525: Persistence Pays! Multifamily Mania Aussie Style

SHOW NOTES FOR EPISODE 525: PERSISTENCE PAYS! MULTIFAMILY MANIA AUSSIE STYLE

He came to America from Australia with a dream to become a real estate investor.  In today’s podcast, Reed Goossens shares how, with limited funds, no investing experience, and no credit, he went from paying cash for a small duplex to forming his own real estate syndication firm where he syndicates multi-million dollar apartment deals across the U.S.

What You Will Learn

• The power of networking for first-time real estate investors
• Where to find money when you can’t qualify for a loan
• The best way to quickly go big in real estate
• Strategic steps to become a syndicator
• How to build a sizable investor pool in a relatively short period of time
• Why and how you need to change your debt structure in anticipation of a market shift
• How Covid better prepared us for the recession
• Four rules of thumb every passive investor should know before investing in syndications

About Our Guest

Reed Goossens

In 2012, Reed quit his job in Australia and moved half way across the globe to the US to change his life, and to chase a dream.  With limited funds, no investing experience, and no credit, Reed went from purchasing a small duplex to growing his own real estate investing firm, Wildhorn Capital.  Reed now syndicates large multi-million dollar deals across the US.  He has also achieved financial freedom, and has taken control of life.

More About Reed

• Reed is from Australia
• He graduated university as a structural engineer
• Graduated in 2007 and went right to London
• Got a job working on the 2012 London Olympic Games
• Worked in London a year and then went to the South of France where he worked as a deckhand on a super yacht belonging to a Russian Billionaire
• He met Erica, his wife, working on the yacht
• Returned to Australia in 2010
• Got a job, working in a cubicle
• All he could think of was how could he make enough money so he could always travel around the world and his life the way he wanted to
• He didn’t know anything about entrepreneurialism or financial freedom
• He just knew he wasn’t going to stay stuck in a cubicle for the next 40-50 years of his life
• He got a hold of the book Rich Dad Poor Dad – this book was the game changer!
• His dad was a school teacher but he also bought rental properties on the side and did pretty well with them
• Reed saw real estate as the vehicle to financial independence but he didn’t want to go back to school to learn real estate so he was determined to teach himself

Becoming a Real Estate Investor

• He spent the next year and a half learning about real estate investing
• However, he didn’t want to be an investor in Australia – he wanted to move to New York City
• Of course, the fact that Erica lived there was just coincidence
• He moved to New York in 2011
• Got a job as a structural engineer in NYC for income and so he could stay in the country
• He had no real estate experience but saw excellent networking opportunities (the REIAs, FIBIs, etc.)
• He found that the secondary and tertiary markets in the U.S. had much lower barriers to entry
• It took two and a half years for him to buy his first rental property (a duplex in Syracuse, NY) for $38,000 cash
• He paid cash because no one would lend to him because he wasn’t a citizen
• He could hop on a Greyhound bus in Penn Station and get to Syracuse in 4 hours
• After six months, and proving that he was depositing rental checks, he was able to get a line of credit on the duplex
• He also saved as much money as he could as he could
• He bought a second property for $45,000
• He looked at Philadelphia for a fix ‘n flip
• He was making $800-900 a month in cash flow
• He was limited by the amount he could borrow so he had to change his mindset

Syndication

• After a number of strategic conversations with some friends and decided to go into syndication
• He was now looking at raising money from other people to purchase larger properties (100 plus units) and applying principles that he was doing on the smaller properties
• By 2013, he realized he wanted to syndicate but didn’t know anyone who could mentor him
• So he looked for a mentor and found the cheapest mentor he could find (who is quite popular these days)
• The mentor had only done one deal but did teach him some tricks of the trade
• He was able to co-GP a few deals with his mentor in 2014-2015
  • Mainly capital raising, underwriting and finding deals
• He created networking events that allowed him to meet other potential partners and contacts
• He met one investor that he was able to introduce to his mentor and, today, they have over 10,000 units together
• In 2016, he was able to branch off on his own and form his own syndication company
• His first syndication deal was 192 units in San Antonio, Texas
  • He spent many sleepless nights while putting the deal together
• He created networking events that allowed him to meet other potential partners and contacts
• He met one investor that he was able to introduce to his mentor and, today, they have over 10,000 units together
• He moved to Los Angeles but was still working full-time as an engineer
• He was focused on building up his brand, starting a podcast and building up his investor database
• He was then able to do his own lead deal as a syndicator
• It took a while to get there – being co-GP on deals, building up a brand, starting a podcast and building up his investor database
• He didn’t quit his day job until he had 3 syndication deals under his belt

The Podcast

• In the beginning, when he started his podcast in 2014, it was called “Investing in the U.S.”
• It was initially the story of his multifamily investing journey and was targeted to international investors
• It was primarily created to build his investor database
• Today, most of his listeners are Americans

Moving to L.A.

• His girlfriend was from Los Angeles, so they moved from New York to L.A.
• He thought if he could get a real estate-related engineering job that would be best
• He got an engineering job with a developer who built multifamily properties to pay the bills and learn the real estate game from the inside
• It proved to be a good strategic move because he was surrounded by real estate 24/7
• He knew the job was only temporary until he could build up his real estate business but it helped his education as well
• He stayed there for about 4 years
• Once he got his green card and got married, he wasn’t required to have the job

Not All Roses

• All this happened over a 4-6 year period that occurred over an 8 year period (from when he first read Rich Dad Poor Dad)
• His journey was not all roses
• There were some dark and difficult times
• He had to juggle a full-time job, a new marriage, find deals and investors and make everything work!
• It was not necessarily a clear, concise, step-by-step process
• He had to just keep pushing
• When you hear it here, it sounds like all step 1, step 2, step 3, but it really wasn’t as calculated – it was hard work (80-100 hour weeks) and mistakes that had to be overcome!
• Being an entrepreneur became part of his DNA – he became committed to going out and achieving something
• Yes, he has achieved a lot but it didn’t come easy!
• It’s about making and meeting challenges – pushing yourself
• When he left Australia to move to New York City…
  • He didn’t have a job (he had 3 months to find a job!)
  • The relationship with his girlfriend could have fallen apart
  • It’s about learning to bet on yourself and pushing those comfort barriers out be uncomfortable at times
    • You grow and you fail
    • But he never regretted taking the challenge

Hot Markets

• He’s seen a lot of changes in the multifamily market since he first got started
• He’s been underwriting deals in Texas since 2014
• He remembers underwriting 40-50-unit deals in Ft Worth, Texas
  • 1 and 2 bedroom apartment rents in a class C building were $450 to $600
    • Today, they are $850 to $1,000
    • In 6-7 years, they’ve increased 30%
• Cap rates have tightened significantly
• There has been lots of capital pouring into commercial real estate
• The market is hot and continues to be hot
• It’s smart to be cautious, understand your market and what you’re buying
• You need to know you can increase rents, NOI, and a good return on investment for your investors
• Because he’s a proven buyer and operator now, it’s not hard for him to find good deals in the marketplace
  • He gets deals referred to him by property management firms and brokers
  • He also gets off-market deals and pocket listings
• It’s very important to intimately understand your market
  • Where is the path of progress?
    • Be plugged into the urban development boards
    • Where are they investing money?
    • How are they trying to attract businesses?
    • What are the population growth numbers for each region?
    • Where are the changes and shifts in the market?
• He wants to be an expert on his markets (DFW, San Antonio and Austin)
• Good deals are still there, they just pencil differently than they did before
• Gone are the days of the 18-20% IRRs.  It’s more like the low teens
• And investor expectations have to change as well
• Multifamily has become more institutionalized over the last 10 years, since the crash
• Wage growth has remained stagnant while the cost of living goes higher and higher
• People are renting longer

First Major Exits

• He is just coming up on his first major syndication project exit
• This will help show investors he can prove his thesis
• There focus is value-add with typically a 5-7 year hold
• This will help them raise more capital and buy more deals
• He’s also exiting a deal now where they are only 2 1/2 years into it
  • They had a bridge loan on it, coming due at the end of year three
  • They are testing the waters to see if someone would buy at their price
  • If they don’t they will have to re-fi and get agency debt
• On his other debt, he has agency debt that has high pre-pay penalties so he has to wait

Early Mistakes

• Debt structure (already mentioned)
• How he attracted talent (top property management firms) to the properties
  • He usually gets third party management
  • But getting the best people onsite can be a challenge
  • Having the proper talent in place is key!

Looking to the Future

• He also likes other markets like Phoenix, Greenville (South Carolina), and Dallas/Fort Worth
• Looking at possible small office acquisitions, hotel/motel conversions to low income housing (you get tax breaks in Texas for these)

Market Corrections

• The market has shifted and Covid has been a good smoke screen to help flush out the valuation of companies
• Large lay-offs with many companies suggests vulnerability pre-Covid
• We are in a recession (GP didn’t grow in the last two quarters)
• Interest rates will remain low for the next few years according to many experts
• Multifamily survived Covid rather well
• We are in a recession but Covid has masked a lot of that
• He anticipates market shifts in the next couple of years
• Because he anticipates market shifts, he will use low-leverage debt and have plenty of cash on-hand
• He he did a deal with 75% loan to cost – some might see that as pretty moderate – it was also at a 5.15% interest rate – just 3 years ago
  • He would never do that kind of a deal again
  • Now, they’ll never go above 70%
  • And they would never do 100% financing on Cap-X
  • With Covid, they had to dig into capital expenditure
  • Leverage is very important (but don’t exceed 70%) but you need amble cash as well

Covid’s Impact on His Properties

• He had mixed results
• From a high level point-of-view – at the worse times, they had 8-9% delinquency
  • Not its down to 2-3%
• It all depends on the type of asset class you’re buying and where you are in the repositioning of your rent roll
• A lot of the value-add play they employ means upgrading the units and increasing rent
  • But higher rent requires higher income from tenants
  • They saw a lot of their blue collar tenants struggle
  • But others, who were able to work remotely, had no problem
• But, overall, they have come away completely unscathed
• There were a few quarters where they paused investor distributions and they are still dealing with delinquencies but nothing compared to most office and retail commercial properties

Closing Comments

• At the end of the day, you need to continue to be educated
• Understand that markets are going to change and you need to be the kind of entrepreneur who is riding that wave
• You can’t be stagnant in your thinking and what you’re doing – from real estate to other businesses
• Covid has taught us to think on our feet and that will continue to apply to the next 10-20 years and with other uncertainties of the future

For Passive Investors

• Look at a sponsors track record
• Moderately leveraged debt (65-70% max)
• Need to look at NOI growth
  • And how is the operator expanding that growth over the next 5 or 6 years
  • His “rules of thumbs”
    • If it’s a stabilized value-add deal – 3-5% NOI a year
    • Light to moderate rehab – 6-8% a year
    • Heavy value-add rehab – 9-11% a year
    • If the NOI is growing more than 50% over 5 years, that would be a red flag to him

How to Reach Reed

• His website: ReedGoossens.com
• Email: info@ReedGoossens.com

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