Episode Transcript
Speaker 0 00:00:00 Hey everybody. You're kicking it with the homeboys and the Homeboys podcast where we talk everything In the world of real estate investing, whether you're just getting started or a seasoned vet, we're gonna give you over 40 years of combined real estate experience to help you on your investing journey. Today, we've got a very exciting topic, and it's one that comes up all the time. Bald tie family. Is it something that you can get into? Is it something that you should stay away from? How do you get into it? Everybody wants to know. And my man and partner in crime, Mr. Scotty Adams is here to break it down. How are you, brother?
Speaker 1 00:00:39 I'm great. I love this topic because you and I love our multi-family buildings that we own.
Speaker 0 00:00:45 We do
Speaker 1 00:00:46 Get asked about this a lot and, um, the, the, the que the answers have changed, uh, over the last 10 years. Multi-family used to be really to get good, effective multi-family. It was for the big time investors. It was hard for the single and individual investors and, and small time investors.
Speaker 0 00:01:04 I think it's important to kind of give some perspective on that because, you know, you and I used to be on a speaking circuit that we would speak at a lot of real estate conferences and, you know, we would talk about, um, single family investment opportunities. And it seemed like we would get the same question every single time. We'd walk off the stage, people would come up to us and say what
Speaker 1 00:01:27 They would say, do you have any multi-family? Do you have any multi-family?
Speaker 0 00:01:30 A lot of times it was, do you have any duplexes? Yeah,
Speaker 1 00:01:32 Duplexes.
Speaker 0 00:01:33 You know, and, and it was, our thoughts were a little different on that. So let's start with the bad. Yeah. Let's start, let's easy, you know, we can, let's start with, let's be pessimistic. Then we can close out our day with a level of optimism. Just so everyone knows that there's something positive coming at the end of this. Let's, let's, let's just start, uh,
Speaker 1 00:01:53 Let's throw some negativity. So there, there's there. Don't worry, there is a silver lining at the end of this, but the, the truth is that 95% of the multi-family stuff that is achievable and reachable for a typical investor is garbage. Garbage.
Speaker 0 00:02:09 I think a lot of people have a hard time grasping that because it's easy to find a 1940s duplex, um, that, you know, you could run your numbers to have a proforma and the returns look great on it, but there's so much more to that, um, than just that, that proforma. You know what I tell a lot of in investors when it comes to some of the, um, existing multi-family, a lot of the cases, you got one or two things. You got investors that have got great ones and they keep 'em really close to the chest and they're not getting rid of them. And then you've got turd boxes that people just, they, it's like a hot potato, you know, every a couple of years someone's selling 'em because nobody can, nobody can make it work.
Speaker 1 00:02:55 Yeah. And it's, this is really market dependent in some ways, but, but these, this applies across the country to many different markets where the good properties, the, the smart investors hold onto them. And the only properties that are being sold out there are the hot potatoes that you don't wanna be the ones stuck with. So some markets are better than others for multi-family, but just overall, these, these rules apply across the board. You know, you have to avoid, um, most of what you see out there in multi-family. And in fact, we would tell clients for many years just to stay away from it. Um, totally because the failure rate is too high. The screening is too difficult. The possibilities of failure just aren't worth the risk, the added risk to try to chase a little higher returns. But in the last 10 years, some neat things have happened. I think enough people have asked about multi-family to enough smart people and enough smart people have started to solve it and make properties that can work for the small time investor, some multi-family, uh, some business models that allow the smaller investor, the mom and pop the man and woman listening to this podcast be able to buy into multi-family interesting stuff out there in the market.
Speaker 0 00:04:08 There is, and it's something that, you know, we had a, we had a big run up in real estate, obviously over the last, over the last decade. And, you know, we've gotten to a point where there are some new opportunities for people to get into, to newer stuff. And I think that that's what's got us most excited because, you know, I gave the example of the 1940s duplex that everyone was after that read in a book that, you know, going out and finding your first property as a duplex and, um, you know, that property's gonna have a lot of things that go wrong, goes wrong, goes wrong with it. Excuse me. You know, I say 1940s cuz I'm, I'm talking about my experience here within Indianapolis. That's a lot of what you see. It is 1940s, fifties, sometimes into the sixties, you know, duplexes that, that you see, um, kind of all over the city and it's so stinking hard to make those things work.
Speaker 0 00:05:06 I mean, your your, your turnover is higher. Your maintenance is higher because it's, um, you know, it's, uh, it's a much older building with older materials, whether it be gal galvanized plumbing or, you know, wood siding. It could be a number of different things. But then also, you know, you see it with, uh, utilities. You know, we've had some short form content where we've got burnt on utilities because there's only one, you know, uh, water meter for, for, for a place. And, you know, that exists some in, in newer as well. But I mean, I think it's important to, to just really drive home, man some of that older multi-family. It is hard to make it work.
Speaker 1 00:05:45 You know, we, we are very good at analyzing properties. It's something that's allowed us to have success in our careers is we take that seriously, the ability to really analyze a property and, uh, see, see what kind of returns we'll get. And even with our skills, I would say nine out of the 10, uh, nine out of every 10 multi-family you and I have bought in our careers have been dogs. So,
Speaker 0 00:06:07 Oh, just think of the, a couple of them that I've had. I know, I know. It hasn't been that long ago that, you know, I've got rid of them and you know exactly which ones I'm talking about. Yeah. A couple of them in phenomenal areas, but literally, I mean, it was just the biggest cash sucker. Right. You know, I mean, it was just every year it was negative and you look at it, you know, the, the area that it's in, the rent that it brought in. Like, I mean, how can you not be successful with it? It's,
Speaker 1 00:06:34 I bought a house. I bought a, uh, duplex on Oriental here in, in Indianapolis, which is now a great area. At the time it wasn't,
Speaker 0 00:06:41 It was pretty bad. And now it's, now it's amazing.
Speaker 1 00:06:43 I'll never forget these numbers. Mm-hmm. I bought it for $1,500 at the Sheriff's office. 15. Remember those days?
Speaker 0 00:06:48 Hundred dollars.
Speaker 1 00:06:49 I remember those days. Do you know how much the rent was from both sides of that 1500? Mm-hmm. <affirmative>. How could you lose? I still lost money on that. I lost money on a house that one month of rent would pay for.
Speaker 0 00:07:02 Say those numbers again. Say those numbers again.
Speaker 1 00:07:04 I bought a house for $1,500, $1,500. The entire duplex, two sides. And it was bringing in, I think it was seven 50 a month in rent, so it mm-hmm. <affirmative> one month rent, and you got all your investment back and I still
Speaker 0 00:07:19 Lost money. People wanted achieve the 1% rule. That's the 100% rule rule, you know, it's the 100%. You know, it's like, I mean, yeah. The reason why I'm, I'm, I'm laughing and getting a little loud about this is because I know the, I know why it failed, right. But I'm sure there's a lot of listeners like, yeah, how could you buy a house for 1500, have 1500 in rents and
Speaker 1 00:07:39 No one, no one would pay the rent. They would have to evict them. Then I'd have to go in rehab the property, put a bunch of money into it with new carpet, you know, new paint, all of that. I'd get a new tenant and they wouldn't never pay, and then I'd have to evict them. Then I'd have to go back in and fix it up. The
Speaker 0 00:07:54 Cycle of death,
Speaker 1 00:07:56 The cycle of death is, is happening in duplexes and quadplexes. But we don't wanna scare you all the way away. No. First of all, there's a lot of markets where multi-family can work just period. Um, it's not, most of the cash flow markets that we believe in long-term investing in don't have great multi-family. Um, it's typically in larger, uh, larger urban areas where they work, which isn't really our, uh, bread and butter. We believe in boring and sure. That usually precludes us from looking at too many of those. However, there's a solution. There's some great for some great forward thinking people out there. Uh, there's a company like Fig is an example, fig.us. So they're a company that builds plexes all across the country, and they build these wonderful multi-families that are brand new construction at affordable prices. And instead of it being one giant complex that, uh, some rich, uh, company or a rich guy owns all of them, no, it's all individual owners. All the, all the town homes look exactly the same
Speaker 0 00:08:59 And amazing
Speaker 1 00:09:00 And amazing, you know, it's, and individual owners own each building. It's, it's a really neat concept. It's a way for the average person to get in on what the big money people are doing. The hedge funds are doing this, and it's a way that a small time investor can get into good multi-family in good areas. And guess what we are doing? We're building them.
Speaker 0 00:09:23 Yes, we are. It's very exciting. You know, we, we kind of fell in love with that FIG model, um, and, you know, we were doing some, uh, multi-family on our own anyway, you know, we've built, uh, several large apartment buildings, a few other, um, multi-family, you know, uh, duplex projects, different
Speaker 1 00:09:41 Things mostly for us, for us to hold, but we also have some duplexes going that we build and sell to clients, smaller projects.
Speaker 0 00:09:47 But yeah, we started working with the municipality that, um, you know, we came across some land and, uh, we actually, you know, would looked into that, that, that that model with that particular company and just thought, you know, what a fit. And I don't know, I think it'd be for our listeners, go go to fourplex investment groups website. That's the, you know, FIG is an acronym for Fourplex Investment Group.
Speaker 1 00:10:12 I think it's fig.us. Is
Speaker 0 00:10:14 It okay? Is their okay, you know, go, go check it out. Like their, their communities are just absolutely beautiful. Like, it's just amazing what the product that they've, that they've put out, they're so unique. Um, you know, just great rental, uh, you know, product. I mean, it meets that, you know, that rental demand, it's great for individual owners to get in on it. It's, you know, like you said, it's not some giant company mm-hmm. <affirmative>, um, you know, that that's coming into a community. But yeah, I mean, you're, you, the people that are investing in those products are buying a brand new building under warranty. Um, you know, and part of this amazing complex, you know, that cash flows and you know, people, you know, I hate to keep going back to the 1940s, you know, duplex. It's like, oh yeah, but on paper, you know, my return is so much better with this 1940s duplex. It ain't real. Get over it. That the product just doesn't work. You know, there's so many times where there's proforma side by side that less cash flow is better than more cash flow. You know, if you had, uh, you know, a, uh, a fourplex, a new fourplex, you know, next to one of these, you know, older multi-families, the older multi-family, the Proform was gonna dominate it.
Speaker 1 00:11:39 Yeah. It's not real.
Speaker 0 00:11:40 It's not
Speaker 1 00:11:41 Real. It's not real. And so, you know, we, we've always believed in really conservative investing, boring investing with, we're not chasing the highest cash flow numbers that we can possibly, possibly find. Instead, we want security in a stable market with a long-term outlook, with a little bit of appreciation that we can also capture. And just the boring setting it and forgetting it and making that money, letting a tenant pay off our asset for us so that we own it free and clear where someone else paid for that, that property for you. That's the beauty of real estate. There's no reason to go out and try to chase returns in risky product when the, the real thing performs so amazing.
Speaker 0 00:12:24 I think, I think, you know, that, that there's a, there's a lot of people that, you know, would struggle to, to, to take the plunge on a, on a large, you know, on a fourplex like that brand new. But yo, I challenge people, you know, if they're wanting to get into multi-family before you go buy, um, an older existing multi-family, go find a lot, you know, build it yourself.
Speaker 1 00:12:48 Yeah. Well, that's funny you say that. Build it about 15 years ago, I don't know why I ran into, we were, we were driving separately and you said, Hey, I've got this old client friend of mine mm-hmm. <affirmative>, he's just a friend. You weren't helping him with the bill. No, but he bought a
Speaker 0 00:13:03 Couple, I did some, I, we did some management
Speaker 1 00:13:04 For him. Okay. Is that what it was?
Speaker 0 00:13:06 Not on that particular thing then.
Speaker 1 00:13:07 Yeah. But we just stopped by to see what he was doing. And I remember being so impressed and so amazed. The dude bought a couple of infill lots in an old neighborhood. I'm talking, the houses were built in 1920 through 1955 in that neighborhood. Mm-hmm. <affirmative>. He bought some infill lots and built some duplexes in there and they, they crushed it
Speaker 0 00:13:25 For me. Oh. Phenomenal investment. Crushed it. Phenomenal.
Speaker 1 00:13:28 But again, this isn't the older garbage junk people are pitching out there on paper. So, you know, first of all, Clint and I are keeping a lot of the stuff we're building. We're keeping some of the duplexes that we've talked about before that we're we selling to clients. We're keeping a few of those. Um, we're gonna keep a bunch of these fourplexes that we're gonna be building and we partnered with Fig. There's a few companies out there that do kind of similar. It's becoming more and more popular, um, to get individuals to be able to buy into kind of bigger projects and own their own building within that project. But we're gonna hold a bunch of these ourselves long term because we love them. Um, so I don't, I didn't mean for this to turn into it, the sales commercial. Oh yeah. But, but at the end of the day, we're real proud of those and
Speaker 0 00:14:11 Well, there's plenty of other people out there that do that. Yeah. You know, other than us. So, I mean,
Speaker 1 00:14:15 You know, it's a look around.
Speaker 0 00:14:17 If it's not for you then, you know, it's, it's, it's, it's not for you. But, you know, I I, uh, I also wanna throw caution to people that, that do go out and, you know, say that they're gonna build their own, you know, you, you make sure that, that you're, you've got a reputable, you know, builder, you know, going into it. I mean, anyone can go to Google today and, and type in duplex, you know, house plans. You know, you can have a duplex house plan for $800 and, you know, right off into the sunset and build the sucker right away. But, you know, you gotta make sure that you've got a reputable builder that's not gonna run off with your money. There's a lot of risk that goes into, um, you know, getting in bed with, uh, with a contractor. I mean, it's a, it's a marriage and you gotta make sure that you got the right, right person to do it.
Speaker 1 00:15:04 But, uh, but that's only the second most important part. The first most important part is as, as every realtor will tell you, location, location, location. For sure. So, just cuz you can buy plans for a duplex and stick it somewhere, it doesn't mean that it's gonna gonna work for you either. So, you know, I, that's a great point. You know, I encourage people to go out and do the, we encourage people to go do this on your own, you know?
Speaker 0 00:15:22 Yeah. There's lots that you couldn't give me $5,000 to own.
Speaker 1 00:15:25 Correct. You know, but be careful with those two things. A location, just don't go out there throwing this stuff up anywhere. B you gotta work with the right contractors. But yeah, you could do this on your own. And, uh, we encourage people to do it if they got the skills and the ability and the time, go build it. But if you don't, there's a lot of cool companies out there, um, not just ours, but others that offer new build, multi-family that we truly believe is the way to go for anyone that wants to get into multifamily or anyone that has single family and is ready to take that next step up. There's a lot of benefits to it too, that for an individual buyer you can get 10 Fannie Mae loans. That's what you're capped at. And the beauty is each time you buy a multifamily, that's only one of your loans. So it's a way to get more doors with your 10 loans, you know. So if you bought 10 fourplexes with your 10 Fannie Mae loans, you'd have 40 doors. 40 of 40,
Speaker 0 00:16:19 Another great
Speaker 1 00:16:20 Point. 40 units instead of 10 units. So it's a great way to really, uh, turbocharge your portfolio is to, to get into the multi-family. But again, you've gotta be so careful that old stuff, just try to stay away from it. There's a reason we haven't offered it to our clients in years. We, there might be one a year at most, at most that we'll have that we could stand behind
Speaker 0 00:16:44 And just got one yesterday, believe it or not. Oh, really Good. A good friend of mine, um, Ken, um, he, uh, he called and he's got, um, a great duplex over just, uh, east of here and it's, you know, 1200 aside. And it's great. I mean, I, I say that, you know, because it does exist. Yeah. You know, it does exist out there. We're gonna manage it for Ken and, you know, we're awesome. Honored to honored to, to work for such a great guy.
Speaker 1 00:17:10 But it's very rare.
Speaker 0 00:17:11 I mean, it is rare. It is rare. I'm just trying not to be, you know, sometimes we get to be old fuddy duddies on here and you know, we're just shooting everything down and, you know, you know, no, there people thinks, oh, we're pe but I, but we've lived it. You know,
Speaker 1 00:17:25 I I said 95% of them don't work. There's 5% that do. There are, there is 5% that do. It's not worth it to try to find that 5%, in my opinion. Um, it's too risky cuz you're gonna end up with one in the 95% accidentally a lot of the time that are, are bad. But, you know, multi-family, it's understandable why it's attractive to so many people. It's amazing how it is finally really accessible to the average person instead of just these giant conglomerates and, uh, big hedge funds and super rich people. Now, the normal average investor can go out and own their own piece of an apartment complex through FIG and many others like them and, and through us and what we do. It's neat that that's now a product that's out there. And I'm, I'm, I I think it's what people should look at.
Speaker 1 00:18:13 If you are interested in multi-family, no matter where you are. That's the other part. A lot of this can work in many states, whereas individual, existing, single-family homes, they don't work in every market where this mul, these multi-family projects, a lot of 'em can work in different mult, uh, different market conditions than what the typical, uh, cash flowing, uh, residential real estate single family house could do. So it opens up a lot of more options. So if that's something that, uh, that people, you know, have had a dream about and wanted to do, now's the chance. It's coming back out there, you know, it's all over the country. Keep your eyes open. Take a look at it. I think you'll be impressed. Like we are.
Speaker 0 00:18:51 I'm big on it right now. Hey, you know, you, you said that we were keeping a lot that we're doing. Um, and I think both of us are more like swinging our our minds to let's just keep the whole darn thing. Now we have, we have, we have some, uh, commitments out there and some invest investors that are wanting to get in, but I'm wanting to, to hold onto as much as I possibly can. I
Speaker 1 00:19:14 Know it's, it's, it's tempting to talk to our bank and say, Hey, we're gonna, we're gonna pivot and just finance the whole thing for, you know, for a a 20 year hold. And then we'll, we'll put it over on a, on a FHA, or I'm sorry, a, uh, hud you know, loan mm-hmm. <affirmative>, uh, once we're done with the construction and it's stabilized, which takes us, takes us about two years to stabilize a neighborhood and then move it to a hud. But, you know, this 28 million project we're doing, I don't wanna get too greedy. We got a lot of clients that we've already committed that they want some of them. But the truth is, yeah, I mean, I, I ha I have to admit it. I want to keep every single one of these. I don't care if I make money on the project, I'd rather keep a bunch of these instead. So
Speaker 0 00:19:55 A lot of people say, oh yeah, but if you do that, then you gotta wait 15 years before you, uh, reap the rewards from it.
Speaker 1 00:20:02 Well, I mean, you're gonna make money along the way, but at the end of the day, I'm all about building wealth and so are you and Somos to our clients. It's not about, I mean, I like making money now too. That's great. But this is about true wealth building. Generational wealth building. And
Speaker 0 00:20:17 I think people, you know, I, you know, one of my biggest, uh, things that I could throw out there for, for real estate advice is, you know, check your greed at the door. You know, think of all the people that we know in real estate, um, just around, let's just say our market here in central Indiana, you know, and the successful ones. How many of 'em are greedy?
Speaker 1 00:20:39 None.
Speaker 0 00:20:40 Zero.
Speaker 1 00:20:41 None.
Speaker 0 00:20:42 And we've had a guy in the office just a couple of weeks ago, you know, came in and, you know, jeans that he'd owned for 10 years and a hooded sweatshirt. You never know. None. You know, I've got, I've got lunch, uh, with, with one tomorrow that, uh, you know, we could buy out the whole restaurant 10 times over, you know, not greedy. You know, there's a recipe that people need to get on board with, you know, with when it comes to that, you know, humbling yourself not being greedy. You know, I I I've seen it long-term, too many, too many times where that is the mold for successful real estate investors. Yeah.
Speaker 1 00:21:17 I, I'd like to, I'd like to brag on ourselves. That's our, that's our point of view. You know, we, we live very modest, simple lives. We believe in holding real estate for long-term gains. We don't, you know, we're, we're not about the flash. And it, I learned that from a couple of mentors watching them who showed me that path. And as you know, a couple of them, you know, 30 million people and you wouldn't think that they could get a seat at Bob Evans when they walked in there. You know, that waitress wouldn't think that they could pay the bill. But, um, yeah. So hey, look at multi-family now. It's finally opening up to the average person. Single family's still a great place to start, but finally it's attainable to own more commercial sized, uh, properties for an in individual investor. So check that out. Stay humble, stay hungry.
Speaker 0 00:22:05 Hey, man. Well said buddy. Well said. Well, that's our show. If you've made it this far, we'd really appreciate it. If you would leave us review on Spotify or Apple Podcasts, it really helps us to grow our podcasts and reach as many people as we can to help them understand the world of real estate investing. You can also find some short form content on TikTok. Our TikTok is at the Homeboys podcast.
Speaker 1 00:22:31 We're blowing up on TikTok.
Speaker 0 00:22:33 Oh yeah, baby. There you can learn even more about the power of real estate. Tell next time homies happy investing.
