GI267: Building a $2.8 Billion Multifamily Portfolio with Joe Fairless

GI267: Building a $2.8 Billion Multifamily Portfolio with Joe Fairless

Joe Fairless co-founded Ashcroft Capital, which has over $2.8 Billion in assets under management, while also creating the Best Real Estate Investing Advice Ever Show podcast, the longest-running daily real estate podcast in the world, with over 500,000 monthly downloads.

Watch The Episode Here:

Listen To The Podcast Here:

Transcript:

Charles:
Welcome to another episode of the Global Investors Podcast; I’m your host, Charles Carillo. Today, we have Joe Fairless. He co-founded Ashcroft Capital, which has over $2.8 Billion in assets under management, while also creating the Best Real Estate Investing Advice Ever Show podcast, the longest-running daily real estate podcast in the world, with over 500,000 monthly downloads. So thank you so much for coming on the show today, Joe

Joe:
Charles, Looking forward to it and grateful to be here.

Charles:
You have a a fantastic background before getting involved with real estate. Can you tell us a little bit about yourself, both personally, professionally, your background prior to getting involved with what you’re doing now and investing in real estate? Yeah,

Joe:
Sure. So I went from Texas to New York City outta college, a major culture change, <laugh>, and I was making $30,000 as a junior project manager at an advertising agency on Madison Avenue. I had 15 K in student debt. So needless to say, I didn’t have any discretionary income to invest or do anything outside of just pay the bills. And barely at that. And then I kept my living expenses low for New York City. And, you know, I lived in a, eventually lived in a two bedroom apartment with a roommate. Always had a roommate in that apartment. And you know, it was a two bedroom with no, no living room with a dorm style fridge, no central ac the one room, one of the bedrooms didn’t have windows. So I would take a wash cloth and I’d put it in the fridge, and then it would get really cold, and then I’d put it on my forehead right before I went to bed. <Laugh>,

Joe:
Geez. And then in the middle, in the middle of the night, I’d wake up, I’d be sweating, and then I’d swap out wash cloths. So that’s, that’s what I did for nine years in that apartment. And my friends would make fun of me because they said I was living like a college kid, and they were right. But the reality was I was also saving my money as I climbed a corporate ladder. I ended up making about 150,000 as a youngest fi vice president at an agency on Wall Street. And I bought my first house in 2009, October of 2009 in Duncanville, Texas, which is south of Dallas. And then I bought another house the next year and another next year and another next year I ended up with four homes. And I realized that they, they were good investment deals but I wasn’t making the cashflow that I wanted.

Joe:
I was making 250 bucks a month on paper in my, in my spreadsheet, but I wasn’t making it in my bank account because someone would move out and it cost me about three, $4,000 to get it move-in ready. And I was in the middle of that buying the homes and realizing that. And my friends were asking me, well, how are you doing this? What, what’s going on? You’re working, I was working like 9:00 AM to 9:00 PM pretty much Monday through Friday every day. And they’re like, how are you doing this? And so I started teaching a class on it on the weekends, how to invest outside, invest where the numbers make sense, even though you’re living in New York City. And then one of my former bosses at the time said, do you know if you ever do something larger, let me know. And I knew at that point I had a customer before I had a product. I had an investor before I had a deal, and I started looking at larger deals.

Charles:
So that was the turning point, going into single family, to multifamily. Can you tell us like why you chose real estate? Obviously you weren’t involved with real estate in New York. I don’t know what you’re working on for marketing campaigns, but what was the reason for actually choosing real estate? As a whole, as an asset class?

Joe:
I wanted something that I could control the outcome of. When I had my first a thousand dollars that I could, I had saved up. I was walking to work and I passed the poster at a Bank of America and it said, you know, cd I forget the percentage, like 1.2%, whatever it was. And I was like, well, that’s more than I’m making now in my bank account. Let me do that. It was a 12 month cd, it was my only a thousand dollars extra that I had. They held my a thousand dollars hostage for 12 long months. And then at the end of it, I get 20 bucks and, and then I get taxed on the 20 bucks at, at tax season. I’m like, okay, there’s gotta be a better way. And I read a lot of books. One of them was Investing for Dummies, and in that book, they, they write about, you have three different types of investments, stocks, bonds, investing in LLCs are startups and real estate.

Joe:
And I just naturally gravitated toward, towards real estate because you know, I lived in apartments when grow. I lived in an apartment growing up after my parents divorced. We lived in one for a year or two. And you know, I was just, I lived in an apartment in New York City for 10 years. I was just more familiar, more comfortable with real estate and apartments versus, you know, investing in startups because I, I knew I could influence both of those. I couldn’t influence stock market. So I, I decided, you know, I’m gonna focus on real estate is just, just a comfort level.

Charles:
Yeah, that makes perfect sense. It’s obviously something that everybody has contact with no matter what you, if you own it or you rent it or you’re in it, it’s and yeah. Yeah. And also everybody knows someone that’s, I found this out too. Everybody knows someone that’s made money in real estate one way or another. True. every time you say something, they’re like, oh, my brother-in-Law or something, this, that, you know what I mean? Whatever it is. That’s

Joe:
A good point. That’s interesting.

Charles:
So it’s, it’s like more com more familiar, like you said with it than Hey, you know, like, put this money here in, you know, 10 years, we’re gonna like, you know, whatever, something crazy a hundred x or something. People don’t, they don’t understand that. So, but what was that kind of your journey. You had the four single family houses, you’re a long-term landlord on paper or yes, on paper in your spreadsheet and, you know your spreadsheet money you’re making a thousand dollars a month, <laugh>. What was that process of going, you know, after talking to your boss, which obviously is like really kind of put everything together. What happened to get you to buying larger apartment complex? ’cause That’s a, it’s one thing getting a, you know, you have an income, you have, you can get a mortgage on a one family or a single family house, no problem. I mean, it’s a whole different ball game going into commercial and then going into large commercial, like you did,

Joe:
There was no segue it, I went from four single family homes to 168 unit apartment community. And it was, it was challenging. And I made every mistake in the book that I could make on that deal and learned a lot of lessons. So it was a master lease with option to purchase. So I didn’t need to be approved. You mentioned the loan. I didn’t need to be approved for a loan because the, the seller was leasing it to me and my investors, and then we had an option to purchase it at a later date at an in at, yeah. Ideally at, at, at that value that we agreed on. But ideally we would increase the value, make it more valuable, and now we’re buying it at the fixed value that we agreed on a couple years ago. But now it’s more valuable didn’t work out that way. And the reason why is because of my lack of due diligence on the property my inexperience in asset management, property management, you, you, you name it. And

Charles:
Sorry, that’s a Texas property. Were you in New York at the time? That’s

Joe:
A Cincinnati property actually. Yeah. So I was in New York at the time. Okay. So the, the four single family homes I purchased were in Texas, DFW, and then I’m living in New York City in this part of my life. And I had found a deal in Cincinnati, Ohio and never had visited Cincinnati, Ohio. Was born in Flint, Michigan, but that’s as close as I got to Cincinnati. And then moved to Texas when I was three. So it was Cincinnati, Ohio, 168 unit, a master lease with opposite to purchase made all the mistakes I could make. You know, I was, I actually moved to Cincinnati from New York and moved into the model unit to try and turn it around. I would pack up my stuff every morning, walk to leasing office, and then show that model unit to try and lease apartments. I would go to Home Depot with and put my pack my corollus trunk with asphalt filler and then shovel it into the potholes in the parking lot at night.

Joe:
And I was doing everything I could, but it wasn’t enough because I didn’t set up the deal for success at the onset. So I ended up losing money on that deal. But I paid back my investors plus a 14% return out of my own pocket. And it was, you know, it, it, I got, you know, one investor has invested with us 20 plus times on, on that deal. And a couple others were very, well, they’re all appreciative. One sent me a two page handwritten letter. Another one sent Ruth Chris gift cards. So, you know, one, one thing I learned is that I’m good at certain things. I’m not good at other, other things. And what, when I went into, you know, I went from the jump from four single family homes to 168 unit apartment community, when I made that jump I, I was taking on everything and I was, I was competing against people who have been in the industry decades with a lot of experience.

Joe:
And so I, what I realized is that I need to focus on my strengths and then find a business partner who has strengths that I’m not in, areas I’m not strong at. And so that’s when I met my business partner, and then we then found our first property and purchased it in Houston, and it apprais, we bought it for I think, 14.1 million in appraised for 21.6, about two months, two years later, and did a cash out refinance for investors. And it was, it was great. And so I was like, okay, well this is the business model that I enjoy a lot more. And I, I knew that the business model was solid, but my execution of it was not. And so I just optimized the, the, the people and the business model, namely myself and, and moved myself towards one area versus the whole thing and things, things

Charles:
Worked out. Yeah. Putting the right people in the right seats, right? That’s what they say. That’s

Joe:
Right. Yep.

Charles:
So your firm has nearly $3 billion in assets under management. Can you kind of break down your company’s investment strategy and criteria currently, what you guys are working on, what kind of properties you look for?

Joe:
Yeah, it’s evolved. It’s always been, and always will be value add deals. At the beginning, it was of value add deals that were older and in rougher areas. We learned our lesson, you know, our second deal was in an area called Greens Point in Houston, but locals call it Guns Point <laugh>, to give you an idea. So that was our second deal. Then we’ve evolved from that to, you know, not newer, nicer class B properties. And then most recently and our business model is you go and you renovate, you in increase the quality of living for the resident, increases the value of the property, and then sell most recently, and, and we have a deal right now where we are buying a 2021 property but it’s a value add deal. It’s a value add deal, 2021 property because of the mark to market opportunity.

Joe:
And for those who might not familiar with Mark to market, it’s simply taking the rents to where of where they’re at currently to the market level. You mark the rents to the market level. The reason why they’re not at the market level currently is because the property has been competing with three properties around the corner that are new construction, and they were doing the lease up phase. And during a lease up phase, the, the owner or the developer wants to get out of their new construction loan, they want to get in permanent financing, or they just want to get outta the, get outta the deal in general and move on to go develop and create something else. And so they’re gonna be really aggressive with their lease up. And as a result, the surrounding ar those surrounding properties are gonna fill that aggressiveness and have to compete and lower their prices and, and have concessions.

Joe:
And so that’s what they were competing against. And now those three properties across right down the street, they’re at 80% occupancy on average. So the end is near for that period of time for those three properties. And now we’re coming in and about a month or so gonna buy the property, and now we’re, we’re gonna be able to benefit from the, the rents currently being lower and have a mark to market opportunity. So it’s a, it’s a, a rare find where you’ve got a value add deal that’s a class a property and, you know, phenomenal school district or the tenants make $115,000 at this property. I mean, it’s pretty incredible. Five minutes from Disney. So that’s a, that’s the type of stuff that I’m seeing. Not, not very often, but that’s, those are the type of deals between now and the next six to 12 months.

Joe:
We have a window of time to buy these types of properties. And then after 12 months, and I can talk about it if you’d like, but after 12 months, I think the opportunity and the window will close. Why is that? Why would you say that? Because right now we’re experiencing a historical amount of supply for multifamily, and that spigot’s about to be turned off in about 12 months. And so you’ve got, you, you’ve got right now in the headlines, tons of supply hitting the market for multifamily. And they’re absolutely right. The thing, what’s interesting is that occupancy nationally is 94.2% in multifamily. It’s held that str held, held at that level the last three months. So even though you’ve got a bunch of of supply hitting the market, and just give an idea of the supply, the average completions per calendar year for the last 23 years has been 217,000 completions this year, just for the first half of this year, 284,000.

Joe:
It’s incredible. But the average occupancy is held strong at 94.2%. So you’ve got occupancy that’s hold and serve with a historic amount of new supply that is, was developed from the lower interest rate days. Well raise your hand if you think construction projects pencil right now, right? Like they don’t, they don’t pencil for a lot of reasons. And so the, the new construction that’s taking place or that will, the new construction starts, the new permits. I mean, they’re non-existent right now, and we’re gonna see that transpire starting in about 12 months. And so the whole narrative, the whole, the whole, all the headlines about multifamily and about 12 months about the shift from tons of supply to tons of demand and no supply. And that’s when, so that’s why I think within these next 12 months, while there’s still a bunch of supply coming, you’ve got, you’ve got some opportunities to capitalize on that because in about 12 months, there’s gonna be way more demand than supply. And if you’re a multifamily owner, you’re gonna be in a good spot. Yeah,

Charles:
There’s a, I had brokers tell me a couple years back, or they would tell me, you know, survive till 25. And that was kind of the thing because, you know, you have that three year window as you’re kind of alluding to where it starts till they actually get delivered, right? Till they’re actually pulling, you know, the, so co so the thing that was that during that time, and as new inventory inventory’s coming on now, and those concessions burn off little by little, you know what I mean, when they’re selling those properties, stuff like that. And it’s gonna get back to more of where the rents are, which is probably a few hundred dollars more per unit than what you’re gonna be, you know, a b class property. So you’re gonna have your tenants come back to your B class properties because it’s gonna be a lot more expensive in those a class properties, those new deliveries.

Joe:
That’s right.

Charles:
Do you have money sitting in the stock market? And you’re worried about it or worse. You have money sitting at the bank, not keeping up with inflation. My name is Charles Carillo, founder and managing partner of Harborside Partners. And since 2006, I’ve been investing my money and my family’s money into income producing properties. These are real assets, real properties with real addresses that produce real cash flow. At Harborside Partners, we provide passive investors who love real estate with a turnkey investing solution. If you want to put your money to work in real estate, but can’t find deals, don’t have the time to get funding in. The last thing that productive people want to do is manage real estate. We find the deals. We fund the deals and we manage the tenants, the termites and the properties. Partner with us at investwithharborside.com. That’s investwithharborside.com. Go to investwithharborside.com. If you love real estate, you like the idea of passive income and believe that income producing properties will appreciate over time. Go to investwithharborside.com. That’s investwithharborside.com.

Charles:
So as you, you’ve grown your business, I mean, what, what are some of the factors? I mean, you guys were getting your kinda getting your footing and you guys have really grown this and you and your partner. What, what are some of the kind of the main factors behind how you’ve had such explosive growth over the past? I guess it’s been six, eight years.

Joe:
10, 10 years. Yeah, 2000 August of 2015 is when we bought our first property. So almost 10 years. We compliment each other. Well, as partners, we respect each other, and we both have okay, this happened. What’s the solution mentality? We don’t dwell on challenges for the sake of complaining about ’em, you know, whatever it happened, what’s the solution? What’s the, what’s the challenge? How do we focus on this? How do we focus on the solution and what, let’s talk about that. Both of us are like that, and it’s a trickle down effect because he oversees operations and acquisitions and I oversee you know, invest investor relations, investor services and marketing. So we, we oversee, you know, between us all the departments and I think having that solution-oriented mindset is, is the big thing. Obviously there’s tactical things along the way, like taking property management in-house, we only manage our own properties.

Joe:
We have construction management team in-house. We buy our materials direct from overseas and we ship them to our warehouse and DFW and then we have a kitting process at the warehouse where we kit those renovation materials and ship ’em on a pallet to the specific properties. So we have like old, you know, mini Amazon that saves us about 30% relative to retail pricing. ’cause We’re buying direct from the vendor or the, the, the, yeah, the, the, the supplier. And oh, by the way, we get custom materials through that process that nobody else has. So even though we’re saving money, we’re also getting custom materials because we’re working directly with the manufacturer, I should say. And so that shows, I mean, when someone is looking at two or three different apartments as a prospective resident, you, you see a different light fixture that stands out, you know, that perhaps, you know, someone else, two, the two other apartments, they’ve got the same light fixture. It’s a small thing. But those, those small things lead to big, big results on the bottom line. So I think, I think that that was, you know, those, those are some things that come to mind to help that has helped us get to where we’re at.

Charles:
Any tips for people looking to partner? I mean, you guys have have a, oh, 10 years as a partnership being very successful. Yeah. I mean, what would you say to someone that came up to you that’s looking to actively look for a partner, whether it’s in real estate or something else?

Joe:
Well, the first thing that, the first thing I would say is when you look for a partner, make sure that the partner is, has successfully done what you would want them to do. Because I’ve seen so many people enter into partnerships where they’re like, oh, this, this person could be good. You know, I want ’em to head up multifamily acquisitions. They haven’t done that exactly, but they’ve done self storage or they’ve done mobile home parks, or they’ve done hotels. Nope, nope, nope, nope, nope. If they’re a partner, they should have successfully done what you want them to do. And also be able to teach you how to do that. If you, if you are curious about it. But it should be a, a partner is the ultimate level in the business, so they should be able to take it and run with it and not have any direction whatsoever from you.

Joe:
That’s a partner. A lot of people say, I want a partner, but then they find someone who they have to train or they find someone that doesn’t have that direct experience and, and the results aren’t there. So only bring on a partner if they have done what they you want them to do and they can take it and run with it. That’s one thing. Otherwise just hire someone, right? Most people get a partner, but ends up being just a super expensive employee that they have to oversee. And, and that’s a, that’s a, that’s a disaster. So that’s one thing. Another is test drive. Fortunately in real estate, you can test drive on a deal by deal basis, and once you test drive on one deal or two deals, then you go in into it together. So I would say go out on your own initially, don’t have an official partner other than partner with him or her on a deal. Your company, his or her company comes together, buys a property together, and then, and only then after maybe that deal or a couple other deals, then all right, one jumps on the, you know, just consolidate companies or create, create a company together after, after you see how they operate under pressure, after you see how they operate on a daily basis after you see how they operate with their communication style, written, verbal, you know, all all those things. Ethics, all everything.

Charles:
Yeah. A lot of great information there, Joe. One thing I wanted to talk to you about that you kind of brought up a couple minutes back and you were saying that, you know, ashcroft value add operators and what we’ve seen over the last couple years as we’ve been through this window we’re going through with multifamily, is that many syndicators, especially capital raisers, but also some operators have kind of like ventured into new asset classes. Some, some, some of ’em outside of real estate entirely that I get emails from, right? You know, why has Ashcroft stayed in their lane with multifamily value syndications? Because I think that’s I think it’s a great thing that you guys have done because a lot of other operators are going all over the place.

Joe:
If I want Italian food, I’m gonna go to an Italian restaurant that has that hand makes their their pasta. I’m not gonna go to a diner that has lasagna next to chicken fried steak because I know that the chef in the, in, in the kitchen might be pretty good at lasagna and chicken fried steak, but they’re not a specialist and they’re not especially focused on one thing. Because when we all know if you focus on one thing and do it over and over you, you perfect your craft. And that is why we only focus on multifamily.

Charles:
That’s another great answer. So as you’re, you’re growing your business you, before you met your partner, now you were starting with some small rentals. What did you, if anything, did you sacrifice to become successful? You said you were living in the two bedroom apartment without ac what are the things come to mind that maybe you sacrificed, you put on the back burner so you could really grow your real estate portfolio?

Joe:
Nights out with friends being living in a more comfortable environment? One with ac I’d say trips. Fortunately I was single at the time at which <laugh>, I dunno, maybe an earlier marriage. I’m not sure I’m married now, but maybe if I wasn’t working so much there, I I, but thank, thankfully I didn’t get married ’cause I’m married to the love of my life now. So I, I’d say, yeah, it, it just, it, I, I kept my fitness up and still do. So I would say it’s, so it was really just, just fun stuff that, you know, I still had fun. It just, you know, I didn’t go out as much as other people ’cause I was also on the weekends I would, Manny you know, ma I may, I call it Manny mail nanny. I would, I’d go make, you know, I think like 15, 20 bucks an hour, which is a whole lot at the time to work with special needs kids. ’cause They’re the only ones. Those parents were the only ones who would hire a, a male babysitter off Craigslist. They, so I would go, go do that for, you know, weekends. And so I, I was pretty busy doing work stuff, teaching that class, working my 9:00 AM to 9:00 PM job and, you know, doing that you know, babysitting essentially. And you know, I sacrificed some stuff but worked out and I would, I would absolutely do that over again.

Charles:
So, as we are kinda closing up here, before we get into more information on your company and how people can reach out to you, one thing kinda like to ask once in a while is people that think about legacy. And when you hear that word, what does that mean for you and you and your family and your business and everything like that?

Joe:
I only focus on my living legacy. What happens when I’m dead is what happens. I can’t control it. I focus on making an impact on people when I meet them. Now in this podcast, I’ve got a, you can see behind me, I’ve got a death clock or, well, no, my wife now calls it my 90th birthday clock <laugh>. So it’s, it’s my 90th birthday clock. It’s ticking down to my 90th birthday by the day, minute, second, and hour. So I know that every moment’s precious and I focus on legacy. It’s simply being present in the moment where I’m at and, and helping others while I’m living. And then what’s set about me afterward or, or even while I’m living, you know, I put my best foot forward.

Charles:
Well, thank you so much. How can listeners learn more about you and Ashcroft? Anything else that you guys have going on? Joe, you

Joe:
Can go to ashcroftcapital.com and you can actually check out the deal that we’ve got in Orlando, five minutes from Disney. And it’s a value add class, a deal. It’s something rare that I don’t think you’ll come across very often. And then you can set up a time to talk to one of our investor relations team members. Well,

Charles:
Joe, thank you so much for coming on today. Put all those links in the show notes below, and have a great rest of your day. Looking forward to connecting with you here in the near future.

Joe:
Absolutely wonderful interview. Enjoyed our conversation, Charles. Thanks. Thanks everyone.

Charles:
Hi guys! It’s Charles from the Global Investors Podcast. I hope you enjoyed the show. If you’re interested in get involved with real estate, but you don’t know where to begin, set up a free 30 minute strategy call with me at schedulecharles.com. That’s schedulecharles.com. Thank you.

Announcer:
Nothing in this episode should be considered specific, personal or professional advice. Any investment opportunities mentioned on this podcast are limited to accredited investors. Any investments will only be made with proper disclosure, subscription documentation, and are subject to all applicable laws. Please consult an appropriate tax legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Syndication Superstar, LLC, exclusively.

Links and Contact Information Mentioned In The Episode:

About Joe Fairless

Joe Fairless is the co-founder of Ashcroft Capital, which has over $2,800,000,000 in assets under management.

In addition to his responsibilities with Ashcroft Capital, Joe created the podcast Best Real Estate Investing Advice Ever Show, the longest-running daily real estate podcast in the world, which generates over 500,000 monthly downloads.

Joe is also a proud Member of the Texas Tech Alumni Advisor Board for the College of Media and Communication and has been recognized as an Outstanding Alumni at Texas Tech University, where he was an Adjunct Professor.

He is a Junior Achievement Board Member and Volunteer for the Cincinnati chapter and has been recognized by Junior Achievement’s Free Enterprise Society. Joe volunteered at Crossroads Hospice and was recognized as Multifamily Investor of the Year by Think Realty Magazine.

He and his wife created Best Ever Causes, proudly supporting 76 non-profits over the last 72 months.

Are You a Fan? Subscribe, Rate, Review & Share – Click Here To Learn How

What question do you always wish I would ask but I never do?

Connect with the Global Investors Show, Charles Carillo and Harborside Partners:

Scroll to top