Agents Building Cashflow

EP 170: From Flips to Fortune: Eric Rice's Secret to Scaling Multifamily Success

Eric Rice

In this engaging episode of Agents Building Cashflow, Randal interviews Eric Rice, CEO of Rice Pegher Capital LLC, exploring his transition from residential real estate to large-scale multifamily and commercial investing. Eric shares his evolution from flipping houses to managing complex portfolios, detailing how he leverages creative financing and partnerships to grow his real estate ventures. 

With candid insights into navigating market challenges, managing multifamily properties, and building long-term wealth, this episode offers invaluable lessons for aspiring investors. Tune in to discover how Eric’s strategies can inspire your journey in real estate and beyond.

Key takeaways to listen to:

  • Exploring creative financing solutions to scale multifamily investments.
  • Leveraging syndication to revitalize distressed properties and generate cash flow.
  • Building new structures within old buildings to retain character and increase rental income.
  • Partnering with municipalities to simplify complex real estate renovations.
  • Refinancing and reinvesting profits to drive sustainable, long-term growth.

About Eric Rice

Eric Rice is responsible for company vision, strategy, and execution toward the long term goals of Rice Pegher. On a day to day basis he is significantly involved in deal sourcing and analysis, syndication modeling, lender and investor relations, employee and contractor management, and community relations.

Eric has been involved in the real estate industry for more than 13 years, initially cutting his teeth in the DC metro area and Pittsburgh residential market’s before breaking into the world of commercial real estate investing in 2017.

Connect with Eric Rice:

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[00:00:00] Eric Rice: We just kind of came away with like, Hey, if we're going to do these older buildings, we should strip them out, like maintain character wherever we can save 10 ceilings, cool woodwork, replicate things, et cetera. But like, let's start with basically a new building inside an old shell. And that. Was the key.

[00:00:17] Eric Rice: That piece of our portfolio kicks off the most reliable cash flow. 

[00:00:23] Intro: If you're a real estate agent earning 200, 000 a year and you want to grow your passive income, this show is for you. Learn secrets other agents use and hear from experts in our field who will guide you on your journey to investing in assets like apartment communities.

[00:00:39] Intro: So you can take your commissions and turn them into cashflow. Here's your host, Randall. Let's dive in. 

[00:00:45] Randal McLeaird: Hey, Hey, welcome back. It's good to have you on today. I have an awesome guest. His name is Eric Rice and he is the CEO of Rice Pegger. They're out of Pittsburgh and really cool conversation. I mean, we sit and we talk about [00:01:00] his transition from single family residential brokerage business.

[00:01:03] Randal McLeaird: So he's been on the burger side of the business started in 2008 and like really cut his teeth early on that type of timeframe, if you can imagine. And then got into larger. Commercial deals and multifamily now and starting in 17. And so we talk about that transition and why he got into the types of deals that he got into, how he got into them, how we structuring deals with investors right now, and just really talk about the market and some of the things that they're working on.

[00:01:27] Randal McLeaird: So really interesting business. Not the typical multifamily by 200 unit type of operation. So it's cool how they have structured the deals that they are going into and the types of assets that they're buying. So I'll let him talk about it and we'll jump in. Hey, Eric, it's awesome to have you on the show, man.

[00:01:45] Randal McLeaird: I appreciate you jumping on, making the time to come on. I'm looking forward to talking to you about multifamily market, your transition from the single family brokerage world that we were just talking about into multifamily. So why don't we just kick it off there and, you know, kind of give us your trajectory, because.

[00:01:59] Randal McLeaird: [00:02:00] As I mentioned, a lot of what the show is about is just teaching real estate professionals how to go and invest. And you have done that. You went from agent to investor. So let's talk about your transition and how you 

[00:02:10] Eric Rice: got into that. Yeah, well, first off, thanks for having me on, Randall. I'm excited to be here and have this conversation.

[00:02:16] Eric Rice: So, you know, like we briefly touched on, I kind of started out as a residential agent. I started in 2008 in the Washington DC market. So kind of at the bottom and, uh, cutting your teeth on the timing. Yeah, it was, it was interesting. I was a wildlife biologist prior to that and, uh, had like a job with, you know, like state benefits and that kind of thing.

[00:02:36] Eric Rice: And people were like, you're going to leave that job and go into a residential real estate and a crash. And I was like, well, 

[00:02:41] Randal McLeaird: yeah, 

[00:02:41] Eric Rice: you know, my cost of living, I was early twenties. Or mid twenties, kind of out of college, but not a lot of financial responsibilities. And I figured I could learn it while the market was down and then profit as it moved up.

[00:02:53] Eric Rice: And luckily that worked out and real estate rebounded as it usually does. And it happened pretty quickly in the DC [00:03:00] market. And I got to do some interesting things in that early part of my career, my business partner, who I worked with up there had already been a top producer in the market. So that was a huge advantage for me coming in and kind of being able to jump into that and kind of create a business with him.

[00:03:14] Eric Rice: And so we had a number of large bank clients, including Countrywide, which turned into Bank of America and a few other banks. So we sold a bunch of REOs. So I like really cut my teeth, like literally like. Drilling locks, kicking out crack heads. And yeah, you know, yeah, it was full bore. Like the, you know, I moved in and the next day I was like doing an open house at an REO with no utilities.

[00:03:37] Randal McLeaird: Flashlights. You had your like whole tool belt kit. I'm sure it's like, yeah, there was a guy doing that here in San Antonio. And I remember looking every time. Like he had all the listings because they were HUD foreclosures, all that, you know, so it sounds very similar to what you're doing. But yeah, we bought so many of those things back then.

[00:03:53] Randal McLeaird: Like, what was the price point? Like I was buying 20, 000 houses, you know, I don't know. Yeah, it was 

[00:03:57] Eric Rice: definitely more than that. But [00:04:00] looking back, so I'd say the average price point, maybe. You know, two to 300, 000, probably the average price point. But looking back, I had no idea what private capital was, or, you know, I just kind of knew how to get a loan to buy a house maybe, but I couldn't do that even myself at the time.

[00:04:16] Eric Rice: And so like if I had known and could have built an investor pool and, and bought some of those properties and rehabbed them and sat on them for a little while, it would have been a, it would have been a great move for sure. But in any case, I learned a ton. I got to work with a lot of investors during that period of time and really go through like the redesign process of a house and then help them kind of stage it and sell it.

[00:04:36] Eric Rice: And so I was along the ride the whole way. And I'd get a nice commission at the end, which is great. But I was always kind of like, I think I'm on the wrong side of the table here. Like I need to be the investor. And so like that idea was kind of always in my mind. Along the way, my wife and I were, we decided we were ready to have a family.

[00:04:52] Eric Rice: I was really working legitimately 80, 90 hour weeks down there. And it was great. And I made a ton of money as a [00:05:00] young thirties and I learned a ton. But we were just ready to kind of get back to a more normal lifestyle where, you know, I could be a dad and we could have a family. So we decided to move back to Pittsburgh, which is where both of our families lived and uh, kind of not slow it down, but I figured it probably wouldn't be as busy as DC.

[00:05:19] Eric Rice: So anyways, came back here, jumped in again as a residential real estate agent and was, was doing well. I sold a bunch of houses in the Pittsburgh market. And then in like, I think it was probably really 2016. I was like, all right, if I stop working, the money stops coming in. Like I'm kind of taking a lot of the risks of having a business and building a business.

[00:05:38] Eric Rice: But with, with not much to sell at the end. So I thought I should start owning some real estate. So I went in right off the bat, single family, flip model, bought my first house, it was a foreclosure, bought it for like 55, 000, I want to stay and, uh, took out like a HELOC to do that. And I thought it would take 50, 000 or so to [00:06:00] rehab and, you know, three or four months.

[00:06:02] Eric Rice: And it was like, it was a rough, rough house. Like it was a full gut, which is not, not the best flip it turns out. And, uh, it took a little over a year, you know, all the credit card availability that I had. It was funny. I was before this, I was kind of looking at my Excel spreadsheet from that project. And the end result was basically like, I either made or lost 5, 000.

[00:06:25] Eric Rice: Like, cause I just got sick of keeping track of all the money, but like, it took more than a year. I remember like laying on the floor. Uh, 11 o'clock at night with like a little baby at home and you know, it just like being like laying on the floor and they're being like, all right, what do I have to do next to finish this thing?

[00:06:39] Eric Rice: And I looked at, uh, the Excel spreadsheet and there was a note in there, like right around the time that I was getting ready to sell it and said, checking account balance 411. And so I was like really, really maxed out on that. That's not the right way to do it. But I learned a ton. And then I did, I did some more and they were, they were more successful from there.

[00:06:58] Eric Rice: And then I wanted a model that was [00:07:00] a little more scalable. And so that's when I decided to jump into the larger multifamily properties and some mixed use stuff. 

[00:07:05] Randal McLeaird: Yeah. So, I mean, just that story, it is, I remember when we bought our first one, I actually, Was to, well, the first rehab, like I had bought a few houses myself, but the first rehab that I bought was with my brother and I was so nervous.

[00:07:19] Randal McLeaird: I was like, look, man, I don't know, you know, don't have any money. Like if we make 500 bucks, like then I know, like it's a proof of concept, but yeah, we, it wasn't a full like demo. My wife literally sent me one this morning and it was a burn house. And I was just like, no, like, you know, you do enough and you're like.

[00:07:36] Randal McLeaird: It's just not worth putting that much capital. Too hard 

[00:07:38] Eric Rice: bucket. That's in the too hard bucket. Yeah, you just 

[00:07:40] Randal McLeaird: like buy a lot and build a new house and then you get to deal with a completely different, you know, it's like start from scratch. So anyway, that's my quick advice for whatever it's worth to anyone listening that if you're trying to get into rehabbing.

[00:07:51] Randal McLeaird: Don't do a full gut rehab on your first go, because 

[00:07:55] Eric Rice: it's 

[00:07:56] Randal McLeaird: challenging, you'll learn 

[00:07:57] Eric Rice: though. You will learn. Oh, 

[00:07:58] Randal McLeaird: for sure. Yeah, for [00:08:00] sure. Yeah. Try to just get one. You can just put some paint on and go from there. Okay. So, well, that's an interesting trajectory. Okay. So then in 17, you started. Like what, what were you targeting?

[00:08:10] Randal McLeaird: Because the two very different models, one is a, I want to build my capital because you're just going to retail flip something and you're just getting an injection of capital. And one is more of like a long term hold cashflow, you know, build equity. Tax benefits, all that stuff. So where did that shift come from?

[00:08:28] Randal McLeaird: And was there a single family rental in there, in the mix or something that clued you into that? 

[00:08:32] Eric Rice: Yeah, so I had, we kept our house in D. C. when we, when we left there. And it was like a block from a metro station. It had an English basement. So we had always had a renter down below, which paid a lot of our mortgage.

[00:08:43] Eric Rice: And then we rented the upstairs when we left. And that house was cash flowing, like legitimately cash flowing. You know, 1, 800 or 1, 900 a month, which paid for our mortgage in Pittsburgh on the new house that we built. So I was like, this is great. I would like more of this. [00:09:00] And so the light switch really was, we were visiting some friends in DC and I think I was either in the middle of, or just finishing up that house flow.

[00:09:08] Eric Rice: I was probably in the middle of it. And my buddy was like, Hey, my friend. In Texas, he's in multifamily and they have this podcast. I wasn't listening to any podcasts at the time. I don't think they were nearly as popular. And, uh, he's like, I grew up with this guy named Michael Becker and he's on this podcast called old capital podcast.

[00:09:25] Eric Rice: And I was like, Oh, that's cool. I'll download a podcast app and listen to that on our drive back home. And I started, like, I listened to the first episode and I was like, Oh, this is how people do it. And, uh, and that was really the light switch. And I was like, I think we can do this. I talked to my brother, who was in advertising, working in, I think, New York City at the time.

[00:09:43] Eric Rice: And, uh, he was like, yes, I'm interested in doing that as well. So we kind of started down that path. And so we just started looking for smaller multifamily projects, really, that we could afford basically as much as we could afford. And even stuff a little bit about that, which led to our first [00:10:00] acquisition, which was a 39 unit portfolio.

[00:10:03] Eric Rice: It was like the second dirtier half of, of a portfolio, like an estate portfolio. And, uh, we went and looked at it and we're like, this is really bad, but. I think we could make it much better. Also, we can't afford it. How do we do this? And so it was listed at 2. 1 million. We bought it for 1. 232 million. We didn't have enough money to take care of the down payment on that.

[00:10:23] Eric Rice: Cause we were kind of, we set it up in a way that we were doing the purchase and renovation. We needed four or 500, 000 in renovation funds. And so whatever that all in was, we needed 20 percent of that just through a local bank. So I had a friend that lived just a couple doors down from me in my neighborhood.

[00:10:39] Eric Rice: We would always go out and have some beers, talk about business, he's in business. And so we always kind of thought we could come up with some sort of business together. I was like, Oh, I think Clayton would be a great fit as our third partner. And so I went down and talked to him. He's like, yep, we're in.

[00:10:53] Eric Rice: So Patrick Clayton and I kind of at that time formed our company and bought that first portfolio and we were able to turn [00:11:00] it around really quickly. So I think we each put in about 140, 000 like individually. And then 11 months later we restructured our loan, our existing loan with the bank. We didn't need as much of the rehab dollars as we thought when we cashed out like 85 percent of our initial money within 11 months, just because we'd, we'd been able to rehab and raise the rent roll.

[00:11:21] Eric Rice: And really prove out the portfolio. So what did the portfolio consist of? Was it duplex quads or it was a little bit of everything. So there was like everything from vacant lot to like a lot with two houses to a 12 unit building with three commercial and nine apartments above. So it was like a, a 12 unit, a seven unit.

[00:11:40] Eric Rice: I can't go from all Yeah. But three unit. It wasn't 

[00:11:43] Randal McLeaird: like a 20 unit and a 19 unit. It was a bunch of different, that would've been much easier. Uh, yeah. . Yeah. Uh, so did you guys hang onto that whole 

[00:11:52] Eric Rice: portfolio or did you guys Yeah. Yeah. So what we did is that we pieced off a few things that we didn't end up developing or needing.

[00:11:59] Eric Rice: Mm-Hmm. , [00:12:00] um, which was great. That provided some like cash flow and cash injections along the way. And then we bought, I think, 12 additional units right in that immediate area. And we still own, so we own the majority of the initial portfolio that we purchased and we added a little bit to it. And so that actually coincidentally, I think is the same unit count where like 39 units down there, but they're all operating really efficiently.

[00:12:24] Eric Rice: And actually we're getting ready. I've got that on the market right now. So if we turn that around, then we'll have a big chunk of money to go do something else with that. So you're selling the whole thing off. That particular 

[00:12:33] Randal McLeaird: piece. Yeah. Yeah. That's a really cool initial project to be able to take down that many.

[00:12:39] Randal McLeaird: How did you guys handle so many different moving parts? Because one project that's a duplex is. A decent amount of work. So you have contractor, were you rehabbing these things or were you literally just like, okay, we're going to sell this one off because it's. We rehabbed 

[00:12:53] Eric Rice: pretty much all of it. So my actual income at the time was, I was still a residential real estate agent.

[00:12:58] Eric Rice: So it's not a [00:13:00] flexible schedule, which was helpful. Yeah. My brother was in New York at the time, so he could handle, you know, whatever we might be able to handle remotely. And then Clayton, my business partner had his own business at the time as well. So he had kind of a somewhat flexible schedule. And so Clayton and I really teamed up on the boots on the ground stuff and meeting contractors, rehabbing units, doing that type of stuff.

[00:13:20] Eric Rice: And then Pat handled a lot of the stuff we could do on the computer, and we just kind There's three of us, so that helps a lot. Yeah, for sure. It would have taken much longer, 

[00:13:28] Randal McLeaird: for sure. 

[00:13:29] Eric Rice: Yeah, 

[00:13:30] Randal McLeaird: no, that's awesome. Because, again, that's a lot of moving parts on that many different types of properties for your first go on that.

[00:13:36] Randal McLeaird: So, again, congrats on being able to burr the entire thing, too. Thanks. And capital out and 

[00:13:42] Eric Rice: hang 

[00:13:42] Randal McLeaird: on to that. I think 

[00:13:42] Eric Rice: one really relevant thing, too, for people to think about is like, We also had a very long term like strategy in mind with that. Like we weren't looking to make money off of that right away necessarily.

[00:13:52] Eric Rice: And a lot of our initial acquisitions didn't really start to pay out any money to the partners at all. I mean, really, we're [00:14:00] still in the build phase. So pretty much everything we make or we're reinvesting into the company, buying more stuff or adding staff, that type of stuff. So we're building a lot of equity.

[00:14:08] Eric Rice: And we're paying salaries now for myself. I'm full-time in the company. My brother's full-time in the company, but we're not like kicking out tons of money, so it's a long game. Yeah. So it's good for people to realize that. 

[00:14:19] Randal McLeaird: I want to get into how you guys are structuring your deals now compared to then, and if you're bringing capital and all of that.

[00:14:25] Randal McLeaird: I think you are based on the 5 0 6 C conversation we had a second ago. But before I get there, I want to, because I think you're raising capital, so how do you. I think, I guess we have to talk about how you're doing it now, because what I want to get at is the difference in capital that's IRR driven short term, like I need to get in and out of this deal compared to the long term approach, right?

[00:14:44] Randal McLeaird: And maybe who the investors are that are more like, Hey, we're in it for the long haul. Like we want a 20 year hold on something. Because that. Equity is a completely different type of investor and partner in the deals compared to somebody who's like, come on, let's go. Clock's ticking. Let's [00:15:00] go. Where's the money?

[00:15:00] Randal McLeaird: So like, let's get to that at some point. Maybe first we'll talk about how you're structuring your deals now and like kind of what, what the deal flow looks like compared to 2017 when you bought that first thing. So after that deal, we'll go down that road. I rambled a little bit there, man. We'll get to it.

[00:15:14] Randal McLeaird: A lot of questions, obviously. So from that deal, like what did you transition to after that? And did you continue looking for portfolios or was it all single assets? Like let's go after bigger assets. 

[00:15:25] Eric Rice: Yeah. So the way it worked out for that, like I said, we sold some stuff off. We bought a little more stuff in that immediate area.

[00:15:31] Eric Rice: And then we ended up kind of not stumbling, but it wasn't on purpose. Uh, we came into some deals on a main street in a small town, north of Pittsburgh called Zillion Opal, which is like in the path of progress, there's a major suburb right below it. And that suburb is expanded a lot. And this is kind of like the next.

[00:15:49] Eric Rice: The way I equate is in DC, it was pretty easy to see where the progress is going to be. You just like, look at the Metro line and like the one stop that's developed, like the next one is generally the next place. And so we [00:16:00] don't have metros here, but we have 79 North. That's our major highway to the North.

[00:16:04] Eric Rice: And it's just kind of like the next exit on the highway. And so this town was, was right next to the exit. So good access for folks. And it had a cool, like Main Street, historic Main Street. And it was starting to get some traction. The local government was doing great work and we had an opportunity to buy a building on the main street that was commercial.

[00:16:23] Eric Rice: It was, it was mixed use. It was like restaurant retail and 3 apartments. So not a big building, but we had, we had some cash that we refined out from that prior deal. We just talked about, we worked out an owner financing deal on that as well with the ownership group on that. And it was in the 300 to 400, 000 range.

[00:16:43] Eric Rice: I can't remember how much exactly we paid for it, but then another couple hundred thousand in rehab dollars. And so we jumped into that project, which was kind of a first of its kind for us. It was more commercial than multifamily. And so. That one, same thing, refi. And then basically we were like, alright, we like this little market right [00:17:00] here.

[00:17:00] Eric Rice: So, we just started talking to owners of the other buildings. And, you know, we'd walk in the front door, find the owner, talk to them. A lot of them are getting ready to retire. They want to sell their buildings. The people in town that traditionally would buy the buildings, you know, have pricing in their mind from 10 years ago or 20 years ago.

[00:17:17] Eric Rice: And these folks that are selling want pricing a little closer to today's pricing. We were willing to pay it because we saw the value going forward. Cause like I said, it's a long term game for us. And so we made it on our financing deals. We made normal bank deals and we just kind of built up a nice portfolio of like mixed use main street stuff.

[00:17:33] Eric Rice: And then while we were doing that, we bought a 62 unit vacant and condemned apartment complex and started on that as well. So it was a couple of things at the same time. The main street stuff was all our own capital and the 62 unit apartment complex was our 1st syndication. Got it. When was that? We bought that in 

[00:17:54] Randal McLeaird: 2021.

[00:17:54] Randal McLeaird: Okay. All right. Couple things. One, the main street stuff is awesome. There's a guy that came [00:18:00] down for a ULI meeting and he was just talking about, you know, the infill projects in downtown and some of these outskirts cities. We have one close to us again, San Marcos, like in between here and Austin. And you see these things popping up and if they're in the path of progress, it's really cool to see some of these cities in the main streets.

[00:18:17] Randal McLeaird: Get revived. My sister lives just north of us and in their city. Same thing happened. A lot of cool new venues go in and it revives the downtown, right? In these small towns, so. One, that's very cool. Two, if the city's on board, were you getting grants and they were helping you out with some of the rehab and remodel, or was there tax incentives, or was it just like, they just wanted to help you get through zoning and make it easy for you to do whatever you wanted?

[00:18:40] Eric Rice: So, the most important thing was, like, the council had passed and pushed through a bunch of grants for Main Street specifically, not for the building owners necessarily, but for, like, a revamp, putting all the electrical lines underground, new sidewalks. Really pretty new lighting, that type of stuff, just kind of streetscape.

[00:18:57] Eric Rice: And that was huge. And that was pushed forward by a [00:19:00] local group of, of kind of business folks and interested citizens. And then it went to council and council kind of took it over and drove it home. And so that was a huge part of it. We saw that they were being proactive. They wanted businesses, they wanted it to come back to life.

[00:19:14] Eric Rice: And that was a big part. Um, we did receive like one small facade grant of, I think it was about 4, 500 bucks from a local group, which was great. We have looked into other like historic grants and stuff for these projects that we're doing, but the amount of money that they were providing. And also it's not our expertise.

[00:19:30] Eric Rice: Like we're not experts in that we're not grant writers. And the reality is, is like for the amount of money we could have maybe gotten on the project versus the amount of like red tape that would have put into place. It was just kind of like, eh, for 10 or 20, 000 bucks, like We can find that money somewhere else easier, not just the time that, but the timing 

[00:19:50] Randal McLeaird: it takes for them to approve it.

[00:19:51] Randal McLeaird: I'm sure. 

[00:19:52] Eric Rice: Yeah. So, and then they may be out there and I hope in a year or two, I'm eating my words and we're getting lots of great grants for projects like this. But as of right [00:20:00] now, we've just done it all with private money. 

[00:20:02] Randal McLeaird: Yeah, 

[00:20:02] Eric Rice: yeah. Right on. 

[00:20:03] Randal McLeaird: Okay. So that, and then I guess for literally I've looked at buildings in one of these towns close to where I am, they're older buildings and they are, I mean, it's typical downtown.

[00:20:12] Randal McLeaird: So it's, they're joined walls and. So like, what are some of the challenges that you guys faced when you were remodeling? How old were the buildings? 

[00:20:22] Eric Rice: I'd say like the typical building age on, on our main street is about from 1900. So 125 years. Yeah, about the same. 

[00:20:29] Randal McLeaird: Okay. So like, what's like the biggest things that you should look out for if you're taking on a project kind of like that?

[00:20:34] Eric Rice: I think so. So that initial portfolio that we talked about, the larger buildings in that portfolio were also from that same timeframe. And we went in and cleaned them up and made them look nice. But we didn't go in and like do them from scratch. And there's more maintenance there than anywhere else in our portfolio.

[00:20:49] Eric Rice: It's not overwhelming or anything like that. It's just like slightly more headache. And so from that, I think we just kind of came away with like, Hey, if we're going to do these older buildings, we should strip them out, like [00:21:00] maintain character wherever we can save 10 ceilings, cool woodwork, replicate things, et cetera.

[00:21:06] Eric Rice: But like, let's start with basically a new building inside an old shell. And that was the key, that piece of our portfolio kicks off the most reliable cash flow, I would say, because those buildings are all. Basically new on the inside and so I would say the learnings are if you think the plumbing is going to be fine in the floor in the basement, it's just not.

[00:21:29] Eric Rice: So just like, just plan for it. Just plan to redo it. Yeah, that's the budget right from the beginning. Like, we went way over budget on our rehab. Like, I'm our budget estimator and I'm not. Like an expert, I certainly was less of an expert at the time when we started that. And so we missed our budget significantly on there, but we've been very fortunate to get great tenants and, you know, along with other folks on that main street that are fixing up properties, the rental rates have come up and it worked out well for us.

[00:21:56] Eric Rice: So we, we've made lots and lots of mistakes and I'm sure we'll make lots more in the [00:22:00] future, but budget more than you think. 

[00:22:02] Randal McLeaird: Yeah. The way I look at it, and this is just from past, like rehabbing a bunch of houses, if. How can I best put it? It's one of those things like if you have a solid product at the end, you know, you can sell it.

[00:22:11] Randal McLeaird: If something is like, Oh, maybe they won't notice that. And this is just on a retail sale. And so it's the same with tenants. I assume they're like, well, they really did. They went all out. They fixed this thing up. I do like the space. I'm going to go into it. So it sounds kind of like the same type of thing that you guys came to realize.

[00:22:25] Randal McLeaird: And then you don't have all the maintenance headaches either. All right. Tell me about the 62 unit deal then, because this is a syndication that you guys did. 

[00:22:32] Eric Rice: Yeah. So as our first indication, we made it a little more complicated than necessary, but one of the buildings, a future building we bought on that same main street, we just talked about, we kind of rolled it in to get to the scale that we needed.

[00:22:43] Eric Rice: So the 62 unit, we were able to buy really cheap because it was vacant and condemned. And the guy lived in Florida and it ended up being a short sale. It was a total nightmare of a transaction, but the total dollar amount. It probably would have been big enough to syndicate and justify the cost associated with setting up the back end of a syndication, [00:23:00] but we added in this other asset on main street.

[00:23:02] Eric Rice: So in any case, the raise was a million five. Which we'd never gone out and raised any significant amount of money before. We weren't sure how that was going to go. So that's, that's all scary and kind of just part of learning and growing, I think, in this business. And so we kind of, we tried our best to put together like a really good deck and a presentation, did a webinar with, with our investors and that sort of thing.

[00:23:23] Eric Rice: And actually ended up great. I mean, we raised the money in less than a week. And so that was, that was good. We got our loans through. And that 62 unit project was interesting. It was like a seventies built product. So it was almost like a split level house, like where you go in and you go down five stairs and you're in the first floor, but it's half underground.

[00:23:42] Eric Rice: You go up five stairs, you're on the second floor and then another set, you're up on the third floor. And, uh, so those, like the layouts were really bad. So we opened up a lot of kitchens. And did a lot of those things. We kind of stripped them all out, basically, and brought them all back to life, changed floor plans a little bit, but mostly just in the kitchens.

[00:23:58] Eric Rice: And, uh, [00:24:00] one of the key components to that was working with the local government and just kind of sitting down with them ahead of time. And it was a major problem property in that community. And by sitting down with them up front and saying like, hey, we've done this in other places. Maybe not at this scale, but we've done this in other places.

[00:24:16] Eric Rice: Feel free to call the borough manager here or the, you know, the police department here and see how we work. And, uh, they were skeptical really because like other people, I think had come in and told them that they were going to do that as well, but we really, I think we did a great job kind of committing and then holding up to our word.

[00:24:33] Eric Rice: And so they made it easy for us to do that. Like there's not a lot of red tape on there and on the construction side, the code officer was like, yep, that looks good. We're happy with this. And they just made it easy, which really, really helped. And just kind of sitting down and being upfront with them right from the beginning was very helpful.

[00:24:50] Randal McLeaird: So can you explain, did you need to sit down with them in order to get it out of condemnation or was it. 

[00:24:57] Eric Rice: Yeah. 

[00:24:57] Randal McLeaird: So that's well, that's, 

[00:24:58] Eric Rice: that's not why we did it. [00:25:00] It wasn't condemned 

[00:25:01] Randal McLeaird: when we went 

[00:25:02] Eric Rice: under contract. It was condemned during that 

[00:25:05] Randal McLeaird: interesting. Okay. Yeah. But either way, you still 

[00:25:08] Eric Rice: had to get it out of condemnation.

[00:25:09] Eric Rice: Yeah, we did. Yeah. And we had already had a relationship with them as we were going through it because we knew we were going to have to do considerable work on it. And also we'd just like to sit down with the local municipality if we're going into a new area. And understand what their attitude is towards a project and that sort of thing Yeah, so we had like a good working relationship with them and then so knowing and understanding that was Able to be uncondemned with relative ease was helpful for us in closing that deal.

[00:25:37] Eric Rice: Yeah. Because you buy it and then they still demo it. You'd be in 

[00:25:39] Randal McLeaird:

[00:25:40] Eric Rice: problem. It would be a real problem. Yeah. Cause the value is not in the land there. It's all in the cashflow stream. It's like workforce housing, super clean, nice, affordable. It's the best product on the market in that little, that little area.

[00:25:52] Eric Rice: Pittsburgh is like a steel town. So there's all these mill towns outside of Pittsburgh all over the place. You know, when, when the steel went out, most of those towns went out [00:26:00] as well. And, uh, this town has a cool little main street. It's not, you know, the hippest place in the world, but it's a very affordable, nice place to live.

[00:26:07] Eric Rice: And so we just figured we'd have limited competition if we went in and did a really nice job on it and turned out, turned out great. It's it's full and operates really, really well right now. We're actually about to put it into like agency debt with Freddie Mac. Oh, nice. Yeah. So that's exciting. 

[00:26:22] Randal McLeaird: Yeah. Good.

[00:26:23] Randal McLeaird: Pull out all the capital, I would assume, or 

[00:26:24] Eric Rice: refinance 

[00:26:25] Randal McLeaird: it, 

[00:26:25] Eric Rice: whatever you had in there. Yeah, we'll be able to refinance out most of the capital in the project and bring that to our investors and, and then they just get the cash flow. 

[00:26:33] Randal McLeaird: Yeah. So let's talk about that then. All right. It's a done deal. I don't know how much, can you talk about return profile and that sort of thing?

[00:26:40] Randal McLeaird: 506B? I'm not sure what you've got. Yeah. You don't have an offering right now that you're pitching, but let's talk, I guess, about that deal. In general, what is the offer? You know, like, I want you guys to come in. I need 1. 5 and we're going to do an 80 20 split, 7 percent prep. Like, how did you guys structure that in order to, to make it [00:27:00] appealing, I guess, to investors?

[00:27:01] Randal McLeaird: Yes. 

[00:27:01] Eric Rice: So what we did, we kept it really simple. We did like a 70 30 split and it's just like straight split. No, no preparation at all, basically. And, uh, the return kind of profile that we pitched, I think we, we kind of figured in year three, four, we'd be returning somewhere around 20 percent of their initial equity invested.

[00:27:21] Eric Rice: And then I think the annualized returns for those investors would be like on a cash flow basis. I have to look back, but it wasn't crazy. It was like 12 percent or something like that. And we kept it simple, like, we didn't even, we didn't have IRR, we didn't know anybody cared about IRR, so that was a really simple deal.

[00:27:38] Eric Rice: And the way that's easiest to kind of talk about how it performed compared to those expectations is to break apart that 62 unit from the main street property, because that main street property just been up and, like, is stabilizing right now. That one had some extra complications. But it was approximately half and half.

[00:27:54] Eric Rice: So we'll take the seven 50 on that. Basically we'll be able to return almost all of that. I'd [00:28:00] say 80 or 90 percent of that on this refinance that's tied to the apartment piece of it and the cashflow from it, it'll still go on, you know, kind of. To infinity for those investors over the next bunch of years here, because they'll gotten all their capital back in a relatively short amount of time.

[00:28:14] Eric Rice: So everybody that's in that deal, you know, I give quarterly updates to those investors and gotten tons of positive feedback. And I'm sure as soon as we, uh, and we've been sending distributions out, obviously quarterly as well, but I'm sure as soon as everybody gets a big, big chunk of their equity back, we'll get even more positive feedback.

[00:28:29] Eric Rice: So, yeah. That worked out 

[00:28:31] Randal McLeaird: really well. That's awesome. I was going to ask you, what was a lease up timeline? Cause you guys had that thing completely vacant and this is 21. You bought it. So how long did that take? 

[00:28:39] Eric Rice: 21. We started leasing in, I want to say like summer of 22 and we did it in like sections, we did like 30 and then 32.

[00:28:51] Eric Rice: We started leasing the first 30 and like that summer, it took about, I would say 8 months to [00:29:00] fully lease that up and get that piece super stable. And then while we were doing that, we started leasing up the other 1 and that took another 6 months. I'd say, at least that went up. So we were stabilized.

[00:29:09] Eric Rice: Really well, stabilized by kind of mid to late 2023. Yeah, 

[00:29:15] Randal McLeaird: nice. Explain the dynamics, I guess, of splitting that off because the agency is going to be just on that portion. So are you deeding that property out into a new entity or how does that even work? They were split 

[00:29:28] Eric Rice: anyways, like we bought the other Main Street asset with cash because we needed to be a longer period of time to like get the development plan put in place and that sort of thing.

[00:29:36] Eric Rice: So it's under its own entity anyways. 

[00:29:39] Randal McLeaird: Okay, got it. Okay, that makes sense. I thought you put them together on a single loan and then you're going to have to, yeah, take it up. All right. So on that, let's get back to that question I was getting to a minute ago. I don't know what else you have in the pipe, right?

[00:29:51] Randal McLeaird: But, For investors that are coming on board right now in the multifamily market, a lot of stuff that I'm seeing on traditional [00:30:00] deals, not something that like you've done some very unique properties, which is awesome. I love talking about that kind of seeing what you've worked on because I'm kind of the same, like I've looked at churches to revamp them into multifamily, you know, stuff like that.

[00:30:11] Randal McLeaird: It's just like cool, interesting projects to work on downtown projects, that sort of thing. So from what you can tell me. The investors that you're working with, and if your thesis is, I'm going to invest for the long term, I want to hold these properties for the long term, we're going to refinance out, and we're going to put that equity to work, and I want you guys to come along for the ride.

[00:30:29] Randal McLeaird: Like, I guess, they're not IRR driven, your investors aren't necessarily looking for just like a quick IRR return, are they in for the long haul? Like, kind of explain to me your ideal investor, and like what they look like, and what, you know. What's your, yeah, long term. 

[00:30:45] Eric Rice: So, I mean, I'd say our investors now may be a little more IRR driven, but generally we're working with folks that are looking to put their money to work over a decent period of time.

[00:30:57] Eric Rice: You know, I'd say we model most of our deals on like a [00:31:00] 10 year model, probably. Um, so we're looking for investors that are a little more patient that want cashflow. And so that's kind of our, our pitch, but the deals that we've done syndications on have involved like heavy value add components. So.

[00:31:14] Eric Rice: Investors, I would say in a normal deal, the latest one we just did, we bought 115 door motel property that we're converting to multifamily. It's going to be 70 units when it's done. So in a deal like that, when you invest in that as an LP, there's no cashflow for the first 18 months, probably. And so they have to be patient investors, but the returns are generally pretty good because there's such a heavy value add component to it.

[00:31:38] Eric Rice: And you're really either bringing something completely back to life and a market that really needs it, or you're changing the use and, you know, going through all the, the brain damage that that, that involves and just kind of, uh, pushing through and pushing the rock uphill for a little while. But once it starts to roll downhill on those deals, the returns profiles gets really good.

[00:31:55] Eric Rice: So patient investors. Well, so how are you 

[00:31:57] Randal McLeaird: underwriting that type of deal whenever [00:32:00] you, like, I don't know what the, the rents are. In your 

[00:32:02] Eric Rice: market, but say 850 or 900 for like a workforce housing, one bedroom. 

[00:32:08] Randal McLeaird: Okay. So, and that's tried, true. You know that there's demand for it. You're not, because I guess I was interviewing somebody the other day and they were telling me like right now we're not doing any heavy value, add capital intensive projects because of the risk involved, right?

[00:32:24] Randal McLeaird: Everyone has their own little niche. You guys have carved one out. So when you hear that, like, what's your knee jerk reaction? Like, okay, we're so deep in this thing. It doesn't matter. Well, no, 

[00:32:35] Eric Rice: I think my knee jerk reaction is that it depends on your market. Right? So if they're in the Sunbelt or in Texas, like you guys have a lot of inventory coming on in those areas.

[00:32:43] Eric Rice: And so. Going in and doing a super heavy value add and trying to compete with like the new new inventory that's coming on that probably is going to have price reductions to get people in the door and lots of incentives is tough for us. We have some new project product coming on the market, like class a stuff in the downtown area.[00:33:00] 

[00:33:00] Eric Rice: We don't work generally right in the downtown area. We work like, you know, Around the city of Pittsburgh, and there's just, we just don't have a lot of competition. So it's pretty easy for me to get very comfortable with what our demand is going to look like. And also, I mean, one, one thing too, an advantage that we have is we're not developing 400 units at a time currently.

[00:33:18] Eric Rice: And that's a different, you have to think differently when you're doing that. That's a much different beast than leasing up 60 units or 70 units. So, 

[00:33:26] Randal McLeaird: yeah, that's true. The absorption is going to take it. So that's the main thing you guys are working on right now, this hotel 

[00:33:31] Eric Rice: conversion? Yeah, we're doing another Main Street project right now as well.

[00:33:36] Eric Rice: And we're on the hunt for more. I mean, so I think I mean, kind of to get back to your question from before, you know, it has been tough to buy, like just straight deals for us for the last several years. And that's been a little bit frustrating, but I think our discipline is kind of going to come to fruition here in terms of seeing deals that actually do make sense, I'm starting to see some deals that come out that we're underwriting [00:34:00] that are a little bit bigger, you know, a hundred, 200 to 200 unit deals that are like, all right, we're much closer on this than we were two years ago when the market was really frothy and.

[00:34:08] Eric Rice: The upside to us, having been doing these smaller deals through this market cycle is that we're not in trouble. We don't have a bunch of loans come and do with a lot of heavy pressure, which is feels really good right now, because there's a lot of giant operators that do, but we weren't able to grow as fast as we wanted to over the last couple of years, because the opportunities that were clean and quick and easy, just, they just didn't pencil for us.

[00:34:29] Eric Rice: But I think we're going to start to see those as, as people come against, uh, yeah. Whether it's loan pressure, whether it's just time to return money to investors or what have you, but I have a lot of confidence that we're starting to see deals of a larger size that we can go out and take down that are a little less.

[00:34:44] Eric Rice: Heavy, heavy construction value add, they may be more management value, add some construction piece to them, but 

[00:34:49] Randal McLeaird: what are your thoughts on the, uh, like KKR, do you see, they just like bought, you know, and then Blackstone's going out and just buying Blackstone, BlackRock. Did I just say that wrong? Yeah. [00:35:00] So, I mean, is that giving you confidence in the market or is that just need to place capital?

[00:35:06] Randal McLeaird: You know, it's like. 

[00:35:06] Eric Rice: Yeah, I don't know if you read the promote that newsletter, but it's a good one for the industry. But I was just reading about KKR and Blackstone or I think it's Blackstone. They both just bought like multi billion dollar portfolios and multifamily from like large operators. And I think they're seeing the same thing, right?

[00:35:23] Eric Rice: Like they're basically like, okay. And for them, it needs to be big, big deals like that. And they have their patients so they can, they're looking at it and they're like, okay, there's these guys and these markets that have a ton of units under development and they are looking at it for a two or three year type hold.

[00:35:39] Eric Rice: And they're like, we got to sell now because we can't wait out like this influx of inventory. But those companies, in my mind, they can buy something and have a five or 10 year time horizon and just wait it out. And I think they're seeing, they're now seeing like those kind of distress. It's really financial distress probably in those portfolios.

[00:35:57] Eric Rice: And, uh, they're like, we can strike a deal right now [00:36:00] and wait out this market because not many people are building new units, like, that are coming out of the ground, like, right this second. It's the stuff that's finishing up that started a couple of years ago that's causing the glut of inventory. 

[00:36:10] Randal McLeaird: Yeah. So if you're looking at those style projects, like 200 unit, two plus, are you looking at deals that you can buy below replacement cost?

[00:36:18] Randal McLeaird: Yeah. And, okay, so how are you determining replacement cost on those projects? 

[00:36:23] Eric Rice: Well, I mean, so. We don't specialize in the high end market, so I would call our specialty like workforce housing. Yep. And so if we can go in and almost everything, you know, if I can go in and buy something for 80 or 90 a unit, put in, you know, another 10k per unit, and rents are, I mean, just simple math, a thousand bucks a unit, like, that's probably going to be a deal that I can figure out a way to make work, you know, looking at the price per square foot in our area.

[00:36:52] Eric Rice: You know, you're probably at half, I mean, that's like half of replacement costs. Now, granted, it's not a class A property, but there's a [00:37:00] huge need for just B class properties in these areas that we're working in and filling them up feels relatively easy from our perspective. You catch people on the way up, you catch people on the way down.

[00:37:10] Eric Rice: Yeah. It feels like a really stable place to be. So that's how we get comfortable. 

[00:37:15] Randal McLeaird: Yeah. Are you raising for this? Deal or you already closed on it? The hotel conversion. It's already done. That's underway. So we did 

[00:37:22] Eric Rice: like just a single, single property syndication on that. That's closed. Same type of terms and everything that you guys were doing?

[00:37:28] Eric Rice: Yeah, it was 70 30. The return profile was a little bit better on it actually. And we kind of modeled that off of, uh, Are you familiar with Cardinal Properties at all or Cardinal Construction? No. They were like the biggest multi family builder in the 80s and 70s and 80s. And they were based out of Columbus, Ohio.

[00:37:45] Eric Rice: And they built modular actually. And so like they were just 12 by 24 boxes. And they just got them all on a preset block foundation with a crawl space. They did like nights in hotels and they did multi family. And they're exactly the same. They're just, they're all 12 by [00:38:00] 24 boxes. Yeah. We were going after like a Cardinal deal.

[00:38:03] Eric Rice: Like 200 and some units and it sold like 85 a door and I couldn't quite get the numbers to work on that one. And I was like, man, that hotel property that's been on the market forever. It looks really similar. I bet you it's the same construction. And so when I looked at it, I was like, yep, here's the tag cardinal construction.

[00:38:19] Eric Rice: And so that we're like, here, the floor plans exist. It was very easy to kind of make that conversion and figure out how that might work. And so with that kind of model in mind, we were able to get in at a great price, understand what our construction budget looked like pretty easily. Okay. And, you know, I think the returns are going to look really good for the investors as long as we, uh, we hit all of our milestones, which were right on track for us.

[00:38:41] Randal McLeaird: So again, you took a hundred down to 70, what, you just knocked a few interior walls out to make two unit, two, two bedroom type deal. Yeah, a hundred, 

[00:38:47] Eric Rice: 115 down to 70. So 12 by 24, that's only 288 square feet. It's not huge. So we have some studio units going in there, which is just one of those boxes, basically.

[00:38:58] Eric Rice: And then we have a bunch of one bedrooms and two [00:39:00] bedrooms, which combine multiples by opening up the walls and combining the units. So in kitchen nets, I mean, new plug, real kitchens, they all had like. Little kitchenette type things or not even. And so we are adding kitchen, like we are doing a good bit of plumbing work, but it's pretty easy.

[00:39:17] Eric Rice: Like there's, it's a crawl space underneath. There's one kind of a trunk line that runs down. So we're just a bunch of new taps in there and that sort of thing. Uh, that 

[00:39:22] Randal McLeaird: is, uh, I didn't think about that with the crawl space. Yeah. I was thinking slab foundation. That's a lot of moving. Yeah. You guys have way more slabs down there than we, we don't have any slab foundations up here.

[00:39:31] Randal McLeaird: Yeah. No soft soils. Yeah. All right. So on the horizon, just kind of curious, like, what are you guys seeing coming up for the rest of the year and then into 25? 

[00:39:41] Eric Rice: Yeah. So we, we've spent a lot of time over the last year and a half or two years kind of building internal processes and adding staff members and bringing property management in house and that sort of thing.

[00:39:50] Eric Rice: So we've like, we've poised for growth and, uh, I'm expecting that we're going to be able to make some big purchases big for us over the next 12 months or so. And so really we're [00:40:00] excited to kick it into growth mode and start adding some larger single site. Kind of, uh. Properties to our portfolio and, and, uh, add more team members and really getting this thing rocking and rolling.

[00:40:10] Eric Rice: So I think the opportunities are coming. I've been thinking that for a little while, but eventually I'll be right. 

[00:40:16] Randal McLeaird: Clock strikes. What is it? 12 and twice a day. I don't like that. I don't know yet, but man, I agree. It is, as we were talking before and throughout the interview, it's been. It's hard to make things make sense.

[00:40:29] Randal McLeaird: And that's why replacement costs and that sort of thing is what I've been focused on lately. It's like, okay, do these things make sense? And in the longterm over the next three, five, six years, is it going to be a deal? Because yeah, that's how long we're going to hold them. So yeah, I'm excited for the next year, year and a half.

[00:40:43] Randal McLeaird: A lot of people having a hard time, but hopefully they can either pull out or I don't know, investor capital is not going to get completely wiped out in some of the stuff that's happening right now, but yeah, it's exciting to see new opportunities actually showing up. So, Hey man, I appreciate jumping on, sharing your info and knowledge, talking about your business, [00:41:00] telling us what you're working on.

[00:41:01] Randal McLeaird: Sounds like you had a lot of cool projects in the bag already and some coming online. So if you're looking to invest, I would encourage you to reach out to, to Eric directly. I'm going to put all your contact info in the show notes so that they can click through straight to you and, and, um, your team. And if you guys have something cool on the horizon, maybe you guys can work together.

[00:41:21] Randal McLeaird: So yeah, thanks. Thanks. 

[00:41:23] Eric Rice: I appreciate it, man. I'd encourage you to go. Uh, look at that main street property You're talking about 

[00:41:27] Randal McLeaird: there's like four owned by the same guy and I just I hadn't thought about under financing them But you mentioned it and i'm like, you know, it's a good time to look at that. It's a cool town So yeah, good call All right, man.

[00:41:40] Randal McLeaird: Good catching up. See you guys on the next episode. Did you know that 80 percent of the agents we speak with got into real estate in order to gain passive income so they could obtain financial freedom and become work optional? If you want to stay up to date, the best way is to make sure you're subscribed.

[00:41:54] Randal McLeaird: So if you haven't done that, go ahead and do it now. We'll catch you on the next [00:42:00] episode. 

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