Agents Building Cashflow

EP 175: The Proven Real Estate Syndication Method to Build Wealth and Freedom with Matt Picheny

Matt Picheny

In this episode of Agents Building Cashflow, Randal interviews Matt Picheny, a seasoned real estate investor, coach, Tony award winner, and author of the best-selling "Backstage Guide to Real Estate." Matt shares his unique P5 Syndication Method, offering listeners an insightful guide to mastering real estate syndication.

He delves into critical aspects, from selecting markets and analyzing deals to building investor relationships. Matt also explains his focus on creating passive income and positive change through real estate. Tune in to learn how you, too, can leverage these strategies to achieve financial freedom and make an impact.

Key takeaways to listen to:

  • How to analyze real estate deals holistically by reviewing the T12, rent roll, and market reports.
  • The importance of focusing on a single market to gain a competitive advantage in syndication.
  • Building and nurturing investor relationships before you need to raise capital.
  • Matt's P5 Syndication Method for building a scalable and ethical real estate business.
  • The benefits of passive income and creating positive change through syndication.

About Matt Picheny

Matt Picheny is a real estate investor, coach, Tony award winner, and author of the #1 best-selling book, Backstage Guide to Real Estate. He is focused on developing passive income streams that enable investors to write their own story and choose how they want to spend their time. Matt has over 15 years of experience revitalizing and elevating communities through real estate investment and has invested in over 10,000 apartments nationwide. 

He is a licensed real estate agent and has earned both Commercial Real Estate & Real Estate Finance certificates from Boston University. Matt has been a member of the Forbes Real Estate Council, Fast Company Executive Board, and was named the "Best Multifamily Investment Coach" by the American Apartment Owners Association.

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[00:00:00] Matt Picheny: I take a holistic approach when I'm looking at a deal, so I'm getting things like the T12, right, which is the trailing 12 months of profit and loss statements and taking a look at exactly what's going on with that property. How are they operating it? How can we do things more efficiently? 

[00:00:17] 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.

[00:00:24] Intro: 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 so you can take your commissions and turn them into cashflow. Here's your host, Randall. Let's dive in. 

[00:00:39] Randal McLeaird: All right. Welcome back. Today's guest is Matt Puccini.

[00:00:42] Randal McLeaird: The guy has been doing a lot of multifamily deals over the last year, the last few years. And today I thought it'd be great to go through since he does some coaching to go through and actually walk through a mini course of what. It takes to become a syndicator and go out and buy these [00:01:00] large multifamily deals.

[00:01:01] Randal McLeaird: He's got over 4, 500 units that he has been a general partner on. And I think double that, something like that on, on when you take into account his limited partner investing as well. So wealth of knowledge, he's been involved in a lot of deals, a lot of transactions, their latest one that we were briefly touched on.

[00:01:16] Randal McLeaird: We don't actually talk about deal flow and deals. That much on this call. It's a new construction deal they're doing in Ottawa, Canada, the Westboro tower, 134 unit new construction deal. So again, he's bought. Legacy assets, meaning they've been built and now they're building a new one. And so he's got a ton of information, been in the game, and I highly recommend listening through this if you are looking to learn about syndication, how to get into syndication and launch your own so that you can go out and buy some of these bigger deals.

[00:01:44] Randal McLeaird: His method, it's the P5 syndication method. So we talk about that. That is really the crux of, of what it is. He's also a bestselling author, uh, writes a book about syndicating and getting into the game. It's, um, backstage guide to syndication. So again, let's jump into the show [00:02:00] and talk to Matt. If you're getting value out of the show, please go on rate and review helps us a ton, bring on great guests, just like Matt, and they can share their story and share their knowledge with you so that you can grow and get into this business.

[00:02:10] Randal McLeaird: And turn your commissions into cashflow. Let's go. Here we go. Matt, it's awesome to have you on the show. I really appreciate you jumping on today. I'm looking forward to the conversation and talking not just about your experience and what you, you know, as far as deals that you've done and worked on. I know we'll touch on that just briefly, but really how someone, a real estate professional can get into the syndication game.

[00:02:30] Randal McLeaird: And I know that you're, you're deep into that and teaching people how to do it and how to learn it. So I really want to go through and kind of do like a mini course today and just have you explain to us. Here's what you do 1, 2, 3 and go type of thing. So again, welcome to the show. It's good to have you on.

[00:02:43] Matt Picheny: Thanks for having me. It's a pleasure to be here. 

[00:02:45] Randal McLeaird: Yeah. And I like your sign in the background there. Yeah. It's always good to see that. I saw it in some of the other shows. Yeah, exactly. Yeah. Okay. So again, I know from listening, I don't know what your unit count is now, but there are a number of podcasts.

[00:02:58] Randal McLeaird: And if you guys are [00:03:00] looking for some history and some backstory into Matt, jump onto his website. The link is going to be in the show notes down below. And you've had a ton of podcasts that you talk about, you know, buying deals, deal specifics and that sort of thing. So I kind of want to avoid that today.

[00:03:13] Randal McLeaird: But in general, just where are you at on unit count? What markets are you guys playing in right now? And we'll just cover that just to give a little bit of backstory there. 

[00:03:20] Matt Picheny: Yeah, so, you know, I've been in general partner in. A little over 4, 500 units. 

[00:03:26] Randal McLeaird: You 

[00:03:26] Matt Picheny: know, I also invest passively in deals too. So I have over 7, 000 units that I've invested in passively as an LP.

[00:03:34] Matt Picheny: There's a general partner. It's a little over 4, 500 units, but a little over 650 million worth of real estate that I have fractional ownership of. And then I'm, you know, in charge of operating. 

[00:03:45] Randal McLeaird: Got it. Okay. Yeah, that gives a good base knowledge again. So you know what you're talking about. You've been in the business, you're doing some deals.

[00:03:52] Randal McLeaird: So again, if I'm a real estate professional, real estate agent, and I, I'm making some commissions, you know, and I want to get into the [00:04:00] syndication game, not just from a, from a passive or limited partners perspective, like what are some of the things, I know you talk about this. So let's cover high level of your course and how you would go about teaching somebody to get into the game.

[00:04:13] Matt Picheny: Yeah, Randall, I started teaching because people were coming to me and asking me, you know, hey, how do I do it? Right. How do I get into the game? And I started informally just having some people first. At first I was like, no, no, no, no. And then eventually someone who I had become very friendly with was like, no, like, seriously, I really want to do this.

[00:04:33] Matt Picheny: And I was like, all right, fine. So, and then what I found. which I didn't think I was going to was that actually I loved doing it. I loved helping people. I really enjoy teaching. You know, I have two young kids. I always get a kick out of when I teach them something new, they learn something that I teach them.

[00:04:49] Matt Picheny: I'm very musically inclined, so I teach them music and how to play songs and stuff. Whenever they do, I just get a huge kick out of it. And I get a huge kick out of when I work with people and see them [00:05:00] actually succeeding. And, you know, I really want to help more people. So with the portfolio that we discussed earlier, I've basically become sort of work optional, if you will.

[00:05:08] Matt Picheny: Right. I don't have to work. But I enjoy doing stuff. And what else am I going to do? Sit around and eat Doritos and watch TV. So, but I'd like to see more people. I mean, I like to eat Doritos and watch TV, but it's just like all the time, it would kind of get boring and I'd get 

[00:05:22] Randal McLeaird: really bad. 

[00:05:23] Matt Picheny: So I want to help other people be able to become work optional.

[00:05:28] Matt Picheny: And I think, you know, I wrote a bestselling book called backstage guide to real estate, and the subtitle for that book is something that's important to me, which is, it says, uh, produce passive income, write your own story. And direct your dollars towards positive change. And besides the fact that it's a neat play on words, nodding to my acting background, it's also, I think really important.

[00:05:49] Matt Picheny: It's something that I want to do. Well, I want to help people be able to be able to write their own story and do things that are positive in the world. I think that most people, if they are become work optional [00:06:00] and have time on their hands, tend to do things that are good for society, good for communities.

[00:06:05] Matt Picheny: So. That's kind of where that came from. And what happened was I just started teaching people how to do what I did, like the things that I learned along my path, and I've now put it into a sort of a system. It's really like a framework that I call the P5 syndication method. And so everybody that I work with, which I think is a bit unique, is I do one on one coaching with people.

[00:06:30] Matt Picheny: So I take students on, I don't have some coach that I pass them off to, it's like, it's me, it's my group. I do one on one coaching with people, and there's also other, there's a lot of facets to it, but basically we, we follow a framework. And depending on where the student is and what they need to focus on, we can focus on all of them equally.

[00:06:46] Matt Picheny: We can focus on different ones differently. So I'll walk you through them. And explain kind of what they are. And then I think, Randall, what might be good as I talk about each one, you know, if you have questions about them, we could discuss. [00:07:00] The first pillar, I call the real estate business assessment, right?

[00:07:05] Matt Picheny: In order to get to where you're going, you need a roadmap. And that's what we do. In the business assessment, we take a look at where someone is, where they want to go, figure out the gap in between, and come up with a detailed plan on how to get there. Maybe they have zero income coming from real estate or let's say passive or syndication real estate income, right?

[00:07:25] Matt Picheny: Not, not from commissions. And then let's say they want to get to a hundred. How do we get them to a hundred or two hundred, three hundred thousand dollars on an annual basis? We also at that point, so we'll take a look at what they already have, where they're going, come up with goals. I do smart goals, which is an acronym.

[00:07:41] Matt Picheny: It's a goal setting method and make sure that they're very, very like specific goals. And then we talk about how we're going to achieve them. And then we also make sure that we just have our housekeeping in order. Right? So, do you have an entity? If not, teach you how to create an entity, refer you to an attorney who's an expert in that.

[00:07:58] Matt Picheny: And make sure that that entity [00:08:00] is set up for strong asset protection and also for tax efficiency. And we also make sure you have a logo, business cards, a one page website, so that when you're starting the business, you're going, you're meeting with investors or you're meeting with brokers or whomever, you're making sure you have a nice professional presence, right?

[00:08:18] Matt Picheny: So that, you know, you only get one chance to make a first impression. 

[00:08:21] Randal McLeaird: That's right. Yeah. So let me ask then, is the business setup, is that part of the second P or is that the first? Like. 

[00:08:28] Matt Picheny: It's the first pillar. This is all the real estate business assessment. That's all part of that first one. 

[00:08:34] Randal McLeaird: Okay. And then do you, when you're going through that process, are you having the conversation with a student about, The different aspects and areas they could be involved in a syndication business, or is it is the approach because if you're raising capital, you may not necessarily need an LLC if you're going to be a co GP on a deal.

[00:08:53] Randal McLeaird: I don't know how you maybe you can answer that for me. How do you recommend that be established if you are coming in? And you're [00:09:00] John Doe and you want to just raise, you know, a million dollars for somebody's deal and be part of the GP team. Do you need to go out and set up an LLC and get all of that established?

[00:09:08] Matt Picheny: I would recommend that you speak with an SEC attorney because you're not supposed to just raise capital for deals. That's the 1st thing. And secondly, you should talk to an attorney about how to set up how to set it up. Like, I just, I'm very careful to make sure that I share with people what I've done, but I don't give legal advice because I can get myself in trouble because I'm not an attorney.

[00:09:30] Matt Picheny: But, yeah, we talked through the different. Roles that somebody can have within a within a syndication and also this is a little bit more pillar number two, actually what the rules and the guidelines and things like that are, and that's really part of the 2nd pillar. So it's a good segue into pillar number 2, which I call backstage guy to syndications.

[00:09:52] Matt Picheny: And in Backstage Guides to Syndications, that's when we get into the structure, right? A lot of people, especially when they're first getting involved in syndications, [00:10:00] how do I structure a deal? And we go over how you can structure a deal so that it's legal, ethical, and profitable. So we'll go through the ins and outs of the legal structures in terms of, you know, 506B and 506, you know, Regulation D under the SEC code so that you can understand how that is set up.

[00:10:19] Matt Picheny: We also will talk about. The different metrics that you need to look for in a deal, the different types of strategic approaches you could take towards a deal. Uh, we talk about the different terms that you need to know. My first few conversations with brokers when I first got in the business, I was under quite a bit of duress because they would throw out these terms that I was like, I don't know what that term means.

[00:10:40] Matt Picheny: So, The idea is to get people acquainted with the lingo and the language so that when they are having a conversation with, with a broker or an investor, they can understand what they're talking about. We also go over financing, right? And how financing works and the different types of financing products that are [00:11:00] available, because there's a huge difference between financing that's available for a one to four unit property and what the requirements are to get those loans versus A large multifamily, you know, I'm actually going through something right now, looking at a possible new personal residence.

[00:11:17] Matt Picheny: And, you know, they're looking at my DTI and I'm like, I buy a, you know, a hundred million dollar property. They're not looking at my DTI, you know, they're looking at how that property is going to perform. And obviously I need to have good credit and a good track record and all of those things, but it's just very different.

[00:11:31] Matt Picheny: So we talk about that. And we also, we, we delve into taxes. Okay. Because one of the best things about real estate are the tax advantages that you can have as a passive investor and also as an active investor. And we talk about things like depreciation, bonus depreciation, accelerated depreciation, depreciation recapture.

[00:11:51] Matt Picheny: So we cover all of that because as a sponsor or general partner on T. L., you need to be able to communicate With your investors about exactly [00:12:00] how all of that works. So that's really sort of those, those broad brushstrokes and give people, you know, an understanding of the SEC rules with the, with the caveat again.

[00:12:10] Matt Picheny: And I always caveat it with like, Hey, you need to talk with an SEC attorney. Okay. But here's my understanding of how this works. 

[00:12:16] Randal McLeaird: Yeah. Yeah, let me ask you. So you mentioned about those early conversations and how you go through and you're talking about the lingo and I mean that in general in business, if you're trying something new, you should go learn the lingo and it's obviously helpful to know what's happening.

[00:12:29] Randal McLeaird: But I'm curious when you're having those early conversations when you first started getting into this world, right? And you're having conversations with commercial brokers talking about buying these larger assets. How were you received? And if you didn't have that lingo, how did you overcome that type of, I guess, divide between what could be perceived as an experienced operator to a newbie coming into the world?

[00:12:51] Matt Picheny: You know, I never tried to, you know, fake it till you make it kind of thing. And that was never really me. You know, as a matter of fact, [00:13:00] and no disrespect to people who've done this before, but like, there was a bunch of people who were starting around the same time as me who started these podcasts. And I was like, why are you starting a pot?

[00:13:10] Matt Picheny: Like you're at the same level that I am. And, you know, it just felt sort of like not genuine to me. Now, by the time I wrote my book, I had done a bunch of deals and I felt like I actually had something to share with people. The first conversations that I had with brokers. I think we're probably pretty atrocious.

[00:13:27] Matt Picheny: We'd have to talk with those brokers and see what they thought of me. But I got better over time and I never lied. I was always very transparent with people about where I was, but I also wouldn't try to position myself in the best light. You know, so I would tell them I had a few LP investments before I eventually became a GP.

[00:13:50] Matt Picheny: So, you know, I would meet with a broker and they would be like, okay, so have you done any deals? And I would say, yeah, I'm a limited partner in a thousand units. You know, so it was showing, [00:14:00] like, some, you know, work towards, but if they were a savvy broker, they would know that a limited partner and general partner are different things, but I think it sure was a lot better than saying, well, no, I have nothing at all, but they would throw things at me and I would try to kind of, like, You know, fake my way through, I have one, I have a free guide.

[00:14:19] Matt Picheny: Okay. It's the 33 real estate terms. It's on my website and it's also like on my Instagram. And so it's a free guide. If you download it, the first page tells a true story about me meeting with a broker and we went to, it was a, it was a restaurant. And he ordered ramen. Okay. And so I was like, I'd never been in this restaurant before and it sounded good.

[00:14:44] Matt Picheny: So I ordered the ramen too. Did not realize it was going to be like fire ramen, like the spiciest. I'm okay. I can do, you know, like a jalapeno and guacamole, but I'm not like, you know, the habanero kind of guy. Obviously this guy [00:15:00] was, cause this stuff was like literally crazy. And so I, I tell a little story in the beginning in the first page of the guide about how I was sweating bullets.

[00:15:09] Matt Picheny: And it partially was because of the ramen, but it partially was because this guy was just drilling me with questions about cap rates and like all kinds of stuff that I, I didn't really have my head fully wrapped around. And, you know, I think I made it through that conversation. Okay. But it sure was a lot better once I learned those terms.

[00:15:28] Matt Picheny: And so then I give 33 terms that people should know so that they don't choke on the spicy ramen. 

[00:15:33] Randal McLeaird: Yeah, 

[00:15:33] Matt Picheny: that was the moral of the story was never say I'm having what he's having. 

[00:15:37] Randal McLeaird: Oh, yeah. Not unless you've been there and you know what it is. So I guess when I wrote it down, when I wrote the question down is how were you received?

[00:15:45] Randal McLeaird: I guess is, and so the difference is when you're telling them, look, you know, you're asking me about cap rates. I'm just trying to buy a property where you, and you're, you're not the, because again, I hear a lot of people say, I'm, I'm, uh, I have like 6, 000 units and then [00:16:00] they're like a 0. 001 percent owner of those or something along those lines.

[00:16:04] Randal McLeaird: And so it's not a true representation of what they actually own. And so again, coming into those conversations with a broker. What was it? I don't know how I was 

[00:16:12] Matt Picheny: received because I, I think we really need to ask the brokers that but I think I was honest with them. I would try to answer questions if they answered questions, but yeah, if they got to something that stumped me, I would be honest and I mean, I wouldn't try to like make up an answer.

[00:16:25] Matt Picheny: I would just say, you know what, I'm really not sure about that. 

[00:16:28] Randal McLeaird: Yeah. And I guess what I'm driving at is did it turn into a, you found a broker or a group of brokers or one or two, whoever it was that kind of took you under the wing and said, look, let's get you a deal. Let's find you a deal. Or was it still, you just.

[00:16:40] Randal McLeaird: pound the pavement, keep talking to people until you got better without having some other broker come and help you through that process. That's kind of what I'm driving at, if that makes sense. 

[00:16:49] Matt Picheny: I didn't have any broker help me through the process necessarily. I'll tell you really a very cliff notes version, which is the spicy ramen story was in Orlando.

[00:16:59] Matt Picheny: I had been [00:17:00] looking at deals in Ohio originally, then in Orlando, and then in Kansas City. And that's where I got my first deal was in Kansas City. And A property manager who I had met with, I had gone out there and made a market visit and was working with and looking at deals with when I got to a point when I was ready to make an offer.

[00:17:16] Matt Picheny: And she actually told me that 1 of her clients was looking to sell a property. And offered to introduce me to that broker, who was a very, very, very little known broker doesn't do barely any volume whatsoever. Then that's a whole other story, that first deal, but that I wrangled that thing down myself.

[00:17:37] Matt Picheny: The second deal that I got, so after I got that first deal in a nearby market, so I was looking in, that deal was technically in Lawrence, Kansas, which is about 30 45 minutes from Kansas City, but most of the brokers who were dealing in Lawrence are Kansas City based brokers. That's where I really wanted to be was Kansas City.

[00:17:55] Matt Picheny: After I closed on a 10 million, my first deal was that one was 10 million. After I closed on a 10 million deal, I [00:18:00] think the brokers in Kansas city were like, okay, well, if this Mack guy seems legit, I had met with most of them. Like, all right, he closed on a 10 million deal. He can close. And there was one particular broker there who was doing a large volume of transactions.

[00:18:16] Matt Picheny: At that point in time, I had bid on a number of those deals. I had made it into best and final in a number of those deals. And I got a call out of the blue one day from him because he had one of the properties I had bid on and that I was in best and final on had fallen out of contract. And that's another whole long story, but basically, because of my relationship that I had built with this guy over time, and I had closed another deal, and these other people who were bidding on the deal, maybe I was a little more experienced than them, I was able to get that deal across the finish line, and I had some, I put in some aggressive terms, and you know, there's a lot more to it.

[00:18:56] Matt Picheny: But, you know, I mean, did that broker help me maybe kind of a [00:19:00] little bit steered me in the right day, but I never had a broker sort of take me under their wings and kind of, you know, 

[00:19:06] Randal McLeaird: like, Hey, let's get you a deal to think early on. Cause that doesn't once you're in it, it doesn't, you don't necessarily need that.

[00:19:12] Randal McLeaird: I just wasn't sure on that part of your story. If you know, you're going through those conversations, kind of bumbling through the first few, and then you're getting better on your own. And then finally you're like, Hey, I know what I'm talking about. We're at the point of underwritten enough deals. By 

[00:19:23] Matt Picheny: the time I got to Kansas city.

[00:19:25] Matt Picheny: So I'm sure I made a complete fool of myself in Ohio with a few brokers and property managers that I met with. I'm like, I'm a hundred percent certain that I did. I was living in Miami at the time. Once I started meeting with the brokers in Orlando, I think I was kind of okay ish. That ramen story was in Orlando at the earlier parts of me meeting with the brokers.

[00:19:45] Matt Picheny: And then. By the time I was looking at deals in Kansas City, I had a lot of confidence because I had underwritten a bunch of deals. I had met with a bunch of brokers. So I had, you know, I felt comfortable in my own shoes at that point. 

[00:19:56] Randal McLeaird: All right, we're on number two. And if, are we at the point [00:20:00] now we're in the, in the P5, are you teaching people to talk to brokers at this point?

[00:20:05] Randal McLeaird: Because I have another question about brokers, because if you have, if you have two, Tips again early on if you're out there. What are some of the tips that you have for talking to brokers? 

[00:20:14] Matt Picheny: Yeah, so well in pillar number two, we're just talking about the structure. 

[00:20:18] Randal McLeaird: That's right. 

[00:20:18] Matt Picheny: Things are gonna be structured.

[00:20:20] Randal McLeaird: Yeah 

[00:20:20] Matt Picheny: When we start talking about brokers, that's in the next pillar, right? Which is pillar three. So pillar number three is market mastery. Okay, how do you become a master of your chosen market? I just made a video But it will be on youtube in a few weeks We're editing it right now But it's the top 10 mistakes that I see people making the top 10 biggest mistakes that I see people Who want to get in a multi family syndication as a sponsor like the mistakes that they make and the first one number one Is looking for deals in too many markets I see people who are going in, I know that sounds funny because I just mentioned a bunch of markets, but I was focused on Ohio.

[00:20:59] Matt Picheny: Then I was [00:21:00] focused on Florida. Then I got focused on Kansas city and this was over a period of just about two years. I want all my students to focus on one market. I see people out there. They're looking at deals in 10 different markets and they're like, I can't find any deals that make sense. And I'm like, yeah, of course not.

[00:21:15] Matt Picheny: Because you just have very rudimentary knowledge of a market. You don't know how that market works. You don't know where the path of progress is, the good part of town, the bad part of town, so there's no way for you to gain any sort of competitive advantage. I can underwrite the deal as well as you can, and I don't even know the market.

[00:21:33] Matt Picheny: That's a problem. So, market mastery is really important. There's a Shakespeare quote that I love, which is, Jack of all trades, master of none. Right? So, we work with people making sure they focus on one market only. Now, If it happens the way that I did, that market's not working out for you for one reason or another, you switch to another market.

[00:21:53] Matt Picheny: Eventually, if you're successful in one market, you can expand. But focus on one market and then, you know, really understanding that [00:22:00] market, the sub markets. We talk about the different metrics that you want to look for in a market. And then we talk about what you were just going to ask, Randall, uh, what you just asked about, which was about meeting what, what I call all the key players in a market, which is the brokers, the property managers.

[00:22:17] Matt Picheny: And the other property owners. I'm, you know, GP and I've been a GP and over 4500 units at this point, and I have never gotten a deal by finding a property online or being on a broker's email list and putting in the best and highest offer. I've never gotten a deal that way. I mean, I just told you the first two stories being introduced by a property manager or, you know, by a deal falling out of contract, right?

[00:22:43] Matt Picheny: There's always been some like unique circumstance that has allowed me to get what I consider very good deals and give able to give good returns to our investors. So developing those relationships with those people is paramount. I mean, we've gotten off [00:23:00] market deals by having relationships with property owners, you know, so we get access to deals before they go out to the general public, not even the general public, to a broker's buying list, because we have a relationship with that broker.

[00:23:14] Matt Picheny: You know, we are able to do that through cultivating those relationships. And so that's all in what I consider market mastery. 

[00:23:22] Randal McLeaird: Okay. So that's the third. And let's dive into this just a little bit because one, the top 10, this will come out, I'm sure after you post that. So we're going to link to that in the show notes.

[00:23:30] Randal McLeaird: Once we have a copy of your link to get to the top 10 mistakes, if that's all right. 

[00:23:33] Matt Picheny: Yeah. Yeah, for sure. Just check out my YouTube channel, but yeah. 

[00:23:37] Randal McLeaird: Okay. So then when you're going through one, I would say, how do you pick a market? What is your recommendation when you're going through to pick a market? And again, this is kind of high level, right?

[00:23:46] Randal McLeaird: Let's keep it high level. Are you talking to a student and you say, okay, you're in San Antonio, Randall, you should just stay in San Antonio, like pick that market. Or do you go through and you say, I like the beach, let's go find a beach. Like what, what is it that you go through to find the [00:24:00] market? Well, I want to give away my secret sauce, Randall.

[00:24:02] Randal McLeaird: I mean, this is, this is the high level, super high level to get them in the door. 

[00:24:08] Matt Picheny: I think if you live in a market where you can go ahead and, you know, find something great in your backyard, so to speak, you should do it. Right. You have nothing to lose and everything to gain. I live in Brooklyn, New York. I cannot find any deals around here that pencil out.

[00:24:27] Matt Picheny: Um, if anyone's listening to this podcast and has a deal in, in the New York City area that pencils out, you're looking for a partner, give me a call. But I can't, I can't. And I would love to, Not have to get on an airplane to go visit my properties, but that's just not, not the facts of what, what is going on here because I'm looking for properties that have good cashflow.

[00:24:47] Matt Picheny: So there's going to be inherently be certain markets that just won't work. New York city being one of them, most of the Northeast, although there are pockets of the Northeast that do work. Most of the West coast, like [00:25:00] California, for example, you know, Washington, Oregon tend to not work. It doesn't mean that there's not anomalies.

[00:25:05] Matt Picheny: It doesn't mean you can't find deals there. But for the type of things that I look for, which are cash flowing properties where we can add value, I'm just not finding deals in some areas. So that's part of looking at sort of the metrics, understanding the deals, understanding what's going on in that market, understanding the amount of risk that's happening in that market.

[00:25:29] Matt Picheny: Those are all different factors that we look at, but there are other sort of I would call soft factors that someone can look at and those are things like, okay, so if you have to go out of your own backyard, how are you going to get to where you're going? And like, if you have to take a plane, are there direct flights and how many direct flights are there every day and across how many different carriers?

[00:25:56] Matt Picheny: Cause if. I don't know. I'm going to pick on Delta. I love Delta, but I'm going to [00:26:00] pick on Delta Delta for some reason, their system goes down and you need to get to your property. Like, are you going to be able to get another carrier to take you out there? So you want to find a place that is going to be somewhere that you can travel to, you know, with the least amount of friction, then you're also going to want to find a place where like you want to go.

[00:26:19] Randal McLeaird: Like I, that's why I'm asking to 

[00:26:22] Matt Picheny: Kansas City. I have deals in Kansas City. I love Kansas City. I've met. So many people in Kansas City. I just, I love the people there and I love the barbecue there, by the way, I think it's the best barbecue around, but you know, I'm sure some people would disagree with that, but like, you know, it's, um, you know, you want to go somewhere where you're gonna, you're going to actually want to be, cause you're going to be visiting that property.

[00:26:46] Matt Picheny: So those were some of the soft factors that you're going to think about. When I started doing this, let's talk about the places that I was looking at. Right. I told you I was looking in Ohio. I was looking in the Akron area. Why? Well, my cousin lives there. Okay. And my aunt and uncle lived [00:27:00] there and I had some other cousins that are there.

[00:27:01] Matt Picheny: So I had family there and I knew the area and I felt comfortable and I had done some real estate deals there too. And so. That was comfortable for me. I was living in Miami at the time, but I was not comfortable with the risk in Miami. In hindsight. Now, heck, I should have bought tons of property then, but the numbers were just didn't make.

[00:27:20] Matt Picheny: I was like, wow, this is really speculative. I think it was speculative. Turned out the speculators. Probably have done very, very well for themselves, but I wasn't comfortable with that level of risk, but I did like Florida as a whole. And I was looking, you know, between Tampa and basically like Daytona central Florida, which is where I grew up and where my parents, my mom still lives there is where my parents were living at the time, and I knew it extremely well, having grown up there and going back to visit.

[00:27:47] Matt Picheny: So, you know, very often. So then I chose Kansas city. And that's a really funny story. When I used to be an actor, I actually got cast to do [00:28:00] a summer of shows in Kansas city. And I was like in my twenties and not really, you know, a bit naive about the cultural geography of the Midwest. And I assumed I was going to be like, you know, sitting around in a cornfield, you know, talking, because I did summer stock.

[00:28:16] Matt Picheny: In Indiana before, and that's kind of like what it was like. So 

[00:28:20] Randal McLeaird:

[00:28:21] Matt Picheny: get to Kansas city and yeah, I mean, I was like, wow, like there's an old show tune, everything's up to date in Kansas city. And that's true. Like it was a really great metropolitan town. It was awesome. Had a great nightlife. I had like one of the best summers of my life there.

[00:28:37] Matt Picheny: So I've had like a soft spot in my heart for Kansas city ever since, since I had misjudged it so poorly. And one of my best friends, my college roommate guy was like in my wedding. I'm very, very still very, very close with him. He had moved to Kansas City at the time with his family. So, it's like, all right, I can go to this city that I love and, you [00:29:00] know, I Hang out with my buddy, you know, and I have been started looking at some deals there and they seem to be penciling out, right?

[00:29:07] Matt Picheny: So that's why I chose that. So, so you can see all the markets that I chose were based on something other than the market being strong. And they are good markets too. They had the right fundamentals. But you can almost find, you could find a good deal in almost any market. I mean, there are people doing deals in New York city.

[00:29:26] Randal McLeaird: Yeah. I mean, it depends on the strategy and what you're working on working toward. But again, I just want to touch on briefly, there's a ton of. Rationale to go into macro microeconomics and dig deep and spend all this time looking at the tea leaves and what's going to happen. And yet you just kind of went through a process.

[00:29:43] Randal McLeaird: That is very similar to what the way I would look at something. I look at temple because my sister lives up there. So I can go look at those assets up in temple. Right? And that's in Texas, but I just want to get that out because you don't have a ton of analysis on the area. You know, I mean, 

[00:29:58] Matt Picheny: I agree. One of [00:30:00] my first students was a guy who was a data analyst.

[00:30:03] Matt Picheny: For a tech company, he lived out on the West coast and like, he was like a, like a spreadsheet. I hope he doesn't take this the wrong way. If he's a nerd, kind of a nerd, kind of like a nerd, right. He just was really into data and he spent all this time creating this really complex spreadsheet, blah, blah, blah, blah, blah, blah, blah.

[00:30:24] Matt Picheny: You know, looking at all these data points. And came up with like the 10 most competitive, I mean, like, yes, he was right. Those 10 markets were the fastest growing, had the strongest demographics, but he wasn't the only one looking at that data. First off, secondly, I could have told him right off the bat what they were without needing to do the cuts to the numbers.

[00:30:45] Matt Picheny: But also, like, Why are you going to go into those markets? Like maybe you are, but like, those are the most competitive. Those are going to be the hardest ones to find a deal in. So do you necessarily want to go into the thing that's going to have the highest amount of competition? I mean, [00:31:00] maybe you do, but there are other ways, like you're saying.

[00:31:04] Randal McLeaird: Yeah, for sure. And that's why I thought it would be important just to kind of ask you how you go about it with your students, what you're what you're talking about. All right. So, let me ask you that still on to just because or sorry, 3, just because I think it's an interesting topic once you establish and you say, okay, I want to be in, you know, I want to be in Kansas City.

[00:31:20] Randal McLeaird: What are one or two of your, like, go to tricks that help you meet the brokers and get to know them? Are you just showing up at events? Are you showing up? Are you doing tours? What is it that you're doing? And then the same thing with the property owners. You mentioned that you meet the property owners. So that's something that I hadn't thought through, right?

[00:31:39] Randal McLeaird: Just going around meeting all the properties. I've met a lot of them through just, you know, being out looking at property, talking to brokers, that sort of thing. But Other specific things that you teach or that you would recommend someone do. Yeah. I mean, 

[00:31:49] Matt Picheny: I think it's just all, it all rolls into good old fashioned networking, Randall, you know, going to different events and things like that.

[00:31:55] Matt Picheny: Or, you know, one of the things I do now is like, I [00:32:00] speak at events. So I get to meet a lot of people through that. I'm going to Kansas city in October for their, they have a cashflow. Summit, and I'm sure I'll meet a ton of people through that. But when you're starting off Yeah, like speak at things, uh uh.

[00:32:12] Matt Picheny: Or maybe they do, I don't know. Yeah. But what you could do is you could start your own thing and then you can speak at that, right? You could start your own thing. You could start your own meetup, your own conference, your own whatever it is. And that can help you meet a lot of people. 

[00:32:27] Randal McLeaird: Okay. Alright. That's a good tip.

[00:32:28] Randal McLeaird: So. We're on number three, market mastery, all right, we got our market, we know what we're going to buy, we're going out, we're meeting all the players, we've talked to property management, we've done all of our things, what are we moving on to now? 

[00:32:40] Matt Picheny: Well, so we've gone out, we've met everybody, and hopefully we're getting deal flow in, right?

[00:32:45] Matt Picheny: So that's why pillar number four is deal analysis. 

[00:32:48] Randal McLeaird: And 

[00:32:50] Matt Picheny: so, you know, look, I teach underwriting. I've got my own proprietary spreadsheet. That's taking me years to develop. And I teach people like literally sell by sell, you know, how to go through it. [00:33:00] But it really comes down to this. There's underwriting, but that's not what the name of this pillar is.

[00:33:05] Matt Picheny: The name of this pillar is deal analysis, which I think is different. All right. I take a holistic approach when I'm looking at a deal. So I'm getting things like the T12. Right, which is the trailing 12 months of profit and loss statements and taking a look at exactly what's going on with that property.

[00:33:22] Matt Picheny: How are they operating it? How can we do things more efficiently? I'm looking at the rent roll to understand truly what's going on. What's truly achievable. What's really happening. There's a lot of things kind of behind the scenes that you can figure out by looking at that T12 and rent roll could be extremely revealing.

[00:33:39] Matt Picheny: I also apply my market mastery, right? My knowledge, my expert knowledge of the market now, and I'll pull in third party reports from places like CoStar or Yardi. And so I'll use all those different inputs to form my assumptions for my business plan. And then I plug that into my underwriting. And that's what allows me to come [00:34:00] up with an offering price that's going to make the deal a home run for me and my investors.

[00:34:06] Randal McLeaird: Yeah. What are like, I don't know if you can distill it down to one, two, what are some of the biggest red flags when you're running through your deal analysis? Like is there one from the trailing from the T12 and you're like, Oh, if I see this, I That's a problem or something. 

[00:34:20] Matt Picheny: No, I don't. I'm trying to think right now because no one's ever asked me that question before, but there's no, there's not really anything that I can look at really quick on a T 12 and be like, Oh my gosh, I'm going to run for the hills.

[00:34:35] Matt Picheny: I always get to a point on every single deal where I can make an off always on every deal. Now that offer might be very, very, you know, it might be half of the price of what the, the broker's looking for, but that's kind of what I do is I'm like, all right, if I look at this deal and I analyze it and I put everything where, where it should be, then, you know, [00:35:00] I can figure it out.

[00:35:01] Matt Picheny: For example, you know, broker might be telling you that, you know, you can get 2, 000 a month for rent on the property, but from my market knowledge, that seems highly. Unlikely, and then I'm looking at the rent roll and the only thing they've ever rented these units out, you know, they have renovated units that they're renting out for 1200 and I'm like, yeah, I'm never going to get 2000.

[00:35:20] Matt Picheny: Right? So don't run away from it. I just know. Okay. Well, I got to underwrite for like 1200 or maybe 1400, but I'm never going to get to 2000, right? Based on the information that I, that I know about the market based on the 3rd party data. You know, all of that stuff. And I just, I put it all in, I bake it all together.

[00:35:38] Matt Picheny: And then I come up with a number. And sometimes that number is right around what they're looking for. Sometimes it's, it's off, you know? 

[00:35:45] Randal McLeaird: So when you're going through and looking at this, and we may get to this on the next one, but going through the deal analysis, part of that is return profile, return metrics that you're trying to hit with for yourself and for investors that you may have coming along with you.

[00:35:55] Randal McLeaird: So when you're going through, and obviously your offer price is predicated [00:36:00] on what those hitting those returns, right? You're not going to offer something that's going to be. Not hitting your target. So. If not in this bullet point, maybe in the next one, but what kind of returns are you looking for for deals that you are looking to buy?

[00:36:14] Matt Picheny: So you're right. We have to make sure that we're going to get the returns for the investors or we're never going to be able to do the deal. Yeah. So that, and so we have to adjust the purchase price. So there's, there are things that we could adjust like our fee as a sponsor. We can adjust that sometimes now, but, but the best deal I ever did was a deal where we brought our feet down a little bit, it was a big deal.

[00:36:38] Matt Picheny: And I was like, all right, we take a shave, a couple of, it was like, we can either fudge on like the numbers on rent growth or something like that. And be disingenuous to ourselves and our investors probably not be able to hit those numbers and look like idiots. And not be good stewards of our investors capital.

[00:36:55] Matt Picheny: Or another way we can hit the number that we know we need to get this deal is what if we take a couple of [00:37:00] percentage points less. on our carried interest, 

[00:37:02] Randal McLeaird: which we 

[00:37:03] Matt Picheny: did. That's the best deal I ever did. Doubled investor's money in two years. It was a, it was a nice one. But what I'm looking for is I want to have some sort of cash on cash component while we're holding onto the property.

[00:37:16] Matt Picheny: That can vary. And there's things that you could do, like have a preferred return, which would help boost that up, you know, we look to, you know, essentially double investors money in about five to seven years, but ultimately what it comes down to is the IRR, you know, as an investor, myself, a passive investor in a lot of deals.

[00:37:36] Matt Picheny: The most important thing to me is the IRR, which is just for the, I know you know this Randall, but for anyone who's listening and doesn't know the IRR, that's the internal rate of return. So what it does is it takes into account the time value of money. So if you have a deal that doubles, you know, you put 100, 000 in a deal and five years from now you get 200, 000.

[00:37:56] Matt Picheny: That's great. You doubled your money, but you didn't get anything in [00:38:00] between. You didn't get anything until you got the 200, 000. That's going to have one rate of return. You're going to have one with a higher rate of return. If let's say you got 20, 000 every year for four years. So that's 80, 000. You got to check for 120 at the end.

[00:38:15] Matt Picheny: That's going to have a higher rate of return because you're getting more money back faster. So we look for IRRs, even though we have deals that will do essentially 20 percent annualized return. If you double your money in five years, But that IRR is different. We, we, our IRRs are usually somewhere between 13 to 16 percent on our proforma.

[00:38:35] Matt Picheny: And I'm, I'm very happy to say that the vast, vast majority of cases, we do much better than that. But that's what we look for is a 13 to 16 percent IRR. 

[00:38:44] Randal McLeaird: Got it. Okay. Yeah. That's what I was driving at. Kind of curious when you're looking at them and that's, is that net to investor type of? Yes, net to, 

[00:38:51] Matt Picheny: correct.

[00:38:52] Matt Picheny: Net to investor. 

[00:38:53] Randal McLeaird: Yeah. So again, I want to finish the five Ps. But. Are you seeing those deals right now? Are you transacting deals right now that are hitting those [00:39:00] numbers? And are you finding a lot in the market coming back or you're starting to come onto, 

[00:39:06] Matt Picheny: I mean, we could have a whole other discussion about the market where I think things are, where they're going, which is all, I think, moving in a slow but positive direction.

[00:39:16] Matt Picheny: What I will say is I'm very pragmatic in my approach and so I have always only done about 1 to 2 deals. I have 1 year where I did 3 deals in a year, but I, you, and that's because, like, we closed on 1 in early January that, but I am always taking a slow approach to the market. I think there's been a chasm between where, you know, sellers expectations and what buyers can pay, especially with this run up in interest rates that we've had, but I'm seeing that gap tighten up and at the time of recording this on August 1st of 2024, you know, Jerome Powell just made statements yesterday saying that, you know, You know, rates are remaining steady, but he's saying that, um, you know, signaling that there's probably going to be a reduction in September.

[00:39:59] Matt Picheny: I think the word [00:40:00] on the street is three reductions before the end of the year. I don't know that I'd buy that by the way. I think maybe two, but maybe three. And I think we just have to see where the data, you know, comes in. There's also been, you know, the Q2 report is out from RealPage and there has been significant demand growth.

[00:40:22] Matt Picheny: In specific markets. That is like kind of off the charts. And so, you know, there's a lot of inventory coming online and will be coming online for the next, like 12 to 18 months, which has been hampering rent growth. However, seeing this, you know, really, really strong demand is like, Oh, okay. Well, maybe we're going to normalize sooner.

[00:40:44] Matt Picheny: I don't know. And then, you know, the prognosis for like 2026 and beyond is like rent growth really going up because all these new construction has basically halted. Yeah. And then when are they going to start again? And meanwhile, you know, there's demand. And so, you know, there's going to be a [00:41:00] supply demand imbalance.

[00:41:02] Matt Picheny: So, I think the prognosis looks really good, but, you know, everything incrementally, you know, are interest rates going to go down? Yeah, but like, they're already like, really, really, really high. So, even if there are 3 rate reductions. And even if they do, you know, a quarter of a point, you're still talking about only a 75 basis point production, which still, you know, it's, there's a ways to go.

[00:41:25] Matt Picheny: So we'll, we'll have to see, I think things will improve incrementally. 

[00:41:29] Randal McLeaird: Are you trying to find another deal this year? Do you already buy one? Are you targeting still one position? Well, 

[00:41:35] Matt Picheny: I'm never, I'm never like, oh, I'm only going, I have to do one or two. I can only do one deal this year. must do free. I'm never like that.

[00:41:43] Matt Picheny: I'm always looking at what's out there in the market, trying to find good opportunities. Heck, I mean, if I had a year where I found 10 amazing opportunities in a row, maybe I would do all 10. I don't know. I've never been presented with that, but I mean, I think it's, I [00:42:00] haven't. So we're working on a, on a new construction deal right now, but beyond that, I'm sure there'll be something else coming down the pike.

[00:42:08] Randal McLeaird: That's a Canadian one. 

[00:42:09] Matt Picheny: Yeah. 

[00:42:10] Randal McLeaird: Yeah. Very curious about that. Well, we can talk about it another time. I want to get to the fifth P right? Okay. So we're, we're here, we've gone, we have deal analysis. We've got deal flow coming in. We understand how to underwrite. We've got our financials, we, now what? Now where are we?

[00:42:23] Matt Picheny: Pillar five is called selling your story, okay? And it's really about communicating with the world who you are, what you're about, and your deal, right? You're going to need capital to get your deal across the finish line. Unless you're independently wealthy and you need to be able to communicate with people on what that deal is.

[00:42:44] Matt Picheny: So, you know, we talk about things about how to, where to go to find investors, how to meet investors, how to keep in contact with investors, keep them engaged so that you're top of mind through things like social media, through email, so that [00:43:00] when you do have an opportunity, You know, they're receptive and, you know, show people how I put my deals.

[00:43:06] Matt Picheny: See, I have a specific formula that I use for my deals. I, my investor presentations, I should show people how to do that. Also go into some things like using technology, for instance, you haven't gotten it to the point where I just press a button and money magically appears in the bank account, but I have gotten it to a point where I can do things through automation that I used to have to do manually, which is great.

[00:43:29] Randal McLeaird: Okay. Can you give me an example? 

[00:43:31] Matt Picheny: Sure. Like, I mean, something as simple as an onboarding sequence. Right. When somebody's first coming in a new investor and doing like a, you know, email warmup sequence kind of thing. Or I think Russell Brunson calls it a soap opera sequence. Right. Certain to do, to do things when people are interested in deals.

[00:43:48] Matt Picheny: Uh, when I send them out to gauge their interest and keep it all organized, you know, there's a lot of different things that can go on. And I mean, I used to have to like manually do things in spreadsheets and I can use a CRM system to do all that stuff. And [00:44:00] then the other thing is like. Right. You know, using that brand that you create to expand your network and foster new relationships so that you can build your business beyond just that first deal, right?

[00:44:12] Matt Picheny: And so that's what selling your story is really all about. 

[00:44:15] Randal McLeaird: Yeah. Awesome. I mean, I think that that is a. Thorough approach to learning the business. And that's fantastic. I do want to ask like right now, raising capital then, since that's kind of the last telling your story, going out, raising capital, you have a new student come in and they find a deal they're looking, what are you telling them?

[00:44:33] Randal McLeaird: Here's your starting from scratch. Maybe they don't have the whole backend system set up, but they have a small group of people that can go talk to you. Like, what is it that you would recommend that they do in order to go start raising money? Right now in today's environment, you know, 

[00:44:48] Matt Picheny: I mean, I recommend a bunch of different approaches and what I really think is, you know, when we're looking at the P5 syndication method, the first three can get done in about the first 90 days, usually [00:45:00] less, and then you're spending the rest of your time really in pillars, four and five, right.

[00:45:05] Matt Picheny: Looking at deals, analyzing deals and simultaneously building your investor database. So that when you do have the right opportunity, you have investors that you can go to, to marry those. And, you know, there's many different ways, but it really comes down to communicating with people, right? If you've got your own people who you think you could go to, start telling them about what you're doing, what you're thinking about, talk to them about hypothetical deals.

[00:45:32] Matt Picheny: You know, I onboard most of my investors when I don't have a deal. Now, if I'm doing a 506B, that's also really good because you need to, to be compliant with the 506B, have a preexisting substantive relationship. But it's not like I do it on purpose. It's just, that's kind of what happens is like most of the people that I, that I'm bringing in, I'm bringing them in, you know, onboard one or two investors this week and then next week, right.

[00:45:56] Matt Picheny: From like different sources. And I get a chance to talk [00:46:00] with them. About who I am and what I do, what they're interested in, what their risk tolerance is, what their experience has been, what their goals are to really understand who they are, if they're the right fit for my type of opportunities. And then, if they are, I can let them know about them when they come up and they're not under, like, the pressure to make a decision.

[00:46:24] Matt Picheny: Right, then it's like they can kind of get comfortable with the idea. So that's why I say, if you're somebody and you have people that you think you could go to invest in these deals, why not talk about them about it conceptually now, see if they're bought in on the concept of it. So, then, when you do have an opportunity that you bring to them, they're already kind of understand how it works and kind of the framework and I've already wrapped their head around it.

[00:46:49] Matt Picheny: Instead of them trying to wrap their head around this concept for the first time, when there's a deal on the line and the clock that's ticking. 

[00:46:55] Randal McLeaird: Yeah, yeah, that's great advice. Matt, ton of great information. I really appreciate you going [00:47:00] through, walking through that process. I recommend, I know you have offerings that you guys have as they come up.

[00:47:05] Randal McLeaird: And so if you're looking to get into multifamily investing or investing in general, I would highly recommend reaching out to Matt and his team. I'm going to leave a contact, a link for that in the show notes. If you guys want to reach out. And it's 

[00:47:17] Matt Picheny: super easy. It's just, my last name is pacheni. com. P I C H E N Y.

[00:47:21] Matt Picheny: com. 

[00:47:22] Randal McLeaird: Perfect. Love it. Thanks for jumping on and sharing your knowledge information. Catch 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.

[00:47:39] Randal McLeaird: So if you haven't done that, go ahead and do it now. We'll catch you on the next episode

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