Next Level Chat: Our Acquisitions Process pt. 2
“As long as you can cover those things and have enough business, and enough money to operate the business on the assumptions that you’ve made. That’s your ideal outcome. Apartments are a business. We’re actually buying the real estate, but it’s a business.”
During this holiday season, Next Level American Dream will be doing something a little different. Today Abigail and Sean are going to talk about their why and purpose in this business and then Sean will discuss his success formula. These chats with the hosts will allow you to get to know them a little bit better and have a better understanding of their business. If you have any questions for use please comment on our Youtube, social media, or reach out to us through our website. To make sure you don't miss the next chat, make sure you subscribe to the show and leave a review so they can continue to make episodes for you to enjoy.
Key Topics
What's the criteria?
What's the process?
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Abigail: [00:00:00] Welcome to the next level. American dream podcast brought to you by Thomson multifamily group. Your hosts, Abigail, and Sean will discuss how you can take your American dream to the next level. The real estate investing business practices and personal development. Join us as we share our experiences as a father, daughter duo, who are trying to accomplish their goal.
Of financial freedom. We hope you learn more about how to define and achieve your American dream. Here's another episode of next level, American dream, welcome back to next level American dream and our next level chats with my dad. in a previous episode, we talked about the properties that we look for in our criteria, and then the markets that we look at.
And today I would really like to go through the process of. Our acquisitions and kind of how that looks for us and then investors.
Sean: [00:00:57] So the steps that we take to [00:01:00] learn about properties and then go through making offers. That's exactly how it's pretty simple. So, we do, this is all from Corey Pearson's, programs.
Yeah. It's essentially, you know, what he taught us to do. We. I have brokers that we deal with and those brokers have listings of properties. and you know, we contact all those brokers, let them know that we're interested in buying those properties or buying properties that fit our criteria that we spoke about in the previous.
Abigail: [00:01:26] yep.
Sean: [00:01:27] And what we do is if those properties come through our system, that we like, we put them through an underwriting process and then underwriting process is layered. Right? So the idea for us is that we're looking for properties that don't fit what we want . for whatever reason, they're just not cut out to be a property that we want to home.
Right. Right. So we're looking for properties that produce income that give us an opportunity to, improve them either, construction wise with repairs or through maintenance or both. Right. So that's ideally, so if we get properties that [00:02:00] are, you know, not, or they're already stabilized, they don't offer those opportunities.
We'll kick those out of our system, if they're the wrong size, we'll, we'll move those onto, it's not a hundred doors or more, right. We'll move those on if they're too expensive or too cheap or whatever, if they're not, you know, the classifications that we want, we'll move those out of the way as well.
Abigail: [00:02:18] Yeah. We have our box that we kind of focus on.
Sean: [00:02:21] Yeah. We put everything through the first, the first filters to buy box filter. And the buy box filter that we talked about in the last one is the a hundred units. You know, those kinds of things. So if, if it doesn't fit the buy box filter, then we, then we don't even start the process of looking at them.
So once those sort of come into our system or emailed, or our brokers call us and give us the information, we, we put it through that buy box filter. That's the first thing. And then what we'll do is we'll start to looking at the numbers, right? So the financials were really the first thing that you want to want to see if there's an opportunity there.
So what people are asking for a property and what the property can produce in terms of ROI, is really the critical [00:03:00] thing, right? So we just do a sort of a quick, fast math methodology for that, to see if, if that property is, has potential to, reach our ideal outcomes. So we have an ideal outcome, which is making money for our investors and for ourselves.
And what that means is if this property we can buy this property, this amount, prepare it, get the ROI up, get the property value up. And have a five-year horizon on that investment and make a certain amount of money for our investors and make a certain amount of money for the principals. Then that's sort of the criteria that goes through.
And that's where you have a really quick formula for that on the first, well, the first pass.
Abigail: [00:03:36] Right.
Sean: [00:03:37] If a property meets those first two criteria, and then we'll go to a full underwriting on the, on the, on the process, on that property. And...
Abigail: [00:03:46] what does that look like?
Sean: [00:03:47] Well it's...
Abigail: [00:03:49] on a base level.
Sean: [00:03:50] Global scale.
Abigail: [00:03:51] Yeah. Like...
Sean: [00:03:52] It's a very detailed financial analysis, right? So we take, we take the financials of the last 12 months from the front of the property that's being offered. We take [00:04:00] their rent roll. We look at the offering memorandum, which is just a, a brochure put together by the brokers that lists all the things that are, they see as the possibilities for the property and the opportunities for the property.
We essentially take the numbers and put those into a calculator. We have Corey Peterson's calculator from kahuna that we use, and we've modified some of those things to kind of fit our criteria specifically in some areas. And, so we load all that data into our calculators and the calculator, quantifies, everything, you know, what cap rate are we paying for things?
What, what, economic outcomes are we going to have? and that takes quite a lot of time. And if the first initial, outcome of that starts to get us into a target zone for the price of the property, then that's really when the work starts, honestly. So this whole process, so the initial, just to figure out, if we want to even dig into a property can take, oh man, it's going to be several hours.
Abigail: [00:04:58] Yeah.
Sean: [00:04:59] Right. To get [00:05:00] to that place. We could have invested probably four hours at this point, just to see if it's a property that we even can, can. Can think about taking to the next level.
Abigail: [00:05:09] Right. Finding that needle in the haystack essentially.
Sean: [00:05:14] Right, exactly. Yeah. And it's, if that initial, underwriting goes well, then we'll start to really dig into what the opportunity is.
And I've talked before about what, you know, that's what I, that's, what I kind of look for is what's the opportunity here and that's where you find that ROI and that return and that a future for your property. Right?
Abigail: [00:05:32] Right.
Sean: [00:05:33] So you want to look to see, can we fix it and increase rents? Can we stabilize the management?
Are there expense issues that we can fix too? So you're looking at all those opportunities that you can have with that property to generate additional income or just to fix problems so that tenants are happy to live there.
Abigail: [00:05:53] Yeah.
Sean: [00:05:53] And then you can increase rents to the normal levels, right? So some places, the ownership or the management either way have left [00:06:00] these properties kind of.
Suffer somehow. So that tenants aren't, you know, they're just not as inclined to live there. They're going to go live across town or, you know, the apartment complex next door right here that has nice amenities that have nice new carpets or flooring or fixtures, all those things they want to live someplace
nice. Right. So if you're not, if you have a property on it, it's not doing that. Or management company is not doing that. That's where all the opportunities are for someone like us to come in and say, Hey, we're going to do these things. And then the residents will come back, right? And they'll not only come back, they'll pay market rents for those things, because those properties get compressed rents because they're not able to attract those, those tenants that they want.
Those residents they want. So, we started looking at the opportunities and if we can find those opportunities that allow us to, hit our, return goals and our, our ideal outcome, I like to call it, then we'll start to look at properties physically.
Abigail: [00:06:57] Right.
Sean: [00:06:58] So we'll go and do a full inspection of [00:07:00] a property, not full inspection, sorry, when it's not a due diligence level inspection, but we will go in toward the property.
We'll tour a handful of units, meet with the management company and meet with the managers. Talk with the brokers. And get a, you know, a physical look at the property to see if it, if what we're looking on paper. It matches up. Right. So we're looking at, we think we need to paint this building, so let's go see if it really needs paint, right.
Or we think we need to do the interior. So let's go look at some interiors and say, okay, do we really need to do these things? Sometimes you'll get to a property and you'll see things that you didn't think you needed. You got to add those right. So you're getting a more in depth view of what the property really is going to require primarily from a construction side.
Right. So, you know, do they have it amenitized properly? Do they have the dog parks there? The parking lots are good. Does it need paint? Does it need roofs? Does it need all those things? And that's what we're looking for on the physical tour. we're also talking to the management group to some somewhat, to see how they're managing the property.
[00:08:00] You know, we've, we've been to properties where they had seven. It's a big property, but they had seven abandoned cars on blocks.
Abigail: [00:08:07] Yep.
Sean: [00:08:08] The day we showed up to tour the property.
Abigail: [00:08:10] I remember.
Sean: [00:08:11] This was in a nice neighborhood. So it seemed like someone was just stealing cars and dumping them on this apartment complex, you know, and the management had done nothing.
They were, they were because when we showed up, they called tow companies to come up and tow these cars off. Right.
Abigail: [00:08:25] Yep.
Sean: [00:08:25] While we were on site
Abigail: [00:08:27] While we were there.
Sean: [00:08:27] Doing a tour, they're pulling cars off. Right,
Abigail: [00:08:30] right.
Sean: [00:08:31] So you can't get that from a piece of paper or you got to go see that, that level of bad management. Right?
Abigail: [00:08:38] And I think what's unique is in this specific piece of it.
And our later down the road is we're the ones actually going and looking at the property.
Sean: [00:08:46] Yeah. I go and I go and touch everything. So I don't, I won't buy anything unless I've seen it personally. I've touched it personally. I've made the judgment call on it. Yeah, for me. and I, you know, I've done this with all my single family business too.
I. I won't own [00:09:00] anything unless I, I know what I'm touching and or what I'm buying. Right. So for me, this is a critical step for me and I love it. It's my favorite part actually, to go out and, you know, dig into a property. So once we kind of assessed the property to see if our assumptions, cause we're, we're making assumptions on the, on the underwriting.
Abigail: [00:09:19] Right. Yeah.
Sean: [00:09:20] We we going to see if our assumptions are kind of still in line and we add those things that we want to add. And we might take things out that we say, Hey, we don't really need to do those things. Our strategy is going to change a little bit. you know, in one property we looked at, we ran three to three or four different, strategies in terms of construction, right.
So we can, we can improve it to this level, which is maxing it out. Can we drive the rents there? you know, or can we just do a medium thing and drive the rents to where we need to go? Yeah. Can we just do some touch-ups and how's that going to drive rents? Right. So we're always looking at, you know, how is the community going to be put together?
Is it, is it, like I said, always is the goal, is, is it a community that people would like to live in [00:10:00] that's number one. And then can we drive rents beyond that? Right. Right. Sometimes you can amenitize properties and that adds value. Right? You hear that term all the time value add, add value. Right. That's what you're doing.
And we look at those scenarios. And so once we kind of walked the property and figured out that that's a strategy, I guess, from construction side, then we'll move into, you know, do we want to make an offer on the property?
Abigail: [00:10:26] Right.
Sean: [00:10:27] Right. So if we're hitting our, if our assumptions are good, we've made our adjustments, we're hitting our number.
We can, we can make a reasonable offer on the property. We'll we'll go and do that. Right. So we'll make an offer on the property.
Abigail: [00:10:37] Okay. So this is all before offer points. So we've. Looked at this we've contacted brokers. We've said, yes, this fits our buying criteria, our buy box. And then we go into, okay, now let's do a little bit more of a deep dive of our, of the financials, make sure it hits the number.
And we're getting the ideal outcome that we want to get for our business and [00:11:00] our investors and then the community. And then we go and look at it and make sure that those, those numbers are accurate and matching up to what we assumed. Once that we strategize a little bit and make sure it still works with our ideal outcome.
And then we make that offer. Is do I...do we have that correct?
That process.
Sean: [00:11:19] Yeah. Yeah. Before you ever make an offer? You've got, that's the days of work
Abigail: [00:11:23] sometimes weeks
Sean: [00:11:24] just on this one property that you may not even make an offer on, right? Yeah. So that's, that's, you've summed it up pretty nicely there. So, yeah, that's all that was well before we even get to the offer phase.
And then once we get to the offer phase, If we go into a, a contract phase that's when due diligence starts. And the funny thing about that is that during your diligence to go through this whole thing, but on a micro level, right? So you're going to do a financial audit, right. Forensic audit of the financials.
So you're going to get into every lease you're going to get into, you know, years and years of financial back,
Abigail: [00:11:55] get everything
Sean: [00:11:57] right. Yes. You're going to go through every unit. [00:12:00] Right. So every piece of every inch of the property gets inspected. We're going to do a whole plan based on that, of what our construction is.
So we've, we have assumptions now we've looked into the assumptions and we assume they're good still, but we're going to go through every unit and make a detailed list of every unit that needs to be updated or fixed. We're going to do light fixtures, everything we're looking at, all the exteriors, all, everything on the property.
It's going to have a construction plan.
Abigail: [00:12:23] Right.
Sean: [00:12:24] And then you go through that whole process. That's all due diligence process. We still haven't committed to buying the property. So before due diligence is up, we have this cut off phase. So if anything happens in that due diligence phase, that's just unacceptable,
you still may not buy that property. Right?
Abigail: [00:12:42] Right.
Sean: [00:12:43] So this is all done prior to the final commitment to say, Hey, we're moving forward with this deal. Right. And so the idea is that you want to eliminate that property. If you can. You don't want to buy problems, right. Or, [00:13:00] or you want to buy the right problems that you can then yeah.
Fixed preset value. Right. So that's really what you're looking for. Like I said, I call those opportunities. But sometimes the opportunities to get to be
Abigail: [00:13:12] too much,
Sean: [00:13:13] too much, right.
Abigail: [00:13:14] That's not an opportunity. It's a problem.
Sean: [00:13:17] Exactly. It becomes a problem. It's just a problem at that point. So you definitely don't want to buy those, but, so yeah, that's the whole process.
And then from there you buy the property and you know, that's a whole other story, but just to get to that phase, there's a ton, a ton of work, that, that you go through to get there.
And so now that we've explained the process. What's the purpose behind all this whole process. Why, why would we go through so many phases and ensuring that everything is perfect and exactly what we need out of this property?
What's the purpose of it?
Well, to create that ideal outcome, right? So you want to, you want to have, a safe investment for investors and, you know, I want to make money too. I don't, I'm not interested in losing money, right? I'm [00:14:00] not interested in putting my future in jeopardy in any way. Right. So I want to make certain as best as I can.
That we have a strong property with a strong future, right? Yeah. And the idea is that, we can achieve our ideal outcome or better, right. So ideal outcome, it's really the minimum standard, right? So do you have the ideal outcome and everything above that is great, but the minimum that we want to achieve is the ideal outcome.
So work, the reason for all that work is to make certain that our ideal outcome is definitely going to happen. If we, you know, that's never. But a hundred percent, but that's really
Abigail: [00:14:36] very high likelihood.
Sean: [00:14:37] Yeah. In my mind, I want to think we're, we're good here.
Abigail: [00:14:40] Right.
Sean: [00:14:41] The ideal outcome is, is as safe as I can make it, or as close as I, as, as, achievable as possible, in our opinion. Right?
Abigail: [00:14:49] Right.
Sean: [00:14:50] Cause we've done, I've done as much work as we can to get to that ideal outcome as, as safely as possible. But you know, of course the real estate has risks. There's always something that can happen. [00:15:00] you know, none of this is perfectly safe. None of this is, you know, an, a done deal,
Abigail: [00:15:05] right.
Sean: [00:15:05] You know, stuff can happen, but you, you want to eliminate as many of those potentials as possible. That's why it's so expensive.
Abigail: [00:15:12] And we keep mentioning our ideal outcome and just like kind of generalization of what that ideal outcome is. And it's to make money for, to have profits for ourselves and our business.
And then to insure that our investors are getting their returns as well.
Sean: [00:15:27] Yeah. you have to pay your debts. You have to pay the pay, the loans, you have to pay your investors. So your passive investors have an expectation of return of their capital and interest and, and, and those sorts of things. And then I have an expectation to above and beyond that.
So, you know, you pay the bank first, you pay your investors second. Then the general partners get paid last. Right, right. So I also have an expectation of return on that property for me, my investment, right? Yeah. My investment of time and my investment of capital as well. Right. So for me, that ideal outcome has to [00:16:00] include me and my partners as well.
So, and I guess in general terms, as long as you can cover those things and have enough business, enough money to operate the business on the, on the assumptions that you've made. Then that's your ideal outcome, right? This is a apartments are our businesses. We're actually buying it's real estate, but it's a business.
Abigail: [00:16:20] Right. Yeah.
Sean: [00:16:20] And so you have to be able to function on the amount of rent that you're getting and operate the business. The manager has to get paid, you know, the,
Abigail: [00:16:26] You have to be able to fix things,
Sean: [00:16:28] the lights have to get paid. You have to be able to fix things. You have to have to operate that business. So, yeah, no, it's not only that everybody has to make money, but this, this business has to operate.
And for us, like I said, a couple of times, One of my goals is to have a community that people feel safe and happy to be in. Right. So if you can't provide that with the income that you're getting
Abigail: [00:16:49] yeah. If you can't keep those lights on that's it doesn't work.
Sean: [00:16:51] Well, not even that. It has to be more than that. It has to be, can I kind of keep the grass mowed and can I keep the paint clean and, you know, kind of keep kind of keep the [00:17:00] community so that people feel proud to live there, right?
Yeah. You know, you can run a property down really quickly.
Abigail: [00:17:05] Easily.
Sean: [00:17:06] And if you're not maintaining that every day and paying for that, they costs money. Right. So your business has to pay for that. So your ideal outcome has to include those scenarios. Right?
Abigail: [00:17:16] Right.
Sean: [00:17:16] And those, those are worst case scenarios. Right?
So what if all the toilets go down or, you know, what's going to happen if you got to do all these things, so you have to be able to account for those things and have a business that's strong enough that will, will fund that
Abigail: [00:17:29] And take on those issues.
Sean: [00:17:30] Take on those issues. Right. So. Got to pay your debts. You got to pay your investors.
I want to get paid, but you also have to have a business that operates fully and functions at a, at a level that you're expected. Right?
Abigail: [00:17:40] Yeah.
Sean: [00:17:41] It can't be underfunded if you're under a funding that you're ruined.
Abigail: [00:17:45] Right.
Sean: [00:17:45] So that's really the ideal outcome.
Abigail: [00:17:47] And you keep talking about, I getting you getting paid and our partner is getting paid and essentially these deals and these opportunities are our salary.
And so. It's not just essentially just like, Ooh, I want all this fun money. [00:18:00] This is how we make our living also.
Sean: [00:18:02] Yeah. This is survival. Yeah.
Abigail: [00:18:05] So it's not, it's not just about fun money. It's about, this is how we pay our mortgages and...
Sean: [00:18:10] I'm not putting jet fuels in the jet. That's not what we're doing. We're putting food on the table here, you know, for sure, sure.
So yeah, it's it's I haven't gotten to that level. I'm sure I will at some point, but. you know, that's, that's not what I'm doing at this point. No.
Abigail: [00:18:25] Okay. Well, thank you guys so much for joining us on our fourth little chat here, and we hope you're enjoying them. And like I've said, in all of the others, if you have any other questions that you would like us to answer, please let us know and we'll try and get to them.
but we hope that over the last two episodes, you got a better idea of how we approach our acquisitions. the criteria that we look for in our properties, The markets that we look at and just kind of the process of how we go about it. But yeah. Thank you guys so much for joining us. Hope to see you next time.
Thanks for joining us for another episode of next [00:19:00] level American dream. If you would like to learn more about what we talked about today, want to contact the team directly or interested and passively investing and being a part of our deal room. Head over to our website www.Thomsonmultifamilygroup.com.
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Of financial freedom. We hope you learn more about how to define and achieve your American dream. Here's another episode of next level American dream.
Sean: [00:00:37] Hi, everybody. Welcome to next level American dream podcast. I'm Sean, this is Abby. We're going to talk to you today a little bit about our business and how things operate and how we do things. So you can get to know us a little bit better. we're going to talk a little bit about our investors and how that works.
so what are some of the questions we've been getting from, people that want to invest with us?
Abigail: [00:00:54] I think our first question is really the difference between conventional investments like stocks, bonds, [00:01:00] and mutual funds and how that differs from real estate,
Sean: [00:01:02] from what we do?
Abigail: [00:01:03] Yeah.
Sean: [00:01:04] Well, you know, it's the biggest difference is that, stocks, bonds, mutual funds, you don't have very much control over.
Right. So you there's, no, you sort of put your money into a fund. that's managed by an asset manager and it's just kind of all mysterious, right? for me anyway, I mean, there's a lot of people that do stock trading on their own. They buy their own, you know, accounts and do their own trades every day, you know, stock trades or whatever day traders or whatever.
So they have, they take control what they're doing, but most people, I think just invest in, you know, an S and P 500 index fund or a mutual fund or something like that. And they just sort of expect it to go up every year. and I don't think that, that's great. People, you know, need those sorts of things, but I don't think that is a great investment for someone like me.
I just, I just, don't like to have that little control over what my destiny, right? Yeah. So for me real estate affords me the opportunity to sort of impact by investment a great deal. So I can paint a buildings or, you know, fix something up or, improve the [00:02:00] way the place is run and increase rents and, and those sorts of things.
And it makes my, my investment improved and, and worth more money. Right. And so I can have a direct impact or, or my group can have a direct impact on how successful that investment can be in the future. And so, the reason for. real estate to me being the best thing to invest in is just, is that control element.
one reason, but the small, the two real reasons actually, but the, the thing about real estate is that you can buy a piece of property that's distressed or in trouble, or, you know, need some work or things like that. You can do that work. You can improve the business and multi-family, especially, you can, You know, have management
that's not quite doing their job. You can have, the place starting to run down. Yeah. And if you fix those things, improve your management and streamline your processes to get, you know, tenants, happy your residents, happy, get more people moving in and you can start increasing those [00:03:00] rents. You can exponentially increase the value of your property, right?
So you can improve your cashflow. You can improve your, your. The net return on the sale. Yeah. the other benefit to real estate is to, as a depreciation, right? So the government gives you on depreciation on, on your, rental portfolio that offsets any income you're making as a real estate professional.
You can use that to offset your, all your income. So. you don't get that with a stock. You can't buy a Coca-Cola stock or something and get a depreciation of your earned income from, or off your income, passive income from other stuff, right? Yeah. And real estate, you can. So.
Abigail: [00:03:35] So you're a real estate professional so you get that depreciation, but for people who passively invest, do they get the same benefit?
Sean: [00:03:43] It's not the same. They still can get depreciation against the, earned, or passive income in those investments, but they don't get, like, I can use that depreciation against all my income because I'm a real estate professional.
I make the majority of my income from real estate. So you can transfer that, that, depreciation [00:04:00] across, other. I guess income streams. So if I make my own this property or that property and depreciate all that income, whether it's the pre-sessions from one property to the other, right. So right. Someone who's in invested in that that's not, real estate professional still gets the depreciation against the income.
And they're earning on that, that investment as a passive investor, but they don't, you know, you can't take it against your other income, but as a real estate professional, you can take it up against your other income too. So that's, that's just a. I don't know, what would you call that? But it's a more advanced, I guess, investing, but .
so anyway, so it could, you know, the reason for, conventional versus non conventional, the reason I like non-conventional more, it's just, it's, it's more, it's more high touch. It's more control. I control my destiny a little bit more, you know, wall street, just does its thing. You can't. I can't call the asset manager for the mutual fund that I'm invested in and say, Hey, how, what are you thinking?
Yeah. What are you thinking with these, you know, things [00:05:00] happening in the news or whatever, and what kind of moves you that plan on making with this? You know, whereas with us, you know, my investors are all friends of mine. They know me personally. they can, they can contact me and say, Hey, Sean, you know, what are you thinking about
this problem in the news about, you know, multi-family investing and we can talk, you know, talk to them about what we're strate.., you know, our strategy for dealing with that, right. Yeah. And what we're doing to counter that or what we're doing to, to improve that. you know, so you can't, you just can't get that on the wall, on a wall street investment, like you can with us, so...
Abigail: [00:05:33] Right. I think our next question is. When you're looking at going from a conventional investment, like stocks and bonds and mutual funds and like that, and things like that, that, and looking to real estate, a lot of people invest in stocks and all those kinds of investments with their IRAs and their retirement funds.
And we're not experts on this. And we have a guest that was on our show. In a [00:06:00] previous episode. but is it even possible for people to use their retirement funds to invest in real estate?
Sean: [00:06:07] Yeah. So there's, there's a couple levels in that question. So, if you're putting your own money aside to invest in real estate, then you can absolutely invest in real estate.
Multifamily syndication specifically is what we're talking about.
Abigail: [00:06:19] So retirement savings of your own,
Sean: [00:06:21] right. If it's, if it's a non, like. The IRA designated fund or, account that the IRS said designates as an IRA. Right. you can invest whatever, however you want. Right. But, if you have like a self-directed IRA, is that what that's kinda what you're talking about it, I think is a self-directed IRA.
You can do, investments in multi-family, but you're subject to, UBIT or,
Abigail: [00:06:44] taxes.
Sean: [00:06:44] Yeah, there's a, there's a tax. that, that triggers because of the debt that's against the property. Right. So whatever your debt is against the property is, there's a formula for it. You're it's way beyond me. My accountant would have to tell me what to test, [00:07:00] what to do, but, yeah.
So there is, if you do use IRA funds, there is a tax, but, oftentimes in our case, anyway, the, the depreciation and the tax are kind of offsetting. So. depending on, your status, like real estate professional or not those kinds of things, sometimes that evens out. So you still get your returns, you do your appreciation sort of offsets the tax burden that you have with whatever investments you make.
But, you know, it depends again. So every, every deal is different and I'm not an accountant. So it's hard for me to speak to those things. But I think the bigger question that you're asking or that people were asking us is can I even do this right? So most people are invested in. stocks, bonds mutual funds with their, their, retirement accounts.
They don't even know that all, you know, non-conventional investments are an alternative for them,
Abigail: [00:07:48] right. Yes.
Sean: [00:07:48] They think that they have to invest with wall street and that's not the case. You can get, you know, into a self-directed IRA. There's several providers, you know, quest, specialized, equity trusts.
There's all [00:08:00] kinds of providers for this type of thing. But, Yeah, tons of them. And they can provide you with your own IRA account that you can then decide what you want to do with right. There are limitations to it and are rules to it. And your accountant and your custodian should tell you, you know, guide you through that process, right?
Yeah. But in terms of real estate, I deal with Ira investors all the time, especially in our single family business. I have guys who, loan us money. on single family properties. And then we have people in our multi-family businesses as well, that, that invest with us through their self-directed programs.
And there's all kinds of levels to that too. And it's, it's so complicated, you know, your mom and I are sort of gone through that with her stuff right now. And, and it's, it's, you know, I'm pretty well versed in these things and it's still kind of like confusing sometimes, but, but there's people out there they can help people through that.
But the fact is that you can invest in things that aren't a stock market.
Abigail: [00:08:53] Yeah,
Sean: [00:08:53] product, right.
Abigail: [00:08:54] It's possible.
Sean: [00:08:55] It is possible. Yeah. And you can do really well. And the beauty of it [00:09:00] is that you, like I said earlier, is that you have a more connected investment too. Right. So you're more connected to what you're investing in, who you're investing with, what's happening with it and those sorts of things.
And I think a lot of people are looking for that, you know, wall street is this kind of this big anonymous entity now.
Abigail: [00:09:16] Very Abstact.
Sean: [00:09:17] Yeah. And there's no control over it. There's no. you know, it just, it doesn't make a lot of sense for people. Whereas an investment with an apartment complex is very simple. You're buying an asset that produces income and you're improving it and making adjustments to it and try to make it better and make more money with it.
Right. So it's a very simple business, very simple kind of understanding. and it's, like I said, it's very close, on high touch investment for someone who wants to invest passively. so that's, I think that's what people are really inquiring about is can I even do this? And the answer is yes. So that's good.
Abigail: [00:09:49] That's great. so now that we've talked about the difference between the conventional investments in real estate specifically, but even in real estate, there's a lot of [00:10:00] different avenues and a lot of different asset classes and we focus on multi-family, but can you kind of explain why that's the Avenue that we chose and what some of the benefits are?
Both on the active investor investing side and passive investing side. And why multi-family would be a good option?
Sean: [00:10:18] Yes. So there's two things that drive kind of my business in this regard. number one is that I try to provide income for our family, right? So, I want to find assets that are producing income every month that are essentially a passive investment income, that I get checks for.
Right. So I want cashflow. So that's one of the things I look for. And then one of my motivations is to create communities that people can live in, that they feel safe. They feel happy to raise their families in those sorts of things. I really enjoy providing shelter for people, that, that they like, and they enjoy living in and they feel good about right.
Yeah. So those two things kind of drive every decision that I make beyond that. the reason, and I I've done this in single family as well, but, [00:11:00] the reason multi-family to me is appealing is, Multi-family is a scalable business. So it's larger units or one project with a number, large number of units.
and you can, sort of buy this as a business, right? So you're, you're look, you're looking at an asset that is actually operating as a business. So rents come in, you have operations, you pay staff and all these other things, and then you have profits that come out the back, right? So you can improve that property, raise rents.
you can, Improve that property's operations and lower expenses. Right? Right. so you can do those efficiency things and make the property worth more money and you can make it operate at a higher level. Right? So more cashflow coming in, less cashflow going out or less cash going out. It makes you more money on the cashflow side, that also equates to when you have a higher NOI or net operating income on your property, that your valuation goes up too.
So when you go to sell that property, it's worth a great deal more, right? So those. Just efficiency things and scalable things with multi-family make them very appealing in terms of investing. Right. [00:12:00] then you've got depreciation, which is, I think I touched on a moment ago, but, you know, with, with multi-family a single family too, and you get, you get a depreciation schedule.
So all your income that you make from that property or from other properties that bring is a real estate professional. I can take those deductions against all my income, but, it's essentially more. Money more, more profits that I'm not paying the government because I get these, these, depreciations against my income because I own this property because I'm making improvements to the property because I'm operating this business.
So I don't pay nearly as much in taxes as someone would just go to a job and make the same amount of money. Right, right. They'll, they'll pay a lot more because, they're not having this benefit of this investment depreciation. Well, the IRS allows for
Abigail: [00:12:45] greater, Tax incentives
Sean: [00:12:48] for multi-family right.
Versus just a your traditional earned income. Right. Right.
Abigail: [00:12:51] So that's a little bit more on the passive or active side of investing. Are there benefits more specifically within [00:13:00] multi-family outside of that ones that you've just talked about? That is a little bit more beneficial to a passive investor?
Sean: [00:13:06] Well, the way, the way most indications are structured, though, the passive investors get all those benefits. Right. So. you're looking for an asset that you can increase revenue and decrease expenses. And then also get that tax depreciation and that's passed onto your, passive investors. Your passive investors are part of the deal, right?
So they have a limited partnership in, in the deal. They get that same benefit. If it's cashflow is going up, expenses are going down that secures their investment, right. That makes their. their investment, more stable. Right? Right. So I put my money into a, an apartment complex and it's not running.
Right. You know, people aren't doing the right things. Right. My return is a little bit sketchy, shaky. Right, right. But if you have a nice even business, that stability, isn't as critical. And with most multifamilies, if you, if you do it properly, if you. [00:14:00] Underwrite them properly. If you do your due diligence, if you go through that process and get good management, you operate the business properly.
it creates the stability, right? And so passive investors to get all those benefits, just like I was talking about, just like we would. Looking for those key things to make those fundamental key things, to make that business operate smoothly, benefits the passive investor as well. And then we. in our deals, we pass on a portion of the depreciation to our best investors.
So there, the income they're making is also offset with depreciation, right? Somewhat.
Abigail: [00:14:33] So I think a major highlight and all of that we talked about just now is that essentially real estate takes or at least reduces a lot of the volatility in investing because of how we run our deals and how we approach the opportunity.
We really try and optimize our stability and every, every way that we can
Sean: [00:14:57] well, for me. So, I guess if you're a [00:15:00] passive investor and looking into this for me, I want zero volatility in my program. Right. My, in my deals. Right? Yeah. So if I'm, if I'm operating a deal, if I'm in charge of putting this in the case together, I'm operating the deal.
I'm looking for very high level stability. Right? I do not want any volatility at all. For me. Yeah, which translates to everybody else that's around me gets that same benefit. Right. So yeah, what I'm looking for for my investments, you're going to get as a passive investor as well. So when I say I don't want these things, I'm looking for deals that give me the most security that I can get in my mind for having a successful and stable investment, right.
Over a long period of time. I'm looking for very, you know, in, in, and what I want. My investments. I think of my investments for long term term, there is a horizon on those things that we sort of calculate, but in my mind, I'm going to keep something forever. That's not always the case. I do sell stuff all the time, but, I think [00:16:00] of it as, as do I want this asset in my portfolio indefinitely,
Abigail: [00:16:04] For a long period of time.
Sean: [00:16:05] Right? If it's, and if I'm looking at it thinking, Hey,
Abigail: [00:16:09] maybe not.
Sean: [00:16:10] Yeah. Might be a good opportunity now, but in 20 years that thing's going to be falling apart or the location's no good. You know, just the neighborhoods is it's kind of turning the wrong way or things like that. I I'll I'll I'll we'll deal with those things.
Right. Right. So what a passive investor, wants is. To look at what my objectives are, right. As an investor, because I'm, we're all in the same boat, right. Essentially. I'm going to buy this property and have an expectation for myself, which they should also understand is the expectation that they want too.
Right. Absolutely. So, the benefit that they get is, is also the benefits that I'm looking for for myself. So, you know, as a passive investor, you probably want to find out what, what is Sean trying to achieve here? What is, what is my goal?
Abigail: [00:16:58] What are your motives?
[00:17:00] Sean: [00:16:59] Well, what is my goal in that, in the, in the investment, right?
What am I trying to accomplish? And, and if those align, then you can invest, but they don't, then you probably shouldn't. Right. And I, that's why I know all my investors, because I want to know that they, they understand what I'm trying to do. And I want to understand what they're trying to do and the investment and their investments.
And if those things aligned, then it makes a much better relationship and a much better, just cohesive. opportunity for both of us. Right?
Abigail: [00:17:26] Absolutely.
Sean: [00:17:28] So that's why we do that, that we get to know people and we get those phone calls and we have those conversations is so that we can make sure that, Hey, what you want to do and what I want to do looks like it's pretty well aligned.
Let's go move forward with these things, right?
Abigail: [00:17:40] Yeah. And you're really building a trust and your relationship also, it's important to have that trust, especially when it comes to money.
Sean: [00:17:50] Yeah, well, I think they need to understand what we're trying to do and I think they need to be comfortable with it. Yeah, for sure.
I wouldn't, you know, I wouldn't ask anybody to give a over their hard-earned money [00:18:00] that didn't understand what we were trying to accomplish. I didn't feel as though that was the right goal for them to right. So they definitely want to have, I want to have our interest at heart and I want them to understand what that is.
And if that's aligned, then that we, you know, that we can move forward. If it's not, then we shouldn't. Right. So right. You don't want anybody investing in your stuff, that doesn't feel the same way that someone's wanting to get their money back in 30 days or something where the wrong thing. Right. Or if they're, if they don't, if they just don't understand what you're trying to accomplish, it's probably not going to work out well.
So we always make sure everybody's clear on what we're trying to do with every project. So,
Abigail: [00:18:38] yeah. Well, I hope you guys learned a little bit more about what it would look like if you were to switch over from stock market to real estate. And then just kind of some of the things that we look at and see in multi-family and why that's the Avenue that we chose.
Thank you guys so much for joining us today in our [00:19:00] fourth or fifth next level, chat here with my dad. And I hope to see you guys next time.
Bye. Thank you.
Thanks for joining us for another episode of next level American dream. If you would like to learn more about what we talked about today, want to contact the team directly or interested in passively investing and being a part of our deal room.
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