How to Structure a Deal with Jorge Abreu and Mo Bina
Episode 67 of the Diary of an Apartment Investor Podcast with Jorge Abreu and Mo Bina, hosted by Brian Briscoe. Transcript by Otter.ai – please forgive any errors.
Brian Briscoe 0:00
Well, Mo, we have Jorge on the line here. What do you want to ask him?
Mo Bina 0:03
How do you guys typically structure your partnerships? How do you guys typically figure out what are the splits going to be on the GP and the LP side, deal by deal,
Jorge Abreu 0:10
they're pretty different if we're bringing in a preferred equity partner or joint venture equity partner that a lot of the times we just match kind of a waterfall with the common equity. And if not, then we look at the returns that we want to bring our investors the returns that we kind of just talked about that we're targeting, and then we do like having some type of waterfall so we kind of just mess with it, it's going to be usually either a 7525 split or a 7030 split some type of pref, usually around 70%.
Brian Briscoe 0:49
Welcome to the Diary of an Apartment Investor Podcast with your host Brian Briscoe. In this podcast we bring some of the top professionals in the apartment investment field to discuss various aspects of the apartment investing journey, with the sole purpose of educating listeners to make wise investment decisions. The Diary of an Apartment Investor podcast is sponsored by Four Oaks Capital, bringing you high yield returns through apartment complex investing. This is journal entry number 67. And part of our Ask the Expert series today we have experienced investor Jorge Abreu and aspiring investor Mo Bina on the episode. Keep listening to here how to structure deals and how to estimate your capital expenses. Before we get to the episode today, I wanted to point out that we have a new website it's diary of an apartment investor calm on that website, we pop post some really really cool things like our monthly webinar series. The next one is on December 14, which is a Monday. And at this event, my partner Eric Sheree will talk about what it took to close on our recent 82 unit acquisition in Clemson, South Carolina. So go ahead, head over to the website, register for the event and you'll automatically sent a zoom link for the event. And oh, by the way, the website is going to be in the show notes as well. So all you got to do is scroll down cap and it will whisk you away to the website. And now enjoy the show. Welcome to the diamond apartment investor podcast. I'm your host Brian Briscoe with four oaks capital very excited for today's show. It's one of our Ask the Expert episodes. I've got two really great people on the line with us right now a guy with a tonne of experience in apartment investing and construction. Georgia Bray you and a very motivated aspiring investor mo Bina. So George is a Dallas based multifamily investor. He's also the owner of jnt construction, a company that helps multifamily investors with renovations he's leveraged his experience in the construction industry to jump into multifamily investing and is now a GP in 1720 doors and has LP ownership and about 1400 doors. He's actively searching to grow his business primarily in Texas in Oklahoma, and as a goal to reach 10,000 doors by the end of 2021. So well that said, George, welcome to the show. Very impressive. Thank you, Brian data to be on the show. Yeah. Now just just one question about that your goal is $10,000 by the end of 2021. Is that GP plus LP? Or is that just the GP side?
Jorge Abreu 2:57
That's just the the GP side the passive side I look at it more has these five a year and not really adore count on that but
Brian Briscoe 3:07
just five, five investments a year where where you're earning more returns, essentially? Yeah. Nice. Nice. I like that. So let's do this. Let's let's jump into your your background and history. You know, tell us a little bit about you know who George is, and walk us up until the point to where you decided that you wanted to actively invest in apartments?
Jorge Abreu 3:26
Yeah, so I'll take you probably as far back as when I started university, I was born and raised in in South Florida, Miami parents are Cuban. I went to the University to study electrical engineering. A couple years in, I realised I didn't want to be an engineer, my mother really wanted that degree. So you know, I stuck with it. But I started doing more research and you know, trying to find what I was passionate about my knew I wanted to start my own company just wasn't sure what and as I studied into other successful individuals, I kept running into real estate investing, whether that was their main driver and the way they had built their wealth, or if it was just something that they used to accelerate that or to grow it. So I really became interested in real estate started doing more and more research on it and finally ended up hiring a coach. I think by that point, I had already graduated with my degree and I was working at UPS and engineering department and started doing some deals started doing some single family investments, it was mainly wholesales and fix and flips did enough constantly where I was able to quit my w two that was maybe 15 years ago now. I really started diving into the fixing flips, and that's where I decided to open my own construction company to help scale that you know, I had trouble finding good contractors to be able to do as many as I wanted to as far as the the fix and flips so that ended up being a success. You know, it was a took a lot of work to get the systems and procedures in place for the construction company. But once we had it I mean we were doing maybe 40 to 50 50 homes a year on the fixing flips, plus some wholesales. And then I'll take you up to about four years ago where, you know, it had been 11 years now or so that I had been doing this. And I felt like I had just been grinding and grinding. And it was all very transactional from the single family homes and even the construction company. It just felt like it was from one deal to the next or one project to the next. And another job. It's not what I had, pretty much. I mean, I was working for my own companies. Yeah, you know, so at that point, I started putting in bringing in the team members that I needed to bring in to free up more of my time and started focusing more on the larger multifamily syndications, the fact that I felt like that's where I could really build the wealth and scale it, you know, quickly, not like I had with the with the single family. And that's how I kind of ended up here. You know, now I no longer touch single family investments. I'm 100% into multifamily. Same with the construction company. And we're also doing quite a bit of new development now as well. Okay. Now, are
Brian Briscoe 6:03
you actively involved in both, you know, elevate capital and the construction company business now? Absolutely. Yeah. CEO for both. Okay. So So in a nutshell, you graduate college, you start working as an engineer, because your mom wanted you to know, no disrespect intended there. I think most people at some point, follow that route. And from there, you started flipping houses, which got you out of that job. Okay. So we're now you're in Dallas right now, did all this happen in Dallas, or was this over several different different locations?
Jorge Abreu 6:35
It started in Miami and South Florida, then the recession happened, right? South Florida was hit really, really hard prices were going down daily. And I mean, at that point, it was my full time. You know, that's what I was doing. I had to figure something out. And that's when we started looking around. And a new investor that had moved to Dallas about a year or two before that met with them and saw what they were doing. And man, it was like night and day, compared to what was happening in South Florida. And you had your foreclosures and things like that, but it was in Dallas, it hadn't gotten that huge spike in value. So it wasn't that bad.
Brian Briscoe 7:08
Yeah, I mean, I was in Southern California at that time, you know, and I know Southern California and Miami were both in a tailspin. So you buy a house to try to flip it. And it's just impossible. You go on today's value and today's values different tomorrow. So so you moved to Dallas, so you're able to quickly pivot moved to Dallas, and basically continue the same business you'd established Miami. Curse in a different location. All right, yeah. Nice. Nice, nice move there. And and that was about five years ago. So you've been in Dallas since? Yep. Okay. Nice. Nice, nice. So what's, what's your big motivation for apartment buildings?
Jorge Abreu 7:44
My wise is my is my family. I mean, I've got my wife and three little girls, and I want to be able to provide for them the best life possible, I want to make sure when I leave, and I'm done with this journey, that, you know, leave them something behind and not a bunch of debt or anything like that. So that that's my why that's why I grind it out every day. And I put in as many hours as I do and whatnot.
Brian Briscoe 8:13
You know, I think that that's tied to most people's lives. You know, I've got four daughters, you know, so you understand where you're coming from a little bit. I've got a son too. But for girls and a boy, that's that's directly tied to my why. And I think it you know, coming home and seeing those those kids every day, she makes it personal. It's like, Alright, gotta gotta do this, you know, so yep. Well, good. Good for you. Let's talk about some of the deals you've done. And, you know, I'll leave it to you to decide if we're talking about one or multiple or, or what so can you give us idea of some of the multifamily deals you've put together? I've been involved with?
Jorge Abreu 8:48
Yeah, I mean, I guess I could start with one that I'm currently working on. Well, we've had it for a little bit over a year 216 units. This was in a sub market of Oklahoma. And when we purchased it, the occupancy was low 80s. market rent was we were off maybe like 150 rent bumps from from the market rent. So we came in, we transformed the exteriors. You know, we painted the brick, give it a real nice colour. We fixed up the roofs, we took care of any issues. There were some plumbing major plumbing issues. So we made the existing residents happy. Yep. And then we also started right off the bat building more of a community feel and then started working on the occupancy. So during actually during COVID we've been able to still push and execute our business plan and we've got the occupancy right around 94% now and we're getting ready to refi was a bridge loan, and we're getting ready to do a cash out refi here. Nice.
Brian Briscoe 9:49
Yeah, that's that's a good deal. I mean, 80% occupancy $150 differential between current rents and market rents. I mean a lot of meat on the bone. When you when you purchase that. So, you know, I think, you know, great acquisition a follow on question I have you have a construction company? Do you do your own construction? Or do you do hire that out? How do you work that part with the properties that you manage?
Jorge Abreu 10:13
Yeah, no, I mean, we definitely do it, our construction company comes in and handles it, you know, I've spent 12 years building the procedures and the systems and I've got the project managers that I trust. So, you know, we leverage that, versus hiring somebody that we don't know, what type of procedures they use, what their financial statuses, you know, contractor could be, could be going out of business, and, you know, they're looking at your project, like, okay, you know, this is gonna help us float our business, and then they get into that rabbit hole, and your project is the one that ends up suffering. So we avoid all that by using our construction company. And we also know, you know, we're getting, I don't wanna say, the cheapest price, but we're getting the best price for the quality of work that we're getting.
Brian Briscoe 10:57
Yeah, you know, and there's something to say about control over the process as well. I mean, you know, when you go with contractors, I mean, that's what's in the contract, obviously. But I think the way you do it, you know, you're, you're integrated and so you have a lot more control over you know, the outcome either way, so I was just curious with your your jnt being based at a Dallas and, and working in Oklahoma, I don't know how far it is between the two locations.
Jorge Abreu 11:22
Not too far. But um, yeah, we've come up, same thing, you know, come come up with good systems to mobilise and, and still be able to execute Nice,
Brian Briscoe 11:32
nice, well, Hey, good, Anya, for that one, what's next for you, and what's next for your company, which what direction you guys go in,
Jorge Abreu 11:39
you know, we've changed the criteria for the properties we're looking for now, being flexible and changing with the market. And we're going after heavy value, add deals, heavy lifts, leveraging the construction company, obviously, to come in and do the capex, like we just talked about, and now we're looking for still meat on the bone, but more cash flowing from day one and more some of that meat on the bone may be more of operations and coming in and putting some things there, you know, there's always going to be some capex and some deferred maintenance, for sure. And then as far as goals, like you mentioned, you know, 10,000 doors by the end of next year is what my original goal was, in the beginning of this year. COVID may may have slowed that down a little bit. I'm gonna have to, yeah, you know, gear up, and,
Brian Briscoe 12:26
you know, hit our goal. I mean, we're, we're a lot smaller than you as far as unit count right now. But, you know, we had a goal to acquire 500 this year and COVID smack that, you know, smacks in the face on that one. So, yeah, preaching to the choir on that one. Yeah.
Jorge Abreu 12:41
But um, you know, we, we think we're gonna have a good and last quarter. And we're gearing up to have an amazing year next year. And then I think, eventually probably bring in property management in house and keep growing, keep seeing what else we can bring in house and have more control. Like you said,
Brian Briscoe 12:59
yeah. Now the new acquisitions you're you're working on are those going to be Dallas, Oklahoma, you guys in other markets for those
Jorge Abreu 13:08
the deals that we are currently working on on acquiring it's actually two deals in South Dakota, which I know is completely random compared to Texas, in Oklahoma, but it's a market once we started doing some research and looking at the data during this pandemic has fared greatly compared to to other markets. It's got some really good things going forward. So you know, we're all about finding these these markets. Maybe not everybody knows about yet. Yep. And getting trying to get there first.
Brian Briscoe 13:38
Yeah, you know, I mean, that South Dakota is definitely one that you know, is off most people's radars. Fun fact about me, I've been to 45 of the 50 states in the country, and the Dakotas, or two of the states that I'm missing, you know, it's just, you know, I've never had a reason to get up there yet. But, you know, you bring up some good points. I mean, if you're looking at an areas, there's something to be said about areas with with a little less focus, you know, if the markets focus on one area, like when you see a top 10 report that comes out, and it says, you know, Dallas is number one, Charlotte's number two, Atlanta is number three, Houston's number for all of your operators, everyone who's who's looking at that report is going to start focusing on that top 10 list, and they're gonna be like, hey, I need to be at this top 10 list, you know, and just like it does with with the price of stocks, you know, when Motley Fool says buy, you know, those stocks just go up. But the same thing happens with real estate. So something to be said about looking where other people aren't. And I also love the point you brought up about, it's a data dip driven process, you know, you're not throwing darts at a map. You're looking at the data, you're looking at the economic outlook, and you've picked a place that, you know, has the best of both worlds. Not a lot of focus from other people, so less competition. But if the numbers are there, I think you're you're right. If the numbers are there, you're going to be ahead of the power curve.
Jorge Abreu 14:57
Yeah, I mean, it's a lot of competition especially You know, in the past three, four years, this whole upcycle it's great. A lot of competition in multifamily. I feel a lot of people, a lot of investors could be overpaying for some of these in those hotter markets for sure. Yeah. So you know, that's what gets us looking looking at other markets. And I'll give you an example. There was one point I think it was last year or the year before Jacksonville kept coming up. Right. And I kept here in Jacksonville, Jacksonville. I mean, I just stayed clear. Yeah, I heard it way too many times. I was like, This can't be good anymore. I don't know, I could be wrong. But I like coming in on a good basis. Something that I know, I can add value and won't have trouble selling it for a profit later.
Brian Briscoe 15:42
Yeah, that's really the the important part, you know, being able to add value and sell at a profit later. So and I think you're right, I think there, there's a lot of, especially in the hot markets, I mean, if there's 20 offers on the table, and you win it, you've probably overpaid, because you're offering more than 20 other people are offering you know, unless you're doing something differently and you're offering you know, maybe hard money day one maybe shorter, you know, cash purchase, you know, unless you're unless you're attacking you from a different angle, you're probably overpaying if you're winning, winning, offer that in case so and then we try to sell a couple years later, you know, maybe you can't get the same price. So yeah, good points there, good points there. Or we're gonna shift gears a little bit here, we're gonna introduce our next guest, we got Moe been on the line. Moe has been a passive investor in several property types, including multifamily Senior Living industrial office in single family throughout the United States. He also has experience in money lending and notes, and is well versed in asset protection and tax strategies as it pertains to multifamily real estate. He founded high rise capital to assist others in building generational wealth and gaining financial freedom. So that said, moe, welcome to the show.
Mo Bina 16:46
Thank you, Brian. And thank you, George. It's such a pleasure to be here today. Yeah. Hey,
Brian Briscoe 16:50
thanks for coming on the show. I really appreciate it. What do you tell us a little bit about yourself, give us your background and your history? And why obviously, why you're you're investing in multifamily. Yeah, so
Mo Bina 17:02
as you stated, you know, my background has been as a passive investor. So I've been, I've invested in ground up development, I've done value add. And I've, I've done deals in various sectors of commercial real estate, multifamily is in your housing office, and also industrial too. And so I how I got into real estate and investing in commercial real estate kind of ties into my into my two lies. So I have a financial why and I have a personal why. My financial why started years ago, actually, it started back in the last and the last great recession and the global financial crisis back in 2008 2009. That was the second time that I've kind of been burned by with a stock market crash, the first time was in the the.com, boom, you know, in the early 2000s. And so I kind of, that's after that second time, I kind of started to re evaluate all this kind of financial education that supposedly people are bombarded with throughout their lives about, you know, building this huge paper asset net stake, you know, where you invest all your money that you possibly can in the stock market and max out your 401k is, and you basically threw everything you possibly can to build this, this huge nest egg and then you go to retire one day. And now you liquidate and you sell what you what you've built, you spent many years building and you know, that volatility of the stock market and these crashes and these ups and downs and, and the lack of income, you know, ultimately at the end of the day was kind of like led me to really evaluate reevaluate, like, you know, what I was doing and what I would do with my finances and it was kind of a little around that time or shortly thereafter, I stumbled upon Robert Kiyosaki his series of books and, and so I started to really kind of like dwelve into like, taxes and asset protection and some of these other concepts because they all really tie around into into real estate. And so my financial why was Hey, you know, what, why accumulate, you know, these paper assets that you go on to liquidate when you can build, you know, real assets, real assets that will generate, you know, income or passive income for you. And at the same time, you can create generational wealth because instead of liquidating those assets, you know, those assets can be passed along. Yeah, so and then also the tax benefits that you get with real estate that you that you don't really get with a lot of these paper assets as well so so that's kind of really like my financial why and trying to just kind of separate myself as much as possible from you know, as I call it, the whole wall street casino and that whole volatility and then try and find other ways of investing my money and, and I think, around that same time was also when Bitcoin launched, and, you know, decentralised systems. And when you think about what we do, right, we all invest in each other's deals, right? We all partner to either partner together, or we invest in each other's deals, which releases is still a partnership at the end of the day. Yeah. And so I believe you'll believe in kind of like this concept of like Main Street, investing in Main Street, you know, and So in a syndicated offering, you know, which I've invested in a number of times, it's, it's basically us providing capital and investing with each other. And so that was kind of another component of kind of, like the financial Why? Yeah. And, and the personal why kind of relates also to what, you know, the two of you have mentioned about your families and providing for your children and, and also, you know, grandchildren as well to eventually. And so that's kind of like my personal why, in addition to one other component, you know, I spent most of my life growing up and living in apartments. And some of them were not in the most desirable neighbourhoods. And so I've kind of been on that other end of as a tenant living, you know, for many years in apartments where the, you know, the air conditioner didn't work. And you know, the property owner wasn't very, wasn't very concerned about sending someone over in the next few weeks, or the next month to have it fixed. Or having a laundry room where you have washer and dryers that are functional. And, you know, maybe you get only one day out of the week to wash your clothes. And that one day of the week, you go to like, you know, wash your clothes, and the dryers aren't working. And, you know, so I've been on the receiving end and kind of understood, you know, that providing like safe, clean and functional housing the people, it really, it really changes lives. And it really, really affects, you know, communities as well, too. And so that was kind of another one of my personal lives, as well as why I got into real estate and also, you know, especially multifamily investing. Yeah,
Brian Briscoe 21:27
that's a very important perspective that you have, and I love that you bring it up. I mean, there are there are so many places where a lot of the the owners or their management companies just aren't doing that. And I think that's important to be able to provide, you know, a safe, clean place for everybody to live, you know, and that's, that's crucial. I think any anybody who gets into this business needs to have that at the forefront of their minds, you know, number one concern of there should be providing safe, clean places for people to live. And understand. I mean, you bring bring that at home. I mean, I can just imagine, you know, a young mother one day to do laundry show up, and oh, my goodness, you know, I can't do it here. That just changes the whole calculus changes, you know, maybe the whole week for her. So yeah, that's a lot. I love how you bring that up. I love how that's you make that personal as to your financial Why? You know, I've been doing this podcast for, you know, three months now. And I hear the same thing over and over again, there. There's not a lot of stability in the stock market. Conventional wisdom, you know, is exactly what you said, you invest in paper, you invest in the stock market, which, quite frankly, I mean, we saw that again in March, you know, it went from Dow Jones went from just under 30,000 to 18,000, you know, lost a third of its value in a couple of days. So, yeah, that's that's part of the reason I'm in multifamily, too, is because you can invest in real assets that are going to depreciate over time, you know, that's rich dad's formula, right? So well, Mo, we have George on the line here. What do you want to ask him? Yeah, so
Mo Bina 22:58
my first question is, when you're looking at a deal, how do you estimate and I assume that when you're looking at a deal, you kind of do maybe like a first cut edit, where you're kind of just going through and doing like an initial like, Hey, does this thing have legs? Does this thing have? You know, can we take this somewhere? And assuming that that's how you kind of do like a first crack? How are you estimating like, like capex capex expenditures and how much money you're going to kind of, you know, put into the community in terms of like upgrades to the kitchens, bathrooms, and maybe like in common areas throughout? How do you estimate and come up with those types of numbers?
Jorge Abreu 23:34
Yeah, that's a great question. So I guess I kind of do the two steps. So the first one would be really, really high level, where I'm literally just going off of what the offering memorandum, or whatever it is that I have, whatever information is on there, and maybe pictures, and that would be a really, really rough estimate. And then if that looks good, then I'll start asking some questions, I get pretty detailed. And a lot of the times I'll send my list of questions to the broker, and they'll be like, we're not going to answer all of this. But you know, I try and tell them the more information the seller gives me, the more of these questions I get answered, the better my offer is going to be, you know, if I know if I know the age of these chillers, or I know exactly when the roofs were replaced, or whatever it is, then I'm going to be able to come up with a more detailed capex number. And, you know, I've got different ways of how I come up, come up with those numbers. No, that first step, it's pretty rough. And you know, if the property looks decent, not a lot of upgrades or maybe doing three to 4000 per unit. If it needs a good amount of upgrades and some deferred maintenance, then maybe I'm doing five to 6000 per unit. If it needs a lot of upgrades and a lot of deferred maintenance, then more like around 10,000 per unit. Anything above that. I mean, you're probably talking about a pretty heavy Lift or could be you're taking a B class to a B plus, and you're just using more expensive finish outs. But yeah.
Mo Bina 25:08
And since you have deals in various geographic markets, your numbers change? And if so, how much do they typically change? Like, for example, now that you're looking at some deals in South Dakota? Are you assuming those kind of same numbers as you would if you were looking in Oklahoma and Texas?
Jorge Abreu 25:24
No, I mean, we do some research the labour on the interior units, and then the materials for the interior units is not going to change much we mobilise our crews. So that labour price is not there's going to be some mobilisation fees, you know, so changed a little bit, but not drastic. And then the things that could change more are the licenced, labour like the electrician, the plumber, those kind of things. So we just got to do our research and kind of get a feel for the pricing in that area. You know, usually your West Coast and East Coast is going to be the most expensive, and then it's going to kind of vary state by state. And the other ones,
Mo Bina 26:03
you do have the luxury of having your own construction company. So that definitely helps in that regard.
Jorge Abreu 26:08
Yeah, I mean, if if somebody that didn't have that, you know, I would just say make sure to do your research in that area call, you know, call up contractors, because yeah, the pricing is going to change some.
Brian Briscoe 26:19
And we do something similar. I mean, our first first cut on any property is we take the Procrit their word, and then we keep on sharpening our pencils. And at some point, we are bringing contractors in I mean, sometimes it's before the offer, but usually definitely during the due diligence time, we're bringing the contractors in to walk the units with us. And you know, but by the time our due diligence is over, we want to have really solid estimates of work on you know, what's going on in the interiors, what's going on the exterior, so not having a construction company at your behest, you can still get that you just have to find a couple of contractors. And no, hopefully you're at some point, you're gonna have to vet those contractors as well. So, you know, figure out a good way to find out who the reputable contractors are.
Mo Bina 27:03
Yeah, another question I would like to ask is, when you're looking at a new acquisition, especially a fairly large one, like it's, if it's got, let's say, 50 units, or more, how do you typically evaluate whether or not there's the potential to maybe cut down on expenses by maybe reducing payroll? So maybe there could be situations where maybe the previous owner, maybe had like overstaffing? Or maybe was even overpaying for maybe like on site more like payroll? How do you kind of look at that and say, Hey, you know, I think this is one place where we can definitely cut down on expenses.
Jorge Abreu 27:37
Yeah, I mean, operating expenses, you know, obviously, you want to see how you can cut that down, if possible. payroll is usually one of the largest ones, right? So we, depending on if we're going to be using a third party property manager, if we're going to be we have a couple co GPS that we've done deals with, and they have their in house property management, you know, we'll get that team pretty involved. And it's not something we want to say right off the bat. Oh, yeah, we know we can we can do this for less, unless we're doing it at a property in that same market similar to that size, you know, then that's, that's a different story. But if not, we're going to count on the team that we're going to bring in to to manage it and make sure that they win on the staff, you know, some things to take into account. I mean, if you want to cut the staff, and the property's not doing good right now, yeah, it could be a poor staff. But it could also mean that they're not even staff have the proper staff. So you got to be careful with that.
Brian Briscoe 28:36
I think I think one thing that overall, he's had to keep her pulse on the market and what market expenses are, I don't know what you know, full time staff costs in Dallas, but I know full time staff costs in South Carolina, you know, I know what you can expect for one full time staff member. And like, George, were talking to the property management, who's going in there and saying, hey, this size unit, you have one down the street, what are you what are you looking at there, what's what's your recommendations, but I've definitely we I mean, you brought that example, I've definitely seen some cases on properties where the payroll was out of balance, but it's just one thing that you have to know keep, keep your pulse on the market. Another question I like to
Mo Bina 29:16
ask too, and I ga kind of touched upon this a little bit was how things change and you know what, now with regards to COVID and pandemic, and you kind of mentioned a different shift with kind of looking more on kind of like cash flowing properties, I think and So how have you like to hear like, how have you guys kind of changed maybe like your underwriting approach? Are you guys assuming maybe like rent increases? You know, in the first year, second year, are you you kind of maybe assuming no rent increases at all, maybe for the first year or two and then rent increases thereafter, especially given like the moratorium on evictions, and like to kind of hear your, your thoughts on on that and how you kind of underwriting especially in the over the next year or two when you're looking at acquiring a property for maybe a hold over like five Seven years or so?
Jorge Abreu 30:01
Yeah, we've made a lot of different adjustments. I guess the first one would be, you know, as far as our underwriting the things that we've changed on rent growth, we're not doing any rent growth first year, at least not, you know, organic rent growth. And then if we're trying to make up the market rent, we're not trying to hit the top of the market, like we may have been trying before and succeeding, we're leaving ourselves some room. And as far as projections, so you know, we're doing all our projections all five years. So financing plays a big role, and everything where you can get your debt, and the lack of good bridge loans with good terms is what kind of made us make that first adjustment, we're okay, you know, maybe let's stop focusing on these heavy lifts coming in with the bridge loan and then doing a refi. At the same thing we've been, we've been looking at some HUD loans now, which would be more of a 10 year projection, and being flexible on that and possibly holding some of these properties longer, or at least have the debt to do so you know, you can always sell and take the penalty. But yeah, those are some different things that we're exploring.
Brian Briscoe 31:06
Yeah, I like that. I mean, hood is something that we haven't gotten into yet. But my understanding is, it's the cheapest money you can get. And the longest term money you can get too. So Mo, our entry manager is very similar to what his is, you know, where we're not programming, a lot of rent increases that aren't there in the market right now. And you know, our rent escalator is flat for a couple of years. But as far as your underwriting, that's, that's the only thing we've really changed. Okay, and more more money, more cash and clothes as well.
Jorge Abreu 31:38
We're getting very exact with our expenses to like insurance and taxes. And this stuff, we're talking about payroll, like we're trying to get to use any rule of thumb kind of throwing those all the way and just saying, you know, what is it going to cost for sure, yeah.
Mo Bina 31:52
And what type of projections you guys typically kind of shoot for investor level projections on a deal.
Jorge Abreu 31:58
So we like to by the end of year one, be hitting 10% cash on cash IRR. We were trying to hit those high high teens, you know, now we're getting more to like 16%, around there. And
Brian Briscoe 32:12
our overall projections are typically mid teens. And I think that's about where the market is right now. Like, it's extremely difficult to find something that's, you know, a couple years ago, I'm still here hearing people who are selling stuff. Now, the purchase was four or five years ago. And they're getting like 20s and 30s, in their IRAs. But where the market is right now, where we are in the cycle, I think mid teens is where most people are at her. We've got time for one more. So let's hit it. Yeah, well, I
Mo Bina 32:38
got another one. So how do you how do you guys typically structure like your partnerships, and when you guys are, like kind of working out your waterfalls? And maybe we've kind of touched upon a little bit on the returns? How do you guys typically figure out like, how are you going to have like, how many hurdles? And what are the splits gonna be, you know, on the GP and the LP side, as you're kind of like going through and figuring out how that's going to be? Or do you guys maybe just have a pretty simple standard prep did you use and then it's a 7030, or 8020 split, and you kind of just don't care if you're off too much from that perhaps minor or deal by deal,
Jorge Abreu 33:12
they're pretty different. You know, it depends, if we're bringing in a preferred equity partner, or, or joint venture equity partner that a lot of the times, we just match kind of their waterfall with the common equity. And if not, then, you know, we look at the returns that we want to bring our investors the returns that we kind of just talked about that we're targeting, and then we do like having some type of waterfall, so we kind of just mess with it, it's going to be usually either a 7525 split or a 7030 split some type of pref usually around 70% and then one or two targets from there. 14% IRR, then it goes to something, something like that.
Brian Briscoe 33:52
Yeah. And our RS is also deal by deal. I will say that, you know, with some of the value add deals that don't cashflow immediately, and there's there's lots of them that fit that category. The Press don't work very well on those. But yeah, we we'd like to put in a waterfall, but it really depends on the numbers of properties spitting out, you know, we look at what the cash flow looks like over several years. And, you know, we're also paying attention to our investor base, you know, what they're looking to get out of properties. And and we're making sure that we can give them something that they'll invest in. That also makes sense for us. And that usually includes, you know, just like George said, a waterfall somewhere between you know, somewhere in the mid teens range, low to mid teens range. Well, that's that's all we got time for today. I do have one more question for each of you. And George, you go first, Where can the listeners learn more about you?
Jorge Abreu 34:47
We are constantly updating our website if they go to elevate ci g stands for commercial investment. group.com we got a bunch of content on there. They want to shoot In emails well, j o RG e George or Jorge at elevate ci g calm, I can send them. I've got a bunch of checklists like due diligence checklist questions to ask deal sponsors, and a couple more than I can send them. Okay.
Brian Briscoe 35:15
All right. And we'll have that in the show notes, email address link to the website. And we'll also mention your due diligence checklist that you promised everybody and your questions as the deal sponsor. All right, most same question for you. How can people learn more about you?
Mo Bina 35:28
Yeah, so they can, they can go to my website, it's high rise, capital calm. h II, gh, hyphen, rise ri s E, capital, Ca firstname.lastname@example.org. And I've actually put together a pretty detailed ebook as well on commercial real estate syndications. And I focus primarily on multifamily and value add strategy in my ebook, it's all the things that I wish that I knew when I first started passively investing years ago. And so I sat down it's been a few months writing it, it's it's pretty detailed and extensive. It's almost 40 pages long. But I hope it helps out a lot of other people out there, whether or not they've been passively investing for a while, or if it's something that they're that they recently encountered and just want to learn more about. And I in that ebook, I also read the chapter on macroeconomics. So I've been an avid follower of the financial markets for a couple of decades now. And so I put together a chapter about macroeconomics and zero interest rate, a negative interest rate policies, and how all these things actually affect real estate. And so, especially in light of what we've seen over the last few months with all the trillions of dollars that have been injected into the financial system, real estate is definitely one of the places that people want to make sure that they're, they're invested in so
Brian Briscoe 36:42
yes, absolutely. So it's a free ebook, and I've downloaded it before I remember looking at it, I don't remember a lot of details, but it looked really good and definitely recommend it. So high rise, capital calm, that's going to be in the show notes and check out his his new ebook. All right. Well, thanks, guys. I appreciate your time. And you know, this was a great show. I appreciate everything you've done. Thank you, Brian. Thank you, George yet, thank you guys.
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