After going through difficult partnerships in the past, Nate and Troy were hesitant to hop in the game together. But after years of getting to know each other’s strengths and weaknesses, it was only natural for them to tackle big deals together instead of small deals apart. Now, with forty rental units under their belt, they’re well on their way to hitting their hundred-unit goal. But this wouldn’t have worked out if they hadn’t made one special phone call.
David:
This is the BiggerPockets Podcast show 791.
Nate:
The most important investment that anyone makes is their first deal because it gets them over that hump, “I can do this,” and you learn a lot in that process. There are two things that held me back from investing in real estate. One was just like, “How does a real estate transaction get put together?” Then the second part that I really learned a lesson on was how to find and manage a contractor. I made some pretty big mistakes there. So I learned some lessons on how to find contractors and that led to some better experiences down the road.
David:
Hey, hey, what’s up, everyone? So glad you’re here with us today. You made the right decision choosing to listen to this podcast because we are the biggest, the best, and the baddest real estate podcast in the entire world. I’m David Greene, your host of the BiggerPockets Real Estate Podcast joined today with Rob Abasolo, also known as Robuilt. If you’re somewhere cool like YouTube or you like short-term rentals or you like being around cool people, you definitely know who Rob is.
Today’s show, we are interviewing Nate Shields and Troy Zimmerman. These are two folks who were struggling getting their real estate business going until they found each other and had a partner made in paradise. They ended up doing a home run BRRRR and transitioned that into multifamily deals. We get into how they found each other, how they knew the partnership would work, what they did wrong in previous partnerships, and how they are looking for in analyzing deals today. Rob, what were some of your favorite parts of today’s show?
Rob:
I think it’s really nice because we talk about partnerships and we talk about forming partnerships, but really being on the same page not just in the actual day-to-day logistics, but having a long-term vision for where you want your business or your real estate deal to go, that way there aren’t any disputes or any fallouts later down the road. I think this is something that’s missed by so many real estate investors that just very nonchalantly partner up with people, but they don’t ever discuss the exit plan, which can really create problems if one partner is not in a position to sell and the other partner has to sell or wants to sell because life circumstances happen. So we get that story. We get the ins and outs of forming some of those JVs, how to work with some of those investors.
Quick tip. Can I get to the quick tip? Sorry, I’m so excited. All right. Today’s quick, quick tip, pick up the phone and make the dang call. Most of us are not closing deals or getting deals or scaling or getting to where we want to get into in the real estate world because we don’t pick up the phone and just pitch whatever we want to the real estate investor to the property owner. I tell a story of how I called a carwash operator today, and he gave me an offer on a property that he previously told me no on. We get into that a little bit more with Nate and Troy here because this deal that they talk about all happened because he picked up the phone and he made a phone call and it turned into a total grand slam of a deal. Dang it. That wasn’t so quick, was it?
David:
No, but mine go long also, and I was just thinking maybe that’s not a quick tip, but it’s a quality tip. So that’s today’s quality tip for you.
Rob:
It’s a quantity tip.
David:
Let’s bring in Nate and Troy.
Nate Shields and Troy Zimmerman, welcome to this side of the BiggerPockets Podcast. Now, as I understand, each of you work at BiggerPockets, but you’re not used to being on this side of the camera and the microphone. So first question, scale of one to 10, how terrified are each of you?
Troy:
For clarification, I do not, but I live vicariously through Nate who does work for BiggerPockets, so I hear all the stories.
David:
Thank you, Troy. I should have known. You just look exactly like Nate. If you guys go onto YouTube and watch this, you will see. It’s like we’re talking to the same person in two different shirts. It’s like one of those movies like Tom Hardy did one where he played two brothers. You know what I’m talking about, Rob, because every movie, right?
Rob:
I do.
David:
The Parent Trap, that’s what this is. I feel like we have the same person playing two roles on the podcast, but I promise they’re different people.
Rob:
Because that is usually what people say whenever they meet us. They’re always weirded out. They’re like, “Are you David? Are you Rob?” It’s like, “You guys look like brothers.”
David:
Yeah, that’s very … No, not well known fact. That’s why Rob grows his coif. It’s just so we can be differentiated because we look like twins.
Nate:
It’s helpful.
David:
Yeah, he’s tired of getting confused with David Greene. He’s like, “I’m way more handsome than that guy. Stop doing it. He looks like a combination of Shrek and Dana White and I look like Antonio Banderas. Why are you guys mixing us up here?” All right.
So in today’s show, Nate and Troy are going to walk us through a deal that they’re doing that includes a new joint venture, as well as working directly with the seller. We’re going to dive in more later, but first, tell us a few quick stats about this deal. Troy, I’m going to start with you. What property is it?
Troy:
Yeah, it’s a total of 14 units, two quads and two triplexes.
David:
Oh, are these all in the same lot?
Troy:
Essentially. Two of them are on the same street. Two units are just one street over.
David:
Oh, but they’re different parcels that’s owned by the same person.
Troy:
They are, yeah.
David:
Okay. Then Nate, what did you buy it for?
Nate:
We are buying this for 925,000.
David:
You see how I’m using your names just so it makes that the audience think that we’re talking to two different people and they don’t realize it. It’s actually The Parent Trap. Then Troy, what is your plan for the property?
Troy:
We’re going to hold this. We hold most of our property long term.
David:
All right. I’m excited to hear more. We’ll get back to this deal, but first, how did you two get into business together? Did each of you have partners before you met each other? Did you look at each other and think, “Oh, my God, we were separated at birth. We are clearly identical twins”? What was the origin story of this relationship?
Troy:
So Nate and I met after school, after college through some mutual acquaintances and just had a lot of similar interests, liked to play golf, liked to play music, guitar. Actually early on, I was starting my financial planning career, and Nate was working for a security company. We actually started a little side hustle together where we would go out and procure these really great deals from local restaurants and realtors or retail shops, and then we’d package them up into these little coupon books, you’ve probably seen them, and we’d sell them to the community, and then, unfortunately, Groupon happened and, “Ah.”
Rob:
Wait, so did you actually … You were actually creating the literal coupon books?
Troy:
We were, yeah.
Rob:
Wow. That must have been so much work. Was it?
Troy:
Yeah. It was a lot of work. It didn’t last long. We should have seen the internet coming.
Rob:
Probably by that point, for sure, but I bought one or two of those in my lifetime, and I was just going every day. I was like, “Well, I need a cheap meal. I guess today I’m going to Applebee’s for $10 off.”
Nate:
Exactly.
David:
What about you, Nate? Did you guys have any failed partnerships before the two of you made this thing work?
Nate:
So yeah, we both have had a couple of partnerships. I guess I’ll let Troy go first because he started first. So I’ll kick it back to Troy and he can tell the story about his failed partnership.
Troy:
I had a partner in my financial planning business, and all personality and value issues aside, I think there were a few key reasons why that partnership was doomed from the start. Part of that was just difference in equity. So when I was considering going into a business with Nate, it was important that I felt like we had similar skin in the game. This partner didn’t have as much invested in the company, and then beyond that also had different income needs and long-term goals. So while I was trying to grow this business, there was a constant outflow of capital. Also, this person was significantly older than me, so our long-term goals clearly didn’t match up as well.
Rob:
So tell me, Troy, you said that you came in a difference of equity and the money invested was differently. So does that mean … Was equity based on how much money was invested into the company or was equity based on just, “Hey, let’s each own 50%? How much can you toss in? I can toss in this much”?
Troy:
So the way this worked, I brought some of the actual capital to the business, and that was supposed to be in exchange for a very clear defined set of responsibilities that this person was going to take. Just as time passed, that dynamic just didn’t really work. I think there was resentment on the part of my partner feeling that they were being overworked. I think there was also just a clear difference in what we were trying to build long term. So to your point, when I considered a partnership with Nate, I thought those two things, while they didn’t need to be specifically equal, they needed to be closer.
Rob:
Then you also mentioned that the partner who was older and your long-term vision was different, explain that. Do you mean they’re older so they’re looking to cash out faster and you’re looking to build this thing up to the heavens? Give me a little bit of that vision whenever you started that company.
Troy:
I was fairly young. I was in my late 20s. He was in his late 40s. While I was looking at probably a 20-year, 30-year runway, he was probably looking at something like 10. I was young. It was something that I should have considered from the start, but didn’t have that insight at that point in my life.
Rob:
So do you feel like now … I guess obviously you’ve probably found common ground with Nate, but just moving into more businesses with people, is timeline one of those huge factors that you’re looking at?
Troy:
Yeah, even when Nate and I decided to jump into this together, we clearly defined, “Hey, we are holding our properties long term unless it obviously makes sense to dispose of one, to roll it into something different,” but this is a long-term commitment for both of us, and we’re not going to touch anything until we’re close to that retirement age.
Rob:
That’s really cool. Okay. So now, that first partner, have you guys ever worked it out or how did that end up shaking out once you came to the crossroads there?
Troy:
Unfortunately, no, no. That’s a broken relationship. Sad.
Rob:
All good. All good. Well, I’ll tell you what, this relationship right here is not broken, all right? I want you to remember that for the rest of this episode.
Troy:
Appreciate that.
Rob:
I’m looking deep into your eyes every time I’m talking. All right. Sorry, I’ve derailed this enough. David, where do you want to go with this? Do you want to ask more about the actual dealer or do you want to dive more into the partnership logistics?
David:
Well, I would say for someone who is trying to figure out should they partner, should they not partner, who’s the right partner, before we get into the deal, I’d like to get some of your guys’ perspective on what did you do with people that looking back you can clearly see those were mistakes that’s why it didn’t work, and what did you see in each other that made you realize this is a partner that actually could work out in the long term. We could start with you, Nate.
Nate:
I think Troy and I had developed this relationship in our 20s. We were playing golf together. We would have poker nights, play video games. We were just hanging out becoming buddies basically first, and then we had that coupon business that fizzled rather quickly, but we’re both in that visionary mindset. We like talking about ideas, new things, new businesses, all that stuff. So what happened over time, I ended up leaving my marketing job that I had, and I did not like that job at all. So I was looking for an out. I became a real estate agent, and within eight months, I was able to quit my job and went full-time in the real estate.
At that point, I didn’t know what investing was still. I spent a couple years just doing retail, buy and sell. Then a property manager friend of mine shared the latest BiggerPockets episode with me, and this was back in 2015, I think. It was around episode 105. So I think we’ve had a few episodes since then. It just floored me to hear about real estate. So I listened to all the podcasts. I started reading books. That’s when Troy and I talked about a partnership together because we were both interested in real estate.
Troy had actually already had some experience buying rental properties. So we decided, “How are we going to build a business together? Does it make sense to work together? How can we do that?” Really, it was because that relationship that we had had for years at that point that we felt comfortable going into business together, especially because I felt like he had more of a financial mind being a financial planner. I was in the trenches selling real estate every day so I had my pulse on the market, but then he had also had experience on both the commercial side, managing some commercial properties and buying rental properties. So for us, it was just, “Let’s do this. Where do we start first?”
David:
So you knew each other for a while. You’ve gotten to know each other’s character, personalities, and styles, and you believed, “This is a person that I can trust,” and then you made another good point there. You had opposing skill sets. Doesn’t do you any good to have two point guards on the same team. You want somebody who is covering a different base than you. Troy, anything you’d add to that?
Troy:
No, I think that’s true to a certain extent, and yet as I look at our real estate business, real estate is not that hard. So I’ve watched our business change and our roles in the business change as needs have arise. Like Nate said, for a while, he was an agent and it was because of just his ability to access auctions in the MLS at that point. He was the deal sourcer. He would find the deals. Through that, we found our first BRRRR property, went to auction, bought it for 60 grand, rehabbed it, rented it, repeated, refied, repeated. It worked perfectly. It was a perfect BRRRR, and then we never did it again, but it was because of Nate’s role at that time that he was finding the deals. That shifted somewhat and we’ve been able to offload some of the responsibilities depending on who’s curing what at any given time.
David:
So Nate, you started off finding deals. Troy, you were sort of handling the backend of it, making sure everything got done. It’s funny that you said you did a BRRRR and then you stopped. I think so many people that were buying properties from 2014 to 2020 or so had that same experience. We were so spoiled that you could do a BRRRR, get 100% of your money out, be left with a cash flowing rental that had been fully rehabbed and was going to have no capex for the near future and just think that’s normal and it should happen all the time. There’s so many of them that we don’t even need to go do this again.
Now we’re in this market where we’re like, “I’d give my left arm to have anything that cash flowed a little bit and if I leave 10% of the money in the deal, I’d be thrilled with it.” We can’t find those anywhere, and we’re all looking about kicking ourselves in, “Why didn’t I buy more real estate when I could?” What was your mindset at the time when you guys did that deal that prevented you from going after more?
Troy:
I think we dug into real estate a little bit more at that point. We were amazed. The BRRRR strategy is what really prompted us to start the business together, but then I think as we dug in, we realized we wanted to focus more on multifamily, and that’s where we focused our efforts. So you’re right. If I could go back and do 100 BRRRR deals, I’d love to right now, but we were just a little bit focused and changing direction a little bit, and that BRRRR deal allowed us to do. That BRRRR deal actually allowed us to change direction.
David:
What was your experience with that first deal? Did it change how you looked at real estate investing? Did it change how you looked at the partnership? Did it open any doors for you?
Nate:
Yeah. Well, I think the most important investment that anyone makes is their first deal because it gets them over that hump of, “I can do this,” and you learn a lot in that process. So for me, there are two things that held me back from investing in real estate. One was just like, “How does a real estate transaction get put together?” Luckily, I had at that point about two years, maybe about, I think I had about 60 deals to my name just in the trading of real estate for clients. So I felt like I had a comfort level with how a transaction goes. I had contacts. I had attorneys. I had a bunch of different vendor partners.
Then the second part of it that I really learned a lesson on was how to find and manage a contractor. I made some pretty big mistakes there, trusted a referral, and usually that’s a great place to start, but you still have to do another layer of vetting. I did not vet this contractor hard enough and he just took way too long, went way over budget. It was poor quality work on top of all of that. Then it delayed our process to be able to complete the BRRRR strategy, and it led us into basically the fall, which is not a great time to try to rent a property in the upper Midwest.
So luckily, we did find really fantastic tenants, but it did delay our timeline by several months. So I learned some lessons on how to find contractors and that led to some better experiences down the road where I was actually able to partner with some contractors that knew how to work with investors. I knew how to better manage them and I knew what to look out for as well.
David:
Contractors are such a tricky referral because when I get a good contractor, it’s like, “I don’t want you to know who that contractor is. I don’t want to give you my guy. I’m going to give you someone else’s guy that I heard they use and maybe I have their contact info.” Is that the same with you, Rob?
Rob:
Oh, yeah. Oh, yeah. I ruined my contractor in California for myself. He was the best contractor in the city. I’m not even going to say the city because I’ve already ruined that city too, but everyone goes to him now. He’s built dozens of homes for people that I referred out and now I can’t even get a quote for three months. He’s expensive now and it’s a whole thing and I’m like, “Well, I’m happy you’re winning, but I’m now losing because I helped you win.”
David:
Listen to this story. This is just the worst, okay? So I had a cop that I worked with who’s actually a lieutenant, who I was going to sell his house when the time came. He wanted a person to do some work on this house. So I’m like, “All right. I will send him up with my person because this is going to be a listing. This is a perk of getting to sell your house with me.” The guy goes and does the work. This cop shares the information with another cop at the department, this time a captain, and now that guy goes and he does his shower.
Well, the work he does, and this wasn’t a contractor, this was a person that worked for a contractor that did the work very cheap because he wasn’t doing it as a licensed person. So he does that guy’s shower and the shower’s leaking. He then stops replying to the phone calls and text message of the angry captain who’s threatening to get him in trouble for working without license. This is getting ugly. Then captain calls me, who I was also going to sell two of his houses, and he is like, “Hey, So and So stopped replying to me. I need you to give me his contact information like his address so that I can go serve him with paperwork and get him in trouble.”
I’m like, “Look, I didn’t even give you his information.” This is secondhand anger that’s coming from somebody else. I don’t really want to dime this dude out, but I also don’t want to burn my contact with my cop friend who wants me to sell his house. Long story short, he’s pissed off because his shower leaks. I don’t sell either of his houses, and the first cop didn’t come back to me when his house sold, and this was all because I was trying to do a nice thing by hooking someone out.
So I can understand this contractor conundrum that people fall into. It’s very difficult because when you’re getting referrals from contractors, A, you do need to vet them yourselves, B, it might not be the best one, and C, they might have been great for someone else, but they’re not going to be great for the person that they’re referred to. Is that a similar experience for you guys?
Nate:
Yeah, and I’ve got a couple tips that might help people listening or watching this. One thing I learned … So I hosted a real estate meetup and I met a guy who was flipping houses. He was doing several houses a year, and I was going to list one of his flips. So I went to go see it. They were almost finished with the work, and I was able to see this contractor’s finished work, see how the flip turned out, and it was fantastic. I was like, “Who is your contractor?” So that was the one thing. Go see the work. They should let you see the prior work that they’ve done or let you in on existing project that they’re working on now so you can see what the quality is.
Then secondly, this company was big enough where they had both a full-time administrative person and they had a full-time superintendent. So they had their bases covered when permits needed to get pulled. The superintendent or the admin would help with that stuff. The admin would help with the phones and scheduling and all sorts of stuff. So most contractors are actually pretty good at their job, they’re good at what they’re skilled at, but they are not good at the business side of things. So if they have some help there, maybe it’s a partner, a spouse, an employee that can help them with the admin task, that gives me a better feeling of how things might go.
Rob:
That is definitely the one, the biggest flaw, I think, industry-wide for contractors is they’re usually just not very good at business or picking up the phone. If they are good at business and picking up the phone, they’re very, very expensive because they know how to delegate and hire teams. So it’s like two different options. You want the contractor who’s good but bad at being responsive and more affordable or do you want the premium contractor who’s a badass, but also the quote, you have to sell a kidney to fulfill?
David:
Well, there’s some wisdom in that. When you go to a house flipper and you say, “What about this deal?” they’re looking at it with house flipper goggles. They’re looking for how much equity, is there a strong buyer’s market for this property, how quickly can we get this thing rehabbed. They’re analyzing it from their flipper mindset and putting all the inputs into the Excel sheet in their brain. When you go to a buy and hold investor, same thing. When you go to a wealthy person who just wants a place to stick money to save on taxes, they’re looking at it from a different angle. When you talk to a contractor, they’re just wanting to make sure that they do work the right way, they do a good job. They have guys on their team that can handle it. They have subs, they trust they can do that type of work.
When you go to a different professional like a CPA, you get a completely different perspective. It’s challenging to just turn something over to someone and say, “All right. I need you to do this,” because … This is one of my frustrations all the time. I got a house in Florida, some code violations came up from the guy that I hired to do the work, not pulling permits. That guy just backed out of the job. He’s like, “Oh, I don’t want anything to do with it.” Now the city’s involved and I got caught. So I got to go in and get permits issued for the work that’s already done. I got another contractor and I’m like, “Hey, here’s the number for the guy in the city. Can you call him? Ask what needs to be done, meet him at the property, tear the walls apart, show him what’s going on, clear the permits.”
To me, this is pretty cut and dry. That contractor is having the hardest time with understanding he has to make a phone call and ask questions. He’s like, “David, just tell me. What do you want to do? I’m confused. This is such a mess. I need some clarity.” Every time we talk, he keeps saying that and I’m like, “Well, why are you coming to clarity for me? That’s the number for the guy in the city. Just go ask him.” His brain cannot make a connection between getting the answers he wants from a city planner. He thinks he has to get it from a client. It’s just such an example of how real estate can become complicated and messy when it doesn’t need to. Oftentimes, you just got to run shotgun on your own projects and tell people what to do. Is that a lesson that you two have learned, Troy?
Troy:
Yeah. Thinking back on that BRRRR strategy project we had especially, definitely agree with all those points. We haven’t done a lot of construction beyond that because most of our units are buy and hold, but yes, definitely agree with all those points.
Rob:
So you have this budding relationship. You guys have figured out, “We want to be in business together.” How did you align on where you wanted to go? You did mention you pivoted after the first BRRRR, so obviously, there must have been a heart-to-heart that guided your strategy after that. So Nate, can you give us your thoughts and then I’ll go over to you, Troy?
Nate:
Yeah. When we first talked about this idea to own rental properties, our pie in the sky goal was 100 units in 10 years, and we just pulled that out of thin air. It just sounded cool, but it at least gave us a starting point because you got to start with one. So we talked. We set up our LLC. Troy brought the banking relationship with a commercial lender, which we’re still working with that person to this day. So that’s where that all began.
Then I think the next thing that changed some things too in addition to maybe stopping the BRRRR strategy, Troy moved out of states. We were in the Chicago area at the time. He moved to South Carolina. So that changed our strategy a little bit too because he was looking at some properties there. We had one property in particular that was a disaster. We bought a duplex that we made a huge due diligence mistake on. We thought it was owned multifamily and it was not. We did not find this out until the appraisal was done. We had already done quite a bit of work to it. We were not going to be able to pull out our money unless it was a property that adhered to the zoning.
Since it was being used as a two unit, we either could have kept our cash in that deal or we had to revert it back to a single family to pull our cash out. So we had to make the hard decision to pull our cash out of there. We had to revert it to a single family, which cost us another $10,000. Then when Troy had moved to South Carolina, we sourced a property there, and that took us to more of an out-of-state investing mindset because that’s where we do most of our deals now.
Rob:
I want to talk about a little bit of the ins and outs of the partnership in the structure that you have in place. I wanted to just start with this question. Is it hard to actually set up a partnership?
Troy:
No. For us, we probably did the worst thing possible, but we just jumped on LegalZoom and set it up that way and it’s been fine. I guess we haven’t made any changes, so it was pretty easy.
David:
All right. Getting back into this deal that we are talking about here, your 14-unit, I believe we’re with you, Nate. So tell us how did you find this deal.
Nate:
So I’ll back up for just a second and I’ll tell you how we found the market. Five years ago, we were looking for a bigger multifamily deal, and we were pretty agnostic as to what market we were in. We would obviously do our due diligence if we found a deal, but we’re looking at major markets all across the US and, actually, Troy found this 20-unit deal in northwest Alabama, about an hour outside of Huntsville. There was something about it that were giving him alarm bells. This had been on the market for quite some time, and the numbers just looked awful, pitiful, and he’s like, “How could this be? How could this apartment building be bringing in this little money?” It just didn’t make any sense to him. So this is why he’s such a great partner, but he dug into it. He found the property manager. Troy, maybe you want to continue this because you were the direct contact with the property manager at that time.
Troy:
Yeah. I found it on LoopNet. It was, like Nate said, a 20-plex that just looked … The NOI was ridiculously low. Instead of just passing it over, I thought I’d call the property manager and called him up and said, I asked him, “Why are these numbers? Why is the rent so low on this property?” and he laughed and he said, “The only thing I can think of is that I switched property management software halfway through the year, and they only took one of the 1099s and listed it as the income for the entire property.” So he ran through the numbers with me, and after we found out what the property was actually bringing in, it was a slam dunk deal. Best deal we’ve ever done by far.
I think that was a lesson for me. Just pick up the phone. The best deal of your life can be one phone call away. So with that being said, that is how we actually met Robbie. He was the property manager who picked up the phone when I called. We love the guy, and he has been so instrumental in our business. So not only does he manage that 20-unit for us, he brought us a fourplex in 2020, early 2020, and then he just brought us this 14-unit deal completely off market. So for us, our property manager has really been the greatest source of deal finding.
Rob:
So let me get clarification here. If I’m hearing this correctly, you found a deal on LoopNet that didn’t necessarily work out. It was like, “Eh, it’s not that great of a deal.” Then you were like, “But I’m going to call anyway.” You call and then due to a technicality or a flub or a glitch, they’re like, “Oh, yeah, sorry, let me crunch the numbers,” crunch, and then all of a sudden they’re like, “Ah, yeah, we were way off. It actually makes this much money,” and then no one had made an offer on the property because the numbers looked bad at face value?
Troy:
Yeah. It’s shocking that no one had followed up on this. The numbers were so bad that I didn’t think it was possible, and that’s what prompted me to make that call, and it’s been a great deal for us.
Nate:
So that’s what brought us in into that particular market. Then over the last few years, we just remind Robbie, our property manager, “Hey, we’re buyers. So if anything comes across your desk, we’d love to take a look at it.” After BP Con last October, we were pretty fired up like everyone was, and we reminded our property manager again, “Hey, we’re looking for deals, especially if there’s any creative finance element to it. We are buyers right now.”
Rob:
Yeah, that’s huge. I don’t want everyone at home to just listen to this. I was thinking about this earlier on my walk this morning, on my walkabout, if you will. One thing that I realized is I think that the reason most people don’t scale or don’t have success past their first deal or even getting their first deal is because they just don’t ever make a physical phone call. The moment you have to make a call, you just get, “Ah, I don’t know. That’s too much work. I’m too nervous about it,” but it’s just like calling people can lead to so many opportunities.
I saw this carwash, and I’ll say this, there’s a phone number on the door of this carwash, and I was like, “Hey, maybe they’ll sell it to me.” I called him six months ago and he was like, “No, no, I’m not going to sell it, but thank you for reaching out. I appreciate it, but no. No, thank you,” and I was like, “All right. Great.” Walked by today, called him again, and he answered the phone. I was like, “Hey, it’s me. I called you six months ago just following up,” and he was like, “Well, I’d sell it for three, four million if you’re for real.” He said, “You called me six months ago,” and I was like, “All right.” It was not a great price. It’s actually a very bad price, but I made progress in six months because I decided to call, and I almost did it, and I think that if I call him again in six months, maybe it’ll go down to 2.9. I don’t know, but the point is calling over and over again warms people up. It builds rapport. Even if you fail at making those phone calls, it at least thickens your skin a little bit so that you can just do it because it is scary to make phone calls, I think. So kudos to you on doing that.
Troy:
Yeah, and I think especially in today’s market, everyone, the hardest part is finding a good deal, and yet so few people are willing to just take the extra step to make a deal happen.
David:
Well, this is what stood out to me about this. You see a deal on the MLS, the numbers are terrible. We’ve all seen that, “Oh, my God, that house is priced so high. Why do they think they’re going to get that? Those cap rates don’t make any sense.” I hear these statements constantly. We view it like that’s the price, it doesn’t make sense, moving on to the next one. When I see that, I’m not looking at it from my perspective of, “I want an easy deal. I just want to find something that makes a bunch of money, I can write one offer on, put it in contract and be done.” I’m thinking how that listing agent must feel.
This thing’s been sitting on the market for six months, for nine months with numbers that clearly don’t make sense. They probably feel pretty bad about themselves. These listing photos are terrible. They don’t even have an interior shot. Nobody’s going to be asking about this. They’re probably desperate for a phone call. This person probably really wants to talk to somebody about real estate. That listing might be expiring soon and they’ve got nothing to take to the seller. They’re going to lose the listing completely. That’s the house you want to call on. You don’t want to call on the one that looks gorgeous and is priced really low and has been on the market four days because it’s priced low on purpose. It’s going to sell for 100 grand or 200 grand, more than that, and that listing agent isn’t even going to answer the phone. They’re going to give you some automated response that say, “Submit your offers through this portal on this website. You’ll never get to talk to me.” They’re running an auction and your client’s going to be frustrated.
You call those ones that are obviously messed up and you find what you found, Troy, “Oh, the rents are much higher. They’re idiots. They don’t know what they have. These pictures are terrible. The property looks way better than I thought. What were they thinking when they did this?” They want an offer. They want something. They want to start negotiations. They just want to feel wanted. They haven’t gotten attention in six months. All their friends are getting dates and they’re sitting there posting on their Instagram and they’re getting zero likes. Then you happen to leave that one person a comment and they’re like, “Oh, my gosh, I got attention from a buyer. This feels great.” They want to talk to you all the time. Those are the deals that you should be looking for when you’re an investor, but for some reason, we pass them all up and we chase after the same homes that everyone else is. All right. So let’s see. Where are we? Troy, how did you negotiate this deal?
Nate:
So one thing when we’re trying to vet markets in general, and I think it organically started just because it was where we lived, but we were about an hour outside of Chicago. So we’re hour outside of a metro area, decent demographics. When Troy moved to South Carolina, he sourced a duplex there. That was about 30 minutes outside of Charleston. Then when we were looking for a larger deal in a different market, this just happened to be about an hour outside of Huntsville, which is a very, very strong market and has been for years now. It’s really been on fire.
So what we do … For some people who might think that it’s hard to find a deal in your own town, that can be the case, and depending on what your goals are and what you’re looking for, there are plenty of markets out there that might just be on the fringe of a really hot market that doesn’t have the attention yet. So if you just go and do your due diligence and see what’s going on there, sometimes there are markets, and we’ve found this to be true in several markets, where not just one metro area, but there can be two or three in a triangle, and that can be really, really good.
Down in Alabama, there’s Huntsville, and then there’s a bunch of manufacturing in Tupelo, Mississippi, and then you’ve got up until Memphis and Nashville. So some of these markets feed off of each other because a lot of their distributors come from these larger markets and then infill into the smaller markets. So there’s still a lot of good things to be looking out for in these tertiary markets.
Rob:
So that’s the 20-unit. You also mentioned this 14-unit on this deal, Troy, is that the same market as this one? Is it a different market?
Troy:
Yeah, it is the same market. In fact, I think I also mentioned the four-unit complex that we bought. It’s literally on the same street. These 14 units are on the same street that we already own a fourplex. So really familiar with the area, feel good about the property management that’s in place.
Rob:
So I imagine you get to use a lot of the same vendors. So it’s a pretty seamless machine once it’s up and running, right?
Troy:
We love it. Having solid boots on the ground makes you want to continue to purchase and continue to buy in that area.
Rob:
Yeah, 100% agree. Nate, got your take here on the tertiary markets, all that stuff, but can you just take us through your actual buy box and how has that buy box evolved over time?
Nate:
Yeah, I think when we started out, we bought a single family and we did the BRRRR strategy. Then we looked into some duplexes and some larger units. When we wanted to go for the 20-unit, it didn’t have to be a 20-unit, it just ended up being the best deal for us. As we’ve continued to build our portfolio, we like to stay in that mid-size multifamily range because, first of all, it’s a commercial property. We prefer to play in that space if possible, but as we move forward, I think that we’re not … If it was a good deal and it’s in a market we like, well, we’d probably still buy a duplex. We like multifamily quite a bit, but, Troy, maybe you could chime in on what you’re thinking our best buy box is because I think what we’re looking is for a deal in a market that we like and have boots on the ground. That’s our criteria.
Rob:
Yeah, that’s good.
Troy:
Yeah, and I also think our buy box has changed a little bit given the current market environment. I think we are less focused on cashflow right now and more focused on just solid properties that hopefully breakeven, hopefully we get a little bit of cash flow, but solid markets where we feel rents will appreciate long-term taking care of the cash flow problem on its own, but then looking for markets where we feel long-term appreciation will naturally occur as well.
David:
Yes. I’m working on a book right now that I’m hoping BiggerPockets will publish that details the 10 different ways that you make money in real estate, and you just mentioned two of those ways, market appreciation cashflow and market appreciation equity. Trying to bring some clarity to all the different angles that people take when they’re making plays because there’s so much controversy between, “Should you be an equity investor? Should you be a cashflow investor? Does location matter? Should you be adding value?” Really, the answer is, yes, you should be doing all of it, but you typically have to give up something to get others. So I like that you guys are sharing, “This is the strategy that we are using and this is why. So therefore, these are the properties that we’re looking for.” Remind me, what did you pay for this deal?
Nate:
925,000.
David:
That’s right, 925. You said that earlier. Then Troy, how did you negotiate that?
Troy:
Really did not negotiate as far as price goes because it wasn’t off market deal, and this seller was adamant on his price and he said, “If someone can pay me 925, I’m willing to sell. If not, I’m willing to hold.” He built these 14 units. He was the builder back in the late ’90s, and so he has a lot of pride of ownership.
David:
Oh, yeah. I could see this one already.
Troy:
So we didn’t negotiate on the price, but there were some really interesting pieces that happened along the way. I’ve been negotiating with this seller since November of last year. Initially, he thought he wanted to sell or finance. He didn’t want the big tax hit. Worked that back and forth, and eventually just, I don’t know, just walked away. I think he was second guessing whether or not he wanted to sell the property. His heart and soul was in these things.
Let it be for a few months, and in January just thought, “You know what? I’m going to reach back out.” Again, another phone call, right? “I’m going to reach back out to the seller and I’m just going to say, ‘Forget the seller financing. Let’s work on a traditional financing deal. We’ll work with our bank and we’d still love to buy these units.’” At that point, I think he knew he needed to sell. He was in retirement and he agreed to that. So I guess we negotiated in the fact that we got him to accept the deal, accept the offer. So that was good, but we had some different hiccups along the way even after we agreed to the purchase price and the financing piece.
Rob:
Troy, was that at all heartbreaking that you had a seller finance deal option or was it not a huge deal to switch to conventional lending?
Troy:
It wasn’t a huge deal. Obviously, the seller financing piece was attractive in the fact that we thought we could get a lower rate, but it’s not like he was pushing the amortization schedule out to 40 years or anything crazy like that. We also have such a good banking relationship that, believe it or not, we’re getting under six with our bank. So we weren’t too worried about that, but we ended up … This deal actually ended up, a portion of it is being seller financed anyway, and that was due to an appraisal issue.
Rob:
Got it. All right. So just for the people at home because this is a split seller finance scenario, Troy, how does it work if let’s say it’s a million dollar property and the seller is willing to finance $200,000 of it, are you going to the bank and then the bank is just fine with financing only 800,000 and then you just have a private promissory note or loan with the seller at that point?
Troy:
Yeah. So you know what we did? We actually, because it was four separate parcels, we actually talked to the bank and we carved out three of the parcels, and they’re financing that piece. Then the seller is going to be, because he won first position, so he’s taking first position on that fourth piece of property, and we’ve got the mortgage set up directly with him.
Rob:
Yeah, got it. Okay, because otherwise, if it was on all four, the seller would be forced to be on second position.
Troy:
He would have to be second position. He didn’t want to do that.
David:
Did you have two separate purchase agreements?
Troy:
We do. One with him.
David:
That’s for that one parcel that he’s in first position on and then-
Troy:
Correct.
David:
… the other one is for the other three that the bank is financing and they’re in first position. He was okay with that, huh? So he wanted to be in first position so bad that he would get only a quarter of the-
Troy:
Yeah. That was the way he felt comfortable structuring the deal. The great thing is he’s coming in at a much lower rate than even our bank. So our blended total financing package is really pretty attractive right now.
David:
Sometimes when you’re first, you’re last. You probably would’ve been better off getting a bigger chunk all four of those. All right. So that’s good. Now, what was your experience with the seller financing? Did you walk into that expecting like, “Oh, I know how seller financing work. I got my screwdriver in my pocket. I’m going to pull that thing out and I’m going to fix this,” and then you realized it wasn’t like you thought or did it work out the way you expected it to?
Troy:
No. I think we all, especially right now, and there’s some guys out there who are really killing it with the whole creative financing, seller financing models. I think you hear about these deals where the seller wants 0% down, they’re okay with 0% down, and they’re willing to amortize over 40 years and whatnot. I don’t think that was ever an option with this deal. So we were okay going the traditional finance method regardless because the seller’s terms were fairly similar to the banks.
Rob:
So Nate, tell us how did you fund the deal.
Nate:
So we funded it with our lending partner, who we’ve been working with a very long time, and then the other component was the seller finance, and then our down payment into the deal is obviously between our business. Then we brought on two partners, which we have never done before. So we’re doing a JV deal with another group of guys that we like and trust.
Rob:
Okay. So how much money did you have to put in because I imagine if you’re bringing other investors in, do they want skin in the game?
Troy:
Yeah. We ended up putting in altogether right around 30%, 30% of the deal. Part of that was due to the fact that the appraisal came in low, and that’s a whole different story. So we brought a little more cash to the deal. Because we’ve got a few more guys in this deal who wanted to bring capital and wanted to be involved, we did a little bit greater down payment.
Rob:
Okay. All right. You said that you JVed on this. Were there any specific JV things that you had to do or was it still just going on to LegalZoom or whatever website and forming your partnership there?
Troy:
No, we used an attorney this time this one because there were more parties involved. We felt that was probably the better, wiser decision, but really good guys and just guys that we’ve gotten to know and talk real estate with and feel comfortable pursuing deals together down the road.
Rob:
Now, was there anything that you had to do to vet the partners that you brought in? Was there any learnings that you had from your previous, I guess, partnerships and everything because, obviously, if you’re bringing in two new people, that’s two different mindsets and two different philosophies that are coming into your investment? Nate, I don’t know if you’re the person who walked through those logistics or if it was you, Troy.
Troy:
It was probably more my relationships on this deal. These guys were neighbors, guys I went to church with. So I just knew them organically through everyday life, and through that, we all discovered that we had a passion for real estate. Chris and Paul, shout out to those guys, but Paul was building a rental portfolio here in the Charleston area, as well as I think some units up in North Carolina, and Chris, he’s a short-term rental portfolio in different parts of the country. So they both had real estate experience.
We decided, once we realized we had this similar passion, we just started having breakfast once a month talking about real estate. They knew I was working on this deal, and for whatever reason during one of these breakfasts, I just was feeling a nudge to throw the deal out there, and I did and I said, “Guys, what do you think about partnering on this?” Nate and I didn’t need to, but I think it was a chance for us to grow and learn just how to partner and build a deal with more people involved. These two guys jumped at the chance and it’s been great. It’s been a lot of fun.
Nate:
Yeah, and I think for me too, because, Troy, they all live close together. I’m out in Colorado. Troy called me when he had this light bulb moment and he’s like, “What do you think about partnering with these two guys?” Paul and Troy had gone to BP Con, and so I got to meet Paul there. So I definitely had comfort level with him. Then Troy told me what Chris was all about. Then once we did get the property under our contract, we were doing our due diligence trip to Alabama, I got to spend a couple days with Chris and there was no red flags. Again, it goes back to getting to know each other, but I implicitly trust Troy, but certainly had I seen something, I would’ve said something, but everything checked out. It checked all the boxes for me.
Troy:
Well, and beyond that, some of the same principles that even Nate and I pursued when we were considering our partnership, certainly, we did that with these guys as well. They needed to be financially stable. They needed to have some understanding of real estate. They needed to understand that Nate and I essentially found this deal and it’s a long-term hold. We’re not selling this. There’s no quick flip here or anything like this. This is a piece of our long-term portfolio. So exit strategy, everything like that, everyone was in line there. So I think it made a lot of sense.
Rob:
Is there a particular deal structure that you have in place with this JV? Do they get a return faster because they’re investors or does everyone get equal share?
Troy:
No, I don’t think they were interested in a return of their investment quickly. I think they want to own the real estate just like Nate and I. We did carve out because so much of the work, especially the front end, fell on Nate and I. We did carve out just a small piece of the equity for us to hang onto.
David:
So what advice do you have for people who they have a decent friend group, but they’re not sure who’s interested in real estate, who could be a potential partner, they don’t even know how to bring this topic up without feeling awkward?
Nate:
Yeah. I would say when I was a real estate agent, I was always told, “Don’t be a secret agent. Tell everyone that you are in the real estate business.” You need to tell people what you’re up to, what you’re interested in, what you’re learning. Naturally, these conversations will come up. I was getting a haircut the other day and real estate came up. So it’s like people are interested in real estate. Everyone knows something about real estate. They either know that their rent has gone up, has skyrocketed the last couple years, and they’ll vent on that or they know that their neighbors got in a bidding war over a property and had to pay 50,000 over asking, whatever it is. Everyone knows how real estate works.
So a couple things is just don’t keep it a secret. Share it. No matter where you’re at in your journey, maybe you just read your first book or listen to your first podcast, go tell people you. If it’s exciting for you, that will rub off on other people and they might have a connection or maybe they’ll end up being your private money lender or whatever it might be.
Then the second thing is go hang out with people who are like-minded. So go find those meetups. You can just go to meetup.com or go to BiggerPockets and go to the network tab and find those local meetups. They’re happening all the time, all over the place. If they’re not happening, go start your own. That’s what I did. There was one that was an hour for me. I didn’t want to drive an hour, so I started my own.
David:
Troy, anything you’d add to that?
Troy:
No, just to piggyback on what Nate said, I was that secret real estate investor, to be honest, just because of the profession that I was in. I just didn’t talk about it a lot. It’s funny to watch, now that Chris and Paul are actually involved, they are talking about it more than I am, and it’s amazing how many people that we know who have now come up and say, “I heard you guys are doing this. You got to let me know next time you buy a piece of property.”
So I think everyone talks about how important your network is, and shame on me for not realizing that earlier, but it’s true. It’s true, the more people you know … Real estate is one of those things, everyone’s attracted to it. So the more people and the more people you can share the story with, I think it’s going to speed your journey along.
Rob:
Okay, and one question here since I’m always interested to see how these types of things are formatted and everything like that, but with more parties involved on this particular deal, what can you share about communication in partnerships? Obviously, there’s the legal side of it and that’s the ultimate form because it’s all documented, but what about the actual day-to-day back and forth with investors? Troy, is that something that you’ve had to change your theories or your philosophies on?
Troy:
Yeah, not so much my philosophies, but definitely, definitely the practicality of picking up the phone and keeping everyone in the loop and spend more than what I’m used to. Thus far though, it’s actually been an encouraging experience. When you’re, “Man, this deal has had a lot of hair on it that we’re trying to close,” and when you’re talking to these guys, the encouragement that I get from some of these other guys, “Hey, you’re doing a great job. Keep going. We’re going to get through this,” I don’t know. It’s fun to have more energy going towards a deal that we wouldn’t have otherwise, but yes, definitely, definitely more communication now that we have other investors.
Rob:
It’s a beautiful thing when everyone’s excited about the deal, right?
Troy:
Yeah, let’s keep it that way.
Rob:
Yeah, you punch holes along the way and you try to make the deal not work, but just barely survive and then it survives. Then it’s like, “We did it.” If we could survive our own hole punching, then this is going to be a great deal. So tell me, Nate, where does it stand now? I know you guys haven’t closed yet. Are you guys approaching the finish line? How close are you to rounding this one out?
Nate:
Yeah, less than a week. We are set to close. So we’re very excited about that. I guess just to paint a picture, like Troy said, this deal was initially brought to us in November, and the time of this podcast that we’re recording today, it’s middle of May, so that’s a while to work on a deal, but that’s really important about making a deal happen is just be persistent. Good things take time and good deals are going to take a little extra work sometimes, but they’re totally worth it, totally worth it.
Rob:
Could not agree more. The best deals rarely work just at face value. You have to make the deal work. That’s something that I always heard as a BiggerPockets listener, but something that we all believe here at Big BiggerPockets is deals don’t just come out of thin air. You have to make the good deals, right? So I heard David Greene say that a time or two.
With that as we close out, just wanted to give you guys the opportunity to say what’s next. What’s going on after this deal? Do you have bigger plans after this? Are you going to focus on more multifamily? Are you hitting the groove and the 14-unit space? What’s going to come from this partnership?
Troy:
I think to answer your question, Rob, we are buyers right now. This has opened our eyes to the potential of taking down larger deals, bringing in new partners if we need to do that. So we’re full steam ahead. We’re excited about the … It’s a tough market, but we’re excited about the market and the way that we feel there are going to be some significant deals in the next 12 to 18 months. So we’re ready to go.
Rob:
It’s awesome. Well, I’ll tell you what, if there’s one thing … There’s so many things we could take away from this in terms of structuring partnerships, but one thing that really stuck with me and, Troy, you mentioned this at the beginning of the podcast, but it was when you’re getting into a partnership, make sure that you have the same long-term vision. I think that’s so important because so much can change over five years or 10 years, and that is something that I talk about in all of my partnerships, and I want to make sure that we’re on the same page. I want to make sure that my partners don’t want to sell after two years or three years. I’m a big believer of buying and holding forever, and so we put a marker of five years in our operating agreement before we can even talk about it and then really have a heart-to-heart. It’s agreed on that we’re going to keep it for longer than that, but I always like to make sure that I’m on the same page.
So for any of you that are ever getting into partnership as it pertains to real estate or business or anything like that, just make sure that you have the same timeline of the exit, that you have the same exit strategy, that you have the same desires. Do you want to cash flow this thing? Do you want to ride the appreciation? I think it’s so important to cover that at the very beginning, and if you do, then the partnerships are very not nearly as likely to fall out, in my opinion. Would you agree with that, Troy, Nate?
Troy:
I absolutely agree.
Nate:
Absolutely.
Troy:
Absolutely agree.
David:
So we can sum that up. Have the same values, have the same vision, but have differing skillsets as a pretty good recipe to find the right partner and make some progress. What’s next for you two?
Nate:
I think for us, we, like Troy said, we’re going to continue buying. There’s a lot of fear in the market, and that’s usually the signal for me to pounce. I think there’s going to be a lot of great deals, like Troy said, in the next 12 to 18 months. We sat on the sidelines the last couple years just managing our portfolio as the market was just overheated, not that we weren’t willing to look at deals and stuff, but it just so happened that as interest rates went up and there’s more fear in the market and talks of recession and all this stuff, it opens up a window of opportunity for those who are willing to go after these deals.
David:
All right. Well, thank you guys very much. For people that want to find out more about you, Troy, where can they go?
Troy:
Twitter and Instagram, TroyGZimmerman.
Nate:
For me, you can find me on Instagram, Nate_Shields, but definitely hit me up on BiggerPockets. If you are an investor-friendly agent and you’d like to connect with more investors from the BiggerPockets community, I’d love to have a discovery call with you and see if we can help you build your business through BiggerPockets.
David:
Rob, what about you?
Rob:
You can find me over on YouTube at Robuilt, on Instagram at Robuilt. Occasionally, I post weird, funny videos, and on the Apple review platform where you can leave us a five-star review after you do that because you love the show and you want us to get served up to other people and you want other people to achieve financial freedom through real estate. What about you, David?
David:
You can find me at davidgreene24.com or go follow me on Instagram or YouTube at DavidGreene24. Rob, I had a thought. You need one of those little cartoon heads that is like a caricature coif, right? Needs to be very significant, and you need to put it on T-shirts like what you’re wearing right now because these are what you wear all the time, and sell them for $400.
Rob:
Oh, wow. I’m flattered you think I could.
David:
I know you could.
Rob:
Silhouette of my coif and my glasses on my pocket?
David:
Yeah. If people pay that much for Dolce & Gabbana, they would easily pay that much for a Robuilt special.
Rob:
Well, I’m going to send you the first edition, all right? I want you to wear it every episode.
David:
If I wear that same shirt as you, people wouldn’t be able to tell us apart. They’d be very confused.
Rob:
That’s right. So we probably should not do that just for the sake of BP Con. We don’t want people going up to you and being like, “Rob?” It’s like, “No, I can see why you think so.”
David:
Yup. That’s it. Nate, Troy, thanks for joining us today. Guys, go give them a follow and keep up-to-date with what they got going on in the investing world. This is David Greene for Rob Donna Karan New York Abasolo signing off.
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