104. Data Driven Investing with Mark Updegraff

Connect with the host:

LinkedIn: https://www.linkedin.com/in/brandon-e-jenkins/

Website: https://www.birchprosper.com/

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About the guest:

Mark Updegraff moved to Rochester, NY, in 1997 to pursue a Bachelor's from RIT. After working for NASA, Kodak, and ITT Corporation, he fully shifted to real estate in 2010, founding Wedge Redux LLC, Ward Redux LLC, and Raze Capital LLC, which rehabilitate properties in Rochester. He now oversees Updegraff Companies in managing and developing residential, commercial, and mixed-use properties, raising capital for various real estate syndications. Passionate about affordable housing and economic growth, Mark's leadership fosters a creative and productive team environment that consistently exceeds expectations.

Connect with Mark Updegraff: 

LinkedIn: https://www.linkedin.com/in/updegraff/

Website: https://razecapital.com/

E-Book: https://razecapital.com/our-guide/

Phone: 585.314.9790

Episode Highlights:

✔️ Starting small as a real estate investor 

✔️ Managing construction and renovation costs

✔️ Transition to full-time real estate investing

✔️ Benefits and challenges of vertical integration

✔️ Real estate market analysis

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Transcript

SPEAKER_01 0:00

Each one of those like little markets that I've identified is flat.

unknown 0:05

Right.

SPEAKER_01 0:05

Right. But if you've got a market like we're talking about that's inside of a hot area, we're going to lift that up and we're going to make that homogeneous with the higher area through forced appreciation.

SPEAKER_03 0:21

How successful would you be if you had the blueprint for building wealth as a real estate investor or as someone who acquires small businesses? If you want to move the needle financially in your life, then you need to understand one thing the capital stack. I'm your host, Brandon Jenkins, and this is where your journey to financial freedom begins. Hello everyone. What's up? And welcome back to the Capital Stack. I'm your host, Brandon Jenkins, and um we have a special guest for us today. So I'm super excited to introduce Mark Updograph. Hey Mark, how are you doing today? Hey, doing good. Thank you so much for bringing me on your show. Absolutely, man. Thanks for being here. Thank you so much. So Mark is CEO and founder of Updograph Group Realty, Updograph Management, and Uptograph uh Services Inc. and raise capital. So he's been busy. He is an active uh investor, broker, and operator. Um, as a broker and investor, Mark uh I'm sorry, as a broker and investor, Mark has been involved in over$200 million in real estate transactions. He has led peak producing real estate sales teams and managed a leading local boutique boutique uh brokerage. He holds two active real estate brokers licenses in the state of New York. At Raised Capital, Mark oversees due diligence and acquisitions, capital raising efforts, investor relations and asset management for his firm. And um, you know, one thing that I really like about uh the mission there is uh you guys have a stated mission to provide investors with a simple, accessible way to participate in the real estate market and generate steady long-term returns. And so simplicity and accessibility are two things that um I actually think we don't talk about enough in this business. And so with that, Mark, uh, welcome to the show. Why don't you kind of share a little bit about your background and uh some details on your journey and what got you to this point?

SPEAKER_01 2:09

Sure. I uh came up to upstate New York, Rochester, uh back in the 90s to go to RIT. I was uh kind of like a math geek, and RIT had a really amazing program that kind of blended well with my personality. You know, not only was it very science and math heavy, you know, it was a bachelor's of science degree, but it also combined some of the arts that I liked. You know, it was a technical photography degree. And, you know, we would do things like high-speed imaging, but then we'd also do like studio photography, nature photography. Uh, so I had, you know, and I had all that blended together along with like the physics and the calculus and and all that that cool stuff, matrix algebra. Um, so I did really well with it. And I wasn't like totally turned off by not having any artistic uh stuff to to do while I was in school. So I thought it was really cool. And um, after I got done with that degree, I worked in industry and coming out with a bachelor's of science, you just really don't make a ton of money. And, you know, I had this looming college debt that I had to start paying because I was now employed and I just wasn't really happy with my wages. And my wife was like, Yeah, you know, you should probably just go back and get another degree. She was going back to get her master's degree, and um, you know, she had found a program that sponsored her and she didn't have to pay for it out of pocket. So uh we looked around and we found a similar program for myself where you know I would exchange a little bit of work in the department and I'd be able to get a master's degree for free. Um, so it kind of extended the timeline that I was in school, but I thought, hey, I'm gonna have this advanced degree, I'm gonna come out, I'm gonna make more money, life will be good, and then uh, you know, I'll just work my way up the ladder. So when I came out with the master's degree, I made, you know, significantly more than I was previously, not quite double, but pretty close. And, you know, I was really excited. I started meeting all these scientists that I was working with, and they hire every year, you know, they would hire like 10 new grads from my department because it was very imaging focused. We did a lot of work for the Department of Defense. Uh, we had a lot of contracts where we were helping, you know, like one of the programs that I worked on was um looking for IEDs, right? So we would take images from planes and we'd be able to identify where the disturbed earth is, and then we could, you know, they could tell command center, hey, don't send your troops over there. There's likely a bomb, they're probably gonna get blown up. Um, so I thought that was really cool. And the gentleman that I was working with had this big lab, and you know, he had his camera in the middle of it, camera system, huge camera system, and he had written all the MATLAB code, which is a mathematical programming language for dealing with these large data sets because you know, we're doing spectral imaging, which is high dimensionality. Um, so it's a lot of math, a lot of computation. And whenever I went there, he would be alone in his lab. And I'd say, you know, this is a really important contract. You know, everybody in the the business that I worked for, you know, there's probably 3,000 people that worked out of this one location. Everybody knew that this particular program was a$500 million contract. And I found it odd that I would go down and see him and he'd be alone. And, you know, we resonated. I worked with him pretty closely. And, you know, the other, you know, because I was new grad, I could kind of go and meet other scientists. So I was really fond of him. There's a couple other scientists that I really liked. And the overall arching theme was from the scientists was like, hey, you know, management doesn't appreciate us. We have new ideas, they just kind of squash them because they're not sure if they're gonna make money. They've got this legacy technology that makes money. And, you know, if you if you really want to make more money in this industry, you've got to go into management. You can't be a scientist. And so I kind of poked into like how much they were making, and I was looking at how much I was making, and I had seen how long they had worked there and I did the math, and I'm like, okay, this is not the route that I expected. You know, spending 30 years in industry and and not really moving up the ladder as quickly as I thought was possible was really disappointing. And uh, when they said, hey, you know, if you want to make the kind of money that you're thinking, you got to go into management. So I did shadow a few different managers, and that was really just eye-opening in that a lot of those positions are just useless, worthless people that have no business even being there, and it's kind of like trying to make themselves look important, lots of meetings, lots of blah, blah, blah, blah, blah, but nothing real productive and nothing that's added to the bottom line of the company. And so I was just kind of like disheartened by all that. And you know, my mentor ended up leaving and going to Raytheon, even though he was like towards the end of his uh career, which was our number one competitor. And when he left, the contract mysteriously went to Raytheon. That's because nobody else knew what was going on, right? He was in that lab all by himself for the last 20 years working on this project. And when he left, everybody was like, Yeah, we we don't know what he was doing for the last 20 years. He was making this thing work and we were getting 500 million dollars, but he's gone and now we've lost the contract. So when they lost it, they they laid off 2,000 people uh in Rochester, all with a very similar degree to me, imaging science, right? We're all imaging scientists back out on the job market. And you know, it was the same time when everybody else was laying off in that same field, Kodak, Xerox, they're all like downsizing. Uh so I pivoted to real estate then. You know, I had already luckily amassed a small portfolio that I was self-managing. Um, I had learned a little bit about construction through that self-management process because I would typically do value add properties. And back in the beginning, I'd say, oh, you know, I'll buy it for$20,000, I'll put like 20 into it and I'll have this great rental. Well, what I learned was, you know, I bought it for 20, but instead of putting 20 into it, I put like 60 into it because my cost, my cost assumptions were really wrong. Um, so I kind of fine-tuned that over the years as I parlayed into full-time transition, you know, doing real estate full-time. Uh, when I lost to W-2, obviously I still had to pay my bills. You know, we had a mortgage, my wife wanted to start a family. Uh, so I did retail sales, right? I helped people get into houses. And not being from this area, I didn't have a really good sphere that I could tap into of like family and friends that were looking for houses. So I really focused on investors and my marketing efforts all went towards investors. And, you know, the retail sales is very cyclical. They sell a ton in the summer, spring, summer, and then the like realtors could basically go to Florida if they wanted to for six months out of the year because they're not doing any business in the winter. I was totally different. I was focused on investment properties and I had steady income all year round. And, you know, it was a little bit of grinding it out because um, you know, a lot of the units are cheap per unit, and you know, it'd be easier just to sell one million dollar house uh versus trying to sell some of these multifamilies that are you know price per units are very low. Uh the deals don't go through as often because there's a lot of a lot of things that come up during inspections. So it was a lot of work and it was uh, but it was a good learning experience. And from those investors that I was working with, I really educated myself to be a better investor. I educated myself on better underwriting, I educated myself on, you know, better um grasp on how much construction stuff costs because these guys were all professional and they did it every day. And so I could just when I was working with them as their broker, I could just pick their brain and you know, they loved it. You know, they liked seeing me kind of like try to come up in the ranks as this young investor that's just like has a couple single family houses that wants to get into you know flipping and get into wholesaling, get into uh, you know, obviously buy and hold has been my bread and butter. Uh, but that's that's kind of how I started. And I just got addicted to real estate uh at that point when I bought my first rental. And that was an easy transition when I got laid off. I was just like, well, I love real estate, I don't want to move. There's no imaging jobs, so let me just give this thing the old college try. And uh it worked out. So that's that's how I got here, and that's why I'm in real estate.

SPEAKER_03 9:42

Awesome, awesome, awesome. Really appreciate you sharing uh, you know, that that back that backstory. And there's definitely some things we can sort of um pull out of that to to dig into. Um, you know, one of the things that I definitely can appreciate is kind of coming from sort of that tech uh background. And so in my past life, I was a petroleum engineer. Um, and it sounds like um uh especially when you start to talk about MATLAB and things like that, you definitely something you probably you probably went a little bit deeper in into some uh fields than than I did. And so, but can definitely appreciate um, you know, having to make that pivot because one of the things that coming from the tech and the science background uh uh background or fields, you know, we're we're good at uh spreadsheets, right? We're good at running the numbers, but it is something different when you go and apply it, and then you find out, oh, some of these costs, you know, I need to kind of tap into, like you, like you mentioned, tapping into some of the folks maybe with a construction background or with the uh you know that that worked as contractors or property managers or what have you to sort of help kind of tighten those up. But I could definitely appreciate um that skill set because not many people have it. Um, you know, it's as it turns out, you know, spreadsheets, people people are are intimidated by them. And so so have you found in that your your background uh helped you with deal analysis and market analysis and all these things?

SPEAKER_01 10:56

Yeah, I still like to keep it simple from like a spread spreadsheet perspective. So a lot of people will bring me their underwriting models and um they can make them crazy complex, but at the end of the day, if the model doesn't work, then it's irrelevant. So I kind of I kind of focus on making my models as simple as possible and then tracking it with like actual results. That way when I fine-tune it, I can fine-tune it for a particular reason, you know, that are based on good uh market data versus assumptions that people are making and throwing into a model.

SPEAKER_03 11:28

Yeah, that that makes that makes sense, right? Because sometimes simple is simple is better. I mean, the other piece, of course, is that some people uh you know, you can build out a model that's a super complex, but then it can become a barrier. You know, it's like I mean, you end up chasing there's so many levers that you can pull the more complex your model is, and it's like, well, ultimately, which one is going to get you, you know, 70% of your answer and pull the trigger once you find it.

SPEAKER_01 11:51

If you want to make a deal happen, just have a complex model with all those levers because you can just do stuff and be like, oh yeah, it's a great deal. Move this lever, move that lever. Oh, it's it looks great. Let's let's make a buy decision. Um, so I try to have very few levers that I can really uh pull on, right? I try to keep it very, very simple.

SPEAKER_03 12:10

Absolutely, absolutely. So okay, I wanted to dig into it, right? So you have um you you launched a number of of companies, and so I wanted to understand kind of now. So are you vertically integrated or is raised capital now your primary uh focus at the moment?

SPEAKER_01 12:25

No, I still run all the companies. Uh, we're vertically integrated. So the property management arm, uh, we're managing a lot of doors, and I find that it is beneficial than having to trust another property manager. What I've learned early on is like when it comes to the blame game, nobody likes to take responsibility when something goes wrong and they like to paint point fingers. And so I found myself constantly chasing vendors and hey, what happened here? They point at this guy, I check with that guy, oh, they point over at that guy, and you're like going around in a circle for days trying to figure out who screwed up, why they screwed up, and how you're gonna not only how you're gonna rectify it, but who's gonna pay for the mistake, right? And um, by vertically integrating, you can eliminate all that, right? You can say, okay, there was a mistake, it's our company, we're gonna take ownership, we're gonna fix the problem, we're not gonna play the blame game, and we're gonna move forward stronger than we were before. Uh, so I found that it's been beneficial to have that approach versus you know, wasting all that time chasing people around trying to figure out what's going wrong, why it's going wrong, you know, because if they have something in their system, say you hire a third-party manager, right? You're subject to whoever they hire and whatever their workload is and whoever quits and all that stuff. And if you if you're doing it internally, you have you have the pulse and you know that, like, okay, this is why things are going wrong. We need to get these things sorted out versus a company that's like, oh no, it's not my fault. And and meanwhile, you find out that you know their property manager quit, they hired somebody with no experience doing that, that shouldn't really be doing it. They're placing bad tenants, and a lot of the times in property management, these things don't manifest for a year or longer, right? Because they get the tenant in there, the tenant does a bunch of damages, and now you know, a year later you find out that the unit's been trashed, you've got some bad debt, you know, they probably shouldn't even place a tenant to begin with, and you're trying to backpedal and figure out like how did this person get in there and that it's too late? You know, the damage has been done. And then even if you want to fire them and you do fire them, they've already wreaked havoc on your portfolio by having this idiot in there that really shouldn't have been in there.

SPEAKER_03 14:26

Yeah, that's right. The other thing, of course, that um unfortunately that you you might take on or absorb it, you know, with the third-party uh management is sort of their past, right? Their practices that that might not be ideal or that might be poor. And by being vertically integrated, not only can you say, okay, here we're gonna not do this blame game thing, we're gonna get to the bottom of it, but you can also capture that as a you know, as a lesson learned and sort of document it now, say, hey, we won't make this mistake going forward, you know. So it really is beneficial to do that. And so at what point though, did you did you say, you know what, okay, we need to go ahead and start our own management company? You know, was that from was that from a pain or from a uh were you uh reactive or proactive kind of thing?

SPEAKER_01 15:08

Yeah, I was proactive, you know, when I was younger and I started doing the sales, you know, my sales quickly consumed my working hours, and I knew that my hourly rate was way higher doing sales than managing property. Uh, so I knew that I needed a manager and I started shopping around for managers, and they they really didn't impress me at all. I was I was honestly scared to death to give these units up to somebody else to manage because I could see the writing on the wall in terms of like uh, you know, a lot of them will generate fees by turning units over. So they've got no incentive to get a tenant in there that's gonna stay a long time. For them, if it turns over, they make more money, right? They make more money if things get torn up. So I'm just looking at the model and I'm like, they are not aligned with me, you know. In fact, they're almost opposite. So the more they screw me, the more money they make. Uh so I was scared to give them my my units, and that's why I started the management company. And first I didn't even do it for anybody else. I started it just to solely self-manage my own properties so I could build a portfolio and having clients come through and use me as their broker uh for these, you know, they really trusted me and they really liked me and they said, look, we want we really want you to manage our properties as well. And that's when I was like, okay, well, I've got the system set up. Um, and I just kept building it out, making it more and more robust. That way we could take on other owners. I tend to err on the side of caution and that I've got a heavy payroll. So, you know, I'll have clients that'll come and say, Hey, you know, I'm bringing you X amount of units, I want a discount. I'm like, I can't give discounts out to particular owners because then I would have to offer a discounted service. I don't offer discounted service. You know, I put my name behind this, I've got a reputation in the community. So our rate is what it is. It doesn't matter if you have one unit or if you have a hundred units, everybody pays the same. And um that's worked really well for me. Most people have, you know, we'll have people that are that are frugal and they want a better deal and they say, Oh, well, I'm not gonna work with you then. You know, I've got 100 units, I'm gonna go to your competitor. We're like, fine, that's fine, but you know, you're probably gonna end up coming back to me in a year or two because you're not getting the rents that you expected, you're having more bad debt, evictions, turnovers. Um, and so, you know, I think eventually they get it, but they've got to kind of go through the ringer with a couple of these other managers before they realize like you get what you pay for in this life. And um, that's the reason that we did it. We stick with our model and we're payroll heavy. So it's not a profit center, you know, it's uh it's a thing that I established because I needed good management, not to make money. Yeah, I think good management, right?

SPEAKER_03 17:44

Yeah, gotcha, gotcha. And that makes that makes a lot of sense to me now. And so that begs the question, though, that um for the the investors who maybe came to you said, Hey, I would love for you to manage this portfolio. And then you let them know, hey, here's where here's where we sit. And they say, Well, it's too much. I'm gonna go with someone else, right? They go through pain and they come back and see you. What are some of the things that you all do that really sort of set you apart, right? That makes them say, Oh, I gotta go with you know, with with Mark and his team.

SPEAKER_01 18:08

Yeah. I would say usually if they listen to me, they they tend to go with me, right? Because I'll have a lot of investors that come on the broker side to purchase an investment property. They're typically chasing cash flow and our market, it looks great for cash flow. You know, they're saying, hey, you know, I'm seeing ROIs of like 15, 16%. Uh, that's a great market. I want to get into it. And I say, okay, well, we got to really look at your underwriting, how you're gonna underwrite it, because it's gonna vary depending on if you're buying in a class C or if you're buying in like a C plus or B minus or B plus. Uh, that underwriting model is not the same throughout. So we really have to know what we know before we make these assumptions that you're gonna make 15, 16%. And what I tell them is like, if you come up out of the C minus and you get into like the B minus, even uh you are going to have a better pro forma that's more consistent, that's more repeatable, that's less risky, and you'll make more money, you know, ultimately. And then they do the math and they look at it and they're like, no, no, no. I want to buy the C minus, I'm gonna make more money. So they they totally disregard my opinion, even though I've been in the marketplace doing this for a decade. And when they follow that route, that's the same person that is gonna be like, I want to save money by going to another manager. These are all the same people that end up getting a bad taste in their mouth about real estate and then exiting three to five years later. You know, they lick their wounds, maybe they broke even, maybe they lost a couple bucks, maybe they made a couple bucks. It depends on the market cycle that they're in. But um, ultimately they don't last. You know, three to five years, they're gone. And then you'll have the other people that come in and say, okay, I trust you, you're the expert. I'm just gonna follow your advice and you bring me the stuff that you think is best. I'll still analyze everything the same way. And if they want to say, hey, what about this? I'll be like, okay, well, you know, it looks better on paper, but the reality is you get eviction, bad debt, deferred maintenance. And then they say, okay, I'll listen to you, I'll go with you. They're not shopping for somebody else as a manager because I've already helped them avoid those pitfalls coming into the real estate market, where now they've got something that they can build for future legacy wealth and they appreciate that and they realize that, you know, had they listened to themselves or maybe listened to somebody else, they probably would have just, you know, been like these other case studies where it's like they're in and then they're out and it was just a waste of their time. So those guys typically just come over to me management. Um, you know, we've got certain things set up in our management to align ourselves with our investors, which I think is different than other managers, right? So other managers, at least in my marketplace, they'll charge anywhere from like one month to two months a leaseup fee to place a tenant, right? And so that's a huge energy uh income generating uh proportion. And you know, I get it, it takes a lot of work to place these tenants. We ratchet that back to a half month's rent. You know, we're probably break-even at best. Maybe we're just even a little bit negative on that cost because you know, we're showing to you know, our potentially 30 plus applicants, we've got all the screening, we've got the due diligence, we've got the lease signing. Uh, so we just ratchet that back to like nonprofitability to say, hey, look, we want to get you a tenant that's gonna stay because we don't want to have to take that responsibility for that discount every single year, right? You know, we're losing a little bit of money every time we have to do it. So by aligning ourselves with you, now we're getting, you know, you should see that we want to get you a long-term tenant. We want to get you somebody that's gonna stay for 10 years where we place them, they pay rents, and you know, it's no must, no fuss. They take care of the property. Uh you don't have all kinds of maintenance issues and bad debt.

SPEAKER_03 21:33

Yeah, yeah. See, that makes a lot of sense. I mean, because you have to have a good screening practices and things like that, and being able to convey that to the investor, um, uh I'd imagine is something that that's really, really um helpful. And and um what what are some of the things like is so you so you're you're are are your deals also in Rochester, the Rochester area, or you in multiple okay. So so um, you know, what are some of the things that maybe are unique, like the nuances to that market that You know, for someone who is not familiar with the area and they come in and they see that oh wow, I run a couple numbers and looks great on paper, but they're not familiar with that market, right? And so then they come and see you, and then you tell them, Hey, this is what the rate is, and then they get they get scared, someone goes to somebody else or whatever it is. What are some of the things that can really bite someone there, right? Because that's one you know, people they'll look at a market, they'll put it in a spreadsheet and they think that they know how to uh make it work, but that's just not how it works, right? What are some of the things that you're like, okay, look, you come here and you're not familiar with this area, you're gonna get bit, and here's why. What are what are the things that you kind of share with them?

SPEAKER_01 22:33

Yeah. So our market is notoriously flat. And you know, every every market over the last few years has experienced a lot of uh appreciation, increase in value. But generally speaking, if you look at Rochester historically, very, very flat, right? So I'd have before this crazy run-up, I'd have investors that bought stuff 15 years ago and then sold it for the same price 15 years later, right? Like maybe a couple thousand dollars more. Super, super flat market. And so people that get into the markets and um then they change their mind and they want to exit, you're probably gonna lose a little bit of money. And that's more likely to happen if you're gonna buy in a more speculative slash cash flow C minus area than if you bought in just like a stable blue-collar market. So uh, you know, I cut my MSA up into a lot of different segments, and I use those segments based on geography, right? So the river might be one border, an arterial street might be another border, a park might be another border. And what happens in reality when you're driving in an MSA and you're looking at things, people kind of segregate like niceness, if you will, into like little areas or like, oh yeah, it's pretty nice on this side of the park and on this side of the river and on that side of the arterial. But for some reason, you know, as soon as we cross that arterial street, now it's not a quote, safe neighborhood, even though you know they're they're a block apart. Um, so there's a lot of psychological borders. And what I've done is, and is I've been successful at this, is I'll go in and I'll figure out what people are are using as those psychological borders. I'll break up this MSA into a ton of different little shapes. You know, they might be boxes, they might be triangles, they might be, you know, have little bends based on streams, rivers, whatever. And I'll do um an overlay of gross rent multiplier and cap rate. Typically, I'll just start with gross rent multiplier. It's a real easy calculation. Um, you know, there are some nuances, which is why I might dig a little deeper into a cap rate. But what that's gonna do is it's gonna give me something to relate back to, right? So if an opportunity comes to the market, I can check it real quick, say, hey, what's its gross rent multiplier? And then I can overlay it with a map and I can say, oh, this is a good opportunity given the average gross rent multiplier for this area, or it's a bad opportunity, or it's or it's average, whatever. But what really helps is being able to see where the better areas border the not as good areas, right? So the higher gross rent multipliers bordering lower gross rent multipliers, especially if like a lower gross rent multiplier is surrounded by higher numbers, right? So let's say you've got like a four gross rent multiplier, but everywhere around it you've got like a six, it's pretty safe to say that that area has potential, right? Because most people are gonna see it as an opportunity where, hey, you know, this area might not be that great right now, but any direction that I go, it's better than where I'm at right now. It's not getting worse. So it really fundamentally has the reason to increase. And the other thing that I look for is like your price per foot, right? And in heated markets, which everybody has had over the last 10 years uh with this complete seller's market, is that the weakest buyers tend to get uh shoved out of the most popular areas because they can't compete with the strongest buyers, right? The strongest buyers dominate all those sales, and the weak buyers are like, oh man, I guess I can't buy in that area because I'm just not I'm not competitive. They still want to live in a decent area, so they tend to gravitate towards those areas that I talked about that are like lower gross rent multipliers on the border of higher gross rent multipliers. And so as they buy those products, then the the flippers and the wholesalers see that as an opportunity because there's still distressed stock in those areas and they can come in and they can buy that distressed stock, they could do a little value add and then they can make their margin on the resale. And when they do that, it's like a three to five year cycle of rinse and repeats, where now it's a popular neighborhood because you know, a few commercial people went in and said, Hey, you know, we've got all these new homeowners. Um, they're fixing up the houses. We're gonna put in a coffee shop, we're gonna put in a restaurant, we're gonna put in a bar. They become super popular because like that area wasn't that great before, and they're like the first restaurants, bars, and coffee shops to go in. So everybody patrons them, and then it becomes like a trendy place, a hip place, and you've got your 20-somethings that all want to live in that area uh because the prices are still moderately affordable. And then it just goes back up to almost full retail, uh, and the cycle repeats itself, where now all of a sudden your first-time home buyer or your uh your weak buyer can't get into that market, and they've got to find the next spot to go.

SPEAKER_03 27:12

Yeah, yeah. It's you know, I can tell you, Mark, it's very clear um in hearing that you have a clear understanding kind of of the the dynamics of of that market. It's not it almost sounds like uh uh uh you you're you're creating almost like a is that a heat map of sorts? Is that kind of what what that's like? It's a heat, okay. So is that is that a bit a bit of your imaging background kind of coming to for there? So yeah, I mean look, my thing is I I think that um I I'll say this. Um, so when when I was in Oil and Gas, we would create a heat map for different properties, right? Of of the subsurface. And we would you basically have something where you look at the map and it will show you where you have more favorable properties and where you have less favorable properties. And I have um I don't understand why more people don't adopt that in this business. And it's really cool to hear that that's what you do, because that is an excellent, excellent way of visually seeing, okay, you know, where am I more likely to have better success as an as an investor? It's it's it really for me is something that um it's interesting why we don't see that as kind of the norm, you know, because once you have that visual, you're not you're not just kind of uh, you know, you have data, saturate, you know, uh better saturation of data, you know, to say uh this is what backs my decision, as opposed to just kind of you know, word them out and it's like, no, well, what's the data telling you? So I really like to hear stuff like that. Um, it's really it's really cool that you're doing that. So and so okay, you you mentioned price per foot as well. Are you also doing uh what were you saying you're doing that on a map as well, or or is something uh or not?

SPEAKER_01 28:42

I look at yeah, so I look at all those statistics over top of like my MSA that's all split up and compartmentalized. So I think the the key to this whole philosophy is to be able to identify what blocks you're gonna outline, why you're outlining it. So you really got to actually know the neighborhoods. You can't do this from like a high level from like somebody that doesn't live in town to try to figure it out. You really have to be in the neighborhoods, driving the driving them and figuring out, okay, this is how I'm gonna to segment all these different areas. But once you have those segments, then yeah, you can overlay everything and do an average for it. So you could do an average GRM, you could do an average cap rate, you could do an average price per foot. And then that's gonna give you the metrics that you need to identify opportunities quickly, right? So when an opportunity comes, um, some sometimes the early bird gets the worm, especially as we start to go into this market shift as we go back towards a buyer's market from a seller's market. Now you're gonna want to be able to identify those opportunities quickly and be able to grab them. And um, that's what I use this for, right? So I can check any of those different metrics when something comes to market and say, okay, it's undervalued, right? My price per foot is way lower than average. So I know that I could do a value add, or my gross rent multiplier is way lower and it's gonna be an immediate, you know, home run as far as cash flow goes. Uh so yeah, I would say overlay all three of those for sure.

SPEAKER_03 30:10

Yeah, that's awesome. I I think um one thing that you mentioned as well, and I wanted to uh get your take on this. So you mentioned at one point that where if you have a gross rent multiplier where you're surrounded, uh where you have one spot where it's a low point, so it's a cold spot, and it's surrounded by hot spots. And then you could you could therefore say there's some opportunity here. Um and it given that it's a flat market, what what are your thoughts on being able to actually take advantage of that opportunity? Would there have to be some additional factor that comes into play uh outside of sort of the the the the drop uh there in that local area? Maybe some additional retail that comes in, like you mentioned, to say, okay, it makes sense to to do it or what would you do?

SPEAKER_01 30:50

No, so we're uh we're a flat market like on average, right? But if you talk about a little pocket like that, the only thing that's changing is all right. So we might our average that is flat is gonna range from like let's say$30 a foot to full retail at like 200, 250 a foot. Each one of those like little markets that I've identified is flat, right? But if you've got a market like we're talking about that's inside of a hot area, we're gonna lift that up and we're gonna make that homogeneous with the higher area through forced appreciation, right? And a lot of that will be, you know, you could simply just buy the real estate in that area and you're gonna get lifted up by the fundamentals of that because your flippers are gonna come in, your wholesalers are gonna come in, your businesses are gonna come in, and that's gonna drive change in that marketplace. And now instead of averaging at like a hundred bucks a foot, now it's averaging at like 150 a foot, and now it'll be flat, but we had to bring it up to kind of blend in with what was going on around it. Um, so you know, on average we're flat, but that's how you find those little areas that have potential. You're just kind of conforming them with the surrounding, right? Or you've got like overspill, even if it wasn't surrounded, if it was just like a linear border, you know, and like this side of the border gets super, super heated, where for whatever reason it's you know the best thing since sliced bread, everybody wants to be there. And it happens, right? It's like, oh, it's in and right now in our market, it's the Northwitten village. It's like, oh my gosh, the North Witten village, oh my gosh, everybody goes crazy, and like you're seeing prices that are just honestly stupid. Like people are just paying stupid prices for stuff where you know you could go into a beautiful suburb for less money than you could go into this city neighborhood, which you know, we have we don't have the greatest schools in the city, and so it's really hype, it's really driven by um market sentiment. And you know, you've got the delineator, and so people are paying absolutely ridiculous prices right here, and then you could come across this street and you can buy it for half price. Wow, and and you could like see one house from the other. Like this is it makes absolutely no sense. And so when you see that happening, just buy the stuff right on the other side of the Arterial Street, you're gonna be fine because the people that will ultimately be displaced from that neighborhood, can't afford that neighborhood, want to be in that neighborhood, they're gonna buy right across the street, they're not gonna care. They'll be like, I'm just gonna walk across the street and see my friends. You don't want to go like so far off the beaten path that you're like, oh, this is eventually gonna turn over. You're like you're three, four blocks deep. That's different. But if you're like two houses and you can see the other houses, by all means, take advantage of that 50% savings. Yeah, for sure.

SPEAKER_03 33:33

I've I've always found that fascinating. How there is sort of this um in some markets, there's this fine line where it's like, okay, if you stay adjacent to that, you'll get a little bit of the benefit of it. But um, if you go a little bit deeper in, and really in the grand scheme of things, not that far, but you go a little deeper in now, you start to lose the benefit of that uplift. So I just I just find that very, very fascinating. Um, yeah, yeah, uh, I wanted to ask you as well. So um, so if it's for operators who identify that, you know, I really need to um um integrate or be vertically integrated. I really need to get better handle on my costs, my operations, for whatever reason. What are some of the first steps that you will recommend uh that operator to do? Because it's not an easy thing to do. So, what would you say is some of the first things they need to consider before making that adjustment?

SPEAKER_01 34:17

You're gonna have to calculate what your critical mass is that you need to offset your overhead. So, your first job would be to go through and identify what you're personally gonna have for overhead, right? Every business is gonna be a little bit different. You might have some bricks and mortar that you need to pay for, uh, you know, payroll, who are you gonna put on payroll? What are they going to do? Uh, what does that look like realistically? How much do you have to pay somebody to do that? And then do you have enough units to support that person full-time? You know, because it's gonna be difficult to get part-time people to run a professional property management company. It's just, I would tell you, good luck, right? You know, you're not gonna be able to put together a top-tier organization using part-time laborers. So you're gonna need a few key people that come in full-time, full-time property manager. You're probably gonna want somebody in accounting. Um, maybe you could get away with part-time if you can find somebody that has a few other clients and maybe you do it contractually to start versus putting them on payroll. And then um ultimately you're gonna want some marketing stuff. And again, you could probably do that third party starting out and then internalize that that um later, but your property manager is gonna be a must. So, whatever that salary is going to be, uh, you need to add that into your overhead, add in any kind of brick and mortar costs, add in any kind of technology. So you're gonna have your your platforms that you use for your listings, you're gonna have your advertising, anything that you can't um fill back to the owner, you're gonna have to eat. That's gonna have to go into your overhead. So calculate that really, really carefully. Probably put a little bit of margin of error for things that you're not really thinking about. You know, you're gonna need errors in emissions insurance, you're gonna need whatever, you know. So have that buffer, figure that out, do the math on how many units you need, see how many units you're at right now, and then just know that that delta, if you don't have enough units, you're gonna have to subsidize that until you get to that magic number of units, right? If you already have that many units, great. You you might as well just go ahead and spin off and vertically integrate if you want to, because you've more than covered the cost. But I would tell you, most people are probably looking at a little bit of a delta to get to that magic number. In our marketplace, it's probably around, you know, depending on your exact overhead, you're probably around like 150 to 200 units that you need to have before you really are going to be uh profitable enough to over overset those uh those overhead numbers.

SPEAKER_03 36:34

Yeah, no, I think it's an excellent sort of uh uh breakdown there. And I think that one thing that's apparent in that as well is it it also sounds like it requires a bit of a mindset adjustment. So it's a it's a business, right? It's not we're not we're not talking about because that's one thing that you know I've I've heard of a lot of real estate investors who want to go that route, and so they begin to um take steps toward it, but they haven't really approached it as a true business. You know, they don't they they they started off as it's just an extension of kind of what I'm already doing. It's like, no, no, that's not the case. It's you're talking about taking on a full business now, and so um the dynamics are therefore very different, which is kind of what you went through there. The analysis is different, you know. It's not um, you know, you got you got a certain headcount personnel, you have different considerations that you just didn't have before. And so it's not just a simple, you know, bolting on of something new. It's a it's it has to come with its own organization and structure and everything else. Um yeah.

SPEAKER_01 37:25

No, so yeah, as a as a business leader, your hourly rate or your time value money, whatever whatever you want to call it, is not gonna be beneficial for you to be the manager, right? We have a lot of companies in Rochester where like the owner is the manager and they like hang their hat on that and they're like, I'm the manager and the owner of the company, you're gonna get great service. It's like, well, what happens when he wants to go to Florida? What happens when he gets older and you know, he doesn't want to work as much? Um, so for me, I would rather build a company where it has processes and procedures, and you know, when things happen, we've got something in motion to deal with it, right? If somebody puts in their two-week notice or the you know, whatever, we've got that system in place to get a new person in, get them trains, have them understand the system so we can keep operating efficiently and smoothly versus you know creating yourself a job because that's the last thing that you want to do as an investor. And let me tell you, the worst possible job you could create for yourself is the property manager. So if you're thinking that, you know, I'm gonna vertically integrate and I'm gonna be the manager, you know, that's just a headache, and that's gonna make you fall out of love with the investment side of things, and it's not it's not gonna work out. I wouldn't recommend doing that. Yeah, that's a good point.

SPEAKER_03 38:38

It's not it's not exactly a time saver, right? I mean, no, it's it's up to that. You're doing it to get a better handle on control on costs and things like that, but it's not a you don't do it to save time, right? Um, so so I'd like to get your your your thoughts kind of on, right? So you have development experiences as well, right? I think one of the things that you have a focus on is helping to sort of revitalize kind of the area there. Can you can you talk about how you got started with with that and some of the things that you've done to uh to help revitalize the Rochester market?

SPEAKER_01 39:05

Sure. So um, you know, we started with the Burr method before it became popular and known as the Burr method. Uh, but basically that's just buying something that's uh pretty deep value add, adding the value to the point where the bank thinks it's worth 125% of what you've invested into it, hence bringing your money back out. And now the secret sauce is being able to steal cash flow after you do that. So a lot of people will look at the Burr method and like, oh, I'm gonna get all my money out. That's great. But if you've sent yourself into negative territory, like what's the point? Right. So, yes, you could put that capital back to use, and it just gets harder to track your ROI when you're like robbing Peter to pay for Paul. So I like the Burr method. That's kind of how I started, um, just on the single family side and then getting into the smaller multis, and then ultimately working my way up into the larger multifamilies and doing some um redevelopment deals. And so Rochester's got a lot of housing stock, a lot of it's vacant. Um, I'm a location-centric investor, so I'm constantly looking for strategic locations, kind of like we talked about with the MSA, um, breaking it up, finding the pocket that I want to be in, and then finding a deep value add where I can come in and I can maybe reposition an asset into something that it wasn't. You know, so right now I'm doing a building downtown where we're converting an old office complex or office building into luxury apartments, you know. So that's a really fun project. Now, the cash flow is not going to be near as good as if you I just bought something in like maybe a B minus or a C plus neighborhood that had multifamily already and was just cash flowing, right? My cash flow would have been a lot higher following that model. Uh, but I really wanted to have nicer assets to balance out my portfolio instead of solely gearing towards uh C plus or or B minus and having all those um, you know, deferred maintenance issues, bad debt, evictions. Um I wanted to have a couple properties where they were class A, high rents, ease of operation, kind of set it and forget it model. And so I've done those myself, right? Where I can control the cost a little bit. I'm working as a developer, I'm also the general contractor. So I can, you know, most GCs will charge you like a 10% GC fee. You know, you can just work that into your project, you know, if you are the GC, and then you can take that savings, you'll still get credit for it at the bank level, you know, so that can help offset some of your equity requirement into the deal, acting as the GC. And you can almost do the Burr method in that same fashion where you know you're retaining your GC fee, you're retaining your developer fee, and you're pushing that back into the project total that is being underwritten with the bank when they're doing their lending.

SPEAKER_03 41:43

So that's how that's a great point, right? I mean, it's something that that really for people who are not um kind of on your side of the table, we typically wouldn't wouldn't hear much about is right getting that credit for uh in terms of the equity requirement because you are the GC, right? So you're doing the work uh that they would normally hold hold some of that back, but they don't have to, right? Because you're the guy doing the work. Um, so I think that's that that's incredible. And and yeah, so I've yeah, I've also heard that there is a lot of uh sort of repurposing um and repositioning uh opportunities there. So I'm here in the DC market and you see a lot of that as well. Uh DC is a little different because in some spots there are they're just completely tearing things down, but um, but you also see sort of this repurposing of older buildings and turning it into luxury products. Um, do you find that to be kind of more of a challenge than almost have you done some ground up work as well? And then kind of which one do you think is kind of more challenging?

SPEAKER_01 42:35

Um, so I haven't done any ground up just because our cost of current stock is so cheap that really the numbers are way more favorable in my marketplace to not do ground up. Um, so all my stuff has been repositioning existing stock and then taking that savings on all the uh structure components that I'm getting at a severe discount to what it would cost to build today. Like the building I'm converting now, it's a beautiful brick building, you know, beautiful facade. Uh, it's all concrete construction. So there's no there's no um, so my insurance costs are gonna be less because I'm not gonna have any wood framing. Um, so you know, I like I like taking the stuff and and repositioning it. If I did some ground up development, I'm sure it would be it wouldn't be in the city proper because there's too much existing that it makes more sense to reposition. I would go out into the suburbs and do like a build-to-rent community where I know I can get the higher rents. We still are really repressed on inventory for rentals. So I think the build the build-to-rent model could definitely work in Rochester. I'd I'd look into that moving forward.

SPEAKER_03 43:39

And uh so yeah, I think built build to rent is definitely an an attractive, more and more attractive market. I mean, uh uh model. You know, I was uh like a I don't know if I mentioned it in this in this conversation here, but I lived in Houston for 10 years and I know quite a few uh folks who are it really enjoying being in a build to rent community. And I know investors who uh have build to rent projects going on. So I So I definitely think that's a uh a model that makes a lot of sense for sure. So I wanted to talk really quickly um because I know we're getting kind of close, but I wanted to talk about raise capital, right? So what are some of the strategies then that you use? Because it it sounds like based on your timeline, by the time uh you launched Raised Capital, you really had a lot of results already to speak from. And um, so what are some of the strategies you use to raise or attract capital uh for that uh venture?

SPEAKER_00 44:24

Yeah.

SPEAKER_01 44:25

So I parlayed all of the marketing stuff that I learned over the last 15 years on the real estate sales side and just moved it into the capital raising side. Marketing is marketing, right? It doesn't matter what kind of widget you're trying to sell. Uh, it all starts with creating funnels and having people that come into the funnel and then working them down to eventually a sale. Uh, so I've really focused for the capital raising side. I focused on LinkedIn uh primarily because that's where you're gonna have the most eyeballs of professionals that you know understand what you're talking about and have the disposable income to be able to invest it in some kind of vehicle that's a little bit different than that they might be offered from their um their manager, from their financial manager. So um focusing on LinkedIn, focusing on marketing, right? You want to be a uh go giver, you want to add a lot of value. You don't really want to be salesy and try to pitch yourself as somebody that's selling something, right? You want to provide great content, you want to provide great value, and people will naturally come into your ecosystem to get that value. And as they do, you work them down the funnel and then you see if you can convert that into a sale. Uh so that's been the strategy, right? Um, I think it's important to pick to pick a target avatar, right? And you want to kind of like niche down until it hurts, is what they say. And the reason that you do that is so you can stand out and you can get a little bit of notoriety, right? If I was just talking about, you know, real estate investing or or passive investing or whatever, I'd be lost in a sea of millions of other people that are talking about it. But if I can niche myself down and I can talk to one specific avatar, and for me, it's active investors, right? Because I've got all this experience being an active investor, being in the trenches, uh figuring out deals, sourcing deals, buying deals, closing deals, managing them, uh, that I can provide a lot of value to active investors. And that's kind of my platform, right? So I want to give back to those guys, give them tips and tricks and and all kinds of cool content. But I'm not I'm not only going to use active investors right in my my funnel. I'll get other people into that funnel that just organically kind of come in and they see what I'm doing, and then I can still convert that into an investor, even if they aren't a quote active investor. But having that avatar is gonna give me some notoriety that'll bring me up from the sea of a million other people that are trying to raise capital.

SPEAKER_03 46:48

Yeah, I love it. I mean, I look, I I think that's that's the perfect approach. I really, I really like what kind of link what LinkedIn has sort of morphed into because used to used to be a platform where you go and you go hunting for a job, you find one, and you you're never on LinkedIn again. I really love that it's turned into something where you can really establish uh authority, credibility, you know, a following. You can put information out on it now, you can add value directly to people, you know. That's something that I share with my clients as well. It's like, listen, um, you know, you you want to make sure that you have the right exposure that you're going where your people are. I love that you said niche down until it until it hurts, because I think that's correct. It's it's the difference between speaking in a room where there's nobody because you're trying to, you know, speak to everybody, right? A person who who speaks with uh I forgot what how the quote goes, something about if you're speaking to everyone, it's like speaking to no one or something to that effect. But you're speaking in a room that's that's empty versus having a room filled with people who you're serving. And so if you knee down and you say, This is who I want to talk to, they're gonna show up, you know, versus having this message that's where you're trying to say, Hey, this is for everyone. It just never works. And so I love that you're you're driving straight toward the person who you want to serve, you're giving them value because they get a nice short win out of out of whatever the exchange is, which it adds up into a longer term win. They reach out to you and say, Hey, listen, Mark, I'm I'm ready, you know. So um, yeah, I just think I think that's that's the way to go. I I love that that's kind of the the approach that you've um taken. You've got 9,000 followers on LinkedIn, which I think I think it's incredible, man. So yeah, so really good stuff, really good stuff.

SPEAKER_01 48:14

Um, which you really the should get focused on how many followers you have, right? I I did early on, I was like, Oh, I gotta build that follower base, but you really want engagement on LinkedIn, it rewards engagement. So if you're getting all these people to follow you and they're not really engaging because they're just following you to build their their follower count or whatever, whatever reason they are, that's not gonna help you, right? So I think people can be more effective with smaller audiences if they have the right audience, right? So, really, um, if you're just starting out, you know, I would be more focused instead of like, oh, I got 9,000 followers to have I have the right 200 followers because you're gonna do way better with the right 200 followers than you are with like 9,000 followers. You're not really sure if they're if they're even the right people to be listening to you, you know, they're not in that that avatar.

SPEAKER_03 49:00

Yeah, yeah, absolutely. Focusing on engagement is the key. Yeah, absolutely. Well, so um, Mark, listen, this has been an awesome, awesome conversation, man. We're getting to the actionable tip portion of the show. Um, so someone's been listening to this and they they haven't invested, they want to invest for you know and get some passive income coming in, but they haven't yet. Um, what's something that they can do to sort of take action today that will push them and say, okay, I need to I need to get started?

SPEAKER_01 49:23

If they want to get started on the passive side, you know, it's probably tough right now because there's a lot of options where you can just place your money in in really safe vehicles, money market, and and get a pretty decent return. Uh and the passive investments, you know, I think people are kind of on the fence as to like, you know, the sellers haven't really capitulated to what the pricing needs to be. And so if people are striking deals, are they striking the best deals? You know, if you're pretty sophisticated and savvy, yeah, you should be able to find opportunities. But for like your newbie that wants to get into passive investing, I'd probably tread a little lightly. I would really uh focus on vetting people and networking before I pulled the trigger. So I'd want to meet a bunch of different passive investors. Uh, ask who that who do they invest with? What operators do they choose? What how do they source their operators? How long have they known their operators? Do they recommend them? Um, and so start with other passive investors, figure out what operators they like, and then start vetting those operators. I think that's gonna give you a leg up because you've already, you know, you've found people that have been there, done that, that have weeded out some of the bad operators and have identified some of the of the better operators. Uh, you're gonna want people that have gone full circle, right? So when you're talking to your passive investors that you're you're building a little networking group, figure out, you know, how many of their operators have gone full cycle, uh, what does their full cycle look like? How how long is it? Uh, what kind of assets do they invest in? Do they change that model? Are they pretty consistent? Like, are they self-storage? I'm always self-storage, or they like, oh, I do self-storage, I do multifamily, I do industrial. Um, so I really just start that way. Get the passive investors, get friendly with them, um, become friends with them, maybe create like a little networking group or whatever, and see if you can get them to give you some insight into their operators.

SPEAKER_03 51:06

I love it. That's excellent, excellent advice. Um, so Mark, for the people who are listening to the show and they they like what they're hearing, they want to reach out to you and hear more about you. How can they do so?

SPEAKER_01 51:15

Sure. Uh, my cell is 585-314-9790, 585-314-9790. Shoot me a text message. My emails get so uh crowded, sometimes I'll miss them, but I definitely sell my text. I'll get right back to you with the calendarly link. Uh you can hit me up on LinkedIn, obviously. And my website is raise capital, R-A-Z-E-Capital.com. If they go to forward slash ebook, I did publish a nice uh book on capital raising, marketing for marketing for capital raising specifically. So if they want to learn how to market for capital raising, that that free resources them at uh forward slash ebook.

SPEAKER_03 51:55

All right, all right. I will include that in the show notes. And once again, Mark, look, awesome conversation, man. Really appreciate the value that you added, um, both for myself and for the listeners. And I thank you so much for uh for being on the show. Hey, thank you so much.

SPEAKER_01 52:08

Look looking forward to hearing it when it comes out.

SPEAKER_03 52:10

Yep. As always, thank you so much for tuning in to the show today, brought to you by Bridge Prosper. If you enjoyed today's episode and you'd like to learn more about commercial real estate investing, please like, subscribe, and share. And we'll see you again next week. I'm Brandon Jenkins, and this is the Capital Stack, where we help you learn, apply, and prosper.