110. Optimize Operations to Maximize Profits with Steve Sherman

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:
Steve Sherman has been a real estate professional since 2008, initially owning and managing a single-family rental portfolio in Northern Virginia from 2008 to 2019. With over 18 years of experience as a senior project manager in construction, Steve specializes in large, complex government and transit projects. He holds a BS degree in Business Management from Radford University and is an active member of Brad Sumrok’s Personal Mentoring Group since 2019, as well as the Investor Fuel Mastermind. Currently, Steve serves as a General Partner and CapEx/Asset Manager in real estate investments, leveraging his extensive expertise in project management and asset optimization.


Connect with Steve Sherman:
Instagram: @sherman_multifamily
Website: www.shermanmultifamily.com
Facebook: https://www.facebook.com/steve.sherman.904108


Episode Highlights:
✔️Emphasizing operations and CAPEX
✔️From property management to syndication
✔️Underwriting, budget management, and contract negotiation 
✔️Managing and mitigating risks in a deal
✔️Geographic and property type diversification


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Transcript

SPEAKER_01 0:00

Right. So your business plan before closing may not be what it ends up being. I think you gotta have you gotta have the the vision to see once you start something, you don't have to go all in on that if you see it's not working or maybe the ROI isn't there. So you have to do a pivot and you gotta get into something different.

SPEAKER_00 0:22

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. Hey, what's up, everyone? Welcome back to the Capital Stack. I'm your host, Brandon Jenkins. Um, you know, we uh talk quite a bit on this show about the various pieces to the puzzle as far as the syndication team goes and sort of the knowledge that we need to have in order to have a successful um deal, a successful uh operation, successful syndication, okay, so where to where our investors um, you know, we get some good returns for our investors and we kind of build that confidence over time in our ability to manage an asset, okay, efficiently. One of the most important pieces of that puzzle is understanding the capex, understanding the construction work, understanding real operations. Okay, and I have found that there are not very many uh syndicators that have that background. And so um, we are fortunate today to have someone who has that background, an extensive background, of understanding kind of where the rubber meets the road or where the hammer meets the nail and getting down into okay, where are the capex dollars being spent and how, you know, what comes it as far as budgeting and planning and all these things that are so important to this business. So our guest today is Steve Sherman. Steve, how are you doing today, man? Great, Brandon.

SPEAKER_01 1:50

Thank you for having me on.

SPEAKER_00 1:51

Absolutely. Thanks for being here, man. So Steve is the president of Sherman Multifamily, a firm specializing in the acquisition and operation of large multifamily assets. In fact, his portfolio uh history includes over 1,900 units. So very impressive. Steve has been in the real estate business since 2008. Interesting time to be in the business and brings his experience as a professional property manager to the projects where he invests as a syndicator. And so, um, you know, Steve, with that, man, welcome to the show. And I kind of, you know, want to get uh, you know, into this uh this this uh this business and kind of your side and and where your journey has taken you. But before we kind of get into the details, why don't you share just a little bit about your history uh and your journey with us?

SPEAKER_01 2:32

Yeah, absolutely. Um I started as a business management major um in college out in Virginia. Um so and I mentioned business man or business management because it kind of got me into the career that I'm in um in a sense. So I got into um project management as a sophomore in high school. I was an intern actually um at a at a large electrical contractor in Washington, DC area, and managing projects. So after after graduating, got into full-time project management. And this was 2008, 2009. Um, you graduate college, you know, you finally have start making some money, you don't really know what's going on in the world, you know, the the the GFC. Um I I didn't really understand that. So, you know, I got in a conversation with uh my my manager, my my mentor at the time, and he was like, Steve, you need to buy a house. I was like, I was like, okay. I was like, why? I said I don't I I find I'm finally making decent money. Why, you know, why am I gonna spend it all on a house? Well, in in 2009, in November 2009, ended up buying my first home. It was a townhouse. I think I bought for$90,000. Um ended up living in it, and I had I had a few roommates. Um so essentially I didn't have any rent. I at this point I still didn't get the bug yet, right? The real estate bug. Um so continuing on, um, ended up moving out of that property and renting it. I, you know, you you go through some um some lessons learned there and through relationships, which we can get into in a little bit, because I think that was a big piece of kind of where or how I got to where I am today um through relationships. So I moved moved out of that property, rented a rented a home up in Arlington and wanted to get closer to my friends and you know, kind of a little more um social circle. So I I rented that house out, um, the first house I bought, and I started to see the power of rent, right? Leveraging my money and getting the rent income and seeing multiple streams of income. I didn't really, I wasn't really educated on the space, but that came a little later. Um so that one house turned into a second, and then I learned about 1031 exchange. I got that first house, I 1031 that into a better neighborhood. And I started to realize that market, right? There's a um, there's a Marine Corps base, Quantico, and it's a couple miles away from Quantico. So I got educated on the market and the surrounding area and learned about militarybiowner.com listed on there. And I got some good quality tenants, and I had two um two single family rentals that were you know covering a lot of my living expenses. So that's kind of the early part of kind of getting that bug. Um, and then my my project management experience started in as a sophomore in high school, working with this electrical contractor and eventually graduating and starting to work with them full-time. And project management is a great springboard into um a lot of things multifamily, understanding the the business side of it. Every project as a project manager is is a business, right? You have a budget, you have a fee or profit that you're trying to get to, and increase. Um, you have a team, right? So managing that team um to success and making sure you're delegating um the right activities and then leading that team to success for a successful project. And there's subcontractors, right? This is where the capex comes in. You're managing subcontractors, and that is there's there's a lot of key points there. It's coming up with a with a good, solid, and clear scope of work. So you can go out to the marketplace and get the same number or the same quote for the work that you want done. I see a lot of people bringing in um contractors and saying, hey, this is my problem, fix it. What do you want to fix it? And then they bring in somebody else, and they're not getting the same quote, right? Because every contractor sees it differently. You gotta have the eye to go in there and say, This is what I want done, right? How much is this scope of work? So I think that that, and and we can get into more as well, but there's there's little nuggets, right, in project management that is a good segue or good educating piece that works itself into multifamily, whether it be underwriting and understanding finances and budget to negotiating contracts, right? Negotiating um negotiating contracts with your your CapEx. So there's a lot of a lot of good um segue from project management to asset management and just being a good operator in the multifamily space.

SPEAKER_00 8:05

Man, absolutely. I I really appreciate you going um into kind of that detail there and sharing your background. And this is exactly what um what I was getting at in the in the intro there. And so I've been over here scribbling and taking notes. And so I'm gonna go, I'm gonna go back to um um to some of the earlier stuff before we kind of get into the later thing. The first thing is it's really interesting that you 1031 um that property early on like that, um, because it it's the first thing is it's it's an intimidating um process. Uh, but but but it's interesting that if you it's intimidating for people if they kind of pull in too much information to kind of make it plain. But if you if you start off by just looking for the plain answer, then it becomes maybe not so intimidating. But how but how did you kind of land on that as okay, this is what I'm I'm going to do? Because a lot of people wouldn't have done that after their first property, but I think it's why. So, how how did you do that?

SPEAKER_01 8:56

So it goes back to relationships. I grew up, so a little more background, and then I'll get to the point. So I grew up playing ice hockey, and a lot of my, you know, my friend circle, my even my parents' friend circle, my brother and sister's friend circle. They we spent so much time at the ice rink, and a lot of the friends and family all came from the hockey world. My real estate agent at the time was a hockey guy. His kids played, he played, he was always around the rink, and we built a great relationship. And once I started, you know, getting that rental bug, he goes, You can turn this into something, right? And um, so I was like, I really want to get out of this property, the first property I bought, and get into something nicer, a little bigger, get the equity out and 1031 it into something. I didn't know what a 1031 was, but that's where that relationship came in. And I leveraged his knowledge and experience to help me out. So he guided me through, he gave me the you know the resources, the 1031 specialist, um, got me in touch with the right banks, the his, you know, his inner circle, and I leveraged that. So they kind of walked me through and he helped me identify which in within the within the time period, um, and then find a great property. So it's again, it goes back to relationships. And I think that seeing that early on in my real estate journey has obviously helped me get into where I am now as a limited partner, as a general partner, and then finding finding partners, building relationships with CPAs, with brokers, with investors, right? Relationships are a big part of this world. You can't do anything alone.

SPEAKER_00 10:41

That is 100% correct, man. I um I share with people uh a lot that one of the best ways to build your team, because that's typically when people before they start, um, they they say, Well, I don't, you know, don't have the contacts, I don't have the people. And usually what I tell them is you can build your team from uh the other contacts that you make. So you can you can say, hey, you know, uh to your agent or broker, you know, hey, who's a good inspector? You know, who's a good um GC, who's a good uh property manager? Who's you can you can start it there? Um there are many ways to do it, but that's one of the most effective ways because they're only going to give you the name and the contact of someone that is at least somewhat trustworthy. And so you're right. I mean, those relationships uh they mean everything because it's the difference between trying to fight through it and and get burned out and everything, figure it all out yourself, which will take years and years and years to do, or you can do what you said, which is to leverage someone else's, you know, knowledge and experience, they're gonna point you in the right direction quickly. And so um, you know, it just can't it can't be you know said enough that it's like making those connections, fostering those relationships, and then learning how to network intentionally so that you can you know mutually benefit is powerful. And you've done that. So I think that's I think that's outstanding.

SPEAKER_01 11:53

It's like it's like being in the fast lane, right? It's like a cheat code for getting further in whatever you're trying to do, right? So yeah, leveraging those relationships is is super important.

SPEAKER_00 12:07

Yeah, absolutely, absolutely. Um so there's something else that you said there that I like when you were kind of talking about the uh uh every project is um I'm sorry, every yeah, every project is a business to a property manager or to a project manager, excuse me. Um, but I just think that's a very powerful concept for people to to really grasp, you know, because as you um as you get into each deal, you know, especially for someone who maybe has done it multiple times, there is this complacency that can set in where it's almost like, well, this is kind of just another deal. And it's like, well, this is a it's a business, you know, and you have to treat it with the seriousness um of a business. Otherwise, you won't be in this sector for very long uh because you didn't you hurt yourself, you hurt investors and you hurt the tenants and everything else. Um and so so how how did you how were you able to sort of leverage your your professional background um into you know to maybe to maybe kind of using that same concept and approach um on the multifamily side? Like what's your what what's your your role typically on the syndication team?

SPEAKER_01 13:15

So it started out as the CapEx manager. So creating the business plan, helping them with the, you know, creating the business plan from the underwriting before closing. And during closing, it was a lot of you know walking, um, walking all the units with the due diligence team, taking notes, and then doing our um doing our market surveys. So walking other properties, seeing what they're getting for rents, what their interiors look like, what their exteriors, what amenities do they have versus what we have, right? Where's the opportunity in the project that we're looking at or about to close on, and really taking that, you know, looking for the ROI. So if we're gonna, if we're gonna either raise money up front, or if it's gonna be financed, it's how do we how do we most effectively and efficiently deploy that capital to increase the ROI or the the value of the property? So I think having an eye for just the the little things, right? It can be as small as if you have a B plus in like an A, or your you you gotta know your clientele, right? Your tenants. But as a very small example for you know seeing things as a project manager is receptacles, right? Just a normal receptacle like in a kitchen. You can replace that with a receptacle with a USB. And if it's something small, you start seeing hotels have it. It's like everywhere you go, you start seeing like these little details, like would that make sense in multifamily, right? Maybe not in a in a C neighborhood or in a C building, but maybe something a little nicer with some nicer upgrades, you know, granite, stainless steel that lends itself to you know the younger generation, you know, the the right out of college, you know, the younger type. So seeing those things and saying, how can the small cost when you're turning a unit replace this? Right? Replace the receptacle, put that in there. It's just one little thing that tenants are walking through and making sure you're educating your property manager on, you know, hey, we we have these, these are different, right? But it's I think it's just having a good eye um of you know understanding what your competition has, what you're starting with, right? What is your canvas, and then how can you how can you lift that up in the most economical way, right? For the biggest bang for your buck. Um and things always change, right? So your business plan before closing may not be what it ends up being. I think you gotta have you gotta have the the vision to see once you start something, you don't have to go all in on that if you see it's not working, or maybe the ROI isn't there. So you have to do a pivot and you gotta get into something different. Um so in project management, every day is different. I wake up, there's a new issue, there's a new problem, right? And the mindset shift there is it's you got to stop using the word up or uh issue or problem and start turning into opportunities, right? So it's an opportunity to either fix something or figure out how this happened, right? And make it not happen again, which goes down into like systems and procedures, which is also something that's very big in asset management and operating a property.

SPEAKER_00 16:50

Yeah, you know what? I I like that you um that you that you said that you have to see it sort of as an opportunity. And the other thing I think that that requires a mindset shift is understanding that every day there's gonna be a new issue because some people freak out by that, you know, when they when they show up and things that aren't all steady state and they're not all exactly the same as it was yesterday with no change, then they think that's how it's gonna be every day. Um, but it requires a shift to say, yeah, there are going to be problems every day and issues or you know, concerns or opportunities, right? Using the right uh uh language there, that there's gonna be opportunities every day. And how can you address them? But but it's almost being comfortable with the fact that listen, this is a fluid situation. And so it's not be just just because we we put it on a uh put it in a spreadsheet and we have something typed up doesn't mean that it's gonna be stagnant. Um, and so you almost have to look at it as good, you know. I mean um it's it's a good thing that it's fluid because it, you know, it keeps us always thinking about uh things that are outs outside the box. Um, and I want to ask you something really quickly too, because you mentioned uh briefly there that a part of what you do is uh walking units with the due diligence team. And for the benefit of the listeners, what is the due diligence team and kind of what what do they do?

SPEAKER_01 18:01

So due diligence is uh usually a 30 30-day period before we or after we get our LOI accepted. Um we go into do the due diligence period, and we have about 30 days, and what we do is uh we've done it a couple different ways. We've we've hired a third party that specializes in due diligence, and they'll come through, they will walk every single unit, they will inspect the exterior and interior of the property, your HVAC, your electrical, um uh the bones of the property, structure, the roof, everything. And they'll give you a comprehensive report on you know what they recommend or what the you know, how old is the roof. You know, if you have a 20-year roof, 20-year roofs don't last 20 years, you know, they last maybe 15, 12 to 15 years, especially in Dallas, right? With the heat. So you take all that information and you you come through it, set up a meeting with them, and you can kind of either re redo your business plan. So say we got this bucket of money, this is what we were gonna do with it. We have some contingency funds that we wanna, you know, maybe we have some roof patches to take care of. So we also not just the bones and the structure and the the systems of the the property, but you're also going through the um the tenant files. So you're doing lease audits, you're understanding, you know, who's living at the property? Do they all do they all have insurance? Is all the paperwork there, right? Um, you need all those records and having all of your contracts, right? What contracts are currently active? Which ones can we get out of? Um, is it lawn care? Is it laundry? You know, what are we coming into? What are we dealing with? And you're verifying all of the information that you got in the broker package or the offering, the offering memorandum, and you're and it gives you a chance to say, um, you know, you came out there and you saw something that was materially different or not true, or something that's a game changer, right? It's it's going to affect your underwriting so much. Like, for example, if you had to replace the entire roof because it was damaged and you couldn't see that just from the ground, but through due diligence, um, the inspection came back and they the roof is this old, that's not the information we had it underwriting. You can go back to the to the seller or the broker and say, hey, this is what we found during due diligence, and you can negotiate some of these things. So it's it's just a lifting, lifting the curtain, pulling the curtain back, and saying, what are we dealing with here on a very granular level?

SPEAKER_00 20:46

Yeah, I mean, you know, it's interesting, uh, Steve, even in the the the kind of rundown that you gave there, um, your your professional background is very apparent, right? Because you just kind of threw something out about the uh about the roof, right? A lot of people will miss something like that in their in their underwriting. It that's the reality. A lot of people won't say, well, hey, how old are some of these structures? Because you have to absolutely plan for it. And you're you might have to replace it in year uh three or year two or four or whatever it is. And so you have to be ready for those kinds of things. But some people, you know, if they look at an underwriting, they just assume all of those things are smooth. And you can have these things that will require a significant boost. And um, whether it's from your capex, I mean, you know, depending on what the what where it's coming from, but it'll it can cost you a lot of money. A lot of times it can put a squeeze on the deal. And so um, so again, I just you know, your your experience there is really is really critical. And I appreciate you you know sharing kind of that due diligence. And I think, you know, when I think about uh what's at the core of kind of the due diligence process, I really think about risk, like risk management, you know, because it's around material risk. It's around, I mean, some properties that might, if it depending on the condition, it might present a safety risk. Um, you know, you've got things like financial risk, vacant vacancy risk. And so you're really, and then ultimately. risk to the project. And so if you've underwritten the deal with with a certain uh uh you know uh amount of information and it's materially different then now you the deal itself is at risk and so you might have to walk away you know or you might have to come back to the table and say well listen this this changes things um so so just again uh you know I like I said I mean I think that the your background and the role that you play is vital. It's one that we don't hear often enough because people tend to farm that out and think that someone else can do it. It's like but if you have someone that you can that you can find that um does that themselves then you know it's it's a I think it's outstanding uh ad. And so let me ask you okay just now on your your you mentioned ROI a few times in there and this is a point that I like to make as well with people is you know so you go into a deal and you have a plan. It just like you mentioned things change. And so you don't necessarily have to take the full CapEx budget and hit the hit the project with all of it because the plan before you you bought said that we're going to do all these things. Instead you kind of test them out because you might be able to get a good portion of that uplift um by doing less work and um or you might you know do a whole bunch of work and not get any uplift. And so it's it's wise to then sort of have this gradual you know let me do some of the work let me test it out test the results and to uh determine whether it's uh it makes sense to keep going down this path. You know so so how how do you how do you do that?

SPEAKER_01 23:31

Like what what have you kind of done to maybe determine well whether we should or should not continue to spend capex dollars toward this particular uh value ad yeah so you know I guess I'll give you a few examples here we were looking at we have a property that's kind of in a it's in a neighborhood right so we were one of the things that we wanted to do was say hey let's you know one thing we can do here is put a fence around the property right like a um like a not really security fence but just a fence around the property to make to give the feeling of security um we're trying to keep people out you know the people walking through um which you know I early on it made it made it made some sense um but I think it's one of those things when you look at it and you start asking people and you ask the property managers, you know, what are you seeing during the day when we walk through the properties you know that's something we're looking at um you're not it didn't really make a lot of sense though. So we took that budget and we moved it into something else. We moved that into um extending the patio fences right so it's if we were so it's understanding where you're at like where the property is located. If you're next to a lot of shopping or um you know a strip mall or right behind a strip mall there's a lot of apartment complexes see you know see properties maybe some bees that are close to a lot of foot traffic right that people that don't live there live in the neighboring community um but they're walking through um the strip mall or whatever going to the gas station so those properties I think it makes a lot of sense to delineate your property from the you know from the public and give that sense of security to tenants. Here I don't think that was necessarily something that was going to create that you know get that traffic coming in and there's not a lot of ROI on a security fence right um we're we're kind of out in the back so that's just one little example but what we did was instead of taking or putting that money to a security fence and you know electric gates for um car traffic it's we moved it into extending the patios right so we did a nice seater extended it and we're in we're able to increase rents on first floor units that have the extended patios right so that's just one thing every little dollar right you apply a cap rate and it's it's exponential so those little$50 things or$50 increases are are huge. And there are projects that may not create the ROI but make a lot of sense to attract whether you're adding an amenity a dog park or a gym or renovating the gym or creating something that will attract tenants into your property because all of the surrounding all of your competition right your cops in that neighborhood have something you want to get up to that level to start getting those rents and attract those tenants those walk-ins the you know the internet ads and all that stuff right the people that are coming from Facebook marketplace.

SPEAKER_00 26:43

So um that's just one example yeah that that that's a really good one too I mean because you're right it's it's an if it's evaluating okay listen do do they do they need this what you know talking to the property management talking to the you know the tenants like is this something that they could even really uh use and then also considering the project like you know what's the ROI on it because you're right there are a lot of things that you can do to a property but the question is is it really going to boost the the value of the return on your your dollar spent um and that conversation is it has to be had you know otherwise you just end up spending money on things that really aren't going to move the needle at all. And I like that you you mentioned there um you know you kind of touched on forced depreciation there where you you mentioned just kind of a$50 bump. You know if you got a 100 unit property and you're at a five cap and you do it you know you got a$50 uh bump uh on average per unit you you jacked up the the value of the the property about what about a million dollars or something like that. And so um so it just to me is just an absolutely incredible uh I call it the secret sauce of of the business but you only get there by by having that eye for detail like you said well let's stop and think about this before we go and spend you know this uh we allocate these funds um to something like that might not add the value that we think it would. So I want to quickly you know kind of ask a question about your story a little bit, right? Because um we wanted to sort almost almost finishing the journey because you had a really impressive amount of growth um in terms of your portfolio and and also we we can even tie this into building relationships right so you're now over a 1900 units and so how how did you how did you get there? Like what was kind of the you know what what followed some of the early you got bit by the bug and then it's like I'm I'm going in like what what what what took you from there?

SPEAKER_01 28:29

Yeah I think that's multi-pronged but I think the the underlying the under the underlying um answer to that is relationships which I think I've said probably 15 times on on the podcast already so I I really believe in the power of relationships and and your your proximity right proximity is power. So I I moved out to California I'm gonna I'm gonna continue with the story from the from the beginning here um moved out to California and when I made that move it was for me I I got really comfortable back east and that's uh another story um but I got really uncomfortable or I I was very comfortable right back in that circle in that environment and I had a lot of opportunity out on the West Coast in construction and project management. And that was like wow I can I can go out there and be in a different part of the world it's a different hub and I can meet new people be uncomfortable and kind of go down another path right and by this time I knew about multifamily so I was starting to study it I was listening to podcasts I was kind of absorbing as much as I could I was underwriting. I didn't know what underwriting was right I just thought you know I heard the word underwriting when I was sitting in the mortgage broker's office saying oh the underwriters have it's like that's actually kind of dark like what is an underwriter so um that led me on a path to so multifamily right so I started getting into that I was also uh parallel to this I was really getting into the world of financial education and educating myself on finance and the Fed what is money right and what is you know what 401k IRA and just understanding that there's all these other asset classes out there other investments that you can deploy money in like multifamily right and there's a there's a ton of these assets that you can you can invest in in your private capital into funds like you know you raise money Brandon and you can invest with someone like yourself and get a whole different type of return. You can get you know you get the cash flow you get the appreciation you get the tax benefits right so educating myself on all that it's just your eyes got huge right and then I I so I'm in California and I get a I got an email about a meetup from the uh the real estate guys radio show. So Robert Holmes and I think he had Michael Michael Becker was out here I didn't know who Michael Becker was or the real estate guy so that and that was out here in the Bay Area. So I went to that and they were talking about this multifamily conference out in Dallas, Texas. And Grant Carnone was there and I was doing a little bit of following of him listening to some of his educational stuff on multifamily so I went and went to this event in Dallas and I was like this is what I want to do. Multifamily is what I want to do. So I was having some issues operating my properties in um Virginia um from afar and I had my real estate agent that I was talking to you about kind of operating them for me. And when I was not managing them they were so that was taking a little bit of my cash flow away. But anyway I ended up selling both of those immediately so I sold both of my single family and I said I'm getting into multifamily and what I did was I started plugging myself into all of these networking events and educational events whether it was around raising money or just learning how to underwrite um I joined a mentorship program and started meeting people having conversations and building relationships and my first goal was to was to invest money into it. I'm a firm believer in just watching something or educating yourself isn't enough. I think you gotta you gotta put some skin in the game so I wanted to make an investment build a relationship with somebody and try to get something out of it right so I was having conversations and I was like I want to invest in this deal right this individual had a deal and I like the deal I like the bones um and I liked him as an operator. I think the conversations we had the relationship we built was great so I was like hey I you know I want to do this right I want to get into the general partnership and start being an operator eventually and I was like can I would you mind if you kind of gave me some insight as to some of the decision making you know maybe let me on an asset management call or you know a weekly call here or there and it was absolutely right so I was like okay so I invested with them and that goes back to relationship right but that kind of springboarded me and gave me kind of an insight I wasn't making any money off of it but I was deploying my capital and I was in the game now right game on. It's like plugging your game into a gaming system and just like I'm in. Yeah so then you're in it and you start learning all the terms learning all the words the decision making and tying it to project management it's like how can I take what I'm doing in my everyday life right my my experience of the you know 15 years as being a project manager and project executive to asset management or to operations right it's understanding what's my superpower and you've had Dallin Schultz on your podcast who's I've had multiple conversations with and he he gives me a lot of you know he's like Steve you're doing you're doing too much right you want to do too much and he's a great he's a great guy he's he's awesome he's he's he's great but it he really check he checks my my i I don't know if he goes the right word but he's he just he challenges me right to just focus on your superpower what is your superpower and focus on that right and what your superpower is you need to find somebody right back to relationship build a relationship with somebody else who can do everything else and that's their superpower and then build a team and go get that deal right or go do a deal so um so that started like the passive right the limited partnership and I got the bug and I got the education I ran into some speed bumps kind of finding that deal I was starting to underwrite I was getting really good at underwriting and I was I was having these conversations um with a lot of these experienced operators and I was getting a lot of like hey if you were me how would you go get into that first deal what would you recommend me do and every person I talked to I got a different answer. So I was I was a little confused right it was like oh man I feel like I'm spinning my wheels here so um I went to a Tony Robbins event with a lot of experienced syndicators right it was a it was a Sunrock event and he he brought a lot of the team and a lot of experienced general partners over to um palm beach Florida and I went to that and that was just a different experience right you're you're having intimate conversations constantly you're in a great sense of great mindset and you're having these conversations so I I did it again and I was talking to these two guys and it was like listen don't don't try to do everything yourself stop under like you can underwrite for education but there's a lot of people just here at this event that have deals go form a relationship with them and say this is this is what I can bring to the table right this is what I can do and go build a relationship with them right so I had those conversations and about three or actually it was less than that was about two months later I formed a relationship and I was part of a general partnership team for my very first deal in uh 2019.

SPEAKER_00 36:48

So it again it was back to the the key word here right is relationships and how important that is to building you as a person and getting to your goals right so setting your goals finding who can help me right and having those relationships and it it really streamlines the process and helps you get to where you want to be that that is absolute gold um you know that and I like I said you everything that you laid out there uh for the listeners that that's it right there that's the ticket you know I share there there's so many things to pull from with within that um you know I share with a lot of people that um because what you did was you did among other things you kind of did the earn while you learn where you you said hey I'm gonna invest passively and there is a difference between sort of getting education and understanding the the business versus going and actually putting some capital some skin in the game and um you you had a conversation with the sponsor and said listen I like you I like the deal I think it's incredible and if you wouldn't mind I'd like to sort of maybe just be a fly on the wall for a couple of conversations here and there. I know I might not be able be uh making the decisions or anything or influencing them but I want to understand how it works. And I tell people that all the time is that you have to uh if you're gonna make an investment and your goal if your goal is to be a GP then you absolutely want to at least have that conversation to see if they're gonna be amenable to it. And and oftentimes they will be because you make it clear that hey I'm not trying to influence anything I just want to understand a little bit every once in a while how how this works because that is my goal eventually um and and be stating that I think is very powerful. And then also you know like relationships, you know I mean if if the listeners haven't if it's not clear then it needs to be you know there it's it's clear now. You know that is the the key. Too many times we feel like we have to do it all before we can be a part of a team. And that's really that's backwards thinking because the whole point of being a part of the of a team is to say here's my strength and let me plug in where I can but but that's how we all start especially if we started off on like the single family side because I I started off on the single family side as well and for me it was like you know I'm so used to being the one that's making all the decisions. So when I switched into the multifamily space and and I'm a part of a team it was difficult for me to say you know let me spread the work here but that's also the beauty of this business. You know so it just like I said man there's a lot to pick from in there and mentorship groups you you and I are in the same mentorship group and and um and I you know I have found that the people who you know who we meet and who we've built relationships with they're so much uh they're so open so warm and welcoming they're they're they're they're able to sort of uh help you out in so many different ways just a conversation right earlier you called it I think uh a cheat code you know it's almost like a cheat code where you have a conversation with someone and they literally are compressing five years worth of you beating your head you know because think about how long would it take for us to go and get a deal ourselves that's you know you you you have one deal that's um I think your your largest deal is I mean what it's a portfolio right I think it's almost it's over a thousand units or something like that.

SPEAKER_01 39:58

That's a that's a limited partnership deal yep right and so but but so how long would it take someone to kind of be in a in a deal like that um on the actor side but having a couple conversations it's like you know and building relationships it it it gets you there it compresses that time um so I just think I just think that's that's incredible and I do I do want to ask you now about about market selection right so you're in California and um and um and this this it even to help kind of benefit the listeners a bit how were you able to come to terms with investing um out of state so I think when you when you start to understand the markets um so the macroeconomics right just understanding the country understanding you know tenant landlord laws and growth markets once you start understanding that you start to learn that you kind of focus on the sunbelt right you have great markets right now and obviously all markets are cyclical um but you see a lot of growth and the education um that we have obviously our our mentorship group is based in Texas so there's a lot of relationships there and a lot of boots on the ground there so it made a lot of sense and it also happened to be a great obviously Texas is booming you know there's a lot of in influx from California from New York so you kind of see that it has I mean it has its strengths and it has some weaknesses just like every state or every market does and then I think it just made a lot of sense and I think that's where the relationships were so um so right now yeah I'm I'm heavily in Texas um because that's where my relationships are that's where my my partners are and that's where it makes a lot of sense I live in California um I'm I'm not gonna buy really anything in California it doesn't make sense so my goal is not just to stay in Texas I think my my goal now is to kind of do some I want I do have some passive money that I do want to invest out of state and then I think for my from operation standpoint I think it just depends on the relationships right I'm constantly you know obviously building relationships with people who are doing deals in North Carolina in Georgia you know I I like North Carolina um I'm an East Coast guy I was born in North Carolina so it it kind of strikes a chord with me but I think there's some great markets um all around the country and I think it just it it just depends on where they are um I think you can follow the money right where are companies going where's where what states or what cities are investing in their economy in their growth right and then with that investment you see the population growth you see the influx of um you know good paying jobs and that you know it just big investment right so when you see that growth it it just makes a good incubator for a good investment right you you want that growth you want to see that growth um and it's investing out of state is uh obviously there there's there's things that I can focus on as an operator out of state right the the financials the capex I do go as much as possible right and you got to be on site you got to understand yeah and feel like the pulse of the property right being on site gives you a different feeling so you know every other month once a month it just depends on what's going on and what you know my role is on those properties. So it's doable I definitely don't want to discourage anybody from you know saying hey I live out of state how can I be a general partner provide value for this general partnership team in Texas or in Georgia or Florida right there's a lot of roles on a general partnership that you know may you know the listener or somebody that's thinking about getting on a GP can do right if you have a CPA background you know or if you have a strong financial background those are great you know investor relations those are things that you can easily do and not be boots on the ground but it is important to have somebody on your general partnership or on your operation side be boots on the ground close to the job site or property.

SPEAKER_00 44:31

Yeah yeah yeah no that that's right I mean I I think you're I I like that that you said um that it depends on where the relationships are like I I really like hearing that right you because you're saying um that's that's what's at the core of having confidence and and being able to invent because because ultimately if you have tight enough systems and relationships that you've built up it really doesn't matter where you are that's my that's my opinion on it you know um and so I love that you really really uh mentioned that because that's something that I think we all need to understand. And uh also you know I I like kind of that you mentioned there, you know, focusing on uh there was something in particular that you said that I wanted to really really highlight um it'll it'll come to me. But but yeah by focusing on you know our strengths and kind of where we fit into the deal I do think it makes it a lot easier then to say okay well here's my piece and I'm going to as much as possible focus on um just that piece because sometimes sometimes I think the the concept of hey we all have to I mean you know we all have to be there the entire sponsorship team the only reason people say you know come to that conclusion is because they don't focus on well hold on what's my exact specific uh piece of this you know and also what's the deal like so if it's a you know if you got a class A property and you don't have a deep heavy value ad, uh then yeah you you don't exactly need to be there on site every day, right? You're not in a you're not in a deep value ad where you're having to just about do it almost a tear down or you know not a tear down but just extensive work. So uh it's kind of it all it all kind of comes together uh to to to say okay well it doesn't make sense to I'll go after this oh no I I now I remember so you when you said follow the money in terms of market selection I think it's important follow the money which which play which markets and submarkets are investing in their um their local area which um markets have jobs that are coming to it because with jobs comes uh uh uh people right so population growth all these things and usually that's if you can find a way to to follow the money that is what's at the root cause of growth and so um so I think that's probably one of the most important things following the money understanding where your relationships are and if there's a market where you've that you've identified that you really like then building the relationships there so that you can then invest there. So those are are two two absolutely valuable pieces of information for people um here. So so I want to ask you what what advice then right because uh again you have uh 15 uh more over 15 years experience in your business and so what what advice might you give to someone who they're they're in project management they have that understanding but and maybe they they're interested in investing in this business but they're a little bit hesitant right so what advice might you give to that person so there so I'll I'll take this two prong so for the for somebody who's a a project manager in you know construction or kind of anything right when you're managing something managing a project um and you want to get into the real estate space and as a limited partner right you have you have the ability to get on a you know obviously build a relationship with somebody and you know when they have a deal you can take the you know get on the webinar and understand what they're talking about right you can see this is what they're doing this is what they're going this is what their goal is and this is the end result and you can kind of check that right does that make sense in your head I think there's they can easily understand some of that from a general general partner standpoint I think capex makes a lot of sense um you know the business plan capex is really where they're gonna excel and I think just from a business and running a business I think they're gonna have a lot of insight to you know either come in and assist as as an operator or an asset manager or eventually build into one with a good baseline right a good foundation from project management and understanding the life cycle of a project it's understanding the life cycle the life cycle of a business right so from from closing or project notice to proceed to close out right it's it's heavy in the beginning it's heavy in the end and it it's just a it's a life cycle right and it's very similar in project management as it is in multifamily right from soup the nuts.

SPEAKER_01 49:02

So I think understanding that and having that visual you can kind of see what's coming up next. And you can start seeing the business plan and visually see how it's shaping up whether you need to pivot or not.

SPEAKER_00 49:16

So I think there's a lot of benefits and I think there's some built-in superpowers that a project manager project executive someone in construction or project management you know can come in and say I'm good at this I have this experience how can I help you guys or this is how I can help you do you need this help right can I be a part of the team this is what I can bring and you know if you build the right relationships and enough of them you'll find somebody or a team that you can jump on and be an asset instantly yeah I I love that advice I think that's I think that's powerful you know because it's how often have we seen or heard um of teams getting to closing and then um after that they kind of drop the ball you know and you usually it's because they didn't have kind of that um line of sight on the full scope of the project the life cycle you know and and and before they get into it you know that's why like I so I I I um I was a petroleum engineer for a a good while and I worked as a drilling engineer which is kind of operations heavy and one of the things that we absolutely that we swore by was the the procedure you know so we had this manual where it's like this is what's going to happen in this phase of work then this phase in this phase and this phase and then once we're done here the things we're gonna do to rig down and move off location. And so you you we went into the project with an understanding of what's going to how it impacts everything and then what's the eventual you know task that we have to do before we leave location. And so um I believe more teams need to have that view that you just mentioned uh there is understanding the life cycle before you buy and it's also interesting that that really that carries out in um in every aspect of the deal.

SPEAKER_01 51:02

So even uh from underwriting you have to understand the life cycle who what's the next buyer's uh upside you know I mean why would someone else buy it once you're ready to exit you know you know what's the exit strategy right what's the exit strategy always looking at the exit strategy and market changes right there's a big market swing right now right things are changing exponentially right your controllable expenses are something that you're focusing on right your uncontrollables are going up like crazy yeah right Texas market insurance taxes so being able to like oh what do I got to do right that's where the pivot comes in right this isn't working but this is a huge change what can I do about it those are things you can't really negotiate right you just got to go to the marketplace and this is what's happening.

SPEAKER_00 51:52

So yeah exit strategy is is key and those things are all part of the puzzle right part of the pie and you got to bake all that in yeah yeah absolutely absolutely man um well listen so Steve we're getting close to kind of the actionable tip portion of the show and there's just been uh again so many nuggets um dropped in here so I appreciate it so so what what advice might you give to someone who uh regardless of their background but they're looking to get into this business and I'll say as a I'll say as a passive investor so someone who's wanting to invest passively um but they're on the fence you know what what would you kind of say to to get them to take action now so the first thing obviously it's going to come down to relationships right for many reasons not just because that's what I've been touting um all morning here but I think education is is one right it starts with education learning about the space both the rewards and the risks and then building relationships with someone like yourself go to your and education right your you have a meetup in the DC area your podcast those are both great areas to get educated educated build and build a relationship with a with somebody who's a general partner and jump in right I think you know and come in invest a little bit you can use your 401k right I always as a passive investor I personally invest all my passive money is 401k or Ira because general partnership you got to use you got to use cash right so strategically right my investment plan is my 401k money is my passive money and that's what I use to build relationships and maybe that investment will lead to me doing a general partnership deal with that person.

SPEAKER_01 53:42

So I think as a as somebody looking to get into a limited partnership deal is get educated like again what are the risks what are the what are the rewards um and ask questions yeah I think it's beneficial to go to go to a couple events um go to a meetup a local meetup you don't have to travel to Dallas if you live in Virginia or DC or California I don't think that's necessary I think there's a lot of online education um there's local meetups that you can go to and just get educated ask questions and then jump in um I think that there's a lot of benefit to that and like early on in my career when I jumped in took someone's advice to buy a single family house with the little bit of money that I did have turned into eventually a 2000 unit portfolio of multifamily so um it's just getting the getting the wheels turning really right it's a it's a it's a super powerful industry and I I think everyone should have at least a little bit of real estate in their portfolio.

SPEAKER_00 54:50

Yeah yeah yeah I could couldn't agree more I think that um getting that education and in addition to and not not even just kind of like the uh more structured you know type of education but also like you mentioned going to meetups and having conversations because that is in fact a form of education um so so I would 100% agree with that as an action. So Steve again man I've really appreciated always good speaking with you and I really appreciate um the value the amazing value that you've added uh for the listeners and for myself and so for the for the listeners that want to reach out to you maybe hear more about you or see more of you how can they do so yeah so you can you can visit the website my website is Shermanmultifamily.com email um you can email me uh Steve at Shermanmultifamily.com and then the socials um instagram is where I spend most of my time Instagram and Facebook and I'm uh handles at Sherman underscore multifamily um so yeah you can find me there all right man well I'll add that to the show notes and once again look it's always been a it's always a pleasure speaking with you man and um uh thanks so much for for your time Brandon thanks for having me on appreciate it 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