Navigating Multifamily Real Estate Markets with Taylor Lott: Strategic Investments and the Power of Networking

Embark on an insightful journey through the dynamic landscape of multifamily real estate as we sit down with Taylor Lott, whose expertise paints a vivid picture of the current market and what the Fed's steady interest rates might spell for investors. As election year looms, we dissect the ripple effects of economic shifts on commercial investing, with anecdotes illustrating the pivotal role of strategic debt management. Taylor's seasoned perspective reveals how savvy investors are recalibrating their approaches in response to the market's pulse, ensuring that you'll walk away with a deeper understanding of how to navigate these financial waves.

There's an art to cultivating relationships in real estate that goes far beyond the exchange of business cards. In this episode, we share a personal tale that brings to life the immense value of networking and conducting rigorous due diligence. The stories of seasoned investors like Taylor and myself provide a roadmap for building a foundation of trust and a reputation that withstands the test of market volatility. By the end of our chat, you'll be equipped to vet potential partnerships with the precision of a skilled investor, ready to make informed decisions that could fortify your portfolio against the unforeseen.

Finally, we turn the spotlight on the strategic intricacies of commercial real estate investment. Taylor shares NT Capital's selective investment philosophy, the lessons gleaned from managing properties with a storied past, and the transformative power of intellectual growth. Our dialogue serves as both an inspiration and a practical guide for those committed to the sometimes daunting journey of building a prosperous real estate business. And for those hungry for more wisdom or a chance to connect, Taylor invites you to tune in to the Passive Wealth Strategy Show or reach out directly—because in the world of real estate investing, the next opportunity is just a conversation away.

More info @ http://www.www.ntcapitalgroup.com and http://www.passivewealthstrategy.com

Follow David McIlwaine's Socials

YouTube | LinkedIn | Instagram | Facebook

Join my newsletter @ MAC Assets

Transcript

Speaker 1: 0:02

Hey everybody, welcome to another episode of Bricker Golden handcuffs. I'm David McElwain and with me today is Taylor Lott. I'm excited to have him join us. He and I met through a podcast recently and I think it's going to be a really good conversation about the state of multifamily. Taylor invested in multifamily as well as self-storage. To date, his partner on or acquired over $350 million in deals. He hosts the passive wealth strategy show, teaching listeners how to build wealth with real estate without buying themselves another job. Taylor, welcome to the show.

Speaker 2: 0:34

Thanks so much for having me today. It's great to speak with you again.

Speaker 1: 0:37

Yeah, I'm looking forward to diving in so we're recording this at the beginning of the spring of 2024. The Fed met yesterday and did not drop rates, did not raise rates. They sat neutral. What's your take on all of this?

Speaker 2: 0:52

So I actually put out a newsletter to my list a couple of weeks ago now where this was more or less my prediction that we're not going to see rate cuts within the near term. I think the long term is always murky. We shouldn't really spend too much time trying to predict the future. But just looking at reading the tea leaves, if you will, of the current economic data and also the Fed's dual mandate of stable prices and employment related matters Stable prices they've interpreted to mean a fairly modest rate of inflation, below what we've been seeing in the recent years, and then maximum employment being a certain level of unemployment.

Speaker 2: 1:42

And both of those factors at least for the last while and over the last few weeks, especially as we've had them run up to the most recent meeting were both looking that they would point at no rate cuts in the near future, and that's of course, the decision that the Fed made not to cut rates but also not to raise rates this week. And then my expectation this is not what I would call a prediction, necessarily, but my expectation is that they'll probably I don't think we'll see any rate cuts, at least for the next few months, probably not at the next meeting in May. I think it's possible before the election. People like to talk about the Fed trying to remain neutral in these cases, but I think Jay Powell said they basically reserve the right to change their mind if there is a black swan event in the financial markets or something like that. But that's not new news so, frankly, I wasn't too surprised by it.

Speaker 1: 2:44

Yeah, and so you know it's interesting. I'm fascinated by what happens in the multifamily world and in the commercial real estate world in response to the macro economy, and I think a lot of people don't realize the implications that everything has from a group of fairly powerful individuals. What kind of implications and events have occurred in your business and that you've seen in the last two years from interest rate changes? Well, we've talked about them a lot, but I always like to learn what people really have experienced and what they haven't experienced.

Speaker 2: 3:23

Sure. So what we've seen in my business is a pretty serious slowdown in just the velocity of transactions and the number of transactions happening in the commercial real estate market really since rates started to go up a while back in 2022. And that's not too surprising, really, when you really take a step back and think about it, that we had this basically free money there for a couple of years and that free money more or less stopped and rates started going up and commercial real estate deals were basically harder to pencil, harder to make the numbers work, if you will, unless sellers in some cases were willing to or had to in many cases take a hit on their purchase price, and we've seen that happen quite a lot. But really the biggest thing that I've seen, just to reiterate that is a pullback in the number of transactions and I see it a lot more as a reversion to the mean of pre-COVID, not COVID, when we had the low interest rates, people were really turning over properties pretty quickly, not holding very long, whereas pre-COVID, back in kind of the normal times, it was typical to have a longer hold period and multi-family or other commercial real estate you just tend to hold it longer.

Speaker 2: 4:46

But when the financial markets were really cooking and the interest rates were incredibly low, or when they were falling.

Speaker 2: 4:53

Well, you could sell by a property and, just as a result of falling interest rates and falling cap rates, you could sell and lock in your gain.

Speaker 2: 5:02

A lot of people chose to do that, so that led to shorter hold times than normal, than pre-COVID, if you will.

Speaker 2: 5:10

So again, I see a lot of this being a reversion to the mean, and if you take a step back just outside of my personal business and look at what's happening in commercial real estate generally, there have been a lot of investors who have taken pretty serious hits on their investments and loss of equity. A lot of that has been a result of buying properties with variable rate debt and not sufficiently hedging the interest rate risk by buying a longer-term interest rate cap. A lot of folks got burned by having like a one, maybe two-year interest rate cap that they bought when interest rates were incredibly low. Their caps ran out and it turned out buying a new rate cap was just going to be prohibitively expensive. And that's happening in the office markets. It's happening in multi-family interest, happening in other asset classes as well. I think a lot of that will wash out of the system over the next couple of years, as the variable rate, that kind of turns over.

Speaker 2: 6:22

A lot of folks have concerns about what that's going to do to the economy more broadly, but I've seen some interesting figures that indicate that it's the commercial real estate market loan. Commercial real estate loan market's not quite big enough to really have a huge outsized impact on the overall economy. The Fed doesn't seem to be too terribly worried about it, but I think it really gets to the need to have an appropriate plan for your debt and your business plan and not get too caught up in the idea that money's going to be cheap forever. It's a tough lesson to learn for a lot of people.

Speaker 1: 7:03

Yeah, and we learned it in 2008. It's fascinating how things accelerate and the lessons get forgotten. I love the phrase that if you don't remember history and you don't know history, it repeats itself and you get burned. I kind of butchered that, but that's the concept behind it. So when we go back and we look at, you mentioned people have lost some capital from variable interest rates and improper hedges. What do you think some of the biggest mistakes are that investors make when they're starting this journey to passive wealth?

Speaker 2: 7:39

Oh boy. Well, that's a broad question, that's a big question. I think um yeah, let's go wherever you want with it.

Speaker 1: 7:44

You know, because it's kind of one of those, if I'm sitting here and I am Mr or Mrs Main Street America and I'm going to start touching these fascinating high reward investments, what are some dos and don'ts, maybe a different way to ask the question?

Speaker 2: 8:01

Sure, I think a tried and true thing that a lot of folks kind of say in this industry is to start by getting educated and getting really educated. And a lot of folks who say get educated, the next sentence is by buying my program. I don't sell a course, I don't sell a program, so I've got no vested interest in anybody buying any education program. But what I mean by that is go out there and you know, read books about how commercial real estate investing works. Read books about how the numbers work. I've got one on my shelf here behind me by Frank Gallinelli about what every real estate investor needs to know about cash flow, and it walks you through how the numbers work, how a lot of these metrics work and things, how these calculations work.

Speaker 2: 8:45

And I think a lot of folks who kind of dive in before really learning will skip a lot of the math because you know, not all of us really enjoy doing that kind of math. I certainly understand, but I think taking the approach of looking before you leap is so incredibly important and then having a longer term view of what your overall plans are. There are a lot of folks in the real estate industry, irrespective of your asset class that you're looking at, who are focusing, I think, too much on the very short term. I'll do one deal and you'll be financially free and, you know, really put all your chips on black, that kind of stuff. And I find that to be, you know, incredibly unwise.

Speaker 2: 9:30

So having a longer term, I wish you having a longer term view for your participation in real estate or whatever you're investing in. I think is is a wise position to have.

Speaker 1: 9:44

Yeah, you go into time horizons right, and you said earlier, I think this is very relevant for investors who are starting to explore this opportunity.

Speaker 1: 9:54

The time horizon is crucial. You know, fix and flip horizons are measured in days and weeks, commercial horizons are measured in years, and I think it's important to understand that most commercial investments like this are illiquid, and what I mean by that for those of you who may not be familiar with that term it's that the money's not readily returnable to you without a capital event, and capital events are short parts of the life cycle. You know you have a capital event, maybe at a refinance or a sale, or you know you can have distributions coming over the thing, but in the last two years, many, many units have not been making their distributions because cash flow has been pinched, as you said, because you've got rising interest rates with variable rate terms and the debt service is becoming owners. So, as an investor, aside from what I see as the obvious, hey, I don't buy a deal, I don't invest in a deal where there's variable rate. Note what are some other things investors need to be looking at in today's environment to make decisions.

Speaker 2: 11:03

I think one of the biggest things that anybody who wants to be in this space should do no matter how you wanna participate in the real estate space generally or commercial real estate is investing a lot of time and energy in networking and joining groups of people who already had experience and asking them about their experiences. And, for example, last night, I was on a little mini mastermind call with a group of folks who I've been having these calls with and since I think 2020, we've been doing these calls, not every two months or so, we just connect and it's there are passive investors, there are active investors in the group and we talk about hey, what's going on? How are your deals going? We ask opinions about different, say, operators we might be considering doing business with, and things like that. And when you can go to people who you've built a relationship with and ask them about their experiences with someone or their networks experiences with someone, you really, in my opinion, amplify your ability to gather data and gather knowledge about the individuals, the business plans and really what's going on in this space, rather than looking at just things, just information that's more publicly available.

Speaker 2: 12:26

Going having private, off the record conversations with people who you've built a relationship with over time. It's really valuable. And last, just a call I had last night with these folks. I was able to ask about two groups of people I'm not gonna name, of course, who I've been curious about and would like to know more, and I just put it out there hey, what can you tell me about? Anybody know anything about these two groups of folks? And hey, I was able to get some valuable opinions. One was negative, one was positive, but that is in my experience. That's been a great way to learn more about someone from a more objective standpoint or from someone who already has experience or who has already done a deal with that.

Speaker 1: 13:17

Yeah, I think that networking part is so crucial. I was at a networking event this morning and I met a guy who's a syndicator and a capital racer and he's got a W2 job as a radiation tech and we started talking about it and we actually had underwritten and driven and analyzed the same building and at a different market and we knew the brokers and so we had a very relevant conversation around what he saw that I did see or did not see and what I saw that he did see or did not see. And it was. I passed on the deal because I thought that it was gonna be a mediocre hold for five years five to seven year horizon. He's got some investors that had a 20 year horizon Wow, and when I learned that element, I was like I'd bought it too. Yeah, because you know.

Speaker 1: 14:22

Yeah, and if you think about it from a exchange sharing information, networking is valuable, but I think what's really valuable is getting to that place of trust where you can actually share unfettered feedback. There are people that I would never open their emails in this business and there are people who might think that about me who knows, possibly and there are people who I opened every email, I read every word and I consider every investment that they offer and that comes back to doing our own due diligence right, and what you're talking about is really doing due diligence on a reputational level, and I think that's an important part of it. You know, if there's exponential growth without exponential systems in place, it gets really risky.

Speaker 2: 15:16

Yeah, that's a great point.

Speaker 1: 15:18

That's one of the things I've seen in this is a lot of people growing with improper systems, and I have a Fortune 500 background in the app business and so I've seen a lot of organizations in a lot of different systems and a lot of different bureaucracies and newsflash bureaucracies survive because they're really good, right and they actually do benefit people, believe it or not. It slows things down sometimes, which can be beneficial, and it can create wrenches and it might seem improper to think about like this, but they help sometimes in some places.

Speaker 2: 15:55

You know I agree with that. I think the market for a while made a lot of deals and a lot of say operators or investors look really good, mainly as a result of falling cap rates. So that papered over some operational issues where people didn't quite have their act together, maybe getting into a new market or something like that. And as the old saying goes Warren Buffett saying or somebody else when the tide goes out you see who's swimming naked and you wanna know if you're swimming naked before the tide goes out, of course, yeah, I like another phrase.

Speaker 1: 16:34

A high tide rises all boats and it's the same thing you're talking about, right, a high tide covers those who are operationally deficient for sure. So you know, I cut to touch on the idea of due diligence as an investor and things that investors who really look for. Is there one thing when you're looking at investing your own money and that you always make sure that box is checked before you proceed to something else? Is there one?

Speaker 2: 17:03

I would say, if there is, if I was going to boil it down to one thing, or maybe the first thing, that if it's not, if it's not a yes, then it's a definite no. Right, the operator is understanding who they are. If they're reputable, if they have the experience that is commensurate with the deal that they're planning on doing, if I'm comfortable with them, if I Google their name, a company name or things like that, what am I getting back? What am I learning about them? You'd be surprised how many folks in this business won't do the simple Google search of somebody before they do a deal with them. And that's free. It takes, you know, five, ten minutes of your time and maybe you learn something incredibly negative about this person, or you get something back.

Speaker 2: 17:54

Or to go back to the network aspect of things that is part of, in my opinion, the due diligence that we should do is ask around about these people, because this market is opaque and the good news or the bad news isn't always out there available publicly.

Speaker 2: 18:12

But if you have people that you've built relationships with, who you trust that you can ask about so and so, hey, I'm thinking about doing a deal with this person or this company, have you done anything with them?

Speaker 2: 18:26

Sometimes you get some important positive or negative feedback, and putting that time and energy investment in up front to build that network that you can rely on for their experiences and opinions, in my opinion it's incredibly valuable. Also, it's a lot of fun. You know I'm a pretty introverted type of guy, but building relationships with people who are like-minded, who are often based around the country or around the world Really we've got a gentleman in our group from last night who's based in Saudi Arabia it's just very valuable to have those relationships and, you know, of course, be able to provide your own experiences and add value to those networks when you can. So I would say, doing all those things to understand who you're doing a deal with and get the good and the bad and make a decision accordingly, is for me, that would probably be the biggest thing. So the biggest one thing that I would need to understand first.

Speaker 1: 19:27

Yeah, I love that. It's kind of. What I inferred right away is that for me, operator is the beginning of everything, and if the operator is not someone that I trust, it's killed. So, like, for me, my first box is going to be do I trust this, who's the operator? Reputational risk, do I trust them? Do I believe in the product? And then it'll be market, and then it'll be vintage of the property, and then it'll be business plan and execution plan and team, and there's so many different things that run in. But I do like that. First, the first question of does this box get checked or do I just delete? And for me it's definitely operators right up in there. So tell me, what does NT capital really do?

Speaker 2: 20:18

So we invest in commercial real estate deals. We raise investor capital for commercial real estate deals around the country, largely in the Sun Belt, but yeah.

Speaker 1: 20:30

Major markets you guys focus on.

Speaker 2: 20:33

A lot of markets in Dallas or, excuse me, in Texas. I like Dallas, I like Houston, florida. I do like Florida as a state. It's kind of tough these days due to property insurance rates. I'm hoping that that turns around. But economically I like Florida generally speaking. But just because I like a market doesn't mean I'll buy anything in that market. I think that's one of the mistakes that folks tend to make, and a mistake you could probably say I made earlier in my investing career. Is I like a market? Maybe I'll be less choosy about the assets in the market, but that's kind of the first passes. Do I like the market? Okay, maybe I do, maybe I don't. If I do, great. But then you have to keep doing more understand the property operator, things along those lines, the age of the property I think that's something to be very well aware of is just because you like one, two things about the deal, you got to keep kind of going and digging and understanding more before me.

Speaker 1: 21:33

Peel in the onions, so to speak. Right, right, exactly, yeah, so age of the property is one of those things that people get really binarily polarized around. They either it's a crucial decision, it's not a crucial decision. Tell me more about age of property in your world and how you approach it.

Speaker 2: 21:51

Sure. So for me the age of the property has only become more and more important over time. When I first got started investing in this space back in the mid-late 20s, nobody was really talking about the age of the property. It was a good time in the market. Things were going pretty well and a lot of folks, myself included, were investing in older C-class properties that still had some room to raise the rents.

Speaker 2: 22:19

But once you buy a property built in the 1970s, 1960s or earlier and this happened to me is you come to learn how many things can go wrong with a property that old. Even in spite of the best physical due diligence that you can do, things just tend to pop up with those older properties. That can be very big capital expenditures but ultimately don't add to your net operating income or your NOI and don't drive the values of your properties. So for me, age of property is a very important factor. Personally, I won't consider anything built in the 70s and earlier. That's not to say that no, nobody should ever buy a property in the 70s earlier. That's just my personal criteria based on my experience with those older properties.

Speaker 1: 23:11

Yeah, so you're doing a 45-year window or less. Is really what you're saying, 44 at this point in time.

Speaker 2: 23:18

Right, and as we go on, once we enter the 2030s, I expect all probably you know limited properties built in the 80s. We got to keep that box ticking, that timeframe ticking upward, but for now yet I don't want to buy anything that's too old.

Speaker 1: 23:34

Yeah, you know, I've owned a little bit of both, and newer is definitely less maintenance, definitely, absolutely. So let me ask you, we're kind of, we kind of keep this thing to around half an hour, a little less. What's the best piece of advice you wish you had 10 years ago that you don't, that you did not have that. Today you do have.

Speaker 2: 24:01

That's a great question.

Speaker 1: 24:03

Thank you.

Speaker 2: 24:05

There have been so many over the years. I think really committing to the process has been big and I've learned that lesson through one hiring a coach but also watching a lot of the friends that I've made over the years really grow very quickly and many of them it's because of how much they committed to the process, investing a lot of time and energy in building their businesses and getting out there and networking and so on. I really think that, especially if you're on the active side of things, that makes a huge difference in how much of yourself you're investing in and how committed you are to this business and doing deals and that kind of thing is really really get committed. And I think about for those out there who like to show the grand tour or formerly Top Gear years ago there was an episode where Richard Hammett was driving an F1 car around a track and he was going too slow and the instructors told him look, you're going a certain amount, a certain speed, and if you go just a little bit faster, you still won't be going fast enough.

Speaker 2: 25:27

Your tires won't be warm enough. You're going to slide off the track and hit the ball. If you go a lot faster, they still won't be warm enough, you're going to slide off the track. But if you go way, way faster than that, then the tires will be warm enough and you'll make it around the track, and I think that's a good analogy for building a real estate business. Is you really need to hustle so that, in this analogy, your tires are warm enough and you can make it around the track and you need to have some activity going on to start to snowball your business? So really commit to the process.

Speaker 1: 25:59

Yeah, I love that, and I love the analogy of getting the tires warm enough, because I've watched Top Gear on Amazon. I think it's on Amazon now. Right, my son and I watch this together. It's a fascinating show. But you're right, you've got to commit all in and for you, what does that commit look?

Speaker 2: 26:19

like it's being consistent. I've got my podcast and I started the podcast at a time where I hadn't really done that much. I had a lot of imposter syndrome, but it was putting myself out there and meeting people like you, starting those relationships and then ultimately that leading to building even more relationships in the business, learning more about the business by getting it to interview great people, but also investing a lot of time, energy and, of course, money in getting out there and networking, hiring people and things everything along those lines and, of course, making sure that I do my best to learn and apply lessons from other people who are further along than me in the business. The Tony Robbins quote of Success Leaves Clues is so true. You can look at people who are successful and understand what they did right and, of course, also understand what they did wrong along the way You've successful people make mistakes too, but learn from what they did right and apply those lessons to yourself, and I found that to be incredibly helpful.

Speaker 1: 27:27

You know, what's interesting about that, taylor, is you didn't mention work hours, you didn't mention the grind mentality, which I'm really appreciative of, because, while that can be relevant and important, it is not the solution. You know, I do work with some people and I do some executive, top level, ceo level coaching, and the reality is that the commitment is multifaceted and everything you talked about was intellectual and learning and decision making, and it wasn't that you get up every day and you grind for 12 hours a day. It was that you commit to something, you stay with it, and I think this is an important thing for people to learn we can have our cake and eat half of it correctly, and I think people forget that.

Speaker 2: 28:15

There are going to be days when you don't want to do it, but those days you do have to show up. Maybe you don't have the greatest day on those days, but you have to still put the work in, so that doesn't matter, of course.

Speaker 1: 28:25

But one of my early mentors in sales said that showing up is 50% of the order. Yes, and I thought that was so accurate. So is there a thought or some sort of quote or axiom that guides you in your business that you work through with every day or often? Maybe not literally every day, but you get the idea.

Speaker 2: 28:52

I try to keep things in perspective. One that I've been thinking about recently is this too shall pass, so good times and bad times, they're all going to come to an end in some way. Things are going to be in flux and that matters a lot, but I think keeping our lives or businesses in perspective with other things that have happened. One of the books over my shoulder here is Band of Brothers, which I've watched the mini series of Band of Brothers shoot, I don't know probably legitimately 30 or 40 times, but I only recently actually picked up and read the book, back around Christmas of 2023. And I think keeping those things in mind of you know that was eight years ago, almost a hundred years ago, but the things that those men went through and others have gone through in history can really help put a tough day in the business in very important perspective.

Speaker 2: 29:50

You know you're in a safe area and you're nice house with your climate control and you've got you're pretty well taken care of. You think you're having a bad day. Well, somebody's had a much worse day before you in some form or fashion. So I think keeping those things in perspective make difficult times a lot less difficult. And then when you have great times, you can. If you keep those things in perspective, you can appreciate them a lot more because you can understand that this is going to come to an end in some way and then, when it does, you're kind of ready for the downswing, as they kind of normally happen. So keeping the good and the bad in a more kind of human or historical level of perspective is, I think, really important.

Speaker 1: 30:38

Love that. Thanks so much for sharing that wisdom, but tell us what's the best way to contact you and to learn more about you and your business.

Speaker 2: 30:47

Sure, so you could check out my podcast, the Passive Wealth Strategy Show. Or if anybody out there wants to schedule a call with me, just go to investwithtailorcom. Awesome.

Speaker 1: 30:57

Well, thank you for joining us, and you've been listening to another episode of Bricker Golden Handcuffs. If you liked what you heard today and you want to learn more, hit the subscribe button. Thanks, and have a wonderful day.