Elijah Brown: How to Make Millions in Real Estate in your 20s using Fund of Funds

On this Real Estate Entrepreneur Podcast, Investor and long time friend of the program Explains How to Make Millions in Real Estate in your 20s... Just a few years ago, Elijah Brown was a college student with nothing but ambition. Now, he's an equity holder in over 2,200 real estate units and a Fund of Funds CEO reshaping the Real Estate investment landscape. What strategies propelled him from textbooks to towering assets? Tune in to uncover the critical real estate insights and innovative approaches that Elijah leverages for high-growth markets. Welcome Elijah, to The Gould Mine...

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Transcript

•  What's up gold miners. Today. We welcome back to the gold mine Elijah Brown. The CEO of gold Hawk capital. A fund of funds that invest primarily in multifam deals here around the United States. Elijah is our very first G mine repeat guest and it's very fitting that he is because he is an encyclopedia. He is a knowledge base of information when it comes to real estate investing strategies. In this episode Elijah and I start off by talking about some of the metrics some of the the tricks of the trade when it comes to analyzing properties. In 2024 you might be surprised to know that Elijah is not really looking right now at irr in equity multiple as much as some of these other metrics that he mentions in the show later on. In the episode Elijah highlights some of the unique value ad strategies that him and his partners are using on Class A and Class B properties and then finally Elijah and I wrap up the episode by discussing the current distress in the commercial real estate sector and why despite having relatively high levels of distress we haven't had Total Carnage yet and what to expect in terms of distressed assets for the remainder of 2024. Some incredibly high level of conversation here everyone so without further Ado let's welcome back to the show Elijah Brown Elijah welcome back to the gold mine. Danny thanks so much for having me back. I actually had a dream last night like not joking at all uh that I was doing the the intro sequence for your show and I was like gold miners we have a NE. We have our next guest here and I was like really excited because every time I listen to your podcast. I'm like I'm like triggered by it a little bit because it's s so catchy. It's so good so uh yeah. That's what I was thinking about last night when I was unconscious. Yeah I don't know appreciate that man glad glad to know glad to know that uh I'm in good thoughts there so well you know by the way I don't know if you know this. But you are officially our first repeat guest yeah awesome special thank you yeah man well do you. I mean you're just a treasure Trove of knowledge and so I was like dude. I got to get Elijah back on the show do a part two you're uh and who knows you know. I'm sure that we you'll be on many times. So this is this is uh the the second of many catch us up on what's been going on with with uh with yourself and with goldhawk. Since the last time that you were on sure we've been plugging away doing deals uh mostly through our fund of funds model which we'll go into uh a little bit later. But we've been making relationships with new sponsors operators and uh essentially just uh plugging away at the same stuff. We've been doing just over and over again uh. You know some of you listeners who might follow Alex. Hor mosy you know you got to do the hard work over and over again for like five years straight before you really see the those results and so we're now in that uh that point where we've kind of been through the valley of Despair and now we're just like in scale mode and just repetition of like what working and doubling down on what's working and trying to grow the business dude Heros is G Heros is awesome love him yeah yeah. There there was a a period last year where like for a month straight I just like drank his like content like a fire hose you know I was like for four hours. I was like for mosy University basically just like taking notes so yeah know. He has a lot of great stuff what um so speaking of rosi right because I haven't really talked to a lot I've talked to a lot of people in in real estate sales who follow ramosi but not a lot of people who follow him in the fun space. I'm curious like what what's one thing that stuck out to you. And I know I'm kind of putting you on the spot but like what's what's one thing that like really stuck out to you um that you have been able to apply to your real estate fund like what's one teaching one learning that you've been able to apply for stuff yeah. So so the important thing is that like funds and real estate. It's it's literally just like any other business. So when hormos is talking about all these like these pieces of advice that he has it's not just for like Tech startups or selling a product or doing a service. It really applies to like everyone and so like the whole fun thing and real estate stuff. It's it's just like any other business. It's just like a tech startup. It's just like a like a mom and pop ice cream shop on the corner. It's it's the same principles apply no matter like what space you're in um and so that that's like the real important thing um the biggest takeaway I've had from really. His advice is that um you know you can't sell a product and excuse my language but you know it start with the value of what you're actually providing so like if you're going and selling. Some type of like tech software make sure it's like super valuable and super good because there's no point in like spending marketing dollars and going like deep and trying to like spend all these resources and time and effort and money. When you have a bad product to begin with the same thing is in real estate and funds. If the deals that you are pitching to your. Investors are like bad deals or not attractive to those investors. Then it really doesn't matter like you shouldn't spend any money on marketing. You shouldn't hire people you shouldn't like try to scale that up until you really have like a proof of concept and a market fit um and so that that's important we we spend a lot of time now focusing on the actual product that we're offering to the market and for us. That's investment opportunities yeah. That's that makes by the way you can say on the show all right so you're fine. All right. You can absolutely say I got a little scared there I was like Oh no you're gonna have to like put like the the beep thing and like blur out. My face definitely not man definitely not no you. I'm not even going to go down that road but anyways yeah the the the the idea of of because a lot of this stuff right is is is when you when you listen to it. There are certain things where you're like you.
•  He's talking about like products or he's talking. About service is but really you know in in the fund space. You can think of like your fund management your sidey. All that's as a service but also there is a product too. It's very interesting that you think of it that way. Where like the the the deal is. The product is absolutely yeah. That's that's an interesting that's an interesting take. Maybe we we might come back to heroi in a little bit. But I want to I want to continue down um the original path. What's uh so obviously you've some good stuff has happened. You' you've gotten more moment. You've you've picked up a couple of different Partnerships yeah. Since the last time that we spoke uh what's one pivotal moment what one thing that um has happened in the last six months that stands out to you definitely uh a a shift in investor mindset. So a a lot of sponsors and operators got into a lot of trouble in the past year because they took on they took on deals with you know short-term floating rap floating rate Bridge debt and that's really dangerous because in in an environment like we have now where interest rates are a lot higher than they were a few years ago. It's almost impossible for a lot of these sponsors to refinance when their loans mature uh. The bank requires that these properties kick off enough income to be able to support paying a mortgage and when that mortgage payment is so much higher due to interest rates being high uh the bank stock and as much money because they need to make sure you can actually make the payment and so you've got sponsors right. Now that are being faced with 10 2050 million cash in amounts for these refinances and that's just a massive amount especially when a lot of investors are still on the sidelines and not ready to jump in and so there's been a lot of Shifting of mindset uh among investors like limited partners and also the the institutional guys as well. Uh there's a lot more Focus right now on on the debt terms. There's a lot more Focus right now on cash flow yield and a lot less of a focus on you know irr. Equity multiples exits stuff like that like it's gone back to a situation of like let's focus on the fundamentals and the cash flow and the risk of the deal rather than you know. What could we possibly sell it for in the future yeah. That's interesting and I I'm wondering you know based on based on what you've seen has there been um have you seen a lot of LPS. A lot of investors who got burned in the last couple of years are you seeing a kind of like a a clamming up effect where there's less uh investor. Capital available like people like not really willing to to put money into deals right now. It's really interesting so a lot of investors have gotten burned a lot of people that I know I mean I have sponsor friends who have given keys back to the bank and I have a lot of investor friends uh that have lost all their money. It's scary but what I'm not seeing is that those investors are not writing checks. Those investors are still writing checks. They're still eager to write checks. Um. I want to like compare this with like gambling addicts like casinos. It's not the same um but it's like even if someone loses money like you know. They think that they learn something and they go and they do it again um which which is actually not bad. It's like you learned your lesson by losing money on a deal and now you're going to go and invest more conservatively and that's what's happening right. Now a lot of investors either lost money or their distributions were paused or. They got really scared for 6 to 12 months and now they're still writing their checks uh they're still writing checks but they're a lot more conservative in their analysis so how does one underwrite conservatively because here's the thing right like it's so it's actually kind of like. It's so cliche bro. You know. We're the almost every fund manager almost every syndicator that I talked to they all say the same thing well. We underwrite conservatively and it's like all right. But what does that actually mean right like how are we how are we underwriting. These deals conservatively. I hear what you're saying we're looking so one of the things that we do is. We can look at it from different lengths. Uh cash flows yield versus uh irr and Equity multiple which is kind of like the the gold standard or what a lot of people have been looking at so. But that's just like Optics or like looking at it through a different lens. How are you I guess underwriting conservatively or what what are you doing to kind of like check the conserv you know the conservative box. The more deals that I look at the more deals that I do the simpler it's becoming uh before like five years ago I was like oh. I got to do an entire underwriting model and calculate all these metrics and then all these metrics need to be within a certain range and it was like really complicated. Now. It's like it boils down to like three or four like specific things that I look for that tells me if a deal is going to be safe and conservative um. We'll just start with one debt service coverage ratio essentially that what that is. It's the net operating income. So your cash revenues minus your cash expenses divided by your loan payment every month and that should tell you like how many times your loan payment are you making and it's it's really simple right. It's like are you actually bringing in enough cash flow every month to pay the mortgage and is there a comfortable margin. There we typically look for like a 1.25 going in um on that on that so we want to see 1.25 The Debt Service being generated in cash flow. It's a really really simple metric and it pretty much just says cool. This deal is not really at a high risk of loan default from not being able to make the payments. It's like a really simple metric and that's like one of the most important things that we look for a lot of people were going in and doing deals back in 2020 2021 uh on bridge loans where their debt service coverage ratio was like 0.5 or 0.8 or even 1.0 um just for that first year while they were executing the business plan well. You know what that does that requires you to put a whole bunch of extra cash in a bank account uh to be able to make those loan payments and also increases the execution risk. What happens if something happens in that sponsor can't finish the renovations or execute on the business plan. A whole number of different reasons well you're screwed because you can't make the mortgage payment. Now so the one most important thing we really look for is on day. One can you comfortably make that mortgage payment yeah okay should I should I go into more absolutely. What's so so what else so so dscr is one of them yeah um yeah. What else what else are we looking at as well yeah um.
•  So I want to introduce the concept of positive leverage and this is a little more confusing uh. But it's pretty much along the same lines. Pretty much says the cap rate that you're buying the property at so like historical income divided by the purchase price. That's the formula of it. That percentage number should be higher than the interest rate that you're paying on your mortgage and it's just a really simple rule. We we like to look for like 150 to 200 basis points of spread there and then all that's really saying is that great the property's going to cash flow enough to pay the mortgage. It's like the same. It's the same thing and we really use that for a determination of how much leverage we should put on this property if there is a really big spread between income generated and the mortgage and and the mortgage pay payment. The interest rate um. Then we're comfortable increasing the leverage from you know 70 to 80% even um but if you're buying that property and there's there's not positive leverage or it's a very low amount like you're paying a six cap and the interest rates 5.5%. Then I would look at that and say hm you probably shouldn't borrow so much money because you're going to get yourself in trouble so that that's one that we look for as well. And then uh there's a couple. More. The next one is yield on cost and this is like stabilized so the what this one says is once the business plan has been executed. Renovations have been done rents have been increased uh what is your operating income stabilized operating income divided by as a percentage of your total cost of getting into the deal that includes your purchase price closing costs renovation budget working capital like that's like you're all it so like how much how much cash flow is this property kicking off as a percentage of your all-in costs like your your turn on cost every year um so that's an important one. We use that to know like is the deal going to yield enough cash flow to make distributions to our investors and uh and like that it's just really that simple it's. It's just cash flow metrics y yep the positive leverage it's so funny because you like literally to podcasts I back to back have talked about the the positive leverage and it seems so simple right because it's just like hey is your cap rate. Like is your is your entrance cap rate uh higher or lower than your mortgage uh industry right. It's just like that's it yeah simple it is simple. It is simple but yet I feel like especially in Parts like for examp I'm in California and I don't know like I don't know if any multifamilies here have been sold with you know a positive lever with positive leverage in years. I mean it's especially after the interest rates went up. It's crazy um and I I and I I'd always thought about that you know even as I I sold Apartments here sold multif family buildings here and I you know I'm just doing the the math in the back of my head. I'm like how is this yeah how is this a good deal like I don't get to some people and in their defense like it is great for some people like larger institutions that are willing to accept the possibility of no or negative cash flow for the chance that their Equity doubles or that their Equity goes way up with the trend inflation and so it's like it makes sense for some people. For me. It doesn't make sense for a lot of you know retail and Mom and Pop investors like that doesn't make sense at all because it's like. It's scary the prospect of having negative cash flow and not hitting projections and uh not being able to pay the mortgage but for some buyers that really makes sense so just to revisit because I know that not all of our listeners today listen to the first time that you are on and and it's it's it's important to note that you know Elijah runs a very distinct type of fund. He is not directly not like not like the direct sponsor or the asset manager right of these properties. So you run a fun of fun model uh right to Elijah. So can you explain to our listeners the audience what that means and and how you know what some of the advantages are of of of investing into a fund of funds model sure so I was an active operator for about seven years. I still have a few properties left and when I was doing that business I was in charge of like everything finding the property finding the bank finding the investors finding the property manager finding the contractors doing all the work holding all the pieces together and it's brutal. I sold a bunch of those properties and made the decision that I wanted to focus on what I was good at and just Provide. Capital allocation like raising money and due diligence services to existing companies that were far more advanced than me that were finding. Much better deals than me that had the team in place and the vertical integration to get deals done way better than I ever could and so my business model became just raising money essentially for really good opportunities and there's two ways that you can really do that legally the first way is by joining the actual. Deals Management Group their operating agreement as a CP or a co-manager. You're actually like listed as a manager on the operating agreement and your investors that you bring into the deal come directly into the deal and that's great and you make your money by charging fees to the investors. At that deal. Level. Now most operator groups unless you're bringing a significant portion of the capital. They're not just going to let you join as a manager like you got a A two billion or A5 billion doll company and you're bringing them. You know half a million dollars or a million dollars like they don't care. They're not going to give you any type of like special treatment for that. They're not going to invite you into their management for that um and so there's another strategy.
•  Another structure that you can use if you want to bring in smaller check sizes and that's what I've been using. Essentially how this works is you go out and you set up a completely separate LLC completely separate entity and you raise money in that entity for someone else's deal. Once you've raised all that money. Let's say you get a million dollars worth of investors in your separate entity. You then write one check from that entity to the sponsor for their deal and usually because you're writing a million doll check instead of a $50,000 check. They'll give you way better terms than deal. I'm talking like much better profit split lower fees. Uh they'll actually like call you back when you call all kinds of stuff like that so that is what we call a fun of fun structure. You can call it a syndication of syndication or whatever you want to call it. You're essentially creating a pool of capital to become one LP investor in the deal um or a sid letter investor in the deal U and so that's what you do when you can't bring a significant amount of capital into the deal as you know a cgp or a manager. Once you can get over like 20 to 30% of the deals overall Equity raise and sometimes it's a significant amount. Then you can really start talking to the sponsor about like being listed as a co-manager interesting and so for someone who's listening right. Now that is unfamiliar with this kind of structure why invest in a fund of funds model or a syndication of a syndication as opposed to just like direct you know going directly into the deal and I know that you covered this before. But I think it's important for people to remember there's a number of different reasons. The the first and foremost the most important reason and the real value proposition of doing a fund of funds is that you're collectively NE with all that Capital that you you're raising you're collectively negotiating much better terms than the deal for the investors so on a typical deal. Let's just for shits. Let's use an example. The sponsor is going to take 40% of the profits at the end. Maybe 50% of the profits at the end that's their profit split. It's also called a promote carried interest uh whatever I will go to them and I'll say instead of giving you a $50,000 check like your minimum I'm going to write you a million dollar check. But I want that profit split to be changed to 8020 where you get only 20% instead of 50% of the profits at the end of the deal and they'll either give me a sid letter agreement for that or create an entire enely separate share class for that for me and I'll pass that benefit along to my investors. Now of course I have to get paid too and so I take some fees out of that benefit for myself. But my investors end up in a situation where they're upsides not being tapped because they're not having to give up 50% of the profits yeah. They're getting way more upside in the deal because they're just having that straight 8020 profit split and I think that's super important for for everyone. There. There's there's power you know in numbers right and so that's kind of what this whole philosophy of this whole this. This whole fund of funds model really um you know takes advantage of is the idea that you know a small as a small little you know retail investor. It's hard to to get a seat at the table or to have an influence uh to have influence. But then the the more the more assets you can pull together and present it as one large check. Then you can usually have a lot more negotiating power and that uh I think that makes a lot of sense so obviously Elijah we're going to have your your information in the description box down below so that if anyone's interested in learning more about uh Elijah's F fund and and and how you know you could potentially work with him. Uh you could be sure to check out the links down below let's talk about Investments uh Elijah. What have you like what investments have have uh have gold Haw or has goldb made uh in the last six eight months or so sure. So we did a bunch of deals last year with uh rise 48. These are like large multif family buildings in Dallas and then we did a uh large multif family building in uh San Antonio. With Lone Star Capital. We invested about a million dollars into that one and then uh we're actually working on another deal right now with a new sponsor uh relationship that we've been working on for over a year now and I probably shouldn't give away all the details before we officially launch it um. But it's a uh. It's a very experienced group out of California that does deals in Texas. So we're going back to Dallas and uh. But what's really interesting about the last couple deals that we have done is.
•  We have shifted somewhat away from getting heavy into like the B and cclass heavy value ad type of deals because we can invest now in a and B+ class properties and get the same or higher returns than we would doing value ad uh by doing a property tax exemption and assuming very good interest rates on on launcher loans and so that's a new strategy that we've been exploring and we love it because we can buy an A-Class property. That's 100% occupied and rents are at Market rates and the property was just built last year. Brand new property. We're going to get it at a discount because the Market's stress right now and and we're also going to go and put in a 100% property tax exemption and in Texas with property taxes are really high that is actually a huge benefit to the point where it's like day. One our property value will increase by 30% just because of that property tax exemption. It's a brand new a Class Property. It's awesome and we're also on this deal going to be assuming a long-term like Hood loan at like three .8% which is awesome. So the all the numbers work plus there's no execution risk because property tax exemptions guaranteed on day one and we don't have to renovate units or raise rents or do anything like that. We just have to buy and hold and realize our profits okay so we need to talk more about this property tax exemption thing because I'm very curious like you're making it sound super simple. I'm sure it's really like anything but uh simple so how uh does one go about uh qualifying for and getting these property tax exemptions. I'm going to keep it simple so that I don't confuse everybody um. Different states and different cities have different types of rules. Uh and some most most places don't have these types of exemptions available. But some places do and they essentially allow you to apply and if your building meets certain requirements. Then this local government will wave your property taxes for a certain period of time and so typically what it has to do with is affordable housing so if you can keep your rent below a certain number and usually that's like a percentage of the adjusted immediate income or whatever the local government decides to use as a metric. Then you can qualify if a certain number of your units meet this threshold and you just have to qualify for it. You submit an application. You can use a third-party consultant to help you do this and they'll wave your property. Taxes for five years or 99 years depends on the program interesting so so essentially like not the entire building. But a certain percentage of the doors need to be essentially affordable housing. Now I'm so when people hear affordable housing. They immediately think Section 8 I'm assuming that these aren't Section 8 tenants. This is just like a a subclass or maybe Section 8 but maybe not SE is just like one like subsect of like affordable and like low-income housing. There are so many different programs out there and each local government like has their own different programs that you can apply for and meet and sometimes there's even like public private Partnerships that will help you with this type of stuff too uh. So I mean just an example you go to Texas and there's like three different programs. I'm not going to go into the details on this but you can use Section 8 to do stuff or you can you know go and like qualify for property tax exemptions under any like. One of these three programs and each different location has their own programs rules yeah okay well. That's that's super interesting and and I'm assuming that these sorts of tax exemptions need to be applied for during construction or before the buildings open. I'm assuming that this isn't like a a value ad Play to an existing building. But rather so what I love about. This is that the value ad is done before closing like we're not going to buy the property unless we're guaranteed to get this exemption same thing with like assuming the 3.8% loan. It's like we're not even going to do the deal unless we're going to get that and so it's almost like we're getting a property under contract then applying for that exemption or like like coming up with a plan to meet the requirement and getting the pre-approvals and stuff from the local government so that it's almost like we have already we're stepping into a massive Equity gain on the first day that's awesome and so so what I'm hearing is that you that you can buy existing properties and still qualify for these property. Tax exemptions oh yeah really okay so so such a shortage of there's such a shortage of affordable housing that these like local governments are willing to do a lot. They're willing to bend over backwards to essentially get people into housing and so it's not just for construction. It's for all different types of uh you know properties so that's really interesting and and on average Elijah and obviously every it varies by state. I'm sure and area and like the property and everything but like percentage wise are we talking 10% of the building 20% of the building 30 what does that look like it's like 50 50% okay so high. It's like you gota actually make a commitment. Here's the downside that people won't tell you um and I I've heard mixed stories from different appraisers typically when you're filling your building with a certain percentage of lower income tenants uh that will somewhat impact exit cap rate or the the appraised cap rate of the building um but not to a significant degree like you're talking about like maybe like 10 or 20 basis points uh okay. So it does take a little bit of hit on the cap rate. So you're property. Value is a little lower however when you're removing you know a 3% property tax from your you know your income statement that the the the benefit far outweighs any loss in in cap rate right okay and presumably these exemptions can be passed on to the buyer as long as they still meet the requirements and everything and like that you're still within the time frame or whatever program is is different. But usually the way I think it's structured is that the new buyer either just assumes or they buy the LLC. So nothing's actually changing they're just buying company yep that makes sense that makes a lot of sense.
•  Cool man well that's actually really interesting perspective and I was I was actually before we got into that like my my head went to okay so it sounds like Texas is kind of the place that you're you're focused on right now like that's kind of where you're honed in right now Texas and pH pH uh really this the Sun Belt region in in general. What is it about Texas right now because you know I'm sure that there's some investors who and and frankly I'm I'm kind of in this mindset too. So I'm I I'm asking you to change my mind here. Texas to me is is an area where like you know if you think about where the money's going to be versus where the money already is. It feels like that's a place where like predominantly like there's already a lot of money. There you know Austin Dallas. These are markets where uh you you feel like okay maybe we've missed the opportunity right so you say that as as you live in California yeah yeah exactly the money's already in California and it's leaving California leaving California in droves like if you look at like net migration patterns like so many people are leaving like the Pacific or leaving you know the North Lake New York and and all these like highly restrictive states that have a lot of homeless problems and high taxes and stuff and they're looking they're looking for a lower cost of living and a better quality of life and and lower taxes. So they're they're moving to these locations. Typically warmer climates and low taxes. So we're really talking about red states in the sunb region. Here and net migration patterns are showing that like people are moving to these areas uh and so yeah like I think places like Texas and Arizona and other you know. Uh locations within the sunbell are getting a lot more populated it. They're they're growing really really fast so your argument is yeah. Real estate prices are high in these areas but due to population growth. It's only going to get higher yeah. So it's really a supply and demand thing. So I know there was a study that came out a few years ago that was like we're 5 million. Housing units short or whatever we then went through a period of super low interest rat yeah. You have something to say well I I yeah I'm I'm like where if we're five million short like where are all those people like on the streets like I don't get it but anyways continue because whenever I do those stats I feel like they made up. We went they're all made up. It's all nobody actually knows and like I I I haven't spent the time so um. We went through a period of like 2020 and 2021 of like super low. Interest rates during covid and all these developers started building properties because the cost of capital was super low and so you had like record numbers of of starts which is like new construction. Getting started and those properties were all delivered in 2023 and now 20124 which is creating like a a crazy supply and demand and balance but super like localized to these like high growth markets like Phoenix and and some places in Texas and like places where I've essentially invested and so you have this situation where there's like a a temporary temporary disfunction or L like this. The supply and demand Gap has kind of closed at this point. But what we're not considering is that the interest rates shot way up last year and so all those builders that were looking to build more stuff couldn't start building new stuff last year and so the deliveries that will occur in 2025 and 2026 are going to be way way way less than what we saw in 2023 and 2024 and that 5 million housing short 5 million unit housing shortage like that problem didn't go away and when and when all of these new units stop getting delivered and that problem is going to get a lot worse. The population is increasing. People are moving away from States like California going to the sunb. The problem is going to get way worse you know if you have a building that is struggling with occupancy in Phoenix Arizona. Right now just wait a year and it'll be 100% full and you're going to have to raise rents another 20% so that you can meet the market so that that's where I think things are heading right now um. But that's just that's just my weird thought process. I mean it. It makes sense right like um you are seeing or at least I've just noticed like. I'm not you know studying these these metrics on a daily basis because obviously like you're way more in the multif family sector than I am. I'm focused more on on hotels. But when you're um when I'm just walking down the street here and and I've been visiting a lot of different markets right now just looking at hotel deals and whatnot. And so I I you know there's a lot of cranes in the sky right now um which is interesting in some of these uh in some of these bigger cities and it's interesting to hear that perspective right. Like there there is a little bit of a delay um hard like nothing's getting started right now right. These are all projects that were in the works before the rates Rose yeah right and so it's it's interesting because now I I hear what you're saying like there's going to be a delay uh in kind of getting these buildings uh up to like the occupancy up but like once once we hit a certain threshold. We're going to we're going to kind of fall back behind the eightball again yeah. It's really like when do we hit like absorption and it's like right. Now. There are arguably more rentals available on the market in places. Like Phoenix than than there are people looking to rent because of like thousands. Thousands of units were delivered like what happens once like those those units are actually absorbed. Everybody hits 100% occupancy and then no more new. Supply hits the market for like two or three years. It's like what are you. Gonna do rents are probably going to shoot up 20% again that makes sense that makes that makes a lot of sense. What what trends right now are you seeing in the multif family space so that that's one of them and I think it's a really interesting Trend. What other Trends have you observed you know in the last six months uh or what trends do you expect to see kind of coming up in in the rest of this year or even in 2025. Yeah so buyers are still expecting. Large discounts due to uh distress and sellers are only selling if they're distressed and have to sell but transaction. Volume is ticking up like you look at transaction. Volume last like three months it's happen. It's starting to happen like they're starting to come together usually at the buyer price. The reason why is because a lot of these loans started maturing in 2023 these these high interest uh Bridge loans and those the first thing that happens is the sponsor. The operator will go to the lender and they'll. Say look I can't refinance because the interest rates are so high and the property's literally not kicking off enough income to support those payments. So no bank's going to lend me money I need to work something out with you and that bank really really really does not want to take the property back. They don't want to have to report a foreclosure a failed loan to their investors or whoever uh they don't want it to be published on the internet so that bank will probably do anything. They possibly can to avoid a foreclosure situation that started happening like like nine months ago and so all these sponsors were going to their lenders and saying we're in trouble. We need an extension. We need a payment plan we need to work something out and the bank's not going to do that forever. You know they'll they'll put something into place and they'll be like okay within like six months or 12 months like you better be back on track uh or we're going to take the property right. I think right now a lot of those deals got done. They're still getting done but a lot of sponsors now are seeing okay. We're still in trouble like we're now into the loan modification we've negotiated. We're running on sin ice here on borrow time and there's not much we can do here. The only thing we can do to avoid losing. Our. Investor's capital is to just sell the property and hopefully recover what we can and so. I think a lot of sponsors are coming to that realization right now and they're actually parting ways with their property and that's that's great for for the buyers like us because we're we feel like we're getting properties at a huge discount to what's gonna what they're going to be in two to three years. From now. It's like the discount of a lifetime I don't think it will last forever. I think like we're talking like maybe the throughout 2024 but probably not much Beyond because what happens right now is like the institutional guys and the family offices they're not dumb. They know what's going on and they're scooping up. The best deals really fast like with cash like as fast as they can and they're even going to the lenders and just buying the the notes off the lenders in anticipation for closing on the sponsors. So it's uh. It's a problem that will get resolved very quickly uh because the the let me put it. This way. The difference between like the intrinsic value of what the property should be worth or will be worth in a few years is drastically different than what you can that today yeah I would agree and it's interesting that you're that you know very similar situation is happening in the hotel World um where you know last year. I was going to all these conferences all these Hotel conferences and like every hotel conference it was like it's coming right like the Red Wave. You know it's coming like the red or whatever they call it right. Uh isn't Red Wave like political anyways uh. It's like the you know red wedding right. It's it's from uh Game of Thrones gate with Thrones right so that day is coming where people are going to start. It hasn't come yet though you know and so where are these wave of foreclosures where where where's this um you know where's the Carnage that we were supposed to see and and what's happening is is a lot of negotiations and back room. Dealings you know behind closed doors and that is what people aren't seeing and so like you're wondering well.
•  Why is so and so not losing their property and and and that's exactly what you said there's. There's also a lot of like cash infusions coming in in the form of preferred Equity. Essentially what that means is you're bringing in like a new investor into your deal at like a fixed interest rate to kind of save the deal and like provide that cash needed for the refinance but that comes at a that comes at a big cost and uh those are like you know those are the institutional guys. Those are the family offices they're coming in with preferred equity yep. Sometimes we call it rescue capital and they're saving the day but really they're controlling the property at that point right and and there's only so long that those sorts of things like you you're only putting a Band-Aid on the situation right. It's not like you're truly truly fixing it and really you know it does hurt the the LPS because the LPS are the ones ultimately that are you know. Their returns are the ones that are getting um you know squeezed by by that pref. Equity or the rescue capital and um it's interesting man. It's it's really interesting but now in the multif family space. What I'm hearing is that you're finally starting to see some of the Carnage quote unquote that we were supposed to see before yeah. It's wild. I won't. I won't name any names but like what started to come across my desk. There's a lot of like rescue deals and including in those document. Packages are like the full like balance sheets and like sros of the sponsors like all the managers involved and these are people who like a lot of your listeners might have been like looking up to as like wow. The these are super rich successful people like their balance. Sheet says they're worth $100 million but here they are. They can't raise a million dollar to bail themselves out of their deal and all the properties on their balance sheet are right now at risk of foreclosure and it's like. It's really crazy really scary like I don't think the public really knows what's going on because it's people try to keep it hush and Under Wraps but like you just go and look at like the the the listings of all like the distressed loans out there. And it's all like publicly available information like you'll see. It's like. It's impacting like a lot of sponsor groups right now yeah. That's um it's not surprising you know. And I think that we all knew this was coming and by the way in no way shape or form are Elijah and I like like glorifying this was saying like yeah. This is awesome it's not awesome right. Like no one wants to see people um yeah. It does suck and and and at the same time like these sorts of things happen you know and and when these opportunities arise you're either you know sitting there playing armchair quarterback or you're actually in the game. Trying to you. Know get a piece of the action because the truth is is like these are the opportunities. These are the moments in time where generational wealth can can um can happen right. You can you can stumble into some situations and and uh we've been fortunate. You know uh. Our group has been fortunate to come across some deals very recently where it's like wow these are. These are some home runs if we if we do it right. So they're starting. They're starting to pop up but not as uh. It's not as it's. It's. It's a slow e of you know these these types of deals. It's not like this like massive wave of foreclosures like I think we saw in 2008 and like a lot of people were kind of expecting like a similar kind of situation but not yet not saying that it won't happen. But I would with you that I think that um that there's there's a lot of a lot of Jerry rigging and stuff in the back. That's kind of keeping these things we're in that middle phase where it's like try to figure it out fix it bring in more. Capital negotiate with the bank try to fix it. We're not yet at the thing where you're going to see like massive foreclosures happening every week. How is the how is the state of the economy right now and the fact that this is an election year either helping or exacerbating the issue. Really. I have I have no no comment on that but all I'll say is that the economy is strong right. Now like like we are not in a recession. Interest rates are actually at a place where they're sustainable and healthy like we're talking about like five and a half to six% like on Commercial loans like we can we can just do that all day long uh like that is sustainable um and the whole thing with the election like I I really don't know I'm not not really into the politics. I think the geopolitical like glob issues are actually going to have a lot more impact on real estate things like like war in the Red Sea with the hoodies and all those like shipping containers that can't go through the Suz Canal so they're going around Africa that adds like a ton of cost to shipping Goods worldwide. So it's like I'm more worried about like that causing crazy amounts of inflation and then you know the the the FED having to raise rates again. It's like that's what I think has more impact than even you know an election. I can't say I dis ree there. I can't say that I disagree so that's um so really and actually we haven't had a lot of guests talk about that and and um you know even in the hotel space. Like you know when you talk talk about FFN and like the you know the beds and the TVs and the the lamps and everything like these are things that especially when you're renovating a hotel. It's 200 keys or so. It's like th those shipping costs go up dramatically and it adds a lot to the you know to the to the r inovation cost. So that's um. It's a very I guess timely observation um on on the the potential impact for you know for investors.
•  So it's interesting so obviously Elijah. We're coming up on time here but a couple last things for you because you're you're a treasure chove of knowledge. And if you're listening to this podcast you might not know this uh. But if you're watching this you you'd know like Elijah is still a young buck. I mean this guy is super. Impressive has been this fools everybody but it's just it's. It's awesome to see how much you've been able to accomplish in such a short amount of time relatively speaking right because you know. I I have guests on this show that are that are you know almost double your age and comparatively you know. It's not we. I'm not playing the comparison game here. But it's just like it's crazy how much you've been able to accomplish in so little time and so for someone who's young like a young guy. Who's who's in his early 20s. They're listening to the show or young gal who's listening to the show right. Now you know what's what's a what's a a piece of advice that you could give uh someone who's looking to get started in their investing Journey. But they they're using age. It's almost like a limiting belief yeah. Uh your age doesn't matter. You know just go and do a deal. You can read all the books you want go on. Bigger. Pockets read all the books watch. All the YouTube videos pay for a $30,000 course. None of that none of that shit's gonna matter um go and do a deal and I mentioned this earlier like real estate is more like like like running a business than doing actually like real estate. It's all about like leadership and problem solving just go do leadership and problem solving and apply it to real estate like stop focusing on learning all the lingo and all the crap involved in real estate. Just go and do a deal and you'll learn everything you need to uh to move forward. You might lose money on your first deal that's okay that's going to be your your your cost of your course. You know don't don't go spend $30,000 to learn how to do real estate. Just go buy a rental property with your buddies and you figure it out that way well. That's exactly what you did right. You you got your first investment property. I spent about two weeks uh obsessing over the uh the education before I I decided to buy something but you know it's it's that classic um. It's it's really funny because one of my um one of my first stories or like one of my like first lessons in business. I um I was a you know as you remember I was a real estate agent before I got into hotels and a wildly successful agent. I I some would say yeah. I had a good run. I had a good run and I um the first night that so I got my license uh in like the morning on like a Thursday and it was like right. It was in like the middle of December so it was like the time where holiday parties and everything were happening. So it had already chosen a brokerage to work at and the founder of The Brokerage that I worked at. First was interal real estate. They were actually acquired a few years before that by Berkshire hathway and the CEO of of Intero. The CEO of that brokerage ended up getting cherry-picked or like promoted to CEO of Home Services of America which is like the real estate division of Berkshire hatway. So he uh was a big big dog and and had a you know that had a kind of like an aura around him right. This this like real estate God right and and Gino great guy has always been um an awesome Mentor for me and when we um when I got to the party I knew who he was because he's kind of like a real estate legend in the bay and he um you know I introduced myself. You know told him like who I was what my background was and everything and um. It's funny because like he had he had taken time to like fly back here for the for the Christmas party. He he was away on business and everything he's he's no longer with in Tarot right but like he still made it out for the for the holiday party shook my hand and um he said Dan he say he didn't call me day. Dan I'm GNA give you one piece of advice. Don't let the minutia get in the way that's all he said don't let the minutia get in the way and and I was like huh said don't let the minua get in the way all right. I'll remember that right and so good advice because like you'll you'll do have to do the minutia like when the job necessitates it like when you're in a situation where you're forced to like like learn how an operating agreement works. It's like you know you'll figure it out yeah and and I sat down. So the next day I get to the office and I decide that I'm going to like Mark it to this like Community right. So I'm going to drop flyers and knock under they call it for me right in the real estate world. So I was GNA farm this area and so I get my laptop out. I'm like all right I'm in my suit and my tie and I said all right. I'm going to I'm going to get working on it. So the the whole day eight hours straight. I'm working on like Adobe Illustrator or whatever like putting together this like flyer that I'm going to drop off right second day. I get into the office keep working on the flyer and by the third the third day I get to the office and I'm like working on the flyer and and I'm like dude I've been working on this for like 2 and a half days and I hear Gino's voice in like the back of my head is like don't let the minutia get in the way don't let the minutia get in the way and I think like how am I ever going to like sell a house if I'm like trying to like play Mark like play like be a designer designer yeah exactly like I'm not a graphic designer. I'm a salesperson I got to get so I pick so I get a a little like uh for sale by owner list and I start calling all the numbers and everything and um and very first person that picks up. I kind of go through like my dialogues and stuff that I've got here. I've never made a cold call in my life by the way and I nail this guy for a listing appointment. Damn I I like I was like and so I like shaking dude. I like my put my you know I hang up the phone and my hands are sweating and uh and my lender Mo'Nique. She was sitting two doors or two deaths down. She just she stands up. She's like did you really just do that right. Now. That's great and and I I was like dude. I was like don't let the Min she get in and no I didn't close him that would have been epic that yeah that would have been a story for the for the ages. But um no that guy that guy was you know that's the thing with for sale by owners. They they take a lot of massaging and they're usually just like way especially here in the Bay Area. Like these guys anyways but uh but the moralist story is and to kind of tie it all back together to what you just said. It's like hey. You know you can spend all the time studying preparing getting ready getting set you know putting the war paint on and everything or you just go out and freaking do it right which is exactly what you just said right. Like you spent a couple weeks getting educated and stuff and then you're like what you probably had a moment right Elijah where you were like what am I doing right now yeah right like and then you just did it yeah. You just did it. You didn't let the minutia get in the way hey Elijah. It's been awesome man um so glad that you uh came back on the show and and I'm sure this won't be the last time but in traditional goldm fashion. Before I Let You Go what is one final gold nugget for the audience. Awesome I I prepared so hard for this one because I knew it was coming um. I actually developed like a like a spreadsheet for your listeners for calculating some of those metrics that I talked about earlier on the podcast and so they can go and download that or or uh open. The Google Sheets file. It's super simple to use and it's essentially like the top like four metrics that I use when I'm looking at a deal if it's like safe or not and it's at uh gold hog. Uslp calculator LP Calculator and they can go to that site and uh ENT their information and then it'll I'll I'll email you the uh the thing so yeah I love it. I love it man no that that's great and honestly the the the metrics that you talked about you know being able to calculate those and and having a simple calculator like that. That's super valuable. So I appreciate that Elijah you're awesome D of course. You know that that's uh the least I can do all right man well. Hey I appreciate you and as always you're a treasure chove of knowledge man so thanks for stopping by thanks. So much Danny appreciate it.