment community and continuing to acquire even more multifamily communities in Lubbock, Texas secondary markets with the goal of acquiring and managing an asset base of 3000 units or more in the next 5 years.
More About Joseph
- Correlation between IT professionals and real estate investors
- Went to school, got a job, got married
- Read Rich Dad Poor Dad by Robert Kiyosaki – it hit him hard, started to reshape the way he thought about working for a living
- In 2005, purchased a condo in Israel but it was too big for their needs. Decided to rent it out for a few years, when they have kids, they would move in
- Liked seeing the income coming in
- In 2007, relocated to the U.S. – Dallas-Ft. Worth, Texas
- Became licensed brokers
- Market crash presented opportunities to buy properties at low prices
- In 2008, started buying single-family homes
- Started having kids so put real estate on hold
- 2015, Dallas/Fort Worth became too hot to find the kind of deals they wanted
- Asked, “How can I grow a scalable strategy for me?”
- Discovered multifamily
Developing a Multifamily Strategy
- Set out to purchase multifamily only
- Wanted to continue investing in Texas but sought out secondary, tertiary markets instead of major MSAs to avoid competition with major institutional and international investors
- They receive major emailings from commercial brokers but know that those opportunities will not meet their deal criteria
- As brokers, they are doing a variety of things to source deals and find off-market opportunities
- Marketing with
- Phone calls
- Direct mail
- Building relationships with other brokers
- Let them know they will pay their commissions if they bring the right property
- Work closely with their property management company
- Marketing with
- Got 96-unit opportunity
- Came from broker referral who had worked with them on two other opportunities
- Called Joseph 2-hours after seller was putting our “feelers” out there to see the level of interest
- 3 hours after that call, Joseph submitted an LOI
- Criteria
- Markets
- Texas secondary, tertiary markets – 20-25,000 minimum population
- Oklahoma City
- Tulsa
- Kansas
- Alabama
- Florida
- Economic Drivers
- Employment
- Who are the big employers
- What are the big industries and how stable they are
- Universities
- Hospitals
- Population growth
- Properties
- C and B classes
- 100 plus units
- Prefer value-add
- Stabilized management play opportunities, if the numbers are right
- Doesn’t care about Cap Rates
- He looks at:
- What can I get this property to be?
- How much money or capital is required to get it there?
- How long will it take? And how much is my time worth?
- Drives price backward to determine what he is willing to pay to see if he can get a deal
- Can I pay my investors what they are looking for in terms of return?
- Those are the things that determine if he will pursue the deal
- Recent 96-unit deal
- Syndication
- Accredited investors only
- Funded in three days
- Agency debt (Fannie Mae and Freddie Mac) at 75-90%
- Markets
Why he Shifted from Single Family Properties to 100-Plus-Unit Apartments
- His first purchase was a condo in Israel
- He moved to the US and bought some single family homes
- First multifamily purchase was a duplex
- Required $40,000 in repairs
- Foundation, plumbing repairs
- Hail storms roof damage
- Water heater replacement
- Broken garage door
- Saw that this was not sustainable
- Other properties required other large purchases
- A/Cs
- Fences
- The reality that you get cash flow out of single family homes went out the door
- He is very analytical and sought to find what kind of business is scalable. Looked at
- Stocks
- Forex
- Cryptocurrencies
- Other types of real estate
- Medical
- Retail
- Office
- The thing that made the most sense to him was multifamily
- Another reason why multifamily makes more sense right now
- A major generational split
- 75 million baby boomers growing older
- Kids are gone, empty nesters
- Don’t want to deal with lawns and large home maintenance
- If dishwasher is broken, roof needs repairs, gutters need to be cleaned, they’d rather call the landlord to have them fix it
- Want to reduce expenses, utilities
- 77-78 million millennials
- Prefer renting over buying
- Huge student loan debt
- Were teenagers during 2007-8 crash – saw parents lose jobs, homes, go to foreclosure
- Personal lifestyle
- Don’t want to be tied down to any one place
- Want to go where the high paying jobs are
- Go where latest trends are
- Combined, both groups equal half the population of the U.S. and are comprised of 80% of the people who decide buying vs. renting
- 75 million baby boomers growing older
- A major generational split
Targeting Prime Tenants Audiences
- He his targeting prime tenants by their professions not by age
- C class properties are best for blue-collar, hard-working
- Nurses
- EMTs
- Hospital techs
- Firefighters
- Law enforcement
- Teachers
- Property manager at one building buys bunch of donuts and property flyers and takes them to local hospitals, fire stations, police stations ever Wednesday
Biggest Mistake
- Not more clearly vet a town before buying a property in that city
- Had contract on property in a tertiary market in Texas
- After brutal negotiation that cost $1,000s in legal fees, found out that 50% of the tenants were employed by a “roaming employer” that comes to town with all their employees, does their project over the months they are there and then moves on
- When they walked the units they saw that everyone had air mattresses, no furniture
- Further, when they researched the local city, they found out that the city was stagnant and was going nowhere economically
- Fortunately, now they have strong teams on the ground who can warn them of these types of situations
- Because of that, they have ramped up their due diligence now
Biggest Success
- When they first started out, brokers were not sending them good off-market properties, therefore they had to source out their own deals
- Direct marketing
- Doesn’t generate the opportunity
- It only puts you in front of that person when the opportunity happens to them
- Direct marketing is all about consistency, over and over again
- It’s about catching people when they are most likely to want to sell (divorce happens, sewer explodes, health department violations, etc.)
- Postcards
- Yellow letters
- Phone calls
- Direct marketing
- Finding the first owner was his biggest success
- Postcard
- Came to trust Joseph
- Did owner financing
- Best acquisition to-date
- Real estate is a relationship business first and foremost
- Brokers
- Bankers
- Mortgage brokers
- Sellers
- If you’ve built the right rapport and relationship, you get the right deals
Advice for Old Dawg’s Interested in Real Estate Investing
- There’s an investment triangle: risk- return – headache
- Everyone must decide where they are on that triangle
- If you buy a single family home, you’ll have more return, more risk, bigger headaches
- More return – if you self-manage
- Risk – if tenant moves out, 100% vacancy
- Headache – you get the call for the broken toilet
- If you invest in stocks
- Risk – potentially higher (less with index funds)
- Returns – generally lower
- Headaches – less
- Multifamily investment in other syndications
- Risk – generally lower because secured by property
- Returns – good 6-12% quarterly
- Headaches – none. Just deposit my check when it comes in.
- Look at where you want to be on that triangle and select appropriately
- If you buy a single family home, you’ll have more return, more risk, bigger headaches
Where Does He Want to See His Company on the Next 5 or 10 Years?
- 3,000-units in the next five years because they like to dream big
- His key focus – sustainability – and more conservative than most
- Wants to protect his investors
- Feels we are at the type of the cycle
- It’s not a matter of if but of when
- He believes that in 5 years they will, hopefully (?), be in the recovery side of the equation and that there will be many more great opportunities
- He sees other investment groups over-leveraging themselves on the re-financing and large supplemental loans and he suspects that in 2-3 years that we will be feeling the implications/side effects of that
- They will keep buying
- Would rather do 1-2 good deals a year that 5 bad deals
- His investors are the first priority – they get paid first
- Treats tenants well
- Quick service responses
- Creating community
- Special events
- Handed out gifts at Christmas with Santa Clause
Team Building
- As they look in new areas outside of Texas, they already have potential “boots on the ground”
- Uses a property management firm that is also in some of their other target locations
- Real estate lawyers have partners also on target areas
- Syndication attorneys are nationwide
- They are building commercial broker relationships at this time
- Use national lenders – Fannie Mae and Freddie Mac
Rap-It-Up
- Favorite real estate book: Rich Dad Poor Dad by Robert Kiyosaki and Real Estate Millionaire Investor by Gary Keller
- Favorite business book: Profit First by Mike Michalowicz and The eMyth by Michael Gerson
- Most valuable web site for success (other than your own): Closed Facebook Group – GoBundance
- Favorite app: Trello (digital sticky notes)
- Favorite quote: “Keep moving forward.” Walt Disney
- If you had to start all over, knowing what you know, and you only had $1,000, what would you do to launch your real estate investing business? Would use that money to make phone calls, set-up meetings and rebuild relationships to reignite his business.
How You Can Reach Joseph
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