323: How to Acquire 1,000 Units in 5 Years

SHOW NOTES FOR EPISODE 323: HOW TO ACQUIRE 1,000 UNITS IN 5 YEARS

According to attorney, multifamily investor and mentor Charles Dobens, “Real estate investing is nothing more than a sales and marketing business.  You’re a salesperson.  Your first job is to sell your offer.” In this eye-opening podcast, Charles shares his very unique strategic formula for acquiring 1,000 units in only 5 years.

What You Will Learn

• There’s only one thing you can really control as a real estate investor
• Why apartments are the perfect cash flow investment
• What he learned from the 2007-2008 crash and why that experience helps him coach students today
• Why do so many investors not know the difference between a good and a bad investment
• How you learning the proper fundamentals can prevent long term mistakes
• Why slow and steady is the bet investing approach
• The right and wrong ways to use leverage
• A winning buying strategy for today’s pre-inflationary market
• What’s the key to long term real estate investing success?

About Out Guest

Charles Dobens

Charles Dobens is a multifamily investor, attorney, and mentor to multifamily investors all around the country. Charles founded the Multifamily Investing Academy, where he works with students in his Owner Forum program to train them in the correct way to acquire, operate and own multifamily property.  His legal and consulting practice has one specialty – helping new investors overcome any lack of confidence in moving toward their financial objective of owning and operating apartments.  Charles Dobens is principal at Dobens Law and founder of the Multifamily Investing Academy.

More About Charles

• Doesn’t like to be called an attorney.  He wants to be called a “second responder”
• Always wanted to be in real estate, since he was a little kid
• When he was in college he was a doorman at a luxury apartment building in Brookline, MA
• Got to see what a luxury A class apartment was up front
• When he graduated college, he went into the family business – insurance
• While he was doing that, he decided to go to law school
• He had a young family
• When he graduated from law school, he went back into the insurance business because he was making good money it before
• Formed his own “Benefits Administration” insurance business and owned it for 10 years.  He had about 35 employees working for him
• When he turned 40, he felt like “something had to give” — he was working too hard
• He got to the point where he hated Sunday evening because it was followed by Monday morning
• One day, he just told his wife he wanted to quit the insurance business and just buy an apartment building

Moving Into Real Estate

• He sold his insurance business
• Started buying apartments using the rapid growth method he now teaches in his classes
• He got up to 800 units and then the market crashed (in 2007-2008)
• He tells his students to ask the real estate “gurus” if they have ever been through a market cycle
• What you learn from having to go through a market crash is invaluable
• He kept some properties, lost others

Integrating His Legal Practice

• He had friends who were real estate investors approach him during the recession asking if he would represent them in their legal matters
• Some of these investors were going to loose their properties
• The most he could do at the time was to hold their hands through the situation, maybe get them out of some resource loans, etc.
• He saw a lot of investors who bought a lot of bad properties
• He saw that many investors had been trained improperly in multifamily the bad purchase in the first place investing and didn’t know the difference between a good and a bad property
• He thought the best way to help them would be to help them not repeat some of the mistakes he made
• Charles was doing things right because, even though he was buying properties all over the country, he found and hired experienced local counsel (great attorneys) in each area
• Even though Charles’ attorneys could close escrow, draft contracts, etc.  they could never tell him if the properties were a good deal or a bad deal
• As a successful investor, he knew the difference
• He decided to focus his practice on clients who are first getting into buying apartments, where he had both share both his legal and investor expertise

Launching the Owner Forum and Multifamily Investing Academy

• He decided to create vehicles to help investors BEFORE they buy and before they make bad decisions
• The Owner Forum, which is part of the Multifamily Investing Academy, is a month-to-month membership program which offers you the entire library of Charles Dobens’ training materials, as well as personal coaching, membership in the WhatsApp group of like-minded, supportive fellow investors, weekly live group coaching calls, and more.
• He doesn’t let students send out offers, sign contracts or any communication with prospective deals until Charles looks at it first

Learning From His Mistakes

• In his first year as an investor, Charles set out to buy 20 units
• Found a broker in Cincinnati who said, “I know what you are looking for and as soon as I find it, have your check book ready to write a check.”
• Two weeks later, she calls up Charles and she has a 40-unit property
  • It was a class A property
  • Located in Michigan
  • He made an offer
  • Had to raise $330,000 from friends and family
  • Instead of acquiring 20-units his first year, he got 40
  • He put 25-30% down so the property wasn’t over-leveraged
• The first property was across the street from an 88-unit property
  • The same bank that had owned the 40-unit, also owned the 88-unit
  • Owner of the 88-unit was having financial problems
  • The bank approached Charles to see if he wanted to buy the 88-unit
  • Charles said “Yes, but we don’t have any more friends or family.”
  • The bank said, “What if we lent you the money for the down payment?”
  • Two week later, they owned the 88-unit
• In a 6-week period, they had acquired 128-units
• It looked good on paper but he had two properties: one was leveraged well.  The other  (the 88-unit) was over leveraged well because the bank owned 100%
  • He made more money on the smaller property
  • The other property only broke even.  He never made any money on it.

A Few Words on Getting Started and Getting the Deals

• The only thing you can control in your real estate business is making offers
• You can’t control:
  • The owner accepting your offer
  • The bank saying yes
  • The property needs assessment to come out the way you want it to be
• If you’re not making offers, then this is just a very expensive hobby
• If you’re making offers, you’re moving up the broker’s food chain
• If you’re making offers:
  • You help the broker by showing his making is working
  • You help the selling by showing him/her that their price is too high
• Make offers!!! That is it!
• According to Charles, “This is nothing more than a sales and marketing business.  You’re a salesperson.  Your first job is to sell your offer.  You’re just like that insurance agent who is sitting in the lobby with four other insurance agents, going in to see the owner of the company to sell him his group insurance plan.  Who’s got the best offer?  Who’s got the best numbers,? Who’s got the best product.?  That is what your offer is!  You have to go in there, to the owner, and convince him you’re better than the all the other guys in the lobby.  That’s all you’re doing when you make the offer.  You’ve got to write that offer so it gets accepted.”
• Once you do it, you’re going to find out how incredibly easy it is.  And it doesn’t cost you a thing.
• WHAT SOME PEOPLE ARE DOING:  Offer $100,000 earnest money that goes hard on day one for accepting the offer!
• When you submit your first offer and hit the first roadblock from the broker,… things like submit your real estate resume, submit your POF (proof of funds) letter
• Don’t be discouraged by the road blocks!
• You’re not committed with an offer or even being under contract.  There are always contingencies.
• It doesn’t get serious until your (earnest) money goes hard and you’ve got 30 to 40 days to make that decision and put your team together
• The team is critical! Part of this business it building a team before it happens!

First Steps

• Finding the Deals
  • The first thing he teaches his students is how to find deals where no one else is looking
  • Don’t look in Loopnet for deals.  You can look there to find brokers but not deals.  That’s where deals go to die!
  • The “NFL Search” – looking for deals with you laptop while watching Sunday football is fine
  • But the most successful way to find the deals is by direct mail directly to the owners
  • The last thing you should do when building your business is to outsource looking for deals to a broker
    • It’s to a person you don’t know
    • Who doesn’t work for you
    • They have no fiduciary responsibility to you
    • They has a  hundreds other people they work for asking for the same thing
• Property Analysis
  • He uses software developed by Doug Rutherford, a CPA out of Georgia’s Cash Flow Analyzer software
  • Great program
  • Students get the rent rolls and T-12s, plugs the info into the software, sends the results to Charles and he evaluates every deal first
  • He also has a video program – “How to understand multifamily financial statements better than your accountant”
  • He shows you how to look at the T-12 and know what a “Day in the life” of the property manager is like and how the numbers work
  • If you do the analysis right you won’t overpay for a property
  • Charles once showed is CPA a property’s financials and pointed out the “loss to lease” numbers and the CPA couldn’t see the problem.  He realized the CPA had no idea what that category meant to a multifamily owner – how that category impacts how you have to conduct business
    • For example…
      • A little old lady has managed a property for 20 years
      • The loss to lease is the difference between the market rents and what you are actually collecting
      • If the market rents are $1,000 per month and this property is collecting $800 per month, it’s a 20% differential in the loss to lease
      • Some people may look at that and say that that is a huge opportunity to increase rents
      • But the question you have to ask is, “What is it going to take to make that happen?”
        • The first thing you have to do is fire the property manager because she has not been keeping  the rents in line with the market
        • You’ll need to evict everyone over the next two to three years
        • Need to rehab units
        • All of that costs a lot of money
        • You’ll need to factor all those costs into your purchase price
        • All because your loss to lease is so high

Biggest Mistake

• He got big too fast
• Building a solid business on a solid foundation is the key to long term success
• Slow and steady is better
• Do it the right way
• Don’t feel you have to close on a deal
• The worse thing you can do is to purchase a property for the acquisition fee and you need that money
• He doesn’t fee 5 years to 1,000 units is too fast

How to Acquire 1,000 Units in 5 Years

• The first year, buy 20 units
• Year two, double it – buy 40 units, don’t sell anything and now you have 60 units
• Year three, double it – buy 120 units, don’t sell anything and now you have 180 units (now, you’re quitting your job)
• Year four, double it again – buy 360 units, don’t sell anything and now you have 540
• Year five, double it again and now you own 1,080 units

Your Biggest Success

• Doing the first couple of deals were their best deals
• Charles and his wife did it on their own with family and friends
• Put the deal together and ran them themselves

Your Worst Deal

• Deal in Forth Worth, TX
• Did everything wrong
• Phantom leases
• Not understanding the pitfalls of an assumption
• He shouldn’t have bought a property a thousand miles away

Where to Buy?

• Charles always asks his students, “Where do you want to be living in five years?”
• That’s where you want to buy properties
• You have a 5 year plan to reach 1,000 units.  That’s where you want to purchase your properties
• You can find deals in your own town
• You’re building a multifamily business
• And all successful business people remove the risk as much as they possibly can
• If you have never done this business before and you are looking to buy a business 1,000 miles away, how many other risk factors can you add to the equation before you’re bound for disaster?
• Really understand what you are getting yourself into if you want to buy on the other side of the country

Advice for Old Dawgs Interested in Buying Apartments

• Get started now!
• Give it five years and you can create an apartment portfolio that will provide for you now and generations to come
• It’s a great legacy to leave

Current Business Ahead

• There’s going to be a cooling off in the market
• You need to look at the secondary and tertiary markets now
• Go to the other markets now, sell at the top and come back and buy in your own market when prices are low
• Hie Education Business
  • He has a limit on the number of students (currently 150) he will take and he’ll stop at that number

Rap-It-Up

• Favorite real estate book: Commercial Real Estate for Dummies by Peter Harris and Peter Conte
• Favorite business book: eMyth Revisited by Michael E. Gerber
• Most valuable web site for success (other than your own): EnodoInc.com
• Favorite app: Slack
• Favorite quote: “It is not the critic who counts: not the man who points out how the strong man stumbles or where the doer of deeds could have done better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood, who strives valiantly, who errs and comes up short again and again, because there is no effort without error or shortcoming, but who knows the great enthusiasms, the great devotions, who spends himself for a worthy cause; who, at the best, knows, in the end, the triumph of high achievement, and who, at the worst, if he fails, at least he fails while daring greatly, so that his place shall never be with those cold and timid souls who knew neither victory nor defeat.” Theodore Roosevelt
• 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? He would use the $1,000 to pay his phone bill because it’s all about relationships. Talking to people and making deals happen.

How to Reach Charles

• Website: Multifamily Investing Academy and the Multifamily Attorney
• info@multifamilyinvestingacademy.com (Deb – his assistant)

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