GI255: Why Invest in Multifamily Real Estate with Michael Roeder

GI255: Why Invest in Multifamily Real Estate with Michael Roeder

Michael Roeder is a general partner on over 2,500 units worth over $350 million in markets, including New Mexico, Minnesota, Alabama, and Tennessee.

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Transcript:

Charles:
Welcome to another episode of the Global Investors Podcast. I’M your host, Charles Carillo. Today, we have Michael Roeder. He is a general partner on over 2,500 units worth over $350 million in markets, including New Mexico, Minnesota, Alabama, and Tennessee. So thank you so much for being on the show today, Mike.

Michael:
Thanks for having me on, Charles. I appreciate it.

Charles:
Please tell us a little bit about yourself, both personally and professionally prior to getting involved in real estate investing.

Michael:
Yeah, great question. So rewinding back to the start of my real estate career I was going to college in a smaller town in central Minnesota. Myself and my girlfriend, she’s now my, been my wife for about 15 years and we decided to house hack our first house. So we bought a four bedroom near campus. We rented out three outta the four bedrooms to our buddies. We lived in the other unit, and that’s really where we fell in love with being landlords and the cash flow that real estate, you know, put off. And while I was doing that, you know, finished up college accumulated a handful of other single family rental properties. And my prior career to being a full-time real estate investor was an insurance agent. So I did insurance for high net worth individuals across the nation, and my original goal was to become financially free through single family rental properties.

Michael:
And I remember putting the goal out there of owning a hundred single family rentals. Well, I got to about three, or I got to three single family rental properties, so not a lot. And I was already experiencing burnout because I was doing all the maintenance, I was doing the leasing, I was doing the evictions, you know, doing all the marketing. It was about two hours, about an hour and a half to two hours from where I was working. And then my house, you know, from those rental properties was another hour. And so I was spending a lot of time going back and forth. I was missing time with my kids and the cash flow coming off of those single family rentals wasn’t significant. So that’s where I had started to talk to my business partner. He had several apartment complexes that he had purchased, had put third party property management in place. They were cash flowing really nicely. So we ended up going into business together. We bought a 20 unit together, bought a eight unit together. So that was the start of my multifamily career. And then shortly after that, in 2016, we started up our company and, and started syndicating projects where we’re pooling people’s money together to buy larger projects in, in really good markets.

Charles:
Yeah. my, when I started off house hacking many years back, it was with a three family, but it was something that I was doing all the work myself, and it was like the burnout was a few more units. I didn’t have a family at the time or anything like that, so you could do more units, but it’s, I mean, when you’re doing everything, especially the leasing, the advertising, the marketing, the calls at all times of day, you’re putting everybody together. Stuff that you can’t fix. You’re hiring people. It’s, it’s tiring. It’s a lot of work.

Michael:
It can be a lot. And it’s, you know, it’s not bad if you have great tenants, but when you get that problem tenant and you have to deal with them, especially when you’re green and you’re not quite sure how to process an eviction and what type of communication you be should be sending back and what you should all be doing, you know, it takes a lot of time and effort and, and creates some stress. So we had a couple of bad tenants, you know, in our single family properties and over overall they did well, you know, a great return on an investment. But if I could take it back, I probably would’ve skipped that step and went right into the multifamily.

Charles:
So we know why you went into multifamily. We know it’s more scalable when you began I mean, what were some of the challenges you faced really starting with I think what you said 20 unit then you said an eight unit. So what were some of the challenges you faced when you got, when you began getting into larger or just, you know, commercial multifamily properties?

Michael:
Yeah, I think the biggest challenges for us were, you know, we, we thought we knew what we were doing, but we were very early on in our real estate career, so we made a lot of mistakes. A couple of mistakes that we made on those first couple apartment complexes that we purchased. You know, number one was the market that we invested in. We invested in our backyard, we knew our backyard you know, knew the market and we thought it was pretty safe, but it was very dependent on a local college. And that college enrollment plummeted over the next five years. And so we saw our occupancy rates drop, we had to drop our rents, and that was really painful. The other mistake that we made is we paid for most of the CapEx out of our cash flow. You know, fast forward to today, we always come in flush with cash. We make sure that we have all the cash that we need to upgrade units and to take care of the deferred maintenance and to take care of, you know, AC units and furnaces and whatnot, so that way we can drive down the repair and maintenance cost. And that’s not something that we did on those early projects that we took over.

Charles:
Yeah, no, I, you’re just like trying, I know how that goes, you know what I mean? You’re taking money from here, doing stuff here, like just patching stuff as you go. And it’s, but it’s also very, it’s, you know, it’s very time consuming on your end, even if you’re not managing ’em yourself because you’re getting calls of this is breaking, you’re writing checks for 1 75 out here like this where you could just write, you know, one checkout, have it done for several years. So it’s a, yeah, it’s, it’s, it makes it difficult when you don’t have the funds upfront for sure.

Michael:
It really does. And yeah, anytime that you can come into a project and just make sure that you have a well thought out budget, you know, make sure to get your contractors involved, make sure that your property management team is involved, make sure that your asset manager, if you have one, is involved and just try to build out a very robust budget and then also give yourself a good variance. You know, obviously we’ve seen costs creep up quite significantly over the last few years with inflation and you know, with multifamily properties or single family, whatever property you buy out there as a real estate investment, there’s going to be problems that pop up here and there. So make sure that you have some cushion for those situations

Charles:
When you began scaling your multi-family team and you’re using third party managers. So it’s really taking a lot of the tasks off your plate. But what were some of the first key hires that your partner and you really hired for to, for your own business?

Michael:
Yep, great question. So, you know, again, like you mentioned, we use third party property management companies. So, you know, we have onsite managers in place, leasing agents maintenance tech, you name it, on the property level. And we’re paying for those individuals, but that’s through the property management companies. So it’s really their employees on our side, granite Towers, our first hire was an in-house accountant full-time. So they were looking over our books, making sure that everything was clean, helping with investor distributions, you know, helping with K ones you name it. And that took a lot off of our plate. And not only that, it allowed us to be very confident that everything was running seamlessly and everything was very clean and organized. And I can’t tell you how much it we, how much it saved us, you know, in funds that we would’ve spent with our CPA firm to try to, you know, organize our files and make sure that our K ones got out on a timely basis.

Michael:
Plus our investors get their K ones, you know, before the deadline pretty much every single time. Which is really important as well. Our next hire we had brought on an intern and he interned for us for about six months. Fantastic gentleman. We ended up hiring him. He’s now been with us for a couple of years and you know, he’s a jack of all trades, so he came on as an acquisition specialist, but you know, he, he handles from A to Z so he does a great job as well. And then our third hire was a full-time asset manager. So we got to a certain point where even with Dan and myself working full-time in the business it was tough to, you know, oversee all the assets that we had. So we brought on that asset manager, she’s local in Fort Worth, Texas, and that’s where the bulk of our portfolio is, and that was a huge help as well.

Charles:
So how is asset management handled with your portfolio? Is I mean your firm seems like since you won’t have your own asset management person are you, do you partner with any like cogs or any operating partners in this? And how are those roles split up with asset management? Because obviously in the beginning there’s pretty clearly defined roles of what each party is doing. How do you do that so that you have control over it, but maybe you’re also working with your partners

Michael:
Partner? Yep. So we, we have our asset manager, Dawn, she’s located in Fort Worth and she oversees pretty much all of the Texas properties as well as a couple of other properties in other states for us. Now myself and Dan Dan is more overseeing asset management, whereas I oversee acquisitions and system implementation some of the backend stuff as well for our company. As far as handling asset management, we typically want our asset manager, or Dan or myself to be doing site visits on these properties every couple of weeks. You know, if a property’s humming along very well, all the CapEx is done. You know, you might might head out there every three or four weeks, but typically every two weeks. We also have a weekly call on essentially all of our assets with our management team and our asset manager as well as potentially Dan or myself are on that call and we’re going through all the KPIs, you know, that are really important to us, talking about the synergy that the team has talking about any challenges or anything that has, has worked really well at the property.

Michael:
And so that’s, that’s worked really well for us.

Charles:
Yeah, that’s great. Those are my other questions that you guys are actively involved. One of the partners is actively involved in getting on those calls with the property manager every week. ’cause That’s how we do it here. It’s myself or one of my, I have one other partner that works with doing asset management with me. And the same thing. You know, one of us has to be on it and see exactly, get questions answered and actually make sure that everything’s going the right way.

Michael:
Yeah. Very, very important to be in tune with asset management. And that’s, I think that’s one of the biggest mistakes I see in the industry is, you know, you’ve had a lot of syndicators or active investors come into the industry, into the multifamily industry, and they’re picking up projects and they think that the property management team is going to be able to take over, handle the day-to-day operations, and maybe they check in once a month or once every two months, go visit the property once a quarter. That’s not enough. These property managers have a lot on their plate, and no matter how good they are, you need to make sure that you’re overseeing them on a consistent basis to make sure that the ship is running in the right direction. Yeah.

Charles:
The other thing too I found is that when there’s any type of value add project going on at that property or any type of construction, any type of renovation that’s something where we wanna be involved with. It’s not something that we’re just gonna pass off and pay some sort of construction project fee to the property manager. You wanna make sure that all that’s going, you know, going the right way. It’s on track, it’s on time, and you’re meeting with the people.

Michael:
Yeah, I couldn’t agree more. And make sure to walk the projects, you know, frequently when they’re finished up, make sure to walk it and, you know, verify that you got exactly what you thought you would get. Whether that be a, a unit turn or a big CapEx project, like painting the exterior, a new roof. Very, very important to trust by verify.

Charles:
Yeah, that’s a great way. So with value added apartment investing, I mean, the whole business is really based around the idea of increasing the net operating income, the NOI. So over the years, have you realized any type of unique strategies for growing in assets? NOI, we’re in a very different part of the market cycle now with where it’s pretty stagnant with rents, right? And we had, we were luckily to have all these rents that came up, but what, what are you doing now to really grow NOI at properties where maybe there’s not as much rent growth?

Michael:
Yeah, I think, I think the biggest thing right now is just making sure that you’re trying to increase the retention on the property lower the delinquency and keep your occupancy stabilized. So there’s a lot of things that you can do there, you know, to ensure that you’re trying, you know, driving the, the most NOI to the property. You know, be in tune with what the comparable properties are doing or your competitive properties. So doing frequent comp surveys, you know, either you or your team, you’re going out to the properties, you’re them, you’re verifying what type of interior upgrades they’re offering, what type of concessions, what the rents are at, and you need to be in tune with that, or your onsite team needs to be in tune with that. Also make sure that you’re, you know, taking care of maintenance requests on a timely BA basis that’s gonna help with your retention.

Michael:
Make sure that you’re asking for reviews on the property and make sure that you are paying attention to the Google reviews that you’re getting, because a lot of prospective tenants are tuning into that. And then a few creative strategies. So, you know, if you look at other income on properties, there’s a lot of different strategies and ways that you can drive other income up. But a few that come to mind that we’ve implemented throughout the years, and this depends on the asset but we’ve done bulk wifi, you know, where we’re setting up the wifi, we own the system, and we’re charging that back to the rent, the, the residents at the property. And we’re making a premium on that. And at the same time, it’s saving the residents some funds as well, because we’re getting bulk pricing. We’ve also implemented electric vehicle chargers.

Michael:
Now that’s not gonna work on every property, but if you have an A class or maybe a B class residents really enjoy that, you’re able to get some income plus, you know, it’s, it’s really attractive when they come to the property and they see these, you know, electric, these EV chargers on the property. We’ve also installed offices at some of our properties, so we have an a class property in the Nashville market. It had a massive gym. And so what we did is we cut the gym in half, still a great space, and we created seven small offices for people that work at home. And so we have all of those rented out in between five to $750 a pop. And so that’s really driven up the NOI on that project.

Charles:
That is a, that’s a, that’s a great strategy right there. The offices, I mean, that’s a, that’s a huge thing. I mean, 500 bucks, that’s what you would pay. It’s even less than what you’d pay at one of these type of you know, we work type things, you know what I mean, shall we?

Michael:
Exactly. Yeah. I mean, it’s, it’s a, yeah, it’s a fantastic way to, to drive income and you know, that’s what, 63,000 a year, if you have $750 times seven units and you know, you divide that by, you know, let’s say a five cap and that’s, that’s $1.2 million of value that you just created out of thin air that was kind of being wasted from a gym space. So, you know, try to get creative, look at your space and try to figure out how you can create additional income.

Charles:
Yeah. And no one’s rent had to go up for that, which is nice. So. Exactly. I mean, you didn’t have to, because that’s usually where it comes down to how people think, but just the retention, like you said, it was fantastic. It’s, it is a great idea. And then the other thing too is that people don’t understand like the turns, how much time is he sometimes wasted in the turns? I remember my dad was a multifamily investor, and I remember when someone would move out and he’d be telling his handyman like face to face, he’s like, four days, this is four days. You know what I mean? Like whatever it was, he was just like, this is, we, this thing’s back on. And like, you know what I mean? And just like cutting out a day or two here, especially with so many units, you know what I mean? I mean, it just has such a boost to the bottom line.

Michael:
It really can. And that’s, yeah, like you said, if you can cut down your turn times, you know, because some, some operators, they’re gonna take, you know, four weeks to renovate or turn a unit, five, six weeks. If you can get that down to, like you said, four business days or eight business days, depending upon, you know, what type of renovations you’re doing. I mean, that’s just money to your bottom line that you’re, you know, putting back in the door. So pay close attention to that and work with your contractors, work with your onsite manager, try to train them in properly so that way things are moving really efficiently.

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 when you’re acquiring multi-family properties, I mean, what would you consider are probably your five top investing tips that you would share with someone?

Michael:
Yeah, I think that question depends upon if someone’s a passive investor or an active investor, because it’s gonna be different for those two types of investors, right? So let’s, let’s touch on the active investor first. So with an active investor, I would say tip number one, buying a high demand area. So don’t just look at the occupancy of the property that you’re picking up or that you’re potentially gonna offer on, but look at all of the competitive properties around. And typically if the occupancy is 95% plus, you know, as an average in that submarket, I consider that to be a high demand area and it’s likely to give you that much push, you know, that much more push at your sales and create that much more success because you have the actual people to rent to. Tip number two, I would say pay close attention to the AR report, the accounts receivable or delinquency report.

Michael:
We’ve seen delinquency creep up across the nation over the last couple of years. You know, people are loaded up with debt and inflation has hit, it’s harder to afford you know, the actual rent. So pay close attention to that. And if you can be confident that you can get the delinquency down or pick up a project that is very low delinquency, that’s gonna help you out as well. I would also say, you know, tour the asset with your team before you submit an LOI bring your contractor, bring your property management team, bring your asset manager, that’s gonna be really important because that’s going to uncover any big red flags. Whereas if you wait until after you put it under contract, well, you know, then if a big red flag comes up, you might be on the hook for loo losing a bunch of earnest money. Know your submarket well, I mean, that’s a given. But just make sure that you understand the submarket, not just the city, but the actual market that you’re investing in. And then, like I said before, build in a hefty variance for your CapEx and for your cash flow. So operating capital, additional CapEx funds, make sure that you have those accounted for. And then any, any questions there, Charles, before I jump into the passive?

Charles:
No, no, it’s very detailed. That’s great. Yeah, no, continue.

Michael:
Okay, sounds good. So on the passive investor side, a little bit different. I would say number one, know, like, and trust the team that you’re investing with. I mean, that is absolutely crucial. Make sure that you get referrals, make sure that you check their track record, drive their properties if you can. Number two, just like the active investors understand the market to a certain extent and you can pull some reports, you know, see what the population growth is like, see what the job growth is like, see if it’s a landlord friendly city, you know, pull up the crime rates for the, the submarket or the neighborhood as well. Really important, understand the underwriting. So be able to take a look at the underwriting that the team has put together and understand what the rent growth is that they’re projecting and the vacancy rates and the other income.

Michael:
You want to be able to uncover any red flags or anything that is unrealistic. And then also know the team behind the team. So what property management team are they using? Have they had experience with them? How big is this management firm? Do they have experience in that specific market? You know, same goes for the contractors and their CPA team and their legal team, and then also if you can drive the asset do it or a couple of their assets that they own. And that’s gonna tell you a lot about, you know, how they manage, how clean, how efficient their operations are.

Charles:
That’s great. A lot of great information. One of the things I picked up from the active part, which I found very interesting, which is a great point, is the accounts receivable. Because that is something that, ’cause you’re, if you’re looking in there at late fees and different things and you’re really digging into it, you kinda have an a good idea of what is in there right now tenant wise, you know what I mean? And the strength of that tenant base. And so that’s something, especially now it’s very important. Like you said, people are being credit card debt all time high, so.

Michael:
Yep. And, and you know, going back two years ago, sometimes the brokers wouldn’t give you that AR report until the deal’s under contract. Now they’re pretty flexible and you should be able to get an AR report you know, just by asking the question.

Charles:
So over the years of doing this, Michael, I mean, what are some of the common mistakes that you’d see real estate investors make? And this could be, it doesn’t have to, it could be active or passive. Just what are, like what are the top ones you probably see people make?

Michael:
Yeah, I would say number one is, is spreading yourself too thin. So I’ve seen this time and time again where, you know, maybe someone has a full-time job or they’re sticking 50 or 60 hours into their corporate career and they go out and they start syndicating apartments and they pick up 1, 2, 3 projects and they’re still trying to do their full-time position and asset manage asset management. If you don’t have an asset manager on your team, that’s full-time. It takes a lot of time and effort like we were talking about before. And you know, if you, if you’re not on those weekly calls, if you’re not tuning into the financials, if you’re not, you know, doing marketing audits, the property’s likely gonna slip. So you want to make sure that you have sufficient amount of time to stick into that property doing asset management or team up with someone that does.

Michael:
The other thing I would say that I see a lot is not knowing the market well enough. You know, so people jump into a market ’cause the spreadsheet looks good and the returns look good on the project, but they don’t know what the tenant base is like in that neighborhood. They don’t know what the demand is. Like, they don’t know what the delinquency, you know, I is like in that market. So just make sure to know your actual neighborhood and then, you know, number three, becoming emotionally attached to a property. You know, if you spend a lot of time and effort underwriting a property and you go on tour it and you start to become emotionally attached and you want to make sure that you have a second set of eyes on that property that’s not emotionally attached, that can really uncover any red flags or, you know, dig into the weeds and not not have conflict of interest going on while you’re taking a look at that asset.

Charles:
No, a lot of great information. The one with the neighborhood is, is I’ve had properties that literally, completely night and day of how they, I mean, the returns on them and the headaches having to deal with them one block away, two blocks away. I mean, it’s just, it’s amazing how super local it really is when you get down to it and which ones attract. One street has more cars and the other one and one attracts better tenants that stay longer and everything. It’s just, you really have to know those neighborhoods when you’re, when you’re buying property,

Michael:
You really do. It’s absolutely crucial. And yeah, just make sure to do your homework and if you’re not sure, you know, reach out to a mentor or a coach or another investor that knows the area and, and just get some more insight. And if you don’t feel comfortable, 100% comfortable with it pass and, and there’ll be another opportunity down the way. So

Charles:
You grew your portfolio pretty fast in these few years. I mean, did you sacrifice anything to become successful?

Michael:
Yeah, I think the biggest sacrifice was, was just really grinding at the start. You know, when I did have the full-time job in the insurance world you know, I would work on my commute home on the train, I would get home, put my daughters to bed, and then I would work for another 2, 3, 4 hours until, you know, midnight or 1:00 AM And that went on for, you know, probably three or four years. And I didn’t do it every single night, but a lot of the nights I did. And so that was a big sacrifice was just, you know, time with my wife at night time with my kids. And sometimes when you’re, you know, starting up a business or just getting started, it’s just what needs to be done. But if you are doing that, I would say try to put together a plan and backtrack into it how you’re going to get outta the grind stage and how you’re gonna be able to put more time into your family or into your friends or you know, into your hobbies so that way you don’t get burnt out.

Michael:
Yeah, as far as other you know, things that, that I’ve, you know, put aside, I would say funds as well. You know, we invested a lot of funds of our own funds into multi-family projects. And in the beginning it was a huge education. Those couple of properties that I mentioned in central Minnesota, our first apartment complexes, we essentially broke even on those. And we had those funds tied up for about four years. And so huge opportunity costs there, but it also allowed us to learn a ton. So, you know, that was a cost that, that we had over the years as well. And you know, I’m glad we did it. Obviously I would’ve made changes if I could take time back, but it was a great learning experience.

Charles:
When you went from a single to multifamily, just what type of, I mean you learned so much from that hands-on, I imagine did a lot of that replicate over to multifamily? I mean, it’s, it’s a similar business plan. It’s just on a bigger scale,

Michael:
You know, I think some of it did. You know, just having the experience of, you know, repairing the single family properties, understanding the understanding the eviction laws understanding some of the marketing, I think it helped with asset managing the property management firms. But at the same time, multifamily is a different beast than a single family property. So there were a lot of skills that we still had to pick up once we transitioned to multifamily.

Charles:
Well that’s great. Mike, thank you so much for coming on today. How can our listeners learn more about you and your business?

Michael:
Yeah, definitely. So go to our website, granite towers equity group.com, and if you fill out the contact us page, we’ll make sure to send you our ebook on passive investing. It’s the four Steps to Successful Passive Investing, and then we’ll send you out our free passive investment tracker as well. And Charles, thanks for having me on. I really appreciate it.

Charles:
Thanks again, looking forward to connecting with you here in the near future.

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 Michael Roeder

Michael is the Co-Founder and managing Partner at Granite Towers Equity Group, where he oversees operations, acquisitions, investor relations, and asset management. He is a resident of Central Minnesota and graduated from St. Cloud State University.

Michael is an 11-year former high-net-worth insurance agent. As a top producer for a Fortune 500 company, Michael helped mitigate risk for many high-net-worth clients. Risk mitigation is engrained in Michael’s blood, and his talent to mitigate risk is utilized across the Granite Towers portfolio of real estate.

​Michael is also the Co-Host of the podcast Keeping It Real-Estate and the Co-Author of 4 Steps to Successful Passive Investing

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